TaxTMI 
TaxTMI 
2013 (1) TMI 423
X X X X Extracts X X X X
X X X X Extracts X X X X
....and seizure operation in the hands of the assessee on 06-09-2007. Consequently, the assessing officer framed assessments u/s. 153A of the Act for the years under consideration by making various additions (year of search plus six earlier assessment years). The assessee challenged the said assessment orders before the Ld. CIT(A) but could get only partial relief. Hence he has preferred these appeals before us seeking further relief. 3. The various types of additions made by the Assessing Officer and which are being contested before us can be grouped under the following heads: i) Suppression of business income. ii) Gifts/loans from relatives. iii) Gifts/loans from friends. iv) Deficiencies in cash flow statement. v) Addition towards sale of trees. vi) Foreign travel expenses. vii) Valuation of house property. viii) Amount received from son. 4. Before proceeding to adjudicate the issues raised, we feel it pertinent to discuss about the scope of assessment u/s 153A of the Act, since the Assessing Officer has....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ssments, though automatically reopened as per the provisions of sec. 153A, yet they can be disturbed only in respect of those issues for which some incriminating materials requiring such disturbance is unearthed during the course of search proceeding. Since majority benches have taken the above said view in a consistent manner, we are also inclined to take the same view discussed above. However, we feel it pertinent to express the view that if the AO finds out any defect on any issue in respect of the pending assessments which got abated and such kind of issues are also available in other assessments, which have already been completed and did not abate, then in our view, the AO is entitled to examine those issues in those years also, in order to find out whether similar defects exist in those years or not. In such a situation, in our view, it is not necessary to satisfy the condition that some incriminating materials concerning to those issues should have necessarily been found out in respect of those assessment years". 5. The above said view has since been confirmed by the Mumbai Special Bench in the case of All Cargo Global Logistics vs. DCIT (137 ITD 287). This Tribunal as we....
X X X X Extracts X X X X
X X X X Extracts X X X X
....se years also, in order to find out whether similar defects exist in those years or not. In such a situation, in our view, it is not necessary to satisfy the condition that some incriminating materials concerning to those issues should have necessarily been found out in respect of those assessment years". By taking into account the factual and legal position discussed in the preceding paragraphs, we shall proceed to examine the various types of additions made by the Assessing Officer. 6.1 The Ld A.R contended that the assessment pertaining to the assessment year 2006-07 should also be considered as concluded, since the notice u/s 153A was issued after 12 months from the date of filing of return of income of that year. However, we are unable to agree with his contentions. The fact remains that the assessment of that year was pending on the date of initiation of the search and hence it shall abate by virtue of provisions of sec. 153A after the initiation of search. Hence the assessment of that year has to necessarily be completed as per the provisions of sec. 153A of the Act. 7. The first issue listed in paragraph 4 supra relates to the suppression of business income. From t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ount, etc. of the concerned donor/lender and according to the assessee; these details were also filed before the tax authorities. Accordingly, in our view, this issue of loans/gifts received from relatives requires fresh examination at the end of the Assessing Officer. Accordingly, we set aside the order passed by the Ld. CIT(A) on this issue for the assessment years 2006-07 and 2008-09 and restore the matters relating thereto the file of the Assessing Officer with a direction to examine the documents filed by the assessee in objective manner and decide the same in accordance with law, after affording necessary opportunity of being heard to the assessee. The assessee is free to adduce any other evidence or information or explanation before the AO. 9. We shall now take up the issue relating to addition of loans/gifts received from friends. The Assessing Officer has given details of gifts/loans received from friends at page 12 of the assessment order as under:- S.No. A.Y. Name of creditor Nature of credit Credit in Amount 1. 2002-03 Siddique Loan Balance sheet 211250 4. T. Mohammed Loan Balance sheet 153000 5. &nbs....
X X X X Extracts X X X X
X X X X Extracts X X X X
....to the date of initiation of search or not. As in the case of gifts/loans received from relatives, the tax authorities have not made an objective examination of the various documents filed by the assessee. Accordingly, in our view, this issue of loans/gifts received from friends requires fresh examination at the end of the Assessing Officer. Accordingly, we set aside the order of the Ld. CIT(A) on this issue and restore the matter to the file of the Assessing Officer with a direction to decide about the scope of examination of these items as per the discussions made supra and if any of the items of receipt is susceptible for verification, then examine the documents relating thereto filed by the assessee in an objective manner and decide the same in accordance with law after affording necessary opportunity of being heard to the assessee. The assessee is free to adduce any other evidence or information or explanation before the AO. 10. The next issue relates to the addition pertaining to "discrepancy/deficiency in cash flow". The assessee owned two vehicles and the income there from was offered by him as per the provisions of sec. 44AE of the Act. It is pertinent to note that the ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ence, by following the illustration given above, the net cash inflow from the operation of vehicles would be the amount of income computed as per the provisions of sec.44AE of the Act plus the depreciation allowable on those vehicles. Hence, in our view, the assessee was right as per the accounting principles in treating the depreciation amount as an item of cash inflow. Accordingly, we set aside the order of Ld CIT(A) on this issue in all the years and direct the AO to delete the addition made on this issue in all the years. 11. The next issue relates to the addition of Rs.75,000/- relating to sale of trees made in the assessment year 2002-03. As per the assessee, this income was declared by him in the original return of income filed u/s 139 of the Act prior to the date of search. It is also stated that the department did not unearth any material to create any suspicion over the said income. Under these circumstances, this item of income falls outside the scope of the provisions of sec. 153A. Accordingly, we set aside the order of Ld CIT(A) on this issue and direct the AO to delete the addition relating thereto. 12. The next issue relates to the addition pertaining to Foreig....
X X X X Extracts X X X X
X X X X Extracts X X X X
....aid valuation goes against the decision rendered by the jurisdictional High Court. Further the Ld A.R pointed out that the AO did not consider the expenditure incurred by the assessee in the subsequent years and the period of construction adopted by him is also wrong. He further pointed out that the DVO did not allow any deduction towards self supervision. He also pointed out that the AO did not consider the principles laid down in the following decisions:- (a) (1989)(31 ITD (Coch) 77: Upasana Hospital and Nursing Home Vs. ITO (b) 258 ITR 714 (Mad): A. Abdul Rahim Vs. ITO (c) 303 ITR 128 (Raj) : Smt Prem Kumari Mudria Vs. ACIT (d) 257 ITR (AT) 65 (Hyd) : ACIT Vs. Vinod Kumar Agarwal (e) 265 ITR 344 (Raj) : CIT Vs. Dinesh Talwar (f) 259 ITR 232 (Raj) CIT Vs. Elegant Homes (P) Ltd. In view of the foregoing discussions, we are of the view that this issue needs examination afresh, as it is not in accordance with the decision of jurisdictional High Court. Further the assessee is aggrieved on various points and they have not been addressed by the AO. Acco....
X X X X Extracts X X X X
X X X X Extracts X X X X
....orities have discussed at length about the law relating to the requirements for proving the cash credits. Hence, in our view, the addition made on this account in assessment years 2006-07 and 2007-08 requires fresh examination. Accordingly, we set aside the order passed by the Ld. CIT(A) on this issue for the assessment years 2006-07 and 2007-08 and restore the matter relating thereto the file of the Assessing Officer with a direction to examine the documents filed by the assessee in an objective manner and decide the same in accordance with law, after affording necessary opportunity of being heard to the assessee. The assessee is free to adduce any other evidence or information or explanation before the AO. 15. The last issue relates to the estimation of business income on account of suppression of sales. In the sworn statement recorded at the time of search u/s 132(4) of the Act, the assessee admitted that there was suppression of purchases and sales. He admitted that the suppression of sales is to the tune of 8% of the sales. During the course of assessment proceeding, the AO took cognizance of this confession. He also noticed that the Commercial tax authorities have found ou....
X X X X Extracts X X X X
X X X X Extracts X X X X
....6-07 96,83,173 30,01,785 2007-08 17,25,013 534754 2008-09 0 0 The undisclosed income so arrived at by him was added in the respective assessment years as suppression of business income. 15.3 Before Ld CIT(A), the assessee argued at length explaining the reasons for variation in the quantity of average power consumption as under:- "In this connection, it is submitted that there is absolutely no basis for the Assessing Officer to estimate unaccounted production, sale and profit for any of the years beginning from 2003 onwards. In fact, the assessment for 2002-03, 2003-04 and later years had already been completed based on the books of account maintained and produced before the Assessing Officer. The turnover was correctly declared in the accounts. The turnover was also correctly reported in the sales tax assessment which were accepted and assessment completed. The production details were also accepted by the Central Excise Authorities for the levy of Central Excise Duties. The very same power consumption was declared in the regular assessment made under sec. 143. There was no material found at the time of search indicating any suppr....
X X X X Extracts X X X X
X X X X Extracts X X X X
....the estimate of turnover based on current consumption. The Assessing Officer estimated production by applying a formula of 650 Units per MT for manufacture of 6 mm rods. This is on the basis of the declared current consumption for production for the assessment year 2008-09. The above formula was applied for all the prior years commencing from the first year onwards. After arriving at the estimated production in the above manner, the Assessing Officer reduced the declared production as per accounts and treated the balance as suppressed production. The value of the suppressed production was estimated to arrive at the suppressed turnover. Again, gross profit of 31% was estimated thereon and the resultant figure is added as undisclosed income for all the prior Assessment Years. The results for 2008-09 assessment were accepted. It is submitted that all these estimates are highly arbitrary and unsupported by any valid material or data. This contention is substantiated by the following facts:- I. The Assessing Officer had no basis to assume that the p....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ls are converted into 6 mm Rods and 3 mm flats which are the manufactured items. Only these two types of products are manufactured. c) The scarp material is heated and passed through rolls in high temperature. The heated scrap is reduced initially to varying sizes of 2" and 11/4", 11/2", 1", ¼", ½" and ¼". The last size of ¼" is equal to 6 mm Rod. The heated scrap has to undergo the rolling process through the above 7 sizes in order to get the finished products. In the case of mild steel items like M.S. plate or M.S. Rod, the power consumption will be less, because this is mild steel. However, in the case of condemned rail, the temper of the metal is very high and requires high power consumption for the heating process. d) Larger sizes of scrap are cut into smaller size before passing through rolling mill. The manufacturing of the finished products is without melting the scrap, but only by the process of heating. Therefore, depending upon the type of raw material used, the power consumption would be higher or lower. ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....p; I. In the circumstances, both the estimates have to be discarded as arbitrary I. The addition is also unsustainable because of application of several estimates, such as estimate of power consumption, estimate of production, estimate of sale price and estimate of profit. Several estimates would vitiate the entire addition. These factors may kindly be considered". The learned counsel for the Appellant further stated that the appellant was earlier using batch type furnace for healing the scrap which was resulting in higher consumption of electricity. This problem was identified and accordingly pusher type heating furnace was installed during the financial year 2005-06. As a consequence of this there was less power consumption for production per MT in the period relevant to A.Ys 2007-08 and 2008-09. The Learned Counsel for the appellant further claimed that rise in GP rate in A.Y. 2008-09 to the extent of 19.33% (out of 30.79%) was attributable to sharp rise in average selling price per MT of the finished goods. A working of the same ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....reme Court in the case of CST Vs. H.K.Esufali, H.M.Abdulali (1973)(90 ITR 271)(SC). Accordingly he held that the rejection of book results is justified. 15.6 The Ld CIT(A) did not agree with the observations of the AO that there were serious defects in the accounts of the assessee. The Ld CIT(A) also did not accept the view of the AO that the Gross Profit rate of 31% should be applied to all the years. The following observations made by Ld CIT(A) are relevant here. "The Assessing Officer applied exaggerated GP rate of 31% with reference to suppressed production determined by him but he accepted GP rate declared (much lower than 31%) by the appellant in respective assessment years as detailed above in respect of turnover declared by the Appellant without starting the reasons for the same. I find that that the Assessing Officer has estimated total turnover (declared + Estimated suppressed turnover) of the appellant ranging from over 1.5 times to two times of the turnover declared (as detailed above) more for earlier years and no suppressed turnover for A.Y. 2008-09. I further find that the Assessing Officer has not pointed out a single specific defect in the ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....he Ld CIT(A) computed the undisclosed income by taking the suppressed turnover at 8% of the disclosed turnover. The computations made by Ld CIT(A) are given below:- "10.9 In accordance with the above, value of suppressed production of the appellant for various assessment years upto A.Y. 2006-07 can be reasonably and judiciously estimated as under:- A.Y. Power consumption as per assessee Production @ 750 units per tonne Production as per return Difference Value/MT Value of the suppressed production (a) (b) (c) (d) (e) (f) (g) 2002-03 549848 733.13 540.405 192.725 13297.17 25,62,697 2003-04 606676 808.90 558.900 250 14374.51 35,93,628 2004-05 591396 788.53 545.850 242.68 16075.6 39,01,227 2005-06 591744 788.99 388.980 400.01 19491 77,96,595 2006-07 592972 790.63 422.010 368.62 19751.50 72,80,798 In a similar manner turnover of the appellant for assessment year 2007-08 and 2008-09 can be reasonable and judiciously estimated as under: A.Y. 2007-08 2008-09 Turnover shown 1,11,68,910 1,57,01,074 Turnover estimated @ ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ntended that the said sworn statement cannot be placed reliance, as it is not corroborated with any other material. He further submitted that the assessee has retracted his statement by filing a letter on 10-09-2007. We have examined the said contentions of Ld A.R. It is an undisputed fact that the assessee has confessed about the suppression of purchases and sales in the sworn statement taken u/s 132(4) of the Act. The relevant question and answers are extracted below:- "Q. No.13 - Have you properly maintained accounts relating to scrap purchases, finished goods, sales etc of your establishments. Ans.:- In scrap purchase 90% is imported scrap and sponge iron. Details of its purchases have been properly accounted. 10% includes local purchase. 90% of the local purchase has been accounted. 10% of local purchase has not been accounted. 8% of the sales also has not been accounted. Q. No.14 - You have said in your earlier question that 8% of the sales have not been accounted. What did you do with the profit so obtained from the sales. Ans.:- Money obtained from such unaccounted sales have been utilis....
X X X X Extracts X X X X
X X X X Extracts X X X X
....008)(115 TTJ (Ahd)(TM). (b) Smt. Sushila Suresh Malge Vs. ACIT (IT(SS)A 05/Mum/2012) (c) First Global Stock Broking (P) Ltd Vs. ACIT (115 TTJ (Mum) 173) The case law listed as (b) and (c) above relates to the block assessment proceeding. Since the scope of block assessment under Chapter XIV-B of the Act is different from the scope of proceedings u/s 153A of the Act, in our view, the assessee cannot place reliance on the said decisions. With regard to the case law listed as (a) above, we notice the assessee therein has proved that the statement u/s 132(4) was given in a state of confusion and later retracted. However, in the instant case, it is not shown that the statement u/s 132(4) was given by the assessee in a state of confusion. Further we have already recorded a finding that the assessee has not retracted from the statement given by him. Hence, the said decision is also not applicable to the facts of the instant case. 15.13 The assessee, in his submissions made before Ld CIT(A), has pointed out many factors which could impact the power consumption. We notice that the Ld CIT(A) has rejected all those contentions, simply for the ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....d the first appellate authority has also extracted the workings given by the assessee for the assessment year 2008-09, in paragraph 10.9 of his order. The workings given by the assessee disclosed the fact that the sharp rise in the selling rate of finished goods has helped in increase of Gross profit rate at 19.33% for the assessment year 2008-09. 15.16 Accordingly, the Ld CIT(A) has given a specific finding that the effect of increase in prices in the year relevant to the assessment year 2008-09 is evened out, i.e., (30.79% (-) 19.33%), the gross profit rate for that year works out to 11.46%. Accordingly, the Ld CIT(A) has opined that the gross profit rate of 11.46% was comparable with the gross profit declared in some of the years. Having opined so, still the Ld CIT(A) held that the fluctuation in the GP rate in various rates are unreasonable. In our view, the said decision of the Ld CIT(A) does not have any basis. Having understood that there might be various reasons for the fluctuation in the rate of G.P, in our view, the Ld CIT(A) should not have come to such a conclusion. The fact that the assessee had initially purchased a sick concern and gradually improved the quality o....