2010 (5) TMI 556 - HC - Income Tax

No evidence of sales suppression; assessment modified to 14% concealment; s.131 and s.113 noted; appeal partly allowed

Commissioner of Income-tax Versus Hotel Meriya

HC held that the Appellate Tribunal correctly found no evidence in the search to establish suppression of sales for AYs 1996-97 to 2000-01. The court ... Search - Block assessment - Sufficiency of evidence to conclude concealment of income - suppression of business - Undisclosed income for assessment u/s 158BC - HELD THAT:- The Appellate Tribunal by a common order arrived at a finding that no evidence was disclosed in the search to show that there was suppression of sales for the assessment years 1996-97 to 2000-01 - A reading of section 131 of the Income-tax Act would show that the Assessing Officer is vested with the same powers as are vested in a court under the Code of Civil Procedure, 1908 in respect of (a) discovery and inspection, (b) enforcing the attendance of any person, including any officer of a banking company and examining him on oath, and (c) compelling the production of books of account and other documents - the statement of the partner and employees recorded and documents collected are relevant and admissible in respect of all matters for the purpose of any investigation connected with any proceedings under the Income-tax Act - It was further ruled that insertion of proviso to section 113 is mere clarification - While setting aside the orders in first and second appeal, the assessment order is restored with modification reducing the concealment of income at 14 per cent. of the total turnover - Appeal is allowed partly Issues Involved:1. Admissibility of statements and documents seized during the search as evidence under Section 158BB of the Income-tax Act.2. Sufficiency of evidence to conclude concealment of income for the assessment years 1996-97 to 2000-01.3. Determination of the rate at which concealed income should be taxed.4. Liability of the respondent for surcharge.Detailed Analysis:1. Admissibility of Statements and Documents as Evidence:The Assessing Officer seized sale slips, bills, and recorded statements of the partner and employees during the search. The Tribunal observed that these statements and materials would not amount to evidence under Section 158BB and that statements recorded under Section 132(4) have limited application. However, the court clarified that under Section 131 of the Income-tax Act, the Assessing Officer has the same powers as a court under the Code of Civil Procedure for discovery, inspection, enforcing attendance, and compelling the production of documents. Therefore, the statements and documents seized are admissible as evidence for block assessment. The court emphasized that the Explanation to Section 132(4) makes it clear that such evidence is relevant for all purposes of any investigation connected with any proceeding under the Income-tax Act.2. Sufficiency of Evidence for Concealment of Income:The authorities below found that there was concealment of income during the search. Statements from the partner and an employee indicated that only 80% of actual sales were recorded in the cash book. The Assessing Officer used these statements and the seized documents to determine a 20% suppression of sales turnover. The court noted that Chapter XIV-B of the Income-tax Act allows for block assessment if concealment of income is detected and does not require evidence for every year in the block period. The court held that it is reasonable to presume uniform concealment of income across the block period unless rebutted by the assessee. The Tribunal's conclusion that there was no evidence of concealment for the years 1996-97 to 2000-01 was found to be incorrect.3. Determination of the Rate for Taxing Concealed Income:The Assessing Officer assessed the suppressed sales turnover as concealed income at a flat rate of 20%. The first appellate authority found that the concealment was only in respect of liquor sales, not other items like food and soft drinks. The court determined that 70% of the total turnover could be attributed to liquor sales, and 20% of this was suppressed, resulting in 14% of the total turnover being concealed income. The Tribunal's decision to limit the concealment of income to 25% of the suppressed sales was found to be contrary to the facts, as the suppression was only related to income, not sales or business.4. Liability for Surcharge:The court referred to the Supreme Court ruling in CIT v. Suresh N. Gupta, which held that the Finance Act, 2001, applies to block assessments under Chapter XIV-B, making the respondent liable for surcharge. The insertion of the proviso to Section 113 was deemed a mere clarification.Conclusion:The appeal was allowed in part. The court set aside the orders of the first and second appeals, restoring the assessment order with a modification to reduce the concealed income to 14% of the total turnover. The respondent was found liable for surcharge. The appellant was directed to revise the block assessment accordingly. No order as to costs was made.