2014 (3) TMI 217 - HC - Income Tax

Materials detected during search Basis of Best judgement assessment - Whether the Tribunal gone wrong in not considering the aspect as to whether materials detected in a search conducted u/s 132 of the Act in the business premises of another assessee could be a reason or basis for best judgment assessment against the assessee - It is clear that in the pre-search enquiry and course of search proceedings the information collected was mostly with reference to assessment year 2008-09 - the information gathered during the search proceedings with reference to Commercial Tax department pertains to 2006 - Inspection by Commercial Tax department was on 24.02.2006 - Commercial Tax department also found similar deficits in the maintenance of accounts and the records by the appellant assessee - Commercial Tax Department also opined, sales bills were not issued for the entire sales made by them though estimate slips was prepared for the actual sales. Initiation of proceedings u/s 153A of the Act - Whether the material recovered on 21.08.2007 and also other information during the course of search could be the material for previous six years to initiate proceedings under Section 153A of the Act Held that - Though the estimate slip reflects the actual purchase and sale of gold made in the business concerns of appellant assessees, the sale bill was always for lesser quantity than the details reflected in the estimate slip - By this process actual sales were not reflected was the information gathered during 2006 by the Commercial Tax Department - Search was in 2007 - There was material in black and white at least for these two years thus, there was enough information and material to presume the nature of accounting and also modus operandi in maintaining the records by the assessee - Relying upon Commissioner of Income-tax Versus Hotel Meriya 2010 (5) TMI 556 - Kerala High Court none of the provisions under Chapter XIVB mandates, for making block assessment there shall be evidence regarding the concealment of income for every year for the block period. There is no prohibition or embargo on the department to consider this information for assessment or reassessments contemplated under Section 153A - There is also no requirement under Section 153A and other provisions requiring the department to collect information and evidence for each and every year for the six previous years under Section 153A - As there was no explanation called for from the assessees, so far as the materials collected from statement of the employees of the assessee and also the other material, in all fairness - the Tribunal exercised its jurisdiction with all magnanimity in remitting back the matter to the assessing officer giving opportunity to the assesees to explain and substantiate their stand before the assessing authority - This would mean that the assessee has one more opportunity to convince the department regarding their stand by explaining the controversies raised by the department based on the information gathered by them during the search there was no reason to interfere in the decision of Tribunal Decided against Assessee.

Issues Involved:
1. Consideration of materials detected in a search under Section 132 of the Income Tax Act, 1961, at another assessee's business premises for best judgment assessment.
2. Suppression of income in one year as a reason for rejecting returns of previous years and for best judgment assessment under Section 144 of the Income Tax Act, 1961.
3. Use of income suppression in one year as a basis for estimating income in other years.
4. Reliance on proceedings of the Commercial Tax Department before they attained finality for concluding that the assessee issued estimate slips instead of sale bills.

Issue-wise Detailed Analysis:

1. Consideration of Materials Detected in a Search:
The Tribunal was questioned on whether it erred in not considering if materials detected in a search at another assessee's premises could be used for best judgment assessment against the appellant. The court noted that the search conducted on 21.08.2007, and the pre-search enquiry on 24.07.2007, revealed that the appellant's business concerns were issuing estimate slips instead of sale bills. Statements from employees and materials seized during the search supported this finding. The Tribunal decided that the materials found during the search, including those from the Commercial Tax Department, should be examined after giving the taxpayer an opportunity to explain. Thus, the Tribunal remitted the matter back to the assessing officer for fresh consideration.

2. Suppression of Income as a Basis for Rejecting Returns:
The appellant argued that suppression of income in one year should not be the sole basis for rejecting returns of previous years or for best judgment assessment. The Tribunal, however, found that the assessing officer had reason to believe there was a pattern of suppression of income over multiple years based on the materials and statements obtained during the search. The Tribunal opined that the assessing officer could consider all evidence, including materials found during the search, for reassessment under Section 153A. Therefore, the Tribunal remitted the matter back to the assessing officer for a comprehensive review.

3. Use of Income Suppression for Estimating Income in Other Years:
The appellant contended that suppression of income in one year should not be used to estimate income in other years. The Tribunal referred to the case of Hotel Meriya, which held that there is no requirement for evidence of concealment for each year in a block period for making a block assessment. Similarly, under Section 153A, the department can assess or reassess based on information gathered during the search without needing evidence for each specific year. Thus, the Tribunal found no prohibition on using the information for assessments or reassessments for the previous six years.

4. Reliance on Proceedings of the Commercial Tax Department:
The appellant argued that the authorities erred in relying on the proceedings of the Commercial Tax Department before they attained finality. The Tribunal noted that the Commercial Tax Department's inspection on 24.02.2006 revealed similar discrepancies in maintaining accounts and records. The Tribunal found that the information from the Commercial Tax Department, along with the materials seized during the search, provided sufficient grounds for the assessing officer to reassess the appellant's income. The Tribunal remitted the matter back to the assessing officer to allow the appellant to explain the materials collected.

Conclusion:
The Tribunal exercised its jurisdiction appropriately by remitting the matters back to the assessing officer, giving the appellant an opportunity to explain and substantiate their stand. The court found no grounds to interfere with the Tribunal's order, and the appeals were dismissed.

← Previous Next →