2023 (7) TMI 1045

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....ment proceedings before the ld. CIT(A). 4. Having heard the rival submissions and gone through the relevant material on record, it is seen that the reassessment was initiated on the basis of reasons dated 23-01-2017, reading as under: "Assessee is Private Limited Company. Excise department carried out search action in the premises of company. During the course of search action excise department seized pen drive data on which unaccounted purchases and sales were reflected. They also recorded statement of Sushil Subhshchandra Badjate Director of company. On verification of data and statement of Sushil Badjate it is seen that there is suppression of sales to the extent as under : Period Amount 1-1-2009 to 31-12-2009 Rs.878987600/- 1-1-2010 to 31-12-2010 Rs.410704227/- 1-1-2011 to 07-03-2011 Rs.37441251 The Hon'ble High Court in its decision observed the same fact and also directed that assessee has evaded Income tax hence Income tax department needs to take remedial action. From the record of the excise department as well as on verification of the ITRs it is seen that the assessee has evaded Income tax relating to the suppressed sales as mentioned above. Total underassess....

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....present case. . . . . . . . .When such matter comes before Court it is also duty of the Court to see that the Income Tax Department is heard in such a case and intimation of the incident is given to the Income Tax Department also". In para No.29, the Hon'ble High Court further observed that "The material is sufficient to make out a prima facie case that he was involved in running of the business and he was collecting money, sale proceeds in respect of the excisable goods". Para No.30 further notes that "The material collected shows that false record was created for evasion of excise duty. Thus, it is a case of forgery and fraud also. There has been evasion of excise duty in respect of goods worth more than Rs. 140 crore". It was on the basis of - the information received from Central Excise Department to the effect that the assessee company was clandestinely engaged in manufacturing and evading excise duty; which was fortified by the director of the assessee company in his statement during the course of search; and further the observations of the Hon'ble High Court to the effect that "the Income Tax authorities need to take action in the present case" - that the AO entertained th....

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....ing of addition in respect of such unrecorded sales. Whereas the AO added the amount of sale itself as the undisclosed income, the ld. CIT(A) reduced it to the declared gross profit rate at 4.86% for the year under consideration. It goes without saying that tax is not charged on the amount of sales but on the income embedded in such sales. It clearly emerges from the discussion made in the assessment order that not only the sales but also the purchases were unrecorded. The assessee was into manufacturing the goods outside the books of account to evade excise duty. Since both the sales and corresponding purchases were unrecorded, it is but natural that only the profit element could have been added and not the amount of sales in entirety. We, therefore, affirm the view taken by the ld. CIT(A) in restricting the addition to the level of gross profit rate declared by the assessee for the year under consideration. The grounds taken by the assessee as well as the Revenue in this regard stand dismissed. 9. The second issue in the cross appeals is against the addition of Rs. 17,05,54,156/- made by the AO on account of working capital required for manufacturing the goods outside the books ....

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....ied that no addition was called for on account of working capital required for the suppressed production and the same was rightly deleted. The ground of the assessee is allowed and that of the Revenue is dismissed. 11. The next ground in the Revenue's appeal is against the deletion of addition of Rs. 79,04,807/- made by the AO in respect of cash deposited in the bank account of the three employees. The facts apropos this ground are that the assessee was found to have done unrecorded business of manufacturing and sale of goods in the names of three employees. A sum of Rs. 79,04,907/- was deposited in their bank accounts. The AO made addition for the same, which came to be deleted in the first appeal. 12. Having heard both the sides and gone through the relevant material on record, it is seen that the assessee admittedly carried on the business of unrecorded sales in the name of its three employees. In that view of the matter, the contention of the assessee that these accounts did not pertain to it, has no substance. Coming to the deposits of Rs. 79.04 lakh made in these accounts, it is seen as an admitted position that unrecorded sale of Rs. 83.44 crore were effected in cash. Depo....