TaxTMI 
TaxTMI 
2020 (3) TMI 115
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....plain the abrupt fall in net profit rate.. 4. On the facts and circumstances of the case, the CIT(A) has erred in deleting the addition of Rs. 56,81,31,074/- on the ground of non-following of principle of natural justice, when it has co-terminus power as of A.O. 5. On the facts and circumstances of the case whether the CIT(A) has justified in holding that the 'additional income' of Rs. 34,50,00,000/- surrendered by the assessee during search can be included in regular P & L account of the assessee." 2. Briefly the facts of the case are that search and seizure operation under section 132 of the Income Tax Act was carried out on M/s Jaipuria group (R.K. Jaipuria Group) of cases on 27.03.2012. Warrant of authorization under section 132 of the I.T. Act, 1961 was also issued in the name of the assessee. Notice under section 142(1) of Income Tax Act, 1961 was issued to the assessee to file the return for the A.Y. 2012-13 under appeal. In response thereto, assessee filed the return of income on 22.01.2014 declaring loss at Rs. 24.06 crores. The A.O. required the assessee to file necessary details and to produce the books of accounts. The A.O, however, noted that there was no ....
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....along with details. The assessee filed reply stating therein that cash transactions amounting to Rs. 21.31 crores as per Annexure-A1 have not taken place, but, due to buy peace of mind, surrender was made at the time of search. The A.O. noted that assessee has nothing substantial in his possession to explain the transaction and did not produce the books of accounts. Therefore, the assessee has no explanation. The A.O. also noted that during the post-search proceedings, the assessee has surrendered an amount of Rs. 3 crores on account of the above discrepancies and filed the documents. The A.O, however, noted that findings of the Investigation Wing regarding construction expenses as per Annexure-A2 in respect of which Rs. 4.50 crores was surrendered. It was submitted that assessee paid Rs. 4.5 crores to M/s. Rockard Infrastructure P. Ltd., and balance of Rs. 5 crores is only contra entry. The A.O. noted that no compliance was made by M/s. Rockard Infrastructure P. Ltd., in response to the summons. The A.O. noted further facts with regard to the findings given at the assessment stage. Shri R.K. Jaipuria was asked to appear personally and to produce the books of account. Shri R.K. Jai....
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..... has not detected any defect in the documents and details provided at assessment stage. No incriminating material was found during the course of search. The addition was made merely on account of decline in the N.P. rate which cannot be static each and every year and the books of account are audited and supported by documentary evidences. The A.O. has not rejected the books of account till passing of the assessment order. No basis have been shown for rejecting the books of account. All the expenses are recorded in the books of account which were subjected to verification before A.O. The Auditor has not given any adverse report against the assessee. The financial cost of the assessee has increased in assessment year as compared to earlier years, the details of the same are noted in the impugned order. The assessee, therefore, pleaded that there was no justification to apply higher N.P. rate to make the addition of Rs. 56.81 crores against the assessee. The assessee made further submissions with regard to rejection of books of account which are noted in the appellate order. The Ld. CIT(A) considering the material on record and by calling the remand report from the A.O. found that ....
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....sment order. 4.1.5. It was noted that the AO had called for various details which have not been submitted in time by the appellant. However, it was also observed that apart from calling for various details, the AO had not given any show cause notice to the appellant about the proposed action of estimating the net profit at the rate of 4.57% of the gross turnover, which has resulted in a huge addition of Rs. 56.81 crores. In the Questionnaire issued to the appellant, the AO had asked for providing certain ratios such as GP, NP ratios, but there was no correspondence with the assessee indicating that he would be estimating the net profit at such and such percentage which would result in such and such addition. There is no requirement under the law that the trading results should be constant or should keep going up always even if there are valid reasons for the same to vary. The AO has not given adequate opportunity to the appellant to clarify on the adverse inferences which he was going to draw based on non-submission of details in time. In the given circumstances, AO should have given out some indication to the appellant to allow them to explain their side of the story especially ....
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....he given circumstances, I am of the view that AO should have given out some indication to the appellant to allow them top explain their side of the story especially since the issue involves huge addition of Rs. 56.81 crores. In this background, the explanations given during the appeal proceedings in the form of written submission are hereby admitted as additional evidence under Rule 46A(l)(d) of Income Tax rules, 1962. The AO is hereby required to examine the explanations and submit his comments/ report on the same. The AO may call for any further information, books of account and other details and examine the same before sending his report. Further during the appeal proceedings, it has been submitted that the appellant has only paid Rs. 4.5 crores to M/s Rockhard Infrastructure Pvt. Ltd. and not Rs. 9 crores as stated in the assessment order. The AO is requested to examine the seized documents and also the explanation of the AR on this issue and submitted the correct details of the amount paid by appellant to M/s Rockhard Infrastructure Pvt. Ltd. " Brief facts of the case: Search and Seizure operation u/s 132 of Income Tax Act 1961 was carried out on Jaipuria group (M/s Varu....
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....hard Infrastructure Pvt. Ltd. outling the terms & conditions of the work to be executed, the payments to be made, and copy of bills in support of your transactions with M/s Rockhard Infrastructure Pvt. Ltd. ii. Please furnish the detail nature of transaction made between M/s Varun Beverages Ltd. to Rockhard Infrastructure Pvt. Ltd. iii. Please also produce the principal officer of M/s Rockhard Infrastructure Pvt. Ltd. In respect of the summons u/s. 131 issued by the A.O. the assessee company has filed reply on 07.02.2014 along with the relevant documents i.e., purchase order, bank statements evidencing payments, ledger accounts and bills raised by M/s Rockhard Infrastructure Pvt. Ltd. " Further, it is pertinent to mention here that statement of Sh. Ravi Kant Jaipuria was also recorded on oath during the course of assessment proceedings. The relevant part of the said statement is reproduced below :- " Ques. No. 8. What was the total amount of transaction involved? Also state that amount paid by M/s Varun Beverages Ltd. to M/s Rockhard Infrastructure (P) Ltd. Ans: The total paid against contract to M/s Rockhard Infrastructure (P) Ltd. during F Y 2011-12 by M/s Varun Bever....
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....as required in questionnaire as 23.10.2013 would be filed meaning thereby the details had not been produced. Further, the assessee has also stated that there was no occasion to reject the books of account. So, the issue of rejection of the books of account was duly confronted by the Assessee. So, it is clear from the records and the discussion in the Assessment order that the assessee was given adequate opportunity to present his case. Keeping in view the above facts, the additions made by the AO are reasonable and may kindly be confirmed. 4.1.7. In the background of the AO's remand report the basis for rejection for books of accounts does not survive. I agree with the comment of the JCIT in his forwarding letter to the extent that the AO had duly confronted the assessee with the proposal to reject the books of accounts. As noted earlier it was however incumbent upon the AO to have intimated the assessee about adopting particular rate of NP. The show cause issued as to why books of accounts should not be rejected. Does not disclosed the AO's intention of adopting a particular NP rate. In fact in the said letter AO has stated that he would be estimating the profits based on se....
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....r the Income Tax Act and profit be estimated on the basis of seized material and other relevant fact of the case." In this regard it is very humbly submitted that questionnaire dated 23.10.2013 was issued by your honour in the aforesaid case. In the aforesaid questionnaire, queries were raised as contained in 51 points. The reply to aforesaid queries required voluminous data to be processed and lot of documents to be compiled and in certain cases the matter pertains to records for more than 7 years old. The assessee company time and again has filed various details before your honour and letters dated 18.11.2012, 11.12.2012, 10.02.2014, 24.01.2014, 20.02.2014 have already been filed before your honour containing reply to most of the details required by your honour vide questionnaire dated 23.10.2013. The balance details are under compilation and shall be filed before your honour very shortly. In this regard it is further submitted that your honour in addition to the questionnaire dated 23.10.2013, has also issued Summons u/s 131 and notice u/s 142(1) and/or 133(6) of the Income Tax Act in various cases of the Ravi Kant Jaipuria Group and the necessary replies have been duly file....
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....asons for increase in depreciation claimed from Rs. 71.52 crore in A.Y. 2011-12 to Rs. 129.34 crore for A.Y. 2012- 13. (ii) Reasons for fall in NP ratio. The AO has accepted the claim of depreciation (as noted by him in the assessment order in the para just below point (h) on page 28, but did not accept the justification given by the appellant on fall in NP ratio. The relevant portion of appellant's submission in the said letter dated Nil submitted before Addl. CIT is reproduced below for ready reference : 2(i) On going through Profit & Loss Account, the ratio of net profit are as under :- Y.E. 31.03.2012 Y.E. 31.03.2011 Net profit 36,79,10,942 42,40,56,355 Turnover 13,46,86,49,804 10,71,13,17,456 % of Net Profit 2.73 3.96 During the year the Net Profit is less by 1% as compared to last year. (ii) The finance cost has incurred from Rs. 52.60 Crore to Rs. 79.53 Crore which is mainly on account of new expansions undertaken by the company and the comparative figures are as under :- Y.E. 31.03.2012 Y.E. 31.03.2011 Finance Cost 79,53,47,642 52,65,74,651 Turnover 13,46,86,49,804 10,71,13,17,456 % of Finance cost of sales 5.91 4.91....
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....ainly on account of new expansions undertaken by the company and the comparative figures are as under : Y.E. 31.03.2012 Y.E. 31.03.2011 Finance Cost 79,53,47,642 52,65,74,651 Turnover 13,46,86,49,804 10,71,13,17,456 % of finance cost of sales. 5.91. 4.91 Thus there is direct hike of 1% towards cost during year ended 31.03.2012. The fall in G.P. Ratio is attributable to the fact due to inflationary pressures and increase in international prices of certain items, the cost of raw material consumed has increased without a corresponding increase in selling price. Due to the above G.P. Ratio for Y.E. 31.03.2012 works out to 23.66% as against the comparable G.P. Ratio for Y.E. 31.03.2011 at 26.74%. The major increase in raw material cost has been suffered due to increase in price of PET RESIN which is used for manufacturing PET bottles in which the soft drinks is filled and also increase in prices of Mango Pulp which is used for manufacturing Soft Drink under the brand name 'Slice'. The necessary chart showing impact in cost of PVC Resin and Mango Pulp is enclosed herewith and the impact of increase in these 2 items only account for 2.55% fall in GP and the....
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....these submissions at all. AO has not issued any communication indicating the quantum of profit he was proposing to estimate. Hence, the AO's action in making huge addition on adhoc basis without even considering the justification/explanation given by the assessee during assessment proceeding cannot be sustained. In the remand proceedings AO has considered the written arguments filed during the appeal proceedings which also refer to all the letters mentioned in the previous paragraphs. In the remand report no specific contra arguments have been raised. No discrepancies have been noted in the books of accounts and bills and vouchers. In this background the AO's action in rejection of books of accounts and estimating the profit from the business at Rs. 56,81,31,074/- is hereby rejected. The addition of Rs. 56,81,31,074/- is deleted. The grounds on the issue are allowed to the extent as above." 4. The Ld. D.R. relied upon the Order of the A.O. and submitted that at the original assessment stage assessee has not produced books of account. There was a fall in N.P. rate in assessment year under appeal as compared to earlier year. Seized material was found during the course of search whic....
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....ain to the business only which is based on seized material found during the course of search as per Annexure-A1 referred to by the A.O. in the assessment order. The details like nature of transaction, observation and explanation of assessee was called for. The assessee filed explanation to some extent which have been accepted by the A.O. also. All the transactions are related to business of assessee which were on account of Annexure-A seized from Corporate Office of the assessee at Gurgaon containing notings made by the staff such as names, contract number, salary, in the matter of day-to-day working and payment made through banks etc. Since supporting documents could not be produced by the assessee, therefore, assessee agreed for the addition. Therefore, there was no justification for the A.O. to consider the additional income so surrendered as income from other sources because it was income relating to business only. Learned Counsel for the Assessee, therefore, submitted that since principles of natural justice have been violated at the original assessment stage and A.O. in the remand report confirmed the stand of the assessee, therefore, the Ld. CIT(A) on proper appreciation of ....
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....t the books of account under section 145(1) of the I.T. Act". 6.1. Considering the above, it is clear that even if on technical reasons books of account may be rejected because assessee surrendered additional income, but, there were no justification to apply higher N.P. rate for making further addition against the assessee. Whatever material was found during the course of search was considered in detail by the A.O. and assessee made surrender accordingly which is accepted by the A.O. Thus, there was no reason to make further addition against the assessee which was based on no material on record. The A.O. in the remand report accepted that no direction was given to assessee to produce the books of account and no explanation of assessee was called, for any discrepancy in the books of account during the statement recorded of the Director. The A.O, however, asked for production of the books of account by the assessee at the remand proceedings which have been verified and no defect whatsoever have been noted. It would clearly prove it is a case of violation of principles of natural justice because the A.O. without giving opportunity to the assessee and without any justification made th....