TMI Blog2013 (1) TMI 423X X X X Extracts X X X X X X X X Extracts X X X X ..... alysis, if any, carried on by them on the documents filed by the assessee. As the assessee has filed confirmation letters obtained from the donors/lenders along with the details of bank account, etc. this issue requires fresh examination at the end of the Assessing Officer. Addition of loans/gifts received from friends - Held that:- All these amounts have been assessed in the assessment years 2002-03 to 2004-05, assessment years fall in the category of concluded assessments. As noticed that the amounts received from Shri Siddique and Shri T. Mohammed find place in the balance sheet filed by the assessee and other gifts find place only in the cash flow statement. It is not clear as to whether the cash flow statements were filed along with the returns of income originally filed u/s 139 or they were filed along with the returns filed u/s. 153A. If any of the amount is disclosed for the first time in the returns of income filed u/s. 153A either in the Balance sheet or in the cash flow statement, it is susceptible for verification in the assessment proceeding carried out u/s 153A, even if the concerned assessment falls in the category of concluded assessments. Hence, the facts relati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... adverse view by considering his age. Tax authorities have not carried out any objective analysis, but instead carried away by non-compliance of formalities under FERA Act - the addition made on this account in assessment years 2006-07 and 2007-08 requires fresh examination - restore the matter relating thereto the file of AO. Estimation of business income on account of suppression of sales - Held that:- Since the assessee himself has deposed that the sales suppression was to the tune of 8%, in our view, it would be justifiable to determine the sales suppression at 8% of the total turnover for all the years under consideration, particularly in view of the fact that the department did not seize any other material to make estimate of sales suppression in any other manner. It is pertinent to note that the very same methodology was adopted in the case of the company, M/s South Malabar Steels & Alloys Pvt. Ltd, sister concern also. Gross profit rate to be adopted for estimating the income for all the years - Held that:- It would be just and reasonable, if the Gross profit rate declared by the assessee in various years is adopted to determine the undisclosed income of the respective ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ar of search plus six earlier assessment years). The assessee challenged the said assessment orders before the Ld. CIT(A) but could get only partial relief. Hence he has preferred these appeals before us seeking further relief. 3. The various types of additions made by the Assessing Officer and which are being contested before us can be grouped under the following heads: i) Suppression of business income. ii) Gifts/loans from relatives. iii) Gifts/loans from friends. iv) Deficiencies in cash flow statement. v) Addition towards sale of trees. vi) Foreign travel expenses. vii) Valuation of house property. viii) Amount received from son. 4. Before proceeding to adjudicate the issues raised, we feel it pertinent to discuss about the scope of assessment u/s 153A of the Act, since the Assessing Officer has framed the assessments under that section consequent to the search and seizure operations conducted in the hands of the assessee on 06-09-2007. As per the provisions of sec. 153A of the Act, the AO is required to assess or reassess the total income of six assessment years immediately preceding the assessment year relevant to the previ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... take the same view discussed above. However, we feel it pertinent to express the view that if the AO finds out any defect on any issue in respect of the pending assessments which got abated and such kind of issues are also available in other assessments, which have already been completed and did not abate, then in our view, the AO is entitled to examine those issues in those years also, in order to find out whether similar defects exist in those years or not. In such a situation, in our view, it is not necessary to satisfy the condition that some incriminating materials concerning to those issues should have necessarily been found out in respect of those assessment years . 5. The above said view has since been confirmed by the Mumbai Special Bench in the case of All Cargo Global Logistics vs. DCIT (137 ITD 287). This Tribunal as well as the Special bench has held that the assessment of a particular assessment year shall be deemed to have been concluded, if the notice required to be issued u/s 143(2) of the Act was not issued for that year and the time limit prescribed for issuing the same has also expired as on the date of initiation of search. 6. By considering the legal posi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessment years . By taking into account the factual and legal position discussed in the preceding paragraphs, we shall proceed to examine the various types of additions made by the Assessing Officer. 6.1 The Ld A.R contended that the assessment pertaining to the assessment year 2006-07 should also be considered as concluded, since the notice u/s 153A was issued after 12 months from the date of filing of return of income of that year. However, we are unable to agree with his contentions. The fact remains that the assessment of that year was pending on the date of initiation of the search and hence it shall abate by virtue of provisions of sec. 153A after the initiation of search. Hence the assessment of that year has to necessarily be completed as per the provisions of sec. 153A of the Act. 7. The first issue listed in paragraph 4 supra relates to the suppression of business income. From the orders of tax authorities, we notice that this addition is made in all the years under consideration. Hence, we would like to address this issue as last item. 8. We shall now take up the issue relating to the addition of gifts/loans received from relatives. The assessing officer has m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he end of the Assessing Officer. Accordingly, we set aside the order passed by the Ld. CIT(A) on this issue for the assessment years 2006-07 and 2008-09 and restore the matters relating thereto the file of the Assessing Officer with a direction to examine the documents filed by the assessee in objective manner and decide the same in accordance with law, after affording necessary opportunity of being heard to the assessee. The assessee is free to adduce any other evidence or information or explanation before the AO. 9. We shall now take up the issue relating to addition of loans/gifts received from friends. The Assessing Officer has given details of gifts/loans received from friends at page 12 of the assessment order as under:- S.No. A.Y. Name of creditor Nature of credit Credit in Amount 1. 2002-03 Siddique Loan Balance sheet 211250 4. T. Mohammed Loan Balance sheet 153000 5. K.K.Ali Gift Cash flow 300000 6. V.K. Abdul Jabbar Gift Cash flow 150000 7. 2003- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t prior to the date of initiation of search or not. As in the case of gifts/loans received from relatives, the tax authorities have not made an objective examination of the various documents filed by the assessee. Accordingly, in our view, this issue of loans/gifts received from friends requires fresh examination at the end of the Assessing Officer. Accordingly, we set aside the order of the Ld. CIT(A) on this issue and restore the matter to the file of the Assessing Officer with a direction to decide about the scope of examination of these items as per the discussions made supra and if any of the items of receipt is susceptible for verification, then examine the documents relating thereto filed by the assessee in an objective manner and decide the same in accordance with law after affording necessary opportunity of being heard to the assessee. The assessee is free to adduce any other evidence or information or explanation before the AO. 10. The next issue relates to the addition pertaining to discrepancy/deficiency in cash flow . The assessee owned two vehicles and the income there from was offered by him as per the provisions of sec. 44AE of the Act. It is pertinent to note th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ant section clearly states that the depreciation shall be deemed to have been allowed. Hence, by following the illustration given above, the net cash inflow from the operation of vehicles would be the amount of income computed as per the provisions of sec.44AE of the Act plus the depreciation allowable on those vehicles. Hence, in our view, the assessee was right as per the accounting principles in treating the depreciation amount as an item of cash inflow. Accordingly, we set aside the order of Ld CIT(A) on this issue in all the years and direct the AO to delete the addition made on this issue in all the years. 11. The next issue relates to the addition of Rs.75,000/- relating to sale of trees made in the assessment year 2002-03. As per the assessee, this income was declared by him in the original return of income filed u/s 139 of the Act prior to the date of search. It is also stated that the department did not unearth any material to create any suspicion over the said income. Under these circumstances, this item of income falls outside the scope of the provisions of sec. 153A. Accordingly, we set aside the order of Ld CIT(A) on this issue and direct the AO to delete the additi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ell as the tax authorities are bound by the decision rendered by the jurisdictional High Court. Since the DVO has valued the house property by adopting CPWD rates, the said valuation goes against the decision rendered by the jurisdictional High Court. Further the Ld A.R pointed out that the AO did not consider the expenditure incurred by the assessee in the subsequent years and the period of construction adopted by him is also wrong. He further pointed out that the DVO did not allow any deduction towards self supervision. He also pointed out that the AO did not consider the principles laid down in the following decisions:- (a) (1989)(31 ITD (Coch) 77: Upasana Hospital and Nursing Home Vs. ITO (b) 258 ITR 714 (Mad): A. Abdul Rahim Vs. ITO (c) 303 ITR 128 (Raj) : Smt Prem Kumari Mudria Vs. ACIT (d) 257 ITR (AT) 65 (Hyd) : ACIT Vs. Vinod Kumar Agarwal (e) 265 ITR 344 (Raj) : CIT Vs. Dinesh Talwar (f) 259 ITR 232 (Raj) CIT Vs. Elegant Homes (P) Ltd. In view of the foregoing discussions, we are of the view that this issue needs examination afresh, as it is not in accordance with the decision of jurisdictional High Court. Further the assessee is aggr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ied away by non-compliance of formalities under FERA Act. The tax authorities have discussed at length about the law relating to the requirements for proving the cash credits. Hence, in our view, the addition made on this account in assessment years 2006-07 and 2007-08 requires fresh examination. Accordingly, we set aside the order passed by the Ld. CIT(A) on this issue for the assessment years 2006-07 and 2007-08 and restore the matter relating thereto the file of the Assessing Officer with a direction to examine the documents filed by the assessee in an objective manner and decide the same in accordance with law, after affording necessary opportunity of being heard to the assessee. The assessee is free to adduce any other evidence or information or explanation before the AO. 15. The last issue relates to the estimation of business income on account of suppression of sales. In the sworn statement recorded at the time of search u/s 132(4) of the Act, the assessee admitted that there was suppression of purchases and sales. He admitted that the suppression of sales is to the tune of 8% of the sales. During the course of assessment proceeding, the AO took cognizance of this confessi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of suppressed production in order to arrive at the undisclosed income for all the years. The workings given by the AO in this regard are extracted below:- Assessment Year Value of the Suppressed Production (g)+(e)x(f) Gross Profit applied at the rate of 31%: Rs. 2002-03 40,62,551 12,59,390 2003-04 53,82,535 16,68,585 2004-05 58,51,357 18,13,920 2005-06 95,16,481 29,50,109 2006-07 96,83,173 30,01,785 2007-08 17,25,013 534754 2008-09 0 0 The undisclosed income so arrived at by him was added in the respective assessment years as suppression of business income. 15.3 Before Ld CIT(A), the assessee argued at length explaining the reasons for variation in the quantity of average power consumption as under:- In this connection, it is submitted that there is absolutely no basis for the Assessing Officer to estimate unaccounted production, sale and profit for any of the years beginning from 2003 onwards. In fact, the assessment for 2002-03, 2003-04 and later years had already been completed based on t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dition on account of alleged suppression of production and turnover are highly arbitrary and unsustainable 9.1 the Learned Counsel for the appellant vide written submission dated 20th December, 2010 further represented in the matter as under: In the previous note submitted and the explanation offered at the time of .hearing, specific objection was raised against the estimate of turnover based on current consumption. The Assessing Officer estimated production by applying a formula of 650 Units per MT for manufacture of 6 mm rods. This is on the basis of the declared current consumption for production for the assessment year 2008-09. The above formula was applied for all the prior years commencing from the first year onwards. After arriving at the estimated production in the above manner, the Assessing Officer reduced the declared production as per accounts and treated the balance as suppressed production. The value of the suppressed production was estimated to arrive at the suppressed turnover. Again, gross profit of 31% was estimated thereon and the resultant figure is added as undisclosed income for all the prior Assessment Years. The results for 2008-09 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s are converted into 6 mm Rods and 3 mm flats which are the manufactured items. Only these two types of products are manufactured. c) The scarp material is heated and passed through rolls in high temperature. The heated scrap is reduced initially to varying sizes of 2 and 11/4 , 11/2 , 1 , , and . The last size of is equal to 6 mm Rod. The heated scrap has to undergo the rolling process through the above 7 sizes in order to get the finished products. In the case of mild steel items like M.S. plate or M.S. Rod, the power consumption will be less, because this is mild steel. However, in the case of condemned rail, the temper of the metal is very high and requires high power consumption for the heating process. d) Larger sizes of scrap are cut into smaller size before passing through rolling mill. The manufacturing of the finished products is without melting the scrap, but only by the process of heating. Therefore, depending upon the type of raw material used, the power consumption would be higher or lower. This will not be uniform. Raw material is purchased through suppliers, depending on availability. The old scrap collected by ship breaking, c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t was earlier using batch type furnace for healing the scrap which was resulting in higher consumption of electricity. This problem was identified and accordingly pusher type heating furnace was installed during the financial year 2005-06. As a consequence of this there was less power consumption for production per MT in the period relevant to A.Ys 2007-08 and 2008-09. The Learned Counsel for the appellant further claimed that rise in GP rate in A.Y. 2008-09 to the extent of 19.33% (out of 30.79%) was attributable to sharp rise in average selling price per MT of the finished goods. A working of the same was also placed on record. The Learned Counsel for the appellant further relied on the basis of electricity consumption was not justified in the appellant s case. 1. Amar Ispat Pvt. Ltd. vs. CCE, Thane 1 - (2009) 235 ELT 487 (TRI Mum.). 2. RA Castings Pvt. Ltd. vs. CCE, Meerut-1 - (2009) 237 ELT 674 (TRI Del) 15.4 The Ld CIT(A) reconsidered the whole issue. He noticed that the assessment order did not speak about the opportunity given to the assessee and further the AO did not deal with various types of arguments that were put forth by the assessee. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Appellant without starting the reasons for the same. I find that that the Assessing Officer has estimated total turnover (declared + Estimated suppressed turnover) of the appellant ranging from over 1.5 times to two times of the turnover declared (as detailed above) more for earlier years and no suppressed turnover for A.Y. 2008-09. I further find that the Assessing Officer has not pointed out a single specific defect in the books of accounts of the appellant though vaguely made a mention of the same in the order. No specific incriminating material recovered during search u/s. 132 in the Appellant s case is identified in the assessment order which can justify estimation turnover at such an exaggerated figure. The Assessing Officer placed reliance on Sales Tax order for the year 2002-03 and 2004-05 and has also reproduced the stock variation found by Intelligence squad of Sales Tax Department on 25th January, 2005. These defects pointed out by the Assessing Officer were not major defects to justify estimation of substantial suppressed production as done by the Assessing Officer by totally disregarding the consumption production shown by the appellant in the matter. The only advers ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2002-03 549848 733.13 540.405 192.725 13297.17 25,62,697 2003-04 606676 808.90 558.900 250 14374.51 35,93,628 2004-05 591396 788.53 545.850 242.68 16075.6 39,01,227 2005-06 591744 788.99 388.980 400.01 19491 77,96,595 2006-07 592972 790.63 422.010 368.62 19751.50 72,80,798 In a similar manner turnover of the appellant for assessment year 2007-08 and 2008-09 can be reasonable and judiciously estimated as under: A.Y. 2007-08 2008-09 Turnover shown 1,11,68,910 1,57,01,074 Turnover estimated @ 108% of above 1,20,62,423 1,69,57,160 The Assessing Officer is accordingly directed to adopt the above figures of suppressed production for assessment years 2002-03 to 2006-07 as against estimation made in the assessment order. In a similar manner, the Assessing Officer is directed to adopt above tur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ned the said contentions of Ld A.R. It is an undisputed fact that the assessee has confessed about the suppression of purchases and sales in the sworn statement taken u/s 132(4) of the Act. The relevant question and answers are extracted below:- Q. No.13 - Have you properly maintained accounts relating to scrap purchases, finished goods, sales etc of your establishments. Ans.:- In scrap purchase 90% is imported scrap and sponge iron. Details of its purchases have been properly accounted. 10% includes local purchase. 90% of the local purchase has been accounted. 10% of local purchase has not been accounted. 8% of the sales also has not been accounted. Q. No.14 - You have said in your earlier question that 8% of the sales have not been accounted. What did you do with the profit so obtained from the sales. Ans.:- Money obtained from such unaccounted sales have been utilised for purchasing property in my name and also for the house which is under construction. These questions and answers given by the Managing director clearly indicate that there was suppression of purchases and sales in all the establishments under his control. The Ld A.R has stated that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t from the scope of proceedings u/s 153A of the Act, in our view, the assessee cannot place reliance on the said decisions. With regard to the case law listed as (a) above, we notice the assessee therein has proved that the statement u/s 132(4) was given in a state of confusion and later retracted. However, in the instant case, it is not shown that the statement u/s 132(4) was given by the assessee in a state of confusion. Further we have already recorded a finding that the assessee has not retracted from the statement given by him. Hence, the said decision is also not applicable to the facts of the instant case. 15.13 The assessee, in his submissions made before Ld CIT(A), has pointed out many factors which could impact the power consumption. We notice that the Ld CIT(A) has rejected all those contentions, simply for the reason that the average power consumption declared for the assessment years 2005-06 and 2006-07 are on the higher side. However, the fact remains that the average power consumption was uniform for the asst. years 2002-03 to 2004-05 and it has reduced drastically in asst. years 2007-08 and 2008-09. In any case, the average rate of power consumption, as rightly po ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gly, the Ld CIT(A) has given a specific finding that the effect of increase in prices in the year relevant to the assessment year 2008-09 is evened out, i.e., (30.79% (-) 19.33%), the gross profit rate for that year works out to 11.46%. Accordingly, the Ld CIT(A) has opined that the gross profit rate of 11.46% was comparable with the gross profit declared in some of the years. Having opined so, still the Ld CIT(A) held that the fluctuation in the GP rate in various rates are unreasonable. In our view, the said decision of the Ld CIT(A) does not have any basis. Having understood that there might be various reasons for the fluctuation in the rate of G.P, in our view, the Ld CIT(A) should not have come to such a conclusion. The fact that the assessee had initially purchased a sick concern and gradually improved the quality of machineries by making additions over the years to fixed assets is very much relevant here. The assessee has claimed to have installed the pusher type heating furnace in the year relevant to the asst. year 2006-07 and it has resulted in the increase in the efficiency in succeeding years. Thus, in our view, the assessee has sufficiently explained the reasons for th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the undisclosed income has been utilised for the purchase of property and also in construction. Thus, the plea of the assessee is that he has used the undisclosed income for purchase of property also. In the instant case, the AO did not make any addition towards investment made in the purchase of any undisclosed property, meaning thereby the assessee has accounted for all the properties purchased by him. The cash credits are generally introduced in the books only to bring sources for such investments. Hence, if any addition is made towards unproved cash credits, indirectly it indicates that the undisclosed income has been used as a source in the form of cash credit for making investments. Accordingly, we are of the view that the undisclosed business income can also be given set off against cash credit addition also. Accordingly, we direct the AO to allow set off of the undisclosed income against the additions made towards cash credits, if any and also against the additions made towards unaccounted investments. 16. In the result, all the appeals filed by the assessee are treated as partly allowed for statistical purposes. (Pronounced accordingly on 30.11.2012.) - - TaxTMI - T ..... X X X X Extracts X X X X X X X X Extracts X X X X
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