2006 (2) TMI 228 - AT - Income Tax

Block assessment completed u/s 158BC - Undisclosed Income - search and seizure operation - incriminating documents seized - net profit rate - HELD THAT - In this case the Assessing Officer has not pointed out any recovery of incriminating evidence in the course of search in the case of the assessee. The entire addition was based upon the alleged material recovered in the case of search of Rajendra Agrawal. No evidence is produced to show that the assessee made payments for unaccounted purchases. The assessee made payments against Beej Prapti Receipts only which are entered into books of account of the assessee. Therefore the Assessing Officer should have made out a case that the evidence recovered during the course of search in the case of the assessee was connected with the material recovered in the case of Rajendra Agrawal. However no such attempt has been made to make out a case against the assessee. In this view of the matter and considering the material on record we are of the view that the CIT(A) was justified in deleting the entire addition. As a result the revenue s appeal fails to make out a case against the assessee. The revenue s appeal is therefore dismissed. Addition - We set aside the orders of the authorities below on this issue and direct the Assessing Officer to apply net profit rate as disclosed by the assessee in the books of account because it seems to be reasonable and appropriate in the facts of the case. There is no hard and fast rule as to which NP rate is to be applied. It depend upon the facts of each case. The assessee has filed a chart at page 18 of the paper book showing that in the assessment year 2002-03 the assessee has shown net profit rate as per audited books of account in 0.96 per cent and in the assessment year 2003-04 net profit rate of 1.12 per cent has been shown. The Assessing Officer has made addition with regard to the undisclosed income only in these years. If such net profit rate is applied then the addition would be worked out as has been calculated by the assessee and the copy of the same has been filed in the written submissions at the paper book. The huge addition is therefore unjustified and the Assessing Officer should adopt the addition if any on undisclosed income however subject to verification. Even if slight higher NP rate is applied the additions made by the Assessing Officer would be excessive. We may mention that it is not the end of the matter because the assessee has claimed set off of the undisclosed income already declared in the return of income. The undisclosed income declared by the assessee in a sum in the return of block period on the basis of calculation of the seized material is available to the assessee for the purpose of explaining other additions/investments. Since the addition on account of undisclosed income on account of undisclosed purchases is less than the amount of returned income no separate addition is liable to be made. As a result the entire addition is deleted. As a result this ground of appeal of the assessee is allowed. In this view of the matter the decision cited by the learned DR is not applicable. In this view of the matter it is unnecessary to record further finding of facts. As a result the addition is deleted. No other point is argued or pressed in the departmental appeal or in the assessee s appeal. As a result the assessee s appeal is allowed. In the result the revenue s appeal is dismissed the appeal of the assessee is allowed and the cross objection becomes in-fructuous.

Summary

Issues Involved:
1. Deletion of addition of Rs. 57,88,943 on account of unaccounted transactions.
2. Addition of Rs. 23,76,570 on account of unaccounted purchases.
3. Addition of Rs. 39,000 on account of repayment to Smt. Sudha Jain.

Issue-wise Detailed Analysis:

1. Deletion of Addition of Rs. 57,88,943 on Account of Unaccounted Transactions:

The revenue challenged the deletion of the addition of Rs. 57,88,943 which was made by the Assessing Officer based on alleged unaccounted transactions with Shri Rajendra Agrawal. The Assessing Officer relied on incriminating documents found during a search in the case of Rajendra Agrawal, which showed payments amounting to Rs. 7,41,17,337 received from the assessee. However, the CIT(A) deleted the addition, stating that the entire case of the Assessing Officer was based on entries recorded in the books of a third party, which cannot be used against the assessee without sufficient corroboratory material. The CIT(A) noted that no material was found during the search in the assessee's case to suggest unaccounted purchases of seeds from Rajendra Agrawal. The CIT(A) also observed that the assessee was not given an opportunity to cross-examine Rajendra Agrawal. The Tribunal upheld the CIT(A)'s decision, emphasizing that the Assessing Officer failed to provide any material evidence to connect the assessee with the alleged unaccounted purchases and that the payments made through bearer cheques were recorded in the regular books of account of the assessee.

2. Addition of Rs. 23,76,570 on Account of Unaccounted Purchases:

The assessee challenged the addition of Rs. 23,76,570 made by the Assessing Officer on account of unaccounted purchases. The Assessing Officer had estimated the trade cycle of 5 days and applied the gross profit margin applicable to the assessee's seed business. The assessee argued that the net profit margin should be applied instead of the gross profit margin. The CIT(A) confirmed the addition, but the Tribunal set aside the orders of the authorities below and directed the Assessing Officer to apply the net profit rate as disclosed by the assessee in the books of account. The Tribunal also noted that the undisclosed income declared by the assessee in the block return should be available for set-off purposes in respect of the agreed or other additions. Consequently, the entire addition of Rs. 23,76,570 was deleted.

3. Addition of Rs. 39,000 on Account of Repayment to Smt. Sudha Jain:

The assessee challenged the addition of Rs. 39,000 representing payment to Smt. Sudha Jain. The Assessing Officer made the addition based on certain payments found during the search. The CIT(A) confirmed the addition. However, the Tribunal deleted the addition, stating that the amount already offered by the assessee on account of undisclosed income in the return filed for the block assessment was available to the assessee to explain the addition. Therefore, no separate addition was warranted.

Conclusion:

The Tribunal dismissed the revenue's appeal, allowed the assessee's appeal, and declared the cross-objection as in-fructuous. The Tribunal upheld the CIT(A)'s deletion of the addition of Rs. 57,88,943, directed the application of the net profit rate for the addition of Rs. 23,76,570, and deleted the addition of Rs. 39,000, emphasizing the importance of corroborative evidence and proper opportunity for cross-examination in tax assessments.