2018 (10) TMI 1746 - AT - Income Tax

Addition made towards estimation of G.P. - suppressed turnover - HELD THAT - There is no error in the estimation of income of the assessee on the basis of the seized records. The estimation of income by the Assessing Officer is based on the documents found during the search and statement recorded during the course of search. Being so, the Assessing Officer is completely justified in adopting those figures for the whole year and for the next year. For this proposition, reliance is placed on the judgment of the Jurisdictional High Court in the case of Travancore Diagnostics P. Ltd. vs. ACIT 2016 (11) TMI 76 - KERALA HIGH COURT wherein it was held that when suppression had been found from the documents and the statement on record, the Assessing Officer was completely justified in adopting those figures for the whole year and for the next year which was based on sound rationale, since from the statement on behalf of the assessee, the suppression was found to be continued. In view of the uncontroverted and admitted statement given on behalf of the assessee u/s. 133A and the documents impounded during the survey, which were also virtually admitted by the assessee, there was no error in the order of the Tribunal in accepting the materials on record in order to arrive at an assessment. - Decided in favour of assessee Addition towards valuation of closing stock - firm s business discontinued on account of closure of the business - HELD THAT - In this case, the closing stock was estimated by applying GP rate at 22% in the assessment year under consideration. Since we have confirmed the estimation of income by applying GP rate at 22%, the closing stock determined by the Assessing Officer is to be confirmed. Accordingly, we find no infirmity in the order of the lower authorities and the same is confirmed. Thus, this ground of appeal of the assessee is dismissed. The appeal of the assessee is dismissed. Undisclosed income on estimate sales - HELD THAT - Estimation of income for these assessment years on the basis of the seized records found during the search in the year relevant to the AY 2008-09 is justified as the assessee has followed uniform system of suppression of sales. This ground of appeal of the Revenue is allowed for all the assessment years.

Issues Involved:
1. Delay in filing appeal.
2. Estimation of Gross Profit (G.P.) and suppression of sales.
3. Valuation of closing stock.
4. Unexplained investment in properties.
5. Deletion of additions based on unaccounted sales.

Detailed Analysis:

1. Delay in Filing Appeal:
The appeal in ITA No. 372/Coch/2016 was delayed by 93 days due to the abrupt departure of the accountant handling the tax matters. The delay was condoned as the assessee had a good and sufficient reason, and there was no opposition from the Ld. DR.

2. Estimation of Gross Profit (G.P.) and Suppression of Sales:
The main issue was the addition towards the estimation of G.P. at ?40,88,636/-. During a search on 21/08/2007, it was found that the assessee issued estimate slips instead of sale bills, leading to under-recording of sales and suppression of turnover. The AO concluded that the assessee was accounting only 30% of the real turnover. The CIT(A) upheld the AO's estimation of G.P. at 19% instead of 22%. The Tribunal found no error in the estimation based on seized records and upheld the AO's method, citing the judgments of Travancore Diagnostics P. Ltd. vs. ACIT and CIT vs. Hotel Meriya.

3. Valuation of Closing Stock:
The issue of valuation of closing stock was considered under Section 263 by the CIT. The AO recomputed the closing stock value by applying a G.P. ratio of 22%, later adjusted to 19%. The CIT(A) upheld the addition of ?23,14,809/- based on the Supreme Court's judgment in A.L.A. Firms vs. CIT, which mandates market value assessment upon dissolution or discontinuance of a firm. The Tribunal confirmed the valuation and dismissed the assessee's appeal.

4. Unexplained Investment in Properties:
For the assessment years 2006-07 and 2007-08, the AO made additions of ?1,31,55,837/- and ?1,68,39,970/- respectively, based on "on-money" payments for property purchases. The CIT(A) deleted these additions, finding them arbitrary and unsupported by evidence. The Tribunal upheld the CIT(A)'s decision, noting the lack of incriminating documents for the years in question and the failure of the AO to refer the matter to the Valuation Officer.

5. Deletion of Additions Based on Unaccounted Sales:
The Revenue appealed against the deletion of additions for the assessment years 2002-03 to 2007-08, arguing that the suppression of sales was uniformly practiced. The Tribunal, relying on the judgments of Travancore Diagnostics and Hotel Meriya, allowed the Revenue's appeal, justifying the estimation of income based on the seized records and the consistent suppression of sales across the years.

Conclusion:
The Tribunal dismissed the assessee's appeals and allowed the Revenue's appeals for the assessment years 2002-03 to 2008-09, confirming the estimation of income and additions based on the suppression of sales and valuation of closing stock. The appeals concerning unexplained investments in properties were dismissed, upholding the CIT(A)'s deletion of arbitrary additions.

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