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TMI Blog2013 (4) TMI 999X X X X Extracts X X X X X X X X Extracts X X X X ..... computing undisclosed income wherein he excluded receipts of Rs. 1,91,02,221/- (total in respect of three assessees) as capital receipts as called by the assessee without there being any evidence or without the assessee explaining the nature and source of such receipts." 3. Brief facts of the case are case are that a search operation u/s 132 of the Act took place on 16-11-1999 on the premises of Manek Group and associated persons including Gujrat Multi Gas Base Chemicals Pvt. Ltd, (GMGB) Manek Chemical Pvt Ltd (MPCL) and Sri Dashrathbhai V. Patel ,Proprietor Sri Ram Chemical Industries (SRCI) in response to notices u/s 158BC, return for the block period from 01-04-1984 to 16-11-1995 filed declaring nil undisclosed income. The Assessing Officer provided copies of the seized documents and served notices u/s 143(2)/142(1) along with questionnaires. The replies of the assessees were received. Assessing officer reproduced partly the contents of his show cause notices and submissions of the assessee in his orders. The assessing officer has also referred to the statements of Sri Dashrathbhai Patel, Proprietor of SCRI and director of GMGB and MCPL and of the accountant of the Group namel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... basis of unaccounted transactions in cash as reflected in the aforementioned seized annexures. This was detailed/summarized by the A.O. in his relevant show cause notices partly reproduced in his assessment orders. 5. The reply of these assessees which have also been partly reproduced by the A.O. in his assessment order it was submitted that the referred seized books of account contained the consolidated picture of the unaccounted transactions of the three group concerns namely the three appellants. The entries in these books were in the nature of credits and debits. The credit entries reflected receipts, both on revenue and capital account, while the debit entries reflected business expenses and other outgoings and it was the cumulative total effect of these debit/credit entries that was required to be considered for determining the undisclosed income and not the gross total of the entire receipts as had been proposed by the A.O. The entire receipts could not be considered as concealed income, since the unaccounted receipts were not fully in the nature of trading receipts and the same included several items in the nature of capital receipts not liable to income-tax. There were a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ,841/- 83,15,906/- 1,79,26,071/- 2000-01 35,81,207/- 11,58,813/- 43,70,149/- 91,10,169/- 6,19,99,307/- 1,46,50,246/- 2,16,09,554/- 9,82,59,107/- Consequently, the A.O, determined the undisclosed income of the aforementioned assessees as under: Gujarat Multi Gas Base Chemicals Pvt. Ltd. Rs. 6,19,99,310/- Manek Chemicals Pvt Ltd Rs. 2,16,09,550/- Shree Ram Chemical Industries Rs. 1,46,50,250/- 8. Aggrieved by the above determination of the undisclosed income, all the three group concerns GMGB, MCPL and SRCI went in appeal before first appellate authority. Before Ld. CIT(A), it was submitted that the A.O. had mechanically totaled the entire receipts appearing on the credit side (in the seized documents) and treated the same as undisclosed income, which he divided in the three concerns proportionately, on the basis of their year-wise sales, as per their regular books of account. The action of the A.O. in treating the entire credits as being the undisclosed income of the appellants was not justified in law keeping in view the ratio of the judicial decisions in the cases of CIT vs. SM Omer - 201 ITR 60S (Cal.) and C1T vs. President Industries, 258 ITR 654 (Guj.), where ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... INCOME OF THE THREE CONCERNS FOR THE BLOCK PERIOD 2,03,24,587/- PERCETNAGE OF UNDISCLOSED INCOME TO UNDISCLOSESD SALES 25.68 % 9. It was further submitted that considering the above profit percentage of 25.65% of undisclosed income to undisclosed sales, as worked out on the basis of a logical comprehension of the receipts and payments, appearing in the seized records, the net undisclosed income totals Rs. 2.03 crores against the undisclosed sales of Rs. 7.91 crores was fair and reasonable, in view the facts of the assessee's cases and the ratio as laid down by the decisions of S. M Omer and President Industries (supra) relied by the assessees. 10. These submissions of the assessees along with 40 pages filed in support of their contention was forwarded by Ld. CIT(A) to AO for verification. After receiving the report of the A.O. the same was given to assessees for their comments. The A.O. in his report has referred to the summarized totals of the amounts for the entire block period under different heads appearing in the seized documents given by the assessee as under: Total Receipts Receipts on Capital Account Balance being Undisclosed Sales Total Payments Payments on Capi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ; referred to capital receipts in the nature of finance received from Bhimani through Ahmedabad Office. There was no employee by the name of Bhimani and the said amounts did not represent any unaccounted sales as alleged by the A.O, Moreover, there were similar other entries with abbreviations, which were not doubted by the A.O. In any case, the basic contention that these receipts on the capital account to the tune of Rs. 1.91 crores should not be treated as part of the undisclosed income, stood duly substantiated. (c) The observation of the A.O. that the undisclosed sales of Rs. 7.91 crores (Col. C) was subject to variation was irrelevant, since the veracity of the figures Under Col. A and Col. B of the chart was itself established. (d) It was explained that the A.O.'s observation that date-wise break up was not available for figures appearing under Col. D was not relevant, since the A.O. had not disputed the overall total of the yearly payments appearing in the seized documents (summary sheets in Annexure A-18) under the various heads. The said Annexure A-l8 clearly referred to items of business expenditure on the revenue account such as purchases, raw materials, offic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Sheet, while individual names of payees are specified in the respective pages A/6 20 A/6 54 to 60 Rokada Jama (in Gujrati) i.e. Received on A/c of AO/BH AO/BHI These entries represent amount of cash received via Ahmedabad Office from Bhimani being Finance transactions. 20 A/6 57,64 Cash Deposited in Banks Cash in bank These entries appearing in Capital Outgoing represent cash deposited in various bank account. 20 A/6 54 Purchase in ground nut oil, given to Kiritbhai M.DVP This entry appearing in Capital Outgoing relates to payment made to Kirtibhai for household expenses of DV Patel and hence the same is shown as payment to Mehsana- D.V. Patel. 20 A/6 54, 57 to 60, 62 to 65, 70, 72, 73 Details narration with names of persons and purpose for cash payments M.DVP Reference to page 54 is duplication of above referred entry. The remaining entries appearing in Capital Outgoing relate to payments made for various personal purpose s of D V Patel and hence the same is shown as payment to Mehsana-D.V. Patel. 21 A/6 55 to 74 Detailed narration of each entry with name of the person from whom cash is received back. Petty Cash Return These entries appearing in Capi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as Donation in Summary Sheet Annexure A/18 21 A/6 68 to 86 It seems to be total of various entries not verifiable Rs. 52,800/- O.ADV This is the total of amounts appearing in Capital Outgoing representing small advances to various employees as advance against salary. Since this amount is treated as payment on capital account the same has not been claimed as allowable business expenditure 21 A/6 55 Send to Janta Soap through Somabhai Angadia KA/R Rs. 1,00,000/- This amount appearing in Capital Outgoing was sent through Somabhai Angadia to Usha Chemicals and Janta Soap. Since this finance transaction was made on behalf of Rambhai of Kalol, the same has been reflected in the Summary Sheet Annexure A/18, against the name of KA R, abbreviated for KAlol Rambhai. 21 A/6 56 Rs. 25,000/- (Cash Received from A/O murv Traders) Rs. 25000/- (cash paid) KA/R This amount appearing in Capital Outgoing was a personal advance given to Rambhai N. Patel of Deepak Ceramics, Kalol. Since this finance transaction was made with Rambhai of Kalol, the same has been reflected in the Summary Sheet Annexure A/18, against the name of KAR, abbreviated for KAlol Rambhai. The A.O. has erroneousl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erwise, are only in relation to the brevity of the narration. The A.O also expressed his reservation in regard to the entry appearing in the name of 'AO BHI'. I find that these doubts and reservation of the A.O. have been satisfactorily explained by the appellant in its response. Thus the net figure of the undisclosed sales (after deducting the amount of receipts on capital account from the total receipts) as appearing in Col. C at Rs. 7,91,56,882/- as per the appellant's contention is accepted. 13.1 The appellant has shown total payments on the debit side at Rs. 89,48,819/- representing outgoings on capital account, business expenses and other inadmissible expenses. The year-wise break up of these payments for the Financial Years 1993-94 1999-2000 as appearing in the seized records has also been given for the three Financial Years 1990-91 to 1992-93, the appellant explained that no detailed records of receipts and payments were found during the course of the search. The only record available was the summary sheet containing brief details of receipts. While the total receipts had been taken as gross undisclosed income, the net undisclosed income was estimated by the appellan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ized u/s. 158BC (under Para 14-1)., the A.O. has treated the entire receipts as undisclosed income, mainly on the count that "to claim the relevant expenditure pertaining to undisclosed income, the onus lies on the assessee to provide basic details such as bifurcation of the nature of expenditure as basis of expenditure, personal expenditure, capital expenditure etc. and that the assessee has not produced the necessary working of the expenditure incurred for earning the unaccounted income. In view of the fad that the appellants have raised the relevant claims and contentions in regard to admissible business expenditure during the course of the appeal proceedings and the same has also been examined by the A.O. under his report submitted after due verification, I am of the opinion that the appellants' claim for deduction of business expenditure to the tune of Rs. 5,88,32,295/- deserves to be allowed. As regards the business expenditure of Rs 79,09,026/- relating to the initial three years FYs. 1990-91 to 1992-93 worked out at 75% of the undisclosed receipts. I find that the A.O. has not raised any specific objection against this claim of the appellants. Moreover, there is fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... him may kindly be restored back and the order passed by ld. CIT(A) may kindly be set aside while A.R. of the assessee relied on the order of Ld. CIT(A) and took us to the relevant pages of Paper Book filed by him as to show how Ld. CIT(A) was justified in giving relief to the assessees. 16. After hearing both the parties and perusing the record, we find that during search operation u/s 132 of the Act on the business premises of these assessees as per the seized documents unaccounted receipts of Rs. 9,82,59,103/- were detected. Assessing Officer treated these receipts as concealed income of these assessees as the same were not entered in the books of accounts, on the basis of admission made by the accountant of the Group Mr. Prajapati and Sri Dashrathbhia Patel himself during the search operation. The assessees' consistent contention has been that capital receipts and business expenses should be excluded for determining the undisclosed income. Before Ld. CIT(A), it was claimed that out of total receipts Rs. 9,82,59,103/- receipts of Rs. 1.91 crores were on account of loans etc from various persons and net figure of Rs. 7,91,56,852/- should be treated as undisclosed receipts. Assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d. CIT(A) sought to be withdrawn and were dismissed. Further since the order u/s 245D(4) were not passed by the Settlement Commission within the specified time until 31st March, 2008, in view of the provisions of Section 245 HA(1)(i)(iv) the proceedings before Settlement Commission were abated on 31st March, 2008 and all these assessees were revived. It appears that during this period each entry of the receipts and payments appearing in the seized records were further analyzed by the assessees and they came forward with profit percentage of 25.68 % of undisclosed income to undisclosed sales declaring undisclosed total income of Rs. 2.03 crores as against the total income of Rs. 1.35 crores offered before the Settlement Commission. This increased offer on the part of these assessees throws some light on the bonafides of these assessees. We further find that out of the payments of Rs. 8,89,48,819/- assessees themselves conceded that a sum of Rs. 3,01,16,524/- was inadmissible expenditure as these payments were of capital account. This also shows fairness and reasonableness on the part of these assessees. Keeping all these facts and circumstances of these cases in view, we feel no nee ..... X X X X Extracts X X X X X X X X Extracts X X X X
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