TMI Blog2011 (9) TMI 1186X X X X Extracts X X X X X X X X Extracts X X X X ..... vasion Wing of the Central Excise Department had conducted a search in case of assessee. During the search, Central Excise Department had found that the assessee was suppressing the maximum retail price on which sale of tiles has been actually made and maximum retail price as disclosed in the books. A show cause letter issued by the Evasion Wind of Central Excise Department was forwarded to the Income-tax Department on 22-122009. On the basis of said show cause notice of the Evasion Wing of the Central Excise Department, the AO issued show cause notice dated 24-12-2009 which has been reproduced by the AO at page 2 to 6 of his order. In the show cause notice, the detail of suppressed profit itemwise was given. In the show cause notice, the addition of ₹ 21,52,03,905/- was on account of suppressed sale/turnover for the period from 01-04-2006 to 28-02-2007 and from 01-03-2007 to 31-03-2007 on pro-rata basis. The AO estimated suppressed profit applying 25% rate of profit on the suppression of sale proceeds ₹ 21,52,03,905/- of which calculation comes to ₹ 5,38,00,976/-. The AO made addition of that amount. 5. The CIT(A) held that the AO was justif ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... possible inflation of purchase price. More or less, similar were the facts of the case of Vijay Protiens Ltd. Vs. ACIT 58 ITD 428 (Ahd.) decided by the Hon ble Ahmedabad Tribunal and also relied upon by the Assessing Officer. However, the facts of the case of the assessee are entirely different. The Modus Operandi adopted by the appellant company had been elaborately discussed in para-2.1 of the show cause notice dated 25.09.2008 of the Central Excise department and further reproduced in para-3 of the report of the Assessing Officer received on 29.10.2010. The appellant was suppressing the sales by showing lesser MRP in the sales invoices than the actual MRP. The differential value was collected in cash from the buyers and such cash amounts were not accounted for in their statutory records. The recipient dealers and distributors were also not showing on records, the actual expenses incurred by them towards local transportation, transit insurance, loading and unloading expenses, actual margin of profit etc. These expenses were also meted out by them in cash from the suppressed sales. While part of the cash amounts collected by the dealers and distributors in the aforesaid manner was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly, declared the MRP for computing excise duty at ₹ 100/- per box of tiles as against actual MRP of ₹ 150/-. The central excise duty is payable after abatement of 45%. Thus, the excise duty was paid on an amount of ₹ 55.00 (₹ 100.00 ₹ 45.00) as against payable on ₹ 82.50 (₹ 150.00 ₹ 67.50). The sales invoices were issued for ₹ 55/- excluding excise duty and other taxes. The sales invoices were required to be issued for ₹ 55/- excluding excise duty and other taxes. The sales invoices were required to be issued for ₹ 82.50. Thus, there was the suppression of sale of ₹ 27.50. This amount was shared by the dealers and distributors, raw material suppliers and by the appellant company. The above example clarifies that a certain portion of the suppressed sale was came in its pocket. This portion was estimated by the Assessing Officer at 25% of the suppressed sales without bringing any material on record or without considering any comparable cases dealing in similar line of business. From the show cause notice of the Central Excise department, it was gathered that a few of the manufacturing units were sel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... support of their contention furnished data of comparable cases where Central Excise Department do not find any suppression. The CIT(A) while examining the assessee reproduced the following table at page-29 of his order which was filed by the assessee before the CIT(A):- S.No. Particulars Vrundavan Ceramics Pvt. Ltd. Gokul Ceramics Pvt. Ltd. Ramco Ceramics Pvt. Ltd. Ferro Glazed Tiles Pvt. Ltd. 1. Net Sales 298316856 196809729 229302683 139616396 2. Production Cost 232408426 154130503 207310178 126862632 3. Gross Profit 65908430 42679226 21992505 12753764 4. Gross profit ratio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cent on the total sales including suppressed sales as in the case of comparable cases, the gross profit would be less than disclosed only from the declared sales. The extra gross profit was certainly from the suppressed sales gone to the taxable income . 8. However, the CIT(A) held that it will be fair and reasonable if the net profit of rate 13.20% is applied to the suppression of sales. The CIT(A) has also held that the Ld. Counsel of the assessee agreed to apply net profit rate as per books of accounts. The CIT(A) accordingly, confirmed addition to the extent of ₹ 284,06,915/- and balance amount deleted. The CIT(A) has also held that the suppressed sales be subject to rectification if the same are increased or decreased by the Central Excise Department. The relevant observation made by the CIT(A) in his findings are as under:- 4.21 In view of the detailed discussion in para-4.4 to para-4.20 above, it is held that the suppressed sales will be subject to rectification if the same are increased or decreased by the Central Excise Department and net profit rate of 13.20 per cent is to be applied on the suppressed sales of ₹ 21,52,03,905/-. On this bas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cs Pvt. Ltd. it was 10.68% whereas in comparable cases in Ramco Ceramics Pvt. Ltd. 7.38% and 3.65% in case of Ferror Glazed Tiles Pvt. Ltd. The ld. A.R. further submitted that in case of Ferror Glazed Tiles Pvt. Ltd. and Ramco Ceramics Pvt. Ltd., there was no suppressed sale as per the Central Excise Department. The Central Excise Department has accepted their turnover. The ld. A.R. submitted that on consideration of comparable case and fact that the assessee was declaring some portion of the suppression profit in a regular books of account. So, while estimating the suppression profit, a credit in this regard is required. As regards facts recorded by the CIT(A) that the assessee agreed for net profit rate, the net profit rate means net profit rate of comparable cases. 11. The ld. D.R. on the other hand, submitted that this is an admitted fact that there is a suppression of turnover. Therefore, that itself is sufficient reason for rejection of books of account. The ld. D.R. submitted that the AO has rightly applied 25% rate of profit on suppressed profit. The AO while applying 25% rate of profit relied upon a judgment of the Gujarat High Court in the case of Sanjay Oil Ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d. However, the Hon ble Delhi High Court in a recent decision (decision dated 24.12.2010) in the case of CIT vs. Aero Club 50 DTR (Delhi) 185 had held that the Assessing Officer had not brought on record any comparable case wherein the net profit declared by a taxpayer in the similar business was higher than the one declared by the assessee. The margins of a taxpayer as declared by him, could be varied and disturbed only if the profit margins in the case of other assessee engaged in similar business are higher. The AO in his remand report was also unable to comment on the comparable cases of B. Ltd. and A.T. relied upon by the assessee. In the circumstances, the Tribunal rightly held that the net profit as declared by the assessee was not required to be disturbed. It is thus evident that results of own case and the comparable cases have a vital role in estimating the profit by applying a reasonable rate of profit. 15. From the above discussion by the CIT(A), we find that the CIT(A) has rightly rejected the AO s action in estimating suppressed profit by applying profit rate of 25%. As regards the judgment of jurisdictional High Court on which the AO relied upon in the case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Suppressed sales 215203905 80077050 - - 3. Total sales 513520761 276886779 229302683 139616396 4. Gross profit declared 65908430 42679226 21992505 12753764 5. Gross profit Ratio 10% 10% 10% 9,59 9.13 6. Gross profit estimated 51352076 27688677 21992505 12753764 7. Other Expenses 26521029 21660813 5064045 7656117 8. Probable net ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .P. and N.P. are higher in both case in comparison to G.P. N.P. of comparable cases. The CIT(A) accepted this fact and also calculated quantum of profit in this regards in the table which is given at page-30 and 31 of CIT(A) s order in case of Vrundavan Ceramics (P)Ltd. The CIT(A) did not accept the result of comparable case on the ground that the assessee has declared higher profit in comparison to comparable cases. On account of fair and reasonable estimation of profit, the CIT(A) ought to have allow set off the profits which were declared by assessee in books of account while making estimation of the profit. From the table given by the CIT(A) at page-30 and 31 of his order on application of 10%(G.P. rounded for calculation purposes) as declared in comparable cases. We find that the assessee declared excess profit in books of account as under:- Vrundavan Gokul A. Sale as per books. 29,83,16,856 19,68,09,729 B 10% G.P. if applied For estimation. 2,98,31,685 1,96,80,97 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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