TaxTMI 
TaxTMI 
2007 (11) TMI 650
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....sessee vide these grounds is as follows : "(i) The CIT(A) is not correct in coming to the conclusion that AO was justified in resorting to the estimation of undisclosed income for all the years falling in the block period. (ii) When the assessee himself had already disclosed income prior to search towards profits earned over and above the book profit for asst. yrs. 1997-98 to 2002-03 at Rs. 1,00,59,700. Without any further material found at the time of search to suggest there was further undisclosed income, the CIT(A) is not correct in stating that the estimation for all the years comprising in the block period can be made on the basis of materials found for broken period and the statements recorded based on the above materials. (iii) The CIT(A) is not correct in upholding that the Thali sales considered for multiplication factor is correct after giving a clear finding at para 3.53 'I am not very sure how by this statement he (the officer) comes to the condition that Thali sales should definitely be considered for multiplication factor.' (iv) The CIT(A) is not correct in stating that the GP rates adopted as per regular returns are to be a....
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....each day. The sales bills are issued in fictitious names and bear no correlation to the actual sales made in their shops. The AO has discussed the notings in various seized material and after analyzing the same, he had come to the conclusion that recorded sales are generally in the order of 20 per cent of the total sales made. All the details found were pertaining to the financial year 2002-03. No details for earlier years have been found. However, the AO had observed that the assessee is engaged in unaccounted sales in earlier years also which is evidenced by the regular returns filed by the assessee himself, wherein for various years, he has shown income under the head "Income from other sources" or "Adhayam" as under : Asst. yr. Amount (Rs.) 1997-98 6,50,000 1998-99 20,27,000 1999-2000 4,75,000 2000-01 46,67,000 2001-02 11,70,000 2002-03 10,70,200 2003-04 11,56,000 Although the assessee himself had stated that the income represents the profit earned from unrecorded sales made during these years, no basis has been given how this figure has been arrived at. Thus the AO after extensive discussion in the assessment order concluded t....
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....lid and also he confirmed the estimation in respect of GP on this turnover on the basis of declared GP in earlier years. However, finally he computed the undisclosed income on this account at Rs. 1,53,30,619 as against Rs. 1,97,88,566 made by the AO. Further CIT(A) has given deduction towards expenses at Rs. 96,52,896 over and above what the AO had given and thereafter determined undisclosed income at Rs. 62,77,720 instead of Rs. 1,56,31,600 as determined by the AO. Against this finding, the assessee is in appeal before us. 6. Learned Authorised Representative submitted that when the assessee himself had already disclosed income prior to search towards profits earned over and above the book profit for asst. yrs. 1997-98 to 2002-03 at Rs. 1,00,59,700 without any further material found at the time of search to suggest there was further undisclosed income, the CIT(A) is not correct in stating that the estimation for all the years comprising in the block period can be made on the basis of materials found for a few days in the broken period and the statements recorded based on the above materials. 7. Learned Authorised Representative further submitted that the income earned on una....
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....sessment proceedings also, AOs should rely upon the evidences/materials gathered during the course of search/survey operations or thereafter while framing the relevant assessment orders." 10. He submitted that circulars issued by CBDT shall be binding on the officers of the Department. For this proposition he relied on the following case law : (i) UCO Bank vs. CIT (1999) 154 CTR (SC) 88 : (1999) 237 ITR 889 (SC); (ii) CCE vs. Dhiren Chemical Industries (2002) 172 CTR (SC) 670: (2002) 254 ITR 554(SC). Regarding the assets founds in search on the basis of which undisclosed income was offered, learned Authorised Representative submitted that the AO himself had deleted the most of the items and had submitted a detailed extract of sworn statement and AO's order which are reproduced below : "The officer has stated at p. 4 : In short vide the above sworn statements recorded under s. 132(4) of the IT Act, the assessee has offered for taxation, the following amounts : 1. Rs. 1,25,00,000 vide sworn statement dt. 26th Nov., 2002 2. Rs. 13,18,950 vide sworn statement dt. 29th Nov., 2002." 11. The assessee has offered the above income becau....
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....isclosed. The details are as below : (i) Gold jewellery of 1,526.35 gms. received from Gurnvayur Gold Smiths [p. 8 para b(i)] value Rs. 5,64,620. 'It does not belong to the assessee is accepted, keeping in view the transactions recorded in the seized material'. (ii) 3 kgs. seized from Pavizham Galaxy Jewellers India (P) Ltd [p. 9 para (ii)] value Rs. 11,10,000 to be considered in the hands of the above company under s. 158BD. (iii) 11 kgs. of gold ornaments seized [p. 9'para (iii)] value Rs. 40,70,000. This aspect will be considered in the hands of Lilly under s. 158BD. (iv) Cash of Rs. 1,75,000 seized [p. 9'para (c)] to be considered under s. 158BD in the hands of Pavizham Jewellers India (P) Ltd. Pollachi. (v) Purchase of Pavizham Galaxy Building [p. 10'para d(i)] value Rs. 15,00,000 claim appears credible and no undisclosed income. (vi) Advance given for purchase of property from Kamath [p. 10'para d(ii)] to be considered in the hands of Lizo and Liss under s. 158BD. (vii) Construction of residential apartments at Guruvayur Rs. 1,14,62,129 [p. 11'para d(iii)] to be considered in the hands ....
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....d not brought forth any material or evidence during search or afterwards to pinpoint any undisclosed income or undisclosed assets or investments. 14. Thus he submitted that there is no further material or direct evidence available with the Department to pinpoint the existence of any undisclosed income over and above admitted already in the regular returns. Regular assessments were also completed based on such returns 15. The Hon'ble Madras High Court has held in CIT vs. P.V. Kalyanasundaram (2006) 203 CTR (Mad) 449: (2006) 282 ITR 259(Mad) that an addition cannot be made on the basis of mere statement but has to be corroborated with other valid evidences. 16. In the present case the assessee had categorically told that the entire income from unaccounted sales was shown under other income and reflected in business accounts (paper book 162 Q. 24). The officer has not brought forth any material either seized at the time of search or collected during the assessment proceedings to contradict the above fact. 17. The Hon'ble Supreme Court has held in Mahendra Manilal Nanavati vs. Sushila Mahendra Nanavati AIR 1965 SC 364 that the admission by a person has to be cons....
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....h which amounts to a serious invasion on the rights of subjects and which is perhaps the last weapon in the arsenal of the Department were found which could be attributed to any such patently hypothetical receipts. In view of this we are unable to concur with the Department to the multiplication formulae adopted by the AO." 22. To sum up, learned Authorised Representative placed the following submissions before this Bench : (1) Regular returns admitting income of Rs. 1,00,59,700 from unrecorded sales were filed before raid. (2) No material either during search or afterwards was found to pinpoint income earned from unrecorded sales was more than the income admitted in the regular returns as above. (3) All the assets found during search were accounted in regular returns and no unaccounted assets over and above admitted in the returns were found. With these submission, learned Authorised Representative prayed for deletion of the alleged undisclosed income assessed for the asst. yrs. 1997-98 to 2002-03. 23. Learned Authorised Representative relied on the judgment of the Hon'ble Andra Pradesh High Court in the case of Andhra Bank vs. Dy. CIT (2002....
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.... been disclosed by the assessee to the Department. Evidently the search by itself, had not been able to discover or unearth any other income earned by the assessee during the block period. The entire assessment was based on the declaration of income by the assessee itself in the returns filed by it and actually the income declared had been totally accepted by the AO. In the face of such facts, it would not be possible to say that what had been considered in the impugned assessment order as 'undisclosed income' of the assessee, really represented the income not disclosed or not mean for the Department. Therefore there was no existence of any 'undisclosed income' at all for the purpose of an assessment to be made under Chapter XIV-B. Finally therefore on account of non-existence of any undisclosed income, the impugned assessment under Chapter XIBB for the block period was liable to be annulled." 25. Further he submitted that the statement recorded under s. 132(4) was not given out of free will. He relied on the judgment of the Hon'ble Supreme Court in the case of CIT vs. P.V. Kalyanasundaram (2007) 212 CTR (SC) 97: (2007) 294 ITR 49(SC). Learned Authorised Repr....
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....closed income, whether on the basis of GP or on the basis of net profit ? 28. The main crux of the argument of the learned Departmental Representative is that there is a specific provision in Chapter XIV-B that s. 145 is applicable to the block assessment also and there is no requirement of unearthing of matching assets towards undisclosed income during the course of search. This argument of the Departmental Representative is misplaced. The provisions under Chapter XIV-B are special provisions. These were brought on the statute book specially and specifically for assessment of undisclosed income detected as a result of search. The assessment made under s. 158BC has to be distinguished from the assessment in the normal circumstances or regular assessment based on the regular books of accounts produced before the AO. If there is a defect in the books of accounts produced before the AO he can reject the books of accounts and estimate the income. Sec. 158BA provides for assessment of undisclosed income as a result of search for the block period and computation of income and the computation of undisclosed income for the block period to be made as per the provisions of s. 158BB and th....
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....d be punished on the basis of presumption. Addition should not be made merely on surmises. It should be supported by cogent material and evidence. 29. Coming to the facts of the case, the search party found the suppressed sales relating to 22 days cited supra at Rs. 1.86 crores relating to the period 10th Oct., 2002 to 3rd Nov., 2002 as against disclosed sales of Rs. 26.66 lakhs. The AO estimated the sales as follows for the above block period on the basis of the seized material. 30. The profit on suppressed sale is worked out taking the GP disclosed in the audited accounts filed for the above period which worked out to as under : Asst. year Suppressed sale GP % Amount 1997-98 3,96,06,627 16.74 6,630,150 1998-99 1,81,14,165 7.67 1,380,356 1999-2000 3,34,64,388 15.32 5,126,744 2000-01 4,46,14,128 10.78 4,809,402 2001-02 6,17,06,982 4.65 2,869,375 2002-03 9,06,85,524 5.74 5,205,349 2003-04 (26.11.02) 5,52,04,114 9.01 4,973,890 After this the AO determined the undisclosed income as follows : Asst. year Gross profit on suppressed sale Income from other Aadyayam delacred ....
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....01(SC). The human probability also must be based on honesty of a person and dishonesty cannot be a rule. Learned Departmental Representative placed reliance on the judgment of the Supreme Court in the case of CST vs. H.M. Esufali H.M. Abdulali (supra). This was a case where best judgment assessment was permissible under the relevant provisions of Sales-tax Act equivalent to s. 145 of the IT Act. The Hon'ble Supreme Court in this case held as under : "Sometimes there may necessarily or preferably be mistake in the accounts maintained by the assessee. There may be even certain unintended or unimportant omissions in those accounts; but yet the accounts may be accepted as genuine and substantially correct. In such cases, assessments are made on the basis of accounts maintained, even though the AO may add back to the accounts price of the items that might have been omitted to be included in the accounts. In such a case assessment made is not a best judgment assessment. It is primarily made on the basis of the accounts maintained by the assessee. But when the AO comes to the conclusion that no reliance can be placed on the accounts maintained by the assessee, he proceeds to ....
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.... not otherwise. If any material is collected by the Revenue consequent to the search which is not relating to the period in question, that may not give authority to the Department to make the computation of undisclosed income on estimation basis under s. 158BB or assessment under s. 158BC especially when the income relating to unaccounted sales had already been disclosed to the Department. 35. Reliance was placed on the judgment of the Andra Pradesh High Court in the case of Rajnik & Co. vs. Asstt. CIT cited supra by the Departmental Representative. In that case, during the course of search in the business premises of group concerns and also the residential premises of the partners of the assessee and residential premises of certain employees of the assessee, the authorities seized materials in the form of loose sheets relating to the suppressed sales for the financial years 1995-96 and 1996-97 which were brought to the books of accounts of the assessee firm. As a result of search, the assessee was asked to file a return for the block period from 1st April, 1985 to 13th Nov., 1996. The assessee-firm filed its return declaring an undisclosed income of only Rs. 7 lakhs, but the AO....
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....rnover as well as undisclosed income by the AO was on the higher side and the Tribunal on consideration of the material on record redetermined the suppressed turnover as well as the undisclosed income which reasonable and proper." 36. The facts of the above case are not applicable to the present case before us. In this case there was no undisclosed asset found during the course of search for the period in question and the statement under s. 132(4) recorded during the search was retracted by the assessee vide letter dt. 10th Dec., 2002. This letter cannot be treated as an afterthought and moresoever the AO has not considered the undisclosed assets disclosed in the statement under s. 132(4) in the block assessment. He has given due weightage to this letter and thereby he has chosen not to make additions on the basis of assets. In the present case, it is an admitted fact that the assessee has been disclosing the income from suppressed sales as undisclosed income as a matter of abundant caution in his regular return before search action as follows : Assessment year Suppressed sale Amount 1997-98 39,606.627 6,630,150 1998-99 18,114,165 1,380,356 1999-200....
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....the purpose of the Act in the context these were used. The Act requires an assessment of the income of the assessee. For the purpose of assessment the income is required to be computed. Upon such computation in the process of assessment the income chargeable to tax is determined and assessed to tax. The ordinary meaning of the word 'assessment' is : 'the action of assessing; the amount assessed; the determination of the amount of taxation, the scheme of charge or taxation; valuation of property or income for the purpose of taxation : see Shorter Oxford Dictionary, (third Edn.). In the context of the Act ... 'an assessment finding its origin in an activity of the AO acting as such... The phrase describes the provenance of the assessment... The use of the machinery provided by the Act ..." Raleigh Investment Co. Ltd. vs. Governor General in Council (1947) 15 ITR 332(PC), at p. 337 followed and quoted in Seth Harish Chandra vs. Union of India (1962) 46 ITR 442(Punj), at p. 446. The word "assess" is a comprehensive word, and in a taxing statute it often means the computation of the income of the assessee, the determination of the tax payable by him, and the pro....
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.... is below the truth or which is at too low a rate. In order to establish that an estimate is not an underestimate proper basis and justification has to be shown. Thus the state of estimation is fluid and not solid. Whereas computation is based on solid methodical process of calculation with some amount of approximate mathematical precision based on the data and materials available. On the other hand, the word 'appraisal' means : 'the act of appraising; the setting of a price'; 'appraise' means : to fix a price for; especially, as an official valuer; to estimate the amount, or worth of; 'whereas appraisement' means : the action of 'appraising'; valuation by an official appraiser; estimated value; estimation of worth generally. (See Shorter Oxford English Dictionary, third Edition). Under the scheme of the Act, the AO computes the income in the process of assessment in dealing with income from business; he does not estimate or appraise the income from the business. Therefore, we are supposed to keep the distinction in mind in such cases while approaching a finding of fact found by the learned Tribunal. Now, we may exa....
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....d by the AO. The presumption against the assessee could be drawn only if the sums wholly or partly had not been reflected in the books or the assessee had failed to render explanation in terms of the said provisions. Thus no question of law much less a substantial question of law arose from the order of the Tribunal." The Hon'ble Rajasthan High Court in the case of CIT vs. Rajendra Prasad Gupta (2001) 166 CTR (Raj) 83 : (2001) 248 ITR 350 (Raj) held as under : "Held that there was no finding by the AO that the estimate of income was made after consideration of the material that came to light during the course of search and seizure. Accordingly, the Tribunal was justified in setting aside the best judgment assessment made by the AO." The Hon'ble Delhi High Court in the case of CIT vs. Ravi Kant Jain (supra) held as under : "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 s. 158BA. Therefore, s. 158BA of the Act had no application to the facts of the case." The ....
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....re year and this the AO has done and therefore, he was justified in estimating the unaccounted sales on the basis of material that was recovered during the search on 9th Aug., 2004, and by assuming that such unaccounted sales would continue for the entire year. On appeal, it was held as under : "Held, dismissing the appeal, that the assumption of the AO may have perhaps been valid if the AO had found some discrepancy in the books of account or if the search had been conducted after the accounting year and the books of account had brought out some discrepancies. But in the assessee's case the AO examined the books of account in the middle of the accounting year. Merely because there were some discrepancies in the pre-search period, it could not lead to any presumption that the discrepancies would have continued in the post-search period particularly when there was factually no evidence at all as found by both the authorities below to support such a view. Therefore the AO could not draw such a presumption." 39. Learned Departmental Representative. relied on Sumati Dayal cited supra for the proposition that apparent must be considered as real unless it is found that....
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....nary rates of tax. It is subject to the rate specified in s. 113, irrespective of the previous year or the year to which such income relates and irrespective of the fact whether regular assessment for any one or more of the relevant assessment years is pending or not. In the case of L.R. Gupta vs. Union of India (1992) 101 CTR (Del) 179: (1992) 194 ITR 32(Del) the High Court has held that the income which is hidden from the Department is undisclosed income. The purport of the definition of 'undisclosed income' cannot be pressed beyond its true limits. It begins with the words 'undisclosed income' includes'sometimes, some definitions use both words 'mean' and 'include'. There, it may be regarded that an exhaustive explanation of the things intended to be caught in the net of the section is specified. But where the expression is merely 'include', it does not have a restrictive operation so as to confine the scope of the section only to those things specified in the words following. When the legislature wants to enlarge the natural meaning of a word or a phrase it uses the word 'includes' and in such a context, an inclusive ....
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....of them as may be necessary in discharge of the existing and anticipating tax liability of the person concerned. There are adequate safeguards present against any possible misuse of the provision of search and seizure. Chapter XIV-B was introduced in order to make procedure of assessment of search and for requisition cases more effective. Under the provisions of this chapter the undisclosed income detected as a result of search initiated or requisition made after 30th June, 1995 be assessed separately as income of that block of ten previous years. The provision was introduced to steamline the procedure concerning the search matters. It is abundantly clear from the perusal of the prescription of s. 158BA that within pale of Chapter XIV-B assessment could be made only in respect of the undisclosed income and such undisclosed income must come as a result of search. Sec. 158BA does not provide a licence to Revenue for making roving enquiries connected with completed assessment and it is beyond power of the AO to review the assessment completed unless some direct evidence comes to the knowledge of the Department as a result of search which indicates clearly the factum of undisc....
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....ly where by reason of not discharging the burden which was put upon it, a part must eventually fail. The law of burden is canonized in common law doctrine : incumbit probatio quidicit non qui negat (burden lies upon one who alleges and not upon one who deny the existence of a fact). In the instant case, there was absolutely no evidence or material on record to justify the addition, whereas it was based solely on presumptions and assumptions. Therefore, the abstract question of burden of proof was only academic. It was abundantly clear that the AO had accepted that the gift was given as a normal business practice. He did not reject the amount of sales promotion expenses in toto. He made estimate after comparison with the other traders. It was explained that the other traders were dealing in well known brand of products whereas the assessee was dealing in the less known brand of the product. Therefore, such comparison was not proper. Circular cannot override the law, it is true, but how the circular transgressed the boundaries of law was not explained. It was issued just to clarify the provision. It only explained the purport of law nothing more, nothing less. Addit....
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....son that the ratio of the apex Court decision in the case of H.M. Eusufali H.M. Abdulali (supra) would not come to the rescue of the Department, as there it was a sales-tax matter and a best judgment assessment was required to be made. The material that the STO was possessed of was the figure of 19 days sale by the assessee not entered in their books of account. The summit Court held that in such situation it was not possible for the officer to find out precisely the turnover suppressed and he could only embark on estimating the suppressed turnover on the basis of the material before him, in which some amount of guesswork was inevitable. In contradistinction to these facts, in the present case, the assessee was searched. During this search, firstly, no other diary or other record comparable to the note book marked as 'B-1/23' was found by the search party for the remaining period, which normally would have been, were it being maintained and kept. We are conscious that such a record could have been destroyed also from time to time. But in such a situation also, if the assessee had actually made a fortune of similar receipts in respect of the remaining part of the year, they ....
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....e us is relating to estimation of income on the basis of multiplication of suppressed turnover found during the course of search and not making addition on the basis of answer to question No. 7. So answer to this question is not relevant before us. There is no question before us to make addition of Rs. 1.25 crores on the basis of answer to this question recorded in the statement under s. 132(4). The AO has not made any addition on the basis of answer to this question but on the basis of income on estimation of suppressed turnover. This offer of Rs. 1.25 crores was made with reference to certain assets and those assets were found to be not relating to the assessee and the AO has fairly not considered the same to determine the undisclosed income. The assessee also stated in s. 132(4) statement that whatever was the income from unaccounted transactions had already been reflected in the books of accounts. The assessee in answer to question No. 24 stated as follows : "Q. 24 : How you have invested the unaccounted income generated by you from the jewellery business during the last 7 years ? Ans : The unaccounted income during the past 7 years earned out of unaccounted s....
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....er : "At the time of search except the documents seized, there were no other materials or valuables such as cash, bullion, jewellery or other articles or things of value, seized from the premises of the assessee. There is no material to hold that assessee received any cash from any of the purchasers for sale of 85 per cent of the built-up area. The entire sale consideration was not credited into account by cheque nor there was any material to show that the company accepted cash payment. On the other hand, the explanation offered by the assessee that they received cheques towards sale consideration of 85 per cent of the building sold and that was reflected in the IT returns while paying income-tax for the subsequent years deserves consideration. Therefore, the documents seized from the premises of the assessee at the time of search are not a conclusive proof to arrive at the undisclosed income. The expression 'undisclosed income' has been defined in s. 158B(b) to include income based on entries in the books of account or other materials seized from the premises of the assessee at the time of search. In the instant case, even though the documents seized at the time o....
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....own or reject the same. When the assessee has disclosed the income from unaccounted sales as income in the regular assessment proceedings, that suppression of sales cannot be considered in the block assessment more specifically, when there was no seized material regarding the suppression in the period covered in the block period. Recent judgment of the Delhi High Court in the case of CIT vs. Anand Kumar Deepak Kumar cited supra supports our view. Merely because the assessee admitted in the statement under s. 132(4) regarding suppression of sales, that cannot be considered as the basis for addition, though there was no seized material relating to the impugned period. The sworn statement recorded under s. 132(4) is some piece of evidence. The AO has to establish the link with other books of accounts seized. It cannot be considered as a conclusive evidence. The words "may be presumed" appear in s. 132(4A). Since the words "may be presumed" are incorporated in the section, it gives option to the authorities concerned to presume the things. But it is rebuttable and it does not give definite authority and not a conclusive one. The assessee has every right to rebut the same by producing e....
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....Also we rely on the judgment of the Madhya Pradesh High Court in the case of CIT vs. Balchand Ajit Kumar (2004) 186 CTR (MP) 419: (2003) 263 ITR 610(MP). The learned CIT(A) himself had observed in para 3.8.1 that only net profit has to be adopted and agreed with the contention of the assessee. But however in final finding, he has observed that it is to be taken at GP only. There is a contradiction in his observation and hence we cannot confirm this finding of the CIT(A). 45. In view of the facts and circumstances of the case, we direct the AO to confine to determination of undisclosed income only on "net asset" basis based on the materials and evidences found during the course of search, if it is not reflected in the regular books of accounts. Further we make it clear that undisclosed income has to be determined in accordance with law since the assessee is liable to pay tax only upon such income which is includible in total income as per law and which can be lawfully assessed in the hands of assessee. The law empowers the ITO to assess the income of an assessee according to law and determine the tax payable thereon. In doing so he cannot assess an assessee on an amount, which is....
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....is a solitary transaction for the assessee with J.D. Gems & Jewellers and no other party has also participated in the diamond exhibition are alone not sufficient to clothe the transactions as sham and brought into the net of block assessment. 50. Since the diamond given for display in exhibition was seized by the IT Department they might have thought it not to continue such sort of display in exhibitions for sometime. Since the items were seized and could be got back only on 6th May, 2003 i.e. after more than 6 months that too after so much strenuous efforts they are not ready to participate with the assessee any more coming to know that the assessee was raided and jewellery and diamonds of J.D. Gems & Jewellers, who participated in the programme were seized by the IT Department, no other party was ready to participate. 51. The fact that the diamonds belong to M/s J.D. Gems & Jewellery was brought to the knowledge of the Department first on 26th Nov., 2002 and again on 10th Dec., 2002 well before the completion of the raid. 52. The search was concluded only on 16th Dec., 2002 (p. 1 of the assessment order). The receipt voucher from the party, though was produced to the sea....