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2013 (1) TMI 422 - AT - Income TaxSuppression of sales - additions u/s 68 - survey u/s 133A - assessee challenged the validity of initiation of proceedings u/s 153C - Held that - It is an undisputed fact that the Managing Director of the assessee company has confessed about the suppression of purchases and sales in the sworn statement taken u/s 132(4). Besides the above, the D.R has stated that the department has seized two documents belonging to the assessee company during the course of search, viz., OPA -19, which contained details of purchase of 7.46 acres of land and another one numbered as OPA-36, which contained details of sale of rubber by the assessee company. Hence, it cannot be said that the AO has initiated the proceedings u/s 153C of the Act on the basis of sworn statement only - assessee, in fact, did not retract from the statement given by him in the sworn statement. What is stated is a general statement that the correct position of facts shall be known on verification of various records. Hence, it cannot be said that the assessee has retracted from the statement given by him u/s 132(4) - AO was right in law in initiating proceedings u/s 153C - against assessee. Violation of principles of natural justice by not confronting the documents obtained by the AO from the third parties - Held that - There cannot be any dispute that the appellate proceedings are also considered as continuation of assessment proceedings in certain aspects, particularly in view of the fact that the powers of the CIT(A) are co-terminus with that of the AO. Hence, the assessee should not have any grievance in this regard after the completion of appellate proceedings, as the first appellate authority has duly considered the views expressed by the assessee on the documents relied upon by the assessing officer. Accordingly, we do not find any merit in the grounds raised on this issue. Correctness of estimation of suppressed business income - Held that - CIT(A) concluded that the estimation of huge unaccounted turnover made by the AO was not supported by any specific evidence and hence the said estimates are not sustainable. AO had taken adverse views with regard to the discrepancies noticed by the Commercial taxes department & the power theft alleged by the Electricity board officials. The AO had adopted the basis of Power consumption factor supplied by the KSIDC, which was proved to be unreliable as the KSIDC is a financial institution and it processes the project reports submitted by the prospective borrowers. The power consumption factor submitted by the KSIDC is based on such project reports as the report has got the heading viz., NORMS AND ASSUMPTIONS UNDERLYING COST OF PRODUCTION which clearly shows that the Power consumption factor is an assumption/norm fixed by KSIDC for processing the project reports. There cannot be any dispute that the KSIDC, being a financial institution, cannot be considered as a technical expert and hence reliance placed by the AO on the said report, in our view, is totally wrong. By placing reliance on the deposition of sworn statement given by the Managing director Shri Ummer u/s 132(4) the CIT(A) estimated the actual turnover at 108% of the disclosed turnover. Profit to be estimated on the suppressed turnover - AO had adopted the Gross profit rate of 14.61% whereas assessee filed a revised workings according to which the Gross profit rate worked out to 9.73% - CIT(A) determined the suppressed sales at 8% of the disclosed turnover - - Held that - The admission made by the Managing director is an important piece of evidence. If the assessee had not indulged in such kind of trade practices, there would not have been any occasion for the Managing director to give a statement about the suppression of purchases and sales. Hence, in the facts and circumstances of the case, since the managing director himself has deposed that the sales suppression was to the tune of 8%, the CIT(A) was justified in determining the sales suppression at 8% of the total turnover, particularly in view of the fact that the department has not seized any material to make estimate of sales suppression in any other manner. There cannot be any dispute that the rate of gross profit depends upon various factors like purchase quantity/rate, sales quantity/rate, variation of rates, cost of manufacture and its variation etc.. A significant increase in the selling rate would boost the rate of gross profit. This point was exactly clarified by the assessee before the CIT(A) with regard to the variation of rate of Gross profit for the assessment year 2008-09. The workings given by the assessee disclosed the fact that the sharp rise in the selling rate of finished goods has helped in the increase of Gross profit rate for the assessment year 2008-09 by 6.02%. Accordingly, CIT(A) has given a specific finding that the effect of increase in prices in the year relevant to the assessment year 2008-09 is evened out, i.e., (9.73% (-) 6.02%), the gross profit rate for that year would work out to 3.71% only. Accordingly, CIT(A) has opined that the gross profit rate of 3.71% was comparable with the gross profit declared in some of the years. Having opined so, still the CIT(A) held that the fluctuation in the GP rate in various rates are unreasonable. Thus the said decision of the CIT(A) does not have any basis. Having understood that there might be various reasons for the fluctuation in the rate of G.P, thus Ld CIT(A) should not have come to such a conclusion. Thus order of CIT(A) on this issue is modified accordingly as it would be just and reasonable, if the Gross profit rate declared by the assessee in various years is adopted to determine the undisclosed income of the respective years. To determine the total turnover at 108% of the disclosed turnover the amount of Gross Profit by applying the rate of Gross profit disclosed by the assessee for the respective assessment years on the turnover determined in first step above & from the amount computed in second step to deduct the Gross profit already disclosed by the assessee the resultant figure is the undisclosed income of the respective years. Addition u/s 68 - CIT(A)deleted the addition - Held that - Fact remains that the cash credits sought to be assessed in the hands of the assessee herein have already been assessed in the hands of the Managing Director Shri K.P. Ummer. The assessment of very same amount both in the hands of the Managing Director Shri K.P.Ummer and also in the hands of the assessee company would lead to double assessment of the very same amount, which is against the scheme of the Act. Relying on ITO Vs. Ch. Atchiah (1995 (12) TMI 1 - SUPREME COURT), wherein observed that under the Income tax Act 1961, the ITO can and he must, tax the right person and the right person alone who is liable to taxed, according to law, with respect to a particular income. In the instant case, the sources for the credits noticed in the account of Managing Director is already explained in his individual assessment as loans/gifts. Thus, the sources of credits stand explained. Even if genuineness is not accepted and consequent addition is made u/s. 68 , still the sources of credits in the account of Managing Director stands explained, as they are coming out of funds treated as his income - no flaw in final decision of CIT(A) on this issue.
Issues Involved:
1. Validity of initiation of proceedings u/s 153C of the Act. 2. Violation of principles of natural justice in not confronting the documents obtained from third parties. 3. Validity of additions made in the assessments, including estimation of suppressed business income and additions u/s 68 of the Act. Issue-wise Detailed Analysis: 1. Validity of Initiation of Proceedings u/s 153C of the Act: The assessee challenged the initiation of proceedings u/s 153C on the grounds that no incriminating material was unearthed during the search. The department relied on a statement given by the Managing Director u/s 132(4), which was later retracted by the assessee. The tribunal held that the statement given u/s 132(4) can be used as evidence unless there is contrary evidence. The Managing Director's confession about suppression of purchases and sales, coupled with seized documents (OPA-19 and OPA-26), justified the initiation of proceedings u/s 153C. 2. Violation of Principles of Natural Justice: The assessee claimed a violation of natural justice as the AO did not confront them with documents obtained from third parties. The AO relied on a report from the Commercial Taxes Department and KSIDC. The tribunal noted that the first appellate authority (CIT(A)) had considered the assessee's views on these documents during the appellate proceedings, thereby curing any procedural lapses at the AO's level. Hence, no merit was found in the assessee's grievance regarding the violation of natural justice. 3. Validity of Additions Made in the Assessments: The AO made additions based on estimated suppressed sales and production, using a power consumption factor from KSIDC. The CIT(A) found several errors in the AO's method, such as incorrect figures and reliance on theoretical data from KSIDC. The tribunal upheld the CIT(A)'s findings that the AO's estimates were not supported by specific evidence and were thus unsustainable. Estimation of Suppressed Business Income: The CIT(A) rejected the AO's power consumption-based estimation and relied on the Managing Director's statement admitting 8% sales suppression. The tribunal agreed with this approach, finding it reasonable to estimate suppressed sales at 8% of the disclosed turnover, given the lack of other corroborative evidence. Gross Profit Rate: The CIT(A) applied a uniform Gross Profit (GP) rate of 6.5% for the years 2003-04 to 2007-08 and 9.73% for 2008-09. The tribunal found that the CIT(A) did not adequately justify the uniform GP rate, given the varying factors affecting GP rates. The tribunal directed the AO to adopt the actual GP rates declared by the assessee for each year to determine the undisclosed income. Additions u/s 68 of the Act: The AO added certain credits in the assessee company's accounts, which were also assessed in the individual assessment of the Managing Director. The CIT(A) deleted these additions, noting that the same amounts could not be taxed twice. The tribunal upheld this decision, emphasizing that double assessment of the same amount is against the scheme of the Act. Conclusion: The appeals filed by the assessee were partly allowed, and the appeals of the revenue were dismissed. The tribunal modified the CIT(A)'s order regarding the estimation of suppressed income and directed the AO to verify and adopt the correct GP rates for the respective years.
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