Income Tax Appellate Tribunal - Kolkata
R. S. Ispat Ltd, Kolkata vs Department Of Income Tax on 18 January, 2012
आयकर अपीलीय अधीकरण, Ûयायपीठ - "ए ", कोलकाता,
IN THE INCOME TAX APPELLATE TRIBUNAL, BENCH "A", KOLKATA
(सम¢)Before ौी एन.
एन.ǒवजयकुमारन,
मारन, Ûयायीक एवं/and
सदःय,
Shri N.Vijayakumaran, Judicial
Member.
ौी सी.
सी.डȣ.
डȣ.राव, लेखा सदःय
Shri C.D.Rao, Accountant Member
सàपǒƣ अपील संÉया /
ITA No.1044/Kol/2011
िनधॉरण वषॅ/Assessment Year : 2005-06
-वनाम-
(अपीलाथȸ/APPELLANT ) - (ू×यथȸ/RESPONDENT)
R.S.Ispat Ltd., Kolkata. Versus- D.C.I.T., Central Circle-
(PAN:AABCR 1890 D) . XXIV, Kolkata
सàपǒƣ अपील संÉया /
IT(SS)A No.101/Kol/2011
िनधॉरण वषॅ/Assessment Year : 2006-07
-वनाम-
(अपीलाथȸ/APPELLANT ) - (ू×यथȸ/RESPONDENT)
A.C.I.T., Central Circle-XXIV, Kolkata Versus- R.S.Ispat Ltd., Kolkata.
. (PAN:AABCR 1890 D)
बास आपǒƣ/C.O.No.52/Kol/2011
आपǒƣ
सàपǒƣ अपील संÉया /
A/oIT(SS)A No.101/Kol/2011
िनधॉरण वषॅ/Assessment Year : 2006-07
(अपीलाथȸ/APPELLANT ) -वनाम- ू×यथȸ/RESPONDENT)
R.S.Ispat Ltd., Kolkata. - D.C.I.T., Central Circle-
(PAN:AABCR 1890 D) Versus- XXIV, Kolkata
.
सàपǒƣ अपील संÉया /
ITA No.1073/Kol/2011
िनधॉरण वषॅ/Assessment Year : 2007-08
2
(अपीलाथȸ/APPELLANT ) -वनाम- (ू×यथȸ/RESPONDENT)
A.C.I.T., Central Circle-XXIV, Kolkata - M/s.R.S.Ispat Ltd.,
Versus- Kolkata.
. (PAN:AABCR 1890 D)
बास आपǒƣ/C.O.No.53/Kol/2011
आपǒƣ
सàपǒƣ अपील संÉया /
A/oITA No.1073/Kol/2011
िनधॉरण वषॅ/Assessment Year : 2007-08
(अपीलाथȸ/APPELLANT ) -वनाम- ू×यथȸ/RESPONDENT)
R.S.Ispat Ltd., Kolkata. - A.C.I.T., Central Circle-
(PAN:AABCR 1890 D) Versus- XXIV, Kolkata
.
अपीलाथȸ कȧ ओर से/ For the Department: Smt.A.Mukherjee
ू×यथȸ कȧ ओर से/For the Assessee : Shri D.S.Damle
सुनवाई कȧ तारȣख/Date of Hearing : 18.01.2012.
घोषणा कȧ तारȣख/Date of Pronouncement : 07.03.2012.
आदे श/ORDER
(सी.
सी.डȣ.
डȣ.राव)
राव), लेखा सदःय
Per Shri C.D.Rao, AM
The above five appeals two filed by the Revenue and one appeal and two cross Objections filed by assessee are against orders dated 19.05.2011 of the CIT(A)- Central-III, Kolkata pertaining to A.Yrs. 2005-06, 2006-07 and 2007-08 respectively.
ITA No.1044/Kol/2011 (By assessee A.Yr.2005-06) :2. The assessee has taken the following grounds :-
1) For that on the facts and in the circumstances of the case, the CIT(A) erred in upholding the addition of Rs.9,73,297/- as income of the appellant u/ s 69C of the Income Tax Act.
2) For that on the facts and in the circumstances of the case, the A.O. having held that the notings found in the seized papers represented Receipts & Payments pertaining to assessee's unrecorded trading transactions, the CIT (A) should have directed the AO to assess only the profit element embedded in such trading transactions in assessing the total income
3) For that the appellant craves leave to file additional grounds and/or amend or alter the grounds already taken either before or at the time of hearing of the appeal."3
IT(SS)A No.101/Kol/2011 (By Revenue A.Yr.2006-07) :
The revenue has taken the following grounds :-
"1.That in the facts and circumstances of the case and in law the Ld. CIT (A) has erred in deleting the addition of Rs. 3,09,77,338/- made u/s 69C on a/c of unexplained expenditure incurred for purchase and other outgoings unrecorded in the regular books without proper appreciation of the arguments put forth in the assessment order how the quantum of addition was determined on the basis of specific evidences found in course of the search conducted u/s 132.
2. That in the facts and circumstances of the case and in law the Ld. CIT(A) has erred in holding that no addition may be made separately on account of various expenses amounting to Rs.17,41,333/- admittedly not recorded in regular books accepting the plea of the assessee that such expenses were incurred out of income earned from undisclosed trading operations without giving the A.O an opportunity of being heard contravening the provision of rule-46A of IT. Rule.
3. That in the facts and circumstances of the case and in law the Ld. CIT(A) has erred in directing the A.O. to include in the total income Rs.39,66,857/- being the profit derived from undisclosed transactions in purchase and sale of materials assessable with reference to entries found recorded in seized documents being computed in a particular manner thereby rejecting the manner in which undisclosed income was computed during assessment without giving the A.O. an opportunity of being heard contravening the provision of rule-46A of IT. Rule."C.O.No.52/Kol/2011
A/o IT(SS)A No.101/Kol/2011 (By Revenue A.Yr.2006-07) :
The assessee has taken the following grounds in Cross Objection :-
"1. For that on the facts and in the circumstances of the case, the CIT (A) erred in estimating profit derived from undisclosed transactions in purchase & sale of materials by adopting excessive and unreasonable gross profit rate of 8%.
2. For that on the facts and in the circumstances of the case, the CIT (A) while estimating the profit from undisclosed transactions should not have adopted an arbitrarily high gross profit rate of 8% and the lower authorities be directed to estimate income from undisclosed trading transactions on some reasonable basis by adopting G.P. rate lower than 8%".ITA No.1073/Kol/2011 (By Revenue A.Yr.2007-08) :
The Revenue has taken the following grounds :-
"1. That in the facts and circumstances of the case and in law the Ld. CIT(A) has erred in deleting the addition of Rs.3,93,27,241/- made u/s 69C on a/c of unexplained expenditure incurred for purchase and other outgoings unrecorded in the regular books without proper appreciation of the arguments put forth in the assessment order 4 how the quantum of addition was determined on the basis of specific evidences found in course of the search conducted u/s 132.
2. That in the facts and circumstances of the case and in law the Ld. CIT(A) has erred in restricting the addition of Rs.2,42,46,916/- made on a/c of undisclosed capital employed behind undisclosed trading up to Rs. 1,20,00,000/- only without proper appreciation of the arguments put forth in the assessment order how the quantum of addition was determined on the basis of specific evidences found in course of the search conducted u/s 132.
3. That in the facts and circumstances of the case and in law the Ld. CIT(A) has erred in deleting the addition of Rs. 1,07,40,000/- made on a/c of unaccounted excess stock found during the search conducted u/s 132 without proper appreciation of the arguments put forth in the assessment order how the quantum of addition was determined on the basis of specific evidences found in course of the search.
4. That in the facts and circumstances of the case and in law the learned CIT(A) has erred in deleting the addition of Rs. 2,38,56,943/- made on a/c of quantum suppression by manipulation of book entries in debtors' a/c treated as unaccounted asset u/s 69A without proper appreciation of the arguments put forth in the assessment order how the quantum of addition was determined on the basis of specific evidences found in course of the search.
5. That in the facts and circumstances of the case and in law the learned CIT(A) has erred in holding that no addition may be made separately on account of various expenses amounting to Rs.22,36,757/- admittedly not recorded in regular books accepting the plea of the assessee that such expenses were incurred out of income earned from undisclosed trading operations without giving the AO an opportunity of being heard contravening the provision of rule-46A of I.T.Rule.
6. That in the facts and circumstances of the case and in law the learned CIT(A) has erred in directing the AO to include in the total income Rs.2,40,40,995/- being the profit derived from undisclosed Transactions in purchase and sle of materials assessable with reference to entries found recorded in seized documents and on sale of unaccounted excess stock being computed in a particular manner thereby rejecting the manner in which undisclosed income was computed during assessment without giving the AO an opportunity of being heard contravening the provision of rule-46A of I.T.Rule.
7. That in the facts and circumstances of the case and in law the learned CIT(A) has erred in directing the A.O. to allow the benefit of set off of Rs.3,00,00,000/- credited in the P & L account against the additions directed to be made and include in the total income only the income in excess of Rs.3,00,00,000/- without proper appreciation of the fact that in the statement u/s 132(4) the assessee made the disclosure of additional income on estimate and did not relate to it any of the seized documents on the basis of which additions were made."C.O.No.53/Kol/2011
A/o ITA No.1073/Kol/2011 (By Revenue A.Yr.2007-08) :
The assessee has taken the following grounds in Cross Objection :-5
"1. For that on the facts and in the circumstances of the case, the CIT (A) erred in estimating profit derived from undisclosed transactions in purchase & sale of materials by adopting excessive and unreasonable gross profit rate of 8%.
2. For that on the facts and in the circumstances of the case, the CIT (A) while estimating the profit from undisclosed transactions should not have adopted an arbitrarily high gross profit rate of 8% and the lower authorities be directed to estimate income from undisclosed trading transactions on some reasonable basis by adopting G.P. rate lower than 8%".
2.1. All these appeals are interlinked and revolve on the only issue of arriving income from the seized documents.
3. The brief facts of this issue in this case are that there was a search conducted at the factory and office premises of the assessee on 08.12.2006. The books of account, loose papers and documents identified as RSIP1 to RSIP/79, RSI/F/1 to RSI/F/43, RSA/1 to RSA/12, RSI/1 to RSI/7 and RPS/1 to RPS/31 were found and seized. The seized papers contained information such dates, amounts and names of parties. These per se did not indicate or establish the nature of transactions. In the course of assessment the AO directed the assessee to furnish its explanation with regard to the notings made in seized papers. As per the explanation furnished the notings pertained to assessee's undisclosed trading transactions and figures mentioned represented transactional values. According to explanations furnished these notings represented payments and receipts of different assessment years, as follows :-
Assessment Year Payments Receipts 2004-05 Rs. 1,20,000 NIL 2005-06 Rs. 10,90,602 NIL 2006-07 Rs.4,11,42,193 1,01,74,855 2007-08 Rs.15,37,39,745 11,44,12,504
It was the assessee's contention that documents were randomly seized form the desks of different persons from different locations pertaining to different transactions and there might not be co-relation between them. The papers seized did not contain or represent entire contemporaneous evidence of assessee's undisclosed trading transactions. In the circumstances no meaningful inference could be drawn if notings in seized papers were considered in isolation. The assessee agreed that these notings 6 represented transactional values of trading conducted outside regular books and therefore net profit of these transactions could be ascertained on reasonable estimate basis. The contention of the assessee with reference to figures in seized papers; assessee's turnover of undisclosed trading business could be ascertained and applying reasonable margin of profit, income of undisclosed trading business can be estimated. The AO however did not accept the assessee's contention and netted off the payments against the receipts. The excess of payments over receipts was assessed as unexplained expenditure. Even though payments made for purchases were assessed as undisclosed expenditure; further addition was also made on account of investment in initial capital of such business. Separate addition was also made for excess stock of goods found at the time of search. Similarly even though the gross receipts were considered to be part of undisclosed trading, separate addition was made in respect of amounts due to be recovered from the trade debtors.
3.1. The assessee's contention before the lower authorities are that the notings in seized papers depicted or recorded different stages of the trading cycle and therefore the additions in the assessments resulted in double taxation because seized papers were not considered in their overall perspective but in isolation. It was the assessee's plea that in absence of conclusive evidence, found in the course of search; indicating the co-relation between different notings and in absence of any clinching evidence to substantiate assessee's explanations; it was not proper for the AO to net off the alleged payments and alleged receipts. It was therefore the assessee's claim before the CIT(A) that income was wrongly assessed.
3.2. On appeal the CIT(A) found merit in the assessee's submissions. The CIT(A) found that the methodology adopted by the AO was incorrect. Although the AO assessed undisclosed income in excess of Rs.16 crores; in the course of search the department had not found evidence of assessee having undisclosed assets or having incurred undisclosed expenses of such magnitude. In course of search the department found evidence indicating that the assessee incurred unexplained expenditure of Rs.17,41,333/- & Rs.22,36,757/- in A.Ys.2006-07 & 2007-08; it possessed excess 7 stock of Rs.1,07,40,000/- on the date of search and unaccounted "on money" of Rs.95,29,400/- was paid for purchase of property; all aggregating to Rs.2,42,47,490/-. Save and except these; no further valuables; assets were found. The CIT(A) therefore agreed with the assessee's claim that the assessment were high pitched and unreasonable. He also agreed that due to wrong methodology adopted by the AO and by considering entries in seized papers; in isolation; additions may have also resulted in double taxation of the same transactions.
3.3. The CIT(A) however held that for the purpose of assessing income of the assesee; inferences were required to be drawn from the notings in the seized papers. The CIT(A) found that notings in seized papers contained bare information such as dates, amounts and names of the parties. Save and except the assessee's self explanation no other independent corroborative evidence supported assessee's explanation that the notings actually represented payments made for goods purchased or payments received for goods sold. There was however unanimity between the assessee and the AO as to the fact that the notings pertained to assessee's undisclosed trading business. The CIT(A) therefore held that since the notings contained bare transactional values; turnover of the undisclosed trading business should be determined by aggregating the transactional values in seized papers. The CIT(A) therefore without setting off the alleged payments against the receipts grossed up the transactional values in the seized papers to arrive at "turnover" of the assessee's undisclosed trading business. The CIT(A) also included the "sundry debtors" balance recorded in the seized paper, in the total turnover of the undisclosed trading business. With reference to gross sales so estimated the CIT(A) determined assessee's income by adopting trading profit rate of 8%.
4. At the time of hearing the ld. DR appearing on behalf of the revenue objected to the order of ld. CIT(A) and argued that CIT(A) did not correctly appreciate AO's findings which were based on assessee's own explanations with regard to seized papers. It was submitted that the assessee itself had furnished the explanation before the AO that entries in seized papers represented payments for purchase and/or receipts 8 from sale of goods. It was assessee's own explanation that both payments and receipts were not recorded in the regular books and were part of unrecorded trading business. Once the assessee offered explanations in respect of notings in seized papers then it was no more open for the assessee to object to AO's logical and legal inferences, flowing from these explanations merely because substantial additions. The ld. DR further submitted that the assessee objected to AO's findings only because the AO's inferences resulted in substantial additions. According to ld. DR the methodology adopted by the CIT(A) for estimating income was fundamentally incorrect and suffered from serious infirmities. According to ld. DR the CIT(A) accepted assessee's submissions at their face value without himself verifying the actual facts and seized material. The CIT(A) admitted fresh evidences without calling for remand report or AO's comments on assessee's submissions. It was further argued that in any trading business profit is the result of difference between cost of purchase and the sales it was therefore imperative that payments were netted off against the receipts. In this case based on the assessee's own explanations the AO had deducted payments form the receipts of the undisclosed trading which showed excess of payments over receipts and this was rightly added by the AO as unexplained expenditure. The ld. DR further submitted that once it was admitted that assessee indulged in unaccounted trading business the additions were also called for on account of investment of undisclosed income in initial capital, sundry debtors and excess stock. The ld. DR objected to the set off allowed by the CIT(A) in respect of Rs.3 crores credited in the profit and loss account against the income estimated by the CIT(A) from assessee's undisclosed trading business. It was ld. DR's contention that heavy burden lay on the assessee to co-relate the income credited in the books with the entries in the seized papers so as to enjoy benefit of set off. No such co-relation was established with cogent material and therefore the CIT(A) was in error in blindly accepting assessee's plea for setting off income of Rs.3 crores credited in the profit and Loss account with undisclosed income estimated from the entries in the seized documents. The ld. DR therefore requested that the order of CIT(A) should be reversed and order of the AO be restored. Alternatively it was submitted that order of the lower authorities be set aside and 9 matters be restored to the AO for conducting fresh enquiries and passing of a speaking order.
5. On the other hand, the ld. AR appearing on behalf of the asessee relied on the orders of the ld. CIT(A). The ld. AR submitted that the assessee had objected to the various additions of the AO on merits of each addition. Before the AO the assessee furnished explanations in respect of notings in the seized papers by which it merely clarified as to whether the notings represented payments made or received. It was never the assessee's case before the AO that there was one to one co-relation between the payments made and received. Assessee never stated that the goods represented by the unrecorded payments, themselves were sold whose receipts were recorded in seized papers. It was the assessee's explanation that the entries recorded in the seized papers were in respect of assessee's undisclosed trading business. The notings however represented bare transactional values with reference to which estimate of turnover of assessee's undisclosed business can be done. Applying reasonable rate of net profit to such turnover income of such business can be estimated. It was the assessee's submission that head it been the case that entire contemporaneous records or accounts of assessee's undisclosed trading activities were found in search, then it was possible to assess income of such business by netting off expenses/payments against sales/receipts. In the present case however the papers were seized randomly which were recovered from different locations from different persons and apparently had no co-relation with each other. The information contained in the notings made in the loose papers prima facie indicated that the payments and receipts pertained to trading transactions but they did not even suggest that same set of goods were purchased and sold by the assessee requiring its netting off against each other. In absence of complete set of accounts and further having regard to the fact that no co- relation existed between the payments and receipts, the netting off was not allowed by the CIT(A). The CIT(A) however took into account only the information contained in the seized papers which were considered by the AO in the impugned assessment and no fresh or additional evidence was admitted by him. The A/R stated that from the same set of seized papers; considered earlier by the AO the CIT(A) drew his own independent inferences. The ld. AR further submitted that since in the course of search 10 the entire records of the undisclosed trading business were not found and the seized papers represented recorded by the assessee at the varying or different stages of trading cycle the proper course adopted by the CIT(A) was to draw fair, reasonable and equitable inference which would not result in arbitrary; excessive and high pitched assessment. The ld. AR submitted that in law as also in practice turnover can be estimated either with reference to cost of goods sold or from the notings for receipts or from both. For the purpose of estimation of turnover it was wholly immaterial whether the entries in seized papers pertained to purchases or sale or other. The ld. AR further submitted that if the ld. DR's arguments is accepted at face value then it would mean that the assessee incurred huge loss in its trading business because the payments for traded goods were more than the receipts from sale. On the facts of the case such conclusion would not only be imprudent but it would be absurd because the assessee itself had disclosed in accounts that it had earned income from its undisclosed business activities. The estimation of turnover with reference to receipts in the seized papers as per the assessee's explanation would have been also incorrect because this would have resulted in reduction of assessed income of the undisclosed trading business even less than the income admitted by the assessee. The ld. AR submitted that the course suggested the ld. DR for estimating turnover would have been beneficial to the assessee because this would result in substantial reduction in the assessed total income.
5.1. The l.d AR for the assessee further pointed out that on examination of the seized papers the ld. CIT(A) had found that the notings therein contained bare information such as dates, amounts and party names. These notices per se did not establish that the amounts specified actually represented payments made for purchase or payments received on sale. The ld. CIT(A) found that the notings referred only to absolute numeric values of the transactions. Save and except for the assessee's word or explanation no other material was available in the seized records which conclusively proved whether the transactions recorded represented purchases or sale of materials. On these facts therefore the CIT(A) held that the numeric values be aggregated to arrive at the turnover of undisclosed trading business. For the same the ld. CIT(A) also included numeric value of the alleged sundry debtors balance in the 11 turnover. The ld. AR submitted that the inferences drawn by the CIT(A) from the notings in the seized papers for estimating the turnover were fair, equitable and reasonable and no interference was called for. The ld. AR stated that in absence of seizure of complete set of books and having regard to the fact that only stray papers containing partial information of the undisclosed trading transactions were seized; the only appropriate course permissible was to make fair and reasonable estimate of turnover and consequently income earned therefrom. Both AO and CIT(A) in their own way considered and interpreted same set of seized documents but made their own respective estimates of income. The AO's estimation resulted in excessive and high pitched assessment even though in the course of search, the department did not find undisclosed or unexplained assets, investment or expenses matching the income so assessed. On the other hand, the estimate made by the CIT(A) more or less matched with undisclosed investments and expenses found by the department as well with income declared in the statement u/s 132(4) and for which accounting effect was given in the assessee's books. The ld. AR further submitted that the CIT(A)'s estimate of turnover was based on cogent materials. It was fair and reasonable. It was not based on any additional evidence. The CIT(A) drew his own inferences without being influenced either by the AO's findings or by the assessee's arguments. CIT(A)'s independent finding were arrived at on impartial and independent appraisal and verification of seized material and on consideration of overall facts and circumstances. Therefore the ld. AR requested that the order of the ld. CIT(A) should neither be reversed nor set aside for consideration afresh by the AO.
5.2. As regarding estimation of turnover from the notings in the seized documents the ld. AR for assessee pointed out that a search u/s 132 was conducted in the case of Satyam Shivam Sundaram Group of Dhanbad, which was similarly engaged in manufacture and trading of iron and steel products. In this case also loose papers and documents were seized containing notings of undisclosed trading transactions. Explanations were furnished before the AO clarifying as to whether notings represented purchase or sale of traded goods. With reference to both purchase and sales noted in the seized documents trading turnover was estimated by the assessee 12 and the AO. The income from such undisclosed trading business was then assessed by the AO by applying net profit rate of 5%. In support of this copy of assessment order dated 08.06.2009 for A.yr. 2008-09 passed by the DCIT, Central Circle VIII, in the case of Sheo Kumar Dalmia was filed. The ld. AR therefore submitted that in similar circumstances the department had estimated the turnover of undisclosed trading business with reference to both purchase and sales noted in the seized documents. He therefore argued that the CIT(A) did not commit any infirmity as alleged by the ld. DR by estimated sales turnover of the undisclosed business by grossing up the absolute numeric values of the transactions noted in the seized papers.
5.3. As regarding netting off income of Rs.3 crores credited in the profit and loss account against estimated income of undisclosed trading business the ld. AR submitted that the assessee's plea in that behalf was rejected by the AO on the entirely erroneous facts and reasonings. The ld. AR submitted that in the course of search statement u/s 132(4) was recorded form the assessee's Director Shri R.S.Agarwal who was examined with reference to seized papers. In his statement u/s 132(4) Shri R.S.Agarwal admitted that the notings in loose papers represented undisclosed trading transactions of 3 companies belonging to the group of which assessee was one. In his statement the Director made disclosure of unaccounted income of Rs.5 crores and offered it to be taxed in the hands of I.C.Ispat Pvt. Ltd., Bajrangbali Rolling Mills Pvt. Ltd and the assesee herein. Pursuant to the disclosure made u/s 132(4) and after taking inspection of seized documents, assessee estimated that the income of Rs.3 crores pertained to the assessee's undisclosed trading transactions and the same was accounted in the assessee's books for the financial year ended 31.03.2007 because search had taken place in that financial year. Rs.3 crores was credited in the assessee's profit and loss account under the nomenclature of "Profit from unaccounted business activity". Save and except the entries/notings in seized loose papers no other material was found or was available to the AO on the basis of which the AO could hold that the assessee carried on undisclosed business activity. Income of Rs.3 crores credited in the profit and loss account of the assesse for the year ended 31.03.2007 was assessed as assessee's income for A.Y.2007-08 by the AO without questions. The ld. AR 13 further submitted that when in the assessment the AO assessed income of Rs.3 crores as assaessee's profit from undisclosed business activity which the assessee estimated from the entries in seized documents then the credit/set off therefore was required to be allowed.
5.4. The ld. AR further submitted that in the assessment order the AO rejected the assessee's plea for set off primarily on the ground that in all the years prior to A.Y. 2007-08 assessee's book results disclosed operating profits but only in the F.Y. 2006- 07 the assessee disclosed operating loss of Rs.9,61,62,074/-. However neither in the assessment order the AO gave working which showed as to how the alleged operating loss of Rs,.9,61,62,074/- was arrived nor at the time of hearing before the Tribunal the ld. DR was able to explain with empirical facts and figures as to how the alleged loss of Rs.9,61,62,074/- was arrived at by the AO. On the other hand after anlaysing the audited profit and loss accounts of the assessee from A.Ys.2001-02 to 2007-08 the ld. CIT(A) found that the assessee had earned operating profits in all the 6 years prior to A.Ys. 2007-08. These book results were accepted by AO. Applying the methodology followed and accepted by AO in earlier 6 years to the figures pertaining to F.Y. 2006- 07, the CIT(A) found that assessee's operating profit excluding profit from undisclosed activity was Rs.5,84,27,951/- and no loss was incurred. The facts revealed by the audited profit and loss account of the assessee for F.Y.2006-07 which were otherwise not rejected by the AO conclusively proved that even without considering the income of Rs,.3 crores assessee had earned gross operating profit in F.Y. 2006-07 and no loss of Rs.9,61,62,074/- as allegedly stated by the AO was suffered by the assessee. No material was brought on record before the Tribunal by the ld. DR to disprove or dislodge factual findings of the CIT(A). The ld. AR therefore submitted that the ground on which the AO rejected the assessee's plea for allowing set off being factually wrong CIT(A)'s order on this issue was justified.
5.5. The ld. AR further submitted that based on the same declaration u/s 132(4) income of Rs.1 crore was similarly accounted in the books of M/s. Bajrangbali Rolling Mills Pvt. Ltd. for the year ended 31.03.2007. In case of that company also the same AO passed an order u/s 143(3) for A.Y.20-7-08 wherein the assessee's plea for 14 netting off was similarly rejected on the identical ground. On similar analysis of facts and figures the CIT(A) however found that said assessee had in fact disclosed operating profit of Rs.1,23,82,319/- in A.Y.2007-08 and no loss was suffered as alleged. The CIT(A) therefore allowed the said assessee's plea for setting off income credited under the head "profit from undisclosed business activity" against the income estimated from notings found in seized documents. Revenue did not file further appeal before the Tribunal in the case of Bajrangbali Rolling Mills Pvt. Ltd. The ld. AR therefore submitted that since the factual matrix in both the cases was identical and the order of CIT(A) on the same issue was accepted by the revenue in the case of Bajrangbali Rolling Mills Pvt. Ltd. the order of the ld. CIT(A) in respect of setting off may be upheld. The ld. AR requested that the appeals of the revenue be dismissed.
5.6. As regards cross objection filed by the assessee it was submitted that the estimation of income by the CIT(A) was highly excessive. The CIT(A) in the impugned order estimated assessee's income from undisclosed trading business by applying profit rate of 8% to the total turnover estimated by him. Although the assessee does not have any empirical data or evidence to challenge the correctness of the estimation of the turnover by the ld.CIT(A), the assessee submitted that the net profit rate adopted by the ld. CIT(A) was excessive and unreasonable.
5.7. The ld. AR further contended that the income was estimated from trading business, Provisions of Sec.44AF which pertain to income from retail business prescribed net profit rate of 5% as reasonable or fair for estimation of income. In case of low turnover, net profit margin is higher. However, when business volume or turnover increases profit margins record reduction because in such cases more profit is earned from higher volumes by charging less net profit margins. When volume or turnover progressively increases then net profit rate decreases. This is an universally known commercial truth. The ld CIT(A) refused to apply net profit of 5% prescribed in Sec. 44AF on the ground that the assessee did not bring on record any comparative case establishing gross profit rate in the similar line of business in case of any other assessee.
155.8. Before this Tribunal has placed copies of the assessment orders passed in the cases of Shiva Kumar Dalmia and Harish Kumar Sarawgi for the A.Y. 2008-09. In both these cases searches u/s 132 were conducted by the income tax department in F.Y.2007-8. Both the assesses belonged to groups which were carrying on business of manufacture and trading of iron and steel products. In both the cases loose papers and documents were seized which showed that the assessee's carried on purchase and sale of iron and steel products outside the regular books. With reference to notings made in the loose papers trading turnover of the undisclosed business was estimated and applying profit rate of 5% to the estimated turnover of the undisclosed business income was assessed by the AOs. The income estimated @5% in the assessment order was approved by the Addl.CITs. It is therefore the plea of the assessee that when in similarly placed assessee's cases the income tax department in the assessment u/s 143(3) completed consequent to search u/s 132 estimated income from the undisclosed trading business, applying net profit rate of 5% then in assesee's case also the income should be estimated by applying profit rate of 5% in place of 8% adopted by the ld. CIT(A).
6. After hearing the rival submissions and on careful perusal of materials available on record, it is observed that the ld. Assessing Officer is not justified in treating the excess of payments over receipts was assessed as unexplained expenditure. Even though payments made for purchases were assessed as undisclosed expenditure; further addition was also made on account of investment in initial capital of such business. Separate addition was also made for excess stock of goods found at the time of search. Similarly even though the gross receipts were considered to be part of undisclosed trading, separate addition was made in respect of amounts due to be recovered from the trade debtors in absence of the total information of unaccounted business transactions. On the other hand, it is observed that the ld. CIT(A) has come to a logical conclusion with the existing searched material on record by adding purchases, sales and trading data and estimating the income at 8% by observing that the assessee has not brought any comparable cases.
166.1. As regarding giving of credit of Rs.3 crores, it is observed that the assessee himself has offered Rs.3crores from the undisclosed business activity for the year ending 31.3.2007 and the AO himself has accepted the same while doing the scrutiny assessment. It is not fair on the part of the AO to deny the credit of Rs.3 crores. Therefore we are of the view that the ld. CIT(A) has rightly deleted the same. 6.2. While coming to the estimation of net profit trading of 8% since now the assessee is able to bring on record that similar line of activities in a profit is estimated at 5% we restrict the net profit arrived by the ld. CIT(A) to 5% from 8%.
7. In the result we dismiss the revenue's appeal and allow the cross objections of the assessee.
8. In the result the appeals of the revenue are dismissed and the Cross Objections of the assessee are allowed.
Order pronounced in the court on 07.03.2012.
Sd/- Sd/-
एन.
एन.ǒवजयकुमारन,
मारन, Ûयाियक सदःय सी.
सी.डȣ.
डȣ.राव,
राव, लेखा सदःय,
सदःय
N.Vijayakumaran, Judicial Member C.D.Rao, Accountant Member.
(तारȣख)
तारȣख)Date: 07.03.2012.
R.G.(.P.S.)
आदे श कȧ ूितिलǒप अमेǒषतः-
Copy of the order forwarded to:
1. M/s.R.S.Ispat Ltd., B-401, City Centre, Salt Lake City, KOlkata-700064.
2 The D.C.I.T., Central Circle-XXIV, Kolkata.
3. The CIT, 4. The CIT(A)-Central-III, Kolkata.
5. DR, Kolkata Benches, Kolkata स×याǒपत ूित/True Copy, आदे शानुसार/ By order, Deputy /Asst. Registrar, ITAT, Kolkata Benches 17