ACIT, Ernakulam V. M/s Orma Marble Agencies, Cochin

ITSSA 100/COCH/2004

• Counselvise Citation: [2010] 124 COUNSELVISE.COM (IT) 9173 (ITAT-COCHIN)
• Duration Of Justice: 5 year(s) 8 month(s) 4 day(s)
• Appeal Type: Income Tax (Search & Seizure) Appeal
• Pronouncement Date: 22-06-2010
• Appeal Filed By: Department
• Bench Allotted: DB
• Next Hearing Date: 13-05-2010
• Assessment Year: misc
• Appeal Filed On: 18-10-2004
• Court: TRIBUNAL
• Department Lawyers: A K THATTAI
• Assessee Lawyers: P J BABU
• Keywords: Unexplained investment; Gift; Search and seizure; Retrospective amendment; Block assessment
• Section: 32

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL COCHIN BENCH, COCHIN BEFORE SHRI N.VIJAYAKUMARAN & SHRI SANJAY ARORA I.T.(S&S)A.NO.100/COCH/2004 BLOCK A.Y:1990-91 TO 1999-200 AND BROKEN PERIOD UPTO 2-3-2000 THE ASST. COMMISSIONER OF INCOME-TAX,CIRCLE-1(2), ERNAKULAM. VS. M/S. ORMA AGENCIES, ANGAMALLY. PA NO.AAAFO 3571A (APPELLANT) ( RESPONDENT ) APPELLANT BY SHRI A.K. THATTAI, CIT., DR RESPONDENT BY SHRI P.J. BABU, C.A O R D E R PER N. VIJAYAKUMARAN,J.M: THIS APPEAL IS FILED BY THE REVENUE AGAINST THE APPELLATE ORDER DATED 29-7-2004 OF CIT(APPEALS)-III , KOCHI. THIS IS A BLOCK ASSESSMENT APPEAL. THE BLOCK ASSE SSMENT YEARS ARE 1990-91 TO 1999-2000 AND BROKEN PERIOD UP TO 2- 3-2000. THE APPEAL ARISES OUT OF THE ASSESSMENT CO MPLETED U/S.,158BC OF THE I.T.ACT,1961. 2. IN THIS APPEAL THERE ARE TWO ISSUES. FIRST ISS UE IS IN RESPECT OF DELETION OF ADDITION OF RS.5,31,588/- ON ACCOUNT IT(S&S) A NO.100/COCH/2004 M/S. ORMA AGENCIES 2 OF SUPPRESSED SALES AND THE SECOND ISSUE IS IN RESP ECT OF LEVY OF SURCHARGE U/S.113 OF THE I.T.ACT. 3. THE FACTS OF THE CASE AS GATHERED FROM THE ORDER S OF THE INCOME-TAX AUTHORITIES ARE THAT THE ASSESSEE IS EN GAGED IN THE BUSINESS OF MARBLES, TILES, ETC. FROM THE ASSES SMENT YEAR 1995, THOUGH THE BUSINESS WAS COMMENCED IN THE ASSESSMENT YEAR 1994-95. THERE WAS A SEARCH U/S.1 32 OF THE I.T.ACT ON 02-03-2000 ON THE ASSESSEE. A NOTIC E U/S.158BC WAS ISSUED ON 20-6-2001 AND IN RESPONSE T O THAT, ASSESSEE FILED A RETURN OF INCOME IN FORM 2B ON 30- 7-2001 DECLARING TOTAL UNDISCLOSED INCOME OF RS.60,000/-. THE ASSESSING OFFICER WAS OF THE VIEW THAT THERE WERE UNACCOUNTED PURCHASES AND SALES AND ACCORDINGLY A P RE- ASSESSMENT NOTICE WAS ISSUED TO THE ASSESSEE AND FI NALLY COMPLETED THE ASSESSMENT ESTIMATING THE TOTAL UNDIS CLOSED INCOME OF RS.6,96,519/-. WHILE FRAMING THE ASSESS MENT, THE ASSESSING OFFICER ALSO LEVIED SUR-CHARGE U/S.11 3 OF THE I.T.ACT. ON APPEAL, THE CIT(APPEALS) DELETED THE ADDITIONS MADE BY THE ASSESSING OFFICER FOR THE UNDISCLOSED I NCOME FOR ASSESSMENT YEARS 1994-95 TO 1997-98 AND FURTHER BRO KEN PERIOD IN ASSESSMENT YEAR 2000-01 AT RS.1,94,157/-, RS.2,29,022/-, RS.8,799/-, RS.46,588/- AND RS.53,02 2/- IT(S&S) A NO.100/COCH/2004 M/S. ORMA AGENCIES 3 TOTALING TO A SUM OF RS.5,31,588/- AND CONFIRMED T HE ADDITIONS MADE FOR 1998-99 AND 1999-2000 HOLDING TH AT THERE WAS NO VALID EXPLANATION AND ARGUMENTS IN THE EYE OF LAW. REGARDING LEVY OF SURCHARGE AMOUNTING TO RS.4 1,791/-, THE LD. CIT(APPEALS) DELETED THE SAME HOLDING THAT AMENDMENT TO SECTION 113 HAS BEEN MADE WITH EFFECT FROM 1-6-2002. THERE WAS NO RETROSPECTIVE EFFECT. HENCE , THE REVENUE IS ON APPEAL BEFORE THE TRIBUNAL. 4. WE HAVE CONSIDERED THE SUBMISSIONS MADE BY BOTH SIDES AND PERUSED THE MATERIALS AVAILABLE ON RECORD INCLUDING THE PRECEDENTS. AT THE TIME OF SEARCH CERTAIN INC RIMINATING MATERIALS LIKE ESTIMATE SLIPS MARKED AS KVA-2, KV A-13, KVA-1, KVA-6 & KVA-12 WERE SEIZED. FROM THE SEIZE D MATERIALS, THE ASSESSING OFFICER DETERMINED THE UND ISCLOSED SALES AT RS.14,09,574/- AND RS.2,39,736/- FOR THE ASSESSMENT YEARS 11998-99 AND 1999-2000, ON WHICH 1 0% OF PROFIT HAD BEEN APPLIED TO WORK OUT THE UNDISCLO SED INCOME U/S.158BC AT RS.1,40,957/- AND RS.23,974/-. ON THIS BASIS, THE ASSESSING OFFICER OBSERVED THAT SUC H SUPPRESSION OF SALES WERE RESORTED TO IN THE EARLIE R YEARS AS WELL AS THE BROKEN PERIOD AND ACCORDINGLY ESTIMATED AT 10% OF THE DECLARED RESULTS VIZ. TAKING OUT THE SUPPRES SION OF IT(S&S) A NO.100/COCH/2004 M/S. ORMA AGENCIES 4 SALES @ 10% OF THE DECLARED SALES AND FURTHER TAKIN G 10% PROFIT ON THE QUANTIFIED SUPPRESSED SALES. HOWEVE R, THE ASSESSING OFFICER WORKED OUT UNDISCLOSED INCOME AT 1% OF THE DECLARED SALES FOR THE ASSESSMENT YEARS 1994-95 TO 1997-98 AND 2000-01 AND ADOPTING THE ROTATING CAPIT AL FROM ASSESSMENT YEARS 1994-95 TO 2000-01, AS TABULATED I N THE ASSESSMENT ORDER AT PAGE 4, FURTHER FIGURES WERE TA KEN FOR THE ROTATING CAPITAL FOR THE ASSESSMENT YEARS 1994- 95 TO 1997-98 AND 2000-01 AND MADE AN ADDITION RS.1,94,15 7/-, RS.2,29,022/-, RS.8,799/-, RS.46,588/- AND RS.53,02 2/- TOTALING TO A SUM OF RS.5,31,588/-. BEFORE THE L D. CIT(APPEALS) SUBMITTED THAT THE SEARCH AND SEIZURE OPERATION AS SUCH HAS NOT REVEALED OR DISCOVERED AN Y EVIDENCE TO SAY THAT THE SALE WAS ALSO SUPPRESSED D URING THE PREVIOUS YEARS RELEVANT TO ASSESSMENT YEARS 1994-95 TO 1997-98 AND RELYING ON THE DECISION OF THE TRIBUNAL IN THECASE OF D.N.DAMANI (HUF) VS. DCIT (1999) 70 ITD 77 (PAT.) AND MUMBAI BENCH IN THE CASE OF SUNDER AGENC IES VS. DCIT 6 ITR 245 ARGUED THAT PRESUMPTIVE ESTIMATION I S NOT PERMITTED UNDER BLOCK ASSESSMENT AND ADDITION U/S.1 58B(B) CANNOT BE BASE ON JEJUNE REASONINGS OR GUESS WORK. IT(S&S) A NO.100/COCH/2004 M/S. ORMA AGENCIES 5 5. BEFORE US THE LD. D.R. CONTENDED THAT THE LD. CIT(APPEALS) ERRED IN HOLDING THAT THE UNDISCLOSED INCOME IS TO BE DETERMINED ONLY ON THE BASIS OF UNEXPLAINED INVESTMENT DETECTED. HE FAILED TO NOTE THAT THE I NVESTMENT IS ONLY A FRACTION OF THE TOTAL UNDISCLOSED INCOME EARNED AS WHAT IS EXPENDED WILL NOT BE REFLECTED IN THE INVES TMENT. THE DELETION OF ADDITION ON ACCOUNT OF SUPPRESSED S ALES BEING UNEXPLAINED INVESTMENTS WAS WITHOUT FULLY APPRECIATING THE FACTS OF THE CASE. THUS, THE LD . D.R. SUBMITTED THAT THE FIRST APPELLATE AUTHORITY WAS NO T JUSTIFIED IN DELETING THE ABOVE ADDITIONS. THE ADDITION MAD E BY THE ASSESSING OFFICER WAS ONLY ON THE BASIS MATERIALS G ATHERED AT THE TIME OF SEARCH. ACCORDINGLY, THE LD. D.R. P RAYED FOR THE RESTORATION OF THE ASSESSMENT ORDER. 6. SHRI P.J. BABU, THE LD. COUNSEL FOR THE ASSESSEE REITERATED THE VERY SAME ARGUMENTS AS ADVANCED BEFO RE THE LD. CIT(APPEALS) AND FURTHER CONTENDED THAT NO INS TANCE OF UNACCOUNTED PURCHASE WAS REPORTED FOR THE IMPUGNED ASSESSMENT YEARS. THE ASSESSING OFFICER ESTIMATED THE UNDISCLOSED PURCHASES AT THE RATE OF 1/4 TH OF THE ESTIMATED UNACCOUNTED PURCHASE FOR THE ASSESSMENT YEARS 1994- 95 TO 1997-98. SUCH KIND OF GUESS WORK AND ESTIMATION I S NOT IT(S&S) A NO.100/COCH/2004 M/S. ORMA AGENCIES 6 PERMITTED IN THE BLOCK ASSESSMENT. NO TANGIBLE MAT ERIAL WAS FOUND DURING THE COURSE OF SEARCH SO AS TO INFER TH AT THE ASSESSEE HAD MADE ANY ON FREIGHT PURCHASE AND SALE OVER AND ABOVE ACCOUNTED IN THE REGULAR BOOKS OF ACCOUNT S. THEREFORE, THE ESTIMATION OF INVESTMENT IN UNACCOUN TED PURCHASE FOR THE IMPUGNED ASSESSMENT YEARS IS UNFOU NDED AND NOT SUSTAINABLE. THE ESTIMATED UNEXPLAINED INV ESTMENTS WERE MORE THAN THE ESTIMATED SALES. INVITING OUR A TTENTION TO THE PROVISIONS OF SECTION 158B(B) OF THE ACT, TH E LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE DELETIO N OF UNDISCLOSED INCOME ON ACCOUNT OF UNEXPLAINED INVEST MENTS BY THE CIT(APPEALS) IS CORRECT AND SUSTAINABLE IN L AW. THE UNDISCLOSED INCOME IS TO BE TAKEN ONLY ON THE BASIS OF ASSET METHOD AND THE UNDISCLOSED INCOME DETERMINED ON INC OME METHOD DEEMED TO HAVE TELESCOPED IN THE UN-EXPLAINE D INVESTMENT. THE DEFINITION OF UNDISCLOSED INCOME GIVEN IN SECTION 158(B) ITSELF IS LEANING TOWARDS THE DETERM INATION OF UNDISCLOSED INCOME ON THE BASIS OF UNEXPLAINED INVE STMENT FOUND DURING THE SEARCH. IN THIS PARTICULAR CASE, THE UNDISCLOSED INCOME DETERMINED BY THE ASSESSING OFFI CER IS MAINLY ON ESTIMATE BASIS, WHICH HAVE NO CREDIBLE MA TERIAL SUPPORT. IF WE TRY TO TAX THE UNDISCLOSED INCOME IN RESPECT OF DIFFERENT SOURCES UNDER BLOCK ASSESSMENT ON INCO ME IT(S&S) A NO.100/COCH/2004 M/S. ORMA AGENCIES 7 METHOD AND AT THE SAME TIME WE ALSO TAX THE UNEXPLA INED INVESTMENT APPEARING IN THE NAME OF DIRECTORS AND F AMILY MEMBERS, IT WILL AMOUNT TO A DOUBLE TAXATION. IN THIS PARTICULAR CASE, IT WILL NOT BE OUT OF PLACE TO MEN TION THAT THE ASSESSING OFFICER HIMSELF HAS PROPOSED TO TAX T HE UNEXPLAINED INVESTMENT ON ACCOUNT OF BOGUS NRE GIFT S AND LOANS IN THE HAND OF THE APPELLANT, WHICH HAS ALREA DY BEEN TAXED IN THE BLOCK ASSESSMENT ON DIFFERENT TAXABLE UNITS. THEREFORE, IN THIS PARTICULAR CASE, INCOME HAS TO B E NECESSARILY TAXED ON ASSET METHOD ONLY. THUS, THE LD. COUNSEL URGED US TO SUSTAIN THE ORDER OF THE CIT(AP PEALS) ON THIS ISSUE. 7. WE HAVE GIVEN DUE CONSIDERATION TO THE RIVAL SUBMISSIONS. UNDER SECTION 158BB OF THE ACT, THE P ROCEDURE FOR COMPUTING THE UNDISCLOSED INCOME OF THE BLOCK P ERIOD HAS BEEN GIVEN. IT PROVIDES THAT THE UNDISCLOSED INCO ME OF THEE BLOCK PERIOD SHALL BE THE AGGREGATE OF THE TOTAL IN COME OF THE PREVIOUS YEARS FALLING WITHIN THE BLOCK PERIOD COMPUTED IN ACCORDANCE WITH THE PROVISIONS OF THIS ACT, ON T HE BASIS OF EVIDENCE FOUND AS A RESULT OF SEARCH OR REQUISITION OF BOOKS OF ACCOUNT OR OTHER DOCUMENTS AND SUCH OTHER MATERI ALS OR INFORMATION AS ARE AVAILABLE WITHIN THE ASSESSING O FFICER AND IT(S&S) A NO.100/COCH/2004 M/S. ORMA AGENCIES 8 RELATABLE TO SUCH EVIDENCE WITH CERTAIN OTHER CONDI TIONS. THE EMPHASIS HAS BEEN GIVEN FOR DETERMINATION OF TOTAL INCOME ON THE BASIS OF EVIDENCE FOUND AS A RESULT OF SEARC H OR REQUISITION OF BOOKS OF ACCOUNT OR OTHER DOCUMENTS AND SUCH OTHER MATERIALS OR INFORMATION AS ARE AVAILABLE WIT H THE ASSESSING OFFICER AND RELATABLE TO SUCH EVIDENCE. WHILE DECIDING THE ISSUE, THE HONBLE MADRAS HIGH COURT I N THE CASE OF CIT VS. J.K. NARAYANAN 293 ITR 198 AS WELL AS IN THE CASE OF CIT VS. G.K. SENIAPPAN -284 ITR 220 HELD THAT PREFIX TO THE WORD EVIDENCE (SUCH), ASSUMES MUCH SIGNIFICANCE AND INDICATES ONLY THE EVIDENCE FOUND AS A RESULT OF SEARCH OR REQUISITION OF BOOKS OF ACCOUNT S OR OTHER DOCUMENTS AT THE TIME OF SEARCH. ANY OTHER MATERI AL CANNOT FORM THE BASIS FOR COMPUTATION OF UNDISCLOSED INCOM E OF THE BLOCK PERIOD. THE FINDING OF THE LD. FIRST APPELL ATE AUTHORITY IS BASED ON APPRECIATION OF FACTS AVAILABLE ON RECO RDS AND DECISIONS OF THE VARIOUS HIGH COURTS AND INCOME-TAX APPELLATE TRIBUNAL. THEREFORE, RESPECTFULLY FOLL OWING THE ABOVE DECISIONS OF THE HONBLE MADRAS HIGH COURT, W E HAVE NO HESITATION IN UPHOLDING THE ORDER OF THE LD. CIT (APPEALS) ON THIS POINT. ACCORDINGLY, THIS ISSUE IS DECIDE D AGAINST THE REVENUE. IT(S&S) A NO.100/COCH/2004 M/S. ORMA AGENCIES 9 8. COMING TO THE OTHER GROUNDS, THEY RELATE TO THE ISSUE OF SURCHAGE ON INCOME-TAX. THE CONTENTION OF THE RE VENUE IS THAT THE CIT(APPEALS) WAS NOT JUSTIFIED IN DELETING SURCHARGE ON INCOME-TAX ON THE FINDING THAT THE AMENDMENTS BR OUGHT IN TO SECTION 113 BY A NEW PROVISO HAS ITS EFFECT O NLY FROM 1- 6-2002. 9. WE HEARD RIVAL SUBMISSIONS. WE FIND THAT THIS I SSUE IS NOW COVERED AGAINST THE ASSESSEE BY THE DECISION OF THE HONBLE APEX COURT IN THE CASE OF CIT VS. RAJIV BHATARA - 310 ITR 105. RESPECTFULLY FOLLOWING THE RATIO LAID DOWN BY THE HONBLE SUPREME COURT, WE SET ASIDE THE ORDER O F THE LD. CIT(APPEALS) ON THIS ISSUE AND ALLOW THE APPEAL OF THE DEPARTMENT IN RESPECT OF LEVY OF SURCHARGE U/S.113 OF THE ACT. 10. IN THE RESULT, THE APPEAL OF THE REVENUE IS PAR TLY ALLOWED. SD/- SD/- (SANJAY ARORA) (N.VIJAYKUMA RAN) ACCOUNTANT MEMBER JUDICIAL M EMBER ERNAKULAM, DATED THE 22 ND JUNE,2010. PM. IT(S&S) A NO.100/COCH/2004 M/S. ORMA AGENCIES 10 COPY FORWARDED TO: 1. THE ACIT.,CIRCLE-1(2), ERNAKULAM. 2. M/S. ORMA AGENCIES, XIV/418, THRISSUR ROAD, ANGAMA LLY. 3. CIT(A)-III, KOCHI. 4. CIT, KOCHI. 5. D.R.