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

ITA/105/2014HC KeralaKLHC01026671201424 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, is in appeal before the High Court of Kerala against the order of the Income Tax Appellate Tribunal (ITAT), Cochin Bench. The assessment years under consideration are 2002-03 and 2004-05 to 2008-09. The appeals arise from proceedings initiated under Section 153A read with Section 144 of the Income Tax Act, 1961, following an inspection on 06.09.2007. During the inspection, two sets of bills were found, one easily printable and another accessible only via a password. A significant disparity was noted 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). The Assessing Officer made additions for several years, which were upheld by the First Appellate Authority and subsequently by the ITAT, leading to these appeals.

What did the High Court hold?

The High Court held that the ITAT's order was correct and did not warrant interference. The Court relied on the principles laid down 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, have evidentiary value. The Court also noted that under Chapter XIVB (block assessment provisions), evidence of concealment for every year in the block period is not essential; best judgment assessment is permissible based on evidence collected during the search, 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 detection of materials showing a vast disparity in sales and purchases, coupled with the manager's statement about opening a second set of bills, provided a definite pattern of suppression. This pattern, when applied to earlier assessment years, was considered a permissible exercise under Section 144 of the Act for best judgment assessment. Therefore, the questions of law were answered against the assessee and in favour of the Revenue.

What were the issues?

1. Whether, in the facts and circumstances, the ITAT was correct in law in sustaining additions to gross profit solely based on the statement of an employee, Mr. Abdul Razak, without corroborative evidence? 2. Whether, in the facts and circumstances, the ITAT erred in upholding an estimation of suppressed turnover based on the Gross Profit rate, especially when the turnover was estimated at four times the reported turnover? Assessee's Contentions: - No material was recovered concerning the 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. - 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 ITAT'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. 105 of 2014 AGAINST THE ORDER/JUDGMENT IN ITA 218/2011 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- 680001. 2 COMMISSIONER OF INCOME TAX APPEALS-I KOCHI- 682016 3 INCOME TAX APPELLATE 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.111/2014, ITA.106/2014, 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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