9911796707
TMI Blog2013 (1) TMI 423X X X X Extracts X X X X X X X X Extracts X X X X ..... passing a non speaking order - Thus the orders of tax authorities do not speak about the objective analysis, if any, carried on by them on the documents filed by the assessee. As the assessee has filed confirmation letters obtained from the donors/lenders along with the details of bank account, etc. this issue requires fresh examination at the end of the Assessing Officer. Addition of loans/gifts received from friends - Held that:- All these amounts have been assessed in the assessment years 2002-03 to 2004-05, assessment years fall in the category of concluded assessments. As noticed that the amounts received from Shri Siddique and Shri T. Mohammed find place in the balance sheet filed by the assessee and other gifts find place only in the cash flow statement. It is not clear as to whether the cash flow statements were filed along with the returns of income originally filed u/s 139 or they were filed along with the returns filed u/s. 153A. If any of the amount is disclosed for the first time in the returns of income filed u/s. 153A either in the Balance sheet or in the cash flow statement, it is susceptible for verification in the assessment proceeding carried out u/s 153A, even i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ins that he was working/doing business abroad. The tax authorities should not take adverse view by considering his age. Tax authorities have not carried out any objective analysis, but instead carried away by non-compliance of formalities under FERA Act - the addition made on this account in assessment years 2006-07 and 2007-08 requires fresh examination - restore the matter relating thereto the file of AO. Estimation of business income on account of suppression of sales - Held that:- Since the assessee himself has deposed that the sales suppression was to the tune of 8%, in our view, it would be justifiable to determine the sales suppression at 8% of the total turnover for all the years under consideration, particularly in view of the fact that the department did not seize any other material to make estimate of sales suppression in any other manner. It is pertinent to note that the very same methodology was adopted in the case of the company, M/s South Malabar Steels & Alloys Pvt. Ltd, sister concern also. Gross profit rate to be adopted for estimating the income for all the years - Held that:- It would be just and reasonable, if the Gross profit rate declared by the assessee in v ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of search plus six earlier assessment years). The assessee challenged the said assessment orders before the Ld. CIT(A) but could get only partial relief. Hence he has preferred these appeals before us seeking further relief. 3. The various types of additions made by the Assessing Officer and which are being contested before us can be grouped under the following heads: i) Suppression of business income. ii) Gifts/loans from relatives. iii) Gifts/loans from friends. iv) Deficiencies in cash flow statement. v) Addition towards sale of trees. vi) Foreign travel expenses. vii) Valuation of house property. viii) Amount received from son. 4. Before proceeding to adjudicate the issues raised, we feel it pertinent to discuss about the scope of assessment u/s 153A of the Act, since the Assessing Officer has framed the assessments under that section consequent to the search and seizure operations conducted in the hands of the assessee on 06-09-2007. As per the provisions of sec. 153A of the Act, the AO is required to assess or reassess the total income of six assessment years immediately preceding the assessment year relevant to the previous year in which such search is cond ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ver, we feel it pertinent to express the view that if the AO finds out any defect on any issue in respect of the pending assessments which got abated and such kind of issues are also available in other assessments, which have already been completed and did not abate, then in our view, the AO is entitled to examine those issues in those years also, in order to find out whether similar defects exist in those years or not. In such a situation, in our view, it is not necessary to satisfy the condition that some incriminating materials concerning to those issues should have necessarily been found out in respect of those assessment years". 5. The above said view has since been confirmed by the Mumbai Special Bench in the case of All Cargo Global Logistics vs. DCIT (137 ITD 287). This Tribunal as well as the Special bench has held that the assessment of a particular assessment year shall be deemed to have been concluded, if the notice required to be issued u/s 143(2) of the Act was not issued for that year and the time limit prescribed for issuing the same has also expired as on the date of initiation of search. 6. By considering the legal position discussed above, we shall first bifurc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ons made by the Assessing Officer. 6.1 The Ld A.R contended that the assessment pertaining to the assessment year 2006-07 should also be considered as concluded, since the notice u/s 153A was issued after 12 months from the date of filing of return of income of that year. However, we are unable to agree with his contentions. The fact remains that the assessment of that year was pending on the date of initiation of the search and hence it shall abate by virtue of provisions of sec. 153A after the initiation of search. Hence the assessment of that year has to necessarily be completed as per the provisions of sec. 153A of the Act. 7. The first issue listed in paragraph 4 supra relates to the suppression of business income. From the orders of tax authorities, we notice that this addition is made in all the years under consideration. Hence, we would like to address this issue as last item. 8. We shall now take up the issue relating to the addition of gifts/loans received from relatives. The assessing officer has made additions on this account in the following assessment years. Asst. Year Amount of Addition 2002-03 Rs.13,18,500/- 2003-04 Rs. 10,000/- 2006-07 Rs.16,78,000/- 20 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mine the documents filed by the assessee in objective manner and decide the same in accordance with law, after affording necessary opportunity of being heard to the assessee. The assessee is free to adduce any other evidence or information or explanation before the AO. 9. We shall now take up the issue relating to addition of loans/gifts received from friends. The Assessing Officer has given details of gifts/loans received from friends at page 12 of the assessment order as under:- S.No. A.Y. Name of creditor Nature of credit Credit in Amount 1. 2002-03 Siddique Loan Balance sheet 211250 4. T. Mohammed Loan Balance sheet 153000 5. K.K.Ali Gift Cash flow 300000 6. V.K. Abdul Jabbar Gift Cash flow 150000 7. 2003-04 V.P. Mohammed Gift Cash flow 268000 8. V.Abubacker Gift Cash flow 474000 9. Abdu Rehman Gift Cash flow 150000 11. M. Abu Backer Gift Cash flow 178010 12. 2004-05 V. Abubacker Gift Cash flow 64500 13. K.P. Ali Gift Cash flow 100000 16. V.K. Abdul Jabbar Gift Cash flow 300000 18. Sainul Abid Gift Cash flow 50000 All these amounts have been assessed in the assessment years 2002-03 to 2004-05. We have alread ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bjective manner and decide the same in accordance with law after affording necessary opportunity of being heard to the assessee. The assessee is free to adduce any other evidence or information or explanation before the AO. 10. The next issue relates to the addition pertaining to "discrepancy/deficiency in cash flow". The assessee owned two vehicles and the income there from was offered by him as per the provisions of sec. 44AE of the Act. It is pertinent to note that the provisions of sec. 44AE provides for ad-hoc estimation of income and it is further provided therein that any deduction allowable under the provisions of sec. 30 to 38 shall be deemed to have already been given full effect to and no further deduction under those sections shall be allowed. In the cash flow statement, the assessee disclosed the depreciation allowable on the two vehicles as cash inflow in all the years under consideration as detailed below:- A.Y. Amount (Rs.) 2002-03 107742 2003-04 64645 2004-05 38787 2005-06 208121 2006-07 124872 2007-08 180693 2008-09 126485 The AO took the view that the depreciation, being a notional claim, cannot be included in the cash flow. Accordingly, he reje ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Act prior to the date of search. It is also stated that the department did not unearth any material to create any suspicion over the said income. Under these circumstances, this item of income falls outside the scope of the provisions of sec. 153A. Accordingly, we set aside the order of Ld CIT(A) on this issue and direct the AO to delete the addition relating thereto. 12. The next issue relates to the addition pertaining to Foreign travel expenses. Though the pass port of the assessee revealed that he had undertaken foreign tours, yet it was seen that the expenses relating thereto were not accounted for. Accordingly, the AO gathered the details of rates of air travel from recognised travel agencies and made the addition in assessment years 2003-04, 2005-06, 2006-07, 2007-08 and 2008- 09 and added the same to the income of the respective assessment years. The contention of the assessee that the expenses were sponsored by others did not find favour with the AO. The Ld CIT(A) agreed with the views expressed by the AO. However, the Ld CIT(A) noticed that the AO had committed certain errors in computing the amount of disallowance. Accordingly, the first appellate authority enhanced ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... In view of the foregoing discussions, we are of the view that this issue needs examination afresh, as it is not in accordance with the decision of jurisdictional High Court. Further the assessee is aggrieved on various points and they have not been addressed by the AO. Accordingly we set aside the order of Ld CIT(A) on this issue in the three years mentioned above and restore them to the file of the AO with the direction to examine the same afresh in accordance with the decision of jurisdictional High Court and law and take appropriate decision, after affording necessary opportunity of being heard. 14. The next issue pertains to the amount received from the son of the assessee. The assessee claimed to have received amounts to the extent of Rs.1,20,00,000/- during the financial year relevant to the assessment year 2007-08 and Rs.47,21,000/- during the year relevant to the assessment year 2008-09 from his son named Shri Mohammed Sheriff. The AO noticed that the age of Mohammed Sheriff was barely 21 years at the time of search and he has studied up to 12th standard only. The assessee claimed that the funds were originally transferred by Shri Mohammed Sheriff to his NRE account main ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was suppression of purchases and sales. He admitted that the suppression of sales is to the tune of 8% of the sales. During the course of assessment proceeding, the AO took cognizance of this confession. He also noticed that the Commercial tax authorities have found out certain defects in the units run by the assessee. Accordingly, the AO rejected the book results and proceeded to compute the unaccounted production on the basis of "electrical units" consumed by the assessee. The AO noticed that the average power consumption per MT worked out as under in various years. Asst Year Units consumed Production as per Return Power u 2002-03 549848 540.405 1017.47 2003-04 606676 558.900 1085.48 2004-05 591396 545.850 1083.44 2005-06 591744 388.980 1521.27 2006-07 592972 422.010 1405.15 2007-08 520496 683.105 761.96 2008-09 516052 794.000 649.94 15.1 The AO noticed that the assessee has disclosed lowest power consumption, i.e., 649.94 units per MT in the year relevant to the assessment year 2008-09. The AO considered the same as ideal one and took 650 units per MT as standard "Power consumption factor". By adopting the same, the AO computed the quantum and v ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssion of production, sale or profit. Just because of a search was conducted on 6.9.07, the Assessing Officer has proceeded to estimate the production, turnover and income for prior years when there is absolutely no evidence or date available before the Assessing Officer to suggest incorrectness in the accounts relating to production, sale and profit or any other material to show suppression of production or turnover for any of these years. The Assessing Officer also ignored the fact that the consumption of power is variable and not constant. Proper accounts for production and consumption are maintained by the appellant. The consumption of power is not static but a variable factor, is revealed by the accounts. The machineries are pretty old. The power supply is irregular. There is often power failures. Every power failure or breakdown in the supply causes wastage of power, because the M.S. Rods of 6 mm and lower sizes can be drawn only by heating metals at high temperature. When the furnace is at high temperature, and the production stops, the power consumed upto that stage, becomes waste. Production can be done only at standard temperature. Power failures occur due to various reaso ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The details of the returns furnished and the dates on which such returns for prior years were furnished is already on record. The returns were furnished before the due date supported by audited statement of accounts and these have been accepted by the Assessing Officer. The production has been accepted by the Commercial Tax Authorities. The production is also accepted by the Central Excise Authorities. I. The Assessing Officer also failed to consider the manufacturing process adopted by the assessee and also the raw materials and the finished items manufactured. I. In this connection, the following factors may kindly be noted:- a) The factory was set up by Shri K.P. Ummer in the year 1991 by taking over the existing factory which was not functioning for a very long period of 10 years. the factory was taken over from Shri V.C. Babu, Kunnamkulam under the name and style "Chunthand Steels". He had closed down the factory during the early 1980s due to labour strike. The plant and machinery of the entire set up was in dilapidated condition. The plant and machinery was reconditioned and put to use with all its limitations in the year 1991 by Shri K.P. Ummer. The running of the mac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s better, the price is more, but the power consumption and the manufacturing cost will be less. In other cases, where the quality of raw material is less, the cost will be less, but the power consumption and manufacturing cost would be more. These important facts have not been considered. I. There is no logic in the approach of the Assessing Officer in applying the data for 2008-09 for the prior years in the absence of any valid reason. When the books of accounts maintained for 2008-09 assessment are acceptable, it cannot be said that the books of accounts for prior years are incorrect or incomplete unless some material or evidence is brought on record. I. It is also significant that in the case of South Malabar Steels and Alloys Pvt. Ltd., the sister concern, the Assessing Officer relied upon external material by obtaining standard formula from Commercial Tax Department for estimating production. In that case, the lowest consumption for any year declared by the assessee was not the basis for estimating production for other years. The application of different parameters would show that the Assessing Officer himself was not satisfied with one method or the other but followed dif ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessee's hand. (c) Though the AO identified the amount of gifts received from the son of the assessee as Rs.60.21 lakhs, yet he made an addition of Rs.47.21 lakhs only. In view of the above, the Ld CIT(A) came to the conclusion that the AO has completed the assessments in haste and hence he proceeded to consider the entire issue afresh on merits. 15.5 The Ld CIT(A) strongly placed reliance on the deposition given by the assessee, wherein he had stated that there was suppression of sales to the extent of 8% of the turnover. Accordingly, he concluded that the said deposition is of general nature describing the modus operandi of his establishments without reference to any specific assessment year and hence it is applicable to all the assessment years, i.e., assessment year 2002-03 to 2008-09. In this regard, the Ld CIT(A) placed reliance on the decision of Hon'ble Supreme Court in the case of CST Vs. H.K.Esufali, H.M.Abdulali (1973)(90 ITR 271)(SC). Accordingly he held that the rejection of book results is justified. 15.6 The Ld CIT(A) did not agree with the observations of the AO that there were serious defects in the accounts of the assessee. The Ld CIT(A) also did not acce ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3-04 1085.48 2004-05 1083.44 2005-06 1521.27 2006-07 1405.15 2007-08 761.96 2008-09 649.94 Since the average power consumption was higher in the assessment year 2005-06 and 2006-07, the Ld CIT(A) came to the conclusion that the assessee was not showing the production in a truthful manner. Accordingly he concluded that the there was enough justification for estimation of production on the basis of power consumption shown by the assessee. The Ld CIT(A), by pointing out higher power consumption disclosed in the asst. year 2005-06 and 2006-07 rejected all the contentions raised by the assessee. Accordingly he proceeded to estimate the suppressed production for asst. years 2002- 03 to 2006-07 by taking the average power consumption factor as 750 units per MT. However for the asst. years 2007-08 and 2008-09, the Ld CIT(A) computed the undisclosed income by taking the suppressed turnover at 8% of the disclosed turnover. The computations made by Ld CIT(A) are given below:- "10.9 In accordance with the above, value of suppressed production of the appellant for various assessment years upto A.Y. 2006-07 can be reasonably and judiciously estimated as under:- A.Y. Power consumpt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r the above said two years. The assessee is aggrieved by the said decision of Ld CIT(A). 15.9 We have heard the rival contentions on this issue. Though the tax authorities have adopted the standard power consumption units as the basis for estimating the suppressed production (A.O estimated for all the years and Ld CIT(A) estimated so for the asst. years 2002-03 to 2006-07), the fact remains that the department did not unearth any material to substantiate the method adopted by the tax authorities. The solitary evidence, which was available with the department in the instant case, is the sworn statement given by the Managing Director Shri Ummer. 15.10 The Ld A.R contended that the said sworn statement cannot be placed reliance, as it is not corroborated with any other material. He further submitted that the assessee has retracted his statement by filing a letter on 10-09-2007. We have examined the said contentions of Ld A.R. It is an undisputed fact that the assessee has confessed about the suppression of purchases and sales in the sworn statement taken u/s 132(4) of the Act. The relevant question and answers are extracted below:- "Q. No.13 - Have you properly maintained accounts ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd of trade practices, there would not have been any occasion for the Managing director to give statement about purchase and sales suppression. Hence, in the facts and circumstances of the case, in our view, it would be very much reasonable to presume that the assessee was suppressing purchases and sales. 15.12 The ld A.R contended that the said sworn statement cannot be placed reliance, as it is not corroborated with any other material. In that regard, he also placed reliance on the following case law:- (a) DCIT Vs. Pramukh Builders (2008)(115 TTJ (Ahd)(TM). (b) Smt. Sushila Suresh Malge Vs. ACIT (IT(SS)A 05/Mum/2012) (c) First Global Stock Broking (P) Ltd Vs. ACIT (115 TTJ (Mum) 173) The case law listed as (b) and (c) above relates to the block assessment proceeding. Since the scope of block assessment under Chapter XIV-B of the Act is different from the scope of proceedings u/s 153A of the Act, in our view, the assessee cannot place reliance on the said decisions. With regard to the case law listed as (a) above, we notice the assessee therein has proved that the statement u/s 132(4) was given in a state of confusion and later retracted. However, in the instant case, it i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be adopted for estimating the income for all the years. There cannot be any dispute that the rate of gross profit depends upon various factors like purchase quantity/rate, sales quantity/rate, variation of rates, cost of manufacture and its variation etc. A significant variation in one of the factors would badly affect the gross profit rate. A significant increase in the selling rate would boost the rate of gross profit. This point was exactly clarified by the assessee before the Ld CIT(A) and the first appellate authority has also extracted the workings given by the assessee for the assessment year 2008-09, in paragraph 10.9 of his order. The workings given by the assessee disclosed the fact that the sharp rise in the selling rate of finished goods has helped in increase of Gross profit rate at 19.33% for the assessment year 2008-09. 15.16 Accordingly, the Ld CIT(A) has given a specific finding that the effect of increase in prices in the year relevant to the assessment year 2008-09 is evened out, i.e., (30.79% (-) 19.33%), the gross profit rate for that year works out to 11.46%. Accordingly, the Ld CIT(A) has opined that the gross profit rate of 11.46% was comparable with the gr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... losed income determined, if any, should be set of against the additions made on account of investments. The Ld CIT(A) has expressed a view that the plea of the assessee needs to be considered to the extent nexus is indicated by way of deposition of the assessee during the course of search. In para 10.6 of his order relating to the assessment year 2006-07, the Ld CIT(A) has stated that the set off can be given against the addition made towards house construction. However, we find merit in the plea made by the assessee. Thus, he has rejected the claim of set off against any other addition. There cannot be any dispute that the addition of income as well as the expenditure incurred out of that income would result in double assessment of same income, which is not intended by the statute. As per the sworn statement given by the assessee, the undisclosed income has been utilised for the purchase of property and also in construction. Thus, the plea of the assessee is that he has used the undisclosed income for purchase of property also. In the instant case, the AO did not make any addition towards investment made in the purchase of any undisclosed property, meaning thereby the assessee has ..... X X X X Extracts X X X X X X X X Extracts X X X X
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