Muhammed Kutty Haji Proprietor, Saudi Steels, Manjungal, Pattambi, Palakkad Dist. v. Deputy Commissioner of Income Tax, Central Circle, Trichur; Commissioner of Income Tax (Appeals I), Kochi; Income Tax Appellate Tribunal, Cochin Bench

## **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. 104 of 2014** **AGAINST THE ORDER/JUDGMENT IN ITA 217/2011 of I.T.A.TRIBUNAL,COCHIN BENCH DATED 27-12-2013** ## **APPELLANT/S:** **MUHAMMED KUTTY HAJI PROPRIETOR, SAUDI STEELS, MANJALUNGAL, PATTAMBI,PALAKKAD DIST.** **BY ADVS. SRI.K.ANAND (SR.) SMT.LATHA ANAND** ## **RESPONDENT/S:** |**1**|**THE DEPUTY COMMISSIONER OF INCOME TAX**| |---|---| ||**CENTRAL CIRCLE, TRICHUR.**| |**2**|**COMMISSIONER OF INCOME TAX ( APPEALS I)**| ||**KOCHI.**| |**3**|**INCOME TAX APPELLATE TRIBUNAL**| ||**COCHIN BENCH, COCHIN.**| **BY ADVS. SRI.P.K.R.MENON,SR.COUNSEL, GOI(TAXES) SRI.JOSE JOSEPH SC FOR INCOME TAX** **THIS INCOME TAX APPEAL HAVING BEEN FINALLY HEARD ON 24.09.2018, ALONG WITH ITA.90/2014, ITA.110/2014, ITA.111/2014, ITA.106/2014, ITA.105/2014, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING:** I.T.A.Nos.90,104,105,106,110&111 of 2014 2 ## **JUDGMENT** Vinod Chandran, J. The appeals arise from the orders of the Tribunal for the assessment years 2002-03 and 2004-05 to 2008-09. The questions of law sought to be answered as found in the memorandum are as follows:- _“1. Whether in the facts and circumstances of the case the Income Tax Appellate Tribunal is correct in law in sustaining the additions in gross profit made solely on the basis of statement of Mr.Abdul Razak who is only the employee of the assessee especially when there is no corroborative or material evidence on record ?_ _2. Whether in facts and circumstances of the case the Tribunal misdirected itself in upholding on the estimation based on Gross Profit rate, as only net profit rate can be adopted on the alleged suppressed turnover, especially when the turnover has been estimated at four times of the reported turnover ?”_ 2. On facts suffice it to notice that the assessee was conducting business in building materials and there was an inspection conducted on 06.09.2007 in the premises of the assessee. On inspection it was noticed that the assessee had been maintaining two sets of bills, both printed from the computer. The sales recorded in the I.T.A.Nos.90,104,105,106,110&111 of 2014 3 books of accounts were easily printable and recoverable from the computer. There was however yet another set of bills which could be generated only by using a password in the computer. The inspecting team also recovered such bills for the period from April, 2007 to 06.09.2007, the date of search. There was a huge disparity found in the sales and purchase. While the accounted purchase was Rs.1.16 crores, the actual purchase made was about 4.62 crores. The accounted sales came only to Rs.1.18 crores as against the actual sales of about Rs.4.80 crores. 3. Proceedings were initiated under Section 153A read with Section 144 of the Income Tax Act, 1961 (for brevity “the Act”). The Assessing Officer made a number of additions for various years, ie., six years prior to the assessment year of which previous year the search was conducted and also the assessment year in which the search was conducted. From the First Appellate Authority's order the assessee filed appeals to the Tribunal, which were rejected. In the present appeals, we are required to confine our adjudication to the question of the addition made for the various prior years on the I.T.A.Nos.90,104,105,106,110&111 of 2014 4 basis of the disparity found in the books of accounts, in the previous year to the assessment year in which the search was conducted. There were other issues, some of which were allowed by the Tribunal and others remanded by the Tribunal. We confine ourselves to the above referred issues, which are with respect to the additions made to the total income and the gross profit adopted for determining the total income. 4. The learned Counsel for the appellant would argue that there was absolutely no recovery of materials with respect to the earlier assessment years and in such circumstances there could be no assessment made on best judgment for other years in which the assessment stood concluded or are still pending. The Counsel also argues that the very same percentage of addition cannot be adopted for all the years. Again for the reason of absence of any supporting material to substantiate such additions, it is also argued that the gross profit has not been adopted on a proper assessment of the business. The learned Senior Standing Counsel appearing for Government of India (Taxes) relies on two judgments of I.T.A.Nos.90,104,105,106,110&111 of 2014 5 this Court reported in _**Commissioner of Income Tax v. Hotel Meriya, [2011] 332 ITR 537 (Ker)**_ and _**Commissioner of 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 inspection was conducted and assessment was proposed for the block period. There was no material disclosed for the previous years in which the assessment was reopened on the basis of the materials found on search. In fact there was clear deposition of the employee of the assessee therein admitting that only 80% of the sales were reflected in the accounts. Considering the evidentiary value of the statements made even for the years prior to the year in which the search was conducted, a Division Bench of this Court found that the same is reliable and permissible. The Assessing Officer had recorded the statement of the partner of the assessee as well as the employee, in exercise of the powers vested on him under Section 131 of the Act. Section 131 of the Act vests the Assessing Officer with the same powers as are vested in a Court under the Code of Civil Procedure, 1908 in respect of (a) I.T.A.Nos.90,104,105,106,110&111 of 2014 6 discovery and inspection, (b) enforcing the attendance of any person, including any officer of a banking company and examining him on oath, and (c) compelling the production of books of account and other documents. The statement of the partner and employee recorded by the Assessing Officer as well as the documents seized, according to the Division Bench would come within the purview of Section 131 of the Act. Considering the legislative intent under Chapter XIVB it was held that when making block assessment, the evidence recovered of concealment of income for every year in the block year is not essential. When there is discovery of materials at the time of search indicating non-disclosure of income, then best judgment assessment was permissible on the basis of the evidence collected during search, even for the prior years in the block period in which there is no possibility of the assessee having retained any materials to evidence non-disclosure. 6. _**O.Abdul Razak**_ also considered the evidentiary value of a statement under Section 132(4) of the Act without any further material. In that case there was a I.T.A.Nos.90,104,105,106,110&111 of 2014 7 further contention raised of a retraction having been made completely extinguishing the evidentiary value of the statement earlier made on interrogation. Relying on _**Hotel Meriya**_ it was found that the retraction would not in any manner destroy the evidentiary value of the statement made under oath and permitted to be used in evidence by express statutory provisions. It was held that a self-serving retraction without anything more cannot dispel the statutory presumption. We respectfully agree with the dictum laid down in the aforecited decisions. 7. In the present case also, at the time of search, there was detected materials as available from the computer of the assessee showing vast disparity in the sales and purchase disclosed as per the accounts and the actual business carried out by the assessee. The gross profit was also based on the sales and purchase as disclosed from the books of accounts. It is also pertinent that the Manager of the assessee, who made the statement under Section 132(4) had in fact opened a second set of bills in the computer using a password and I.T.A.Nos.90,104,105,106,110&111 of 2014 8 it was from these materials that a definite pattern of suppression was detected. This pattern having been applied to the earlier assessment years, was perfectly correct and a permissible exercise under Section 144 of the Act being power conferred on the Assessing Officer for proceeding on best judgment. We do not think that there is any scope for interference of the order of the Tribunal insofar as the addition made and adoption of gross profit. We, hence, answer the questions of law against the assessee and in favour of the Revenue. The I.T.Appeals are dismissed. No order as to costs. ## **Sd/-** ## **K.VINOD CHANDRAN** ## **JUDGE** ## **Sd/-** ## **ASHOK MENON** **JUDGE** I.T.A.Nos.90,104,105,106,110&111 of 2014 9 ## **APPENDIX** **PETITIONER'S/S EXHIBITS:** **ANNEXURE A1 TRUE COPY OF ASSESSMENT ORDER DATED 28.12.2009. ANNEXURE A2 TRUE COPY OF THE ORDER DATED 23.12.2010 PASSED BY THE 2ND RESPONDENT. ANNEXURE A3 TRUE COPY OF THE ORDER DATED 16.11.2012 PASSED BY THE 3RD RESPONDENT. ANNEXURE A4 TRUE COPY OF ORDER OF THE INCOME TAX APPELLATE TRIBUNAL, COCHIN BENCH, COCHIN IN ITA NO. 215 TO 221/COCH/,DATED 27.12.2013.** RESPONDENT(S)' EXHIBITS : NIL /TRUE COPY/ PA TO JUDGE _dkr_