TMI Blog2007 (1) TMI 202X X X X Extracts X X X X X X X X Extracts X X X X ..... led questionnaire was issued on 15-1-2004, in response to which the authorized representatives of the assessee attended the assessment proceedings. The ld. Assessing Officer asked the assessee to produce books of account so that the material seized may be got verified therefrom, to which the assessee claimed that the books of account for the relevant financial year were not traceable and as such it is not possible to reconcile the same. The assessee got fabrication work done from M/s. Virka Textiles and M/s. Shivam Knitting Works. As per the Assessing Officer, fabrication work by M/s. Virka Textiles in respect of 10586.680 kg of yarn was at the rate of Rs. 26 per kg, and thus the total expenditure in this account was worked out to Rs. 1,69,387. Likewise, in the account of M/s. Sweety Traders, a sum of Rs. 39,284 was incurred for fabrication. This amount was taken as undisclosed income of the assessee for the block period. As per certain pages of Document A-10 containing details of fabrication done by the assessee from M/s. Shivam Knitting Works in respect of 4104.664 kg of yarn, the fabrication charges were worked out to Rs. 65,675 which were taken as undisclosed income of the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... per kg as fabrication charges which was worked out to Rs. 65,575 and 10856.680 kg was got fabricated from M/s. Virka Textile Private Limited at Rs. 1,69,387. The plea was raised by the learned counsel for the assessee that as per trading account of the assessee-firm, a sum of Rs. 2,26,441 was debited as charges for the assessment year 1996-97 and a sum of Rs. 2,05,610 was debited as fabrication charges for the assessment year 1997-98, meaning thereby the amount of Rs. 1,69,387 was lesser than the figure debited to the trading account of the assessee-firm as the expenditure thereon was duly debited in the books of account. Likewise, in the case of M/s. Shivam Knitting Works, the total fabrication charges was debited at Rs. 2,26,441. The ld. Assessing Officer worked out that 14,691.344 kg unaccounted purchases were made which was calculated at Rs. 23,50,615 by applyinng the rate of Rs. 160 per kg The major plea raised by the assessee during argument was that there was no evidence with the revenue that the assessee was involved in any number two business and only certain vouchers were found and not the books. If the assessment order and also that of the order of ld. CIT(A) is analyse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cts in the proposed order but I want to discuss separately the facts in brief which are as under:- 3. In this case, a search was conducted on 23-2-2002 and the assessee filed the return in the prescribed form on 7-11-2003 declaring undisclosed income at Rs. nil The return filed by the assessee in response to notice under section 158BC of the Income-tax Act was in time. Thereafter the Assessing Officer issued a detailed questionnaire. During the course of block assessment proceedings, the Assessing Officer asked the assessee to produce the books of account so that the seized material may be got verified therefrom. The assessee informed that the books of account for the relevant financial year were not traceable and as such it was not possible to reconcile the seized material with the books of account. Since the books of account were not traceable, the Assessing Officer proceeded to finalize the assessment on the basis of seized material and conveyed to the assessee the details of the seized documents marked as A-10, according to which the assessee got the fabrication work done from M/s. Virka Textile, Ludhiana and M/s. Shivam Knitting Works, Ludhiana. Pages 1 to 6 related to the f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the contention of the assessee and was of the view that the assessee had got the fabrication work done in respect of 10.586.680 kg + 4104.664 kg of yarn from M/s. Virka Textiles Pvt. Ltd. and M/s. Shivam Knitting Works respectively. In the absence of books of account, the Assessing Officer considered that the assessee had made investment in the purchase of 14.693.344 kg of yarn and that investment remained unverifiable. The Assessing Officer applied the rate of Rs. 160 per kg and worked out the investment at Rs. 23,50,615. In this manner, a total addition of Rs. 26,24,960 (Rs. 1,69,387 + Rs. 39,284 + Rs. 65,675 + Rs. 23,50,615) was made i.e., for fabrication charges and investments made. 4. The assessee carried the matter to the learned Commissioner of Income-tax (Appeals) and submitted that the assessee had closed its firm on 30-11-1997 and there has been no business activity after that dale. It was stated that the books of account of the assessee were not found during the course of search for the financial years 1995-96 and 1996-97 and despite best efforts made by the assessee the same could not be located and hence could not be produced before the Assessing Officer. It was e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... entirety. Reliance was placed on the following case laws:- (i) Pooja Bhatt v. Asstt. CIT [2000] 73 ITD 205 (Mum.) (ii) Dr. R.M.L. Mehrotra v. Asstt. CIT [1999] 68 ITD 288 (All.), (iii) David Dhawan v. Asstt. CIT [1999] 71 ITD 1 (Mum.). 6. The learned Commissioner of Income-tax (Appeals) was of the view that there was no scope for assumptions and surmises in block assessment proceedings and that no arbitrary formula could be applied in block assessment proceedings as the same has to be based with reference to the incriminating material found during the search and that the evidence/findings pertaining to a particular period could not be telescoped or transported into other periods without cogent reasons or tangible evidence. Reliance was placed on the following case laws:- (i) CIT v. C.J. Shah Co. [2000] 246 ITR 671 (Bom.), (ii) Jaya S. Shetty v. Asstt. CIT [ITAT D Bench, Mumbai] and Samrat Beer Bar v. Asstt. CIT [2000] 75 ITD 19 (Pune) (TM), (iii) Monga Metals (P.) Ltd. v. Asstt. CIT [2000] 111 Taxman 175 (All.) (Mag.), (iv) Elite Developers v. Dy. CIT [2000] 73 ITD 379 (Nag.), (v) D.N. Kamani v. Dy. CIT [1999] 70 ITD 77 (Pat.) (TM). 7. The learned Commissione ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and the expenses shown in the trading account were much more than the expenses found in the vouchers. As such, all the expenses were accounted for. He further stated that every document found during the course of search could not be considered as incriminating document and since the Assessing Officer had accepted the sales, there was no scope to presume that the purchases were made outside the books of account, particularly when the Assessing Officer had not doubted the trading account of the assessee. 11. Although the above submissions were made by both parties to strengthen their respective case but my learned brother had proposed to remand the issues back to the file of the Assessing Officer vide para 5 of the proposed order. However, no reason has been assigned why these issues to be sent back to the file of the Assessing Officer for fresh adjudication. The Hon'ble Gujarat High Court in the case of Rajesh Babubhai Damania v. CIT [2001] 251 ITR 541 held as under:- "It was the duty of the Tribunal to ascertain the reasons which were given by the Commissioner of Income-tax (Appeals) in whose order the order of the Assessing Officer had merged. The Tribunal committed an error ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gree with my learned brother in sending this issue back to the file of the Assessing Officer since the learned Commissioner of Income-tax (Appeals) has passed a just order in accordance with law after appreciating the facts in right perspective and no interference is called for in the impugned order. ORDER UNDER SECTION 255(4) OF THE INCOME-TAX, 1961 Per Joginder Singh, Judicial Member.- Since there is a difference of opinion between the Members of the Bench in the above mentioned case, we state the following point of difference and refer the same to the Hon'ble President, Income-tax Appellate Tribunal for further necessary action as envisaged under section 255(4) of IT Act. "Whether on the facts and circumstances of the case, the ld. CIT(A) is justified in deleting the penalty of Rs. 26,24,981 made on account of payment of unexplained fabrication charges and unexplained investment in the purchase of yarn in the absence of non-production of books of account and other relevant material by the assessee." THIRD MEMBER ORDER Per Vimal Gandhi, President.- On account of difference between the two Hon'ble Members of Income-tax Appellate Tribunal, Chandigarh, B-Bench, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ded. At any rate, the Assessing Officer worked out fabrication charges at the rate of Rs. 16 per kg and made addition of Rs. 2,35,062 (Rs. 1,69,387 + Rs. 65,675) in the assessment for expenses incurred towards fabrications as per the above detail and not proved to be disclosed in the regular books of account and, therefore, represented assessee's income from "undisclosed sources". 6. The Assessing Officer also inferred that yarn found fabricated as per challans was not shown to be accounted in purchases in the books of account for the relevant period as regularly maintained. These books were neither found by the search party, nor were produced during the course of the reassessment proceedings and were claimed to be not traceable by the assessee. As books of account were not produced, the Assessing Officer took purchase of 14,691.344 kg of yarn at the rate of Rs. 165 per kg as income of "undisclosed sources" assessable under Chapter XIV-B of the Income-tax Act. It was held that the assessee had failed to discharge onus that lay down on it by showing that purchase of yarn in question was duly accounted for in the books of account. In the assessment order for the block period, the A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he following reasons:- (i) As explained by the learned A.R., the expenditure claimed under the head 'Fabrication charges' paid to M/s. Virka Textiles Pvt. Ltd. and M/s. Shivam Knitting Works is much less than the fabrication charges debited to the Trading Account. The mere fact that books could not be found during the search would not warrant disallowance of the expenditure in its entirely. (ii) Law is well-settled, (Pooja Bhatt v. ACIT 73 ITD 205 (Mum.), Dr. R.M.L. Mehrotra v. ACIT 68 ITD 288 (All.), and David Dhawan v. ACIT 71 ITD 1 (Mum.), that no arbitrary formula can be applied in block assessment proceedings as the same has to be based with reference to the incriminating materials found during the search. There is no scope for assumptions and surmises in block assessment proceedings. (iii) Law is also quite clear on the issue that the evidence, findings pertaining to a particular period cannot be telescoped or transported into other periods without cogent reasons or tangible evidence. [CIT v. J. Shah Co. 246 ITR 671 (Bom.), Jaya S. Shetty v. ACIT (ITAT D Bench, Mumbai) and Samrat Beer Bar v. ACIT 75 ITD 19 (Pune)]. (iv) It has been held in the following cases that i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on surmises and conjectures. No evidence was found by the revenue during the course of search to show that the assessee had "undisclosed income" in the shape of unexplained purchase of yarn and fabrication charges He further pointed out that trading account and sales disclosed by the assessee for the relevant periods were accepted. The addition in the present case was made on conjectures. He, therefore, upheld the order of the learned Commissioner of Income-tax (Appeals). 10. The matter, as a Third Member case, was fixed for hearing and both the parties have been heard. Dr. Rajiv Harit, the learned Departmental Representative argued for the revenue and Shri A.K. Bansal argued for the assessee. 10.1 Dr. Harit, the learned Departmental Representative pointed out that incriminating documents were found to show that the assessee had got fabrication of yarn done from M/s. Virka Textiles Pvt. Ltd. and M/s. Shivam Knitting Works. Therefore, it was for the assessee to show that entries relating to fabrication were duly accounted for in the regular books of account. However, the assessee never produced relevant books to show that fabrication charges were incurred and duly disclosed. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iods ending 31-3-1996 and 31-3-1997 respectively in the returns filed by the assessee. Assessee further showed purchases of yarn in the two relevant periods at Rs. 3,45,71,659 and Rs. 4,07,94,318 respectively. So the facts of purchase and consumption of yarn is also an admitted fact. As books of account of the relevant period were neither found during the course of search nor were produced by the assessee in proceedings under Chapter XIV-B of Income- tax Act, the Assessing Officer drew an inference that neither fabrication charges nor the purchase of yarn was reflected in the regular books of account. He, therefore, concluded that above expanses i.e. purchase and fabrication charges were met by the assessee out of undisclosed sources and was "undisclosed income" assessable under Chapter XIV-B of the Income-tax Act. The learned CIT (Appeals) did not accept above conclusion of the Assessing Officer and deleted the addition. 14. In proceedings before me, learned departmental authority relied upon certain decisions. However, in my opinion, none of the decisions cited by the learned Departmental Representative is applicable to the facts of the case. In the case of Spectrum Constructio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the search. In this process, some element of estimate was unavoidable. In the appellate jurisdiction under section 260A of the Act, this Court normally does not interfere by substituting its own estimate in place of the one of the Tribunal unless it is shown that the estimate of the Tribunal could not possibly be reached." On the basis of above authority, it has been contended that estimate of income in a search case is permissible where the books of account of the assessee are found to be unreliable by the revenue. So facts in the two cases were claimed to be parallel. In my considered opinion, above decision is also distinguishable and not applicable to facts and circumstances of the case. Their Lordship has recorded a clear finding that assessee was found to have, "purchased substantial quantity of sarson outside the books of account". So in the cited case, material was available to show substantial unaccounted purchases. There is no such material in the case to hold that assessee had made purchase and fabrication of yarn out of undisclosed income. Here no question of estimate of income is involved. The question is whether there is any seized or requisitioned material to hold ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... come or property which has not been or would not have been disclosed for the purposes of this Act, [or any expense, deduction or allowance claimed under this Act which is found to be false]." It is further clear from the computing provision contained in sub-section (1) of section 158BB which is to the following effect:- "158BB. (1) The undisclosed income of the block period shall be the aggregate of the total income of the previous years falling within the block period computed, [in accordance with the provisions of this Act, on the basis of evidence found as a result of search or requisition of books of account or other documents and such other materials or information as are available with the Assessing Officer and relatable to such evidence], as reduced by the aggregate of the total income, or as the case may be, as increased by the aggregate of the losses of such previous years, determined,-" It is evident from above that undisclosed income is to be computed on the basis of evidence found as a result of search or requisition of books of account or other documents and other material or information as is available with the Assessing Officer. If we keep in mind definition of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al in his possession, while making regular assessment order under section 158BB. It has to be borne in mind that proceedings under sections 158BB and 158BC are that of undisclosed income. Therefore, the proceedings carries with it a presumption that returns filed in pursuance of such proceedings are of undisclosed income and not necessarily in accordance with the books of account. Its verification has to be searched outside regular books with reference to material that has been found during search. That makes it imperative to adjudicate the return with reference to material that has come in the possession of the assessing authority during the course of search proceedings and on which basis the belief about the existence of undisclosed income is entertained by the assessing authority inviting invocation of sections 158BB and 158BC. The enquiry into the correctness of such returns with reference to material so found has nexus with the object of the special provisions, to adjudge whether the assessee is still honestly disclosing his income correctly after incriminating material has been found in the possession of the revenue authority before such returns can be rejected and thereafter ..... X X X X Extracts X X X X X X X X Extracts X X X X
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