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TMI Blog2013 (1) TMI 423X X X X Extracts X X X X X X X X Extracts X X X X ..... essee on 06-09-2007. Consequently, the assessing officer framed assessments u/s. 153A of the Act for the years under consideration by making various additions (year 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 sear ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 153A, yet they can be disturbed only in respect of those issues for which some incriminating materials requiring such disturbance is unearthed during the course of search proceeding. Since majority benches have taken the above said view in a consistent manner, we are also inclined to 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 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". 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 wo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in our view, this issue of loans/gifts received from relatives requires fresh examination at the 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. 2003-04 V.P. Mohammed Gift Cash flow 268000 8. V.Abubacker Gift Cash fl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion 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 that the provisions of sec. 44AE provides for ad-hoc estimation of income and it is further provided therein that any deduction allowable under the provisions of sec. 30 to 38 shall be deemed to have already been given full effect to and no further deduction under those sections shall be allowed. In the cash flow ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mount 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 addition relating thereto. 12. The next issue relates to the addition pertaining to Foreign travel expenses. Though the pass port of the assessee revealed that he had undertaken foreign tours, yet it was seen that the expenses relating thereto were not accounted for. Accordingly, the AO gathered the details of rates of air travel from recognised travel agencies and made the addition in assessment years 2003-04, 2005-06, 2006-07, 20 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he 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 aggrieved on various points and they have not been addressed by the AO. Accordingly we set aside the order of Ld CIT(A) on this issue in the three years mentioned above and restore them to the file of the AO with the direction to examine the same afresh in accordance with the decision of jurisdictional High Court and law and take appropriate decision, after affording necessary opportunity of being heard. 14. The next issue pertains to the amount received from the son of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 confession. He also noticed that the Commercial tax authorities have found out certain defects in the units run by the assessee. Accordingly, the AO rejected the book results and proceeded to compute the unaccounted production on the basis of "electrical units" consumed by the assessee. The AO noticed that the average power consumption per MT worked out as under in various years. Asst Year Units consumed Production as per Return Power u 2002-03 549848 540.405 1017.47 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dy been completed based on the books of account maintained and produced before the Assessing Officer. The turnover was correctly declared in the accounts. The turnover was also correctly reported in the sales tax assessment which were accepted and assessment completed. The production details were also accepted by the Central Excise Authorities for the levy of Central Excise Duties. The very same power consumption was declared in the regular assessment made under sec. 143. There was no material found at the time of search indicating any suppression of production, sale or profit. Just because of a search was conducted on 6.9.07, the Assessing Officer has proceeded to estimate the production, turnover and income for prior years when there is absolutely no evidence or date available before the Assessing Officer to suggest incorrectness in the accounts relating to production, sale and profit or any other material to show suppression of production or turnover for any of these years. The Assessing Officer also ignored the fact that the consumption of power is variable and not constant. Proper accounts for production and consumption are maintained by the appellant. The consumption of power ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ofit 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 assessment were accepted. It is submitted that all these estimates are highly arbitrary and unsupported by any valid material or data. This contention is substantiated by the following facts:- I. The Assessing Officer had no basis to assume that the production for the prior years was suppressed. I. The actual power consumption and production are recorded in the books of accounts. This has been accepted by all Authorities for the relevant Assessment Years including the Income Tax Officer in the return of income submitted for those years. The details of the returns furnished and the dates on which such returns for prior years were furnished is already on record. The returns were furnished before the due date supported by audited statement of accounts and these have been accepted by the Assessing Officer. The production has been accepted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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, condemned rail, old trusses etc, are supplied by dealers. The assessee purchases and uses them for manufacture. e) After starting the industrial unit, the assessee has been regularly installing additional machinery and equipments to improve the production and efficiency. f) Transformer of the factory was changed in the year 2007, which helped in further reduction in consumption of electricity as th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f 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. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as detailed above in respect of turnover declared by the 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 producti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 turnover for assessment year 2007-08 and 2008-09". 15.8 With regard to the Gross profit rate to be applied, the Ld CIT(A) noticed that the assessee could achieve higher Gross profit rate of 31% for the assessment year 2008-09 due to the increase in the prices of the finished goods. The Ld CIT(A) has extracted the workings given by the assessee in this regard in page 28 of his order. As a result of increase in selling price, the rate of gross profit shot up by 19.33% in the assessment year 2008-09. The Ld CIT(A) noticed that, if this exceptional situ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... so 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 assessee has retracted from the statement by filing a letter on 10.09.2007. We have gone through the said letter, wherein the assessee has stated as under in paragraph 3:- "It is submitted that, I have fully co-operated with the department throughout the search and have made available all the records available with me. Your goodself have taken down statements without verification of records. I have not been able to verify the records in order to furnish the correct facts. Whatever was stated was without having verified the relevant records. However, the correct figures can be furnished only ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 pointed out by the assessee, would depend upon various factors. It is pertinent to note that, while deciding the appeals of the company, M/s South Malabar Steels Pvt Ltd, the Ld CIT(A) himself has rejected the method of adopting the "power consumption factor" as the basis to compute suppressed production. The most important point to be considered here is that the department did not unearth any material to suggest that the assessee was resorting into any unlawful things in order to show higher cost of production. Though the A.O had placed reliance on the discrepan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing 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 the improvement, i.e., considerable reduction in the average power consumption during the asst. years 2007-08 and 2008-09. 15.17 We may also observe here that the assumption made by the AO that the gross profit rate declared for the assessment year 2008-09 is the correct rate to be adopted for all the years is also not based on any material. Under these circumstances, we find no reason to adopt a Gross profit rate for estimating the undisclosed income, which is altogether from the rate of gross profit declared by the assessee. Accordingly, we are of the view that i ..... X X X X Extracts X X X X X X X X Extracts X X X X
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