2019 (2) TMI 2108 - AT - Income Tax

Addition made towards estimation of G.P - Suppression of sales and turnover - discrepancies were noticed in the books of accounts found and seized during the course of search regarding the amount withdrawn and debited - as noticed that in place of real purchase of 1207.430 gms., only 188.500 gms. found place in the regular stock register giving rise to suppression of 1018.93 gms. which showed that a very good percentage of business of the show room at Kollam., i.e., about 84.39% was outside the books of accounts and only 15.61% was accounted. HELD THAT - The seized material related to the assessment year 2008-09. The Assessing Officer made the assessments for the assessment year 2005-06 to 2007-08 on the basis of the assessment of income for the assessment year 2008-09. There was a clear finding of the AO that the assessee firm had practiced suppression of sales for all the assessment years uniformly. When it was a clear case of suppression which was found during the course of search and seizure operations, it is to be reasonably presumed that for the previous assessment years i.e., 2005-06, 2006-07 and 2007-08, the assessee had done suppression of sales. The discrepancies found during the search on 21/08/2007 were brought to the notice of Mr. Sunny Jacob who in reply to Q. No. 5 explained that the assessee was issuing 'estimate slips' only for showing the customer, but they were issuing bills on finalization of the sales. This method adopted by the assessee is having no legal sanction. It was also noticed that the assessee had effected sales by issue of 'estimate slips' instead of sale bills and that sale bills were prepared for accounting purposes only in a few cases. It was also noticed that the sales on 'estimate slips' were not accounted resulting in unaccounting of sales and suppression of turnover. The estimate slips collected from different shops and the margin of profit on sale of gold ornaments were clearly compiled in para 18 of the original assessment order. This practice was regularly followed by the assessee. In view of these facts and circumstances, there is a clear pattern of sales suppression visible in this case. Therefore, the ratio of the judgment of H.M. Esufali H.M. Abdulali ( 1973 (4) TMI 49 - SUPREME COURT clearly applies to the case in hand. In this kind of assessment, which was consequent to search u/s. 132 of the Act, the undisclosed income is to be computed based on evidence found as a result of search. The evidence collected during the course of search action suggest that the assessee is issuing 'estimate slips' while collecting sales. Later, the sale bills are prepared for accounting purposes and accounting of the sales made through 'estimate slips' which resulted in suppression of sales which was confirmed by the statement recorded from Shri Bejimon S., erstwhile Manager of M/s. Sunny Jacob Jewellers and Wedding Centre, Kottarakkara tried to explain that the shop at Kottarakkara was not using computer but on re-examination he stated that the computer was used at least sparingly. The statement given by Shri Pintu T. Jacob, Computer Operator, M/s. Sunny Jacob 916 Jewellery, Trivandrum was a clarification to the effect that he was only printing 'estimate slips' and not sale bills and he was only entrusted with the work of printing estimate slips and sale bills were written by Shri Mathew Eapen. Assessing Officer had no option but to estimate the income of the assessee. It cannot be said that it is arbitrary but based on corroborative evidence unearthed during the course of search action and enquiry thereafter. In our opinion, the books of accounts of the assessee were rejected by the Assessing Officer and once the books of accounts are rejected, the turnover has to be estimated and while estimating the turnover, the pattern followed by the assessee has to be considered. In this case, the strategy followed by the assessee to suppress the sales is common for all the assessment years as compared to assessment year 2008-09 which would have direct relevance for estimation of income for the assessment years 2005-06 to 2007-08. Scope of information gathered either during pre-search enquiry or during the course of search so far as the six previous assessment years - As in the assessee's own case 2014 (3) TMI 217 - KERALA HIGH COURT held that u/s. 153A, the Department can assess or reassess in accordance with the assessment or reassessment procedure contemplated u/s. 153A of the Act. There is also no requirement u/s. 153A and other provisions requiring the Department to collect information and evidence for each and every year for the six previous years u/s. 153A of the I.T. Act. Therefore, the argument of the learned counsel for the appellant-assessee that the information gathered either during pre-search enquiry or during the course of search cannot be made use so far as the six previous assessment years, is unsustainable. Thus we find that the AO has given a categoric finding with regard to suppression of sales for all the assessment years. While estimating the profit, the Assessing Officer has assessed the income on the basis of rate of profit adopted for the assessment year 2008-09. On this reasoning, we do not find any infirmity in the order of the Assessing Officer and the same is confirmed. Hence, this ground of appeals of the Revenue are allowed.

Summary

Issues Involved:
1. Delay in filing appeals.
2. Deletion of addition made towards estimation of Gross Profit (G.P.).
3. Reliability of books of accounts.
4. Suppression of sales and unaccounted income.
5. Estimation of turnover and profit.
6. Retraction of statements by employees.
7. Unaccounted investments in immovable properties.
8. Applicability of case laws.

Issue-wise Detailed Analysis:

1. Delay in Filing Appeals:
The appeals were initially filed late by 742 days. However, the Tribunal considered the delay excusable, reasoning that the date of filing should be reckoned from the original date of filing, i.e., 21/07/2016. Therefore, the appeals were considered filed in time.

2. Deletion of Addition Made Towards Estimation of Gross Profit (G.P.):
The Revenue contested the deletion of additions made towards the estimation of G.P. The CIT(A) had deleted these additions, stating that the AO's estimation was based on assumptions and not on new facts. The CIT(A) emphasized that only real income could be taxed, not nominal income based on presumptions.

3. Reliability of Books of Accounts:
The AO rejected the books of accounts maintained by the assessee, citing various discrepancies. These included unaccounted sales recorded through 'estimate slips' instead of sale bills, and discrepancies in the cash books and stock registers. The Tribunal upheld the AO's rejection of the books of accounts, stating they were not reliable.

4. Suppression of Sales and Unaccounted Income:
The AO found that the assessee was suppressing sales by issuing 'estimate slips' instead of sale bills. This practice was confirmed by the statements of employees and the inspection report from the Commercial Tax Department. The Tribunal agreed with the AO's findings, noting a clear pattern of sales suppression.

5. Estimation of Turnover and Profit:
The AO estimated the assessee's turnover by grossing up the admitted turnover, concluding that only 30% of the actual turnover was accounted for. The profit was initially computed at 22% of the turnover but was later revised to 20%. The Tribunal found no error in this estimation, citing corroborative evidence from the search and the statements recorded.

6. Retraction of Statements by Employees:
The CIT(A) accepted the retraction of statements by the assessee's employees, who claimed their admissions during the search were made under duress. However, the Tribunal found the retractions invalid, noting that there was no evidence of coercion or threat. The Tribunal relied on the original statements, which were corroborated by other evidence.

7. Unaccounted Investments in Immovable Properties:
The AO noted that the income from unaccounted sales was invested in immovable properties worth over Rs. 6 crores. One of the partners admitted to undervaluing properties by 20%. The Tribunal found this to be concrete evidence of concealed income for the relevant assessment years.

8. Applicability of Case Laws:
The Revenue argued that the case laws cited by the assessee were not applicable, as those cases involved deletions of additions based on estimates without clear evidence. In contrast, the present case had clear evidence of suppression of sales and unaccounted income. The Tribunal agreed, emphasizing that the evidence gathered during the search justified the AO's estimations.

Conclusion:
The Tribunal upheld the AO's findings and estimations, confirming the suppression of sales and the unreliability of the books of accounts. The appeals of the Revenue were allowed, and the additions towards the estimation of G.P. were reinstated. The Tribunal emphasized that the assessments were based on solid evidence gathered during the search and subsequent enquiries.