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TMI Blog2015 (8) TMI 762X X X X Extracts X X X X X X X X Extracts X X X X ..... I. T. (SS)A. No. 15/Chd/2003 4. In this appeal the Revenue has taken up following grounds : (i) The learned Commissioner of Income-tax (Appeals) has erred both in law and on the facts of the case in holding that apart from 29 bighas of agricultural land, no asset was found to the search party. The assessee had invested the earned income in the shape of fixed deposits receipts, machinery, agricultural land (the registered value plus on money paid by him) and cars, etc., which is evident from the seized record and had duly been discussed in the assessment order framed by the then Assessing Officer. The learned Commissioner of Income-tax (Appeals) has failed to appreciate the facts of the case. (ii) The learned Commissioner of Income-tax (Appeals) has erred both in law and on the facts of the case in holding that the net profit rate of section 44AD is to be applied overlooking thereby the fact that assessment in this case had been, framed in view of the provisions contained in Chap ter XIV-B of the Act and on the basis of such material/documents found during the course of search, which had direct nexus with the undisclosed income and thus the provisions of section 44AD are not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n in a case where business income of a contractor is to be computed by applying the provisions of section 44AD. 5. After hearing both parties we find that a search operation was conducted in the business as well as residential premises of the assessee. During assessment proceedings the Assessing Officer noticed that for assessment year 1995-96 the document No. 39 of serial No. 48 of annexure A was seized from the premises of the assessee which is a trail balance. He noticed that this trial balance was duly signed by Shri M. C. Puri, i.e., the assessee. Further, there were differences between the expenses shown in this trial balance and final account shown by the assessee. The difference has been noted as under : Description of head of account Ledger folio No. as per trial balance Amount as per trial balance (in Rs.) Amount as per audited trading profit and loss account and balance-sheet To wages 200 5,86,207 2067.264 To labour welfare 91 670 10950 To consumables 72 83,551 3,14,205 To building material 134 2,12,755 6,96,130 To business promotion 28 8,843 11,545 To travelling expenses 75 1,603 11,650 To repair and maintenance 161 2,867 8,867 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent years 1997-98 to 1999-2000 were audited and, therefore, additions could not be made without pin-pointing any defects. For assessment year 1995-96, the assessee has himself filed return on presumption basis under section 44AD declaring income at 8 per cent. The Assessing Officer has only few figures of the trial balance and compared without audited final statement which is not justified. If the profit calculated by the Assessing Officer is accepted then net profit rate of 61.45 per cent. would be there in assessment year 1995-96 which is not possible in construction business. The Assessing Officer has not found any difference in the contract receipts by the assessee. No assets as suggested by the Assessing Officer was found during the search. 8. The learned Commissioner of Income-tax (Appeals) after considering these submissions ultimately estimated the profit at 8.5 per cent. and allowed partial relief. 9. Before us the learned Departmental representative referred to the findings in the assessment order and pointed out that first of all no regular books of account were found during the search that means the story of audited books were only an after thought. He also contended ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 103365/31-1-2k 1,00,000 Drawn self cheque. Amounts introduced in page Nos. 93, 94, and 95 in the name of fictitious persons Similar is the situation with other creditors. However, the Assessing Officer has not made the separate addition because he has already disallowed the expenses and therefore, the addition on account of disallowance of expenses was justified. 10. On the other hand learned counsel for the assessee submitted that no evidence was found during search or otherwise regarding undisclosed investments in purchase of fixed deposit receipts, machinery, cars or agricultural land and the Assessing Officer has made only general remarks in respect of these items. The purchase of agricultural land was duly disclosed and the Assessing Officer has made addition on the basis of the statement from the seller for on money without gathering further evidence. All the statements were recorded behind the back of the assessee without providing any adequate opportunity. In respect of creditors it was stated that the assessee's sites were spread out and the assessee had engaged various sub- contractors who were generally his former associates. Some ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 12, 'As discussed in the preceding paragraphs that audited reports are not at all reliable' (f) Page 15, 'As audited accounts do not reflect the true state of business affairs' (g) Page 16, 'in the audited accounts the assessee is debiting expenses under the head wages and payment to sub-contractors to a huge amount. On the perusal of the audited accounts. . . as the audited accounts of the assessee are not reliable' (h) Page 18, 'as claimed by the assessee in the audited accounts ' (i) Page 20, 'For this assessment year two types of account books have been found and seized' (j) Page 21, 'These books are, therefore, not relied upon' (k) Page 23, 'During the course of search and seizure, books of accounts like cash book and ledger were seized' 2.6 The above reference to the audited books of account clearly ordain the contentions of learned counsel that the Assessing Officer has simply brushed aside the appellant's books of account, and his observation at page 17 of the order that the appellant had taken a plea for producing the books of account vide his reply dated May 23, 2002 but the same were never produced ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h have been accepted in toto. (vi) The Assessing Officer as well as his successor seems to be overwhelmed by the get of passing an order under section 158BC. The effort has been to compute a certain figure on the basis of the so called evidences found during the search in total disregard of the well enunciated principles of natural justice and harmonious construction. No judicious person will consider assessing a contractor on a net profit rate of 61.45 per cent. as just and reasonable. The Assessing Officer has arrived at the net income at 61.45 per cent. by repudiating totally and ignoring whatever the appellant had to say in the matter. There is force in the contentions of the learned authorised represent atives that the assessment under Chapter XIV-B has to be made only of undisclosed income by way of any bullion, jewellery or other valuable articles or things or any income based on any entry in the books of account or documents, where such money, bullion, jewellery or things, entry in the books of account etc., represents wholly or part income or property which has not been or would not have been disclosed for the purpose of this Act. As held in D. A. Patel v. Deputy CIT [20 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Chandigarh have also held in the case of Sat Pal Singh v. Asst. CIT [2000] 67 TTJ (Chandigarh) 602 that the provisions of Chapter IV and Chapter VI-A are available while framing block assessments. Chapter XIV-B nowhere excludes the application of section 44AD. The Assessing Officer's action in rejecting the return filed on the basis of section 44AB is therefore, incapable of being sustained. Therefore, I direct the Assessing Officer to delete the addition made in this regard. (viii) As regards escalation charges, the Assessing Officer's conclusion that the same were received by the appellant against bogus claims of wages does not seem to be correct because the escalation charges arose as a result of the revision of daily wages of unskilled labourers with effect from April 1, 1994 in consequence of an order of the hon'ble Supreme Court. These escalation charges were released by M/s. Nathpa Jhakri Power Corporation Ltd. after proper verifica tion of muster rolls duly certified by the Labour Officer of the Tehsil that the payment has been disbursed to the concerned labourers. It appears that the Assessing Officer was swayed by the unofficial statement of one Sh. A. K. Si ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al balance was stated to be a draft on prepared by the site book keeper and not by the accountant. There is logic in the contentions of learned counsel that a trial balance cannot be made the basis of arriving at the real profits because if that were so, there would be no need to prepare a profit and loss account, or a balance-sheet. There is force in the averments of learned counsels that the Assessing Officer has not been consistent in choosing items of income and expenditure, as in the assessment years 1995-96 and 1999-2000, the expenditure has been taken from the so called trial balance, bur the receipts have been taken from the audited accounts. In the assessment year 1996-97, there has been a rampant pick and choose, the reliance on a judgment of the hon'ble Supreme Court in the case of Indore Malwa United Mills Ltd. v. State of M. P. [1966] 60 ITR 41 (SC), wherein it has been held that it is not open for the Assessing Officer to pick and choose only those evidence which are favourable to the Revenue by ignoring others, is quite apt. (x) The Assessing Officer has dilated quite heavily on creditors which have been held to be bogus by him on the strength of the reasons th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sh and also in king (like the gift of expensive jewellery of Rs. 85,000 and Rs. 27,500 as found recorded in annexure A-22/43 and A-2241). The payments in cash runs in several lakhs.' To my mind, jumping to such conclusions without carrying out any concomitant enquiry/investigation so as to reach a conclusion of this type, cannot be considered a very balanced approach because by making such allegations against responsible persons, the Assessing Officer has tried to cast aspersions on their integrity, without any cogent evidence for which the Assessing Officer could have made himself 'liable for defamation' as the learned authorised representatives have averred. (xii) The Assessing Officer has gone on record with his claim that the payment of own money is rampant in land transactions. But he has not corroborated his conclusion with any evidence. The affidavit of the land seller has been completely ignored. So also is the fact that the said purchase price was accepted as true and correct by the sub- registrar for the purpose of affixation and levy of stamp duty. The Assessing Officer has similarly reached a conclusion regarding the bogus agricultural income without on a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rmine the income of the appellant in respect of the above four assessment years by applying a net profit rate of 8.5 per cent. which is the profit rate shown by the appellant himself in the assessment year 1996-97, and which is considered quite just, taking into account the orduous and difficult nature of the works erected in remote areas. However, for doing so, the escalation charges, amounting to Rs. 56,98,175, would be excluded in view of the discussion in para (viii) above. The gross receipts in respect of the aforesaid assessment years (1997-98 to 2000-01) therefore, come to Rs. 3,57,29,222. Income at 8.5 per cent. on these receipts would come to Rs. 30,37,043. Since the appellant has already declared income to the tune of Rs. 23,12,968 in respect of these assessment years, therefore, the net addition sustainable would come to Rs. 7,24,075 only. All the balance addition made by the Assessing Officer are ordered to be deleted hereby. 13. In our opinion the learned Commissioner of Income-tax (Appeals) has made correct observations that if the assessee had earned so much of profit then some assets would have been found during the search. Further, even the Revenue's claim was ..... X X X X Extracts X X X X X X X X Extracts X X X X
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