M/S BEST BAKERY & ICE CREAM PARLOUR,ANGAMALLY vs. ACIT, ERNAKULAM

Per Bench :

MATHA ENTERPRISES: ITA Nos. 302 to 308/Coch/2010: Assessee’s Appeals : AYs. 2001-02 to 2007-08 (7 appeals) ITA Nos. 269 to 275/Coch/2010: Revenue’s Appeals: AYs 2001-02 to 2007-08 (7 appeals)

Originally the assessee as well as the Revenue came in appeal before this Tribunal by way of various grounds which were disposed off by the Tribunal by common order dated 24/01/2011 by allowing the appeals of the assessee for the assessment years 2001-02, 2002-03, 2004-05, 2005-06 and 2006-07 and dismissing all the appeals of the Revenue. The Tribunal partly allowed the appeal of the assessee for the assessment year 2003-04 and dismissed the appeal of the assessee for the assessment year 2007-08.

Sl. No. Assessment ITA No. before Revenue Appeal before the Assessee Year Tribunal High Court Appeal before the High Court 1. 2001-02 302/Coch/2010 145/2011 Dated 11/11/2016 2. 2002-03 303/Coch/2010 175/Coch/2011 -do-

4 ITA Nos.507 to 512/Coch/2010 M/s.Best Bakery & Ice Cream Parlour. ITA Nos. 302 to 308/Coch/2010 & 269 to 275/coch/2010 M/s. Matha Enterprises.

“These appeals by the Revenue are against the decisions of the Income Tax Appellate Tribunal.

With the aforesaid directions, the orders of the Tribunal impugned in these appeals are set aside and those

5 ITA Nos.507 to 512/Coch/2010 M/s.Best Bakery & Ice Cream Parlour. ITA Nos. 302 to 308/Coch/2010 & 269 to 275/coch/2010 M/s. Matha Enterprises. matters are remitted to the Tribunal in the light of what is stated above.

The appeals are ordered accordingly.”

“Today, we have disposed of ITA No. 145/11 and connections filed by the Revenue as against the assessee, who is the appellant herein. This appeal relates to the year 2007-08 and Revenue’s appeal for that year is ITA No. 17/12.

In the result, the impugned decision of the Tribunal is vacated and this appeal is ordered remitting the case to the Tribunal for de novo decision in accordance with law and also taking into consideration the grounds that may be raised by the assessee and the Revenue”

6 ITA Nos.507 to 512/Coch/2010 M/s.Best Bakery & Ice Cream Parlour. ITA Nos. 302 to 308/Coch/2010 & 269 to 275/coch/2010 M/s. Matha Enterprises.

to confirmation of addition on account of liquor sales in the absence of any incriminating material indicating undisclosed income. On the other hand, the issues for re-consideration in Revenue’s appeals in ITA Nos. 269 to 275/Coch/2010 (7 appeals) is with regard to consideration of income of Kwality Restaurant in the hands of the assessee, though the assessee leased the restaurant to the third party on rental basis and deletion of additions made on account of estimation of undisclosed turnover from restaurant business (excluding sales of Kwality Restaurant) and undisclosed liquor sales.

7.1 P.A. Kuriakose Group consists of:

Shri P.A.Kuriakose, his wife Mary Kuriakose, his sons Pauly Kuriakose, his wife Tareena Poly Benny Kuriakose, his wife Sheena Benny

7 ITA Nos.507 to 512/Coch/2010 M/s.Best Bakery & Ice Cream Parlour. ITA Nos. 302 to 308/Coch/2010 & 269 to 275/coch/2010 M/s. Matha Enterprises.

Johny Kuriakose, his wife Reena Johny; and Promy Kuriakose

Paulson P. Varkey group consists of:

Paulson P. Varkey, his Mother Kunjamma Varkey, his wife, Meena Paulson

K.M.Mathai Group consists of:

K.M. Mathai; and His sons Paul Mathew and Joby Mathew

7.2 The firm Matha Enterprises constituted as per deed dated 01.04.1992 consists of the following partners :

Sl. No. Name of Partner Ratio 1. P.A. Kuriakose 5 2. K.M. Mathai 8 3. Paul Mathew 10 4. JohnyKuriakose 10 5. Benny Kuriakose 10 6. Mary Kuriakose 5 7. KunjammaVarkey 16 8. Meena Paulson 7 9. Paulson P. Varkey 19 10. Jobby Mathew 10

7.3 Shri Paulson P. Varkey, JohnyKuriakose and Paul Mathew were the working partners. The assessee firm ran Hotel Hill Park consisting of 3 non- A/c bars on the first floor, one A/c bar in the III floor, two Restaurants, one in first floor and one in third floor and lodging section in the second floor. The ground floor restaurant known as Kwality restaurant was

8 ITA Nos.507 to 512/Coch/2010 M/s.Best Bakery & Ice Cream Parlour. ITA Nos. 302 to 308/Coch/2010 & 269 to 275/coch/2010 M/s. Matha Enterprises. said to be in the name of Shri P.P. Mathai., "Best Bakery and Ice Cream Parlour', a separate firm of the group, was also in the ground floor. On 13.02.2007 a search u/s. 132 of the Income Tax Act, 1961 was initiated in the business premises of M/s. Matha Enterprises, Angamaly. Subsequent to the search, a notice under section 153A of the Income tax Act, dated 07.02.2008 was issued requiring the assessee to file return of income within 30 days from the receipt of the notice. The said notice was served on the assessee on 14.02.2008. In response to the said notice, the assessee firm filed its return of income on 03.06.2008 declaring a total income of Rs.58,800/-. The assessee firm had originally returned the same income in the return filed u/s. 139(1) on 20.11.2003. After processing the return filed u/s. 153A, a notice u/s. 143(2) was issued on 24.10.2008. On the same day a notice u/s 142(1) was also issued along with a questionnaire seeking various details.

7.4 Coming to the materials found during the course, of search, it was found that many books of account and other documents were seized during the course of search as listed in Annexure PC-I (containing two pages). The seized books of account and documents included daily statement sheets for the period 08.11.2002 to 17.12.2002 marked as Annexure PC- 1(22). This seized material is a bunch of 157 loose sheets: Pages 1 to 152 are 'daily statements' of Hotel Hill Park for the above mentioned period and pages 153 to 157 are price list of liquor w.e.f. 18.04.2002. A day book maintained by the

9 ITA Nos.507 to 512/Coch/2010 M/s.Best Bakery & Ice Cream Parlour. ITA Nos. 302 to 308/Coch/2010 & 269 to 275/coch/2010 M/s. Matha Enterprises. assessee for the period 01.11.2002 to 31.03.2003 was also seized. This was marked as Annexure PC-1(2). An analysis of the daily statement sheets revealed that for each day FOUR statements were found. One statement contained daily sales from the 3 Non-A/c bars, the A/c bar, food sales in the bars, restaurant sale in the third floor and sale of cigarettes. The second sheet contained the total restaurant sales of ground and third floor. The third sheet contained sale details of ‘Best Bakery’ which was a separate entity. The fourth sheet from front office contained room rent receipts.

7.5 A statement was recorded from Shri K. A. Paul, Accountant of the assessee during the course of search on 13.02.2007. In answer to Q. No. 2, which sought him to describe his duties as Accountant of M/s Matha Enterprises, Shri K. A. Paul replied as follows :

"M/s. Matha Enterprises - Hotel Hill Park is a firm with ten partners consisting of the families (1) Paulson P. Varkey group with 42% share (2) P.A. Kuriakose Group with 30% share (3) KM. Mathai Group with 28% share. M/s. Matha Enterprises is the parent concern and under this Hotel Hill Park Restaurant section, Crystal bar - bar section and lodging section (no separate name) are functioning. Crystal bar has 4 counters. 3 counters in first floor and one a/c counter in 3rd floor. Restaurant, is functioning in first floor and 3rd floor. The ground floor restaurant, M/s. Kwality Restaurant, is in the name of P.P. Mathai. M/s. Best Bakery in the ground floor is owned by the same 3 groups who owns this Hotel but it is a separate firm. As the accountant of this firm, I receive daily statements from M/s. Best bakery, M/s. Hill Park Restaurant, one consolidated statement from 3 bar counters in first floor, one statement from a/c bar

10 ITA Nos.507 to 512/Coch/2010 M/s.Best Bakery & Ice Cream Parlour. ITA Nos. 302 to 308/Coch/2010 & 269 to 275/coch/2010 M/s. Matha Enterprises. &restaurant in 3rd floor. Daily stock is taken at bar counters by the staff. The sales of M/s. Kwality restaurant are included in the statement of M/s. Hill Park Restaurant. On receipt of stock statements, the daily sales in the bar is compared with the rough statement prepared by multiplying by the quantity of each item sold with peg rate or bottle rate. Bottles are sold from wholesale counter only. Peg rates of each item is exhibited in the counters itself. After calculating the sales according to the quantity of stock sold, the cash excess or short in the counter is worked out. Usually there will be small cash excess. Vouchers for expenses made are also received from counters. From these details, I daily prepare a cash statement. The cash taken by the partners are also recorded in the daily statement received from counters. Usually, I don't handle cash. Cash balance will be available with the Manager. In the daily statements maintained, daily cash balance is arrived and this amount will be available with Manager. After each month end, statement of cash withdrawn by partners is prepared and is given to Paulson P. Varkey, Managing Partner. Original day book and ledger of M/s. Matha Enterprises is also written by me. In this day book, consolidated sales of bar section, sales of restaurant in bar section, sales of ordinary soda, special soda and soft drinks in bar section, room rent and luxury tax collected are entered. While recording daily sales of bar in the original day book, 20% of sales is reduced and only 80% of actual sales are entered as daily bar sales. An amount of around Rs.5,000/- is entered as bar restaurant sales. The actual sales of ordinary soda, special soda and soft drinks and actual lodge collection are correctly entered in the day book. Almost all the expenses except for bribes paid and extra wages paid to staff are entered in the day book. Receipts from Kwality restaurant is not entered in the day book. As the receipts from Kwality restaurant is not taken to day book a proportion of actual expenses in the restaurant with the receipts of accounted in the restaurant are only entered as expenses of restaurant."

11 ITA Nos.507 to 512/Coch/2010 M/s.Best Bakery & Ice Cream Parlour. ITA Nos. 302 to 308/Coch/2010 & 269 to 275/coch/2010 M/s. Matha Enterprises. 7.6 Thereafter, on 13/02/2007, i.e., during the course of search, a statement of Shri Paulson P. Varkey, Managing Partner of the firm, was also recorded. Sworn statement recorded from Shri K.A. Paul, the accountant, was shown to him and he was requested to read the statement and respond to the correctness or otherwise of the statement given by Shri K. A. Paul. In reply to Question No. 4, Shri Paulson replied that he had read the statement and that the facts stated by Sri K. A. Paul were correct. He also stated that usually 80% of the sale value in Bar section were entered in the cash book and the quantity of sales and purchases were correctly entered. The seized document PC-I(22) was also shown to him and vide Question No. 7 he was requested to describe the entries in the pages. ShriPaulson, though tried to evade a direct and correct response by saying that he did not know what it was and only his Accountant Mr. Paul would know the details, he did not controvert the correctness of the statement of Shri Paul. The above quoted extract of the statement of the accountant, which was read by the Managing Partner before answering the question, however, brought it out clearly that the details contained in these seized documents, contained details of actual sales of the firm. There was thus an implicit admission of the relevant facts in this regard in the answer to Q. No. 7 by the Managing Partner.

7.7 A scrutiny of the Daily statements in PC-1(22) and the Day book PC-I(02) revealed that the daily statements were the primary documents based on which the Day book of the firm

12 ITA Nos.507 to 512/Coch/2010 M/s.Best Bakery & Ice Cream Parlour. ITA Nos. 302 to 308/Coch/2010 & 269 to 275/coch/2010 M/s. Matha Enterprises.

was written. For each day, four sheets were found; the first sheet contained daily sales from the 3 non- A/c bars, the A/c bar, food sales in the bars, restaurant sale in the third floor and sale of cigarettes; the second sheet contained the total restaurant sales of ground and third floor; the third sheet contained sale details of 'Best bakery' which was a separate 'Firm' ; the fourth sheet contained room rent receipts from front office. The receipts from the lodging section as found in the daily statement for each day was correctly recorded in the day book but in the case of liquor sales and restaurant sales, the sales as per daily statements were not reflected fully as given in the table below. In the table, Col. 2 is the total of item shown as 'food' entered in the first sheet and 'restaurant sale' shown in the second sheet of the daily statements. The 'restaurant sales' shown in the first sheet of daily statement was not added to the restaurant sale as it was already included in the second sheet.

Date Sales as per Daily Statement Sales as per Day Book PC-1(2) (PC-1(22) Restaurant Bar (Liquor) Wills Restaurant Bar (Liquor) Wills (in (Food) (In (in Rs.) (inRs.) (Food) (In (in Rs.) Rs.) Rs.) Rs.) (1) (2) (3) (4) (5) (6) (7) 08.11.2002 19227 149754 1840 3940 119876 - 09.11.2002 22303 176494 0 3949 104658 - 10.11.2002 21528 1188347 3680 3981 110176 - 11.11.2002 21700 162868 1840 3384 104658 - 12.11.2002 19428 137779 1380 3719 109672 - 13.11.2002 18707 136544 2300 3964 111651 - 14.11.2002 18418 146130 1380 3917 115587 - 15.11.2002 14605 131558 920 3846 103319 - 16.11.2002 19961 179949 0 3997 116930 - 17.11.2002 16303 199061 5060 3914 122771 - 18.11.2002 21491 137086 1380 3979 108988 - 19.11.2002 15297 128576 1380 3911 101007 - 20.11.2002 17307 132241 2300 3796 103557 -

13 ITA Nos.507 to 512/Coch/2010 M/s.Best Bakery & Ice Cream Parlour. ITA Nos. 302 to 308/Coch/2010 & 269 to 275/coch/2010 M/s. Matha Enterprises.

21.11.2002 15027 122035 1840 3694 98919 - 22.11.2002 18755 132896 1380 3798 106347 - 23.11.2002 21700 167896 0 3947 108251 - 24.11.2002 18183 181607 3680 3964 109331 - 25.11.2002 20078 158577 1840 3924 107354 - 26,11.2002 13077 145311 1380 3911 104901 - 27.11.2002 17121 148065 1380 3890 105972 - 28.11.2002 16204 141880 1380 3693 111730 - 29.11.2002 16241 133886 1380 3947 105896 - 30.11.2002 21131 179622 2300 3981 107920 - 02.12.2002 18545 132088 1380 3947 108255 - 03.12.2002 18672 126735 1380 3944 105005 - 04.12.2002 19602 131456 920 3961 105074 - 05.12.2002 22946 136455 2300 3919 114105 - 06.12.2002 17662 133082 920 3961 105074 07.12.2002 26378 215023 2760 3941 121678 - 08.12.2002 22846 230776 3220 3971 132852 - 09.12.2002 20151 151002 1605 3999 119102 - 10.12.2002 14716 124657 2140 3790 105230 - 11.12.2002 16964 129800 0 3933 107526 - 12.12.2002 16131 130084 1605 3924 104645 - 13.12.2002 17047 148961 560 3916 117891 - 16.12.2002 23467 142751 1680 3417 109101 - 17.12.2002 18571 134608 560 3864 106147 - Total 697490 5585642 61050 143536 4067465 - \

7.8 The above mentioned figures showed that there was suppression of sales of Rs. 5,53,954 (6,97,490 - 1,43,536) in restaurant sales and Rs. 15,18,078 (55,85,642 - 40,67,465) in liquor sales in the accounts on which the returns filed under section 139 and 153A were based for a period of about a month. In terms of percentage, the suppression worked out to 385.93% and 37.32% of disclosed sales in respect of restaurant and liquor sales respectively. With reference to the actual sales the extent of suppression in sales worked out to 79.42% and 27.18% of actual sales for restaurant and liquor sales respectively. For sales of cigarettes, no sales were shown in the accounts as against sales of Rs. 61,050 as per seized records. It was observed that the figure of actual suppression of 27.1% of the sales of liquor on the basis of seized records

14 ITA Nos.507 to 512/Coch/2010 M/s.Best Bakery & Ice Cream Parlour. ITA Nos. 302 to 308/Coch/2010 & 269 to 275/coch/2010 M/s. Matha Enterprises. was quite near to the stated suppression of sales by 20% as per the statement of the accountant and confirmed by the Managing Partner. Thus, the statement was based on approximations and memory and the actual figures on the basis of seized recordwouldbe more reliable. The above mentioned materials found and seized during the course of search in the form of daily sheets and the statements of the Accountant and the Managing Partner recorded on oath during the course of search, go to establish the fact that the firm had suppressed its sales on day-to-day basis. By way of Q. No. 7 of the annexure to the notice issued under section 142(1), the working partner of the assessee firm was required to show as to how the income returned (Rs.58,800/-) in the return filed under section 153A was the same (Rs. 58,800/-) as in the return filed under section 139, when clear suppression of sales was detected during the course of search.

7.9 In reply, the firm, through-its partner Shri Paulson P. Varkey, contended that PC - 1(22), picked up by the search team were erroneous statements and hence, were scored off and were discarded. The Assessing Officer observed that it was not a statement of purchase and sales but it was cash control point summary statement maintained by the earlier. The statements claimed by the Assessing officer as 'daily statements' for the financial year 2002-03 were in fact not so. It seems, this was written by some staff to have good control over cash in hand, i.e., as a cash control statement kept by a cash control point person. It also recorded cash received on

15 ITA Nos.507 to 512/Coch/2010 M/s.Best Bakery & Ice Cream Parlour. ITA Nos. 302 to 308/Coch/2010 & 269 to 275/coch/2010 M/s. Matha Enterprises. various occasions from different counters during day time for control purposes. Cash paid to various counters were also recorded. This was evident from the fact that small figures were added to constitute the total. For example on 8.11.2002 against bar Rs.34,115/- + Rs.27,756/- + Rs.81,883/- + Rs.6,000/- shown in receipt column and Rs.6,079/-shown in payment column. The partner further submitted that the document was purely unreliable for the fact that these have been completely scored off in every page when the person who prepared would have realized that the statement were erroneous. He also claimed that the partners were unaware of the matters recorded in these pages. No material or evidence whatsoever was, however, produced in support of the claim that the transactions recorded in the seized document in respect of sales did not represent the actual transactions.

7.9.1 The above reply was considered by assessing officer and from the statements of the Accountant, Shri K.A. Paul, recorded under section 132(4) during the course of search, the Assessing Officer noticed that he received the daily statements from 'Best Bakery', daily statements from 'Hill Park Restaurant', one consolidated statement from three bars in 1st floor, A/c Bar and restaurant in 3rd floor and one statement from front office. It was found that the entries in day-book PC-1(02) for room rent received were the 'room rent' receipts shown in the front office daily statements i.e. fourth sheet. These receipts tally with the receipts shown in the books of account on which the returns filed by the assessee were based

16 ITA Nos.507 to 512/Coch/2010 M/s.Best Bakery & Ice Cream Parlour. ITA Nos. 302 to 308/Coch/2010 & 269 to 275/coch/2010 M/s. Matha Enterprises. which proved that daily statements were the primary documents based on which the day book was written. The fact that the daily statements of room rent receipts which tally with the receipts shown in the books of account of the assessee were also scored off like other daily statements, disproved the partner's claim that the documents were unreliable for the fact that these had been completely scored off in every page when the person who prepared would have realized that the statement were erroneous. The accountant himself had admitted that while recording daily sales of the bar in the original day book, 20% of sales were reduced and only 80% of the actual sales were entered as daily bar sales and only an amount of Rs.5,000/- was entered as Bar Restaurant sales. Shri Paulson P. Varkey admitted that the facts stated by Shri K.A. Paul were correct. In his reply to Question No. 7, when requested to describe the entries in the pages, Shri Paulson replied that he did not know what it was and only his Accountant Mr. Paul would be knowing the details.

7.9.2 Besides, the Assessing Officer observed that there was presumption regarding correctness of the entries found recorded in the records found as a result of search under section 132(4A). It provided that the books of account, other documents, money, bullion, jewelry or other valuable articles seized from the possession of the assessee shall be presumed to belong to the person in whose possession or control they are found in the course of search. A similar presumption is

17 ITA Nos.507 to 512/Coch/2010 M/s.Best Bakery & Ice Cream Parlour. ITA Nos. 302 to 308/Coch/2010 & 269 to 275/coch/2010 M/s. Matha Enterprises. also enacted as to the truth of the contents of the books of accounts so found, So also, the signature and every other parts of the books of account may be presumed to be in the hand writing of the person by whom it is purported to have been written. If they are stamped, executed or attested, they shall be presumed to be stamped and executed or attested by the person by whom it purports to have been executed or attested. In the case of the assessee firm, the presumption as to the correctness of the daily statements seized as PC-1(22) was not rebutted by way of production of any evidence or material. The assessing officer observed that on the contrary, there was overwhelming material and evidence to support the correctness of the daily statements such as;

(a) The fact that room rent sales recorded therein tally with the books of account, even though scored off, just like other figures which are claimed to be erroneous.

(b) Sri K. A. Paul, the Accountant, stated that the statements indicate the sales of different counters as explained in the reply and that there has been suppression of sales by the assessee firm,

(c) The correctness of the above mentioned statement of the accountant was authenticated by the Managing Partner on the date of search.

(d) The figure of actual suppression of 27.1% of the sales of liquor on the basis of seized record is quite near to the stated suppression of sales by 20% as per the statement of the accountant and confirmed by the Managing Partner.

18 ITA Nos.507 to 512/Coch/2010 M/s.Best Bakery & Ice Cream Parlour. ITA Nos. 302 to 308/Coch/2010 & 269 to 275/coch/2010 M/s. Matha Enterprises. 7.9.3 According to assessing officer though Shri Paulson had not formally and legally retracted from his statement and as such, the statement given on 13.02.2007 continued to be evidence to be used against the firm in these proceedings, the contents of reply amount to an indirect retraction of the statement recorded during the course of search which is not sustainable as it was not made soon after the statement was recorded, retraction was unsubstantiated and did not indicate any facts to prove inducement or compulsion when the statement was recorded. Since the facts mentioned above go to prove that the assessee firm's books were not correct and complete, the assessee's authorized representative was asked to show cause why in the circumstances of the case, the book results should not be considered to be incorrect and incomplete within the meaning of the provisions of section 145(3) of the Act and a notice u/s. 144(1) r.w.s. 145(3) of the Act was also issued to the assessee on 23.12.2008 to show cause why its assessment should not be completed in the manner provided under section 144. No explanation in this regard was given at the time of hearing or filed till today. As such, the Assessing Officer rejected the books of account of the assessee as they were not found to be correct and complete within the meaning of provisions of section 145 (3) of the Act and the assessment was made in the manner provided under section 144 of the Act.

19 ITA Nos.507 to 512/Coch/2010 M/s.Best Bakery & Ice Cream Parlour. ITA Nos. 302 to 308/Coch/2010 & 269 to 275/coch/2010 M/s. Matha Enterprises. 7.9.4 In view of the above, the Assessing Officer made the assessment of the income of the assesseefor this assessment year as follows:

Estimation ofundisclosed Liquor Sales and Consequent Profits : AY 2003-04:

Estimation of undisclosed Restaurant Sales and Consequent Profits: AY 2003-04

8.1. In the books of the assessee it is shown that the assessee was receiving rent of Rs. 24,000/- per annum from Kwality restaurant which was claimed as being run by Shri P. P. Mathai. No material was found during the course of search to show that it was run by Shri P. P. Mathai. At the time of

20 ITA Nos.507 to 512/Coch/2010 M/s.Best Bakery & Ice Cream Parlour. ITA Nos. 302 to 308/Coch/2010 & 269 to 275/coch/2010 M/s. Matha Enterprises. hearings also, no evidence was produced to show that the restaurant was run by him. On the contrary, the primary document evidencing the sales effected in Kwality restaurant was found recorded in the daily statement seized from the business of the assessee firm. The statement of the Accountant reproduced above in this order also supported the view that the Sales of Kwality restaurant are the sales of the assessee firm. He stated that sale from Kwality restaurant was not taken to the day book at all, which made the assessee firm reduce a proportion of the expenses incurred in both the restaurants towards probable expenses of Kwality restaurant.

8.2 As such, the income relatable to Kwality restaurant was taken as income of the restaurant business of M/s. Matha Enterprises. The column 2 of the table included the sale of Kwality restaurant recorded in the daily statement and hence, needs no correction. The total sale for the whole year recorded in the books was Rs. 12,81,996/-. As worked out, the undisclosed sales of restaurant were found to be 385.93% of the disclosed sales. When this ratio is applied to the admitted sale of Rs.12,81,996/-, total undisclosed sales and actual sales worked out to Rs.49,47,607/-and Rs.62,29,603/- respectively. The undisclosed sales of Rs.49,47,607/- would not have been made from the cost of purchases debited at Rs.7,07,077/- to the accounts in respect of disclosed sales of Rs.12,81,996/-. In its accounts, the assessee had disclosed profit margin on sales at 35.5% of the sales. The undisclosed

21 ITA Nos.507 to 512/Coch/2010 M/s.Best Bakery & Ice Cream Parlour. ITA Nos. 302 to 308/Coch/2010 & 269 to 275/coch/2010 M/s. Matha Enterprises. profit thus worked out to Rs.17,56,400/- on undisclosed sales of Rs.49,47,607/-. Since the indirect expenses were already debited to the accounts, the amount of Rs.17,56,400 was added to the returned income as undisclosed profits from restaurant.

Estimation of undisclosed Sales of Cigarettes : AY 2003-04

8.3 It was seen from the seized materials PC 1(22), PC 1(02) and the table drawn that the receipts from the sale of cigarettes were not reflected at all. The total sales of cigarettes for the period from 8.11.2002 to 30.11.2002 (23 days) and 02.12.2002 to 17.12.2002 (16 days) were found at Rs.61050/- and the average sale of cigarettes worked out to Rs. 1565.38 per day. The annual sale of cigarettes of the firm applying this average for a period of 350 days (first day of every month and 2nd October are Holidays for the bars) worked out to Rs.5,47,853/-. A sum of Rs.54,785/-, taking 10% as G.P. on this trade, was treated as income and added to the Total Income of the assessee.

Income from house property: AY 2003-04)

8.4 In the return of income, the assessee had shown rent receipts from Best Bakery &Kwality Restaurant at Rs.78,000/-. The income from Kwality Restaurant was taken as the income of the firm. Hence, rent shown as received from Kwality Restaurant was not included in the house property income of the assessee firm.

22 ITA Nos.507 to 512/Coch/2010 M/s.Best Bakery & Ice Cream Parlour. ITA Nos. 302 to 308/Coch/2010 & 269 to 275/coch/2010 M/s. Matha Enterprises.

8.5 Thus, the total income of the assessee and the amount of tax and interest payable thereon were computed as follows:

Income from House Property (as returned) :Rs.42,000 Income from business Loss admitted as per return (-):Rs. 7,323 Add: Undisclosed income (i) From Liquor Sales as discussed in para 7.1 Rs.1,78,19,693

(ii) From Restaurant Sales as discussed in para 7.2 to 7.4Rs. 17,56,400

(iii) From sale of cigarettes as discussed in para 7.5 Rs. 54,785

(iv) Out of Rs.84000/- deducted from the profit of the business towards “H.P. Income” only Rs.60000/- has been taken as “H.P. Income”. Hence, the exess Rs.24000/- is added back Rs. 24,000

Total Rs.1,96,54,878 Total income determined/s. 153A :Rs.1,96,89,555 Rounded to :Rs.1,96,89,560

Income Tax on the above :Rs.68,91,346 Add: Surcharge @ 5% :Rs.3,44,567 :Rs.72,35,913/- Less:Advance tax paid on 14.09.2002 :Rs. 25,000 -do-on 15.03.2003 :Rs. 25,000 :Rs. 50,000/-

Add:Interest u/s. 234A :Rs. 2,15,577 Interest u/s. 234B :Rs.50,66,060:Rs.52,81,637/- Total Tax& Interest Payable:Rs.1,24,67,550/-

8.6 Thus, assessing officer observed that the assessee had suppressed its sales and profits in respect of sale of liquor,

23 ITA Nos.507 to 512/Coch/2010 M/s.Best Bakery & Ice Cream Parlour. ITA Nos. 302 to 308/Coch/2010 & 269 to 275/coch/2010 M/s. Matha Enterprises. restaurant sales including sales of Kwality restaurant and the sales of cigarettes on regular basis. The profits in respect of such undisclosed sales were not declared either in the returns u/s 139 or even in the returns filed u/s 153A, after detection of suppression.

24 ITA Nos.507 to 512/Coch/2010 M/s.Best Bakery & Ice Cream Parlour. ITA Nos. 302 to 308/Coch/2010 & 269 to 275/coch/2010 M/s. Matha Enterprises. period relevant to assessment year 2003-04 and 2007-08 and therefore, a reasonable presumption can be drawn that there was suppressed turnover even during the intervening period i.e. assessment year 2004-05, 2005-06 and 2006-07. These documents however do not establish any suppressed turnover for the period prior to AY 2003-04 and therefore hardly have any relevance for AY 2001-02 & 2002-03.

9.1 The CIT(A) observed that the assessee was not questioned about documents PC-I(2) & PC-I(22) during search action as well as during assessment proceedings except in thelast week of December, 2008. When Managing Partner was shown these documents during the course of search action, he simply disposed the question by stating that the Accountant Mr. K.A. Paul would know about the same. Mr, K.A Paul was, however, not confronted with these documents. Therefore, the CIT(A) found that there was no confession of the assessee with regard to these documents in contrast to PC-I(8) &PC-1(23) which have been duly confessed. The assessee had claimed these to be dump documents and according to the CIT(A), this claim of the assessee does not have much merit for the reason that the documents were quite legible and recorded meaningful transactions which can be correlated with regular books of accounts as has been rightly observed by the Assessing officer that room rent recorded in these documents were tallying with the regular books of accounts. This evidence in itself was a reasonable evidence to establish reliability and relevance of these

25 ITA Nos.507 to 512/Coch/2010 M/s.Best Bakery & Ice Cream Parlour. ITA Nos. 302 to 308/Coch/2010 & 269 to 275/coch/2010 M/s. Matha Enterprises. documents. Therefore, the CIT(A) held that these documents were quite reliable for drawing reasonable and judicious conclusions for the period relevant to AY 2003-04 to AY 2006- 07 and period from 1st April, 2006 to 31st December, 2006 relevant to AY 2007-08 when read in conjunction with other evidences on record. The CIT(A) found that these documents also did not establish any suppressed turnover for the period prior to AY 2003-04 and are therefore, hardly have any relevance for AY 2001-02 & 2002-03.

9.2 With regard to statement of ShriK.A.Paul, Accountant of the assessee, the CIT(A) observed that the request of the assessee for cross examination does not have much merit. According to the CIT(A),the judgment of the Supreme Court in 39 STC 78 relied upon by the assessee was not much relevant for the reason that the cross examination was required only when an independent witness is adversely used against an assessee. In the assessee’s case, it was found that Shri K A Paul was available during the course of search proceedings and he was a witness of the assessee and, in fact, during the course of search action itself, Shri Paulson P Varkey, managing partner of the assessee firm was confronted with his deposition and he duly endorsed the statement given by Shri K A Paul. According to the CIT(A), the assessee was, however, at liberty to produce him or his affidavit before the department to clarify any unanswered queries in his deposition or any grey areas. After going the deposition of the

26 ITA Nos.507 to 512/Coch/2010 M/s.Best Bakery & Ice Cream Parlour. ITA Nos. 302 to 308/Coch/2010 & 269 to 275/coch/2010 M/s. Matha Enterprises. Accountant, Shri K A Paul, the CIT(A) found that though he explained about unaccounted liquor turnover and unaccounted business in restaurant, he was not specifically questioned as to during which period such unaccounted business was being done. In the absence of any such specific query, it is obvious that he can be presumed to be explaining the position existing as on the day of search. This is further evident from the fact that he mentioned suppression of 20% of bar sales which broadly match with the suppression of around 26.9% revealed from the seized documents. PC-I(8) PC-I(23) when read with PC-I(5) A PC-I(6) pertaining to the period from 1st January, 2007 to 11th February,2007. This figure of suppression PC-1122) read with PC-I(2) pertaining to the period 8.11.2002 to 17th December, 2002, wherein suppression of bar turnover was indicated to the tune of around 37.3%. In a similar manner, in this deposition Mr. Paul had stated that only around Rs.5000/- was shown as bar restaurant sales which too broadly matches with per day bar restaurant turnover indicated in seized day books PC-I(5) & PC-I(6). This figure also does not match with bar restaurant turnover of around Rs.3900/- indicated in day book PC-I(2) pertaining to the period 8.11.2002 to 17th December, 2002. Thus, the CIT(A) found that there was easonable evidence to indicate that Mr. K.A Paul, Accountant of the assessee was elaborating the position as on the day of search. The affidavit of Shri K A Paul filed by the assessee was, therefore, needed to be considered judiciously for the reason that the Assessing officer did not give any specific opportunity to the

27 ITA Nos.507 to 512/Coch/2010 M/s.Best Bakery & Ice Cream Parlour. ITA Nos. 302 to 308/Coch/2010 & 269 to 275/coch/2010 M/s. Matha Enterprises. assesseethat the statement of Shri K A Paul was to be adversely used against the assessee for all assessment years i.e. AYs, 2001-02 to 2007-08. In fact, according to the affidavit of Shri K A Paul, furnished by the assessee only attempted to confirm the stand taken by the managing partner, Shri Paulson P Varkey during the course of search itself wherein he stated that 20% of sales turnover in liquor was suppressed only after Dec., 2006. In fact, the CIT(A) found that the Assessing officer had not taken any cognizance of this statement of the managing partner. The CIT(A) observed that the decisions of the ITAT, Jaipur, reported in 41 ITD 97 and of the Apex Court in the case of Indore Malwa United Wills Ltd. vs. State of Madhya Pradesh &. Others 68 ITR 41 relied upon by the assessee were of much relevance to the issue wherein it was held that it was not open for an assessing authority to selectively take what was beneficial to the revenue and reject what was favourable to an assessee. In view of the above, the CIT(A) held that statement of the Accountant, Shri K.A. Paul cannot be generalized and applied to all the seven assessment years to work out income of the assessee in a mechanical manner. The CIT(A) held that deposition of Mr. K.A. Paul therefore has highest evidential value for the accounting period relevant to AY 2007-08 and has to be judiciously taken cognizance of after considering all other relevant evidences gathered during the course of search for other assessment years.

28 ITA Nos.507 to 512/Coch/2010 M/s.Best Bakery & Ice Cream Parlour. ITA Nos. 302 to 308/Coch/2010 & 269 to 275/coch/2010 M/s. Matha Enterprises. 9.3 Coming to the deposition of managing partner, Shri Paulson P Varkey, the CIT(A) found that in his deposition during the course of search action, he was confronted with the deposition of the accountant, Shri K A Paul, and he duly endorsed the same in answer to Q.No.4 which was duly taken cognizance of by the Assessing officer. The Assessing officer, however, ignored his reply to Q.No. 13 of the same deposition which reads as under: "Question No: 13:- You have stated in that, now, you are accounting 80% of bar sales and sales in restaurant are also not fully accounted. The daily statement prepared show that the actual receipts and the analysis of sales by applying peg/bottle rate on the stock sold are correct. Please state how the sales for the earlier periods are accounted.”

“Answer No. 13:- On 2006 December onwards we are not accounted 20% of actual sales. Before that there will not be much difference.”

9.4 According to the CIT(A), it is apparent that the above question was framed after a discussion regarding the period during which suppression in turnover in bar as well as restaurant, was taking place. It was observed that the managing partner had answered about the suppression in liquor turnover and was silent about the restaurant turnover. He, however, did state that the suppression was from Dec 2006 onwards and before that there would not be much difference. This was the only deposition wherein the assessee was questioned about the period during which suppression in

29 ITA Nos.507 to 512/Coch/2010 M/s.Best Bakery & Ice Cream Parlour. ITA Nos. 302 to 308/Coch/2010 & 269 to 275/coch/2010 M/s. Matha Enterprises. turnover, was done. According to the CIT(A), there was no admission /confession on record regarding suppression of turnover during other period i.e. in the current year as well as in earlier years and the above deposition of the managing partner, Shri Paulson P Varkey, though has to be taken cognizance of but its veracity has to be judged with reference to other specific evidences gathered during the course of search itself. In the above deposition, though managing partner denies any suppression of turnover before January 2007, the daily statements seized and marked as PC-1(22), pertaining to the period 8.11.2002 to 17.12.2002 when compared with corresponding Day Book PC-I(02) revealed suppression in turnover to the tune of 37.32 per cent of disclosed liquor sales and 385.93 per cent of disclosed sales in respect of restaurant (inclusive of Kwality Restaurant) evidence goes to indicate that the deposition of the managing partner was not describing the gospel truth. This evidence pertaining to A.Y. 03-04, therefore, justifies to discount the deposition of the managing partner that there was no suppression prior to January,2007. A judicious and logical and rational approach, therefore, needed to be adopted to interpret the deposition of the managing partner, when read in conjunction with the above incriminating evidences pertaining to A.Y. 2003-04. Except the above deposition of the managing partner, there is no evidence either gathered during the course of search action or brought on record by the assessee to establish that unaccounted turnover was not in vogue during earlier period.

30 ITA Nos.507 to 512/Coch/2010 M/s.Best Bakery & Ice Cream Parlour. ITA Nos. 302 to 308/Coch/2010 & 269 to 275/coch/2010 M/s. Matha Enterprises. 9.5 According to the CIT(A), the existence of such business practice in the immediate prior period i.e. other part of the relevant accounting year, therefore, can be reasonably presumed following the ratio laid down by the Supreme Court in the case of CST v. H.M. Esufali, H.M. Abdulali (1973) 90 ITR 271 (SC) wherein the Apex Court upheld estimation of undisclosed turnover for the entire period of one year on the basis of undisclosed sales detected for the period of 19 days. According to the CIT(A), the decision of Samrat Beer Bar v. Asst.CIT [2001] 251 ITR 1 (ITAT - Pune) [TM] and the decision of Allahabad ITAT in the case of RML Malhotra vs. ACIT 68 ITD 288 which was approved by Allahabad High Court reported in 186 Taxman 137) relied upon by the assessee with the argument that suppressed turnover can be brought to tax only for the period for which documents indicating the same were seized though had some relevance but was not squarely applicable in the assessee’s case for the reason that in the assessee’s case documents pertaining to AY 2003-04, were also recovered. Further, it was observed that these decisions were with reference to block assessment which provided for computation of income only on the basis of seized material and the provisions relating to block assessment were since withdrawn and the provisions of 153A were applicable in the assessee’s case. It was observed that the scope of provisions of section 153A was much wider which enable an Assessing Officer to take cognizance of the seized material, conduct further investigations to gather other relevant material and evidences and assessee income of the assessee after taking

31 ITA Nos.507 to 512/Coch/2010 M/s.Best Bakery & Ice Cream Parlour. ITA Nos. 302 to 308/Coch/2010 & 269 to 275/coch/2010 M/s. Matha Enterprises. into account all relevant material. The scope of provisions of sec. 153 A was thus at par with provisions of sec. 143(3). With the evidences gathered during the course of search read with deposition of accountant of assesseeShri K A Paul, and managing partner, Shri Paulson P Varkey, and following the ratio of decision of apex court in the case of H.M. Esufali, H.M. Abdulali( supra), the CIT(A) held that that suppression of turnover in liquor sates as well as restaurant sales can be presumed to be in existence during the whole period relevant to AY 2003-04. The evidences in the form of daily statements PC I(22) established unaccounted turnover to the tune of 37.32 per cent of disclosed liquor sales and there was no specific admission by the assessee for this assessment year that whole of suppressed turnover in liquor constituted undisclosed income. Therefore, it was observed that undisclosed income cannot be determined in arbitrary manner by applying multiplication formulae and without taking into account the relevant expenses. According to the CIT(A), with this back ground other judicial pronouncements relied upon by the assessee needs to be duly considered to determine undisclosed income of the assessee in a fair and reasonable manner with reference to probable undisclosed business activity of the assessee during this period. The CIT(A) relied on the following judicial pronouncements: 1. State of Orissa v. Maharaja Shri B.P. Singh Deo (1970) 76 ITR 690(SC) 2.RamdasJuganiv.CIT (2006) 282 ITR 356 (MP) 3.CTT v. LaxminarainBadridas (1937) 5 ITR 170 (PC) 4.State of Kerala v. C. Velukutty (1966) 60 ITR 239(SC)

32 ITA Nos.507 to 512/Coch/2010 M/s.Best Bakery & Ice Cream Parlour. ITA Nos. 302 to 308/Coch/2010 & 269 to 275/coch/2010 M/s. Matha Enterprises.

9.6 According to the CIT(A), a fair and judicious attempt needed to be made in such set of circumstances to arrive at real income earned by the assessee out of such unaccounted business activity as held by various courts from time to time and in the following judicial pronouncements relied upon by the assessee: d) Sanjeev Woolen Mills vs. CIT (2005) 279 ITR 102(SC) e) CTT v.Shoorji Vallabhdas and Co.(1962) 46 ITR 144(SC) f) CIT v. Kerala Financial Corpn. Ltd. (1985) 155 TTR 246(Ker.)

9.7 The CIT(A) observed that though Assessing officer had attempted to compute income by applying multiplication formulae on the basis of seized documents indicting undisclosed turnover in some period relevant to AY 2003-04 and 2007-08, the Assessing officer had not brought on record any unaccounted assets acquired by the assessee out of such undisclosed income earned by it and this aspect was very much relevant factor particularly in search cases wherein the Department had access to all affairs of the assessee as well as to residences of the persons, who are beneficiaries of unaccounted income, if any, earned by the assessee. With regard to this aspect of the issue, the CIT(A) relied on the judgment of the Allahabad High Court in the case of CIT vs. RML Mehrotra (186taxman 137) and decision of ITAT, Pune in the case of Samrat Beer Bar vs. ACIT 75 ITD 19 TM were relevant in this case for this assessment year. With regard to

33 ITA Nos.507 to 512/Coch/2010 M/s.Best Bakery & Ice Cream Parlour. ITA Nos. 302 to 308/Coch/2010 & 269 to 275/coch/2010 M/s. Matha Enterprises. identification of corresponding unaccounted assets, the CIT(A) pointed out that unaccounted income earned by an assessee is not always invested in acquiring unaccounted assets but a substantial part of such income is spent towards expenses for which no evidence is kept and all such evidences are likely to be destroyed from time to time. Therefore, the CIT(A) held that identification of such unaccounted assets was though relevant but was not an essential ingredient as long as undisclosed income was determined in a judicious, fair and rational manner and is backed by reasonable evidences considered in totality and after taking into account, the normal human behavior of consistency in the intervening period between two specific periods where unaccounted activity is established.

9.8 According to the CIT(A), the deposition of Managing Partner Shri Paulson P Varkey that whole suppression of 20% of the turnover of liquor constituted income also has to be discounted for the reason that this statement was aimed at restricting the undisclosed turnover and income there from only for the period 1.1.2007 to 11.2.2007 which was not accepted by the Department and this statement was made by the assessee with reference to trading activity of liquor which was restricted item and was not available for free trade. According to the CIT(A), this aspect of the issue also needs to be considered judiciously to arrive at income of the assessee from this activity by comparison with profit shown by assessees in similar line of business in the vicinity of assessee and who are next door competitors of the assessee. The CIT(A)

34 ITA Nos.507 to 512/Coch/2010 M/s.Best Bakery & Ice Cream Parlour. ITA Nos. 302 to 308/Coch/2010 & 269 to 275/coch/2010 M/s. Matha Enterprises. observed that the profit rate computed from this activity cannot be unrealistic in the line of business for the simple reason that assessee would not be able to survive against competitors by keeping abnormally high profit margin.

9.9 Further to above, according to the CIT(A), Government liquor retail shops were providing stiff competition to the assessee. Similar logic was applicable with reference to restaurant business. The CIT(A) found merit in the claim of the assessee that the Assessing officer had not taken cognizance of substantial outgoings indicated in the seized documents. According to the CIT(A), to compute real income in a fair manner, it was essential that receipts as well as expenses recorded on the same seized documents needs to be considered simultaneously. The CIT(A) observed that the judgment of Apex Court in the case of Indore Malwa United Mills (60 ITR 41) relied upon by the assessee supports the ground. According to the CIT(A), it would be totally arbitrary to treat the whole receipts shown on such documents to be income of the assessee for the simple reason that it would lead to unrealistic and hypothetical profit margins not existent in the line of business and cases comparable with the assessee and this would hold good to an extent even if the assessee failed to substantiate the expenses recorded with evidences for the reason that whole of such business activity was kept out of books. In such set of circumstances, it was observed that it is quite essential that normal profit existing in such business activity is taken into account to arrive at

35 ITA Nos.507 to 512/Coch/2010 M/s.Best Bakery & Ice Cream Parlour. ITA Nos. 302 to 308/Coch/2010 & 269 to 275/coch/2010 M/s. Matha Enterprises. undisclosed income of the assessee instead of treating. Therefore, the CIT(A) held that the whole estimated undisclosed turnover from liquor sales cannot be treated as income of the assessee. While reaching to the above conclusion, the CIT(A) duly considered the fact that in a search case department is expected to lay hands on all unaccounted assets/investments/expenses of an assessee and that they are liable to be brought to tax under deeming provisions u/s 68,69,69A,69B and 69C of the I.T. Act, 1961 in the Financial year of such investment/expenditure and identification of source of corresponding income was not required under law. According to the CIT(A), seized documents PC-I(8) & PC-I(23) read with PC-I(22) established that the assessee was having undisclosed turnover during the period relevant to assessment year 2003-04 and assessment year 2007-08. According to the CIT(A) what was indicated in the documents is normal way of functioning of the assessee and with normal human behaviour it would be quite judicious and logical to hold that in all probabilities assessee functioned in a similar fashion at least during the whole period relevant to this assessment year. The CIT(A) observed that the ratio laid by Apex Court in the case of CST v. H.M. Esufali. H.M. Abdulali (1973) 90 ITR 271 wherein the Apex Court upheld the estimation of undisclosed turnover for the entire period of one year on thebasis of undisclosed sales detected for the period of 19 days was squarely applicable to the assessee for this assessment year. The CIT(A) observed that it can be reasonably presumed that assessee was having undisclosed

36 ITA Nos.507 to 512/Coch/2010 M/s.Best Bakery & Ice Cream Parlour. ITA Nos. 302 to 308/Coch/2010 & 269 to 275/coch/2010 M/s. Matha Enterprises. turnover during the whole previous relevant to this year. According to the CIT(A), the suppressed turnover of Rs. 1,78,19,693/-in liquor business determined by the Assessing officer in a proportionate manner as indicated in PC-I(22) at 37.32% of disclosed liquor sales for this assessment year appeared to be judicious and fair and upheld the same. As per evidences placed on record, the GP declared by the assessee for this assessment year, with reference to liquor sales was 16.67% in comparison to average GP of 16.91% declared by other assesses in the similar line of business However, the CIT(A) found that the direct expenses claimed by the assessee for working out this GP do include bar license fee of Rs.15 lakhs and if, this being one time expenditure for the year, is exclude the gross profit rate worked out to around 19.81%. Considering other factors relating to the unaccounted trading activity with higher profit margin gross profit rate at 22% cannot be reasonably adopted in respect of undisclosed turnover as no license fee was to be separately paid by the assessee for undisclosed turnover. The CIT(A), therefore, held that the income of the assessee from undisclosed turnover of liquor can be reasonably estimated at Rs.39,20,332/- being 22% of suppressed turnover of Rs.1,78,19,693/- as estimated by the Assessing officer. The addition of Rs.1,78,19,693/- was upheld by the CIT(A) to the extent of Rs.39,20,332/- and the balance was directed to be withdrawn.

9.9.1 Regarding assessment of income of Kwality Restaurant in the hands of the assessee, the CIT(A) observed that

37 ITA Nos.507 to 512/Coch/2010 M/s.Best Bakery & Ice Cream Parlour. ITA Nos. 302 to 308/Coch/2010 & 269 to 275/coch/2010 M/s. Matha Enterprises. documents PC-I(23) & PC-I(8) recovered during the course of search incorporated sales of Kwality Restaurant on the same sheet which was admitted during the search and had also been incorporated in the books of accounts by the assessee stating that with effect from 1s1 January, 2007 the assessee was running the Kwality Restaurant. The Accountant of the assessee Mr. K.A Paul also did mention during search action that the restaurant was in the name of Mr. P.P Mathai, but was run by the assessee. According to the CIT(A), the deposition of the Accountant explained the position as on day of search. According to the CIT(A), the observation of the Assessing officer that no material was recovered during search to establish that this restaurant was not run by the assessee in earlier period did not have much merit because if the restaurant was not run by the assessee, there was hardly any likelihood of finding any evidence in assessee’s premises.

9.9.2 The CIT(A) observed that the legal as well as logical position is that a liability can be created against the assessee only if positive evidence was found during search that the assessee was running Kwality Restaurant all along from A.Y 2001-02 to 2007-08 and no such evidence was recovered except the documents PC-I(8), PC-I(23) & PC-I(22). According to the CIT(A), the documents relevant to A.Y 2007-08 did not indicate that the restaurant was run by the assessee prior to 1.1.2007 and the documents relevant to A.Y 2003-04 i.e PC- I(22) in fact established that Kwality Restaurant was a separate entity. On perusal of these documents, the CIT(A)

38 ITA Nos.507 to 512/Coch/2010 M/s.Best Bakery & Ice Cream Parlour. ITA Nos. 302 to 308/Coch/2010 & 269 to 275/coch/2010 M/s. Matha Enterprises. found that the nature of these documents were different from the documents PC-I(8) PC-I(23) relevant to A.Y 2007-08 and in PC-I(22),there was a separate sheet with different handwriting of restaurant sales (in contrast to one consolidated sheet in PC-I(8) and PC-I(23) for the AY 2007-08 which duly recorded food sent by Kwality Restaurant to customers in Hill Park Bar Restaurant of the assessee and what exact amount was due from the assessee on account of the same. The CIT(A) observed that for example on 5.12.2002, out of total sales of Rs.13,814 of Kwality Restaurant, Rs.4,800 were collected by Hill Park Bar Restaurant on account of food sent by Kwality Restaurant and further Rs.106.50 was shown as receivable from M/s Matha Enterprises &partners. Had this restaurant been run by the assessee such entries would not have found place in the seized documents which can be reasonably presumed to be recording transactions in truthful manner.

9.9.3 The CIT(A) found that the food served by Kwality Restaurant was also distinct from the food served by assessee’s Hills Park Bar Restaurant. According to the CIT(A), the documents relating to A.V 2007-08 calculate cash balance at the end of each day and the same was carried forward to the next day whereas cash balance worked out in documents for A.Y 2003-04 was not carried forward to next day.

9.9.4 Further to above, the CIT(A) found that there were number of other evidences which established that Kwality Restaurant was earlier run by one Mr. Prasi Paul and later on

39 ITA Nos.507 to 512/Coch/2010 M/s.Best Bakery & Ice Cream Parlour. ITA Nos. 302 to 308/Coch/2010 & 269 to 275/coch/2010 M/s. Matha Enterprises. by Mr. P.P Mathai. The presumption u/s 132(4A) referred to by the Assessing officer was rebuttable and in the assessee’s case this has been duly done by way of sworn statement of Mr. Prasi Paul wherein he had owned up running of the Kwality Restaurant which was also supported by other evidences in the form of lease agreements on contemporary stamp papers with Mr. Prasi Paul and Mr. P.P Mathai, Municipal licence fee and professional taxes paid by these persons with reference to running of Kwality Restaurant by them and ESI records submitted by them from time to time. According to the CIT(A), all these evidences are pre-existent to the date of search and cannot be simply ignored as done by Assessing officer. As the assessee was not given enough opportunity in the matter during the course of assessment proceedings, the assessee was allowed reasonable and due opportunity to represent in the matter and bring on record relevant evidences to ensure that principle of natural justice is duly complied with. With reference to P.P Mathai, the CIT(A) found that in the beginning the Assessing officer issued a notice to Mr. K.M. Mathai and when he responded that he was not the person who had run the restaurant, the Assessing officer did not pursue investigations with Mr. P.P Mathai and instead opted to estimate and club income of Kwality Restaurant in the hands of the assessee. The assessee not only placed on record affidavit of Mr. Prasi Paul who was running the restaurant during the period from 12.2.1999 to 2.10.2003, but also produced him before Assessing officer during remand proceedings. Mr. Prasi Paul during his

40 ITA Nos.507 to 512/Coch/2010 M/s.Best Bakery & Ice Cream Parlour. ITA Nos. 302 to 308/Coch/2010 & 269 to 275/coch/2010 M/s. Matha Enterprises. deposition before Assessing officer duly confirmed that he was running Kwality Restaurant during above period and that he gave this name to the restaurant which was earlier named as "Adhithi". The CIT(A) found that he also effectively answered most of the question of the Assessing officer with regard to running of the Kwality Restaurant by identifying the names of the employees, jobs assigned to them the nature and turnover of the business etc.

9.9.5 According to the CIT(A), the discrepancies pointed out by the Assessing officer are either of trivial nature or are irrelevant to the basic issue. The claim of the Assessing officer that he was a person of no means does not appear to be correct with the fact on record that he got a consideration of Rs. 33 lakhs in lieu of agricultural land. The fact that he did not pay Income Tax on such income earned or he was engaging himself in employments with meager salary was not of much consequence as long as he confirmed and claimed that he had run the restaurant on lease. The CIT(A) observed that estimation of probable income from the Kwality Restaurant by the Assessing officer only a guess work and was not backed by any evidence and was of relevance in determining income tax liability of Mr. Prasi Paul and bringing to tax such income in his hands particularly when he also answered positively to question No.18 that if there was any Income tax payable with reference business of Kwality Restaurant he will pay the same. With regard to his seeking employment after running quality restaurant, the CIT(A)

41 ITA Nos.507 to 512/Coch/2010 M/s.Best Bakery & Ice Cream Parlour. ITA Nos. 302 to 308/Coch/2010 & 269 to 275/coch/2010 M/s. Matha Enterprises. observed that there was no certainty of earning an income from a business venture as calculated by the Assessing officer in a mechanical manner and had that been the case millionaires engaged in business ventures would not turn into paupers and vice versa. As far as showing of meager salary is concerned, the CIT(A) observed that the same was kept low in official records to ensure that income tax liability was not attracted in the hands of persons like Mr. Prasi Paul who otherwise appeared to be having substantial agricultural income. According to the CIT(A) even the documents seized in the hands of the assessee, did indicate that extra wages were paid in restaurant business over and above what was recorded in books. With regard to Mr. P.P Mathai in addition to lease agreements and other documents, the CIT(A) found that the assessee had placed on record a copy of Income tax return filed by him for AY 2007-08, wherein Kwality Restaurant was claimed to have been run by him up to 31st December, 2006. No further evidence could be brought on record for the reason that Mr. P.P Mathai had since expired. In view of the foregoing, the CIT(A) found that there was hardly any evidence to estimate turnover and income of Kwality Restaurant and club the same with the assessee for AYs 2001-02 to 2006-07 and also for the period up to 31st December, 2006 for A.Y 2007-08. Accordingly, the CIT(A) held that the Assessing Officer was not justified in clubbing the income of Kwality Restaurant in the hands of the assessee for the above period and the undisclosed income of the assessee from restaurant business was therefore required to be

42 ITA Nos.507 to 512/Coch/2010 M/s.Best Bakery & Ice Cream Parlour. ITA Nos. 302 to 308/Coch/2010 & 269 to 275/coch/2010 M/s. Matha Enterprises. recalculated after excluding the estimated income of Kwality Restaurant. According to the CIT(A), the Assessing officer had applied gross profit rate of 35.5% on suppressed turnover as the gross profit rate declared by assessee in respect of disclosed turnover is 35.5% for this assessment year which appeared to be logical and rational. Considering all relevant factors, the CIT(A) held that gross profit rate of 35.5 % can be reasonably and judiciously applied to the undisclosed turnover from restaurant business of the assessee without disturbing the gross profit rate shown by the assessee with reference to turnover disclosed in the books.

9.9.6 The CIT(A) found that as per seized documents PC-I(22 &PC-I(23), the turnover of Hill Park Bar Restaurant for the period 8.11.02 to 17.12.02 worked out to Rs. 2,39,748/- (excluding turnover of Kwality Restaurant) as against Rs.1,43,536/- disclosed in regular books of accounts. The suppression in restaurant turnover accordingly worked out to Rs.96,212/- at 67.03% of the disclosed turnover. For the previous year, the assessee had shown turnover of Rs.12,81,996/- in Hill Park Restaurant and the suppressed turnover @ 67.03% thereon worked out to Rs.8,59,322/-. The income thereon worked out to Rs. 8,59,322/-. The income thereon @ 35.5% as applied by the Assessing officer and upheld above worked out to Rs.3,05,060/-. The CIT(A) directed the Assessing officer to restrict the addition of undisclosed income from restaurant business to

43 ITA Nos.507 to 512/Coch/2010 M/s.Best Bakery & Ice Cream Parlour. ITA Nos. 302 to 308/Coch/2010 & 269 to 275/coch/2010 M/s. Matha Enterprises. Rs.3,05,060/- as against Rs.17,56,400/- made in the assessment order and grant appropriate relief to the assessee.. The Assessing officer was also directed to bring to tax the rent receipt shown by the assessee in the return of income as received from Kwality Restaurant as the action of the Assessing officer of clubbing the income of Kwality Restaurant in the assessee’s hands was not upheld. Thus, the CIT(A) partly allowed this ground of appeal of the assessee.

MATHA ENTERPRISES

ITA No. 302/Coch/2010: Assessee’s Appeal: AY 2001-02 ITA No. 269/Coch/2010: Revenue’s Appeal: AY 2001-02

44 ITA Nos.507 to 512/Coch/2010 M/s.Best Bakery & Ice Cream Parlour. ITA Nos. 302 to 308/Coch/2010 & 269 to 275/coch/2010 M/s. Matha Enterprises. 10.1 On appeal, the CIT(A) determined the GP at 20% of the sales turnover of Rs.3,97,95,307/-. The G.P. was fixed at Rs.79,59,063/- as against GP of Rs.64,59,413/- declared by the assessee and the difference of Rs.14,99,650/- was sustained as addition in the place of addition of Rs.1,27,78,273/-. The CIT(A) held that the Kwality Restaurant was a separate entity and the income was not assessable in the case of the assessee and the addition of Rs.15,36,685/- was deleted.

MATHA ENTERPRISES

ITA No. 303/Coch/2010: Assessee’s Appeal: AY 2002-03 ITA No. 270/Coch/2010: Revenue’s Appeal: AY 2002-03

11.1 On appeal the CIT(A) applied GP @ 20%. The assessee disclosed turnover of Rs.4,84,15,603/- on which GP @ 20% was Rs.96,83,121/- as against GP of Rs.65,72,309/- returned by the assessee. The difference in GP at Rs.31,10,812/- as against addition of Rs.31,10,812/- as against addition of Rs.1,78,19,693/- and remaining amounts were cancelled. The CIT(A) deleted the addition of income from Kwality Restaurant for the reason that Kwality Restaurant was another entity. In

45 ITA Nos.507 to 512/Coch/2010 M/s.Best Bakery & Ice Cream Parlour. ITA Nos. 302 to 308/Coch/2010 & 269 to 275/coch/2010 M/s. Matha Enterprises. regard to income from restaurant, the CIT(A) applied the GP @ 32% which was at Rs.3,30,315/- as against the Gp of Rs.2,17,360/- declared by the assessee. Hence, the addition was restricted to Rs.1,12,945/- .

MATHA ENTERPRISES

ITA No. 304/Coch/2010: Assessee’s Appeal: AY 2003-04 ITA No. 271/Coch/2010: Revenue’s Appeal: AY 2003-04

12.1 On appeal, the CIT(A) estimated GP at 22% of the suppressed turnover of Rs.1,78,19,693/- which was fixed at

46 ITA Nos.507 to 512/Coch/2010 M/s.Best Bakery & Ice Cream Parlour. ITA Nos. 302 to 308/Coch/2010 & 269 to 275/coch/2010 M/s. Matha Enterprises. Rs.39,20,332/-. The CIT(A) restricted the addition to the extent of Rs.39,20,332/- as against the undisclosed sales turnover of Rs.1,78,19,693/-. Income from Kwality restaurant was not included in the income of the assessee since it was considered as a separate entity. The Hill Park Restaurant turnover from 08.11.2002 to 17.12.2002 was at Rs.2,39,748/- excluding turnover of Kwality Restaurant as against Rs.1,43,536/- disclosed in the regular books of accounts. The suppression of restaurant turnover was Rs.96,212/- which is 63.07% of the disclosed turnover. The disclosed turnover for the year was at Rs.12,81,916/- and suppressed turnover at 67.03% was at Rs.8,59,322/-. The CIT(A) upheld the income at 35.5% as applied by the Assessing Officer and the profit was fixed at Rs.3,05,060/- Thus, the CIT(A) restricted the addition to Rs.3,05,060/- as against Rs.17,56,400/-. Thus, the CIT(A) granted relief of Rs.14,51,340/-.

MATHA ENTERPRISES

ITA No. 305/Coch/2010: Assessee’s Appeal: AY 2004-05 ITA No. 272/Coch/2010: Revenue’s Appeal: AY 2004-05

47 ITA Nos.507 to 512/Coch/2010 M/s.Best Bakery & Ice Cream Parlour. ITA Nos. 302 to 308/Coch/2010 & 269 to 275/coch/2010 M/s. Matha Enterprises. amount of suppressed sales was treated as undisclosed income. Undisclosed restaurant sales was fixed at 517.82% of the disclosed sales and the disclosed sale was at Rs.10,78,573/-. The total undisclosed sale was at Rs.55,85,066/- and the total sales was at Rs.66,63,639/-. The undisclosed income from restaurant was taken at 28.25% of the sales at 35.5% of the sales at Rs.15,77,761/-. 13.1 On appeal, the CIT(A) estimated GP at 23% of the suppressed turnover of Rs.1,43,02,919/- which was fixed at Rs.32,89,671/- as against the undisclosed sales turnover of Rs.1,43,02,919/-. The CIT(A) granted relief of Rs.1,10,13,248/-. Income from Kwality restaurant was not included in the income of the assessee since it was considered as a separate entity. The Hill Park Restaurant turnover was at Rs.3,87,965/- against the amount of Rs.15,77,781/-.

MATHA ENTERPRISES ITA No. 306/Coch/2010: Assessee’s Appeal: AY 2005-06 ITA No. 273/Coch/2010: Revenue’s Appeal: AY 2005-06

48 ITA Nos.507 to 512/Coch/2010 M/s.Best Bakery & Ice Cream Parlour. ITA Nos. 302 to 308/Coch/2010 & 269 to 275/coch/2010 M/s. Matha Enterprises. was fixed at 517.82% of the disclosed sales and the disclosed sale was at Rs.13,05,044/-. The total undisclosed sale was at Rs.67,57,778/- and the total sales was at Rs.80,62,822/-. The undisclosed income from restaurant was taken at 28.25% of the sales at 35.5% of the sales at Rs.19,09,072/-.

14.1 On appeal, the CIT(A) estimated GP at 24% of the suppressed turnover of Rs.1,42,24,874/- which was fixed at Rs.34,13,970/- as against the undisclosed sales turnover of Rs.1,43,02,919/-. The CIT(A) restricted the addition to the extent ofRs.34,13,970/-. The CIT(A) granted relief of Rs.1,08,10,904/- Income from Kwality restaurant was not included in the income of the assessee since it was considered as a separate entity. The Hill Park Restaurant turnover was at Rs.4,69,425/- against the amount of Rs.19,09,072/-.

MATHA ENTERPRISES

ITA No. 307/Coch/2010: Assessee’s Appeal: AY 2006-07 ITA No. 274/Coch/2010: Revenue’s Appeal: AY 2006-07

49 ITA Nos.507 to 512/Coch/2010 M/s.Best Bakery & Ice Cream Parlour. ITA Nos. 302 to 308/Coch/2010 & 269 to 275/coch/2010 M/s. Matha Enterprises. treated as undisclosed income. Undisclosed restaurant sales was fixed at 517.82% of the disclosed sales and the disclosed sale was at Rs.13,54,780/-. The total undisclosed sales was at Rs.70,15,321/- and the total sales was at Rs.83,70,101/-. The undisclosed income from restaurant was taken at 28.25% of the sales at 28.25% of the sales at Rs.19,81,828/-.

15.1 On appeal, the CIT(A) estimated GP at 23.5% of the suppressed turnover of Rs.1,28,02,952/- which was fixed at Rs.30,08,694/- as against the undisclosed sales turnover of Rs.1,28,02,952/-. The CIT(A) restricted the addition to the extent of Rs.30,08,694/-as against the undisclosed sales turnover of Rs.1,28,02,952/-. Income from Kwality restaurant was not included in the income of the assessee since it was considered as a separate entity. The assessee disclosed turnover of rs.13,54,780/- and the suppression of turnover was at 109% which was at Rs.14,76,710/-. The income at 33% was Rs.4,87,315/-. Hence, the addition was restricted to Rs.4,87,315/- as against Rs.19,81,828/-.

MATHA ENTERPRISES ITA No. 308/Coch/2010: Assessee’s Appeal: AY 2007-08 ITA No. 275/Coch/2010: Revenue’s Appeal: AY 2007-08

50 ITA Nos.507 to 512/Coch/2010 M/s.Best Bakery & Ice Cream Parlour. ITA Nos. 302 to 308/Coch/2010 & 269 to 275/coch/2010 M/s. Matha Enterprises. disclosed sales. The undisclosed sale was at Rs.99,93,052/- on disclosed sales of Rs.3,71,48,893/- as per the day book and the actual total sales at Rs.4,71,41,945/-. The sales for the whole year was estimated at Rs.5,3,39,391/-. The assessee reported sale of only Rs.4,49,6,632/-. Since all the purchases were from Beverages Corporation already entered in the books of accounts the undisclosed sale at Rs.80,78,699/- was added as income u/s. 153A of the Act. The undisclosed sale was estimated at Rs.79,19,725/- and considering the average profit at 28.2% the undisclosed profit was estimated at Rs.22,37,322/-.

16.1 On appeal, after giving notice to the assessee, the CIT(A) proposed enhancement of income by Rs.5,62,426/-. After rejecting the explanation filed by the assessee, confirmed the enhancement of income from this source to Rs.86,41,125/- as against Rs.80,78,699/-. The assessee objected to the enhancement that the renovation expenses of hotel was met from the sale proceeds as per seized documents. The assessee submitted that the full turnover in the seized documents were fully incorporated in the books of accounts while filing the return of income. The CIT(A) rejected the explanation and confirmed the enhancement of Rs.5,62,426/-. In regard to income from Kwality Restaurant, the CIT(A) held that he Assessing Officer was not justified in clubbing the income of A.Y. 2001-02 to 2006-07 and also for the period upto 31/12/2006 for the AY 2001-02. G.P. at 32% was applied to

51 ITA Nos.507 to 512/Coch/2010 M/s.Best Bakery & Ice Cream Parlour. ITA Nos. 302 to 308/Coch/2010 & 269 to 275/coch/2010 M/s. Matha Enterprises. the undisclosed turnover of the restaurant business. The CIT(A) restricted the addition of undisclosed income from restaurant business to Rs.5,94,466/- as against Rs.22,37,322/-. The Assessing Officer was directed to assess the rent receipt in respect of Kwality Restaurant since income was not included. The profit on sale of cigarettes was confirmed by the CIT(A) as determined by the Assessing Officer.

“1. To cancel the addition of income on account of liquor sale in the absence of any incriminating documents indicating any undisclosed income obtained at the time of search.

18.1 The assessee has filed a petition for admission of the additional grounds of appeals, since the additional grounds

52 ITA Nos.507 to 512/Coch/2010 M/s.Best Bakery & Ice Cream Parlour. ITA Nos. 302 to 308/Coch/2010 & 269 to 275/coch/2010 M/s. Matha Enterprises. were not filed along with the original grounds of appeals. The learned AR requested that the Tribunal may admit the additional grounds and adjudicate the same.

18.2 However, we find that the additional grounds of appeals raised by the assessee is nothing but repetition of original grounds of appeals which does not require adjudication and the same is dismissed.

18.3 The Ld. AR submitted that in the absence of any evidence seized at the time of search and since there was no reference of these assessment years in the statements u/s. 132(4) of the accountant Shri K.A. Paul and the working partner Shri Paulson P. Varkey, the assessment of undisclosed income may be cancelled. It was submitted that Kwality Restaurant was a separate entity till 31.12.2006. As per the decision of the CIT(A) and the Bench, it was submitted that the income from the Kwality Restaurant may not be included in the assessee’s income. The Ld. AR submitted that as per the seized materials and as per the statement u/s. 132(4) by Shri K.A. Paul and the working partner Shri Paulson P. Varkey, there was suppression of sales turnover to the tune of 20% for three months for January, February and March, 2007. The assessee submitted that the suppression of income may be estimated on the basis of suppression detected during the period of search for three months during the year. It was submitted that in the absence of any evidence of suppression regarding the earlier period no estimate may be

53 ITA Nos.507 to 512/Coch/2010 M/s.Best Bakery & Ice Cream Parlour. ITA Nos. 302 to 308/Coch/2010 & 269 to 275/coch/2010 M/s. Matha Enterprises. made on additional income on account of suppression. It was submitted that the decision of the CIT(A) with regard Kwality Restaurant may be upheld.

18.4 The Ld. AR relied on the following judicial pronouncements in support of his case in respect of both the assessees for the relevant assessment years: (1) PP Jose vs. ACIT in IT(SS)A No.31/Coch/2003 dt. 27/02/2004 (ITAT, Cochin) (2) Rajnik& Co. vs. ACIT (251 ITR 561) (AP) (3) CIT vs. Sinhgad Technical Education Society (397 ITR 344) (SC) (4)Pr. CIT vsDevangi alias Rupa (394 ITR 184) (Guj.) (5) CIT vs. Deepak Kumar Agarwal&Ors. (398 ITR 586) (Bom.) (6) CIT vs. JagdishNarainRatan Kumar (373 ITR 394) (Raj.-Jaipur) (7) CIT vs. SKS Ispat and Power Ltd. (398 ITR 584) (Bom.) (8) Pr. CIT vs. Best Infrastructure (India) Pvt. Ltd. (397 ITR 82) (Del.) (9) CIT vs. Continental Warehousing Coprporation (Nhavasheva) Ltd. (374 ITR 645) (Bom.) (10) CIT vs. Kabul Chawla (380 ITR 573) (Del.) (11) Pr. CIT vs. Soumya Construction P. Ltd. (387 ITR 529) (Guj.) (12) Pr. CIT vs. DipakJashvantalPanchal (397 ITR 153) (Guj.) (13) Asst. CIT vs. SRJ Peety Steels (P) Ltd. 53 DTR (AT) 347 (Pune) and 137 TTJ (Pune) 627

18.5 The Ld. DR relied on the orders of the Assessing Officer.

Findings: MATHA ENTERPRISES ITA No.302/Coch/2010 : Assessee’s Appeal: AY 2001-02 ITA No.269/Coch/2010: :Revenue’s Appeal: AY 2001-02

54 ITA Nos.507 to 512/Coch/2010 M/s.Best Bakery & Ice Cream Parlour. ITA Nos. 302 to 308/Coch/2010 & 269 to 275/coch/2010 M/s. Matha Enterprises. regard to sustenance of addition of Rs.14,99,450/-as against the disclosed profit of Rs.1,27,78,283/-- by the assessee. The issue in Revenue’s appeals is with regard to deletion of Rs.15,36,685 from restaurant business. The Assessing Officer considered the seized material found during the search in A.Y. 2003-04 to estimate the suppressed turnover for the assessment year 2001-02. According to the Assessing Officer, there was suppression of liquor sales at 37.32% in the assessment year 2003-04 and the same was 26.9% in the assessment year 2007-08. He took the average of the suppressed liquor sales in these two assessment years and worked out at 32.11% in the assessment year 2001-02 and worked undisclosed liquor sales at Rs.3,97,95,307/- and profit on it at Rs.1,27,78,273/-. In the case of suppressed restaurant sales in the assessment year 2003-04, it was estimated at 385.93% and in the assessment year 2007-08, the suppressed restaurant sales was estimated at 649.7%. The Assessing Officer has considered the average of these two years at 517.82% for the AY 2001-02 and worked out the undisclosed sale at Rs.54,39,595/- and determined profit on it at 23.19% which worked out at Rs.15,36,685/-. Thereafter, he estimated the net profit on the total turnover as follows: Net profit on liquor sales : Rs.1,27,78,283/- Net profit on restaurant sales : Rs. 15,36,685/-

He estimated the undisclosed sales from M/s. Kwality Restaurant at Rs.54,39,595/- on the basis of sales recorded in the assessment year 2006-07 and 2007-08 and thereafter,

55 ITA Nos.507 to 512/Coch/2010 M/s.Best Bakery & Ice Cream Parlour. ITA Nos. 302 to 308/Coch/2010 & 269 to 275/coch/2010 M/s. Matha Enterprises. he estimated the profit at 28.25%. on the undisclosed sales of Rs.54,39,595/-. As seen from the assessment order, there was no seized material found during the course of search for estimating the suppressed liquor sales and restaurant sales and to consider the income from M/s. Kwality Restaurant. The material found during the course of search was not relating to the assessment year 2001-02. The Assessing Officer in this case considered the evidence gathered in the assessment years 2003-04 and 2007-08 so as to estimate the undisclosed income of the assessment year 2001-02. In our opinion, once the assessment is concluded and become final as on the date of search or the time lime to issue notice u/s. 143(2) of the Act has been expired, then the determination of the total income in respect of the assessment years for which the assessments have already been completed on the date of search, shall not be influenced by the items of income other than those based on the material unearthed during the course of search. As per the provisions of section 153A, incriminating material or other evidence are necessary to frame an assessment u/s 153A r.w.s 143(3) of the Act.

19.1 According to the assessee’s Counsel, when the assessment already completed u/S. 143(3) of the Act or where there is no assessment pending, there will be no abatement of proceedings. If the assessment is not pending and there is no incriminating materials or any other evidence to determine the undisclosed income, the assessment u/s.l53A to be framed only as per original assessment and there cannot be any

56 ITA Nos.507 to 512/Coch/2010 M/s.Best Bakery & Ice Cream Parlour. ITA Nos. 302 to 308/Coch/2010 & 269 to 275/coch/2010 M/s. Matha Enterprises. further addition on the already assessed income. In other words, he submitted that if there is no incriminating material or any other evidence, the assessment is to be framed by assessing the income as in the original assessment already completed u/s. 143(3) of the Act. The contention of the assesse's counsel is that for the A.Y.s 2001-02, 2002-03, 2004-05, 2005-06 and 2006-07, the original assessment was already completed and there is no incriminating material or any other evidence in the possession of assessing in the case of the assessee and as such, there can be assessment u/s.153A r.w.s 143(3) of the Act limited to the addition made in original assessment.

19.2 The Ld. DR submitted that the assessment was framed consequent to search u/s. 132 of the Act at the assessee's premises took on13/02/2007, and the AO issued notice u/s.l53A of the Act and validly the assessments were framed in this case for all assessment years and additions were made.

19.3 There is no dispute that Section 153A is applicable in this case. Hence, the Assessing Officer is obliged to issue notice under section 153A in respect of six years in which preceding the year in which search etc. has been initiated. Thereafter, he has to assess or reassesses the total income of these six years. It is obligatory on the part of the Assessing Officer to assess or reassess total income of the six assessment years as provided in section 153A(l)(b) and reiterated in the 1st proviso to this section. The second

57 ITA Nos.507 to 512/Coch/2010 M/s.Best Bakery & Ice Cream Parlour. ITA Nos. 302 to 308/Coch/2010 & 269 to 275/coch/2010 M/s. Matha Enterprises. proviso states that the assessment or reassessment pending on the date of initiation of the search or requisition shall abate. There is no divergence of views in so far as the provision contained in section 153A till the 1st proviso. The divergence starts from the second proviso which states that pending assessment or reassessment on the date of initiation of search shall abate. This means that an assessment or reassessment pending on the date of initiation of search shall cease to exist and no further action shall be taken thereon. The assessment shall now be made under section 153A. The case of the assessee is that necessary corollary to this provision is that completed assessment shall not abate. These assessments become final except in so far and to the extent as undisclosed income is found in the course of search. On the other hand, it has been argued by the revenue that abatement of pending assessment is only for the purpose of avoiding two assessments for the same year, one being regular assessment and the other being assessment under section 153A. In other words, these two assessments merge into one assessment. The second proviso does not contain any word or words to the effect that no reassessment shall be made in respect of a completed assessment. The language is clear in this behalf and therefore literal interpretation should be followed. Such interpretation does not produce manifestly absurd or unjust results as section l53A(i)(b) and the first proviso clearly provide for assessment or reassessment of all six years. It may cause hardship to some assessees where one or more of such assessments has or have been completed before the date of

58 ITA Nos.507 to 512/Coch/2010 M/s.Best Bakery & Ice Cream Parlour. ITA Nos. 302 to 308/Coch/2010 & 269 to 275/coch/2010 M/s. Matha Enterprises. initiation of search. This is hardly of any relevance in view of clear and unambiguous words used by the Legislature. This interpretation does not cause any absurd etc. results. There is no casus omisus and supplying any would be against the legislative intent and against the very rule in this behalf that it should be supplied for the purpose of achieving legislative intent. The submissions are manifold, the foremost being that the provision under section. 153A should be read in conjunction with the provision contained in section 132(1), the reason being that the later deals with search and seizure and the former deals with assessment in case of search etc, thus, the two are inextricably linked with each other.

19.4 Before proceeding further, one may now examine the provisions contained in sub-section (2) of section 153. It provides that if any assessment made under sub-section(1) is annulled in appeal etc., then the abated assessment revives. However, if such annulment is further nullified, the assessment again abates. The case of the assessee is that this provision further shows that completed assessments stand on a different footing from the pending assessments because appeals etc. proceedings continue to remain in force in case of completed assessments and their fate depends upon subsequent orders in appeal. On consideration of the provision and the submissions, it is found that this provision also makes it clear that the abatement of pending proceedings is not of such permanent nature that they cease

59 ITA Nos.507 to 512/Coch/2010 M/s.Best Bakery & Ice Cream Parlour. ITA Nos. 302 to 308/Coch/2010 & 269 to 275/coch/2010 M/s. Matha Enterprises. to exist for all times to come. The interpretation of the assessee, though not specifically stated, would be that on annulment of the assessment made under section 153(1), the Assessing Officer gets the jurisdiction to assess the total income which was vested in him earlier independent of the search and which came to an end due to initiation of the search.

19.5 The provision contained in section 132(1) empowers the officer to issue a warrant of search of the premises of a person where anyone or more of conditions mentioned therein is or are satisfied, i.e. (a) summons or notice has been issued to produce books of account or other documents but such books of account or documents have not been produced, (b) summons or notice has been or might be issued, he will not produce the books of account or other documents mentioned therein, or (c) he is in possession of any money or bullion etc. which represents wholly or partly the income or property which has not been and which would not be disclosed for the purpose of assessment, assessed as undisclosed income or property. The provision in section 132(1) does not use the word incriminating document: Clauses (a) and (b) of section 132(1) employ the words books of account or other documents: For harmonious interpretation of this provision with provision contained in section 153A, all the three conditions on satisfaction of which a warrant of search can be issued will have to be taken into account.

60 ITA Nos.507 to 512/Coch/2010 M/s.Best Bakery & Ice Cream Parlour. ITA Nos. 302 to 308/Coch/2010 & 269 to 275/coch/2010 M/s. Matha Enterprises. 19.6 Having held so, an assessment or reassessment under section 153A arises only when a search has been initiated and conducted. Therefore, such an assessment has a vital link with the initiation and conduct of the search.A search can be authorized on satisfaction of one of the three conditions enumerated earlier.Therefore, while interpreting the provision contained in section 153A, all these conditions will have to be taken into account. With this, one proceeds to literally interpret to provision in section 153A as it exists and read it alongside the provision contained in section 132(1) of the Act.

19.7 The provision comes into operation if a search or requisition is initiated after 31.05.2003. On satisfaction of this condition, the Assessing Officer is under obligation to issue notice to the person requiring him to furnish the return of income of six years immediately preceding the year of search. The word used is 'shall' and, thus, there is no option but to issue such a notice. Thereafter, he has to assess or reassess total income of these six years. In this respect also, the word used is 'shall' and, therefore, the Assessing Officer has no option but to assess or reassess the total income of these six years. The pending proceedings shall abate. This means that out of six years, if any assessment or reassessment is pending on the date of initiation of the search, it shall abate. In other words pending proceedings will not be proceeded with thereafter. The assessment has now to be made under section 153(l)(b) and the first proviso. It also means that only one assessment will be made under the aforesaid provisions as the

61 ITA Nos.507 to 512/Coch/2010 M/s.Best Bakery & Ice Cream Parlour. ITA Nos. 302 to 308/Coch/2010 & 269 to 275/coch/2010 M/s. Matha Enterprises. two proceedings i.e. assessment or reassessment proceedings and proceedings under this provision merge into one. If assessment made under subsection (1) is annulled in appeal or other legal proceedings, then the abated assessment or reassessment shall revive. This means that the assessment or reassessment, which had abated, shall be made, for which extension of time has been provided under section 153B.

19.8 The question now is - what is the scope of assessment or reassessment of total income under section I53A(l) (b) and the first proviso? For answering this question, guidance will have to be sought from section 132(1). If any books of account or other documents relevant to the assessment had not been produced in the course of original assessment and found in the course of search, such books of account or other documents have to be taken into account while making assessment or reassessment of total income under the aforesaid provision. Similar position will obtain in a case where undisclosed income or undisclosed property has been found as a consequence of search. In other words, harmonious interpretation will produce the following results: (a) In so far as pending assessments are concerned, the jurisdiction to make original assessment and assessment under section 153A merge into one and only one assessment for each assessment year shall be made separately on the basis of the findings of the search and any other material existing or brought on the record of the Assessing Officer, (b)

62 ITA Nos.507 to 512/Coch/2010 M/s.Best Bakery & Ice Cream Parlour. ITA Nos. 302 to 308/Coch/2010 & 269 to 275/coch/2010 M/s. Matha Enterprises. In respect of non-abated assessments, the assessment will be made on the basis of books of account or other documents not produced in the course of original assessment but found in the course of search, and undisclosed income or undisclosed property discovered in the course of search.

19.9 The interpretation is to be made considering the principles of literal interpretation and reading the relevant provisions together. This interpretation does not in any manner give results which can be said to be ultra vires. It also does not give any absurd or unjust results.

19.9.1 Thus, in assessments that are abated, the Assessing Officer retains the original jurisdiction as well as jurisdiction conferred on him under section 153A for which assessments shall be made for each of the sixassessment years separately and in other cases, in addition to the income that has already been assessed, the assessment under section 153A will be made on the basis of incriminating material, which in the context of relevant provisions means - books of account, other document, found in the course of search but not produced in the course of original assessment, and undisclosed income or property discovered in the course of search.

19.9.2 On a conspectus of section153A(1) read with the provisions thereto, and in the light of the law explained in the earlier para, the legal position that emerges was that, firstly, once a search takes place u/s. 132, notice u/s. 153A(1) will

63 ITA Nos.507 to 512/Coch/2010 M/s.Best Bakery & Ice Cream Parlour. ITA Nos. 302 to 308/Coch/2010 & 269 to 275/coch/2010 M/s. Matha Enterprises. have to be mandatorily issued to the person searched requiring him to file returns for six A.Ys immediately preceding the previous year relevant to the A.Y. in which the search takes place. Secondly, assessments and reassessments pending on the date of the search shall abate. The total income for such A.Ys. will have to be computed by the AOs as a fresh exercise. Thirdly, Assessing Officer will exercise normal assessment powers in respect of the six years previous to the relevant A.Y. in which the search takes place. The A.O. has the power to assess and reassess the total income of the aforementioned six years in separate assessment orders for each of the six years. In other words, there will be only one assessment order in respect of each of the six years in which both the disclosed and the undisclosed income would be brought to tax. Fourthly, although section 153A does not say that additions should be strictly made on the basis of evidence found in the course of the search, or other post search material or information available with the Assessing Officer which can be related to the evidence found, it does not mean that the assessment can be arbitrary or made without any relevance or nexus with the seized material. Obviously, an assessment has to be made u/s. 153A r.w.s. 143(3) of the I.T. Act. Fifthly, in the absence of any incriminating material, the completed assessment can be reiterated and the abated assessment or reassessment can be made. The word ‘assess’ in section 153A was relatable to abated proceedings (i.e. those pending on the date of search) and the word ‘reassess’ to completed assessment proceedings.

64 ITA Nos.507 to 512/Coch/2010 M/s.Best Bakery & Ice Cream Parlour. ITA Nos. 302 to 308/Coch/2010 & 269 to 275/coch/2010 M/s. Matha Enterprises. Sixthly, insofar as pending assessments are concerned, the jurisdiction to make the original assessment and the assessment u/s. 153A merges into one. Only one assessment shall be made separately for each A.Y. on the basis of the findings of the search and any other material existing or brought on record of the Assessing Officer. Seventhly, completed assessments can be interfered with by the Assessing Officer while making the assessment u/s. 153A only on the basis of some incriminating material unearthed during the course of search or requisition of documents or undisclosed income or property discovered in the course of search which were not produced or not already disclosed or made known in the course of original assessment.

19.9.3 In view of the above, when the original assessment for the AYs 2001-02, 2002-03, 2004-05, 2005-06 and 2006-07 already been completed or time limit to complete the assessment has been lapsed and no incriminating material found during search operation or there is no evidence of undisclosed income, the assessment u/s. 153A to be made only as per the original assessment which was made u/s. 143(3) of the Act. It is an admitted fact that in these assessment years there was no incriminating material discovered in the course of search action and also no evidence of undisclosed income in the possession of assessing officer so as to make any addition to the income declared by the assesse.If there is no allegation that the assessee had failed to produce books of accounts and documents in the course of

65 ITA Nos.507 to 512/Coch/2010 M/s.Best Bakery & Ice Cream Parlour. ITA Nos. 302 to 308/Coch/2010 & 269 to 275/coch/2010 M/s. Matha Enterprises. original assessment, the addition made for the AY cannot be sustained.

19.9.4 In the present case, there was no seized material found during the course of search to estimate the liquor sales, restaurant sales or income from M/s. Kwality Restaurant to sustain the addition. Even while conducting enquiry after search also, the Assessing Officer has not come across any material which relates to the assessee so as to make addition in these assessment years. We could have confirmed the addition , had there been any post search evidence/material found by the Assessing Officer. Neither seized material was found during the course of search nor any material found during the post search enquiry. There is also no allegation that the original assessment was found to be wrong in view of wrong claim made by the assessee. In other words, since the assessment was framed u/s. 153A r.w.s. 143(3) of the I.T. Act, the Assessing Officer could make addition, which he could make u/s. 143(3), even without seized material.

19.9.5 The Ld. DR relied on the judgments of the Jurisdictional High Court in the case of CIT vs. Hotel Meriya (332 ITR 537) wherein it was held as under: “(ii) That the partner of the assessee had in unambiguous terms stated that 20 per cent of the sales outturn was suppressed and only 80 per cent was recorded in the account books and it was the practice from the very beginning. So, it was just and appropriate to presume that there was uniform concealment of income in all the assessment years during the block period. Hence the assessee was liable to be assessed during the block period at a uniform rate.”

66 ITA Nos.507 to 512/Coch/2010 M/s.Best Bakery & Ice Cream Parlour. ITA Nos. 302 to 308/Coch/2010 & 269 to 275/coch/2010 M/s. Matha Enterprises. 19.9.6 Further, in the case of Travancore Diagnostics P. Ltd. vs. ACIT (390 ITR 167) wherein it was held that when suppression had been found from the documents and the statement on record, the Assessing Officer was completely justified in adopting those figures for the whole year and for the next year which was based on sound rationale, since from the statement on behalf of the assessee, the suppression was found to be continued. In view of the uncontroverted and admitted statement given on behalf of the assessee u/s. 133A and the documents impounded during the survey, which were also virtually admitted by the assessee, there was no error in the order of the Tribunal in accepting the materials on record in order to arrive at an assessment. However, in the present case, the managing partner, Shri Paulson P. Varkey in his sworn statement recorded on 13/02/2007 answered to Question No. 13 as follows:

"Question No: 13:- You have stated in that, now, you are accounting 80% of bar sales and sales in restaurant are also not fully accounted. The daily statement prepared show that the actual receipts and the analysis of sales by applying peg/bottle rate on the stock sold are correct. Please state how the sales for the earlier periods are accounted.”

“Answer No. 13:- On 2006 December onwards we are not accounted 20% of actual sales. Before that there will not be much difference.”

Thus, it means that there was no admission by the managing partner and he categorically stated that from December, 2006,

67 ITA Nos.507 to 512/Coch/2010 M/s.Best Bakery & Ice Cream Parlour. ITA Nos. 302 to 308/Coch/2010 & 269 to 275/coch/2010 M/s. Matha Enterprises. they have not accounted 20% of actual sales. Being so, the ratio laid down by the Jurisdictional High Court in the case of Hotel Meriya cited supra cannot be applied to the facts of the assessee’s case. Further, the Assessing Officer strongly placed reliance on the sworn statement of Shri K.A. Paul recorded on 13.02.2007 who is an accountant in Matha Enterprises to estimate the sales of the assessee in this assessment year. These statements are relied upon by the Assessing Officer without providing any opportunity of cross examination to Shri K.A. Paul. Being so, the reliance placed by the Assessing Officer on such statement of Shri K.A. Paul is improper.

19.9.7 The assessee has placed the following evidence (PB pg. Nos. 41-50) for the assessment year 2003-04 to prove that the Kwality Restaurant was leased to Shri P.P. Mathai and not carried on by the assessee itself and it has been run on rent only which was offered for taxation:

a) Certified true copy of rent agreement entered in the year 1999 and 2004

b) Copy of license for the F.Y. 2002-03 in the name of Mr. Prasi Paul.

c) ESI return copy.

19.9.8 We have carefully gone through the statement of Shri K.A. Paul, Accountant recorded on 13/02/2007. We find no reference of Kwality Restaurant by the assessee. Further, DocumentsPC-1(23) & PCI(8) recovered during the course of

68 ITA Nos.507 to 512/Coch/2010 M/s.Best Bakery & Ice Cream Parlour. ITA Nos. 302 to 308/Coch/2010 & 269 to 275/coch/2010 M/s. Matha Enterprises. search incorporated sales of Kwality Restaurant on the same sheet which was admitted during the search and had been incorporated in the books of accounts by the assessee stating that with effect from 01/01/2007, the assessee was running Kwality Restaurant. Mr. K.A. Paul, the accountant of the assessee mentioned during the search action that the restaurant was in the name of Mr. P.P. Mathai but was run by the assessee. The observation of the Assessing Officer that no material was recovered during search to establish that this restaurant was not run by the assessee in earlier period do not have merit because if the restaurant was not run by the assessee, there was hardly any likelihood of finding any evidence in assessee’s premises. Liability can be created against the assessee only if positive evidence was found during search that the assessee was running Kwality Restaurant all along from A.Y 2001-02 to 2007-08. No such evidence was recovered except the documents PC-I(8), PC-I(23) & PC-I(22). The documents relevant to AY 2007-08 do not indicate that the restaurant was run by the assessee prior to 1.1.2007. The documents relevant to AY 2003-04, i.e. PC- I(22) in fact establish that Kwality Restaurant was a separate entity as has been rightly pointed out by the Ld. AR. A perusal of these documents indicate that the nature of these documents were different from the documents PC-I(8), PC- I(23) relevant to A.Y. 2007-08. In PC-I(22), there was a separate sheet with different handwriting of restaurant sales (in contrast to one consolidated sheet in PC-I(8) and PC-I(23) for the AY 2007-08) which duly recorded food sent by Kwality

69 ITA Nos.507 to 512/Coch/2010 M/s.Best Bakery & Ice Cream Parlour. ITA Nos. 302 to 308/Coch/2010 & 269 to 275/coch/2010 M/s. Matha Enterprises. Restaurant to customers in Hill Park Bar Restaurant of the assessee and what exact amount was due from the assessee on account of the same. For example, on 5.12.2002, out of total sales of Rs.13,814 of Kwality Restaurant, Rs.4,800 were collected by Hill Park Bar Restaurant on account of food sent by Kwality Restaurant and further Rs.106.50 was shown as receivable from M/s Matha Enterprises and partners. Had this restaurant been run by the assessee such entries would not have found place in the seized documents which can be reasonably presumed to be recording transactions in truthful manner. The food served by Kwality Restaurant was also distinct from the food served by assessee’s Hills Park Bar Restaurant as indicated by the Ld. AR. The documents relating to AY 2007-08 calculated cash balance at the end of each day and the same was carried forward to the next day whereas cash balance worked out in documents for A.Y 2003- 04 was not carried forward to next day. Further to above, there were number of other evidences which establish that Kwality Restaurant was earlier run by one Mr. Prasi Paul and later on by Mr. P.P Mathai. The presumption u/s 132(4A) referred to by the Assessing officer was rebuttable and in the assessee’s case this was duly done by way of sworn statement of Mr. Prasi Paul wherein he had owned up running of the Kwality Restaurant This was also supported by other evidences in the form of lease agreements on contemporary stamp papers with Mr. Prasi Paul and Mr. P.P Mathai, Municipal Licence fee and professional taxes paid by these persons with reference to running of Kwality Restaurant by

70 ITA Nos.507 to 512/Coch/2010 M/s.Best Bakery & Ice Cream Parlour. ITA Nos. 302 to 308/Coch/2010 & 269 to 275/coch/2010 M/s. Matha Enterprises. them and ESI records submitted by them from time to time. All these evidences are pre-existent to the date of search and cannot be simply ignored as done by Assessing officer. In the beginning the Assessing officer issued a notice to Mr. K.M. Mathai and when he responded that he was not the person who had run the restaurant, the Assessing officer did not pursue investigations with Mr. P.P Mathai and instead opted to estimate and club income of Kwality Restaurant in the hands of the assessee.. The assessee not only placed on record affidavit of Mr. Prasi Paul who was running the restaurant during the period from 12.2.1999 to 2.10.2003, but also produced him before the Assessing Officer during remand proceedings. Mr. Prasi Paul during his deposition before the Assessing Officer duly confirmed that he was running Kwality Restaurant during above period and that he gave this name to the restaurant which was earlier named as Ädhithi”. He also effectively answered most of the questions of the Assessing Officer with regard to the running of the restaurant on lease. The estimation of probable income from the Kwality Restaurant by the Assessing officer was only a guess work and was not backed by any evidence and was of relevance in determining income tax liability of Mr. Prasi Paul and bringing to tax such income in his hands particularly when he also answered positively to question No.18 that if there was any Income tax payable with reference business of Kwality Restaurant he will pay the same. With regard to his seeking employment after running Kwality Restaurant, there is no certainty of earning an income from a business venture

71 ITA Nos.507 to 512/Coch/2010 M/s.Best Bakery & Ice Cream Parlour. ITA Nos. 302 to 308/Coch/2010 & 269 to 275/coch/2010 M/s. Matha Enterprises. as calculated by the Assessing officer in a mechanical manner. As far as showing of meager salary is concerned, it appears that the same is kept low in official records to ensure that Income tax liability is not attracted in the hands of persons like Mr. Prasi Paul who otherwise appear to be having substantial agricultural income. Even the documents seized in the hands of the assessee do indicate that extra wages were paid in restaurant business over and above what was recorded in books. With regard to Mr. P.P Mathai in addition to lease agreements and other documents, the assessee had placed on record a copy of Income tax return filed by him for AY 2007-08, wherein Kwality Restaurant was claimed to have been run by him up to 31st December, 2006. No further evidence could be brought on record for the reason that Mr. P.P Mathai had since expired. In view of the foregoing, we find that there was hardly any evidence to estimate turnover and income of Kwality Restaurant and club the same with the appellant for A.Ys 2001-02 to 2006-07 and also for the period up to 31st December, 2006 for AY 2007-08. Thus, the Assessing Officer was not justified in clubbing the income of Kwality Restaurant in the hands of the assessee for the above period.

19.9.9 In view of the above, we hold that estimation of undisclosed turnover from Kwality Restaurant and computing the undisclosed income on the same by the Assessing officer was not backed by any evidence and was purely a guess work and therefore, the addition worked out by the Assessing officer

72 ITA Nos.507 to 512/Coch/2010 M/s.Best Bakery & Ice Cream Parlour. ITA Nos. 302 to 308/Coch/2010 & 269 to 275/coch/2010 M/s. Matha Enterprises. in the A.Y. 2001-2002 is to be deleted. Being so, business income from Kwality Restaurant cannot be assessed in the hands of the assesse and we do not find any infirmity in the orders of CIT(A) on this issue. Thus, this ground of appeal of the assessee is allowed and that of the Revenue is dismissed. The appeal of the assessee is allowed and the appeal of the Revenue is dismissed.

MATHA ENTERPRISES:

ITA No.303/Coch/2010:Assessee’s Appeal: AY 2002-03 ITA No.270/Coch/2010: :Revenue’s Appeal: AY 2002-03

73 ITA Nos.507 to 512/Coch/2010 M/s.Best Bakery & Ice Cream Parlour. ITA Nos. 302 to 308/Coch/2010 & 269 to 275/coch/2010 M/s. Matha Enterprises. dismissed. Thus, the appeal of the assessee is allowed and the appeal of the Revenue is dismissed.

MATHA ENTERPRISES

ITA No.305, 306 & 307/Coch/2010: Assessee’s Appeal : AY 2004-05, 2005-06 & 2006-07 ITA No.272, 273 & 274/Coch/2010: Revenue’s Appeal: AY 2004-05, 2005-06 & 2006-07

MATHA ENTERPRISES ITA No.304/Coch/2010: Assessee’sAppeal:AY 2003-04 ITA No.271/Coch/2010: Revenue’s Appeal: AY 2003-04

74 ITA Nos.507 to 512/Coch/2010 M/s.Best Bakery & Ice Cream Parlour. ITA Nos. 302 to 308/Coch/2010 & 269 to 275/coch/2010 M/s. Matha Enterprises. In this assessment year, there is evidence regarding suppression of sales. Being so, we are in full agreement with the estimation of sales from liquor, restaurant and cigarette business. However, the rate of net profit applied in this case is very high. We direct the Assessing Officer to adopt the rate of net profit in respect of liquor sales, restaurant sales and cigarette sales as disclosed by the assessee in respect of these items in the regular books of accounts. However, in respect of M/s. Kwality Restaurant, it is a separate entity upto 31/12/2006 and income from this business is to be assessed from AY 2007-08 only. Accordingly, we delete the addition in respect of M/s. Kwality Restaurant. Hence, this ground of appeal of the assessee is partly allowed and that of the Revenue is dismissed. Thus, the appeal of the assessee is partly allowed and the appeal of the Revenue is dismissed.

MATHA ENTERPRISES ITA No.308/Coch/2010 : Assessee’s Appeal: AY 2007-08 ITA No.275/Coch/2010 :Revenue’s Appeal: AY 2007-08

75 ITA Nos.507 to 512/Coch/2010 M/s.Best Bakery & Ice Cream Parlour. ITA Nos. 302 to 308/Coch/2010 & 269 to 275/coch/2010 M/s. Matha Enterprises. these items in the regular books of accounts. However, in respect of M/s. Kwality Restaurant, the termination of lease was only with effect from 31/12/2006. Being so, part period of the assessment year is to be considered in the hands of the assessee. Accordingly, the Assessing Officer is directed to estimate the income from M/s. Kwality Restaurant for the part period of the assessment year concerned only and the rate of net profit is to be applied as disclosed by the assessee in the regular books of accounts. This ground of the appeal of the assessee is partly allowed. In the revenue’s appeal in ITA No. 275/Coch/2010, the tax effect is less than Rs. 50 lakhs in view of Circular No. 17/2019 in F.No.279/Mis.142/2007- ITJ(pt.) dated 08/08/2019 issued by CBDT. Thus, the appeal of the Revenue is dismissed. Thus, the appeal of the assessee is partly allowed and the appeal of the Revenue is dismissed.

BEST BAKERY AND ICE CREAM PARLOUR

“4. We have heard the parties, and perused the material on record. Admittedly, no fresh facts or materials, i.e., other than those already considered

76 ITA Nos.507 to 512/Coch/2010 M/s.Best Bakery & Ice Cream Parlour. ITA Nos. 302 to 308/Coch/2010 & 269 to 275/coch/2010 M/s. Matha Enterprises. by the tribunal in the case of Matha Enterprises (supra) has been brought to our notice. The decision by the co-ordinate Bench has a persuasive value, and has to be normally followed, even as in the instant case the facts and circumstances, as well as the materials relied upon are identical. In that case, the tribunal found PC(I) 22, being relied upon by the Revenue, to be a vital piece of evidence, though could be relied upon in the manner done in framing the assessment for A.Y. 2003-04. The observations and findings by the tribunal would be fully applicable and valid for the impugned assessments as well. If aggrieved by the said decision by the tribunal, the Revenue could carry the matter before a higher appellate forum. We, therefore, consider it fit and proper under the circumstances to follow the order of this tribunal in the case of Matha Enterprises (supra); the facts and circumstances of the case being admittedly identical. We decide accordingly.

“These appeals are filed by the Revenue impugning the common order passed by the Tribunal in I.T.A.Nos.507 to 513 of 2010 concerning the assessment years 2001-02 to 2007-2008. The appeals were disposed of in the light of the order of the Tribunal in M/s.Matha Enterprises, AngamalyVs. Commissioner of Income Tax, Ernakulam (ITA No.302/2010 and connected cases). The order of the Tribunal in the case of Matha Enterprises (supra) was the subject matter of ITA.No.145/2011 filed by the Revenue and this Court by judgment dated

77 ITA Nos.507 to 512/Coch/2010 M/s.Best Bakery & Ice Cream Parlour. ITA Nos. 302 to 308/Coch/2010 & 269 to 275/coch/2010 M/s. Matha Enterprises. 11thNovember, 2016 disposed of the appeal and connected cases setting aside the order of the Tribunal and remitting the matters for reconsideration by the Tribunal itself. Since the impugned orders were rendered entirely relying on the order of the Tribunal in the case of Matha Enterprises (supra) and since that order has been set aside by this Court and the matter is remitted, the orders impugned herein are also liable to be set aside and directed to be reconsidered by the Tribunal.

Accordingly these appeals are disposed of setting aside the impugned orders of the Tribunal and remitting the matters to the Tribunal which shall hear and dispose of the matters along with the appeal in the case of Matha Enterprises (supra) and connected cases.”

“The learned Counsel appearing for the respondent submits that similar matters in which the Tribunal had relied on the decision of another co-ordinate bench of the Tribunal in M/s. Matha Enterprises, Angamaly v. Commissioner of Income Tax, Ernakulam (ITA No.302/2010 and connected cases) have been sent back to the Tribunal for fresh consideration. The above appeal also deals with the very same subject matter. In such circumstances, the appeal is relegated back to the Tribunal along with I.T.A. No.115/2012 and connected cases, relating to the very same assessee, who is the respondent herein. Hence, the above appeal is also disposed of remanding the matter to the Tribunal and vacating the order of the Tribunal impugned herein.”

78 ITA Nos.507 to 512/Coch/2010 M/s.Best Bakery & Ice Cream Parlour. ITA Nos. 302 to 308/Coch/2010 & 269 to 275/coch/2010 M/s. Matha Enterprises. 40. The appeals of the Revenue before the Tribunal in ITA Nos. 498 & 499/Coch/2010 and the appeal of the assessee in ITA No.513/Coch/2010 were wrongly listed for hearing. Though there were no appeals filed by either parties before the High Court and there was no judgment of the High Court for setting aside these appeals to the file of the Tribunal, there is no requirement of adjudication of the issues in ITA Nos.498 & 499/Coch/2010 and 513/Coch/2010 for the assessment years 2001-02, 2002-03 and 2007-08 respectively.

“1. To cancel the assessment of undisclosed income in the absence of any statement u/s 132(4) relating to the firm and evidence seized at the time of search.

79 ITA Nos.507 to 512/Coch/2010 M/s.Best Bakery & Ice Cream Parlour. ITA Nos. 302 to 308/Coch/2010 & 269 to 275/coch/2010 M/s. Matha Enterprises. 2. To cancel the assessment for the reason that the assessment is made on the basis of seized documents relating to M/s.Matha Enterprises as detailed in the assessment order.

80 ITA Nos.507 to 512/Coch/2010 M/s.Best Bakery & Ice Cream Parlour. ITA Nos. 302 to 308/Coch/2010 & 269 to 275/coch/2010 M/s. Matha Enterprises. engaged in Hotel (Bar) and jewellery business. The main concerns of this group are M/s. Hotel Hill Park, a bar hotel at Angamali, run by M/s. Matha Enterprises, M/s. Hotel Royale Park, a bar hotel at Alappuzha, M/s. Hotel Anjali Park, a bar hotel at Kottayam. M/s. P.A. Kuriakose Jewellers at Angamali, Best Bakery and Ice Cream Parlour at Angamali. Apart from the above group of concerns, Sri Paulson P. Varkey had a proprietory crushing unit at Manjapra named Popular Industries. He had also interest in Royal Cartons Pvt. Ltd., Angamali and Swagat Enterprises, Angamali.

45.1 P.A. Kuriakose Group consists of: ShriP.A.Kuriakose, his wife Mary Kuriakose, his sons PaulyKuriakose, his wife Tareena Poly Benny Kuriakose , his wife Sheena Benny JohnyKuriakose, his wife ReenaJohny; and PromyKuriakose

Paulson P. Varkey group consists of:

Paulson P. Varkey, his Mother KunjammaVarkey, his wifeMeena Paulson

K.M.Mathai Group consists of:

K.M. Mathai; and His sons Paul Mathew and Joby Mathew

45.2 The firm Best Bakery & Ice Cream Parlourconstituted as per deed dated 01.02.1995 consists of the following partners :

81 ITA Nos.507 to 512/Coch/2010 M/s.Best Bakery & Ice Cream Parlour. ITA Nos. 302 to 308/Coch/2010 & 269 to 275/coch/2010 M/s. Matha Enterprises. Sl. No. Name of Partner Ratio 1. Paulson P. Varkey 35% 2. Jobby Mathew 14% 3. Paul Mathew 14% 4. JohnyKuriakose 15% 5. Benny Kuriakose 15% 6. Meena Paulson 7%

45.3 Shri Jobby Mathew was the managing partner of the firm. The assessee firm ran a Bakery and Ice Cream Parlour, in the ground floor of Hotel Hill Park. On 13.02.2007 a search u/s. 132 of the Income Tax Act, 1961 was initiated in the business premises of M/s. Matha Enterprises, Angamaly. Subsequent to the search, a notice under section 153A of the Income tax Act, dated 12.02.2008 was issued requiring the assessee to file return of income within 30 days from the receipt of the notice. The said notice was served on the assessee on 18.02.2008. In response to the said notice, the assessee firm filed its return of income on 22.10.2008 declaring a total income of Rs. nil. The assessee firm had originally returned the same income in the return filed u/s. 139(1) on 29.10.2003. After processing the return filed u/s. 153A, a notice u/s. 143(2) was issued on 27.11.2008. On the same day a notice u/s 142(1) was also issued along with a questionnaire seeking various details.

45.4 Coming to the materials found during the course of search, it was observed by assessing officer that many books of account and other documents were seized during the course of search as listed in Annexure PC-I (containing two

82 ITA Nos.507 to 512/Coch/2010 M/s.Best Bakery & Ice Cream Parlour. ITA Nos. 302 to 308/Coch/2010 & 269 to 275/coch/2010 M/s. Matha Enterprises. pages). The seized books of account and documents included daily statement sheets for the period 08.11.2002 to 17.12.2002 marked as Annexure PC-1(22). This seized material is a bunch of 157 loose sheets: Pages 1 to 152 are 'daily statements' of Hotel Hill Park for the above mentioned period and pages 153 to 157 are price list of liquor w.e.f. 18.04.2002. A day book maintained by the assessee for the period 01.11.2002 to 31.03.2003 was also seized. This was marked as Annexure PC-1(2). An analysis of the daily statement sheets revealed that for each day FOUR statements were found. One statement contained daily sales from the 3 Non-A/c bars, the A/c bar, food sales in the bars, restaurant sale in the third floor and sale of cigarettes. The second sheet contained the total restaurant sales of ground and third floor. The third sheet contained sale details of ‘Best Bakery’ which was a separate entity. The fourth sheet from front office contained room rent receipts.

45.5 It was observation of assessing officer that a statement was recorded from Shri K. A. Paul, Accountant of the assessee during the course of search on 13.02.2007. In answer to Q. No.2, which sought him to describe his duties to him as Accountant of M/s. Matha Enterprises, Shri K. A. Paul replied as follows: "M/s. Matha Enterprises - Hotel Hill Park is a firm with ten partners consisting of the families (1) Paulson P. Varkey group with 42% share (2) P.A. Kuriakose Group with 30% share (3) K.M. Mathai Group with 28% share. M/s. Matha Enterprises is the parent concern and under

83 ITA Nos.507 to 512/Coch/2010 M/s.Best Bakery & Ice Cream Parlour. ITA Nos. 302 to 308/Coch/2010 & 269 to 275/coch/2010 M/s. Matha Enterprises. this Hotel Hill Park Restaurant section, Crystal bar - bar section and lodging section (no separate name) are functioning. Crystal bar has 4 counters. 3 counters in first floor and one a/c counter in 3rd floor. Restaurant, is functioning in first floor and 3rd floor. The ground floor restaurant, M/s. Kwality Restaurant, is in the name of P.P. Mathai. M/s. Best Bakery in the ground floor is owned by the same 3 groups who owns this Hotel but it is a separate firm. As the accountant of this firm, I receive daily statements from M/s. Best Bakery, M/s. Hill Park Restaurant, one consolidated statement from 3 bar counters in first floor, one statement from a/c. bar & restaurant in 3rd floor. Daily stock is taken at bar counters by the staff. The sales of M/s.Kwality restaurant are included in the statement of M/s. Hill Park Restaurant. On receipt of stock statements, the daily sales in the bar is compared with the rough statement prepared by multiplying by the quantity of each item sold with peg rate or bottle rate. Bottles are sold from wholesale counter only. Peg rates of each item is exhibited in the counters itself. After calculating the sales according to the quantity of stock sold, the cash excess or short in the counter is worked out. Usually there will be small cash excess. Vouchers for expenses made are also received from counters. From these details, I daily prepare a cash statement. The cash taken by the partners are also recorded in the daily statement received from counters. Usually, I don't handle cash. Cash balance will be available with the Manager. In the daily statements maintained, daily cash balance is arrived and this amount will be available with Manager. After each month end, statement of cash withdrawn by partners is prepared and is given to Paulson P. Varkey, Managing Partner. Original day book and ledger of M/s. Matha Enterprises is also written by me. In this day book, consolidated sales of bar section, sales of restaurant in bar section, sales of ordinary soda, special soda and soft drinks in bar section, room rent and luxury tax collected are entered. While recording daily sales of bar in the original day book, 20% of sales is reduced and only 80% of actual sales are entered as daily bar sales. An amount of around Rs.5,000/- is entered as bar restaurant sales. The actual sales of ordinary soda, special soda and soft drinks and actual lodge collection are correctly entered in the day book. Almost all the expenses except for bribes paid and extra wages paid to staff are entered in the day book. Receipts

84 ITA Nos.507 to 512/Coch/2010 M/s.Best Bakery & Ice Cream Parlour. ITA Nos. 302 to 308/Coch/2010 & 269 to 275/coch/2010 M/s. Matha Enterprises. from Kwality restaurant is not entered in the day book. As the receipts from Kwality restaurant is not taken to day book a proportion of actual expenses in the restaurant with the receipts of accounted in the restaurant are only entered as expenses of restaurant."

45.6 Thereafter, on 13.02.2007, i.e., during the course of search, a statement of Shri Paulson P. Varkey, Managing Partner of the firm, was also recorded. Sworn statement recorded from Shri K. A. Paul, the accountant, was shown to him and he was requestedtoread the statement and respond to the correctness or otherwise of the statement given by Shri K. A. Paul. In reply to Question No.4, Sri Paulson replied that he had read the statement and that the facts stated by Sri K. A. Paul are correct. He also stated that usually 80% of the sale value in Bar section were entered in the cash book and the quantity of sales and purchases were correctly entered. The seized document PC-I(22) was also shown to him and vide Question No. 7 he was requested to describe the entries in the pages. Sri Paulson, though, tried to evade a direct and correct response by saying that he did not know what it was and only his Accountant Mr. Paul would know the details, he did not controvert the correctness of the statement of Sri Paul. The above quoted extract of the statement of the accountant, which was read by the Managing Partner before answering the question, however, brings it out clearly that the details contained in these seized documents, contain details of actual sales of the firm. There was thus an implicit admission of the relevant facts in this regard in the answer to Q. No.7 by the Managing Partner.

85 ITA Nos.507 to 512/Coch/2010 M/s.Best Bakery & Ice Cream Parlour. ITA Nos. 302 to 308/Coch/2010 & 269 to 275/coch/2010 M/s. Matha Enterprises.

45.7 PCI (22) is a document seized from the premises of Hotel Hill Park. This contains daily statement of Best Bakery & Ice Cream Parlour for the period from 11.11.02 to 17.12.02 which showed the receipts and payment of each day including sales and the cash balance. On scrutiny of the copy of the computerised cash books for the year 2002-03, produced before the DCIT (Inv) and the daily statements seized, it was noticed that there was huge suppression in receipts recorded in the cash book. A comparison of the sales as per daily statement (PCI 22) and cash book is given below:-

Date Sales as per Sales as daily recorded in statement cash books / day book 11.11.2002 19567 3176 12.11.2002 14288 3045 13.11.2002 17580 3150 14.11.2002 15061 3198 15.11.2002 17876 3073 16.11.2002 26200 3521 17.11.2002 -- Nil 18.11.2002 15807 3213 19.11.2002 16430 3080 20.11.2002 16407 3127 21.11.2002 16455 3127 22.11.2002 16780 2897 23.11.2002 26369 3396 24.11.2002 21171 Nil 25.11.2002 17338 3123 26.11.2002 13831 2998 27.11.2002 15049 3166 28.11.2002 16460 2992 29.11.2002 16000 2977 30.11.2002 26405 3357 02.12.2002 16250 3023 03.12.200 17573 3085 04.12.2002 15527 3072 05.12.2002 22013 2954 06.12.2002 19652 3063

86 ITA Nos.507 to 512/Coch/2010 M/s.Best Bakery & Ice Cream Parlour. ITA Nos. 302 to 308/Coch/2010 & 269 to 275/coch/2010 M/s. Matha Enterprises.

07.12.2002 18474 3041 08.12.2002 23564 Nil 09.12.2002 18406 3193 10.12.2002 14211 3172 11.12.2002 17431 3152 12.12.2002 18112 3150 13.12.2002 16890 3118 16.12.2002 20918 3043 17.12.2002 16239 3144 Total 600334 96916

45.8 From the above assessing officer observed that the firm had suppressed its sale at 83.86% and only 16.14% of the sale was recorded in the books of accounts. Applying this percentage, the total sale for the year worked out to Rs. 58,87,265/-.

45.9 The above mentioned materials found and seized during the course of search in the form of daily sheets and the statements of the Accountant and the Partner recorded on oath during the course of search go to establish the fact that the firm had suppressed its sales on day-to-day basis. By way of Q. N. 5 of the annexure to the notice issued under section 142(1), the managing partner of the assessee firm was given a comparison sales as per daily statement[(PCI(22)]and sales as recorded in the day-book. The comparison revealed that the assessee firm had suppressed its sales at 83.86%.As a percentage of declared sales it works out to 517.28% .It was proposed to assess the undisclosed income at Rs.1295051/- and objection to this proposal was called for.

87 ITA Nos.507 to 512/Coch/2010 M/s.Best Bakery & Ice Cream Parlour. ITA Nos. 302 to 308/Coch/2010 & 269 to 275/coch/2010 M/s. Matha Enterprises. 50. The Ld. AR contended that PC - 1(22), picked up by the search team were erroneous statements and hence were scored off and were discarded. It was not a statement of purchase and sales but was a cash control point summary statement maintained by the earlier. The statements claimed by the Assessing officer as 'daily statements' for the financial year 2002-03 were in fact not so. It seems, this was written by some staff to have good control over cash in hand, i.e., as a cash control statement kept by a cash control point person. It also recorded cash received on various occasions from different counters during day time for control purposes. Cash paid to various counters were also recorded. This was evident from the fact that small figures were added to constitute the total. For example on 8.11.2002 against bar Rs.34,115/- + Rs.27,756/- + Rs.81,883/- + Rs.6,000/- shown in receipt column and Rs.6,079/- shown in payment column. The partner further submitted that the document was purely unreliable for the fact that these have been completely scored off in every page when the person who prepared would have realized that the statement were erroneous. He also claimed that the partners were unaware of the matters recorded in these pages. No material or evidence whatsoever had however been produced to in support of the claim that the transactions recorded in the seized document in respect of sales do not represent the actual transactions.

50.1 The assessing observed that from the statements of the

88 ITA Nos.507 to 512/Coch/2010 M/s.Best Bakery & Ice Cream Parlour. ITA Nos. 302 to 308/Coch/2010 & 269 to 275/coch/2010 M/s. Matha Enterprises. Accountant, Shri KA. Paul, recorded under section 132(4) during the course of search, itwas seen that he received the daily statements from 'Best Bakery', daily statements from 'Hill Park Restaurant', one consolidated statement from three bars in 1st floor, A/c Bar and restaurant in 3rd floor and one statement from front office. The entries in day-book PC-I(02) for 'room rent received were the 'room rent' receipts shown in the front office daily statements. These receipts tally with the receipts shown in the books of account on which the returns filed by Matha enterprises were based which proved that daily statements were the primary documents based on which the day book was written. The fact that the daily statements of room rent receipts which tally with the entries in the books of account of the assessee were also scored-off like other daily statements, disproved the partner's claim that the documents were unreliable for the fact that these had been completely scored off in every page when the person who prepared would have realized that the statement were erroneous. The accountant himself had admitted that while recording daily sales of the bar in the original day book, 20% of sales were reduced and only 80% of the actual sales were entered as daily bar sales and only an amount of Rs.5,000/- was entered as Bar Restaurant sales of Matha enterprises. Shri Paulson P. Varkey admitted that the facts stated by Sri K. A. Paul were correct. In his reply to Question No.7, when requested to describe the entries in the pages, Sri Paulson replied that he did not know what it was and only his Accountant Mr. Paul would be knowing the details.

89 ITA Nos.507 to 512/Coch/2010 M/s.Best Bakery & Ice Cream Parlour. ITA Nos. 302 to 308/Coch/2010 & 269 to 275/coch/2010 M/s. Matha Enterprises. 50.2 According to assessing officer, there was presumption regarding correctness of the entries found recorded in the records found as a result of search under section 132(4A). It provided that the books of account, other documents, money, bullion, jewelry or other valuable articles seized from the possession of the assessee shall be presumed to belong to the person in whose possession or control they are found in the course of search. A similar presumption was also enacted as to the truth of the contents of the books of accounts so found. So also, the signature and every other parts of the books of account may be presumed to be in the hand writing of the person by whom it was purported to have been written. If they are stamped, executed or attested, they shall be presumed to be stamped and executed or attested by the person by whom it purports to have been executed or attested.

50.3 The assessing officer observe that in the case of the assessee firm, the presumption as to the correctness of the daily statements seized as PC-1(22) was not rebutted by way of production of any evidence or material as discussed at Para 5 above. On the contrary, there was overwhelming material and evidence to support the correctness of the daily statements such as:

(a) The fact that room rent sales recorded therein tally with the books of account (as discussed at Para 5.1 above), even though scored off, just like other figures which are claimed to be erroneous.

90 ITA Nos.507 to 512/Coch/2010 M/s.Best Bakery & Ice Cream Parlour. ITA Nos. 302 to 308/Coch/2010 & 269 to 275/coch/2010 M/s. Matha Enterprises. (b) Sri K. A. Paul, the Accountant, stated that the statements indicate the sales of different counters as explained in the reply quoted above at Para 3.1 of this order and that there has been suppression of sales by the assessee firm.

(c) The correctness of the above mentioned statement of the accountant was authenticated by the Managing Partner of Matha enterprises and a partner of this firm on the date of search.

(d) The figure of actual suppression of 27.1% of the sales of liquor on the basis of seized record of Matha enterprises is quite near to the stated suppression of sales by 20% as per the statement of the accountant and confirmed by the Managing Partner as discussed above a Para 3.1 and 3.2 above.

50.4 The assessing officer observed that only in the reply to the notice under section 142(1), the firm has tried to go back on the statement recorded on 13.02.2007 from Shri Paulson P. Varkey. Though Shri Paulson had not formally and legally retracted from his statement and as such, the statement given on 13.02.2007 continued to be evidence to be used against the firm in these proceedings, the contents of reply amount to an indirect retraction of the statement recorded during the course of search. This is not sustainable as it was not made soon after the statement was recorded, retraction is unsubstantiated and does not indicate any facts to prove inducement or compulsion when the statement was recorded.

50.5 The assessing officer observed that since the facts

91 ITA Nos.507 to 512/Coch/2010 M/s.Best Bakery & Ice Cream Parlour. ITA Nos. 302 to 308/Coch/2010 & 269 to 275/coch/2010 M/s. Matha Enterprises. mentioned above go to prove that the assessee firm's books were not correct and complete a notice under section 144(1) r.w.s. 145(3) of the Income tax Act was also issued to the assessee on 23.12.2008 to show cause why its assessment should not be completed in the manner provided under section 144. The assessee was required to file its reply before 26.12.2008. No explanation in this regard was filed till today. As such the books of account of the assessee were rejected as they were not found to be correct and complete within the meaning of provisions of section145(3) of the Act and the assessment was made in the manner provided under section 144 of the Act.

50.6 In view of the above, the assessing officer framed the assessment of the assessee as discussed below:-

Estimation of undisclosed Sales and Consequent Profits in AY 2003-04

50.7 The total sale for the whole year recorded in the books is Rs. 9,53,739/-. The undisclosed sales were found to be at 517.28% of the disclosed sales. When this ratio is applied to the admitted sale of Rs.9,53,739/- total undisclosed sales and estimated total sales worked out to Rs.49,33,501/- and Rs. 58,87,240/- respectively. The undisclosed sales of Rs.49,33,501 would not have obviously been made from the cost of sales debited at Rs.7,03,304/- to the accounts in respect of disclosed sales of Rs. 9,53,739/-. In its accounts

92 ITA Nos.507 to 512/Coch/2010 M/s.Best Bakery & Ice Cream Parlour. ITA Nos. 302 to 308/Coch/2010 & 269 to 275/coch/2010 M/s. Matha Enterprises. the assessee had disclosed profit margin on sales at 26.25% of the sales. The undisclosed profit thus worked out to Rs. 12,95,044/- on undisclosed sales of Rs.49,33,501/- Since the indirect expenses were already debited to the accounts, the amount of Rs.12,95,044/-was added to the returned income as undisclosed profits from restaurant.

Salary to Partners : A.Y 2003-04 50.8 At page 4 of the Partnership deed, (a copy of which was filed for the assessment year 2001-02), a clause regarding salary payable to partners was found. It only said that the remuneration payable to Working partners, Shri Paulson P. Varkey, Shri Jobby Mathew and Shri Johny Kuriakose shall be computed in the manner laid down in Explanation 3 to section 409b) of the Act or any other applicable provisions as may be in force in the income tax assessment of the partnership firm for the relevant accounting year. Such amount was to be distributed between the partner in the proportion of 42%, 28% and 30% respectively. It was to be calculated at the close of the accounting year and was credited to the account of the partners. In this case, neither the amount of remuneration had been quantified nor even the limit of total remuneration had been specified but the same had been left to be determined by the partners at the end of the accounting period. As such remuneration to partners cannot be allowed as deduction in the computation of the firm’s income.

93 ITA Nos.507 to 512/Coch/2010 M/s.Best Bakery & Ice Cream Parlour. ITA Nos. 302 to 308/Coch/2010 & 269 to 275/coch/2010 M/s. Matha Enterprises. 50.9 Thus, the total income of the assessee and the amount of tax and interest payable was computed as follows:

Income from business – as returned : Rs. Nil Add: Undisclosed income Estimation of undisclosed sale : and consequent profits : Rs.12,95,044 Total income determined u/s. 153A :Rs.12,95,044/- Rounded to : Rs.12,95,040

Income Tax on the above : Rs.4,53,264 Add: Surcharge @5% : Rs.22,663 : Rs.4,75,927

Add: Interest u/s. 234A : Rs. 42,831 Interest u/s. 234B : Rs.3,35,510 Total Tax & Interest Payable Rs.8,54,268/-

60.1 For the assessment year 2002-03, undisclosed sale was Rs.41,55,285/- and profit was fixed at 23.19% of the sales. The undisclosed profit was fixed at Rs.9,63,610/-.

60.1.1 For the assessment year 2003-04, the undisclosed sale was Rs. 49,33,501/-. On a margin profit of 26.25% the undisclosed profit was fixed at Rs.12,95,044/-.

94 ITA Nos.507 to 512/Coch/2010 M/s.Best Bakery & Ice Cream Parlour. ITA Nos. 302 to 308/Coch/2010 & 269 to 275/coch/2010 M/s. Matha Enterprises.

60.2 For the assessment year 2004-05, the undisclosed sale was Rs.42,20,664/- and the profit margin was at 26.25% on the sales. The income under the suppressed sales was fixed at Rs.11,18,475/-.

60.3 For the assessment year 2005-06, the undisclosed sale was fixed at Rs.42,47,767/- and the profit margin was fixed at 31.60% on the sales. As a result Rs.13,46,117/- was added to the returned income.

60.4 For the assessment year 2006-07, undisclosed sale was fixed at Rs.47,69,934/- and the profit margin adopted was 29.88% of the sales. The undisclosed profit was fixed at Rs.14,25,256/-. All the estimates of sales were fixed on the basis of AY 2003-04.

95 ITA Nos.507 to 512/Coch/2010 M/s.Best Bakery & Ice Cream Parlour. ITA Nos. 302 to 308/Coch/2010 & 269 to 275/coch/2010 M/s. Matha Enterprises. G.P was fixed at 28% on the disclosed sales turnover of Rs. 9,45,480/-. The GP was fixed at Rs.2,64,734/- as against the GP declared by the assessee at Rs.2,19,349/- and the addition was restricted to Rs.45,385/- out of Rs.9,63,610/- made by the Assessing Officer. For the assessment year 2003-04, the CIT(A) observed that the suppression is 520% of the disclosed turnover of Rs.9,53,739/-. The suppressed turnover was fixed at Rs.49,59,443/- and profit @ 20% was fixed at Rs.9,91,890/-. The CIT(A) confirmed the amount of Rs.9,91,890/- as addition as against the addition made by the Assessing Officer at Rs.12,95,044/-. For the assessment year 2004-05, the suppressed turnover was fixed at Rs.44,94,461/- and profit at 20%. The CIT(A) fixed the profit on undisclosed sale at Rs.8,98,890/- as against the addition of Rs.11,18,475/- made by the Assessing Officer. For the assessment year 2005-06, the suppressed turnover was at Rs.45,23,328/- and the profit was at 20%. The CIT(A) fixed the undisclosed profit at Rs.9,04,665/- as against the addition of Rs.13,46,117/- made by the Assessing Officer. For the assessment year 2006-07, the suppressed turnover was fixed at Rs.50,79,368/- and the profit margin was fixed at 20%. The CIT(A) fixed the undisclosed income at Rs.10,15,870/- as against the addition of Rs.14,25,256/-.

96 ITA Nos.507 to 512/Coch/2010 M/s.Best Bakery & Ice Cream Parlour. ITA Nos. 302 to 308/Coch/2010 & 269 to 275/coch/2010 M/s. Matha Enterprises. K.A.Paul, accountant of the Matha Enterprises. During the course of search on 13.02.2007, as per the statement taken from Shri K.A. Paul there was no enquiry and no questions were asked to Shri K.A. Paul on the working of the assessee firm M/s. Best Bakery and Ice cream Parlour. Subsequently, statement was taken from Shri Paulson P. Varkey, Managing Partner of Matha Enterprises. His statement was also exclusively relating to Matha Enterprises and there was no mention about M/s. Best Bakery and Ice Cream Parlour. It was submitted that Shri Jobby Mathew was the Managing Partner of Best Bakery but no enquires were made about him and no statements were taken from him regarding the affairs of Best Bakery. It was submitted that the Tribunal during the appeal proceedings had made a special mention of this particular issue and observation was made in para2.2 of the appeal order dated 31.01.2012. “SHE”- [Smt.T.R. Prasannakumari, Sr.DR] was specifically queried by the Bench as to if any specific query in relation to the assessee was made by the Revenue in the statements of Accountant and partner under section 132(4) of the Act being relied upon, and to which she answered in the negative.

62.1 In view of the above it was submitted that it was abundantly clear that the statement u/s.132(4) taken from the accountant Shri K.A.Paul and the Managing Partner of M/s. Matha Enterprises were not supporting any assessments of any undisclosed income in the case of the assessee firm. The seized documents referred to in the assessment order

97 ITA Nos.507 to 512/Coch/2010 M/s.Best Bakery & Ice Cream Parlour. ITA Nos. 302 to 308/Coch/2010 & 269 to 275/coch/2010 M/s. Matha Enterprises. were PC-I(22) relating the AY-2003-04 and PC-I(8) relating to AY-2007-08 which were relating to M/s.Matha Enterprises and not to the assessee firm.

62.2 In view of the above, it was submitted that the seized documents which were mainly referred to the assessment order of the firm were not relating to the assessee firm but relating to M/s. Matha Enterprises. Hence the assessment u/s.153C on the assessee firm was without any support of statement u/s.132(4) for any seized documents.

62.3 It was also submitted that satisfaction was not recorded on the basis of the seized documents to assess the firm u/s.153C of the Act which is an essential pre-condition for issue of notice for assessment u/s.153C. For the above reasons, it was submitted that the assessments u/s.153C on the assessee firms for AY's-2001-02 to 2006-07 is illegal and liable to be cancelled.

98 ITA Nos.507 to 512/Coch/2010 M/s.Best Bakery & Ice Cream Parlour. ITA Nos. 302 to 308/Coch/2010 & 269 to 275/coch/2010 M/s. Matha Enterprises. other assessment years and the same is to be confirmed. He relied on the order of the Assessing Officer.

BEST BAKERY AND ICE CREAM PARLOUR

ITA Nos. 507, 508, 510, 511 & 512/Coch/2010: : Assessee’sAppeal : AYs : 2001-02, 2002-03, 2004-05 & 2006- 07

FINDIINGS 65. These assessments were passed under section 153C of the I.T. Act. Admittedly, in these assessment years, there was no seized material found during the course of search for estimating the suppressed sales. In our opinion, once the assessment is concluded and become final as on the date of search or the time lime to issue notice u/s. 143(2) of the Act has been expired, then the determination of the total income in respect of the assessment years for which the assessments have already been completed on the date of search, shall not be influenced by the items of income other than those based on the material unearthed during the course of search. This legal proposition is supported by the judgment of the Supreme Court in the case of Sinhgad Technical Education Society vs. CIT 397 ITR 344 (SC) wherein it was observed that as per the provisions of section 153C, incriminating material which was seized had to pertain to the assessment year in question and it is an undisputed fact that the documents which were seized did not establish any co-relation, document wise, with the other assessment years. Since this requirement u/s. 153C is

99 ITA Nos.507 to 512/Coch/2010 M/s.Best Bakery & Ice Cream Parlour. ITA Nos. 302 to 308/Coch/2010 & 269 to 275/coch/2010 M/s. Matha Enterprises. essential for assessment under that provision, it becomes a jurisdictional fact. This reasoning appears to be logical and valid, having regard to the provisions of section 153C. The jurisdictional High Court of Kerala in the case of CIT (Central Circle) v. Promy Kuriakose in RP No.750 of 2016 in ITA No.296/2013 dated 29th August, 2016, observed that in the absence of search material, proceedings u/s 153C of the Act cannot be initiated by the Assessing Officer. In yet another case, the coordinate bench of the ITAT in the case of Shri Eldhose K.Varghese v. DCIT in ITA No.261 to 267/Coch/2016 dated 04.10.2017, had examined similar issue in the light of the decision of the ITAT Mumbai Special Bench in the case of All Cargo Global Logistics Ltd. v. DCIT [(2012) 137 ITD 287 (SB) (Mum,)] and after considering various case laws, observed that it is quite significant to denote that in respect of completed or non-pending assessment, the Assessing Officer albeit duty bound to assess or reassess the total income, but if there is scope for additions in such assessment, on the basis of income unearthed during the search, he can make the addition. The sum and substance of the ratio laid down in these case laws is that the A.O. cannot make any addition towards completed / unabated assessment in the absence of any seized materials. In this case the fact with regard to date of search is not disputed. The search took place on 13/02/2007. The date of issue of notice u/s 143(2) for the assessment years was expired before the date of search. Therefore, we are of the view that the assessments for the

100 ITA Nos.507 to 512/Coch/2010 M/s.Best Bakery & Ice Cream Parlour. ITA Nos. 302 to 308/Coch/2010 & 269 to 275/coch/2010 M/s. Matha Enterprises. assessment years have been concluded / unabated as on the date of search and hence the A.O. cannot make any addition towards returned income in the absence of any seized materials. In the present case, there is no seized material found during the course of search to estimate the sales. Hence, the addition made by the Assessing Officer and sustained by the CIT(A) is deleted. Thus, this ground of appeals of the assessee is allowed. The appeals of the assessee are allowed.

ITA Nos.509/Coch/2010:Best Bakery: Assessee’s Appeal: AY 2003-04

FINDINGS

101 ITA Nos.507 to 512/Coch/2010 M/s.Best Bakery & Ice Cream Parlour. ITA Nos. 302 to 308/Coch/2010 & 269 to 275/coch/2010 M/s. Matha Enterprises. 275/Coch/2010 are dismissed. The appeals of the assessee in ITA Nos.507,508,510, 511& 512/Coch/2010 are allowed and the appeal of the assessee in ITA No. 509/Coch/2010 is partly allowed and in ITA No. 513/Coch/2010 is dismissed. The appeals of the Revenue in ITA Nos. 498&499/Coch/2010 are dismissed. Order pronounced on this 16th day of December, 2019.

sd/- sd/- (George George K) (Chandra Poojari) JUDICIAL MEMBER ACCOUNTANT MEMBER

Cochin ; Dated : 16th December, 2019. Devdas*/GJ

Copy of the Order forwarded to : 1. M/s. Matha Enterprises,Near KSRTC Bus Station, Thrissur Road, Angamaly. 2. M/s.Best Bakery & Ice Cream Parlour Near KSRTC Bus Station, Angamaly. 3. The Deputy Commissioner of Income-tax, Central Circle, Kochi. 4. The Assistant Commissioner of Income-tax, Central Circle, Kochi 5. The CIT(Appeals)-I, Kochi. 6. The CIT, Central, Kochi. 7. DR, ITAT, Cochin 8. Guard File

BY ORDER, (Asstt.Registrar) ITAT, Cochin

102 ITA Nos.507 to 512/Coch/2010 M/s.Best Bakery & Ice Cream Parlour. ITA Nos. 302 to 308/Coch/2010 & 269 to 275/coch/2010 M/s. Matha Enterprises.