TMI Blog2014 (4) TMI 619X X X X Extracts X X X X X X X X Extracts X X X X ..... 5% for A.Y. 06-07 which is lower than the rate of 19.51% for A.Y. 05-06 which has been considered for estimation of income - the estimate of G.P. made by A.O. @ 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 - the profits for both the years to be on the basis of 20% of Gross profits as against 40% made by AO – Decided partly in favour of Revenue. - ITA No.788 & 789/AHD/2013 - - - Dated:- 10-1-2014 - G C Gupta And Anil Chaturvedi, JJ. For the Appellant : Shri O P Batheja, Sr. DR For the Respondent : Shri M G Patel, AR ORDER :- PER : Anil Chaturvedi 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 though the assessment years involved in both the appeals are different but the issue involved in both the appeals are identical except for the amount. It was further submitted that the submissions made by them for one year would be equally applicable to the o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rtment also revealed 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 particular 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 documents were also impounded. Shri Babubhai Khemabhai Patel, the Managing Director of the Assessee was confronted with the statements of various dealers and he in his statement recorded before Excise officials stated that due to market compulsion and general trade practice, the MRP 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 and therefore the books of the Assessee were not reliable. He accordingly rejected the books of accounts under section 145 of the Act. Based on the investigation carried on by DGCEI. A.O. conclu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rious incidental and ancillary expenses as the same were met with from the 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 or at reduced rates. This was done particularly so as to keep manufacturing costs on paper at lower side so as to match the deflated MRP. It has also been categorically stated that the tile manufacturers were obtaining freight and transport bills at a lower rate 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 has accepted acknowledged the fact that not only MRP is being reduced for the purpose of alleged excise duty but also complete expenses/costs with reference to the purchase of raw material and other incidental manufacturing expenses have been correspondingly shown at a lesser amount. This only goes to show that it is not a case where the entire expenses have been recorded in the books of accounts and the alleged suppression of sales is not accounted for thereby resulti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ctional 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 transport bills were obtained at a lower rate. The AO has also accepted this fact in page 17 in his assessment order. This being so, the ratio of the decision in case of President Industries 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 rejected the books of accounts in the case of Asian Granito. Further, Net Profit ratio apply in case 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, Central Circle-1, Rajkot by Honorable ITAT, Rajkot Bench vide his order dtd.09/09/2011. The undersigned has taken t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 calculation on basis of the above facts and the circumstance of the case. The appellant has vehemently 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 is the min ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y it has already been accounted for in the regular books of accounts. 3. The ld. CIT(A) also failed to appreciate the fact that the assessee failed to furnish any evidence in respect of the expenditure claimed to have been incurred 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 account of rejection of 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 manufacturer 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 differential amount was paid to the supplier in cash which was confirmed from dealers and distributors. The A.O. therefore concluded that since the entire expenses were not recorded and when the books of accounts were rejected, the A.O. was fully justified in making an estimation of gross profits. He further submitted that though CIT(A) has also accepted that the Assessee had ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... before us nor have been placed by Assessee before us and therefore we are unable to comment about the applicability of the decisions of those cases to the facts in the present case. Further, we find that CIT(A) has adopted Net Profit rate of 15.15% for A.Y. 06-07 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 which has been considered for estimation of income. Considering the totality of the aforesaid facts we are of the view that the estimate of G.P. made by A.O. @ 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 peculiar 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 profits as against 40% made by A.O. We therefore direct accordingly. 9. In the result, the appeals of the Revenue are partly allowed. Order pronounc ..... X X X X Extracts X X X X X X X X Extracts X X X X
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