TaxTMI 
TaxTMI 
1996 (1) TMI 148
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.... Rs. 82,80,285. The first appeals filed by the assessee were partly allowed by the learned CIT(A) as a result of which the additions which survive now are tabled below:--- Rs. 28,48,574 Rs.49,27,735 Rs. 54,47,337. 3. Thus the two sets of appeals assail before us the additions sustained and the relief granted by the first appellate authority. Assessee runs a leading Chinese Restaurant in a prime area of this megametropolis which is known as 'Chinese Garden'. 4. The premises of the assessee were subjected to a search on 18th Sept. 1989 which falls during the assessment year 1990-91. On the basis of the material collected during the search operations as well on the consideration of certain facts that took place during the assessment proceedings, the Assessing Officer rejected the sales results of the assessee by invoking the provisions of the proviso appended to sub section (1) of section 145 of the IT Act (hereinafter referred to as the 'Act' for brief). 5. The main considerations that weighed with the Ass....
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....nst their delinquent senior personnel responsible for certain mistakes in the bills and the sales shown in the account books; the disregard made by the Assessing Officer as well as the learned CIT(A) to the effect that in the past years, no defects in the books were found, etc., the whole of the addition was liable to be deleted. 9. As against this, the learned Senior Departmental Representative mainly supported the view taken by the Assessing Officer and contended that there was no justification even for the grant of relief by the learned CIT(A). 10. We have very carefully gone through the entire gamut of the relevant materials that were relied on behalf of the assessee as well as the Department and the oral submissions made by the rival parties. 11. The main considerations which prevailed with the revenue authorities in sustaining the disputed additions as stated are manifold. They are a paper seized on 8-9-1989 from the premises of the assessee showing actual sale figures of 2 days found to be at variance with the recorded figures; some manipulation in the sales bills found by sending decoy customers to the assessee's business premises; bills below Rs. 50 each found to ....
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....85 and 66.93% for the period May, 1985 to April, 1986 was quite high. The following observations made by the Institute are quite relevant :--- "Under normal circumstances, for a luxury restaurant with a commercial objective, the above percentage would be considered very high. Normally industry average for similar establishments, the cost of purchases to sales would range from 30 to 40%." 16. It is primarily, rather exclusively on the basis of this document that the Assessing Officer took the average of cost of food to sales ratio at 34% for all the three years. The same was increased from 34% to 39%,38% and 37% respectively by the learned Commissioner, which is in serious challenge by the assessee before us. 17. The assessee's contention is that they are the leaders in supplying and serving excellent Chinese food in this metropolis. About their credentials, they also made reference to the communication referred to supra from the Institute of Hotel Management, as per which they were a Grade I exclusive Chinese restaurant located in a posh locality and catering to the need of the elitist clientele. Reference was thereafter made by the assessee to a variety of documents and t....
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....n his submissions, the only case which could have been taken for comparison for arriving at such ratio would be that of the Golden Dragon, an exclusive Chinese restaurant run by the famous Taj Group, which gave the cost of food to sales ratio between 45 to 5096. When told that the establishment cost of a restaurant run by the Taj Group was bound to be higher than a comparatively smaller restaurant howsoever exclusive and excellent in food and decor it may be Shri Harish submitted that the cost of food ratio to the sales figure had nothing to do with the establishment expenses inasmuch as the cost of food comprised only of the cost price of the inputs, that is the raw-material required in the preparation of various dishes and the cooking material used therein. 21. There is incidentally no rebuttal and perhaps there could be none to the assessee's claim that they are one of the leading-most Chinese restaurant in Bombay comparable only to the Golden Dragon, run by Taj. In these circumstances, we find sufficient force in the submissions made on behalf of the assessee that the opinion of the catering institute referred to supra as per which the cost of food to sales ratio would be mu....
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....l income of Rs. 8 lakhs and Rs. 5 lakhs voluntarily declared by the assessee in respect of these two assessment years which aspect was not appreciated in its proper perspective by the learned CIT(A). B. Challenging the food cost ratio, it was vehemently argued that the ratio adopted by the first appellate authority was capricious and arbitrary, for the following amongst other reasons: Firstly, during the appeal proceedings, the Assessing Officer himself, as is evident from pg. 258 of the paperbook Vol. II in his own hand worked out this ratio as '40.04: 40%', which fact was omitted by the CIT (A). Secondly, during the continuous survey conducted, the Assessing Officer found percentage of small bills at 16.3596. On this basis, the food cost ratio works out at 43.57% as reflected at pg. 259-260, of Vol. II of the paperbook. This vital factor was also omitted by the CIT(A). C. Further, the Assessing Officer who had himself called for the food cost ratio from the Taj group which mentioned it at 40 to 50% and the assessee's claiming that they were even superior insofar as the quality of food was concerned to the Golden Dragon Chinese Restaurant of the Taj group, as was manif....
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...., which clearly, put an extra substantial burden on its kitty of profits. It was also submitted that many leading restaurants in the town and other metropolis either provided some inferior food to their staffers, or pay them a cash allowance known as food allowance which was much less onerous than the system adopted by the assessee. 26. Next, factually data recorded during the course of continuous survey by the Assessing Officer in relation to percentage of small bills was not properly taken into consideration by the CIT(A). As per their sales summary for the assessment year 1990-91, percentage of such bills approximately came to 30. During the Departmental survey, this percentage came to be 16 (Refer to p. 277 to 280 of the paperbook). 27. Further, it was vehemently submitted that strangely enough, this percentage while working out the quantum of suppression and food cost ratio was arbitrarily reduced without assigning reason. If the percentage found during survey was applied, the extent of suppression would have gone down considerably. 28. Further, the reasons for and the circumstances under which small amount bills had to be raised though explained properly in a letter ....
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.... to them by the leading personalities, institutions, and even foreigners, some of which find mentioned by us in the preceding paragraphs. Over and above this, the assessee placed reliance on the certificate issued by Sophia Basant Kumari Memorial Polytechnique as per which this ratio would be in the vicinity of 65%. As against all these materials, insofar as the Department's case is concerned, it solely rests on the certificate from Institute of Hotel Management, Catering Technology and Applied Nutrition. Incidentally, this certificate also gives the percentage at 30 to 40%, although for no discernable reasons, the Assessing Officer estimated this percentage at 34. This, as pointed out by us above, was raised to 39,38 and 37% by the first appellate authority. 34. A careful consideration made by us to the issue leads us to the feeling that the percentage of food cost ratio adopted by the Revenue authorities has been, to say the least, low. There is no material or reasoning available on record to discard the opinion of the Taj group running the Golden Dragon, and the same being ignored by the opinion of the Catering Institute. The standard of Golden Dragon is undoubtedly more comp....
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....against the said collection and therefore the same should have been treated as part of the sales, consequently reducing the quantum of alleged suppression correspondingly. It is in this connection that the report dated 31st July 1990 from the learned Asstt. Commissioner was pressed into service which vouchsafe that the total expenditure on such food came to Rs. 4 to 5 lakhs. This expenditure was over and above the expenditure incurred by the assessee on complimentary/publicity meals - to charitable institutions, VIPs and film people, etc. This plea of the assessee is certainly not an after-thought and in the absence of any rebuttal, we find some force that the omission of such expenses from consideration by the learned CIT(A) despite the specific report from the Assessing Officer is not legally tenable and has to be borne in mind by fixing the food cost ratio. Same is the case with respect to certain other points, such as, supply of the food by the assessee to its staff from the same kitchen free of cost, etc. 38. A special mention needs by us to the survey made by the Assessing Officer in relation to the percentage of small bills. In respect of the assessment year 1990-91, this....
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....ne was shown fortable No. 18 which amount was ridiculously low. The statement of Shri Saigal confirming that his group made a payment of Rs. 700 was obtained. 43. Likewise, Dr. Manoj Masur who too had booked a table for lunch on 27th January, 1991 and had visited the restaurant along with his wife and friends and who was allotted table No. 2, was also contacted as the bill for this table showed a payment of Rs. 48 alone. Dr. Masur stated on oath that they had made a payment of Rs. 650 approximately. 44. These two instances impelled the department to carry out an exercise. A team of officers visited the restaurant on 31st January, 1991 as decoy customers to take lunch. The total bill came to Rs. 553 before making the payment, a zerox copy of the bill was taken by one of the officers by going out. The bill, after making the payment, was left on the table with deliberate intent. Later on, it was found that this bill was shown by the assessee for Rs. 42 alone. 45. In respect of the aforesaid discrepancies, in the first instance, it was submitted by the learned counsel for the assessee that none of the customers, including the decoy ones, was offered by the department for cross....
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....m. 49. It may also be pointed out, partly at the cost of repetition, that during the search at the premises of the assessee which was carried out on 18th September, 1989, an amount of Rs. 60 lacs was offered as undisclosed income. This, in the submission of the assessee, was offered mainly to buy peace. Out of the amount of Rs. 60 lacs, insofar as the assessee is concerned, it offered Rs. 8 lacs towards 1989-90 and Rs. 5 lacs for 1990-91, the remaining amount relating to the other associates of the assessee or to his personal activities with which the assessee-appellant is not concerned. Incidentally, out of the aforesaid amount of Rs. 13 lacs, Rs. 5 lacs offered for 1990-91 has been capitalised while Rs. 8 lacs offered for 1989-90 is not capitalised. Incidentally, the details of the remaining Rs. 47 lacs is also found at pages 140-142 of the paper book. It is in this context that it was vehemently submitted that once the assessee had satisfactorily explained the income arising to them from undisclosed sources, there was no room for making any further addition. 50. In respect of the discrepancies found by the department in the preparation of bills by the assessee, apart from ....
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....ing officer about the production of the sales registers and, therefore, it was not proper on his part to make a grievance out of it. Apart from this, the learned counsel for the assessee also drew our attention to page 210, para VII, complaining against the unwarranted observations made by the assessing officer about the non-production of books of accounts. The averments made by the assessee runs as under: "VII. During the course of asst. proceedings appellant's representative attended from time to time & submitted the necessary details called for & also produced the books of accounts & sales registers/bill books, etc., whatever lying in its possession. Some of the records were seized at the time of search or impounded during the course of asst. proceedings & since then lying in the custody of the Assessing Officer. In spite of producing all the records including the sales Register and sales bills, available with the appellant for the Asst. Years 1988-89 & 1989-90 the A.O. deliberately put adverse remark in the asst. order that 'assessee has something to hide as far as its sales of relevant period are concerned'. We enclose xerox copy of Annexure A page 2, Panchnama dated 18-9-1....
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....ssessee may be relevant for some purposes, the appellate authority has to be cautious that its decision is not influenced by factors found in other assessment years which have no relevance in the assessment under appeal. It is in the context of the ratio of this decision that the learned counsel for the assessee strenuously contended that their case was stronger than the Delhi Iron Syndicate's case in as much as in their case, the assessment for the subsequent year was not completed and in so far as the search carried on in the assessee's premises was concerned, as against a deficiency found of Rs. 41,000, a declaration of Rs. 13 lacs was made. 57. Insofar as the department's case is concerned, basically their reliance is on the additions made by the assessing officer which though meakly submitted, were justified. 58. We have given our careful consideration to the entire gamut of evidence, facts and circumstances of the case and the submissions made by both the sides. 59. As is evident, certain material which ought not be considered by the department for the present assessment years, have been taken into account. They have also drawn all adverse inference against the asses....
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....ant or in an exaggerated manner the additions are bound to be affected. Taking the overall position, in our view, including the disclosure made by the assessee, in the first instance, we disagree with the learned counsel that no addition is called for. Additions are called for, but of a different figure. As already pointed out that there is always an element of some guess in an estimate, as in doing so, things cannot be measured with metes and bounds. However a judicial authority always tries to execute this task as precisely and correctly as possible. In our considered view, on a consideration of all the relevant factors for and against the assessee, the following additions could finally be sustained: Asstt. Year Amount 1988-89 Rs. 7,00,000 1989-90&nb....
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....ckground, the assessment proceedings for assessment years 1988-89,1989-90 and 1990-91 were taken up. The assessing officer in all these years held that the ratio of the cost of material consumed to sales was on a high side. The books of the assessee, according to the assessing officer, disclosed the following ratio of cost of material to the sales: Assessment year Ratio 1988-89 57% 1989-90 53% 1990-91 58% 7. Reference was made to the Institute of Hotel Management & Catering Technology and Applied Nutrition for their opinion in the matter. They confirmed that the cost of the food to sale ratio in the restaurant like Chinese Garden should be in the rate of 30-40 pe....
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.... Assessment year 1989-90 Rs. 49,27,755 Assessment year 1990-91 Rs. 54,47,737 9. In respect of the relief granted, the department is in appeal and in respect of the additions sustained the assessee is in appeal before us. 10. The learned counsel for the assessee and the learned Departmental Representative were extensively heard. The arguments advanced by the parties are elaborately discussed in the order of the learned Judicial Member. 11. Apart from relying upon the certificate issued by the Institute of Hotel Management & Catering Technology and Applied Nutritions, the assessing officer made elaborate discussion at pages 3,4 and 5 of his assessment order about the method adopted by the assessee-company in tampering with the sale bills which were left behind by customers. All these discussions adequately support the action of the assessing officer in rejecting the book results disclosed by the assessee. To maintain brevity in this order they are not extracted. 12. Again to establish the abo....
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....n applying the provisions of section 145(1) for making the assessment of the assessee for the years under consideration. In the accounting period relevant to the assessment years 1988-89 and 1989-90, the assessee-company was having manual billing. The manual billing has its own advantages in tampering, altering and even duplicating the bills. In the accounting year relevant to the assessment year 1990-91, the manual billing was also there for some transactions. There is a finding in the assessment order for this year that the assessee was asked to produce the original sale bills and sale book for the purpose of assessment. The assessee's representative failed to produce the bill book of any of the relating to the assessment year. The daily sales book was also not produced before the assessing officer. The assessing officer, therefore, came to the conclusion that the assessee had definitely something to hide as far as its sales of relevant year were concerned. 15. In my view, the assessing officer has rightly appreciated the assessee's business, the modus operandi adopted by it in suppressing the sales and has also taken due care to support the basis for arriving at what he consi....
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....d upon the various case-laws tabulated in pages 282 to 297 of the assessee's paper-book. The assessing officer has established, in the facts of this case, that there has been a deliberate manipulation of sales. The department, after exposing the assessee's modus operandi has provided a basis for arriving at the proper ratio of cost of material to sales, from the records, loose slips found with the assessee and from the opinion of an independent technical body like Institute of Hotel Management & Catering Technology and Applied Nutrition. In the background of these, the cases relied upon by the assessee can hardly of any help in advancing its case. The decision has been arrived at having regard to the manipulative technique employed by the assessee to suppress the profit and not on interpretation of some provisions of law. What stands out in this case is that the assessee has manipulated its accounts for the purpose of securing some mileage in the income-tax proceedings. The assessee's stand is totally exposed. My attempt in this connection is to quantify the suppressed income by applying a reasonable basis partly relying upon the books and other documents maintained by the assessee....
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.... and sent to the then President for appointment of a Third Member. The point of difference expressed was the following: "Whether, on consideration of the facts of the case and the material on record, the addition should be made at Rs. 7,00,000 for the assessment year 1988-89, and at Rs. 10,00,000 for the assessment years 1989-90 and 1990-91 on the reasoning given by the Judicial Member or should be arrived at on the basis of food cost ratio to sales on the reasoning given by the Accountant Member ?" 3. Originally the then President constituted himself as Third Member in this case. After his retirement, by virtue of my designation as successor in office, this case came up before me as a Third Member case. Ultimately the matter was heared by me at Bombay on 31-7-1995. Shri R. Ganesan, learned Chartered Accountant appeared for the assessee and S/Shri R.K. Rai and K.L. Tilak Chand appeared for the Department. 4. Curiously the point of difference framed on 3-12-1993 as well as 8-4-1994 extracted above bear the signatures of both the Members constituting the Bench. On 13-6-1994, the following note under the signatures of Dy. Registrar Shri N.N. Nayak is found in the files. The N....
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....ent oil 3-12-1993 as the real difference between the Members. I ignore the second reference dated 8-4-1994 from consideration. 6. The first three appeals are by the assessee and the next three appeals are by the Department. These appeals relate to assessment years 1988-89, 1989-90 and 1990-91. For assessment year 1988-89, the accounting year was from 1-5-1986 to 30-4-1987. For assessment year 1989-90, the accounting year comprised of 23 months from 1-5-1987 to 31-3-1989 whereas the accounting year relevant to assessment year 1990-91 was from 1-4-1989 to 31-3-1990. 7. The assessee is a company engaged in the business of running a Chinese food Restaurant which specialises in Gourmet Chinese food and earned a fame in the mega city of Bombay as a prime eating place. The assessee's Restaurant was situated at an important place in Bombay called Khems Corner. The restaurant started working in October 1984 and the first previous year ended by 30-4-1985 (1986-87). The assessments for 1986-87 and 1987-88 were completed u/'s. 143(3) on 27-3-1989 and 31-8-1989 respectively. When the assessment for assessment year 1990-91 was taken up the assessments for 1988-89 and 1989-90 were still pen....
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....p; Nil Nil CIT (Appeals) 8. Remarks No further appeal No further filed by Dept. appeal filed by before ITAT against Dept. before ITAT ....
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....p; Rs. 83,64,767 Rs. 72,31,585 sales by A.O. 6. Food/cost ratio by the 39% 38% 37% CIT(A) 7. Addition sustained by Rs. 28,48,574 Rs. 49,27,755 Rs. 54,47,338 the CIT(A) 8. Food cost ratio by the 46% 46% 46% J.M. I.T.A.T. 9. Addition made by the Rs. 7 lacs Rs. 10 lacs Rs. 10 lacs. &....
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....hemently contested by the assessee. The Assessing Officer relied upon five kinds of separate independent evidences to determine the ratio of the cost of food to sales for each of the assessment years under consideration. The broad heads of evidences gathered by the Assessing Officer are the following: 1. The seized paper which is marked Annexure-24 at page 18 of the Panchnama which reflected the sales of two dates namely 6-8-1989 and 7-8-1989. 2. The personal testimony of the Assessing Officer himself. 3. The zerox copy of the sales bill which was obtained by the Officers of the Department by going to the assessee's Restaurant as decoy customers. 4. A copy of the reservation chart of the appellant's Restaurant. 5. An expert opinion from a catering Institute (Institute of Hotel Management, Catering Technology and Applied Nutritions). 9. A comprehensive and reasoned assessment order was passed for the assessment year 1990-91. The conclusions reached in that assessment order were also applied, inter alia, to assessment years 1988-89 and 1989-90. For assessment year 1988-89, the cost of inputs was shown at Rs. 51,21,855. The cost of material consumed to sales ratio is....
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....ost of food material as debited in the books of account at Rs. 1,11,01,555. By applying the cost of material to sales ratio at 34%, the gross food sales was estimated at Rs. 3,26,51,630 (Rs. 1,11,01,55X100/34). The difference between estimated sales and the actual sales recorded in the books of account namely Rs. 1,10,10,950 was found out to be the sum of suppressed sales for assessment year 1989-90. 12. During the assessment for 1990-91, the issue of utmost importance was once again recognised as the ratio of cost of material consumed to sales. For assessment year 1990-91, the said ratio shown by the assessee was 58%. The Assessing Officer carried out investigations to ascertain the correct figure of true sales with the help of the correct ratio of cost of material consumed to recorded sales. The Assessing Officer had stated that the ratio of cost of material consumed to sales is a true reflection of the Restaurant's working and it does not change from time to time. He further stated that if the costs of inputs go up the tariffs are raised by Restaurants so as to maintain their profitability. Therefore, the Assessing officer opined that the investigations carried out in assessm....
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....im was approximately Rs. 700. However, on going through the sale bills only two were found to have been made for table No. 18 and none of the bills was made for any amount nearing Rs. 700. The bill made for table No. 18 during lunch time showed a paultry amount of Rs. 24. All the sale bills made for the day, namely, 27-1-1991 were enclosed annexure "C' to assessment order 1990-91. Shri Bhupinder Singh is the brother of Shri H.S. Saigal who also visited Chinese Garden along with his brother on 27-1-1991. In fact it was the claim of Shri Bhupinder Singh that he reserved the table in the name of his brother Shri H.S. Saigal. He stated on oath confirming that the payment made by them was approximately Rs. 700. His statement on oath was annexed as Annexure 'D' to the assessment order. 15. Dr. Manoj Mashru was another person who reserved a table for five persons on 27-1-1991. He came alongwith his wife and friends to the Restaurant and they occupied table No. 2. When contacted on telephone Dr. Mashru stated on oath that he and his friends had paid Rs. 650 approximately. However, an examination of bill No. 70045 which is only the bill made for table No. 2 during lunch time was for Rs. ....
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....f account of the assessee company were mentioned side by side for purpose of comparison in the assessment order for A.Y. 1990-91. Copy of the sales summary sheet of 6-8-1989 and 7-8-1989 is enclosed as annexure 'I' to the Assessment Order. When a comparison as stated above was made, it is seen that though the amounts tally in respect of certain bill numbers in many others they do not. Thus the seized papers reflect the total sales for 6th & 7th August, 1989 as Rs. 67,434 and Rs. 48,850 respectively. However the books of account record sale of Rs. 39,975 and Rs. 34,432 respectively for those two days. The Assessing Officer stated that an amount of Rs. 41,877 was siphoned off just in two days. 19. Previously there used to be manual billing. However, subsequently a computer was installed for billing. After the computer was installed, the method adopted by the assessee was found to be to tamper with the bills on computer. Previous to the computer being set up and when the manual billing was in practice, it used to be very easy to manipulate sales. The Assessing Officer came to the conclusion that there was suppression of sales and that was the reason why the ratio of cost of materia....
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....s and balances and he also found that if the bills are tampered with, it is obvious that they must have been done only with the concurrence and connivance of the Managing Director of his confidants. 22. Ms. Rozelia the Receptionist in the assessee's company was also examined on oath and her statement was found as annexure 'M' to the assessment order. Elaborating about the method of making reservation, she stated that they take it on phone and ask for the number of persons and their names and time and date they are likely to come to the Hotel. Sometimes they take reservation personally in the same manner. When asked how many times the guests ask for change of table, she replied 'rarely'. 23. The Assessing Officer found that normally tables are allotted on reservation and would not be changed. When Bill No. 70378 dated 31-1-1991 was confronted with Shri Nelson Wang stated that all the bills must have been recorded correctly by his staff to the best of his knowledge and he was made to look to Bill No. 70378 whereupon he admitted that the Bill was made for Rs. 42. When he was made aware about the decoy customers coming to his Restaurant on 31-1-1991 and after taking food, the bil....
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....of group may only take cold drink or soup etc., for which also separate bill may be for less than Rs. 50. When the Restaurant is crowded and customers are waiting in the lobby, then many of the children accompanying may like to have cold drinks/ice cream etc., before they get the table. In such a case, a separate bill for the same has to be prepared. Many a time when customers finish their lunch or dinner and after bill is prepared, some person in their group may like to have some additional items like cold drink/ice cream, etc. In such a case, also separate bill is prepared which may be below Rs. 50. They also take parcels as per the requirements of the customers and in such a case also the bills may be for below Rs. 50. Under the circumstances, the conclusion that sales below Rs. 50 are all bogus is unwarranted and unjustified. 25. The explanation was considered by the Assessing Officer and he was at a loss to understand how many number of times such circumstances can occur when people go to Chinese Garden just to have liquor and only snacks and no food or when people take only cold drinks/soup in Chinese Garden and when people waiting in Chinese Garden order for ice cream col....
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.... 20-1-1991) shows that out of 736 total bills 312 were of Rs. 50 or below (42.3%). From the sale bills for one week after 4-2-1991 it is evident that out of 661 total bills only 55 bills are of Rs. 50 or below (8.3%). From the above position, the Assessing Officer deduced that after 4-2-1991, the Director of the assessee-company knowing that his bills are under scrutiny, chose not to take any risk and, therefore, did not tamper with the bills unlike the situation before 4-2-1991, when such tampering of bills was freely resorted to. Further the Assessing Officer concluded that the contention of the assessee that treating sales of Rs. 50 or below are bogus is unjustified stands fully exposed in view of the working of the Restaurant before and after 4-2-1991. A comparison of the sale bills for one week prior to 4-2-1991 and subsequent to 4-2-1991 could conclusively prove that most of the sale bills of around Rs. 50 as shown by the assessee company are bogus and fabricated. When the statement of Shri Bhupinder Singh dated 30-1-1991 was confronted, the assessee-company came forth stating that his statement cannot be relied upon as the table was booked not in his name but in the name of ....
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....Ts of the previous day are destroyed so that no evidence remains with which one can ascertain correct sales of food. The map of the assessee's Restaurant was provided as annexure 'E' to the assessment order. In the assessee's Restaurant, it was stated that tables bearing No. 1, 4,21 and 28 are the ones on which ten persons can be accommodated and these are prime tables of the Restaurant. However, on table No. 1 on Christmas day i.e., on 25-12-1990, bill Nos. 649 & 650 for Rs. 17 and Rs. 42 respectively were shown. Since the Bills are consecutive bills, they pertain to one customer it is understood. The Assessing Officer writes as to how on table No. 1 which has a capacity of 10 persons an amount of Rs. 59 only was spent. When the decoy customers visit to the assessee's Restaurant on 31-1-1991 was brought to the notice of the assessee company, it had come forth with the possibility of collusion between the bearers, the billing clerk or the cashier. It also came forth with the version that after coming to know the instance pointed out, it is stated that the assessee company was keeping a watch, on the bearers, billing clerk and the cashier to identify the employees who may be making ....
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....months of December, 1989, January, 1990 and February, 1990. The sale bills charts for the above three months were annexed as annexure 'Q' to the assessment order. The summary of the sales bills of the above three, months is provided in the asst. order. The Assessing Officer had taken the seized paper on the date of search namely 18-9-1989 to be the sheet anchor or the basis which reveals the truth about percentage of small bills to the total bills. The said paper revealed the sales summary on two dates namely 6-8-1989 and 7-8-1989 on bill-to-bill basis. On those two dates out of 77 total bills only six bills were found to be of small amounts of below Rs. 50. Thus he inferred that 10% of the small amount bills are actually small amount bills and are not fabricated. He had found out the total number of bills for the three months (December, 1989, January, 1990 and February, 1990) as 8,833. The average amount of the genuine bill was found out to be 553. Thus the total amount of genuine bills was found out at Rs. 50,61,309 for three months. This is according to the computer billing. It is admitted that for these three months manual billing also was in practice and the total of the manua....
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.... of the Club. Free lunch dinner and wine to 10 persons on wedding anniversary of each Member of the Club. -- No charge of snacks prepared out of fish/prawns and vegetables. -- According to the assessee the above factors are responsible for increasing the cost of food. (6) They are providing free breakfast, lunch and dinner to their staff/ workers. For the expenditure incurred towards providing food for the staff/ workers, there was no corresponding sales. The assessee company took an objection that no comparable cases were referred to show that percentage of cost of sales in a Restaurant of their type is about 34%. Commenting upon the points raised by the assessee company, the Assessing Officer stated that he had no objection to enhance the sales figures on account of free food, discounts etc., provided similar enhancement is taken while computing correct sales of these sample three months also on the basis of which the cost of food to sales ratio has been worked out at 34%. According to him, the three months period taken as sample period cannot be treated as exclusive from the remaining nine months of the year and when once the sale of three sample months period is enh....
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....e said estimated sales, the sales as per profit and loss account were only Rs. 1,37,32,125. The Sales-tax collected was Rs. 10,36,859 total Rs. 1,47,68,984. Less liquor sales of Rs. 16,91,908 the gross billing for food as per books are Rs. 1,30,77,776. Then income offered u/s 132(4) was Rs. 5,00,000. Total recorded sales were Rs. 1,35,77,776. The difference between the estimated sale bills of Rs. 2,18,58,055 minus the recorded sales of Rs. 1,35,77,776 would give the figure of Rs. 82,80,285 as the figure of suppressed sales. It is stated that the assessee suppressed its income by tampering and fabricating sale bills but also evaded the sales-tax contained in the suppressed sales amounts. Approximately Rs. 5.2 lacs of sales-tax collected from its customers have not been paid to the Government. Thus the assessment order for 1990-91 was passed on 21-3-1991. 32. Aggrieved against assessments passed for assessment years 1988-89, 1989-90 and 1990-91, the assessee went in appeal before the CIT (Appeals) VI, Bombay. The learned CIT (Appeals) Bombay consolidated the appeals of all the three assessment years and passed a consolidated order dated 25-11-1991. The learned CIT (Appeals) after ....
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....e defects of computation, the assessee was asked to do the working for the whole year as done by the Assessing Office for three sample months. The working given for the whole year by the assessee was found noted at the end of pages 17 and beginning of page 18 of the CIT (Appeals) order. According to that method, the suppression was found out to be Rs. 54,47,338. When this is added to the accounted sales of Rs. 1,46,25,775 [including the sum of Rs. 5 lacs declared u/s 132(4)], the gross estimated food sales worked out to be Rs. 2,00,73,113. The total cost of food consumed during the whole year is Rs. 74,31,739. Both these figures of cost of food consumed and the gross estimated sales give the cost of food to sales ratio at 37.02 i.e., 37%. The learned CIT (Appeals) had worked out the concealment for assessment year 1990-91 at Rs. 54,47,338. 34, The assessee contended that the percentage of small bills to the total number of bills should be taken at 16.5% based upon the sales summary sheet dated 5-3-1991 on which date the Inspector of Income-tax was present at the premises of the appellant and on which date there could not have been any manipulation. This argument was rejected by the....
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.... In the opinion of the learned CIT (Appeals), the data base of 12 months adopted now to determine the suppression is large enough to eliminate any defect that a small data base may suffer from. The concealment has been determined on the basis of actual billing figures and applying certain irrefutable conclusions. Free and discounted food are taken care of automatically, when actual cost of food for the year is taken into account. The learned CIT (Appeals) did not agree with the Golden Dragon run by Taj is not a comparable case. He held that the assessee's Restaurant is the one with high turnover whereas Taj Restaurant cannot have that high turnover in quantity terms and in terms of number of people visiting there. The Taj Restaurant being a 5-Star Delux category Restaurant, suffers from the expenditure tax which is charged from the customers. This detriment is enough to distract many number of people. There is always economy in numbers. Hence the lower turnover results in higher cost of food and which results in higher cost to sales ratio. 37. He further held that comparison with any other Restaurant would not be a correct proposition in a situation where the working of the Rest....
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....always possible to define a particular bench mark in food cost ratio especially when various kinds of materials are used for Chinese Restaurant. 40. A third technical opinion was elicited by the assessee himself. The said opinion was sent in a letter dated 7-2-1990 addressed by Sophia - Shree Basant Kumar Somani Memorial Polytechnic - Head-Hotel Administration & Food Technology Department. In the second and third paras of the letter addressed to the Food & Beverage Manager of the assessee company, the following is what is stated: "I wish to inform you that it is very difficult to specify a food cost percentage for a restaurant. The food cost percentage, varies from one to another restaurant. On an average the food cost percentage for a good Chinese restaurant should be around 35 to 40%. This is dependent on the quality of the ingredients (meat, sea food, imported sauces) used in the food production. The supporting garnishes and accompaniments for sure increase the average food cost. Since Chinese Garden is using imported ingredients like oyster, sauce, seasame oil, black mushrooms and baby corn for food production. I am sure the average food cost would be around 65%. Our cost....
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.... by observing that the same pattern is seen in all the summary sheets whether before the search or after the search. He found that this pattern is continued till the date of survey on 4-2-1991. The computer was installed in the assessee's Restaurant in early 1989 and till the date of survey, the same pattern is seen of billing sales. Evidences pertaining to any of this period (worked on fair sample period) are applicable to the entire period irrespective of the relevant assessment year and even correctly applied to determine suppression of sales. He found that when June, 1989 to 4-2-1991 yields a pattern and a ratio, there is no reason why the ratio cannot be applied to the case of the assessee for earlier assessment years. He further found that when the assessee himself pleads that comparable cases namely Taj and gross profit, etc., are relevant it will be queer to argue that the assessee's own case and ratio of one year cannot be compared with earlier assessment years in its own case. It is argued that for assessment years 1989-90 and 1990-91 the Assessing Officer has no concrete evidence to show manipulation in sales. The CIT (Appeals) rejected this argument stating that still i....
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....ed order separate orders were passed for assessment years 1988-89 and 1989-90. Thus the appeals of the assessee were partly allowed for these three assessment years by the CIT (Appeals). 45. Having been aggrieved against the sustained additions by the learned CIT (Appeals), the assessee came up in second appeals whereas having been aggrieved by the reliefs granted by the CIT (Appeals), the Department came up in second appeals before this Tribunal for these three assessment years. Thus the appeals of the Department as well as of the assessee for assessment years 1988-89 to 1990-91 came up before this Tribunal for decision. 46. The learned Judicial Member in para 59 of his orders rejected the contention of the assessee that no addition is called for. He held that the additions are called for but of a different figure. He found there is always an element of some guess work in an estimate and in doing so things cannot be measured with mathematical precision. However, he found that a judicial authority always tries to execute this task as precisely and correctly as possible. On a consideration of all the relevant facts and circumstances for and against the assessee, he determined ....
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.... of securing some milage in the income-tax proceedings. The assessee's stand has totally been exposed. He states that his attempt in this connection is to quantify the suppressed income by applying a reasonable basis partly relying upon the books and other documents maintained by the assessee, lose slips seized from it and partly on the material gathered by the Assessing Officer in the course of assessment. He further stated that he likes to emphasise that having regard to the facts of this case, the only reasonable method to determine the sales would be the one based on food cost ratio and it is for this reason that he had avoided the temptation of making any ad hoc addition to the disclosed results. In view of the finding that the food cost ratio to sales should be 40%, the departmental appeals would not survive as the CIT (Appeals) has adopted a lower food cost ratio to sales. Thus he dismissed the departmental appeals and allowed partly the assessee's appeals. 48. Since there is diveragence of opinion among the learned Judicial Member and the learned Accountant Member, a reference is made for appointment of a Third Member and the difference of opinion was projected in the sh....
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....per day worked out to Rs. 62,547. This result is against test checked by taking the average sales of the two days for which correct data was furnished by the seized document where all the sale bills dated 6-8-1989, 7-8-1989 and the bill amounts were also noted. The total of the sales bills on 6-8-1989 and 7-8-1989 came to Rs. 1,16,284. For each day the average worked out was Rs. 58,142. This figure of Rs. 58,142 was quite comparable with Rs. 62,547 revealed as the average sales per day when the results of three months of December 1989, January & February 1990 were taken into consideration and only 10% of the small bills were adjusted. Thus I hold that the estimated sales for the three accounting years in question made by the Assessing Officer are quite in order. 51. Now comes the question of cost of food to sales ratio. The Revenue in this connection had relied upon the certificate of one of the specialist institutions namely Institute of Hotel Management, Catering Technology and Applied Nutrition who gave certificate dated 19-3-1990. Before granting the Certificate about the cost of purchases to sales, they have taken the special characteristics of the assessee's Restaurant lik....
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.... Secondly, they said that the food cost percentage varies from one to another Restaurant. Thirdly, they have stated that for an average good Chinese Restaurant, the food cost percentage should be around 35% to 40%, and this is dependent upon the quality of ingredients (meat, seafood, imported sauces, etc.) used in food production. It is further stated that their Institute's certificate is based on running of a training Restaurant and not in a gourmet Restaurant. It is significant that the assessee's Restaurant is a gourmet Restaurant and not a training Restaurant for which only perhaps the certification granted by the Institute holds good. Further, the said Institute did not visit the assessee's Restaurant at any time. They have gathered the fair name of the assessee's Restaurant not only in Bombay but all over India, and on a representation made to it, it had believed that the assessee was using ingredients like meat, sauce, seasame oil, black mashroom and baby corn for food production which are all high priced items which go into the production of food. There is no evidence on record that the special quality items of food mentioned above were purchased by the assessee. 54. Fur....
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....aper book. The details of purchases of provisions for the month of January 1990 were given at pages 230 & 231 of the 2nd paper book and the details of purchase of provisions for the month of February 1990 were given at pages 232,233 & 234 of the 2nd paper book. Similarly, the details of purchases of cold drinks for the month of December 1989, January 1990 and February 1990 were given at pages 233 to 237 of the 2nd paper book filed on behalf of the assessee. 55. The results of these three months were examined as per the calculation sheet found at page 238 of 2nd paper book. The total sale bills for these three months (Dec. 89, Jan. 90 and Feb. 90) came to 8,833. Out of them 8.3% of the total bills namely 733 bills were taken to be genuine small bills of Rs. 50 or below. The average of genuine bills and the bogus bills work out as follows: 1,03,002 - (733 X 28) ------------------------- = Rs. 27.63 or 28 app....
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....; 55,12,695 56. For the whole of the accounting year, relevant to assessment year 1990-91, i.e., from April 19 89 to March 1990, a full chart disclosing the number of total bills, the number of small bills, the amount covered by the number of other bills, the amount covered by the number of other bills on each of the months during the accounting period from 1-4-1989 to 31-3-1990 was given at page 257 of the 2nd paper book. The average of small bills was found out at Rs. 31 per bill. The average of large bills was found out at Rs. 553 per bill. 8.3% of the total bills were taken to be the genuine small bills. The average of the genuine total bills was found out to be Rs. 492 and the estimated sales were found out to be Rs. 492 x 32,677 = Rs. 1,60,77,084 and the suppression was found out to be Rs. 44,34,351. 57. At page 258 of the 2nd paper book, the gross food billing as per books was taken at Rs. 1,41,25,775 and suppression of Rs. 44,34,351 was added taking the estimated gross bills at Rs. 1,85,60,126. The food cost for the year as noted in the accounts was taken at Rs.....
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....Golden Dragon run by the Taj Mahal Hotel at Bombay is a comparable case with that of the assessee and the cost of food to sales ratio as disclosed by the Taj Mahal Hotel was between 45 to 50%. The learned CIT (Appeals) had rejected the argument and held that the Taj Hotel cannot be taken to be a comparable case with that of the assessee. I fully agree with the reasoning given by him at page 20 of his impugned orders. 60. The assessee also reiterated his objection for adopting the cost to food sales ratio at 37% for assessment year 1990-91. According to the assessee this determination of 37% does not take into consideration the free meals given up to 10 members on the birthdays and marriage days of VIPs discounted sales to Members of the Nelson Club (Piano Club) and giving free breakfast, lunch and dinner to the staff of the assessee. It was further contended that there were some loss making items sold by the assessee which also adversely affect their profitability. In the Taj Mahal Hotel, the cost of food to sales ratio is shown to be 45 to 5096. Since the menu prices in the assessee's Restaurant are lower than the Golden Dragon prices their cost of food to sales ratio is bound ....
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....nquiries have been held or made before determining the cost of food to sales ratio. The learned CIT (Appeals) held that when correct estimate of sales can be made from the assessee's records, themselves there can be no justification in looking for the same anywhere else. 61. However, in the seized paper the sales of only two dates namely 6-8-1989 and 7-8-1989 were found and out of total 77 bills only 6 were found to be of small bills for amount below Rs. 50. Taking that into consideration, the genuine small bills were determined at 8.3% only. However, in my opinion, the data furnished for two days only cannot be taken to be reflecting a reasonably wide data available throughout the year. Further the possibility of some of the customers taking only small snacks or cold drinks cannot be thrown out to be untenable. Further the possibility that the customers waiting in the lobby ordering certain cold drinks, etc., cannot also be said to be unusual. Human behaviour being what it is there may be various kinds of customers and their eating habits will also be peculiar. Therefore, I feel that taking 10% of the total bills as reflecting genuinely small bills for Rs. 50 or below will be m....
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....ted suppression of sales. The suppression of sales billing to a period prior to the date of search i.e., on 18-9-1989 and whatever disclosures were made u/s 132(4) they should be taken to have been made up to 18-9-1989 but the assessee company had continued with the same pattern of suppression of sales even after that date. The manner in which the suppression of sales took place prior to 18-9-1989 continued in the same manner up to 4-2-1991. However, the unaccounted money which was generated after the date of search up to closing of the accounting year had not been disclosed. 64. While completing the assessment for 1988-89, the Assessing Officer had clearly stated that during the assessment proceedings, the representative of the assessee company were repeatedly told to produce the original sale bills and sale books from their records and the assessee failed to produce the bill book of any of the days falling in the relevant accounting period. The daily sales books were also not produced before him at all and, therefore, he concluded that the assessee has definitely something to hide as far as its sales for relevant period are concerned. Though, it was the case of the assessee th....
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....the assessee that this system of either billing or receiving cash at the counter as per bills was ever changed during any of the accounting years relevant to these three assessment years under consideration. When the same system is being practised in all the three accounting years, the modus operandi adopted while manipulating bills even though found out while investigating the case for assessment year 1990-91 applies to back assessment years also since the nature of the business as well as the nature of establishment and the method of billing followed by them remain the same in all these accounting years. 67. Under section 114(d) of the Indian Evidence Act, there is a presumption that a thing or state of -things which has been shown to be in existence within a period shorter than that within which such things or state of things usually ceases to exist, is still in existence. 68. Now the question in this case is whether the presumption which arises u/s 114(a) runs retrospectively, i.e., a particular state of things found obtaining in the accounting year relevant to assessment year 1990-91 can be presumed to exist in back years also or retrospectively also is the question. In ....
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....oss Asstt. CIT report dated 31-7-1990 submitted to the CIT(A)-VI, Bombay relating to assessment years 1986-87 and 1988-89. In that it is stated that the business of the assessee-Restaurant started effectively in October 1984. At page 144 of the report, it is stated as follows: "As required by your officer, assessee has also submitted one more statement on 23-7-1990 showing cost of material issued, by taking same quantity issued in the one week 24-5-1990 to 30-5-1990 at the rates prevailing in 1986-87 and which has been verified and the gross profit worked out at 34 approximately. The cost statement is further verified with reference to masala and other ingredients used in the preparation of various dishes in one week. The percentage of masala consumed comes to 1996 approximately of the total cost. The total cost of food includes the food cost on account of free tea/breakfast, lunch and dinner served to staff. Assessee not recovering the food cost from the workers/staff. This is one of the reasons for increase in total food cost. In the assessment year 1986-87, there were 26 people working, in the restaurant. Estimated food cost for 6 months operation on staff food comes to Rs....
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....ures the patronage of particular type of clients, in subsequent years, the Restaurant does not need as much publicity as it used to have in its initial years. This is a case where in two or three years, the assessee's Restaurant shot into fame and elitist clientele like politicians, big business bosses, cinema actors, etc., became its customers and they recognised the assessee's Restaurant as one of the best in Bombay, if not in India. Having regard to the necessity of building up its fame in the initial years, I feel that for publicity purposes and towards supply of free meals to various sections, it is but just to conceive at least 1% of cost to food sales ratio towards advertisement. Therefore, I feel that the food cost to sales ratio for assessment year 1989-90 should be at 41% and for assessment year 1988-89 it should be taken at 42%. I direct that after applying this cost of food to sales ratio, the total sales as well as the suppressed sales should be found out and the correct additions should be worked out and made for each of these three assessment years namely 1988-89, 1989-90 and 1990-91 respectively. 72. In answer to the question posed to the Third Member, the follow....
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....bsp; 1,04,03,862 Less: Liquor sales 6,34,170 ------------------------------ Net sales of food as per profit & loss account ....
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....p; ------------------ 42 But sales as per books is Rs. 97,69,692 ------------------ Thus the suppressed Rs. 1,17,16,962 - Rs. 97,69,692 sale is equal to: Rs. 19,47,270. Assessment year: 1989-90: Sales as per profit and loss a/c (Net) &n....
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....; Rs. 2,42,86,863 ------------------------------------- Cost of material debited to books of account Rs. 1,16,01,664 Less: Liquor purchases Rs. 5,00,109 &nbs....
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....bsp; Rs. 5,00,000 ------------------ Rs. 1,63,17,684 Less : Liquor Sales Rs. 16,91,908 &nb....