TMI Blog2013 (7) TMI 855X X X X Extracts X X X X X X X X Extracts X X X X ..... nce the stock register was not there as recorded by the tribunal in its order, the said finding itself apparently is contradictory - it was for the assessee to explain and state the source/funds for conducting and entering into the said transaction - Transactions of high value do require investment. Plea of the assessee that existing or available investment in the books was sufficient, has to be made good with material and proof by the assessee. The assessee had to explain that purchases recorded in the books were sufficient after adjustment of the recorded sales. In cases of unaccounted sales and purchases all documents may not be available and certain amount of guess work is always required as noticed earlier but a realistic and common sense approach is required - Unaccounted sales may result and can contribute towards the investment, but there has to be initial investment. Profits and income earned are also used for personal needs and are taken out of business - Decided in favour of Revenue. Peak credit - whether the peak credit should be added and brought to tax -Held that:- Profit earned from unaccounted transactions can be and are used and consumed by the assessee for thei ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 01. This document was accepted by the respondent-assessee in their letter dated 6th June, 2000 as a record of their unaccounted sales. The Assessing Officer made addition on account of unrecorded purchases of Rs.4,50,17,616/- on the basis of the said paper. The Assessing Officer held that the difference between unrecorded purchases (Rs.450,17,616/-) and unrecorded sales figures (Rs.9,73,63,789/-) i.e. Rs.5,23,46,173/- should be treated as undeclared profit earned during the block period. Thus two additions of Rs.4,50,17,616/- and Rs.5,23,46,173/- were made. 5. Respondent substantially succeeded in the first appeal as the Commissioner of Income Tax (Appeals) in his order dated 5th November, 2004 observed that the profits of the block period between 1st April, 2001 to 6th November, 2001 of Rs.5, 23, 46,173/- as calculated by the Assessing Officer was abnormally high and gross profit rate 53.76% (G.P. rate) had been applied on a turnover of Rs.9.73 crores. He referred to the GP rate of the assessee during the period 1996-97 to 2000-2001 which was between 1.92% to 2.83% giving an average GP rate of 2.19%. In the preceding assessment year i.e. 2001-02, the GP rate declared was 2.25%. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt. For any addition to be made in the block assessment it has to be based on material found during the course of search or in the course of post search proceeding. The addition in the block assessment cannot be made only on guess work basis or surmises. For the proposition that investment in stock has to be based on material found during the course of search or post search enquiries or any other positive material pointing to the factum of investment in stock, the following case law are relied upon:- i) Ashok Kumar Rastogi Vs. Gotan Lal Khanji Udyog CIT 100 CTR 204 (All) ii) CIT Vs. Bal Chand Ajit Kumar 263 ITR 610 (M.P.) iii) CIT Vs. President Industria 258 ITR 654 (Guj.) iv) S.M. Tomar 201 ITR 608 v) ITO Vs. Gurbachansingh Juneja 54 TTJ (Ahm.) T.M.P. No. 1 In these circumstances the addition made by the AO is deleted. 7. It is clear from the order of the CIT (Appeals) that he referred to the explanation of the assessee and the stand of the Revenue and thereafter observed that the addition was a guess work or surmises and there should have been positive material to show that there was in fact investment in stocks. Explanation of the assessee that there was no necess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . These include the GP rate of the respondent-assessee as recorded in the books of accounts for this year and the earlier years. We have some reservations on the observation made by the tribunal that as it was a case of unrecorded sales, benefit of tax was passed on the third parties. Further, observation of the tribunal that the Assessing Officer had not analyzed the item-wise purchase and sale price though the documents seized reflect the item-wise sales and purchases is debatable. Nevertheless, there are substantial and good reasons for adopting the GP rate of 2.25%, as it is apparent that GP rate of 53.76% adopted by the Assessing Officer is too high and unacceptable. 11. However, on the next issue whether any addition should have been made on account of unaccounted investment, we are unable to comprehend the reasoning and logic given by the tribunal. They have recorded that the respondent-assessee did not maintain day-to-day stock record/register and, therefore, it cannot be said that unrecorded sales could not have been of accounted stock, which was later on replenished from the sale proceeds of unrecorded sales. Thus, the respondent-assessee had not made any investment for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng to the alternative submission that at least peak of unaccounted investment, worked out on the basis of unrecorded purchases should have been brought to tax, we have only to mention that the same could be taxed only if there is some evidence on record regarding undisclosed income in the seized material or otherwise. There is no such evidence and, therefore, in view of arguments in paragraph 6 (supra), the stand of the learned DR cannot be accepted. Notwithstanding this argument, the working of peak submitted by the ld. DR at Rs.17,03,546/- is lower than the unaccounted income brought to tax by the ld. CIT(Appeals) at Rs.21,90,685/-. The ld. DR has not been able to show that the peak exceeded the unaccounted profit in any year. Therefore, it is held that the assessee was in possession of money by way of profit on unrecorded sales, which could have been used for funding the purchases. 13. First part of the reasoning has been dealt with above and it has been recorded that onus has been wrongly placed on the Revenue. Once unaccounted for turnover of Rs.9.73 crores is accepted, then the assessee must explain the source of investment. The true facts were in his knowledge. We do not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Court or based on conjecture and surmises, the judgment suffers from the additional infirmity of non-application of mind and thus, stands vitiated. (Vide Bharatha Matha v. R. Vijaya Renganathan [(2010) 11 SCC 483 : AIR 2010 SC 2685] .) 15. Earlier in Dhirajlal Girdharilal v. CIT (1954) 26 ITR 736 (SC) it was observed:- .if the court of fact, whose decision on a question of fact is final, arrives at this decision by considering material which is irrelevant to the enquiry, or by considering material which is partly relevant and partly irrelevant, or bases its decision partly on conjectures, surmises and suspicions, and partly on evidence, then in such a situation clearly an issue of law arise . ..It is well established that when a court of fact acts on material, partly relevant and partly irrelevant, it is impossible to say to what extent the mind of the court was affected by the irrelevant material used by it in arriving at its finding. Such a finding is vitiated because of the use of inadmissible material and thereby an issue of law arises. 16. In CIT v. Daulat Ram Rawat Mull (1973) 87 ITR 349 it has been held that onus of proving what is apparent is not real i ..... X X X X Extracts X X X X X X X X Extracts X X X X
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