Income Tax Appellate Tribunal - Bangalore
Anjaneya Brick Works vs Assistant Commissioner Of Income Tax ... on 18 January, 2002
JUDGMENT
Hari Om Maratha, J.M.
1. All the above appeals deal with common question of law and facts and, therefore, they are decided together by this order. The assessment years involved in these appeals are 1991-92 and 1992-93. M/s. Anjaneya Bricks and M/s. Anjaneya Brick Works are two sister concerns.
2. The facts of all these appeals are almost identical but the facts in ITA No.685 are mentioned hereinbelow for the sake of convenience.
3. The appellant M/s. Anjaneya Brick Works is a firm of three partners namely Shri G. Ramaiah Reddy and two HUFs with Kartas Raghava Reddy (S/o G. Ramaiah Reddy) and Dasarath (S/o G. Ramaiah Reddy). It is engaged in the manufacture and sale of bricks.
4. There is another firm by the name M/s. Anjaneya Table Mould Bricks ("ATMB" for short) which is also engaged in the same line of business i.e. manufacture and sale of bricks. The partners in this firm are, namely, Smt. Rathnamma (wife of Ramaiah Reddy), Smt H. Varalakshmi (wife of Raghava Reddy), and Smt, R. Asha (wife of R. Dasarath).
On 2nd June, 1992, search operation under Section 132 of the IT Act, 1961 (hereinafter referred to as "the Act") was carried out in the case of M/s. Anjaneya Brick Works. During the course of search, several incriminating documents showing the details of number of raw bricks cut in different periods were found. These documents included--
Document marked "A-10"-
showing quantity of bricks cut in the- case of ATMB for the period 3rd Feb., 1990 to 5th Jan., 1991 aggregating to 53,93,000 bricks.
"A-13"-
showing quantity of bricks cut in the case of ATMB for the period from 6th April, 1991 to 31st March, 1992, aggregating to 40,69,550 bricks.
"A-19"-
showing quantity of bricks cut in the case of M/s.
Anjaneya Brick Works for the period from 6th April, 1991 to 5th Oct., 1991 aggregating to 24,59,740 bricks.
Before the search, the assessee had filed a return on 29th Aug., 1991 along with P&L account showing:
Rs.
Opening stock 1,77,400 By sale 19.36.168 Transportation loading/Unloading 13.16.168 Closing stock 2,64,530 Net profit 1,66,707 On the basis of seized documents, the AO took action under Section 148 of the Act. To which the assessee/appellant replied that production has been considered by the learned AO for 52 weeks, whereas, in this line of business, where there can be no uniformity depending on the climate and labour, instead production should be considered for 26 weeks.
5. Now, we would take the appeals year-wise. First we would take appeal No.685 itself.
(i) The plea of the appellant in this regard is that for the asst. yr. 1991-92 no incriminating documents were seized by the DI because the document marked "A-19" relates to the period from 6th April, 1991", to 5th Oct., 1991, which may be relevant for the asst. yr. 1992-93 and not for the asst. yr. 1991-92.
(ii) After hearing the rival submissions regarding this appeal we come to the conclusion that the appellant has a good case on merits. In the assessment order dt. 31st March, 1994 for asst. yr. 1991-92, in the case of the appellant M/s. Anjaneya Brick Works, an estimation of production had been made relying on the seized document marked "A-19" which relates to asst. yr. 1992-93 and not the accounting year under consideration. The assessee/appellant's plea is that in the absence of any incriminating document, its accounts as per the returned income should have been accepted. The AO calculated the suppressed production as follows:
Opening stock Nil
Production for 52 weeks at 90,000 bricks per week 46,80,000
Less 35 per cent for wastage, etc. 16,38,000
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30,42,000
Less: Closing stock 50,000
---------
Production of finished bricks 29,92,000
Less: Sales disclosed to Department 22,79,436
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Suppressed production 7,12,564
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The AO also estimated the additional gross profit of 64 per cent thus, enhancing income to Rs.5,35,023.
(iii). The first limb of arguments of the learned authorised representative is that so far as the asst. yr. 1991-92 in the case of M/s. Anjaneya Brick Works is concerned, there is no evidence of suppression of income. We are convinced by the arguments of learned authorised representative to that effect This is almost settled principle of law that mere existence of evidence to support concealment of income for the next assessment year (i.e. 1992-93 in this case) cannot be made a basis judiciously to estimate the income for the current year or any other assessment year for that matter. On the basis of materials related to asst. yr. 1992-93, we cannot conclude that there existed unaccounted sales and income for the previous year relevant to asst. yr. 1991-92 which is the subject-matter of this appeal. The order of the CIT(A) based on this presumption alone cannot be sustained in the eyes of law. Moreover, there is not a whit of evidence regarding the unaccounted investment for the years 1991-92 and 1992:93. And also the other circumstance that the appellants are also managing the activities of the other firm, which is a sister concern, can also be concluded to be in favour of the appellants, because when both the businesses are related to one family, it is immaterial in which of the kiln, irrespective of the fact whether it is having more or less chambers, the work was got done. When two views are possible, the one which is in favour of the assessee/appellant is to be given effect to. We accept this plea of the appellant.
6. The next issue relates to the estimation done by the Department regarding unaccounted production, applying the rule of uniformity of production for the entire year comprising of 52 weeks.
This estimation has been done only on the basis of evidence of suppression in production of bricks found in the case of 'sister concern' M/s. Anjaneya Table Mould Bricks, which is admittedly different firm with different constitution. There is no interconnection or intermingling of business transactions, except that the partners belong to the same family.
The Hon'ble Supreme Court has held in the case of Homi Jehangu Gheesta v. CIT (1961) 41 ITR 135 (SC) and also reiterated the same ratio in the case of CIT v. Biju Patnaik (1986) 160 ITR 674 (SC):
"every material fact for and against the assessee is to be considered fairly with due care in reaching the final conclusion without being coloured by irrelevant consideration or matter of prejudice."
We accept the plea of the learned authorised representative that both the AO and CIT(A) adopted an approach which is untenable in law but may be tenable in logic. We are to decide a matter in dispute as per law to the true and final facts of a case. The authorities below estimated the unaccounted production uniformly at the rate of 90,000 bricks per week for the entire year of 52 weeks. This estimate is purely on a notional basis and seems to be arbitrary and devoid of any merits. There cannot be uninterrupted production on all days round the year in this line of business; where rains and other climatic conditions play, a major role. Moreover, this is a business which is 100 per cent dependent on the availability, of labour, who in turn are more tempted to go to their native places on the major festivals. It is also a common place knowledge that once these people go to their, native homes, they take some time to come back because they come to the place of work along with their bag and baggages and go back to perform other important activities of their life including marriages, etc., of their grown-ups. So the rule of uniformity cannot be and should not be applied on the estimate basis. We concede that there can be time and times when the uniformity can be maintained but for that case there should be some direct evidence available in a given case.
Likewise the estimation done by the Department so far as the gross profit is concerned that also seems to be unreasonable in the absence of the comparable cases and in the presence of the admitted GP for the asst. yrs.
1990-91, 1991-92 which are stated to have been accepted by the Department at 29 per cent and 22 per cent respectively. So the estimate at 64 per cent on alleged suppressed turnover of Rs. 5,70,091 is totally unreasonable to our mind. The learned Departmental Representative has not been able to substantiate this estimation by any evidence.
7. The next issue again seems to be innovation added by the Department because they worked with preoccupied mind in that direction, that the appellant was also doing transportation, because there is no evidence on the file. The Department can be correct in its knowledge regarding the nature of business in this line but being quasi judicial authority, it is bound to base its conclusions on evidence available on record in each and every case. Applicability of law cannot be done on generalized facts. It is to be applied to a particular set of facts only. Likewise, the innovation of unaccounted investment for the asst. yr. 1991-92 and 1992-93 is also not all supported by any evidence. The learned Departmental Representative could not demonstrate this fact by any evidence before us. We are left with no option but to accept the plea of the appellant.
8. Now, we will take up ITA No. 684 in which M/s. Anjaneya Table Mould Bricks is the appellant and the appeal pertains to asst. yr. 1991-92.
"(i) Admittedly, certain documents were seized by the Department during the course of search which are marked as "A-10" (mentioned in para.4 above) for the period from 1st April, 1990 to January 1991. The case of the appellant is that no production took place during the months of February and March 1991 outside the books, as there was no demand and there was stock on hand,
(ii) The learned AO estimated the unaccounted production for February and March 1991 at 7,39,200 bricks and fixed the annual unaccounted production at 52,79,940 bricks. Finally he determined the unaccounted production at 14,51,966 bricks after taking into consideration the usual wastage etc., and fixed its sale price at 0.80 paise per brick and arrived at a turnover of Rs. 11,61,573. He estimated the GP at 64 per cent.
(iii) The learned AO accepted the regular books of account containing the disclosed turnover of Rs. 15,94,265 on sale of 19 lakhs bricks with a capital of Rs. 3 lakhs. But confirmed for unaccounted production and sale of 11,61,573 bricks; a capital of l/3rd of the suppressed turnover of Rs. 11,61,573/3 = 3,87,191, The CIT(A) came to his own different computation by working out the unaccounted production at 5883 lakhs for the period 1st April, 1990, to 31st March, 1991, as against 52.79 lakhs worked out by the AO for entire year. He worked out the income at Rs. 9,29,579 as against Rs. 7,43,047 worked out by the AO. But ultimately confirmed the addition of Rs. 7,43,047 which was made by the learned AO.
(iv) The sequence of all these events go to suggest that the CIT(A) had one thing in mind and even after applying the same confirmed the other thing which was done by the learned AO. It seems that the learned CIT(A) did not properly apply his judicial mind. With due respect, we would like to say it again that the CIT(A) applied his personal knowledge in this line of business instead of available facts and figures. This is not permitted to any quasi judicial authority to confuse like that.
(v) The learned CIT(A) should have considered the facts brought to his notice by the appellant that during the month of January labourers leave for Makara Sakranti on a long leave. This is quite obvious and natural as we have discussed in earlier part of our order. This is also a noticeable fact that the production of bricks is to be taken only when there is demand in excess of the stock. But in the case of this appellant the documents were seized, so the Department is at liberty to make estimation for the remaining months, but after considering the reasonable explanation of the assessee the unaccounted production thus should be recomputed in the light of our above observation in this case.
(vi) So far as gross profit estimate is concerned, it cannot be 64 per cent in the absence of comparable cases. When the declared GP as per the regular books on the disclosed turnover of Rs. 15,94,265 has been only 25 per cent and the same has been accepted we hold that GP of 25 per cent should be adopted on the unaccounted sale. We find support from the order of the Tribunal in Gupta Bros. v. Asstt. CIT (1997) 93 Taxman 218 (Gau).
(vii) So far as the IT Appeal Nos. 262 and 263 relating to asst. yr. 1992-93 are concerned, the issues are almost identical as have been decided by us in appeal Nos. 684 and 685 relating to these assessees. Our findings are also to the same effect so far as undisclosed production, unaccounted production and GP rates, etc., are concerned. These issues are decided in the light of our above observation.
9. As a result, we dispose of these appeals and hold accordingly by partly accepting the appeals of the appellants.