Ita/106/2012 Of Shri.p.p.bhaskaran v. The Commissioner Of Income Tax (Central), Cochin

IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT: THE HONOURABLE MR.JUSTICE ANTONY DOMINIC &THE HONOURABLE MR. JUSTICE DAMA SESHADRI NAIDU FRIDAY, THE 16TH DAY OF DECEMBER 2016/25TH AGRAHAYANA, 1938 ITA.No. 106 of 2012 () ----------------------- AGAINST THE ORDER IN ITA 208/2011 of I.T.A.TRIBUNAL,COCHIN BENCH DATED22-09-2011 APPELLANT/APPELLANT/ASSESSEE: ----------------------------- SHRI P.P.BHASKARAN, PROPRIETOR, M/S ROMA ELECTRICALS, PARAKKAL, MAHE-673 310. BY ADVS.SRI.T.M.SREEDHARAN (SR.) SMT.NISHA JOHN SRI.V.P.NARAYANAN SMT.BOBY M.SEKHAR RESPONDENT/RESPONDENT/REVENUE: ------------------------------ THE COMMISSIONER OF INCOME TAX (CENTRAL), 5TH FLOOR, KANDMKOLATHY TOWERS M.G. ROAD, COCHIN-682 011. R BY ADV. SRI.P.K.R.MENON,SR.COUNSEL, GOI(TAXES) R BY ADV. SRI.JOSE JOSEPH, SC, FOR INCOME TAX THIS INCOME TAX APPEAL HAVING BEEN FINALLY HEARD ON 8.6.2016, ALONG WITH ITA.108/2012 AND CONNECTED CASES, THE COURT ON 16.12.2016 DELIVERED THE FOLLOWING: ita nO.106 OF 2012 appendix APPELLANT'S EXHIBITS: ANNEXURE-ATRUE COPY OF ASSESSMENT ORDER DATED 30.12.2009 PASSED BYTHE ASSESSING OFFICER FOR THE A.Y.2002-03THE ASSESSING OFFICER FOR THE A.Y.2002-03 ANNEXURE-BTRUE COPY OF THE APPELLATE ORDER IN ITA NO.C-236/CIT(A)-1/09-10 DATED 14.12.2010 ISSUED BY THE COMMISSIONER OF INCOME TAXE (APPEALS)-1, KOCHI.-1/09-10 DATED 14.12.2010 ISSUED BY THE COMMISSIONER OF INCOME TAXE (APPEALS)-1, KOCHI. ANNEXURE-CCERTIFIED COPY OF THE COMMON ORDER DTD.22.9.2011 INITA NO.208/COCH/2011 FOR THE AY-2002-03 ISSUED BY THE ITAT, COCHIN.ITA NO.208/COCH/2011 FOR THE AY-2002-03 ISSUED BY THE ITAT, COCHIN. TRUE COPY p.s.to judge CSS/ Antony Dominic & Dama Seshadri Naidu, JJ. ------------------------------------------------------------ITA Nos.106, 108, 109, 110, 112 & 113 of 2012 -------------------------------------------------------------Dated this the 16[th] day of December, 2016JUDGMENT Dama Seshadri Naidu, J. The appellant has ‘wholesale-cum-retail’ business in electricalgoods at Mahe, Pondicherry—a proprietary concern. For theAssessment Year (AY) 2002-03, he submitted a return of income u/s139(1) of the Income Tax Act, 1961 (‘the Act’) declaring his totalincome as Rs.1,05,314/-; the tax due as per the assessment wasremitted. He also filed returns and remitted tax for other assessmentyears till 2008-2009. 2. On 30.05.2007, the IT authorities, exercising their powersunder Section 132 of the Act, searched the appellant’s house. It wasin connection with their search initiated against M/s Abdul Gadhafi &others, said to be his business associates in other ventures. I.T.Appeal Nos.106 &conn.cases 2 Thereafter, the authorities issued notice under Section 153A r/w Section 153C to the appellant (the Assessee). In response, hedeclared his income for AY 2002-03 as Rs.2,32,840/-. 3. Relying on the documents allegedly found during search— especially, a bill book relating to the period from 1.04.2006 to30.07.2007—the authorities estimated the assessee's income asfollows: (a) undisclosed business income: Rs.8,89,348/-; (b)agriculture income treated as income from other sources:Rs.50,000/-; and (c) income from other sources (interest onlending): Rs.2,34,000/-. 4. The authorities, after issuing a notice to the appellant u/s 143(2) and 142(1), and after considering his explanation, throughAnnexure-A order dt.30.12.2009, assessed the appellant’s income forthat AY at Rs.14,06,190/-. For the rest of the years, too, theassessment was made on the same lines. Appeal Before the CIT (Appeals): 5. Aggrieved, the appellant filed an appeal before theCommissioner of Income Tax (Appeals)-1, Kochi, in I.T.A. No. I.T.Appeal Nos.106 &conn.cases 3 C-236/CIT(A)-I/09-10, which along with other appeals was disposed 4. The authorities, after issuing a notice to the appellant u/s 143(2) and 142(1), and after considering his explanation, throughAnnexure-A order dt.30.12.2009, assessed the appellant’s income forthat AY at Rs.14,06,190/-. For the rest of the years, too, theassessment was made on the same lines. Appeal Before the CIT (Appeals): 5. Aggrieved, the appellant filed an appeal before theCommissioner of Income Tax (Appeals)-1, Kochi, in I.T.A. No. I.T.Appeal Nos.106 &conn.cases 3 C-236/CIT(A)-I/09-10, which along with other appeals was disposed of on 14.12.2010. The Appellate Authority called for a RemandReport from the Assessing Officer ('A.O.'), considered the assessee'sdefence, and allowed the appeal in part through Annexure-B order,dt.14.12.2010. So were the other appeals for the remainingassessment years, too. 6. Further aggrieved, the assessee filed a second Appeal beforethe Income Tax Appellate Tribunal, Cochin Bench (‘the Tribunal’), inITA No. 208/Coch/2011. Eventually, the Tribunal disposed of all theappeals through Annexure-C common order, dt.22.09.2011, in I.T.A.Nos. 208 to 214/Coch/2011. 7. Under the above circumstances, the assessee filed theseincome tax appeals before this Court: Table of Cases: I.T.Appeal Nos.106 &conn.cases 4 Submissions: Appellant’s: 8. Sri T. M. Sreedharan, the learned Senior Counsel for the assessee, has submitted that the Tribunal, to begin with, hasmechanically accepted the appellate authority’s findings; it ought tohave independently considered the issues keeping in view theappellant’s explanation. According to him, there was no material orevidence to justify the estimated suppressed-turnover, which isalmost ten times to the actual turnover. Emphasizing that there wasno discrepancy in the stock found, the learned Senior Counsel wouldhave us accept the usual trade practice of raising bills at Mahe inPondicherry for the sales effected in Kerala. Because the sales tax isless in the union territory, the appellant’s firm issued bills to thedealers in Kerala by charging 1% commission. 9. The learned Senior Counsel has also stressed that the AO had no justification to assume similar suppression uniformly for allthe prior six years and to make additions on that basis. The I.T.Appeal Nos.106 &conn.cases 5 assessee, according to him, has been prejudiced because theauthorities recorded no statement at the time of the search. He hasalso contended that the AO and the Appellate Authorities have failedto consider that under the scheme of income tax, each AssessmentYear is independent and separate. 10. Drawing our attention to Sections 68 to 69C of the Act, thelearned Senior Counsel has contended that assessee’s unexplainedloans or gifts, unaccounted-for assets, investments, or expenses areliable to be brought to tax under deeming provisions in the financialyear of such investment or expenditure as found. Identification ofthe source of corresponding income, contends the learned SeniorCounsel, is required under law. He has also submitted that the levyof interest u/s 234B is illegal, unsustainable, and contrary to therelevant statutory provisions. 11. The learned Senior Counsel has placed reliance onCommissioner of Income Tax v. Padamchand Ramgopal[1] and Stateof Kerala v. C. Velukutty[2]. On the proposition laid down in HotelCommissioner of Income Tax v. Padamchand Ramgopal[1] and Stateof Kerala v. C. Velukutty[2]. On the proposition laid down in Hotel1 (1970) 76 ITR 7192 (1966) 60 ITR 239 I.T.Appeal Nos.106 &conn.cases 6 Meriya, relied on by the Revenue, the learned Senior Counsel in his reply submits that it was decided based on the assessee's admission.Revenue’s: 12.Sri P. K. Ravindranatha Menon, the learned Senior Counsel 11. The learned Senior Counsel has placed reliance onCommissioner of Income Tax v. Padamchand Ramgopal[1] and Stateof Kerala v. C. Velukutty[2]. On the proposition laid down in HotelCommissioner of Income Tax v. Padamchand Ramgopal[1] and Stateof Kerala v. C. Velukutty[2]. On the proposition laid down in Hotel1 (1970) 76 ITR 7192 (1966) 60 ITR 239 I.T.Appeal Nos.106 &conn.cases 6 Meriya, relied on by the Revenue, the learned Senior Counsel in his reply submits that it was decided based on the assessee's admission.Revenue’s: 12.Sri P. K. Ravindranatha Menon, the learned Senior Counsel for the Revenue, has submitted that Sections 153A and 153C of theAct empower the AO to reopen and reassess the accounts of anyassessing year up to six years. He has taken us through HotelMeriya, rendered by a Division Bench of this Court, to hammer homehis contention that block-assessment is eminently sustainable. Hehas further submitted that the AO’s computation of the undisclosedincome is unassailable. On the ratio of Velukutty and PadamachandRamgopal, the learned Senior Counsel contends that the propositionsare entirely fact based. 13. The learned Senior Counsel for the Revenue has relied onCommissoner of Income Tax v. Hotel Meriya[3], Commissioner of SalesTax v. H. M. Esufali H. H. Adbulali[4] 3 (2011) 332 ITR 5374 (1973) 90 ITR 271 Issues Raised: Discussion: 14. The facts of that matter are that on 30-05-2007, during theinspection, the authorities found some unsigned computer-sheetsand certain bill-books. The officials, during the search, also recordedthe assessee’s statement under Section 132 (4) of the Act. Two years later, the assessee retracted his previous statement, though. 15. The estimated turnover for the Assessment Year 2002-03and for the following years adopted by the AO and the Commissionerof Income Tax (Appeals), as well as the turnover declared by theappellant in his books of accounts, are furnished in the followingtable:- Declared Income, Assessed Income, and Demanded Tax: I.T.Appeal Nos.106 &conn.cases 9 16. The above tabulation would show that as against thedeclared turnover of Rs.13,44,729/- for the relevant Assessment Year('AY'), the suppressed turnover over the declared turnover wasestimated at Rs. 1,15,43,534/-. It was confirmed by the AppellateAuthority. 17. On appeal, the learned Tribunal has framed the followingissues: (i) Would the statement of an assessee's partner, as well asthat of an employee, along with the documents seized, betantamount to evidence under Section 158BB of the Income Tax Act?(ii) Has the statement recorded under Section 132(4) only verylimited application? (iii) Is the evidence found in the search sufficientto conclude that there was concealment of income for theassessment years? (iv) Is the concealed income liable to be taxed assuch at 25%, or any other turnover thereof as profit is liable to betaxed, if so, at what rate? And (v) Is the assessee liable to besurcharged? I.T.Appeal Nos.106 &conn.cases 10 Statutory Scheme: 18. Section 68 of the Act deals with ‘cash credit’, which is anysum found credited in the books of an assessee maintained for anyprevious year, and which has no explanation about its nature orsource to the Assessing Officer’s satisfaction. Then that amount maybe charged to income-tax as the income of the assessee for theprevious year. Section 69 of the Act delineates what unexplainedinvestment is: In a financial year preceding the assessment year, ifthe assessee has made an investment without reflecting it in thebooks of account, and if the assessee fails to explain to the AO’ssatisfaction its nature and source, that investment will be treated asthe assessee’s income in that financial year. I.T.Appeal Nos.106 &conn.cases 10 Statutory Scheme: 18. Section 68 of the Act deals with ‘cash credit’, which is anysum found credited in the books of an assessee maintained for anyprevious year, and which has no explanation about its nature orsource to the Assessing Officer’s satisfaction. Then that amount maybe charged to income-tax as the income of the assessee for theprevious year. Section 69 of the Act delineates what unexplainedinvestment is: In a financial year preceding the assessment year, ifthe assessee has made an investment without reflecting it in thebooks of account, and if the assessee fails to explain to the AO’ssatisfaction its nature and source, that investment will be treated asthe assessee’s income in that financial year. 19.Further, Section 69-A of the Act explains what unexplainedmoney is. In any financial year if the assessee has any money,bullion, jewellery, or other valuable article, the source of whichcannot be explained satisfactorily, it may be treated as theassessee’s income for that financial year. Under Section 69-B, if theinvestment in a financial year is more that the recorded amount, the I.T.Appeal Nos.106 &conn.cases 11 excess amount will be treated as assessee’s income for that financial year. Section 69-C, on the other hand, covers unexplainedexpenditure which, too, will be treated as the assessee’s income. 20. As seen from Section 131, the assessing officer has thesame powers as a court has under the Code of Civil Procedure, 1908.The powers concern (a) discovery and inspection, (b) enforcing theattendance of any person, including any officer of a bankingcompany and examining him on oath, and (c) compelling theproduction of books of account and other documents. Moreimportantly, Section 132 of the Act confers on the IT authorities widepowers of search and seizure. Here it needs no elaboration for,concerning the search conducted in the assessee's house, there is noissue raised about its legality. 21. Explanation to Section 132 (4) of the Act clarifies that theevidence so collected would be relevant for any investigationconnected with any proceeding under the Act. A person'sexamination is not only regarding any books of account, otherdocuments, or assets found because of the search, but also I.T.Appeal Nos.106 &conn.cases 12 regarding all matters relevant to any investigation connected withany other proceedings under the Act. 22. Now we may get down to the brass-tacks. Once a search isconducted under Section 132, the AO will issue a notice calling on theassessee to furnish the return of income for each assessment yearfalling within six assessment years “immediately preceding theassessment year relevant to the previous year in which such search isconducted or requisition is made”. The explanation to the provisionadds that in an assessment or reassessment made concerning aparticular assessment year, the tax will be chargeable at the rate orrates as applicable to that assessment year. 23. The pivotal provision is Section 153-C, which concerns the assessment of ‘any other person’. Where the Assessing Officer issatisfied that any money, or other valuable article, or books ofaccount, or documents seized or requisitioned belong to a personother than the person referred to in Section 153-A, then the books ofaccount, or documents, or assets seized or requisitioned will behanded over to the AO having jurisdiction over the other person. And I.T.Appeal Nos.106 &conn.cases 13 that AO will proceed against the other person by assessing or re-assessing his or her income under Section 153-A. 23. The pivotal provision is Section 153-C, which concerns the assessment of ‘any other person’. Where the Assessing Officer issatisfied that any money, or other valuable article, or books ofaccount, or documents seized or requisitioned belong to a personother than the person referred to in Section 153-A, then the books ofaccount, or documents, or assets seized or requisitioned will behanded over to the AO having jurisdiction over the other person. And I.T.Appeal Nos.106 &conn.cases 13 that AO will proceed against the other person by assessing or re-assessing his or her income under Section 153-A. 24. Further, Section 158-B defines ‘block period’ and‘undisclosed income’. “Block Period” means the period comprisingprevious years relevant to six assessment years preceding the yearin which the search was conducted under Section 132 or anyrequisition was made under Section 132-A. “Undisclosed Income”includes any money, or other valuable article or thing, or any incomebased on any entry in the books of account, or other documents, ortransactions, where such money, etc., represents wholly or partlyincome or property which has not been or would not have beendisclosed for the purposes of this Act. 25. Section 158-BA shows how to calculate the undisclosedincome unearthed during a search. Of particular importance isSection 158-BB, which describes how the undisclosed income of ablock-period must be calculated. Section 158-BB deals with thecomputation of undisclosed income of a block-period. It will be the“aggregate of the total income of the previous years falling within I.T.Appeal Nos.106 &conn.cases 14 the block-period computed.” The computation must be based on evidence found during the search or from the books of account orother documents requisitioned. The amount will be “reduced by theaggregate of the total income”, or “increased by the aggregate of thelosses” of the previous years. 26. The different contingent circumstances for computing theamount are as follows: (a) If assessments under Section 143 or Section 144 or Section 147 have been concluded before the search or requisition, those assessmentswill form the basis; (b) If returns of income have been filed under Section 139 or inresponse to a notice issued under sub-section (1) of Section 142 or Section148, but assessments have not been made till the date of search orrequisition, the assessment must be based on the income disclosed inthose returns; (c) If the due date for filing a return of income has expired, but noreturn of income has been filed, the following are the options: (A) based on entries as recorded in the books of account andother documents maintained in the normal course on orbefore the date of the search or requisition, if those entriesresult in the computation of loss for any previous year fallingin the block period; orother documents maintained in the normal course on orbefore the date of the search or requisition, if those entriesresult in the computation of loss for any previous year fallingin the block period; or I.T.Appeal Nos.106 &conn.cases 15 (B) based on entries as recorded in the books of account andother documents maintained in the normal course on orbefore the date of the search or requisition, if the incomedoes not exceed the maximum amount not chargeable to taxfor any previous year falling in the block period;other documents maintained in the normal course on orbefore the date of the search or requisition, if the incomedoes not exceed the maximum amount not chargeable to taxfor any previous year falling in the block period; . . . I.T.Appeal Nos.106 &conn.cases 15 (B) based on entries as recorded in the books of account andother documents maintained in the normal course on orbefore the date of the search or requisition, if the incomedoes not exceed the maximum amount not chargeable to taxfor any previous year falling in the block period;other documents maintained in the normal course on orbefore the date of the search or requisition, if the incomedoes not exceed the maximum amount not chargeable to taxfor any previous year falling in the block period; . . . (d) if the previous year has not ended or the date of filing the returnof income under sub-section (1) of Section 139 has not expired, it must bebased on entries relating to such income or transactions as recorded in thebooks of account and other documents maintained in the normal course onor before the search or requisition relating to those previous years; (e) if any order of settlement has been made under sub-section (4)of Section 245-D, the computation will be based on such order ofsettlement; (f) if an assessment of undisclosed income had been made earlierunder clause (c) of Section 158-BC, based such assessment. 27. Pertinently, the burden of proving to the satisfaction of theAO that any undisclosed income had already been disclosed in any return of income filed by the assessee before the commencement ofsearch or of the requisition will be on the assessee. Section 158-BC,on the other hand, prescribes the procedure to be followed whilesubjecting an assessee to block assessment. I.T.Appeal Nos.106 &conn.cases 16 28. Indeed, this Court in Hotel Maria has observed that none of the provisions of Chapter XIV-B mandates that for making block-assessment there will be evidence about the concealed income forevery year in the block-period. It cannot be expected that theassessee would retain documents regarding the concealed income. Ifdocuments for every concealment are insisted upon, practically theprovision for block-assessment would be defeated. 29. Hotel Maria also holds that when it is revealed in a searchunder Section 132 of the Act that the assessee was following aparticular method to conceal income, it is just and reasonable topresume that the same practice was followed by the assesseethroughout the assessment years in the block-period. Thepresumption, of course, is rebuttable. It is for the assessee toestablish that he did not conceal any income in the earlierassessment years in the block-period or that he practiced thedetected concealment-method only from a particular period. Precedential Position: 30. In Padamchand Ramgopal (supra), the ITO has made a I.T.Appeal Nos.106 &conn.cases 17 best-judgment assessment for five assessment years and arrived at escaped income. In his order, he gave no reasons why he did notrely on the assessee’s accounts. When challenged, the Apex Courthas held that insignificant mistakes found in the accounting of oneyear cannot be a basis for the authority to reject the accountsrelating to other assessment years. The Court has felt that themethod ITO adopted for determining escaped-income to be highlycapricious. It is pertinent to note that, on facts, the Court hasobserved that none of the authorities have found any mistake in theaccounts relating to other accounting years. 31. In C. Velukutty, the Apex Court has quoted with approvalthe Privy Council decision inCITv.Laxminarain Badridas[5]to expositthe expression “to the best of his judgment” under Section 12 (2) (b)of the Travancore-Cochin General Sales Tax Act, 1125 M.E. (XI of1125): “He (the assessing authority) must not act dishonestly, orvindictively or capriciously because he must exercise judgment inthe matter. He must make what he honestly believes to be a fairestimate of the proper figure of assessment, and for this purpose 31. In C. Velukutty, the Apex Court has quoted with approvalthe Privy Council decision inCITv.Laxminarain Badridas[5]to expositthe expression “to the best of his judgment” under Section 12 (2) (b)of the Travancore-Cochin General Sales Tax Act, 1125 M.E. (XI of1125): “He (the assessing authority) must not act dishonestly, orvindictively or capriciously because he must exercise judgment inthe matter. He must make what he honestly believes to be a fairestimate of the proper figure of assessment, and for this purpose he must, Their Lordships think, be able to take into considerationlocal knowledge and repute in regard to the assessee'scircumstances, and his own knowledge of previous returns by andassessments of the assessee, and all other matters which he thinkswill assist him in arriving at a fair and proper estimate; and thoughthere must necessarily be guess work in the matter, it must behonest guess work. In that sense, too, the assessment must be tosome extent arbitrary.” 32. Velukutty adumbrates the limits of the power implicit in the expression “best of his judgment”. It holds that ‘judgment’ is afaculty to decide matters with wisdom truly and legally. A judgmentdoes not depend upon the caprice of a Judge, but on settled andinvariable principles of justice. Though there is an element ofguesswork in a “best-judgment assessment”, it will not be a wildone, but will have a reasonable nexus to the available material andthe circumstances of each case. Though the provision provides for asummary method because of the assessee’s default, it does notenable the assessing authority to function capriciously without regardfor the available material. 33. In H. M. Esufali H. H. Adbulali (supra) the Supreme Court has held that the distinction between a 'best-judgment' assessment I.T.Appeal Nos.106 &conn.cases 19 and assessment based on the accounts submitted by an assessee must be borne in mind. Sometime there may be innocent or trivialmistakes in the accounts maintained by the assessee. There may beeven certain unintended or unimportant omissions in those accounts,yet the accounts may be accepted as genuine and substantiallycorrect. In such cases, the assessments are made based on theaccounts maintained even though the assessing officer may add backto the accounts price of items that might have been omitted to beincluded in the accounts. 34. Adbulali goes on to observe that the assessment made in themanner stated above is not a "best-judgment" assessment; it isprimarily made based on the accounts maintained by the assessee.But when the assessing officer concludes that no reliance can beplaced on the accounts maintained by the assessee, he can assessthe assessee as per his 'best-judgment'. In doing so he may takesuch assistance as the assessee's accounts may afford; he may alsorely on other information gathered by him, as well as on thesurrounding circumstances of the Case. It concludes that the I.T.Appeal Nos.106 &conn.cases 20 assessments made based on the assessee's accounts and those made on 'best-judgment' basis are totally different. 35. In Abdulai the Supreme Court further observes that if the estimate made by the Assessing Officer is not arbitrary and hasnexus with facts discovered, it cannot be questioned. In the verynature of the things, the estimate made may be an over-estimate oran under-estimate. But that is no ground for interfering with the AO's'best-judgment'. The Court, however, cautions that the basis adoptedby the officer should relate to the estimate made. I.T.Appeal Nos.106 &conn.cases 20 assessments made based on the assessee's accounts and those made on 'best-judgment' basis are totally different. 35. In Abdulai the Supreme Court further observes that if the estimate made by the Assessing Officer is not arbitrary and hasnexus with facts discovered, it cannot be questioned. In the verynature of the things, the estimate made may be an over-estimate oran under-estimate. But that is no ground for interfering with the AO's'best-judgment'. The Court, however, cautions that the basis adoptedby the officer should relate to the estimate made. 37. Let us examine Abdulai deeper.On facts, Abdulai holdsthat the assessee has neither pleaded nor established any justifiablereason for his not entering in the accounts the transactions noted inthe bill-book seized. In such a situation, it was not possible for theSales Tax Officer to find out precisely the suppressed turnover; hecould only estimate it based on the material before him. 38. Abdulai disapproves of an approach that insists on theassessing authority's having material before him to prove the exactturnover suppressed. If it were insisted upon, there would be no I.T.Appeal Nos.106 &conn.cases 21 “best-judgment” assessment. The assessee cannot be permitted totake advantage of his own illegal acts, for it is his duty to place allfacts truthfully before the assessing authority. If he fails to do hisduty, he cannot be allowed to call upon the assessing authority toprove what turnover he had suppressed, which fact is within hispersonal knowledge. The AO’s task in finding out the escapedturnover was by no means easy. In estimating any escaped turnover,Abdulai acknowledges, inevitably there is going to be some guess-work. The assessing authority while making the “best-judgment”assessment no doubt should conclude rationally and unbiased. If theAO’s estimate is bona fide and rational, that there is no good proofto support that estimate is immaterial. Prima facie, the assessingauthority is the best judge of the situation; it is his “best-judgment”and not of anyone else's. 39. No court could substitute its “best-judgment” for that of theassessing authority. The courts should first see, Abdulai asserts,whether the accounts maintained by the assessee were rightlyrejected as unreliable. If they conclude that they were rightly I.T.Appeal Nos.106 &conn.cases 22 rejected, the next question is whether the basis adopted inestimating the turnover has a reasonable nexus with the estimatemade. If the basis adopted is held to be relevant, even though thecourts may think that it is not the most appropriate basis, theassessing authority’s estimate cannot be disturbed. Block-Assessment: Best-Judgment: For AY 2005-06: 40. For the AY 2005-06, the assessee faced an allegation thathe had invested Rs.24,83,346/- in Kutuparamba property; itremained unexplained in the books of account. 41. The Tribunal has found that, about this investment, theDepartment has failed to find any corroborative material underSection 69 of the Act. It has also held that the amount in theRegistered Sale Deed should be accepted unless countervailingmaterial establishes that the consideration in the Registered Deed isdifferent. The un-signed computer print-out, held the Tribunal, hasno evidentiary value. Convinced of the assessee’s explanation, theTribunal has held that the addition made by the Department I.T.Appeal Nos.106 &conn.cases 23 regarding the alleged investment in Koothparamba property is not justified. This finding has attained finality. For AY 2006-07: 42. For the AY 2006-07, the issue concerns the alleged 41. The Tribunal has found that, about this investment, theDepartment has failed to find any corroborative material underSection 69 of the Act. It has also held that the amount in theRegistered Sale Deed should be accepted unless countervailingmaterial establishes that the consideration in the Registered Deed isdifferent. The un-signed computer print-out, held the Tribunal, hasno evidentiary value. Convinced of the assessee’s explanation, theTribunal has held that the addition made by the Department I.T.Appeal Nos.106 &conn.cases 23 regarding the alleged investment in Koothparamba property is not justified. This finding has attained finality. For AY 2006-07: 42. For the AY 2006-07, the issue concerns the alleged unexplained investment of Rs.76.90,320/- in 'Mahe' Property. TheTribunal has found that the issue had already been dealt with in ITANos.724 & 725/Coch/2010 involving Mr. Ashraf. As the issue isidentical, the findings rendered in ITA No.724/Coch/2010 & batch,the Tribunal has felt, that the assessment by the AO and the order ofthe appellate authority could not be sustained. This finding, too, hasattained finality. 43. The bill-books found during the search pertain to the periodfrom 01.04.2006 to 30.07.2007. From them AO found the total salesto be at Rs.2.31 crores. Since the assessee had not included thesales in the trading account filed along with the return of income, theAO reassessed the sales backwards in the entire block-period fromAY 2002-03. I.T.Appeal Nos.106 &conn.cases 24 Estimation of Turnover of Sales-Net Profit-Addition of 5% 44. The learned Senior Counsel for the assessee hasemphasised that during the search the authorities found nodiscrepancy in the stock. Further, he has brought to our notice thedefence set up by the assessee: The impounded bills wereadjustment bills issued by the assessee for the sales effected todealers in Kerala. Compared with Kerala, Mahe (Pondichery) has alow tax-rate. So dealers in Kerala get bills from Mahe for which theygive 1% commission to the assessee. The assessee has asserted thatit is a normal practice. But, as has been held by the AO, the assesseeshowed no income by way of commission in the returns filed. 45. Absent any cogent explanation from the assessee, the AOestimated the sales at Rs.1,36,40,319/- by reducing 10% from eachyear from the sales effected for the period 01-04-2006 to31-03-2007. He computed the GP @ 6.52%, which comes toRs.8,89,348/-. He added this amount to the assessee’s total incomeas undisclosed business income. Similarly, the AO estimated thesales for the remaining years; he took GP @12.67%, 11. 76%, I.T.Appeal Nos.106 &conn.cases 25 11.37% and 9.7% for the AYs 2003-04, 2004-05, 2005-06, and2006-07 respectively. And at 10.32% on the total sales of Rs. 2.31crores made during 01-04-2006 to 31-03-2007. For the assessmentyear 2008-09, the AO estimated the sales by adding 10% to theestimated sales of 2007-08 and adopted G.P.@ 9.70% on theestimated sales of Rs. 2,54,10,000/-. He thus determined theundisclosed income at Rs. 24,64,770/-. Eventually, the total salesfrom 01-04-2006 to 31-03-2007 had, however, been reworked toRs.1,95,49,007/-, instead of Rs. 2.31 crores. 46. As has been rightly held by the Tribunal, the assesseecould not establish that bill-books accord with the statements ofaccount he submitted to the authorities. Nor has he sustained hisdefence that the bill-books contained commission transactions, giventhe tax difference between the State of Kerala and the UnionTerritory of Pondicherry. Further, important is that anyaccommodation by way of issuing bills at Mahe to the traders ofKerala for the transactions held only in Kerala is against public policy.The authorities—even if they were to believe the assessee’s version 46. As has been rightly held by the Tribunal, the assesseecould not establish that bill-books accord with the statements ofaccount he submitted to the authorities. Nor has he sustained hisdefence that the bill-books contained commission transactions, giventhe tax difference between the State of Kerala and the UnionTerritory of Pondicherry. Further, important is that anyaccommodation by way of issuing bills at Mahe to the traders ofKerala for the transactions held only in Kerala is against public policy.The authorities—even if they were to believe the assessee’s version I.T.Appeal Nos.106 &conn.cases 26 —have rightly refused to recognise those illegal transactions. Indeed, emphatic is the judicial dictum of Abdulai that the AO’s best-judgment did carry an element of speculation and approximation. 47. As against the initial turnover of Rs.2.31 crore, the Tribunalhas found it to be Rs.1,95,49,077 based on the AO’s Remand Report.As a result, the Tribunal has sustained the net profit rate at 5% ofthe turnover. We reckon that the method of calculation and theprocedure adopted by the authorities arriving at the undisclosedincome has accorded with the statutory mandate under sections 68to 69C of the Act. We, therefore, find no reason to interfere with theTribunal’s confirming the AO’s adopting the undisclosed income@5% on the revised suppressed turnover.For AY 2008-09: 48. Now we may focus on another issue : the agriculturalincome taken as income from other sources, for the AY 2008-09. Theappellant owns 21 cents of land on which a house, too, exists. TheCIT (Appeals) has agreed with the AO’s findings. The finding is thatthe assessee has claimed no agricultural income in the return, but I.T.Appeal Nos.106 &conn.cases 27 showed it in the statement-of-account filed during assessmentproceedings. Indeed, the assessee’s claim seems to be against theestablished practice of reckoning income from agricultural activities.Excluding the house, whatever remains of 21 cents may not be, ashas been concurrently held, sufficient to generate the income shownby the assessee from agriculture. We, therefore, find no reason tointerfere with the concurrent findings entered by both the fora onthis aspect — a question of fact. For AYs 2003-04 and Other AYs: 49. The next issue concerns the AYs 2003-04, 2004-05, and2005-06. It is about the income in the form of interest on FixedDeposits the assessee had with Gokulam Chit Funds. Indisputably,the assessee showed fixed deposits; but, correspondingly, failed toreveal in the returns any interest. Absent any explanation from theassessee, the AO adopted interest @10% per annum. To be moreexplicit, the assessee showed Rs.10 lakh fixed deposit from13-11-2002 to 31-03-2005, and Rs.5 lakh from 21-01-2003 to31-03-2009. As noted, he showed no income as interest on those I.T.Appeal Nos.106 &conn.cases 28 deposits. 50. Given the size of the deposits, it is but inevitable that theassessee ought to have earned some interest on the fixed deposits.As he has failed to show in his returns any income by way ofinterest, the concurrent finding entered by both the fora reckoninginterest at 10% annually is eminently sustainable; so it calls for nointerference. For AY 2004-05: 51. The next issue concerns the AY 2004-05: the addition ofamounts the assessee allegedly lent to other people. He allegedlylent Rs.13 lakh to one Mr. Nanu Vaidyar, Rs. 10.5 lakh to Mr. Nelson,Rs.1 lakh to Mr. Kaitan, Rs.31,000 to Mr. Valsan Ariyaram, andRs.82,500 to sundry persons. It totals to Rs.25,63,500/-. They aresaid to be temporary loans. 52. From the records it is evident that the assessee lent themoney to Mr. Nanu Vaidyar before 01-04-2001. As for the lending toothers, too, exact dates are unavailable. So the AO treated the entireRs.25,63,500/- as the assessee’s unexplained investment during the For AY 2004-05: 51. The next issue concerns the AY 2004-05: the addition ofamounts the assessee allegedly lent to other people. He allegedlylent Rs.13 lakh to one Mr. Nanu Vaidyar, Rs. 10.5 lakh to Mr. Nelson,Rs.1 lakh to Mr. Kaitan, Rs.31,000 to Mr. Valsan Ariyaram, andRs.82,500 to sundry persons. It totals to Rs.25,63,500/-. They aresaid to be temporary loans. 52. From the records it is evident that the assessee lent themoney to Mr. Nanu Vaidyar before 01-04-2001. As for the lending toothers, too, exact dates are unavailable. So the AO treated the entireRs.25,63,500/- as the assessee’s unexplained investment during the I.T.Appeal Nos.106 &conn.cases 29 AY 2004-05. Leaving aside the minor discrepancies in the assessee’s explanation about his lending the amounts to various persons,presumably his friends, we may bear in mind that the assessee is abusinessman with considerable turnover. For a businessman, havinga turnover of a couple of crores, short-term lending to friends—without interest at that—is neither uncommon nor abnormal. 53. True, the AO’s assessment and the adjudicatory authorities’findings are, perhaps, matters of fact. But the facts to fructify intofindings need the application of law. If that application of law isflawed, this court can interfere, without causing violence to theestablished principle of law that there needs no interference on thequestions of fact. 54. Even going by the ratio of Abdulai, we reckon that the AO’sfindings on this issue are on unsure foundations. The speculativeaspect overshadows the aspect of the established business practices.Given the assessee’s explanation, we hold that he ought to havebeen given the benefit of doubt. In other words, there can be noquarrel on the AO’s conclusion that Rs.25,63,500/- is an unexplained I.T.Appeal Nos.106 &conn.cases 30 investment, but on his calculating interest, we feel that it is withoutbasis. We, therefore, set aside the Tribunal’s findings for AY 2004-05concerning addition of interest; as a result, we allow the assessee’sappeal for AY 2004-05.Similarly, the AO’s conjecture on the interestcomponent for the AYs 2005-06, 2006-07, and 2007-08—Rs.2,34,000/-, Rs.2,34,000/-, and Rs. 1,36,500 respectively—cannotbe sustained. Addition of Interest: 55. On the above mentioned amounts, the AO has estimatedinterest component at Rs.1,48,000/-. For the reasons weighed withus in disallowing the AO’s best-judgment the addition ofRs.25,63,500/-, we also hold that the addition of interest on thosedeposits cannot be sustained. Fishing Boats: 56. Finally, we may focus on the additions made by the AObecause of estimated income from fishing boats for the AYs 2005-06,2006-07 2007-08, and 2008-09. Undeniably the seized diary revealedincome from fishing boats amounting to Rs. 38,750/-, Rs. 43,900/-, I.T.Appeal Nos.106 &conn.cases 31 Rs.32,100/-, and Rs. 8000/- for the years mentioned above. As has been rightly and concurrently observed by the adjudicatoryauthorities, there was precious little explanation from the assessee.We, therefore, uphold the Tribunal’s findings and dismiss the appealfor the AYs 2007-08 & 2008-09. Conclusion: In the end, we answer the questions of law on all issuesagainst the assessee save the addition of amounts the assesseeallegedly lent to other people, totaling to Rs.25,63,500/- and theinterest component thereon. Thus, the above IT Appeals are disposed of. No order on costs. SD/- Antony Dominic, Judge sd/- Dama Seshadri Naidu, Judge css/ true copy P.S.TO JUDGE