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TMI Blog2025 (3) TMI 1409X X X X Extracts X X X X X X X X Extracts X X X X ..... documents & electronic material were found and seized pursuant to which the AO inter alia initiated proceedings u/s 153A of the Act for the relevant AYs 2015-16 & 2016-17. From the seized electronic material viz., tally data, it was noted that the assessee was maintaining two sets of accounts, one titled "ori" and other titled "IT". Upon enquiry, the accounts manager of the assessee affirmed in his statement recorded u/s 132(4) of the Act that the assessee was maintaining parallel sets of accounts for banking & financial purposes and other for income-tax purposes. The AO in the course of assessment inferred that the accounts maintained under the title "IT" was in form of suppression of income by inflating expenses in the tally data. After calling for explanation from the assessee, the AO observed that the assessee had inflated the expenses and several expenses were not supported by documentary evidences and therefore made disallowances out of several heads of expenses aggregating to Rs.31,73,00,700/- & Rs.22,00,26,846/- in AYs 2015-16 & 2016-17 respectively. 3. Being aggrieved by the order of the AO, the assessee preferred an appeal before the Ld. CIT(A) who upon examining the co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ounting staff at multiple remote locations where the processing plant and warehouses of the Appellant are situated. The multiple tally accounts found during the search was due to the fact that making accounting entries at multiple locations. The non-availability of accurate information regarding the transactions at the time making the entries in the tally accounts and omission to make accounting entries contemporaneously led to either absence of narration or incorrect / erroneous narration for the entries made in the books of accounts. The Appellant also explained that entries were wrongly made by crediting the ledger accounts of group companies while debiting the relevant expenditure account in the books of the Appellant Firm in cases where the payments were made by the Appellant Firm itself from the borrowings made from such group companies. The Appellant also explained that while crediting the ledger account of group companies, mistakes occurred in adopting the name of the group company due to similarity in the names of various group companies. The Appellant also explained that it was unable to reconcile the discrepancies pointed out by the AO during the course of assessment pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ellant from such funds by withdrawing the same from the bank. Moreover, in both the categories of discrepancies, it is necessary for the Appellant to produce the bills and vouchers in support of the relevant expenditure in respect of which the corresponding credit entries were erroneously made in the books of accounts. 7.5.13 In this regard, the Appellant has brought out various constraints being faced by it in carrying out such reconciliation and furnishing the supporting bills and vouchers in the written submission by stating that it is unable to do so at present in view of the passage of time and frequent changes in the accounting staff working with the Appellant. It is considered that the said submission of the Appellant cannot be disregarded in view of the genuineness of the practical difficulties expressed by the Appellant. At the same time, it is also not possible to accept the correctness of the claims in the books of account unless the discrepancies pointed out in the Assessment Order are subjected to necessary reconciliation. 7.5.14 In this context, it is pertinent to observe that this is not a case where the Appellant is attempting to give incorrect reasons for its i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at true and correct profits of the Appellant Firm and they are required to be rejected by invoking the provisions of Section 145(3) of the Act. Accordingly, the books of accounts of the Appellant Firm for the FY(s) 2014-15 and 2015-16 are hereby rejected. Thus, having rejected the books of accounts, the business income of the Appellant Firm is required to be estimated under the said provisions, consequent to rejection of the books of accounts. 7.5.18 Now, the issue before the undersigned is that, what can be the reasonable profit that can be attributable to the Appellant Firm in conduct of business. The Appellant Firm in the return of income filed has claimed the net profit margin at the rate of 0.37% and 0.68% for the FY(s) 2014-15 and 2015-16 relevant to the AY(s) 2015-16 and 2016-17 and the average net profit disclosed by the Appellant Firm for all the years under consideration is worked out to be at 0.73%. 7.5.19 At this juncture it is significant to bring it on record in such circumstances that my predecessor in the case of the Appellant's own case vide Appellate Order in ITA No. 669/2021-22 dated 27.02.2023 for the AY 2013-14 where the facts and circumstances were si ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g separate additions based on inflation of expenses, on the basis of seized material. He further submitted that, if the Ld. CIT(A)'s action of rejecting the books of accounts is upheld, then the profits ought to be estimated at 53% viz., the profitability of another assessee, M/s Industrial Minerals Company, which according to AO, was comparable to the assessee. The Ld. CIT, DR further argued that, the Ld. CIT(A) having rejected the books of accounts, ought to still have adjudicated the merits of the disallowance of expenses, which according to him, was made on different footings. Overall therefore he prayed that the order of Ld. CIT(A) be reversed and the AO's order be restored. The Ld. CIT, DR also furnished a written synopsis of his arguments, which has been taken on record. 6. Per contra the Ld. AR for the assessee supported the order of Ld. CIT(A). He submitted that, the Ld. CIT(A) had followed the decision rendered by this Tribunal in assessee's own case in ITA No. 366/CHNY/2023 for earlier AY 2013-14 and therefore urged that order of the Ld. CIT(A) estimating the profits at 2.21% be upheld. The Ld. AR also filed a written note rebutting the arguments raised by t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the material placed on record. The case of the assessee firm for the Ay 2013-14 was assessed by the department u/s 143(3) vide order dated 08.03.2016, thereafter upon a search action u/s 132 of the Act on BMC Group on 25.10.2018 the same was reassessed u/s 143(3) rws 153A bide order dated 26.08.2021. During the course of search, it was found that the assessee firm was maintaining parallel sets of accounts. Evidences were gathered by the search team in the form disks, laptops. Loose sheets pertaining to unaccounted receipts/ payments, deposition of key persons etc. Statement of Shri P Senthil Muthu Kumar, Accounts Manager of the assessee firm were taken, according to the said statements Modus Operandi of accounting of the assessee firm was scripted by the Ld AO. Exhaustive workings a/w screen shots of the ledger accounts were produced in the Assessment Order by the Ld AO and disallowances were made. Aggrieved by the additions, the assessee agitated on the issues before the Ld CIT(A). Ld CIT (A), without touching the merits of individual additions, have observed that the reasons explained by the appellant for the discrepancies that occurred in the books of accounts as identified by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s to the tune of Rs.2.80 Crores in the original Assessment Order. The facts narrated in the said Assessment Order clearly bring out the fact that the appellant maintained the bills and vouchers in support of the expenditure debited to the P&L Account and that the same were verified by the AO during the original Assessment proceedings. 44. Having regard to the discussion made in the preceding paragraphs, it needs to be observed that there is no dispute regarding the fact that the books of account of the Appellant for the Assessment Year under consideration are erroneous and inaccurate. Though the appellant is unable to reconcile the discrepancies/ inaccuracies by furnishing the correct details of the relevant transactions along with the supporting bills and vouchers, the furnishing of the bills and vouchers and their verification by the AO during the original assessment proceedings cannot be lost sight of. Though the claims of the appellant in the books of account cannot be accepted in toto in the face of the discrepancies brought out by the AD in the impugned Assessment Order, making disallowance of the entire expenditure in respect of which such discrepancies ware noticed is als ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing the business income of the appellant. The AO is accordingly directed to determine the business income of the appellant at 30% of the sales turnover of Rs.183.35 gores. Since the business income is being determined on estimate basis, it is held that the individual additions made to the income in the original Assessment Order dated 08.03.2016 get subsumed in the said estimated business income and the same not required to be considered separately. The AO is directed to consider the interest receipts of Rs.14,11,587/- and commission receipts of Rs.6,91,482/- credited to the P&L account separately apart from the estimated business income while determining the total income. The relevant grounds of appeal arc therefore partly allowed." 15. On perusal of the aforesaid observation of the Ld CIT(A), it is evident that the case of the assessee was subjected to assessment for the instant year under section 143(3) of the act and that all the necessary vouchers documents and submissions pertaining to expenditure debited towards mining, production and processing and other expenses during the course of the said Assessment proceedings were submitted by the assessee as required by the Ld AO. S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r consideration (FY 2012- 13, AY2013-14), Ld AR of the assessee firm had submitted a chart of production for the financial years 2010-11 to 2016-17, the same extracted as under :- BEACH MINERALS COMPANY June 2023 Financial Year Garnet Ilmenite Total Qty Value Qty Value Qty Value 2010-11 24500 158152677 0 0 24500 158,152,677 2011-12 57856 408896991 23184 332034863 81040 740,931,854 2012-13 84091 837603370 60190 995980129 144281 1,833,583,499 2013-14 55288 659312080 40992 514625364 96280 1,173,937,444 2014-15 52550 504126598 41500 518636498 94050 1,022,763,096 2015-16 43000 374261914 19800 247445847 62800 621,707,761 2016-17 3312 28831737 12600 157465539 15912 186,297,276 16. On perusal of the aforesaid chart, it is evident that the ratio of profit for the AY 2011-12 (FY 2010-11/base year) is not comparable with the relevant AY 2013-14 (FY 2012-13/relevant year), since there was a mismatch in the production mix (quantity of minerals extracted) for the FY 2010-11 and FY 2012-13, wherein quantity of "ilmenite" is "O"(zero) in the base years as compared to 60190 units in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rging that the net profit rate ought to be adopted at 53% instead of 2.21% as estimated by this Tribunal in assessee's own case for earlier AY 2013-14 cannot be countenanced. Also, we note that, the entity viz., Industrial Mineral Company urged by the Revenue to be comparable to the assessee, was demonstrated before us to be in different line of business and hence, this entity identified by the Revenue is held to be not comparable. 10. The Ld. CIT, DR had further additionally urged that, even if the books of accounts are rejected, the disallowance of items of expenses ought to be separately adjudicated and decided upon as to whether it is to be separately added to the estimated business income. According to us however, once the books of account are rejected by invoking the provisions of section 145 of the Act and the income is estimated to the best of judgment as per the provisions of section 144 of the Act, the said estimate is made in substitution of the business income that is to be computed in accordance with the provisions contained in sections 30 to 43D as laid down in section 29 of the Act. Consequently, all the deductions which are referred to in sections 30 to 43D of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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