2010 (8) TMI 986 - AT - Income Tax

Summary

Issues Involved:
1. Validity of reliance on materials found during the search operation.
2. Relevance of statements recorded u/s 132(4).
3. Estimation of profit based on seized materials.

Summary:

1. Validity of reliance on materials found during the search operation:
The learned counsel for the assessees argued that the incriminating material seized during the search operation u/s 132 of the Income Tax Act, 1961, does not relate to the present assessees. The counsel contended that the materials found may relate to third parties who leased the premises from the assessees. The Tribunal noted that u/s 153A, the Assessing Officer (AO) is not confined to materials found during the search operation alone. The AO can rely on all materials available on file, including those found during the search, for framing the assessment order. The Tribunal emphasized that the AO must establish how the seized materials relate to the assessees and their suppressed sales.

2. Relevance of statements recorded u/s 132(4):
The counsel for the assessees argued that the statements obtained by the revenue authorities were not from the partners of the assessee firms and that Md. Riyasuddin, who made the statement, had retired in 2002. The counsel further stated that the retracted statement should not be relied upon. The departmental representative countered that the statements made by partners during the search operation admitted suppression of turnover. The Tribunal held that statements recorded u/s 132(4) can be a basis for assessment if they disclose the earning of income by the assessees. The AO must examine all statements and materials to determine if the assessees earned income outside the books of account.

3. Estimation of profit based on seized materials:
The counsel for the assessees argued that the estimation of profit at 35% of the estimated turnover was arbitrary and excessive, noting that the net profit for the relevant years was significantly lower. The Tribunal observed that the AO must consider all material facts, such as the profit of the assessee for earlier years, the profit of similarly placed traders, availability of raw materials, laborers, and market demand, before estimating the profit rate. The Tribunal set aside the lower authorities' orders and remanded the matter to the AO for reconsideration, instructing the AO to provide a reasonable opportunity for the assessees to explain the seized materials and to decide the issue in accordance with the law.

Conclusion:
The Tribunal remanded the matter to the AO for fresh consideration, emphasizing the need for a fair opportunity for the assessees to explain the seized materials and for the AO to base the assessment on all relevant materials and facts. The appeals were allowed for statistical purposes.