AI Drafter 
TaxTMI 
TaxTMI 
2025 (4) TMI 897
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....ff all these appeals by this consolidated order 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 expen....
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....eleted the addition made by way of cash payments u/s 69C of the Act. On the issue of suppressed sales, 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 supportin....
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.... assessee and that the accounts maintained under title 'IT' was where expenses were inflated to arrive 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. W....
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....till 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 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 t....
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....xists 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 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....
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....t 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 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 ....
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....rcumstance, my predecessor in the case of the Appellant's Sister concern M/s. Beach Mineraals Company vide Appellate Order in ITA No. 669/2021-22 dated 27.02.2023 for the AY 2013-14 where the facts 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 Compa....
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.... 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 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 i....
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....ails 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 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 ....
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....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 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 ....
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....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 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 b....
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....e, 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 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....
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....ccounts. The AO however recorded a categorical finding that these sales were not found credited in the books of M/s Blue Metal Company Pvt Ltd. The AO therefore held that, these amounts represented the unaccounted sales of the assessee which was not offered to tax and accordingly added the entire sum to the total income of the assessee in the respective AYs 2017-18 to 2019-20. The AO further noted from the seized 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 unabl....
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....1). In all these decisions, it was held that the entire unaccounted sale proceeds cannot be brought to tax but only the profit element embedded therein. On this aspect, it is noted that the coordinate Bench of Tribunal in the case of ITO Vs. Anand Builders, on similar circumstances had held that, only the profit element of the unaccounted sales could be taxed in place of the entire unaccounted receipts since there is always 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 un....