TaxTMI 
TaxTMI 
1997 (5) TMI 82
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....ed 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 in the assessment orders in case of Ram Piy....
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....hat 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 goods. It was stated by the assessee that no amount was invested in the goods as it has been purchased on credit basis. The assessee was then asked to give the names of the parties from whom the goods were purchased on credit. The assessee once again stated that since he did not possess the bills,....
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.... 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 and no investment was made is wholly untenable and unacceptable. As far as the cost of the goods as well as profit of the assessee earned thereon is concerned, the assessee has not produced any direct evidence which would show the cost of the goods purchased and quality thereof. In fact the cloth is of variou....
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....d 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 mentioned earlier, the assessee's contention that goods were purchased on credit and, therefore, no investment was made is contrary to the commonsense and is, therefore, untenable and unacceptable. In the assessee's case, it is seen that he had an opening stock of Rs. 3,62,067 and total sales shown at Rs. 79,41,388 and hence the....
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....e 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 is to be added in the income of the assessee under s. 69 of the IT Act. . (c) Less: profit earned by the assessee in the previous unrecorded sales of 13 bales before this transaction and the profit earned on it comes to Rs. 4972 (8,500 x 13 x 9/100 x 2 = 4,972) 4,972 . . 46,028 (d) The assessee has shown a profit on the unrecorded goods at Rs. 30,000. Dur....
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....ogether, 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 to the sellers are made after the assessee firm sells goods. He contends that the seller are paid after realising prices after the firm could sell the produce. For that period of time, the seller was kept as a creditor. Shri Jain further submitted that it was on such understanding that the seller despatches the goods to the assessee. Shri Jain also submitted that assessee also surrendered Rs. 15,000 as profit on unrecorded purc....
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.... 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 the assessee) is deleted. Appellant gets a relief of Rs. 2765." 4(c). The CIT(A) in his order for asst. yr. 1991-92 directed the AO to restrict the addition made on account of investment for unrecorded purchases to 2 per cent and accordingly directed him to follow his order for asst. yr. 1990-91. Such findings were given by the CIT(A) while dealing with ground Nos. 6 and 7 raised before the CIT(A). Ground No. 6 relates to addition of....
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....dition 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, learned senior Advocate, contended that there is no material on record, which can justify any addition on account of unexplained investment for unrecorded purchases of cloth. He explained that no initial investment is required to be made by the assessees, as the unrecorded bales of cloth were sent to them by the suppliers on credit. Payments were made by the assessee dealers to the suppliers after the sale of goods in consonance with the practice prevailing ....
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....28th 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. Shri Sharma, strongly urged that the grounds raised by the assessee in relation to the main issue should be allowed and the grounds raised by the Revenue in their appeals in the cases of all these assessees should be dismissed. 9. The learned Departmental Representative placed strong reliance on the elaborate reasons mentioned in the assessment order. He submitted that the AO was extremely just and fair in making addition on account of unexplained investment fo....
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....al 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 unrecorded purchases of cloth by these dealers. The AOs have given complete details of such unrecorded purchases of cloth with full particulars as to its G.R. No., date of purchase, date of receipt of goods from the transport firm/companies and the number of bales purchased. The assessees were confronted with such details and they have duly admitted the fact of having made such unrecorded purchases. The assessees have themselves surrendered profit on sale of such unrecorded goods p....
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....h 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 comes out to 22 times." It means that goods purchased and accounted for in the books could be normally sold within a period of 16 days from the date of purchase 365 days 22 times ratio of stock with turnover. 22.5. The question which thereafter requires determination is whether the capital required for unrecorded transactions on the facts of the present cases should be more or less than the ratio of capital employed with recorded turnover (i.e. 3.41 per cent). The AO has himself observed that these dealers make payment of purchases so made....
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....corded 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 furnish any details about the quality and purchase price of unrecorded goods purchased by them. They have not supplied the names and addresses of the suppliers. The AO, therefore, had to estimate the purchase price of such unrecorded goods. The AO had taken into consideration the average cost by examining purchase vouchers of purchases recorded in the books of accounts, the purchase price paid by other dealers in the same market viz. Gulshan Kumar & Co. The AO has given convincing reasons in para 12 of the assessment order in the main case of Ram Piyare ....
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....here 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. For instance, in the case of Shri Lajpat Rai, Rohtak (ITA No. 6854/Del/94) for asst. yr. 1991-92, the AO made an addition of Rs. 1,66,821 by applying profit rate of 5.5 per cent on sale of unrecorded cloth bales estimated at Rs. 30,33,123. The CIT(A) after considering the submissions made on behalf of the assessee directed the AO to apply net profit rate of 3 per cent and also directed the AO to give credit of profit already surrendered by the assessee in the return/revised return of income. These assessees, where part amount of addition made on account ....
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....te 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, in asst. yrs. 1991-92 and 1992-93 has adopted the price of unrecorded cloth bales at Rs. 8,700 per bale, as against price of Rs. 8,500 taken in asst. yr. 1990-91. After considering the material existing on records, we do not find any justification in interfering with the view taken by the CIT(A). (m) In view of the foregoing discussions, the orders passed by the CIT(A) in relation to all the issues relating to the main ground are confirmed. The grounds raised both by the assessee as well as by the Revenue in respect of the aforesaid main grounds are rejected. 11.....
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.... 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 assessee is low as compared to G.P. rate of 4.10 per cent shown by him in asst. yr. 1989-90. The AO also gave details of G.P. rate shown by other dealers. He also observed that the assessee did not maintain day-to-day varietywise and quantitywise stock register. The assessee's declared turnover was Rs. 79,41,388. The AO made an addition of Rs. 5,000 in asst. yr. 1990-91. In asst. yr. 1991-92, the assessee declared G.P. rate of 4.38 per cent on sales of Rs. 79,65,507. For similar reasons, the AO made an ad hoc addition of Rs. 5000. In asst. yr. 1992-93, the assessee declared G.P. rate of 4.32 per cent on sales of Rs. 97,18,049. The AO observed that the assessee has shown G.P....
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.... 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(1) or s. 145(2). The AO on the basis of some specific mistake or discrepancy has to give a specific finding as to whether the proviso to s. 145(1) or s. 145(2) is applicable on the facts of the case. No such specific finding has been given by the AO. It is also impossible to expect any dealer to declare similar G.P. rate from year to year. The G.P. rate depends on various factors and may vary from year to year and from case to case. Before placing reliance on the G.P. rate declared by other dealers, the burden lies upon the AO to supply basic details relating to such other cases. After providing such details of other cases to the respondent assessee, the AO was first required to examine whether....
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.... 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 income under s. 143(1)(a) of the IT Act. Being identical issue in this case, learned AO is directed to follow the same directions as in that case. Regarding charging of interest under s. 234C, he is directed to charge the same as per law after giving consequential relief arising out of this order." (c) The learned Departmental Representative submitted that CIT(A) ought to have held that no appeal is maintainable against levy of interest under s. 234B of the Act. The learned counsel for the assessee supported the order of the CIT(A). (d) We have carefully considered the submissions made by the learned representatives of the parties. Since the assessee has not denied its liability in respect of levy of in....