TaxTMI 
TaxTMI 
2012 (2) TMI 536
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....12.2010. Since common issues are involved, 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 Jan....
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....noring the fact that the assessee has made most of the payments through banking channels and the other expenditure being supported by appropriate statutory 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 su....
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....rials relating to A.Y. 2004-05. According to the AR, the Assessing Officer shall confine to the determination of undisclosed income only to the incriminating material unearthed 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....
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....b section 1 to section 153A provides that if assessment for any of the assessment year falling within in a period 6 years mentioned in clause (b) of sec. 153A (1) is pending on the date of search, 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....
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....ssment in pursuance of the returns filed by the assessee for such period. From a perusal of section 158BB of the Income-tax Act, 1961, it is clear that the returns are required to be filed in pursuance of a notice under section 158BC(a) 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 seiz....
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....sing Officer, thereafter, referred the matter to the Department Valuer, who valued the property at Rs. 6. 66 lakhs and accordingly, the difference had been added to the income of the assessee as undisclosed income: Held, that the above basis clearly showed that the Department had not understood the scope of Chapter XIV-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 ....
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....it and Loss A/c in line with the discussion and analysis made in the assessment order for the assessment years 2006-07, 2007- 08 and 2008-09. The disallowances made under various heads in the asst. year are as under: A.Y. Production expenditure (Rs.) Employee benefits (Rs.) Administrative Expenditure (Rs.) 2006-07 47,19,097 6,23,760 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....
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....7-08. The assessee submitted that the AO also estimated turnover for the financial year 2006-07 though there was no material to suggest any suppression for that year. He stated that in the statement recorded u/s. 132( 4) in response to question No. 9 the Managing Director had indicated a net profit of 95 lakhs on the estimated suppressed turnover of Rs. 7 ,04,32,296/- giving a net profit rate of 13.5 per cent. Since the Managing 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 foo....
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....s given at page-2 of the assessment order for AY 2008-09. In this table the figures for AY 2008-09 were not taken correctly. The actual figures for AY 2008-09 are as under: Particulars Turnover (Rs.) Production expenses (Rs.) Administrative expenses (Rs.) Employees expenses (Rs.) Net profit (Rs.) As per AO 12,76,14,593 1,38,55,248 6,41,32,516 3,94,55,369 1,25,22,161 As per ROI 12,76,14,593 6,94,40,933 3,94,45,356 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 o....
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....Arts Moving Media, Hyderabad in ITA Nos. 305 to 308/ Vizag/2008 wherein it was held as under: "14. Having carefully examined the seized material and the other record available before us, we are of the view that where none of the statements of the entries (the statements found in the course of search or the books of accounts) are complete and supported by evidence, the true profits of the assessees cannot be worked out and in this type of situation, instead of picking 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 fu....
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....e AO based on ISR and IPR reports is acceptable and this gives a figure of Rs. 1,91,90,088/-. A part of this sales (approx. 30%) is routed through the general sections, the estimate of Rs. 60 lakhs as general section sales is in our opinion, reasonable. The AO has recorded a finding that the suppression of sales is to the tune of 90.50%. This fact is recorded by the CIT(A) in para 3(c)(i) of his order. While os, the estimate of Rs. 8.72 crore is against this finding. Thus, as the estimations made by the 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....
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....income qf the assessee. The CIT(A) was of the view that the contention of the assessee that it is only the profit on the unaccounted for sales which is liable to be added, is acceptable only if the assessee establishes that not only the sales but also the purchases in relation to those sales were unaccounted for. Despite several opportunities given, assessee could not furnish particulars of unaccounted purchases which yielded income out of the unaccounted for sales. In that view of the matter, the CIT(A) upheld the addition made by 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 pur....
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.... respect of an item, then the entire unrecorded sales turnover is income as corresponding purchases are debited. However, if sales are made outside the books of account by making purchases outside the books of account, then profit earned from such turnover is to be added as income. In the instant case, there was no material to show that unaccounted cash receipts were only in respect of additional work executed. During the course of search, certain papers in torn condition represented the cash receipts. It was admitted that these receipts were not available 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 t....
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....he Commissioner (Appeals) was justified in determining undisclosed income on the basis of letter filed by the assessee. It was also contended by the assessee that the revenue had not been able to establish that assets or expenses corresponding to undisclosed income had been found during search. The assessee had shown undisclosed income to the extent of around Rs. 68 lakhs and had not explained as to where such amounts stood invested. It is not the case of the assessee that undisclosed income had been returned on the basis of assets or expenses not recorded in 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 t....
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....net undisclosed income." 32. At para 9 of the said order, the Hon'ble ITAT Hyderabad further observed as under: "As for estimation of undisclosed income in relation to such undisclosed turnover determined at 35% of accounted turnover, we are of the considered view that the lower authorities were not justified in determining the undisclosed income by adopting gross profit rate at the relevant years/period. It is a settled position of law as laid down 'among others by the Delhi High Court in the case of CfT Vs. Satish Kukar Chandana, New Delhi vide judgement dated 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 turnove....
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.... Amount % Amount % Amount % 2006-07 70,432,296 1,513,670 2.15 25,355,627 36.00 10,564,845 15.00 2007-08 76,380,984 5,758,950 7.54 28,780,355 37.68 11,457,148 15.00 2008-09 56,869,360 4,356,084 7.66 21,428,375 37.68 8,530,404 15.00 Total 203,682,640 11,628,704 75,564,357 30,552,397 Statement showing actual net profit rate declared by the assessee Income on regular turnover (%) 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 3.81 4.66 4.63 3.96 5.27 4.46 10.86* *According to the assessee 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 ne....
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....ssion and security services, in fact TDS was also deducted. 36. The AO himself has observed in the assessment order that the assessee had given a break up of production expenditure dividing into purchase of raw materials and packing material. He further observed that it is impossible to verify each and every bill and voucher in support of the production expenditure. Thereafter, he made a disallowance of 15% of the production expenditure presuming that there is always a chance of inflation of expenditure under this head. The AO has not pinpointed any specific item where there has been inflation of expenditure. Neither any incriminating material relating to inflation of expenditure has been found and discussed by the Assessing 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 ....