TaxTMI 
TaxTMI 
2012 (5) TMI 686
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....hases scrap from local scrap dealers, machine 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 Uchgaonka....
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....ng the scrap from hawkers, whose identity could not be established fully. The assessee's plea was that even if it had obtained cash vouchers regarding purchase of scrap 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 ....
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....e AO was of the opinion that this mechanism of purchase of scraps through the creation of the bogus firms is with a view to manipulate the accounts and thereby making the verification of the accuracy and correctness of the purchase of scrap material difficult. He, therefore, was of the opinion that the books of accounts cannot be relied upon and has to be rejected. In view 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 Rs. 50/-....
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....d passing of Rs. 4.50 lakhs by the assessee. 14. In view of the above, the AO came to the conclusion that the firm is doing purchase and sales outside the books of accounts which are unaccounted. The Kulkarni Brothers are using their concerns to generate unaccounted income. The assessee firm had floated fictitious/benamies concerns in the names 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 Rs. 1 Crore as undisclosed income of the assessee for the block period without any year-wise bifurcation. 15. Before the CIT(A)....
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....break up of total purchases into RD purchases and URD purchases is lower than the average rate of URD purchases by rate of URD purchases. On going through this chart it is observed for each of the assessment years under consideration the average rate RD purchases is lower than the average rate of RD purchases by a minimum of Rs. 50/- per MT for assessment years 1993-94 to 1996-97. The difference is Rs. 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 ....
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....no payment on account commission outside books of account can be presumed in the impugned case for the block assessment. The relevant observation of the learned CIT(A) reads as under : "5.3. I have gone through the material relied upon by the appellant. At the outset, it must be mentioned that the tenor of the above said statements of Shri Shrikant Gopal Bhide, 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 ....
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....on 143(3) for regular assessment stands on a different footing in contrast to the exercise undertaken by the Assessing Officer under Chapter XIV-B where the Assessing Officer has to assess only the undisclosed income. Therefore, the scope of regular assessment is quite different from the scope of assessment under Chapter XIV-B. The regular assessment is to ensure 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 a....
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....he appellant's books through purchases allegedly made from seven fictitious concerns put up by the appellant. On going through the aggregate of transactions, reflected in the seized loose sheets, it is observed that the peak amount due from the appellant on any given particular date comes to Rs. 11,93,729/- (as on 24-01-1995). Apparently, the appellant 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 Rs. 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 Rs. 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 accoun....
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....,00,000/-, when the same was rightly assessed by the AO. 2. On the facts and in the circumstances of the case and in law, the CIT(A) erred in holding that peak amount due from the assessee at Rs. 11,93,729/- as unexplained and considering facts and totality of the case restricted the undisclosed income at Rs. 15,00,000/-, when he 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 Rs. 1 Crore, when the aggregate of the discrepancies noticed during the course of Block Assessment proceedings comes to Rs. 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....
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....price paid to URD is less than the price paid to the R.D. Therefore, the assessee has not paid any higher price to the unregistered dealers and there is no inflation of purchases. He submitted that the Assessing Officer himself has made addition of Rs. 1 Crore as against alleged fictitious purchase of Rs. 3,69,63,629.34. This implies that the Assessing Officer has accepted major part of the alleged bogus purchase. Merely because the assessee could not produce the vendors the purchases 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 ide....
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.... is reasonable. Merely because some entries are found outside books of accounts addition cannot be made. 28. We have considered the rival arguments made by both the sides, perused the orders of the AO and the CIT(A) and the Paper Book filed on behalf of the assessee. We have also considered the various decisions cited before us. There is no dispute to the fact that the assessee had purchased scraps from 7 bogus concerns amounting to Rs. 3,69,63,629/- during the A.Y. 1995-96 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 f....
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....he had to record the purchases, otherwise there was no justification of the purchases shown by the assessee. We find this argument and the explanation of the assessee quite reasonable because once the sales have not been disputed, hence corresponding purchases ought to have been made. Indeed it is a matter of common sense that there is no possibility of production if there is no raw material. Without input, there could not be any output. Additionally, the assessee has 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 ....
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....of the jurisdictional High Court and considering the fact that the sales have been accepted by the AO and the rate paid per M.T. of scrap to the hawkers & URDs are less than the price paid per M.T. of scrap to the Registered dealers we are of the considered opinion that no addition could have been made on this account. 33. So far as the rate of GP is concerned we find the comparable case adopted by the AO in the case of Oberoi Traders of Kolhapur, who deals in goods of different 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....