Itta/402/2006 Of Vijay Raj Sethai v. The Asst. Commissioner Of Income Tax

IN THE HIGH COURT FOR THE STATE OF TELANGANAAT HYDERABAD WEDNESDAY THE SEVENTH DAY OF JUNETWO THOUSAND AND TWENTY THREE PRESENT THE HONOURABLE THE CHIEF JUSTICE UJJAL.BHUYANAND.THE HONOURABLE SRI JUSTICE N.TUKARAMJI INCOME TAX TRIBUNAL APPEAL NO: 402 OF 2006 (lncome Tax Tribunal Appeal Under Section 260-A of the lncome tax Rct td6t,against the order of the lncome Tax Appellate Tribunal, Hyderabad Bench'B',Hyderabad in |T(S.S.) A.No., 1o8iHydetabadl2013, (Block period 1991-92 to 2001-02) dated 27 -02-200, preferred against the Order of the Commissioner of lncomeTax(Appeals) - I Hyderabad, in Appeal No.0413/CC-5, Hyd; CIT(A)-1I02-03, datedI2q06-2003, preferred against the Order of the Asslstant Commissioner of lncomeTax Central Circle-S, Hyderabad, PAN/GlR No.AASPJ9744QN-7O41CC-5, dated 29-11-2022) Between: Vijay Raj Sethai, S/o Jawarilal Sethai, Rl/o PIot No.60, Temple Rock Enclave,.Tadbund, Secunderabad. ..APPELLANTAND ,The Asst. Commissioner of lncome Tax, Central Circle 5, Sakkar Bhavan, ...RESPONDENT Counsel for the Appellant: Mr. CHALLA GUNARANJAN Coursel for the Respondent: Ms. K. MAMATA CHoUDARY Senior S.C. for lncome Tax Department The Court made the following JUDGMENT: THE HON'BLE THE CHIEF IUSTICE UIIAI BH{JYAN AND THE HON'BLE S.B I IU STIEEALTUKARAM I II.T.T.A.No, 402 of 2006 UDGMENT, r]', r /,,e Hon'bts the ChicJ.ln.ti L'ja/ Bhryat) Fleard Mr. Challa GLurarunjan, leamed counsel for rhe appellant and tr4s. K.IMamata Choudary, leamed Senior StandingC.ounsel, Income Tax Department forthe respondent. 2. This appeal has been preferred bythe assessee as rhe appellanr under Section 260A of the Income Tax Act, 1961 (briefly'the Act'hereinafter) against the order dated 27.02.2006 passed by the IncomeTax Appellate fHbunal, Hyderabad Bench 'B', Hyderabad (bnefly'the Tribunal' hereinafter) in I.T.(S.S)ANo.108/H1dI2003 for theblock period 199l-1992 to 2a0L-2002. 3. Though this appeal was admitted on 13.10.2006, no substantialquestions of law were framed. Flowever, we find that in the memoof appeal, appellant has proposed the following quesrions assubstantial questions of law: /^"thod1. \Xlhether on rhe fac$ and in the circumstances of the case, theadoprcd for arriving the profit and income is not perverseadoprcd for arriving the profit and income is not perverse\ andvrhimsical ? 2. \Xihether on the faca [and ][in ][the ][circumstances ][of the ][case, ][the]order of the Income [Ta.x ][Appellate ][Tribunal ][is pen'erse, ][artitrary]without any [basis, ][illegal ][and ][a ][prcjudicial one ][?] 3. \Xr'hether on the [facu ][and ][in ][the ][circumstances ][of ][the ][case, ][when]comparable [cases ]disclosing [a ][profit ][rate ][of ][5o/o ][and ][even ][less are]relied by the appellant [before ][the ][assessing ][officer ][and ][more]panicularly the [case ]of [P.Koteshwar ][Rao ][in ][similar ][i.llegal ][trade, ][the]Appellate Tribunal [ignoring ][them could ][hold ][arbitrarily ][and]without any basis that the [profit ][rate adopted by ][the ][assessing]officer at [15"/o ]['s ]fatr [and ][right ][and whether such ][a ][finding, ][not]based on any rnaterial [or ][comparable ][cases, ][could ][be ][justified ][and]not perverse [?] 4. 'i{4rether on the facts and [in ][the ][circumstances ][of ][the ][case, ][the]finding of the Appellate [Tribunal that the ][asssessing ][officer ][was]not only corsiderate but also conservati*'e [in ][esdmating ][the ][profit]at l5o/o is based on any material [evidence ][or ][comparable ][cases]vrhen assessing officer himself does [not ][rely ][on ][any comparable]cases to estimate profit [at ][l5o/o ][and ][whether such ][finding ][is ][i[ega],]artitrary, without any [basis ]and [unjtrst ][?] 4. 'i{4rether on the facts and [in ][the ][circumstances ][of ][the ][case, ][the]finding of the Appellate [Tribunal that the ][asssessing ][officer ][was]not only corsiderate but also conservati*'e [in ][esdmating ][the ][profit]at l5o/o is based on any material [evidence ][or ][comparable ][cases]vrhen assessing officer himself does [not ][rely ][on ][any comparable]cases to estimate profit [at ][l5o/o ][and ][whether such ][finding ][is ][i[ega],]artitrary, without any [basis ]and [unjtrst ][?] 5. [lXhether ]on the facts and [in ][the ][circumsrances ][of ][the ][case, ][the]Appellate Tribunal ignored the [fact ][that ][if ][the ][peak ][credit ][of]Rs.1,93,603/-, which is considered as [undisclosed ][income ][in ][the]assessment, is taken into account, [the ][profit ][margin disclosed ][by]the appellant would be [much ][lower at ][7o/o ][and as such ][the ][order ][of]the Appellate Tribunal [is arbitnry, ][illegal ][and ][not ][based ][on ][the]material on reconC ? 4. Appellant [is an ][assessce ][under the ][Act ][having ][the ][status ][of ][an]individLral. [Search ][and ][seizltre ][opentiors ][under Section ][132 ][of ][the]Act werc canied [out ][in ][the ][res ][idential ][as ][well ][as ][the ][business]of [the ][petitioner and ][another ][Person namely ][Sri ][Uttam]premises Chand Sethia [on ][23-ll-20A0' ][In ][the course ][of the ][search ][and ][seizure]operation, [it ][came ][to ][light ][that ][appellant ][was ][indulging ][in ][clandestine]business [activity ][in ][purchase ][and ][sale ][of ][N-Flexane ][oil ][for ][the]of [adulteration ][with ][petrol ][at ][petrol ][bunks' ][Funher']purpose unaccounted [cash ][amounting ][to ][Rs'4,16'600'00 was seized']5. Foliowing [the ][search ][and ][seizure ][oPeration' ][block ][assessment]proceedings [were ][initiated ][by ][the ][assessing ][officer ][for ][the ][block]period [lglt-t992 ][ttpro ][2OOL-2a02 ][(upto ][the ][date ][of ][search) ][under]Section [143(3) ][r/w ][Section 1588C ][of ][the ][Act' ][fusessing ][Officer]noted that [on ][rhe ][date ][o[ ][search, ][appellant ][had, ][in ][the ][sworn]deposition, [admirte.l ][undisclosed ][income ][of ][Rs'10 ][lakhs ][from ][such]clandestine [activity. ][In ][a ][subsequent ][deposition ][recorded ][on ][the]same day [i.e., ][on ][23.fi.2A00, he ][stated ][that he ][had ][undisclosed]income of [Rs.7O ]lakhs. [Subsequently, ][by ][way ][of ][a ][lemer]dated D.aL.2001, rppellant quntified his undisclosed income at 4 Rs.11,01,570.00. However, while filing rerum for the block period,appellant admimed undisclosed income ar lts. I O,g 1,000. OO.appellant admimed undisclosed income ar lts. I O,g 1,000. OO. 6. In the course of the assessment the course of the assessment course of the assessment of the assessment the assessment assessment proceedings, assessing officerassessing officerofficeropined that income admiued by the appellanr was too low to beaccepted. According to the assessing officer, appellant would nothave undertaken or would nor have been involved in such aclandestine business for a paltry profit knowing fully well theconsequences in the event of detection. Assessing officer ride theassessmenr order dated 29.11.2002 reworked rhe rumover by takinginto account a margin of 5o/o on the purchases. fu a result, thetumover worked out to Rs.1,45,45,g6j.00. fusessing officer funheropined that it would be prudent to adopt profit rate at 15% whichworked out to Rs.21,96,g79.00. Accordingly, the aforesaid amountwas added to the income of the appellant. In the course of the assessment the course of the assessment course of the assessment of the assessment the assessment assessment proceedings, assessing officerassessing officerofficer 7. In appeal before the C-ommissioner of Income Tax(App."b)-I, Hyderabad .C[T(A), ftriefly hereinafter), the fintappellate authoity uitle the order dated,23.O6.2OOJ took the view thatrate of l5o/o adopted bythe assessing officer was on the higher side. \ \H\ \ '#ra .4, In the course of the assessment the course of the assessment course of the assessment of the assessment the assessment assessment proceedings, assessing officerassessing officerofficer 7. In appeal before the C-ommissioner of Income Tax(App."b)-I, Hyderabad .C[T(A), ftriefly hereinafter), the fintappellate authoity uitle the order dated,23.O6.2OOJ took the view thatrate of l5o/o adopted bythe assessing officer was on the higher side. \ \H\ \ '#ra .4, OT(A) accepred rhe argunrt.nt of the appellant rhar no purchaserwould pay higher price lor ,r commodiry sold outside rhe regr_rlarbooks of accounr when he cr,uld get the same commodiry at lowerprice in open mar.ket. Acconling to CT(A), the profit rate should6e 8.25o/o on rht. rumover as was applied in the case of oneSri P.Koteswara Rao. Accordingly, the assessment order wasmodified by the fint appelJare aurhoriry by working our rheundisclosed incomt, ar Rs.15,g5,_569.00 instead of Rs.25,g0,4g3.00 bvaPplymg the profit rute at g.25o/o. 8. Aggrieved by the aforesaicl order of OT(A), both appellant aswell as revenue preferred appeals before the Tribunal. 8.1. Tribunal by the order dated 27.02.2006 set aside the order ofOT(A) and restored the order ol- the assessing officer thus ailowingthe appeal of rhe revcnue and dismissing the appeal of the appellant.Relevant ponion of rhe order of the Tribunal dated 27.02.2006 readsas under: The assessee adrnimeclly is indulging in the illegal trade of aproduct Inown as N_Hexane, whrch s ,lsed fo. at petrol bunl<s. t\o books of accolut have been "drlt.ratrng maintamed. [petrol]The .t l onlv recourse open to the AO was to estirnate thc r-rndiscloscdincome. The xsessee himseli had admired to this [fact ]and [iiled]block retum disclosing undisclosed income from this trade. [The]question to be answered is t'hether the AO [q/as ]right [in ]estimatingthe profit at l5o/o of the tumover of the assessee in this tnde. Toour mind, the AO was fair and considerate in estimating the profitat l5o/o of the tumover. In fact, the assessee has benefited due tocalculation mistake that has been done by the AO. The AO'sestimation of sales was at cost plus 5olo u'hereas his intention l'asthat the assessee had eamed a gross profit of l5o/o on such sales.In that case, the total turnover of the assessee should have beenestimated at cost plus 15olo or more. Nevertheless, the intention ofthe AO is that the profit from this illegal activiry.would havebeen 15olo. The logic accepted by rhe fint appellate authoriry isstrange. fu pointed out by the leamed depanmentalrepresentative, no person would take such great risk of illegal tradewhich would make him liable for imprisonment, for eaming apercentage of profit much lower than if he had done the businessin an open and legal runner. As ttre AD was not only consideratebut also conservative in estimating the profit only at 15olo of anunderestimated frgure of turnovet the assessee should not havehad any grievance on the same. C"-i"g to the reliance placed on the case of Shri P.KateswaraRao, we hold that fundamentally a profit rate adopted in rhe caseof Shri Koteswara Rao cannot be a bench- marlr panicularly in thisillegal trade. [tfflhatever ]mftht be t]re reason for accepting thepercentage of profit h the case of Shri Koteswara Rao, to our C"-i"g to the reliance placed on the case of Shri P.KateswaraRao, we hold that fundamentally a profit rate adopted in rhe caseof Shri Koteswara Rao cannot be a bench- marlr panicularly in thisillegal trade. [tfflhatever ]mftht be t]re reason for accepting thepercentage of profit h the case of Shri Koteswara Rao, to our nurd, his {rJs. cloes nor corr)(, ur the rescue of the assesse. T}roughthc same .\srcssing [( ])llic,:r- h.rs passed rhe order: Ln both thecrses,, thc [r,rs,s for i.lepri]lq sross proft of 8.25olo in the case ofthc same .\srcssing [( ])llic,:r- h.rs passed rhe order: Ln both thecrses,, thc [r,rs,s for i.lepri]lq sross proft of 8.25olo in the case ofShri Kotesuara Rro h.rs nor bcen explained or substantiated inthat assessmenr order. ['rlrls. ].,'e do not consider it fit, on the factsand circurstances ol-the c;rse. ro treat the assessmenr order in thethat assessmenr order. ['rlrls. ].,'e do not consider it fit, on the factsand circurstances ol-the c;rse. ro treat the assessmenr order in thecase of Shri I'.Kotesurra Rro as a bench-mark or a comparableinstance. ir. might have been e c:Ne of under-estimation of incomeof Shri Kotesu'am R1o. [qith ]u,hich we are not concemed. Sufficeit to say, r hc AO's order estimating the income at 15olo of thetumo\,er deterrnined b,v him in this line of trade has to besustained and rhe orcler of the CIT(A) to rhat e{enr, directing theAO to adopr ;r rate oi 8.2506 on the tumover in the case of boththese assessees before r-s, be vecated.instance. ir. might have been e c:Ne of under-estimation of incomeof Shri Kotesu'am R1o. [qith ]u,hich we are not concemed. Sufficeit to say, r hc AO's order estimating the income at 15olo of thetumo\,er deterrnined b,v him in this line of trade has to besustained and rhe orcler of the CIT(A) to rhat e{enr, directing theAO to adopr ;r rate oi 8.2506 on the tumover in the case of boththese assessees before r-s, be vecated. Coming to the [jssue ]of relescoping, the assessee has notmaintained ant'book of accormt. All the amounts received by theassessee have been deposited in the bank account and the assesseehas not demonstrated as to ho*, he claims telescoping in this case.No doubt. the Hon'ble Suprenrc C-oun in rhe case of AnantharamVeerasinghaiah & Co. (supra), held that an intangible additionmade in the lrc,ok profit dr-uine the assessment lear forms pan ofassessee's reel income. Nevertheless, in that very same case, it wasobserved as follows:- "lt i a nrartcr for considerarL,,n by the taxing authoriw in each caseu'hether rhe turexplained c,rsh dcficits and the cash credis can bereasonaf,lv artribured ro a prc-extting fund of concealed profis orthey are rcasonabh' explaned Lr1. reference to concealed incomeeamed in rhrt ven. rear. In r,,rch case, the true nature of the cashdcficit and rhe c,rrli credit ,lrsr b. ;;";;;J f.m an overallcoruider:ui,;rr of the peniculer lacts and circumstances of the case. Eviclence nuy exisr ro show that reliance cannor be place.lcornpletely-on the availability o[ r previously. e:rmcJ undisclosedincor.ue. A number of circumstances of vital significance m.r1, poinrto rhe conclusion that the cash deficir or cash credir cannorreasonably be relared ro the amounr covered by the intangibleaddition but mtst be regarded as poinring ro the receipt ofLrrdisclosed income eamed dunng the assessmenr lear underconsideration. It is open to the revenue to r.ely' on all thecircumstances pointing to that conclusion." Eviclence nuy exisr ro show that reliance cannor be place.lcornpletely-on the availability o[ r previously. e:rmcJ undisclosedincor.ue. A number of circumstances of vital significance m.r1, poinrto rhe conclusion that the cash deficir or cash credir cannorreasonably be relared ro the amounr covered by the intangibleaddition but mtst be regarded as poinring ro the receipt ofLrrdisclosed income eamed dunng the assessmenr lear underconsideration. It is open to the revenue to r.ely' on all thecircumstances pointing to that conclusion." The ratio in all the judgmenrs relied upon bythe xsessee is thatsecret profits or undisciosed income eamed by the assessee canconsrirure a fund from x'hich ttre assers were acquired, provided areasonable nens exists. Mere availabi.liry of such funds would notin all cases imply rhat rhe assessee had eamed furrher secret profirduring the relevant assessment par. It is a maEer for considerationby the taxing authorities in each case ro ascerrair whether theunexplained cash deficis or cash credis can be reasonablyattributed ro a pre-exisring fund of concealed profis during therelevant assessment )€ar. In all these cases, the unexplainedincome s/as eamed onJy during rhe previous War arrd was uri_lisedfor acqGition of assets in that year only, ufiereas in the case onhand it is spread over a number of years. In any evenr, the factsand circumstances do not point to a reasonable concluion thatrclescoping could be allowed as claimed by the assessee. The verynature of the trade activities of the assessee and lack of evidence rosupport the contention of the assessee resuk in our dismissing thisground of the assessee. The order of the CXT (A), therefore, is setaside and rhe orrder of the AO is restored. - fxn -/ 9. Tribunal noLiced that apocllant was urdulging in an iilegal radefor adulteratir.rg pctrol ar petr()l lrLurks. No books of account wasmaintained. Therefore, the onlv recourse open to the assessingofficer was ro esrimare the undiscr,rsed income. Appenant himselfhad disclosed the tu.rdisclosed ir.rcome r4rich vas ofcourse found tobe on the lower side by the assessing officer. According to theTribunal, assessing officer uas fair and considerare in estimat*rg theprofit at 1.5n/o of rhe rumover; Ioeic adopted by the fint appellateauthoriry was found to be strange; nothing was menrioned by thefint appeliate authoriry as ro why rhe profit rate should be treatedx 8'25"/o as in the case of one sri p.Koteswara Rao. Tribunal notedthat the basis for accepting the gross profit of g.25o/o rnthe case ofSri P.Koteswara Rao had not been explained or subshntiated by thefint appellate authoriq4 assessmenr in the case of Sri p.KorcswaraRao could not be treated as a bench mark or as a comparableinstance in the case ol such assessment. 10. [lVe ]do nor find any error or infirmiry in the view uken by theTribunal. In a case of this nature , some play in the joint has to begiven ro rhe revenue authoriq,: To our mind, estimating the profit II \\ '. \, -!! from such an illegal trade at the rate of l5"h appears to be [a]reasonable one. [\X/e ]do [not ][see ][anyirradonaliryor ][unreasonableness]in such quantification by the assessing authoriry. [No ][case ][of ][any]perversiry is made out by the appellant. [The ][decision ][of ][the]Tribunal being based on facs, no question of [law ][arises ][in ][this]appeal, not to speak of any substantial question of [law.] ll.That being the position, all the questions are answered againstthe appellant. L2. Consequently, the appeal is dismissed. No costs. As a sequel, miscellaneous petitions, pending if any, stand closed Sd/.B.S.CHIRANJEEVIJO]NT REGISTRARLfr) //TRUE COPY// SECTTON OFFICER To, t. The lncome Tax Appellate Tribunal, Hyderabad Bench 'B',HyderabadHyderabad 2. The Commissioner of lncome Tax(Appeals) - I Hyderabad, 3. The Assistant Commissioner of lncome Tax Central Circle-S,Hyderabad,Hyderabad, 4. One CC to Mr.. CHALLA GUNARANJAN, Advocate 5. One CC to Ms. K. MAMATA CHOUDARY, Advocate 6. Two CD Copies DL \*/ .1 .1:,t t ll.That being the position, all the questions are answered againstthe appellant. L2. Consequently, the appeal is dismissed. No costs. As a sequel, miscellaneous petitions, pending if any, stand closed Sd/.B.S.CHIRANJEEVIJO]NT REGISTRARLfr) //TRUE COPY// SECTTON OFFICER To, t. The lncome Tax Appellate Tribunal, Hyderabad Bench 'B',HyderabadHyderabad 2. The Commissioner of lncome Tax(Appeals) - I Hyderabad, 3. The Assistant Commissioner of lncome Tax Central Circle-S,Hyderabad,Hyderabad, 4. One CC to Mr.. CHALLA GUNARANJAN, Advocate 5. One CC to Ms. K. MAMATA CHOUDARY, Advocate 6. Two CD Copies DL \*/ .1 .1:,t t HIGH COURTDATED:07/06/2023 JUDGMENTITTA.No;402 0f 2006.i:\E S i4ft(\i:IB1JtlL [2OZ]]i.':,.\'-.]..;/-_<:-::;***2.DISMISSING THE APPEAL