Income Tax Appellate Tribunal - Vizag
M. Sivaramakrishnaiah And Co. vs Assistant Commissioner Of Income Tax on 12 October, 2004
Equivalent citations: (2005)93TTJ(VISAKHA)1035
ORDER
P.K. Bansal, A.M.
1. This appeal has been directed against the order of the CIT(A) dt. 8th Jan., 2002 by taking various grounds. The assessee has taken the following additional ground vide his letter dt. 8th May, 2003.
"The assessment was made on 27th Dec., 2000, i.e., after two years from the end of October, 1998 during the course of which the last search was conducted, is not within the time allowed by Section 158BE of the IT Act and accordingly is not valid".
2. The learned Authorised Representative contended that this ground is merely an extension of ground No. 2 taken in the original appeal which reads as under :
"The learned CIT(A) erred in confirming the assessment without considering the fact that it was not made within the time.'"
3. The additional ground is legal ground and no new facts are to be envisaged, for this reliance was placed on the order of the Hon'ble apex Court in the case of National Thermal Power Co. Ltd. v. CIT (1998) 229 ITR 383 (SC).
4. The learned Departmental Representative was fair enough to concede the fact that the additional ground of the assessee should be admitted.
5. After carefully considering the submissions of both the parties and also the order of the Hon'ble apex Court in the case of National Thermal Power Co. Ltd. v. CIT (supra), we permit the assessee to take the additional ground of appeal along with ground No. 2.
6. Ground Nos. 1 & 10 are general in nature and, therefore, do not requires any adjudication.
7. Before adjudicating the grounds of appeal, we note the following brief facts of the case as gathered from the material on record.
8. The assessee is a partnership firm carrying on business in the purchases and sales of coal. Search and seizure operations were carried on the premises of the partner Sri M. Sivarama Krishnaiah on 15th Oct., 1998 which continued till 21st Oct., 1998. Prohibitory order was issued on 21st Oct., 1998 which was lifted on 8th Dec., 1998 and for that a Panchnama was executed on 8th Dec., 1998. The earlier Panchnama was executed on 15th Oct., 1998. Prior to the search survey was conducted on 14th Oct., 1998. Two sets of books were found which were later on seized in the course of search and seizure operations. One set of books was marked as MSR/A1/33-34 and another set of books was marked as MSR/A1/35-36. At the time of survey, statement of one partner Sri G. Rama Rao was recorded in which he has stated that the second set of books to be duplicate books of the firm. The main partner Sri M. Sivarama Krishnaiah had agreed that the duplicate set of books was maintained by the firm for the financial year 1998-99. Both the partners admitted entries in the duplicate books are not reflected in the regular books of account. The assessee filed return after receipt of notice under Section 158BC for the block period from 1st April, 1989 to 14th Oct., 1998 on 26th Feb., 1999 admitting nil undisclosed income. On 26th Oct., 1998, the Managing Partner Shri M. Sivaratna Krishnaiah submitted a letter before the DDIT(Inv.), Vijayawada denying the ownership of the duplicate set of books stated in the following manner :
"With reference to the above, I wish to bring to your kind notice that books of account belonging to Sri Gaggara Rama Rao were taken from his house and brought to my business premises on the day of search and were recorded as found in my business premises. On the strength of his books a declaration was obtained from me under duress and coercion at about 4'o clock in the morning on 15th Oct., 1998 after a continuous interrogation of about 21 hours against my free will and consent. As you pretty well knew that any declaration obtained wider duress and coercion will not stand in proceedings against me.
Since the books were not belong to me and brought by your people from the house of Sri G. Rama Rao, the proper person to be enquired in this connection is Sri G. Rama Rao only and not myself. Hence, you are requested to enquire the proper person. If Shri G. Rama Rao has not turned up before you for seeking release of books I cannot say anything in this regard. In these circumstances, I object for treating of those books as my duplicate books and treating income from such books as my unaccounted income."
9. Again on 29th Oct., 1998 another letter to the following effect was filed.
"With reference to the above I bring to your kind notice that I have already explained that search operations were conducted on me for a continuous period of 21 hours since October 14th morning till 4 A.M. on 15th Oct., 1998. I am 73 years old. At that time a statement was obtained from me against my free will and I completely deny the statement.
Sri G. Rama Rao is running a business while he is working under me. The books which were called as duplicate books of account by you belong to Sri G. Rama Rao and as already been explained vide my letter dt. 26th Oct., 1998, Sri G. Rama Rao is the proper person to explain about those books. I do not have any interest or knowledge in those books. In these circumstances, there is no case for prosecution as I have not maintained any duplicate books as alleged by you."
10. The statement of Sri G. Rama Rao was recorded under Section 131. Extracts from which are reproduced at pp. 8 and 9 of the assessment order. The AO took the view that duplicate books belonged to the assessee on the basis of his finding given in pp. 2 to 8 of the assessment order ignoring the plea of the assessee that this set of books did not belong to the assessee but to Sri Sai Ram Traders. The AO after making certain additions completed the assessment on an income of Rs. 8,51,070 for the block period determined undisclosed income for each assessment year as under :
Rs.
A.Y. 1989-90 24,000
A.Y. 1990-91 24,000
A.Y. 1991-92 24,000
A.Y. 1992-93 24,000
A.Y. 1993-94 24,000
AY. 1994-95 24,000
A.Y. 1995-96 24,000
A.Y. 1997-98 24,000
A.Y. 1998-99 3,31,720
A.Y. 1999-2000 3,03,352
________
Total undisclosed income 8,51,072
for the block period or 8,51,070
11. The assessee went in appeal before the CIT(A) challenging the various additions, ultimately the matter travelled before us.
12. At the outset the learned Authorised Representative submitted that the search and seizure took place on 15th Oct., 1998. The assessment under Section 158BC was completed on 27th Dec., 2000. First Panchanama was drawn on 15th Oct., 1998, a copy of which is available at p. 24 of the paper book. The prohibitory order under Section 132(3) was passed by the DDI(Inv.) Guntur, on 21st Oct., 1998 by putting seal on the front door of the business premises of the assessee for which attention was drawn at p. 25. This prohibitory order was withdrawn vide order dt. 8th Dec., 1998 by drawing Panchanama copies available at pp. 20 and 21 of the paper book. It was pointed out that no material or article was seized as is apparent from para 5 of the Panchanama. The Panchanama was made only for lifting the prohibitory orders. There was no search on 8th Dec., 1998. The AO was of the view that the search was concluded on 8th Dec., 1998 and the assessment could be completed up to 31st Dec., 2000. But, in fact, as per the provisions of Section 158BE, the assessment must have been completed within two years from the end of the month when the last of the seizure warrant was executed. Prohibitory order under Section 132(3) cannot be regarded to be the warrant or authorization for search. There was no search on 8th Dec., 1998 except merely the withdrawal of prohibitory orders. Had there been any search, the seizure must be there. Thus, the assessment should have been completed by 31st Oct., 1998 as the search warrant in the case of the assessee was executed only on 15th Oct., 1998 and search concluded on 21st Oct., 1998. Since the assessment had not been completed within 2 years from the date of search warrant, therefore, the assessment framed is void ab initio and the same must be quashed. For this, prohibitory orders cannot be regarded to be the search warrant where no search was conducted, nor any asset or article was seized. Reliance was placed on the following case laws in this regard :
(a) CIT v. Mrs. Sandhya P. Naik (2002.) 253 ITR 534 (Mum)
(b) Late Ananta N. Naik through LR v. Dy. CIT (2000) 66 TTJ (Pune) 533
(c) G. Kanagaraj v. Dy. CIT (2001) 73 TTJ (Chennai) 731
(d) Madhuvana House Building Co-op. Society v. Asstt. CIT (2002) 76 TTJ (Bang) 948
(e) Microland Ltd. v. Asstt. CIT (1999) 63 TTJ (Bang) 701 : (1998) 67 ITD 446 (Bang)
(f) T.S. Chandrasekhar v. Asstt. CIT (2000) 66 TTJ (Bang) 360
13. On the other hand, the learned Departmental Representative, merely stated that the assessment has been framed within the time-limit, but did not utter a single word in respect of the case laws relied by the Authorised Representative. Instead, he agreed that on this issue the case of the assessee is duly covered by the decision of Hon'ble Bombay High Court Mrs. Sandhya P. Naik (supra). He expressed his inability of having knowledge of any decision which would have taken view contrary to the one taken by the Bombay High Court,
14. We have considered the rival submissions. We find sufficient force in the submission of the learned Authorised Representative. We have gone through the provisions of Section 158BE. Clause (1) thereof enunciates the period of limitation under Section 158BC as two years from the end of the month in which last of the authorization for search under Section 132 or for requisition under Section 132A, as the case may be, was executed in cases where search initiated or books or other document or any assets are requisitioned on or after the first day of January 1997.
15. From the copy of the Panchanama executed on 8th Jan., 1998, we find that there was neither any search nor any seizure on the date. The Panchanama was executed merely to lift the prohibitory order dt. 21st Oct., 1998. Search in the case of the assessee took place on 15th Oct., 1998. The learned Departmental Representative did not also produce any evidence which may prove that search has taken place at the premises of the assessee in view of the prohibitory order in consequence of which Panchanama dt. 8th Dec., 1998 was executed. In our view, in the case of the assessee the last authorization when the search was executed was only on 15th Oct., 1998 or 21st Oct., 1998 and, therefore, from this view only the assessment of the assessee is barred by limitation and is liable to be annulled. We find that Hon'ble Bombay High Court in the case of CIT v. Mrs. Sandhya P. Naik (supra) has clearly laid down that power under Section 132(3) of the Act cannot be exercised so as to circumvent the provision of Section 132(3) r/w Section 132(5) of the Act. The position has become much more clear after the insertion of the Expln. 2 to Section 132(3) effective from 1st July, 1995, that restraint order does not amount to seizure. Therefore, by passing restraint order the time-limit available for framing the order cannot be extended.
16. We find that in this case, there was search, i.e., only prior to the end of October 1998. We also noted an Explanation was inserted to Section 158BE of the Act with retrospective effect from 1st July, 1995. The Explanation provides for recognization of the period of limitation on the basis of last Panchanama drawn on the conclusion of the search. The Bangalore Bench of the Tribunal in the case of T.S. Chandrashekar v. Asstt. CIT (supra) has held that :
"even after the insertion of the Explanation the last Panchnama to be reckoned is with reference to a valid Panchnama only and in cases where the search proceedings have been continued without any purpose by putting P.O. under Section 132(3) on any part of the premises or on any almirah in such premises, the Explanation inserted cannot come to the rescue of the Department."
17. We have perused the various decisions cited by the Authorised Representative. In our opinion, if a search has got to be continued in a valid manner, then it should be done in the manner without offending the provisions of Sections 132(1) and 132(3) of the Act. On 8th Dec., 1998, no doubt a Panchanama has been drawn up wherein prohibitory order under Section 132(3) is stated to be revoked but on that day, there was no search or seizure of any valuable and other assets. The search proceedings are stated to have been closed. We are of the view that the purpose of this Panchanama was merely to lift the prohibitory order passed under Section 132(3) of the Act which cannot be equated to authorize search for the purpose of recognizing last Panchanama made under Section 158BE(1) of the Act. Even the Panchanama executed on 8th Dec., 1998 does not speak of any search in the premises on which the seal was put by way of prohibitory order as under Section 132(3). Therefore, under these circumstances the only conclusion can be drawn that there was no search or seizure on 8th Dec., 1998 and the search proceeding had been concluded prior to 31st Oct., 1998. As the block assessment should have been completed within two years from the end of the month when the search was executed, i.e., by 31st Oct., 2000, the assessment has been framed by the AO on 27th Dec., 2000, i.e., after the expiry of two years. Therefore, it is beyond the time-limit as stipulated under Section 158BE(1) and accordingly we quash the assessment so framed. While holding, so, we rely on the aforesaid view supported by the decisions relied by the learned Authorised Representative, to which the learned Departmental Representatives has also not objected in the Bar.
18. Since we have already quashed the assessment, there is no need to deal with the other grounds of appeal. But in view of the long arguments being advanced on other grounds, we are disposing of the other grounds also in following paras.
19. Thus, we allow ground No. 2 along with additional ground of the assessee.
20. Now corning to the ground No, 3 and 5 which is against the finding that the books of account found at the premises of Sri G. Rama Rao and brought to the premises of the assessee's building and also against the sustenance of addition at Rs. 1,50,000 by CIT(A). The assessee submitted that originally the firm was constituted on 1st April, 1973 and subsequently, the constitution of the firm was changed from time-to-time. Mr. G. Rama Rao, also became the partner having 5 per cent share and he was also writing books of account of me assessee-company. One set of books of account regarded to be duplicate books were found from the premises of Sri G. Rama Rao at the time of search, Sri G. Rama Rao stated these books belonged to the assessee-firm. The assessee subsequently vide letter dt. 26th Oct., 1998 before the Dy. Director(Inv.)/ Vijayawada, denied the ownership of these books of account. Mr. G. Rama Rao, from whose place the books brought to the place of the assessee, stated on oath before the AO on 22nd May, 2000 that these books belonged to M/s Sri Sai Ram Traders/Vijayawada, a proprietary concern of N. Narashima Rao, wherein Mr. G. Rama Rao was the commission agent and was also in receipt of salary @ Rs. 2000 per month. For this, our attention was drawn towards p. 19 and p. 33 , of the paper book. M/s Sai Ram Traders was a registered dealer for the period from 1st April, 1998 to 14th Oct., 1998. The sales in coal business was Rs. 6,55,869. The sales were mainly made to 1 Delta Paper Mills Ltd., 2 Chenupati Retrading Company, and 3 VBC Foods. The AO verified the transactions of Sri Sai Traders with Delta Paper Mills Ltd., M/s Delta Paper Mills Ltd., also confirmed the same. Mr. G. Rama Rao stated on oath before the AO about the writing of the books of the said firm. The AO has merely relied on one entry in the books regarding payment of telephone bill which was wrongly entered by Sri G. Rama Rao being the person maintaining the books for both the firms. No entry in these books was found dealing with the transaction of the assessee. Therefore, the AO was not justified in holding that the books belonged to the assessee. The total turnover recorded were Rs. 8,23,764 and the turnover to the extent of Rs. 3,70,116 was confirmed by the Delta Paper Mills of being made by Sai Ram Traders and it is only balance turnover Rs. 4,53,648 which remains to be confirmed. Therefore, the AO, was not justified in estimating the turnover at Rs. 20 lakhs on the basis of these books to be the undisclosed turnover and estimating thereon profit @ 10 per cent amounting to Rs. 2,00,000 added in the income. Even the estimated capital of Rs. 1,00,000 was also added without any basis merely on conjecture and surmises and, therefore, the income determined at Rs. 3 lakhs must be deleted.
21. The learned Departmental Representative on the other hand merely relied on the order of the AO.
22. We have considered rival submissions carefully, perused the material on record. We have gone through the statement of Sri G. Rama Rao, partner also and that of the managing partner of the assessee-firm. Although the managing partner in reply to question No. 4 accepted that the transaction recorded in the other books at the time of search are the duplicate set of books, but in reply to question No. 5 he stated that the transaction relating to the Delta Paper Mills relate to Sri Sai Ram Traders and agreed to file the confirmation which was subsequently filed.
23. Mr. G. Rama Rao was writing the books of account of both the firms, M/s Sai Ram Traders and that of the assessee. The total sales as per the books of account which were found from the possession of Sri G, Rama Rao and brought to the premises of the assessee-firm were Rs. 8,23,764 out of which, sale of Rs. 3,71,116 were made to Delta paper Mills Ltd., M/s Delta Paper Mills has duly confirmed that they bought goods from M/s Sai Ram Traders, M/s Sai Ram Traders were the dealers in coal and coke as per the sales-tax registration, copy of which are available at pp. 1 and 2 of the paper book. Therefore, the identity of the firm Sri Sai Ram Traders cannot be disputed. After ignoring the sales made to Delta Paper Mills Ltd., there remains the sale of Rs. 5,53,648. We agree with the submission of the Authorised Representative that at the most, the sale of Rs. 5,53,648 on the basis of material seized could be regarded to belong to the assessee. Accordingly, we set aside the order of the AO and direct him to take only Rs. 5,53,648 sales outside the books. In view of the provision of Section 44AF which, can be a guiding factor for estimating the profit, we also direct the AO to compute profit @ 5 per cent thereon. The investment made outside the books of account cannot be ruled out. The AO has taken the investment to be 50 per cent of the profits added by him which, in our opinion, is just and fair keeping in view the nature of the business and, accordingly, we sustain the addition to the extent of Rs. 27,682 for the profit on undisclosed turnover and Rs. 13,841 on account of capital investment. Thus, the additions of Rs. 1,50,000 sustained by CIT(A) are reduced to Rs. 41,523 and AO is directed accordingly.
24. Now coming to the ground No. 4 relating to the addition of Rs. 24,000 made in each of the year in the block period in respect of salary paid to, Sri Rama Rao, we find force in the submissions of learned Authorised Representative that if income is added, the expenditure incurred by way of salary must be allowed as deduction as this expenditure must have been incurred for earning the undisclosed income. Accordingly, we delete the addition of Rs. 24,000 in each of the assessment in the block period.
25. Now coming to ground No. 6 which relate the addition of income Rs. 1,34,786 for the asst. yr. 1999-2000 earned on sale of coal, we find the total sales as per the transactions mentioned in the books marked MSR/A2/35 & 36 are Rs. 6,55,868. After hearing the learned Authorised Representative and Departmental Representative carefully, we are of the view that only estimated profits has to be added. In respect of ground Nos. 3 and 5 under similar facts, we find 5 per cent profits on the sales to be reasonable; accordingly, we direct the AO to compute profits @ 5 per cent on Rs. 6,55,368 and, accordingly, we reduce the addition of Rs. 1,34,786 to Rs. 32,793.
26. Ground No. 7 relates to the addition of Rs. 19,350. The AO noted that during the asst. yr. 1999-2000, the assessee made sale to Delta Paper Mills 255 tonnes, Lakshmi Manohara 22 tonnes, MVJR Chowdarry 20 tonnes, Kasaiah 90 tonnes, thus, the sales he has noted to be 387 tonnes and he estimated commission earned by the assessee @ Rs. 50 per tonne and, accordingly, made an addition of Rs. 19,350.
27. The learned Authorised Representative submitted that the sale to Delta Paper Mills were made by Sri Sai Sales not by the assessee and even otherwise the commission @ Rs. 50 per tonne was very high. The AO was having no basis for the estimation of the commission @ Rs. 50 per tonne.
28. The learned Departmental Representative on the other hand relied on the order of the AO. Keeping in view of the totality of the facts and our finding in respect of ground Nos. 3 and 5 that the sales to the Delta Paper Mills were made by Sri Sai Sales and not by the assessee. Ignoring the sales made to Delta Paper Mills, the sales for the rest of the 3 parties comes to 132 tonnes and we feel a commission @ Rs. 25 per tonne is reasonable and, accordingly, we sustain the addition of Rs. 3,300 and the assessee gets a relief of Rs. 16,050.
29. Coming to the ground No. 8, we find force in the submission of the learned Authorised Representative that when the income is computed on estimate basis, no disallowance can be made under Section 40A(3), as it is presumed that no books of account are maintained in the eyes of law, accordingly we delete the addition of Rs. 19,966.
30. Ground No. 9 relates to the addition of Rs. 1,29,250 on account of value of the excess stock made in the asst. yr. 1999-2000. The AO noted that during the survey operations the stock available at the stock yard was estimated to be 160 tonnes. However, the submissions of the assessee is that the stock consists of these stock belonging to Mr. MVJR Chowdary and that of the other firm. In the absence of any record of MVJR Chowdary, the AO presumed the whole stock belonging to the assessee and reduced therefrom stock of 66 tonnes as per the books of the assessee, thus excess stock of 94 tonnes was computed. The AO applied the average market rate @ Rs. 1,375 per tonne and made the addition of Rs. 1,29,250.
31. We have considered the submissions made by both the parties. We find that no question was asked by the AO in the statement recorded regarding the stock so found. During the course of assessment, also no proper opportunity was given to the assessee to reconcile the stock. The AO has also not ruled out the stock belonging to the MVJR Chowdary, and. other parties, but he has not even given any credit for the stock belonging to Sri MVJR Chowdary and other parties in the absence of the stock register although he has given the finding that the major portion of the stock belonged to the assessee-firm, but he has taken the whole of the stock belonging to the assessee while making the additions.
32. In our opinion, it would be just and fair to take 75 per cent of the stock belonging to the assessee which comes to 120 tonnes and out of which, after deducting 66 tonnes, the excess stock remains only 54 tonnes. The AO has also mentioned the purchase price of the coal in the month of September and October ranging from Rs. 900 to Rs. 1,850 per tonne. Therefore, the average rate made by the AO at Rs. 1,375 per tonne is not justifiable and we think it is appropriate that excess stock found be valued @ Rs. 1,200 per tonne and, accordingly, we sustain the addition of Rs. 64,800 on this count. Thus, this ground of the assessee is partly allowed.
33. In the result, the appeal of the assessee so far ground relates merits are concerned is party allowed although we have already quashed the assessment by allowing ground No. 2 and additional ground raised by the assessee.