Vinny Overseas Pvt. Ltd., Ahmedabad V. The Dy.CIT., Cent.Circle-2(4), Ahmedabad

ITA 2871/AHD/2007

• Counselvise Citation: [2011] 135 COUNSELVISE.COM (IT) 2263 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 6 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-01-2011
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: D
• Next Hearing Date: 06-12-2010
• Assessment Year: 2004-2005
• Appeal Filed On: 04-07-2007
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: ROHIT MEHRA SRDR
• Assessee Lawyers: K M MEHTA
• Keywords: Unexplained investment; Document seized; Revised return; Documents seized
• Section: 80HHC; 28

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH D AHMEDABAD BEFORE SHRI N.S.SAINI, ACCOUNTANT MEMBER AND SHRI MAHAVIR SINGH, JUDICIAL MEMBER ITA NO.2871 & 3327/AHD/2007 ASSESSMENT YEAR:2004-05 DATE OF HEARING:6.12.10 DRAFTED:7.12.10 VINNY OVERSEAS PVT. LTD., 173, NEW CLOTH MARKET, AHMEDABAD PAN NO.AAACV6477E ACIT, CENTRAL CIRCLE-2(4), AHMEDABAD,303, AAYKAR BHAVAN, ANNEXE BUILDING, 3 RD FLOOR, ASHRAM ROAD, AHMEDABAD V/S . V/S . DY. COMMISSIONER OF INCOME-TAX, CENTRAL CIRCLE-2(4), AHMEDABAD M/S. VINNY OVERSEAS PVT. LTD., 173, NEW CLOTH MARKET, AHMEDABAD (APPELLANT) .. (RESPONDENT) ASSESSEE BY :- SHRI K.M. MEHTA, AR REVENUE BY:- SHRI ROHIT MEHRA, SR-DR O R D E R PER MAHAVIR SINGH JUDICIAL MEMBER:- THESE CROSS APPEALS ONE BY ASSESSEE AND ANOTHER BY REVENUE ARE ARISING OUT OF ORDER OF COMMISSIONER OF INCOME-TAX (APPEALS)-III, AHMEDABAD IN APPEAL NO CIT(A)-III/241/06-07 DATED 30-04-2007. ASSESSMENT WAS FRAMED BY DCIT CENTRAL CIRCLE-2(4) AHMEDABAD U/S143(3) R.W .S 144 OF THE INCOME TAX ACT, 1961 (HEREINAFTER REFERRED TO AS THE ACT ) VIDE HIS ORDER DATED 26-11- 2006 FOR ASSESSMENT YEAR 2004-05. 2. AT THE OUTSET IT IS TO BE MENTIONED THAT ASSESSE E HAS NOT PRESSED THE GROUND NO.2 REGARDING CONFIRMATION OF REJECTION OF BOOK RESULT S BY CIT(A) DESPITE A SPECIFIC GROUND RAISED BY HIM AND HE IS N OT INTERESTED IN PROSECUTING ITA NO.2871 & 3327/AHD/2007 A.Y 2004-05 VINNY OVERSEAS PVT. LTD. V. DCIT, CC-2(4) ABD PAGE 2 THIS GROUND AS EVEN ADMITTED THAT A REASONABLE GROS S PROFIT CAN BE DISALLOWED. ACCORDINGLY, IT IS TAKEN THAT THE ASSESSEE IS NOT I NTERESTED IN PROSECUTING THIS GROUND AND SAME IS DISMISSED AS NOT PRESSED. 3. THE INTER CONNECTED AND COMMON ISSUES IN THESE C ROSS APPEALS ARE AS REGARDS TO THE ORDER OF CIT(A) IN RESTRICTING THE A DDITION MADE BY ASSESSING OFFICER ON ACCOUNT OF GROSS PROFIT AT RS.4,70,124/ - AS AGAINST RS.29,25,551/-, DELETING ADDITIONS OF PEAK OF CAPITAL EMPLOYED AND ALSO ALLOWING DEDUCTION OF EXCISE DUTY PAID . FOR THIS, ASSESSEE HAS RAISED TH E GROUND NO.1 :- ITA NO.2871/AHD/2007 (ASSESSEE). 1) THAT THE LEARNED COMMISSIONER OF INCOME TAX (A) HAVE ERRED IN SUSTAINING THE ADDITION FOR GROSS PROFIT OF RS.4,70 ,124/-. FOR THIS, REVENUE HAS RAISED THE FOLLOWING GROUND NOS.1TO 3 :- ITA NO.3327/AHD/2007 (REVENUE). 1. THE LEARNED CIT(A) ERRED IN LAW AND ON FACTS OF THE CASE IN HOLDING THAT THE ASSESSEE WAS ENTITLED TO THE CLAIM OF DEDU CTION ON ACCOUNT OF EXCISE DUTY PAID BY ON UNDISCLOSED TURNOVER AS THE SAME SHOULD HAD BEEN CLAIMED BY FILING THE REVISED RETURN U/S 139(5 ) OF THE I.T. ACT. 2. THE LEARNED CIT(A) ERRED IN LAW AND ON FACTS OF THE CASE IN RESTRICTING THE ADDITION ON ACCOUNT OF G.P. TO RS.29,25,551/- AS AGAINST RS.52,24,200/- DETERMINED BY THE A.O AS THE ASSESSE E FAILED TO DISCHARGE ITS ONUS WITH REGARD TO THE CLAIM OF EXP ENDITURE RELATED TO THE UNRECORDED TURNOVER. 3. THE LEARNED CIT(A) ERRED IN LAW AND ON FACTS OF THE CASE IN DELETING THE ADDITION OF RS. 4 LACS ON ACCOUNT OF THE PEAK O F CAPITAL EMPLOYED AS THE FIGURES OF THE TRADE LIABILITIES AND CURRENT AS SETS AS SHOWN BY THE ASSESSEE HAVE NO REL4EANCE ONCE THE BOOKS OF ACCOUN TS OF THE ASSESSEE STAND REJECTED. 4. THE BRIEF FACTS LEADING TO THE ABOVE COMMON IS SUE ARE THAT THE ASSESSEE-COMPANY PROCESSES AND MANUFACTURES DYED AN D PRINTED CLOTHES. RETURN OF INCOME FILED ON 23-03-2005 AT A TOTAL INC OME OF RS.39,15,410/- WAS ASSESSED AT THE TOTAL INCOME OF RS.1,02,80,890/ -. DURING THE COURSE OF ASSESSMENT PROCEEDINGS ASSESSING OFFICER NOTED THAT SEARCH WAS ITA NO.2871 & 3327/AHD/2007 A.Y 2004-05 VINNY OVERSEAS PVT. LTD. V. DCIT, CC-2(4) ABD PAGE 3 CONDUCTED ON 11-12-2003 BY DIRECTORATE GENERAL OF C ENTRAL EXCISE INTELLIGENCE (DGCEI), AHMEDABAD UNIT AT THE FACTORY AND OFFICE PREMISES AND CONSEQUENTIAL ACTION ARISING OUT OF THE SEARCH WAS FINALIZED BY THE DECISION OF THE ADDL. BENCH OF THE SETTLEMENT COMMI SSION OF CUSTOMS AND CENTRAL EXCISE, MUMBAI VIDE ITS ORDER DATED 09-11-2 004. DGCEI BROADLY OBSERVED THAT GREY FABRIC WAS NOT ACCOUNTED FOR IN THE LOT REGISTER AND ALONG WITH FINISHED FABRIC, THESE WERE REMOVED AFTE R PROCESSING FROM THE FACTORY WITHOUT PAYMENT OF DUTY ON FINISHED FABRIC. SIMILARLY, BALE NUMBERS OF SOME PACKING SLIPS WERE DIFFERENT FROM RECORDED AND WAS UTILIZED TO CLEAR FINISHED FABRIC WITHOUT PAYMENT OF EXCISE. TH E SEIZED DOCUMENTS ANNEXURE-A I.E. SR. NO.A/2(1) & (2) SHOWED DUMMY LO T NUMBERS AND INDICATED REMOVAL OF GOODS WITHOUT PAYMENT OF EXCIS E DUTY. SIMILARLY OTHER ANNEXURE I.E. A/1/1 TO A/1/5 OF ANNEXURE-A SHOWED U NACCOUNTED GOODS AND OTHER DOCUMENTS AND ANNEXURE A-3 SHOWED CLANDES TINE CLEARANCES IN THE NAME OF A FICTITIOUS CONCERN I.E. M/S. M.J. TEX TILES. THE FACT OF REMOVAL OF GOODS WITHOUT PAYMENT OF EXCISE DUTY WAS CORROBO RATED BY THE STATEMENTS OF ONE SHRI HIRALAL J. PAREKH RECORDED O N12-12-2003 AND ONE SHRI MATURAM R PARIKH ON 03-08-2004, A BROKER WHO H AD RECEIVED BROKERAGE. THE EXCISE AUTHORITIES, VIDE THEIR SHOW CAUSE NOTICE TO ASSESSEE DATED 02-09-2004, COMPUTED UNRECORDED PROD UCTION AS PER ANNEXURE OF SEIZED DOCUMENTS I.E. ANNEXURE-1 TO ANN EXURE-V AT THE VALUE OF RS.2,45,54,274/- AND THE PAYABLE EXCISE DUTY AT RS.24,55,427/-. THE PAYABLE EXCISE DUTY AS PER THIS SHOW CAUSE LETTER W AS FINALLY CONFIRMED BY THE SETTLEMENT COMMISSION, VIDE ITS ORDER DATED 26- 05-2005 AND WAS PAID BY THE ASSESSEE-COMPANY. THE ASSESSING OFFICER NOTE D THAT IT HAD BEEN PAID AND ADJUSTED IN THE ACCOUNT OF THE DIRECTORS, MOHANLAL BHOORCHAND RS.10 LAKHS AND HIRALAL JAGMOHANDAS RS.14,55,427/- BY WAY OF JOURNAL ENTRIES DATED 31-03-2004. THE AO NOTED THOUGH THE SAID AMOUNT HAS NOT BEEN CLAIMED BY THE ASSESSEE-COMPANY AS REVENUE EXP ENDITURE BUT IT IS SEEN AND APPROVED THAT THERE IS AN ADMISSION OF THE UNRECORDED PRODUCTION OF RS.2,45,54,274/- THE AO THEREFORE SERVED SHOW C AUSE NOTICE VIDE LETTER ITA NO.2871 & 3327/AHD/2007 A.Y 2004-05 VINNY OVERSEAS PVT. LTD. V. DCIT, CC-2(4) ABD PAGE 4 DATE 17-11-2006. IN RESPONSE, VIDE LETTER DATED 24- 11-2006 STATED THAT FOR THE PURPOSE OF INCOME-TAX, OUT OF THE SALE VALUE TH E COST OF THE MATERIAL AND EXPENSES INCURRED ON ITS PRODUCTION WERE TO BE REDUCED FOR WORKING OUT THE PROFITS EARNED ON THE STATED SALE VALUE AND THE DOCUMENTS CONTAINED IN ANNEXURE I TO V WERE MAINLY OF SALES O R PACKING SLIPS OR DELIVERY SLIPS OF FINISHED GOODS. THESE ENTRIES WER E NOT LISTED IN THE LOT REGISTER OF THE ASSESSEE-COMPANY, EXCEPT FOR THE EN TRIES/DOCUMENT CONTAINED IN ANNEXURE-II, WHICH RELATED TO GOODS EX PORTED BY M/S.MOHANLAL MAHAVIRCHAND AND DULLY ACCOUNTED BY THAT ASSOCIATE CONCERN IN ITS REGULAR BOOKS. HENCE, THE AMOUNT OF RS.17,81,821/- PERTAINE D TO THE REGULAR ACCOUNTS OF M/S. MOHANLAL MAHAVIRCHAND AND WAS NOT TO BE CONSIDERED IN THE HANDS OF THE ASSESSEE. ACCORDING TO ASSESSEE TH E QUANTITY OF THE MATERIAL HAS BEEN INCORRECTLY TAKEN, OWING TO A CLE RICAL MISTAKE AND ONCE THIS CLERICAL ERROR WAS RECTIFIED, THE VALUE OF THE GOODS TAKEN BY THE EXCISE AT RS.1,53,64,305/- WOULD BE REDUCED TO THE CORRECT FIGURE OF RS.1,34,88,649/-. THE AO COMPUTED THE TOTAL TURNOVE R I.E. FROM SALES, JOB WORK RECEIPTS, TRADING AND UNACCOUNTED PRODUCTION, AT RS.30,52,28,003/- ON WHICH THE GROSS PROFIT @ 10.5% WAS AT RS.3,20,48 ,940/- AND SINCE THE GROSS PROFIT OF RS.2.7- CRORES HAD ALREADY BEEN SHO WN. HOWEVER, NO GROSS PROFIT ADDITION IS MADE. BUT, RELYING ON THE DECISI ON OF THIS TRIBUNAL IN THE CASE OF VIJAY PROTEINS LTD. V. ACIT 58 ITD 428 (AHD) GROSS PROFIT @ 25% OF RS.2,08,96,797/- BEING UNRECORDED PRODUCTION, IS ES TIMATED WHICH COMES TO RS.52,24,199/- AND NOT ALLOWED THE CLAIM OF DEDU CTION OF EXCISE DUTY. ACCORDINGLY, GROSS PROFIT ADDITION OF RS.52,24,200/ - IS MADE AND ADDED TO THE TOTAL INCOME OF THE ASSESSEE-COMPANY. HOWEVER, THE ASSESSING OFFICER ACCEPTED THAT THERE WAS A CLERICAL MISTAKE AND THAT GOODS WORTH RS.17.9 LAKHS PERTAINED TO THE OTHER ASSOCIATE CONCERN, WHI CH HAS SHOWN THIS AMOUNT IN THE CASE OF ASSESSEE WAS RS.2,08,96,797/- . AGGRIEVED, ASSESSEE PREFERRED APPEAL BEFORE CIT(A). ITA NO.2871 & 3327/AHD/2007 A.Y 2004-05 VINNY OVERSEAS PVT. LTD. V. DCIT, CC-2(4) ABD PAGE 5 5. THE CIT(A) RESTRICTED ADDITION AT RS.4,70,1 24/- BY GIVING FOLLOWING FINDINGS:- 11. THE CONTENTIONS WERE CAREFULLY CONSIDERED ALON G WITH THE DETAILS ON RECORD. IT TRANSPIRES THAT THE APPELLANT HAD REMOVED FINISHED GOODS WITHOUT THE PAYMENT OF EXCISE DUTY A ND HAD EFFECTED UNDISCLOSED SALES. THE QUANTUM OF THESE SA LES HAS BEEN WORKED OUT BY THE A.O AFTER CONSIDERING THE CONTENT IONS OF THE APPELLANT ( NOTED ON PAGE 3 ) AND THIS QUANTUM OF RS.2.08 CRORES HAS BEEN ADMITTED BY THE APPELLANT ALSO. IT IS ALSO AN ADMITTED FACT THAT AFTER THE DETECTION OF THE EVASION BY THE DGCEI, EXCISE DUTY OF RS.24,55,427/- AS RECOVERED FROM THE APPELL ANT. THE APPELLANT WAS NOT SUBJECT TO THE CHARGING OF PENALT Y/PENAL INTEREST BY THE SETTLEMENT COMMISSION. THUS THE EXCISE DUTY SAME TO BE PAID AND WAS AN EXPENDITURE EVEN THOUGH IT HAD NOT BEEN DEBITED IN THE BOOKS OF ACCOUNT AND WAS CLAIMED LATER DURIN G THE ASSESSMENT PROCEEDINGS. THERE IS NO EVIDENCE ON REC ORD EVEN TO SUGGEST THAT THE APPELLANT HAD RECOVERED THIS EXCIS E DUTY FROM THE CUSTOMERS WHILE EFFECTING UNDISCLOSED SALES. IT HAD MAINTAINED BOOKS OF ACCOUNT ON MERCANTILE BASIS AND THE EXCISE DUTY PAID WAS APPARENTLY NOT DISPUTED ANY LONGER. IT IS ALSO A FACT THAT EXCISE DUTY PAID PERTAINED TO THE UNRECORDED TRANSA CTIONS OF THE PREVIOUS YEAR. THE HONBLE SUPREME COURT IN THE CAS E OF SUTLEJ COTTON MILLS (116 ITR 1) AND IN CASE OF KHEDARNATH JUTE CO. (82 ITR 363) HAS HELD THAT THE ENTRIES IN THE BOOKS OF ACCOUNT CANNOT BE RECORDED AS CONCLUSIVE AND IT WAS THE TRUE NATUR E OF TRANSACTIONS THAT REQUIRED TO BE CONSIDERED. IN THE OTHER DECISIONS, REFERRED TO IN PARA 8.2 OF THIS ORDER, IT HAS BEEN BROADLY HELD THAT THE ACTUAL EXPENDITURE HAS TO BE ALLOWED NOTWITHSTANDING THE METHOD OF ACCOUNTING FOLLOWED. IN VIEW OF THE LEGAL/FACTUAL POSITION IT IS HELD THAT THE APPELLAN T WAS ENTITLED FOR THE DEDUCTION OF THE EXCISE DUTY PAID I.E. OF RS.24 ,55,427/-. 11.1 THE CONTENTION OF THE APPELLANT THAT THE REJEC TION OF BOOKS OF ACCOUNT WAS IMPROPER, CANNOT HOWEVER BE ACCEPTED. A PPARENTLY, THE CORRECT PROFITS COULD NOT HAVE BEEN DEDUCED FROM IT S BOOKS OF ACCOUNT, WHICH SUFFERED FROM THE FATAL FLAW THAT TURNOVER OF OVER RS.2.08 CRORES AND RELATED EXPENSES HAD NOT BEEN RECORDED IN THE B OOKS OF ACCOUNT. THERE IS NO INFIRMITY IN THE ACTION OF THE A.O IN R EJECTING THE BOOKS OF ACCOUNT. 11.2 WHILE ESTIMATING THE G.P THE A.O HAS FAIRLY AN D APPROPRIATELY TAKEN THE TURNOVER AT RS.30,52,28,003/- I.E. THE TURNOVER RECORDED IN THE BOOKS APART FROM THE UNRECORDED TURNOVER OF RS.2,08,96,79 7/-. ON PAGE 13 OF HIS ORDER THE A.O FELT THAT THE G.P COULD BE ESTIMA TED @ 10.5%. HE HOWEVER, RELIED ON THE DECISION OF THE ITAT, AHMEDA BAD IN THE CASE OF ITA NO.2871 & 3327/AHD/2007 A.Y 2004-05 VINNY OVERSEAS PVT. LTD. V. DCIT, CC-2(4) ABD PAGE 6 M/S. VIJAY PROTEINS LTD. TO ESTIMATE THE G.P @ 25% OF THE HITHERTO UNDISCLOSED TURNOVER OF RS.2.08 CRORES AND MADE ADD ITION OF RS.52,24,200/- ACCORDINGLY. IT IS SEEN THAT THIS ES TIMATION OF THE G.P RATE BY THE A.O WAS SOLELY BASED ON THIS DECISION AND HE MADE NO ALLOWANCE FOR THE DISTINGUISHING FEATURES/FACTS OF THE APPELLANT (AS POINTED OUT BY THE APPELLANT, THE GIST OF WHICH IS REPRODUCED IN PARA 8 OF THIS ORDER). IT IS ALSO SEEN THAT THE ADOPTION OF 2 5% IN THE CASE OF M/S. VIJAY PROTEINS LTD. CANNOT BE CONSIDERED AS A CARTE BLANCHE, OR MANDATORY, PARTICULARLY IN THE LIGHT OF THE DISTING UISHING FEATURES IN THE CASE OF THE APPELLANT AND THE SUBSEQUENT DECISION O F THE GUJARAT HIGH COURT IN THE CASE OF M/S. KASHSIRAM TEXTILE MILLS ( 284 ITR 61). IT IS SEEN THAT THE ASSESSEE HAD SHOWN G.P OF 6.98% ON THE DIS CLOSED TURNOVER IN THE ASSESSMENT YEAR 2002-03 AND THE G.P OF 8.9% ON THE DISCLOSED TURNOVER IN A.Y 2003-04, AS ALSO THE G.P OF 9.5% ON THE DISCLOSED TURNOVER IN THE A.Y 2004-05, THE SUBJECT MATTER OF THIS APPEAL. A HIGHER THAN NORMAL PROFIT MARGIN IS A NORMAL FEATURE IN RE SPECT OF THE UNACCOUNTED DOMESTIC SALES AND THIS WOULD BE TRUE I N THE CASE OF THE APPELLANT AS WELL. ON A HOLISTIC CONSIDERATION, IT WOULD BE APPROPRIATE TO ESTIMATE THE G.P RATE AT 14% ON THE UNDISCLOSED TUR NOVER OF RS.2.08 CRORES AND THEREBY REDUCE THE G.P. ADDITION MADE BY THE A.O TO RS.29,25,551/-. AS SUCH, THE ADDITION, AFTER ALLOWI NG THE EXCISE DUTY PAID, IS SUSTAINED TO THE EXTENT OF RS.4,70,124/-. THE RELATED GROUNDS OF APPEAL ARE DECIDED ACCORDINGLY. 12. IN RESPECT OF THE BASIS OF RS.4 LAKHS FOR CAPIT AL EMPLOYED, THE A.O HAS ONLY FELT THAT THE PEAK AMOUNT OF CAPITAL I THE MONTHS OF NOVEMBER AND DECEMBER, 2003 IS RS.4 LAKHS. THE A.O HAS NOT D ETAILED THE COMPUTATION OF THIS QUANTUM AND HAS NOT EVEN SPECIF IED, IF HE CONSIDERED IT TO BE UNDISCLOSED INVESTMENT, THOUGH THIS AMOUNT HAS BEEN ADDED IN THE COMPUTATION OF THE TOTAL INCOME. IN CONTRAST, THE APPELLANT HAS POINTED OUT THAT THERE WAS NO EVIDENC E/MATERIAL ON RECORD TO SUGGEST THE DEPLOYMENT OF SUCH A QUANTUM OF CAPI TAL FOR THE TRANSACTIONS DURING NOVEMBER/DECEMBER, 2003. IT HAD BEEN POINTED OUT THAT THE CREDIT FACILITIES/ TRADE LIABILITIES W ERE HIGHER THAN THE CURRENT ASSETS AND THERE WAS NO NEED FOR ANY FURTHER INVEST MENT FOR WORKING CAPITAL. THE LEGAL POSITION HAS ALSO BEEN NARRATED IN PARA 9 OF THIS ORDER. THUS THE ADDITION OF RS.4 LAKHS CANNOT BE SUSTAINED IN FACT OR IN LAW AND IS THEREFORE DELETED. THE RELATED GROUND OF APPEAL IS ALLOWED. 6. BEFORE US LEARNED COUNSEL FOR THE ASSESSEE ARGUE D THAT THE CIT(A) HAS ERRED IN PARTLY CONFIRMING THE ADDITION BY STATING THAT BESIDES INCOME TAX, THE EXPENSES INCURRED, SUCH AS ON THE GREY CLOTH, THE C OLOURS AND CHEMICALS UTILIZED, THE LABOUR CHARGES, THE EXPENSES ON PACKI NG, ON BLEACHING AND DYING APART FROM DYING EXPENSES, WERE ALSO TO BE REDUCED. THE COMMISSION PAID FOR ITA NO.2871 & 3327/AHD/2007 A.Y 2004-05 VINNY OVERSEAS PVT. LTD. V. DCIT, CC-2(4) ABD PAGE 7 SALES ALSO NEEDED TO BE DEDUCTED FOR WORKING OUT TH E CORRECT PROFITS. THE ASSESSEE SUBMITTED DETAILED WORKING OF THESE EXPENS ES AS PER ITS VERSION AND CONTENDED THAT SINCE THE SALES WERE UNRECORDED, EXC ISE DUTY WAS NOT COLLECTED FROM THE CUSTOMERS BUT CAME TO BE PAID ON DETECTION AND FINALIZATION OF THE ASSESSEES CASE BY THE EXCISE AUTHORITIES AN D CLAIMED TO BE AN ALLOWABLE EXPENDITURE. ACCORDING TO ASSESSEE THE UN RECORDED SALES WERE OF RS.2,08,96,797/- AND NOT OF RS.2,45,54,274/- AS COM PUTED BY THE EXCISE DEPARTMENT AND AFTER MAKING ALLOWANCE FOR AFOREMENT IONED EXPENSES, THE INCOME BEFORE THE PAYMENT OF EXCISE DUTY, IS WORKED OUT AT RS.17,49,630/- AND ONCE THE ALLOWABLE EXPENDITURE OF THE EXCISE DU TY PAID I.E. RS.24,55,427/- IS ALLOWED, NET INCOME WAS ONLY A LOSS OF RS.7,05,8 03/-. ON THE OTHER HAND, LD.SR DR RELIED ON THE ORDER OF THE ASSESSING OFFIC ER. 7. WE HAVE HEARD RIVAL CONTENTIONS AND GONE THROUGH THE FACTS AND CIRCUMSTANCES OF THE CASE. WE FIND THAT THE ASSESSI NG OFFICER POINTED OUT TO THE FACT THAT THE ASSESSEE HAD ACCEPTED THE UNRECOR DED PRODUCTION OF THE VALUE OF RS.2.08 CRORES AND THE STATEMENT OF HIRALA L PAREKH, ADMITTING THAT IT WAS UNRECORDED IN THE LOT REGISTER AND OTHER STATUT ORY RECORD. THE A.O ALSO REFERRED TO THE NOTE BOOKS SEIZED AS PER ANNEXURE-A WHEREIN DUMMY LOT NUMBERS HAD BEEN NOTED AND THE STATEMENT OF THE BRO KER SHRI MATHURAM PAREKH, ADMITTING THE CASH DEALINGS WITH THE ASSESS EE-COMPANY. THE AO THEREFORE WAS OF THE VIEW THAT PROVISIONS OF SECTIO N 145(2) WERE ATTRACTED AND THEREFORE, REJECTED THE BOOKS OF ACCOUNT. THE AO ES TIMATED THAT THE IMPUGNED TRANSACTIONS OCCURRED IN NOVEMBER AND DECEMBER, 200 3 AND PEAK AMOUNT OF UNEXPLAINED CAPITAL EMPLOYED THEREIN WAS RS.4 LAKH IN RESPECT OF THIS PERIOD, FOR WHICH HE MADE THE ADDITION OF RS.4 LAKHS. THE A O DID NOT ACCEPT THE CLAIM OF THE ASSESSEE THAT THE GROSS PROFIT EARNED ON THE UNRECORDED PRODUCTION OF RS.2.08 CRORES CAME TO RS.17,49,630/- I.E. 8.3% THI S BEING ON THE BASIS OF THE AVERAGE EXPENSES PER METRE, THESE EXPENSES BEING IN ACCORDANCE WITH THAT CLAIMED IN THE BOOKS. THE AO FELT THAT THE ASSESSEE HAS NOT DISCHARGED ITS BURDEN OF PROVING THE CLAIM FOR DEDUCTION FOR EXPEN DITURE AND COMPUTED THE ITA NO.2871 & 3327/AHD/2007 A.Y 2004-05 VINNY OVERSEAS PVT. LTD. V. DCIT, CC-2(4) ABD PAGE 8 TOTAL TURNOVER I.E. FROM SALES, JOB WORK RECEIPTS, TRADING AND UNACCOUNTED PRODUCTION, AT RS.30,52,28,003/- ON WHICH THE GROSS PROFIT @ 10.5% WAS AT RS.3,20,48,940/- AND SINCE THE GROSS PROFIT OF RS.2 .7- CRORES HAD ALREADY BEEN SHOWN, THE ADDITION OF RS.50,08,367/- ON ACCOUNT O F GROSS PROFIT CAN BE MADE. HOWEVER, NO GROSS PROFIT ADDITION IS MADE. BU T, RELYING ON THE DECISION OF THIS TRIBUNAL IN THE CASE OF VIJAY PROTEINS LTD. V. ACIT 58 ITD 428 (AHD) GROSS PROFIT @ 25% OF RS.2,08,96,797/- BEING UNRECO RDED PRODUCTION, IS ESTIMATED WHICH COMES TO RS.52,24,199/-. ACCORDINGL Y, GROSS PROFIT ADDITION OF RS.52,24,200/- IS MADE AND ADDED TO THE TOTAL INCOM E OF THE ASSESSEE- COMPANY. HOWEVER, THE ASSESSING OFFICER ACCEPTED TH AT THERE WAS A CLERICAL MISTAKE AND THAT GOODS WORTH RS.17.9 LAKHS PERTAINE D TO THE OTHER ASSOCIATE CONCERN HAS SHOWN THE IMPUGNED AMOUNT IN THE CASE O F ASSESSEE WAS RS.2,08,96,797/-. WE FIND THAT THE ASSESSEE ADMITTE D HAVE MADE UNACCOUNTED SALES AND UNACCOUNTED PURCHASES AND PAR TICULARLY THERE IS NO SALES TAX ON CLOTH TRADING AND EXCISE DUTY HAS ULTI MATELY BEEN PAID BY ASSESSEE AFTER THE SEARCH BY EXCISE DEPARTMENT. THE ASSESSEE HAS CLAIMED TO HAVE BEEN MADE TURNOVER OF RS.2,08,96,792/- ON A PROFIT RATE OF 8.37%, THEREBY THE NET PROFIT EARNED WAS RS.17,49,630/- AP ART FROM THE CENTRAL EXCISE DUTY CLAIMED TO HAVE BEEN PAID (NEEDS VERIFICATION) . AS FAR AS THE CLAIM OF THE ASSESSEE OF OTHER EXPENSES, IT IS BUT NATURAL THAT THERE MAY BE SOME EXPENSES BUT THERE IS NO EVIDENCE FOR THE SAME AND THE ASSESSEE ITSELF HAS BEEN ADMITTED TO HAVE EARNED PROFIT @ 8.37%, THERE IS NO FURTHER SCOPE OF REDUCTION OF SUCH EXPENSES. ACCORDINGLY, BOTH THE A PPEALS ARE ALLOWED IN TERMS OF THE FOLLOWING:- I) AS ADMITTED BY ASSESSEE THE NET PROFIT IS TO BE ESTIMATED @ 8.37% ON UNEXPLAINED TURNOVER OF RS.2,08,96,979/- WHICH COME S TO RS.17,47,630/- AND NO FURTHER ADDITION ON ACCOUNT O F UNEXPLAINED INVESTMENT, AS ADDED BY ASSESSING OFFICER, WILL BE ADDED SEPARATELY. II)THE EXCISE DUTY PAID, AS CLAIMED BY ASSESSEE, IS ALLOWABLE EXPENDITURE SUBJECT TO ACTUALLY PAID BY ASSESSEE AN D THIS NEEDS VERIFICATION AT THE LEVEL OF ASSESSING OFFICER. ITA NO.2871 & 3327/AHD/2007 A.Y 2004-05 VINNY OVERSEAS PVT. LTD. V. DCIT, CC-2(4) ABD PAGE 9 THESE INTER-CONNECTED ISSUES ARE ALLOWED AS INDICAT ED ABOVE. 8. THE NEXT ISSUE IN THIS APPEAL OF THE ASSESSEE I S THAT CIT(A) ERRED IN UPHOLDING THE DISALLOWANCE OF DEDUCTION U/S 80HHC O F THE ACT. FOR THIS ASSESSEE HAS RAISED THE FOLLOWING GROUND NO.3 :- 3) THAT THE LEARNED COMMISSIONER OF INCOME TAX )(A ) HAS ERRED IN NOT ALLOWING DEDUCTION U/S.80HHC OF I.T. ACT, AMOUNTING TO RS.7,41,284/- AS CLAIMED IN THE RETURN OF INCOME. 9. WE FIND THAT CIT(A) HAS CATEGORICALLY RECORDING FINDINGS THAT THE EXPORT TURNOVER OF THE ASSESSEE EXCEEDS RS.10 CRORE S AND THE AMENDED PROVISO OF SECTION 28(III)(D) R.W.S. 3 RD PROVISO TO SECTION 80HHC(3) OF THE ACT WILL APPLY, WHICH READS AS UNDE R:- 13. AS FOR THE NEXT GROUND OF APPEAL, CHALLENGING THE DISALLOWANCE OF THE CLAIM U/S.80HHC, NO INFIRMITY IS SEEN IN THE AC TION OF THE A.O IN MAKING THIS DISALLOWANCE. THE EXPORT TURNOVER OF TH E APPELLANT ITSELF EXCEEDED RS.10 CRORES AND ATTRACTED THE AMENDED PRO VISION OF SECTION 28 (IID) READ WITH THE THIRD PROVISO (AMENDED W.E.F . 1/4/98) TO SECTION 80HHC(3) OF THE ACT. AS SUCH THIS GROUND OF APPEAL IS DECIDED AGAINST THE APPEAL. HOWEVER, FOR THE SAKE OF CLARITY WE SET ASIDE THIS ISSUE TO THE FILE OF ASSESSING OFFICER TO VERIFY WHETHER THE AMENDED PROVISIONS WI LL APPLY TO THE ASSESSEE OR NOT. ACCORDINGLY, THIS ISSUE OF ASSESSEES APPEAL I S ALLOWED FOR STATISTICAL PURPOSES. 10. IN THE RESULT, ASSESSEES APPEAL IS ALLOWED PARTLY FOR STATISTICAL PURPOSES AND THAT OF REVENUE IS ALLOWED PARTLY. ORDER PRONOUNCED IN OPEN COURT ON 21/01/2011 SD/- SD/- (N.S.SAINI) (MAHAVIR SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER AHMEDABAD, DATED : 21/01/2011 ITA NO.2871 & 3327/AHD/2007 A.Y 2004-05 VINNY OVERSEAS PVT. LTD. V. DCIT, CC-2(4) ABD PAGE 10 *DKP COPY OF THE ORDER FORWARDED TO : 1. THE ASSESSEE. 2. THE REVENUE. 3. THE CIT(APPEALS)-III, AHMEDABAD 4. THE CIT CONCERNS. 5. THE DR, ITAT, AHMEDABAD 6. GUARD FILE. BY ORDER, /TRUE COPY/ DEPUTY / ASSTT.REGISTRAR ITAT, AHMEDABAD