TMI Blog2003 (9) TMI 304X X X X Extracts X X X X X X X X Extracts X X X X ..... Delhi. Shri S.K. Chandna, Shri O.P. Chandna and Shri H.C. Chandna. This premises is residence of Shri O.P. Chandna. 2. A-4, First Floor, GK Enclave, Part-I,New Delhi. Shri H.C, Chandna, Shri O.P. Chandna And Shri S.K. Chandna. This premises is residence of Shri S.K. Chandna. 3. B-222, Okhla Indl. Estate, Phase-I,New Delhi. M/s Chandna Fabrics (P) Ltd., M/s H.C. Chandna (P) Ltd., M/s S.K. Chandna Co. M/s Chandna Textile Traders. 4 (a) 30,KrishnaCloth Mkt. Chandni Chowk,Delhi. M/s S.K. Chandna Co. (b) 30-B (2nd floor) Krishna Cloth Market, Chandni Chowk,Delhi. M/s Chandra Fabrics (P) Ltd. (c) 30-A (first floor) Krishna Cloth Market, Chandni Chowk,Delhi. M/s H.C. Chandna (P) Ltd. 3. As per assessment order of these assessees, from all the abovementioned premises a large number of incriminating documents, books of accounts etc. relating to various investments and also to various business activities of Chandnas through various business concerns were seized. Accordingly for the purpose of making block assessments in the case of all these assessees, notices under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... It is also observed in the order that books of accounts were also incomplete. Though the reconciliation chart was filed before the AO and as per all these assessees the reconciliation charts filed by them were tallying with the figure of sales and purchases recorded in the regular books of accounts. During the assessment proceedings the AO also examined the return filed for asst. yr. 1995-96 in all these cases. It is noted that as per audit report under s. 44AB attached with the returns, no details of sales and purchases etc. in terms of quantity, as called for in note below column No. 3 of the report, have not been given. It is further observed by the AO that in seized records also there is no material to suggest that assessee has maintained the stock register which could tally with the stocks mentioned in the papers found. The AO further noted that all these assessees have been indulging in huge cash sales, which is not fully accounted for in the books of accounts. It is also noted by the AO that the sale proceeds made in cash are not fully deposited in the bank. From all these facts mentioned in the order of the AO, the AO drew an inference that assessee has shown low GP rate w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pted by the AO for all these concerns were of Rs. 12 lakh odd; Rs. 20 lakh odd; Rs. 17,80,263 Rs. 21,42,655, respectively. While estimating the sales, the AO allowed some deduction on account of expenses on these sales. These expenses, which were allowed on estimate basis, were as under: S.K. Chandna Co. 15,47,339 Chandna Fabrics 12,50,465 H.C. Chandna (P) Ltd. Nil Chandna Textile Traders 96,630 6. There was an interest income also which was also treated by the AO as undisclosed income. In the case of S.K. Chandna Co. and in case of Chandna Fabrics (P) Ltd. the interest income was taken Nil. However, in other cases i.e., in case of H.C. Chandna (P) Ltd. and Chandna Textile Traders the interest income of Rs. 11,346 and Rs. 24,473, respectively was treated as undisclosed income of these two assessees, as no return was filed by assessees. For the sake of clarification these details, as mentioned above, are taken from the written synopsis filed on6th March, 2003, by the counsel of the assessee, as they are undisputed. For further clarification the basis for estimation of sales in the case of S.K. Chandna Co. and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 19,49,420 8. Now all these four assessees are in appeal here before the Tribunal. 9. These appeals were fixed for hearing and hearing continued on various dates. The learned counsel has filed written submissions in all these cases along with a chart of additions, which consists of 16 pages separately. By these written submissions, each assessee has explained the facts of the case and objections in respect of additions made by AO while completing the assessment under s. 158BC. The reliance is also placed on various case laws mentioned in the written synopsis. The counsel of the assessee has pointed out the defect in the orders of the AO while drawing the attention of the Bench on respective paragraphs of respective assessment orders. On a query from the Bench that some legal grounds are also taken while filing the appeals by these assessees, at this point of time the learned counsel stated that the legal grounds taken, which are in fact, in regard to proper opportunity not allowed to the assessee, are not pressed. 10. On the other hand, lengthy arguments were made by the learned Departmental Representative on behalf of the Department. Firstly, the strong reliance was p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , 1995to22nd Feb., 1996, it was submitted that books were incomplete and as per documents found during the course of search, it was clearly seen that assessee had suppressed its sales. 11. In the case of S.K. Chandna Co. and M/s Chandna Fabrics (P) Ltd., a document was found wherein it was stated that how much purchases are required and how much sale bills are required. It was further stated that in the case of other two assessees, i.e., H.C. Chandna (P) Ltd. and Chandna Textile Traders, it was seen by the AO that there are various cancelled bills and on some of the bills recorded in the sale register, the word 'B' was mentioned. No original copy of the cancelled bill or no explanation in regard to writing of word 'B' were filed before the AO by these two assessees; neither they were found during the course of search. However, it was fairly stated that if the original copy showing cancelled bills or 'B' marked would have shown, then of course there was no case of the Department in estimating or enhancing the sales in cases of these two assessees, i.e., H,C. Chandna (P) Ltd. and M/s Chandna Textile Traders. Therefore, it was submitted by the learned Departmental Representative, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sed income because the AO has already rejected the books of accounts. Accordingly it was submitted that amended provisions of law are applicable and the AO was correct in rejecting the books of accounts and applying the provisions of s. 145(2) of the IT Act. Again it was repeated that the AO has prepared a trading account on the basis of material found, then only he arrived at the figure of 7 per cent GP rate which was applied by him for all the years pertaining to the block period. 13. It was further stated that there was one more reason in disturbing the trading results while completing the assessments under s. 158BC because common books of accounts were maintained by these concerns and statement of Shri O.P. Chandna was recorded who himself admitted that he is indulging in business activities which were not recorded in the books of accounts and they were made in the name of benami concerns. It was further stated that some sale instances were noted by the AO and it was found that they were not recorded in the books of accounts. It was again repeated that notices were issued as early as in the month of October, 1996. However, all these assessees wilfully avoided all the notices ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... earned Departmental Representative on which the reliance was placed by the learned Departmental Representative on account of various reasons for estimating the sales and applying a higher GP rate of earlier years, for which the returns have already been filed. 16. It was further stated that in para 9 of synopsis at p. 22 in case of S.K. Chandna Co. the assessee has tried to explain the difference found as per bill pass register marked as AA-21 and AA-43, but this explanation was not filed before the AO, therefore, it cannot be taken into account here. However, it was fairly stated that whether the explanation by assessee is correct or not, that can be examined at the end of AO. Therefore, if the matter in this regard is restored to the file of the AO for examining this explanation, then he has no objection. 17. In last, the learned Departmental Representative while placing reliance on the orders of the AO, stated that the AO was so reasonable because he has only estimated the sale of the current year i.e., from 1st April, 1995 to 22nd Feb., 1996, and all the sales declared by these assessees for prior to this period have been accepted by the AO. Therefore, the GP rate applied ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nover shown by these assessees falling in the block period. As mentioned above, the search was conducted on22nd Feb., 1996, on the premises of these assessees and from1st April, 1995to22nd Feb., 1996, the AO has estimated the turnover of these assessees and applied a GP rate of 7 per cent 21. First of all we will examine that whether the AO can disturb the trading results which has already been duly disclosed while filing the regular returns and they have been accepted also. The learned Departmental Representative has strongly stated that provisions of s. 158B(b) under Chapter XIV-B, have been amended by the Finance Act, 2002, with retrospective effect from 1st July, 1995, therefore, the amended provisions are applicable as the assessments were completed after 1st July, 1995. It was further submitted that as per amended provisions of s. 158B(b), the AO has power to disturb the trading results shown while filing the regular returns if he found some material during the course of search that the assessee has not declared true profits. Further the attention of the Bench was drawn on provisions of s. 158BB, where the procedure of computation of undisclosed income of the block period i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the course of search, which suggests that these assessees have not disclosed their income fully and truly. Chapter XIV-B is a special chapter by which only income can be computed which has not been disclosed by assessee falling under the block period. The AO has drawn an adverse view on the basis of sale register relating to the period 1st April, 1995 to 22nd Feb., 1996, and picked up some figures of sales and then arrived at a figure of GP rate, which was of 7.86 per cent in some cases and in some other case ft was 7.46 per cent and after allowing a marginal relief, the AO applied a GP rate of 7 per cent for all the years falling under the block period. Though provisions of s. 158B(b) were amended with retrospective effect from 1st July, 1995, but under these provisions also it has been provided that entry in the books of accounts 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 this Act. As stated above, undisputedly no material whatsoever was found up to the asst. yr. 1995-96, which suggests that any part of income has not been disclosed by the assessee. Therefore, the contenti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ayanan (HUF) vs. Asstt. CIT (1999) 64 TTJ (Mad)(TM) 823 : (1999) 69 ITD 104 (Mad)(TM), similar view was taken. 24.1 In the case of CIT vs. N.R. Papers and Boards Ltd. (2000) 162 CTR (Guj) 488 : (2001) 248 ITR 526 (Guj) the Hon'ble Gujarat High Court has held that "The Tribunal has arrived at a conclusion that 'if prior to the date of search, the assessee has disclosed the particulars of income or expenditure either in the return or in the books of account or in the course of proceedings to the AO or where the return has not become due, the same are duly recorded in the regular books of accounts, then, in our opinion, such income cannot be treated as undisclosed income . The assessee has disclosed the particulars of income or expenditure in the return/books of account and on the same material, the AO wants to take a different view. Such income cannot be treated as undisclosed income so as to tax a person at the rate of 60 per cent. The Tribunal has placed reliance upon the judgement of this Court in the case of N.R. Paper Board Ltd. Ors. vs. Dy. CIT (1998) 146 CTR (Guj) 612 : (1998) 234 ITR 733 (Guj) and in view of the aforesaid decision it cannot be said that the view taken b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee has not disclosed fully and truly facts of income already disclosed. As stated above, no evidence has been found to conclude that assessee has failed to disclose any transaction, which is in the nature of an income and has not been entered by it in the books of accounts. On the contrary the AO himself admitted that assessee had entered into transactions which, though, have all been disclosed, yet the AO estimated the higher GP rate for the entire block period upto asst. yr. 1995-96. Therefore, we are not hesitant in holding that there was no evidence or material with the AO to adopt a higher GP rate for the block period upto asst. yr. 1995-96. Accordingly, the entire additions made for the block period up to asst. yr. 1995-96 are deleted by us in all the four cases. 30. Now we will take up the additions made by AO from1st April, 1995to22nd Feb., 1996, the date on which the search took place. First we will take up the matter in regard to H.C. Chandna (P) Ltd. and M/s Chandna Textile Traders, where the AO has estimated the sales on the basis of cancelled bills and marked "B" against some blank bills. The facts of these cases have already been discussed in detail above at pp. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stimation of sales made by the AO. 31.1 The AO has applied 7 per cent GP rate on the entire sales recorded by the assessee either in the books of accounts or estimated by him. The reason for adopting the higher GP rate we have already discussed somewhere above. As we have already held that there was no cogent reason for adopting a higher GP rate against the GP rate shown by these assessees. Therefore, for this period also we cancel the adoption of higher GP rate. Accordingly, the additions made on account of higher gross profit rate and on account of estimation of sales are deleted in these two cases, i.e., in the case of H.C. Chandna (P) Ltd. and Chandna Textile Traders. 32. Besides the estimation of higher GP rate and estimation of sales, the AO has made an addition of Rs. 11,346 and Rs. 24,473, respectively in these two cases, on account of interest income, treating them as undisclosed income of these two assessees. The interest income was duly disclosed by the assessees and it is amply proved itself, as no additions have been made on account of undisclosed deposits. These interest incomes pertain to this year and as entire sales from1st April, 1995to22nd Feb., 1996, has bee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing account was found, the AO could have considered that trading account only but he was not supposed to make any estimation of sales without any direct evidence of sales. Neither any evidence was found nor there was any material that assessee has made purchases or have made sales, which were not recorded in the sale register. Therefore, for the same reasoning as given above while disposing other issues which were similar in nature, we cancel the estimation of sales in these cases also. 35. For the same reasoning we cancel the estimate of higher GP rate also. Accordingly, the entire additions are cancelled which were made on account of estimation of sales and on account of higher GP rate applied by the AO. For the sake of completeness in these two cases also the assessee had filed its regular returns, copy of acknowledgement of receipt of returns were also filed during the course of hearing. As stated by the counsel of the assessee that even assessments have already been completed on the basis of regular returns filed by these assessees. It was also stated by the learned counsel that all the discrepancies were reconciled while filing the regular return, as the due date was not ex ..... X X X X Extracts X X X X X X X X Extracts X X X X
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