2012 (8) TMI 367 - HC - Income Tax

HC rules Tribunal wrongly rejected Assessing Officer's turnover estimate based on seized dual-rate sale papers under tax law section

COMMISSIONER OF INCOME TAX-VII Versus CHETAN DAS LACHMAN DAS

The HC held that the Tribunal erred in rejecting the Assessing Officer's estimate of suppressed turnover based on seized papers showing dual rates of ... Additions on account of suppressed sale value of Hing and compound Hing - Search and seizure - assessee recorded two rates on the papers found whereas in the bills it had accounted only for the lower rate - Tribunal upheld deletion made by CIT(A) on ground that no evidence was found to show that the actual turnover of the assessee was more than the declared turnover - Held that:- Unlike Chapter XIV-B, Section 153A does not provide that a search assessment has to be made on the basis of evidence found as a result of search or other documents and such other materials or information as are available with the Assessing Officer and relatable to the evidence found. In present case, CIT (Appeals) found that the assessee did record two rates as found from the seized papers, but entered only the lower rate in the sale bills, and has agreed with the AO that the book results deserved to be rejected u/s 145 and an estimate of the true income earned by the assessee had to be made. However, he misdirected himself in not upholding the turnover as estimated by the AO and accepted the turnover provided by assessee. Tribunal also while upholding action of CIT, erred in looking for some other corroboration to substantiate the contents of the loose papers, overlooking that the loose papers needed no further corroboration and the sale bills compared with the seized papers themselves corroborated the suppression of income. Tribunal ought to have examined the estimate made by the AO. The observation of the Tribunal that no evidence was found to show that the actual turnover of the assessee was more than the declared turnover is hair splitting. The decision making process is as important as the correctness of the decision itself. Merely because the correctness of the decision appears unquestionable, the serious flaws or gaps in the steps that constitute the judicial decision making process cannot be overlooked. Question answered in favour of the Revenue by passing the order of remit to the Tribunal. In the light of the evidence, it was for the Tribunal to examine whether the CIT (Appeals) was justified in substantially reducing the additions by holding that the sales turnover cannot be estimated on the basis of the seized material showing sales for a few days and whether this scaling down of the addition was in conformity with the legal position expounded by the Supreme Court in Commissioner of Income Tax, Madhya Pradesh v. H. M. Esufali H. M. Abdulali [1973 (4) TMI 49 - SUPREME COURT]. We are, therefore, of the view that the findings of fact arrived at by the Tribunal are not borne out by the evidence on record. We, therefore, do not feel bound by the findings of the Tribunal. It is true that the order of the Tribunal cannot be said to give rise to a substantial question of law merely because the High Court is of the view that it would have come to a different conclusion on the same evidence; however, where the appreciation of the evidence is wholly unsatisfactory and crucial aspects of the evidence have been missed, it is a case of finding or conclusion which no person properly instructed on the facts and the legal position would have reached. That is what has happened in the present case. In the circumstances we think that the proper course for us is to set-aside the order of the Tribunal for all the years under appeal. The only question in ITA No.2021/2010 and question No.1 in all the other appeals are answered in the negative, in favour of the Revenue and against the assessee. However, we pass an order of remit to the Tribunal, which shall hear the appeals on this point afresh and decide them in accordance with law. As regards the second question in all the appeals except ITA No.2021/2010, since the Tribunal has failed to decide the ground raised by the Revenue, the Tribunal is now directed to decide the ground also in accordance with law. We, however, clarify that it is only an omission by the Tribunal to deal with the ground and for that reason there could not be said to be any perversity. Thus the second question is also disposed of by passing an order of remit. In the result the appeals of the Revenue are allowed in the above terms. Issues Involved:1. Deletion of additions on account of suppressed sale value of Hing and compound Hing.2. Failure to decide the issue of depreciation on the alleged foreign car.Detailed Analysis:1. Deletion of Additions on Account of Suppressed Sale Value of Hing and Compound Hing:In these appeals, the primary issue revolves around whether the Income Tax Appellate Tribunal (ITAT) was correct in law in deleting the additions made by the Assessing Officer (AO) on account of suppressed sale value of Hing and compound Hing for the assessment years 2000-01 to 2006-07. The AO made these additions based on documents found during a search under Section 132 of the Income Tax Act, 1961, which suggested gross under-invoicing of sales and suppression of production/yield of Hing.The CIT (Appeals) examined the seized material and found that the papers showed figures in terms of Kattas and not in kilograms, as assumed by the AO. The CIT (Appeals) held that the adoption of a uniform sale value of Rs. 2,000 per kg for all seven years was arbitrary. The CIT (Appeals) justified the rejection of the books of accounts under Section 145 of the Act but found fault with the AO's estimation of sales based on the seized material for November 2005 alone. The CIT (Appeals) enhanced the gross profit by 2% of the sales for Hing and adopted the same rate for compound Hing, directing the AO to delete the substantial additions made.The Tribunal upheld the CIT (Appeals)'s decision, stating that there was no corroborative material to suggest that the actual price realized was more than what was stated in the bills raised by the assessee. The Tribunal distinguished the judgment of the Supreme Court in Commissioner of Income Tax, Madhya Pradesh v. H. M. Esufali H. M. Abdulali, stating that no independent inquiry from any of the purchasers was conducted to find out if there was any understatement of sale consideration.However, the High Court found that the Tribunal's reasons for distinguishing the Supreme Court judgment were not sound. The Tribunal failed to appreciate that the seized material indicated the assessee's practice of suppressing sales, and the partners admitted to this practice during the search. The High Court held that the CIT (Appeals) should have upheld the turnover estimated by the AO instead of directing him to accept the turnover shown by the assessee with a slight enhancement of the gross profit. The High Court emphasized that the Tribunal should have independently examined the seized material and the findings of the CIT (Appeals) rather than merely endorsing the conclusions.2. Failure to Decide the Issue of Depreciation on the Alleged Foreign Car:Except for the assessment year 2000-01, the second issue in all the appeals relates to the depreciation on a car. The AO disallowed the depreciation claim on the ground that there was no proof that the car was manufactured in India. The CIT (Appeals) found that the car was purchased from an authorized dealer in India and allowed the depreciation claim. The Revenue challenged this decision before the Tribunal, but the Tribunal omitted to deal with this ground.The High Court directed the Tribunal to decide the ground regarding the depreciation on the car in accordance with law, noting that the Tribunal's omission to deal with the ground did not amount to perversity.Conclusion:The High Court set aside the order of the Tribunal for all the years under appeal and remitted the matter back to the Tribunal to hear the appeals afresh and decide them in accordance with law. The High Court answered the primary question in favor of the Revenue and against the assessee, directing the Tribunal to re-examine the issue of suppressed sale value of Hing and compound Hing and the issue of depreciation on the car. The appeals of the Revenue were allowed in these terms, with no order as to costs.