MUHAMMED KUTTY HAJI vs. THE DEPUTY COMMISSIONER OF INCOME TAX

ITA/106/2014HC KeralaKLHC01026672201424 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, faced an inspection on September 6, 2007, revealing two sets of computer-generated bills. One set was easily accessible, while the other required a password. Bills from April 2007 to the date of search indicated a significant disparity between accounted purchases (Rs. 1.16 crores) and actual purchases (Rs. 4.62 crores), and accounted sales (Rs. 1.18 crores) versus actual sales (Rs. 4.80 crores). Proceedings were initiated under Section 153A read with Section 144 of the Income Tax Act, 1961. The Assessing Officer made additions for six years prior to the search year and the search year itself. The assessee's appeals to the Tribunal were rejected, leading to the present appeals before the High Court. The appeals focus on additions made for prior years based on the disparity found during the search.

What did the High Court hold?

The High Court held that the Tribunal was correct in sustaining the additions to gross profit and the adoption of the gross profit rate. The Court relied on its own 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, along with seized documents, are admissible as evidence. The Court further noted that for block assessments, evidence of concealment for every year within the block period is not essential; materials found during a search indicating non-disclosure of income permit best judgment assessment even for prior years. In O. Abdul Razak, it was held that a self-serving retraction of a statement made under oath does not extinguish its evidentiary value. The Court found that the manager of the assessee had opened a second set of bills using a password, revealing a pattern of suppression. This pattern, applied to earlier assessment years, was deemed a permissible exercise of best judgment assessment under Section 144. 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 facts and circumstances, the Income Tax Appellate Tribunal was correct in law in sustaining additions to gross profit based solely on the statement of an employee, Mr. Abdul Razak, without corroborative material evidence? (Question of law) 2. Whether, in the facts and circumstances, the Tribunal misdirected itself by upholding an estimation based on the gross profit rate, when only the net profit rate should have been adopted for the alleged suppressed turnover, especially given the turnover was estimated at four times the reported turnover? (Question of mixed law and fact) Assessee's Contentions: - No materials were recovered concerning earlier assessment years, thus no best judgment assessment could be made for other years. - The same percentage of addition cannot be adopted for all years. - Gross profit was not adopted on a proper assessment of the business due to the absence of supporting material. 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. 106 of 2014 AGAINST THE ORDER/JUDGMENT IN ITA 221/2011 of I.T.A.TRIBUNAL,COCHIN BENCH DATED 27-12-2013 APPELLANT/S: MUHAMMED KUTTY HAJI PROPRIETOR, SAUDI STEELS, PANJALUNGAL, PATTAMBI, PALAKKAD DISTRICT. BY ADVS. SRI.K.ANAND (SR.) SMT.LATHA ANAND RESPONDENT/S: 1 THE DEPUTY COMMISSIONER OF INCOME TAX CENTRAL CIRCLE, TRICHUR-680 001. 2 COMMISSIONER OF INCOME TAX APPEAL 1 KOCHI-682 018. 3 INCOME TAX APPELLATE TRIBUNAL COCHIN BENCH, COCHIN-682 018. 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.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.

The order continues below.

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