2014 (1) TMI 600 - AT - Income Tax

Block assessment - Undisclosed income for the period 1.4.92 to 31.3.93 - Held that - The assessee has expressed its inability to produce the original books of accounts - The Tribunal is unable to test the correctness of income returned for regular assessment against the income to be determined from the estimated turnover - The responsibility to show that the income or turnover found in the seized records was already been accounted for or disclosed shall lie upon the assessee - The seized records pertained to Narakkal range consisting of 50 shops - The AO has determined the turnover for all the 110 shops on the basis of turnover noticed in the seized record pertaining to 50 shops falling in Narakkal range for 3-1/2 months - It is not correct to estimate the turnover and income for the entire 110 shops falling in three ranges, when the seized record pertained to only one range consisting of 50 shops - The Ld CIT(A) has determined the whole year s turnover for Narakkal range at Rs.1.00 crore. Since the revenue did not file any appeal against the order of Ld CIT(A), the turnover so determined by him has attained finality - The undisclosed income has to be estimated on Rs.57 lakhs - The AO has adopted the net profit rate at 5% in the succedding year - In order to maintain consistency, the net profit rate may be adopted at 5% in this year also - The undisclosed income calculated @ 5% on the suppressed turnover of Rs.57.00 lakhs shall work out to Rs.2.85 lakhs - The order of CIT(A) has been set aside - Decided against assessee. Undisclosed income for the period 01.4.93 to 31.3.94 - Held that - In this year, the assessee has not maintained books of account and hence it has offered income on estimated basis during the course of regular assessment proceedings also - In the absence of regular books of accounts, the AO was justified in taking the aggregate amount of collections as the turnover of the assessee and estimating income thereon - The assessing officer has given set off of proportionate amount relatable to the 50 shops falling in Narakkal range while arriving at the undisclosed income of the assessee for this year - Decided against assessee.

Issues Involved:
1. Legitimacy of assessment under Section 158BD based on seized documents.
2. Estimation of undisclosed income for the financial year 1992-93.
3. Estimation of undisclosed income for the financial year 1993-94.
4. Estimation of undisclosed income for the financial year 1995-96.

Issue-wise Detailed Analysis:

1. Legitimacy of assessment under Section 158BD based on seized documents:
The Tribunal originally disposed of the appeal, but the High Court remanded it back, noting that the Tribunal had allowed the appeal without proper reference to facts. The High Court emphasized that the Tribunal, as a fact-finding authority, had a duty to verify records and ensure the assessment under Section 158BD was based on materials collected during the search of another person, in this case, the sister concern of the assessee. The Tribunal was directed to reconsider the matter on merits after reviewing the records and hearing both sides.

2. Estimation of undisclosed income for the financial year 1992-93:
The assessee, a partnership firm engaged in selling toddy and foreign liquor, had its documents seized during a search. The AO determined the undisclosed income based on the turnover from seized records for 3-1/2 months for 50 shops and extrapolated it for the whole year. The AO estimated the annual turnover for 110 shops and calculated the net profit at 8%, arriving at an undisclosed income of Rs. 15,84,458/-. The CIT(A) revised the turnover to Rs. 2.00 crores and reduced the net profit rate to 6%, resulting in an income of Rs. 12.00 lakhs. The assessee argued that the turnover in seized records was already accounted for in regular books, but failed to produce the books of accounts. The Tribunal, following the High Court's directive, treated the turnover found in seized records as actual turnover, extrapolated it for the whole year, and compared it against the reported turnover. The Tribunal concluded that undisclosed income should be estimated for Narakkal range only, adopting a net profit rate of 5%, resulting in an undisclosed income of Rs. 2.85 lakhs.

3. Estimation of undisclosed income for the financial year 1993-94:
The AO computed the aggregate amount of net collections from seized documents for 50 shops in Narakkal range and estimated income at 5% of net collections. The CIT(A) upheld this with slight modifications. The Tribunal noted that the assessee did not maintain books of accounts for this year and offered income on an estimated basis during regular assessment proceedings. The Tribunal upheld the AO's approach of taking aggregate collections as turnover and estimating income thereon, giving set off of proportionate income for the 50 shops in Narakkal range, as confirmed by the CIT(A).

4. Estimation of undisclosed income for the financial year 1995-96:
The AO identified a cash shortage of Rs. 58,753/- in the books impounded and assessed it as undisclosed income. The CIT(A) confirmed this addition. The Tribunal noted that no arguments were advanced by the assessee against this determination and thus confirmed the CIT(A)'s order.

Conclusion:
The appeal filed by the assessee was partly allowed, with the Tribunal modifying the order of CIT(A) for the financial year 1992-93 and confirming the orders for the financial years 1993-94 and 1995-96.

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