2018 (12) TMI 214 - HC - Income Tax

Additions in gross profit - addition made solely on the basis of statement of an employee of the assessee - estimation based on Gross Profit rate - suppressed turnover - Held that - At the time of search, there was detected materials as available from the computer of the assessee showing vast disparity in the sales and purchase disclosed as per the accounts and the actual business carried out by the assessee. The gross profit was also based on the sales and purchase as disclosed from the books of accounts. It is also pertinent that the Manager of the assessee, who made the statement u/s 132(4) had in fact opened a second set of bills in the computer using a password and it was from these materials that a definite pattern of suppression was detected. This pattern having been applied to the earlier assessment years, was perfectly correct and a permissible exercise u/s 144 of the Act being power conferred on the Assessing Officer for proceeding on best judgment. We do not think that there is any scope for interference of the order of the Tribunal insofar as the addition made and adoption of gross profit.- Decided against the assessee

Summary

Issues:
1. Addition in gross profit based on employee's statement without corroborative evidence.
2. Misdirection in upholding estimation based on gross profit rate.

Analysis:
1. The case involved appeals arising from Tribunal orders for assessment years 2002-03 and 2004-05 to 2008-09. The primary issues revolved around the correctness of sustaining additions in gross profit solely on an employee's statement without corroborative evidence and misdirection in upholding estimation based on gross profit rate. The assessee was engaged in building materials business, where a search revealed two sets of bills maintained, with a significant disparity in sales and purchase figures. The Assessing Officer initiated proceedings under Section 153A read with Section 144 of the Income Tax Act, making additions for various years based on discrepancies found in the books of accounts.

2. The appellant argued against the assessment, stating the absence of material recovery for earlier years precluded best judgment assessments. It was contended that the same percentage of addition could not be uniformly applied across all years without supporting evidence. The government counsel relied on precedents like Commissioner of Income Tax v. Hotel Meriya and Commissioner of Income Tax v. O.Abdul Razak to support the Tribunal's order. These cases emphasized the evidentiary value of statements and materials discovered during search operations, allowing for best judgment assessments even for prior years within a block period.

3. The Court considered the evidentiary value of statements made under Section 132(4) of the Act and upheld the Tribunal's decision based on the materials detected during the search, showing a pattern of suppression in sales and purchase figures. The Manager's statement and the existence of a second set of bills generated using a password supported the findings of suppression. The Court concluded that the Tribunal's decision to make additions and adopt gross profit based on the detected pattern was permissible under Section 144 of the Act, empowering the Assessing Officer to proceed on best judgment.

In summary, the High Court upheld the Tribunal's decision, ruling against the appellant and in favor of the Revenue, dismissing the appeals and emphasizing the permissible exercise of power under the Income Tax Act for best judgment assessments based on evidence collected during search operations.