COMMISSIONER OF INCOME-TAX vs. VIRAL LEMINATERS LTD.

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ITA/108/1998HC GujaratGJHC24024146199804 May 1998Author: HONOURABLE MR. JUSTICE R.K.ABICHANDANI,HONOURABLE MR. JUSTICE KUNDAN SINGH3 pages
AI SummaryDismissed

What did the High Court hold?

The High Court rejected the Revenue's application for a direction to the ITAT to state a case. The Court found that the ITAT's findings were based on the material on record. The ITAT had considered the Director's statement, the petition filed by the assessee, and the seized materials. It concluded that the AO's 24% rate was based on notional income, which was impermissible as per the Supreme Court's decision in State Bank of Travancore Vs. C.I.T. The ITAT determined that the under-invoicing ratio had to be computed by considering total sales (recorded and unrecorded) and that the ratio was lower in 1990-91, increasing thereafter. Based on the material, the ITAT found the ratio for the period prior to 1990 to be more than 14.28%. Since the assessee's figure of 16.7% was higher than the undisclosed income offered for earlier years, the ITAT accepted it. Therefore, no substantial question of law arose.

What were the facts?

The Revenue sought a direction from the Income Tax Appellate Tribunal (ITAT) to forward a Statement of Cases under Section 256(2) of the Income Tax Act, 1961. The dispute concerned the rate of under-invoicing for block assessment. The Assessing Officer (AO) adopted an under-invoicing rate of 24%. The ITAT, however, directed the AO to adopt an average rate of 16.67%. The Revenue's grievance was that the ITAT disregarded the Director of the Assessee Company's statement indicating an under-invoicing level of 18-20% based on a seized diary, and that the ITAT's findings were not based on valid reasons. The ITAT had considered the material found during search and seizure, including a petition filed by the assessee offering a disallowance of Rs. 54 lacs. The ITAT also noted that the AO's 24% figure was based on notional income, which was not supported by the Supreme Court decision in State Bank of Travancore Vs. C.I.T.

What were the issues?

1. Whether the Appellate Tribunal is right in law and on facts in directing the Assessing Officer to adopt an average rate of under-invoicing of three years at 16.67% as against 24% adopted by the Assessing Officer, turning on Section 256(2) of the Income Tax Act, 1961. 2. Whether the Appellate Tribunal has correctly appreciated the facts on record and the reasonings given by the Assessing Officer, particularly regarding the assessee's figures not meriting consideration, thereby arriving at a rate of 16.67% for the three years, turning on Section 256(2) of the Income Tax Act, 1961. Assessee's Contentions: The judgment does not record specific contentions made by the assessee in response to the revenue's application for a reference. However, it details the ITAT's reasoning which implicitly reflects the assessee's position that the AO's calculation was flawed. Revenue's Contentions: The Revenue contended that the ITAT erred by not accepting the AO's adopted rate of 24% and by directing the adoption of 16.67%. They argued that the ITAT disregarded the Director's statement about 18-20% under-invoicing based on a seized diary and that the ITAT's findings were not based on valid reasons. The Revenue relied on the AO's assessment and the Director's statement.

Which sections of the Income-tax Act were involved?

Section 256(2)

AI-generated summary — verify with the full judgment below

IN THE HIGH COURT OF GUJARAT AT AHMEDABAD

INCOME TAX APPLICATION No 108 of 1998

For Approval and Signature:

Hon'ble MR.JUSTICE R.K.ABICHANDANI and MR.JUSTICE KUNDAN SINGH ============================================================ 1. Whether Reporters of Local Papers may be allowed to see the judgements?

2.

To be referred to the Reporter or not?

3.

Whether Their Lordships wish to see the fair copy of the judgement?

4.

Whether this case involves a substantial question of law as to the interpretation of the Constitution of India, 1950 of any Order made thereunder?

5.

Whether it is to be circulated to the Civil Judge?

-------------------------------------------------------------- COMMISSIONER OF INCOME-TAX Versus VIRAL LEMINATERS LTD. -------------------------------------------------------------- Appearance: MR MANISH R BHATT for Petitioner MR NR DIVETIA for Respondent No. 1

--------------------------------------------------------------

CORAM : MR.JUSTICE R.K.ABICHANDANI and MR.JUSTICE KUNDAN SINGH Date of decision: 04/05/98

ORAL JUDGEMENT (Per R.K.Abhichandani, J) The Revenue has suggested the following two questions seeking a direction from the Income Tax Appellate Tribunal to forward the Statement of cases in respect of these questions under Section 256 (2) of the Income Tax Act, 1961. 1. "Whether, the Appellate Tribunal is right in law and on facts in directing the Assessing Officer to adopt the average rate of under invoicing three years at 16.67% as against 24% adopted by the Assessing Officer?"

2.

"Whether, the Appellate Tribunal has correctly appreciated the facts on record and particularly the reasonings given by the Assessing Officer to the effect that the figures given by the assessee did not merit consideration and thereby arriving at a rate of 16.67% for the three years?".

2.

The grievance voiced on behalf of the Revenue is that even though the Director of the Assessee Company had stated in answer to question no.35 in a statement that the level of under invoicing was between 18 to 20% on the basis of the seized diary which was taken into account by the Assessing Officer while making the block assessment, the Tribunal has, for no valid reason, taken a different view of the matter. In this regard, the Tribunal, after taking into account the said answer given by the Director of the Assessee Company, was of the opinion that it would be correct to compute the income for the block period on the basis of material found, statements made and the information gathered by the department during the course of search and seizure proceedings. It was noted that in the petition dated 8.12.1995 which was filed immediately after the search and seizures proceedings a disallowance of Rs.54 lacs was made [except saying that the ratio in those years must have been higher on the basis of the materials seized in the later years, no other concrete case had been made out by the department in the opinion of the Tribunal. The Tribunal therefore found that the average rate of 24% computed by the Assessing Officer could not be taken the basis for income for the prior period. It was also held that by applying this percentage, the Department would be working out notional income only, which cannot be supported in view of the decision of Hon'ble Supreme Court in State Bank of low in 1990-91 and it had gradually increased in subsequent period as mentioned in the diary. The Tribunal came to the conclusion that the ratio for the period prior to 1990 should be taken as more than 14.28% and since the figure shown by the assessee was 16.7% which was higher then the undisclosed income offered for 1986-87 to 1989-90 that should be accepted. We have referred to the findings of the Tribunal in detail to indicate that the findings of the Tribunal are based on the material on record and no question of law arised in the matter.

3.

The application is therefore rejected. Rule is discharged. No order as to costs.

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