2010 (7) TMI 1046 - AT - Income Tax

Summary

Issues Involved:
1. Legality of computing undisclosed income under Section 153A based on materials found during the search operation.
2. Justification of additions made for assessment years without incriminating material.
3. Estimation of income for job work and suppression of sales.

Issue-wise Detailed Analysis:

1. Legality of Computing Undisclosed Income under Section 153A:
The primary contention was whether the Assessing Officer (AO) must confine to incriminating material found during the search operation for computing undisclosed income under Section 153A of the IT Act. The Tribunal examined the provisions of Section 153A, which mandates the AO to assess or reassess the total income of six assessment years preceding the search. The Tribunal noted that Section 153A, unlike Section 158BB(1), does not explicitly require the AO to limit the assessment to materials found during the search. The Tribunal concluded that the AO could rely on all available materials, not just those found in the search, for computing income under Section 153A. This interpretation aligns with the legislative intent to replace the procedure under Chapter XIV-B with Section 153A for searches conducted after 1st June 2003.

2. Justification of Additions for Years Without Incriminating Material:
For the assessment years 1999-2000 to 2003-04, the Tribunal found no material indicating suppression of job work receipts. The Tribunal emphasized that without any evidence, the AO cannot make additions and must accept the income returned by the assessee. However, for the assessment years 2004-05 and 2005-06, the Tribunal acknowledged the assessee's admission of suppressing job work receipts, justifying the AO's estimation of income for these years. The Tribunal directed the AO to restrict additions for the years 1999-2000 to 2003-04 to the extent of investments found during the search and to accept the returned income if it exceeded the investments.

3. Estimation of Income for Job Work and Suppression of Sales:
The Tribunal scrutinized the AO's estimation of profit at 5% for the job work business. It found this estimation unjustified without considering comparative cases, market demand, and the assessee's historical profit margins. The Tribunal directed the AO to estimate income at 4% instead of 5% for the assessment years 2004-05 and 2005-06, considering the totality of circumstances. For Vijay Anand Fabrics (P) Ltd., the Tribunal found no material supporting the addition of Rs. 25,66,909 for the assessment year 2004-05 and set aside the lower authorities' orders, as the material was relevant only for the assessment year 2005-06.

Conclusion:
The Tribunal partially allowed the appeals for the assessment years 1999-2000 to 2003-04 by restricting additions to the extent of investments found. It upheld the estimation of income for the assessment years 2004-05 and 2005-06 at a revised rate of 4%. The appeal for Vijay Anand Fabrics (P) Ltd. for the assessment year 2004-05 was allowed, setting aside the addition due to lack of supporting material.