ASSTT. C.I.T. vs. KANHAIYALAL K. SURANA

TAXAP/191/2000 1/5 JUDGMENT IN THE HIGH COURT OF GUJARAT AT AHMEDABAD TAX APPEAL No.191 of 2000 With TAX APPEAL No.192 of 2000 For Approval and Signature: HONOURABLE MR.JUSTICE AKIL KURESHI HONOURABLE MS.JUSTICE HARSHA DEVANI ========================================================= 1 Whether Reporters of Local Papers may be allowed to see the judgment? 2 To be referred to the Reporter or not? 3 Whether their Lordships wish to see the fair copy of the judgment? 4 Whether this case involves a substantial question of law as to the interpretation of the constitution of India, 1950 or any order made thereunder? 5 Whether it is to be circulated to the civil judge? ========================================================= ASSTT. C.I.T. - Appellant(s) Versus KANHAIYALAL K. SURANA - Opponent(s) ========================================================= Appearance : MRS MAUNA M BHATT for Appellant(s) : 1, MR SN SOPARKAR, SR. ADV. WITH MR BS SOPARKAR, for Opponent(s) : 1, ========================================================= CORAM : HONOURABLE MR.JUSTICE AKIL KURESHI and HONOURABLE MS.JUSTICE HARSHA DEVANI Date : 14/08/2012 ORAL JUDGMENT

TAXAP/191/2000 2/5 JUDGMENT (Per : HONOURABLE MR.JUSTICE AKIL KURESHI) 1. These appeals arise out of a common judgment of the Tribunal dated 23.12.99. These appeals have been filed by the Revenue calling in question the legality of the said judgment of the Tribunal in respect of the respondent-assessee who is common in both the appeals. Tax Appeal No.191 of 2000 concerns the assessment year 1996-97 whereas Tax Appeal No.192 of 2000 concerns the assessment year 1996-96. 2. At the time of admission of appeals, the Division Bench of this Court had framed the following question: “Whether, the Appellate Tribunal is right in law and on facts in holding that no addition on account of initial investment is required to be made and the unaccounted income should be estimated by taking income at the rate of 2% of the sales?”

Though the question framed is single, it has two elements. First portion of the question pertains to addition restricted by the Tribunal on account of initial investment. The second part of the question pertains to estimation of unaccounted income on the sales made by the assessee. 3. Insofar as the first part is concerned, it pertains to initial investment made by the assessee out of the books of accounts. It appears that though the assessee was subjected to search operations

TAXAP/191/2000 3/5 JUDGMENT during which it was found that the assessee had not maintained proper books of accounts, the Assessing Officer while framing the assessment calculated the initial investment made by the assessee on the basis of the production cycle of one and a half months. Ultimately, the Tribunal modified such order of the Assessing Officer. In the impugned order, the Tribunal concluded that the cycle of process of grey fabrics being undertaken by the assessee could be easily completed within a period of one month as against one and a half months estimated by the Assessing Officer. The Tribunal, therefore, directed the Assessing Officer to work out the initial investment in case of those concerns which started functioning in the assessment year 1995-96 calculating the unaccounted investment at the rate of one months purchase of grey fabrics. 4. Insofar as the second part is concerned, we notice that the Assessing Officer calculated the unaccounted income of the assessee on the basis of unrecorded sale transactions as reflected in different bank accounts. The contention of the assessee that on such unaccounted sales, income at the rate of 2% on the turnover should be accepted, did not appeal to the Assessing Officer. The Assessing Officer adopted income at the rate of 10% of such sales. 5. The Tribunal reduced the estimation on the basis of 2% of the turnover. The Tribunal gave detailed reasons and observed that even if the assessee had evaded excise duty on such unaccounted

TAXAP/191/2000 4/5 JUDGMENT sales, substantial portion thereof would have been passed on to the consumers. On such and other observations, the Tribunal reduced the income estimation on the basis of 2% profit on the total unaccounted sale turnover. 6. Learned counsel for the Revenue submitted that the Tribunal committed a serious error in reducing the income estimation in both the cases. However, On the other hand, learned counsel Shri Soparkar for the respondent submitted that on both counts the Tribunal had given sufficient reasons. The Tribunal examined the evidence on record and thereafter came to the conclusion which do not give rise to any substantial question of law. Our attention was drawn to the provisions of sub-section (4) of section 260A of the Act which provides, inter alia, that the respondent at the hearing of the appeal would be allowed to argue that the case does not involve any such question which has been framed at the time of admission of the appeal. On such basis, counsel contended that no question of law having arisen, the appeals be dismissed accordingly. 7. We notice that the appeals were admitted ex parte. Mere admission of the appeal and framing of the question at the time of admission, therefore, would not take away the respondent assessee's right in terms of section 260A(4) of the Act to contend that no such substantial question of law at all arises. In this context, we have perused the material on record. As already noticed, on both the aspects of

TAXAP/191/2000 5/5 JUDGMENT the question of framed, The Tribunal had given detailed reasons. With respect to the estimation of the unaccounted investment for purchase of grey fabrics, the Tribunal on the basis of evidence on record, came to the conclusion that the processing cycle would be completed within one month as against the period of one-and-a-half months adopted by the Assessing Officer. The Tribunal accordingly directed the Assessing Officer to re-work out the assessee's tax liability. We do not find that such findings of facts would give rise to any substantial question of law. It is not even the case of the Revenue that such findings are perverse. 8. With respect to the second aspect of the question, the Tribunal worked out the profit of the assessee at the rate of 2% on the total turnover of unaccounted sales. Though the Assessing Officer had adopted the profit ratio of 10%, the Tribunal giving cogent reasons came to the conclusion that the same was excessive. Here again, the Tribunal took into account the evidence on record and came to the factual findings. Under the circumstances, in our opinion no question of law arises. 9. In the result, the appeals are dismissed. (Akil Kureshi, J.) (Harsha Devani, J.) (vjn)