ACIT, Trivandrum V. Shri P.P. Jose (late) By L/H Sunny P. Jose, Trivandrum

ITSSA 93/COCH/2004

• Counselvise Citation: [2012] 121 COUNSELVISE.COM (IT) 8516 (ITAT-COCHIN)
• Duration Of Justice: 8 year(s) 15 day(s)
• Appeal Type: Income Tax (Search & Seizure) Appeal
• Pronouncement Date: 12-10-2012
• Appeal Filed By: Department
• Bench Allotted: DB
• Next Hearing Date: 21-08-2012
• Assessment Year: misc
• Appeal Filed On: 27-09-2004
• Court: TRIBUNAL
• Keywords: Block assessment

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL COCHIN BENCH, COCHIN BEFORE S/SHRI N.R.S.GANESAN, JM AND B.R.BASKAR AN, AM IT(SS)A NO. 93/COCH/2004 BLOCK PERIOD: 01-04-1989 TO 23-12-1999 THE ASSISTANT COMMISSIONER OF INCOME-TAX, CENTRAL CIRCLE, TRIVANDRUM. VS. SHRI (LATE) P.P. JOSE, REP. BY LEGAL HEIR SHRI SUNNY P. JOSE, ALAPPAT JEWELLERS, RAJADHANI BUILDING, FORT, TRIVANDRUM. [PAN:AENPP 2175C] (REVENUE-APPELLANT) (ASSESSEE - RESPONDENT) REVENUE BY SMT. A.S.BINDHU, SR. DR ASSESSEE BY SHRI C.B.M. WARRIER, CA DATE OF HEARING 21/08/2012 DATE OF PRONOUNCEMENT 12/10/2012 O R D E R PER B.R.BASKARAN, ACCOUNTANT MEMBER: THE APPEAL OF THE REVENUE IS DIRECTED AGAINST THE ORDER DATED 22.06.2004 PASSED BY LD CIT(A)-I, KOCHI AND IT RELATES TO THE BLOCK PERIOD ENDING 23.12.1999. THE CROSS APPEALS FILED BY BOTH THE PA RTIES IN THIS CASE WERE ORIGINALLY DISPOSED OF BY THE CO-ORDINATE BENCH IN IT(SS)A NO.31/COCH/2003 AND IT(SS)A NO.32/COCH/2003 IN FEBRUARY, 2004. THE ASS ESSING OFFICER PASSED THE CONSEQUENTIAL ORDER ON 26-04-2004 TO GIVE EFFECT TO THE ORDERS OF THE TRIBUNAL. THE ASSESSEE WAS AGGRIEVED BY THE SAID ORDER AND HE NCE PREFERRED APPEAL BEFORE LD CIT(A), WHO PARTLY ALLOWED THE APPEAL OF THE ASS ESSEE. AGGRIEVED BY THE RELIEF GRANTED BY LD CIT(A), THE REVENUE IS IN APPE AL BEFORE US. 2. FOLLOWING TWO ISSUES ARE CONTESTED IN THIS A PPEAL BY THE REVENUE:- IT(SS)A NO. 93/COCH/2004 2 (A) WHETHER THE LD CIT(A) IS CORRECT IN HOLDING TH AT THE TRIBUNAL HAS DIRECTED THE AO TO COMPUTE THE INCOME FROM SUPPRESS ED SALES BY APPLYING THE GROSS PROFIT RATIO ON THE SUPPRESSED SALES. (B) WHETHER THE LD CIT(A) IS CORRECT IN HOLDING TH AT THE TRIBUNAL HAS HELD THAT THE INCOME OF RS.50.00 LAKHS DECLARED UNDER VD IS SCHEME IS LIABLE TO BE DEDUCTED FROM THE UNDISCLOSED INCOME. 3. THE DECISION ON THE FIRST ISSUE WAS RENDERED BY THE TRIBUNAL IN PARAGRAPHS 21B TO 23 OF ITS ORDER. THE TRIBUNAL HAS FOLLOWED THE METHODOLOGY GIVEN BY THE HONBLE ANDHRA PRADESH HIGH COURT IN THE CASE OF RA JNIK & CO. (251 ITR 561). IN PARAGRAPH 21B, THOUGH IT IS MENTIONED THAT THE A DDITION IS TO BE WORKED OUT AT 6 TIMES OF THE SUPPRESSED SALES, HOWEVER, IN PARAGR APH 23, IT IS STATED THAT THE GROSS PROFIT AT 18.59% IS TO BE ADOPTED FOR THE BRO KEN PERIOD ALSO. THE COMBINED READING OF BOTH THE PARAGRAPHS VIS--VIS T HE DECISION RENDERED IN THE CASE OF RAJNIK & CO., SHOWS THAT THE AGGREGATE SUPP RESSED SALES IS TO BE COMPUTED AT 6 TIMES OF THE ACTUAL SUPPRESSION FOUND AND THE INCOME THERE FROM HAS TO BE COMPUTED BY APPLYING THE GROSS PROFIT RAT E OF 18.59%. HENCE, WE AGREE WITH THE DECISION RENDERED BY LD CIT(A) ON TH IS ISSUE. 4. WITH REGARD TO THE NEXT ISSUE, WE ARE UNA BLE TO AGREE WITH THE INTERPRETATION GIVEN BY LD CIT(A) ON THE ORDER OF T HE TRIBUNAL. THE AO DETERMINED THE UNDISCLOSED INCOME FROM SALES SUPPRE SSION FOR ALL THE ASSESSMENT YEARS FALLING IN THE BLOCK PERIOD BY ESTIMATING THE SUPPRESSED SALES AT THREE TIMES OF THE AVERAGE OF THE OPENING AND CLOSING STO CK (TERMED AS RUNNING STOCK) HELD BY THE ASSESSEE. THE AO NOTICED THAT THE ASSESSEE HAD DECLARED A SUM OF RS.50.00 LAKHS UNDER VDIS SCHEME IN THE YEAR 1997. SINCE THE AO HAS ESTIMATED THE SUPPRESSED INCOME FOR THE ENTIRE BLOC K PERIOD, THE AO HAS TAKEN THE VIEW THAT A PART OF SUCH SUPPRESSION HAD ALREAD Y BEEN DISCLOSED BY THE ASSESSEE UNDER VDIS SCHEME. ACCORDINGLY HE DEDUCTED THE INCOME DECLARED UNDER VDIS SCHEME FROM THE SALES SUPPRESSION ESTIMA TED BY HIM. THE LD CIT(A) ALSO FOLLOWED THE RUNNING STOCK METHOD, BUT HE CO MPUTED THE SUPPRESSED SALES IT(SS)A NO. 93/COCH/2004 3 AT 2 TIMES OF THE RUNNING STOCK. THUS THE LD CIT(A ) ALSO ESTIMATED THE SALES SUPPRESSION FOR ALL THE ASSESSMENT YEARS FALLING IN THE BLOCK PERIOD. ACCORDINGLY THE LD CIT(A) ALLOWED DEDUCTION OF RS.50.00 LAKHS F ROM THE COMPUTATION MADE BY HIM. 5. HOWEVER, BEFORE THE TRIBUNAL, THE REVENUE H AD RAISED A GROUND ON RS.50.00 LAKHS, I.E., WHETHER THE LD CIT(A) WAS RIG HT IN ALLOWING DEDUCTION OF THE SAID AMOUNT OF RS.50.00 LAKHS, FOR WHICH THE TRIBUN AL ANSWERED THAT THE LD CIT(A) WAS RIGHT IN ALLOWING DEDUCTION. IT IS PERT INENT TO NOTE THAT THE AO AND THE LD CIT(A) HAD ADOPTED IDENTICAL METHOD TO DETER MINE THE SUPPRESSED SALES, I.E., TAKING THE AVERAGE OF OPENING AND CLOSING STO CK (RUNNING STOCK) AS THE BASE. WHILE THE AO ESTIMATED THE SALES AT 3 TIMES OF THE RUNNING STOCK, THE LD CIT(A) ADOPTED TWO TIMES OF THE RUNNING STOCK. HENCE, TH E DECISION RENDERED BY THE TRIBUNAL ON THE AMOUNT OF RS.50.00 LAKHS WAS IN THE CONTEXT OF THE METHODOLOGY ADOPTED BY LD CIT(A), AS STATED ABOVE. 6. HOWEVER THE TRIBUNAL HAS TOTALLY CHANGED THE METHODOLOGY FOR COMPUTING THE INCOME FROM SALES SUPPRESSION, I.E., AS STATED EARLIER, THE TRIBUNAL, BY FOLLOWING THE DECISION RENDERED IN THE CASE OF M/S RAJNIK & CO., HELD THAT THE AGGREGATE SALES SUPPRESSION SHOULD BE COMPUTED AT S IX TIMES OF THE ACTUAL SUPPRESSION ON WHICH THE GROSS PROFIT RATE OF 18.59 % IS TO BE APPLIED IN ORDER TO ARRIVE AT THE UNDISCLOSED INCOME. THUS THE SUPPRES SED SALES WAS ORDERED TO BE COMPUTED ON THE BASIS OF ACTUAL SUPPRESSION FOUND A ND NOT ON THE BASIS OF RUNNING STOCK, AS ADOPTED BY THE LOWER AUTHORITIES. WHEN THE SUPPRESSION IS ESTIMATED ON THE BASIS OF SPECIFIC MATERIALS, IN OU R VIEW, THE DECLARATION OF INCOME, IF ANY, MADE IN THE EARLIER YEARS UNDER VDI S SCHEME OR OTHERWISE WILL NOT HAVE ANY EFFECT. IT IS ALSO WELL SETTLED PRINC IPLE THAT THE BLOCK ASSESSMENT PROCEEDING IS A SEPARATE CODE BY ITSELF AND IT RUNS PARALLEL TO THE REGULAR ASSESSMENT PROCEEDING. IN THE INSTANT CASE, SPECIF IC INSTANCES OF UNACCOUNTED SALES WERE UNEARTHED BY THE SEARCH OFFICIALS AND IN ORDER TO TAKE CARE OF POSSIBLE IT(SS)A NO. 93/COCH/2004 4 FURTHER OMISSIONS, THE TRIBUNAL ORDERED FOR TAKING THE AGGREGATE SALES SUPPRESSION AT SIX TIMES OF THE ACTUAL SUPPRESSION FOUND. IN THE CONSEQUENTIAL ORDER DATED 26-04-2004, THE COMPUTATION OF AGGREGAT E SUPPRESSION OF SALES IS WORKED OUT BY THE AO AT RS.23,01,709/-, ON WHICH TH E GROSS PROFIT RATE OF 18.59% IS TO BE APPLIED TO DETERMINE THE UNDISCLOS ED INCOME. HENCE, IN OUR VIEW, IT WOULD NOT BE CORRECT TO SAY THAT THE AMOU NT OF RS.50.00 LAKHS DECLARED UNDER VDIS SCHEME OR DECLARED IN ANY OTHER MANNER W OULD TAKE CARE OF THE ABOVE UNDISCLOSED INCOME, SIMPLY FOR THE REASON T HAT SUCH A DECISION WOULD DEFY THE VERY OBJECTIVE OF THE BLOCK ASSESSMENT PRO CEEDING. THE QUESTION OF DEDUCTION OF THOSE AMOUNT WOULD HAVE ARISEN ONLY IF THE TRIBUNAL HAD UPHELD THE METHODOLOGY ADOPTED BY LD CIT(A). SINCE, THE TRIBU NAL HAD CHANGED THE METHOD OF COMPUTATION OF SUPPRESSED SALES AND ALSO THE METHOD OF COMPUTATION OF INCOME FROM SUCH SUPPRESSED SALES, THE INCOME SO COMPUTED IS TO BE TAKEN AS THE UNDISCLOSED INCOME OF THE ASSESSEE AND NO DEDUC TION NEED TO BE GIVEN FOR ANY DECLARATION MADE IN THE REGULAR ASSESSMENT PROC EEDINGS. ACCORDINGLY, WE SET ASIDE THE ORDER OF LD CIT(A) ON THIS ISSUE. 7. IN THE RESULT, THE APPEAL OF THE REVENUE IS PARTLY ALLOWED. PRONOUNCED ACCORDINGLY ON 1 2-10-2012. SD/- SD/- (N.R.S.GANESAN) (B.R.BASKARAN) JUDICIAL MEMBER ACCOUNTANT MEMBER PLACE: KOCHI DATED: 12TH OCTOBER, 2012 GJ COPY TO: 1. SHRI (LATE) P.P. JOSE, REP. BY LEGAL HEIR SHRI S UNNY P. JOSE, ALAPPAT JEWELLERS, RAJADHANI BUILDING, FORT, TRIVANDRUM. IT(SS)A NO. 93/COCH/2004 5 2. THE ASSISTANT COMMISSIONER OF INCOME-TAX, CENTRA L CIRCLE, TRIVANDRUM. 3. THE COMMISSIONER OF INCOME-TAX (APPEALS)-I, KOCH I. 4. THE COMMISSIONER OF INCOME-TAX, CENTRAL KOCHI 5. D.R., I.T.A.T., COCHIN BENCH, COCHIN. 6. GUARD FILE. BY ORDER (ASSISTANT REGISTRAR) I.T.A.T, COCHIN