2019 (3) TMI 76 - HC - Income Tax

Assessment u/s 153A - Validity of search on grounds of absence of panchas - preparation of mahazar as also recording of statements under oath, were carried out in the presence of Police and without any panchas - After such proceedings were carried out two persons were called from the outside and forced to sign the mahazar - HELD THAT - If that was the case, we agree with the Counsel that probably, the assessee could not have raised objections before the search party itself, especially when it is averred that the search was in the presence of Police. However, that does not preclude the assessee from raising a contention before the Assessing Officer when notice is issued in the proceedings under Section 153A. If that had been raised at the first instance and cross-examination was not allowed by the Assessing Officer, definitely, it could have been considered by any of the Appellate Authorities. The fact that even then, the assessee could have won over the panchas would be irrelevant insofar as the passage of time having occasioned only by reason of the Assessing Officer having not followed the requirement of law, of examining the panchas when it was first sought for. Having not raised the contention before the Assessing Officer we perfectly agree with the Standing Counsel that if it is permitted at the appellate stage, it could only lead to chaos. Referring to decision in Pooran Mal 1973 (12) TMI 2 - SUPREME COURT which itself specifically spoke of the safeguards insofar as a search under Section 132 held that compliance with the provisions of the CrPC, with respect to search and seizure is the most important safeguard insofar as the acceptability of the search is concerned. If there is no compliance with the most important safeguard, definitely it should fail. We have no quarrel with the proposition as laid down in the cited decisions. But however, the contention raised here is with respect to the absence of panchas; which we are of the firm opinion, should have been raised at the first instance. The non-presence of panchas raised for the first time before the First appellate authority after a period of three years from the search conducted, cannot at all be countenanced. There was no valid ground for the Tribunal to cancel the assessment in the light of the order of the co-ordinate Bench which the Tribunal has specifically referred to and found to be distinguishable. The questions to be answered in favour of the revenue Limitation under Section 153B - contention taken up is that the order was dispatched after the office hours - HELD THAT - Requirement as noticed by the Tribunal from the judgment of this Court in Cochin Plantations Ltd. v. State of Kerala 1997 (2) TMI 76 - KERALA HIGH COURT is to ensure that by the last day of limitation, the order is beyond the control of the authority concerned; ensuring that no changes or modifications are made after the expiry of limitation period. Hence if a conscientious officer passed the order on the last day of limitation and dispatched it after office hours, it cannot be said to be a factor vitiating the order or enabling the limitation period to be applied to find a bar for issuing the said order. - Decided against the assessee Rejection of books of accounts - estimation of turnover - pre-search enquiry had revealed sale of 2.02 gms of gold locket on the basis of an estimate slip which did not find a place in the accounts of the assessee - HELD THAT - As search revealed estimate slips issued for a period of 15 days which totalled a sale of 175.174 gms; whereas the sale accounted for the said 15 days was only 17 gms. This is the basis on which the Assessing Officer rejected the accounts and estimated the turnover. The materials as revealed in the search in our opinion, was sufficient to reject the books of accounts of the assessee. Estimation of Income - estimation of turnover 10 times - Disclosed Gross Profit of 36.55% to 48.08% in its accounts. - HELD THAT - IA reasonable computation was made considering the Gross Profit available in that line of business and a far lower gross profit of 20% was adopted for all the years. The estimation was made at ten times the returned turnover, finding that only 10% of the sales are accounted. The addition of ten times turnover was reduced by the First Appellate Authority to five times. The Tribunal modified it slightly to make it six times. There is absolutely no question of law arising from the estimation. Personal investment of the Managing Partner - HELD THAT - The learned Standing Counsel Sri.Jose Joseph also points out that there was no separate addition made on that count and the addition made is only on the turnover at ten times, reduced later to six times, with gross profit @ of 20%. We also find that such a ground was not taken up before any of the appellate authorities. Hence we do not think that such a ground can be raised at the stage of appeal under Section 260A - Assessee appeal dismissed.

Summary

Issues Involved:
1. Validity of the search due to the absence of panchas.
2. Non-cancellation of the assessment despite a co-ordinate Bench's order.
3. Legality of the order under Section 153A due to the absence of panchas.
4. Limitation of the assessment order.
5. Rejection of the books of accounts.
6. Inclusion of personal investment of the managing partner as the income of the assessee.
7. Estimation of turnover at six times the declared turnover.

Detailed Analysis:

1. Validity of the Search Due to Absence of Panchas:
The assessee argued that the search was invalid due to the absence of panchas during the search and the recording of statements under Section 132(4). The Tribunal acknowledged that appellate authorities could examine the validity of a search but refused to accept the contention on facts. The High Court emphasized that the safeguards under Section 132 of the Income Tax Act and the provisions of the Criminal Procedure Code must be scrupulously followed. The Court held that the absence of panchas should have been raised at the first instance before the Assessing Officer. The contention raised for the first time at the appellate stage was not permissible as it could lead to manipulation and chaos. The Court concluded that the question of the presence of panchas could not be questioned in appeal unless it was first raised before the Assessing Officer.

2. Non-Cancellation of the Assessment Despite a Co-ordinate Bench's Order:
The assessee contended that the Tribunal should have canceled the assessment based on a co-ordinate Bench's order, which was affirmed by the High Court. The Tribunal found the cited decision distinguishable as the plea of absence of panchas was raised at the first stage in that case. The High Court agreed with the Tribunal's finding and held that the cited decision did not apply to the present case.

3. Legality of the Order Under Section 153A Due to the Absence of Panchas:
The assessee argued that the order passed under Section 153A was illegal due to the absence of panchas. The High Court reiterated that the contention regarding the absence of panchas should have been raised before the Assessing Officer. The Court found that the Tribunal had rightly refused to cancel the assessment on this ground.

4. Limitation of the Assessment Order:
The assessee argued that the assessment order was barred by limitation as it was dispatched after office hours on the last day. The High Court held that the requirement was to ensure that the order was beyond the control of the authority concerned by the last day of limitation. The Court found that the dispatch after office hours did not vitiate the order or enable the limitation period to apply. The question of limitation was answered against the assessee.

5. Rejection of the Books of Accounts:
The assessee challenged the rejection of the books of accounts, alleging that there was no material to justify the rejection. The High Court noted that the search revealed excess stock of gold and silver ornaments not recorded in the books of accounts and estimate slips indicating unaccounted sales. The Court found that these materials were sufficient to reject the books of accounts.

6. Inclusion of Personal Investment of the Managing Partner as the Income of the Assessee:
The assessee contended that the undisclosed stock recovered belonged to one of the partners and should not be included in the firm's income. The Tribunal rejected this contention, noting that the partner was present during the search and cooperated with the proceedings. The High Court agreed with the Tribunal's finding and held that there was no question of law arising from these facts.

7. Estimation of Turnover at Six Times the Declared Turnover:
The assessee challenged the estimation of turnover at six times the declared turnover. The High Court noted that the Assessing Officer had found significant discrepancies in the recorded sales and estimated the turnover at ten times the returned turnover, which was later reduced to six times by the Tribunal. The Court found that the estimation was based on reasonable computation and declined to interfere with the Tribunal's determination of facts.

Conclusion:
The High Court rejected all the appeals, upholding the Tribunal's order and findings on all issues raised by the assessee. The Court emphasized the importance of raising contentions at the appropriate stage and found no merit in the arguments presented by the assessee.