Ita/110/2014 Of Muhammed Kutty Haji v. The Deputy Commissioner Of Income Tax

IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT THE HONOURABLE MR.JUSTICE K.VINOD CHANDRAN & THE HONOURABLE MR. JUSTICE ASHOK MENON MONDAY ,THE 24TH DAY OF SEPTEMBER 2018 / 2ND ASWINA, 1940 ITA.No. 110 of 2014 AGAINST THE ORDER/JUDGMENT IN ITA 220/2011 ofI.T.A.TRIBUNAL,COCHIN BENCH DATED 27-12-2013 APPELLANT/S: MUHAMMED KUTTY HAJIPROPRIETOR, SAUDI STEELS, MANJALUNGAL, PATTAMBI, PALAKKAD DISTRICT.BY ADVS.SRI.K.ANAND (SR.)SMT.LATHA ANAND THIS INCOME TAX APPEAL HAVING BEEN FINALLY HEARD ON 24.09.2018, ALONG WITH ITA.90/2014, ITA.111/2014, ITA.106/2014, ITA.105/2014, ITA.104/2014, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: Vinod Chandran, J. JUDGMENT The appeals arise from the orders of the Tribunal forthe assessment years 2002-03 and 2004-05 to 2008-09. The questions of law sought to be answered as found in thememorandum are as follows:-memorandum are as follows:- “1.Whether in the facts and circumstances ofthe case the Income Tax Appellate Tribunal iscorrect in law in sustaining the additions ingross profit made solely on the basis ofstatement of Mr.Abdul Razak who is only theemployee of the assessee especially when thereis no corroborative or material evidence onrecord ?the case the Income Tax Appellate Tribunal iscorrect in law in sustaining the additions ingross profit made solely on the basis ofstatement of Mr.Abdul Razak who is only theemployee of the assessee especially when thereis no corroborative or material evidence onrecord ? 2. Whether in facts and circumstances of the casethe Tribunal misdirected itself in upholdingon the estimation based on Gross Profit rate,as only net profit rate can be adopted on thealleged suppressed turnover, especially whenthe turnover has been estimated at four timesof the reported turnover ?”the Tribunal misdirected itself in upholdingon the estimation based on Gross Profit rate,as only net profit rate can be adopted on thealleged suppressed turnover, especially whenthe turnover has been estimated at four timesof the reported turnover ?” 2.On facts suffice it to notice that the assessee was conducting business in building materials and therewas an inspection conducted on 06.09.2007 in the premises of the assessee. On inspection it was noticed that theassessee had been maintaining two sets of bills, bothprinted from the computer. The sales recorded in the books of accounts were easily printable and recoverablefrom the computer. There was however yet another set ofbills which could be generated only by using a passwordin the computer. The inspecting team also recovered suchbills for the period from April, 2007 to 06.09.2007, thedate of search. There was a huge disparity found in thesales and purchase. While the accounted purchase wasRs.1.16 crores, the actual purchase made was about 4.62crores. The accounted sales came only to Rs.1.18 croresas against the actual sales of about Rs.4.80 crores. 3.Proceedings were initiated under Section 153Aread with Section 144 of the Income Tax Act, 1961 (forbrevity “the Act”). The Assessing Officer made a numberof additions for various years, ie., six years prior tothe assessment year of which previous year the search wasconducted and also the assessment year in which thesearch was conducted. From the First AppellateAuthority's order the assessee filed appeals to theTribunal, which were rejected. In the present appeals, weare required to confine our adjudication to the questionof the addition made for the various prior years on the basis of the disparity found in the books of accounts, inthe previous year to the assessment year in which thesearch was conducted. There were other issues, some ofwhich were allowed by the Tribunal and others remanded bythe Tribunal. We confine ourselves to the above referredissues, which are with respect to the additions made tothe total income and the gross profit adopted fordetermining the total income. basis of the disparity found in the books of accounts, inthe previous year to the assessment year in which thesearch was conducted. There were other issues, some ofwhich were allowed by the Tribunal and others remanded bythe Tribunal. We confine ourselves to the above referredissues, which are with respect to the additions made tothe total income and the gross profit adopted fordetermining the total income. 4.The learned Counsel for the appellant wouldargue that there was absolutely no recovery of materialswith respect to the earlier assessment years and in suchcircumstances there could be no assessment made on bestjudgment for other years in which the assessment stoodconcluded or are still pending. The Counsel also arguesthat the very same percentage of addition cannot beadopted for all the years. Again for the reason ofabsence of any supporting material to substantiate suchadditions, it is also argued that the gross profit hasnot been adopted on a proper assessment of the business.The learned Senior Standing Counsel appearing forGovernment of India (Taxes) relies on two judgments of this Court reported in Commissioner of Income Tax v.Hotel Meriya, [2011] 332 ITR 537 (Ker) and Commissionerof Income Tax v. O.Abdul Razak, [2012] 207 TAXMAN 193(Ker.) to support the order of the Tribunal. 5.Hotel Meriya was a case in which an inspectionwas conducted and assessment was proposed for the blockperiod. There was no material disclosed for the previousyears in which the assessment was reopened on the basisof the materials found on search. In fact there wasclear deposition of the employee of the assessee thereinadmitting that only 80% of the sales were reflected inthe accounts. Considering the evidentiary value of thestatements made even for the years prior to the year inwhich the search was conducted, a Division Bench of thisCourt found that the same is reliable and permissible.The Assessing Officer had recorded the statement of thepartner of the assessee as well as the employee, inexercise of the powers vested on him under Section 131 ofthe Act. Section 131 of the Act vests the AssessingOfficer with the same powers as are vested in a Courtunder the Code of Civil Procedure, 1908 in respect of (a) discovery and inspection, (b) enforcing the attendance ofany person, including any officer of a banking companyand examining him on oath, and (c) compelling the production of books of account and other documents. Thestatement of the partner and employee recorded by theAssessing Officer as well as the documents seized, according to the Division Bench would come within thepurview of Section 131 of the Act. Considering thelegislative intent under Chapter XIVB it was held thatwhen making block assessment, the evidence recovered ofconcealment of income for every year in the block year isnot essential. When there is discovery of materials atthe time of search indicating non-disclosure of income, then best judgment assessment was permissible on thebasis of the evidence collected during search, even forthe prior years in the block period in which there is nopossibility of the assessee having retained any materialsto evidence non-disclosure. value of a statement under Section 132(4) of the Actwithout any further material. In that case there was a further contention raised of a retraction having beenmade completely extinguishing the evidentiary value ofthe statement earlier made on interrogation. Relying onHotel Meriya it wasfound that the retraction would notin any manner destroy the evidentiary value of thestatement made under oath and permitted to be used inevidence by express statutory provisions. It was heldthat a self-serving retraction without anything morecannot dispel the statutory presumption. We respectfullyagree with the dictum laid down in the aforeciteddecisions. value of a statement under Section 132(4) of the Actwithout any further material. In that case there was a further contention raised of a retraction having beenmade completely extinguishing the evidentiary value ofthe statement earlier made on interrogation. Relying onHotel Meriya it wasfound that the retraction would notin any manner destroy the evidentiary value of thestatement made under oath and permitted to be used inevidence by express statutory provisions. It was heldthat a self-serving retraction without anything morecannot dispel the statutory presumption. We respectfullyagree with the dictum laid down in the aforeciteddecisions. 7.In the present case also, at the time of search,there was detected materials as available from thecomputer of the assessee showing vast disparity in thesales and purchase disclosed as per the accounts and theactual business carried out by the assessee. The grossprofit was also based on the sales and purchase asdisclosed from the books of accounts. It is alsopertinent that the Manager of the assessee, who made thestatement under Section 132(4) had in fact opened asecond set of bills in the computer using a password and it was from these materials that a definite pattern of suppression was detected. This pattern having beenapplied to the earlier assessment years, was perfectlycorrect and a permissible exercise under Section 144 ofthe Act being power conferred on the Assessing Officerfor proceeding on best judgment. We do not think thatthere is any scope for interference of the order of theTribunal insofar as the addition made and adoption ofgross profit. We, hence, answer the questions of lawagainst the assessee and in favour of the Revenue. TheI.T.Appeals are dismissed. No order as to costs. Sd/- K.VINOD CHANDRAN JUDGE Sd/- ASHOK MENON JUDGE APPENDIX PETITIONER'S/S EXHIBITS: ANNEXURE A1 TRUE COPY OF ASSESSMENT ORDER DATED 28-12-2009. ANNEXURE A2TRUE COPY OF THE ORDER DATED 23-12-2010 PASSED BY THE 2ND RESPONDENTANNEXURE A3TRUE COPY OF ORDER DATED 16-11-2012 PASSED BY THE 3RD RESPONDENT ANNEXURE A4TRUE COPY OF ORDER OF THE INCOME TAX APPELLATE TRIBUNAL, COCHIN BENCH,COCHIN IN ITA 215 TO 221/COCH/2011. RESPONDENT(S) EXHIBITS: NIL TRUE COPY dkr PA TO JUDGE