2016 (11) TMI 211 - HC - Income Tax

Validity of Assessment u/s 153A - addition made on the basis of the incriminating material found during the search? - Held that - The search was conducted on 22-03-2006. Various materials documents, agreements, invoices and statements in the form of accounts and calculations were seized. On 18 April 2006 and 3 May 2006, the assessee s sons (including one of the appellants, Abhay Gupta) recorded statements under oath; the assessee too made her statement under oath, admitting that though returns were filed ostensibly on her behalf, she was not in control of the business. She and all other family members made short statements and endorsed the statements under oath, of those who elaborated the trading and business operations relating to clandestine income. These statements under oath were part of the record and continued to be so. They were never explained in any reasonable manner. Their probative value is undeniable; the occasion for making them arose because of the search and seizure that occurred and the seizure of various documents, etc. that pointed to undeclared income. In these circumstances, the assessee s argument that they could not be acted upon or given any weight is insubstantial and meritless. This court also notices that the decision in CIT Vs. Anil Bhatia (2012 (8) TMI 368 - DELHI HIGH COURT ) which held that such statements are relevant, though noticed, has not been doubted in any later decision, including Kabul Chawla 2015 (9) TMI 80 - DELHI HIGH COURT , which is the mainstay of the assessee s case. Consequently the first question of law is answered against the assessee and in the revenue s favour. Rejection of books of accounts - estimating turn over and applying a high GP rate to estimate profit - Held that - ITAT s findings do not reveal any fundamental error, calling for correction. The inferences drawn in respect of undeclared income were premised on the materials found as well as the statements recorded by the assessees. These additions therefore were not baseless. Given that the assessing authorities in such cases have to draw inferences, because of the nature of the materials since they could be scanty (as one habitually concealing income or indulging in clandestine operations can hardly be expected to maintain meticulous books or records for long and in all probability be anxious to do away with such evidence at the shortest possibility) the element of guess work is to have some reasonable nexus with the statements recorded and documents seized. In this case, the differences of opinion between the CIT (A) on the one hand and the AO and ITAT on the other cannot be the sole basis for disagreeing with what is essentially a factual surmise that is logical and plausible. These findings do not call for interference. The second question of law is answered again in favour of the revenue and against the assessee.

Summary

Issues Involved:
1. Whether the Income Tax Appellate Tribunal (ITAT) was justified in upholding the addition made on the basis of the incriminating material found during the search?
2. Whether the finding of the ITAT is perverse and against the material of facts?

Analysis and Findings:

Re Question No. 1:
The primary issue was whether the ITAT was justified in upholding the addition based on incriminating material found during the search. The search and seizure operation was conducted on 22nd March 2006 at the premises of M/s. Balajee Perfumes Group. The assessee, along with other family members, surrendered a sum of ?3.5 crores as additional income in respect of business carried on outside books of accounts. Statements were recorded, and it was admitted that the assessee engaged in unaccounted cash sales and purchases. The ITAT found that materials such as katchaparchas and other documents were seized, indicating unaccounted transactions. The ITAT held that even statements obtained during the search constituted material unearthed during the search. The court upheld the ITAT's findings, noting that the statements made under oath could be acted upon, especially since they were corroborated by seized documents. The court referenced the case of Commissioner of Income Tax v. Anil Bhatia, which supported the relevance of such statements. Consequently, the first question of law was answered against the assessee and in favor of the revenue.

Re Question No. 2:
The second issue was whether the ITAT's findings were perverse and against the material of facts. The AO observed that the assessee produced only computerized books of account without sale bills, purchase bills, and vouchers. The AO rejected the books of accounts and estimated the sales and GP rate, resulting in an addition. The CIT(A) upheld the rejection of books but directed the AO to adopt the declared sales by the assessee and apply a GP rate of 12%. The ITAT found the assessee's declared figures unverifiable and upheld the rejection of books of accounts. The ITAT noted that the burden was on the assessee to show that the AO's estimation was arbitrary or unreasonable, which the assessee failed to do. The ITAT reduced the GP rate to 15% for the assessment year, aligning it with the subsequent years. The court found no fundamental error in the ITAT's findings, noting that the inferences drawn were logical and plausible based on the materials found and statements recorded. The second question of law was answered in favor of the revenue and against the assessee.

Conclusion:
The appeals were dismissed as lacking merit, with both questions of law answered in favor of the revenue. The court upheld the ITAT's findings that the additions were justified based on the incriminating material and statements obtained during the search. The court found no error in the ITAT's approach in rejecting the books of accounts and estimating the sales and GP rate.