TMI Blog2002 (11) TMI 245X X X X Extracts X X X X X X X X Extracts X X X X ..... he business of manufacturing 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ccounted sales of Rs. 1,09,47,397 which has been shown by the assessee in its books of account for the AY 1995-96 included in the Block Period. Similarly, it was submitted that the Assessing Officer has estimated the profit at the rate of 2396 on the alleged unrecorded sales of Rs. 9,61,669 claimed to be made by the assessee to M/s. BPR Texprint in the Financial Year 1995-96 included in the Block Period AY 1996-97 amounting to Rs. 2,21,183. It was pleaded that both these additions were wholly unjustified as these were based on mere presumption and without any material brought on record by the Assessing Officer. In any case it was pleaded that the sales having been shown by the assessee in the books of account, the same cannot be considered as undisclosed income of the assessee for the purpose of Chapter XIV-B. It was pleaded that the reason for holding that the sales of Rs. 9,61,669 made by the assessee to M/s. BPR Texprint was that these were not recorded in the sales register found at the time of survey. It was pleaded that the assessee has duly issued sale invoice in respect of this sale made by it to M/s. BPR Texprint; the relevant Excise Duty was paid on this sale and the paym ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 17-7-1998] (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 25-11-1998 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). 3.2 As regards the addition of Rs. 1,04,420 on account of alleged discrepancy (shortage) in the closing stock, it was pleaded that as per the Assessing Officer there was shortage/discrepancy of stock of Rs. 9.02 lakhs for both the concerns viz., the assessee as well as M/s. B Brothers Engineering Works and the Assessing Officer considered 50% of this as relating to the assessee and he has accordingly made an addition of Rs. 1,04,420 calculated at 23% of the shortage of stock of Rs. 4.54 lakhs which according to the Assessing Officer, the assessee must have sold outside the books of account. It was submitted that this action of the Assessing Officer is wholly unjustified as the Assessing Officer has not properly appreciated the cardex system followed by the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Officer has computed the undisclosed income of the assessee by applying the net profit rate of 10% on sales of Rs. 1,09,47,397. However, as per the P L Account and Balance-sheet filed by the assessee for AY 1995-96 the assessee has shown a net profit of Rs. 3,19,043 on sales of Rs. 1,09,47,397. The Assessing Officer in para-6 of the impugned order has noted that the GP shown in the books is 19.4% whereas the Director Shri Ashwin B. Patel whose statement was recorded during the course of search under section 132(4), has stated that the GP earned is about 23%. The Assessing Officer accordingly computed the undisclosed income of the assessee by applying a net profit of 10% on total sales shown in the P L Account and balance sheet filed by the assessee for AY 1995-96 during the course of block assessment proceediiigs. Chapter XIV-B deals with a special procedure for the assessment of search cases and is a code in itself for the computation of undisclosed income. As per section 158BB(2) in computing undisclosed income for the Block Period, the provisions of sections 68, 69, 69A, 69B and 69C may be applied but nowhere it is provided in this Chapter that the provisions of section 145 woul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s included in the computerised record maintained by the assessee but it could not be entered into the sale register due to delay by the Accountant and this fact alone cannot make this sale transaction as relating to the undisclosed income of the assessee. Accordingly, we are of the opinion that the alleged undisclosed computation of profit of Rs. 2,21,183 on the alleged unaccounted sales of Rs. 9,61,669 is not at all justified and is accordingly deleted. 5.3 As regards the addition of Rs. 1,04,420 on account of alleges shortage of stock found during the course of survey, it is seen that the survey party has detected the stock discrepancy of Rs. 9.08 lakhs in relation to the stock of two business concerns viz. the assessee as well as M/s. B Brothers Engineering Works which were lying in the same premises. It was explained by the assessee before the Assessing Officer during the course of assessment proceedings that the Assessing Officer has not considered the stock of the assessee lying with other party for which the balance-sheet prepared as on 8-9-1995 and the stock reconciliation statement was furnished by the assessee during the course of assessment proceedings which was igno ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ADDITIONS OF RS. 10,94,740 RS. 2,21,185 FOR ASSESSMENT YEARS 1995-96 AND 1996-97 RESPECTIVELY Per Shri K. Yadav, JM.- -I have carefully gone through the order of my learned brother Shri R.K. Bali, Accountant Member. I have not been able to persuade myself to agree with the order of my esteemed colleague in relation to additions of Rs. 10,94,740 for AY 1995-96 and Rs. 2,21,185 for AY 1996-97. 2. 1 do not agree with the findings of my esteemed colleague that nowhere it is provided in Chapter XIV-B of the Act that provisions of section 145 of the Income-tax Act would be applicable in computing undisclosed income in block assessment. Section 158BH states "save as otherwise provided in this Chapter, all provisions of this Act shall apply to assessment made in this Chapter". The application of provisions of section 145 has not been denied while making block assessment. I also find that the Hon'ble Supreme Court in the case of CST v. H.M. Esufali H.M. Abdulali [1973] 90 ITR 271, has held that estimate can be made on the basis of certain transactions detected during survey but not disclosed in the books of account. According to the provisions of sub-section (3) of section 158BB b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for AY 1996-97 made by the Assessing Officer are similar. The addition have been made by the Assessing Officer on similar set of facts, statements and evidence found during the course of search and in the course of post-search investigation. The addition of Rs. 10,94,740 for AY 1995-96 and Rs. 2,21,185 for AY 1996-97 have been made by the Assessing Officer by applying the profit at the rate of 1096 of declared sales of Rs. 1,09,47,397. The aforesaid estimate of profit at the rate of 10% is most reasonable in view of the admission of Shri Ashwin B. Patel vide statement recorded during survey proceedings that the GP rate was 2396 and also in view of the admission in the statements of Shri Ashwin B. Patel and Shri H.A. Patel that on money ranging between 10% to 30% was generally received on sale of all machines. Even if 10% is applied on declared sales of Rs. 1,09,47,397 for estimating the on money received by the assessee, it comes to Rs. 10,94,740. The Assessing Officer could perhaps make addition of higher amount by estimating on-money received at the rate of 20% as has been done in the case of sister concern which has been confirmed by me by a separate and dissenting order in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5(4) of the Income-tax Act, 1961. I find that all the points raised by me in dissenting order regarding sustaining addition in question, have not been incorporated in difference of opinion framed by my esteemed colleague. So I am compelled to frame difference of opinion and referring the same to the Hon'ble President, ITAT, for further action as provided under section 255(4) of the Income-tax Act, 1961. Point of difference proposed by Judicial Member is as under:-- Q. "Whether on the facts and in the circumstances of the case, the view of Judicial Member that Assessing Officer was justified in computing undisclosed income in block assessment when the falsity of the entries in the books of account was exposed during Survey operations, while the addition of Rs. 9,77,000 on similar footings has been sustained by this Bench in the case of sister concern namely--M/s. B Brothers Engineering Works, Chakudia Mahadev, Rakhial, Ahemdabad, run from same premises by same management?" Point of difference proposed by Accountant Member is as under:-- Q. "Whether in the facts and circumstances of the care, the view of the Accountant Member that addition of Rs. 10,94,740 on account of est ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the manufacturing activities is estimated at 10 per cent of the total sales, which comes to Rs. 10,94,740. To this, the rate difference of Rs. 1,667 as shown by the assessee in the P L account will be further added. Since no return has been filed, the entire profit for assessment year 1995-96 along with rate difference as stated above will be treated as undisclosed income for the block assessment period." 4. Before the Division Bench, the learned counsel for the assessee submitted: (i) That sales of Rs. 1,09,47,397 had been shown by the assessee in its books of account for assessment year 1995-96 and these could therefore not be treated as unaccounted sales. (ii) Net profit rate of 10 per cent had been assumed on such alleged unaccounted sales. (iii) The addition was made on mere presumption and without any material being brought on record by the Assessing Officer. 5. As against this, the learned Departmental Representative on behalf of the Revenue supported the order of the Assessing Officer and as noted from para 4 of the order of the learned Accountant Member, reliance was primarily on the statement of the Director Shri Ashwin B. Patel recorded at the time of search wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 45 ITR 488 supported the aforesaid view. He ultimately proceeded to delete the addition of Rs. 10,94,740. 8. The learned Judicial Member, however, did not subscribe to the view expressed by the learned Accountant Member to the effect that provisions of section 145 of the I.T. Act would not be applicable in computing undisclosed income in a block Assessment. He in turn referred to section 158BH, which stated, "save as otherwise provided in this chapter, all other provisions of this act shall apply to assessment made under this chapter". He in turn referred to the judgment of the Hon'ble Supreme Court in the case of H.M. Esufali H.M. Abdulali wherein it had been held that an estimate could be made on the basis of certain transactions detected during survey but not disclosed in the books of account. It was noted by the learned Judicial Member that Shri Ashwin B. Patel, who was a Director of the Company and a Partner in a sister concern had admitted in his statement recorded under section 132(4) on 8-9-1995 that there was a regular practice receipt of "on money' on all transactions. He also referred to a similar acceptance on the part of one Shri H.A. Patel. According to the learned ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e). (ii) It was an undisputed fact that the item considered for the purpose of addition was duly recorded in the normal books of account and further the entire sales of Rs. 1.09 crores were already recorded in the sales registers, which were seized during the course of search. (iii) When transactions are duly recorded in the regular books of account maintained in the normal course of business, the same could not be held to be undisclosed income within the meaning of section 158B(b). (iv) The estimation of income at 10 per cent of the total sales was arbitrary and without any basis, more so, when in a block assessment, undisclosed income had to be determined on the basis of seized material found during the course of search. Reliance was placed on Sunder Agencies v. DCIT (63 ITD 245) and P.C Patel v. DCIT (58 TTJ 409-Ahd.). (v) The search had taken place on 8-9-1995 and the due date of the return for assessment year 1995-96 was 30-11-1995. That the Assessing Officer was relying on clause (c) of section 158BB whereas the relevant clause applicable was (d). (vi) That a higher GP rate could only be applied if the sales of Rs. 1.09 crores were treated to be undisclosed." 10. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... here were positive assertions on factual aspects, which could not be ignored. (vi) That statement of an employee came within the term "any other material" and addition could be made on the basis of such statement. (via) A distinction had to be drawn between a case where a return had been filed before the date of search although belatedly as against a case where no return had been filed and the situation in the present case was the latter." 13. In support of his arguments, the learned Departmental Representative placed reliance on the decision of the Pune Bench of the Tribunal in the case of the Parakh Foods Ltd. v. Dy. CIT [1998] 64 ITD 396 and that of the Calcutta Bench of the Tribunal in the case of Bhag ChandJain v. Asstt. CIT [1998] 65 ITD 11. 14. In reply, the learned counsel for the appellant contended that subsection (3) of section 158BA was applicable in this case and squarely supported the view point canvassed that the sales having already been recorded in the books of account and other documents could not be treated as undisclosed and no percentage thereof could be brought to tax as undisclosed income in a block assessment. He sought to distinguish the decision of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f search but the date of filing the return of income under section 139(1) has not expired. The second thing is that the entries relating to income or transactions are recorded in the books of account and other documents maintained in the normal course. In the present case the Revenue has not proved that the books were being maintained for a purpose other than the provisions of the Income-tax Act and under these circumstances the income on the basis of the books regularly maintained in the normal course of business cannot be treated as undisclosed income. The Indore Bench of the Tribunal in the case of Smt. Sitadevi Daga v. Asstt. CIT [1998] 67 ITD 151 was considering a case where the assessee filed return for a particular assessment ear beyond the period prescribed under section 139(1) but within the period prescribed under section 139(4) declaring interest income as per regularly maintained books of account, which were seized. The Department treated such income as undisclosed in framing the block assessment. The Indore Bench in the aforesaid cited case took the view that since the Revenue had not made any efforts to prove that the books were maintained for purposes other than the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ect have to be considered in the larger context since estimates sometimes have to be arrived at even on the basis of the seized material/evidence found during the course of search. No doubt in section 158BB(2), there is a reference to the provisions of sections 68, 69, 69A, 69B and 69C but this is for purposes of reference to the term "Financial Year" vis-a-vis the previous years falling in the block period including the previous year ending with the date of search or of the requisition. The learned counsel for the assessee in fact accepted before me that the judgment of the Hon'ble Gujarat High Court in the case of N.R. Paper Board Ltd. did not lay down the proposition that provisions of section 145 were not applicable but I have come across certain decisions of the Tribunal where it has been opined that provisions of section 145 cannot be applied to a block assessment. One such decision is that of the Patna Bench of the Tribunal in the case of D.N. Kamani. A view was expressed to the effect that where books of account maintained were not found correct and complete, the Assessing Officer could resort to assessment of income by estimate invoking provisions of section 145 only in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n whether the Assessing Officer was within his rights to make an estimation of income for a period larger than the one indicated in the seized material, the Third Member took the view that he could not. The Third Member did not find it necessary to deal with the question as to whether the provisions of section 145 could be read into the provisions of Chapter XIV-B. The Third Member also considered the decision of the Hon'ble Supreme Court in the case of H.M. Esufali H.M. Abdulali in deciding the reference and I am highlighting this because in the present reference the Department has placed reliance on the said decision vis-a-vis the support, which the learned Judicial Member has derived from the said judgment. 25. In the case of Parakh Food Ltd. the Pune Bench of the Tribunal also took the view that where return of income had not become due but the income particulars were duly recorded in the regular books of account then such income could not be treated as undisclosed income. This part of the decision helps the assessee whereas the learned DR has relied upon the said decision to support the order passed by the learned Judicial Member, more so the contention of the assessee in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed on the basis of material and evidence found during the course of search and under normal circumstances estimates are excluded. The only other decision relied upon by the learned Departmental Representative before me was that of the Calcutta Bench of the Tribunal in the case of Bhag Chand Jain. A reading of the same however shows that this is not at all applicable to the facts of the present case. The issues before the Calcutta Bench were primarily related to deductions under Chapter VI-A and rebate under section 88 and the other point was the filing of a belated return for one of the assessment years viz., 1992-93 and on the facts of the case, the Tribunal took the view that it could not be said that the assessee would not have shown the aforesaid income but for the search operations and it was a fact that the return was filed much earlier to the date of search. On the ground that why aforesaid income was treated as undisclosed income by the Assessing Officer and their being nothing spelt out in the assessment order, the Tribunal restored the matter back to the file of the Assessing Officer. 27. In conclusion, I opine that the action of the learned Accountant Member in deletin ..... X X X X Extracts X X X X X X X X Extracts X X X X
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