Income Tax Appellate Tribunal - Chandigarh
Punnie Bko,, Ludhiana vs Assessee on 5 January, 2012
IN THE INCOME TAX APPELLATE TRIBUNAL
CHANDIGARH BENCH 'B' CHANDIGARH
BEFORE Shri H.L.KARWA, VICE PRESIDENT
AND SHRI MEHAR SINGH, ACCOUNTANT MEMBER
ITSS No. 41/CHD/2003
Block Period 01.04.1988 to 08.01.1999
M/s Punnie, BKO V The ACI T, Range IV,
155, Bharat Nagar Chowk, Ludhiana.
Ludhiana.
PAN: ---------------
(Appellant) (Respondent)
Assessee by : Shri S.R.Chhabra
Department by : Shri S.K.Khemwal
Date of Hearing : 05.01.2012
Date of Pronouncement : 09.01.2012
ORDER
PER MEHAR SINGH, AM
The present appeal filed by the assessee is directed against the order dated 25.09.2003 passed by the ld. CIT(A)-II Ludhiana.
2. In this appeal, the assessee has raised the following Grounds of Appeal:
"1. On the f acts and circumstances of the case, the ld.
CIT(A)-II Ludhiana erred in law and on f acts:-
a) In rejecting the legal objections raised by the assessee in regard to opportunity having been denied to the assessee by the AO regarding the computation of f inal undisclosed income worked out by him as well as by the JCIT Range-IV, Ludhiana while giving approval to the block assessment order.2
b) In upholding the estimate of sales f or each assessment year f alling within the block period by not appreciating the assessee's submissions duly supported by entries in the seized documents and the case laws on the subject.
c) In upholding the estimate of GP rate at 23% ignoring the assessee's submissions and other comparable cases in the same line of business.
d) In upholding the disallo wance of expenses of Prof it & Loss Account nature which are normally incurred and some of which were payments to Govt. and semi Govt. organizations say sales tax, electricity charges etc.
2. That the assessee craves permission to raise, amend or add any ground of appeal at the time of hearing.
3. Ground No.1 raised by the assessee is marked under various segments from (a) to (d), whereby the assessee contended that CIT(A)-II Ludhiana erred in upholding the estimate of sales for each assessment year falling within the block period by not appreciating the assessee's submissions, duly supported by entries in the assessee's documents and case laws. The assessee also challenged the upholding of estimate of GP rate at 23% ignoring the assessee's submissions. Further, the assessee challenged upholding of the disallowance of expenses of Profit & Loss Account nature which are normally incurred.
4. Ld. 'AR' did not press Ground No. 1 (a) and hence, the same is dismissed as not pressed.3
5. In the course of present appellate proceedings. Ld. 'AR' contended that no estimate can be made in respect of block assessment made u/s 158BC/BD of the Income-tax Act,1961 (in short 'the Act'). In this case, the brief facts of the case are that search & seizure operations u/s 132 of the Act were conducted at the residential premises of Shri Lakhbir Singh at 183-184G, BRS Nagar, Ludhiana on 08.01.1999. In the course of search & seizure operation, several incriminating documents pertaining to M/s Punnie BOK were seized.
Consequently, AO issued notice u/s 158BD of the Act on 24.11.1999 requiring the assessee to file return in Form 2B within 30 days of the receipt of the said notice for the block period commencing from 1.4.1988 to 8.1.1999. In response to the said notice, the assessee filed a return on 11.12.2000 declaring undisclosed income of Rs.7.50 lacs. The AO, on examination of the seized books of account and the documents, found unaccounted sales of bricks. Consequently, the AO held that the regular books of account of the assessee did not reflect true and correct profits in respect of bricks' kiln. He further observed that the regular books of account are not reliable. Accordingly, the provisions of Section 145 were invoked by the assessee and after a detailed discussion and examination of the seized documents in respect of financial year falling under this block period, undisclosed income of Rs.70,13,557/- was determined by the AO. The AO adopted GP rate at 23% for the purpose of computing undisclosed income. It was categorically held by the AO that assessee is not entitled for 4 any expenses as the same had already been covered under the 'Expenses Head' of 77%, since GP has been adopted at 23%. The AO found that the assessee is showing GP rate for various financial years from 1993-94 to 1997-98 between 12.49% to 14%. The AO also referred to the decision of the Hon'ble Supreme Court in the case of Commissioner of Sales Tax, Madhya Pradesh V H.M.Esuf Ali, H.M.Abduli (1973) 90 ITR 275 (S.C), wherein it was held that even though transactions for the part of the year are found unaccounted, it may be multiplied in the whole year to estimate the income of the complete year.
6. The ld. CI T(A) upheld the findings of the AO and categorically held that in view of the Express provisions of Chapter XIV, the assessee is competent to make estimate based on the seized documents. A bare perusal of the provisions of Section 158BC(b) clearly reveals that the provisions of Section 145 read with Section 144 are applicable while framing block assessment u/s 158BC(b) of the Act. The relevant part of the provision is reproduced hereunder :
"158BC(b)-" The AO shall proceed to determine the undisclosed income of the block period in the manner laid do wn in Section 158BB and the provisions of Section 142, sub-sections (2) and (3) of Section 143 (Section 144 and Section 145) shall, so f ar as may be, apply;"
7. Having regard to the submissions made by the assessee and on a careful perusal and consideration of the relevant 5 provisions of the Act, findings of the ld. CIT(A) and the findings of the AO, we are of the considered opinion that there is a specific provision u/s 158BC , which confers jurisdiction on the AO to invoke the provisions of Section 145 as also Section 144 of the Act. Thus, AO is competent to make estimate based on the incriminating documents.
8. Provisions of Section 158BC(b) particularly insertion of Section 144 was made by the legislature vide Finance Act 2002 w.e.f. 01.07.1995. Having regard to the fact situation of the present case, the AO has extensively placed reliance on the seized documents and determined the sales of bricks outside the required books of account, which were admitted by the assessee for the financial year 1993-94, 1994-95, 1995-96 and 1998-99. It is pertinent to mention that the AO worked out sale of bricks for the financial year 1996-97 at Rs.61,68,819/- whereas the assessee worked sales of bricks at Rs.59.63 lacs. Similarly, for the financial year 1997-98, the AO worked out the sales at Rs.64,26,735/- whereas the assessee worked out the sale of bricks at Rs.61,68,819/- Therefore, in these two financial years, viz 1996-97 and 1997-98, there is insignificant difference between the estimation made by the AO and the assessee. Accordingly, the findings of the AO, based on the analysis and examination of the seized documents for the purpose of quantification of the sale of bricks outside the books of account is admitted for the reasons that in the abovesaid financial years, the assessee had itself admitted the sales outside the books of account, as discussed above. In view of 6 the above discussions, the contention raised by the assessee that estimation of sale of bricks on the basis of seized documents cannot be made, is not statutorily tenable.
9. Ld. 'AR' contended that the CIT(A) has failed to appreciate the factum after confirming the GP rate, to consider and allow expenses appearing in the Profit & Loss Account. He was of the opinion that in such cases, it is proper to follow NP and not GP. He placed reliance on the decision in the case of C.V. Sunny V ACIT (1008) 7 DTR (Chennai) (TRIB) 478. The relevant part of the said decision is reproduced hereunder :
"search & seizure-Block assessment-Computation of undisclosed income-Undisclosed income, which can be assessed under Chapter XIV-B should be that amount which is computed on the basis of evidence f ound as a result of search and such other material or inf ormation as are avail able with the AO and are relatable to such evidence-If there is no evidence or the evidence has already come on record or has been disclosed by the assessee in the assessment proceedings, then that evidence cannot be said to have been f ound as a result of search-Search party f ound the suppressed sales relating to 22 days at Rs.1.86 crores relating to the period 10 t h Oct.,2002 to 3rd Nov.,2002 as against disclosed sales of Rs.26.66 lakhs-AO, on the basis of GP disclosed in the audited accounts for the above period, estimated sales for the block period and made additions to wards undisclosed income f or assessment years 1997- 98 to 2003-04 (upto 26 t h Nov.,2002) f alling in the block period-Not justif ied-Block assessment has to be f ramed on the basis of seized material which in this case is sales particulars relating to 22 days i.e. 10 t h Oct.,2002 to 3 r d Nov.,2002-No other material or asset details were found during the course of search-In the f ormula 7 adopted by the AO there is no question of best judgment as the assessee has already disclosed income from unaccounted sales-In the statements of assessee recorded during search, there was no incriminating material which could be termed as evidence on the basis of which the undisclosed income could be computed-If any material is collected by the revenue consequent to the search which is not rel ating to the period in question, that may not give authority to the Department to make the computation of undisclosed income on estimation basis under s. 158BB or assessment under s. 158BC especially when the income rel ating to unaccounted sales had already been disclosed to the Department-Assessee having already disclosed the income f rom unaccounted sales in the regul ar return, the adequacy or inadequacy of this income cannot be questioned in the block assessment-As the issue is relating to estimation of income on the basis of multipl ication of suppressed turnover f ound during the course of search and not making addition on the basis of ans wer to a particul ar question, such ans wer is not relevant as the AO has not made any addition on the basis of such ans wer-Merely because the assessee admitted in the statement under s. 132(4) regarding suppression of sales, that cannot be considered as the basis f or addition, though there was no seized material relating to the impugned period-Since the words "may be presumed" are incorporated in the Section, it gives option to the authorities concerned to presume the things-But it is rebuttable and it does not give definite authority and not a conclusive one-The assessee has every right to rebut the same by producing evidence in support of its claim-Since there is no justif ication f or estimation of income, there is no question of considering the basis f or estimation, whether on GP or net prof it- Ho wever, if at all the income is to be estimated, it has to be done on the basis of net prof it only-AO is directed to 8 conf ine to determination of undisclosed income only on 'net asset' basis based on the materials and evidences found during the course of search, if it is not ref lected in the regular books of account."
10. The AO, further, placed reliance on the decision of the ITAT, Indore in the case of Eagle Seeds & Biotech Ltd. V ACIT (100 ITD 301 (Indore). The relevant part of the decision is reproduced hereunder :
"Whether to determine undisclosed income of assessee on unaccounted purchases f ound during course of search, AO should apply net prof it rate as per books of assessee and not gross prof it rate
- Held- yes."
11. Further, the ld. 'AR' placed reliance on the decision of the Hon'ble Punjab & Haryana High Court in the case of CI T V Pawan Kumar (2008) 9 DTR 104 (P&H). We have carefully perused the facts of the decision relied upon by the assessee and found that same is not applicable, being materially and factually difference and distinguishable. In the case relied upon by the assessee, the regular assessment and not the block assessment is involved. In the present case, the assessment is framed by the AO u/s 158BC(c) of the Act, on the basis of seized material. Accordingly, the reliance placed by the assessee is misplaced.
12. Ld. 'DR' placed reliance on the order passed by the lower authorities.
9
13. We have carefully perused the facts of the case, rival submissions and the case laws cited by the assessee. Ld. 'AR' contended that net profit should be applied which ranges between 1.76% to 6.9%, in respect of assessment years falling in the block period disclosed by the assessee in the original returns. Ld. 'AR' also placed reliance on the comparable case in the case of M/s Preetpal Singh, BKO and M/s Amrik Singh, BKO. The comparable cases relied upon by the assessee are not applicable to the facts of the present case, as in such cases, assessment was framed u/s 143(3) based on the basis of regular books of account. There was no search operation conducted in such cases. In the present case, the AO had framed assessment on the strength of seized incriminating documents which contained sales outside the regular books of account and other relevant details.
14. It is settled proposition of law that like must be like with like, for the purpose of drawing meaningful, rational and legally tenable conclusions. The comparable cases relied upon by the assessee are factually different and distinguishable, hence, do not serve as a measuring standard for adoption of their results in the case of the present case. The assessee has failed to cite a case based on rational and intelligible criteria, in his scheme of making such comparison. The old principle of comparing like with like was not adhered to and, hence, the twin criteria of 10 fairness and reasonableness is conspicuously absent in the comparable cases, relied upon by the assessee. Consequently, the comparable cases relied upon by the assessee are not applicable to the facts of the present cases.
15. A bare perusal of the two decisions of the Tribunals relied upon by the assessee, as discussed above, deals the issues pertaining to applicability of net profit in search cases. Therefore, having regard to such case laws cited by the assessee, undisclosed income is computed by adopting net profit for various assessment years falling in the block period, as discussed earlier. The AO and the assessee estimated the sales of bricks for various financial years and at the cost of repetition, the assessee admitted the sales computed by the AO for the financial year 1993-94, 1994- 95, 1995-96 and 1998-99 for the financial year 1996-97, 1997-98 falling under the block period, there is insignificant difference in the working out of the sale of bricks by the assessee and the AO, as discussed earlier. Thus, having regard to the detailed examination and analysis of the various seized books of account and other incriminating documents, the AO had worked out the sale of bricks for various financial years in his block assessment year from page 2 to 14 of the impugned block assessment order. Therefore, in all fairness, having regard to the insignificant difference in the sale of bricks in the two financial years, as discussed earlier, we are inclined to accept the sales of bricks, worked out by the AO, being based on the examination of seized documents and insignificant 11 difference in two financial years, as discussed earlier. It is pertinent to mention that both the ld. 'AR' and ld. 'DR' accepted the factual position regarding the determination of sales of bricks.
16. In the present case, the AO has adopted GP at 23% of such sales and computed the undisclosed income of the assessee for the block period at Rs.70,13,557/-. However, having regard to the fact situation of the present case and the analysis of incriminating seized documents and case laws relied upon by the assessee, we deem it fair and reasonable to apply net profit rate at 7.85% for the purpose of determination of the undisclosed income for the block period. Therefore, these grounds of appeal raised by the assessee are adjudicated in the above terms. The AO is directed to apply NP at 7.85% for the purpose of computation of undisclosed income of block period. The facts of the present case are very special in view of the factum of the pragmatic examination of the seized material by both the AO and the assessee, leading to almost similar result in the matter of working out the sale of bricks. Therefore, the decision of the Bench is based on such special facts of the present case and we would like to state in clear terms that this decision is confined to the facts of this case and may not be treated as an authority on aspects, which have been decided therein, for general application. 12
17. Ground No. 2 raised by the assessee is general in nature and need no separate adjudication.
18. In the result, appeal of the assessee is allowed for statistical purposes only.
Order pronounced in the Open Court on 9 t h Jan.,2012.
Sd/- Sd/- (H.L.KARWA) (MEHAR SINGH) VICE PRESIDENT ACCOUNTANT MEMBER Dated: 9 t h Jan.,2012. 'Poonam' Copy to:
The Appellant, The Respondent, The CI T(A), The CIT,DR Assistant Registrar, I TAT Chandigarh