SMT. KAMLA BAI AGARWAL, v. THE DICT 2(1),

CO 61/IND/2006 | misc
Pronouncement Date: 30-09-2011 | Result: Dismissed

Appeal Details

RSA Number 6122723 RSA 2006
Assessee PAN AARPA8543K
Bench Indore
Appeal Number CO 61/IND/2006
Duration Of Justice 5 year(s) 2 month(s) 20 day(s)
Appellant SMT. KAMLA BAI AGARWAL,
Respondent THE DICT 2(1),
Appeal Type Cross Objection
Pronouncement Date 30-09-2011
Appeal Filed By Assessee
Order Result Dismissed
Bench Allotted DB
Tribunal Order Date 30-09-2011
Date Of Final Hearing 09-06-2011
Next Hearing Date 09-06-2011
Assessment Year misc
Appeal Filed On 10-07-2006
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL INDORE BENCH INDORE BEFORE SHRI JOGINDER SINGH J.M. AND SHRI R.C.SHARM A A.M. PAN NO. : AARPA8543K I.T.(SS).A.NO.15/IND/2006 BLOCK PERIOD : 01.04.1996 TO 13.6.2002 DY. CIT SHRI DINESH KUMAR AGARWAL 2(1) VS BHOPAL BHOPAL APPELLANT RESPONDENT PAN NO. : ABXPA2037M I.T.(SS).A.NO.30/IND/2006 BLOCK PERIOD : 01.04.1996 TO 13.6.2002 DY. CIT SHRI RAKESH AGARWAL 2(1) VS BHOPAL BHOPAL APPELLANT RESPONDENT C.O.NO.62/IND/2006 (ARISI NG OUT OF I.T.(SS).A.NOS. 30/IND/2006) BLOCK PERIOD : 01.04.1996 TO 13.6.2002 SHRI RAKESH AGARWAL DY. CIT BHOPAL VS 2(1) BHOPAL CROSS OBJECTOR RESPONDENT -: 2: - 2 PAN NO. : AASPA1780H I.T.(SS).A.NO.48/IND/2006 BLOCK PERIOD : 01.04.1996 TO 13.6.2 002 DY. CIT SHRI ANMOL AGARWAL 2(1) VS BHOPAL BHOPAL APPELLANT RESPONDENT C.O.NO.69/IND/2006 (ARISING OUT OF I.T.(SS).A.NOS. 48/IND/2006) BLOCK PERIOD : 01.04.1996 TO 13.6.2002 SHRI ANMOL AGARWAL DY. CIT BHOPAL VS 2(1) BHOPAL CRO SS OBJECTOR RESPONDENT PAN NO. : AADPA0273N I.T.(SS).A.NO.14/IND/2006 BLOCK PERIOD : 01.04.1996 TO 13.6.2002 DY. CIT SMT. REENU AGARWAL 2(1) VS BHOPAL BHOPAL APPELLANT RESPONDENT C.O.NO.39/IND/2006 (ARISING OUT OF I.T.(SS).A.NO.14/IND/2006) BLOCK PERIOD : 01.04.1996 TO 13.6.2002 SMT. REENU AGARWAL DY. CIT BHOPAL VS 2(1) BHOPAL CROSS OBJECTOR RESPONDENT -: 3: - 3 PAN NO. : AARPA 8663Q I.T.(SS).A.NO.29/IND/2006 BLOCK PERIOD : 01.04.1996 TO 13.6.2002 DY. CIT SMT. KAMLA BAI AGA RWAL 2(1) VS BHOPAL BHOPAL APPELLANT RESPONDENT C.O.NO.61/IND/2006 (ARISING OUT OF I.T.(SS).A.NO.29/IND/2006) BLOCK PERIOD : 01.04.1996 TO 13.6.2002 SMT. KAMLA BAI AGARWAL DY. CIT BHOPAL VS 2(1) BHOPAL CROSS OBJECTOR RESPONDENT P AN NO. : AARPA8662R I.T.(SS).A.NO.06/IND/2006 BLOCK PERIOD : 01.04.1996 TO 13.6.2002 DY. CIT SHRI SWADESH KUMAR AGARWAL 2(1) VS BHOPAL BHOPAL APPELLANT RESPONDENT -: 4: - 4 C.O.NO.36/IND/2006 (ARISING OUT OF I.T.(SS).A.NO.06/IND/2006) BLOCK PERIOD : 01.04.1996 TO 13.6.2002 SHRI SWADESH KUMAR AGARWAL DY. CIT BHOPAL VS 2(1) BHOPAL CROSS OBJECTOR RESPONDENT PAN NO. : ADAPA 9364H I.T.(SS).A.NO.28/IND/2006 BLOCK PERIOD : 01.04.1996 TO 13.6.2002 DY. CIT SMT. SUSHMA AGARWAL 2(1) VS BHOPAL BHOPAL APPELLANT RESPONDENT C.O.NO.60/IND/2006 (ARISING OUT OF I.T.(SS).A.NO.28/IND/2006) BLOCK PERIOD : 01.04.1996 TO 13.6.2002 SMT. SUSHMA AGARWAL DY. CIT BHOPAL VS 2(1) BHOPAL CROSS OBJECTOR RESPONDENT APPLIC ANTS BY : SHRI DARSHAN SINGH CIT DR RESPONDENT BY : SHRI H.P.VERMA AND SHRI GIRISH AGARWAL ADVOCATES DATE OF HEARING : 14.07.2011 DATE OF PRONOUNCEMENT : .09.2011 -: 5: - 5 O R D E R PER R. C. SHARMA A.M. THESE ARE APPEALS FILED BY THE REVENUE AND CROSS OBJECTIONS BY THE ASSESSEE AGAINST THE ORDER OF CIT (A) IN THE MATTER OF BLOCK ASSESSMENT ORDER FRAMED BY THE AO F OR THE PERIOD 1.4.1999 TO 13.6.2002. 2. AS COMMON GROUNDS ARE INVOLVED IN ALL THESE APPEALS RELATING TO AGARWAL GROUP OF BHOPAL WHEREIN SEARCH WAS CONDUCTED U/S 132 WITH EFFECT FROM 13.6.2002 TO 15. 6.2002 THESE WERE HEARD TOGETHER AND ARE NOW DISPOSED OF BY THIS CONSOLIDATED ORDER. 3. RIVAL CONTENTIONS HAVE BEEN HEARD AND RECORDS PERUSED. 4. FACTS IN BRIEF ARE THAT ALL THE ASSESSEES WERE CAR RYING OUT RETAIL OR WHOLESALE BUSINESS OF SAREE AND DRESS MATERIAL UNDER DIFFERENT NAMES AND STYLES AT BHOPAL. SEARCH WAS CARRIED OUT U/S 132 AT THE BUSINESS AND RESIDENTIAL PREMISES OF THE ASSESSEES FROM 13.6.2002 TO 15.6.2002. THERE AFTER BLOCK ASSESSMENTS WERE FRAMED IN RESPECT OF FOLLOWI NG -: 6: - 6 ASSESSEES WHOSE SOURCE OF INCOME AND THEIR BUSINES S CONCERNS ARE INDICATED HERE BELOW :- 01. SMT.KAMLABAI W/O LATE SHRI RADHESHYAM AGRAWAL M/S.DINESH RAKESH & CO. RETAIL SALES OF SAREES CHOWK BHOPAL 02. VYAS KUMAR S/O SHRI RADHESHYAM AGRAWAL SALARY FROM : 1. M/S.DINESH RAKESH & CO. 03. SMT.MANJU W/O VYAS KUMAR M/S.KAMALS (VIMAL SUITINGS) CHOWK IBRAHIMPURA BHOPAL. 04. DINESH KUMAR S/O RADHESHYAM M/S.SHREEJI SAREEWALE MUKERJEE MARKET BAIRAGARH 05. SMT.SUSHAMA W/O DINESH KUMAR M/S.SAROJ KAMAL SILK HOUSE IBRAHIMPURA BHOPAL 06. RAKESH KUMAR S/O RADHESHYAM M/S.DINESH RAKESH JEWELLERS CHOWK BHOPAL 07. SMT. VINITA W/O RAKESH M/S.SHREEJI SAREES BEHIND POLICE CHOWKI BHOPAL & BAIRAGARH 08. SWADESH KUMAR S/O RADHESHYAM M/S.SHREEJI SILK BANSAL MARKET BAIRAGARH H.O. M/S.ANARKALI (BRANCH) IBRAHIMPURA BHOPAL 09. SMT.REENA W/O SWADESH KUMAR M/S.SHREEJI EXCLUSIVE GROUND FLOOR MAIN BUILDING NEHRU MARKET -: 7: - 7 BAIRGARAH M/S. SHREEJI SYNTHETICS CHOWK BHOPAL. 10. ANMOL S/O VYAS KUMAR M/S.SHREEJI EXCLUSIVE GROUND FLOOR MAIN BUILDING NEHRU MARKET BAIRGARAH I.T.(SS).A.NO. 15/IND/2006: 5. IN THIS CASE THE ASSESSEE SHRI DIENSH KUMAR AGARWAL WAS CARRYING ON WHOLESALE CLOTH BUSINESS UN DER THE NAME AND STYLE OF SHRI JEE SARIWALLA AT MUKHERJEE M ARKET MAIN ROAD BAIRAGARH BHOPAL. SEARCH WERE COMMENCED ON 13.6.2002 WHEREIN PANCHNAMA WAS PREPARED IN THE NAM ES OF SHRI JEE SARIWALLA 2) SHREE JEE SONI HOUSE 3) SHR EE JEE EXCLUSIVE SAREE AND 4) SHRI JEE DRESS MATERIAL. 6. THE PLACE SO SEARCHED WAS ONE AND COMMON TO ALL THE PERSONS. HOWEVER SEPARATE BLOCK ASSESSMENT ORD ERS WERE PASSED IN RESPECT OF DIFFERENT ASSESSEES OWNING TH E ABOVESAID CONCERNS. CONTENTION OF THE LD. AUTHORIZED REPRESEN TATIVE WAS THAT IN VIEW OF THE DECISION OF HON'BLE ALLAHABAD H IGH COURT IN THE CASE OF VANDANA VERMA 330 ITR 533 WHERE THE W ARRANT -: 8: - 8 OF AUTHORIZATION U/S 132 AND CONSEQUENTLY THE PANCH NAMA IS ON THE NAME OF MORE THAN ONE PERSON ASSESSMENT MAD E IN THE NAME OF ONE INDIVIDUAL ON THE BASIS OF SEIZURE IS NOT JUSTIFIED AND SUCH ASSESSMENT IS REQUIRED TO BE HEL D AS BAD IN LAW. 7. IN THE BLOCK ASSESSMENT ORDER SO FRAMED THE ALLEGATION OF THE AO WAS THAT BOOKS FOR FINANCIAL Y EAR 2001-02 WERE NOT FINALIZED. DURING THE SEARCH ITSELF IT WA S SUBMITTED BY THE ASSESSEE THAT HIS FATHER WAS LOOKING AFTER A CCOUNTS WHO DIED ON 11.4.2002. HENCE BOOKS WERE INCOMPLETE . IT WAS ALSO ALLEGED BY THE ASSESSING OFFICER THAT CASH BOO K FOR THE FINANCIAL YEAR 2002-03 WAS NOT UP TO DATE. IN REPLY IT WAS SUBMITTED THAT ENTRIES WERE MADE ON THE BASIS OF SE IZED DOCUMENTS AND BOOKS WERE COMPLETED FROM 10.6.2002 T O 12.6.2002. HOWEVER DURING THE COURSE OF BLOCK ASSE SSMENT PROCEEDINGS NO DEFECTS WERE FOUND. THE AO ALSO ALL EGED THAT THERE WAS DISCREPANCY IN MANUAL AND COMPUTER ACCOUN TS. HOWEVER NO SPECIFIC DEFECT WAS POINTED OUT. IT WAS ALSO STATED THAT THE BOOKS WERE WRITTEN MANUALLY WHICH WERE AUT HENTIC AND FINAL AND PARALLELY THE ASSESSEE WAS TRYING TO UPLOAD THE -: 9: - 9 RECORD ON COMPUTER WHICH WAS NOT FULLY OPERATIONAL TILL DATE OF SEARCH. IT WAS ALSO ALLEGATION OF THE AO THAT VOUCH ERS FOR CERTAIN EXPENSES WERE NOT MAINTAINED. IT WAS REPLIE D BY ASSESSEE THAT FOR PETTY EXPENSES NO VOUCHERS WERE K EPT AND FOR OTHER EXPENSES REASONABLE AMOUNT WERE DEBITED. HOW EVER NO SPECIFIC DISALLOWANCE WAS MADE BY THE ASSESSING OFF ICER WHILE FRAMING THE BLOCK ASSESSMENT AS NO SPECIFIC INSTAN CE WAS QUOTED BY HIM FOR DISALLOWANCE OF EXPENSES. WITH RE GARD TO AOS OBSERVATION THAT NO STOCK REGISTER WAS MAINTAI NED IT WAS SUBMITTED THAT THE ASSESSEE WAS CARRYING ON BUSINES S OF WHOLESALE IN CLOTH OF SAREE. IN THIS BUSINESS VARIE TIES OF SAREE LEHNGA AND CHUNRI ETC. WAS KEPT AND IT WAS NOT POSS IBLE TO MAINTAIN STOCK REGISTER WITH REGARD TO THE DIFFEREN T VARIETIES OF SAREES LEHNGA CHUNRI ETC. IN SUPPORT OF ITS CONTE NTION RELIANCE WAS PLACED ON THE DECISION IN THE CASE OF PANDIT BROTHERS 29 ITR 159 DURAJ RAJ 83 ITR 485 GANGAR AM MOHANLAL MITTAL 45 STC 381. 8. HOWEVER THE ASSESSING OFFICER DID NOT ACCEPT THE ASSESSEES CONTENTION AND AFTER REJECTING THE BOOKS OF ACCOUNTS ESTIMATED GROSS PROFIT ON SALES AT 14% IN RESPECT OF -: 10: - 10 ALL THE YEARS FALLING IN THE BLOCK PERIOD AND MADE ADDITION OF RS.25 87 307/-. SIMILARLY ASSESSING OFFICER COMPU TED EXCESS CLOSING STOCK AT RS.27 67 452/-. KEEPING IN VIEW T HE GROSS PROFIT ADDITION OF RS.25 87 307/- ADDITION ON ACCO UNT OF EXCESS STOCK WAS RETAINED TO THE TUNE OF RS.1 80 14 5/-. 9. BY THE IMPUGNED ORDER THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) DELETED THE ADDITION MADE ON A CCOUNT OF ESTIMATED PROFIT AFTER HAVING MADE THE FOLLOWING OB SERVATIONS :- AO HAS DISCUSSED THIS ISSUE IN ASST. ORDER IN PARA 5 TO 9 FROM PAGE 3 TO 17. AO HAD DISCUSSED IN DETAIL THE NATUR E OF ACCOUNT BOOKS AND HAD POINTED OUT CERTAIN DEFECT IN THE MAI NTENANCE OF BOOKS OF ACCOUNT. HE HAD DISCUSSED JUSTIFICATION FO R APPLICATION FOR PROVISION OF SEC.145(3). HE HAS DISCUSSED THE D OCUMENTS 64 AND 65 OF ANNEX.LPS-1/2 RELATING TO RETURN OF GOODS AND HAD TAKEN THE SALE AS RATE AT WHICH GOODS WERE PROPOSED TO BE RETURNED AND THE RATE OF RETURN WAS TAKEN AS PURCHA SE AND THE DIFFERENCE WAS TAKEN AS G.P. RATE. AO HAD INCORPORA TED IN THE BODY OF THE ASST. ORDER THE WRITTEN SUBMISSION OF T HE APPELLANT ALSO. AO HAS DISCUSSED THE DOCUMENT 56 AND 57 OF BS -3/31 AND -: 11: - 11 DOCUMENT NOS.95 96 150 151 OF BS-4/52 FOR WORKING O UT THE G.P. RAGE. AO ALSO QUOTED CERTAIN EXAMPLE ON PAGE 16 OF THE ASST. ORDER FROM THE DISCLOSED BOOKS OF ACCOUNTS FOR SHOW ING THE G.P. RATE IN SUPPORT OF HIS FINDING THAT APPELLANT HAD B EEN SHOWING G.P. RATE VERY HIGH IN RESPECT OF CERTAIN ITEMS AT PAGE 17. HE HAS GIVEN DETAILS OF TURNOVER AND G.P. RATE AS DISCLOSE D BY THE APPELLANT IN THE BLOCK PERIOD. HE HAS WORKED OUT TH E AVERAGE G.P. RATE AS DISCLOSED BY THE APPELLANT FOR THE BLO CK PERIOD AT 8.49% ON TOTAL TURNOVER OF RS.4 69 87 976/-. AO HEL D THAT APPELLANT HAD BEEN ENJOYING G.P. RATE OF 14% AND TH US APPLIED G.P. RATE OF 14% ON THE DISCLOSED TURNOVER OF THE B LOCK PERIOD AND HAD WORKED OUT THE G.P. AT RS.65 78 316/- AS AG AINST THE DISCLOSED G.P. FOR THE BLOCK PERIOD AT RS. 39 90 95 6/- AND THUS MADE ADDITION IN RESPECT OF DIFFERENCE IN G.P. AMOU NTING TO RS. 25 87 367/- (6578316 3990956). AO FURTHER HELD T HAT THE SUPPRESSED G.P. OF RS.25 87 367/- AS UNDISCLOSED IN COME OF THE APPELLANT FOR THE BLOCK PERIOD. I HAVE CAREFULLY CONSIDERED THE SUBMISSIONS OF TH E LD. COUNSEL THAT AO WAS NOT JUSTIFIED IN COMPUTING UNDI SCLOSED INCOME BY APPLYING G.P. RATE OF 14% ON DISCLOSED TU RNOVER. I -: 12: - 12 HAVE ALSO VERY CAREFULLY PERUSED THE ASST. ORDER PA SSED BY THE AO INCORPORATING THEREIN THE REASONS FOR COMPUTING UND ISCLOSED INCOME BY APPLYING G.P. RATE OF J14% ON DISCLOSED T URNOVER AFTER REJECTING THE BOOKS OF ACCOUNTS. AFTER DUE CONSIDER ATION IN THE MATTER I HOLD THAT AO WAS NOT JUSTIFIED IN COMPUTIN G THE UNDISCLOSED INCOME BY APPLYING G.P. RATE OF 14% ON DISCLOSED TURNOVER BECAUSE UNDISCLOSED INCOME IS TO BE COMPUT ED ONLY WITH REFERENCE TO EVIDENCE FOUND DURING THE COURSE OF SE ARCH. SINCE NO EVIDENCE WHATSOEVER WAS FOUND AS A RESULT OF SEARCH TO THE EFFECT THAT APPELLANT HAD EARNED G.P. @ 14% ON THE DISCLOS ED TURNOVER THE ADDITION MADE BY THE AO WAS UNJUSTIFIED AND UNC ALLED FOR. NO EVIDENCE WAS FOUND AS A RESULT OF SEARCH IN RESPECT OF SUPPRESSION OF TURNOVER. NO PURCHASE WAS FOUND UNRE CORDED. SINCE ADDITION OF R.25 87 367/- IS NOT BASED ON ANY EVIDENCE FOUND AS A RESULT OF SEARCH SUCH ADDITION IS UNSUS TAINABLE AND IS HEREBY DELETED. 10. THE ADDITION MADE ON ACCOUNT OF EXCESS STOCK WAS REWORKED OUT BY THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) AND THE SAME WAS SUSTAINED TO THE EXTENT OF -: 13: - 13 RS.19 901/- (ROUNDED OFF TO RS.20 000/-) AFTER HAVI NG THE FOLLOWING OBSERVATIONS :- I HAVE CONSIDERED THE SUBMISSION OF THE LD. COUNSEL THAT EXCESS STOCK WAS WORKED OUT ARBITRARILY. I HAVE ALSO SEEN THE REASONING GIVEN BY THE AO FOR COMPUTING UNEXPLAINED INVESTMEN T IN THE STOCK AT RS.27 67 452/-. AFTER DUE CONSIDERATION IN THE MATTER I HOLD THAT AO WAS NOT JUSTIFIED IN WORKING OUT THE V ALUE OF STOCK ON THE DATE OF SEARCH AT RS.27 67 452/- BECAUSE AO HAD NOT GONE BY THE FACTS MENTIONED IN THE INVENTORY AS PER LIST A-1 TO A-9 WHICH CLEARLY SHOWS THAT STOCK IN RESPECT OF CERTAI N ENTRIES BELONG TO DIFFERENT PARTIES. AO HAS NOT CONSIDERED THE SUBMISSION OF THE APPELLANT THAT STOCK AS PER INVENTORY A-1 TO A-9 BELONG TO DIFFERENT PARTIES. APPELLANT HAD FURNISHED THE DETA ILS OF STOCK AS BELONGING TO THE APPELLANT OUT OF THE INVENTORY AS PER LIST A-1 TO A-9. AO HAS NOT MADE ANY COMMENT THEREON. AS A MATT ER OF FACT AO WAS NOT HIMSELF SURE OF THE STOCK IN THE INVENTO RY AS BELONGING TO THE APPELLANT BECAUSE IN THE LETTER DT . 19.4.2004 THE VALUE OF AVAILABLE STOCK ON THE DATE OF SEARCH WAS MENTIONED AT 19.84 LAKHS. IT WOULD APPEAR FROM THE INVENTORY PRE PARED FROM A-2 TO A-9 THAT STOCK OF MORE THAN ONE PARTY WAS CO UNTED IN ONE -: 14: - 14 INVENTORY. IT IS FOUND THAT AS RESULT OF SEARCH EVI DENCE FOUND TO THE EFFECT THAT TAG PRICE IS DOUBLE OF MRP. THE CON TENTS OF SUCH DOCUMENT CANNOT BE IGNORED AND INFECT THE SAME HAVE TO BE TAKEN AS CORRECT IN VIEW OF THE PROVISION OF SEC. 132(4A) . THEREFORE IT WOULD BE ONLY REASONABLE AND FAIR IF THE VALUE OF A VAILABLE STOCK ON THE DATE OF SEARCH IS WORKED OUT WITH REFERENCE TO MRP WHICH IS HALF OF THE TAG PRICE. MOREOVER REASONABLE EVIDE NCE WAS PLACED BEFORE THE AO TO THE EFFECT THAT WHICH GOODS FOUND MENTIONED IN INVENTORYA-1 TO A-9 BELONGS TO THE APP ELLANT AND THE AO HAS NOT OTHERWISE HAS COMMENTED ON SUCH DETA ILS. ACCORDINGLY IN MY VIEW COMPUTATION OF EXCESS STOCK TO THE EXTENT OF RS.27 67 452/- APPEARS TO BE INCORRECT. SINCE T HERE APPEARS TO BE LOGIC IN THE WORKING OF EXCESS STOCK BY THE APPE LLANT THE SAME SHALL BE TAKEN FOR COMPUTATION OF EXCESS STOCK. THE VALUE OF STOCK AS OWNED BY THE APPELLANT AS PER CHART ENCLOSED AT THE RATE OF MRP WHICH IS HALF OF THE TAG PRICE AT RS.11 52 081 /- LESS: G.P. AT THE AVERAGE RATE OF 8.49% RS. 97 801/- RS.10 54 280/- LESS: STOCK AS PER BOOKS OF ACCOUNT RS.10 34 379/- RS. 19 901/- -: 15: - 15 ACCORDINGLY ADDITION ON ACCOUNT OF EXCESS STOCK IS WORKED OUT AT RS.19 901/- WHICH IS ROUNDED TO RS.20 000/-. THUS ADDITION MADE BY THE AO ON ACCOUNT OF UNEXPLAINED INVESTMEN T IN STOCK WILL BE REDUCED TO RS.20 000/-. THUS APPELLANT WILL GET RELIEF OF RS.1 60 145/-. 11. AGAINST THE ABOVE ORDER OF THE LEARNED COMMISS IONER OF INCOME TAX (APPEALS) THE REVENUE IS IN APPEAL B EFORE US. RIVAL CONTENTIONS HAVE BEEN CONSIDERED AND RECORD P ERUSED. FACTS IN BRIEF ARE THAT THE ASSESSEE WAS HAVING W HOLESALE CLOTH BUSINESS UNDER THE NAME AND STYLE OF SHREEJI DRESSWALA BAIRAGARH. THERE WAS SEARCH AT THE ASSES SEES BUSINESS PREMISES U/S 132 OF THE ACT ON 13 TH JUNE 2002 WHEREIN PANCHNAMA WAS PREPARED IN THE NAME OF (I) SHREEJI SAREEWALA PROPRIETOR DINESHKUMAR (II) SHREEJI SARE E HOUSE PROPRIETOR SMT. VANITA (III) SHREEJI EXCLUSIVE SARE E PROPRIETOR SMT. RENU IN THE CASE OF SHREEJI DRESS MATERIAL WHEREIN ANMOL AGRAWAL WAS THE PROPRIETOR THE CONTE NTION OF THE LD. COUNSEL FOR THE ASSESSEE WAS THAT IN VIEW T HE DECISION OF THE ALLAHABAD HIGH COURT IN THE CASE OF VANDANA -: 16: - 16 VERMA; 330 ITR 533 WHERE THE WARRANT OF AUTHORIZATI ON U/S 132 AND CONSEQUENTLY THE PANCHNAMA WAS IN THE NAME OF MORE THAN ONE PERSON ASSESSMENT MADE IN THE NAME O F ONE INDIVIDUAL ON THE BASIS OF SEIZURE IS NOT JUSTIFIED AND SUCH ASSESSMENT WAS BAD IN LAW. 12. W E ALSO FIND THAT THE ASSESSEE MAINTAINED REGULAR BO OKS OF ACCOUNTS WHICH ARE DULY AUDITED BY C.A. CASH BOOK WAS WRITTEN TO THE DATE OF SEARCH. BOOKS FOR THE FINANCIAL YEAR ENDING ON 31.3.2002 WERE NOT FOUND TO BE CLOSED AS THE FATHER OF THE ASSESSEE WHO WAS LOOKING AFTER THE ACCOUNTS EXPIR ED ON 11-04- 2002 (SEARCH ON 13 & 14 JUNE 2002).CURRENT BOOKS WE RE NOT WRITTEN FOR TWO DAYS. THOSE WERE UPDATED FOR 10 TH TO 12 TH JUNE 2002 ON THE BASIS OF VOUCHERS FOUND/SEIZED DURING S EARCH AND NO DEFECTS WERE FOUND IN THE BOOKS BY THE LD. AO. DIFF ERENCE IN THE MANUALLY MAINTAINED BOOKS AND ENTRIES IN COMPUTER W ERE HAVING SOME DIFFERENCE. THE ASSESSEE MAINTAINED MANUALLY W RITTEN BOOKS. THE COMPUTER WAS A NEW INTRODUCTION TO THE B USINESS AND IT WAS THE ENTRIES MADE DURING THE PRACTICE ON COMP UTER. FURTHER -: 17: - 17 NO SPECIFIC DEFECT WAS FOUND. HENCE THE LD. AO DID NOT MENTION ANY SPECIFIC ITEM OF DEFECT IN THIS REGARD. IN SOME SALES VOUCHERS THE QUALITY OF CLOTH/SARI WERE NOT MENTIONED. IT IS BECAUSE SOME OF THE VOUCHERS WERE ISSUED BY THE SALESMAN. DETAILS W ERE MENTIONED IN MOST OF THE VOUCHERS. THE DEFECTS POIN TED OUT BY THE ASSESSING OFFICER AS DISCUSSED ABOVE ARE NOT SUFFIC IENT TO REJECT THE BOOKS OF ACCOUNTS OF ALL THE PRECEDING YEARS MO RE PARTICULARLY IN VIEW OF THE REPLY AND JUSTIFICATION GIVEN BY THE ASSESSEE WITH RESPECT TO EACH OBJECTION OF THE ASSESSING OFFICER. THE RATE SLIPS ATTACHED TO THE CLOTHES WERE JUST DOUBLE THE MAXIMU M MRP AND THE SALESMAN WERE DIRECTED TO EFFECT THE SALES AT R ATES NOT MORE THAN MRP. WRITTEN NOTICE TO THIS EFFECT WAS SEIZED BY THE DEPARTMENT DURING SEARCH. THE SALES VOUCHERS FOUND DURING SEARCH SHOWS THAT THE SALES WERE EFFECTED MUCH BELOW THE M AXIMUM MRP AFTER BARGAINING WHICH IS A NORMAL COMMON OCCUR RENCE IN THIS LINE OF BUSINESS. SOME PETTY EXPENSES WERE NO T SUPPORTED BY VOUCHERS THOUGH THEY WERE INCURRED. THESE ARE THE E XPENSES OF -: 18: - 18 INDIRECT NATURE FOR THE CONDUCT OF BUSINESS. THIS C ANNOT HE A REASON FOR THE DISTURBANCE OF G.P. (A) IN THIS LINE OF BUSINESS IT WAS NOT POSSIBLE TO MAI NTAIN STOCK REGISTER. THERE ARE VARIETIES OF SAREES LEHANGAS CHUNNIS ETC. DECISIONS IN THE CASES OF PANDIT BROS. 29 ITR 159 (PUNJ.) DURAI RAJ..3 ITR 485 (KER) GANGARAM MOHANLAL MITTAL 45 S TC 381 (MP) VIDE PAGE 5017 OF CHATURVEDI & PITHISARIA SUP PORT THIS CONTENTION OF LD. COUNSEL FOR THE ASSESSEE. (B) MOSTLY THE STOCK WAS TAKEN DURING SURVEY U/S 133A D URING WHICH NINE BUNCHES OF INVENTORY WERE PREPARED. P.B. INVENTORY REMARKS 75-80 A1 133A 81-84 A2 133A 85-93 A3 133A 94-99 A4 132 100-103 A5 133A 104-110 A6 132 111-119 A7 133A ON 13-06-02 BUT BEARS SIGNATURES DATED 14-06-2002 120-125 A8 133A 126-127 A9 133A THERE WAS NO CONTINUITY OR CONVERSION OF SURVEY TO SEARCH. SUCH STOCK CAN NOT BE TAKEN INTO CONSIDERATION IN VIEW OF THE DECISION OF COORDINATE BENCH IN THE CASE OF SMT . VINITA AGARWAL BELONGING TO THIS GROUP ONLY DATED 20.3.20 09 . (C) IN THE STATEMENTS RECORDED U/S 132 (4) NO QUESTION ABOUT STOCK INVENTORY WAS PUT UP BECAUSE NO COGNIZANCE OF IT WAS TAKEN DURING SEARCH AND IT DID NOT FORM PART OF SEARCH. -: 19: - 19 (D) IN SOME THE FIGURE OF COST BY THE DEPARTMENT WAS WR ONG. STOCK DECLARED AS PER BOOKS 10 34 379. ASSESSEE DE ALS IN ITEMS PERTAINING TO WHOLESALE. IT IS COMMON IN SUCH CASES. THEREFORE THE DISCOUNT OF 2% ON MRP IS NORMAL. (E) VALUE OF STOCK AS PER INVENTORY ON MRP 11 52 081 LESS : DISCOUNT @ 2% 23 041 G.P. @8.38% 94 662 1 17 703 -------------- 10 34 378 -------------- 3. FOUR VOUCHERS PERTAINING TO PURCHASE RETURNS/SALES/PURCHASES FROM/TO OUTSIDE PARTIES: (A) M/S SAROJ SAREES PVT. LTD. DELHI. ON THE BASIS OF ONE PURCHASE RETURN PAPER PERTAININ G TO ABOVE PARTY THE LD. AO WORKED OUT G.P. @ 14%. DELH I PARTY OBJECTED TO THE HIGHER CLAIM MADE BY THE ASSE SSEE INFLATING PURCHASE PRICE. THE EXCESS CLAIMED BY THE ASSESSEE WAS RS. 5841/- SO THAT DELHI PARTY RESPOND S IMMEDIATELY. IT SO RESPONDED. THE TOTAL PURCHASES R ETURN VALUE GIVEN BY THE DELHI PARTY WAS RS. 32 475/- WHI CH TALLIES WITH THE FIRST ITEM OF PURCHASE RETURN ON T HE NAME OF DELHI PARTY IN THE BOOKS OF THE ASSESSEE. RATES AS PER PURCHASE VOUCHERS ISSUED BY DELHI PART Y WERE TALLIED WITH SUBSEQUENT SALES BY THE ASSESSEE. ON THAT BASIS TABULATION WAS MADE AND THE AVERAGE G.P. RATE COMES TO 2.89%. FOR ALL CASES THE RELEVANT PURCHAS ES AND SALES VOUCHERS WERE ENCLOSED WITH PAPER BOOKS A ND PLACED BEFORE US. FIRST FOUR ITEMS IN 2 ND CHART OF A.O. PAGE 12 SHOWS SALES ON PURCHASE RATE GIVING G.P. AT NIL. -: 20: - 20 (B) G.P. WORKED OUT ON THE BASIS OF VOUCHERS . (I) JAI AMBEY TEXTILE BANGALORE - 7.83% (II) NAURATAN HANDLOOM CHENNAI - 2.56% (III) MAHADEV SILK & SAREES BANGALORE - 5.85% (IV) SAROJ SAREES PVT. LTD. DELHI AS ABOVE- 2.89% (V) THE LD. AO TOOK CERTAIN SALES & RESPECTIVE PURCHASES AND CALCULATED THE G.P. BUT ACCEPTED THAT THIS EXERCISE WAS DONE IN RESPECT OF A FEW ITEMS AND THERE MAY BE INSTANCES OF LOWER G.P. AND LOSSES. THE AVERAGE G.P. WORKS OUT TO 13.10% IN RESPECT OF SUCH SELECTIVE ITEMS OF SALES AND PURCHASES. 13.10% AVERAGE OF (I) TO (V) - 6.446% (A) A DETAILED SALE COMPARED TO PURCHASE & G.P. WAS PREPARED. THE G.P. RANGED FROM (-) 2.78% TO (+) 11.10%. THE CURSORY READING SHOWS THE G.P. TO BE LESS THAN 8%. IN SUPPORT OF IT EVIDENCE PRODUCED B EFORE US COMPRISES OF SUPPORTING VOUCHERS A.Y. 1997-98 TO 2002-03 PRODUCED TO SUPPORT G.P.VOUCHER FILES NO. 1 TO 4 FOR THE INVENTORYPREPARED A1 TO A9 VOUCHER FILES FOR SALES. 13. NOWHERE THE ASSESSING OFFICER HAS GIVEN ANY FINDING TO SUPPORT THE REJECTION OF BOOKS OF ACCOUNTS OF YEARS EARLIER TO THE ASSESSMENT YEAR IN WHICH SEARCH WAS UNDERTAKEN. THE ASSESSING OFFICER CANNOT ARBITRARILY INVOKE THE PROVISIONS OF SECTION 145 IN COMPUTATION OF UNDISCLOSED INCOME MERELY BECAUSE LE DGER WAS NOT -: 21: - 21 WRITTEN UP TO THE DATE OF SEARCH. THE ADDITION HA S BEEN MADE BY THE ASSESSING OFFICER WITHOUT SUPPORTING ANY DOCUME NTARY EVIDENCE RELATABLE TO THE EVIDENCE FOUND DURING THE COURSE OF SEARCH. THE ASSESSING OFFICER MAY BE JUSTIFIED IN R EJECTING BOOKS OF ACCOUNTS ONLY FOR THE PREVIOUS YEAR IN RESPECT O F WHICH CERTAIN PURCHASES AND SALES ARE NOT FOUND RECORDED IN THE R EGULAR BOOKS OF ACCOUNTS BUT CERTAINLY BOOKS OF ACCOUNTS FOR THE E NTIRE BLOCK PERIOD CANNOT BE REJECTED ON THAT BASIS. IF THE UN DISCLOSED INCOME IS COMPUTED ON THE BASIS OF APPLICATION OF GROSS PR OFIT ON ASSUMED TURNOVER/ESTIMATED TURNOVER THE PROVISIONS OF SECT ION 158BB WOULD BECOME REDUNDANT. FOR THIS PURPOSE RELIANCE MAY BE PLACED ON THE JUDGMENTS IN THE CASES OF CIT VS. KHUSHALCHA ND NIRMAL KUMAR REPORTED AT 263 ITR 77(MP) BHAGWANDAS KEDIA VS. CIT248 ITR 562 (CAL. CALTRO DECO STEEL SALES VS. D CIT REPORTED AT (2000) 243 ITR 643 KOLKATTA CIT VS. RAVIKANT JA IN REPORTED AT (2001) 250 ITR 141(DELHI). ACCORDINGLY THERE IS NO MERIT IN APPLYING THE ESTIMATED GROSS PROFIT RATE TO THE EAR LIER ASSESSMENT YEARS. -: 22: - 22 14. FROM THE RECORD WE ALSO FOUND THAT FIRST A PPELLATE ORDER IN ASSESSEES OWN CASE BY CIT (A) FOR A.Y. 2000-01 ACCEPTED THE RETURNED G.P. THERE WAS NO APPEAL BY THE DEPARTMENT . THIS PERIOD IS COVERED BY THE SEARCH AND IT WAS PASSED MUCH AF TER SEARCH. G.P. ACCEPTED AT 8.13%. COPY OF ORDER OF THE LEARN ED COMMISSIONER OF INCOME TAX (APPEALS) DATED 15.3.200 4 WAS PLACED ON RECORD. HONBLE ITAT INDORE BENCH INDORE IN THE CASE OF SMT. VINITA AGRAWAL IT (SS) 19/IND/2006 BLOCK PE RIOD 01-04- 96 TO 13-06-02 BELONGING TO SAME GROUP ORDER DATED 20-03-2009 DISMISSED THE DEPARTMENT APPEAL WITH RESPECT TO DEL ETION MADE ON THE BASIS OF ESTIMATED GROSS PROFIT RATE. THERE IS A DETAILED DISCUSSION OF WHAT IS UNDISCLOSED INCOME HOW TO COMPUTE UNDISCLOSED INCOME WHETHER ESTIMATION OF INCOME FO R FEW DAYS CAN BE SPREAD OVER THE ENTIRE BLOCK PERIOD WITHOUT FINDING ANY MATERIAL DURING THE COURSE OF SEARCH TO THIS EFFECT . RELEVANT OBSERVATION AND CONCLUSION OF THE BENCH WAS AS UNDE R :- THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST THE ORDER OF CIT (A)-I BHOPAL DATED -: 23: - 23 12.1.2006 FOR THE BLOCK PERIOD 1.4.1996 TO 13.6.2002 ON THE FOLLOWING GROUNDS:- ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE THE LEARNED CIT(A) ERRED IN:- 1. GRANTING THE RELIEF OF RS. 1 90 000/- RIGHTLY ADDED BY THE ASSESSING OFFICER ON ACCOUNT OF UNEXPLAINED CASH. 2. GRANTING THE RELIEF OF RS. 15 32 719/- RIGHTLY ADDED BY THE ASSESSESSING OFFICER ON ACCOUNT OF UNEXPLAINED INVESTMENT IN STOCK. 3. GRANTING THE RELIEF OF RS. 83 24 267/- RIGHTLY ADDED BY THE ASSESSING OFFICER ON ACCOUNT OF UNDISCLOSED PROFIT AND UNEXPLAINED INVESTMENT . 2. IN THIS CASE SEARCH AND SEIZURE OPERATION U/S 132 OF THE ACT WAS CARRIED OUT ON 13 TH JUNE 2002 ONWARDS AT THE BUSINESS AND RESIDENTIAL PREMISES OF THE ASSESSEE.THIS IS ONE OF THE CASES OF DINESH RAKESH GROUP BHOPAL IN WHICH SIMULTANEOUS SEARCH OPERATION WAS CARRIED OUR ON 13 TH JUNE 2002 ONWARDS. DURING THE COURSE OF SEARCH THE ASSETS FOUND AND SEIZED ARE MENTIONED AT PAGE 1 OF THE ASSESSMENT ORDER. NOTICE U/S 158BC WAS ISSUED AGAINST THE ASSESSEE FOR FILING THE RETURN IN THE PRESCRIBED FORM. THE ASSESSEE FILED THE RETURN IN FORM NO. 2B DISCLOSING UNDISCLOSED INCOME AT RS. 1 09 557/- FOR THE BLOCK PERIOD. THE AO AFTER GIVIN G OPPORTUNITY OF BEING HEARD TO THE ASSESSEE COMPUTED THE UNDISCLOSED INCOME OF THE ASSESSEE MAKING THE -: 24: - 24 ADDITIONS ON WHICH THE GROUNDS OF APPEAL ARE RAISED BY THE REVENUE BECAUSE THE LD. CIT (A) DELETED THE SUBSTANTIAL ADDITIONS. 3. WE HAVE HEARD THE LEARNED REPRESENTATIVES OF BOTH THE PARTIES GONE THROUGH THE MATERIAL ON RECOR D AND PERUSED THE FINDINGS OF THE AUTHORITIES BELOW. BEFORE CONSIDERING THE ABOVE GROUNDS OF APPEAL ON MERITS WE WOULD LIKE TO DISCUSS THE LEGAL PROPOSITIONS DEALING WITH BLOCK ASSESSMENTS IN CHAPTER XIVB OF THE IT ACT BECAUSE WE FIND THAT ON A LL THE ISSUES THERE WERE NO INCRIMINATING EVIDENCES FOUND IN THE COURSE OF SEARCH TO INDICATE ANY UNDISCLOSED INCOME OR INVESTMENT HELD BY THE ASSESSEE OVER AND ABOVE AS RECORDED IN THE BOOKS OF ACCOUNTING ON WHICH SUBSTANTIAL ADDITIONS HAVE BEEN MADE AND DELETED BY THE LEARNED CIT(A). 3.1 CHAPTER XIV-B STARTS WITH SEC. 158B AND PROVIDES THE DEFINITION OF BLOCK PERIOD AND UNDISCLOSED INCOME. UNDISCLOSED INCOME IN RELEVANT IN THIS CASE WHICH REPRODUCED BELOW AS AMENDED BY FINANCE ACT W.E.F. 1.7.1995 S.. 158B(B) 'UNDISCLOSED INCOME' INCLUDES ANY MONEY BULLION JEWELLERY OR OTHER VALUABLE ARTICLE OR THING OR ANY INCOME BASED ON ANY ENTRY IN THE BOOKS OF ACCOUNT OR OTHER DOCUMENTS OR TRANSACTIONS WHERE SUCH MONEY BULLION JEWELLERY VALUABLE ARTICLE THING ENTRY IN THE BOOKS OF ACCOUNT OR OTHER DOCUMENT OR TRANSACTION REPRESENTS WHOLLY OR -: 25: - 25 PARTLY INCOME OR PROPERTY WHICH HAS NOT BEEN OR WOULD NOT HAVE BEEN DISCLOSED FOR THE PURPOSE OF THIS ACT OR ANY EXPENSE DEDUCTION OR ALLOWANCE CLAIMED UNDER THIS ACT WHICH IS FOUND TO BE FALSE. THIS SECTION SHOWS THAT THE FOLLOWING CONDITIONS MUST BE SATISFIED TO TREAT THE INCOME AS UNDISCLOSED INCOME I.E. : (I) IT MUST BE IN THE FORM OF MONEY BULLION JEWELLERY OTHER VALUABLE ARTICLE OR THING OR SHOULD CONSTITUTE INCOME OR PROPERTY BASED ON ANY ENTRY IN THE BOOKS OF ACCOUNTS OR OTHER DOCUMENT OR TRANSACTION; (II) IT SHOULD BE AVERRED THAT THE ASSETS OR ENTRY IN THE BOOKS REPRESENTS WHOLLY OR PARTLY INCOME OR PROPERTY WHICH HAS NOT BEEN OR WOULD NOT HAVE BEEN DISCLOSED FOR THE PURPOSE OF THIS ACT . (III) OR ANY EXPENSES DEDUCTION OR ALLOWANCE CLAIMED UNDER THIS HEAD WHICH IS FOUND TO BE FALSE. SECTION 158BB(1) PROVIDES FOR COMPUTATION OF UNDISCLOSED INCOME OF THE BLOCK PERIOD AND IS REPRODUCED AS UNDER: '(1) THE UNDISCLOSED INCOME OF THE BLOCK PERIOD SHALL BE THE AGGREGATE OF THE TOTAL INCOME OF THE PREVIOUS YEARS FALLING WITHIN THE BLOCK PERIOD COMPUTED IN ACCORDANCE WITH: THE PROVISIONS OF THIS ACT ON THE BASIS OF EVIDENCE FOUND AS A RESULT OF SEARCH OR REQUISITION OF BOOKS -: 26: - 26 OF ACCOUNT OR OTHER DOCUMENTS AND SUCH OTHER MATERIALS OR INFORMATION AS ARE AVAILABLE WITH THE AO AND RELATABLE TO SUCH EVIDENCE AS REDUCED BY THE AGGREGATE OF THE TOTAL INCOME OR AS THE CASE MAY BE AS INCREASED BY THE AGGREGATE OF THE LOSSES OF SUCH PREVIOUS YEARS DETERMINED - (A) WHERE ASSESSMENTS U/S 143 OR SEC. 144 OR SEC. 147 HAVE BEEN CONCLUDED [PRIOR TO THE DATE OF COMMENCEMENT OF THE SEARCH OR THE DATE OF REQUISITION] ON THE BASIS OF SUCH ASSESSMENTS; (B) WHERE RETURNS OF INCOME HAVE BEEN FILED ULS 13 9 [OR IN RESPONSE TO A NOTICE ISSUED UNDER SUB- SECTION (1) OF SEC. 142 OR SECTION 148] BUT ASSESSMENTS HAVE NOT BEEN MADE TILL THE DATE OF SEARCH OR REQUISITION ON THE BASIS OF THE INCOME DISCLOSED IN SUCH RETURNS; [(C) WHERE THE DUE DATE FOR FILING A RETURN OF INC OME HAS EXPIRED BUT NO RETURN OF INCOME HAS BEEN FILED - (A) ON THE BASIS OF ENTRIES AS RECORDED IN THE BOOKS OF ACCOUNT AND OTHER DOCUMENTS MAINTAINED IN THE NORMAL COURSE ON OR BEFORE THE DATE OF THE SEARCH OR REQUISITION WHERE SUCH ENTRIES RESULT IN COMPUTATION OF LOSS FOR ANY PREVIOUS YEAR FALLING IN THE BLOCK PERIOD; OR (B) ON THE BASIS OF ENTRIES AS RECORDED IN THE BOOKS OF ACCOUNT AND OTHER DOCUMENTS MAINTAINED IN THE NORMAL COURSE ON OR BEFORE THE DATE OF THE SEARCH OR REQUISITION -: 27: - 27 WHERE SUCH INCOME DOES NOT EXCEED THE MAXIMUM AMOUNT NOT CHARGEABLE TO TAX FOR ANY PREVIOUS YEAR FALLING IN THE BLOCK PERIOD; (CA) WHERE THE DUE DATE FOR FILING A RETURN OF INCOME HAS EXPIRED BUT NO RETURN OF INCOME HAS BEEN F ILED AS NIL IN CASES NOT FALLING UNDER CLAUSE (C);] (D) WHERE THE PREVIOUS YEAR HAS NOT ENDED OR THE DATE OF FILING THE- RETURN OF INCOME UNDER SUB-SECTION (1) OF SEC. 139 HAS NOT EXPIRED ON THE BASIS OF ENTRIES RELATING TO SUCH INCOME OR TRANSACTIONS AS RECORDED IN THE BOOKS OF ACCOUNT AND OTHER DOCUMENTS MAINTAINED IN THE NORMAL COURSE ON OR BEFORE THE DATE OF THE SEARCH OR REQUISITION RELATING TO SUCH PREVIOUS YEARS; (E) WHERE ANY ORDER OF SETTLEMENT HAS BEEN MADE UNDER SUB-SECTION-(4) OF SEC. 245D ON THE BASIS OF SUCH ORDER; (F) WHERE AN ASSESSMENT OF UNDISCLOSED INCOME HAD BEEN MADE EARLIER UNDER CLAUSE (C) OF SEC. 158BC ON THE BASIS OF SUCH ASSESSMENT: EXPLANATION.-FOR THE PURPOSE OF DETERMINATION OF UNDISCLOSED INCOME (`A) THE TOTAL INCOME OR LOSS OF EACH PREVIOUS YEAR SHALL FOR THE -: 28: - 28 PURPOSE OF AGGREGATION BE TAKEN AS THE TOTAL INCOME OR LOSS COMPUTED IN ACCORDANCE WITH THE PROVISIONS OF (THIS ACT) WITHOUT 'GIVING EFFECT TO SET OFF OF BROUGHT FORWARD LOSSES UNDER CHAPTER VI OR UNABSORBED DEPRECIATION UNDER SUB- SECTION (2) OF SECTION 32 [PROVIDED THAT IN COMPUTING DEDUCTIONS UNDER CHAPTER VI-A FOR THE PURPOSES OF THE' SAID AGGREGATION EFFECT SHALL BE GIVEN TO SET OFF OF BROUGHT FORWARD LOSSES UNDER CHAPTER VI OR UNABSORBED DEPRECIATION UNDER SUB-SECTION (2) OF SEC. 32;J (B) OF A FIRM RETURNED INCOME AND TOTAL INCOME' ASSESSED FOR EACH OF THE PREVIOUS YEARS FALLING WITHIN THE BLOCK PERIOD SHALL BE THE INCOME DETERMINED BEFORE ALLOWING DEDUCTION OF SALARY INTEREST COMMISSION BONUS OR REMUNERATION BY WHATEVER NAME CALLED (TO ANY PARTNER NOT BEING A WORKING PARTNER); PROVIDED THAT UNDISCLOSED INCOME OF THE FIRM SO DETERMINED SHALL NOT BE CHARGEABLE TO TAX IN THE HANDS OF THE PARTNERS WHETHER ON ALLOCATION OR ON ACCOUNT OF ENHANCEMENT;) -: 29: - 29 (C) ASSESSMENT UNDER SECTION143 INCLUDES DETERMINATION OF INCOME UNDER SUB-SECTION (1) OR SUB-SECTION (1B) OF SEC. 143. (2) IN COMPUTING THE UNDISCLOSED INCOME OF THE BLOCK PERIOD THE PROVISIONS OF SECTIONS 68 69 69A 69B AND 69C SHALL SO FAR AS MAY BE APPLY AND REFERENCES TO 'FINANCIAL YEAR' IN- THOSE SECTIONS SHALL BE CONSTRUED AS REFERENCES TO THE RELEVANT PREVIOUS YEAR FALLING IN THE BLOCK PERIOD INCLUDING THE PREVIOUS YEAR ENDING WITH THE DATE OF SEARCH OR OF THE REQUISITION. (3) THE BURDEN OF PROVING TO THE SATISFACTION OF THE AO THAT ANY UNDISCLOSED INCOME HAD ALREADY BEEN DISCLOSED IN ANY RETURN OF INCOME FILED BY THE ASSESSEE BEFORE THE COMMENCEMENT OF SEARCH OR THE REQUISITION AS THE CASE MAY BE SHALL BE ON THE ASSESSEE. (4) FOR THE PURPOSE OF ASSESSMENT UNDER THIS CHAPTER LOSSES BROUGHT FORWARD FROM THE PREVIOUS YEAR UNDER CHAPTER VI OR UNABSORBED DEPRECIATION UNDER SUB-SECTION (2) OF SECTION 32 SHALL NOT BE SET OFF AGAINST THE UNDISCLOSED INCOME DETERMINED IN THE BLOCK ASSESSMENT UNDER THIS CHAPTER BUT MAY BE CARRIED FORWARD FOR BEING SET OFF IN THE REGULAR ASSESSMENTS. ' WE AFTER CONSIDERING THE ABOVE PROVISIONS ARE OF THE OPINION THAT EVEN IF THERE IS AN AMENDMENT IN THE ABOVE SECTIONS THE SCHEME OR PURPOSE OF -: 30: - 30 ENACTING CHAPTER XIV-B AS NOT UNDERGONE A MAJOR CHANGE IN THE SENSE THAT THE BLOCK ASSESSMENT PERTAINING TO A NUMBER OF YEARS REMAINS DISTINCT FR OM ASSESSMENT U IS 14 3 (3) PERTAINING TO A SINGLE A Y . THE BLOCK ASSESSMENT COULD BE MADE IN RESPECT OF UNDISCLOSED INCOME IF DURING THE BLOCK PERIOD UNDISCLOSED INCOME IS RECOVERED AS A RESULT OF EVIDENCE FOUND DURING THE COURSE OF SEARCH AS A RESULT OF OTHER DOCUMENTS OR MATERIAL CAME TO THE POSSESSION OF THE AO SUBSEQUENT TO THE CONCLUSION O F SEARCH OPERATION UNLESS AND UNTIL SUCH MATERIAL OR DOCUMENT IS RELATABLE TO SUCH EVIDENCE RECOVERED DURING THE COURSE OF THE SEARCH. THE AMENDED DEFINITION OF SEC. 158BB AS MENTIONED ABOVE CLEARLY SUGGESTED THAT SOME EVIDENCE IS TO BE FOUND AS A RESULT OF SEARCH OPERATION AND IT IS ONLY THEREAFTE R THAT THE REMAINING PART OF THE PROVISIONS COME INTO PLAY AND THAT TOO THE REMAINING EVIDENCE MUST BE RELATABLE TO THE EVIDENCE RECOVERED DURING THE COUR SE OF - THE SEARCH. THE OTHER AMENDMENT IN SEC. 158B(B ) WHICH IS REPRODUCED ABOVE HAS ENLARGED THE MEANING OF THE TERM 'UNDISCLOSED INCOME' BY INCLUDING THERE IN 'ANY EXPENSE DEDUCTION OR ALLOWANCE CLAIMED UNDER THIS ACT WHICH IS FOUND TO BE FALSE.' WHAT HAS TO B E SEEN IS THAT THE VALUABLE ARTICLES DOCUMENTS OR TRANSACTIONS WHICH REPRESENT WHOLLY OR PARTLY INCOM E OR PROPERTY WHICH HAS NOT BEEN OR WOULD NOT HAVE BEEN DISCLOSED FOR THE PURPOSE OF THIS ACT. THEREFO RE BEFORE COMING TO ANALYZE WHAT IS UNDISCLOSED INCOME; IT IS NECESSARY TO BE SEEN THAT SUCH INCOME HAS NOT BEEN OR WOULD NOT HAVE BEEN DISCLOSED FOR -: 31: - 31 THE PURPOSE OF THIS ACT. IF ANY SUCH ARTICLE OR THI NG OR INCOME HAS ALREADY BEEN DISCLOSED TO THE DEPARTMENT OR TO THE SEARCH IT CANNOT BE TERMED THAT THE SAM E HAS NOT BEEN OR WOULD NOT HAVE BEEN DISCLOSED FOR THE PURPOSE OF THIS ACT. THEREFORE WHATEVER ITEMS OR ARTICLES HAVE BEEN SHOWN TO THE DEPARTMENT PRIOR TO THE SEARCH CANNOT BE TREATED AS UNDISCLOSED INCOME. 3.3 THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. VINOD DANCHAND GHODAWAT 247 ITR 448 (BOM.) OBSERVED: ' WHERE THE VALUE OF THE GOLD AND SILVER ARTICLES AND JEWELLERY HAD BEEN DISCLOSED IN THE ASSESSEE'S WEALTHTAX RETURN WHICH WAS ACCEPTED BY THE DEPARTMENT. 3.4 HELD THAT CHAPTER XIV-B OF THE IT ACT ' 1961 HAD NOT APPLICATION TO THE FACTS OF THE CASE AND TH E ADDITION MADE BY THE DEPARTMENT ON THE GROUND OF UNDISCLOSED INCOME WAS ERRONEOUS.' 3.4 THE HON'BLE CALCUTTA HIGH COURT IN THE CASE OF BHAGWATI PD. KEDIA VS. CIT 248 ITR 562 (CAL.) OBSERVED - 'THE EXPLANATION TO SEC. 158BA OF THE IT ACT 1961 MAKES IT CLEAR THAT THE LEGISLATURE THOUGHT IT FIT TO MAKE A DISTINCTION BETWEEN . THE BLOCK ASSESSMENT AND THE REGULAR ASSESSMENT. IN THE CASE OF REGULAR ASSESSMENT THE AO IS FREE TO EXAMINE THE VERACITY OF THE RETURN AS WELL AS THE CLAIMS MADE BY THE ASSESSEE WHEREAS THE UNDISCLOSED INCOME IS TAXED BY WAY OF BLOCK ASSESSMENTAS AS RESULT OF -: 32: - 32 SEARCH AND SEIZURE. THE LOGIC BEHIND THE TWO DIFFERENT MODES OF ASSESSMENT IS THAT CONCEALMENT OF INCOME AND CLAIMING DEDUCTION OR EXEMPTION IN RESPECT OF A DISCLOSED INCOME CANNOT BE TREATED AT PAR. THE FORMER IS AN OFFENCE WHICH GOES TO THE ROOT OF THE MATTER AND THE OTHER IS ON THE BASIS OF THE CAUSES SHOWN BY THE ASSESSEE WHERE THE AO IS FREE TO ACCEPT THE JUSTIFICATION SHOWN OR REJECT THE SAME. THERE WAS A SEARCH AND SEIZURE RESULTING IN BLOCK ASSESSMENT: OF THE ASSESSEE. DURING THE BLOCK ASSESSMENT THE ASSESSEE WAS CALLED UPON TO EXPLAIN THE ADVANCE TAKEN FROM A COMPANY. THE ASSESSEE HAD FILED THE CONFIRMATION LETTER OF LOAN FROM THE COMPANY INCLUDING INCOME TAX FILE NUMBERS OF THE CREDITOR. THE INCOME-TAX AUTHORITY HELD THAT THE SAID LOAN WAS A FICTITIOUS ONE AND WAS TO BE CONSIDERED AS UNDISCLOSED INCOME OF THE ASSESSEE DURING THE PERIOD UNDER CONSIDERATION. ON THE QUESTION WHETHER THE AO WAS ENTITLED TO QUESTION THE LOAN AMOUNT WHICH WAS THESUBJECT MATTER OF REGULAR ASSESSMENT WHILE MAKING BLOCK ASSESSMENT. HELD THAT THE AO WAS NOT ENTITLED TO QUESTION IN BLOCK ASSESSMENT THE LOAN WHICH WAS A SUBJECT MATTER OF THE REGULAR ASSESSMENT. THE AO WAS WRONG IN HOLDING THAT THE SAID SUM COULD BE TAXED IN BLOCK ASSESSMENT ALTHOUGH THE SAME FEATURED IN THE REGULAR BOOKS OF ACCOUNT. WHEN THE LOAN CREDITOR WAS AN ASSESSEE AND IN WHOSE ASSESSMENT THE LOAN ADVANCED HAD BEEN -: 33: - 33 ACCEPTED BY THE REVENUE THE AO WAS WRONG IN HOLDING THAT THE ASSESSEE WAS LIABLE TO PAY TAX ON THAT LOAN MONEY TAKEN FROM THE ASSESSEE.' 3.5 IN CASE OF CIT VS. RAVI KANT JAIN 250 ITR 141 (DEL.) THE HONBLE DELHI HIGH COURT OBSERVED 'BLOCK ASSESSMENT UNDER CHAPTER XIV~B OF THE IT ACT 1961 IS NOT INTENDED TO BE A SUBSTITUTE FOR REGULAR ASSESSMENT. ITS SCOPE AND AMBIT IS LIMITED IN THAT SENSE TO MATERIALS UNEARTHED DURING SEARCH. IT IS IN ADDITION TO THE REGULAR ASSESSMENT ALREADY DONE OR TO BE DONE. THE ASSESSMENT FOR THE BLOCK PERIOD CAN ONLY BE DONE ON THE BASIS OF EVIDENCE FOUND AS A RESULT OF SEARCH OR REQUISITION OF BOOKS OF ACCOUNT OR DOCUMENTS AND SUCH OTHER MATERIALS OR INFORMATION AS ARE AVAILABLE WITH THE AO. EVIDENCE FOUND AS A RESULT OF SEARCH IS RELATABLE TO SECTIONS 132 AND 132A. HELD THAT ADMITTEDLY THE UNDISCLOSED INCOME WAS NOT DETERMINED ON THE BASIS OF ANY SEARCH MATERIAL AND THE AO WAS PROCEEDING WITHIN THE SCOPE OF THE ASSESSMENT AND NOT WITHIN THE SCOPE OF EXERCISING JURISDICTION UNDER CHAPTER XIV- B AND SEC. 158BA. THEREFORE SEC. 158BA OF THE ACT HAD NO APPLICATION TO THE FACTS OF THE CASE.' 3.6 IN THE CASE OF SUNDER AGENCIES VS. DCIT 63 LTD 245 ITAT MUMBAI BENCH 'B' HELD AS UNDER: 'SEC. 158BA OF THE IT ACT 1961 - SEARCH AND -: 34: - 34 SEIZURE _ BLOCK PERIOD 1.4.1985 TO 16.11.1995 - WHETHER WITHIN PALE OF CHAPTER XIVB ASSESSMENT COULD BE MADE ONLY IN RESPECT OF UNDISCLOSED INCOME AND SUCH UNDISCLOSED INCOME MUST COME AS A RESULT OF SEARCH - HELD YES _ WHETHER SEC. 158BA DOES NOT PROVIDE A LICENSE TO REVENUE FOR MAKING ROVING ENQUIRIES CONNECTED WITH COMPLETED ASSESSMENT AND IS BEYOND POWER OF AO TO REVIEW ASSESSMENTS COMPLETED UNLESS SOME DIRECT EVIDENCE COMES TO KNOWLEDGE OF DEPARTMENT AS A RESULT OF SEARCH WHICH INDICATES CLEARLY FACTUM OF UNDISCLOSED INCOME - HELD YES - WHETHER SCHEME OF CHAPTER XIVB GIVES POWER TO REVENUE TO DRAW PRESUMPTION IN-REGARD TO UNDISCLOSED INCOME - HELD' NO - ASSESSEE CLAIMED 1 TO 1.5 PER CENT OUT OF TOTAL SALES AS 'SALES PROMOTION EXPENSES' - DURING SEARCH PROCEEDINGS A BOOK CALLED 'GIFT REGISTER' WAS SEIZED FROM ASSESSEE'S BUSINESS PREMISES - GIFT REGISTER RELATED TO SALE PROMOTION EXPENSES - IN EARLIER ASSESSMENT PROCEEDINGS COVERING BLOCK PERIOD IN QUESTION SUCH EXPENSES WERE DISCLOSED AND DISALLOWANCES WERE MADE NEITHER ANY INCRIMINATING MATERIAL REVEALING UNDISCLOSED INCOME CAME TO LIGHT NOR ENQUIRY REGARDING SALES PROMOTION EXPENSES IN PROCEEDING U/S 132(1) WAS MADE. WHETHER ADDITION - ON ACCOUNT OF SALES PROMOTION EXPENSES ON ESTIMATE BASIS COULD -: 35: - 35 BE JUSTIFIED - HELD NO.' 3.7 IN THE CASE OF DIGVIJAY CHEMICAL LTD. VS. ACIT 68 TTJ 280 I TAT DELHI BENCH 'E' HELD THAT 'ADDITION BASED ON SUSPICION AND SURMISES ARE NOT COVERED U/S 158B(B). IT WAS FURTHER HELD THAT 'THE ADDITION ULS 158B(B) MUST BE MADE ON CONCRETE MATERIAL.' 3.8 IN THE CASE OF P.K. GANESHWAR VS. DCIT 80 LTD 429 (CHENNAI) ITAT CHENNAI BENCH 'C' HELD - 'SEC. 158BA OF THE IT ACT 1961 - BLOCK ASSESSMENT SEARCH CASES - ASSESSMENT OF UNDISCLOSED INCOME AS A RESULT OF SEARCH - WHETHER WHERE UNDISCLOSED INCOME IS FOUND NOT ON BASIS OF EVIDENCE FOUND AS A RESULT OF SEARCH BUT ON INVESTIGATION AND INQUIRIES MADE FOLLOWING SEARCH SUCH INCOME COULD BE INCLUDED AS UNDISCLOSED INCOME OF BLOCK PERIOD COMPUTED UNDER CHAPTER IV HELD NO - WHETHER CHAPTER XIV-B IS A SPECIAL PROVISION FOR ASSESSMENT OF UNDISCLOSED INCOME FOUND AS A RESULT OF SEARCH ONLY AND THERE IS NO SCOPE FOR CONSIDERING ITEMS THAT COULD BE CONSIDERED UNDER REGULAR ASSESSMENT - HELD YES.' 3.9 HON'BLE CALCUTTA HIGH COURT IN THE CASE OF CIT VS. ASHIM KRISHNA MONDAL 270 ITR 160 AT PAGES 163 AND 164 OBSERVED: 'THE PRINCIPLE THAT HAS BEEN LAID DOWN FOR . -: 36: - 36 THE PURPOSE OF MAKING ASSESSMENT ARE SETTLED PROPOSITION AS WAS REFERRED TO BY THE ID. TRIBUNAL IN THE CASE OF SUNDER AGENCIES VS. DCLT [1997] 63 LTD 245 (MUMBAI); T.S. KUMARASAMY VS. ACIT [1998] 65 LTD 188 (MAD) AT PAGE 206 AND INDORE CONSTRUCTION (P) LTD. VS. ACIT [1999) 71 LTD 128 (INDORE) WHEREIN THE MUMBAI BENCH OF THE ITAT THE MADRAS BENCH OF THE IT AT AND THE INDORE BENCH OF THE ITAT RESPECTIVELY HAD HELD THAT THE INCOME FOR BLOCK ASSESSMENT UNDER SEARCH AND SEIZURE PROCEDURE IS TO BE COMPUTED STRICTLY ON THE BASIS OF THE DOCUMENTS SEIZED; AND IT CANNOT PROCEED ON CONJECTURES AND/OR SURMISES AND ARRIVE AT AN ESTIMATION INSTEAD OF COMPUTATION. THE WORD 'COMPUTATION' CONNOTES A DIFFERENT MEANING THAN ESTIMATION OR APPRAISAL. COMPUTATION PRESUPPOSES A CALCULATION ON THE BASIS OF THE MATERIALS WHICH IS SOMETHING DIFFERENT FROM ESTIMATION OR APPRAISAL AND IT MUST BE BASED ON METHODICAL CALCULATION WITH SOME AMOUNT OF. APPROXIMITY TO MATHEMATICAL PROCESS ON THE MATERIALS AVAILABLE ON SEARCH AND SEIZURE.' 3.10 HON'BLE MP HIGH COURT IN THE CASE OF CIT VS. KHUSHLAL CHAND NIRMAL KUMAR 263 ITR 77 HELD: 'HELD THAT A PERUSAL OF THE UNAMENDED AND AMENDED PROVISIONS AND THE CIRCULAR -: 37: - 37 OF THE CENTRAL BOARD OF DIRECT TAXES WOULD MAKE IT CLEAR THAT THERE HAD BEEN NO SPECIFIC EFFECT THAT THE AMENDMENT EFFECTED TO SEC. 158BB IN THE FINANCE ACT 2002 WITH EFFECT FROM JULY 1 1995 WOULD BE APPLICABLE TO THE INSTANT CASE AS THE BLOCK PERIOD COVERED TEN YEARS COMMENCING 1986 TO 1996. EMPHASIS HAD BEEN GIVEN TO THE FACT THAT THE EVIDENCE MUST HAVE BEEN FOUND DURING SEARCH AND ONLY THEREAFTER THE QUESTION OF GATHERING ANY MATERIAL INFORMATION WOULD ARISE BASED ON THE SEARCH INQUIRY. ADMITTEDLY DURING THE SEARCH IN THE PREMISES OF THE ASSESSEE NOTHING WAS FOUND WITH REGARD TO THE INVESTMENT IN THE HOUSE. THE CONTENTION THAT THE VALUATION REPORT OF THE DEPARTMENT VALUATION OFFICER WAS OBTAINED AND WAS CONFRONTED TO THE ASSESSEE BUT HE WAS NOT ABLE TO GIVE ANY EXPLANATION AND THEREFORE IT SHOULD BE ACCEPTED AS EVIDENCE COULD NOT BE ACCEPTED IN VIEW OF THE PROVISIONS OF SEC. 158BB AND THE LAW LAID DOWN BY THE BOMBAY HIGH COURT IN THE CASE OF CIT VS. VINOD DANCHAND GHBODAWAT [2001J 247 ITR 448.' 3.11 HON'BLE GAUHATI HIGH COURT IN THE CASE OF CIT VS. ARMAN SHEIKH 293 ITR 266 HELD: -: 38: - 38 'DISMISSING THE APPEAL THAT THE TWO AMOUNTS WERE RECEIVED BY THE ASSESSEE FROM A GOVT. AGENCY BY CHEQUES AND THEY WERE DEPOSITED IN THE BANK ACCOUNT OF THE ASSESSEE AND DULY REFLECTED IN THE REGULAR BOOKS OF ACCOUNT. THE AO RELIED UPON A PART OF THE ENTRIES IN THE BOOKS OF ACCOUNT AND REJECTED THE OTHER PART. SINCE THE ENTRIES MADE IN THE BOOKS OF ACCOUNT BEFORE THE DATE OF SEARCH AND SEIZURE HAD BEEN ACCEPTED THE AMOUNT IN QUESTION OUGHT NOT TO HAVE BEEN TREATED AS UNDISCLOSED. THE SEARCH TOOK PLACE ON JULY 20 2000 AND AUGUST 9 2000 ON WHICH DATES THE RETURN FOR THE AYS 2000- 01 AND 2001-02 HAD NOT FALLEN DUE. THE RETURNS FOR THE AYS BASED ON REGULAR BOOKS OF ACCOUNT WERE FILED AFTER SEARCH DISCLOSING THE BANK DEPOSITS. THERE WAS NO MATERIAL TO SHOW THAT THE ASSESSEE INTENDED TO HIDE ANY PART OF HIS INCOME FOR THE ASSESSMENTS UNDER APPEAL. THUS THE BANK ACCOUNTS OUGHT NOT TO HAVE BEEN TREATED AS UNDISCLOSED BANK ACCOUNTS AND. COULD NOT BE THE SUBJECT MATTER OF BLOCK ASSESSMENT PROCEEDINGS. 3.12 ' HON'BLE DELHI HIGH COURT IN THE CASE OF GIRISH CHOUDHARY 163 TAXMAN 608 HELD 'THERE IS NO BASIS AS TO HOW AO CAME TO CONCLUSION THAT 48 WAS RS.48 LAKHS. NO M ATERIAL IS THERE TO SUPPORT SUCH FINDING OF -: 39: - 39 THE AO. IT IS DUMB DOCUMENT. ADDITIONS DELETED.' 3.13 HON'BLE MADRAS HIGH COURT IN THE CASE OF CIT VS. G.K. SENNIAPPAN 284 ITR 220 HELD: 'THE ASSSESSEE WAS ENGAGED IN THE BUSINESS OF CHIT FUND AND REAL ESTATE. IN A SEARCH CONDUCTED AGAINST A TH IRD PERSON IT WAS FOUND THAT THE ASSESSEE HAD UTILIZED UNDISCLOSED INCOME FOR MAKING CONTRIBUTIONS TO CERTAIN UNREGISTERED CHITS. CONDUCTED BY THE SAID PERSON. THEREAFTER A SURVEY WAS CONDUCTED IN THE BUSINESS PREMISES OF THE ASSESSEE WHICH INDICATED CERTAIN REAL ESTATE TRANSACTIONS CARRIED ON BY THE ASSESSEE AND PROFITS DERIVED THEREON HAD NOT BEEN DISCLOSED TO THE DEPARTMENT. THE AO INCLUDED U/S 158BB THE UNDISCLOSED INCOME FOUND DURING THE .SURVEY MADE U/S133A. THE COMMISSIONER (APPEALS) EXCLUDED THAT PORTION WHICH HAD BEEN INCLUDED BASED ON THE MATERIAL FOUND DURING THE SURVEY ON THE PREMISES THAT IN RESPECT OF BLOCK ASSESSMENT U/S 133A COULD NOT BE TAKEN INTO CONSIDERATION. THIS WAS CONFIRMED BY THE TRIBUNAL. ON APPEAL CONTENDING THAT THE MATERIAL GATHERED IN THE -: 40: - 40 COURSE OF SURVEY U/S 133A COULD ALSO BE REGARDED AS A MATERIAL FOR THE PURPOSE OF BLOCK ASSESSMENT U/S 158BB: HELD ACCORDINGLY DISMISSING THE APPEAL THAT THE COMMISSIONER (APPEALS) AND THE TRIBUNAL HAVING DECIDED THE ISSUE IN ACCORDANCE WITH THE STATUTORY PROVISIONS IT REQUIRED NO INTERFERENCE.' 3.14 ITAT INDORE BENCH IN THE CASE OF EAGLE SEEDS & BIOTECH LTD. VS. ACIT 100 ITO 301 HELD 'IT IS A SETTLED LAW THAT THE UNDISCLOSED INCOME DECLARED BY THE ASSESSEE AND COMPUTED BY THE AUTHORITIES BELOW IS AVAILABLE TO THE ASSESSEE FOR THE PURPOSE OF EXPLAINING THE OTHER ADDITIONS/INVESTMENT S AND THE SAME WOULD ALSO BE AVAILABLE TO THE ASSESSEE FOR SET OFF PURPOSES IN RESPECT OF THE AGREED OR OTHER ADDITIONS. WE ARE FORTIFIED IN OUR VIEW BY THE FLOWING DECISIONS: - (1) IN THE MADRAS HIGH COURT IN S. KUPPUSWAMI MUDALIAR'S CASE (SUPRA) WHERE THE INCOME-TAX AUTHORITIES MAKE AN -: 41: - 41 ADDITION TO THE INCOME OF THE ASSESSEE OVER AND ABOVE THE INCOME AS DISCLOSED BY THE ASSESSEE ON AN ESTIMATE BASIS THE AMOUNT SO ADDED MUST BE TREATED AS THE REAL INCOME OF THE ASSESSEE. IT BASI S THE AMOUNT SO ADDED MUST BE TREATED AS THE REAL INCOME OF THE ASSESSEE. IT IS NOT OPEN TO THE AUTHORITIES TO TAKE THE VIEW THAT THE ADDITION WAS ONLY FOR PURPOSES OF TAXATION AND THAT IT SHOULD NO T BE REGARDED AS THE TRUE INCOME OF THE ASSESSEE. (2) IN THE SUPREME COURT OF INDIA IN ANANTHARAM VEERASINGHAIAH & CO. 'S CASE (SUPRA) WHEN AN 'INTANGIBLE' ADDITION IS MADE TO THE BOOK PROFITS DURING AN ASSESSMENT PROCEEDING IT IS ON THE BASIS THAT THE AMOUNT REPRESENTED - BY THAT ADDITION CONSTITUTES THE UNDISCLOSED INCOME OF THE ASSESSEE. THAT INCOME ALTHOUGH COMMONLY DESCRIBED AS 'INTANGIBLE' IS AS MUCH A PART OF HIS REAL INCOME AS THAT DISCLOSED BY HIS ACCOUNT BOOKS. IT HAS THE SAME CONCRETE EXISTENCE. IT COULD BE AVAILABLE TO THE ASSESSEE AS THE BOOK PROFITS COULD BE. (3) IN THE PUNJAB FT: HARYANA HIGH COURT IN PREMCHAND JAIN'S CASE (SUPRA) HELD THAT THE TRIBUNAL WAS RIGHT IN LAW IN . HOLDING THAT PAST INTANGIBLE ADDITIONS MADE IN THE CASE OF THE FIRM AND ALLOCATED TO THE ASSESSEE'S SHARE COULD BE TAKEN INTO ACCOUNT IN CONSIDERING THE UNEXPLAINED INVESTMENT S OF -: 42: - 42 THE ASSESSEE AND THESE WOULD ALSO BE AVAILABLE FOR SET OFF PURPOSES IN RESPECT OF _ THE AGREED ADDITIONS FOR LOW HOUSEHOLD EXPENSES MADE IN THE FIVE YEARS UNDER CONSIDERATION AND REMANDING THE CASE TO THE APPELLATE ASSISTANT COMMISSIONER. (4) IN THE RAJASTHAN HIGH COURT - JAIPUR BENCH TYARYAMAL BALCHAND'S CASE (SUPRA) HELD THAT THE APPELLATE ASSISTANT COMMISSIONER AND THE TRIBUNAL HAD COMMITTED NO ERROR OF LAW IN HOLDING THAT THE UNPROVED CASH CREDIT OF RS.16 950 SHOULD BE . TAKEN TO HAVE COME OUT OF INTANGIBLE ADDITIONS AS SUBSTANTIAL ADDITIONS HAD BEEN MADE EVEN IN THE EARLIER YEARS. IT HAD ALSO BEEN RIGHTLY HELD BY THE TRIBUNAL THAT EVEN DURING THE PRESENT ASSESSMENT AN ADDITION OF RS.18 117 HAD BEEN MADE WHICH WOULD SUFFICIENTLY COVER ANY UNEXPLAINED INCOME TO THE EXTENT OF RS.16 950 COULD NOT THEREFORE BE ADDED AS INCOME FROM UNDISCLOSED SOURCES. CONSIDERING THE ABOVE DECISIONS THE UNDISCLOSED INCOME DECLARED BY THE ASSESSEE IN A SUM OF RS.52 LAKHS IN THE RETURN OF BLOCK PERIOD ON THE BASIS OF CALCULATION OF THE SEIZED MATERIAL IS AVAILABLE TO THE ASSESSEE FOR THE PURPOSE OF EXPLAINING OTHER ADDITIONS /INVESTMENT S. SINCE -: 43: - 43 THE ADDITION ON ACCOUNT OF UNDISCLOSED INCOME ON ACCOUNT OF UNDISCLOSED PURCHASES IS LESS THAN THE AMOUNT OF RETURNED INCOME OF RS.52 LAKHS NO SEPARATE ADDITION IS LIABLE TO BE MADE. AS A RESULT THE ENTIRE ADDITION AT RS.23 76 570 IS DELETED. AS A RESULT THIS GROUND OF APPEAL OF THE ASSESSEE IS ALLOWED. IN THIS VIEW OF THE MATTER THE DECISION CITED BY THE LD DR IS NOT APPLICABLE. 3.15 ITAT INDORE BENCH IN THE GROUP CASES OF RADHESHYAM GUPTA HUF AND OTHERS IN IT(SS)A NO.65/LND/2006 AND OTHERS DISMISSED THE DEPARTMENTAL APPEALS. THE FINDINGS IN PARA 59 IS REPRODUCED AS UNDER: 'WE HAVE CONSIDERED RIVAL SUBMISSIONS AND MATERIAL AVAILABLE ON RECORD. IT IS NOT IN DISPUTE THAT NO INCRIMINATING EVIDENCE WAS FOUND DURING THE SEARCH THAT THE TURNOVER OF THE ASSESSEE IN THE PRECEDING YEAR OF THE BLOCK PERIOD WAS INCORRECTLY STATED. AT THE TIME OF. SEARCH ONLY SOME STOCK WAS FOUND LESS WHICH ASSESSEE ADMITTED IN A SUM OF RS.12 24 372/-. THE AO PRESUMED THAT FOR ENTIRE BLOCK PERIOD THE ASSESSEE HAS SUPPRESSED THE TURNOVER. IT IS WELL SETTLED LAW THAT ADDITION IN THE BLOCK PERIOD COULD BE MADE ON THE BASIS OF EVIDENCE FOUND AS A RESULT; OF SEARCH. THE AO HAD NO BASIS FOR ASSUMING THAT THE SALES MADE BY THE ASSESSEE DURING PARTICULAR MONTH/YEAR WOULD BE THE SAME DURING THE ENTIRE BLOCK PERIOD. HON'BLE MP HIGH COURT IN THE CASE OF CIT VS C.L. KHATRI 282 ITR 97 CONSIDERING THE DECISION IN THE CASE OF H.M. ESUFALI HM ABDUL ALI (SUPRA) HELD THAT AO HAD NO BASIS TO ASSUME THAT THE EXPENDITURE INCURRED DURING A PARTICULAR YEAR WOULD BE THE EXPENDITURE DURING . THE LAST 10 YEARS. HON'BLE -: 44: - 44 BOMBAY HIGH COURT IN THE CASE OF GHODAWAT PAN MASALA PRODUCTS LTD. 119 TAXMAN 206 HELD THAT THERE WAS NO MATERIAL TO INDICATE THAT THE G.P. RATE OF 15% WAS THE BASIS FOR ENTIRE PERIOD 1984-1995 AND ACCORDINGLY DELETED THE ADDITION. IN THE PRESENT CASE THE ESTIMATE OF TURNOVER FOR ENTIRE BLOCK PERIOD AT RS.2 CRORES IS THEREFORE HIGHLY UNJUSTIFIED AND WAS CORRECTLY DELETED BY THE LD. CIT(A). NO EVIDENCE IS ALSO RECOVERED DURING SEARCH THAT DESPITE THERE WAS A SHORTAGE OF THE STOCK THE ASSESSEE EARNED G.P. RATE OF 25% AS IS HELD BY THE AO. AT THE MOST N.P. RATE COULD HAVE BEEN APPLIED ON THE STOCK FOUND SHORT. THE ASSESSEE HAS ALREADY DECLARED RS.4 LAKHS AS UNDISCLOSED INCOME THEREFORE THERE WAS NO JUSTIFICATION TO MAKE HUGE ADDITION ON THE ISSUE. EVEN IF FOR THE SAKE OF ARGUMENT G.P. RATE OF 25% IS APPLIED ON THE SHORTAGE OF STOCK FOUND AT THE TIME OF SEARCH THE ADDITION WOULD BE BELOW RS.4 LAKHS AS DECLARED BY THE ASSESSEE IN THE RETURN FOR THE BLOCK PERIOD. CONSIDERING THE FACTS AND CIRCUMSTANCES THE DECISIONS CITED BY LD. DR WOULD NOT SUPPORT THE CASE OF REVENUE BECAUSE THE STATEMENT .REFERRED TO BY ID. DR DURING THE COURSE OF ARGUMENTS ARE DATED 14.6.2001 AND 14.8.2002 WHICH ARE ADMITTEDLY RECORDED AFTER SEARCH AND SEIZURE OPERATION CONDUCTED: ON 13.6.2002. WE HAVE CONSIDERED ENTIRE FACTS AND CIRCUMSTANCES WHILE DECIDING THE ISSUE. THE ID. CIT(A) WAS JUSTIFIED IN DELETING THE ADDITION. THIS GROUND OF APPEAL OF REVENUE IS ACCORDINGLY DISMISSED.' 3.16 ITAT INDORE BENCH IN THE CASE OF DCLT VS.M/S. SUNITA JUTE PACKAGERS IT(SS)A NO.133/IND/2002 DATED 29.8.8 DISMISSED THE DEPARTMENTAL APPEAL. THE FINDINGS IN PARA 13 ARE REPRODUCED AS UNDER: 'CONSIDERING THE [ACTS OF THE CASE IN THE LIGHT OF THE ABOVE DECISIONS IT IS CLEAR THAT THE ONLY EVIDENCE AVAILABLE ON RECORD WAS FOR PERIOD OF 88 DAYS IN WHICH UNDISCLOSED SALES WERE MADE. NO OTHER EVIDENCE IN RESPECT OF ANY OTHER YEAR WAS DETECTED DURING THE COURSE OF SEARCH PROCEEDINGS. THUS AD WAS NOT JUSTIFIED IN ESTIMATING THE UNRECORDED SALES FOR THE ENTIRE BLOCK PERIOD. LD. C1T(A) -: 45: - 45 THEREFORE RIGHTLY DIRECTED THE AD TO TREAT THE INCOME WORKED OUT ON THE BASIS OF SALES RECORDED IN THE LOOSE PAPERS OF 88 DAYS APPLYING THE CURRENT RATE ONLY AS UNDISCLOSED INCOME. THE BALANCE ADDITION OUT OF 88 DAYS WAS CORRECTLY DELETED. LD. DR RELIED UPON CASE OF H.M. EUSFALI WHICH IS ON SALES TAX MATTER IN WHICH THE ISSUE OF BLOCK ASSESSMENT WAS NOT INVOLVED. WE MAY MENTION THAT HON'BLE BOMBAY HIGH COURT IN THE 'CASE OF CIT VS. DR. M.K.E. MENON 248 ITR 310 CONSIDERING THE ABOVE DECISION HELD THAT 'UNDISCLOSED INCOME COULD NOT BE ESTIMATED ON AN ARBITRARY BASIS. THE ASSESSEE BEING A PROFESSIONAL IT WAS HIGHLY IMPROBABLE THAT HIS PROFESSIONAL INCOME REMAINED CONSTANT FOR THE BLOCK PERIOD OF 10 YEARS.' THE OTHER CASES ARE WITH REGARD TO COMPUTATION OF INCOME ON THE BASIS OF EVIDENCE FOUND DURING COURSE OF SEARCH. THESE CASES WOULD NOT HELP THE CASE OF THE REVENUE BECAUSE LD. CIT(A) SUSTAINED THE PART ADDITION ON THE BASIS OF RECOVERY OF THE SEIZED MATERIAL. HOWEVER NO EVIDENCE WAS RECOVERED TO PROVE UNDISCLOSED INCOME BEYOND THE LOOSE PAPERS OF 88 DAYS. SIMILARLY IT WAS MERE PRESUMPTION THAT ASSESSEE MADE UNDISCLOSED INVESTMENT IN THE SALES. CONSIDERING THE ABOVE DISCUSSION WE DO NOT FIND ANY MERIT IN THE APPEAL OF THE REVENUE. SAME IS DISMISSED.' 4 IN THE LIGHT OF THE ABOVE LEGAL PROVISIONS FOR B LOCK ASSESSMENTS NOW WE TAKE UP THE APPEAL FOR DISPOSAL GROUND-WISE AS UNDER: 5 GROUND NO. 1 :- THE AO HAD DISCUSSED THIS ISSUE IN THE ASSESSMENT ORDER AT PAGE 16. THE AO FOUND THAT STATEMENT OF SHRI AJIT KUMAR \ . 4 IN THE LIGHT OF THE ABOVE LEGAL PROVISIONS FOR BL OCK ASSESSMENTS NOW WE TAKE UP THE APPEAL FOR DISPOSAL GROUND-WISE AS UNDER:- 5 GROUND NO. 1:- THE AO HAD DISCUSSED THIS ISSUE IN THE ASSESSMENT ORDER AT PAGE 16. THE AO FOUND THAT STAT EMENT OF SHRI -: 46: - 46 AJIT KUMAR JAIN EMPLOYEE OF THE ASSESSEE WAS RECO RDED ON 15 TH JUNE 2002 WHEREIN HE STATED THAT AN AMOUNT OF RS. 190 000/- WAS TAKEN BY SHRI SWADESHKUMAR AGRAWAL ON 10 TH JUNE 2002. THE AO NOTED THAT THIS AMOUNT WAS NOT ACCOUNTED FOR BY HIM ANYWHERE IN THE LOOSE SHEETS SEIZED IN LPS-4 APPEARING IN AT SL . NO. 10 TO 14. THE AO ACCORDINGLY CONSIDERED THIS AMOUNT AS UNEXPL AINED AND UNDISCLOSED INCOME OF THE ASSESSEE BUT NO SEPARATE ADDITION WAS MADE AS SUFFICIENT ADDITION WAS MADE BY APPLICATION OF GP RATE. IT WAS SUBMITTED BEFORE THE CIT(A) THAT SHRI SWADESHKU MAR AGRAWAL HAD NOT TAKEN THIS AMOUNT FROM THE ASSESSEE OUT OF THE SALES RECORDED ON 10 TH 11 TH AND 12 TH JUNE 2002. AS A MATTER OF FACT THIS SWADESHKUMAR AGRAWAL HAD KEPT THIS AMOUNT WITH THE STAFF OF ASSESSEE WHICH HE HAD KEPT THERE TO BE TAKEN TO SUR AT. FOR SOME REASONS SWEDESHKUMAR AGRAWAL POSTPONED HIS PROGRAM ME FOR GOING TO SURAT AND TAKEN BACK THIS AMOUNT FOR WHICH HE WAS HAVING SUFFICIENT CASH BALANCE IN HIS BOOKS OF ACCOUNTS. I T WAS THEREFORE SUBMITTED THAT SWADESHKUMAR AGRAWAL HAD TAKEN HIS O WN MONEY FROM AJITKUMAR JAIN THEREFORE THERE WAS NO REASON TO RECORD THE SAME IN THE BOOKS OF ACCOUNTS OF THE ASSESSEE. THE LD. CIT(A) CONSIDERING THE SUBMISSIONS OF THE ASSESSEE AND THE MATERIAL ON RECORD HELD THAT THE AO WAS NOT JUSTIFIED IN MAKING THE ADDITION OF RS. 1 90 000/- IN THE HANDS OF THE ASSESSEE BECAUSE THIS AMOUNT BELONGS TO SWADESHKUMAR AGRAWAL WHO HAD KEPT HIS MO NEY AND SINCE HE HAD TAKEN BACK HIS OWN AMOUNT THEREFORE THERE WAS NO NEED TO MAKE THE ENTRY IN THE RECORD OF THE ASSESSE E. 6 THE LD. DR RELIED UPON THE ORDER OF THE AO AND RE FERRED TO THE STATEMENT OF AJITKUMAR JAIN RECORDED ON 15.6.20 02 IN WHICH HE HAS EXPLAINED THAT SWADESHKUMAR HAD TAKEN BACK RS.1 90 000/-. THE LD. DR FURTHER SUBMITTED THAT AJITKUMAR JAIN H OWEVER DENIED HIS STATEMENT IN THE CROSS EXAMINATION (PB-32). ON THE OTHER HAND. LD.COUNSEL FOR THE ASSESSEE REITERATED THE SUBMISSI ONS MADE BEFORE THE AUTHORITIES BELOW AND SUBMITTED THAT CASH DID N OT BELONG TO THE ASSESSEE AND EVEN AJITKUMAR JAIN IN HIS STATEMENT D ID NOT GIVE DENOMINATION OF CASH WHICH COULD SHOW THAT THE CASH DID NOT BEL ONG TO THE ASSESSEE. HE HAS FURTHER SUBMITTED THAT SEAR CH PARTY MADE -: 47: - 47 AJITKUMAR JAIN TO SIGN ON THE SEIZED PAPERS COPY O F WHICH ARE FILED AT PB-137 TO 139 WHICH COULD SHOW THAT IT WAS NOT V OLUNTARY STATEMENT OF AJITKUMAR JAIN. HE HAS FURTHER SUBMITT ED THAT AJITKUMAR JAIN NEVER STATED IN HIS STATEMENT THAT T HE CASH BELONGED TO THE ASSESSEE. HE HAS SUBMITTED THAT ASSESSEE DEN IED THE OWNERSHIP OF THE CASH IN QUESTION. 7 WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PERU SED FINDINGS OF THE AUTHORITIES BELOW. THE WHOLE CASE I S DEPENDENT UPON THE STATEMENT OF SHRI AJITKUMAR JAIN WHO IS E MPLOYEE OF THE ASSESSEE AND IN ANSWER TO QUESTION PUT BY THE SEAR CH PARTY HE HAS EXPLAINED WITH REFERENCE TO THE QUESTION ASKED REGA RDING SWADESHKUMAR AGRAWAL THAT HE HAD TAKEN AWAY RS.1 90 000/- IN HIS PRESENCE. HE HAS DEPOSED THAT HE WAS NOT AWARE WHERE SHRI SWADESHKUMAR AGRAWAL HAD TAKEN THIS AMOUNT AND WHAT ARE THE DENOMINATIONS OF THE NOTES. IT WOULD THEREFORE CLEA RLY ESTABLISH THAT THE SEARCH PARTY ASKED THE QUESTION TO AJITKUM AR JAIN REGARDING SWADESHKUMAR AGRAWAL AND THE ARTICLES TAK EN BY HIM. NO QUESTION WAS PUT REGARDING THE ASSESSEE. NO QUES TION WAS ASKED WHETHER THIS CASH BELONGED TO THE ASSESSEE OR NOT. NO EVIDENCE IS RECOVERED DURING THE COURSE OF SEARCH T O ESTABLISH THAT THE CASH IN QUESTION BELONGED TO THE ASSESSEE. IN T HE ABSENCE OF ANY INCRIMINATING EVIDENCE AGAINST THE ASSESSEE NO LIABILITY CAN BE FASTENED UPON THE ASSESSEE. DURING THE CROSS EXAMIN ATION AJIT KUMAR JAIN HAD SPECIFICALLY EXPLAINED THE AMOUNT TA KEN BY SHRI SWADESHKUMAR AGRAWAL AND DENIED TO HAVE BELONGED TO THE ASSESSEE. THESE FACTS THEREFORE PROVE THAT THE CASH IN QUESTION DID NOT BELONG TO THE ASSESSEE. THEREFORE THERE WAS NO NEED FOR THE ASSESSEE OR HER EMPLOYEE TO RECORD ANYTHING IN THE SEIZED PAPER AND AS SUCH THE LD. CIT (A) WAS JUSTIFIED IN DELETI NG THE ADDITION. THERE IS NO MERIT IN THIS GROUND OF APPEAL OF THE R EVENUE. THE SAME IS ACCORDINGLY DISMISSED. 8. GROUND N. 2- THE AO DISCUSSED THIS ISSUE IN PARA 10 AT PAGE 17 OF THE ASSESSMENT ORDER. THE AO FOUND THAT THE V ALUE OF STOCK ON PHYSICAL VERIFICATION WAS WORKED OUT AT RS.40 48 893/-. THE AO NOTED THAT ALMOST ON ALL THE ITEMS TAG PRICE AFFIX ED. THE TAG PRICE -: 48: - 48 WAS MENTIONED ON EACH ITEM OF THE GOODS FOUND WHICH CARRIED CODE A-10. THE AO FOUND THAT AS PER DEPARTMENTAL VIEW A DENOTES MRP WHEREAS THE ASSESSEE CLAIMED THAT A2 REPRESENTS MRP . THE AO HAD WORKED OUT THE VALUE OF STOCK ON THE BASIS OF T HAT DOUBLE OF MRP AT RS.40 48 890/- AFTER REDUCING GROSS PROFIT A T THE RATE OF 20%.THE AO HAD WORKED OUT THE VALUE OF STOCK ON THE DATE OF SEARCH AT RS.32 39 112/-. SINCE THE STOCK AS PER TH E BOOKS OF ACCOUNTS ON THE DATE OF SEARCH WAS RS.16 93 393/- THEREFORE EXCESS STOCK WAS WORKED OUT AT RS.15 45 719/-. IT W AS SUBMITTED BEFORE THE LD.CIT(A) THAT THE AO ARBITRARILY WORKED OUT THE VALUE OF STOCK. IT WAS SUBMITTED THAT THE SEARCH PARTY VA LUED THE STOCK OF THE ASSESSEE ON THE BASIS OF CODE PRICE I.E. TAG PR ICE. THE AO HAD IGNORED THE FACT THAT THE CODE PRICE APPEARING ON T HE SAREES WAS DOUBLE OF THE MRP. THIS FACT WAS EXPLAINED BY SHRI AJITKUMAR JAIN DURING THE SEARCH PROCEEDINGS. THUS THE AO HAD WOR KED OUT THE VALUE OF STOCK WRONGLY AT THE DOUBLE OF MRP. IN FAC T THE VALUE OF STOCK SHOULD BE VALUED ON THE BASIS OF MRP AND IN C ASE THE SAME IS COMPUTED ACCORDINGLY THERE WILL BE NO DIFFERENCE I N THE VALUE OF STOCK. IT WAS THEREFORE SUBMITTED THAT 50% VALUE WAS ENHANCED BY THE AO AND THE GP RATE WAS ALSO WRONGLY TAKEN. IT W AS SUBMITTED THAT THE CORRECT VALUE OF STOCK WAS 17 06 203/- AND THE DIFFERENCE WAS VERY NOMINAL AT RS.12 810/- IN COMPARISON TO TH E BOOKS OF ACCOUNTS OF THE ASSESSEE. THE LD. CIT (A) CONSIDERI NG EXPLANATION OF THE ASSESSEE ACCEPTED THE EXPLANATION BECAUSE VA LUE OF STOCK WAS TAKEN ON THE BASIS OF TAG PRICE WHICH WAS DOUBL E THE MRP. THE LD.CIT(A) SUPPORTED HIS FINDING ON THE BASIS OF DOCUMENTS FOUND DURING THE COURSE OF SEARCH WHICH WAS INSTRUC TION TO THE EMPLOYEES WHICH CLEARLY INDICATED THAT THE CODE PRI CE IS DOUBLE OF MRP. THE LD. CIT(A) ACCORDINGLY SUSTAINED THE ADDIT ION TO RS.13 000/- AND DELETED THE ADDITION OF RS.15 32 71 9/- 9 THE LD.DR RELIED UPON ORDER OF THE AO. ON THE OTH ER HAND THE LD. COUNSEL FOR THE ASSESSEE REITERATED THE SUB MISSIONS MADE BEFORE THE AUTHORITIES BELOW AND SUBMITTED THAT A P APER CONTAINING INSTRUCTION WAS SEIZED DURING SEARCH TO EXPLAIN THA T THE TAGS MENTIONED DOUBLE THE MRP AND THE EMPLOYEES COULD SE LL THE SAME -: 49: - 49 ITEM AT HALF THE TAG PRICE. SIMILAR EXPLANATION WAS GIVEN BY SHRI AJITKUMAR JAIN IN HIS STATEMENT RECORDED ON THE DAT E OF SEARCH (PB-19). THE LD. COUNSEL FOR THE ASSESSEE ALSO FILE D COPY OF THE INVENTORY OF STOCK DATED 13 TH /15 TH JUNE 2002 AND EXPLAINED THAT VALUE OF STOCK WAS INVENTORISED DURING THE SURVEY U /S 133A OF THE ACT. THEREFORE SUCH INVENTORY PREPARED DURING THE COURSE OF SURVEY CANNOT BE TREATED AS MATERIAL RECOVERED DURI NG THE COURSE OF SEARCH. A COPY OF THE INVENTORY IS SUPPLIED TO T HE LD. DR DURING THE COURSE OF ARGUMENTS. 10 WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND THE MATERIAL AVAILABLE ON RECORD AND DON NOT FIND ANY JUSTIFICAT ION TO INTERFERE WITH THE ORDER OF THE LD. CIT(A). IT IS NOT IN DISP UTE THAT THE VALUE OF STOCK WAS TAKEN DURING THE SURVEY PROCEEDINGS U/S 1 33A OF THE ACT. THE LD. DR WAS SUPPLIED WITH A COPY OF THE INVENTOR Y OF STOCK PREPARED AT THE TIME OF SURVEY U/S 133A OF THE ACT IN THE BUSINESS PREMISES OF THE ASSESSEE. THE LD. DR COULD NOT COMM ENT UPON THE AFORESAID DOCUMENT. THE LD. DR WAS DIRECTED TO FILE HIS REPLY IF HE HAS ANY DOUBT OR DISPUTE ABOUT THE CORRECTNESS OF T HE COPY OF THE INVENTORY OF STOCK TAKING IN THE PREMISES OF THE AS SESSEE DURING SURVEY. HOWEVER THE LD. DR HAS NOT FILED ANY REPLY TO DISPUTE THE CORRECTNESS OF THE AFORESAID DOCUMENT PREPARED BY T HE SEARCH PARTY IN SURVEY. THIS ITSELF IS SUFFICIENT TO REJEC T THIS GROUND OF APPEAL OF THE REVENUE BECAUSE ANYTHING PREPARED OR DISCOVERED DURING THE COURSE OF SURVEY U/S 133A CANNOT BE SAID TO BE MATERIAL OR EVIDENCE RECOVERED DURING THE COURSE OF SEARCH U /S 132 OF THE ACT. SUCH MATERIAL THEREFORE CANNOT BE TAKEN INTO CONSIDERATION FOR THE PURPOSE OF MAKING ADDITION IN THE BLOCK ASS ESSMENTS UNDER CHAPTER XIV-B OF THE ACT. WE ARE FORTIFIED IN OUR V IEW BY THE DECISION OF THE MADRAS HIGH COURT IN THE CASE OF CI T VS. GK SENNIAPPAN; 284 ITR 220 (SUPRA). WE MAY FURTHER ADD THAT THE LD. COUNSEL FOR THE ASSESSEE FILED COPIES OF VARIOUS PA NCHNAMAS IN THE PAPER BOOK PB-2 TO 16 IN WHICH THERE IS NO REFERENC E OF ANY STOCK TAKING PROCEEDINGS IN SEARCH. IT WOULD THEREFORE SU PPORT OUR FINDING AS RECORDED ABOVE. SHRI AJITKUMAR JAIN EM PLOYEE OF THE ASSESSEE IN HIS STATEMENT RECORDED ON THE DATE OF SEARCH HAS STATED -: 50: - 50 THAT CODE PRICE ON THE TAG OF THE SAREES WAS THE DO UBLE OF MRP AND WHEN SAREES ARE SOLD THEY ARE SOLD AT THE HALF PRI CE. EVEN IN THE SEIZED PAPERS INSTRUCTIONS WERE GIVEN TO THE EMPLO YEES THAT EMPLOYEES WILL SELL THE SAREES AT HALF THE RATE WRI TTEN ON THE TAGS PUT ON THE SAREES. THESE FACTS ON RECORD SUPPORT TH E EXPLANATION OF THE ASSESSEE THAT TAG PRICE TAKEN BY THE AO WAS NOT CORRECT METHOD FOR VALUING THE STOCK. THE EXPLANATION OF THE ASSES SEE HAS BEEN CORRECTLY APPRECIATED BY THE CIT(A) FOR THE PURPOSE OF DELETING THE ADDITION. NO SEIZED MATERIAL IS RECOVERED DURING CO URSE OF THE SEARCH TO PROVE THAT THE TAG PRICE AS NOTED BY THE AO WAS CORRECT VALUE OF THE STOCK THEREFORE NO ADDITION CAN BE M ADE ON SUCH METHOD IN THE BLOCK ASSESSMENTS. WE THEREFORE DO NOT FIND ANY JUSTIFICATION TO INTERFERE WITH THE ORDER OF THE CI T(A). THERE IS NO MERIT IN THE APPEAL OF THE REVENUE ON THIS GROUND. THE SAME IS ACCORDINGLY DISMISSED. 11 GROUND NO. 3 : THE AO DISCUSSED THIS ISSUE IN DE TAIL IN THE ASSESSMENT ORDER FROM PARAS 4 TO 8 FROM PAGES 3 TO 12. THE AO FOUND THAT ASSESSEE IS PROP. OF M/S. SHREEJI SAREES AND DOING THE BUSINESS FOR THE LAST SIX YEARS. ASSESSEE IS DOING THE BUSINESS OF RETAIL TRADE IN SAREES FROM YEAR 2000-2001 PRIOR T O WHICH ASSESSEE WAS DOING THE BUSINESS ON WHOLESALE BASIS. THE AO FOUND IN THE FACTS OF THE ASSESSEES CASE THAT PROVISIONS OF SEC. 145(3) ARE APPLICABLE. HE HAS MENTIONED CERTAIN DEFECTS DISCR EPANCIES IN THE BOOKS OF ACCOUNTS IN PARA 6 OF THE ASSESSMENT ORDER . HE HAS REFERRED TO THE DOCUMENTS LPS-4 ON PAGES 12 13 14 WHICH GIVES THE SALES ON 10 TH 11 TH AND 12 TH JUNE 2002 OF AMOUNT OF RS.36 535/- RS.51 960/- AND RS.80 075/- RESPECTIVELY. HE HAS REFERRED TO DOCUMENTS BS-6 TO BS-10. THE AO HAS GIVEN TURNOVER IN DETAILS ON PAGES 7 TO 9 AND REFERRED TO STATEMENT OF SHRI AJIT KUMAR JAIN WHO HAS STATED IN STATEMENT THAT 30% OF THE SALES A RE RECORDED ON KACCHA BILL AND 70% ON PAKKA BILL. THE AO HAS WORKE D OUT THE AVERAGE SALES OF 3 DAYS I.E. 10 TH 11 TH AND 12 TH JUNE 2002 AND HAS TAKEN THE AVERAGE SALES OF 3 DAYS AT RS.56 190/- AN D ON THAT BASIS HE HAD ESTIMATED THE UNDISCLOSED TURNOVER OF THE BL OCK PERIOD. THE AO HAD FOUND AVERAGE DAILY SALES OF FY 2002-2003 AS RECORDED IN -: 51: - 51 THE CASH BOOK AT RS. 14 535/- AND SINCE THE AVERAGE OF THE SALES OF 3 DAYS WAS RS. 56 190/-. THE AO ON THE SAME BASIS H AD TAKEN THE SUPPRESSED SALES FOR THE PERIOD 1.4.2002 TO 12 TH JUNE 2002 @ OF RS.40 000/- PER DAY. SIMILARLY HE HAD TAKEN SALES FOR ALL OTHER YEARS FALLING IN THE BLOCK ASSESSMENT PERIOD. AS RE GARDS APPLICATION OF GROSS PROFIT RATE THE AO FOUND THAT ASSESSEES CASE IS THE BEST CASE FOR MAKING COMPARISON. AO FOUND TH AT TILL MARCH 2000 ASSESSEE WAS DOING WHOLESALE BUSINESS AND THE REAFTER HE HAD STARTED RETAIL BUSINESS ON THE BASIS OF PROP. O F SISTER CONCERN M/S. SHREEJI SAREEWALE SHREEJI DRESSWALE SHREEJI EXCLUSIVE AND SHREEJI SILK WHICH ARE SITUATED IN THE IDENTICAL LO CATION AT BAIRAGARH AND ARE ENGAGED IN THE SIMILAR BUSINESS O F WHOLESALE SAREES AND IT WAS FOUND BY HIM TO BE REASONABLE TO APPLY G.P. RATE OF 12% ON THE WHOLESALE BUSINESS THEREFORE AO APP LIED G.P. RATE OF 20% IN THE RETAIL BUSINESS. ON THAT BASIS THE A O WORKED OUT TOTAL PROFIT ON SUPPRESSED SALES AT RS.80 59 986/- AND WAS TREATED AS UNDISCLOSED INCOME OF THE ASSESSEE. FURTHER TUR NOVER ADDITION WAS MADE. 12 THE ADDITION WAS CHALLENGED BEFORE LD.CIT(A). IT WAS SUBMITTED THAT AO WAS NOT JUSTIFIED IN MAKING THE A DDITION BY APPLYING PROVISIONS OF SEC. 145(3). AO WAS NOT JUST IFIED IN ESTIMATING THE TURNOVER BY APPLYING G.P. RATE OF 12 % ON SUPPRESSED SALES OF WHOLESALE BUSINESS AND BY APPLYING G.P. RA TE OF 20% ON SUPPRESSES SALES OF RETAIL BUSINESS. NO EVIDENCE OR DOCUMENTS SUGGESTING ANY UNDISCLOSED SALES OR TURNOVER WAS FO UND DURING COURSE OF THE SEARCH. WHATEVER EVIDENCE IN THE FORM OF DOCUMENTS WERE FOUND DURING COURSE OF THE SEARCH THE ASSESSE E HAD WORKED OUT UNDISCLOSED INCOME AND SHOWN IN THE RETURN FOR THE BLOCK PERIOD. THEREFORE ADDITION ON ESTIMATE WITHOUT THE RE BEING ANY EVIDENCE ON RECORD IS NOT JUSTIFIED. NO INCRIMINATI NG DOCUMENT WAS FOUND TO JUSTIFY THE ACTION OF THE AO FOR MAKING TH E ADDITION BY APPLYING G.P. RATE. THE AO CANNOT ARBITRARILY INVOK E THE PROVISIONS OF SEC. 145 IN COMPUTATION OF UNDISCLOSE D INCOME MERELY BECAUSE JOURNAL WAS NOT WRITTEN UP TO THE DA TE OF THE SEARCH. IT WAS SUBMITTED THAT ASSESSEE MAINTAINED R EGULAR BOOKS OF -: 52: - 52 ACCOUNT. IT WAS PLEADED THAT THOUGH LEDGER AND JOUR NAL FOR FY 2002-2003 WAS NOT PREPARED BUT IT IS A FACT THAT CA SH BOOK OF THE ASSESSEE WAS FOUND WRITTEN UPTO DATE WHICH WAS EXPL AINED BEFORE AO THAT SINCE RAJESH GARG HAD GONE OUT OF STATION F ROM BHOPAL THE TRANSACTION FROM 9 TH JUNE 2002 ONWARDS BEFORE THE DATE OF THE SEARCH WERE MENTIONED ON THE LOOSE PAPERS AND SUCH PAPERS WERE FOUND DURING COURSE OF THE SEARCH. IT WAS ALSO SUBM ITTED THAT IN THE VERY NATURE OF BUSINESS CONDUCTED BY THE ASSESSEE IT WAS NOT POSSIBLE TO MAINTAIN STOCK REGISTER THEREFORE THE RE WAS NO JUSTIFICATION FOR REJECTION OF THE BOOKS OF ACCOUNT OF THE ASSESSEE. IT WAS FURTHER SUBMITTED THAT NON-MAINTENANCE OF STOCK REGISTER AND NON-MENTIONING OF MINOR PARTICULARS OF SALE BILLS O R PURCHASE BILLS DO NOT ADVERSELY AFFECT THE CREDIBILITY OF THE BOOK S OF ACCOUNTS. THE SEARCH PARTY DURING COURSE OF THE SURVEY HAD TAKEN THE VALUATION OF STOCK ON THE BASIS OF TAG PRICE WHICH WAS DOUBLE TH E MRP. THE STATEMENT OF SHRI AJIT KUMAR JAIN WRONGLY USED AGAI NST THE ASSESSEE WHO SIMPLY STATED THAT 30% OF THE SALES WE RE ON KACCHA BILL. THE CREDIT SALES WERE MENTIONED IN THE SEPARA TE BOOKS. THE AO RELIED UPON STATEMENT OF SHRI AJIT KUMAR JAIN FO R THE PURPOSE OF MAKING THE ADDITION BUT DURING THE COURSE OF CRO SS-EXAMINATION HE HAS NOT SUPPORTED THE CASE OF THE REVENUE IS WHI CH IT WAS EXPLAINED THAT THE KACCHA BILL IS GIVEN FOR APPROVA L AND PAKKA BILLS ARE ISSUED THEREAFTER AND ALL THE SALES ARE MENTION ED IN THE REGULAR BOOKS OF ACCOUNT. IT WAS SUBMITTED THAT CASH BOOKS WAS WRITTEN UPTO 8 TH JUNE 2002 BECAUSE ACCOUNT WAS OUT OF STATION AND DETAILS OF 3 DAYS WERE RECORDED IN THE LOOSE PAPERS WHICH W ERE SUBSEQUENTLY RECORDED IN THE BOOKS OF ACCOUNT BECAU SE 9 TH JUNE WAS THE HOLIDAY. IT WAS SUBMITTED THAT ON THE BASIS OF SOME DOCUMENTS FOUND DURING COURSE OF SEARCH ASSESSEE H AD ALREADY DECLARED UNDISCLOSED INCOME OF RS.1 09 557/-. IT WA S FURTHER SUBMITTED THAT AO WAS NOT JUSTIFIED IN ESTIMATING T HE TURNOVER FOR THE ENTIRE BLOCK PERIOD ON THE BASIS OF SALES OF TH E 3 DAYS BECAUSE NO MATERIAL OR DOCUMENT WAS FOUND DURING COURSE OF THE SEARCH TO ESTIMATE UNDISCLOSED TURNOVER FOR THE ENTIRE BLOCK PERIOD AT -: 53: - 53 RS.7 44 57 300/-. IT WAS SUBMITTED THAT G.P. RATE A PPLIED BY THE AO IS ALSO EXCESSIVE AND BAD IN LAW. 13 THE LD. CIT(A) CONSIDERING THE SUBMISSION OF THE ASSESSEE AND MATERIAL ON RECORD DELETED THE ADDITION BY APPL YING G.P. RATE ON THE ESTIMATED TURNOVER. THE FINDINGS OF THE LD.C IT (A) ARE REPRODUCED AS UNDER: I HAVE CONSIDERED THE DETAILED SUBMISSION OF THE LD. COUNSEL THAT ASSESSING OFFICER WAS NOT J USTIFIED IN MAKING ADDITION OF R.S80 59 986/- BY APPLYING ARBIT RARILY GROSS PROFIT RATE OF 12% AND 20% ON SUPPRESSED TURNOVER R ELATING TO WHOLESALE AND RETAIL BUSINESS. I HAVE ALSO GIVEN CA REFUL CONSIDERATION TO THE DETAILED REASONING GIVEN BY TH E ASSESSING OFFICER FOR MAKING THE ADDITION. AFTER DUE CONSIDER ATION OF THE MATTER I HOLD THAT ASSESSING OFFICER WAS NOT JUSTI FIED IN MAKING THIS ADDITION AMOUNTING TO RS.80 59 986/- BECAUSE DURING THE COURSE OF SEARCH NO EVIDENCE WAS FOUND WHICH COULD JUSTIFY S UCH AN ADDITION. UNDISCLOSED INCOME CANNOT BE COMPUTED MER ELY ON THE BASIS OF ASSUMPTION. THE UNDISCLOSED INCOME IS TO B E COMPUTED ONLY WITH REFERENCE TO THE EVIDENCE FOUND DURING TH E COURSE OF SEARCH. PROCEDURE HAS BEEN PRESCRIBED IN CHAPTER XI VB FOR COMPUTATION OF UNDISCLOSED INCOME AND SUCH PROCEDUR E HAS TO BE NECESSARILY FOLLOWED FOR COMPUTATION OF UNDISCLOSED INCOME. WHATEVER UNDISCLOSED INCOME IS COMPUTED FOR THE BLO CK PERIOD THAT HAS TO BE BASED ONLY ON EVIDENCE FOUND DURING THE C OURSE OF SEARCH. SINCE THERE WAS NO EVIDENCE THAT APPELLANT HAD SUPPRESSED TURNOVER AS MENTIONED ON PAGE 12 ASSESSING OFFICER WAS NOT JUSTIFIED IN ESTIMATING THE TURNOVER FOR THE BLOCK PERIOD. SIMILARLY NO EVIDENCE WAS FOUND AS A RESULT OF SEARCH THAT AP PELLANT HAD EARNED INCOME OF RS.80 59 986/- OVER AND ABOVE WHAT HAS BEEN SHOWN FOR THE BLOCK PERIOD. SUPPRESSION OF INCOME T O THIS EXTENT FOR THE BLOCK PERIOD IS NOT SUPPORTED BY ANY DOCUME NTARY EVIDENCE. ADDITION HAS BEEN MADE BY THE ASSESSING OFFICER WIT HOUT SUPPORTING ANY DOCUMENTARY EVIDENCE RELATABLE TO TH E EVIDENCE FOUND DURING THE COURSE OF SEARCH. ASSESSING OFFICE R MAY BE JUSTIFIED IN REJECTING THE BOOKS OF ACCOUNTS ONLY F OR THE PREVIOUS -: 54: - 54 YEARS IN RESPECT OF WHICH CERTAIN PURCHASES AND SAL ES ARE NOT FOUND RECORDED IN REGULAR BOOKS OF ACCOUNTS BUT CE RTAINLY BOOKS OF ACCOUNTS FOR THE ENTIRE BLOCK PERIOD CANNOT BE R EJECTED ON THAT BASIS. IF THE UNDISCLOSED INCOME IS COMPUTED ON THE BASIS OF APPLICATION OF GROSS PROFIT RATE ON ASSUMED TURNOVE R/ESTIMATED TURNOVER THE PROVISIONS OF SEC. 158BB WOULD BECOME REDUNDANT. IN MY CONSIDERED VIEW AND AS HELD BY VARIOUS HIGH C OURT MENTIONED EARLIER UNDISCLOSED INCOME HAS TO BE COM PUTED ONLY ON THE BASIS OF EVIDENCE FOUND DURING THE COURSE OF SE ARCH I HOLD THAT ASSESSING OFFICER WAS NOT JUSTIFIED IN MAKING ADDIT ION OF RS.80 59 986/-. I THEREFORE DELETE THE ADDITION MADE BY THE ASSE SSING OFFICER AMOUNTING TO RS.80 59 986/- BY APPLYING A GROSS PRO FIT RATE OF 12% AND 20% ON SUPPRESSED TURNOVER OF THE BLOCK PERIOD RELATING TO WHOLESALE AND RETAIL BUSINESS RESPECTIVELY. WHILE H OLDING SO I RELY UPON THE UNDER MENTIONED JUDGMENTS:- (I) CIT VS. KHUSHALCHAND NIRMAL KUMAR REPORTED AT 263 ITR 77(MP). (II) BHAGWANDAS KEDIA VS. CIT248 ITR 562 (CAL.) (III) CALTRO DECO STEEL SALES VS. DCIT REPORTED AT (2000) 243 ITR 643 KOLKATTA (IV) CIT VS. RAVIKANT JAIN REPORTED AT (2001) 250 ITR 141(DELHI). 14 LD. DR RELIED UPON ORDER OF THE AO. LD. DR SUBMI TTED THAT UNDISCLOSED INCOME CAN BE COMPUTED BY APPLYING PROV ISIONS OF SEC. 145(3). THE AO NOTED SPECIFIC DEFECTS IN THE B OOKS OF ACCOUNTS OF THE ASSESSEE WHICH WAS NOT WRITTEN COMPLETELY TH EREFORE FINDING OF THE AO IS CORRECT. HE HAS SUBMITTED THAT SEIZED PAPERS FOR DATED 9 TH JUNE 2002 TRANSACTION WAS RECOVERED DURING COURSE OF THE SEARCH (PB136). HE HAS SUBMITTED THAT THERE WAS A C OLLECTION OF CASH IN THE SAME DOCUMENT WHICH IS NOT RECORDED IN THE BOOKS OF ACCOUNT. HE HAS REFERRED TO SEIZED PAPER RECOVERED DURING COURSE OF THE SEARCH FOR TRANSACTIONS HELD ON DATED 10 TH 11 TH AND 12 TH JUNE 2002 (PB137 138 & 139) CASH WAS DEPOSITED FR OM VARIOUS -: 55: - 55 PARTIES AND RECEIPT OF MONEY IS ALSO NOTED. LD. DR SUBMITTED THAT STATEMENT OF EMPLOYEE AJIT JAIN WAS RECORDED ON THE DATE OF THE SEARCH IN WHICH HE HAS ADMITTED 30% SALES ARE MAD E ON KACCHA BILL HOWEVER HE HAS DISPUTED HIS STATEMENT IN THE CROSS- EXAMINATION WITHOUT ANY BASIS AND HE CANNOT BE ALLO WED TO CHANGE THE STATEMENT. PB 21 IS THE STATEMENT OF ASHOK PAHU JA WHO HAS EXPLAINED THAT THE SALES OF THE ASSESSEE ON AVERAGE PER DAY WAS 15- 20 000 PER DAY. HE HAS SUBMITTED THAT THE SALES OF 3 DAYS WAS FOUND OUTSIDE THE BOOKS OF ACCOUNT AND ON THAT BASI S UNDISCLOSED SALES WERE RIGHTLY COMPUTED BY THE AO FOR THE ENTIR E BLOCK PERIOD. HE HAS SUBMITTED THAT NO EVIDENCE OF COERCION OR TH REAT WAS PRODUCED BY THE ASSESSEE WHILE RECORDING THE STATEM ENT OF ABOVE PERSON. HE HAS SUBMITTED THAT LD. CIT(A) WAS NOT JU STIFIED IN IGNORING THE EVIDENCES FOUND DURING COURSE OF THE S EARCH I.E. STATEMENT OF THE ABOVE EMPLOYEE AND THE DOCUMENTS O F 3 DAYS WHICH WERE NOT RECORDED IN THE BOOKS OF ACCOUNT. LD . DR SUBMITTED THAT ASSESSEE ADMITTEDLY DISCLOSED UNDISC LOSED INCOME FOR THE BLOCK PERIOD WHICH PROVED THAT ASSESSEE WAS EARNING UNDISCLOSED INCOME IN THE ENTIRE BLOCK PERIOD. HE H AS SUBMITTED THAT FINDING OF LD. CIT(A) IS NOT CORRECT IN DELETI NG THE ENTIRE ADDITION. LD. DR IN SUPPORT OF HIS CONTENTION UPON FOLLOWING DECISIONS: H.M. EUSFALI. ABDUL ALI 90 ITR 272. G.J.SHAH & CO. 246 ITR 671. RAJNIK & CO. 251 ITR 561. VEDPRAKASH 265 ITR 643. SACHDEVA & SONS 1 ITJ511 (INDORE BENCH). NAPAR DRUGS P. LTD. 98 ITD 285 (DEL TM). MANGERAM MITTAL 289 ITR (AT) DEL 112. OVERSEAS CHINESE CUISINE VS. ACIT 56 ITD 67 (TM/MUM) -: 56: - 56 15 ON THE OTHER HAND LD. COUNSEL FOR ASSESSEE REIT ERATED THE SUBMISSIONS MADE BEFORE AUTHORITIES BELOW AND SUBMI TTED THAT NO KACCHA BILL WAS FOUND DURING THE SEARCH. THERE IS N O BAR TO DISCLOSE UNDISCLOSED INCOME IN THE RETURN FOR THE B LOCK PERIOD. THE SEIZED PAPERS FOR THE 3 DAYS WERE INCORPORATED IN T HE CASH BOOK BECAUSE ACCOUNTANT WAS AWAY IN WHICH NO DEFECTS HAV E BEEN POINTED OUT. THE COPIES OF THE CASH BOOK ARE FILED AT PB 147 148 149. THE ASSESSEE NEVER ASKED THE EMPLOYEE TO ISSUE KACHHA BILL BECAUSE KACHHA BILL IS ONLY MEANT FOR APPROVAL WHIC H IS ALSO EXPLAINED IN THE STATEMENT OF EMPLOYEE AJIT KUMAR J AIN. HE HAS SUBMITTED THAT THE ENTIRE ENTRIES RECORDED IN THE S EIZED PAPERS HAVE BEEN RECONCILED AND IN THE SAREE BUSINESS IT IS NO T POSSIBLE TO MAINTAIN STOCK REGISTER. THE SALES CANNOT BE ESTIMA TED FOR THE ENTIRE BLOCK PERIOD WITHOUT HAVING ANY SEIZED MATER IAL OR EVIDENCE. HE HAS SUBMITTED THAT NO EVIDENCE OR MATERIAL IS RE COVERED DURING COURSE OF THE SEARCH TO ESTIMATE SUPPRESSED SALES O R SUPPRESSED PROFIT THEREFORE LD. CIT(A) WAS JUSTIFIED IN DELE TING THE ADDITION. HE HAS SUBMITTED THAT THE ASSESSEE SURRENDERED RS.1 09 577/- ON THE BASIS OF THE SEIZED PAPERS WHICH CONTAIN THE AM OUNT OF RS.25 000/- ONLY. HE HAS SUBMITTED THAT NO STOCK WA S VERIFIED DURING THE SEARCH. HE HAS SUBMITTED THAT PB 136 SHO WS THE COLLECTION OF CASH BY THE EMPLOYEE WHICH WAS RECOVE RED ON SUNDAY ON 9 TH JUNE 2002 FROM PERSON TO WHOM CREDIT SALES WERE MADE. 16 WE HAVE HEARD LD. REPRESENTATIVES OF BOTH THE PA RTIES AND MATERIAL AVAILABLE ON RECORD. IT IS NOT IN DISPUTE THAT ONLY SEIZED PAPERS RECOVERED PERTAIN TO 3 DAYS TRANSACTION I.E. ON 10 TH 11 TH AND 12 TH JUNE 2002. THE BOOKS OF ACCOUNTS OF THE ASSESSEE WERE FOUND WRITTEN UP TO 8 TH JUNE 2002. 9 TH JUNE 2002 WAS SUNDAY AND THE BOOKS COULD NOT BE WRITTEN FOR THE NEXT 3 DAYS I.E. UPTO THE DATE OF SEARCH ON 13.6.2002 BECAUSE THE ACCOUNTANT WAS S TATED TO BE OUT OF STATION. ALL ENTRIES OF THESE DAYS WERE SUBS EQUENTLY RECORDED IN THE REGULAR BOOKS OF ACCOUNTS OF THE ASSESSEE (P B/147 148 & 149) DISCLOSING ALL THE TRANSACTIONS WHICH ARE RECO RDED IN THE SEIZED PAPERS IN WHICH NO DEFECTS HAVE BEEN POINT ED BY THE LD. DR. IT IS ADMITTED FACT THAT APART FROM THE ABOVE P APERS NO OTHER -: 57: - 57 INCRIMINATING DOCUMENT OR MATERIAL WAS FOUND DURING COURSE OF SEARCH TO INDICATE ANY SUPPRESSED SALES OR PROFIT O UTSIDE THE BOOKS OF ACCOUNT OF THE ASSESSEE FOR THE ENTIRE BLOCK PER IOD. THE DEFECTS POINTED OUT IN THE REGULAR BOOKS OF ACCOUNT CANNOT BE SAID TO BE MATERIAL OR EVIDENCE RECOVERED DURING COURSE OF SEA RCH. THE DEFECTS IN THE BOOKS OF ACCOUNT MAY BE RELEVANT IN THE REGULAR ASSESSMENTS BUT IT HAS NO BEARING ON THE BLOCK ASSE SSMENTS UNDER CHAPTER XIVB OF THE IT ACT. THE ONLY CREDIT SALES N OTED IN THE SEIZED PAPERS COMES TO RS.56 190/-. THE ENTIRE SALE S CANNOT BE PROFIT OF THE ASSESSEE. AT THE MOST N.P. RATE MAY BE APPLIED FOR THE PURPOSE OF MAKING THE ADDITION. THE ASSESSEE HAS AL READY RECORDED THESE DETAILS IN THE BOOKS OF ACCOUNT AFTER SEARCH BECAUSE ACCOUNTANT WAS AWAY. MORE SO THE INCOME DECLARED I N THE RETURN FOR THE BLOCK PERIOD WAS SUFFICIENT TO MEET OUT THE ABOVE ISSUE. THE AO WAS THEREFORE NOT JUSTIFIED IN ESTIMATING THE SU PPRESSED SALES AND PROFIT FOR THE ENTIRE BLOCK PERIOD. THIS ISSUE IS CONSIDERED IN DETAIL BY THIS BENCH IN THE CASES OF M/S. SUNITA JU TE PACKAGERS AND RADHESHYAM GUPTA HUF & OTHERS AND THE ADDITIONS HA VE BEEN RIGHTLY DELETED. THE DECISIONS CITED BY LD. DR WERE CONSIDERED IN THOSE CASES. THE ISSUE IS THEREFORE SQUARELY COVE RED BY OUR EARLIER ORDERS MENTIONED ABOVE IN FAVOUR OF THE ASS ESSEE. IT IS SETTLED LAW THAT THE ADDITION COULD BE MADE IN THE BLOCK ASSESSMENT ON THE BASIS OF EVIDENCE FOUND AND RECOVERED AS RES ULT OF SEARCH. THE AO PRESUMED THAT FOR THE ENTIRE BLOCK PERIOD T HE ASSESSEE HAS SUPPRESSED THE TURNOVER. THE AO HAD NO BASIS FOR AS SUMING THAT THE SALES MADE BY THE ASSESSEE DURING PARTICULAR MO NTH/YEAR WOULD BE THE SAME DURING THE ENTIRE BLOCK PERIOD. HONBLE MP HIGH COURT IN THE CASE OF CIT VS. C.L.KHATRI 282 ITR 97 CONSIDERING THE DECISION IN THE CASE OF H.M. ESUFALI HM ABDULAL I (SUPRA) HELD THAT AO HAD NO BASIS TO ASSUME THAT THE EXPENDITURE INCURRED DURING THE PARTICULAR YEAR WOULD BE THE EXPENDITURE DURING THE LAST 10 YEARS. LD. CIT(A) WAS THEREFORE JUSTIFIED IN DEL ETING THE ADDITION ON A/C OF ESTIMATE MADE BY THE AO FOR THE ENTIRE BLOCK PERIOD. THE DECISIONS CITED BY THE LD. DR HAVE ALRE ADY BEEN CONSIDERED EARLIER IN THE SEVERAL CASES AND WERE FO UND TO BE NOT -: 58: - 58 APPLICABLE BECAUSE THERE WAS NO SEIZD MATERIAL RECO VERED DURING COURSE OF THE SEARCH. THE STATEMENT OF AJIT KUMAR J AIN WAS RECORDED IN WHICH HE HAS EXPLAINED THAT 30% KACCHA BILLS ARE ISSUED BUT THERE WAS NO IN HIS CROSS-EXAMINATION H E HAS EXPLAINED THAT KACCHA BILL IS ISSUED FOR APPROVAL ONLY AND WH EN GOODS ARE SELECTED FOR SALE PAKKA BILLS ARE ISSUED AND ARE E NTERED INTO THE BOOKS OF ACCOUNT. HE HAS ALSO EXPLAINED IN THE CROS S-EXAMINATION THAT THE SEARCH PARTY COMPELLED HIM TO SAY THAT 30% KACCHA BILLS ARE ISSUED. THE SEIZED PAPERS FOR 3 DAYS I.E. 11 TH 12 TH AND 13 TH JUNE ARE LATER ON SIGNED BY SHRI AJIT KUMAR JAIN ON 15 TH JUNE 2002 BY MENTIONING THAT HE HAS PREPARED THESE DETAILS OF TH E TRANSACTIONS FOR 3 DAYS. IT WOULD SUPPORT THE CONTENTION OF THE ASSESSEE THAT AJIT KUMAR WAS COMPELLED TO SIGH AGAINST HIS WILL BECAUS E THESE PAPERS BEARS THE LATER DATED OF 15 TH JUNE 2002 AND THERE WAS NO REASON FOR AJIT KUMAR JAIN TO SIGN THE SAME OR WRITE ANYTH ING ON THESE PAPERS AFTER THE SEARCH OPERATION CONCLUDED AND THE SAME WERE SEIZED BY THE SEARCH PARTY. MOREOVER THESE PAPERS WERE ENTERED INTO THE BOOKS OF ACCOUNT LATER ON IN WHICH NO DE FECTS HAVE BEEN POINTED OUT. AJIT KUMAR JAIN DID NOT SUPPORT THE CA SE OF THE AO IN THE CROSS-EXAMINATION. NO KACHHA BILL WAS FOUND DUR ING COURSE OF THE SEARCH AND THERE IS NO BAR TO MAKE DISCLOSURE O F THE UNDISCLOSED INCOME IN THE RETURN FOR THE BLOCK PERI OD. IN THE STATEMENT OF ASHOK PAHUJA RECORDED ON 14 TH JUNE 2002 NO BASIS WHATSOEVER IS GIVEN AS TO HOW HE HAS GIVEN THE AVER AGE SALES OF ASSESSEE AT 15/20 000 PER DAY. IN THE ABSENCE OF AN Y INCRIMINATING MATERIAL FOUND IN SEARCH TO SUPPORT THE STATEMENT O F SHRI ASHOK PAHUJA SUCH STATEMENT CANNOT BE RELIED UPON IN THE BLOCK PERIOD FOR THE PURPOSE OF MAKING THE ADDITION. THE LD. CIT (A) ON PROPER APPRECIATION OF THE ENTIRE MATERIAL ON RECORD RIGHT LY HELD THAT THERE WAS NO BASIS OR EVIDENCE TO SUPPORT THE FINDING OF THE AO. CONSIDERING THE ABOVE DISCUSSIONS IN THE LIGHT OF T HE DECISIONS REFERRED TO IN THIS ORDER WE ARE OF THE VIEW THAT THERE IS NO INFIRMITY IN THE ORDER OF THE LD. CIT(A) IN DELETIN G THE ENTIRE ADDITION. THIS GROUND OF APPEAL OF THE REVENUE IS A CCORDINGLY DISMISSED. -: 59: - 59 17 AS A RESULT DEPARTMENTAL APPEAL IS DISMISSED. 15. THE ASSESSEE IN THE INSTANT CASE BELONGS TO THE S AME GROUPS AND ADDITION HAS ALSO BEEN MADE WITH REFERENCE TO THE S AME SEARCH WHEREIN WHILE FRAMING THE BLOCK ASSESSMENT BY POINTING SOME DEFEC TS THE ASSESSING OFFICER HAS REJECTED BOOKS OF ACCOUNTS FOR THE ENTI RE BLOCK PERIOD AND APPLIED GROSS PROFIT RATE OVER THE ENTIRE SALES OF BLOCK PERIOD AND THE SAME WAS DELETED BY THE LEARNED COMMISSIONER OF INCOME T AX (APPEALS). BY THE ABOVE ORDER AFTER ELABORATELY DISCUSSING THE ISSUE THE TRIBUNAL HAS CONFIRMED THE DELETION OF ADDITION ON ACCOUNT OF G ROSS PROFIT. REASONS FOR NOT APPLYING THE VERDICT OF THE ASSESSING OFFICER F OR REJECTION OF BOOKS OF ACCOUNTS OF ALL THE YEARS INVOLVED IN BLOCK PERIOD AND THEREBY MAKING ADDITION BY APPLYING GROSS PROFIT RATE WAS DISCUSSE D WITH SUPPORT OF CASE LAW RELIED UPON BY THE LEARNED DR. THE TRIBUNAL AFTER CONSIDERING THE CASE LAWS REACHED TO THE CONCLUSION AND DISMISSED THE REVENUE S APPEAL. WE RESPECTFULLY FOLLOW THE PROPOSITION OF LAW DISCUSSE D IN THE ABOVE CASE. HOWEVER KEEPING IN VIEW THE OBSERVATION OF THE AS SESSING OFFICER WITH REGARD TO THE BOOKS AND VOUCHERS FOUND DURING THE C OURSE OF SEARCH VIS--VIS THE FINDING RECORDED BY THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) AND ALSO KEEPING IN VIEW THE PROPOSITION LAID DOWN BY THE COORDINATE BENCH AS DISCUSSED HEREINABOVE WE ARE INCLINED TO MODIFY THE ORDERS OF THE LOWER -: 60: - 60 AUTHORITIES AND DIRECT THE ASSESSING OFFICER TO SUS TAIN TRADING ADDITION BY APPLYING GROSS PROFIT RATE OF 9% ON THE SALES OF AS SESSMENT YEAR 2003-04. WE DIRECT ACCORDINGLY. 16. WITH REGARD TO THE ADDITION MADE ON ACCOUNT OF EXCESS STOCK WE FIND THAT DURING THE COURSE OF SUR VEY PHYSICAL STOCK WAS TAKEN AND IT WAS VALUED AT THE T AG PRICE. AFTER COMPARING IT WITH THE STOCK AS PER BOOKS THE ADDITION OF RS.27 67 452/- WAS MADE BY THE ASSESSING OFFICER DU RING THE COURSE OF BLOCK ASSESSMENT PROCEEDINGS. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) AFTER VERIFICA TION OF INVENTORIES OF STOCK AS PER A1 TO A9 FOUND THAT THE SE STOCKS WERE BELONGING TO THREE DIFFERENT PARTIES. THREE C ONCERNS TO WHICH SUCH STOCK BELONGED WERE SHREEJI SARIWALA PR OPRIETOR DINESH AGRAWAL SHREEJI DRESSWALE PROPRIETOR ANMOL AGRAWAL AND SHREEJI EXCLUSIVES PROPRIETOR SMT. RENU AGRAWA L. ALL THREE ARE INDIVIDUAL ASSESSEES HAVING DIFFERENT SHO PS BUT THE STOCKS WERE LYING AT ONCE PLACE. THE ASSESSEE HAS FURNISHED DETAILS OF STOCK AS BELONGING TO HIM OUT OF THE TOT AL INVENTORY PREPARED AS PER LIST A1 TO A9. HOWEVER THE ASSES SING OFFICER DID NOT CONSIDER THE SAME AND MADE ADDITION BY VALU ING THE -: 61: - 61 STOCK AT TAG PRICE WHICH WAS JUST DOUBLE THE MRP IN RESPECT OF THE ENTIRE AMOUNT OF STOCK IN THE HANDS OF THE ASSE SSEE. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) VERIFI ED THE INVENTORY AND FOUND OUT THE STOCK BELONGING TO THE ASSESSEE. AS A DOCUMENT WAS FOUND DURING THE COURSE OF SURVEY INDICATING THAT GOODS WERE TO BE SOLD AT HALF OF TH E CODE PRICE I.E. TAG PRICE MEANING THEREBY THAT MRP WAS HALF O F THE TAG PRICE. THE LEARNED COMMISSIONER OF INCOME TAX (APP EALS) RECORDED A FINDING TO THE EFFECT THAT SINCE THIS DO CUMENT WAS FOUND DURING THE COURSE OF SEARCH ITSELF THE CONTE NTS OF SUCH DOCUMENT CANNOT BE IGNORED AND THE SAME HAS TO BE T AKEN AS CORRECT IN VIEW OF THE PROVISIONS OF SECTION 132(4A ) OF THE ACT. HE THEREFORE HELD THAT IT WOULD BE REASONABLE AND FAIR IF THE VALUE OF VALUABLE STOCK ON THE DATE OF SEARCH BELON GING TO THE ASSESSEE IS WORKED OUT WITH REFERENCE TO THE MRP WH ICH IS HALF OF THE TAG PRICE. A FINDING WAS ALSO RECORDED BY T HE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) ON THE BASIS O F ASSESSMENT RECORD TO THE EFFECT THAT THE GOODS OF T HE ASSESSEE FOUND MENTIONED IN INVENTORY A1 TO A9 WERE IDENTIFI ABLE AND THE ASSESSING OFFICER HAS NOT OTHERWISE COMMENTED O N SUCH -: 62: - 62 DETAILS. THEREAFTER ON THE BASIS OF TAG PRICE AND MRP THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) WORKED OUT THE VALUE OF CLOSING STOCK AT RS.11 52 081/- AND AFTER REDUCING THE GROSS PROFIT ON SUCH GOODS ARRIVED AT A NET PRICE O F RS.10 54 280/-. SINCE THE STOCK AS PER BOOKS OF ACC OUNTS WAS TO THE TUNE OF RS.10 34 379/- EXCESS STOCK OF RS.1 9 901/- WAS WORKED OUT. DURING THE COURSE OF HEARING BEFOR E US NOTHING WAS POINTED OUT BY THE DEPARTMENT WITH RESP ECT TO THE CORRECTNESS OF THE VALUATION ARRIVED AT BY THE LEAR NED COMMISSIONER OF INCOME TAX (APPEALS) WHICH IS AS PE R MATERIAL ON RECORD AND NOTHING WAS BROUGHT ON RECOR D BY THE DEPARTMENT TO ALLEGE THE COMPUTATION OF CLOSING STO CK AS MADE BY THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) . 17. THE ISSUE WITH REGARD TO THE ADDITION ON ACCO UNT OF INVENTORY TAKEN DURING THE COURSE OF SURVEY AND MAK ING ADDITION IN THE BLOCK ASSESSMENT WAS CONSIDERED BY THE COORDINATE BENCH IN THE CASE OF SMT. VINITA AGRAWAL ORDER DATED 20.3.2009 AND IT WAS HELD THAT ANYTHING PREPA RED OR DISCOVERED DURING THE COURSE OF SURVEY U/S 133A CAN NOT BE SAID TO BE MATERIAL OR EVIDENCE RECOVERED DURING TH E COURSE OF -: 63: - 63 SEARCH U/S 132 THEREFORE CANNOT BE TAKEN INTO CON SIDERATION FOR THE PURPOSE OF MAKING ADDITION IN THE BLOCK ASS ESSMENT PROCEEDINGS UNDER CHAPTER XIV-B OF THE INCOME TAX A CT. RELIANCE WAS PLACED ON THE DECISION OF THE HONBLE MADRAS HIGH COURT IN THE CASE OF G.K. SENNIAPPEN 284 ITR 2 20. IN THE INSTANT CASE BEFORE US STOCK TAKING WAS MADE D URING THE COURSE OF SURVEY AS IS EVIDENT FROM THE PANCHNAMA P LACED ON RECORD IN WHICH THERE IS NO REFERENCE OF ANY STOCK TAKING PROCEEDINGS DURING THE COURSE OF SEARCH. 18. SIMILARLY THE ISSUE WITH REGARD TO VALUATION OF ST OCK AT MRP WAS ALSO CONSIDERED AND IT WAS HELD THAT ASSESS ING OFFICER WAS NOT JUSTIFIED IN VALUING THE STOCK AT T AG PRICE WHICH WAS DOUBLE THE MRP. ACCORDINGLY ACTION OF THE LEA RNED COMMISSIONER OF INCOME TAX (APPEALS) IN VALUING THE STOCK AT MRP WAS HELD TO BE JUSTIFIED IN VIEW OF THE DOCUMENT/INSTRUCTION FOUND DURING THE COURSE OF SEA RCH ACCORDING TO WHICH GOODS WERE TO BE SOLD AT HALF OF THE TAG PRICE. THE FACTS AND CIRCUMSTANCES IN THE INSTANT C ASES BEFORE US ARE PARA MATERIAL TO THE FACTS ALREADY CONSIDERE D BY THE -: 64: - 64 COORDINATE BENCH. WE THEREFORE FOLLOW THE PROPOS ITION OF LAW LAID DOWN BY THE COORDINATE BENCH AS DISCUSSED ABOV E. 19. THE ISSUE WITH REGARD TO REJECTION OF BOOKS U/S 145 (3) BY POINTING OUT DEFECTS THEREIN AND ESTIMATION OF GROS S PROFIT WITH RESPECT TO ALL THE SALES MADE DURING VARIOUS ASSESS MENT YEARS FALLING IN THE BLOCK PERIOD WAS CONSIDERED BY THE COORDINATE BENCH AND IT WAS HELD THAT THE ONLY SEIZED RECOVERE D PERTAINS TO THREE DAYS TRANSACTION AND BOOKS WERE WRITTEN UP TO 10 TH JUNE 2002. ALL THE ENTRIES OF THESE THREE DAYS WE RE SUBSEQUENTLY RECORDED IN THE REGULAR BOOKS OF ACCOU NTS OF THE ASSESSEE DISCLOSING ALL THE TRANSACTIONS WHICH WERE RECORDED IN THE SEIZED PAPERS IN WHICH NO DEFECT WAS POINTED OU T. IT WAS ALSO OBSERVED THAT THE DEFECTS POINTED OUT IN THE B OOKS OF ACCOUNTS CANNOT BE SAID TO BE MATERIAL. THE DEFECT S IN THE BOOKS OF ACCOUNTS MAY BE RELEVANT IN THE REGULAR AS SESSMENT BUT IT HAS NO BEARING ON THE BLOCK ASSESSMENT UNDER CHAPTER XIV-B OF IT ACT. THE ISSUE WITH REGARD TO ESTIMATI ON OF SUPPRESSED SALES AND PROFIT THEREON WAS ALSO CONSID ERED IN THE LIGHT OF DECISION OF THE COORDINATE BENCH IN THE CA SE OF SUNITA JUTE PACKERS AND RADHESHYAM GUPTA HUF AND OTHERS -: 65: - 65 WHEREIN ADDITION MADE ON ACCOUNT OF ESTIMATION OF SALES AND APPLICATION OF GROSS PROFIT RATE WAS DELETED BY THE TRIBUNAL. IT WAS OBSERVED THAT WITHOUT ANY BASIS THE ASSESSING O FFICER HAS PRESUMED THAT FOR THE ENTIRE BLOCK PERIOD THE ASSE SSEE HAS SUPPRESSED THE TURNOVER. THE ASSESSING OFFICER HAS NO BASIS FOR ASSUMING THAT SALES MADE BY THE ASSESSEE DURING A PARTICULAR MONTH OR YEAR WOULD BE THE SAME DURING T HE ENTIRE BLOCK PERIOD. RELIANCE WAS ALSO PLACED ON THE DECI SION OF JURISDICTIONAL HIGH COURT IN THE CASE OF C.L. KHATR I; 282 ITR 97 WHEREIN CONSIDERING THE DECISION OF HONBLE SUP REME COURT IN THE CASE OF H.M. YUSUFALI (SUPRA) IT WAS HELD THAT ASSESSING OFFICER HAS NO BASIS TO ASSUME THAT EXPEN DITURE INCURRED DURING THE PARTICULAR YEAR WOULD BE EXPEND ITURE DURING THE LAST TEN YEARS. THE FACTS AND CIRCUMSTA NCES IN THE INSTANT CASES BEFORE US ARE PARA MATERI ACCORDINGL Y WITHOUT DISCUSSING IN DETAIL WE FOLLOW THE PROPOSITION LAI D DOWN BY THE COORDINATE BENCH WHICH HAS BEEN REPRODUCED HEREINAB OVE . ACCORDINGLY WE CONFIRM THE ACTION OF THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) IN RETAINING ADDITION ON ACCOUNT OF EXCESS STOCK TO THE EXTENT OF RS.19 901/- . -: 66: - 66 20. IN THE RESULT THE APPEAL OF THE REVENUE IS ALLOWED IN PART. IT(SS) A NO.28/IND/2006 AND C.O.NO.60/IND/2006: 21. IN THIS CASE SMT. SUSHMA AGRAWAL WIFE OF SHRI DINE SH AGRAWAL IS PROPRIETOR OF SAROJ KAMAL SILK HOUSE DOI NG THE RETAIL BUSINESS OF CLOTH. DURING THE COURSE OF BL OCK ASSESSMENT THE AO REJECTED THE BOOK RESULTS AND AP PLIED GROSS PROFIT RATE OF 12% AND THEREBY MADE THE TRADI NG ADDITION OF RS. 14 97 614/-. THE AO ALSO MADE THE ADDITION BY ESTIMATING THE SALES AT RS. 10 LACS AS OUTSIDE THE BOOKS OF ACCOUNTS AND AFTER APPLYING GROSS PROFIT RATE OF 32 % AN ADDITION OF RS. 3 20 000/- WAS MADE. BY THE IMPUGN ED ORDER LEARNED CIT(A) DELETED THE ADDITION OF RS. 14 97 61 4/- WITH RESPECT TO DISCLOSED SALES AND ALSO GRANTED RELIEF OF RS.3 10 000/- ON ACCOUNT OF PROFIT ESTIMATED BY TH E AO ON ESTIMATED SALES OUTSIDE THE BOOKS OF ACCOUNTS AFTER HAVING MADE THE FOLLOWING OBSERVATIONS :- ASSESSING OFFICER HAS DISCUSSED THIS ISSUE IN THE ASSESSMENT ORDER AT LENGTH FROM PAGES 4 TO 20 OF TH E ASSESSMENT ORDER. ASSESSING OFFICER FOUND THAT EVEN IN THE COMPUTATION OF UNDISCLOSED INCOME PROVISIONS O F -: 67: - 67 SECTION 145 CAN BE APPLIED. HE HAS NARRATED IN DETA ILS THE DISCREPANCIES AS HE HAS NOTED IN THE BOOKS OF A CCOUNT AND DOCUMENTS FOUND DURING THE COURSE OF SEARCH. ASSESSING OFFICER HELD THAT ON ACCOUNT OF DEFECT AS POINTED OUT BY HIM IN THE BODY OF ASSESSMENT ORDER IN RESPECT OF MAINTENANCE OF BOOKS OF ACCOUNTS IT IS CLEARLY ESTABLISHED THAT BOOKS OF ACCOUNTS OF THE APPELLANT DO NOT REFLECT TRUE STATES OF AFFAIRS OF BUSINESS AND HE W AS SATISFIED THAT BOOKS OF ACCOUNTS ARE NOT CORRECT AN D COMPLETE AND THEREFORE HE HELD IT REASONABLE TO AP PLY THE PROVISIONS OF SECTION 145(3). ASSESSING OFFICER HAD WORKED OUT THE DIFFERENCE IN RATES AS PER UPPER COD E AND LOWER CODE AND FOUND THE VARIATION OF 23% IN THE VA LUE OF STOCK WORKED OUT ON THE BASIS OF LOWER CODE AND ON THE BASIS OF UPPER CODE. AFTER DETAILED DISCUSSION IN T HE ASSESSMENT ORDER AND AFTER CONSIDERATION OF THE SUBMISSION OF THE APPELLANT THE ASSESSING OFFICER HELD THAT APPELLANT IS SUPPRESSING GROSS PROFIT @ 12% ON DISCLOSED TURNOVER OF BLOCK PERIOD. THEREAFTER ON P AGE 20 ASSESSING OFFICER HAD GIVEN THE DETAILS OF DISC LOSED -: 68: - 68 TURNOVER OF THE BLOCK PERIOD AT RS.1 20 23 372/- AN D HAD WORKED OUT THE SUPPRESSED GROSS PROFIT ON DISCLOSED TURNOVER @ 12% AT RS.14 00 700/-. THEREAFTER HE HAD WORKED OUT THE SUPPRESSED GROSS PROFIT ON DISCLOSED TURNOVER FOR THE PERIOD 01/04/2002 TO 13/06/2002 @ 12% AND THUS ASSESSING OFFICER HAD WORKED OUT THE TOTA L SUPPRESSED GROSS PROFIT AT RS.14 97 614/- WHICH HE HAD MADE THE ADDITION. I HAVE CONSIDERED VERY CAREFULLY THE SUBMISSION OF THE LD. COUNSEL THAT ASSESSING OFFICER WAS NOT JUST IFIED IN COMPUTING UNDISCLOSED INCOME OF RS.14 97 614/- BY APPLYING GROSS PROFIT RATE OF 12% ON DISCLOSED TURN OVER FOR THE BLOCK PERIOD. I HAVE ALSO SEEN THE DETAILED REASONING GIVEN BY THE ASSESSING OFFICER AND ALSO F OR HOLDING THE VIEW THAT APPELLANT HAD BEEN SUPPRESSIN G ITS GROSS PROFIT @ 12% ON DISCLOSED TURNOVER AND THERE BY MAKING ADDITION OF RS.14 97 614/-. AFTER DUE CONSIDERATION OF THE MATTER I HOLD THAT ASSESSING OFFICER WAS NOT JUSTIFIED IN COMPUTING UNDISCLOSED INCOME O F RS.14 97 614/- BY APPLICATION OF GROSS PROFIT OF12% ON -: 69: - 69 THE DISCLOSED TURNOVER BECAUSE DURING THE COURSE OF SEARCH NO EVIDENCE WAS FOUND TO THE EFFECT THAT AP PELLANT HAD SUPPRESSED ITS INCOME IN ANY MANNER. ASSESSING OFFICER HAD NOT COME ACROSS ANY EVIDENCE OF SALE OU TSIDE THE BOOKS OF ACCOUNTS. AS A MATTER OF FACT ASSESSI NG OFFICER HIMSELF HAD APPLIED SUPPRESSED GROSS PROFIT RATE ON THE DISCLOSED TURNOVER WHEN PURCHASE AND SALES A RE ADMITTED AND ARE FOUND RECORDED IN REGULAR BOOKS OF ACCOUNTS ASSESSING OFFICER IS DUTY BOUND TO ACCEPT THE INCOME WHICH THE APPELLANT HAD ALREADY DECLARED WHI LE FURNISHING RETURNS OF VARIOUS ASSESSMENT YEARS FALL ING IN THE BLOCK PERIOD. IT GOES WITHOUT SAYING AS PER PRO VISIONS OF SECTION 158BB UNDISCLOSED INCOME OF ANY PREVIOU S YEAR FALLING IN THE BLOCK PERIOD IS TO BE COMPUTED ONLY WITH REFERENCE TO THE EVIDENCE FOUND DURING THE COU RSE OF SEARCH. THE ASSESSING OFFICER HAD NOT SUPPORTED HIS COMPUTATION OF UNDISCLOSED INCOME TO THE EXTENT OF RS.14 97 614/- BY ANY DOCUMENTARY EVIDENCE FOUND DURING THE COURSE OF SEARCH. THUS ADDITION MADE BY THE ASSESSING OFFICER IS BASED ONLY ON PRESUMPTION SUR MISES -: 70: - 70 AND CONJECTURES. THE ADDITION BASES ON NO EVIDENCE IN UNSUSTAINABLE IN THE EYE OF LAW AS HAS BEEN HELD IN UNDER MENTIONED CASES :- (I) CIT VS. KHUSHALCHAND NIRMAL KUMAR REPORTED AT 263 I TR 77(MP). (II) BHAGWANDAS KEDIA VS. CIT 248 ITR 562 (CAL.) (III) CALTRO DECO STEEL SALES VS. DCIT REPORTED AT (2000) 243 ITR 643 KOLKATTA (IV) CIT VS. RAVIKANT JAIN REPORTED AT (2001) 250 ITR 14 1 (DELHI). ASSESSING OFFICER WAS NOT JUSTIFIED IN COMPUTING UNDISCLOSED INCOME OF RS. 14 97 614/- ONLY BY APPLY ING SUPPRESSED GROSS PROFIT RATE OF 12% ON DISCLOSED TURNOVER WITHOUT ANY EVIDENCE. THE ADDITION THUS M ADE BY THE ASSESSING OFFICER IS HEREBY DELETED. 22. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS OF THE PA RTIES AND GONE THROUGH THE MATERIAL AVAILABLE ON RECORD A ND FOUND THAT THE ADDITION WAS MADE BY THE AO BY ESTIMATING THE GROSS PROFIT RATE IN ADDITION TO THE GROSS PROFIT ACTUALL Y DISCLOSED BY THE ASSESSEE IN THE REGULAR BOOKS OF ACCOUNTS AND A LSO FILED WITH THE INCOME TAX DEPARTMENT. THE AO HAS REJECTED THE -: 71: - 71 BOOK RESULTS MAINLY ON THE PLEA THAT THE LEDGER WAS NOT FOUND DURING THE COURSE OF SEARCH. THE CONTENTION OF THE ASSESSEE IN THIS REGARD WAS THAT THE ASSESSEE HAS MAINTAINED CA SH BOOK AND JOURNAL WHICH ARE PRIMARY RECORDS. THE LEDGER I S A SECONDARY BOOK IN WHICH POSTING IS TO BE DONE ONLY OUT OF THE CASH BOOK AND JOURNAL WHICH WAS DULY MAINTAINED BY THE ASSESSEE AND NO DEFECT OF WHATEVER NATURE WAS POINT ED OUT BY THE AO IN THESE RECORDS. THEREFORE THE OBJECTION OF THE AO WAS OF NO SIGNIFICANCE. WITH REGARD TO THE AOS OB SERVATION THAT THE STOCK REGISTER WAS NOT MAINTAINED IT WAS THE CONTENTION OF THE ASSESSEE THAT IN RETAIL BUSINESS OF SAREE AND CLOTH IT WAS NOT POSSIBLE TO MAINTAIN THE STOCK RE GISTER. IN VIEW OF THE ASSESSEES NATURE OF BUSINESS THE EXPL ANATION GIVEN APPEARS TO BE SUSTAINABLE IN VIEW OF THE DECI SION OF THE PUNJAB & HARYANA HIGH COURT IN THE CASE OF PANDIT B ROTHERS; 26 ITR 485 AND DURAI RAJ; 83 ITR 485. IN REPLY TO THE AOS OBJECTION THAT PURCHASES AND SALES CANNOT BE CORREL ATED IT WAS CONTENDED BY THE LD. COUNSEL FOR THE ASSESSEE T HAT BECAUSE OF NO MENTION OF QUALITY IN THE SALES VOUCH ER IT WAS PRACTICALLY NOT POSSIBLE TO CO-RELATE THE PURCHASE AND SALES. -: 72: - 72 WE ALSO FIND THAT MANY OF THE PURCHASE BILLS DO NOT MENTION THE QUALITY THEREFORE IT WAS NOT POSSIBLE TO CO-R ELATE EXACTLY THE PURCHASE AND SALES BILLS. AS THE BOOKS HAVE BE EN WRITTEN IN REGULAR COURSE THIS ASPECT IS NOT SO MATERIAL. SINCE THE ASSESSEE HAS DISCLOSED INCOME OF RS. 58 690/- IN TH E BLOCK RETURN THE AO HAS PRESUMED THAT THERE WAS SYSTEMAT IC EVASION OF SUCH INCOME OVER THE YEARS. THE INCOME DISCLOSED BY THE ASSESSEE IN THE BLOCK RETURN CANNOT BE TAKEN AS A BASIS TO HAVE AN INFERENCE THAT IN ALL THE YEARS THE ASS ESSEE HAS EVADED HIS INCOME. IF SUCH AN ADVERSE INFERENCE IS TO BE DRAWN THEN THE LEGISLATURE COULD NOT HAVE LAID DOWN THE PROVISION OF SUCH DISCLOSURES. WE FIND THAT DURING THE COURSE OF SEARCH NO LOOSE SALE VOUCHERS WERE FOUND AS ALL EGED BY THE AO. 23. WHILE VALUING THE STOCK POSITION THE AO HAS DISCU SSED ABOUT THE CODE FIGURE IN THE TAGS ATTACHED TO SAREE S. ACCORDINGLY THE GROSS PROFIT ESTIMATED BY THE AO AT 12% AND 32% HAS NO BASIS. HOWEVER KEEPING IN VIEW SOME OF THE OBSERVATION OF THE AO WHILE REJECTING THE BOOK RESU LTS VIS--VIS FINDING OF THE LEARNED COMMISSIONER OF INCOME TAX ( APPEALS) -: 73: - 73 WE ARE INCLINED TO MODIFY THE ORDERS OF THE AUTHORI TIES BELOW AND DIRECT THE AO TO REWORK OUT THE ADDITION AFTER APPLYING GROSS PROFIT RATE OF 10% ON THE DISCLOSED TURNOVER FOR ASSESSMENT YEAR 2003-04 ONLY. AS DISCUSSED ABOVE T HERE IS NO REASON TO APPLY ESTIMATED GROSS PROFIT RATE ON EARL IER YEARS FALLING IN THE BLOCK PERIOD. 24. WITH REGARD TO THE SALES ESTIMATED BY THE AO AT RS .10 LACS OUTSIDE THE BOOKS OF ACCOUNTS ON THE PLEA OF S HORTAGE OF STOCK FOUND DURING THE COURSE OF SEARCH THE OBSERV ATION OF THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) WAS T HAT NO EVIDENCE WAS FOUND DURING THE COURSE OF SEARCH TO I NDICATE THAT THE ASSESSEE HAS UNDERTAKEN ANY SALES WITHOUT RECORDING THE SAME IN THE REGULAR BOOKS OF ACCOUNTS AND MEREL Y ON THE PLEA OF SOME SHORTAGE OF STOCK FOUND DURING THE COU RSE OF SEARCH IT CANNOT BE PRESUMED THAT FOR THE ENTIRE B LOCK PERIOD THE ASSESSEE WAS HAVING SALES OUTSIDE THE BOOKS OF ACCOUNTS. LEARNED CIT(A) HAS ALSO RECORDED A FINDING TO THE E FFECT THAT NO EVIDENCE WAS FOUND DURING THE COURSE OF SEARCH T HAT THE ASSESSEE HAS SHOWN DONE ANY BUSINESS OUTSIDE THE BO OKS OF ACCOUNTS. EVEN ON THE SUBSEQUENT INQUIRY THE AO C OULD NOT -: 74: - 74 BRING ANY POSITIVE MATERIAL ON RECORD TO SUBSTANTIA TE ITS STAND TO THE EFFECT THAT THE ASSESSEE HAD UNDERTAKEN ANY UNACCOUNTED SALES IN EARLIER YEARS. WITH RESPECT T O STOCK FOUND SHORT DURING THE COURSE OF SEARCH LEARNED CI T(A) HELD THAT IT WOULD BE FAIR AND REASONABLE IF PROFIT ELEM ENT INVOLVED IN THE SALES RELATABLE TO THE STOCK OF SHORTAGE IS TO BE TAKEN INTO COMPUTATION OF UNDISCLOSED INCOME. PRECISE OB SERVATION OF CIT(A) WAS AS UNDER :- I HAVE CONSIDERED THE SUBMISSION OF THE LD. COUNSE L VERY CAREFULLY. I HAVE ALSO SEEN THE REASONING GIVEN BY THE ASSESSING OFFICER WHILE MAKING THE ADDITION OF RS.3 20 000/-. AFTER DUE CONSIDERATION OF THE MATTE R I HOLD THAT ASSESSING OFFICER WAS NOT JUSTIFIED IN ES TIMATING THE TURNOVER AT RS.10 00 000/-. AT THE BEST IN THE FACTS AND CIRCUMSTANCES OF THE CASE THE SHORTAGE OF STOC K MAY BE TAKEN TO BE DUE TO THE SALE. NO EVIDENCE FOUND D URING THE COURSE OF SEARCH THAT APPELLANT HAD DONE ANY BUSINESS OUTSIDE THE BOOKS OF ACCOUNTS. NO EVIDENCE WAS FOUND THAT APPELLANT HAD DONE ANY SALE WHICH WERE N OT RECORDED IN THE REGULAR BOOKS OF ACCOUNT. IN MY -: 75: - 75 CONSIDERED VIEW IT WOULD BE FAIR AND REASONABLE IF PROFIT ELEMENT INVOLVED IN THE SALE RELATABLE TO STOCK SHO RTAGE IS TO BE TAKEN INTO THE COMPUTATION IN UNDISCLOSED INC OME. IF THE SHORTAGE AS COMPUTED BY THE ASSESSING OFFICE R IS TAKEN AS CORRECT AT RS.43 915/- THEN REASONABLE PRO FIT INVOLVED ON THE SALE TURNOVER RELATABLE TO SUCH STO CK MAY BE REASONABLE ESTIMATED AT RS.10 000/-. ACCORDINGLY IN MY VIEW IT WOULD BE ONLY REASONABLE TO WORK OUT TH E UNDISCLOSED INCOME AMOUNTING TO RS.10 000/- ON ACCO UNT OF SHORTAGE OF STOCK. THUS ADDITION MADE BY THE ASSESSING OFFICER AMOUNTING TO RS.3 20 000/- IS RED UCED TO RS.10 000/-. THUS APPELLANT WILL GET RELIEF OF RS.3 10 000/-. 25. AS THE SHORTAGE IN STOCK FOUND BY THE AO WAS REWO RKED OUT BY THE LEARNED COMMISSIONER OF INCOME TAX (APPE ALS) AT RS. 43 915/- THE PROFIT ON SUCH SHORTAGE IN STOCK WAS ESTIMATED BY LEARNED CIT(A) AT RS. 10 000/-. NOTHIN G WRONG WAS POINTED OUT BY THE DEPARTMENT IN THE CALCULATIO N OF STOCK AS DONE BY THE LEARNED COMMISSIONER OF INCOME TAX ( APPEALS). ACCORDINGLY THE ADDITION MADE BY THE AO AT RS. 3 29 000/- -: 76: - 76 WAS REDUCED BY LEARNED CIT(A) TO THE EXTENT OF RS. 10 000/-. NO INTERFERENCE IS REQUIRED IN THIS PART OF THE ORD ER OF LEARNED CIT(A). 26. IN THE CROSS OBJECTION THE ASSESSEE HAS ALLEGED T HAT LEARNED CIT(A) IS NOT JUSTIFIED IN RETAINING THE AD DITION OF RS.10 000/- IN RESPECT OF SHORTAGE IN STOCK. IT WA S THE CONTENTION OF THE ASSESSEE THAT THE DECLARED SALES IN THE BLOCK PERIOD WERE RS. 1.24 CRORES WHEREAS SHORTAGE WAS CO MPUTED BY THE AO TO THE EXTENT OF RS.43 915/- ONLY WHICH I S ONLY 0.35% OF THE TOTAL SALES THEREFORE NO ADDITION WA S WARRANTED. 27. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS OF THE PA RTIES AND GONE THROUGH THE MATERIAL AVAILABLE ON RECORD A ND FOUND THAT LEARNED CIT(A) HAS VERY REASONABLY COMPUTED TH E PROFIT AT RS.10 000/- IN RESPECT OF SHORTAGE OF STOCK AT RS.4 3 915/- WORKED OUT BY THE AO. WE DO NOT FIND ANY INFIRMITY IN THIS PART OF THE ORDER OF THE LEARNED COMMISSIONER OF IN COME TAX (APPEALS). ACCORDINGLY CO FILED BY THE ASSESSEE I S DISMISSED. 28. HOWEVER AN ADDITIONAL GROUND WAS RAISED TO THE EF FECT THAT THE ASSESSMENT ORDERS PASSED SEPARATELY IN THE CASE OF INDIVIDUAL ASSESSEES WERE BAD IN LAW ON THE PLEA TH AT JOINT -: 77: - 77 PANCHNAMA WAS PREPARED IN RESPECT OF VARIOUS ASSESS EES AND FOR THIS PURPOSE RELIANCE WAS PLACED ON THE DECISIO N OF THE HONBLE ALLAHABAD HIGH COURT IN THE CASE OF VANDANA VERMA; 330 ITR 533. 29. IT WAS CONTENDED BY THE LEARNED CIT DR THAT AS PE R PROVISIONS OF SECTION 2 OF GENERAL CLAUSES ACT 189 7 SINGULAR INCLUDES PLURAL HENCE THERE IS NO PROHIBITION AGAI NST ISSUANCE OF COMMON AUTHORIZATION U/S 132(1) AND ALSO PREPARA TION OF COMMON PANCHNAMA IN THE NAME OF MORE THAN ONE PERSO N. FOR THIS PURPOSE RELIANCE WAS PLACED ON THE DECISI ON OF GUJRAT HIGH COURT IN THE CASE OF MADHOPURI CORPN. 256 ITR 498 AND ALLAHABAD HIGH COURT RAGHURAJ PRATAPSINGH; 307 ITR 450. 30. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS OF THE PAR TIES AND GONE THROUGH THE MATERIAL AVAILABLE ON RECORD. THE CASE LAWS CITED BY THE LD. COUNSEL FOR THE ASSESSEE ARE ON DIFFERENT FACTS. WE FIND THAT ISSUE IS SQUARELY COVERED BY THE DECISION OF GUJRAT HIGH COURT IN THE CASE OF MADHOPURI CORP ORATION (SUPRA) WHEREIN FOLLOWING WAS THE OBSERVATION AND C ONCLUSION OF THE HONBLE HIGH COURT :- -: 78: - 78 AS PER THE PROVISIONS OF SECTION 2 OF THE GENERAL C LAUSES ACT 1897 SINGULAR INCLUDES PLURAL AND THERE IS NO PROH IBITION AGAINST ISSUANCE OF COMMON AUTHORISATION WHEN THE COMPETENT AUTHORITY HAS REASON TO BELIEVE THAT A NUMBER OF PERSONS ARE INVOLVED IN INTERCONNECTED TRANSACTIONS AS REFLECTED FROM THE P RIMA FACIE MATERIAL AVAILABLE WITH THE COMPETENT AUTHORITY. 31. RESPECTFULLY FOLLOWING THE PROPOSITION OF L AW LAID DOWN BY THE HONBLE GUJRAT HIGH COURT (SUPRA) WE D O NOT FIND ANY FORCE IN THE CONTENTION OF THE LD. COUNSEL FOR THE ASSESSEE TO THE EFFECT THAT PREPARATION OF PANCHNAMA IN JOIN T NAMES AND FRAMING OF ASSESSMENT IN INDIVIDUAL NAME WILL I NVALIDATE THE BLOCK ASSESSMENT ORDERS FRAMED BY THE ASSESSING OFFICER. 32. IN THE RESULT ADDITIONAL GROUND TAKEN IN THE ALL T HE CROSS OBJECTIONS FILED BY ALL THE ASSESSEE ARE DISMISSED. 33. IN THE RESULT THE CO IS DISMISSED. IT(SS) A NO. 29/IND/06 & CO 61/IND/06 34. IN THIS CASE SMT. KAMLABAI AGRAWAL IS THE PROPRIE TOR OF M/S DINESH RAKESH & COMPANY ENGAGED IN RETAIL SALES OF SAREES. DURING THE COURSE OF ASSESSMENT GROSS PRO FIT ADDITION WAS MADE BY THE AO FOR THE REASONS DISCUSSED HEREIN ABOVE BY APPLYING GROSS PROFIT RATE OF 12%. BY THE IMPUGNED ORDER THE -: 79: - 79 LEARNED COMMISSIONER OF INCOME TAX (APPEALS) DELETE D THE ADDITION OF RS. 32 21 990/- MADE BY THE AO BY APPLY ING THE ADDITIONAL GROSS PROFIT OF 12% ON THE DISCLOSED TUR NOVER BY OBSERVING AS UNDER :- ASSESSING OFFICER HAS DISCUSSED THIS ISSUE IN THE ASSESSMENT ORDER AT LENGTH FROM PAGES 4 TO 20 OF TH E ASSESSMENT ORDER. ASSESSING OFFICER FOUND THAT IN T HE COMPUTATION OF UNDISCLOSED INCOME PROVISIONS OF SEC TION 145 CAN BE APPLIED. HE HAS NARRATED IN DETAILS THE DISCREPANCIES AS HE HAS NOTED IN THE BOOKS OF ACCOU NT AND DOCUMENTS FOUND DURING THE COURSE OF SEARCH. ASSESSING OFFICER HELD THAT ON ACCOUNT OF DEFECTS A S POINTED OUT BY HIM IN THE BODY OF ASSESSMENT ORDER IN RESPECT OF MAINTENANCE OF BOOKS OF ACCOUNTS IT IS C LEARLY ESTABLISHED THAT BOOKS OF ACCOUNTS OF THE APPELLANT DO NOT REFLECT TRUE STATES OF AFFAIRS OF BUSINESS AND HE W AS SATISFIED THAT BOOKS OF ACCOUNTS ARE NOT CORRECT AN D COMPLETE AND THEREFORE HE FOUND IT IS A FIT CASE T O APPLY THE PROVISIONS OF SECTION 145(3). ASSESSING OFFICER HAD WORKED OUT THE DIFFERENCE IN RATES AS PER UPPER COD E AND -: 80: - 80 LOWER CODE AND FOUND THE VARIATION VARIES FROM 23% TO 26% IN THE VALUE OF STOCK WORKED OUT ON THE BASIS O F LOWER CODE AND ON THE BASIS OF UPPER CODE. AFTER DE TAILED DISCUSSION IN THE ASSESSMENT ORDER AND AFTER CONSIDERATION THE SUBMISSION OF THE APPELLANT THE ASSESSING OFFICER HELD THAT APPELLANT IS SUPPRESSIN G GROSS PROFIT @ 12%. THEREAFTER ON PAGE 20 ASSESSING OFFI CER HAD GIVEN THE DETAILS OF DISCLOSED TURNOVER OF THE BLOCK PERIOD (FROM A.Y.1997-1998 TO 2002-2003) AT RS.2 52 46 589/- AND HAD WORKED OUT THE SUPPRESSED GROSS PROFIT ON DISCLOSED TURNOVER @ 12% AT RS.30 29 591/- AND DISCLOSED TURNOVER OF THE BLOCK PERIOD (FROM A.Y. 01/04/2002 TO 13/06/2002) AT RS.16 03 32 5/- THEREAFTER HE HAD WORKED OUT THE SUPPRESSED GROSS P ROFIT ON DISCLOSED TURNOVER FOR THE PERIOD 01/04/2002 TO 13/06/2002 @ 12% AT RS. 1 92 399/-. AND THUS ASSES SING OFFICER HAD WORKED OUT THE TOTAL SUPPRESSED GROSS P ROFIT AT RS.32 21 990/- WHICH HE HAD MADE THE ADDITION. I HAVE CONSIDERED VERY CAREFULLY THE SUBMISSION OF THE LD. COUNSEL THAT ASSESSING OFFICER WAS NOT JUST IFIED IN -: 81: - 81 COMPUTING UNDISCLOSED INCOME OF RS.32 21 990/- BY APPLYING GROSS PROFIT RATE OF 12% ON DISCLOSED TURN OVER FOR THE BLOCK PERIOD. I HAVE ALSO SEEN THE DETAILED REASONING GIVEN BY THE ASSESSING OFFICER AND ALSO HOLDING THE VIEW THAT APPELLANT HAD BEEN SUPPRESSIN G ITS GROSS PROFIT @ 12% ON DISCLOSED TURNOVER AND THER EBY MAKING ADDITION OF RS.32 21 990/- AFTER DUE CONSIDERATION OF THE MATTER I HOLD THAT ASSESSING OFFICER WAS NOT JUSTIFIED IN COMPUTING UNDISCLOSED INCOME O F RS.32 21 990/- BY APPLICATION OF GROSS PROFIT OF 12 % OF THE DISCLOSED TURNOVER BECAUSE DURING THE COURSE OF SEARCH NO EVIDENCE WAS FOUND TO THE EFFECT THAT AP PELLANT HAD SUPPRESSED ITS INCOME IN ANY MANNER. ASSESSING OFFICER HAD NOT COME ACROSS ANY EVIDENCE OF SALE OU TSIDE THE BOOKS OF ACCOUNTS. AS A MATTER OF FACT ASSESSI NG OFFICER HIMSELF HAD APPLIED SUPPRESSED GROSS PROFIT RATE ON THE DISCLOSED TURNOVER WHEN PURCHASES AND SALES ARE ADMITTED AND ARE FOUND RECORDED IN REGULAR BOOKS OF ACCOUNTS ASSESSING OFFICER IS DUTY BOUND TO ACCEPT THE INCOME WHICH THE APPELLANT HAD ALREADY DECLARED WHI LE -: 82: - 82 FURNISHING RETURNS OF VARIOUS ASSESSMENT YEARS FALL ING IN THE BLOCK PERIOD. IT GOES WITHOUT SAYING AS PER PRO VISIONS OF SECTION 158BB UNDISCLOSED INCOME OF ANY PREVIOU S YEAR FALLING IN THE BLOCK PERIOD IS TO BE COMPUTED ONLY WITH REFERENCE TO EVIDENCE FOUND DURING THE COURSE OF SEARCH. THE ASSESSING OFFICER HAD NOT SUPPORTED HIS COMPUTATION OF UNDISCLOSED INCOME TO THE EXTENT OF RS.32 21 990/- BY ANY DOCUMENTARY EVIDENCE FOUND DURING THE COURSE OF SEARCH. THUS ADDITION MADE BY THE ASSESSING OFFICER IS BASED ONLY ON PRESUMPTION SUR MISES AND CONJECTURES. THE ADDITION BASED ON NO EVIDENCE IS UNSUSTAINABLE IN THE EYE OF LAW AS HELD IN THE DECI SIONS OF UNDER MENTIONED CASES :- (I) CIT VS. KHUSHALCHAND NIRMAL KUMAR REPORTED AT 263 I TR 77(MP). (II) BHAGWANDAS KEDIA VS. CIT 248 ITR 562 (CAL.) (III) CALTRO DECO STEEL SALES VS. DCIT REPORTED AT (2000) 243 ITR 643 KOLKATTA (IV) CIT VS. RAVIKANT JAIN REPORTED AT (2001) 250 ITR 14 1 (DELHI). -: 83: - 83 WHATEVER INCOME IS WORKED OUT ON THE BASIS OF UNREC ORDED PURCHASES AND UNRECORDED TURNOVER. THE SAME HAS BEEN SHOWN BY THE APPELLANT ITSELF WHILE FILING RETURN FOR THE BLOCK PERIOD AND THE ASSESSING OFFICER HAD NOT FOUND SUCH COMPUTATION OF UNDISCLOSED INCOM E AS FALSE OR WRONG. THE ADDITION MADE BY THE ASSESSING OFFICER I S BASES ON ASSUMPTION. ASSESSING OFFICER WAS NOT JUSTIFIED IN COMPUTING UNDISCLOSED INCOME OF RS.32 21 990/- ONLY BY APPLYI NG SUPPRESSED GROSS PROFIT RATE OF 12% ON DISCLOSED TURNOVER WITH OUT ANY EVIDENCE. THE ADDITION THUS MADE BY THE ASSESSING OFFICER IS HEREBY DELETED . 35. IT IS CLEAR FROM THE FINDINGS RECORDED BY THE LEAR NED COMMISSIONER OF INCOME TAX (APPEALS) THAT DURING TH E COURSE OF SEARCH NO EVIDENCE WAS FOUND TO THE EFFECT THAT THE ASSESSEE HAS SUPPRESSED ITS INCOME IN ANY MANNER. A FINDING WAS ALSO RECORDED TO THE EFFECT THAT THE AO HAS NOT COME- ACROSS ANY EVIDENCE OF SALES OUTSIDE THE BOOKS OF A CCOUNTS. WHAT THE AO HAS DONE IS ONLY TO APPLY ESTIMATED GRO SS PROFIT RATE ON THE TURNOVER ACTUALLY DISCLOSED BY THE ASSE SSEE IN THE REGULAR BOOKS OF ACCOUNTS. IN THESE CIRCUMSTANCES THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) HELD T HAT THE -: 84: - 84 ASSESSING OFFICER IS BOUND TO ACCEPT THE INCOME WHI CH THE ASSESSEE HAS ALREADY DECLARED WHILE FURNISHING THE RETURNS OF VARIOUS ASSESSMENT YEARS IN THE BLOCK PERIOD. BY R EFERRING THE PROVISIONS OF SECTION 158BB OF THE ACT THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) OBSERVED THAT THE UNDISCLOSED INCOME OF PREVIOUS YEARS FALLING IN THE BLOCK PERIOD IS TO BE COMPUTED ONLY WITH REFERENCE TO THE EVIDENCE FOUND DURING THE COURSE OF SEARCH. AS THE ASSESSIN G OFFICER HAS NOT SUPPORTED HIS COMPUTATION OF UNDISCLOSED IN COME TO THE EXTENT OF RS.32 21 990/- BY WAY OF ANY DOCUMENT ARY EVIDENCE FOUND DURING THE COURSE OF SEARCH THE ADD ITION SO MADE BY THE ASSESSING OFFICER WAS DELETED BY THE LE ARNED COMMISSIONER OF INCOME TAX (APPEALS) AND IT WAS HEL D THAT THE ADDITION BY THE ASSESSING OFFICER WAS BASED ONL Y ON PRESUMPTIONS AND SURMISES AND CONJECTURES. FOR THI S PROPOSITION HE RELIED UPON THE DECISIONS REPORTED IN 263 ITR 77 248 ITR 562 243 ITR 643 AND 250 ITR 141. 36. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) A LSO OBSERVED THAT WHATEVER INCOME IS WORKED OUT ON THE BASIS OF UNRECORDED PURCHASES AND UNRECORDED TURNOVER THE S AME HAS -: 85: - 85 BEEN SHOWN BY THE ASSESSEE ITSELF WHILE FILING THE RETURN FOR THE BLOCK PERIOD AND THE ASSESSING OFFICER HAS NOT FOUN D SUCH COMPUTATION OF UNDISCLOSED INCOME AS FALSE OR WRONG . 37. FROM RECORD WE FIND THAT THE SALES AND GROSS PROFI T DISCLOSED DURING THE YEARS FALLING IN THE BLOCK PER IOD WERE AS UNDER :- S.NO. ASST. YEAR SALES GROSS PROFIT GROSS PROFIT % 1 1997 - 98 3 797 630 645 480 16.99 2 1998 - 99 3 840 927 705 222 18.36 3 1999 - 2000 3 859.210 700 168 18.14 4 2000 - 01 4 406 48 7 758 760 17.21 5 2001 - 02 4 692 312 779 263 16.6 6 2002 - 03 4 650 023 774 363 16.65 25 246 589 4 363 256 17.28 38. IT IS CLEAR FROM THE ABOVE THAT THE TOTAL GROSS PR OFIT OF RS. 43 63 256/- HAS BEEN WORKED OUT BY THE ASSESSING OF FICER ON THE SALES OF RS.2 52 46 589/- IN ALL THE SIX ASSESS MENT YEARS INVOLVED IN THE BLOCK PERIOD GIVING AVERAGE GROSS P ROFIT RATE OF 17.28%. LOOKING TO THE NATURE OF THE ASSESSEES BU SINESS THE GROSS PROFIT SHOWN BY THE ASSESSEE APPEARS TO BE RE ASONABLE. HOWEVER KEEPING IN VIEW THE OBSERVATION OF THE AS SESSING OFFICER WHILE REJECTING THE BOOKS OF ACCOUNTS IT W OULD BE -: 86: - 86 REASONABLE TO RETAIN THE ADDITION BY APPLYING GROSS PROFIT RATE OF 18.5% TO THE SALES OF ASSESSMENT YEAR 2003-04 IN TERMS OF OUR DISCUSSION MADE HEREINABOVE. ACCORDINGLY WE M ODIFY THE ORDERS OF BOTH THE LOWER AUTHORITIES AND DIRECT THE ASSESSING OFFICER TO WORK OUT THE ADDITION OF GROSS PROFIT BY APPLYING GROSS PROFIT RATE OF 18.5% ON THE SALES FOR THE ASS ESSMENT YEAR 2003-04 SHOWN BY THE ASSESSEE IN THE BLOCK PERIOD. 39. IN THE CROSS OBJECTION THE ASSESSEE IS AGGRIEVED B Y THE ADDITION OF RS. 2 08 467/- CONFIRMED BY CIT(A) ON ACCOUNT OF EXCESS STOCK. WE HAVE CONSIDERED THE RIVAL SUBMISSI ONS OF THE PARTIES AND GONE THROUGH THE MATERIAL AVAILABLE ON RECORD WITH REGARD TO AN ADDITION OF RS.2 08 467/- MADE BY THE ASSESSING OFFICER ON ACCOUNT OF UNEXPLAINED INVESTMENT IN THE EXCESS STOCK FOUND DURING THE COURSE OF SEARCH. BY THE I MPUGNED ORDER THE LEARNED COMMISSIONER OF INCOME TAX (APPE ALS) UPHELD THE ADDITION AFTER HAVING MADE THE FOLLOWING OBSERVATIONS :- I HAVE CONSIDERED THE SUBMISSION OF THE LE. COUNSE L VERY CAREFULLY IN THIS REGARD THAT ASSESSING OFFICER HAD NOT CORRECTLY -: 87: - 87 COMPUTED THE COST PRICE OF THE STOCK FOUND AT THE T IME OF SEARCH AS HE HAD NOT GIVEN BENEFIT OF DISCOUNT ALLOWED BY APPELLANT AS PER STATEMENT OF SHRI VYAS KUMAR AGRAWAL. I HAVE AL SO SEEN THE COMPUTATION OF EXCESS VALUE OF GOODS AS DONE BY THE ASSESSING OFFICER IN PARA 14 OF THE ASSESSMENT ORDER. AFTER D UE CONSIDERATION OF THE MATTER I FIND THAT ASSESSING OFFICER HAS BEEN VERY FAIR AND REASONABLE IN WORKING OUT THE CO ST PRICE OF STOCK FOUND DURING THE COURSE OF SEARCH. ADMITTEDLY ASSESSING OFFICER HAD TAKEN THE SELLING PRICE TO WHICH THE AP PELLANT HAD NOT OBJECTED TOO. IN ANY CONSIDERED VIEW APPELLANT IS ONLY ENTITLED TO THE REDUCTION OF GROSS PROFIT AT THE A VERAGE RATE AT 17.28% BECAUSE THERE IS NO EVIDENCE OF ALLOWANCE OF DISCOUNT & 8%. THUS ASSESSING OFFICER APPEARS TO BE JUSTIFI ED IN WORKING OUT THE COST PRICE OF THE GOODS FOUND AT TH E TIME OF SEARCH AT RS.25 76 826/- AND THEREBY IN WORKING OUT THE EXCESS VALUE OF STOCK AT RS.2 08 467/-. SINCE APPELLANT HA D NOT EXPLAINED THIS EXCESS OF STOCK FOUND AT THE TIME OF SEARCH ADDITION ON ACCOUNT OF UNEXPLAINED INVESTMENT IN THE STOCK TO THIS EXTENT IS JUSTIFIED. I HAVE ALREADY DELETED TH E ADDITION OF RS.32 21 990/- AS I HAVE ALREADY HELD THAT SUCH AN ADDITION IS -: 88: - 88 NOT BASED ON ANY EVIDENCE FOUND DURING THE COURSE O F SEARCH UNDISCLOSED INCOME ON ACCOUNT OF UNEXPLAINED INVEST MENT IN THE STOCK IS TO BE COMPUTED AT RS.2 08 467/-. 40. IT IS CLEAR FROM THE ABOVE THAT A FINDING HAS BEEN RECORDED BY THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) TO THE EFFECT THAT EXCESS STOCK FOUND DURING THE CO URSE OF SEARCH WAS NOT EXPLAINED BY THE ASSESSEE THEREFORE THE ADDITION ON ACCOUNT OF UNEXPLAINED INVESTMENT IN STOCK WAS SUSTAINED BY HIM. THE DETAILED CALCULATION OF THE EXCESS STOCK HAS BEEN GIVEN BY THE LEARNED COMMISSIONER OF INCOM E TAX (APPEALS) IN HIS ORDER AT PAGES 9 AND 10 WHICH HAS NOT BEEN CONTROVERTED BY THE LD. COUNSEL FOR THE ASSESSEE BY BRINGING ANY POSITIVE MATERIAL ON RECORD. ACCORDINGLY WE D O NOT FIND ANY REASON TO INTERFERE WITH THE ORDER OF THE LEARN ED COMMISSIONER OF INCOME TAX (APPEALS) IN CONFIRMING THE ADDITION ON ACCOUNT OF EXCESS STOCK FOUND DURING T HE COURSE OF SEARCH. 41. IN THE CROSS OBJECTION THE ASSESSEE HAS ALSO RAIS ED A LEGAL GROUND WITH REGARD TO LEGALITY OF ASSESSMEN T FRAMED U/S -: 89: - 89 158BC. FOR THE REASONS DISCUSSED HEREINABOVE WE DO NOT FIND ANY MERIT IN THE LEGAL GROUND RAISED BY THE ASSESSE E. 42. IN THE RESULT THE APPEAL OF THE REVENUE IS ALLOWE D IN PART WHEREAS THE CROSS OBJECTION OF THE ASSESSEE IS DISM ISSED. IT(SS) A. NO.14/IND/2006 & CO NO. 39/IND/06 43. IN THIS APPEAL SMT. RENU AGRAWAL IS PROPRIETOR OF M/S SHREEJI SYNTHETICS AND M/S SHREEJI EXCLUSIVES WHIC H ARE ENGAGED IN THE WHOLESALE CLOTH BUSINESS. DURING TH E COURSE OF BLOCK ASSESSMENT AN ADDITION WAS MADE BY THE ASSES SING OFFICER BY ESTIMATING THE GROSS PROFIT RATE AFTER R EJECTING THE BOOKS OF ACCOUNTS. THE ASSESSING OFFICER APPLIED G ROSS PROFIT RATE OF 14% OVER AND ABOVE WHAT THE ASSESSEE HAS AL READY EARNED. FROM RECORD WE FIND THAT IN CASE OF SHREEJ I SYNTHERTICS FOLLOWING WAS THE GROSS PROFIT RATE SH OWN BY THE ASSESSEE IN THE REGULAR BOOKS OF ACCOUNTS DURING TH E PERIOD FALLING IN THE BLOCK PERIOD :- ASST. YEAR SALES GROSS PROFIT G.P. RATE % 1 1997 - 98 3709630.15 443220.69 11.94 % 2 1998 - 99 3580351 452340.64 12.63 % 3 1999 - 00 3559308.5 433815.5 12.91 -: 90: - 90 % 4 2000 - 01 5432943 535726 9.86% 5 2001 - 02 5396777 505890 9.37% 6 2002 - 03 4200907 394465 9.38% 7 01/04/2002 TO 13.06.2002 147324 17775 12.07 % 26027240.65 2783232.83 10.69 44. IT IS CLEAR FROM THE ABOVE THAT THE AVERAGE GROSS PROFIT SHOWN BY THE ASSESSEE WORKS OUT TO BE 10.69%. HOWE VER THE ASSESSING OFFICER HAS APPLIED ADDITIONAL GROSS PROF IT RATE OF 14% ON THE DISCLOSED TURNOVER OF RS. 2 60 27 240/- AND MADE THE ADDITION. BY THE IMPUGNED ORDER THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) DELETED THE AD DITION OF RS. 7 20 473/- MADE BY THE ASSESSING OFFICER BY APP LYING ADDITIONAL GROSS PROFIT RATE OF 14% AFTER OBSERVING THAT NO EVIDENCE WHATSOEVER WAS FOUND THAT THE ASSESSEE HAS EARNED ADDITIONAL GROSS PROFIT RATE OF 14% ON THE DISCLOSE D TURNOVER AND NO EVIDENCE WAS FOUND AS A RESULT OF SEARCH IN RESPECT OF SUPPRESSED TURNOVER. 45. WE FIND THAT THE ASSESSING OFFICER HAS APPLIED ADD ITIONAL 14% GROSS PROFIT RATE ON THE BASIS OF HIS ACTION U/ S 145(3) OF THE ACT WHILE REJECTING THE BOOKS OF ACCOUNTS. THE ASSESSEE -: 91: - 91 HAS GIVEN DUE REPLY TO THE OBJECTION RAISED BY THE ASSESSEE WHILE REJECTING THE BOOKS OF ACCOUNTS. WE FIND THAT THE ASSESSING OFFICER HAS POINTED OUT SOME SALES RETURN TO M/S SAROJ SAREES PRIVATE LIMITED ON WHICH THE ASSESSEE HAS SHOWN HIGHER RATE THEREFORE THE ASSESSING OFFICER HAS A DOPTED THE RATE APPLIED BY THE ASSESSEE IN RESPECT OF THE GOOD S RETURNED AS THE SALE PRICE OF THE ASSESSEE AND WORKED OUT TH E GROSS PROFIT ADDITION ON THE ENTIRE SALES OF BLOCK PERIOD . AS THE DOCUMENTS FOUND IN RESPECT OF SALES RETURN DO NOT B ELONG TO THE ASSESSEE HENCE THEY CANNOT BE CONSIDERED HERE FOR ESTIMATING HIGHER GROSS PROFIT RATE. HOWEVER KEE PING IN VIEW OBSERVATION OF THE ASSESSING OFFICER VIS--VIS FIND ING OF THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) WE AR E INCLINED TO MODIFY BOTH THE ORDERS OF THE LOWER AUT HORITIES. KEEPING IN VIEW THE ASSESSEES NATURE OF BUSINESS WE DIRECT THE ASSESSING OFFICER TO APPLY GROSS PROFIT RATE OF 12% ON THE SALES FOR ASSESSMENT YEAR 2003-04 FALLING IN THE BL OCK PERIOD IN CASE OF SHREEJEE SYNTHETICS AND TO REWORK OUT TH E GROSS PROFIT ADDITION ACCORDINGLY. -: 92: - 92 46. AN ADDITION OF RS. 11 29 113/- WAS MADE BY THE ASSESSING OFFICER ON ACCOUNT OF UNDISCLOSED PROFIT AND UNEXPLAINED INVESTMENT IN CASE OF SHREEJI EXCLUSIV ES. 47. BY THE IMPUGNED ORDER THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) DELETED THE ADDITION AFTER HAV ING MADE THE FOLLOWING OBSERVATIONS :- ASSESSING OFFICER HAS DISCUSSED THIS ISSUE IN PARA 13 &14 ON PAGES 16 TO 18. ASSESSING OFFICER NOTED THAT SOME OF THE STOCK OF M/S SHREEJI EXCLUSIVE SHREEJI SAREEWALE SHREEJI DRESSWALE WAS FOUND TO BE KEPT SEPARATELY AND SOME OF THE STOCK WAS FOUND AT COMMON PLACES. ASSESSING OFFICER FOUND THAT THE GROUND FLOOR HAD THE STOCK BELONGING TO THE APP ELLANT AS PER INVENTORY DATED 13/06/2002 PAGE 9 VALUED AT MRP AT RS.19 31 384/-. ASSESSING OFFICER HAD TAKEN THE STO CK FOUND ON THE DATE OF SEARCH AT RS.31 18 664/- AFTER REDUCING THE GROSS PROFIT @ 14% HE HAS WORKED OUT THE VALUE OF STOCK AT RS. 28 21 371/- AND AFTER FURTHER REDUCING THE VALUE OF STOCK AS PER BOOKS OF ACCOUNTS ON THE DATE OF SEARCH ASSESSING OFFICER HAD WORKED OUT THE VALUE OF EXCESS STOCK ON THE DATE OF SEARCH AT RS.11 29 113/-. SINCE ADDITION ON ACCOUNT OF UNEXPL AINED -: 93: - 93 INVESTMENT IN EXCESS STOCK IS FOUND TO BE MORE THA N THE ADDITION MADE BY THE ASSESSING OFFICER BY APPLICATI ON OF GROSS PROFIT RATE IN RESPECT OF BUSINESS BEING CONDUCTED BY THE APPELLANT IN THE NAME OF M/S SHREEJI EXCLUSIVE AT B AIRAGARH ASSESSING OFFICER HAD COMPUTED UNDISCLOSED INCOME I N RESPECT OF THIS BUSINESS AT RS.11 29 113/-. I HAVE CONSIDERED THE DETAILS SUBMITTED BY THE LD. COUNSEL IN THIS REGARD. I HAVE ALSO SEEN THE REASONING GIVEN B Y THE ASSESSING OFFICER COMPUTING THE UNDISCLOSED INCOME IN RESPECT OF BUSINESS IN THE NAME OF M/S SHREEJI EXCLUSIVE. A FTER DUE CONSIDERATION OF THE MATTER I HOLD THAT ASSESSING OFFICER WAS NOT JUSTIFIED IN TAKING THE VALUE OF THE STOCK ON THE D ATE OF SEARCH AT TAG PRICE. THE SAME OUGHT TO HAVE BEEN WORKED OUT O N THE BASIS OF MRP BECAUSE DOCUMENTARY EVIDENCE FOUND DURING TH E COURSE WHICH STATES THAT TAG PRICE IS DOUBLE OF THE MRP CA NNOT BE IGNORED AND THE CONTENTS OF SUCH DOCUMENTS HAVE TO BE READ AS SUCH AND TAKEN AS CORRECT IN VIEW OF SECTION 132(4A ). ACCORDINGLY IN MY VIEW IT WOULD BE FAIR AND REASO NABLE IF THE STOCK ON THE DATE OF SEARCH IS TAKEN AS PER MRP. MO REOVER ASSESSING OFFICER HAD NOT GIVEN ANY JUSTIFICATION I N ADOPTING THE -: 94: - 94 STOCK BELONGING TO THE APPELLANT AS PER INVENTORY A 2 AND A3 AND NOT ACCEPTING THE STOCK AS BELONGING TO THE APPELLA NT AS PER INVENTORYA1 TO A9. IN ORDER TO MAINTAIN CONSISTENCY I FIND IT REASONABLE AND FAIR TO ACCEPT THE VERSION OF THE AP PELLANT THAT STOCK AS PER CHART ENCLOSED ALONG WITH THIS ORDER BELONGS TO THE APPELLANT AND THE VALUE OF SUCH STOCK SHOULD BE TAK EN AT MRP IF THE SAME IS DONE THEN THE VALUE OF STOCK ON PHYSIC AL VERIFICATION IS WORKED OUT TO RS.18 57 117/-. SINCE I HAVE ALREA DY HELD THAT ASSESSING OFFICER WAS NOT JUSTIFIED IN REJECTING TH E BOOKS OF ACCOUNTS AND APPLYING PROVISIONS OF SECTION 145(3) AND THEREBY WORKING OUT PROFIT @ 14% AS AGAINST THE DECLARED GR OSS PROFIT RATE AS NO EVIDENCE WHATSOEVER WAS FOUND DURING THE COURSE OF SEARCH THAT APPELLANT HAD EARNED INCOME @ 14% ON IT S DISCLOSED TURNOVER ACCORDINGLY VALUE OF STOCK ON THE DATE O F SEARCH IS TO BE WORKED OUT AFTER REDUCING THE PROFIT AS DECLARED @ 7.6% FROM THE VALUE OF STOCK AS WORKED OUT AT MRP AT RS.17 15 976/- (RS.18 57 117/- MINUS RS.1 41 141/-) AND SINCE AS A LSO ADMITTED BY THE ASSESSING OFFICER THAT THE VALUE OF STOCK A S PER BOOKS OF ACCOUNTS WAS FOR RS.16 92 252/- EXCESS STOCK IS WO RKED OUT TO RS.23 724/- (RS.17 15 976/- MINUS RS.16 92 252/-) W HICH IS -: 95: - 95 ROUNDED TO RS. 24 000/-. THUS IN MY CONSIDERED VIE W THE VALUE OF EXCESS STOCK IS WORKED OUT ONLY TO RS.24 000/- A ND THUS ADDITION ON ACCOUNT OF UNEXPLAINED INVESTMENT IN S TOCK HAS TO BE RESTRICTED TO RS. 24 000/- AS AGAINST WORKED OUT BY THE ASSESSING OFFICER AT RS.11 29 113/-. ACCORDINGLY U NDISCLOSED INCOME ON ACCOUNT OF UNEXPLAINED INVESTMENT IN STO CK IS TO BE RESTRICTED AT RS.24 000/-. THUS APPELLANT WILL GET RELIEF OF RS.11 05 113/-. 48. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS OF THE PA RTIES AND GONE THROUGH THE MATERIAL AVAILABLE ON RECORD A ND FOUND THAT THE ASSESSING OFFICER HAS COMPUTED THE EXCESS STOCK BY TAKING THE TAG PRICE OF THE CLOSING STOCK FOUND DUR ING THE COURSE OF SEARCH. THE LEARNED COMMISSIONER OF INCO ME TAX (APPEALS) FOUND THAT EVEN DURING THE COURSE OF SEAR CH A DOCUMENT WAS FOUND TO INDICATE THAT TAG PRICE WAS J UST DOUBLE OF THE MRP. AS PER THE LEARNED COMMISSIONER OF INC OME TAX (APPEALS) WHILE WORKING OUT THE SHORTAGE OR EXCESS STOCK FOUND DURING THE COURSE OF SEARCH THE STOCK SO FOUND IS TO BE VALUED AT MRP WHICH IS JUST HALF OF THE TAG PRICE. THE LE ARNED COMMISSIONER OF INCOME TAX (APPEALS) OBSERVED THAT A -: 96: - 96 DOCUMENT WAS FOUND DURING THE COURSE OF SEARCH WHI CH STATES THAT THE TAG PRICE IS DOUBLE THE MRP WHICH CANNOT B E IGNORED AND THE CONTENTS OF SUCH DOCUMENTS HAVE TO BE READ AS SUCH AND TAKEN AS CORRECT IN VIEW OF SECTION 132(4A) OF THE ACT. THUS KEEPING INTO ACCOUNT THIS DOCUMENT THE LEARN ED COMMISSIONER OF INCOME TAX (APPEALS) HAS RECOMPUTED THE VALUE OF STOCK AS FOUND DURING THE COURSE OF SEARCH BY APPLYING MRP AS PER INVENTORY A-1 TO A9. AFTER AP PLYING MRP THE VALUE OF PHYSICAL STOCK FOUND DURING THE COURSE OF SEARCH WAS WORKED OUT AT RS.18 57 117/- AND THEREAFTER RED UCING THE GROSS PROFIT RATE OF 7.6% FROM THE VALUE OF STOCK A S WORKED OUT AT MRP THE LEARNED COMMISSIONER OF INCOME TAX (APP EALS) WORKED OUT THE MRP OF STOCK AT RS. 17 15 976/- (I.E . RS.18 57 817 (-) 1 41 141). THE VALUE OF STOCK AS PER BOOKS OF ACCOUNTS AS WORKED OUT BY THE ASSESSING OFFICER AT RS.16 92 252/- AFTER REDUCING THE SAME FROM THE VAL UE OF STOCK FOUND AT THE TIME OF SEARCH AT RS. 17 15 976/ - THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) WORKED OUT THE EXCESS STOCK AT RS. 23 724/-. THUS AS AGAINST THE ADDITION OF -: 97: - 97 RS. 11 29 113/- MADE BY THE ASSESSING OFFICER ON AC COUNT OF EXCESS STOCK THE SAME WAS RESTRICTED TO RS. 24 000 /-. 49. WITH RESPECT TO THE PHYSICAL STOCK TAKEN WE FIND T HAT THE STOCK WAS LISTED AS PER A1 TO A9. SUCH STOCK BELON GED TO THREE CONCERNS NAMELY SHREEJI SAREEWALA PROPRIETOR DIN ESH AGRAWAL M/S SHREEJI DRESSWALE PROPRIETOR ANMOL AG RAWAL AND SHREEJI EXCLUSIVES PROPRIETOR SMT. RENU AGRAWA L (EACH ASSESSEE). HOWEVER OUT OF THE ABOVE EXAMPLE FOR THE ASSESSEES OWNERSHIP OF STOCK WAS AS PER A1 TO A6 A ND A8. FOR OTHERS THE DETAILS ARE IN THE CASE OF SHRI DIN ESH AGRAWAL. THE VOUCHERS PERTAINING TO THE ASSESSEE IN A1 TO A3 ARE BEING PRODUCED. THE ASSESSEE HAS ALSO GIVEN CONCERNWISE ANALYSIS. THERE WERE CERTAIN DISCREPANCIES IN THE VALUATION W HICH WERE BROUGHT TO THE NOTICE OF THE DEPARTMENT. INVENTORY PB EXPLANA TION PB VALUE REMARKS A1 198 - 206 238 12 62 832 AT TAG PRICE. THAT IS DOUBLE THE MRP A2 191 - 197 239 5 79 240 - D O - A3 178 - 190 240 11 69 812 - DO - -: 98: - 98 A4 167 - 177 240 3 18 750 - DO - A5 IN DINESHS CASE NIL A6 159 - 165 241 3 45 166 - DO - A7 IN DINESHS CASE NIL A8 152 - 158 241 - 242 19 217 38 434 AT MRP AT MUKERJEE MARKET A9 IN DINESHS CASE NIL TOTAL FOR TAG PRICE HALF OF IT IS MRP RS.37 14 234 THE STOCK COMES TO 18 57 309 ON PHYSICAL VERIFICATI ON. THE LEARNED AO TOOK THE TOTAL STOCK OF LIST A2 & A3 AS BELONGING TO THE ASSESSEE (WITHOUT CORRECTION OF AD DING MISTAKES) LIST PB CORRECT VALUE TAKEN BY A.O. REMARKS A2 239 14 36 190 13 49 250 PB 197 GIVES TOTAL RS.14 20 920 A3 239- 240 19 23 184 19 31 384 PB 190 GIVES TOTAL RS. 18 97 994 32 80 664 THE COMPARABLE POSITION THUS COMES AS UNDER :- -: 99: - 99 HEAD A.O. CIT(A) STOCK ON PHYSICAL VERIFICATION LESS:GP LESS: STOCK AS PER BOOKS EXCESS STOCK RS. 32 80 664 APPLIED @ 14% WITHOUT BASIS RS.4 59 239 ---------------- RS.28 21 371 RS. 16 92 252 ----------------- RS.11 29 113 RS. 18 57 117 APPLIED @ 7.6% AS SHOWN BY ASSESSEE. REF. A.O. PAGE 16 RS. 1 41 141 ----------------- RS.17 15 976 RS. 16 92 252 ----------------- RS.23 723 50. SO FAR AS THE ADOPTION OF MRP BY THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) WHILE WORKING OUT THE VALUE OF STOCK IS CONCERNED WE ARE IN AGREEMENT WI TH THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) THAT I N VIEW OF THE DOCUMENTS FOUND DURING THE COURSE OF SEARCH WHI CH INDICATED THAT TAG PRICE WAS DOUBLE OF THE MRP THE VALUE OF CLOSING STOCK SHOULD BE TAKEN AT HALF OF THE TAG PR ICE. SO FAR AS THE REDUCTION OF GROSS PROFIT @ 7.6% IS CONCERNE D AS PER OUR CONSIDERED VIEW THE SAME APPEARS TO BE LOW. T HIS -: 100: - 100 BUSINESS WAS STARTED BY THE ASSESSEE ON 15.10.2000 AND UP TILL THE DATE OF SEARCH ONLY TWO YEARS HAVE ELAPSED . IN THE ASSESSMENT YEAR 2001-02 THE ASSESSEE HAS SHOWN GROS S PROFIT OF 7.58% ON THE TURNOVER OF RS. 30.36 LACS IN THE ASSESSMENT YEAR 2002-03 THE ASSESSEE HAS SHOWN GROSS PROFIT OF RS. 4 78 133/- ON THE TOTAL SALES OF RS. 62 81 428/- WH ICH GIVES GROSS PROFIT RATE OF 7.61%. SINCE IT WAS A NEW BUS INESS IT WILL NOT BE REASONABLE TO APPLY THE SAME GROSS PROFIT RA TE AS WE HAVE DIRECTED IN THE CASE OF SHREEJI SYNTHETICS WHI CH WAS MORE THAN 10 YEARS OLD. 51. THE REASONING GIVEN BY THE ASSESSING OFFICER FOR RE JECTION OF BOOKS OF ACCOUNTS ON THE PLEA THAT THE ASSESSEE HAS UNDERTAKEN SALES RETURN TO SAROJ SAREE NEW DELHI AT A HIGHER RATE IS NOT SUSTAINABLE IN VIEW OF THE FACT THAT S UCH SALES RETURN WAS IN CASE OF DINESH AGRAWAL WHICH CANNOT B E CONSIDERED FOR REJECTING THE ASSESSEES BOOKS OF AC COUNTS. ACCORDINGLY WE DO NOT FIND ANY INFIRMITY IN THE O RDER OF THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) RESTRI CTING THE ADDITION TO RS. 24 000/- IN PLACE OF ADDITION OF RS . 11 29 113/- MADE BY THE ASSESSING OFFICER. -: 101: - 101 52. IN THE CROSS OBJECTION FILED BY THE ASSESSEE THE ACTION OF THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) IN CONFIRMING EXCESS STOCK OF RS. 24 000/- WAS CHALLEN GED. THIS ISSUE HAS ALREADY BEEN CONSIDERED BY US WHILE DECID ING THE REVENUES APPEAL WITH REGARD TO COMPUTATION OF EX CESS STOCK HEREINABOVE. ACCORDINGLY WE DO NOT FIND ANY INFI RMITY IN RETAINING THE ADDITION OF RS. 24 000/-. 53. THE ADDITIONAL GROUND WAS RAISED DURING THE COURSE OF HEARING WITH REGARD TO LEGALITY OF ASSESSMENT FRAME D ON THE ASSESSEE WHEN JOINT PANCHNAMA WAS PREPARED IN RESPE CT OF VARIOUS PERSONS AND FOR THIS PURPOSE RELIANCE WAS P LACED ON THE DECISION REPORTED IN 330 ITR 533. 54. IN VIEW OF OUR DISCUSSION HEREINABOVE WE DO NOT F IND ANY MERIT IN THE ADDITIONAL LEGAL GROUND RAISED BY THE ASSESSEE. 55. IN THE RESULT THE APPEAL OF THE REVENUE IS ALLOWE D IN PART WHEREAS THE CROSS OBJECTION OF THE ASSESSEE IS DISM ISSED. IT(SS) A NO. 30/IND/06 AND CO 32/IND/06 56. IN THIS APPEAL SHRI RAKESH AGRAWAL IS THE PROPRIE TOR OF M/S DINESH RAKESH JEWELLERS BHOPAL. THE FIRM IS E NGAGED IN -: 102: - 102 THE BUSINESS OF RETAIL SALE OF ORNAMENTS. DURING T HE COURSE OF BLOCK ASSESSMENT ADDITION WAS MADE BY THE ASSESSING OFFICER BY REJECTING THE BOOKS OF ACCOUNTS U/S 145(3) OF TH E ACT. THE GROSS PROFIT ADDITION OF RS. 12 67 015/- WAS MADE B Y THE ASSESSING OFFICER WHICH WAS DELETED BY THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) TO THE EXTENT OF RS. 12 43 015/- AFTER HAVING THE FOLLOWING OBSERVATIONS :- I HAVE VERY CAREFULLY CONSIDERED THE SUBMISSIONS OF THE LD. COUNSEL. I HAVE ALSO GIVEN DUE CONSIDERATION TO THE DETAILED REASONING GIVEN BY THE ASSESSING OFFICER FOR COMPUTING UNDISCLOSED INCOME OF RS.12 67 015/-. AFTER DUE CONSIDERATION OF THE MATTER I HOLD THAT ASSESSING OFFICER WAS NOT JUSTIFIED AT ALL IN COMPUTING UNDISCLOSED INCOME OF RS.12 67 015/- BECAUSE THE SAME IS NOT BASED ON ANY EVIDENCE FOUND DURING THE COURSE OF SEARCH. THE ASSESSING OFFICER IS NOT JUSTIFIED IN CONCLUDING THAT APPELLANT HAD MAINTAINED BOOKS -: 103: - 103 OF ACCOUNTS ON THE BASIS OF NET WEIGHT OF GOLD ORNAMENTS. IT IS EVIDENT FROM THE CHART GIVEN BY THE ASSESSING OFFICER HIMSELF ON PAGE 13 OF THE ASSESSMENT ORDER THAT APPELLANT HAD MAINTAINED ITS BOOKS OF ACCOUNTS ON THE BASIS OF GROSS WEIGHT OF GOLD ORNAMENTS WHICH CONTAIN IMPURITIES BUT EXCLUDED THE WEIGHT OF DORI KALIPOT AND STONES. I FIND THAT SINCE APPELLANT HAD MAINTAINED THE BOOKS OF ACCOUNTS ON THE BASIS OF GROSS WEIGHT OF GOLD ORNAMENTS INCLUDING IMPURITIES BUT EXCLUDING DORI KALIPOT AND STONES AS PER PANCHNAMA INSTEAD OF SHORTAGE OF GOLD ORNAMENTS IN FACT EXCESS STOCK OF GOLD ORNAMENTS WAS FOUND WHICH IS CLEAR FROM THE FOLLOWING:- GROSS WEIGHT OF GOLD ORNAMENTS FOUND ON THE DATE OF SEARCH AS PER PANCHANAMA DATED 13/06/02 EXCLUDING THE WEIGHT OF KALIPOT DORI & STONES 7420.420 GMS. LESS: GROSS WEIGHT OF GOLD ORNAMENTS AS PER BOOKS OF ACCOUNTS AS TAKEN BY THE ASSESSING OFFICER 7364.238 GMS . EXCESS WEIGHT OF GOLD ORNAMENTS FOUND 56.182GMS . -: 104: - 104 LIKE WITH ONLY GROSS WEIGHT OF GOLD ORNAMENTS HAVE TO BE COMPARED WITH GROSS WEIGHT OF GOLD ORNAMENTS. ASSESSING OFFICER HAS TAKEN WRONGLY THE GROSS WEIGHT OF GOLD ORNAMENTS AS PER BOOKS OF ACCOUNTS AS NET WEIGHT OF GOLD ORNAMENTS AND HAS COMPARED THE SAME WITH THE NET WEIGHT OF GOLD ORNAMENTS FOUND AS PER PANCHANAMA AND HAS WORKED OUT THE SHORTAGE OF GOLD ORNAMENTS. THERE IS NO BASIS WITH THE ASSESSING OFFICER TO ASSUME THAT APPELLANT HAD MAINTAINED BOOKS OF ACCOUNTS ON THE BASIS OF NET WEIGHT OF GOLD ORNAMENTS AGAINST THE ASSERTION OF THE APPELLANT THAT IT HAD MAINTAINED BOOKS OF ACCOUNTS ON THE BASIS OF GROSS WEIGHT OF GOLD ORNAMENTS WHICH CONTAIN IMPURITIES BUT EXCLUDED THE WEIGHT OF STONES DORI KALIPOT. THEREFORE AS DISCUSSED ABOVE THERE WAS EXCESS OF GOLD ORNAMENTS FOUND AS A RESULT OF SEARCH WEIGHING -: 105: - 105 56.182 GMS. THERE IS NO EVIDENCE FOUND DURING THE COURSE OF SEARCH THAT APPELLANT HAD DONE ANY BUSINESS IN GOLD ORNAMENTS OUTSIDE THE BOOKS OF ACCOUNTS. UNDISCLOSED INCOME IS TO BE COMPUTED ONLY WITH REFERENCE TO THE EVIDENCE FOUND DURING THE COURSE OF SEARCH AND IN THIS REGARD RELIANCE IS PLACED ON THE UNDER MENTIONED JUDGEMENTS :- (I) CIT VS. KHUSHALCHAND NIRMAL KUMAR REPORTED AT 263 ITR 77 (MP). (II) BHAGWANDAS KEDIA VS. CIT 248 ITR 562 (CAL.) (III) CALTRO DECO STEEL SALES VS. DCIT REPORTED AT (2000) 243 ITR 643 KOLKATTA (IV) CIT VS. RAVIKANT JAIN REPORTED AT (2001) 250 ITR 14 1 (DELHI). THUS IN MY CONSIDERED VIEW SINCE THERE IS EXCESS O F GOLD ORNAMENTS FOUND AS A RESULT OF SEARCH IT WOUL D BE FAIR AND REASONABLE IF ADDITION ON ACCOUNT OF UNEXPLAINED INVESTMENT IN GOLD ORNAMENTS FOUND AS -: 106: - 106 A RESULT OF SEARCH IS MADE AS APPELLANT HAS NOT PROPERLY EXPLAINED THE EXCESS OF GOLD ORNAMENTS FOUND. AS I MENTIONED EARLIER EXCESS WEIGHT OF GOLD ORNAMENTS FOUND ON THE DATE OF SEARCH IS WEIGHING 56.182 GMS AND IN TERMS OF VALUE THE VALUE OF SUCH GOLD ORNAMENTS @ RS.417/- PER GM. AS APPLIED BY THE APPROVED VALUER ON THE DATE OF SEARCH AS PER PANCHANAMA DATED 13/06/2002 IS WORKED OUT AT RS.23 428/- ROUNDED OFF TO RS.24 000/-. DURING THE COURSE OF SEARCH NO EVIDENCE WAS FOUND THAT APPELLANT HAD SUPPRESSED ITS PROFIT IN THE BLOCK PERIOD TO THE EXTENT OF RS.12 67 015/-. ACCORDINGLY ADDITION MADE BY THE ASSESSING OFFICER IS RESTRICTE D TO RS. 24 000/- AND THUS APPELLANT WILL GET A RELI EF OF RS.12 43 015/- (RS.12 67 015/- - RS.24 000/-). 57. AGAINST THE ABOVE ORDER OF THE LEARNED COMMISSIONE R OF INCOME TAX (APPEALS) THE REVENUE IS IN APPEAL BEFO RE US AND THE ASSESSEE IS IN CROSS OBJECTION. -: 107: - 107 58. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS OF THE PA RTIES AND GONE THROUGH THE MATERIAL AVAILABLE ON RECORD A ND FIND THAT DURING THE COURSE OF SEARCH BOOKS OF ACCOUNTS WERE NOT FOUND WRITTEN UP TO DATE. THE PHYSICAL STOCK WAS T AKEN WHEREIN SOME DISCREPANCY WAS FOUND AS COMPARED TO T HE STOCK AS PER THE BOOKS OF ACCOUNTS. THE ASSESSEE IS THE PROPRIETOR OF M/S DINESH RAKESH JEWELLERS FOR THE L AST SEVEN YEARS AND CARRIES ON THE BUSINESS OF RETAIL SALES I N JEWELLERY. THE CONTENTION OF THE ASSESSEE WAS THAT IT MAINTAIN ED GROSS WEIGHT OF JEWELLERY IN THE BOOKS OF ACCOUNTS. ON V ERIFICATION OF STOCK THE ASSESSING OFFICER HAS WORKED OUT THE SHO RTAGE IN STOCK AT 478.250 GMS. HOWEVER AS PER THE ASSESSE E THERE WAS EXCESS STOCK OF 44.538 GMS. THE LEARNED COMMIS SIONER OF INCOME TAX (APPEALS) REWORKED OUT THE STOCK ACCORDI NG TO WHICH THERE WAS EXCESS STOCK OF 56.182 GMS. WITH R EGARD TO THE DIFFERENCE IN THE STOCK IT WAS OBSERVED THAT TH E ASSESSING OFFICER HAS COMMITTED MISTAKE IN TAKING GROSS WEIGH T AS PER THE BOOKS AND NET WEIGHT AS PER PHYSICAL VERIFICATI ON. THE ASSESSING OFFICER ALSO FOUND THAT THE ASSESSEE HAS APPLIED GROSS TO GROSS BUT CLAIMED DEDUCTIONS OF WEIGHT OF DORI-CUM- -: 108: - 108 STONE ETC. FROM THE GROSS WEIGHT AS PER THE BOOKS. HOWEVER THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) AP PLIED GROSS TO GROSS AND FOUND EXCESS STOCK. AS PER THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) THE APPROACH OF THE ASSESSEE WAS REASONABLE AS GROSS WEIGHT OF JEWELLER Y DOES NOT INCLUDE DORI ETC. THEREAFTER THE ASSESSING OFFIC ER REJECTED THE BOOK RESULTS AND AFTER APPLYING THE ESTIMATED G ROSS PROFIT RATE MADE AN ADDITION OF RS.12 67 015/- WHICH WAS D ELETED BY THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) BY OBSERVING THAT NO EVIDENCE WAS FOUND DURING THE COU RSE OF SEARCH. THE LEARNED COMMISSIONER OF INCOME TAX (AP PEALS) ALSO OBSERVED THAT THE ASSESSING OFFICER WAS NOT JU STIFIED IN CONCLUDING THAT THE ASSESSEE HAD MAINTAINED BOOKS O F ACCOUNTS ON THE BASIS OF NET WEIGHT OF GOLD ORNAMEN TS. BY REFERRING TO THE CHART GIVEN BY THE ASSESSING OFFIC ER HIMSELF AT PAGE 13 OF THE ASSESSMENT ORDER THE LEARNED COMMIS SIONER OF INCOME TAX (APPEALS) OBSERVED THAT THE ASSESSEE HAD MAINTAINED ITS BOOKS OF ACCOUNTS ON THE BASIS OF GR OSS WEIGHT OF ORNAMENTS WHICH CONTAINED IMPURITIES BUT EXCLUDE D THE WEIGHT OF DORI KALIPOT AND STONES. ACCORDINGLY T HE LEARNED -: 109: - 109 COMMISSIONER OF INCOME TAX (APPEALS) RECOMPUTED THE STOCK ON THE BASIS OF GROSS WEIGHT OF GOLD ORNAMENTS INCL UDING IMPURITIES BUT EXCLUDING DORI KALIPOT AND STONES AS PER THE BOOKS OF ACCOUNTS AND FOUND THAT THERE WAS EXCESS O F GOLD ORNAMENTS INSTEAD OF SHORTAGE AS WORKED OUT IN THE PANCHNAMA. THE EXCESS GOLD WAS WORKED OUT BY THE L EARNED COMMISSIONER OF INCOME TAX (APPEALS) AS UNDER :- GROSS WEIGHT OF GOLD ORNAMENTS FOUND ON THE DATE OF SEARCH AS PER PANCHNAMA DATED 13.06.02 EXCLUDING THE WEIGHT OF KALIPOT DORI & STONES 742 0.420 GMS LESS : GROSS WEIGHT OF GOLD ORNAMENTS AS PER BOOKS OF ACCOUNTS AS TAKEN BY THE ASSESSING OFFICER 7364.238 GMS EXCESS WEIGHT OF GOLD ORNAMENTS FOUND 56 .182 GMS 59. THE PRECISE OBSERVATION OF TH CIT(A) WAS AS UNDER : - I HAVE CONSIDERED THE SUBMISSION OF THE LD. COUNSEL IN THIS REGARD. AFTER DUE CONSIDERATION OF THE SUBMISSION OF THE LD. COUNSEL I FIND THAT ASSESSING OFFICER HAD WRONGLY COMPUTED THE SHORTAGE OF STOCK ON THE DATE OF SEARCH. APPELLANT -: 110: - 110 HAD MAINTAINED BOOKS OF ACCOUNTS ON THE BASIS OF GROSS WEIGHT OF GOLD ORNAMENTS AND IF THE GROSS WEIGHT OF GOLD ORNAMENTS FOUND AS PER PANCHANAMA IS COMPARED WITH THE GROSS WEIGHT OF GOLD ORNAMENTS AS PER BOOKS OF ACCOUNTS THERE IS EXCESS OF GOLD ORNAMENTS ON THE DATE OF SEARCH WEIGHING 56.182 GMS. 60. BY OBSERVING THAT THE ASSESSEE HAS NOT EXPLAINED TH E EXCESS GOLD OF GOLD ORNAMENTS FOUND AT 56.182 GMS THE ADDITION WAS MADE BY APPLYING THE VALUE OF GOLD ORN AMENTS @ RS. 417/- PER GM AS APPLIED BY THE APPROVED VALUER ON THE DATE OF SEARCH AS PER PANCHNAMA DATED 13.6.2002. T HUS THE EXCESS GOLD ORNAMENTS WORKED OUT TO BE RS.23 428/- WHICH WAS ROUNDED OFF TO RS.24 000/-. THUS THE ADDITION MADE BY THE ASSESSING OFFICER BY APPLYING GROSS PROFIT RATE WAS DELETED BY THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) BY OBSERVING THAT NO EVIDENCE WAS FOUND TO INDICATE TH AT THE ASSESSEE HAS EARNED THIS MUCH OF ADDITIONAL GROSS P ROFIT WHICH HAS NOT BEEN DISCLOSED BY THE ASSESSEE AND AN ADDIT ION OF RS. -: 111: - 111 24 000/- WAS RETAINED ON THIS COUNT. THE RELEVANT OBSERVATION OF THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) IS AS UNDER :- I HAVE CONSIDERED THE SUBMISSION OF THE LD. COUNSEL IN THIS REGARD. I HAVE ALSO PERUSED THE ASSESSMENT ORDER FRAMED BY THE ASSESSING OFFICER IN THIS REGARD. AFTER DUE CONSIDERATION OF THE MATTER I HOLD THAT ASSESSING OFFICER WAS NOT JUSTIFIED IN MAKING OBSERVATION IN THE ASSESSMENT ORDER THAT EVIDENCE OF UNDISCLOSED SALE AND UNDISCLOSED PROFIT WAS FOUND DURING THE COURSE OF SEARCH BECAUSE NO SUCH EVIDENCE HAS BEEN BROUGHT ON RECORD BY THE ASSESSING OFFICER. ASSESSING OFFICER HAD MADE THE BASIS OF MAKING ADDITION ONLY THE SHORTAGE OF STOCK OF GOLD ORNAMENTS WHICH HE WORKED OUT ON THE PRESUMPTION THAT APPELLANT HAD MAINTAINED BOOKS OF ACCOUNTS ON THE BASIS OF NET WEIGHT ON GOLD -: 112: - 112 ORNAMENTS WHEREAS IN FACT APPELLANT HAD MAINTAINED BOOKS OF ACCOUNTS ON THE BASIS OF GROSS WEIGHT WHICH ALSO BECAME CLEAR FROM THE DETAILS MENTIONED BY THE ASSESSING OFFICER HIMSELF IN THE BODY OF THE ORDER ON PAGE 13. ASSESSING OFFICER OUGHT TO HAVE AVOIDED SUCH OBSERVATION WITHOUT BRINGING ANY EVIDENCE ON RECORD IN THE ASSESSMENT ORDER. 61. THE FINDING RECORDED BY THE LEARNED COMMISSIONER O F INCOME TAX (APPEALS) HAS NOT BEEN CONTROVERTED. WE THEREFORE DO NOT FIND ANY REASON TO INTERFERE WITH THE ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) FO R RETAINING THE ADDITION TO THE EXTENT OF RS. 24 000/ -. 62. WITH REGARD TO THE OBSERVATION OF THE ASSESSING OFF ICER THAT GOLD JEWELLERY GIVEN FOR POLISHING OR REMAKING WAS NOT ENTERED IN THE CASH BOOK WE FIND THAT THE JEWELLER Y GIVEN FOR POLISHING/REMAKING WAS ENTERED IN THE JAVAK BAHI WH ICH WAS PRODUCED BEFORE THE ASSESSING OFFICER. THE JEWELLE RY RECEIVED FROM THE CUSTOMERS WAS ENTERED IN THE REGISTER. TH E -: 113: - 113 PHOTOCOPY OF THE REGISTER WAS PRODUCED BEFORE THE L OWER AUTHORITIES. THESE REGISTERS I.E. JAVAK AND ORDER BOOK WERE ALSO SEIZED BY THE DEPARTMENT. WITH REGARD TO THE O BSERVATION OF THE ASSESSING OFFICER IN RESPECT OF ORDER NO. 55 DATED 20.9.77 WE FIND THAT DELIVERY DATE WAS 1.10.1997 BU T THE DELIVERY WAS GIVEN ON 7.10.1997. THE AMOUNT OF RS. 5 613/- WAS ACCOUNTED FOR IN CASH BOOK ON 7.10.1997. SOME DISCREPANCY IN THE DATES OF ENTRIES IN THE CASH BOO K WAS ALSO POINTED OUT BY THE ASSESSING OFFICER. IN THIS REGA RD WE FIND THAT ADVANCE FROM SURENDA BAGHAT RS. 50 000/- ON 15 .4.2002 BUT IT WAS ENTERED ON 17.4.2002. WITH REGARD TO SO ME OF THE SALES VOUCHERS FOUND NOT RECORDED IN THE BOOKS IT WAS EXPLAINED THAT THESE WERE CANCELLED AND THE CANCELL ED VOUCHERS WERE ALSO PRODUCED BEFORE THE ASSESSING OF FICER. 63. FROM RECORD WE FIND THAT IN ADDITION TO THE FINDING ABOUT DISCREPANCY IN THE STOCK THE ASSESSING OFFICER HAS ALSO POINTED OUT SOME DEFECT IN THE EXPENDITURE VOUCHERS MAINTAINED BY THE ASSESSEE. THE ASSESSING OFFICER HAS ALSO STATED THAT BILL NO. 738 DATED 3.8.1999 WAS NOT REC ORDED IN THE BOOKS OF ACCOUNTS. HOWEVER THERE IS NO MENTION O F THE -: 114: - 114 AMOUNT. THE ASSESSING OFFICER ALSO OBSERVED THAT L EDGER WAS NOT MAINTAINED. IN RESPECT OF THE SAME CONTENTION OF THE ASSESSEE WAS THAT IT IS A SECONDARY RECORD WHICH CA N EASILY BE DRAWN ON THE BASIS OF CASH BOOK AND JOURNAL MAINTAI NED BY THE ASSESSEE. KEEPING IN VIEW THESE OBSERVATIONS O F THE ASSESSING OFFICER WE DIRECT THE ASSESSING OFFICER TO RETAIN THE ADDITION ON ACCOUNT OF THESE DEFECTS TO THE EXTENT OF RS.1 LAC. 64. IN THE RESULT THE APPEAL OF THE REVENUE IS PARTLY ALLOWED IN TERMS INDICATED ABOVE. 65. IN THE CROSS OBJECTION THE ASSESSEE HAS CHALLENG ED THE ACTION OF THE LEARNED COMMISSIONER OF INCOME TAX (A PPEALS) IN RETAINING THE ADDITION OF RS. 24 000/- TOWARDS EXCE SS GOLD STOCK OF 56.180 GMS. THIS GROUND WE HAVE ALREADY D EALT WITH WHILE DEALING REVENUES GROUND FOR REDUCING THE GRO SS PROFIT HEREINABOVE. AS WE HAVE CONFIRMED THE ADDITION OF RS. 24 000/- THE GROUND RAISED BY THE ASSESSEE IN THE CROSS OBJECTION IS DISMISSED. 66. IN THE RESULT THE APPEAL OF THE REVENUE IS ALLOWE D IN PART WHEREAS THE CROSS OBJECTION OF THE ASSESSEE IS DISM ISSED. IT(SS) A NO. 48/IND/2006 AND CO NO. 69/IND/2006 -: 115: - 115 67. IN THIS CASE THE ASSESSEE ANMOL AGARWAL WAS DOI NG WHOLESALE BUSINESS OF CLOTH UNDER THE NAME AND STYL E OF SHREEJI DRESS MATERIAL. DURING THE COURSE OF SEARCH THE ASSESSING OFFICER FOUND THAT THE ASSESSEE WAS HAVIN G SHORTAGE IN STOCK OF CLOTH OF RS. 57 590/-. . AFTER POINTIN G OUT SOME DEFECTS IN THE BOOKS OF ACCOUNTS THE ASSESSING OFFI CER IINVOKED THE PROVISIONS OF SECTION 145(3) OF THE ACT AND REJ ECTED THE BOOKS OF ACCOUNTS OF ALL THE YEARS INVOLVED IN BLOC K PERIOD AND MADE AN ADDITION BY APPLYING GROSS PROFIT RATE OF 1 4% IN PLACE OF GROSS PROFIT RATE OF 8.59% DISCLOSED BY THE ASSE SSEE. THUS AN ADDITION OF RS. 15 80 913/- WAS MADE BY THE ASSE SSING OFFICER BY APPLYING THE GROSS PROFIT RATE OF 14%. O N THE PLEA OF SHORTAGE OF STOCK FOUND DURING THE COURSE OF SEARCH THE ASSESSING OFFICER ASSUMED THAT THE ASSESSEE WAS INV OLVED IN SELLING GOODS OUTSIDE THE BOOKS OF ACCOUNTS IN RESP ECT OF ALL THE YEARS FALLING IN BLOCK PERIOD. HE THEREFORE ESTIMATED SALES FOR THE BLOCK PERIOD AT RS. 3.00 CRORES AS AGAINST DISCLOSED SALES OF RS. 2.92 CRORES. AN ADDITION OF RS. 1 06 065/- WAS ALSO MADE BY ESTIMATING PROFIT AT 14% ON SUCH SALES . BY THE IMPUGNED ORDER THE LEARNED COMMISSIONER OF INCOME TAX -: 116: - 116 (APPEALS) RETAINED THE ADDITION ON ACCOUNT OF GROS S PROFIT TO THE EXTENT OF RS. 82 060/- AFTER HAVING MADE THE FO LLOWING OBSERVATIONS :- AO HAS DISCUSSED THIS ISSUE IN ASST. ORDER IN PARA 5 TO 9 FROM PAGE 3 TO 14. AO HAD DISCUSSED IN DETAIL THE NATURE OF ACCOUNT BOOKS AND HAD POINTED OUT CERTAIN DEFECTS I N THE MAINTENANCE OF BOOKS OF ACCOUNTS. HE HAD DISCUSSED JUSTIFICATION FOR APPLICATION FOR APPLICATION FOR P ROVISION OF SEC. 145(3). HE HAS DISCUSSED THE DOCUMENTS 64 AND 65 OF ANNEX.LPS-1/2 RELATING TO RETURN OF GOODS SEIZED FR OM M/S SHREEJI SAREE WALE AND HAD TAKEN THE SALE AS RATE A T WHICH GOODS SEIZED WERE PROPOSED TO BE RETURNED AND THE RATE OF RETURN WAS TAKEN AS PURCHASE AND THE DIFFERENCE WAS TAKEN AS G.P. RATE. AO HAD INCORPORATED IN THE BODY OF THE A SST. ORDER THE WRITTEN SUBMISSION OF THE APPELLANT ALSO. AO AL SO QUOTED CERTAIN EXAMPLE ON PAGE 13 OF THE ASST. ORDER FROM THE DISCLOSED BOOKS OF ACCOUNTS FOR SHOWING THE G.P. RA TE IN SUPPORT OF HIS FINDING THAT APPELLANT HAD BEEN SHOW ING G.P. RATE VERY HIGH IN RESPECT OF CERTAIN ITEMS. HE HAS GIVEN DETAILS OF TURNOVER AND G.P. RATE AS DISCLOSED BY THE APPEL LANT IN THE -: 117: - 117 BLOCK PERIOD. HE HAS WORKED OUT THE AVERAGE G.P. RA TE AS DISCLOSED BY THE APPELLANT FOR THE BLOCK PERIOD AT 8.59% ON TOTAL TURNOVER OF RS. 2 92 42 396/-. AO HELD THAT A PPELLANT HAD BEEN ENJOYING G.P. RATE OF 14% AND THUS APPLIED G.P . RATE OF 14% ON THE DISCLOSED TURNOVER OF THE BLOCK PERIOD A ND HAD WORKED OUT THE G.P. AT RS.40 93 935/- AS AGAINST T HE DISCLOSED G.P. FOR THE BLOCK PERIOD AT RS.25 13 022/- AND THU S MADE ADDITION IN RESPECT OF DIFFERENCE IN G.P. AMOUNTING TO RS.15 80 913/- (40 93 935/- - 25 13 022/-). AO FU RTHER HELD THAT THE SUPPRESSED G.P. OF RS.15 80 913/- IS UNDIS CLOSED INCOME OF THE APPELLANT FOR THE BLOCK PERIOD. I HAVE CAREFULLY CONSIDERED THE SUBMISSIONS OF TH E LD. COUNSEL THAT AO WAS NOT JUSTIFIED IN COMPUTING UNDI SCLOSED INCOME BY APPLYING G.P. RATE OF 14% ON DISCLOSED TU RNOVER. I HAVE ALSO VERY CAREFULLY PERUSED THE ASST. ORDER PA SSED BY THE AO INCORPORATING THEREIN THE REASONS FOR COMPUTING UNDISCLOSED INCOME BY APPLYING G.P. RATE OF 14% ON DISCLOSED TURNOVER AFTER REJECTING THE BOOKS OF ACCOUNTS. AFT ER DUE CONSIDERATION IN THE MATTER I HOLD THAT AO WAS NOT JUSTIFIED IN COMPUTING THE UNDISCLOSED INCOME BY APPLYING G.P. R ATE OF -: 118: - 118 14% ON DISCLOSED TURNOVER BECAUSE UNDISCLOSED INCOM E IS TO BE COMPUTED ONLY WITH REFERENCE TO EVIDENCE FOUND D URING THE COURSE OF SEARCH. SINCE NO EVIDENCE WHATSOEVER WAS FOUND AS A RESULT OF SEARCH TO THE EFFECT THAT APPELLANT HAS E ARNED G.P. @ 14% ON THE DISCLOSED TURNOVER THE ADDITION MADE BY THE AO WAS UNJUSTIFIED AND UNCALLED FOR. NO EVIDENCE WAS F OUND AS A RESULT OF SEARCH IN RESPECT OF SUPPRESSION OF TURNO VER. NO PURCHASE WAS FOUND UNRECORDED. SINCE ADDITION OF RS. 15 80 913/- IS NOT BASED ON ANY EVIDENCE FOUND AS A RESULT OF SEARCH SUCH ADDITION IS UNSUSTAINABLE AND IS HE REBY DELETED. WITH REGARD TO THE ADDITION OF RS.1 06 065/- MADE ON ACCOUNT OF UNDISCLOSED GROSS PROFIT ON SALES OUTSIDE THE BOOKS OF ACCOUNTS THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) HAS GIVEN RELIEF OF RS. 24 005/- THUS RETAINED ADDITION OF RS . 86 060/- AFTER HAVING MADE THE FOLLOWING OBSERVATIONS :- AO HAS DISCUSSED THIS ISSUE IN PARA 10 FROM PAGE 14 TO 16. AO FOUND THAT SOME OF THE STOCK OF APPELLANT WAS KE PT IN THE -: 119: - 119 PREMISES OF M/S. SHREEJI EXCLUSIVE M/S SHREEJI SARE E WALE AND M/S SHREEJI DRESS WALE WAS FOUND KEPT SEPARATELY AN D THE SAME WAS FOUND KEPT AT CERTAIN COMMON PLACES. THERE AFTER ASSESSING OFFICER WORKED OUT THE STOCK OF THE APPEL LANT ON PHYSICAL VERIFICATION AS PER DETAILS GIVEN ON PAGE 14 & 15 AND VALUED IT AT RS. 27 40 823/-. THE ASSESSING OFFICER HAS NOT TAKEN NOTE OF NOTE KEPT IN THE SHOP OF THE APPELLAN T ACCORDING TO WHICH APPELLANTS EMPLOYEES WERE TO SALE THE SAR EES AT A RATE HALF OF THE RATE WRITTEN ON SAREES I.E. AT THE HALF OF THE VALUE RECORDED ON TAG. HE FOUND THAT IN MOST OF THE SALE BILLS NO CODE HAVE BEEN MENTIONED. IT WAS ALSO FOUND BY H IM THAT DURING THE COURSE OF PHYSICAL VERIFICATION CODES WE RE FOUND ARE FIXED IN A NUMBER OF ITEMS OF STOCK AND INVENTORY W AS PREPARED ACCORDINGLY. THEREAFTER HE WORKED OUT THE SHORTAGE OF STOCK AS UNDER :- THE TOTAL STOCK AS PER PHYSICAL VERIFICATION RS.27 40 823/- LESS : GP @ 14% RS. 3 83 715/- COST OF THE STOCK FOUND AT THE TIME OF SEARCH RS.2 3 57 108/- STOCK AS PER BOOKS OF ACCOUNTS ON THE DATE OF SEARCH I.E. ON 13/06/2002 RS.24 14 698/- SHORTAGE OF STOCK RS. 57 590/- -: 120: - 120 FROM THE SHORTAGE OF STOCK THUS WORKED OUT ABOVE ASSESSING OFFICER HAD INFERRED THAT IT WAS A CLEAR INDICATION THAT APPELLANT HAD MADE SALE OUTSIDE THE BOOKS OF ACCOUNTS. HE FOU ND THAT SALE AS PER BOOKS OF ACCOUNTS OF THE PERIOD 01/04/2002 TO 1 2/06/2002 IS RS. 19 38 809/-. CONSIDERING TOTALITY OF THE FACTS AND CIRCUMSTANCES OF THE CASE ASSESSING OFFICER HAD ESTIMATED THE TURNO VER OF THE APPELLANT FOR THE BLOCK PERIOD AT RS.3 00 00 000/- AS AGAINST OF RS. 2 92 42 396/- DISCLOSED BY THE APPELLANT AND HAD WO RKED OUT THE UNDISCLOSED INCOME BY APPLICATION OF GROSS PROFIT R ATE OF 14% ON THE DIFFERENCE OF THE TURNOVER AT RS.1 06 065/-. I HAVE CONSIDERED THE DETAILED SUBMISSION OF THE L D. COUNSEL AS REPRODUCED IN THE PRECEDING PARAGRAPHS. I HAVE ALS O SEEN THE REASONING GIVEN BY THE ASSESSING OFFICER FOR COMPUT ING THE SHORTAGE OF STOCK OF RS. 57 590/- AND THEREBY ESTIM ATING THE TURNOVER OF THE BLOCK PERIOD AT RS. 3 00 00 000/- A S AGAINST DISCLOSED TURNOVER OF RS.2 92 42 396/- OF THE BLOCK PERIOD AND IN COMPUTING UNDISCLOSED INCOME BY APPLICATION OF GROS S PROFIT OF 14% IN THE DIFFERENCE OF THE TURNOVER. AFTER DUE CO NSIDERATION OF THE MATTER I HOLD THAT THE COMPUTATION OF VALUE OF STO CK AT MRP AS COMPUTED BY THE APPELLANT AT RS. 27 31 383/- APPEAR S TO BE -: 121: - 121 REASONABLE AND THERE IS NEGLIGIBLE DIFFERENCE OF RS .9 440/- IN THE VALUE OF SUCH STOCK TAKEN BY THE ASSESSING OFFICER AT RS. 27 40 823/- . I DO NOT FIND ANY INFIRMITY IN THE COMPUTATION OF VALUE OF STOCK AS DONE BY THE APPELLANT. IT IS TO BE MENTIONED THAT E VIDENCE FOUND DURING THE COURSE OF SEARCH TO THE EFFECT THAT TAG PRICE IS DOUBLE OF THE MRP CANNOT BE IGNORED BECAUSE CONTENTS OF SUCH DOCUMENT HAVE TO BE TAKEN AS CORRECT IN VIEW OF PROVISIONS O F SECTION 132(4A). SINCE APPELLANT HAS COMPUTED THE STOCK FOUND AT THE TIME OF SEARCH IN VIEW OF TAG PRICE AND THE CONTENTS OF WHICH ARE TO BE TAKEN AS CORRECT IN VIEW OF SECTION 132(4A) THE VALUE OF ST OCK AS DONE BY THE APPELLANT IS TO BE ACCEPTED. THEREFORE IT WOULD BE ONLY REASONABLE AND FAIR IF THE VALUE OF STOCK AVAILABLE STOCK ON T HE DATE OF SEARCH IS WORKED OUT WITH REFERENCE TO MRP WHICH IS HALF OF T HE TAG PRICE. MOREOVER REASONABLE EVIDENCE WAS PLACED BEFORE THE AO TO THE EFFECT THAT WHICH GOODS FOUND MENTIONED IN INVENTOR YA-1 TO A-9 BELONGS TO THE APPELLANT AND THE AO HAS NOT OTHERWI SE COMMENTED ON SUCH DETAILS. I HAD ALREADY HELD THAT ASSESSING OFFICER WAS NOT JUSTIFIED IN MAKING ADDITION OF RS.15 80 913/- BY A PPLYING GROSS PROFIT RATE OF 14% ON THE DISCLOSED TURNOVER AS AGA INST THE DISCLOSED AVERAGE GROSS PROFIT OF 8.59% OF THE BLOC K PERIOD. -: 122: - 122 THEREFORE THE COST OF THE STOCK FOUND ON THE DATE OF SEARCH IS TO BE WORKED OUT AFTER REDUCING THE PROFIT @ 8.59%. IT WO ULD BE CLEAR FROM THE WORKING GIVEN BELOW THAT THERE IS EXCESS O F STOCK FOUND ON THE DATE OF SEARCH AS AGAINST SHORTAGE COMPUTED BY THE ASSESSING OFFICER. THE VALUE OF STOCK AS COMPUTED BY THE APPELLANT AS PER CHART ENCLOSED AT THE RATE OF MRP WHICH IS HALF OF THE TAG PRICE AT RS.2 7 31 383/- LESS: G.P. AT THE AVERAGE RAT OF 8.59% RS. 2 34 6 25/- RS.24 96 625/- LESS : STOCK AS PER BOOKS OF ACCOUNTS RS.24 14 6 98/- RS.82 060 I DO NOT FIND ANY JUSTIFICATION FOR ESTIMATING THE TURNOVER OF RS.3 00 00 000/- OF THE APPELLANT FOR THE BLOCK PER IOD AS AGAINST DISCLOSED TURNOVER OF LRS. 2 92 42 396/- BECAUSE TH ERE WAS NO SHORTAGE IN THE STOCK AS IS CLEAR FROM ABOVE. ACCOR DINGLY IT IS HELD THAT ADDITION MADE BY THE ASSESSING OFFICER ON THAT BASIS WAS NOT JUSTIFIED. HOWEVER SINCE THERE WAS EXCESS OF STOCK FOUND AS A RESULT OF SEARCH AND FOR WHICH APPELLANT HAD NOT FURNISHED ANY EXPLANATION ADDITION IS REQUIRED TO BE MADE ON ACC OUNT OF UNEXPLAINED INVESTMENT IN SUCH EXCESS STOCK VALUIN G RS.82 060/-. THUS COMPUTATION OF UNDISCLOSED INCOME AT RS.1 06 065/- IS -: 123: - 123 SUBSTITUTED FOR RS.82 060/-. THUS THIS GROUND OF A PPEAL IS PARTLY DECIDED IN FAVOUR OF APPELLANT AND APPELLANT WILL G ET RELIEF OF RS.24 005/-. 68. AGAINST THE ABOVE ORDER REVENUE IS IN APPEAL BEFOR E US AND THE ASSESSEE HAD ALSO RAISED CROSS OBJECTION 69. THE FIRST GRIEVANCE OF THE REVENUE RELATES TO DELET ION OF ADDITION OF RS.15 80 913/- ON ACCOUNT OF GROSS PROF IT OF UNDISCLOSED SALES FOR THE BLOCK PERIOD. THE ASSESSI NG OFFICER HAS DEALT WITH THIS ISSUE AT PARAS 5 TO 9. THE ASS ESSING OFFICER STATED THAT THERE WERE CERTAIN DEFECTS IN THE MAINT ENANCE OF THE ASSESSEES BOOKS OF ACCOUNTS. AFTER POINTING O UT SOME IRREGULARITIES IN THE BOOKS OF ACCOUNTS HE REJECTE D THE BOOKS OF ACCOUNTS BY APPLYING THE PROVISIONS OF SECTION 145( 3) OF THE ACT. THE ASSESSING OFFICER ALSO DISCUSSED THE DOCU MENTS 64 AND 65 OF ANNEXURE LPS-1/2 WITH REGARD TO RETURN OF GOODS SEIZED TO SHREEJI SAREEWALA THE ASSESSING OFFICER TOOK THE SALES AT THE RATE AT WHICH THE GOODS WERE PROPOSED TO BE RETURNED AND THE RATE OF RETURN WAS TAKEN AS PURCHA SE. THE DIFFERENCE WAS TAKEN AS GROSS PROFIT RATE. AS PER THE ASSESSING OFFICER THE ASSESSEE WAS SHOWING GROSS PROFIT RATE AT VERY HIGH -: 124: - 124 IN RESPECT OF CERTAIN ITEMS WHEREAS VERY LOW IN RES PECT OF OTHER ITEMS. THE ASSESSING OFFICER HAS WORKED OUT THE AV ERAGE GROSS PROFIT RATE AT 8.59% ON THE TOTAL TURNOVER OF RS. 2 92 42 396/- SHOWN BY THE ASSESSEE. HOWEVER BY APPLYING THE ES TIMATED GROSS PROFIT RATE OF 14% HE WORKED OUT GROSS PROFIT OF RS. 40 99 935/- AS AGAINST DISCLOSED GROSS PROFIT FOR T HE BLOCK PERIOD AT RS. 25 13 022/-. THE DIFFERENCE WAS ADDE D TO THE ASSESSEES INCOME AMOUNTING TO RS. 15 80 913/-. BY THE IMPUGNED ORDER THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) AFTER CONSIDERING THE OBJECTIONS OF THE ASSESSING OFFICER WITH REGARD TO REJECTION OF BOOKS OF ACCOUN TS U/S 145(3) OF THE ACT HELD THAT THE GROSS PROFIT RATE OF 8.49 % WAS REASONABLE. ACCORDINGLY THE GROSS PROFIT ADDITION MADE BY THE ASSESSING OFFICER WAS DELETED BY THE LEARNED COMMIS SIONER OF INCOME TAX (APPEALS). WE FIND THAT THE ASSESSEE WAS ENGAGED IN THE WHOLESALE CLOTH BUSINESS. THERE WAS SEARCH AT THE ASSESSEES BUSINESS PREMISES WHEREIN SOME DISCREPAN CY WAS NOTED BY THE ASSESSING OFFICER TO THE EFFECT THAT T HE ASSESSEE HAS NOT MAINTAINED UP-TO-DATE LEDGER WHEREAS CASH BOOK AND JOURNAL WAS FOUND DURING SEARCH WRITTEN UP TO DATE. THE CASH -: 125: - 125 BOOK AND JOURNAL IS THE PRIMARY RECORD ON THE BASIS OF WHICH LEDGER IS WRITTEN. THEREFORE MERELY BECAUSE NO LE DGER WAS FOUND IT CANNOT BE BLAMED THAT THE BOOKS OF ACCOUN TS MAINTAINED BY THE ASSESSEE WERE NOT CORRECT. THE A SSESSING OFFICER ALSO OBSERVED THAT THE BOOKS OF ACCOUNTS FO R THE ASSESSMENT YEAR 2003-04 WERE NOT UP TO DATE. IN THI S REGARD WE FIND THAT THE CASH BOOK WAS WRITTEN UP TO 7.6.20 02 AND THE SAME WAS COMPLETED AFTER SEARCH ON THE BASIS OF VOU CHERS. THE ACCOUNTS OF THE ASSESSEE WERE AUDITED FOR ALL T HE PRECEDING YEARS AND RETURNS UPTO 2002-03 WERE FILED. HOWEVER THE RETURN FOR THE ASSESSMENT YEAR 2003-04 WHICH DID N OT FALL DUE ON THE DATE OF SEARCH WAS FILED ON 30.9.2003. THE HIGHER ESTIMATE OF GROSS PROFIT BY THE ASSESSING OFFICER W AS MAINLY INFLUENCED BY THE DOCUMENTS FOUND WITH RESPECT TO S ALES RETURNED TO M/S SAROJ SAREE PRIVATE LIMITED DELHI BY DINESH KUMAR AGARWAL. IN THIS REGARD THE ASSESSING OFFICE R OBSERVED AS UNDER :- THOUGH IT IS ACCEPTED THAT THE EXERCISE HAS BEEN DONE IN RESPECT OF ONLY A FEW ITEMS BUT IT CLEARLY SHOWS THAT THE G.P. RATE IN RESPECT -: 126: - 126 OF CERTAIN ITEMS EVEN IN CASE OF A WHOLESELLER MAY BE VERY HIGH. THE ASSESSEE MAY CLAIM THAT IN RESPECT OF CERTAIN ITEMS THE G.P. RATE IS MUCH LOWER AND MAY EVEN RESULT IN A LOSS IN A FEW CASES BUT IT IS ESTABLISHED THAT THE G.P. RATE DISCLOSED BY THE A SSESSEE IS MUCH BELOW THE ACTUAL G.P. BEING EARNED BY HIM. 70. FROM RECORD WE ALSO FIND THAT FOLLOWING PURCHASE RETURNS WERE FOUND DURING SURVEY/SEARCH IN OTHER CA SES OF THIS AGRAWAL SARIWALE GROUP :- SAROJ SARI DELHI PB 218-254 GP 2.89% PB 226 JAI AMBAY TEXTILES BANGALORE PB 255-259 GP 7.83% PB 257 NAV RATAN HANDLOOM CHENNAI PB 200-212 GP 2.56% PB 261 MAHADEO SILK & SARIES BANGALORE PB 263-265 GP 5.85% PB 263 -------------------- - AVERAGE OF THE FOUR ABOVE 4.78% -------------------- -: 127: - 127 71. THUS EVEN IN CASE OF SALES RETURN THE AVERAGE GROSS PROFIT RATE DID NOT EXCEED 4.78%. HOWEVER DURING THE COURSE OF SEARCH NOTHING WAS FOUND TO INDICATE THAT THE ACTUAL GROSS PROFIT EARNED BY THE ASSESSEE WAS 14% AS APPLIED BY THE ASSESSING OFFICER. EVEN THE GROSS PROFIT SHOWN BY THE ASSESS EE IN THE LAST SIX YEARS AS OBSERVED BY THE ASSESSING OFFICER DID NOT EXCEED 6.49%. HOWEVER KEEPING IN VIEW SOME OF THE DEFECTS POINTED OUT BY THE ASSESSI NG OFFICER IN THE BOOKS OF ACCOUNTS FOR F.Y. 2003-04 IT IS REASONABLE TO RESTRICT THE ADDITION BY APPLYING GROSS PROFIT RATE OF 9% ON THE SALES FOR A.Y. 2003- 04 ONLY IN TERMS OF OUR DISCUSSION MADE HEREINABOVE. WE DIRECT ACCORDINGLY. 72. WHEN THE BOOKS OF ACCOUNTS ARE REJECTED THE ASSE SSING OFFICER IS FREE TO APPLY ESTIMATED GROSS PROFIT RAT E. HOWEVER SUCH GROSS PROFIT RATE SHOULD BE BASED ON THE DOCUM ENTS IN THE POSSESSION OF THE ASSESSING OFFICER ON THE BASI S OF WHICH IT COULD REASONABLY BE INFERRED THAT THE GROSS PROFIT RATE SHOWN -: 128: - 128 BY THE ASSESSEE IS NOT TRUE AND CORRECT. FURTHERMOR E THE ESTIMATED GROSS PROFIT RATE SHOULD BE COMMENSURATE WITH THE NATURE OF THE BUSINESS THE ASSESSEE IS CARRYING ON I.E. RETAIL TRADE OR WHOLESALE COMPARATIVE RATE PREVAILING IN THE MARKET ETC. IN CASE OF RETAIL TRADE UNDOUBTEDLY TH E GROSS PROFIT IS HIGHER WHEREAS IN CASE OF WHOLESALE WHERE THE VO LUME OF BUSINESS IS HIGH THE GROSS PROFIT IS COMPARATIVELY LOW. THEREFORE KEEPING IN VIEW THE TOTALITY OF FACTS AN D CIRCUMSTANCES OF THE CASE AND THE DOCUMENTS REFERRE D TO BY THE ASSESSING OFFICER IN HIS ORDER VIS--VIS THE F INDING OF CIT(A) WE ARE INCLINED TO MODIFY THE ORDERS OF BOTH THE AUTHORITIES AND DIRECT THE ASSESSING OFFICER TO COM PUTE THE ADDITION BY APPLYING THE ESTIMATED GROSS PROFIT RAT E OF 9% TO THE DISCLOSED TURNOVER OF THE ASSESSEE FOR THE ASSE SSMENT YEAR 2003-04. THERE IS NO REASON OR MATERIAL TO ESTIMAT E HIGHER SALES AND APPLY ESTIMATED HIGHER GROSS PROFIT RATE TO ALL THE PRECEDING YEARS FALLING IN THE BLOCK PERIOD BOOKS OF ACCOUNTS OF WHICH HAVE NOT BEEN REJECTRED BY THE ASSESSING O FFICER. THE ISSUE IS SQUARELY COVERED BY THE DECISION OF COORD INATE BENCH IN THE CASE OF SMT. VINITA AGARWAL OF THE SAME GROU P WHEREIN -: 129: - 129 DELETION OF GROSS PROFIT ADDITION MADE BY THE ASSES SING OFFICER WAS CONFIRMED BY THE TRIBUNAL IN ITS ORDER DATED 20 .3.2009. WE DIRECT ACCORDINGLY. 73. THE REVENUE IS ALSO AGGRIEVED FOR GRANTING RELIEF OF RS. 24 005/- OUT OF THE ADDITION MADE BY THE ASSESSING OFFICER ON ACCOUNT OF GROSS PROFIT ON ESTIMATED SALES OUTSIDE THE BOOKS OF ACCOUNTS. THE FACTS IN BRIEF ARE THAT THE STOCK WAS TAKEN DURING THE COURSE OF SURVEY/SEARCH. BY COMPARING T HE DISCLOSED STOCK TAKEN DURING SEARCH WITH THE BOOK S TOCK THE ASSESSING OFFICER FOUND THAT THERE WAS SHORTAGE IN STOCK OF RS. 57 590/-. ON THIS BASIS THE ASSESSING OFFICER ESTIM ATED SALES OF ASSESSMENT YEAR 2003-04 AT RS. 3.00 CRORES AS AG AINST THE ACTUAL SALES OF RS.19 38 809/- FOR THE PERIOD 1.4.2 002 TO 12.6.2002. AFTER APPLYING THE GROSS PROFIT RATE OF 14% ON ESTIMATED SALES OF RS.7 57 604/- GROSS PROFIT ADDI TION OF RS. 1 06 065/- WAS MADE. 74. THE LD. A.O. ALSO MADE ADDITION BY WORKING OUT EXCE SS STOCK AS UNDER : INVENTORY P.B. STOCK REMARKS A7 189-197 17 69 478 IT IS DURING SURVEY -: 130: - 130 AT PB 197 U/S 133A PB 189. RATES ACCORDING TO CHITS DOUBLE THE MRP RATE AS CODE A-5 178-181 8 51 670 -DO- PB 181 SEE REMARKS ON PB 181 1 19 675 DOUBLE THE RATES ----------- 27 40 823 LESS : ESTIMATED G.P.@ 14% AO PG.16 3 88 715 ------------ 23 57 108 LESS : STOCK AS PER BOOKS 24 14 698 ------------- SHORT STOCK 57 590 ------------- 75. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) FO UND THAT THE ASSESSING OFFICER HAS NOT TAKEN THE INVENT ORY AS PER MRP WHICH IS JUST HALF THE TAG PRICE. THE LEAR NED COMMISSIONER OF INCOME TAX (APPEALS) OBSERVED THAT A DOCUMENT WAS FOUND DURING THE COURSE OF SEARCH TO INDICATE THAT TAG PRICE WAS DOUBLE THE MRP THEREFO RE BY TAKING THE HALF VALUE OF THE TAG PRICE THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) RECOMPUTED THE -: 131: - 131 STOCK POSITION. THE STOCK WHICH WAS COMPUTED BY THE ASSESSING OFFICER AT THE TAG PRICE OF RS. 27 40 823 /- WAS RECOMPUTED BY THE LEARNED COMMISSIONER OF INCOME TA X (APPEALS) AT RS. 21 76 529/- AFTER CONSIDERING THE SALES WHICH HAVE BEEN IGNORED BY THE ASSESSING OFFICER AMOUNTING TO RS. 17 31 910/- BY TAKING INTO ACCOUNT THE SALES CONSIDERED BY THE ASSESSING OFFICER AT DOUBLE THE MRP AMOUNTING TO RS.26 21 148/-. THE RELEVANT OBSERVATION OF THE LEARNED COMMISSIONER OF INCOME T AX (APPEALS) IS AT PAGE 13 OF HIS ORDER. AFTER SUBSTR ACTING THE STOCK LEFT TO BE CONSIDERED BY THE ASSESSING OFFICE R FINALLY THE STOCK WAS WORKED OUT BY THE LEARNED COMMISSIONE R OF INCOME TAX (APPEALS) AT RS. 27 31 373/- (RS. 21 76 529 + 5 54 844). THE WORKING IS GIVEN AT PAGE 13 14 AND 15 OF THE ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS). OUT OF THIS VALUE OF STOCK THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) HAS REDUCED TH E GROSS PROFIT AT 8.59% THUS WORKED OUT THE STOCK AT RS. 24 96 748/-. -: 132: - 132 76. BY THE IMPUGNED ORDER THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) FOUND THAT MRP WAS HALF OF THE TAG PRICE. ACCORDINGLY HE WORKED OUT THE MRP OF THE STOCK AT RS.27 31 386/- WHEREON AFTER APPLYING GROSS PROFIT RATE OF 8.59% HE WORKED OUT THE COST OF SUCH GOODS AT RS. 24 96 758/-. SINCE THE STOCK AS PER THE BOOKS WAS OF RS. 24 14 698/- EXCESS STOCK OF RS. 82 060/- WAS WORKE D OUT BY THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS). ACCORDINGLY AN ADDITION OF RS. 82 060/- WAS RETAIN ED BY THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) AS AGA INST THE ADDITION OF RS.1 06 065/- WORKED OUT BY THE ASSESSI NG OFFICER ON THE BASIS OF SHORTAGE IN STOCK. ON THE REASONIN G DISCUSSED HEREINABOVE WITH REGARD TO GROSS PROFIT RATE WE DI RECT THE ASSESSING OFFICER TO REWORK OUT THE ADDITION IN RES PECT OF EXCESS STOCK IN THE MANNER WORKED OUT BY THE LEARNE D COMMISSIONER OF INCOME TAX (APPEALS) AFTER APPLYING GROSS PROFIT RATE OF 9% IN PLACE OF G.P. RATE OF 8.59% AP PLIED BY CIT(A). . WE DIRECT ACCORDINGLY. -: 133: - 133 77. ADDITION ON ACCOUNT OF HOUSEHOLD EXPENSE WAS DELET ED BY THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) AFTER HAVING MADE THE FOLLOWING OBSERVATIONS:- IN GROUND NUMBER 11 APPELLANT SUBMITTED THAT ASSE SSING OFFICER WAS NOT JUSTIFIED IN MAKING ADDITION OF RS. 3 00 00 0/- BY ESTIMATING THE HOUSEHOLD EXPENSES FOR THE BLOCK PERIOD BECAUSE SUC H AN ADDITION WAS MADE WITHOUT ANY MATERIAL OR INFORMATION FOUND AS A RESU LT OF SEARCH. LD. COUNSEL SUBMITTED THAT ASSESSING OFFICER WAS NOT JU STIFIED IN MAKING THIS ADDITION BECAUSE THERE IS NO EVIDENCE FOUND DURING THE COURSE OF SEARCH THAT APPELLANT HAD SPENT MORE ON HIS HOUSEHOLD EXPENSES THAN DISCLOSED IN THE BLOCK PERIOD WHILE FILING RETURNS FOR THE BLOCK PER IOD. LD. COUNSEL VEHEMENTLY ARGUED THAT NO EVIDENCE WHATSOEVER FOUND DURING THE COURSE OF SEARCH WHICH COULD JUSTIFY THE ADDITION MADE BY THE ASSESSING OFFICER. HE PLEADS THAT UNDISCLOSED INCOME IS TO BE COMPUTED ON LY WITH REFERENCE TO THE EVIDENCE FOUND DURING THE COURSE OF SEARCH. LD. COU NSEL HAD PLACED RELIANCE IN RESPECT OF UNDER MENTIONED CASES IN SUP PORT OF HIS ARGUMENT THAT ASSESSING OFFICER WAS NOT JUSTIFIED IN ESTIMATING T HE HOUSEHOLD EXPENSES AND MAKING ADDITION ON THAT BASIS WHILE COMPLETING THE ASSESSMENT FOR THE BLOCK PERIOD. (I) DAVID DHAWAN VS. ACT (1999) 71 ITD 1 MUMBAI -: 134: - 134 (II) ABDUL GAFAR A. NADIADWALA VS. DY. CIT (2201) 75 TTD 394 MUMBAI (III) POOJA BHATT VS. ACT (2000) 73 ITD 205 MUMBAI (IV) K. MOIDU VS. ACT (2002) 256 ITR 76 KOCHIN (V) NILESH R. SHAH VS. ACT (2002) 263 ITR 74 CHENNAI (VI) KISHANDAS PITAMBARDAS VS. ACT (1998) 26 ITC 149 IND ORE ASSESSING OFFICER HAS DISCUSSED THIS ISSUE IN PARA 11 OF THE ASSESSMENT ORDER ON PAGES 16 TO 18. HE FOUND TH AT APPELLANT ALONG WITH THE OTHER FAMILY MEMBERS HAVE NOT WITHDRAWN SUFFICIENT AMOUNTS FOR MEETING THE FAMILY EXPENSES FOR THE BLOCK PERIOD. THEREFORE KEEPING I N VIEW THE STANDARD OF LIVING STATUS OF THE APPELLANTS F AMILY AND OTHER FACTORS ASSESSING OFFICER HAS ESTIMATED HOUSEHOLD EXPENSES OF THE FAMILY OF THE APPELLANT A T RS.6 29 303/- AND AFTER DEDUCTING THE WITHDRAWALS M ADE BY THE APPELLANT ALONG WITH THE OTHER FAMILY MEMBER S AMOUNTING TO RS.3 29 303/- ASSESSING OFFICER HAS M ADE ADDITION OF RS.3 00 000/- ON ACCOUNT OF UNEXPLAINED INVESTMENT . I HAVE CONSIDERED THE SUBMISSION OF THE LD. COUNSEL CAREFULLY. I HAVE ALSO SEEN THE REASONING GIVEN BY THE ASSESSING OFFICER FOR MAKING THIS ADDITION. AFTER DUE CONSIDERATION OF THE MATTER I -: 135: - 135 HOLD THAT ASSESSING OFFICER WAS NOT JUSTIFIED IN MAKING THE ADDITION OF RS. 3 00 000/- BECAUSE NO EVIDENCE WAS FOUND DURING THE COURSE OF SEARCH THAT APPELLANT HAD SPENT A SUM OF RS. 6 29 303/- ON MEETING HIS FAMILY EXPENSES FOR THE BLOCK PERIOD. UNDISCLOSED INCOME IS TO BE COMPUTED ONLY WITH REFERENCE TO THE EVIDENCE FOUND DURING THE COURSE OF SEARCH OR BASIS OF EVIDENCE BROUGHT ON RECORD SUBSEQUENTLY DURING THE COURSE OF ASSESSMENT PROCEEDINGS. SINCE NO EVIDENCE WAS FOUND DURING THE COURSE OF SEARCH NOR ANY EVIDENCE WAS BROUGHT ON RECORD BY THE ASSESSING OFFICER TO THE FACT THAT APPELLANT HAD SPENT RS. 6 29 303/- ON THE HOUSEHOLD EXPENSES FOR THE BLOCK PERIOD ADDITION MADE BY THE ASSESSING OFFICER OF RS.3 00 000/- IS NOT JUSTIFIED AND THE SAME IS HEREBY DELETED. 78. WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND FOUND THAT DURING THE COURSE OF SEARCH NOTHING WAS FOUND TO INDICATE THAT THE ASSESSEE HAS INCURRED EXPENDITURE ON HOUSE MORE THAN WHAT WAS SHOWN AS W ITHDRAWALS. THE FINDING RECORDED BY THE LEARNED COMMISSIONER OF INC OME TAX (APPEALS) TO -: 136: - 136 THE EFFECT THAT NO EVIDENCE WAS FOUND DURING THE CO URSE OF SEARCH NOR ANY EVIDENCE WAS BROUGHT ON RECORD BY THE ASSESSING OFF ICER ON SUBSEQUENT INQUIRY TO THE EFFECT THAT ASSESSEE HAD SPENT RS.6 29 309/- ON HOUSEHOLD EXPENSES FOR THE BLOCK PERIOD WAS NOT CONTROVERTED BY THE DEPARTMENT BY BRINGING ANY POSITIVE MATERIAL ON RECORD. ACCORDING LY WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) AND UPHOLD THE SAME. 79. IN THE RESULT THE APPEAL OF THE REVENUE IS ALLOWED IN PART IN TERMS INDICATED HEREINABOVE. IT(SS) A NO. 61/IND/2006 AND CO 36/IND/2006 80. THE FACTS IN BRIEF ARE THAT ASSESSEE WAS PROPRIETOR OF M/S ANARKALI HO AND SHREEJI SILK BRANCH. AT SHREEJI SIL K HE WAS DOING WHOLESALE BUSINESS OF SAREE AND CLOTH. A T ANARKALI HE WAS DOING RETAIL BUSINESS. DURING THE COURSE OF SEARCH ADDITION OF RS.18 33 901/- WAS MADE ON AC COUNT OF UNDISCLOSED PROFIT AND UNEXPLAINED INVESTMENT . 81. ...BY THE IMPUGNED ORDER THE LEARNED COMMISSIONER O F INCOME TAX (APPEALS) DELETED THE ADDITION OF RS.18 33 901/- BY OBSERVING THAT THE ADDITION WAS NOT BASED ON ANY EVIDENCE FOUND DURING THE COURSE OF SE ARCH. -: 137: - 137 FOLLOWING WAS THE PRECISE OBSERVATION OF THE LEARNE D COMMISSIONER OF INCOME TAX (APPEALS) :- I HAVE CONSIDERED VERY CAREFULLY THE SUBMISSIONS AN D ARGUMENTS OF THE APPELLANT SUBMITTED BEFORE ME. I HAVE ALSO V ERY CAREFULLY PERUSED THE REASONING GIVEN BY THE ASSESSING OFFICER FOR MA KING ADDITION BY APPLYING A GROSS PROFIT RATE OF 14% ON DISCLOSED TU RNOVER AFTER APPLYING PROVISIONS OF SECTION 145(3). AFTER DUE CO NSIDERATION OF THE MATTER I HOLD THAT ASSESSING OFFICER WAS NOT JUSTI FIED IN MAKING THIS ADDITION OF RS.18 33 901/- BY APPLYING GROSS PROFIT RATE OF 14% ON THE DISCLOSED TURNOVER FOR THE BLOCK PERIOD AS AGAINST AVERAGE GROSS PROFIT OF 7.56% DISCLOSED BY THE APPELLANT FOR THE BLOCK P ERIOD BECAUSE AS A RESULT OF SEARCH NO EVIDENCE WHATSOEVER WAS FOUND ON THE BASIS OF WHICH IT COULD BE SAID THAT APPELLANT HAD EARNED MO RE INCOME IN THE BLOCK PERIOD THAN IT DISCLOSED IN THE BOOKS OF ACCO UNTS. IT GOES WITHOUT SAYING THAT UNDISCLOSED INCOME HAS TO BE COMPUTED O NLY WITH REFERENCE TO THE EVIDENCE FOUND DURING THE COURSE OF SEARCH. SINCE NO EVIDENCE WAS FOUND AS A RESULT OF SEARCH THAT APPELLANT HAD GROSS PROFIT AMOUNTING TO RS.39 87 247/- AS WORKED OUT BY THE AS SESSING OFFICER SUCH AN ADDITION CANNOT BE UPHELD AND SUSTAINED. TH E ADDITION MADE BY THE ASSESSING OFFICER IS BASED ONLY ON ASSUMPTION A ND PRESUMPTION AND CONJUNCTURES. APPELLANT HAS VERY WELL EXPLAINED PAG ES 64 65 & 66 FOUND AND SEIZED FROM THE BUSINESS PREMISES OF OTHE R CONCERN AND THE SAME CANNOT BE MADE BASIS FOR MAKING ANY ADDITION I N CASE OF THE APPELLANT. AS A MATTER OF FACT ADDITION MADE IN CA SE OF SHRI DINESH -: 138: - 138 KUMAR AGRAWAL PROP M/S SHREEJI SAREEWALE FROM WHOS E PREMISES SUCH PAPER VIZ. 64 65 & 66 OF LPS-1/2 WERE FOUND A ND SEIZED WAS DELETED BY THE CIT(A)-II BHOPAL IN THE REGULAR ASS ESSMENT ORDER MADE BY THE ASSESSING OFFICER. SINCE AS A RESULT OF SEAR CH NO INCRIMINATING DOCUMENTS WERE FOUND THERE IS NO JUSTIFICATION WHA TSOEVER FOR THE ASSESSING OFFICER TO APPLY PROVISIONS OF SECTION 14 5(3). AS OBSERVED BY LD. ITAT SPECIAL BENCH MUMBAI IN CASE OF MORARJI GOCULDAS SPINNING & WEAVING CO. LTD. VS. DCIT REPORTED AT 95 ITD UNDISCLOSED INCOME WHICH CAN BE ASSESSED UNDER CHAP TER XIVB SHOULD BE THAT AMOUNT WHICH IS COMPUTED ON THE BASIS OF EV IDENCE FOUND AS A RESULT OF SEARCH AND SUCH OTHER MATERIAL OR INFORMA TION AS ARE AVAILABLE WITH THE ASSESSING OFFICER AND RELATABLE TO SUCH EVIDENCE. THE CORE THING TO BE SEEN IS THE EVIDENCE FOUND WHICH W ILL BE THE BASIS FOR MAKING THE ASSESSMENT. SINCE IN CASE OF THE APPELLA NT NO EVIDENCE WAS FOUND ASSESSING OFFICER IS NOT JUSTIFIED IN COMPUT ING UNDISCLOSED INCOME AMOUNTING TO RS.18 33 901/- BY APPLYING A GR OSS PROFIT RATE OF 14% ON DISCLOSED TURNOVER. WHILE HOLDING THAT ASSES SING OFFICER WAS NOT JUSTIFIED IN MAKING THIS ADDITION AS NO EVIDENC E WAS FOUND DURING THE COURSE OF SEARCH I RELY UPON THE JUDGMENT OF H ONBLE ALLAHABAD HIGH COURT IN CASE OF CIT VS. USHA TRIPATHI REPORTE D AT 249 ITR 4 AND ALSO ON THE DECISIONS OF HONBLE KOLKATTA HIGH COURT IN CASES OF BHAGWANDAS KEDIA VS. CIT REPORTED AT (2001) 2481 IT R 562 KOLKATTA CALTRO DECO STEEL SALES VS. DCIT REPORTED AT (2000) 243 ITR 643 KOLKATTA AND ALSO ON THE DECISION OF HONBLE DELHI HIGH COURT IN CASE OF CIT VS. RAVIKANT JAIN REPORTED AT (2001) 250 ITR 141 DELHI. -: 139: - 139 ACCORDINGLY SINCE ADDITION OF RS. 18 33 901/- IS N OT BASED ON ANY EVIDENCE FOUND IN THE SEARCH THE SAME IS HEREBY DE LETED. 82 WE HAVE CONSIDERED THE RIVAL SUBMISSIONS OF THE PAR TIES AND GONE THROUGH THE MATERIAL AVAILABLE ON RECORD. IN THIS APPEAL SHRI SWADESH AGRAWAL WAS CARRYING ON BUSINE SS AS PROPRIETOR OF M/S ANARKALI H.O. AND M/S SHREEJI SIL K BRANCH. AT ANARKALI RETAIL TRADING OF SAREE AND CLOTH WAS U NDERTAKEN WHEREAS AT SHREEJI SILK BRANCH WHOLESALE OF SAREE A ND CLOTH WAS UNDERTAKEN. DURING THE COURSE OF SEARCH PHYSIC AL INVENTORY OF STOCK WAS PREPARED AND DIFFERENCE WAS POINTED OUT AS COMPARED TO STOCK AS PER THE BOOKS OF ACCOUN TS. BY POINTING OUT THAT THE LEDGER WAS NOT FOUND DURING T HE COURSE OF SEARCH AND THE ASSESSEE WAS NOT MAINTAINING STOC K REGISTER THE ASSESSING OFFICER REJECTED THE BOOK RESULTS IN RESPECT OF ENTIRE BLOCK PERIOD AND AFTER APPLYING GROSS PROFIT RATE OF 14% MADE AN ADDITION OF RS. 18 33 901/-. WE FIND THAT LEDGER OF THE ASSESSEE WAS NOT FOUND DURING THE COURSE OF SEA RCH. THE LEDGER IS PREPARED ON THE BASIS OF CASH BOOK AND JO URNAL WHICH WAS DULY MAINTAINED BY THE ASSESSEE. IN RESPECT OF THE STOCK REGISTER AS DISCUSSED IN THE CASE OF DINESH AGRAWA L THE CONTENTION OF THE ASSESSEE THAT SINCE THE ASSESSEE WAS DOING BUSINESS IN SEVERAL TYPES OF CLOTH SAREE AND DRESS MATERIAL IT WAS NOT PRACTICABLE TO MAINTAIN STOCK REGISTER AND FOR THIS PURPOSE RELIANCE WAS PLACED ON THE DECISION REPORT ED IN 26 ITR 159 83 ITR 485 AND 45 STC 381. AFTER GOING TH ROUGH THE ORDERS OF THE LOWER AUTHORITIES WE FIND THAT THE DE FECTS POINTED -: 140: - 140 OUT BY THE ASSESSING OFFICER WERE NOT OF SUCH MAGNI TUDE SO AS TO PERSUADE THE ASSESSING OFFICER TO APPLY GROSS PR OFIT RATE OF 14% IN RESPECT OF ALL THE YEARS INVOLVED IN THE BLO CK PERIOD. THE DISCREPANCY FOUND IN THE BOOKS OF THE CURRENT Y EAR CANNOT BE USED FOR REJECTING THE BOOKS OF ACCOUNTS OF THE EARLIER YEARS. 82. FROM THE PROFIT AND LOSS ACCOUNT FOR THE YEARS FALL ING IN THE BLOCK PERIOD THE AVERAGE RATE OF GROSS PROFIT IS WORKED OUT AT 7.64% AS AGAINST WHICH THE ASSESSING OFFICER HAS APPLIED GROSS PROFIT OF 14%. KEEPING IN VIEW THE FINDINGS RECORDED BY THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) VI S--VIS THE ASSESSING OFFICER WE ARE INCLINED TO MODIFY TH E ORDERS OF THE LOWER AUTHORITIES AND IN THE INTEREST OF JUSTIC E DIRECT THE ASSESSING OFFICER TO RESTRICT THE ADDITION BY TAKIN G GROSS PROFIT RATE OF 9% ON THE SALES FOR ASSESSMENT YEAR 2003-04 . WE DIRECT ACCORDINGLY. 83. THE ASSESSING OFFICER ALSO MADE ADDITION ON ACCOUNT OF UNEXPLAINED INVESTMENT IN EXCESS STOCK FOUND DURING THE COURSE OF SEARCH. THE STOCK WAS REWORKED OUT BY THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) WHEREIN HE FOU ND SHORTAGE IN STOCK WORTH RS.2 44 910/-. AFTER APPLYI NG GROSS PROFIT RATE THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) -: 141: - 141 SUSTAINED ADDITION OF RS.19 915/- AFTER HAVING THE FOLLOWING OBSERVATIONS :- GROUNDS NUMBER 6 & 7 APPELLANT SUBMITTED THAT ASSESSING OFFICER WAS NOT JUSTIFIED IN MAKING ADDITION OF RS.2 72 284/- ON ACCOUNT OF UNEXPLAINED INVESTMENT IN STOCK BECAUSE THERE WAS NO EXCESS STOCK AND APPELLANT HAD EXPLAINED THE STOCK FOUND. LD. COUNSEL SUBMITTED THAT ASSESSING OFFICER WAS NOT JUSTIFIED IN MAKING THIS ADDITION ON ACCOUNT OF EXCESS STOCK AS APPELLANT HAD EXPLAINED THE STOCK FOUND PROPERLY. IT IS SUBMITTED BY HIM THAT INVENTORY OF STOCK TAKEN DURING THE COURSE OF SURVEY CANNOT BE TREATED AS MATERIAL SEIZED AND FOUND DURING THE COURSE OF SEARCH. THE STOCK WAS NOT WORKED OUT CORRECTLY BY THE AUTHORIZED -: 142: - 142 OFFICERS. THOUGH STOCK WAS TAKEN AS PER NORMS WHILE PREPARING ASSESSEE & B LISTS BUT THEREAFTER THE SAME WAS CHANGED WITHOUT ANY JUSTIFICATION. APPELLANT HAD A POLICY TO ATTACH TAG TO EVERY ITEM MENTIONING THEREON THE TAG PRICE WHICH IS DOUBLE OF MRP I.E. IF TAG PRICE IS HALVED IT WOULD GIVE MRP AND IF THE STOCK WAS TAKEN CONSIDERING THIS AS PRICE THERE WOULD BE NOT ANY DIFFERENCE IN THE STOCK FOUND AND IN THE STOCK AS PER BOOKS OF ACCOUNTS. LD. COUNSEL SUBMITTED THAT M/S SHREEJI SILK IS A WHOLESALE DEALER AND IS HAVING MORE THAN 200 RETAIL CUSTOMERS. APPELLANT IS AN INDIVIDUAL AND DOES NOT REMAIN SHOP AT ALL THE TIME. AT THE TIME OF SEARCH APPELLANT WAS NOT AVAILABLE AT THE BUSINESS PREMISES. HE HAS WRITTEN THE CODE FIGURE ON EACH SAREE AND INSTRUCTION FOR -: 143: - 1 43 50% OF PRICE TAG FOR ARRIVING AT MRP ON THE PROMINENT PLACE IN THE SHOP SO THAT EVERY CUSTOMER CAN SEE AND THE SALESMAN CANNOT OVER CHARGE IN THE ABSENCE OF PROPRIETOR. IT IS TO BUILD CONFIDENCE IN THE CUSTOMER. SUCH NOTICE WAS SHOWN CUSTOMER CAN KNOW VERY WELL BY SEEING TAG PRICE THAT A PARTICULAR SAREE WILL BE AVAILABLE AT HALF OF THE RATE BY THE FIGURE MENTIONED ON THE TAG. THE TAG PRICE IS NOT MENTIONED IN THE BILLS BASICALLY. BILLS WILL CONTAIN ONLY SELLING PRICE WHICH IS HALF OF THE TAG PRICE. ONCE THE RETAILERS PURCHASE SAREES FROM THE APPELLANT HE KNOWS FOR THE SELLING RATE OF SAREE AS HE KNOWS THAT TAG PRICE IS DOUBLE OF THE SELLING PRICE. APPELLANT HAS GIVEN THE WORKING OF THE STOCK FOUND AS UNDER :- -: 144: - 144 STOCK AS PER MRP FROM INVENTORY A& B AS PER AUTHORI ZED OFFICER 1205444 STOCK AS PER INVENTORY THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) 5936 11 1799055 LESS : AVERAGE G.P. 7.64% ( - ) 137447 1661607 COST OF DEFECTIVE SAREES 197945 DIFFERENCE IN VALUATION 47534 TOTALING MISTAKE 1416 TOTAL STOCK AS PER COST 1908502 STOCK SHOWN BY ASSESSEE AS PER BOOKS ON THE DATE OF SEARCH 1907957 LD. COUNSEL SUBMITTED THAT ASSESSING OFFICER OUGHT TO HAVE TAKEN STOCK AS PER MRP NOT ON THE BASIS OF TAG PRICE. IT IS FURTHER SUBMITTED BY HIM THAT WHILE TAKING STOCK NO VALUATION WAS INCLUDED IN RESPECT OF DEFECTIVE SAREES AND THEIR COST HAS BEEN NOW WORKED OUT AT RS. 1 97 945/-. THERE WAS SOME SAREES WHICH WERE UNDERVALUED AND SUCH DIFFERENCE IN VALUATION IS WORKED OUT AT RS.47 534/-. THERE WAS ALSO A TOTALING MISTAKE OF -: 145: - 145 RS.1 416/- AND IT IS PLEADED BY HIM THAT THE STOCK AS FOUND ON THE DATE OF SEARCH IS CORRECTLY VALUED AT RS.19 08 504/- AS PER WORKING GIVEN ABOVE. LD. COUNSEL SUBMITTED THAT APPELLANT HAD PLACED SUCH FACTS BEFORE THE ASSESSING OFFICER DURING THE COURSE OF ASSESSMENT PROCEEDINGS AS PER WORKING GIVEN ABOVE THE STOCK AS PER BOOKS OF ACCOUNTS IS WORKED OUT TO RS.19 07 957/-. THUS THERE IS A NEGLIGIBLE DIFFERENCE BETWEEN THE STOCK FOUND AS A RESULT OF SEARCH AND THE STOCK AS PER BOOKS OF ACCOUNTS AND THUS NO ADDITION IS JUSTIFIED ON ACCOUNTS OF EXCESS STOCK AS IN FACT THERE IS NOTHING. LD. COUNSEL PLEADED THAT ASSESSING OFFICER HAS NOT GIVEN ANY REASON FOR NOT ACCEPTING THE WORKING OF STOCK AS GIVEN BY THE APPELLANT DURING THE COURSE OF ASSESSMENT PROCEEDINGS. ASSESSING OFFICER HAS ARBITRARILY WORKED OUT THE VALUE OF STOCK ON THE DATE OF SEARCH AND HAS MADE -: 146: - 146 ADDITION OF RS. 2 72 284/- WHICH IS NOT SUSTAINABLE. LD. COUNSEL FURTHER SUBMITTED THAT ASSESSING OFFICER WAS NOT JUSTIFIED IN MAKING VARIATION IN THE STOCK AS DONE AS PER LIST ASSESSEE & B AT RS.12 05 444/- AND THEREAFTER REWORKING ITS VALUE TO RS.20 06 564/-. THE STOCK IN THE LIST AS PER ASSESSEE & B WAS WORKED OUT AT MRP. THEREFORE THE VALUE AS WORKED OUT BY THE AUTHORIZED OFFICER OF STOCK AS PER LIST A & B AT RS . 12 05 444/- DID NOT REQUIRED ANY CHANGE. IT IS NOT CORRECT TO SAY THAT VALUE OF ITEMS MENTIONED AT SL. NOS. 196 TO 268 WAS TAKEN AS TAG PRICE AS A MATTER OF FACT VALUE OF ALL ITEMS COVERED BY LIST A & B WAS TAKEN AT MRP. THE SUBMISSION OF THE APPELLANT IN THIS REGARD WAS NOT GIVEN PROPER ATTENTION BY THE ASSESSING OFFICER. IT WOULD BE WORTHWHILE TO GIVE THE VALUATION AS DONE BY THE AUTHORIZED OFFICER OF LIST A & B IS AS UNDER :- -: 147: - 147 PAGEWISE SUMMARY PAGE NO. 1 12852 NOTE : THE PRICE MENTIONED IN T HE LIST IS THE NET PRICE PAGE NO. 2 20516 I.E. 50% OF THE PRINTED PRICE ON SAREES EXCEPT IN CASE PAGE NO.3 51272 OF ITEMS MENTIONED FROM SL. NO. 1 96 TO 268 TO WHICH PAGE NO. 4 65343 THE PRINTED PRICE WAS TAKEN. THE TOTAL VALUE OF ITEMS PAGE NO. 5 115275 FROM SL. NO. 196 TO 268 COMES TO RS.4 04 324/- PAGE NO. 6 52020 PAGE NO. 7 157102 PAGE NO. 8 185582 PRINTED PRICE 1205444 PAGE NO. 9 125693 (-) 404324 PAGE NO. 10 128379 801120 X 2 PAGE NO. 11 88761 1602240 PAGE NO. 12 38591 (+) 404324 LIST B 164058 2006564 1205444 AS REGARDS STOCK AS PER LIST C THOUGH AUTHORIZED OFFICER HAS WORKED OUT THE VALUE AT -: 148: - 148 RS.5 28 600/- THE CORRECT IS WORKED OUT AT RS.5 93 611/- BY THE APPELLANT. ASSESSING OFFICER HAD DISCUSSED THIS ISSUE IN PARA 12 ON PAGES 14 & 15. ASSESSING OFFICER HAS TAKEN THE STOCK OF GOODS AS PER INVENTORY ASSESSEE & B AT RS.20 06 564/- AND AS PER INVENTORY C VALUE OF STOCK WAS TAKEN BY HIM AT RS.5 28 600/-. THUS HE HAS WORKED OUT THE TOTAL STOCK ON THE DATE OF SEARCH AT RS.25 35 164/- (RS.20 06 564/- + RS.5 28 600/-). AFTER REDUCING GROSS PROFIT @ 14% FROM SUCH VALUE OF STOCK. ASSESSING OFFICER HAD WORKED OUT THE COST OF STOCK FOUND AT THE TIME OF SEARCH RS.21 80 241/-. STOCK AS PER BOOKS OF ACCOUNT ON THE DATE OF SEARCH I.E. 13/06/2002 AT RS.19 07 957/- AND THUS HAS WORKED OUT THE EXCESS OF RS.2 72 284/-. SINCE ASSESSING OFFICER HAD MADE ADDITION BY APPLYING GROSS PROFIT RATE AMOUNTING TO RS.18 13 901/- ASSESSING OFFICER -: 149: - 149 HAD NOT MADE SEPARATE ADDITION ON ACCOUNT OF EXCESS STOCK AS WORKED OUT BY HIM ABOVE. IN HAS BEEN SUBMITTED BY THE LD. COUNSEL THAT COPY OF PANCHANAMA ALONG WITH ITS ANNEXURES WHICH IS LIST OF STOCK AS PER ASSESSEE B & C WERE NOT HANDED OVER TO THE APPELLANT ON THE DATE OF SEARCH. AFTER WRITING SO MANY LETTERS TO THE ASSESSING OFFICER THE LIST OF STOCK WAS MADE AVAILABLE TO THE APPELLANT. IT WAS FOUND FROM THE PERUSAL OF LAST PAGE OF INVENTORY OF LIST ASSESSEE & B WHEREBY TOTAL OF PAGES 1 TO 12 LIST ASSESSEE AND LIST B WAS MENTIONED AND ITS GROSS TOTAL AT RS. 12 05 444/-. EVEN IN WORDS THIS AMOUNT HAS BEEN MENTIONED AND THE SAME HAS BEEN SIGNED BY THE AUTHORIZED OFFICER AND ALSO SHRI RAKESH JAIN IN-CHARGE OF THE SHOP THEN. IT HAS BEEN SUBMITTED BY HIM THAT THE NOTE WHEREBY THE STOCK OF RS.12 05 444/- WAS REWORKED OUT TO -: 150: - 150 RS.20 06 564/- WAS NOT MADE AT THE TIME OF SIGNATURE BY THE STAFF OF THE APPELLANT. IT HAS BEE N APPREHENDED THAT SUCH A NOTE WAS DELIBERATELY MADE AFTER THE VALUATION OF THE STOCK POSSIBLY AT THE TIME OF PREPARING THE APPRAISAL REPORT. IT IS SUBMITTED BY HIM THAT THE AMOUNT OF RS.20 06 564/- WAS NOT MENTIONED IN WORDS. THEREFORE IT WAS PLEADED BY THE LD. COUNSEL THAT THE VALUE OF STOCK AS PER LIST ASSESSEE & LIST B WAS TAKEN AT RS.12 05 444/- BECAUSE SUCH VALUATION WAS DONE AT THE MRP RATE AS IS MENTIONED AT THE FIRST ITEM OF LIST AND WHEN STOCK WAS TAKEN @ MRP IT DID NOT REQUIRE ANY ADJUSTMENT BY WAY OF NOTE WHICH APPEARS TO BE SUBSEQUENTLY MADE. THE LD. COUNSEL VEHEMENTLY ARGUED THAT THE VALUE OF STOCK AS PER LIST ASSESSEE & B OF THE GOODS BE ADOPTED FOR THE PURPOSE OF COMPUTATION OF EXCESS OR SHORTAGE OF STOCK FOUND -: 151: - 151 DURING THE COURSE OF SEARCH. LD COUNSEL SUBMITTED FURTHER THAT THE VALUE OF 435 SAREES WHICH WERE FOUND DEFECTIVE AND IN RESPECT OF WHICH NO VALUES WAS TAKEN WHILE TAKING THE STOCK AS PER LIST ASSESSEE & B ITS VALUE HAS BEEN NOW SHOWN FURTHER AND MAY BE TAKEN INTO ACCOUNT FOR COMPUTATION OF EXCESS OR OTHERWISE OF THE STOCK. LD. COUNSEL FURTHER SUBMITTED THAT OTHER MISTAKES SUCH AS CALCULATION MISTAKES AND DIFFERENCE IN VALUATION THE SAME MAY ALSO BE TAKEN INTO ACCOUNT WHILE COMPUTING EXCESS OR SHORTAGE OF STOCK. IT IS FURTHER PLEADED BY HIM THAT IN CASE OF SHORTAGE IN STOCK IS FOUND THEN ONLY ALTERNATIVE LEFT IS TO MAKE SUITABLE ADDITION ON ACCOUNT OF PROFIT ELEMENT INVOLVED BY TAKING THE ASSUMED SALE OF SUCH SHORTAGE OF STOCK. I FIND THAT THERE IS NO RELIABLE EVIDENCE PLACED ON RECORD IN RESPECT OF VALUATION OF -: 152: - 152 DEFECTIVE SAREES NUMBERING 435. SIMILARLY THERE IS NO RELIABLE EVIDENCE ON RECORD TO JUSTIFY IN TAKING THE DIFFERENCE IN VALUATION OF STOCK. IN MY VIEW IT WOULD BE FAIR AND REASONABLE IF THE VALUE OF THE STOCK ON PHYSICAL VERIFICATION ON THE DATE O F SEARCH IS WORKED OUT AS UNDER :- VALUE OF STOCK AS PER LIST ASSESSEE & B RS.12 05 444/- CORRECTED VALUE OF STOCK AS PER LIST C RS.5 93 6 11/- RS.17 99 055/- LESS : GROSS PROFIT @ 7.56% ON RS. 1 36 008/- RS. 17 99 055/- RS.16 63 047/- STOCK FOUND AS PER APPELLANT BOOKS OF ACCOUNT RS.19 07 957/- STOCK FOUND SHORT RS. 2 44 910/- THE ARGUMENT OF THE APPELLANT THAT TAG PRICE IS DOUBLE OF THE MRP AND VALUE OF STOCK IS TO BE CORRECTLY COMPUTED @ MRP IS ACCEPTABLE BECAUSE EVIDENCE TO THIS EFFECT IS FOUND DISPLAYED ON SHOP AND THEREFORE SHORTAGE OF STOCK IS WORKED OUT ON THAT BASIS. SINCE STOCK IS WORKED OUT SHORT AS -: 153: - 153 MENTIONED ABOVE ITS REASON CAN BE ONLY ON ACCOUNT OF SELLING OF STOCK. THEREFORE THE SALE RELATABLE TO SHORTAGE OF STOCK IS WORKED OUT AT RS.2 63 425/-. THE PROFIT ON SUCH ESTIMATED SALE @ 7.56% IS WORKED OUT TO RS.19 915/-. SINCE THERE IS NO REASONABLE BASIS FOR RE-WORKING OUT THE VALUE OF STOCK AT RS.20 06 564/- AS PER LIST ASSESSEE & B AS AGAINST RS.12 05 444/- THE VALUE IS TO BE TAKEN AT RS.12 15 444/- THE VALUE OF GOODS AS PER LIST C OF ITEMS 1 TO 100 IS TO BE TAKEN AT RS.5 93 000/- ON THE GROUND THAT THE LIST OF 100 ITEMS HAS BEEN TAKEN AT THE TAG PRICE WHICH DOUBLE OF THE MRP. THE ADDITION OF RS. 19 915/- HAS BEEN CONSIDERED REASONABLE. SINCE THERE IS NO EXCESS STOCK AS DISCUSSED ABOVE ASSESSING OFFICER WAS -: 154: - 154 NOT JUSTIFIED FOR WORKING OUT THE EXCESS STOCK AT RS.2 72 284/-. THEREFORE AN ADDITION OF RS.19 915/- ONLY APPEARS TO BE JUSTIFIED AS UNDISCLOSED INCOME FOR THE BLOCK PERIOD ON ACCOUNT SHORTAGE OF STOCK. 84. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS OF THE PA RTIES AND GONE THROUGH THE MATERIAL AVAILABLE ON RECORD. WITH REGARD TO THE VALUATION OF STOCK TAKEN PHYSICALLY WE FIND THAT THE ASSESSING OFFICER HAS TAKEN THE TAG PRICE WHERE AS DURING THE COURSE OF SEARCH ITSELF A DOCUMENT WAS FOUND I NDICATING THE TAG PRICE TO BE DOUBLE OF MRP. ACCORDINGLY T HE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) RECOMPUTED THE VALUE OF STOCK BY APPLYING MRP AND GROSS PROFIT RATE OF 7 .56%. AS AGAINST THE EXCESS STOCK OF RS. 2 72 284/- WORKED O UT BY THE ASSESSING OFFICER ON REWORKING THE LEARNED COMMISS IONER OF INCOME TAX (APPEALS) FOUND SHORTAGE IN STOCK TO THE TUNE OF RS. 2 44 910/- AS UNDER :- AS PER A.O. AS PER CIT(A) -: 155: - 155 PAGE 15 PAGE 10 STOCK ON 25 35 164 17 99 055 PHYSICAL VERIFICATION LESS : GP @ 14% @7.56% 3 54 923 1 37 447 ----------- ----------- 21 80 241 16 63 047 ADD : COST OF DEFECTIVE SARIES NIL NIL ------------ ------------- TOTAL - 21 80 274 16 63 047 LESS: STOCK AS PER BOOKS 19 07 957 19 07 957 ------------ ------------ EXCESS 2 72 284 SHORT 2 44 910 85. WITH REGARD TO THE OBSERVATION ON ACCOUNT OF GOODS RETURN TO SAROJ SAREE NEW DELHI THE OBSERVATION W AS RELEVANT IN THE CASE OF DINESH AGRAWAL AND THE SAME CANNOT B E APPLIED IN THE CASE OF THE ASSESSEE FOR REJECTING ITS BOOKS OF ACCOUNTS. 86. THE CONTENTION OF THE ASSESSEE BEFORE US WAS THAT NEITHER THE ASSESSING OFFICER NOR THE LEARNED COMMI SSIONER OF INCOME TAX (APPEALS) HAS CONSIDERED THE COST OF DEF ECTIVE SAREES WHILE WORKING OUT THE VALUATION OF STOCK. O UR ATTENTION WAS INVITED TO COST OF SUCH SAREES AT RS. -: 156: - 156 1 97 945/- AS PLACED AT PAPER BOOK PAGE 123 AND 133 . AFTER GIVING CREDIT FOR COST OF DEFECTIVE SAREES THE VAL UE OF THE CLOSING STOCK AS PER THE ASSESSEE WORKED OUT AT RS. 48 405/-. AS PER THE LD. COUNSEL FOR THE ASSESSEE THIS SHORTA GE WAS NEGLIGIBLE LOOKING TO THE TOTAL SALES OF THE ASSESS EE AND THE STOCK WHICH IS REQUIRED TO BE CARRIED OVER IN THE N ATURE OF TRADE BEING CARRIED ON BY THE ASSESSEE. IT WAS TH EREFORE REQUESTED THAT THE ADDITION ON ACCOUNT OF GROSS PRO FIT SHOULD BE RETAINED ONLY TO THE EXTENT OF PROFIT ON SUCH SH ORTAGE OF STOCK AT RS. 48 405/- WHICH WORKED OUT AS UNDER :- STOCK ON PHYSICAL VERIFICATION 17 99 055 LESS : GP @7.64% PB 114 1 37 447 ---------------- 16 61 607 ADD :COST OF DEFECTIVE SARIES 1 97 945 PB 123 133 ------------ TOTAL 18 59 552 PB 132 LESS : STOCK AS PER BOOKS 19 07 957 -------------- SHORT 48 405 -: 157: - 157 87. THE CALCULATION OF STOCK GIVEN BY THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) IS SUPPORTED B Y EVIDENCE ON RECORD. NO POSITIVE MATERIAL WAS BROUGH T ON RECORD BY THE DEPARTMENT TO ALLEGE THE VALUATION OF CLOSIN G STOCK ARRIVED AT BY THE LEARNED COMMISSIONER OF INCOME TA X (APPEALS) AT RS. 17 99 055/- IN PLACE OF VALUATION ARRIVED AT BY THE ASSESSING OFFICER AT RS.25 35 164/-. THEREFORE WE DO NOT FIND ANY REASON TO INTERFERE WITH THIS PART OF THE ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) WHEREI N HE HAS RETAINED THE ADDITION TO THE EXTENT OF RS.19 915/-. 88. IN THE CROSS OBJECTION THE ASSESSEE IS AGGRIEVED F OR RETAINING THE ADDITION OF RS. 19 915/-. AS ALREADY DISCUSSED WHILE DEALING WITH THE REVENUES APPEAL WE CONFIRM THE ADDITION OF RS. 19 915/- AS RETAINED BY THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS). 89. IN THE RESULT ALL THE APPEALS OF THE REVENUE ARE ALLOWED IN PART IN TERMS INDICATED HEREINABOVE WHEREAS ALL THE CROSS OBJECTION OF THE ASSESSEES ARE DISMISSED. -: 158: - 158 THIS ORDER HAS BEEN PRONOUNCED IN THE OPEN COURT ON 30 TH SEPTEMBER 2011. S D / - S D / - (JOGINDER SINGH) ( R.C.SHARMA) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED :_30 TH SEPTEMBER 2011. COPY TO APPELLANT RESPONDENT CIT CIT(A) DR CPU* 279