9911796707
TMI Blog2019 (12) TMI 1227X X X X Extracts X X X X X X X X Extracts X X X X ..... for the assessment year 2003-04 and dismissed the appeal of the assessee for the assessment year 2007-08. 2. Against this, the Revenue carried the matter in appeal to the High Court for all the assessment years. The assessee also went in appeal before the High Court for the assessment year 2007-08, the details of which are as follows:- Sl. No. Assessment Year ITA No. before Tribunal Revenue Appeal before the High Court Assessee Appeal before the High Court 1. 2001-02 302/Coch/2010 145/2011 Dated 11/11/2016 2. 2002-03 303/Coch/2010 175/Coch/2011 -doITA 3. 2003-04 304/Coch/2010 1/2012 -do- 4. 2004-05 305/Coch/2010 181/2011 -do- 5. 2005-06 306/Coch/2010 168/2011 -do- 6. 2006-07 307/Coch/2010 188/2011 -do- 7. 2007-08 308/Coch/2010 182/2011 -do- 102/2011 Dt.11/11/2016 8. 2001-02 269/Coch/2010 11/2012 -do- 9. 2002-03 270/Coch/2010 12/2012 -do- 10. 2003-04 271/Coch/2010 13/2012 -do- 11. 2004-05 272/Coch/2010 14/2012 -do- 12. 2005-06 273/Coch/2010 15/2012 -do- 13. 2006-07 274/Coch/2010 16/2012 -do- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sed by the assessee and the Revenue" 5. Hence, all the fourteen appeals came up for hearing once again before the Tribunal for these seven assessment years. 6. The only issue for re-consideration in assessee's appeals in ITA Nos. 302 to 308/Coch/2010 (7 appeals)is with regard to to confirmation of addition on account of liquor sales in the absence of any incriminating material indicating undisclosed income. On the other hand, the issues for re-consideration in Revenue's appeals in ITA Nos. 269 to 275/Coch/2010 (7 appeals) is with regard to consideration of income of Kwality Restaurant in the hands of the assessee, though the assessee leased the restaurant to the third party on rental basis and deletion of additions made on account of estimation of undisclosed turnover from restaurant business (excluding sales of Kwality Restaurant) and undisclosed liquor sales. 7. The facts of the case as narrated in ITA No. 304/Coch/2010 for the A.Y. 2003-04 are that a search under section 132 was conducted on 13.02.2007 in the group cases of P.A. Kuriakose and Paulson Varkey Group. This group is mainly engaged in Hotel (Bar) and jewellery business. The main concerns of this group are M/s Ho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... same income in the return filed u/s. 139(1) on 20.11.2003. After processing the return filed u/s. 153A, a notice u/s. 143(2) was issued on 24.10.2008. On the same day a notice u/s 142(1) was also issued along with a questionnaire seeking various details. 7.4 Coming to the materials found during the course, of search, it was found that many books of account and other documents were seized during the course of search as listed in Annexure PC-I (containing two pages). The seized books of account and documents included daily statement sheets for the period 08.11.2002 to 17.12.2002 marked as Annexure PC- 1(22). This seized material is a bunch of 157 loose sheets: Pages 1 to 152 are 'daily statements' of Hotel Hill Park for the above mentioned period and pages 153 to 157 are price list of liquor w.e.f. 18.04.2002. A day book maintained by the assessee for the period 01.11.2002 to 31.03.2003 was also seized. This was marked as Annexure PC-1(2). An analysis of the daily statement sheets revealed that for each day FOUR statements were found. One statement contained daily sales from the 3 Non-A/c bars, the A/c bar, food sales in the bars, restaurant sale in the third floor and sale ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntained, daily cash balance is arrived and this amount will be available with Manager. After each month end, statement of cash withdrawn by partners is prepared and is given to Paulson P. Varkey, Managing Partner. Original day book and ledger of M/s. Matha Enterprises is also written by me. In this day book, consolidated sales of bar section, sales of restaurant in bar section, sales of ordinary soda, special soda and soft drinks in bar section, room rent and luxury tax collected are entered. While recording daily sales of bar in the original day book, 20% of sales is reduced and only 80% of actual sales are entered as daily bar sales. An amount of around Rs. 5,000/- is entered as bar restaurant sales. The actual sales of ordinary soda, special soda and soft drinks and actual lodge collection are correctly entered in the day book. Almost all the expenses except for bribes paid and extra wages paid to staff are entered in the day book. Receipts from Kwality restaurant is not entered in the day book. As the receipts from Kwality restaurant is not taken to day book a proportion of actual expenses in the restaurant with the receipts of accounted in the restaurant are only entered as ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... od' entered in the first sheet and 'restaurant sale' shown in the second sheet of the daily statements. The 'restaurant sales' shown in the first sheet of daily statement was not added to the restaurant sale as it was already included in the second sheet. Date Sales as per Daily Statement (PC-1(22) Sales as per Day Book PC-1(2) Restaurant (Food) (In Rs.) Bar (Liquor) (in Rs.) Wills (in Rs.) Restaurant (Food) (In Rs.) Bar (Liquor) (in Rs.) Wills (in Rs.) (1) (2) (3) (4) (5) (6) (7) 08.11.2002 19227 149754 1840 3940 119876 - 09.11.2002 22303 176494 0 3949 104658 - 10.11.2002 21528 1188347 3680 3981 110176 - 11.11.2002 21700 162868 1840 3384 104658 - 12.11.2002 19428 137779 1380 3719 109672 - 13.11.2002 18707 136544 2300 3964 111651 - 14.11.2002 18418 146130 1380 3917 115587 - 15.11.2002 14605 131558 920 3846 103319 - 16.11.2002 19961 179949 0 3997 116930 - 17.11.2002 16303 199061 5060 3914 122771 - 18.11.2002 21491 137086 1380 3979 108988 - 19.11.2002 15297 128576 1380 3911 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntant and confirmed by the Managing Partner. Thus, the statement was based on approximations and memory and the actual figures on the basis of seized recordwouldbe more reliable. The above mentioned materials found and seized during the course of search in the form of daily sheets and the statements of the Accountant and the Managing Partner recorded on oath during the course of search, go to establish the fact that the firm had suppressed its sales on day-to-day basis. By way of Q. No. 7 of the annexure to the notice issued under section 142(1), the working partner of the assessee firm was required to show as to how the income returned (Rs. 58,800/-) in the return filed under section 153A was the same (Rs. 58,800/-) as in the return filed under section 139, when clear suppression of sales was detected during the course of search. 7.9 In reply, the firm, through-its partner Shri Paulson P. Varkey, contended that PC - 1(22), picked up by the search team were erroneous statements and hence, were scored off and were discarded. The Assessing Officer observed that it was not a statement of purchase and sales but it was cash control point summary statement maintained by the earlier. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pared would have realized that the statement were erroneous. The accountant himself had admitted that while recording daily sales of the bar in the original day book, 20% of sales were reduced and only 80% of the actual sales were entered as daily bar sales and only an amount of Rs. 5,000/- was entered as Bar Restaurant sales. Shri Paulson P. Varkey admitted that the facts stated by Shri K.A. Paul were correct. In his reply to Question No. 7, when requested to describe the entries in the pages, Shri Paulson replied that he did not know what it was and only his Accountant Mr. Paul would be knowing the details. 7.9.2 Besides, the Assessing Officer observed that there was presumption regarding correctness of the entries found recorded in the records found as a result of search under section 132(4A). It provided that the books of account, other documents, money, bullion, jewelry or other valuable articles seized from the possession of the assessee shall be presumed to belong to the person in whose possession or control they are found in the course of search. A similar presumption is also enacted as to the truth of the contents of the books of accounts so found, So also, the signature ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee on 23.12.2008 to show cause why its assessment should not be completed in the manner provided under section 144. No explanation in this regard was given at the time of hearing or filed till today. As such, the Assessing Officer rejected the books of account of the assessee as they were not found to be correct and complete within the meaning of provisions of section 145 (3) of the Act and the assessment was made in the manner provided under section 144 of the Act. 7.9.4 In view of the above, the Assessing Officer made the assessment of the income of the assesseefor this assessment year as follows: Estimation ofundisclosed Liquor Sales and Consequent Profits : AY 2003-04: 8. This included sale of liquor soda special soda and soft drinks. As worked out, the suppression in liquor sales was found to be 37.32% of the disclosed sales, the undisclosed sales of liquor worked out to Rs. 1,78,19,693 on disclosed sales of Rs. 4,77,45,227 and the actual total sales worked out to Rs. 6,55,64,920. Since all the purchases of liquor were made from the Kerala State Beverages Corporation and they are found fully recorded in the accounts and all the expenses have already been booked in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as added to the returned income as undisclosed profits from restaurant. Estimation of undisclosed Sales of Cigarettes : AY 2003-04 8.3 It was seen from the seized materials PC 1(22), PC 1(02) and the table drawn that the receipts from the sale of cigarettes were not reflected at all. The total sales of cigarettes for the period from 8.11.2002 to 30.11.2002 (23 days) and 02.12.2002 to 17.12.2002 (16 days) were found at Rs. 61050/- and the average sale of cigarettes worked out to Rs. 1565.38 per day. The annual sale of cigarettes of the firm applying this average for a period of 350 days (first day of every month and 2nd October are Holidays for the bars) worked out to Rs. 5,47,853/-. A sum of Rs. 54,785/-, taking 10% as G.P. on this trade, was treated as income and added to the Total Income of the assessee. Income from house property: AY 2003-04) 8.4 In the return of income, the assessee had shown rent receipts from Best Bakery & Kwality Restaurant at Rs. 78,000/-. The income from Kwality Restaurant was taken as the income of the firm. Hence, rent shown as received from Kwality Restaurant was not included in the house property income of the assessee firm. 8.5 Thus, the tot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rtner was shown these documents during the course of search action, he simply disposed the question by stating that the Accountant Mr. K.A. Paul would know about the same. Mr, K.A Paul was, however, not confronted with these documents. Therefore, the CIT(A) found that there was no confession of the assessee with regard to these documents in contrast to PC-I(8) &PC-1(23) which have been duly confessed. The assessee had claimed these to be dump documents and according to the CIT(A), this claim of the assessee does not have much merit for the reason that the documents were quite legible and recorded meaningful transactions which can be correlated with regular books of accounts as has been rightly observed by the Assessing officer that room rent recorded in these documents were tallying with the regular books of accounts. This evidence in itself was a reasonable evidence to establish reliability and relevance of these documents. Therefore, the CIT(A) held that these documents were quite reliable for drawing reasonable and judicious conclusions for the period relevant to AY 2003-04 to AY 2006- 07 and period from 1st April, 2006 to 31st December, 2006 relevant to AY 2007-08 when read in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ar restaurant turnover of around Rs. 3900/- indicated in day book PC-I(2) pertaining to the period 8.11.2002 to 17th December, 2002. Thus, the CIT(A) found that there was easonable evidence to indicate that Mr. K.A Paul, Accountant of the assessee was elaborating the position as on the day of search. The affidavit of Shri K A Paul filed by the assessee was, therefore, needed to be considered judiciously for the reason that the Assessing officer did not give any specific opportunity to the assesseethat the statement of Shri K A Paul was to be adversely used against the assessee for all assessment years i.e. AYs, 2001-02 to 2007-08. In fact, according to the affidavit of Shri K A Paul, furnished by the assessee only attempted to confirm the stand taken by the managing partner, Shri Paulson P Varkey during the course of search itself wherein he stated that 20% of sales turnover in liquor was suppressed only after Dec., 2006. In fact, the CIT(A) found that the Assessing officer had not taken any cognizance of this statement of the managing partner. The CIT(A) observed that the decisions of the ITAT, Jaipur, reported in 41 ITD 97 and of the Apex Court in the case of Indore Malwa United ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... regarding suppression of turnover during other period i.e. in the current year as well as in earlier years and the above deposition of the managing partner, Shri Paulson P Varkey, though has to be taken cognizance of but its veracity has to be judged with reference to other specific evidences gathered during the course of search itself. In the above deposition, though managing partner denies any suppression of turnover before January 2007, the daily statements seized and marked as PC-1(22), pertaining to the period 8.11.2002 to 17.12.2002 when compared with corresponding Day Book PC-I(02) revealed suppression in turnover to the tune of 37.32 per cent of disclosed liquor sales and 385.93 per cent of disclosed sales in respect of restaurant (inclusive of Kwality Restaurant) evidence goes to indicate that the deposition of the managing partner was not describing the gospel truth. This evidence pertaining to A.Y. 03-04, therefore, justifies to discount the deposition of the managing partner that there was no suppression prior to January,2007. A judicious and logical and rational approach, therefore, needed to be adopted to interpret the deposition of the managing partner, when read in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t that suppression of turnover in liquor sates as well as restaurant sales can be presumed to be in existence during the whole period relevant to AY 2003-04. The evidences in the form of daily statements PC I(22) established unaccounted turnover to the tune of 37.32 per cent of disclosed liquor sales and there was no specific admission by the assessee for this assessment year that whole of suppressed turnover in liquor constituted undisclosed income. Therefore, it was observed that undisclosed income cannot be determined in arbitrary manner by applying multiplication formulae and without taking into account the relevant expenses. According to the CIT(A), with this back ground other judicial pronouncements relied upon by the assessee needs to be duly considered to determine undisclosed income of the assessee in a fair and reasonable manner with reference to probable undisclosed business activity of the assessee during this period. The CIT(A) relied on the following judicial pronouncements: 1. State of Orissa v. Maharaja Shri B.P. Singh Deo (1970) 76 ITR 690(SC) 2. RamdasJuganiv.CIT (2006) 282 ITR 356 (MP) 3. CTT v. Laxminarain Badridas (1937) 5 ITR 170 (PC) 4. State of K ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ver of liquor constituted income also has to be discounted for the reason that this statement was aimed at restricting the undisclosed turnover and income there from only for the period 1.1.2007 to 11.2.2007 which was not accepted by the Department and this statement was made by the assessee with reference to trading activity of liquor which was restricted item and was not available for free trade. According to the CIT(A), this aspect of the issue also needs to be considered judiciously to arrive at income of the assessee from this activity by comparison with profit shown by assessees in similar line of business in the vicinity of assessee and who are next door competitors of the assessee. The CIT(A) observed that the profit rate computed from this activity cannot be unrealistic in the line of business for the simple reason that assessee would not be able to survive against competitors by keeping abnormally high profit margin. 9.9 Further to above, according to the CIT(A), Government liquor retail shops were providing stiff competition to the assessee. Similar logic was applicable with reference to restaurant business. The CIT(A) found merit in the claim of the assessee that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3) 90 ITR 271 wherein the Apex Court upheld the estimation of undisclosed turnover for the entire period of one year on thebasis of undisclosed sales detected for the period of 19 days was squarely applicable to the assessee for this assessment year. The CIT(A) observed that it can be reasonably presumed that assessee was having undisclosed turnover during the whole previous relevant to this year. According to the CIT(A), the suppressed turnover of Rs. 1,78,19,693/-in liquor business determined by the Assessing officer in a proportionate manner as indicated in PC-I(22) at 37.32% of disclosed liquor sales for this assessment year appeared to be judicious and fair and upheld the same. As per evidences placed on record, the GP declared by the assessee for this assessment year, with reference to liquor sales was 16.67% in comparison to average GP of 16.91% declared by other assesses in the similar line of business However, the CIT(A) found that the direct expenses claimed by the assessee for working out this GP do include bar license fee of Rs. 15 lakhs and if, this being one time expenditure for the year, is exclude the gross profit rate worked out to around 19.81%. Considering other ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erent from the documents PC-I(8) PC-I(23) relevant to A.Y 2007-08 and in PC-I(22),there was a separate sheet with different handwriting of restaurant sales (in contrast to one consolidated sheet in PC-I(8) and PC-I(23) for the AY 2007-08 which duly recorded food sent by Kwality Restaurant to customers in Hill Park Bar Restaurant of the assessee and what exact amount was due from the assessee on account of the same. The CIT(A) observed that for example on 5.12.2002, out of total sales of Rs. 13,814 of Kwality Restaurant, Rs. 4,800 were collected by Hill Park Bar Restaurant on account of food sent by Kwality Restaurant and further Rs. 106.50 was shown as receivable from M/s Matha Enterprises &partners. Had this restaurant been run by the assessee such entries would not have found place in the seized documents which can be reasonably presumed to be recording transactions in truthful manner. 9.9.3 The CIT(A) found that the food served by Kwality Restaurant was also distinct from the food served by assessee's Hills Park Bar Restaurant. According to the CIT(A), the documents relating to A.V 2007-08 calculate cash balance at the end of each day and the same was carried forward to the ne ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... discrepancies pointed out by the Assessing officer are either of trivial nature or are irrelevant to the basic issue. The claim of the Assessing officer that he was a person of no means does not appear to be correct with the fact on record that he got a consideration of Rs. 33 lakhs in lieu of agricultural land. The fact that he did not pay Income Tax on such income earned or he was engaging himself in employments with meager salary was not of much consequence as long as he confirmed and claimed that he had run the restaurant on lease. The CIT(A) observed that estimation of probable income from the Kwality Restaurant by the Assessing officer only a guess work and was not backed by any evidence and was of relevance in determining income tax liability of Mr. Prasi Paul and bringing to tax such income in his hands particularly when he also answered positively to question No.18 that if there was any Income tax payable with reference business of Kwality Restaurant he will pay the same. With regard to his seeking employment after running quality restaurant, the CIT(A) observed that there was no certainty of earning an income from a business venture as calculated by the Assessing officer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 1,43,536/- disclosed in regular books of accounts. The suppression in restaurant turnover accordingly worked out to Rs. 96,212/- at 67.03% of the disclosed turnover. For the previous year, the assessee had shown turnover of Rs. 12,81,996/- in Hill Park Restaurant and the suppressed turnover @ 67.03% thereon worked out to Rs. 8,59,322/-. The income thereon worked out to Rs. 8,59,322/-. The income thereon @ 35.5% as applied by the Assessing officer and upheld above worked out to Rs. 3,05,060/-. The CIT(A) directed the Assessing officer to restrict the addition of undisclosed income from restaurant business to Rs. 3,05,060/- as against Rs. 17,56,400/- made in the assessment order and grant appropriate relief to the assessee.. The Assessing officer was also directed to bring to tax the rent receipt shown by the assessee in the return of income as received from Kwality Restaurant as the action of the Assessing officer of clubbing the income of Kwality Restaurant in the assessee's hands was not upheld. Thus, the CIT(A) partly allowed this ground of appeal of the assessee. MATHA ENTERPRISES ITA No. 302/Coch/2010: Assessee's Appeal: AY 2001-02 ITA No. 269/Coch/2010: Revenue's Appea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 04, liquor sales was at Rs. 1,78,19,693/- and from restaurant was at Rs. 17,56,400/-. Sale of cigarettes was at Rs. 54,785/-. The assessment was completed with total income at Rs. 1,96,89,560/-. The suppression of liquor sales was found at 37.32% of the declared sales. The disclosed sale was at Rs. 4,77,45,227/- and the suppressed sales was at Rs. 1,78,19,693/-. The full amount of suppressed sale was treated as undisclosed income. Undisclosed restaurant sales was fixed at 385.93% of the disclosed sales and the disclosed sale was at Rs. 29,990/-. The total undisclosed sale was at Rs. 49,47,607/- and the total sales was at Rs. 62,69,603/-. The undisclosed income from restaurant was taken at 37.75% of the sales at 36.5% at Rs. 17,56,400/-. The undisclosed income from sale of cigarettes was estimated at 10% on the estimated sales of Rs. 5,47,853/-. 12.1 On appeal, the CIT(A) estimated GP at 22% of the suppressed turnover of Rs. 1,78,19,693/- which was fixed at Rs. 39,20,332/-. The CIT(A) restricted the addition to the extent of Rs. 39,20,332/- as against the undisclosed sales turnover of Rs. 1,78,19,693/-. Income from Kwality restaurant was not included in the income of the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 820/-. The suppression of liquor sales was found at 32.11% of the disclosed sales. The disclosed sale was at Rs.Rs. 4,43,00,449/- and the suppressed sales was at Rs. 1,42,24,874/-. The full amount of suppressed sales was treated as undisclosed income. Undisclosed restaurant sales was fixed at 517.82% of the disclosed sales and the disclosed sale was at Rs. 13,05,044/-. The total undisclosed sale was at Rs. 67,57,778/- and the total sales was at Rs. 80,62,822/-. The undisclosed income from restaurant was taken at 28.25% of the sales at 35.5% of the sales at Rs. 19,09,072/-. 14.1 On appeal, the CIT(A) estimated GP at 24% of the suppressed turnover of Rs. 1,42,24,874/- which was fixed at Rs. 34,13,970/- as against the undisclosed sales turnover of Rs. 1,43,02,919/-. The CIT(A) restricted the addition to the extent ofRs. 34,13,970/-. The CIT(A) granted relief of Rs. 1,08,10,904/- Income from Kwality restaurant was not included in the income of the assessee since it was considered as a separate entity. The Hill Park Restaurant turnover was at Rs. 4,69,425/- against the amount of Rs. 19,09,072/-. MATHA ENTERPRISES ITA No. 307/Coch/2010: Assessee's Appeal: AY 2006-07 ITA No. 274/C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... age profit at 28.2% the undisclosed profit was estimated at Rs. 22,37,322/-. 16.1 On appeal, after giving notice to the assessee, the CIT(A) proposed enhancement of income by Rs. 5,62,426/-. After rejecting the explanation filed by the assessee, confirmed the enhancement of income from this source to Rs. 86,41,125/- as against Rs. 80,78,699/-. The assessee objected to the enhancement that the renovation expenses of hotel was met from the sale proceeds as per seized documents. The assessee submitted that the full turnover in the seized documents were fully incorporated in the books of accounts while filing the return of income. The CIT(A) rejected the explanation and confirmed the enhancement of Rs. 5,62,426/-. In regard to income from Kwality Restaurant, the CIT(A) held that he Assessing Officer was not justified in clubbing the income of A.Y. 2001-02 to 2006-07 and also for the period upto 31/12/2006 for the AY 2001-02. G.P. at 32% was applied to the undisclosed turnover of the restaurant business. The CIT(A) restricted the addition of undisclosed income from restaurant business to Rs. 5,94,466/- as against Rs. 22,37,322/-. The Assessing Officer was directed to assess the rent r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that in the absence of any evidence of suppression regarding the earlier period no estimate may be made on additional income on account of suppression. It was submitted that the decision of the CIT(A) with regard Kwality Restaurant may be upheld. 18.4 The Ld. AR relied on the following judicial pronouncements in support of his case in respect of both the assessees for the relevant assessment years: (1) PP Jose vs. ACIT in IT(SS)A No.31/Coch/2003 dt. 27/02/2004 (ITAT, Cochin) (2) Rajnik & Co. vs. ACIT (251 ITR 561) (AP) (3) CIT vs. Sinhgad Technical Education Society (397 ITR 344) (SC) (4)Pr. CIT vs Devangi alias Rupa (394 ITR 184) (Guj.) (5) CIT vs. Deepak Kumar Agarwal & Ors. (398 ITR 586) (Bom.) (6) CIT vs. Jagdish Narain Ratan Kumar (373 ITR 394) (Raj.-Jaipur) (7) CIT vs. SKS Ispat and Power Ltd. (398 ITR 584) (Bom.) (8) Pr. CIT vs. Best Infrastructure (India) Pvt. Ltd. (397 ITR 82) (Del.) (9) CIT vs. Continental Warehousing Coprporation (Nhavasheva) Ltd. (374 ITR 645) (Bom.) (10) CIT vs. Kabul Chawla (380 ITR 573) (Del.) (11) Pr. CIT vs. Soumya Construction P. Ltd. (387 ITR 529) (Guj.) (12) Pr. CIT vs. Dipak Jashvantal Panchal (397 ITR 153 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... relating to the assessment year 2001-02. The Assessing Officer in this case considered the evidence gathered in the assessment years 2003-04 and 2007-08 so as to estimate the undisclosed income of the assessment year 2001-02. In our opinion, once the assessment is concluded and become final as on the date of search or the time lime to issue notice u/s. 143(2) of the Act has been expired, then the determination of the total income in respect of the assessment years for which the assessments have already been completed on the date of search, shall not be influenced by the items of income other than those based on the material unearthed during the course of search. As per the provisions of section 153A, incriminating material or other evidence are necessary to frame an assessment u/s 153A r.w.s 143(3) of the Act. 19.1 According to the assessee's Counsel, when the assessment already completed u/S. 143(3) of the Act or where there is no assessment pending, there will be no abatement of proceedings. If the assessment is not pending and there is no incriminating materials or any other evidence to determine the undisclosed income, the assessment u/s.l53A to be framed only as per original ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... een argued by the revenue that abatement of pending assessment is only for the purpose of avoiding two assessments for the same year, one being regular assessment and the other being assessment under section 153A. In other words, these two assessments merge into one assessment. The second proviso does not contain any word or words to the effect that no reassessment shall be made in respect of a completed assessment. The language is clear in this behalf and therefore literal interpretation should be followed. Such interpretation does not produce manifestly absurd or unjust results as section l53A(i)(b) and the first proviso clearly provide for assessment or reassessment of all six years. It may cause hardship to some assessees where one or more of such assessments has or have been completed before the date of initiation of search. This is hardly of any relevance in view of clear and unambiguous words used by the Legislature. This interpretation does not cause any absurd etc. results. There is no casus omisus and supplying any would be against the legislative intent and against the very rule in this behalf that it should be supplied for the purpose of achieving legislative intent. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ents: For harmonious interpretation of this provision with provision contained in section 153A, all the three conditions on satisfaction of which a warrant of search can be issued will have to be taken into account. 19.6 Having held so, an assessment or reassessment under section 153A arises only when a search has been initiated and conducted. Therefore, such an assessment has a vital link with the initiation and conduct of the search.A search can be authorized on satisfaction of one of the three conditions enumerated earlier.Therefore, while interpreting the provision contained in section 153A, all these conditions will have to be taken into account. With this, one proceeds to literally interpret to provision in section 153A as it exists and read it alongside the provision contained in section 132(1) of the Act. 19.7 The provision comes into operation if a search or requisition is initiated after 31.05.2003. On satisfaction of this condition, the Assessing Officer is under obligation to issue notice to the person requiring him to furnish the return of income of six years immediately preceding the year of search. The word used is 'shall' and, thus, there is no opt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... search, and undisclosed income or undisclosed property discovered in the course of search. 19.9 The interpretation is to be made considering the principles of literal interpretation and reading the relevant provisions together. This interpretation does not in any manner give results which can be said to be ultra vires. It also does not give any absurd or unjust results. 19.9.1 Thus, in assessments that are abated, the Assessing Officer retains the original jurisdiction as well as jurisdiction conferred on him under section 153A for which assessments shall be made for each of the sixassessment years separately and in other cases, in addition to the income that has already been assessed, the assessment under section 153A will be made on the basis of incriminating material, which in the context of relevant provisions means - books of account, other document, found in the course of search but not produced in the course of original assessment, and undisclosed income or property discovered in the course of search. 19.9.2 On a conspectus of section153A(1) read with the provisions thereto, and in the light of the law explained in the earlier para, the legal position that emerges was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sed or made known in the course of original assessment. 19.9.3 In view of the above, when the original assessment for the AYs 2001-02, 2002-03, 2004-05, 2005-06 and 2006-07 already been completed or time limit to complete the assessment has been lapsed and no incriminating material found during search operation or there is no evidence of undisclosed income, the assessment u/s. 153A to be made only as per the original assessment which was made u/s. 143(3) of the Act. It is an admitted fact that in these assessment years there was no incriminating material discovered in the course of search action and also no evidence of undisclosed income in the possession of assessing officer so as to make any addition to the income declared by the assesse.If there is no allegation that the assessee had failed to produce books of accounts and documents in the course of original assessment, the addition made for the AY cannot be sustained. 19.9.4 In the present case, there was no seized material found during the course of search to estimate the liquor sales, restaurant sales or income from M/s. Kwality Restaurant to sustain the addition. Even while conducting enquiry after search also, the Asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ctual receipts and the analysis of sales by applying peg/bottle rate on the stock sold are correct. Please state how the sales for the earlier periods are accounted." "Answer No. 13:- On 2006 December onwards we are not accounted 20% of actual sales. Before that there will not be much difference." Thus, it means that there was no admission by the managing partner and he categorically stated that from December, 2006, they have not accounted 20% of actual sales. Being so, the ratio laid down by the Jurisdictional High Court in the case of Hotel Meriya cited supra cannot be applied to the facts of the assessee's case. Further, the Assessing Officer strongly placed reliance on the sworn statement of Shri K.A. Paul recorded on 13.02.2007 who is an accountant in Matha Enterprises to estimate the sales of the assessee in this assessment year. These statements are relied upon by the Assessing Officer without providing any opportunity of cross examination to Shri K.A. Paul. Being so, the reliance placed by the Assessing Officer on such statement of Shri K.A. Paul is improper. 19.9.7 The assessee has placed the following evidence (PB pg. Nos. 41-50) for the assessment year 2003-04 to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of total sales of Rs. 13,814 of Kwality Restaurant, Rs. 4,800 were collected by Hill Park Bar Restaurant on account of food sent by Kwality Restaurant and further Rs. 106.50 was shown as receivable from M/s Matha Enterprises and partners. Had this restaurant been run by the assessee such entries would not have found place in the seized documents which can be reasonably presumed to be recording transactions in truthful manner. The food served by Kwality Restaurant was also distinct from the food served by assessee's Hills Park Bar Restaurant as indicated by the Ld. AR. The documents relating to AY 2007-08 calculated cash balance at the end of each day and the same was carried forward to the next day whereas cash balance worked out in documents for A.Y 2003- 04 was not carried forward to next day. Further to above, there were number of other evidences which establish that Kwality Restaurant was earlier run by one Mr. Prasi Paul and later on by Mr. P.P Mathai. The presumption u/s 132(4A) referred to by the Assessing officer was rebuttable and in the assessee's case this was duly done by way of sworn statement of Mr. Prasi Paul wherein he had owned up running of the Kwality Restaurant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in books. With regard to Mr. P.P Mathai in addition to lease agreements and other documents, the assessee had placed on record a copy of Income tax return filed by him for AY 2007-08, wherein Kwality Restaurant was claimed to have been run by him up to 31st December, 2006. No further evidence could be brought on record for the reason that Mr. P.P Mathai had since expired. In view of the foregoing, we find that there was hardly any evidence to estimate turnover and income of Kwality Restaurant and club the same with the appellant for A.Ys 2001-02 to 2006-07 and also for the period up to 31st December, 2006 for AY 2007-08. Thus, the Assessing Officer was not justified in clubbing the income of Kwality Restaurant in the hands of the assessee for the above period. 19.9.9 In view of the above, we hold that estimation of undisclosed turnover from Kwality Restaurant and computing the undisclosed income on the same by the Assessing officer was not backed by any evidence and was purely a guess work and therefore, the addition worked out by the Assessing officer in the A.Y. 2001-2002 is to be deleted. Being so, business income from Kwality Restaurant cannot be assessed in the hands of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... liquor sales at 37.21% at Rs. 1,78,19,693/-, restaurant sales at 35.5% at Rs. 49,47,607/- and cigarette sales at 10% at Rs. 54,785/-. The Assessing Officer also considered the income of M/s. Kwality Restaurant as the assessee is running the business. In this assessment year, there is evidence regarding suppression of sales. Being so, we are in full agreement with the estimation of sales from liquor, restaurant and cigarette business. However, the rate of net profit applied in this case is very high. We direct the Assessing Officer to adopt the rate of net profit in respect of liquor sales, restaurant sales and cigarette sales as disclosed by the assessee in respect of these items in the regular books of accounts. However, in respect of M/s. Kwality Restaurant, it is a separate entity upto 31/12/2006 and income from this business is to be assessed from AY 2007-08 only. Accordingly, we delete the addition in respect of M/s. Kwality Restaurant. Hence, this ground of appeal of the assessee is partly allowed and that of the Revenue is dismissed. Thus, the appeal of the assessee is partly allowed and the appeal of the Revenue is dismissed. MATHA ENTERPRISES ITA No.308/Coch/2010 : Ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a vital piece of evidence, though could be relied upon in the manner done in framing the assessment for A.Y. 2003-04. The observations and findings by the tribunal would be fully applicable and valid for the impugned assessments as well. If aggrieved by the said decision by the tribunal, the Revenue could carry the matter before a higher appellate forum. We, therefore, consider it fit and proper under the circumstances to follow the order of this tribunal in the case of Matha Enterprises (supra); the facts and circumstances of the case being admittedly identical. We decide accordingly. 38. Against this, the Department went in appeal before the Hon'ble High Court. The Hon'ble High Court vide its judgment in ITA Nos.115, 121, 124, 125 & 127 of 2012 for the assessment years 2001-02, 2002-03, 2003-04, 2005-06 and 2006-07 dated 22nd September, 2017 set aside the orders of the Tribunal for reconsideration, by observing as under:- "These appeals are filed by the Revenue impugning the common order passed by the Tribunal in I.T.A.Nos.507 to 513 of 2010 concerning the assessment years 2001-02 to 2007-2008. The appeals were disposed of in the light of the order of the Tribunal in M/s.Ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in ITA Nos.498 & 499/Coch/2010 and 513/Coch/2010 for the assessment years 2001-02, 2002-03 and 2007-08 respectively. 41. The appeals in ITA Nos. 507 to 512/Coch/2010 (5 appeals) were listed for hearing once again before the Tribunal and heard on 14/10/2019. Now, the only issue in these assessee's appeals (ITA Nos.507 to 512/Coch/2010) for our consideration is with regard to the estimation of suppression sales from bakery business and thereafter, by applying higher rate of GP than disclosed by the assessee and other grounds of appeals are not for our consideration as the High Court has already decided it. 42. Now the learned Counsel for the assessee has filed common additional grounds for all the assessment years involved herein except for variance in figures, which reads as under:- "1. To cancel the assessment of undisclosed income in the absence of any statement u/s 132(4) relating to the firm and evidence seized at the time of search. 2. To cancel the assessment for the reason that the assessment is made on the basis of seized documents relating to M/s.Matha Enterprises as detailed in the assessment order. 3. To cancel the assessment of undisclosed income and the ord ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Partner Ratio 1. Paulson P. Varkey 35% 2. Jobby Mathew 14% 3. Paul Mathew 14% 4. JohnyKuriakose 15% 5. Benny Kuriakose 15% 6. Meena Paulson 7% 45.3 Shri Jobby Mathew was the managing partner of the firm. The assessee firm ran a Bakery and Ice Cream Parlour, in the ground floor of Hotel Hill Park. On 13.02.2007 a search u/s. 132 of the Income Tax Act, 1961 was initiated in the business premises of M/s. Matha Enterprises, Angamaly. Subsequent to the search, a notice under section 153A of the Income tax Act, dated 12.02.2008 was issued requiring the assessee to file return of income within 30 days from the receipt of the notice. The said notice was served on the assessee on 18.02.2008. In response to the said notice, the assessee firm filed its return of income on 22.10.2008 declaring a total income of Rs. nil. The assessee firm had originally returned the same income in the return filed u/s. 139(1) on 29.10.2003. After processing the return filed u/s. 153A, a notice u/s. 143(2) was issued on 27.11.2008. On the same day a notice u/s 142(1) was also issued along with a questionnaire seeking various details. 45.4 Coming to the materials found during th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ne statement from a/c. bar & restaurant in 3rd floor. Daily stock is taken at bar counters by the staff. The sales of M/s.Kwality restaurant are included in the statement of M/s. Hill Park Restaurant. On receipt of stock statements, the daily sales in the bar is compared with the rough statement prepared by multiplying by the quantity of each item sold with peg rate or bottle rate. Bottles are sold from wholesale counter only. Peg rates of each item is exhibited in the counters itself. After calculating the sales according to the quantity of stock sold, the cash excess or short in the counter is worked out. Usually there will be small cash excess. Vouchers for expenses made are also received from counters. From these details, I daily prepare a cash statement. The cash taken by the partners are also recorded in the daily statement received from counters. Usually, I don't handle cash. Cash balance will be available with the Manager. In the daily statements maintained, daily cash balance is arrived and this amount will be available with Manager. After each month end, statement of cash withdrawn by partners is prepared and is given to Paulson P. Varkey, Managing Partner. Original d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rtner. 45.7 PCI (22) is a document seized from the premises of Hotel Hill Park. This contains daily statement of Best Bakery & Ice Cream Parlour for the period from 11.11.02 to 17.12.02 which showed the receipts and payment of each day including sales and the cash balance. On scrutiny of the copy of the computerised cash books for the year 2002-03, produced before the DCIT (Inv) and the daily statements seized, it was noticed that there was huge suppression in receipts recorded in the cash book. A comparison of the sales as per daily statement (PCI 22) and cash book is given below:- Date Sales as per daily statement Sales as recorded in cash books / day book 11.11.2002 19567 3176 12.11.2002 14288 3045 13.11.2002 17580 3150 14.11.2002 15061 3198 15.11.2002 17876 3073 16.11.2002 26200 3521 17.11.2002 -- Nil 18.11.2002 15807 3213 19.11.2002 16430 3080 20.11.2002 16407 3127 21.11.2002 16455 3127 22.11.2002 16780 2897 23.11.2002 26369 3396 24.11.2002 21171 Nil 25.11.2002 17338 3123 26.11.2002 13831 2998 27.11.2002 15049 3166 28.11.2002 16460 2992 29.11.2002 16000 2977 30.11.2002 26405 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itted that the document was purely unreliable for the fact that these have been completely scored off in every page when the person who prepared would have realized that the statement were erroneous. He also claimed that the partners were unaware of the matters recorded in these pages. No material or evidence whatsoever had however been produced to in support of the claim that the transactions recorded in the seized document in respect of sales do not represent the actual transactions. 50.1 The assessing observed that from the statements of the Accountant, Shri KA. Paul, recorded under section 132(4) during the course of search, it was seen that he received the daily statements from 'Best Bakery', daily statements from 'Hill Park Restaurant', one consolidated statement from three bars in 1st floor, A/c Bar and restaurant in 3rd floor and one statement from front office. The entries in day-book PC-I(02) for 'room rent received were the 'room rent' receipts shown in the front office daily statements. These receipts tally with the receipts shown in the books of account on which the returns filed by Matha enterprises were based which proved that daily stat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt (as discussed at Para 5.1 above), even though scored off, just like other figures which are claimed to be erroneous. (b) Sri K. A. Paul, the Accountant, stated that the statements indicate the sales of different counters as explained in the reply quoted above at Para 3.1 of this order and that there has been suppression of sales by the assessee firm. (c) The correctness of the above mentioned statement of the accountant was authenticated by the Managing Partner of Matha enterprises and a partner of this firm on the date of search. (d) The figure of actual suppression of 27.1% of the sales of liquor on the basis of seized record of Matha enterprises is quite near to the stated suppression of sales by 20% as per the statement of the accountant and confirmed by the Managing Partner as discussed above a Para 3.1 and 3.2 above. 50.4 The assessing officer observed that only in the reply to the notice under section 142(1), the firm has tried to go back on the statement recorded on 13.02.2007 from Shri Paulson P. Varkey. Though Shri Paulson had not formally and legally retracted from his statement and as such, the statement given on 13.02.2007 continued to be evidence to be u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng partners, Shri Paulson P. Varkey, Shri Jobby Mathew and Shri Johny Kuriakose shall be computed in the manner laid down in Explanation 3 to section 409b) of the Act or any other applicable provisions as may be in force in the income tax assessment of the partnership firm for the relevant accounting year. Such amount was to be distributed between the partner in the proportion of 42%, 28% and 30% respectively. It was to be calculated at the close of the accounting year and was credited to the account of the partners. In this case, neither the amount of remuneration had been quantified nor even the limit of total remuneration had been specified but the same had been left to be determined by the partners at the end of the accounting period. As such remuneration to partners cannot be allowed as deduction in the computation of the firm's income. 50.9 Thus, the total income of the assessee and the amount of tax and interest payable was computed as follows: Income from business - as returned Add: Undisclosed income Rs. Nil Estimation of undisclosed sale : and consequent profits : Rs. 12,95,044 Total income determined u/s. 153A : Rs. 12,95,044/- Rounded to : Rs. 12,95 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ade by the Assessing Officer. For the assessment year 2003-04, the CIT(A) observed that the suppression is 520% of the disclosed turnover of Rs. 9,53,739/-. The suppressed turnover was fixed at Rs. 49,59,443/- and profit @ 20% was fixed at Rs. 9,91,890/-. The CIT(A) confirmed the amount of Rs. 9,91,890/- as addition as against the addition made by the Assessing Officer at Rs. 12,95,044/-. For the assessment year 2004-05, the suppressed turnover was fixed at Rs. 44,94,461/- and profit at 20%. The CIT(A) fixed the profit on undisclosed sale at Rs. 8,98,890/- as against the addition of Rs. 11,18,475/- made by the Assessing Officer. For the assessment year 2005-06, the suppressed turnover was at Rs. 45,23,328/- and the profit was at 20%. The CIT(A) fixed the undisclosed profit at Rs. 9,04,665/- as against the addition of Rs. 13,46,117/- made by the Assessing Officer. For the assessment year 2006-07, the suppressed turnover was fixed at Rs. 50,79,368/- and the profit margin was fixed at 20%. The CIT(A) fixed the undisclosed income at Rs. 10,15,870/- as against the addition of Rs. 14,25,256/-. 62. Against the same the assessee is in appeal before the Tribunal for all the assessment year ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bove reasons, it was submitted that the assessments u/s.153C on the assessee firms for AY's-2001-02 to 2006-07 is illegal and liable to be cancelled. 63. The learned Departmental Representative submitted that there is seized material found in the assessment year 2003- 2004 and on that basis, the A.O. had estimated the income of the assessee from bakery business and thereafter, he applied GP rate. Since all the expenditure were already recorded by the assessee and therefore, there was no necessity for giving any further deduction towards expenditure. According to Ld. DR , the seized material for the assessment years 2003-04 2007-08 is the basis for assessment of undisclosed income for other assessment years and the same is to be confirmed. He relied on the order of the Assessing Officer. BEST BAKERY AND ICE CREAM PARLOUR ITA Nos. 507, 508, 510, 511 & 512/Coch/2010: : Assessee'sAppeal : AYs : 2001-02, 2002-03, 2004-05 & 2006- 07 FINDIINGS 65. These assessments were passed under section 153C of the I.T. Act. Admittedly, in these assessment years, there was no seized material found during the course of search for estimating the suppressed sales. In our opinion, once the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssment years was expired before the date of search. Therefore, we are of the view that the assessments for the assessment years have been concluded / unabated as on the date of search and hence the A.O. cannot make any addition towards returned income in the absence of any seized materials. In the present case, there is no seized material found during the course of search to estimate the sales. Hence, the addition made by the Assessing Officer and sustained by the CIT(A) is deleted. Thus, this ground of appeals of the assessee is allowed. The appeals of the assessee are allowed. ITA Nos.509/Coch/2010:Best Bakery: Assessee's Appeal: AY 2003-04 FINDINGS 66. For the assessment years 2003-04, there is evidence regarding suppression of sales. Being so, we are in full agreement with the estimation of sales. However, the rate of net profit applied in this case is very high. We direct the Assessing Officer to adopt the rate of net profit in respect of liquor sales and restaurant sales as disclosed by the assessee in respect of these items in the regular books of accounts. Hence, this ground of appeal of the assessee is partly allowed. Thus, the appeal of the assessee is partly allowed . ..... X X X X Extracts X X X X X X X X Extracts X X X X
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