TaxTMI 
TaxTMI 
2017 (4) TMI 1643
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....ct tabulated as under:- AY Date of Filing Income Declared 2005-06 29-10-2005 7,21,339/- 2006-07 30-11-2006 11,51,843/- 2007-08 31-10-2007 15,67,870/- 2008-09 27-09-2008 16,40,660/- 2009-10 21-10-2009 23,84,570/- 2010-11 14-10-2010 31,51,470/- 2.2 The department carried out search & seizure operations on assessee on 11.11.2010. In pursuant to notice u/s 153A of Income Tax Act, the assessee filed its returns as under:- AY Date of Filing Total Income Declared Additional Income declared 2005-06 24/10/2011 7,21,339/- NIL 2006-07 24/10/2011 16/08/2012 (Revised) 11,51,843/- (o) 32,01,843/-(R) Additional Income of Rs. 20,50,000/- declared in revised return on account of share capital 2007-08 24/10/2011 17/08/2012 (Revised) 15,67,870/- (o) 37,67,870/-(R) Additional Income of Rs. 22,00,000/- declared in revised return on account of share capital 2008-09 24/10/2011 17/08/2012 (Revised) 16,40,660/- (o) 23,35,660/-(R) Additional Income of Rs. 6,95,000/- declared in revised return on account of share capital 2009-10 24/10/20....
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.... addition by estimating the sales and applying the GP rate of 72% on estimated sales. Telescoping benefit of Rs. 22,00,000/- given on account of share capital. Effective addition 1,00,28,398/ 2008-09 16,40,660/- (Ex income declared in revised return) 1,23,00,760 Trading addition by estimating the sales and applying the GP rate of 72% on estimated sales. Telescoping benefit of Rs. 6,95,000/- given on account of share capital. Effective addition 1,16,05,760/ 2009-10 23,84,570/- 1,77,24,552 Trading addition by estimating the sales and applying the GP rate of 72% on estimated sales. 2010-11 31,51,470/- 1,99,12,116 (i) Rs. 1,94,24,158/- Trading addition by estimating the sales and applying the GP rate of 72% on estimated sales. The assessee surrendered Rs. 84,25,000/- in its revised return on account of trading profits, therefore the effective trading addition is of Rs. 1,09,99,158/- (ii) 4,87,958/- Disallowance of depreciation 2011-12 (u/s 139 after search) 88,18,798/- 1,51,73,300 1. Addition on account of suppressed sales admitted during the course of search 1,13,00,000 2. Trading addition by apply....
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....as against 72% by ld AO and 52.48% by assessee. 2.6 Aggrieved from the order of ld CIT(A), the assessee is in appeal before the Tribunal for AY 2005-06, AY 2008-09, AY 2009-10 and AY 2011-12 and the revenue is in appeal for AY 2005-06 to AY 2011-12. 2.7 The grounds raised by the assessee in respective appeals are as under:- ''ITA No 633/JP/16 AY 2005-06 1. The assessment order passed u/s 153A read with section 143(3) of the Income Tax Act for Assessment year 2005-2006 is bad in law, void ab-initio, and also the addition made therein deserves to be deleted as no addition can be made in the assessment made u/s 153A read with sec. 143(3) consequent to the search unless some incriminating material in support of the addition is found as a result of search. 2. On the facts and in circumstances of the case and in law the ld. CIT (A) erred in confirming the rejection of the books of accounts and application of section 145(3) of the I.T. Act, 1961. 3. On the facts and in the circumstances of the case and in law the ld. CIT (A) erred in confirming the addition of Rs. 11,19,371/- on a/c of trading addition, by estimating the GP of assessee @ 62% on dec....
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....ted sales.'' 2.8 The grounds raised by the Revenue in its respective appeals are as under:- ''ITA No 609/JP/16 AY 2005-06 1. Whether on the facts and in the circumstances of the case the CIT (A) was right in reducing the GP rate from 72% to 62% ignoring the fact that AO has given strong cogent reasons for estimation of GP rate in the assessment order. ITA No 627/JP/16 AY 2006-07 1. Whether on the facts and in the circumstances of the case the CIT (A) was right in reducing the GP rate from 72% to 62% ignoring the fact that AO has given strong cogent reasons for estimation of GP rate in the assessment order. ITA No 628/JP/16 AY 2007-08 1. Whether on the facts and in the circumstances of the case the CIT (A) was right in reducing the GP rate from 72% to 62% ignoring the fact that AO has given strong cogent reasons for estimation of GP rate in the assessment order. ITA No 629/JP/16 AY 2008-09 1. Whether on the facts and in the circumstances of the case the CIT (A) was right in reducing the GP rate from 72% to 62% ignoring the fact that AO has given strong cogent reasons for estimation of GP rate in the assessment order. ITA No....
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....ee company is manufacturing variety of products in lots and therefore all the raw material purchased were issued for manufacturing as and when required as a whole and not for item wise product. Further it is submitted that in case of beauty products some ingredients (like some type of oil, waxes, emollients, various incipient etc.) is being used commonly and has been manufactured in lots. These ingredients become components of manufactured products and therefore item wise details cannot be derived. Therefore separate detail of item wise consumption and production was neither maintained nor practically possible to maintain. Due to reason mentioned above it was not practicable and feasible to keep regular quantitative inventory of raw material. The purchases, sales and expenses of the assessee were supported by bills and vouchers and no defect was found therein by the lower authorities. When the costs as well as sales are 100% subject to verification than books of account cannot be rejected merely for want of stock register. The explanation of the assessee should be considered from the view point of a businessman. However, even if stock record is not maintained, the Books of Accounts....
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....tified nor resort to substitution of estimated GP by rule of thumb merely for making certain additions. We are, therefore, of the opinion that the findings arrived at by the Tribunal suffers from basic defect of not applying its mind to the existing material which were relevant and went to the root of the matter. When all the data and entries made in the trading account were not found to be incorrect in any manner, there could not have been any other result except what has been shown by the assessee in the books of account. We are, therefore, unable to sustain the order of the Tribunal." The defects pointed out by the AO are not defect at all. The true profit can be deduced from the books of account maintained by the assessee. The assessee is maintaining proper books of account, and following the accounting policies and accounting standards regularly. Each case has to be considered on its own peculiar facts, having regard to the nature of business. Action of the Assessing Officer clearly demonstrates that he could not gather any details or find any irregularity in maintenance of the books so as to justify rejection of books in toto. Therefore, we pray your honor to quash t....
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.... As regards non-production of stock register, the assessee has given an explanation which has been accepted not only by the CIT (A) but also by the Tribunal and both of them have given a concurrent finding of fact that maintaining stock register was not feasible considering the nature of the business being run by the assessee which was engaged in the business of manufacturing readymade garments by purchasing fabric which was then subjected to embroidery, dyeing and finishing and then converted into readymade garments by stitching. Sec. 145(3) therefore could not have been applied by the AO to the present case. As regards failure of the assessee to produce the persons to whom payments were made by the assessee for fabrication, embroidery and dyeing and finishing, etc., the AO was at liberty to summon any or all of them in case he wanted to verify the genuineness of the payments made to them. No such course of action was, however, adopted by him. Failure of the assessee to produce those persons could not have been a ground for rejecting the accounts under s. 145(3). The AO did not point out any difference in the consumption of raw material and production of finished goods when compar....
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....e Registrar of Companies as well as with the IT Department for more than 7 years. The Revenue has scrutinized the accounts and the method of accounting regularly employed and adopted by the assessee year after year have not been found fault with. Auditors of the company both under the Companies Act and the IT Act have been consistently certifying that the assessee has been regularly following the method of accounting and that the annual profits can be properly deduced from such method of accounting employed by the assessee. The auditors over the years have also been certifying that the accounts are regularly maintained and are complete in the sense that there is no significant omission therein. This finding has been accepted by different AOs over a period of seven years. Though the principles of res judicata do not apply to income-tax proceedings, each assessment year being a unit by itself, yet in cases, when a fundamental aspect permeating through the different assessment years has been found as a fact one way or the other and parties have been allowed that position to be sustained by not challenging the order, it may not be appropriate to allow that position to be changed in a s....
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.... share application money 6,95,000 2010-11 Unexplained investment in property at G-2 and G-3, Subhash Marg, Jaipur. 56,25,000 Undisclosed income earned from undisclosed sales 28,00,000 2011-12 Undisclosed income earned from undisclosed sales 41,30,000 Total 1,75,00,000 The assessee always acted bona fide and in good faith. The assessee surrendered the undisclosed income in returns just to honor the admission in statement made during the search wherein the undisclosed income of Rs. 3,50,00,000/- was admitted and out of which Rs. 1,75,00,000/- was surrendered in the return of Smt. Kulsum Malik and balance Rs. 1,75,00,000/- surrendered in the case of the assessee. The department has not fund over and above to the above so any further addition would be highly unjustified. b) The ld AO has made repeated findings that the assessee was indulged in unaccounted sales and the unaccounted profit was used for undisclosed investment. Therefore, when the income was surrendered on the basis of undisclosed investment, further addition by estimation of GP is not justified particularly when such additional income is....
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....h return of income of six years in the prescribed form for the immediately preceding the year of search. The Assessing Officer is legally required to assess or re-assess the total income of six assessment years immediately proceeding to the year of search. The second proviso to section 153A provides that if the assessment or re- assessment of any of the assessment year, falling within the period of six years is pending on the date of search, then the same shall get abated. In the present case, for the years under appeal, the assessment was not pending and had attained finality, therefore, the assessment completed in the impugned assessment year will not get abated. Once that is so, the legal position as of now is that the additions over and above the assessed income cannot be made dehors the incriminating material found at the time of search while completing the assessment under section 153A. This, inter-alia, means that if there is no incriminating material, then the original assessment made can be reiterated and no further addition is called for. Further on this issue Hon'ble Delhi High Court has decided the legal position in the case of CIT Vs Kabul Chawla 380 ITR 573 (....
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....rial existing or brought on the record of the AO. vii. Completed assessments can be interfered with by the AO while making the assessment under Section 153 A only on the basis of some incriminating material unearthed during the course of search or requisition of documents or undisclosed income or property discovered in the course of search which were not produced or not already disclosed or made known in the course of original assessment. Conclusion 38. The present appeals concern AYs, 2002-03, 2005-06 and 2006-07. On the date of the search the said assessments already stood completed. Since no incriminating material was unearthed during the search, no additions could have been made to the income already assessed. In the case of assessee no any incriminating material was found for the AY 2005-06, AY 2008-09 and AY 2009-10. The surrender of addition income of Rs. 6,95,000/- on account of share capital in AY 2008-09 is not based on incriminating documents but just of buy peace and avoid litigation. Since no any incriminating document was found as the result of the search to visualize the undisclosed sales or suppression of profit for ....
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....the department has not questioned over the reduction of sales made by CIT (A) on the basis of categorical findings in para 3.1.3 (b) of the order of ld CIT(A). Further, the revenue has not raised dispute over the quantum of relief given by ld CIT(A). The only dispute is over the reduction of GP rate from 72% to 62%. Further, after considering all the discrepancies in accounts and documents found by the search party, the assessee group declared the undisclosed income of Rs. 3,50,00,000/- in the search statement, which the assessee group honored by showing additional income of Rs. 1,75,00,000/- in the hands of assessee and Rs. 1,75,00,000/- in the hands of chairperson of assessee Smt Kulsum Malik. Therefore, there is no retraction on the income disclosed by the assessee in search statement. Further, the ld AR submitted that the department has carried out intensive search operation wherein all the premises of the assessee and its directors were searched. No any unaccounted assets, cash, stock, unexplained credit entry, unexplained expenses were found over and above to the additional income declared in the returns filed subsequent to the search. Further, the revenue has ....
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....it or unexplained expenses were found over and above to what has been disclosed by the assessee company or its directors. The ld. AR further submitted that Hon'ble Supreme Court has held that in case of two conflicting views of the court, favourable view of the assessee would be taken as held in the case of CIT Vs Vegetable Products Ltd. (1973) 88 ITR 192 (SC) . 2.15 We have heard rival contentions of both the parties and perused the material available on record. First we take the appeals filed by the assessee for adjudication. ITA No 633/JP/2016 (AY 2005-06) and 635/JP/ 16 (AY 2009-10), 2.16 With regard to AY 2005-06 and AY 2009-10, we observed that the department has not found any incriminating document or unexplained cash, stock or other assets or unexplained credit or unexplained expenses. In these cases the assessee filed return u/s 139(1) on 29/10/2005 for AY 2005-06 and on 21/10/2009 for AY 2009-10. The last date of issue of notice u/s 143(2) of Income Tax Act was 31-10-2006 and 30/09/2010 respectively. The search was conducted on 11/11/2010. Since no incriminating documents were found for the AY 2005-06 and AY 2009- 10 and no assessment proceedings were pending....
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....e of construction recognised by this court in several of its decisions. Hence, all that we have to see is, what is the true effect of the language employed in section 271(1)(a)(i). If we find that language to be ambiguous or capable of more meanings than one, then we have to adopt that interpretation which favours the assessee, more particularly so because the provision relates to imposition of penalty.'' Thus the assessee's appeal succeeds for AY 2005-06 and AY 2009-10 The appeal filed by the assessee in ITA No 633/JP/2016 (AY 2005-06) and 635/JP/ 16 (AY 2009-10) stand allowed. ITA No 634/JP/2016 (AY 2008-09) 2.17 In ground no 1, the assessee has challenged the validity of assessment framed u/s 153A on the ground that no incriminating documents was found in search. But the fact remains that the assessee has surrendered additional income of Rs. 6,95,000/- in the revised return filed u/s 153A of the Act on 17/08/2012. The AO made addition by estimating the gross profit rate and out of the addition the telescoping benefit was given by the AO for estimated amount. The ld. CIT (A) reduced the estimation of profit but upheld the rejection of books of account. In the Ground....
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.... ends of justice. In the result, the Ground No. 3 of the assessee's appeal is partly allowed. However, wherever the disclosure made in the return of claim u/s 153A of the Act is over and above the estimated income on the basis of profit @ 58%, same shall be maintained.. The appeal filed by the assessee in ITA No 634/JP/2016 (AY 2008-09) stands partly allowed. ITA No 636/JP/2016 (AY 2011-12) 2.18 Ground No 1 is regarding rejection of books of account. It may be noted that similar issue has been decided against the assessee in Ground 1 No. 2 of the assessee's in ITA No. 634/JP/2016 for the assessment year 2008-09. Hence, this ground of the assessee is also dismissed for the same reasons as the facts remain similar. Ground No. 1 of the assessee in ITA No. 636/JP/2016 stands dismissed. 2.19 In Ground No 2, the assessee has challenged the addition of Rs. 28,13,149/- confirmed by ld. CIT (A) by applying GP rate of 62%. The AO has considered the unaccounted Rs. 1,13,00,000/- for AY 2011-12 on the basis of incriminating documents. In this year, the sales includes the unaccounted sales recorded in the seized material. We have already decided t....
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....an addition to be made for trading results, therefore no further addition deserves to be made 9842914 2569622 2050000 519622 0 519622 155887 2007 -08 1,62,92,362 1,01,01,264 85,86,549 15,14,715 22,00,00 0 Income Surrendered is more than addition to be made for trading results, therefore no further addition deserves to be made 11730501 3143952 2200000 943952 0 943952 283185 2008-09 1,84,47,586 1,14,37,503 98,38,049 15,99,454 6,95,000 9,04,454 13282262 3444213 695000 2749213 904454 1844759 553428 2009-10 2,37,34,690 1,47,15,508 1,21,26,102 25,89,406 0 25,89,406 17088977 4962875 0 4962875 2589406 2373469 712041 2010-11 4,09,70,620 2,54,01,784 2,20,44,082 33,57,702 84,25,000 Income Surrendered is more than addition to be made for trading results, therefore no further addition deserves to be made 29498846 7454764 8425000 Income Surrender ed is more than addition to be made for trading results, therefore no further addition deserves to be made 0 0 0 2011-12 7,29,45,281 4,52,26,074 3,82,82,9....
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....h income cannot be enhanced merely on surmises and conjectures. The Department has no evidence of unaccounted during the post search period. The AO mentioned that the customer base of the assessee was same in all the previous year. The assessee has submitted a chart showing year wise list of parties to whom it sold goods. I found only 16 parties were common out of total 145 parties. Therefore, it cannot be presumed that all the parties were purchasing the goods from the assessee without bill. The AO has not made any inquiry from the buyer parties of the assessee to establish the unaccounted sales by the assessee. Merely on the basis of search statement of the directors of the assessee stating that the assessee was making unaccounted sales in past also and estimate slips against the unaccounted sales were destroyed after settling the account unaccounted sales cannot be estimated without having corroborative evidence.'' It may be further noted that the CIT (A) in para 3.1.3 (c) tabulated a chart showing sales taken by him and shortfall in GP on the basis of GP rate of 62% applied by him and addition sustained by him. It may be further noted that Revenue has taken the common follow....