P L TONY,KERALA V. DCIT, CENTRAL CIRCLE, THRISSUR

ITA 857/COCH/2022

AI Insights

The case involves P.L. Tony, an individual engaged in the jewellery business, who faced additional income assessments for the Assessment Years 2012-13 to 2014-15 and 2016-17 following search and seizure operations. The AO estimated the appellant's turnover and profits based on seized materials and extrapolated data from 44 days to the entire year, which the CIT(A) partially upheld but reduced the profit estimation from 20% to 12%. The Tribunal found the estimation method flawed, lacking a direct nexus with the material found, and restored the matter to the CIT(A) for a fresh assessment.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 315981 (ITAT-COCHIN)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-05-2025
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: DB
• Assessment Year: 2012-2013
• Other Referred Cases: CIT v. Abhisar Buildwell P. Ltd. [2023] 454 ITR 212
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: SANJIT KUMAR DAS
• Assessee Lawyers: C.B.M. WARRIER
• Keywords: Revised return; Search and seizure
• Section: 144; 143(3); 132; 153A

Judgement Text

"IN THE INCOME TAX APPELLATE TRIBUNAL COCHIN BENCH BEFORE SHRI INTURI RAMA RAO, AM AND SHRI SANDEEP SINGH KARHAIL, JM ITA Nos. 857 to 860/Coch/2022 Assessment Years: 2012-13 to 2014-15 & 2016-17 P.L. Tony .......... Appellant Panthalloorkaran House, Kodakara P.O. Thrissur 680684 [PAN: ABRPT6055E] vs. DCIT, Central Circle, Thrissur .......... Respondent Appellant by: Shri C.B.M. Warrier, CA Respondent by: Shri Sanjit Kumar Das, CIT-DR Date of Hearing: 24.03.2025 Date of Pronouncement: 14.05.2025 O R D E R Per: Inturi Rama Rao, AM These appeals filed by the assessee are directed against the orders of the Commissioner of Income Tax (Appeals)-3, Kochi [CIT(A)], dated 29.06.2022 for Assessment Years (AY) 2012-13 to 2014-15 and 2016-17. 2. Since identical issues are involved in these appeals, they are heard together and disposed of by this common order. For the sake of convenience and clarity the facts relevant to the appeal bearing ITA No. 860/Coch/2022 for AY 2016-17 are stated herein. 2 ITA Nos. 857 to 860/Coch/2022 P.L. Tony 3. Brief facts of the case are that the appellant is an individual engaged in the business of dealing in jewellery business in the name and style of M/s. Panthalookaran Jewellery. The appellant has been filing regular returns of income u/s. 139(1) of the Income Tax Act, 1961 (the Act). Search and seizure operations u/s. 132 of the Act were conducted in the residential premises of the appellant on 23.02.2016 and survey proceedings were conducted in the business premises of the appellant. During the course of survey at the business premises it was stated that certain incriminating material showing suppression of actual turnover was found. A statement of the appellant was recorded u/s. 132(4) of the Act during the course of search, wherein it was stated that the appellant admitted suppression of sales to the extent of 80% by disclosing only 20% of the actual turnover. Based on this information and incriminating material the AO issued notices u/s. 153A of the Act for AY 2010-11 to 2015-16, the assessment year AY 2016-17 being the year of search, but stood abated assessment year no notice u/s. 153A was issued. In response to the notice u/s. 153A the appellant had filed returns of income for AYs 2010-11 to 2015-16 disclosing additional income. The following chart depicts the position of the original returns of income and the returns filed in response to notice u/s. 153A of the Act: - 3 ITA Nos. 857 to 860/Coch/2022 P.L. Tony AY Date of filing original return of income Income returned originally Date of issue of notice u/s. 153A Date of filing return of income in response to notice Income returned as per revised return 2010-11 01.20.2010 29,66,740 29.11.2016 19.12.2016 29,66,740 2011-12 30.09.2012 27,47,220 29.11.2016 19.12.2016 64,68,660 2012-13 30.09.2012 30,24,480 29.11.2016 17.12.2016 41,51,610 2013-14 30.09.2013 40,48,700 29.11.2016 17.12.2016 54,32,200 2014-15 31.10.2014 45,95,600 29.11.2016 17.12.2016 65,95,600 2015-16 29.09.2016 33,18,080 29.11.2016 17.12.2016 133,18,080 2016-17 12.10.2016 2,78,39,280 Nil NA 4. For AY 2016-17 the appellant had filed regular return of income on 12.10.2016 disclosing income of Rs. 2,78,39,280/-. Against the said return of income, the assessment was completed by the DCIT, Central Circle, Thrissur (hereinafter called \"the AO\") vide order dated 29.12.2017 passed u/s. 143(3) of the Act at a total income of Rs. 8,40,24,607/-. While doing so, the AO rejected the books of account and proceeded with estimation of turnover based on the seized material found as result of the search and seizure action at Rs. 31.49,45,109/-. The AO had arrived at the above figure of turnover by estimating the turnover shown for 44 days in the seized material and extrapolated the same for the whole year and estimated the gross profit at 20% of such estimates of sales. In the process made an addition of Rs. 3,54,28,423/-. The AO also made addition on account of income from workshop of Rs. 16,36,904/-. The AO made additions of Rs. 1,70,95,000/- on account of suppressed sales and Rs. 7,75,000/- on account of real estate business. The AO also made addition of Rs. 12,50,000/- on account of purchase of Ford Ecosport vehicle. 4 ITA Nos. 857 to 860/Coch/2022 P.L. Tony 5. Being aggrieved, an appeal was filed before the CIT(A), contending that the AO ought not have extrapolated the sales for the entire year based on the information contained in the seized diary notes for 44 days. It is further submitted that estimation of gross profit at 20% is unreasonable and excessive. However, the CIT(A), while reducing the percentage of gross profit from 20% to 12%, had upheld all other additions including estimating of turnover. 6. Being aggrieved, the appellant is in appeal before us in the present appeal. 7. The learned counsel for the assessee vehemently submits that no incriminating material was found as a result of search and seizure action u/s. 132 of the Act. Therefore, no addition can be made in the assessment made pursuant to the search and seizure action placing reliance of the decision of the Hon'ble Apex Court in the case of CIT v. Abhisar Buildwell P. Ltd. [2023] 454 ITR 212. He further contended that for extrapolation of turnover based on the material found for 44 days is not permissible in the absence of evidence to show that the appellant suppressed turnover for the whole year. Further he submits that estimation of turnover based on KVAT returns has no rationale, inasmuch as, KVAT returns have no direct nexus to the turnover as KVAT tax is paid both on purchases and sales. Further he submits that the statement recorded from the appellant about suppression of turnover is only in respect of 44 days, therefore, it cannot be presumed that the appellant suppressed 5 ITA Nos. 857 to 860/Coch/2022 P.L. Tony turnover for whole of the previous year. Finally he submits that adoption of 12% is excessive and unreasonable. It should be based on the comparables in the same line of business. 8. On the other hand, the ld. CIT-DR vehemently opposed the above submissions and submits that the AO as well as the CIT(A) have correctly estimated the turnover based on the statement given by the appellant u/s. 132(4) of the Act and also the material unearthed as a result of search and seizure action. Estimation of profit at 12% is reasonable and requires no interference by this Tribunal. 9. We have heard the rival contentions and perused the material available on record. The issue that arises for our determination is whether the AO as well as the CIT(A) were justified in estimating the turnover as well as the profits thereon. Undisputedly, during the course of survey operations in the business premises of the appellant pursuant to the search action in the residential premises of the appellant, certain diary notes regarding actual turnover for a period of 44 days were found. When this material was confronted with the appellant, the appellant had admitted that he had disclosed turnover only to the extent of 20% and thereby suppressing the actual turnover by 80%. Based on this information the AO proceeded to estimate the turnover by adopting the turnover shown in the KVAT returns as the base figure and multiplied the same by 5 times to arrive at the actual turnover and estimated the profit at 20% thereon, 6 ITA Nos. 857 to 860/Coch/2022 P.L. Tony however, on further appeal, the CIT(A) reduced it to 12%. It is settled position of law that even in the best judgement assessment u/s. 144 of the Act, while rejecting the books of account, no doubt, the AO is empowered to estimate the turnover and also estimate the net profit thereon but the estimation of turnover cannot be on subjective basis. The basis for adoption of turnover should have direct nexus with the material found. In this case, the AO only found the material for 44 days. No doubt, when the appellant was confronted with the seized material it appears that the appellant stated that he suppressed turnover to the extent of 80%. In our considered opinion the AO should have examined the books of account and bank statements and other relevant material to arrive at the true and correct turnover and there should be valid nexus for estimating the turnover. Further, mere estimation of the net profit should be based on the historical data or a comparable instance in the same line of business. In the circumstances we are of the considered opinion that the approach adopted by the AO as well as the CIT(A) is erroneous and cannot be sustained in the eyes of law. In order to meet the ends of justice we restore the matter to the file of the CIT(A) for de novo disposal in accordance with law after affording reasonable opportunity of hearing to the appellant. All other contentions raised before us by the appellant are kept opened before the CIT(A). 7 ITA Nos. 857 to 860/Coch/2022 P.L. Tony 10. In the result, the appeals filed by the assessee stand partly allowed. Order pronounced in the open court on 14th May, 2025. Sd/- Sd/- (SANDEEP SINGH KARHAIL) JUDICIAL MEMBER (INTURI RAMA RAO) ACCOUNTANT MEMBER Cochin, Dated: 14th May, 2025 n.p. Copy to: 1. The Appellant 2. The Respondent 3. The Pr. CIT concerned 4. The Sr. DR, ITAT, Cochin 5. Guard File Assistant Registrar ITAT, Cochin "