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TMI Blog2014 (12) TMI 524X X X X Extracts X X X X X X X X Extracts X X X X ..... ered in first round of appeal and admittedly, the spiral bound diaries are held by ITAT to be ‘material available at the time of search and the same relates to assessees’. What profit can be estimated on the basis of material available on record, including the material found during the course of search operations – Held that:- The seized material do pertain to assesses - The detailed discussion of CIT(A) to that extent is upheld - turnover can be estimated at 1: 1.28, this turnover pertains to both the firms and not to one firm alone, as the combined turnover in the books of accounts pertains to both the firms, stated for the purpose of controlling the transactions - Therefore AO is directed to rework out the total turnover taking the ratio at 1: 1.28. and apportion between two firms on the basis of declared turnover in each year. Adjudication of year(s) in which this estimation can be resorted to – Held that:- Assessee has estimated in all years in the Block period, without restricting to the years in which such dairies are available – relying upon Rajnik and Co. vs. ACIT [2001 (4) TMI 53 - ANDHRA PRADESH High Court] - there is admission by the partner that they were resorti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 153A were originally passed for these assessment years on 26.12.2006. Aggrieved by the said assessment order, appeals were filed before Ld.CIT(A)-I who vide his order decided the appeals directing the A.O. to estimate income at 35% on the undisclosed turnover brought out by A.O. Aggrieved with that order, assessee carried the matter further to the ITAT. Revenue did not prefer any appeal on the relief granted by Ld.CIT(A). The ITAT remanded the matter to the A.O. to reconsider the issue afresh in the light of material available on record and thereafter, decide the same in accordance with law, vide its order in ITA.No.90 to 103/Hyd/2009 dated 31.08.2010. Accordingly, in the re-assessment proceedings, A.O. gave opportunity to assessee again, but re-assessed incomes as was done originally without any relief. Even though, Ld.CIT(A) gave relief to the extent of 65% on the undisclosed turnover, A.O. however, determined the income at 100% of the undisclosed turnover as originally determined. In further appeal, Ld. CIT(A) confirmed the same, without even following the orders of his predecessor on record, considering that the Tribunal has directed the assessment to be done afresh. 4. Ld. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... annapet, Hyderabad and another material having similar entries marked as A/PPF/35 was also seized from the business premises of M/s. Paragon Printers. Sri Kanisuddin was an erstwhile partner of the firm and the present partners of the appellant's firm, also reside at the residence of Sri Md Kanisuddin. During the course of search, a statement under section 132 (4) was recorded from one Mr.Riazuddin, son of Sri Kanisuddin on 14.10.2004. In his statement, Sri Riazuddin, in reply to question No.14 stated as follows: Q.14. I am showing the small spiral bound pocket diaries inventorised as Annexure NK Z/Par/ Res/l to 13. PI. go through the spiral diaries and explain the nature of transaction noted therein? Ans. These spiral bound pocket diaries numbering 1 to 13 contains the details of the total advances recovered in a particular month towards supply of printed sarees, the details of supplies on each day, the amount received on the particular day and balance advance outstanding at the end of the particular day are noted. These diaries are also details of the individual account in respect of each of the customers from whom such advances are received and also the details of su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... relating the transactions mentioned in such diaries with the business of the firm, it is not correct to adopt these figures for the purpose of assessment. The appellant also submitted that Sri Kanisuddin, from whose residence the diaries were seized is an erstwhile partner of the firm, M/s. Paragon Printers, and Sri Riyazuddin, from whom a statement was recorded on 14.10.2004, was never a partner in the firm, and therefore, the diaries do not belong to them as also the statement recorded from Sri Riyazuddin will not have any bearing on the business transactions of the firm. The appellant further contended that without establishing the connection between the entries in the seized material with the transactions recorded in the books of the firm, the Assessing Officer arrived at the unrecorded sales/suppressed turnover and also the undisclosed income. The appellant also referred to the seized material contents, which were written for only a few months for the years 2002, 2003 and 2004, and contended that by comparing the infrequent figures recorded in the seized diaries for a few months, the Assessing Officer went on to estimate the undisclosed/suppressed sales for the entire seven ye ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... may pertain to him or such things pertaining to other assessees may be found in his possession also. What is exactly been inferred in the instant case is that he documents pertaining to Paragon Printers were also found in the premises of Mr. Kanisuddin during the search proceedings. Hence, the applicability of provisions of section 132(4) even to the assessee i.e., Paragon Printers even though the statement was obtained from Mr. Riazuddin. The assessee further objected that there are no dates on the pocket diaries numbering 1 to 13 extracted at internal para-l of the show cause notice. While giving the show cause notice, it was very much clarified in para -4 of show cause notice that only first pages of diaries were photocopied in annexure-1 of show cause notice. The assessee probably forgot to refer to the cover pages of all diaries which bore the year and date and it was clarified by the DDI that, all the copies of seized material were given to the assessee at the time of search itself. Further, it is obvious that the figures were written in lakhs only as the assessee was in the habit of writing the figures in lakhs on all loose slips found during the course of search and the fa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... business does the firm do? Answer : I look after the activities which are general in nature. In fact, the business is done under the guidance of my uncle, Shri Md. Riyazuddin and father, Shri Md. Khenisuddin . This is another reason why the provisions of section 145(3) are being invoked for a reasonable estimate of suppressed sales by relying on the decisions in the case of Rajnik and Company Vs. CIT (251 ITR 561 AP) and HM Eusafali in 90 ITR 271 SC. The crux of these two decisions is that if certain transactions go unaccounted, unexplained even for a few days, a reasonable estimate can be made for whole period spanning more than a year. 5.6 Accordingly, the Assessing Officer brought out that though the present partners of the firm are sons of Sri Md Riyazuddin and Sri Khanisuddin, these two elder persons still manage the affairs of the firm and are having a say over the business transactions of the firm and the diaries were written by Sri Riyazuddin, recording the business transactions of the firm and accordingly proceeded to estimate the undisclosed income as under: Assessment year Income admitted Income determined ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... light of the above concluding remarks of the Tribunal, the Assessing Officer is free to decide the issue based on the material available with him without being influenced by the remarks of the Tribunal or of the decision of the Commissioner of Income-tax(A). Therefore, grounds raised by the appellant on this issue are rejected. 7. We are unable to agree with the above contentions of A.O. and Ld. CIT(A). As already stated earlier, in the first round of appeal, the Ld. CIT(A) considering that assessee could have purchased material for making turnover outside the books of accounts, has considered the average purchases in the earlier years to arrive at 60% of the cost of sales, being purchase cost. In addition, he also considered 5% of the sales turnover as probable expenditure and therefore, gave relief to an extent of 65% and confirmed only 35% of turnover as undisclosed income of assessee. Admittedly, Revenue has not come in appeal, so relief granted by Ld.CIT(A) became final. Assessee has contested only the confirmation of 35% of turnover as income. Therefore, the subject matter of appeal before the ITAT was only with reference to 35% of the turnover confirmed by Ld. CIT(A) and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t. Therefore, the lower authorities have to examine all the statements available on record and find out whether the assessee earned any income outside the books of account or not. On the basis of materials/evidence, the assessees also can explain that the statements made earlier are not correct. 15. The discrepancies pointed out by the learned counsel for the assessee between the numbers in numerical and words, though the learned departmental representative attempted to point out that there was no variation, in our opinion the Assessing Officer has to examine the contention of the assessee and find out whether the noting found in the spiral bound diary relates to the assessees and the words written in coding disclose any income outside the books of account. It is also necessary to examine whether the coding in numerical represents single digit with decimals or two digits. The variation as pointed out by the learned counsel for the assessee was attempted to be reconsidered by the Assessing Officer in the remand report. However, the same was not examined by the Assessing Officer at the time of assessment proceedings and the CIT(A). Therefore, the assessee did not get a fair opport ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reference to ratio adopted by A.O. at 1:1.66 on the basis of the declared sales for the month of January, 2004 to May, 2004, AO arrived at the same as under vide Para 8 of the order. Financial Year Asst. Year Declared Turnover (Rs.) Estimated Suppressed turnover (Rs.) 1998-1999 1999-2000 4,43,09,465 7,35,53,711 1999-2000 2000-2001 7,27,67,937 12,07,94,775 2000-2001 2001-2002 6,82,81,485 11,33,47,265 2001-2002 2002-2003 6,10,00,182 10,12,60,302 2002-2003 2003-2004 4,74,52,595 7,87,71,307 2003-2004 2004-2005 6,27,06,872 10,40,93,408 35,65,18,536 59,18,20,768 There after AO apportioned the same between the two firms as under. Assessment Year M/s. Dada Prints M/s. Paragon Printers 1999-2000 2,10,36,361 5,25,17,350 2000-2001 3,55,13,664 8,52,81,111 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... out the total turnover taking the ratio at 1: 1.28. and apportion between two firms on the basis of declared turnover in each year. 12. Another aspect which requires adjudication is the year(s) in which this estimation can be resorted to. As seen from the order of AO, he has estimated in all years in the Block period, without restricting to the years in which such dairies are available. Both assessee and Revenue relied on the Jurisdictional High Court order in the case of Rajnik and Co. vs. ACIT (2001) 251 ITR 561 (AP) (HC). In that case the facts and decision of Hon ble High court are as under : A search was conducted on 13th Nov., 1996, in the business premises of the group concerns and also the residential premises of the partners of the assessee and residential premises of certain employees of the assessee. The search had resulted in the seizure of certain incriminating material leading to the case of suppression of sales practised by the assessee-firm in the form of loose slips, which were not brought to the accounts of the assessee-firm. The search has also resulted in the seizure of unaccounted cash as well as unaccounted transactions in respect of various investments ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m 7.35 per cent adopted by the AO to 6 per cent and, accordingly, determined the undisclosed income for the asst. yrs. 1996-97 and 1997-98 (till the date of search) at ₹ 21,40,349. Insofar as the estimated suppression for the assessment years up to 1995-96 is concerned, the Tribunal agreed with the estimated addition made by the AO to the extent of ₹ 8,38,579 which was estimated at 20 per cent of the admitted turnover and worked out at the same rate of profit as was declared by the assessee. The Tribunal also having found that this estimated undisclosed income was more than the undisclosed investments found to have been made by the assessee and its partners, no separate additions were made. Therefore, the Tribunal determined the undisclosed income of the assessee for the block period at ₹ 29,78,920, the break up of which was given by the Tribunal in para. 14 of its order. Aggrieved by the said order of the Tribunal, the assessee is before this Court : Held The counsel was not able to dispute the findings of the AO as well as the Tribunal, where seized material shows that there was suppression for a period of 24 days during the asst. yr. 1996-97 and 15 days f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er of the firm, showing that the day-to-day suppressions were carried on throughout the assessment years for the entire block period. Therefore, there is absolutely no merit in the contention of the assessee that the estimations made by the AO as well as by the Tribunal are not based on any material but merely based on conjectures and hypotheses. The Tribunal has rightly found that the estimation of the suppressed turnover as well as undisclosed income by the AO was on the higher side and the Tribunal on consideration of the material on record re-determined the suppressed turnover as well as the undisclosed income, which is reasonable and proper which is based on the material on record. In that view of the matter, no question of law, much less a substantial question of law, arises out of the order of the Tribunal for consideration. Accordingly, the appeal is dismissed at the admission stage. Thus in the said case, there is admission by the partner that they were resorting to same method in earlier years as well. Even then, the GP adopted in other years was less. However in this case, assessee has not admitted that the turnovers recorded are undisclosed. Infact the statement was ..... X X X X Extracts X X X X X X X X Extracts X X X X
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