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2015 (3) TMI 923 - ITAT MUMBAI

2015 (3) TMI 923 - ITAT MUMBAI - TMI - Estimation of gross profit on sale of almonds - assessee is aggrieved by the decision of Ld CIT(A) in enhancing the income by peak credit amount of ₹ 45,01,668/- and also in confirming the gross profit addition by ₹ 1,13,69,590/- Held that:- There is merit in the contentions of the assessee. Before us, the assessee has furnished the order of assessment of tax made under MVAT Act (Value added Tax - Sales tax). We notice that the commercial tax au .....

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purchase cost. Hence, the Ld CIT(A) has taken the view that the estimated gross profit rate should be applied only the above said purchases of ₹ 14.21 crores. In our opinion, this approach of the Ld CIT(A) appears to be reasonable one., i.e., when the AO is suspecting about the claim of loss on sale of almonds, there is no reason to disturb the sales made with profit. Hence, in our view, the AO was not justified in applying the gross profit rate on entire cost of purchase of almonds and t .....

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may be, cannot justify the action of the assessing officer. Hence, in our view, there is no enough material on record to warrant or justify the action of rejection of book results. Accordingly we are of the view that the Ld CIT(A) was not justified in upholding the action of rejection of book results.- Decided in favour of assessee.

The view expressed by the AO on application of sec. 40A(2)(b), in our view, was not correct, since the assessing officer has not proved by way of any mat .....

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ak credit balance in the bank accounts - Held that:- We have earlier noticed that the AO did not make any addition on this account, since he has accepted that the said deposits have been made out of cash sales only. We notice that the Ld CIT(A) has also accepted the said fact, but he has entertained the view that the assessee has made certain gains in routing the cash sales proceeds through the bank account. We have earlier noticed that the sales effected in cash was shown as credit sales in the .....

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n favour of assessee. - I.T.A. No.3573/ Mum/2013 and 5250/Mum/2013, I.T.A. Nos.7099/Mum/2013 and 5298/Mum/2013 - Dated:- 13-3-2015 - Shri B. R. Baskaran (AM) And Vivek Varma (JM),JJ. For the Petitioner : Shri Pavan Kumar Beerla For the Respondent : Shri Rajiv Khandelwal and Shri Pramod Mishra ORDER Per B. R. Baskaran, Accountant Member: These cross appeals relate to the assessment years 2009-10 and 2010-11 and they are directed against the orders passed by Ld.CIT(A)-33, Mumbai. All the appeals w .....

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e of almonds. Since the facts relating to the issue are identical in nature in both the years under consideration, we take the AY 2009-10 as the lead case. 3. We heard the parties and perused the record. The assessee firm is engaged in the business of importing and dealing in chemicals and almonds. The assessee imports chemicals named Ditomite, Silica and Aerosil. It also imports Shelled and Unshelled almonds from USA, besides sourcing the almonds locally also. During the course of assessment pr .....

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ash deposits to the tune of ₹ 1.11 crores was found deposited. Thus the aggregate amount of ₹ 4.46 crores (Rs.3.35 crores + ₹ 1.11 crores) was found deposited in the bank account of M/s Sameer & Co and the same was found transferred to the account of the assessee. When the details about deposits made in the above said bank accounts were enquired, the assessee owned up these bank accounts and further submitted that the cash deposits were made out of proceeds received from ca .....

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sessee on others bank account. For the sake of convenience, we extract below paragraph 7.1 of the assessment order. 7.1. I have gone through the submissions of the assessee and the facts on record. As already brought out in this order the assessee's offer of 4% extra G.P on almond sales of ₹ 4,46,81,778/- is not accepted. The gross profit margin on the entire sale of almonds @ 16.05% has been considered in this order as against the loss of ₹ 4,07,29,717/- or about shown by the as .....

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e previous year and its cash sales also considered in the order for forming part of the G.P estimated on sale. Since the G.P estimated and cash sales have been closely interlinked and in the absence of any additional information, no further addition on cash deposits made by the assessee on others banks as discussed is made in this order. 4. However, the AO proceeded to examine the sales details reported by the assessee. The AO called for item-wise sales break-up from the assessee. Since the asse .....

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sessee had declared Gross Loss on sale of Almonds. The AO noticed from the sales bills of Almonds that the sales have been made to parties, who could not be identified. Hence the AO took the view that the sales shown against the non-existent parties are not reliable and so also the Gross Profit shown against those sales also. The AO also verified the sales effected on 7.1.2009 and also the related purchases and noticed that the G.P on the same worked out to 16.05%. Accordingly, the AO took the v .....

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le. From the same lot of purchase, assessee has shown sales to others at market rate which shows that the sales shown at very cheap rates has not been genuine. The sale claims to these parties at the low rates have been made up by assessee for creating the negative G.P or loss. (iii) As mentioned earlier, the assessee continued to resist the request for furnishing the data of sales turnover of almonds contained in the overall sales turnover shown in the trading account. The sale turnover of almo .....

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persons other than disclosed in those cases of claim of sales at very low rate. This has resulted in the suppression of actual profit. (v) The 'modus operandi' adopted by the assessee has been that the real profit from almond has been suppressed and shown as loss to reduce the impact on overall G.P of the super profit earned by it from the sale of 'Diatomite' and 'Silica/Aerosil'. This has resulted in overall G.P margin getting reduced to 7.25%. Accordingly, the AO comput .....

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e of almonds was 16.05% by taking few sale bills and it was not to correct to presume that the same rate of gross profit would be realized throughout the year on the entire quantity of purchases. The assessee submitted that it had incurred loss on sale of sub-standard quality almonds. It further submitted that the overall G.P rate reported by it is comparable with the earlier years. The AO noticed that the loss has been incurred by selling almonds at very low rate of ₹ 50/- to ₹ 60/- .....

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in the range of 8.74% to 39.47%. Hence the AO took the view that the G.P. rate of 16.05% determined by him was reasonable. Accordingly, the AO assessed the difference in sales (could also be taken as difference in Gross Profit) of ₹ 7.33 crores as income of the assessee. 6. In the appellate proceedings, the Ld.CIT(A) took the view that the peak amount of Cash deposits made in the seven bank accounts /cheque receipts from the account of M/s Sameer & Co. has to be assessed as income of .....

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the Ld CIT(A) held that the Gross profit should be estimated @ 8% on the cost of purchase of 14.21 crores, cited above. Accordingly he estimated the profit at ₹ 1,13,69,590/- and directed the AO to assess the same along with the peak credit of ₹ 45,01,668/- referred above, in the place of ₹ 7.33 crores assessed by the AO. 7. The assessee is aggrieved by the decision of Ld CIT(A) in enhancing the income by peak credit amount of ₹ 45,01,668/- and also in confirming the gros .....

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supplier to the godown of the assessee would be considerable and sometimes, it would take more time due to operational problems, like delays in loading into Containers, the transportation delay caused by problems of Ships, the delay in getting berth in the port etc. During the course of transportation, the products may lead to infestations. Due to delay, the infections would spread to good almonds also. The assessee has to necessarily examine the quality of the almonds and sort/segregate the sa .....

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would vary according to the market conditions. Accordingly he submitted that the assessee, as a business man, would be selling the almonds at various rates in order to minimize the loss, so that in average he makes profit on sale of all products dealt by him. The assessee would tend to make more loss if it holds the products. He submitted that the above said practice is the normal trade practice adopted in almost all kinds of trades. Accordingly he submitted that tax authorities are not justifie .....

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re covered by the provisions of sec. 40A(2)(b) of the Act. However, the AO has not given a finding that the purchase prices paid are in excess of market value. On one hand, the AO has disbelieved the selling price by accepting the purchase price and accordingly computed the gross profit, and on the other hand, he is entertaining the view that the purchase prices are on the higher side. Accordingly, he submitted that there was inconsistency in the approach of the AO. He further submitted that the .....

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red to comply with stringent norms. Accordingly he submitted that the AO has rejected the book results without proving with any tangent material that the assessee has really shown bogus loss in the books of account. Accordingly he submitted that the AO has proceeded to estimate the Gross profit on sale of almonds only on presumptions and on surmises and conjectures. Hence the entire addition is liable to be deleted. 11. The Ld A.R submitted that the ld CIT(A) has accepted the fact that the avera .....

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be deleted. 12. The Ld A.R submitted that the AO has accepted the fact that the cash deposits made into the bank accounts of six persons and M/s Sameer & Co. have come from the Cash sales made by the assessee and hence he did not make any addition. The Ld CIT(A) also accepted this fact, but he has taken the view that the assessee has gained by routing the cash through the bank accounts. Accordingly, the Ld CIT(A) has computed the peak credit and held the same to the income of the assessee. T .....

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unted transactions, where as in the instant case, the assessee has accounted the sales. 13. On the contrary, the Ld D.R placed strong reliance on the assessment order. He submitted that the assessee has claimed to have incurred gross loss on sale of almond and the said claim was not prima facie acceptable. Hence, the AO has computed the gross profit realized on sale of other products and noticed that the assessee has sold the almonds at very low price, which is not believable. He submitted that .....

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e gross profit rate adopted by him. Hence the Ld CIT(A) was not justified in reducing the addition made by the AO. 14. On consideration of entire spectrum of the matter, we are of the view that there is merit in the contentions of the assessee. Before us, the assessee has furnished the order of assessment of tax made under MVAT Act (Value added Tax - Sales tax). We notice that the commercial tax authorities have accepted the turnover reported by the assessee. When the authorities who are mainly .....

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of the products. We notice that the average gross profit rate was computed as 27.71% and 27.20% on sale of Diatomite and Silica/Aerosil respectively. It is pertinent to note that there is nothing on record to show that the above said computation of gross profit was accepted by the assessee. The AO has taken Sworn statement from one of the partners of the firm. In question no.31 also, the AO has made certain computation of gross profit in respect of some of the bills. We notice that the gross pr .....

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sessing officer has arrived at the conclusion that the assessee has incurred Gross Loss on sale of almonds, since he had computed the Gross profit realized on chemical items at a huge figure. Thus the gross profit of all the products would be dependent upon each other under this method of computation, i.e., if the gross profit from chemicals is reduced, then the gross profit on almonds will go up. Hence, unless it is shown that the gross profit computed by the AO from chemical sales is an authen .....

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said purchases of ₹ 14.21 crores. In our opinion, this approach of the Ld CIT(A) appears to be reasonable one., i.e., when the AO is suspecting about the claim of loss on sale of almonds, there is no reason to disturb the sales made with profit. Hence, in our view, the AO was not justified in applying the gross profit rate on entire cost of purchase of almonds and to that extent the view of the Ld CIT(A) stands justified. At the same time, the contention of the assessee was that the Ld CI .....

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otice that the AO has simply proceeded to make computations on the basis of book results only. It can be seen that the AO did not use any outside material/information in this regard. Thus, it is seen that the assessing officer did not make any third party enquiries or any other material on record to disprove the book results. More particularly, the claims of the assessee that the almonds are perishable products and subject to vagaries of weather, subject to breakage and other loss, liable to inf .....

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on the basis of surmises and conjectures. It is a well settled proposition that the suspicion, howsoever strong it may be, cannot justify the action of the assessing officer. Hence, in our view, there is no enough material on record to warrant or justify the action of rejection of book results. Accordingly we are of the view that the Ld CIT(A) was not justified in upholding the action of rejection of book results. 18. The view expressed by the AO on application of sec. 40A(2)(b), in our view, w .....

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to compute the gross profit on presumptive basis without bringing any material on record. We have also noticed that the claim of sale of sub-standard quality of almonds has not been disproved. Though it is stated that the assessee has sold to non-existant parties, yet the bills relating to cash sales generally do not bear the address of the buyers. Hence, the same cannot be a ground to reject the claim of the assessee. Accordingly, we are of the view that there is no material on record to rejec .....

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