TMI Blog2004 (3) TMI 358X X X X Extracts X X X X X X X X Extracts X X X X ..... n the basis of regular books of accounts found during the search could be sustained with reference to the provisions of s. 145 of the IT Act, 1961, which has been made retrospectively applicable to the block assessment w.e.f. 1st July, 1995, but which provisions were not applicable at the time of making of the block assessment without there being compliance of the requirement of s. 145 before resorting to best judgment assessment? (ii) Whether in taking resort to the block assessment for the block of 10 assessment years in question, income for the asst. yr. 1997-98, return for which has not fallen due, could be included in the block period for the reason that return for that assessment year has not been filed? (iii) Whether block assessment made by assessing authority as modified by Tribunal can be sustained in view of the amended cl. (c) of s. 158BB of the IT Act, 1961 as inserted by the Finance Act, 2002 w.e.f. 1st July, 1995? (iv) Whether in the facts and circumstances of the case, there was any foundation for resorting to best judgment assessment?" 3. After hearing the parties the Hon ble High Court restored the matter in controversy back to the Tribunal by order dt. 16 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch circumstances, other aspect of the same question can be allowed to be urged before the High Court. Therefore, the question whether the loans were advanced to a registered shareholder or not, which was only one aspect of the applicability of s. 2(6A)(e) of the Act, could be entertained and dealt with by the High Court in the reference even though it was not urged before the Tribunal." (ii) The Hon ble Supreme Court in the case of CIT vs. Mahalaxmi Textile Mills Ltd. (1967) 66 ITR 710 (SC) laid down the law on the point as under at pp. 712 713: "By the first question the jurisdiction of the Tribunal to allow a plea inconsistent with the plea raised before the departmental authorities is canvassed. Under sub-s. (4) of s. 33 of the Indian IT Act, 1992, the Tribunal is competent to pass such orders on the appeal "as it think fit". There is nothing in the IT Act which restricts the Tribunal to the determination of questions raised before the departmental authorities. All questions whether of law or of fact which relate to the assessment of the assessee may be raised before the Tribunal. If for reasons recorded by the departmental authorities in rejecting a contention raised by t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under: "Appeal to CIT(A) Powers of CIT(A) Assessment not made under s. 143(1) CIT(A) can permit assessee to claim deduction not claimed before ITO when relevant materials are on record IT Act, 1961, ss. 143, 246." (vi) The Hon ble Rajasthan High Court in the case of Shilpa Associates vs. CIT (2003) 181 CTR (Raj) 92 : (2003) 263 ITR 317 (Raj) laid down as under: "Thus, the limitation is provided only for the purpose of filing the appeal. Once the appeal is filed within the limitation, the memo of appeal can be amended as per the practice and procedure. The view does not require any precedent to support. If it is required, even for cosmetic purposes, learned counsel has referred to a decision of the Madras High Court in J.D.B. Srinivasam vs. Secretary to the Government of Tamil Nadu (1994) 92 STC 631. In the said case, the Court held that since the filing of additional grounds was a part of the continuous process of filing the appeal and the appeal having been filed in time, the additional grounds which could not be put forth before the lower authority or along with the appeal. The Court further observed that there was no time-limit for filing additional grounds, nor was there ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that matter. The objection of the learned Departmental Representative is also not tenable in the facts and circumstances of this case. The Hon ble High Court has restored this matter with a direction to follow the decision of Shaw Wallace Co. Ltd. vs. CIT. The relevant portion of the above Supreme Court decision is being reproduced below for ready reference: "The Tribunal to hear the appellant s appeal against the block assessment order dt. 28th Nov., 1997. It is clarified that it is open to the appellant to raise all contentions which are available to it in law. The Tribunal will dispose of the appeal without being influenced by any observations made in the order of the Tribunal dt. 22nd April, 1998, or 1st June, 1999, and the order of the High Court dt. 17th Nov., 2000." 8. According to Shaw Wallace Co. s decision, the appellant can raise all contentions which are available to it in law. This contention raised by the assessee is definitely and undisputedly available to the appellant as per law. In view of the above, we allow this additional ground as ground No. 7. We find support from the decisions relied by learned Authorised Representative and discussed above. Having a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... esentative has contended that the word initiation used in s. 158BE(2)(a) implies the date of initiation of search, which is 3rd Jan., 1997, and not the date of authorisation of search warrant. 14. We have circumspectiously treaded through the learned arguments as advanced from both the sides. We have carefully gone through the relevant provisions of the law and the decisions relied before us. 15. Before setting the controversy at rest regarding initiation of search in this case, we would have to revert back to the relevant provision of the Act and the related decisions thereto. The decision of date of initiation assumes ominous overtures in this context, because this will decide as to whether the assessment order in question is within or beyond limitation. 16. There is no dispute that the search warrant was authorised by the designated authority after recording satisfaction and issued the warrant of search on 30th Dec., 1996. This warrant was executed on 3rd Jan., 1997. The learned Authorised Representative states the initiation took place on 30th Dec., 1996 but the learned Departmental Representative states that this initiation took place on 3rd Jan., 1997. 17. S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... decision of five judges Bench of this Court in the case of CIT vs. S.V. Angidi Chettiar. Shah J, speaking for the Court, while dealing with s. 28 of the Indian IT Act, 1922, observed: The power to impose penalty under s. 28 depends upon the satisfaction of the ITO in the course of proceedings under the Act; it cannot be exercised if he is not satisfied about the existence of conditions specified in cl. (a), (b) or (c) before the proceedings are concluded. The proceedings to levy penalty has, however, not to be commended by the ITO. Satisfaction before conclusion of the proceedings under the Act, and not the issue of a notice or initiation of any step for imposing penalty is a condition for the exercise of the jurisdiction." We are also not impressed by the argument advanced on behalf of the appellant that the proceedings for the imposition of penalty were initiated not by the ITO but by the IAC when the matter had been referred to him under s. 274(2) of the Act. The proceedings for the imposition of penalty in terms of sub-s. (1) of s. 271 have necessarily to be initiated either by the ITO or by the AAC. The fact that the ITO has to refer the case to the IAC if the minimum imp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... have been complied with and, therefore, the initiation was justified. (iv) Artisan Press Ltd. vs. ITAT (1958) 33 ITR 670 (Mad), 673 last line to 674: "Based on above, the appellant humbly submits that, the time limit available to the AO under s. 158BE(2) was only one year from the date of issue of notice under s. 158BD on 8th March, 1999 as the case of the appellant falls in cl. (a) of s. 158BE(2). Since the date of initiation of search as per the authorisation in the search warrant was 30th Dec., 1996 (i.e., before 1st Jan., 1997). Hence, the order passed under s. 158BD r/w s. 158BC on 28th March, 2001 is barred by limitation and the assessment done is, therefore, bad in law." 18. The learned Departmental Representative has filed a written statement ostensibly drafted by learned CIT, Departmental Representative from Jaipur, wherein he has vehemently submitted that the decisions relied by learned Authorised Representative are not applicable to the present case and are distinguishable. He has given in detail the meaning of the word 'initiation'. 19. The undisputed facts of this case are that the warrant of authorisation was signed by DIT on 30th Dec., 1996 and the search w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... om the date of receipt of this order. The order of the Hon ble High Court is short and we would like to reproduce verbatim for the sake of guidance and ready reference: "It appears that both the parties concurred that the ratio of the decision of the Hon ble Supreme Court rendered in Shaw Wallace Co. vs. CIT (2003) 180 CTR (SC) 106 : (2003) 129 Taxman 542 (SC) applies to the facts of this case and the Hon ble High Court gave the following directions to the Tribunal while restoring the matter back to Tribunal in para 2 of the order: The Tribunal to hear the appellant s appeal against the block assessment order dt. 28th Nov., 1997. It is clarified that it is open to the appellant to raise all contentions which are available to it in law. The Tribunal will dispose of the appeal without being influenced by any observations made in the order of the Tribunal dt. 22nd April, 1998, or 1st June, 1999, and order of High Court dt. 17th Nov., 2000." 22. The decision of the Hon ble Supreme Court in Shaw Wallace Co. Ltd. vs. CIT is a small judgment. In para 2 of this order which we are reproducing below, the Hon ble Supreme Court has clarified that: "It was open to the appellant to r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rised Representative which is in relation to the initiation of proceedings under s. 147(a) and 271(1)(c) which are not applicable in the present case. According to the learned Departmental Representative, no search action can be initiated unless warrant of authorisation so issued by the competent authority to initiate search action by execution of same is served on the concerned person. So, according to him, initiation of search means the actual carrying out of the search and seizure operation and the conclusion of the same is vital factor for determining the time limit. 25. In the case of search under s. 132 of the Act, the authority which issues warrant under s. 132 has to satisfy itself about the applicability of the conditions outlined in s. 132(1)(a), (b) and (c) of the Act. Once the authority is satisfied, then the warrant is issued authorising the lower authorities to actually execute the warrant and conduct the search. The issue of authorisation warrant is the first step for conduct of search would mean initiation of search. Explanation 2 which was inserted by the Finance (No. 2) Act 1998 with retrospective effect from 1st July, 1995 which reads as under: "In this secti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case of Nirmal Gosh vs. Dy. CIT (2002) 77 TTJ (Cal) 869 : (2002) 82 ITD 788 (Cal) has come to the conclusion that initiation means the action taken and would not mean the end result taken under the authorisation. 27. But in the case of this appellant, books of accounts were seized under s. 132(1) on 3rd Jan., 1997. The words appearing in s. 158BE(2)(b) are "books of account requisitioned". So the date of books of accounts seized is 3rd Jan., 1997. So, the period of limitation would be 2 years in this case. The case laws relied by learned Authorised Representative are distinguishable. 28. In view of the matter and our above findings, the assessment order in question is within limitation. The additional ground of appeal is dismissed. 29. On merits, the relevant facts are as under: 30. As stated above, a search under s. 132 of the Act was conducted on 3rd Jan., 1997 at the business and residential premises of Shri Rameshwarlal Soni and Shri Suraj Prakash Soni, sons of Shri Mangi Lal Soni, Goldsmith, Sunaron Ka Bas, Jodhpur. During the course of search, jewellery, cash and other valuables, books of accounts for the period during the calendar year 1986 upto 1996 (from 1st Jan., ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) 1987-88 Nil Return not filed below taxable limit 2nd 1988-89 Nil -do- 3rd 1989-90 Nil -do- 4th 1990-91 Nil -do- 5th 1991-92 36,040 6th 1992-93 54,950 7th 1993-94 63,210 8th 1994-95 4,802 9th 1995-96 50,410 10th 1996-97 1,27,340 11th (latest) upto 3.1.1997 1997-98 61,780 Total 4,41,750 Total undisclosed income of the block 4,41,750 Tax Payable 2,65,750 Tax paid under self assessment on 19.10.2000 2,65,050 32. The base for filing of return in Form No. 2B was receipts for job charges including that of pearls and naginas, etc. and interest from money lending and the assessee adopted the method of excluding the cost of pearls and naginas from the job charges calculated by him and reducing therefrom salaries and shop expenses, etc. The assessee s case is that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the receipts shown in the return of income in form 2B which was necessary for getting necessary verification. The AO pointed out various defects as mentioned below: (i) The assessee has not added the income from nag powai, nag setting, dori bandhai, etc. (ii) That for the calendar year 1986-87 to 1991-92 the assessee did not maintain any cash book but in the so called job and P L a/c prepared by the assessee on the basis of which the assessee has filed the return of income in form No. 2B the assessee has claimed allowances on account of salary paid to helper, shop expenses, etc. A.Y. Job charges + Cost of pearls Cost of pearls Net receipts Salary Shop expenses Net profit including interest 1987-88 98,545 48,413 50,132 13,600 22,349 14,183 1988-89 1,10,978 42,174 68,804 23,000 28,800 17,004 1989-90 1,17,683 53,184 64,499 23,000 30,800 10,699 1990-91 1,62,832 69,619 93,213 + 1,500 (intt.) 36,000 41,100 17,613 1991-92 2,00,638 86,224 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s or receipt of gold ornaments after finishing of a particular job. So, in the absence of that the verification of availability of gold cannot be ascertained and there is no other alternative but to charge to tax the undisclosed income to the assessee in the shape of gold saved on account of impurities to the extent of 12 per cent as stated above. In addition to this on account of profit from the naginas the moti charged from customers after purchasing the same from market earnings are made. He was also of the opinion that goldsmiths do purchase the old gold ornaments at a considerably low rate by stating the purity of those ornaments at a lesser value than the actual. The assessee has not been able to give the details of the persons from whom gold has been purchased, supports the view that some of the gold has been purchased from smugglers at a much lesser rate than the market price or the price at which the ornaments are sold. So the AO added to the profit of total transaction recorded in the books to the tune of 20 per cent by adding majdoori about 5 per cent impurity about 12 per cent and 3 per cent on account of income from nagina and moti and direct gold purchase from smuggle ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... IT(A), while giving specific findings as regards each defect pointed out by the AO as erroneous, and accepting the claim of the appellant, erred in giving an incorrect conclusion, which though lead to a substantial relief but, confirmed the basis of estimation of the AO, which was formed on hypothetical and imaginary grounds. The relief given by the learned CIT(A) was to the extent that he reduced the percentage from 20 to 5 per cent, as income of the appellant from job work. The learned Authorised Representative has disputed the very basis of the estimation applied by the AO and confirmed by the learned CIT(A). 36. We have heard the rival submission and perused the evidence on record. We give our finding on this issue as below. 37. This finding of ours will dispose of ground Nos. 1 to 3 of the appeal of the assessee and ground No. ii of the appeal of Revenue which arise out of common facts. 38. Undisputedly this is a case of search as per the amended law, which is applicable with retrospective effect from 1st July, 1995 made in s. 158BB of the Act. Any document, etc. found during the course of search and any evidence relatable to such evidence found during the course of sear ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gina setting, etc. is very very high and is not supported by any documentary evidence. It is revealed from the documents seized during the course of search that the appellant had recorded labour charges income from nagina setting and also had recorded cheejat wherever received. 43. So, in our opinion, the income estimated by AO and sustained to some extent by the learned CIT(A) is not borne out of the three types of evidence which are detailed above and available on record. So the act of the AO in estimating the income of the assessee at the rate of 20 per cent on receipts from customers is erroneous since there is no material/document suggesting any income other than that declared by the appellant found during the course of search. It is a fact that the books of accounts of the appellant were incomplete to the extent that various expenditure like salaries, electricity expenses, purchase of chemicals, telephone, conveyance, etc. which are bound to be incurred are not recorded in the books of accounts of the assessee. But the gross income from labour charges which is claimed to be the only source of income are fully recorded which is not disputed by the Department as well. In the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ord. So, the entire capital of Rs. 5,50,559 is taken to have been introduced in the accounting year relevant to the asst. yr. 1987-88. This amount is undisclosed income of the appellant for the asst. yr. 1987-88. 48. On the other hand, the learned Authorised Representative Shri U.C. Jain has submitted that the AO was not justified in making the addition of Rs. 5,50,559 on account of initial capital as on 31st Dec., 1985 which relates to the period beyond the block period. It cannot be treated as undisclosed income of the appellant from any stretch of imagination. The appellant is HUF and doing the business of goldsmith. The appellant had maintained ledger wherein it had recorded the details of work done. The appellant had recorded receipts of amounts, old gold ornaments received from customers, facts of return of gold ornaments to customers and other receipts on account of nagina setting and on account of cheejat. According to the learned Authorised Representative this amount of Rs. 5,50,559 was quite evident from such ledger and was the capital of the HUF as on 1st Jan., 1986. Block period for the purpose of ascertaining the undisclosed income starts from 1st April, 1986 and the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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