THE ACIT, COCHIN vs. M/S.SUNNY JACOB JEWELLERS & WEDDING CENTRE, KOTTARAKKARA

Per CHANDRA POOJARI, ACCOUNTANT MEMBER:

These appeals filed by the Revenue are directed against the different orders

of the CIT(A)-IV, Kochi and pertain to different assessment years.

21/07/2016 covering three assessment years namely, AYs. 2005-06, 2006-07

and 2007-08. This discrepancy was pointed out to the Department. Later two

I.T.A. Nos.326/Coch/2016 & 476 &477/Coch/2018 (Sunny Jacob Jewellers & Wedding Centre) separate appeals in ITA Nos.476/Coch/2018 for the assessment year 2005-06

and 477/Coch/2018 were filed on 25/09/2018. Hence, delay in filing these two

appeals by 742 days was noted by the Registry. In our opinion, there cannot be

any delay in filing of these appeals before the Tribunal as the date of filing of

these two appeals shall be reckoned from the original date of filing of the

appeals, i.e. 21/07/2016. Accordingly, the appeals are considered as filed in

time.

deletion of addition made towards estimation of G.P.

year 2007-08 are that the assessee is a partnership firm constituted on

12/07/2004. Shri Sunny Jacob and Smt. Maggy Sunny and Shri E.M. Joseph

were its main partners. Master Jacob Sunny and Kumari Dona Sunny, minor son

and minor daughter of Shri Sunny Jacob were admitted to the benefits of the

partnership. The return of income for the AY 2007-08 was filed declaring total

income of Rs.31,380/-. A search under section 132 of the I.T. Act was

conducted at the business premises of the firm on 21/08/2007. On the basis of

documents/books of account found and seized and information gathered during

the course of search at its business premises on 21/08/2007, a notice u/s. 153A

of the Act was issued to the assessee on 27/06/2008. In response to the above

I.T.A. Nos.326/Coch/2016 & 476 &477/Coch/2018 (Sunny Jacob Jewellers & Wedding Centre) notice, the return of income for the assessment year 2007-08 was filed on

02.07.2009 declaring a loss of Rs.26,62,920/- . The income returned by M/s.

Sunny Jacob Jewellers & Wedding Centre originally u/s. 139(1) of the IT Act was

Rs.(-)26,62,920/-. The additional income now included in the return filed u/s.

153A of the IT Act was nil. The gist of the returned income filed, the income

originally assessed and the income re-assessed as per directions of the ITAT is

summed up as under:

Assessment Year Income returned Assessed income Assessed income (Original) (Revised) 2005-06 31,377 22,34,388 20,34,114 2006-07 35,850 1,31,01,968 1,19,14,140 2007-08 (-)26,62,920 1,39,92,024 1,24,77,939 2008-09 (-) 7,34,442 42,19,190 37,68,860

4.1 During the course of search at the assessee’s business premises on

21/08/2007, it was noticed that the assessee had effected sales by issue of

’estimate slips’ instead of sale bills and the sale bills were prepared for

accounting purposes only in few cases. It was also noticed that the sales on

‘estimate slips’ were not accounted resulting in under recording of sales and

suppression of turnover. As part of pre-search enquiries gold ornament was

purchased from the assessee’s shop on 25/07/2007 by the Investigation Wing.

On purchasing 1.580 gms of gold on 25/07/2007, they had issued ‘estimate slip’

showing receipt of Rs.1,550/-. But no sale bill had been issued. Subsequent to

the search, on verification of the accounts maintained by the assessee, it was

I.T.A. Nos.326/Coch/2016 & 476 &477/Coch/2018 (Sunny Jacob Jewellers & Wedding Centre) noticed that the above sales on the basis of ‘estimate slips’ were not accounted

by them, either in the computer or in any other books. Similar estimate slips

were issued from the different shops of the Sunny Jacob Jewellers Group while

selling gold ornaments. While recording statements from Shri Sunny Jacob by

the Asst. Director of Income-tax(Inv.) after the search, the above ‘estimate slips’

had been shown to him. In reply to Qn. No. 5 he had stated that the assessee

was issuing ‘estimate slips’ only for showing the customer, but they were issuing

bills on finalization of the sales. The above contention of the assessee was

rejected by the AO.

4.2 During the course of search at the premises of the assessee on

21/08/2007, daily summary sheet relating to 20/08/2007, i.e. the day previous of

search (Sheet No. 16 of AWA 19) was found and seized. In the above daily

statement, there were 37 sales, as per which 157.190 gms. of gold was sold.

Considering the sale rate of gold for that day, i..e. Rs.830/- per gram, the total

sales should have been Rs.1,30,467/-. But the actual sales recorded in their day

book for that day was Rs.40,237.98 only, i.e. only 30.85% of the real sales.

Shri Bejimon S. manager of Kottarakkara show room could not give any

explanation for the above under recording of sales while giving his statement on

21/08/2007 during the course of the search (Q.No.4).

I.T.A. Nos.326/Coch/2016 & 476 &477/Coch/2018 (Sunny Jacob Jewellers & Wedding Centre) 4.3 During the course of search at the premises of M/s. Sunny Jacob 916

show room, Pazhavangadi, Trivandrum, statements were recorded from its

employees. A gist of their statements is given as below:

a) "Shri Joshi Abraham, Cashier in his statement recorded on 21.08.2007

during the course of search at your premises have stated that you are

issuing sales bill only for a part of sales and that the balance sales are

effected in 'estimate slips'. He has also stated that while purchasing old

gold ornaments, you are not issuing any purchase bills. He has further

stated that when any customer selects an item for purchase the salesman

gets estimate slip printed by the computer operator Shri Pintu Jacob. Shri

Joshi Abraham is collecting cash as per the 'estimate slip' and handing

over the ornaments to the customer. Shri Mathew Eapen, Floor Supervisor

of your shop in his statement recorded on 21.08.2007, during the course

of search, has stated that you are not issuing sales bills for all the sales

effected in your shop and that for the sales for which sales bills are not

issued, 'estimate slips' are issued to the customer. He has further stated

that when you are purchasing old gold ornaments from customers you

were not issuing purchase bills. He has also stated that in the cash book

maintained by him he is not entering all the sales effected in your shop.

I.T.A. Nos.326/Coch/2016 & 476 &477/Coch/2018 (Sunny Jacob Jewellers & Wedding Centre) b) Shri Pintu T. Jacob, computer operator of your shop has stated on

21/08/2007 that he is printing out ‘estimate slips’ while making sales and

that he is preparing ‘estimate slips’ for all the sales made in your shop. He

has also stated that he is not aware whether any other bill is prepared for

the sales made in your shop. He further stated that recording of the

actual sales are not made in the hard disk of the computer. As per his

statement, no purchase bills are issued while exchanging old gold

ornaments in your shop for purchasing new ones. Instead, the purchases

are recorded in the ‘estimate slips’ prepared.”

4.4 During the course of search at the premises of M/s. Sunny Jacob Gold

Hyper Market, Kollam on 21/08/2007, three note books marked as MSP(1),

MSP(2) and MSP(3) were seized. These note books contained accounts of

purchases and issue of gold ornaments and when compared with the regular

stock register maintained by them, i.e., MSP(113), it was noticed that there was

wide variations in accounting purchases and issues as per these registers during

the period 26/07/2007 to 07/08/2007. It was noticed that in place of real

purchase of 1207.430 gms., only 188.500 gms. found place in the regular stock

register giving rise to suppression of 1018.93 gms. which showed that a very

good percentage of business of the show room at Kollam., i.e., about 84.39%

was outside the books of accounts and only 15.61% was accounted.

I.T.A. Nos.326/Coch/2016 & 476 &477/Coch/2018 (Sunny Jacob Jewellers & Wedding Centre) 4.5 On checking the log-in time of the computer maintained in M/s. Sunny

Jacob 916 Jewellery showroom, Trivandrum, it was found that all the sales for a

day are recorded in the computer within a short time of 2 to 3 minutes which

gives more credence to the view that sale bills generated in the computer are

made up for accounting purposes only and they do not reflect the actual sales.

4.6 Further the following discrepancies were noticed in the books of accounts

found and seized during the course of search regarding the amount withdrawn

and debited:

a) As per the cash book of the Kollam shop, an amount of Rs.49,00,000/- was credited in the accounts on 06/07/2007 as amount received from the Kottayam shop. But on verifying the cash book of Kottayam shop, the amount withdrawn and debited was Rs.49,000/- only. The assessee had explained that it was only a clerical mistake.

b) Similarly an amount of Rs.10,000,000/- was credited in the cash book of the Kollam shop as cash received from the Kottayam shop on 02/08/2007. But there is no such withdrawal debited in the cash book of Kottayam shop on that day.

c) During the course of search at the business premises of the Kollam Branch, there was a shortage of cash of Rs.23,359/-. Shri Sony Joy, the manager of the shop was not able to given any explanation for the cash shortage.

d) Similarly, there was a credit of Rs.10,00,000/- in the cash book of the Kottarakkara shop as amount received from the Kottayam shop on 02/08/2007. But there is no corresponding withdrawal from Kottayam shop on the above date.

I.T.A. Nos.326/Coch/2016 & 476 &477/Coch/2018 (Sunny Jacob Jewellers & Wedding Centre) 4.7 The assessee could not offer any satisfactory explanation for the

discrepancies. But during the course of hearing at the time of first assessment,

the assessee produced computer printed cash book and ledger where the above

discrepancies were removed The cash book and the ledger produced on

28/12/2009 were impounded u/s. 131(3) of the Act. As the account books based

on which the assessee had made up the accounts, were held to be not reliable

and income was estimated on estimated turnover, the above discrepancies did

not affect the computation of income.

4.8 During the shop inspection by the Commercial Taxes Department, many

irregularities were found and the main irregularity noticed was that the assessee

was making sales on estimate slips and accordingly, assessment orders were

passed by the Commercial Taxes. The assessee stated before the Asst. Director

of Income-tax(Inv.) that the orders were challenged before the High Court but

the orders of the High Court have not been received so far. From the

books/documents found during the course of search, data found in the

assessee’s computer, information collected from the Sales Tax Department and

on the basis of the information gathered before eh search, it was apparent that

the assessee was making sales on ‘estimate slips’ instead of sale bills and theat

they are generating sale bills only for accounting purposes and hence, the sales

recorded in their accounts were not reflecting the actual turnover of their

business. Since the accounting was not based on actual sales, but on made up

one and the sale bills produced for accounting purposes only were entered and

I.T.A. Nos.326/Coch/2016 & 476 &477/Coch/2018 (Sunny Jacob Jewellers & Wedding Centre) saved in the computer, the assessee’s computer generated accounts did not

reflect the actual sales or transactions in their business. Hence, it was proposed

to estimate the total turnover of the assessee taking into account the

circumstances of the case.

4.9 It was found that as per the account books of Sunny Jacob 916 show

room, Pazhavangadi, Trivandrum, the total number of sales on 20/08/2007 was

6, i.e., Bill Nos. 624 to 629. The estimate slip No. 17 issued from the shop for

sale of jewellery had been produced by Shri A. Baby before the authorized officer

at the time of search. It was seen that none of the estimate slips were

accounted. Presuming that there were only 17 estimate sales on that day, the

sales accounted on that day was 6/23 i.e. 26.08%. Similarly, on 16/08/2007 as

per the account books, there were only 6 sales i.e. Bill Nos. 603 to 608.

Estimate sales Slip No. 31, evidencing sale on ‘estimate’ on 16/08/2007 is in the

possession of the Department. Assuming that there were only 31 estimate sales

on that day, the accounting of the sale is only 6/37 i.e. 16.22%. More than 83%

of the volume of business is unaccounted.

4.9.1 It was also found that while purchasing old gold ornaments, they were

getting a margin of nearly 16% and while selling new gold ornaments also they

are getting a margin of 15%. Considering the above instances of suppression of

I.T.A. Nos.326/Coch/2016 & 476 &477/Coch/2018 (Sunny Jacob Jewellers & Wedding Centre) sales, the Assessing Officer concluded that the assessee was accounting only

30% of the real turn over in the books of accounts.

4.9.2 The Assessing Officer proposed to alter the profit from business vide

letter dated 26/11/2009. In reply, the assessee explained that they were issuing

sale bills for all sales and that estimate slips were issued only in cases where the

customer did not make the final selection and where there was possibility of

exchange or return subsequently. It was explained that estimate slips were

entered in the sale bills on subsequent dates. The assessee wanted opportunity

to cross examine the persons which was granted. On cross-examination and re-

examination, the AO found that the statement given by Shri A. Baby, retired

KSRTC Driver, Kollam that he was not issued any purchase bill in respect of

purchase of new gold ornaments in exchange of old gold ornaments was correct.

From the statement of Shri Joshi Abraham, erstwhile cashier of M/s. Sunny Jacob

916 Jewellery showroom, Trivandrum, it was clear that the estimate slips made

on the last selection was handed over to Shri Mathew Eapen, former Floor

Supervisor of M/s. Sunny Jacob 916 Jewellery, Trivandrum who was issuing the

sale bills to the customer. Hence, according to him no estimate slips, where final

selection was made could go out of the shop and it is only in the cases where

there were possibilities of an immediate exchange, estimate slips were given

after affixing cash received seal. Shri Mathew Eapen in his statement dated

21/08/2007 had stated that his shop was not issuing sale bills for all sales and

I.T.A. Nos.326/Coch/2016 & 476 &477/Coch/2018 (Sunny Jacob Jewellers & Wedding Centre) purchase bills for all purchases but on re-examination, he stated that his shop

was issuing sale bills for all sales and purchases bills for all purchases. Similarly,

Shri Bejimon S., erstwhile Manager of M/s. Sunny Jacob Jewellers and Wedding

Centre, Kottarakkara tried to explain that the shop at Kottarakkara was not using

computer but on re-examination he stated that the computer was used at least

sparingly. The statement given by Shri Pintu T. Jacob, Computer Operator, M/s.

Sunny Jacob 916 Jewellery, Trivandrum was a clarification to the effect that he

was only printing estimate slips and not sale bills and he was only entrusted with

the work of printing estimate slips and sale bills were written by Shri Mathew

Eapen. According to the AO, none of the above statements was sufficient

enough to prove that the business establishments in the group were not issuing

estimate slips, instead their statements establish that they were destroying the

estimate slips. After having a total appraisal of the statements given by different

persons at the time of search, cross-examination, re-examination and on the

basis of the information collected during the course of search and pre-search

enquiries, it was found that the business concerns of M/s. Sunny Jacob Group of

Jewellers were resorting to suppression of sales by effecting a major portion of

sales through estimate slips not accounted in the books of account. According to

the AO, the inspection by the Sales Tax Department at the premises of all the 5

business concerns also revealed that the assessee was making sales on estimate

slips. Considering the above facts, it was concluded that the assessee was

accounting only 30% of the sales in its accounts. In view of the above, the AO

I.T.A. Nos.326/Coch/2016 & 476 &477/Coch/2018 (Sunny Jacob Jewellers & Wedding Centre) rejected the objections raised by the assessee against estimating the turnover by

grossing up the admitted turnover which was found to be only 30% of actual

turnover.

4.9.3 According to the AO, in the original assessment, the profit was adopted

at 22% of the turnover fixed by above estimation. It was noticed that the

assesses themselves were showing different gross profits ranging from 10% to

40% in their different shops at Kottayam, Kollam, Kottarakkara and Trivandrum

during the past few years. It was noticed that M/s. Josco Jewellers, Kottayam

and Josco Fashion Jewellers, Kottayam had declared gross profit of 25% for the

AY 2005-06. M/s. Trichur Fashion Jewellers had declared gross profit ranging

from 19% to 30% during 2005-06, 2006-07. Considering the average profit

declared by the assessees themselves and taking into account the request of the

assessee, the gross profit of the business was computed at 22% of the turnover

in the original assessment order.

4.9.4 The assessee stated that the profit rate of suppressed turnover adopted

in the original assessment order @ 22% was highly excessive. It was stated that

no sales returns were recorded in the final accounts of the assessee for the

relevant assessment year. After verifying the seized materials, the AO found that

no details were produced in support of the assessee’s claim regarding sales

return. Hence, without any supporting material, the Assessing Officer held that

I.T.A. Nos.326/Coch/2016 & 476 &477/Coch/2018 (Sunny Jacob Jewellers & Wedding Centre) assessee’s claim of suppressed turnover was not tenable. However, the

Assessing Officer determined the profit on suppressed sales turnover at 20% of

Rs.7,57,04,295/- as against the rate of 22% made in the original assessment

order.

GP by applying the rate of 20% instead of GPO @ 22% applied in the original

order on the same suppressed turnover and estimated the same as total income

of the assessee. According to the CIT(A), the AO had resorted to estimation of

suppressed profit as well as the estimation of applicable G.P. rate, based on the

findings of the period relevant to the AY 2008-09 and the finding of the AY 2008-

09 has been stretched back to cover the entire period between the AY 2002-03

to 2007-08. According to the CIT(A), only the real income can be taxed and no

nominal income can be assessed to tax based on assumptions and presumptions.

The Assessing Officer had not brought out any new facts on records. Therefore,

it was held that the addition based on deriving the income out of applying

estimated GP rate at the estimated suppressed turnover has got no basis.

Accordingly, the CIT(A) deleted the additions for the AYs. 2005-06, 2006-07 and

2007-08.

jurisdictional High Court in the case of CIT vs. Hotel Meriya in which court had

I.T.A. Nos.326/Coch/2016 & 476 &477/Coch/2018 (Sunny Jacob Jewellers & Wedding Centre) held that when it is revealed in a search u/s. 132 that the assessee was following

a particular method to conceal income, it is just and reasonable to presume that

the same practice was followed by the assessee throughout the assessment

years in the block period. The Ld. DR submitted that the income generated from

the unaccounted sales had been invested in immovable properties worth more

than Rs.6 crores which itself is a concrete evidence for the concealment of

income for all the years. It was submitted that the Commercial Taxes

Department had also detected the suppression of sales during an inspection of 5

business concerns of the group which showed that the assessee was making

sales on estimate slips instead of sale bills. While remitting the issue back to the

AO, the Tribunal in its Order No. 690 to 696/Coch/2010 and 23 to 43/Coch/2011

had observed that the CIT(A) in his first appellate order was not justified in

deleting the addition for AY 2006-07 to 2007-08 on the ground that there was

no material evidence for these years. The Ld. DR submitted that the following

case laws relied on by the assessee are not applicable to the facts of the

assessee’s case:

a) K. Moidu alias Kunhiappa vs ACIT (256 ITR (AT) 76 (ITAT, Cochin) b) Samrat Beer Bar vs. ACIT (76 ITD 19) (ITAT, Pune) c) Dr. RML Mehrotra vs. ACIT (68 ITD 288) (ITAT, All.) d) Anjenaya Brick Works vs. ACIT (74 TTJ Bangalore 921) e) Poornima Beri vs. DCIT (264 ITR AT 54) (Amritsar) f) CIT vs. Gupta Abushan Pvt. Ltd. (312 ITR 166) (Del) g) CIT vs. Padamchand Ramgopal (76 ITR 719) (SC) h) CIT vs. Ghodavath Pan Masala P. Ltd. (250 ITR 570) (Mum)

I.T.A. Nos.326/Coch/2016 & 476 &477/Coch/2018 (Sunny Jacob Jewellers & Wedding Centre) 6.1 It was submitted that in the above cases, the additions based on estimate

were deleted, but in the case of the assessee, there was a clear evidence.

According to the Ld. DR, the CIT(A) had not considered the following evidences

found and collected during the search and seizure proceedings:

a) Computerised data found in CPU and Pendrive.

b) Entry into computers i.e. all the sales are made ‘in one go’ not as and when sales is effected. c) Sales by estimate slip.

d) Pre-search enquiry - gold ornaments purchased on 25/7/2007 for which only estimate slip issued - no sale bill issued. This was later on found during search that was not at all entered in computer or books of accounts.

e) Statements given on 21/8/2007 by employees/customer & cross examination offered by the assesses on 22/12/2009.

f) Analysis of difference found between the Purchase Note books MSP-1, MSP- 2, MSP-3 and daily stock register MSP 113-(reflected suppression of sales).

g) Discrepancy noticed in books of accounts.

h) Suppression of sales found by Commercial Dept. Kottayam.

i) Purchase of immovable properties by the partners Sri Sunny Jacob and Smt. Maggy Sunny where only 20% of purchase value has been registered.

6.2 The Ld. DR submitted that the Assessing officer had analysed all the

materials available before him, including objections raised and had taken a liberal

view, giving the benefit of doubt to assessee and adopted 20 % of turnover as

gross profit/income of assessee. Therefore, the order of A.O. was reasonable.

I.T.A. Nos.326/Coch/2016 & 476 &477/Coch/2018 (Sunny Jacob Jewellers & Wedding Centre)

6.3 It was submitted that the CIT(A) had also erred in accepting the retraction

of statement by the employees of the assessee firm during cross examination.

The Ld. DR submitted that the CIT(A) was influenced by the statement of the

employees that during search proceedings, out of fear, they admitted

suppression of sales, ignoring the fact that retraction was made as after thought

and after a long delay. It was submitted that the CIT (A) also ignored the fact

that retraction after long delay is invalid and the sworn statement and

'Panchanama' revealed no coercion/threat was employed while recording

statement.

6.4 The Ld. DR placed reliance on the following case laws:

i) Surjit Singh Chabra vs. Union of India (1997) 1 SCC 508 (SC)

ii) T.S. Kumaraswamy vs. ACIT (65 ITD 188) (ITAT, Chennai) wherein it was held that it is well known that ITOs are not Police Officers and they do not use or resort to unfair means or III degree methods in recording oath statements and therefore whatever is confessed and admitted before them during the course of search operations or during the course of any proceedings before them then we think such statements, admissions and confessions are binding and cannot be retracted, unless and until we repeat unless and until it is proved by legally acceptable evidence such admission or a statement was involuntary or tendered under coercion or duren. No such circumstances existed or proved to have existed. In saying so we are supported by the observation of their Lordship of the Supreme Court in the case of Surjit Singh Chabra vs. Union of India (1997) 1 SCC 108.

iii) Carpenters Classics (Exim) P. Ltd vs. DCIT (108 ITD 142) (ITAT, Bang.)

iv) CIT vs. Durga Prasad More (82 ITR 540) (SC)

I.T.A. Nos.326/Coch/2016 & 476 &477/Coch/2018 (Sunny Jacob Jewellers & Wedding Centre)

v) V.Kunhambu & Sons vs. CIT (219 ITR 235) (Ker.)

vi) Ravindra D. Trivedi vs. CIT 215 CTR 313 (Raj.) For retraction to be valid, threat or coercion has to be proved.

6.5 The next argument raised by the Revenue in these appeals is that the

CIT(A) overlooked the findings of the AO that the income generated from the

unaccounted sales was invested for purchase of immovable properties in the

name of the partners Shri Sunny Jacob and Smt. Maggy Sunny. It was noticed

that the major investments were made during the AYs 2005-06, 2006-07 and

2007-08, the documented value of the properties being Rs. 6 crores. It was

submitted that one of the partners, Shri Sunny Jacob, in his statement had

admitted to undervaluing properties to the extent of 20% of the actual sale

value, on the basis of agreements relating to purchase of two properties, seized

at the time of search. It was submitted that the CIT(A) failed to appreciate that

the unaccounted investment of more than Rs.20 crores in immovable properties

itself is a concrete evidence for concealment of income for the earlier years in

which investments were made.

6.6 The Ld. DR submitted that the CIT(A)-III, Kochi vide order dated

23/09/2010 and CIT(A)-IV, Kochi vide order dated 31/03/2016 having followed

the judgment of the High Court of Andhra Pradesh in the case of Rajnik & Co. vs.

ACIT (252 ITR 561) and sustained the addition for AY 2008-09, ought to have

I.T.A. Nos.326/Coch/2016 & 476 &477/Coch/2018 (Sunny Jacob Jewellers & Wedding Centre) sustained the additions for the A.Ys. 2003-04 to 2007-08. Reliance was also

placed on the order of the ITAT, Cochin in the case of M/s. Rajan Jewellery in

ITA Nos. 331-337, 366-372 dated 24/05/2013 wherein the gross profit

determined @ 20% was confirmed. In view of the above, it was submitted that

the Assessing Officer had correctly assessed the income of the assessee based

on evidence gathered during search proceedings and adopted the gross profit @

20% as against the original assessment at 22%.

For these reasons, it was prayed that the order of the CIT(A) may be set aside

and that of the AO restored.

gold against the payment of Rs.1550/- pertains to assessment year 2008-09 and

has no evidentiary value so far as assessment year 2005-06 is concerned. The

above transaction cannot have any evidentiary value unless there is

corroboration of examining the witnesses concerned and cross examination of

witnesses afforded to the assessee to rebut such evidence. It was submitted

that the number of estimate slips pertaining to July and August 2007 were few.

Rate per gram and sale value which was recorded to show margin of profit

related to the assessment year 2008-09 and not for the relevant assessment

years. It was submitted that while purchasing old gold ornaments , they were

getting a profit margin of 16% and while selling new gold ornaments, they were

getting a profit margin of 15%, but the conclusion drawn by the Assessing

I.T.A. Nos.326/Coch/2016 & 476 &477/Coch/2018 (Sunny Jacob Jewellers & Wedding Centre) Officer on this issue was applicable only for the assessment year 2008-09 and

not for the relevant assessment years and therefore, no evidence was available

to show that there was suppression of turnover. Regarding the purchase of

immovable properties by Shri Sunny Jacob and Smt. Maggy Sunny, it was

submitted that there is absolutely no evidence brought on record to substantiate

the allegation that not a single incidence of purchase of immovable property or

payment of unaccounted money and co-relation with the assessee-firm was

indicated for the relevant assessment years. As far as the judgment of the

Jurisdictional High Court in the case of CIT vs. Hotel Meriya (332 ITR 537) is

concerned, it was submitted that there was clear admission by the Managing

partner and the person in-charge of accounts that only 80% of the sales

turnover was recorded in the books of accounts and in all that cases, estimate

was made for earlier years, therefore, the reliance placed by the Assessing

Officer on the above judgment cannot be applied to the assessee’s case. Hence,

it was submitted that for the assessment years 2005-06, 2006-07 and 2007-08,

there was no evidence to show any suppression of income or turnover and there

was no incriminating material so as to warrant additions for those three years.

The Ld. AR relied on the judgment of Judgment of the Supreme Court in the

case of CIT vs. Sinhgad Technical Education Society (2017) (397 ITR 344)

wherein it was held as under:

“Where, as per provisions of Sec. 153C of the Act, incriminating material which was seized had to pertain to A.Ys. in question and

I.T.A. Nos.326/Coch/2016 & 476 &477/Coch/2018 (Sunny Jacob Jewellers & Wedding Centre) documents which were seized did not establish any co-relation, document-wise, with four A.Ys. then order passed for initiation of proceedings u/s. 153C should be quashed.”

contention of the Ld. AR is that for the assessment years under consideration,

there was no seized material to suggest the undisclosed income of the assessee.

Even if there is seized material, it is not at all relevant to the assessment years

2005-06 to 2007-08 and it is only relevant to assessment year 2008-09. The

assessment for the assessment year 2008-09 was accepted by the assessee by

an order of Tribunal ITA No.371/Coch/2016 dated 10/10/2018. Further, it was

submitted that the judgment of Jurisdictional High Court in the case of CIT vs.

Meriya Hotel (332 ITR 537) cannot be applied to the assessee’s case. In that

case, there was admission by the managing partner that 20% of the sales

turnover was suppressed and only 80% of the sales turnover was recorded in

the books of account which was the practice from the beginning. Hence, in that

case, it was presumed that there was willful concealment of income for all the

assessment years. It was also submitted that the judgment of the Jurisdictional

High Court 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, cannot be applied to the assessee’s case

I.T.A. Nos.326/Coch/2016 & 476 &477/Coch/2018 (Sunny Jacob Jewellers & Wedding Centre) as in that case, there was admission by the partners of the assessee-firm and the

assessee had followed uniform system of suppression of sales

7.1 We have carefully gone through the assessment orders wherein the

Assessing Officer has recorded the reasons for assessment of income of the

assessee as given in above paras. The books of accounts maintained by the

assessee are not reliable. It is also admitted that for the assessment year 2008-

09, the assessee came in appeal before this Tribunal in ITA No. 371/Coch/2016

and vide order dated 10/10/2018 confirmed the order of the Assessing Officer by

observing as follows:

”7. We have heard the rival submissions and perused the record. There was a search in the business premises of the firm on 20/08/2007. During the course of search, it was found that the assessee was maintaining its accounts in computerized form. The CPUs used for the purpose at Kottayam and Kottarakkara were seized during the course of search. From the Pazhavangadi, Trivandrum shop one pen drive was seized on the point that it was containing data relating to the accounts. The data thus stored in electronic devices have been obtained It was observed that the data in computers at Kollam, Kottarakkara and Trivandrum were the ones meant for production before the Income Tax Department alongwith return of income. In respect of Kottayam showroom, the computer was having no data in it. In respect of data in computerized form, it was found that the computerized data relating to the volume of the business were only a small portion of the volume. It was seen that these computerized data were only 30.84% of the real volume in respect of Kottarakkara show room. In respect of Kollam and Trivandrum shops the data relating to volume of business is still low and it is 15.61% and 16.22% respectively. Taking a liberal view, the Assessing Officer held that volume of business as per computerized data was only 30% of the real turnover or the volume of business in the various showrooms of the Group. On verification of the data in respect of the show room at Trivandrum, it was observed that the data regarding the volume of business relating to a particular date is logged into the computer at a particular time one after the another. For example, on

I.T.A. Nos.326/Coch/2016 & 476 &477/Coch/2018 (Sunny Jacob Jewellers & Wedding Centre) 08/05/2007 there are in all 4 sales as per bill Nos. 201, 201, 203 and 204 which were entered into the computer at 1:12:06 p.m., 1:12:41 p.m., 1:31:25 p.m. and 1:13:25 p.m. This showed that the bills under reference were not prepared during the course of the business but it was prepared at a stretch one after another at a particular time of the day. The cluster of bills at a particular point of time proved beyond any doubt that the computerized data were not reflecting the real business but only imaginary or virtual ones and are not having any nexus to real ones. Hence, the Assessing Officer determined the estimated income on the basis of suppression of sales. It was observed that assessee was concealing 70% of its real turnover. Therefore, on the suppressed turnover, the GP rate of 22% was adopted to arrive at the concealed income of the assessee. It was also observed that sales recorded on estimate slips issued between 24/07/2007 to 20/08/2007 had not been found recorded in the regular books of account.

7.1 The observations of the Assessing Officer in paras 21 & 22 are reproduced below:

"21 The business concerns of M/s. Sunny Jacob Group of Jewelleries are printing estimate slips on computer when a customer comes and selects a gold ornament for purchase. As a customer may change his selection more than once, more than one estimate slips are likely to be issued in such cases. But, the estimate slips handed over to the sales man for preparation of final bill, which according to the assessee, is written manually, is the final estimate slip where the purchases of the customer is recorded. If there is no likelihood of return or exchange of the ornaments immediately, a customer is issued a sale bill. He is not given estimate slip. But in case there is a possibility of exchange or return immediately instead of sale bill, the estimate slip with the seal of "cash received" is handed over to the customer with the jewellery. All the estimate slips other than those which are handed over to the customers are destroyed/thrown into the waste basket. Hence, a customer can have an estimate slip with him only if that purchase is one where the immediate exchange or return is expected. Though the assessee is printing estimate slips in the computer, the assessee is not saving the data in the computer. Also, the estimate slips other than those handed over to the customers are destroyed. Hence, it is evident that the assessee is particular that the data regarding estimate slips are not known to anyone else i.e., the accounts are not transparent. Estimate slips showing different Sl. Nos., issued by the different shops of this group has been obtained by the Income-tax Department. Similarly, another

I.T.A. Nos.326/Coch/2016 & 476 &477/Coch/2018 (Sunny Jacob Jewellers & Wedding Centre) estimate slip issued, from the Pazhavangadi shop of the assessee was found with a customer on 21-8-2007. These are evidences enough to conclude that the assessee is effecting, sales on estimate slips. The Sl. Nos. of estimate Slips obtained from the shops are 2, 17, 31 etc. which shows that the firm had issued so many numbers of. estimate slips on those days. But the sales accounted on that dale is 6 in number. That shows that the sales on estimate slips are much larger than that on sale bills. If the assessee's statement that estimate slips are issued to the customer only when there is possibility of exchange or return is expected, it will result in a situation where a large percentage of customers are returning or exchanging ornaments bought from them within a few days. This is a highly improbable situation. The contention of the assessee in this regard is not at all reasonable considering the natural probability.

7.2 Further, the Assessing Officer has made the following observations:

5.5. In para 10 of the assessment order the AO has referred to 3 note books marked as MSP-1, MSP-2 and MSP-3 which have been found and seized from the premises of M/s. Sunny Jacob Gold Hyper Market, Kollam on 21.08.2007. These note books contained accounts of purchase and issue of gold ornaments. The AO has observed that when compared with regular stock register maintained by them i.e. MSP-113, wide variations were noted for the dates 26.07.2007 to 07.08.2007. The AO has also pointed-out that at the showroom of M/s. Sunny Jacob Jewellers 916 Kerala Showroom, Pazhavangadi, Trivandrum all the sales of the day are recorded in the computer within 2 to 5 minutes. The period referred to by the AO is between 07.05.2007 to 11.05.2007. He has observed that it is very anomalous and gives more credence to the view that sale bill generated in the computer are made up for accounting purposes only and they do not reflect the actual sales. In Para 13 (a), (b) and (c) some other discrepancies pointed-out for the Kollam shop, Kottayam shop and

I.T.A. Nos.326/Coch/2016 & 476 &477/Coch/2018 (Sunny Jacob Jewellers & Wedding Centre) Kottarakkara Shop. Based on these discrepancies the AO has finally rejected the books of accounts invoking provisions of sec. 145(3) r.w.s. 144.

I.T.A. Nos.326/Coch/2016 & 476 &477/Coch/2018 (Sunny Jacob Jewellers & Wedding Centre) the AO in holding that there was concealment of income in the form of suppressed turnover and profits earned thereon. In the case of Rajnik & Co, vs. ACIT (251 ITR 561) (AP), it has been held that where a regular pattern of suppression is established the presumption is that there is suppression for whole of the search year. Similar view has been taken in the case of Rajendrakumar Lahoti vs. DCIT (266 ITR 621), In the earlier years the additions could not stand the test of appeal because there was no material available with the Department to show that there was suppression of income for those years and, therefore, there could not have been any additions. But for the year under consideration a pattern of suppression has emerged though restricted to only a small period, but it proves that there was suppression for this period and once there was suppression for a period of the year the estimate is possible for whole of the year as pronounced by various judicial forums. Hence for the assessment year 2008-09 I do not have any hesitation in holding that the appellant has concealed income to the tune of Rs.47,34,209/- as per working given in the order for assessment year 2008-09. I therefore sustain the same.

7.3. In the revised assessment order, the Assessing Officer held as under:

“The order giving effect to the order n/s.263 of the I.T. Act by the Commissioner of Income-tax (Central), Kochi was passed on 20.03.2013 by making an addition of Rs.26,80,305/- by recomputing the value of closing stock. The closing stock originally adopted was Rs.1,21,83,206/-. Applying the ratio of the decision of the Hon'ble Supreme Court in the case of A.L.A. Firm, vs. CIT (189 ITR 285), the market value of the closing stock was worked out at Rs.1,48,63,511/-[i.e. 1,21,83,206*122/100] while giving effect to the order u/s.263. As a result, an addition of Rs.26,80,305/- to the business income determined in the original assessment. While giving effect to the order u/s.263 of the CIT (Central), an addition of Rs.26,80,305/- was made by recomputing the value of the closing stock by applying the gross profit ratio of 22% adopted in the original assessment. In view of the fact that the profit percentage now adopted is only 19%, the value of closing stock is recomputed to Rs.1,44,98,015/- [i.e. 2,21,83,206*119/100]. Accordingly, the addition of Rs.26,80,305/- made vide order dated 20.03.2013 giving effect to the order u/s.263 of the CIT(Central) is restricted to Rs.23,14,809/- while completing the assessment.”

I.T.A. Nos.326/Coch/2016 & 476 &477/Coch/2018 (Sunny Jacob Jewellers & Wedding Centre) 7.4 In our opinion, there is no error in the estimation of income of the assessee on the basis of the seized records. The estimation of income by the Assessing Officer is based on the documents found during the search and statement recorded during the course of search. Being so, the Assessing Officer is completely justified in adopting those figures for the whole year and for the next year. For this proposition, reliance is placed on the judgment of the Jurisdictional High Court 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. Reliance is also placed on the judgment 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.”

In view of the above judgments of the Jurisdictional High Court, we are inclined to dismiss this ground of the assessee. The appeal of the assessee is dismissed. “

7.2 Thus, it means that the seized material related to the assessment year

2008-09. The Assessing Officer made the assessments for the assessment year

2005-06 to 2007-08 on the basis of the assessment of income for the

assessment year 2008-09. There was a clear finding of the Assessing Officer

I.T.A. Nos.326/Coch/2016 & 476 &477/Coch/2018 (Sunny Jacob Jewellers & Wedding Centre) that the assessee firm had practiced suppression of sales for all the assessment

years uniformly. When it was a clear case of suppression which was found

during the course of search and seizure operations, it is to be reasonably

presumed that for the previous assessment years i.e., 2005-06, 2006-07 and

2007-08, the assessee had done suppression of sales. The discrepancies found

during the search on 21/08/2007 were brought to the notice of Mr. Sunny Jacob

who in reply to Q. No. 5 explained that the assessee was issuing ‘estimate slips’

only for showing the customer, but they were issuing bills on finalization of the

sales. This method adopted by the assessee is having no legal sanction. It was

also noticed that the assessee had effected sales by issue of ‘estimate slips’

instead of sale bills and that sale bills were prepared for accounting purposes

only in a few cases. It was also noticed that the sales on ‘estimate slips’ were

not accounted resulting in unaccounting of sales and suppression of turnover.

The estimate slips collected from different shops and the margin of profit on sale

of gold ornaments were clearly compiled in para 18 of the original assessment

order. This practice was regularly followed by the assessee.

7.3 In view of these facts and circumstances, there is a clear pattern of sales

suppression visible in this case. Therefore, the ratio of the judgment of the

Supreme Court in the case of Commissioner of Sales Tax vs. H.M. Esufali H.M.

Abdulali (90 ITR 271) clearly applies to the case in hand. In that case, it was

held as under:

I.T.A. Nos.326/Coch/2016 & 476 &477/Coch/2018 (Sunny Jacob Jewellers & Wedding Centre) “For the period November 1, 1959 to October 29, 1960, the assessee, a dealer in iron and steel, was assessed to sales tax on a turnover of Rs. 1,21,567 under the M.P. General Sales Tax act, 1958, and on a turnover of Rs.22,916 under the Central Sales Tax Act, 1956. These assessments were made primarily on the basis of the returns filed by the assessee and the books of account. Subsequently, the flying squad of the department inspected the business premises of the assessee and found a bill book for the period September 1 to 19, 1960, showing sales of the value of Rs. 31,171.28, which had not been entered in the assessee’s account books. The officer initiated reassessment proceedings u/s. 19(1) of the M.P. Sales Tax Act, and after rejecting the assessee’s account books, estimated the escaped turnover at Rs.2,50,000 under the M.P. Sales Tax Act and Rs.1,00,000 under the Central Sales Tax Act, adopting the sales of Rs.31,171.28 as escaped turnover for a period of 19 days as the basis:

Held, that the reassessments were valid. From the circumstance that the assessee had dealings outside the accounts of the value of Rs.31,171.28 for 19 days, it was open to the officer to infer that the assessee had large-scale dealings outside the accounts. In such a situation, it was not possible for the officer to find out precisely the turnover suppressed and he could only make an estimate of the suppressed turnover on the basis of the material before him. So long as the estimate made by him was not arbitrary and had a reasonable nexus with the facts discovered, it could not be questioned. It was wrong to hold that the officer must have material before him to prove the exact turnover suppressed.

In estimating any escaped turnover, it is inevitable that there is some guess-work. The assessing authority while making the best judgment assessment, no doubt, should arrive at his conclusion without any bias and on a rational basis. That authority should not be vindictive or capricious. If the estimate made by the assessing authority is a bona fide estimate and is based on a rational basis, the fact that there is no good proof in support of that estimate is immaterial. Prima facie, the assessing authority is the best judge of the situation. It is his best judgment and not any one else’s. The High Court cannot substitute the best judgment for that of the assessing authority.”

7.4 Therefore, in our considered view, in this kind of assessment, which was

consequent to search u/s. 132 of the Act, the undisclosed income is to be

computed based on evidence found as a result of search. The evidence collected

I.T.A. Nos.326/Coch/2016 & 476 &477/Coch/2018 (Sunny Jacob Jewellers & Wedding Centre) during the course of search action suggest that the assessee is issuing ‘estimate

slips’ while collecting sales. Later, the sale bills are prepared for accounting

purposes and accounting of the sales made through ‘estimate slips’ which

resulted in suppression of sales which was confirmed by the statement recorded

from Shri Bejimon S., erstwhile Manager of M/s. Sunny Jacob Jewellers and

Wedding Centre, Kottarakkara tried to explain that the shop at Kottarakkara was

not using computer but on re-examination he stated that the computer was used

at least sparingly. The statement given by Shri Pintu T. Jacob, Computer

Operator, M/s. Sunny Jacob 916 Jewellery, Trivandrum was a clarification to the

effect that he was only printing ‘estimate slips’ and not sale bills and he was only

entrusted with the work of printing estimate slips and sale bills were written by

Shri Mathew Eapen. The statement given by Shri A. Baby, retired KSRTC Driver,

Kollam that he was not issued any purchase bill in respect of purchase of new

gold ornaments in exchange of old gold ornaments was correct. The statements

recorded by the Assessing Officer from the above persons were confirmed by this

Tribunal in ITA No.371/Coch/2016 vide order dated 10/10/2018. Moreover, this

fact is also supported by the inspection report from the Commercial Tax

Department dated 24/02/2006 wherein it was found that similar practice was

being adopted by the assessee in sale of jewellery by issuing estimate slips. In

these circumstances, the Assessing Officer had no option but to estimate the

income of the assessee. It cannot be said that it is arbitrary but based on

corroborative evidence unearthed during the course of search action and enquiry

I.T.A. Nos.326/Coch/2016 & 476 &477/Coch/2018 (Sunny Jacob Jewellers & Wedding Centre) thereafter. In our opinion, the books of accounts of the assessee were rejected

by the Assessing Officer and once the books of accounts are rejected, the turn

over has to be estimated and while estimating the turnover, the pattern followed

by the assessee has to be considered. In this case, the strategy followed by the

assessee to suppress the sales is common for all the assessment years as

compared to assessment year 2008-09 which would have direct relevance for

estimation of income for the assessment years 2005-06 to 2007-08.

7.5 Further, in the assessee’s own case reported in (362 ITR 664),

the Jurisdictional High Court held that u/s. 153A, the Department can

assess or reassess in accordance with the assessment or reassessment

procedure contemplated u/s. 153A of the Act. There is also no

requirement u/s. 153A and other provisions requiring the Department

to collect information and evidence for each and every year for the six

previous years u/s. 153A of the I.T. Act. Therefore, the argument of

the learned counsel for the appellant-assessee that the information

gathered either during pre-search enquiry or during the course of

search cannot be made use so far as the six previous assessment years,

is unsustainable.

7.6 In view of the above discussions, we find that the Assessing Officer has

given a categoric finding with regard to suppression of sales for all the

I.T.A. Nos.326/Coch/2016 & 476 &477/Coch/2018 (Sunny Jacob Jewellers & Wedding Centre) assessment years. While estimating the profit, the Assessing Officer has

assessed the income on the basis of rate of profit adopted for the assessment

year 2008-09. On this reasoning, we do not find any infirmity in the order of the

Assessing Officer and the same is confirmed. Hence, this ground of appeals of

the Revenue are allowed.

Order pronounced in the open Court on this 5th February, 2019.

sd/- sd/- GEORGE GEORGE K.) (CHANDRA POOJARI) JUDICIAL MEMBER ACCOUNTANT MEMBER

Place: Kochi Dated: 5th sFebruary, 2019 GJ Copy to: 1. Sunny Jacob Jewellers & Wedding Centre, Chanthamukku, Kottarakkara, Kollam. 2.The Assistant Commissioner of Income-tax, Circle-1, Non-Corporate, Kochi. 3. The Commissioner of Income-tax(Appeals)-IV, Kochi 4. The Commissioner of Income-tax, Central, Kochi. 5. D.R., I.T.A.T., Cochin Bench, Cochin. 6. Guard File. By Order

(ASSISTANT REGISTRAR) I.T.A.T., Cochin