TaxTMI 
TaxTMI 
2012 (5) TMI 686
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....achine shops and petty hawkers and supplies the same to its group concerns - M/s. Super Craft Foundry and Sri Ganesh Foundry. The assessee has also carried on job work of another sister concern Swift Enterprises Pvt. Ltd. 3. Search and seizure operations were carried out at the premises of the concerns of the Kulkarni Group including that of the assessee on 25-03-1998 during which a number of books of account, loose papers, and documents etc. were seized. These included bank pass books and cheque books of the below named parties, seized from the custody of the accountant of the assessee firm Sri A.D. Patil, who had also reportedly operated the bank accounts : Party's Name Proprietor's Name 1. M/s. G.N. Industries - Sri B. N. Joshi 2. M/s. Ganesh Traders - Sri Prabhakar Pujari 3. M/s. Mahesh Sales Corporation - Sri Mahesh V. Pujari 4. M/s. Anil Industries - Sri A.D. Patil 5. M/s. Omega Traders - Sri Surendra Hogade 6. Sri Vaishali Enterprises - Sou. Patil 7. M/s. Omkar Traders - Sri Uchgaonkar 4. During the course of search operations the revenue authorities reportedly recorded statements of the above named S/Shri B N Joshi, Prabhakar V Puja....
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....rap from these hawkers the Assessing Officer may not have believed the genuineness of the purchases. As such, it was claimed that the assessee had resorted to this particular technique whereby purchases made from road side hawkers had been given the garb of purchases made from the said seven bogus concerns. 7. On the basis of the following details, culled out from the assessee's books of account, the Assessing Officer noted that over the years a very substantial part (63.18%) of the assessee's purchases was made from the above named seven bogus concerns the details of which are as under : Total purchases Purchases from fictitious concerns A.Y. Weight (MT) Amount in Rs. Weight (MT) A mount in Rs. 95-96 1197.505 64,72,957.79 651.084 34,22,284.40 95-96 2217.886 1,22,08,964.24 1240.686 68,03,683.70 96-97 3117.245 1,70,03,873.40 1989.990 1,08,16,160.70 97-98 3330.085 1,77,82,603.80 2220.450 1,17,92,058.62 98-99 883.965 50,39,105.86 726.065 41,29,441.86 Total 10746.686 5,85,07,505.09 6828.275 3,69,63,629.34 8. The Assessing Officer asked the assessee to prove that scarp purchased from the above said seven fictitious concerns was real and ma....
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....of the above and in view of the various discrepancies found from the seized documents the AO proceeded to determine the income on estimate basis. 11. The AO noted that assessee was purchasing scraps from hawkers, petty traders and unregistered dealers in cash. The firm has supplied the names of 5 to 6 suppliers out of whom summons u/s. 131 were issued to 4 persons and their statements were recorded. One Sri Balasaheb Shinde who was looking after the purchase of scraps upto April 1997 stated that there were 8 to 10 agents through whom the firm was collecting/purchasing scraps and for this commission of about 1% of the value of scrap was paid by the firm. Sri Anand Pandurang Vedante, who also supplied scraps to the firm in Financial Year 1995-96 and 1996-1997 has stated that he used to get commission of ₹ 50/- per MT which comes to about 1% to 1.10% of scrap value. Sri Shrikant Gopal Bhide who also supplied scrap to the firm has stated that he used to get ₹ 50 to ₹ 60 per MT as commission which comes to slightly more than 1% as commission. Statement of other persons were also recorded who have stated that they use to get commission from 1% to 1.50%. According to th....
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....s of their trusted employees and relatives and claimed to have purchased scraps from hawkers, petty traders and unregistered dealers through them. The assessee firm has issued account payee cheques/demand drafts in favour of these concerns and immediately thereafter cash of similar amounts were withdrawn from the bank accounts of these concerns. The so called proprietors of these concerns have simply signed the cheques and bills without getting involved in actual trading activities. Considering the totality of the facts of the case and considering that it is not possible to determine the correct income due to unaccounted expenditure, unaccounted advances, unaccounted commission, lower G.P.etc., the AO determined ₹ 1 Crore as undisclosed income of the assessee for the block period without any year-wise bifurcation. 15. Before the CIT(A) the assessee reiterated the same submissions as made before the AO and filed voluminous details challenging the addition made by the AO. Based on the arguments advanced by the assessee, the learned CIT(A) held that no undisclosed income can be brought to tax in the hands of the assessee for the block assessment period on account of purchase of....
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....years 1993-94 to 1996-97. The difference is ₹ 31/- for assessment year 1997-98. Once again it is observed that this chart is available on the record of the Assessing Officer and while passing the impugned order he has simply ignored the material contained in it. Nothing specific has been brought on record to show that at any specific points of time the purchase price of scrap as declared by the appellant in respect of URD purchases was higher than the one prevailing in the market. This being the case the material arrangement in the above chart cannot be ignored and has to be taken into account. Considering the same, it follows that by resorting to an arrangement whereby cash purchases of scrap were admittedly incorporated in books through purchases made from the fictitious concerns the appellant has not resorted to any apparent inflation of purchase. As such, it has to be held that the Assessing Officer's conclusions are based on presumptions and are without regard to material available on record. 4.4 To substantiate its claims, the appellant has also relied upon details of production for the years ending on 31-03-96, 31-03-97 and 31-03-98, as carried out by one of its ....
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....hide, Ananda P. Vedanta, and balasaheb Shinde clearly suggests that commission, payable to the agents, was part of the price being paid to the sellers. Further, it is obvious that the entire exercise is based on presumption, which has little basis in facts discovered in post search inquiries. Also, it is obvious that even if payment of commission outside books is presumed the corresponding amount, considered in the determination of undisclosed income, shall be neutralized completely by an equivalent amount allowable u/s. 37(1), Also, it is well known that undisclosed income is concealed income. Thus any additional income worked out on a purely presumptive and adhoc basis cannot be held to be undisclosed income. This draws support from the decision of Bombay High Court in the case of N K E Memon 112 Taxman 96. As such, in the facts and circumstances of the case I am unable to accept the Assessing Officer's contention that payment outside books of account of commission of ₹ 7,19,273/- has to be presumed in the present case for the purposes of the impugned Block Assessment". 17. As regards the observation of the AO that the assessee has suppressed its gross profit, the....
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....e that the assessee has not understated the income or has not computed excessive loss or has not underpaid the tax in any manner whereas what is assessed under Chapter XIV-B is only the undisclosed income for the block period and not the income or loss of the previous year which is only done in the normal regular assessment u/s. 143(3). From the foregoing one thing is obvious. The estimation made by the Assessing Officer, since it is not based on any concrete material but a simple rule of thumb, cannot be made part of proceedings under Chapter XIV-B. Further, it has clearly been laid down by the Delhi High Court in the case of L R Gupta 194 ITR 32 that undisclosed income means hidden income. A disputed addition, based on a different opinion adhered to by the Assessing Officer, can by no stretch of imagination be treated as "undisclosed income" for the purposes of quantification under Chapter XIV-B. Therefore, I have no hesitation in holding that in the given facts and circumstances there is nothing to infer that any undisclosed income has to be quantified within the scope of Chapter-XIV-B by way of suppressed gross profit. Hence, the quantification done by the Assessing....
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....lant has not given any separate explanation for the same. As such, taking into account the totality of the facts and circumstances available on record, I am of the view that the interest of justice shall be served if the said figure of ₹ 11,93,729/- is treated as representing unexplained transactions, reflected through entries made in seized loose papers. This covers all other date-wise aggregates of amounts shown to be due from parties listed on each of the above said seized loose papers. Therefore, on account of entries made in seized loose papers, the appellant's undisclosed income for the block period has to be taken ₹ 11,93,729/-". 19. Considering the totality of the facts of the case, the learned CIT(A) finally held that for the purpose of the impugned block assessment no undisclosed income can be worked out on account of alleged bogus purchases from the seven fictitious concerns, payment of commission outside books of account and under statement of GP. According to him any undisclosed income, if any has to be worked out only with reference to entries made in seized loose papers and it would be ₹ 15 lakhs. Therefore, for the purpose of the impugned....
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....e has accepted the various transactions noted in loose papers are indicative of transactions outside books of accounts. 3. On the facts and in the circumstances of the case and in law, the CIT(A) erred in not appreciating that the substantial margin was already allowed by the AO while finalizing assessment order itself, in as much as the total undisclosed income of the assessee was adopted at ₹ 1 Crore, when the aggregate of the discrepancies noticed during the course of Block Assessment proceedings comes to ₹ 1,86,70,039/-, as detailed below : Sr.No. Page No. of Assessment Order Page No./Bundle No. of seized Material Particulars Amount 1 21 -- Unaccounted expenditure on commission 7,39,273/- 2 23 10/11 Unaccounted purchases not reflected in the regular books of accounts 9,54,941/- 3 23 26 to 40/15 Unaccounted transaction 1,40,55,236/- 4 24 48/11 Undisclosed Expenditure 9,00,172/- 5 25 36/11 Undisclosed Advances to Fictitious parties 9,08,969/- 6 25 7 of Diary No.9 Planning of amount receivable 4,50,000/- 7 27 - G.P. Addition 6,61,448/- TOTAL 1,86,70,039/- 4. The appellant prays that the order of the CIT(A) be vacated and....
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....ses cannot be treated as non-genuine. He submitted that unless there are purchases there can be no sales. For this proposition he relied on the decision of the Chandigarh Bench of the I.T.A.T. in the case of J.R.Solvent Industries (P) Ltd., Vs. ACIT reported in 68 ITD 65 (TM) (CHD). Referring to the decision of the Pune Bench of the Tribunal in the case of ACIT Vs. Gopal Pulse Processor Pvt. Ltd. Co. vide ITA 636/PN/2001 order dated 29/09/2006 for the block period 01/04/1987 to 05/10/1997 he submitted that following the decision of the Chandigarh Bench (TM) cited above the Tribunal dismissed the appeal filed by the Revenue wherein the CIT(A) had deleted the addition made by the Assessing Officer under identical circumstances on account of bogus purchases. Referring to the decision of the Hon'ble Mumbai High Court (Aurangabad Bench) vide Tax Appeal No.26 of 2007 he submitted that the Hon'ble High Court has dismissed the appeal filed by the Revenue. He accordingly submitted that no addition on account bogus purchases could have been made. 24. So far as the rate of GP is concerned the learned counsel for the assessee while supporting the order of the CIT(A) on this issue subm....
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....6 to 1998-99. According to the AO, the assessee was unable to produce the persons from whom scrap was purchased, could not furnish their names and addresses etc. and therefore verification of the accuracy and correctness of purchase & scscrap is difficult. Further according to the AO, the GP rate disclosed by the assessee is less than a comparable case, i.e., M/s. Oberoi traders for A.Y. 1997-98. Similarly it is also the allegation of the AO that the assessee has paid commission outside books of accounts since no commission has been debited in the profit and loss account although some of the persons examined by him have admitted to have received commission. In view of the above and various other discrepancies found during the course of search including entries contained in the loose papers the AO rejected the various submissions of the assessee, rejected the book results and made lumpsum addition of ₹ 1.00 Crore which has been reduced to ₹ 15.00 lakhs by the learned CIT(A). 29. So far as the creation of 7 fictitious concerns for purchase of scraps from hawkers & URDs are concerned we find as against purchase from such concerns at ₹ 3,69,63,629.34 the AO has made ....
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....as also proved that if the purchases are not taken into account, then the results are going to be unrealistic and the G.P. had to go high rate away from any reasonable percentage. Even if those concerns were bogus parties, but the basic question is that without purchases, there cannot be any manufacturing of sales. As far as the argument of the Ld. DR that the assessment was mad under Chapter XIV B is concerned, the answer given by Ld. AR was that the computation of undisclosed income even of the block period has to be made u/s. 158BB and as per Explanation annexed to this Section, the total income or loss of each previous year, for the purpose of determination of undisclosed income, be taken as the total income or loss computed in accordance with the provisions of this Act and the only rider is that the same should be without giving effect to set off of brought forward losses or unabsorbed depreciation. By this Explanation, the Legislature has made it clear that the undisclosed income is also required to be determined or computed in accordance with the provisions of I.T. Act, so the basic principle of determination of income has to be followed particularly in a case when the incom....
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....quality, cannot be a suitable case for comparison with that of the assessee who operates from a different place, i.e., Jaysinghpurand goods of different quality. Further, the assessee has also given a comparable case before the AO whose GP is lesser than that of the assessee . The chart produced by the assessee before the AO showing purchases at lesser price than the market price remains uncontroverted by the revenue. Under these circumstances we are of the opinion that no adverse view can be taken for declaration of lower G.P. 34. So far as the allegation of the AO regarding payment of commission outside books of account we find the same is based on presumptions and based on post search enquiries. We find merit in the submission of the ld. counsel for the assessee as well as the findings given by the ld. CIT(A) that if payment of commission outside books of account is presumed then the same has to be reduced from corresponding undisclosed income. 35. As regards the notings on loose papers are concerned we find the ld. CIT(A) has elaborately discussed the issue and his findings have already been incorporated at Para 18 of this order. Neither the ld. D.R. nor the ld. counsel for t....