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Facts
A search and seizure operation was conducted on the assessee company and its group concerns, revealing potential suppression of sales and profits. Incriminating documents and data from pen drives were seized. The department estimated suppressed income, and the Managing Director admitted to not reporting the actual turnover. The assessee appealed the assessment order, which was partly allowed by the CIT(A). The revenue is now challenging the CIT(A)'s order.
Held
The Tribunal held that the CIT(A) had rightly passed the order apportioning the income based on the ratio of timber purchase, as the revenue had not challenged similar orders for previous assessment years. The AO's order giving effect to the CIT(A)'s direction had some mistakes, leading to the assessee's further appeal. The Tribunal found no merits in the revenue's appeal.
Key Issues
Whether the CIT(A) erred in directing the AO to recompute the total income by apportioning it based on the ratio of timber purchase, and whether the revenue's appeal against this order has merits.
Sections Cited
133A
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Income Tax Appellate Tribunal, COCHIN BENCH : COCHIN
Before: SHRI INTURI RAMA RAO & SHRI SOUNDARARAJAN K.
PER SOUNDARARAJAN K., JUDICIAL MEMBER
This is an appeal filed by the revenue challenging the order of the Ld.CIT(A), Kochi – 3 dated 18/03/2025 in respect of the A.Y. 2014-15 and raised the following grounds: “1. In the facts and circumstances of the case, the ld.CIT(A) erred in opining that tree order giving effect to the CIT(A) order dated29.06.2021 is not in order.
2. In the facts and circumstances of the case, the ld.CIT(A) has failed to take note of the fact that assessee M/s. Hill wood Furniture Ltd. and its group concern M/s. Hill wood
3. In the facts and circumstances of the case, the ld.CIT(A) has erred in accepting the stand of the assessee clubbing the income of its group concerns to am is. at an inflated relief whereas in the order giving effect to CIT(A) order dated 29.06.2021, the purchase value of additional quantity of timber as well as credit to amount of internal transfer was rightfully reduced to the extent of proportionate value of total sales turnover of the group entity.
4. For these and any other grounds that may be urged at the time of hearing, the impugned order of the Commissioner of Income Tax (Appeals)-III Kochi may be set aside.”
The brief facts of the case are that the assessee is a company engaged in the business of trading of timber. The company imported timbers and sold to various retailers. The group concerns also importing the wood and exported the sized woods. They also exported furniture, door frames etc. They mainly imported goods from Malaysia, Indonesia, Burma and African countries. The department was of the view that the assessee had not reported the actual turnover effected by them from the business operations and therefore the search was conducted on 04/12/2013. The residence of Shri V. Shareefon was also searched. Servey also undertaken u/s. 133A of the Act. At the time of search, several incriminating documents were seized and based on that the revenue had estimated the suppressed income. The Managing Director of the assessee company also accepted that the assessee had not declared the actual turnover while filing the return of income. During the search proceedings, statements were recorded from the employees and the authorities had concluded that the assessee had raised lesser amount in the bills as against the actual amounts and based on that, the suppressed turnover was arrived.
Based on the survey conducted u/s. 133 of the Act, residence of the employee Shri Riyaz was surveyed and documents related to the assessee company were recovered and impounded. Three pen drives were also found and impounded. Based on the datas available in the pen drives and the incriminating materials seized at the time of search, the authorities had estimated the actual sales suppressions. Based on that, additions were made.
As against the said order, the assessee filed an appeal before the Ld.CIT(A). The Ld.CIT(A) by an order dated 29/06/2021 in Appeal No. CIT(A), Kochi-3/11038/2017-18 had partly allowed the appeal by following the earlier orders of the Ld.CIT(A)-III, Kochi dated 26/03/2018 in to 126/C/CIT(A)-III/2016-17 in respect of the A.Ys. 2008-09 to 2013-14 in which also the assessments were made based on the results of the search and survey conducted in the premises of the assessee and his associates. In the said order, the Ld.CIT(A) had given the following finding.
The assessing officer while giving effect to the order of the Ld.CIT(A), had recomputed the total income at Rs. 9,78,50,910/-. In the said order giving effect to the CIT order, the AO had granted the relief of Rs. 20,30,48,620/- as granted by the Ld.CIT(A). In the said order giving effect to the order of the Ld.CIT(A), the assessee had pointed out some mistakes and therefore the assessee had challenged the said order again before the Ld.CIT(A) and raised the following grounds: “i)The Assessing Officer adopted Rs.9,78,50,910/- as the assessable income of the appellant for the AY 2014-15 as per order dt.30.08.2021 on giving effect to the order dt.29/06/2021 of the Commissioner of Income Tax (Appeals)-IV, Kochi, which is wrong as per the computation detailed in the Statement of Facts.
ii) The total assessable income for the two companies, M/s. Hillwood Furniture Pvt Ltd and M/s.Hillwood Imports & Exports Pvt Ltd is Rs.5,23,58,821/- as in th,e Statement of Facts and the appellant may submit that Rs.3,22,93,690/- is the amount to be adopted as the income of the appellant in the place of Rs.9,78,50,910/- adopted by the Assessing Officer. iii) For the above reasons and other arguments those may be put forward at the time of hearing the appellant may request to cancel the assessment of Rs.9,78,50,910/-as per the revised order dt.30.08.2021 and the income of Rs 3,22,93,690/- may be fixed as the assessable income of the appellant company.”
The assessee also filed written submissions which is also extracted for easy reference.
The assessee submitted that the income of Rs. 5,25,34,606/- has to be apportioned between Hillwood Furniture Pvt. Ltd, Hillwood Import and Export Pvt. Ltd. and Hillwood Timbers in proportion to purchase turnover as per the assessment order dated 30/12/2016. The assessee contended that as per the computation of statement of the assessee, it should be only Rs. 2,90,09,609/- but the income of the assessee has been fixed at Rs. 9,78,50,910/-. As per the submissions filed by the assessee before the Ld.CIT(A), the net income of Rs. 5,25,34,605/- has to be divided between the units as under: Hillwood Furniture Pvt. Ltd. Rs. 1,80,24,623/- Hillwood Imports & Exports Pvt. Ltd. Rs. 2,90,09,609/- Hillwood Timbers Rs. 55,00,373/- Total Rs. 5,25,34,605/-
The assessee therefore submitted that the income fixed for the appellant company is wrong and prayed to modify the same.
The Ld.CIT(A) had considered the appeal and also the percentage of the purchases effected by the three entities and also the earlier order of the Ld.CIT(A) dated 29/06/2021 in the case of the appellant for the A.Y. 2014- 15 had given the findings as follows: “3.2 The appellant, during the course of the appellate proceedings has illustrated the manner of apportioning the total taxable income in its own case as well as the other two associated entities. As per the apportionment-based method submitted by the appellant, the total income should have been assessed at Rs.2,90,09,609/-instead of Rs.9,78,50,910/- worked out by the AO. The computation of taxable income on the basis of apportionment in the ratio of purchase of timber, put forth by the appellant during the appellate proceedings has been examined and appears to be correct and justified.
3.3 From the above, it is clear that issue relating to computation of assessable income of the appellant for the AY under has been discussed and settled by the CIT(Appeals) in his order dated 29/06/2021. Under the circumstances, it is felt that the order appealed against needs certain modifications to this effect. The AO is directed to recompute the total income after considering the relief granted by the CIT(Appeals) in the appellate order. The appeal is disposed of accordingly with the above directions.”
As against the said order, the revenue is in appeal before this Tribunal.
11. At the time of hearing, the Ld.DR appeared for the revenue submitted that the assessee and its group concerns are legally separate entities and therefore the order of the AO giving effect to the order of the Ld.CIT(A) need not be modified by the Ld.CIT(A).
None appeared for the assessee. We have decided to dispose the appeal on merits with the available materials.
We have heard the arguments of the Ld DR and perused the materials available on record.
In the present case, the 143(3) assessment was made on 30/12/2016 based on the search and seizure operations conducted by the department. Similar assessments were also made for the A.Ys. 2008-09 to 2013-14 which were all challenged before the Ld.CIT(A). In respect of the A.Ys. 2008-09 to 2013-14, the Ld.CIT(A) had passed the order and directed the AO to workout the omissions based on the percentage of purchases effected by the three group concerns. The Ld.CIT(A) had passed a common order in respect of the said A.Ys. which was not challenged by the revenue before the higher forums. When the similar appeal in respect of the assessment year 2014-15 came up for hearing, the Ld.CIT(A) had followed the earlier order of the Ld.CIT(A) dated 26/03/2018 and gave suitable reliefs and directions. The Ld.CIT(A) had followed the said order dated 26/03/2018 and passed the order in respect of the A.Y. 2014-15 on 29/06/2021. The AO had committed some mistakes while passing the order giving effect to the appeal order, and therefore the assessee had filed an appeal before the Ld.CIT(A) and contended that the entire income should not be assessed in the hands of the assessee whereas it should be made based on the ratio of purchase of timber i.e. 55.22% for Hillwood Furniture Pvt. Ltd., 34.31% for Hillwood Imports and Exports Pvt. Ltd. and balance 10.47% for Hillwood Timbers. The Ld.CIT(A) also considered the orders passed for the A.Ys. 2008-09 to 2013-14 as well as the order dated 29/06/2021 and gave the findings in paras 3.2 and 3.3.
15. When the appeal orders for the A.Ys. 2008-09 to 2013-14 and 2014- 15 were not challenged by the revenue, the AO has to follow the said order including the directions given in the order while passing the order giving effect to the order of the Ld.CIT(A). In the present case, the assessee has pointed out that the order as well as the direction has not been followed by the AO while giving effect to the order of the Ld.CIT(A) dated 29/06/2021 which was given by following the order of the Ld.CIT(A) dated 26/03/2018. The revenue also not produced any documents to show that the said orders were reversed by the appellate authorities. In such circumstances, we are of the view that the Ld.CIT(A) had rightly passed the order in which the proportionate income in respect of the assessee should be assessed according to the ratio of purchase of timber effected by the assessee. We, therefore find no merits in the case of the revenue and therefore dismiss the appeal.
In the result, the appeal filed by the revenue is dismissed.
Order pronounced in the open court on 30th October, 2025.