TMI Blog2008 (8) TMI 779X X X X Extracts X X X X X X X X Extracts X X X X ..... and not in thousands ignoring the continuous shift in the stand of the assessee, documentary evidence in the form of seized papers and inquiries conducted by the Department. 2. That in the circumstances and the facts of the case, the learned Commissioner of Income-tax (Appeals) had erred in interpreting the contents of pages 4 and 5 of annexure B3 in isolation to the disregard of other seized materials which suggest inference to the contrary. 3. That the learned Commissioner of Income-tax (Appeals) has erred in granting further relief as per directions although it was not claimed as per grounds of appeal. 4. That the learned Commissioner of Income-tax (Appeals) had erred in blindly relying on the illusory observations and order of the Assessing Officer of the firm by attributing transactions of the assessee to the firm on the basis of the changed version after the assessee received the order of firm. 5. That in the circumstances and the facts of the case, the learned Commissioner of Income-tax (Appeals) had erred in holding that the assessee did not have the financial worthiness to do business on such a large scale thereby contradicting his finding on page 19 of the appella ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... were found and seized from the assessee s business and residential premises, which reflected large transactions of purchases and sales of rough and polished diamonds. In response to a notice under section 158BC of the Act, the assessee filed return of income disclosing dalali income of Rs. 2,00,000 from transactions reflected in seized papers and paid tax thereon. The entries in diaries seized contained purchases and sales of diamonds. annexure B3 pages 4 and 5 contains a trial balance of investments up to the period ending Diwali 1995, i.e., up to October 20, 1995. Pages 4 and 5 reflect the identical state of financial affairs of payables and receivables at the end of the year. The relevant pages 4 and 5 of annexure B3 are reproduced by the Assessing Officer as well as by the Commissioner of Income-tax (Appeals) in their respective orders and for the sake of understanding and clarity, we are again reproducing the same as under : Aav. Baki 20.10 (Receivables as on 20.10) (1) 345 Shri Purant (opening) (2) 4945 Rough ni ughrani (money receivable on account of rough diamonds) (3) 12815 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 109773 `Chu. baki'(payables) 12650 D Naresh (D Naresh) 922 Shivam (Shivam) 3579 Local rough SD and KL (Payable on account of local rough to SD KL) 22222 MR rough 9000 NF 93 (Nafa 1993) 18400 NF 94 (Nafa 1994) 3000 NF 95 (Nafa 1995) 109773 Except these documents marked as annexures B1, B2 and B3, no other money, bullion, jewellery or valuable articles or things or any investment/ expenditure in any of the movable or immovable assets were found during the course of search by the Income-tax Department. However, it is to be clarified that cash of Rs. 35,000 was found and seized by the Department. The assessee was engaged in the activity of diamond job work on a small job work basis during the period April 1, 1991 to March 31, 1993 as a job worker with the firm M/s. Vallabhbhai Manjibhai and Co. situated at Bortalav, Bhavnagar. Subsequently, the assessee was engaged i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... njibhai Ramjibhai, the figure of 1265 related to D. Naresh and the figure of 3579 related to SD and KL. The Assessing Officer required the assessee to prove these figures with the documentary evidence and it was noted by the Assessing Officer that in the absence of any documentary evidence/ satisfactory explanation why the figures in the said paper should not be decoded. The Assessing Officer required these information vide show-cause notice dated July 26, 1999, wherein the Assessing Officer stated that it was hard to imagine that the assessee was maintaining undisclosed accounts to the extent of Rs. 345, Rs.1,886 and Rs. 1,965 as alleged whereas these figures would be rounded off while making entries even in the regular books of account. Secondly, if the sums were so small, the assessee would have ignored the same for the purpose of undisclosed accounts as he had shown more cash balance and withdrawals in his regular books of account. The Assessing Officer gave the example that the repairs of Rs. 284 for four ghantis would have amounted to Rs. 1,136 and not Rs. 4,961 as allegedly claimed by the assessee. In response to this show-cause notice the assessee replied and explained the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... repairing expenses at the rate of Rs. 284 per person and there were four persons engaged in repairing of 1 ghanti. Therefore, the repairing expense per ghanti was Rs. 284 x 4 persons is = 1136 and for 4 ghanties it was 4544. The balance Rs. 417 was the miscellaneous repairing expenses of lathe machine. 6. Rs. 819 was the miscellaneous repairing expenses on Swetraj Building where the assessee carried on manufacturing work. 7. Rs. 1,280 was spent on purchase of furniture, i.e., table, etc., in the small rented factory. 8. Rs. 1,886 where the unaccounted withdrawals of two years which were spent by the assessee on household expenses in addition to the withdrawals recorded in the regular books of account. 9. Rs. 80,757 stood for outstanding debts and stock of polished diamonds. Similarly, each entry of credit side was explained as under : 1. Rs. 12650 was payable to D Naresh. 2. Rs. 922 was payable to Shivam for incurring the expenses on behalf of Shivam, Rs. 2,000 was taken out of which Rs. 1,078 was spent and balance Rs. 922 was the returnable amount to Shivam 3. Rs. 3,579 was payable on account of rough diamonds to creditors for purchases. 4. Rs. 29,222 was the amo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the assessee but these are untenable for the following reasons. (a) The assessee has claimed that page 4 was the consolidated trial balance as on Diwali 1995 for his unaccounted dalali/commission income and miscellaneous manufacturing business. It has been alleged that he was engaged in the activity of rejection/polished diamonds on a very small basis. However, for the detailed discussions made in paragraphs 7.4, 7.5 and 7.9 of this order, it is held that the assessee was not doing any business of dalali/ commission in rejected diamonds. Independent inquiries were made from outside and it has been conclusively proved that the assessee had made substantial unexplained investment in rough diamonds in the year 1995, 1996 and 1997. The concocted story of rejected diamonds was neither supported by the contents of seized papers nor by the prevailing market rate of the same in the last five years. The claim of the assessee that he was doing activities in rejected/ polished diamonds on a small scale basis is feeble and preposterous. On the other hand, the seized papers clearly show that his unaccounted transactions were in crores and not in few thousands as alleged by the assessee. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he facts of complete reconciliation of stock of rough and polished diamonds on the date of search in the case of M/s. Shivam Exports, no outstanding collection, no money in circulation of business of firm and having regards to the facts of ownership of a single simple house. In this regard, it is pertinent to mention here that the assessee s undisclosed income is being estimated on the basis of seized material found from his residence at the time of search. Thus, there is no application of any theory of guess work or statistical forecasting in the present case. There is also no denial of the fact that M/s. Shivam Exports formally came into existence after Diwali 1995, i.e., in the accounting year 1995-96 and there was not any capital in the books. From the records, it is seen that labour charges of Rs.2,09,40,805 had been debited to the profit and loss account of M/s. Shivam Exports for the accounting year 1995-96 and against the same, sundry creditors for labour charges stood at Rs. 1,37,48,309. The figures were highly unrealistic as far as diamond trade was concerned where in labour charges were paid every fortnight, i.e., within 15 days. There was not an iota of doubt that so ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eclared value in books of account Value assessed by Valuation Officer Up to 31.3.96 Rs. 15,500 Rs. 3,03,733 Up to 31.3.97 Rs. 2,72,399 Rs. 6,18,937 Up to 30.6.98 The return for assessment year 1998-99 has not been filed till date Rs. 1,01,438 Rs. 2,87,899 Thus, when the unexplained investment by the assessee in his residential house exceeds Rs. 7.36 lakhs, then in such circumstances, I am unable to understand as to how the assessee has stated that his net worth did not exceed Rs. 2,00,000 during entire block period. In response to a show-cause notice dated February 18, 1999, the assessee has claimed vide letter dated July 19, 1999 that the cost of construction of the said bunglow as recorded in the books of account was Rs. 8,91,711. However, the above figures of cost of construction of Rs.2,87,899 have been taken from the records for the assessment years 1996-97 and 1997-98. Accordingly, the assessee s grievance in the matter is not justified. It is not necessary that the assets proportionate to one s net worth should always be found at the time of search. For ins ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... said pages have to be read in thousands . Since the cost of one generator of 125 KV was Rs. 5,00,000, therefore the impugned figure of 4961 cannot be taken as Rs. 4,96,100, i.e., in hundreds. However if the investments are taken in thousands of 4961 then only the figures will reconcile. Therefore, it becomes clear that the assessee had made investment in 284 ghanties and generators to the tune of Rs. 40 lakhs. As far as balance investment of Rs. 9,61,000 is concerned, it can be safely presumed to have been made in electric motors attached with ghantis (without which ghantis cannot run), lathe machines (required for production), catories, round safe machine, dies and pinner machine and installation charges. In my opinion, there is no ostensible reason to repudiate the above findings as no machine can run without its essential accessories. As regards the figure of Rs. 819, the assessee claimed in his statement recorded during the course of block assessment proceedings on July 9, 1999 that he has carried out repair in Swetraj House which was taken on rent from one Shri Khodabhai. The assessee could not submit any evidence of repairs and accordingly the Assessing Officer has not be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch entry appears in his capital account with the firm for the assessment year 1996-97. Even otherwise if the assessee was maintaining his undisclosed account for such alleged small sums, then in such circumstances, the difference of Rs. 200 should be viewed as quite significant. Thus, the assessee is guilty of changing his stand from time to time. In addition to the above, the assessee has failed to show the entries for Rs. 2,000 or Rs. 20,000 and Rs. 922 or Rs. 722 in the books of account of M/s. Shivam Exports. The details of expenses incurred have not been furnished. Accordingly, the explanation of the assessee in this regard remains unsubstantiated and the same is rejected. As regards the profit figure of Rs. 63,400, the assessee has explained vide letter dated September 23, 1999, that this profit has already been noted as 634 cannot be estimated by adding further digits. The assessee stated that on page 4 of annexure B3 against the profit of Rs. 63,400, figure of 634 has been circled off. The Assessing Officer rejected the explanation and stated that the assessee s net profit would automatically become Rs. 6,34,000. In view of these findings, the Assessing Officer drawn ba ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e pages 3, 4, 5, 6 and 9 of annexure B1. Thus, without these accumulated profits, it was almost impossible to have unexplained investment in rough diamonds of such a magnitude. Therefore, the contents of pages 4 and 5 of annexure B3 pertaining to years prior to Diwali 1995 have to be actually interpreted in relation to the other seized material. Any reading or interpretation of the same in isolation would be nothing short of travesty of justice. I am of the opinion that the assessee cannot be allowed that latitude. The Assessing Officer also discussed the case law of the hon ble Bombay High Court in the case of Bhojraj Kishanchand v. CIT [1994] 209 ITR 500 and has drawn the similarities in paragraph 6.15, paragraph-wise as under: (1) In the assessee s case also, handwritten trial balance (from which the balance-sheet can be constructed) was seized during search. (2) In the assessee s case also, net profit (nafa) of Rs. 6,34,00,000 was also shown in the said trial balance. The same will be his capital when the balance-sheet is constructed. (3) In the income-tax returns for the assessment years 1994-95, 1995-96 and 1996-97, no reference or disclosure of the said diamond bus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee in the block return. Aggrieved, the assessee preferred appeal before the Commissioner of Income-tax (Appeals) on this issue. The Commissioner of Income-tax (Appeals), after going through the case records, the remand report of the Assessing Officer and the submissions made by the assessee, partly allowed this issue of the assessee s appeal vide paragraph 1.4 at pages 15 to 19, which read as under : 1.4 I have considered the facts and the merits of the case. I have gone through the case law relied on by the Assessing Officer and the appellant. The case was discussed extensively with the Assessing Officer. The Assessing Officer was supplied with the copies of all the submissions made by the appellant s representative at the time of hearing. The Assessing Officer has decoded the entries by adding three zeros on the basis of the facts stated in paragraph 6.7(e) and paragraph 6.14 which are reproduced as under : 6.7(e) Independent inquiries regarding invoice price of 284 ghantis and four generators of 125 KVA were made from the sellers of these items. Information was called from M/s. Shakti Diamonds Tools, 5/1921, Ambika Niwas, Limda Sheri, Surat who were suppliers of ghan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing to his personal business. Same finding has been given in the case of the appellant, M/s. Shivam Exports and Mr. Ghanshyam M Shankar. On this point, there is no dispute left. The appellant had filed explanation before the Assessing Officer about the entries made on pages 4 and 5 of annexure B3. The appellant has again filed explanation about these entries in the written submission dated March 21, 2000 (copy made available to the Assessing Officer). The Assessing Officer while recording has basically relied on the entry regarding investment in ghanties and generators. It is claimed by the appellant that in the seized paper, the word used is ghanti and not semi-ghanti . The cost of the simple ghanti is less than Rs. 1,000 each, as certified by M/s. Shakti Diamond Tools. Regarding generator sets, there is no mention as to whether the generator sets purchased were old or new. Old generator set can be purchased even for Rs. 50,000. Even if, it is presumed that the appellant had purchased 284 ghanties and 4 generator sets, the total cost will be less than Rs. 5 lakhs (cost of one simple ghanti at the rate of Rs. 900 and the cost of old generator at the rate of Rs. 50,000 per genera ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lant and the investment made in the firm comes to almost at the same amount. In case, two zeros are put against these amounts, there will not be much distortion in the working. In the case of M/s. Shivam Exports, the figures written by the appellant only on the papers have been taken by adding two digits (papers 17 and 18 of the order), which has been confirmed in the appeal. Considering the above facts and the stand taken in the case of M/s. Shivam Exports, I hold that it would be reasonable to take the figures given on pages 4 and 5 of annexure B3 by adding two zeros. On this basis, the total income will work out to Rs. 63,40,000. The Assessing Officer has mentioned about the bills in respect of repairs, etc., which could not be verified. There was a search in the case of the appellant and the case of the appellant was under deep scrutiny. The matter was pertaining to years 1993 to 1995. In such circumstances, normally, the concerned parties will not co-operate. Also, they might have shifted from the address given. Even otherwise, while taxing the unaccounted income from such notings, the benefit has to be given for deduction of expenses on the same line as the receipt and the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he same the three zeros, i.e., in thousand. Accordingly, we are discussing the facts of the second issue before giving our findings on both the issues. The next issue in this appeal of the Revenue is, whether the Commissioner of Income-tax (Appeals) has erred in deleting the addition, made by the Assessing Officer on account of unexplained investment in rough diamonds and undisclosed profits in trading of rough diamonds, by holding that the assessee is not in a position to handle such a large business as well as that the entries in annexure B1 and B2 relate to the firm M/s. Shivam Exports as well as the other partner of the firm Shri G. M. Shankar. They briefly stated facts leading to this issue are that during the course of search on September 24, 1997, annexures B1 and B2 were found and seized. From these seized documents the assessee claimed before the Assessing Officer that page 1 of annexure B1 was related to assorting of rough diamonds. Similarly page 2 of this annexure is regarding carry forward of details of page 1 and these details were of import invoices of rough diamonds and these invoices were said to be recorded in the regular books of account of M/s. Shivam Export ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Super Gems (3) Sanghvi Sons (4) Ashok Gems (5) Manmohan Gems (6) Poonam Gems (7) A. Himanshu (8) Mahek Gems (9) Diya Jewellers (10) Marudhara (11) Ram Krishna Vide letter dated September 23, 1999, the assessee has claimed that the above persons are working in the diamond market from where they may be verified. I am perplexed as to how the undersigned can examine these parties without knowing the exact location of diamond market and without knowing their complete addresses. In course of his statements recorded on July 9, 1999 and September 10, 1999, the assessee has already pretended total ignorance regarding whereabouts of the abovementioned parties. In such circumstances, there is no way to verify the assessee s claim. It was strange that the assessee had forgotten the identities of all the above mentioned parties except VI which he himself decoded as Vinubhai Arjanbhai . This also prima facie appeared to be wrong as general coding for the said name would be V A and not V I as alleged. The inquiries revealed that one of the parties whose name appeared on page 3 was Super Gems, which was based in Belgium at 18-20, Schupstaat, B-2018 Antwerp and M/s. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... imported 9672.56 carats of rough diamond in February, 1997 and 3000.06 carats of rough diamond in March 97 from M/s. Super Gems. In view of the above discussion, the Assessing Officer decoded the documents annexures B1 and B2 by giving the following findings in paragraph 7.10, which reads as under : 7.10 As regard pages 1, 2, 8 and 9 of annexure B1, the assessee had claimed that various entries on the said page related to assortment of rough diamonds out of particular quantity of lot of rough diamonds on specific date. However the assessee s submissions are being rejected for the following reasons : (a) Pages 2 and 9 of annexure B1 were related to purchase of rough diamonds at Surat and pages 1 and 8 of annexure B1 were related with sale of these rough diamonds at Mumbai. Thus 2229.71 carats of rough diamonds purchased at Surat for Rs. 10,36,500 (decoded for 103/65) have been sold at Mumbai for Rs. 12,08,700 (decoded for 120/87). This rough diamond was of double type. Similarly, 660.88 carats of rough diamonds purchased at Surat for Rs.2,65,400 have been sold at Mumbai for Rs. 3,01,200. This rough diamond was mentioned as which meant that it was of chowki type. (b) The tr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lated to sale of rough diamonds and entries on right hand side of pages 1, 2, 3 and 4 related to purchase of rough diamonds. (ii) The carats and purchase/sale price on these pages have been simply added and grand total appears at the bottom of pages 1, 2, 3 and 4. Thus, we find that 5610.56 carats of rough diamonds have been purchased for a price of Rs. 32,00,200 and sold at a price of Rs.38,89,300. The difference of two works out to Rs. 6,89,100 which is nothing but profit in these transactions. The figure of 6891 is also shown as purant at bottom which means opening cash balance and same is coded for Rs. 6,89,100. (iii) At the bottom of page 2 purant of Rs. 2,81,200 has been worked out in a similar way and to the same NF (nafa of profit) of Bhavnagar transaction of Rs. 1,07,800 is added. The total works out to Rs. 3,89,000. Thus, these transactions were related with purchase and sale of rough diamonds and not with assortment of diamonds as alleged by the assessee. In view of these facts, the Assessing Officer held that the figures decoded be read in thousands. But the Assessing Officer in the combined trading account considered the bank Aawak of Rs. 2,57,52,000 as not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 86,20,905 are not recorded in the books of account. The sources of purchases of rough diamonds remain unexplained. The decision of the Kerala High Court (CIT v. G. Anandarajan [1997] 228 ITR 664) is relevant in the present context. In the said case, there was sale of commodity in excess of what was available as per books of account. When confronted, the assessee could not give proper explanation regarding sources of investment for purpose of excess stock sold. The High Court accordingly held that the amount of undisclosed investment was assessable as the assessee s income. To be fair and reasonable, since the assessee had capital of Rs.6,34,00,000 by Diwali 1995, it would be logical to presume that some of the investments were made out of these funds. Accordingly, the investment to the extent of Rs. 6,34,00,000 out of total investment of Rs. 11,86,20,905 is treated as explained subject to the assessee agreeing to initial capital of Rs. 6,34,00,000 in his hands, because in the present case, the assessee has totally disputed the profits of Rs.6,34,00,000 up to Diwali, 1995 in his hands. The assessee has allegedly claimed to be dealing in rejection of diamonds of lower qualities. It ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... annexure B1. The Assessing Officer of M/s. Shivam Exports has treated the entries of annexure B1 as pertaining to M/s. Shivam Exports, while completing the assessment. On pages 12 to 16 of the assessment order of M/s. Shivam Exports (extract reproduced earlier), the Assessing Officer of M/s. Shivam Exports has held that the appellant was only an employee of M/s. Bhavani Gems before becoming a partner of M/s. Shivam Exports and did not have financial capacity to carry out business on such a large scale. On the papers seized, the name Shivam has been mentioned at a number of places. The Assessing Officer of M/s. Shivam Exports has taken the entries made on annexures B1, B2 and B3 (except for pages 4 and 5) as belonging to M/s. Shivam Exports only. In the written submission, the appellant s representative has claimed as under : On page 22 of the assessment order at paragraph 6.14 the Assessing Officer has observed that the appellant has made substantial investment in the rough diamonds. The Assessing Officer worked out the figure of Rs. 2,86,25,655 on the ground that pages 1, 2, 3, 4 and 29 of annexure B2 are the unaccounted investment of the appellant. It was explained to Asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... disclosed income. In the case of Shri Himmatbhhai K. Bhadiadara the assessee had accepted the contents of seized material and made disclosure of Rs.52,00,000 in his individual case during the course of search as well as during post search proceedings. The Assessing Officer after verification of entries in seized material and having regard to investigation adjudicated that the transactions belong to firm and not to its partner. The copy of the assessment order is enclosed (pages 291 to 297). The Commissioner of Income-tax (Appeals)-IV, Baroda, also confirmed that income belongs to firm and not to the partner. The copy of order of the Commissioner of Income-tax (Appeals)-IV, Baroda is enclosed (pages 298 to 305). Even in the case of the brother of the appellant, addition has been made on the basis of pages 4 and 5 of annexure B3, holding that all the other annexures are pertaining to M/s. Shivam Exports. The facts of the case of the appellant suggest that the appellant was not in a position to do such large business independently without the knowledge of partners of M/s. Shivam Exports in respect of which, a huge addition has been made by the Assessing Officer. As mentioned ear ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bles. It was argued that first of all the Assessing Officer has erred in not accepting the evidence produced before him in regard to the entries made in the trial balance seized as annexure B3 pages 4 and 5. Learned counsel contended that the lower authorities have relied on various inapplicable decisions, the facts of which have no relation to the facts of the assessee and ignored the correct decisions relied on by the assessee. The decisions relied on by learned counsel for the assessee are that of the Income-tax Appellate Tribunal in Asst. CIT v. Karodilal Agarwal [1994] 50 TTJ (Jab) 393, M. V. Mathew v. ITO [1993] 46 TTJ (Coch) 353, ITO v. W. D. Estate P. Ltd. [1993] 46 TTJ (Bom) 143, CIT v. S. M. S. Investment Corp. Ltd. [1994] 207 ITR 364 (Raj), Rajpal Singh Ram Avtar Singh v. ITO [1991] 39 TTJ (Delhi) 544, Satishbhai Jayantilal Shah v. Asst. CIT [1996] 57 TTJ (Ahd) 424. Learned counsel further argued that the lower authorities have failed to consider the submission of the assessee that in view of the decision of the hon ble Supreme Court in the case of CBI v. V. C. Shukla [1998] 3 SCC 410 and the decision of the Income-tax Appellate Tribunal in Atul Kumar Jain v. Deputy CIT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssing Officer of M/s. Shivam Exports after due verification with import register manufacturing register, lot register, jangads and stock register. The addition is based on the accounted paper belonging to M/s. Shivam Exports for the purposes of high pitching the block assessment. It was argued that the Assessing Officer has considered the quantitative information of the paper as the financial information showing complete lack of knowledge of diamonds business and even understanding the contents of lot of diamond and simply proceeded on the paper found and just multiplying the figures appearing on the seized paper by applying three zeros , i.e., in thousand. Learned counsel for the assessee further argued as regards to the addition of Rs. 1,76,600 for page 7 of annexure-B1, which as per the explanation in SOF generated the undisclosed income of Rs. 99,854. It was argued that the Assessing Officer has disregarded various statements of buyers and sellers of diamond. As regards to the addition of Rs. 5,52,20,905 on account of alleged investment purchased by incorrect working by applying three zeros, i.e., the thousand to the figures of the seized papers. For example as per the det ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ider the sale proceeds for set off against purchases for the purpose of making the huge additions. He has also considered the figure of Rs. 12,44,06,000 against the purchases of Rs.11,86,20,905 for the purpose of working out profit of Rs. 1,64,66,870. Thus, sale proceeds of Rs. 12,44,06,000 assumed by the Assessing Officer has been utilised for the purpose of making the following three additions : (1) Net profit of Rs. 1,64,66,870 as per paragraph 7 of the assessment order. (2) Purchase as unexplained investment at Rs. 5,52,20,905. (3) Profit of Rs. 1,09,44,413 worked out as per paragraph 8 of the assessment order. Learned counsel for the assessee argued that the total double addition has been made at Rs. 8,26,32,188 against one figure of sales, whereas according to the observation of the Assessing Officer, the figure of net profit comes to Rs. 38,84,440, which has in fact done by the Assessing Officer of M/s. Shivam Exports. He further argued that the Assessing Officer has erred in decoding the figures in dollars as there is no evidence or even the marking or sign of dollar against any of the entry in all the three diaries but the transactions assumed in dollars is the men ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the M/s. Shivam Exports finds it suitable. According to the market trend prevalent in Antwerp, the brokers or the foreign suppliers send the quotation, the rate, quality, size of lot, i.e., quantity available and the name of supplier for the purpose of consideration of cost by the Indian buyers. No rough diamonds in response to this quotation was purchased on account of higher rates and lower quality. Accordingly, leaned counsel for the assessee argued that the Commissioner of Income-tax (Appeals) has rightly deleted the addition on second issue after considering the arguments of the assessee as well as the facts of the case. He further argued that the Commissioner of Income-tax (Appeals) on the first issue, in the given facts and circumstances, and in view of the above arguments has erred in partly sustaining the addition by applying two zeros, i.e., the figure of hundred to the figures of seized papers. The Commissioner of Income-tax (Appeals) has no basis while applying the figure of hundred. Accordingly, learned counsel for the assessee urged the Bench to delete the entire addition. The learned Departmental representative, on the other hand, argued that the seized document a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has worked out the position of his receipts or receivables, stock, payments/ payables as on Diwali, 1995. The contents of pages 4 and 5 are almost similar except small deviations. The assessee has explained the entries noted in pages 4 and 5 of annexure B3. The relevant entries in annexure B3 pages 4 and 5 are reproduced in paragraph 2 at pages 4 to 6 above. During the course of block assessment proceedings, a statement of the assessee was recorded on July 9, 1999, where he owned up these transactions of this seized annexure. The assessee also admitted that these transactions are not recorded in its books of account. As the detailed facts discussed above, while discussing the block assessment order, we have narrated that how the Assessing Officer has reached the conclusion that decoding of these documents are necessary. whether, really the decoding of transactions recorded in these documents are to be made as done by the lower authorities, or whether, we can decode the transactions as recorded in the seized documents annexure B3 pages 4 and 5 under the given facts and circumstances of the case. First of all, it is to be seen that the assessee has claimed before the lower authoritie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on these facts. Whether, in view of the above facts and circumstances, the seized papers annexure B1, B2, and B3 can be decoded by applying the figure of three zeros or two zeros , i.e., in thousand or in hundred , as interpreted by the lower authorities. Can by applying three zeros or two zeros, the Assessing Officer can estimate the income of the assessee while framing block assessment under Chapter XIV-B of the Act. The learned Departmental Representative as well as the Assessing Officer, in his block assessment order heavily relied on the case law of the hon ble Bombay High Court in the case of Bhojraj Kishanchand [1994] 209 ITR 500 wherein the hon ble High Court has held as under (page 506) : This question was not referred to the High Court as desired by the assessee. On bare perusal of the question referred to this court, duly extracted in the opening part of this order, it is obvious to us that the question referred to this court is not a question of law but it is a pure question of fact. As soon as the hearing commenced, learned counsel for the assessee was requested to make submissions in this aspect of the matter. We did not get a satisfactory reply. Learned ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fied with the submission made by learned counsel for the assessee that there was no material before the authorities below on the basis of which the findings referred to in the question set out in the opening part of this order could have been recorded. The reference court is not the first appellate court. In a reference under section 256 of the Income-tax Act, 1961, it is not open to the High Court to embark upon a reappraisal of the evidence. Even the question of sufficiency of evidence cannot be gone into in a reference made under section 256 of the Income-tax Act, 1961. The view taken by the Tribunal is clearly a reasonably possible view and is supported by the evidence on record. The Tribunal was entitled to reach its own conclusion while scrutinising the explanation of the assessee in respect of the above item of addition to the income of the assessee in respect of the above item of addition to the income of the assessee and draw inferences as deemed fit and reasonable. It is enough to state that the finding recorded by the Tribunal is not perverse and is supported by evidence on record. We need not refer to each and every piece of evidence on record and discuss the facts in g ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... thout any basis by adopting an arbitrary method of calculation, in the present matter, A3, A4 and A6 nowhere records the turnover of the assessee as found by the Tribunal and yet on the wrong basis of the incoming and outgoing cash transactions, the Assessing Officer has arrived at the turnover. Moreover, the peak investment was Rs.40,14,806 for three months. However, there is no material seized to justify any figure to be included for a period earlier to the said period of three months. In the circumstances, the Tribunal has recorded a finding of fact and has held that the addition of Rs. 3.40 crores was totally unjustified. The entire finding of the Tribunal is based on the facts. The hon ble Rajasthan High Court in the case of CIT v. S. M. S. Investment Corp. Ltd. [1994] 207 ITR 364 has considered the issue as regards to the interpretation of the document found during the course of search. The hon ble High Court has drawn the presumption that the document belonged to the assessee in whose possession it was found and the document is to be read as true in accordance with the provision of section 132(4A) of the Act. Finally the hon ble High Court has held as under : We have ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h the presumption stands rebutted, and the matter being covered by the decision given by this court dated April 13, 1988 (see CIT v. SMS Investment Corporation [1988] 173 ITR 393 (Raj)) we are of the opinion that the Income-tax Appellate Tribunal was justified in upholding the finding of the Commissioner of Income-tax (Appeals) that the reopening of the assessment under section 147(a) was not justified. Similarly, in the present case also the seized annexures B1, B2 and B3 are found from the possession of the assessee and these are to be read as true. It is pertinent to note that section 158BB(1) has been amended (with retrospective effect from July 1, 1995) to clarify that the block assessment of undisclosed income is to be based on evidence found in the search and material, or information gathered in post-search inquiries made on the basis of evidence found in the search. The hon ble Madhya Pradesh High Court in the case of CIT v. Khushlal Chand Nirmal Kumar [2003] 263 ITR 77 has held that with regard to investment in construction, addition cannot be made in a block assessment on account of unexplained expenses on the basis of the Departmental valuer s report obtained subseq ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... seized during the course of a search and has observed that it did contain certain materials which were sufficient to come to a conclusion about a cash payment having been made in addition to those made by cheques and drafts, such a conclusion is essentially a factual conclusion and the hon ble High Court has declined to interfere with the same. The hon ble High Court has held as under (page 299) : Four appeals were filed by the four assessees. Appeal IT(SS) A. No. 32/Delhi of 1996 relates to the present appellant. During the course of search and seizure proceedings certain slips were found, which, the Assessing Officer concluded, contained details of payment beyond those which were made by cheques and drafts and were duly reflected in the books of account. The assessee s stand before the Tribunal was that the documents were dumb documents which did not contain full details about the dates of payment and its contents were not corroborated by any material and could not be relied upon and made the basis of an addition. The Tribunal considered this aspect and observed that on comparison of the seized documents and ledger accounts of the parties, the seized documents could not be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... : The Revenue has failed to prove that the assessee had made any undisclosed investment in the properties named above. Thus, concurring with the findings given in the cases referred to by learned counsel, we hold that the Assessing Officer was not justified in making any addition on account of undisclosed investment in any of the five properties. Thus, the additions made by the Assessing Officer on account of undisclosed investment in the house properties are deleted. When the amount of Rs. 21 lakhs was found in the locker in the Bank of Maharashtra and further sum of Rs. 1.89 lakhs was fond in locker No. 362 in the Allahabad Bank, these amounts could be easily said to have come from professional receipts only. No other activities are being done by the assessee. Thus, the natural conclusion is that the cash amount found in these two lockers as well as the cash amount found during the course of search at the premises No. 18/49, East Patel Nagar, have come out of professional receipts only. As these amounts have already been considered and taken by the assessee while filing the return in response to a notice under section 158BC of the Act, no separate addition on account of sup ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ay High Court in the case of CIT v. C. J. Shah and Co. [2000] 246 ITR 671 wherein the hon ble High Court has clearly considered that in cases where material is detected after search and seizure operations are carried out, the Assessing Officer is required to determine the undisclosed income. In such cases additions are generally based on estimates. In matters of estimation some amount of latitude is required to be shown to the Assessing Officer particularly when relevant documents are not forthcoming. However, it does not mean that the Assessing Officer can arrive at any figure without any basis by adopting an arbitrary method of calculation. Similarly, the Assessing Officer has interpreted these documents relating to the second issue and decoded the same, based on the figures noted by the assessee on pages 1, 2, 3 and 29 of annexure B2 as well as pages 3, 4, 5, 6 and 9 of annexure B1. The Assessing Officer has stated that the assessee has made substantial unexplained investment in rough diamonds. As per him, the actual unexplained investment in rough diamonds for the year 1995 was found to be Rs. 2,86,25,655 from pages 1, 2, 3, 4 and 29 of annexure B2 seized from the assessee s re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ocuments by applying thousand or hundred , i.e., three zeros or two zeros to the figures of the seized documents without any basis. Accordingly, we delete the additions made by the Assessing Officer and partly confirmed by the Commissioner of Income-tax (Appeals). However, we are of the considered view that the addition to the extent of Rs. 6,34,000, is to be sustained reason being the seized document annexure B3 relating to the first issue are very clear that these are not recorded in the regular books of account of the assessee. Accordingly, we sustain the addition to the extent of Rs. 6,34,000 and balance is deleted. Accordingly, this first issue of the Revenue s appeal is dismissed and that of the assessee s appeal is partly allowed. As regards the second issue of the Revenue s appeal, the Commissioner of Income-tax (Appeals) has discussed the issue after considering the assessment order and the appellate orders of M/s. Shivam Exports. It is a clear finding of fact that annexures B1 and B2 and all entries made therein have been considered for taxation in the hands of M/s. Shivam Exports. Even the Assessing Officer on pages 12 to 16 of the assessment order of M/s. Shiva ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 74 carats and that it is only for the purchase that the payments are outstanding. It is for the creditors for purchase whose balance arrears are credited in the accounts of purchasers. A reading of the above accounts shows that 58.74 (diamonds) the goods worth 41.08 was deposited and which was deducted by writing the work Jama (credit) showing that there is purchase of 58.74 diamonds worth 41.08 have been credited with the party called M R . In this background, the Commissioner of Income-tax (Appeals) rightly observed that the Assessing Officer ought to have considered the figure of 17.69 being the difference 59.74 and 31.08 as purchases, instead of sales. This would affect the working of the profit by reducing the profit worked out by the Assessing Officer double the amount of Rs. 17,69,000, because the figures 17.69 will be debited in the profit and loss account instead of being credited as sales done by the Assessing Officer. The Commissioner of Income-tax (Appeals) was also right in observing that the total of miscellaneous expenses 120 which has been multiplied by the Assessing Officer by 1000 to arrive at the figure of Rs. 11,20,000 should also be considered by the Assessi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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