M/S BEACH MINERAALS COMPANY, TIRUNELVELI KUTTAM KUTTAM B.O. V. ACIT CENTRAL CIRCLE-1, , MADURAI

ITA 366/CHNY/2023

AI Insights

The case involves cross-appeals by M/s. Beach Minerals Company and the Income Tax Department against the order of the CIT(Appeals)-19, Chennai, concerning the Assessment Year 2013-14. The primary issues revolved around the rejection of the assessee's books of accounts and the estimation of profit at 30% of total turnover by the CIT(Appeals). The Tribunal examined the discrepancies in the accounts, the method of accounting used by the assessee, and the impact of these factors on the assessed income. The Tribunal found that the CIT(Appeals) had correctly rejected the books of accounts but modified the profit estimation percentage to 2.21% based on a more reasonable average of profits from comparable years.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 133419 (ITAT-CHENNAI)
• Duration Of Justice: 4 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-08-2023
• Appeal Filed By: Assessee
• Order Result: PartlyAllowed
• Bench Allotted: C
• Next Hearing Date: 21-06-2023
• Assessment Year: 2013-2014
• Appeal Filed On: 21-03-2023
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Unexplained cash credit; Rejection of books of accounts; Business income; Wrong claim; Set aside
• Section: 132; 143(3); 153A; 40(a)(ia); 37(1); 10B; 143(2); 145(3)

Judgement Text

आयकर अपीलीय अधिकरण, “सी” न्यायपीठ, चेन्नई में। IN THE INCOME TAX APPELLATE TRIBUNAL, CHENNAI BENCH, CHENNAI BEFORE SHRI V. DURGA RAO, JUDICIAL MEMBER AND SHRI ARUN KHODPIA, ACCOUNTANT MEMBER आयकर अपील सं. / ITA No. 366/Chny/2023 धनिाारण वर्ा / Assessment Year : 2013-14 M/s. Beach Minerals Company 125, Triuchendur Road, Tirunelveli Kuttam, Kuttam B.O. 627 651 Tamil Nadu. PAN : AAJFB3329C .......अपीलार्थी / Appellant बनाम / V/s. The Assistant Commissioner of Income Tax, Central Circle-1, Madurai. ......प्रत्यर्थी / Respondent आयकर अपील सं. / ITA No. 532/Chny/2023 धनिाारण वर्ा / Assessment Year : 2013-14 The Deputy Commissioner of Income Tax, Central Circle-1, Madurai. .......अपीलार्थी / Appellant बनाम / V/s. M/s. Beach Minerals Company 125, Triuchendur Road, 2 M/s. Beach Minerals Company Vs. ACIT, CC-1, Madurai ITA Nos. 366 & 532/Chny/2023 Tirunelveli Kuttam, Kuttam B.O. 627 651 Tamil Nadu. PAN : AAJFB3329C ......प्रत्यर्थी / Respondent Assessee by : Mr. Arjun Raj, CA Revenue by : Mr. R. Clement Ramesh Kumar, CIT सुनवाई की तारीख / Date of Hearing : 22.06.2023 घोर्णा की तारीख / Date of Pronouncement : 09.08.2023 आदेश / ORDER PER ARUN KHODPIA, AM: These cross-appeals filed by the assessee and the revenue are directed against the order of the Ld. CIT(Appeals)-19, Chennai dated 27.02.2023 for A.Y.2013-14. Grounds of appeal raised by the assessee as well as by the revenue are as under: Grounds of appeal (by Assessee) “1. The order of the CIT(Appeals) -19 dated 27.02.2023 vide DIN & Order No. ITBA/APL/M/250/2022-23/1050147889(1) for the above-mentioned Assessment Year is contrary to law, fact and in circumstances of the case. 2. The CIT(Appeals) erred in confirming the assumption of jurisdiction u/s.153A of the Act and consequently erred in sustaining the search assessment completed without assigning proper reasons and justification. 3. The CIT(Appeals) failed to appreciate that the order under consideration was passed out of time, invalid, passed without jurisdiction and not sustainable both on facts and in law and ought 3 M/s. Beach Minerals Company Vs. ACIT, CC-1, Madurai ITA Nos. 366 & 532/Chny/2023 to have appreciated that lack of valid seized materials for the purpose of quantifying the income escaped from taxation in terms of Section 153A of the Act would vitiate the additions made in the search assessment on various facets including the findings in Para 9 & 10 of impugned order. 4. The CIT (Appeals) erred in rejecting the books of accounts based on the findings recorded from para 39 of the impugned order by invoking the provisions of Section 145(3) of the Act and consequently erred in estimating the profits at 30% of the total turnover for the purpose of taxation without assigning proper reasons and justification. 5. The CIT (Appeals) ought to have appreciated that the provisions of Section 145(3) of the Act had no application to the appellate powers and ought to have appreciated that in the absence of in the satisfaction on the part of the Assessing Officer on the correctness of the books maintained including the absence of any pleading/prayer/suggestion from the office of the JAO, the rejection of the books of accounts for estimating the profit for taxation should be reckoned as bad in law. 6. The CIT (Appeals) failed to appreciate that in any event the estimation of profit at an exorbitant rate of 30% was wrong, erroneous, incorrect, invalid, unjustified and not sustainable both on facts and in law and further ought to have appreciated that there was no scientific reasons assigned for estimating the profit at 30% thereby vitiating the findings rendered in Para 46 of the impugned order. 7. The CIT (Appeals) failed to appreciate that having completed a regular scrutiny assessment u/s 143(3) of the Act on 08.03.2016 and further having searched the premises of the Appellant u/s 132 of the Act, the absence of incriminating materials for rejecting the books of accounts would support the plea for adjudication of the issues raised on additions forming part of the computation of taxable total income in the search assessment order passed by the JAO. 8. The CIT (Appeals) erred in not adjudicating the issue of disallowance of production and processing expenses aggregating to a sum of Rs.3,97,46,424/- as per para 18(iii) of the assessment order without assigning proper reasons and justification. 9. The CIT (Appeals) erred in not adjudicating the issue of disallowance of production and processing expenses aggregating to a 4 M/s. Beach Minerals Company Vs. ACIT, CC-1, Madurai ITA Nos. 366 & 532/Chny/2023 sum of Rs.15,41,63,770/- as per para 19(ii) of the assessment order without assigning proper reasons and justification. 10. The CIT (Appeals) erred in not adjudicating the issue of disallowance of repairs and maintenance expenses aggregating to a sum of Rs.16,57,75,468/- as per para 20(iii) of the assessment order without assigning proper reasons and justification. 11. The CIT (Appeals) erred in not adjudicating the issue of disallowance of salary charged under the head 'vehicle spare parts & others' aggregating to a sum of Rs.4,05,43,898/- as per para 21(iii) of the assessment order without assigning proper reasons and justification. 12. The CIT (Appeals) erred in not adjudicating the objection to the action of the Assessing Officer being the credit entry appearing in the name of M/s Beach Minerals Sands Company as unexplained aggregating to a sum of Rs.4,31,49,643/- as per para 22(iii) of the assessment order as part of the computation of taxable total income without assigning proper reasons and justification. 13. The CIT (Appeals) erred in not adjudicating the objection to the action of the Assessing Officer in adding back the credit entry appearing in the name of M/s Balamurgan Chemicals P Ltd. as unexplained aggregating to a sum of Rs.23,10,52,649/- as per para 23(iii) of the assessment order as part of the computation of taxable total income without assigning proper reasons and justification. 14. The CIT (Appeals) erred in not adjudicating the issue of disallowance of land development expenses aggregating to a sum of Rs.68,47,351/- as per para 24(iii) of the assessment order without assigning proper reasons and justification. 15. The CIT (Appeals) erred in not adjudicating the issue of disallowance of Rs.22,24,018/- u/s 40(a)(ii) of the Act as per the assessment order dated 8.3.2016 without assigning proper reasons and justification. 16. The CIT (Appeals) erred in not adjudicating the issue of disallowance of Rs.2,80,00,000/- u/s 37(1) of the Act being certain expenses as per the assessment order dated 8.3.2016 without assigning proper reasons and justification. 17. The CIT (Appeals) erred in not adjudicating the issue of disallowance of Rs.1,96,604/- u/s 40(a)(ia) of the Act being C & F expenses as per the assessment order dated 8.3.2016 without assigning proper reasons and justification. 5 M/s. Beach Minerals Company Vs. ACIT, CC-1, Madurai ITA Nos. 366 & 532/Chny/2023 18. The CIT (Appeals) erred in not adjudicating the issue of disallowance of Rs.77,13,946/- u/s 37(1) of the Act being certain expenses as per the assessment order dated 8.3.2016 without assigning proper reasons and justification. 19. The CIT (Appeals) erred in not adjudicating the issue of disallowance of Rs.19,47,402/- u/s 40(a)(ia) of the Act being the interest payments as per the assessment order dated 8.3.2016 without assigning proper reasons and justification. 20. The CIT(Appeals) failed to appreciate that the presumption of two sets of accounts was wholly unjustified and ought to have appreciated that the reliance placed on the information/statements was completely misplaced, thereby vitiating the addition made as part of the computation of taxable total income. 21. The CIT(Appeals) failed to appreciate that the audited / completed books maintained in tally (`accounted tally') should be considered as correct and ought to have appreciated that having not given any justifiable reasons for rejection of the books as maintained, the rejection of such books without examining the correctness of the same was wrong, erroneous, incorrect, invalid, unjustified and not sustainable both on facts and in law. 22. The CIT(Appeals) failed to appreciate that having accepted the sales turnover as per the audited financials / complete set of books, the presumption of profit at the rate of 30% by impliedly confirming the charge of expenses in the said books as bogus without conducting necessary cross verification should be considered as unreasonable and in this regard further ought to have appreciated that the mechanical approach in adopting the incomplete books had distorted the true profits for taxation thereby vitiating the related findings in the impugned order. 23. The CIT(Appeals) failed to appreciate that the additions made without issuing appropriate show cause notice in the course of completing the search assessment should be reckoned as bad in law and further ought to have appreciated that there was complete violation of the principles of natural justice while such violation would render the consequential order as nullity in law. 24. The CIT(Appeals) failed to appreciate that there was no effective/proper opportunity given before the impugned order and any other passed in violation of the principles of natural justice is nullity in law. 6 M/s. Beach Minerals Company Vs. ACIT, CC-1, Madurai ITA Nos. 366 & 532/Chny/2023 25. The Appellant craves leave to file additional grounds/arguments at the time of hearing.” Grounds of appeal ( by the Revenue) 1. The order of the learned Commissioner of Income Tax (Appeals) is erroneous on facts of the case and in law. 2. The Ld. CIT(A) erred in restricting the total disallowance of 104.69 Crores made in the assessment order to 30% of Sales turnover of Rs.183.35 Crores. 2.1 The CIT(A) erred in failing to appreciate that the assessment was made based on the incriminating materials seized during the course of search in the form two sets of accounts for the FY 2012-13 - One for the purpose of ascertaining actual profit from the business and other for the purpose of filing Income tax return. 2.2 The CIT(A) failed to appreciate that the assessee has made inflation of expenses under the head "Production and Processing expenses" land development expenses, unexplained credit entries in the name of group companies with the intention to suppress the actual profit in the return of income filed. 2.3 The Ld. CIT(A) erred in observing that the reasons given by the assessee for discrepancies in the accounts are reasonable and acceptable, without appreciating that the modus operandi adopted by the assessee (ie) maintaining two sets of accounts and inflation of expenses in the books of accounts considered for the purpose of filing IT returns was accepted by Shri. P. Senthil Muthukumar, Accounts Manager of M/s. Beach Minerals Company in his sworn statement dated 14/11/2018. 2.4 The Ld. CIT(A) erred in observing and concluding that since the AO had disallowed certain expenditure in the earlier assessment 143(3) proceedings, the assessee had maintained bills and vouchers for the expenses, without appreciating that the assessee had not neither filed evidence for expenses not adduced proper explanation for the discrepancies between the two sets of accounts during 153A assessment proceedings. Further, the present assessment is based on the entirely new set of facts arising out of materials seized during the search. 2.5 The Ld. CIT(A) erred in observing that the books of accounts of assessee, which are inaccurate, do not facilitate arriving at true and correct profits of the appellant and they are required to be rejected by invoking provisions of Sec.145(3) of the Act, without appreciating 7 M/s. Beach Minerals Company Vs. ACIT, CC-1, Madurai ITA Nos. 366 & 532/Chny/2023 that the assessing officer did not find fault with the method of accounting but additions were made in the order u/s.143(3) r.w.s.153A on the basis of incriminating seized materials and for the reason that the assessee had not given proper explanation in respect of inflated expenses and unexplained credit entries found in the set of accounts relied on for the purpose of filing income tax return. 2.6 The Ld. CIT(A) erred in directing the assessing officer to estimate the business income © 30% of total sales turnover in the search assessment, especially when there were seized materials unearthed during the search, which were further corroborated by sworn statement recorded u/s.132(4). 3. For these grounds and any other ground including amendment of grounds that may be raised during the course of the appeal proceedings, the order of learned CIT(Appeals) may be set aside and that of the Assessing Officer be restored.” 2. Brief facts of the case are that the appellant assessee is a firm engaged in the business of mining, processing and refining of various beach minerals for industrial applications. The appellant primarily makes export sales of the beach minerals. The return of income for A.Y.2013-14 u/s.139 of the Income Tax Act, 1961 (for short ‘Act’) was filed on 26.09.2013 admitting total income of Rs.9,52,760/-. Original assessment u/s.143(3) of the Act was completed vide order dated 08.03.2016 determining total income of Rs.4,04,46,439/-. Subsequently, search and seizure operation was conducted on the assessee on 25.10.2018. The search action was on the various entities and individuals of the group including the assessee firm got completed on 21.12.2018. Notice u/s. 153A of the Act for A.Y.2013-14 was issued on 3 rd January, 2020. Return in response to the said notice was filed by the assessee on 10.11.2020 8 M/s. Beach Minerals Company Vs. ACIT, CC-1, Madurai ITA Nos. 366 & 532/Chny/2023 admitting total income of the assessee at Rs.9,52,760/-. Notice u/s. 143(2) of the Act was issued on 12.11.2020. The Authorized Representative of the assessee submitted details pertaining to the computation of income statement, profit and loss account etc. on 19.11.2020. The Ld. AR has gathered certain evidences during the course of search which includes parallel set of accounts in hard disks and laptops, loose sheets evidencing unaccounted receipts/payments, depositions of key persons etc. Analyzing and examining of the documents gathered during the search proceedings, the Ld. AR has framed detailed assessment order and had made certain disallowances, after adding such disallowance a/w. disallowance already made in the order passed u/s.143(3) of the Act, the total income of the assessee was assessed at Rs.104,73,64,278/-. 3. Aggrieved by the observations and reasons of the A.O, the assessee filed an appeal before the CIT(Appeals) wherein, the CIT(Appeals) has taken a different view and observed that “that I considered it appropriate to estimate the net profit margin for the instant assessment year at 30% of the sales turnover for the purpose of estimating the business income of the appellant.” With such observations, the appeal of the assessee was partly allowed by the Ld. CIT(Appeals). 9 M/s. Beach Minerals Company Vs. ACIT, CC-1, Madurai ITA Nos. 366 & 532/Chny/2023 4. Because of such decision of the Ld. CIT(Appeals), now both, the assessee as well as the revenue has carried the matter before us ton assail the grounds of appeal raised in the present cross-appeals. First we shall take up the appeal of the assessee in ITA No. 366/chny/2023. 5. At the very inception of the arguments, the Ld. AR of the assessee has submitted that the A.O has made addition on independent issues whereas, the Ld. CIT(Appeals) has rejected books of the assessee and estimated profit of the assessee @30% based on assessee’s on profit in the immediately preceding years wherein, the assessee has earned net profit @29.77%. It was submitted by the Ld. AR that Ld. CIT(Appeals) while deciding the issue of estimating profit based on profit of the assessee’s own case, was unable to appreciate the fact that this was only year in which, assessee’s profits were high because there was some change in the mix of production wherein ratio of certain products which includes garnet and ilmenite was in a different proportion. It was, therefore, submitted by the Ld. AR that ratio of immediately preceding years is not comparable with the year under consideration and therefore, average of the profit which the assessee was attaining in the six years prior to the immediately preceding year i.e. A.Y.2011-12 should be the basis for determining the estimation in 10 M/s. Beach Minerals Company Vs. ACIT, CC-1, Madurai ITA Nos. 366 & 532/Chny/2023 the assessee’s case. The written submissions was furnished by the Ld. AR of the assessee and the same is extracted as under: “➢ The above appeals are filed by the Assessee and the Department against the order of the Commissioner of Income Tax (Appeals)—19, Chennai passed on 27.02.2023 for the assessment year 2013-14 and wherein the First Appellate Authority had rejected the books of accounts maintained by the Assessee in determining the profit at 30% of the total turnover. ➢ There was a search conducted at the premises of the Assessee on 25.10.2018 and the search assessment proceeding for the assessment year under consideration was initiated by the notice issued u/s 153A of the Act dated 03.01.2020. ➢ The search assessment was completed by the Assessing Officer on the presumption that the Assessee was maintaining two parallel set of accounts and made various additions in determining the assessed income at Rs. 104.73 crores which comes to 57% (approx.) of the total turnover. ➢ In this regard, the Assessee had established before the lower authorities that the books of accounts relied upon by the Department is provisional and various expenditure actually incurred by the Assessee at various sites/remote places including the group concern transactions were collated and compiled while finalizing the financials. The finalized books of accounts was subjected to tax audit and the return of income was prepared and filed based on the said books of accounts. BACKGROUND: ➢ The Assessee is engaged in the business of mining and extraction of mineral ores and the said activities were carried out during the assessment year under consideration across 9 mining sites and 7 administrative/factory units. ➢ The return of income originally filed by the Assessee during the assessment year under consideration in reporting the taxable total income at Rs. 9,55,760/- (which works out to 0.052% on the total turnover) along with the Tax Audit Report. 11 M/s. Beach Minerals Company Vs. ACIT, CC-1, Madurai ITA Nos. 366 & 532/Chny/2023 ➢The said return of income was selected for complete scrutiny u/s 143(2) of the Act and the Assessing Officer after scrutinizing the books of accounts maintained by the Assessee had disallowed a sum of Rs. 3,94,90,679/- for want of documents/vouchers and determined the taxable total income at Rs. 4,04,46,439/- (which works out to 2.21% on the total turnover). ➢ In consequence to the search, the Assessing Officer relying on the provisional / unaudited accounts had disallowed various expenses claimed by the Assessee in the final books of accounts mainly including the expenses duly recorded at various locations/sites compiled and accounted while finalizing the books of accounts. ➢ In the search assessment order, the Assessing Officer had determined the taxable total income at Rs. 104,73,64,282/- (which works out to 57.12% on the total turnover). VALIDITY of the seized materials: ➢ The various disallowance(s) and addition(s) made by the Assessing Officer is solely based on the provisional/unaudited accounts maintained by the Assessee and the statements recorded at the time of search. ➢ The additions made by the Assessing Officer in the search assessment proceedings is mainly on the presumption of inflation of expenses and group concern transactions not forming of the provisional/unaudited accounts. ➢ As stated earlier, the Assessee was operating in numerous locations during the assessment year under consideration and hence the operational expenses incurred in those locations were collated and duly recorded at the time of finalization of the accounts. ➢ The practical difficulties faced by the Assessee leading to the accounting various entries at the time of finalization of the accounts was demonstrated before the First Appellate Authority in the written submissions filed on 13.02.2023. ➢ Further, the said factual position was also demonstrated before the Assessing Officer justifying the genuineness for compilation of accounts at the time of filing the return of income. ➢ Hence, the provisional accounts cannot be treated as incriminating material for assuming jurisdiction u/s 153A of the Act and hence pleaded for quashing the search assessment order 12 M/s. Beach Minerals Company Vs. ACIT, CC-1, Madurai ITA Nos. 366 & 532/Chny/2023 passed for the assessment year under consideration and thus render justice. REJECTION OF BOOKS OF ACCOUNTS: ➢ The Assessee submits that the books of accounts maintained by it completely scrutinized at the time of the original assessment completed in terms of Section 143(3) of the Act vide order dated 08.03.2016. ➢ The Assessing Officer after scrutinizing the entire books of accounts had made certain additions for deficiency in maintaining supporting documents/vouchers while determining the taxable total income. ➢ Further, the Assessing Officer had not rejected the books of accounts maintained by the Assessee during the assessment year under consideration at the first instance and in fact had identified certain areas were vouchers / supporting documents were not properly maintained which would establish the correctness of the audited final accounts forming part of the return of income filed by the Assessee. ➢ The Assessing Officer in search assessment order had impliedly not considered / rejected the books of accounts by solely placing reliance on the provisional / unaudited accounts maintained by the Assessee which is in contrary to the order passed during the original assessment proceedings. ➢ Similarly, the action of the First Appellate Authority in rejecting the books of accounts by completely overlooking the original scrutiny assessment order passed by the Assessing Officer wherein the books of maintained by the Assessee were completely scrutinized, examined and accepted. ➢ Hence, the Assessee submits that the rejection of the books of accounts for the assessment year under consideration is wholly unjustified and not sustainable in law insofar as the deficiencies in the books of accounts were already considered and brought to tax during the completion of original assessment. ➢ As a consequence, it is prayed for restoring the original position namely the income quantified and assessed in the original scrutiny assessment for the assessment year under consideration and thus render justice. 13 M/s. Beach Minerals Company Vs. ACIT, CC-1, Madurai ITA Nos. 366 & 532/Chny/2023 ESTIMATION OF PROFIT: ➢ In any event, the assessee submits that the estimation of the profit at an exorbitant rate of 30% on the total turnover by the First Appellate Authority is erroneous, arbitrary and without any basis. ➢ As stated in the earlier paragraphs, the net profit reported by the Assessee is at 0.052% and the same was enhanced to 2.210/0 in the original scrutiny assessment based on the final books of accounts forming part of the return of income filed by the Assessee. ➢ The First Appellate Authority while rejecting the books of accounts maintained by the Assessee had wrongly adopted an exorbitant rate of 30% based on the income reported for the assessment year 2011-12 and however had ignored the income reported for the immediately preceding assessment year 2012-13 wherein the Assessee had reported net profit at 0.91% of the total turnover. ➢ The tabulation showing the income earned and profit reported for various subsequent assessment years are as under: ➢ In such circumstances, the Assessee pleads for restoring the original assessment position as per the original assessment order and further pleads for determining the assessable profit at 2.21% by reversing the order of the First Appellate Authority in dismissing the Revenue's appeal and allowing the Assessee's appeal in the interest of justice. 6. It was further submitted by the Ld. AR that the additions made by the A.O were totally based on statement found by him, which were analyzed in very unlawful manner, under prejudiced mind, leading to erroneous findings, thereby, made several unjustified disallowances. With such assertions, the Ld. AR has submitted that the CIT(Appeals) who had not independently adjudicated the additions made by the A.O but had 14 M/s. Beach Minerals Company Vs. ACIT, CC-1, Madurai ITA Nos. 366 & 532/Chny/2023 observed that after making such additions, profit of the appellant was abnormally increased to 57.12% which cannot be the rate of profit in the line of business of the assessee. The said abnormality in the profit margin itself indicative of the fact that discrepancy in the accounts pointed out by the Ld. A.O could not be considered to be reasonable or well thought of. The Ld. AR further submitted that the assessee has no objection with a reasoned finding by the Ld. CIT(Appeals), wherein he had understood the crux of the circumstances and facts of case and has decided the issue by estimating the profit on the basis of undisputed turnover of the assessee, however, while estimating the profit, the CIT(Appeals) has estimated the same taking into consideration only one year i.e. immediately preceding year i.e. A.Y.2011-12, whereas, average of the profit of earlier years should have been taken into consideration because the mix of production of the base year i.e. A.Y.2011-12 was altogether different than in the year under consideration i.e. A.Y.2013-14. It is therefore humbly prayer of the Ld. AR that the order of the CIT(Appeals) deserves to be modified to the extent of percentage of net profit margin @30% which is very high is apparent from the net profit margin percentage in the earlier 6-7 years as submitted by the Ld. AR and reproduced (supra.). 7. Contrary to the submissions of the Ld. AR, the Ld. CIT-DR argued and drew our attention to Para 3 and 4 of the assessment order passed 15 M/s. Beach Minerals Company Vs. ACIT, CC-1, Madurai ITA Nos. 366 & 532/Chny/2023 u/s.153A of the Act wherein it was observed by the A.O that when the assessee’s premises was searched and evidence were collected during the course of search, it was revealed that the assessee was maintaining parallel set of accounts concealed in hard disk and laptops, certain loose sheets were impounded from the assessee’s premises evidencing unaccounted receipts/payments. It was further submitted by the Ld. CIT- DR that originally said accounts were maintained by the assessee in folder named “Ori” and the accounts maintained for income tax purpose were maintained in a folder named “IT”. It was submitted by the Ld. CIT-DR that such practice of the assessee to maintain two parallel accounts itself shows that there was something which shows the assessee’s modus- operandi to conceal the facts from the department in order to evade taxes. The Ld. CIT-DR drew our attention to Page 29 of the A.O wherein under Point No.16 (i), a screen shot of ledger of one entry dated 15.03.2013 was extracted by the A.O wherein against the narration “adj” was written which clearly shows that “adj” stands for adjustment. It was also submitted by the Ld. CIT-DR that the A.O had rightly pointed out that corresponding entries are absent in the books of the assessee. It was also allegation of the revenue that the assessee had incurred certain expenses wherein services were taken from group entities and the same was not found in the books of accounts of either of the group companies. 16 M/s. Beach Minerals Company Vs. ACIT, CC-1, Madurai ITA Nos. 366 & 532/Chny/2023 8. It was further submitted by the Ld. CIT-DR by showing Para 12 at Page 10 of the assessment order that the assessee firm enjoyed benefit of Section 10B of the Act given to 100% export-oriented unit till A.Y.2011-12 and the entire income of the assessee firm was exempt from tax. The net profit in the A.Y.2011-12 was to the extent of 29.77% of the reported sales. The Ld. CIT-DR submitted that the A.Y.2011-12 was the last year for which the assessee had the benefit of Section 10B and in the next year i.e. A.Y.2012-13 the profit percentage of the assessee was dropped down to 0.91% of sales and for succeeding year i.e. A.Y 2013-14 (relevant A.Y) net profit percentage comes down to 0.051% from total sales. By drawing such figure, it was submitted by the Ld. CIT-DR that extent of inflation of expenses becomes quite evident with net profit figure in terms of percentage prior to and post availability of Section 10B benefits were compared. The Ld. CIT-DR reiterated all facts which were reported by the A.O in his order and has vehemently relied upon the same. 9. Carrying the arguments further, the Ld. CIT-DR drew our attention to the CIT(Appeals)’s order and read the observations, placing revenue’s intense objections on the same. 10. The Ld. CIT-DR further discussed a chart submitted by the Ld. AR of the assessee in written submission and has strongly objected on the argument of the Ld. AR to adopt an average percentage of the profit from 17 M/s. Beach Minerals Company Vs. ACIT, CC-1, Madurai ITA Nos. 366 & 532/Chny/2023 the period A.Y.2011-12 to 2017-18 because percentage of profit in those years were not substantiated with any basis to be adopted in the relevant A.Y.2013-14. The Ld. CIT-DR further submitted that the department has assailed the issue that there was gross error on the part of the CIT(Appeals) in restricting the disallowance of 104.69 crores made by the A.O after examining and analyzing the issues and the confiscated material duly supported by demonstrating in detail in the assessment order. It was submitted by the Ld. CIT-DR that the Ld. CIT(A) had erred in appreciating the fact that the assessment was made based on incriminating material seized during the course of search in the form of two sets of accounts for the F.Y.2012-13, one for the purpose of ascertaining actual profit from the business and other for the purpose of filing income tax return. Accordingly, the CIT-DR submitted that the CIT(Appeals) had failed to appreciate that the assessee had made inflation of expenses under the head “production and processing expenses”, land development expenses, unexplained cash credit entries in the name of group companies with the intention to suppress the actual profit in the return of income filed. The Ld. CIT-DR also advanced an argument that the order of the CIT(Appeals) was erroneous in so far as observing that the reasons given by the assessee for discrepancies in the accounts are reasonable and acceptable, without appreciating that the modus operandi adopted by the assessee (i.e) maintaining two sets of accounts and inflation of expenses in the books of 18 M/s. Beach Minerals Company Vs. ACIT, CC-1, Madurai ITA Nos. 366 & 532/Chny/2023 accounts considered for the purpose of filing IT returns was accepted by Shri. P. Senthil Muthukumar, Accounts Manager of M/s. Beach Minerals Company in his sworn statement dated 14/11/2018. 11. The Ld. CIT-DR also pointed out that observation of the CIT(Appeals) was under a mistaken belief that A.O had disallowed certain expenditure in the earlier assessment 143(3) proceedings, the assessee had maintained bills and vouchers for the expenses, without appreciating that the assessee had neither filed evidence for expenses nor have adduced proper explanation for the discrepancies between the two sets of accounts during 153A assessment proceedings. Further, the present assessment is based on the entirely new set of facts arising out of materials seized during the search. It was further agitated by the Ld. CIT-DR that observation of the Ld. CIT(Appeals) was bad in terms of the facts that the A.O did not find fault with the method of accounting but additions were made in the order u/s.143(3) r.w.s.153A on the basis of incriminating seized materials and for the reason that the assessee had not given proper explanation in respect of inflated expenses and unexplained credit entries found in the set of accounts relied on for the purpose of filing income tax return, therefore, the submission of the Ld. DR that the order of the CIT(Appeals) was bad in law as well as erroneous on the facts therefore, the same needs to be quashed and the addition made by the A.O are deserved to be restored. 19 M/s. Beach Minerals Company Vs. ACIT, CC-1, Madurai ITA Nos. 366 & 532/Chny/2023 12. On the contention of the Ld. CIT-DR, the Ld. AR of the assessee in rebuttal has argued that the assessee firm was incorporated on 1 st April, 2009, the top line figure of the assessee firm i.e. gross revenue/sales figure were not disputed by the A.O, accordingly additions made by the A.O after making such addition, the percentage of profit of the assessee firm was worked out at 57.12% which is exorbitantly higher rate of profit in business line of the country which would have ever achieved. The Ld. AR further drew our attention to the original assessment order passed u/s.143(3) dated 08.03.2016 wherein at Para 2, Page 2 of the assessment order the observation of the A.O was that he has carried out verifications of vouchers out of which vouchers amounting to Rs.2,80,00,000/-were beyond verification. This fact impliedly shows that verification of vouchers in totality was carried out by the A.O during the assessment u/s. 143(3) of the Act, therefore, with such observation, it was submitted by the Ld. AR that proper verification of all the books of accounts and vouchers of the assessee was carried out in the original assessment by the A.O contrary to the submission of the Ld. DR that it was only test check basis. 13. It was further submitted by the Ld. AR that the CIT(Appeals) had appreciated the facts of the case and has decided the appeal of the assessee rightly on the basis of overall facts and circumstances of the case wherein addition made by the A.O were exorbitantly higher which cannot 20 M/s. Beach Minerals Company Vs. ACIT, CC-1, Madurai ITA Nos. 366 & 532/Chny/2023 be the case in any business. According to the Ld. AR that top line figures of the assessee’s business were never disputed by the Ld. A.O and the same was accepted by the CIT(A) also. However, the percentage of profit adopted by the CIT(Appeals) for the assessee was also very exorbitant and high as compared to the profits of the assessee firm as were achieved in the earlier financial years. It was, therefore, prayer of the Ld. AR that percentage of profit should be taken at the average of the profit in A.Y.2011-12 to 2017-18 leaving apart A.Y.2011-12 wherein, profit was high due to several factors which were not there in other assessment years so as in the relevant assessment year i.e. A.Y.2013-14. 14. Having heard the rival contentions, carefully considered the submissions, and perused the material placed on record. The case of the assessee firm for the Ay 2013-14 was assessed by the department u/s 143(3) vide order dated 08.03.2016, thereafter upon a search action u/s 132 of the Act on BMC Group on 25.10.2018 the same was reassessed u/s 143(3) rws 153A bide order dated 26.08.2021. During the course of search, it was found that the assessee firm was maintaining parallel sets of accounts. Evidences were gathered by the search team in the form disks, laptops. Loose sheets pertaining to unaccounted receipts / payments, deposition of key persons etc. Statement of Shri P Senthil Muthu Kumar, Accounts Manager of the assessee firm were taken, according to the said 21 M/s. Beach Minerals Company Vs. ACIT, CC-1, Madurai ITA Nos. 366 & 532/Chny/2023 statements Modus Operandi of 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 in the written submission by stating that it is unable to do so at present in view of the passage of time and frequent changes in the accounting staff working with the appellant. It is considered by the Ld CIT(A) that the said submission of the appellant cannot be disregarded in view of the genuineness of the practical difficulties 22 M/s. Beach Minerals Company Vs. ACIT, CC-1, Madurai ITA Nos. 366 & 532/Chny/2023 expressed by the appellant. At the same time, it is not possible to accept the correctness of the claims in the books of account unless the discrepancies pointed out in the Assessment Order are subjected to necessary reconciliation. Ld CIT(A) decided the appeal with the following observations: 43. In this context, it is pertinent to observe that this is not a case where the appellant is attempting to give incorrect reasons for its inability to produce the supporting bills and vouchers. The case of the appellant for the instant Assessment Year was subjected to regular scrutiny assessment U/s.143(3) vide order dated 08.03.2016. As evident from the contents of the said Assessment Order, the AO required the appellant to produce the bills and vouchers in support of the expenditure debited towards mining, production and processing and other expenses during the course of the said Assessment proceedings. The appellant produced the supporting bills and vouchers before the AO in response to the same. The AO stated in the Assessment Order that he carried out the verification of the said bills and vouchers and he found that the vouchers to the extent of Rs.2.80 Crores were beyond proper verification and that the claim of the appellant to the said extent was not fully proved. The AO therefore made disallowance of production and processing expenses to the tune of Rs.2.80 Crores in the original Assessment Order. The facts narrated in the said Assessment Order clearly bring out the fact that the appellant 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. 44. Having regard to the discussion made in the preceding paragraphs, it needs to be observed that there is no dispute regarding the fact that the books of account of the Appellant for the Assessment Year under consideration are erroneous and inaccurate. Though the appellant is unable to reconcile the discrepancies/ inaccuracies by furnishing the correct details 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 23 M/s. Beach Minerals Company Vs. ACIT, CC-1, Madurai ITA Nos. 366 & 532/Chny/2023 claims of the appellant in the books of account cannot be accepted in toto in the face of the discrepancies brought out by the AO in the impugned Assessment Order, making disallowance of the entire expenditure in respect of which such discrepancies were 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 were 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 considered to be arising wholly from wrong claims of expenditure by the appellant. 45. In view of the said reasons, it is considered that the books of accounts of the appellant, which are inaccurate, do not facilitate arriving at true and correct profits of the appellant and they are required to be rejected by invoking the provisions of Section 145(3) of the Act. It is held that the business income of the appellant is required to be estimated under the said provisions, consequent to rejection of the books of account. 46. For the purpose of estimating the business income, it is considered that the business income admitted by the appellant itself in its return of income for AY 2011-12 before claiming exemption of the said income u/s.10B of the Act constitutes a fair, logical and reasonable indicator of true and correct profits of the appellant. Since the appellant claimed exemption u/s.10B in the said Assessment Year, it is reasonable to infer that the business income disclosed in the return of income for the said Assessment Year represents the correct profits of the appellant for the said year. The said assessment year is the last year of claiming exemption u/s 10B by the appellant and there is only one intervening year be Veen the said assessment year and the instant assessment year. Having regard to the same, I am of the considered view that the net profit margin of 29.77% disclosed by the appellant the said AY 2011-12 is a reliable indicator of the true profits of the appellant for the instant assessment year also. Hence, I consider it appropriate to estimate the net profit margin for the instant Assessment Year at 30% of the 24 M/s. Beach Minerals Company Vs. ACIT, CC-1, Madurai ITA Nos. 366 & 532/Chny/2023 sales turnover for the purpose of estimating the business income of the appellant. The AO is accordingly directed to determine the business income of the appellant at 30% of the sales turnover of Rs.183.35 gores. Since the business income is being determined on estimate basis, it is held that the individual additions made to the income in the original Assessment Order dated 08.03.2016 get subsumed in the said estimated business income and the same not required to be considered separately. The AO is directed to consider the interest receipts of Rs.14,11,587/- and commission receipts of Rs.6,91,482/- credited to the P & L account separately apart from the estimated business income while determining the total income. The 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 bills, 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 25 M/s. Beach Minerals Company Vs. ACIT, CC-1, Madurai ITA Nos. 366 & 532/Chny/2023 furnishing the correct details of relevant transactions along with the supporting bills and vouchers, no dispute with regard to books of accounts maintained by the assessee were noticed by the Ld AO. In such a situation, considering the additions made by Ld AO the total assessed income of the assessee was computed at Rs. 104.73/- Crores, whereas the total sales turnover, which was untouched and remain undisputed was Rs. 183.25 Crores, thus the resultant % of Net Profit was arrived at 57.12%, this % was considered as absolutely abnormal and high by the Ld CIT(A). Ld CIT(A) has very rightly commented that such a huge profit margin is abnormally high in any line of business and thus indicative that the discrepancies pointed out in the accounts by the Ld AO cannot be considered to be arising wholly from the wrong claims of expenditure by the assessee/appellant. Ld CIT(A) thus after considering the books of accounts of the assessee firm, as inaccurate which do not facilitate to arrive at true and correct profit of the appellant have rejected the same by invoking the provisions of section 145(3) of the Act. Under the facts of the present case, we approve the observation of Ld CIT(A) relating to rejection of the books of assessee and uphold the same. Ld CIT(A) consequently, estimated the profit of the firm @30% of the sale turnover, the basis for 30% was returned income of AY 2011-12, wherein the assessee has earned a profit of 29.77% before claiming exemption u/s 10B of the Act. On perusal of the order of Ld CIT(A), it is not transpired that while estimating 26 M/s. Beach Minerals Company Vs. ACIT, CC-1, Madurai ITA Nos. 366 & 532/Chny/2023 the profit taking the base year as AY 2011-12 (FY 2010-11), whether this fact was confronted to the assessee firm or not to submit their objections or confirmation on the same. However, to demonstrate the actual ratio of profit and its comparability with the year under consideration (FY 2012- 13, AY2013-14), Ld AR of the assessee firm had submitted a chart of production for the financial years 2010-11 to 2016-17, the same extracted as under:- 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 “0”(zero) in the 27 M/s. Beach Minerals Company Vs. ACIT, CC-1, Madurai ITA Nos. 366 & 532/Chny/2023 base years as compared to 60190 units in the relevant year. It is the submission of Ld 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 be applied while estimating the profit when books of accounts are rejected. In our thoughtful consideration, we find it to be most suitable and reasonable to apply the average profits earned by the assessee itself in the comparable years under which the business activities of the assessee firm were identical. We, therefore, are of the considered opinion that average percentage of profit for the FY 2011-12 to 2016-17 (except FY 2012-13) which comes to 0.57% (average of 0.91+0.09+0.37+0.68+0.81) shall be the most reasonable percentage of profit to be applied on the sales turnover of the assessee for AY 2013-14. However, since the assessment u/s 143(3), wherein certain additions were made, resulting the profit of the assessee assessed at Rs. 4.04 crore i.e. 2.21% of total sales turnover of Rs. 183.35 Crores. We find it appropriate to apply the rate of 2.21% on the sales turn over of the assessee firm to estimate its net profit margin from business of assessee for the AY 2013-14. Income from Interest and commission to added separately as directed by the order of Ld CIT(A). 28 M/s. Beach Minerals Company Vs. ACIT, CC-1, Madurai ITA Nos. 366 & 532/Chny/2023 17. In terms of our aforesaid observations, we find no infirmity in the order of Ld CIT(A) apart from rate of profit adopted for estimation of net profit margin while rejecting books of accounts u/s 145(3) of the Act, thus, we modify the order of Ld CIT(A) by scaling down the percentage of net profit margin to 2.21% on sales turnover for estimating the same while determining the total assessable income. Ld AO is directed to work out the estimated income from business accordingly. In the result appeal of the assessee is partly allowed . Departments cross appeal no ITA 532/chny/2023. 18. As, we have decided the appeal of the assessee in ITA 366/chny/2023 in case of the assessee M/s Beach Minerals Company for the assessment year i.e AY 2013-14, wherein order of the Ld CIT(A) is upheld with certain modifications in terms of our observations herein above, our findings in ITA 366/chny/2023 shall mutatis-mutandis apply to the appeal of department in ITA 532/chny/2023. Consequently, appeal of the revenue stand dismissed. 19. Since, the issue raised by the assessee and revenue in captioned cross appeals under various grounds have been dealt with in terms of our 29 M/s. Beach Minerals Company Vs. ACIT, CC-1, Madurai ITA Nos. 366 & 532/Chny/2023 observations herein above. Contentions if any which were not argued or dealt with became academic and thus not adjudicated separately. 20. In the result, appeal of the assessee is partly allowed while for the appeal of the revenue is dismissed in terms of our aforesaid observations. Order pronounced under rule 34(4) of the Appellate Tribunal Rules, 1963, by placing the details on the notice board on 09.08.2023. Sd/- Sd/- V. DURGA RAO ARUN KHODPIA (JUDICIAL MEMBER) (ACCOUNTANT MEMBER) चेन्नई / Chennai ; ददनांक / Dated : 09 th August, 2023 SB आदेश की प्रधतधलपप अग्रेपर्त / Copy of the Order forwarded to : 1. अपीलार्थी / The Appellant. 2. प्रत्यर्थी / The Respondent. 3. The CIT(Appeals)-19, Chennai 4. The Pr. CIT-2, Chennai. 5. पवभागीय प्रधतधनधि, आयकर अपीलीय अधिकरण, चेन्नई बेंच, चेन्नई / DR, ITAT, Chennai Bench, Chennai 5. गार्ा फ़ाइल / Guard File. आदेशानुसार / BY ORDER, धनजी सधचव / Private Secretary आयकर अपीलीय अधिकरण, रायपुर / ITAT, Raipur.