TaxTMI 
TaxTMI 
2009 (11) TMI 1034
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....moter Shankar Poojary's residence. Simultaneously a survey u/s 133A carried out at assessee's business premises on 24.01.2001. The assessee filed return of income declaring total loss of Rs. 41,513/-. The AO completed assessment on total income of Rs. 37,32,010/-, details of which are as under:- "Subject to the above remarks, the total income is computed as under:- Net Profit as per P/L a/c Rs. 1,15,863/- Add: (i) Addition to the trading results As discussed above 3553915 (ii....
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....sp; Rounded off to 37,32,010/-" 3.1 The assessee filed appeal before CIT(A). The CIT (A) dismissed assessee's appeal. The assessee filed appeal before the ITAT vide ITA No. 5686/M/2004. The ITAT vide its order dated 21.10.2005 confirmed the order of CIT (A) in respect of main addition of Rs. 35,53,915/-. In respect of addition u/s 43B, it was directed the AO to allow the same if payment was made within grace period. The assessee filed M.A. No. 131/M/06 against the order of ITAT, which has been dismissed vide order dated 14.11.2006 by ITAT. The assessee filed appeal before Hon'ble Jurisdictional High court which has been decided vide Income Tax Appeal No. 144 of 2006, judgment dated 14.11.2008. The High Court admitted the appeal. The relevant Para 3 of the judgment are reproduced below:- "We admit this appeal and frame the following substantial question of law for consideration leaving all other questions....
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.... period the same may be allowed. The AO will decide the issue after providing reasonable opportunity of hearing to the assessee. Now only question remained to be examined in the case under consideration is in respect of addition of Rs. 35,53,915/- on estimation of sale in ground No. 2 of assessee's appeal. Ground No. 1 is general in nature stating total addition made by the AO. 5. The facts relating to the issue are that a survey action u/s 133A was carried on 24.01.2001. There was also search u/s 132 on residence of promoter/ partner of assessee firm, Shankar Poojari and Manager, Shri Raghuram Poojari. During the course of search, some loose papers were found from the residence of Manager, Shri Raghuram Poojari. Shri Shankar Poojari one of the partners has admitted in his statement recorded on 24.01.2001 at the time of search that figures appearing on page No. 26 of loose paper file no. A-9 is the actual sales figures of restaurants. During the assessment proceedings the AO asked the assessee to explain why book results should not be rejected in absence of primary evidence and verification of sales. The AO recorded submissions of the assessee at page No.&nbs....
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....r as "Shiv Sagar Malad". Further the DDIT(Inv.) Unit-I, Mumbai vide Appraisal Report has given a finding in respect of the above referred seized loose paper No. 65 to 73 as pertaining to "shiv Sagar Malad" and the same is to be verified with the regular books of accounts. The relevant extract reads as under:- 'Pages 65 to 73 are various purchase bills of Shiv Sagar, Malad. The AO may verify the same with regular books of account." Accordingly these purchases are held to be unaccounted purchases of the assessee as the same are not reflected in the books of accounts maintained by the assessee. Admittedly as regards proof of sales recorded, no sales bills or primary evidence have been produced in support of the daily sales recorded in manually maintained sales register." 5.3 The monthly sale reproduced from page 4 of AO's order as under:- April-2000 3,69,700/- May-2000 4,41,962/- June-2000 3,90,736/- July-2000 3,85,716/- Aug-2000 4,36,413/- Sep-2000 4,24,302/- Oct-2000 2,23,314/- Nov.-2000 2,17,284/- Dec.-2000 10.82,227/- Jan.-2001 7,56,232/- Feb.-2001 1,45,443/- Mar.-2001 1,62,317/- 5....
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.... by the management. Assessee has also failed to substantiate the wide variance and steep fall in sales recorded for the month of April to November 2000 and January to March 2001 as compared to the actual sales of Rs. 10,82,227/- recorded for the month of December 2000 In view of the foregoing discussion in earlier paras, I hold that the books of accounts maintained by the assessee do not reflect the correctness or completeness of the accounts of the assessee as envisaged in Section 145(3) of the Income Tax Act, 1961 and it is not possible to arrive at the true profits of the assessee. I have no other option but to reject the book results and after careful consideration of the facts and circumstances of the case in entirety, I proceed to estimate the actual sales of the assessee based on the facts emerging from the analysis of the above seized paper and the statement of the partner Shri. Shankar Poojari. From the above chart, the total sales for one month amounts to Rs. 10,82,227/- based on the clarification of Shri. Shankar Poojari reproduced earlier. Therefore, the total sales works out to Rs. 1,29,86,724/- as against the sales as per P & L a/c fil....
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.... were recorded for the month of December 2000 in the books of accounts knowing very well that the records of the sales for the month of December 2000 were in the possession of the department and hence it disclosed the actual sales. However, these books of accounts were never produced before the survey party at the time of survey. The AO has found clinching evidence regarding the actual sales in the month of December 2000 being representative figure of the average sales being done on a monthly basis. The AO also found conclusive evidence that there was a large volume of unrecorded sales which were admitted by the appellant in the statement given by Sh. Shankar Poojary. The appellant's contention that these figures are already recorded in the books of accounts is a mere cover-up as these figures were recorded subsequently after the survey. The appellant's contention that in view of case laws cited, the statement recorded were only an oral reply which was not backed by any supporting evidence is totally baseless since the assessee itself admitted that the loose paper found at the time of search showed unrecorded sales and the partner himself explained the quantum of unrecorded sales a....
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....er period. Revenue relied upon the decision of the Supreme court in CST V. H.M. Esufali H.M. Abdulali [1973] 90 ITR 271(SC), which was distinguished on the ground that the estimate in that case related to the whole year on the basis of suppressed turnover for a short period in the same year, while in a block assessment one is concerned with block period of 10 years. The AO has made a reasonable estimation of sales after considering the fact that there would be holidays, leave periods etc. and gave substantial relief to the assessee by estimating the sales at Rs. 1.1 crores as against the money sales of December 10.82 lakhs. The AO has found other flaws in books of account such as unaccounted purchases for which the assessee took a plea that these represented purchases for another unit but however the seized paper found in A-9 revealed unaccounted purchases as explained by the AO in his assessment order in Page 4 where the list of parties were narrated for which the purchases were not reflected in cash book or any expenditure account. The assessee's explanation was again baseless as it claimed that these were not its purchases. The estimation made by the AO is therefor....
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..../95, dated 9.1.95. ii). Honey furnitures V. CIT [2008] 18 VST 70 (All.) iii). Ved Prakash Sanjya Kumar V. ACIT, 76 ITD 107 (chd.) iv). Chhabria Mkt Ltd. V. DCIT, 81 ITD 314 (Mum.) 6.1 The learned AR submitted that addition cannot be made on presumption basis without any material or evidence found during the course of survey. The undisclosed income if any was required to be restricted to evidences and material found. The learned AR in support of his contentions relied upon the following decisions:- i). Dhakeshwari Cotton Mills Ltd. V. CIT [ 1954 26 ITR 775 (SC). ii). Dhirajlal Girdharilal V. CIT [1954] 26 ITR 736 (SC) iii). Omar Salary Mohamed Sait Vs. CIT [1959] 37 ITR 151 (SC). 6.2 The learned AR submitted that there is no presumption that a tax return filed after the survey is the one furnished after the detection of unrecorded income. The learned AR in support of his contentions relied upon CIT Vs. Mayank Rotoplast Industries (Guj.) [2002] 253 ITR 442 (Guj) 6.3 The learned AR submitted that Books maintained as per sales tax assessment also completed and accepted the turnover, Sales tax record binding on Income Tax De....
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....& stock register not kept therefore it was held that AO was not justified. That case is not applicable to the assessee case as assessee kept all records which is required by Law. Even sales tax assessment completed on the basis of those records. 6.9 The learned AR while summarizing his arguments submitted that during the course of survey neither incriminating documents/materials nor excess stock was found, nor was any disclosure made. On the date of survey i.e. 24.01.2001, the accounting period not ended. The books of account were audited and no discrepancy was found. The learned AR submitted that sale for Dec., 2000 for which loose paper found in case of search of other person has been reflected in the books of account; therefore, there is no suppression of income. The sale declared to the sale department has been accepted by the sales tax department. The sales tax order filed has been placed at pages 191-196 of paper book. Neither the statement of partner nor any employees were recorded during the course of survey or in the course of assessment to verify the business of assessee firm. The firm dissolved on 10.04.2001. 7. The learned DR relied upon the order of CIT (A) and s....
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....ich is reproduced above in Para 5 of this order. The AO also noted that the assessee did not explain satisfactorily why the sale was less in other months in comparison to sale for the month of December, 2000. The AO rejected the books of account and estimated the profit. He made addition of RS 3553915/- The CIT (A) confirmed the addition made by the AO. Before coming to the issue under consideration we would like to state that the finding of the CIT (A) is neither on the case made out by the AO nor in accordance with the normal assessment provisions of section 144 and 145 of the Act .It appears from the order of the CIT (A) that he has decided the case treating that it was a block assessment and not in accordance with provisions of normal/regular assessment, section 145 and 144 of the Act. Therefore, the order of the CIT (A) cannot be accepted on the issue. It is to note that the case under consideration is required to decide under the provisions of normal assessments under sections 144 and 145 of the Act. According to those provisions, after rejection of books of account a reasonable and fair estimation of income/profit is to make. When matter was heard originally, the parties wer....
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....ounting standards to be followed by any class of assessee or in respect of any class of income. (3) Where the Assessing Officer is not satisfied about the correctness or completeness of the accounts of the assessee, or where the method of accounting provided in sub-section (1) or accounting standards as notified under sub-section (2), have not been regularly followed by the assessee, the Assessing Officer may make an assessment in the manner provided in section 144.]" 8.3 On Considering the section 145 of the Act in the light of facts of the case under consideration, we find that the in the case under consideration books of account was not produced at the time of survey, some purchases found not recorded in the books of account, Sales for the month of Dec. 2000 were recorded in books of account on the basis of loose paper related to the assessee found in a search case of other assessee, The auditor's report is qualified report , Primary vouchers were not produced before AO, Quantity details did not maintain , The AO also found conclusive evidence that there was unrecorded purchases/sales which were admitted by the appellant in the statement given by Sh. Shankar Poojary ....
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....involved some guesswork, emphasized that he must exercise his judgment after taking into consideration the relevant material. The view expressed by the Privy Council in the context of the Income-tax Act was followed when a similar question arose under the Sales Tax Act. A Division Bench of the Calcutta High Court in Jagadish Prosad Pannalal v. Member, Board of Revenue, West Bengal(2 STC21), confirmed the assessment made by the sales tax authorities, as in making the best judgment assessment the said authorities considered all the available materials and applied their mind and tried their best to come to a correct conclusion. So too, a Division Bench of the Patna High Court in Doma Sahu Kishun Lal Sao v. State of Bihar(2 STC 37) refused to interfere with the best judgment assessment of a Sales Tax Officer as he took every relevant material into consideration, namely, the situation of the shop, the rush of the customers and the stock in the shop and also the estimate made by the Assistant Commissioners in the previous quarters. Under section 12(2)(b) of the Act, power is conferred on the assessing authority in the circumstances mentioned there under to assess the dealer to t....
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....red net profit of Rs. 1,15,863/including some items of other income which are not in dispute. The assessee declared sale of Rs. 50,35,646/-. The assessee filed following details according to which the effective net profit of that business comes before depreciation and interest and remuneration to partners is 0.12%. AS ON 31/03/2001 Net Profit as per Prof it & Loss A/c. 115,863.16 Add: 1) Depreciation 225,283.15 2) Interest on Partners Capital 2,272.36 3) Partners Remuneration 50,000.00 227,555.51 393,418.67 ....
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....uess-work in a "best judgment assessment", it shall not be a wild one, but shall have a reasonable nexus to the available material and the circumstances of the case. In this case material found is in respect of sale/turnover for the month of December on the basis of which the AO has estimated at sale/turnover Rs. 1,10,00,000/- as against turnover declared by the assessee at Rs. 50,35,646/-. In other words, the AO estimated extra sale/turnover than declared by the assessee is Rs. 59,64,354/-(1,10,00,000-50,35,646).The entire sale/turnover or GP is never an income or profit, but only estimate net profit is income for the purpose of the Act. It is also to note that once the books of account are rejected the same cannot be again considered for the purpose of making additions. In the case under consideration the AO after rejecting books of account again he relied upon rejected books of account presuming that the expenders related to profit and loss account have been correctly recorded in the books of account by the assessee. This presumption of the AO is not acceptable. However at the most the turnover estimated by the AO can be accepted as the estimation made was based o....