DCIT, Central Circle-2, Hyderabad v. Hyderabad House Pvt.Ltd, Hyderabad

ITA 325/HYD/2011 | 2006-2007
Pronouncement Date: 29-02-2012 | Result: Dismissed

Appeal Details

RSA Number 32522514 RSA 2011
Assessee PAN AAACH9969G
Bench Hyderabad
Appeal Number ITA 325/HYD/2011
Duration Of Justice 11 month(s) 26 day(s)
Appellant DCIT, Central Circle-2, Hyderabad
Respondent Hyderabad House Pvt.Ltd, Hyderabad
Appeal Type Income Tax Appeal
Pronouncement Date 29-02-2012
Appeal Filed By Department
Order Result Dismissed
Bench Allotted A
Tribunal Order Date 29-02-2012
Assessment Year 2006-2007
Appeal Filed On 04-03-2011
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH A' HYDERABAD BEFORE SHRI CHANDRA POOJARI ACCOUNTANT MEMBER AND SMT. ASHA VIJAYARAGHAVAN JUDICIAL MEMBER I.T.A. NO. 727/HYD/2010 : A.Y. 2002-03 I.T.A. NO. 728/HYD/2010 : A.Y. 2003-04 I.T.A. NO. 729/HYD/2010 : A.Y. 2004-05 I.T.A. NO. 730/HYD/2010 : A.Y. 2005-06 I.T.A. NO. 325/HYD/2011 : A.Y. 2006-07 I.T.A. NO. 326/HYD/2011 : A.Y. 2007-08 I.T.A. NO. 327/HYD/2011 : A.Y. 2008-09 DEPUTY COMMISSIONER OF INCOME-TAX CENTRAL CIRCLE-2 HYDERABAD VS. M/S. HYDERABAD HOUSE PVT. LTD. HYDERABAD PAN: AAACH9969G ASSESSEE RESPONDENT I.T.A. NO. 230/HYD/2011 : A.Y. 2006-07 I.T.A. NO. 231/HYD/2011 : A.Y. 2007-08 I.T.A. NO. 232/HYD/2011 : A.Y. 2008-09 M/S. HYDERABAD HOUSE PVT. LTD. HYDERABAD PAN: AAACH9969G VS. DEPUTY COMMISSIONER OF INCOME-TAX CENTRAL CIRCLE-2 HYDERABAD ASSESSEE RESPONDENT REVENUE BY: SHRI V. SRINIVAS ASSESSEE BY: SHRI K.A. SAI PRASAD DATE OF HEARING: 18.01.2012 DATE OF PRONOUNCEMENT: 29.02.2012 O R D E R PER CHANDRA POOJARI AM: THESE ARE TEN APPEALS BOTH BY THE ASSESSEE AS WELL AS BY THE REVENUE. I.T.A. NOS. 727 TO 730/HYD/2010 ARE BY THE REVENUE DIRECTED AGAINST THE COMMON ORDER OF THE CIT(A)-I HYDERABAD DATED 19.03.2010 FOR ASSESSMENT YEARS 2002-03 TO 20 05-06. I.T.A. NOS. 325 TO 327/HYD/2011 BY THE REVENUE AND I.T.A. NO. 230 TO 232/HYD/2011 BY THE ASSESSEE ARE CROSS APPEA LS FOR ASSESSMENT YEARS 2006-07 TO 2008-09 DIRECTED AGAINS T THE I.T.A. NO. 727/HYD/2010 & ORS. M/S. HYDERABAD HOUSE PVT. LTD. ======================== 2 COMMON ORDER OF THE CIT(A)-I HYDERABAD DATED 30.12 .2010. SINCE COMMON ISSUES ARE INVOLVED ALL THESE APPEALS ARE C LUBBED TOGETHER HEARD TOGETHER AND ARE BEING DISPOSED OF BY THIS COMMON ORDER FOR THE SAKE OF CONVENIENCE. 2. BRIEF FACTS OF THE CASE ARE THAT A SEARCH AND SEIZ URE OPERATION WAS CARRIED OUT ON 12-12-2007 IN THE BUSI NESS PREMISES' OF THE ASSESSEE COMPANY. CONSEQUENT TO TH E SEARCH NOTICES U/S. 153A OF THE I.T. ACT WERE ISSUED IN RE SPONSE TO WHICH THE ASSESSEE COMPANY FILED RETURN OF INCOME FOR THE ASSESSMENT YEARS 2002-03 TO 2005-06 DECLARING INCOME AS BELOW: A.Y. RETURNED INCOME (RS.) 2002-03 1 71 788 2003-04 2 80 660 2004-05 4 40 727 2005-06 7 96 358 3. APPARENTLY DURING THE COURSE OF SEARCH A BUNDLE OF LOOSE SHEETS WERE FOUND AND SEIZED AND PLACED AS ANNEXURE A/HHPL/PO-3/2 WHICH IS NOTHING BUT DAILY REPORTS OF SALES FROM VARIOUS OUTLETS OF THE ASSESSEE'S COMPANY. SIMILAR DAILY SALES REPORTS WERE FOUND IN SOME ANOTHER ANNEXURES MENTIO NED BY THE ASSESSING OFFICER IN THE ASSESSMENT ORDER FOR THE A .Y. 2008-09. THE DOCUMENTARY EVIDENCES SHOWED SUPPRESSION OF SAL ES FOUND FOR THE MONTHS OF JANUARY 2006 FEBRUARY 2006 MAY 2007 JULY 2007 AUGUST 2007 AND SEPTEMBER 2007 PERTAINING TO ASSESSMENT YEARS 2006-07 AND 2008-09. BASED ON THESE DOCUMENTA RY EVIDENCES THE ASSESSING OFFICER PROPOSED TO QUANTI FY SUPPRESSION OF SALES FOR THE EARLIER ASSESSMENT YEARS 2002-03 T O 2005-06 AND ISSUED A SHOW CAUSE NOTICE. THE ASSESSEE HOWEVER OBJECTED TO THE PROPOSAL OF THE ASSESSING OFFICER. AFTER CONSI DERING THE EXPLANATION OF THE ASSESSEE THE ASSESSING OFFICER QUANTIFIED THE UNDISCLOSED INCOME ON SUPPRESSED TURNOVER FOR THE A SSESSMENT YEARS 2002-03 TO 2005-06 AS UNDER: I.T.A. NO. 727/HYD/2010 & ORS. M/S. HYDERABAD HOUSE PVT. LTD. ======================== 3 A.Y. ESTIMATED INCOME (RS.) 2002 - 03 12 76 550 2003 - 04 51 32 892 2004 - 05 68 82 448 2005 - 06 1 20 55 580 4. APART FROM THE ESTIMATION OF UNDISCLOSED INCOME BAS ED ON SUPPRESSED TURNOVER AS ABOVE THE ASSESSING OFFICER ALSO DISALLOWED CERTAIN EXPENSES DEBITED TO THE PROFIT A ND LOSS A/C. AS BELOW: A.Y. DISALLOWED EXPENDITURE (RS.) 2002 - 03 3 94 175 2003 - 04 10 65 310 2004 - 05 14 48 430 2005 - 06 28 88 470 5. THE ABOVE DISALLOWANCES WERE BASICALLY ON ACCOUNT O F PRODUCTION EXPENDITURE AND FRINGE BENEFITS AND ADMI NISTRATIVE EXPENDITURE. BEING AGGRIEVED AGAINST THE ABOVE MENT IONED DISALLOWANCES AND COMPUTATION OF INCOME THE ASSESS EE WENT IN APPEAL BEFORE THE CIT(A) WHEREIN THE ASSESSEE RAISE D THE FOLLOWING GROUNDS: 1. THE LEARNED AO IS NOT JUSTIFIED IN ESTIMATING SUPPRESSION OF TURNOVER PURELY ON THE BASIS OF ASSUMPTIONS AND PRESUMPTIONS AND WITHOUT ANY MATERIAL ON RECORD. 2. WITHOUT PREJUDICE TO ABOVE GROUND THE PERCENTAG E OF INCOME ESTIMATED BY THE AO ON THE ESTIMATED SUPPRESSED TURNOVER IS ARBITRARY TOO HIGH AND UNJUSTIFIED CONSIDERING THE NATURE OF THE BUSINESS OF THE ASSESSEE 3. THE LD. AD IS NOT JUSTIFIED IN MAKING THE ADDIT ION OF RS. 12 76 550 RS. 51 32 892 RS. 68 82 448 AND RS. L 20 55 580 FOR ASSESSMENT YEARS 2002-03 TO 2005-06 RESPECTIVELY BEING THE ESTIMATED INCOME ON ESTIMAT ED SUPPRESSED TURNOVER. I.T.A. NO. 727/HYD/2010 & ORS. M/S. HYDERABAD HOUSE PVT. LTD. ======================== 4 4. THE LD. AO IS NOT JUSTIFIED IN MAKING GENERAL ESTIMATED DISALLOWANCES ON THE EXPENDITURE CLAIMED IN THE REGULAR RETURNS WITHOUT ANY REFERENCE TO SEIZED MATERIAL. 5. THE LD. AO IS NOT JUSTIFIED IN MAKING HUGE DISALLOWANCES IN THE REGULAR EXPENDITURE IGNORING T HE FACT THAT THE ASSESSEE HAS MADE MOST OF THE PAYMENT S THROUGH BANKING CHANNELS AND THE OTHER EXPENDITURE BEING SUPPORTED BY APPROPRIATE STATUTORY PAYMENTS LIKE PF ESI AND TDS. 6. IN COURSE OF THE FIRST APPELLATE PROCEEDINGS THE A R OF THE ASSESSEE SUBMITTED THAT ESTIMATION OF TURNOVER AND FURTHER ESTIMATING THE NET INCOME THEREON FOR THE A.Y. 2002 -03 TO 2005- 06 IS BAD IN LAW. ACCORDING TO THE AR THE AO WRO NGLY ESTIMATED THE SUPPRESSED TURNOVER FOR THE AFOREMENTIONED FOUR ASSESSMENT YEARS THOUGH THE DATA WAS AVAILABLE FOR THE ASSESSM ENT YEARS 2006-07 AND 2008-09 ONLY THAT TOO FOR A PERIOD OF 6 MONTHS. THE AO HIMSELF ADMITTED AT PAGE NO. 12 OF THE ASSESSMEN T ORDER FOR THE A.Y. 2008-09 THAT THE INVESTIGATION OFFICIALS C OULD FIND THE EVIDENCE IN SUPPORT OF SUPPRESSED TURNOVER FOR ONLY 6 MONTHS AND THERE IS NO OTHER INDICATION TO SUGGEST THAT THE AS SESSEE WAS INVOLVED IN A SYSTEMATIC SUPPRESSION OF TURNOVER EV EN IN THE EARLIER YEARS. IT WAS SUBMITTED THAT SIMPLY BASED ON THE EV IDENCE FOR 6 MONTHS ESTIMATING THE ALLEGED SUPPRESSED TURNOVER FOR THE ENTIRE BLOCK PERIOD IS WHOLLY UNJUSTIFIED AND UNCALLED FOR . EVEN IN THE STATEMENT UJS. 132(4) THERE IS NO REFERENCE TO ANY SUPPRESSION OF TURNOVER FOR THIS PERIOD. HENCE THE ESTIMATION OF S UPPRESSION OF TURNOVER FOR THIS PERIOD AND CONSEQUENTLY ESTIMATIO N OF NET INCOME IS UNJUSTIFIED. THE ASSESSEES COUNSEL RELIED ON TH E FOLLOWING DECISIONS: 1. ACIT VS. RASNA INDUSTRIES (31 SOT 26) ITAT JODHPUR . 2. DCIT VS. ROYAL MARAWAR TOBACCO PRODUCTS (29 SOT 53) !TAT AHMADABAD. I.T.A. NO. 727/HYD/2010 & ORS. M/S. HYDERABAD HOUSE PVT. LTD. ======================== 5 7. IT WAS SUBMITTED THAT IN THE ABSENCE OF ANY MATERIA L INDICATING ANY SUPPRESSED SALES THE AO IS NOT JUST IFIED IN MAKING ADDITION FOR THE SAID YEAR ON THE BASIS OF MATERIAL SEIZED RELATING TO ANOTHER YEAR. 8. AS REGARDS DISALLOWANCE OF EXPENDITURE CLAIMED IN T HE REGULAR RETURN THE ASSESSEE SUBMITTED THAT THE AO FAILED TO APPRECIATE THE FACT THAT THE ASSESSEE WAS IN THE BU SINESS OF PREPARATION OF FOOD ITEMS WHICH INVOLVES PURCHASES OF VEGETABLES FIRE WOOD MUTTON FISH ETC FROM UNORGANISED SECTOR S. THE DOCUMENTARY EVIDENCES IN SUPPORT OF THE PURCHASES O F THESE ITEMS MAY NOT BE UP TO THE STANDARD EXPECTED BY THE DEPAR TMENT; HOWEVER THE FACT REMAINS THAT THE BOOKS OF ACCOUNT WERE PRODUCED BEFORE THE AO IN SUPPORT OF THE GENUINENESS OF EXPE NDITURE INCURRED AND IN FACT THE ASSESSEE FILED DATA FOR ON E OF THE ASSESSMENT YEARS 2007-08 SEGREGATING THE PAYMENT MA DE THROUGH BANKING CHANNELS AND PAYMENTS MADE IN CASH UNDER EA CH HEAD. THE PAYMENTS ALSO INCLUDED CERTAIN STATUTORY PAYMEN TS LIKE PF AND ESI. THE AO FAILED TO APPRECIATE THAT THE BOOKS OF ACCOUNT ARE SUBJECTED TO AUDIT U/S. 44AB OF THE ACT. AS REGARDS SPECIFIC ISSUE OF ESTIMATION OF DISALLOWANCE THE ASSESSEE SUBMITT ED THAT ALL THE ASSESSMENTS FOR THE PERIOD UNDER APPEAL WERE COMPLE TED U/S. 143(3) RWS 153A EVEN THOUGH THERE WAS NO REFERENCE TO ANY SEIZED MATERIAL AND HENCE THE DISALLOWANCES SO MADE ARE UN CALLED FOR AND LEGALLY NOT CORRECT. THE ASSESSEE RELIED ON THE DECISION OF !TAT KOLKATA BENCH IN THE CASE OF LMJ INTERNATIONAL LTD VS. DCIT (119 TTJ 214) WHEREIN IT WAS HELD THAT ITEMS FOR REGULA R ASSESSMENTS WOULD NOT BE DISTURBED AND ITEMS LIKE INCOME AND EX PENDITURE WHICH HAD BEEN DISCLOSED TO THE REVENUE WERE OUTSID E THE PURVIEW OF ASSESSMENT OF SUCH CASES. IT WAS ALSO SUBMITTED THAT SINCE NO MATERIAL INDICATING ANY SUPPRESSED SALE HAD BEEN FO UND DURING THE COURSE OF SEARCH AND SINCE THERE WAS NO DEFECT IN THE BOOKS OF ACCOUNT THE AO WAS NOT JUSTIFIED IN MAKING ADDITIO N FOR THE I.T.A. NO. 727/HYD/2010 & ORS. M/S. HYDERABAD HOUSE PVT. LTD. ======================== 6 ASSESSMENT YEARS 2000-01 TO 2003-04 BASED ON THE MA TERIALS RELATING TO A.Y. 2004-05. ACCORDING TO THE AR TH E ASSESSING OFFICER SHALL CONFINE TO THE DETERMINATION OF UNDIS CLOSED INCOME ONLY TO THE INCRIMINATING MATERIAL UNEARTHED DURING THE SEARCH AND CANNOT INCLUDE ITEMS WHICH ARE DISCLOSED IN THE ORIGINAL ASSESSMENT PROCEEDINGS. 9. THE LEARNED CIT(A) AFTER CONSIDERING THE ARGUMENTS OF THE ASSESSEES COUNSEL OBSERVED THAT DURING THE COURSE OF SEARCH AND SEIZURE OPERATION MATERIALS WERE FOUND ONLY IN RES PECT OF SIX MONTHS THAT TOO FALLING IN THE FINANCIAL YEAR 2005- 06 AND 2007- 08 RELEVANT TO THE ASSESSMENT YEARS 2006-07 AND 2008-0 9 AND OBSERVED THAT THE AO WAS NOT JUSTIFIED IN ESTIMATIN G THE SUPPRESSED TURNOVER FOR THE EARLIER YEARS WHEN THE ASSESSEE HAD OBJECTED TO THE SAME AND WHEN THERE WAS NO VOLUNTAR Y ADMISSION IN THIS - REGARD. FOR THIS PURPOSE RELIANCE WAS PL ACED ON THE DECISION OF ITAT AHMEDABAD IN THE CASE OF DCIT VS. ROYAL MARAWAR TOBACCO PRODUCTS (16 DTR 129). IN THE SAID CASE THE HON'BLE ITAT OBSERVED AS UNDER: IT WAS UNDISPUTED THAT DURING THE COURSE OF SEARCH AND SEIZURE PROCEEDINGS NO EVIDENCE AND/OR MATERIAL INDICATING ANY SUPPRESSED SALES MADE BY THE ASSESSE E DURING THE ASSESSMENT YEARS 2000-01 2001-02 2002- 03 AND 2003-04 WAS FOUND. NO MATERIAL WAS ALSO FOUND TO INDICATE THAT THERE WAS ANY SUPPRESSED PRODUCTION IN THE AFORESAID ASSESSMENT YEARS. THE ASSESSING OFFICER ON FINDING THAT MATERIAL WAS SEIZ ED RELATING TO THE ASSESSMENT YEAR 2004-05 IN THE ABOV E SEARCH INDICATING SUPPRESSED PRODUCTION AND SALES EXISTED IN THE ASSESSMENT YEAR 2004-05 PRESUMED TH AT THERE MIGHT HAVE BEEN SUPPRESSED PRODUCTION AND SALES IN THE ASSESSMENT YEARS 2001-02 TO 2003-04 ALSO. HENCE HE TOOK THE CONSUMPTION OF ELECTRICITY AS BASIS AND ON FURTHER ASSUMPTION AND PRESUMPTION ARRIVED AT SOME SUPPRESSED PRODUCTION AND SALES FOR THE SAID ASSESSMENT YEARS. IT WAS NOT IN DISPUTE TH AT NO DEFECT IN THE BOOKS OF ACCOUNT MAINTAINED FOR TH E AFORESAID YEARS WAS FOUND. IN ABSENCE OF ANY MATERI AL I.T.A. NO. 727/HYD/2010 & ORS. M/S. HYDERABAD HOUSE PVT. LTD. ======================== 7 BEING FOUND DURING THE SEARCH RELEVANT TO THE AFOR ESAID ASSESSMENT YEARS THE COMMISSIONER (APPEALS) WAS JUSTIFIED IN DELETING THE ADDITION MADE FOR THESE Y EARS ONLY ON THE BASIS OF ASSUMPTION AND SURMISES.' 10. ACCORDING TO THE CIT(A) THE ADDITIONS MADE BY THE A O WITHOUT ANY SPECIFIC REFERENCE TO SEIZED MATERIAL C ANNOT BE HELD TO BE LEGALLY SUSTAINABLE AND HE FURTHER OBSERVED THAT ADDITIONS CANNOT BE MADE IN AN ASSESSMENT MADE U/S. 153A/153C IF THERE IS NO INCRIMINATING MATERIAL IN RESPECT OF THE PROP OSED ADDITIONS. SINCE IN THE APPEALS UNDER CONSIDERATION THERE WAS NO SPECIFIC INCRIMINATING MATERIAL INDICATING SUPPRESSION OF SA LES IN THE FINANCIAL YEARS 2001-02 TO -2004-05 RELEVANT TO THE ASSESSMENT YEARS 2002-03 TO 2005-06 IN HIS VIEW THE ESTIMATION OF SUPPRESSED TURNOVER BASED ON MATERIAL FOUND FOR A.Y.2006-07 AN D 2008-09 IS NOT JUSTIFIED .CONSEQUENTLY THE ESTIMATED INCOME CO MPUTED BY THE AO BASED ON THE SAID ESTIMATED TURNOVER IS DELETED. 11. AS REGARDS THE OTHER DISALLOWANCES OF EXPENDITURE D EBITED TO P&L ACCOUNT THE SAME IS ALSO DELETED BY CIT(A) PLAC ING RELIANCE ON THE ORDER OF THE TRIBUNAL KOLKATA BENCH IN THE CASE OF LMJ INTERNATIONAL LTD. (CITED SUPRA) AND THE ORDER OF T HE TRIBUNAL HYDERABAD BENCH IN THE CASE OF ACIT/DCIT CENTRAL C IRCLE-5 VS. PLATINA PROPERTIES PROJECTS LTD IN ITA NO. 1622 16 23 573 TO 576/HYD/2008 AND IN THE CASE OF YELAMANCHILI FINANC E AND TRADING PVT. LTD VS. ACIT CENTRAL CIRCLE 5 IN ITA NO. 745/HYD/2008 WHEREIN HELD AS UNDER: ' .... THE PRESENT ASSESSMENT IS MADE U/S. 143(3) R .W.S. 153A R.W.S. 153C OF THE ACT. THE SECOND PROVISO TO SUB SECTION 1 TO SECTION 153A PROVIDES THAT IF ASSESSME NT FOR ANY OF THE ASSESSMENT YEAR FALLING WITHIN IN A PERIOD 6 YEARS MENTIONED IN CLAUSE (B) OF SEC. 153A (1) IS PENDING ON THE DATE OF SEARCH IT SHALL ABATE. T HE PRESENT ASSESSMENT YEAR IS 1999-2000 WHICH IS FALLI NG WITHIN THE PERIOD OF 6 YEARS BUT ITS ASSESSMENT IS COMPLETE AND HENCE THE PROCEEDINGS DO NOT ABATE. IN OTHER WORDS THE ORIGINAL ASSESSMENT WAS MADE U/S. I.T.A. NO. 727/HYD/2010 & ORS. M/S. HYDERABAD HOUSE PVT. LTD. ======================== 8 143(3) HAS BECOME FINAL AND IS NOT AFFECTED BY THE SECOND PROVISO TO SECTION 153A. OF COURSE THE PRES ENT ASSESSMENT IS A CASE FALLING U/S. 153C BUT THEN A S PER SUB SECTION (2) OF SECTION 153C THIS ASSESSMEN T WAS ALSO TO BE DONE IN THE MANNER PROVIDED IN SECTI ON 153A. THEREFORE THE SECOND PROVISO TO SECTION 153A APPLIES EQUALLY TO THE CASES FALLING U/S. 153C. WHA T FOLLOWS IS THAT THE ASSESSMENT NOW TO BE DONE IS TO BE CONFINED TO THE MATERIAL FOUND IN THE COURSE OF SEA RCH ONLY. THE ADDITIONS/DISALLOWANCES MADE IN THE REGU LAR ASSESSMENT CANNOT BE REPEATED IN THE ASSESSMENT TO BE MADE U/S. 153C OF THE ACT UNLESS FRESH MATERIAL HAS BEEN UNEARTHED IN COURSE OF SEARCH IN RESPECT OF TH OSE ADDITIONS/DISALLOWANCES ' 12. ACCORDING TO THE CIT(A) WHILE MAKING ASSESSMENT U/ S. 153A OF THE ACT IT IS ESSENTIAL THAT ONLY SUCH ADDITION S CAN BE MADE WHICH ARE BASED ON MATERIAL FOUND IN THE COURSE OF SEARCH. HE ALSO PLACED RELIANCE ON THE ORDER OF THE TRIBUNAL V IZAG BENCH IN THE CASE OF KGR EXPORTS VS. JCIT IN ITA NO. 494/V/0 7 WHEREIN AT PARA 23 THE ITAT VIZAG HELD AS UNDER: '23. IN VIEW OF THE FOREGOING WE ARE OF THE OPINIO N THAT WHEN NO INCRIMINATING MATERIAL IS FOUND DURING THE COURSE OF SEARCH THE ASSESSING OFFICER CANNOT MAKE ANY ADDITION ON ISSUES WHICH HAVE ALREADY BEEN CONCLUDE D EVEN WHEN THE ASSESSMENTS WERE REOPENED BY VIRTUE O F PROVISIONS OF SECTION 153A. IN SUCH CASES THE AO H AS TO COMPLETE SUCH ASSESSMENTS WITHOUT MAKING ANY FURTHE R ADDITION. HENCE THE SECOND ISSUE URGED BEFORE US IS ANSWERED IN FAVOUR OF THE ASSESSEE. ' 13. SINCE IN THE ASSESSMENT ORDER THE ASSESSING OFFICER HAS NOT MADE REFERENCE TO ANY SPECIFIC SEIZED MATERIAL RELA TING TO THE DISALLOWANCES MADE BY HIM THE CIT(A) DELETED THIS ADDITION ALSO. AGAINST THIS DELETION THE REVENUE IS IN APPEAL BEF ORE US FOR THE ASSESSMENT YEARS 2002-03 TO 2005-06. 14. WE HAVE HEARD BOTH THE PARTIES ON THE ABOVE ISSUE. IN THIS CASE THE CIT(A) DELETED THE ADDITION ON THE REASON THAT THERE IS NO SEIZED MATERIAL TO ESTIMATE THE TURNOVER AND THEREB Y ESTIMATE THE I.T.A. NO. 727/HYD/2010 & ORS. M/S. HYDERABAD HOUSE PVT. LTD. ======================== 9 INCOME. SIMILARLY FOR DETERMINATION OF EXPENDITUR E WHICH WAS CLAIMED IN THE REGULAR RETURNS CANNOT BE DISALLOWED IN THE BLOCK ASSESSMENT CONSEQUENT TO THE SEARCH ACTION AS THE D ISALLOWANCE IS ONLY COULD BE SUBJECT MATTER IN REGULAR ASSESSMENT NOT IN THE BLOCK ASSESSMENT. FOR THIS PURPOSE WE PLACE RELIAN CE ON THE FOLLOWING PRECEDENTS: CIT V. N.R. PAPERS AND BOARDS LTD. 248 ITR 526 (GA UHATI) 'IF PRIOR TO THE DATE OF SEARCH THE ASSESSEE HAD DISCLOSED THE PARTICULARS OF INCOME OR EXPENDITURE EITHER IN THE RETURN OR IN THE BOOKS OF ACCOUNT OR IN THE COURSE OF PROCEEDINGS TO THE ASSESSING OFFICER OR WHERE TH E RETURN HAD NOT BECOME DUE THEY ARE DUTY RECORDED I N THE REGULAR BOOKS OF ACCOUNT THEN SUCH INCOME CANN OT BE TREATED AS UNDISCLOSED INCOME SO AS TO TAX A PER SON FT THE RATE OF SIXTY PER CENT. UNDER CHAPTER XIV. CIT V. N.R. PAPERS AND BOAR'DS LTD. 248 ITR 526 (G AUHATI) 'UNDER THE SCHEME OF THE PROVISIONS FOR BLOCK ASSESSMENT IT IS APPARENT THAT IT RELATED TO ASSESS MENT OF 'UNDISCLOSED INCOME' OF THE ASSESSEE EXCLUDING T HE INCOME SUBJECTED TO REGULAR ASSESSMENT IN PURSUANC E OF THE RETURNS FILED BY THE ASSESSEE FOR SUCH PERIO D. FROM A PERUSAL OF SECTION 158BB OF THE INCOME-TAX A CT 1961 IT IS CLEAR THAT THE RETURNS ARE REQUIRED TO BE FILED IN PURSUANCE OF A NOTICE UNDER SECTION 158BC(A) AND THE ASSESSMENT HAS TO BE FRAMED ON THAT BASIS IN TH E LIGHT OF MATERIAL THAT HAD COME INTO THE POSSESSION OF THE ASSESSING AUTHORITY DURING THE COURSE OF SEARCH WHICH WAS THE FOUNDATION OF PROCEEDINGS. THE CORRECTNESS OR OTHERWISE OF THE RETURNS FILED IN PURSUANCE OF THE NOTICE UNDER SECTION 158BC(A) HAS TO BE EXAMINED WITH REFERENCE TO THE MATERIAL IN THE POSSESSION OF THE ASSESSING AUTHORITY HAVING NEXUS TO ASSESSMENT OF 'UNDISCLOSED INCOME'. ' BHAGWATI PRASAD KEDIA V. CIT 248 ITR 562 (CALCUTTA ) 'THE EXPLANATION TO SECTION 158BA OF THE INCOME-TAX ACT 1961 MAKES IT CLEAR THAT THE LEGISLATURE THOU GHT IT FIT TO MAKE A DISTINCTION BETWEEN THE BLOCK ASSESS MENT AND THE REGULAR ASSESSMENT. IN THE CASE OF REGULA R ASSESSMENT THE ASSESSING OFFICER IS FREE TO EXAMIN E THE VERACITY OF THE RETURN AS WELL AS THE CLAIMS MA DE BY I.T.A. NO. 727/HYD/2010 & ORS. M/S. HYDERABAD HOUSE PVT. LTD. ======================== 10 THE ASSESSEE WHEREAS THE UNDISCLOSED INCOME IS TAX ED BY WAY OF BLOCK ASSESSMENT AS A RESULT OF SEARCH AN D SEIZURE. THE LOGIC BEHIND THE TWO DIFFERENT MODES OF ASSESSMENT IS THAT CONCEALMENT OF INCOME AND CLAIMI NG DEDUCTION OR EXEMPTION IN RESPECT OF A DISCLOSED IN COME CANNOT BE TREATED AT PART. THE FORMER IS AN OFFENCE WHICH GOES TO THE ROOT OF THE MATTER AND THE OTHER IS ON THE BASIS OF THE CAUSES SHOWN BY THE ASSESSEE WHERE THE ASSESSING OFFICER IS FREE TO ACCEPT THE JUSTIFI CATION SHOWN OR REJECT THE SAME.' CIT V VIKRAM A. DOSHI 256 ITR 129 (BOM) 'BLOCK ASSESSMENT - UNDISCLOSED INCOME-UNDISCLOSED TRANSACTIONS ASSESSED IN BLOCK ASSESSMENT-TRIBUNAL FINDING TRANSACTIONS DISCLOSED IN RETURN WHICH WERE SUBJECT-MATTER OF REGULAR ASSESSMENTS-TRANSACTIONS IN QUESTION NOT TO BE CONSIDERED IN BLOCK ASSESSMENT - INCOME;-TAX ACT 1961 SS. 143 158B.' CIT V. SHAMLAL BALRAM GURBANI 249 ITR 501 (BOM) 'A SEARCH WAS CONDUCTED AT THE RESIDENTIAL PREMISES OF THE ASSESSEE ON MARCH 25 1996 AND A NOTICE UNDER SECTION 158BC OF THE INCOME-TAX ACT 1961 WAS ISSU ED; THE ASSESSEE DID NOT FILE THE RETURNS FOR THE YEARS 1993-94 1994-95 AND 1995-96. THE ASSESSING OFFICER TREATED THE INCOME OF THE THREE YEARS AS THE INCOME OF THE BLOCK PERIOD. ON APPEAL THE TRIBUNAL FOUND THA T THE ASSESSEE'S INCOME FROM INTEREST SALARY AND RENT WA S REFLECTED IN THE AUDITED BALANCE-SHEET OF THE RESPE CTIVE ASSESSMENT YEARS OF THE FIRM AND THEREFORE THE TRIBUNAL DELETED THE ADDITION.' ON APPEAL THE HON'BLE BOMBAY HIGH COURT DID NOT FIN D ANY REASON TO INTERFERE WITH THE FINDINGS OF FACTS RECORDED BY THE TRIBUNAL. IT WAS HELD: 'HELD DISMISSING THE APPEAL THAT THE CONCLUSION OF THE TRIBUNAL THAT THERE WAS NO REASON FOR TREATING THE SAID INCOME AS UNDISCLOSED INCOME FOR THE PURPOSES OF BL OCK ASSESSMENT WAS BASED ON FACTS. NO SUBSTANTIAL QUESTION OF LAW AROSE.' CIT V. VINOD DANCHAND GHODAWAT 247 ITR 448 (BOM) 'WHERE THE VALUE OF THE GOLD AND SILVER ARTICLES. A ND JEWELLERY HAD BEEN DISCLOSED IN THE ASSESSEE'S WEAL TH- TAX RETURN WHICH WAS ACCEPTED BY THE DEPARTMENT: I.T.A. NO. 727/HYD/2010 & ORS. M/S. HYDERABAD HOUSE PVT. LTD. ======================== 11 HELD THAT CHAPTER XIV-B OF THE INCOME-TAX ACT 1961 HAD NO APPLICATION TO THE FACTS OF THE CASE AND THE ADDITION MADE BY THE DEPARTMENT ON THE GROUND OF UNDISCLOSED INCOME WAS ERRONEOUS. DURING THE SEARCH IT WAS FOUND THAT THE ASSESSEE H AD CONSTRUCTED A BUNGALOW. IT WAS FOUND THAT THE ASSESSEE HAD INCURRED AN EXPENSE OF RS.4.16 LAKHS. THE ASSESSING OFFICER THEREAFTER REFERRED THE MAT TER TO THE DEPARTMENT VALUER WHO VALUED THE PROPERTY AT R S. 6. 66 LAKHS AND ACCORDINGLY THE DIFFERENCE HAD BEE N ADDED TO THE INCOME OF THE ASSESSEE AS UNDISCLOSED INCOME: HELD THAT THE ABOVE BASIS CLEARLY SHOWED THAT THE DEPARTMENT HAD NOT UNDERSTOOD THE SCOPE OF CHAPTER XIV-B OF THE ACT. THE ADDITION DID NOT FALL WITHIN THE CHAPTER XIV-B.' 15. EVEN IF IT IS PRESUMED THAT POST-SEARCH ENQUIRIES H AVE RESULTED IN DETECTION OF CERTAIN UNDISCLOSED INCOME THOUGH IT IS NOT RELATABLE TO THE EVIDENCE FOUND AS ON THE DATE OF SEARCH THEN ALSO MUMBAI BENCH OF THE TRIBUNAL IN THE CASE OF MORARJI GOKULDAS SPG. & WVG. CO. LTD. V. DCIT 95 ITD 1 (M UM) (TM) WHILE CONSIDERING AN IDENTICAL SITUATION HELD AS F OLLOWS:- '8. BLOCK PERIOD FOR WHICH THE ASSESSMENT IS TO BE MADE UNDER CHAPTER XIV-8 MEANS THE PERIOD COMPRISING PREVIOUS YEARS RELEVANT TO TEN ASSESSMEN T YEARS PRECEDING A PREVIOUS YEAR IN WHICH THE SEARCH WAS CONDUCTED UNDER SECTION 132 OR ANY REQUISITION WAS MADE UNDER SECTION 132A AND ALSO INCLUDES IN T HE PREVIOUS YEAR IN WHICH SUCH SEARCH WAS CONDUCTED OR REQUISITION MADE THE PERIOD UP TO THE DATE OF THE COMMENCEMENT OF SUCH SEARCH OR AS THE CASE MAY BE THE DATE OF SUCH REQUISITION. THEREFORE THE ASSESS MENT FOR THE BLOCK PERIOD UNDER CHAPTER XIV-8 CAN BE MAD E OF THE UNDISCLOSED INCOME ONLY UP TO THE DATE OF COMMENCEMENT OF SEARCH OR THE DATE OF THE REQUISITI ON AND NOT OF THE PERIOD THEREAFTER. SECTION 1588A PROVIDES FOR ASSESSMENT OF UNDISCLOSED INCOME AS RESULT OF SEARCH FOR THE BLOCK PERIOD AND COMPUTATI ON OF INCOME AND THE COMPUTATION OF UNDISCLOSED INCOME FO R THE BLOCK PERIOD TO BE MADE AS PER THE PROVISIONS O F SECTION 158BE AND ASSESSMENT HAS ALSO TO BE MADE UNDER SECTION 158BC OF THE BLOCK PERIOD. THE 'UNDISCLOSED INCOME' FOR WHICH THE ASSESSMENT IS TO BE I.T.A. NO. 727/HYD/2010 & ORS. M/S. HYDERABAD HOUSE PVT. LTD. ======================== 12 MADE IS DEFINED IN SECTION 158B(B) WHICH INCLUDE MONEY BULLION JEWELLERY OR OTHER VALUABLE ARTICLE OR THING OR ANY INCOME BASED ON ANY ENTRY IN THE BOOKS OF ACCOUNT OR OTHER DOCUMENTS OR TRANSACTIONS WHERE S UCH MONEY BULLION JEWELLERY VALUABLE ARTICLES THING S ENTRY IN THE BOOKS OF ACCOUNT OR OTHER DOCUMENT OR TRANSACTION REPRESENTS WHOLLY OR PARTLY INCOME OR PROPERTY WHICH HAS NOT BEEN OR WOULD NOT HAVE BEEN DISCLOSED FOR THE PURPOSE OF THIS ACT AND AFTER THE AMENDMENT BY FINANCE ACT 2002 W.E.F. 1-7-1995 IT INCLUDES ALSO ANY EXPENSES DEDUCTION OR ALLOWANCE CLAIMED UNDER THIS ACT WHICH IS TO BE FOUND TO BE F ALSE. 16. IN VIEW OF THE ABOVE DISCUSSION WE ARE INCLINED TO DISMISS THE REVENUE APPEALS FOR THE ASSESSMENT YEARS 2002- 03 TO 2005- 06. ITA NOS. 230 TO 232/HYD/2011 AND ITA NOS. 325 TO 32 7/ HYD/2011 FOR AYS 2006-07 TO 2008: 17. IN THESE APPEAL THE GRIEVANCE OF THE ASSESSEE IS WI TH REGARD TO ESTIMATION OF THE INCOME AT 15% OF THE UNDISCLOS ED TURNOVER AND DISALLOWING NET CASH EXPENDITURE AT 7%. THE RE VENUE IS IN APPEAL BEFORE US FOR NOT CONFIRMING THE TOTAL SUPPR ESSED TURNOVER AS INCOME OF THE ASSESSEE AND ALSO RESTRICTING THE DISALLOWANCE OF CASH EXPENDITURE AT 7%. 18. IN COURSE OF THE ASSESSMENT PROCEEDINGS BASED ON T HE DISCUSSION AND ANALYSIS MADE IN THE ASSESSMENT ORDE R FOR ASST. YEAR 2008809 THE ASSESSING OFFICER ESTIMATED THE N ET PROFIT ON THE SUPPRESSED TURNOVER FOR THE ASSESSMENT YEAR 2006-07 TO 2008-09 AS UNDER: AY 2006-07 RS. 2 53 55 627 AY 2007-08 RS. 2 87 80 355 AY 2008-09 RS. 2 14 28 375 19. IN ADDITION TO THE NET PROFIT ON THE SUPPRESSED TUR NOVER THE ASSESSING OFFICER ALSO MADE DISALLOWANCE OF EXPENDI TURE DEBITED TO PROFIT AND LOSS A/C IN LINE WITH THE DISCUSSION AND ANALYSIS MADE IN THE ASSESSMENT ORDER FOR THE ASSESSMENT YEARS 20 06-07 2007- I.T.A. NO. 727/HYD/2010 & ORS. M/S. HYDERABAD HOUSE PVT. LTD. ======================== 13 08 AND 2008-09. THE DISALLOWANCES MADE UNDER VARIO US HEADS IN THE ASST. YEAR ARE AS UNDER: A.Y. PRODUCTION EXPENDITURE (RS.) EMPLOYEE BENEFITS (RS.) ADMINISTRATIVE EXPENDITURE (RS.) 2006 - 07 47 19 097 6 23 760 19 05 822 2007 - 08 81 03 750 12 98 420 35 10 400 2008-09 1 04 11 340 16 60 906 39 37 357 20. CONSIDERING THE NET PROFIT ON SUPPRESSED TURNOVER A S ALSO THE DISALLOWANCES MADE UNDER VARIOUS HEADS OF EXPEN DITURE AS ABOVE THE TOTAL INCOME FOR THE ASSESSMENT YEAR 200 6-07 2007-08 AND 2008-09 WAS ASSESSED AT RS. 3 57 19 490 RS. 5 08 05 040 AND RS. 4 97 61 860 RESPECTIVELY. BEING AGGRIEVED AGAINST THE ASSESSMENTS SO MADE THE ASSESSEE WENT IN APPEAL BEF ORE THE CIT(A). 21. THE CIT(A) GIVEN A FINDING RELATING TO THE COMPUTAT ION OF NET PROFIT ON THE SUPPRESSED TURNOVER THAT AO TO ADOPT A NET PROFIT FIGURE OF 15% ON THE AGREED SUPPRESSED TURNOVER FOR ARRIVING AT THE UNDISCLOSED INCOME ON ACCOUNT OF SUPPRESSED TURNOVE R FOR THE AY 2006-07 2007-08 AND 2008-09 AS FOLLOWS: A.Y. SUPPRESSED TURNOVER (RS.) NET PROFIT @ 15% (RS.) 2006 - 07 7 04 32 296 1 05 64 845 2007 - 08 7 63 80 984 1 14 57 148 2008 - 09 5 68 69 360 85 30 404 22. REGARDING THE ISSUE RELATING TO DISALLOWANCE OF EXP ENDITURES UNDER THE HEADS 'PRODUCTION EXPENDITURE' 'EMPLOYEE S' BENEFITS' AND 'ADMINISTRATIVE EXPENDITURE' THE CIT(A) DIRECTE D THE AO TO RESTRICT THE DISALLOWANCE TO 7% ON THE NET CASH EXP ENDITURE UNDER THE ABOVE HEADS AFTER MAKING PROPER VERIFICATION OF THE CONTENTION OF THE ASSESSEE ABOUT THE CASH EXPENDITURE. CONTENT ION OF THE ASSESSEE AS ABOVE IS FOUND TO BE CORRECT. I.T.A. NO. 727/HYD/2010 & ORS. M/S. HYDERABAD HOUSE PVT. LTD. ======================== 14 23. IN ADDITION TO THE ABOVE GROUNDS OF APPEAL AS ABOVE THE ASSESSEE HAS ALSO RAISED A GROUND BEFORE THE CIT(A) FOR THE ASST. YEAR 2007-08 THAT THE ASSESSING OFFICER WAS NOT JUS TIFIED IN NOT GIVING CREDIT FOR THE ADDITIONAL INCOME OF RS. 57 5 8 950 ALREADY OFFERED BY THE ASSESSEE IN THE RETURN FILED U/S. 15 3A WHILE COMPUTING THE INCOME IN THE ORDER U/S. 143(3) RWS 1 53A. THE CIT(A) GIVEN A FINDING THAT FROM THE ASSESSMENT OR DER FOR AY 2006-07 AS WELL AS 2008-09 THAT WHILE MAKING THE AD DITION ON ACCOUNT OF THE UNDISCLOSED INCOME ON SUPPRESSED TUR NOVER THE AO HAS REDUCED FROM THE PROFIT WORKED OUT BY HIM T HE INCOME OF RS. 15 53 670 FOR THE AY 2006-07 AND RS 43 56 084 FOR THE AY 2008-09 WHICH WAS APPARENTLY ADMITTED BY THE ASSESS EE. HOWEVER FOR THE AY 2007-08 THE ASSESSING OFFICER HAS WORKE D OUT A NET PROFIT ON THE SUPPRESSED TURNOVER AT RS. 2 87 80 35 5 AND HAS NOT GIVEN ANY CREDIT FOR UNDISCLOSED INCOME ADMITTED BY THE ASSESSEE. THIS IS A FACTUAL ISSUE. ACCORDINGLY HE DIRECTED T HE ASSESSING OFFICER TO VERIFY THE RETURN OF INCOME FILED BY THE ASSESSEE AND IF THE ASSESSEE HAS ALREADY ADMITTED ANY UNDISCLOSED INCOM E ON ACCOUNT OF THE SUPPRESSED TURNOVER THE SAME SHOULD BE REDUC ED FROM THE UNDISCLOSED INCOME WORKED OUT BY HIM IN ACCORDANCE WITH THE DIRECTION GIVEN IN THE APPELLATE ORDER AS HAS BEEN DONE BY HIM IN A.Y. 2006-07 AND A.Y. 2008-09. 24. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATE RIAL ON RECORD. AS REGARDS THE SUPPRESSED TURNOVER THE ASS ESSEE SUBMITTED THAT THE TURNOVER HAS BEEN ESTIMATED FOR THE ASSESSMENT YEARS 2006-07 2007-08 AND 2008-09 BASED ON THE EVIDENCES AVAILABLE ONLY FOR 2 MONTHS IN THE FINANC IAL YEAR 2005- 06 AND 4 MONTHS IN THE FINANCIAL YEAR 2007-08. THE ASSESSEE SUBMITTED THAT THE AO ALSO ESTIMATED TURNOVER FOR T HE FINANCIAL YEAR 2006-07 THOUGH THERE WAS NO MATERIAL TO SUGGES T ANY SUPPRESSION FOR THAT YEAR. HE STATED THAT IN THE ST ATEMENT I.T.A. NO. 727/HYD/2010 & ORS. M/S. HYDERABAD HOUSE PVT. LTD. ======================== 15 RECORDED U/S. 132( 4) IN RESPONSE TO QUESTION NO. 9 THE MANAGING DIRECTOR HAD INDICATED A NET PROFIT OF 95 LAKHS ON THE ESTIMATED SUPPRESSED TURNOVER OF RS. 7 04 32 296/- GIVING A NET PROFIT RATE OF 13.5 PER CENT. SINCE THE MANAGING DIRECTOR HAD H IMSELF CONCEDED THE SUPPRESSED TURNOVER THE SAME WAS NOT D ISPUTED IN THE RETURN FILED U/S. 153A. HOWEVER SINCE THE NET RESULT SUGGESTED TO THE MANAGING DIRECTOR WAS TOO HIGH THE ASSESSEE COMPANY HAD ADMITTED NEARLY 8% INCOME ON THE ADMITTED SUPPRESSE D TURNOVER IN THE RETURN. THE ASSESSING OFFICER WAS OF THE OPI NION THAT THE MANAGING DIRECTOR HAD HIMSELF ACCEPTED THE GROSS PR OFIT AS 46% WHICH IS SUPPORTED BY THE GROSS PROFIT ADMITTED IN THE REGULAR RETURN. THUS THE NET INCOME ASSESSED BY THE AO ON THE ADMITTED SUPPRESSED TURNOVER WAS AROUND 41.4% FOR AY 2006-07 AND 42.91 % FOR AY 2007-08 AND 2008-09 WHICH IS TOO HIGH AND UNACHIEVABLE IN THIS LINE OF BUSINESS. IT WAS SUBMI TTED THAT THE ASSESSEE IS IN THE BUSINESS OF PREPARATION AND SALE OF FOOD ARTICLES AT VARIOUS COUNTERS ESPECIALLY IN TWIN CITIES. THE NET PROFIT DECLARED IN THE REGULAR RETURN WAS NEARLY 4%. THE MAJOR EXPE NDITURE INCURRED BY THE ASSESSEE IS ON PREPARATION OF FOOD ARTICLES WHICH INCLUDED THE COST OF RAW MATERIAL I.E. PROVISIONS A ND OTHER ITEMS AND LABOUR CHARGES INCURRED FOR COOKING AND OTHER E MPLOYEES. THE INCOME ESTIMATED BY THE AO IS TOO HIGH CONSIDERING THE NATURE OF BUSINESS. IT WAS ALSO SUBMITTED THAT THE AO COMPLET ELY IGNORED THE BASIS ARRIVED AT IN THE STATEMENT U/S.132( 4) FOR T HE AY 2006-07 WHEREIN THE MANAGING DIRECTOR STATED THE NEXT PROFI T AT 13.5% AND THIS ESTIMATION REMAINED UN-CONTRADICTED OR OPPOSED BY THE INVESTIGATING OFFICIALS. THE ASSESSEE REFERRED TO T HE DECISION OF HON'BLE ITAT 'B' BENCH HYDERABAD IN ITA NO. 42/H/ 05 IN THE CASE OF ACIT VS. M/S. PAHAL FOOD PVT. LTD HYDERABA D WHEREIN THE !TAT DIRECTED THE AO TO ADOPT THE NET PROFIT RATE A DOPTED BY THE ASSESSEE TO DETERMINE THE UNACCOUNTED INCOME OUT OF THE UNACCOUNTED TURNOVER. THE ASSESSEE ALSO REFERRED TO THE DECISION I.T.A. NO. 727/HYD/2010 & ORS. M/S. HYDERABAD HOUSE PVT. LTD. ======================== 16 OF HON'BLE ITAT 'B' BENCH IN THE CASE OF ACIT VS. RAVI FOODS PVT. LTD (ITA NO 41/H/105 DATED 30-09-2009) WHEREIN THE HON'BLE ITAT HAVE HELD THAT THE GROSS PROFIT RATE CANNOT BE DETERMINATIVE FACTOR FOR ARRIVING AT THE UNDISCLOSED INCOME TO BE ASSESSED BECAUSE SEVERAL OUTGOS SUCH AS INDIRECT COST SELLI NG OVERHEADS AND OTHER EXPENSES OUGHT TO BE INCURRED BY THE ASSE SSEE EVEN FOR UNACCOUNTED SALES AND THEREFORE DEDUCTION HAS TO BE ALLOWED FOR THE SAME FOR ARRIVING AT THE NET UNDISCLOSED INCOME . THE ASSESSEE THEREFORE SUBMITTED THAT THE NET INCOME OFFERED TO TAX IN THE RETURN U/S. 153A BY THE ASSESSEE ON THE ADMITTED SU PPRESSED TURNOVER FOR THE ASSESSMENT YEARS 2006-07 TO 2008-0 9 BE ACCEPTED. 25. AS REGARDS THE DISALLOWANCE OF EXPENDITURE CLAIMED IN THE REGULAR RETURN THE ASSESSEE SUBMITTED THAT THE ASS ESSING OFFICER DOUBTED THE GENUINENESS OF THE EXPENDITURE AND MADE DISALLOWANCE FROM 10 TO 15 PER CENT ON PRODUCTION E XPENDITURE EMPLOYEE BENEFITS AND ADMINISTRATIVE EXPENDITURE AF TER REDUCING DIRECTOR'S SALARY AND SALES TAX PAYMENT. EVEN AS PE R THE AO THE PRODUCTION EXPENSES AND EMPLOYEES' BENEFITS ARE IN PROPORTION TO THE TURNOVER. HOWEVER THE ADMINISTRATIVE EXPENDITU RE IS NOT IN CORRECT PROPORTION. THE ASSESSEE SUBMITTED THAT THE AO IS LED AWAY BY THE FIGURES QUOTED BY HIM IN THE TABLE OF EXPENS ES GIVEN AT PAGE-2 OF THE ASSESSMENT ORDER FOR AY 2008-09. IN T HIS TABLE THE FIGURES FOR AY 2008-09 WERE NOT TAKEN CORRECTLY. TH E ACTUAL FIGURES FOR AY 2008-09 ARE AS UNDER: PARTICULARS TURNOVER (RS.) PRODUCTION EXPENSES (RS.) ADMINISTRATIVE EXPENSES (RS.) EMPLOYEES EXPENSES (RS.) NET PROFIT (RS.) AS PER AO 12 76 14 593 1 38 55 248 6 41 32 516 3 94 55 369 1 25 22 161 AS PER ROI 12 76 14 593 6 94 40 933 3 94 45 356 1 25 22 161 1 38 55 248 26. HENCE THERE IS NO DISPROPORTIONATE INCREASE IN ANY OF THE EXPENDITURE. THE ADDITION IS ONLY ON WRONG PRESUMPT IONS. THE ASSESSEE SUBMITTED THAT THE AO FAILED TO APPRECIATE THE FACT THAT I.T.A. NO. 727/HYD/2010 & ORS. M/S. HYDERABAD HOUSE PVT. LTD. ======================== 17 THE BOOKS OF ALE WERE PRODUCED BEFORE HIM AND IN SU PPORT OF THE GENUINENESS OF THE EXPENDITURE CLAIMED THE ASSESSEE FILED THE DATA FOR ONE ASSESSMENT YEAR I.E. 2007-08 FOR THE PAYMEN TS MADE THROUGH BANKING CHANNELS AND PAYMENTS MADE THROUGH CASH UNDER EACH HEAD. THE TABLE SHOWS THAT MORE THAN 5 0 PER CENT OF THE MATERIAL WAS PURCHASED THROUGH THE BANKING CHAN NEL. FURTHER ALL SALARY PAYMENTS WERE SUPPORTED BY THE RELEVANT PAYMENT OF STATUTORY REMITTANCE LIKE PF AND ESI. AL L THE EMPLOYEES ARE ON THE ROLLS OF PF AUTHORITIES AND THE FACT THA T THE ASSESSEE WAS PAYING REGULARLY THE PF CONTRIBUTION INDICATES THE GENUINENESS OF THE EXPENDITURE WHICH THE AO HAS TOT ALLY IGNORED. EVEN THE ESTIMATION OF EXPENDITURE AT A FIXED PERCE NTAGE OF TOTAL AMOUNT HAS RESULTED IN THE DISALLOWANCE OF CERTAIN ITEMS LIKE PROPERTY TAX TRADE LICENCES AND RENTAL PAYMENTS WH ICH WERE TOTALLY PAID THROUGH BANKING CHANNEL. FURTHER FOR THE PAYMENT LIKE RENT ADVERTISEMENT CHARGES AND SECURITY CHARG ES TAX WAS DEDUCTED AT SOURCE. THE METHOD ADOPTED BY THE AO RE SULTED IN DISALLOWANCE OF EVEN PF AND ESI PAYMENTS PAID WITHI N THE DUE DATES. THE AO ALSO FAILED TO APPRECIATE THE FACT TH AT THE BOOKS ARE SUBJECTED TO AUDIT U/S.44AB OF THE LT. ACT. IT WAS STATED THAT IF THE PAYMENTS TO GOVERNMENT AGENCIES AND THE PAYMENTS CO VERED BY ESI PF & TDS WERE ALSO CONSIDERED THERE IS HARDLY ANY EXPENDITURE THAT CAN BE DOUBTED WARRANTING ANY DISA LLOWANCE. THE ASSESSEE ALSO STATED THAT THIS SORT OF ADDITION IN A SEARCH ASSESSMENT WITHOUT ANY INCRIMINATING MATERIAL ON RE CORD IS HIGHLY ARBITRARY AND UNJUSTIFIED. ASSESSEE REFERRED TO THE DECISIONS OF HON'BLE ITAT KOLKATA IN THE CASE OF LMJ INTERNATIO NAL LTD KOLKATA VS. DCIT (21 SOT 315) IN SUPPORT OF ITS CO NTENTION THAT ITEMS OF REGULAR ASSESSMENT SHOULD NOT BE DISTURBED AND ITEMS LIKE INCOME AND EXPENDITURE WHICH HAD BEEN DISCLOSE D TO THE REVENUE WERE OUTSIDE THE PURVIEW OF THE ASSESSMENT FOR SEARCH CASES. AT THE END THE ASSESSEE SUBMITTED THAT IT IS NOT DISPUTING I.T.A. NO. 727/HYD/2010 & ORS. M/S. HYDERABAD HOUSE PVT. LTD. ======================== 18 THE SUPPRESSED TURNOVER FIGURE FOR THE ASSESSMENT Y EARS 2006-07 TO 2008-09 BUT ONLY DISPUTING THE PERCENTAGE OF INC OME ON THE SAID AGREED SUPPRESSED TURNOVER. 27. ACCORDING TO THE LEARNED COUNSEL FOR THE ASSESSEE THE ASSESSEES CASE IS NOT COMPARABLE TO ANY OTHER ASSE SSEE RELIED ON BY THE DEPARTMENT. ACCORDING TO THE LEARNED COUNSE L FOR THE ASSESSEE THE ASSESSEE IS ENGAGED IN THE BUSINESS O F RESTAURANT AND GIVEN FRANCHISE TO VARIOUS PARTIES. THE ASSESS EE SUPPLYING THE FOOD ITEMS LIKE CHICKEN/MUTTON BIRYANI CHICKEN/MUT TON DISHES AND CHARGE CERTAIN PERCENTAGE OF TURNOVER AS FRANCH ISE FEES. . BEING SO THE ASSESSEE CANNOT BE COMPARED TO ANY OT HER CASES. HE SUBMITTED THAT ASSESSEES RATE OF PROFIT IN EARLIER YEAR COULD BE THE BEST YARDSTICK TO ASCERTAIN INCOME FROM SUPPRESSED TURNOVER. HE RELIED ON THE ORDER OF THE TRIBUNAL DATED 23 RD NOVEMBER 2010 IN THE CASE OF PRAKASH ARTS MOVING MEDIA HYDERABAD IN ITA NOS. 305 TO 308/ VIZAG/2008 WHEREIN IT WAS HELD AS UNDER: 14. HAVING CAREFULLY EXAMINED THE SEIZED MATERIAL AND THE OTHER RECORD AVAILABLE BEFORE US WE ARE OF THE VIEW THAT WHERE NONE OF THE STATEMENTS OF THE ENTRIES (T HE STATEMENTS FOUND IN THE COURSE OF SEARCH OR THE BOO KS OF ACCOUNTS) ARE COMPLETE AND SUPPORTED BY EVIDENCE T HE TRUE PROFITS OF THE ASSESSEES CANNOT BE WORKED OUT AND IN THIS TYPE OF SITUATION INSTEAD OF PICKING FIGUR ES FROM HERE AND THERE THE RIGHT COURSE IS TO REJECT THE B OOKS OF ACCOUNTS OF THE ASSESSEES AND TO ESTIMATE THE INCOM E ON THE BASIS OF SALES DISCLOSED OR FOUND DURING THE COURSE OF SEARCH. ADMITTEDLY IN THE SEIZED DOCUMEN TS THE ASSESSEE HAS DECLARED MORE SALES THAN THE SALES DISCLOSED IN THE REGULAR BOOKS OF ACCOUNTS OF THE ASSESSEES. IN THE SEIZED MATERIAL THE TOTAL SALES WAS DISCLOSED AT RS.16 27 36 575.50 PS. FOR THE PERIOD OF 1.4.1997 TO 31.3.2002 BUT THE ASSESSMENT YEARS INVOLVED ARE FROM 1999-2000 TO 2002-03. THEREFORE THE SALE FOR THE ASSESSMENT YEAR 1998-99 IS TO BE EXCLU DED FROM THE TOTAL SALES FOR DETERMINING THE NET PROFIT OF THE ASSESSEES. DURING THE COURSE OF HEARING THE ASSESSE E HAS FURNISHED A CHART DECLARING THEREIN THAT HOW MU CH PROFIT WAS DECLARED BY THE ASSESSEES HAVING OFFERED THE ADDITIONAL INCOME. FROM THIS CHART THE NET PROFIT SHOWN I.T.A. NO. 727/HYD/2010 & ORS. M/S. HYDERABAD HOUSE PVT. LTD. ======================== 19 BY THE ASSESSEE IS BETWEEN 2.38% TO 9.56%. THE MEAN OF THE PROFIT COMES TO 5.85%. THE ASSESSEE HAS ALSO FURNISHED THE DETAILS OF THE ADDITIONS IF PARTICULA R PERCENTAGE IS ADOPTED TO DETERMINE THE NET PROFIT. FOR THE SAKE OF REFERENCE THE EXTRACT OF THE CHART IS HEREUNDER: 28. ON THE OTHER HAND THE DR STRONGLY OPPOSED THE ARGU MENT OF THE COUNSEL FOR THE ASSESSEE. THE LEARNED DR SU BMITTED IT IS AN ADMITTED FACT THAT THE ASSESSEE CONSISTENTLY SUPPRE SSED THE TURNOVER BY REMOVING THE ZERO IN THE TURNOVER FIG URES. HE RELIED ON THE FOLLOWING ORDERS OF THE TRIBUNAL: 1. ACIT VS. M/S. CH. MARTHANDA RAO & CO. IN ITA NO . 780 TO 784/HYD/2010 ORDER DATED 18 TH AUGUST 2010 WHEREIN THE TRIBUNAL HELD AS UNDER: 5. WE HAVE CONSIDERED THE SUBMISSIONS OF THE LEARN ED DEPARTMENTAL REPRESENTATIVE AND PERUSED THE MATERIA L AVAILABLE ON RECORD. THE PARLIAMENT BY FINANCE ACT 2003 INSERTED SECTION 158BI IN THE STATUTE BOOK. SECTION 158BI CLEARLY SAYS THAT CHAPTER XIV-B WHICH PROVIDES PROCEDURE FOR COMPUTATION OF UNDISCLOSED INCOME FOR THE BLOCK PERIOD WILL NOT BE APPLICABLE IN RESPECT OF SEARCHES CONDUCTED ON OR AFTER 1.6.2003. SECTION 158BB(1) PROVIDES FOR COMPUTATION OF UNDISCLOSED INCOME ON THE BASIS OF MATERIAL FOUND DURING THE COURSE OF SEARCH OPERATIONS OR THE INFORMATION WHICH IS RELATABLE TO THEMATERIAL FOUND DURING THE COURSE OF SEARCH OPERATION. THIS SECTIO N 158BB(1) FALLS UNDER CHAPTER XIV-B OF THE ACT. IN VIEW OF SECTION 158BI SECTION 158BB(1) IS NOT APPLICABL E IN RESPECT OF SEARCHES CONDUCTED AFTER 1.6.2003. THEREFORE IT IS OBVIOUS THAT THE ASSESSING OFFICER NEED NOT FOLLOW THE PROCEDURE PRESCRIBED UNDER SECTION 158BB(1) OF THE ACT IN RESPECT OF THE SEARCHES CONDUCTED AFTER 1.6.2003. 2. IN THE CASE OF M/S. BAWARCHI RESTAURANT IN ITSSA NO. 170/HYD/2005 DATED 14.7.2006 WHEREIN IT WAS HELD AS FOLLOWS: FOR THE BALANCE PERIOD FROM 1.4.2002 TO 31.12.2002 THE SALES FROM THE GENERAL SECTION CAN BE REASONABL Y I.T.A. NO. 727/HYD/2010 & ORS. M/S. HYDERABAD HOUSE PVT. LTD. ======================== 20 ESTIMATED AT RS. 40 LAKHS. THUS THE TOTAL SALES ESTIMATED FROM GENERAL AND PARCEL SECTION FOR THE P ERIOD 16.11.2001 TO 2.1.2003 CAN BE FAIRLY ESTIMATED AT R S. 60 LAKHS. COMING TO THE SALE FIGURES OF AC AND ROO F GARDEN SECTIONS THE SALES FIGURES ARRIVED AT BY TH E AO BASED ON ISR AND IPR REPORTS IS ACCEPTABLE AND THIS GIVES A FIGURE OF RS. 1 91 90 088/-. A PART OF THI S SALES (APPROX. 30%) IS ROUTED THROUGH THE GENERAL SECTION S THE ESTIMATE OF RS. 60 LAKHS AS GENERAL SECTION SAL ES IS IN OUR OPINION REASONABLE. THE AO HAS RECORDED A FINDING THAT THE SUPPRESSION OF SALES IS TO THE TUN E OF 90.50%. THIS FACT IS RECORDED BY THE CIT(A) IN PAR A 3(C)(I) OF HIS ORDER. WHILE OS THE ESTIMATE OF RS. 8.72 CRORE IS AGAINST THIS FINDING. THUS AS THE ESTIMA TIONS MADE BY THE AO WHICH IS CONFIRMED BY THE FIRST APPELLATE AUTHORITY ARE HIGHLY EXCESSIVE AND AS THE Y DO NOT BEAR ANY RELATIONSHIP WITH THE SALES FIGURES ACCEPTED BY THE COMMERCIAL TAX DEPARTMENT AS WELL A S BY THE AO AND CIT(A) THEMSELVES. AS AGAINST THE ESTIMATE OF RS. 26 51 292/- UNDISCLOSED TURNOVER ADMITTED OVER AND ABOVE THE RECORDED TURNOVER OF RS . 91 10 718/- AND RS. 7 88 41 158/- UNACCOUNTED SALES ESTIMATED BY THE REVENUE FOR THE PERIOD PRIOR TO 15.11.2001 WE DIRECT THE AO TO ADOPT THE FOLLOWING FIGURES AS THE TOTAL TURNOVER OF THE ASSESSEE FOR T HE PERIOD 16.11.2001 TO 2.1.2003: A) SALES OF AC AND ROOF GARDEN SECTION RS.1 91 90 088/ - (BASED ON IPR'S AND ISR'S) B) SALES FROM GENERAL AND PARCEL SECTION- RS. 60 00 000/- (BASED ON SALES TAX INSPECTION ) FROM THIS TOTAL THE SALES DISCLOSED TO THE DEPARTMENT WHICH ARE RECORDED IN THE REGULAR BOOKS OF ACCOUNTS HAVE TO BE ELIMINATED AND ONLY THE BALANCE SHOULD BE TREATED AS UNDISCLOSED SALES OF THE ASSESSEE. COMING TO THE ISSUE OF GROSS PROFIT WE HOLD THE FINDING OF THE AO AS CONCURRED BY THE FIRST APPELLA TE AUTHORITY THAT THE GROSS PROFIT SHOULD BE ESTIMATED AT 35% OF UNDISCLOSED TURNOVER FOR THE AC AND ROOF GARDEN SECTION IS SLIGHTLY ON THE HIGHER SIDE. THE MENU CARD COPIES OF WHICH ARE IN THE SEIZED MATERIAL SH OW THAT THE PRICES CHARGED IN ROOF GARDEN SECTION IS L ESS THAN THE AC SECTION. SO THE GROSS PROFIT OF ROOF GA RDEN SECTION MAY BE ESTIMATED AT 30% AND OF AC SECTION A T I.T.A. NO. 727/HYD/2010 & ORS. M/S. HYDERABAD HOUSE PVT. LTD. ======================== 21 35%. COMING TO THE GENERAL AND PARCEL SECTION THE FIRST APPELLATE AUTHORITY HAS FOR THE PERIOD FROM 1.4.200 1 TO 15.11.2001 DIRECTED THE AO TO ESTIMATE THE GROSS PROFITS AT 30%. AS THE GENERAL AND PARCEL SECTION CATEGORY OF CUSTOMERS ARE DIFFERENT FROM THE HIGHER CATEGORY WHO USED AC AND ROOF GARDENS AND AS ONE BIRIYANI IS SUFFICIENT FOR ABOUT 6 TO 8 PERSONS TH E GROSS PROFITS FROM THE SALES MAY BE ESTIMATED AT 25% OF T HAT TURNOVER FROM GENERAL AND PARCEL SECTION. WE ARE O F THE OPINION THAT THIS IS A FAIR ESTIMATE OF GROSS PROFI TS AND DIRECT THE AO TO ESTIMATE THE GROSS PROFIT AT 25% F ROM THE UNDISCLOSED TURNOVER OF GENERAL AND PARCEL SECT ION. THE ASSESSEE GETS PARTIAL RELIEF. 3. IN THE CASE OF K. SURESH KADAPA IN ITA NO. 136/HYD/2008 DATED 13 TH AUGUST 2008 THE TRIBUNAL HELD AS UNDER: 8. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. THE ONLY POINT IN DISPUTE IS WHETHER IT IS ONLY THE PROFIT IN RELA TION TO THE UNACCOUNTED SALES OR THE ENTIRE AMOUNT OF UNRECORDED SALES THAT SHOULD BE ADDED TO THE INCOME OF THE ASSESSEE. THE CASE OF THE REVENUE IS THAT IT IS FOR THE ASSESSEE TO ESTABLISH THAT IT IS NOT ONLY THE S ALES BUT ALSO THE SUPPORTIVE/CORRESPONDING PURCHASES THA T WERE NOT ACCOUNTED FOR. THE ASSESSING OFFICER HAS RECORDED THAT THERE IS NO DIFFERENCE IN THE OPENIN G STOCK PURCHASES AND CLOSING STOCK AND THE ONLY DIFFERENCE IS IN RELATION TO THE SALES AND THAT B EING SO THERE IS NO DIFFERENCE WITH REGARD TO THE COST OF S ALES AND CONSEQUENTLY ENTIRE SALES NOT RECORDED IN THE BOOKS OF ACCOUNT REPRESENTS THE UNACCOUNTED INCOME QF THE ASSESSEE. THE CIT(A) WAS OF THE VIEW THAT THE CONTENTION OF THE ASSESSEE THAT IT IS ONLY THE PRO FIT ON THE UNACCOUNTED FOR SALES WHICH IS LIABLE TO BE ADD ED IS ACCEPTABLE ONLY IF THE ASSESSEE ESTABLISHES THAT NOT ONLY THE SALES BUT ALSO THE PURCHASES IN RELATION T O THOSE SALES WERE UNACCOUNTED FOR. DESPITE SEVERAL OPPORTUNITIES GIVEN ASSESSEE COULD NOT FURNISH PARTICULARS OF UNACCOUNTED PURCHASES WHICH YIELDED INCOME OUT OF THE UNACCOUNTED FOR SALES. IN THAT V IEW OF THE MATTER THE CIT(A) UPHELD THE ADDITION MADE BY THE ASSESSING OFFICER. WE DO NOT FIND ANY FAULT IN THE APPROACH OF THE LOWER AUTHORITIES. IT IS FOR THE AS SESSEE TO SUBSTANTIATE ITS CASE THAT IT IS ONLY THE PROFIT IN RELATION TO THE UNACCOUNTED SALES THAT HAS TO BE CONSIDERED FOR ANY ADDITION AND NOT THE ENTIRE AMO UNT I.T.A. NO. 727/HYD/2010 & ORS. M/S. HYDERABAD HOUSE PVT. LTD. ======================== 22 OF SALES BY FURNISHING NECESSARY EVIDENCE IN THE FORM OF UNACCOUNTED PURCHASES. ASSESSEE HAVING FAILED TO DISCHARGE THE BURDEN THAT LIES ON IT THE LOWER AUTHORITIES WERE JUSTIFIED IN MAKING THE IMPUGNED ADDITION. THE CASE-LAW RELIED UPON BY THE LEARNED COUNSEL FOR THE ASSESSEE HAS NO APPLICATION TO THE FACTS OF THE PRESENT CASE SINCE THE ASSESSEE HEREIN HAS NOT ESTABLISHED THAT THE PURCHASES CORRESPONDING TO THE UNACCOUNTED FOR SALES HAVE ALSO NOT BEEN ACCOUNTED FOR BY IT. IN THE CIRCUMSTANCES WE UPHOLD THE ORDERS OF THE LOWER AUTHORITIES AND REJECT THE GROUNDS OF THE ASSESSEE IN THIS APPEAL. 29. FURTHER HE RELIED ON THE JUDGEMENT OF JURISDICTIONA L HIGH COURT IN THE CASE OF RAJNIK & CO. VS. ACIT (251 ITR 561) (AP) WHEREIN HELD AS UNDER: HELD THAT THE ASSESSEE WAS NOT ABLE TO DISPUTE THE FINDINGS OF THE ASSESSING OFFICER AS WELL AS THE TR IBUNAL WHERE THE SEIZED MATERIAL HAD SHOWN THAT THERE WAS SUPPRESSION FOR A PERIOD OF 24 DAYS DURING THE ASSESSMENT YEAR 1996-97 AND 15 DAYS FOR 1997-98 AND ALSO THAT THE SUPPRESSIONS WERE ON A DAY-TO-DAY BASIS AND THE EVIDENCE RECORDED FROM THE PARTNER HA D SHOWN THAT THE SAME METHOD WAS ADOPTED THROUGHOUT THE ASSESSMENT YEARS FOR THE ENTIRE BLOCK PERIOD. W HERE THE ASSESSEE HAD CARRIED ON THE BUSINESS FOR THE FU LL YEAR THE ADDITION WAS MADE AT SIX TIMES THE SUPPRESSION FOUND DURING THAT YEAR AND FOR THE ASSESSMENT YEAR 1997-98 THE ADDITION WAS RESTRICTED TO ONLY THREE TIMES AS THE ASSESSEE HAD CARRIED ON THE BUSINESS ONLY FOR HALF OF THE PERIOD WITH REFERENCE TO THE EARLIER YEAR WHERE SIX TIMES ADDITION WAS MADE. IT WAS CLEAR FROM THE ORDER OF THE TRIBUNAL THAT THE ESTIM ATIONS OF THE UNDISCLOSED INCOME MADE WERE BASED ON RELEVANT MATERIAL AND THERE WAS ABSOLUTELY NO UNREASONABLENESS OR ARBITRARINESS WHILE MAKING SUCH ADDITION. THOUGH THERE WAS NO MATERIAL WITH REFEREN CE TO THE ADDITION MADE FOR THE ASSESSMENT YEARS 1986- 87 TO 1995-96 YET IT WAS ADMITTED BY THE PARTNER OF T HE ASSESSEE-FIRM THAT THE ASSESSEE HAD PRACTISED SUPPRESSION OF SALES TURNOVER EVEN IN THOSE YEARS A ND TAKING THE QUANTUM OF BUSINESS THE SUPPRESSION WAS ESTIMATED AT 20 PER CENT. AND THE GROSS PROFIT RATE RETURNED BY THE ASSESSEE WAS ACCEPTED. THE TRIBUNAL HAD RIGHTLY FOUND THAT THE ESTIMATION OF THE SUPPRE SSED TURNOVER AS WELL AS UNDISCLOSED INCOME BY THE I.T.A. NO. 727/HYD/2010 & ORS. M/S. HYDERABAD HOUSE PVT. LTD. ======================== 23 ASSESSING OFFICER WAS ON THE HIGHER SIDE AND THE TRIBUNAL ON CONSIDERATION OF THE MATERIAL ON RECORD REDETERMINED THE SUPPRESSED TURNOVER AS WELL AS THE UNDISCLOSED INCOME WHICH WAS REASONABLE AND PROPER. 30. HE ALSO RELIED ON THE DECISION IN THE CASE OF CARPE NTERS CLASSICS (EXIM) (P) LTD. VS. ACIT (108 ITD 142)(BAN G.) WHEREIN IT WAS HELD AS UNDER: HELD IF THE SALES ARE UNDERSTATED IN THE BOOKS OF ACCOUNT BY NOT DISCLOSING THE EXACT AMOUNT OF SALE IN RESPECT OF AN ITEM THEN THE ENTIRE UNRECORDED SALE S TURNOVER IS INCOME AS CORRESPONDING PURCHASES ARE DEBITED. HOWEVER IF SALES ARE MADE OUTSIDE THE BOO KS OF ACCOUNT BY MAKING PURCHASES OUTSIDE THE BOOKS OF ACCOUNT THEN PROFIT EARNED FROM SUCH TURNOVER IS T O BE ADDED AS INCOME. IN THE INSTANT CASE THERE WAS NO MATERIAL TO SHOW THAT UNACCOUNTED CASH RECEIPTS WER E ONLY IN RESPECT OF ADDITIONAL WORK EXECUTED. DURING THE COURSE OF SEARCH CERTAIN PAPERS IN TORN CONDITION REPRESENTED THE CASH RECEIPTS. IT WAS ADMITTED THAT THESE RECEIPTS WERE NOT AVAILABLE IN ANY RECORD. THE ASSESSEE HAS MADE DECLARATION VIDE LETTER DATED 22.1.1999 AND SUCH LETTER WAS NOT ALLEGED TO HAVE BEEN OBTAINED UNDER THREAT OR COERCION. THIS WAS VOLUNTARY DECLARATION. THE ASSESSEE ESTOPPED THE DEPARTMENT FOR MAKING FURTHER INVESTIGATION. IN CA SE THE ASSESSEE FELT THAT THE SAID DECLARATION WAS NOT CORRECT THEN IT WAS HAVING SUFFICIENT TIME TO SAY THAT DECLARATION BE NOT ACCEPTED. THE FACT OF RECEIPT OF UNACCOUNTED CASH WAS IN THE EXCLUSIVE KNOWLEDGE OF THE DIRECTORS AND THEY WERE AWARE OF THE EXPENSES IF ANY INCURRED. DURING THE COURSE OF PROCEEDINGS THE ASSESSEE HAD NOT MADE ANY ATTEMPT TO CORRELATE THE UNACCOUNTED CASH RECEIPTS FROM A PARTICULAR CLIENT VIS-A- VIS THE ADDITIONAL WORK DONE TO ESTABLISH THAT PROF IT MARGIN WAS NOT 50 PER CENT. THERE WAS NO EVIDENCE T O SUGGEST THAT UNACCOUNTED CASH RECEIPTS WERE ONLY FO R ADDITIONAL WORK. THE MANAGING DIRECTOR OF THE COMPANY VIDE LETTER DA TED 22.1.1999 ADDRESSED TO THE AUTHORISED OFFICER OFFE RED A SUM OF RS. 1.07 CRORES AS UNDISCLOSED INCOME. SUC H LETTER HAD BEEN FILED DURING THE POST-SEARCH ENQUIR IES CONDUCTED BY THE INVESTIGATION WING OF THE DEPARTME NT. SUCH LETTER WAS VOLUNTARY AND THERE WAS NO PLEA THA T SUCH LETTER WAS OBTAINED UNDER THREAT OR COERCION. IN I.T.A. NO. 727/HYD/2010 & ORS. M/S. HYDERABAD HOUSE PVT. LTD. ======================== 24 VIEW OF SUCH LETTER THE ONUS WAS ON THE ASSESSEE T O ESTABLISH THAT OFFER WAS UNDER ANY MISCONCEPTION OF FACTS. IN THE LETTER ITSELF IT HAD BEEN MENTIONED THAT THE ASSESSEE WAS NOT IN A POSITION TO PROVIDE MATERIAL EVIDENCE FOR THE ACTUAL AMOUNT SPENT BY THE CLIENTS EITHER THROUGH THEM OR THEMSELVES. IT WAS ALSO MENTIONED THAT MARGIN OF PROFIT IN EXECUTING ADDITI ONAL WORK WAS GENERALLY 8 TO 10 PER CENT. THE MANAGING DIRECTOR OF THE ASSESSEE WAS FULLY AWARE OF THE FAC TS AT THE TIME OF FILING DECLARATION. IT COULD NOT BE SAI D THAT DECLARATION WAS UNDER ANY MISCONCEPTION OF FACTS. T HE ASSESSEE HAD FAILED TO DISCHARGE THE ONUS THAT DECLARATION WAS UNDER ANY MISCONCEPTION OF FACTS. FURTHER THE UNDISCLOSED INCOME AT AN AMOUNT OF RS. 1.7 CRORES WAS DETERMINED BY THE COMMISSIONER (APPEALS) ON THE BASIS OF THE LETTER FILED BY THE ASSESSEE. IT WAS NOT A PURE ESTIMATION BUT IT WAS A COMPUTATION OF UNDISCLOSED INCOME. IN THE INSTANT CASE DECLARATION WAS GIVEN TO AUTHO RISED OFFICER AND SUBSEQUENTLY THE ASSESSEE HAD NOT TAK EN ANY STEPS TO RECTIFY SUCH DECLARATION BEFORE THE AUTHORITY BEFORE WHOM SUCH DECLARATION WAS FILED. FURTHER THE DECLARATION IN THE INSTANT CASE WAS NO T ON THE DAY WHEN SEARCH WAS COMMENCED. THE ONLY REASON GIVEN FOR NOT SHOWING SUCH UNDISCLOSED INCOM E WAS THAT FOR ADDITIONAL CIVIL WORK MARGIN OF PROFI T WAS ONLY 8 TO 10 PER CENT. SUCH FACT WAS KNOWN TO THE ASSESSEE AND WAS MENTIONED IN THE LETTER. HENCE N O VALID REASON WAS GIVEN FOR RETRACTION OF STATEMENT. IN THE INSTANT CASE THE ASSESSEE HAD NOT RETRACTED THE DISCLOSURE BEFORE THE AUTHORISED OFFICER BUT HAD NO T INCLUDED THE UNDISCLOSED INCOME WHILE FILING RETURN ON 13.4.1999. DISCLOSURE WAS ADMITTED VIDE LETTER DAT ED 22.1.1999. THUS THE TIME GAP WAS TOO LARGE. HENC E THE COMMISSIONER (APPEALS) WAS JUSTIFIED IN DETERMINING UNDISCLOSED INCOME ON THE BASIS OF LETT ER FILED BY THE ASSESSEE. IT WAS ALSO CONTENDED BY THE ASSESSEE THAT THE REVE NUE HAD NOT BEEN ABLE TO ESTABLISH THAT ASSETS OR EXPEN SES CORRESPONDING TO UNDISCLOSED INCOME HAD BEEN FOUND DURING SEARCH. THE ASSESSEE HAD SHOWN UNDISCLOSED INCOME TO THE EXTENT OF AROUND RS. 68 LAKHS AND HAD NOT EXPLAINED AS TO WHERE SUCH AMOUNTS STOOD I.T.A. NO. 727/HYD/2010 & ORS. M/S. HYDERABAD HOUSE PVT. LTD. ======================== 25 INVESTED. IT IS NOT THE CASE OF THE ASSESSEE THAT UNDISCLOSED INCOME HAD BEEN RETURNED ON THE BASIS O F ASSETS OR EXPENSES NOT RECORDED IN THE BOOKS OF ACCOUNT. THE ASSESSEE ITSELF FILED THE DECLARATION OF UNDISCLOSED INCOME OF RS. 1.07 CRORE. HENCE THERE WAS NO ONUS ON THE REVENUE TO ESTABLISH THAT SUCH UNDISCLOSED INCOME WAS IN THE FORM OF ASSETS ETC. SECTION 158B(B) DEFINES UNDISCLOSED INCOME AND SUCH INCOME CAN BE BASED ON ENTRIES FOUND IN THE SEIZED RECORDS. THEREFORE THE COMMISSIONER (APPEALS) WAS JUSTIFIED IN DETERMINING THE UNDISCLOSED INCOME TO THE EXTENT OF RS. 1.07 CRORES. 31. WE HAVE CAREFULLY GONE THROUGH THE ABOVE SUBMISSION OF THE PARTIES. REGARDING COMPUTATION OF UNDISCLOSED INCO ME ON THE SUPPRESSED TURNOVER IT IS A FACT ON RECORD THAT T HE ASSESSEE DOES NOT DISPUTE THE SUPPRESSED TURNOVER WORKED OUT BY T HE ASSESSING OFFICER. WHAT THE ASSESSEE ACTUALLY DISPUTES IS THE PERCENTAGE OF NET PROFIT WORKED OUT BY THE AO. THE AO WHILE WORKI NG OUT THE NET PROFIT HAS BASICALLY RELIED ON THE GROSS PROFIT RAT IO OF 46% FOR THE ASSESSMENT YEAR 2006-07 AND 47.68% FOR THE AY 2007- 08 AND 2008-09. FROM THESE HE HAS GIVEN A DEDUCTION OF 10 % TO WORK OUT THE NET PROFIT ON THE SUPPRESSED TURNOVER. THAT WAY THE AO HAS WORKED OUT A NET PROFIT ON THE SUPPRESSED TURNOVER AS AGAINST THE NORMAL PROFIT DISCLOSED BY THE ASSESSEE. THE ASSES SEE RELIED ON THE DECISION OF ITAT HYDERABAD IN THE CASE OF ACIT CENTRAL CIRCLE- 4 HYDERABAD VS. RAVI FOODS PVT LTD IN IT(SS)A NO 41/HYD/2005. IN THIS CASE THE ASSESSEE COMPANY WAS IN THE BUSIN ESS OF MANUFACTURE OF BISCUITS AND OTHER CONFECTIONERY ITE MS. A SEARCH WAS CONDUCTED IN THE ASSESSEE'S CASE DURING WHICH C ERTAIN INCRIMINATING MATERIAL EVIDENCING SUPPRESSION OF TU RNOVER WAS FOUND. THE AO FOUND THAT THE ACCOUNTED TURNOVER CON STITUTED ABOUT 45.38% OF TOTAL TURNOVER AND CONSEQUENTLY THE UNACCOUNTED TURNOVER WAS AROUND 54.62% OF THE TOTAL TURNOVER. B ASED ON THE SEIZED DOCUMENTS THE AO WORKED OUT THE UNACCOUNTED TURNOVER FOR THE ENTIRE BLOCK PERIOD AND ESTIMATED THE UNDIS CLOSED INCOME IN RELATION TO SUCH SUPPRESSED TURNOVER APPLYING TH E SAME RATIO OF I.T.A. NO. 727/HYD/2010 & ORS. M/S. HYDERABAD HOUSE PVT. LTD. ======================== 26 GROSS PROFIT AS DISCLOSED ON ACCOUNTED TURNOVER AND DETERMINED THE UNDISCLOSED INCOME. WHILE DECIDING THE APPEALS THE HON'BLE ITAT HYDERABAD AT PAGE 11 PARA 7 OF THE ORDER OBSER VED AS UNDER: 'WE FIND CERTAIN INHERENT MISTAKES AND INCONSISTENC IES IN APPROACH OF BOTH THE LOWER AUTHORITIES WHILE ESTIMATING THE UNDISCLOSED INCOME FOR VARIOUS YEARS FALLING WITHIN THE BLOCK BY EXTRAPOLATION ON THE BA SIS OF MATERIAL SEIZED FOR TWO MONTHS VIZ. DEC. 2001 AND JAN 2002. FIRSTLY BOTH THE LOWER AUTHORITIES HAVE DETERMINED INCOME APPLYING GROSS PROFIT RATE OF PURPORTEDLY OF THE RESPECTIVE ASSESSMENT YEARS TO T HE UNACCOUNTED TURNOVER ESTIMATED FOR THAT YEAR BY EXTRAPOLATION. IT CANNOT BE DENIED THAT GROSS PROFI T RATE CANNOT BE THE DETERMINATIVE FACTOR FOR ARRIVING AT THE UNDISCLOSED INCOME TO BE ASSESSED BECAUSE SEVERAL OUTGOS SUCH AS INDIRECT COSTS SELLING OVERHEADS A ND OTHER EXPENSES HAVE TO BE INCURRED BY THE ASSESSEE EVEN FOR SUCH UNACCOUNTED SALE AND THEREFORE DEDUCT ION HAS TO BE ALLOWED FOR THE SAME FOR ARRIVING AT THE NET UNDISCLOSED INCOME.' 32. AT PARA 9 OF THE SAID ORDER THE HON'BLE ITAT HYDER ABAD FURTHER OBSERVED AS UNDER: 'AS FOR ESTIMATION OF UNDISCLOSED INCOME IN RELATIO N TO SUCH UNDISCLOSED TURNOVER DETERMINED AT 35% OF ACCOUNTED TURNOVER WE ARE OF THE CONSIDERED VIEW T HAT THE LOWER AUTHORITIES WERE NOT JUSTIFIED IN DETERMI NING THE UNDISCLOSED INCOME BY ADOPTING GROSS PROFIT RAT E AT THE RELEVANT YEARS/PERIOD. IT IS A SETTLED POSITION OF LAW AS LAID DOWN 'AMONG OTHERS BY THE DELHI HIGH COURT IN THE CASE OF CFT VS. SATISH KUKAR CHANDANA NEW DELH I VIDE JUDGEMENT DATED 2119-2007 IN ITA NO. 142 OF 2004 BESIDES THE DECISIONS OF VARIOUS BENCHES OF TRIBUNAL INCLUDING THE HYDERABAD BENCHES IN SIMILAR MATTERS IT IS ONLY THE NET PROFIT AND NOT THE GROS S PROFIT RATE THAT IS RELEVANT TO DISCLOSE THE UNDISCLOSED I NCOME SINCE EVEN IN RESPECT OF GROSS PROFIT IN RELATION T O~ SUPPRESSED TURNOVER CERTAIN AMOUNT OF INDIRECT COS T ARE TO BE INCURRED BY THE ASSESSEE AND IT IS AFTER EXCL USION OF THE SAME FROM THE GROSS PROFIT THAT ONE CAN ARRI VE AT THE NET PROFIT AND MOST IMPORTANTLY UNDISCLOSED INC OME IN RELATION TO SUCH UNACCOUNTED TURNOVER. THIS MORE SO WHEN THE UNACCOUNTED TURNOVER FORMS A SIGNIFICANT PORTION OF THE TOTAL TURNOVER AND IS ESTIMATED AS A I.T.A. NO. 727/HYD/2010 & ORS. M/S. HYDERABAD HOUSE PVT. LTD. ======================== 27 PERCENTAGE OF THE ACCOUNTED TURNOVER AS HIGH AS 35% IN THE PRESENT CASE. THE BASIS FOR THE DETERMINATION O F THE UNDISCLOSED TURNOVER IN THE PRESENT CASE IS THE SEI ZED MATERIAL WHICH RELATES TO DEE. 2001 AND JAN. 2002 FORMING PART OF ASSESSMENT YEAR 2002-03. THAT BEING SO WE ARE OF THE CONSIDERED OPINION CONSIDERING VARIOUS FACTORS WHICH PREVAILED IN DIFFERENT YEARS AS DISCUSSED IN EARLIER PARA SUCH AS NON-PRODUCTION OF WAFERS AND CONFECTIONERY ITEMS IN EARLIER YEARS AC TUAL GROSS LOSS DETERMINED IN ONE YEAR LIMITATION OF INSTALLED CAPACITY ETC IN OUR CONSIDERED OPINION ADOPTION OF THE NET PROFIT RATE OF THE ASSESSMENT Y EAR 2002-03 VIZ 3.91 % UNIFORMLY FOR ALL THE YEARS FORM ING PART OF BLOCK PERIOD FOR DETERMINING THE UNDISCLOS ED INCOME RELATABLE TO UNACCOUNTED PERIOD WOULD MEET T HE END OF JUSTICE.' IN THE CASE OF ACIT CENTRAL CIRCLE-4 HYD. VS. PAH AL FOODS THE HON'BLE ITAT FOLLOWING THE DECISION GIV EN IN THE CASE OF RAVI FOODS PVT. LTD REFERRED TO ABOVE DIRECTED THE ASSESSING OFFICER TO DETERMINE THE NET INCOME OUT OF UNACCOUNTED TURNOVER BASED ON THE NET PROFIT RATE OF 10% ADMITTED BY THE ASSESSEE. 33. THUS FROM THE DECISIONS OF HON'BLE ITAT HYDERABAD 'A' BENCH AS ABOVE IT IS EVIDENT THAT THE UNDISCLOSED INCOME ON SUPPRESSED TURNOVER CANNOT BE BASED ON THE GROSS PR OFIT RATE ADOPTED FOR THE YEAR CONCERNED. IN THE APPEAL UNDER CONSIDERATION THE AO HAS ADOPTED THE GROSS PROFIT RATE ON THE SUP PRESSED TURNOVER AND HAS GIVEN A DEDUCTION OF 10% TOWARDS I NDIRECT COST. IN TERMS OF THE DEFINITION OF HON'BLE ITAT HYD. RE FERRED TO ABOVE THE METHOD ADOPTED BY THE AO IS ERRONEOUS. WHAT THE AO SHOULD HAVE ADOPTED IS THE NET PROFIT RATE BEING DISCLOSED . THE CIT(A) GIVEN THE FINDING THAT THE ASSESEE HIMSELF HAD AD MITTED 13.5% PROFIT FOR THE FY 2005-06 ON THE UNDISCLOSED TURNOV ER AND ESTIMATED THE NET PROFIT RATE OF 15% ON THE UNDISC LOSED TURNOVER FOR THE YEARS UNDER CONSIDERATION FOR ARRIVING AT T HE UNDISCLOSED INCOME ON THE SUPPRESSED TURNOVER. HOWEVER THE AR FILED DETAILS OF NET PROFIT DECLARED BY THE ASSESSEE FOR EARLIER YEARS AS FOLLOWS: I.T.A. NO. 727/HYD/2010 & ORS. M/S. HYDERABAD HOUSE PVT. LTD. ======================== 28 STATEMENT SHOWING NET PROFIT RATE AS PER ASSESSEE A S WELL AS BY AO/CIT(A) A.Y. ADMITTED UNDISCLOSED INCOME NET PROFIT AS PER ASSESSEE NET PROFIT ESTIMATED BY ASSESSING OFFICER NET PROFIT ESTIMATED BY CIT AMOUNT % AMOUNT % AMOUNT % 2006-07 70 432 296 1 513 670 2.15 25 355 627 36.00 10 564 845 15.00 2007-08 76 380 984 5 758 950 7.54 28 780 355 37.68 11 457 148 15.00 2008-09 56 869 360 4 356 084 7.66 21 428 375 37.68 8 530 404 15.00 TOTAL 203 682 640 11 628 704 75 564 357 30 552 39 7 STATEMENT SHOWING ACTUAL NET PROFIT RATE DECLARED B Y THE ASSESSEE * ACCORDING TO THE ASSESSEE FOR THE ASSESSMENT YEAR 2008-09 THE RATE OF PROFIT IS AT 10.86% ON THE REASON THAT THERE WAS AN EXTRAORDI NARY RECEIPT OF ROYALTY OF RS. 75.25 LAKHS IN THIS ASSESSMENT YEAR . AVERAGE NET PROFIT : 5.38% 34. IN THIS CASE THE ASSESSING OFFICER HAS NOT ONLY EN HANCED THE GROSS PROFIT RATE BUT ALSO INCREASED THE ESTIMATE A ND INCREASED THE QUANTUM OF TURNOVER. THE ASSESSEE HAS NOT DISPUTED THE QUANTUM OF SUPPRESSED TURNOVER. HOWEVER THE ASSESSEE CHAL LENGED THE RATE OF NET PROFIT AND FILED A CHART AS ABOVE. AS REGAR DS THE NET PROFIT WE FIND THAT IN EARLIER YEARS RECORDS AND PAST HIST ORY COULD BE THE BASIS TO DETERMINE THE RATE OF PROFIT PROVIDED IF T HE BOOK RESULTS ARE ACTUALLY ACCEPTED BY THE DEPARTMENT IN EARLIER YEARS. IN THE PRESENT CASE ALL THE ASSESSMENTS FROM 2002-03 TO 20 08-09 ARE SUBJECT MATTER OF DISPUTE BEFORE US AND WE CANNOT T AKE THE RESULT OF THESE ASSESSMENT YEARS AS BASE TO DETERMINE THE NET PROFIT. IN OUR OPINION CONSIDERING THE NATURE OF INDUSTRY AND PREVAILING MARKET CONDITIONS IT IS REASONABLE TO ESTIMATE NET PROFIT AT 8% OF THE SUPPRESSED TURNOVER. ACCORDINGLY WE DIRECT TH E ASSESSING OFFICER TO ESTIMATE THE INCOME OF THE ASSESSEE AT 8 % OF THE SUPPRESSED TURNOVER IN ADDITION TO THE INCOME FROM REGULAR BUSINESS. THE GROUND RAISED BY THE ASSESSEE FOR THESE THREE ASSESSMENT YEARS I.E. 2006-07 2007-08 AND 2008-09 IS PARTLY ALLOWED. INCOME ON REGULAR TURNOVER (%) 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 200 8-09 3.81 4.66 4.63 3.96 5.27 4.46 10.86* I.T.A. NO. 727/HYD/2010 & ORS. M/S. HYDERABAD HOUSE PVT. LTD. ======================== 29 35. WITH REGARD TO DISALLOWANCE OF EXPENDITURE DEBITED TO PROFIT AND LOSS A/C THE AO HAS MADE THE DISALLOWANCE ON TH E PREMISE THAT THERE IS A CHANCE OF INFLATION OF EXPENDITURE UNDER THE HEAD PRODUCTION EXPENDITURE EMPLOYEE BENEFITS AND ADMIN ISTRATIVE EXPENDITURE. THE ASSESSEE ON THE OTHER HAND SUBMITT ED THAT MAJORITY OF THE EXPENDITURE WAS INCURRED THROUGH BA NKING CHANNEL. THE ASSESSEE ALSO SUBMITTED THAT DURING TH E COURSE OF ASSESSMENT PROCEEDING THE BOOKS OF ACCOUNT WERE PR ODUCED BEFORE THE AO IN SUPPORT OF THE GENUINENESS OF THE EXPENDITURE CLAIMED AND THE ASSESSEE HAD ALSO FILED A DATA FOR ONE ASST. YEAR 2007-08 SEGREGATING THE PAYMENTS MADE THROUGH BANKI NG CHANNELS AND PAYMENTS MADE THROUGH CASH. DURING THE COURSE OF FIRST APPELLATE PROCEEDING THE ASSESSEE HAVE FILED DETAILS SEGREGATING THE EXPENSES. AS PER THE SAID DETAILS OF PRODUCTION EXPENSES ONLY PARTIAL PAYMENT IS BY CASH AND THE B ALANCE IS BY CHEQUES. SIMILARLY FOR THE EMPLOYEES BENEFITS LES S DIRECTOR'S REMUNERATION PARTIAL PAYMENTS WERE MADE BY CHEQUE T OWARDS PF AND ESI CONTRIBUTION AND BALANCE PAID BY WAY OF SAL ARIES COVERED BY PF AND ESI. AS REGARDS ADMINISTRATIVE EXPENSES L ESS SALES TAX AMOUNTING TO A PORTION INCLUDES STATUTORY PAYMENTS LIKE ELECTRICITY CHARGES PROPERTY TAX FOOD LICENCE LA BOUR LICENCE TRADE LICENCE ETC. THIS APART PAYMENT OF FRANCHISE COMMIS SION SALES TAX APPEAL ETC. WERE STATED TO HAVE BEEN MADE BY CHEQUE S. THE ASSESSEE ALSO SUBMITTED THAT ON PAYMENT OF RENT FR ANCHISE COMMISSION AND SECURITY SERVICES IN FACT TDS WAS A LSO DEDUCTED. 36. THE AO HIMSELF HAS OBSERVED IN THE ASSESSMENT ORDER THAT THE ASSESSEE HAD GIVEN A BREAK UP OF PRODUCTION EXP ENDITURE DIVIDING INTO PURCHASE OF RAW MATERIALS AND PACKING MATERIAL. HE FURTHER OBSERVED THAT IT IS IMPOSSIBLE TO VERIFY EA CH AND EVERY BILL AND VOUCHER IN SUPPORT OF THE PRODUCTION EXPENDITUR E. THEREAFTER HE MADE A DISALLOWANCE OF 15% OF THE PRODUCTION EXP ENDITURE PRESUMING THAT THERE IS ALWAYS A CHANCE OF INFLATIO N OF EXPENDITURE I.T.A. NO. 727/HYD/2010 & ORS. M/S. HYDERABAD HOUSE PVT. LTD. ======================== 30 UNDER THIS HEAD. THE AO HAS NOT PINPOINTED ANY SPEC IFIC ITEM WHERE THERE HAS BEEN INFLATION OF EXPENDITURE. NEIT HER ANY INCRIMINATING MATERIAL RELATING TO INFLATION OF EXP ENDITURE HAS BEEN FOUND AND DISCUSSED BY THE ASSESSING OFFICER. ACCOR DINGLY IN MY VIEW A FLAT DISALLOWANCE OF 15% ON THE TOTAL EXPEN DITURE IS UNWARRANTED. IN THIS LINE OF BUSINESS THE MAJORITY OF THE PRODUCTION EXPENDITURE RELATES TO PURCHASE OF PROVI SION FIRE BREAD VEGETABLE MUTTON CHICKEN FISH ETC WHICH A RE PROCURED FROM THE OPEN MARKET FROM UNORGANIZED SECTOR. THERE IS ALL LIKELIHOOD OF PAYMENT OF CASH DUE TO INSISTENCE OF THE SELLER FOR SUCH PROCUREMENT. AT THE SAME TIME IT ALSO CANNOT BE RULED BE CERTAIN INFLATION OF EXPENDITURE ESPECIALLY WHERE T HE PAYMENT IS CASH. CONSIDERING THE LINE OF BUSINESS AND ALSO CO NSIDERING THE FACT THAT NO SPECIFIC INSTANCE OF INFLATION OF EXPE NDITURE HAS BEEN POINTED OUT BY THE ASSESSING OFFICER DISALLOWANCE OF 15% FLAT IS ON HIGHER SIDE AND EVEN SUSTAINED BY CIT(A ) THE SAID DISALLOWANCE AT 7% ON THE CASH EXPENDITURES IS ALS O HIGHER SIDE. IN OUR OPINION THE DISALLOWANCE AT 5% OF CASH EXPE NSES OTHER THAN STATUTORY PAYMENTS AND PAYMENTS TO GOVERNMENT AUTHORITIES AND THE AMOUNT SUBJECTED TO TDS IS SUFFICIENT IN VI EW OF THE DISCREPANCIES NOTICED BY THE AUTHORITIES. FOR THIS PURPOSE WE PLACE RELIANCE ON ORDER OF THE TRIBUNAL IN THE CASE OF M /S GSP INFRATECH DEVELOPMENT LTD. HYDERABAD IN ITA NOS. 1396/HYD/2 011 AND OTHERS VIDE ORDER DATED 27 TH DECEMBER 2011 WHEREIN WE HAVE CONFIRMED THE DISALLOWANCE AT 5% OF SUCH EXPENSES BY HOLDING AS FOLLOWS IN PARA-9 :- WE HAVE HEARD THE PARTIES AND PERUSED THE MATERIAL ON RECORD. THE ASSESSEE IS A SUBCONTRACTOR. ASSESSEE IS ENGAGI NG LABOUR AT SITE AT FAR FLUNG PLACES. IN SUCH CIRCUMSTANCES I T IS DIFFICULT TO HAVE DOCUMENTS FOR SUCH EXPENDITURE TO THE SATISFA CTION OF THE ASSESSING OFFICER. IT IS ALSO DIFFICULT TO VERIFY THE IDENTITY OF THE LABOUR AFTER LAPSE OF MANY YEARS. THE ACCOUNTS OF THE ASSESSEE HAVE BEEN AUDITED AND AUDITORS CERTIFICATE UNDER S ECTION 44AB HAS ALSO BEEN FURNISHED. THE ASSESSING OFFICER HAS NOT ANALYSED THE EXPENSES COMPARED TO THE TURNOVER FOR THE EARLI ER YEARS. A I.T.A. NO. 727/HYD/2010 & ORS. M/S. HYDERABAD HOUSE PVT. LTD. ======================== 31 SEARCH HAS BEEN MADE IN THE PREMISES OF THE ASSESSE E AND NO INCRIMINATING EVIDENCE IN THIS REGARD HAS BEEN FOUN D. ONLY AN AD HOC DISALLOWANCE OF EXPENDITURE CLAIMED BY THE ASSE SSEE HAS BEEN MADE. HOWEVER FROM THE OBSERVATIONS OF THE LOWER A UTHORITIES IT CAN BE INFERRED THAT FULL DETAILS OF EXPENDITURE HA VE NOT BEEN PROPERLY DOCUMENTED. HENCE THE POSSIBILITY OF SOM E INFLATION OF SUCH EXPENSES CANNOT BE RULED OUT. CONSIDERING TOTA LITY OF FACTS AND CIRCUMSTANCES OF THE CASE WE ARE OF THE OPINIO N THAT DISALLOWANCE OF 5% OF LABOUR AND SITE EXPENSES ARE REASONABLE. 37. IN THE RESULT ASSESSEES APPEALS ARE PARTLY ALLOWE D REVENUE APPEALS ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 29 TH FEBRUARY 2012. SD/ - (ASHA VIJAYARAGHAVAN) JUDICIAL MEMBER SD/ - (CHANDRA POOJARI) ACCOUNTANT MEMBER HYDERABAD DATED THE 29 TH FEBRUARY 2012 COPY FORWARDED TO: 1. DEPUTY COMMISSIONER OF INCOME TAX (CENTRAL CIRCLE - 2) 7 TH FLOOR AAYAKAR BHAVAN L.B. STADIUM ROAD BASHEERBA GH HYDERABAD-500 004. 2. M/S. HYDERABAD HOUSE (P) LTD. 8 - 1 - 402/37 GULSHAN COLONY TOLICHOWKI HYDERABAD. 3. THE CIT(A) - I HYDERABAD. 4. THE CIT (CENTRAL) HYDERABAD. 5. THE DR A BENCH ITAT HYDERABAD TPRAO