TMI Blog2003 (7) TMI 254X X X X Extracts X X X X X X X X Extracts X X X X ..... not applicable as there was no case of non-furnishing of return or case of understatement of income or excessive claim of loss deduction etc." 4. The facts of the issue are that the assessee firm carried on business of manufacture and sale of Diesel Oil Engines. Shri Baldev Singh and his two sons S/Shri Mohan Singh and Narendra Singh are partners of the assessee firm. The assessee firm filed its return of income for assessment years 1997-98, 1998-99 and 1999-2000 OD' 29-10-1997, 30-10-1998 and 28-12-1999 declaring income at Rs. 3,712, Rs. 58,049 and Rs. 58,998 respectively. All the returns were processed under section 143(1)(a) of the Income-tax Act, 1961. Later on, survey under section 133(A) of the Act was conducted on 7-7-2000. During course of survey, some books, files and loose papers were found and inventorised as Annexure-A and Annexure-S. As per Annexure-"A" prepared on 7-7-2000 shows that the same was prepared at the business premises of M/s. B.S. Agricultural Industries (India), 12/15-AA, Nawalganj, Agra and containing serial Nos. A1 to A36. However, Annexure-"S" containing serial Nos. S1 to S9 show that the same was prepared on 7-7-2000 at the business premises of M/s. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and as a measure to co-operate with the Department, he appeared but was forced to give statement. The statement so recorded was, therefore, without any proper authorization under law. 7. The Assessing Officer in his remand report dated 21-9-2002 referred above has admitted that statement was recorded on 9-7-2000, the learned Counsel for the assessee also filed copy of statement recorded on 9-7-2000 which is placed at page Nos. 7 to 11 of the paper book to prove that the survey party had taken away all the inventorised books on the date of survey itself while summon under section 131 was issued on the same day to the assessee firm to produce the books/ documents, inventorised as per Annexures-"A" "S" for 10-7-2000. The learned Counsel drew our attention to the statement of Shri Baldev Singh, partner wherein Assessing Officer had asked the questions by showing the sale bills, papers of Annexure-A/15 etc. but in spite of that the Assessing Officer did not admit that books/documents taken away on the date of survey i.e., on 7-7-2000. It is further argued that assuming that the same were not taken away, how the Assessing Officer had confronted Shri Baldev Singh, Partner with the sa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncome Tax Authority acting under the section shall, on no account remove or cause to be removed from the place wherein he has entered, any books of account or other documents or any cash, stock or other valuable article or thing: 10. However, an order under section 131 (3) passed by the Assessing Officer on 10-7-2000 which show that the books of account/documents inventorised as per Annexures "A" "S" during course of survey on 7-72000 were produced before him by Shri Baldev Singh on 10-7-2000 and the same were impounded on that date for further investigation. This order indicates deliberate attempt to avoid the true and correct picture. In fact all the books, computer etc. were taken away by the survey party on 7-7-2000, otherwise the Assessing Officer could not have confronted Shri Baldev Singh, partner of the assessee firm on 9-7-2000 with the same. It appears from pages 1 2 of the assessment order that the assessee firm filed a writ petition in the jurisdictional High Court as it is mentioned in assessment order:-- "...04. 23-1-2001. The Counsel for the assessee filed an application with specific order passed by the Division Bench of Hon'ble High Court, Allahabad wherein ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onducted on 7-7-2000 at the business premises of the assessee-firm valuation register of High Speed gave the total value of the closing stock of High Speed Spare only as on 31-3-1997 at Rs. 52,33,673.08. Thus, above fact goes to show that assessee has not disclosed true and correct information about its business activity while filing the return of income for the assessment year 1997-98. In view of the facts discussed above, I have reason to believe that the income of Rs. 52,33,673.08 (-) 32,50,770 (=) Rs. 19,82,903.08 chargeable to tax has escaped assessment for the assessment year 1997-98 because the assessee has not disclosed its business affairs truly and correctly which are necessary for determining the correct taxable income of the assessee firm for the assessment year 1997-98. Accordingly notice under section 148 is being issued asking assessee firm to file its return of income for assessment year 1997-98: In the opinion of the Assessing Officer the discrepancy in the closing stock was as under:-- ------------------------------------------------------------------------------------------ Assessment year Stock as per books Stock as per Difference ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uring course of inspection of the said file the assessee surprised to discover that the papers have been inserted in this annexure. To be specific the papers at Sl. Nos. 1 to 12 have been serially numbered and thereafter the papers comprising of loose sheets alleged to be the valuation register of High Speed Spares have been given numbers 12/1 to 12/8 while subsequent papers begin with Sl. No. 13 and onwards. In this annexure the papers are 19 only as per inventory, whereas eight additional papers in this annexure were found which clearly proves beyond doubt that the papers were fabricated and interpolated later on i.e., after survey. However, the Assessing Officer in his second remand report dated 30-9-2002 addressed the CIT(A) submitted that this annexure contains valuation register of High Speed Spares as on 31-3-1999 as part of this annexure marked as papers 12/1 to 12/8. The valuation register of High Speed Spares is a computerised sheet serially numbered by computer Sl. Nos. 1 to 8. The page numbers 12/2, 12/4, 12/6, 12/7 and 12/8 have been signed by Shri Narendra Singh, partner of the assessee firm. However, the assessee firm vide its letter dated 8-102002 addressed to CIT(A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cer reported to CIT(A) vide his letter dated 30-9-2002 that most of the pages have been numbered twice. The page numbers 42 to 44 and page numbers 92 to 97 are valuation register of High Speed Spares as on 31-3-1997 and 31-3-1998 respectively. These valuation register of High Speed Spares are computerised loose sheets serially numbered as pages 2 to 5 for valuation as on 31-3-1997 and serially numbered by computer as 1 to 6 as on 31-3-1998. All the pages of the valuation register of High Speed Spares for valuation as on 31-3-1998 have been signed by Shri Narendra Singh, however, nothing reported about valuation register as on 31-31997 whether the same was signed by Shri Narendra Singh or not. 17. According to learned Counsel for the assessee, it is wrong to say that all the papers are signed by Shri Narendra Singh. The Assessing Officer fabricated these papers alleged to be the valuation register of high speed spares for all the years i.e., for 31-3-1997,31-3-1998 and 31-3-1999. The Assessing Officer wanted to get the papers, alleged to be the valuation register of high speed spares, signed by mentioning the date 7-7-2000 for all the three years when Shri Narendra Singh partner w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e loose sheets of valuation register of high speed spares. It implies that the numbering given twice is to accommodate these loose sheets of high speed spares. 19. The CIT(A) in his order under consideration has given his findings as under:-- "I have carefully considered the facts of the case, submissions of the A.R., comments of the Assessing Officer and the position of law. In these grounds of appeal the appellant has mainly challenged two things; (i) The authenticity of the computer print outs allegedly pertaining to the closing stock for these years; and (ii) Application of G.P. rate of 18%. Takings the first objection, I find substance in the objection raised by the appellant. It does appear that these print outs were not found during the course of survey when inventory as per Annexure-A was prepared. It appears that these sheets were inserted in Annexure A-17 and A-34 subsequently. The A.R.'s contention that only page numbers 40 to 44 and 92 to 95 of Annexure A-34 do not contain the duplicate numbering is correct. It may be recalled that these very sheets are under challenge. No convincing reason could be given by the Assessing Officer as to why these sheets were no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... connection or relation with the appellant. It has been held by the Hon'ble Supreme Court and the various High Courts that the material found even in an illegal search has evidentiary value and hence cannot be ignored. Thus, these computer print outs cannot be ignored altogether even if the same were obtained after the survey. However, complete reliance cannot be placed on these sheets. This is because it has not been shown by the Assessing Officer that the details mentioned in these sheets conclusively proved that the same represented the actual closing stock for these years. Merely on the basis of these papers it cannot be said that the closing stock was of the amount mentioned therein. As the closing stock is made up of purchases and sales (including purchase and sale returns), unless and until these accounts as appearing in the computer are also seen and examined with reference to the amounts shown in the books/returns of income for respective years. The stock shown in these papers cannot be accepted as such. This is more so as during the course of survey no evidence regarding unaccounted purchases or sales was found. Similarly, no discrepancy in the stock was noticed by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion was made by the Assessing Officer for the difference of the stock as per books and as per so called valuation register/loose sheets. 22. The learned Counsel for the assessee further argued that books of accounts were complete in all respect. No mistake was detected during course of survey. The survey party physically took stock of entire stock but no discrepancy was noted by the Assessing Officer. Purchase and sales are fully verifiable as mentioned at page 9 of the order of CIT(A). Even the Assessing Officer himself has mentioned at the end of the remand report to CIT(A) dated 30-9-2002 that--"since no adverse material is available in respect of sales, the same is being adopted for application of G.P. rate............." Further, the CIT(A) failed to appreciate the submission of Shri Narendra Singh partner of the assessee firm that after survey on 10-72000 the Assessing Officer put all the disputed papers which were not found during survey and were not form part of Annexure A/17 and A/34 prepared on 7-7-2000. He has signed only four pages without date under confusion and as soon as he realised that he is being trapped under a planned design, he refused to sign further on the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... higher rate of G.P. than declared by the assessee firm. Thereafter the learned D.R. placed reliance on various judicial pronouncements. The learned D.R. also argued that even if some procedural mistake or irregularity committed during course of survey, the documents found during course of survey can be used against the assessee. 26. After considering rival contentions, various judicial pronouncement cited by both the parties, Assessment Orders, order of CIT(A), and facts emerging out of the records, we find that there is existence of tampering with the records. The so called printouts of high speed spares as on 31-31997, 31-3-1998 and 31-3-1999 were not found during course of survey and these very printouts were inserted in Annexure A-17 and A-34 subsequently behind the back of the assessee firm and without it's knowledge. The department could not give any reason as to why some of the sheets were not numbered twice in Annexure A-34 particularly those sheets are in dispute. Moreover, in Annexure A-17, it is mentioned that the same contains pages from 1 to 19, it is strange and unusual that pages under dispute were numbered as 12/1 to 12/8. If these printouts taken during surveyor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing assessment order. Such delayed action on the part of the Assessing Officer cannot be regarded that adequate opportunity was provided to the assessee before drawing adverse inference. 29. It is also pertinent to note that on 9-7-2000 statement of Shri Baldev Singh was recorded without issuing any summons, particularly on Sunday and Shri Baldev Singh was also confronted by showing some of the documents found during course of survey which subsequently given colour of impounding on the following dates on 10-3-2000 as per order passed by the Assessing Officer under section 131(3) of the Income-tax Act. 30. The above order under section 131(3) was absolutely illegal as all the papers/files, books, computer sets were taken away by the survey party on the date of survey as evident from above discussion and affidavit filed by Shri Dayal Saran, Advocate. 31. Now in such a position question arises whether on such disputed/disowned inventory of stock as on 31-3-1997, 31-3-1998 and 31-3-1999, the Assessing Officer can validly initiate proceedings under section 147 of the Income-tax Act? We are of the view that though some procedural mistake or irregularity committed behind the back of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of a notice for reassessment. Such judicial pronouncement has also been made by the Hon'ble Supreme Court and other High Courts. 33. In view of the above facts and circumstances and legal position we uphold the order of the CIT(A) as the assessee could not bring any iota of evidence which may suggest that inventories as on 31-3-1997, 31-3-1998 and 31-3-1999 do not pertain to the assessee firm and the same is not genuine. Further, it is not a case where any item of the inventory was interpolated while initiating reopening proceedings except the fact that such inventory were inserted in Annexure A-17 and A-34 after the date of survey without the knowledge of assessee: But the assessee failed to bring on record that such inventory were inserted after fabrication/interpolation in the item of the inventory and these inventories are not connected with the business of the assessee firm. In such a position the Assessing Officer has validly made reason to believe about escapement of income and proceedings have been legally initiated. 34. Thus, this ground of appeal of the assessee is dismissed. 35. to 74. [These paras are not reproduced here as they involved minor issues.] - - TaxT ..... X X X X Extracts X X X X X X X X Extracts X X X X
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