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

ITA/110/2014HC KeralaKLHC01026676201424 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. Recovered password-protected bills for April 2007 to September 2007 revealed a significant disparity 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 under Section 153A read with Section 144 of the Income Tax Act, 1961, were initiated. The Assessing Officer made additions for six years prior to the search year and the search year itself. The Income Tax Appellate Tribunal (ITAT) rejected the assessee's appeals, and the present appeals are before the High Court challenging the ITAT's order for the assessment years 2002-03 and 2004-05 to 2008-09, specifically concerning additions made on the basis of 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 the adoption of gross profit for determining total income. 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, along with seized documents, are admissible evidence. The Court emphasized 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, the evidentiary value of a statement under Section 132(4) was upheld, even with a subsequent retraction, stating that a self-serving retraction without more cannot dispel the statutory presumption. The Court found that in the present case, the manager's statement, revealing a second set of bills and a pattern of suppression, provided sufficient material. This pattern, when applied to earlier assessment years, was considered 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?

The High Court had to decide the following questions of law: 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, concerning Section 153A and Section 144 of the Income Tax Act, 1961. 2. Whether, in the facts and circumstances, the Tribunal misdirected itself in upholding an estimation based on the Gross Profit rate, when only a net profit rate should have been adopted for the alleged suppressed turnover, especially when the turnover was estimated at four times the reported turnover, concerning Section 153A and Section 144 of the Income Tax Act, 1961. 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. * Additions were made without supporting material and the 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. 110 of 2014 AGAINST THE ORDER/JUDGMENT IN ITA 220/2011 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 680 001 2 COMMISSIONER OF INCOME TAX APPEALS-I KOCHI - 682 011. 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.111/2014, 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:

The order continues below.

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