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TMI Blog2016 (12) TMI 1766X X X X Extracts X X X X X X X X Extracts X X X X ..... ers, said to be his business associates in other ventures. Thereafter, the authorities issued notice under Section 153A r/w Section 153C to the appellant (the Assessee). In response, he declared his income for AY 2002-03 as Rs. 2,32,840/-. 3. Relying on the documents allegedly found during search- especially, a bill book relating to the period from 1.04.2006 to 30.07.2007-the authorities estimated the assessee's income as follows: (a) undisclosed business income: Rs. 8,89,348/-; (b) agriculture income treated as income from other sources: Rs. 50,000/-; and (c) income from other sources (interest on lending): Rs. 2,34,000/-. 4. The authorities, after issuing a notice to the appellant u/s 143(2) and 142(1), and after considering his explanation, through Annexure-A order dt.30.12.2009, assessed the appellant's income for that AY at Rs. 14,06,190/-. For the rest of the years, too, the assessment was made on the same lines. Appeal Before the CIT (Appeals): 5. Aggrieved, the appellant filed an appeal before the Commissioner of Income Tax (Appeals)-1, Kochi, in I.T.A. No. C-236/CIT(A)-I/09-10, which along with other appeals was disposed of on 14.12.2010. The Appellate Authorit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee's unexplained loans or gifts, unaccounted-for assets, investments, or expenses are liable to be brought to tax under deeming provisions in the financial year of such investment or expenditure as found. Identification of the source of corresponding income, contends the learned Senior Counsel, is required under law. He has also submitted that the levy of interest u/s 234B is illegal, unsustainable, and contrary to the relevant statutory provisions. 11. The learned Senior Counsel has placed reliance on CIT v. Padamchand Ramgopal [1970] 76 ITR 719 (SC) and State of Kerala v. C. Velukutty [1966] 60 ITR 239 (SC). On the proposition laid down in Hotel Meriya, relied on by the Revenue, the learned Senior Counsel in his reply submits that it was decided based on the assessee's admission. Revenue's: 12. Sri P. K. Ravindranatha Menon, the learned Senior Counsel for the Revenue, has submitted that Sections 153A and 153C of the Act empower the AO to reopen and reassess the accounts of any assessing year up to six years. He has taken us through Hotel Meriya, rendered by a Division Bench of this Court, to hammer home his contention that block-assessment is eminently sustain ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2006-07 19,98,934/- 2,07,90,000/- 1,75,94,169/- 2007-08 19,15,914/- 2,31,00,000/- 1,95,49,077/- 2008-09 53,96,593/- 2,54,10,000/- 2,15,03,985/- Declared Income, Assessed Income, and Demanded Tax: AY Income Declared Initially Rs. Revised Income Rs. AO's Reassessment Rs. Total Tax Demanded Rs. 2002-03 Rs. 1,05,314 Rs. 2,32,480 14,06,190 7,12,610 2003-04 1,00,605 1,88,800 24,55,550 11,87,940 2004-05 1,24,140 2,54,470 53,54,340 27,78,570 2005-06 1,35,372 2,13,990 52,97,530 26,42,860 2007-08 92,550 92,250 26,94,770 12,06,820 2008-09 -------- 4,09,450 28,82,220 10,15,100 16. The above tabulation would show that as against the declared turnover of Rs. 13,44,729/- for the relevant Assessment Year ('AY'), the suppressed turnover over the declared turnover was estimated at Rs. 1,15,43,534/-. It was confirmed by the Appellate Authority. 17. On appeal, the learned Tribunal has framed the following issues: (i) Would the statement of an assessee's partner, as well as that of an employee, along with the documents seized, be tantamount to evidence under Section 158BB of the Income Tax Act? (ii) Has the statement recor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the evidence so collected would be relevant for any investigation connected with any proceeding under the Act. A person's examination is not only regarding any books of account, other documents, or assets found because of the search, but also regarding all matters relevant to any investigation connected with any other proceedings under the Act. 22. Now we may get down to the brass-tacks. Once a search is conducted under Section 132, the AO will issue a notice calling on the assessee to furnish the return of income for each assessment year falling within six assessment years "immediately preceding the assessment year relevant to the previous year in which such search is conducted or requisition is made". The explanation to the provision adds that in an assessment or reassessment made concerning a particular assessment year, the tax will be chargeable at the rate or rates as applicable to that assessment year. 23. The pivotal provision is Section 153-C, which concerns the assessment of 'any other person'. Where the Assessing Officer is satisfied that any money, or other valuable article, or books of account, or documents seized or requisitioned belong to a person ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ormal course on or before the date of the search or requisition, if those entries result in the computation of loss for any previous year falling in the block period; or (B) based on entries as recorded in the books of account and other documents maintained in the normal course on or before the date of the search or requisition, if the income does not exceed the maximum amount not chargeable to tax for any previous year falling in the block period; (d) if the previous year has not ended or the date of filing the return of income under sub-section (1) of Section 139 has not expired, it must be based on entries relating to such income or transactions as recorded in the books of account and other documents maintained in the normal course on or before the search or requisition relating to those previous years; (e) if any order of settlement has been made under sub-section (4) of Section 245-D, the computation will be based on such order of settlement; (f) if an assessment of undisclosed income had been made earlier under clause (c) of Section 158-BC, based such assessment. 27. Pertinently, the burden of proving to the satisfaction of the AO that any undisclosed income had alre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gment in the matter. He must make what he honestly believes to be a fair estimate of the proper figure of assessment, and for this purpose he must, Their Lordships think, be able to take into consideration local knowledge and repute in regard to the assessee's circumstances, and his own knowledge of previous returns by and assessments of the assessee, and all other matters which he thinks will assist him in arriving at a fair and proper estimate; and though there must necessarily be guess work in the matter, it must be honest guess work. In that sense, too, the assessment must be to some extent arbitrary." 32. Velukutty adumbrates the limits of the power implicit in the expression "best of his judgment". It holds that 'judgment' is a faculty to decide matters with wisdom truly and legally. A judgment does not depend upon the caprice of a Judge, but on settled and invariable principles of justice. Though there is an element of guesswork in a "best-judgment assessment", it will not be a wild one, but will have a reasonable nexus to the available material and the circumstances of each case. Though the provision provides for a summary method because of the assessee's d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... proves of an approach that insists on the assessing authority's having material before him to prove the exact turnover suppressed. If it were insisted upon, there would be no "best-judgment" assessment. The assessee cannot be permitted to take advantage of his own illegal acts, for it is his duty to place all facts truthfully before the assessing authority. If he fails to do his duty, he cannot be allowed to call upon the assessing authority to prove what turnover he had suppressed, which fact is within his personal knowledge. The AO's task in finding out the escaped turnover was by no means easy. In estimating any escaped turnover, Abdulai acknowledges, inevitably there is going to be some guess- work. The assessing authority while making the "best-judgment" assessment no doubt should conclude rationally and unbiased. If the AO's estimate is bona fide and rational, that there is no good proof to support that estimate is immaterial. Prima facie, the assessing authority is the best judge of the situation; it is his "best-judgment" and not of anyone else's. 39. No court could substitute its "best-judgment" for that of the assessing authority. The courts should first ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... efence set up by the assessee: The impounded bills were adjustment bills issued by the assessee for the sales effected to dealers in Kerala. Compared with Kerala, Mahe (Pondichery) has a low tax-rate. So dealers in Kerala get bills from Mahe for which they give 1% commission to the assessee. The assessee has asserted that it is a normal practice. But, as has been held by the AO, the assessee showed no income by way of commission in the returns filed. 45. Absent any cogent explanation from the assessee, the AO estimated the sales at Rs. 1,36,40,319/- by reducing 10% from each year from the sales effected for the period 01-04-2006 to 31-03-2007. He computed the GP @ 6.52%, which comes to Rs. 8,89,348/-. He added this amount to the assessee's total income as undisclosed business income. Similarly, the AO estimated the sales for the remaining years; he took GP @12.67%, 11. 76%, 11.37% and 9.7% for the AYs 2003-04, 2004-05, 2005-06, and 2006-07 respectively. And at 10.32% on the total sales of Rs. 2.31 crores made during 01-04-2006 to 31-03-2007. For the assessment year 2008-09, the AO estimated the sales by adding 10% to the estimated sales of 2007-08 and adopted G.P.@ 9.70% on th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gs entered by both the fora on this aspect - a question of fact. For AYs 2003-04 and Other AYs: 49. The next issue concerns the AYs 2003-04, 2004-05, and 2005-06. It is about the income in the form of interest on Fixed Deposits the assessee had with Gokulam Chit Funds. Indisputably, the assessee showed fixed deposits; but, correspondingly, failed to reveal in the returns any interest. Absent any explanation from the assessee, the AO adopted interest @10% per annum. To be more explicit, the assessee showed Rs. 10 lakh fixed deposit from 13-11-2002 to 31-03-2005, and Rs. 5 lakh from 21-01-2003 to 31-03-2009. As noted, he showed no income as interest on those deposits. 50. Given the size of the deposits, it is but inevitable that the assessee ought to have earned some interest on the fixed deposits. As he has failed to show in his returns any income by way of interest, the concurrent finding entered by both the fora reckoning interest at 10% annually is eminently sustainable; so it calls for no interference. For AY 2004-05: 51. The next issue concerns the AY 2004-05: the addition of amounts the assessee allegedly lent to other people. He allegedly lent Rs. 13 lakh to one Mr. Nanu ..... X X X X Extracts X X X X X X X X Extracts X X X X
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