Sh. Sunil Dutt Jain, Prop. M/s Jain Food Products, 266/33, DIGGI Chowk, Ajmer V. ACIT, Central Circle, , Ajmer

ITA 308/JPR/2023

AI Insights

The case involves Shri Sunil Dutt Jain, the proprietor of M/s. Jain Food Products, who appealed against the order of the CIT (A), Udaipur-2, which confirmed the addition of Rs. 6,66,222 to his income for the assessment year 2017-18. This addition was based on unaccounted sales and initial investment in production identified during a search operation. The Tribunal examined whether the additions made were justified, particularly focusing on the interpolation of unrecorded sales over the entire financial year and the presumptive addition for initial investment in production without concrete evidence.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 132138 (ITAT-JAIPUR)
• Duration Of Justice: 3 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-08-2023
• Appeal Filed By: Assessee
• Order Result: PartlyAllowed
• Bench Allotted: A
• Next Hearing Date: 11-07-2023
• Assessment Year: 2017-2018
• Appeal Filed On: 11-05-2023
• Other Referred Cases: PCIT Vs. Abhisar Buildwell Pvt. Ltd. (2023) 225 DTR (SC) 105
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: EMAIL. QUERY LETTER ALONG NOTICES UNDER
• Keywords: Reassessment proceedings
• Section: 132; 142(1); 153A; 250; 143(2)

Judgement Text

vk;dj vihyh; vf/kdj.k] t;iqj U;k;ihB] t;iqj IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHES,”A” JAIPUR Jh laanhi xkslkbZ] U;kf;d lnL; ,oa Jh jkBkSM+ deys'k t;arHkkbZ] ys[kk lnL; ds le{k BEFORE: HON’BLE SHRI SANDEEP GOSAIN, JM & HON’BLE SHRI RATHOD KAMLESH JAYANTBHAI, AM vk;dj vihy la-@ITA No. 308/JP/2023 fu/kZkj.k o"kZ@Assessment Year : 2017-18. Shri Sunil Dutt Jain, Prop. M/s. Jain Food Products, 266/33, Diggi Chowk, Ajmer. cuke Vs. Asstt. Commissioner of Income –tax, C.R. Building, Opposite Session Court, Jaipur Road, Ajmer. LFkk;h ys[kk la-@thvkbZvkj la-@PAN/GIR No. AAQPJ 8741 H vihykFkhZ@Appellant izR;FkhZ@ Respondent fu/kZkfjrh dh vksj ls@ Assessee by : Shri P.C. Parwal, CA jktLo dh vksj ls@ Revenue by : Shri Arvind Kumar (CIT) lquokbZ dh rkjh[k@ Date of Hearing : 12/07/2023 mn?kks"k.kk dh rkjh[k@Date of Pronouncement: 29/08/2023 vkns'k@ ORDER PER BENCH : This appeal by the assessee is directed against the order dated 21.03.2023 of ld. CIT (A), Udaipur-2 passed under section 250 of the IT Act, 1961 for the assessment year 2017-18. The assessee has raised the following grounds :- 1. The ld. CIT (A) has erred on facts and in law in confirming the addition of Rs. 6,33,534/- by applying g.p. rate of 13.74% on alleged unaccounted sale of Rs. 46,10,880/- and addition of Rs. 32,688/- on account of initial investment in production ignoring that evidence for alleged unaccounted sale was found for the month of October, 2016 of 4803 kg of Rs. 3,84,240/- & no evidence of initial investment in production was found and thus addition, if any, at the most should have been restricted to Rs. 52,795/- (13.74% of Rs. 3,84,240/-). 2 ITA No. 308/JP/2023 Shri Sunil Dutt Jain, Ajmer. 2. The appellant craves to alter, amend and modify any ground of appeal. 3. Necessary cost be awarded to the assessee. 2. The brief facts of the case are that the assessee is engaged in manufacturing, wholesale and retail business of Namkeen and Sweet products in his proprietary concern M/s Jain Food Products. This is the family business of assessee which he carries out along with his brother Shri Kamal Kant Jain. He filed his original return of income for the year under consideration on 27.10.2017 declaring total income of Rs.14,10,480/-. A search and survey was carried out on 12.09.2018 at the residential and business premises of Jain Group of Ajmer wherein the assessee is also covered. Pursuant to search, the AO issued notice under section 153A of the Act on 29.05.2019 which was duly served upon the assessee by E-mail. In response to the notice, the assessee filed the return of income on 12.06.2019 declaring the income of Rs. 14,10,480/- as was originally filed. A notice under section 143(2) was issued on 30.09.2020 and the same was duly served upon the assessee by e-mail. Query letter along with notices under section 142(1) were also issued on 03.12.2020, 27.02.2021 and 02.06.2021. In response to these notices, the assessee submitted the desired details in the assessment proceedings. The seized books of accounts and other books of accounts have been examined on test check basis. 2.1 During the course of search certain documents marked as Exhibit 23 to 27 of Annexure AS and Exhibit 28 of Annexure AS was found and seized from the residential premises of assessee’s brother Shri Kamal Kant Jain. These documents 3 ITA No. 308/JP/2023 Shri Sunil Dutt Jain, Ajmer. represent the sale bills of M/s Jain Food Products and challan of namkeen products transferred from factory premises of M/s Jain Food Products to its branch/shop. Sale bills and goods received through challan from the factory for the month of October, 2016 were reconciled and it was found that during the month of October, 2016 goods transferred from factory to branch/shop are 64980 kg and sales bills were issued only for 60177 kg. Accordingly the AO observed that M/s Jain Food Products has suppressed its sale by 4803 kg (64980–60177) during the month of October, 2016. On these papers statement of Shri Kamal Kant Jain was recorded u/s 132(4) of IT Act on 13.09.2018 wherein in reply to Question No.17 (PB 160) he submitted that average value of the above unaccounted sale is Rs.80/- per kg and thus total value of unaccounted sale for the month of October, 2016 is calculated at Rs.3,84,240/-. In reply to Question No.18 (PB 160) he submitted that on this basis the unaccounted sales of M/s Jain Food Products for the last 6 years works out to Rs.2,76,65,280/-. He further submitted that vouchers for the unaccounted sales are made on daily basis and the same are destroyed on daily basis. In search proceedings, the assessee in reply to Question No.73 (PB 50) submitted that he agrees with the statement given by Shri Kamal Kant Jain. In post search proceedings, assessee vide letter dated 23.10.2018 to DDIT, Investigation, Ajmer (PB 64) submitted that unaccounted sales worked out by the investigation team at the time of search proceedings could be assumed for the year 2016-17 on the basis of unaccounted sales for the month of October, 2016 and thus offered 14% g.p. on suppressed sales of Rs.46,10,800/- for the F.Y. 2016-17 for taxation to purchase mental peace and to avoid litigation. During the course of assessment proceedings, the assessee was asked to show cause on the above issue vide notice 4 ITA No. 308/JP/2023 Shri Sunil Dutt Jain, Ajmer. u/s 142(1) dated 27.02.2021. In response to same, the assessee submitted the reply on 09.03.2021 which is reproduced at Pages 8-10 of the assessment order. The AO, however, did not accept the contention of the assessee and made the addition of Rs.46,10,880/- (384240 x 12) on account of undisclosed sales for the F.Y. 2016-17. 2.2 Being aggrieved by the order of A.O., the assessee preferred appeal before the ld. CIT(A). The ld. CIT (A) held that the decision of the AO with regard to the calculation of unaccounted sales is correct. However, the AO has added entire sales, which is not logical. The nature of business of the appellant is such that perishable items cannot be stored for long duration. The appellant has to prepare the Namkeens etc. daily and the prepared materials are sold within 2-3 days. Therefore, addition can only be made with regard to initial investment in purchase of raw material for sale of 3 days. The daily sales as estimated by the AO come to Rs.12,632/-. The appellant declared gross profit at the rate of 13.74 percent. By applying this gross profit rate, the cost of daily production comes to Rs.10,896/-. Therefore, the appellant incurred cost of Rs.10896x3 = Rs.32,688/- for initial production of three days. It can be presumed that after this the purchases might have been made out of receipts of unaccounted sales. In addition to that gross profit of unaccounted sales made during the year can be added. Therefore, the gross profit for the year is calculated on the unaccounted sales of Rs.46,10,880/- by applying gross profit @ 13.74 % which comes to Rs.6,33,534/-. Hence addition to the extent of Rs.6,66,222/- (6,33,534 + 32688) is sustained out of addition made by the AO of Rs.46,10,880/-. 5 ITA No. 308/JP/2023 Shri Sunil Dutt Jain, Ajmer. Aggrieved by the order of ld. CIT (Appeals), now the assessee is in appeal before us. 3. Before us, the ld. A/R submitted that the only issue in this appeal is can the addition be made on the basis of unrecorded sales found in the month of October, 2016 by interpolating it over the entire Financial year by applying G.P. rate on alleged unaccounted sales and making addition for alleged unexplained initial investment in production. He further submitted that the papers based on which allegation of unrecorded sales is made is found only for the period 24.09.2016 to 08.11.2016 and based on that the suppressed sales is found to be of 4803 kg valued at Rs.3,84,240/-. Apart from this no incriminating material of unrecorded sale/production was found during the course of search. Even though brother of assessee in his statement interpolated it for 6 years which was also confirmed by the assessee but subsequently the same was retracted with a request that unaccounted sales can be assumed only for the financial year 2016-17. In assessment proceedings, the AO also accepted this but made addition for the alleged unaccounted sales of full year which is reduced by the ld. CIT(A) by applying G.P. rate. 3.1 From the above it can be noted that incriminating material is found alone for the month of October, 2016. The search took place in the month of September, 2018. Neither before October, 2016 nor after October, 2016 any incriminating material is found to allege any unaccounted sale/production. Hon’ble Supreme Court in case of PCIT Vs. Abhisar Buildwell Pvt. Ltd. (2023) 225 DTR (SC) 105 at Para 11 of its order has observed that “ on true interpretation of s. 153A of 6 ITA No. 308/JP/2023 Shri Sunil Dutt Jain, Ajmer. the Act, 1961, in case of a search under s. 132 or requisition under s. 132A and during the search any incriminating material is found, even in case of unabated/completed assessment, the AO would have the jurisdiction to assess or reassess the ‘total income’ taking into consideration the incriminating material collected during the search and other material which would include income declared in the returns, if any, furnished by the assessee as well as the undisclosed income. However, in case during the search no incriminating material is found, in case of completed/unabated assessment, the only remedy available to the Revenue would be to initiate the reassessment proceedings under ss. 147/148 of the Act, subject to fulfilment of the conditions mentioned in ss. 147/148, as in such a situation, the Revenue cannot be left with no remedy .” Thus, without any evidence of unrecorded sale/ production, the same cannot be interpolated for the entire year but restricted only to the extent of incriminating document found. Therefore, the addition if any, should be confirmed by applying g.p. rate of 13.74% on unrecorded sales of Rs.3,84,240/-, i.e. Rs.52,795/- as against Rs.6,33,534/- confirmed by Ld. CIT(A). 3.2 The Ld. CIT(A) has also made addition for unexplained initial investment of Rs.32,688/-. This addition is only on presumption without any incriminating material found in search. Even on the date of search no excess stock was found. Hence, the addition made solely on the basis of surmises & conjectures be directed to be deleted. In view of above, addition of Rs.6,66,222/- confirmed by Ld. CIT(A) be directed to be restricted to Rs.52,795/-. 7 ITA No. 308/JP/2023 Shri Sunil Dutt Jain, Ajmer. 4. On the other hand, the ld. D/R supported the orders of the revenue authorities. 5. We have heard rival contentions, perused the material on record and gone through the orders of the revenue authorities and the case laws cited before us. We note that the unrecorded sales found for the period 24.09.2016 to 08.11.2016 was of 4803 kg valued at Rs.3,84,240/- but the AO has estimated it for the whole year at Rs.46,10,880/- (3,84,240*12) and made the addition. But the ld. CIT(A) restricted it to Rs.6,33,534/- by applying g.p. rate of 13.74% on such sales and also made addition of Rs.32,688/- on account of initial investment in production. We find that evidence of unrecorded sales was found of Rs.3,84,240/- only and therefore interpolating it for 12 months is not justified in view of decision of Hon’ble Supreme Court in case of PCIT Vs. Abhisar Buildwell Pvt. Ltd. (2023) 225 DTR (SC) 105 wherein the Hon’ble Supreme Court held that in the absence of incriminating material found in search, no addition can be made u/s 153A. Thus, respectfully following the decision of Hon’ble Supreme Court, we direct that addition be confirmed by applying g.p. rate of 13.74% on unrecorded sale of Rs.3,84,240/- and thus addition of Rs.52,795/- is confirmed as against Rs.6,33,534/- confirmed by the ld. CIT(A). Further, the addition for initial investment of Rs.32,688/- is also deleted in the absence of any incriminating material considering the fact that on the date of search no excess stock was found. Hence, the ground of the assessee is partly allowed. 8 ITA No. 308/JP/2023 Shri Sunil Dutt Jain, Ajmer. 6. In the result, this appeal of the assessee is partly allowed. Order pronounced in the open court on 29/08/2023. Sd/- Sd/- ¼ jkBkSM+ deys'k t;arHkkbZ ½ ¼lanhi xkslkbZ½ (RATHOD KAMLESH JAYANTBHAI) (SANDEEP GOSAIN) ys[kk lnL;@ Accountant Member U;kf;d lnL;@Judicial Member Tk;iqj@Jaipur fnukad@Dated:- 29/08/2023. Das/ vkns'k dh izfrfyfi vxzsf’kr@Copy of the order forwarded to: 1. vihykFkhZ@The Appellant- Shri Sunil Dutt Jain, Ajmer. 2. izR;FkhZ@ The Respondent- The ACIT, Central Circle, Ajmer. 3. vk;dj vk;qDr@ CIT 4. vk;dj vk;qDr@ CIT(A) 5. foHkkxh; izfrfuf/k] vk;dj vihyh; vf/kdj.k] t;iqj@DR, ITAT, Jaipur. 6. xkMZ QkbZy@ Guard File {ITA No. 308/JP/2023} vkns'kkuqlkj@ By order, lgk;d iathdkj@Asst. Registrar