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Agarwal Metals & Alloys Praful M. Joshi, CA Versus Additional CIT Range 14 (1) , Mumbai

Rejection of books of accounts - estimation of gross profit consequent to the same - Held that:- The are of the view that there is merit in the contentions of the assessee that the rejection of books of accounts was not justified. Accordingly, we set aside the order of Ld CIT(A) on this issue. Since we have set aside the orders of tax authorities passed in respect of rejection of books, the consequent estimate of gross profit and addition thereof are also liable to be deleted. Further, the AO ha .....

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ng of invoices. The question of addition u/s 69C of the Act shall arise only if it is shown that the assessee has incurred any expenditure outside the books of account. In the instant case, we notice that the assessing officer has not brought any material on record to show that the assessee has made any payment through illegal sources to cover up the amount of under invoicing. Thus the assessing officer has entertained belief that the assessee has made the payments through illegal channels, only .....

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B - A.R contended that the interest income should be netted off against the interest expenditure and accordingly the deduciton u/s 80IB should be worked out - Held that:- The netting off sought by the assessee could be given, if it is shown that there is nexus between the borrowed funds and loans given/deposits made. Since this factual aspect requires verification, we set aside this issue to the file of the AO for examining the same. Accordingly, the order passed by Ld CIT(A) stands modified. .....

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ks of accounts and estimation of gross profit. c. Addition made u/s 69C of the Act. d. Deduction u/s 80IB of the Act. e. Deduction of Customs duty paid. f. Interest u/s 234C of the Act. g. Interest u/s 234D of the Act. 3. The facts relating to the case are stated in brief. The assessee is engaged in the business of manufacturing of aluminium rods out of aluminium ingots, aluminium scraps and other consumables. The assessee sources the raw materials from within the country as well as through impo .....

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fore us. 4. The first issue relates to the claim of non-receipt of notice u/s 143(2) of the Act. At the time of hearing, the Ld A.R did not press the grounds relating to the said issue and accordingly those grounds are dismissed as not pressed. 5. The second issue relates to the rejection of books of accounts and estimation of gross profit consequent to the same. The AO received information from Central Excise and Customs officials that the assessee has been alleged to have been indulging in man .....

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hat they are indulging in under invoicing of imports. Accordingly, the AO took the view that the assessee is indulging in under invoicing of imports and the difference amount was paid in cash through illegal channels. The AO further noticed that the Gross Profit ratio and Net Profit ratio declared by the assessee were not consistent over the years. The AO further noticed that the assessee has incurred major portion of expenses by way of cash. The AO worked out the ratio of expenses incurred by w .....

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year also at 7.07% as declared by the assessee in AY 2005-06, as against the G.P. rate of 5.36% declared for the current year and thus made an addition of ₹ 1.92 crores to the total income. The Ld CIT(A) also sustained the same. 6. The main contention of the assessee is that the Customs department merely issued Show cause notice and till date the proceedings have not been completed. He further submitted that the partner of the assessee admitted under invoicing of imports upon pressure & .....

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h banking channels and hence the said reasoning given by the AO also fails. He further submitted that the gross profit earned by the assessee would depend upon market conditions. He further submitted that the assessee has maintained proper stock register and its books of accounts have also been audited. He further submitted that the Excise department has also conducted audit and they have accepted the purchases and sales reported by the assessee. He further submitted that the AO did not find any .....

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of the assessee are not reliable. 8. In the rejoinder, the Ld A.R submitted that the assessing officer has not disturbed the gross profit ratio declared by the assessee in other years and did not make any addition, even though the allegation of Central Excise and Customs department extends to the preceding and succeeding years. 9. We have heard rival contentions on this issue and perused the record. We notice that the assessing officer has given mainly two reasons to reject the books of accounts .....

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value was sent out of India in the illegal route, the same appears to be a mere allegation, i.e., neither the Customs department nor the assessing officer has brought on record any material to support the said allegation. We notice that the AO did not make any enquiry to substantiate the said allegation. Hence, there is merit in the contentions of the assessee that, mere show cause notice issued by the Customs department was not sufficient to arrive at the conclusion that the assessee has indee .....

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the AO himself has accepted that the assessee could generate high G.P. ratio in Ay 2006-07 due to windfall gains. However, the contention of the assessee that the G.P. ratio would depend upon various market conditions has not been controverted. We have also noticed that the AO has adopted the G.P. ratio of 7.07% declared in AY 2005-06 as against 5.36% reported by the assessee for the current year, without analysing the facts and circumstances of each of the year. Hence, this reasoning given by .....

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leted. Further, the AO has modified only Gross profit and he has accepted the expenses claimed by the assessee, meaning thereby he did not find any defects in the books. Accordingly we direct the AO accept book results. 13. The next issue relates to the addition made u/s 69C of the Act. On the basis of show cause notice issued by the Customs department, the AO worked out the amount of under invoicing at ₹ 59.26 lakhs for the period from 1.4.2006 to 16.5.2006. The AO considered the same as .....

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submitted that the Customs department has informed that the documents named relied upon documents are available with them, but the AO did not choose to call for or examine them. He submitted that the assessing officer did not make any independent enquiry before making this addition. He submitted that the valuation is being determined by the Customs department only for the purpose of collection of Customs duty and the same does not establish that the assessee has paid money outside the books of .....

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further submitted that the AO placed reliance on three insurance documents, but the fact remains that the insurance documents do not pertain to the year under consideration and further they have been taken by the suppliers. The AO has also referred to an international enquiry conducted, but the same also does not pertain to the year under consideration. Further, the enquiry has been made with Brussels, where as the assessee has imported metals from New York. Accordingly the Ld A.R contended that .....

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Customs authorities from him under coercion. The statements taken from certain other persons were also relied upon, but the assessing officer himself has admitted that the assessee has not purchased goods from them during the year under consideration. He further submitted that the statements were taken from other persons without oath and hence they could not be relied upon. Further the assessee has not been provided with an opportunity to cross examine them. Accordingly he contended that the ad .....

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notice issued by the Customs officials to make this addition. The admitted fact is that the assessing officer did not make any independent enquiry to confirm the allegation of under invoicing of invoices. The question of addition u/s 69C of the Act shall arise only if it is shown that the assessee has incurred any expenditure outside the books of account. In the instant case, we notice that the assessing officer has not brought any material on record to show that the assessee has made any payme .....

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g officer do not pertain to the year under consideration. It is further stated that the statement given by the partner on two occasions have been retracted within short period of time. Accordingly, we find merit in the contentions of the assessee that the assessing officer could not have placed reliance on those documents/statements. Further, the Hon ble Bombay High Court has held in the case of The Central Provinces Manganese Ore Co. Ltd (supra) has held that the market value determined by the .....

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on made u/s 69C of the Act. Accordingly, we set aside the order passed by Ld CIT(A) on this issue and direct the AO to delete this addition. 20. The next issue urged by the assessee relates to the deduction claimed u/s 80IB of the Act. The assessee had earned interest income of ₹ 25.14 lakhs in the Profit and Loss account. Though the AO assessed the same as business income, he rejected the deduction u/s 80IB of the Act claimed on the above said interest income. The Ld CIT(A) allowed deduct .....

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ome should be netted off against the interest expenditure and accordingly the deduciton u/s 80IB should be worked out. In support of this proposition, the Ld A.R placed reliance on the following case law:- a. Tata Sponge Iron Ltd Vs. CIT (2007)(292 ITR 175)(Ori) b. ACG Associated Capsultes P Ltd Vs. CIT (2012)(343 ITR 89)(SC) c. CIT Vs. Taj International Jewellers (ITA No.985 of 2010)(Delhi) 22. We heard the parties on this issue. The netting off sought by the assessee could be given, if it is s .....

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