TMI Blog2011 (3) TMI 1758X X X X Extracts X X X X X X X X Extracts X X X X ..... rother of the assessee. The group is engaged in the manufacturing as well as trading operations. The manufacturing activity involved procuring material from suppliers and cutting the same according size by the master tailors. The cut pieces are then sent for embroidery, screen print etc and thereafter for stitching and washing and then the products are packed and are ready for sale. The manufacturing and trading activities are carried out in the individual name of the brothers in proprietary concerns as per details given below : (i) Shankarlal P. Mali, Prop. Shree Sundha Maa Enterprises The business consists of manufacturing of readymade garments. The assessee is carrying on business from 22, Ashish Industrial Estate, Gokhale Road South, Dadar (W), Mumbai -25. They are manufacturing shirts for adults and boys. (ii) Prakash P. Mali, Prop. Hunction The assessee is wholesale trader in readymade shirts. The business is carried on from 33, Ashish Industrial Estate, Gokhale Road South, Dadar (w), Mumbai -25. (iii) Chunilal P. Mali, Prop. Station The assessee is trading in all kinds of shirts and T-shirts. The business is carried on from Shop No.3, 526, Ramkutir Bldg., 3 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the basis of material found in A.Y.2006-07 the AO treated the sales declared by the assessee in A.Y.2005-06 as only 17% of total sales. The AO thus computed the total sales for A.Y.2005-06 at ₹ 57,83,847/- consisting of accounted sales of ₹ 9,83,254/- (17%) and unaccounted sales of ₹ 48,00,641/- (83%). The assessee had declared GP rate of 19.90% for A.Y.2995-06. The AO therefore computed GP in respect of unaccounted sales @ 19.90% which came to ₹ 9,55,322/- which was added as undisclosed income of the assessee from the unaccounted sales. 4.1 In assessment year 2006-07 the assessee had declared GP rate of 18.05%. Therefore the AO computed GP in respect of unaccounted sales of ₹ 73,88,668/- @ 18.05% which came to ₹ 13,67,886/- which was added as undisclosed income for A.Y.2006-07. In assessment year 2007-08, the total sales as mentioned in chart was ₹ 61.84,791/-. The AO following the material found in A.Y.2006-07 treated 83% of sales as unaccounted which was computed at ₹ 51,33,376/-. Since the assessee had disclosed GP rate of 20.17% for A.Y.2007-08, the assessee determined the GP from unaccounted sales at ₹ 10,29,375/- and a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the unaccounted sales for A.Y.2005-06 based on the material found during search relating to the A.Y.2006-07 and 2007-08. He therefore confirmed the estimation of sales made by the AO for A.Y.2005-06. The decision of the AO regarding determination of unaccounted sales in other years was also upheld. Aggrieved by the said decision the assessee is in appeal. 5.3 Before us the Learned AR for the assessee submitted that during the search a diary marked as A-VI had been found which contained entries only from 1.10.2005 to 27.6.2006. The unaccounted transactions were thus found only for the limited period which related to A.Y.2006-07 and 2007-08. It was also submitted that the business of the assessee had started only in September 2004. He referred to the copy of sales tax registration dates 13.9.2004 and CST registration dated 13.9.2004 a copy of which was placed at page 10 of the paper book. It was thus clear that the business had started only from September 2004. The AO however estimated unaccounted sales for the whole year when there was no material found during the search. It was also submitted that in the earlier years, no additions had been made in case of the assessee and the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er years. The decision of the CIT(A) has been challenged before us. 5.6 We have carefully considered the various aspects of the matter including the judicial pronouncements cited by both the parties. In our view each assessment year is an independent assessment year and unless some material is found for that year showing some unaccounted sale estimation of unaccounted sales for that year based on the material found in other years will not be justified. In case the assessee had really indulged into unaccounted sales in A.Y.2005-06 there would have definitely been some material found showing unaccounted sales for that year also as both the residential and office premises of the assessee had been searched. Moreover we also note that unaccounted sales for A.Y.2006-07 had been found only from 1.10.2005 to 31.3.2006 and AO had accepted the unaccounted sales found on the basis of material found and had not estimated any accounted sale for the remaining period of A.Y.2006-07 i.e. from 1.4.2005 to 30.9.2005. Therefore estimation of unaccounted sales for the period of even before 1.4.2005 cannot be justified. The Learned DR has relied upon the judgment of Hon ble Supreme Court in case of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e tribunal held that there was no material found for the earlier years and there was also no defect in the books and therefore addition in the earlier years was not justified. Therefore in our view estimation of unaccounted sales for A.Y.2005-06 is not justified and order of CIT(A) on this point is set aside and addition made on this account is deleted. 5.7 Insofar as A.Y. 2007-08 is concerned the unaccounted sales found from the seized material was ₹ 42,64,419/- but the AO estimated unaccounted sales at ₹ 51,33,376/- on the basis of percentage of unaccounted sales found for A.Y.2006-07. In our view estimation made by the AO cannot be justified. The unaccounted sales actually found from the seized documents has to be considered as unaccounted sales. The same approach have been adopted by the AO in A.Y.2006-07 in which unaccounted sales actually found from seized documents had been accepted. It cannot be said that the assessee was making unaccounted sales exactly in the same proportion in all the years. The unaccounted sales actually found from the seized material have to be assessed as such. Therefore the unaccounted sales have to be accepted at ₹ 42,64,419/- t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nses should also be considered. 6.3 The Learned DR on the other hand supported that addition made on the basis of GP was justified as expenses must have been considered by the assessee against the accounted sales. Secondly even if the expenses were considered, since the source was not accounted the same had to be added as unaccounted expenditure. The Learned DR also submitted that it would have been appropriate if peak of purchases, sales and unaccounted expenses had been prepared and added which had not been done in this case. In reply the Learned AR for the assessee submitted that peak issue was neither before AO nor CIT(A) and therefore could not be raised now. The only issue was whether addition should be GP based or NP based. It was pointed out that details of expenses were available in the diary. As regards the source, it was submitted that even in unaccounted transactions there were opening balances which showed that funds were available. 6.4 We have perused the records and considered the rival contentions carefully. The dispute raised is regarding estimation of profit from unaccounted sales. The AO had estimated the gross profit from unaccounted sales on the basis of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... viously cannot be allowed. As regards the other expenditure which had not been claimed against the accounted sales, the same has to be allowed but the source of expenditure is also required to be seen. In case the source is not explained this has to be added as unexplained expenditure. The Learned AR submitted that the assessee had income from the unaccounted sales to explain such expenditure but these aspects have not been gone into by the authorities below. We therefore set aside the issue of allowance of any further expenditure found from the seized diary against the gross profit to the file of AO for fresh decision after necessary examination in the light of observations made above and after allowing opportunity of hearing to the assessee. 7. The third dispute which is relevant only to A.Y. 2005-06 and 2007-08 is regarding addition on account of unexplained investment under section 69A of the Income-tax Act. As discussed earlier the AO had computed the total sales including unaccounted sales for assessment year 2005-06 at ₹ 57,83,847/- which gave average monthly sales of ₹ 4,81,987/-. After excluding the GP @ 19.90% the AO computed the cost of monthly sales at &# ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t was submitted that the discrepancy had been largely reconciled and only a small discrepancy remained. The Learned DR on the other hand supported the orders of the authorities below. 7.3 We have perused the records and considered the rival contentions carefully. The dispute is regarding addition on account of unexplained investment on the basis of material found during the search. As discussed earlier, material had been found during the search showing unaccounted sales for A.Yrs.2006-07 and 2007-08 and on that basis the AO had estimated unaccounted sales for A.Y.2005-06 at ₹ 48,00,641/- and total sales had been computed at ₹ 57,83,847/- from which the average monthly sales was computed at ₹ 4,81,987/-. The cost of monthly sales was determined at ₹ 3,86,072/- after excluding the gross profit @ 19.90%. The AO also observed that the assessee was in the business of cloth manufacturing and the business cycle from material stage to realization of sales was 3 to 4 months and therefore for 3 to 4 months the assessee had to make investment from some undisclosed sources. Therefore the total investment for the first 4 months was determined at ₹ 15,54,288/- (3 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... te which is relevant only for A.Y.2007-08 is regarding addition of ₹ 3,50,000/- on account of additional income disclosed by the assessee. The assessee s elder brother Shri Shankarlal P. Mali had offered additional income of ₹ 75 lacs for the whole group which included ₹ 15 lacs in the name of the assessee in the statement dated 29.6.2006 under section 131 of the Income-tax Act. In the return of income, however, the assessee had offered only ₹ 11.50 lacs. The AO therefore added a sum of ₹ 3.5 lacs on this account. In appeal the assessee submitted that further addition was not justified as total addition as undisclosed income made by the AO was more than ₹ 3.5 lacs. CIT(A) was however not satisfied. It was observed by him that the assessee did not give any specific reason why income offered had not been disclosed. In the statement under section 131 dated 29.6.2006, there was specific disclosure of additional income of ₹ 15 lacs and it was not explained why the same was reduced. CIT(A) therefore confirmed the order of AO aggrieved by which the assessee is in appeal before the tribunal. 8.1 Before us the Learned AR for the assessee reiterat ..... X X X X Extracts X X X X X X X X Extracts X X X X
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