TMI Blog2019 (12) TMI 1227X X X X Extracts X X X X X X X X Extracts X X X X ..... uld make addition, which he could make u/s. 143(3), even without seized material. 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. 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 assesse and we do not find any infirmity in the orders of CIT(A) on this issue. Thus, this ground of appeal of the assessee is allowed and that of the Revenue is dismissed. The appeal of the assessee is allowed and the appeal of the Revenue is dismissed. - ITA No.302, 303, 304, 305, 306, 307, 308, 269, 270, 271, 272, 273, 274, 27 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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/ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the year 2007-08 and Revenue s appeal for that year is ITA No. 17/12. 2. In view of the comprehensive order of remit granted in ITA No.145/11 and connections, including ITA No. 17/12, it is appropriate that the Tribunal reconsiders the subject matter of this proceedings in accordance with law also, taking into consideration the order of remit passed in ITA No. 145/11 and connections. In the result, the impugned decision of the Tribunal is vacated and this appeal is ordered remitting the case to the Tribunal for de novo decision in accordance with law and also taking into consideration the grounds that may be raised 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 10 5. Benny Kuriakose 10 6. Mary Kuriakose 5 7. KunjammaVarkey 16 8. Meena Paulson 7 9. Paulson P. Varkey 19 10. Jobby Mathew 10 7.3 Shri Paulson P. Varkey, JohnyKuriakose and Paul Mathew were the working partners. The assessee firm ran Hotel Hill Park consisting of 3 non- A/c bars on the first floor, one A/c bar in the III floor, two Restaurants, one in first floor and one in third floor and lodging section in the second floor. The ground floor restaurant known as Kwality restaurant was said to be in the name of Shri P.P. Mathai., Best Bakery and Ice Cream Parlour', a separate firm of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Hotel Hill Park is a firm with ten partners consisting of the families (1) Paulson P. Varkey group with 42% share (2) P.A. Kuriakose Group with 30% share (3) KM. Mathai Group with 28% share. M/s. Matha Enterprises is the parent concern and under this Hotel Hill Park Restaurant section, Crystal bar - bar section and lodging section (no separate name) are functioning. Crystal bar has 4 counters. 3 counters in first floor and one a/c counter in 3rd floor. Restaurant, is functioning in first floor and 3rd floor. The ground floor restaurant, M/s. Kwality Restaurant, is in the name of P.P. Mathai. M/s. Best Bakery in the ground floor is owned by the same 3 groups who owns this Hotel but it is a separate firm. As the accountant of this firm, I receive daily statements from M/s. Best bakery, M/s. Hill Park Restaurant, one consolidated statement from 3 bar counters in first floor, one 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 multip ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rrect. He also stated that usually 80% of the sale value in Bar section were entered in the cash book and the quantity of sales and purchases were correctly entered. The seized document PC-I(22) was also shown to him and vide Question No. 7 he was requested to describe the entries in the pages. ShriPaulson, though tried to evade a direct and correct response by saying that he did not know what it was and only his Accountant Mr. Paul would know the details, he did not controvert the correctness of the statement of Shri Paul. The above quoted extract of the statement of the accountant, which was read by the Managing Partner before answering the question, however, brought it out clearly that the details contained in these seized documents, contained details of actual sales of the firm. There was thus an implicit admission of the relevant facts in this regard in the answer to Q. No. 7 by the Managing Partner. 7.7 A scrutiny of the Daily statements in PC-1(22) and the Day book PC-I(02) revealed that the daily statements were the primary documents based on which the Day book of the firm was written. For each day, four sheets were found; the first sheet contained daily s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... - 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3924 107354 - 26,11.2002 13077 145311 1380 3911 104901 - 27.11.2002 17121 148065 1380 3890 105972 - 28.11.2002 16204 141880 1380 3693 111730 - 29.11.2002 16241 133886 1380 3947 105896 - 30.11.2002 21131 179622 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 64 129800 0 3933 107526 - 12.12.2002 16131 130084 1605 3924 104645 - 13.12.2002 17047 148961 560 3916 117891 - 16.12.2002 23467 142751 1680 3417 109101 - 17.12.2002 18571 134608 560 3864 106147 - Total ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ents claimed by the Assessing officer as 'daily statements' for the financial year 2002-03 were in fact not so. It seems, this was written by some staff to have good control over cash in hand, i.e., as a cash control statement kept by a cash control point person. It also recorded cash received on various occasions from different counters during day time for control purposes. Cash paid to various counters were also recorded. This was evident from the fact that small figures were added to constitute the total. For example on 8.11.2002 against bar ₹ 34,115/- + ₹ 27,756/- + ₹ 81,883/- + ₹ 6,000/- shown in receipt column and ₹ 6,079/-shown in payment column. The partner further submitted 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 was, however, produced in support of the claim that the transactions recorded in the seized document in respect of sales did not represent the actual tran ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oks of accounts so found, So also, the signature and every other parts of the books of account may be presumed to be in the hand writing of the person by whom it is purported to have been written. If they are stamped, executed or attested, they shall be presumed to be stamped and executed or attested by the person by whom it purports to have been executed or attested. In the case of the assessee firm, the presumption as to the correctness of the daily statements seized as PC-1(22) was not rebutted by way of production of any evidence or material. The assessing officer observed that on the contrary, there was overwhelming material and evidence to support the correctness of the daily statements such as; (a) The fact that room rent sales recorded therein tally with the books of account, 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 and that there has been suppression of sales by the assessee firm, (c) The correctness of the above mentioned statement of the accountant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 Trading and P L account, the entire amount of undisclosed sales of ₹ 1,78,19,693/- was treated as undisclosed income of the assessee from liquor business. The amount of ₹ 1,78,19,693/- was, therefore, added to the income disclosed in the return filed under section 153A of the Act. Estimation of undisclosed Restaurant Sales and Consequent Profits: AY 2003-04 8.1. In the books of the assessee it is shown that the assessee was receiving rent of ₹ 24,000/- per annum from Kwality restaurant which was claimed as being run by Shri P. P. Mathai. No material was found during the course of search to show that it was run by Shri P. P. Mathai. At the time of hearings also, no evidence was produced to show that the restaurant was run by him. On the contrary, the primary document evidencing the sales effected in Kwality restaurant was found recorded in the daily statement seized from the business of the assessee firm. The statement of the Accountant repro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... perty: AY 2003-04) 8.4 In the return of income, the assessee had shown rent receipts from Best Bakery Kwality Restaurant at ₹ 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 total income of the assessee and the amount of tax and interest payable thereon were computed as follows: 8.6 Thus, assessing officer observed that the assessee had suppressed its sales and profits in respect of sale of liquor, restaurant sales including sales of Kwality restaurant and the sales of cigarettes on regular basis. The profits in respect of such undisclosed sales were not declared either in the returns u/s 139 or even in the returns filed u/s 153A, after detection of suppression. 9. On appeal, regarding addition on account of undisclosed liquor sales, the CIT(A) observed that the most clinching evidences recovered during the course of search action were seized documents PC-1(8) and PC-1(23) pertaining to the period 11.07 to 11.02.07. They have been ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... orded 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 conjunction with other evidences on record. The CIT(A) found that these documents also did not establish any suppressed turnover for the period prior to AY 2003-04 and are therefore, hardly have any relevance for AY 2001-02 2002-03. 9.2 With regard to statement of ShriK. A. Paul, Accountant of the assessee, the CIT(A) observed that the request of the assessee for cross examination does not have much merit. According to the CIT(A),the judgment of the Supreme Court in 39 STC 78 relied upon by the assessee was not much relevant for the reason that the cross examination was required only when an independent witness is adversely used against an assessee. In the assessee s case, it was found that Shri K A Paul was available during ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed 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 Wills Ltd. vs. State of Madhya Pradesh . Others 68 ITR 41 relied upon by the assessee were of much relevance to the issue wherein it was held that it was not open for an assessing authority to selectively take what was beneficial to the revenue and reject what was favourable to an assessee. In view of the above, the CIT(A) held that statement of the Accountant, Shri K.A. Paul cannot be generalized and applied to all the seven assessment years to work out income of the assessee in a mechanical manner. The CIT(A) held that deposition of Mr. K.A. Paul therefore has highest evidential value for the accounting period relevant to AY 2007-08 and has to be judiciously taken cognizance of after considering all other relevant evid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sed 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 conjunction with the above incriminating evidences pertaining to A.Y. 2003-04. Except the above deposition of the managing partner, there is no evidence either gathered during the course of search action or brought on record by the assessee to establish that unaccounted turnover was not in vogue during earlier period. 9.5 According to the CIT(A), the existence of such business practice in the immediate prior period i.e. other part of the relevant accounting year, therefore, can be reasonably presumed following the ratio laid down by the Supreme Court in the case of CST v. H.M. Esufali, H.M. Abdulali (1973) 90 ITR 271 (SC) wherein the Apex Co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (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 Kerala v. C. Velukutty (1966) 60 ITR 239(SC) 9.6 According to the CIT(A), a fair and judicious attempt needed to be made in such set of circumstances to arrive at real income earned by the assessee out of such unaccounted business activity as held by various courts from time to time and in the following judicial pronouncements relied upon by the assessee: d) Sanjeev Woolen Mills vs. CIT (2005) 279 ITR 102(SC) e) CTT v.Shoorji Vallabhdas and Co.(1962) 46 ITR 144(SC) f) CIT v. Kerala Financial Corpn. Ltd. (1985) 155 TTR 246 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 Assessing officer had not taken cognizance of substantial outgoings indicated in the seized documents. According to the CIT(A), to compute real income in a fair manner, it was essential that receipts as well as expenses recorded on the same seized documents needs to be considered simultaneously. The CIT(A) observed that the judgment of Apex Court in the case of Indore Malwa United Mills (60 ITR 41) relied upon by the assessee supports the ground. According to the CIT(A), it would be t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ess 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 ₹ 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 factors relating to the unaccounted trading activity with higher profit margin gross profit rate at 22% cannot be reasonably adopted in respect of undisclosed turnover as no license fee was to be separately paid by the assessee for undisclosed turnover. The CIT(A), therefore, held that the income of the assessee from undisclosed turnover of liquor can be reasonably estimated at ₹ 39,20,332/- being 22% of suppressed turnover of ₹ 1,78,19,693/- as estimated by the As ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erved that for example on 5.12.2002, out of total sales of ₹ 13,814 of Kwality Restaurant, ₹ 4,800 were collected by Hill Park Bar Restaurant on account of food sent by Kwality Restaurant and further ₹ 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 next day whereas cash balance worked out in documents for A.Y 2003-04 was not carried forward to next day. 9.9.4 Further to above, the CIT(A) found that there were number of other evidences which established 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 in a mechanical manner and had that been the case millionaires engaged in business ventures would not turn into paupers and vice versa. As far as showing of meager salary is concerned, the CIT(A) observed that the same was kept low in official records to ensure that income tax liability was not attracted in the hands of persons like Mr. Prasi Paul who otherwise appea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ,322/-. The income thereon worked out to ₹ 8,59,322/-. The income thereon @ 35.5% as applied by the Assessing officer and upheld above worked out to ₹ 3,05,060/-. The CIT(A) directed the Assessing officer to restrict the addition of undisclosed income from restaurant business to ₹ 3,05,060/- as against ₹ 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 Appeal: AY 2001-02 10. For the A.Y. 2001-02, the undisclosed income on sale of liquor was at ₹ 1,27,78,273/- and restaurant sales at ₹ 15,36,685/-. Assessment was completed with the total income from business at ₹ 1,44,52,242/-. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 12. For the A.Y. 2003-04, liquor sales was at ₹ 1,78,19,693/- and from restaurant was at ₹ 17,56,400/-. Sale of cigarettes was at ₹ 54,785/-. The assessment was completed with total income at ₹ 1,96,89,560/-. The suppression of liquor sales was found at 37.32% of the declared sales. The disclosed sale was at ₹ 4,77,45,227/- and the suppressed sales was at ₹ 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 ₹ 29,990/-. The total undisclosed sale was at ₹ 49,47,607/- and the total sales was at ₹ 62,69,603/-. The undisclosed income from restaurant was taken at 37.75% of the sales at 36.5% at ₹ 17,56,400/-. The undisclosed income from sale of cigarettes was estimated at 10% on the estimated sales of ₹ 5,47,853/-. 12.1 On appeal, the CIT(A) estimated GP at 22% of the suppressed turnover of ₹ 1,78,19,693/- which was fixed at ₹ 39,20,332/-. The CIT(A) restricted the addition to the extent of ₹ 39,20,332/- as against the undisclosed sales turnover of & ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... MATHA ENTERPRISES ITA No. 306/Coch/2010: Assessee s Appeal: AY 2005-06 ITA No. 273/Coch/2010: Revenue s Appeal: AY 2005-06 14. For the A.Y. 2005-06, liquor sales was at ₹ 1,42,24,874/- and restaurant sales was at ₹ 19,09,072/- The assessment was completed with total income at ₹ 1,72,42,820/-. The suppression of liquor sales was found at 32.11% of the disclosed sales. The disclosed sale was at Rs.₹ 4,43,00,449/- and the suppressed sales was at ₹ 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 ₹ 13,05,044/-. The total undisclosed sale was at ₹ 67,57,778/- and the total sales was at ₹ 80,62,822/-. The undisclosed income from restaurant was taken at 28.25% of the sales at 35.5% of the sales at ₹ 19,09,072/-. 14.1 On appeal, the CIT(A) estimated GP at 24% of the suppressed turnover of ₹ 1,42,24,874/- which was fixed at ₹ 34,13,970/- as against the undisclosed sales turnover of ₹ 1,43,02,919/-. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2/-. The assessment was completed with total income at ₹ 1,03,34,021/-. The suppression of liquor sales was found at 26.9% of the disclosed sales. The undisclosed sale was at ₹ 99,93,052/- on disclosed sales of ₹ 3,71,48,893/- as per the day book and the actual total sales at ₹ 4,71,41,945/-. The sales for the whole year was estimated at ₹ 5,3,39,391/-. The assessee reported sale of only ₹ 4,49,6,632/-. Since all the purchases were from Beverages Corporation already entered in the books of accounts the undisclosed sale at ₹ 80,78,699/- was added as income u/s. 153A of the Act. The undisclosed sale was estimated at ₹ 79,19,725/- and considering the average profit at 28.2% the undisclosed profit was estimated at ₹ 22,37,322/-. 16.1 On appeal, after giving notice to the assessee, the CIT(A) proposed enhancement of income by ₹ 5,62,426/-. After rejecting the explanation filed by the assessee, confirmed the enhancement of income from this source to ₹ 86,41,125/- as against ₹ 80,78,699/-. The assessee objected to the enhancement that the renovation expenses of hotel was met from the sale proceeds as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s in the statements u/s. 132(4) of the accountant Shri K.A. Paul and the working partner Shri Paulson P. Varkey, the assessment of undisclosed income may be cancelled. It was submitted that Kwality Restaurant was a separate entity till 31.12.2006. As per the decision of the CIT(A) and the Bench, it was submitted that the income from the Kwality Restaurant may not be included in the assessee s income. The Ld. AR submitted that as per the seized materials and as per the statement u/s. 132(4) by Shri K.A. Paul and the working partner Shri Paulson P. Varkey, there was suppression of sales turnover to the tune of 20% for three months for January, February and March, 2007. The assessee submitted that the suppression of income may be estimated on the basis of suppression detected during the period of search for three months during the year. It was submitted 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 suppo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5,307/- and profit on it at ₹ 1,27,78,273/-. In the case of suppressed restaurant sales in the assessment year 2003-04, it was estimated at 385.93% and in the assessment year 2007-08, the suppressed restaurant sales was estimated at 649.7%. The Assessing Officer has considered the average of these two years at 517.82% for the AY 2001-02 and worked out the undisclosed sale at ₹ 54,39,595/- and determined profit on it at 23.19% which worked out at ₹ 15,36,685/-. Thereafter, he estimated the net profit on the total turnover as follows: Net profit on liquor sales : ₹ 1,27,78,283/- Net profit on restaurant sales : ₹ 15,36,685/- He estimated the undisclosed sales from M/s. Kwality Restaurant at ₹ 54,39,595/- on the basis of sales recorded in the assessment year 2006-07 and 2007-08 and thereafter, he estimated the profit at 28.25%. on the undisclosed sales of ₹ 54,39,595/-. As seen from the assessment order, there was no seized material found during the course of search for estimating the suppres ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 19.3 There is no dispute that Section 153A is applicable in this case. Hence, the Assessing Officer is obliged to issue notice under section 153A in respect of six years in which preceding the year in which search etc. has been initiated. Thereafter, he has to assess or reassesses the total income of these six years. It is obligatory on the part of the Assessing Officer to assess or reassess total income of the six assessment years as provided in section 153A(l)(b) and reiterated in the 1st proviso to this section. The second proviso states that the assessment or reassessment pending on the date of initiation of the search or requisition shall abate. There is no divergence of views in so far as the provision contained in section 153A till the 1st proviso. The divergence starts from the second proviso which states that pending assessment or reassessment on the date of initiation of search shall abate. This means that an assessment or reassessment pending on the date of initiation of search shall cease to exist and no further action shall be taken thereon. The assessment shall now be made under section 153A. The case of the assessee is that necessary corollary to this provisi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion and the submissions, it is found that this provision also makes it clear that the abatement of pending proceedings is not of such permanent nature that they cease to exist for all times to come. The interpretation of the assessee, though not specifically stated, would be that on annulment of the assessment made under section 153(1), the Assessing Officer gets the jurisdiction to assess the total income which was vested in him earlier independent of the search and which came to an end due to initiation of the search. 19.5 The provision contained in section 132(1) empowers the officer to issue a warrant of search of the premises of a person where anyone or more of conditions mentioned therein is or are satisfied, i.e. (a) summons or notice has been issued to produce books of account or other documents but such books of account or documents have not been produced, (b) summons or notice has been or might be issued, he will not produce the books of account or other documents mentioned therein, or (c) he is in possession of any money or bullion etc. which represents wholly or partly the income or property which has not been and which would not be disclosed for the p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ll revive. This means that the assessment or reassessment, which had abated, shall be made, for which extension of time has been provided under section 153B. 19.8 The question now is - what is the scope of assessment or reassessment of total income under section I53A(l) (b) and the first proviso? For answering this question, guidance will have to be sought from section 132(1). If any books of account or other documents relevant to the assessment had not been produced in the course of original assessment and found in the course of search, such books of account or other documents have to be taken into account while making assessment or reassessment of total income under the aforesaid provision. Similar position will obtain in a case where undisclosed income or undisclosed property has been found as a consequence of search. In other words, harmonious interpretation will produce the following results: (a) In so far as pending assessments are concerned, the jurisdiction to make original assessment and assessment under section 153A merge into one and only one assessment for each assessment year shall be made separately on the basis of the findings of the search and any ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... undisclosed income would be brought to tax. Fourthly, although section 153A does not say that additions should be strictly made on the basis of evidence found in the course of the search, or other post search material or information available with the Assessing Officer which can be related to the evidence found, it does not mean that the assessment can be arbitrary or made without any relevance or nexus with the seized material. Obviously, an assessment has to be made u/s. 153A r.w.s. 143(3) of the I.T. Act. Fifthly, in the 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 was relatable to abated proceedings (i.e. those pending on the date of search) and the word reassess to completed assessment proceedings. Sixthly, insofar as pending assessments are concerned, the jurisdiction to make the original assessment and the assessment u/s. 153A merges into one. Only one assessment shall be made separately for each A.Y. on the basis of the findings of the search and any other material existing or brought on record of the Assessing Officer. Seventhly, completed assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under: (ii) That the partner of the assessee had in unambiguous terms stated that 20 per cent of the sales outturn was suppressed and only 80 per cent was recorded in the account books and it was the practice from the very beginning. So, it was just and appropriate to presume that there was uniform concealment of income in all the assessment years during the block period. Hence the assessee was liable to be assessed during the block period at a uniform rate. 19.9.6 Further, in the case of Travancore Diagnostics P. Ltd. vs. ACIT (390 ITR 167) wherein it was held that when suppression had been found from the documents and the statement on record, the Assessing Officer was completely justified in adopting those figures for the whole year and for the next year which was based on sound rationale, since from the statement on behalf of the assessee, the suppression was found to be continued. In view of the uncontroverted and admitted statement given on behalf of the assessee u/s. 133A and the documents impounded during the survey, which were also virtually admitted by the assessee, there was no error in the order of the Tribunal in accepting the mate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... search and had been incorporated in the books of accounts by the assessee stating that with effect from 01/01/2007, the assessee was running Kwality Restaurant. Mr. K.A. Paul, the accountant of the assessee mentioned during the search action that the restaurant was in the name of Mr. P.P. Mathai but was run by the assessee. The observation of the Assessing Officer that no material was recovered during search to establish that this restaurant was not run by the assessee in earlier period do not have merit because if the restaurant was not run by the assessee, there was hardly any likelihood of finding any evidence in assessee s premises. Liability can be created against the assessee only if positive evidence was found during search that the assessee was running Kwality Restaurant all along from A.Y 2001-02 to 2007-08. No such evidence was recovered except the documents PC-I(8), PC-I(23) PC-I(22). The documents relevant to AY 2007-08 do not indicate that the restaurant was run by the assessee prior to 1.1.2007. The documents relevant to AY 2003-04, i.e. PCI( 22) in fact establish that Kwality Restaurant was a separate entity as has been rightly pointed out by the Ld. AR. A perusal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... instead opted to estimate and club income of Kwality Restaurant in the hands of the assessee.. The assessee not only placed on record affidavit of Mr. Prasi Paul who was running the restaurant during the period from 12.2.1999 to 2.10.2003, but also produced him before the Assessing Officer during remand proceedings. Mr. Prasi Paul during his deposition before the Assessing Officer duly confirmed that he was running Kwality Restaurant during above period and that he gave this name to the restaurant which was earlier named as dhithi . He also effectively answered most of the questions of the Assessing Officer with regard to the running of the restaurant on lease. The estimation of probable income from the Kwality Restaurant by the Assessing officer was 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 Kwality Restaurant, there is no certain ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the net profit on it at 32.11% based on the estimated profit of AY 2003-04. The Assessing Officer estimated the restaurant sales at ₹ 53,45,114/- and applied the margin of profit at 28.25% and determined the profit at ₹ 15,09,994/-. Similarly, he considered the income from M/s. Kwality Restaurant in the hands of the assessee on the basis of seized material found during the course of search in the AYs 2003-04 2007-08. As discussed in earlier para nos.19 to 19.9.9 of this order, since there was no seized material found during the course of search and the assessment reached finality, the addition cannot be made. Accordingly, we delete the addition made by the Assessing Officer and sustained by the CIT(A). Thus, this ground of appeal of the assessee is allowed and that of the Revenue is dismissed. Thus, the appeal of the assessee is allowed and the appeal of the Revenue is dismissed. MATHA ENTERPRISES ITA No.305, 306 307/Coch/2010: Assessee s Appeal : AY 2004-05, 2005-06 2006-07 ITA No.272, 273 274/Coch/2010: Revenue s Appeal: AY 2004-05, 2005-06 2006-07 21. In these assessment years, a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uor and restaurant 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 as disclosed by the assessee in respect of these items in the regular books of accounts. However, in respect of M/s. Kwality Restaurant, the termination of lease was only with effect from 31/12/2006. Being so, part period of the assessment year is to be considered in the hands of the assessee. Accordingly, the Assessing Officer is directed to estimate the income from M/s. Kwality Restaurant for the part period of the assessment year concerned only and the rate of net profit is to be applied as disclosed by the assessee in the regular books of accounts. This ground of the appeal of the assessee is partly allowed. In the revenue s appeal in ITA No. 275/Coch/2010, the tax effect is less than ₹ 50 lakhs in view of Circular No. 17/2019 in F.No.279/Mis.142/2007- ITJ(pt.) dated 08/08/2019 issued by CBDT. Thus, the appeal of the Revenue is dismissed. Thus, the appeal of the assessee is partly allowed and the appeal of the Revenue is dismissed. BEST BAKERY AND ICE ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed 11thNovember, 2016 disposed of the appeal and connected cases setting aside the order of the Tribunal and remitting the matters for reconsideration by the Tribunal itself. Since the impugned orders were rendered entirely relying on the order of the Tribunal in the case of Matha Enterprises (supra) and since that order has been set aside by this Court and the matter is remitted, the orders impugned herein are also liable to be set aside and directed to be reconsidered by the Tribunal. Accordingly these appeals are disposed of setting aside the impugned orders of the Tribunal and remitting the matters to the Tribunal which shall hear and dispose of the matters along with the appeal in the case of Matha Enterprises (supra) and connected cases. 39. Further, the Revenue went in appeal before the High Court for the assessment year 2004-05. The High Court disposed of the appeal of the Revenue vide its judgment in ITA No. 131/2012 dated 25/01/2018 by observing as follows:- The learned Counsel appearing for the respondent submits that similar matters in which the Tribunal had relied on the decision of another co-ordinate bench of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ition as per the order of the Commissioner of Income Tax Appeals of ₹ 9,91,890. 43. The assessee has filed a petition for admission of the additional ground, since the legal ground was not raised before the Income-tax authorities. The learned AR submitted that the additional ground raised is a pure legal ground, which does not require any examination of facts and in view of the judgment of the Hon ble Apex Court in the case of National Thermal Co. Ltd. v. CIT [(1998) 229 ITR 383 (SC)], the additional needs to be admitted and adjudicated. 44. We find that the issue raised by the assessee is a pure legal issue, which does not require any examination of fresh facts. Therefore, going by the dictum laid down by the Hon ble Apex Court in the case of National Thermal Co. Ltd. v. CIT (supra), we admit the additional ground for adjudication. 45. We consider the facts of the case as narrated in Assessment Order in ITA No. 509/Coch/2010 for the assessment year 2003-04 as follows: A search u/s. 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) an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... x 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 the course of search, it was observed by assessing officer 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 lis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 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 ₹ 5,000/- is entered as bar restaurant sales ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ppression 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 11.12.2002 17431 3152 12.12.2002 18112 3150 13.12.2002 16890 3118 16.12.2002 20918 3043 17.12.2002 16239 3144 Total 600334 96916 45.8 From the above assessing officer observed that the firm had suppressed its sale at 83.86% and only 16.14% of the sale was recorded in the books of accounts. Applying this percentage, the total sale for the year worked out to ₹ 58,87,265/-. 45.9 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 Partner recorded on oath during the course of search go to establish the fact that the firm had ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t 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 statements were the primary documents based on which the day book was written. The fact that the daily statements of room rent receipts which tally with the entries in the books of account of the assessee were also scored-off like other daily statements, disproved the partner's claim that the documents were unreliable for the fact that these had been completely scored off in every page when the person who prepared 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 ₹ 5,000/- was entered as Bar Restaurant sales of Matha enterprises. Shri Paulson P. Varkey admitted that the facts stated by Sri K. A. Paul were correc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 used against the firm in these proceedings, the contents of reply amount to an indirect retraction of the statement recorded during the course of search. This is not sustainable as it was not made soon after the statement was recorded, retraction is unsubstantiated and does not indicate any facts to prove inducement or compulsion when the statement was recorded. 50.5 The assessing officer observed that since the facts mentioned above go to prove that the assessee firm's books were not correct and complete a notice under section 144(1) r.w.s. 145(3) of the Income tax Act was also issued to the assessee on 23.12.2008 to show cause why its assessment should not be completed in the manner provided under section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ven 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 : ₹ 12,95,044 Total income determined u/s. 153A : ₹ 12,95,044/- Rounded to : ₹ 12,95,040 Income Tax on the above : ₹ 4,53,264 Add: Surcharge @5% : ₹ 22,663 : ₹ 4,75,927 Add: Interest u/s. 234A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at ₹ 2,64,734/- as against the GP declared by the assessee at ₹ 2,19,349/- and the addition was restricted to ₹ 45,385/- out of ₹ 9,63,610/- made by the Assessing Officer. For the assessment year 2003-04, the CIT(A) observed that the suppression is 520% of the disclosed turnover of ₹ 9,53,739/-. The suppressed turnover was fixed at ₹ 49,59,443/- and profit @ 20% was fixed at ₹ 9,91,890/-. The CIT(A) confirmed the amount of ₹ 9,91,890/- as addition as against the addition made by the Assessing Officer at ₹ 12,95,044/-. For the assessment year 2004-05, the suppressed turnover was fixed at ₹ 44,94,461/- and profit at 20%. The CIT(A) fixed the profit on undisclosed sale at ₹ 8,98,890/- as against the addition of ₹ 11,18,475/- made by the Assessing Officer. For the assessment year 2005-06, the suppressed turnover was at ₹ 45,23,328/- and the profit was at 20%. The CIT(A) fixed the undisclosed profit at ₹ 9,04,665/- as against the addition of ₹ 13,46,117/- made by the Assessing Officer. For the assessment year 2006-07, the suppressed turnover was fixed at ₹ 50,79,368/- and the profit margin wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 62.3 It was also submitted that satisfaction was not recorded on the basis of the seized documents to assess the firm u/s.153C of the Act which is an essential pre-condition for issue of notice for assessment u/s.153C. For the above 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on towards completed / unabated assessment in the absence of any seized materials. In this case the fact with regard to date of search is not disputed. The search took place on 13/02/2007. The date of issue of notice u/s 143(2) for the assessment 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 resp ..... X X X X Extracts X X X X X X X X Extracts X X X X
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