TaxTMI 
TaxTMI 
2016 (12) TMI 1766
X X X X Extracts X X X X
X X X X Extracts X X X X
.... initiated against M/s Abdul Gadhafi & others, said to be his business associates in other ventures. Thereafter, the authorities issued notice under Section 153A r/w Section 153C to the appellant (the Assessee). In response, he declared his income for AY 2002-03 as Rs. 2,32,840/-. 3. Relying on the documents allegedly found during search- especially, a bill book relating to the period from 1.04.2006 to 30.07.2007-the authorities estimated the assessee's income as follows: (a) undisclosed business income: Rs. 8,89,348/-; (b) agriculture income treated as income from other sources: Rs. 50,000/-; and (c) income from other sources (interest on lending): Rs. 2,34,000/-. 4. The authorities, after issuing a notice to the appellant u/s 143(2) and 142(1), and after considering his explanation, through Annexure-A order dt.30.12.2009, assessed the appellant's income for that AY at Rs. 14,06,190/-. For the rest of the years, too, the assessment was made on the same lines. Appeal Before the CIT (Appeals): 5. Aggrieved, the appellant filed an appeal before the Commissioner of Income Tax (Appeals)-1, Kochi, in I.T.A. No. C-236/CIT(A)-I/09-10, which along with other appeals was....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 10. Drawing our attention to Sections 68 to 69C of the Act, the learned Senior Counsel has contended that assessee's unexplained loans or gifts, unaccounted-for assets, investments, or expenses are liable to be brought to tax under deeming provisions in the financial year of such investment or expenditure as found. Identification of the source of corresponding income, contends the learned Senior Counsel, is required under law. He has also submitted that the levy of interest u/s 234B is illegal, unsustainable, and contrary to the relevant statutory provisions. 11. The learned Senior Counsel has placed reliance on CIT v. Padamchand Ramgopal [1970] 76 ITR 719 (SC) and State of Kerala v. C. Velukutty [1966] 60 ITR 239 (SC). On the proposition laid down in Hotel Meriya, relied on by the Revenue, the learned Senior Counsel in his reply submits that it was decided based on the assessee's admission. Revenue's: 12. Sri P. K. Ravindranatha Menon, the learned Senior Counsel for the Revenue, has submitted that Sections 153A and 153C of the Act empower the AO to reopen and reassess the accounts of any assessing year up to six years. He has taken us through Hotel Meriya, ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....1,36,40,319/- 1,15,43,534/- 2003-04 6,69,175/- 1,51,55,910/- 1,28,26,149/- 2004-05 7,10,199/- 1,68,39,900/- 1,42,51,277/- 2005-06 11,23,463/- 1,87,11,000/- 1,58,34,752/- 2006-07 19,98,934/- 2,07,90,000/- 1,75,94,169/- 2007-08 19,15,914/- 2,31,00,000/- 1,95,49,077/- 2008-09 53,96,593/- 2,54,10,000/- 2,15,03,985/- Declared Income, Assessed Income, and Demanded Tax: AY Income Declared Initially Rs. Revised Income Rs. AO's Reassessment Rs. Total Tax Demanded Rs. 2002-03 Rs. 1,05,314 Rs. 2,32,480 14,06,190 7,12,610 2003-04 1,00,605 1,88,800 24,55,550 11,87,940 2004-05 1,24,140 2,54,470 53,54,340 27,78,570 2005-06 1,35,372 2,13,990 52,97,530 26,42,860 2007-08 92,550 92,250 26,94,770 12,06,820 2008-09 -------- 4,09,450 28,82,220 10,15,100 16. The above tabulation would show that as against the declared turnover of Rs. 13,44,729/- for the relevant Assessment Year ('AY'), the suppressed turnover over the declared turnover was estimated at Rs. 1,15,43,534/-. It was confirmed by....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nd other documents. More importantly, Section 132 of the Act confers on the IT authorities wide powers of search and seizure. Here it needs no elaboration for, concerning the search conducted in the assessee's house, there is no issue raised about its legality. 21. Explanation to Section 132 (4) of the Act clarifies that the evidence so collected would be relevant for any investigation connected with any proceeding under the Act. A person's examination is not only regarding any books of account, other documents, or assets found because of the search, but also regarding all matters relevant to any investigation connected with any other proceedings under the Act. 22. Now we may get down to the brass-tacks. Once a search is conducted under Section 132, the AO will issue a notice calling on the assessee to furnish the return of income for each assessment year falling within six assessment years "immediately preceding the assessment year relevant to the previous year in which such search is conducted or requisition is made". The explanation to the provision adds that in an assessment or reassessment made concerning a particular assessment year, the tax will be chargeable a....
X X X X Extracts X X X X
X X X X Extracts X X X X
....de till the date of search or requisition, the assessment must be based on the income disclosed in those returns; (c) If the due date for filing a return of income has expired, but no return of income has been filed, the following are the options: (A) based on entries as recorded in the books of account and other documents maintained in the normal course on or before the date of the search or requisition, if those entries result in the computation of loss for any previous year falling in the block period; or (B) based on entries as recorded in the books of account and other documents maintained in the normal course on or before the date of the search or requisition, if the income does not exceed the maximum amount not chargeable to tax for any previous year falling in the block period; (d) if the previous year has not ended or the date of filing the return of income under sub-section (1) of Section 139 has not expired, it must be based on entries relating to such income or transactions as recorded in the books of account and other documents maintained in the normal course on or before the search or requisition relating to those previous years; ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... C. Velukutty, the Apex Court has quoted with approval the Privy Council decision in CIT v. Laxminarain Badridas [1937] 5 ITR 170, to exposit the expression "to the best of his judgment" under Section 12 (2) (b) of the Travancore-Cochin General Sales Tax Act, 1125 M.E. (XI of 1125): "He (the assessing authority) must not act dishonestly, or vindictively or capriciously because he must exercise judgment in the matter. He must make what he honestly believes to be a fair estimate of the proper figure of assessment, and for this purpose he must, Their Lordships think, be able to take into consideration local knowledge and repute in regard to the assessee's circumstances, and his own knowledge of previous returns by and assessments of the assessee, and all other matters which he thinks will assist him in arriving at a fair and proper estimate; and though there must necessarily be guess work in the matter, it must be honest guess work. In that sense, too, the assessment must be to some extent arbitrary." 32. Velukutty adumbrates the limits of the power implicit in the expression "best of his judgment". It holds that 'judgment' is a faculty to decide matters with w....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e. 37. Let us examine Abdulai deeper. On facts, Abdulai holds that the assessee has neither pleaded nor established any justifiable reason for his not entering in the accounts the transactions noted in the bill-book seized. In such a situation, it was not possible for the Sales Tax Officer to find out precisely the suppressed turnover; he could only estimate it based on the material before him. 38. Abdulai disapproves of an approach that insists on the assessing authority's having material before him to prove the exact turnover suppressed. If it were insisted upon, there would be no "best-judgment" assessment. The assessee cannot be permitted to take advantage of his own illegal acts, for it is his duty to place all facts truthfully before the assessing authority. If he fails to do his duty, he cannot be allowed to call upon the assessing authority to prove what turnover he had suppressed, which fact is within his personal knowledge. The AO's task in finding out the escaped turnover was by no means easy. In estimating any escaped turnover, Abdulai acknowledges, inevitably there is going to be some guess- work. The assessing authority while making the "best-judgment" a....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rores. Since the assessee had not included the sales in the trading account filed along with the return of income, the AO reassessed the sales backwards in the entire block-period from AY 2002-03. Estimation of Turnover of Sales-Net Profit-Addition of 5% 44. The learned Senior Counsel for the assessee has emphasised that during the search the authorities found no discrepancy in the stock. Further, he has brought to our notice the defence set up by the assessee: The impounded bills were adjustment bills issued by the assessee for the sales effected to dealers in Kerala. Compared with Kerala, Mahe (Pondichery) has a low tax-rate. So dealers in Kerala get bills from Mahe for which they give 1% commission to the assessee. The assessee has asserted that it is a normal practice. But, as has been held by the AO, the assessee showed no income by way of commission in the returns filed. 45. Absent any cogent explanation from the assessee, the AO estimated the sales at Rs. 1,36,40,319/- by reducing 10% from each year from the sales effected for the period 01-04-2006 to 31-03-2007. He computed the GP @ 6.52%, which comes to Rs. 8,89,348/-. He added this amount to the assessee's to....
X X X X Extracts X X X X
X X X X Extracts X X X X
....return, but showed it in the statement-of-account filed during assessment proceedings. Indeed, the assessee's claim seems to be against the established practice of reckoning income from agricultural activities. Excluding the house, whatever remains of 21 cents may not be, as has been concurrently held, sufficient to generate the income shown by the assessee from agriculture. We, therefore, find no reason to interfere with the concurrent findings entered by both the fora on this aspect - a question of fact. For AYs 2003-04 and Other AYs: 49. The next issue concerns the AYs 2003-04, 2004-05, and 2005-06. It is about the income in the form of interest on Fixed Deposits the assessee had with Gokulam Chit Funds. Indisputably, the assessee showed fixed deposits; but, correspondingly, failed to reveal in the returns any interest. Absent any explanation from the assessee, the AO adopted interest @10% per annum. To be more explicit, the assessee showed Rs. 10 lakh fixed deposit from 13-11-2002 to 31-03-2005, and Rs. 5 lakh from 21-01-2003 to 31-03-2009. As noted, he showed no income as interest on those deposits. 50. Given the size of the deposits, it is but inevitable that the....