M/s Sampoorna Textiles, Hyderabad V. ACIT, Hyderabad

ITSSA 35/HYD/2009

• Counselvise Citation: [2012] 124 COUNSELVISE.COM (IT) 7505 (ITAT-HYDERABAD)
• Duration Of Justice: 3 year(s) 1 month(s) 25 day(s)
• Appeal Type: Income Tax (Search & Seizure) Appeal
• Pronouncement Date: 07-05-2012
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 15-02-2011
• Assessment Year: misc
• Appeal Filed On: 12-03-2009
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: V SRINIVAS
• Keywords: Unexplained investment; Search and seizure; Block assessment
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH A, HYDERABAD BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SMT. ASHA VIJAYARAGHAVAN, JUDICIAL MEMBER IT(SS)A NO. 35/HYD/2009 BLOCK ASSESSMENT YEAR : 1986-87 TO 1995-96 SAMPOORNA TEXTILES, APPELLANT SECUNDERABAD. VS. ASSTT. COMMISSIONER OF INCOME-TAX, RESPOND ENT CIRCLE 10(1), HYDERABAD. (PAN AATFS0319P) APPELLANT BY : MR. MOHD. AFZAL RESPONDENT BY : MR. V. SRINIVAS DATE OF HEARING : 07/03/2012 DATE OF PRONOUNCEMENT : 0 7/05/2012 ORDER PER ASHA VIJAYARAGHAVAN, J.M.: THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAI NST THE ORDER OF ACIT, CIRCLE-10(1), HYDERABAD DATED 30/12/2008 F OR THE BLOCK ASSESSMENT YEAR 1986-87 TO 1995-96, WHEREIN THE ASS ESSEE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL:- 1.THE ORDER OF THE AO IS AGAINST LAW, WEIGHT OF EVI DENCE AND PROBABILITIES OF CASE. 2. THE AO HAS ESTIMATED THE GROSS PROFIT ON SUPPRES SED TURNOVER FOR THE ASST YEAR 1992-93, 1993-94, 1994-9 5 & 1995- 96 AT 5.9% AND ALLOWED EXPENDITURE OF AROUND 2 TO 2 .5%. THE CLAIM OF APPELLANT THAT THE GROSS PROFIT HAVING BEE N ESTIMATED AT ABOUT 6% ON THE BASIS OF DISCLOSED GROSS TURNOVE R THE EXPENDITURE ALSO SHOULD HAVE BEEN ALLOWED AT ABOUT 4% AS CLAIMED WAS IGNORED, WITHOUT GIVING ANY COGENT REAS ONS. THE ACTION OF THE LEARNED AO IN ALLOWING EXPENDITURE ON LY TO THE EXTENT OF 2 TO 2.5% IS UNSUSTAINABLE AND CONTRARY T O FACTS. 2 ITA NO. 35/HYD/20009 M/S SAMPOORNA TEXTILES 3. WITHOUT PREJUDICE TO THE ABOVE, THE AO FAILED TO NOTE THAT THE PROFIT DISCLOSED FOR THE ASST YEARS 1992-93, 1993-9 4, 1994-95 & 1995-96 IN THE SWORN STATEMENT BEFORE THE ADDITIO NAL DIRECTOR OF INCOME TAX(INV.) WAS ONLY RS. 16,50,000 /-. 4. THE AO OUGHT TO HAVE ESTIMATED THE PROFIT AS DEC LARED BY THE IDENTICAL ASSESSEES IN THE LOCALITY ON COMPARA BLE BASIS. 2. THE FACTS, IN BRIEF, ARE THAT SEARCH AND SEIZURE OPERATIONS WERE CARRIED OUT IN THE GROUP CASES ON 09/01/96 AT THE BUSINESS PREMISES OF M/S SAMPOORNA TEXTILES. THE BLOCK ASSES SMENT U/S 143(3) R.W.S. 158BC WAS COMPLETED ON 31/01/97 DETER MINING UNDISCLOSED INCOME AT RS. 27,48,600/-. THE ASSESSEE PREFERRED AN APPEAL TO THE TRIBUNAL AGAINST THE BLOCK ASSESSMENT ORDER AND THE TRIBUNAL IN ITS ORDER IT(SS)A NO. 46/HYD/97 DATED 0 6/08/2008 HAD SET ASIDE THE ASSESSMENT AND RESTORED THE ORDER TO THE FILE OF THE AO WITH THE DIRECTIONS TO REDO THE ASSESSMENT. 3. NOTICE U/S 143(2) WAS ISSUED TO THE ASSESSEE ON 19/03/08, 05/11/08 AND A SHOW CAUSE LETTER WAS ALSO ISSUED ON 18/11/08. SINCE THERE WAS NO COMPLIANCE FROM THE ASSESSEE TO THE SAID NOTICES, AGAIN THE ACIT ISSUED A LETTER DATED 01/1 2/08 REQUIRING THE ASSESSEE TO APPEAR ON OR BEFORE 08/12/08. ON 10 /12/08, THE ASSESSEE ALONG WITH HIS CA APPEARED AND SUBMITTED T HE WRITTEN REPLY AND FILED BLOCK RETURN ON 27/01/97 DECLARING UNDISCLOSED INCOME AS UNDER:- 1986-87 NIL 1987-88 NIL 1988-89 NIL 1989-90 56,000 1990-91 89,900 1991-92 85,160 1992-93 94,740 1993-94 5,260 1994-95 4,590 1995-96 4,870 1996-97 5,48,238 3 ITA NO. 35/HYD/20009 M/S SAMPOORNA TEXTILES 4. THE ACIT NOTED THAT IN THE COURSE OF SEARCH IT W AS FOUND THAT THE ASSESSEE WAS DOING SALES OUTSIDE THE BOOKS OF A CCOUNT DURING THE AY 1992-93, 1993-94, 1994-95 & 1995-96. THE DET AILS OF SALES OUTSIDE BOOKS OF ACCOUNT WERE FOUND IN ANNEXURE ST/ 6&7. THE TURNOVER AS PER RETURN FOR AYS. 1992-93, 1993-94 & 1994-95 WERE RS. 36,95,918/-, RS. 37,74,399/- & RS. 38,07,425/- RESPECTIVELY. AS PER SEIZED MATERIAL, THE TURNOVER FOR THE ASSESS MENT YEAR 1992- 93 AND 1993-94 WERE RS. 2,07,70,889/- AND RS. 2,09, 92,745/- RESPECTIVELY. THE ASSESSEE ADMITTED IN THE STATEMEN T RECORDED ON 23/03/96 HAVING SIMILAR SALES OUTSIDE THE BOOKS OF ACCOUNT FOR THE AY. 1995-96 ALSO. THE DIFFERENCE IN SALES FOR THE A YS 1992-93 TO 1994-95 WAS ABOUT RS. 1.7 CRORE FOR EACH YEAR. THE SUPPRESSION OF GROSS PROFIT ON THE ABOVE TURNOVER AS PER THE GP OF 5.87 TO 5.89% AS SHOWN BY THE ASSESSEE WOULD BE AROUND RS. 10 LAKH F OR EACH ASSESSMENT YEAR. 5. THE ADI HAD ESTIMATED THE INCOME FROM THE ABOVE TURNOVERS FOR THE AYS 1992-93 TO 1994-95 AT RS. 7.5 LAKHS I.E . RS. 2.5 LAKHS FOR EACH AY. COMPARING THE GROSS PROFIT DECLARED BY THE ASSESSEE, THE ACIT OBSERVED THAT THE GROSS PROFIT WOULD BE AR OUND 10 LAKHS FOR EACH YEAR. THE ASSESSING OFFICER HELD THAT IT W OULD BE FAIR ENOUGH TO DEDUCT AROUND 2 TO 2.5% FOR THE EXPENDITU RE ON THE ABOVE TURNOVERS. THE ASSESSING OFFICER HELD THAT T HE ASSESSEE WAS FOUND TO HAVE MADE A NET PROFIT OF RS. 6.5 LAKH FOR EACH AY AND THE SAME CONSIDERED AS AN ADDITION AT RS. 6.5 LAKH FOR THE AY 1992-93, 1993-94 & 1994-95 RESPECTIVELY. 6. AS REGARDS AY 1995-96, THE SALES DECLARED IN THE RETURN OF RS. 37,42,840/-. WHEREAS AS PER BOOKS SEIZED, THE TURNO VER WAS RS. 2,65,87,077/-, WHICH GIVES A DIFFERENCE OF RS. 2,18 ,44,237/-. THE ACIT ESTIMATING THE NORMAL GP OF 5.9% AS DECLARED B Y THE ASSESSEE IN THE REGULAR BOOKS OF ACCOUNT AND ALLOWING DEDUCT ION OF AROUND 2 4 ITA NO. 35/HYD/20009 M/S SAMPOORNA TEXTILES TO 2.5% FOR THE EXPENDITURE. THE NET PROFIT EARNED BY THE ASSESSEE WOULD COME TO AROUND RS. 7.5 LAKHS. THIS WOULD BE C ONSIDERED AS THE UNDISCLOSED INCOME OF THE ASSESSEE FOR THE AY 1 995-96. 7. IN REPLY TO SHOW CAUSE NOTICE, THE ASSESSEE GAVE A WORKING TO SHOW THAT THE NET UNDISCLOSED INCOME SHOULD BE RS. 15,24,300/-. THE ASSESSEE ARGUED THAT THERE WERE NO MATCHING ASS ETS OR PROPERTIES TO SUGGEST THAT THE UNDISCLOSED INCOME W OULD BE MORE THAN RS. 15,24,300/-. IT WAS FURTHER STATED BY THE ASSESSEE THAT THE UNDISCLOSED TURNOVER FOR THE ASSESSMENT YEAR 1992-9 3 TO 1995- 96 COULD BE AFFECTED AT A LOWER GP MARGIN OF 1% AND ADOPTING ANY GP RATE HIGHER THAN 1% WOULD CAUSE HARDSHIP. IT MAY BE MENTIONED HERE THAT THE GP RATE HAS BEEN ADOPTED AT 5.9% ON T HE BASIS OF DECLARATION BY THE ASSESSEE ITSELF IN THE REGULAR B OOKS OF ACCOUNT. THE ASSESSEE COULD NOT GIVE ANY JUSTIFICATION ON TH E BASIS ON WHICH THE GP SHOULD BE TAKEN @ 1%. FURTHER, THE ASSESSEE CONTENDED THAT IF THE RATE OF GP IS ADOPTED ON THE BASIS OF DISCLO SED GROSS PROFIT, ALLOWANCE SHOULD BE MADE FOR EXPENDITURE ALSO. 8. THE ASSESSEE SUBMITTED A WORKING IN ANNEXURE I & II TO THE REPLY IN WHICH NET PROFIT OF RS. 13,37,674/- IS ARR IVED. THE WORKING OF THE ASSESSEE IS NOT FOUND CORRECT. AS DISCUSSED EARLIER, GP IS TAKEN ON THE UNDISCLOSED INCOME @ 5.9% AND 2 TO 2.5 % OF GROSS PROFIT IS TAKEN AS ALLOWANCE TO EXPENDITURE. AGGRIE VED BY THE ORDER OF THE ASSESSING OFFICER, THE ASSESSEE IS IN APPEAL BEFORE US. 9. WE HAVE HEARD ARGUMENTS OF BOTH THE PARTIES AND PERUSED THE RECORD AS WELL AS THE ORDERS OF THE AUTHORITIES BEL OW. WE FIND THAT THERE WAS SEARCH AND SEIZURE OPERATION IN THE BUSIN ESS PREMISES OF THE ASSESSEE. THE BLOCK ASSESSMENT UNDER SECTION 14 3(3) R.W.S 158BC SET ASIDE THE ASSESSMENT RESTORING TO THE FIL E OF THE ASSESSING OFFICER FOR RECOMPUTING THE ASSESSMENT. T HE ASSESSING 5 ITA NO. 35/HYD/20009 M/S SAMPOORNA TEXTILES OFFICER COMPLETED THE ASSESSMENT DETERMINING THE UN DISCLOSED INCOME AT RS.27 LAKHS. DURING THE SEARCH, THE PAPE RS WERE FOUND WHEREIN THERE WAS UNDISCLOSED SALES FOR THE ASSESSM ENT YEARS 1992- 93 TO 1996-97. THE AO TOOK THE GROSS PROFIT ON THE UNDISCLOSED SALE AT THE SAME RATE OF 5.9% AS DISCLOSED BY THE A SSESSEE IN RESPECT OF TRANSACTIONS WHICH HAVE BEEN ACCOUNTED I N THE BOOKS. THE AO FURTHER GRANTED DEDUCTION OF 2 TO 2.5% FROM THE GROSS PROFIT FOR ARRIVING AT THE NET PROFIT FOR EACH YEAR. THIS AMOUNT WAS ASSESSED AS UNDISCLOSED INCOME OF THE ASSESSEE. 10. THE ASSESSEE SUBMITS THAT G.P. RATE SHOULD BE T AKEN ONLY AT 1% PARTICULARLY AS THERE WAS NO MATCHING ASSETS OR PROPERTY TO SUGGEST THAT UNDISCLOSED INCOME COULD BE MORE THAN THE DECLARED AMOUNT OF RS. 13,50,000/-. HE, THEREFORE, CONTENDE D THAT THE ADDITION SHOULD BE MADE ONLY ON NET ASSET METHOD I. E. THE AMOUNT OF UNEXPLAINED INVESTMENT, 11. THE AO REJECTED THE CONTENTION OF THE ASSESSEE AND DETERMINED THE UNDISCLOSED INCOME AT RS. 27,00,000/- AFTER GIV ING CREDIT OF RS.15,24,300/- BEING EXCESS VALUE SET OFF AGAINST U NDISCLOSED PROFITS. HE HAD ARRIVED AT THIS AMOUNT TAKING THE G ROSS PROFIT AT 5% AS UNDISCLOSED SALES AND GIVING A FURTHER DEDUCTION OF 2 TO 2.5% OF GROSS PROFIT TOWARDS FURTHER EXPENDITURE. 12. THE CONTENTION OF THE ASSESSEE IS THAT THE ADDI TION OF UNDISCLOSED INCOME HAS TO BE MADE ON THE BASIS OF T HE NET AGGREGATION OF ASSETS. THE ASSESSEE HAD RELIED ON THE DECISION OF K.V.SRIRAM & OTHERS VS ACIT IN ITA NOS 421 TO 440 A ND 454 TO 460/VIZG/2008 DATED 31.08.2009 FOR THE ASSESSMENT Y EARS 2000-01 TO 2005-06 FOR THE VIZAG BENCH OF ITAT. 13. HOWEVER, WE ARE UNABLE TO ACCEPT THE ARGUMENTS OF THE ASSESSEE THAT THE UNDISCLOSED INCOME SHOULD BE COMP UTED ONLY ON 6 ITA NO. 35/HYD/20009 M/S SAMPOORNA TEXTILES THE BASIS OF THE NET ASSETS METHOD. THE NET ASSETS METHOD CAN BE USED TO DETERMINE THE UNDISCLOSED INCOME ONLY IF TH E DEPARTMENT IS IN A POSITION TO DETERMINE ALMOST THE ENTIRETY OF T HE ASSETS OF THE ASSESSEE SO THAT THE AMOUNT UTILIZED FOR ACQUISITIO N OF THE ASSETS CAN BE CONSIDERED VISA-A-VIS ACCOUNTED INCOME. HERE IN THE ASSESSEES CASE THE DEPARTMENT HAS CLEARLY ESTABLIS HED THAT THE ASSESSEE HAS MADE SALES OUTSIDE THE BOOKS OF ACCOUN TS. THEREFORE THE DEPARTMENT WAS RIGHT IN COMPUTING THE UNDISCLOS ED INCOME ON THE ESTIMATED PROFIT ARISING FROM THE UNDISCLOSED S ALES. THIS INCOME WHETHER REFLECTED BY ANY ASSETS OR NOT IS UNDISCLOS ED INCOME. IF ON THE BASIS OF THE NET ASSETS THE TOTAL INVESTMENT MA DE BY THE ASSESSEE IS OVER AND ABOVE THE UNDISCLOSED INCOME D ETERMINED FROM THE UNDISCLOSED SALES, THEN SUCH A DIFFERENCE CAN B E ADDED FURTHER UNDISCLOSED INCOME ON THE BASIS OF THE NET ASSETS M ETHOD. HOWEVER IF THE UNEXPLAINED INVESTMENT IS LESS THAN THE ESTI MATED UNDISCLOSED INCOME COMPUTED ON THE BASIS OF THE UN DISCLOSED SALES, THAT MEANS EITHER THE ASSESSEE HAS EXPENDED THE UNDISCLOSED INCOME AND/OR HAS NOT INVESTED THE SAME ON ASSETS W HICH HAS NOT BEEN FOUND BY THE DEPARTMENT. WHATEVER MAY BE THE REASON WE ARE UNABLE TO SUBSCRIBE TO THE ARGUMENTS OF THE ASSESSE E THAT THE UNDISCLOSED INCOME SHOULD BE COMPUTED ONLY ON THE B ASIS OF UNEXPLAINED INVESTMENTS, PARTICULARLY WHEN UNDISCLO SED SALES HAVE BEEN DETECTED AND THE ASSESSEE HAS NOT ANY SUBSTANT IAL OBJECTION AGAINST THE SAME. 14. WE FOUND THAT THE AO HAS ARRIVED AT THE GP ON U NDISCLOSED SALES APPLYING THE SAME G.P RATE AS DISCLOSED BY TH E ASSESSEE IN THEIR BOOKS THAT IS 5.9%. THE ONLY ISSUE IS WHETHE R FURTHER DEDUCTION TO BE GIVEN FOR EXPENDITURE IN ARRIVING A T NET INCOME IN RESPECT OF UNDISCLOSED TURNOVER. THE ASSESSEE HAS FURNISHED PARTICULARS FOR THE ASSESSMENT YEAR 1992-93 TO 1996 -97. THE AVERAGE EXPENDITURE WAS FROM 4.2 TO 4.17% OF THE TU RNOVER AND IT IS 7 ITA NO. 35/HYD/20009 M/S SAMPOORNA TEXTILES THE CONTENTION OF THE ASSESSEE THAT THIS DEDUCTION SHOULD BE GIVEN FOR ARRIVING AT THE NET PROFIT FROM THE UNDISCLOSED SALES ALSO. 15. THE AO HAS APPARENTLY GRANTED 2 TO 2.5% UNDISCL OSED TURNOVER AS FURTHER DEDUCTION FROM THE GP TO ARRIVE AT THE NET PROFITS. WE CANNOT ACCEPT THAT FURTHER DEDUCTION TO BE GIVEN FROM THE GROSS PROFIT WOULD BE AT THE SAME RATE AS THAT CLAIMED IN RESPECT OF THE DISCLOSED TURNOVER: THAT IS FROM THE 4.02 TO 4.17%. ADMINISTRATIVE AND OTHER INDIRECT EXPENDITURE NOT D ISCLOSED WOULD DEFINITELY BE LESS THAN SIMILAR EXPENDITURE INCURRE D AND DISCLOSED IN THE BOOKS OF ACCOUNTS. THEREFORE IN THE INTEREST OF JUSTICE, WE FEEL THAT THE AO MAY GRANT AN EXPENDITURE OF 3% ON THE U NDISCLOSED TURNOVER AS A DEDUCTION FROM THE GP COMPUTED AT 5.9 % OF THE TOTAL TURNOVER (THAT IS TO SAY THE NET PROFIT WOULD BE CO MPUTED AT 2.9% OF UNDISCLOSED TURNOVER) AND ARRIVE AT THE NET PROFITS FOR THESE YEARS WHICH WILL BE ASSESSED AS UNDISCLOSED INCOME. 16. THE AO WOULD OF COURSE FROM THE TOTAL UNDISCLOS ED INCOME DEDUCT A SUM OF RS.1524300/- BEING EXCESS VALUE SE T OFF AGAINST UNDISCLOSED PROFITS, AS DONE IN THE ORDER OF ASSESS MENT. 17. IN THE RESULT, THE APPEAL OF THE ASSESSEE HAS P ARTLY ALLOWED. PRONOUNCED IN THE OPEN COURT ON 07/05/2012. SD/- SD/- (CHANDRA POOJARI) (ASHA VIJ AYARAGHAVAN) ACCOUNTANT MEMBER JUDICIAL MEMBER HYDERABAD, DATED: 7 TH MAY, 2012 KV 8 ITA NO. 35/HYD/20009 M/S SAMPOORNA TEXTILES COPY TO:- 1) M/S SAMPOORNA TEXTILES, C/O MOHD. AFZAL, ADVOCATE 11-5-465, FLAT NO. 402, SHERSONS RESIDENCY CRIMINAL COURT ROAD, RED HILLS, HYDERABAD 500 004. 2) ACIT, CIRCLE 10(1), HYDERABAD 3) THE CIT, HYDERABAD 5) THE DEPARTMENTAL REPRESENTATIVE, I.T.A.T., HYDE RABAD