TaxTMI 
TaxTMI 
2001 (9) TMI 262
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....same block period and there is a common issue relating to the undisclosed income, the appeals have been grouped and are disposed of by means of this common order. 2. The appellant at the start of the hearing placed a prayer for adjournment of the appeals on the ground that some more information are being gathered, details of stock particulars and sales effected in Erode Shandy could not be produced earlier and given the time the assessee would be able to furnish particulars of stock, actual sales. This request was rejected because the appeal had come up for hearing consequent to the order on stay petition for stay of tax demanded and the appellant had been allowed a time of over three months to prepare its case. 3. The Senior Departmental Representative Mr. Ravi at the commencement of the proceeding of the appeals filed a letter from the Deputy Commissioner of Income-tax, Central Circle II Coimbatore [DCIT for short] that is dated 15-2-2001 which contained a prayer for withdrawal of the appeal filed by the Department on the issue of deletion of undisclosed income of Rs.21.70 lakhs. The prayer was granted and accordingly the said appeal filed by the Department is treated as di....
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....ssee accepted that the fixed deposits that were standing in the names of several persons were taken by him out of his funds and those were intended to be repaid to the persons from whom he had taken goods loan. The appellant also stated that he did not open the fixed deposits in the names of his loan creditors because they had taken bank finances. He stated that he had taken goods on loan from Mr. R. Ramamurthy, Mr. Thangavelu and others and these goods were sold by him Erode Shandy for cash and the cash was utilized in buying fixed deposits with banks in the names of several persons. The submission of the assessee in this regard is as under: (i) Hand loan of cloth from Mr. R. Ramamurthy of Somanur :- Rs. 1,65,00,000 (a) From Lakshmi Textile Mills (b) From Ponni Mills 35,00,000 (ii) Hand loan of cloth from Mr. Thangavelu brother of Mr. P.K. Ganeshwar : (a) Ellora Textiles 23,00,000 (b) Ajantha Cloth Mills 4,30,000 (c) Ellora Exports 29,00,000 (iii) Cash loan from Mr. Thangavelu 5,00,000 (iv) Withdrawal from A/c No. AAB10 from Karur Vysya Bank Ltd., Tirupur 21,70,000 Total 2,83,00,000 5.3 Assessing Of....
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....atement supplied the parties. 5.6 ADI had in his quest had carried out inquiries from the bank of Mr. Ramamurthy and Mr. Thangavelu and all that he obtained was the parties were enjoying certain limits and that he did not carry out any inspection or verification of the stocks lying in the godown of the parties. ADI had apparently noted from the statement of stocks sent by the parties to their bankers from April 1996 to, June 1996 that the parties did not have sufficient stocks for giving to the appellant. Assessing Officer too in the assessment order had brought out the table showing the information of the name of mills, type of cloth as under process or grey cloth, quantity on hand as at the end of March, April and May 1996 and the quantity given over to the assessee. Assessing Officer observed that the available quantity was insufficient when compared to the quantity supplied to the assessee in the months of April to June 1996. Assessing Officer further observed that though Mr. Ramamurthy claimed that the cloth loan arrangement was for a short period of three months only, it had been over three years and the cloth loan still remained. Assessing Officer considering the insuffic....
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....rom the godown of others and then sold immediately in Erode Shandy and then deposited in bank. No evidence has been produced. On the other hand, the AO has brought out improvability of the explanation. In such circumstances, no fault can be found with the action of the AO. The appeal on this ground is dismissed. 6.1 In paragraph 8.2 CIT(A) had dealt with the loan from Mr. Thangavelu from which the deposit in the bank was stated to have been made of Rs.2,56,30,000 and was of the view that his observations in paragraphs 7 to 7.15 applied with equal force and confirmed the addition. 7. The appellant troubled by the addition sustained by CIT(A) has filed this appeal before the Tribunal. The submission of the assessee regarding the taking of cloth loan, selling it for cash at Erode Shandy and using the cash for taking fixed deposits in the names of several persons remained the same, i.e., the assessee in order to arrange for the security insisted by bank for opening of letter of credit for import of machinery. one of the documents that was objected to by the Senior Departmental Representative Mr. Ravi, a letter from Central Warehousing Corporation, it was submitted and has been pl....
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....e appellant drew our attention to the various documents placed in the paper book to substantiate his case that the amount treated as undisclosed income was not justified. 8. Mr. Ravi took strong objections to the various arguments advanced by the appellant and contended that any evidence that the assessee was asked for, it was the submission that it is impossible to obtain and that his oral averments are supported by the trade practice and hence, the addition should be deleted. He contended that the authorities had provided the assessee sufficient opportunity of hearing and for the production of the evidence and all that the assessee submits is an affidavit that is not verifiable. He echoed the views of the Assessing Officer and CIT(A) that the assessee conveniently omits to file any evidence but insists that the addition could not be made by rejecting his pleas. He contended that the authorities have riot merely rejected his explanations but found holes in it and held that the explanation offered was not a reliable one and therefore, had taken the adverse view. He pleaded that even before the Tribunal, the submissions and facts continue as it is and therefore, the assessee coul....
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....d having supplied to the appellant cloth measuring 12,78,900 meters between April and June 1996, and the dates on which delivery was taken with description of goods and quantity was supplied under cover of letter dated 22-10-1997 addressed to ADI and that this was a solitary transaction. It also showed that Mr. Ramamurthy had confirmed that no invoice was raised no delivery challan was raised except that the delivery is noted in a notebook acknowledged by the assessee personally, The statement also showed that Mr. Ramamurthy is following up for the return of the cloth loan, security was not insisted upon for the cloth loan given by him and that his bankers had no knowledge about the cloth loan. The acknowledgements of taking delivery of cloth are placed at pages 56 to 59 of the paper book. 12. The counsel made reference to the certificate issued by the auditor of Mr. Ramamurthy's mills, giving turnover figures and stock on hand figures and submitted that it showed clearly that Mr. Ramamurthy was a man of means with sufficient stocks to give to the assessee. He contended that if only the authorities had called upon Mr. Ramamurthy to submit his stock statements as per his book....
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....es admitted as made by the assessee out of cash sale of cloth received on loan was not part of the seized material and was not part of the search proceedings but arising out of inquiries conducted following the search. He submitted that the addition sustained of Rs.2.56 Crores should be deleted. 15. Mr. Ravi, the Senior Departmental Representative took serious objection to the submissions about non-informing to the bank about the removal of goods, the contradiction in the statements of Mr. Ramamurthy, non-recording of the cloth loan. He further contended that for an earlier year the assessee had made a voluntary disclosure of stocks of about Rs.40 lakhs. He submitted that it is quite likely that the assessee still had suppressed stocks that he had sold for cash and had made the effort of roping in Mr. Ramamurthy to cover up the fact. He also pointed out that all regular transactions of the assessee are through the broker and even for the cash sales at shandy broker was claimed as used but information in this regard was never placed. He insisted that the addition must be retained. 16. Rival contentions and the documents and case laws relied upon have been given our very carefu....
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....of three months, the events that transpired from that point till it took the shape of fixed deposits is a mystery and this mystery is stated as goods moved by assessee to Shandy and sold for cash and the existence of the market for textiles at the Shandy. The certificate of the Chamber reads: "To Whomsoever it may concern This is to certify that Erode Town, Head Quarters for Erode District is very famous for handloom and power loom cloth and the cloth Shandy at Erode is very big in India involving instant ready cash sales transactions in several Crores, which are convened twice a week." 18. The appellant has placed heavy reliance on this certificate and is insisting that this is sufficient evidence for its claim of sale of cloth taken on loan for cash. This certificate is a general statement of convening of cloth shandy at Erode and it does not travel beyond and it can never be treated as any piece of direct or even indirect evidence of sales claimed as made. In case the parties purchasing the cloth could be identified along with payment made by them in cash, the above certificate could perhaps be relied upon as a circumstantial piece of information. But in thi....
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....d not arise directly as a result of the search. The sequence of events listed out by the appellant is that the search was made on 10-9-1997 and certain cash and jewellery were found and the items seized were bank accounts, namely, current account balances with banks, share certificates and some books. These seized items did not contain any reference to the letter of credit and the fixed deposits of Rs.2.83 Crores and the ADI who conducted the search had no idea about the existence of the fixed deposits when he concluded the search on 10-9-1997. The investigations were carried out following the search which led the ADI to the letter of credit opened and he inquired from the Bank Manager who informed him about the fixed deposits kept as security and that the fixed deposits though stood in the names of several persons were opened by the assessee. It was based on this realization that the ADI inquired the assessee on 23-10-1997 about the letter of credit, the sources of the fixed deposits to which the assessee had replied that the deposits were taken by utilizing the cash realization of sale of cloth at Erode Shandy and the cloth was received as a loan from the two persons named earlie....
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.... the provisions of this chapter. Section 158BB of the Act touches upon the computation of undisclosed income for the block period and for the sake convenience the relevant sections are reproduced hereunder: "158BA Assessment of undisclosed income as a result of search (1) Notwithstanding anything contained in any other provisions of this Act, where after the 30th day of June, 1995, a search is initiated under section 132 or books of account, other documents or any assets are requisitioned under section 132A in the case of any person, then, the Assessing Officer shall proceed to assess the undisclosed income in accordance with the provisions of this Chapter. (2) The total undisclosed income relating to the block period shall be charged to tax, at the rate specified in section 113, as income of the block period irrespective of the previous year or years to which such income relates and irrespective of the fact whether regular assessment for any one or more of the relevant assessment years is pending or not. Explanation.-For the removal of doubts, it is hereby declared that-- (a) the assessment made under this Chapter shall be in addition t....
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....mal course on or before the date of the search or requisition relating to such previous years; (e) where any order of settlement has been made under sub-section (4) of section 245D, on the basis of such order; (f) where an assessment of undisclosed income had been made earlier under clause (c) of section 158BC, on the basis of such assessment. Explanation.-For the purposes of determination of undisclosed income,-- (a) the total income or loss of each previous year shall, for the purpose of aggregation, be taken as the total income or loss computed in accordance with the provisions of Chapter IV without giving effect to set off of brought forward losses under Chapter VI or unabsorbed depreciation under sub-section (2) of section 32; (b) of a firm, returned income and total income assessed for each of the previous years falling within the block period shall be the income determined before allowing deduction of salary, interest, commission, bonus or remuneration by whatever name called to any partner not being a working partner: Provided that undisclosed income of the firm so determined shall not be chargeable to tax in the hands o....
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....ction 132 or for requisition under section 132A, as the case may be, was executed in cases where a search is initiated or books of account or other documents or any assets are requisitioned on or after the 1st day of January, 1997. (2) The period of limitation for completion of block assessment in the case of the other person referred to in section 158BD shall be-- (a) one year from the end of the month in which the notice under this Chapter was served on such other person in respect of search initiated or books of account or other documents or any assets requisitioned after the 30th day of June, 1995, but before the 1st day of January, 1997; and (b) two years from the end of the month in which the notice under this Chapter was served on such other person in respect of search initiated or books of account or other documents or any assets are requisitioned on or after the lst day of January, 1997. Explanation 1-In computing the period of limitation for the purposes of this section, the period-- (i) during which the assessment proceeding is stayed by an order or injunction of any court, or (ii) commencing from the day on which the....
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.... IV and on the basis of evidence found as a result of search. It is therefore apparent that any income that is found not disclosed and such finding is not based on evidence found as a result of search but by virtue of investigations and inquiries made following the search, could not be included as undisclosed income of the block period computed under Chapter IV. 26. In the instant case the extracts from the order of assessment and of the first appellate authority, it is clear that the revelation to the Department about the letter of credit being opened on the strength of fixed deposits standing in the names of several persons was in the course of investigations that followed the search conducted earlier and the explanation offered by the assessee was found unsatisfactory. The search was made on 10-9-1997, and it was on 23-10-1997 that it confronted the assessee about the letter of credit and the fixed deposits and it is undisputed that these fixed desposits are not seized as is evident from the list of seizures provided by Assessing Officer in the initial paragraph of his order. But because it was so noticed not because of a search but because of investigations carried out after....