TaxTMI 
TaxTMI 
2025 (4) TMI 897
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....rder for the sake of convenience. 2. Briefly noted the facts of the case are that, the assessee firm is engaged in the business of mining, processing and refining of beach minerals. A search action u/s 132 of the Act upon the assessee and its group concerns on 25.10.2018. In the course of search, several documents & electronic material were found and seized pursuant to which the AO inter alia initiated proceedings u/s 153A of the Act for the relevant AYs 2013-14 to 2018-19. The case of AY 2019-20 being the searched year was selected for scrutiny u/s 143(3) of the Act. From the electronic material seized during the course of search 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 expl....
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....the Ld. CIT(A) directed that the same be added to the reported turnover of the assessee and that the profits of 2.21% be computed on such increased turnover. The Ld. CIT(A) accordingly partly allowed the appeals of the assessee for all the AYs before us. Aggrieved by the Ld. CIT(A)'s order, both the assessee and Revenue are in now in appeal before us. 4. Assailing the action of the Ld. CIT(A), the Ld. CIT DR primarily reiterated the findings of the AO. He submitted that, the search enquiries had revealed that, the assessee was maintaining parallel sets of accounts, one set of accounts reflecting the actual receipts & expenses and another set of accounts maintained for tax purpose. According to Ld. CIT, DR the expenditure booked in accounts maintained for tax purposes was higher than the original set of accounts resulting in the net profit to be lower. He contended that, by inflating expenses, the assessee was generating unaccounted funds which were used for on-money payments in relation to property purchases. He pointed out that, the assessee was unable to furnish supportings for these expenses and therefore the AO rightly held that these expenses were not genuine. He therefor....
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....e at suppressed profits for income-tax purposes. According to assessee however, the tally data titled 'ori' contained unaudited, incomplete data whereas the tally data 'IT' was finalized on the basis of complete audited data gathered from all locations/sites of the assessee. The fact however remains that, there were two parallel sets of books of accounts being maintained by the assessee which was unearthed in course of search and which suggested discrepancies and also raised prima facie doubt regarding correctness of the books of accounts. Further, evidence regarding suppression of sales was also unearthed from the seized electronic material. According to us therefore, these seized electronic material coupled with the statement given by the accounts manager u/s 132(4) of the Act constituted incriminating material unearthed in the course of search and hence, the preliminary plea of the assessee objecting to the validity of jurisdiction assumed by the AO u/s 153A of the Act for want of incriminating material in all the AYs before us, is hereby rejected. 7. We now come to the merits of the case before us. We first take up the issue regarding the disallowance made out ....
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....cise could not be avoided due to various constraints and practical difficulties being faced by the assessee. The Ld. CIT(A) was accordingly of the view that the books of accounts was unreliable and therefore rejected the same. The relevant findings of Ld. CIT(A) taken note of by us in AY 2014-15 (which is verbatim same in AYs 2015-16 to 2017-18), is as under :- "7.5.8 The undersigned has duly examined the submission made by the AR. There exists no doubt about the maintenance of two sets of books of accounts by the Appellant Company. The AO on the basis of the statement recorded during the course of the search from the Accounts Manager has identified that one is titled as "ori" and another is "IT" which denotes that "Original" and "Income Tax". The AO in the assessment order has made a finding that in the accounts maintained under the title "ori" is the original books of accounts where all the receipts and expenditures have been duly reflected. In the accounts under the title "IT" is the accounts where expenditures have been inflated and the net income is arrived to disclose the same in the return of income filed. However, the Appellant during the course of Appellate proceedings h....
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....Appellant Company, the undersigned is of the view that the reasons explained by the AR for the discrepancies that occurred in the books of accounts as identified by the AO in the assessment order are reasonable and acceptable having regard to the nature of the business, the remote locations where the business operations are carried out, non-availability of skilled accounting staff in such remote locations, multiplicity of group companies with similar sounding names and frequent intergroup company transactions. Notwithstanding the same, once the discrepancies in the books of accounts have been identified by the AO and the Appellant Company was confronted with the same, the Appellant is required to reconcile the said discrepancies and produce bills and vouchers in support of the expenditures in respect of such discrepancies were pointed out by the AO. In cases where the discrepancies were explained to be arising from the crediting of ledger accounts of a wrong group entity instead of the correct group entity while debiting the expenditure incurred by a group entity on behalf of the Appellant, it is necessary on the part of the assessee to identify the name of the correct group entity....
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....chers the same cannot be taken as a reason to disallow the expenditure when the turnover is not disputed. 7.5.17 In this background, it is considered that the books of accounts of the Appellant Company, which are inaccurate, do not facilitate arriving at true and correct profits of the Appellant Company and they are required to be rejected by invoking the provisions of Section 145(3) of the Act. Accordingly, the books of accounts of the Appellant Company for the FY 2013-14 are hereby rejected. Thus, having rejected the books of accounts, the business income of the Appellant Company is required to be estimated under the said provisions, consequent to rejection of the books of accounts." 8. After holding so, the Ld. CIT(A) is noted to have analyzed the profitability of the assessee and noted that, if the entire disallowance made by the AO is upheld, then it would give an incongruous picture in as much as the profitability from this business would be abnormally high which may range from as 32% to 45%, which was not appropriate in the facts and circumstances of the case. He thus held that, although there would indeed be discrepancies in the books of accounts as highlighted by the AO....
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....acts and circumstances were similar, has held that 30% of the turnover can be the appropriate income of the Appellant Firm. The said order was taken up before the Hon'ble ITAT Chennai both by the assessee and the revenue. The Hon'ble ITAT, Chennai vide its order in ITA No 366/Chny/2023 dated 09.08.2023 has upheld the decision of my predecessor in rejecting the books of accounts and restricted the net profit ratio @ 2.21% on sales turnover for estimating the same while determining the total business income of the sister concern i.e. M/s. Beach Mineraals Company. 7.5.23 The undersigned to have the judicial discipline, by respectfully following the decision of the Hon'ble ITAT Chennai in the case of M/s. Beach Minerals Company for the AY 2013-14, (which is a sister concern of the Appellant's Company and in same line of business), the net profit ratio of the Appellant Firm is taken @ 2.21% on the sales turnover in determining the business income of the Appellant Company for the year under consideration. Accordingly, the AO is hereby directed to compute the business income ( Net Profit ) of the Appellant @ 2.21% of the turnover for assessment year under consideration. ....
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....itions, the assessee agitated on the issues before the Ld CIT(A). Ld CIT (A), without touching the merits of individual additions, have observed that the reasons explained by the appellant for the discrepancies that occurred in the books of accounts as identified by the AO in the assessment order are reasonable and acceptable having regard to the nature of business, the remote locations where the business operations are carried on, the non-availability of skilled accounting staff in such remote locations, multiplicity of group companies with similar sounding names and frequent inter-group company transactions. It is further noticed by the Ld CIT(A) that various discrepancies as have been identified by the AO and the appellant was confronted with the same, the appellant is required to reconcile the said discrepancies. However, since the appellant has brought out various constraints in carrying out such reconciliation and furnishing the supporting bills and vouchers in the written submission by stating that it is unable to do so at present in view of the passage of time and frequent changes in the accounting staff working with the appellant. It is considered by the Ld CIT(A) that the....
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....laims of the appellant in the books of account cannot be accepted in toto in the face of the discrepancies brought out by the AD in the impugned Assessment Order, making disallowance of the entire expenditure in respect of which such discrepancies ware noticed is also not appropriate in the facts of the case keeping in view the verification made during the original Assessment proceedings. On making disallowance of entire expenditure in respect of which the discrepancies wars found as sought to be done by the AO in the impugned Assessment Order, the total income of the appellant was assessed at Rs.104.73 Crores as against the sales turnover of Rs.183.35 Crores. The said assessment has resulted in impliedly considering the net profit of the appellant at 57.12%, which is abnormally high in any line of business. The said abnormality in the profit margin itself 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. 45. In view of the said reasons, it is considered that the books of accounts of the appellant, which are inaccurate, do not facilitate arriving at tr....
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....nd that all the necessary vouchers documents and submissions pertaining to expenditure debited towards mining, production and processing and other expenses during the course of the said Assessment proceedings were submitted by the assessee as required by the Ld AO. Such evidence were duly verified by the AO, thus have made a disallowance of Rs. 2.80 Crore under the head production and processing expenses in the original Assessment Order. It is therefore well established that the appellant had 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. It is further observed by the Ld CIT(A) that in spite of the fact that the assessee was unable to reconcile the discrepancies/ inaccuracies by furnishing the correct details of relevant transactions along with the supporting bills and vouchers, no dispute with regard to books of accounts maintained by the assessee were noticed by the Ld AO. In such a situation, considering the additions made by Ld AO the total assessed income of the assessee was computed at Rs. 104.73/- Crores, whereas the total sales turnover, which ....
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.... 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 "O"(zero) in the base years as compared to 60190 units in the relevant year. It is the submission of Led 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 incomparable for the reason that the production mix for the base year is different than that of the years under consideration. Now the question arises is that, what is the reasonable and correct ratio, which should be applied while estimating the profit when books of accounts are rejected. In our thoughtful consideration, we find it to be most suitable and reasonable to apply the average profits earned by the assessee itself in the comparable years under which the business activities of the assessee firm were identical. We, therefore, are of the considered opinion that average percentage of profit for the....
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....y 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 of the business income that is to be computed in accordance with the provisions contained in sections 30 to 43D as laid down in section 29 of the Act. Consequently, all the deductions which are referred to in sections 30 to 43D of the Act are deemed to have been taken into account while making such an estimate. Useful reference in this regard may be made to the decision of Hon'ble Andhra Pradesh High Court in the case of Indwell Constructions Vs. CIT (232 ITR 776) and Hon'ble Allahabad High Court in the case of CIT vs Banwari Lal Banshidhar (229 ITR 229). For these reasons, we do not agree with this plea of the Revenue. 12. Another argument of the Ld. CIT, DR was that, the income estimated upon rejection of books of accounts ought to be added over and above the addition/disallowance already made in the original assessments which were completed u/s 143(3) of the Act in AYs 2014-15 & 2015-16. From the facts placed before us, it is noted that the AO's predecessor had made ad-hoc d....
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....zed material that, the assessee had had also incurred unaccounted expenses aggregating to Rs.90,00,000/- which was paid in cash to M/s Tulsyan NEC Ltd towards packing expenditure in AY 2017-18. The aforesaid sum was separately added by way of unaccounted expenditure. Aggrieved by these additions, the assessee went in appeal before the Ld. CIT(A) who partly deleted the same. Against such action of Ld. CIT(A), both the assessee and Revenue are in appeal before us. 15. Heard both the parties. We find that, the Ld. CIT(A) took note of the above narrated facts and found that, the assessee was unable to dislodge the AO's finding that, the sales in question were neither recorded in the books of assessee or M/s Blue Metals Company Pvt Ltd. Before us also, the assessee was unable to bring any material to record to disprove the AO's case that, these were unaccounted sales. In light of the foregoing, the limited issue in dispute before us whether the entire sales value has to be considered as income or only the profit element embedded therein ought to be taxed. Having already rejected the books of accounts of the assessee, it is noted that the Ld. CIT(A) directed the AO to increase t....
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....ays the unaccounted payments. The above decision of this Tribunal is noted to have been upheld by the Hon'ble Gujarat High Court and the SLP filed against the judgment before the Supreme was also dismissed and reported in 265 ITR 37. The relevant findings of Hon'ble Apex Court is noted to be as follows: "Dismissed the special leave petition filed by the Department against the judgment dated January 21, 2002 of the Gujarat High Court in ITA No. 52 of 2002 whereby the High Court dismissed the Department's appeal on the ground that no substantial question of law arose. The question of law raised in the appeal before the High Court was whether the Appellate Tribunal's finding while directing the Assessing Officer to tax only 8 per cent of the unaccounted on money receipt instead of fully taxing it, in the absence of any evidence of expenditure, could not be stated to be perverse." 17. Following these decisions (supra), we do not see any reason to interfere with the Ld. CIT(A)'s finding directing the AO to assess the profit element of 2.21% embedded in these unaccounted sales. 18. Apropos the addition made on account of unexplained expenditure, the AO had observe....