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TMI Blog2016 (11) TMI 211X X X X Extracts X X X X X X X X Extracts X X X X ..... arch 2006 in the premises of M/s. Balajee Perfumes Group, which manufactures Gutka. The group belongs to the family of late Shri Bishan Sarup Gupta, survived by his sons- M/s Abhay Gupta, Anoop Gupta and Ajay Gupta. The three brothers, through the firms M/s Balajee Perfumes and M/s Assam Supari Traders, managed gutka manufacturing as well as sale and purchase of areca nut business. M/s. Balajee Perfumes is a partnership firm of Shri Varun Gupta S/o Shri Abhay Gupta and Smt. Deepa Gupta W/o. Shri Anoop Gupta. M/s. Assam Supari Traders is the business concern of Smt. Dayawanti (the late assessee- now represented by her legal heir), mother of the three said brothers. 3. The assessee along with other family members i.e her three sons and their wives namely Deepa Gupta, Sunita Gupta and Preeti Gupta, along with Varun Gupta, surrendered a sum of Rs. 3.5 crores at the time of the search, as additional income in respect of business carried on outside books of accounts in connection with production and sale of Gutka. Statement of the assessee Smt. Dayawanti proprietor of M/s. Assam Supari Traders was also recorded in the course of search. In this statement she said that she had no source o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... equent proceedings were void. This ground was rejected by the ITAT in the following terms: "In our opinion the aforesaid argument cannot be accepted. A search has been conducted on the assessee, once the proprietorship concern of the assessee has been searched. In any case the assessee was the proprietor of the concern on which the search was carried out u/s 132 of the Act. It is pertinent to add here that the premises at which the search was carried out was on the basis of warrant issued in the name of the proprietorship concern of the assessee and it was also the residential premises of the assessee. Therefore we find that there was a valid search on the assessee and as such, provision u/s 153A of the Act was rightly triggered and invoked thereafter." 6. There was no dispute about the above findings, based on an appreciation of facts. In the circumstances the facial challenge to the applicability of Section 153A notice as not preceded by a valid warrant is baseless and unmerited. The ITAT also rejected the plea principally urged by the assesses that since no material was recovered or discovered during the search and seizure proceedings, finalized assessments for the periods co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . The aforesaid surrender no doubt was not acted upon by the assessee, but the said fact cannot lead us from the irresistible conclusion that incriminating material was unearthed during search. No material has been placed before us to negate the aforesaid factual aspect as well as to support the claims of AR that the admission before the Revenue was not valid and hit by duress and coercion. Before we conclude this issue, we consider it appropriate to note that the ld AR, had also stated that no material Per-se was found pertaining to the year under consideration. However, this argument also does not hold any water because once Section 153A is triggered on account of unearthing of incriminating material during search, the AO is empowered to compute the total income for six assessment year prior to the year of search. There are no fetters or limitation under the statute, so as to curtail the jurisdiction of the AO." The ITAT also relied on Commissioner of Income tax v Anil Bhatia 352 ITR 493 (Del) where it was held by this Court as under:- "The other reason given by the Tribunal in the same paragraph of its order that no material was found during the search is factually unsustaina ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... searched requiring him to file returns for six AYs immediately preceding the previous year relevant to the AY in which the search takes place. ii. Assessments and reassessments pending on the date of the search shall abate. The total income for such AYs will have to be computed by the AOs as a fresh exercise. iii. The AO will exercise normal assessment powers in respect of the six years previous to the relevant AY in which the search takes place. The AO has the power to assess and reassess the 'total income' of the aforementioned six years in separate assessment orders for each of the six years. In other words there will be only one assessment order in respect of each of the six AYs "in which both the disclosed and the undisclosed income would be brought to tax". iv. Although Section 153A does not say that additions should be strictly made on the basis of evidence found in the course of the search, or other post-search material or information available with the AO which can be related to the evidence found, it does not mean that the assessment "can be arbitrary or made without any relevance or nexus with the seized material. Obviously an assessment has to be made unde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g unearthed relating to this year. He further submitted that the department has not filed any appeal against the reduction of the addition. It was also stated that the excise department had accepted the sale for the year under consideration so there was no occasion to make the estimate in respect of turnover and increasing the GP rate without citing any comparable cases. It was further submitted that no cessation of liability and the trade creditors, which appeared in the books of account were paid in the subsequent years. Therefore the ITAT was not justified in enhancing the addition u/s 41(1) of the Act. It was contended that on merits also the addition cannot be sustained and the addition required deletion. 12. Mr. Kapoor also argued that the ITAT's decision is incorrect and not supportable on facts, because the imposition of a higher GP rate and the amount of profits calculated were entirely arbitrary, based on no materials. It was urged that the materials seized could at best lead to some inference; to the extent that some addition was made on the basis of those, the revenue could have been justified. However, that did not permit the income tax authorities to add amounts, by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... des a special procedure of assessment in the case of search and seizure, it is essential to take into consideration all materials, including the statements made to assessing authorities. Counsel argued that for a valid and binding retraction, it is not enough that the assessee merely retracts it through an affidavit; the timing of the retraction and the explanation for the statement as well as retraction may be crucial and can be considered by the assessing authorities. Given the legislative object of getting at concealed income, which is secreted away in diverse and different ways, such statements or even documents, which may not be accurate or complete in themselves, have to be scrutinized in the backdrop of probabilities of human conduct. Counsel argued that perfect books of account and materials are not expected in search and seizure cases, which are clandestine income and would in all probabilities be kept outside the books for the shortest possible time. Reliance was placed on BhagirathAggarwal v Commissioner of Income Tax[2013]351ITR143(Delhi) where it was held that an addition in assessee's income relying on statements recorded during search operations cannot be deleted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r 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 Supreme Court rejected the assessee's contention that the STO's action was arbitrary and that as he had no evidence of escaped turnover for the entire accounting period, he was not legally correct in estimating or inferring that the assessee would have indulged in sales outside the books of accounts for the entire accounting period. The Supreme Court held that: - "It is now proved as well as admitted that his dealings outside his accounts during a period of 19 days were of the value of Rs. 31,171.28. From this circumstance, it was open to the Sales Tax Officer to infer that the assessee had large-scale dealings outside his accounts. The assessee has neither pleaded nor established any justifiable reason for not entering in his accounts the dealings noted in the bill book seized. It is obvious that he was maintaining false accounts to evade payment of sales tax. In such a situation, it was not possible for the Sales Tax Officer to find out precisely the turnover suppressed. He could only make an estimate of the suppressed turnover on the basis of the materia ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 estimate made. If the basis adopted is held to be a relevant basis even though the courts may think that it is not the most appropriate basis, the estimate made by the assessing authority cannot be disturbed. In the present case, there is no dispute that the assessee's accounts were rightly discarded. We do not agree with the High Court that it is the duty of the assessing authority to adduce proof in support of its estimate. The basis adopted by the Sales Tax Officer was a relevant one whether it was the most appropriate or not. Hence the High Court was not justified in interfering with the same." 17. The impugned order dealt with this aspect and concluded that the statement made under oath could be acted upon, especially since materials and documents were recovered during the search proceedings: "22. In the instant case we find that AO had rejected the books of accounts and made additions by estim ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is disclosed to income tax department. Ans:- We and our family firms namely M/s Assam Supari Traders and M/s Balaji Perfumes generally try to record the transactions made in respect of purchase, manufacturing and sales in our regular books of accounts but it is also fact that some time due to some factors like inability of accountant, our busy schedule and some family problems, various purchases and sales of Supari, Gutka and other items dealt by our firms is not entered and shown in the regular books of accounts maintained by our firms. Q. No. 9 What are the books of account maintained by your firms? Ans:- To the best of my knowledge, both our firms maintained cash books, ledger, sales register, bills books and other general books of accounts. Q,. No. 10- I am showing your annexure A-3 (Page 60 and 61) found I seized from your residence at A-2/14-A, Model Town-I, Delhi on 23.03.2006 during the course of search, seizure please explain the nature, contents and details of these small hand written paichies. Ans: These small handwritten on unaccounted cash purchase/ sales of various items in Supari which were made by firm M/s. AsomSupari Traders and M/s. Balaji perfumes. Als ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... atement too the surrender was reiterated. The aforesaid surrender no doubt was not acted upon by the assessee, but the said fact cannot lead us from the irresistible conclusion that incriminating material was unearthed during search. No material has been placed before us to negate the aforesaid factual aspect as well as to support the claims of AR that the admission before the Revenue was not valid and hit by duress and coercion. Before we conclude this issue, we consider it appropriate to note that the ld AR, had also stated that no material Per-se was found pertaining to the year under consideration. However, this argument also does not hold any water because once Section 153A is triggered on account of unearthing of incriminating material during search, the AO is empowered to compute the total income for six assessment year prior to the year of search. There are no fetters or limitation under the statute, so as to curtail the jurisdiction of the AO. We derive support from the judgment of jurisdictional High court in the case of CIT Vs. Anil Bhatia 352 ITR 493 (Del).." 18. The nature of the books included katchaparchas, papers containing calculations and amounts routed to bank a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the Board that the focus of the search party should be on collection of evidence of income which leads to information on what has not been disclosed or is not likely to be disclosed before the Income-tax Department. There is a further observation that, while recording statements during the course of search, seizure and survey operations, no attempt should be made to obtain confessions as to undisclosed income and that any action to the contrary would be viewed adversely. 13. We do not see how this circular would, in any way, come to the aid and assistance of the appellant. All that it shows is that the Income-tax Officers should not try to force a confession from an assessee. However, if an assessee voluntarily makes a surrender, the officials of the income tax department are bound to record that statement u/s. 132 (4) and such a statement, voluntarily made, is relevant and admissible and is liable to be used as evidence." 19. Earlier, the Supreme Court had held, in P.R. Metrani v. Commissioner of Income-tax (2006) 287 ITR 209 (SC) that: "18. Section132 is a Code in itself. It provides for the conditions upon which and the circumstances in which the warrants of authorization ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... seizure of various documents, etc. that pointed to undeclared income. In these circumstances, the assessee's argument that they could not be acted upon or given any weight is insubstantial and meritless. This court also notices that the decision in CIT Vs. Anil Bhatia 352 ITR 493 (Del) which held that such statements are relevant, though noticed, has not been doubted in any later decision, including Kabul Chawla, which is the mainstay of the assessee's case. Consequently the first question of law is answered against the assessee and in the revenue's favour. Re Question No 2: 21. The assessee's argument on this aspect was that the lower authorities' approach in rejecting the books, estimating turn over and applying a high GP rate to estimate proft, was arbitrary. 22. The AO noticed that in the audited account for the year under consideration, the assessee declared sales of Rs. 69,28,582/- and Gross Profit of Rs. 7,30,961/- yielding gross profit rate of 10.55%. He observed that the assessee produced only computerized books of account and did not produce sale-bills, purchase bills and vouchers for expenses incurred by it; the AO also pointed out that the assessee did not file confi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted sales at Rs. 1 crore and GP at 20%. Whereas, the ldCIT(A) has accepted the declared sales and estimated GP at 12%. In the instant case, it is crystal clear that each of the figures declared, be it sales or GP are unverifiable without supporting documents. Thus the question which remains is whether the estimation made by the AO is fair and reasonable on the facts on the case. We have already noted above while disposing of ground No. 1 to 3 that as a result of search, shri Ajay Gupta on behalf of assessee has admitted to unaccounted transactions outside regular books of accounts. It is also true that there is no material indicating unaccounted transactions particularly for the instant year unearthed during search, but it cannot be denied that once book results for the year under consideration are unverifiable in the absence of supporting vouchers, bills then the factum of admission u/s 132(4) of the Act made by Shri Abhay Gupta on behalf of the assessee that unaccounted transactions took place for earlier years would be relevant consideration for estimation. In such circumstances the burden was on the assessee to show as to how the estimation as made by the AO was arbitrary or un ..... X X X X Extracts X X X X X X X X Extracts X X X X
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