Income Tax Appellate Tribunal - Jodhpur
Acit, Central Circle, Bikaner vs Bhikharam Chandmal Bhujiawala Pvt. ... on 5 April, 2024
IN THE INCOME TAX APPELLATE TRIBUNAL
JODHPUR BENCH, JODHPUR.
BEFORE: DR. S. SEETHALAKSHMI, JJUDICIAL MEMBER &
SHRI RATHOD KAMLESH JAYANTBHAI, ACCOUNTANT MEMBER
I.T.A. No. 450/Jodh/2018
Assessment Year: 2016-17
Assistant Commissioner of Vs. M/s Bhikharam Chandmal
Income, Bhujiawala Pvt. Ltd.,
Central Circle, Bikaner Satta Bazar, Kotegate,
[PAN: AACCB 4808 L] Bikaner
(Appellant) (Respondent)
Appellant by Sh. Rajendra Jain, Adv. &
Smt. Raksha Birla, CA
Respondent by Smt. Alka Rajvanshi Jain, CIT-DR
Date of Hearing 30.01.2024
Date of Pronouncement 05.04.2024
ORDER
PER: RATHOD KAMLESH JAYANTBHAI, AM This appeal filed by revenue is arising out of the order of the Income Tax Commissioner (Appeals)- 04, Jaipur dated 17/07/2018 [here in after 'CIT(A)' ] for assessment year 2016-17 which in turn arise from the order dated 26.12.2017 passed under section 143(3) of the Income Tax Act, by ACIT, Central Circle, Bikaner.
2. In this appeal, the revenue has raised following grounds: -
"A. Whether on the facts and circumstances of the case and in law, the I.T.A. No. 450/Jodh/2018 Assessment Year: 2016-17 2 CIT(A) was justified in deleting the addition of Rs. 2,60,09,742/- made by the AO on account of unaccounted sales.
B. Whether on the facts and circumstances of the case and in law, the CIT(A) was justified in deleting the addition of Rs. 12,95,756/- made by the AO on account of estimated initial investment made by the assessee for making unaccounted sales.
"The Appellant crave, leave or reserving the right to amend modify, alter add or forego any ground(s) of appeal at any time before or during the hearing of this appeal."
3. Succinctly, the fact as culled out from the records is that search and seizure proceedings were carried out at the residential and business premises of Bhikharam Chandmal group on 24.02.2016 pursuant to the warrants of authorization issued u/s 132 of the Income Tax Act, 1961.
The warrant of authorization was issued in the case of the assessee on 19.02.2016 and the same was executed on 24.02.2016.
3.1 The surrender in the case of instant appellant is on account of GP of unaccounted sales in the form of short stock found. Apparently a short stock of Rs. 139.83 Crores and on this amount the appellant worked out a GP of Rs. 17.00 Lacs i.e. @ 12.16% and was offered as additional income in the return. Accordingly return of income was filed for this relevant year disclosing an income of Rs. 19,17,310/-. Accordingly, the return of income for the year under consideration disclosing a total income of Rs. 19,17,310/- was filed on 15.09.2016. Notice u/s 143(2) of I.T.A. No. 450/Jodh/2018 Assessment Year: 2016-17 3 the Act was issued on 13.02.2017, which was duly served upon the assessee by speed post. Notices u/s 142(1) of the Act were issued on 13.02.2017, 03.04.2017 and 11.07.2017, which were duly served upon the assessee. Notice u/s 142(1) r.w.s 129 of the Act was issued on 10.07.2017, which too was duly served upon the assessee. The assessee company is engaged in trading of products manufactured by its associate firm/company- M/s Sunshine Food Products, M/s Mohini Food Products and Navhari Food Products P. Ltd. The assessee company has two retail outlets, both of which are in Bikaner.
3.2 During the course of search/survey in the case of the assessee company, stock of goods at the business premises were physically taken and the stock of goods (Namkeen & sweets) found during the actions are as follows:-
Premise Annx. Amount (Rs.) Bada Bazar, Bikaner B 1,03,985/- Satta Bazar, Kote Gate, SF 22,61,413/- Bikaner Total 23,65,398/-
3.3 Whereas the stock of goods as per books of the assessee company as on the date of search/survey was Rs. 1,63,48,900/-. Thus, a shortage in stock of Rs. 1,39,83,502/- was observed. The main I.T.A. No. 450/Jodh/2018 Assessment Year: 2016-17 4 component of shortage was packing materials, which was found to be short by Rs. 94,39,217/-. The said shortage could not be explained by the assessee at the time of search/ survey. During the course of search/ survey at the business and residential premises of the assessee, evidences proving unaccounted sales were also found and seized. In the statements recorded during the search/ survey, the assessee group had admitted that some of the loose papers correspond to unaccounted sales made by the firm/companies of the group. As such, the assessee company was asked to explain the deficit stock through the notice u/s.
142(1) issued on 11.07.2017, which as duly served upon the assessee.
The ld. AO considered the finding of the search/survey and the explanations given by the assessee but not acceptable for the following reasons:
(a) Neither the Director of the company nor the learned authorized representative of the assessee company have, either during the course of search or post search proceedings or during the instant assessment proceedings explained as to why there was a deficit stock of packing materials.
Leave aside evidences in this respect, the assessee could even offer a simple explanation about the fate of packing materials. The packing materials are made to order by the assessee company with the name of the company printed on it and hence it is of no use to others. It is not such a commodity which cannot be sold or lent by the assessee to the needy. Further, the search/ survey team has not found any damaged or rejected packing materials and the assessee has also not claimed so during the course of search/survey. No argument has ever been put forth by the assessee about the same being stolen. As such, there exists no other logical reason for its deficit except that the same were used for unaccounted sales made by the assessee.
I.T.A. No. 450/Jodh/2018 Assessment Year: 2016-17 5
(b) It is stated by the assessee at point no. (2) of the aforesaid submission that it values its inventory at cost in its books of account consistently. This argument strengthens the fact that the stock of packing materials recorded in the books of account are true and correct. This argument of the assessee also implies that all purchases of packing materials are physically verified and then entered in its books of account.
(c) Thereafter, at the said point no. (2), the assessee has alleged that working of break-up of short stock was done hypothetically and that there was no judicious basis to work out the break-up of short stock. In this respect, it is stated that the physical stock of goods, including packing materials, was taken in the presence of the concerned senior employees or the accountant of the assessee, in the presence of two independent witnesses. All inventory of stock has duly been verified by the concerned persons of the assessee company and thereafter signed them. The details of packing materials found during the course of search, at the premises located at Annexure Value (Rs.) SF-3 16,05,898/-
SF-4 4,295/-
SF-5 10,950/-
SF-6 20,796
SF-7 36,619/-
SF-8 4,064/-
SF-9 85,502/-
17,68,124/-
The assessee company had an opening stock of packing material of Rs. 1,04,54,967/- as on 01.04.2015 and the purchase of packing material from 01.04.2015 to the date of search was Rs. 48 ,91,665/ The packing material consumed during the year till the date of search was Rs. 41,39,291/-. As such, the stock of packing materials with the assessee as on the date of search, as per books of account works out to Rs. 1,12,07,341/-[ (10454967 + 4861665) - 41392911 . As such, the deficit stock of packing materials works out to Rs. 94 ,39,217/-(11207341- 1768124). Thus, the allegation of the assessee that the working of deficit stock of packing materials was done judiciously, is incorrect and out of place. Despite being specifically called for vide notice u/s, 142(1) of the Act on 11.07.2017, the assessee company could not produce day to day stock register of its stock of goods for the year till the time of completion of assessment in the case I.T.A. No. 450/Jodh/2018 Assessment Year: 2016-17 6
(d) At point no. (2) of the written submission, the assessee has stated that no evidence was found during the search which could prove that packing material was used for packaging of unaccounted sales. It is further stated therein that no evidence of any nature came to light as regards unaccounted sales. In this respect, it is stated that despite being sufficient opportunities, the assessee could not explain the fate of packing materials found deficit during the course of search or during post search proceedings or during the assessment proceedings or even in instant reply to the show-cause notice. It is a matter of simple understanding that packing materials are made specially with food grade materials, which make them costly and further, the packing materials carry the name, logo and address of the assessee, which definitely cannot be used by other such manufacturers. Thus, it is not saleable as such. Further, the assessee itself cannot afford to sell its packing materials for the fear that it would be misused by others to pack inferior quality products in them and sell the same under the brand and logo of the assessee company. As far as the issue of documents proving unaccounted sales are concerned, the same has been found during the course of search in the assessee group and the same were also confronted to the assessee group during the search. At this juncture, reference is made to the statement given by Shri Anand Agarwal u/s. 131 of the Act on 30.05.2016, during the post search proceedings. In response to Q. nos. 4, 5 & 6, Shri Anand Agarwal has confirmed that the seized documents pertain to unrecorded sales. It is clear that evidences of unaccounted sales were confronted to the assessee and the same has already been accepted by the assessee. Thus, feigning ignorance of the above facts and putting forth such arguments improper and out of place.
(e) Thereafter, at point no. (2) of the written submission, it is further stated that the rationale of considering any short item of stock as basis of projecting out of books sale is untenable and that if there had been proportionate deficit in the stock of various items of finished goods and packing materials, then it would have created a pattern which may have propelled one to infer that these items have resulted in unaccounted sales. In this respect, it is stated that the in the case of the assessee, the total deficit was of 139.83 lakhs, out of which, deficit corresponding to packing materials was of Rs. 94.40 lakhs and that corresponding to finished goods was Rs. 45.43 lakhs. Thus, deficit stock of finished goods was also found during the search. The items dealt with by the assessee are sweets and Namkeen. Sweets have a very limited shell life and the same requires to be sold fast. The assessee, has in fact, no other way to reduce its stock of packing materials other than by way of unaccounted sale of traded items. Further, documents and evidences featuring in Exhibits AS-11 to AS-14, in the form of loose papers, seized from the premises of M / s Sunshine. Foods Products located at F-88 & 89, Bichhwal Industrial Area, Bikaner I.T.A. No. 450/Jodh/2018 Assessment Year: 2016-17 7 contains order slips for delivery of goods wherein, the value of goods is not mentioned. Many of the loose papers are in the form of bills/ estimates, which were not recorded in the books of account at the time of search. These loose papers also pertain to purchase of raw materials and packing materials by the assessee group, which were not found to be recorded in the books of account at the time of search. Further, in order to make unaccounted sales, an assessee would also ensure that the corresponding purchases of raw materials/ traded goods would also be unaccounted, which are never recorded in its books of account and hence it is not necessary that there should also be proportionate deficit of traded goods, to conclude that there are unaccounted sales. Thus, this argument of the assessee is not accepted.
(f) Thereafter, the assessee has attempted to bring forth the fact that if the ratio of deficit finished goods vis-à-vis turnover is applied instead of deficit packing material vis-à-vis turnover, the resultant unaccounted sales worked out would be much lower. In this respect, it is stated that packing material is also a component in respect of the sold items. The amount of deficit finished goods cannot be taken as a parameter for working out unaccounted sales because the finished goods marketed by the assessee are manufactured by its associate firm/companies, where, the unaccounted raw materials used for unaccounted production are procured locally from Bikaner which can be easily replenished. Whereas, the packing materials are purchased by the assessee group from faraway places, which cannot be replenished easily. Thus, this argument of the assessee is also not acceptable.
(g) Thereafter, the assessee has cited a plethora of judicial pronouncements to impress upon the fact that in such cases, the entire undisclosed sales cannot be taxed and that only the gross profit can be taxed. The judicial pronouncements cited by the assessee have been respectfully taken into consideration.
(h) In respect of the initial investment, it is stated by the assessee that since there was no out of books purchase, there is no requirement of initial investment to fund those purchases and that the stock recorded in the books are deemed to have been sold. It is further stated therein that the assessee is not engaged in manufacturing activity and that it only engaged in trading of products manufactured by its associate firm/ companies. The argument of the assessee that there was no out of books purchase stands disposed off in view of the discussions made herein before in respect of the submission filed by the assessee. Since the assessee is engaged in trading, it would require additional capital corresponding to at least a couple of days' sale, which happens in cash and over the counters. The assessee company handles the retail outlets from I.T.A. No. 450/Jodh/2018 Assessment Year: 2016-17 8 where the goods manufactured by its associate firm/ company are sold. At least two days are required in respect of procurement and sale of traded products handled by the assessee. This argument of the assessee is, hence not accepted.
3.4 After considering the facts of the case and the arguments put forth by the assessee at all stages of its case, it is evident that the deficit stock of packing materials have arisen on-account of unaccounted sales made by the assessee company. As discussed earlier, the shortage in stock of packing materials found during the course of search was of Rs.
94,39,217/-. During the accounting period relevant to A.Y. 2015-16, the sales of the assessee company and the consumption of packing materials for that year was Rs. 7,68,92,050/ and the consumption of packing material was Rs. 34,57,562/-. Thus, sales vis-à-vis consumption of packing materials is 4.50%. Applying this ratio, the unaccounted sales for the year under consideration corresponding to the deficit of Rs.
94,39,217/- in packing materials, works out to Rs. 20,97,63,378/-. The gross profit of the assessee company for the year under consideration is disclosed at 13.21% (though the same has been wrongly reported in the audit report, wherein, the same is worked out after taking into consideration the income admitted during the search). Applying this GP ratio on the undisclosed sales of Rs. 20,97,63,378/-, the gross profit thereon works out to Rs. 2,77,09,742/. This amount of Rs. 2,77,09,742/-
I.T.A. No. 450/Jodh/2018
Assessment Year: 2016-17 9
is liable to be added to the total income of the assessee for the year under consideration, the same being undisclosed profits earned from undisclosed sales. The assessee is in the business of trading of goods manufactured by its associate firm/ companies. As discussed earlier, in order to carry out unaccounted sales, the assessee needs to invest an amount equivalent to average sales of at least two days, which is the time required for the assessee to complete the cycle from the time of procurement of goods to realization of sales. The total undisclosed sales done by the assessee company during the year is Rs. 20,97,63,378/-
and the number of working days in the year till the date of search is 281 days. The gross profit of the assessee as stated above, is 13.21%.
Thus, the per day sale made by the assessee is Rs. 7,46,489/-
(209763378 / 281 ). The cost of the said sales to the assessee is Rs.
6,47,878/- (746489 minus gross profit). Thus the initial capital deployed by the assessee company works out to Rs. 12, 95, 756 / (- (647878 * 2)) As such, this initial capital deployed by the assessee company is also unaccounted and the same also requires to be added to the total income of the assessee company u/s 69 of the Act.
3.5 In light of the discussions made herein before, it is clear that the assessee company has effected unaccounted sales during the year, I.T.A. No. 450/Jodh/2018 Assessment Year: 2016-17 10 which had the effect of creating deficit in stock of packing materials, detected at the time of search. The assessee has not, right from the time of search till the time of completion of this assessment, been able to explain as to where the deficit stock has gone if the same was not utilized for the purposes of packing of goods sold out of books of account. This can be the only reason and all other possible logical reasons have been ruled out. The assessee has been objecting to addition of the entire unaccounted sales worked out on the basis of deficit stock in packing materials. This argument of the assessee is accepted and accordingly, the entire unaccounted sale is not considered for addition but only the gross profit therein is considered for addition.
The assessee has already admitted an amount of Rs. 17,00,000/- on this account in its return of income. As such, the net amount liable for addition on this account works out to Rs. 2,60,09,742/-. Similarly, the unaccounted investment of Rs. 12 ,95,756/ made by the assessee in initial capital, as discussed earlier, is also liable to be added to the total income of the assessee. In the circumstances, the profits of the assessee company, amounting to Rs. 2,60,09,742/- is added to its total income on account of profits on unaccounted sales and the amount of Rs. 12 ,95,756/- is added to the total income of the assessee company I.T.A. No. 450/Jodh/2018 Assessment Year: 2016-17 11 u/s. 69 of the Act. As such, the total addition on this account works out to Rs. 2,73,05,498/-.
4. Aggrieved from the order of AO, the assessee preferred an appeal before the ld. CIT(A). Apropos to the grounds so raised the relevant finding of the ld. CIT(A) is reiterated here in below:
"11. I have considered the relevant facts and the argument advanced. I have also considered the case law cited by the appellant. I find that the entire addition of Rs. 2,60,09,742/- crores is arrived at by considering the shortage of packing material considered as used for making unaccounted sales on which the gross profit normally declared by the appellant is applied. I find from the impugned order that the appellant is not maintaining the records for packing material unlike that maintained for raw material and finished goods. Even the Ld. AO has held that the appellant does not maintain record of stock of packing material. If that be the case, it cannot be said that compared with the stock found on physical verification, the stock as per book records is excessive. Even if the stock of packing material is arrived at by taking the figure of opening stock of such packing material, adding thereto the purchases made during the year and reducing the consumption based on standard formula, the book records will never reduce the shortage or wastage. Wastage of packing material is a normal phenomenon in the type of business in which the appellant operates. As per the inventory prepared during the course of search, there are as many as 71 different items of packing material used by the appellant the main item of packing material is packing roles. The roles cannot be used till the last end and loose ends will always remain which are not used for packing the goods for sale. The same has to be discarded. Similarly while packing the goods in all likelihood, the pouch or the bag will tear off resulting into such wastage. As rightly contended by the appellant there is no fixed formula of percentage of packing material being part of the cost of goods sold. The same varies between 4.44% and 7.72%. Therefore applying the formula of sales based on the consumption of packing material will never give the correct picture of the profitability or the income earned by the assessee. It is equally true that only packing material cannot be used for making sales. For sales not only the packing materials is required but also the raw material, the labour charges, the electricity etc. will go into production of the goods traded by the appellant. The only evidence found is shortage of packing material but even after conducting the search, there is no evidence found which results into unaccounted sales other than that declared by the appellant. To the extent the unaccounted sales are found, the appellant has declared additional income of 0.17 crores. As rightly contended by the I.T.A. No. 450/Jodh/2018 Assessment Year: 2016-17 12 appellant, even for making such unaccounted sales on which there is a profit of 0.17 crores is declared, it will require use of packing material which to a great extent will explain the shortage as worked out by the assessing officer. For earning profit of 0.17 crores, it can be out of sales of 1.28 crores. For sales of 1.28 crores, it will require consumption of packing material @ 4.5% of sales which will work out to be 5.8 Lakhs. Thus if the same formula is applied as applied by the assessing officer, for earning the income of 0.17 crores, it will require use of packing material to the extent of 5.8 Lakhs. In such circumstances the net shortage of stock will remain very nominal. During the last five years of business, the appellant has not claimed wastage of packing material. If consumption of last five years is considered, the same is worked out to be 2.06 crores. Even if safest estimate is applied, the wastage will be app. 5% of consumption. Considering the wastage, it will explain the shortage of remaining amount. Thus after considering the wastage, there will be no shortage of packing material. It is also to be noted that no other evidence is found to suggest that such packing material was used for making sales outside books of accounts. Such sales will also require the use of raw materials and other components and only packing material cannot be considered as base for estimating unaccounted sales.
12. Counsel for the appellant has cited following judgments. 1 have considered the case laws cited by the appellant. Hon'ble Rajasthan High Court in the case of CIT V. Sulabh Marbles (P) Ltd. (165 Taxman 258) held thus:
4. The Assessing Officer has rejected the books of account of assessee. The books of account were rejected not on the ground that any of the details of sale and purchase were found to be wrong but on the basis of amount paid for power and fuel consumption to the Electricity Department. The Assessing Officer assumed that looking to the bills of RSEB, the actual production should be generated more than whatsoever have been disclosed and to that extent sales must have also been more. On this account, the books of account were rejected and the Assessing Officer resorted to best judgment assessment by adopting the GP rate of 52 per cent and total income was computed as nil by rejecting the claim of assessee for carrying forward loss of Rs. 11,89,487.
On appeal, the CIT(A) found that the rejection of the books of account was not warranted on the basis of the expenses shown on the power consumption. It was noticed that during the assessment period, the assessee was required to pay minimum charge rather than actual electricity consumption, which the assessee has contested before the Court successfully and ultimately the assessee was made to only actual consumption. Thus, the books of account have been rejected on non- existing grounds and merely on surmises in a very casual manner. Consequently, the result shown in the books was accepted and the additions made by Assessing Officer were deleted.
The Tribunal on second appeal recorded the finding as under:
I.T.A. No. 450/Jodh/2018 Assessment Year: 2016-17 13 "We have heard both the parties and given our thoughtful consideration to the rival submissions with reference to facts, evidence and material on record. From the facts discussed above, it is obvious that the assessee had started production in the middle of accounting year relevant to the assessment year under reference. The Assessing Officer has not given any specific finding for rejection of book results. He has also not pointed out any defects in the books of account maintained or the method of accounting followed. There is no material placed on record to show any instance of suppression of sales or inflation of purchases or expenses. The Assessing Officer was wrong in drawing adverse inference against the assessee by only referring to the electricity expenses. The Electricity Department had charged the assessee at the minimum rate rather than actual consumption. This is precisely for this reason that the assessee contested the account of the Electricity Department in the Court of law and the matter was decided by the Court in its favour. In any case, the revenue has not placed any material on record to controvert the finding of the CIT(A) that the assessee was charged electricity not at the minimum rate but on actual consumption. Thus, there being no specific finding recorded by the Assessing Officer for rejection of the book results and in the absence of any defects in the books of account, we are of the considered opinion that the CIT(A) was justified in deleting the impugned addition. We confirm his order and dismiss both the grounds of appeal of the revenue.
5. A bare perusal of the impugned order goes to show that the finding of the Tribunal, confirming the order of CIT(A) was finding of fact based upon the relevant material and no question of law much less substantial question arises for consideration in this appeal.
13. Hon'ble Income Tax Appellate Tribunal Ahmedabad in the case of ITO v. Pragati Fashions (50 SOT 71) held thus:
The shortage of production is worked out on the basis of findings that production for the month of September, 2003 is accepted parameter and if the ratio of the consumption to production for this month is applied, there is a suppression of production for other months. This criteria is unacceptable. First of all, there is no basis to hold that only the production for the month of September, 2003 is ideal and the consumption of electricity for this month only needs to be accepted. Considering the production process, it is clear that a number of processes are involved in the activity of dyeing and printing of grey cloth. Hence, the fabric in any particular month could be lying at various stages under work-in-progress or at the production floor in unpacked condition. The production is recorded only when the goods are fully packed and are ready for dispatch. Under the circumstances, it may so happen that a cloth which has passed all the stages of dyeing as well as printing in a particular month, but say, folding and dispatch is pending in respect of the said cloth, then the same will not be entered in production register since it has not reached the finished stage as per the excise law. Hence, the consumption of electricity as well as gas in respect of such cloth would be in a month in which majority of the processes have actually taken place whereas the production of the said cloth would be recorded in the subsequent month when it has I.T.A. No. 450/Jodh/2018 Assessment Year: 2016-17 14 reached the finished stage. The said fact has not been appreciated by the Assessing Officer while making the impugned addition. [Para 9] In the process house, different machines are used like steam boiler, thermopack boiler, stenter machine, drum washer machine, centrifuge, folding machine, jigar machine, air compressor, dhulai machine, bearing, printing machine, loop machine, padding machine, jet dyeing, ETP plant which draws electricity and other fuels in different proportion. There are certain machines like stenter machines and printing machines which are in constant operation even if no cloth is loaded on it for stentering or printing work, since it results in other unavoidable maintenance expenses. Thus, to avoid the said expense machines are kept in use even if no cloth is loaded on it and, thus, electricity consumption would definitely take place in spite of no production. The consumption of electricity by the boiler, air compressor, ETP plant have no correlation with the meters processed in the mill. The machines when in operation consume electricity at its 100 per cent installed capacity, however, the actual production tends to be lower than the installed capacity and sometimes might be very less. Thus, under no circumstances uniformity in production in meters and consumption of electricity in units can be achieved. The electric units consumed are towards the electricity consumption in the officer as well as in the factory and there are many electric fittings like tube lights, air-conditioner, machine, computer, fan, exhaust fan which consume lot of electricity, however, do not directly contribute to the production. [Para 10] The process of dyeing and printing is such that ratio of electric units consumed and production is bound to differ from time to time. The process involved in processing the same kind of goods may also create variance between consumption of energy and production. The quality of raw material, regularity of supply of energy, the manufacturing process involving consumption of electricity, the skill and expertise of the person and similar other factors may affect the ratio between consumption of energy and production of goods. The electricity consumption also depends on the ratio of process undertaken for dyeing of fabrics and printing of fabrics. The electricity consumption vis-a-vis production also varies due to the program or job given by the customers for dyeing, etc. The program given by the customers varies from 6 to 24 lumps (each lump comprising of around 100 mtrs. of grey cloth) and materials of the same shade and same quality belonging to different customers had to be clubbed for dyeing/printing. Moreover, there are more numerous shades and designs to be printed for which different batches are framed. The said processes are undertaken in form of batch which consists of 6 lumps or 24 lumps and electricity consumption remains the same even though job is undertaken for 6 lumps or for 24 lumps. Accordingly, the cost of electricity per meter shoots up by 400 per cent. Further, in printing process, the electricity consumption remains constant irrespective of the batch size. One needs to appreciate the fact that production tends to be lower when the quality of grey cloth is of inferior quality, however, the consumption of electricity would remain the same and, accordingly, the cost per meter would be higher in the said case. Further, in case if goods are rejected and returned by the customers; the I.T.A. No. 450/Jodh/2018 Assessment Year: 2016-17 15 same has to be further reprocessed with extra shades which led to extra consumption of materials, labour and also electricity. From the aforesaid facts and circumstances, it can be appreciated that the production vis-a-vis the consumption of electricity units can never be comparable on monthly average basis in strict sense in the business of process house looking to the nature of process involved and many factors. (Para 11) Fallacy lies in comparing the consumption of electricity with production on monthly basis. Rather such comparison should be on annual basis as it will give the result of the entire financial year. It is also to be noted that if the books of account are not reliable, the same can be rejected under section 145(3), which will result into assessment being framed under section 144 by estimating the profit. However, even if one is to estimate the profit, the gross profit as declared by the assessee is 16.36 per cent as against 16.55 per cent declared in the immediately preceding year. Therefore, even if books of account are to be rejected and even if the income is estimated since almost same result are declared by the assessee, no further addition is called for particularly when the Commissioner (Appeals) has applied the gross profit rate of 17 per cent. [Para 12/ It is also to be noted that the cloth cannot be processed merely by using electricity. It also requires the consumption of various dyes and chemical and also use of manpower. For all these factors, no adverse finding is given by the Assessing Officer. Thus, the consumption of intermediate and labour behind this is sufficient for the production achieved by the assessee. Considering all these factors, there is no case of addition as made out by the Assessing Officer. Therefore, there is no justification for sustaining the addition as proposed by the Assessing Officer. [Para 13)
14. Hon'ble Income Tax Appellate Tribunal Hyderabad in the case of DCIT v/s Balaji Steel Rolling Mills P Ltd. in ITA No. 225/Hyd/2012 vide order dated 19.02.2016 (copy filed) held thus:-
On a consideration of the facts of the case for the asst. year 2000-01, it is seen that in the instant case, the estimation of suppressed income is based only on the working done by the Assessing Officer, after considering the power consumed for production, which led him to the conclusion that such power consumption must have been made for higher production, which was not disclosed by the appellant. However, even if the power consumption was on a higher side, it is seen that the Hon'ble Supreme Court in their judgement dated 31-1-2011, in the case of Commissioner of Central Excise, Meerut Vs. R.A. Casting (P) Ltd have opined that electricity consumption cannot be taken to be a reliable basis for estimating the production of a particular unit. Citing the said decision, the Hon'ble Chandigarh Bench of the ITAT in the case of Arora Alloys Ltd Vs. ITO (ITA NO.78jCSDj2012 dated 1-3-2012) have opined that the reason for the above view is that consumption for electricity depends upon various facrors, type and quality of scrap used, number of break downs, quality of labour/supervisory staff, diligence of management etc. Accordingly, I.T.A. No. 450/Jodh/2018 Assessment Year: 2016-17 16 in the said case, the Hon'ble ITAT held that the AO's action in estimating the production of the assessee company on the basis of alleged excessive consumption of electricity is erroneous and fallacious. It is seen that a similar view has been taken by the Hon'ble Ahmedabad Bench of the ITAT in the case of Eastern Enterprises Vs. ACIT (ITA NO.352/Ahd/2010 dated 15-6- 2012) also, wherein they opined that the consumption of electricity may rise due to hundreds of factors and therefore, no addition is justified.
15. The common thread running between all the three judgments is that merely on the basis of only electricity expenses, and without any evidence of use of other ingredients required for production, the production cannot be presumed so as to be considered as sales outside books of accounts and to make addition on such basis. In the present case, the only ingredient for manufacture and sale is presumed to be use of packing material and no other component required for production and sales. No evidence is also found for sale, other than that admitted by the appellant, as sales outside books of accounts. Thus applying the principle enunciated by Hon'ble Rajasthan High Court as also the ITAT, it can be held that mere shortage of packing material alone cannot be presumed to be for unaccounted production of Bhujia and Namkeen and also unaccounted sales so as to earn income out of same. I therefore delete the addition of 2, 60 ,09,742/ - being considered as profit on alleged sales out of books of accounts due to shortage of packing materials found during search.
19. I have considered the relevant facts and argument advanced I notice that the entire addition is made on presumption that when there is unaccounted sales which is worked the out on the basis of shortage of packing material considered as used for sale of goods, should also have made initial investment for making such sales outside books of accounts. Accordingly the addition is made. Since the only basis for the addition is presumption of unaccounted sales due to shortage of packing material and since I have deleted the addition on account of unaccounted profit on such unaccounted sales arrived at due to shortage of packing materials, the presumption for having invested initial capital for making such unaccounted sales does not survive. Even otherwise there is no evidence found during search which suggests that the assessee has made certain initial investment. It is also settled law that the source as well as the application of income, both, cannot be taxed. Thus when the source of income being profit on unaccounted sales as admitted by the appellant is taxed, and since such profit is not found to have been applied or spent away, the same can be considered as available so as to explain the investment. I therefore, delete the addition of Rs. 12,95,756/- ."
5. Feeling dissatisfied with the order of the ld. CIT(A), the revenue preferred the present appeal on the grounds as reiterated herein above I.T.A. No. 450/Jodh/2018 Assessment Year: 2016-17 17 in para 2 challenging the finding of the ld. CIT(A) who has deleted the addition made by the ld. AO consequent to the search and seizure conducted at the premises of the assessee. The DR representing the revenue vehemently supported the arguments recorded in the assessment order. The ld. DR also relied upon the contention of the ld.
AO raised when he recommended the present appeal. The contention of the ld. AO as relied upon by the ld. DR is reiterated herein below for the sake of convenience:
"1: First ground of appeal A) The AO has made the addition on following issue-:
a) During the course of search, the stock of goods (raw materials, furnished goods, packing materials, etc.) were physically taken at the business premises of the assessee by the search team in presence of representatives of the assessoc firm and two independent witnesses. On physical verification, it was found that there was a shortage of Rs. 1,39,83,502/ in the stock of goods and the said shortage was predominantly of packing materials. The assessee firm had not maintained day to day records of stock of packing materials and its consumption. During the search, stock of packing materials of Rs. 17,68,124/ was found on physical verification whereas, packing materials as per books as on date of search/survey worked out on the basis of opening stock & consumption, was seen to be Rs. 1,12,07,341/ Thus, it was observed that shortage in the stock of packing materials was of Rs.
94,39,217/ (11207341 17.68,124)
b) It was also seen that consumption of packing materiais vis a vis sales in F.Y. 2014 15 was 4.50%. Thus, the said shortage in packing materials translated into unaccounted sales of Rs. 20,97,63,378/ The gross profit disclosed by the assessee company for the year under consideration was 13.21%. As such, the gross profit on the above unaccounted sales of Rs. 20,97,63,378/ worked out to Rs. 2,77,09,742/. This amount of Rs. 2,77,09,742/ was accordingly added to the total income of the assessee for the year under consideration after setting off income of Rs. 17,00,000/- already disclosed by the assessee in its return of income on account of profit from unaccounted sales. All the arguments raised by the assessee against this addition in response to show cause for addition, were duly taken into consideration and duly disposed off before making the said addition and the same have been duly discussed in the body of the assessment order.
I.T.A. No. 450/Jodh/2018 Assessment Year: 2016-17 18 B) Order of CIT(A) is based on presumptions/conjectures, the gist of the same is as below-:
(a) That the assessee does not maintain stock records of packing materials and that hence it cannot be said that compared to stock found on physical verification, the stock as per books is excessive.
(b) That even if stock as per books is worked out by taking into consideration opening stock, purchases and consumption based on standard formula, it will never take into consideration shortage or wastage and that wastage of packing materials is a normal phenomenon in the type of business that the assessee firm carries on. Whereas the fact is that the appellant in the return filed has not claimed any such wastage.
(c) That applying the formula of sales based on consumption of packing material will never give a correct picture of profitability/income earned by the assessee.
(d) That in order to arrive at sales, not only packing materials but raw materials, labour charges, electricity, etc. have also be taken into consideration.
(e) That no evidence was found during search in respect of unaccounted sales except Rs. 0.17 crore, which has been declared by the assessee.
(f) That the assessce has not claimed wastage of packing materials during last five years of business and even if the minimum of wastage @ 5% is applied, then the shortage/deficit in packing material would be explained.
C) Whereas the order of the AO is based on factual findings which is mentioned below-:
a) The assessee has been disclosing closing stock of packing materials in its return of income from year to year and the audit reports u/s 44AB specifies that inventories have been physically taken at the end of financial year and valued at cost price and that the same has been certified by the management.
It is further specified in the audit reports for all years that stock register has not been maintained for raw materials and finished goods. It does not specify anywhere that stock register is not maintained for packing materials. In the books of accounts prepared by the assessee for F.Y. 2014-15, it has disclosed closing stock of packing materials, which actually takes the form of stock as per books. Thus, working out deficit in stock of packing materials from the figures of opening stock of F.Y. 2015-16 in its books of account, purchases during that year till the date of search and consumption uptil date of search was a scientific way to arrive at stock of packing materials as per books and the same is not based on presumption. This means that the stock so worked is definitely comparable to the physical stock found at the time of search.
I.T.A. No. 450/Jodh/2018 Assessment Year: 2016-17 19
b) As far as wastage of packing materials is concerned, the stock of the same as recorded in its books as on 31.03.2015 was physically verified by the management and thereafter certified (as per audit report u/s 44AB). Thus, wastage of packing materials for all carlier years upto 31.03.2015 is deemed to have been taken care of. Further, no stock of wastage of packing materials was found by the search party and no such claim was put forth by the assessee either during search or during post-search proceedings. It is also a fact that no stock of damaged/wastage packing materials is separately disclosed in the balance sheet as on 31.03.2015 or carlier years.
c) Apart from the formula applied in the assessment order, there is no other way to work out shortage of packing materials and this situation arose on account of deficiency on the part of the assessee to maintain stock records. However, as per audit report u/s 44AB, the assessee firm itself has certified stock of packing materials as on 31.03.2015 after making physical verification of the inventory. Thus, the formula applied is proper and it gives a correct picture of profitability/income.
d) It is true that in order to arrive at sales, not only packing materials but also raw materials and other inputs have to be considered. However, as discussed in the body of the assessment order, packing materials are purchased/stocked by the assessce in bulk as they are purchased by it from faraway places (with the name of the assessce, name of product, ete printed on it) which is consumed by the assessee over a long period of time. As far as raw materials are concerned, the same are bulky and are purchased locally as per requirement for a limited period and the same is replenished as per need. As far as finished goods, viz. Bhujia and Namkeen are concerned, the same are fast moving items and the same are manufactured and dispatched as per demand. Thus, in the case of the assessee firm, packing material deficit is a critical input suggesting unaccounted sales and the deficit in stock could not be replenished by it as the purchases are not made at short intervals. Further, the assessee has failed during the search as also during the post search period and during assessment proceedings to explain as to what is the reason for deficit in stock of packing materials.
e) During the course of search, evidences were found in respect of unaccounted sales and the same has also been discussed in the body of the assessment order. The assessee has also admitted undisclosed income on that account This means that the assessee is in the practice of indulging in unaccounted sales and it admitted undisclosed income on this account only to the extent of such documents and evidences found and seized. This fact cannot be ignored. The evidences found during search need not be consisting of all evidences of unaccounted sales. Any businessman would not keep such records of unaccounted sales after settlement of the dues receivable.
f)The findings of the Ld. CIT(A) that the assessee has not claimed wastage of packing materials in the last five years is in itself an anomaly and can not be the correct position. Any material that is used in the process of production I.T.A. No. 450/Jodh/2018 Assessment Year: 2016-17 20 necessarily involve same wastage. The assessee has been taking physical inventory of packing materials on 31st of March every year. This is a regular practice of the assessee. It has been so reported in the audit reports u/s 44AB for A.Y. 2015-16 as also for all earlier years. The balance sheet or Pål, account does not specify any stock of wastage and the assessce does not maintain any stock records. Hence, it is deemed that such wastage is not included in the stock of packing materials disclosed in the audit report and the return of income for A.Y. 2015-16. Thus, the opening stock of the year (as on 01.04.2015) in the books of the assessee firm does not include any wastage of packing materials.
g) The findings of the Ld. CIT(A) that no other evidence was found during search to suggest that such packing materials was used for making unaccounted sales, is of no substance because the assessee is not in the habit of maintaining any records of stock or consumption of packing materials. Not only that it is not possible for the Department to get all the evidences as a consequence of search.
The evidences of are normally indicative and no assessee would preserve/keep all evidences of sales made outside books. As already submitted above, the order of the AO is based on proper analysis and corroboration of all the search material, whereas the Ld.CIT(A) has based it on presumptions and conjectures.
In View of the above, It is prayed that the order of the AO may kindly be upheld and sustained.
2: Second ground of appeal -:
a) The AO has made the addition on the issue by making following observation The manufacturing cycle of the assessee company is of an average duration of 2 days from the time of procurement of goods to realization of sales. The unaccounted sales worked out for the year was Rs.
20,97,63,378/ and the number of working days in an year was 281 days. As such, per day sale worked out to Rs. 7 ,46,489/ (209763378/281) and G.P. @ 13.21% was reduced from the same. Accordingly, the cost of goods sold per day worked out to Rs. 6,47,878/. Thus, the initial capital deployed for 2 days worked out to Rs 12 ,95,756/ (647878 x 2). As such, at the time of completing the assessment, this amount of Rs. 12,95,756/ was also added to the total income of the assessee company, on account of unaccounted initial investment deployed by the assessce company for carrying on the unaccounted part of its business.
b) The Ld.CIT(A) has deleted the addition observing that since the addition on account of unaccounted sales has been deleted, the addition of the initial investment does not survive.
c) Whereas the order of AO is based on factual findings which is mentioned below I.T.A. No. 450/Jodh/2018 Assessment Year: 2016-17 21
(i) The assessee has not been able to explain at any stage as to how shortage/deficit arose in the stock of packing materials. There is no other use of packing materials except for packing its own products. This suggests that there is only one reason for the shortage/deficit of packing materials. which is its utilization for its own unaccounted sales.
(ii) It is a fact that unaccounted funds needs to be deployed as initial investment for procurement of traded goods and for other unaccounted expenses like labour, transportation, fuel, etc. Thus, the working of initial investment of Rs. 12,95,756/ made in the assessment order is proper and very much in place.
(iii) Such initial investment cannot be considered as an application of unaccounted income carned during the year because this investment is first made and income is earned thereafter. As such, it does not result in double taxation.
In View of above, it is prayed that this ground of appeal may be accepted and the order of the AO may kindly be sustained and upheld."
5.1 The ld. DR vehemently argued that the ld. AO has based on the above contention made the addition after considering the submission of the assessee. The ld. DR thus relied upon the detailed working made in para 5.6 page 21 of the assessment order and submitted that the addition made by the ld. AO be sustained and that of the order of the ld.
CIT(A) be set aside.
6. Per contra, the ld. AR of the assessee supported the order of the ld. CIT(A) who has discussed all the aspect of the matter and after considering the detailed submission has directed to delete the addition.
Since, the ld. AR of the assessee has relied upon the detailed finding I.T.A. No. 450/Jodh/2018 Assessment Year: 2016-17 22 based on the submission made by the assessee which is forming part of the order of the ld. CIT(A) the same is not repeated to avoid the repetition.
7. We have heard the rival contentions and perused the material placed on record. The brief facts related to the case is that search and seizure proceedings were carried out at the residential and business premises of Bhikharam Chandmal group on 24.02.2016 pursuant to the warrants of authorization issued u/s 132 of the Income Tax Act, 1961.
The warrant of authorization was issued in the case of the assessee on 19.02.2016 and the same was executed on 24.02.2016. The assessee company is engaged in trading of products manufactured by its associate firm/company- M/s Sunshine Food Products, M/s Mohini Food Products and Navhari Food Products P. Ltd. The assessee company has two retail outlets, both of which are in Bikaner. The surrender in the case of assessee is on account of GP of unaccounted sales in the form of short stock found. Apparently, a short stock of Rs. 139.83 Crores and on this amount the appellant worked out a GP of Rs. 17.00 Lacs i.e. @ 12.16% and was offered as additional income in the return. Accordingly return of income was filed for this relevant year disclosing an income of Rs. 19,17,310/-. Accordingly, the return of income for the year under I.T.A. No. 450/Jodh/2018 Assessment Year: 2016-17 23 consideration disclosing a total income of Rs. 19,17,310/- was filed on 15.09.2016. During the course of search/survey in the case of the assessee company, stock of goods at the business premises were physically taken and the stock of goods (Namkeen & sweets) found during the actions are as follows:-
Premise Annx. Amount (Rs.) Bada Bazar, Bikaner B 1,03,985/- Satta Bazar, Kote Gate, SF 22,61,413/- Bikaner Total 23,65,398/-
8. Whereas the stock of goods as per books of the assessee company as on the date of search/survey was Rs. 1,63,48,900/-. Thus, a shortage in stock of Rs. 1,39,83,502/- was observed. The main component of shortage was packing materials, which was found to be short by Rs. 94,39,217/-. The said shortage could not be explained by the assessee at the time of search/ survey. During the course of search/ survey at the business and residential premises of the assessee, evidences proving unaccounted sales were also found and seized. In the statements recorded during the search/ survey, the assessee group had admitted that some of the loose papers correspond to unaccounted sales made by the firm/companies of the group. As such, the assessee I.T.A. No. 450/Jodh/2018 Assessment Year: 2016-17 24 company was asked to explain the deficit stock through the notice u/s.
142(1) issued on 11.07.2017, which as duly served upon the assessee.
9. During the assessment proceeding addition of Rs. 2,60,09,742/-
crores is arrived at by considering the shortage of packing material considered as used for making unaccounted sales on which the gross profit normally declared by the assessee be applied. Based on the contention so raised by the assessee that assessee company is not maintaining the records for packing material unlike that maintained for raw material and finished goods. Even the Ld. AO has held that the assessee does not maintain record of stock of packing material. If that be the case, it cannot be said that compared with the stock found on physical verification, the stock as per book records is excessive. Even if the stock of packing material is arrived at by taking the figure of opening stock of such packing material, adding thereto the purchases made during the year and reducing the consumption based on standard formula, the book records will never reduce the shortage or wastage.
Wastage of packing material is a normal phenomenon in the type of business in which the assessee operates. As per the inventory prepared during search, there are as many as 71 different items of packing material used by the assessee the main item of packing material is I.T.A. No. 450/Jodh/2018 Assessment Year: 2016-17 25 packing roles which is used to pack various items manufactured by the assessee.
10. The roles cannot be used till the last end and loose ends will always remain which are not used for packing the goods for sale. The same has to be discarded. Similarly while packing the goods in all likelihood, the pouch or the bag will tear off resulting into such wastage.
The assessee contended that there is no fixed formula of percentage of packing material being part of the cost of goods sold. The same varies between 4.44% and 7.72%. Therefore, applying the formula of sales based on the consumption of packing material will never give the correct picture of the profitability or the income earned by the assessee. It is equally true that only packing material cannot be used for making sales.
For sales not only the packing materials is required but also the raw material, the labour charges, the electricity etc. will go into production of the goods traded by the assessee. The only evidence found is shortage of packing material but even after conducting the search, there is no evidence found which results into unaccounted sales other than that declared by the assessee. To the extent the unaccounted sales are found, the assessee has declared additional income of 0.17 crores. As rightly contended by the assessee, even for making such unaccounted I.T.A. No. 450/Jodh/2018 Assessment Year: 2016-17 26 sales on which there is a profit of 0.17 crores is declared, it will require use of packing material which to a great extent will explain the shortage as worked out by the assessing officer. For earning profit of 0.17 crores, it can be out of sales of 1.28 crores. For sales of 1.28 crores, it will require consumption of packing material @ 4.5% of sales which will work out to be 5.8 Lakhs. Thus, if the same formula is applied as applied by the assessing officer, for earning the income of 0.17 crores, it will require use of packing material to the extent of 5.8 Lakhs. In such circumstances the net shortage of stock will remain very nominal. During the last five years of business, the assessee has not claimed wastage of packing material. If consumption of last five years is considered, the same is worked out to be 2.06 crores. Even if safest estimate is applied, the wastage will be approximately 5% of consumption. Considering the wastage, it will explain the shortage of remaining amount. Thus, after considering the wastage, there will be no shortage of packing material. It is also to be noted that no other evidence is found to suggest that such packing material was used for making sales outside books of accounts.
Such sales will also require the use of raw materials and other components and only packing material cannot be considered as base for estimating unaccounted sales.
I.T.A. No. 450/Jodh/2018
Assessment Year: 2016-17 27
11. The ld. AR of the assessee cited judgement of Hon'ble Rajasthan High Court in the case of CIT V. Sulabh Marbles (P) Ltd. (165 Taxman
258), ITAT Ahmedabad in the case of ITO Vs. Pragati Fashion 9 50 SOT
71), Hydrabad ITAT in the case of DCIT Vs. Balaji Stell Rolling Mills P Ltd., in ITA no. 225/Hyd/2012. All the three decision deals common issue that merely on the basis of only electricity expenses, and without any evidence of use of other ingredients required for production, the production cannot be presumed so as to be considered as sales outside books of accounts and to make addition on such basis. In the present case, the only ingredient for manufacture and sale is presumed to be use of packing material and no other component required for production and sales. No evidence is also found for sale, other than that admitted by the assessee, as sales outside books of accounts. Thus applying the principle enunciated by Hon'ble Rajasthan High Court as also the ITAT, it can be held that mere shortage of packing material alone cannot be presumed to be for unaccounted production of Bhujia and Namkeen and also unaccounted sales so as to earn income out of same. The similar issue has been decided by us in the case of sister concern of the assessee having similar issue wherein the bench in ITA No. 434-Jodh-
2018 in the case of M/s Sunshine Food Products held as under :
I.T.A. No. 450/Jodh/2018 Assessment Year: 2016-17 28
7. We have heard the rival contentions and perused the material placed on record. The brief facts related to the issue on hand is that during the course of the search the stock of the assessee company was physically verified at the business premises including the stock lying in the cold storage and other premises. The total value of the stock physically found was determined for an amount of Rs. 4,33,02,565/-. Whereas the value of goods as per the books of accounts was determined at Rs. 9,80,32,662/-. Thus, the shortage of stock found during the search operation for an amount of Rs.
5,47,30,097/-, which also included deficit stock of raw material and finished goods. Thus, deficit stock of finished goods was also found during the search. The items dealt with the by the assessee are 'Namkeen and Bhujia', which are fast moving items and the brand of the assessee is demanding in the market. Thus, unaccounted production and sale of finished goods occurs continuously on a day to day basis. Accordingly, the corresponding raw materials are also purchased on a continuous basis and the stock replenished to the maximum extent is also possible for raw material. Whereas same is not in the case of printing material, since specific printing is required on packing materials other than by way of unaccounted sale of traded items. Further, documents and evidences seized from the premises of the assessee contains order slip for delivery of goods wherein the value of goods is not mentioned. Many of the loose papers were in the form of bills / estimates which were not recorded in the books of accounts found at the time of search. These loose paper also pertains to purchases of raw materials by the assessee. Thus, in order to make unaccounted sales, an assessee would also ensure that the corresponding purchases of raw materials / traded goods would also be unaccounted and the same were never recorded in the books. Thus, based on this contention the ld. AO noted that since there is deficit in stock of packing material and the same is on account of unaccounted sales made by the assessee company. Thus, based on these finds the ld. AO found that stock of packing material as per books amounts to Rs. 5,44,85,837/- whereas the physical stock found for an amount of Rs. 1,70,08,273/- and thereby computed the deficit of Rs. 3,74,77,564/-. As the consumption of packing material vis a vis sales is 13.90 % the deficit of packing material converted to unaccounted sales for Rs. 29,96,22,763/-. The gross profit disclosed by the assessee for the year under consideration is 11.32 % and applying that profit the gross profit was worked at Rs. 3,05,21,297/- and treated as undisclosed profit earned by the assessee. In the search the assessee the assessee has disclosed a sum of Rs. 1,70,00,000/- being the amount of profit earned and invested as advances to agriculturist balance amount of Rs. 1,35,21,297/- was considered as undisclosed profit and the same was added in addition to the disclosure already made by the assessee. The assessing officer has also worked out the initial capital by considering the total sales of Rs. 26,96,22,763/- divided into 281 working days per day sales comes to 9,59,512/- after reducing the profit margin @ 11.32 % the cost of per day goods computed at Rs. 8,50,895/- and the same was considered as 7 days unaccounted sales cycle and the same was considered for an amount of Rs. 59,56,265/- as initial investment. This two addition of Rs. 1,35,21,297 and Rs. 59,56,265/- was disputed by the assessee before the ld. CIT(A) who has after I.T.A. No. 450/Jodh/2018 Assessment Year: 2016-17 29 considering the submission of the assessee deleted that two addition and the revenue is aggrieved from the finding of the ld. CIT(A) filed the present appeal supporting the finding of the ld. AO. The bench noted that the assessee has already based on the working presented before him has surrendered income of Rs. 1,70,00,000/- and the balance addition is solely made on the basis of shortage of packing material considered as used for sale of goods and initial investment as worked out on the presumption and assumption. Though the disclosure of Rs. 1,70,00,000/- is made based on the seized document corresponding to the income and investment found. The addition made at the time of the assessment is solely based on the presumption of unaccounted sales due to shortage of packing material. We note that the shortage of packing material was arrived at by taking the figure of opening stock adding to it purchases and reducing the consumption based on the standard formula without considering the damage or wastage of packing material and the same has not been considered while calculating the difference. As per the inventory prepared at the time of search 71 different items of packing material used by the assessee and the important item of the packing material is the roles used to pack the packed foods items. The roles cannot be used till the last end and loose ends will always remain which are not used for packing the finished goods for sale. The same is required to discarded similarly at the time of quality check of the goods the same is also rejected for having the inferior packing, damaged or not as per the quality of goods required as per the government standards. Thus, applying the simple ratio of consumption of packing material will never give the correct picture of the sales. Not only that for making the goods in addition to the raw material, labour, fuel, electricity, delivery expenses etc. will also attracted. At the time of search only shortage of packing material found and the other evidence of advance corresponding income is already disclosed by the assessee. This additional income disclosed along with the shortage of packing material if counted with the wastage and discarded goods packing material which has not been claimed by the assessee. The ld. CIT(A) considered that the assessee has not considered the waste of packing material since last 5 years and therefore, he has considered the consumption of five year at Rs. 29.93 crore and 5 % if considered as wastage or rejection then the difference of packing material found is considered as explained and thus this shortage is considerable found in the range of 5 % the additional income cover the profit earned by the assessee and no separate addition whatsoever was required. In the light of the discussion so recorded the ground no. 1 raised by the revenue stands dismissed.
8. Since, we have decided in the ground no. 1 that no further addition of profit is required as the assessee has already disclosed a sum of Rs. 1,70,00,000/- which is also cover the initial amount and therefore, the ground no. 2 raised by the assessee has not merits based on the detailed finding recorded herein above and we note that the same finding is recorded in the order of the ld. CIT(A) and therefore, we hold that the ground no. 2 has not merits and the same is dismissed.
I.T.A. No. 450/Jodh/2018
Assessment Year: 2016-17 30
Since the fact of the case decided as above has similar contention and therefore, on being consistent and considering the detailed finding recorded in the case as referred above and upon considering the detailed finding of the ld. CIT(A) we do not find any merits in the grounds of the appeal no. 1 raised by the revenue for addition of Rs. 2,60,09,742/
- deleted by the ld. CIT(A) on alleged sales out of books of accounts due to shortage of packing materials found during search raised by the revenue stands dismissed.
12. Similarly we note that the ld. AO has worked out the initial investment for making such sales outside books of accounts and accordingly the addition was made. Since the only basis for the addition is presumption of unaccounted sales due to shortage of packing material and since we have deleted the addition on account of unaccounted profit on such unaccounted sales arrived at due to shortage of packing materials, the presumption for having invested initial capital for making such unaccounted sales does not survive. Even otherwise there is no evidence found during search which suggests that the assessee has made certain initial investment. It is also settled law that the source as well as the application of income, both, cannot be taxed. Thus, when the source of income being profit on unaccounted sales as admitted by the I.T.A. No. 450/Jodh/2018 Assessment Year: 2016-17 31 assessee is taxed, and since such profit is not found to have been applied or spent away, the same can be considered as available so as to explain the investment. therefore, in the light of these fact we see no infirmity in the finding recorded by the ld. CIT(A) and therefore, ground no. 2 raised by the revenue stands dismissed.
13. In the result, the appeal filed by the revenue stands dismissed.
Order pronounced under Rule 34(4) of the Income Tax (Appellate Tribunal) Rules, 1963 by placing the details on the notice board.
Sd/- Sd/-
(Dr. S. Seethalakshmi) (Rathod Kamlesh Jayantbhai)
Judicial Member Accountant Member
Ganesh Kumar, PS
Copy of the order forwarded to:
(1)The Appellant
(2) The Respondent
(3) The CIT
(4) The CIT (Appeals)
(5) The DR, I.T.A.T.
True Copy
By order
I.T.A. No. 450/Jodh/2018
Assessment Year: 2016-17 32
Date Initial
1. Draft dictated on Sr.PS/PS
2. Draft placed before author Sr.PS/PS
3. Draft proposed & placed JM/AM
before the Second Member
4. Draft discussed/approved by JM/AM
Second Member
5. Approved Draft comes to Sr.PS/PS
the Sr. P.S./P.S.
6. Kept for pronouncement on Sr.PS/PS
7. File sent to the Bench Clerk Sr.PS/PS
8. Date on which file goes to
the Head Clerk
9. Date on which file goes to
the AR
10. Date of dispatch of Order