Income Tax Appellate Tribunal - Rajkot
Vrundavan Ceramics Pvt. Ltd.,, vs Assessee on 19 July, 2011
IN THE INCOME TAX APPELLATE TRIBUNAL
RAJKOT BENCH, RAJKOT.
Before Shri A.L. Gehlot (AM) and Shri N.R.S. Ganesan (JM)
I.T.A. No. 141/Rjt/2011.
(Assessment Year 2007-08.)
Vrundavan Ceramics Pvt. Ltd., Vs. The D.C.I.T.,
8-A, National Highway, Central Circle-1,
Tal. Wankaner, Dist. Rajkot. Rajkot.
(Appellant) (Respondent)
I.T.A. No. 166/Rjt/2011.
(Assessment Year 2007-08.)
The A.C.I.T., Vs. Vrundavan Ceramics Pvt. Ltd.,
Central Circle-1, 8-A, National Highway,
Rajkot. At post Dhuva, Dist. Rajkot.
(Appellant) (Respondent)
I.T.A. No. 142/Rjt/2011.
(Assessment Year 2007-08.)
Gokul Ceramics Pvt. Ltd., Vs. The D.C.I.T.,
8-A, National Highway, Central Circle-1,
Tal. Wankaner, Dist. Rajkot. Rajkot.
(Appellant) (Respondent)
I.T.A. No. 167/Rjt/2011.
(Assessment Year 2007-08.)
The A.C.I.T., Vs. M/s. Gokul Ceramics Pvt. Ltd.,
Central Circle-1, 8-A, National Highway,
Rajkot. At post Dhuva, Dist. Rajkot.
(Appellant) (Respondent)
Assessee by : Shri J. C. Ranpura,C.A.
Department by : Shri R. N. Prasad, D.R.
2 I TA. 141,166,142 &167-Rjt-2011.
A.Y.2007-08.
Date of Hearing : 19-07-2011.
Date of pronouncement : 09-09-2011.
ORDER
Per AL Gehlot, AM: These cross appeals are against the order of
C.I.T.(A)-IV, Ahmedabad both dated 15-02-2011 for Assessment Year 2007-08.
2. The ld. A.R. submitted that in both the set of cross appeals, the ground raised are based on identical set of facts. Therefore, facts of Vrundavan Ceramics Pvt. Ltd. Can be taken into consideration for deciding these appeals.
3. The common ground raised in cross appeals is in respect of addition made on account of suppressed profit. The assessee has also raised a ground in respect of rejection of books of accounts.
4. The brief facts of the case are that the assessee is engaged in the business of manufacturing of ceramic tiles of various sizes and measurements. The Evasion Wing of the Central Excise Department had conducted a search in case of assessee. During the search, Central Excise Department had found that the assessee was suppressing the maximum retail price on which sale of tiles has been actually made and maximum retail price as disclosed in the books. A show cause letter issued by the Evasion Wind of Central Excise Department was forwarded to the Income-tax Department on 22-12- 2009. On the basis of said show cause notice of the Evasion Wing of 3 I TA. 141,166,142 &167-Rjt-2011.
A.Y.2007-08.
the Central Excise Department, the AO issued show cause notice dated 24-12-2009 which has been reproduced by the AO at page 2 to 6 of his order. In the show cause notice, the detail of suppressed profit itemwise was given. In the show cause notice, the addition of Rs.21,52,03,905/- was on account of suppressed sale/turnover for the period from 01-04-2006 to 28-02-2007 and from 01-03-2007 to 31-03-2007 on pro-rata basis. The AO estimated suppressed profit applying 25% rate of profit on the suppression of sale proceeds Rs.21,52,03,905/- of which calculation comes to Rs.5,38,00,976/-. The AO made addition of that amount.
5. The CIT(A) held that the AO was justified in rejecting the books of accounts as the assessee indulged in suppressing sales. The cash receipts from the dealers through various modes and cash payments made for unrecorded expenses the assessee failed to furnish any evidence in support of proper accounting of such cash receipts and payments. The assessee furnished various details and submissions which were forwarded by CIT(A) to AO for his comments. The CIT(A) after considering assessee's submission and after considering AO's remand report, accepted assessee's contention that AO had accepted the position of suppression of sale as also suppression of expenses on production, transportation and other unrecorded administrative expenses out of the cash received from suppressed sales but he did not give the credit of all these issues while estimating the profit rate of 25% on the suppressed sales. The CIT(A) has also accepted the assessee's contention that 4 I TA. 141,166,142 &167-Rjt-2011.
A.Y.2007-08.
the AO did not brought on record any comparable cases showing such huge profit in line of this business. The CIT(A) after considering the various decisions and position of comparable cases held that the AO had not furnished any adverse comments in his remand report regarding comparable cases. The relevant observations of CIT(A) are as under:-
"4.10 I also agree with the contention of the Ld Counsel that the facts in the case of Vijay Protients Ltd. Vs. ACIT 58 ITD 428 (Ahd.) and Sanjay Oil Cake Industries vs. CIT 316 ITR 274 (Guj.) relied upon by the Assessing Officer are entirely different and the ratio laid down in those cases would not be applicable in toto. On examination, both the above decisions, relied upon by the Assessing Officer in estimating the net profit on the suppressed sales were found relating to the inflation of purchases. In the case of Sanjay Oil Cake Industries vs. CIT 316 ITR 274(Guj.), the Hon'ble Gujarat High Court has held that some of the ostensible suppliers who had issued bills to the assessee not being traceable and there being no trace of the identity of the persons who had withdrawn the payments by bearer cheques from the bank accounts of the said parties. The concurrent finding of the CIT(A) and the Tribunal that such sellers were not genuine and that the goods were received from some other parties was justified and therefore, 25 per cent of the payments made to such parties was rightly disallowed on account of possible inflation of purchase price. More or less, similar were the facts of the case of Vijay Protiens Ltd. Vs. ACIT 58 ITD 428 (Ahd.) decided by the Hon'ble Ahmedabad Tribunal and also relied upon by the Assessing Officer. However, the facts of the case of the assessee are entirely different. The Modus Operandi adopted by the appellant company had been elaborately discussed in para-2.1 of the show cause notice dated 25.09.2008 of the Central Excise department and further reproduced in para-3 of the report of the Assessing Officer received on 29.10.2010. The appellant was suppressing the sales by showing lesser MRP in the sales invoices than the actual MRP. The differential value was
5 I TA. 141,166,142 &167-Rjt-2011.
A.Y.2007-08.
collected in cash from the buyers and such cash amounts were not accounted for in their statutory records. The recipient dealers and distributors were also not showing on records, the actual expenses incurred by them towards local transportation, transit insurance, loading and unloading expenses, actual margin of profit etc. These expenses were also meted out by them in cash from the suppressed sales. While part of the cash amounts collected by the dealers and distributors in the aforesaid manner was spent by them towards meeting the undeclared expenses a mentioned above, the remaining cash amounts were transferred by them to the manufacturers. In order to transfer such cash amounts from dealers to manufacturers, different methods were adopted by them. In order to keep the manufacturing cost within the range of artificial value, declared in the Central Excise invoices, the manufacturers were also procuring a number of raw materials either on cash payments or by not showing the actual value in the books of accounts. Cash amounts received by the shroffs in the aforesaid manner were sometimes handed over to such suppliers of raw materials also at the behest of the manufacturers. Thus, this is a simple case of suppression of sales. The suppressed sales were shared by the dealers and distributors, the raw material suppliers and by the appellant company as per there roles in the suppression of sales. The cash receipts, after setting off certain unaccounted expenses, were being pocketed by the appellant company from the suppressed sales. Thus, the appellant company was engaged in suppressing the actual business income by suppressing the sales. There were no instances of fictitious sale bills, receipts of sale consideration by bearer cheques and involvement of name lenders as in the cases relied uon by the Assessing Officer in the case of Vijay Protiens Ltd. Vs. ACIT 58 ITD 428(Ahd.) and Sanjay Oil Case Industries vs. CIT 316 ITR 274(Guj.) cannot be applied to ascertain the profit earned by the appellant company from the suppressed sales.
4.11 The Central Excise department had estimated the quantum of suppressed sales but did not ascertained the portion of suppressed sales pocketed by the dealers and 6 I TA. 141,166,142 &167-Rjt-2011.
A.Y.2007-08.
distributors for meeting out their unaccounted expenses. Likewise, the quantum of cash portion went to the raw material suppliers was also not ascertained or ascertainable. The Central Excise department is concerned only with evasion of Central Excise duty for ascertaining such evasion, the quantum of suppressed sales is sufficient enough. The undisclosed profit on the suppressed sales can be ascertained or estimated by the Income-tax department who is required to tax undisclosed income earned by way of suppression of sales. There is no case of suppression of the quantity of tiles manufactures and sold. The case of the appellant is like that it had actually, declared the MRP for computing excise duty at Rs.100/- per box of tiles as against actual MRP of Rs.150/-. The central excise duty is payable after abatement of 45%. Thus, the excise duty was paid on an amount of Rs.55.00 (Rs.100.00 - Rs.45.00) as against payable on Rs.82.50 (Rs.150.00 - Rs.67.50). The sales invoices were issued for Rs.55/- excluding excise duty and other taxes. The sales invoices were required to be issued for Rs.55/- excluding excise duty and other taxes. The sales invoices were required to be issued for Rs.82.50. Thus, there was the suppression of sale of Rs.27.50. This amount was shared by the dealers and distributors, raw material suppliers and by the appellant company. The above example clarifies that a certain portion of the suppressed sale was came in its pocket. This portion was estimated by the Assessing Officer at 25% of the suppressed sales without bringing any material on record or without considering any comparable cases dealing in similar line of business. From the show cause notice of the Central Excise department, it was gathered that a few of the manufacturing units were selected for search amongst about 400 such tile manufacturing units. Thus, there were number of comparable cases where assessments were completed u/s. 143(3) of the Act but the Assessing Officer had not tried to collect such assessment orders for the reasons best known to him.
4.12 There is no any hard and fast rule for ascertaining the profit from suppressed sales. It depends on the facts and circumstances of each case. The Assessing Officer had not 7 I TA. 141,166,142 &167-Rjt-2011.
A.Y.2007-08.
considered any comparable case either in the Assessment order or in the remand report. The Assessing Officer was requested vide this office letter dated 05.01.2011 to arrange copies of certain assessment orders decided by the Assessing Officers having jurisdiction of Morbi area where more than 400 manufacturing units of tiles are working and engaged in the similar line of business. However, no such copies of required assessment orders were arranged by the Assessing Officer when the case was discussed with him on 12.01.2011 at Rajkot. The Ld. Counsel had relied on two of the cases having similar business of manufacturing and sale of ties. The assessments in those two cases for the A.Y. 2007-08 were completed u/s.143(3) of the Act by the Asstt. Commissioner of Income-tax, Circle-1, Rajkot and trading results had been accepted in both the cases as declared. Copies of their audited accounts and assessment orders were called for and placed on record. The comparative date are available in the table given in clause (e) of main written submission of the Ld. Counsel as reproduced in para-4.1 above. The Assessing Officer had not furnished any adverse comments in his remand report on the submission in clause (e) of the Ld. Counsel relating to the comparable cases except stating that the contention is only a supporting justification, without addressing the core allegation".
6. The CIT(A) has also examined the issue from point of view of fair and reasonable estimation in such cases by discussing various judgments of Supreme Court and other High Court at page 26 to 28 of CIT(A)'s order. The CIT(A) was of the view that in such cases while estimating fair and reasonable profit, the comparable case should also be considered. The CIT(A) has also considered the assessee's contention that the assessee has declared some of the portion of the profit of suppressed turnover in regular books of account. The assessees in support of their contention furnished data of comparable cases where Central Excise Department do not find 8 I TA. 141,166,142 &167-Rjt-2011.
A.Y.2007-08.
any suppression. The CIT(A) while examining the assessee reproduced the following table at page-29 of his order which was filed by the assessee before the CIT(A):-
S.No. Particulars Vrundavan Gokul Ramco Ferro Ceramics Ceramics Ceramics Glazed Pvt. Ltd. Pvt. Ltd. Pvt. Ltd. Tiles Pvt.
Ltd.
1. Net Sales 298316856 196809729 229302683 139616396
2. Production Cost 232408426 154130503 207310178 126862632
3. Gross Profit 65908430 42679226 21992505 12753764
4. Gross profit ratio 22.09 21.68 9.59 9.13
5. Production 77.91 78.32 90.41 90.87 Cost%
6. Other Expenses 26521029 21660813 5064045 7656117
7. Net Profit before 39387401 21018413 16928460 5097647 depreciation
8. Net Profit ratio 13.20 10.68 7.38 3.65 before depreciation.
9. Depreciation 19923640 16155412 8539070 3155590
10. Net Profit after 19463761 4863001 8389390 1942057 depreciation
11. Net Profit ratio 6.52 2.47 3.66 1.39 after depreciation
7. The CIT(A) held that the assessee has declared hire gross profits from the declared sales as compared to others that shows that certain portion of profit from suppression has been declared in audited account by showing lesser cost of production. The relevant observation of CIT(A) in this regard are as under:-
"Reference may be made to para-4.16 and para-19 of the show cause notice of the Central Excise department. This shows that the appellant was declaring higher gross profits from the declared sales as compared to others. It is likely that certain portion of profit from suppressed sales had been declared in
9 I TA. 141,166,142 &167-Rjt-2011.
A.Y.2007-08.
the audited accounts by showing lesser cost of production. For example, if the appellant company and its sister concern M/s. Gokul Ceramics Pvt. Ltd. would have disclosed the gross profit of 10 per cent on the total sales including suppressed sales as in the case of comparable cases, the gross profit would be less than disclosed only from the declared sales. The extra gross profit was certainly from the suppressed sales gone to the taxable income".
8. However, the CIT(A) held that it will be fair and reasonable if the net profit of rate 13.20% is applied to the suppression of sales. The CIT(A) has also held that the Ld. Counsel of the assessee agreed to apply net profit rate as per books of accounts. The CIT(A) accordingly, confirmed addition to the extent of Rs.284,06,915/- and balance amount deleted. The CIT(A) has also held that the suppressed sales be subject to rectification if the same are increased or decreased by the Central Excise Department. The relevant observation made by the CIT(A) in his findings are as under:-
"4.21 In view of the detailed discussion in para-4.4 to para-4.20 above, it is held that the suppressed sales will be subject to rectification if the same are increased or decreased by the Central Excise Department and net profit rate of 13.20 per cent is to be applied on the suppressed sales of Rs.21,52,03,905/-. On this basis, the undisclosed profit on the suppressed sales will work out to Rs.2,84,06,915/-. Therefore, the addition of Rs.2,84,06,915/- is hereby confirmed and rest of the addition is deleted. The second part of the third ground of appeal is accordingly partly allowed".
9. The revenue is in appeal against the deletion of addition by the CIT(A) and the assessee is in appeal against the order of the CIT(A) where addition is sustained and rejecting the books of accounts.
10 I TA. 141,166,142 &167-Rjt-2011.
A.Y.2007-08.
10. The ld. A.R. submitted that the AO without pointing out the defects in the books of accounts regularly maintained by the assessee estimated profit on alleged suppression. The ld. A.R. submitted that it is settled principle of law that mere non-receipt of information from such department and show cause notice issued by it does not constitute valid reasons for disturbing book results in absence of anything to show that AO has independently applied his mind to arrive at a conclusion that the assessee suppressed sales and expenditure. The ld. A.R. submitted that the books of account are subject to audit u/s.44AB of the Act and the auditor did not point out any discrepancy or qualify his report on such audited books of account nor could the AO found any defects therein. As regards the addition sustained by CIT(A), the ld. A.R. submitted that the books of account are subject to Companies Act and also as per section 44AB of the I.T. Act. Neither the AO nor the auditor has pointed out any defects in the books of account. The AO without examining the complete facts simply relied upon a show cause notice issued by CED estimated the profit. The ld. A.R. submitted that proceedings under the Central Excise Rules and under the I.T. Act are different. Under the Income-tax Act, the concept of real income is applicable. The ld. A.R. further submitted that the assessee has shown better G.P. and net profit in comparison to comparable case. The ld. A.R. relied upon the order of CIT(A) except to the fact that the CIT(A) has not appreciated one of the crucial fact that the assessee has declared a part of the suppressed profit in a regular books of account. The ld. A.R. heavily relied upon the comparable case in case of assessee 11 I TA. 141,166,142 &167-Rjt-2011.
A.Y.2007-08.
and Gokul Ceramics Pvt. Ltd. and Ramco Ceramics Pvt. Ltd. wherein net profit before depreciation shown by assessee is 13.20% and in case of Gokul Ceramics Pvt. Ltd. it was 10.68% whereas in comparable cases in Ramco Ceramics Pvt. Ltd. 7.38% and 3.65% in case of Ferror Glazed Tiles Pvt. Ltd. The ld. A.R. further submitted that in case of Ferror Glazed Tiles Pvt. Ltd. and Ramco Ceramics Pvt. Ltd., there was no suppressed sale as per the Central Excise Department. The Central Excise Department has accepted their turnover. The ld. A.R. submitted that on consideration of comparable case and fact that the assessee was declaring some portion of the suppression profit in a regular books of account. So, while estimating the suppression profit, a credit in this regard is required. As regards facts recorded by the CIT(A) that the assessee agreed for net profit rate, the net profit rate means net profit rate of comparable cases.
11. The ld. D.R. on the other hand, submitted that this is an admitted fact that there is a suppression of turnover. Therefore, that itself is sufficient reason for rejection of books of account. The ld. D.R. submitted that the AO has rightly applied 25% rate of profit on suppressed profit. The AO while applying 25% rate of profit relied upon a judgment of the Gujarat High Court in the case of Sanjay Oil Cake Industries vs. CIT 316 ITR 274(Guj.). The ld. D.R. submitted that 25% rate of profit applied by the AO is supported by the judgment of the jurisdictional High Court. Therefore, the CIT(A) was not correct in reducing the profit from 25% to 13.20%.
12 I TA. 141,166,142 &167-Rjt-2011.
A.Y.2007-08.
12. We have heard the learned representatives of the parties, record perused. As regards the rejection of books of account, the admitted facts are that there is suppression of turnover. We find that this sole reason is sufficient for rejection of books of account. We find that the AO and CIT(A) are both correct in rejecting books of account.
13. An another disputed fact is in respect of turnover. However, both the parties agreed with the finding of the CIT(A) that the suppressed sale will be subject to rectification if the same are increased or decreased by the Central Excise Department.
14. Now the question remains to be examined at this stage is in respect of estimation of profit from suppressed turnover. The AO estimated the suppressed profit applying 25% rate of profit which has not been accepted by the CIT(A) on the ground that the AO estimated 25% of profit without any basis and without bringing any material on record or without considering any comparable case dealing in similar line of business. The CIT(A) also noted from the show cause notice of the Central Excise Department that a few of manufacturing units were selected for search amongst about 400 such tile manufacturing units. Thus, there were number of comparable cases where assessment was completed u/s.143(3) of the Act but AO had not collected such assessment order and put the relevant material on record. The CIT(A) after discussion on various judgments CIT vs. Laxminarain Badridas 5 ITR 170(PC), The State of Kerala vs. C. 13 I TA. 141,166,142 &167-Rjt-2011.
A.Y.2007-08.
Velukutty 60 ITR 239(SC), Brij Bhushan Lal Parduman Kumar vs. CIT 115 ITR 524 (SC), Kachwala Gems vs. Jt. CIT 158 Taxman 71 (SC) and others as discussed at page-27 and 28 of CIT(A)'s order. The relevant conclusion of the CIT(A) is reproduced as below:-
"4.14 I have gone through the above referred decisions of the Hon'ble Supreme Court and the High Courts. The law laid down in the aforesaid decisions speaks about the fair and reasonable estimate. Guess work should be based on certain material and such material should have nexus with the estimate. The comparable cases should also be considered. However, the Hon'ble Delhi High Court in a recent decision (decision dated 24.12.2010) in the case of CIT vs. Aero Club 50 DTR (Delhi) 185 had held that the Assessing Officer had not brought on record any comparable case wherein the net profit declared by a taxpayer in the similar business was higher than the one declared by the assessee. The margins of a taxpayer as declared by him, could be varied and disturbed only if the profit margins in the case of other assessee engaged in similar business are higher. The AO in his remand report was also unable to comment on the comparable cases of B. Ltd. and A.T. relied upon by the assessee. In the circumstances, the Tribunal rightly held that the net profit as declared by the assessee was not required to be disturbed. It is thus evident that results of own case and the comparable cases have a vital role in estimating the profit by applying a reasonable rate of profit.
15. From the above discussion by the CIT(A), we find that the CIT(A) has rightly rejected the AO's action in estimating suppressed profit by applying profit rate of 25%. As regards the judgment of jurisdictional High Court on which the AO relied upon in the case of Sanjay Oil Cake Industries vs. CIT 316 ITR 274, it is to state that the judgment is distinguishable on facts. In the said judgment, the purchase price reflected in books of account did not match with the 14 I TA. 141,166,142 &167-Rjt-2011.
A.Y.2007-08.
purchase price as stated to be paid to other persons, whereas in the case under consideration, the assessee furnished comparable cases and the CIT(A) examined those comparable cases. The applicability of the said judgment of the jurisdictional High Court depends upon the facts of the case. The facts of that case are not similar to the facts of the case under consideration. Under the circumstances, we agree with the view of the CIT(A) that for estimation of fair and reasonable profit comparable cases have a vital role. Therefore, same are required to be considered. The CIT(A) accordingly considered the comparable case from page-28 to 32 and in para No.4.15 to 4.19 of CIT(A) order but the CIT(A) did not accept the results of comparable cases merely on the ground that the assessee has declared higher profit in the books of account in comparison to the profit declared by the comparative cases. The main thrust of the arguments of the assessee before us are that the CIT(A) has accepted in principle with the assessee's contention that the assessee has declared higher profit in the books of account which includes part of the suppressed profit. The assessee has demonstrated and which has also been established by the facts that the assessee has declared higher rate of profit in the books of account in comparison to the comparable cases. The contention of the assessee that the set off of this higher profit which includes suppressed profit should be allowed in estimating the profit on suppressed turnover. We find force in this contention of the assessee. The comparative position is explained by the CIT(A) in the form of table at page-30 and 31. The same is reproduced as below:-
15 I TA. 141,166,142 &167-Rjt-2011.
A.Y.2007-08.
S.No. Particulars Vrundavan Gokul Ramco Ferro
Ceramics Ceramics Ceramics Glazed
Pvt. Ltd. Pvt. Ltd. Ltd. Tiles Pvt.
Ltd.
1. Net Sales 298316856 196809729 229302683 `139616396
2. Suppressed 215203905 80077050 - -
sales
3. Total sales 513520761 276886779 229302683 139616396
4. Gross profit 65908430 42679226 21992505 12753764
declared
5. Gross profit 10% 10% 9,59 9.13
Ratio 10%
6. Gross profit 51352076 27688677 21992505 12753764
estimated
7. Other 26521029 21660813 5064045 7656117
Expenses
8. Probable net 24830947 602864 16928460 5097647
profit.
9. Declared net 39387401 21018413 16928460 5097647
profit before
depreciation
10. Net profit ratio 13.20 10.68 7.38 3.65
before
depreciation
Profit @ 8% of 41081660 22150942 - -
sales
11. Estimated net 67784740 29571508 16928460 5097647
profit on sales
at declared
rates
12 Declared net 39387401 21018413 16928460 5097647
profit before
depreciation
Suppressed net 1694259 1132529 - -
profit ff
declared 8%
13. Suppressed net 28397340 8553095 - -
profit on
declared rate.
16. For the purpose of fair and reasonable estimation of profit on suppressed turnover, if we consider the above working of the CIT(A), we find that the total turnover including suppressed turnover and turnover shown in books of account in case of Vrundavan Ceramics 16 I TA. 141,166,142 &167-Rjt-2011.
A.Y.2007-08.
Pvt. Ltd. was Rs.51,35,20,761/- and in case of Gokul Ceramics Pvt. Ltd. Rs.27,68,86,779/-. In comparable cases of Ramco Ceramics Ltd. and Ferro Glazed Tiles Pvt. Ltd., the G.P. declared in these cases is 9.59% and 9.13% and net profit rate before depreciation are 7.38% and 3.65 respectively.
17. From the above discussion, one of the admitted fact of the case is that the assessee has declared some of part of profit on suppressed sale in regular books of account. That is the reason that G.P. and N.P. are higher in both case in comparison to G.P. & N.P. of comparable cases. The CIT(A) accepted this fact and also calculated quantum of profit in this regards in the table which is given at page-30 and 31 of CIT(A)'s order in case of Vrundavan Ceramics (P)Ltd. The CIT(A) did not accept the result of comparable case on the ground that the assessee has declared higher profit in comparison to comparable cases. On account of fair and reasonable estimation of profit, the CIT(A) ought to have allow set off the profits which were declared by assessee in books of account while making estimation of the profit. From the table given by the CIT(A) at page-30 and 31 of his order on application of 10%(G.P. rounded for calculation purposes) as declared in comparable cases. We find that the assessee declared excess profit in books of account as under:-
Vrundavan Gokul
A. Sale as per books. 29,83,16,856 19,68,09,729
B 10% G.P. if applied 2,98,31,685 1,96,80,972
For estimation.
C G.P. declare d in 6,59,08,430 4,26,79,226
books of account.
D. ( C - B) Excess profit 3,60,76,745 2,29,98,254
declared
17 I TA. 141,166,142 &167-Rjt-2011.
A.Y.2007-08.
18. From the above discussion, we find that the CIT(A) is not correct in applying net profit rate declared by the assessee as that net profit includes some portion of profit on suppressed turnover. Therefore, it can be held that estimation made by CIT(A) is fair and reasonable estimation of profit on suppressed sale. The estimation made by the CIT(A) is on higher side.
19. Now the question remains to be see that under the facts and circumstances what should be the fair and reasonable profit on suppressed turnover. The net profit rate in the case of assessees and comparable cases are 13.20%, 10.68% and 7.38%, 3.65% in case of Vrundavan Ceramics Pvt. Ltd., Gokul Ceramics Pvt. Ltd.. Ramco Ceramics Pvt. Ltd. and Ferro Glazed Tiles Pvt. Ltd. respectively. As discussed and stated above that the above net profit rate of assessees includes some portion of profit of suppressed turnover. Therefore, to give effect of that and on account of fair and reasonable estimation, we are of the view that the average net profit rate of all 4 units will be a good basis for fair and reasonable estimation of profit on suppressed turnover. It is settled position that in estimation, some guess work cannot be ruled out. The average net profit rate of all 4 units comes to 8.72%. In that rate, if we include 0.28% to cover miscellaneous benefit of the turnover out of the books of account, that will be a fair and reasonable rate of profit which comes to 9%. This rate of 9% net profit will be fair and reasonable on this count also that the assessee will not get major benefit of profit of evasion of excise duty as Excise Department has already taken 18 I TA. 141,166,142 &167-Rjt-2011.
A.Y.2007-08.
action in this regard. On application of 9% rate of profit, the relevant calculations are as under:-
Particulars Vrundavan Gokul
Suppressed sale 21,52,03,905 8,00.77,050
9% net profit rate for 1,93,68,351 72,06,934
estimation
Addition sustained by 2,84,06,905 85,52,229
CIT(A)
9% profit addition 1,93,68,351 72,06,934
sustainable
Balance excess 90,38,554 13,45,295
20. In accordance with above calculation, we confirm the addition to the extent of Rs.1,93,68,351/- in the hands of Vrundavan and Rs.72,06,934/- in the hands of the Gokul and balance addition Rs.90,38,554/- in case of Vrundavan and Rs.13,45,295/- in the case of Gokul out of the total addition sustained by CIT(A) are deleted.
21. The learned representatives of the parties submitted that facts of the case in Gokul Ceramics Pvt. Ltd. are similar. Therefore, the cross appeal of that case is also decided in accordance with above discussion.
22. In the result, appeals of assessee are partly allowed and appeals by revenue are dismissed.
Order pronounced in the open Court on 9-09-2011.
Sd/- Sd/-
(N.R.S. GANESAN) ( A. L. GEHLOT )
JUDICIAL MEMBER. ACCOUNTANT MEMBER.
Rajkot,
19 I TA. 141,166,142 &167-Rjt-2011.
A.Y.2007-08.
Dt : 09-09-2011.
Nva/-
Copy to:
1. Vrundavan Ceramics Pvt. Ltd.,Wankaner.
2. The Dy. C.I.T., Circle-1, Rajkot.
3. The CIT(A)- Rajkot.
4. The C.I.T.
5. The D.R., I.T.A.T., Rajkot.
True Copy.
By order Asstt.Registrar, ITAT, Rajkot.