Malanadu Tourist Home, Cochin V. ACIT, Kannur

ITA 484/COCH/2009

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 52212 (ITAT-COCHIN)
• Duration Of Justice: 1 year(s) 11 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-08-2011
• Appeal Filed By: Assessee
• Bench Allotted: DB
• Next Hearing Date: 21-06-2011
• Assessment Year: 2006-2007
• Appeal Filed On: 31-08-2009
• Court: TRIBUNAL
• Keywords: Revision of order; Assessment record
• Section: 133A; 263

Judgement Text

ITA NOS. 484 & 485/COCH/2009 (FOR A.Y. 2006-07) 1 IN THE INCOME TAX APPELLAT E TRIBUNAL COCHIN BEN CH, COCHIN BEFORE S/SHRI N.VIJAYAKUMARAN, JM AND SANJAY AR ORA, AM I.T.A. NOS.484 & 485 /COCH/2009 ASSESSMENT YEAR:2006-07 MALANADU TOURIST HOME, KANHANGAD [PAN:AAAAM 4282F] VS. THE ASSISTANT COMMISSIONER OF INCOME-TAX, CIRCLE-2(1), KANNUR. (ASSESSEE -APPELLANT) (REVENUE - RESPONDENT) ASSESSEE BY SMT. PREETHA S. NAIR, ADV.-AR REVENUE BY SHRI S.R.SENAPATI, SR. DR O R D E R PER SANJAY ARORA, AM: THESE ARE A SET OF TWO APPEALS IN RESPECT OF TWO O RDERS PASSED BY THE COMMISSIONER OF INCOME-TAX, KANNUR (CIT FOR SHORT ) UNDER HIS REVISIONARY JURISDICTION UNDER SECTION 263 OF THE INCOME-TAX ACT, 1961 (THE ACT HEREINAFTER) FOR THE ASSESSMENT YEAR (A.Y.) 2006-07. THE TWO ORDERS DATED 2.7.2009 AND 29.6.2009 ARE IN RESPECT OF THE QUANTUM AND PENALTY PROCEEDINGS IN RESPECT OF THE A SSESSEE FOR THE SAID YEAR. 2. THE FACTS OF THE CASE ARE THAT THE ASSESSEE, A F IRM RUNNING A BAR ATTACHED HOTEL AT KANHANGAD, WAS SUBJECT TO SURVEY U/S. 133A OF THE A CT AT ITS BUSINESS PREMISES ON 13.3.2006. SEVERAL INCRIMINATING DOCUMENTS AND EVI DENCES WERE FOUND DURING THE SURVEY, ESTABLISHING THAT THE GROSS PROFIT (G.P.) B EING EARNED BY THE ASSESSEE WAS CONSIDERABLY HIGHER THAN THAT BEING RETURNED BY IT OVER THE YEARS; THE UNDERSTATEMENT BEING CONSERVATIVELY ESTIMATED AT 15%. THE ASSESSEE FILED ITS RETURN OF INCOME FOR THE YEAR ON 31.10.2006 DECLARING AN INCOME OF ` 21,56,870/-. THE SAME INCLUDED ` 23 LAKHS OFFERED BY THE ASSESSEE AS ADDITIONAL INCOME TOWARD TRADING PROFIT, I.E., CONSEQUENT TO THE ITA NOS. 484 & 485/COCH/2009 (FOR A.Y. 2006-07) 2 SURVEY PROCEEDINGS. THE SAME, HOWEVER, WAS FOUND IN SUFFICIENT TO COVER THE DEFICIENCY IN THE DISCLOSED GROSS PROFIT, I.E., WITH REFERENCE TO THAT FOUND TO BE OBTAINING DURING THE SURVEY, SO THAT THE ASSESSING OFFICER (AO) MADE ADD ITION FOR ANOTHER ` 14 LAKHS TO MAKE GOOD THE SHORTFALL AND, ACCORDINGLY, ASSESSED THE I NCOME AT ` 35.89 LAKHS, I.E., AFTER EFFECTING ANOTHER DISALLOWANCE FOR ` 0.32 LAKHS. A SUBSEQUENT EXAMINATION OF THE RECORD S, IN EXERCISE OF HIS REVISIONARY JURISDICTION, BY THE LD. CIT, LED HIM TO OBSERVE THAT THE SURVEY TEAM HAD FOUND AS A FACT THAT THE ACCOUNTS A S KEPT WERE MANIPULATED. THE SALES RECORDS, AS ADMITTED BY THE MANAGER, SHRI K.A. SASI , WERE DESTROYED BY BURNING, ON INSTRUCTIONS BY THE MANAGING PARTNER, SHRI SABU PAU L AS WELL AS THE OTHER SR. MANAGER, AFTER REPORTING THE QUANTUM OF BUSINESS TO THEM. P HYSICAL INVENTORY WAS TAKEN, AS ALSO STATEMENTS ON OATH U/S. 131 OF THE ACT OF THE PERSO NS/STAFF IN CHARGE RECORDED. ACCORDINGLY, A SURVEY REPORT WAS PREPARED, CONTAINI NG DIFFERENT ANNEXURES (ANNEXURE `A TO `D), BEARING THE DETAILS OF THE PHYSICAL STOCK POSITION, AS WELL AS THE ANALYSIS OF GROSS PROFIT ON THE SALE OF DIFFERENT ITEMS IN DIFFERENT BARS. THE SAME REVEALED THE GROSS PROFIT ON DIFFERENT ITEMS TO RANGE BETWEEN 32% AND 52%. T HE AVERAGE, THEREFORE, WOULD BE 42%. ALLOWING ANOTHER 5% MARGIN FOR CONTINGENCY WO ULD LEAD TO GROSS PROFIT AT A MINIMUM RATE OF 37%. THE DISCLOSED GROSS PROFIT OF ` 64.86 LACS (ON THE DISCLOSED TURNOVER OF ` 2.74 CRORES) WORKED TO 23.67%. ANOTHER ` 23 LAKHS WAS OFFERED AS ADDITIONAL INCOME IN THE COMPUTATION OF INCOME, WHICH WORKS TO AROUND 8%. THE ADDITION OF ` 14 LAKHS, AS MADE BY THE AO, WORKS TO 5%. THE TOTAL, AT 36%, IS MUCH LESS THAN THE AVERAGE G.P. REPORTED BY THE SURVEY TEAM. THERE WAS, AS SU CH, NO BASIS FOR THE AO TO HAVE FINALIZED THE ASSESSMENT AT A GROSS PROFIT RATE LOW ER THAN THE AVERAGE OF 42%, I.E., ON THE BASIS OF THE SEIZED MATERIAL, WHICH, THEREFORE, WAS NOT VERIFIED BY THE AO. FURTHER, THE SAME ALSO REVEALED THAT THE SALE PRICE AS DISCLOSED IN THE ACCOUNTS WAS SUPPRESSED. THIS SHOULD, THEREFORE, RESULT IN THE GROSS PROFIT RATIO BEING APPLIED TO THE INCREASED TURNOVER, WHILE THE AO HAS ACCEPTED THE DISCLOSED SALES, AND APPLIED THE GROSS PROFIT RATIO WITH REFERENCE THERE-TO. THIRDLY, IT WAS ALSO FOUND AT THE TIME OF SURVEY THAT THE GROSS PROFIT FOR THE AC BAR WAS HIGHER THAN THAT OBTAINING IN TH E NON-AC BAR, WHICH ASPECT HAS ALSO NOT BEEN LOOKED INTO BY THE AO. ACCORDINGLY, NOTIC E U/S. 263 WAS ISSUED, IN RESPONSE TO ITA NOS. 484 & 485/COCH/2009 (FOR A.Y. 2006-07) 3 WHICH IT WAS EXPLAINED THAT THE NON-MAINTENANCE OF PROPER ACCOUNTS WAS ON ACCOUNT OF SOME TECHNICAL DIFFICULTIES, AS THE CONSTRUCTION OF THE BUILDING WAS GOING ON, SO THAT PROPER DETAILS COULD NOT BE KEPT. FURTHER, THE ASS ESSEE HAD TO SPEND/INCUR SOME EXPENDITURE, WHICH COULD NOT BE ACCOUNTED FOR IN TH E REGULAR BOOKS. THE BAR IS THE CHEAPEST IN THE REGION, AND THE AO HAD MADE A REASO NABLE ESTIMATE OF THE SUPPRESSED GROSS PROFIT FOR THE YEAR. THE LD. CIT(A), HOWEVER , WAS OF THE VIEW THAT THE ADMISSION OF THE HIDDEN EXPENDITURE ITSELF PROVED THAT THERE WAS ADDITIONAL INCOME. THE ASSESSEE HAD STATED NOTHING WITH REGARD TO THE QUANTUM OF GROSS PROFIT DISCLOSED. IT HAD SPENT ABOUT ` 28 LAKHS ON THE CONSTRUCTION OF THE BUILDING, QUA WHICH NO VERIFICATION HAS BEEN MADE BY THE AO. HE, ACCORDINGLY, SET ASIDE THE ASSESSME NT, DIRECTING THE AO TO WORK OUT THE GROSS PROFIT ON THE BASIS OF THE MATERIAL AVAILABLE ON RECORD; THE EXPENDITURE INCURRED AND HIDDEN, IF ANY, AND REFER THE MATTER OF INVESTMENT ON THE CONSTRUCTION OF THE BUILDING TO THE VALUATION CELL TO FIND OUT THE UNEXPLAINED INVE STMENT, IF ANY. PENALTY PROCEEDINGS, INITIATED U/S. 271(1)(C) OF THE ACT, HAVING BEEN AL SO SUBSEQUENTLY DROPPED BY THE AO, I.E., VIDE ORDER DATED 25.3.2009, ON THE BASIS THAT THE A DDITION MADE WAS ON AN ESTIMATE BASIS, WHILE IT WAS ON THE BASIS OF DEFINITE MATERIALS AVA ILABLE WITH THE SURVEY TEAM, FORMING PART OF THE ASSESSMENT RECORD, THE LD. CIT FOUND TH E SAID DROPPING OF THE PENALTY PROCEEDINGS AS ALSO ERRONEOUS AND PREJUDICIAL TO TH E INTEREST OF THE REVENUE. IN FACT, THE TRIBUNAL IN THE CASE PERTAINING TO THE SAME CIRCLE (CIRCLE 2(1), KANNUR), HAD CONFIRMED THE PENALTY U/S. 271(1)(C) ON SIMILAR ADDITIONS IN ARRACK BUSINESS (I.E., K. SREEDHAR & CO. VS. ACIT IN I.T.A. NO. 135/COCH/2005 DATED 11.5.2007 FOR A. Y. 1994-95); THE ADDITION/S WHEREIN WERE BASED ON ESTIMATED SALE PRICE OF ARRAC K. IN FACT, THE ADDITIONAL GROSS PROFIT WAS NOT AN ESTIMATE, BUT PROVED. THE ASSESSEE HAD BEEN SYSTEMATICALLY CONCEALING INCOME AND CONTINUED TO DO SO EVEN AFTER ITS DETECT ION. IN HIS VIEW, IT WAS A FIT CASE FOR THE LEVY OF PENALTY ON THE TAX EVADED ON THE INCOME OF ` 14 LAKHS, I.E., AT THE RATE OF 300% OF THE TAX THEREON, AND DIRECTED THE AO TO WORK OUT THE PENALTY ACCORDINGLY. 3.1 BEFORE US, IT WAS CONTENDED BY THE LD. AR, THE ASSESSEES COUNSEL, THAT THE BASIS FOR INVOKING SEC. 263 IN THE INSTANT CASE WAS THAT THE AO HAD NOT VERIFIED THE SEIZED MATERIAL ITA NOS. 484 & 485/COCH/2009 (FOR A.Y. 2006-07) 4 IN COMPUTING THE GROSS PROFIT FOR THE YEAR. HOW DI D THE AO THEN, SHE COUNTERED, COME TO THE CONCLUSION THAT THERE WAS A SHORTFALL THEREIN I NSPITE THE ASSESSEE HAVING RETURNED AN ADDITIONAL INCOME OF ` 23 LAKHS. IT IS NOT NECESSARY FOR THE AO TO SPELL OUT EVERY DETAIL IN HIS ORDER, AND THE ADDITION OF ` 14 LAKHS BY HIM, BEING TO THE EXTENT OF THE SHORTFA LL DETERMINED, IS ITSELF A PROOF OF HIS HAVING WORKED OUT THE SAME, AND ONLY ON THE BASIS OF THE MATERIAL ON RECORD. THE LD. CIT MIGHT DIFFER O N THE QUANTUM OF THE ADDITION THAT OUGHT TO HAVE BEEN MADE, BUT THAT IS A DIFFERENT MA TTER ALTOGETHER, AND WOULD NOT LEAD TO A REVISION U/S. 263. RELIANCE WAS PLACED BY HER ON TH E DECISIONS IN THE CASE OF MALABAR INDUSTRIAL CO. LTD. VS. CIT , 243 ITR 83 (SC); CIT VS. ARVIND JEWELLERS , 259 ITR 502(GUJ.); AND CIT VS. GABRIEL INDIA LTD. , 203 ITR 108 (BOM.). ON IT BEING BROUGHT TO HER NOTICE BY THE BENCH THAT THE LD. CIT HAD ALSO F OUND, AGAIN WITH REFERENCE TO THE SAID MATERIALS, THAT THE ASSESSEE WAS UNDERSTATING ITS S ALE PRICE, SO THAT THE BOOK FIGURE OF TURNOVER WAS ITSELF UNDERSTATED, AND WHICH WOULD LE AD TO THE G.P. RATE BEING WORKED OUT WITH REFERENCE TO THE INCREASED TURNOVER, WHICH HAD ADMITTEDLY NOT BEEN DONE BY THE AO, IT WAS REPLIED BY HER THAT THE QUESTION OF QUANTUM IS A MATTER SUBSEQUENT, WHICH WOULD ARISE ONLY ONCE THE CIT ASSUMES JURISDICTION U/S. 2 63, AND WHICH IN THE PRESENT CASE IS ON THE BASIS THAT THE AO HAD NOT VERIFIED THE SEIZED M ATERIAL, WHICH IS NOT CORRECT ON FACTS. WITH REGARD TO THE DROPPING OF THE PENALTY PROCEED INGS, IT WAS SUBMITTED BY HER THAT THE AO HAVING MADE A FAIR ESTIMATION OF THE GR OSS PROFIT, THE SAME STOOD ACCEPTED BY THE ASSESSEE, AND NOT APPEALED AGAINST. THE ASSESSE ES CONDUCT HAS BEEN COOPERATIVE, AND AOS ACTION IN THE DROPPING THE PENALTY PROCEEDINGS WAS, THUS, JUSTIFIED UNDER THE CIRCUMSTANCES, SO THAT THE SAME COULD NOT BE IMPUGN ED. 3.2 THE LD. DR, ON THE OTHER HAND, WAS VEHEMENT IN HIS OPPOSITION OF THE ASSESSMENT ORDER AND, CONCOMITANTLY, SUPPORT OF THE IMPUGNED O RDER. THE ASSESSMENT ORDER IS SANS ANY WORKING, WHICH REFLECTS COMPLETE NON-APPLICATIO N OF MIND BY THE AO TO THE ISSUE BEFORE HIM, I.E., DETERMINATION OF THE GROSS PROFIT WHICH OUGHT TO HAVE BEEN ASSESSED, IN VIEW OF THE FINDINGS IN THE SURVEY PROCEEDINGS. THE SAME WOULD PER SE MAKE THE ORDER ERRONEOUS TO THE EXTENT IT IS PREJUDICIAL TO THE IN TEREST OF THE REVENUE, IS THE TRITE LAW, ITA NOS. 484 & 485/COCH/2009 (FOR A.Y. 2006-07) 5 PLACING RELIANCE ON THE DECISIONS IN THE CASES OF RAMPYARI DEVI SAROGI V. CIT (1968) 67 ITR 84(SC); CIT V. MCMILLAN & CO . (1958) 33 ITR 182 (SC); CIT (ADDL.) V. MUKUR CORP ., 111 ITR 312 (GUJ.); SWARUP VEGETABLE PRODUCTS V. CIT , 187 ITR 412 (ALL.); AND THALIBAI F. JAIN V. ITO , 101 ITR 1 (KAR.). IN FACT, REVISION IS PERMISSIBL E EVEN QUA DEBATABLE ISSUES, AS HELD BY THE APEX COURT IN THE CASE OF MALABAR INDUSTRIAL CO. LTD . (SUPRA), WHICH WOULD BE PARTICULARLY SO WHERE, AS I N THE INSTANT CASE, THERE HAS BEEN NO PROPER INQUIRY. THE LD. CIT HAD FOUND AN UNDERSTAT EMENT IN THE GROSS PROFIT AS ASSESSED ON THREE SCORES, I.E., ON THE DISCLOSED TURNOVER, W HICH HAS BEEN FOUND TO BE AT AN AVERAGE OF 42% PER THE SURVEY REPORT; THE GROSS PROFIT ON T HE SUPPRESSED TURNOVER; AND THAT ON THE EXPENDITURE WHICH STANDS EXPENDED BY WAY OF HIDDEN EXPENDITURE AND ON INVESTMENT IN BUILDING. WITH REGARD TO THE DROPPING OF THE PENALT Y PROCEEDINGS, THERE IS NO EXPLANATION IN THE IMPUGNED ORDER DROPPING THE PENALTY PROCEEDI NGS BY THE AO QUA THE UNDERSTATED PROFIT OF `1 4 LAKHS ADMITTED TO BY THE ASSESSEE. ACCORDINGLY, T HE REVISION ORDERS, BOTH WITH REGARD TO THE QUANTUM AND PENALTY PROCEEDINGS, MERIT BEING UPHELD. 4. WE HAVE HEARD THE PARTIES, AND PERUSED THE MATE RIAL ON RECORD, AS WELL AS THE CASE LAW CITED. 4.1 THE PREMISES OF THE LD. ARS LENGTHY ARGUME NTS IS TOWARD SHOWING US THAT THE IMPUGNED ORDER IS ILL-FOUNDED INASMUCH AS THE OBSER VATION BY THE LD. CIT THAT THE AO HAD NOT MADE ANY VERIFICATION OF THE MATERIALS IMPOUNDE D DURING SURVEY, STANDS CONTRADICTED BY THE FACT THAT THE AO HAD WORKED OUT THE SHORTFAL L, AND EFFECTED AN ADDITION IN ASSESSMENT ONLY ON THAT BASIS. THE SAID ARGUMENT, T HOUGH NOT WHOLLY WITHOUT MERIT, IS DEFINITELY AMISS. THE OBSERVATION OF THE LD. CIT HA S TO BE CONSIDERED, FIRSTLY, REASONABLY AND, SECONDLY, IN LIGHT OF HIS OBSERVATIONS MADE - BASED ON THE ANALYSIS OF THE FINDINGS IN THE SURVEY REPORT - AND ENUMERATED AT THE PRECEDING PARAS (A), (B) & (C) [PAGES 1 & 2] OF HIS ORDER. THE IMPUGNED OBSERVATION CANNOT BE READ MECHANICALLY AND IN ISOLATION, BUT ONLY IN A HOLISTIC AND REASONABLE MANNER. WHEN INQU IRED IF ANY QUERIES WERE MADE BY THE ASSESSING AUTHORITY DURING THE ASSESSMENT PROCEEDIN GS, SHE REPLIED IN THE AFFIRMATIVE, ITA NOS. 484 & 485/COCH/2009 (FOR A.Y. 2006-07) 6 STATING THAT THE SAME COULD BE PRODUCED. THE LATER DOCUMENTS (VIDE LETTER DATED 23/6/2011) IS A COMMUNICATION BY THE ASSESSEE TO TH E AO DATED 29/10/2010 AND, CONSEQUENTLY, OF NO RELEVANCE FOR OUR PURPOSES. THE SYSTEMATIC SUPPRESSION OF THE TRADING PROFIT, IN VIEW OF HOST OF THE EVIDENCES GATHERED I N SURVEY, IS UNDISPUTED, BEING NOT DENIED BY THE ASSESSEE ITSELF; IT OFFERING ` 23 LAKHS BY WAY OF ADDITIONAL INCOME PER ITS COMPUTATION OF THE INCOME FOR THE YEAR, I.E., IN AD DITION TO THE DISCLOSED GROSS PROFIT OF ` 64.86 LAKHS, WHICH IS IN TUNE WITH ITS DECLARED G.P . FROM YEAR TO YEAR. ANOTHER ` 14 LAKHS IS AGREED TO WITHOUT DEMURE, AND FOR THE SAME REASO N, I.E., ON ACCOUNT OF IT HAVING EARNED A HIGHER TRADING PROFIT. THE QUESTION OR THE ISSUE BEFORE THE AO, UNDER THE CIRCUMSTANCES, WAS THE EXTENT OF SUPPRESSION, AND WHICH WOULD ENTA IL A PROPER EXAMINATION OF THE SEIZED MATERIAL . RATHER, AND WITHOUT DOUBT, THE AO IS NOT BOUND BY THE REPORT, AND MAY NOT NECESSARILY CONFINE HIMSELF TO THE FINDINGS THEREBY , WHICH IS A PRELIMINARY EXAMINATION, AS EMPHASIZED BY THE LD. DR. HOWEVER, IF HE CHOOSES NOT TO TRAVEL FURTHER, HE CANNOT BE, AT LEAST PRIMA FACIE , CHARGED WITH HAVING NOT TAKEN A REASONABLE VIEW O F THE MATTER. IF, ON THE BASIS THEREOF, IT IS FOUND THAT THE AO HAS TAKE N A REASONABLE OR POSSIBLE VIEW OF THE MATTER, THAT SURELY WOULD BE THE END OF THE MATTER, WHILE ON THE OTHER HAND, IF IT (THE ASSESSMENT AS MADE) IS FOUND TO BE A RESULT OF ONLY A CURSORY EXAMINATION OF THE MATERIAL ON RECORD, AND NOT A PROPER INQUIRY, WHICH A DULY I NFORMED AND JUDICIALLY INSTRUCTED MIND WOULD MAKE, HIS ORDER IS DEFINITELY ERRONEOUS AND P REJUDICIAL TO THE INTEREST OF THE REVENUE, AND CAN BE IMPUGNED IN THE REVISIONARY PRO CEEDINGS. 4.2 TOWARD THIS, WE FIND THAT THERE IS NO REF ERENCE WHATSOEVER TO THE SURVEY REPORT OR TO ITS FINDINGS IN THE ASSESSMENT ORDER. IN FACT, T HE SAME (ASSESSMENT ORDER) DOES NOT EVEN BEAR THE MANNER OF COMPUTATION OF THE SHORTFALL. T HE SAME, NEVERTHELESS, WOULD HAVE SOME BASIS AND CANNOT BE IN VACUUM. AS SUCH, IF TH E SAME MATCHES, OR NEARLY SO, THE TRADING PROFIT FOUND IN TERMS OF THE SURVEY REPORT, MERE NON FURNISHING OF THE SAME WOULD NOT JUSTIFY THE INFERENCE OF NON-APPLICATION OF MIN D. THE LD. CIT HAS, WORKING BACKWARDS, FOUND THE SAME TO LEAD TO A GROSS PROFIT RATE OF 36 %. WE FIND IT TO BE, IN FACT, AT 37.08% ; THE DISCLOSED TURNOVER BEING AT ` 2.74 CRORES. SO HOWEVER, THE FACT REMAINS THAT IT IS LESS ITA NOS. 484 & 485/COCH/2009 (FOR A.Y. 2006-07) 7 THAN 42% WORKED OUT BY THE SURVEY TEAM. NO DOUBT, IT HAS ALLOWED A 5% MARGIN FOR CONTINGENCY, BUT THEN, THE QUESTION IS: WHAT ARE TH OSE CONTINGENCIES, AND DID THEY OBTAIN FOR THE ENTIRE PERIOD OF THE YEAR, SO AS TO BE RECK ONED ON THE BASIS OF THE ANNUAL TURNOVER? THE ASSESSMENT ORDER IS COMPLETELY SILENT ON THIS. WHY SHOULD, IT MAY BE ASKED, THE `CONTINGENCY FACTOR, WHICH IS UNDEFINED, RESTRICTE D TO 5%, AND NOT 1% OR 2% OR EVEN INCREASED TO HIGHER THAN 5%; THE PREMISE BEING TO B RING TO TAX THE ACTUAL INCOME ARISING DURING THE RELEVANT YEAR. ONLY AN EXAMINATION OF TH E FACTS, INCLUDING THE SURVEY REPORT, COULD ANSWER THIS. THAT IS, ANY REBATE FROM THE AVE RAGE OF 42% COULD ONLY BE ON THE BASIS OF SOME DEFINITE FINDING, AND NOT ASSUMED MERELY BE CAUSE THE SURVEY REPORT ADOPTS IT, WHICH APPEARS TO BE PURELY AN AD HOC ESTIMATE OR SU RMISE. IN FACT, THE AVERAGE OF 42% IS ITSELF AN APPROXIMATION, I.E., A SIMPLE MEAN OF THE OBTAINING TRADING PROFIT, VARYING FROM 32% TO 52%, WHILE IT IS ONLY THE WEIGHTED AVERAGE T HAT WOULD BE RELEVANT. THE PROPORTION OF THE SEVERAL ITEMS FOR WHICH THE SAID PERCENTAGE HAS BEEN WORKED OUT, WOULD BE VERY RELEVANT, I.E., AS OBTAINING GENERALLY OR FOR THE Y EAR UNDER REFERENCE, AND FOR WHICH THE PURCHASING PATTERN WOULD BE A REASONABLE GUIDE. NO SUCH EXERCISE HAS BEEN UNDERTAKEN BY THE AO . FURTHER, THE SURVEY REPORT ALSO ESTABLISHES SUPP RESSION IN THE SALE PRICE, SO THAT TO THE EXTENT THE ACTUAL SALE PRICE IS HIGHER, THERE IS AN UNDER-ESTIMATION OF GROSS PROFIT ON THAT COMPONENT OF THE TURNOVER AS WELL. T HIS WAS ALL THE MORE INCUMBENT, AS IT WAS FOUND, AND ITSELF NOTED BY THE AO, THAT SUCH SU PPRESSION HAD BEEN ON FOR SEVERAL YEARS. IN OUR VIEW, THERE HAS BEEN A CLEAR AND PAT ENT ABSENCE OF PROPER ENQUIRY IN THE MATTER. 4.3 THE ASSESSEE, AS HAS BEEN OBSERVED BY THE LD. CIT, HAS ALSO MADE INVESTMENT ON THE CONSTRUCTION OF BUILDING, SO THAT THE SAME ALSO OUGHT TO HAVE BEEN SUBJECT TO VERIFICATION BY THE AO, AND FOR WHICH HE DIRECTED H IM TO REFER THE MATTER TO THE VALUATION CELL. THE SAME IS ONLY APPOSITE, AND THE EXCESS, IF FOUND, WOULD BE SUBJECT TO TELESCOPING BENEFIT. SO HOWEVER, THIS ASPECT WOULD OBTAIN ONLY IF THE SAME HAD FORMED A PART OF THE NOTICE ISSUED BY THE LD. CIT TO THE ASSESSEE, EITHE R AT THE COMMENCEMENT OF THE PROCEEDINGS BEFORE HIM OR EVEN AT A LATER STAGE. ITA NOS. 484 & 485/COCH/2009 (FOR A.Y. 2006-07) 8 4.4 WITH REGARD TO HIS THIRD DIRECTION, I.E., W ITH REFERENCE TO THE HIDDEN EXPENDITURE, WE DO NOT CONSIDER IT AS JUSTIFIED, FOR THE REASON THA T THE SAME DID NOT FORM A PART OF THE RECORD AND, AS IT APPEARS, STEMS ONLY FROM THE ASSE SSEES EXPLANATION FOR THE NON- MAINTENANCE OF PROPER BOOKS. A SUBSEQUENT FINDING BY THE LD. CIT COULD BE INCORPORATED IN HIS DIRECTIONS ONLY WHERE THEY RELATE TO SOME MA TERIAL OR ON ANY ENQUIRY BASED ON SOME MATERIAL ON RECORD, WHILE HERE THE SAME EMANATES ON LY FROM THE ASSESSEES EXPLANATION FOR THE SUPPRESSION OF INCOME. THE REASON FOR THE SUPPRESSION IS EVEN OTHERWISE ONLY AN INCIDENTAL FACTOR, AND NOT DIRECTLY RELEVANT FOR TH E PURPOSE OF ASSESSMENT OF INCOME. THIS IS ALL THE MORE SO WHERE DIRECT EVIDENCE OF SUPPRES SION IN TRADING PROFIT, BASED ON THE PURCHASE AND SALE RATES, AND PHYSICAL INVENTORY, HA VE BEEN FOUND, AND ADMITTED TO BY THE ASSESSSEE. FOR THE AFORESAID REASONS, WE CONSIDER T HAT THE REVISION IS NOT JUSTIFIED IN RESPECT OF THE HIDDEN EXPENDITURE, IF ANY, AND THE DIRECTION/S BY THE LD. CIT IN ITS REGARD ARE VACATED. 4.5 QUA THE REVISION IN RESPECT OF THE PENALTY PROCEEDINGS INITIATED U/S. 271(1)(C), WE FIND THE SAME AGAIN AS VALID IN LAW. NO EXPLANATIO N WHATSOEVER HAS BEEN TENDERED BY THE ASSESSEE, EITHER IN THE ASSESSMENT PROCEEDINGS OR I N THE PENALTY PROCEEDINGS, WITH REFERENCE TO THE ADDITION OF ` 14 LAKHS, ADMITTEDLY MADE (BY THE AO) ONLY TO MAKE GOOD THE SHORTFALL IN THE GROSS PROFIT DISCLOSED BY THE ASSESSEE. IN FACT, THE LD. AR HERSELF, WITH REFERENCE TO THE SAME, ARGUES THAT THE SAME WAS BAS ED ON AN EXAMINATION OF THE SEIZED MATERIAL. FURTHER, THE SAME REPRESENTS THE MINIMUM GROSS PROFIT, WHICH THE ASSESSEE IN THE ABSENCE OF ANY MITIGATING FACTOR OUGHT TO HAVE RETU RNED. THIS IS MORE SO WHERE THE SAME HAD BEEN THE SUBJECT MATTER OF THE FINDINGS DURING THE COURSE OF SURVEY AT THE BUSINESS PREMISES OF THE ASSESSEE, TO NO REBUTTAL BY IT, AND AT ANY STAGE. WHEN THE ACCOUNTS ARE NOT BEING MAINTAINED PROPERLY; RATHER, MANIPULATED, THE RECOURSE IS TO AN ESTIMATION, WHICH IS NOT ANATHEMA; THE ONLY CRITERIA BEING THAT THE SAME HAS TO BE BASED ON SOME DEFINITE AND RELEVANT MATERIALS, DRAWING COGENT INFERENCES, WHIC H IS SO IN THE PRESENT CASE. IN FACT, THE TRADING PROFIT RATE STANDS WORKED OUT ONLY ON THE B ASIS OF THE OBTAINING PURCHASE AND SALE ITA NOS. 484 & 485/COCH/2009 (FOR A.Y. 2006-07) 9 RATES DURING THE RELEVANT YEAR, AS FOUND FROM THE A SSESSEES OWN RECORDS/MATERIALS, AND RATHER STANDS ADMITTED BY IT. WE, THEREFORE, FIND N O INFIRMITY IN THE IMPUGNED ORDER; THE ASSESSEE BEING ENGAGED IN A DELIBERATE FALSIFICATIO N OF ITS BOOKS, WITH A VIEW TO SUPPRESS ITS PROFITS, AN ADMITTED FACT, COUPLED WITH UNDERST ATEMENT OF INCOME EVEN POST SURVEY PER ITS RETURN FILED THEREAFTER. SO HOWEVER, WE CONSID ER THAT THE OMISSION TO RETURN THE PROFIT AT THE SAID RATE COULD ALSO BE A RESULT OF A GENUIN E ERROR ON THE ASSESSEES PART; IT READILY AGREEING TO THE ADDITION FOR THE SAME, SO THAT IT I S NOT A CASE WARRANTING LEVY OF PENALTY AT THE MAXIMUM RATE. WE, THEREFORE, RESTRICT THE SAME TO 200% OF THE TAX ON THE ADMITTED INCOME OF ` 14 LAKHS, IN PARTIAL MODIFICATION OF THE IMPUGNED O RDER. 5. IN THE RESULT, BOTH THE ASSESSEES APPEALS ARE P ARTLY ALLOWED. . SD/- SD/- (N.VIJAYAKUMARAN) (SANJAY ARORA) JUDICIAL MEMBER ACCOUNTANT MEMBER PLACE: ERNAKULAM DATED: 19TH AUGUST, 2011 GJ COPY TO: 1. MALNADU TOURIST HOME, KANHANGAD, C/O SABU PAUL, EDAKKATTUKADY HOUSE, PUTHUPPADDY, MUVATTUPUZHA, ERNAKULAM - 686691. 2. THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE-2( 1), KANNUR. 3. THE COMMISSIONER OF INCOME-TAX, CALICUT. 4. D.R., I.T.A.T., COCHIN BENCH, COCHIN. 5. GUARD FILE. ITA NOS. 484 & 485/COCH/2009 (FOR A.Y. 2006-07) 10