Kerala High Court
The Commissioner Of Income-Tax-I vs Orma Marble Palace (P) Ltd on 10 January, 2019
Bench: K.Vinod Chandran, Ashok Menon
IN THE HIGH COURT OF KERALA AT ERNAKULAM
PRESENT
THE HONOURABLE MR.JUSTICE K.VINOD CHANDRAN
&
THE HONOURABLE MR.JUSTICE ASHOK MENON
THURSDAY, THE 10TH DAY OF JANUARY 2019 / 13TH POUSHA, 1940
I.T.A.No.19 of 2011
AGAINST THE ORDER IN I.T.(S&S) A.NO.139/COCH/2004 DATED 22.06.2010
OF THE INCOME TAX APPELLATE TRIBUNAL, COCHIN BENCH, COCHIN.
[ASSESSMENT YEAR - BLOCK PERIOD 1990-91 TO 1999-2000 (UPTO 02.03.2000)]
APPELLANT/APPELLANT:
THE COMMISSIONER OF INCOME-TAX-I,
COCHIN.
BY ADV. SRI.JOSE JOSEPH, SC FOR GOI (TAXES)
RESPONDENT/RESPONDENT:
ORMA MARBLE PALACE (P) LTD.,
KOTHAKULANGARA, ANGAMALY - 683 572.
BY ADV. JOSEPH MARKOS [SR.]
ADV.SRI.N.RAGHURAJ
ADV.SMT.K.AMMINIKUTTY
THIS INCOME TAX APPEAL HAVING BEEN FINALLY HEARD ON
03.01.2019, THE COURT ON 10.01.2019 DELIVERED THE FOLLOWING:
I.T.A.No.19 of 2011 - 2 -
JUDGMENT
Vinod Chandran,J.:
Simultaneous search and seizure proceedings under Section 132 of the Income Tax Act, 1961 [for brevity "the Act"] was made on 02.03.2000, in six business concerns coming under a group, known as "Orma Group" of concerns.
The residence of the Directors were also searched. Block assessment was carried out for the period 1990-91 to 1999-2000 and broken period upto 02.03.2000, on all the concerns. Modifications were made by the appellate authorities, against which appeals were filed by the Revenue against all the concerns. Five of such appeals were withdrawn by the Department in pursuance of the litigation policy of the Government of India. The sole appeal surviving is with respect to a Private Limited Company;
also coming under the said group.
2. The issues arising from the assessment order as challenged by the assessee before the Tribunal were on the question of undisclosed investments as also the undisclosed income detected under four separate heads of under-invoicing, undisclosed sales, investments in unaccounted purchases, and interest income. The AO found that the undisclosed income was in excess of the I.T.A.No.19 of 2011 - 3 - undisclosed investments. An assessment, hence was carried out bringing to tax Rs.1,50,83,279/- for the block period as undisclosed income. Out of this, the NRE gifts and loans, amounting to Rs.15,19,000/- disclosed in the block periods, in the returns of the Directors and one of the firms was reduced. The total income thus brought to tax was Rs.1,36,64,279/- as undisclosed income.
3. On first appeal, the Commissioner of Income Tax considered the grounds raised on the undisclosed investments as also the undisclosed income. The excess stock, found of Rs.20,61,480/- was found to be more or less correct, since the assessee had not seriously challenged the quantity of excess stock, but for the contention raised with respect to broken and cracked materials. The first appellate authority found that the AO had already granted an allowance for the same; but all the same extended benefit of doubt and allowed a reduction of Rs.1 lakh. The undisclosed investment, on excess stock, of Rs.19,61,480/- stood confirmed. As to the unexplained investment in land and property, it was found that the search recovered only agreements for sale entered into by the employees of the assessee who obviously did not have the capacity to make such purchases. However, there was nothing seized as to the I.T.A.No.19 of 2011 - 4 - sale having finally fructified. The AO has also not conducted any enquiry as to the agreements having materialized into sale and the conveyance of the properties having taken place. The first appellate authority, hence, confined the undisclosed investment in land and property to Rs.1,51,000/-; being the advance amounts revealed as paid from the agreements recovered from the premises of the assessee. The gifts and loans from non-residents as claimed by the assessee were found to be bogus by the AO, to the extent of Rs.27,82,912/-. Out of this, Rs.15,69,000/- having been offered in the block assessment by the respective recipients of the gifts, was deleted by the AO himself. The balance remaining was Rs.7,58,427/-. The assessee had claimed it to be loans obtained from third parties, whose names and addresses were supplied to the AO and the confirmation letters also filed. It was found that the claim of loans of Rs.7,58,427/- was also not with respect to the Private Limited Company, who is the respondent-assessee herein. The undisclosed investments with respect to gifts and loans was, hence, confined to Rs.84,000/-. The investment in the office building, found to be undisclosed, coming to Rs.1,25,720/-, was not seriously challenged by the assessee and the same stood I.T.A.No.19 of 2011 - 5 - confirmed. The further investment found is with respect to development of land at Kothakulangara, Angamaly. The five Directors of the Company had purchased properties, measuring 85.806 cents, and constructed an office building therein belonging to the Directors in their individual capacity. The AO found the land to be low lying and requiring filling up for the purpose of construction. The undisclosed investment for development of property was found to be Rs.10,00,000/-. The first appellate authority found that there was absolutely no evidence to arrive at such an amount and no enquiry has been conducted to that end. The entire amounts said to have been invested for development of land was set aside. The total undisclosed investment, as confirmed by the first appellate authority, was found to be Rs.23,22,200/-.
4. The first appellate authority then looked at the undisclosed income as found by the AO. The AO had found suppression of sale to the extent of 10% on the sales returned in each of the assessment years of the block period. The first appellate authority held that there was no material found in relation to under-invoicing of sale for the assessment years 1996-97 to 1999-2000. The materials recovered, pointing to under-invoicing on sale, I.T.A.No.19 of 2011 - 6 - was confined to the financial year in which the search and seizure operations took place. The reply given by the assessee with respect to the allegation of under-invoicing of sale was elaborately dealt with by the first appellate authority. The assessee had contended that the AO has absolutely no power to estimate income on the basis of the available seized incriminating documents. The appellate authority has to confine such estimation, if at all made, to the year for which the documentary evidence was detected and seized was the finding in appeal. There was also a contention taken that the statements made by the employees of the assessee were under duress and that no reliance could be placed on the same. It was also contended that based on the statement of the employees associated with the other concerns, there was an estimation made with respect to this particular assessee. The first appellate authority found that the statements do not have any relevance with the assessee and are sweeping in nature, which cannot be taken as evidence. The reliance placed on such statements without any corroborative evidence, was found to be illegal. The first appellate authority confined the addition with respect to under-invoicing of sale to Rs.9,26,893/-, as those occasioned in the year in which the I.T.A.No.19 of 2011 - 7 - search and seizure was conducted, i.e., 2000-2001. The first appellate authority also relied on various decisions of different High Courts to find that the estimation made for the other years, as against which no corroborative evidence was recovered, cannot be sustained. The undisclosed income estimated for the assessment years 1996- 97 to 1999-2000 was set aside, holding that there is total absence of tangible material on record to make such an estimation.
5. The further head under which undisclosed income was found by the AO were unaccounted purchases and the corresponding sales. The AO determined the undisclosed investments in purchases at Rs.28,66,305/-, which was determined as undisclosed income. The corresponding sales for each of the assessment years was determined at Rs.5 lakhs; totalling the unaccounted sales of Rs.25 lakhs. The undisclosed income so estimated from the unaccounted sales was spread over for the assessment years 1996-97 to 2000-01. The appellate authority also looked into the seized materials as discussed by the AO. The seized materials were, a document showing an expenditure of Rs.1,80,000/- to a supplier, seizure of cash amounting to Rs.8,15,000/- by the police which was owned up as relating I.T.A.No.19 of 2011 - 8 - to M/s.Orma Marble Palace and a balance-sheet and profit and loss statement submitted to the State Bank of Travancore, Angamaly Branch on 30.08.1995. The balance-sheet submitted to the Bank for the purpose of availing of loan indicated a reserve and surplus of Rs.35 lakhs with the closing stock of Rs.60.2 lakhs. It was based on this that the AO determined the unaccounted purchases for the year 1996-97 at Rs.28,66,305/-. The defence of the assessee was that the balance-sheet was submitted to the Bank to procure Overdraft of Rs.60 lakhs. There was also a contention raised that the document as obtained from the SBT, Angamaly Branch was not admissible in the block assessment proceedings for the same having not been recovered in the process of search and seizure under Section 132. The first appellate authority found that the assessee having started the business in December, 1994; carried on the same only for three months in the financial year relevant to the assessment year 1995-96. The assessee had made only purchases during the said period coming to Rs.10 lakhs shown as closing stock as on 31.03.1995. Referring to the balance-sheet submitted to the Bank as on 30.08.1995 and the closing stock of Rs.60 lakhs, it was found that the total purchases made during the period was I.T.A.No.19 of 2011 - 9 - of Rs.32.08 lakhs as against the sale of Rs.21.92 lakhs. The discrepancy with respect to the balance-sheet as framed on the close of the assessment year 1995-96 and that produced before the Bank was found to support the contention of the assessee. It was held that there was no credible evidence to support the claim of closing stock of Rs.60 lakhs as on 30.08.1995. We immediately notice our strong objection with respect to such finding, since the closing stock as found by the AO was based on the balance-sheet as submitted by the assessee themselves before the Bank. We will deal with the question of admission of the document later. The figures available in the balance-sheet submitted before the Bank leading to an anomalous situation, was held to be not reliable. The addition of Rs.28,66,305/- as made by the AO on the basis of the balance-sheet submitted by the assessee before the Bank was set aside, finding that the figures revealed from the balance-sheet as on 31.08.1995 was anomalous and that the document could not be relied on; having not been recovered in the search and seizure. The unaccounted sales estimated for the five years at Rs.5 lakhs was also found to be without any basis and the same was set aside. I.T.A.No.19 of 2011 - 10 -
6. On the question of undisclosed interest income, the AO had relied on a Diary recovered from the business premises, which was named "Essar Collection Book". The assessee claimed the same to be petty loans to the temporary and casual workers and the interest received on the said accounts. The AO found that though 2 digit figures are shown with decimals, the amounts cannot be in tens, hundreds or thousands. The AO decoded the figures as existing in lakhs and thus made the addition of Rs.66,65,000/- and determined interest income at the rate of 24% for the five months in the assessment year 2000-01, at Rs.6,66,500/-. The first appellate authority found that such determination of interest income and the decoding of the figures was without any basis. The entire interest income determined as undisclosed was set aside. The first appellate authority, hence, computed the undisclosed investments and undisclosed income in the following manner:
"Asset method Income
method
i) Excess stock 19,61,480 { Undisclosed 1,14,442
ii) Unexplained { income on a/c of
investment in { under-invoicing
landed property 1,51,000 { for A.Y.00-01 1,41,564
iii) Unexplained {
investment in { 1,03,550
building 1,25,720 { 1,716
iv) Unexplained {
expenditure 84,000 { 5,65,533
--------- --------
23,22,200 9,26,805".
I.T.A.No.19 of 2011 - 11 -
For the block period, the first appellate authority
sustained an addition of Rs.23,22,200/- as undisclosed
income.
7. The Department filed an appeal before the
Tribunal and the assessee filed a Cross Objection. On the question of excess stock detected amounting to Rs.20,61,480/-, the Revenue's grounds were rejected and the assessee's grounds were partly allowed; directing the AO to allow breakage allowance at 25%. The undisclosed investment on land and property as restricted by the first appellate authority at Rs.1,51,000/- was upheld by the Tribunal, rejecting the Revenue's appeals. The scaling down of gifts and loans as asserted to be from non-residents was also confined to that allowed in first appeal, being Rs.84,000/-. On the undisclosed investment of Rs.1,25,720/-, as noticed by the first appellate authority, there was no serious objection raised by the assessee. On the question of investment for development of property at Kottakulangara, the issue was found in favour of the assessee and the first appellate authority's order was confirmed to that extent. We have to find that there could be no serious dispute raised on the computation of undisclosed investments as modified by the first appellate I.T.A.No.19 of 2011 - 12 - authority and confirmed by the Tribunal. We find that the exercise has been done on the basis of the facts as available in the records. We also notice that 25% allowance for breakage was granted by the Tribunal on a discussion of the normal practises in the business. We do not find any perversity in the said finding on the question of undisclosed investment. We perfectly agree with the orders passed by the appellate authorities on that aspect.
8. The further question is on the undisclosed income as determined by the AO and modified by the first appellate authority. The Tribunal upheld the order of the first appellate authority on the question of under-invoicing of sales relying on the decision in CIT v. J.K.Narayanan [(2007) 293 ITR 179 (Mad)] on the basis of the declaration therein that addition of undisclosed income could be made only on the basis of search and materials recovered thereat. The finding was that the addition can be made only with respect to the assessment year 2000-01. Relying on the very same decision, the issue of unaccounted purchases and sales were also decided against the Revenue, confirming the order of the CIT (Appeals). So was the fate of the undisclosed interest income, which also stood affirmed by the Tribunal as I.T.A.No.19 of 2011 - 13 - reversed by the first appellate authority.
9. The questions of law arising from the order are only with respect to the undisclosed income and we re-frame it as follows:
(i) Whether the Tribunal was correct in having affirmed the order of the CIT (Appeals) confining the additions made with respect to under-invoicing of sales to the assessment year 2000-01 when there was indicated a consistent practise of such under-invoicing?
(ii) Whether the Tribunal was correct in having held that there could be no estimation carried out for the other years in the block period when there were no documents seized to evidence such under-invoicing having been carried out in the earlier years?
(iii) Whether the Tribunal was correct in having affirmed the view of the CIT (Appeals) that the balance-sheet submitted by the assessee before the Bank as on 31.08.1995 cannot be relied on for reason of that document having not been recovered on search and the figures reflected therein being anomalous when compared with the figures in the balance-sheet filed by the assessee as on the close of the respective assessment years?
(iv) Whether the Tribunal was correct in having deleted the estimation made by the AO at the rate of Rs.5 lakhs per year on the unaccounted sales which could have been carried out by the assessee?I.T.A.No.19 of 2011 - 14 -
(v) Ought not the Tribunal have sustained the undisclosed interest income which was based on the assessee's own entries in a Diary recovered on search?
(vi) Had not the Tribunal acted in a totally perverse manner in deleting the additions made by the A.O?
10. The learned Senior Counsel appearing for the assessee-respondent heavily relied on the judgments of the Bombay, Rajasthan and Delhi High Courts to contend that Chapter XIV-B of the Act lays down a special procedure for assessment and it has to be treated differently from the regular assessment carried out under Section 143(3). It is the contention of the learned Senior Counsel that there could be no best judgment assessment carried out and there could be no estimation made to determine the undisclosed income. The undisclosed income has to be determined from the materials recovered on search. The computation of undisclosed income of the block period as spoken of in Section 158BB is specifically referred to. The undisclosed income can only be determined "on the basis of evidence found as a result of search or requisition of books of account or other documents and such other materials or I.T.A.No.19 of 2011 - 15 - information as are available with the Assessing Officer and relatable to such evidence". The words employed in the provision would specifically indicate that there could be no estimation made, is the compelling argument. The decisions relied on by the learned Senior Counsel are C.I.T. v. Dr.M.K.E.Memon [(2001) 248 ITR 310 (Bom.), C.I.T. v. Rajendra Prasad Gupta [(2001) 248 ITR 350 (Raj.)] and C.I.T. v. Ravi Kant Jain [(2001) 250 ITR 141 (Delhi)].
11. J.K.Narayanan, as relied on by the Tribunal, has absolutely no application in the facts of the case. There, the assessee had filed a belated return, showing the income relating to the said year even before the search was conducted. It was in such circumstance that the Division Bench of the Madras High Court held that, there cannot be any application of Chapter XIV-B for reason of the information of the income for the year having been imparted by the assessee himself, to the AO long before the search.
12. In Dr.M.K.E.Memon the Division Bench of the Bombay High Court was concerned with a search and seizure carried out in the clinic of a medical practitioner, whose major income was the medical examination fees and charges for issuance of medical fitness certificates of candidates going to gulf countries. Wide discrepancies were found I.T.A.No.19 of 2011 - 16 - between the entries in the registration book, where the candidates who came for medical fitness test were registered and the amounts seen collected in the cash book. The period for which assessment was carried out was from 01.04.1986 to 11.12.1996. The assessee, in pursuance to notice issued under Section 148BC, offered an undisclosed income of Rs.75.60 lakhs; Rs.13.8 lakhs for the period upto November, 1993 and for the later period Rs.53.22 lakhs. The AO made an assessment on best judgment, for the entire block period at Rs.2.33 crores. The assessee challenged the estimation made and also disputed the addition of Rs.47.28 lakhs, which was asserted to have been refunded to candidates; who on preliminary check up were found to be unfit. The Tribunal allowed both the contentions. The Division Bench approved the view of the Tribunal, which was on facts. It was noticed that the appellant had been registered as a panel doctor for the Saudi Consulate in 1984 and Qatar and Kuwait consulates in 1986 and 1991 respectively. The estimation made prior to November 1993 on the basis of the post November 1993 records were found to be arbitrary for reason of the various relevant factors having not been considered. The relevant factors as noticed by the Division Bench were the adverse impact of the Gulf I.T.A.No.19 of 2011 - 17 - war, the possibility of the professional fees remaining static for the entire 10 years being remote, the refund having been effected to candidates found unfit at the initial stage who were charged only a nominal fee and so on and so forth. The arbitrariness was insofar as the Department having applied the peak income rate of 1993 period to the entire block period. In fact, on the question of estimation, the division Bench held so:
"We agree with the contention advanced on behalf of the Department that in matters under Chapter XIV-B the Assessing Officer is required to estimate the undisclosed income. We agree with the contention of the Department that this estimation involves guess work. However, the Assessing Officer under Chapter XIV-B cannot act arbitrarily while estimating the undisclosed income".
Hence, it cannot be understood that the Division Bench was of the opinion that there could be no estimation made when a block assessment is carried out. The concluding remarks on Chapter XIV-B having laid down a special procedure for assessment of search cases also cannot have any significance insofar as the present case is concerned. The difference noticed was insofar as the block assessment under Chapter XIV-B being confined to the assessment of I.T.A.No.19 of 2011 - 18 - undisclosed income for the block period and not concerned with the total income or loss of the previous year; which later exercise is one under Section 143(3). The Division Bench also noticed the decision of the Hon'ble Supreme Court in CST v. H.M.Esufali H.M.Abdulali [(1973) 90 ITR 271 (SC)], the locus classicus insofar as the manner in which an estimation has to be carried out on best of judgment.
13. Rajendra Prasad Gupta dealt with a block assessment for the period 1986-87 to 1995-96. Therein, the AO rejected the returns filed by the assessee, which was challenged by the assessee successfully before the Tribunal. A Division Bench of the Rajasthan High Court found that undoubtedly the AO has jurisdiction to resort to best judgment assessment in proceedings under Section 158BB. However, the difference with respect to a regular assessment and a block assessment under Section 158BC was emphasized. As was found by the Bombay High Court, it was held that the block assessment is confined to the assessment of undisclosed income, as distinguished from a regular assessment where the total income is assessed. Though there is conferred the power of best judgment, any estimate of undisclosed income has to have a nexus with the material recovered on search. The undisclosed income, even I.T.A.No.19 of 2011 - 19 - that estimated, would have to have correlation to the materials recovered on search. The Tribunal's order was upheld, since therein the AO had not recorded whether the returns filed by the assessee were in accordance with the facts that came to light during the course of search and seizure. The estimate made also could not be correlated to the material on record which were recovered on search.
14. The Delhi High Court in Ravi Kant Jain succinctly found the nature of the special provisions under Chapter XIV-B as follows:
"The special procedure of Chapter XIV-B is intended to provide a mode of assessment of undisclosed income, which has been detected as a result of search. As the statutory provisions go to show, it is not intended to be a substitute for regular assessment. Its scope and ambit is limited in that sense to materials unearthed during search. It is in addition to the regular assessment already done or to be done. The assessment for the block period can only be done on the basis of evidence found as a result of search or requisition of books of account or documents and such other materials or information as are available with the Assessing Officer. Evidence found as a result of search is clearly relatable to section 132 and 132A".
15. What is discernible from the aforesaid decisions of the various High Courts is that the AO while I.T.A.No.19 of 2011 - 20 - carrying out block assessment is definitely entitled to proceed on best of judgment and make estimations for the block period. However, such estimation has to be made only on aspects which have a direct correlation to the materials, transactions and aspects which were detected in the search carried out under Chapter XIV-B. We would also emphatically state that there is no restriction in so far as the estimation being permitted only on the basis of the materials recovered at the search. It could be on the basis of evidence found as a result of search or requisition of books of account or documents and such other materials or information as are available with the Assessing Officer.
16. To counter the argument regarding the estimation made for the prior years without any material for that years having been recovered, the learned Standing Counsel for Government of India (Taxes) relies on the decisions in CIT v. Hotel Meriya [(2011) 332 ITR 537 (Ker)] and Sunny Jacob Jewellers and Wedding Centre v. Dy.CIT [(2014) 362 ITR 664 (Ker.)].
17. In Hotel Meriya, as in this case, search was conducted under Section 132 in a bar attached hotel. During search, it was revealed that the assessee was not issuing bills for sale of liquor and consumers were issued with I.T.A.No.19 of 2011 - 21 - paper slips showing the price. Copies were retained, which did not contain the price of the articles sold. The persons in charge of the accounts and the business gave statements under Section 132(4); that only 80% of the sales turnover was recorded in the cash book. In the trading and profit and loss account as also the balance-sheet furnished to the Kerala Financial Corporation, a much higher amount was shown as gross and net profit. The AO made an estimation for all the years, which was slightly modified by the first appellate authority. The Appellate Tribunal, on facts, found that there was suppression; but, however, directed the income tax to be assessed only on the profit which was determined at 25% of the sales turnover. The questions arose as to whether the statements recorded of the Partner as well as the employees along with the documents seized would tantamount to evidence under Section 158BB and whether such materials are sufficient to conclude that there was concealment of income in the assessment years prior to the year in which the search was conducted. It was found that "the statement of the partner and the employees recorded and documents collected are relevant and admissible in respect of all matters for the purpose of any investigation connected with any proceeding under the I.T.A.No.19 of 2011 - 22 - Income-tax Act" (sic para 13). As to the estimation made for the prior years for which there was no relevant material recovered, specifically relating to those previous years, it was held that the statements clearly indicated that there was a suppression of sales by around 20%. The slips recovered were relating only to the year in which the search was conducted; still it was held that Chapter XIV-B does not mandate that in making block assessment there should be evidence regarding concealment of income for every year in the block period.
18. Sunny Jacob Jewellers and Wedding Centre was an assessment under Section 153A, wherein the question again arose as to whether there was a mandate to collect information and evidence for each and every one of six previous years. Therein also, estimate slips were collected from the jewellery, which recorded price lower than that actually received from the customers. The Manager of a show room, a Cashier in another business premises and a Computer Operator made statements; based on which as also the estimate slips, an estimation was carried out for the six years. The Division Bench relied on Hotel Meriya, though it was specifically noticed that they were not concerned with a block assessment. Based on the estimate slip recovered I.T.A.No.19 of 2011 - 23 - from five business concerns as also pre-search enquiry purchases made in two concerns and the note books seized from one of the business concerns, it was held that there could be an estimation made for the previous six years also despite the fact that the materials recovered were only with respect to the year in which the search was conducted.
19. It is in this background, we have to look at the instant order of the Tribunal which has been challenged before us by the Revenue. As in Hotel Meriya, we notice that the finding on facts with respect to the suppression and concealment of income has been upheld by all the lower authorities, including the Tribunal. The Tribunal has gone to the extent of saying that the estimation could be made only with respect to the year in which the search was made for reason only of the documents recovered being in relation to that particular year alone. We have also to take note of the argument of the learned Senior Counsel appearing for the assessee that there are references to the materials and statements as relatable to the other business premises of the very same group. We agree with the assessee that such materials cannot be taken into account for determining the undisclosed income in the business of this particular assessee. However the statements made by the I.T.A.No.19 of 2011 - 24 - staff of the group concerns reveal the common practises adopted in the business; which cannot be eschewed. We, hence, will not refer to the materials, if at all looked into by the AO, which relate to the other group concerns but find no reason to ignore the statements made. What we would essentially look at is, whether the materials relatable to the individual assessee and the statements relatable to the group concerns herein were sufficient to make such estimation and whether the estimation has a correlation to such materials and statements.
20. The statement of one of the Directors, Sri.Laji Joseph, recorded under Section 132 specifically admitted that the units belonging to the group did not show the actual sale price in the bills. The rate of suppression was stated to be 5% to 8% for variety of goods ranging between 32 to 50 rupees per square feet. For the higher value items, there was no suppression, according to the Director. The submission on oath by the Director was found to be an under-statement by the AO based on the other evidences. The Computer Operator of the assessee herein had stated the practise of first taking the customers around the stock yard for choosing the required items. After the selection, an estimate is prepared on the Computer and I.T.A.No.19 of 2011 - 25 - printout taken with copy. A copy is given to the customer showing the actual price and then later a bill is prepared, wherein a reduced amount is shown and at times all the items sold are not shown. The statements of the employees in the group concerns also revealed the modus operandi adopted by the group, which was uniform and disclosed a definite pattern. On the extent of suppression, the computer printout of sales tax report, product-wise and purchase reports were referred to. In the assessee's business premises, on 01.03.2000 the actual sales as per the daily statement seized as sheet No.36 in the bunch marked "AMA-14" indicated it to be Rs.2,20,442/-, while what was accounted was Rs.18,090/-. Sri.Lijo Joseph, who submitted that more or less sale price was shown in the sale bills, when confronted with a bill and estimate with respect to one another show room, admitted that the estimate showed only Rs.48,857.60 while the actual price was Rs.1,43,668.93. The Director, who was examined in the course of the search in the business premises of the respondent-assessee, also could not explain the various other documents with which he was confronted. Further, it was found that there was a Customer Care Scheme with Prize Coupons issued by the assessee. As per the Scheme, for I.T.A.No.19 of 2011 - 26 - every purchase of Rs.50,000/-, one coupon was given to the customer with a lottery being held on the expiry of the Scheme; offering a Tata Indica motor car to the winner. Verification revealed that coupons were given to customers far in excess of their purchase price as disclosed in the accounts. Specific references were made to 4 individuals and the bills issued in their favour. The AO had, at the first instance, proposed an addition of 50%.
21. The following purchasers of the assessee were also summoned and examined; whose statements corroborated the allegation of under-invoicing carried out by the assessee. In the case of one T.J.Francis, the sale price accounted was only 1/4th of the actuals. C.K.Abdul Hameed, who was examined on 30.03.2000, was given a bill showing only 1/3rd of the actual sale price. Similarly, T.R.P.Chandran, A.R.P.Sen, Joshy Paul and C.T.Thankachan also gave statements before the AO. These purchasers were not those of the respondent-assessee alone. However, as we noticed earlier, the modus operandi adopted by the group concerns is also a pointer to the manner in which a consistent pattern of suppression was practised in all the group concerns. There were also instances of bulk sales being totally omitted and handwritten receipts and estimate I.T.A.No.19 of 2011 - 27 - not being accounted in the accounts fully or partly. It was found that the extent of sales suppression was about 66-75% and the accounted sale price was only 1/3 rd of the actual turnover. The aforesaid findings have been entered on the basis of the materials recovered from the premises and the corroborating statements made by the Director, the employees as also the purchasers from the respondent-assessee and other group concerns. Though the evidence relates to the year in which the search was carried out, as we have already found, it could lead to estimation being made by the AO. The AO is not divested of the power to make assessment on the best of his judgment by reason only of the proceedings being under Chapter XIV-B for the purpose of block assessment.
22. On the sustainability of the estimation, the AO found, on the basis of supporting material as also the statements, that 2/3rd of the turnover has been suppressed. The disclosed turnover constituted only 1/3rd of the actual sales made from the business premises. In certain cases, the assessee had recorded more than 1/3rd of the actual sale price. Hence, on a consideration of the total circumstances, it was proposed to make a fair estimate of average undisclosed sales turnover at 50% of the actual I.T.A.No.19 of 2011 - 28 - sales in the pre-assessment notice. Objections were filed by the assessee and a detailed consideration was made. Though it was alleged that the employees had made their statements under duress, they were not produced for cross-examination. Some of the specific instances of under-invoicing mentioned in the pre-assessment notice were not controverted and on the others, the explanation offered was not satisfactory. The purchasers, who were granted Customer Care Scheme Prize Coupons far in excess of the sales price invoiced were cross-examined without any avail. They stood by their statements and also established the source from which they made the purchases. In a block sale made to Beemapally Mosque, there was no sale accounted. It was also found that there were reputed institutions like Parumala Seminary and Taj Garden, Kumarakom, who made purchases from the group concerns, in which purchases the sale price was correctly invoiced. Taking an overall view of the under-invoicing carried out, a fair estimation at 10% of the declared sales was confirmed by the AO as against the proposal of 50%. The 10% estimation was made on the respective turnover of each of the prior years. We do not find any reason for the appellate authority or the Tribunal to have interfered with the same.
I.T.A.No.19 of 2011 - 29 -
23. We have already found that there is lack of material insofar as the prior years of the block period, but the same has been held to be inconsequential, in so far as the A.O being conferred with the power to make assessment in the best of his judgment. The AO was perfectly justified in carrying out an assessment on the best of judgment, making estimations on the basis of the materials recovered. As has been found in Hotel Meriya, it cannot be assumed that a dealer who practises suppression would retain the materials disclosing suppression, for long years; in the instant case a block period of 6 years. There is also no presumption insofar as the suppression having occurred only in the year in which the search was conducted. If at all, the presumption is otherwise insofar as the special procedure prescribed under Chapter XIV-B to assess undisclosed income for a block period, comprising of assessment years prior to the date of search, on the basis of the materials recovered at the search and other other evidences available before the AO relatable to such material. At the risk of repetition, it has to be noticed that the block assessment prescribed under Chapter XIV-B also confers power on the AO to make assessment on the best of judgment. Question Nos.(i) and (ii) are answered in I.T.A.No.19 of 2011 - 30 - favour of the Revenue and against the assessee. We hence set aside the order of the Tribunal and the first appellate authority and confirm the under-invoicing of sale bills at Rs.90,50,924/-.
24. On the question of undisclosed purchases, the same has been arrived at for the particular year wherein a balance-sheet was recovered from the SBT, Angamaly Branch. The contention raised by the assessee based on the words employed in Section 158BB is also to the extent that the balance-sheet and profit and loss account as on 31.08.1995 submitted before the Angamaly Branch of the SBT cannot be relied on since it is not a material recovered on search. We recall that Section 158BB speaks of computation of undisclosed income on the basis of evidence found as a result of search or requisition of books of account or other documents and such other materials or information as are available with the Assessing Officer and relatable to such evidence. Hence, any other material or information as are available with the AO relatable to the evidence recovered on search could be relied on for carrying out a block assessment. In this context, we notice our own judgment in I.T.A.Nos.28 and 29 of 2010 dated 14.08.2018 [P.A.Ahamed v. C.I.T.]. Therein the assessee was in appeal I.T.A.No.19 of 2011 - 31 - against re-assessment proceedings alleging it to be on a mere change of opinion. A search and seizure was conducted in the office of the assessee, a practising Advocate, and certain Bank statements were recovered. In pursuance of the search, the AO called for the details of the accounts from the Banks. The details of the accounts were made available by the respective Banks to the AO. The AO, at the first instance, looked into the Bank accounts and there was a proposal to treat the Bank accounts as professional receipts. The objection filed was considered and some of the credits were found to have been explained. The AO then found the Bank credits to be part of the professional fees and was found to be inclusive of the professional income. When determining the undisclosed income, the unexplained expenditure/investment made by the assessee alone was taken. Hence, a conscious decision was taken not to determine the undisclosed income based on the credits in the Bank accounts as revealed from the Banks' statements. Later on, at the stage of re-assessment, the then incumbent officer took up as a ground the fact that the Bank details were received later to the search and, hence, could not have been relied on in the block assessment. We extract herein paragraphs 10 and 11 of our judgment: I.T.A.No.19 of 2011 - 32 -
"10. S.Ajit Kumar [(2018) 302 CTR 7 -
Commissioner of Income Tax v. S.Ajit Kumar] was relied on by the learned Senior Counsel to stress the cardinal principle that in a block assessment addition can be made only of undisclosed income, the evidence of which was found in the course of the search under Section 132 of the Act. The specific contention is that the details of the Bank accounts in the instant case was made available to the AO in the post search enquiry, which cannot be relied on. We are not convinced that the cited decision helps the Revenue in any manner. Laying down such cardinal principle, the Hon'ble Supreme Court had specifically stated that 'the additions could be also of undisclosed income revealed in any proceedings simultaneously conducted in the premises of the assessee, relatives and/or persons who are connected with the assessee and are having transactions/dealings with such assessee' (sic)(para
9). The facts in the cited decision indicate that a search was conducted in the premises of the assessee and in the course of the return filed by the assessee, the details of the assessee's transaction with a builder and interior decorator was disclosed.
In a survey conducted at the premises of the builder, a payment of Rs.95,16,000/- was detected, which had not been accounted for. The assessee contended that the same cannot be taken into account in the block assessment for reason of the undisclosed income being not supported by any material recovered in search. The learned Judges I.T.A.No.19 of 2011 - 33 - quoted Section 158BB and laid emphasis on the words 'on the basis of evidence found as a result of search or requisition of books of account or other documents and such other materials or information as are available with the AO and relatable to such evidence' and held that this prescribed the boundary which has to be followed. The power of survey being specifically provided under Section 133A, any material or the evidence found or collected in a survey which has been simultaneously made at the premises of a connected person can be utilized while making the block assessment.
11. In the present case also, the block assessment indicates that certain details were obtained at the time of search and more details were called for from the respective branches of the Banks in which assessee maintained accounts. These details were available with the AO before the block assessment was made and there would have been absolutely no difficulty in relying on them, since it is an information available with the AO relatable to the material discovered on search. The cited decision, in fact, would help the assessee to contend that the AO at the time of block assessment having not made any addition on that count, after having specifically noticed the transactions, and decided to treat them as inclusive of professional receipts, a new incumbent cannot take a different stand which would lead to the subsequent order being vitiated for reason of it being a mere change of opinion".
I.T.A.No.19 of 2011 - 34 -
25. The balance-sheet was one submitted by the assessee before the Bank admittedly for the purpose of availing a loan. The Bank normally would have conducted an inspection based on the balance-sheet to ascertain the stock maintained by the assessee. There is no claim by the assessee that the Bank did not eventually grant the loan and even if it was so, it was incumbent upon the assessee to establish that the balance-sheet was not prepared in accordance with law and not based on the actual stock retained in the assessee's premises. The fact that there was a lesser stock at the end of the year only raises a presumption that the excess stock as disclosed in the balance-sheet and profit and loss account filed before the Bank was sold off in the intervening period. In such circumstances, there is absolutely no error in law on the AO relying on the same and adding on an undisclosed income on the basis of the unexplained investment in the unaccounted purchases. We, hence, answer question No.(iii) against the assessee and in favour of the Revenue. We, hence, restore the undisclosed income of Rs.28,66,305/- made addition of as unaccounted purchase based on the assessee's own balance-sheet filed before the Bank. We also find that the reliance placed on the balance-sheet I.T.A.No.19 of 2011 - 35 - and profit and loss account as obtained from the Bank in pursuance of the enquiry conducted after the search was a material relatable to the suppression established on search.
26. On the question of estimation made by the AO at the rate of Rs.5 lakhs per year, we find the same to be unreasonable. As we have found, the unaccounted purchases would have been sold in the intervening period. Hence, in the very same assessment year in which the purchases were made, the sale has to be presumed and the profit on such sale has to be treated as undisclosed income of the assessee. We direct the AO to add gross profit at 10% to the unaccounted purchases and make addition of profit alone being Rs.2,86,630/- especially since the unaccounted purchases has already been added on as an undisclosed income. We, hence, answer question No.(iv) partly in favour of the assessee and partly in favour of the Revenue.
27. On the undisclosed interest income, we find that there is absolutely no basis for the AO to have taken the figures from the rough book and converted it into lakhs. We do not think, there is any basis for the additions made. We, hence, answer question No.(v) in I.T.A.No.19 of 2011 - 36 - favour of the assessee and against the Revenue and confirm the deletion of the undisclosed interest income made by the AO.
28. On question No.(vi) raised, we find on the aspects in which it was held in favour of the Revenue that the Tribunal had egregiously erred and acted in a perverse manner. We, hence, confirm the addition made by the AO. We also reduce from the total, NRE gifts and loans as disclosed from the block returns of the Directors, coming to Rs.15,19,000/-. The computation, hence, would be as follows:
Total additions made as undisclosed Income 1 Under-invoicing of sale bills Rs.90,50,924/-
2 Unaccounted purchases Rs.28,66,305/-
3 Profit on undisclosed sales Rs.2,86,630/-
of the unaccounted purchases made
---------------
Rs.1,22,03,859/-
4 Gifts and loans disclosed in Rs.15,19,000/-
the block returns of the Director
---------------
Rs.1,06,84,859/-
I.T.A.No.19 of 2011 - 37 -The appeal would stand partly allowed. Parties are left to suffer their respective costs.
Sd/-
K.VINOD CHANDRAN JUDGE Sd/-
ASHOK MENON JUDGE vku/-
I.T.A.No.19 of 2011 - 38 -
APPENDIX APPELLANT'S ANNEXURES:
ANNEXURE-A COPY OF ASSESSMENT ORDER U/S. 158BC(c) DATED 28/03/2002 FOR THE BLOCK PERIOD 1990-91 TO 1999-2000 (UP TO 02/03/2000) ANNEXURE-B COPY OF THE ORDER DATED 22/09/2004 OF THE COMMISSIONER OF INCOME TAX (APPEALS).
ANNEXURE-C COPY OF THE ORDER DATED 22/06/2010 OF THE INCOME TAX APPELLATE TRIBUNAL, COCHIN BENCH ITA NO.139/COCH/2004.
ANNEXURE-D COPY OF THE STATEMENTS RECORDED FROM THE EMPLOYEES AND DIRECTORS WHO CONFIRMED SUPPRESSION OF SALES.
ANNEXURE-E COPY OF THE JUDGMENT OF HON'BLE HIGH COURT KERALA IN THE CASE OF HOTEL MARIYA, PALA (ITA NO.551/2009).