TaxTMI 
TaxTMI 
2016 (7) TMI 1213
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....is against the certain observations of the Tribunal regarding the manner in which the assessment is to be carried out upon remand. 3. The facts in ITA No.206 of 2001 were referred to by both the counsels who also agreed that the result in this appeal would cover the result in the other appeals. 4. The appeal is admitted on the following substantial questions of law:- "1. Whether, on the facts and in the circumstances of the case, the ITAT was right in law in observing that suppressed sales in a particular area or in a particular month should be taken into account and not that the process of estimating such sales be extended for all the areas and for all the months and that decision of the Hon'ble Supreme Court in the case of CIT Vs. H.M. Essufali and H.M. Abdullali (90 ITR 271) is not applicable in the case of the Assessee? 2. Whether, on the facts and in the circumstances of the case, the ITAT was right in law in rejecting the application of gross profit rate of 16.93% based on the information available in consequence to search operation conducted u/s 132 of the I.T. Act, on both disclosed and undisclosed sales for working out the suppressed profit and further directin....
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....ng for bills of suppressed quantity and amounts and signed and duly stamped blank voucher forms for debiting expenses according to the wishes and requirements of the group entities. 9. Notices under Section 158BC were issued on 27.11.1996 requiring the respondents to file returns of income for the block period. Separate questionnaires were issued on various occasions. The respondents complied with the same only after several reminders. They revised their return of income, in some cases more than once. 10. The assessment order analyses not only the seized record but also the respondents' replies to the questionnaires in the course of the assessment proceedings. The assessment order is divided into convenient and well defined parts. Each of the parts is discussed in considerable detail. It firstly deals with the modus operandi of the Maheshwari Group for suppressing the sales and income. In this exercise, the documents were correlated, the symbols were decoded, the replies to the queries were considered and the resultant quantum of suppression was arrived at. Some of the aspects dealt with were the scaling down of the final bills vis-à-vis the initial bills, the admissio....
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....ervations in the order. If the challenge is well-founded, it would be necessary to set aside the observations as the assessment order, upon remand, was bound to be based upon or at least influenced by such directions. As this is the main aspect in this appeal, we find it necessary to set out in extenso the portions of the impugned order of the Tribunal. They read as under:- "33. To conclude the discussions we have define (sic) undisclosed income and we have also given observations, that the A.O. has to assess undisclosed income based on the material collected by the authorised officer under section 132 & 132-A of the Act. The A.O. has not to disturb the accepted position of the assessment which includes the assessment of the income and other relevant issues with such assessment. The only exception to change the accepted position is if there is complete leading evidence available with him for change of opinion or change of position. To clarify by an example, if a cash credit is appearing in the books of account and such detail and balance sheet is filed alongwith the return followed by passing an order under sec. 143 & 143(1)(a) such cash credit cannot be disturbed unless and unt....
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....g to a particular area. He cannot presume that such type of action is required to be estimated for all the areas and for all the months. That will give total distortion of the undisclosed income because such undisclosed income has to be matched with undisclosed assets. 37. The search and seizure operations' provisions have given exceptional powers to the Tax Authorities to collect evidence in cases where they suspect the existence of undisclosed income. After this power is exhausted by the Department, they cannot resort to and they should not resort to estimation/guess work, surmises and conjectures. They should strictly go by evidence collected which are directly related to the undisclosed income. The legislature has put heavy burden on undisclosed income by charging this income to tax at 60%. Under no circumstances, disclosed income should be part of undisclosed income 38. After allowing opportunity to both sides for arriving at a correct figure of sale, we are of the opinion that this area was such where sufficient opportunity was not granted to the appellant. Inspite of our efforts to get the matter resolved the difference between the A.O. and the appellant remained unres....
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....is understandably wider than income based only on entries in the assessee's books of account. The suppressed income has indeed not been disclosed for the purpose of the Act. 15. The observations inter alia in paragraphs 34 and 35 to the effect that the undisclosed income was related only to the income earned out of undisclosed sales is, therefore, perverse being contrary to the record. 16. The following observations in paragraph-36 of the Tribunal's order are far too wide:- "The A.O. can adopt reasonable estimate but the same is to be linked with the evidence available on record, he cannot start presuming things. If suppose, there is a entry of cash credit on a particular day amounting to Rs. 5000/-, he has to decide this very entry and he cannot be presume (sic) that on each and every day assessee is taking cash credit of Rs. 5000/-." 17. There is a difference between an inference or a presumption and mere conjecture. While computing the suppressed income under Section 158B(b), it is permissible to draw a reasonable and justified inference based upon all the facts and circumstances of the case including the material seized during the search and seizure and the answer t....
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....essed sales generally and not limited to any particular area, the Assessing Officer would be entitled to draw an inference that the assessee suppresses sales even in other areas. If the evidence indicates the suppression of sales only in certain other areas, he may limit the assessment in this regard to such areas. Here again, it is impossible to stipulate a formula or any fixed criteria. The Assessing Officer must take into consideration the evidence. Absent anything else, the suppression of sales in one case may not justify an inference of a consistent pattern or conduct of suppression of sales. However, if other factors indicate otherwise, there is no reason why the Assessing Officer cannot draw such an inference and assume that sales were suppressed in other areas as well. The quantum of suppression again would vary from case to case and even from area to area. 20. Our view is supported by the judgment of the Supreme Court in Commissioner of Sales Tax, Madhya Pradesh vs. M/s. H.M. Esufall, H.M. Abdulali, Siyaganj, Indore, 1973 ITR 271. In that case, the appeals were from the decision of the High Court of Madhya Pradesh in a reference under Section 44 of the of the Madhya Pra....
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...., including the assessee's circumstances, knowledge of previous returns and all other matters which the assessing officer thinks will assist him in arriving at a fair and proper estimate."(emphasis supplied) Proceeding further the learned judge quoted with approval the observations of Din Mohammad, J., in Ganga Ram Balmokand v. Commissioner of Income-tax [(1937] 5 I.T.R. 464(Lah.): "It cannot be denied that there must be some material before the Income Tax Officer on which to base his estimate, but no hard and fast rule can be laid down by the Court to define what sort of material is required on which his estimate can be founded." After quoting those observations, the learned judge proceeded to observe: "With that observation we generally agree. If, in this case, the Sales Tax Authorities had based their estimate on some material before them, no objection could have been taken." Applying the rule laid down in Raghubar Mandal Harihar Mandal case, to the facts of the present case, it is seen that the Sales Tax Officer had material before him to find out, how much turnover had escaped assessment during a period of 19 days. On the basis of that material he estimated ....