TaxTMI 
TaxTMI 
2008 (12) TMI 291
X X X X Extracts X X X X
X X X X Extracts X X X X
....rch, an inventory of stock was prepared after verification from the books of account and after considering the explanation of the assessee, the Assessing Officer had computed the shortage of stock weighing 5,350.590 grams and on estimated sales of Rs. 27,82,306, he had applied the G.P. rate of 24 per cent and had made an addition on the sales estimated on the basis of shortage of stock at Rs. 6,67,753 as under:- Stock as per books 14,645.090 gms. Stock found short 5,350.590 gms. Estimated sales @ Rs. 27,82,306 Rs. 520 per gram Gross profit @ 24% Rs. 6,67,753 (A.Y. 2002-03 @ 23%) 4. The CIT(A) confirmed the addition made by the Assessing Officer for shortage of stock. 5. The learned A.R. submitted that (i) shortage of stock was due to issue of jewellery weighing 2,650 gms. on 21-2-2003 to the partners and family members of the appellant; (ii) secondly, the Search Party had not searched the safes placed at first and second floor of the premises; (iii) thirdly, when no evidence, material or information as per provisions of section 158B....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... the jewellery found. The Assessing Officer has highlighted the fact that the entire premises of the appellant had been searched and the appellant had not claimed that any premises/floor/safe was left from searching by the Search party during the course of search. We are of the opinion that the search party was very vigilant and during the course of search, every nook or corner of the house and business premises is searched. Therefore, this contention of the assessee that the safes placed at first floor and second floor had not been search has no substance. 10. As regards the last contention of the appellant that as a result of search, no evidence, material or information as per provisions of section 158BB was found for determining the undisclosed income, we find that during the course of search incriminating documents were found, inventory of stock was prepared and after verification from regular books of account, the shortage was worked out on the basis of documents found at the premises of the appellant during the course of search. The scrutiny of documents revealed that there was shortage of stock. Therefore, we opine that the undisclosed income has been determined on the basi....
X X X X Extracts X X X X
X X X X Extracts X X X X
....drawn at residence of Shri Narendra Kumar Paraswani shows that there was a stock of Rs. 55,00,000 as on 30-9-1996 in the firm. In these papers position of stock and capital, etc. had been written for the purpose of distribution of assets among the partners. The appellant explained before the Assessing Officer that these papers were in the handwriting of his uncle late Shri Balraj Paraswani and these papers were written to assess the status as a whole of the entire family of Shri Raj Kumar Paraswani, Nand Lal, Narendra Kumar, Suresh Kumar and Bhupendra Kumar. It was further stated that no actual transaction had ever been effected. The firm M/s. Bhajandas & Brother Jewellers was constituted since 1986 with the following partners: (a) Nand Lal Paraswani (b) Narendra Kumar Paraswani (c) Smt. Kausilya Devi (d) Sh. Suresh Kumar There had been change in the partnership with effect from 1-4-2000. It was further claimed that no transaction related to partition had every taken place. The Assessing Officer observed that there was no change in the partnership of the firm up to 1-4-2000 but firm's stock was valued at Rs. 55,00,000 as per assessee's seized papers Annexure A-8. The stock pos....
X X X X Extracts X X X X
X X X X Extracts X X X X
....discussed this issue from pages 9 to 12 of his order. The ld. CIT(A) observed at page 11 of his order that the appellant claimed before him that the said papers were written long back prior to 31-3-1996 to assess the status as a whole of the entire families of Shri Raj Kumar, Nand Lal, Narendra Kumar, Suresh Kumar and Bhupendra Kumar. The ld. CIT(A) found from these papers that there was mention of stock of Rs. 55,00,000 and there was specific entries on Annexure A-8 pages 1 and 2 that this stock is divided in the ratio of fifty-fifty. There was also a mention of date 30-9-1996 and in the letter dated 25-2-2005 it was also mentioned that M/s. Bhajan Das Jewellers came into existence with effect from November 1996. The learned CIT(A) further observed that it was clear from page No. 1 of Annexure A-8 that there was stock worth Rs. 55,00,000 and the same was to be divided half/half. The ld. CIT(A) held that the addition is justified in view of the papers found in the course of search at the resident of Shri Narendra Kumar Paraswani. Shri Narendra Kumar Paraswani during the course of his statement recorded by the Assessing Officer accepted that the stock of Rs. 55,00,000 may be the sto....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ption under section 132(4A) cannot be raised against the assessee. 19. In the case mentioned at Sl. Nos. 8 and 9, it was held that no addition can be made on the basis of pure guess work. The suspicion howsoever strong it may be, cannot take place of proof. 20. The learned D.R. relied upon the order of the Assessing Officer and CIT(A). 21. We have heard the rival submissions and have also perused the records. From the perusal of the documents seized, Annexure A-8 from the residence of Shri Narendra Kumar Paraswani, who was the partner in the appellant firm during the block period. This document contained substantial amount of stock as on 30-9-1996 and it has been admitted that this document has been drawn in partition of assets of the firm and the family. The jewellery business is being done only in the name of the appellant firm. We do not agree with the view of the learned A.R. that the addition has been made on the basis of documents found from the possession of a third party. The documents have been found from the possession of Shri Narendra Kumar Paraswani, the partner of the firm. There is no evidence on record to show that the document had been seized from the third party....
X X X X Extracts X X X X
X X X X Extracts X X X X
....pplied the G.P. rate of 24 per cent and had made an addition on the sales estimated on the basis of shortage of stock at Rs. 6,67,753 as under:- Stock as per books 14,645.090 gms. Stock found short 5,350.590 gms. Estimated sales @ Rs. 27,82,306 Rs. 520 per gram Gross profit @ 24% Rs. 6,67,753 (A.Y. 2002-03 @ 23%) The CIT(A) confirmed the addition made by the Assessing Officer for shortage of stock." 4. However, I am of the view that before proceeding to discuss the merits of the arguments advanced by either side before the Bench it is necessary to first refer to the respective stand of both the sides from the orders of the Tax Authorities so as to appreciate the nature of the controversy. Accordingly for the said purpose it is imperative to first refer to the relevant facts in the Assessment Order itself. As per page 2 of the Assessment Order the explanation offered by the assessee before the Assessing Officer found recorded therein is reproduced hereunder:- "In the assessee's business each item of jewellery is received through rec....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... the Assessment Order:- "The assessee has stated that the entire stock as per the books was at the shop. The assessee's shop has at ground floor, first floor, second floor. In all the floors the assessee is having a safe due to safety purposes. It appears that the jewellery lying in safes on first floor and second floor were left from being searched which is main cause of short fall It has been claimed that assessee has not sold any jewellery outside the books of account. I have gone through the reply of the assessee. During the course of search assessee's cash was also inventorised which was found short by about Rs. 10 lakhs. During the course of search this short fall of cash was also asked but assessee could not explain the short fall of the cash. Now assessee is also claiming that cash found short was also kept in the safe of the shop which was not searched." 10. The above explanation was not accepted by the Assessing Officer holding. "The reply of the assessee is neither logical nor convincing, hence same is rejected." 11. Aggrieved by this the assessee went in appeal before the CIT(A) before whom the following submissions as per page 3 of the assessment order were made:- ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... floor and second floor has rightly been not accepted by the Assessing Officer. It is a fact that entire business premises, of the appellant was searched If any safe was there then the same should have been searched by the search party. The contention of the appellant that the safes of first floor, second floor had been left from being searched is only on the basis of presumption without any evidence and hence cannot be accepted The Assessing Officer has rightly rejected this contention of the appellant. Thus even after taking into consideration the alleged return of jewellery, there still remained substantial amount of jewellery found short for which no satisfactory explanation has been given by the appellant. The books of account of the appellant were, therefore not reliable and it cannot be said that they were showing transactions of sales and purchase in a true and correct manner. Regarding the claim of the returning of jewellery weighing 3606.052 grams, it is seen that no entry has been made in the issue voucher book regarding such return of jewellery. The entries have been made in the issue voucher book even on 20-2-2003 which establishes the fact that entries in the issue vo....
X X X X Extracts X X X X
X X X X Extracts X X X X
....t could be concluded that the assessee was indulging in sales outside books of account. As per para 2.6 of the impugned order the said annexure i.e., page 6 of Annexure-A has been annexed along with the said order. For ready reference the same is reproduced hereunder:- "Estimate only No Transaction 19.860 V.K..... (not clear) 9819.00 22.800 V.K..... 5413.00 22.790 V.K..... 11577.00 85.720..... 46151.00 14.200..... 6344.00 0.550..... 286.00 8.470 (locket....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ed the safes placed at first and second floor of the premises; (iii) thirdly, when no evidence, material or information as per provisions of section 158BB of the Income-tax Act was found, there was no justification for determination of undisclosed income of Rs. 6,67,753. Therefore, the addition is liable to be deleted." 21. Having gone through the finding on facts at paras 7, 8 and 9, I find myself unable to concur with the said finding. In view of the consistent stand of the assessee right from the inception, I am of the humble view that without assigning any cogent reason the same cannot be disregarded outright. The explanation offered by the assessee right from the inception is plausible namely that relevant entries on the night of 21-2-2003 were not made and on the next date search took place. The explanation with regard to necessary entries which could not be made as per the assessee was that the Accountant of the assessee was a part-time Accountant and the necessary entries on the night of 21-2-2003 for this reason could not be made. The said argument is found recorded in page 3 of the impugned order and has been emphasized by way of underlining in para 11 of this order. Thu....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... be aware that safes and almirahs on different floors would not be searched by the search party. At the cost of repeating as far as Vikas Paraswani was concerned, he was confident that the difference could be explained and found by the search party even eventually. Similarly, in response to the next question as observed he accepts that he is incapable of giving any statement on account of his mental confusion. This again is neither here nor there. However, what is important to be seen is that since the assessee before the Assessing Officer contended that on the different floors almirahs and safes had not been searched by the search party. The said assertion has to be understood in the context of the fact that despite unleashing the ultimate weapon with the department i.e., a search no incriminating document, evidence of investment and cash etc. suggesting sale outside books of account was found by the search party except a paltry cash of Rs. 4,660 only. In the face of these facts read along with all the evidences relied upon by the department it was incumbent upon the department to address the veracity of the claim of the assessee. There was no reason or occasion to proceed without....
X X X X Extracts X X X X
X X X X Extracts X X X X
....completely unaddressed. 22. In these circumstances, for the reasons given hereinabove in detail the explanation with regard to the safes placed at first and second floor of the premises of the assessee deserves to be accepted. Since the revenue is unable to establish shortage of stock the question of estimating addition thereon does not arise. Accordingly, ground Nos. 1 to 4 in terms of the above detailed discussion on facts deserves to be allowed. 23. With respect to ground No. 5 the facts are found discussed in paras 12 and 13 in the leading draft order and the arguments on behalf of the assessee are found discussed in part of para 13 of the same. Vide paras 14 to 19 of the draft order the discussion takes places on case law. Para 20 records the facts that the learned D.R. relied upon the assessment order and the impugned order. Accordingly the said issue has been addressed at pages 5-8 in the leading draft order. On a careful perusal of the same and the finding at pages 8 and 9 of the leading draft order, I find myself unable to concur with it. As such, on account of the detailed reasons set out hereinafter I proceed to address the issue by way of a separate order. 24. Howeve....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... was applied working out at 1,08,067. Total investment and profit was taken as 22,69,415 as undisclosed income for assessment year 1997-98. 31. The said addition was challenged before the CIT(A) on various grounds. It was challenged on the ground that Shri Narendra Kumar Paraswani whose explanation has been taken note of was not a partner in the firm at the relevant point of time and in fact it was argued opportunity should have been granted to the assessee to explain the documents as at the relevant point of time Narendra Paraswani was not a partner of the firm and the statement and opportunity to the existing partners should have been taken and given respectively. In terms of the same it was contended that the said documents were found from the residence of Shri Narendra Kumar Paraswani who was not the partner of the assessee-firm at the relevant time and would not be interested in giving statement favouring the firm. In the context of the same it was elaborated that these papers were not in the possession and control of any of the partners of the firm. In the said paper it was submitted there is no indication whether the figures noted thereon referred to in quantitative terms o....
X X X X Extracts X X X X
X X X X Extracts X X X X
....and as such not interested in placing facts correctly, as such, on the basis of his statement if any the assessee it was argued cannot be saddled. Secondly if explanation of partners was still to be considered then the explanation of existing partners should have been taken. Thirdly and most importantly the only person who could have explained the scribbling it was argued is a dead person who committed suicide. Thus it was argued these are dumb documents. Referring to the orders of the Tax Authorities it was contended that they have only chosen to rely on part of one of the documents wherein 55 lakhs stock is mentioned and for reasons best known to the department have chosen to completely ignore the other portion of the document which too makes no sense and also the other document referred in the impugned order on which a lot of figures without any narration or dates or names etc. or whether they are incomes or expenditure and how it is relatable to the assessee to justify the addition has been made. It has been argued that no efforts either by the Assessing Officer or by the CIT(A) has been made to justify the addition. It has also been submitted-that even going through the second....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... the figure of 55 lakhs as stock. He said scribbling on the other side of the page continues with the narration on one side 27.50 followed by another scribbling of 27.50 and opposite side is found recorded 'Stock adha adha'. The various other figures scribbling in two different column above and below the scribbling of stock 55lakh and 27.5 and 27.5 with narration 'adha adha' also show the total as 418 on both sides and again the same is given with different break-ups below the figure of 55 lakhs etc. again totalling 418. There is no discussion in any of the orders of the Tax Authorities with regard to these scribbling. Similarly, there is no discussion again with regard to the bifurcation of 27.50 as 'adha adha' again in the impugned order. Same is the position of scribbling in document mentioned as 2 of this Annexure where various numbers are found scribbled without any narration of the nature of scribbling, date, person etc. No discussion thereon is there in the orders of the Tax Authorities. Despite the lengthy arguments on behalf of the assessee there is no arguments with regard to the same has been advanced by the learned D.R. despite the specific objection it may be repeated ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....0gms. The addition, it may be stated, was confined to the extent of gross profit which was estimated at 24 per cent on the estimated sales of the stock found short (5,350.590 gms.). When asked to explain the reasons of the difference, several reasons were given by the assessee. It was claimed by the assessee that on 21-2-2003, jewellery weighing 3606.052 gms. was returned to the partners, family members. and customers but the entries could not be made in the night of 21-2-2003. According to the department, it did not find the said stock even at the residential premises of the partners. The assessee had also not given any reason or occasion which necessitated the return of jewellery to the partners or their family members. The issue book which was maintained by the firm was also seized. It contained all the issues but did not find the return of the jewellery in dispute. It was contended that the shop of the assessee had ground floor, first floor and second floor and the assessee has custody safes at each floor for safety purposes. The jewellery lying in the safes at first floor and second floor was not inventorised which was stated to be one of the causes of the shortage of physical....
X X X X Extracts X X X X
X X X X Extracts X X X X
....re buthas only added the profit that can be attributed on such stock differences. The difference is not due to estimations but it is due to exact stock difference that was not existing when the search took place meaning thereby the assessee has sold the goods outside its regular books of account and has not accounted the sale values whereas it has already accounted for their purchases meaning thereby the profit on the goods that are already sold and not recorded in the books of account can represent an undisclosed income for the purpose of assessment under Chapter XIVVB of the Act. Therefore, having regard to the facts and circumstances of the case, I am of the view that the order of the learned AM requires to be upheld and I agree with his findings. The learned JM, in my view, has given credence to all the vague explanations offered by the assessee in respect of the stock that was not physically found. In my view, the learned JM was not correct in deleting the addition in respect of the profit of the stock that must have been sold outside the books of account in absence of any corroborative evidences in the possession of the firm or of its partners. 6. Now coming to the second po....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... only if the explanation leads to the assessee, then the proceedings can be drawn against the assessee by following the procedure laid down under section 158BD of the Act and the addition made under section 158BC, it was argued, is simply based on an irrelevant document or a document which is really dumb in nature. The learned counsel for the assessee has heavily relied on the discussions made in the order of the learned JM. 8. The ld. D.R., on the other hand, strongly supported the findings of the order of the learned Accountant Member. According to him, the addition is based upon a search that took place within the family members of the assessee and they were required to explain the nature and contents of these papers. Otherwise, an addition in the manner which is made by the department requires to be upheld. 9. I have gone through the records carefully and I am unable to find any reason for making addition in the hands of the assessee. The addition is based upon the search proceedings and seizure that took place in the case of Narendra Kumar Paraswani not in the hands of the firm. Even the statement that were recorded have not implicated the assessee in any manner. The assesse....