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M/s. Gopal Glass Works Ltd. Versus ITO, Ward-4 (1) , Ahmedabad And Vice-Versa

2016 (5) TMI 355 - ITAT AHMEDABAD

Rejection of books of accounts - estimation of profit - Held that:- Additional Commissioner has nowhere mentioned as to why the working given by the assessee cannot be accepted. More so, he has not given any reasoning as to how the duplicate entries taken in Annexure-A/7 as well as in the books, would be taken care. He simply treated Annexure-A/7 as gospel truth. On the other hand, the ld.CIT(A) has ironed out the anomalies or the error in the entries in an Annexure-A/7. We do not find any error .....

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ends of justice would meet, if we apply net profit rate at 5% of the unaccounted sales accepted by the ld.CIT(A). The ld.AO is directed to re-work out the income of the assessee on the basis of 5% net profit rate on the sales worked out by the assessee and accepted by the CIT(A) in both these years. - ITA. No. 274, 275 and 276/AHD/2010, ITA. No. 667 and 668/AHD/2010 - Dated:- 6-5-2016 - Shri Rajpal Yadav, Judicial Member And Shri N. K. Billaiya, Accountant Member For the Petitioner : Shri Tushar .....

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se appeals by this common order. 2. The grounds of appeal taken by both the appellants in their crossappeals are not in consonance with the Rule 8 of the Income Tax (Appellate Tribunal) Rules, 1963 - they are descriptive and argumentative in nature. In brief the common issue involved in all these appeals relates to determination of income on an estimate basis. We would revert to the specific grievance pleaded by the Revenue in subsequent part of this order. Let us first take adumbrated facts. 3. .....

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SGL has prepared this Annexure-A/7. The stand of the assessee before the Revenue authorities was that it does not disclose true picture of the assessee, because, it was not found at the premises of the assessee. It was not recorded by any authorized employee of the assessee. It was a document recorded by third person. Thereafter, survey was carried out at the premises of the assessee under section 133A of the Act on 18.12.006. The assessments in the Asstt.Years 2001-02 and 2002-03, have been reo .....

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return was filed on 8.2.2008 declaring total income at Rs.(-)29,20,234/-. The AO has framed the assessment in both these years on 28.12.2008 under section 143(3) r.w.s. 147. The income determined by the AO reads as under: Asstt.Year 2001-02: 7. On the basis of details available with the return of income and the details filed in response to the notice u/s.142(1) of the IT.Act income of the assessee is computed as under: Total income as per revised return of income u/s.148 11959550 Income as discu .....

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cussed above in para 5.a 2627629 17342216 Add: 20% excess epense in cash u/s.40A(3) (Para.6(c1) 775705 Excess expenses (Para 6.(c2)) 35322889 Maximum of the above (para 6.c3) 35322889 Add: cash expenses of freights u/s.40A(3) para 6.(d) 402026 Revised total income 52665105 4. Dissatisfied with the computation of income, the assessee carried the matter in appeal in both the years. 5. The stand of the assessee before the ld.CIT(A) was that in Annexure- A/7 found during the course search operation .....

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ement Commission. In the Settlement Commission the sales worked out by the assessee, on the basis of peak theory has been accepted. The levy of excise has been determined on this sale. Thus, the AO is not justified in taking cognizance of the entries in Annexure- A/7 as well as in the books of accounts. The assessee has filed the working which has been reproduced by the CIT(A) at page no.13 and 14 of the impugned order. The basis explained by the assessee has been noticed by the CIT(A) at page n .....

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sales at ₹ 22,49,09,770/- for the period May 1999 to August 2003. This comprised of undervaluation of ₹ 7,00,25,375/- for the period December 2001 to August 2003 and ₹ 15,48,84,395/- for the period May 1999 to November 2001. The amount of under valuation of sales for the relevant period as per the working filed before the Hon'ble Settlement Commission of Excise & Custom , has been arrived at ₹ 6,39,04,493/-. In other words the appellant has recorded sales to the t .....

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ppellant, for the relevant, period are defective in the sense that they do no, reflect correct and complete picture of the appellants transactions. The aforesaid would reflect that the appellant tried to offset all the cash receipts over an amount recorded in books of accounts to the extent of ₹ 6,39,04,493/- by debiting various expenses in cash namely Director's Salary etc. which can be seen a Sr.Nos 16, 19, 20, 21, 22, 23 , 26, 27 and 30 to 37. Most of these expenses reflected in reg .....

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On the basis of these peak values it filed revised Excise Duty Returns before the Excise Authorities It may be seen that the appellant went before the Hon'ble Settlement Commission of Custom and Excise for settlement of its cases for the period May 1999 to August 2003. The Hon'ble Settlement Commission of Central Excise passed the final order u/s 32F(7) of Central Excise Act, 1944 on 6.6.2007 determining total undervaluation of sales at ₹ 22,49,09,770/- for the period May 1999 to A .....

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ts and over and above ₹ 4,77,00,314/- has been collected by it in cash during the relevant period from the outside the books of accounts. As such the total turnover of the relevant period after taking into consideration Annexure books of accounts was to the tune of ₹ 20,92,22,123/-. 7.12 There is no doubt about the fact that the books of accounts maintained by the appellant for the relevant period are defective in the sense that they do not reflect correct and complete picture of the .....

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r such expenses. In absence of such documents it cannot be ascertained as to whether these expenses have been debited to exhaust the extra cash on sales collected by the appellant or for the purposes of business. Therefore, on the basis of these figures the peak theory applied by the appellant cannot be accepted as it considers those expenses which are not supported by necessary documents. 6. The ld.CIT(A) has accepted the stand of the assessee, as far as the quantification of unaccounted sales .....

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basis of any specific entry, because, the estimate in itself will take care of the expenses. Accordingly ld.CIT(A) has deleted various disallowance made by the AO under section 40A(3) of the Act relying upon the following judgments: i) CIT Vs Banwarilal Bansidhar, 229 ITR 229 (All) ii) CIT Vs. Smt. Santosh Jain, 296 ITR 324 (P&H) iii) CIT Vs. Mohammed Durabuddin, 4 BTR 218 (Mad) 7. Thus, the grievances of the assessee in its appeal relate to (a) reopening of the assessment, (b) rejection of .....

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the assessee, while impugning the orders of the Revenue authorities has contended that as far as reopening of the assessment and rejection of the books of accounts in these years are concerned, he does not press these grounds of appeal. According to the ld.counsel for the assessee, the only issue required to be adjudicated in the appeals of the assessee is, what rate of profit required to be applied on the alleged unaccounted sales. On the strength of Hon ble Gujarat High Court s decision in th .....

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ars 2000-01 and 2003-04, the assessee has approached Settlement Commission. The Settlement Commission has accepted the working of unaccounted sales and accepted the application of net profit rate at 5%. The ld.counsel for the assessee further placed on record the details of net profit as per the books of accounts shown by the assessee in the assessment years 2001-02, 2002-03 and 2004-05. As per the books of accounts, the average profit comes out for these three years is 0.25%. Similarly, in Anne .....

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sion for this issue, therefore, it is pertinent to take note of this section. It reads as under : 145. (1) Income chargeable under the head "Profits and gains of business or profession" or "Income from other sources" shall, subject to the provisions of sub-section (2), be computed in accordance with either cash or mercantile system of accounting regularly employed by the assessee. (2) The Central Government may notify in the Official Gazette from time to time [accounting stan .....

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uld reveal that it provide the mechanism how to compute the income of the Assessee. According to subsection 1, the income chargeable under the head profit and gains of business or profession or income from other source shall be computed in accordance with the method of accountancy employed by an Assessee regularly, subject to sub-section 2 of Section 145 of the Act. Sub-section 2 provides that the Central Government may notify in the official gazette from time to time, the Accounting Standard re .....

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wed by an Assessee than he can reject the book result and the assessee s income according to his estimation or according to his best judgment. The Assessing Officer in that case is required to point out the defects in the accounts of Assessee and required to seek explanation of the Assessee qua those defects. If the assessee failed to explain the defects than on the basis of the book result, income cannot be determined and Assessing Officer would compute the income according to his estimation ke .....

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[or fails to comply with a direction issued under sub-section (2A) of that section], or (c) having made a return, fails to comply with all the terms of a notice issued under sub-section (2) of section 143, the [Assessing] Officer, after taking into account all relevant material which the [Assessing] Officer has gathered, [shall, after giving the assessee an opportunity of being heard, make the assessment] of the total income or loss to the best of his judgment and determine the sum payable by th .....

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er this section.] [(2) The provisions of this section as they stood immediately before their amendment by the Direct Tax Laws (Amendment) Act, 1987 (4 of 1988), shall apply to and in relation to any assessment for the assessment year commencing on the 1st day of April, 1988, or any earlier assessment year and references in this section to the other provisions of this Act shall be construed as references to those provisions as for the time being in force and applicable to the relevant assessment .....

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the proper figure of assessment and for this purpose he must be able to take into consideration, local knowledge, reputation of the assessee about his business, the previous history of the assessee or the similarly situated assessee. It is also pertinent to mention that judgment is a faculty to decide matter with wisdom, truly and legally. Judgment does not depend upon the arbitrary, caprice of an adjudicator, but on settled and invariably principles of justice. Thus, in a best judgment, even if .....

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sales on the basis of peak theory applied to the entries available in Annexure-A/7 books of account. As far as taking cognizance of Annexure-A/7, is also not disputed. In order to buttress its stand, the assessee has contended that this working has been accepted by the Settlement Commission for the purpose of levy of excise as well as for the purpose of income-tax in the Asstt.Years 2000-01 and 2003-04. The logic for giving this working is that Annexure-A/7 contained duplicate entries i.e. cert .....

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the working given by the assessee cannot be accepted. More so, he has not given any reasoning as to how the duplicate entries taken in Annexure-A/7 as well as in the books, would be taken care. He simply treated Annexure-A/7 as gospel truth. On the other hand, the ld.CIT(A) has ironed out the anomalies or the error in the entries in an Annexure-A/7. We do not find any error in the finding of the ld.CIT(A) to this extent. The next aspect is application of net profit rate. On one hand, the assess .....

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