TaxTMI 
TaxTMI 
2020 (3) TMI 115
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....ause the assessee did not furnish any documentary evidence to explain 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 ....
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....same in the books of account. The assessee was directed to produce the books of account 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. Ja....
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....the assessee is reproduced in the appellate order in which the assessee briefly explained that A.O. 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....
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....submissions that the appellant had made certain submissions during the assessment proceedings which seems to have been not considered and in any case not cited in the assessment 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 no....
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....ays 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 inference which he was going to draw based on non-submission of details in time. In the 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 su....
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.... of Payment made to M/s Rockhard Infrastructure Pvt. Ltd.. The said summon only talks about certain specific details as mentioned below;- "1. Personal appearance along with the following information/documents regarding M/s Rockhard Infrastructure Pvt. Ltd : i. Please produce the agreement made with M/s Rockhard 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 pr....
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..... It is pertinent to mention here that vide letter F.No.ACIT/CC-12/13-14/551 dated 21.02.2014, the assessee was given an opportunity/required to show cause as why books of account should not be rejected under the income Tax Act and profit be estimated on the basis of seized material and other relevant fact of the case. The reply of the assessee is also on record dated wherein the assessee had admitted that the details 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 ha....
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....02.2014 wherein your honour has observed as under :- "Please refer to the search & seizure assessment proceedings u/s 153A in your case. On perusal of seized and evidences collected during the search, a questionnaire dated 23.10.2013 was issued to you. But till date you have only furnish party details. Despite the various opportunities given to you, you have not submitted the complete details. In view of the above, you are required to show cause as to why your books of account should not be rejected under 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,....
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....edings. 4.1.11. In the above letter, it has been further submitted that books of accounts have been duly audited and Auditors have not given any negative remark which warranted rejection of books of accounts. The AO has not made any mention about the above referred letter of 03/03/2014. 4.1.12. A.O. has also not considered (and also not mentioned in the order) the appellant's another letter filed on 26/03/2014 addressed to the AO but supposed to have been filed before Addl. CIT on 26/03/2014. In the said letter, the appellant has made submissions on two issues, namely (i) reasons 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 unde....
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....ring i.e. 31.03.2012 as compared to i.e. 31.03.2011. In this regard it is very humbly submitted that the reason for fall in Net Profit Ratio during the i.e. 31.03.2012 is as under :- Y.E. 31.03.2012 Net Profit as per Profit & Loss A/c 367910942 Less: Additional Income declared at the time of Search 345000000 Adjusted Net Profit 22910942 Adjusted Net Profit Ratio for Financial Year 2011-12 0.17% Add: Increase in Finance Cost 1.00% Add: Fall in GP Ratio 3.08% 4.25% Less: Decrease in Depreciation (-)0.04% Less: Decrease in Other Expenses (-)0.25% Net Profit Ratio in Y.E. 31.03.2011 3.96% The finance cost has increase 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 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 fa....
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....r the increase in cost of major raw materials (PET Resin & Mango pulp) has been shown to be responsible for fall in GP by 2.55%. Thus if one takes into account these facts the fall in GP stands explained. No doubt, the appellant has attempted to cover up the fall in NP by crediting the undisclosed income to P&L account. However, crediting undisclosed income to P&L account does not resulting neutralizing the surrender itself as filed and expressed by the AO in the order. Further there is no requirement under law that there could be no decrease in profits. It is acceptable as long as it is justifiable with facts and figures. 4.1.18. Even though the justification has been filed before the AO & Addl. CIT, it is evident that the AO has not considered any of the above, relevant details before estimating Net Profit. He has not dealt with 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....
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....so accepted the fact that assessee produced the books of account along with necessary documents which have been verified by the A.O. The fall in N.P. rate was on account of increase in financial costs for new expansion and cost of material which is accepted by the Ld. CIT(A) based on the material on record. The assessee explained before the A.O. at the remand proceedings also that there was increase in price of raw material such as Pet, Resin and Mango Pulp etc. Therefore, there was no basis for the A.O. to make any addition. The A.O. verified all these facts and did not find any false explanation of assessee. Learned Counsel for the Assessee referred to PB-32 which is P & L A/c in which additional income have been shown on account of business because assessee has no other business other than disclosed in the return of income. The additional income pertain 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 ....
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.... defects have been pointed-out in the books of account of the assessee, therefore, there was no reason to apply higher N.P. rate against the assessee. The Revenue to some extent may be justified in contending that since assessee made surrender of additional income based on Annexure-A1 found during the course of search which assessee failed to explain may be the reason for rejection of the books of account, but, whether such reason would be justified in making further addition by applying the higher N.P. rate against the assessee. The Hon'ble Rajasthan High Court in the case of CIT vs., Gotan Lime Khanij Udyog [2002] 256 ITR 247 (Raj.) held that "mere rejection of the books of account does not mean addition is to be necessarily made." The Hon'ble Punjab & Haryana High Court in the case of K.S. Bhatia 269 ITR 577 held that "low profit is no ground to reject 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. Wh....
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.... rightly taken it into P & L A/c. The A.O. has not brought any material on record if assessee doing any other business so as to link the surrender to any other income earned by the assessee. Therefore, there is no infirmity in the Order of the Ld. CIT(A) in deciding this issue in favour of the assessee. Considering the totality of the facts and circumstances of the case, we are of the view that there was no justification to make the addition by enhancing the N.P. rate. The Ld. CIT(A) on correct reasoning has correctly deleted the addition. The Departmental Appeal fails and is accordingly dismissed. 7. In the result, appeal of the Department dismissed. Order pronounced in the open Court. ============= Document 1 ITEM PULP MANGO TOTAPURI Sum of QTY Sum of AMOUNT AV. RATE 31,42,228 2376,85,456 75.64 PULP MANGO ALPHANSO 4,41,139 316,77,939 71.81 35,83,367 2693.63.394 RESIN PET 5761 6,91,442 492,40,881 RESIN PET 5821 71,39,448 5072,48,284 RESIN PET 7761 10,54,975 740,91,725 RESIN PET 5841 19,86,559 919,74,434 108,72,425 7225,55,325 66.46 Grand Total 9919,18,719 2011-12 ITEM PULP MANGO....