The ACIT,S.K.Circle, Himatnagar V. Samay Tiles Ltd., Himatnagar

ITA 788/AHD/2013

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 72820 (ITAT-AHMEDABAD)
• Duration Of Justice: 9 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-01-2014
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 26-12-2013
• Assessment Year: 2005-2006
• Appeal Filed On: 18-03-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: O P BATHEJA
• Assessee Lawyers: M G PATEL
• Keywords: Depreciation; Income from undisclosed sources; Tangible material; Block assessment; Revised return; Reassessment proceedings
• Section: 143(3); 147; 145

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, AHMEDABAD (BEFORE SHRI G.C.GUPTA VICE PRESIDENT & SHRI ANIL C HATURVEDI, A.M.) I.T. A. NO. 788 & 789 /AHD/2013 (ASSESSMENT YEAR: 2005-06 & 2006-07) ACIT SABARKANTH CIRCLE, HIMATNAGAR V/S SAMAY TILES LTD. BERNA ROAD, N.H. NO. 8, HIMATNAGAR- 383001 (APPELLANT) (RESPONDENT) PAN: AAGCS6944 J APPELLANT BY : SHRI O.P. BATHEJA, SR. D.R . RESPONDENT BY : SHRI M.G. PATEL, A.R. ( )/ ORDER DATE OF HEARING : 26-12-201 3 DATE OF PRONOUNCEMENT : 10 -01-2014 PER SHRI ANIL CHATURVEDI,A.M. 1. THESE APPEALS ARE FILED BY THE REVENUE AGAINST THE ORDER OF CIT(A)-VIII, AHMEDABAD DATED 27.12.2012 FOR A.YS. 2005-06 & 2006 -07 RESPECTIVELY. 2. AT THE OUTSET BOTH THE PARTIES SUBMITTED THAT THOUG H THE ASSESSMENT YEARS INVOLVED IN BOTH THE APPEALS ARE DIFFERENT BUT THE ISSUE INVOLVED IN BOTH THE APPEALS ARE IDENTICAL EXCEPT FOR THE AMOUNT. I T WAS FURTHER SUBMITTED THAT THE SUBMISSIONS MADE BY THEM FOR ONE YEAR WOUL D BE EQUALLY APPLICABLE TO THE OTHER AND THEREFORE BOTH THE APPE ALS CAN BE HEARD ITA NOS. 788 & 789/AHD/2013 . A.Y. 2005-0 6 & 2006- 07 2 TOGETHER. WE THEREFORE PROCEED TO DISPOSE OFF BOTH THE APPEALS TOGETHER BY A CONSOLIDATED ORDER FOR THE SAKE OF CONVENIENCE . WE THEREFORE PROCEED WITH THE FACTS IN ITA NO. 788/AHD/2013 FOR A.Y. 2005-06. 3. THE RELEVANT FACTS AS CULLED OUT FROM THE MATERIAL ON RECORD ARE AS UNDER:- 4. ASSESSEE IS A COMPANY ENGAGED IN THE BUSINESS OF MA NUFACTURING OF CERAMIC TILES. ASSESSEE FILED ITS RETURN OF INCOME FOR A.Y. 2005-06 ON 14.10.2005 SHOWING TOTAL INCOME OF RS. NIL AFTER CL AIMING SET-OFF OF BUSINESS LOSS OF RS. 9,61,911/-. ASSESSEE THEREAFT ER FILED REVISED RETURN OF INCOME ON 01.09.2006 SHOWING TOTAL INCOME OF RS. NIL BUT AFTER CLAIMING SET-OFF OF BUSINESS LOSS OF RS. 15,81,792/ -. ASSESSMENT WAS COMPLETED UNDER SECTION 143(3) VIDE ORDER DATED 28. 12.2007 AND THE TOTAL INCOME WAS DETERMINED AT RS. 17,20,903/-. THEREAFT ER THE ASSESSMENT WAS REOPENED U/S. 147 OF THE I.T. ACT AND THE ASSE SSMENT WAS FRAMED UNDER SECTION 143 (3) READ WITH SECTION 147 OF THE ACT VIDE ORDER DATED 28.12.2011 AND THE TOTAL INCOME BEFORE ADJUSTMENT O F BROUGHT FORWARD LOSS AND DEPRECIATION WAS DETERMINED AT RS. 92,20,2 31/-. AGGRIEVED BY THE ORDER OF A.O., ASSESSEE CARRIED THE MATTER BEFO RE CIT(A). CIT(A) VIDE CONSOLIDATED ORDER DATED 27.12.2012 FOR A.Y. 0 5-06 & 06-07 GRANTED PARTIAL RELIEF TO THE ASSESSEE. AGGRIEVED B Y THE AFORESAID ORDER OF CIT(A), THE REVENUE IS NOW IN APPEAL BEFORE US AND HAS RAISED THE FOLLOWING GROUND. 1. THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN GRANTING RELIEF OF RS. 38,41,531/- AND DIRECTING T HE A.O. TO CONFIRM ADDITION OF RS. 36,57,797/- ADOPTIN G N.P. @ 19.51% WITHOUT APPRECIATING THE FACT THAT THE AMOUNT ALLOWED BY HIM REPRESENTED UNACCOUNTED C ASH RECEIPT OVER AND ABOVE THE MRP DISCLOSED BY THE ASSESSEE WHICH WAS ALSO ACCEPTED BY THE ASSE SSEE AND THE FACT THAT EXPENDITURE, IF ANY, INCURRE D ITA NOS. 788 & 789/AHD/2013 . A.Y. 2005-0 6 & 2006- 07 3 FOR EARNING THE UNACCOUNTED CASH WAS ALREADY ALLOWE D TO THE ASSESSEE IN ITS REGULAR BOOKS OF ACCOUNTS. FURTHER, IN ANY CASE, THE ASSESSEE WAS NOT ABLE TO FURNISH ANY EVIDENCE OF THE LATTERS EXPENDITURE. 5. A.O. IN THE REASSESSMENT PROCEEDINGS HAS NOTED THAT INVESTIGATION WERE CONDUCTED BY DGCEI, AHMEDABAD WHICH REVEALED THAT A SSESSEE WAS UNDERVALUING THEIR INVOICES AND WERE DECLARING ONLY 70% OF THE ACTUAL MRP IN THE INVOICES AND COLLECTING THE DIFFERENTIAL AMOUNT IN CASH. THE INVESTIGATION BY THE EXCISE DEPARTMENT ALSO REVEALE D THAT THOUGH THE ASSESSEE WAS MANUFACTURING TILES OF DIFFERENT SIZES , DESIGNS AND COLOURS BUT THE ASSESSEE WAS SUPPRESSING DESIGN OF TILES IN THEIR CENTRAL EXCISE INVOICES AND WERE DECLARING SAME MRP FOR A PARTICUL AR SIZE/GRADE OF THE TILES IRRESPECTIVE OF THE DESIGNS OF THE TILES. A.O . ALSO NOTED THAT DURING THE COURSE OF INVESTIGATION BY DGCEI, STATEMENTS OF DIRECTORS/PROP. OF VARIOUS DEALERS WERE RECORDED AND INCRIMINATING DOC UMENTS WERE ALSO IMPOUNDED. SHRI BABUBHAI KHEMABHAI PATEL, THE MANAG ING DIRECTOR OF THE ASSESSEE WAS CONFRONTED WITH THE STATEMENTS OF VARIOUS DEALERS AND HE IN HIS STATEMENT RECORDED BEFORE EXCISE OFFICIAL S STATED THAT DUE TO MARKET COMPULSION AND GENERAL TRADE PRACTICE, THE M RP WAS SUPPRESSED AND THEREBY LESS CENTRAL EXCISE DUTY WAS PAID. A.O. THEREFORE CONCLUDED THAT ASSESSEE WAS SUPPRESSING THE MRP OF TILES SOLD BY IT TO ALL THE PURCHASERS/DEALERS AND THEREBY THE ASSESSEE HAD NOT SHOWN THE FULL AMOUNT OF SALES IN THE REGULAR BOOKS OF ACCOUNTS AN D THEREFORE THE BOOKS OF THE ASSESSEE WERE NOT RELIABLE. HE ACCORDINGLY R EJECTED THE BOOKS OF ACCOUNTS UNDER SECTION 145 OF THE ACT. BASED ON THE INVESTIGATION CARRIED ON BY DGCEI. A.O. CONCLUDED THAT THE ASSESSEE HAD N OT ONLY REDUCED THE MRP FOR THE PURPOSE OF EXCISE DUTY BUT THE OTHE R EXPENSES WERE ALSO ITA NOS. 788 & 789/AHD/2013 . A.Y. 2005-0 6 & 2006- 07 4 CORRESPONDING SHOWN AT A LESSER AMOUNT AND THEREFOR E IT WAS NOT A CASE WHERE THE ENTIRE EXPENSES HAVE BEEN RECORDED IN THE BOOKS OF ACCOUNTS AND THE ALLEGED SUPPRESSION OF SALES WAS NOT ACCOUN TED. HE FURTHER CONCLUDED THAT PART OF THE ALLEGED SUPPRESSION OF R ECEIPTS HAVE BEEN USED FOR THE PURPOSE OF MAKING CASH PAYMENTS FOR THE VAR IOUS EXPENSES ASSOCIATED WITH MANUFACTURING ACTIVITY. HE WAS OF THE VIEW THAT SINCE THERE WAS NO FIRM BASIS FOR ARRIVING AT A PROPER AS CERTAINMENT OF GROSS PROFIT IN VIEW OF THE FACT THAT ASSESSEE WAS UNABLE TO FURNISH DETAILS OF ALL THE UNACCOUNTED EXPENSES INCURRED BY IT, A RATIONAL ESTIMATE IN RESPECT OF G.P. NEEDS TO BE MADE. HE THEREAFTER ON THE BASIS OF THE SUPPRESSION OF MRP OF THE QUANTITY DURING THE YEAR AND AS TABULATE D ON PAGE 11 OF THE ORDER DETERMINED THE UNACCOUNTED CASH RECEIPT ON SA LE AT RS. 1,87,48,320/- (ON THE BASIS OF BOXES SOLD I.E. 9374 16 X UNACCOUNTED CASH RECEIPT OF RS. 20/- PER BOX) AND THEREAFTER APPLYIN G THE G.P. RATE OF 40% ON IT MADE AN ADDITION OF RS. 74,99,328/- AS UNACCO UNTED INCOME EARNED ON ACCOUNT OF SUPPRESSION OF MRP. AGGRIEVED BY THE AFORESAID ADDITION MADE BY THE A.O., ASSESSEE CARRIED THE MATTER BEFOR E CIT(A). CIT(A) AFTER CONSIDERING THE SUBMISSIONS MADE BY THE ASSES SEE RESTRICTED THE ADDITION ON THE BASIS OF NET PROFIT BY HOLDING AS U NDER:- 4.4. I HAVE CONSIDERED THE FACT OF THE CASE AND THE SUBMISSION OF LD. AR. DURING THE APPELLATE PROCEEDINGS, THE AR OF THE APPELLANT HAS NOT PRESSED THE ISSUE OF DEDUCTION U/S.80IB (10) OF THE IT ACT FOR BOTH THE YEARS. THEREFORE, T HIS ISSUE IS NOT DISCUSSED AND DELIBERATED AND HENCE, DISMISSED. COMING TO OTHER ISSUE THE AO H AS ADOPTED AT THE RATE OF 40% ON SUPPRESSION OF SALE IN THE ASSESSMENT ORDER. THE AO HAS DISCUSSED IN ASSESSMENT ORDER VIDE PAGE 17 OF ASSESSMENT ORDER WHICH IS AS UNDER- 'THE DGCEI HAS MADE VERY RELEVANT OBSERVATION IN SH OW CAUSE NOTICE ISSUED TO THE ASSESSEE. AFTER THE DETAILED ENQUIRY AND EXAMINATION OF THE V ARIOUS AGENCIES INVOLVED IN CERAMIC TILES INDUSTRIES, THEY HAVE COME TO THE CONCLUSION THAT A SSESSEE ESTABLISHED A SYNDICATE WITH THE NETWORK OF DEDICATED TRANSPORTERS AND DEALERS TO CA MOUFLAGE PART OF THEIR UNDERVALUATION. INVESTIGATION FURTHER REVEALED THAT THE DEALERS WER E ALSO NOT DECLARING VARIOUS INCIDENTAL AND ANCILLARY EXPENSES AS THE SAME WERE MET WITH FROM T HE CASH AMOUNT COLLECTED BY THE DEALERS FROM THEIR BUYERS OVER AND ABOVE THE VALUE DECLARED IN THE SALE BILLS. THE TILE MANUFACTURERS WERE PURCHASING RAW MATERIALS EITHER WITHOUT BILL O R AT REDUCED RATES. THIS WAS DONE PARTICULARLY SO AS TO KEEP MANUFACTURING COSTS ON P APER AT LOWER SIDE SO AS TO MATCH THE DEFLATED MRP. IT HAS ALSO BEEN CATEGORICALLY STATED THAT THE TILE MANUFACTURERS WERE ITA NOS. 788 & 789/AHD/2013 . A.Y. 2005-0 6 & 2006- 07 5 OBTAINING FREIGHT AND TRANSPORT BILLS AT A LOWER RA TE AND THE DIFFERENTIAL AMOUNT PAYABLE TO THE SUPPLIER OF RAW MATERIALS AND TRANSPORTERS WERE PAID OUT OF THE CASH SO COLLECTED FROM THE DEALERS/DISTRIBUTORS. IT IS THEREFORE VERY APPARENT THAT EVEN THE DGCEI H AS ACCEPTED & ACKNOWLEDGED THE FACT THAT NOT ONLY MRP IS BEING RE DUCED FOR THE PURPOSE OF ALLEGED EXCISE DUTY BUT ALSO COMPLETE EXPENSES/COSTS WITH REFERENC E TO THE PURCHASE OF RAW MATERIAL AND OTHER INCIDENTAL MANUFACTURING EXPENSES HAVE BEEN C ORRESPONDINGLY SHOWN AT A LESSER AMOUNT. THIS ONLY GOES TO SHOW THAT IT IS NOT A CAS E WHERE THE ENTIRE EXPENSES HAVE BEEN RECORDED IN THE BOOKS OF ACCOUNTS AND THE ALLEGED S UPPRESSION OF SALES IS NOT ACCOUNTED FOR THEREBY RESULTING IN THE ENTIRE ALLEGED SUPPRESSION OF RECEIPTS AS INCOME. PART OF THE ALLEGED SUPPRESSION OF RECEIPTS HAS BEEN USED FOR THE PURPO SE MAKING CASH PAYMENTS FOR THE VARIOUS EXPENSES ASSOCIATED WITH THE MANUFACTURING ACTIVITI ES. HOWEVER, SINCE SOME OF THE EXPENSES RELATABLE TO THE UNACCOUNTED RECEIPTS ARE ACCOUNTED IN REGULAR BOOKS AND SOME ARE NOT, THE GP TO BE ADOPTED FOR THE PURPOSE OF COMPUTING PROFI TS ON THE UNACCOUNTED RECEIPTS NEEDS TO BE SUITABLY ADJUSTED. IT IS A CASE WHERE MAJORITY O F RAW MATERIAL AND OTHER MANUFACTURING EXPENSES ACCOUNTING FOR 60-65% OF MANUFACTURING COS T AND ARE RECORDED IN BOOKS. THE GP RATE, TO BE ADOPTED FOR COMPUTING PROFITS GENERATED TO THE ASSESSEE COMPANY OUT OF ITS UNACCOUNTED RECEIPTS, HAS TO BE HIGHER THAN THE NOR MAL GP IN LIGHT OF THE FACTS THAT EXPENSES LIKE A PORTION OF THE RAW MATERIAL COST, ENTIRE ELE CTRICITY AND FUEL COSTS AND A PORTION OF THE LABOUR COSTS HAVE ALREADY BEEN CLAIMED IN THE NORMA L BOOKS OF ACCOUNTS. SINCE THERE IS NO FIRM BASIS FOR ARRIVING AT A PROPER ASCERTAINMENT O F SUCH GP IN LIGHT OF THE FACT THAT THE ASSESSEE IS UNABLE TO FURNISH DETAILS OF ALL UNACCO UNTED EXPENSES INCURRED BY IT, ALTHOUGH EVIDENCE OF SUCH EXPENSES HAS BEEN NOTED BY THE DGCEI IN THEIR REPORT, A RATIONALE ESTIMATE IS MADE IN RELATION TO THE GP TO BE ADOPTED IN RESPECT OF THE UNACCOUNTED RECEIPTS OF T HE ASSESSEE. CONSIDERING THE TOTALITY OF THE FACTS, GP RATE OF 40% SEEMS REASON ABLE IN THIS CASE AND ACCORDINGLY THE SAME IS APPLIED ON UNACCOUNTED CASH RECEIVED IS TAXED AS UNACCOUNTED INCOME EARNED ON ACCOUNT OF SUPPRESSION OF MRP.' 4.5. FROM THE DETAILS DISCUSSED EARLIER, IT IS EVIDENT T HAT THE APPELLANT HAD RESORTED TO LARGE SCALE SUPPRESSION OF SALE THOUGH VARIED MODUS OPERANDI. T HIS SUPPRESSION WAS ALSO ACCEPTED BY ALL THE INVOLVED PERSONS. THE AO HAS FAIRLY ACCEPTED TH E CONTENTION THAT THE QUANTUM OF SUPPRESSION OF SALES SHOULD BE BASED ON EX FACTORY RATE AND HAS ACCORDINGLY MODIFIED THE QUANTUM, DETERMINED BY THE DGCEI, ON THE BASIS OF M RP. IT HAS BEEN PLEADED THAT IT WAS AT BEST PROVISIONAL SINCE THE ISSUE RAISED BY THE DGCE I WERE NOT FINALLY ADJUDICATED. AS SUCH THE FIGURES ADOPTED BY THE AO SHOULD ALSO BE SUBJEC T TO CONSEQUENTIAL MODIFICATION. IT IS SEEN HOWEVER THAT THE FINDINGS OF THE A.O. ARE NOT ENTIRELY BASED ON THE FINDINGS OF DGCEI. ON THE FACTS AND CIRCUMSTANCES OF THE APPELLANT AND THE DE CISION OF THE JURISDICTIONAL HIGH COURT IN CASE OF PRESIDENT INDUSTRIES, 258ITR 654 ETC. IS HOWEVER APPLICABLE. THE DGCEI AND AO (ON PAGE 17 OF ASSESSMENT ORDER) HAD ALSO OBSERVED THAT RAW MATERIALS WAS PURCHASED WITHOUT BILLS OR AT REDUCED RATES AND FREIGHT AND T RANSPORT BILLS WERE OBTAINED AT A LOWER RATE. THE AO HAS ALSO ACCEPTED THIS FACT IN PAGE 17 IN HI S ASSESSMENT ORDER. THIS BEING SO, THE RATIO OF THE DECISION IN CASE OF PRESIDENT INDUSTRI ES AND OTHER CITED DECISIONS IS APPLICABLE. IN THE CASE OF ASIAN GRANITO INDIA LTD. FOR THE BLOCK ASSESSMENT PERIOD BY THE CENTRAL RANGE -2, AHMEDABAD IN WHICH THE SAME FACTS WERE CONSIDERED. IN THE CASE OF ASIAN GRANITO INDIA LTD, WHERE CIT (A) HAS CONFIRMED THE ADDITION NOT ON THE BASIS OF GP BUT ON THE BASIS OF THE NP IN THAT CASE. IT IS SEEN THAT THE CIT (A) HAS NOT REJE CTED THE BOOKS OF ACCOUNTS IN THE CASE OF ASIAN GRANITO. FURTHER, NET PROFIT RATIO APPLY IN C ASE OF SUPPRESSION OF SALE WAS ALSO JUSTIFIED BY HONORABLE IT AT RAJKOT BENCH, VRUNDAVAN CERAMICS PVT. LTD. V/S. DCIT, CENTRAL CIRCLE - 1, RAJKOT AND GOKUL CERAMICS PVT. LTD, V/S. DCIT, C ENTRAL CIRCLE -1, RAJKOT BY HONORABLE IT AT, RAJKOT BENCH VIDE HIS ORDER DTD.09/09/2011. THE UNDERSIGNED HAS TAKEN THE SAME VIEW IN THE CASES OF SANTRO TILES LTD. FOR A V. 2005-06 TO 2008-09 VIDE APPEAL NO. CIT(A)VIII/DC.S.K.CIR./704 TO 707/10-11 DATED 29/03 /2012. THE APPELLANT HAS FURTHER SUBMITTED THAT IN HIS CASES, THE INCOME SHOULD BE C ALCULATED ON WITHOUT DISTURBING THE NET PROFIT AS SHOWN IN THE RETURN OF INCOME. 4.6. . CONSIDERING ABOVE FACTS, I AM OF THE VIEW THAT TH E APPELLANT HAS RECEIVED CASH ON SUPPRESSION OF SALES AND EARNED EXCESS AMOUNT AND U SED FOR THE PURPOSE OF MAKING CASH PAYMENT FOR THE VARIOUS EXPENSES ASSOCIATED WITH TH E MANUFACTURING AND OTHER ACTIVITIES. THE NET PROFIT RATIO WHICH HAS BEEN DECLARED IN THE BOO KS OF ACCOUNTS DOES NOT REFLECT THE PROPER ITA NOS. 788 & 789/AHD/2013 . A.Y. 2005-0 6 & 2006- 07 6 PROFITABILITY OF THE BUSINESS OF THE APPELLANT COMP ANY IN THE RESPECTIVE YEARS. THE NET PROFIT DECLARED BY THE APPELLANT IN THE BOOKS OF ACCOUNTS IN THE RESPECTIVE YEARS IS ABYSMALLY LOW. AS THE BOOKS OF ACCOUNTS OF THE APPELLANT HAVE BEEN REJECTED, THE NET PROFITS ARE TO BE ADJUSTED TO ARRIVE AT THE REAL PROFITABILITY OF THE APPELLANT COMPANY AS THE APPELLANT COMPANY HAS NOT TAKEN OTHER FACTORS TO ARRIVE AT THE NET PR OFIT IN THE YEAR UNDER APPEALS. SINCE, THERE IS NO FIRM BASIS FOR ARRIVING AT A PROPER ASCERTAIN MENT OF SUCH NP IN LIGHT OF THE FACT THAT THE APPELLANT IS UNABLE TO FURNISH DETAILS OF UNACCOUNT ED EXPENSES INCURRED BY IT BEFORE THE AO AND BEFORE ME, EVIDENCE OF SUCH EXPENSES HAS BEEN N OTED BY THE DGCEI IN THEIR REPORT, A RATIONALE WORKING IS REQUIRED TO BE MADE IN THIS RE LATION. FOR THIS PURPOSE THE RATIO IS TAKEN OF THE FIXED COSTS IN THE FORM OF DEPRECIATION EXPE NSES AND THE TOTAL TURNOVER AS PER BOOKS OF THE APPELLANT. THIS RATIO IS TAKEN AS THE NET PROFI T ON THE BASIS THAT THESE TWO EXPENSES HAVE NOT BEEN INFLATED AND IN NORMAL CIRCUMSTANCES, THE APPELLANT IS EXPECTED TO EARN MINIMUM OF THIS MUCH NET PROFIT. THE RATIO IS TAKEN AS THE NET PROFIT EARNED ON THE TRANSACTION WHICH ARE NOT ENTERED IN THE BOOKS OF ACCOUNTS WHEREAS THE AO HAS MADE ADDITION ON THE GROSS PROFIT IN THE YEARS UNDER APPEAL. THEREFORE THE NET PROFIT RA TIO ACCORDING IS COMPUTED AS UNDER- SR. NO. PARTICULARS A.Y.2005-06 (RS.IN LACS) A.Y.2006-07 (RS. IN LACS) 1 . TOTAL TURNOVER 793.43 963.19 2 INCREASE (DECREASE) IN STOCK 51.96 37.17 3 PRODUCTION COST 621.59 732.20 4 GROSS PROFIT 223.80 193.82 5 GROSS PROFIT RATIO % 28.21% 20.12% 6 OTHER EXPENSE 68.98 47.89 7 NET PROFIT (BEFORE DEPRECIATION) 154.82 145.93 8 NET PROFIT RATIO 19.51% 15.15% 9 NET PROFIT (AFTER DEPRECIATION) 22.94 36.01 10 NET PROFIT RATIO 2.89% 3.76% 4.7. THE APPELLANT HAS BEEN PROVIDED THE ABOVE CALCULATI ON ON BASIS OF THE ABOVE FACTS AND THE CIRCUMSTANCE OF THE CASE. THE APPELLANT HAS VEHEMEN TLY ARGUED THAT INCOME SHOULD BE CALCULATED ON WITHOUT DISTURBING THE NET PROFIT AS SHOWN IN THE RETURN OF INCOME. THE ARGUMENT OF THE APPELLANT IS NOT ACCEPTED AS THIS I S THE MINIMUM PROFIT WHICH HAS BEEN EARNED AND IS NOT REFLECTED IN THE BOOKS OF THE ACC OUNTS. THIS VIEW IS FURTHER STRENGTHENED BY THE FACT THAT THE DIRECTOR OF THE CO. SHRI BABUBHAI KHEMABHAI PATEL HAD ACCEPTED THE ACCEPTANCE OF CASH OUT OF BOOKS IN THE STATEMENTS B EFORE THE DGCEI. THE AO HAS WORKED OUT TOTAL UNDISCLOSED SALES FOR A.Y. 2005-06 & 2006-07 ARE RS. 1,87,48,320/- AND RS. 2,03,87,5207- RESPECTIVELY. THUS, THE UNDISCLOSED I NCOME DETERMINED BY THE A.O. ON THE BASIS OF G.P. RATE (40%) IS RESTRICTED TO THE NET PROFIT AS CALCULATED ABOVE ON THE SUPPRESSED SALES AS WORKED OUT BY THE A.O. AS UNDER: ITA NOS. 788 & 789/AHD/2013 . A.Y. 2005-0 6 & 2006- 07 7 SR. NO. PARTICULARS A.Y.2005-06 (RS. IN LACS) A.Y.2006-07 (RS. IN LACS) 1 TOTAL TURNOVER 793.43 963.19 2 GROSS PROFIT 223.80 193.82 3 GROSS PROFIT RATIO 28.21% 20.12% 4 NET PROFIT 22.94 36.01 '5 NET PROFIT RATIO 2.89% 3.76% 7 NET PROFIT (BEFORE DEPRECIATION) 154.82 145.93 8 NET PROFIT ADOPTED 19.51% 15.15% THEREFORE, THE ADDITIONS OF RS. 36,57,797/- ( 1,87, 48,320 X 19.51%) IN ASST. YEAR 2005-06 AND RS. 30,88,709/- (2,03,87,520X15.15%) IN ASSST. YEAR 2006-07 RESPECTIVELY ARE CONFIRMED AS UNACCOUNTED INCOME EARNED ON ACCOUNT OF SUPPRESSION OF MRP. THE RELATED GROUNDS OF APPEAL ARE ADJUDGED ACCORDINGLY. 6. AGGRIEVED BY THE AFORESAID ORDER OF CIT(A), THE REV ENUE IS NOW IN APPEAL BEFORE US. THE REVISED GROUND OF THE REVENUE READS AS UNDER:- 1. THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN DIR ECTING TO ADOPT NET PROFIT @ 15.15% AS AGAINST 40% GP ADOPTED BY THE ASSESSING OFFICER ON THE UNAC COUNTED SALES OF RS. 2,03,87,520/- RECEIVED BY THE ASSESSEE THEREBY ALLOWING A RELIEF OF RS. 50 ,66,299/- TO THE ASSESSEE OUT OF THE ADDITION OF RS. 81,55,008/-. 2. THE LD. CIT(A) FAILED TO APPRECIATE THE FACT THAT T HE EXPENDITURE INCURRED ON THE UNACCOUNTED SALES BY THE ASSESSEE OVER AND ABOVE THE MRP DISCLOSED BY IT HAS ALREADY BEEN ACCOUNTED FOR IN THE REGULAR BOOKS OF ACCOUNTS. 3. THE LD. CIT(A) ALSO FAILED TO APPRECIATE THE FACT T HAT THE ASSESSEE FAILED TO FURNISH ANY EVIDENCE IN RESPECT OF THE EXPENDITURE CLAIMED TO HAVE BEEN INC URRED IN RESPECT OF SUCH ACCOUNTED SALES. 7. BEFORE US, THE LD. D.R. TOOK US THROUGH THE VARIOUS FINDINGS OF THE A.O. AND SUBMITTED THAT THE SALES ESTIMATED OF RS. 1.87 CRORE AND RS. 2.04 CRORE FOR A.Y. 05-06 & 06-07 RESPECTIVELY ON ACCOUN T OF REJECTION OF ITA NOS. 788 & 789/AHD/2013 . A.Y. 2005-0 6 & 2006- 07 8 BOOKS OF ACCOUNTS IS NOT DISPUTED BY THE ASSESSEE. HE POINTED OUT TO THE FINDINGS OF A.O. WHERE HE HAS NOTED THAT THE TILE M ANUFACTURER WERE PURCHASING RAW MATERIALS EITHER WITHOUT BILL OR AT REDUCED RATE SO AS TO KEEP THE MANUFACTURING COST ON PAPER AT LOWER SIDE SO AS TO MATCH THE DEFLATED MRP. HE HAS FURTHER NOTED THAT THE DIFFER ENTIAL AMOUNT WAS PAID TO THE SUPPLIER IN CASH WHICH WAS CONFIRMED FROM DE ALERS AND DISTRIBUTORS. THE A.O. THEREFORE CONCLUDED THAT SIN CE THE ENTIRE EXPENSES WERE NOT RECORDED AND WHEN THE BOOKS OF ACCOUNTS WE RE REJECTED, THE A.O. WAS FULLY JUSTIFIED IN MAKING AN ESTIMATION OF GROSS PROFITS. HE FURTHER SUBMITTED THAT THOUGH CIT(A) HAS ALSO ACCEP TED THAT THE ASSESSEE HAD RECEIVED CASH ON SUPPRESSION OF SALES AND THE E XCESS AMOUNT EARNED WAS USED FOR THE PURPOSE OF MAKING CASH PAYMENTS FO R THE VARIOUS EXPENSES INCLUDING THE MANUFACTURING AND OTHER ACTI VITIES AND THEREFORE THE NET PROFIT RATIO DID NOT REFLECT THE PROPER PRO FITABILITY OF THE BUSINESS. HE THEREFORE SUBMITTED THAT IN VIEW OF SUCH FINDING S, CIT(A) WAS NOT JUSTIFIED IN RESTRICTING THE ADDITION ON THE BASIS OF NET PROFIT RATIO. HE THUS STRONGLY SUPPORTED THE ORDER OF A.O. THE LD. A.R. O N THE OTHER HAND RELIED ON THE ORDER OF CIT(A). 8. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. IT IS AN UNDISPUTED FACT THAT THE ASSESSEE HAD SUPP RESSED SALES AND ALSO SUPPRESSED THE EXPENSES AND IN VIEW OF THESE FACTS, THE BOOKS OF ACCOUNTS OF THE ASSESSEE CANNOT BE RELIED AND WAS THEREFORE RIGHTLY REJECTED U/S 145(3) OF THE ACT BY THE A.O. ONCE THE BOOKS OF ACC OUNTS OF THE ASSESSEE ARE REJECTED, A FAIR ESTIMATE OF THE PROFITS NEEDS TO BE MADE. A.O. WHILE ESTIMATING THE PROFITS OF ASSESSEE HAS NOTED EVEN D GCEI HAS NOTED THAT NOT ONLY MRP WAS REDUCED FOR THE PURPOSE OF EXCISE DUTY BUT ALSO ITA NOS. 788 & 789/AHD/2013 . A.Y. 2005-0 6 & 2006- 07 9 COMPLETE EXPENSES/COSTS WITH RESPECT TO PURCHASE OF RAW MATERIALS AND OTHER EXPENSES WERE SHOWN AT A LESSER AMOUNT WHICH THEREFORE SHOWED THAT THE ENTIRE EXPENSES WERE ALSO NOT RECORDED IN THE BOOKS OF ACCOUNT. THIS FINDING OF A.O. COULD NOT BE CONTROVERTED BY A SSESSEE BY BRINGING ANY TANGIBLE MATERIAL ON RECORD. THE A.O. THEREAFT ER WORKED OUT THE INCOME EARNED ON SUPPRESSION OF MRP ON UNACCOUNTED CASH RECEIVED BY APPLYING THE GROSS PROFIT OF 40%. CIT(A) HOWEVER D IRECTED THE ADDITION TO BE COMPUTED BY APPLYING NET PROFIT RATE OF 19.51 % OF A.Y. 05-06 AND 15.51% FOR A.Y. 06-07 FOR WHICH RELIANCE WAS PLACED ON THE DECISION IN THE CASE OF PRESIDENT IND. 258 ITR 654 (GUJ) AND TR IBUNAL DECISION IN THE CASE OF VRUNDVAN CERAMICS PVT. LTD. VS. DCIT, GOKU L CERAMICS PVT. LTD. VS. DCIT. WE FIND THAT THE FACTS IN THE CASE O F PRESIDENT IND. (SUPRA) WERE DIFFERENT THAN THAT IN THE CASE OF ASSESSEE AS IN THAT CASE, BASED ON THE SURVEY AND EXAMINATION OF EXCISE RECORDS, UNREC ORDED SALES WERE FOUND. IN THAT CASE THERE WAS NO FINDING WITH RESP ECT TO UNRECORDED EXPENSES. WE THEREFORE FEEL THAT THE RATIO OF THE DECISION IN THE CASE OF PRESIDENT IND. (SUPRA) CANNOT BE APPLIED TO THE FAC TS OF PRESENT CASE. WITH RESPECT TO THE OTHER DECISIONS RELIED BY CIT(A), TH E FACTS OF THOSE CASE ARE NOT BEFORE US NOR HAVE BEEN PLACED BY ASSESSEE BEFO RE US AND THEREFORE WE ARE UNABLE TO COMMENT ABOUT THE APPLICABILITY OF THE DECISIONS OF THOSE CASES TO THE FACTS IN THE PRESENT CASE. FURT HER, WE FIND THAT CIT(A) HAS ADOPTED NET PROFIT RATE OF 15.15% FOR A.Y. 06-0 7 AS COMPARED TO 19.51% FOR A.Y. 05-06. WHEN THE BOOKS ARE REJECTED, WE DO NOT FIND ANY JUSTIFICATION FOR ADOPTING THE NET PROFIT OF 15.15% FOR A.Y. 06-07 WHICH IS LOWER THEN THE RATE OF 19.51% FOR A.Y. 05-06 WHI CH HAS BEEN CONSIDERED FOR ESTIMATION OF INCOME. CONSIDERING TH E TOTALITY OF THE AFORESAID FACTS WE ARE OF THE VIEW THAT THE ESTIMAT E OF G.P. MADE BY A.O. ITA NOS. 788 & 789/AHD/2013 . A.Y. 2005-0 6 & 2006- 07 10 @ 40% WAS ON A HIGHER SIDE BUT AT THE SAME TIME THE ACTION OF CIT(A) IN CONSIDERING THE NET PROFIT RATE WAS ALSO NOT FULLY JUSTIFIED AND THE FACT THAT THE PRESENT APPEAL IS OF REVENUE AND ASSESSEE IS NOT IN APPEAL. CONSIDERING THE TOTALITY OF FACTS, AND IN THE PECUL IAR CIRCUMSTANCES OF THE CASE, WE FEEL THAT THE ENDS OF JUSTICE SHALL BE MET BY ESTIMATING THE PROFITS FOR BOTH THE YEARS ON THE BASIS OF 20% OF GROSS PRO FITS AS AGAINST 40% MADE BY A.O. WE THEREFORE DIRECT ACCORDINGLY. 9. IN THE RESULT, THE APPEALS OF THE REVENUE ARE PARTL Y ALLOWED. ORDER PRONOUNCED IN OPEN COURT ON 10 -01 - 2014. SD/- SD/- (G.C.GUPTA) (ANIL CHATURVEDI) VICE PRESIDENT ACCOUNTANT MEMBER AHMEDABAD. TRUE COPY RAJESH COPY OF THE ORDER FORWARDED TO: - 1. THE APPELLANT. 2. THE RESPONDENT. 3. THE CIT (APPEALS) 4. THE CIT CONCERNED. 5. THE DR., ITAT, AHMEDABAD. 6. GUARD FILE. BY ORDER DEPUTY/ASSTT.REGISTRAR ITAT,AH MEDABAD