TaxTMI 
TaxTMI 
2006 (2) TMI 228
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....n operation under section 132(1) of the Income-tax Act was carried out at the business and residential premises belonging to the assessee company, its Directors and their family members on 5-6-2002. In the course of search, various variables and other incriminating documents were found and seized. The details regarding valuables found during search and seizure are as under- S. No. Particulars Found Seized (a) Cash: Office Premises Rs. 9,60,430 9,40,000 Locker of Shri R.K. Jain, Director and his family members Rs. 97,850 58,350 Total Rs. 10,58,280 9,98,350 (b) Gold Ornaments: Locker of Shri R.K. Jain, Director and his family Members gms 1,825,270 1625.270 Total 1,825,270 1625.270 4. Upon issue of notice, the assessee filed a block return of income under section 158BC of the ILT Act on 18-7-2003 showing an undisclosed income of Rs. 52,00,000 the details of which are as under- Assessment Year Undisclosed income (Rs.) 1998-99 9,00,000 1999-2000 16,00,000 2000-01 9,00,000 2001-02 10,50,000 2001-02 9,00,000 2002-03 5,50....
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...., R.R. Agro Industries and Shri Rajendra Agrawal, Dewas and alleged payment of Rs. 7.41 crores to them. In his statement recorded under section 132(4) Shri R.K. Jain categorically denied D of having any transaction except sale of wheat to R.R. Agro Industries relating to purchase and sale of seeds with the impugned parties. As regards instances of few bearer cheque payments bearing the signature of Sitaram Mittal or Ram or Rajendra on the reverse, Shri R.K. Jain explained that as per trade practice, payment was made by the assessee to the parties who produced "Beej Prapti Receipt". During block assessment e proceedings, the assessee reiterated the above explanation. However, the Assessing Officer did not accept the above explanation of the assessee and held that - A. The impugned payments made to Shri Rajendra Agrawal represented payments for purchase of 'soyabean' by the assessee; B. The Department was not required to establish each and every transaction of the assessee with Shri Rajendra Agrawal and the few instances of bearer cheques be signature of Sitaram or Rajendra or Raju established the factum of purchase and computed undisclosed income of the ass....
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....Delhi). 11. It was also contended that the statement of Shri Rajendra Agrawal in whose case search was carried out by the Income-tax Department and to whom the entire seized material pertained on which material reliance was placed by the Assessing Officer, has not been recorded till date and if recorded, copy thereof has not been provided to the assessee. In the absence of his statement, the statement of Shri Sitaram Mittal cannot be relied upon. Therefore, the inference drawn by the Department about the entries recorded in the impugned seized material belonging to Shri Rajendra Agrawal representing unaccounted seeds purchases of the assessee, is merely a figment of its imagination and is without any basis. It was also submitted that interestingly, the copies of incriminating documents found by the Department during search in the case of Shri Rajendra Agrawal were given to the assessee at the fag end of the block assessment proceedings thereby leaving very little time and opportunity to explain them and cross examine him. It was also submitted that as far as the statement of Shri Sitaram Mittal, accountant of Shri Rajendra Agrawal about the payment having been received from Eagl....
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....ash and cover up because the statement of Shri Rajendra Agrawal in whose case search was carried out by the Income-tax Department and to whom the entire seized material pertained, on which material reliance was placed by the Assessing Officer, has not been recorded till date and if it had been recorded, copy thereof has not been provided to the assessee. It was also contended that prior to grant of opportunity of cross-examination to the assessee, the copies of incriminating documents and material seized in the case of Shri Rajendra Agrawal were not made available to the assessee. As regards the contention of the Assessing Officer about evidences collected by the Department in the form of bearer cheques of the assessee encashed by Shri Sitaram Mittal amounting to Rs. 41,95,000 are sufficient to establish payment to Shri Rajendra Agrawal towards unaccounted purchases of soyabean and wheat, it was submitted that while encashed cheques to the extent of evidences brought on record by the Department established payment to the persons whose signatures appeared on the reverse side of the cheques, that did not establish unaccounted purchases of soyabean and wheat from Shri Rajendra Agrawal....
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....endra Agrawal could not be co-related with the impugned bearer cheques. It was, therefore, submitted that the Department has not proved that each and every payment p was made for making unaccounted purchases. It was also submitted that the inference drawn by the Assessing Officer is purely based on conjectures, surmises and suspicion and does not have sanction of law as held by the Hon'ble Supreme Court in the cases of Dhirajlal Girdharilal v. CIT [1954] 26 ITR 736; Dhakeswari Cotton Mills Ltd v. CIT [1954] 26 ITR 775; Lalchand Bhagat Ambica Ram v. CIT [1959] 37 ITR 288; Umacharan Shaw & Bros. v. CIT [1959] 37 ITR 271 and Umar Salay Mohamed Sait v. CIT [1959] 37 ITR 151. The CIT(A) considering the material on record and the submissions of the assessee, deleted the entire addition. His findings in paras 3.3 and 3.4 are reproduced below- "3.3 I have considered the submissions made by the appellant and gone through the contents of the assessment order. I have also carefully gone through the case-laws referred to. First of all, it will be pertinent to describe in brief the modus operandi of the appellant's business. The assessee procures seeds from farmers and issues &....
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....ing unaccounted purchases of seeds from Sh. Rajendra Agrawal. Further the assessee was not given opportunity to cross examine Sh. Rajendra Agrawal despite the request made by the appellant. Similarly, the entries relating to the bearer cheques were duly recorded in the regular books of account of the assessee which were seized by the Department during the search operation and are in its custody. In view of the above facts, it cannot be said that unaccounted income was computed by the Assessing Officer on the basis of evidences found as a result of search. Therefore, the computation of undisclosed income of Rs. 57,88,943 by the Assessing Officer was factually as well as legally unjustified. The investigation wing of the Department as well as the Assessing Officer could not bring any material on record to controvert the assessee's explanation. The above facts clearly establish that the payments made to Sh. Rajendra Agrawal and his employees through self-bearer cheques, were payments made against Beej Prapti Receipts issued to farmers and not towards any unaccounted purchases. Therefore, the addition of undisclosed income of Rs. 57,88,943 on account of undisclosed purchases is del....
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....st the same payments are released. Therefore, it is probable that sometimes payments are made through bearer cheques and the payments might have been received by certain persons on behalf of the farmers. Such persons or agents could be Rajendra Agrawal or his accountant Sitaram or any other person who got payment on discounting the receipt. However, payment given to the bearer would not make any difference in the system of the business of the assessee. The assessee had recorded all the payments and purchases in his books of account. During the course of search, no material was brought on record to show if any material was recovered to connect the assessee with unaccounted purchases made by the assessee from Rajendra Agrawal. Therefore, we take that there was no material available on record which is recovered during the course of search in the case of the assessee to prove that the assessee has made unaccounted for purchases. The CIT(A) was, therefore, justified in holding that the payment may be made through bearer cheques or cash. However, in the books of account the payment is entered in the name of the farmer only from whom seeds were purchased. Since these findings of the CIT(A....
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....el Rolling Mills held that the ITO has power to collect evidence from any source but it is his duty to put it to the assessee before making it the basis of his assessment. If the assessee denies the information collected by the ITO, it is the duty of the ITO to satisfy himself by making independent enquiry from sources considered reliable by him and decide whether the information passed on to him is true or not. If as a result of his own independent enquiry he comes to the conclusion that the information received by him is true, he is at liberty to act thereon after disclosing it to the assessee and affording him a reasonable opportunity or rebutting it. The CIT(A) was, therefore, justified in holding that no proper opportunity is given to the assessee to cross-examine Shri Rajendra Agrawal despite request made by the assessee. Similarly, no incriminating material was confronted to the assessee. The Assessing Officer tried to make out a case by showing that the assessee was allowed to cross examine Sitaram, accountant of Rajendra Agrawal but Sitaram is not connected in any way with the recovery from the possession of Rajendra Agrawal. Sitaram is not accountable in case recovery is ....
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....record, we are of the view that the Commissioner of Income-tax (Appeals) was justified in deleting the entire addition. As a result, the revenue's appeal fails to make out a case against the assessee. The revenue's appeal is, therefore, dismissed. ITA No. 12/IND./05 (ASSESSEE'S APPEAL) 15. The assessee has challenged the addition of Rs. 23,76,570 on account of unaccounted purchases. In the course of search at the premises of the assessee certain incriminating documents marked as RKJ/RES/LPS 3 to 6 ESBT/RNT/LPS-1 found and seized. During the block assessment proceedings the assessee explained that most of the documents contained in the impugned annexure represented unaccounted purchases of soyabean or wheat, etc. relating to its grain business and offered profit margin thereon for taxation as undisclosed income for the block period. The Assessing Officer did not accept the above contention of the assessee and held that impugned purchases of soyabean, wheat, etc. as per the seized material represented unaccounted for purchases of seeds. He has estimated the trade cycle of 5 days and applied gross profit margin applicable to the assessee's seed business to determ....
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....2 lakhs, the assessee should have been given set off of the income declared in the return for block period. 17. On the other hand, the learned DR submitted that the Assessing Officer has rightly applied the GP rate in the matter because GP rate is exclusive of administrative cost, interest and depreciation. He justifies the findings of the authorities below and submits that the addition may be confirmed. He relied on the decision of the Hon'ble Supreme Court in the case of CST v. H.M. Esufali H.M. Abdulali [1973] 90 ITR 271. 18. We have considered the rival submissions and the material available on record. It is not in dispute that the assessee has filed the return of income showing undisclosed income of Rs. 52 lakhs on the basis of material recovered during the course of search in the case of the assessee in different years as mentioned above in this year. The Assessing Officer has made addition of Rs. 23,76,570 by applying GP rate. The Hon'ble M.P. High Court in the case of Balchand Ajit Kumar considering a case of search and seizure operation, held "that the total sale could not be regarded as the profit of the assessee. The net profit rate had to be adopted and on....
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....cer has made addition with regard to the undisclosed income only in these years. If such net profit rate is applied then the addition would be worked out to Rs. 3,89,700 as has been calculated by the assessee and the copy of the same has been filed in the written submissions at page 23 of the paper book. The huge addition is, therefore, unjustified and the Assessing Officer should adopt the addition, if any, on undisclosed income at Rs. 3,89,700, however, subject to verification. Even if slight higher NP rate is applied the additions made by the Assessing Officer would be excessive. We may mention that it is not the end of the matter because the assessee has claimed set off of the undisclosed income already declared in the return of income in a sum of Rs. 52 lakhs. It is a settled law that the undisclosed income declared by the assessee and accepted by the authorities below is available to the assessee for the purpose of explaining the other additions/investments and the same would also be available to the assessee for set off purposes in respect of the agreed or other additions. We are fortified in our view by the following decisions:- (1) S. Kuppuswami Mudaliar v. CIT [1....
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.... case Held, that the Appellate Assistant Commissioner and the Tribunal had committed no error of law in holding that the unproved cash credit of Rs. 16,950 should be taken to have come out of intangible additions as substantial additions had been made even in the earlier years. It had also been rightly held by the Tribunal that even during the present assessment, an addition of Rs. 18,117 had been made, which would sufficiently cover any unexplained income to the extent of Rs. 16,950 could not, therefore, be added as income from undisclosed sources. Considering the above decisions, the undisclosed income declared by the assessee in a sum of Rs. 52 lakhs in the return of block period on the basis of calculation of the seized material is available to the assessee for the purpose of explaining other additions/investments. Since the addition on account of undisclosed income on account of undisclosed purchases is less than the amount of returned income of Rs. 52 lakhs, no separate addition is liable to be made. As a result, the entire addition of Rs. 23,76,570 is deleted. As a result, this ground of appeal of the assessee is allowed. In this view of the matter, the decision ....