Vijay Raj Sethai, S/o Jawarilal Sethai V. The Asst. Commissioner of Income Tax, Central Circle 5, Sakkar Bhavan

ITTA/402/2006

AI Insights

The case involves Vijay Raj Sethai, the appellant, who was engaged in the clandestine purchase and sale of N-Flexane oil for adulteration with petrol. Following a search and seizure operation, undisclosed income was admitted by the appellant, which was deemed understated by the assessing officer. The assessing officer estimated the profit from these activities at 15% of turnover, which was contested by the appellant. The Commissioner of Income Tax (Appeals) reduced the profit rate to 8.25% based on a comparable case, but this was reversed by the Tribunal, which restored the assessing officer's original assessment. The High Court upheld the Tribunal's decision, dismissing the appeal.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 819439 (HC-TELANGANA)
• Appeal Type: Others
• Pronouncement Date: 07-06-2023
• Assessment Year: misc
• Other Referred Cases: P.Koteswara Rao case
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Revenue
• Court: HIGH COURT
• Department Lawyers: K CHOUDARY
• Assessee Lawyers: CHALLA GUNARAJAN
• Keywords: Block assessment; Illegal trade; Income Tax; Profit Rate; Undisclosed income
• Section: 143(3); 132; 158BC; 260-A

Judgement Text

"I t I [ 3311 ] IN THE HIGH COURT FOR THE STATE OF TELANGANA AT HYDERABAD WEDNESDAY THE SEVENTH DAY OF JUNE TWO THOUSAND AND TWENTY THREE PRESENT THE HONOURABLE THE CHIEF JUSTICE UJJAL.BHUYAN AND .THE HONOURABLE SRI JUSTICE N.TUKARAMJI INCOME TAX TRIBUNAL APPEAL NO: 402 OF 2006 (lncome Tax Tribunal Appeal Under Section 260-A of the lncome tax Rct td6t, against the order of the lncome Tax Appellate Tribunal, Hyderabad Bench'B', Hyderabad in |T(S.S.) A.No., 1o8iHydetabadl2013, (Block period 1991-92 to 2001- 02) dated 27 -02-200, preferred against the Order of the Commissioner of lncome Tax(Appeals) - I Hyderabad, in Appeal No.0413/CC-5, Hyd; CIT(A)-1I02-03, dated I 2q06-2003, preferred against the Order of the Asslstant Commissioner of lncome Tax Central Circle-S, Hyderabad, PAN/GlR No.AASPJ9744QN-7O41CC-5, dated 29- 11-2022) Between: Vijay Raj Sethai, S/o Jawarilal Sethai, Rl/o PIot No.60, Temple Rock Enclave,. Tadbund, Secunderabad. ..APPELLANT AND ,The Asst. Commissioner of lncome Tax, Central Circle 5, Sakkar Bhavan, ...RESPONDENT Counsel for the Appellant: Mr. CHALLA GUNARANJAN Coursel for the Respondent: Ms. K. MAMATA CHoUDARY Senior S.C. for lncome Tax Department The Court made the following JUDGMENT: 1 1 L ,l THE HON'BLE THE CHIEF IUSTICE UIIAI BH{JYAN AND THE HON'BLE S.B I IU STIEEALTUKARAM I I I.T.T.A.No, 402 of 2006 UDGMENT, r]', r /,,e Hon'bts the ChicJ.ln.ti L'ja/ Bhryat) Fleard Mr. Challa GLurarunjan, leamed counsel for rhe appellant and tr4s. K.IMamata Choudary, leamed Senior Standing C.ounsel, Income Tax Department forthe respondent. 2. This appeal has been preferred bythe assessee as rhe appellanr under Section 260A of the Income Tax Act, 1961 (briefly'the Act' hereinafter) against the order dated 27.02.2006 passed by the Income Tax Appellate fHbunal, Hyderabad Bench 'B', Hyderabad (bnefly 'the Tribunal' hereinafter) in I.T.(S.S)ANo.108/H1dI2003 for the block period 199l-1992 to 2a0L-2002. 3. Though this appeal was admitted on 13.10.2006, no substantial questions of law were framed. Flowever, we find that in the memo of appeal, appellant has proposed the following quesrions as substantial questions of law: 1. Xlhether on rhe fac$ and in the circumstances of the case, the /^\"thod adoprcd for arriving the profit and income is not perverse andvrhimsical ? ). re 14 2 2. Xihether on the faca and in the circumstances of the case, the order of the Income Ta.x Appellate Tribunal is pen'erse, artitrary without any basis, illegal and a prcjudicial one ? 3. Xr'hether on the facu and in the circumstances of the case, when comparable cases disclosing a profit rate of 5o/o and even less are relied by the appellant before the assessing officer and more panicularly the case of P.Koteshwar Rao in similar i.llegal trade, the Appellate Tribunal ignoring them could hold arbitrarily and without any basis that the profit rate adopted by the assessing officer at 15\"/o 's fatr and right and whether such a finding, not based on any rnaterial or comparable cases, could be justified and not perverse ? 4. 'i{4rether on the facts and in the circumstances of the case, the finding of the Appellate Tribunal that the asssessing officer was not only corsiderate but also conservati*'e in esdmating the profit at l5o/o is based on any material evidence or comparable cases vrhen assessing officer himself does not rely on any comparable cases to estimate profit at l5o/o and whether such finding is i[ega], artitrary, without any basis and unjtrst ? 5. lXhether on the facts and in the circumsrances of the case, the Appellate Tribunal ignored the fact that if the peak credit of Rs.1,93,603/-, which is considered as undisclosed income in the assessment, is taken into account, the profit margin disclosed by the appellant would be much lower at 7o/o and as such the order of the Appellate Tribunal is arbitnry, illegal and not based on the material on reconC ? ;:l J 4. Appellant is an assessce under the Act having the status of an individLral. Search and seizltre opentiors under Section 132 of the Act werc canied out in the res idential as well as the business premises of the petitioner and another Person namely Sri Uttam Chand Sethia on 23-ll-20A0' In the course of the search and seizure operation, it came to light that appellant was indulging in clandestine business activity in purchase and sale of N-Flexane oil for the purpose of adulteration with petrol at petrol bunks' Funher' unaccounted cash amounting to Rs'4,16'600'00 was seized' 5. Foliowing the search and seizure oPeration' block assessment proceedings were initiated by the assessing officer for the block period lglt-t992 ttpro 2OOL-2a02 (upto the date of search) under Section 143(3) r/w Section 1588C of the Act' fusessing Officer noted that on rhe date o[ search, appellant had, in the sworn deposition, admirte.l undisclosed income of Rs'10 lakhs from such clandestine activity. In a subsequent deposition recorded on the same day i.e., on 23.fi.2A00, he stated that he had undisclosed income of Rs.7O lakhs. Subsequently, by way of a lemer dated D.aL.2001, rppellant quntified his undisclosed income at 4 Rs.11,01,570.00. However, while filing rerum for the block period, appellant admimed undisclosed income ar lts. I O,g 1,000. OO. 6. In the course of the assessment proceedings, assessing officer opined that income admiued by the appellanr was too low to be accepted. According to the assessing officer, appellant would not have undertaken or would nor have been involved in such a clandestine business for a paltry profit knowing fully well the consequences in the event of detection. Assessing officer ride the assessmenr order dated 29.11.2002 reworked rhe rumover by taking into account a margin of 5o/o on the purchases. fu a result, the tumover worked out to Rs.1,45,45,g6j.00. fusessing officer funher opined that it would be prudent to adopt profit rate at 15% which worked out to Rs.21,96,g79.00. Accordingly, the aforesaid amount was added to the income of the appellant. 7. In appeal before the C-ommissioner of Income Tax (App.\"b)-I, Hyderabad ftriefly .C[T(A), hereinafter), the fint appellate authoity uitle the order dated,23.O6.2OOJ took the view that rate of l5o/o adopted bythe assessing officer was on the higher side. '#ra H .4, 5 OT(A) accepred rhe argunrt.nt of the appellant rhar no purchaser would pay higher price lor ,r commodiry sold outside rhe regr_rlar books of accounr when he cr,uld get the same commodiry at lower price in open mar.ket. Acconling to CT(A), the profit rate should 6e 8.25o/o on rht. rumover as was applied in the case of one Sri P.Koteswara Rao. Accordingly, the assessment order was modified by the fint appelJare aurhoriry by working our rhe undisclosed incomt, ar Rs.15,g5,_569.00 instead of Rs.25,g0,4g3.00 bv aPplymg the profit rute at g.25o/o. 8. Aggrieved by the aforesaicl order of OT(A), both appellant as well as revenue preferred appeals before the Tribunal. 8.1. Tribunal by the order dated 27.02.2006 set aside the order of OT(A) and restored the order ol- the assessing officer thus ailowing the appeal of rhe revcnue and dismissing the appeal of the appellant. Relevant ponion of rhe order of the Tribunal dated 27.02.2006 reads l as under: The assessee adrnimeclly is indulging in the illegal trade of a product Inown as N_Hexane, whrch s ,lsed fo. \"drlt.ratrng petrol at petrol bunl