TMI Blog2012 (2) TMI 536X X X X Extracts X X X X X X X X Extracts X X X X ..... Department in earlier years. In the present case all the assessments from 2002-03 to 2008-09 are subject matter of dispute before us and we cannot take the result of these assessment years as base to determine the net profit. In our opinion, considering the nature of industry and prevailing market conditions, it is reasonable to estimate net profit at 8% of the suppressed turnover. Accordingly, we direct the Assessing Officer to estimate the income of the assessee at 8% of the suppressed turnover in addition to the income from regular business. The ground raised by the assessee for these three assessment years i.e., 2006-07, 2007-08 and 2008-09 is partly allowed. Disallowance on chance of inflation of expenditure under the head production expenditure, employee benefits and administrative expenditure - Held that:- The assessee is a subcontractor. Assessee is engaging labour at site at far flung places. In such circumstances, it is difficult to have documents for such expenditure, to the satisfaction of the assessing officer. It is also difficult to verify the identity of the labour, after lapse of many years. The accounts of the assessee have been audited and auditor's certifica ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0,660 2004-05 4,40,727 2005-06 7,96,358 3. Apparently during the course of search, a bundle of loose sheets were found and seized and placed as Annexure A/HHPL/PO-3/2 which is nothing but daily reports of sales from various outlets of the assessee's company. Similar daily sales reports were found in some another annexures mentioned by the Assessing Officer in the assessment order for the A.Y. 2008-09. The documentary evidences showed suppression of sales found for the months of January 2006, February 2006, May 2007, July 2007, August 2007 and September 2007 pertaining to assessment years 2006-07 and 2008-09. Based on these documentary evidences, the Assessing Officer proposed to quantify suppression of sales for the earlier assessment years 2002-03 to 2005-06 and issued a show cause notice. The assessee, however, objected to the proposal of the Assessing Officer. After considering the explanation of the assessee, the Assessing Officer quantified the undisclosed income on suppressed turnover for the assessment years 2002-03 to 2005-06 as under: A.Y. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aw. According to the AR the AO wrongly estimated the suppressed turnover for the aforementioned four assessment years though the data was available for the assessment years 2006-07 and 2008-09 only that too for a period of 6 months. The AO himself admitted at page No. 12 of the assessment order for the A.Y. 2008-09 that the investigation officials could find the evidence in support of suppressed turnover for only 6 months and there is no other indication to suggest that the assessee was involved in a systematic suppression of turnover even in the earlier years. It was submitted that simply based on the evidence for 6 months, estimating the alleged suppressed turnover for the entire block period is wholly unjustified and uncalled for. Even in the statement ujs. 132(4), there is no reference to any suppression of turnover for this period. Hence the estimation of suppression of turnover for this period and consequently estimation of net income is unjustified. The assessee's counsel relied on the following decisions: 1. ACIT Vs. Rasna Industries (31 SOT 26) ITAT, Jodhpur. 2. DCIT Vs. Royal Marawar Tobacco Products (29 SOT 53), !TAT, Ahmadabad. 7. It was submitted that in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... search and seizure operation, materials were found only in respect of six months that too falling in the financial year 2005-06 and 2007- 08 relevant to the assessment years 2006-07 and 2008-09 and observed that the AO was not justified in estimating the suppressed turnover for the earlier years when the assessee had objected to the same and when there was no voluntary admission in this - regard. For this purpose reliance was placed on the decision of ITAT Ahmedabad in the case of DCIT Vs. Royal Marawar Tobacco Products (16 DTR 129). In the said case the Hon'ble ITAT observed as under: It was undisputed that during the course of search and seizure proceedings no evidence and/or material, indicating any suppressed sales made by the assessee during the assessment years 2000-01, 2001-02, 2002- 03 and 2003-04, was found. No material was also found to indicate that there was any suppressed production in the aforesaid assessment years. The Assessing Officer on finding that material was seized relating to the assessment year 2004-05 in the above search, indicating suppressed production and sales existed in the assessment year 2004-05, presumed that there might have been suppressed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... made u/s. 143(3) has become final and is not affected by the second proviso to section 153A. Of course, the present assessment is a case falling u/s. 153C, but then, as per sub section (2) of section 153C, this assessment was also to be done in the manner provided in section 153A. Therefore, the second proviso to section 153A applies equally to the cases falling u/s. 153C. What follows is that the assessment now to be done is to be confined to the material found in the course of search only. The additions/disallowances made in the regular assessment cannot be repeated in the assessment to be made u/s. 153C of the Act unless fresh material has been unearthed in course of search in respect of those additions/disallowances 12. According to the CIT(A) while making assessment u/s. 153A of the Act, it is essential that only such additions can be made which are based on material found in the course of search. He also placed reliance on the order of the Tribunal Vizag Bench in the case of KGR Exports vs. JCIT in ITA No. 494/V/07 wherein at para 23, the ITAT, Vizag held as under: 23. In view of the foregoing, we are of the opinion that when no incriminating material is found during ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e correctness or otherwise of the returns filed in pursuance of the notice under section 158BC(a) has to be examined with reference to the material in the possession of the assessing authority having nexus to assessment of undisclosed income . Bhagwati Prasad Kedia v. CIT, 248 ITR 562 (Calcutta) The Explanation to section 158BA of the Income-tax Act, 1961, makes it clear that the Legislature thought it fit to make a distinction, between the block assessment and the regular assessment. In the case of regular assessment, the Assessing Officer is free to examine the veracity of the return as well as the claims made by the assessee, whereas the undisclosed income is taxed by way of block assessment as a result of search and seizure. The logic behind the two different modes of assessment is that concealment of income and claiming deduction or exemption in respect of a disclosed income cannot be treated at part. The former is an offence which goes to the root of the matter and the other is on the basis of the causes shown by the assessee where the Assessing Officer is free to accept the justification shown or reject the same. CIT v, Vikram A. Doshi, 256 ITR 129 (Bom) Bl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ough it is not relatable to the evidence found as on the date of search then also, Mumbai Bench of the Tribunal, in the case of Morarji Gokuldas Spg. Wvg. Co. Ltd. v. DCIT, 95 ITD 1 (MUM) (TM), while considering an identical situation, held as follows:- 8. Block period for which the assessment is to be made under Chapter XIV-8 means the period comprising previous years relevant to ten assessment years preceding a previous year in which the search was conducted under section 132 or any requisition was made under section 132A, and also includes in the previous year in which such search was conducted or requisition made the period up to the date of the commencement of such search or as the case may be the date of such requisition. Therefore, the assessment for the block period under chapter XIV-8 can be made of the undisclosed income only up to the date of commencement of search or the date of the requisition and not of the period thereafter. Section 1588A provides for assessment of undisclosed income as result of search for the block period and computation of income and the computation of undisclosed income for the block period to be made as per the provisions of section 158BE ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6,23,760 19,05,822 2007-08 81,03,750 12,98,420 35,10,400 2008-09 1,04,11,340 16,60,906 39,37,357 20. Considering the net profit on suppressed turnover as also the disallowances made under various heads of expenditure as above, the total income for the assessment year 2006-07, 2007-08 and 2008-09 was assessed at ₹ 3,57,19,490, ₹ 5,08,05,040 and ₹ 4,97,61,860 respectively. Being aggrieved against the assessments so made the assessee went in appeal before the CIT(A). 21. The CIT(A) given a finding relating to the computation of net profit on the suppressed turnover that AO to adopt a net profit figure of 15% on the agreed suppressed turnover for arriving at the undisclosed income on account of suppressed turnover for the AY 2006-07, 2007-08 and 2008-09 as follows: A.Y. Suppressed turnover (Rs.) Net profit @ 15% (Rs.) 2006-07 7,04,32,296 1,05,64,845 2007-08 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er for the financial year 2006-07 though there was no material to suggest any suppression for that year. He stated that in the statement recorded u/s. 132( 4) in response to question No. 9 the Managing Director had indicated a net profit of 95 lakhs on the estimated suppressed turnover of ₹ 7 ,04,32,296/- giving a net profit rate of 13.5 per cent. Since the Managing Director had himself conceded the suppressed turnover the same was not disputed in the return filed u/s. 153A. However, since the net result suggested to the Managing Director was too high the assessee company had admitted nearly 8% income on the admitted suppressed turnover in the return. The Assessing Officer was of the opinion that the Managing Director had himself accepted the gross profit as 46% which is supported by the gross profit admitted in the regular return. Thus, the net income assessed by the AO on the admitted suppressed turnover was around 41.4% for AY 2006-07 and 42.91 % for AY 2007-08 and 2008-09 which is too high and unachievable in this line of business. It was submitted that the assessee is in the business of preparation and sale of food articles at various counters especially in twin cities. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... In this table the figures for AY 2008-09 were not taken correctly. The actual figures for AY 2008-09 are as under: Particulars Turnover (Rs.) Production expenses (Rs.) Administrative expenses (Rs.) Employees expenses (Rs.) Net profit (Rs.) As per AO 12,76,14,593 1,38,55,248 6,41,32,516 3,94,55,369 1,25,22,161 As per ROI 12,76,14,593 6,94,40,933 3,94,45,356 1,25,22,161 1,38,55,248 26. Hence there is no disproportionate increase in any of the expenditure. The addition is only on wrong presumptions. The assessee submitted that the AO failed to appreciate the fact that the books of ale were produced before him and in support of the genuineness of the expenditure claimed the assessee filed the data for one assessment year i.e. 2007-08 for the payments made through banking channels and payments made through cash under each head. The table shows that more than 50 per cent of the m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ofit in earlier year could be the best yardstick to ascertain income from suppressed turnover. He relied on the order of the Tribunal dated 23rd November, 2010 in the case of Prakash Arts Moving Media, Hyderabad in ITA Nos. 305 to 308/ Vizag/2008 wherein it was held as under: 14. Having carefully examined the seized material and the other record available before us, we are of the view that where none of the statements of the entries (the statements found in the course of search or the books of accounts) are complete and supported by evidence, the true profits of the assessees cannot be worked out and in this type of situation, instead of picking figures from here and there, the right course is to reject the books of accounts of the assessees and to estimate the income on the basis of sales disclosed or found during the course of search. Admittedly, in the seized documents, the assessee has declared more sales than the sales disclosed in the regular books of accounts of the assessees. In the seized material, the total sales was disclosed at ₹ 16,27,36,575.50 ps. for the period of 1.4.1997 to 31.3.2002 but the assessment years involved are from 1999-2000 to 2002-03. Therefo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iod 16.11.2001 to 2.1.2003 can be fairly estimated at ₹ 60 lakhs. Coming to the sale figures of AC and Roof Garden sections, the sales figures arrived at by the AO based on ISR and IPR reports is acceptable and this gives a figure of ₹ 1,91,90,088/-. A part of this sales (approx. 30%) is routed through the general sections, the estimate of ₹ 60 lakhs as general section sales is in our opinion, reasonable. The AO has recorded a finding that the suppression of sales is to the tune of 90.50%. This fact is recorded by the CIT(A) in para 3(c)(i) of his order. While os, the estimate of ₹ 8.72 crore is against this finding. Thus, as the estimations made by the AO, which is confirmed by the first appellate authority are highly excessive and as they do not bear any relationship with the sales figures accepted by the Commercial Tax Department as well as by the AO and CIT(A) themselves. As against the estimate of ₹ 26,51,292/- undisclosed turnover admitted over and above the recorded turnover of ₹ 91,10,718/- and ₹ 7,88,41,158/- unaccounted sales estimated by the revenue, for the period prior to 15.11.2001, we direct the AO to adopt the following figu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urchases and closing stock, and the only difference is in relation to the sales, and that being so, there is no difference with regard to the cost of sales and consequently, entire sales not recorded in the books of account represents the unaccounted income qf the assessee. The CIT(A) was of the view that the contention of the assessee that it is only the profit on the unaccounted for sales which is liable to be added, is acceptable only if the assessee establishes that not only the sales but also the purchases in relation to those sales were unaccounted for. Despite several opportunities given, assessee could not furnish particulars of unaccounted purchases which yielded income out of the unaccounted for sales. In that view of the matter, the CIT(A) upheld the addition made by the assessing officer. We do not find any fault in the approach of the lower authorities. It is for the assessee to substantiate its case that it is only the profit in relation to the unaccounted sales that has to be considered for any addition and not the entire amount of sales, by furnishing necessary evidence in the form of unaccounted purchases. Assessee having failed to discharge the burden that lies on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ied on the decision in the case of Carpenters Classics (Exim) (P) Ltd. vs. ACIT (108 ITD 142)(Bang.) wherein it was held as under: Held, 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 instant case, there was no material to show that unaccounted cash receipts were only in respect of additional work executed. During the course of search, certain papers in torn condition represented the cash receipts. It was admitted that these receipts were not available in any record. The assessee has made declaration vide letter dated 22.1.1999, and such letter was not alleged to have been obtained under threat or coercion. This was voluntary declaration. The assessee estopped the Department for making further investigation. In case the assessee felt that the said declaration was not correct, then it was having sufficient time to say that declaration be not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessee had not retracted the disclosure before the Authorised Officer but had 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 was too large. Hence, the Commissioner (Appeals) was justified in determining undisclosed income on the basis of letter filed by the assessee. It was also contended by the assessee that the revenue had not been able to establish that assets or expenses corresponding to undisclosed income had been found during search. The assessee had shown undisclosed income to the extent of around ₹ 68 lakhs and had not explained as to where such amounts stood invested. It is not the case of the assessee that undisclosed income had been returned on the basis of assets or expenses not recorded in the books of account. The assessee itself filed the declaration of undisclosed income of ₹ 1.07 crore. Hence, there was no onus on the Revenue to establish that such undisclosed income was in the form of assets etc. Section 158B(b) defines undisclosed income and such income can be based on entries found in the seized records. Therefore, the Commissioner (Appeals) was just ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sed income to be assessed because several outgos such as indirect costs, selling overheads, and other expenses have to be incurred by the assessee even for such unaccounted sale and therefore deduction has to be allowed for the same for arriving at the net undisclosed income. 32. At para 9 of the said order, the Hon'ble ITAT Hyderabad further observed as under: As for estimation of undisclosed income in relation to such undisclosed turnover determined at 35% of accounted turnover, we are of the considered view that the lower authorities were not justified in determining the undisclosed income by adopting gross profit rate at the relevant years/period. It is a settled position of law as laid down 'among others by the Delhi High Court in the case of CfT Vs. Satish Kukar Chandana, New Delhi vide judgement dated 2119-2007 in ITA No. 142 of 2004, besides the decisions of various Benches of tribunal including the Hyderabad Benches in similar matters, it is only the net profit and not the gross profit rate that is relevant to disclose the undisclosed income, since even in respect of gross profit in relation to~ suppressed turnover, certain amount of indirect cost are to be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... earlier years as follows: Statement showing net profit rate as per assessee as well as by AO/CIT(A) A.Y. Admitted undisclosed income Net profit as per assessee Net profit estimated by ASSESSING OFFICER Net profit estimated by CIT Amount % Amount % Amount % 2006-07 70,432,296 1,513,670 2.15 25,355,627 36.00 10,564,845 15.00 2007-08 76,380,984 5,758,950 7.54 28,780,355 37.68 11,457,148 15.00 2008-09 56,869,360 4,356,084 7.66 21,428,375 37.68 8,530,404 15.00 Total 203,682,640 11,628,704 75,564,357 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... account were produced before the AO in support of the genuineness of the expenditure claimed and the assessee had also filed a data for one asst. year 2007-08 segregating the payments made through banking channels and payments made through cash. During the course of first appellate proceeding, the assessee have filed details segregating the expenses. As per the said details of production expenses, only partial payment is by cash and the balance is by cheques. Similarly, for the employees benefits less director's remuneration partial payments were made by cheque towards PF and ESI contribution and balance paid by way of salaries covered by PF and ESI. As regards administrative expenses less sales tax amounting to a portion includes statutory payments like electricity charges, property tax, food licence, labour licence, trade licence etc. This apart payment of franchise commission, sales tax appeal etc. were stated to have been made by cheques. The assessee also submitted that on payment of rent, franchise commission and security services, in fact TDS was also deducted. 36. The AO himself has observed in the assessment order that the assessee had given a break up of productio ..... X X X X Extracts X X X X X X X X Extracts X X X X
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