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