TaxTMI 
TaxTMI 
2026 (8) TMI 1784
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....sessment Year 1988-89 to 1997-98, and from 01.04.1997 to 24.09.1997. 3. Tax Appeal No. 1092 of 2009 was admitted by order dated 18.07.2011 for consideration of the following substantial questions of law: "[A] Whether on the facts and circumstances of the case and in law, the Appellate Tribunal is perverse in holding that the figures on pages 4 & 5 of Annexure B/3 had to be read as it is ignoring the continuous shift in the stand of the assessee, documentary evidence in form of seized papers and inquiries conducted by the Department? [B] Whether the Appellate Tribunal has correctly appreciated the facts on record so as to sustain addition of Rs. 6.34 lac only out of addition of Rs. 6.34 cores made by the Assessing Officer in respect of profit treated as undisclosed income of the assessee? [E] Whether the Appellate Tribunal has correctly appreciated the facts on record so as to confirm the order passed by the CIT(A) deleting the addition of Rs. 5,52,20,905/-made in respect of unexplained investment in rough diamonds based on Annexure-B1, B2 and B3 of the seized documents? [F] Whether the Appellate Tribunal has correctly appreciated the facts on ....
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....cted in the seized papers and paid tax thereon. 6.4 The seized diaries contained purchase and sales of diamonds. Page nos. 4 and 5 of Annexure B-3 contained a trial balance of investments up to the period ending Diwali 1995 i.e. up to 20.10.1995. Both pages Page Nos. 4 and 5 reflected the state of financial affairs of payables and receivables at the end of the year as under: "PAGE - 4 Aav. Baki 20.10 (Receivables as on 20.10) Item No. Amount Account Description English Explanation / Meaning No. 1 345 Shri Purant Opening balance 2 4945 Rough ni Ugh Money receivable on account of rough diamonds 3 12815 Rough Stock + Ghat + Chalu Rough Diamond stock, stock of Ghat, and work in progress 4 1965 Upad Khata Mujab Advances given to workers 5 4961 Rokan 284 Ghanti Gen.4 Investment in 284 Ghanties and 4 Gen. 6 819 Swetraj Ro Nawa Makan Juna sivay badhu Investment in new house (except old house) 7 1280 Dabbi Falia Auf Mal and fur. a/c. Material & furniture account of Dabbi Falia factory 8 1886 Upad GM+TM be varas Withdrawals of GM and TM for two years 9 80757 Ugh....
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....activity of manufacturing small quantities of rough diamonds, and manufacturing and selling polished diamonds in the licensed market from rented premises from 01.04.1993 to Diwali 1995, as per his unaccounted activities reflected on Pages 4 and 5 of Annexure B-3. 6.7 During the course of the block assessment proceedings, the assessee was called upon to explain page nos. 4 and 5 of Annexure B-3 as the transactions reflected therein were owned by the assessee and to explain the figures on the said pages, because according to the Assessing Officer, the figures were coded to the extent of Rs. 345/- Rs. 1,886/-, and Rs. 1,965/-, whereas these figures would be rounded off while making entries even in the regular books of account. 6.8 The Assessing Officer has drawn an inference on the basis that the amount reflected in the seized diary at Page nos. 4 and 5 of Annexure B-3 was so small, the assessee would have ignored the same for the purpose of undisclosed accounts, as if he had shown more cash balance and withdrawals in his regular books of account. 6.9 The Assessing Officer recorded the statement of the assessee on 09.07.1999 during the course of the block assessment proceedin....
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....or recurring investment needed for manufacturing towards purchase cost of rough diamonds or payment of labour charges since by deferring the payment for purchase for 15 to 45 days after receipt of sales proceeds and payment of labour charges, the assessee was still having the fund equivalent to the period of 15 to 45 days of each purchase. In other words, out of sale proceeds and payment of labour charges, the assessee was still having the fund equivalent to the period of 15 to 45 days of each purchase. In other words, out of sale proceeds and payment of labour charges, the assessee was still having the fund equivalent to the period of 15 to 45 days of each purchase. In other words, out of sale proceeds of diamonds, only the manufacturing expenses were paid as the payment of purchases would have become due after 15 to 45 days from the date of realization of sale proceeds. He claimed that the trial balance revealed the total capital and outstanding of Rs.1,09,773 as on Diwali'95 and was represented by cash, debtors, advances, withdrawals and stock of the similar amount. The entry wise explanation was furnished as under:- 1. Rs.345 was the cash in hand as on Diwali'95 ....
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....Profit from Shivam Exports 6.14 The assessee, therefore, claimed that the seized documents Annexure B-3 should be interpreted keeping in view of facts of the activities carried out by the assessee, and that no seizure of any jewelry, diamonds had taken place during the course of search and there was complete reconciliation of stock of rough diamonds and polished diamonds as on the date of the search in case of M/s. Shivam exports. 6.15 The assessee therefore, contended that in absence of any outstanding collection or money in circulation of business of the firm or of the assessee, and in absence of the investment, unaccounted expenditure in any asset, having regard to the fact of ownership of a single simple house name by the assessee's son, the decoding theory of the Assessing Officer is not required to be applied. 6.16 The Assessing Officer, after considering the facts and the reply and explanation of the assessee, rejected the claim of the assessee by analysing of the figures which appear in Page nos. 4 and 5 of Annexure B-3,and Assessing Officer decoded the figures by adding "000" i.e. "thousand". 6.17 After relying upon the decision in case of Bhojraj Kishanchandra....
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....pendent inquiries regarding invoice price of 284 ghantis and 4 generators of 125 IKVA were made from the sellers of these items. Information was called from M/s Shakti diamonds tools, 5/1921, Ambika Niwas, Limda Sheri Surat who were suppliers of ghanties for the invoice price of ghanties in the year 1994-95. Similarly information was called from M/s Powertech Engineers, Opp. Gujarat Samachar Press, Udhna Darwaja, Surat who were suppliers of generators sets regarding invoice price for semi-automatic ghanties in the year 1995 was between Rs.5000 to Rs 7000 per Ghanti and invoice price for generator of 125 KV between the period August 1995 to December 1995 was between Rs.4,61,5000 to Rs.5,01,650 per generator. Thus, the total investment in 284 ghantis and 4 generators of 125 KV would work out to Rs.39,94600 (284 x7000 + 4x501650)." One thing thus becaome palpable that figures on said pages have to be read in thousands'. Since the cost of one generator of 125 KV was Rs.5,00,000, therefore the impugned figure of 4961 can not be taken as Rs.496100 i.e. in hundreds. However if the investments are taken in thousands of 4961 then only the figures will reconcile. Therefore it becomes clear t....
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.... than Rs.5 lacs (cost of one simple ghanti at the rate of Rs.900/- and the cost of old generator at the rate of Rs.50,000/- per generator). In the papers seized, the withdrawals of the appellant and his brother are shown at Rs.1,886/-. In the case of the brother of the appellant, the addition on account of inadequate withdrawals made for two years is less than Rs.2 lakh. Even if similar unaccounted withdrawals are considered in the case of the appellant, the total unaccounted withdrawals for two years will be less than Rs.4 lakh. The amount of withdrawals taken by the Assessing Officer at Rs.18,86,000/- is astronomically high figure and is beyond imagination. Even in the case of the appellant's brother, unaccounted withdrawals for two years are taken at less than Rs.2 lakh. In these pages, the cash on hand is shown at Rs.345/-. The Assessing officer has taken the cash on hand at Rs.3,45,000/-. On page number 20 of the assessment order, the copy of account of the appellant in the books of M/s Shivam Export for the A.Y.1996-97 has been given. In this firm, the appellant had introduced capital of Rs.40,000/- only. Had the appellant been in a possession of so much income or cash, the a....
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....unted income from such notings, the benefit has to be given for deduction of expenses on the same line as the receipt and the income is to be taxed. Neither at the time of search, nor thereafter the appellant is found in possession of factory building or ghanties or generators or Swetraj Building. Admittedly, no evidence was found at the time of search from the premises of the appellant about these assets. The appellant has claimed that these were repair expenses, etc. In case, the appellant is owning these assets, the appellant has to be allowed deduction of depreciation. In case, these expenses are on revenue account, the deduction in respect of such expenses or investments has to be allowed. Neither the Assessing Officer is able to firmly establish the ownership of these assets in the hands of the appellant nor the details of such expenses or investments were found at the time of search. The appellant has claimed that the appellant is not owning such assets and these were only repair expenses. The appellant has not constructed Dabbi Falia factory and also has not made investment in Swetraj Building. The appellant has not made investment in Ghanties and generator. In such circums....
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....f Annexure B/2 are the unaccounted investment of appellant. It was explained to Assessing Officer that page No.1,2,3,4, are the details of assortment of rough diamonds in case of M/s Shivam Exports. It was also explained that the notings on page 1,2.8 and 9 of Annexure B/1 are the details of import invoices of rough diamonds and that all the invoices are recorded in the regular books of account of M/s Shivam Export. The copy of invoices as well as the chart of details of transactions with copy of account of purchase from the books of M/s Shivam Export for the year 31-03-96 and 31-03-97 were submitted to Assessing Officer. On same explanation and on the basis of detailed verification the Assessing Officer of M/s Shivam Export was convinced that the transactions noted on these pages are recorded in the regular books of accounts of M/s Shivam Export. In no case of diamonds, the unaccounted purchases have been added as investment but profit has always been estimated in every case of Block assessment of diamonds business. In a similar case of M/s Pankaj Diamonds the Assessing Officer himself had estimated the profit and CIT(A)-IV Baroda has also confirmed the view. The copy of ....
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....the rate of 10% of certain purchases. Admittedly, these items were not sold till the date of search as no details of sales were found or these items were covered by the sales shown in the details of sales mentioned on other pages. In any case, no further addition estimating any profit can be made unless the details of sales are available. The addition made by the Assessing Officer on the basis of papers has already been taken care of by the Assessing Officer of M/s Shivam Export. The totality of the facts and merits of the case, decisions in the similar cases and in the case of M/s Ghanshyam Shanker and M/s Shivam Export clearly suggest that these papers are clearly belonging to the M/s Shivam Export and income as per these papers is rightly taxed in the case of M/s Shivam Export. These additions made by the Assessing Officer on the basis of seized material (other than page no.4 and 5 of the Annexure B-3) are hereby deleted. This finding is given without going into the merit of quantum addition of each item." 6.21 Being agreed by the order passed by the CIT (Appeals), the Revenue preferred IT(SS)A No. 04/Mum/2001, whereas the assessee preferred IT(SS)A No. 05/Mum/2001, being agg....
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.... job worker and salary employee of M/s Bhavani Gems till 1996-97. It is also a fact that there was no seizure of any jewelry or diamonds (except cash of Rs.35,000/- only), the complete reconciliation of stock of rough diamonds and polished diamonds as on the date of the search in the case of M/s Shivam Exports, no outstanding collection, no money in circulation of business of the firm or that of the assessee, no investment/unaccounted expenditure in any asset by the assessee and the asssessee's son being owner of a single simple house. The AO has interpreted these documents and decoded the same, based on the figures noted by the assessee on page 1, 2, 3, & 29 of Annexure B/2 as well as pages 3, 4, 5, 6 & 9 of Annexure B/1. The AO has stated that the assessee has made substantial unexplained investment in rough diamonds. As per him, the actual unexplained investment in rough diamonds for the year 1995 was found to be Rs.2.86.25.655/-from the pages 1. 2. 3. 4 & 29 of Annexure B/2 seized from the assessee's residence. Similarly unexplained investment of rough diamonds for the year 1996 was found to be Rs.7,39.32,711/- from the pages 3, 4, 5, 6 and 9 of Annexure B/1. Thus, without thes....
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....ound during the course of search has been considered, and the Hon'ble High Court has drawn the presumptions that the document belonged to the assessee in whose possession it was found, and the document is to be read as true in accordance with the provisions of section 132(4A) of the Act. 6.26 The Tribunal also referred to the decision of the Hon'ble Madhya Pradesh High Court in case of CIT v. Khushlal Chand Nirmal Kumar reported in 263 ITR 77 (MP), wherein it is held with regard to investment in construction, addition cannot be made in a block assessment on account of unexplained expenses on the basis of the departmental Valuer's report. Reliance was also placed by the Tribunal on the decision of Delhi High Court in case of Mahavir Wollen Mills vs. CIT reported in (2000) 245 ITR 297 (Del) wherein the Hon'ble Delhi High Court, while interpreting the seized paper concluded that where the Tribunal has come to a certain factual conclusion about the nature of the paper seized during the course of a search and has observed that it did not contain certain materials which were sufficient to come to a conclusion about a cash payment having been made in addition to those made by cheques a....
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....search in the case of M/s Shivam Exports, no outstanding collection, no money in circulation of business of the firm or that of the assessee, no investment / unaccounted expenditure in any asset by the assessee and the assessee's son being owner of a single simple house. In view of these facts, now we have to consider the case law of Hon'ble Bombay High Court in the case of CJ Shah & Co. (supra) wherein the Hon'ble High Court has clearly considered that in cases where material is detected after search and seizure operations are carried out, the AO is required to determine the undisclosed income. In such cases additions are generally based on estimates. In matters of estimation some amount of latitude is required to be shown to the AO particularly when relevant documents are not forthcoming. However, it does not mean that the AO can arrive at any figure without any basis by adopting any arbitrary method of calculation. Similarly, the AO has interpreted these documents relating to the second issue and decoded the same, based on the figures noted by the assessee on page 1, 2, 3, & 29 of Annexure B/2 as well as pages 3, 4, 5, 6 & 9 of Annexure B/1. The AO has stated that the assessee h....
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..... In view of these facts and circumstances, we are of the considered View that the AO as well as CIT(A) has wrongly interpreted the seized documents by applying 'thousand' or 'hundred' i.e. three 'zeros' or two 'zeros' to the figures of the seized documents without any basis. Accordingly, we delete the additions made by the AO and partly confirmed by the CIT(A). However, However, we are of the considered view that the addition to the extent of Rs. 6,34,000/- is to be sustained reason being the seized document Annexure B/3 relating to the first issue are very clear that these are not recorded in the regular books of account of the assessee. Accordingly, we sustain the addition to the extent of Rs. 6,34,000/- and balance is deleted. Accordingly, this first issue of the Revenue's appeal is dismissed and that of the assessee's appeal is partly allowed." 7. Considering the above observations, the Tribunal held that the CIT (Appeals) wrongly interpreted the seized documents by applying 'Thousands' or 'Hundreds' i.e. '000' or '00' to figures of seized documents without any basis. The Tribunal deleted the addition made by the Assessing Officer and partly confirmed by the CIT (Appeals) o....
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....t if the rate of 17.11 carats is applied, the value comes to 4999,99 carats. The AO was justified to observe that the rate mentioned in the said page cannot be 1711 because as per the notings on Page-2 of Annexure B/1, it was found that import rate of rough diamond ranges from Rs.600/- to Rs.1,100/-. So, the AO was justified in decoding and multiplying the rates given in the seized papers by 100. At the same time there is substance in the argument on behalf of the assessee as appreciated by the CIT(A) that the assumption by the AO is not correct regarding Page No.7 of Annexure B/1 that the same represents transactions of sales. As discussed, the above contents of Page No.7 of B/s shows that the same represents transactions of sales. As discussed, the above contents of Page No.7 of B/1 shows that the same is the account of one party called 'M R. In this account there are purchase of 58.74 and sale of 41.08 that is net purchase are 17.69. The word "Payment" of 123 at Mumbai as mentioned at the bottom of the said page could only be purchase, because for sales it will be receipts and not payments. Similarly, the credit balance of outstanding has been worked out at 6.74 carats and that ....