TMI Blog2020 (3) TMI 468X X X X Extracts X X X X X X X X Extracts X X X X ..... intained by the appellant. A.O. has rejected the books of account and estimated the profits of the business only based upon NP ratio without confronting the same to the appellant. This is completely in violation of principles of natural justice. A.O. has adopted a very simplistic approach in completing the assessment. - Decided against revenue. - ITA No.5061/Del/2015, ITA No.5307/Del/2015 - - - Dated:- 25-2-2020 - Sh. R. K. Panda, Accountant Member And Ms. Suchitra Kamble, Judicial Member For the Appellant : Sh. P. C. Yadav, Advocate For the Respondent : Smt. Sushma Singh, CIT DR ORDER PER R.K PANDA, AM: These are cross appeals. The first one is filed by the assessee and the second one filed by the revenue and are directed against the order dated 10.06.2015 of the CIT(A) 24, New Delhi relating to A.Y. 2012-13. For the sake of convenience these were heard together and are being disposed of by this common order. ITA No.5061/Del/2015 ( By Asessee for A.Y.2012-13) 2. The grounds raised by the assessee are as under :- 1 . The order passed by the Hon ble CIT(A) is bad in Law, wrong on facts and against the principles of natural justice. 2. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Pepsi, Mirinda, 7 up, Mirinda Lemon, Evervess Soda etc. and derives income from business and profession. A search and seizure operation u/s. 132 of the IT Act was carried out on M/s. Jaipuria Group of cases on 27.03.2012. Warrant of authoritsation u/s. 132 of the Act was also issued in the name of the assessee. In response to notice u/s. 142 (1), the assessee filed its return of income on 10.05.2013 declaring loss of ₹ 11,97,54,987/-. The AO during the course of assessment proceedings noted that the assessee has surrendered an amount of ₹ 9,15,00,000/- in its name on account of any discrepancy in the seized impounded annexure and others. During the course of assessment proceedings, the assessee, in its, reply furnished the following revised chart showing the surrendered amount, the details of which are as under :- Sl. No. Particulars Amount (in Rs.) 1 On account of investment in shares of M/s. Pearl Bottlings Pvt. Ltd. 2,97,19,000/- 2 On account of Fixed Assets 40,40,400/- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ell as the current financial years are as under :- S. No. F. Y. Turnover (In crore) Net Profit (In crore) Net Profit% 1 2008-09 189.01 8.24 4.37% 2 2009-10 234.92 6.19 2.63% 3 2010-11 260.79 3. 45 1.32% 4 2011-12 309.99 - 0.87 (Without additional income) -0.28% 8. Rejecting the various explanation given by the assessee the AO determined the net profit at ₹ 8,58,68,992/- and further made addition of ₹ 3,37,59,400/- to the total income of the assessee by observing as under :- a. First, it has to be seen what would be the net profits of the assessee if the search had not taken place. As per the financials filed by the assessee, an additional income of ₹ 3,37,59,400/- has been credited in the P L account as income declared ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld have been there in any case if the search/surrender had not taken place. The assessee has artificially reduced its net profits by inflating expenses and there after camouflaging them by crediting the additional income in the P L account. h. The surrender of ₹ 3,37,59,400/- will therefore be separately added to the net profits, after bring the later at par with the net profits of the immediately preceding years as has already been done in the para above. This is the income earned by the assessee from its undisclosed sources. The net profit (without additional income) is therefore, taken at ₹ 8,58,68,992/-. The undisclosed income of ₹ 3,37,59,400/- as declared by the assessee itself, will therefore be added to it. 9. After making various adjustments the AO determined the total loss of the assessee at ₹ 2,50,90,260/- as against the returned loss of ₹ 11,97,54,987/- the computation of which is as under :- Profits gain of business and profession as discussed above: 8,58,68,992 Add: Additional income as discussed above 3,37,59,400 Add: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ceeded to reject the books of account and assessed the income on estimation by adopting the net profit rate equivalent to average of the past 3 years net profit. The main conclusion drawn by the A.O. as found at pages 9 to 11 of the assessment order are as under:- a. First, it has to be seen what would be the net profits of the assessee if the search had not taken place. As per the financials filed by the assessee, an additional income of ₹ 3,37,59,400/- has been credited in the P L account as income declared due to unaccounted and undisclosed documents found during search. This means that the assessee has taken the net undisclosed income to the P L account without bothering to make any consequential changes to its profit and loss account otherwise. If no search situation is being applied, then the additional income has to be taken out from the P L account, and the regular profits of the assessee will have to; be computed with respect to the remaining amounts debited and credited in the P L account and the balance sheet. b. By taking out the additional income of ₹ 3,37,59,400/- from the P L account, the net profits of the assessee are reduced from ₹ 2,49,6 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the assessee itself, will therefore be added to it. 4.1.5 It is noted here that there has been definite delay on part of the assessee in complying with the requirements of the questionnaire of 1.11.13. This questionnaire contains more than 50 questions, which are very elaborate and touch upon almost all heads of expenditure and balance sheet items. As per the various letters and appellant has furnished replies to almost all questions in the said questionnaire. However, the same have been furnished in parts over a period of time. It is noted here that even the question No. 43 of questionnaire dated 1.11.2013 assessment order has been replied vide letter dated 28/02/2014 which is a very large bunch containing 317 pages. 4.1.6 It is noted here that even though the A.O. mentions that he has embarked upon verifying the claim of various expenses debited to P L account in the background of steep fall in net profit ratio, he has not sought any justification or explanation for the fall in net profit rate in the questionnaire issued on 1.11.13.when he has decided to reject the books of accounts, he has not given any show cause notice seeking justification of fall in net profit rati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2.18% Net decrease in net profit during the year 3.01% 4.1.8 It has also been submitted that the company was unable to handle the competition in the marked due to huge financial cost and therefore, it had ultimately sold off its beverage business under slump sale in January, 2013 i.e. the next year. It has also been submitted keep the promise made evidences in respect of undisclosed sale/ bogus expenses that surrender of ₹ 3,37,59,400/- has been made only to by the promoters/director even though no incriminating evidences in respect of undisclosed sale/ bogus expenses etc. were found in the appellant s case. It has also been pointed out that even the AO has not brought on record any incriminating evidences in the assessment order. 4.1.9 It is noted here that the A.O. has completed the assessment without seeking any explanation for fall in GP/NP ratio from the appellant. During the appellant proceedings, the justification/explanation provided by the assessee has been examined by the A.O. with regard to the books of account. He has not found any discrepancies nor raised any counter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d before the AO on 07.03.2014, a detailed explanation of surrendered income in hands of different entities and different assessment years has also been provided. The total surrendered amount infact exceeds ₹ 10 crore by ₹ 16 lacs the breakup of which is as under:- Name of the assessee Income surrendered (Amount in Rs.) Tax paid (Amount in Rs.) M/s. Jaipuria Beverages Food Industries Pvt. Ltd. 27665794 11321359 4A/S. Pearl Drinks Ltd. 33759400 5762680 M/s. Pearl Bottling Pvt. Ltd. 32210000 2174160 Sh. Ruchirains Jaipuria 3500000 2000000 M/s. Ganpatie Traders Pvt. Ltd. 1668000 0 ' Sh. C.K. Jaipuria 2816140 881364 Total 101619334 22139563 1 4.1.12 Considering the above, I find merit in appellant s ground and delete the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of which have already been reproduced in the preceding paragraph. 15. We find identical issue had come up before the Tribunal in the case of the sister concern of the assessee namely M/s. Pearl Bottling Private Limited. We find the Tribunal vide ITA No.5305 and 5306/Del/2015 order dated 27.02.2019 for A.Y.2011-12 and 2012-13 has discussed the issue thoroughly and upheld the order of the CIT(A) deleting the addition made by the AO by observing as under :- 6.1 After perusing the aforesaid findings of the Ld. CIT(A), we find that the return of income filed before the A.O. on the issue are contains report of the auditors u/s 44AB of the Act. The auditors, who have audited the books of account, were fully satisfied that all the accounting standards have been followed and he did not make any adverse remarks in the audited report. The provisions of section 145 describes certain conditions for rejection of books of account but non furnishing of details is not one of the prescribed conditions for rejection of books of account. We also find that all the details called for vide questionnaire dated 1.11.13 have been furnished. As regards fall in net profit ratio, a comparative chart o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rate has been attributed to the increase in input cost and finance cost. Since this is a search seizure case and the Previous year of the present assessment year falls within the block period of 6 years. A.O. has not brought on record any adverse material. AO has rejected the books of account merely on the basis of fall in N.P. ratio. There is no rule of law that an enterprise cannot incur losses or it cannot declare lesser net profit that what is shown in the previous year. The same is permissible as long as the same is supported by proper books of account, bills and vouchers. During the remand proceedings, the A.O. has examined the justification for fall in net profit submitted by the assessee and has not reported any discrepancies nor taken any counter arguments. We have also noted that this is not a fit / case for rejection of books of account and estimation of profits as the search has not thrown up any specific discrepancies in the accounts regularly maintained by the appellant. The A.O. has rejected the books of account and estimated the profits of the business only based upon NP ratio without confronting the same to the appellant. This is completely in violation of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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