It is unsustainable to reject books of accounts solely because the gross profit rate is lower

Fact and issue of the case

These appeals of the Revenue and Cross Objection thereagainst of the assessee are directed against the consolidated order of Commissioner of Income Tax (Appeals)-12, Pune [‘CIT(A)’ hereinafter] dt. 30/03/2022 passed u/s 250 of the Income-tax Act, 1961 [‘the Act’ hereinafter], which in turn emanated from separate orders of assessment dt. 07/03/2016 framed u/s 143(3) r.w.s. 153(A) of the Act by the Asstt. Commissioner of Income Tax, Central Circle-2, Nashik [‘AO’ hereinafter] for assessment years [‘AY’ hereinafter] 2009-10 to 2014-15.

Since issues in all these appeals and cross-objections are based on similar, identical facts and further based on a search action conducted on ‘Omshree Group’ therefore, on agreement between rival parties, for the sake of brevity and convenience, we proceeded to hear these matters together for being disposed of by this common and consolidated order

Succinctly stated undisputed facts borne out of case records are;

The respondent assessee is a private limited company engaged in manufacturing and trading of edible & non-edible oils etc. Whereupon a search action u/s 132 of the Act on ‘Omshree Group’ [‘Searched Party’ hereinafter] was conducted on 20/11/2013, wherein as many as seven residential premises, three factory premises and a locker maintained at treasury branch of SBI Bank, Dhule were also covered.

Beside aforestated search action on the assessee group, a simultaneous survey action u/s 1 33A of the Act were also conducted at the factory premise of M/s Shree Gajanan Oil Mills, M/s Om Industries and at the business premises of M/s Sunil Traders [‘Other Party’ hereinafter].

Consequent to search action u/s 132 of the Act, a proceedings u/s 153A of the Act were initiated against the assessee by service of notice thereunder and in response thereto, the assessee company filed its returns of income [‘ITR’ hereinafter] for six assessment years comprised of AY 2008-09 to AY 20 13-14 on 29/09/20 14 and an ITR for the year of search i.e. AY 2014-15 was filed on 18/11/2014.

The income returned in these ITR filed under 153A proceedings, in ,the opinion of the Ld. AO did not reflect the true income of the respondent, for the reason subjecting them to a scrutiny by notice u/s 143(2) culminated these assessment by separate orders u/s 143(3) r.w.s. 153A of the Act with several additions as adumbrated hereinafter;

AY	As per ROI filed u/s 139	As per ROI filed u/s 153A	Additions made by the AO			Determined u/s 143(3) rws 153A
AY	As per ROI filed u/s 139	As per ROI filed u/s 153A	Est. G/P	Commission	Unexplained	Determined u/s 143(3) rws 153A
2008-09	45,40,990	75,40,990	1,13,86,236	60,000	–	1 ,89, 87,226
2009-10	82,18,800	1,52,18,800	2,31,23,099	1,40,000	–	3 ,84, 81,899
2010-11	36,98,340	36,98,340	3,17,21,408	–	–	3 ,54, 19,748
2011-12	70,65,400	1,02,87,510	3,17,70,387	1,11,500	7,39,000	4 ,29, 08,397
2012-13	1,60,25,256	1,63,75,260	2,22,83,729	–	1,27,889	3 ,87, 86,878
2013-14	3,12,18,280	3,12,18,280	4,73,89,101	–	–	7 ,86, 07,381
2014-15	3,16,23,321	(51,56,194)	4,08,19,531	–	3 ,63, 55,440	7 ,27, 69,081
2014-15	3,16,23,321	(51,56,194)	4,08,19,531	–	7,59,304	7 ,27, 69,081

In capping the aforestated assessment u/s 143(3) r.w.s. 153A of the Act, the Ld. AO invoking the provisions of section 145(3) of the Act has first rejected the books of account of the respondent assessee for all seven years including the year of search and made addition inter-alia differential amount of gross profit estimated @4% over the on amount of gross profit declared in the respective ITRs filed u/s 1 53A of the Act.

Aggrieved assessee contested aforestated [para 3.5] additions together with other addition toward unexplained investment [para 3.4] before the first appellate authority by separate appeals. The Ld. CIT(A) finding force in the submission of the assessee, has disapproved the action Ld. AO in rejecting books of accounts u/s 145(3) of the Act as meritless and deleted the additions made on account of lower gross profit. However Ld. FAA has confirmed other additions towards unexplained expenditure & investment etc., by his common and consolidated order dt. 30/03/2022

The Revenue aggrieved by such reversal of rejection of books and consequential deletion of addition made on account of lower gross profit and deletion of addition made on account of cash shortfall further restricting addition made towards unexplained immovable property, is before this Tribunal in present bunch of six appeals. Whereas the respondent set-up its cross objection against addition partially sustained by the first appellate authority.

In this factual background, we shall now deal first with main appeals of the Revenue i.e. IT(SS)A No. 45 to 50/PUN/2022;

As stated hereinbefore, the issues in all these appeals are based on similar & identical facts, therefore we shall take up IT(SS)A No. 45/PUN/2022 as lead case, resultantly adjudication laid in subsequent paragraphs shall mutatis-mutandis to IT(SS)A No. 46 to 50/PUN/2022.

At the outset of the physical hearing, the learned departmental representative Mr. Keyur Patel, CIT [‘DR’ hereinafter] has fairly submitted that, albeit the grounds raised in these appeals are inconsonance with rule 8 of Income Tax Appellate Tribunal Rules, 1963 [‘ITAT-Rules’ hereinafter] nevertheless they are predominantly directed against sole and substantive issue of reversal of rejection of books made u/s 145(3) of the Act and consequential deletion of addition made based on estimated gross profit which was arrived on the basis of audited financials statement of similar & comparable companies engaged into similar type of business as that of respondent assessee.

For a clarity and convenience, on a specific query from the bench, the Ld. DR adverting to impugned order has equally submitted that, in this case of respondent assessee, as on the date of search action i.e. 20/11/2013, the scrutiny assessment for AY 2008-09 & 2009-10 were already completed u/s 143(3) of the Act, whereas the time for service of notice u/s 143(2) for AY 2010-11 & 2011-12 was no longer available for initiating regular assessment proceedings. Thus admittedly these four assessment years were remained as ‘unabated or non-abated’ for the purpose of section 153A of the Act. Insofar as AY 2012-13 & 2013-14 concerned, a regular assessment proceedings u/s 143(3) by service of notice u/s 142(2) of the Act were already initiated and pending. Therefore these two pending assessments proceedings stood abated in terms of second proviso to section 153A(1) of the Act and thus were available to Ld. AO for assessment at par with search year i.e. AY 2014-15. Apparently no seized incriminating documents found referred while framing these assessment u/s 143(3) r.w.s. 153A of the Act. 4.4 During the course of physical hearing, the Ld. DR has meticulously taken us through assessment findings vis-a-vis impugned order and bolstered the action of Ld. AO in rejecting the books of the respondent on its effective failure to prove the genuineness of purchases in the absence of books and records of broker/agent who were exclusively instrumental in procuring raw-materials for the respondents. Per contra in demolishing these cases of the appellant Revenue, the learned counsel for the assessee Mr Sharad Shah [‘AR’ hereinafter] contested that, since the order of Ld. CIT(A) reversing the rejection of books and consequential deletion of addition is already accepted by the Department for AY 2008- 09, the Revenue has no case on merits, therefore all these appeals of the department deserves to be dismissed in limine. Refuting the said averments of the respondent assessee, the Ld. DR stated that, in the light of monetary restriction placed by CBDT Circular No. 17/2019, the Revenue did file no appeal against the order of Ld. CIT(A) for AY 2008- 09, therefore the contention of the respondent assessee is factually incorrect and baseless.

After hearing to rival contentions of both the parties on legal & meritorious substantive grounds; and subject to the provisions of rule 18 of ITAT-Rules, 1963, perused the material placed on records, case laws relied upon by the appellant Revenue as well the respondent assessee and duly considered the facts of the case in the light of settled legal position, which are also forewarned to respective parties to refute.

Observation of the court

We observed that, upon due verification of documents adduced by the respondent, the Ld. CIT(A) exercising his co-terminus power has restricted the said addition to the extent same remained travelled to computation of total income while filing the return u/s 1 53A of the Act. The Ld. DR hardly dispute this factual position laid para 29.2 to 29.5 placed at page 142 to 144 of the impugned order. And nothing contrary was placed before us for taking any divergent view, therefore both these grounds of the Revenue stands meritless, ergo dismissed.

In result, all the grounds of appeal raised in ITA 50/PUN/2022 are DISMISSED. IT(SSA) No. 50/PUN/2022 AY: 2014-15 ‚

On the facts and in the circumstance of the case and in law, the learned CIT(A) erred in deleting the addition of Rs. 7,59,304/- made on account of cash shortfall and unexplained expenditure thereof.

On the facts and in the circumstance of the case and in law, the learned CIT(A) erred in holding that no addition can be made on account of cash shortage. The Ld. CIT(A) has failed to appreciate the fact the assessee could not prove the expense with documentary evidences for which the cash of Rs. 7,59,304/- was claimed to be spent by the assessee.‛

In this regards, it shall suffice to state that, shortfall of cash balance revealed in the course of search action remained unexplained with cogent evidences, for the reason the Ld. AO brought this shortfall to tax as unexplained income of the respondent. During the course of first appellate proceedings however, the Ld. CIT(A) following the judicial binding precedents laid by ITAT, Pune in ITA No. 1385/PUN/2004 dt. 31/05/2007, further ITA No. 005//PUN/1997 dt. 16/05/2002 and ITA No. 72/PUN/1 996 dt. 16/05/2002, deleted the addition.

During the course of present hearing, the Revenue could hardly dispute abovestated judicial precedents. On the contrary to buttress assessee’s contention, the Ld. AR relied on the decision of Co-ordinate bench in ‘AP Refinery Pvt Ltd. Vs DCIT’ ITA No. 1279/Chd/2019.

Records perused, heard the rival contentions. In our considered opinion, the shortfall of cash represents the utilization and since such shortfall undisputedly emanated from the business premises of the respondent, the presumption always that it must have been used for the outgoing business expenditure which remained to be accounted in the books of account of the assessee. Therefore it is hard to believe by any stretch of imagination that the non-existence of cash (to the extent of shortfall) gives rise to unaccounted money. An inverse position that cash is found in excess or over what has been found recorded in the books of account, can give rise to unaccounted or unexplained money, certainly not in the present case. For the reason, respectfully following the judicial precedents (supra), we see no reasons to confirm the addition, thus these grounds of the Revenue are dismissed as unwarranted.

In result, all the grounds appeal in ITA 50/PUN/2022 are DISMISSED.

We shall now deal with Cross Objections [‘CO’ hereinafter] CO. No. 04, 05 & 07/PUN/2022 of the respondent assessee;

It is worthy to note here that, the respondent assessee initially had filed six cross objections against each of the appeals filed by the Revenue. During the course of present physical hearing the Ld. AR submitted that, these Cos are supportive to the extent relief granted by Ld. CIT(A), and concurrently agitates against sustaining the addition of expenditure made on estimation basis. It is also brought to the notice of the bench that, out of aforestated six Cos filed by the respondent assessee, three COs i.e. CO. No. 06, 08 & 09/PUN/2022 were withdrawn it by and allowed vide ordered dt. 14/03/2022, wherein similar & identical issues against appeals filed by the Revenue in ITA No. 48, 49 & 50/PUN/2022 were agitated. However it is contended that, the respondent assessee shall be pressing these present Cos for hearing alongwith the main appeals of the Revenue.

For the reasons, we have taken up all these appeals and Cos together for hearing on 11/05/2023 initially. After this bunch of six appeals are conclusively heard. Thereafter the Ld. AR argued these Cos for a considerable time, however pausing the hearing sought time for seeking instruction from the assessee as to whether these Cos are to be withdrawn or contested. In all the fairness the bench thought fit to allow reasonable time, and thus adjourned these Cos to 12/05/2023 after taking these part-heard. However on schedule day of hearing, without a letter of adjournment on record, none appeared, therefore the bench was constrained to further adjourned these part-heard Cos to 19/05/2023. 15.3 On this day of hearing 19/05/2023, the Ld. AR appearing for the assessee at the onset apologising the bench for not pressing the grounds of objection laid in these Cos, has prayed for withdrawal by placing on record an undated application. In these facts and circumstance, the bench sought explanation as to why a reasonable cost for this lackadaisical approach should not be imposed on the respondent. In the absence of any logical, convincing and bona-fide reasons forthcoming, after a heedful consideration we deem it fit, just and proper to impose a cost of ₹25,000/- in each case for wasting a valuable time & resources of appellant Revenue and court’s administrative resources as well.

In view of the aforesaid request and undated letter of withdrawal placed on record, making note of Revenue’s no-objection, we dismiss these three Cos of the assessee as withdrawn with cost. We order this dismissal with a direction to the respondent to pay the aforementioned cost by an account payee ‘Demand Draft’ to be drawn in favour of ‘National Children’s Fund’, New Delhi, within a period of 90 days from pronouncement of this order, before seeking effect hereof.

In result, all appeals of the Revenue are DISMISSED. And all cross objections of the assessee are also DISMISSED with cost in aforestated terms. In terms of rule 34 of ITAT Rules, the order pronounced in the open court on this Wednesday 28th day of June, 2023.