Income Tax Appellate Tribunal - Cochin
Madhupuri Chits & Finance Co.P.Ltd, ... vs Assessee on 21 November, 2014
1
IT(SS)A No.02/Coch/2012
(BP 1.4.1995 to 18.10.2001)
IN THE INCOME TAX APPELLATE TRIBUNAL
COCHIN BENCH, COCHIN
BEFORE S/SHRI N.R.S. GANESAN, JM & CHANDRA POOJARI, AM
IT(SS)A No.02/Coch/2012
(Block Period 1.4.1995 to 18.10.2001)
M/s Madhurapuri Chits & Finance Co P Ltd V The DyCommr of Income Tax
Meesakkaran Building s Cen Cir Kozhikode
M M Ali Road
Kozhikode
( Appellant) (Respondent)
PAN No. AABCH5271C
Assessee By Shri Mohan Pulickal
Revenue By Shri K K John, Sr DR
Date of Hearing 10th Oct 2014
Date of pronouncement 21s Nov 2014
ORDER
PER CHANDRA POOJARI, AM:
This appeal by the assessee is directed against the order dated 7th Sept 2012 of the CIT(A)-I, Kozhikode and its relates to the block period from 1.4.1995 to 18.10.2001.
2 The solitary issue involved in this appeal is with regard to the assessment of undisclosed income from chit business at Rs. 1,49,89,663/-.. 2.1 Brief facts of the case are that the assessee is a Private Limited company engaged primarily in the business of running chitties and also in private financing. There was a search u/s 132 of the I T Act at the business premises of 2 IT(SS)A No.02/Coch/2012 (BP 1.4.1995 to 18.10.2001) the assessee company and at the residential premises of the directors on 18.10.2001. During the course of search an amount of Rs. 77,750/- was found at the business premises of the assessee company and 284 gms of gold was also found at the residential premises of the directors; but these have not been seized. However, during the search various incriminating documents which contained entries relating to undisclosed income were found and seized. The AO issued notice u/s 158BC of the I T Act and served on the assessee. In response to the notice, the assessee filed its return of income on 19th July 2002 declaring undisclosed income at nil. Having regard to the nature and complexity of the accounts of the assessee, the AO after the prior approval of the CIT Central, Kochi, referred the matter for special audit u/s 142(2A) of the Act.
2.2 During the audit, the Special Auditors selected 8 chitties for verification and computed income from these 8 chitties as per computation given in Annexure -14 of the Audit Report. Though the chilttes conducted by the assessee company during the period covered by the block period were 84 in number, verification was confined to 8 chitties because such verification of all the 84 chitties in the manner in which it required to be done was not possible within the maximum 180 days allowed for audit under the income tax Act, 1961. 2.3 The Special Auditors, during the course of audit have point out various 3 IT(SS)A No.02/Coch/2012 (BP 1.4.1995 to 18.10.2001) omissions, mistakes and discrepancies which are reproduced hereunder:
i) The chit payments made to 'winners were actually lesser than the amounts accounted in "the books.
ii) The subscription collected were actually more than those accounted.
iii) Forfeited dividend is not offered as income
iv) The cash balance drawn in the cash book was not real.
v) The balances receivable in Chitty receivable and Chitty payable
accounts in respect of 9 chttttes are found written off in the accounts for the year ended 31.3.2001. The reason has not been explained. va) The balances due to and due by subscribers of the 8 chitties selected by the Auditor for detailed verification were given in Annexure VI to XlII.
Though there were outstanding balances, however in the Ledger the balance was shown at a NIL figure. This fact is clear from the Auditors Report under the head 'Chit accounts'. This is a major discrepancy found in the accounts of the assessee which has not been explained.
vi) Interest due on loans are not found accounted for in the books. Even on the loans advanced to the Directors, no Interest has been charged. The interest collected is at the rate of 13. 5 to 18% from outsiders. Why no interest has not been charged from the Directors has not been explained.
vii) The irregularities/errors found on verification of Profit and Loss account are numerous and have been pointed out by the Auditor at pages 11,12,13 and 14 of the Audit Report.
ix) Cash brought from Bank account Dhanalakshmi Bank Ltd and Oriental Bank Ltd is entered in the Day Book to suit the convenience of the assessee and to tide over the cash deficit. The cash is never found credited to the account on the day of drawal of cash from the bank account. It is accounted for after one or two days of the actual drawal of cash. Reasons not explained.
x) Deposit of cash ofRs.1,97,282 + Rs.64,212 = Rs.2,61,494, to the bank is not at all entered in the cash book. Likewise, withdrawals made from bank Rs. l,38,977 is also not entered in the cash book. .
xi) Annexure IV of the Audit Report showed cash deficit on different dates and the deficit has not been satisfactorily explained 4 IT(SS)A No.02/Coch/2012 (BP 1.4.1995 to 18.10.2001) 2.4 After considering the audit report, the AO came to the conclusion that the accounts of the assessee are unreliable and the true income cannot be deduced therefrom and accordingly, the AO rejected the books results and was of the opinion that the profits from chit business has to be estimated. For this purposes, the AO referred the Sub para 22 of para VII under the caption 'Chit Accounts' of the Auditors Report which we reproduce here as under:
"'The income of the company from the eight chitties selected by me for verification as computed in Annexure14 is Rs. 76, 78,334/- as against the income of Rs.23,51,250 credited by the company to the Profit and Loss account as under:
As per As per Difference
Accounts Annexure 14
Foreman's commission 23,51,250 37,17,650 13,66,400
Dividend:
On company's ticket/s Nil 11,29,533 11,29,533
On defaulters tickets Nil 20,35,551 20,33,.551
Forfeited dividend Nil 7,97,600 7,97,600
Total Rs. 23,51,250 Rs. 76,78,334 Rs. 53,27,084
The difference in income amounting to Rs..53,27,084 computed as above, is however, dependent on the accuracy and reliability of the information regarding chitty installments furnished to me, of which I have already express doubt in para 12 above".
2.5 According to the AO, from the above report of the Auditor, it would be clear that the income from 8 chitties was Rs. 76,78,334/-, out of which Rs. 23,51,250 was accounted for and the balance Rs. 53,27,084 was unaccounted or undisclosed against 8 chitties i.e MAPAN(1), MPB(1),MPB(2), MPD(1), MPE(02), MPF(J), MPF(2) and MPA(O1) which have been separately identified in the Annexure 'A' attached to the report. 5
IT(SS)A No.02/Coch/2012 (BP 1.4.1995 to 18.10.2001) 2.6 It was noticed by the AO that the total cash collection from the subscribers against these 8 chitties was Rs. 3,55,35,144/- , which is against the total sala amount of Rs. 6, 64.00, 000. The word 'sala' and 'sala amount' was described in the foot note to the Annexure 14 attached to the audit report. Further, the percentage of cash collection over the 'sala amount' works out to 53.5%. (Rs.3,55,35,144 divided by Rs.6,64,00,000 x 100) and the percentage of undisclosed profit with' reference to cash collection works out to 15%. (Rs.53,27,084 divided by Rs.3,55,35,144 x 100). It was observed that the sala amount collected from the 84 chitty holders by the assessee company, as per the list submitted by the assessee, was Rs 22,10,55,000. It was noticed that the list, as submitted by the assessee, was verified with the assistance of the assessee which forms part of the order. Accordingly, the AO by following the above method, the profit from 84 chits conducted by the assessee, during the block period was estimated as under:
Total sala amount as per Annexure Rs. 22,10,55,000 Cash collection estimated @ 53.5% Rs. 11,82,64,425/-
Profit by applying the profit percentage of
15% on the above Rs. 1,77,39,663/
6
IT(SS)A No.02/Coch/2012
(BP 1.4.1995 to 18.10.2001)
According to the AO, even for earning undisclosed income some expenditure has to be necessarily incurred. Considering the fact that the assessee has claimed expenditure out of his regular income and therefore, the AO allowed a deduction @ 15.5% out of the undisclosed profit as computed above and according the undisclosed income was brought to tax following figure:
15% profit as (undisclosed) Rs. 1,77,39,663/-
Less: Expenditure for earning the above income @ 15.5% Rs. 27,50,000/-
Undisclosed income Rs. 1,49,89,663/-
Aggrieved, the assessee went in appeal before the CIT(A), who, after considering the submissions of the assessee confirmed the order of the AO, against which the assessee is in appeal before us.
3 The ld AR of the assessee submitted that the High Court of Kerala by judgment dated 02.06.2011 in I.T.A. No.136/2010 partly set aside the order of the Tribunal and directed the first appellate authority to restore the appeal to his file for deciding the correctness of the undisclosed income assessed. It was further submitted that AO calculated the undisclosed income in an erroneous method without regard to the basic principles of accounting standards. The ld AR submitted that according to the assessee, on the basis of the report of the Special Auditor, the undisclosed income of the assessee from their chitty business can be calculated on the basis of the report of the Special Auditor, who has given the summary of information regarding the chitties selected for verification. The net excess cash collection after making the payments to 7 IT(SS)A No.02/Coch/2012 (BP 1.4.1995 to 18.10.2001) subscribers for the 8 chitties selected by the Special Auditor was Rs.39,17,984/-, which was 5.90% of the total sala of the 8 chitties amounting to Rs.6,64,00,0001-
Accordingly, the ld AR submitted that the net excess cash collection from the total 84 chitties will be 5.90% of the total sala of 84 chitties of Rs.22,1 0,55,000/-, i.e Rs. l ,30,42,245/- It was further submitted that the assessee's income from the chitty business will not be higher than the excess of cash collection from the subscribers, after making the payments due to them. Therefore, the maximum possible income from 84 chitties will be Rs. l ,30,42,245/-. The ld AR submitted that the AO allowed only 15.50% towards the expenses for earning the income. Therefore, it was submitted that the allowed expenditure was inadequate and not justifiable. The consolidated profit and loss account submitted by the Special Auditor gives the total expenditure for the block period at Rs. 81 ,95,150/-. It was further submitted that when the audited expenditure was available, then there was no need to go for estimation. Accordingly, the he worked out the possible undisclosed income at Rs. 48,47,095/- . 3.1 On the other hand, the ld DR supported the orders of the authorities below. 4 We have considered the rival submissions and perused the relevant material on record. In this case, the accounts were not reliable and hence, the AO referred the matter for special audit u/s 142(2A) of the I T Act. The question before us is whether the estimation of the income is justified or not. The AO, in this case made his conclusion on the basis of the material unearthed during the course of search action. The contention of the ld AR of the assessee is that the 8 IT(SS)A No.02/Coch/2012 (BP 1.4.1995 to 18.10.2001) assessment made by the AO was on higher sid bbe. In estimating the escaped turnover, it is inevitable that there is some guess-work. The assessing authority while making the 'best judgment' assessment, no doubt should arrive at ihis conclusion, without any bias and on rational basis. That authority should not be vindictive or capricious. If the estimate made by the assessing authority is a bona fide, and is based on a rational basis, the fact that there is no good proof in support of that estimate is immaterial. Prima facie, the assessing authority is the best judge of the situation and in the present case, the AO referred the matter to the Special Auditor and he has found the books of account was not reliable and he made estimation of income on the basis of the material available on record. There is a concealment of income by the assessee in this assessment year which was unearthed during the search action and the special auditor has confirmed the same. The AO verified with the available figures in respect of 8 chitties at Rs. 76,78,334/- against which the assessee declared its income at Rs. 23,51,250/-. In the same proposition, he worked out the income for 84 chitties on the reasons that the assessee is following the same method of concealment of income. It is just and reasonable to presume that the same practice was followed by the assessee throughout all the assessment years. However, the presumption is rebuttable in the event if the assessee to establish that the same method of concealment was not followed continuously throughout the assessment years in question and that the method of concealment detected was practiced only for a particular period. In this case, 9 IT(SS)A No.02/Coch/2012 (BP 1.4.1995 to 18.10.2001) the assessee had not adduced any evidence to rebut the presumption or to come to a contrary finding. On the other hand, the material brought on record suggests that the assessee is in the habit of concealing the income and not cooperate neither with the special auditors nor with the authorities. In the situation of non cooperation by the assessee, it is appropriate to presume that what is detected out by the authorities as well as the special auditors is correct and the same method of concealment is adopted by the assessee throughout block period and we have no reason to disturb the estimated income made by the authorities below. The material brought on record shows that enough material evidence to presume the nature of unaccounted income and also negligence in maintaining the records by the assessee. Further, the material found for the partial period could be used for estimating the income of the whole year. To arrive at the above conclusion, we place reliance on the decision of the Hon'ble Supreme Court in the case of CST v. Esufali (H.M.) Abdulali (H.M.) reported in 90 ITR 271 (SC); the decisions of the Hon'ble Kerala High Court in the case of Commissioner of Income-tax v. Hotel Meriya reported in 332 ITR 537 and in the case of Sunny Jacob Jewellers and Wedding Centre vs DCIT reported in 48 taxmann.com.347 (Kerala).
5 In view of the above discussion, we are of the considered opinion that the lower authorities are justified in making the addition and accordingly confirm the order of the CIT(A) on this issue.
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IT(SS)A No.02/Coch/2012 (BP 1.4.1995 to 18.10.2001) 6 In the result, the appeal filed by the assessee is dismissed. Order pronounced in the open Court on this 21 day of Nov 2014.
sd/- sd/-
(N.R.S. GANESAN) (CHANDRA POOJARI)
Judicial Member Accountant Member
Cochin: Dated 21st Nov 2014
Raj*
Copy to:
1. Appellant -
2. Respondent -
3. CIT(A)
4. CIT,
5. DR
6. Guard File
By order
Assistant Registrar
ITAT, COCHIN
1 Date of dictation 28 Oct 2014
2 Dt on which the typed draft is placed before the dictating Member 31 Oct 2014
3 Dt on which the approved draft comes to the Sr PS/PS
4 Dt on which the fair order is placed before the dictating Member
5 Dictation paid placed in the original file (no.of pages)
6 Dt of pronouncement
7 Dt on which the file goes to the Bench Clerk
8 Dt on which the file goes to the Head Clerk
9 Dt on which the file goes to AR
10 Dt of dispatch of the order