TaxTMI 
TaxTMI 
2006 (7) TMI 259
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....; R/o BD-23, Vishakha Enclave, Pitampura, Delhi. Address : 2708, Bank Street, Karol Bagh, New Delhi (ground floor). Nature of : Trading in gold, silver and precious stones, and business manufacturing of ornaments on job work basis against the material supplied by the customers. (B) M/s P.P. Jewellers (Delhi) Status : Partnership firm. Partners : Shri Kamal Gupta - 75% Smt. Ratan Devi - 25% Address : 1178, Kucha Mahajani, Chandni Chowk, Delhi. Nature of : Dealing in wholesale business of gold and gold business ornaments and manufacturing of gold ornaments on job work basis. (C) M/s P.P. Jewellers (India) Status : Partnership firm. Partners : (i) Shri Balram Garg - 25% &nb....
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....bsp; 2708, Beadon Pura, 10.10.1996 Bank Street, Karol Bagh, New Delhi. ------------------------------------------------------------- 3 P.P. Jewellers 1378, 1379, Faiz 10.10.1996 P.C. Gupta Gani, Gali No. 5, G.R. Gupta Azad Market, Bahadurgarh Road, &nbs....
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....ts under s. 158BC by passing three separate orders on 31st Oct., 1997 assessing the undisclosed income of the assessees for the block period as under: (A) M/s P.P. Jewellers (P) Ltd. (i) Profit from undisclosed sales : 34,15,000 (ii) Alleged unexplained investment made in circulating capital : 27,65,000 (iii) Undisclosed income shown by the assessee in its return of income (on protective basis) : 90,00,000 Total :....
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....aken for search and seizure operations under s. 132 of the IT Act. In the absence of any valid Panchnama evidencing search and seizure operations on the assessee, the entire proceedings taken in pursuance thereof were thus not valid and hence, the assessments framed by the learned Asstt. CIT, Central Circle-1, made are unsustainable in law. 2. That even otherwise, the impugned assessments framed by the learned Asstt. CIT, Central Circle-l, vide order dt.31st Oct., 1997are without jurisdiction inasmuch as there was no service of a valid notice under s. 158BC of the Act on the assessees." As the issues raised by the assessees in the aforesaid additional grounds are purely legal issues and the facts material and relevant to adjudicate the same are already on record, we have admitted the said grounds keeping in view the decision of Hon'ble Supreme Court in the case of National Thermal Power Corporation vs. CIT (1999) 157 CTR (SC) 249 : (1998) 229 ITR 383 (SC). 7. Since the preliminary issues challenging the validity of the impugned assessments have been raised by the asses sees in the aforesaid additional grounds, we now proceed to consider and decide the same at the outset. ....
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...., He further relied on the decision of Hon'ble Delhi High Court in the case of CIT vs. Pushpa Rani (2005) 193 CTR (Del) 256 : (2004) 136 Taxman 627 (Del), wherein it was held that if there is no search warrant issued in the name of the assessee, the proceedings under s. 158BC are without jurisdiction and void ab initio. He contended that as per the provisions of s. 158BA, a valid search is a precondition for initiating the proceedings under Chapter XIV-B and such valid, search should be evident from the warrant of authorization as well as from the Panchnama drawn in the name of the assessee. He contended that in the present cases, neither the warrants of authorization issued under s. 132(1) nor the Panchnamas drawn during the course of search were in the names of the asses sees and it, therefore, cannot be said that there was any valid search conducted in the cases of the present assessees. 9. The learned Departmental Representative, on the other hand, submitted that all the three assessees in the present case were operating from the different premises situated at different places and since there was no ambiguity or confusion about the search operations conducted in their cases ....
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....105 CTR (P&H) 36 : (1994) 208 ITR 424 (P&H) and pointed out that the facts involved in the case of Jai Bhagwan Om Parkash decided by Hon'ble Punjab & Haryana High Court as well as the issue involved therein are identical to that of the present cases in hand. 11. The learned Departmental Representative also invited our attention to the provisions of s. 292B and pointed out that the expression "other proceedings" includes the search proceeding also and, therefore, the said provisions are sufficient to cure the mistake or omission in mentioning the correct names of the assessees in the search warrants. He contended that even the similar omission or mistake in the notices issued under s. 158BC can be remedied by the provisions of s. 292B and the said notices, in any case, not being the jurisdictional notices as held by Amritsar, Special Bench of Tribunal, in the case of Smt. Mahesh Kumari Batra vs. Jt. CIT (2005) 95 TTJ (Asr)(SB) 461 : (2005) 95 ITD 152 (Asr)(SB), that any defect therein would not render the block assessment proceedings to be null and void. 12. In the rejoinder, the learned counsel for the assessee submitted that the scope of s. 292B is very limited and it covers....
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....al defect in the assessment, notice, summons or other proceedings. He contended that if the notice, summons or other proceedings taken up by an authority suffers from an inherent jurisdiction, the same cannot be cured by resorting to the provisions contained in s. 292B. In support of this contention, he relied on the decision of Hon'ble Punjab & Haryana High Court in the case of CIT vs. Norton Motors Ltd. (2006) 200 CTR (P&H) 604 : (2005) 275 ITR 595 (P&H). Reliance was also placed by him on the decision of Allahabad Bench of Tribunal in the case of ITO vs. Jangi Lal : (1986) 17 ITD 662 (All) to contend that s. 292B cannot be brought to the aid of the Revenue to make an illegal act to be legal. 13. We have considered the rival submissions and also perused the relevant material on record. The preliminary issue raised by the learned counsel for the assessees before us is that none of the search warrants issued in the case of these group assessees contained the name of any of the following three assessees and in the absence of the same, it cannot be said that there was any search warrant issued in their names and that there was a valid search initiated or conducted so as to give ju....
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....tners and independent existence, there was no valid search initiated or conducted in the cases of the said assessees. The learned Departmental Representative, on the other hand, has contended that M/s P.P. Jewellers (Delhi) and M/s P.P. Jewellers (India) were having their business premises at 1178, Kucha Mahajani, Chandni Chowk, Delhi and 674/675, Sadar Bazar, Delhi, respectively and both these premises were covered under the search warrants issued in the name of M/s P.P. Jewellers. He has contended that even though the words "Delhi" and "India" were not specifically included in the names of the assessees, the search was admittedly conducted at their premises in accordance with law and there was no confusion either in the mind of the search party or even in the minds of the assessees about the fact that a search operation under s. 132(1) was taken in their cases. He has contended that the search action under s. 132(1) thus in substance and effect was in conformity with and according to the intent and purpose of the Act and the non-mentioning of the complete/full names of the assessees was merely an inadvertent omission which could be cured under s. 292B. In support of this contenti....
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.... void ab initio by Delhi Bench of Tribunal observing that search under s. 132 is person specific and not premises specific. Similarly, in the case of Mahabir Prasad Rungata (HUF), cited by the learned counsel for the assessee, search action under s. 132(1) was conducted admittedly as a result of search warrant issued in the case of the partnership firm, M/s Eastern Molasses Company, and as specifically recorded by the AO himself in the block assessment order, it was a fact that no warrant under s. 132(1) was issued in the case of the assessee, i.e. Shri M.P. Rungata (HUF), partner of the said firm. Even in the case of Pushpa Rani, the Tribunal had arrived at the conclusion that there were no search warrants issued in the names of the assessee and keeping in view this finding of fact recorded by the Tribunal, it was held by Hon'ble Delhi High Court that the appeal of the Revenue against the order of the Tribunal was not maintainable. In the case of Nenmal Shankarlal Parmer also, the seizure of assets and documents belonging to the partner in his individual capacity was effected on the basis of warrant issued in the name of the partnership firm and this action of the Department was n....
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....out the fact that the search operation was initiated and conducted in their cases. Having regard to all these relevant and material facts arising from the record, we are inclined to agree with the contention of the learned Departmental Representative that the search operation in substance and effect was according to the intent and purposes of the Act and the same being in conformity with the relevant provisions, the inadvertent mistake in mentioning the full names of the assessees by omitting the words "India" and "Delhi" was a technical mistake which could be cured by recourse to the provisions of s. 292B. 18. Before us, the learned counsel for the assessee has cited few case law to contend that the mistake in not mentioning the complete and correct names of the assessees in the search warrants was an inherent lacuna affecting the very jurisdiction of the AO and such a jurisdictional defect could not be cured by having resort to s. 292B. A perusal of these judicial pronouncements cited by the assessee, however, shows that the facts involved therein were entirely different from the facts of the present case and therefore the ratio laid down therein cannot be of any help to the a....
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....rovisions of s. 292B by the Hon'ble Madras High Court observing that the same was not misleading so as to vitiate the exercise of power in pursuance of the warrant of authorization. In the case of Sonu Systems (P) Ltd., the authorization for search in' the name of the petitioner was made by the Additional Director and there was an innocuous omission to delete the word "Deputy", while adding the word "Additional" to the already existing expression "Deputy Director" in the Panchnama. This omission/mistake, however, was held to be a clerical mistake by the Hon'ble Delhi High Court observing that the same could not be used as the foundation for nullifying or otherwise to prevent legitimate action and the search was held to be valid in the eye of law. In our opinion, all these decisions cited by the learned Departmental Representative clearly support the case of the Revenue that the expression "other proceedings" used in s. 292B very much covers the search proceedings and since the said proceedings taken up in pursuance of the provisions of s. 132(1) were in conformity with and according to the intent and purpose of the Act as discussed hereinabove, we are of the view that the omission ....
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....h the stock of these two concerns appearing in their books of account so as to work out the exact difference. A statement of such combined stocks was also prepared and furnished by the assessee before the AO showing the difference and the following explanation was offered to reconcile the said difference: (a) Manufactured jewellery delivered by Veenu Jewellers at Karol Bagh shop out of the issue by Chandni Chowk shop. App. 3,602 grams (b) Jewellery received back from Vimal Jewellers out of jewellery given on approval basis by Chandni Chowk shop. 4,790 grams (c) New ornaments received from M/s Arihant Jewellers against bill Nos. 41, dt. 26-9-96 and 46, dt. 5-10-96 weighing 13,046 gms. against gold issued by P.P. Jewellers, Karol Bagh, New Delhi, as per issue register seized. Copies of bills referred to above enclosed. &....
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....r repairs as per register maintained and repair book seized. 24,634.49 grams 22. On the basis of the aforesaid explanation, the excess stock of both the concerns together was finally worked out by the assessee at 23 Kgs. of 22 carat gold jewellery and it was claimed that value thereof can alone be assessed in the block assessment as its undisclosed income. This stand of the assessee, however, was not accepted by the AO. He held that the assessee company and M/s P.P. Jewellers are two distinct legal entities having independent business and since the said business was done from different premises, there was no reason to combine the stocks of both these concerns to work out the difference. He found that the transactions between these two concerns were duly recorded in their respective books of account including stock registers and there being no mix-up of the stock of inventory, the same was required to be considered separately in the case of each concern. As regards the ex....
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....unaccounted sales of the assessee at Rs. 2,50,00,000. On the basis of the said estimate, he worked out the profit of the assessee from unaccounted sales to the best of his judgment as well as the investment required to be made by the assessee in circulating capital for the unaccounted transactions as follows: A. Profit on unaccounted sales 1. Total approx. sales as per loose annexures 2,50,00,000 pertaining to the assessee found and seized from various premises as discussed above. 2. GP @ 13.66% on undisclosed sales of 34,15,000 Rs. 2,50,00,000 treated as assessee's undisclosed profit for the asst. yr. 1997-98. B. Value of the investment made by the assessee for above unaccounted sales 1. Total circulating investment taken @ 20 per 50,00,000 cent on estimation of the total unaccounted sales of Rs. 2,50,00,000 Less: Gross Profit available with the assessee 3,41,500 for circulating working capita....
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....on is about the ascertainment of the exact quantum of unaccounted sale from the loose slips found during the course of search. He submitted that as per the working made by the Department, such sale was quantified at Rs. 2,30,68,055 whereas the AO finally adopted such sale on estimated basis at Rs. 2.5 crores while making the addition on account of profit on such sale as well as alleged investment made in the circulating capital required for the unaccounted transactions He contended that this estimation made by the AO was without any basis and even the working made by the Department while determining the unaccounted sale on the basis of loose slips at Rs. 2,30,68,055 suffered from many mistakes as pointed out by the assessee. In this regard, he invited our attention to the copy of detailed submissions made before the AO placed at page Nos. 11 to 13 of his paper book along with annexure and supporting details placed at pp. 14 to 106 of his paper book to point out that the mistakes committed by the Department in their working were specifically pointed out by the assessee with reference to each and every slip. He submitted that some of the said slips had been considered more than once ....
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....um of any undisclosed investment made in the unaccounted sale as alleged, no addition on account of such alleged investment could be made especially in the block assessment. He also contended that it was imperative for the AD to give a cogent basis for computing such alleged investment and since there was no such basis given by him in the assessment order, the addition made by him on this count is liable to be deleted. 27. The learned Departmental Representative, on the other hand, invited our attention to Annex. A-16 to show that some slips found during the course of search contained only weight and not the value. He contended that it was therefore fair and proper on the part of the AO to determine the value thereof on the basis of prevailing rates and to include such values for working out the total quantum of unaccounted sale made by the assessee. He submitted that the substantial difference was found in the stock inventorised during the course of search on physical verification and the stock as per the books of the assessee, and the assessee could not explain the said difference to the satisfaction of the AO. He submitted that whatever explanation attempted to be given by th....
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.... during the course of search were seized by the Department as per Annexs. A-1 to A-33. The said loose slips apparently represented unaccounted transactions of the assessee and, therefore, the AO required the assessee to explain the contents of the said seized documents. In reply filed in writing on25th Oct., 1997, it was explained by the assessee that the said loose slips show the sales made in the books and outside books. It was also explained that the transactions reflected in the said loose slips were mostly recorded in the books of account of the assessee company. A detailed statement was furnished by the assessee along with the aforesaid written submissions explaining each and every loose slip found during the course of search with narration given in the last column called as "Remarks". In the said column, it was indicated against each slip about the nature of the said document as well as the contents thereof. A copy of the said submissions along with the statement is filed by the learned counsel for the assessee before us and a perusal of the same reveals that wherever the relevant seized documents represented the sale of the assessee and the same were not recorded in the boo....
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....the orders cannot be ruled out. Orders which were taken in the first week of October, 1996 i.e., prior to the date of the search (search took place on10th Oct., 1996) can be classified in unexecuted orders category. Since assessee has failed to furnish the complete details of these slips and also the evidences, I estimate 60 per cent of the orders having been executed and accordingly sales to this extent are treated as assessee's unaccounted and undisclosed sales, the profit of which has not been shown by the assessee in its regular books of account." 31. As is clearly evident from the aforesaid observations recorded by the AO in the case of M/s P.P. Jewellers (Delhi), the similar explanation offered by the assessee in the said case was accepted by the AO taking into consideration the very nature of the assessee's business as well as the contents of the relevant loose slips. He, however, did not accept the same fully due to the failure of the assessee to furnish complete details of the loose slips as well as its failure to produce evidence to support and substantiate the same. Still, he accepted the stand of the assessee partly and in the absence of specific/complete details fur....
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....such unaccounted sale and, therefore, the actual sale of the assessee outside books as evidenced by the said loose slips found during the course of search was only Rs. 75,92,282 as against Rs. 2.5 crores taken by the AO. As such, considering all the facts of the case, we hold that the evidence found during the course of search in the form of various loose slips could establish the unaccounted sale of the assessee only to the extent of Rs. 75,92,282 as against Rs. 2.5 crores taken by the AO for the purpose of making additions on account of profits on such unaccounted sale as well as alleged investment made in the circulating capital required for the purpose of effecting the said sale outside the books. We, therefore, modify his impugned order and recompute both these additions made by him adopting the same basis but with the revised quantum of unaccounted sales as follows: A. Profit on unaccounted sales 1. Total sales as per loose annexures pertaining 75,92,282 to the assessee found and seized from various premises as discussed above. 2. GP @ 13.66% on undisclosed sales of  ....
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....l for the purpose of unaccounted transactions is also challenged by the learned counsel for the assessee by contending that there was no evidence found during the course of search to establish the factum as well as quantum of the said investment. He has also contended that the onus to establish such factum and quantum of investment was on the Revenue and having clearly failed to discharge the said onus on evidence found as a result of search, the addition made on account of such alleged investment was not sustainable in law. However, having found that there was no such investment required to be made by the assessee in the unaccounted sale of Rs. 75,92,282 as determined by us by adopting the same basis as taken by the AO in his assessment order, we do not deem it necessary to consider and deal with this contention of the assessee which has become only of academic nature. 34. In ground No. 5, the assessee has disputed the addition of Rs. 90 lakhs made by the AO on protective basis on account of alleged excess stock. 35. As regards the difference found between the stock inventorised during the course of search on physical verification and the stock as per its books of account, t....
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....tion of the AO by submitting that the declaration of the said amount as its undisclosed income made by the assessee was conclusive and since the same bound the assessee, the AO was fully justified in including the amount so declared by the assessee company in its undisclosed income computed in the block assessment order. In this regard, it is observed that a similar issue had arisen for consideration before the Nagpur Bench of Tribunal in the case of Dy. CIT vs. Sanmukhdas Wadhwanj (2003) 80 TTJ (Nag) 648 : (2003) 85 ITD 734 (Nag) and after considering the relevant provisions of Chapter XIV-B, it was held by the Tribunal that any income which is not chargeable to tax under the provisions of Chapter XIV-B could not be taxed merely because the same was offered by the assessee in his return of income. The observations recorded by the Tribunal in this regard in para No. 11 are reproduced below: "11. The 'undisclosed income' as defined in cl. (b) of s. 158B includes any money, bullion, jewellery or other valuable article or thing or any income based on any entry in the books of account or other documents or transactions, where such money, bullion, jewellery, valuable article, thing, ....
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....turn filed by the assessee for the block period. At this stage, it is useful to refer to the observations recorded by the Pune Bench of Tribunal in the case of Control Touch Electronics (Pune) (P) Ltd. to the effect that if any income is not taxable by virtue of any provision of the Act, then it cannot be taxed merely because it was offered by the assessee in his return of income and there cannot be any such estoppel against statute." 37. For the above conclusion, the Tribunal also derived support from the decision of Hon'ble Delhi High Court in the case of CIT vs. Bharat General Insurance Co. Ltd. (1971) 81 ITR 303 (Del) and that of Hon'ble Supreme Court in the case of Narayanan vs. Gopal AIR 1960 SC 235 holding that the proposition laid down in the said judicial pronouncements in the context of regular assessment is equally applicable in the matter of block assessment. The discussion made by the Tribunal on this point finds place in para No. 12 of its order which is reproduced below: "12. It is observed that a similar issue in the context of regular assessment arose for consideration before the Hon'ble Delhi High Court in the case of CIT vs. Bharat General Insurance Co. Ltd....
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.... AO on account of profit on unaccounted sales and alleged investment made in the circulating capital for the purpose of effecting such unaccounted sale, respectively. 40. During the course of search, the cash found physically was much less than the cash balance reflected in the cash book regularly maintained by the assessee. Similarly, difference was found in the stock inventorised during the course of search on physical verification and the stock as reflected in the books of account of the assessee company. The assessee company made an attempt to explain this difference in cash as well as stock found during the course of search. On examination, the AO, however, found that the explanation offered by the assessee in this regard was not acceptable and after discussing the same in the light of enquiries made by him in detail in his assessment order, he rejected the same. He also held that the books of account maintained by the assessee were not reliable. During the course of search, certain loose slips were also found which were seized as per Annexs. A-15, A-16, A-19, A-20, A-21, A22, A-24, A-25, A-26, A-27, A-28 and A-33. Details of the transactions of gold ornaments effected by t....
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.... of : Rs. 56,21,500 11,243 gills. @ Rs. 500/gm. 4. GP @ 9.21 (shown by assessee in asst. : Rs. 5,17,740 yr. 1996-97) on Rs. 5,62,1500 to be treated as assessee's undisclosed income for asst. yr. 1997-98. (1-4-96 to 10-10-96) : Investment: 1. Total unaccounted sale : Rs. 56,21,500 2. Less: Value of 3978 gms. of gold found : Rs. 19,89,000 short @ Rs. 500 per gms. ------------- &....
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.... were sufficient to support and substantiate the explanation offered by the assessee that all the loose slips did not represent its unaccounted sale and the quantum of unaccounted sales as evidenced by the said loose slips was only to the extent of Rs. 75,92,282 as against Rs. 2.5 crores wrongly estimated by the AO. In the present case, a similar explanation offered by the assessee was accepted by the AO. However, in the absence of complete details filed by the assessee in respect of all the loose slips found during the course of search as well as the lack of evidence to support and substantiate the same, he adopted 60 per cent of the total quantity of gold jewellery reflected in all the loose slips as representing the unaccounted sales of the assessee for the purpose of quantifying the unaccounted sales and determining the profit earned by the assessee on such quantum as well as investment required to be made in circulating capital for achieving such unaccounted sale. As rightly contended by the learned counsel for the assessee before us, this estimate made by the AO while adopting 60 per cent of the quantity as the unaccounted sales of the assessee was without any basis and the A....
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.... : Rs. 28,06,772 ----- 100 3. 20% of above taken as investment. : Rs. 5,61,354 4. Less: Value of stock of gold found short : Rs. 19,89,000 by 3,978 gms. @ Rs. 500 per gram. ------------- Nil &n....
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....dditions of Rs. 19,500 and Rs. 1,71,000 made by the AO on account of profit on unaccounted sale of silver and jewellery, respectively as well as the alleged investment of Rs. 1,02,032 required to be made by the assessee in circulating capital for effecting the said unaccounted sales. 44. During the course of search, cash found from the premises of the assessee was substantially lower than the cash balance reflected in its cash book. Similarly, difference was noticed in the stock inventorised during the course of search on physical verification and the stock as per the books of account of the assessee. The said difference in cash as well as stock was attempted to be explained by the assessee and after examining the said explanation in the light of material found during the course of search as well as brought on record by the assessee during the course of assessment proceedings, it was held by the AO that the stock of silver found during the course of search on physical verification was short by 21.50 Kgs. than the stock as per the books of account of the assessee. He, therefore, treated the quantity of 21.50 Kgs. of stock of silver found short as sold by the assessee outside the ....
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....Rs. 1,02,032 as follows: 1. Total undisclosed sales : 7,50,000 2. Less: Value of 178 gm of gold @ 500/gm. : 89,000 3. Cost value of above 77.18 x 6,61,000 : 5,10,160 ----- 100 4. 20% of above taken as investment : 10,20,320 and added the same to the total undisclosed income of the assessee. While working out the total amount involved in the transactions reflected in the seized documents, he took the amounts mentioned therein as in the multiples of 100 and accordingly, computed the unaccounted sales at Rs. 7,50,000. 45. After considering the rival submissions and perusing the relevant material on record, it is observed that no satisfactory explanation as regards the shor....
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....t than the stock as per the books of the assessee clearly show that the assessee was indulging in the transactions outside the books of account and its entire sale was not duly recorded in the regular books of account. As such, considering all the facts and circumstances of the case, we are of the view that it would be fair and reasonable to estimate the unaccounted sale of the assessee by adopting the same ratio of 33 per cent as applied by us in the case of M/s P.P. Jewellers (P) Ltd. and M/s P.P. Jewellers (Delhi) to work out the quantum of unaccounted sale as evidenced by the loose papers found and seized during the course of search. Accordingly, we estimate such unaccounted sale at Rs. 2,47,500 being 33 per cent of Rs. 7,50,000 and determine the quantum of profit from such unaccounted sale as well as the investment required to be made by the assessee in the circulating capital required for such unaccounted sale as follows: 1. Total undisclosed sale. : 2,47,500 (33% of Rs. 7,50,000) 2. Profit on such unaccounted sale @ 22.82%&....