Raiban & Sons, Alappuzha V. ACIT, Kottayam

ITSSA 15/COCH/2007

• Counselvise Citation: [2011] 124 COUNSELVISE.COM (IT) 8426 (ITAT-COCHIN)
• Duration Of Justice: 4 year(s) 1 month(s) 15 day(s)
• Appeal Type: Income Tax (Search & Seizure) Appeal
• Pronouncement Date: 06-05-2011
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: DB
• Next Hearing Date: 09-02-2011
• Assessment Year: misc
• Appeal Filed On: 22-03-2007
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: S C SONKAR
• Assessee Lawyers: R KRISHNAN
• Keywords: Unexplained expenditure; Depreciation; Valuation report; Block assessment; Unabsorbed depreciation
• Section: 148; 132

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL COCHIN BENCH, COCHIN BEFORE SHRI N.VIJAYAKUMARAN & SHRI SANJAY ARORA I.T (S&S) A.NO. 15 /COCH/200 7 BLOCK PERIOD: 1990 - 91 TO 1999 - 2000 M/S. RAIBAN & SONS, NR. MEDICAL COLLEGE, ALLEPPEY. PA NO.AAHFR 5963L VS. THE ASST. COMMISSIONER OF INCOME-TAX, CIRCLE-1, KOTTAYAM. (APPELLANT) ( RESPONDENT ) & I.T(S&S) A.NO. 26 /COCH/2007 BLOCK PERIOD: 1990 - 91 TO 1999 - 2000 THE ASST. COMMISSIONER OF INCOME-TAX, CIRCLE-1, KOTTAYAM. VS. M/S. RAIBAN & SONS, NR. MEDICAL COLLEGE, ALLEPPEY. PA NO.AAHFR 5963L (APPELLANT) (RESPONDENT) ASSESSEE BY SHRI R. KRISHNAN, C.A. REVENUE BY SHRI S.C. SONKAR, CIT., DR O R D E R PER N.VIJAYAKUMARAN,J.M: THESE ARE CROSS APPEALS BY THE ASSESSEE AND THE DE PARTMENT, AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS)IV, KOCHI DATED 22-02-2007 IN ITA 71/K/CIT-IV/01-02 FOR THE BLOCK ASSESSMENT YEARS 1990-91 TO 1999-2000 AND UPTO 04-1 1-1999. IT(S&S)A NO. 15 & 26/COCH/2007 M/S.RAIBAN & SONS 2 2. A SEARCH U/S 132 OF THE I.T. ACT WAS CONDUCTED A T THE PREMISES OF THE ASSESSEE ON 04-11-1999. A BLOCK ASSESSMENT WAS MADE DETERMINING A TOTAL INCOME OF RS. 32,30,060/- AS AG AINST NIL INCOME RETURNED FILED BY THE ASSESSEE. 3. I N THE ASSESSEES APPEAL, THE FOLLOWING GROUNDS OF A PPEAL ARE RAISED: A) THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) ER RED IN ESTIMATING 10% OF ADDITIONAL SALES IN ROYAL RESTAUR ANT AS APPELLANTS UNDISCLOSED INCOME FOR THE ASST. YEARS 1998-99, 1999-2000 AND BROKEN PERIOD ENDING 04-11-1999. B) THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) ER RED IN ESTIMATING ADDITION @ 20% OF ADDITIONAL SALES IN RE SPECT OF RAIBAN ICE CREAM PARLOUR FOR THE ASST. YEAR 1999-20 00 AND BROKEN PERIOD ENDING 04-11-1999. C) THE MANNER OF COMPUTATION OF UNDISCLOSED INCOME IS ERRONEOUS. IN ARRIVING AT THE AGGREGATE INCOME, TH E CURRENT YEARS TOTAL INCOME HAD TO BE COMPUTED, PARTICULARL Y FOR THE ASST.YEARS 1998-99, 1999-2000 AND BROKEN PERIOD END ING 04- 11-1999 AND AFTER ALLOWING ALL EXPENSES AND DEPRECI ATION, IF THERE WAS EXCESS INCOME, THEIR ALONE THERE WOULD BE UNDISCLOSED INCOME. THE COMMISSIONER OF INCOME TAX (APPEALS) IS ALSO SILENT ON THIS POINT. 4. DURING THE COURSE OF SEARCH, DEPARTMENT FOUND OU T DETAILS OF ACTUAL SALES AND PURCHASES, MADE BY HOTEL ANNAPURNA , ONE OF THE UNITS OF THE ASSESSEE FOR THE MONTHS JULY, 1997 TO SEPTEMBER, 1999. IT(S&S)A NO. 15 & 26/COCH/2007 M/S.RAIBAN & SONS 3 BASED ON THE ABOVE MATERIALS, THE SEARCH TEAM HAD R ECORDED STATEMENTS FROM THE PARTNER AND EMPLOYEES, WHO HAD ADMITTED THAT THE COLLECTIONS WERE NOT PROPERLY RECORDED IN BOTH THE UNITS RUN BY THE GROUP VIZ. HOTEL ANNAPURNA & ROYAL RESTAURANT. THE DEPONENTS HAD ALSO STATED THAT THERE WERE UNACCOUNTED EXPENDITURE AGAINST THE UNACCOUNTED COLLECTIONS. THE ASSESSING OFFICER EST IMATED THE SALES ETC. ON THE BASIS OF SEIZED MATERIALS, BUT ALLOWED EXPENSES ONLY ON THE BASIS OF REGULAR BOOKS AND ESTIMATED THE ADDITIONAL PROFIT FROM ROYAL RESTAURANT AS UNDER: ASST. YEAR 1998-1999 RS. 3,49,051/- ASST. YEAR 1999-2000 RS. 4,84,617/- UPTO 04-11-1999 RS. 3,46,553/- IN RESPECT OF THE OTHER YEARS WHERE THERE WERE NO M ATERIALS ALSO, THE ASSESSING OFFICER RESORTED TO A SIMILAR ESTIMATE. 5. THE FINDINGS OF THE ASSESSING OFFICER ARE CONTAI NED IN PAGES 5 & 6 OF THE ASSESSMENT ORDER. WHILE COMPUTING THE PRO FIT, THE ASSESSING OFFICER DID NOT CONSIDER EXPENSES OTHER THAN MANUFA CTURING EXPENSES AS PER SEIZED MATERIALS, INSPITE OF THE CLAIM MADE IN THE STATEMENT BY THE PARTNER & ACCOUNTANT. THE LD. COMMISSIONER OF INCOME TAX (APPEALS) ESTIMATED 10% OF THE INCREMENTAL TURNOVER AS INCOME FOLLOWING THE DECISION IN THE CASE OF SISTER CONCER N HOTEL ANNAPURNA, WHERE SIMILAR MATERIALS WERE FOUND. THE ESTIMATION OF INCOME FROM IT(S&S)A NO. 15 & 26/COCH/2007 M/S.RAIBAN & SONS 4 ROYAL RESTAURANT MADE BY THE ASSESSING OFFICER FOR OTHER ASSESSMENT YEARS, WHERE THERE WERE NO SEIZED MATERIALS WERE DE LETED BY THE COMMISSIONER OF INCOME TAX (APPEALS). 6. THE ASSESSEE IS AGGRIEVED BY THE ESTIMATE OF 10 % OF ADDITIONAL SALES AS UNDISCLOSED INCOME FOR THE ASST. YEARS 199 8-99, 1999-2000 AND BROKEN PERIOD 04-11-1999. 7. WE FIND THAT THE LD. CIT(APPEALS) HAS BEEN FAIR ENOUGH TO CONSIDER THE STATEMENTS MADE BY THE PARTNER AND ACC OUNTANT WITH REGARD TO ADDITIONAL EXPENDITURE. THE APPELLANT HA S NOT BEEN ABLE TO SUBSTANTIATE EITHER BEFORE THE LOWER AUTHORITIES OR BEFORE US THAT THE ESTIMATE OF 10% OF THE ADDITIONAL SALES IS EXCESSIV E. WE FIND THAT THE ESTIMATE OF 10% MADE BY THE LD. COMMISSIONER OF INC OME TAX (APPEALS) TO BE VERY REASONABLE AND ACCORDINGLY DIS MISS THIS GROUND OF THE ASSESSEE. 8. SIMILARLY, IN RESPECT OF RAIBAN ICE CREAM PARLOU R, THE LD. CIT(APPEALS) ESTIMATED THE INCOME @ 20% OF ADDITI ONAL SALES FOR THE ASST. YEAR 1999-2000 AND BROKEN PERIOD ENDING 04-11 -1999, AFTER TAKING INTO CONSIDERATION ALL MATERIALS. WE SEE NO REASON TO INTERFERE. ACCORDINGLY, THIS GROUND OF THE ASSESSEE IS ALSO DI SMISSED. IT(S&S)A NO. 15 & 26/COCH/2007 M/S.RAIBAN & SONS 5 9. THE LAST GROUND IN THE ASSESSEES APPEAL RELATES TO THE MANNER OF COMPUTATION OF UNDISCLOSED INCOME. ACCORDING TO THE ASSESSEE, THE AGGREGATE INCOME FOR EACH YEAR FALLING WITHIN THE B LOCK PERIOD WILL HAVE TO BE WORKED OUT AND THE DISCLOSED INCOME REDU CED THERE-FROM TO ARRIVE AT THE TOTAL UNDISCLOSED INCOME. WE FIND FR OM THE ASSESSMENT ORDER THAT THE ASSESSING OFFICER HAS PICKED OUT THE UNDISCLOSED INCOME ALONE FOR EACH YEAR AND AGGREGATED THE SAME. THE A SSESSING OFFICER IS DIRECTED TO COMPUTE THE AGGREGATE INCOME FOR EACH Y EAR, WHICH WILL BE THE TOTAL OF DISCLOSED AND UNDISCLOSED INCOME AND A LLOW ALL LEGITIMATE EXPENSES AND DEPRECIATION THEREFROM AND ARRIVE AT T HE AGGREGATE UNDISCLOSED INCOME FOR THE BLOCK PERIOD. THIS GROU ND IS DISPOSED OF ACCORDINGLY. 10. NOW WE SHALL TAKE UP THE APPEAL OF THE REVENUE IN ITA NO. 26/C/07. GROUND NO. 2 OF THE DEPARTMENTAL APPEAL I S AGAINST THE ACTION OF THE LD. CIT(APPEALS) HOLDING THAT THE IN COME DECLARED BY THE ASSESSEE IN THE BELATED RETURNS FILED FOR THE ASST . YEARS 1993-94, 1994-95, AND 1995-96 AS DISCLOSED INCOME. THE LEAR NED D.R. VEHEMENTLY ARGUES THAT THESE ARE NON EST RETURNS IN THE EYE OF LAW AND THE INCOME COVERED BY SUCH RETURNS ARE NOT CAPA BLE OF BEING CONSIDERED AS DISCLOSED INCOME. ON THE CONTRARY, T HE LD. COUNSEL FOR THE ASSESSEE POINTS OUT THAT THESE RETURNS ARE FILE D PRIOR TO THE SEARCH, THOUGH BELATEDLY. THE ASSESSING OFFICER WENT WRONG IN GIVING A IT(S&S)A NO. 15 & 26/COCH/2007 M/S.RAIBAN & SONS 6 STRANGE FINDING THAT THE INCOME COVERED BY THESE RE TURNS ARE NOT DISCLOSED INCOME, SINCE NO NOTICES U/S 148 WERE IS SUED BY THE DEPARTMENT. 11. ADMITTEDLY, THE RETURNS FOR THE ABOVE ASSESSMEN T YEARS WERE FILED PRIOR TO THE DATE OF SEARCH, THOUGH BEYOND TH E TIME PRESCRIBED U/S 139. THE FACT REMAINS THAT THE MATTER STOOD DI SCLOSED TO THE DEPARTMENT. THE LD. CIT(APPEALS) HAS RIGHTLY FOLL OWED THE DECISIONS IN THIS REGARD THAT INCOME DISCLOSED BY SUCH RETURNS, WOULD BE DISCLOSED INCOME, FOR THE PURPOSE OF CHAPTER XIV-B, EVENTHOUG H FILED BELATEDLY, BUT PRIOR TO THE DATE OF SEARCH. THEREFORE, WE SEE NO REASON TO INTERFERE WITH THE FINDINGS OF THE LD. CIT(APPEALS) ON THIS POINT. 12. THE NEXT GROUND RAISED BY THE DEPARTMENT IS THA T THE LD. CITA WENT WRONG IN HOLDING THAT THE UNABSORBED DEPRECIAT ION OF ASST. YEARS 1994-95, 1996-97, 1997-98 AND 1998-99 SHOULD BE SET OFF AGAINST THE UNDISCLOSED INCOME OF THE SUBSEQUENT YEARS IN THE B LOCK PERIOD. APPARENTLY, THERE WAS UNABSORBED DEPRECIATION FOR T HE ABOVE ASSESSMENT YEARS. THE QUESTION IS WHETHER IN COMPU TING THE AGGREGATE INCOME OF THE B LOCK PERIOD, SUCH UNABSOR BED DEPRECIATION OF AN EARLIER ASSESSMENT YEAR CAN BE SET OFF AGAINS T THE INCOME OF THE SUBSEQUENT YEARS, FALLING WITHIN THE BLOCK PERIOD. ACCORDING TO THE ASSESSING OFFICER, EXPLANATION TO SECTION 158 BB(1) PROHIBITS SUCH A IT(S&S)A NO. 15 & 26/COCH/2007 M/S.RAIBAN & SONS 7 SET OFF AND SHE DID NOT ALLOW THE CLAIM OF THE APPE LLANT. THE LD. CIT(APPEALS), HOWEVER ALLOWED THE CLAIM OF THE ASS ESSEE FOLLOWING THE DECISIONS OF THE CALCUTTA HIGH COURT IN 275 ITR 12 AND THE DECISION OF THE ITAT IN BDA LTD. VS. ACIT, WHICH HAD RELIED ON THE DECISION OF THE SUPREME COURT IN THE CASE OF CIT VS. NATIONAL SYNDICATE 41 ITR 225 (SC). 13. WE FIND NO INFIRMITY IN THE FINDINGS OF THE COM MISSIONER LD. CIT(APPEALS). THE PROHIBITION IN CHAPTER XIV-B IS WITH REFERENCE TO UNABSORBED DEPRECIATION OR LOSS DETERMINED IN REGUL AR ASSESSMENT. IN COMPUTING THE AGGREGATE INCOME OF THE BLOCK PERIOD, THE RESULTS OF THE DIFFERENT PREVIOUS YEARS COMPRISED IN THE BLOCK PER IOD WILL HAVE TO BE AGGREGATED, IN ORDER TO FIND OUT THE TOTAL UNDISCL OSED INCOME RELATING TO THE BLOCK PERIOD. AS HELD BY VARIOUS COURTS, LO SSES SUFFERED DURING CERTAIN PARTS OR PERIODS OF THE BLOCK PERIOD HAVE T O BE SET OFF OR ADJUSTED AGAINST THE INCOME EARNED DURING THE REMAI NING PARTS OR PERIODS THEREOF. ACCORDINGLY, WE AGREE WITH THE FI NDINGS OF THE LD. CIT(APPEALS) THAT INTERSE SET OFF WITHIN THE BLOCK PERIOD IS ALLOWABLE. 14. THE NEXT GROUND RAISED IN THE DEPARTMENTAL APPE AL IS THAT THE LD. CIT(APPEALS) WENT WRONG IN HOLDING THAT INVESTMENT IN CONSTRUCTION OF BUILDING BASED ON THE VALUATION REPORT OF DVO CANNO T BE ASSESSED AS UNDISCLOSED INCOME IN BLOCK ASSESSMENT. THIS ISSUE IS ALREADY SETTLED IN FAVOUR OF THE ASSESSEE BY SEVERAL DECISIONS. TH IS BENCH HAS ALSO IT(S&S)A NO. 15 & 26/COCH/2007 M/S.RAIBAN & SONS 8 BEEN FOLLOWING THIS VIEW CONSISTENTLY. IT IS WORTH MENTIONING THAT IN THE APPELLANTS CASE, SEARCH DID NOT REVEAL ANY INC RIMINATING MATERIALS, POINTING TO ADDITIONAL INVESTMENT IN BUILDINGS. AC CORDINGLY, WE SEE NO REASON TO INTERFERE WITH THE ORDER OF THE LD. CIT(A PPEALS). 15. THE NEXT ISSUE RAISED IN THE APPEAL IS WITH REG ARD TO THE ESTIMATION OF INCOME @ 10% BY THE LD. CIT(APPEALS) WITH REGARD TO THE INCOME OF ROYAL RESTAURANT, INSTEAD OF A HIGHER INCOME ESTIMATED BY THE ASSESSING OFFICER IN ASSESSMENT. WE HAVE AL READY GIVEN OUR FINDING IN ASSESSEES APPEAL THAT THE INCOME OF 10% FIXED BY THE COMMISSIONER OF INCOME TAX (APPEALS) IS AFTER CONSI DERING ALL FACTS AND RELEVANT MATERIALS AND IS FOUND TO BE REASONABL E. ACCORDINGLY, WE HOLD THAT THE ACTION OF THE LD. CIT(APPEALS) IS JU STIFIED. 16. THE LAST ISSUE RAISED BY THE DEPARTMENT IS THAT THE LD. CIT(APPEALS) OUGHT TO HAVE SUSTAINED THE ADDITIONS MADE BY THE ASSESSING OFFICER IN RESPECT OF UNDISCLOSED INCOME OF ROYAL RESTAURANT & RAIBAN ICE CREAM PARLOUR IN RESPECT OF YEARS, WHE RE NO MATERIALS WERE FOUND. ACCORDING TO THE DR, A PATTERN OF SUPP RESSION OF SALES AND INCOME HAS BEEN ESTABLISHED AND THEREFORE IT FO LLOWS THAT THE APPELLANT WAS FOLLOWING THE SAME FOR OTHER YEARS AL SO, EVENTHOUGH NO MATERIALS WERE FOUND. THE LD. COUNSEL FOR THE ASSE SSEE, ON THE CONTRARY STATES THAT THE DEPARTMENT HAS NOT ESTABLI SHED THAT SUCH SUPPRESSION WAS BEING RESORTED TO IN OTHER YEARS. MOREOVER, IN THE IT(S&S)A NO. 15 & 26/COCH/2007 M/S.RAIBAN & SONS 9 STATEMENTS RECORDED ALSO, THE DEPARTMENT HAD NOT BR OUGHT OUT ANY SUCH ADMISSION FOR ANY DEFINITE PERIOD. IN THE ABS ENCE OF ANY MATERIAL AND CONSIDERING THE LOW LEVEL OF ACTIVITY AND THE F ACT THAT THE SEARCH DID NOT REVEAL ANY UNDISCLOSED INVESTMENT, RESORTIN G TO A WILD ESTIMATE FOR PERIODS WHERE NO MATERIALS ARE AVAILABLE, IS NO T PERMISSIBLE. 17. WE FIND THAT THE ASSESSING OFFICER HAS MERELY R ELIED ON A GENERAL STATEMENT OF THE PARTNER AND EMPLOYEES IN ESTIMATIN G FOR THE YEARS NOT COVERED BY ANY INCRIMINATING MATERIALS. IT IS ALSO TRUE THAT IN THE STATEMENT, THERE IS NO ADMISSION OF SUPPRESSION IN THE PRIOR PERIODS. THE DEPARTMENT HAS ALSO NOT BROUGHT OUT ANYTHING AS A RESULT OF SEARCH SUGGESTING THAT THE APPELLANT WAS FOLLOWING THE SET PATTERN OF SUPPRESSION FOR OTHER PERIODS ALSO. THEREFORE, WE ARE OF THE OPINION THAT THE LD. CIT(APPEALS) WAS RIGHT IN HOLDING THA T THE ADDITION BE CONFINED TO THE PERIOD FOR WHICH SEIZED MATERIALS W ERE FOUND. 18. IN THE RESULT, THE ASSESSEES APPEAL IS PARTLY ALLOWED AND THE DEPARTMENTAL APPEAL IS DISMISSED. PER SEPARATE ASSENTING ORDER SD/- 31-3-2011 (SANJAY ARORA) (N.VIJAYKUMARAN) ACCOUNTANT MEMBER JUDICIAL M EMBER ERNAKULAM, DATED THE PM. IT(S&S)A NO. 15 & 26/COCH/2007 M/S.RAIBAN & SONS 10 COPY FORWARDED TO: 1. M/S. RAIBAN & SONS, NR. MEDICAL COLLEGE, ALLEPPEY. 2. THE ACIT., CIRCLE-1, KOTTAYAM. 3. CIT(A)-IV,KOCHI. 4. CIT, KOTTAYAM. 5. D.R.