TaxTMI 
TaxTMI 
2019 (2) TMI 899
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....6,10,799/- to the applicant out of the total addition of Rs. 83,56,300/- which was made to the income of the assessee on account of undisclosed income. 2. That the Commissioner of Income Tax Appeals has erred in law and on facts by restricting the addition made only to the amounts mentioned in the seized documents and ignoring that these documents acted as a base for rejecting the books of accounts and doing further estimation of unaccounted income. 2. The facts of the case are that there was search operations conducted against the assessee and its Directors on 10.02.2009. During the course of search, certain papers were seized from the residence of Mr. Virendra Kumar Gupta (VK Gupta), one of the Directors of Assessee Company. Subsequently, proceedings were initiated u/s 153A of the Income Tax Act, 1961 for the A.Y. 2003-04 to 2008-09 and normal assessment proceedings u/s 143(3) for A.Y. 2009-10. The department used the notings on papers marked as A3, A6 seized from the residence of Sh. V.K. Gupta, the director, A-11 seized from the corporate office of the Assessee and Annexure A-5 from the factory premises of the Assessee. The notings in these papers allegedly containe....
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....ed in the paras reproduced earlier. However, the Hon'ble Delhi High Court in its decision dated 18/05/2012 upheld the decision of Commission in entirety. It observed that the assessee should not have any grievance if the Commission holds that the paper in question can be used against third party because the Commission's order cannot become a shield to any third person (para17 of the order). It also held that the order was complete and conclusive as far as the petitioner was concerned. The third person was not before the Commission. The Commission's Order needed to be conclusive as far as the Petitioner is concerned and it need not go in to the question of undisclosed income earned by the third parties. ( Para 18 of the Hon'ble High Court Order) 2.2 On the issue of M/S GUPTA PERFUMERS P. LTD's. grievance that the Commission should have rejected its application in such circumstances, the court held that the argument needs to be rejected on the principle of approbate and reprobate. It held that Settlement Commission has accepted the full disclosure made by the assessee, though there was dispute between the ways it has been earned. Since the assessee is insisting that he has made fu....
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....ted to the main appeals . However we were informed that the assessee has moved for restoration of those cross objection. The issue raised being independent of the main appeals. The matter is apparently pending. For the years under our consideration, the tax effect of the departmental appeals being above the threshold level, the same have been taken up to decide on merits. 2.8 Reading of the assessment order reveals that the addition in context of undeclared sales and consequently undeclared income is primarily based on Annexure A-3, A-5, A-6 and A-11. Rejecting the Assessee's contention that the papers belong to M/s Gupta Perfumers P. Ltd., the assessing Officer went about verifying the notings on the papers of above referred Annexures. He found that while there were certain sales recorded which do not at all feature in regular books of accounts and there were also some other sales which were partially reflected in regular books of accounts. He came to hold that this is a modus operandi used by the company regularly, not only in the search years concerned but in other years as well. Thereafter in order to compute the quantum of undisclosed sales, he worked out ratio of such unde....
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....ach figure mentioned therein has to be given interpretation by adopting same standards. While deciding documents, found during search, departmental authorities cannot pick up certain figures from one document and tally them with other documents. * Vivek Kumar Kathotiav. Deputy Commissioner of income-tax[2013] 32 taxmann.com 331 (Kolkata - Trib.) . It is a settled legal position that the seized documents are required to be read asa whole i.e. accepted or rejected as a whole. * CIT v. D.D. Gears Ltd, [2012] 25 taxmann.com 562 (Delhi) : The seized material is to be considered as a whole and not selectively. Therefore both income part and expenditure part reflected in seized material has to be taken note of. 6.3.5 The Hon'ble Gujarat High Court in CIT v. Standard Tea Processing Co. Ltd [2013 ] 34 taxmann.com 31 (Guj.) on which Ld. A.R. has relied, has held that it is not correct to extrapolate the income on the basis of Modus Operandi without there being any evidence of material on record. 6.3.6 In the present case since the seized Diary A-5 is complete in itself as a record of both accounted as well as unaccounted sales and there is no material ....
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....act that such notings have been found in more than one year. 4. On the other hand, the Ld. AR of the assessee strongly relied on the order of the Ld. CIT(A). According to him, the assessee still holds that these papers do not belong to the assessee and notings thereon do not pertain to it. He reiterated that these papers belong to M/s Gupta Perfumers P. Ltd. However in the eventuality of the papers and the notings on these papers being held to be belonging to the assessee, he stated that there were a large number of decisions, holding the Ld. CIT(A)'s stand, that on the basis of mere notings on the papers seized, one cannot lead to the presumption that entire sale is understated, unless there is other documentary evidence. 5. We have heard both the parties and perused the records, especially the impugned order of the Ld. CIT(A). We note that the judicial position on this issue is quite clear. It is the seized material which gives rise to quantification of unaccounted sales and consequently unaccounted income. The seized material in the instant case contains notings in respect to certain unaccounted sales, namely with respect to 59 parties. The assessment order does not bring ....
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.... Ltd. and the income arising out of that has been offered to tax before the Settlement Commission. The same has not been accepted by the Settlement Commission. The order of the Settlement Commission stands upheld by the Delhi High Court and the matter is pending before Hon'ble Supreme Court. As per the A/R the tribunal can take the decision on the issue of ownership of the documents because the order of the Settlement Commission, as supported by that of the High Court, only gives a finding with respect to the papers not belonging to M/s Gupta Perfumers P. Ltd. It was stated that in fact the question has specifically been kept open by Settlement Commission for the assessing authority to determine as per para 90 of its order. According to him the explanation given by the assessee before Settlement Commission holds good, namely that the assessee and M/s Gupta Perfumers P. Ltd. being involved in same business and with almost same set of customers, the notings in the papers pertains to M/s Gupta Perfumers P. Ltd. on the basis of the assertion of the concerned Director. Therefore he insisted for a finding on the issue. 6.2 The Ld. DR on the other hand referred to the order of the Sett....
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....her assesse or the "other person", then assessment made in the hands of other party will become nonest or a paper assessment. So long as finality to the issue of ownership over the income is not settled, both the assessment will survive but no recovery can be made from the person in whose hands a protective assessment is made. From the AO's point of view, the assessment made in the hands of M/s Gupta perfumes should be considered as a protective assessment (as he does not agree that disputed income belongs to M/s Gupta Perfumes) and assessment in the hands of M/s Gupta & company should be considered as substantive assessment (as AO thinks that disputed income belongs to M/s Gupta & Company). However, this categorization is not sacrosanct and whenever finality is achieved, say protective assessment is held as final, there cannot be a valid existence of other assessment which is initially claimed as substantive assessment. In the present case, incidentally the assessment of the income arising from the seized documents has attained finality in the hands of M/s Gupta Perfumes by virtue of section 245 I as result of order of Hon'ble Settlement Commission passed under section 245 D(4). T....
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....mers P. Ltd. and the addition was to be sustained in its hands, this will tantamount to taxing the same income twice, once in the hands of M/s Gupta and Co. P. Ltd., once as per present proceedings emanating from the orders of the Assessing Officer u/s 153A and another in the hands of M/s Gupta Perfumers P. Ltd. as per Settlement Commission's order dated 10/05/2012. It was stated that the income offered by M/s Gupta Perfumers P. Ltd. before the Settlement Commission was computed out of the notings of the papers seized during the course of the search on assessee's group, the same on which the Assessing Officer has relied. The fact that Commission decided to tax it because it was offered by M/s. Gupta Perfumers P. Ltd. and still holding that the papers do not belong to M/s Gupta Perfumers P. Ltd., would make it in the nature of a protective assessment. On the other hand the present assessment having given a finding that the papers belong to assessee company would make it a substantive assessment. As per him in such a scenario of protective vs. substantive assessment , only one assessment can survive and taxes can be recovered only against one of the assessment. Therefore the taxe....
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.... with the directions to the Assessing Officer to review the status of the income arising out of seized documents, as upheld, once the decision of the Hon'ble Supreme Court is available and realize taxes with respect to the additions upheld, only when the finality of ownership of the documents is put to rest by the decision of the Hon'ble Supreme Court. 7. Ground of Cross Objection No. 3.:- "3. On the facts and in the circumstances of the case, the learned C.I.T. (Appeals) erred in rejecting the relevant ground of appeal raised by the Respondent-company against rejection of the regular books of account maintained by the Respondent-company." 8. Since we have upheld the decision of the Ld. CIT(A) with respect to the unaccounted sales as computed on the basis of the notings on seized material, as aforesaid, this ground does not survive. The assessee seems to have kept it open because of its stand that the papers do not belong to it, but as already held, the decision of the Ld. CIT(A), in the facts and circumstances of the case, is reasonably justified, therefore, this ground is rejected. 9. Ground of Cross Objection No. 4.:- "4.On the facts and in the cir....
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....eport for the year, instead he took the rate of 33.10% being the maximum rate as per the tax audit report for the period from the A.Y 2003-04 to A.Y. 2009-10. Thereby he made an addition of Rs. 1,12,14,300/- on this account. 14. The Ld.CIT(A) holding, as in other assessment years that the addition has to be restricted to the income reflected in the seized papers worked out the unaccounted sales at Rs. 2,11,82,627/-. He has further did not agree with the assessing officer's method of not adopting the G.P. rate of tax audit report as the assessing officer had done in another years, by holding that no reason has been given by him to take such a step. The Ld. CIT(A), therefore adopted the G.P. rate of 25.88%. He also applied the same G.P. rate of 25.88% on "other receipts" amounting to Rs. 25,38,969/-. Consequently, the total addition sustained by the Ld. CIT(A) was Rs. 61,42,176/- and the assessee got a relief of Rs. 50,72,124/-, which does not any interference. Therefore, in consonance with the decision of A.Y. 2008-09, as aforesaid, we find the Ld. CIT(A)'s decision is quite reasonable and in line with the present judicial position. Following the same, we uphold his order and rej....
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....ion on such defective inventory can be made Further, no evidenceof such huge purchases have been found recorded during the search. Thirdly, the appellant being in the business of manufacturing perfumes, would require fresh raw material and if it is presumed that the appellant had so much of stock as mentioned in items from Sl.No.775 to 813, then it would manufacture for 100of years without fresh purchases which is impossibility. The Ld. AO ought to have considered these aspects and given adequate margin/relief in the way he has given for repetition made in items 388 to 774. 7.10.9 Further, I also agree with Ld. AR. That once AO has rejected the books of accounts, it is not possible to compute stock as per books. The Ld. Assessing Officer has himself accepted that there are unaccounted purchases and seized documents reflect that there are unaccounted sales, then without considering these accounted sales, and if appellant is engaged in unaccounted business in earlier years also then it's impossible to work out the exact opening stock. Thus, the exact quantities of opening stock, purchases and sales up to the date of the search are not known or are indeterminate. In view of r....
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....d in confirming addition in respect of the alleged unaccounted income calculated on the basis of unaccounted sales allegedly recorded in the seized documents, to the extent of Rs. 61,42,176/- 2.(a) On the facts and in the circumstances of the case, the learned C.I.T. (Appeals) erred in holding that the relevant seized documents including Annexures A-3, -A5, A-6 and A-11 and the transactions recorded therein belong to the Respondent-company by rejecting the submissions made before him that the said documents actually belong to M/s. Gupta Perfumers Pvt. Ltd. 3. On the facts and in the circumstances of the case, the learned C.I.T. (Appeals) erred in rejecting the relevant ground of appeal raised by the Respondent-company against rejection of the regular books of account maintained by the Respondent-company. 4.On the facts and in the circumstances of the case, the learned C.I.T. (Appeals) erred in rejecting the relevant ground of appeal raised by the Respondent-company to the effect that instead of applying the gross profit rate for working the profit of the company , only net profit rate should be applied. 19. As held for A.Y 2008-09 the addition sustaine....