TMI Blog1998 (4) TMI 164X X X X Extracts X X X X X X X X Extracts X X X X ..... er consumer durable products. A notice under section 142(1) was issued to the assessee for making a block assessment for A.Y. 85-86 to 95-96 and 1-4-95 to 12- 1- 96. A questionnaire was also issued. The assessment proceeding was commenced on 13-12-96 and completed on 29-1-97 (copy of A.O. adjudication pages I to VII of Paper Book). The assessee had filed replies dated 13-12-96, 21-12-96, 30-12-96, 2-1-97, 2-1-97, 6-1-97, 6-1-97, 7-1-97, 9-1-97, 17-1-97, 20-1-97 and 20-1-97 before the Assessing Officer for the queries raised for every additions made in the assessment order. 4. The value of stock and jewellery and the cash seized during search as undisclosed income of the assessee has been treated as explained by the assessee and the Assessing Officer had passed orders accordingly. 5. However, the A.O. sought to proceed further with the asstt. in relation to several other documents found during the course of search and on the points of differences of certain stock positions and made additions thereon and the same are challenged by the assessee in this appeal. The counsel for the assessee had filed a paper book containing relevant documents and written submission before us. Free E ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... counting the Refrigerators cannot be accepted. The addition of Rs. 1,700 is upheld. 10. The third ground relates to an addition of Rs. 3,676 on petrol and diesel account. In para 12 of asst. order, it has been observed as follow : In diesel and petrol 4725 litres of petrol were found and diesel at 4653 litres were found. As per book, petrol and diesel closing stock was Rs. 2,12,036. The assessee explained before the Assessing Officer that there is no difference in the stock position with the books. This was not accepted by the Assessing Officer on the ground that the assessee at the time of search did not furnish quantitative detail but furnished provisional figures of closing stock. The Assessing Officer did not specifically spell out any shortage of these commodities in the order. Therefore, we are of the view that the addition is made without any basis. Hence, the same is deleted. 11. The next ground of appeal relates to an addition of Rs. 16,118 as profit from sale of TV sets outside the books. The Assessing Officer pointed out that the stock as per books of account on the date of search was Rs. 15,54,291 while the stock found on the date of search by physical verification ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from the above amount valued at market price the margin of profit shown by the assessee which is around 30 per cent is reduced then there will be no excess stock. 15. The ld. DR relied upon the asst. order. However, the ld. DR as well as the Assessing Officer appeared before us could not explain how the value of total stock on the date of search was taken at Rs. 4,29,753. 16. After considering the submissions of both the sides, we are of the opinion that this issue needs re-examination at the end of the Assessing Officer. We direct the Assessing Officer to verify the Panchnama and record the finding about the value of stock of presto-sign as found on physical verification. He shall also verify whether the value taken by the search party was at cost or at market value. If it is taken at market value then he shall arrive at the cost price of such stock and thereafter compare the same with the stock as shown in the books of account. After arriving at the above figure he shall make a suitable addition in accordance with the law. He shall also give adequate opportunity of being heard to the assessee. 17. The next ground relates to shortage in accessories as detailed below :-- Ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntered into an agreement with the assessee on 20-3-91. As per the agreement, the assessee was permitted to construct a commercial complex on the said plot and Shri B.P. Agarwal was to be given a super built-up area of 4,000 Sq. ft. or a consideration of Rs. 7,50,000 in case the constructed area was not to the satisfaction of Shri B.P. Agarwal. The assessee constructed the B.P. complex which consisted of ground floor and 3 more floors. The period of construction was from the year 1991 to 1996. The total cost of construction disclosed by the assessee was Rs. 41,77,587. The Assessing Officer, during the course of asst. proceedings, referred the matter to the Departmental Valuation Officer (DVO) for determining the cost of construction of the said complex. The DVO worked out the cost of construction at Rs.50,87,481. The Assessing Officer considered the difference of Rs. 9,06,894 as unexplained investment by the assessee and made addition therefor. The assessee had shown the part portion of the complex during the financial years 1992-93, 1993-94 and 1994-95. The position of sale and GP disclosed in each year is as under :-- Financial Asst. Sale G.P. Year Year ---------------- ------ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t in which complete date-wise details of expenditure are maintained. The expenditure is fully vouched. The Assessing Officer has not pointed out a single defect in the books of account or the voucher maintained by the assessee. He submitted that as the assessee has constructed the commercial complex for resale any expenditure incurred is a permissible expenditure. Therefore, if the assessee will disclose less expenditure, then actually incurred, it will expose the assessee to the higher profit and eventually to higher tax. He further submitted that the assessee filed the report of approved valuer who has estimated the cost of construction of the said complex at Rs. 33,59,000. He contended that the DVO has adopted the plinth area rate as specified by CPWD. The rates normally adopted by CPWD are much higher than the local market rates. Jabalpur is a cheap city and here the rates of labour and the materials are cheaper than other Metropolitan cities. He also contended that the DVO has allowed rebate for contractors profit at 7.596 while the assessee himself has disclosed the profit exceeding 20%. The Assessing Officer, while considering the trading result, has considered the profit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Members are aware that the searches conducted by the Income-tax Department are an important means of unearthing black money. However, undisclosed incomes have to be related to the different years in which the income was earned and as such assessments are unduly delayed. In order to make the procedure more effective, I am proposing a new scheme under which undisclosed income detected as a result of search shall be assessed separately at a flat rate of 60 per cent. An appeal against the order can be filed directly before the Income-tax Appellate Tribunal.' Similar view was expressed in the notes on clauses of the Finance Bill. Sec. 158B(b) defines the word 'undisclosed income' as under: "Undisclosed income' includes any money, bullion, jewellery or other valuable article 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 purposes of this Act.' From the above definition of undisclosed income, it is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cost of construction--- 41,49,166 Cost of construction shown by the assessee -- 41,77,587 From the above working, it is seen that if the cost of construction is worked out after reducing the contractors' profit rate disclosed by the assessee the difference remains negligible. In view of the above, we hold that the additions made by the Assessing Officer are neither tenable on facts nor on law. Accordingly, the additions of Rs. 9,06,894 and Rs. 7,51,670 are deleted. 26. Ground No. 10 is against the addition of Rs. 48,67,520 as unexplained investment under section 69D. The facts of this case are that during the course of search of the assessee's premises a file titled as "List of Depositors" was found from the hard-disc of one of the computer installed in the assessee's premises. It was the claim of the Revenue that it was a hidden file which could be retrieved by the computer operators of the Department. It was the opinion of the Assessing Officer that the figures in the list found originally were mentioned in decimals only and the correct amounts were three figures more than what was mentioned originally. He has given the list found from the assessee's computer as Annexure ' ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that even on the facts of the case, no addition is called for as there was no borrowing by the assessee (HUF) or its member. During the course of search, a list was found from a computer installed in the assessee's premises. It was alleged by the Revenue that the list was a hidden file. He contended that there was no such hidden file and the allegation that it was a hidden file is not correct. He further contended that the claim of the Revenue that the figures in the list were mentioned in decimals and the correct amount was approximately thousand times more than mentioned in the list was imaginary and absolutely without any basis or evidence. The Assessing Officer has tried to corroborate the said finding with the statement of so-called depositors. However, the statement of the depositors were recorded behind the back of the assessee and no opportunity was allowed to cross-examine such depositors, despite a specific request made by the assessee in this respect. He further submitted that statement of Shri Ashok Kumar, one of the so-called depositors, was recorded on the same day on which the assessee appeared before the Assessing Officer for the asstt. proceedings. Despite this, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... evidence to rebut the noting in the list of depositors, the Assessing Officer was justified in relying upon such list. He stated that the contention of the assessee that he has no connection with the list and does not know the persons mentioned in the list is unbelievable because the list included the names of the assessee's wife, and mother-in-law. He concluded that the assessee had borrowed the money in cash on hundi in excess of the limit prescribed by section 69D. There was clear violation of section 69D. Therefore, the Assessing Officer was fully justified in making the addition. The same should be upheld. 31. We have carefully considered the arguments of both the sides and have perused the relevant materials brought before us. In this case, the Assessing Officer has made the addition under section 69D of the I.T. Act. Sec. 69D provides where any amount is borrowed on hundi from any person otherwise than through the account payee cheque drawn on a bank the amount so borrowed shall be deemed to be the income of the assessee borrowing the amount. Therefore, before invoking provision of section 69D it has to be established by the Revenue that the amount was borrowed on hundi. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was borrowed on hundi. Moreover under Chapter XIV-B, the assessment has to be made of undisclosed income. The "deemed income' and 'undisclosed income' are different items. Therefore, the deemed income cannot be brought within the purview of Chapter XIV-B. This view of ours also find support from the provision of section 158BB(2) which reads as under: "In computing the undisclosed income of the block period, the provisions of sections 68, 69, 69A, 69B and 69C shall, so far as may be, apply and references to 'financial year' in those sections shall be construed as references to the relevant previous year falling in the block period including the previous year ending with the date of search of the requisition.' From the above, it is evident that the legislator had made provision of sections 68, 69, 69A, 69B and 69C applicable while computing the income of block period. Thus all provisions from sections 68 to 69C are specified, but section 69D has been omitted. Thus, the intention of the legislator is clear that section 69D is out of the purview of Chapter XIV-B. In view of these facts, as well as the provisions of Chapter XIV-B, we have no hesitation to hold that the addition made ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... espite specific request by the assessee no opportunity was allowed to cross-examine such depositors. We also find that the statement of one depositor, namely, Mr. Ashok Kumar was recorded on 3-1-1997. On the same date, ie. 3-1-1997, the assessee also appeared and his case was heard. Both these facts are evident from pages 6 7 of the order sheet produced before us. We are unable to understand why the statement of Shri Ashok Kumar was recorded behind the back of the assessee, specially when the assessee also appeared before the Assessing Officer on the same date. However, whatever the reason might be, the fact remains that the statement of depositors were recorded behind the back of the assessee and the assessee was not allowed to cross-examine such depositors. Therefore, such statement cannot be used as evidence against the assessee. In the absence of such statement of the depositors there remains no iota of evidence to establish that the actual amount of borrowing was thousand times more than what was mentioned in the list found from computer. In view of the totality of above facts as well as the legal position discussed above, we find no justification for the addition of Rs. 48, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... back than the actual sale taking place of sale. (b) As per the norms of the bank, the tractor is not financed unless the farmer purchases some accessories, which are necessary for the application for agricultural purposes. Therefore, in all the quotations / proforma invoices issued to the farmers for bank finance purposes a few accessories are mentioned. However, after the finance of tractor by the bank, the farmers many a time do not purchase the accessories. It is because the assessee is dealing in the accessories of Messy Ferguson (MF) which are much costly than the local made agricultural accessories. The assessee prepares the final invoices in respect of the tractor and the accessories actually purchased by the assessee. Actual price of such tractor and accessories on the date of actual purchase is mentioned in this invoice. In the books of account this correct invoice is entered. The excess amount, if any, sanctioned by the bank is refunded to the customer or adjusted towards the expenses on registration etc. of the tractor. 35. The assessee had given the detailed explanations in respect of the 53 transactions pointed out by the Assessing Officer. The Assessing Officer has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as issuing different invoices to the bank than what was entered in the books of account. The invoices issued to the bank were higher in value than the value shown by the assessee in its books of account. He submitted that in the explanation of the assessee there was variation in the price of tractor during the time taken in sanction of loan is without any supporting or corroborative evidence. He further relied upon the asst. order and Annexures 'E' 'F' of the said order. He contended that there was no satisfactory evidence of the refund of the money to the customers where the higher price was shown in the invoices to the bank. The assessee was charging more price than the price fixed by the company and it was the reason for the difference between the amount shown in the bank and the amount recorded in the books of account. He, therefore, contended that the addition has been rightly made by the Assessing Officer. The same should be upheld. 37. We have carefully considered the arguments of both the sides and have perused the materials placed before us. The undisputed facts are that the assessee is dealing in the tractors and accessories of MF. There was variation in the amount show ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... losed sale is liable to be taxed and not the entire sale price itself. During the course of search, it was found that the quantities of accessories were more in the books of account than what were physically found. The Assessing Officer has treated the same as sale outside the books of account. We have also upheld such addition. The Assessing Officer estimated the profit at 10% of the cost price. The sale of the accessories was out of the accessories shown in the stock as per books of account. Applying the same principle, we are of the opinion that on difference in the sale of accessories profit @ 10% should be added as undisclosed profit. The sale value of the accessories as per the bank invoices was Rs. 21,54,615 while as per amount entered in the books of account it was Rs. 7,89,025. The difference is Rs. 13,65,590. Further in respect of 6 items details of which are given in para 70 of the asstt. order, the Assessing Officer found difference of Rs. 2,33,252. Considering these two items we take the sale of accessories oat of books at Rs. 16 lakhs and estimated the profit @ 10% thereon. Accordingly, we uphold the addition of Rs. 1,60,000 as against the addition of Rs. 12,46,949 an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ls. In view of these facts, he submitted that there was no payment by the assessee which was not recorded in the books of account and, therefore, there is no question of any unexplained expenditure calling for addition under section 69C. 40. The ld. DR relied upon the asstt. order. He submitted that the sales register was found in the assessee's premises during the course of search. In the register, payment to various bank officials are noted. When the register was found from the assessee's premises onus was upon the assessee to explain the entries found recorded in such register. The amount is admittedly not recorded in the books of account. The assessee failed to give any plausible explanation in respect of the transactions recorded in the sales register. Therefore, the Assessing Officer was fully justified in treating the expenditure as unexplained expenditure under section 69C of the I.T. Act. 41. We have carefully considered the arguments of both the sides and have perused the materials brought to our knowledge. The photocopy of the register found is placed from pages 151 to 179 of the paper book. In page 151 itself, there is an index which exhibits which page of the regis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see's premises in register itself it has been mentioned in unambiguous words the name of the commission agents to whom the register belongs. Considering the totality of the facts, we have no hasitation to hold that no evidence is brought on record by the Revenue to prove that any expenditure in the form of payment to bank officials was made by the assessee. Therefore, section 69C cannot be applied in the case of the assessee, We may also mention that the payment made to the commission agents which is more than Rs. 14 lakhs in also recorded in the books of the assessee and the correctness of such payment is not in dispute before us. Accordingly, we delete the addition of Rs. 4,29,800. 42. The next ground of appeal is against the addition of Rs. 1 lakh as cash deposit as per register found at the time of search. The Assessing Officer made the addition of Rs. 1 lakh with the following observation: "Annexure AIII/2/31 page 9 : In page 9, the assessee has received in cash Rs. 1,00,000 on 1-7-1994 for one year deposits @ 20 per cent interest per annum which has not been posted in the books of account. The assessee could not give any satisfactory reply on the above receipt. The sum of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at there was no unexplained deposit as mentioned by the Assessing Officer, as per register found from the assessee's premises. Accordingly, we delete the addition of Rs. 1,00,000. 45. The next ground of appeal is against the disallowance of Rs. 24,920 being foreign travel expenses. The facts relating to this expenses are that Shri B.P. Agrawal, karta of the assessee (HUF), visited Mauritius and debited a sum of Rs. 24,920 in the books of account. The Assessing Officer made the addition on the ground that the expenditure was not incurred for the purpose of business. 46. We have considered the arguments of both the sides. In the present appeal, we are considering the assessment of block period as per Chapter XIV-B of the I.T. Act. We have already discussed while deciding ground Nos. 8 9 of the assessee's appeal. In our opinion, under Chapter XIV-B, the assessment of undisclosed income found as a result of search is to be made and any other addition/disallowance which is not covered by such undisclosed income found as a result of search is out of the purview of the Chapter XIV-B. The expenditure incurred on a foreign travel of the assessee was duly mentioned in the books of acco ..... X X X X Extracts X X X X X X X X Extracts X X X X
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