TaxTMI 
TaxTMI 
2006 (5) TMI 111
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....e). (iii) Both the Assessing Officer and CIT(A) erred in not considering the fact that the assessee had to provide to customers peripheral services such as preparing of floor and counter top with tile, electrical wiring and switches, plumbing, piping and fixing, light fitting, painting of wall and ceiling, supplying and fixing of granite etc., etc. (iv) Both the Assessing Officer and CIT(A) erred in not accepting the average gross profit ratio of 30 per cent and net profit ratio of 9 per cent in respect of undisclosed turnover of the assessee. (v) Both the Assessing Officer and CIT(A) erred in holding that statement under section 132(4) is always binding which is recorded under mental stress, without the help of accounts relating to 3 assessment years in the block period [vide Addl. ITO v. T. Mudduveerappa & Sons [1993] 45 ITD 12 (Bang.)]. (vi) The CIT(A) erred in enhancing the undisclosed income to Rs. 7,06,088/- as the Assessing Officer himself had after considering all the material on record had estimated undisclosed income at Rs. 1 crore only. (vii) Both the Assessing Officer and CIT(A) erred in holding that the assessee had disclose....
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....ciled and in view of explanations submitted and it was finally concluded that cash receipts of Rs. 2,14,12,715/- have not been accounted in respect of works completed. Before the Investigating Officer, it was contended that cash expenses are also incurred in respect of work completed for which amounts have been received in cash. The assessee is having no vouchers or details in support of such expenses. Verification with some of the premises, where the kitchens have been installed revealed that the assessee had in fact carried out certain civil works. The Managing Director of the company vide letter dated 22-1-1999 declared Rs. 107 lakhs as undisclosed income for the assessment years 1996-97 to 1998-99. However, in the return of income, the assessee admitted undisclosed income as under:- Assessment year 1997-98 Rs. 8,43,598 Assessment year 1998-99 Rs. 60,08,098 Before the Assessing Officer, it was submitted that the declaration made before the Investigating Officer was not correct and that it was made to buy peace with the department. It was submitted that the contract works for which they received cash payments was of the nature of electrical work, plumbing, civil wo....
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.... as discussed above do not fetch the kind of margins as estimated by the investigating authorities and also with a view to amicably settle the issue with the department we have in good faith offered an income of Rs. 68,51,696/- as undisclosed income which we believe is reasonable. In this context we would like to inform you that the seized cash of Rs. 3,25,000/- is also part of the declared undisclosed income in our return." Vide letter dated 25-12-2000, the assessee explained that cash receipts were only for the following purposes :- (a) Preparing of floor and counter top with tile (b) Electrical wiring and switches (c) Plumbing, piping and fixing (d) Light fitting (e) Painting of wall and ceiling (f) Supplying and fixing of granite It was submitted that statement of expenses incurred for the peripheral jobs was submitted to the customers. It was argued that profit generally is 10 per cent to 12 per cent in respect of such peripheral jobs executed while the assessee has declared undisclosed income of Rs. 68,51,696/-. The Assessing Officer after considering the submissions relied on the declaration made by assessee befo....
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....see dated 22-1-1999 in which an offer of surrendering an undisclosed income of Rs. 1.07 crores was made. It was mentioned that such letter may be taken as declaration for the purpose of proceedings before investigation wing. Hence net profit rate as disclosed in the declaration is to be applied. Hence the learned CIT(A) was of the view that undisclosed income to be assessed should be Rs. 1,07,06,088/- and hence issued notice for enhancement of income. In response to this notice, the assessee submitted as under:- (a) Statement under section 132(4) is for collecting information and cannot be the basis for assessment. Pushkar Narain Sarraf v. CIT [1990] 183 ITR 388 (All.) Addl. ITO v. T. Mudduveerappa & Sons [1993] 45 ITD 12 (Bang.) (b) Provisions of section 145 to be applied for estimating the net income of assessee. (c) Commissioner (Appeals) cannot enhance income relating to an item which has not been considered by the Assessing Officer. The learned CIT(A) relied on the decision of jurisdictional High Court in the case of CIT v. P.R. Metrani (HUF) [2001] 251 ITR 244 (Kar.) in which it is held that presumption under section 132(4A) is ....
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....arned AR drew our attention to the decision of Calcutta High Court in the case of CIT v. Ashim Krishna Mondal [2004] 270 ITR 160. The undisclosed income is to be computed. There is a difference between computation and assessment. Computation is a calculation. Hence for the purpose of computation, there is some data and material available. The appellant has shown undisclosed income on the basis of gross profit. Hence, the Assessing Officer was not supposed to make estimation. No basis has been provided by Assessing Officer. The learned AR strongly argued that cash payments have been received for additional work. Looking to the nature of additional work executed, no prudent man will believe that such additional work will fetch a net profit of 50 per cent. Hence, it was argued that income disclosed vide letter be ignored and the undisclosed income as shown in the return be accepted. 4. On the other hand, the learned DR drew our attention to page 18 of the paper book filed. In answer to question No. 18, it was replied that cash receipts were not intended to be entered in the books of account. Thereafter, the learned DR drew our attention to question Nos. 21 and 22 appearing at pa....
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....rect picture. Such cash receipts were not intended to be entered in the books of account. We would like to reproduce question Nos. 19 to 22. Q.No. 19 : I would like to refresh your memory that I picked up this paper in a torn condition from your dustbin. Why did you tear this and thrown in the dustbin while no record of these entries have been kept. Ans. : As I already informed the parties regarding the accounts, I did not need to keep this. Q.No. 20 : So you mean to state that the account was settled to the extent indicated by pencil writing in the sheet under reference? Ans. : Yes. Q.No. 21 : Do you acknowledge that neither in books of account nor in any record of your office the cash receipts have been shown (indicated under the sheet)? Ans. : Yes, I acknowledge that these cash receipts are not shown in the books of account or any other record of this office. Q.No. 22 : In how many cases such transactions outside the book have taken place? Ans. : On an average of 30 per cent of the cases, this has taken place as the clients insist on paying by cash outside the books constraining us to incur some expenditure ....
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....dered and there would be no scope for the department to further proceed in this matter for further additions. This offer is made purely for the purpose of buying peace with the department besides indicating our willingness to cooperate in every respect for concluding the search proceedings expeditiously. We shall on the above condition, if accepted, by the department shall honour our commitment in filing the return of income and pay the taxes thereon." If the sales are understated in the books of account by not disclosing the exact amount of sale in 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 case of the assessee, there is no material to show that unaccounted cash receipts were only in respect of additional work executed. During the course of search, certain papers in tom condition represented the cash receipts. It was admitted that these receipts are not available in any record. There are entries up to Sl. No. 257 in the computer print....
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.... as undisclosed income. Such letter has been filed during the post-search enquiries conducted by the Investigation Wing of the department. Such letter is voluntary and there is no plea that such letter was obtained under threat or coercion. In view of such letter, the onus was on the assessee to establish that offer was under any misconception of facts. In the letter itself, it has been mentioned that the assessee is not in a position to provide material evidence for the actual amount spent by the clients either through them or themselves. It is also mentioned that margin of profit in executing additional work is generally 8 to 10 per cent. The Managing Director of the company was fully aware of the facts at the time of filing declaration. It cannot be said that declaration was under any misconception of facts. The appellant-company has failed to discharge the onus that declaration was under any misconception of facts. The learned Calcutta High Court in the case of Mriganka Mohan Sur v. CIT [1979] 120 ITR 529 had an occasion to consider the applicability of strict rules of evidence in IT proceedings. In this case, the Assessing Officer found that proprietor of Oriental Traders w....
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....d income determined by learned CIT(A) is without any basis. The undisclosed income is determined on the basis of the letter filed by the assessee. It is not a pure estimation but it is a computation of undisclosed income. The worthy Supreme Court in the case of CIT v. Orissa Corpn. (P.) Ltd. [1986] 159 ITR 78 held that if the conclusion is based on some evidence on which a conclusion could be arrived, then no question of law arises. The learned Kerala High Court in the case of V. Kunhambu & Sons v. CIT [1996] 219 ITR 235 had an occasion to consider the inclusion of excess stock in assessment proceedings on the basis of voluntary statement of partner recorded under section 132(4) of the Income-tax Act. In this case, the managing partner of the firm made the statement to the following effect: "He was not keeping day-to-day inventories and due to this, stock entered in the accounts are much less than the actual stock. The value of the difference in stock will come to Rs. 3 lakhs and that he is willing to have this amount being brought to tax one half during the assessment year 1980-81 and the other half during the assessment year 1981-82." The learned High Court observe....
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....ment given under section 132(4) is not conclusive and person can retract under certain circumstances. However, time gap between statement and retraction of statement is one of the important points to be taken into account to decide as to whether the statement was given under mistaken belief of either fact or law. However when assessee retracted statement made under section 132(4) after three and a half months of disclosure and there was not an iota of evidence to support retraction then Assessing Officer was justified in not accepting assessee's retraction. In the instant case, the assessee has not retracted the disclosure before the DDIT but has not included the undisclosed income while filing return on 13-4-1999. Disclosure was admitted vide letter dated 22-1-1999. Thus, the time gap is too large and hence the learned CIT(A) was justified in determining undisclosed income on the basis of letter filed by assessee. The learned ITAT, Mumbai Bench in the case of Hiralal Maganlal & Co. v. Dy. CIT [2005J 96 ITD 113 on the identical facts held that retraction of statement not based on evidence is not to be acted upon. In that case, the partner of the firm offered additional income b....