THE issue
before the Bench is - Whether loss claimed by the assessee can be
allowed, when its documents were seized by the Central Excise
department and could not be produced even though the assessee was
provided a reasonable time period. And the answer goes against the
assessee.
Facts of the case
ASSESSEE'S APPEAL IN ITA NO.717/AHD/2008 FOR AY 2003-04
The assessee
was processed u/s 143(1) accepting the returned loss of Rs.38,75,670/-
as claimed by the assessee. Subsequently, on the basis of the
information from the Central Excise Department, the case of the
assessee was reopened. In response to the notice u/s 148, the assessee
submitted that the original filed return may be treated as having been
filed in response to the issued notice. Thereafter, a notice u/s 143(2)
was duly served on the assessee, however, the assessee failed to be
present on several occasions and finally the assessment was completed
on the best judgment method.
Addition on account of losses
The
assessee had claimed losses, but the same was disallowed by the AO due
to absence of records and evidence produced by the assessee. On
appeal, the CIT(A) observed that the assessee had claimed expenditure
on various counts, but no evidence to substantiate the same could be
produced. Therefore, the CIT(A) upheld the addition.
The
counsel of the assessee submitted that disallowing the loss and
estimating the profit at the same time was excessive. He also submitted
that due to non-availability of the details in the form of accounts
which were taken away by the Central Excise Authorities, the same could
not be produced. However, he submitted that the accounts were duly
audited by the auditor of the assessee. The Departmental Representative
replied that assessee could have taken very well a certified copy from
the excise officials and proven the genuineness of the claim.
Addition on account of estimation of the profit as well as investments
The
assessee has removed goods from the premises without making entries in
Central Excise Records and without paying the duty involved. The
assessee could not produce the evidences in support of the claim of
sales and investment. Therefore, the AO has made addition on account of
estimation of the profit as well as investments made by the assessee
for purchasing the material. The AO made addition treating the removal
of goods as sales and treating the same as unaccounted investment. The
AO also made addition of Rs.1,77,45,067/- representing the unaccounted
investment and taxing the same u/s.69C and on unaccounted sales, he
estimated the net profit at 2% adding further an amount of
Rs.3,54,901/-. On appeal, the CIT(A), modified the addition by following
the decision in the case of associated concern; namely, M/s.Motorola Specialities Oil Ltd. for AY 2002-03 and directed the AO to tax the GP @ 40% of Rs.1,77,45,067/-.
The
Counsel of the assessee submitted that first, the unrecorded sales
also represented unrecorded investment as per Revenue but the
authorities below failed to take note of the roll over investment.
Secondly, he submitted that in the identical situation, the Coordinate
Bench of this Tribunal for AY 2002-03 in the case of Motorola Technologies Ltd.v s. ITO has
taken the margin @ 12.5% on such unaccounted sales. On the contrary,
the DR supported the order of the AO and submitted that the addition
was warranted since the assessee could not produce the books of
accounts.
REVENUE'S APPEAL IN ITA NO.728/AHD/2009 FOR AY 2003-04
The
assessee had taken unsecured loan from various creditors which were
added by the AO u/s 68 on the ground that the source of investment,
creditworthiness of the lenders and genuineness of the transaction were
not produced. On appeal, the CIT(A) observed that the assessee has
produced all evidence and due confirmation from the other parties
related to the unsecured loan and creditworthiness of the lenders.
Hence the CIT(A) was of the view that the assessee had discharged the
onus u/s 68 and therefore, deleted the addition.
REVENUE'S APPEAL IN ITA NO.729/AHD/2009
The
assessee had taken unsecured loan from various creditors which were
added by the AO u/s 68 on the ground that the source of investment,
creditworthiness of the lenders and genuineness of the transaction were
not produced. On appeal, the CIT(A) On appeal, similar to the
observations in Revenue's appeal for AY 2003-04, observed that the
assessee has produced all evidence and due confirmation from the other
parties related to the unsecured loan and creditworthiness of the
lenders. The CIT(A) further observed that increase in share capital was
on account of Rs.3 crore credited in the name of Motorola Lubricants
P.Ltd. by debiting Motorola Brand account through journal entry.
Further, the CIT(A) observed that it was confirmed by both the parties
that there was no financial implication of this entry since source of
capital was debit entry of Motorola Brand account and the same was
reversed next year since the proposal was not accepted by the share
holders of the said company. It was observed that since the increase in
capital was not by way of receipt of fund but by way of journal entry
reversed next year, there was no question of source of this credit or
any addition u/s 68. On the similar grounds relating to more addition
u/s 68 made by the AO, the CIT(A) made a detailed analysis of the facts
and held that all the source of investments and unsecured loans were
explained by the assessee and therefore, no addition was warranted.
Having heard the parties, the Tribunal held that,
ASSESSEE'S APPEAL IN ITA NO.717/AHD/2008 FOR AY 2003-04
Addition on accounts of losses
+
it is clear that no verification was made even by the auditor,
therefore appellant cannot claim that accounts are audited. We have
given our thoughtful consideration to the facts and circumstances of
the case. It is settled principle of law that anything claimed by the
assessee in his return of income, the onus on him to prove with the
material evidence. In this case, loss has been claimed but in support
of such claim, no evidence is furnished. The argument of the assessee
has been that it was prevented by reasonable cause since all the
records were seized by the Central Excise Department. We do not find
force in these arguments as the assessee was given sufficient
opportunity by the AO to produce the relevant details, but the assessee
has failed to produce the same. The assessee has not taken any step to
take the certified copies from the Central Excise Department of the
records seized. No panchnama of the records seized is placed on record,
therefore in the absence of the material evidence, the authorities
below were justified in rejecting the claim of the assessee. In view of
this discussion, this ground of the assessee's appeal is rejected;
Addition on account of estimation of the profit as well as investments
+
it is seen that Shri Rinki S.Gandhi, Director of the assessee-company
has agreed that goods have been removed from the premises without
making entries in Central Excise Records and without paying the duty
involved. No material is placed on record by the Revenue that any
independent enquiry was made by the AO to find out whether such details
of sales were not recorded in the regular books of account by
summoning the record from the central excise authorities. It is also
not coming out from the record that whether the AO has verified basis on
which the Commissioner of Central Excise Vadodara-II passed penalty
order. Since the Central Excise and Income Tax Department operate in
two different fields and different set of documents are maintained for
recording the transactions for the purpose of Central Excise and Income
Tax, therefore the AO ought to have made further enquiries and based
his best judgement order on the basis of such enquiry. It cannot be
lost sight of the fact that the onus was on the assessee to prove the
claim of the expenses. Under these peculiar facts, we do not find any
reason to take a different view than taken by the ITAT in ITA
No.328/Ahd/2009 for AY 2002-03, wherein the Coordinate Bench has taken
12.5% margin on unaccounted sales. We, therefore, direct the AO to take
12.5% margin on unaccounted sales of Rs.1,77,45,067/- and recompute
the addition accordingly. This ground of assessee's appeal is allowed
as indicated above;
REVENUE'S APPEAL IN ITA NO.728/AHD/2009 FOR AY 2003-04
Addition on account of loans u/s 68
+
the Revenue could not controvert this finding on fact. Therefore, we
do not find any infirmity in the order of the CIT(A), same is hereby
upheld. This ground of Revenue's appeal is rejected;
REVENUE'S APPEAL IN ITA NO.729/AHD/2009
+
the Revenue could not controvert this finding on fact. Therefore, we
do not find any infirmity in the order of the CIT(A), same is hereby
upheld. This ground of Revenue's appeal is rejected.
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