TaxTMI 
TaxTMI 
TaxTMI 
2002 (11) TMI 245
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....cturing of textile machinery under the name and style of M/s. B & Brothers Engineering Works. The books of account found during the course of survey operation were subsequently impounded by the Departmental Authorities and the ADI (Inv.) has sent an appraisal report of the entire group to the Assessing Officer having jurisdiction over the case of the assessee intimating that the assessee-company as well as the firm M/s. B & Brothers Engineering Works have earned unaccounted income by- (1) Under-invoicing of sale-price of machineries manufactured and sold by them; (2) By making unaccounted sale of machinery and parts; (3) By selling Scrap outside the books of account; and (4) By taking 'on money' on sale of shops. 2.1 On receipt of an appraisal report from the ADI (Inv.), the Assessing Officer having jurisdiction over the case of S/Shri Ashwin B. Patel and Naresh B. Patel who were being assessed by the Deputy CIT, SR-4, Ahmedabad, sent an intimation to the ACIT, Co. Circle 7(1), Ahmedabad who has jurisdiction over the case of the assessee-company, who issued and served a notice under section 158BD read with section 158BC on the assessee on 19-2-1997 to file the return of Block ....
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....nbsp; Rs. NIL ------------------------ Rs. 15,54,539 2.2 While passing the assessment order, the Assessing Officer took note of the fact that the assessee-company has not been doing any manufacturing and sale business up to 31-3-1994 and it has been showing income from service charges only whereas the manufacturing and sale transactions ....
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....he sister concern M/s. B & Brothers Engineering Works which is a registered firm and it was only in respect of that concern that S/Shri Ashwin B. Patel and Naresh B. Patel have admitted during the course of statements recorded under section 132(4) that they have not been properly accounting the sale or scrap in the book@ of account. It was submitted that during the course of search at the residential premises of the Directors as well as during the course of survey in the case of the assessee-company no evidence of any sales having made outside the books of account was found by the Departmental Authorities and as such there was no justification for making any addition substantive or protective on account of alleged sale of scrap because the assessee-company started manufacturing activity from 1-4-1994 only. It was further submitted that the Assessing Officer has estimated the income of the assessee for AY 1995-96 by applying 10% net profit on sales and considered that income as undisclosed income only because no regular return for AY 1995-96 was filed up to the date of search i.e. 8-9-1995 although these sales were duly recorded in the books of account. It was submitted that in view....
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.... Board Ltd. and the decision of the Tribunal in the case of Shambhulal C Bachkaniwala [Reference filed by the Revenue under section 256(1) against the order of the Tribunal in ITA No. 22/Ahd./1998 was rejected by the Tribunal vide its order dated 25-11-1 8 in RA No.767/Ahd./1998 and even petition filed by the Revenue under section 256(2) against the order of the Tribunal was also rejected by the Hon'ble High Court vide its order dated 28-9-1999 in Income-tax Application No. 266 of 1999). Reliance was also placed on the decision reported in 68-TTJ-519. 4. The learned Departmental Representative strongly relied on the order of the Assessing Officer and pleaded that the Director Shri Ashwin B. Patel during the course of search at the residential premises has admitted under-invoicing of sales by M/s. B & Brothers Engineering Works and as a corollary of that the Assessing Officer was justified in assuming that the assessee-company was also indulging into under-invoicing of sales. He accordingly submitted that the Assessing Officer was justified in computing the income of the assessee at Rs. 15,54,539 and his order should be upheld. 5. We have considered the rival submissions and have ....
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....he can make addition while framing the regular assessment in the case of the assessee under section 143(3) or 144. However, no addition can be made by invoking the provisions of section 145 by estimating the undisclosed income which is required to be computed in accordance with the provisions contained in Chapter XIV-B of the Act. The decisions of the Gujarat High Court in the cases of N.R. Paper &Board Ltd. as well as Shambhutal C. Bachkaniwala support our above view. 5.1 As regards the amount of rate difference of Rs. 1,667, the same having been shown in the P&L Account cannot be considered as the undisclosed income. Similarly, there is no justification for making any addition on account of sale of scrap on the basis of findings given in the case of M/s. B & Brothers Engineering Works. Accordingly, we are of the opinion that the entire computation of undisclosed income of Rs. 11,15,147 for AY 1995-96 included in the Block Period is not justified. 5.2 Coming to AY 1996-97 included in the Block Period, it is seen that the Assessing Officer has computed the profit on alleged unaccounted sales of Rs. 9,61,669 at 2396 amounting to Rs. 2,21,183 on the ground that the sales of Rs. 9,6....
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....ord to by the assessee to prove that the assessee has in fact sold any stock without recording the same in the books of account. In this view of the matter we are of the opinion that even if there is some discrepancy in the stock, the same can be on account of pilferage, shortage/wastage during the manufacturing process and it could not necessarily be on account of sales made by the assessee outside the books for which no material has been brought on record by the Assessing Officer. As we have held in the earlier part of this order that the provisions of section 145 cannot be applied while computing/estimating the undisclosed income for the Block Period, we are of the opinion that the addition of Rs. 1,04,420 on account of alleged stock discrepancy is also not justified in the facts and circumstances of the case. Accordingly, this addition is deleted and the same observations will apply, to the further addition of Rs. 1,04,420 made by the Assessing Officer on protective basis. 5.4 As regards the further addition of Rs. 9,369 on account of sale of scrap, we delete the same relying upon our reasoning given in para 5 and 5.1 above relating to AY 1995-96. Accordingly, we will hold tha....
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....case of sister concern amount of Rs. 9.77 lacs was also confirmed by my esteemed colleague on account of receipt of on-money on sale of machines. The fact of receiving on-money was also corroborated by the notings on the loose papers seized during search from Shri Ashwin. B. Patel-Director of assessee-company. Furthermore, few transactions of on-money received on sale of machines by sister concern where corroborated by the purchaser. Thus the on-money received by the sister concern was neither disclosed in regular books so the addition of Rs. 9.77 lakhs in respect of four machinery was sustained by my esteemed colleague and I have respectfully agreed with the same. 3. I have further passed a dissenting order in the case of the sister concern B. & Bros. Engg. Works v. Dy. CIT [IT (SS) Appeal No. 2 (Ahd.) of 1999] in which I have confirmed the additions of Rs. 55,63,025 and Rs. 13,36,982 made by the Assessing Officer and as referred to in ground Nos. (2) and (3) of the said appeal. Those additions relate to the additions in respect of on-money received by the assessee on sale of machineries estimated by the Assessing Officer on the basis of proof of receipt of on-money on sale of fo....
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....-96 deserve to be confirmed and on similar lines addition of Rs. 2,21,185 for AY 1996-97 is also confirmed. Accordingly, I confirm the said additions. ORDER UNDER SECTION 255(4) OF INCOME-TAX ACT, 1961 As there is difference of opinion between the two members who heard the appeal in IT(SS) A No. 45/Ahd./1998 for the block period AYs 1986-87 to 1995-96 and 1-4-1995 to 8-9-1995, we refer the same to the Hon'ble President, ITAT for further action as provided under section 255(4) of Income-tax Act, 1961. Q. Whether in the facts and circumstances of the case, the view of the Accountant Member that addition of Rs. 10,94,740 on account of estimated net profit of 10% on sales disclosed in the books of account and Rs. 2,21,183 on account of profit on alleged unaccounted sales of Rs. 9,61,669 cannot be sustained as undisclosed income of the block period as the disputed sales were recorded in the books of account, is correct OR the view of the Judicial Member that the Assessing Officer was justified in making the addition of Rs. 10,94,740 being 10% net profit on sales recorded in the books and 2396 on alleged unrecorded sales of Rs. 9,61,669 as undisclosed income of the block period, rel....
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.... at 10 per cent on sales disclosed in the books of account; (2) addition of Rs. 2,21,183 on account of profit on alleged unaccounted sales of Rs. 9,61,669. 2. In this case, the search took place on 8-9-1995 and the block period for purposes of assessment in assessment years 1986-87 to 1995-96 and 1-41995 to 8-9-1995. 3. In respect of the first point of difference, the facts as noted by the Assessing Officer are as under:-- "Undisclosed income for assessment year 1995-96-It may be mentioned that the assessee has not filed its return of income for the assessment year 1995-96. However in the course of block assessment proceedings, the assessee has furnished a copy of the balance sheet and profit and loss account for the year ending 31-3-1995. As per this P & L account, net profit shown is Rs. 3,19,043 on a total sales of Rs. 1,09,47,397. On the basis of the P&L account submitted in the course of assessment proceedings, the GP is around 19.4 per cent, which is much below what is stated by Shri Ashwin B. Patel in course of search. Shri Ashwin B. Patel had stated that the GP is 23 per cent roughly. Accordingly, if we take 23 per cent GP, the GP would come to Rs. 25,17,90 on the sales....
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.... and worked out the undisclosed income at Rs. 10,94,740. 7. According to the learned Accountant Member, Chapter XIV-B dealt with a special procedure for the assessment of search cases and was a code in itself for the computation of undisclosed income. Further, as per section 158BB(2) in computing undisclosed income for the block period, the provisions of sections 68, 69, 69A, 69B and 69C could be applied but nowhere in the Chapter was it provided that provisions of section 145 would be applicable. The view in other words was that no undisclosed income could be computed on estimate basis by invoking the provisions of section 145 on the basis of a vague statement made by one of the directors of the company, who was also a partner in M/s. B & Brothers Engineering Works, a registered firm wherein reference was made to under-invoicing of machineries manufactured by the said firm. According to the learned Accountant Member, where sales were accounted for in the books of account found during the survey and which were subsequently seized, in case the Assessing Officer was not satisfied with the correctness of the profit shown in such books, then he was free to make enquiries and on the ba....
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....n the case of the sister concern i.e. M/s. B & Brothers Engineering Works whereby he had dissented with the view taken by the learned Accountant Member and confirmed additions of Rs. 55,63,025 and Rs. 13,36,982. According to the learned Judicial Member, the facts relating to the addition of Rs. 10,94,740 were the same as in the case of the sister concern. He also found the applicability of net profit rate of 10 per cent to be reasonable once again in view of the admission of the Directors/Partners of the sister concern as also with reference to the assessments of some of the buyers and the notings on the loose papers. The learned Judicial Member in fact confirmed the addition of Rs. 10,94,740 entirely on the basis of reasons given by him in the separate dissenting order passed in the case of the sister concern. 9. The learned counsel for the appellant at the outset stated before me that the facts in both the cases i.e., of the present appellant and the sister concern i.e. M/s. B & Brothers Engineering Works were quite different and the additions had been made on different grounds. He vehemently supported the view expressed by the learned Accountant Member but pressed for considera....
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....v. Asstt. CIT [2000] 67 TTJ (Delhi) 797. 11. The learned counsel also placed reliance on two judgments of the Hon'ble Gujarat High Court for the same very proposition i.e. no addition could be made on account of undisclosed income under Chapter XIV-B unless and until there was material/evidence found during the course of search. These were N.R. Paper & Board Ltd.'s case and Shambhulal C Bachkaniwala's case. 12. The learned DR on the other hand vehemently supported the order passed by learned Judicial Member confirming the addition of Rs. 10,94,740. His main submissions were as under: "(i) As per provisions of section 158BH, all provisions of the I.T. Act including section 145 were applicable to block assessments. (ii) The judgment of the Hon'ble Gujarat High Court in the case of N.R. Paper & Board Limited (supra) did not anywhere state that provisions of section 145 were not applicable. (iii) The term used in Chapter XIV-B was "Block Period" and this included even those assessment years, the return of income in respect of which had not become due. That the provisions of Chapter XIV-B could not be curtailed. (iv) That it was permissible for the Assessing Officer to estimate th....
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....ut what was decided by Their Lordships was that a block assessment could be framed only with reference to the material/evidence unearthed during the course of search and de hors such seized material, no assessment could be framed. It was reiterated by the learned counsel that the view of the learned Accountant Member being in conformity with the legal position, the same be approved. 17. I have considered the rival submissions and have also perused minutely the orders passed by the learned Members constituting the Division Bench. The decisions cited at the bar have also been taken into account. 18. In the present case, the search took place on 8-9-1995 and as stated by the learned counsel before us, the due date of filing the return for assessment year 1995-96 was 30-11-1995. In other words, clause (a) of section 158BB, which reads as under is applicable:-- "where the previous year has not ended or the date of filing the return of income under sub-section (1) of section 139 has not expired, on the basis of entries relating to such income or transactions as recorded in the books of account and other documents maintained in the normal course on or before the date of the search or r....
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....,09,47,397. It was noted by the Assessing Officer that the GP on the basis of the aforesaid figures worked out to 19.4 per cent, which was much below the figure stated by Shri Ashwin B. Patel in the course of search when he had indicated a figure of 23 per cent roughly. 21. In my opinion, the Assessing Officer could not treat the profit shown by the assessee on the sales aforesaid as undisclosed income since entries were already made in the books of account. in respect of such sales and the due date for filing the return had not expired and there is ample case law on the subject that undisclosed income under Chapter XIV-B can be computed only on the basis of the material found during the course of search and there is no scope for any assumptions and presumptions as these can be better taken care of in the regular income tax assessments. The Assessing Officer in fact applied a rate of 10 per cent to the turnover of Rs. 1 crore an odd treating thereby a sum of Rs. 10,94,740 as undisclosed income. It is probably in view of the numerous decisions of the Hon'ble High Courts and various Benches of the Tribunal aforesaid that an argument is raised that provisions of section 145 are not a....
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....e Tribunal already adverted to earlier viz. Sitadevi Daga. The Pune Bench also took the view that when at the time of raid, the time limit for filing returns for certain assessment years are not over and the assessee was maintaining proper books of account in the normal course of business then the income pertaining to such assessment years cannot be treated as undisclosed Income within the meaning of Chapter XIV-B. In the aforesaid case, the assessment years in respect of which the returns were still to be filed were 1996-97 and 1997-98 and the accounts were being maintained on computer. This decision clearly advances the assessee's case. 24. The Third Member decision of the Pune Bench of the Tribunal in the case of Samrat Beer Bar has taken the view that even though the Assessing Officer is empowered to estimate an undisclosed income earned by an assessee, the estimate was possible only when there was material or evidence found during the search to unmistakably show that such income had been earned. The Bench took the view that other than the material or evidence, there could be no presumption and the relevant fact of the case was that during the course of search, a dairy was sei....
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.... assessed is the undisclosed incomes of the block period and not the total income or loss of the previous year required to be assessed in the normal regular assessment under section 143(3). It was further observed by Their Lordships that exercise under sections 143(2) and 143(3) for regular assessment stood in contrast to the exercise of the Assessing Officer under section 158BB read with section 158BC(b) where he has to assess only the undisclosed income of the block period on the basis of evidence found and material available as a result of the search conducted under section 132 of the Income-tax Act. 26. It is apparent from the aforesaid discussion that the decisions cited by the learned counsel on behalf of the assessee do support the view point canvassed on various aspects of Chapter XIV-B, which are under consideration in the present appeal. I have already dealt with one of the decisions relied upon by the learned Departmental Representative viz., Parakh Food Ltd.'s case and while considering the Third Member decision of the Pune Bench of the Tribunal in the case of Samrat Beer Bar, which is relied upon by the learned counsel for the assessee, I have adverted to the judgment....