1996 (1) TMI 148 - AT - Income Tax

Summary

Issues Involved:
1. Suppressed Sales by the Assessee.
2. Rejection of Books of Account and Estimation of Sales.
3. Determination of Cost of Food to Sales Ratio.
4. Validity of Evidence Collected Post-Search.
5. Comparison with Other Establishments.

Summary:

1. Suppressed Sales by the Assessee:
The main thrust of the appeals revolves around the additions made by the Assessing Officer (AO) on account of suppressed sales by the assessee for the assessment years (A.Y.) 1988-89, 1989-90, and 1990-91. The Assessing Officer determined suppressed sales of Rs. 54,79,200, Rs. 1,10,10,950, and Rs. 82,80,285 respectively for these years. The CIT(A) partly allowed the appeals, reducing the additions to Rs. 28,48,574, Rs. 49,27,735, and Rs. 54,47,337.

2. Rejection of Books of Account and Estimation of Sales:
The premises of the assessee were subjected to a search on 18th Sept. 1989. The AO rejected the sales results of the assessee by invoking the proviso to sub-section (1) of section 145 of the IT Act. The AO discarded the assessee's books of account due to discrepancies found in sales figures and manipulations detected through decoy customers.

3. Determination of Cost of Food to Sales Ratio:
The AO estimated the average cost of food consumed by the assessee at 34%. This was based on an enquiry from the Institute of Hotel Management, Catering Technology and Applied Nutrition, which suggested a cost of food to sales ratio between 30 to 40%. The CIT(A) adjusted this ratio to 39%, 38%, and 37% for the three years under appeal. The assessee contended that the ratio should be higher based on comparisons with the Taj Mahal Hotel's Golden Dragon restaurant and other testimonials.

4. Validity of Evidence Collected Post-Search:
The AO's findings were supported by evidence collected during the search, including a piece of paper showing actual sales figures for two days, which were at variance with recorded figures. The AO also relied on instances where sales bills were manipulated, as evidenced by decoy customers. The assessee argued that these findings should not be applied to earlier years without independent evidence.

5. Comparison with Other Establishments:
The assessee argued that their cost of food to sales ratio should be higher than that of the Golden Dragon restaurant run by the Taj Group, which had a ratio between 45 to 50%. The CIT(A) rejected this comparison, stating that the assessee's restaurant had different operational characteristics and a higher turnover.

Conclusion:
The Tribunal, considering all evidence and arguments, determined that the food cost to sales ratio should be 40% for all years under consideration. The sustainable additions were revised as follows:

- A.Y. 1988-89: Rs. 19,47,270
- A.Y. 1989-90: Rs. 27,90,100
- A.Y. 1990-91: Rs. 39,53,571.50

The appeals by the department were dismissed, and the appeals by the assessee were partly allowed.