Income Tax Appellate Tribunal - Hyderabad
M/S Paragon Prints,, Hyderabad vs Assessee on 10 December, 2014
IN THE INCOME TAX APPELLATE TRIBUNAL
HYDERABAD BENCHES "B" : HYDERABAD
BEFORE SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER
AND
SMT. ASHA VIJAYARAGHAVAN, JUDICIAL MEMBER
ITA.No. A.Y. Appellant Respondent
674/H/2013 1999-2000
675/H/2013 2000-2001
676/H/2013 2001-2002 M/s. Dada Prints, ACIT, Circle
Hyderabad. 9(1)
677/H/2013 2002-2003 PAN AACFD1624K Hyderabad.
678/H/2013 2003-2004
679/H/2013 2004-2005
680/H/2013 2005-2006
ITA.No. A.Y. Appellant Respondent
681/H/2013 1999-2000
682/H/2013 2000-2001
683/H/2013 2001-2002 M/s. Paragon ACIT, Circle
Prints, Hyderabad 9(1)
684/H/2013 2002-2003 PAN AADFP2138B Hyderabad.
685/H/2013 2003-2004
686/H/2013 2004-2005
687/H/2013 2005-2006
For Assessee : Mr. A.V. Raghuram
For Revenue : Mr. D. Sudhakar Rao
Date of Hearing : 14.10.2014
Date of Pronouncement : 10.12.2014
2
ITA.Nos.674 to 680/Hyd/2013 &
ITA.Nos.681 to 687/Hyd/2013 M/s. Dada Prints &
M/s. Paragon Prints, Hyderabad.
ORDER
PER BENCH :
These 14 appeals are for A.Ys. 1999-2000 to 2005- 2006 in two group concerns and since the issues involved are interlinked and common and two separate but common orders are passed in these cases for all the impugned assessment years by Ld. CIT(A), these appeals are disposed of by this common order.
2. We have heard the Ld. Counsel and Ld. D.R. and perused paper book placed on record.
3. Briefly stated, the assessees herein are registered firms engaged in textile business. Search and seizure operations under section 132 were carried out in the business premises of assessee on 14.10.2004 and certain incriminating material pointing the suppression of sales were found and seized. The assessments under section 143(3) read with section 153A were originally passed for these assessment years on 26.12.2006. Aggrieved by the said assessment order, appeals were filed before Ld.CIT(A)-I who vide his order decided the appeals directing the A.O. to estimate income at 35% on the undisclosed turnover brought out by A.O. Aggrieved with that order, assessee carried the matter further to the ITAT. Revenue did not prefer any appeal on the relief granted by Ld.CIT(A). The ITAT remanded the matter to the A.O. to reconsider the issue afresh in the light of material available on record and thereafter, decide the same in accordance with law, vide its order in ITA.No.90 to 103/Hyd/2009 dated 31.08.2010. Accordingly, in the re-assessment proceedings, A.O. gave opportunity to assessee again, but re-assessed 3 ITA.Nos.674 to 680/Hyd/2013 & ITA.Nos.681 to 687/Hyd/2013 M/s. Dada Prints & M/s. Paragon Prints, Hyderabad.
incomes as was done originally without any relief. Even though, Ld.CIT(A) gave relief to the extent of 65% on the undisclosed turnover, A.O. however, determined the income at 100% of the undisclosed turnover as originally determined. In further appeal, Ld. CIT(A) confirmed the same, without even following the orders of his predecessor on record, considering that the Tribunal has directed the assessment to be done afresh.
4. Ld. Counsel submits that the orders of the authorities are not factually correct on various issues. First of all, the statements relied upon by A.O. nowhere indicates that there was suppression of incomes. Further, the A.O. has wrongly arrived at the undisclosed turnover based on various presumptions and assumptions. It was submitted that instead of 1: 1.66 ratio arrived at by A.O. the correct ratio works out to 1: 1.29. It was further contended that ITAT directed the A.O. to consider the seized material and arrive at the undisclosed income. But the A.O. without any incriminating material, estimated the incomes in all the impugned years, without any basis. Ld. Counsel referred to the Judgment of Hon'ble High Court of Andhra Pradesh in the case of Rajnik & Co 251 ITR 561, also relied upon by A.O., to submit that the estimation can only be done in those years where the incriminating material was available even if for a part of the year, but it cannot be done for entire block years, without there being any incriminating material for the year. It was also further submitted that A.O. considered the same ratio in both the firms when the so called incriminating diaries represent the turnover of one firm and this was not established. It was submitted that A.O. also wrongly arrived at the so called 4 ITA.Nos.674 to 680/Hyd/2013 & ITA.Nos.681 to 687/Hyd/2013 M/s. Dada Prints & M/s. Paragon Prints, Hyderabad.
undisclosed D.D. payments, without giving an opportunity to assessee. It was also submitted that entire turnover, including the disclosed turnover, was treated as income, thereby raising heavy demands. It was the submission that the orders passed by A.O. are neither as per the directions of ITAT nor as per the facts on record.
5. Learned D.R. however, relied on the orders and supported the detailed orders of Ld. CIT(A).
6. Before adverting to the issues, it is worthwhile to extract the facts of the cases as considered by Ld. CIT(A) in paras 5 to 5.7 are as under :
"5. Before going into the common grounds raised for the appellant for all the assessment years, it is in place to go to the background of the case and the search proceedings. There was a search and seizure operation under section 132 of the Act in the case of the appellant firm on 14.10.2004. The appellant, M/s. Dada Prints" is engaged in manufacture and sale of sarees. During the course of search certain spiral diaries marked as A/K & Z/PAR/RES/1 to 10 were seized from the residence of Md. Kanisuddin at Madannapet, Hyderabad and another material having similar entries marked as A/PPF/35 was also seized from the business premises of M/s. Paragon Printers. Sri Kanisuddin was an erstwhile partner of the firm and the present partners of the appellant's firm, also reside at the residence of Sri Md Kanisuddin. During the course of search, a statement under section 132 (4) was recorded from one Mr.Riazuddin, son of Sri Kanisuddin on 14.10.2004. In his statement, Sri Riazuddin, in reply to question No.14 stated as follows:
Q.14. I am showing the small spiral bound pocket diaries inventorised as Annexure NK & Z/Par/ Res/l to 13. PI. go through the spiral diaries 5 ITA.Nos.674 to 680/Hyd/2013 & ITA.Nos.681 to 687/Hyd/2013 M/s. Dada Prints & M/s. Paragon Prints, Hyderabad.
and explain the nature of transaction noted therein?
Ans. These spiral bound pocket diaries numbering 1 to 13 contains the details of the total advances recovered in a particular month towards supply of printed sarees, the details of supplies on each day, the amount received on the particular day and balance advance outstanding at the end of the particular day are noted. These diaries are also details of the individual account in respect of each of the customers from whom such advances are received and also the details of supplies made to them and outstanding advances received from them. These transactions pertain to M/s. Paragon Printers as well as M/s. Dada Prints. This is a combined monthly account being maintained by me for my information and control. All these transactions are recorded in the regular books of accounts of M/s. Dada Prints and M/s. Paragon Printers. The transactions belonging to these firms would be compiled and submitted in a day or two".
5.1. Having admitted initially that the diaries belong to the appellant firm and also to Paragon Prints, and that the entries therein are advances from customers against supplies, Sri Riyazuddin later retracted from his earlier statement. In another statement recorded Sri Riyazuddin on 30.11.2004, he deposed that he is not aware of the diaries and the contents therein. As the matter stands there, the Assessing Officer then proceeded to link the diaries and the contents of the diaries to the business affairs of the appellant firm. In paras 5.3 to 6.10, the Assessing Officer brought out how the contents in the diaries relate to the business affairs of the firm, by decoding the names of the parties written therein, figures and dates. As per the Assessing Officer, "by co-relation of the figures in these diaries with the sales made by the assessee, there is enough evidence that these figures represent sales of sarees. The assessee has not explained how the sales in these diaries have been recorded in the books of accounts and therefore the entire sales in the diary 6 ITA.Nos.674 to 680/Hyd/2013 & ITA.Nos.681 to 687/Hyd/2013 M/s. Dada Prints & M/s. Paragon Prints, Hyderabad.
are nothing but unrecorded or suppressed sales". Holding so, the Assessing Officer made an analysis of the seized diaries and issued a detailed show cause to the appellant asking to substantiate the contents of the diaries with the books of account I returns of income already filed. In the said show cause the Assessing Officer referred to the initial admission of Sri Riyazuddin that the diaries belong to the firm, later denial and in this connection, he also made a reference to the provisions of section 132(4A). In this show cause letter, the Assessing Officer also estimated the suppressed turnover year-wise at a ratio of 1:1.66 based on the said diaries and requested the appellant why the same should not be adopted for the purpose of assessment.
5.2. The appellant objecting to this show cause contended that the seized diaries do not belong to them and without relating the transactions mentioned in such diaries with the business of the firm, it is not correct to adopt these figures for the purpose of assessment. The appellant also submitted that Sri Kanisuddin, from whose residence the diaries were seized is an erstwhile partner of the firm, M/s. Paragon Printers, and Sri Riyazuddin, from whom a statement was recorded on 14.10.2004, was never a partner in the firm, and therefore, the diaries do not belong to them as also the statement recorded from Sri Riyazuddin will not have any bearing on the business transactions of the firm. The appellant further contended that without establishing the connection between the entries in the seized material with the transactions recorded in the books of the firm, the Assessing Officer arrived at the unrecorded sales/suppressed turnover and also the undisclosed income. The appellant also referred to the seized material contents, which were written for only a few months for the years 2002, 2003 and 2004, and contended that by comparing the infrequent figures recorded in the seized diaries for a few months, the Assessing Officer went on to estimate the undisclosed/suppressed sales for the entire seven years of assessment open before him at a ratio of 1:1.66. The appellant also questioned the reasoning for extrapolating the above ratio for years where there is no seized material and also the reliance placed by 7 ITA.Nos.674 to 680/Hyd/2013 & ITA.Nos.681 to 687/Hyd/2013 M/s. Dada Prints & M/s. Paragon Prints, Hyderabad.
the Assessing Officer on the case of M/s. Rajnik and company v. CIT.
5.3. On these contentions of the appellant, the Assessing Officer relying heavily on the seized diaries and the contents therein, and the initial statement given by Sri Riyazuddin, brushed aside the contentions of the appellant that the diaries do not belong to the firm and the contents therein, and proceeded to estimate the undisclosed sales, 'One more factor the Assessing Officer brought out before concluding the assessment in this particular case are the contents of seized material found in the premises of the appellant firm marked as NPPF/35, 39 and 43. The Assessing Officer compared the contents of these two seized material with the books of account and pointed out to some omissions for the Assessment years 2002-03, 2004-05 and 2005-06, as recorded in page 12 of the assessment order. On these, the appellant submitted that certain drafts were cancelled and payments were made by debtors to the creditors directly. When questioned about the evidences for this, the appellant expressed his inability. Thereafter, the Assessing Officer referred to provisions of section 132(4) and the Objections of the appellant. Relevant portion of para 13 of the assessment order is as under:
"13 . In his reply dt.21.11.06, the assessee further objected to the application of provisions of section 132(4) on the ground that Mr. Kanisuddin retired from the partnership of Mls Paragon Printers during the F. Y. 2001-02 and therefore provisions of section 132(4) could be applied only to Mr. Kanisuddin in respect of Anenxures A/K&Z/par/Rs/1 to 10 which were seized in the residence of Mr. Kanisuddin. I am afraid that the assessee is not correct because as per the Explanation introduced w.e.f. 1.4.89, the examination of any person U/S 132(4) need not be in respect of his books of accounts or his documents or l1/5 assets found as a result of search but also in respect of all matters relevant for the purpose or any investigation connected with any proceedings under the Income Tax Act, 1922 or 1961. Even in the main portion of section 8 ITA.Nos.674 to 680/Hyd/2013 & ITA.Nos.681 to 687/Hyd/2013 M/s. Dada Prints & M/s. Paragon Prints, Hyderabad.
132(4), the phase used is any books of accounts documents, etc., and they may pertain to him or such things pertaining to other assessees may be found in his possession also. What is exactly been inferred in the instant case is that he documents pertaining to Paragon Printers were also found in the premises of Mr. Kanisuddin during the search proceedings. Hence, the applicability of provisions of section 132(4) even to the assessee i.e., Paragon Printers even though the statement was obtained from Mr. Riazuddin. The assessee further objected that there are no dates on the pocket diaries numbering 1 to 13 extracted at internal para-l of the show cause notice. While giving the show cause notice, it was very much clarified in para -4 of show cause notice that only first pages of diaries were photocopied in annexure-1 of show cause notice. The assessee probably forgot to refer to the cover pages of all diaries which bore the year and date and it was clarified by the DDI that, all the copies of seized material were given to the assessee at the time of search itself. Further, it is obvious that the figures were written in lakhs only as the assessee was in the habit of writing the figures in lakhs on all loose slips found during the course of search and the fact was very much known to Mr. Riazuddin when he admitted that the advance receipts in his statement u/s 132(4). The reasons as to passage of time stated by the assessee are not tenable because at least the assessee is under the obligation to maintain the records properly for a period of six years.
14. I am therefore constrained to invoke the provisions of section 145(3) .... "
5.4. On the objection of the appellant' that provisions of section 132(4) are available only for section 132 and not for regular assessment purposes relying on the decision of the apex court in the case of PR Methrani v. CIT (287 ITR 209) the Assessing Officer brought out that this decision was rendered when the summary assessment procedure for retention of sufficient assets to pay tax and penalty u/s 132(5) were in vogue and this provision was omitted by the Finance Act, 2002 w.e.f. 01.06.2002.
9ITA.Nos.674 to 680/Hyd/2013 & ITA.Nos.681 to 687/Hyd/2013 M/s. Dada Prints & M/s. Paragon Prints, Hyderabad.
5.5. Supporting invocation of provisions of section 145(3) on the contents of the seized diaries and linking them to the business affairs of the appellant, the Assessing Officer in para 18 of the assessment order mentioned as under :
"18. In the context of small diary, what is important is access and the handling of small spiral diaries by Mr. Riyazuddin and not his knowledge of English or Mathematics or literacy or otherwise. The fact that his writing in Hindi were interlaced on the back pages of small diaries clearly establishes that these diaries were always in procession of Mr. Riyazuddin and he might have taken assistance of his accountant to record advance receipts pertaining to M/s Paragon Printers and Dada Prints which he clearly admitted in his first statement obtained u/s 132(4) on the very day of the search i.e. 14/10/2004 and he even admitted that such receipts were reflected in the books of account and also promised to produce such regular books of accounts compiling the transactions belonging to these two firms which would be submitted in a day or two. It goes anybody's guess that Mr. Riazuddin failed to explain such transactions even after passage of two years from 14/10/2003. The control of Mr. Riazuddin on the affairs of M/s Paragon Printers is further supported by the statement of Sri Mohd.
Faizuddin, partner u/s.132(4) dt.14-10-2004 and the relevant portion of the statement is extracted hereunder :
"Question 3: What are your activities in the firm what business does the firm do?
Answer : I look after the activities which are general in nature. In fact, the business is done under the guidance of my uncle, Shri Md. Riyazuddin and father, Shri Md. Khenisuddin".
This is another reason why the provisions of section 145(3) are being invoked for a reasonable estimate of suppressed sales by relying on the decisions in the case of Rajnik and 10 ITA.Nos.674 to 680/Hyd/2013 & ITA.Nos.681 to 687/Hyd/2013 M/s. Dada Prints & M/s. Paragon Prints, Hyderabad.
Company Vs. CIT (251 ITR 561 AP) and HM Eusafali in 90 ITR 271 SC. The crux of these two decisions is that if certain transactions go unaccounted, unexplained even for a few days, a reasonable estimate can be made for whole period spanning more than a year.
5.6 Accordingly, the Assessing Officer brought out that though the present partners of the firm are sons of Sri Md Riyazuddin and Sri Khanisuddin, these two elder persons still manage the affairs of the firm and are having a say over the business transactions of the firm and the diaries were written by Sri Riyazuddin, recording the business transactions of the firm and accordingly proceeded to estimate the undisclosed income as under:
Assessment Income Income
year admitted determined
1999-00 72,950 2,11,09,311
2000-01 1,20,830 3,56,34,494
2001-02 72,020 2,69,35,322
2002-03 1,35,180 1,51,21,705
2003-04 1,30,320 2,47,85,739
2004-05 1,61,740 1,24,44,762
2005-06 0 61,41,511
5.7. Accordingly, the Assessing Officer
completed the assessments adopting the undisclosed incomes estimated as above."
6.1. Likewise, in the case of Paragon Prints on the same reasons, the turnover/ income determined are as under:
Assessment Income Income
Year admitted determined.
1999-00 3,99,040 5,29,16,390
2000-01 5,77,600 8,58,58,711
2001-02 6,90,760 8,71,74,723
2002-03 56,570 8,63,30,347
2003-04 3,70,900 5,44,86,78
2004-05 16,15,080 9,34,25,466
2005-06 0 4,59,05,193
11
ITA.Nos.674 to 680/Hyd/2013 &
ITA.Nos.681 to 687/Hyd/2013 M/s. Dada Prints & M/s. Paragon Prints, Hyderabad.
6.2. Now for making addition at 100% of turnover as income, objected to by assessee, the Ld. CIT(A) considered the issue as under :
"7. I have gone through the earlier assessment order, order of my predecessor and the order of the Hon'ble Tribunal. I have also gone through the present assessment order u/s 143(3) read with section 254 and the submissions of the appellant. The gist of the submissions of the appellant is that the AO while finalizing the assessment on remand has not followed the observations of the Hon'ble Tribunal but has simply repeated what is earlier done. However, I do not agree with the contentions of the appellant. Though in the earlier paragraphs, the Hon'ble ITAT had made some observations on the assessment, but in the concluding para of their order, the Tribunal held "We make it clear that it is open to the Assessing Officer to examine all the material available on record and relatable to the assessee and decide the issue in accordance with law without being influenced by any of the observations made by this Tribunal in this order or by the CIT(A) in the first appellate order". In the light of the above concluding remarks of the Tribunal, the Assessing Officer is free to decide the issue based on the material available with him without being influenced by the remarks of the Tribunal or of the decision of the Commissioner of Income-tax(A). Therefore, grounds raised by the appellant on this issue are rejected."
7. We are unable to agree with the above contentions of A.O. and Ld. CIT(A). As already stated earlier, in the first round of appeal, the Ld. CIT(A) considering that assessee could have purchased material for making turnover outside the books of accounts, has considered the average purchases in the earlier years to arrive at 60% of the cost of sales, being purchase cost. In addition, he also considered 5% of the sales turnover as probable expenditure and therefore, gave relief to 12 ITA.Nos.674 to 680/Hyd/2013 & ITA.Nos.681 to 687/Hyd/2013 M/s. Dada Prints & M/s. Paragon Prints, Hyderabad.
an extent of 65% and confirmed only 35% of turnover as undisclosed income of assessee. Admittedly, Revenue has not come in appeal, so relief granted by Ld.CIT(A) became final. Assessee has contested only the confirmation of 35% of turnover as income. Therefore, the subject matter of appeal before the ITAT was only with reference to 35% of the turnover confirmed by Ld. CIT(A) and not 100%. The ITAT cannot traverse beyond the subject matter of appeal and therefore, both A.O. and Ld. CIT(A) are not correct in coming to the conclusion that ITAT has directed the A.O. to examine the material available afresh. Directions as extracted by Ld. CIT(A) in the order does not indicate that entire assessment has been set aside. Not only that, ITAT also has made certain observations in its order in earlier paras which are as under :
"13. Now coming to the material available on record, admittedly a spiral bound diary was found during the course of search operation. The contention of the assessee right from the assessment order, before the CIT(A) and before this Tribunal is that the material found during the course of search operation does not relate to the assessees and the sales found to be recorded in the material found during the course of search operation is not related to the assessees. The assessees also contended before the lower authorities that the entries made in the spiral bound diary do not relate to suppressed sales. In spite of specific contention of the assessee, the lower authorities have not given any finding how the materials available on record relate to the assessees and how it relates to the suppressed sales. The CIT(A), based upon some of the case laws found that profit can be estimated on the basis of materials found during the course of search operation provided the same relates to the assessees. No doubt, profit can be estimated on the basis of material available on record including the material found during the course of search operation. Further, when the assessee contends that the material does not relate to the assessees it is for the authorities below to record a finding as to how the material available 13 ITA.Nos.674 to 680/Hyd/2013 & ITA.Nos.681 to 687/Hyd/2013 M/s. Dada Prints & M/s. Paragon Prints, Hyderabad.
on record relates to the assessees. In the absence of such a finding, placing reliance on the material found on record cannot be justified.
14. Now coming to the contention of the learned departmental representative that the statement made u/s 132(4) can be a basis for making the assessment, no doubt assessment order can be passed on the basis of the statement recorded u/s 132(4) provided the same discloses the earning of income by the assessees. The learned counsel for the assessee contended that one of the statements recorded by the lower authorities says that there was no transaction outside the books of account. Therefore, the lower authorities have to examine all the statements available on record and find out whether the assessee earned any income outside the books of account or not. On the basis of materials/evidence, the assessees also can explain that the statements made earlier are not correct.
15. The discrepancies pointed out by the learned counsel for the assessee between the numbers in numerical and words, though the learned departmental representative attempted to point out that there was no variation, in our opinion the Assessing Officer has to examine the contention of the assessee and find out whether the noting found in the spiral bound diary relates to the assessees and the words written in coding disclose any income outside the books of account. It is also necessary to examine whether the coding in numerical represents single digit with decimals or two digits. The variation as pointed out by the learned counsel for the assessee was attempted to be reconsidered by the Assessing Officer in the remand report. However, the same was not examined by the Assessing Officer at the time of assessment proceedings and the CIT(A). Therefore, the assessee did not get a fair opportunity to explain the noting made in the spiral bound diary before the Assessing Officer. Therefore, in all fairness in our opinion, the Assessing Officer has to reconsider the entire issue afresh after giving an opportunity to the assessee.
16. Now coming to estimation of profit, the rate of profit has to be estimated after considering all material facts such as, profit of the assessee for earlier years, profit of similarly placed trader in similar line of business, 14 ITA.Nos.674 to 680/Hyd/2013 & ITA.Nos.681 to 687/Hyd/2013 M/s. Dada Prints & M/s. Paragon Prints, Hyderabad.
availability of raw materials, labourers, demand in the market etc. In our opinion, the assessing officer shall consider the rate of profit after taking into consideration all the above facts.
8. As can be seen from the above, there are clear indications/directions of what A.O. was supposed to do and also gave certain opinions. Without considering these, A.O. in our opinion, travelled beyond the directions of ITAT and beyond the scope of consequential assessment proceedings in determining the income at 100% of the so-called undisclosed turnover. Accordingly, we are not in a position to uphold the entire addition as confirmed by Ld.CIT(A). To that extent, assessee automatically gets relief without going into any other aspects.
9. Coming to the contentions of undisclosed turnover and ratios, it was the contention that turnover was recorded by parties for the purpose of supervision and those two parties from whom statements are recorded are not partners of the firm. However, these aspects were already considered in first round of appeal and admittedly, the spiral bound diaries are held by ITAT to be 'material available at the time of search and the same relates to assessees'. The only issue to be considered is what profit can be estimated on the basis of material available on record, including the material found during the course of search operations.
10. Considering the statement of assessees and co- relation made by A.O. with reference to some of the entries in the ledger accounts, we are of the opinion that the seized material do pertain to assessees. The detailed discussion of Ld. CIT(A) to that extent is upheld. However, coming to the ratio 15 ITA.Nos.674 to 680/Hyd/2013 & ITA.Nos.681 to 687/Hyd/2013 M/s. Dada Prints & M/s. Paragon Prints, Hyderabad.
adopted of disclosed turnover to the undisclosed turnover, there are two contentions, (a) one is ratio adopted by A.O. is not correct and (b) the undisclosed turnovers if any, pertains to both firms and cannot be considered in one firm alone. With reference to ratio adopted by A.O. at 1:1.66 on the basis of the declared sales for the month of January, 2004 to May, 2004, AO arrived at the same as under vide Para 8 of the order.
Financial Year Asst. Year Declared Estimated
Turnover (Rs.) Suppressed
turnover (Rs.)
1998-1999 1999-2000 4,43,09,465 7,35,53,711
1999-2000 2000-2001 7,27,67,937 12,07,94,775
2000-2001 2001-2002 6,82,81,485 11,33,47,265
2001-2002 2002-2003 6,10,00,182 10,12,60,302
2002-2003 2003-2004 4,74,52,595 7,87,71,307
2003-2004 2004-2005 6,27,06,872 10,40,93,408
35,65,18,536 59,18,20,768
There after AO apportioned the same between the two firms as under.
Assessment M/s. Dada M/s.
Year Prints Paragon
Printers
1999-2000 2,10,36,361 5,25,17,350
2000-2001 3,55,13,664 8,52,81,111
2001-2002 2,68,63,302 8,64,83,963
2002-2003 1,49,86,525 8,62,73,777
2003-2004 2,46,55,419 5,41,15,888
2004-2005 1,22,83,022 9,18,10,386
2005-2006 61,41,511 4,59,05,193
However, it was assessee's submission that the ratio will come down to 1.28% as extracted by Ld CIT(A) under :
"Kind attention is invited to page 4 of the assessment order of ours where in at para 7 tabular statement is given of unaccounted sales and also para 8. In para 8 it is stated that undeclared sales for the months from Jan 04 to May 16 ITA.Nos.674 to 680/Hyd/2013 & ITA.Nos.681 to 687/Hyd/2013 M/s. Dada Prints & M/s. Paragon Prints, Hyderabad.
04 were compared with the declared sales for the same period as per sales ledgers which gave a ratio of 1.66:1. Based on such ratio the suppressed turnover is estimated year wise. It is also stated in the same assessment order at para 12 that such sales belonged to both the firms viz., ours and Dada Prints. If such is the fact then the ratio between the declared sales and undisclosed sales is to be arrived at by summing up the declared sales of both the firms. Whereas we find that the ratio is arrived at by considering only the declared sales of our firm. The same is as under:
As per seized Declared sales of Paragon RATIO material 304,64,655 461,92,000 1.52:1 Declared Sales of Paragon & Dada Paragon 304,64,655 Dada 55,55,476 Total 360,20,131 461,92,000 1.28:1 Therefore we submit that arriving the ratio of 1.66:1 itself is not correct and factually wrong."
11. The difference arose by not considering the excise duty turnover as part of declared turnover. Since, this contention is rejected without examining the entries therein, considering that most of the entries were tallying with other ledger accounts as found out by A.O., we are of the opinion that turnover can be estimated at 1: 1.28 as submitted above. Moreover, this turnover pertains to both the firms and not to one firm alone, as the combined turnover in the books of accounts pertains to both the firms, stated for the purpose of controlling the transactions. Therefore AO is directed to rework out the total turnover taking the ratio at 1: 1.28. and apportion between two firms on the basis of declared turnover in each year.
17ITA.Nos.674 to 680/Hyd/2013 & ITA.Nos.681 to 687/Hyd/2013 M/s. Dada Prints & M/s. Paragon Prints, Hyderabad.
12. Another aspect which requires adjudication is the year(s) in which this estimation can be resorted to. As seen from the order of AO, he has estimated in all years in the Block period, without restricting to the years in which such dairies are available. Both assessee and Revenue relied on the Jurisdictional High Court order in the case of Rajnik and Co. vs. ACIT (2001) 251 ITR 561 (AP) (HC). In that case the facts and decision of Hon'ble High court are as under :
"A search was conducted on 13th Nov., 1996, in the business premises of the group concerns and also the residential premises of the partners of the assessee and residential premises of certain employees of the assessee. The search had resulted in the seizure of certain incriminating material leading to the case of suppression of sales practised by the assessee-firm in the form of loose slips, which were not brought to the accounts of the assessee-firm. The search has also resulted in the seizure of unaccounted cash as well as unaccounted transactions in respect of various investments. During the course of investigation the assessee-firm also admitted to an undisclosed income of Rs. 7.38 lakhs. As the search was conducted after 30th June, 1995, proceedings were initiated under Chapter XIV-B for framing of the assessment for the block period from 1st April, 1985 to 13th Nov., 1996, till the date of search. Accordingly, the assessee was asked to file a return for the block period as a result of the search conducted by the Department and the assessee-firm filed its return declaring an undisclosed income of only Rs. 7 lakhs. The AO thereafter conducted the enquiry in the matter and framed the assessment determining the undisclosed income at Rs. 63,08,120. The said amount was arrived at by the AO basing on the loose slips recovered from the assessee during the course of search, representing the unaccounted sales and by estimating such suppressions for the asst. yrs. 1996-97 and 1997-98 till the date of the search. The AO also found that certain evidence was recovered representing the unaccounted investments to the tune of Rs. 20,12,204. In view of the largeness of the estimated undisclosed income, no separate addition was made on account of the unexplained investments. The assessee aggrieved by the 18 ITA.Nos.674 to 680/Hyd/2013 & ITA.Nos.681 to 687/Hyd/2013 M/s. Dada Prints & M/s. Paragon Prints, Hyderabad.
said addition carried the matter in appeal to the Tribunal. Before the Tribunal various contentions were advanced on behalf of the assessee. The Tribunal after considering the rival contentions, though did not find any defects in the assessment based on material seized from the assessee- firm but, however, while making the estimate felt that the method adopted by the AO was not proper and just in estimating a uniform rate of suppressed sales from day- to-day for the entire period of 1996-97 and 1997-98 assessment years. According to the Tribunal, there may be fluctuations in the business thereby variation in the quantum of suppressed sales and, therefore, the Tribunal instead of estimating at an average rate of Rs. 1,43,175 per day for the whole period of 279 days in the year, as was adopted by the AO restricted the addition to the actual suppression found, only fix times the turnover for the asst. yr. 1996-97. Similarly for the asst. yr. 1997-98, the Tribunal made an addition of only three times as the period of business was only less than six months by the date of the search. The Tribunal also reduced the rate of gross profit from 7.35 per cent adopted by the AO to 6 per cent and, accordingly, determined the undisclosed income for the asst. yrs. 1996-97 and 1997-98 (till the date of search) at Rs. 21,40,349. Insofar as the estimated suppression for the assessment years up to 1995-96 is concerned, the Tribunal agreed with the estimated addition made by the AO to the extent of Rs. 8,38,579 which was estimated at 20 per cent of the admitted turnover and worked out at the same rate of profit as was declared by the assessee. The Tribunal also having found that this estimated undisclosed income was more than the undisclosed investments found to have been made by the assessee and its partners, no separate additions were made. Therefore, the Tribunal determined the undisclosed income of the assessee for the block period at Rs. 29,78,920, the break up of which was given by the Tribunal in para. 14 of its order. Aggrieved by the said order of the Tribunal, the assessee is before this Court :
Held The counsel was not able to dispute the findings of the AO as well as the Tribunal, where seized material shows that there was suppression for a period of 24 days during the asst. yr. 1996-97 and 15 days for 1997-98 and also that the suppressions were on day-to-day basis and the 19 ITA.Nos.674 to 680/Hyd/2013 & ITA.Nos.681 to 687/Hyd/2013 M/s. Dada Prints & M/s. Paragon Prints, Hyderabad.
evidence recorded from the partners shows that the same method was adopted throughout the assessment years for the entire block period. In the light of such evidence recovered from the assessee at the time of search, together with the admission of the partner, there is absolutely no justification for the assessee to contend that there is no evidence on record. For the asst. yr. 1996-97, the assessee carried on the business for the entire year (279 working days), whereas for the asst. yr. 1997-98 the assessee carried on the business till the date of search and the estimation is confined only for that period (178 days). Therefore, where the assessee had carried on the business for the entire period of full year, the addition was made at six times the suppression found during that year and for the asst. yr. 1997-98 the addition was restricted to only three times, as the assessee had carried on the business only for half of the period with reference to the earlier year, where six times addition was made.
Therefore, there is every reason for the Tribunal to restrict the addition only to three times for the asst. yr. 1997-98. The estimations of the undisclosed income made by the Tribunal are based on relevant material and there is absolutely no reasonableness or arbitrariness while making such estimation. With reference to the addition made for the asst. yrs. 1986-87 to 1995-96, no doubt there is no material but it is admitted by the partner of the assessee-firm that the assessee had practised suppression of sales turnover. Taking the quantum of business that was carried on by the assessee-firm, the AO estimated the suppression at 20 per cent and adopted the gross-profit rate that was returned by the assessee. The Tribunal felt that there is no unreasonableness is adopting such estimation. The evidence of the partner clearly shows that the firm has suppressed the turnover even in those years also. Therefore, the authorities below are justified. In the light of the above, there is no case for the assessee to contend that the estimation is not based on any material. It is clear that there is abundant material on record not only in the form of loose slips/sheets showing the suppressed turnover relating to the day-to- day suppressions but also by way of admission in the sworn statement of a partner of the firm, showing that the day-to-day suppressions were carried on throughout the assessment years for the entire block period. Therefore, there is absolutely no merit in the contention of the assessee that the estimations made by the AO as well as 20 ITA.Nos.674 to 680/Hyd/2013 & ITA.Nos.681 to 687/Hyd/2013 M/s. Dada Prints & M/s. Paragon Prints, Hyderabad.
by the Tribunal are not based on any material but merely based on conjectures and hypotheses. The Tribunal has rightly found that the estimation of the suppressed turnover as well as undisclosed income by the AO was on the higher side and the Tribunal on consideration of the material on record re-determined the suppressed turnover as well as the undisclosed income, which is reasonable and proper which is based on the material on record. In that view of the matter, no question of law, much less a substantial question of law, arises out of the order of the Tribunal for consideration. Accordingly, the appeal is dismissed at the admission stage."
Thus in the said case, there is admission by the partner that they were resorting to same method in earlier years as well. Even then, the GP adopted in other years was less. However in this case, assessee has not admitted that the turnovers recorded are undisclosed. Infact the statement was that they recorded in small note books for the purpose of controlling and belongs to both firms and are of accounted transactions. Be that as it may, as seen from para 7 in Page 10 of AO order in the case of Paragon, the unaccounted sales as per various annexure listed there are for few months (11 months) from the period November 2002 to September 2004. Thus incriminating material was available only in Assessment years 2003-04, 2004-05 and part of AY 2005-06 ( up to date of search) in the Block period. Thus estimation can only be done in those years only. Even though AO verified some DDs pertaining to AY 2002-03 for rejecting books of account, the invoices / data impounded are in relation to invoices recorded in Books of account. There is finding by AO that invoices are accounted but payments by DDs are not matching. Therefore that alone can not be taken for estimation of undisclosed turn over in AY 2002-03. AO is directed to calculate the additional sales turn 21 ITA.Nos.674 to 680/Hyd/2013 & ITA.Nos.681 to 687/Hyd/2013 M/s. Dada Prints & M/s. Paragon Prints, Hyderabad.
over in both assessee's case in those three assessment years i.e., AY 2003-04, 2004-05 and Part of AY 2005-06 only.
13. Having arrived at the unaccounted turnover in each case, the issue is with reference to profit on the undisclosed turnover. A.O. after arriving at the total turnover considered the same as income, without considering the cost as per books recorded on disclosed sales turnover. It is not correct to tax 100% of the undisclosed turnover as income as assessee certainly incurs expenditure including cost of purchases. Ld. CIT(A) in the earlier round of the orders considered this and allowed deduction up to 65%. But he confirmed on declared turnover also for estimation of income. His earlier order also can not be accepted for determining profits, as the declared expenses were not considered. Assessee declared the GP/NP ratio in various years as under.
A.Y. Sales (Rs.) GP (Rs.) % of GP * NP (Rs.) % of NP 1999-00 4,43,09,465 39,96,670 9.02 8,11,192 1.83 2000-01 7,27,67,937 38,71,026 5.31 8,72,327 1.20 2001-02 6,82,81,485 38,57,077 5.65 8,92,333 1.30 2002-03 6,10,00,182 46,70,154 7.66 Loss NA 2003-04 4,74,52,595 49,77,970 10.49 1,86,487 0.40 2004-05 6,29,14,233 96,85,907 15.40 21,64,452 3.44 2005-06 2,94,42,392 47,89,457 16.27 Loss NA
14. Considering that assessee net profit is varying from 0.40% to 3.44 % and Gross profit is varying from 5.31% to 16.27%, considering that the turnover is outside the books of account, one can estimate the net profit at 10% of the additional turnover. Since assessee recorded all expenditure in books of account and as there is no evidence to establish any 22 ITA.Nos.674 to 680/Hyd/2013 & ITA.Nos.681 to 687/Hyd/2013 M/s. Dada Prints & M/s. Paragon Prints, Hyderabad.
additional expenses out side books of account, we are of the opinion that 10% net profit on the additional turnover will meet the ends of justice in this case. AO is directed to work out accordingly. This income so determined, will be in addition to declared incomes on declared turnovers, as per returns already filed. Grounds are partly allowed.
15. In the result, appeals in both cases for A.Ys. 1999- 2000 to 2002-03 are 'allowed' and appeals in A.Y. 2003-04 to 2005-06 are treated as 'allowed partly'.
Order pronounced in the open Court on 10.12.2014.
Sd/- Sd/-
(ASHA VIJAYARAGHAVAN) (B.RAMAKOTAIAH)
JUDICIAL MEMBER ACCOUNTANT MEMBER
Hyderabad, Dated 10th December, 2014.
VBP/-
Copy to
1. M/s. Dada Prints, C/o. Mr. K. Vasant Kumar, A.V.
Hyderabad Raghuram & P. Vinod, Advocates,
Flat No. 610, 6th Floor, Babukhan
2. M/s. Paragon Estate, Basheerbagh, Hyderabad -
Prints, Hyderabad 500 001.
3. CIT(A)-V, Hyderabad
4. CIT(A)-VI, Hyderabad
5. D.R. ITAT "B" Bench, Hyderabad.