I.T.A. Nos. 331-337 and 366-372/Coch/2012, (Assessment Year: 2003-04; 2004-05; 2005-06; 2006-07; 2007-08; 2008-09; 2009-10). Case: 1. M/s. Rajan Jewellery, 2. The Deputy Commissioner of Income-tax, Kottayam Vs 1. The Deputy Commissioner of Income-tax, Kottayam, 2. M/s. Rajan Jewellery. ITAT (Income Tax Appellate Tribunal)
| Case Number | I.T.A. Nos. 331-337 and 366-372/Coch/2012, (Assessment Year: 2003-04; 2004-05; 2005-06; 2006-07; 2007-08; 2008-09; 2009-10) |
| Counsel | For Appellant: Shri K.I. John, CA and For Respondents: Smt. Susan George Varghese, Sr. DR |
| Judges | N.R.S. Ganesan, Member (J) and B.R. Baskaran, Member (A) |
| Issue | Income Tax Act, 1961 - Sections 132(4), 153A, 153B, 292B, 292BB |
| Judgement Date | May 24, 2013 |
| Court | ITAT (Income Tax Appellate Tribunal) |
Order:
B.R. Baskaran, Member (A), (ITAT Cochin Bench)
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These cross appeals arise out of the common order dated 12-10-2012 passed by Ld CIT(A)-III, Kochi and they relate to the assessment years 2003-04 to 2009-10. Since these appeals were heard together, they are being disposed of by this common order, for the sake of convenience. The assessee is challenging the order of Ld CIT(A) on two issues in all the seven years, viz.,
(a) Whether the Ld CIT(A) was justified in holding that the validity of search cannot be examined in the appellate proceedings before him.
(b) Whether the Ld CIT(A) was justified in partially sustaining the addition made by the Assessing officer.
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The revenue is assailing the decision of Ld CIT(A) in granting substantial relief in the addition made by the AO in all the years.
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The facts relating to the case are discussed in brief. The assessee herein is a partnership firm consisting of two partners viz., Shri G. Venkatesan and his mother Smt. Muthulakshmi Ammal. It is engaged in the business of trading in gold and silver ornaments at Muvattupuzha. The revenue carried out search and seizure operations in the business premises of the assessee and also at the residential premises of its partners on 09-04-2008. During the course of search, it was noticed that the assessee did not keep any accounts for its business for the period from 01-04-2008 to 09-04-2008. It was also found that the purchase and sale entries were not made in the purchase register, sales register or stock register. The search party also stumbled upon excess stock of 2032 grams of gold and 7901 grams of silver ornaments. The search officials recorded a statement from the Managing partner of the firm Shri G. Venkatesan. According to the assessing officer, he admitted that the assessee firm did not maintain accounts for the period from 01-04-2008 to 09-04-2008 and had also accepted the fact that the assessee has carried on transactions of purchase and sales outside the books of account. It was further noticed that the assessee firm was effecting sales on the basis of "estimate slips" and they were not accounted for in the books of accounts, which has led in suppression of sales. During pre-search enquiries, it was found that 2.02 grams of gold locket sold on 11.03.2008 on the basis of an estimate slip for a value of Rs. 2,787/- was not found accounted for in the books of account. During the course of search, the estimate slips issued for a period of 15 days were found. The average quantity of gold ornaments sold per day, as per those estimate slips, was 175.174 grams, where as the assessee had accounted for a sale quantity of 17 grams only in its books of account per day. Accordingly, the assessing officer came to the conclusion that the assessee is accounting for only 10% of its sales in its books of account. The search officials also found the documents relating to purchase of property and construction of a residential building in the name of partners. Accordingly, the assessing officer opined that the fact of suppression of sales stands corroborated by the investments made by the partners of the firm. The assessing officer noticed that the assessee had declared gross profit in the range of 36.55% to 48.08% in its books of account for the financial years 2001-02 to 2006-07. The AO took the view that the GP rate normally works out 20% in this kind of trade and the assessee has been declaring higher GP rate to make up the profit realized on suppression of sales. In view of the various reasons discussed above, the AO held that the accounts maintained by the assessee are not reliable and accordingly rejected the same. Accordingly, the AO estimated the turnover of the assessee at ten time of the declared turnover and estimated the GP thereon @ 20%. The difference between the GP so calculated and the GP declared by the assessee was assessed as undeclared/concealed income in all the years.
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The assessee challenged assessment orders of all the years by filing appeals before Ld CIT(A). Before the first appellate authority, the assessee claimed that the panchas were not present during the course of search and in support of the said claim; it filed affidavits obtained from the Panchas. Accordingly, it was contended that the search becomes illegal and consequently, the impugned assessment orders passed in pursuance of the illegal search are invalid. The Ld CIT(A), after obtaining remand report from the assessing officer on the new claim made before him, held that the assessee is not entitled to raise the issue relating to the validity of search. For this proposition, the Ld CIT(A) placed reliance on the decision of the Delhi Special bench of ITAT in the case of Promain Ltd. Vs. CIT (281 ITR (AT) 107). However, the Ld CIT(A) also rejected the said ground on merits also, i.e., he held that the new claim of non-presence of panchas is not valid since the copies of panchanamas were duly signed by the Panchas and the copies thereof were given to the assessee during the search proceedings and the assessee did not raise any objection at that point of time or during the course of assessment proceedings. The Ld CIT(A) further observed that the assessee is raising this claim for the first time before him and it did not give any reason for not raising the same before the AO or the investigation wing. The Ld CIT(A) further held that the assessee is debarred from raising this issue in any further proceeding in view of the provisions of sec. 292B and 292BB of the Act. With regard to the additions made by the AO in respect of suppressed sales, the ld CIT(A) directed the AO to estimate the income at 5 times of the declared turnover, estimate the Gross Profit @ 20% thereon and make the additions accordingly. Aggrieved by the order of Ld CIT(A), both the parties are in appeal before us.
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With regard to the issue relating to the validity of search, the Ld A.R. strongly placed reliance on the decision of Hon'ble Karnataka High Court in the case of C. Ramaiah...
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