Bay Container Terminal Private Limited, CHENNAI V. ACIT, CHENNAI

ITSSA 11/CHNY/2015

• Counselvise Citation: [2022] 104 COUNSELVISE.COM (IT) 3409 (ITAT-CHENNAI)
• Duration Of Justice: 7 year(s) 2 month(s) 1 day(s)
• Appeal Type: Income Tax (Search & Seizure) Appeal
• Pronouncement Date: 26-07-2022
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 26-05-2022
• Assessment Year: misc
• Appeal Filed On: 25-05-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Depreciation; Document seized; Documents seized; Set aside; CHAPTER IV
• Section: 158B(b)

Judgement Text

आयकर अपील य अ धकरण, ‘ए’ याय पीठ, चे नई IN THE INCOME TAX APPELLATE TRIBUNAL , ‘A’ BENCH, CHENNAI ी वी. द ु गा राव, या यक सद य एवं ी जी . मंज ु नाथ, लेखा सद य के सम$ BEFORE SHRI V. DURGA RAO, JUDICIAL MEMBER AND SHRI G. MANJUNATHA, ACCOUNTANT MEMBER आयकरअपीलसं./I.T(SS)A. No. 11/ Chny/ 2015 ( नधा रणवष /Assessment Year: Block Period-1990-91 to 1999-2000 & 2000-01) M/s. Bay Container Terminal Pvt.Ltd. 18, Swami Sivananda Salai, Chepauk Chennai-600 005. Vs The Assistant Commissioner of Income Tax, Company Circle-1(2), Chennai. PAN: AAACB 3622L (अपीलाथ /Appellant) ( यथ /Respondent) अपीलाथ क ओरसे/ Appellant by : Mr. S.Sridhar, Advocate यथ क ओरसे/Respondent by : Ms.Jothilakshmi Nayak, CIT [Assisted by Mr. AR.V.Sreenivasan, Addl.CIT] स ु नवाईक तार ख/D at e of he ar in g : 27.05.2022 घोषणाक तार ख /Date of Pronouncement : 27.07.2022 आ देश /O R D E R PER G. MANJUNATHA, AM: This appeal filed by the assessee is directed against order of the learned Commissioner of Income Tax (Appeals)- 1, Chennai, dated 28.01.2015 and pertains to block assessment period 1990-91 to 1999-2000 & 2000-01. 2. During 1 st round of litigation, the Tribunal vide its order dated 25.05.2016 had dismissed appeal filed by the assessee. The assessee preferred an appeal against the order of the Tribunal dated 25.05.2016 before the Hon’ble High Court of Madras, wherein the Hon’ble High Court of Madras vide its 2 IT(SS)A No. 11/Chny/2015 order dated 05.12.2016 in Tax Case Appeal No.785 of 2016 remanded the matter back to the Tribunal to decide the appeal on merits. 3. Brief facts of the case are that the assessee company is engaged in the business of storage handling and repairs of sea borne containers. A search was carried out on 30.06.1999 u/s.132 of the Income Tax Act, 1961 in the business premises of the assessee. During the course of search various incriminating documents were found and seized. Consequent to search, assessment has been completed u/s.158BC(1) of the Act for the Block period 1990- 91 to 1999-2000 & 2000-01 on 28.06.2001 and determined total income at Rs.1,48,73,670/- by making additions towards suppression of income and excess claim of expenses. Aggrieved by the assessment order, the assessee preferred an appeal before the CIT(A) and the learned CIT(A) deleted additions made by the Assessing Officer by holding that incriminating materials relied upon by the Assessing Officer actually relates to budget of the assessee company and thus, no additions can be made towards undisclosed income on the 3 IT(SS)A No. 11/Chny/2015 basis of budgeted figure and books of account of the assessee. The Revenue carried matter in further appeal before the Tribunal and the Tribunal vide order in IT(SS)A No.128/Mds/2004 dated 20.10.2006 set aside the issue to file of the Assessing Officer and directed the Assessing Officer to examine the seized papers with reference to actual information available on record and if there is plausible explanation on difference between estimated figure and budget figure can be reconciled, then claim of the assessee can be allowed. 4. Consequent to directions of the Tribunal, the Assessing Officer has taken up fresh proceedings and called upon the assessee to reconcile difference between income & expenditure shown in the books of account for relevant block period when compared to incriminating materials found during the course of search. In response, the assessee vide letter dated 28.12.2007 submitted that incriminating documents found during the course of search relates to budget figures of income & expenditure of various branches and thus, same cannot be considered as actual income & expenditure reported in audited books of account. The assessee had also filed 4 IT(SS)A No. 11/Chny/2015 reconciliation and explained that if you take total amount of budget amount of income & expenditure, then in fact, budget figures are less, however, the Assessing Officer has selectively taken income, wherever it suits to Revenue and also expenditure wherever budget figures are more than actual figures. 5. The Assessing Officer, after considering relevant submissions of the assessee and also taken note of various facts held that the assessee is not able to reconcile difference of income & expenditure as per seized documents and as per books of account and thus, opined that the assessee has suppressed income & expenditure for the block period and accordingly, made additions of Rs.1,32,87,523/- to returned income. The relevant findings of the Assessing Officer are as under:- “10. In sum, the assessee's main contention is the methodology of computing the undisclosed Income by taking into the totality of either as per the seized records or as per the Income Tax records, instead the assessee has not reconciled the discrepancy between seized documents and the Income Tax records with relevant explanation. The contention of the assessee about the methodology of computing the undisclosed 5 IT(SS)A No. 11/Chny/2015 Income is answered in the earlier assessment order and I am also of the same view which is reproduced as under: "On a careful reading of the provisions of the section 158BB and 158BC(b), it Is clear that what section 158BC(b) spells out is only the procedure or path in the determination of undisclosed income and the powers and duties cast upon for such determination. The quantum of undisclosed income is to be quantified and computed as laid down In section 158BB and what Is undisclosed Income Is as defined in section 158B(b). There Is, therefore, no scope to abridge the two via, the amount or quantum appearing In the seized documents with that of the book results. Any variations noticed between the two falls squarely In the category of undisclosed income. The section 158B(b) defines undisclosed income as under” Undisclosed income includes any money, bullion, jewellery or other valuable article or thing of any Income based on any entry In the books of· account or other documents or transactions, where such money, bullion, jewellery, valuable article, thing, entry in the books of account or other document or transaction represents wholly or partly income or property which has not been or would not have been disclosed for the purposes of this act. Section 158BB(l) states that the undisclosed Income of the block period shall be the aggregate computed, In accordance with the provisions of chapter IV, on 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, as reduced by the aggregate of the total Income, or as the case may be, as 6 IT(SS)A No. 11/Chny/2015 increased by the aggregate of the losses of such previous years, determined. 11. Further for reconciling the expenditure as per the seized documents and as per the IT records the assessee stated that the various expenses accounted In the books of accounts which have been omitted to be taken into account while preparing the Budget papers which form part of seized material and further the assessee has again emphasized that the seized materials contains figures prepared for budget purposes and do not contain the figures as per the books of accounts and also on the basis of estimates and collection of data and information at various intervals from the department concerned and therefore not authentic and reliable. 12. The assessee is stating that the figures are only budget estimates but the expenditure figures are taken from the actuals of the seized documents. The assessee tried to reconcile by putting lot of journals at the end of the year. further it is not acceptable to me that the branch office is supplying increased figure of income and lesser figure of expenses as actuals. 13. From the above discussion, It is clear that the assessee are not able to reconcile the differences of Income as per the seized documents and as per the IT records and some of the reconciliation on the expenditure part are not acceptable since the assessee is reiterating their earlier stand and not coming with a reasonable explanation. 14. The entire differences of Income and expenditure are stated as under: Assessment Year 1996-97: 7 IT(SS)A No. 11/Chny/2015 (a) Suppression of Income Rs. 15,52,660 (b) Excess claim of expenses Rs.49,71,944 Total Rs.65,24,603 Assessment Year 1997-98: (c) Suppression of Income Rs. 12,40,786 (d) Excess claim of Expenses Rs. 7,08,984 Total Rs. 19,49,768 Total Assessment Year 1998-99 (a) Suppression of Income Rs. 3,64,340 (b) Excess claim of expenses Rs. 20,22,353 Total Rs.23,86,693 Total Assessment Year 1999-2000: (a) Suppression of Income Rs.24,26,459 (b) Excess claim of expenses Rs. Nil ------------------ Total Rs.24,26,459 ------------------ 6. Being aggrieved by the assessment order, the assessee preferred an appeal before the learned CIT(A). Before the learned CIT(A), the assessee submitted that seized materials relied upon by the Assessing Officer is merely budgetary documents and has no evidentiary value and thus, no addition can be made on the basis of budgetary figures, when the Assessing Officer has failed to make out any discrepancy in the audited books of account of the assessee. The learned 8 IT(SS)A No. 11/Chny/2015 CIT(A), after considering relevant submissions of the assessee and also taken note of various reasons given by the Assessing Officer, opined that except stating that incriminating materials relied upon by the Assessing Officer is budget figures, but the assessee could not reconcile difference between income & expenditure reported in audited books of account, when compared to incriminating materials found during the course of search. Therefore, opined that there is no error in the reasons given by the Assessing Officer to sustain additions made by the Assessing Officer towards suppression of income and excess claim of expenditure and accordingly, confirmed additions made by the Assessing Officer. The relevant findings of the learned CIT(A) are as under:- “4.24 As seen from the above discussion the task before the second Assessing Officer as per ITAT direction is to examine the seized papers with reference to the information available on record i.e., in the return of income. The second AO has re-examined the seized papers with reference to the information available with the department in the form of return of income as was done by the first AO and has come to similar conclusions. I agree with the findings of the AO. During the course of Search and Seizure operations the Department has found out certain incriminating documents belonging to the appellant company which were seized as per seized material no. A1, A2, A3, A4, A5, A6, A7& A8. While analyzing these 9 IT(SS)A No. 11/Chny/2015 materials the AO has noticed I that they pertain to income and expenditure of various branches of the appellant company available at the search premises at Mumbai. The appellant contended before the AOs that they are budget figures/estimates and therefore they should not be taken into account as they are not real and only the figures shown in the return of income should be taken into account since they are based on audit reports. But the appellant has not explained satisfactorily how those budget figures have first of all came into existence and how they have been written without any base. The Id. AR has not explained even before me the basis for such estimated figures. Even though we treat them as the projections meant for presentations before the Managing Director, as observed by my ld.predecessor CIT(A), we cannot ignore them as unwanted scribbling. At no point of time the appellant has disowned the papers nor he stated that the figures mentioned there are not the income and expenditure details of its branch offices. The only argument of the Id.AR is that the figures are not final and are subject to vary after taking into account passing of Dr/Cr entries at a later period. It is the duty of the appellant to work out correct financials to the satisfaction of the AO which it has not done. It is not the question of believing or not believing of the figures in seized material by the AO, as was argued by my Id. predecessor. In my considered opinion the onus is cast on the appellant to establish the truth and not on the AO. I do not agree with my friend CIT(A) that the AO has to investigate and prove that such expenditure is inflated. It is not the question of inflation of expenditure or suppression of income which matters much for discussion in the present scheme of things. It is more of establishing the nature of transaction and owning of the documents. I am of the opinion that the appellant has failed to establish where from those 10 IT(SS)A No. 11/Chny/2015 budget projections were made and how they are different from the real figures disclosed in the return of income. In this regard, with due respect, I differ with my Id.predecessor and hold that the estimate of undisclosed income made by the second AO after verification of the seized material is in order and, therefore, I confirm the addition. The ground is dismissed .” 7. The learned A.R for the assessee submitted that the learned CIT(A) erred in sustaining additions made towards suppression of income and excess claim of expenses on the basis of incriminating materials found during the course of search, without appreciating fact that what was found during the course of search is consolidated branch-wise budget figures given to Managing Director, whereas expenditure and income reported in the books of account is audited, which is supported by necessary evidence. The learned A.R further referring to paper book filed by the assessee submitted that if you go through document relied upon by the Assessing Officer, which is clearly specified that actual expenditure incurred by the assessee for relevant period and budgetary figures for subsequent financial years. The said document is internal document prepared for the management to set a target of income & expenditure. However, said document is 11 IT(SS)A No. 11/Chny/2015 nothing to do with actual expenditure reported in financial statement prepared for the relevant assessment year. The Assessing Officer without appreciating above facts has simply made additions on the basis of total income reported for relevant period, when compared to budget figures estimated for above period. The learned CIT(A), has simply confirmed additions made by the Assessing Officer without negating various arguments advanced by the assessee in light of financial statements prepared for the relevant period. 8. The learned DR, on the other hand, supporting order of the learned CIT(A), submitted that except stating that incriminating materials found during the course of search is a document prepared by the management to estimate revenue and expenditure for the above period, the assessee could not reconcile difference between income & expenditure reported in books of account to incriminating materials found during the course of search. The Assessing Officer as well as the learned CIT(A), after considering relevant facts has rightly made additions towards suppression of income and excess claim of expenditure and thus, their orders should be upheld. 12 IT(SS)A No. 11/Chny/2015 9. We have heard both the parties, perused material available on record and gone through orders of the authorities below. In the first round of litigation, the Tribunal had set aside the issue to the file of the Assessing Officer with specific direction to examine seized documents with reference to actual information available on record and further, if there is plausible explanation and difference between estimated figure and budget figure can be reconciled, then claim of the assessee can be allowed. If you go through reasons given by the Assessing Officer in second round of assessment proceedings in light of direction of the Tribunal, what we could notice is that the Assessing Officer seems to have not carried out directions of the Tribunal in right spirit, which is evident from the reasons given by the Assessing Officer that the Assessing Officer once again, went ahead to make additions towards suppression of income and excess claim of expenses only on the basis of incriminating materials found during the course of search, when compared to income and expenditure reported in the financial statements filed for relevant period. We have gone through materials relied upon by the Assessing Officer which is 13 IT(SS)A No. 11/Chny/2015 available in the paper book filed by the assessee and after considering relevant materials what we could notice is that so called incriminating materials found during the course of search in the branch office at Mumbai is tabular format of budget prepared by the assessee for various financial years covered within block period, where the assessee has reported actual expenditure of previous financial year and projected budget of income & expenditure for subsequent years. We further noted that said document is consolidated figure of various branches for various years, which contain actual expenditure for relevant period and budgeted income & expenditure for next financial years. The Assessing Officer compared actual income & expenditure of branches with income & expenditure reported in books of account of the assessee at Head Office level and noted that there is difference in income & expenditure reported by the assessee in financial statements when compared to incriminating materials found during the course of search. 10. Having heard both sides, we do not find any substance in reasons given by the Assessing Officer for simple reason that first of all, so called incriminating materials found during the 14 IT(SS)A No. 11/Chny/2015 course of search is only budget documents, which contain actual expenditure at branches level and budgetary income & expenditure for next financial year. Therefore, on the basis of said document, no comparison can be made between income & expenditure reported in audited financial accounts, unless the Assessing Officer makes out a case that there is discrepancy in audited books of account and financial statement prepared on the basis of said books of account. The said document cannot be relied upon for second reason that actual income & expenditure reported in incriminating documents is at branch level and similarly, budgeted income & expenditure reported in said documents is also at branch level. The assessee has consolidated branch accounts at Head Office level and prepared its financial statements. It is well known fact that in Head Office and branch level of accounting system there are always be difference between figures reported in Head Office and branch level, because of various reasons, including apportionment of Head Office expenses giving effect to certain adjustments towards depreciation, interest etc. Therefore, income & expenditure at branch level cannot be considered as sacrosanct, when it comes to income & expenditure reported at 15 IT(SS)A No. 11/Chny/2015 Head Office level, because at Head Office level various other expenses including interest and depreciation will come that needs to be accounted and apportioned to various branches. In this case also, the learned A.R for the assessee explained before us that the Assessing Officer has considered income & expenditure, without considering interest and depreciation which is accounted at Head Office level, which resulted in difference in figures show in the incriminating materials found during the course of search when compared to regular books of account. We find that the Assessing Officer has solely gone into make additions only on the basis of incriminating materials found during the course of search which is nothing but budget document for estimation of expenditure for subsequent years, but not document which contains actual income & expenditure earned by the assessee for the relevant assessment year. Further, the Assessing Officer has disregarded reconciliation filed by the assessee during the course of assessment proceedings, even though the assessee has tried to reconcile actual expenditure reported in seized documents to the books of account only for the reason that budget figures in the said document are different from actual figures reported in the 16 IT(SS)A No. 11/Chny/2015 financial statement. As we have already stated earlier, there cannot be any comparison between budget figure and actual figures reported in books of account for the relevant period. Therefore, we are of the considered view that the Assessing Officer has completely erred in making additions towards suppression of income and excess claim of expenses on the basis of documents found during the course of search, even though, the assessee has explained with necessary reconciliation that said document is budgetary financial statement, but not actual financials for the relevant assessment years. The learned CIT(A), without appreciating above facts, has simply confirmed additions made by the Assessing Officer. Hence, we reverse findings of the learned CIT(A) and direct the Assessing Officer to delete additions towards suppression of income and excess claim of expenses for all financial years covered within the block period. 11. In the result, appeal filed by the assessee is allowed. Order pronounced in the open court on 27 th July, 2022 Sd/- Sd/- (वी. द ु गा राव) (जी. मंज ु नाथ) (V.Durga Rao) (G.Manjunatha) या यक सद य /Judicial Member लेखा सद य / Accountant Member 17 IT(SS)A No. 11/Chny/2015 चे#नई/Chennai, $दनांक/Dated 27 th July, 2022 DS आ देशक &त'ल(पअ)े(षत/Copy to: Appellant 2. Respondent 3. आ यकर आ य ु *त (अपील)/CIT(A) 4. आ यकरआ य ु *त/CIT 5. (वभागीय &त&न.ध/DR 6. गाड1फाईल/GF.