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2019 (2) TMI 899 - AT - Income TaxUnaccounted income - Income arising out of the unaccounted sales/ excess stock - Assessment u/s 153A - Held that - It is the seized material which gives rise to quantification of unaccounted sales and consequently unaccounted income. The seized material in the instant case contains notings in respect to certain unaccounted sales, namely with respect to 59 parties. The assessment order does not bring on record any such seized material which shows sales out of the books corresponding to each and every sale. Since section 153A of the Act gets invoked only with respect to the incriminating material found during the course of the search, clearly extrapolation without any incriminating material would be contrary to the spirit of the section. There are a large number of judicial decision on the issue, including the ones quoted by the Ld. C.I.T(A) which support this view. The objections of the AR with respect to the ownership of the document, the present position of litigation and its consequences in our context, are being discussed later in the Cross Objections of the assessee. But clearly these will not be material for the grounds raised by the department. Hence in the facts and circumstances of the case, we do not find any infirmity in the order of the Ld. CIT(A) on this issue, therefore, we uphold the order of the Ld. CIT(A) and confirm the relief granted by him. - Decided against revenue. Unaccounted income calculated on the basis of unaccounted sales allegedly recorded in the seized documents - Held that - The papers in question do not belong to M/s Gupta Perfumers P. Ltd. The assertion of M/s Gupta Perfumers P. Ltd. has not been found to be acceptable by the Settlement Commission and Hon ble Delhi High Court. The papers were found from the assessee s business premises as well as its Director s residence. Neither any other party other than M/s Gupta Perfumers P. Ltd. has owned up these papers nor any such reference has been found in the narrations. Therefore the undisclosed sales and consequently the undisclosed income attributable to the assessee appears to be a reasonable decision in the circumstances. Hence the addition is upheld. Status of the income arising out of seized documents - Held that - What was offered to Settlement Commission and what has been taxed by Assessing Officer in the present Assessment Order before us pertain to the same transactions emanating from the seized documents from the assessee s premises. Clearly as the matter stands the Assessing Officer has held that the papers belong to the assessee company and hence the undisclosed income arising out of that belongs to assessee s company on the basis of order of Settlement Commission as upheld by Honable Delhi High Court. We have upheld this position. Nevertheless the fact of the matter is that the issue has not reached finality. The decision of the Hon ble Supreme Court, as and when it comes, will finally decide the ownership of the documents and hence will take the assessment of the income, so upheld in this order to finality. The ground is therefore disposed of, with the directions to the Assessing Officer to review the status of the income arising out of seized documents, as upheld, once the decision of the Hon ble Supreme Court is available and realize taxes with respect to the additions upheld, only when the finality of ownership of the documents is put to rest by the decision of the Hon ble Supreme Court. Unaccounted stock - Held that - We are inclined to go with the order of the Ld. CIT(A) primarily on the ground that once an inventory is found to be defective, its reliability for estimating the income becomes doubtful. The assessment order does not counter in anyway the assessee s grievance/objections that there is misreporting /inflation of the quantity and price of various items particularly raw material. This could have been easily done on the basis of of books of accounts available with him. He could have made an attempt to support his valuations, which he did not. Similarly, neither before Ld. CIT(A) nor before us any claim, resubmission or working has been submitted following the assessee s objections. That being the situation the view taken by the Ld. CIT(A) appears to be reasonable and therefore, the same is upheld and accordingly, the ground no. 3 is rejected.
Issues Involved:
1. Restriction of additions by the Commissioner of Income Tax Appeals (CIT(A)). 2. Ownership and relevance of seized documents. 3. Rejection of regular books of account. 4. Use of Gross Profit (G.P.) rate versus Net Profit (N.P.) rate. 5. Tax credit for income declared by another entity. Issue-wise Analysis: 1. Restriction of Additions by CIT(A): The CIT(A) restricted the additions made by the Assessing Officer (AO) based on seized documents. For Assessment Year (AY) 2008-09, the AO estimated unaccounted sales and applied a G.P. rate of 30.59%, resulting in an addition of ?83,56,300/-. The CIT(A) confined the addition to ?7,45,501/- based on actual unaccounted sales recorded in the seized documents, giving relief of ?76,10,799/-. The Tribunal upheld the CIT(A)'s decision, agreeing that extrapolation without incriminating material is contrary to the spirit of Section 153A of the Income Tax Act. 2. Ownership and Relevance of Seized Documents: The documents seized during the search were claimed by the assessee to belong to M/s Gupta Perfumers P. Ltd. The Settlement Commission and the Delhi High Court did not accept this claim, leaving the question of ownership open. The AO used these documents to make additions in the assessee's hands. The Tribunal upheld this decision, noting that the documents were found on the assessee's premises and correlated with entries in the regular books of accounts. The Tribunal also directed the AO to review the status of the income once the Supreme Court decides on the matter. 3. Rejection of Regular Books of Account: The AO rejected the regular books of account based on the seized documents showing unaccounted sales. The CIT(A) and the Tribunal upheld this rejection, noting that the books could not be relied upon due to discrepancies highlighted by the seized documents. 4. Use of Gross Profit (G.P.) Rate versus Net Profit (N.P.) Rate: The AO applied the G.P. rate to estimate unaccounted income, which was upheld by the CIT(A) and the Tribunal. The assessee's argument to use the N.P. rate instead was rejected, as it is standard practice to use the G.P. rate unless specific circumstances warrant otherwise. 5. Tax Credit for Income Declared by Another Entity: The assessee argued that if the seized documents are held to belong to it, the tax paid by M/s Gupta Perfumers P. Ltd. on the unaccounted income should be credited to the assessee. The Tribunal agreed that the same income cannot be taxed twice and directed the AO to adjust the tax credit once the Supreme Court decides on the ownership of the documents. Separate Judgments Delivered by Judges: Not applicable, as the judgment was delivered collectively by the members of the Tribunal. Conclusion: The Tribunal upheld the CIT(A)'s restriction of additions based on actual unaccounted sales recorded in the seized documents and confirmed the rejection of the regular books of account. The use of the G.P. rate for estimating unaccounted income was also upheld. The Tribunal directed the AO to review the tax credit issue after the Supreme Court's decision on the ownership of the seized documents. The appeals by the Revenue were dismissed, and the assessee's cross-objections were partly allowed.
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