M/s. Devaraj & Others, CHENNAI V. ACIT, Coimbatore

ITSSA 82/CHNY/2006

• Counselvise Citation: [2011] 124 COUNSELVISE.COM (IT) 8125 (ITAT-CHENNAI)
• Duration Of Justice: 5 year(s) 4 month(s) 27 day(s)
• Appeal Type: Income Tax (Search & Seizure) Appeal
• Pronouncement Date: 21-09-2011
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 07-09-2011
• Assessment Year: misc
• Appeal Filed On: 24-04-2006
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: S SRIDHAR
• Keywords: Bogus purchase; Block assessment; Revised return
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, CHENNAI BEFORE DR. O.K.NARAYANAN, VICE PRESIDENT AND SHRI HARI OM MARATHA, JUDICIAL MEMBER IT(SS)A NO.82(MDS)/2006 BLOCK PERIOD : 1-4-1986 TO 13-2-1996 M/S.DEVARAJ & OTHERS, 688, TRUNK ROAD, POONAMALLEE, CHENNAI-56. PAN D-601. VS. THE ASSISTANT COMMISSIONER OF INCOME-TAX, CENTRAL CIRCLE I, COIMBATORE. (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI S.SRIDHAR, ADVOCATE RESPONDENT BY : SHRI K.RAMASAMY, SR.STANDING C OUNSEL DATE OF HEARING : 7 TH SEPTEMBER, 2011 DATE OF PRONOUNCEMENT : 21 ST SEPTEMBER, 2011 O R D E R PER DR.O.K.NARAYANAN, VICE-PRESIDENT: THIS IS A BLOCK ASSESSMENT APPEAL FILED BY THE AS SESSEE. THE APPEAL ARISES OUT OF THE ORDER PASSED BY THE AS SESSING AUTHORITY UNDER SECTION 158BD READ WITH SECTION 143 (3) OF THE INCOME-TAX ACT, 1961. 2. THE TAMIL NADU STATE GOVERNMENT HAD DECLARED A SCHEME OF PROVIDING DHOTIS AND SAREES TO THE POOR S ECTION OF THE - - IT(SS)A NO.82(MDS)/2006 2 SOCIETY. THE RESPONSIBILITY OF PROCURING DHOTIS AN D SAREES FOR THE ABOVE SCHEME WAS ENTRUSTED TO TAMIL NADU TEXTILE CO RPORATION (TNTC), WHICH IS A STATE GOVERNMENT UNDERTAKING. A NUMBER OF SUPPLIERS ROLLED ON THE CHAIN OF ACTIVITIES THAT FO LLOWED THE ABOVE STATED SCHEME. IT IS STATED THAT LATER ON, THE SCH EME BECAME A VERY BIG SCAM, WHEREBY THERE WERE ALLEGATIONS OF BO GUS PURCHASES, MALPRACTICES AND CORRUPTION. 3. IN THE ABOVE BACKGROUND A SEARCH WAS CARRIED OU T BY THE INCOME-TAX DEPARTMENT IN THE PREMISES OF TNT C. A NUMBER OF CONSEQUENTIAL SEARCHES WERE ALSO MADE BY THE DEPARTMENT TO COVER THOSE PARTIES WHO HAD ACTIVELY OPERATED IN THE ABOVE SCHEME. IN SUCH CASES BLOCK ASSESSMENTS WERE MADE UNDER SECTION 158BC. IN ADDITION TO THE ABOVE , THE DETAILS COLLECTED FROM THE SEARCHES RELATED TO VARIOUS OTHE R PARTIES ALSO AGAINST WHOM PROCEEDINGS UNDER SECTION 158BD HAVE B EEN INITIATED BY THE DEPARTMENT. 4. THE ASSESSEE IS ONE OF SUCH PARTIES COVERED BY SECTION 158BD ACTION OF THE DEPARTMENT. 5. IN PURSUANCE OF THE NOTICE ISSUED UNDER SECTION 158BD, THE ASSESSEE FILED ITS RETURN ON A TOTAL UND ISCLOSED - - IT(SS)A NO.82(MDS)/2006 3 INCOME OF ` 1,23,01,430/-. THE SAID ORIGINAL RETURN WAS FILED ON 21-2-1997. THEREAFTER THE ASSESSEE FILED A REVISED RETURN ADMITTING AN INCOME OF ` 1,44,59,230/-. THE REVISED RETURN WAS FILED ON 11-8-1997. THE ASSESSMENT WAS THEREAFTER COMPLETED UNDER SECTION 143(3), FIXING A TOTAL UNDISCLOSED IN COME OF ` 9,25,51,290/-. 6. THE ABOVE BLOCK ASSESSMENT WAS TAKEN IN FIRST APPEAL BEFORE THE INCOME-TAX APPELLATE TRIBUNAL, A- BENCH, CHENNAI. THE TRIBUNAL IN THEIR ORDER DATED 28-1-20 05 PASSED IN IT(SS)A NO.188(MDS)/1998, SET ASIDE THE BLOCK ASSES SMENT ORDER AND REMITTED THE CASE BACK TO THE ASSESSING A UTHORITY FOR REFRAMING THE ASSESSMENT. THE TRIBUNAL HAS MADE AN OPEN REMAND WITH A DIRECTION TO THE TO THE ASSESSING OFF ICER TO CONSIDER ALL THE ASPECTS OF THE CASE INCLUDING THE RELEVANCE OF THE MATERIALS AVAILABLE BEFORE THE SPECIAL COURT CO NSTITUTED FOR THE TRIAL OF THE CRIMINAL CASES EMANATED OUT OF THE ALLEGED SCAM. 7. IN PURSUANCE OF THE ORDER OF THE TRIBUNAL, THE ASSESSMENT WAS REDONE BY THE ASSESSING AUTHORITY. THE ASSESSING AUTHORITY COMPLETED THE ASSESSMENT UNDER SECTION 143(3) ON 27-3-2006 FIXING A TOTAL UNDISCLOSED INCO ME OF - - IT(SS)A NO.82(MDS)/2006 4 ` 6,17,00,860/-. AFTER CONSIDERING THE VARIOUS SUBM ISSIONS MADE BY THE ASSESSEE, THE ASSESSING AUTHORITY ALLOWED EX PENSES TO THE EXTENT O ` 3,08,50,430/- BY WAY OF DEDUCTION FROM THE INCOME DETERMINED IN THE ORIGINAL ASSESSMENT OF ` 9,25,51,290/- AND CONSEQUENTLY FIXED THE TOTAL INCOME AT ` 6,17,00,860/-. 8. THE PRESENT APPEAL IS AGAINST THE ABOVE REMAND ASSESSMENT ORDER PASSED BY THE ASSESSING AUTHORITY. 9. INITIALLY THERE WAS A DISPUTE REGARDING THE STA TUS OF THE ASSESSEE, WHETHER AN ASSOCIATION OF PERSONS OR NOT. THERE WAS ALSO A DISPUTE AS TO WHETHER THE ASSESSMENT HAS TO BE COMPLETED SUBSTANTIVELY IN THE PRESENT FILE OR SHOU LD BE MADE IN THE HANDS OF THE INDIVIDUAL MEMBERS OF THE AOP. ON THAT GROUND THERE WAS A CONTENTION EARLIER BEFORE THE TRIBUNAL THAT WHETHER THE ASSESSMENT IN THE HANDS OF THE AOP IS SUBSTANTI VE OR PROTECTIVE. NOW, AS A RESULT OF THE REMAND ASSESSM ENT, ALL SUCH DISPUTES HAVE COME TO AN END. IT HAS BEEN ACCEPTED BY THE ASSESSEE AND ACTED UPON BY THE REVENUE THAT THE SUB STANTIVE ASSESSMENT HAS BEEN MADE IN THE IMPUGNED FILE IN TH E STATUS OF AOP. - - IT(SS)A NO.82(MDS)/2006 5 10. NOW, COMING TO THE MERITS OF THE CASE, WE HEAR D SHRI S.SRIDHAR, THE LEARNED COUNSEL APPEARING FOR T HE ASSESSEE. THE LEARNED COUNSEL SUBMITTED THAT THE ASSESSEE IS NOT WILLING TO RAKE UP ARGUMENTS ON THE QUESTION WHETHER THERE WER E BOGUS PURCHASES AND SALES AND THERE WAS ANY UNDISCLOSED I NCOME TO THE EXTENT DETERMINED BY THE ASSESSING AUTHORITY, E TC. ALL THE CHARGES LEVELED AGAINST THE ASSESSEE ARE ACCEPTED/A DMITTED BY THE ASSESSEE IN GENERAL SENSE. BUT THE MAIN GRIEVA NCE OF THE LEARNED COUNSEL APPEARING FOR THE ASSESSEE IS THAT THE PROFIT DECLARED BY THE ASSESSEE IN THE DISPUTED BUSINESS W AS 2.5%, WHEREAS THE INCOME DETERMINED BY THE ASSESSING AUTH ORITY HAS MADE OUT A CASE OF EARNING 8.1% PROFIT. THE LEARNE D COUNSEL CONTENDED THAT THE RATE OF 8% IS TOO HIGH, AS THE A SSESSEE WAS CARRYING ON THE BUSINESS UNDER THE RIGOUR OF A SPEC IAL GOVERNMENT SCHEME AND THE ASSESSEE HAD TO INCUR A N UMBER OF EXPENSES IN ORDER TO OPERATE THE BUSINESS AND IN SU CH CIRCUMSTANCES, THE ASSESSING AUTHORITY HAS GROSSLY ERRED IN APPLYING THE PROFIT RATE APPLICABLE TO A BUSINESS C ARRIED ON IN A NORMAL SITUATION. - - IT(SS)A NO.82(MDS)/2006 6 11. SHRI K.RAMASAMY, THE LEARNED SENIOR SPECIAL PUBLIC PROSECUTOR APPEARING FOR THE UNION OF INDIA, CONTENDED THAT THE RATE OF PROFIT EMERGING OUT OF THE INCOME DETERMINED BY THE ASSESSING AUTHORITY IN THE IMPUGNED REMAND ASSE SSMENT IS ONLY REASONABLE. THE LEARNED SENIOR PUBLIC PROSECU TOR CONTENDED THAT EVERY CHARGE LEVELED AGAINST THE ASS ESSEE HAS BEEN PROVED AGAINST IT IN THE LIGHT OF THE EVIDENCE S AND MATERIALS COLLECTED BY THE REVENUE IN THE COURSE OF VARIOUS S EARCHES CARRIED OUT IN THE PREMISES OF CONNECTED PARTIES. THE LEARNED PUBLIC PROSECUTOR CONTENDED THAT THIS IS NOT A BUSI NESS CARRIED ON BY THE ASSESSEE IN THE NORMAL COURSE, INCURRING NORMAL AND USUAL EXPENDITURE IN CARRYING ON OF THE BUSINESS. THIS IS NOT A BUSINESS WHICH WAS CARRIED ON BY THE ASSESSEE BY FO LLOWING ALL THE APPLICABLE STATUTES AND RULES AND PAYING ANY SA LES-TAX TO THE STATE GOVERNMENT. ALL THE TRANSACTIONS WERE PART A ND PARCEL OF THE SCANDAL WHICH TORPEDOED THE SCHEME FRAMED BY TH E STATE GOVERNMENT FOR HELPING THE POOREST OF THE POOR IN T HE SOCIETY. THEREFORE, THERE IS NO REASON TO ACCEPT THE CONTENT ION OF THE ASSESSEE THAT THE RATE OF 8% ADOPTED BY THE ASSESSI NG AUTHORITY AS PROFIT IS EXCESSIVE OR UNREASONABLE. - - IT(SS)A NO.82(MDS)/2006 7 12. HAVING HEARD BOTH SIDES IN DETAIL AND ON PERUS ING THE MATERIALS AVAILABLE ON RECORD, WE FIND THAT THE ASSESSING AUTHORITY HAS COMPLETED THE IMPUGNED REMAND ASSESSM ENT IN A FAIR MANNER. WE NEED NOT REPEAT THE DEFECTS POINTE D OUT BY THE REVENUE AGAINST THE BUSINESS CARRIED ON BY THE ASSE SSEE. WE NEED NOT AGAIN DETAIL THE CIRCUMSTANCES IN WHICH TH E ASSESSEE WAS CORNERED TO ANSWER FOR THE CHARGE OF UNDISCLOSE D INCOME. ALL THE FACTUAL MATRIX HAVING BEEN PROVED AGAINST T HE ASSESSEE, THE ONLY QUESTION, AS RIGHTLY ADVANCED BY THE LEARN ED COUNSEL FOR THE ASSESSEE, IS WHETHER THE ADDITIONAL INCOME DETE RMINED BY THE ASSESSING AUTHORITY IS REASONABLE OR EXCESSIVE. 13. AS ARGUED BY THE LEARNED SENIOR SPECIAL PUBLIC PROSECUTOR, THE TRANSACTIONS OF THE ASSESSEE WERE C LANDESTINE IN NATURE, INVOLVING ALL SORTS OF SUPPRESSION. IT WAS ALMOST IN THE NATURE OF AN UNLAWFUL BUSINESS. IN SUCH CIRCUMSTAN CES IT IS NOT POSSIBLE TO COMPARE THE CASE OF THE ASSESSEE TO THA T OF A BUSINESS CARRIED ON IN NORMAL CIRCUMSTANCES. THE P ROFIT RATE OF 2.5% DISCLOSED BY THE ASSESSEE MIGHT BE SOMETIMES A CCEPTABLE TO A WHOLESALE DEALER CARRYING ON THE BUSINESS IN A LAWFUL MANNER. THAT ITSELF, WE DO NOT ENDORSE AS A FINDIN G OF FACT. IT - - IT(SS)A NO.82(MDS)/2006 8 DEPENDS ON VARIOUS FACTORS INCLUDING THE CREDIBILIT Y OF ACCOUNTS MAINTAINED BY THE ASSESSEE. IN THE PRESENT CASE TH ERE IS NO SUCH CREDIBILITY TO THE WORKING RESULTS DECLARED BY THE ASSESSEE. THE ASSESSING AUTHORITY HAS FAIRLY ADMITTED IN THE REMAND ASSESSMENT ORDER THAT THE EARLIER PROFIT RATE OF 12 0% ADOPTED IN THE ORIGINAL ASSESSMENT WAS DEFINITELY EXCESSIVE, E SPECIALLY IN THE SALE OF UNIFORM CLOTHES. THEREFORE, THE ASSESS ING AUTHORITY WAS GOOD ENOUGH TO REDUCE SUCH EXORBITANT RATE OF P ROFIT TO A LARGE EXTENT. THE ORIGINAL INCOME DETERMINED IN TH E CASE WAS ` 9,25,51,290/-. IN THE REMAND ASSESSMENT ORDER, TH E ASSESSING AUTHORITY HAS GRANTED A DEDUCTION OF ONE THIRD OF T HE ABOVE AMOUNT BY WAY OF EXPENDITURE. THE REMAINING INCOME DETERMINED IS ` 6,17,00,860/-. THE ABOVE INCOME DETERMINED BY THE ASSESSING AUTHORITY IN THE REMAND ASSESSMENT WO RKS OUT TO A PROFIT RATE OF 8%. 14. THIS PERCENTAGE OF 8% MAY NOT BE UNREASONABLE IN A CASE WHERE THE ASSESSEE WAS DEALING IN GENERAL TE XTILES. BUT IN THE PRESENT CASE, THE ASSESSEE HAS BEEN MAINLY D EALING IN SUPPLYING UNIFORM CLOTHES UNDER A GOVERNMENT SCHEME . THE RATE OF PROFIT USUALLY AVAILABLE IN THE CASE OF UNI FORM CLOTHES - - IT(SS)A NO.82(MDS)/2006 9 WOULD BE LESS, COMPARED TO OTHER GENERAL ITEMS. WH EN THIS PARTICULAR FACTOR IS TAKEN INTO CONSIDERATION, WE F IND THAT THE RATE OF PROFIT DETERMINED AT 8% BY THE ASSESSING AUTHORI TY IS LITTLE EXCESSIVE. THEREFORE, IN ALL FAIRNESS, WE MODIFY T HE RATE OF PROFIT TO 5%. THIS MUCH RELIEF IS GRANTED IN THE PRESENT APPEAL. 15. IN RESULT THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT AT THE TIME OF HEARING ON WEDNESDAY, THE 21 ST OF SEPTEMBER, 2011 AT CHENNAI. SD/- SD/- (HARI OM MARATHA) (DR. O.K.NARAYANAN) JUDICIAL MEMBER VICE-PRESIDENT CHENNAI, DATED THE 21 ST SEPTEMBER, 2011. V.A.P. COPY TO: (1) APPELLANT (2) RESPONDENT (3) CIT (4) CIT(A) (5) D.R. (6) G.F.