TaxTMI 
TaxTMI 
2023 (11) TMI 732
X X X X Extracts X X X X
X X X X Extracts X X X X
....proper reasons and justification. 3. The CIT(Appeals) failed to appreciate that the order under consideration was passed out of time, invalid, passed without jurisdiction and not sustainable both on facts and in law and ought to have appreciated that lack of valid seized materials for the purpose of quantifying the income escaped from taxation in terms of Section 153A of the Act would vitiate the additions made in the search assessment on various facets including the findings in Para 9 & 10 of impugned order. 4. The CIT (Appeals) erred in rejecting the books of accounts based on the findings recorded from para 39 of the impugned order by invoking the provisions of Section 145(3) of the Act and consequently erred in estimating the profits at 30% of the total turnover for the purpose of taxation without assigning proper reasons and justification. 5. The CIT (Appeals) ought to have appreciated that the provisions of Section 145(3) of the Act had no application to the appellate powers and ought to have appreciated that in the absence of in the satisfaction on the part of the Assessing Officer on the correctness of the books maintained including the absence of....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ssessment order as part of the computation of taxable total income without assigning proper reasons and justification. 13. The CIT (Appeals) erred in not adjudicating the objection to the action of the Assessing Officer in adding back the credit entry appearing in the name of M/s Balamurgan Chemicals P Ltd. as unexplained aggregating to a sum of Rs. 23,10,52,649/- as per para 23(iii) of the assessment order as part of the computation of taxable total income without assigning proper reasons and justification. 14. The CIT (Appeals) erred in not adjudicating the issue of disallowance of land development expenses aggregating to a sum of Rs. 68,47,351/- as per para 24(iii) of the assessment order without assigning proper reasons and justification. 15. The CIT (Appeals) erred in not adjudicating the issue of disallowance of Rs. 22,24,018/- u/s 40(a)(ii) of the Act as per the assessment order dated 8.3.2016 without assigning proper reasons and justification. 16. The CIT (Appeals) erred in not adjudicating the issue of disallowance of Rs. 2,80,00,000/- u/s 37(1) of the Act being certain expenses as per the assessment order dated 8.3.2016 without assignin....
X X X X Extracts X X X X
X X X X Extracts X X X X
....inciples of natural justice while such violation would render the consequential order as nullity in law. 24. The CIT (Appeals) failed to appreciate that there was no effective/proper opportunity given before the impugned order and any other passed in violation of the principles of natural justice is nullity in law. 25. The Appellant craves leave to file additional grounds/arguments at the time of hearing." Grounds of appeal (by the Revenue) 1. The order of the learned Commissioner of Income Tax (Appeals) is erroneous on facts of the case and in law. 2. The Ld. CIT(A) erred in restricting the total disallowance of 104.69 Crores made in the assessment order to 30% of Sales turnover of Rs. 183.35 Crores. 2.1 The CIT(A) erred in failing to appreciate that the assessment was made based on the incriminating materials seized during the course of search in the form two sets of accounts for the FY 2012-13 - One for the purpose of ascertaining actual profit from the business and other for the purpose of filing Income tax return. 2.2 The CIT(A) failed to appreciate that the assessee has made inflation of expenses under the head "P....
X X X X Extracts X X X X
X X X X Extracts X X X X
....earned CIT (Appeals) may be set aside and that of the Assessing Officer be restored." 2. Brief facts of the case are that the appellant assessee is a firm engaged in the business of mining, processing and refining of various beach minerals for industrial applications. The appellant primarily makes export sales of the beach minerals. The return of income for A.Y. 2013-14 u/s. 139 of the Income Tax Act, 1961 (for short 'Act') was filed on 26.09.2013 admitting total income of Rs. 9,52,760/-. Original assessment u/s. 143(3) of the Act was completed vide order dated 08.03.2016 determining total income of Rs. 4,04,46,439/-. Subsequently, search and seizure operation was conducted on the assessee on 25.10.2018. The search action was on the various entities and individuals of the group including the assessee firm got completed on 21.12.2018. Notice u/s. 153A of the Act for A.Y. 2013-14 was issued on 3^rd January, 2020. Return in response to the said notice was filed by the assessee on 10.11.2020 admitting total income of the assessee at Rs. 9,52,760/-. Notice u/s. 143(2) of the Act was issued on 12.11.2020. The Authorized Representative of the assessee submitted details pertaining to th....
X X X X Extracts X X X X
X X X X Extracts X X X X
....he immediately preceding year i.e. A.Y.2011-12 should be the basis for determining the estimation in the assessee's case. The written submissions was furnished by the Ld. AR of the assessee and the same is extracted as under: • "The above appeals are filed by the Assessee and the Department against the order of the Commissioner of Income Tax (Appeals)-19, Chennai passed on 27.02.2023 for the assessment year 2013-14 and wherein the First Appellate Authority had rejected the books of accounts maintained by the Assessee in determining the profit at 30% of the total turnover. • There was a search conducted at the premises of the Assessee on 25.10.2018 and the search assessment proceeding for the assessment year under consideration was initiated by the notice issued u/s 153A of the Act dated 03.01.2020. • The search assessment was completed by the Assessing Officer on the presumption that the Assessee was maintaining two parallel set of accounts and made various additions in determining the assessed income at Rs. 104.73 crores which comes to 57% (approx.) of the total turnover. • In this regard, the Assessee had established before the ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....erous locations during the assessment year under consideration and hence the operational expenses incurred in those locations were collated and duly recorded at the time of finalization of the accounts. • The practical difficulties faced by the Assessee leading to the accounting various entries at the time of finalization of the accounts was demonstrated before the First Appellate Authority in the written submissions filed on 13.02.2023. • Further, the said factual position was also demonstrated before the Assessing Officer justifying the genuineness for compilation of accounts at the time of filing the return of income. • Hence, the provisional accounts cannot be treated as incriminating material for assuming jurisdiction u/s 153A of the Act and hence pleaded for quashing the search assessment order passed for the assessment year under consideration and thus render justice. REJECTION OF BOOKS OF ACCOUNTS: • The Assessee submits that the books of accounts maintained by it completely scrutinized at the time of the original assessment completed in terms of Section 143(3) of the Act vide order dated 08.03.2016. â€....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ssessee had wrongly adopted an exorbitant rate of 30% based on the income reported for the assessment year 2011-12 and however had ignored the income reported for the immediately preceding assessment year 2012-13 wherein the Assessee had reported net profit at 0.91% of the total turnover. • The tabulation showing the income earned and profit reported for various subsequent assessment years are as under: • In such circumstances, the Assessee pleads for restoring the original assessment position as per the original assessment order and further pleads for determining the assessable profit at 2.21% by reversing the order of the First Appellate Authority in dismissing the Revenue's appeal and allowing the Assessee's appeal in the interest of justice. 6. It was further submitted by the Ld. AR that the additions made by the A.O were totally based on statement found by him, which were analyzed in very unlawful manner, under prejudiced mind, leading to erroneous findings, thereby, made several unjustified disallowances. With such assertions, the Ld. AR has submitted that the CIT(Appeals) who had not independently adjudicated the additions made by the A.O....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... to Page 29 of the A.O wherein under Point No.16 (i), a screen shot of ledger of one entry dated 15.03.2013 was extracted by the A.O wherein against the narration "adj" was written which clearly shows that "adj" stands for adjustment. It was also submitted by the Ld. CIT-DR that the A.O had rightly pointed out that corresponding entries are absent in the books of the assessee. It was also allegation of the revenue that the assessee had incurred certain expenses wherein services were taken from group entities and the same was not found in the books of accounts of either of the group companies. 8. It was further submitted by the Ld. CIT-DR by showing Para 12 at Page 10 of the assessment order that the assessee firm enjoyed benefit of Section 10B of the Act given to 100% export-oriented unit till A.Y.2011-12 and the entire income of the assessee firm was exempt from tax. The net profit in the A.Y. 2011-12 was to the extent of 29.77% of the reported sales. The Ld. CIT-DR submitted that the A.Y.2011-12 was the last year for which the assessee had the benefit of Section 10B and in the next year i.e. A.Y.2012-13 the profit percentage of the assessee was dropped down to 0.91% of sales a....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ounts and inflation of expenses in the books of accounts considered for the purpose of filing IT returns was accepted by Shri. P. Senthil Muthukumar, Accounts Manager of M/s. Beach Minerals Company in his sworn statement dated 14/11/2018. 11. The Ld. CIT-DR also pointed out that observation of the CIT(Appeals) was under a mistaken belief that A.O had disallowed certain expenditure in the earlier assessment 143(3) proceedings, the assessee had maintained bills and vouchers for the expenses, without appreciating that the assessee had neither filed evidence for expenses nor have adduced proper explanation for the discrepancies between the two sets of accounts during 153A assessment proceedings. Further, the present assessment is based on the entirely new set of facts arising out of materials seized during the search. It was further agitated by the Ld. CIT-DR that observation of the Ld. CIT(Appeals) was bad in terms of the facts that the A.O did not find fault with the method of accounting but additions were made in the order u/s. 143(3) r.w.s.153A on the basis of incriminating seized materials and for the reason that the assessee had not given proper explanation in respect of infla....
X X X X Extracts X X X X
X X X X Extracts X X X X
....o 2017-18 leaving apart A.Y.2011-12 wherein, profit was high due to several factors which were not there in other assessment years so as in the relevant assessment year i.e. A.Y. 2013-14. 14. Having heard the rival contentions, carefully considered the submissions, and perused the material placed on record. The case of the assessee firm for the Ay 2013-14 was assessed by the department u/s 143(3) vide order dated 08.03.2016, thereafter upon a search action u/s 132 of the Act on BMC Group on 25.10.2018 the same was reassessed u/s 143(3) rws 153A bide order dated 26.08.2021. During the course of search, it was found that the assessee firm was maintaining parallel sets of accounts. Evidences were gathered by the search team in the form disks, laptops. Loose sheets pertaining to unaccounted receipts / payments, deposition of key persons etc. Statement of Shri P Senthil Muthu Kumar, Accounts Manager of the assessee firm were taken, according to the said statements Modus Operandi of accounting of the assessee firm was scripted by the Ld AO. Exhaustive workings a/w screen shots of the ledger accounts were produced in the Assessment Order by the Ld AO and disallowances were made. Aggrie....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... the verification of the said bills and vouchers and he found that the vouchers to the extent of Rs. 2.80 Crores were beyond proper verification and that the claim of the appellant to the said extent was not fully proved. The AO therefore made disallowance of production and processing expenses to the tune of Rs. 2.80 Crores in the original Assessment Order. The facts narrated in the said Assessment Order clearly bring out the fact that the appellant maintained the bills and vouchers in support of the expenditure debited to the P & L Account and that the same were verified by the AO during the original Assessment proceedings. 44. Having regard to the discussion made in the preceding paragraphs, it needs to be observed that there is no dispute regarding the fact that the books of account of the Appellant for the Assessment Year under consideration are erroneous and inaccurate. Though the appellant is unable to reconcile the discrepancies/ inaccuracies by furnishing the correct details of the relevant transactions along with the supporting bills and vouchers, the furnishing of the bills and vouchers and their verification by the AO during the original assessment proceedings c....
X X X X Extracts X X X X
X X X X Extracts X X X X
....fit margin of 29.77% disclosed by the appellant the said AY 2011-12 is a reliable indicator of the true profits of the appellant for the instant assessment year also. Hence, I consider it appropriate to estimate the net profit margin for the instant Assessment Year at 30% of the sales turnover for the purpose of estimating the business income of the appellant. The AO is accordingly directed to determine the business income of the appellant at 30% of the sales turnover of Rs. 183.35 gores. Since the business income is being determined on estimate basis, it is held that the individual additions made to the income in the original Assessment Order dated 08.03.2016 get subsumed in the said estimated business income and the same not required to be considered separately. The AO is directed to consider the interest receipts of Rs. 14,11,587/- and commission receipts of Rs. 6,91,482/- credited to the P & L account separately apart from the estimated business income while determining the total income. The relevant grounds of appeal arc therefore partly allowed." 15. On perusal of the aforesaid observation of the Ld CIT(A), it is evident that the case of the assessee was subjected to asses....
X X X X Extracts X X X X
X X X X Extracts X X X X
....he order of Ld CIT(A), it is not transpired that while estimating the profit taking the base year as AY 2011-12 (FY 2010-11), whether this fact was confronted to the assessee firm or not to submit their objections or confirmation on the same. However, to demonstrate the actual ratio of profit and its comparability with the year under consideration (FY 2012- 13, AY2013-14), Ld AR of the assessee firm had submitted a chart of production for the financial years 2010-11 to 2016-17, the same extracted as under:- 16. On perusal of the aforesaid chart, it is evident that the ratio of profit for the AY 2011-12 (FY 2010-11/base year) is not comparable with the relevant AY 2013-14 (FY 2012-13/relevant year), since there was a mismatch in the production mix (quantity of minerals extracted) for the FY 2010-11 and FY 2012-13, wherein quantity of "ilmenite" is "0"(zero) in the base years as compared to 60190 units in the relevant year. It is the submission of Ld AR that the rate of profit is different for different minerals extracted by the firm. When the basis for reasonableness i.e. the profit of the AY 2011-12, which was considered as reliable indicator by the Ld CIT(A) itself is incompara....