JCIT Vs Simalin Chemical Industries Pvt. Ltd. (ITAT Ahmedabad)
he basis of making the addition on account of undisclosed income of the assessee was the cash found during the course of search proceedings by the excise department. There was the physical cash found by the excise department during the course of search amounting to ₹ 2,28,24,780/- which was admitted by the assessee before the income tax Department as income from undisclosed sources. However, the excise department subsequently calculated the suppressed sales. Accordingly the assessee based on the suppressed sales has calculated the amount of profit representing the GP embedded in such unaccounted sales pertaining to different years. However, the AO has adopted the GP at the rate of 25% for making the addition on the unaccounted sales determined by the excise department.
From the preceding discussion, there remains no ambiguity to the fact that the assessee was engaged in making clandestine sale in order to avoid the excise liability. The assessee from such activity has generated the income of ₹ 2,28,24,780/- which was the cash found during the course of search by the excise department. Thus, it is inferred that such cash was generated by the assessee from the unaccounted business sales carried out by it. Now the question arises how to determine the income of the assessee from the undisclosed business activities. The excise department has worked out the unaccounted sales amounting to ₹ 6,40,52,547/-. Indeed such amount of unaccounted sale is inclusive of gross profit which alone can be brought to tax in the given facts and circumstances. If we apply the gross profit ratio even at the rate of 25% on undisclosed sales, the amount of profit is worked out at ₹ 1,60,13,137/- which is much less than the amount of income admitted by the assessee before the income tax Department. Accordingly the assessee has treated the difference amount as income from other sources. In nutshell the assessee has disclosed the income in different assessment years subject to the maximum amount of ₹ 2,28,24,780/- which was accepted as income before the revenue. It is also a fact on records that the assessee has duly complied with his commitment made before the revenue for disclosing the income of the unaccounted cash. The revenue has not brought anything on record pointing out the amount of suppressed sale exceeds what has been determined by the excise department. Thus in the absence of any contrary information, we hold that the amount of suppressed sale stands at ₹ 6,40,52,547/- which contains the amount of gross profit of the assessee not offered to tax.
Be that as it may be, the income of the assessee cannot exceed the amount of cash found during the course of search by the excise department. It is for the reason that the maximum amount which was found unaccounted can only be brought to tax until and unless there is any other material found during the search suggesting that there was any other income other than the income embedded in the suppressed sales.
Furthermore, the revenue has not brought any material on record suggesting that the assessee has made suppressed sales over and above the amount determined by the excise department. Thus in the absence of any information available on record, we hold that the AO has wrongly determined the gross profit by working out the suppressed sale more than the amount determined by the excise department.
FULL TEXT OF THE ORDER OF ITAT AHMEDABAD
The captioned appeal and CO have been filed at the instance of the Revenue and the assessee against the order of the Learned Commissioner of Income Tax (Appeals)-2, Vadodara, dated 06/11/2015 (in short “Ld. CIT(A)”) arising in the matter of assessment order passed under s. 143(3) of the Income Tax Act 1961 (here-in-after referred to as “the Act”). The assessee has filed the Cross Objection in the Revenue’s appeal bearing ITA No. 288/Ahd/2016 for the Assessment Year 2011-2012.
2. The Revenue has raised the following grounds of appeal:
1. Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) was justified in deleting the addition of Rs.2,17,28,079/- made on account of additiona l undisclosed income, without appreciating the facts discussed in the assessment order, wherein the A.O. rightly worked out the undisclosed sales applying GP rate of 10.32% on the cash seized & thereafter worked out the GP rate of @25% on the said bogus/ suppressed sales
2. Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) was justified in deleting the addition by holding that the action of the Assessing Officer is without any basis, without appreciating that there was no double standard adopted by the A., since . extrapolation of turnover from declared other income had to be based on the assessee’s adopted GP rate as it is just a reverse calculation any deleting the addition of Rs. 2,17,28,079/-
Relief claimed in appeal
The order of the CIT9A) on the issues raised in the aforesaid Grounds be set aside and that of the Assessing Officer be restored.
3. The only issue raised by the Revenue is that the learned CIT(A) erred in deleting the addition made by the AO for ₹ 2,17,28,079/- on account of profit on the suppressed sale.
4. The facts in brief are that the assessee in the present case is a private limited company and engaged in the business of manufacturing and trading of chemical products. There was a search operation at the premises of the assessee under section 14 of the Central Excise Act 1944 dated 23rd March 2011. As a result of search operation, a cash of ₹ 2,28,24,780/- was found. The Excise Department subsequently has worked out the suppressed sale of the assessee for different assessment years detailed as under:
