TMI Blog2007 (12) TMI 321X X X X Extracts X X X X X X X X Extracts X X X X ..... unt maintained for the aforesaid years was found. In absence of any material being found during the search relevant to the aforesaid assessment years, in our considered opinion, the learned CIT(A) was justified in deleting the addition made for these years only on the basis of assumption and surmises. We do not find any error in the order of the learned CIT(A) insofar as he rejected the estimate of suppressed sales by the Assessing Officer. Further, the rate of profit assumed by the learned CIT(A) being more than the rate of profit estimated by the Assessing Officer, the Revenue cannot have any grievance against the same. Thus, the learned CIT(A). It is confirmed and the ground of appeal of the Revenue is dismissed. The Revenue has not brought any material on record to corroborate the finding of the Assessing Officer for suppressed production and sales merely on the basis of variation in electricity consumption. The revenue has also failed to point out any specific error in the order of the learned CIT(A). Therefore, the findings of the learned CIT(A) which is confirmed and the grounds of appeals of the assessee are dismissed. Protective addition̴ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... company seized from the factory premises are marked as Annexs. A1 to A47. The documents pertaining to the assessee company were reportedly found and seized from the premises of its director and employees also. In response to the notice issued under section 153A the return of assessment year 2000-01 was filed on 17-10-2005 at a loss of Rs. 1,02,750. It was stated to be the first year of business operation after incorporation of the company on 9-6-1999 and there was no sale shown in the year. 4. The Assessing Officer noted that the assessee has shown loss and even the GP shown was a negative figure. According to him the assessee being the sole manufacturer of this Gutkha which was widely popular, the manufacturing and trading of Gutkha were a lucrative business. According to the Assessing Officer, there was unaccounted production, a usual feature in this trade, mainly because of high excise duty and luxury tax. He noted that consumption of electricity by the assessee company from the details obtained from Ahmedabad Electricity Company, it was found that 3,554 units were consumed by the assessee. The Assessing Officer noted that there was wide variation in the ratio of consumption ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction was being done and some machines were under repairs while at the other inspection no unaccounted production and sale for evasion of excise duty were found. Even, during the search no incriminating documents to indicate any sale or production outside the books during the period have been found. 5. The contention of the Assessing Officer to reject the books of account was also assailed in the reply to the Assessing Officer and it was submitted that the books were audited. The return of income filed originally had been accepted. The accounts were subject to inspection by excise authorities and nothing wrong has been found by them. The raw material stock was found as per the records of excise authorities. The books were maintained regularly and no defect was pointed out in the same. The Assessing Officer was of the opinion that 10 to 15 per cent variation in consumption of electricity can be there for the reasons as pointed out by the assessee, but in the present facts there was abnormal variation which could not be explained. The reference to the excise report was not relevant. The contention of the assessee that no incriminating document was found during the search by the I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Hence, the Assessing Officer estimated the net profit. 7. The Assessing Officer also observed that huge profit from sale of unaccounted production was partly shared with the wholesaler and retailers, also there was competition in the market which could have reduced the profits. The Assessing Officer was of the view that the assessee has possibly made unaccounted payment also for smooth running of his business. There would also be expenses which though not shown or shown partially were actually higher such as warehouse, travelling, sales promotion, transport and discount, etc. The Assessing Officer considering all these aspects observed that it would be appropriate to determine net profit at the rate of 20 per cent exclusive of depreciation on estimated sale of unaccounted production in order to estimate the unaccounted production, the sole basis adopted by the Assessing Officer was the consumption of electricity by the packing machines. Relying on the details from the manufacturer of the packing machine that one machine consumes 1.25 unit of electricity every hour to pack 3,000 pouches per hour, the Assessing Officer has estimated the consumption of electricity by packing machi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... io at 20 per cent he estimated net profit before depreciation at Rs. 70,91,891. 12. Similarly, in the assessment year 2004-05, the Assessing Officer estimated the production of pouches at 5,50,85,785 and by taking the average sale price rate of Re. 0.743 worked out the total sales at Rs. 4,09,28,738 and by taking net profit ratio before depreciation at 20 per cent he worked out the income of the assessee for the year at Rs. 81,85,747. 13. In appeal, the learned CIT(A) observed that in the assessment years 2000-01 to 2003-04, the Assessing Officer has made reference to the assessment order, documents and papers pertaining to the assessment year 2004-05 to indicate suppressed production/sales. It would not be correct to draw a direct corollary and analogy from the documents and papers for the assessment year 2004-05 for the assessment years under appeal in 2000-01 to 2003-04, in absence of any corroborative evidence. He observed that the Assessing Officer has rejected the books of account without observing any specific defect therein. The accounts have been rejected for the sole reason that the assessee was unable to reconcile the figures of consumption of electricity vis-a- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 05, the learned CIT(A) observed that the Assessing Officer has computed the production and estimated net profit solely relying on consumption of electricity estimated by him for the entire year. The approach of the Assessing Officer suffers from a fatal flaw as discussed in the appellate orders for assessment years 2001-02 to 2003-04. He observed that on same approach he estimated the understated sales. He observed that understated sales of almost Rs. 24 lacs are evident from the duplicate invoices seized as per Annex. BH1. He observed that the purchases made in the name of entities such as Manoj Trading Co. and Sivran Trading Co. were apparently utilized partly in unaccounted purchases/sales of the assessee company. He observed that similarly, while the documents as per Annexs. A1 and A2 found from director, Shri Dilip Jani indicate to be in the nature of an aid memoir yet, there are entries which are suggestive of unaccounted sales. The learned CIT(A) observed that on a holistic consideration and appraisal of the entries in the seized record it is reasonable to estimate understated sales at Rs. 32 lacs including unaccounted sales of Rs. 24.70 lacs as per four seized sale bills An ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s existed in the assessment year 2004-05, on the basis of this, he presumed that there might have been suppressed production and sales in the assessment years 2000- 01 to 2003-04 also. Hence, he taking the consumption of electricity as basis and on the further assumption and presumption arrived at some suppressed production and sales for the said assessment years. It is not in dispute that no defect in the books of account maintained for the aforesaid years was found. In absence of any material being found during the search relevant to the aforesaid assessment years, in our considered opinion, the learned CIT(A) was justified in deleting the addition made for these years only on the basis of assumption and surmises. 19. In respect of assessment year 2004-05, we find that the finding of the learned CIT(A) that seized material indicates suppressed sale of Rs. 24 lacs could not be controverted by the Revenue. The Assessing Officer estimated the suppressed sales of Rs. 4,09,28,738 on the basis of units of electricity consumed by the assessee and by making certain assumptions and presumptions on that basis. The revenue could not controvert the findings of the learned CIT(A) that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 92,68,583 further observed that the assessee-company would need capital for purchase and other key inputs. The unaccounted sales have been computed for various assessment years. However, it would be in the first year of operation when such unaccounted investment would be made. In subsequent years, the funds generated out of unaccounted sales during the earlier years would be ploughed back to the company s operation. He observed that looking to the scale of operation and other relevant facts 10 per cent of the total sales during the year would be sufficient to generate unaccounted sales during the year. Therefore, the addition of Rs. 9,26,858 was made on account of unaccounted investment for operational purposes. 23. In appeal, the learned CIT(A) held that there was no cogent evidence on record to support the addition. As no relevant fact, has been indicated by the Assessing Officer, it should be considered for drawing inference about the unexplained investment. As for the scale of operation the assessee had shown that there was no production and the factory was set up. The consumption of units of electricity in the financial year 1999-2000 as observed by the Assessing Officer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has been held that Shri Dilip Jani was not engaged in any trading activities as claimed by him at the fag end of the assessment proceeding in his case. The concluding part of the assessment order of Shri Dilip Jani in the assessment year 2004-05 reads as under: "....held that the cash seized from other undisclosed sources, for which assessee is not furnishing details due to one reason or other. However, in view of the fact that the assessee has owned up the cash and as per section 132(4) and section 69A of Income-tax Act assessee should have explained satisfactorily about the source of cash seized, the cash seized is brought to tax in the hands of the assessee on substantive basis. Assessee is a director of Royal Marwar Tobacco Products (P.) Ltd. and part of cash seized has been claimed as pertaining to aforesaid company. This company has been found involved in unaccounted production as discussed in assessment order of the company. Therefore, to protect the interest of Revenue the cash seized of Rs. 1,19,45,750 need to be added in the hands of Royal Marwar Tobacco Products (P.) Ltd. on protective basis........" In view of the above, cash seized of Rs. 1,19,45,750 was consi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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