DCIT, CIR-3(1), KOLKATA, Kolkata V. M/s Chhabra Ispat Pvt. Ltd., Kolkata

ITA 504/KOL/2016

• Counselvise Citation: [2018] 125 COUNSELVISE.COM (IT) 6177 (ITAT-KOLKATA)
• Duration Of Justice: 2 year(s) 3 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-07-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Assessment Year: 2011-2012
• Appeal Filed On: 22-03-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SAURABH KUMAR
• Keywords: Unexplained investment; Business income

Judgement Text

1 ITA NO. 504/KOL/2016 CHHABRA ISPAT PVT. LTD., AY 2011-12 , C , IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH: KOL KATA ( ) BEFORE . , /AND . . , ) [BEFORE SHRI J. SUDHAKAR REDDY, AM & SHRI A. T. VA RKEY, JM] I.T.A. NO. 504/KOL/2016 ASSESSMENT YEAR: 2011-12 DEPUTY COMMISSIONER OF INCOME-TAX, CIRCLE-3(1), KOLKATA. VS. M/S. CHHABRA ISPAT PVT. LTD. (PAN: AACCC8056F) APPELLANT RESPONDENT DATE OF HEARING 19.04.2018 DATE OF PRONOUNCEMENT 13.07.2018 FOR THE REVENUE SHRI SAURABH KUMAR, ADDL. CIT, SR. DR FOR THE ASSESSEE/CROSS OBJECTOR SHRI SUBASH AGARWAL, ADVOCATE ORDER PER SHRI A.T.VARKEY, JM THE APPEAL PREFERRED BY THE REVENUE IS AGAINST THE ORDER OF THE LD. CIT(A)-1, KOLKATA DATED 11.02.2016 FOR AY 2011-12. 2. THE SOLE GROUND OF APPEAL OF REVENUE IS AGAINST THE ACTION OF LD. CIT(A) IN DIRECTING THE AO TO COMPUTE THE PROFIT @ 5% ON THE TOTAL UNDI SCLOSED SALE OF RS.3,04,68,612/-. 3. BRIEFLY STATED FACTS ARE THAT THE ASSESSEE COMPA NY IS ENGAGED IN THE MANUFACTURING OF M. S. BILLETS. IT FILED THE RETURN OF INCOME FOR TH E AY 2011-12 ON 29.09.2011 DECLARING LOSS OF RS.11,86,478/-. THEN THE ASSESSEE'S CASE WAS RE -OPENED AND NOTICE U/S.148 WAS ISSUED. IN RESPONSE TO THE SAID NOTICE, THE ASSESSEE FILED ITS RETURN OF INCOME. IN THE INSTANT CASE, A SEARCH WAS CONDUCTED ON 30.12.2010 IN THE FACTORY O F THE ASSESSEE - COMPANY BY THE CENTRAL EXCISE DEPARTMENT. DURING THE COURSE OF SEARCH, THE Y ALLEGEDLY FOUND SOME SHORTAGE OF STOCK AND ONE PRIVATE NOTE BOOK WHICH CONTAINED PAR TICULARS RELATING TO REMOVAL OF M. T. OF M.S. BILLETS, DURING THE PERIOD FROM 01.04.2010 TO 28.09.2010, WHEREAS CORRESPONDING ENTRIES OF WHICH WERE NOT ALLEGEDLY FOUND IN THE BO OKS OF ACCOUNTS OF THE ASSESSEE COMPANY. 2 ITA NO. 504/KOL/2016 CHHABRA ISPAT PVT. LTD., AY 2011-12 THEN, THE CUSTOMS & EXCISE DEPARTMENT COMPUTED THE CENTRAL EXCISE DUTY TO BE PAID AT RS.31,38,267/- ON SUCH TRANSACTIONS RECORDED IN THE NOTE BOOK AND NOT DISCLOSED IN THE BOOKS OF ACCOUNT OF ASSESSEE. THEN THE SETTLEMENT C OMMISSION VIDE ITS ORDER DATED 28.01.2013 SUSTAINED THE ACTION OF THE CUSTOMS & EX CISE DEPARTMENT. WITH THE AFORESAID FACTUAL INFORMATION, THE AO PERUSED THE ORIGINAL RE TURN AND RETURN IN RESPONSE TO 148, AND HE NOTED THAT THE ASSESSEE DID NOT CHANGE THE SALE PRO CEED, SO THE AO TAKING NOTE OF THE ORDER OF SETTLEMENT COMMISSION OF CUSTOMS & CENTRAL EXCIS E CAME TO CONCLUSION THAT ASSESSEE INDULGED IN UNDISCLOSED SALES, SO THE AO CALCULATED THE TOTAL VALUE OF UNDISCLOSED SALE AS BELOW: RS.31,38,267 X 100 = RS.3,04,68,612/- ( EXCISE DUTY 10.3%) 10.3 THEREFORE, RS. 3,04,68,612/- WAS TREATED AS UNDISCL OSED SALES AND ADDED BACK TO THE INCOME OF THE ASSESSEE. 4. AGGRIEVED, ASSESSEE PREFERRED AN APPEAL BEFORE T HE LD. CIT(A) WHO GAVE PARTIAL RELIEF TO THE ASSESSEE AS UNDER: 5.2. I HAVE CAREFULLY CONSIDERED THE MATERIAL BEFO RE ME. IT IS FOUND THAT THERE IS SUBSTANCE IN THE SUBMISSION OF THE A/R, OF THE APPELLANT THAT TH E ABOVE ADDITION CAN BE MADE ON THE BASIS OF N.P. MARGIN THAT THE ASSESSEE HAS EARNED DURING THE YEAR UNDER CONSIDERATION, WHICH HAS NOT BEEN CONSIDERED BY THE A.O. FOR THIS PROPOSITION, T HE A/R, OF THE APPELLANT RELIED UPON VARIOUS DECISION 1. CIT VS. PRESIDENTS INDUSTRIES 2 58 ITR 654(GUJ) 2. CIT VS. BALCHAND AJIT KUMAR 263 ITR 610 (M.P). THE A/R, OF THE APPELLANT HAS ALSO RELIED ON THE DECISION OF THE HON'BLE ITAT CALCUTTA BENCH IN THE CASE OF M/S FORE IGN LIQUOR SHOP VS. ITO (ITA NO. 178/K/06) WHEREIN IT HAS BEEN SUBMITTED THAT:- 'WE ARE OF THE VIEW THAT THE TOTAL SALES CANNOT BE REGARDED AS PROFIT OF THE ASSESSEE ONLY THE PROFIT ON SUCH SALES IS LIABLE TO BE TAXED. THIS VI EW ALSO FINDS SUPPORT FROM THE RECENT DECISION OF HON'BLE M.P. HIGH COURT IN CIT VS BALCHAND AJIT KUMAR 263 ITR 610 (M.P). WHEREIN THEIR LORDSHIPS WHILE IN AGREEMENT WITH THE DECISION OF H ON'BLE GUJARAT HIGH COURT IN CIT VS. PRESIDENTS INDUSTRIES 258 ITR 654(GUJ) HAS HELD AS UNDER: 'HELD, THAT THE TOTAL SALE COULD NOT BE REGARDED AS THE PROFIT OF THE ASSESSEE. THE NET PROFIT RATE HAD TO BE ADOPTED AND ONCE IT WAS ADOPT ED IT COULD NOT BE SAID THAT THERE WAS PERVERSITY OF APPROACH. WHETHER THE RATE WAS TO W OR HIGH WOULD DEPENDS UPON THE FACTS OF EACH CASE. IN THIS VIEW OF THE MATTER AND IN THE ABSENCE OF AN Y CONTRARY MATERIAL BROUGHT ON RECORD BY THE REVENUE, WE ARE OF THE VIEW THAT KEEPING IN VIEW TH E CONSISTENCY IT WILL BE FAIR AND REASONABLE IF PROFIT RATE AT 10.83% IS APPLIED ON THE UNDISCLO SED SALES OF RS.5,03,865/- AND ACCORDINGLY, WE SET ASIDE THE ORDER OR THE LD. CIT(A) ON THIS AC COUNT AND DIRECT THE AO TO APPLY 10.83% PROFIT ON SUCH UNDISCLOSED SALES OF RS. 5,03,865/- AND ADD THE SAME PROFIT IN THE INCOME OF THE ASSESSEE. THE GROUND TAKEN BY THE ASSESSEE IS, THER EFORE, PARTLY ALLOWED. 3 ITA NO. 504/KOL/2016 CHHABRA ISPAT PVT. LTD., AY 2011-12 CONSIDERING THE ABOVE OBSERVATION AND THE RATIO OF THE ABOVE CITED CASE LAWS, IT IS HELD THAT THE TOTAL SALES OF RS.3,04,68,612/- CANNOT BE REGAR DED AS THE APPELLANT'S PROFIT AND BROUGHT TO TAX AS PROFIT FROM UNDISCLOSED SALES. THE A.O'S FIN DING IN THIS REGARD IS FOUND TO BE UNWARRANTED AND NOT JUSTIFIED. HOWEVER, CONSIDERING THE FACTS OF THE CASES IN CITED CASE LAWS PERTAINED TO TRADING, WHEREIN NP RATE WAS APPLIED T O WORK OUT PROFIT ON UNRECORDED SALES, THE APPELLANT'S CASE IS ONE OF MANUFACTURE AND SALES, A PPLICATION OF GP RATE WOULD BE MORE RELIABLE BASIS TO WORK OUT PROFITS FROM UNRECORDED REMOVAL AND SALE OF GOODS. IT IS CONSIDERED FAIR AND REASONABLE TO ADOPT THE G.P DECLARED BY TH E APPELLANT COMPANY AS PER ITS AUDITED ACCOUNTS FOR THE RELEVANT ASSESSMENT YEAR TO COMPUT E PROFITS FROM UNDISCLOSED SALES. IT IS OBSERVED THAT THE GP RATE OF THE RECORDED TRANSACTI ONS OF THE RELEVANT YEAR WAS A FAIR INDICATOR OF THE GROSS PROFIT, WHICH WOULD HAVE BEE N EARNED BY THE APPELLANT FROM UNRECORDED TRANSACTIONS. THE APPELLANT IS FOUND TO HAVE DISCLO SED G.P RATE OF 4.99% AS PER ITS AUDITED A/CS FOR THE RELEVANT PREVIOUS YEAR ENDING 31.3.201 1. IN VIEW OF THE TOTALITY OF THE FACTS OF THE CASE, IT IS REASONABLE TO APPLY G.P RATE OF 5% TO C OMPUTE PROFITS FROM UNDISCLOSED SALES. THEREFORE, THE A.O. IS DIRECTED TO COMPUTE THE PROF IT @ 5% ON THE TOTAL OF UNDISCLOSED SALES OF RS.3,04,68,612/- WHICH AMOUNTS TO RS.15,23,431/-. FROM THE ABOVE DISCUSSION, IT IS FOUND THAT ADMITTE DLY THE APPELLANT HAD MADE UNRECORDED SALES AMOUNTING TO RS. 3,04,68,612, AS PER SEIZED D OCUMENTS. THE TRANSACTIONS OF SUCH MAGNITUDE WOULD REQUIRE INVESTMENT BY THE APPELLANT . THE ONUS IS ON THE APPELLANT TO SHOW THAT THE UNACCOUNTED INVESTMENT WAS MADE OUT OF ACC OUNTED STOCK. ALTHOUGH UNACCOUNTED SALES MAY RESULT AND CAN CONTRIBUTE TOWARDS THE INV ESTMENT, BUT THERE HAS TO BE INITIAL INVESTMENT BY THE APPELLANT. ALTHOUGH THE APPELLANT HAS RELIED UPON THE RATIO OF JUDGEMENT IN THE CASE OF CIT VS. PRESIDENTS INDUSTRIES(SUPRA) AN D CIT VS. BALCHAND AJIT KUMAR (SUPRA), THE RATIO THEREOF PERTAINS TO APPLICATION OF NP RATE TO COMPUTE PROFITS AND DOES NOT DEAL WITH THE ISSUE OF INVESTMENT IN UNDISCLOSED SALES. THE ONUS WAS ON THE ASSESSEE TO EXPLAIN THAT PURCHASES RECORDED IN THE BOOKS WERE SUFFICIENT AF TER ADJUSTMENT SALES, AND EXPLAIN THE SOURCES/FUNDS FOR MAKING THE IMPUGNED UNDISCLOSED S ALES. THE APPELLANT HAS NOT SUBMITTED ANY DETAILS OF INVESTMENT IN UNDISCLOSED SALES. IT IS OBSERVED THAT UNACCOUNTED SALES MAY RESULT AND CONTRIBUTE TOWARDS INVESTMENT, BUT THERE HAS TO BE INITIAL INVESTMENT THEREIN, WHICH IS CONSIDERED AS FOLLOWS. FOR CONSIDERING INVESTMENT IN UNRECORDED SALES, PEA K CREDIT IS ONE OF THE RELIABLE METHODS OF COMPUTING THE AMOUNT WHICH SHOULD BE BROUGHT TO TAX . HOWEVER, SINCE THE UNRECORDED SALES OF BILLETS MADE BY THE APPELLANT COY RESULTED FROM MAN UFACTURING PROCESS, THE INVESTMENT IN A CYCLE OF THREE DAYS IS CONSIDERED REASONABLE TO WOR K OUT QUANTUM OF INVESTMENT FOR ROTATION OF FUNDS IN UNRECORDED PRODUCTION AND SALES. HERE, IT IS PERTINENT TO MENTION THAT THE APPELLANT HAS MADE THE UNDISCLOSED SALES OF RS. 3,0 4,68,612/- FOR THE PERIOD STARTING FROM 01.04.2010 UPTO 28.09.2010. AS PER DETAILS WORKED O UT BY THE AO ON THE BASIS OF ORDER OF SETTLEMENT OF CUSTOM & EXCISE DEPTT, THE QUANTUM OF REQUIRED INITIAL INVESTMENT FOR THE PURCHASE OF THE GOODS FOR UNRECORDED SALES IS CONSI DERED AS UNDER: IT IS FOUND FROM THE DETAILS MENTIONED IN 'PRIVATE NOTE BOOK' FOUND DURING SEARCH BY EXCISE DEPTT. THAT THE INITIAL SALES ARE AS UNDER: DATE PARTY NAME AMOUNT 01.04.2010 RAMASH RS.341090/- 02.04.2010 GOPAL RS.363630/- 02.04.2010 AMIT RS.351900/- 03.04.2010 PANKAJ RS.352590/- 03.04.2010 PANKAJ RS.307740 /- 4 ITA NO. 504/KOL/2016 CHHABRA ISPAT PVT. LTD., AY 2011-12 THE TOTAL SALES VALUE OF INITIAL 3 DAYS WHICH COMES RS.17, 16,950/- INCLUDING THE GP ELEMENT @ 5%. THE COST OF INVESTMENT IN UNDISCLOSED SALES T HROUGH ROTATION OF FUNDS FROM SALES PROCEEDS, AFTER EXCLUDING GP THEREON, WORKS OUT TO RS.16,50,000/-. THE APPELLANT MADE UNDISCLOSED INVESTMENT FOR CONDUCTING THESE SALES O UT OF HIS UNDISCLOSED INCOME. AFTER THAT, THE APPELLANT IS CONSIDERED TO HAVE ROTATED THIS UN ACCOUNTED INVESTMENT AND MADE THE TOTAL UNACCOUNTED SALES DURING THE ABOVE 6 MONTHS PERIOD. THEREFORE, I DIRECT THE AO TO BRING TO TAX THE SAID UNEXPLAINED INVESTMENT OF RS.16,50,000/- F OR UNACCOUNTED SALES. THUS, THE ADDITION SUSTAINED WORKS OUT TO RS.31,73,431/- (RS.15,23,431 PLUS RS.16,50,000/-), THE APPELLANT GETS RELIEF OF RS.2,72,95,179/-. THUS THESE GROUNDS ARE PARTLY ALLOWED. 5. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. WE NOTE THAT THE AO TAKING NOTE OF THE DECISION OF SET TLEMENT COMMISSION OF CUSTOM & CENTRAL EXCISE LEVYING RS.31,38,267/- FOR UNDISCLOS ED MANUFACTURE AND SURREPTITIOUS REMOVAL OF M. S. BILLETS, HAS MADE THE ADDITION OF ENTIRE SALE PROCEED OF RS.3,04,68,612/-. IT IS COMMON KNOWLEDGE THAT TOTAL SALES CANNOT BE R EGARDED AS PROFIT OF THE ASSESSEE. ONLY THE PROFIT ON SUCH SALES IS LIABLE TO BE TAXED AND THE LD. CIT(A) TAKING NOTE OF THE ASSESSEES AUDITED ACCOUNTS OF DISCLOSED SALES FOUND THAT ASSE SSEE HAD DISCLOSED GP RATE OF 4.99% AND THEREAFTER APPLIED GP RATE OF 5% ON UNDISCLOSED SAL ES. WE FIND NO INFIRMITY IN THIS APPROACH OF LD. CIT(A) WHILE ADJUDICATION OF THIS KIND OF AP PEAL. FURTHER WE ALSO NOTE THAT THE LD. CIT(A) HAS MADE ADDITION ON THE UNDISCLOSED INVEST MENT ELEMENT ALSO AT RS.16,50,000/- WHICH IS THE UNDISCLOSED INVESTMENT NEEDED TO DO T HE INITIAL UNDISCLOSED MANUFACTURE WHICH HAS BEEN EXPLAINED BY THE LD CIT(A). SO, THIS APPRO ACH ADOPTED BY THE LD. CIT(A) CANNOT BE TERMED AS ERRONEOUS AND, THEREFORE, WE DO NOT FI ND ANY INFIRMITY IN THE ORDER OF LD. CIT(A) AND THE SAME IS HEREBY UPHELD. THEREFORE, T HE APPEAL OF REVENUE IS DISMISSED. 6. IN THE RESULT, THE APPEAL OF REVENUE IS DISMISSE D. ORDER IS PRONOUNCED IN THE OPEN COURT ON 13/07/201 8 SD/- SD/- (J. SUDHAKAR REDDY) (A. T. VARKEY) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 13TH JULY, 2018 JD.(SR.P.S.) 5 ITA NO. 504/KOL/2016 CHHABRA ISPAT PVT. LTD., AY 2011-12 COPY OF THE ORDER FORWARDED TO: 1 APPELLANT DCIT, CIRCLE-3(1), KOLKATA. 2 RESPONDENT M/S. CHHABRA ISPAT PVT. LTD., 33/1, 1 ST FLOOR, NETAJI SUBHAS ROAD, KOLKATA- 700 001. 3 4 5 CIT(A)-1, KOLKATA (SENT THROUGH E-MAIL) CIT , KOLKATA DR, KOLKATA BENCHES, KOLKATA (SENT THROUGH E-MAIL) / TRUE COPY, BY ORDER, SR. PVT. SECRETARY