TaxTMI 
TaxTMI 
2007 (7) TMI 356
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....The learned CIT(A) is not justified in sustaining the addition of Rs. 84,07,790 in the facts and circumstances of the case. The orders of the AO and CIT(A) are in violation of the principles of natural justice and also bad in law, because they have estimated the turnover for three earlier years of the block period i.e. from the asst. yr. 2000-01, when the seized material related to 57 days only from 26th Nov., 2002 to 21st Jan., 2003. (3) The CIT(A) and the AO are not justified in estimating the net profit at 4 per cent as against the disclosed net profit of 3.28 per cent which is based on income-tax records. (4) Addition of Rs. 14,86,218 The CIT(A) is not justified in estimating the capital required to run the undisclosed portion of business at Rs. 14,86,218 as against Rs. 2,55,378 admitted by the appellant. (5) Any other ground or grounds of appeal that may be urged at or before hearing. The learned Authorised Representative submitted that ground Nos. 1 and 5 are general in nature. 3. Brief facts of the case are that the assessee company is engaged in the business of production and sale of Rawa from wheat. Search under s. 132 was co....
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....ate of search i.e. the 21.01.2003. Asst. Yr. Accounted sale of Rawa as per returns of income (in kgs.) Unaccounted sale of Rawa worked out as per ratio 100:59 (in kgs.) Rate per kg. (average) Value of unaccounted sales Profit @ 4% Undisclosed income 2000-01 1,45,19,052 85,66,240 10.70 9,16,58,768 36,66,351 36,66,351 2001-02 1,30,06,669 76,73,935 10.30 7,90,41,530 31,61,661 31,61,661 2002-03 1,16,10,226 68,50,033 11.30 7,74,05,372 30,96,215 30,96,215 1-4-2003 to 21-1-2004 79,85,448 47,11,414 11.54 5,43,69,718 21,74,789 21,74,789 Total 30,24,75,388 1,20,99,016 1,20,99,016 The assessee filed appeal before the CIT(A). The first appellate authority confirmed the action of the AO regarding the estimate of sales/turnover, relying on the judgment of the apex Court in the case of CST vs. H.M. Esufali H.M. Abdulali (1973) 90 ITR 271 (SC) and the decision of the jurisdictional High Court in the case of Rajnik & CO. vs. Asstt. CIT (2001) 171 CTR (AP) 117 : (2001) 251 ITR 561 (AP). However, the CIT(A) found that the working of suppressed sales mad....
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....the undisclosed turnover for financial year 1999-2000 was computed by the CIT(A) at Rs. 14,86,218. The CIT(A) accordingly directed the AO to make a further addition of Rs. 14,86,218 and accordingly enhanced the addition made by the AO after providing opportunity of hearing to the assessee. 4. The learned Authorised Representative submitted that in short the issue involved in the grounds of appeal is pertaining to sustaining of addition of Rs. 84,07,790 on account of alleged suppression of sales and Rs. 14,86,218 on account of estimation of capital required to run undisclosed portion of the business and net profit rate applied by the AO at 4 per cent against net profit declared by the assessee at 3.28 per cent. The learned Authorised Representative submitted that whatever material was found at the time of search, the assessee himself has calculated undisclosed income and the same was shown in the block return which included unaccounted as well as investment to run the said undisclosed business. The learned Authorised Representative submitted that the unaccounted business was run by the assessee through bank accounts and on the basis of the said bank accounts the assessee has alre....
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....aterial. 5. The learned Departmental Representative, on the other hand, relied upon the order of the CIT(A) and also relied upon the judgment of the apex Court in the case of H.M. Esufali and also on the judgment of the jurisdictional High Court in the case of Rajnik & Co. The learned Departmental Representative submitted that suppression of sales was the regular practice of business of the assessee and therefore the estimate of suppressed sales and income hereon was rightly estimated for earlier years. The learned Departmental Representative submitted that the estimation made for earlier years is supported by the above judgments. The learned Departmental Representative urged that the order of the CIT(A) may be confirmed. 6. We have heard the learned representatives of the parties and records perused. The admitted facts of the case are that during the search, it was found that the assessee was running unaccounted business through bank accounts which were opened for that specific purpose. There is no dispute on the fact that whatever income from unaccounted turnover through bank account has been calculated and the same was offered by the assessee himself while filing the retur....
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....pproval only I opened this account in fictitious name and operated the same. Q. 26 From the account it is clear that certain sales and purchases pertaining to AFIL are being effected outside the books of account, for a specific period, i.e. from 4th Dec., 2002 to 23rd Jan., 2003. Do you mean to say that earlier and after the above period, there were no sales and purchases outside the books of account? Ans. Earlier to 4th Dec., 2002, I am new to business, I am not aware of any such bank account operated by any person relating to AFIL. Subsequent to 23rd Jan., 2003, due to shock because of search and seizure operations by IT authorities, we did not operate any such fictitious account. 6.1 On the basis of the above position of admitted facts, we find that neither any material was found at the time of search nor any admission was made regarding suppression of sales for the earlier years. 6.2 Sec. 158BB(1) requires that the undisclosed income of the block period shall (be) the aggregate of the total income of the previous year falling within the block period computed in accordance with the provisions of this Act, on the basis of evidence found as a result of sear....
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....y etc., only if they represent income or property which has not been or would not have been disclosed for the purposes of this Act. Therefore, we find that even though 'disclosed income' is defined in an 'inclusive' manner, the scope and extent of the term 'undisclosed income' for the purposes of this chapter is contingent upon the fact that the undisclosed income should be borne out of material representing income or property which has not been or would not have been disclosed by the assessee for the purposes of this Act. 7. From the above discussion, we find that if there is no material found as a result of search, the arbitrary estimate cannot be made for the purpose of computation of undisclosed income of the block period. The legislature in its wisdom has rightly inserted such clauses for computation of undisclosed income of the block period and only the undisclosed income which is to be computed on the basis of evidence and material found as a result of search. The action of search is an extraordinary action under the IT Act. Generally it is taken on the basis of evidence and material under possession of the Department that a person is having undisc....