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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 ..... s were found and seized. The assessments under section 143(3) read with section 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, conside ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... /PAR/RES/1 to 10 were seized from the residence of Md. Kanisuddin at Madannapet, 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 custo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ended that the seized diaries do not belong to them and without 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 e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hase used is any books of accounts documents, etc., and they 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion 3: What are your activities in the firm what 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 1999-00 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 not 100%. The ITAT cannot traverse beyond the subject matter of appeal and therefore, both A.O. and Ld. CIT(A) are not correct in coming to the conclusion that ITAT has directed the A.O. to examine the material available afresh. Directions as extracted by Ld. CIT(A) in the order does not indicate that entire assessment has been set aside. Not only that, ITAT also has made certain observations in its order in earlier paras which are as under : "13. Now coming to the material available on record, admittedly a spiral bound diary was found during the cou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mine 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 opportunity to explain the noting made in the spiral bound diary before the Assessing Officer. Therefore, in all fairness in our opinion, the Assessing Officer has to reconsider the entire issue afresh after giving an opportunity to the assessee. 16. Now coming to estimation of profit, the rate of profit has to be estimated after considering all material facts such as, profit of the assessee for earlier years, profit of similarly placed trader in similar line of business, availability of raw materials, labourers, demand in the market etc. In our opinion, the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 2001-2002 2,68,63,302 8,64,83,963 2002-2003 1,49,86,525 8,62,73,777 2003-2004 2,46,55,419 5,41,15,888 2004-2005 1,22,83,022 9,18,10,386 2005-2006 61,41,511 4,59,05,193 However, it was assessee's submission that the ratio will come down to 1.28% as extracted by Ld CIT(A) under : "Kind attention is invited to page 4 of the assessment order of ours where in at para 7 tabular statement is given of unaccounted sales and also para 8. In para 8 it is stated that undeclared sales for the months from Jan 04 to May 04 were compared with the declared sales for the same period as per sales ledgers which gave a ratio of 1.66:1. Based on such ratio the suppressed turnover is estimated year wise. It is also stated in the same assessment order at para 12 that such sales belonged to both the firms viz., ours and Dada Prints. If such is the fact then the ratio between the declared sales and undisclosed sales is to be arrived at by summing up the declared sales of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5, proceedings were initiated under Chapter XIV-B for framing of the assessment for the block period from 1st April, 1985 to 13th Nov., 1996, till the date of search. Accordingly, the assessee was asked to file a return for the block period as a result of the search conducted by the Department and the assessee-firm filed its return declaring an undisclosed income of only Rs. 7 lakhs. The AO thereafter conducted the enquiry in the matter and framed the assessment determining the undisclosed income at Rs. 63,08,120. The said amount was arrived at by the AO basing on the loose slips recovered from the assessee during the course of search, representing the unaccounted sales and by estimating such suppressions for the asst. yrs. 1996-97 and 1997-98 till the date of the search. The AO also found that certain evidence was recovered representing the unaccounted investments to the tune of Rs. 20,12,204. In view of the largeness of the estimated undisclosed income, no separate addition was made on account of the unexplained investments. The assessee aggrieved by the said addition carried the matter in appeal to the Tribunal. Before the Tribunal various contentions were advanced on behalf of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... block period. In the light of such evidence recovered from the assessee at the time of search, together with the admission of the partner, there is absolutely no justification for the assessee to contend that there is no evidence on record. For the asst. yr. 1996-97, the assessee carried on the business for the entire year (279 working days), whereas for the asst. yr. 1997-98 the assessee carried on the business till the date of search and the estimation is confined only for that period (178 days). Therefore, where the assessee had carried on the business for the entire period of full year, the addition was made at six times the suppression found during that year and for the asst. yr. 1997-98 the addition was restricted to only three times, as the assessee had carried on the business only for half of the period with reference to the earlier year, where six times addition was made. Therefore, there is every reason for the Tribunal to restrict the addition only to three times for the asst. yr. 1997-98. The estimations of the undisclosed income made by the Tribunal are based on relevant material and there is absolutely no reasonableness or arbitrariness while making such estimation. W ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e case of Paragon, the unaccounted sales as per various annexure listed there are for few months (11 months) from the period November 2002 to September 2004. Thus incriminating material was available only in Assessment years 2003-04, 2004-05 and part of AY 2005-06 ( up to date of search) in the Block period. Thus estimation can only be done in those years only. Even though AO verified some DDs pertaining to AY 2002-03 for rejecting books of account, the invoices / data impounded are in relation to invoices recorded in Books of account. There is finding by AO that invoices are accounted but payments by DDs are not matching. Therefore that alone can not be taken for estimation of undisclosed turn over in AY 2002-03. AO is directed to calculate the additional sales turn over in both assessee's case in those three assessment years i.e., AY 2003-04, 2004-05 and Part of AY 2005-06 only. 13. Having arrived at the unaccounted turnover in each case, the issue is with reference to profit on the undisclosed turnover. A.O. after arriving at the total turnover considered the same as income, without considering the cost as per books recorded on disclosed sales turnover. It is not correct to tax ..... X X X X Extracts X X X X X X X X Extracts X X X X
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