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TMI Blog2012 (8) TMI 367X X X X Extracts X X X X X X X X Extracts X X X X ..... olding action of CIT, erred in looking for some other corroboration to substantiate the contents of the loose papers, overlooking that the loose papers needed no further corroboration and the sale bills compared with the seized papers themselves corroborated the suppression of income. Tribunal ought to have examined the estimate made by the AO. The observation of the Tribunal that no evidence was found to show that the actual turnover of the assessee was more than the declared turnover is hair splitting. The decision making process is as important as the correctness of the decision itself. Merely because the correctness of the decision appears unquestionable, the serious flaws or gaps in the steps that constitute the judicial decision making process cannot be overlooked. Question answered in favour of the Revenue by passing the order of remit to the Tribunal. - ITA No.2021/2010, ITA No.2045/2010, ITA No.1788/2010, ITA No.2023/2010, ITA No.1789/2010, ITA No.2024/2010, ITA No.1791/2010 - - - Dated:- 7-8-2012 - MR. JUSTICE SANJIV KHANNA, MR. JUSTICE R.V. EASWAR, JJ. For Appellant: Ms. Rashmi Chopra, Sr. Standing Counsel. For Respondent: Mr. Arvind Bansal, Advocate. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2. Whether Income Tax Appellate Tribunal (ITAT) has failed to decide the issue of depreciation on the alleged foreign car and therefore the order is perverse? 1791/2010 2006-07 1. Whether the Income Tax Appellate Tribunal (ITAT) was right in law in deleting the addition of Rs.2,22,40,033/- and Rs.1,36,92,746/- on account of suppressed sale value of Hing and compound Hing, respectively? 2. Whether Income Tax Appellate Tribunal (ITAT) has failed to decide the issue of depreciation on the alleged foreign car and therefore the order is perverse? 2. The assessee is a partnership firm engaged in the business of Hing. It also carries on the processing of Hing under which edible Hing is produced from pure/ raw Hing by subjecting the same to a process. The partners of the assessee firm are Anil Kumar Bhatia (HUF) and Sanjay Bhatia (HUF). On 13.12.2005 there was search of the assessee‟s premises under Section 132 of the Act. In the course of the search certain ITA 2021/2010, 2045/2010, 1788/2010, 2023/2010, 1789/2010, 2024/2010 1791/2010 Page 4 of 26 documents were found which according to the Assessing Officer suggested gross under invoicing of sales a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le @ 2000 per Kg. Actual Sales Difference in addition made G.P. @ 25% 2000-01 5,450 1,89,00,300 28,50,117 1,60,49,883 40,12,470 2001-02 10,896 2,17,92,000 39,53,364 1,78,38,636 44,59,659 2002-03 16,517 3,30,34,000 57,93,367 2,72,40,633 68,10,158 2003-04 22,074 4,41,58,000 82,23,325 3,59,24,675 89,81,169 2004-05 19,546 3,90,92,000 96,59,705 2,94,32,295 73,58,074 2005-06 58,390 11,67,80,000 2,78,19,867 8,89,60,133 2,22,40,033 COMPOUND HING: A.Y. Qty. sold in Kg. Rate adopted @ 500 per kg. Sales recorded Difference 2000-01 26,099 1,30,49,500 24,79,961 1,05,69,539 2001-02 26,683 1,33,41,500 18,65,586 1,14,75,914 2002-03 24,590 1,22,95,000 20,01,738 1,02,93,262 2003-04 32,238 1,61,19,000 23,73,837 1,37,45,163 2004-05 33,451 1,67,2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mate the profits, having rejected the books of accounts. He thereafter proceeded to consider what in his opinion would be a reasonable rate of profit earned by the assessee in the business. As far as the Hing is concerned, he enhanced the gross profit by 2% of the sales and added the difference to the profits. In doing so he has taken the sales as disclosed by the assessee. With regard to the Hing compound he held that there is no record or evidence to show that the assessee did produce the alleged quantity of Hing compound and sold them in the market. He found that the Assessing Officer had assumed that there can be a production of 10 to 25 kgs. of Hing compound out of 1 kg. of pure Hing. The Assessing Officer has also assumed that there is no manufacturing account for production of compound Hing. He found fault with the procedure adopted by the Assessing Officer which according to him had no basis. The estimated turnover computed by the Assessing Officer was found to be without any record or evidence. He, therefore, took the sales as disclosed by the assessee as correct. However, he found justification for a higher estimate of gross profit than what was shown by the assessee. He ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pect of hing compound also. During the year on a turnover of Rs.24,79,961/- declared gross profit of Rs.2,93,813/- @ 11.8%. As already decided in respect of hing, the same rate of G.P. is taken in this case also i.e. @ 20% which comes to Rs.4,95,992/-. Thereby the difference of Rs.2,02,179/- is directed to be assessed as income of the assessee in respect of hing compound which represents difference in the gross profit disclosed in the books by the assessee. Accordingly the A.O. is directed to delete the addition of Rs.1,05,69,539/- which represents the estimated sale value on hing compound and add the amount of Rs.2,02,179/-, being the additional profits on hing compound. The orders of the CIT (Appeals) for all the other years are on the same lines. 7. As regards the depreciation on the car which was disallowed by the Assessing Officer, the CIT (Appeals) examined the invoices to verify whether the vehicle was purchased in India or imported from abroad. He found that it was purchased from the authorised dealer in India by obtaining finance from the bank. He, therefore, held that though the vehicle was a foreign brand, it was purchased from the authorised dealer in India and t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e is any understatement of sale consideration, although subject loose papers may be sufficient for invoking/ arousing suspicion and enquiry but, same in our opinion, is not sufficient to draw the conclusions. c) Since it is well settled that even though loose papers are not properly explained by assessee, if nothing corroborative/ material is found to substantiate the contents of loose papers, no addition on mere loose papers can be made. For this purpose reference can be made to decision of Hon ble P H High Court in (184 Taxman 6) Atam Valves; and of Guj High Court in CIT vs. Maulikkumar K. Shah (307 ITR 137) d) Since CIT (A) himself has concluded at once place that no serious consideration can be given to subject loose papers, same in our opinion is sufficient to conclude that there is nothing more in revenue s kitty apart from those/ said loose papers pertaining to Nov 2005 (financial year 2005-2006) to support suppression of sales receipts on part of assessee firm. e) The Jurisdictional Delhi High Court in Anand Kumar Deepak Kumar (294 ITR 497) on 25/8/2006 has held as under: - .Merely because there were some discrepancies in the pre-search period, it cannot lead to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aterial and evidence collected during search. In the cited judgment the facts were these. The case arose under the sales tax law. Assessments under the MP General Sale Tax Act and Central Sales Tax Act had been completed on a dealer of iron and steel. They were made primarily on the basis of the returned filed by the assessee and the books of accounts. Subsequently, the flying squad of the sales tax department inspected the business premises of the assessee and found a bill book for the period of 19 days from September 1 to 19, 1960 showing sales of the value of Rs.31,171/- which had not been entered in the account books maintained by the dealer. On this basis the Sales Tax Officer initiated reassessment and after rejecting the account books estimated the escaped turn over at Rs.2,50,000/- under the MP General Sales Tax Act and Rs.1,00,000/- under the Central Sales Tax Act, adopting the sale of Rs.31,171/- as escaped turnover for a period of 19 days as the basis. The contention of the assessee in that case was that the action of the Sales Tax Officer was arbitrary inasmuch as he had no evidence of escaped turnover for the entire accounting period and he was not legally correct in e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1960, and September 20, 1960, to October 20, 1960. The task of the assessing authority in finding out the escaped turnover was by no means easy. In estimating any escaped turnover, it is inevitable that there is some guess-work. The assessing authority while making the best judgment assessment, no doubt, should arrive at its conclusion without any bias and on rational basis. That authority should not be vindictive or capricious. If the estimate made by the assessing authority is a bona fide estimate and is based on a rational basis, the fact that there is no good proof in support of that estimate is immaterial. Prima facie, the assessing authority is the best judge of the situation. It is his best judgment and not of anyone else. The High Court could not substitute its best judgment for that of the assessing authority. In the case of best judgment assessments, the courts will have to first see whether the accounts maintained by the assessee were rightly rejected as unreliable. If they come to the conclusion that they were rightly rejected, the next question that arises for consideration is whether the basis adopted in estimating the turnover has reasonable nexus with the es ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly, there was seized material in the present case to show that the assessee has been indulging in off-record transactions. The observation of the Tribunal that no evidence was found to show that the actual turnover of the assessee was more than the declared turnover is hair splitting. The Tribunal lost sight of the fact that all was not well with the books of account maintained by the assessee and it has been keeping away its income from the books. That should have been sufficient for the Tribunal to examine the estimate made by the Assessing Officer, having regard to the principles laid down in the judgment of the Supreme Court (supra). The Tribunal also failed to note the difference between Section 158BB appearing in the Chapter-XIVB and the assessment made by virtue of the provisions of Section 153A of the Act. Secondly, the Tribunal expects the purchasers from the assessee to come forward and declare that they have paid more than what was appearing in the sale bills issued to them and has commented upon the lack of any inquiry from the purchasers on this line. Suffice to say that this throws an impossible burden on the Assessing Officer, having regard to the observations of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... indings should not be made use of to throw out the case of the department. Lastly, the reliance placed by the Tribunal on the judgment of this Court in CIT v. Anand Kumar Deepak Kumar, (2007) 294 ITR 497 does not seem appropriate. There it was held that there was no presumption that unaccounted sales in the pre-search period would continue in the post search period also. This judgment has no application to the present case because the search took place on 13.12.2005 which falls in the year relevant to the assessment year 2006-07. The assessments under Section 153A of the Act have been completed up to and including the assessment year 2006-07. Even if there can be no presumption that after 13.12.2005 there could have been unaccounted sales of Hing or compound Hing, it is hardly material since only a period of 3 months were left after the date of search till the end of the previous year i.e. 31.03.2006. 14. One more aspect of the matter needs reference and clarification. In the seized papers from pages 19 to 26 which are referred to in the assessment order, there are instances of sale of Hing at rates per kilogram. The CIT (Appeals) on an examination of the seized material, noted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en seized, it would be more appropriate for the Tribunal to put the findings of the departmental authorities to a detailed examination by itself, without merely endorsing the conclusions of the first appellate authority. The Act has constituted the Tribunal as the final fact finding body and that role requires to be fulfilled, more particularly in a case such as the present one. It is particularly so because the additions made by the Assessing Officer were huge by any standards and they have been scaled down by the CIT (Appeals) against which the Revenue was in appeal before the Tribunal. We are not to be understood as conveying an impression that the decision of the CIT (Appeals) and the endorsement thereof by the Tribunal was on merits not justified. What we are pointing out is that there is precious little in the order of the Tribunal to show that it had undertaken an examination of the seized material in order to test the soundness of the findings of the CIT (Appeals). The decision making process is as important as the correctness of the decision itself. Merely because the correctness of the decision appears unquestionable, the serious flaws or gaps in the steps that constitute ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as not binding on it. This is a well-settled position and has been accepted in several cases, a few of which have been noticed by us in our decision in the case of the CIT v. Nova Promoters and Finance Ltd., (ITA 342/2011 dated 15.02.2012) (reported in (2012) 342 ITR 169). Herein, we find that the Tribunal has not examined the order of the CIT (Appeals) in the manner required of it and has also not looked into the seized material to find out if the crucial findings of the CIT (Appeals) were justified. The Tribunal has not adverted to the assessee‟s conduct before the Assessing Officer nor has it referred to the admission made by the assessee before the Assessing Officer that it was indulging in suppression of profits. In the light of the evidence, it was for the Tribunal to examine whether the CIT (Appeals) was justified in substantially reducing the additions by holding that the sales turnover cannot be estimated on the basis of the seized material showing sales for a few days and whether this scaling down of the addition was in conformity with the legal position expounded by the Supreme Court in the judgment cited (supra). We are, therefore, of the view that the findings of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sent case in upholding the order of the CIT (Appeals) substantially deleting the additions made for suppression of profits, we have differentiated and distinguished between the present assessee‟s case and the case of Lachman Dass Bhatia (supra) on account of the distinguishing features noted above. These reasons/ factors were not present in the case of Lachman Dass Bhatia. 18. So far as the second question in all the appeals, except the appeal in ITA No.2021/2010 (assessment year 2000-01), is concerned, it relates to the depreciation on car. The assessee‟s claim of depreciation on Mercedes car was disallowed by the Assessing Officer on the ground that there was no proof to show that the car was manufactured in India which was a condition for the allowance. On appeal the CIT (Appeals) examined the invoices to verify where the vehicle was purchased in India or imported from abroad. He found that the car was purchased from an authorised dealer in India by obtaining funds from the bank. According to him, though the vehicle is a foreign vehicle, since it was purchased from an authorised dealer in India, no statutory condition was violated and hence depreciation was allowab ..... X X X X Extracts X X X X X X X X Extracts X X X X
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