MUHAMMED KUTTY HAJI vs. THE DEPUTY COMMISSIONER OF INCOME TAX

ITA/104/2014HC KeralaKLHC01026670201424 September 2018Author: HONOURABLE MR.JUSTICE K.VINOD CHANDRAN,HONOURABLE MR. JUSTICE ASHOK MENON9 pages
AI SummaryDismissed

What were the facts?

The assessee, Muhammed Kutty Haji, proprietor of Saudi Steels, was subjected to an inspection on September 6, 2007. It was discovered that the assessee maintained two sets of computer-generated bills: one easily printable and recoverable, and another accessible only via a password. Bills from April 2007 to September 6, 2007, were recovered from the password-protected system. A significant disparity was found between accounted purchases (Rs. 1.16 crores) and actual purchases (Rs. 4.62 crores), and between accounted sales (Rs. 1.18 crores) and actual sales (Rs. 4.80 crores). Proceedings were initiated under Section 153A read with Section 144 of the Income Tax Act, 1961, leading to additions for six years prior to the search year and the search year itself. The assessee's appeals to the Tribunal against the orders of the Commissioner of Income Tax (Appeals) were rejected. The present appeals to the High Court concern additions made for prior years based on the disparity found.

What did the High Court hold?

The High Court held that the Tribunal was correct in sustaining the additions to gross profit and upholding the estimation based on the gross profit rate. The Court agreed with the dictum laid down in CIT v. Hotel Meriya and CIT v. O. Abdul Razak. In the present case, materials recovered from the assessee's computer revealed a vast disparity between disclosed sales/purchases and actual business carried out. The manager, in his statement under Section 132(4), had opened a second set of bills using a password, revealing a definite pattern of suppression. Applying this pattern to earlier assessment years was considered a correct and permissible exercise of best judgment assessment under Section 144 of the Act. The Court found no scope for interference with the Tribunal's order regarding additions and adoption of gross profit. The questions of law were answered against the assessee and in favour of the Revenue. The appeals were dismissed.

What were the issues?

1. Whether, in the absence of corroborative material evidence for earlier assessment years, the Income Tax Appellate Tribunal was correct in sustaining additions to gross profit solely based on the statement of an employee (Mr. Abdul Razak)? This question turns on the evidentiary value of statements recorded under Section 131/132(4) of the Income Tax Act, 1961, for years preceding a search, and the permissibility of best judgment assessment. The assessee argued that no materials were recovered for earlier years, thus no best judgment assessment could be made, and the same addition percentage could not be applied to all years without supporting material. The revenue relied on the judgments in CIT v. Hotel Meriya and CIT v. O. Abdul Razak. 2. Whether the Tribunal erred in upholding an estimation based on the Gross Profit rate, as opposed to the Net Profit rate, on alleged suppressed turnover, especially when turnover was estimated at four times the reported turnover? This question concerns the method of calculating additions on suppressed turnover. The assessee contended that only net profit rate should be adopted. The revenue relied on the same judgments as in issue 1.

Which sections of the Income-tax Act were involved?

Section 153A,Section 144,Section 131,Section 132(4)

AI-generated summary — verify with the full judgment below

IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT THE HONOURABLE MR.JUSTICE K.VINOD CHANDRAN & THE HONOURABLE MR. JUSTICE ASHOK MENON MONDAY ,THE 24TH DAY OF SEPTEMBER 2018 / 2ND ASWINA, 1940 ITA.No. 104 of 2014 AGAINST THE ORDER/JUDGMENT IN ITA 217/2011 of I.T.A.TRIBUNAL,COCHIN BENCH DATED 27-12-2013 APPELLANT/S: MUHAMMED KUTTY HAJI PROPRIETOR, SAUDI STEELS, MANJALUNGAL, PATTAMBI,PALAKKAD DIST. BY ADVS. SRI.K.ANAND (SR.) SMT.LATHA ANAND RESPONDENT/S: 1 THE DEPUTY COMMISSIONER OF INCOME TAX CENTRAL CIRCLE, TRICHUR. 2 COMMISSIONER OF INCOME TAX ( APPEALS I) KOCHI. 3 INCOME TAX APPELLATE TRIBUNAL COCHIN BENCH, COCHIN. BY ADVS. SRI.P.K.R.MENON,SR.COUNSEL, GOI(TAXES) SRI.JOSE JOSEPH SC FOR INCOME TAX THIS INCOME TAX APPEAL HAVING BEEN FINALLY HEARD ON 24.09.2018, ALONG WITH ITA.90/2014, ITA.110/2014, ITA.111/2014, ITA.106/2014, ITA.105/2014, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING:

I.T.A.Nos.90,104,105,106,110&111 of 2014 2 JUDGMENT Vinod Chandran, J. The appeals arise from the orders of the Tribunal for the assessment years 2002-03 and 2004-05 to 2008-09. The questions of law sought to be answered as found in the memorandum are as follows:- “1. Whether in the facts and

The order continues below.

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