9911796707
TMI Blog2019 (3) TMI 1347X X X X Extracts X X X X X X X X Extracts X X X X ..... by fixing our price (up to 160% of the cost price). From the price we give different types of discounts (Trade discount, monthly quantity discount, annual quantity discount, quarterly quantity discount). In addition to that we also give cash discounts. Question:- 9- In addition to the above what are your major expenses? Ans: - Other major expenses are distribution expenses, advertisement, Sales promotion, Salary incentive. Question:- 10 After deducting the above expenses will you give the approximation of gross profit and net profit? Ans: - We plan and prepare price list in order to get approximately 15% gross profit and 4% net profit. However, if we are not able to achieve the required turn over, then we will lose our control on net profit because of fixed cost that will increase the over head expenditure." 2.1 On verification of the P&L account for the AY 2014-15, the Assessing Officer found that the assessee had shown gross profit at 10.55% instead of 15% indicated by the Managing Partner. The Assessing Office issued a show cause notice to the assessee asking why 15% gross profit should not be adopted in view of the statement given by the Managing Partner. In reply ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce Act, the assessee cannot retract from the admission made in the statement recorded as per Summons u/s 131(1) of the I.T. Act. Moreover the contention made by the assessee that the Managing Partner was not aware of the financial aspects of the firm is not true as per the facts and circumstances of the case. The application made by the assessee is rejected on the above grounds and I am fixing the Gross Profit @ 15% of the Turnover achieved during the year." 3. On appeal, the Ld. AR disputed the estimation of gross profit at 15% by the Assessing Officer. It was submitted that the assessee had merely mentioned that they plan and prepare price list in order to get approximately 15% gross profit and 4% net profit and this cannot be considered as admission. It was erroneous to interpret the statement as admission by the managing partner and the managing partner had nowhere categorically admitted of making 15% Gross Profit. According to the Ld. AR, no documentary evidences were found from the assessee by the revenue to support the addition made merely on the basis of statement recorded/s 131(1). It was submitted that the Assessing Officer had no incriminating evidence to support the s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... years. Thus, it was reaffirmed that the GP ratio as mentioned by the managing partner in his statement had no basis and had no nexus with the actual financial condition of the assessee. Thus, it was submitted that the Assessing Officer had erroneously placed his reliance on a statement given by the managing partner without having any evidences to substantiate the addition. 4. Considering the submissions of the ld. AR, the CIT(A) called for remand report on sustainability of the additions. The Assessing Officer submitted the remand report vide letter dated 23.05.2018 and the relevant part of the report is as under: "4. Statement recorded u/s.131(1) of the I.T. Act should have the same bearing as evidence defined in section 3 of the Evidence Act. Assessing Officer is vested with the same powers in a Court as under Civil Procedure Code, 1908. According to the Hon'ble High Court decision of Kerala in ITA No.551/2009 dated 26/05/2010 in the case of CIT Vs. Hotel Meriya, the statement recorded on oath cannot be brushed aside stated that it is having limited application. In this case the managing partner cannot make statement about the financial position of the Firm without knowin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... This question was answered by Hon'ble Supreme Court in the case of Produce Co. Ltd. vs State of Kerala ( 91 ITR 18) and held as under: "It is no doubt true that entries in the account books of the assessee amount to an admission that the amount in question was laid out or expended for the cultivation, upkeep or maintenance of immature plants from which no agricultural income was derived during the previous year. An admission is an extremely important piece of evidence but it cannot be said that it is conclusive. It is open to the person who made the admission to show that it is incorrect." 6.1 In the light of the decision of Hon'ble Supreme Court, the CIT(A) observed that though the admission made is an important piece of evidence, the same is not conclusive and the Appellant can show that such admission was incorrect. Therefore, there is no bar on the Appellant to explain whether the admission reflects the truth or not, based on cogent evidence. 6.2 The CIT(A) referred to the question whether the contents of the statement of Managing Director be read as admission of gross profit earned during the AY 2014-15. The statement of the managing director is reproduced as foll ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lification by the auditors, should normally be taken as correct unless there are adequate reasons to indicate that they are incorrect or unreliable. The onus is upon the revenue to show that either the books of account maintained by the assessee were incorrect or incomplete or method of accounting adopted by him was such that true profits of the assessee cannot be deduced therefrom," 6.4 Further, the CIT(A) relied on the judgment of the Delhi High Court in the case of Poonam Rani (326 ITR 0223) wherein the Court had considered issue of rejection of low net profit rate and held as under: "10. .......Similarly, if the rate of GP declared by the assessee in a particular period is lower as compared to the GP declared by him in the preceding year, that may alert the assessing officer and serve as a warning to him, to look into the accounts more carefully and to look for some material which could lead to the conclusion that the accounts maintained by the assessee were not correct. But, a low rate of GP, in the absence of any material pointing towards falsehood of the accounts books, cannot by itself be a ground to reject the account books under section 145(3) of the Act." 6.5 Accor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xing our price (up to 160% of the cost price). From the price we give different types of discounts (Trade discount, monthly quantity discount, annual quantity discount, quarterly quantity discount). In addition to that we also give cash discounts. Question:- 9- In addition to the above what are your major expenses? Ans: - Other major expenses are distribution expenses, advertisement, Sales promotion, Salary incentive. Question:- 10 After deducting the above expenses will you give the approximation of gross profit and net profit? Ans: - We plan and prepare price list in order to get approximately 15% gross profit and 4% net profit. However, if we are not able to achieve the required turn over, then we will lose our control on net profit because of fixed cost that will increase the over head expenditure." 8.1 As seen from the above, the managing partner stated that the assessee is getting GP at 15% and net profit at 4%. Contrary to this, the assessee has shown gross profit at 10.55%. It was also explained by the Ld. AR the reason for declaring GP at lower rate in the assessment year instead of 15% as stated in the sworn statement and this was due to offering higher disc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the earlier stated facts were wrong, these earlier statements are suffice to conclude the matter. If retraction is proved sufficiently, the earlier stated facts loose their effect and relevance as a binding evidence and the authorities cannot conclude the matter on the basis of the earlier statements alone. However, bald retraction of earlier admissions will not be enough even after retraction. Such statements cannot automatically become nullified. If the assessee proves that the statement recorded u/s. 131 was involuntary and it was made under coercion or during their admission, the statement recorded u/s. 131 has no legal validity. 8.3 There was a circular issued by CBDT issued circular in F. No. 286/98/2013- IT(Inv.II) dated 18th December 2014 stating as follows: "Instances/complaints of undue influence/coercion have come to notice of the CBDT that some assessees were coerced to admit undisclosed income during Searches/Surveys conducted by the Department. It is also seen that many such admissions are retracted in the subsequent proceedings since the same are not backed by credible evidence. Such actions defeat the very purpose of Search/Survey operations as they fail to brin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... also notice that in some of the cases retracted confession has been used as a piece of corroborative evidence and not as the evidence on the basis whereof alone a judgment of conviction and sentence has been recorded. [see Pon Adithan vs. Dy. Director, Narcotics Control Bureau (1999) 6 SCC 1] ............... 8.6 Yet again in Romesh Chandra Mehta vs. State of West Bengal (1969) 2 SCR 461 although this Court held that any statement made under ss. 107 and 108 of the Customs Act by a person against whom an enquiry is made by a customs officer is not a statement made by a person accused of an offence, but as indicated hereinbefore, he being an officer concerned or the person in authority, s. 24 of the Indian Evidence Act would be attracted. 8.7 It has been similarly held by the Hon'ble Supreme Court in the case of K.T.M.S. Mohd. & Anr. vs. Union of India (1992) (197 ITR 196) as under: "We think it is not necessary to recapitulate and recite all the decisions on this legal aspect. But suffice it to say that the core of all the decisions of this Court is to the effect that the voluntary nature of any statement made either before the customs authorities or the officers of Enforcement ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... making any addition in the hands of the assesse and the said statement cannot, in our view, be the sole basis for making any addition and must be independently corroborated by evidences. Thus, on a careful reading of the decisions of the Hon'ble Supreme Court referred before us, we are of the view that the legal position that emerges is that a sworn statement, though binds the assessee, it cannot be the sole basis for making the assessment. It is open to the assessee to show the circumstances in which confessional statements were recorded and once the assessee proves that confessional statements were recorded under threat and coercion and retracts from the same, the confessional statements cannot be the sole basis for making assessments or for making any addition in the hands of the assessee. 9. Further, in the case of CIT vs. S. Khader Khan Son (300 ITR 157), the Madras High Court held as follows: "The principles relating to section 133A of the Income Tax Act, 1961, are as follows: (i) an admission is extremely an important piece of evidence but it cannot be said that it is conclusive and it is open to the person who made the admission to show that it is incorrect and that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bit of the materials collected during the course of survey action under section 133A shall not have any evidentiary value. It could not be said solely on the basis of the statement given by one of the partners of the assessee-firm that the disclosed income was assessable as lawful income of the assessee." 10. On further appeal by the Department in Civil Appeal No. 13224 of 2008 and 6747 of 2012 dated 20/09/2012, the Supreme Court held as follows: "Heard Counsels on both sides. Leave granted. Civil Appeal filed by the Department pertains to 2001-02. In view of the concurrent findings of the fact, this Civil Appeal is dismissed." Hence, the ratio laid down by the Madras High Court was confirmed by the Supreme Court. 11. From the foregoing discussion, the following principles can be culled out: (i) An admission is extremely an important piece of evidence but it cannot be said that it is conclusive and it is open to the person who made the admission to show that it is incorrect and that the assessee should be given a proper opportunity to show that the books of accounts do not correctly disclose the correct state of facts, vide decision of the Apex Court in Pullangode Rubber P ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
