TMI Blog2012 (5) TMI 686X X X X Extracts X X X X X X X X Extracts X X X X ..... ers and supplies the same to its group concerns - M/s. Super Craft Foundry and Sri Ganesh Foundry. The assessee has also carried on job work of another sister concern Swift Enterprises Pvt. Ltd. 3. Search and seizure operations were carried out at the premises of the concerns of the Kulkarni Group including that of the assessee on 25-03-1998 during which a number of books of account, loose papers, and documents etc. were seized. These included bank pass books and cheque books of the below named parties, seized from the custody of the accountant of the assessee firm Sri A.D. Patil, who had also reportedly operated the bank accounts : Party's Name Proprietor's Name 1. M/s. G.N. Industries - Sri B. N. Joshi 2. M/s. Ganesh Traders - Sri Prabhakar Pujari 3. M/s. Mahesh Sales Corporation - Sri Mahesh V. Pujari 4. M/s. Anil Industries - Sri A.D. Patil 5. M/s. Omega Traders - Sri Surendra Hogade 6. Sri Vaishali Enterprises ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ave been made to them were in fact withdrawn from their bank accounts and were utilized for the purposes of purchasing the scrap from hawkers, whose identity could not be established fully. The assessee's plea was that even if it had obtained cash vouchers regarding purchase of scrap from these hawkers the Assessing Officer may not have believed the genuineness of the purchases. As such, it was claimed that the assessee had resorted to this particular technique whereby purchases made from road side hawkers had been given the garb of purchases made from the said seven bogus concerns. 7. On the basis of the following details, culled out from the assessee's books of account, the Assessing Officer noted that over the years a very substantial part (63.18%) of the assessee's purchases was made from the above named seven bogus concerns the details of which are as under : Total purchases Purchases from fictitious concerns A.Y. Weight (MT) Amount in Rs. Weight (MT) A mount in Rs. 95-96 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... omprise of mere paper transactions but involved real transfer (purchase/sale) of goods. 10. Despite repeated opportunities given by the AO to produce the hawkers and unregistered dealers from whom scraps are claimed to have been purchased for verification, the assessee could not produce them. Even their names and addresses also could not be given. The proprietors of the 7 benami concerns had already stated that they have not done any scrap business and the whole operation is controlled and masterminded by the partners themselves. Therefore, the AO was of the opinion that this mechanism of purchase of scraps through the creation of the bogus firms is with a view to manipulate the accounts and thereby making the verification of the accuracy and correctness of the purchase of scrap material difficult. He, therefore, was of the opinion that the books of accounts cannot be relied upon and has to be rejected. In view of the above and in view of the various discrepancies found from the seized documents the AO proceeded to determine the income on estimate basis. 11. The AO noted that assessee was purchasing scraps from hawkers, petty traders and unregistered dealers in cash. The firm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iers in the books of the assessee. Further amounts due to only 2 suppliers tallied with the entries made in books. Therefore, he was of the opinion that the remaining amount of ₹ 9,54,941/- being unaccounted purchase has to be considered for determining the undisclosed income of the assessee. The AO further noted that some entries were made in other seized papers appearing in Bundle No. 15, (Pages 26 to 40) and loose Papers No. 48, 36 appearing in Bundle No. 11. Similarly, backside of Page 7 on a diary (bearing No. 2) seized from the office of M/s. Ganesh Foundry indicated passing of ₹ 4.50 lakhs by the assessee. 14. In view of the above, the AO came to the conclusion that the firm is doing purchase and sales outside the books of accounts which are unaccounted. The Kulkarni Brothers are using their concerns to generate unaccounted income. The assessee firm had floated fictitious/benamies concerns in the names of their trusted employees and relatives and claimed to have purchased scraps from hawkers, petty traders and unregistered dealers through them. The assessee firm has issued account payee cheques/demand drafts in favour of these concerns and immediately thereaft ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rchases is definitely due to the appellant. 4.3 The Assessing Officer's claim is that there is an element of inflation involved in URD purchases, incorporated in the appellant's books as purchases from the above said seven fictitious concerns. In this context, reference has to be made to a comparative chart (Page 47 of the appellant's paper book attached hereto for ready reference as Annexure- B), giving year-wise details of average purchase price of scrap in relation to total purchases. This chart also gives the average purchase price in respect of break up of total purchases into RD purchases and URD purchases is lower than the average rate of URD purchases by rate of URD purchases. On going through this chart it is observed for each of the assessment years under consideration the average rate RD purchases is lower than the average rate of RD purchases by a minimum of ₹ 50/- per MT for assessment years 1993-94 to 1996-97. The difference is ₹ 31/- for assessment year 1997-98. Once again it is observed that this chart is available on the record of the Assessing Officer and while passing the impugned order he has simply ignored the material contained in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Therefore, it has to be inferred that in the facts and circumstances available on record there is no case for coming to the conclusion that the URD purchases, given the garb of purchases made from the seven fictitious concerns in the appellant's books, are bogus. As such, it follows that on this score no undisclosed income has to be brought to tax in the appellant's hands for the purposes of the impugned block assessment order . 16. So far as the alleged payment of commission of 2% outside books of accounts, the learned CIT(A) was of the opinion that no payment on account commission outside books of account can be presumed in the impugned case for the block assessment. The relevant observation of the learned CIT(A) reads as under : 5.3. I have gone through the material relied upon by the appellant. At the outset, it must be mentioned that the tenor of the above said statements of Shri Shrikant Gopal Bhide, Ananda P. Vedanta, and balasaheb Shinde clearly suggests that commission, payable to the agents, was part of the price being paid to the sellers. Further, it is obvious that the entire exercise is based on presumption, which has little basis in facts discovered i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arket prices. As such, the question of understatement of gross profit would normally not arise. Considering all these aspects of the matter, one thing is very clear the estimation made by the Assessing Officer is purely presumptive in nature. This goes against the grain of Block Assessment u/s. 158BC(C). Under Section 158BB read with 158BC, what is assessed is the undisclosed income of the block period and not the total income or loss of the previous year required to be assessed under the regular assessment vide section 143(3). This exercise under section 143(3) for regular assessment stands on a different footing in contrast to the exercise undertaken by the Assessing Officer under Chapter XIV-B where the Assessing Officer has to assess only the undisclosed income. Therefore, the scope of regular assessment is quite different from the scope of assessment under Chapter XIV-B. The regular assessment is to ensure that the assessee has not understated the income or has not computed excessive loss or has not underpaid the tax in any manner whereas what is assessed under Chapter XIV-B is only the undisclosed income for the block period and not the income or loss of the previous year ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... basis. But, the amounts mentioned against their names in the seized papers, do not tally with the amounts appearing in their respective ledger accounts in the appellant's books. As such, it is obvious that this discrepancy cannot be entirely ignored. At the same time, the fact remains that the entries are also in the nature of notes for memory. Through these, the appellant might have made a rough estimate of the amounts due to suppliers, including petty hawkers, who were not giving proper invoices and supplies made by whom had to be incorporated in the appellant's books through purchases allegedly made from seven fictitious concerns put up by the appellant. On going through the aggregate of transactions, reflected in the seized loose sheets, it is observed that the peak amount due from the appellant on any given particular date comes to ₹ 11,93,729/- (as on 24-01-1995). Apparently, the appellant has not given any separate explanation for the same. As such, taking into account the totality of the facts and circumstances available on record, I am of the view that the interest of justice shall be served if the said figure of ₹ 11,93,729/- is treated as representing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Without prejudice to the above grounds, the appellant submits that the CIT(A) erred in making the addition on a presumption/estimation instead of confirming himself to the actual peak amount as per the papers found and which was totaling ₹ 11,93,709/- only. 1.6 The appellant craves leave to add, amend or delete any of the above ground of appeal and/or relief claimed. Grounds of appeal by the revenue : 1. On the facts and in the circumstances of the case and in law, the CIT(A) erred in restricting the undisclosed income determined by the AO at ₹ 1,00,00,000/- to ₹ 15,00,000/-, when the same was rightly assessed by the AO. 2. On the facts and in the circumstances of the case and in law, the CIT(A) erred in holding that peak amount due from the assessee at ₹ 11,93,729/- as unexplained and considering facts and totality of the case restricted the undisclosed income at ₹ 15,00,000/-, when he has accepted the various transactions noted in loose papers are indicative of transactions outside books of accounts. 3. On the facts and in the circumstances of the case and in law, the CIT(A) erred in not appreciating that the substantial margin was al ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 114 ITR 272 and other decisions of Hon'ble ITAT, Pune including 74 ITD 25. 22. After hearing both sides, the additional grounds raised by the revenue are allowed for adjudication. 23. The Ld. Counsel for the assessee submitted that the Assessing Officer has made lumpsum addition of ₹ 1 Crore on account of unaccounted transactions lower G.P. rate, payment of commission outside books of account, undisclosed advance to fictitious parties, unaccounted purchases and unaccounted expenditure on commission which was restricted to ₹ 15.00 lakhs by the Ld.CIT(A). Referring to page No.34 of the paper book the ld. Counsel for the assessee drew the attention of the Bench to the year-wise purchase and sale of scrap. Referring to page 33 of the paper book he drew the attention of the Bench to the sales to sister concerns. He submitted that the sales are not doubted by the Assessing Officer. Therefore without purchase the assessee could not have effected the sales. Referring to page 47 of the paper book he drew the attention of the Bench to the price paid per M.T. of scrap to registered dealers (RD) as well as to unregistered dealers (URD) and submitted that the price paid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rew the attention of the Bench to Page Nos. 52,53 and 54 and onwards of the Paper Book and submitted that those are the outstanding balances payable to the suppliers. However, since the learned CIT(A) has already sustained ₹ 15 lakhs no further addition is required on account of loose papers for the peak credit. 26. The learned DR on the other hand while supporting the order of the AO submitted that seized documents contain unaccounted transactions, unaccounted purchases, payment of commission outside books of accounts etc., The assessee has floated fictitious concerns in the name of employees and close relatives after paying cheques to them, has withdrawn cash immediately from those accounts. Under these circumstances, the addition made by the AO being justified should have been upheld by the learned CIT(A). He accordingly submitted that the order of the CIT(A) should be reversed and the order of the AO be restored. 27. Learned counsel for the assessee in his rejoinder submitted that even though some addition has to be made the same should be reasonable. The assessee has paid lesser price for purchase of scrap from URD than market price. The gross profit declared by th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the Tribunal in the case of Gopal Pulse Processor Pvt. Ltd., (supra) where similar additions were made by the AO for purchases made from fictitious concerns. The ld. CIT(A) deleted such addition and the Tribunal upheld the order of the CIT(A) and dismissed the appeal filed by the Revenue by holding as under : 9. We have heard the submissions of both the sides. The main explanation of the assessee was that due to strict provisions of I.T.Act, assessee was expected to confirm the purchases but he was helpless due to the reason that the purchases were made from the farmers. Those farmers were neither giving any authentic receipt of purchase transaction nor were inclined to appear before any Court as a witness of the purchase of agriculture produce. So, the explanation of the assessee is that to overcome this difficulty and to safeguard its business interest, in the absence of proper confirmation of purchases, it was decided to open bank account in two names from whom the purchase were shown in the books of accounts through proper bank transactions. It has also been argued that this shows this simple reason for creation of two entities. However, there was no malafide on the part ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... evenue is dismissed. 31. We find on further appeal by the revenue, the Hon'ble jurisdictional High Court dismissed the appeal filed by the Revenue by holding as under : 3. We have considered the submissions advanced by learned counsel appearing for the parties and perused the impugned order. 4. Learned Senior Counsel Shri P.M.Shah appearing on behalf of respondent places reliance on two reported judgments in the case of Vishwasrao Madhavraon Chipulnkar vs. Kamlabai Vishwasrao Chiplunkar [2003 (Supp.2) Bom.C.R.197] and Gurudev Kaur v. Kakai [(2007) 1 SCC 546] in support of his submissions that unless the appellant makes out a substantial question of law, this Court need not entertain the appeal as a Court of facts. We have perused the cases cited (supra). 5. We do not find that the appeal raises substantial question of law. The Commissioner of Income Tax (Appeals) considered the issues properly regarding the purchases and entries effected in the accounts of the assessee. We do not find any patent or gross error for causing interference in the impugned order. There is no merit in the appeal and the same deserves to be dismissed . 32. Respectfully following the dec ..... X X X X Extracts X X X X X X X X Extracts X X X X
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