2016 (12) TMI 1766 - HC - Income Tax

Best judgement adjustment - transactions noted in the bill-book seized - Held that - Assessee has neither pleaded nor established any justifiable reason for his not entering in the accounts the transactions noted in the bill-book seized. In such a situation it was not possible for the Sales Tax Officer to find out precisely the suppressed turnover; he could only estimate it based on the material before him. Abdulai disapproves of an approach that insists on the assessing authority s having material before him to prove the exact turnover suppressed. If it were insisted upon there would be no best-judgment assessment. The assessee cannot be permitted to take advantage of his own illegal acts for it is his duty to place all facts truthfully before the assessing authority. If he fails to do his duty he cannot be allowed to call upon the assessing authority to prove what turnover he had suppressed which fact is within his personal knowledge. AO s task in finding out the escaped turnover was by no means easy. In estimating any escaped turnover Abdulai acknowledges inevitably there is going to be some guess- work. The assessing authority while making the best-judgment assessment no doubt should conclude rationally and unbiased. If the AO s estimate is bona fide and rational that there is no good proof to support that estimate is immaterial. Prima facie the assessing authority is the best judge of the situation; it is his best-judgment and not of anyone else s. No court could substitute its best-judgment for that of the assessing authority. The courts should first see Abdulai asserts whether the accounts maintained by the assessee were rightly rejected as unreliable. If they conclude that they were rightly rejected the next question is whether the basis adopted in estimating the turnover has a reasonable nexus with the estimate made. If the basis adopted is held to be relevant even though the courts may think that it is not the most appropriate basis the assessing authority s estimate cannot be disturbed. Unexplained investment - Held that - The Tribunal has found that about this investment the Department has failed to find any corroborative material under Section 69 of the Act. It has also held that the amount in the Registered Sale Deed should be accepted unless countervailing material establishes that the consideration in the Registered Deed is different. The un-signed computer print-out held the Tribunal has no evidentiary value. Convinced of the assessee s explanation the Tribunal has held that the addition made by the Department regarding the alleged investment in Koothparamba property is not justified. This finding has attained finality. Unexplained investment in Mahe Property - Held that - The bill-books found during the search pertain to the period from 01.04.2006 to 30.07.2007. From them AO found the total sales to be at 2.31 crores. Since the assessee had not included the sales in the trading account filed along with the return of income the AO reassessed the sales backwards in the entire block-period from AY 2002-03. Estimation of Turnover of Sales-Net Profit-Addition of 5% - Held that - As has been rightly held by the Tribunal the assessee could not establish that bill-books accord with the statements of account he submitted to the authorities. Nor has he sustained his defence that the bill-books contained commission transactions given the tax difference between the State of Kerala and the Union Territory of Pondicherry. Further important is that any accommodation by way of issuing bills at Mahe to the traders of Kerala for the transactions held only in Kerala is against public policy. The authorities-even if they were to believe the assessee s version-have rightly refused to recognise those illegal transactions. Indeed emphatic is the judicial dictum of Abdulai that the AO s best-judgment did carry an element of speculation and approximation. As against the initial turnover of 2.31 crore the Tribunal has found it to be 1, 95, 49, 077 based on the AO s Remand Report. As a result the Tribunal has sustained the net profit rate at 5% of the turnover. We reckon that the method of calculation and the procedure adopted by the authorities arriving at the undisclosed income has accorded with the statutory mandate under sections 68 to 69C of the Act. We therefore find no reason to interfere with the Tribunal s confirming the AO s adopting the undisclosed income @5% on the revised suppressed turnover. Agricultural income taken as income from other sources - Held that - CIT (Appeals) has agreed with the AO s findings. The finding is that the assessee has claimed no agricultural income in the return but showed it in the statement-of-account filed during assessment proceedings. Indeed the assessee s claim seems to be against the established practice of reckoning income from agricultural activities. Excluding the house whatever remains of 21 cents may not be as has been concurrently held sufficient to generate the income shown by the assessee from agriculture. We therefore find no reason to interfere with the concurrent findings entered by both the fora on this aspect - a question of fact. Interest on Fixed Deposits the assessee had with Gokulam Chit Funds - Held that - Indisputably the assessee showed fixed deposits; but correspondingly failed to reveal in the returns any interest. Absent any explanation from the assessee the AO adopted interest @10% per annum. To be more explicit the assessee showed 10 lakh fixed deposit from 13-11-2002 to 31-03-2005 and 5 lakh from 21-01-2003 to 31-03-2009. As noted he showed no income as interest on those deposits - Given the size of the deposits it is but inevitable that the assessee ought to have earned some interest on the fixed deposits. As he has failed to show in his returns any income by way of interest the concurrent finding entered by both the fora reckoning interest at 10% annually is eminently sustainable; so it calls for no interference. Addition of Interest - Addition of amounts the assessee allegedly lent to other people - Held that - The assessee lent the money to Mr. Nanu Vaidyar before 01-04-2001. As for the lending to others too exact dates are unavailable. So the AO treated the entire 25, 63, 500/- as the assessee s unexplained investment during the AY 2004-05. Leaving aside the minor discrepancies in the assessee s explanation about his lending the amounts to various persons presumably his friends we may bear in mind that the assessee is a businessman with considerable turnover. For a businessman having a turnover of a couple of crores short-term lending to friends- without interest at that-is neither uncommon nor abnormal. True the AO s assessment and the adjudicatory authorities findings are perhaps matters of fact. But the facts to fructify into findings need the application of law. If that application of law is flawed this court can interfere without causing violence to the established principle of law that there needs no interference on the questions of fact. Even going by the ratio of Abdulai we reckon that the AO s findings on this issue are on unsure foundations. The speculative aspect overshadows the aspect of the established business practices. Given the assessee s explanation we hold that he ought to have been given the benefit of doubt. In other words there can be no quarrel on the AO s conclusion that 25, 63, 500/- is an unexplained investment but on his calculating interest we feel that it is without basis. We therefore set aside the Tribunal s findings for AY 2004-05 concerning addition of interest; as a result we allow the assessee s appeal for AY 2004-05. Similarly the AO s conjecture on the interest component for the AYs 2005-06 2006-07 and 2007-08- 2, 34, 000/- 2, 34, 000/- and 1, 36, 500 respectively-cannot be sustained. Addition of Interest - Held that - On the above mentioned amounts the AO has estimated interest component at 1, 48, 000/-. For the reasons weighed with us in disallowing the AO s best-judgment the addition of 25, 63, 500/- we also hold that the addition of interest on those deposits cannot be sustained. Fishing Boats - Held that - We may focus on the additions made by the AO because of estimated income from fishing boats for the AYs 2005-06 2006-07 2007-08 and 2008-09. Undeniably the seized diary revealed income from fishing boats amounting to 38, 750/- 43, 900/- 32, 100/- and 8000/- for the years mentioned above. As has been rightly and concurrently observed by the adjudicatory authorities there was precious little explanation from the assessee. We therefore uphold the Tribunal s findings and dismiss the appeal for the AYs 2007-08 25, 63, 500/- and the interest component thereon.

Summary

Issues Involved:
1. Legality and sustainability of the rejection of books of accounts and returns of income for various assessment years.
2. Justification of the estimated suppressed turnover and the addition of undisclosed business income.
3. Treatment of agricultural income as income from other sources.
4. Addition of interest on fixed deposits not disclosed in returns.
5. Addition of amounts allegedly lent to other people as unexplained investment.
6. Addition of estimated income from fishing boats.

Issue-wise Detailed Analysis:

1. Legality and Sustainability of Rejection of Books of Accounts:
The appellant's books of accounts and returns of income for AY 2002-03 were rejected based on documents found during a search, including unsigned computer sheets and bill-books. The authorities estimated the suppressed turnover and added undisclosed business income. The appellant argued that there was no material evidence to justify the estimated suppressed turnover, and the authorities failed to consider that no unaccounted material was found during the search. The court upheld the authorities' actions, emphasizing that the appellant could not establish that the bill-books accorded with the statements of account submitted.

2. Justification of Estimated Suppressed Turnover and Addition of Undisclosed Business Income:
The authorities estimated the appellant's income based on documents found during the search, including bill-books from 01.04.2006 to 30.07.2007. The AO estimated the sales backwards for the entire block period and added undisclosed business income. The appellant contended that the bill-books were adjustment bills for sales effected in Kerala, where the sales tax was lower. The court upheld the authorities' estimation method, noting that the appellant failed to provide a cogent explanation for the bill-books and that issuing bills at Mahe for transactions held in Kerala was against public policy.

3. Treatment of Agricultural Income as Income from Other Sources:
For AY 2008-09, the appellant claimed agricultural income from 21 cents of land, which included a house. The authorities treated this income as income from other sources, noting that the appellant had not claimed agricultural income in the return but showed it in the statement of account during assessment proceedings. The court upheld the authorities' findings, agreeing that the land was insufficient to generate the claimed agricultural income.

4. Addition of Interest on Fixed Deposits Not Disclosed in Returns:
For AYs 2003-04, 2004-05, and 2005-06, the appellant had fixed deposits with Gokulam Chit Funds but did not disclose any interest income in the returns. The AO adopted an interest rate of 10% per annum. The court upheld the authorities' findings, noting that the appellant failed to provide any explanation for not showing interest income.

5. Addition of Amounts Allegedly Lent to Other People as Unexplained Investment:
For AY 2004-05, the appellant allegedly lent various amounts to different individuals, which the AO treated as unexplained investment. The court noted that the appellant was a businessman with considerable turnover, and short-term lending to friends without interest was not uncommon. The court set aside the Tribunal's findings on the interest component for AY 2004-05 and other relevant years, noting that the AO's assessment lacked a solid basis.

6. Addition of Estimated Income from Fishing Boats:
For AYs 2005-06, 2006-07, 2007-08, and 2008-09, the authorities added estimated income from fishing boats based on entries in a seized diary. The appellant provided little explanation for these entries. The court upheld the authorities' findings, noting the lack of a satisfactory explanation from the appellant.

Conclusion:
The court answered the questions of law against the appellant, except for the addition of amounts allegedly lent to other people and the interest component on those amounts. The IT appeals were disposed of without any order on costs.