Krishna Engg.Works, Hyderabad v. ACIT, Hyderabad

IN THE INCOME-TAX APPELLATE TRIBUNAL HYDERABAD BENCH 'B' BEFORE SHRI N.R.S.GANESAN AND SHRI CHANDRA POOJARI I.T.A.NOS.130 TO 136/HYD/2007 ASSESSMENT YEARS 1998-99 TO 2004-05 KRISHNA ENGG. WORKS HYDERABAD. .. APPELLANT (PAN AABFK9731B) VERSUS ASST. CIT CENTRAL CIRCLE 4 HYDERABAD. ..RESPONDENT APPELLANT BY : SHRI A.V.RAGHURAM RESPONDENT BY : SMT. VASUNDHARA SINHA O R D E R PER N.R.S.GANESAN JUDICIAL MEMBER: THESE APPEALS OF THE ASSESSEE ARE DIRECTED AGAINST THE ORDERS OF THE COMMISSIONER OF INCOME-TAX (APPEALS) FOR THE ASST. YEARS 1998-99 TO 2004-05. SINCE COMMON ISSUE ARISES FOR CONSIDERATION IN BOTH THESE APPEALS WE HEARD THE APPEALS TOGETHER AND WE DISPOSE OF THE SAME BY THIS COMMON ORDER. 2. SHRI A.V.RAGHURAM LEARNED COUNSEL FOR THE ASSES SEE SUBMITTED THAT THERE WAS A SEARCH IN THE PREMISES OF THE ASSESSEE ON 16-7-2003. CONSEQUENT TO THE SEARCH NOTICE UNDER SEC. 153A OF THE INCOME- TAX ACT 1961 WAS ISSUED FOR FILING RETURN OF INCOME. ACCORDINGLY THE ASSES SEE FILED RETURN OF INCOME. THE LEARNED COUNSEL SUBMITTED THAT NO MATERIAL WAS FOUN D DURING THE COURSE OF SEARCH OPERATION. THEREFORE THERE CANNOT BE ANY UN DISCLOSED INCOME FOR THE BLOCK PERIOD. REFERRING TO THE DECISION OF THE KOLK ATA BENCH OF THIS TRIBUNAL IN THE CASE OF LMJ INTERNATIONAL LTD. (2008) 119 TTJ ( KOL) 214 THE LEARNED 2 COUNSEL SUBMITTED THAT IN THE ABSENCE OF ANY SEARCH MATERIAL FOUND DURING THE COURSE OF SEARCH OPERATION THERE CANNOT BE ANY UND ISCLOSED INCOME FOR THE BLOCK PERIOD. COMING TO THE MERITS OF THE CASE THE LEARNED COUNSEL SUBMITTED THAT THE ASSESSING OFFICER ESTIMATED THE PROFIT AT 20%. THOUGH THE AO FOUND THAT NO BOOKS OF ACCOUNT WERE MAINTAINED BY THE ASS ESSEE THE CIT (A) IN THE COURSE OF APPEAL PROCEEDINGS FOUND THAT THE ASSESS EE WAS MAINTAINING ACCOUNT IN THE COMPUTER SYSTEM WHICH WAS SEIZED DURING THE COURSE OF SEARCH OPERATION. THEREFORE THE OBSERVATION OF THE AO THAT NO BOOKS OF ACCOUNT WERE MAINTAINED IS NOT CORRECT. ON A QUERY FROM THE BENCH WHETHER T HE MATTER MAY BE SENT BACK TO THE AO TO COMPUTE THE INCOME ON THE BASIS OF THE BOOKS OF ACCOUNT SEIZED BY THE DEPARTMENT THE LEARNED COUNSEL FAIRLY SUBMITTE D THAT THE INCOME MAY BE REASONABLE ESTIMATED BY THE TRIBUNAL INSTEAD OF REM ITTING THE MATTER BACK TO THE FILE OF THE AO FOR COMPUTING THE INCOME ON THE BASIS OF THE BOOKS OF ACCOUNT. ON A QUERY FROM THE BENCH WHAT WOULD BE TH E REASONABLE RATE OF PROFIT IN THE BUSINESS OF THE ASSESSEE THE LEARNED COUNSE L SUBMITTED THAT THE ASSESSEE IS A CONTRACTOR FOR THE RAILWAYS AND REASO NABLE PROFIT WOULD BE 7.5%. THE LEARNED COUNSEL FURTHER SUBMITTED THAT AFTER ES TIMATING THE PROFIT THE INTEREST ON CAPITAL AND PARTNERS' SALARY HAVE ALSO TO BE ALLOWED. 3. ON THE CONTRARY SMT. VASUNDHARA SINHA LEARNED DEPARTMENTAL REPRESENTATIVE SUBMITTED THAT IN THE NEW SCHEME IN TRODUCED BY THE PARLIAMENT FOR COMPUTING UNDISCLOSED INCOME. THE INCOME HAS TO BE COMPUTED AS THAT OF REGULAR ASSESSMENT. NOWHERE IN THE INCOME-TAX ACT I S IT PROVIDED THAT UNDISCLOSED INCOME FOR THE BLOCK PERIOD UNDER SEC. 153A HAS TO BE COMPUTED ON THE BASIS OF THE SEIZED MATERIAL. THE AO IS ENTITLE D TO COMPUTE THE UNDISCLOSED 3 INCOME ON THE BASIS OF THE MATERIAL AVAILABLE WITH HIM BESIDES SEIZED MATERIAL. THEREFORE ACCORDING TO THE LEARNED DEPARTMENTAL RE PRESENTATIVE IT MAY NOT BE CORRECT TO SAY THAT THE UNDISCLOSED INCOME HAS TO B E CONFINED ONLY TO THE SEIZED MATERIAL. 4. COMING TO ESTIMATION OF INCOME THE LEARNED DEPA RTMENTAL REPRESENTATIVE SUBMITTED THAT THE AO ESTIMATED THE INCOME AT 20%. HOWEVER THE CIT (A) REDUCED THE SAME TO 15%. THEREFORE THE CIT (A) HAS GIVEN FAIR RELIEF TO THE ASSESSEE. HOWEVER THE LEARNED DEPARTMENTAL REPRESE NTATIVE SUBMITTED THAT SINCE IT IS AN ESTIMATION SHE LEAVES THE MATER TO THE TRIBUNAL FOR ESTIMATING THE PROFIT ON THE BASIS OF THE MATERIAL AVAILABLE ON RE CORD. 5. WE HAVE CONSIDERED RIVAL SUBMISSIONS ON EITHER S IDE AND ALSO PERUSED THE MATERIAL AVAILABLE ON RECORD. SINCE THE LEARNED COU NSEL FOR THE ASSESSEE PRAYED FOR ESTIMATION OF INCOME BY THIS TRIBUNAL RATHER TH AN REMITTING THE MATTER BACK TO THE FILE OF THE AO FOR COMPUTING THE PROFIT ON T HE BASIS OF THE BOOKS OF ACCOUNT SAID TO BE MAINTAINED IT MAY NOT BE NECESS ARY TO ADJUDICATE THE ISSUE RAISED ON TECHNICALITY. IN OTHER WORDS WHETHER THE INCOME HAS TO BE COMPUTED ON THE BASIS OF THE SEIZED MATERIAL OR IT CAN BE CO MPUTED ON THE BASIS OF THE MATERIAL AVAILABLE ON RECORD MAY LOSE ITS IMPORTANC E SINCE THE LEARNED COUNSEL FOR THE ASSESSEE HAS PRAYED FOR ESTIMATION OF THE P ROFIT ON THE BASIS OF THE MATERIAL AVAILABLE ON RECORD. THEREFORE WE ARE NOT EXPRESSING ANY OPINION ON THE APPLICABILITY OF THE DECISION OF THE KOLKATA BE NCH OF THIS TRIBUNAL IN THE CASE OF LMJ INTERNATIONAL LTD. (SUPRA). 6. THE AO FOUND THAT THE ASSESSEE WAS NOT MAINTAINI NG BOOKS OF ACCOUNT AND AFTER TAKING INTO CONSIDERATION THE EXPENSES AN D COST OF RAW MATERIAL JOB 4 WORK CHARGES LABOUR CHARGES AND SALARY THE AO FOU ND THAT THE NET PROFIT SHOWN BY THE ASSESSEE WAS VERY LOW. ACCORDINGLY HE ESTIMATED THE PROFIT AT 20% ON THE JOB WORK CHARGES RECEIVED. HOWEVER ON A PPEAL BY THE ASSESSEE THE CIT (A) FOUND THAT THE ESTIMATION OF PROFIT AT 20% MADE BY THE AO WAS VERY HIGH. THEREFORE HE ESTIMATED THE PROFIT AT 15%. NO W THE ASSESSEE CLAIMS THAT ESTIMATION OF PROFIT AT 7.5% MAY BE REASONABLE. EST IMATION OF PROFIT DEPENDS UPON VARIOUS FACTORS SUCH AS COMPETITION IN BUSINES S DEMAND IN THE MARKET AVAILABILITY OF LABOUR AND COMPARABLE PROFIT RATE O F SIMILARLY PLACED TRADERS. THE LOWER AUTHORITIES ESTIMATED THE PROFIT WITHOUT CONS IDERING ANY OF THESE FACTORS. MOREOVER AS FOUND BY THE CIT (A) ESTIMATION OF PR OFIT AT 20% IS CERTAINLY ON THE HIGHER SIDE. THE BUSINESS OF THE ASSESSEE IS MA NUFACTURE OF TELECOMMUNICATION ANTENNA ELECTRONIC TIMER DEVICES AND ACCESSORIES AND BEARINGS. THESE ITEMS WERE SUPPLIED TO GOVERNMENT D EPARTMENTS LIKE RAILWAYS DEPARTMENT OF TELECOMMUNICATION ETC. BY TAKING INTO CONSIDERATION THE DEMAND IN THE MARKET FOR THE ELECTRONIC ITEMS AND THE PROF IT OF THE BUSINESS IN THE EARLIER ASST. YEARS AND THE ASSESSEE'S BUSINESS BEI NG CONFINED ONLY TO SUPPLY TO GOVERNMENT DEPARTMENTS WE FIND THAT THE ESTIMATION OF PROFIT AT 9% WOULD MEET THE ENDS OF JUSTICE. ACCORDINGLY WE DIRECT TH E AO TO ESTIMATE THE PROFIT AT 9% INSTEAD OF 15% ADOPTED BY THE CIT (A). WE ALSO M AKE IT CLEAR THAT AFTER ESTIMATING THE PROFIT AT 9% ON THE TOTAL RECEIPTS INTEREST AND SALARY PAYABLE TO PARTNERS ALSO HAVE TO BE ALLOWED. 7. IN THE RESULT ALL THESE APPEALS OF THE ASSESSEE ARE PARTLY ALLOWED. 5 ITA NOS.130-136/HYD/2007 ORDER PRONOUNCED IN THE OPEN COURT ON 7-1-2010. SD SD (CHANDRA POOJARI) (N.R.S.GANESAN) ACCOUNTANT MEMBER JUDICIAL MEMBER HYDERABAD 7TH JANUARY 2010. RRRAO. COPY OF THE ORDER FORWARDED TO:- 1. B.NARSING RAO & CO. CHARTERED ACCOUNTANTS NO.610 6TH FLOOR BABUKHAN ESTATE BASHEERBAGH HYDERABAD 500 001. 2. ACIT CENTRAL CIRCLE 4 HYDERABAD. 3. CIT (CENTRAL) HYDERABAD. 4. CIT (A) I HYDERABAD. 5. DR ITAT HYDERABAD.