2011 (8) TMI 658 - HC - Income Tax

Unaccounted sale outside the territory - determination of sale price - So far as the sale price of unaccounted arrack outside the assessee s own territory is concerned the Tribunal has fixed the same at Rs. 1.60 Ps. plus Excise duty of Rs. 2 per sachet. The assessee has admitted that he has not included the Excise duty in the sale price. Having regard to the fact that the assessee cannot sell arrack directly to the consumers outside his own territory and the same has to be sold to the contractors outside his own territory the sale price taken by the Tribunal at Rs. 1.60 Ps. per sachet plus excise duty of Rs. 2 per sachet cannot at all be said to be arbitrary or perverse. - the said finding of the Tribunal is justified and does not suffer from any arbitrariness or perversity - Decided against the assessee. Set off of claim - The assessee claimed that he is entitled to set off of the undisclosed income computed in respect of unaccounted sale of arrack against the income shown as miscellaneous income for the assessment year 2001-02 amounting to Rs. 8, 76, 75, 000 and during the block period he had assigned miscellaneous income amounting to Rs. 37, 34, 44, 099 for the assessment years 1989-90 to 2001-02. - Tribunal has arrived at the finding that the assessee is entitled to set off of Rs. 6, 00, 00, 000 against the undisclosed income from arrack business for the year 2001-02 and also for the block period - held that - The said reasoning of the Tribunal is clearly erroneous and cogent and consistent reasons had been given by the Assessing Officer and the appellate authority for rejecting the said claim of the assessee for set off. Therefore the benefit of set off given to the assessee by the Tribunal cannot at all be sustained and the same is liable to be set aside as it is perverse and arbitrary - Decided in favor of revenue. Inclusion of Excise duty in the sale price of sachet as also the levy of surcharge - held that - the inclusion of the said Excise Duty is unassailable and levy of surcharge and interest is also justified in view of the decision of the Hon ble Supreme Court in Rajiv Bhatara s case (2009 -TMI - 32440 - SUPREME COURT) wherein it is held that in search and seizure proceedings in respect of block assessment levy of surcharge even without the proviso to section 113 inserted vide Finance Act 2002 with effect from 1-6-2002 is justified and the proviso to section 113 is clarificatory in nature. - Decided in favor of revenue.

Summary

Issues Involved:
1. Estimation of profits from the sale of manufactured liquor.
2. Inclusion of excise duty in the sale price.
3. Set off of undisclosed income against miscellaneous receipts.
4. Levy of surcharge and interest.

Detailed Analysis:

1. Estimation of Profits from the Sale of Manufactured Liquor:
The Tribunal had to determine the appropriate sale price per sachet of unaccounted arrack. The Assessing Officer (AO) initially set this price at Rs. 12 per sachet, based on the maximum rate prescribed by M/s. Mysore Sales International Limited (MSIL). However, the Tribunal adjusted this, setting the price at Rs. 9 per sachet for sales within the assessee's own territory and Rs. 1.60 plus excise duty for sales outside the territory. The Tribunal's decision was based on the notification from the Excise Department, which fixed the sale price of arrack at Rs. 8.50 per sachet, and the rates at which MSIL and other contractors sold arrack. The High Court upheld the Tribunal's determination, finding it neither arbitrary nor perverse.

2. Inclusion of Excise Duty in the Sale Price:
The Tribunal included an additional Rs. 2 per sachet for excise duty in the sale price of unaccounted arrack sold outside the assessee's territory. The High Court confirmed this inclusion, noting that the assessee himself admitted to not including the excise duty in the sale price. The inclusion of excise duty was deemed unassailable by the High Court.

3. Set Off of Undisclosed Income Against Miscellaneous Receipts:
The assessee claimed a set off of Rs. 6,00,00,000 against the undisclosed income from the unaccounted sale of arrack, arguing that this amount was part of the miscellaneous receipts shown in the regular returns. The AO and the appellate authority rejected this claim, citing a lack of evidence linking the miscellaneous receipts to the unaccounted sale of arrack. The Tribunal, however, allowed the set off, referencing a similar case where proceedings were dropped under section 263 of the Act. The High Court found the Tribunal's reasoning erroneous and reinstated the AO's and appellate authority's decision, denying the set off due to insufficient evidence provided by the assessee.

4. Levy of Surcharge and Interest:
The Tribunal initially directed the AO to reconsider the issue of interest under section 158BFA after giving effect to its order. The High Court, referencing the Supreme Court's decision in CIT v. Rajiv Bhatara, upheld the levy of surcharge and interest, noting that the assessee had not disclosed the income from the unaccounted sale of arrack. The High Court clarified that the levy of surcharge would be subject to the decision of the Larger Bench of the Supreme Court, to which the matter had been referred.

Conclusion:
The High Court allowed the Revenue's appeal in part and dismissed the assessee's appeal. It confirmed the Tribunal's determination of the sale price of unaccounted arrack but set aside the Tribunal's allowance of the set off. The inclusion of excise duty in the sale price and the levy of interest and surcharge were upheld, with the surcharge subject to the Larger Bench decision of the Supreme Court.