TMI Blog2006 (7) TMI 259X X X X Extracts X X X X X X X X Extracts X X X X ..... manufacturing of ornaments on job work basis against the material supplied by the customers. (B) M/s P.P. Jewellers (Delhi) Status : Partnership firm. Partners : Shri Kamal Gupta - 75% Smt. Ratan Devi - 25% Address : 1178, Kucha Mahajani, Chandni Chowk, Delhi. Nature of : Dealing in wholesale business of gold and gold business ornaments and manufacturing of gold ornaments on job work basis. (C) M/s P.P. Jewellers (India) Status : Partnership firm. Partners : (i) Shri Balram Garg - 25% (ii) Shri Sandeep Gupta - 15% (iii) Smt. Renu Gupta - 35% (iv) Smt. Manju Garg - 25% Address : 674/675, Sadar Bazar, Delhi. Nature of : Trading in gold, silver and precious stones, and business manufacturing of ornaments on job work basis against material supplied by the customers. 3. The premises of another concern i.e. P.P. Jewellers belonging to the same group situated at 2708, Karol Bagh,New Delhi(first floor), was also covered in the aforesaid search and seizure operation. The said concern is a partnership firm with Mr. Pawan Gupta, Mr. Padam Chand, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me in Form 2-B showing its undisclosed income for the block period at nil on 24.9.1997. (iii) M/s P.P. Jewellers (Delhi) filed its return of income in Form 2-B on24th Sept., 1997showing its undisclosed income for the block period at nil. 5. During the course of block assessment proceedings, several notices were issued by the AO requiring the assessees to furnish the necessary details and after considering the replies filed by them from time to time as well as the findings of the search, the AO completed the assessments under s. 158BC by passing three separate orders on 31st Oct., 1997 assessing the undisclosed income of the assessees for the block period as under: (A) M/s P.P. Jewellers (P) Ltd. (i) Profit from undisclosed sales : 34,15,000 (ii) Alleged unexplained investment made in circulating capital : 27,65,000 (iii) Undisclosed income shown by the assessee in its return of income (on protective basis) : 90,00,000 Total : 1,51,80,000 (B) M/s P.P. Jewellers (Delhi) (i) Profit on undisclosed sales : 5,17,740 (i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ide the same at the outset. 8. In support of the additional ground No. 1, the learned counsel for the assesses submitted before us that none of the warrants issued in the present cases contained the names of any of the three assessees specifically and in the absence of the same, the entire proceedings taken in pursuance thereof including the impugned assessment orders passed by the AO under s. 158BC were invalid and unsustainable in law. He submitted that a perusal of the warrants of authorization produced by the learned Departmental Representative as per the direction of the Bench clearly shows that the said warrants were issued in the name of M/s P.P. Jewellers and not in the names of the three assessees in the present case viz., P.P. Jewellers (India), P.P. Jewellers (Delhi), and P.P. Jewellers (P) Ltd. He submitted that in the absence of such specific mention in the relevant warrants of authorization, it could not be assumed that the said warrants pertained to the assessees. He contended that there were thus no warrants of authorization issued in the name of the asses sees and it is, therefore, to be held that there was no search initiated against them. Relying on the decisio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s conducted in their cases at respective premises, the omission of the word "Delhi" or "India" in the names mentioned in the search warrant was purely a case of mis-spelling of names that would not go to vitiate the search operation which was otherwise valid in the eyes of law. He contended that it was not a case of mistaken identity since there was no confusion either in the mind of the search party or even in the minds of the assessees about the search operations being conducted in their cases. Referring to some of the letters filed by the assessees before the AO, he pointed out that the assessees themselves had not mentioned/included the words "Delhi" and/or "India" in their names in the correspondence with the AO. He contended that the search warrants were shown to the representatives of the assessees present at the time of search and while signing the said search warrants or even the Panchnamas drawn during the course of search, no objection was raised on behalf of the assessees about the mistake in mentioning the full name He submitted that even the notices issued under s. 158BC were duly complied with by the assessees by filing their returns in Form 2-B and there was a parti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ry limited and it covers only a technical mistake or omission. He submitted that the mistake/omission in the present case pertains to a search warrant which relates to the jurisdictional aspect and such errors/infirmities having a bearing on the jurisdictional aspect, cannot be regularised under s. 292B. He submitted that a search warrant issued under s. 132(1) is not covered by the expression "other proceedings" used in s. 292B and such search warrant being a jurisdictional fact, any infirmity therein cannot be regarded as merely a technical omission which can be corrected by recourse to s. 292B. He submitted that all the four entities i.e. the three assessees in the present case and M/s P.P. Jewellers are independent concerns regularly assessed to tax and since they are different entities having separate partners/directors, it was for the Revenue to establish that warrant of authorization to initiate search under s. 132(1) was issued against each assessee independently. He contended that all the decisions cited by the learned Departmental Representative are distinguishable on facts and none of them being directly applicable to the facts of the present case, the reliance of the le ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ducted so as to give jurisdiction to the AO to proceed against Chapter XIV-B: (i) M/s P.P. Jewellers (P) Ltd. (ii) M/s P.P. Jewellers (Delhi). (iii) M/s P.P. Jewellers (India). 14. In order to examine the veracity of this legal objection raised by the learned counsel for the assessee, the Departmental Representative was directed by the Bench to produce the search warrants issued in this group of cases. Accordingly, he has produced total five search warrants so issued in original and also filed copies of the same along with the relevant Panchnamas. A perusal of the same shows that there were in all five search warrants issued in this group of assessees, the summary of which is already given hereinabove while narrating the facts of the case. As is evident from the said summary, a warrant of authorization issued on10th Oct., 1996to search the premises situated at 1178, Kucha Mahajani, Chandni Chowk,Delhi, was in the joint name of M/s P.P. Jewellers and M/s P.P. Jewellers (P) Ltd. The name of one of the assessees in the present case i.e. M/s P.P. Jewellers (P) Ltd. thus was very much there contained in the said search warrant and the same also having been executed as is evident ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of this contention, he has derived support from the various judicial pronouncements. The learned counsel for the assessee, on the other hand, has also cited several case law in support of his contention that the defect in not mentioning the names of the assessee clearly and specifically in the warrants of authorization was a jurisdictional one and the same could not be cured by recourse to the provisions of s. 292B. He has also contended that s. 292B does not apply to the search operation since the expression used therein "or other proceedings" does not cover the search operation conducted under s. 132(1). He has further contended that s. 292B can be relied upon only if there is a technical defect or omission and not for curing an inherent lacuna affecting the jurisdiction of the authority like the one on hand in the present case. 16. After a careful consideration of the rival submissions in the light of facts borne out from record and judicial pronouncements cited at the Bar, we find it difficult to agree with the contention of the learned counsel for the assessees. There cannot be a quarrel to the proposition that if there is no warrant of authorization issued in the name of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Department was not approved by Hon'ble Karnataka High Court in the absence of any reference whatsoever in the warrant of authorization that the documents and valuables so seized were found in the possession of the assessee. 17. In the present case, the facts involved are altogether different inasmuch as there were warrants issued to search the premises of both the assessees situated at 1178, Kucha Mahajani, Chandni Chowk, Delhi, and 674/675, Sadar Bazar, Delhi, and the names of the persons sought to be searched as contained in the said warrants were indicated as M/s P.P. Jewellers only and not M/s P.P. Jewellers (Delhi) and M/s P.P. Jewellers (India) which are the names of the assessee firms. It is no doubt true that there was another concern belonging to the same group in the name of M/s P.P. Jewellers having separate existence in law including that for the income-tax purpose. However, the said firm was having its business premises situated at 2708, Karol Bagh, New Delhi (first floor), and there was a separate warrant of authorization issued to search the said premises which was in the name of M/s P.P. Jewellers. On the other hand, the two premises of the assessees in the prese ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y help to the assessee in the present case. For instance, in the case of Jangi Lal cited by the learned counsel for the assessee, assessment was framed by the AO in the status of HUF whereas the penalty order as well as consequent demand notice issued by him was in the status of individual and in these facts and circumstances, it was held by the Allahabad Bench of Tribunal that such a defect was not covered by s. 292B. Similarly, in the case of Norton Motors, the CIT had issued notice to the assessee proposing to cancel the registration of firm on the ground of error in the allocation of shares among the partners. But no notice was issued under s. 158 r/w ss. 187 and 67 proposing to change the share allocation among the partners and the assessee thus did not get an opportunity to make representation in this regard. In these facts and circumstances, it was held by the Hon'ble Punjab Haryana High Court that the CIT did not have jurisdiction to direct modification of the order passed by the ITO under s. 158 and the order passed by him could not be sustained by relying on s. 292B. 19. In the present case, the warrants of authorization were issued by the competent authority duly emp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the omission of the words "India" and "Delhi" in the names of the assessees mentioned therein was clearly a clerical or technical mistake which could be cured by resorting to the provisions of s. 292B. In that view of the matter, we hold that the mistake in mentioning the complete names of the assessees by omitting the words "India" and "Delhi" was merely a clerical or technical mistake and since this defect/mistake is curable by resort to the provisions of s. 292B, the same could not be construed as any legal infirmity in the search warrants so as to vitiate proceedings taken in pursuance thereof. Similar is the position as regards the notices issued by the AO to the assessees under s. 158BC which are also held to be valid relying on the provisions of s. 292B. We, therefore, find no merits in the additional grounds raised by the assessees in all these three appeals and rejecting the same, we now proceed to consider and decide the other grounds raised by the assessee challenging the additions made in the block assessment on merits. 20. In ground Nos. 1 to 4 of its appeal being IT(SS)A No. 290/Del/1997, the assessee has challenged the additions of Rs. 34,15,000 and Rs. 27,65,000 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r. 6,420 grams (e) Ornaments weighing 1,020 gms. received from Janak Dhiraj Jewellers. The firm M/s P.P. Jewellers (P) Ltd. had issued old gold ornaments weighing 1,020 gms. to Pradeep before search. Similarly, gold weighing 2,333 gms. was issued to Janak Dhiraj before search. 3,516.310 grams (f) M/s P.P. Jewellers (P) Ltd., Karol Bagh, New Delhi, had received gold ornaments weighing 10,521.600 gms. of 22 ct. from M/s Soni Gunvantul Jamna Das Mandaha, Ahmedabad, on approval basis vide vouchers as per copies enclosed. 10,521.600 grams (g) Old ornaments weight 6,700 gms. received from Sh. Ajay Goel, Saharanpur, for conversion into new jewellery on 6.10.96. 6,700 grams (h) M/s P.P. Jewellers (P) Ltd. Karol Bagh, New Delhi, had received gold ornaments weighing 19,541.35 gms. of 22 ct. from M/s Harshad Jewellers, Ahmedabad, on approval basis vide vouchers as per copies enclosed. 19,541.350 grams (i) Gold ornaments received for repairs as per register mainta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... worked out by the Department at Rs. 2,30,68,055. The said working made by the Department, however, was claimed to be erroneous by the assessee and after pointing out various mistakes therein such as repetition of figures, order confirmations taken as sales, inclusion of some items which were already recorded in the stock tally, etc., the assessee claimed that the exact value of unaccounted sale reflected in the said loose slips was Rs. 75,92,282. A detailed working of the said figure was also filed by the assessee before the AO giving all the relevant details. This working of the assessee, however, was rejected by the AO observing that the same was without any basis. He held that the said working furnished by the assessee company was its own admission that it was indulging in the sales outside the books of account. He therefore, held that its books of account were neither complete nor correct and rejecting the same by invoking the provisions of s. 145(2), he estimated the unaccounted sales of the assessee at Rs. 2,50,00,000. On the basis of the said estimate, he worked out the profit of the assessee from unaccounted sales to the best of his judgment as well as the investment requi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er consideration is about the ascertainment of the exact quantum of unaccounted sale from the loose slips found during the course of search. He submitted that as per the working made by the Department, such sale was quantified at Rs. 2,30,68,055 whereas the AO finally adopted such sale on estimated basis at Rs. 2.5 crores while making the addition on account of profit on such sale as well as alleged investment made in the circulating capital required for the unaccounted transactions He contended that this estimation made by the AO was without any basis and even the working made by the Department while determining the unaccounted sale on the basis of loose slips at Rs. 2,30,68,055 suffered from many mistakes as pointed out by the assessee. In this regard, he invited our attention to the copy of detailed submissions made before the AO placed at page Nos. 11 to 13 of his paper book along with annexure and supporting details placed at pp. 14 to 106 of his paper book to point out that the mistakes committed by the Department in their working were specifically pointed out by the assessee with reference to each and every slip. He submitted that some of the said slips had been considered m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... well as quantum of any undisclosed investment made in the unaccounted sale as alleged, no addition on account of such alleged investment could be made especially in the block assessment. He also contended that it was imperative for the AD to give a cogent basis for computing such alleged investment and since there was no such basis given by him in the assessment order, the addition made by him on this count is liable to be deleted. 27. The learned Departmental Representative, on the other hand, invited our attention to Annex. A-16 to show that some slips found during the course of search contained only weight and not the value. He contended that it was therefore fair and proper on the part of the AO to determine the value thereof on the basis of prevailing rates and to include such values for working out the total quantum of unaccounted sale made by the assessee. He submitted that the substantial difference was found in the stock inventorised during the course of search on physical verification and the stock as per the books of the assessee, and the assessee could not explain the said difference to the satisfaction of the AO. He submitted that whatever explanation attempted to be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lips found during the course of search were seized by the Department as per Annexs. A-1 to A-33. The said loose slips apparently represented unaccounted transactions of the assessee and, therefore, the AO required the assessee to explain the contents of the said seized documents. In reply filed in writing on25th Oct., 1997, it was explained by the assessee that the said loose slips show the sales made in the books and outside books. It was also explained that the transactions reflected in the said loose slips were mostly recorded in the books of account of the assessee company. A detailed statement was furnished by the assessee along with the aforesaid written submissions explaining each and every loose slip found during the course of search with narration given in the last column called as "Remarks". In the said column, it was indicated against each slip about the nature of the said document as well as the contents thereof. A copy of the said submissions along with the statement is filed by the learned counsel for the assessee before us and a perusal of the same reveals that wherever the relevant seized documents represented the sale of the assessee and the same were not recorded ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... some of the orders cannot be ruled out. Orders which were taken in the first week of October, 1996 i.e., prior to the date of the search (search took place on10th Oct., 1996) can be classified in unexecuted orders category. Since assessee has failed to furnish the complete details of these slips and also the evidences, I estimate 60 per cent of the orders having been executed and accordingly sales to this extent are treated as assessee's unaccounted and undisclosed sales, the profit of which has not been shown by the assessee in its regular books of account." 31. As is clearly evident from the aforesaid observations recorded by the AO in the case of M/s P.P. Jewellers (Delhi), the similar explanation offered by the assessee in the said case was accepted by the AO taking into consideration the very nature of the assessee's business as well as the contents of the relevant loose slips. He, however, did not accept the same fully due to the failure of the assessee to furnish complete details of the loose slips as well as its failure to produce evidence to support and substantiate the same. Still, he accepted the stand of the assessee partly and in the absence of specific/complete deta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lue of such unaccounted sale and, therefore, the actual sale of the assessee outside books as evidenced by the said loose slips found during the course of search was only Rs. 75,92,282 as against Rs. 2.5 crores taken by the AO. As such, considering all the facts of the case, we hold that the evidence found during the course of search in the form of various loose slips could establish the unaccounted sale of the assessee only to the extent of Rs. 75,92,282 as against Rs. 2.5 crores taken by the AO for the purpose of making additions on account of profits on such unaccounted sale as well as alleged investment made in the circulating capital required for the purpose of effecting the said sale outside the books. We, therefore, modify his impugned order and recompute both these additions made by him adopting the same basis but with the revised quantum of unaccounted sales as follows: A. Profit on unaccounted sales 1. Total sales as per loose annexures pertaining 75,92,282 to the assessee found and seized from various premises as discussed above. 2. GP @ 13.66% on undisclosed sales of 10,37,106 Rs. 75,92,282 treated as assessee's undisclosed profit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stock. 35. As regards the difference found between the stock inventorised during the course of search on physical verification and the stock as per its books of account, the stand of the assessee was that the stocks belonging to it as well as belonging to M/s P.P. Jewellers operating from first floor of the very same building should be taken together and the difference, if any, should be finally worked out by combining stocks of both these concerns. A statement was also prepared by the assessee of such combined stock and the excess stock of gold jewellery was worked out as per the said statement at about 22 Kgs. The value of the said excess stock at Rs. 90 lakhs was surrendered by the assessee as its undisclosed income and the said amount was declared in its return of undisclosed income filed for the block period. The AO, however, did not accept the stand of the assessee of taking into consideration the stocks of both the concerns in a combined manner. According to him, both these concerns were independent entities operating from separate premises and there being no mix-up in their operations, the difference in stock was required to be considered in their hands separately. Since ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ticle or thing or any income based on any entry in the books of account or other documents or transactions, where such money, bullion, jewellery, valuable article, thing, entry in the books of account or other document or transaction represents wholly or partly income or property which has not been or would not have been disclosed for the purpose of the IT Act The manner and method of computation of undisclosed income of the block period is given in s. 158BB according to which the undisclosed income of the block period, in simple terms, shall be the aggregate of the total income (undisclosed income as well as disclosed income) of the previous years falling within the block computed in accordance with the provisions of Chapter IV as reduced by aggregate of total income or increased by aggregate of losses (i.e. disclosed income) of such previous years. The aggregate of such total income referred to in s. 158BB is to be computed on the basis of evidence found as a result of the search/requisition and such other materials or information as available with the AO at the time of making the block assessment. Clause (c) of s. 158BC envisages passing an order of assessment and determination ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a similar issue in the context of regular assessment arose for consideration before the Hon'ble Delhi High Court in the case of CIT vs. Bharat General Insurance Co. Ltd. (1971) 81 ITR 303 (Del), wherein it was held by their Lordships that even if an assessee declares an income in the return, the AO cannot assess it merely on that basis and he has to consider its taxability in the light of other circumstances de hors the admission made in the return. In the case of Narayanan vs. Gopal AIR 1960 SC 235, the Hon'ble Supreme Court has held that an admission in the return is not conclusive and it would be decisive only if not subsequently withdrawn or proved to be erroneous. It is well established that the object of an assessment is to determine the correct income and consequently the correct tax liability. In our opinion, this settled position equally holds good in the matter of block assessment also since the scope of undisclosed income assessable in the block assessment is specifically provided and the procedure for determination of such income is also clearly laid down. In these circumstances, any amount which is not assessable as undisclosed income for the block period cannot be as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which were seized as per Annexs. A-15, A-16, A-19, A-20, A-21, A22, A-24, A-25, A-26, A-27, A-28 and A-33. Details of the transactions of gold ornaments effected by the assessee were apparently found recorded in the said loose slips. The total weight of the gold ornaments as per the transactions reflected in the said loose slips was worked out by the AO at 18,739 grams. When these loose slips were confronted by the AO to the assessee, it was explained on behalf of the assessee company that the transactions reflected therein did not entirely represent its unaccounted sale, but the same represented order confirmations/booking, goods received for repairs, etc. It was also explained that the actual sales made against the said orders had been duly recorded in its books of account regularly maintained. In this regard, details were also furnished by the assessee correlating some of the loose slips with the date of execution of order and corresponding sales voucher. According to the AO, the assessee, however, could not correlate all the loose papers with the entries appearing in the regular books of account and having regard to this failure on the part of the assessee as well as keeping in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ------------- 41. We have heard the arguments of both the sides and also perused the relevant material on record. As already noted hereinabove, similar issues involving identical facts and circumstances were involved in the case of M/s P.P. Jewellers (P) Ltd. In the said case, all the relevant details about each and every slip found during the course of search were completely furnished by the assessee unlike the present case on hand. We have already held in the preceding para of this order while disposing of the appeal filed in the case of M/s P.P. Jewellers (P) Ltd. that the said details were sufficient to support and substantiate the explanation offered by the assessee that all the loose slips did not represent its unaccounted sale and the quantum of unaccounted sales as evidenced by the said loose slips was only to the extent of Rs. 75,92,282 as against Rs. 2.5 crores wrongly estimated by the AO. In the present case, a similar explanation offered by the assessee was accepted by the AO. However, in the absence of complete details filed by the assessee in respect of all the loose slips found during the course of search as well as the lack of evidence to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for asst. yr. 1997-98. (1-4-96 to 10-10-96) Investment : 1. Total unaccounted sale. : Rs. 30,91,500 2. Cost value of above 30,91,500 x 90.79 : Rs. 28,06,772 ----- 100 3. 20% of above taken as investment. : Rs. 5,61,354 4. Less: Value of stock of gold found short : Rs. 19,89,000 by 3,978 gms. @ Rs. 500 per gram. ------------- Nil ------------- 42. Accordingly, we sustain the addition made by the AO on account of profit on unaccounted sales to the extent of Rs. 2,84,727 and delete the addition of Rs. 6,59,589 made by him on account of alleged investment made in the circulating capital required for effecting the said unaccounted sale. We may clarify here that the basis adopted by the AO for working out the said investment in his assessment order is found to be suffering from a patent mistake inasmuch as the value of stock found short at the time of search was deducted by him at the first step itself from the quantum ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of search as well as brought on record by the assessee during the course of assessment proceedings, it was held by the AO that the stock of silver found during the course of search on physical verification was short by 21.50 Kgs. than the stock as per the books of account of the assessee. He, therefore, treated the quantity of 21.50 Kgs. of stock of silver found short as sold by the assessee outside the books of account and a profit calculated @ 15 per cent on the said unaccounted sale amounting to approx. Rs. 1,30,000 worked out at Rs. 19,500 was treated as the undisclosed income of the assessee. He also found the stock of gold jewellery inventorised during the course of search on physical verification to be short by 170 grams approx. than stock as per the books of account of the assessee. During the course of search, several small slip pads and small note books as well as loose papers inventorised as Annexs. A-14 to A-18 were also found and seized from the business premises of the assessee. It was explained by the assessee that the said documents did not indicate any sale made by it outside the books of account and the same represented the receipt of jewellery for remaking on l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lver of 21.5 Kgs. found during the course of search was offered by the assessee during the course of assessment proceedings before the AO. Even before us, the learned counsel for the assessee has not been able to explain the said shortage and this being so, we find no infirmity in the impugned order of the AO treating the said shortage as the sale made by the assessee outside the books of account and added the profit of Rs. 19,500 of the said sale to the undisclosed income of the assessee. 46. As regards the determination of quantum of unaccounted sales, it is observed that the explanation of the assessee before the AO was that some of the loose slips found and seized during the course of search were its unexecuted and pending orders whereas some of them were for the receipt of jewellery for remaking on labour charges basis. This explanation of the assessee, however, was brushed aside by the AO without appreciating the nature of the assessee's business as well as the contents of the relevant seized documents. As pointed out by the learned counsel for the assessee before us, in some of such loose slips, a percentage of wastage as well as the rates of labour charges per gram were m ..... X X X X Extracts X X X X X X X X Extracts X X X X
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