MUHAMMED KUTTY HAJI, vs. THE DEPUTY COMMISSIONER OF INCOME TAX

ITA/111/2014HC KeralaKLHC01026677201424 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 bills generated from the computer. One set was easily printable, while the other required a password. Bills from April 2007 to the date of search revealed a significant disparity: accounted purchases were Rs. 1.16 crores against actual purchases of Rs. 4.62 crores, and accounted sales were Rs. 1.18 crores against actual sales of Rs. 4.80 crores. Proceedings were initiated under Section 153A read with Section 144 of the Income Tax Act, 1961. Additions were made 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 before the High Court are confined to additions made for prior years based on the disparity found in the books of accounts in the previous year to the search year.

What did the High Court hold?

The High Court held that the Tribunal was correct in sustaining the additions to gross profit. The Court relied on its previous decisions in Commissioner of Income Tax v. Hotel Meriya and Commissioner of Income Tax v. O. Abdul Razak. In Hotel Meriya, it was held that statements recorded under Section 131 of the Act, including those of employees, have evidentiary value, and for block assessments, evidence of concealment for every year in the block period is not essential. Best judgment assessment is permissible based on evidence collected during search, even for prior years. In O. Abdul Razak, it was held that a self-serving retraction does not extinguish the evidentiary value of a statement made under oath. In the present case, the manager's statement, revealing a second set of bills generated using a password, indicated a definite pattern of suppression. Applying this pattern to earlier assessment years was a permissible exercise under Section 144 of the Act. Therefore, 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, the Income Tax Appellate Tribunal was correct in sustaining additions to gross profit solely based on the statement of an employee (Mr. Abdul Razak)? (Question of law) 2. Whether the Tribunal erred in upholding an estimation of suppressed turnover based on the Gross Profit rate, when only the net profit rate should have been adopted, especially when the turnover was estimated at four times the reported turnover? (Question of mixed law and fact) Assessee's contentions: - There was no recovery of materials for earlier assessment years, thus no best judgment assessment could be made for those years. - The same percentage of addition cannot be adopted for all years due to the absence of supporting material. - Gross profit was not adopted on a proper assessment of the business. Revenue's contentions: - Relied on the judgments in Commissioner of Income Tax v. Hotel Meriya, [2011] 332 ITR 537 (Ker) and Commissioner of Income Tax v. O.Abdul Razak, [2012] 207 TAXMAN 193 (Ker.) to support the Tribunal's order.

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. 111 of 2014 AGAINST THE ORDER/JUDGMENT IN OTHERS 219/2011 of I.T.A.TRIBUNAL,COCHIN BENCH DATED 27-12-2013 APPELLANT/S: MUHAMMED KUTTY HAJI, PROPRIETOR, SAUDI STEELS, MANJALUNGAL, PATTAMBI, PALAKKAD DISTRICT. 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 1 KOCHI- 682016. 3 INCOME TAX APPELLAT TRIBUNAL COCHIN BENCH, COCHIN-682016. 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.106/2014, ITA.105/2014, ITA.104/2014, 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. Whet

The order continues below.

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