TaxTMI 
TaxTMI 
2012 (2) TMI 536
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.... all these appeals are clubbed together, heard together and are being disposed of by this common order, for the sake of convenience. 2. Brief facts of the case are that a search and seizure operation was carried out on 12-12-2007 in the business premises' of the assessee company. Consequent to the search, notices u/s. 153A of the I.T. Act were issued in response to which the assessee company filed return of income for the assessment years 2002-03 to 2005-06 declaring income as below: A.Y. Returned income (Rs.) 2002-03 1,71,788 2003-04 2,80,660 2004-05 4,40,727 2005-06 7,96,358 3. Apparently during the course of search, a bundle of loose sheets were found and seized and placed as Annexure A/HHPL/PO-3/2 which is nothing but daily reports of sales from various outlets of the assessee's company. Similar daily sales reports were found in some another annexures mentioned by the Assessing Officer in the assessment order for the A.Y. 2008-09. The documentary evidences showed suppression of sales found for the months of January 2006, February 2006, May 2007, July 2007, August 2007 and September....
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.... payments like PF, ESI and TDS. 6. In course of the first appellate proceedings, the AR of the assessee submitted that estimation of turnover and further estimating the net income thereon for the A.Y. 2002-03 to 2005-06, is bad in law. According to the AR the AO wrongly estimated the suppressed turnover for the aforementioned four assessment years though the data was available for the assessment years 2006-07 and 2008-09 only that too for a period of 6 months. The AO himself admitted at page No. 12 of the assessment order for the A.Y. 2008-09 that the investigation officials could find the evidence in support of suppressed turnover for only 6 months and there is no other indication to suggest that the assessee was involved in a systematic suppression of turnover even in the earlier years. It was submitted that simply based on the evidence for 6 months, estimating the alleged suppressed turnover for the entire block period is wholly unjustified and uncalled for. Even in the statement ujs. 132(4), there is no reference to any suppression of turnover for this period. Hence the estimation of suppression of turnover for this period and consequently estimation of net income is unjustifi....
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....d during the search and cannot include items which are disclosed in the original assessment proceedings. 9. The learned CIT(A) after considering the arguments of the assessee's counsel observed that during the course of search and seizure operation, materials were found only in respect of six months that too falling in the financial year 2005-06 and 2007- 08 relevant to the assessment years 2006-07 and 2008-09 and observed that the AO was not justified in estimating the suppressed turnover for the earlier years when the assessee had objected to the same and when there was no voluntary admission in this - regard. For this purpose reliance was placed on the decision of ITAT Ahmedabad in the case of DCIT Vs. Royal Marawar Tobacco Products (16 DTR 129). In the said case the Hon'ble ITAT observed as under: It was undisputed that during the course of search and seizure proceedings no evidence and/or material, indicating any suppressed sales made by the assessee during the assessment years 2000-01, 2001-02, 2002- 03 and 2003-04, was found. No material was also found to indicate that there was any suppressed production in the aforesaid assessment years. The Assessing Officer on ....
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...., it shall abate. The present assessment year is 1999-2000 which is falling within the period of 6 years but its assessment is complete and hence the proceedings do not abate. In other words the original assessment was made u/s. 143(3) has become final and is not affected by the second proviso to section 153A. Of course, the present assessment is a case falling u/s. 153C, but then, as per sub section (2) of section 153C, this assessment was also to be done in the manner provided in section 153A. Therefore, the second proviso to section 153A applies equally to the cases falling u/s. 153C. What follows is that the assessment now to be done is to be confined to the material found in the course of search only. The additions/disallowances made in the regular assessment cannot be repeated in the assessment to be made u/s. 153C of the Act unless fresh material has been unearthed in course of search in respect of those additions/disallowances " 12. According to the CIT(A) while making assessment u/s. 153A of the Act, it is essential that only such additions can be made which are based on material found in the course of search. He also placed reliance on the order of the Tribunal Vizag Ben....
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.... and the assessment has to be framed on that basis in the light of material that had come into the possession of the assessing authority during the course of search which was the foundation of proceedings. The correctness or otherwise of the returns filed in pursuance of the notice under section 158BC(a) has to be examined with reference to the material in the possession of the assessing authority having nexus to assessment of "undisclosed income". " Bhagwati Prasad Kedia v. CIT, 248 ITR 562 (Calcutta) "The Explanation to section 158BA of the Income-tax Act, 1961, makes it clear that the Legislature thought it fit to make a distinction, between the block assessment and the regular assessment. In the case of regular assessment, the Assessing Officer is free to examine the veracity of the return as well as the claims made by the assessee, whereas the undisclosed income is taxed by way of block assessment as a result of search and seizure. The logic behind the two different modes of assessment is that concealment of income and claiming deduction or exemption in respect of a disclosed income cannot be treated at part. The former is an offence which goes to the root of the matter an....
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....IV-B of the Act. The addition did not fall within the Chapter XIV-B." 15. Even if it is presumed that post-search enquiries have resulted in detection of certain undisclosed income, though it is not relatable to the evidence found as on the date of search then also, Mumbai Bench of the Tribunal, in the case of Morarji Gokuldas Spg. & Wvg. Co. Ltd. v. DCIT, 95 ITD 1 (MUM) (TM), while considering an identical situation, held as follows:- "8. Block period for which the assessment is to be made under Chapter XIV-8 means the period comprising previous years relevant to ten assessment years preceding a previous year in which the search was conducted under section 132 or any requisition was made under section 132A, and also includes in the previous year in which such search was conducted or requisition made the period up to the date of the commencement of such search or as the case may be the date of such requisition. Therefore, the assessment for the block period under chapter XIV-8 can be made of the undisclosed income only up to the date of commencement of search or the date of the requisition and not of the period thereafter. Section 1588A provides for assessment of undisclosed inc....
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....,23,760 19,05,822 2007-08 81,03,750 12,98,420 35,10,400 2008-09 1,04,11,340 16,60,906 39,37,357 20. Considering the net profit on suppressed turnover as also the disallowances made under various heads of expenditure as above, the total income for the assessment year 2006-07, 2007-08 and 2008-09 was assessed at Rs. 3,57,19,490, Rs. 5,08,05,040 and Rs. 4,97,61,860 respectively. Being aggrieved against the assessments so made the assessee went in appeal before the CIT(A). 21. The CIT(A) given a finding relating to the computation of net profit on the suppressed turnover that AO to adopt a net profit figure of 15% on the agreed suppressed turnover for arriving at the undisclosed income on account of suppressed turnover for the AY 2006-07, 2007-08 and 2008-09 as follows: A.Y. Suppressed turnover (Rs.) Net profit @ 15% (Rs.) 2006-07 7,04,32,296 1,05,64,845 2007-08 7,63,80,984 1,14,57,148 2008-09 5,68,69,360 85,30,404 22. Regarding the issue relating to disallowance of expenditures under the heads 'production expenditure', 'employees' benefits' and 'administrative expenditure' the....
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....ging Director had himself conceded the suppressed turnover the same was not disputed in the return filed u/s. 153A. However, since the net result suggested to the Managing Director was too high the assessee company had admitted nearly 8% income on the admitted suppressed turnover in the return. The Assessing Officer was of the opinion that the Managing Director had himself accepted the gross profit as 46% which is supported by the gross profit admitted in the regular return. Thus, the net income assessed by the AO on the admitted suppressed turnover was around 41.4% for AY 2006-07 and 42.91 % for AY 2007-08 and 2008-09 which is too high and unachievable in this line of business. It was submitted that the assessee is in the business of preparation and sale of food articles at various counters especially in twin cities. The net profit declared in the regular return was nearly 4%. The major expenditure incurred by the assessee is on preparation of food articles which included the cost of raw material i.e. provisions and other items and labour charges incurred for cooking and other employees. The income estimated by the AO is too high considering the nature of business. It was also sub....
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....4,45,356 1,25,22,161 1,38,55,248 26. Hence there is no disproportionate increase in any of the expenditure. The addition is only on wrong presumptions. The assessee submitted that the AO failed to appreciate the fact that the books of ale were produced before him and in support of the genuineness of the expenditure claimed the assessee filed the data for one assessment year i.e. 2007-08 for the payments made through banking channels and payments made through cash under each head. The table shows that more than 50 per cent of the material was purchased through the banking channel. Further, all salary payments were supported by the relevant payment of statutory remittance like PF and ESI. All the employees are on the rolls of PF authorities and the fact that the assessee was paying regularly the PF contribution indicates the genuineness of the expenditure which the AO has totally ignored. Even the estimation of expenditure at a fixed percentage of total amount has resulted in the disallowance of certain items like property tax, trade licences and rental payments which were totally paid through banking channel. Further, for the payment like rent, advertisement charges and s....
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....g figures from here and there, the right course is to reject the books of accounts of the assessees and to estimate the income on the basis of sales disclosed or found during the course of search. Admittedly, in the seized documents, the assessee has declared more sales than the sales disclosed in the regular books of accounts of the assessees. In the seized material, the total sales was disclosed at Rs. 16,27,36,575.50 ps. for the period of 1.4.1997 to 31.3.2002 but the assessment years involved are from 1999-2000 to 2002-03. Therefore, the sale for the assessment year 1998-99 is to be excluded from the total sales for determining the net profit of the assessees. During the course of hearing the assessee has furnished a chart declaring therein that how much profit was declared by the assessees having offered the additional income. From this chart, the net profit shown by the assessee is between 2.38% to 9.56%. The mean of the profit comes to 5.85%. The assessee has also furnished the details of the additions if particular percentage is adopted to determine the net profit. For the sake of reference the extract of the chart is hereunder:" 28. On the other hand, the DR strongly oppo....
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....AO, which is confirmed by the first appellate authority are highly excessive and as they do not bear any relationship with the sales figures accepted by the Commercial Tax Department as well as by the AO and CIT(A) themselves. As against the estimate of Rs. 26,51,292/- undisclosed turnover admitted over and above the recorded turnover of Rs. 91,10,718/- and Rs. 7,88,41,158/- unaccounted sales estimated by the revenue, for the period prior to 15.11.2001, we direct the AO to adopt the following figures as the total turnover of the assessee for the period 16.11.2001 to 2.1.2003: a) Sales of AC and Roof Garden Section (Based on IPR's and ISR's) Rs.1,91,90,088/- b) Sales from General and Parcel Section- (Based on sales tax inspection) Rs. 60,00,000/- From this total, the sales disclosed to the department, which are recorded in the regular books of accounts, have to be eliminated and only the balance should be treated as undisclosed sales of the assessee. Coming to the issue of gross profit, we hold the finding of the AO as concurred by the first appellate authority that the gross profit should be estimated at 35% of undisclosed turnover for the AC and Roof Garden S....
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.... the assessing officer. We do not find any fault in the approach of the lower authorities. It is for the assessee to substantiate its case that it is only the profit in relation to the unaccounted sales that has to be considered for any addition and not the entire amount of sales, by furnishing necessary evidence in the form of unaccounted purchases. Assessee having failed to discharge the burden that lies on it, the lower authorities were justified in making the impugned addition. The case-law relied upon by the learned counsel for the assessee has no application to the facts of the present case, since the assessee herein has not established that the purchases corresponding to the unaccounted for sales have also not been accounted for by it. In the circumstances, we uphold the orders of the lower authorities, and reject the grounds of the assessee in this appeal." 29. Further he relied on the judgement of jurisdictional High Court in the case of Rajnik & Co. vs. ACIT (251 ITR 561) (AP) wherein held as under: "Held, that the assessee was not able to dispute the findings of the Assessing Officer as well as the Tribunal where the seized material had shown that there was suppressio....
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....ailable in any record. The assessee has made declaration vide letter dated 22.1.1999, and such letter was not alleged to have been obtained under threat or coercion. This was voluntary declaration. The assessee estopped the Department for making further investigation. In case the assessee felt that the said declaration was not correct, then it was having sufficient time to say that declaration be not accepted. The fact of receipt of unaccounted cash was in the exclusive knowledge of the directors and they were aware of the expenses, if any incurred. During the course of proceedings, the assessee had not made any attempt to correlate the unaccounted cash receipts from a particular client vis-a- vis the additional work done to establish that profit margin was not 50 per cent. There was no evidence to suggest that unaccounted cash receipts were only for additional work. The Managing Director of the company vide letter dated 22.1.1999 addressed to the Authorised Officer, offered a sum of Rs. 1.07 crores as undisclosed income. Such letter had been filed during the post-search enquiries conducted by the Investigation Wing of the Department. Such letter was voluntary and there was no pl....
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....the books of account. The assessee itself filed the declaration of undisclosed income of Rs. 1.07 crore. Hence, there was no onus on the Revenue to establish that such undisclosed income was in the form of assets etc. Section 158B(b) defines undisclosed income and such income can be based on entries found in the seized records. Therefore, the Commissioner (Appeals) was justified in determining the undisclosed income to the extent of Rs. 1.07 crores." 31. We have carefully gone through the above submission of the parties. Regarding computation of undisclosed income on the suppressed turnover, it is a fact on record that the assessee does not dispute the suppressed turnover worked out by the Assessing Officer. What the assessee actually disputes is the percentage of net profit worked out by the AO. The AO while working out the net profit has basically relied on the gross profit ratio of 46% for the assessment year 2006-07 and 47.68% for the AY 2007-08 and 2008-09. From these, he has given a deduction of 10% to work out the net profit on the suppressed turnover. That way, the AO has worked out a net profit on the suppressed turnover as against the normal profit disclosed by the asses....
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....d 2119-2007 in ITA No. 142 of 2004, besides the decisions of various Benches of tribunal including the Hyderabad Benches in similar matters, it is only the net profit and not the gross profit rate that is relevant to disclose the undisclosed income, since even in respect of gross profit in relation to~ suppressed turnover, certain amount of indirect cost are to be incurred by the assessee and it is after exclusion of the same from the gross profit that one can arrive at the net profit and most importantly undisclosed income in relation to such unaccounted turnover. This more so when the unaccounted turnover forms a significant portion of the total turnover and is estimated as a percentage of the accounted turnover as high as 35% in the present case. The basis for the determination of the undisclosed turnover in the present case is the seized material which relates to Dee. 2001 and Jan. 2002 forming part of assessment year 2002-03. that being so, we are of the considered opinion, considering various factors which prevailed in different years as discussed in earlier para such as non-production of wafers and confectionery items in earlier years, actual gross loss determined in one yea....
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....see for the assessment year 2008-09 the rate of profit is at 10.86% on the reason that there was an extraordinary receipt of royalty of Rs. 75.25 lakhs in this assessment year . Average net profit : 5.38% 34. In this case, the Assessing Officer has not only enhanced the gross profit rate but also increased the estimate and increased the quantum of turnover. The assessee has not disputed the quantum of suppressed turnover. However, the assessee challenged the rate of net profit and filed a chart as above. As regards the net profit, we find that in earlier years records and past history could be the basis to determine the rate of profit provided if the book results are actually accepted by the Department in earlier years. In the present case all the assessments from 2002-03 to 2008-09 are subject matter of dispute before us and we cannot take the result of these assessment years as base to determine the net profit. In our opinion, considering the nature of industry and prevailing market conditions, it is reasonable to estimate net profit at 8% of the suppressed turnover. Accordingly, we direct the Assessing Officer to estimate the income of the assessee at 8% of the suppressed turn....
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....ssessing Officer. Accordingly, in my view, a flat disallowance of 15% on the total expenditure is unwarranted. In this line of business, the majority of the production expenditure relates to purchase of provision, fire, bread, vegetable, mutton, chicken, fish etc which are procured from the open market from unorganized sector. There is all likelihood of payment of cash due to insistence of the seller for such procurement. At the same time, it also cannot be ruled be certain inflation of expenditure especially where the payment is cash. Considering the line of business, and also considering the fact that no specific instance of inflation of expenditure has been pointed out by the ASSESSING OFFICER, disallowance of 15% flat is on higher side and even sustained by CIT(A) the said disallowance at 7% on the cash expenditures is also higher side. In our opinion, the disallowance at 5% of cash expenses other than statutory payments and payments to Government authorities and the amount subjected to TDS is sufficient in view of the discrepancies noticed by the authorities. For this purpose we place reliance on order of the Tribunal in the case of M/s GSP Infratech Development Ltd., Hyderaba....