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TMI Blog2020 (7) TMI 366X X X X Extracts X X X X X X X X Extracts X X X X ..... he time of hearing of the case. 3. Brief facts qua the issue are that the assessee`s case was reopened u/s 147 of the Act on the basis of reason to believe that there was undisclosed sales detected during the course of search operation by the office of Directorate General of Central Excise intelligence. The AO noticed that the assessee company has made the unrecorded sale and it has conceded that the said sale was made out of unaccounted purchases. So, during the course of hearing the A/R of the assessee company was asked to furnish the details of purchase and also to explain as to why adverse view should not be drawn in respect of source of purchases which remained unexplained. In response, the AR of the assessee company submitted written submission before the AO which is reproduced below: "In this connection we would further submit that since we have admitted that sales and purchases both are not recorded in our regular books of accounts, how only sales be treated as profit. It goes against the accounting norms. Every sale has corresponding purchase. In no circumstance, the sale proceeds can be taxed as income. Further, the purchase was made out of sale proceeds. It is fact th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bmission of the appellant and also perused the assessment records. The appellant has challenged the assessment on technical grounds as the guidelines laid down by the Hon'ble Supreme Court in the case of GKN Driveshafts 259 ITR 19, had not been complied with by the AO. On going through the assessment records, the following facts come to light: (i) Notice u/s 148 of the Act dated 12.03.2015 was issued to the appellant for the A.Y. 2010-11 (ii) The appellant vide letter dated 23.03.2015 has requested for submission of the reasons for reopening of the assessment for A.Y. 2010-11. The appellant had also informed that the return of income filed on 27.09.2010 should be treated as a return in compliance to notice u/s 148. u (iii) The AO vide letter dated 19/23.06.2015 and again on 18.09.2015 had submitted the reasons for reopening the case and also enclosed the copies and evidence forwarded by the office of the Directorate General of Central Excise Intelligence. (iv) The appellant vide letter dated 10.09.2015 filed objection against the reasons for reopening. However, though the AO had not disposed off the objection through an order. Even though, the AO had not disposed off ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the appellant. The A/R of the appellant had cited the decisions of the Gujarat High Court in the case of CIT vs President Industries Ltd 258 ITR 654 (supra) in support of his contention that the entire sale cannot be added back as undisclosed income. The operating part of the judgment in the case reads as follows: "The sales only represented the price received by the seller of the goods for the acquisition of which it has already incurred the cost. It is the realization of excess over the cost incurred that only forms part of the profit included in the consideration of sales. Therefore, unless there is a finding to the effect that investment by way of incurring cost in acquiring goods which have been sold have been made by the assessee and that has also not been disclosed. In the absence of such finding of fact the question whether entire sum of undisclosed sale proceeds can be treated income of the relevant assessment year answers by itself in negative. The record goes to show that there is no finding nor any material has been referred about the suppression of investment in acquiring the goods which have been found subject of undisclosed sales". The facts of the case cited by th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unt of unaccounted investment, we are unable to comprehend the reasoning and logic given by the tribunal. They have recorded that the respondent-assessee did not maintain day-to-day stock record register and, therefore, it cannot be said that unrecorded sales could not have been of accounted stock, which was later on replenished from the sale proceeds of unrecorded sales. Thus, the respondent-assessee had not made any investment for the unrecorded transactions. It is held that no evidence of unaccounted investment was found at the time of search. Once the stock register was not there as recorded by the tribunal in its order, the said finding itself apparently is contradictory. The finding that no incriminating document regarding investment was found is contradictory because the tribunal has accepted and admitted that the assessee had himself confirmed that he had made sales of Rs. 9.73 crores outside the books of accounts. These were unaccounted sales. Thereafter, it was for the assessee to explain and state the source / funds for conducting and entering into the said transaction. In other words, the assessee had unaccounted turnover of approximately Rs. 5 lacs per day during the p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es per month amounts to Rs. 23,00,611/-. The average GP on sales as disclosed in the returns is 3.90% which amounts to Rs. 89,724/-. The average purchase per month amounts to Rs. 22,10,887/-. The undisclosed investment is, therefore, estimated at Rs. 22,10,887/- (Rs. 23,00,611/- -89,724/-) on undisclosed sales of Rs. 2,76,07,339/- . Further, the A/R of the appellant in his submission during assessment proceedings has stated that the average gross profit of last three years should be taken to account for calculation of concealed income. The average GP is 3.90%. Therefore, the profit on undisclosed sales of Rs. 2,76,07,339/- is calculated at Rs. 10,76,686/-. The addition is restricted to Rs. 32,87,573/- (Rs. 22,10,887/- plus Rs. 10,76,686/-) instead of Rs. 2,76,07,339/- as undisclosed income on undisclosed investment in sales and profit on undisclosed sales. Therefore, this ground of appeal partly succeeds, and is partly allowed. The A.O. is directed accordingly." 5. Aggrieved the order of ld. CIT(A) the revenue is in appeal before us. 6. The ld. DR for the Revenue has primarily reiterated the stand taken by the Assessing Officer which we have already noted in our earlier para ..... X X X X Extracts X X X X X X X X Extracts X X X X
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