Alokik Steels Pvt. Ltd. Vs PCIT (ITAT Jaipur)
The question that still looms large is where the assessee has disclosed gross profit of 3.11% on Rs.1,77,95,858/- and which has been accepted by the AO, how the order so passed by the AO is held as erroneous and prejudicial to the interest of Revenue by the ld Pr CIT as to whether rate of gross profit so declared and accepted is erroneous or the quantum of unaccounted turnover so declared and considered by the AO is erroneous and thus prejudicial to the interest of Revenue.
In this regard, we refer to the contention advanced by the ld AR that gross profit has been rightly declared by the assessee and the entire turnover of Rs 1,77,95,859/- could not have been added and therefore, where the gross profit and turnover so declared has been accepted by the AO as well as by ld Pr CIT, there is no basis to still hold that the order so passed by the AO is erroneous and prejudicial to the interest of the Revenue. In this regard, as we have held above, the material available before the ld Pr CIT relates to unaccounted turnover and not unaccounted investment in stock and in absence thereof, we have set-aside the aforesaid findings of the ld Pr CIT contained at Para 7 & 8 of her order, it is therefore only profits embedded in such undisclosed turnover of Rs 1,77,95,859/- which can be brought to tax and to this extent, we accept the contention so advanced by the ld AR.
Further, there is no dispute regarding the quantum of unaccounted turnover of Rs 1,77,95,859. The assessee has declared the same in its return of income and which has been accepted by the AO as well as by ld Pr CIT as there is neither any material on record nor any adverse finding recorded by ld Pr CIT disputing the same. Therefore, as far as the quantum of unaccounted turnover of Rs 1,77,95,859/- is concerned, the order so passed by the AO cannot be held as erroneous and prejudicial to the interest of Revenue. Therefore, the limited issue that remains to be examined is the rate of profit so declared by the assessee on such unaccounted turnover which has not examined by the AO which renders the assessment order as erroneous and prejudicial to the interest of the Revenue and therefore, to this limited extent, the directions of the ld Pr CIT are sustained and the matter is set-aside to the file of the AO to examine the rate of gross profit so declared by the assessee on such unaccounted turnover and decide as per law.
FULL TEXT OF THE ORDER OF ITAT JAIPUR
This is an appeal filed by the assessee against the order of ld. Pr. CIT-2, Jaipur dated 07.03.2019 passed u/s 263 of the Act wherein the assessee has taken the following grounds of appeal:-
”1. That on the facts andin the circumstances ofthe case, the ld. Principal Commissioner of Income-tax grossly erred in passing an order u/s 263 of the Income-tax Act and in holding that the assessment made by the ld. Assessing Officer is found to be erroneous in so far as it is prejudicial to the interest ofthe Revenue.
1.1. That on the facts and in the circumstances ofthe case, the ld. Principal Commissioner of Income-tax grossly erred in passing the impugned order u/s. 263 of the Income-tax Act and in holding that “the ld. AO passed the assessment order with non-application of mind and without proper inquiry” which is wholly unjustified, bad in law and deserve to be quashed.
1.2. That the ld. Principal Commissioner of Income-tax failed to appreciate that the ld. Assessing Officer had passed the assessment order after appreciating all supporting documents and evidences which was just and proper therefore the assessment order passed by the ld. Assessing Officer is neither erroneous nor is prejudicial to the interest ofthe Revenue.
1.3. That the ld. Principal Commissioner of Income-tax grossly erred in ignoring the detailed submissions made by the assessee in response to notice u/s. 263 and in passing the impugned order on assumptions, presumptions, conjectures and surmises which is bad in law.
1.4. That the ld. Principal Commissioner of Income-tax grossly erred in holding that the ld. Assessing Officer has failed to consider applicability of section 115BBE read with section 69A of the Act on Rs. 1,77,95,859/- reflecting turnover surrendered before the Central Excise Authorities and in granting benefit of brought forward of losses/depreciation.
2. That on the facts and in the circumstances of the case, the order passed by the ld. Principal Commissioner of Income-tax u/s. 263 of the Act is barred by limitation and thus deserves to be set-aside andquashed.”
2. At the outset, it is noted that there is a delay in filing the present appeal by 18 days. After hearing both the parties and considered the affidavit filed by the assessee, the delay is hereby condoned and the appeal is admitted for necessary adjudication.
3. During the course of hearing, the ld. AR taken us through the factual background of the case and submitted as under.–
”1. The assessee company deals in manufacture & trading of Iron Ingots for past several years. A search at the factory premises of company took place on 16.01.2015 by the Central Excise Commissionerate (Anti Evasion Branch, Jaipur) and Sh. Krishan Jindal, Director ofthe company admitted.-
(1) Quantity of 177.609 MT ingots valued at Rs. 53,10,480/- was found short;
(2) Further during the course of search on examination kanta slip and kaccha record, recovered from residence of Director, he has accepted that a quantity of 562.940 MT. valued at Rs. 1,77,95,858/- was removed without entering the same in the books ofaccounts.
2. The assessee had filed its return of income for the assessment year 2015-2016 on 29.09.2015 at the total income of Rs. NIL and carried forward unabsorbed depreciation of Rs. 1,93,71,020/-. In the return of income filed, the assessee included the cash sales of Rs. 53,10,480/- in its sales accounts towards shortage of stock. Furthermore, in the computation of income & return of income filed by the assessee, it offered the income on such transaction at Rs. 5,53,095/- being G.P. of 3.11% on Turnover of Rs. 1,77,95,856/-. The income of Rs. 5,53,095/- earned from out of books sale on estimated G.P Basis is clearly shown in online E-Return at Page no. 10 in head other information column 5(d) as any other item of Income and same is again repeated at Page no. 17 in head computation of income from business of profession column no 24 with narration – “any other income not included in profit and loss account”.
3. The return was selected for complete scrutiny through CASS. During the course of hearing, the ld. Assessing Officer had also verified the books of accounts, etc. Furthermore, the said income of Rs. 5,53,095/- is very well shown in computation of income placed before learned Assessing Officer by narration “income estimated on turnover surrendered in excise survey being GP of 3.11% on Rs. 1,77,95,858/- = 5,53,095/-. As far as assessee is concerned, it has disclosed and incorporated the undisclosed income in the income tax return filed by it. The ld. Assessing Officer has gone through the income-tax return and computation of income in detail and has cross-checked the same to his satisfaction. He was satisfied that the gross-profit rate on good sold without invoices is duly disclosed in the Income-tax Return of the assessee. During the course of hearing, the ld. Assessing Officer had also verified the books of accounts, etc. The ld. Assessing Officer passed the assessment order dated 06.12.2017 u/s 143(3) after complete verification and detailed scrutiny. The ld. Assessing Officer has made certain disallowances amounting to Rs. 1,30,840/- against which no appeal has been preferred by the assessee and the ld. Assessing Officer allowed carried forward unabsorbed depreciation of Rs. 1,92,40,180/-.
4. That thereafter the ld. PCJT issued a notice dated 29.11.2018 u/s. 263 of the Act wherein it was alleged that the ld. Assessing Officer has not considered the above two aspects relating to surrender made before the Central Excise authorities during the course of assessment proceeding and thus the assessment order dated 06.12.2017 passed by the ld. Assessing Officer is erroneous and prejudicial to interest ofthe revenue (copy enclosed).
5. Detailed reply dated 05.03.2019 was furnished by the assessee in consequence of afore-said notice u/s. 263 of the Act alongwith supporting evidences.
6. The ld. PCITvide her impugned order dated 07.03.2019 was satisfied about tax treatment of (1) Quantity of 177.609 MT ingots valued at Rs. 53.10 lacs sold/cleared without payment of excise duty and without raising any central excise invoice. However, the ld. PCJT was not satisfied about tax treatment of quantity of 562.940 MT. valued at Rs. 1,77,95,858/-.”
4. In the above factual matrix, it was submitted by the ld AR that the assessee has duly disclosed the transaction in its return of income which stood duly verified by the Assessing Officer. Therefore, the observations by the ld. Pr. CIT that no enquiry has been made by the Assessing Officer is bad in law. It was submitted that the AO made the necessary inquiry and has examined the books of accounts which are duly audited and all the transactions have been shown in the return of income as well as in computation of income. It was submitted that there is no straight jacket formula or parameter to make inquiry in the assessment proceedings. What is required is that the AO should frame the assessment in accordance with the provisions of the Act and in light of the relevant judicial pronouncement and other material available on record. In the instant case, the ld. Pr. CIT has failed to state what correct provision of law has not been examined or applied by the Assessing Officer.
5. It was further submitted by the ld AR that in the impugned order dated 07.03.2019, the ld. PCIT has travelled beyond the issues raised in the show cause notice issued u/s 263 of the Act and no opportunity to rebut the same was provided to the assessee and the same is against the principles of natural justice. In the impugned order it was held that the undisclosed stock of Rs. 1,77,95,858/- was required to be taxed u/s 69A of the Act read with section 115BBE of the Act and the benefit of unabsorbed depreciation/loss were not to be given to the assessee appellant. In support, the reliance was placed on the Delhi Bench in the case of Sanjeev Singh v. PCIT (ITANo. 1781/Del/2016 dated 24.04.2019).
6. It was further submitted that on perusal of provisions of section 69A, it is crystal clear that the same can be invoked in case of any (1) money, (2) bullion, (3) jewellery or (4) other valuable article. However, in the instant case the Central Excise Department had neither found any (1) money, (2) bullion, (3) jewellery or (4) other valuable article, it only found kachi parchies having reference to undisclosed sales. No physical goods were found by the officials of the Central Excise department. Hence, the invocation of section 69A is not appropriate in the instant backdrop and On the contrary the assessee has correctly offered the Gross Profit earned on out of books sale as its income. It is apparent that the ld PCIT has assumed the undisclosed sales as undisclosed stock found by the Central excise authorities whereas it is not so. Only loose slips of unaccounted sale of Rs. 1,77,95,856/- was found by the Central Excise Authorities and unaccounted stock of Rs. 1,77,95,856/- was not found. The findings recorded by the ld. PCIT in para 2& 7 are contradictory. Initially reference is to clandestine removal of goods, thereafter it is referred as unexplained stock.
7. It was further submitted that the income was offered by the assessee company under the head “business income” for the reason that the assessee company has no other income other than income from business of trading and manufacturing of MS Ingots. Furthermore, the undetected transactions unearthed by the officials of the Central Excise department directly related to the business being carried out by the assessee company, it is not a case where some unconnected transactions other than relating to MS Ingots were found by the officials. In support, the reliance was placed on the Jaipur Bench decision in the case of Bajaragan Traders v. ACIT (ITANo. 137/JP/2013 dated 17.03.2017) which has subsequently been affirmed by the Hon’ble Rajasthan High Court as reported in PCIT vs Bajrang Traders (2017) 11 TMI 388, Jodhpur Bench decision in case of Lovish Singhal v. ITO (ITA Nos. 142-146/Jodh/2018 dated 23.05.2018) and in case of Pawan Kumar (HUF) vs. ITO (ITA Nos. 371-375/Jodh/2018 dated 10.05.2019).
8. It was further submitted that the amendment brought in section 115BBE(2) of the Act wherein the words ‘or set off of any loss’ were inserted w.e.f 01.04.2017. The said amendment has been made w.e.f assessment year 2017-18 and therefore, the benefit of unabsorbed depreciation/loss has wrongly been directed to be disallowed by the ld. Pr. CIT. In support, the reliance was placed on Jaipur Bench decision in case of Navjeevan Trade & Commodities Pvt. Ltd. vs. ITO (2018) 8 TMI 665.
9. It was further submitted that the GP ratio was rightly disclosed by the assessee and entire turnover could not have been added by the Assessing Officer and in support, the reliance was placed on the following decisions:
