TaxTMI 
TaxTMI 
TaxTMI 
2024 (12) TMI 1382
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....und and seized pursuant to which the AO inter alia initiated proceedings u/s 153A of the Act for the relevant AYs 2013-14 & 2014-15. From the seized electronic material viz., tally data, it was noted that the assessee was maintaining two sets of accounts, one titled "ori" and other titled "IT". Upon enquiry, the accounts manager of the assessee affirmed in his statement recorded u/s 132(4) of the Act that the assessee was maintaining parallel sets of accounts for banking & financial purposes and other for income-tax purposes. The AO in the course of assessment inferred that, the accounts maintained under the title "IT" was in form of suppression of income by inflating expenses in the tally data. After calling for explanation from the assessee, the AO observed that, the assessee had inflated the expenses and several expenses were not supported by documentary evidences and therefore made disallowances out of several heads of expenses aggregating to Rs. 3,50,82,845/- & Rs. 2,28,75,728/- in AYs 2013-14 & 2014-15 respectively. 3. Being aggrieved by the order of the AO, the assessee preferred appeal before the Ld. CIT(A). Having considered the contentions of the assessee in light of the....
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....rding to him, was made on different footings. Overall, therefore, he prayed that the order of Ld. CIT(A) be reversed and the AO's order be restored. The Ld. CIT, DR also furnished a written synopsis of his arguments, which has been taken on record. 5. Per contra the Ld. AR for the assessee supported the order of Ld. CIT(A) and urged that order of the Ld. CIT(A) estimating the profits at 2.21% be upheld. The Ld. AR also filed a written note rebutting the arguments raised by the Ld. CIT, DR. In this written note, the assessee has separately objected to the validity of the income-tax assessment framed u/s 153A of the Act on the ground that there was no incriminating material unearthed in the course of search. 6. We have heard both the parties, perused the findings of the lower authorities and considered the material placed before us. As noted earlier, search was conducted u/s 132 of the Act upon the assessee on 25.10.2018, pursuant to which the AO had reopened income-tax assessments for AYs 2013-14 to 2018-19 u/s 153A of the Act. It is not in dispute that, the assessee was maintaining two sets of books of accounts, which was found in the course of search and also affirmed by the acc....
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....wledge, the accounting staff would not pass the entries on a day-to-day basis or would make the entries under wrong ledgers and that the Chartered Accountant would assist in updating the books of accounts in the Tally software and pass the finalization entries only at the fag-end of the statutory time for filing the return of income. The assessee tacitly acknowledged the accounting anomaly in maintaining the books of accounts but contended that these accounting anomalies cannot be treated as inflation of expenses. The assessee is also noted to have brought on record several factual aspects regarding the entries passed in the parallel books of accounts, which according to it, showed that there were only accounting anomalies in the books titled 'ori', which were corrected in the final audited books of accounts titled 'IT'. It is noted that, the Ld. CIT(A) took cognizance of the explanation furnished by the assessee and found it to be acceptable. At the same time, the Ld. CIT(A) however noted that, the assessee was still required to reconcile the discrepancies between these parallel set of books of accounts and that such exercise could not be avoided due to various constraints and pra....
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....rongly made by crediting the ledger accounts of group companies while debiting the relevant expenditure account in the books of the Appellant Firm in cases where the payments were made by the Appellant Firm itself from the borrowings made from such group companies. The Appellant also explained that while crediting the ledger account of group companies, mistakes occurred in adopting the name of the group company due to similarity in the names of various group companies. The Appellant also explained that it was unable to reconcile the discrepancies pointed out by the AO during the course of assessment proceedings and also unable to furnish the bills and vouchers in support of the expenditure genuinely incurred by it, in view of passage of time, frequent changes in the staff handling accounts and multiplicity of group companies. 7.5.10 The undersigned has carefully examined the submissions, adduced by the Appellant to substantiate the maintenance of multiple accounts. At the outset there exists no dispute about the turnover returned by the Appellant by both the AO and the Appellant. 7.5.11 In the instant case of the Appellant the undersigned is of the view that the reasons explain....
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....passage of time and frequent changes in the accounting staff working with the Appellant. It is considered that the said submission of the Appellant cannot be disregarded in view of the genuineness of the prActical difficulties expressed by the Appellant. At the same time, it is also not possible to accept the correctness of the claims in the books of account unless the discrepancies pointed out in the Assessment Order are subjected to necessary reconciliation. 7.5.14 In this context, it is pertinent to observe that this is not a case where the Appellant is attempting to give incorrect reasons for its inability to produce the supporting bills and vouchers. 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 years 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 same cannot be taken as a reason to disallow the expenditure when the turnover is not dispute....
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....3-14 relevant to the AY(s) 2013-14 and 2014-15. 7.5.16 The said assessment(s) have resulted in impliedly considering the net profit of the Appellant at 51.31%, and 91.35% for the FY(s) 2012-13 and 2013-14 respectively, which is abnormally high in the line of business of the Appellant Firm and not appropriate to the facts and circumstances of the case. It may be appreciated that the said abnormality in the profit margin is indicative of the fact that the discrepancies in the accounts pointed out by the AO cannot be considered to be arising wholly from wrong claims of expenditure by the Appellant..... ....... 7.5.18 Now, the issue before the undersigned is that, what can be the reasonable profit that can be attributable to the Appellant Firm in conduct of business. The Appellant Firm in the return of income filed has claimed the net profit margin at the rate of (-) 0.02% and (-) 0.02 % for the FY(s) 2012-13 and 2013-14 relevant to the AY(s) 2013-14, 201415. 7.5.19 At this juncture it is significant to bring it on record in such circumstance that my predecessor in the case of the M/s. Beach Mineraals Company (PAN-AAJFB3329C) (a sister concern of the Appellant's Firm) vide Appe....
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....ned by the assessee. The relevant findings taken note of by us is as under: - "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. Aggrieved by the additions, the assessee agitated on the issues before the Ld CIT(A). Ld CIT (A), without touching th....
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....nd proper verification and that the claim of the appellant to the said extent was not fully proved. The AD 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 cannot be lost sight of. Though the claims of the appellant in the books of account cannot be accepted in toto in the face of the di....
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....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 assessment for the instant year under section 143(3) of the act and that all the necessary vouchers documents and submissions pertaining to expenditure d....
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....ted 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:- BEACH MINERALS COMPANY June 2023 Financial Year Garnet ilmenite Total Qty Value Qty Value Qty Value 2010-11 24500 158152677 0 0 24500 158,152,677 2011-12 57856 408896991 23184 332034863 81040 740,931,854 2012-13 84091 837603370 60190 995980129 144281 1,833,583,499 2013-14 55288 659312080 40992 514625364 96280 1,173,937,444 2014-15 52550 504126598 41500 518636498 94050 1,022,763,096 2015-16 43000 374261914 19800 247445847 62800 621,707,761 2016-17 3312 28831737 12600 157465539 15912 186,297,276 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....
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.... books of accounts and estimating the profits of the assessee at 2.21%, as the facts involved were similar. Accordingly, we do not see any reason to take a different view in the present case before us. Likewise, the argument of the Ld. CIT, DR urging that the net profit rate ought to be adopted at 53% instead of 2.21% as estimated by this Tribunal in assessee's sister concern (supra) cannot be countenanced. Also, we note that, the entity viz., Industrial Mineral Company urged by the Revenue to be comparable to the assessee, was demonstrated before us to be in different line of business and hence, this entity identified by the Revenue is held to be not comparable. 11. The Ld. CIT, DR had further additionally urged that, even if the books of accounts are rejected, the disallowance of items of expenses ought to be separately adjudicated and decided upon as to whether it is to be separately added to the estimated business income. According to us however, once the books of account are rejected by invoking the provisions of section 145 of the Act and the income is estimated to the best of judgment as per the provisions of section 144 of the Act, the said estimate is made in substitution....