DCIT, Ernakulam V. Smt Mariamma Varghese, Ernakulam

ITA 501/COCH/2011

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 58264 (ITAT-COCHIN)
• Duration Of Justice: 8 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-02-2012
• Appeal Filed By: Department
• Bench Allotted: DB
• Next Hearing Date: 13-02-2012
• Assessment Year: 2006-2007
• Appeal Filed On: 17-06-2011
• Court: TRIBUNAL
• Department Lawyers: VIJAYAPRABHA
• Keywords: Search and seizure
• Section: 133A; 15

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL COCHIN BENCH, COCHIN BEFORE: SHRI N.R.S.GANESAN, JUDICIAL MEMBER AND SHRI B.R. BASKARAN, ACCOUNTANT MEMBER ITA NO. 501/COCH/2011 ASSESSMENT YEAR : 2006-07 THE DEPUTY COMMISSIONER OF INCOME-TAX, CENTRAL CIRCLE-2, ERNAKULAM SMT. MARIAMMA VARGHESE, PUTHUVA HOUSE, OORAKKADU, MALAYIDAMTHURUTHU P.O., EDATHALA, ERNAKULAM DISTT. PIN- 683 561. [PAN:ACAPM 3446J] (APPELLANT) VS. (RESPONDENT) APPELLANT BY: SMT. VIJAYAPRABHA, JR. DR RESPONDENT BY: SHRI ANIL D. NAIR, ADV. DATE OF HEARING: 13/02/2012 DATE OF PRONOUNCEMENT: 17/02/2012 ORDER PER SHRI B.R.BASKARAN, ACCOUNTANT MEMBER:- THE APPEAL OF THE REVENUE IS DIRECTED AGAINST THE ORDER DATED 29-03-2011 PASSED BY LD CIT(A)-III, KOCHI AND IT RELATES TO THE ASSESSM ENT YEAR 2006-07. 2. THE GROUNDS RAISED BY THE REVENUE ARE RELATE D TO THE FOLLOWING TWO ISSUES. (A) GROSS PROFIT ADDITION ON SUPPRESSED SALES. (B) RELIEF GRANTED ON COST OF IMPROVEMENT OF LAND . 3. THE FACTS RELATING TO THESE TWO ISSUES ARE S TATED IN BRIEF. THE ASSESSEE IS THE MANAGING PARTNER OF THE FIRM NAMED M/S KALLUNGAL TR ADING COMPANY. SHE ALSO CARRIES ON THE BUSINESS OF MANUFACTURE AND SALE OF HALLOW B RICKS AS HER PROPRIETARY CONCERN IN THE NAME AND STYLE M/S MARIA HOLLOW BRICKS. THE DE PARTMENT CARRIED OUT SEARCH AND SEIZURE OPERATIONS AT THE RESIDENCE OF THE ASSESSEE ON 19.10.2006. SIMULTANEOUSLY I.T.A. NO.501 /COCH/2011 2 SURVEY OPERATION U/S 133A OF THE ACT WAS CONDUCTED AT THE BUSINESS PREMISES OF M/S MARIA HOLLOW BRICKS. SUBSEQUENTLY, A NOTICE U/S 15 3A WAS ISSUED TO THE ASSESSEE ON 23-04-2007. IN RESPONSE THERETO, THE ASSESSEE FILE D HER RETURN OF INCOME ADMITTING A TOTAL INCOME OF RS.6,45,264/-. HOWEVER, THE AO COMP LETED THE ASSESSMENT BY DETERMINING THE TOTAL INCOME AT RS.24,95,730/- BY M AKING, INTER ALIA, FOLLOWING TWO ADDITIONS. (A) GROSS PROFIT ON SUPPRESSED SALES - R S.13,26,811/- (B) DISALLOWANCE OF INDEXED COST OF IMPROVEMENT ON SALE OF LAND RS.22,23,695/-. IN THE APPEAL FILED BY THE ASSESSEE, THE LD CIT(A) DELETED THE ADDITION RELATING TO THE GROSS PROFIT AND GRANTED RELIEF OF 50% ON THE COST OF IMPROVEMENT. AGGRIEVED BY THE ORDER OF LD CIT(A), THE REVENUE IS IN APPEAL BEFORE US. 4. THE FACTS RELATING TO THE FIRST ISSUE ARE SET OUT IN BRIEF. DURING THE COURSE OF SEARCH/SURVEY OPERATION, DAILY STATEMENT OF SALES O F HOLLOW BRICKS RELATING TO THE MONTHS OF AUGUST AND SEPTEMBER, 2006 WERE FOUND. A N ANALYSIS OF THE SAID STATEMENTS REVEALED THAT THE ASSESSEE WAS SUPPRESSING SALES IN HER BOOKS OF ACCOUNT. THE AO INITIALLY CALCULATED THE ESTIMATED SUPPRESSED SALES FOR THE WHOLE YEAR AT RS.25,40,000/- BY PROJECTING THE SALES FIGURE OF TWO MONTHS CITED ABOVE. HOWEVER, THE ASSESSEE POINTED OUT CERTAIN MISTAKES IN THE SAID COMPUTATIO N MADE BY THE AO. THE ASSESSEE COMPUTED THE SUPPRESSED SALES FOR THE WHOLE YEAR BY FOLLOWING THE METHODOLOGY ADOPTED BY THE AO AFTER DULY CORRECTING THE MISTAKE S AND ARRIVED AT THE SUPPRESSED SALES AT RS.1,65,226/- ONLY. THOUGH THE AO ACCEPTE D THE MISTAKES POINTED OUT BY THE ASSESSEE, YET HE OPINED THAT THERE CANNOT BE HUGE D IFFERENCE IN THE SUPPRESSED SALES (I.E. RS.25,40,000/- AND RS.1,65,226/-) HENCE HE C HOSE TO ESTIMATE THE SUPPRESSED SALES ON SOME OTHER METHOD. WE SHALL BRIEFLY STATE THE DETAILS OF ALTERNATIVE METHOD ADOPTED BY THE AO. DURING THE COURSE OF SURVEY OPE RATION, A STATEMENT WAS TAKEN FROM THE MANAGER OF THE CONCERN NAMED SHRI V.J.WILLY IN WHICH HE HAD STATED THAT THE DAILY TURNOVER ON SALE OF HOLLOW BRICKS WAS TO THE TUNE O F RS.20,000/- TO RS.25,000/-. BASED ON THIS STATEMENT, THE AO ESTIMATED THE DAILY SALES AT RS.10,000/- PER DAY AND RS.30,00,000/- PER ANNUM. THE AO ESTIMATED THE GP AT 60% ON THE SAID TURNOVER WHICH WORKED OUT TO RS.18,00,000/-. THE ASSESSEE HAD DISCLOSED A GROSS PROFIT OF I.T.A. NO.501 /COCH/2011 3 RS.4,73,189/- IN HER RETURN OF INCOME. THE DIFFEREN CE AMOUNT IN THE GROSS PROFIT (RS.18,00,000 (-) RS.4,73,189) AMOUNTING TO RS.13,2 6,811/- WAS ADDED TO THE TOTAL INCOME OF THE ASSESSEE. THE LD CIT(A) DELETED THE SAME AS HE WAS OF THE VIEW THAT THE ESTIMATE MADE BY THE AO WAS NOT REASONABLE AND FURTHER THE GROSS PROFIT RATE OF 60% ADOPTED BY THE AO WAS ON THE HIGHER SIDE. 5. WE HAVE HEARD THE PARTIES ON THIS ISSUE. IT IS NOT CLEAR WHETHER THE DAILY SALES STATEMENTS WERE SEIZED DURING THE COURSE OF SEARCH OR IMPOUNDED DURING THE COURSE OF SURVEY OPERATION. ADMITTEDLY, THE MATERIAL SEIZED/ IMPOUNDED DURING THE COURSE OF SEARCH/SURVEY OPERATIONS RELATED TO TWO MONTHS ONLY VIZ., AUGUST AND SEPTEMBER, 2006. THE AO INITIALLY PROCEEDED TO DETERMINE THE ANNUAL TURNOVER BY PROJECTING THE SALES FIGURE OF THE TWO MONTHS CITED ABOVE, WHICH WAS ARR IVED AT RS.40.72 LAKHS. HOWEVER, THERE WERE MISTAKES IN THE SAID COMPUTATION OF THE AO. HENCE THE ASSESSEE PROCEEDED TO ARRIVE AT THE ANNUAL TURNOVER BY ADOPTING THE SA ME METHODOLOGY THAT WAS FOLLOWED BY THE AO. BY THAT METHODOLOGY, THE ANNUAL TURNOVE R WAS ARRIVED AT RS.20.85 LAKHS, WHERE AS THE ASSESSEE HAD DECLARED A TURNOVER OF RS .19.20 LAKHS IN HER RETURN OF INCOME. THOUGH THE AO ACCEPTED THE MISTAKE IN HIS COMPUTATION, YET HE WAS OF THE FIRM VIEW THAT THERE WAS SUPPRESSION OF SALES. HEN CE, BY PLACING RELIANCE ON THE STATEMENT OF THE MANAGER OF THE CONCERN, WHICH WAS DISCUSSED IN THE PRECEDING PARAGRAPH, THE AO ESTIMATED THE DAILY TURNOVER AT R S.10,000/- AND ANNUAL TURNOVER AT RS.30.00 LAKHS. THE ABOVE DISCUSSION SHOWS THAT TH E BASIS FOR ESTIMATING THE ANNUAL TURNOVER WAS ONLY THE STATEMENT TAKEN FROM THE MANA GER OF THE CONCERN. THE AO TOTALLY IGNORED THE CONTENTION OF THE ASSESSEE THAT THE SALE OF HOLLOW BRICKS DEPENDS UPON THE MARKET DEMAND AND FURTHER THE PRODUCTION H AD TO BE STOPPED DURING RAINY SEASON. THE AO ALSO IGNORED THE SUBMISSION OF THE A SSESSEE THAT THE RETURN OF INCOME WAS FILED BY HER AFTER INCORPORATING THE SUPPRESSED TURNOVER ALSO. THE SAID CLAIM OF THE ASSESSEE HAS NOT BEEN REBUTTED BY THE AO. THUS, IN OUR VIEW, THE AO WAS NOT RIGHT IN ESTIMATING THE TURNOVER AT RS.30.00 LAKHS, SINCE HE HAS PROCEEDED TO ESTIMATE ONLY FOR THE REASON THAT THE INITIAL ESTIMATE OF ANNUAL/SUPP RESSED TURNOVER WAS NOT CORRECT. IN VIEW OF THE FOREGOING DISCUSSION, WE ARE OF THE VIE W THAT THERE IS NO MATERIAL TO SUPPORT THE VIEW TAKEN BY THE AO ON THIS ISSUE. ACCORDINGL Y, WE ARE OF THE VIEW THAT THE LD I.T.A. NO.501 /COCH/2011 4 CIT(A) WAS RIGHT IN DELETING THE IMPUGNED ADDITION RELATING TO THE GROSS PROFIT ON SUPPRESSED TURNOVER. 7. THE NEXT ISSUE RELATES TO THE DISALLOWANCE O F COST OF IMPROVEMENT CLAIMED BY THE ASSESSEE. THE ASSESSEE ALONG WITH FIVE OTHER PERSO NS HAD PURCHASED A LAND HAVING AN EXTENT OF 140 CENTS AT A PLACE CALLED TRIPUNITHRA O N 30-9-1995. THE SAID LAND WAS SOLD DURING THE YEAR RELEVANT TO THE ASSESSMENT YEAR UND ER CONSIDERATION. THE ASSESSEE CLAIMED THAT THE SAID LAND WAS DEVELOPED BY FILLING WITH RED EARTH DURING THE FINANCIAL YEAR 1995-96 AT A COST OF RS.12,56,325/- WITH AN IN TENTION TO SELL. IT WAS CLAIMED THAT THE SALE OF LAND DID NOT MATERIALIZE AT THAT TIME D UE TO RECESSION IN THE REAL ESTATE SECTOR AND THE LAND WAS FINALLY SOLD DURING THE FIN ANCIAL YEAR 2005-06. WHILE COMPUTING THE LONG TERM CAPITAL GAIN, THE ASSESSEE DEDUCTED I NDEXED COST OF IMPROVEMENT (ON RS.12,56,325, THE INDEXED COST WORKED OUT TO RS.22, 23,695/-). THE AO CALLED FOR EVIDENCES IN SUPPORT OF COST OF IMPROVEMENT, BUT TH E ASSESSEE FAILED TO FURNISH ANY DETAIL. HENCE, THE AO DISALLOWED THE CLAIM OF COST OF IMPROVEMENT AND ACCORDINGLY COMPUTED THE LONG TERM CAPITAL GAIN ON SALE OF THE ABOVE SAID LAND. THE LD CIT(A) TOOK THE VIEW THAT IT WOULD BE DIFFICULT FOR THE ASSESSE E TO PRODUCE THE DOCUMENTS RELATING TO THE EXPENSES INCURRED ABOUT 13 YEARS BACK. ACCORDI NGLY, HE DIRECTED THE AO TO DISALLOW ONLY 50% OF THE COST OF IMPROVEMENT CLAIMED BY THE ASSESSEE. 8. WE HAVE HEARD THE RIVAL CONTENTIONS ON THIS ISSUE. THE SUBMISSION OF THE ASSESSEE IS THAT THE IMPROVEMENT OF THE IMPUGNED LA ND WAS UNDERTAKEN ONLY WITH THE VIEW TO SELL THE LAND. WHEN THE INTENTION WAS TO S ELL THE LAND, IT IS NOT UNDERSTANDABLE HOW A BUSINESS MAN, THAT TOO WHO IS A REGULAR INCOM E TAX ASSESSEE, WOULD NOT RETAIN THE RELEVANT VOUCHERS. IT IS A WELL SETTLED PROPOS ITION THAT THE RESPONSIBILITY TO SUPPORT A PARTICULAR CLAIM SQUARELY FALLS UPON THE ASSESSEE . IN THE INSTANT CASE, WE NOTICE THAT THE ASSESSEE COULD NOT PRODUCE ANY MATERIAL TO SUPP ORT HER CONTENTION THAT THE OWNERS OF THE LAND INCURRED EXPENDITURE ON ITS IMPROVEMENT . IN THESE CIRCUMSTANCES, WE ARE OF THE VIEW THAT THE LD CIT(A) WAS NOT CORRECT IN ALLO WING THE CLAIM AT 50%. IN OUR VIEW, THE AO WAS RIGHT IN DISALLOWING THE ENTIRE CLAIM OF COST OF IMPROVEMENT. ACCORDINGLY, WE REVERSE THE ORDER OF LD CIT(A) AND RESTORE THAT OF THE ASSESSING OFFICER ON THIS ISSUE. I.T.A. NO.501 /COCH/2011 5 9. IN THE RESULT, THE APPEAL OF THE REVENUE IS PARTLY ALLOWED. PRONOUNCED ON 17-02-2012 SD/- SD/- (N.R.S.GANESAN) (BR BASKARAN) JUDICIAL MEMBER ACCOUNTANT MEMBER ERNAKULAM DATED: 17TH FEBRUARY, 2012 GJ COPY TO 1 SMT. MARIAMMA VARGHESE, PUTHUVA HOUSE, OORAKKADU, MALAYIDAMTHURUTHU P.O., EDATHALA, ERNAKULAM DISTT. PI N- 683 561. 2 THE DEPUTY COMMISSIONER OF INCOME-TAX, CENTRAL CI RCLE-2, ERNAKULAM. 3 THE COMMISSIONER OF INCOME-TAX(APPEALS)-III, KOCH I 4 THE COMMISSIONER OF INCOME-TAX, CENTRAL KOCHI 5. THE DR, ITAT, COCHIN BENCH. 6 GUARD FILE. BY ORDER A SSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL COCHIN BENCH