Income Tax Appellate Tribunal - Ahmedabad
Ashokkumar C.Dharewa,Huf, Surat vs Department Of Income Tax on 17 October, 2016
IN THE INCOME TAX APPELLATE TRIBUNAL
AHMEDABAD '' A " BENCH - AHMEDABAD
Before Shri R.P. Tolani, JM, & Shri Manish Borad, AM.
ITA No.2155 & 2156/Ahd/2012
Along with CO Nos.222 & 223/Ahd/2012
Asst. Years:2007-08 & 2008-09
Income-tax Officer, Wd-3(3),Vs. Shri Ashokkumar C.
Surat. Dharewa, HUF, Prop.
Shubham Polymers, A-
601, Shilp Building,
Behind Siddhi Vinayak
Temple, Vesu, Surat.
Appellant Respondent
PAN AABHD 5827P
Appellant by Shri Sumit Kumar Verma, Sr.DR
Respondent by Shri Ramesh Kumar Malpani, AR
Date of hearing: 13/10/2016
Date of pronouncement: 17/10/2016
ORDER
PER BENCH These two appeals by Revenue and Cross Objections by assessee for Asst. Years 2007-08 & 2008-09 are directed against two separate orders of ld. CIT(A)-II, Surat of even date 23.7.2012 vide appeal nos.CAS-II/347/10-11 & CAS-II/288/11-12 respectively. Assessment orders u/s 143(3) of the IT Act, 1961 (in short the Act) were framed on 30.12.2010 by ITO, Wd- 3(3), Surat. As the issue involved in these appeals and the Cross Objections are similar, these ITA No. 2155 & 2156 along with Cos 222 & 223/Ahd/2012 2 Asst. Year 2007-08 & 2008-09 were heard together and are being disposed of by this common order for the sake of convenience.
2. First we will take Revenue's appeal in ITA No.2155/Ahd/2012. Revenue has raised following grounds:-
[1] On the facts and circumstance of the case and in law, the Ld. CIT(A)-I, Surat has erred in deleting the addition of Rs.1,13,24,749/- made by the A.O. and in directing the A.O. to add the net profit of Rs.2,27,573/- of Swastik Polymers, without appreciating the fact that the assessee has suppressed sale details by showing decreased turnover.
[2] On the facts and in the circumstances of the case, the Ld. CIT(A) ought to have upheld the order of the Assessing Officer.
[3] It is, therefore, prayed that the order of the CIT (A) may be set-side and that of Assessing Officer may be restored to the above extent.
3. Briefly stated facts of the case are that assessee is an HUF running a proprietary concern namely M/s Subham Polymers engaged in the business of manufacturing and trading packing material. Return of income for Asst. Year 2007-08 was filed on 21.08.2007 declaring taxable income at Rs.90,416/-. The same was processed u/s 143(1) of the Act. Thereafter on the basis of information from Central Excise and Customs, Surat, mentioning that assessee has suppressed sales by Rs.1,13,24,749/-, Assessing Officer issued notice u/s 148 of the Act on 19.05.2009 after recording reasons. Accordingly, assessment proceedings u/s 143(3) r.w.s. 147 of the Act were initiated and carried out. During the course of assessment proceedings ld. Assessing Officer on the basis of information received from Central Excise Department with regard to ITA No. 2155 & 2156 along with Cos 222 & 223/Ahd/2012 3 Asst. Year 2007-08 & 2008-09 suppressed sales carried out further investigation and observed that there were two proprietorship firms out of which one named M/s Subham Polymers owned by Shri Ashokkumar C. Dharewa HUF, (the assessee) and the other named M/s Swastik Polymer, owned by Shri Bimalkumar Chainroop Dharewa (brother of Shri Ashok Chainroop Dharewa) Karta of HUF. Both were carrying out similar kind of business. The Excise Department treated both the concerns as single concern and clubbed the turnover of Swastik Polymers with the assessee firm. The turnover shown by the assessee firm was of Rs.87,76,159/-. The ld. Assessing Officer further relied on the show cause notice issued by the Excise Department and the relevant part of the show cause notice reads as under:-
"In your case, A search action was carried out by the Central Excise Department wherein it was found that for the period 01.04.2006 to 31.03.2007, M/s. Shubham Polymers sold finished products BOPP/plastic bags under the guise of BOPP/BOPP film etc and has suppressed sale. As per details given in the letter during the F.Y. 2006-07, you have cleared that the total quantity of 193497.114Kgs. It was reported that the clearance value of above mentioned goods was Rs.51,00,908/- over/'excess exemption limit, the exemption limit for SSI was Rs.1.5 Crore, which indicated that total sale was of Rs.2,01,00,908/~ during above mentioned period. You have shown the turnover of Rs.87,76,159/- in the ROI filed for A.Y. 2007-08 on 21.08.2007. Thus, you have shown/suppressed the sale by Rs. 1,13,24,749/-.You are, therefore, requested to show cause as to why an amount of Rs.1,13,24,749/- should not be considered as your unaccounted sale and added to your total income"
On the basis of above show cause notice ld. Assessing Officer went ahead to make addition towards suppressed sales at Rs.1,13,24,749/-.
ITA No. 2155 & 2156 along with Cos 222 & 223/Ahd/2012 4 Asst. Year 2007-08 & 2008-09
4. Aggrieved, assessee went in appeal before ld. CIT(A) against the impugned addition towards suppressed sales and against the re- assessment proceedings u/s 143(3) r.w.s. 147 of the Act being wrong, invalid, bad in law and beyond the law. Ld. CIT(A) dismissed the ground relating to re-assessment proceedings u/s 143(3) r.w.s. 147 of the Act and restricted the addition towards suppressed sales to Rs.2,27,573/- by observing that there was no suppressed or unaccounted sales rather sales of other proprietary concern owned by brother of Karta of HUF was clubbed with that of the assessee and at the most addition should be sustained only to the extent of Rs.2,27,573/- shown by proprietary concern of Shri Bimalkumar Chainroop Dharewa.
6. Aggrieved, Revenue is now in appeal before the Tribunal.
7. Ld. DR supported the order of Assessing Officer.
8. Ld. AR submitted that the sole reason mentioned by learned A.O. in the assessment order for making this huge addition is that the Central Excise Department in consequence of Search conducted by them on 20-08-2008 and further investigation carried out by them found that the appellant suppressed the sales of Rs. 1,13,24,749/-. It is on this sole basis that the learned A.O. has made such a huge addition in the name of suppressed sales. It is the humble submission of your appellant that this basis of learned A.O. is factually incorrect. There has been no case of excise department that the appellant has suppressed any sales. There has been no case of the excise ITA No. 2155 & 2156 along with Cos 222 & 223/Ahd/2012 5 Asst. Year 2007-08 & 2008-09 department that the appellant had done any unaccounted sales. The only technical case of the Central Excise Department is that they have denied the benefit of SSI exemption to the appellant by clubbing the turnover of the appellant and his sister concern. Hence, the case of excise department is purely technical case. There is no allegation of any unaccounted or suppressed sales in the same.
9. The ld. AR also referred and relied on the judgment of Hon. Gujarat High Court in the case of CIT vs. President Industries (2002) 124 Taxman 654 (Guj) wherein it has been held as under :-
3. Having perused the assessment order made by the Assessing Officer, the order made by the Commissioner (Appeals) and the Tribunal, we are satisfied that the Tribunal was justified in rejecting the application under section 256(1). It cannot be a matter of an argument that the amount of sales by itself cannot represent the income of the assessee who has not disclosed the sales. The sales only represent the price received by the seller of the goods for the acquisition of which it has already incurred the cost. It is the realisation 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 has been made by the assessee and that has also not been disclosed, the question, whether entire sum of undisclosed sale proceeds can be treated as income of the relevant assessment year answers by itself in the negative. The record goes to show that there is no finding nor any material has been referred to about the suppression of investment in acquiring the goods which have been found subject of undisclosed sales.
10. The ld. AR submitted that the addition cannot be made for the gross sales and can be only made to the extent of N.P. embedded in the sales.
11. We have heard the rival contentions and perused the material placed on record. Through this appeal for Asst. Year 2007-08 solitary ITA No. 2155 & 2156 along with Cos 222 & 223/Ahd/2012 6 Asst. Year 2007-08 & 2008-09 grievance of Revenue is against the order of ld. CIT(A) against deletion of Rs.1,13,24,749/- and directing the Assessing Officer to add net profit of sister concern M/s Swastik Polymers at Rs.2,27,573/- without appreciating the facts that assessee has suppressed sales as well as by showing decreased turnover. We observe from the records that case of the assessee was reopened by issuing notice u/s 148 of the Act on the basis of information received from Central Excise and Customs, Surat and assessment proceedings u/s 143(3) r.w.s. 147 of the Act were carried out. As per information of Central Excise Department, during the course of search at Abhishek Market, Ring Road, Surat, it was found that the same premises was used as office of M/s Subham Polymers proprietary concern of Shri Ashokkumar C. Dharewa, HUF(assessee) as well as M/s Swastik Polymers being trading firm owned by Shri Bimalkumar C. Dharewa who is brother of Ashokkumar C. Dharewa, Karta of HUF. Central Excise Department was of the view that assessee and the sister concern i.e. Subham Polymers and Swastik Polymers which are being run from the same office premises has bifurcated the turnover in order to keep the total turnover below the minimum exemption limit of Rs.1 crores leading to evasion of excise duty. Accordingly, Central Excise Department clubbed the turnover of both the concerns and calculated the excise duty payable at Rs.8,10,795/- for Asst. Year 2007-08 (F.Y.2006-07) by calculating in following manner :-
18. The clearance value of the unit and M/s. Swastik and the Central Excise duly payable by the unit is calculated on the basis of documents recovered during ITA No. 2155 & 2156 along with Cos 222 & 223/Ahd/2012 7 Asst. Year 2007-08 & 2008-09 panchnarna dt. 20.08.08 and the ledgers and sale tax returns submitted by the unit vide letter dated 03.09.08. The detailed calculation is as under:
.
FOR THE YEAR 2006-07 . . (A) SALE OF SHUBHAM POLYMER 8770992.00 (B) SALE OF SWASTIK POLYMER 6467823.00 (C) TOTAL CLEARANCE VALUE (A+B) 15238813.00
(D) MINUS SALE OF (a) Shubham Polymer to Swastik 196908.00
(b) Swastik to Ganesh Silk Mill 73798.00 (E) NET SALE FOR DUTY CALCULATION [C-(a+b)] 14968109.00 (F) MINUS EXEMPTION Rs. 1 crore 10000000.00 (G) TAXABLE ASSESSABLE VALUE 4968109.00 (H) Central Excise duty @ 16.32% 810795.00
12. Further during the course of re-assessment proceedings various details, copies of show cause notice and statements of the owners of both the firms and buyers were considered. There came across a calculation of Central Excise duty evaded for FY 2006-07, 2007-08 & 2008-09 (upto 2.8.2008) which showed quantity cleared in kg., clearance value in excess of exemption limit and Central Excise duty evaded and the relevant details are summarized below :-
ITA No. 2155 & 2156 along with Cos 222 & 223/Ahd/2012 8 Asst. Year 2007-08 & 2008-09 Year Quantity Cleared Clearance value (Rs.) in C. Ex. Duty evaded (Rs.) (In Kgs.) excess of exemption limit 2006-07 193497.114 5100908 @ 16.32% Rs. 8,32,468/-
2007-08 352703.58 24553655 @16.48% Rs. 40,46,442/-
2008-09 (up 188844.751 2119461 @14.42% Rs. 3,05,626/-
to 2.08.2008) Total 735045.445 31774024 51,84,536
The Assessing Officer took the basis of clearance value of Rs.51,00,908/- and added the exempted SSI excise limit wrongly at Rs.1.5 crores (rather than correct excise limit of Rs.1 crores) which gave a figure of Rs.2,01,00,908/- (51,00,908 + 1,50,00,000) and from this figure ld. Assessing Officer reduced the turnover disclosed by assessee in the audited financial statement for F.Y.2006-07 at Rs.87,76,159/- and the resultant figure came to Rs.1,13,24,749/-. Ld. Assessing Officer treated this amount of Rs.1,13,24,749/- as income from suppressed sales and made addition thereof.
13. We further observe that ld. CIT(A) deleted the impugned addition by observing as under :-
4. I have considered the facts of the case, basis of addition made by AO and submissions of appellant. The sole basis of addition made by AO is search action undertaken by Excise Department at the business premises of appellant and his brother's proprietary concern and tax evasion worked out by them in those cases. After the search action, Show Cause Notice was issued by Excise Department on 25.11.2010 and evasion of excise duty was worked out as under:
ITA No. 2155 & 2156 along with Cos 222 & 223/Ahd/2012 9 Asst. Year 2007-08 & 2008-09 FOR THE YEAR 2006-07 (A) Sale of Shubham Polymer 8770992.00 (B) Sale of Swastik Polymer 6467823.00 (C) Total Clearance Value(A+B) 15238813.00 (D) Minus Sale of (a) Shubham Polymer to Swastik 196908.00
(b) Swastik to Ganesh Silk Mill 73798.00 (E) Net Sale for Duty Calculation [C-(a+b)] 14968109.00 (F) Minus Exemption Rs.l crore 10000000,00 (G) Taxable Assessable Value 4968109.00 (H) Central Excise Duty @ 16.32% 810795.00 4,1 In the show cause notice, all the relevant facts are discussed by Addl.
Commissioner, Central Excise and Customs, Surat-1 for working out . the evasion of excise duty. It has been mentioned that the statements of buyers of BOPP films have been recorded and they have confirmed to have purchased the BOPP bags from both the proprietary concerns and this fact is subsequently affirmed by Shri Bimal Dharewa by agreeing with the statements of Shri Ashok Dharewa, the appellant. However, as per Income Tax records, appellant's brother who is proprietor of M/s. Swastik Polymers is engaged in trading activities only, not the manufacturing of BOPP bags. But, the observation of Excise Department is that both the concerns have been engaged in the manufacturing of BOPP bags which are excisable goods and the purpose of creating the trading entity of proprietor was to bifurcate the clearance of BOPP bags between the trading firm and the manufacturing unit to keep the clearance value within exemption limit, which is Rs.l crore per unit, with an intent to evade central excise duty. In view of this conclusion, the turnovers of both the concerns were merged and penal excise duty was calculated at Rs. 8,10,795/- on the taxable assessable value of Rs.49,68,109/- in excess of exemption limit of Rs.l crore. In this process, the total turnover of both the concerns as worked out at Rs.l,52,38,813/-(Rs.87,70/992/- + Rs.64,67,823/-) was considered as turnover of one entity. However, for the purpose of income tax, while working out the suppressed sales of Rs.1,13,24,749/- by appellant, AO has taken the clearance value of goods at Rs.51,00,9087- (193497.114 kg in quantity) which was evaded by appellant. By adding this amount to exemption limit of Rs.1.5 crores, AO has worked out total turnover at Rs.2,01,00,908/-. Since, the appellant has already shown turnover of Rs.87,76,159/- in the return of income therefore the difference of both the amounts, which comes to Rs.1,13,24,749/-, has been treated by AO as suppressed sales and added to the income of appellant.
ITA No. 2155 & 2156 along with Cos 222 & 223/Ahd/2012 10 Asst. Year 2007-08 & 2008-09 4.2 The aforesaid search action conducted and consequently Show Cause Notice issued by Central Excise Department has been challenged by appellant and the decision is still pending with the judicial authority. The show cause notice has been issued by Addl. Commissioner of Excise on the basis of investigation made and statements of purchasers as well as both the proprietors recorded. In the show cause notice, the turnovers shown by both the proprietors in the income tax records have not been challenged. They have taken the same figures of sales for calculation of evasion of excise duty which have been shown in the income tax returns filed by both proprietors. The only difference of opinion has been that the excise authority treated both the entities as one manufacturing unit which has been divided into two entities with the intention of evading excise duty and keeping the turnover below Rs.l crore, which is exemption limit for levy of excise duty. In the assessment proceedings, AO also has taken the same figures as worked out by Excise Department for estimating the turnover of appellant. But in the calculation of turnover, AO has ignored many crucial facts. First of all, AO has calculated the total turnover by taking the exemption limit of excise duty at Rs.1.5 crores whereas in the show cause letter itself the Addl. Commissioner, Custom and Excise has mentioned the exemption limit at Rs.l crore, AO has calculated the turnover of appellant by increasing the amount of Rs.l.50 crores on clearance value of Rs.51,00,908/- worked out by Excise Department when the exemption limit is Rs. 1.00 crore. Thus, he has wrongly increased the turnover by Rs. 50 lakhs. In such situation, to ascertain the correct figure of exemption limit of a unit, AO is directed to make inquiry from Central Excise and Custom Department and recalculate the figure of turnover if the variation in exemption limit is found. Further, while computing the income of appellant, AO has taken the figures of turnover as worked out by Excise authorities who, in turn have taken the turnovers of both the entities and merged together considering them one entity. The net result is that to work out the suppression of sales in the case of appellant, AO has indirectly taken the turnover of appellant's brother's concern namely M/s. Swastik Polymers and merged with the profit of appellant for the purpose of making addition. While merging this figure of sales, AO has taken the value of gross turnover of M/s, Swastik Polymers but ignored the figures of purchases and other expenses claimed in the profit and loss account. The genuineness of purchases and other expenses claimed by M/s. Swastik Polymers have not been doubted by AO. Excise authorities also have not commented upon or doubted the genuineness of purchases and other expenses of both the entities. They have just merged the turnovers of both the entities considering ITA No. 2155 & 2156 along with Cos 222 & 223/Ahd/2012 11 Asst. Year 2007-08 & 2008-09 them one manufacturing unit arid worked out the evasion of excise duty in excess of exemption limit. They had limited purpose of working out the turnover in excess of exemption limit for levy of penal duty. But, for income tax purposes, tax is levied on income not on turnover. Turnover can be termed as income only in the conditions when purchases are bogus or already taken into consideration for computing income. In the case of appellant, at one hand AO has computed the income by including the turnover of his brother's proprietorship concern; on the other hand he has ignored the genuine purchases and other expenses of that concern. Unless these purchases and expenses are treated bogus or in-genuine, effect to these has to be given for computing the income. The gross turnover of other entity cannot be taken for computing the net income, which the AO has wrongly taken.
In my opinion, giving effect by reducing the purchases and expenses from the gross turnover of other concern for adding to the income of M/s. Shubham Polymers would be correct method to compute the total income of appellant. In other words, adding the net profit of Swastik Polymers to the income of appellant would be co-rect and reasonable method of computing the income. This method would be in synchronization with the V conclusions drawn by excise authorities/also. In view of this discussion, AO is directed to take the net profiuof Rs.2,27,57£/-, not the gross turnover, of Swastik Polymers to be added to the incpfne of appellant.
4.3 This ground is Partly Allowed.
14. From perusal of the details as mentioned above in para 11 & 12 and the observations made by ld. CIT(A), we observe that Excise Department has mainly clubbed the gross turnover of two concerns M/s Subham Polymers and M/s Swastik Polymers and have taken the clearance value of Rs.1,52,38,813/- as against total turnover of Rs.1,52,43,382/- (turnover of Subham Polymers Rs.87,76,159/- + turnover of Swastik Polymers Rs.64,67,823/-) as shown in their respective audited financial statements. There cannot be a case against the assessee of suppressed sales or unaccounted sales, ITA No. 2155 & 2156 along with Cos 222 & 223/Ahd/2012 12 Asst. Year 2007-08 & 2008-09 when the turnover as calculated by Excise Department has been shown in separate books of account and they are part of audited books of account and income-tax return furnished. Further we also observe that ld. Assessing Officer has grossly erred in taking the excise limit of Rs.1.5 crores whereas for the year under appeal excise limit was at Rs.1 crore. Further during the course of hearing ld. AR has relied on the judgment of Hon. Gujarat High Court in the case of CIT vs. President Industries (supra) wherein it has been held that sale proceeds itself cannot be treated as undisclosed income rather the net profit embedded in the sale should be treated as undisclosed income.
14.1 We observe that ld. CIT(A) while adjudicating the appeal of assessee has rightly given effect to the judgment of Hon. Gujarat High Court in the case of CIT vs. President Industries (supra) and has taken the net profit of Rs.2,27,573/- shown by M/s Swastik Polymers in the audited profit and loss account placed at page 24 of the paper book as an addition to the income of assessee at the place of addition towards suppressed sales of Rs.1,13,24,749/- taken by ld. Assessing Officer. We, therefore, find no reason to interfere with the order of ld. CIT(A). We uphold the same. Accordingly this ground of Revenue is dismissed.
15. Ground nos. 2 & 3 are of general nature which need no adjudication.
ITA No. 2155 & 2156 along with Cos 222 & 223/Ahd/2012 13 Asst. Year 2007-08 & 2008-09
16. Now we take up Revenue's appeal in ITA No.2156/Ahd/2012 for Asst. Year 2008-09. We find that similar issue on identical facts have been dealt by us for Asst. Year 2007-08. Ld. CIT(A) has restricted the addition to Rs.2,46,433/- by applying net profit of sister concern Swastic Polymer and has deleted the addition of suppressed sales of Rs.2,54,29,100/- made by ld. Assessing. Following the decision taken by us for Asst. Year 2007-08 in ITA No.2155/Ahd/2012, we uphold the decision of ld. CIT(A) and dismiss the ground of Revenue.
17. Cross Objections for Asst. Years 2007-08 & 2008-09 by assessee bearing Nos.222 & 223/Ahd/2012 are not pressed and therefor, dismissed as not pressed.
18. In the result, appeals of Revenue and the Cross Objections of assessees are dismissed.
Order pronounced in the open Court on 17th October, 2016 Sd/- sd/-
(R.P.Tolani) (Manish Borad)
Judicial Member Accountant Member
Dated 17/10/2016
Mahata/-
ITA No. 2155 & 2156 along with Cos 222 & 223/Ahd/2012 14
Asst. Year 2007-08 & 2008-09
Copy of the order forwarded to:
1. The Appellant
2. The Respondent
3. The CIT concerned
4. The CIT(A) concerned
5. The DR, ITAT, Ahmedabad
6. Guard File
BY ORDER
Asst. Registrar, ITAT, Ahmedabad
1. Date of dictation: 14/10/2016
2. Date on which the typed draft is placed before the Dictating Member: 17/10/2016 other Member:
3. Date on which approved draft comes to the Sr. P. S./P.S.:
4. Date on which the fair order is placed before the Dictating Member for pronouncement: __________
5. Date on which the fair order comes back to the Sr. P.S./P.S.:
6. Date on which the file goes to the Bench Clerk: 17/10/2016
7. Date on which the file goes to the Head Clerk:
8. The date on which the file goes to the Assistant Registrar for signature on the order:
9. Date of Despatch of the Order: