M/s Sum Decor Pvt. Ltd., Ahmedabad V. Assistant Commissioner of Income Tax, Central Cir., Vapi, Vapi

CO 1/SRT/2022

• Counselvise Citation: [2022] 104 COUNSELVISE.COM (IT) 2001 (ITAT-SURAT)
• Duration Of Justice: 3 month(s) 30 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 08-06-2022
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: DB
• Next Hearing Date: 12-04-2022
• Assessment Year: 2015-2016
• Appeal Filed On: 09-02-2022
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Keywords: Business income; Search and seizure; Validity of assessment
• Section: 147; 132; 44AD; 143(3); 133A; 153A; 153C

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, SURAT BENCH, SURAT BEFORE SHRI PAWAN SINGH, JUDICIAL MEMBER AND DR. ARJUN LAL SAINI, ACCOUNTANT MEMBER IT(SS)A No. 29/SRT/2021 (AY: 2015-16) (Hearing in Virtual Court) A.C.I.T. Central Circle, Vapi. Vs. M/s Sum Decor Pvt. Ltd., 6-7, Sanman-II, Opp-Reliance Petrol Pump, 100 ft. Prahladnagar Road, Vejalpur, Ahmedabad-380015. PAN : AAOCS 6827 L APPELLANT RESPONDEDNT C.O. No. 01/SRT/2022 (Arising out of IT(SS)A No. 29/SRT/2021)(AY: 2015-16) M/s Sum Decor Pvt. Ltd., 6-7, Sanman-II, Opp-Reliance Petrol Pump, 100 ft. Prahladnagar Road, Vejalpur, Ahmedabad-380015. PAN : AAOCS 6827 L Vs. A.C.I.T. Central Circle, Vapi. APPELLANT RESPONDEDNT Department by Shri H.P. Meena, CIT-DR Assessee by Shri Ramesh Malpani, CA Date of hearing 13/04/2022 Date of pronouncement 09/06/2022 Order under Section 254(1) of Income Tax Act PER: PAWAN SINGH, JUDICIAL MEMBER: 1. This appeal by the Revenue and Cross Objection (CO) therein by the assessee are directed against the order of ld. Commissioner of Income tax (Appeals)-4, Surat [‘ld. CIT(A)’ for short] dated 25/02/2021 for the Assessment Year (AY) 2015-16. The Revenue in its appeal has raised the following grounds of appeal:- IT(SS)A No. 29/SRT/2021 & CO 01/SRT/2022 ACIT Vs M/s Sum Decor P Ltd. 2 “1. On the facts and in the circumstances of the case and in law, the ld. CIT(A) has erred in restricting the addition of Rs. 2,03,75,081/- to Rs. 36,00,000/- by holding that only profit embedded in the suppressed sales can only be assessed as income of the assessee and not the whole of suppressed sales. 2. On the facts and in the circumstances of the case and in law, the ld. CIT(A) has erred in deleting the addition on account of suppression of sales without considering the fact that the assessee itself admitted the fact of unaccounted sales in the return of income and suppression of sales were worked out on the basis of incriminating documents found and impounded. 3. On the facts and in the circumstances of the case and in law, the ld. CIT(A) has erred in giving set off of 72,26,000/-, being cash received back from the Directors, from unaccounted sales worked out by the Assessing officer, when there was no evidences to substantiate the claim of the assessee. 4. It is, therefore, prayed that the order of the ld. CIT(A)-4, Surat may be set aside and that of the AO may be restored to the above extent. 5. The appellants craves leave to ad, alter, amend and/or withdraw any ground(s) of appeal either before or during the course of hearing of the appeal.” 2. On service of notice of appeal, the assessee filed its Cross Objection wherein the assessee has raised solitary ground of objection, which reads as under: “1. That on the fact and in the circumstances of case as well as in law, the ld. CIT(A) has erred in upholding the validity of assessment proceedings u/s 153A of the Act and consequent assessment order passed by ld. AO u/s 143(3) r.w.s. 153A of the Act. 3. Brief facts of the case are that the assessee is engaged in manufacturing and trading of plywood, veneer hardware etc. A search action was carried out on assessee’s group i.e. Saras/ Madanlal-EON group on 06/10/2015. Survey action of the business premises also carried out by the revenue. The assessee is one of the main firm of Saras /Madanlal-EON group, accordingly, notice under Section IT(SS)A No. 29/SRT/2021 & CO 01/SRT/2022 ACIT Vs M/s Sum Decor P Ltd. 3 153A of the Income Tax Act, 1961 (in short, the Act) for A.Y. 2010-11 to 2015- 16 dated 19/12/2016 was issued and served upon the assessee. In response to notice under Section 153A of the Act, the assessee filed its return of income on 27/02/2017 declaring income of Rs. 96,68,080/-. During the assessment proceedings, the Assessing Office recorded that in a survey proceedings at the business premises of assessee at Shop Nos. 5-7, Sanman-2, 100 Ft. Road, Prahlad Nagar, Ahmedabad wherefrom certain books of account and other documents including party’s ledger and extracts were found and impounded under Section 133A of the Act. On perusal of such impounded material, it was observed that the assessee was maintaining another dump account under the company’s name “TEST”. On further analysis of documents, it was revealed that the assessee was maintaining parallel set of tally accounts for its business other than the regular account, which was being reflected in the assessee’s books of account and the other transactions were not reflected in any of its regular books of account. The Assessing Officer on the basis of material seized in the survey the suppress sales of the year under consideration was Rs. 2.397 Crore, the assessee has offered additional income of Rs. 36,00,000/- in the return filed in response to notice under section 153A, suppressed sales of Rs. 2.03 crores( 2,39,75,081- 36,00,000= 2,03,75,081). The Assessing Officer prepaid summary of suppressed sales based on seized documents and the additional income declared in response to notice under Section 153A of the Act as mentioned in para 5.2 of the assessment order. IT(SS)A No. 29/SRT/2021 & CO 01/SRT/2022 ACIT Vs M/s Sum Decor P Ltd. 4 4. On the basis of such discrepancies, the Assessing Officer issued notice as to why the addition of Rs.2.03 crores as per impounded material should not be added to the total income of the assessee for the year under consideration. The assessee filed its reply and contended that unaccounted cash of company were kept in Ahmadabad by Shri Utpal Bhatt and at Surat by Shri Madanlal Sharma. These transactions were in cash and were kept at their residence on behalf of company. As and when the cash was kept at their residence, the same was reflected in the payment side and when the same was brought back from their residence, it was reflected in receipt side. This cash holding account of the Directors of assessee tally data name “TEST” is in name of “UBH” (Utpal Bhatt Home) for Shri Utpal Bhatt and “Surat G” (Surat Ghar) for Shri Madanlal Sharma. The assessee explained the analysis of these two accounts for F.Y. 2013-14 to 2014-15 in the following manner: F.Y. 2013-14 (A.Y. 2014-15) Receipts Payments Surat G (Shri Madanlal Sharma) 17,10,000/- 35,92,000/- F.Y. 2014-15 (A.Y. 2015-16) Receipts Payments Surat G (Shri Madanlal Sharma) 76,000/- 48,66,000/- UBH(Utpal Bhatt) 71,50,000/- 82,88,840/- Total 72,26,000/- 1,31,54,840/- Thus, when above transactions are excluded from correct receipts as worked out hereinabove, then correct final receipts year wise are as under: A.Y. Correct Receipts as per “TEST” tally data and Annexure-A-4 (Rs.) 2010-11 -- 2011-12 48,82,845/- 2012-13 40,75,748/- 2013-14 -- 2014-15 (1,13,38,286 – 17,10,000) 96,28,286/- 2015-16 (2,39,75,081 – 1,67,49,081/- IT(SS)A No. 29/SRT/2021 & CO 01/SRT/2022 ACIT Vs M/s Sum Decor P Ltd. 5 76,000 – 71,50,000) 2016-17 35,29,850/- Total 3,88,65,810/- 5. The assessee further explained that the total receipts as per tally data in the name of “TEST” which contained transaction of impounded material in Annexure- A-1, A-2 and A-3 and as per Annexure-A-4 is Rs. 3.88 crore and not Rs. 9.53 crores as worked out by the Assessing Officer. The assessee further submitted that these are total sales receipts and not profit of the assessee company out of unaccounted receipts. Against these receipts, there is expenses/payment incurred by Assessee Company. The total receipt cannot be treated as income but only net profit earned on the same can be added to the total income. The total receipts cannot be added but only profit from unaccounted turnover can be added to the total income of the assessee. As per provisions of Section 44AD, rate of 8% profit comes to Rs. 31,09,265/- of the total receipts of Rs. 3.88 crores. Against this, considering various transactions in cash book, the assessee has already disclosed total income of Rs. 77,65,000/- in the return filed in response to notice under Section 153A for the A.Y. 2011-12 to 2016-17. Thus, the income disclosed in the return of income is sufficient to cover the income from unaccounted receipt. 6. The reply/explanation of assessee was not accepted by the Assessing Officer. The Assessing Officer noted that the contention of assessee is not tenable as the assessee has not substantiated the cash holding as on the date of search/survey with the regular cash or cash flow statement. The cash found may not be same IT(SS)A No. 29/SRT/2021 & CO 01/SRT/2022 ACIT Vs M/s Sum Decor P Ltd. 6 for which sales have been found to be routed through parallel set of accounts. There is possibility that the same may be due to purchases which are out of parallel set of account in absence of any directing link of purchases, stock register and sales. The assessee might have accumulated much more that the cash found and disposed regularly through purchase and sales which remains to be detected. The cash generated in each year could have been split up among the partners. On the contention of assessee that the assessee has already declared part receipt as sale in the return of income was not accepted. The Assessing Officer worked out the difference of suppressed sale of Rs. 2.03 Crore in the following manner. A.Y. Suppressed Sales based on seized documents (Rs.) (A) Additional Income declared in return of Income (Rs.) (B) Difference to be added to returned Income on account of suppressed sales (Rs.) (C) 2015-16 2,39,75,081 36,00,000 2,03,75,081 7. The assessing officer made the addition of Rs. 2.03 Crore, while passing the assessment order under section 153A read with section 143(3) on 27.12.2017. 8. Aggrieved by the additions in the assessment order, the assessee filed appeal before the ld. CIT(A). Before the ld. CIT(A), the assessee filed detailed written submission on the validity of assessment under Section 153A of the Act as well as on addition of Rs. 2.03 crores. On the validity of assessment proceedings under Section 153A, the assessee stated that no search or seizure action under Section 132 was carried out at the premises of assessee. The survey action IT(SS)A No. 29/SRT/2021 & CO 01/SRT/2022 ACIT Vs M/s Sum Decor P Ltd. 7 under Section 133A was carried out at the business premises of assessee company on 06/10/2015. Even the addition in the assessment order has been made on the basis of finding during the course of survey. A search action was carried out at the residence of Director of assessee company Utpal Bhatt on the same day i.e. on 06/10/2015, though, search and seizure action at the residence of Director was carried out in the name of assessee company, however, these premises belonged to and were occupied by the said Director and not by the assessee company. On assessee company, there was survey action and no search action. Mere the search action at the residence of Director was carried out in the name of assessee company, proceedings under Section 153A cannot be initiated and completed when no search action was carried out at the premises of the assessee company. Thus, the whole assessment proceedings under Section 153A in the hand of assessee company is unlawful and unjustified being bad in law and liable to be quashed. On the addition of Rs. 2.03 crores, the assessee stated that the Assessing Officer erred in working out the figure of unaccounted sales/turnover at Rs. 2.39 crores by not excluding the credit entries of cash received from the homes of Directors which was earlier kept at their residence. Receipt back of cash kept at homes of the Directors is not sales. The Assessing Officer has erred in not excluding these credit entries. On rectifying this error, the correct figure on account of unaccounted sales worked out at Rs. 1.674 crore as per correct working furnished to the Assessing officer. The assessee stated that vide submission dated 02/12/2017, it was brought to the IT(SS)A No. 29/SRT/2021 & CO 01/SRT/2022 ACIT Vs M/s Sum Decor P Ltd. 8 notice of the Assessing Officer that the ledger account “Surat G” is for the cash amount of unaccounted sales kept at the residence of Director Madanlal Sharma at Surat and that the ledger “UBH” is for such cash amount kept at Ahmedabad at the residence of Director Utpal Bhatt. The transaction was at Surat as well as Ahmedabad as and when there was excess cash in hand at Surat and same was kept at the residence of Director Madanlal Sharma and when excess cash at Ahmedabad, the same was kept at the residence of Shri Utpal Bhatt. As and when the cash was kept at their house the above respective account was debited and as and when cash was brought back from the residence, the respective amount was credited. This fact is evident from the face of these ledger accounts namely “Surat G”, “UBH” and “TEST”. The assessee further submitted that the Assessing Officer erred in including the credit entries in these accounts for amounts received back from homes of directors in the turnover figure. The Assessing Officer vide letter dated 02/12/2017 was asked to exclude these credit entries from the figure of sales. However, the Assessing Officer has not considered this genuine plea and rejected the same. The Assessing officer erred in working the figure of unaccounted sales at Rs. 2.39 crores against the figure of Rs. 1.67 crores on excluding credit entry of Rs. 72,26,000/- being Rs. 76,000/- in Surat and Rs. 71,50,000/- in Ahmedabad. 9. In second alternative submission, the assessee submitted that the Assessing Officer erred in holding whole of the unaccounted sale as income of assessee instead of profit from such sales. The assessee has already declared and IT(SS)A No. 29/SRT/2021 & CO 01/SRT/2022 ACIT Vs M/s Sum Decor P Ltd. 9 included Rs. 36.00 lacs as profit from this unaccounted turnover in its return of income. The Assessing officer treated the entire sales amount as income and made addition of Rs. 2,03,75,081/- (Rs. 2,39,75,081/- as sales – Rs. 36.00 lacs being amount of profit already declared and included in the return of income). The addition made by the Assessing officer is completely wrong. The Assessee on the basis of decision of Hon'ble Gujarat High Court in the case of CIT Vs. President Industries (2002) 258 ITR 654 (Guj-HC), CIT Vs Samir Synthetic Mills (2010) 326 ITR 410 (Guj) and Jay Builders Vs ACIT (2013) 33 taxmann.com 62 (Guj) submitted that it has been consistently held by the Hon'ble Jurisdictional High Court that only profit embedded in unaccounted turnover and not the entire unaccounted turnover can be brought to tax. The assessee further explained and stated that it has declared profit of Rs. 36.00 lacs from his unaccounted turnover of Rs. 1.67 crore which is 21.49% which is much higher than guideline profit rate of 8% in Section 44AD of the Act. The same is also more than net profit ratio of 2.86% and gross profit ratio of 12.30% as per audited accounts of the assessee and accordingly, the assessee prayed for deleting the entire addition. 10. The ld. CIT(A) after considering the submission of assessee on the validity of assessment under Section 153A of the Act has held that a search and seizure action under Section 132 was carried out at the residence of Directors, accordingly, provisions of Section 153A are clearly applicable and proceedings under Section 153A was rightly initiated and completed in this year. Thus, the ld. CIT(A) has upheld the validity of assessment order under Section 153A of the IT(SS)A No. 29/SRT/2021 & CO 01/SRT/2022 ACIT Vs M/s Sum Decor P Ltd. 10 Act. On the addition of Rs. 2.03 crore, the ld. CIT(A) observed that the assessee contended that they have declared and included Rs. 36.00 lacs as profit in their return of income from suppressed sales and that the entire suppressed sales as an income is wrong and unjustified. It was further observed that the assessee pleaded that the figure of suppressed sale worked out by Assessing officer at Rs.2.39 crore is wrong and that correct figure of suppressed sale for the year is Rs. 1.67 crore. The ld. CIT(A) further noted that the assessee offered profit at 21.49% of suppressed sale by declaring and including Rs. 36.00 lacs in the return of income. On considering such fact, the ld. CIT(A) held that the assessee has mainly raised two pleas; i. e. firstly, the correct figure of suppressed sale is Rs. 1.67 crore and not Rs. 2.39 crore, as it was contended that the amount received from the house of Directors which were kept at their homes of earlier sales has also been considered by the Assessing Officer as suppressed sale which in fact is not sales. For this year, such amount is Rs. 72,26,000/- as per ledger account of “Surat G” and secondly as per law, entire unaccounted sales cannot be assessed as income but only profit embedded in such sales can be assessed as income as relied upon the decision of the Hon'ble Jurisdictional High Court. The ld. CIT(A) held that he is inclined to agree with the contention that only profit element embedded in the unaccounted sales can be assessed as held by Hon'ble Gujarat High Court in case of CIT Vs President Industries (supra). 11. On the working of correct figure of sales, the ld. CIT(A) held that during the assessment proceedings, it is pointed out that the ledger accounts of “Surat G” IT(SS)A No. 29/SRT/2021 & CO 01/SRT/2022 ACIT Vs M/s Sum Decor P Ltd. 11 and “UBH” are in respect of cash amount out of suppressed sales kept at the residence of Directors at Surat and Ahmedabad and received back the same as and when required and that credit entries in these accounts do not represent any sales but represent such received back of the amount kept at their homes. Such contention of assessee is recorded in para 3 of the assessment order. On analyzing such entries of these ledger accounts, the ld. CIT(A) took his view that these entries cannot be held to be suppressed sales. It was also held that as and when the cash was kept at the residence of Directors, the accounts were debited and on bringing back the same accounts were credited. Thus, the credit in these accounts clearly represent the receipt back of amount kept at the home of Directors. On accepting such plea of assessee, the ld. CIT(A) held that the correct figure of suppressed sale is Rs. 1.67 crore as the assessee has declared Rs. 36.00 lacs as income from suppressed sales in the return filed in response to notice under Section 153A which is better than the gross profit ratio in the audited accounts. The profit declared by the assessee from suppressed sale is highest in this year at 21.5% of such suppressed sale. Thus, the ld. CIT(A) held that the income declared by the assessee at Rs. 36.00 lacs is correct, fair and reasonable and that no further addition was required. 12. Aggrieved by the order of ld. CIT(A), the revenue has filed the present appeal before this Tribunal. As recorded above on receipt of notice of appeal, the assessee has filed their cross objection by challenging the validity of assessment under Section 153A of the Act. IT(SS)A No. 29/SRT/2021 & CO 01/SRT/2022 ACIT Vs M/s Sum Decor P Ltd. 12 13. We have heard the submissions of learned CIT-DR for the revenue and learned authorised representative (AR) of the assessee and have gone through the orders of the lower authorities carefully. The ld. CIT-DR for the Revenue has supported the order of the Assessing officer. The ld CIT-DR for the revenue submits that during the course of survey various incriminating documents were found and seized. On perusal of such documents it was reveals that the assessee was maintaining parallel set of telly accounts for its business other than the regular books of accounts and the other transactions were not shown in the regular books maintained. The assessee suppresses sales amounting to Rs. 9.53 Crore spreading from AY 2010-11 to 2016-17. The assessee has not furnished any explanation allowable deduction under various provisions of sections of Income tax Act. The assessee declared part receipt as as sales of the business in its return of income and balance amount of suppresses sales of Rs. 2.037 Crore was added. 14. On the other hand, the ld AR of the assessee submits that in response to notice under Section 153A of the Act, the assessee declared additional income of Rs. 36.00 lacs and included in the return of income and paid taxes thereon. The income declared by the assessee was in far excess of audited book results for the year under consideration. The ld. AR submits that the Hon’ble Jurisdictional High Court in the case of CIT Vs President Industries (supra) has held that only profit element in the unaccounted receipt is to be taxed and not the entire receipt of such alleged unaccounted money. The assessee has already declared IT(SS)A No. 29/SRT/2021 & CO 01/SRT/2022 ACIT Vs M/s Sum Decor P Ltd. 13 profit of Rs. 36 lakhs on unaccounted money of Rs. 1.67 crore, which is more than 21% and better than the reasonable profit. The ld. CIT(A) on appreciation of fact and following various binding decisions of the Hon’ble Jurisdictional High Court, deleted the entire addition. The appeal filed by the revenue is liable to be rejected. 15. On the grounds raised in his Cross Objections, the ld. AR further submits that no search action was carried out at the premises of assessee, thus the assessment under Section 153A r.w.s. 143(3) is not valid. If any incriminating material was found in search at the residence of Director, the assessment could be completed under Section 147 or after recording satisfaction under Section 153C of the Act. In without prejudice and alternative submissions, the ld. AR of assessee further submits that in case, the Hon’ble Bench confirm the decision of ld. CIT(A), in such event, the cross objection raised by assessee may be treated as not pressed. 16. We have considered the rival submissions of the parties and have gone through the orders of the lower authorities carefully. We have also deliberated upon the various case laws relied upon by the ld. AR of the assessee as well as cited and relied by ld CIT(A) in the impugned order. The Assessing Officer made addition of Rs. 2.03 crore by taking a view that the total suppressed sales for this assessment year as per documents impounded is of Rs. 2.39 crores and that the assessee has offered additional income only of Rs. 36.00 lacs thereby difference of Rs. 2.03 crore was brought to tax. As noted above, before the ld. CIT(A), the IT(SS)A No. 29/SRT/2021 & CO 01/SRT/2022 ACIT Vs M/s Sum Decor P Ltd. 14 assessee filed detailed written submission and explained that the total unaccounted sales were only Rs. 1.67 crore and that the assessee has already offered Rs. 36.00 lacs which is 21.49% of such sales. We find that the ld. CIT(A) accepted the plea by following the decision of Hon’ble Jurisdictional High Court in CIT Vs President Industries (supra) wherein it was laid down that only profit earned from unaccounted turnover has to be estimated. The ld. CIT(A) further find that unaccounted suppressed sales for the year is only Rs. 1.67 crore and not Rs. 2.39 crores. We find that the order of ld CIT(A) is based on the binding decision of Hon’ble Jurisdictional High Court and accepted the additional income offered by the assessee in the return of income filed in response to notice under section 153A. No contrary facts of law is brought to our notice to take another view, thus we affirm the order of the ld. CIT(A). In the result, the grounds of appeal raised by the revenue are dismissed. 17. In the result, the appeal of the Revenue is dismissed. 18. Considering the fact that we have dismissed the appeal of revenue, therefore, keeping in view the submission made by ld. AR of the assessee that in the event of affirming the order of ld. CIT(A), this cross objection may be treated as not pressed, thus the cross objection raised by the assessee is treated as not pressed. Even otherwise when we have affirmed the order of ld CIT(A), thus, the Cross Objection raised by the assessee has become infractious and dismissed as such. IT(SS)A No. 29/SRT/2021 & CO 01/SRT/2022 ACIT Vs M/s Sum Decor P Ltd. 15 19. In the final result, the appeal of the revenue is dismissed and the cross objection of the assessee is dismissed being infructuous. Order pronounced on 09/06/2022 in open court and result was placed on notice board. Sd/- Sd/- (Dr. ARJUN LAL SAINI) (PAWAN SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER Surat, Dated: 09/06/2022 *Ranjan Copy to: 1. Assessee – 2. Revenue - 3. CIT(A) 4. CIT 5. DR 6. Guard File By Order Sr. Private Secretary, ITAT Surat