TaxTMI 
TaxTMI 
1997 (5) TMI 82
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.... facts relating to the main grounds raised in all these appeals are as under: The Investigation Wing of the IT Department made certain investigations, as a result of which, they collected certain information from the various transport firms/companies indicating that the various dealers of cloth carrying on their business at Rohtak received consignment of several bales of cloth from Ahmedabad, Surat and Amritsar. On the basis of such material obtained as a result of investigation made by the Investigation Wing, the AO's made addition on account of unexplained investment made for making such unrecorded purchases as well as in respect of unaccounted profit derived on such suppressed sales. 3(b). The learned representatives of both sides submitted that it will be sufficient to examine the facts of the main case of Ram Piyare Satish Kumar for asst. yrs. 1990-91 to 1992-93 as the entire facts and basis of additions made in all other cases are similar, except that the number of unrecorded purchases of bales of cloth and the consequent amount of additions based thereon are different. 3(c). It will, therefore, be imperative to reproduce hereunder the facts and findings given by the AO....
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....s of account. He was asked to state from whom the goods have been purchased. It was replied that the goods had been purchased fromBombay,Surat, and Ahmedabad and since the parties did not give him the bills, the names and addresses of the seller parties cannot be made available and further that he is unable to recollect the names of these parties. The assessee was further asked to mention the quality of the cloth and then it was stated that the quality of cloth was that of inferior type of terrycot, silk and that the purchase price of bales varied from Rs. 5,500 to Rs. 6,000 per bale. The assessee was asked to state as to whether he was in possession of any evidence whereby the cost of any/each bale could be specifically determined. It was stated that the basis for estimating the cost of the goods was the purchase price of the goods purchased from Amritsar and Surat in respect of the purchases recorded in the regular books of accounts and in support of its contention the assessee also submitted bills which would show the cost of the bale in respect of the recorded entries. 8. The assessee was further asked as to what was the investment made in the purchase of the unrecorded good....
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....of accounts. The goods that were purchased on credit, the assessee would have to show that the date of payment made to the seller which has never been done by the assessee. Furthermore, these transactions were entered into in the normal course of business as is evident from the fact that the goods consigned from the same station and from the very transporter have partly been recorded and partly been unrecorded by the assessee in his books of accounts. The goods that were not recorded would normally be paid in cash. Furthermore, the assessee is not in a position to submit even a single scrap of paper to show that the goods were purchased on credit basis and from whom such goods were purchased. This fact is only in the knowledge of the assessee and it is not possible for me to exactly draw any conclusion except that the purchases were made in cash. 11. Whether the goods were purchased on credit or in cash, the assessee cannot take a stand that no investment was made for the purchase as even for credit purchases, an investment is made but only the accounts are settled after a certain period of time. Therefore, the assessee's contention that since the goods were purchased on credit ....
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....the purchases. In view of the fact that the assessee has not led any evidence so as to throw any light on the transactions and since the transactions entered into by the assessee are in the knowledge of the assessee and fair adoption has to be relied upon. It is normal pattern of any trade that goods are purchased and sold after a certain period of time and out of sale proceeds, expenses are accounted for and as such capital keeps on circulating. The assessee was also confronted vide this office letter dt.22nd Jan., 1993to show cause as to why the entire cost of purchases of bales be not included as undisclosed investment of the assessee in his hand. The assessee vide its reply dt.25th Feb., 1993, has contended as under: (i) that the goods were purchased on credit basis and hence there is no investment made by the assessee in the purchase of the alleged 38 bales. (ii) that the payments were made to the persons from whom the purchases were made after the sale of goods. (iii) that the assessee had normally purchased the goods on credit. (iv) and that the burden of proof was on the Department to establish the fact that the undisclosed investment has been made. As mentio....
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....f one bale at Rs. 7500 @ 5.5 per cent. I am not disturbing the rate of profit as shown by the assessee itself. During the year he has purchased 38 bales of cloth, hence profit comes to Rs. 38 x 8500 x 5.5 per cent = 17,765 17,765 (c) Hence total addition to extent of Rs. 42,500 + 17,765 = 60,265 treating the sale to the undisclosed income of the assessee will be made to the other income of the assessee 60,265 The AO thus made an addition of Rs. 60,265 as assessee's income from undisclosed sources. However, while computing the taxable income, the AO deducted the amount of Rs. 15,000 being profit on unrecorded goods shown by the assessee in the revised return." 3(e). The AO in the case of Ram Piyare Satish Kumar made addition on similar basis in asst. yr. 1991-92 as under: Reproduced from p.6 of the assessment order: "(a) The assessee has made unrecorded purchases on13th May, 1990of 6 bales and by applying average value of a bale of Rs. 8500 the undisclosed investment in the bales comes out to Rs. 51,000 51,000 (b) Hence the assessee has made investment out of the undisclosed money in these unrecorded goods to the extent of Rs. 51,000 and the same ....
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....the assessee as well as by the AO. The AO highlighted the relevant facts and findings given by him in the assessment order. The gist of arguments advanced on behalf of the assessee and the findings given by the CIT(A) in paras 15 and 16 of his order for asst. yr. 1990-91 in the case of aforesaid assessee are reproduced hereunder: "15. At the time of hearing of the appeal, learned counsel Shri Jain submitted that for years together, assessee has been purchasing materials fromBombay,Surat,Amritsarand Ahmedabad and other places. These four cities are pioneer in textile manufacturing and business. Assessee is at mercy of the manufacturers and wholesale commission agents of the said cities. It is a trade practice that some of the commission agents in those cities do not issue bills. Shri Jain submitted that assessee has to procure materials for its own trading to carry out the business. Learned counsel submitted that assessee, on good faith accepted certain transactions which were not recorded in the books of account but it does not mean that any investment was made for the purchase of unrecorded materials. Shri Jain vehemently argued that the practice in the trade is that payments t....
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....ifficult to accept the contention of the learned counsel that there was no basic investment. Even if the assessee did not pay to the seller, it had to undertake transport charges, payment of octroi, etc. from its own coffer. Considering the entire gamut of case, I am of the opinion that estimate of investment @ 2 per cent on total unrecorded purchases were Rs. 6,460 (3,23,000 x 2/100). Learned AO has made addition of Rs. 42,500. Appellant gets a relief of Rs. 36,040. This ground is partly allowed." 4(b). The CIT gave the following findings in relation to addition made on account of profit on unaccounted sales of the unrecorded bales of cloth in asst. yr. 1990-91: "17. Ground No. 6(c) challenges an addition of Rs. 17,765 on account of gross profit on bales. Assessee disclosed profit of Rs. 15,000 on unrecorded sales. Learned AO increased the profit to Rs. 17,765. He was of the opinion that gross profit rate of 5.5 per cent was applicable. Learned counsel Shri Jain submitted that learned AO adopted higher G.P. rate. I have considered his submissions. In view of my finding given in ground No. 2 above, the addition made by the learned AO at Rs. 2765 (17,765-15,000 disclosed by th....
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....cross-appeals relating to main issue in cases of these assessees 7. The grounds raised by the Revenue in their appeals in the cases of these assessees for the various years in relation to the aforestated main issue can be briefly stated as under: (a) The CIT has erred in deleting a substantial part of the addition made by the AO in respect of unexplained investment made for unrecorded purchases [such as the CIT(A) has erred in deleting the addition of Rs. 36,040 out of addition of Rs. 42,050 made by the AO in the case of Ram Piyare Satish Kumar in asst. yr. 1990-91] by directing the AO to restrict such addition only to the extent of only 2 per cent of the total amount of unrecorded purchases of cloth made by the assessee; (b) The CIT has erred in deleting the addition of extra profit determined by the AO on unrecorded sales beyond what was surrendered by the assessee (such as the CIT(A) has erred in deleting the addition of Rs. 2765 made by the AO in the case of Ram Piyare Satish Kumar in asst. yr. 1990-91 by estimating profit on unrecorded sales at Rs. 17,765 as against profit of Rs. 15,000 surrendered by the assessee in the revised return]. 8. Shri G.C. Sharma, learne....
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....several occasions. After discussions, all the concerned dealers (appellants/Respondents) submitted their revised returns in which reasonable and adequate amount of profit on such unrecorded transactions were included in conformity with such discussions. The AO, therefore, ought to have accepted the income shown in the returns/revised returns submitted pursuant to such discussions. The learned counsel also submitted copies of letters dt.22nd Feb., 1993, and28th Dec., 1992, submitted by the Association to the CBDT. 8.3. The learned counsel placed reliance on the judgment of Hon'ble Allahabad High Court in the case of Ashok Kumar Rastogi vs. CIT (1992) 106 Taxation 30 (All) to support his contention that no addition can be made on account of any unexplained investment for alleged unrecorded purchases. 8.4. Shri Sharma, the learned Senior Advocate further contended that the CIT has wrongly sustained the purchase price of each bale of cloth taken by the AO at Rs. 8500. The AO has brought no material on records to justify the rate of Rs. 8,500 per bale. He contended that the CIT(A) ought to have accepted the average rate of Rs. 6500, as contended on behalf of the assessee. 8.5. ....
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....ddition of the purchase price of peak purchase made on any one day. The CIT(A) ought to have confirmed the entire addition made in respect of unexplained investment for purchase of unrecorded cloth bales and he also ought to have confirmed the addition made in respect of profit on such unrecorded turnover. 10(a). We have carefully considered the submissions made by the learned representatives of both sides. We have also gone through the orders of the learned Departmental authorities and have also perused all other documents to which our attention was drawn during the course of hearing. (b) It was the common contention of the learned representatives of both sides that it will be sufficient to examine the facts of the main case of Ram Piyare Satish Kumar, as the relevant facts in the cases of all other assessees are almost similar. We will, therefore, confine and concentrate on the scrutiny and examination of the facts recorded in the orders of the Departmental authorities in the aforesaid case. (c) The officers of the Investigation Wing of the Department have made deep and thorough investigation of the relevant facts and have ascertained the list of specific items of unreco....
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....rchases. 22.3 It may be relevant and imperative to examine the ratio of capital employed on the recorded turnover accounted for in the books of accounts. A perusal of the balance sheet of Ram Piyare Satish Kumar as on31st March, 1990reveals the following position of capital employed by the partners in the said firm: Name of the Partner Opening Capital Share of Profit Withdrawals Closing Balance(2+3 - 4) 1 2 3 4 5 Satish Kumar 82,075 29,363 18,430 93,008 Harish Kumar 91,235 29,363 13,490 1,07,108 Smt. Vidyawanti 97,950 20,634 625 1,17,959 . 2,71,260 79,360 32,545 3,18,075 The recorded sales as per the audited trading and P&L a/c placed at p. 34 of the paper-book was Rs. 79,41,388. It means that for making recorded turnover of Rs. 79,41,388 the assessee required capital of Rs. 2,71,260, which comes to 3.41 per cent of the turnover. 22.4. The AO on p. 7 of the Assessment Order for asst. yr. 1990-91 has observed as under: "In the assessee's case, it is seen that he had an opening stock of Rs. 3,62,067 and the total sales shown at Rs. 79,41,388 and hence the circulation of opening stock....
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.... facts and discussions and in view of the elaborate reasons given in the orders of the CIT(A), we are of the considered opinion that the CIT(A) has rightly directed the AO to sustain the addition in respect of unexplained investment at 2 per cent of the total value of unrecorded sales of the unrecorded goods purchased by the assessee. We do not find any justification in interfering with the finding given by the CIT(A) in this regard. (h) The next submission made on behalf of the assessee is that the CIT(A) has erred in confirming the price of unrecorded cloth bale @ Rs. 8,500 per bale taken by the AO as against Rs. 6,500 for the purpose of computing the amount of addition made in respect of unexplained investment for unrecorded purchases. On a careful consideration of the entire relevant facts, material and evidence existing on records and after considering the submissions made by the learned representatives of the parties, we are of the view that the CIT(A) rightly confirmed the price of Rs. 8,500 per bale taken by the AO for the purpose of making addition in respect of unexplained investment for unrecorded purchases of cloth. The AO has observed that the assessees did not furn....
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....ve considered the submissions made by the learned representative of the parties. The sale value of 38 bales @ Rs. 8,500 per bale comes to Rs. 3,23,000. The profit of Rs. 15,000 declared by the assessee works out to 4.6 per cent. The assessee has declared G.P. rate of 4.01 per cent on the recorded sales. In our view, the CIT(A) has, therefore, rightly deleted the addition made in the declared profit on suppressed sales amounting to Rs. 2,765. The facts in all other cases are stated to be almost similar. Therefore, we are of the view that in all cases, where the CIT(A) has given a specific finding deleting such addition and the Revenue has raised a specific ground against such deletion, the ground so raised by the Revenue has no merit. However, in cases where the CIT(A) has not given any specific finding in relation to such a ground and no specific ground has been raised by the assessee or the Revenue, we cannot give any finding in the absence of a specific ground. The order passed by the CIT(A) is, therefore, confirmed in relation to this issue also. (j) In some of the cases, the CIT(A) has partly sustained the addition made by the AO on account of profit on suppressed turnover. ....
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....us appeals by the assessee. (k) In some of the appeals, the assessees have raised some more grounds relating to the main issue relating to unrecorded purchases of cloth bales. It has been mentioned that the AO has erred in determining the total number of unrecorded bales. The AO has not confronted the assessee with the material gathered behind the back of the assessee. There is no evidence on record to prove that the assessee made such unrecorded purchases as alleged in the assessment order. Mr. Sharma, the learned counsel for the assessee did not dispute the factual details of the unrecorded purchases made by these dealers, as mentioned in the assessment orders. The AO has given complete details of such unrecorded purchases with necessary particulars as to G.R. No., date of receipt, number of bales etc. Most of the dealers have specifically admitted the correctness of such details of unrecorded purchases worked out by the Investigation Wing/AO after thorough investigation and verification with the books of all the concerned dealers. We, therefore, do not find any justification in interfering with the view taken by the CIT(A) in this regard. (l) In some cases, the AO, i....
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.... not find any justification in interfering with the view taken by the CIT in relation to such disallowances out of expenses in all relevant appeals under consideration. The various grounds raised in the appeals by the assessee and by the Revenue in all the concerned cases with regard to disallowances out of various expenses have no merit and are accordingly rejected. 12(a) The next common ground raised by the Revenue in their appeals in the cases of various dealers relates to deletion of addition made in the declared trading results by the AO. (b) The learned representatives of both sides submitted that the facts relating to the additions made by the AO in the declared trading results are same, as in the illustrative case of Ram Piyare Satish Kumar. The order passed by the CIT(A) deleting the trading additions are also based on same reasoning as given in the appellate order passed by him in the aforesaid case. It will, therefore, be sufficient to consider the facts of the said illustrative case. (c) The AO in the case of Ram Piyare Satish Kumar for asst. yr. 1990-91 made an ad hoc addition of Rs. 5,000. The AO observed that G.P. rate of 4.01 per cent declared by the assess....
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....A) ought to have confirmed the trading additions made by the AO in all the cases. The learned counsel submitted that all these dealers have maintained proper books of account. The entire purchases and sales are supported by vouchers. The assessees had also maintained quantitative details. It was not possible to maintain qualitywise day-to-day stock records. He submitted that assessees have surrendered profit on suppressed turnover of unrecorded purchases. The CIT(A) has, therefore, rightly deleted the additions made by the AO in the declared trading results. (f) We have carefully considered the submissions made by the learned representatives of the parties. The correctness of the fact that entire purchases and sales recorded in the books of account are fully supported by vouchers and by the entries made in the regular books of account has not been disputed by the AO in the assessment orders nor by the learned Departmental Representative before us. The absence of day-to-day qualitywise stock record or the fact that G.P. rate declared in any of the years is lower as compared to earlier years or compared to other dealers by itself cannot justify invoking of the proviso to s. 145....
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....in giving direction to add Rs. 28,000 as surrendered income which is already included as per income computed in para No. 12 of the assessment order. After going through the orders of the learned Departmental authorities, we consider it just and proper to direct the AO to verify this fact and give credit of the said sum of Rs. 28,000 shown as extra income (profit) on suppressed sales, by the assessee himself, if such credit has not already been granted while making addition on account of profit on unrecorded sales. 15. The Revenue in its appeal No. 7396/94 in the case of Ram Piyare Satish Kumar for asst. yr. 1992-93 has raised a ground that the CIT(A) has erred in directing the AO to charge interest under s. 234B upto determination of income under s. 143(1)(a). (b) The CIT(A) has given the following finding in the aforesaid case for asst. yr. 1992-93: "As far as interest under s. 234B is concerned, similar issue has been decided by me in the case of Besheshar Lal Kapoor Chand, Rohtak, vide my order dt. 1st Dec., 1993 in appeal No. 17/40/RTK/1993-94, for the asst. yr. 1990-91 in which learned AO was directed to charge interest under s. 234B upto the date of determination of ....