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2016 (11) TMI 211 - DELHI HIGH COURT

2016 (11) TMI 211 - DELHI HIGH COURT - TMI - Validity of Assessment u/s 153A - addition made on the basis of the incriminating material found during the search? - Held that:- The search was conducted on 22-03-2006. Various materials: documents, agreements, invoices and statements in the form of accounts and calculations were seized. On 18 April 2006 and 3 May 2006, the assessee’s sons (including one of the appellants, Abhay Gupta) recorded statements under oath; the assessee too made her stateme .....

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em arose because of the search and seizure that occurred and the seizure of various documents, etc. that pointed to undeclared income. In these circumstances, the assessee’s argument that they could not be acted upon or given any weight is insubstantial and meritless. This court also notices that the decision in CIT Vs. Anil Bhatia (2012 (8) TMI 368 - DELHI HIGH COURT ) which held that such statements are relevant, though noticed, has not been doubted in any later decision, including Kabul Chawl .....

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s recorded by the assessees. These additions therefore were not baseless. Given that the assessing authorities in such cases have to draw inferences, because of the nature of the materials – since they could be scanty (as one habitually concealing income or indulging in clandestine operations can hardly be expected to maintain meticulous books or records for long and in all probability be anxious to do away with such evidence at the shortest possibility) the element of guess work is to have some .....

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ated:- 27-10-2016 - S. Ravindra Bhat And Deepa Sharma, JJ. Sh. Salil Kapoor, Ms. Ananya Kapoor, Sh. Sumit Lal Chandani and Sh. Sanat Kapoor, Advocates, for the appellants Sh. Dileep Shivpuri, Sr. Standing Counsel with Sh. Sanjay Kumar, Jr. Standing Counsel, for revenue, in ITA 357/2015, 358/2015, 359/2015, 565/2015 & 566/2015. Sh. Anup Kumar Kesari, for Sh. Rahul Chaudhary, Sr. Standing Counsel, in ITA 360/2015 & 361/2015. for the revenue ORDER Mr. Justice S. Ravindra Bhat 1. These seven .....

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oup belongs to the family of late Shri Bishan Sarup Gupta, survived by his sons- M/s Abhay Gupta, Anoop Gupta and Ajay Gupta. The three brothers, through the firms M/s Balajee Perfumes and M/s Assam Supari Traders, managed gutka manufacturing as well as sale and purchase of areca nut business. M/s. Balajee Perfumes is a partnership firm of Shri Varun Gupta S/o Shri Abhay Gupta and Smt. Deepa Gupta W/o. Shri Anoop Gupta. M/s. Assam Supari Traders is the business concern of Smt. Dayawanti (the lat .....

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sam Supari Traders was also recorded in the course of search. In this statement she said that she had no source of income; that she does not even own any bank account and that she was not assessed to tax. She admitted to being proprietor only on the record and Shri Anoop Gupta looked after all operations along with the help of other family members. Notice under Section 153A was issued on 21st August 2006 requiring the assessee to furnish returns. In response the assessee filed no proper return, .....

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bstantiate the declared results. The AO also noted that confirmation from all creditors was not furnished. Further discrepancy in respect of cash balance under the books and financial results was also not explained. In these circumstances, the AO rejected the books of accounts u/s 145 of the Act and estimated the sales at ₹ 1 crores and adopted the G.P. ratio of 20% and added ₹ 12,69,039/-. The AO also made several other additions and determined the income of the assessee at ₹ .....

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/- was upheld and addition of ₹ 11,68,570/- was deleted. Of the other additions, the CIT(A) upheld addition of ₹ 1,24,530/- and set aside the rest. 5. Aggrieved by the order of the CIT(A), both the assessee and the revenue cross-appealed to the ITAT. The assessee's appeals related to the validity of the proceedings initiated under Section 153A of the Act. It was contended that the proceedings were a nullity for the reason that there was no search warrant against Smt. Dayawanti. T .....

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search was carried out was on the basis of warrant issued in the name of the proprietorship concern of the assessee and it was also the residential premises of the assessee. Therefore we find that there was a valid search on the assessee and as such, provision u/s 153A of the Act was rightly triggered and invoked thereafter." 6. There was no dispute about the above findings, based on an appreciation of facts. In the circumstances the facial challenge to the applicability of Section 153A not .....

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contentions were rejected by the ITAT. Re Question No. 1 7. A fundamental attack to the block assessment was made by both assesses viz. Dayawanti and Ajay Gupta (the latter being appellant in ITA Nos. 360-61/2015). They argued, before ITAT, that since no incriminating material was found during or pursuant to the search, additions, made on the basis of block assessment, were unsustainable inasmuch as they revisited finally settled assessments. The ITAT after considering the record, which include .....

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n unaccounted cash sales and purchases and therefore there was undisclosed income. Thus the necessary logical fall out of the aforesaid is that there was material found as a result of search on the assessee, showing unaccounted transactions. In our opinion, even the statement obtained whereby, the additional income of ₹ 3.5 crores was offered also constitutes material unearthed during search. The ld counsel however has submitted that the said statement was not of the assessee, and was that .....

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self as the authorized representative of the proprietorship concern of the assessee and sister concern Balajee Perfumes. In the said statement too the surrender was reiterated. The aforesaid surrender no doubt was not acted upon by the assessee, but the said fact cannot lead us from the irresistible conclusion that incriminating material was unearthed during search. No material has been placed before us to negate the aforesaid factual aspect as well as to support the claims of AR that the admiss .....

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h. There are no fetters or limitation under the statute, so as to curtail the jurisdiction of the AO." The ITAT also relied on Commissioner of Income tax v Anil Bhatia 352 ITR 493 (Del) where it was held by this Court as under:- "The other reason given by the Tribunal in the same paragraph of its order that no material was found during the search is factually unsustainable since the entire case and the arguments before the Departmental authorities as well as the Tribunal had proceeded .....

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the search and at the same time in paragraph 10 deal with the merits of the additions based on the document recovered during the search which allegedly contain the loan transaction with Mohini Sharma. Therefore, both the reasons given by the Tribunal for holding that the assessments made under section 153A were bad in law do not commend themselves to us. The result is that the first substantial question of law is answered in the negative, in favour of the Revenue and against the assessee." .....

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had concealed their income, because nothing suspect which could result in an addition to the income assessed during the previous years was in fact seized or taken into custody. Therefore, the four assessments for the block period in question had to be set aside. 9. Mr. Kapoor relied on the decision of this court in Commissioner of Income tax v Kabul Chawla380 ITR 573, especially the following conclusions: "Summary of the legal position. 37. On a conspectus of Section 153A(1) of the Act, re .....

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abate. The total income for such AYs will have to be computed by the AOs as a fresh exercise. iii. The AO will exercise normal assessment powers in respect of the six years previous to the relevant AY in which the search takes place. The AO has the power to assess and reassess the 'total income' of the aforementioned six years in separate assessment orders for each of the six years. In other words there will be only one assessment order in respect of each of the six AYs "in which b .....

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Section only on the basis of seized material." v. In absence of any incriminating material, the completed assessment can be reiterated and the abated assessment or reassessment can be made. The word 'assess' in Section 153A is relatable to abated proceedings (i.e. those pending on the date of search) and the word 'reassess' to completed assessment proceedings. vi. Insofar as pending assessments are concerned, the jurisdiction to make the original assessment and the assessmen .....

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ch were not produced or not already disclosed or made known in the course of original assessment. 10. It was argued that as long as there is incriminating material, which can lead to the inference of income that had been concealed from the previously filed returns in the completed assessment, the AO s jurisdiction is unquestionable. However, if there is no material, per se any addition sought to be made would be beyond the competence of the AO. It was highlighted that the revenue could not rely .....

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low ought not to have taken cognizance of the statement, which was not admissible evidence. It was further stated that the said statements were not pertaining to the relevant assessment year but was related to AY 2006-07 and not for the year under consideration. Therefore according to counsel no addition can be made for the year under consideration without any incriminating material being unearthed relating to this year. He further submitted that the department has not filed any appeal against t .....

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ct. It was contended that on merits also the addition cannot be sustained and the addition required deletion. 12. Mr. Kapoor also argued that the ITAT s decision is incorrect and not supportable on facts, because the imposition of a higher GP rate and the amount of profits calculated were entirely arbitrary, based on no materials. It was urged that the materials seized could at best lead to some inference; to the extent that some addition was made on the basis of those, the revenue could have be .....

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in view of a Board circular, CBDT Instruction dated March 23, 2003. Having regard to statements recorded followed by retractions on the ground of coercion and threat in the course of search and survey operations, the Board issued the Instructions contained in F. No. 286/2/2003 - IT (Inv) dated March 23, 2003. The circular is extracted below: "Instances have come to the notice of the Board where assessees have claimed that they have been forced to confess undisclosed income during the course .....

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re the Income-tax department. Similarly, while recording statement during the course of search and seizure operation, no attempt should be made to obtain confession as to the undisclosed income." 14. Mr. Dilip Shivpuri justified the impugned order and stated that the additions were based on the searched materials. These materials were in the form of documents kuchaparcha, sale deeds and other materials, which disclosed the extent of concealed income, and materials to justify a block assessm .....

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special procedure of assessment in the case of search and seizure, it is essential to take into consideration all materials, including the statements made to assessing authorities. Counsel argued that for a valid and binding retraction, it is not enough that the assessee merely retracts it through an affidavit; the timing of the retraction and the explanation for the statement as well as retraction may be crucial and can be considered by the assessing authorities. Given the legislative object of .....

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hAggarwal v Commissioner of Income Tax[2013]351ITR143(Delhi) where it was held that an addition in assessee's income relying on statements recorded during search operations cannot be deleted without proving statements to be incorrect. Analysis and Findings 16. Section 153A, which provides for an assessment in case of search, and was introduced by the Finance Act, 2003 w.e.f. 01.06.2003, does not provide that a search assessment has to be made strictly on the basis of evidence found as a resu .....

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e materials found. Section 153A(1)(b) requires assessment or reassessment of total income of the six assessment years immediately preceding the assessment year relevant to the previous year in which the search took place. This, however, does not mean that the assessment under Section 153A can be arbitrary or made without any relevance or nexus with the seized material. Obviously an assessment has to be made under this Section only on the basis of seized material. The question, however, is whethe .....

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General Sale Tax Act and Central Sales Tax Act were completed of a dealer mainly on the basis of the return of the assessee and the books of accounts. Later, the sales tax department inspected the assessee s business premises and found a bill book for a period of 19 days disclosing a sale to the tune of ₹ 31,171/- which was not previouslyshown in the account books maintained by him. The Sales Tax Officer initiated reassessment proceedings and after rejecting the account books estimated th .....

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outside the books of accounts for the entire accounting period. The Supreme Court held that: - It is now proved as well as admitted that his dealings outside his accounts during a period of 19 days were of the value of ₹ 31,171.28. From this circumstance, it was open to the Sales Tax Officer to infer that the assessee had large-scale dealings outside his accounts. The assessee has neither pleaded nor established any justifiable reason for not entering in his accounts the dealings noted in .....

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r-estimate or an under-estimate or an under-estimate. But, that is no ground for interfering with his best judgment . It is true that the basis adopted by the officer should be relevant to the estimate made. The High Court was wrong in assuming that the assessing authority must have material before it to prove the exact turnover suppressed. If that is true, there is no question of best judgment assessment. The assessee cannot be permitted to take advantage of his own illegal acts. It was his dut .....

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al circumstance or that they were proportionately more than his dealings outside his accounts during the remaining periods. The assessing authority could not have been in possession of any correct measure to find out the escaped turnover during the periods November 1, 1959, to August 31, 1960, and September 20, 1960, to October 20, 1960. The task of the assessing authority in finding out the escaped turnover was by no means easy. In estimating any escaped turnover, it is inevitable that there is .....

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ment and not of anyone else. The High Court could not substitute its best judgment for that of the assessing authority. In the case of best judgment assessments, the courts will have to first see whether the accounts maintained by the assessee were rightly rejected as unreliable. If they come to the conclusion that they were rightly rejected, the next question that arises for consideration is whether the basis adopted in estimating the turnover has reasonable nexus with the estimate made. If the .....

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priate or not. Hence the High Court was not justified in interfering with the same. 17. The impugned order dealt with this aspect and concluded that the statement made under oath could be acted upon, especially since materials and documents were recovered during the search proceedings: 22. In the instant case we find that AO had rejected the books of accounts and made additions by estimating the sales & GP rates, inter-alia on the ground that in the course of search, a statement was recorded .....

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written document is reproduced below for convenience:- "Statement of Shri Abhay Kumar Gupta S/o Late ShriBishanSarup Gupta R/o A- 2/14-A Model Town-I, Delhi aged 58 years old recorded on oath u/s 132(4) of the Income Tax, 1961 at the office of ADIT (Investigation) Unit IV(3), New Delhi in the case of M/s. Balaji Perfumes and M/s Assam Supari Traders on 18.04.2006. sign Oath Taken Oath Administered Q. No.-Please Identify your self? Ans: I am Abhay Kumar Gupta S/o Late ShBishanSarup Gupta R/0 .....

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n Gupta prop M/s. Balaji Perfumes. Smt. Dayawanti is my mother and M/s. Varun Gupta is my son. I am also another ... by my brother namely Sh Ajay Gupta, ShriAnoop Gupta and Smt. Sunita Gupta w/o Sh Ajay Gupta, SmtDeepa Gupta W/o Annop Gupta and Smt. Preeti Gupta W/o Varun Gupta to make statements on all our family concern and our family members, and to comment on their behest. Q. No. 3......................... Q. No. 4......................... Q. No. 5......................... Q. No. 6.......... .....

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n our regular books of accounts but it is also fact that some time due to some factors like inability of accountant, our busy schedule and some family problems, various purchases and sales of Supari, Gutka and other items dealt by our firms is not entered and shown in the regular books of accounts maintained by our firms. Q. No. 9 What are the books of account maintained by your firms? Ans:- To the best of my knowledge, both our firms maintained cash books, ledger, sales register, bills books an .....

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No. 60 of this annexure represented unaccounted and credited. Q. No. 11. I am showing your Annexure A-2 having page No. 1 to 29 found and seized form your residence at A-2/14-A, Model Town-I, Delhi on 23.03.2006 during the course of search and seizure operation. Please explain the nature of contents and details of these pages. Ans:- I hereby admit that these papers also contend details of various transactions include purchase/ sales/ manufacturing trading of Gutkha, Supari made in cash out side .....

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and Pg 1 to 29 of AnnexureA-2 were found and seized from the assessee. Once confronted with the aforesaid seized documents it was admitted by Shri Abhay Gupta that the proprietorship concern of the assessee was engaged in unaccounted cash sales and purchases and therefore there was undisclosed income. Thus the necessary logical fall out of the aforesaid is that there was material found as a result of search on the assessee, showing unaccounted transactions. In our opinion, even the statement obt .....

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he statement on behalf of others u/s 132(4) of the Act including the assessee. Moreover the aforesaid statement dated 18.04.2006 was followed by another statement on 03.05.2006, where too Shri Abhay Gupta represented himself as the authorized representative of the proprietorship concern of the assessee and sister concern Balajee Perfumes. In the said statement too the surrender was reiterated. The aforesaid surrender no doubt was not acted upon by the assessee, but the said fact cannot lead us f .....

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t hold any water because once Section 153A is triggered on account of unearthing of incriminating material during search, the AO is empowered to compute the total income for six assessment year prior to the year of search. There are no fetters or limitation under the statute, so as to curtail the jurisdiction of the AO. We derive support from the judgment of jurisdictional High court in the case of CIT Vs. Anil Bhatia 352 ITR 493 (Del).. 18. The nature of the books included katchaparchas, papers .....

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were pressurized to do so; there was in fact no contemporaneous retraction. Indeed, the assessee appears to have resiled from the statement, only through the returns, filed after receipt of notice under Section 153A. The probative value of these statements is to be seen not from only whether it was allowed to stand, or whether it was resiled from. The stage when such statement is resiled, whether the assessee was able to give any explanation for the statement, its connection with the material se .....

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hat an admission is an extremely important piece of evidence but it cannot be said that it is conclusive. It was contended that it was open to the person who made the statement to show that it was incorrect. There cannot be any doubt about this position in law, but, in the present case the appellant/assessee has not produced any material to show that the admissions made by him were incorrect. The statements recorded u/s. 132 (4) of the said Act are clearly relevant and admissible and they can be .....

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d be on collection of evidence of income which leads to information on what has not been disclosed or is not likely to be disclosed before the Income-tax Department. There is a further observation that, while recording statements during the course of search, seizure and survey operations, no attempt should be made to obtain confessions as to undisclosed income and that any action to the contrary would be viewed adversely. 13. We do not see how this circular would, in any way, come to the aid and .....

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t: "18. Section132 is a Code in itself. It provides for the conditions upon which and the circumstances in which the warrants of authorization can be issued. Sub-section (2) authorizes the authorized officer to requisition the services of any police officer or of any officer of the Central Government or of both to assist him for all or any of the purposes for which the search is conducted. Under sub-section (4) the authorized officer can during the course of search or seizure examine on oat .....

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raseology between Section 132 (4) on the one hand, as contradistinguished with Section 133A (3) (ii). Whilst the former enables- even empowers the assessing officer to record statement on oath and provides for evidentiary value to such statement, the latter is silent. These two judgments held that statements made in course of survey proceedings could not be the sole basis for inferring facts and arriving at findings. 20. The lynchpin of the assessee s submissions on this aspect is also that the .....

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ing that though returns were filed ostensibly on her behalf, she was not in control of the business. She and all other family members made short statements and endorsed the statements under oath, of those who elaborated the trading and business operations relating to clandestine income. These statements under oath were part of the record and continued to be so. They were never explained in any reasonable manner. Their probative value is undeniable; the occasion for making them arose because of t .....

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case. Consequently the first question of law is answered against the assessee and in the revenue s favour. Re Question No 2: 21. The assessee s argument on this aspect was that the lower authorities approach in rejecting the books, estimating turn over and applying a high GP rate to estimate proft, was arbitrary. 22. The AO noticed that in the audited account for the year under consideration, the assessee declared sales of ₹ 69,28,582/- and Gross Profit of ₹ 7,30,961/- yielding gros .....

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concurred with this, saying that in the absence of bills and vouchers entries made in books/ bahis were unverifiable and consequently, the book results could not be accepted. The Commissioner, after noticing the statements of the family members which were inculpatory , however also felt that the AO could not bring on record anything to point out defect in the books of account except saying that sales and purchase vouchers were not produced. He concluded that: "I agree with the appellant tha .....

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be adopted, and reduced the GP to 12%. The ITAT s finding on this aspect are as follows: We find that the assessee even could not produce before the ldCIT(A) the sale bills, purchase bills and vouchers for the expenses incurred by her in the relevant AY. Even before us there was no material led to assail the aforesaid factual position. In such a scenario we have no other alternate but to uphold the rejection of books of accounts as there is no material to substantiate the correctness and comple .....

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ng is contradictory to his own finding reproduced above in this order at para 26 and therefore erroneous. Now coming to the estimation as noted above, AO had estimated sales at ₹ 1 crore and GP at 20%. Whereas, the ldCIT(A) has accepted the declared sales and estimated GP at 12%. In the instant case, it is crystal clear that each of the figures declared, be it sales or GP are unverifiable without supporting documents. Thus the question which remains is whether the estimation made by the AO .....

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sence of supporting vouchers, bills then the factum of admission u/s 132(4) of the Act made by Shri Abhay Gupta on behalf of the assessee that unaccounted transactions took place for earlier years would be relevant consideration for estimation. In such circumstances the burden was on the assessee to show as to how the estimation as made by the AO was arbitrary or unreasonable. No material has been placed before us to discharge the said burden. The AO has increased the sales from ₹ 69 lakh .....

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