TMI Blog1997 (4) TMI 103X X X X Extracts X X X X X X X X Extracts X X X X ..... ned therein that the assessee-firm had been dissolved with effect from 23-10-1985. Notices under section 142(1) and under section 143(2) of the Act were issued to the assessee fixing the hearing of assessment proceedings on 20-2-1989. Apparently, along with the said notices a detailed questionnaire was also issued to the assessee requiring the assessee to produce trading account, profit and loss account, balance sheet, quantity wise analysis of otherwise sales and purchases, details of opening and closing stock etc. On 20-2-1989 the assessee addressed a letter to the Assessing officer (hereinafter referred to as 'the Assessing Officer') vide which the Assessing Officer was requested to grant a further period 15 days to file the above mentioned details. On the same date the Assessing Officer issued another notice to the assessee refixing the hearing of the case on 2-3-1989. There was no compliance with the notice. Subsequently, on 13-3-1989 the Assessing Officer issued an order under section 142(2A) after obtaining prior permission of the CIT and vide the said order the assessee was required to get its books of account audited by an appointed auditor and submit a report of the audit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing to the sales register of the assessee, which was in possession of the department, being seized during the course of search and which was for the period from 1-4-1985 to 31-5-1985 i.e. for 2 months the sales as per the sales register came to Rs.90,92,953. Since the assessee had stated that the firm was dissolved on 22-10-1985 and that there was no closing stock on the said date, the Assessing Officer estimated the sales for the remaining period of the previous year i.e. for 4 months and 22 days at Rs.2 crores. The total sales of the assessee were, therefore, estimated at a sum of Rs.2,90,92,953. Taking note of the rate of gross profit in similar firms, the Assessing Officer applied a gross profit of 6.5% on such estimated turnover to arrive at the gross profit for the year. He thereafter proceeded to bifurcate various expenses claimed by the assessee in three sections, viz. (i) expenses directly related to the sales; (ii) expenses not relating to the sales; and (iii) Misc. expenses. The Assessing Officer thereafter proceeded to disallow 40% of such expenses after recording his reasons for doing so at length. After adopting the various steps as indicated above, the Asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment, I am of the opinion that it would suffice if the turnover of the balance period is estimated at a round figure of Rs. 1.10 crores or in other words, it would be fair to estimate the turn over of the appellant firm for the entire year at a sum of Rs.2,00,00,000." After estimating the turn over at Rs.2 crores, the learned CIT(A) proceeded to make a reasonable estimate of the income of the assessee. He noted that in the AY 1985-86 the assessee had declared net profit of 0.35% which was accepted by the Revenue on the declared turn over. He therefore, concluded that "taking all these circumstances into consideration, I deem if fit to apply a net profit rate of 0.50% of the total turn over of Rs. 2 crores as estimated earlier. This will give a figure of Rs.1,00,000 in round figures. The AC (IT) is, therefore, directed to adopt the said figure for the income under the head 'business etc.,' and to modify the assessment accordingly". 4. Shri H.S. Rai, the learned D.R. submitted that the story of loss of books of account was a concocted one and no credence should be given to it. According to the DR the preponderance of circumstances indicated that the assessee-firm was having subs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stimate of income by the CIT(A) at Rs. 1 lakh was fair and reasonable. 6. We have considered the rival submissions and perused the facts on record. In this case there was a search and the books of account were seized. Later on books were released and the assessee was asked to get the same audited under Rule 14A of the IT Rules. Thereafter the assessee informed the Assessing Officer that the books of account had been lost in transit and the necessary proofs in the form of police complaint and an advertisement in the newspaper etc. were also produced before the Assessing Officer. The Assessing Officer was not satisfied and held that the loss of books was a concocted story to destroy the books/evidence. The learned counsel for the assessee has made a statement at the Bar that the books of account have not been traced so far. Thus it is a fact that the books of account were neither available before the Assessing Officer nor before the CIT(A) and nor before us. Under the circumstances the only course left before the authorities below was to estimate the income taking into consideration the facts and circumstances of the case. The Assessing Officer has completed the assessment under s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to this are given in detail by learned Accountant Member. To sum up, it is mentioned that assessee-firm was engaged in cloth business on whole-sale basis in the year under consideration i.e. A.Y. 1986-87. There was a search under section 132 of the I.T. Act, 1961 (herein after referred to as the Act) at the business premises of the assessee on 10-7-1985 and the books of account and other relevant documents were seized by the department. The assessee filed return of income for A.Y. 1986-87 on 24-6-1987 at a total income of Rs.60,000 with a note that it is being filed on estimate basis as books were under custody of the department and the same shall be revised after obtaining copies of the necessary records. During assessment proceedings the Assessing Officer (hereinafter referred to as Assessing Officer) issue a detailed questionnaire calling upon the assessee to produce trading a/c, profit loss a/c, balance-sheet, quantitywise analysis of monthwise sales purchase details of opening and closing stock etc. On 20-2-1989 the date fixed by the Assessing Officer assessee sought time to file the requisite details but the same were not filed. As Assessing Officer was of the opinion th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d and some of debit-notes were found unstamped/unsigned. He took into consideration the reply of assessee dated 23-6-1989 in which expenses were divided into three categories and after considering all the facts, he worked out the expenses for all the period from 1-4-1985 to 22-10-1985 and deducted 40% thereof in view of the facts that some of the debit notes were not signed nor stamped and 25% deduction in expenses was being effected in all other related concerns of its group of assessee firm. He accordingly worked out G.P. of Rs.18.91 lacs out of which he made the deduction of expenses giving out in para 9 of his order and net profits/total income was assessed at Rs.14,16,912. The assessee came in appeal before CIT(A) who considered the facts which were brought on record. According to him the factum of loss of books is proved on record and he was to proceed on the materials which were available on record. He conceded to the submissions of the assessee firm that past record of assessee should be considered to arrive at the total sales, rate of S.P. and the total income. He considered the fact that in A.Ys, 1982-83, 1983-84, 1984-85, the assessee had shown the net profits 0.50%, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f CIT(A) and submitted one charge giving out the sales, purchase, G.P. expenses and net profit for A.Ys. 1983-84 to 1986-87 of assessee firm and it was pointed out that net profit in respect of assessee firm was below 0.35% prior to the year under consideration and CIT(A) was justified to increase it to 0.50% and in such cases there was no justification for the order of Assessing Officer which was based on mere surmises and conjectures. 13. To proceed with the fact of the case, undisputedly it is a case of search under section 132 of the Act at the business premises of the assessee as well as other 5 related firms of this group. The books of account of the assessee and other documents as well as of other firms were seized by the department. The assessee filed return of income at a total income of Rs.60,000 on the basis of estimate with a note that the same shall be revised after books of account are available or copies thereof are made available to assessee firm. In this case Assessing Officer has observed that assessee's books of account were in Sindhi Scripts and audit under section 142(2A) of the Act was must and accordingly he released the books of account to assessee on 13- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ara 5(II) it was concluded by Assessing Officer that Mr. Manchhani had not taken the books nor he was aware of the building and he has been set up by assessee to give support to a false theory of loss of books. 15.The other aspect dealt by Assessing Officer is that Laxman B. Manchhani was said to have brought the books of the office of Assessing Officer and took the same back to the assessee's premises in a auto rickshaw and there was some dispute relating to payment of fare. As he went inside, the driver of auto-rickshaw fled away along with the books. This theory of dispute between said Laxman B. Manchhani and auto-rickshaw-driver about payment of fare has been dealt by the Assessing Officer in para 5(1) of his order in detail and pointed out the relevant contradictions. I am also in full agreement with the findings of Assessing Officer that if already Rs.15 was paid by Mr. Manchhani to autorick-shaw driver which he had demanded then where was the question of dispute relating to fare and what must have prompted the riskshaw driver to fled away with books of account which were valueless to him or to any one except the assessee and the department. It strengthens the view of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... loss of books and assessee-firm were not given in the note published in the news paper. Copy of FIR or newspaper have not been furnished before us. I am in agreement with the view of Assessing Officer for disbelieving the factum of vagueness of FIR and note published in newspaper as well as delay caused in lodging of FIR and publishing of note. 20. On the basis of above and what has been mentioned by Assessing Officer in para Nos. 4 5 of his detailed order, I also conclude that books of assessee firm along with four other firms were not lost as mentioned in the story put up before authorities by the assessee-firm and it is for some ulterior motives that books of account have been withheld by the assessee and that has to be discussed in preceding paras. 21. After concluding that books of account have been withheld by the assessee-firm then Assessing Officer was left with no other alternative except to go for best judgment on the basis of whatever material and books of account were available with him as audit was also not possible on account of wilful alleged loss of books of accounts, the Assessing Officer proceeded to complete the assessment under section 144(b) of the Act a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1989 mentioned that assessee itself had shown G.P. at 2.84% in A.Y. 1984-85 and 6.14% in A.Y. 1985-86. He called upon the assessee to show cause why the G.P. @ 6.5% should not be adopted as rate of G.P. was at increase side. The contention of the assessee was that G.P. at 6.5% should not be treated but it should be taken on an average basis i.e. of last three years. The Assessing Officer has rightly repelled this contention of assessee also. He has mentioned that the other connected firms of the assessee had been showing G.P. at more than 6% and he mentioned that in A.Y. 1985-86 the rate of G.P. of the other two firms of that group operating from the same premises from where the assessee firm operates is as under:-- 1. M/s. Tahilram Parimal 9.4% 2. M/s. M. Tahilram 6.06% This approach of the Assessing Officer was most appropriate one as the assessee-firm as well as other two firms of same group have shown the rate of G.P. more than 6% then the rate of G.P. if taken at 6.5% it should be treated as justified one and keeping in view the important aspect that books of account have been willfully and intentionally withheld by the assessee by con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unting to Rs.91 lacs approximately and further confirmed the view of Assessing Officer about the rate of G.P. at 6.5% on the basis of G.P. shown by assessee and sister concerns of the assessee-firm in the just preceding year and once that view of estimating of sale and G.P. is confirmed, it will be improper if Assessing Officer is allowed to make deduction in expenses @ 40. The amount of expenses available for 2 months were shown by the assessee and out of those some expenses were not duly supported with initialed/stamped voucher(s) but those deductions of 25% as conceded to by the assessee and in all 40% deduction made by Assessing Officer would have been justified in case we were taking exact figures of sales on the basis of books of account as well as rate of G.P. worked out on those figures but in the case in hand, as referred to above, its estimate of sales figures as well as of rate of G.P. though based on appropriate analysis of figures then no deduction in the amount of expenses is called for either in expenses relating to sales or not connected to sales or to miscellaneous petty expenses. Accordingly, I direct Assessing Officer to give credit to assessee to all the amount ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 20-2-1989 along with a detailed questionnaire requiring the assessee to produce profit and loss account, balance sheet, trading account, quantity-wise analysis of month-wise sales and purchases, details of opening and closing stock etc. on 2-3-1989. According to the assessee as submitted in its letter dated 22-6-1989 addressed to the Assessing Officer xerox copies of certain seized books were given to the assessee on 2-11-1988 and copies of certain vouchers and other records were given as late as 26-5-1989 and 29-5-1989 and it was for this reason the assessee could not finalise the books of account of the period involved and also could not file the P L account, balance sheet, and auditors report and revised return based thereon. On 2-3-1989 as per the assessee the Assessing Officer was informed that the books of account are almost at the stage of finalisation. Subsequently on 13-3-1989 the Assessing Officer issued an order under section 142(2A) after obtaining prior approval of the CIT requiring the assessee to get its books of account audited by an appointed auditor and to submit audit report in the prescribed Form No. 6B. Meanwhile the Assessing Officer alleged to have asked t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the expenses of last year and disallowing 40% therefrom he estimated the allowable expenses from the gross profit at Rs.4,74,129 and deducting the same from the GP adopted he assessed the net profit at Rs.14,16,912. 6. The learned CIT(A) for the detailed reasons given in his order adopted the sales at Rs. 2 crores and applying thereon a net profit rate at 5% net profit was worked out and adopted at Rs. 1 lakh. 7. The learned Accountant Member in his order has upheld the order of the CIT(A) whereas the learned Judicial Member has concurred with the sales estimated by the Assessing Officer at Rs. 2,90,92,953 and also application of GP rate thereon at 6.5%. He has however directed the Assessing Officer to allow the expenses as per the vouchers found for the limited period and the amount of expenses for the remaining period at the same percentage without making any deduction at 40%. 8. I have heard the representatives of the revenue as well as the assessee. The learned D.R. advanced arguments in support of the order of the Assessing Officer whereas the learned counsel for the assessee submitted that income adopted by the first appellate authority at Rs. 1 lakh for a period of s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -------------------- The figures of sales for the A.Ys. 1984-85 and 1985-86 for the first seven months are also available in the compilation and the same are as under:-- ------------------------------------------------------------- 1984-85 1985-86 ------------------------------------------------------------- April 1983 40,16,410.88 56,38,430 May 1983 27,61,259.75 41,39,100 June l983 23,42,100.66 42,45,090 July 1983 17,62,559.13 17,57,910 August 1983 19,39,221.73 9,55,460 September 1983 25,97,520.79 3,66,570 October 1983 (1 to 15) 16,25,555.46 9,350 --------------- ----------- 1,70,44,62,843 1,71,11,910 ------------------------------------------------------------- I also find from the monthwise details given for these years that the sales during first two three months were higher whereas the sales in the remaining months had a downward trend. The sales figures for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s thereis a positive material to prove to the contrary. There being no such material we have to fall upon the past records for estimate of sales. In this view of the matter I concur with the view taken by the learned Accountant Member upholding the estimate of sales at Rs. 2 crores. 10. Having estimated the sales a profit rate is to be applied thereon to determine the income. The details relating to purchases and expenses relating to trading account and also expenses relating to P L account for the accounting year are not fully available. The vouchers seized give details in respect of majoori, commission, dalali, salary, post and stamp etc. for a limited period but necessary details about vatav, interest, purchases etc. are not available even for the limited period. The Assessing Officer has applied a GP rate on the sales estimated at 6.5%. In other words he has estimated expenses relating to trading account, in the shape of purchases, freight, majoori etc. at 93.5% of the sales. The expenses relating to P L account in the shape of salary, stationery, dalali, commission, vehicle expenses, range, postages etc. for the full accounting period are also not available. The Assessi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... w:-- Rs. 1983-84 45,075 1984-85 51,630 1985-86 85,066 Looking to the results of earlier three years in the case of the assessee as well as in the cases of 2 sister concerns where the business carried on was identical the net profit rate applied at .5% on the estimated sales of 2 crores thereby determining the net income at Rs. 1 lakh for the current accounting period of six months and 22 days is considered to be most fair and reasonable. 11. I accordingly concur with the view taken by the learned Accountant Member upholding the order of the first appellate authority wherein net income is adopted at Rs. 1 lakh applying a net profit rate of .5% on estimated sales of 2 crores. 12. This matter will now be placed before the Division Bench who heard the appeal for passing the majority view. ORDER Per Shri B.L Chhibber, Accountant Member -- The Learned Accountant Member Shri Nathuram sitting as Third Member by his opinion dated 20-2-1997, has concurred with the views of the Accountant Member and in accordance with the majority view, the Revenue's appeal is dismissed. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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