The DCIT, Cent Cir-, Vijayawada V. M/s Prakash Arts Moving Media, Hyderabad

ITA 306/VIZ/2008

• Counselvise Citation: [2010] 135 COUNSELVISE.COM (IT) 2637 (ITAT-VISAKHAPATNAM)
• Duration Of Justice: 2 year(s) 5 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-11-2010
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: DB
• Next Hearing Date: 07-10-2010
• Assessment Year: 2000-2001
• Appeal Filed On: 04-06-2008
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: T L PETER
• Keywords: Unexplained expenditure; Business income; Business expenditure; Search and seizure; Document seized; Source of fund; Documents seized; Set aside
• Section: 142(1); 143(2); 132

Judgement Text

ITA NOS.305 TO 308 AND 348 TO 351/VZG/2008 PRAKASH ARTS MOVING MEDIA, HYD IN THE INCOME TAX APPELLATE TRIBUNAL VISAKHAPATNAM BENCH, VISAKHAPATNAM BEFORE: SHRI SUNIL KUMAR YADAV, JUDICIAL MEMBER AND SHRI BR BASKARAN, ACCOUNTANT MEMBER ITA NO S . 305 TO 308 /VIZAG/ 20 08 ASSESSMENT YEAR S : 1999 - 2000 TO 2002 - 0 3 RESPECTIVELY DCIT CENTRAL CIRCLE VIJAYAWADA M/S. PRAKASH ARTS MOVING MEDIA HYDERABAD (APPELLANT) VS. (RESPONDENT) PAN NO.AAEFP 3870H ITA NOS.348 TO 351/VIZAG/2008 ASSESSMENT YEARS : 1999 - 2000 TO 2002 - 03 RESPECTIVELY M/S. PRAKASH ARTS MOVING MEDIA HYDERABAD DCIT CENTRAL CIRCLE VIJAYAWADA (APPELLANT) VS. (RESPONDENT) APPELLANT BY: SHRI T.L. PETER , DR RESPONDENT BY: SHRI G.V.N. HARI, CA ORDER PER BENCH : - THESE CROSS APPEALS ARE PREFERRED BY THE ASSESSEE AS WELL AS THE REVENUE AGAI NST THE CONSOLIDATED ORDER OF THE CIT(A) PERTAINING TO THE ASSESSMENT YEARS 1999 - 2000 TO 2002 - 03 ON COMMON GROUNDS. THEREFORE, THESE APPEALS WERE HEARD TOGETHER. CONTROVERSY RAISED IN THESE APPEALS IS ONLY WITH REGARD TO THE COMPUTATION OF THE TOTAL INCO ME OF THE ASSESSEES FOR THE IMPUGNED ASSESSMENT YEARS. 2. THE BRIEF FACTS BORNE OUT FROM THE RECORD ARE THAT THE ASSESSEE IS A PARTNERSHIP FIRM DOING ADVERTISEMENT BUSINESS. IT PAYS FIXED ANNUAL CHARGES TO ANDHRA PRADESH STATE ROAD TRANSPORT CORPORATION AND SOUTH CENTRAL RAILWAY FOR ADVERTISING ON BUSES AND RAILWAY PLATFORMS. THE ASSESSEE IN TURN C OLLECTS ADVERTISEMENT CHARGES FROM CUSTOMERS FOR ADVERTISING ON THESE BUSES AND RAILWA Y PLATFORMS. THE ASSESSEE FIRM CONDUCT ITS OPERATION FROM ITA NOS.305 TO 30 8 AND 348 TO 351/VZG/2008 PRAKASH ARTS MOVING MEDIA, HYD 2 HYDERABAD. MR . M. SARAT BAB U , THE MANAGING PARTNER OF THE FIRM , CONTROLS THE DAY TO DAY BUSINESS ACTIVITIES OF THE FIRM FROM HYDERABAD. SRI C.D.S. PRAKASA RAO, THE FATHER - IN - LAW OF MR. M. SARAT BABU IS ANOTHER KEY PARTNER OF THE FIRM. THE OTHER PARTNERS ARE THE FAMIL Y MEMBERS OF SHRI C.D.S. PRAKASA RAO AND SHRI M. SARAT BABU. 3. THE ASSESSEE FIRM FILED ITS RETURN OF INCOME FOR ALL THE IMPUGNED ASSESSMENT YEARS. SEARCH AND SEIZURE OPERATION U/S 132 WERE CONDUCTED IN THE PREMISES OF C.D.S. PRAKASA RAO, THE PARTNER OF THE ASSESSEE FIRM. DURING THE COURSE OF SEARCH, INCRIMINATING MATERIALS RELATED TO THE ASSESSEE WAS FOUND AND SEIZED FROM THE ABOVE MENTIONED BUSINESS PREMISES OF MR. C.D.S. PRAKASA RAO. SINCE THE INCRIMINATING MATERIAL REFERRED ABOVE RELATED TO THE ASSE SSEE, A NOTICE U/S 153C WAS ISSUED. IN RESPONSE THERETO, THE ASSESSEE FILED ITS RETURN OF INCOME DECLARING SOME ADDITIONAL INCOME THEREIN. SUBSEQUENTLY, NOTICE U/S 143(2) AND 142(1) WERE ISSUED REQUIRING SOME MORE INFORMATIONS AND EXPLANATIONS WITH REGAR D TO THE SEIZED MATERIAL. DURING THE COURSE OF SEARCH, STATEMENT OF MR. C.D.S. PRAKASA RAO AND MR. SARAT BABU WERE RECORDED WITH REGARD TO THE SEIZED MATERIAL MARKED A/20 AT PAGE NO S .56 TO 70 OF THE SEIZED MATERIAL. THESE DOCUMENTS ARE COMPUTER GENERATED STATEMENTS AND WHEN IT WAS SHOWN TO MR. C.D.S. PRAKASA RAO, HE DEPOSED THAT IT WERE PREPARED BY MR. SARAT BABU AND WHEN SARAT BABU WAS EXAMINED, INITIALLY HE DENIED THE DOCUMENT S BUT LATER ON , HE ADMITTED THAT THESE DOCUMENTS WERE PREPARED BY HIM. ON A C AREFUL EXAMINATION OF THESE DOCUMENTS, THE ASSESSING OFFICER HAS NOTED THAT ASSESSEE HAS SUPPRESSED SALES AND ALSO INFLATED THE EXPENDITURES. BEING NOT CONVINCED WITH THE EXPLANATIONS OF THE ASSESSEE, THE ASSESSING OFFICER MADE THE ADDITION OF THE SUPPRES S ED SALES AND INFLATION OF EXPENDITURES IN ALL THE ASSESSMENT YEARS. 4. THE ASSESSEE PREFERRED AN APPEAL BEFORE THE CIT(A) AND EXPLAINED THE DISCREPANCIES IN THE STATEMENT SEIZED DURING THE COURSE OF SEARCH AND ENTRIES IN THE BOOKS OF ACCOUNT WITH REGAR D TO THE PURCHASES AND THE EXPENDITURES. IT WAS STATED BEFORE THE CIT(A) THAT THE A.O. HAS WRONGLY OBSERVED THAT IF A PERSON IS FALSE ON ONE ASPECT, HE MAY BE FALSE IN RESPECT OF ALL THE ASPECTS. ITA NOS.305 TO 30 8 AND 348 TO 351/VZG/2008 PRAKASH ARTS MOVING MEDIA, HYD 3 IF THIS MAXIM W AS TO BE APPLIED , THE PROPER COURSE OF ACTI ON WOULD BE ESTIMATION OF INCOME , AS THE ASSESSING OFFICER IS NOT BELIEVING ANY OF THE FIGURES MENTIONED EITHER IN THE BOOKS OF ACCOUNTS OR IN THE STATEMENT FOUND DURING THE COURSE OF SEARCH AND SEIZURE OPERATION. DURING THE COURSE OF SEARCH AND SEIZURE O PERATION, NO SECOND SET OF BOOKS OF ACCOUNTS WERE FOUND . W HAT WERE FOUND DURING THE COURSE OF SEARCH WERE THE FIGURES BELONGING TO THE PERIOD 1.4.1997 TO 31.3.2002 COMPILED AT ONE PLACE. THE SAID STATEMENT WAS NEITHER SIGNED NOR AUTHENTICATED BY ANY ONE. THE FIGURES AVAILABLE ARE CONSOLIDATED FIGURES AND YEARWISE FIGURES ARE NOT AVAILABLE ON RECORD. NO SUCH INFORMATION COULD EITHER BE PROVIDED BY THE ASSESSEES NOR COULD BE GATHERED BY THE ASSESSING OFFICER . T HEREFORE, CONSOLIDATED FIGURES ONLY COULD BE GATHERED AS PER THE STATEMENT FOUND DURING THE COURSE OF SEARCH AND SEIZURE OPERATIO N. THEREFORE, THERE IS NEITHER EVIDENCE IN THE SEIZURE DOCUMENTS TO THE CORRECTNESS OF THE RECEIPT NOR THE EXPENDITURE INCURRED. 5 . IT WAS FURTHER CONTENDED THAT WHEN CO MPLETE INFORMATION IS NOT AVAILABLE IN THE SEIZED DOCUMENTS, THE ASSESSMENT CANNOT BE MADE ON THE SAID FIGURES WITHOUT RESORTING TO AN ESTIMATION. THE ASSESSING OFFICER HAS TO CONSIDER ALL THE EXPENDITURES ( RECORDED IN THE BOOKS OF ACCOUNTS OR NOT ) IF SUC H EXPENDITURE IS MENTIONED IN THE SEIZED DOCUMENT AND TO DEDUCT THE SAID EXPENDITURES FROM THE RECEIPT . B UT HE DID NOT FOLLOW THE SAID SYSTEM . H E SIMPLY WORKED OUT THE SUPP RESSED SALES WITHOUT GIVING A CREDIT OF THE EXPENDITURES. 6 . IN THE STATEMENT THE MAJOR EXPENDITURES WERE SHOWN TO BE THE COMMISSION PAYMENT AND IT IS AN ALLOWABLE DEDUCTION. THE A.O. WAS OF THE VIEW THAT EXPENDITURES NOT RECORDED IN THE BOOKS OF ACCOUNTS WOULD BE THE UNDISCLOSED INCOME AND HENCE THE AMOUNT IS NOT ALLOWABLE AS A DEDUC TION. IN THE INSTANT CASE, THERE ARE UNACCOUNTED RECEIPTS AND EXCESS OF EXPENDITURES INCLUDING THE COMMISSION PAYMENTS. T HE COMMISSION PAYMENTS SHOULD NOT HAVE BEEN DISALLOWED ONLY FOR THE REASONS THAT ITS SOURCE OF FUNDS ARE NOT AVAILABLE. IT WAS ALSO EXPLAINED BEFORE THE CIT(A) THAT A SUBSTANTIAL ITA NOS.305 TO 30 8 AND 348 TO 351/VZG/2008 PRAKASH ARTS MOVING MEDIA, HYD 4 AMOUNT WAS GIVEN TO THE PARTNERS TO MEET THE EXPENDITURES AND THIS AMOUNT WAS DEBITED IN THE BOOKS OF ACCOUNTS UNDER THE HEAD `EXPENDITURES AND THIS ASPECT WAS NOT CONSIDERED BY THE A.O. 7 . THE CIT(A) RE - EX AMINED THE ISSUE IN THE LIGHT OF ASSESSEES CONTENTIONS AND HAS ALLOWED 15% OF THE COMMISSION SHOWN IN TH IS STATEMENT OF THE SEIZED MATERIAL AS AN ALLOWABLE LEGITIMATE BUSINESS EXPENDITURE , A FTER HAVING OBSERVED THAT IT IS POSSIBLE THAT SOME COMMISSION PAY MENTS THOUGH ALLOWABLE IS NOT RECORDED IN THE BOOKS OF ACCOUNTS SINCE THE AMOUNT IS KEPT OUTSIDE THE REGULAR BOOKS OF ACCOUNTS. THE RELEVANT OBSERVATION OF THE CIT(A) IS EXTRACTED HEREUNDER: I HAVE CAREFULLY CONSIDERED THE SUBMISSIONS OF THE APPELLANT AND VARIOUS MATERIALS ON RECORD. THE APPELLANT ACCEPTS THAT SALES HAVE BEEN SUPPRESSED AND EXPENDITURE HAS BEEN INFLATED THOUGH CLAIMS THAT THE SUPPRESSION OF SALES IS TO ACCOMMODATE UNACCOUNTED EXPENDITURE IN THE NATURE OF UNACCOUNTED COMMISSION PAYMENT S AND THE EXPENDITURE MADE BY THE PARTNERS. AT THE SAME TIME, THE APPELLANT HAS OFFERED UNDISCLOSED INCOME ON ESTIMATE. THE APPELLANT HAS TAKEN SUPPORT FROM THE SEIZED DOCUMENT A - 22, PAGE 70, WHEREIN COMMISSION FOR AN AMOUNT OF RS.1,07,88,575/ - HAS BEEN MENTIONED (RELATING TO F. Y RS. 1997 - 98 TO 2001 - 02). THE APPELLANT CITES FEW ENTRIES IN THE SEIZED DOCUMENTS IN SUPPORT OF THE CLAIM THAT SOME EXPENDITURE HAS BEEN MADE THROUGH THE PARTNERS BUT NOT RECORDED IN THE BOOKS OF ACCOUNT. IT IS TRUE THAT COMMISS ION HAS BEEN PAID WHICH IS REVEALED BY THE SEIZED DOCUMENT, BUT NOT RECORDED IN THE REGULAR BOOKS OF ACCOUNT. THERE IS NO DISPUTE ABOUT THE SOURCE OF SUCH EXPENDITURE SINCE THE UNACCOUNTED RECEIPTS ARE MORE THAN SUCH EXPENDITURE. THE JUDICIAL DECISIONS F AVOUR THE VIEW THAT A SEIZED DOCUMENT HAS TO BE READ AS A WHOLE. IT CANNOT BE READ IN BITS AND PARTS TO SUIT THE CONVENIENCE OF ONE PARTY OR THE OTHER. HOWEVER, IN THIS PARTICULAR CASE, THE DETAILS OF COMMISSION PAYMENTS ARE NOT KNOWN TO MAKE IT ALLOWABL E. THE GENUINENESS OF EXPENDITURE IS NOT THE QUESTION BUT LEGALITY OF EXPENDITURE, IF ALLOWABLE. THE APPELLANT IS DEALING WITH PUBLIC SECTOR UNDERTAKINGS FOR PUTTING ADVERTISEMENTS AND IT CANNOT BE RULED OUT THAT MAJOR PART OF THE COMMISSION PAYMENTS ARE FOR ILLEGAL GRATIFICATION AND NOT ALLOWABLE UNDER LAW. HAD THE PAYMENTS BEEN ABOVE BOARD, THE ASSESSEE COULD HAVE SHOWN IT IN THE REGULAR BOOKS OF ACCOUNT AS IT IS FAVOURABLE TO THE ASSESSEE BEING ALLOWABLE EXPENDITURE. THE APPELLANT HAS NOT GIVEN THE D ETAILS OF COMMISSION EXPENDITURE. HOWEVER, IT IS TRUE THAT THE ITA NOS.305 TO 30 8 AND 348 TO 351/VZG/2008 PRAKASH ARTS MOVING MEDIA, HYD 5 COMMISSION HAS BEEN PAID FOR BUSINESS, SOURCE IS THE SUPPRESSION OF SALES, WHICH IS SUBJECT MATTER OF ADDITION AND THE DETAILS OF COMMISSION PAYMENTS ARE NOT KNOWN. IT IS POSSIBLE THAT SOME C OMMISSION PAYMENTS THOUGH ALLOWABLE IS ALSO NOT RECORDED IN THE BOOKS OF ACCOUNT SINCE THE ENTIRE AMOUNT IS KEPT OUTSIDE THE REGULAR BOOKS OF ACCOUNT. UNDER SUCH CIRCUMSTANCES, IN VIEW OF SEIZED DOCUMENTS, NON - FILING OF DETAILS AND NATURE OF BUSINESS, IT WILL MEET ENDS OF JUSTICE, IF 15% OF COMMISSION PAID IS ALLOWED ON ESTIMATE AS LEGITIMATE BUSINESS EXPENDITURE. THE ASSESSING OFFICER IS ACCORDINGLY DIRECTED TO COMPUTE THE COMMISSION ALLOWABLE FOR EACH OF THE YEARS AND ALLOW ACCORDINGLY. THE APPELLANT HAS CLAIMED THAT CERTAIN EXPENDITURE HAS BEEN MADE THROUGH THE PARTNERS AND ACCORDINGLY PARTNERS WITHDRAWALS SHOULD REFLECT THE SAME. HOWEVER, I DO NOT FIND MUCH EVIDENCE FOR THE SAID CLAIM. IT HAS NOT BEEN DEMONSTRATED HOW THE PARTICULAR WITHDRAWAL IS RELATED TO EXPENDITURE FOR THE APPELLANT AND THE EVIDENCE THAT SUCH EXPENDITURE IS NOT REFLECTED IN THE BOOKS OF ACCOUNT. FURTHER, NO REASONS HAVE BEEN GIVEN FOR THIS KIND OF MODUS OPERANDI. IN VIEW OF THE SAME, THIS CLAIM OF THE APPELLANT CANNOT BE ENTE RTAINED AS DEVOID OF MERIT. 8 . DISSATISFIED WITH THE ORDER OF THE CIT(A), THE REVENUE AS WELL AS THE ASSESSEE PREFERRED THEIR APPEALS BEFORE THE TRIBUNAL. 9 . DURING THE COURSE OF HEARING OF THE APPEAL, THE LD. COUNSEL FOR THE ASSESSEE HAS INVITED OUR A TTENTION TO THE FACT THAT IN THE SEIZED MATERIAL, A STATEMENT WHICH IS ANNEXURE - III SHOWING A RECEIPT AND EXPENDITURE FOR A CONSOLIDATED PERIOD FROM 1.4.1997 TO 31.3.2002 WAS FOUND . THE ASSESSING OFFICER HAS TAKEN A NOTE OF THE SALES/RECEIPTS FROM THE SAI D STATEMENT AND COMPARED IT WITH THE SALES DECLARED IN THE BOOKS OF ACCOUNTS AND HAS CALCULATED THE SUPPRESS ION OF SALES AND MADE THE ADDITION OF THE SAME IN ALL THE IMPUGNED ASSESSMENT YEARS. WHILE DOING SO, HE IGNORED THE TOTAL EXPENDITURES INCURRED ON ACCOUNT OF COMMISSION AT RS.1,07,88,575/ - OF WHICH DETAILS WERE ALSO FOUND DURING THE COURSE OF SEARCH. THE A.O. HAS IGNORED THESE COMMISSION PAYMENTS AND HAS TAKEN A NOTE OF THE EXCESS EXPENDITURES SHOWN IN THE BOOKS OF ACCOUNTS AND CALCULATED THE INFLAT ED EXPENDITURES AND MADE THE ADDITIONS ON ACCOUNT OF SUPPRESSED SALES AS WELL AS INFLATION OF EXPENDITURES. IT IS A SETTLED POSITION OF LAW THAT THE SEIZED ITA NOS.305 TO 30 8 AND 348 TO 351/VZG/2008 PRAKASH ARTS MOVING MEDIA, HYD 6 MATERIAL CANNOT BE DI - SECTED . IT HAS TO BE IGNORED OR HAS TO BE CONSIDERED AS A WHOLE. THE LD. CO UNSEL FOR THE ASSESSEE FURTHER CONTENDED THAT EVEN FROM THE SEIZED MATERIAL , NET PROFIT OR THE TOTAL INCOME OF THE ASSESSEES FOR THE IMPUGNED ASSESSMENT YEARS CANNOT BE WORKED OUT . THE CIT(A) HAS ALLOWED 15% OF THE COMMISSION PAID SHOWN IN THE STATEMENT O F THE SEIZED MATERIAL , W ITHOUT TAKING A NOTE THAT THE SEIZED MATERIAL IS TO BE READ IN TOTO AND THE NET PROFIT IS TO BE WORKED OUT EITHER ON THE BASIS OF THE SEIZED MATERIAL OR THE BOOKS OF ACCOUNTS . THEREFORE, THE LOWER AUTHORITIES HA VE NOT PROPERLY CALC ULATED THE NET PROFIT OF THE ASSESSEES. 10 . THE LD. COUNSEL FOR THE ASSESSEE DURING THE COURSE OF HEARING FILED A RECONCILIATION STATEMENT AND THE STATEMENT SHOWING PERCENTAGE OF PROFIT IN ALL ASSESSMENT YEARS AND ALSO THE ADDITION REQUIRED IF PERCENTAGE O F PROFIT IS TO BE ESTIMATED AT DIFFERENT RATES. AFTER TAKING INTO ACCOUNT THE ADDITIONAL INCOME OFFERED BY THE ASSESSEE THE PERCENTAGE OF PROFIT IS BETWEEN 2.38% TO 9.56% DURING THE FINANCIAL YEAR 1998 - 99 TO 2000 - 2002 AND THE MEAN THERE OF IS 5.85%. 1 1 . THE LD. D.R. ON THE OTHER HAND HAS CONTENDED THAT THE A.O. HAS TAKEN NOTE OF ALL RELEVANT FACTS AND CALCULATED THE TOTAL INCOME OF THE ASSESSEE. THUS HIS ORDER BE RESTORED BECAUSE THE CIT(A) HAS NOT APPRECIATED THE FACTS CORRECTLY. 1 2 . HAVING HEARD T HE R IVAL SUBMISSIONS AND FROM A CAREFUL PERUSAL OF THE ORDERS OF THE AUTHORITIES BELOW , DOCUMENTS PLACED ON RECORD , AND CERTAIN INCRIMINATING MATERIAL , SHOWING THE STATEMENTS OF PROFITS AND DETAILS OF EXPENDITURES , FOUND DURING THE COURSE OF SEARCH, WE FIN D THAT I NITIALLY THESE COMPUTER GENERATED STATEMENTS WERE DENIED BY THE ASSESSEE BUT LATER ON IT WAS ADMITTED AND THE ASSESSEE HAS OFFERED CERTAIN ADDITIONAL INCOME HAVING ACCEPTED THAT CERTAIN SALES WERE SUPPRESSED. THE MAIN DOCUMENT WHICH HAS GENERATED ALL CONTROVERSY IS ANNEXURE - III IN WHICH A STATEMENT OF PROFIT FOR THE PERIOD 1.4.1997 TO 31.3.2002 WAS PREPARED. IN THIS STATEMENT, TOTAL SALES WERE SHOWN AND CERTAIN EXPENDITURES WERE ALSO CLAIMED. OUT OF THESE ITA NOS.305 TO 30 8 AND 348 TO 351/VZG/2008 PRAKASH ARTS MOVING MEDIA, HYD 7 EXPENDITURES ONE OF THE MAJOR EXPENDITURE S IS ON ACCOUN T OF COMMISSION PAYMENT WHICH DID NOT FIND PLACE IN THE REGULAR BOOKS OF ACCOUNTS OF THE ASSESSEES. WHILE COMPUTING THIS TOTAL PROFIT, THE ASSESSING OFFICER HAS WORKED OUT THE SUPPRESSED SALES AND EXCESS EXPENDITURES CLAIMED IN THE BOOKS OF ACCOUNTS AND MADE THE ADDITION OF BOTH TO THE TOTAL INCOME OF THE ASSESSEES IN ALL IMPUGNED ASSESSMENT YEARS. HE NEITHER RELIED UPON THE BOOKS OF ACCOUNTS OF THE ASSESSEES NOR THE STATEMENT FOUND DURING THE COURSE OF SEARCH. THE APPROACH OF THE ASSESSING OFFICER DOES NOT APPEAR US TO BE CORRECT AS IT IS A SETTLED POSITION OF LAW THAT THE DOCUMENT FOUND DURING THE COURSE OF SEARCH CANNOT BE DI - SECTED BY THE REVENUE AUTHORITIES. EITHER THEY HAVE TO TAKE THE DOCUMENT AS A WHOLE AND CONSIDER ALL ENTRIES FOUN D THEREIN OR TO IGNORE IT . THE REVENUE AUTHORITIES CANNOT MAKE A PICK AND CHOOSE OF THE ENTRIES FOUND IN A DOCUMENT SEIZED DURING THE COURSE OF SEARCH. THEREFORE, WE DO NOT AGREE WITH THE APPROACH OF THE CALCULATION OF PROFIT OF THE ASSESSEE ADOPTED BY T HE ASSESSING OFFICER. EITHER HE HAS TO RELY UPON THE BOOKS OF ACCOUNTS OF THE ASSESSEES AND WORK OUT THE PROFIT ON THE BASIS OF THE ENTRIES FOUND THEREIN OR IGNORE THE BOOKS OF ACCOUNTS AND COMPUTE THE PROFIT ON THE BASIS OF THE SEIZED MATERIAL. THE ASSE SSING OFFICER HIMSELF HAS ACCEPTED THAT NEITHER THE BOOKS OF ACCOUNTS ARE COMPLETE NOR THE ENTRIES FOUND IN THE SEIZED MATERIALS ARE COMP L ETE , O N THE BASIS OF WHICH THE NET PROFIT OF THE ASSESSEES CAN BE WORKED OUT. THOUGH THE ASSESSEE HAS TAKEN A STAND B EFORE THE ASSESSING OFFICER THAT IN THIS TYPE OF SITUATION, THE BOOKS OF ACCOUNTS OF THE ASSESSEES CAN BE REJECTED AND THE PROFITS CAN BE ESTIMATED BY ADOPTING A PARTICULAR PERCENTAGE TO TH E TOTAL SALE OF THE ASSESSEES. BUT THE A.O. DID NOT ACCEPT THIS CO NTENTION OF THE ASSESSEES. 1 3 . THE CIT(A) ALTOGETHER HAS ADOPTED A DIFFERENT FORMULA TO COMPUTE THE PROFITS OF THE ASSESSEES. HE HAS ALLOWED THE 15% OF THE COMMISSION EXPENDITURES CLAIMED BY THE ASSESSEES AND MADE THE ADDITION OF THE REST OF THE COMMIS SION EXPENDITURES. WE ARE UNABLE TO UNDERSTAND HOW ONLY THE COMMISSION CAN BE CONSIDERED FROM THE SEIZED MATERIAL FOR DETERMINING THE NET PROFIT OF THE ASSESSEES. WE HAVE ALSO EXAMINED THE DETAILS OF THE COMMISSION FOUND DURING THE COURSE OF SEARCH AND W E DO NOT FIND THAT MAJOR ITA NOS.305 TO 30 8 AND 348 TO 351/VZG/2008 PRAKASH ARTS MOVING MEDIA, HYD 8 PART OF THE COMMISSION WAS PAID AGAINST THE PUBLIC POLICIES. THE COMMISSION WAS PAID TO DIFFERENT PRIVATE OR PUBLIC SECTORS AND THERE WAS NO EVIDENCE TO CONCLUDE THAT THE PAYMENT O F COMMISSION WAS AGAINST THE PUBLIC POLICIES. THE REFORE, WE ARE UNABLE TO SUBSCRIBE THE MODE OF COMPUTATION OF NET PROFIT ADOPTED BY THE CIT(A). 1 4 . HAVING CAREFULLY EXAMINED THE SEIZED MATERIAL AND THE OTHER RECORD AVAILABLE BEFORE US, WE ARE OF THE VIEW THAT WHERE NONE OF THE STATEMENTS OF THE ENTRIES (THE STATEMENTS FOUND IN THE COURSE OF SEARCH OR THE BOOKS OF ACCOUNTS) ARE COMPLETE AND SUPPORTED BY EVIDENCE, THE TRUE PROFITS OF THE ASSESSEES CANNOT BE WORKED OUT AND IN THIS TYPE OF SITUATION , INSTEAD OF PICKING FIGURES FROM HERE AND THERE, THE RIGHT COURSE IS TO REJECT THE BOOKS OF ACCOUNTS OF THE ASSESSEES AND TO ESTIMATE THE INCOME ON THE BASIS OF SALES DISCLOSED OR FOUND DURING THE COURSE OF SEARCH. ADMITTEDLY, IN THE SEIZED DOCUMENTS, THE ASSESSEE HAS DECLARED MORE SALES THAN THE SALES DISCLOSED IN THE REGULAR BOOKS OF ACCOUNTS OF THE ASSESSEES. IN THE SEIZED MATERIAL, THE TOTAL SALES WAS DISCLOSED AT RS.16,27,36,575.50 PS. FOR THE PERIOD OF 1.4.1997 TO 31.3.2002 BUT THE ASSESSMENT YEAR S INVOLVED ARE FROM 1999 - 2000 TO 2002 - 03. THEREFORE, THE SA LE FOR THE ASSESSMENT YEAR 1998 - 99 IS TO BE EXCLUDED FROM THE TOTAL SALES FOR DETERMINING THE NET PROFIT OF THE ASSESSEES. DURING THE COURSE OF HEARING THE ASSESSEE HAS FURNISHED A CHART DECLARING THEREIN THAT HOW MUCH PROFIT WAS DECLARED BY THE ASSESSEES HAVING OFFERED THE ADDITIONAL INCOME. FROM THIS CHART, THE NET PROFIT SHOWN BY THE ASSESSEE IS BETWEEN 2.38% TO 9.56%. THE MEAN OF THE PROFIT COMES TO 5.85%. THE ASSESSEE HAS ALSO FURNISHED THE DETAILS OF THE ADDITIONS IF PARTICULAR PERCENTAGE IS ADOPT ED TO DETERMINE THE NET PROFIT. FOR THE SAKE OF REFERENCE THE EXTRACT OF THE CHART IS HERE UNDER: ITA NOS.305 TO 30 8 AND 348 TO 351/VZG/2008 PRAKASH ARTS MOVING MEDIA, HYD 9 PRAKASH ARTS MOVING MEDIA (TOTAL INCOME VIS - - VIS THE TOTAL TURNOVER) FIN. YEAR SERVICE TAX SALES AS PER ANNEX. TOTAL SALES PROFIT AS PER BOOKS MINUS DIVIDE ND INCOME ADDITIONAL INCOME OFFERED TOTAL PROFIT % ON TOTAL SALES 1 2 3 4 5 6 7 1998 - 1999 1081141 24414957 25496098 420102 187000 607102 2.38 1999 - 2000 1678506 36512282 38190788 706878 1375323 2082201 5.45 2000 - 2001 2047314 43052244 45099558 1007691 3304000 4311691 9.56 2001 - 2002 1423243 30321202 31744445 690359 535000 1225359 3.86 6230204 134300685 140530889 2825030 5401323 8226353 5.85 FIN. YEAR TOTAL SALES 5% OF SALES 6% OF SALES TOTAL INCOME RETURNED DIFFERENCE (5%) DIFFERENCE (6%) 8 9 10 1 1 12 13 1998 - 1999 25496098 1274805 1529766 607102 667703 922664 1999 - 2000 38190788 1909539 2291447 2082201 - 172662 209246 2000 - 2001 45099558 2254978 2705973 4311691 - 2056713 - 1605718 2001 - 2002 31744445 1587222 1904667 1225359 361863 679308 140530889 7026544 9134508 8226353 - 1199809 908155 1 5 . FROM A CAREFUL PERUSAL OF THIS CHART, WE FIND THAT THE ASSESSEE HAS ADOPTED THE TOTAL SALES AT RS.14,05,30,889/ - IN PLACE OF RS.16,27,36,575/ - FOR THE IMPUGNED ASSESSMENT YEAR. THE SALES DECLARED IN THE SEIZED DOCUMENT WAS FOR 5 YEARS, WHEREAS, THE IMPUGNED ASSESSMENT YEARS INVOLVED ARE 4 YEARS, THEREFORE, THE CORRESPONDING DEDUCTI ON IN SALE IS NECESSARY AND WE DO NOT FIND ANY ERROR IN ADOPTING THE FIGURE AT RS.14,05,30,889/ - FOR THE IMPUGNED ASSESSMENT YEARS. NOW THE QUESTION COMES WHAT SHOULD BE THE NET PROFIT IN THIS LINE OF BUSINESS OF THE ASSESSEES. NONE OF THE PARTIES HAVE BROUGHT ANYTHING ON RECORD IN SUPPORT OF THEIR ITA NOS.305 TO 30 8 AND 348 TO 351/VZG/2008 PRAKASH ARTS MOVING MEDIA, HYD 10 CONTENTIONS AS TO WHAT WOULD BE THE NET PROFIT IN THIS LINE OF BUSINESS. WE HOWEVER A FTER TAKING INTO ACCOUNT ALL THE RECORDS OF THE ASSESSEES IN WHICH ADDITIONAL INCOME WAS OFFERED , OF THE VIEW THAT 6% OF THE TOTAL SALE WOULD BE THE REASONABLE NET PROFIT OF THE ASSESSEES IN THE IMPUGNED ASSESSMENT YEARS , B ECAUSE HE HIMSELF HAS SHOWN THE P ROFIT RANGING BETWEEN 2.38% TO 9.56% AND THE MEAN WAS SHOWN TO BE 5.85%. ACCORDING TO US , THIS IS THE ONLY MODE OF CALCULATION OF NET PROFIT OF THE ASSESSEES IN THE GIVEN SITUATION. WE THEREFORE, SET ASIDE THE ORDER OF THE CIT(A) AND DIRECT THE A.O. TO A DOPT THE NET PROFIT AT 6% IN ALL THE YEARS. IN ONE YEAR, THE ASSESSEE ITSELF HAS SHOWN THE PROFIT AT 9.56% AND IN THAT YEAR NO ADDITION IS CALLED FOR AND THE DECLARED PROFIT OF THE ASSESSEES IS TO BE ACCEPTED . I N REST OF THE YEARS , THE PROFIT IS TO BE ES TIMATED AT 6% OF THE RESPECTIVE TOTAL SALES. 1 6 . IN THE RESULT, THE APPEALS OF THE ASSESSEES AS WELL AS THE REVENUE ARE PARTLY ALLOWED FOR STATISTI C AL PURPOSES. PRONOUNCED IN THE OPEN COURT ON 23.11 .20 10 SD/ - SD/ - (BR BASKARAN) (SUNIL KUMAR YADAV) ACCOUNTANT MEMBER JUDICIAL MEMBER VG/SPS VISAKHAPATNAM, DATED 23 RD NOVEMBER , 20 10 COPY TO 1 THE DCIT, CENTRAL CIRCLE, VIJAYAWADA 2 M/S. PRAKASH ARTS MOVING MEDIA, 3 - 6 - 473/1, STREET NO.5, UPLANDS, HIMAYAT NAGAR, HYDERABAD 3 THE CI T, HYDER ABAD 4 THE CIT (A) - I, HYDERABAD 5 THE DR, ITAT, VISAKHAPATNAM. 6 GUARD FILE. BY ORDER SENIOR PRIVATE SECRETARY INCOME TAX APPELLATE TRIBUNAL VISAKHAPATNAM