ITO, New Delhi V. M/s. Perfect Agro Mills Pvt. Ltd., New Delhi

ITA 3243/DEL/2010

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 3948 (ITAT-DELHI)
• Duration Of Justice: 10 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-05-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: F
• Next Hearing Date: 11-05-2011
• Assessment Year: 2006-2007
• Appeal Filed On: 01-07-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Business income; Income from undisclosed sources

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH : F NEW DELHI) (DELHI BENCH : F NEW DELHI) (DELHI BENCH : F NEW DELHI) (DELHI BENCH : F NEW DELHI) BEFORE SHRI G.E. VEERABHADRAPPA, HONBLE VICE PRES IDENT AND BEFORE SHRI G.E. VEERABHADRAPPA, HONBLE VICE PRES IDENT AND BEFORE SHRI G.E. VEERABHADRAPPA, HONBLE VICE PRES IDENT AND BEFORE SHRI G.E. VEERABHADRAPPA, HONBLE VICE PRES IDENT AND SHRI A.D. JAIN, JUDICIAL MEMBER SHRI A.D. JAIN, JUDICIAL MEMBER SHRI A.D. JAIN, JUDICIAL MEMBER SHRI A.D. JAIN, JUDICIAL MEMBER I.T.A. NO.3243/DEL./2010 I.T.A. NO.3243/DEL./2010 I.T.A. NO.3243/DEL./2010 I.T.A. NO.3243/DEL./2010 (ASSESSMENT YEAR : 2006 (ASSESSMENT YEAR : 2006 (ASSESSMENT YEAR : 2006 (ASSESSMENT YEAR : 2006- -- -07) 07) 07) 07) ITO, WARD 2, ITO, WARD 2, ITO, WARD 2, ITO, WARD 2, VS. VS. VS. VS. M/S PERFECT AGRO MILL M/S PERFECT AGRO MILL M/S PERFECT AGRO MILL M/S PERFECT AGRO MILLS P. LTD., S P. LTD., S P. LTD., S P. LTD., NEW DELHI. NEW DELHI. NEW DELHI. NEW DELHI. 2335, NATHU HAZI BUILDING, 2335, NATHU HAZI BUILDING, 2335, NATHU HAZI BUILDING, 2335, NATHU HAZI BUILDING, CHUNA MANDI, PAHAR GANJ, CHUNA MANDI, PAHAR GANJ, CHUNA MANDI, PAHAR GANJ, CHUNA MANDI, PAHAR GANJ, NEW DELHI NEW DELHI NEW DELHI NEW DELHI- -- -15. 15. 15. 15. (PAN/GIR NO. : AAACP88891P) (PAN/GIR NO. : AAACP88891P) (PAN/GIR NO. : AAACP88891P) (PAN/GIR NO. : AAACP88891P) (APPELLANT) (APPELLANT) (APPELLANT) (APPELLANT) (RESPONDENT) (RESPONDENT) (RESPONDENT) (RESPONDENT) ASSESSEE BY : NONE ASSESSEE BY : NONE ASSESSEE BY : NONE ASSESSEE BY : NONE REVENUE BY : SMT. ANUSHA KHURANA, SR.DR REVENUE BY : SMT. ANUSHA KHURANA, SR.DR REVENUE BY : SMT. ANUSHA KHURANA, SR.DR REVENUE BY : SMT. ANUSHA KHURANA, SR.DR ORDER ORDER ORDER ORDER PER A.D. JAIN, JM THIS IS DEPARTMENTS APPEAL FOR ASSESSMENT YEAR 2006-07 CONTENDING THAT THE CIT(A) HAS ERRED IN DELETING THE ADDITION OF `2726365, ON ACCOUNT OF UNACCOUNTED CLOSING STOCK. 2. THE ASSESSEE COMPANY FILED A RETURN OF INCOME DECLAR ING INCOME OF `105429. THE AO NOTICED THE ASSESSEE TO HAVE PAID E XCISE DUTY OF `50 LAKHS. IN ENQUIRY, THE ASSESSEE FILED COPY OF ORDER DATED 31.01.07, PASSED BY THE INCOME TAX SETTLEMENT COMMISSION, ADMITTI NG THE CASE. THIS REVEALED THAT THERE HAD BEEN A SEARCH OPERATION BY THE CENTRAL EXCISE DEPTT., ON THE ASSESSEE ON 27.2.06. THEREIN, ON PHYSICAL VERIFICATION OF THE STOCK IN THE FACTORY OF THE ASSESSEE , IT WAS FOUND THAT GOODS, VALUE OF `2726365 HAD NOT BEEN ACCOUNTED FOR IN THE STATUTORY RECORD. THESE GOODS WERE SEIZED. ALSO, A PEN DRIVE WAS SEIZED FROM THE RESPONSE OF SHRI HARBHAJAN SINGH, ONE OF THE DIRECTOR OF THE ASSESSEE COMPANY, THIS PEN DRIVE CONTAINED RELEVA NT DATA WITH REGARD TO THE UNACCOUNTED SALES MADE DURING THE PERIO D FROM 1.4.03 TO 27.2.06, I.E., THE DATE OF THE SEARCH CONDUCTED BY T HE CENTRAL EXCISE I.T.A. NO.3243/DEL./2010 (A.Y. : 2006-07) 2 DEPARTMENT. THE CENTRAL EXCISE DEPTT. RETRIEVED THE DATA IN THE PRESENCE OF SHRI HARBAHAJAN SINGH. A SHOW-CAUSE NOTIC E WAS ISSUED TO THE ASSESSEE. THEREUPON, THE ASSESSEE HAD FILED A PETITION BEFORE THE INCOME TAX SETTLEMENT COMMISSION FOR SETTLEMENT OF THE CASE. THE INCOME TAX SETTLEMENT COMMISSION, VIDE THE AFORESAID O RDER DATED 31.1.07, ADMITTED THE PETITION, WHEREIN, THE UNACCO UNTED SALES OF `56083996, HAD BEEN ADMITTED. THE EXCISE DUTY PAYAB LE DETERMINED AT `96,00833, AFTER ALLOWING BENEFIT OF COME DUTY V ALUE FOR FINANCIAL YEARS 2003-04 TO 05-06. 3. THE AO OF THE ASSESSEE OBTAINED INFORMATION FROM THE EXCISE & CUSTOMS DEPTT., REGARDING THE UNACCOUNTED SALES. THE A SSESSEE WAS ASKED TO FURNISH THE DETAILS OF THE INVESTMENT MADE IN MANUFACTURING THE GOODS SOLD OUTSIDE THE BOOKS OF ACCOUNT AND TO PROV IDE YEAR- WISE/MONTH-WISE BREAK-UP OF SALES MADE DURING THE PERIO D COVERED UNDER THE SEARCH MADE BY THE CENTRAL EXCISE DEPARTMEN T. 4. THE ASSESSEE, VIDE ORDER DATED 22.12.08, SURRENDED A SUM OF `35 LAKHS ON ACCOUNT OF INVESTMENT AND PROFIT EARNED IN R ESPECT OF UNACCOUNTED SALES FOR ASSESSMENT YEARS 2003-04 TO 05-06 WI TH THE CONDITION THAT THE CASES FOR THE ASSESSMENT YEARS 2004-05 TO 05-06 WOULD NOT BE REOPENED AND NO PENAL ACTION WOULD BE INITIATED. ALSO, AN YEAR-WISE CHART OF SALES MADE WAS SUBMITTED BY THE ASSE SSEE. THE DETAILS OF SALES TURNOVER, AND COMPARATIVE P&L A/C FEL L IN DIFFERENT ASSESSMENT YEARS. 5. THE AO DID NOT ACCEPT THE CONDITIONAL SURRENDER. IT WAS OBSERVED THAT UNDER THE I.T. ACT, INCOME IS TO BE TAX ED ON A YEARLY BASIS RATHER THAN OF A CONSOLIDATED BASIS. THE AO, ON T HE BASIS OF INFORMATION AVAILABLE ON RECORD, RECAST THE MANUFACT URING ACCOUNT TO ARRIVE AT THE GROSS PROFIT. HE COMPUTED THE UNACCOUN TED GROSS PROFIT AT `8326976 FOR THE YEAR UNDER CONSIDERATION AND THE UNACCOUNTED INCOME AT `70,86,138, IN RESPECT OF INVOICED SALE. A CCORDINGLY, A TOTAL ADDITION OF `15413144 WAS MADE ON THIS ACCOUNT. ALSO, AN ADDITION OF I.T.A. NO.3243/DEL./2010 (A.Y. : 2006-07) 3 `2726365 WAS MADE ON UNACCOUNTED CLOSING STOCK FOUND BY THE EXCISE DEPTT. IT IS THIS LATTER ADDITION, WHICH IS AT ISSUE HE REIN. 6. BY VIRTUE OF THE IMPUGNED ORDER, THE CIT(A) DELE TED THIS ADDITION, GRIEVANCING THE DEPARTMENT, WHICH IS IN APPEAL BEFOR E US. 7. THE LD.DR HAD FILED AN APPLICATION FOR ADJOURNME NT WHICH HAS BEEN REJECTED. 8. NONE HAS PUT IN APPEARANCE ON BEHALF OF THE ASSESSEE DESPITE NOTICE. 9. FINDING THAT THE MATTER CAN BE PROCEEDED AS SUCH, WE ARE DOING SO. 10. CHALLENGING THE IMPUGNED ORDER, THE LD.DR HAS AR GUED THAT WHILE WRONGLY DELETING THE ADDITION OF `2726365, CO RRECTLY MADE BY THE AO ON ACCOUNT OF UNACCOUNTED CLOSING STOCK, THE CIT(A ) HAS FAILED TO APPRECIATE THAT THE ADDITION ON ACCOUNT OF UNACCOUN TED CLOSING STOCK WAS SEPARATELY REQUIRED TO BE MADE, EVEN IF ADDITION HAD BEEN MADE ON ACCOUNT OF G.P. RATE; THAT THE CIT(A) HAS FAILED TO APPRECIATE THAT THE ADDITION ON ACCOUNT OF G.P. RATE DOES NOT, IN ANY MA NNER, COVERED THE UNACCOUNTED CLOSING STOCK OF `2726365, AS FOUND BY THE CENTRAL EXCISE DEPTT; AND THAT THE PROCEEDINGS BEFORE THE INCOME TA X SETTLEMENT COMMISSION ARE ENTIRELY DIFFERENT FOR THE INCOME-TAX PROCEEDINGS. 11. HAVING HEARD THE LD.DR. AND HAVING PERUSED THE M ATERIAL ON RECORD, IT IS SEEN THAT THE CIT(A) HAD FOLLOWED THE O RDER OF INCOME TAX SETTLEMENT COMMISSION, AND IT WAS HELD THAT THE INCOME HAD TO BE COMPUTED BY APPLYING A G.P. RATE OF 20%. IT WAS FOR THIS REASON THAT THE CIT(A) HELD THAT THERE WAS NO BASIS FOR SUSTAINING ANY FURTHER ADDITION IN THE TRADING ACCOUNT, NAMELY, CLOSINGS STOC K. 12. IT WOULD BE APPROPRIATE TO REPRODUCE HEREUNDER THE OBSERVATION OF THE INCOME TAX SETTLEMENT COMMISSION, AS NOTED BY T HE CIT(A): TOWARDS THE CONCLUSION OF THE HEARING, A LETTER WAS FI LED BY THE APPLICANT IN WHICH IT HAS AGAIN BEEN REITERATED THAT THE FIGURES CONTAINED IN THE PEN DRIVE SEIZED BY THE CENTRAL EXC ISE I.T.A. NO.3243/DEL./2010 (A.Y. : 2006-07) 4 AUTHORITIES WERE NOT COMPLETE AND THAT IT WAS ESTABLISH ED BEFORE THE ADDL. CIT (INV.) THAT THERE WAS EVIDENCE OF UNDE R INVOICING OF BOTH PURCHASES AND SALES OUTSIDE THE BOOKS OF ACCOUNT AND THAT THERE WAS RECORD OF SOME EXPENSES ALSO OUTSIDE THE BOOKS O F ACCOUNT. IN A SPIRIT OF SETTLEMENT, THE APPLICANT HAS CALCULATED HIS INCOME BY APPLYING A GROSS PROFIT RATE OF 20% ON SALES AND DEDUCTED THEREFROM EXPENSES AS PER THE BOOKS. AS PER WOR KING GIVEN ON PAGE 3 OF THIS LETTER INCOME OF RS. 17,41,46 1 /- IS WORKED OUT FOR ASSTT. YEAR 2004-05 AND FOR ASSTT. YEAR 2005-06 OF RS.71,51, 107/-. THE APPLICANT HAS ALSO SUBMITTED THAT THERE WAS NO FURTHER INVESTMENT REQUIRED IN THESE YEARS AS THE AP PLICANT WAS IN THE BUSINESS FOR THE PAST MANY YEARS. IT HAS BEEN ST ATED THAT IN A SPIRIT OF SETTLEMENT THE APPLICANT WAS OFFER ING A TOTAL SUM OF RS.1,OO,00,000/- I.E. -RS. 28, 00, 000/- FOR A SSTT. YEAR 2004-05 AND RS. 72,00,000/- FOR ASSTT. YEAR 2005-06. T HE APPLICANT HAS ALSO REQUESTED THAT EXCISE DUTY CLAIMED I N THE SOF MAY BE ALLOWED IN THE YEAR OF PAYMENT. WE FIND THAT THE APPLICANT'S CLAIM OF THERE BEING UN DER INVOICING IN PURCHASES ALSO IS BORNE OUT FROM THE INVEST IGATIONS MADE BY THE INVESTIGATION WING OF THE ITSC, THEREFOR E, IN THE CIRCUMSTANCES WE FIND NO JUSTIFICATION FOR TREATING TH E ENTIRE UNDER INVOICED SALES AS PROFIT. NO SERIOUS DISCREPANCY WA S POINTED OUT BY THE CIT(DR) IN THE FIGURE OF SATES SHOW N BY THE APPLICANT IN ITS LETTER DATED 7.1.2010, THE FIGURES W ORKED OUT BY THE ADIT(LNV.). THE GROSS PROFIT RATE OF 20% APPLIED BY THE APPLICANT IS FOUND TO BE REASONABLE BY US. THE DEDUCTI ON OF EXPENSES AS PER BOOKS HAS ALSO NOT BEEN DISPUTED BY THE DEPARTMENT. FURTHER, IN VIEW OF THE APPLICANT'S OFFE R OF RS. 28,00,000/- AGAINST PROFIT WORKED OUT FOR ASSTT. YEAR 2004-05 OF RS. 17,41,461/- IN THE APPLICANT'S LETTER DATED 7.1.2 010, WILL ALSO TAKE CARE OF ANY EXTRA INITIAL INVESTMENT. SIMILARLY , THE OFFER OF RS. 72,00,000/- FOR ASSTT. YEAR 2005-06 IS MORE THAN TH E PROFIT CALCULATED ON THE BASIS OF APPLICATION OF GROSS PROFIT RATE OF 20% AND DEDUCTING THERE FROM THE EXPENSES AS PER BOOKS. IN VIEW OF THE ABOVE DISCUSSION, THE OFFER OF RS. 1,00,00,000/- MADE BY THE APPLICANT I.E. OF RS. 28,0 0,000 IN ASSESSMENT YEAR 2004-05 AND OF RS.72,00,000 IN ASSESSMENT YEAR 2005-06 IS ACCEPTED. I.T.A. NO.3243/DEL./2010 (A.Y. : 2006-07) 5 13. IT HAS BEEN FOUND AS A FACT BY THE CIT(A) THAT TH E FACTS AND DATA EMERGING FROM THE PEN DRIVE SEIZED DURING THE SEARCH CONDUCTED BY THE CENTRAL EXCISE DEPTT., AND THOSE BEFORE THE INCOM E TAX SETTLEMENT COMMISSION, WERE EXACTLY THE SAME, FOR THE THREE YEARS. THE CIT(A) OBSERVED AND, IN OUR CONSIDERED OPINION, CORRECTLY SO, THAT THERE WAS NO EVIDENCE OF UNDER-INVOICING OF PURCHASE AND SALE O UTSIDE THE BOOKS OF ACCOUNT DURING THE YEAR UNDER CONSIDERATION ALSO; AND THAT SINCE THE INCOME TAX SETTLEMENT COMMISSION HAD HELD IT TO BE A CASE OF APPLICATION OF GROSS PROFIT ONLY AND THE ASSESSEE WAS CAR RYING ON THE SAME BUSINESS OF MANUFACTURE OF PLYWOOD IN ALL THE THRE E YEARS, THERE WAS NO REASON NOT TO FOLLOW THE ORDER OF THE INCOME T AX SETTLEMENT COMMISSION. 14. THE ABOVE FACTS REMAIN UNDISPUTED WHEN ONCE THE E VIDENCE OF UNDER-INVOICING OF PURCHASES AND SALES OUTSIDE THE BOOKS OF ACCOUNT DURING THE YEAR AS HAS BEEN HELD BY THE INCOME TAX SE TTLEMENT COMMISSION. IT BECOMES A CASE OF GROSS PROFIT ONLY. THE CIT(A) WAS CORRECT IN LAW IN APPRECIATING THE FACTS FROM THE OR DER OF THE INCOME TAX SETTLEMENT COMMISSION, AND WE AGREE WITH HIM TO A PPLY THE RATE OF 20% ON THE TOTAL SALES INCLUDING DISCLOSED AND UNDI SCLOSED SALES. THAT BEING SO, THERE IS NO BASIS FOR SUSTAINING FURTHER A DDITION IN THE TRADING ACCOUNT BY HOLDING THAT THERE EXISTED A CLOSI NG STOCK OUTSIDE THE BOOKS OF ACCOUNT. WE AGREE WITH THE VIEW OF THE CIT(A) THAT IT DOES NOT REQUIRE A SEPARATE ADDITION ON ACCOUNT OF CLOSING STOCK AND THE SAME IS COVERED BY THE GROSS PROFIT ADDITION WHICH IS UL TIMATELY SUSTAINED ON THE BASIS OF THE ORDER PASSED BY THE INCOME TAX SETTLEMENT COMMISSION. WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE CIT(A) AND THE SAME IS HEREBY CONFIRMED. 15. IN VIEW OF THE ABOVE, FINDING NO MERIT THEREIN, THE GRIEVANCE SOUGHT TO BE RAISED BY THE DEPARTMENT IS REJECTED. I.T.A. NO.3243/DEL./2010 (A.Y. : 2006-07) 6 16. IN THE RESULT, THE APPEAL FILED BY THE DEPARTMEN T IS DISMISSED. ORDER PRONOUNCE DIN OPEN COURT ON 13.05.2011. SD/- SD/- (G.E. VEERABHADRAPPA) (A.D. JAIN) VICE PRESIDENT JUDICIAL MEMBER DATED: MAY 13, 2011. *SKB* COPY FORWARDED TO:- 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT 4. THE CIT(A)-XVII, NEW DELHI. 5. THE DR, ITAT, LOKNAYAK BHAWAN, KHAN MARKET, NEW DELHI. AR/ITAT