TMI Blog2000 (7) TMI 250X X X X Extracts X X X X X X X X Extracts X X X X ..... suppressed food sales and gross profit thereon in spite of the fact that the appellant had a licence only as a Beer bar and was not permitted to sell any food items. The ld. ACIT was not justified in concluding that the food sales shown in the seized record in fact represented sales of snacks and basing on that his estimate of suppressed sales and G.P. The appellant submits that suppression of sales and the G.P. thereon on account of food items was not the undisclosed income of the appellant and addition made on that account may kindly be deleted. 4. During the course of search, a diary (Mohan Meken Ltd.) was found and seized at the residence of Shenvi family, viz. Sitasadan. Shenvi family was running Samrat Beer Bar since 1-4-1988 and Samrat Dining since 23-6-1988, both at one premises at 511/KH, New Shahupuri, Kolhapur. Though the diary did not indicate that it contained entries relating the assessee, the partner admitted that the entries may be related to Samrat Beer Bar and Samrat Dining (vide answer to question No. 16 of the Statement of Shrikant S. Shenvi dated 23-8-1996). As per the rules regulating the Bars, a liquor cannot be served where food is served. In the dia ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... verage sales comes to ₹ 3,949 per day i.e. (Rs. 5,80,583 divided by 147 days). The yearly sales on this average basis works out to ₹ 14,21,820 (Rs. 3,949 X 360 days). He held that the net profit of 40% will be fair and reasonable on such suppressed sales in view of the following factors: (a) The business of the assessee firm is situated in the heart of the city closed to the bus stand and railway station where there is sufficient inflow of tourist as well as usual public; (b) The hotel enjoys very good reputation; (c) The hotel is open from morning to mid-night; and (d) The percentage of profit is always on the higher side where unaccounted business transactions are carried on. When the Assessing Officer put up the matter on applying 40% to the suppressed sales, the assessee submitted that the percentage of profit cannot be 40% but will have to be taken at 23% for the assessment year 1989-90 and 27% for the assessment year 1990-91 which is the average gross profit declared in the two Trading Accounts Rejecting the arguments of the assessee, the Assessing Officer applied the rate of 40% and worked out the additions aggregating to ₹ 6,95,649 as pe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... all not in any case combine the business of the sale of foreign liquor with any other business in or on the same premises. The rule 37 also prohibits any other business. Besides Rule 51(1) sale of foreign liquor in any place other except in the licensed premises which does not allow the assessee to serve liquor in dining hall. Further Rule 51 and under section 52(1) restricts the sale of foreign liquor only to permit holders. He further submitted that the Assessing Officer has also verified that the sale of food is of Samrat Dining and that sale of Samrat Dining had been included in the sale of food noted in the seized diary. The sale of food of Samrat Dining for the year ended 31-3-1989 is ₹ 7,70,603 and the sale which can be calculated from the seized diary upto 31-3-1989 is ₹ 2,07,370. Further, the sale of food of Samrat Dining from 1-4-1989 to 31-3-1989 is ₹ 9,09,113 which includes the sale of food calculated from diary of ₹ 2,05,419. In this connection, he drew our attention to P L a/c enclosed on page WS---19. The sales as per Books of Account of Samrat Dining and as per seized diary are as follows: -------------------------------------------- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nder the circumstances, we hold that the Assessing Officer is not justified in including in the hands of the assessee the suppressed food sales and gross profit thereon. This ground accordingly succeeds and the addition made for the suppressed sales and gross profit thereon is deleted. 8. Ground No. 2 reads as follows : The ld. ACIT further erred in estimating that there was suppression of sales to the extent of 70% of the actual sales. The said estimate based on only some few days of the seized material was not called for. The estimate of suppressed sales of the Beer Bar are excessive and the same requires to be substantially reduced. The estimate of G.P. at the rate of 40% also is equally excessive and the same may kindly be taken at a reasonable figure. In view of this, the appellant submits that the undisclosed income shown by the appellant at ₹ 2,00,000 for the block period may kindly be accepted. 9. As per the seized diary, there were suppressed sales of Beer etc. for the period from 29-8-1988 to 25-8-1989. The Assessing Officer states that the assessee would have continued the same pattern of suppressing the sales even for the broken periods for the financi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the best judgment of an Assessing Officer. In this view, we are supported by the decision of the Allahabad Bench of the Tribunal in the case of Dr. R.M.L. Mehrotra v. Asstt. CIT [1999] 68 ITD 288. It would be worthwhile to reproduce para 26 of the said decision which reads as under : 26. Now passing on the multiplication formula adopted by the Assessing Officer, we find ourselves unable to accord our nod to it. In the first place, one should not forget that it is a search case in which a search party is supposed and expected to find out all the incriminating documents, material as also undisclosed assets. A search assessment, much less a block assessment, therefore, stands on a footing different than a normal assessment much less an assessment based on the best judgment of an Assessing Officer. It is for this reason that the ratio of the Apex Court decision reported in the case of H.M. Esufali H.M. Abdulali [1973] 90 ITR 271 would not come to the rescue of the Department, as there it was a sales-tax matter and a best judgment assessment was required to be made. The material that the Sales-tax Officer was possessed of was the figure of 19 days sale by the assessee not entered in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on would be called for, because the assessee has declared undisclosed income at ₹ 2,00,000. If the addition so worked out exceeds ₹ 2,00,000 then only the difference between such addition worked out and ₹ 2,00,000 would be added. This ground accordingly succeeds in part. 14. Ground No. 3 reads as under: The appellant craves leave to add, alter, omit or substitute any of the above grounds at the time of hearing of the appeal. Obviously this ground is general in nature and calls for no interference. 15. In the result, the appeal is allowed in part. Per Singhal (JM) 16. After going through the order proposed by my learned Brother, I am unable to agree with his view discussed in paras 12 and 13 of his order that no estimate can be made on suppressed sales in the block assessment made under the provisions of Chapter XIV-B and consequently the addition on account of suppressed sales is to be restricted to the actual suppression found on the basis of material seized or found in the course of search. This very issue arose for our consideration in the case of K.M. Khopade in [ITA(SS) 281 (Pune) of 1997 dated 9-2-1997] and we could not arrive at a unanim ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me declaring undisclosed income of ₹ 2 lakhs. The Assessing Officer while processing the return, noticed that there were entries in the diary for the period 28-9-1988 to 25-8-1989 relating to suppressed sale of beer etc. and on the basis of these entries, he concluded that the assessee would have continued the same pattern of suppressing the sales even for the broken periods for the financial year. He worked out the suppression of sales at 70% and applying the rate of 40% as gross profit, arrived at the profit which was not disclosed to the income-tax authorities at ₹ 2,87,569 for the assessment year 1989-90 and ₹ 4,08,880 for the assessment year 1990-91, comprised in the block period. The total addition thus came to ₹ 6,95,649. 4. The assessee appealed to the Tribunal and contended that the estimate based on the seized material was not called for, that at any rate the estimate was excessive and required to be substantially reduced. On behalf of the department, it was contended that though the actual entries related only to the period 28-9-1988 to 25-8-1989, it would be a reasonable inference that the assessee would have continued the same pattern for sup ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... garding the rate of profit to be applied. 8. Thus, the difference between the ld. JM and the ld. AM is only in respect of the issue as to whether in an assessment under Chapter XIVB of the I. T. Act, the Assessing Officer is empowered to estimate the suppression of sales for a larger period on the basis of the diary found showing suppression of sales for a particular period comprised in the block period ? 9. Before I proceed to give my decision on the basis of the arguments advanced before me, a few further facts have to be noticed. According to the seized diary, the total sales in the food section and the bar section for the period 28-9-1988 to 31-3-1989 relevant for the assessment year 1989-90 came to ₹ 5,44,268. The Assessing Officer worked out the average daily sales at ₹ 2,942 (Rs. 5,44,268 divided by 185 days), He thereafter multiplied the average daily sales by 360 to arrive at the sales for the year ended 31-3-1989 which came to ₹ 10,59,120. Similarly, he worked out the sales for the previous year ended 31-3-1990 at ₹ 14,21,820. He compared this with the sales of ₹ 3,40,196 for the assessment year 1989-90 and ₹ 4,01,621 for the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the present case are different in the sense that in the present case, there is nothing to show that the seized material is not a complete record to suppressed sales and that the assessee had other records showing suppressed sales which were not found in the course of the search. According to him, if the only material that is found showing suppressed sales is the diary, the Assessing Officer can only take the figures of suppressed sales as per the diary and he cannot estimate further suppressed sales on the basis of the entries in the diary. 13. The ld. counsel for the assessee further submitted that the view taken by the ld. Third Member [K.M. Khopade's case] overlooks the omission of section 145 in clause (b) of section 158BC. It is submitted that the Legislature had advisedly excluded the applicability of section 145 to a block assessment and therefore the view of the Third Member that section 145 also applies to block assessment is erroneous. With reference to the view of the ld. Third Member that it is inherent in section 143(3) that the Assessing Officer can estimate the income, the ld. counsel for the assessee pointed out that this view is erroneous since separate p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ase were not different and even in that case, the ld. Third Member has held that even in the absence of any evidence, the Assessing Officer is empowered to estimate the income. He submitted that the facts of the assessee's case are similar to the facts in K.M. Khopade's case and therefore the same decision is applicable. In this connection, he drew my attention to the judgment of the Supreme Court in the case of Union of India v. Raghubir Singh [1989] 178 ITR 548 and pointed out that I as Third Member do not have the power to differ from the Third Member's view expressed in K.M. Khopade 's case. Reference was also made to the judgment of the Supreme Court in the case of Paras Laminates (P.) Ltd. v. Customs, Excise Gold (Control) Appellate Tribunal [1990] 183 ITR 167 (Delhi). The ld. DR also submitted that the power of estimation is inherent in section 143(3) itself as held by the ld. Third Member in Khopade's case and that an intelligent or honest guesswork is permissible even in a block assessment and the only condition is that the principles of natural justice must be followed and the assessee should be given an opportunity of meeting the case. With regard t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ete record of unaccounted transactions, the question which arises is whether these facts justify the estimation of undisclosed income ? He then proceeded to refer to various judgments of the Supreme Court to hold that since there were indications that the seized record was not the complete record of unaccounted transactions and since there were instances to show that the assessee did earn income from certain other transactions, an estimate of such income from those other transactions had to be necessarily made. Thus, in my view, the facts on which the opinion of the ld. JM, with whom the learned Third Member agreed, was based, were entirely different from the facts obtaining in the present case. To recapitulate, in K.M. Khopade's case, there were materials to indicate that the seized material was not the complete record of unaccounted transactions and that the assessee had certain other record of such transactions which could not be traced in the course of the search. No such evidence which would show suppression of sales in respect of the period other than the period 28-9-1988 to 25-8-1989 has been found in the course of the search. There is no other indication to suggest ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the seized material is not the complete record of unaccounted transactions or where there are indications to show that the assessee had certain other record of unaccounted transactions which was not unearthed in the course of the search. To hold that even in the absence of any such evidence or material, the Assessing Officer would be empowered to estimate the income is fraught with dangerous consequences. The very purpose of a search is to take the assessee by surprise and to assess his income on the basis of the evidence and materials found during the search. Once the rationale behind the search is kept in view, it would be clear that the law presumes that the assets or materials found in the course of the search are exhaustive of the undisclosed income of the assessee. The Assessing Officer is no doubt empowered to estimate the undisclosed income earned by the assessee, but the estimate is possible only when there is material or evidence found during the search to unmistakably show that such income has been earned. The Assessing Officer cannot presume that there must be some other material or evidence which is not found during the search and the assessee must have derived undiscl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hich means that the recovery and collection proceedings etc. which come into operation after the assessment is made are applicable to the block assessment and such provisions do not include section 145. Not only is it unnecessary to enter into such controversy in the view I have taken on the facts of the present case, but it would also be improper for me to seek to question the correctness or otherwise of the view taken by the majority in KM. Khopade's case. As I have already pointed out, the facts of the present case are different from the facts of K.M. Khopade's case. The view taken by the ld. Third Member in Khopade's case with regard to the applicability of section 145 and section 143(3) giving the power to the Assessing Officer to estimate the assessee's undisclosed income must be understood in the background of the facts in that case. It is unnecessary therefore for me nor would it be proper to decide these points in the present case. 22. For the aforesaid reasons, I agree with the conclusion of the ld. AM. 23. The appeal will now go before the regular Bench for passing orders on the basis of the majority view. Per Chhibber, Accountant Member.---The l ..... X X X X Extracts X X X X X X X X Extracts X X X X
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