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2006 (5) TMI 111 - AT - Income TaxBlock Assessment in search case - Search and seizure u/s 132 - undisclosed income - cash payments not accounted - statements recorded u/s 132(4) - retraction of statement - HELD THAT - The Managing Director of the company vide letter dated 22-1-1999 and addressed to DDI (Inv.) offered a sum of Rs. 1.07 crores as undisclosed income. Such letter has been filed during the post-search enquiries conducted by the Investigation Wing of the department. Such letter is voluntary and there is no plea that such letter was obtained under threat or coercion. In view of such letter, the onus was on the assessee to establish that offer was under any misconception of facts. In the letter itself, it has been mentioned that the assessee is not in a position to provide material evidence for the actual amount spent by the clients either through them or themselves. It is also mentioned that margin of profit in executing additional work is generally 8 to 10 per cent. The Managing Director of the company was fully aware of the facts at the time of filing declaration. It cannot be said that declaration was under any misconception of facts. The appellant-company has failed to discharge the onus that declaration was under any misconception of facts. In the instant case declaration is vide letter dated 22-1-1999 i.e., it is not on the day when search was commenced. The only reason given for not showing such undisclosed income is that for additional civil work, margin of profit is only 8 to 10 per cent. Such fact was known to the appellant and is mentioned in the letter. Hence, no valid reason is given for retraction of statement. During the course of proceedings, the learned AR pointed out that revenue has not been able to establish that assets or expenses corresponding to undisclosed income have been found during search. The appellant has shown undisclosed income to the extent of around Rs. 68 lakhs and has not explained as to where such amounts stood invested. It is not the case of the appellant that undisclosed income has been returned on the basis of assets or expenses not recorded in the books of account. The appellant himself filed the declaration of undisclosed income of Rs. 1.07 crores. Hence, there was no onus on the revenue to establish that such undisclosed income is in the form of assets etc., section 158B(b) defines undisclosed income and such income can be based on entries found in the seized records. Thus, it is held that learned CIT(A) was justified in determining the undisclosed income to the extent of Rs. 1,07,06,088. In the result the appeal of the assessee is dismissed.
Issues Involved:
1. Enhancement of undisclosed income by the CIT(A). 2. Treatment of undisclosed turnover as income. 3. Consideration of peripheral services provided by the assessee. 4. Acceptance of average gross profit and net profit ratios. 5. Binding nature of statements under section 132(4). 6. Enhancement of undisclosed income by the CIT(A) beyond the Assessing Officer's estimation. 7. Misinterpretation of the assessee's statement regarding unaccounted income. 8. Lack of supporting evidence for the estimated turnover as income. 9. Absence of comparative cases to support the income estimate. 10. Overall challenge to the addition made by the Assessing Officer and enhanced by CIT(A). Detailed Analysis: 1. Enhancement of Undisclosed Income by the CIT(A): The assessee contested the CIT(A)'s decision to enhance the undisclosed income from Rs. 1 crore, as determined by the Assessing Officer, to Rs. 1,07,06,088/-. The CIT(A) based this enhancement on the letter dated 22-1-1999, where the Managing Director of the company voluntarily declared Rs. 1.07 crores as undisclosed income to avoid further proceedings and to buy peace with the department. 2. Treatment of Undisclosed Turnover as Income: The assessee argued that only the net profits arising from the undisclosed turnover should be considered as income, not the entire turnover. They cited precedents like State of UP v. Yashpal Singh [1967] 63 ITR 216 (SC) and Hotel Kiran v. Asstt. CIT [2002] 82 ITD 453 (Pune) to support their claim. However, the Assessing Officer and CIT(A) treated the entire undisclosed turnover as income due to the lack of detailed records and supporting evidence for expenses. 3. Consideration of Peripheral Services Provided by the Assessee: The assessee claimed that the undisclosed turnover included peripheral services such as electrical wiring, plumbing, and other civil works, which should not fetch a profit margin of 50%. They argued that the profit margin for such services is generally around 8-10%. The CIT(A) and Assessing Officer did not accept this argument due to the absence of supporting vouchers or detailed records. 4. Acceptance of Average Gross Profit and Net Profit Ratios: The assessee maintained that their average gross profit ratio was 30% and the net profit ratio was 9% for the undisclosed turnover. They argued that these ratios should be applied to estimate the undisclosed income. However, the CIT(A) relied on the voluntary declaration made by the Managing Director, which indicated a higher profit margin. 5. Binding Nature of Statements Under Section 132(4): The assessee contended that statements made under section 132(4) during search operations are not always binding, especially if made under mental stress or without access to accounts. They cited Addl. ITO v. T. Mudduveerappa & Sons [1993] 45 ITD 12 (Bang.) to support this. However, the CIT(A) and Assessing Officer considered the statement binding as it was made voluntarily and not retracted timely. 6. Enhancement of Undisclosed Income by the CIT(A) Beyond the Assessing Officer's Estimation: The CIT(A) enhanced the undisclosed income based on the voluntary declaration made by the Managing Director, despite the Assessing Officer's estimation of Rs. 1 crore. The CIT(A) justified this enhancement by citing the declaration and the lack of evidence to support a lower profit margin. 7. Misinterpretation of the Assessee's Statement Regarding Unaccounted Income: The assessee argued that their statement regarding unaccounted income was misinterpreted. They claimed that only Rs. 107 lakhs of the Rs. 2,14,12,715/- turnover was undisclosed income, not the entire amount. The CIT(A) and Assessing Officer, however, treated the entire turnover as unaccounted income due to the lack of detailed records. 8. Lack of Supporting Evidence for the Estimated Turnover as Income: The assessee contended that there was no supporting evidence for estimating the turnover as income. They argued that the Assessing Officer and CIT(A) should have treated the turnover related to peripheral job works separately. However, the CIT(A) relied on the voluntary declaration and the lack of detailed records to support the higher estimate. 9. Absence of Comparative Cases to Support the Income Estimate: The assessee argued that neither the Assessing Officer nor the CIT(A) provided comparative cases to support the income estimate of 50% of the peripheral turnover. They cited K. Baliah v. CIT [1965] 56 ITR 182 (Mys.) to support their claim. The CIT(A) and Assessing Officer, however, relied on the voluntary declaration and the lack of detailed records. 10. Overall Challenge to the Addition Made by the Assessing Officer and Enhanced by CIT(A): The assessee challenged the addition of Rs. 1 crore made by the Assessing Officer and enhanced by the CIT(A) to Rs. 1,07,06,088/-. They argued that the addition was not supported by evidence and that the profit margin for peripheral services was much lower. The Tribunal, however, upheld the CIT(A)'s decision, emphasizing the voluntary nature of the declaration and the lack of detailed records to support the assessee's claims. Conclusion: The Tribunal dismissed the appeal, upholding the CIT(A)'s decision to enhance the undisclosed income to Rs. 1,07,06,088/-. The Tribunal emphasized the voluntary nature of the declaration made by the Managing Director and the lack of detailed records to support the assessee's claims of lower profit margins for peripheral services. The Tribunal also noted that the assessee had not retracted the declaration in a timely manner and had not provided sufficient evidence to support their claims.
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