TMI Blog1995 (8) TMI 83X X X X Extracts X X X X X X X X Extracts X X X X ..... tion was made for undisclosed sales of Rs. 10,85,003. 3.1 The assessee, an individual deals in tyres manufactured by different companies. A search was conducted at the business and residential premises of the assessee on 6th 7th September 1984. Loose papers belonging to items C-4 to C-15 were seized from the residence of the assessee at 7, Sunrise Park, Ahmedabad. On scrutiny of these loose papers the learned ITO noted that these loose sheets comprised of daily sales effected for the period 15-7-1983 to the end of June 1984, and these sheets record the sales effected by the assessee on cash and credit basis. The ITO examined these loose sheets with reference to the books of account of M/s. Punjab Tyres and Paul Tyres for the period upto 31-3-1984 with the help of the Accountant of the assessee and found that sales to the tune of Rs. 10,85,003 were not found either in the books of M/s. Punjab Tyres or M/s. Paul Tyres. In response to the show-cause notice issued by the ITO vide his letter dated 27-3-1987, the assessee filed a detailed explanation which has been reproduced by the ITO on page 4 of his order. The ITO was not satisfied with the Explanation furnished and made an addit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ose sheets were partly concluded to be by the ITO as unaccounted sales. The learned counsel further submitted that in the proceedings under section 132(5) the unticked items in these loose sheets were totalled to Rs. 42.95 lakhs while total cash sales of both the concerns viz. M/s. Punjab Tyres and Paul Tyres for the accounting year in question were more than Rs. 45 lakhs which were recorded in the books of account. The learned counsel submitted that the nature of the business of assessee is that many times the assessee had to sell goods on approval or return basis both on cash basis or credit basis. In the loose sheets the assessee also entered such articles which were sold on approval or return basis. Further in many cases goods sold and entered into the loose sheets were exchanged because of change in size or when the purchaser insisted for the change in the manufacturer, viz., the customer who had purchased the tyre of 'Dunlop' company afterwards changed it into any other manufacturer like 'Ceat', 'Modi' etc. In such cases there may be difference in dates and rates and hence the sale of Rs. 10,85,003 could not have been compared with the books of account. He, therefore, submitt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... residence to collect the amount lying at his residence collected on their behalf by the assessee. The assessee's son was not present at that time and as the assessee had not much acquaintance with Mr. Rajiv Kapoor, as a matter of abundant caution obtained a personal receipt from him of having received Rs. 1 lakh. The assessee explained before the search party that this was obtained only to safeguard against the possible defalcation by the recipient of the money. Necessary confirmation letter in this regard was produced at the time of proceedings under section 132(5). Further at the time of assessment proceedings at the instance of the ITO xerox copy of cash book page dated 2-5-1983 was produced. The ITO was not satisfied with the explanation furnished and added the amount of Rs. 1 lakh as assessee's income from undisclosed sources. 4.2 On appeal, the CIT (Appeals) went through the statement of the assessee made during the search proceedings, submissions made by the assessee during the course of proceedings under section 132(5), sworn affidavit of Shri Rajiv Kapoor and held that the assessee had discharged the primary/secondary onus of proof by consistent explanation and documenta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed sales of Rs. 10,85,003." 3. Relevant facts are that the assessee, an individual deals in sales and purchases of tyres used by Trucks/Buses etc. and manufactured by different companies. The revenue authorities conducted a search and seizure operation at the business and residential premises of the assessee on 6th 7-9-1984. During that search operation loose papers relevant to these two grounds of the revenue and marked C-4 to C- 1 5 were seized from 7, Sunrise Park, Ahmedabad, the residence of assessee. The Assessing Officer scrutinised these loose papers which comprised of daily sales effected for the period from 15-7-1983 to the end of June 1984. These sales entered in these loose sheets include cash sales and credit sales. The assessee mentioned that these loose sheets were concerning to the business of assessee in the name of M/s. Punjab Tyres and M/s. Paul Tyres. The ITO examined these loose sheets with reference to the books of account of M/s. Punjab Tyres and M/s. Paul Tyres for the period upto 31-3-1984 with the help of the Accountant of the assessee and concluded that sales to the tune of Rs. 10,85,003 were not found either in the books of M/s. Punjab Tyres or that o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at all the sales mentioned in the loose sheets were entered in the books of account. The learned counsel further submitted that explanation given by the assessee before the ITO and the CIT (Appeals) was such that there was no justification for ITO to add as nature of business is such that so many times goods sold on approval basis are actually shown at cash sales but returned afterwards or sometime a part of the price of tyre is paid by the Driver/Owner of the vehicle in time of emergency and assessee used to show the said sale as cash sale and later on that unpaid amount remained uncleared for which credit memo was prepared and this sort of transactions were existing and in all the amount of such transactions was Rs. 8,41,664 and assessee was justified in asking the authorities below to assess the G.P. on remaining amount of Rs. 2,43,339 and to add in the total income of the assessee. This offer of assessee was to purchase peace and to cut short the period of litigation. The learned counsel pointed out that the learned CIT (Appeals) was justified in accepting the contention and explanation of the assessee and it requires no interference. 5. After hearing the learned representati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ff really represented the cash sales and the same are duly accounted for in the books of account of the respective firms and the cash memos win prove this contention. Promised or intended sales were also recorded and the same cannot find place in regular books unless it is actually effected or materialized. After verification of the loose sheets with the books of account, your honour have come out with a figure of Rs. 10,85,003 being the difference to be added as income from undisclosed sources. We have already submitted to your honour that the above figure is the sum total of the exact amount not tallying with the loose sheets and the amounts as appearing in our books for various reasons which are elaborated later on in this reply. We have submitted a detailed statement of cash sales remaining unticked in our books after the verification of the figures with the loose sheets. This unticked items of sales amount to Rs. 8,41,664. This has not been deducted by your honour from the figure of Rs. 10,85,063. If this figure of Rs. 8,41,664 is deducted, the net amount of sales differing on account of the misunderstanding comes to Rs. 2,43,339. A statement of unticked items of sales as ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erence of Rs. 10,35,003. As pointed out above the assessee was duty bound to give cogent explanation giving out details of each and every entry included in the amount of Rs. 10,85,003. But he faded to do so. 8. However, the assessee is not to be blamed because at least he submitted a detailed statement of cash sales remaining unticked in his books amounting to Rs. 8,41,664 as mentioned, then ITO was to verify this claim of the assessee in detail but written submission of assessee which lasted upto 5 pages were disposed of by the ITO with the following observation :-- "The assessee's explanation as regards the difference of sales not recorded in the books of account is not convincing because for each sale entry in the loose sheets there must be corresponding entry in' he regular books of account. 'Besides each sales which are found in the cash book might not have been entered in the loose-sheets and have been directly recorded in the books of account. In the circumstances it is not possible to give any relief for unaccounted cash sales found. The entry in the unaccounted sales of Rs. 10,85,003 are included in the total income of the assessee." This approach of the ITO is not j ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not explain each and every entry for a total of Rs. 8,41,664. In the same way the above observations of CIT (Appeals) are self-contradictory as at one place in the above referred to observations he noted that sales recorded in the books of account are more than the sales jotted down in the loose sheets and gave explanation that by observing that certain sales are entered in the regular books of account but were not recorded in the loose sheets on account of various reasons. In the same para he criticized the observations of ITO that finding of ITO to the effect that sales in the regular books of account might have not been entered in the loose sheets is based only on the surmises. So the CIT (Appeals) was not justified in accepting the contention of the assessee without verifying the correctness of the explanation and adding the G.P. of Rs. 2,43,339." 10. It is also relevant to point out that the learned counsel for the assessee argued before us that purchases are vouched and there was no occasion for the assessee to sell tyres out of books nor authorities below questioned the purchases. This point has not been scrutinized by the authorities. The assessee's explanations were sub ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 003 made on account of unaccounted cash sales. 2. Whether, on the facts and circumstances of the case, the learned CIT (Appeals) is justified in directing to adopt the G.P. only on Rs. 2,43,339 when addition was made for undisclosed sales of Rs. 10,85,003." 2. This appeal filed by the Department is against the order of the CIT (Appeals) dated 26-8-1987 for the assessment year 1984-85, for which the previous year ended on 30-6-1983. The assessee is an individual. He is engaged in the business of tyres under the name and style of M/s Punjab Tyres. For the assessment year under consideration the return of income was filed on 2-7-1986 showing total income at Rs. 950. Later on revised return was filed on 22-1-1987 showing income at Rs. 15,170. The revised return was filed in order to show income from property and share income from M/s Patel Transport Co., which were not disclosed in the original return of income. In the year under consideration the assessee has disclosed a gross profit rate of 2.396 on total sales of Rs. 1,35,49,907 as against gross profit rate of 2.296 on total sales of Rs. 1,34,09,015 in the preceding year. 3. Search under section 132 of the Income-tax Act, 196 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... actually effected or materialised. After verification of the loose sheets with the books of account, you have come out with a figure of Rs. 10,85,003 being the difference to be added as income from undisclosed sources. As already submitted, the above figure is the sum total of the exact amount not tallying with the loose-sheets and the amounts as appearing in our books for various reasons which are elaborated in this reply. We have submitted a detailed statement of cash sales remaining unticked in our books after the verification of the figures with the loose-sheets. This unticked items of sales amount to Rs. 8,41,664. This has not been deducted by you from the figure of Rs. 10,85,003. If this figure of Rs. 8,41,664 is deducted, the net amount of sales differing on account of the misunderstanding comes to Rs. 2,43,339. A statement of unticked items of sales as appearing in our books is once again enclosed for your kind reference and necessary action. The above figure of difference is attributed to the proposed or intended sales not ultimately materialized, difference in price, quality, type and quantity, return of goods and various other reasons having no effect on ultimate sale as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... :--- "The assessee's explanation as regards the difference of sales not recorded in the books of account is not convincing because for each sale entry in the loose sheets there must be corresponding entry in the regular books of account. Besides each sale which are found in the cash book might not have been entered in the loose sheets and have been directly recorded in the books of account. In the circumstances it is not possible to give any relief for unaccounted cash sales found. The entry in the unaccounted sales of Rs. 10,85,003 are included in the total income of the assessee." In the assessment order passed under section 143(3) on 31-3-1987 the impugned addition was treated as business income. Aggrieved by the said addition, the assessee preferred an appeal before the CIT (Appeals). 5. Before the CIT (Appeals) the assessee's counsel urged that the total cash sales appearing in the loose sheets from 15-7-1983 to 30-6-1984 were Rs. 42.95 lacs and the total cash sales of both the firms from 1-7-1983 to 30-6-1984 were more i.e. Rs. 45.31 lacs. The assessee's counsel filed written submissions dated 17-8-1987 before the CIT (Appeals). Part of the said written submissions we ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under consideration comes to 2.36%. 6. The CIT (Appeals) accepted the submissions of the assessee and reduced the addition to Rs.2,43,339 by observing as under :--- 'From the foregoing explanation of the appellant it is clearly obvious that the appellant has been able to tally the sales recorded in the books of account of M/s Punjab Tyres and M/s Paul Tyres with the sales jotted down in the loose sheets. The various reasons furnished by the appellant about the fact that all the sales indicated in the loose sheets have been duly accounted for in the regular books of account, are reasonably acceptable. In such trade there are on account of various aforesaid reasons sales entries which have later on to be modified or reversed. In any case the sales recorded in the books of account are more than the sales jotted down in the loose sheets. This is so because certain sales are entered in the regular books of account but were not recorded in the loose sheets on account of various reasons. It is not necessary to enter all the sales in the loose sheets and at the same time it is not required to enter the promised or intended sales in the regular books of account since this may ultimately ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e-tax Officer was expected to verify this claim of the assessee in detail. But the Assessing Officer disposed of the assessee's said contention by simply observing that the assessee's explanation as regards the difference of sales not recorded in the books of account was not convincing because for each sale entry in the loose-sheets there must be corresponding entry in the regular books of account; that each sale which is found in the cash book might not have been entered in the loose-sheets and has been directly recorded in the books of account. The learned Judicial member stated that this approach of the Income-tax Officer was not justified at all. The learned Judicial Member stated that he was not able to find out as to how the CIT (Appeals) observed that the assessee was able to tally the sales recorded in the books of account of M/s Punjab Tyres (PB) and M/s Paul Tyres (PL) with the sales recorded in the loose-sheets. The assessee did not explain each and every entry for a total of Rs. 8,41,664. He further observed that the CIT (Appeals) was not justified in accepting the contention of the assessee without verifying the correctness of the explanation and adding the gross profi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l Member in para 11 of his order concluded that the matter has not been properly processed from the very beginning. In that view of the matter he restored the matter back to the Assessing Officer with the direction to him to examine the case of the assessee afresh. Hence, the order of the learned Judicial Member is to be upheld. 11. The arguments of the assessee's counsel before me were to the following effect: The order under section 132(5) of the Income-tax Act, 1961, was passed by the Assessing Officer on 1-12-1984. The same is given in the Revenue's paper book No. 2 at pages 33 to 40. In para 6(g) of the said order, on a scrutiny of the seized loose papers, marked at Sl. Nos. 4 to 15 of Annexure 'C', the income of the assessee from undisclosed sources was determined at Rs. 3 lakhs for the assessment year 1984-85. In the said para the Assessing Officer accepted that the notings in the seized papers related not only to the assessee but also to his son Shri Jintendra Pal Singh who carried on the business of tyres under the name and style of M/s Paul Tyres. In the assessee's paper book at page 9, the details of cash sales entered in the regular books of M/s Punjab Tyres (PB) and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the year 1983. Ten years have already elapsed. What for the assessee has to go back? There should be a finality and that too early. No body can do a job with precision. Tallying hundred per cent of the entries in the seized loose papers is a mirage. The assessee's books of account and the results shown by them have been accepted in the earlier and later assessment years viz. assessment years 1983-84,1986-87,1987-88 and 1988-89. Copies of these assessment orders have been filed before the Tribunal. Though the assessee could have got more relief, he is accepting the order of the learned Accountant Member. 12. In reply the Departmental Representative contended that the investment in the goods which resulted in the unrecorded sales of Rs. 10,85,003 should also be added under section 69 of the Act. This was not considered by the Assessing Officer and the learned Accountant Member. The assessee might have recorded cash sales of Rs. forty five lakhs in both the concerns M/s Punjab Tyres (PB) and M/s Paul Tyres (PL). Still Rs. ten lakhs remained unaccounted for. If the explanation of the assessee is not accepted, unaccounted sales amounted to Rs. 10 lakhs. The income in respect of the tr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... order. Hence, the learned Judicial Member cannot find fault with the Assessing Officer that he has not verified the claim of the assessee in the matter of cash sales recorded in the books of account amounting to Rs. 8,41,664. 15. With a view to purchase peace and to avoid litigation the assessee accepted 'reasonable and usual gross profit addition on difference of Rs. 2,43,339" without any admission on his part for the alleged concealment of income. This offer from the assessee has been wrongly misunderstood by the Assessing Officer as he observed in the assessment order as 'the assessee agrees in order to purchase peace the G.P. addition of Rs. 2,43,339". The assessee has not agreed for the gross profit addition of Rs. 2,43,339. He only agreed for addition of gross profit on sales of Rs. 2,43,339. 16. The learned Judicial Member observed that the assessee did not explain each and every entry for a total sum of Rs. 8,41,664. The assessee in fact explained in the statement filed before the Assessing Officer which is given in pages 10 and 11 of the Revenue's paper book No. 2. The learned Judicial Member has observed that the matter has not property been processed from the beginni ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that according to the trading and profit loss account of Punjab Tyres for the period 1-7-1982 to 30-6-1983 the net profit shown is Rs. 76,090 on sales of Rs. 1,35,49,907 yielding a net profit rate of 0.56%. 19. In the facts and circumstances of the case, I hold that the CIT (Appeals) is justified in deleting the addition of Rs. 10,85,003 made on account of unaccounted cash sales. The CIT (Appeals) is not justified in directing to adopt gross profit only on Rs. 2,43,339. 1 agree with the learned Accountant Member in this regard. 20. The matter will now go before the regular Bench for the final disposal of the appeal in accordance with the opinion of the majority. ORDER Per Shri B. L. Chhibber (Accountant Member) - The learned Vice-President sitting as Third Member by his opinion dated 16-6-1995 has concurred with the views of Accountant Member and in accordance with the majority view, it is held as under : (1) The CIT(A) is justified in deleting the addition of Rs. 10,85,003 made on account of unaccounted cash sales. (2) The CIT(A) is not justified in directing to adopt the Gross Profit only on Rs. 2,43,339 being the difference between Rs. 10,85,003 and Rs. 8,41,664 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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