2013 (5) TMI 301 - AT - Income Tax

Lower rate of profit shown on sale of plots in the return of income - survey under sec. 133A - rejection of books of accounts - Held that - As the assessee voluntarily offered during the course of survey income at Rs. 1853 per sq. yard which was reduced to Rs. 757 per sq. yard later. The reasons explained by the assessee are not satisfactory as merely because certain expenditures were not booked on earlier occasion and have to accounted on accrual basis, there cannot be fluctuation of profit from Rs. 1853 to Rs. 757 per sq. yard. The gap between Rs. 1853 and Rs. 757 per sq. yard is Rs. 1096 which is very abnormal which could not be explained by the assessee properly. As concerned with the correct expenditure relating to the assessment year under consideration expenditure cannot be changed in such an abnormal manner. Change in the profit rate per sq. yard from Rs. 1853 to Rs.757 per sq. yard clearly suggests that the assessee has tried to manipulate the accounts by inflating the expenditure and submitted that certain expenditures were left out while admitting the profit at Rs. 1853 per sq. yard. Facts brought on record show that the assessee is not keeping books of account to show correct income. In such circumstances, the lower authorities have no alternative to stick to the income declared by the assessee. The Supreme Court in the case of Pooranmal vs. DIT(E) (1973 (12) TMI 2 - SUPREME Court) held that material obtained in search made in contravention of the provisions can be used for assessment. Being so, the Assessing Officer can use the material collected during the course of survey for making assessment. Also as decided in Dr. Pratap Singh vs. Director of Investigation (1985 (4) TMI 1 - SUPREME Court) illegality of search does not vitiate the evidence collected during such illegal search. In view of this the material collected during the course of survey can be used for the purpose of assessment - assessee appeal is dismissed.

Issues Involved:
1. Validity of the orders passed under section 143(3) of the IT Act.
2. Legitimacy of the income estimation based on a statement recorded during survey proceedings.
3. Admissibility of a statement recorded under section 133A of the IT Act.
4. Consideration of the expenditure claims recorded in books of accounts.
5. Applicability of Board Circulars and judicial precedents regarding survey statements.

Detailed Analysis:

1. Validity of the Orders Passed Under Section 143(3) of the IT Act:
The assessee challenged the orders passed under section 143(3), claiming they were against the facts of the case and the provisions of law. The Tribunal, after examining the facts, upheld the orders, stating that the Assessing Officer (AO) was justified in rejecting the books of accounts and estimating the income due to discrepancies in the profit margins declared during the survey and in the return of income.

2. Legitimacy of the Income Estimation Based on a Statement Recorded During Survey Proceedings:
The assessee argued that the AO's estimation of income based solely on a statement recorded during the survey, without any incriminating material, was incorrect. The Tribunal noted that the profit rate of Rs. 1853 per sq. yard was determined after considering all relevant costs and was admitted by the assessee during the survey. The Tribunal found that the subsequent reduction to Rs. 757 per sq. yard was not satisfactorily explained and appeared to be an attempt to manipulate accounts by inflating expenditures.

3. Admissibility of a Statement Recorded Under Section 133A of the IT Act:
The assessee contended that statements recorded during a survey under section 133A cannot be used as the basis for assessment as per judicial precedents. The Tribunal acknowledged the Supreme Court's ruling in CIT vs. S. Khader Khan Son, which stated that statements recorded during a survey have no evidentiary value. However, the Tribunal also referred to other Supreme Court judgments, such as Pooranmal vs. DIT(E) and Dr. Pratap Singh vs. Director of Investigation, which allowed the use of material collected during illegal searches for assessment purposes. Thus, the Tribunal concluded that the material collected during the survey could be used for assessment.

4. Consideration of the Expenditure Claims Recorded in Books of Accounts:
The assessee argued that the expenditures claimed in the books of accounts were legitimate and should be allowed. The Tribunal examined the details and found that the expenditures were inflated post-survey to reduce the profit margin. The Tribunal noted that the expenditures claimed were significantly higher than those estimated during the survey, and the reasons provided for this discrepancy were not convincing. Consequently, the Tribunal upheld the AO's decision to reject the books of accounts and estimate the income based on the survey findings.

5. Applicability of Board Circulars and Judicial Precedents Regarding Survey Statements:
The assessee cited various judicial precedents and Board Circulars, including the CBDT instruction prohibiting the use of confessional statements for making additions unless supported by credible evidence. The Tribunal considered these precedents but emphasized the importance of the material collected during the survey. The Tribunal found that the assessee's admission of a profit rate of Rs. 1853 per sq. yard during the survey was credible and supported by the facts, and thus, the AO's reliance on this admission was justified.

Conclusion:
The Tribunal dismissed the appeal, confirming the order of the CIT(A) and upholding the AO's estimation of income based on the profit rate admitted during the survey. The Tribunal emphasized that the material collected during the survey, including the statement of profit, could be used for assessment purposes, and the discrepancies in the expenditure claims justified the rejection of the books of accounts. The appeal was dismissed, and the order was pronounced in the open court on 5th April 2013.

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