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2016 (7) TMI 1213 - PUNJAB AND HARYANA HIGH COURT

2016 (7) TMI 1213 - PUNJAB AND HARYANA HIGH COURT - TMI - Validity of order of tribunal remanding the matter back to AO - undisclosed income for the block period 01.04.1986 to 30.08.1996 - Held that:- a mere order of remand does not raise a question of law much less a substantial question of law. We will assume that to be correct. However, when an order of remand is made with a direction or an order specifying the manner in which or the principles upon which the order ought to be passed, it is n .....

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d that the direction raises a substantial question of law, can always be the subject matter of an appeal under Section 260-A. - Remand order upheld - Decided against the revenue. - Income Tax Appeal No.206 of 2001 (O&M), Income Tax Appeal No.195 of 2001 (O&M), Income Tax Appeal No.196 of 2001 (O&M), Income Tax Appeal No.205 of 2001 (O&M) - Dated:- 21-7-2016 - MR. S.J. VAZIFDAR AND MR. DEEPAK SIBAL, JJ. For The Appellant : Mr.Rajesh Katoch, Advocate For The Respondent : Mr. Pankaj Jain, Senio .....

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appearing on behalf of the appellant has no objection to the order of the remand per se. The grievance is against the certain observations of the Tribunal regarding the manner in which the assessment is to be carried out upon remand. 3. The facts in ITA No.206 of 2001 were referred to by both the counsels who also agreed that the result in this appeal would cover the result in the other appeals. 4. The appeal is admitted on the following substantial questions of law:- 1. Whether, on the facts an .....

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the ITAT was right in law in rejecting the application of gross profit rate of 16.93% based on the information available in consequence to search operation conducted u/s 132 of the I.T. Act, on both disclosed and undisclosed sales for working out the suppressed profit and further directing the Assessing Officer to work out the undisclosed income by application of net profit rate on the undisclosed sales? 3. Whether, on the facts and in the circumstances of the case, the ITAT was right in law in .....

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s are, therefore, dealt with together. 6. A search and seizure was conducted under Section 132 of the Income Tax Act, 1961, at the office-cum-business premises and residential premises of the partners of the respondents-firm on 30.08.1996. Cash, jewellery and other assets, such as, fixed deposit receipts, shares, Kisan Vikas Patras were seized. Voluminous records were also seized. The respondents are referred to as the Maheshwari Group. The Assessing Officer passed an assessment order dated 26.0 .....

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thetic (P) Ltd., Hoshiarpur. The evidence on record overwhelmingly and conclusively establishes that the entities are part of the same group. 8. The group is involved in the manufacture of paint, varnish, enamel, primer, distemper and other such products. During the course of the search and seizure operation, incriminating documents were seized, such as, 43 small ledgers with coded entries, 600 order forms showing booking of orders outside the regular books of account, 136 initial bills with som .....

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questionnaires were issued on various occasions. The respondents complied with the same only after several reminders. They revised their return of income, in some cases more than once. 10. The assessment order analyses not only the seized record but also the respondents replies to the questionnaires in the course of the assessment proceedings. The assessment order is divided into convenient and well defined parts. Each of the parts is discussed in considerable detail. It firstly deals with the .....

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ation of the modus operandi by the persons in management of the group, corroboration of the modus operandi from the seized material and correlation of the initial bills, corresponding final bills, order forms and the relevant small ledgers. The order thereafter records the reasons for rejecting the books of account under Section 145(2) of the Act. The order thereafter estimates the suppressed turnover and computes and arrives at the gross profit rate of 17.78%. The final assessment order compute .....

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essment proceedings were void ab initio, but considered the submission that the estimation of suppressed sales was based on incorrect presumptions and incorrect appreciation of the material on record as well as the submission that the G.P. rate was erroneous. The Tribunal referred to Section 158B(b), which reads as under: Undisclosed income includes any money, bullion, jewellery or other valuable article of thing or any income based on any entry in the books of account or other documents or tran .....

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is irrelevant for the purpose of this appeal. 12. As we mentioned earlier, Mr. Katoch, the learned counsel appearing on behalf of the appellant/revenue did not have any objection to the matter being remanded per se. He, however, challenged certain observations in the order. If the challenge is well-founded, it would be necessary to set aside the observations as the assessment order, upon remand, was bound to be based upon or at least influenced by such directions. As this is the main aspect in t .....

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other relevant issues with such assessment. The only exception to change the accepted position is if there is complete leading evidence available with him for change of opinion or change of position. To clarify by an example, if a cash credit is appearing in the books of account and such detail and balance sheet is filed alongwith the return followed by passing an order under sec. 143 & 143(1)(a) such cash credit cannot be disturbed unless and until there is a leading evidence that the credi .....

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the face value but was to be taken different based upon the interpretation and understanding of the symbols. The appellant co-operated with the A.O. for decodification of symbol and detail of the symbols is mentioned in para-8 of the order. There is dispute regarding interpretation of the symbol and working out of undisclosed sales on such interpretation. This dispute came before us and we thought advisable to remand this issue to the A.O. and the appellant attended the proceedings before the A. .....

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nd each method and ground will be separately discussed in various paras of this order. 36. The Ld. DR as well as the A.O. has relied on the decision of the Hon ble Supreme Court in the case of Commissioner of Sales Tax, Madhya Pradesh Vs. H.M. Esufali H.M. Abdulali, 90-ITR-275 (SC)(90). The facts of the case are not applicable to the present case. The A.O. can adopt reasonable estimate but the same is to be linked with the evidence available on record, he cannot start presuming things. If suppos .....

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give total distortion of the undisclosed income because such undisclosed income has to be matched with undisclosed assets. 37. The search and seizure operations provisions have given exceptional powers to the Tax Authorities to collect evidence in cases where they suspect the existence of undisclosed income. After this power is exhausted by the Department, they cannot resort to and they should not resort to estimation/guess work, surmises and conjectures. They should strictly go by evidence col .....

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tween the A.O. and the appellant remained unresolved regarding correct working of the suppressed sales. We, therefore, feel that this issue requires to be referred back to the file of the Assessing Officer who will allow sufficient and reasonable opportunity to the appellant and the appellant will produce all the evidence for working out undisclosed sales regarding this firm as well as other firms and companies of Maheshwari Group. 39. This will mean that Ground No.4,5 & 11 are referred back .....

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e in paragraph-34 of the order of the Tribunal where it is observed that the evidence prima facie indicated that the assessee used various symbols which indicated that the sale bills were not as per the face value. They were to be taken differently based upon the interpretation and understanding of the symbols. Thus, the rate or quantum may differ depending upon the interpretation of the symbols. However, the sale is recorded. Thus, in addition to unrecorded sales there is also a case of sales w .....

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been or would not have been disclosed for the purpose of this Act. This is clear from the words …… … based on any entry in the books of account or other documents or transactions …… … If the intention of the legislature was to restrict the ambit of the words undisclosed income to entries in the books of account, it would not have added the words or other documents or transactions . The ambit of the words undisclosed income is understandably wider than in .....

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is to be linked with the evidence available on record, he cannot start presuming things. If suppose, there is a entry of cash credit on a particular day amounting to ₹ 5000/-, he has to decide this very entry and he cannot be presume (sic) that on each and every day assessee is taking cash credit of ₹ 5000/-. 17. There is a difference between an inference or a presumption and mere conjecture. While computing the suppressed income under Section 158B(b), it is permissible to draw a rea .....

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ase warranted such a presumption, the Assessing Officer is bound to draw such an inference or presumption. We will presume that the mere existence of the entry is not sufficient to draw a presumption that such entries exist each day. However, if there are other circumstances, which the Assessing Officer is entitled to take into consideration in block assessment proceedings, which indicate the same, such a presumption must be drawn. For instance, if in an answer to the requisition in such proceed .....

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ry of a particular day may not be the same as the quantum of an entry on another day. If, for instance, it is revealed that the value of the entries bears a proportion to the actual sales of a particular day, the addition must be made proportionately. It could be higher or lower. 18. We find the following observations in paragraph-36 to be far too wide and contrary to the settled principles:- If there are suppressed sales in a particular area or in a particular month, he has to take into account .....

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ch case. If the evidence reveals a practice of suppressed sales generally and not limited to any particular area, the Assessing Officer would be entitled to draw an inference that the assessee suppresses sales even in other areas. If the evidence indicates the suppression of sales only in certain other areas, he may limit the assessment in this regard to such areas. Here again, it is impossible to stipulate a formula or any fixed criteria. The Assessing Officer must take into consideration the e .....

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issioner of Sales Tax, Madhya Pradesh vs. M/s. H.M. Esufall, H.M. Abdulali, Siyaganj, Indore, 1973 ITR 271. In that case, the appeals were from the decision of the High Court of Madhya Pradesh in a reference under Section 44 of the of the Madhya Pradesh General Sales Tax Act, 1958. One of the questions was whether a best judgment assessment could at all be made under S. 19(1) of that Act or whether revision of the assessment should be confined to the quantum of proved or admitted escaped turnove .....

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er is to make an assessment to the best of his judgment against a person who is in default as regards supplying information. He must not act dishonestly, or vindictively or capriciously because he must exercise judgment in the matter. He must make what he honestly believes to be a fair estimate of the proper figure of assessment, and for this purpose he must, Their Lordships think, be able to take into consideration local knowledge and repute in regard to the assessee's circumstances, and hi .....

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s examined at length by this Court. Therein S.K. Das, J., speaking for the Court observed: No doubt it is true that when the returns and the books of account are rejected, the assessing officer must make an estimate, and to that extent he must make a guess; but the estimate must be related to some evidence or material and it must be something more than mere suspicion. To use the words of Lord Russel of Killowen again, he must make what he honestly believes to be a fair estimate of the proper fig .....

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R. 464(Lah.): It cannot be denied that there must be some material before the Income Tax Officer on which to base his estimate, but no hard and fast rule can be laid down by the Court to define what sort of material is required on which his estimate can be founded. After quoting those observations, the learned judge proceeded to observe: With that observation we generally agree. If, in this case, the Sales Tax Authorities had based their estimate on some material before them, no objection could .....

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nder-estimate but it cannot be said that the estimate was without any basis. In making that estimate, there was an element of guess-work which was inevitable in the circumstances of the case. If the Sales Tax Officer was compelled to adopt a rule of thumb which in a sense is an arbitrary rule, assessee was entirely responsible for that situation. In State of Kerala V.C. Velukutty [(1966) 17 STC 465] this Court speaking through Subba Rao, J., (as he then was) observed: The limits of the power are .....

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