TaxTMI 
TaxTMI 
2011 (3) TMI 922
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....ame issue. 3. The facts of the case are that the assessee is a trader and commission agent of spices located at Unjha. The documents (annexure BS-42, BS-45 and BS-7 etc.) found from one M/s. S. N. Traders which had been subjected to action u/s 132 of the IT Act on 6-6-2002 indicated that the assessee had earned undisclosed income. The A O after recording reasons/satisfaction, served notice u/s 158 BD read with section 158BC of the IT Act in response to which the assessee belatedly filed block return on 20-8-2004 declaring undisclosed income of Rs.35 lacs. The A O noted that the assessee had understated the interest received and so earned unaccounted income of Rs.7.58,795/- on sharafi loans and had mace unaccounted investment in agricultural land etc. in the name of the partners to the extent of Rs.19,67,000/- apart from making undisclosed investment in the trade, which the A O computed at Rs.55,25,364. Additionally, the A O however, also estimated undisclosed sundry debts of Rs.6,81,612. The A O felt that the unaccounted interest of Rs.7.58 lacs and undisclosed debtors of Rs. 6.81 lacs would not merit a separate addition since these were covered by the addition made for unaccoun....
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....a was incomplete, the alleged peak could never be worked out apart from the fact that the theory of peak credit itself was not applicable in the nature of the business. It was asserted with the help of instances gleaned from the seized annexure that the payments to farmers were made in the grace period usually 15-20 days as per the trade practice. The partners and family members also produced crops as 'jeera' on their agricultural lands which was sold through the assessee without any advance or sport payment. Even the other sellers were regular clients to whom payments were made after a gap of 15 to 20 days or more and not on the same date, as was made the corner stone of his computation by the A O. Even otherwise, disclosure of Rs.35 lacs had been made which adequately covered the concealed investment if any. Further, no evidence was found of the concealed investment. Since all the unrecorded transactions relating to own and commission trade had been found in the seized documents, it stands to reason that undisclosed investment in trade would have also been found recorded if such was the case. Hence, the A O's assumption and thereafter his estimation of the undisclosed investment ....
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....fore the learned CIT (A). It was submitted that the assessee firm consisting of three partners had effectively ceased to operate in the financial year 1999-2000 after over 20 years of operation. Its business and good will had developed on the proprietary concern of Chirag, son of one of the partners Dashrathbhai. The A O has also admitted of the unaccounted business of the assessee prior to the block period. In fact, the assessee firm had disclosed its unaccounted commission income @ 1.25% of unaccounted turnover in VDIS 1997 and also admitted to unaccounted turnover of over Rs.4 Crores up to the financial year 1995-96, in the amnesty scheme of the Sales Tax Department. This in itself established the fact that the assessee had sufficient capital available whereas the A O in working out the peak investment had assumed that there was no opening capital and that peak investment theory of the A O was not applicable not only because of the incorrect assumptions of the A O that the opening capital was nil and that payments were to be made on the same date, but also because the seized material i.e. kachha cash book was for the period 29-3-1999 to 7-7-1999 and the other seizer material per....
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....n Annexure BS-44. In these circumstances, the assumption of the A. O. and his working out of ht peak credit, suffered from a fatal flaw since its authenticity/validity is not established. In this regard, the trade practice, the fact of the appellant's long term involvement and reputation/goodwill has also to be considered. The quantum of investment in capital of a commission agent cannot be equated with the quantum of the capital requirement by a trader as is obviously less. The appellant in Annexure B filed with his reply (reproduced by the A O) had worked out the total amount of Rs.33 lakhs and on its basis disclosed Rs.35 lakhs. This working has not been refuted by the A. O. It is also seen that the appellant had capital available, prior to the block period, as is apparent from the VDIS/sales tax disclosures. It is also seen that the computation of the A. O. suffered from a serious lacuna in absence of the complete details in the seized records. In the event, the peak investment worked out by the A. O. in respect of both, own trading and commission sales, was not valid. 7.1 It is seen that the A. O., in the related case of M/s. Chiragkumar, estimated 10% of the turnover as co....
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....tioned figures. The A O observed that the own unaccounted trade of over Rs.4.24 crores would have involved unaccounted investment also. This he estimated to be at 10% of the turnover i.e. Rs. 42.44 lacs and sought explanation of the assessee vide show cause notice dated 1-12-2005. The assessee in response to the same informed that it was conducting business as a commission agent since assessment year 2000-01 after taking it over from the partnership firm M/s. Shaileshkumar Nathalal Patel which had been a commission agent for over 20 years. The capital and goodwill of this firm was therefore, made available to the assessee. Moreover, this partnership firm M/s. Shaileshkumar N. Patel had also admitted undisclosed income of Rs.35 lacs apart from undisclosed income of Rs.25 lacs declared by the appellant and most of it was available for the purpose of investment/expenditure. Even otherwise, the disclosure if any, on account of loans and investment should be considered as available to the assessee. This is besides the fact that the capital requirement is normally in beginning of the trade only and work of commission does not require any noticeable investment/capital. Thus, in this case ....
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.... Rs.2,05,365/- Total Rs.1,97,242/- Rs.65,669/- Rs.19,460/- Rs.2,82,401/- The A O pointed out that the assessee had disputed the rate of profit to be applied on the own unaccounted turnover, termed as "bare trade" by the A O. The assessee had submitted that the profit rate to be applied should be the same as shown in his regular books and the comparative rate of profit proposed by the A. O. was not valid as it varied from trader to trader and depended on the quality of agriculture produce and auction prices etc. The A O reproduced a chart, furnished to him by the assessee of the unaccounted profits from own trade i.e. Rs.22,72,211/-and accepted it as under: A. Y. Unaccounted turnover (Rs.) G. P. ratio as per books Unaccounted profit (Rs.) 2001-02 43,98,373 10.96% 4,81,868/- 2002-03 2,91,21,496/- 4.25% 12,37,931/- 2003-04 89,49,005/- 6.23% 5,57,412/- Total 22,77,211/- Thus, the A O tabulated the profits as under: Asst. Year Profits from commission (Rs.) Profits from bare trade (Rs.) Total profits for the year (Rs.) 2001-02 Nil 4,81,868/- 4,81,868/- 2002-03 77,....
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....ess: Re-deposited 857,000 650,000 207,000 490,000 14,38,000 Add The partners have also made separate disclosure in their own cases: Amratbhai 2,50,000 Rameshbhai 1,50,000 Dashrathbhai 3,00,000 7,00,000 Moreover, the commission trade of the assessee, with long standing reputation and business expertise needed no initial capital. It was further submitted that the A O has not considered the various submissions made during the assessment proceedings. The A O had worked out the additional undisclosed income of Rs.25.25 lacs in the hands of these three partners. Whereas the A O unaccounted opening capital deployed in financial year 2000-01 at Rs.4.39 lacs only i.e. more capital was available in the initial year, than was estimated by the A O. for the purpose of investment/working capital. During the financial year 2001-02 proceeds of Rs.12.37 lacs and commission of Rs.57,802/- had been earned and was available to the assessee even as per the A O. The A O has also overlooked ro....
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....day to day basis i.e. on generation and not at the end of the financial year. Also, there was no basis to estimate the capital requirement at 10% of the turnover. It is also argued that the disbelief of the A O that the appellant had not benefited from the goodwill/capital of the firm M/s. Shaileshkumar Nathalal, was only on a vague suspicion. In fact, the debtors of this firm and of the appellant were the same. It is also submitted that under Chapter -XIV-B of the Act, the conclusions drawn were to be based on evidence found during search/unearthed in inquiries and not on the basis of estimates particularly when they were unreasonable. Thus, when all entries/details of the unrecorded transactions had been found in the seized documents, it stands to reason that there would have been similar entries of the unaccounted capital deployed, if such was the case. However, there is no evidence on record of any deployment of unaccounted capital during the block period. The capital would have been deployed at the initiation of the unaccounted trading, much before the block period. For subsequent years, the income earned itself would be invested/rotated. The A O was not justified in making th....
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....in the return of income filed for the block period. The rule of market committee would not prove the actual transactions carried out by the assessee. The commission sales did not require any investment and no evidence or material was found in search to prove unaccounted investment by the assessees in their businesses. The A O and the CIT (A) have passed contradictory orders in both the cases. While making the addition in the case of Shaileshkumar in a sum of Rs.1.48 lacs, CIT (A) has passed a contrary order as against the order passed in the case of Chiragkumar D Patel. Since no material was found in search to indicate undisclosed investment, the entire addition should have deleted. In support of his contentions he has relied upon following decisions: (1) Ashokkumar Rastogi v. CIT [1991] 55 Taxman 433 (All.) (2) CIT v. Girish Chaudhary [2008] 296 ITR 619/[2007] 163 Taxman 608 (Delhi) (3) CIT v. Ashim Krishna Mondal [2004] 270 ITR 160/[2005] 144 Taxman 365 (Cal.) (4) CIT v. P. K. Ganeshwar [2009] 308 ITR 124 (Mad.) (5) CIT v. Khushal Chand Nirmal kumar [2003] 263 ITR 77/132 Taxman 274 (MP) (6) ....
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....e as undisclosed income i.e. : (i) It must be in the form of money, bullion, jewellery, other valuable article or thing or should constitute income or property based on any entry in the books of accounts or other document or transaction; (ii) It should be averred that the assets or entry in the books represents wholly or partly income or property which has not been or would not have been disclosed for the purpose of this Act. (iii) For any expenses, deduction or allowance claimed under this head, which is found to be false. Section 158BB(1) provides for computation of undisclosed income of the block period and is reproduced as under: "(1) The undisclosed income of the block period shall be the aggregate of the total income of the previous years falling within the block period computed, in accordance with the provisions of this Act, on the basis of evidence found as a result of search or requisition of books of account or other documents and such other materials or information as are available with the AO and relatable to such evidence as reduced by the aggregate of the total income, or as the case may be, as increased by the aggregate o....
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....under Chapter VI or unabsorbed depreciation under sub-section (2) of section 32; [provided that in computing deductions under Chapter VI-A for the purposes of the said aggregation, effect shall be given to set off of brought forward losses under Chapter VI or unabsorbed depreciation under sub-section (2) of sec. 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 of the partners, whether on allocation or on account of enhancement;] (c) assessment under section 143 includes determination of income under sub-section (1) or sub-section (1B) of sec. 143. (2) In computing the undisclosed income of the block period, the provisions of sections 68, 69, 69A, 69B and 69C shall, so far as may be, apply and references to....
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....Therefore, before coming to analyze what is undisclosed income, it is necessary to be seen that such income has not been or would not have been disclosed for the purpose of this Act. If any such article or thing or income has already been disclosed to the department prior to the search, it cannot be termed that the same has not been or would not have been disclosed for the purpose of this Act. Therefore, whatever items or articles have been shown to the department prior to the search cannot be treated as undisclosed income. 13.3 The Hon'ble Bombay High Court in the case Vinod Danchand Ghodawat (supra) observed: "where the value of the gold and silver articles and jewellery had been disclosed in the assessee's wealth-tax return which was accepted by the department. Held, that Chapter XIV-B of the IT Act, 1961 had not application to the facts of the case and the addition made by the department on the ground of undisclosed income was erroneous." 13.4 The Hon'ble Calcutta High Court in the case of Bhagwati Prasad Kedia v. CIT [2001] 248 ITR 562/116 Taxman 261 observed "The explanation to sec. 158BA of the IT Act, 1961 makes it clear that the Legislature thought it fit to....
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....erials or information as are available with the AO. Evidence found as a result of search is relatable to sections 132 and 132A. Held, that, admittedly the undisclosed income was not determined on the basis of any search material and the AO was proceeding within the scope of the assessment and not within the scope of exercising jurisdiction under Chapter XIV-B and sec. 158BA. Therefore, sec. 158BA of the Act had no application to the facts of the case." 13.6 In the case of Sunder Agencies v. Dy. CIT [1997] 63 ITD 245, ITAT, Mumbai Bench 'B' held as under: "Sec. 158BA of the IT Act, 1961 - Search and seizure - Block period 1.4.1985 to 16.11.1995 - whether within pale of Chapter XIVB assessment could be made only in respect of undisclosed income and such undisclosed income must come as a result of search - Held, yes - Whether sec. 158BA does not provide a license to revenue for making roving enquiries connected with completed assessment and is beyond power of AO to review assessments completed unless some direct evidence comes to knowledge of department as a result of search which indicates clearly factum of undisclosed income - Held, yes - Whether scheme of Chapter XIVB give....
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....arasamy v. ACIT [1998] 65 ITD 188 (Mad), at page 206 and Indore Construction (P) Ltd. v. ACIT [1999] 71 ITD 128 (Indore) wherein the Mumbai Bench of the ITAT, the Madras Bench of the ITAT and the Indore Bench of the ITAT, respectively, had held that the income for block assessment under search and seizure procedure is to be computed strictly on the basis of the documents seized; and it cannot proceed on conjectures and/or surmises and arrive at an estimation instead of computation. The word "computation" connotes a different meaning than estimation or appraisal. Computation presupposes a calculation on the basis of the materials, which is something different from estimation or appraisal and it must be based on methodical calculation with some amount of approximity to mathematical process on the materials available on search and seizure." 13.11 ITAT, Delhi Bench (TM) in the case of Dang & Co. (P.) Ltd. v. Dy.CIT [2005] 94 ITD 29 held: "The assessee explained that it was an estate agent and the amount received by the assessee was an advance received towards purchase of certain properties. Assuming it was a loan received by the assessee, it was not in dispute that the assessee h....
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....79 held: "dismissing the appeal, that the two amounts were received by the assessee from a govt. agency by cheques and they were deposited in the bank account of the assessee and duly reflected in the regular books of account. The AO relied upon a part of the entries in the books of account and rejected the other part. Since the entries made in the books of account before the date of search and seizure had been accepted, the amount in question ought not to have been treated as undisclosed. The search took place on July 20, 2000, and August 9, 2000, on which dates the return for the AYs 2000-01 and 2001-02 had not fallen due. The returns for the AYs based on regular books of account were filed after search disclosing the bank deposits. There was no material to show that the assessee intended to hide any part of his income for the assessments under appeal. Thus, the bank accounts ought not to have been treated as undisclosed bank accounts and could not be the subject matter of block assessment proceedings." 13.14 Hon'ble Delhi High Court in the case of Girish Choudhary (supra) held "there is no basis as to how, AO came to conclusion that 48 was Rs.48 lakhs. No material is there....
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....l. The A O presumed payment on the same day by following the rules of marketing committee without pointing out from the seized papers whether such practice was found from the seized papers. Moreover the market committee rules cannot be treated as evidence found as a result of search. Further, no evidence was found that such payments were made by the assessees to the farmers on the same day. The explanation of the assessee that they have sufficient funds available prior to the search had not been adversely commented upon by the learned D R. The peak worked out by the A O was rightly rejected by the learned CIT (A). In both the cases, the assessee on the basis of the seized documents sufficiently declared undisclosed income in the returns for the block period, therefore, further additions were clearly unjustified on the matter in issue. We may also note that the Assessing Officer is same in both the cases and date of order and facts are also same, but contradictory findings have been given in both the cases. Similarly, learned CIT (A) in the case of Chiragkumar D Patel on proper appreciation of facts and law rightly held that in the absence of any evidence there was no justification ....