Income Tax Appellate Tribunal - Ahmedabad
Murarilal C.Gupta, Surat vs Department Of Income Tax on 22 March, 2012
आयकर अपीलीय अिधकरण, अिधकरण, अहमदाबाद Ûयायपीठ 'बी बी' बी अहमदाबाद ।
IN THE INCOME TAX APPELLATE TRIBUNAL " B " BENCH, AHMEDABAD सव[ौी मुकुल कुमार ौावत, Ûयाियक सदःय एवं ौी टȣ.आर.मीणा, लेखा सदःय के सम¢ । BEFORE SHRI MUKUL Kr.SHRAWAT, JUDICIAL MEMBER AND SHRI T.R. MEENA, ACCOUNTANT MEMBER Sl. ITA No(s) Assessment Appeal(s) by No(s). Year(s) Appellant(s) Respondent(s)
1. 2418/Ahd/09 2001-02 Income-tax Shri Murarilal Officer Chhaviram Gupta Ward-5(3) A-13, D.K.Park Surat Society Bharar Road Surat PAN:AGWPG9088L
2. 2419/Ahd/09 2002-03 Revenue Assessee
3. 2420/Ahd/09 2003-04 Revenue Assessee
4. 2421/Ahd/09 2004-05 Revenue Assessee
5. 2422/Ahd/09 2005-06 Revenue Assessee
6. 2423/Ahd/09 2006-07 Revenue Assessee
7. 1569/Ahd/09 2001-02 Assessee Revenue
8. 1570/Ahd/09 2002-03 Assessee Revenue
9. 1571/Ahd/09 2003-04 Assessee Revenue
10. 1572/Ahd/09 2004-05 Assessee Revenue
11. 1573/Ahd/09 2005-06 Assessee Revenue
12. 1574/Ahd/09 2006-07 Assessee Revenue Revenue by : Shri B.K.S.Pandya, CIT-D.R. Assessee by : Shri J.P.Shah सुनवाई कȧ तारȣख/ / Date of Hearing : 22/3/2012 घोषणा कȧ तारȣख /Date of Pronouncement : 31/5/12 आदे श/O R D E R PER BENCH:-
In all twelve cross-appeals are before us filed by the Revenue as also by the Assessee pertaining to AYs 2001-02 to 2006-07. Ld.CIT(A)- II, Ahmedabad has passed a consolidated order dated 16/03/2009. From both the sides the grounds raised are connected with each other since ITA Nos.2418 to 2423/Ahd/09 (By Revenue) and ITA Nos.1569 to 1574/Ahd/09 (By Assessee) ITO vs. Sh.Murarilal Chhaviram Gupta Asst.Years - 2001-02 to 2006-07 -2- both the parties are aggrieved by the part relief granted by the ld.CIT(A). Due to this reason, grounds raised by both the sides are reproduced below, copied from the lead Assessment Year, i.e. AY 2001-02. [A] Assessee's grounds of appeal :
1. That on facts and circumstances of the case, the learned CIT(A) has grossly erred in not appreciating -
(i) That in case of unaccounted sales, peak credit cannot be taxed but only percentage of sales can be brought to tax, when the appellant is able to prove that he was making payments for credit purchases, from realization of the unaccounted sales.
(ii) That net profit rate of 3% on the basis of the regular books of accounts of the appellant, has to be applied to the unaccounted sales and not the ad-hoc net profit rate of 5%.
(iii) That addition cannot be made for both, peak credit and suppressed profit over the period of 6 years, by adopting different basis of determining income, in respect of the same bank accounts running in different years.
(iv) That the appellant has rightly computed his income on the basis of estimated income method or asset found method, whichever is higher.
Hence, it is most humbly submitted that the addition of Rs.3,11,261/- (i.e. incremental Peak Rs.2,92,716 + Rs.18,545) as made by the learned AO and restricted by the learned CIT(A) to Rs.2,92,716/- (i.e. Incremental Peak Rs.1,42,494 + N.P. Rs.1,50,222), may kindly be deleted as being erroneous and bad-in-law and the income may kindly be computed by applying the N.P. rate of 3% as per the regular books of accounts to the unaccounted turnover.
All the aforesaid sub-grounds of appeals are without prejudice and independent to each other.
ITA Nos.2418 to 2423/Ahd/09 (By Revenue) and ITA Nos.1569 to 1574/Ahd/09 (By Assessee) ITO vs. Sh.Murarilal Chhaviram Gupta Asst.Years - 2001-02 to 2006-07 -3- [B] Revenue's grounds of appeal :
1. On the facts and circumstances of the case and in law, the Ld.CIT(A)-II, Ahmedabad has erred in restricting the addition of Rs.18,46,671/- against Rs.35,95,174/-
(Rs.35,95,174 - Rs.17,49,703) applying GP rate on a flat rate of 5% as against the addition made by the AO applying different GP rate on particular year.
2. On the facts and in the circumstances of the case and in Law, the Ld. CIT(A)-II, Ahmedabad ought to have upheld the order of the Assessing Officer.
2. Facts in brief as emerged from the corresponding assessment orders passed u/s.143(3) r.w.s. 153A of the IT Act all identically dated 31/10/2007 are that the assessee in Individual capacity is subjected to a search operation u/s.132 dated 14/12/2005 at his residential premises and simultaneously subjected to a survey action u/s.133A at his business premises. The AO has noted that the assessee is the key person of the group comprising family members engaged in the business of trading in sarees. The allegation of the AO is that the modes operandi of the group was to operate the said trading activity through various undisclosed concern and to conceal the profit arising from these concerns so as to evade the tax. On the basis of the material gathered a show- cause notice was issued by the AO, wherein it was informed that there were 52 concerns. Out of which 33 concern were stated to be admitted and 19 were initially unadmitted by the assessee. There was a mention that the assessee has also maintaining several bank accounts. It was established that 52 bank accounts were pertaining to the said business ITA Nos.2418 to 2423/Ahd/09 (By Revenue) and ITA Nos.1569 to 1574/Ahd/09 (By Assessee) ITO vs. Sh.Murarilal Chhaviram Gupta Asst.Years - 2001-02 to 2006-07 -4- activities. On that basis, AO has informed that the peak credit balance of those bank accounts had reflected the investment made therein for the purpose of the business. Further, it has also been informed that the gross profit was earned in respect of the alleged business transaction and that gross profit was stated to be over and above the peak amounts of several bank accounts. A show-cause was thus issued that why the gross profit should not be determined by taking the average gross profit of the group. The gross profit rate of the group was mentioned by the AO in a tabulation form and the relevant extract is as under:-
Determination of Group G.P. Murarilal C.Gupta , Radharani M.Gupta and Manish M.Gupta(The Group) F.Ys 2005-06 2004-05 2003-04 2002-03 2001-02 2000-01
(i) Turnover 12839824 17537843 11016916 7970564 7293563 8376918
(ii) Gross 685101 1284607 737603 751475 688589 867440 Profit
(iii) Gross Profit 5.14 7.12 6.7 9.43 9.44 10.36 Rate 2.1. Thereafter, the AO has also computed the peak credit balance of the bank accounts in the tabular form, however, for the sake of brevity not reproduced, through which the peak credit balance was worked out at Rs.2,08,75,320/-. The AO's allegation was that the said amount has reflected the investment made by the assessee for the purpose of the business. For A.Y. 2001-02, the incremental peak amount was computed at Rs.2,92,716/- and for this Assessment Year the undisclosed gross profit was computed at Rs.18,545/-. As against that, the assessee has furnished 3% rate of profit arising from the unaccounted turnover. The assessee has contested that only 33 bank accounts were found from the ITA Nos.2418 to 2423/Ahd/09 (By Revenue) and ITA Nos.1569 to 1574/Ahd/09 (By Assessee) ITO vs. Sh.Murarilal Chhaviram Gupta Asst.Years - 2001-02 to 2006-07 -5- office premises, therefore, he has to give the explanation in respect of those 33 bank accounts alleged to be pertaining to the business of sale of sarees. In respect of the total turnover found in those 33 bank accounts, the assessee has offered an income by applying the profit rate at 3%. In respect of rest of the 19 accounts, the assessee has contested that those did not pertain to the assessee, hence should not be considered in his hand. It was also explained that from the entries of the bank accounts it was apparent that as soon as the sale collection was deposited in the bank, thereafter withdrawals have been made to make the payment for purchases. Therefore it was pleaded that the peak amount which was proposed to be added by the AO did not reflect the investment but the peak amount, in fact, represented the liability of the assessee towards purchases, hence did not represent any asset thus not to be taxed u/s.69 of IT Act. It was also contested that while dealing with the issue of unaccounted sales, various Courts have held that only a percentage of profit on the sales should be considered as undisclosed income and not the peak of the unaccounted sales. It has also been contested that once a percentage of profit has already been offered on the sales of a particular year, therefore the peak got embedded therein, hence there should not be a separate addition for incremental peak. Rather it was contested that both, incremental peak, and profit for each year should not be taxed.
The assessee has then explained that to determine an unaccounted income only two basis could have been adopted, namely, (a) Net Asset Method or (b) Estimated income Method.
2.2. Therefore, it was pleaded that for determination of unaccounted income only one of the method should have been adopted by the AO and ITA Nos.2418 to 2423/Ahd/09 (By Revenue) and ITA Nos.1569 to 1574/Ahd/09 (By Assessee) ITO vs. Sh.Murarilal Chhaviram Gupta Asst.Years - 2001-02 to 2006-07 -6- for this reason the assets which were found during the operation was stated to be as under:-
Particulars Amount (Rs.)
Sr.No.
1 Cash 186000
2 Stock 1500000
3 Unexplained expenditure on house 63000
repairs
4 Unexplained expenditure 25031
5 Unexplained commission 54030
expenses
Total income as per Net 18,28,061
Asset Method
2.3. Therefore the assessee has offered an income of Rs.62,73,575/- u/s.153A by applying the profit rate at 3% on the total turnover of all the bank accounts. As per assessee, the total income estimated was at Rs.62,73,575/- which was much higher in comparison to the undisclosed income based upon net asset method of Rs.18,28,061/-. The assessee has thoroughly listed the names of the alleged benami 52 concerns and the names of the banks which were involved in the transaction. In all 52 unaccounted concerns were found and their accounts were maintained in four banks, names mentioned in the assessment order. During the course of survey at the business premises a statement of one Shri Ashish Murarilal Gupta who is running a business in the name and style of M/s.Gupta Tex was recorded. He has stated that 33 concerns are managed by the family members of Shri Murarilal Gupta and since those concerns remained unaccounted, therefore no income-tax was paid on the investment. He has agreed that the accounts were benami in nature.
ITA Nos.2418 to 2423/Ahd/09 (By Revenue) and ITA Nos.1569 to 1574/Ahd/09 (By Assessee) ITO vs. Sh.Murarilal Chhaviram Gupta Asst.Years - 2001-02 to 2006-07 -7- According to him, no regular books of accounts have been prepared for those 33 concerns. An important fact was narrated in reply to question No.8 of a service statement that the, quote "sale proceeds of finished goods are received by cheques and the same are credited to respective concerns bank accounts" unquote. Mr.Ashish Kumar has categorically denied that 19 concerns did not belong to the group. On the other hand, AO has repeated that although 19 concerns were not admitted but the fact remained undisputed that those accounts were also found from the same business premises from where 33 admitted concerns were recovered. The AO has held that the assessee had the constructive control over all the concerns. The AO has held that rest of the 19 concerns were also the benami concerns of the assessee-group. By referring the provisions of section 292C of IT Act, the AO has noted that where any books of accounts or any other documents were found in the possession or control of any person in the course of search u/s.132 of the Act, then it casted a presumption that such books of accounts, etc. belonged to that person and the contents therein are true. The AO has also referred section 132(4A) of IT Act and in respect of the benami status he has cited Heirs of Vrajlal J. Ganatra vs. heirs of Parshottam S.Shah (1997) 137 CTR (SC) 103. An another fact has also been noted by the AO that during the course of survey operation an unaccounted income of Rs.2 crores was offered, however the same was retracted while filing the return of income after a span of 18 months. According to him, all the 52 accounts related to the benami concerns being run in the names of the relative and related bank accounts were introduced by the relatives of the assessee. On that basis, according to AO, it was conclusively established that all the 52 ITA Nos.2418 to 2423/Ahd/09 (By Revenue) and ITA Nos.1569 to 1574/Ahd/09 (By Assessee) ITO vs. Sh.Murarilal Chhaviram Gupta Asst.Years - 2001-02 to 2006-07 -8- concerns did belong to the assessee. As per the return filed in response u/s.153A the year-wise return was as under:-
A.Y. Income originally Actual income
returned declared vide Returns
in response to Notice
u/s.153A
2000-01 48,795 Nil
2001-02 49,647 Nil
2002-03 52,882 Nil
2003-04 64,818 Nil
2004-05 62,785 24,50,600
2005-06 1,05,875 22,81,186
2006-07 16.02,737 15,41,789
TOTAL - 62,73,575
2.4. The AO has thereafter proceeded to compute the addition both on account of unexplained investment as well as unaccounted profits derived from the said 52 unaccounted concerns. According to AO, following two components were required to be considered, reproduced below:-
"1. Unaccounted Investment : Consolidated peak credit of the accounts reflecting the unexplained investments deemed to be the income of the assessee u/section 69 of the income Tax Act, 1961;
2. Unaccounted Income : Gross profit being the profits and gains derived from business carried on by the assessee in name and style of the impugned 33 unaccounted concerns, treated as income u/section 28 of the Income Tax Act, 1961."
2.5. According to AO, unaccounted income generated form the unaccounted business had eventually come back into the bank accounts in the form of investments. Although he has accepted that cheques ITA Nos.2418 to 2423/Ahd/09 (By Revenue) and ITA Nos.1569 to 1574/Ahd/09 (By Assessee) ITO vs. Sh.Murarilal Chhaviram Gupta Asst.Years - 2001-02 to 2006-07 -9- were realised from sales and found credited in the bank accounts. The assessee has reiterated that in order to buy the piece of mind and to avoid protracted litigation he has offered an income at the rate of 3% of the total turnover. It was also mentioned that the transactions in bank accounts were such that the sales collection were deposited in those respective bank accounts. The payment for purchases were also made through bank account. It was pleaded that the peak as proposed to be added was nothing but a balance figure available for a day or two and did not represent any asset in the hands of the assessee. The assessee has also given two comparable instances of Maruti Nandan Textiles who has given the profit ratio at 2.16% and M/s.Pooja Enterprises who has disclosed 2.95% as gross profit ratio. The AO has also rebutted the said argument in the following manner:-
"5. The assessee has argued that once the profit has been offered as a percentage of sales for a particular year, the peak would get embedded therein and there cannot be separate addition for both i.e. incremental peak and profit in each of the year, except for the first year, where initial investment in business can at the most be brought to tax in the form of peak investment. This argument is incorrect. The incremental peak comprises of a sum which is the investment made in the unaccounted business by the assessee. This investment is separate and independent from the G.P. earned on total turn-over of the concern as represented by the bank account. The G.P. has been determined on the basis of average G.P. rate of the group. The assessee does not dispute the income determination based on G.P. In view of the fact that the peak credit is investment outside the books of accounts, there have to be two separate additions for peak credit and G.P."
ITA Nos.2418 to 2423/Ahd/09 (By Revenue) and ITA Nos.1569 to 1574/Ahd/09 (By Assessee) ITO vs. Sh.Murarilal Chhaviram Gupta Asst.Years - 2001-02 to 2006-07
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2.6. The AO has thus proceeded on the basis of the year-wise incremental peak as well as suppressed GP addition and computed as under:-
F.Y. 2005-06 2004-05 2003-04 2002-03 2001-02 2000-01 TOTAL TOTAL TURNOVER 75966624 82533147 54074721 1535632 484743 3004452 OF THE UNACCOUANTED CONCERNS Group G.P. as per 5.14 7.12 6.7 9.43 9.44 10.36 Regular return Determined G.P. 3904684 5876360 3623006 144810 45760 31261 13905882 Absolute Peak 14372475 14222063 11029696 524964 426188 292716 Incremental 150412 3192367 10504732 98776 133472 292716 14372475 Peak Date of Peak 02-07- 22-05-04 30-12- 18-06-02 06-10-01 14-11-00 05 to to 2003 to to to 6/7/2005 24-05-04 23-06-02 8/10/2002 15-11-00 Higher of G.P. G.P. Inc.Peak G.P. Inc.Peak G.P. Incremental Peak or G.P. Addition on 150412 3192367 10504732 98776 133472 292716 14372475 Account of Incremental Peak Addition on 3754272 2683993 0 46034 0 18545 6502845 Account of G.P. TOTAL 3904684 5876360 10504732 144810 133472 311261 20875320 2.7. Since we are passing a consolidated order for all the years, therefore the year-wise summary of the addition is as follows:-
Particulars 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07
1. Income 49,647 52,882 64,818 25,13,385 23,75,060 16,02,737 disclosed
2. Excess 2,92,716 1,33,472 46,034 80,54,132 31,92,367 1,50,412 Investment not recorded in the books
3. Suppressed 18,545 NIL 98776 NIL 4,02,807 22,12,483 Profit 3,11,261 1,33,472 1,44,810 80,54,132 35,95,174 23,62,895 ITA Nos.2418 to 2423/Ahd/09 (By Revenue) and ITA Nos.1569 to 1574/Ahd/09 (By Assessee) ITO vs. Sh.Murarilal Chhaviram Gupta Asst.Years - 2001-02 to 2006-07
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4.Total Income 3,60,908 1,86,350 2,09,628 1,06,67,520 59,70,234 39,65,630 2.8. The matter was carried before the first appellate authority.
3. Having heard the submission of the assessee, ld.CIT(A) has opined that all the 52 bank accounts and the respective concerns were rightly considered by the AO for determining the undisclosed income. He has also opined that in a situation when the entire books of accounts have been rejected and the total turnover was calculated on the basis of the undisclosed bank account, then the income has to be calculated by applying net profit rate to the turnover. For this legal proposition, ld.CIT(A) has placed reliance on CIT vs. President Industries 158 ITR
654. Ld.CIT(A) has also considered the argument of the assessee that only 3% net profit rate be applied, but the same was not accepted and he has adopted the net profit rate at 5% on the total unaccounted turnover in the following manner:-
"5.4. However, the appellant's contention that net profit rate of 3% only should be applied is not acceptable. The net profit rate in the case of Shri Murarilal Gupta for A.Y. 2001-02 to 2006-07 varies from 2.14% to 6.09% and average comes to 3.43%.
Similarly, net profit rate for Radharani Gupta varies from 2.18% to 7.28% and average comes to 4.12%. The average N.P. rate for Manish Gupta comes to 1.98%. In the unaccounted business, the net profit rate is more than the accounted business. Hence, in my view, it is reasonable to apply the net profit rate of 5% to unaccounted turnover.
A.Y. 01-02 02-03 03-04 04-05 05-06 06-07 Total Unaccounted 3004452 484743 1535632 54074721 82533147 75966624 Turnover Profit @ 5% 150222 24237 76781 2703736 4126657 3798331 10879964"
ITA Nos.2418 to 2423/Ahd/09 (By Revenue) and ITA Nos.1569 to 1574/Ahd/09 (By Assessee) ITO vs. Sh.Murarilal Chhaviram Gupta Asst.Years - 2001-02 to 2006-07
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4. As far as the appellant's contention that there should not be any further addition in respect of the peak amount of the bank passbook and that only NP should be added, ld.CIT(A) has held that the appellant had not proved that the purchases were made on credits. The peak amount appearing in the bank passbook on any particular day had reflected the asset of the assessee on that day. According to ld.CIT(A) it was an unexplained investment which represented unaccounted income introduced in the business. The assessee's reliance on India Seed House vs. ACIT (2000) 69 TTJ 241 (Del)(TM) was also rejected. Ld.CIT(A) has given an year-wise working of the addition sustained by him. Because of the part relief, both the sides are now in appeals.
5. From the side of the appellant ld.AR Mr.J.P.Shah appeared and argued that though on search and survey operations, certain concerns were detected and also certain unaccounted bank accounts were found and that fact cannot be denied that the assessee was engaged in unaccounted business of 'sarees trading' but at present we have to examine only one aspect that how to correctly compute the undisclosed profit of the 'sarees trading' activity of the assessee. The assessee has adopted a very reasonable method of applying 3% net profit on the sales. Ld.AR has contested that the admitted factual position was that the sales were found credited in the bank accounts. The sales figure cannot be the profit of the assessee. The profit of the assessee can only be computed after reducing the cost of purchase and other related expenditure to arrive at the net profit of the assessee. In support of the assessee's adoption of ITA Nos.2418 to 2423/Ahd/09 (By Revenue) and ITA Nos.1569 to 1574/Ahd/09 (By Assessee) ITO vs. Sh.Murarilal Chhaviram Gupta Asst.Years - 2001-02 to 2006-07
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net profit only, he has placed reliance on CIT vs. Balchand Ajitkumar 263 ITR 610, President Industries 258 ITR 654, K.C.K.A. Gupta vs. ACIT 90 TTJ 555 (Hyd.) and Eagle Seeds & Biotech Ltd. vs. Asst.CIT (2006) 102 TTJ 1065 (Ind). In respect of the peak credit in the bank account considered as the unaccounted investment, he has argued that the same in fact represented the profit as already worked out as well as the liability of trade creditors towards purchases. It was wrong on the part of the revenue authorities to consider the peak credit as unexplained investment u/s.69C of IT Act. For this legal proposition, ld.AR has placed reliance on Ashok Kumar Rastogi vs. CIT reported at 100 CTR 204(Alla.) and CIT vs. Rurubachhan Singh J.Juneja reported at 302 ITR 63 (Guj.). Ld.AR has also argued that except unaccounted 52 concerns and connected bank accounts nothing substantial in the form of assets was recovered in possession from the assessee. It is not the case of the Revenue that on search and survey operation a huge unaccounted money or bullion or assets of any kind were unearthed. Barring the presence of 52 concerns and the entries in the bank account nothing substantial was found except the cash and stock that too only totalling to Rs.18,28,061/-, already listed hereinabove. He has vehemently contested that the peak investment theory was incorrectly applied because at the time of search cheque issued for the purchase of the fabric and pay-in- slip of the bank representing the deposit of cheques against sale of fabrics were found from the business premises which means that the entire textile trading turnover was reflected in the bank accounts.
ITA Nos.2418 to 2423/Ahd/09 (By Revenue) and ITA Nos.1569 to 1574/Ahd/09 (By Assessee) ITO vs. Sh.Murarilal Chhaviram Gupta Asst.Years - 2001-02 to 2006-07
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6. From the side of the Revenue, ld.DR Mr.B.K.S.Pandya appeared. He has opened his argument by narrating the facts that undisputedly several unaccounted bank accounts were recovered consequent upon search/survey. The assessee has owned up the bank accounts. At the time of survey, an amount of Rs.2 crores was surrendered and without any cogent evidence the same was retracted. The retraction was not proper, hence the income declared as per the return filed in consequence of the notice u/s.153A of the Act, deserves to be ignored. Ld.DR has also informed that the said amount of Rs.2 crores was later on admitted by the assessee through a letter, as well as vide a statement recorded u/s.132(4) of the IT Act, therefore that amount of Rs.2 crores should be the overall unaccounted income earned by the assessee from undisclosed trading activity. Ld.DR has therefore supported the overall addition as made by the AO in respect of the years involved that too has reached to the figure of Rs.2,08,75,320. Ld.DR has further argued that the assessee has not justified the basis for applying 3% rate of profit on the turnover. Ld.DR has placed reliance on the admission as made by the assessee and in support of validity of the admission placed reliance on the decision of HM Esufalli HM Abdul Ali 90 ITR 271(SC). He has supported the action of the AO for the reason that considering the nature of business and the unaccounted activity of the assessee the AO has judiciously estimated the profit on the turnover and that action of the AO was based upon the gross profit as disclosed year-wise in the regular return of the assessee. In such circumstances, the best judgement of the AO should be approved . It was further contested that the declaration was voluntary and not alleged to have been obtained under threat, therefore the ITA Nos.2418 to 2423/Ahd/09 (By Revenue) and ITA Nos.1569 to 1574/Ahd/09 (By Assessee) ITO vs. Sh.Murarilal Chhaviram Gupta Asst.Years - 2001-02 to 2006-07
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declaration was correct, reliance placed on ACIT vs. Ratan Industries 143 TTJ 24 (131 ITD 195). He has also placed reliance on an order of Carpenters Classic 108 ITD 142(Bang.) for the proposition that there was no onus on the Revenue to establish that undisclosed income was with reference to undisclosed assets. The retraction of the assessee was baseless and carried no weight because there was no explanation as to why it was not filed at any earlier point of time, reliance placed on Council of Institute of Chartered Accountants vs. Mukesh R.Shah 186 CTR 579 (Guj.). He has pleaded that the statement which was recorded was corroborated by the evidences collected at the time of search, hence that statement has to be relied upon, reliance placed on Ravindra D.Trivedi 215 CTR 313(Raj.). In respect of bogus purchases to be treated as assessee's income from undisclosed sources reliance was placed on CIT vs. La Medica 250 ITR 575 (Del.).
7. We have heard both the sides at some length. We have also carefully perused the orders of the authorities below in the light of the compilation filed and case laws cited from both the sides. A search as well as a survey operation was carried out. During such operation by the Revenue Department, undisputedly the unaccounted trading activities of sarees was detected. It was found that 52 bogus concerns in benami names were floated by the assessee. On one hand, the assessee has furnished the return by adopting 3% net profit rate on the total turnover, as against that, on the other hand the AO has worked out the gross profit on the total turnover. The AO has also assessed the peak credit which was found in those bank accounts. When the matter was carried before ITA Nos.2418 to 2423/Ahd/09 (By Revenue) and ITA Nos.1569 to 1574/Ahd/09 (By Assessee) ITO vs. Sh.Murarilal Chhaviram Gupta Asst.Years - 2001-02 to 2006-07
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the first appellate authority instead of 3% as disclosed by the assessee, it was decided by ld.CIT(A) to estimate the net profit at 5%. However, ld.CIT(A) has worked out the income in the same manner as it was computed by the AO, i.e. higher of the net profit or incremental peak whichever was found more for each year, was taxed.
8. One of the contentions as raised from both the sides revolve around the statement recorded u/s.132(4) of IT Act. The said statement was recorded on 15.2.2006. In the said statement, vide question No.4 Mr. Murarilal Gupta has answered the question as follows:-
"Q.4 Do you want to say anything other than this?
A.4 Yes, my books of accounts are yet to be verified by me. In such circumstances, in accordance with my letter of 13.01.2006 I make a preliminary voluntary declaration of Rs.2 crores which is subject to change after verification of loose papers, bank account, books of accounts and other records.
I am making the above declaration to cover the income of myself, my family members and my group concern and I will pay before the end of March 2006 whatever income tax is payable on the above income."
8.1. This statement has number of questions which revolve around the gold which was found at the time of search and also the contents of the lockers having cash available and the business income of the assessee. A last question was that whether the assessee wanted to say any other thing and in compliance of the last question a declaration of Rs.2 crores was made. It appears to be a strange phenomena. There should be some reason for the declaration of Rs.2 crores, such as, the presence of any ITA Nos.2418 to 2423/Ahd/09 (By Revenue) and ITA Nos.1569 to 1574/Ahd/09 (By Assessee) ITO vs. Sh.Murarilal Chhaviram Gupta Asst.Years - 2001-02 to 2006-07
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incriminating material or undisclosed asset. On the date of search, undisputedly there were several bank accounts but those bank accounts could apparently be not the reason for such a huge declaration. How and why the assessee has arrived at the figure of Rs.2 crores is still not clear. From the side of the revenue, it is pleaded that there was no pressure or allegation of coercion, hence that statement should be held as sacrosanct. A statement has its value if that statement has supporting evidence, otherwise it is purely a bald statement. From the contents of the statement, it appears that there was no occasion to come forward and make a statement by a deponent that he had earned Rs.2 crores. Even there was no suggestion on the part of the Revenue Department that during the course of search they have found assets or incriminating evidence having value to the tune of Rs.2 crores and consequent thereupon it was asked that whether the assessee wanted to make any statement in that regard. However, it was not so. There was no such reference of any incriminating material. Although it is not in dispute that a statement recorded u/s.132(4) has great evidentiary value and it is binding on the deponent but that alone is never held the only basis for a substantial addition, unless and until supported by some cogent evidence as also some surrounding circumstances. Once the Revenue Department has taken an extreme action of search, then it is expected to gather all possible evidences. Rather the accepted legal position is that whatever maximum evidences was gathered were the only evidences which were in possession of the assessee. It is quite a strange situation in the present case that overall assets, including cash and stock, in total only Rs.18,28,061/- was recovered at the time of search, as per the list already ITA Nos.2418 to 2423/Ahd/09 (By Revenue) and ITA Nos.1569 to 1574/Ahd/09 (By Assessee) ITO vs. Sh.Murarilal Chhaviram Gupta Asst.Years - 2001-02 to 2006-07
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reproduced supra. Therefore the legislature is aware that mere admission is not conclusive one unless and until being supported by some material evidence. The sanctity of such an admission is not in dispute but it is always open for deponent to retract such an admission if circumstances are such warranted. Otherwise also, even if a statement has been retracted, the AO could have independently come to a conclusion that there was undisclosed income subject to tax under IT Act. The mere fact that a statement has been retracted do not ipso facto debar the AO not to assess undisclosed income. Therefore the emphasis given by ld.DR on the said statement is not very meaningful and as far as the present case is concerned, do not help to draw a justifiable conclusion on the basis of that statement alone. The reliance placed on Hiralal Mangalal & Sons vs. DCIT 96 ITD 113(supra) by ld.DR can be said to be not applicable on the present set of circumstances. Likewise, the reliance placed on Bhogilal Mulchand Kandoi 96 ITD 344(Ahd.)(supra) is on the point when the loose-papers found at the time of search have corroborated the correctness of the statement. Rather in that case, retraction was found to be unsubstantiated. The statement was made only when it was confronted that there were evidences of unrecorded sales and that there was evidence of suppression of sales and it was explained to the assessee that sales made outside the books were discovered and that the said assessee was eating pan-masala of Rs.25/- per day, hence the assessee was prompted to admit Rs.24 lacs as admitted income. Even in the case of Ravindra D.Trivedi 215 CTR 313 (Raj.) there was an admitted position of difference in the stock of Rs.3 lacs, hence the assessee made the offer u/s.132(4) of the Act and that statement was corroborated by an another ITA Nos.2418 to 2423/Ahd/09 (By Revenue) and ITA Nos.1569 to 1574/Ahd/09 (By Assessee) ITO vs. Sh.Murarilal Chhaviram Gupta Asst.Years - 2001-02 to 2006-07
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statement of his son. On the contrary, the statement of the assessee which is placed before us for our perusal do not suggest or indicate that there was any material gathered during search to the extent of having value of Rs.2 crores and, therefore, the assessee was prompted to come forward and make a disclosure of that amount. Such a baseless admission, though having evidentiary value, but for want of proper corroboration is not conclusive thus, deserves to be discarded because of the fundamental reason that the AO still has enough powers to assess a correct income based upon several other evidences, such as, bank accounts to arrive at a figure of unaccounted income. Our view gets support for a case-law viz. India Seed House vs. Asst.CIT 69 TTJ 241 (Del.)[TM].
9. The next issue before us is in respect of the estimation of income as made by the AO. In this context, from the side of the Revenue, ld.DR has argued the importance of estimation specially under the circumstances when the AO has no other option but to estimate an income. In support, ld.DR has placed reliance on HM Esufalli HM Abdul Ali 90 ITR 271(SC) [supra]. In that case, facts have revealed that it was not possible for the S.T.O. to find out precisely the turnover suppressed. Because of that reason, it was found that the STO could only make an estimate on the suppressed turnover. The Hon'ble Court has given a very effective an important finding that so long as the estimate made by him was not arbitrary and that the estimate had the nexus with the facts discovered, under those circumstances such an estimate could not be questioned. The emphasis was given on the terminology "best judgement" and it was observed that neither it ought ITA Nos.2418 to 2423/Ahd/09 (By Revenue) and ITA Nos.1569 to 1574/Ahd/09 (By Assessee) ITO vs. Sh.Murarilal Chhaviram Gupta Asst.Years - 2001-02 to 2006-07
- 20 -
to be an "over estimate" nor "under estimate". On the other hand, in the present context, considering the evidences on record, we have to adjudge whether the AO was justified in applying the gross profit rate on the turnover that too on estimate basis. A "best judgement" should be an honest and fair estimation. That estimation must not be an arbitrary estimation. If an estimation is merely a guess work, then such an estimation deserves to be rejected. The basic question is that what was the evidence which was discovered by the Revenue Department? The most important evidence was the presence of several bank accounts of those concerns. On perusal of the orders and the evidences on record, time and again, it was found that the sales of unaccounted trading of sarees was recorded in those bank accounts. Rather, it was vehemently stated before the Revenue Authorities that the sales were made through banking channel and that the assessee has credited cheques pertaining to the sales. If it was so, rather it was not contradicted, that the credit entries in those several bank accounts represented nothing but sales, then what should be the correct method to arrive at the net figure of income? Naturally, income which is subject to tax is the net income and not the gross income. In other words, only net profit can be subject to tax and not the gross profit. This is one of the basic reason for our intervention in the method of computation of undisclosed income as adopted by the AO. The AO has computed the unaccounted gross profit for the respective years at 10.36%, 9.44%, 94.43%, 6.74%, 7.12% and 5.14% respectively which was based upon the gross profit disclosed by the group in the regular returns filed. Then the AO has compared the said GP with the peak balances and then whichever was found higher ITA Nos.2418 to 2423/Ahd/09 (By Revenue) and ITA Nos.1569 to 1574/Ahd/09 (By Assessee) ITO vs. Sh.Murarilal Chhaviram Gupta Asst.Years - 2001-02 to 2006-07
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was adopted for computation of undisclosed income and if any balance was left, the same was made as an addition on account of undisclosed gross profit. Therefore, right now we are on the issue that whether there was a possibility on the part of the AO to apply the net profit on the turnover instead applying the gross profit. To probe into this possibility, we have examined few case laws as cited by ld.AR Mr.Shah. In the case of Eagle Seeds and Biotech Ltd. vs. ACIT 100 ITD 301 (Ind.), a search was conducted and for the purpose of computation of undisclosed income, it was alleged that the said assessee had made unaccounted purchases. Documents seized during the search have proved payments made by the assessee and the AO treated the payments as unaccounted purchases and made the addition. The Respected Coordinate Bench was of the view that the unaccounted income represent the net profit earned and not the gross profit. It was opined that the assessee has supplied the goods after incurring certain cost and, therefore, the purchases or the sales do not represent the net income. The application of net profit for determining the undisclosed income was thus held a reasonable and appropriate method. Rather an another important approach was adopted by the Tribunal that if the net income so computed is within the amount already disclosed as undisclosed income in the return of income, then the said undisclosed income being available to the assessee for the purpose of explaining other income or investment, then deserves to be set off for the purpose of computation of taxable undisclosed income. For this legal proposition, several case laws have also been cited. Even in the case of CIT vs. Balchand Ajit Kumar 263 ITR 610(M.P.)(supra), there was search conducted and it was found that ITA Nos.2418 to 2423/Ahd/09 (By Revenue) and ITA Nos.1569 to 1574/Ahd/09 (By Assessee) ITO vs. Sh.Murarilal Chhaviram Gupta Asst.Years - 2001-02 to 2006-07
- 22 -
there were credit sales not recorded in the books of accounts. The AO has added a sum which was held as "sales profit" of the assessee. The first appellate authority had come to the conclusion that the entire credit sales could not have been included in the total income and followed the method of adding net profit rate. The Tribunal held that the reasonable method was the net profit rate on sales and not the entire sales could be regarded as the profit of the assessee. When the matter reached before the Hon'ble High Court, it was affirmed that the total sales could not be regarded as the profit of the assessee. It was held that net profit rate had to be adopted and once it was adopted, it could not be said that there was perversity of approach. It was concluded that whether the rate was low or high, would depend upon the facts of each case. A fervent reliance was placed on a decision of Hon'ble Jurisdictional High Court pronounced in the case of CIT vs. President Industries 258 ITR 654 (Guj.)[supra] and therein also a conclusion was made that on account of survey conducted at the premises of the assessee undisclosed sales were found and the AO had made addition of entire sale-proceeds as undisclosed income. The CIT(Appeals) affirmed the addition but the Appellate Tribunal found that there was no material to indicate that the assessee had made investments outside the books of accounts to make the alleged sales and, therefore, held that the entire sale-proceeds could not have been added as undisclosed income. It was held that the addition could only be of the profits embedded in the sales. The Hon'ble Court has opined that the sales only represented the price received by the seller of the goods. The Hon'ble Court has defined the "profit", i.e. "only the realisation of the excess over the cost incurred could form part of ITA Nos.2418 to 2423/Ahd/09 (By Revenue) and ITA Nos.1569 to 1574/Ahd/09 (By Assessee) ITO vs. Sh.Murarilal Chhaviram Gupta Asst.Years - 2001-02 to 2006-07
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the profit included in the consideration for the sales". According to the Hon'ble Court since there was no finding to the effect that investment was by way of incurring the cost in acquiring the goods which were sold by the assessee, then only the excess over the cost incurred could be treated as profit. A conclusion therefore can be drawn that the entire sales should not be added as undisclosed income but unaccounted income can only be to the extent of the estimated profit which is embedded in the sales and therefore only net profit rate is to be applied to compute the suppressed unaccounted income. We hereby hold so.
10. The last question which is yet to be addressed is that whether the ld.CIT(A) was right in directing the AO to tax higher of the two figures, i.e. the peak investment or the net profit. As far as the peak investment is concerned, the assessee's strong objection was that the same did not represent any investment. The balance remained in any of the bank account was nothing but the liability of the trade creditors. It was explained that in a running business, it is never possible that on a particular date all the liabilities of the trade creditors can get squared up and the balance on a particular date available in the accounts, may be a bank account, is the asset of the assessee reflecting the accumulation of profit. Such a presumption is incorrect. Almost on identical situation in the case of India Seed House 69 TTJ 241(supra) AO had made the addition of peak investment on unaccounted sales on the basis of a statement of the partner. However, on the basis of the seized material, the assessee was able to prove that purchases were made on credits. The payments were made from realization of sales. On that ground, it was held that there was no material with the AO to arrive at the figure of peak ITA Nos.2418 to 2423/Ahd/09 (By Revenue) and ITA Nos.1569 to 1574/Ahd/09 (By Assessee) ITO vs. Sh.Murarilal Chhaviram Gupta Asst.Years - 2001-02 to 2006-07
- 24 -
investment. Now referring the facts of this case, it is contested that the stock only to the extent of Rs.15 lacs and cash of Rs.1,86,000/- was physically found as undisclosed assets at the time of survey. It has also been contested that on a particular date in a bank account an outstanding balance might have gone high but the outstanding balance always remained fluctuating, as a result sometimes it was at the lowest level. Had the balances in the accounts was assessee's own savings representing accumulated profit, then the outstanding balances either at the close of the each accounting period or continuously for all the involved six years should have recurred or persisted constantly at that high amount alleged to be incrementing peak, e.g. for F.Y. 2003-04 at Rs.1,10,29,696/- or for F.Y. 2004-05 at Rs.1,42,22,063/- or for the F.Y.05-06 1,43,72,475/-. But the fact as evident from the impugned bank accounts is that the said peak balance was available only for a day or two. That balance has not lasted even for a reasonable period of one complete financial year. The Bank balances thus kept on fluctuating through out the year depending upon the business requirement in the context of squaring up of trade liability. As a consequence it was placed on record that it was wrong on the part of ld.CIT(A) to adopt a higher figure of the two figures for computing the undisclosed income of the assessee. On the basis of the reasons assigned hereinabove, we are not in agreement with the said view taken by ld.CIT(A). Hence, dismiss the same.
11. As far as the question of adoption of net profit on the sales is concerned, the assessee has adopted profit rate at 3% NP, but CIT(A) has adopted NP @ 5%. Even in the case of K.C.K.A. Gupta vs. ACIT ITA Nos.2418 to 2423/Ahd/09 (By Revenue) and ITA Nos.1569 to 1574/Ahd/09 (By Assessee) ITO vs. Sh.Murarilal Chhaviram Gupta Asst.Years - 2001-02 to 2006-07
- 25 -
90 TTJ 555 (Hyd.)[supra] the view taken was that in the case of unaccounted sales only a percentage of sales should be considered as undisclosed income. Presently, the assessee has furnished a chart through which it was demonstrated that as far as the working of the Net Profit of the group in general and the working of the Net Profit of the assessee in particular, in the past as per the regular returns, is concerned, in this line of business, the same had varied from 4.27% , 4.65%, 5.62%, 6.09% 2.14%, and 2.75%, respectively from F.Y. 2000-01 to F.Y. 2005-
06. As per the said chart, through which computed the average net profit in last six years earned by this assessee, namely, Murarilal Gupta was thus arrived at the figure of 3.43%. The requisite chart through which the net profit in the past six years was earned by the assessee is reproduced below:
Calculation of group N.P. Particulars / 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 Total F.Ys Murarilal C.Gupta Turnover (Rs.) 1162976 792413 412860 1102398 3519270 1880644 8870561 N P (Rs.) 49647 36882 23218 67125 75211 51765 303848 N P Rate (Rs.) 4.27% 4.65% 5.62% 6.09% 2.14% 2.75% 3.43% 11.1. On the basis of above chart and considering the facts and circumstance of the case, since this is the only reasonable data available on record through which a justifiable rate of net profit can be arrived at, we hereby direct the Revenue Authorities to compute the undisclosed income of the assessee by applying the net rate of profit at 3.43% on the ITA Nos.2418 to 2423/Ahd/09 (By Revenue) and ITA Nos.1569 to 1574/Ahd/09 (By Assessee) ITO vs. Sh.Murarilal Chhaviram Gupta Asst.Years - 2001-02 to 2006-07
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undisclosed and unearthed turnover of the assessee. Before we conclude, we are also conscious about an equally important aspect that at the start of the business there ought to be some investment made by the assessee and because it was an accepted fact that the business in question admittedly was an unaccounted and undisclosed activity, therefore the initial investment should be taxed as unaccounted as well as undisclosed investment. Therefore for the first year of the years in question, we hereby direct that the said unaccounted investment has to be brought to tax and the said amount can be the peak credit in the bank of Rs.2,92,716/- as detected by the AO. For that year, i.e. A.Y. 2001-02 the AO is hereby directed to tax the impugned unaccounted initial investment of Rs.2,92,716/- plus the net profit as directed by us. For rest of the years, as already held, the other directions shall remain in force. In this manner, the assessee is entitled for the part relief only.
12. In the result, Assessee's appeals as also Revenue's appeals are partly allowed.
Sd/- Sd/-
(टȣ.आर.मीणा) (मुकुल कुमार ौावत)
लेखा सदःय Ûयाियक सदःय
( T.R. MEENA ) ( MUKUL Kr. SHRAWAT )
ACCOUNTANT MEMBER JUDICIAL MEMBER
Ahmedabad; Dated 31 / 5 /2012
टȣ.सी.नायर, व.िन.स./T.C. NAIR, Sr. PS
ITA Nos.2418 to 2423/Ahd/09 (By Revenue)
and ITA Nos.1569 to 1574/Ahd/09 (By Assessee) ITO vs. Sh.Murarilal Chhaviram Gupta Asst.Years - 2001-02 to 2006-07
- 27 -
आदे श कȧ ूितिलǒप अमेǒषत/Copy
षत of the Order forwarded to :
1. अपीलाथȸ / The Appellant
2. ू×यथȸ / The Respondent.
3. संबंिधत आयकर आयुƠ / Concerned CIT
4. आयकर आयुƠ(अपील) / The CIT(A)-II, Ahmedabad
5. ǒवभागीय ूितिनिध, आयकर अपीलीय अिधकरण, अहमदाबाद / Learned Departmental Representative, ITAT, Ahmedabad
6. गाड[ फाईल / Guard file.
आदे शानुसार/ BY ORDER, स×याǒपत ूित //True Copy// उप/सहायक पंजीकार (Dy./Asstt.Registrar) उप/ आयकर अपीलीय अिधकरण, अिधकरण, अहमदाबाद / ITAT, Ahmedabad
1. Date of direct dictation on computer .... 26.5.12/29.5.12
2. Date on which the typed draft is placed before the Dictating Member 30.5.12.................. Other Member.....................
3. Date on which the approved draft comes to the Sr.P.S./P.S.................
4. Date on which the fair order is placed before the Dictating Member for pronouncement......
5. Date on which the fair order comes back to the Sr.P.S./P.S.........31.5.12
6. Date on which the file goes to the Bench Clerk..................... 31.5.12
7. Date on which the file goes to the Head Clerk..................................
8. The date on which the file goes to the Assistant Registrar for signature on the order..........................
9. Date of Despatch of the Order..................