The ACIT, Central Circle-2(3),, Ahmedabad v. M/s. Shaileshkumar Nathalal Patel,

ITSSA 39/AHD/2008 | misc
Pronouncement Date: 25-03-2011 | Result: Dismissed

Appeal Details

RSA Number 3920516 RSA 2008
Assessee PAN AAYFS7769Q
Bench Ahmedabad
Appeal Number ITSSA 39/AHD/2008
Duration Of Justice 3 year(s) 22 day(s)
Appellant The ACIT, Central Circle-2(3),, Ahmedabad
Respondent M/s. Shaileshkumar Nathalal Patel,
Appeal Type Income Tax (Search & Seizure) Appeal
Pronouncement Date 25-03-2011
Appeal Filed By Department
Order Result Dismissed
Bench Allotted C
Tribunal Order Date 25-03-2011
Date Of Final Hearing 18-03-2011
Next Hearing Date 18-03-2011
Assessment Year misc
Appeal Filed On 04-03-2008
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL AT AHMEDABAD AHMEDABAD C BENCH (BEFORE S/SHRI BHAVNESH SAINI JUDICIAL MEMBER AND D.C. AGRAWAL ACCOUNTANT MEMBER) IT (SS) A NO.39/AHD/2008 BLOCK PERIOD: 1-4-1996 TO 6-6-2002 THE A. C. I. T. CENTRAL CIRCLE 2(3) ROOM NO.305 AAYAKAR BHAVAN ANNEXE BUILDING AHMEABAD VS. M/S. SAILESHKUMAR NATHALAL PATEL 10 NEW MAKET YARD UNJA PA NO. AAYFS 7769 Q (APPELLANT) (RESPONDENT) C. O. NO.83/AHD/2008 (IN IT (SS) NO.39/AHD/2008) M/S. SAILESHKUMAR NATHALAL PATEL 10 NEW MAKET YARD UNJA PA NO.AAYFS 7769 Q VS. THE A. C. I. T. CENTRAL CIRCLE 2(3) ROOM NO.305 AAYAKAR BHAVAN ANNEXE BUILDING AHMEABAD (CROSS OBJECTOR) (RESPONDENT) IT (SS) A NO.40/AHD/2008 BLOCK PERIOD: 1-4-1996 TO 6-6-2002 THE A. C. I. T. CENTRAL CIRCLE 2(3) ROOM NO.305 AAYAKAR BHAVAN ANNEXE BUILDING AHMEABAD VS. SHRI CHIRAGKUMAR DASHRATHBHAI PATEL 70 NEW MARKET YARD UNJHA PA NO. AGEPP 2939 B APPELLANT RESPONDENT REVENUE BY : SHRI SHELLEY JINDAL CIT D R ASSESSEE BY : SHRI VIJAY RANJAN. AR O R D E R PER BHAVNESH SAINI : THIS ORDER SHALL DISPOSE OF BOTH THE DEPARTMENTAL APPEALS AND THE CROSS OBJECTION OF THE ASSESSEE. BOTH THE IT (SS)A NO.39 AND 40/AHD/2008 C. O. NO.83/AHD/2008 -2- 2 PARTIES SUBMITTED THAT FACTS AND ISSUES ARE SAME IN BOTH THE APPEALS. THEREFORE BOTH WERE HEARD TOGETHER AND DISPOSED OF ACCORDINGLY. IT (SS) A NO.39/AHD/2008 C. O. NO.83/AHD/2009 2. THE DEPARTMENTAL APPEAL AND THE CROSS OBJECTION OF THE ASSESSEE ARE DIRECTED AGAINST THE ORDER OF LEARNED COMMISSIO NER OF INCOME TAX (APPEALS) III AHMEDABAD DATED 5 TH DECEMBER 2007 FOR THE ABOVE BLOCK PERIOD. THE REVENUE CHALLENGED THE ORDER OF T HE LEARNED CIT (A) IN DELETING THE ADDITION OF RS.37 84 360/- ON ACCOUNT OF UNDISCLOSED INVESTMENT. THE ASSESSEE IN THE CROSS OBJECTION CHA LLENGED THE UPHOLDING OF THE PART OF ADDITION OF RS.1.48 LACS O N THE SAME ISSUE. 3. THE FACTS OF THE CASE ARE THAT THE ASSESSEE IS A TRADER AND COMMISSION AGENT OF SPICES LOCATED AT UNJHA. THE DO CUMENTS (ANNEXURE BS-42 BS-45 AND BS-7 ETC.) FOUND FROM ON E M/S. S. N. TRADERS WHICH HAD BEEN SUBJECTED TO ACTION U/S 132 OF THE IT ACT ON 6-6-2002 INDICATED THAT THE ASSESSEE HAD EARNED UND ISCLOSED INCOME. THE A O AFTER RECORDING REASONS/SATISFACTION SERVE D NOTICE U/S 158 BD READ WITH SECTION 158BC OF THE IT ACT IN RESPONSE T O WHICH THE ASSESSEE BELATEDLY FILED BLOCK RETURN ON 20-8-2004 DECLARING UNDISCLOSED INCOME OF RS.35 LACS. THE A O NOTED THA T THE ASSESSEE HAD UNDERSTATED THE INTEREST RECEIVED AND SO EARNED UNACCOUNTED INCOME OF RS.7.58 795/- ON SHARAFI LOANS AND HAD M ACE UNACCOUNTED INVESTMENT IN AGRICULTURAL LAND ETC. IN THE NAME OF THE PARTNERS TO THE EXTENT OF RS.19 67 000/- APART FROM MAKING UNDISCLO SED INVESTMENT IN THE TRADE WHICH THE A O COMPUTED AT RS.55 25 364/ -. ADDITIONALLY THE A O HOWEVER ALSO ESTIMATED UNDISCLOSED SUNDRY DEBT S OF RS.6 81 612/- . THE A O FELT THAT THE UNACCOUNTED INTEREST OF RS. 7.58 LACS AND UNDISCLOSED DEBTORS OF R.6.81 LACS WOULD NOT MERIT A SEPARATE ADDITION SINCE THESE WERE COVERED BY THE ADDITION MADE FOR U NACCOUNTED IT (SS)A NO.39 AND 40/AHD/2008 C. O. NO.83/AHD/2008 -3- 3 TRADING. THE A O ALSO REFERRED TO THE ADMISSION OF THE ASSESSEE THAT IT HAD INDULGED IN UNACCOUNTED TRADING WHICH WAS ACCEP TED BY THE ASSESSEE TO BE OF RS.1 96 10 549/- ON ACCOUNT OF CO MMISSION INCOME AND RS.99 38 392/- ON ACCOUNT OF OWN TRADING I.E. TOTALING TO RS.2.95 CRORES. THE A O FELT THAT THE UNACCOUNTED TRADE TO THE EXTENT OF OVER RS.2.95 CRORES WOULD HAVE REQUIRED SIZEABLE WORKING CAPITAL AND FELT THAT IT COULD BE COMPUTED BY WORKING OUT THE PEAK O F INVESTMENTS GLEANED FROM THE DETAILS AND EVIDENCES OF SALES. TH E A O NOTED THAT THE MARKETING COMMITTEE RULES STIPULATED THAT PAYMENTS TO THE FARMERS WHOSE GOODS WERE ARRANGED TO BE SOLD BY THE ASSESSE E WAS TO BE PAID ON THE DATE OF THE RELATED SALE ITSELF AND THEREFOR E THE GOODS PROCURED BY THE ASSESSEE FOR SUBSEQUENT SALE MUST HAVE BEEN PAID ON THE DATE OF PROCUREMENT ITSELF. WITH THIS RULE AS THE BACKDR OP THE A O THEREFORE COMPUTED THE PEAK INVESTMENT AND CONFRONTED IT TO T HE ASSESSEE POINTING OUT THAT THERE WAS A CASH DEFICIT OF RS.55 25 364/- AS ON 21-3-1999 AND SO THIS CASH CONSTITUTED THE PEAK UND ISCLOSED INVESTMENT. THE ASSESSEE FILED IT OBJECTIONS ON SEV ERAL GROUNDS TO THE ASSUMPTION/WORKING OF THE A O. THE A O HAS PRODUCED THE GIST OF HIS WORKING/ASSUMPTION AND OF THE OBJECTIONS OF THE ASS ESSEE FROM PAGE 8 ONWARD OF THE ASSESSMENT ORDER. THE A O HAS REPRODU CED THE SUBMISSIONS OF THE ASSESSEE. BROADLY IT HAS BEEN S UBMITTED TO THE A O THAT THE DEALS WITH THE CULTIVATORS WERE CARRIED OU T THROUGH BIDS/AUCTION IN THE OPEN MARKET AND WERE BASED ON MUTUAL TRUST. THE PAYMENT TO THESE CULTIVATORS WAS GENERALLY MADE LATER AS PER T HE TRADE PRACTICE ONCE DEALS WERE FINALIZED. EVIDENCE OF BELATED PAYM ENTS WAS FOUND IN THE SEIZED RECORD AND HAD BEEN POINTED OUT TO THE A O ALSO. THUS THE BASIC PREMISE OF THE A O THAT THE PAYMENTS HAD BEEN MADE ON THE SAME DATE WAS INVALID AND THIS LACUNA ALONE MADE HI S COMPUTATION OF THE UNDISCLOSED INVESTMENT VOID AB INITIO. FURTHER THE PURCHASES WERE MADE ON CREDIT ON THE STRENGTH OF THE GOOD WILL AND LONG TERM PERSONAL IT (SS)A NO.39 AND 40/AHD/2008 C. O. NO.83/AHD/2008 -4- 4 AND BUSINESS ASSOCIATION OF THE ASSESSEE APART FRO M BEING THE TRADE PRACTICE. FURTHER THE A O HAD CHOSEN INVALID DATA TO PREPARE THE PEAK BALANCE. THE SEIZED MATERIAL BS-42 45 AND 47 WAS R ELEVANT FOR THE PERIOD BETWEEN 18-10-1998 TO 27-10-1999 AND THE SEI ZED ANNEXURE BS -44 REFLECTED THE PERIOD BETWEEN 29-3-1999 AND 7-7- 1999 ONLY. SINCE THE DATA WAS INCOMPLETE THE ALLEGED PEAK COULD NEV ER BE WORKED OUT APART FROM THE FACT THAT THE THEORY OF PEAK CREDIT ITSELF WAS NOT APPLICABLE IN THE NATURE OF THE BUSINESS. IT WAS ASSERTED WITH THE HELP OF INSTANCES GLEANED FROM THE SEIZED ANNEXURE THAT THE PAYMENTS TO FARMERS WERE MADE IN THE GRACE PERIOD USUALLY 15-20 DAYS AS PER THE TRADE PRACTICE. THE PARTNERS AND FAMILY MEMBERS ALSO PRODUCED CROPS AS JEERA ON THEIR AGRICULTURAL LANDS WHICH WAS SOLD THROUGH THE ASSESSEE WITHOUT ANY ADVANCE OR SPORT PAYMENT. EVEN THE OTHER SELLER S WERE REGULAR CLIENTS TO WHOM PAYMENTS WERE MADE AFTER A GAP OF 1 5 TO 20 DAYS OR MORE AND NOT ON THE SAME DATE AS WAS MADE THE CORN ER STONE OF HIS COMPUTATION BY THE A O. EVEN OTHERWISE DISCLOSURE OF RS.35 LACS HAD BEEN MADE WHICH ADEQUATELY COVERED THE CONCEALED IN VESTMENT IF ANY. FURTHER NO EVIDENCE WAS FOUND OF THE CONCEALED INV ESTMENT. SINCE ALL THE UNRECORDED TRANSACTIONS RELATING TO OWN AND COMMISSION TRADE HAD BEEN FOUND IN THE SEIZED DOCUMENTS IT STANDS TO REASON THAT UNDI SCLOSED INVESTMENT IN TRADE WOULD HAVE ALSO BEEN FOUND RECO RDED IF SUCH WAS THE CASE. HENCE THE A OS ASSUMPTION AND THEREAFTE R HIS ESTIMATION OF THE UNDISCLOSED INVESTMENT IN THE TRADE WERE BOTH A SURMISE AND CONJECTURE AND SO INVALID. THE A O HOWEVER DISMISS ED THE CONTENTION OF THE ASSESSEE HOLDING THAT THE LAW OF THE MARKETI NG YARD COMMITTEE STIPULATED PAYMENT OF THE DUES ON THE SAME DATE ON FINALIZATION OF THE DEAL. THE A O FELT THAT THE CONTENTION THAT THE PUR CHASES WERE MADE ON CREDIT WAS NOT SUPPORTED BY ANY EVIDENCE. THE OBJEC TION TO WORKING OUT THE PEAK INVESTMENT WAS NOT VALID AS THERE WAS NO O THER LOGICAL METHOD TO COMPUTE THE UNEXPLAINED INVESTMENT. THE INSTANCE S CITED BY THE IT (SS)A NO.39 AND 40/AHD/2008 C. O. NO.83/AHD/2008 -5- 5 ASSESSEE OF PAYMENTS BEING MADE AFTER THE DATE OF R ECORDED SALES WERE HOWEVER NOT AUTHENTICATED SINCE DIRECT NEXUS W AS NOT ESTABLISHED. EVEN OTHERWISE THESE EXAMPLES CONSTITUTE ONLY ABOU T 9% OF THE TOTAL UNACCOUNTED TURNOVER OF OVER RS.3 CRORES. THE A O P OINTED OUT THAT THE DISBURSEMENT OF SALE PROCEEDS OF THE FARMERS AT A L ATER DATE WAS NOT ESTABLISHED AND THAT THE ASSESSEE HAD HIMSELF ADMIT TED THE PEAK BY FURNISHING A TENTATIVE WORKING AS PER ANNEXURE B OF ITS REPLY THAT IT WAS BASED ON THE GROUND THAT 15 DAYS CREDIT WAS AVAILED OF. THE A O IN FACT SERVED ANOTHER SHOW CAUSE SEEKING CONTEMPORAN EOUS EVIDENCE IN SUPPORT OF THE PLEA THAT THERE WAS A TIME LAG BETWE EN THE SALE/PURCHASES AND RECEIPT/PAYMENT OF PROCEEDS. IN RESPONSE IT WAS EMPHASIZED BY THE ASSESSEE THAT THIS EVIDENCE WAS C ONTAINED IN ANNEXURE BS-44. THE A O HOWEVER NOT4D THAT SINCE T HE TURNOVER OVER RS.2.95 CRORES HAS NOT BEEN ENTERED IN REGULAR BOOK S THE CIRCUMSTANTIAL EVIDENCE WAS OF GREAT IMPORTANT. THE A O EXPRESSED IT IN THE FOLLOWING WORDS: UNDER THESE CIRCUMSTANCES I AM CONSTRAINED TO JUD GE THE FACTS IN A MORE RATIONAL AND JUDICIOUS MANNER THAN TO RESTRICT MYSELF TO THE CLOSED WALLS OF EITHER SOME PREFERRED PIECES OF EVIDENCES SELECTED BY THE ASSESSEE OR THE PLEAS OF THE ASSESSEE HARPING ON THE EVIDENCES NOT FOUND. THE A O ALSO HELD THAT THE UNACCOUNTED INCOME OF RS .7.58 EARNED FROM UNDERSTATED INTEREST AND IN THE FORM OF UNACCOUNTED DEBTORS OF RS.6.81 LACS WAS INVESTED IN THE UNACCOUNTED TRADE STATING WHICH FACT IS ALSO EVIDENT FROM THE CONTINUITY OF THE NOTINGS IN THE P APERS CONTAINED IN ANNEXURE BS-44. HENCE HE DID NOT MAKE SEPARATE AD DITIONS FOR THESE TWO AMOUNTS. AS THE ASSESSEE HAD ALREADY DISCLOSED THE INCOME OF RS.35 LACS THE NET ADDITION MADE BY THE A O CAME TO BE RS.39.32 LACS. 4. THE FINDINGS AND ADDITIONS MADE BY THE A O WERE CHALLENGED BEFORE THE LEARNED CIT (A). IT WAS SUBMITTED THAT T HE ASSESSEE FIRM IT (SS)A NO.39 AND 40/AHD/2008 C. O. NO.83/AHD/2008 -6- 6 CONSISTING OF THREE PARTNERS HAD EFFECTIVELY CEASED TO OPERATE IN THE FINANCIAL YEAR 1999-2000 AFTER OVER 20 YEARS OF OPE RATION. ITS BUSINESS AND GOOD WILL HAD DEVELOPED ON THE PROPRIETARY CONC ERN OF CHIRAG SON OF ONE OF THE PARTNERS DASHRATHBHAI. THE A O HAS AL SO ADMITTED OF THE UNACCOUNTED BUSINESS OF THE ASSESSEE PRIOR T O THE BLOCK PERIOD. IN FACT THE ASSESSEE FIRM HAD DISCLOSED ITS UNACCO UNTED COMMISSION INCOME @ 1.25% OF UNACCOUNTED TURNOVER IN VDIS 1997 AND ALSO ADMITTED TO UNACCOUNTED TURNOVER OF OVER RS.4 CRORE S UP TO THE FINANCIAL YEAR 1995-96 IN THE AMNESTY SCHEME OF TH E SALES TAX DEPARTMENT. THIS IN ITSELF ESTABLISHED THE FACT THA T THE ASSESSEE HAD SUFFICIENT CAPITAL AVAILABLE WHEREAS THE A O IN WOR KING OUT THE PEAK INVESTMENT HAD ASSUMED THAT THERE WAS NO OPENING CA PITAL AND THAT PEAK INVESTMENT THEORY OF THE A O WAS NOT APPLICABL E NOT ONLY BECAUSE OF THE INCORRECT ASSUMPTIONS OF THE A O THAT THE O PENING CAPITAL WAS NIL AND THAT PAYMENTS WERE TO BE MADE ON THE SAME DATE BUT ALSO BECAUSE THE SEIZED MATERIAL I.E. KACHHA CASH BOOK WAS FOR THE PERIOD 29-3-1999 TO 7-7-1999 AND THE OTHER SEIZER MATERIAL PERTAINED TO THE PERIOD FROM 18-10-1998 TO 27-10-1999 WHILE THE A O HAD WORKED OUT THE PEAK AS ON 21-3-1999. IN THE ABSENCE OF CASH BO OK FOR THE ENTIRE PERIOD RECONCILIATION OF SALE AND PURCHASES AND AV AILABILITY OF CASH COULD NOT BE WORKED OUT CORRECTLY AND SO A OS COM PUTATION HAD NEITHER RELEVANCE NOR VALIDITY. FURTHER RAMESHBHAI A PARTNER IN HIS STATEMENT DURING SEARCH HAD CLARIFIED THAT NO CASH/ CAPITAL WAS NEEDED IN THE COMMISSION BUSINESS. THE WORKING CAPITAL REQ UIREMENTS WERE ALREADY MET BY THE CAPITAL AVAILABLE FROM THE YEARS PRIOR TO BLOCK PERIOD. THE BULK OF THE UNACCOUNTED TURNOVER OF RS.2.95 CRO RES I.E. RS.1.96 CRORES WAS OF COMMISSION SALES. IT IS ONLY IN RESPE CT OF THE TURNOVER OF APPROXIMATELY RS.99 LACS THAT THE A O COULD HAVE PO SSIBLY CONSIDERED THE QUESTION OF INVESTMENT. IN THE CASE OF M/S. CHI RAG ALSO THE A O HAD NOTED THAT THE CAPITAL REQUIRED FOR ROTATION/INVEST MENT IN OWN BUSINESS IT (SS)A NO.39 AND 40/AHD/2008 C. O. NO.83/AHD/2008 -7- 7 WOULD BE BETWEEN 8% TO 10% OF THE TOTAL TURNOVER. I T WAS ALSO ARGUED THAT THE A O HAD ALSO ACCEPTED THAT THE INCOME EARN ED FROM INTEREST AND UNDERSTATED IN THE REGULAR RETURNS WAS REINVEST ED/ROTATED IN THE TRADE OF THE ASSESSEE. ON THE SAME REASONING THE U NACCOUNTED CAPITAL INVESTMENT IN THE CASE OF OWN TRADE OF RS.99 LACS W OULD BE ABOUT RS. 10 LACS. THIS CAPITAL WAS ALREADY AVAILABLE TO THE ASSESSEE FROM THE PAST DISCLOSURES INCOME FROM CURRENT TRADE PROFIT S ALREADY SHOWN APART FROM THE DISCLOSURE OF RS.35 LACS MADE IN THE BLOCK RETURN ETC. 5. THE LEARNED CIT (A) CONSIDERING THE FINDINGS OF THE A O IN THE LIGHT OF THE SUBMISSIONS OF THE ASSESSEE RESTRICTED THE ADDITION TO RS.1 48 LACS AND DELETED THE BALANCE ADDITION. HIS FINDINGS ARE REPRODUCED AS UNDER: 7. THE CONTENTIONS WERE CAREFULLY CONSIDERED. IT H AS BEEN ACCEPTED BY THE A O AND THE APPELLANT THAT THE TOTAL UNACCOUNTED TURNOVER COMPRISED OF COMMISSION TRADE OF RS.1.96 CRORES AND OWN TRADING OF RS.99.38 LAKHS. I N CASE OF COMMISSION TRADING THE A. O. HAD PRESUMED ON T HE BASIS OF MARKETING LAWS THAT PAYMENTS WERE MADE /RECEIVED SIMULTANEOUSLY. THE APPELLANT HAS HOWEVER POINTED OUT THAT THE TRADE PRACTICE AS COMMISSION AGENT ALLOWED FOR PAYMENT WITHIN GRACE PERIOD RANGING FRO M 15 TO 30 DAYS AND WHEN THE SALES WERE REALIZED AND/OR THE RE WAS ADEQUATE CASH BALANCE. INSTANCES OF SUCH PAYMENTS A FTER THE DATE OF TRANSACTION HAVE BEEN FOUND RECORDED IN THE SEIZED DOCUMENTS ALSO PARTICULARLY IN ANNEXURE BS- 44. IN THESE CIRCUMSTANCES THE ASSUMPTION OF THE A. O. AN D HIS WORKING OUT OF HT PEAK CREDIT SUFFERED FROM A FATA L FLAW SINCE ITS AUTHENTICITY/VALIDITY IS NOT ESTABLISHED. IN THIS REGARD THE TRADE PRACTICE THE FACT OF THE APPELLA NTS LONG TERM INVOLVEMENT AND REPUTATION/GOODWILL HAS ALSO T O BE CONSIDERED. THE QUANTUM OF INVESTMENT IN CAPITAL OF A COMMISSION AGENT CANNOT BE EQUATED WITH THE QUANTUM OF THE CAPITAL REQUIREMENT BY A TRADER AS IS OBVIOUSLY LESS. THE APPELLANT IN ANNEXURE B FILED WITH HIS REPLY (REPRO DUCED BY THE A O) HAD WORKED OUT THE TOTAL AMOUNT OF RS.33 L AKHS AND ON ITS BASIS DISCLOSED RS.35 LAKHS. THIS WORKIN G HAS NOT BEEN REFUTED BY THE A. O. IT IS ALSO SEEN THAT THE IT (SS)A NO.39 AND 40/AHD/2008 C. O. NO.83/AHD/2008 -8- 8 APPELLANT HAD CAPITAL AVAILABLE PRIOR TO THE BLOCK PERIOD AS IS APPARENT FROM THE VDIS/SALES TAX DISCLOSURES. IT IS ALSO SEEN THAT THE COMPUTATION OF THE A. O. SUFFERED FRO M A SERIOUS LACUNA IN ABSENCE OF THE COMPLETE DETAILS I N THE SEIZED RECORDS. IN THE EVENT THE PEAK INVESTMENT W ORKED OUT BY THE A. O. IN RESPECT OF BOTH OWN TRADING AN D COMMISSION SALES WAS NOT VALID. 7.1 IT IS SEEN THAT THE A. O. IN THE RELATED CASE OF M/S. CHIRAGKUMAR ESTIMATED 10% OF THE TURNOVER AS CONST ITUTING UNDISCLOSED INVESTMENT. THIS CAN BE ADOPTED IN RESP ECT OF THE OWN TRADING OF OVER RS.99 LAKHS OF THE APPELLAN T ALSO. AS SUCH IT IS CONSIDERED JUSTIFIED TO HOLD THAT RS .10 LAKH WAS THE UNDISCLOSED INVESTMENT IN THE UNACCOUNTED O WN TURNOVER OF THE APPELLANT. THE APPELLANT HAD DISCLO SED RS.35 LAKHS. OF THIS RS.19.67 LAKHS HAD FOUND ITS WAY IN UNACCOUNTED INVESTMENT IN AGRICULTURAL LAND AND RS. 6.81 LAKHS IN THE FORM OF DEBTORS. AS SUCH THE DISCLOSU RE OF RS.35 LAKHS WOULD ACCOUNT FOR RS.8.52 LAKHS OF THE UNDISCLOSED INVESTMENT RS.10 LAKHS. THIS STILL LEAV ES THE AMOUNT OF RS.1.48 LAKHS AS UNEXPLAINED. AS SUCH THE ADDITION MADE BY THE A. O. IS RESTRICTED TO RS.1.48 LAKHS AND THE BALANCE IS DELETED. THE RELATED FOUND OF AP PEAL IS ALLOWED ACCORDINGLY. 6. THE REVENUE AS WELL AS ASSESSEE HAVE AGITATED TH E FINDINGS OF LEARNED CIT (A) ON THE ABOVE GROUNDS RAISED IN THE DEPARTMENTAL APPEAL AND THE CROSS OBJECTION OF THE ASSESSEE. IT(SS) A NO.40/AHD/2008 7. THIS APPEAL BY REVENUE IS DIRECTED AGAINST THE O RDER OF CIT (A)-III AHMEDABAD DATED 28-11-2007 FOR THE ABOVE BLOCK PERI OD CHALLENGING THE DELETION OF ADDITION OF RS.24 30 284/- ON ACCOU NT OF UNDISCLOSED INVESTMENT. 8. THE FACTS OF THE CASE ARE THAT THE ASSESSEE A T RADER AND COMMISSION AGENT OF SPICES AT UNJHA WAS SUBJECTED T O SURVEY U/S 133A OF THE IT ACT ON 6-6-2002 DURING THE COURSE OF ACT ION U/S 132 OF THE IT ACT IN CASE OF CERTAIN TRADERS OF SPICES. THE A O ON THE BASIS OF IT (SS)A NO.39 AND 40/AHD/2008 C. O. NO.83/AHD/2008 -9- 9 DOCUMENTS SEIZED FROM ONE SUCH TRADER NAMELY M/S. S. N. TRADERS AND IN THE PREMISES OF SHRI DASHRATHBHAI FATHER OF THE APPELLANT FELT THAT PROVISIONS OF SECTION 158BD OF THE IT ACT WERE ATTR ACTED IN CASE OF THE ASSESSEE AND ACCORDINGLY SERVED NOTICE AFTER RECO RDING SATISFACTION. IN RESPONSE THE ASSESSEE FILED BLOCK RETURN ON 20-08- 2004 AT THE DISCLOSED INCOME OF RS.25 LACS. THE A O COMPUTED T HE UNACCOUNTED TURNOVER OF THE ASSESSEE FROM THE SEIZED ANNEXURE/R EGULAR BOOKS OF ACCOUNTS DURING THE BLOCK PERIOD AS UNDER: YEAR SALES F. Y. COMMISSION SALES GENERAL SALES TOTAL SALES 2000-01 39 25 855/- 43 98 373/- 83 24 228/- 2001-02 93 65 232/- 2 91 21 496/- 3 84 86 728/- 2002-03 - 89 49 005/- 89 49 005/- TOTAL 13291087/- 42468874/- 55759961 THE A O NOTED THAT THE ASSESSEE HAD ADMITTED OF ITS UNACCOUNTED TRADE IN SPICES AND HAS ALSO ACCEPTED THE AFOREMENTIONED FIGURES. THE A O OBSERVED THAT THE OWN UNACCOUNTED TRADE OF OVER RS. 4.24 CRORES WOULD HAVE INVOLVED UNACCOUNTED INVESTMENT ALSO. THIS HE ESTIMATED TO BE AT 10% OF THE TURNOVER I.E. RS. 42.44 LACS AND SOUGHT EXPLANATION OF THE ASSESSEE VIDE SHOW CAUSE NOTICE DATED 1-12-2005. TH E ASSESSEE IN RESPONSE TO THE SAME INFORMED THAT IT WAS CONDUCTIN G BUSINESS AS A COMMISSION AGENT SINCE ASSESSMENT YEAR 2000-01 AFTE R TAKING IT OVER FROM THE PARTNERSHIP FIRM M/S. SHAILESHKUMAR NATHAL AL PATEL WHICH HAD BEEN A COMMISSION AGENT FOR OVER 20 YEARS. THE CAPI TAL AND GOODWILL OF THIS FIRM WAS THEREFORE MADE AVAILABLE TO THE ASSE SSEE. MOREOVER THIS PARTNERSHIP FIRM M/S. SHAILESHKUMAR N. PATEL HAD AL SO ADMITTED UNDISCLOSED INCOME OF RS.35 LACS APART FROM UNDISCL OSED INCOME OF RS.25 LACS DECLARED BY THE APPELLANT AND MOST OF IT WAS AVAILABLE FOR THE PURPOSE OF INVESTMENT/EXPENDITURE. EVEN OTHERWISE THE DISCLOSURE IF ANY ON ACCOUNT OF LOANS AND INVESTMENT SHOULD BE C ONSIDERED AS IT (SS)A NO.39 AND 40/AHD/2008 C. O. NO.83/AHD/2008 -10- 10 AVAILABLE TO THE ASSESSEE. THIS IS BESIDES THE FACT THAT THE CAPITAL REQUIREMENT IS NORMALLY IN BEGINNING OF THE TRADE O NLY AND WORK OF COMMISSION DOES NOT REQUIRE ANY NOTICEABLE INVESTME NT/CAPITAL. THUS IN THIS CASE THE DISCLOSURE OF THE FIRM AND OF THE ASS ESSEE WAS SUFFICIENT TO COVER ANY REQUIREMENT OF ESTIMATED CAPITAL AND NO F URTHER ADDITION WAS CALLED FOR PARTICULARLY WHEN THERE WAS NO EVIDENCE TO THIS EFFECT AS A CONSEQUENCE OF SEARCH. THE A O HOWEVER NOTED THAT THE STATED TAKE OVER OF THE BUSINESS OF THE FIRM BY THE ASSESSEE WA S NOT DOCUMENTED OR EVIDENCED JUST AS THERE WAS NO EVIDENCE IN SUPPORT OF THE CLAIM OF ITS TRANSFER AND AVAILABILITY OF CAPITAL. THE DECLARED UNDISCLOSED INCOME BY THE ASSESSEE I.E. RS.22.77 LACS FROM UNACCOUNTED TR ADE AND RS.2.22 LACS FROM COMMISSION ETC. WAS SEPARATE FROM THE OT HER DISCLOSURES MADE BY THE FIRM/OTHER PARTNERS AND RELATIVES AND N OT ELIGIBLE FOR SET OFF AGAINST THE INVESTMENT OF THE ASSESSEE APART FROM THE FACT THAT SUCH FIRM/PARTNERS/RELATIVES ALSO DID NOT HAVE ANY SPARE INCOME SINCE THEIR DISCLOSURE WAS MATCHED BY THEIR ASSETS/INVESTMENT. FURTHER DEPLOYMENT OF SUBSTANTIAL CAPITAL WAS ESSENTIAL SIN CE THE BULK OF UNACCOUNTED TRADE WAS NOT IN THE INITIAL YEAR BUT I N THE SUBSEQUENT YEARS. THE A O THEREAFTER SOUGHT TO COMPUTE THE UN ACCOUNTED CAPITAL IN THE MANNER NARRATED ON PAGE 8 OF THE ASSESSMENT ORDER. IN THIS COMPUTATION OF THE UNACCOUNTED CAPITAL ESTIMATED BY HIM AT RS.24 30 282/- THE A O NOTED THAT THE PROFITS EARN ED DURING THIS PERIOD HAVE BEEN SET OF BUT THAT THIS SET OFF WILL NOT BE AVAILABLE IF THE ASSESSEE RETRACTED FORM HIS DECLARED UNDISCLOSED INCOME OF R S.25 LACS AND/OR IF THE DECLARED INCOME WAS MODIFIED CONSEQUENT TO ANY SUBSEQUENT PROCEEDINGS. THE A O AS PER PAGE 8 FELT THAT UNACC OUNTED CAPITAL DEPLOYED IN FINANCIAL YEAR 2000-01 WAS RS.4 39 837 AND RS.19 90 445/- IN ASSESSMENT YEAR 2001-02 AND RS.8 95 900/- WAS TH E CAPITAL NEED TO BE DEPLOYED FOR FINANCIAL YEAR 2002-03 AGAINST WHIC H HE ADJUSTED THE CAPITAL AVAILABLE. THUS THE A O HELD THAT THE ASSE SSEE HAS DEPLOYED IT (SS)A NO.39 AND 40/AHD/2008 C. O. NO.83/AHD/2008 -11- 11 UNACCOUNTED CAPITAL OF RS. 24.30 LACS IN EFFECTING THE UNACCOUNTED TURNOVER. THE A O FURTHER CALCULATED FROM THE SEIZE D RECORDS THE COMMISSION TRADE AS UNDER: ASSESSMENT YEAR TOTAL UNACCOUNTED COMMISSION TRADE 2000-01 RS.39 25 855/- 20001-02 RS.93 65 232/- THE A O ALSO CALCULATED FROM THE RECORDS UNDISCLOSE D PROFITS OF RS.2 82 401/- AS UNDER: A. Y. COMMISSION MARKET FEES INTEREST TOTAL 2002-03 RS.57 802/- RS.19 234/- NIL RS.77 036/- 2003-04 RS.1 39 440/- RS.46 435/- RS.19 490/- RS.2 05 365/- TOTAL RS.1 97 242/- RS.65 669/- RS.19 460/- RS.2 82 401/- THE A O POINTED OUT THAT THE ASSESSEE HAD DISPUTED THE RATE OF PROFIT TO BE APPLIED ON THE OWN UNACCOUNTED TURNOVER TERMED AS BARE TRADE BY THE A O. THE ASSESSEE HAD SUBMITTED THAT THE PROFIT RATE TO BE APPLIED SHOULD BE THE SAME AS SHOWN IN HIS REGULAR BOOKS AN D THE COMPARATIVE RATE OF PROFIT PROPOSED BY THE A. O. WAS NOT VALID AS IT VARIED FROM TRADER TO TRADER AND DEPENDED ON THE QUALITY OF AGRICULTUR E PRODUCE AND AUCTION PRICES ETC. THE A O REPRODUCED A CHART FUR NISHED TO HIM BY THE ASSESSEE OF THE UNACCOUNTED PROFITS FROM OWN TRADE I.E. RS.22 72 211/- AND ACCEPTED IT AS UNDER: A. Y. UNACCOUNTED TURNOVER (RS.) G. P. RATIO AS PER BOOKS UNACCOUNTED PROFIT (RS.) 2001-02 43 98 373 10.96% 4 81 868/- 2002-03 2 91 21 496/- 4.25% 12 37 931/- 2003-04 89 49 005/- 6.23% 5 57 412/- TOTAL 22 77 211/- THUS THE A O TABULATED THE PROFITS AS UNDER: IT (SS)A NO.39 AND 40/AHD/2008 C. O. NO.83/AHD/2008 -12- 12 ASSTT. YEAR PROFITS FROM COMMISSION (RS.) PROFITS FROM BARE TRADE (RS.) TOTAL PROFITS FOR THE YEAR (RS. 2001-02 NIL 4 81 868/- 4 81 868/- 2002-03 77 036/- 12 37 931/- 13 14 967/- 2003-04 2 05 365/- 5 57 412/- 7 62 777/- TOTAL 2 82 401/- 22 77 211/- 25 59 612/- THE A O ACCORDINGLY COMPUTED THE TOTAL UNDISCLOSED INCOME OF THE ASSESSEE AS UNDER: A) UNDISCLOSED PROFIT FROM UNRECORDED BUSINESS RS. 26 87 941 B) UNDISCLOSED INVESTMENT IN TRADING ACTIVITY RS.2 4 30 282 TOTAL UNDISCLOSED INCOME RS.51 18 200 AS AGAINST THE DECLARED UNDISCLOSED INCOME OF RS.25 LACS. IT WAS POINTED OUT THAT THE RE WAS A COMPUTATION ERROR AS THE UNDISCLOSED INCOME ESTIMATED BY THE A O AT RS.26 87 941/- WAS C ORRECTLY THE AMOUNT OF RS.25 59 612/- AND INSTEAD OF THE UNDISC LOSED PROFIT ESTIMATED AT RS.1 87 941/- THE CORRECT FIGURE WAS R S.59 612/- AS RECTIFIED VIDE ORDER DATED 19-4-2006 U/S 154 OF THE IT ACT. 9. BEFORE THE LEARNED CIT (A) IT WAS SUBMITTED THAT THERE WAS NO DISPUTE REGARDING THE QUANTUM OF THE UNDISCLOSED TR ADE OF THE SALE OF THE SPICES AND WORKING AS A COMMISSION AGENT THE A SSESSEE HAS ESTIMATED GP/NET PROFIT ON THE UNACCOUNTED SALES O NLY AS PER DECLARE GP/NP. THE DECLARED UNDISCLOSED INCOME OF RS.25 LAC S WAS ADEQUATE ENOUGH TO COVER THE UNDISCLOSED INCOME AS WAS SHOWN IN THE LETTER DATED 6-5-2005 SUBMITTED TO THE A O. THE INVESTMENT /EXPENDITURE WERE MADE OUT OF THE INCOME GENERATED/FUNDS AVAILABLE IN CLUDING THAT OF THE EARLIER FIRM/DISCLOSED UNDISCLOSED INCOME OF SELF A ND THE FIRM TOTALING TO RS. 60 LACS AND THAT THE A O WAS NOT CORRECT IN EST IMATING THE CAPITAL INVESTMENT AT 10%. THUS THE UNDISCLOSED OWN TURNOV ER IN ASSESSMENT YEAR 20001-02 WAS RS.43.98 LACS AND IT WAS UNJUST T O ESTIMATE THE IT (SS)A NO.39 AND 40/AHD/2008 C. O. NO.83/AHD/2008 -13- 13 INITIAL CAPITAL AT RS.42.44 LACS. IT WAS EXPLAINED IN THE LETTER DATED 17-5-2005 TO THE A O THAT AS TO HOW AND WHY FUNDS O F OVER RS.15 LACS OF THE ERSTWHILE FIRM M/S. SAILESH NATHALAL PATEL W ERE ALSO AVAILABLE FOR BUSINESS AND THAT THESE FUNDS WERE ALSO ROTATED. TH E COMPUTATION OF THESE FUNDS WAS DETAILED IN THE LETTER DATED 17-5-2 006 SENT TO THE A O IN THE FOLLOWING MANNER: TOTAL DISCLOSURE OF M/S. SAILESH NATHALAL PATEL LESS: INVESTMENT IN LAND BY PARTNERS RS.35 00 000/- RS.15 71 518/- BALANCE RS.19 28 482/- LESS 1. WITHDRAWAL BY PARTNERS: BY AMRATBHAI 603 000 LESS: RE-DEPOSITED BY HIM 320 000 283 000 2 BY DASHRATHBHAI 857 000 LESS: RE-DEPOSITED 650 000 207 000 490 000 14 38 000 ADD THE PARTNERS HAVE ALSO MADE SEPARATE DISCLOSURE IN THEIR OWN CASES: AMRATBHAI 2 50 000 RAMESHBHAI 1 50 000 DASHRATHBHAI 3 00 000 7 00 000 MOREOVER THE COMMISSION TRADE OF THE ASSESSEE WIT H LONG STANDING REPUTATION AND BUSINESS EXPERTISE NEEDED NO INITIAL CAPITAL. IT WAS FURTHER SUBMITTED THAT THE A O HAS NOT CONSIDERED T HE VARIOUS SUBMISSIONS MADE DURING THE ASSESSMENT PROCEEDINGS. THE A O HAD WORKED OUT THE ADDITIONAL UNDISCLOSED INCOME OF RS. 25.25 LACS IN THE HANDS OF THESE THREE PARTNERS. WHEREAS THE A O UNAC COUNTED OPENING CAPITAL DEPLOYED IN FINANCIAL YEAR 2000-01 AT RS.4. 39 LACS ONLY I.E. MORE CAPITAL WAS AVAILABLE IN THE INITIAL YEAR THAN WAS ESTIMATED BY THE A O. FOR THE PURPOSE OF INVESTMENT/WORKING CAPITAL. DURI NG THE FINANCIAL YEAR 2001-02 PROCEEDS OF RS.1`2.37 LACS AND COMMISSION O F RS.57 802/- HAD BEEN EARNED AND WAS AVAILABLE TO THE ASSESSEE EVEN AS PER THE A O. THE A O HAS ALSO OVERLOOKED ROTATION OF THE FUNDS. THUS EVEN IF IT WAS IT (SS)A NO.39 AND 40/AHD/2008 C. O. NO.83/AHD/2008 -14- 14 ASSUMED THAT INVESTMENT IN WORKING CAPITAL WAS NEED ED IN THE SPECIFIC CIRCUMSTANCES OF THE ASSESSEE THEN ALSO THERE WAS MORE THAN ENOUGH AVAILABILITY FROM OUT OF UNACCOUNTED PROFITS AND CO MMISSION ROTATION OF FUNDS ETC. THE CONTENTION OF THE A O ABOUT THE LACK OF EVIDENCE OF PASSING OF BUSINESS OF THE FIRM TO THE ASSESSEE EXC EPT FOR UTILIZATION OF ITS PREMISES/INFRASTRUCTURE ARE ALSO REFUTED. THE FIRM M/S. SHAILESH NATHALAL PATEL HAD STOPPED ITS BUSINESS AND ITS CAP ITAL WAS MADE AVAILABLE TO THE ASSESSEE. THIS FIRM HAS ALSO DISCL OSED RS. 35 LACS AS UNDISCLOSED INCOME. IT IS POINTED OUT THAT THE SEIZ ED MATERIAL AND COPY OF BALANCE SHEET ITSELF COULD HAVE REVEALED THIS FA CT. IT WAS FURTHER SUBMITTED THAT THE ACTION OF THE A O IN COMPUTING T HE COMMISSION INCOME AT RS.2 82 401/- AGAINST THE DECLARED COMMIS SION OF RS.1.99 LACS WAS ALSO NOT JUSTIFIED. THE A O HAD COMPUTED T HE SAME IN THE FOLLOWING MANNER: COMMISSION RS.1 97 242/- FROM MARKET FEES RS. 65 669/- INTEREST RS. 19 460/- RS.2 82 401/- IT WAS SUBMITTED THAT FIRSTLY THERE WAS NO REQUIRE MENT OF CAPITAL IN THE BUSINESS OF COMMISSION AGENT AND NO NEED FOR ESTIMA TING INTEREST. THE MONEY AS SOON AS RECEIVED FROM THE BUYER WAS TRAN SFERRED TO THE SUPPLIED OF THE GOODS AFTER DEDUCTING THE COMMISSIO N AT THE MARKET YARD RATS. THE MARKET FEE WAS TO BE COLLECTED FROM THE BUYER AND WAS NOT PART OF COMMISSION. 10. THE LEARNED CIT (A) CONSIDERING THE SUBMISSIONS OF THE ASSESSEE DELETED THE ADDITION AND ALLOWED THE GROUND OF APPE AL. HIS FINDINGS IN PARA 13 OF THE IMPUGNED ORDER ARE REPRODUCED AS UND ER: 13. THE CONTENTIONS WERE CONSIDERED CAREFULLY. IT HAS BEEN ARGUED BY THE APPELLANT THAT THE REQUIREMENT F OR THE CAPITAL DEPLOYED IN ITS OWN UNACCOUNTED TRADING WAS MET IT (SS)A NO.39 AND 40/AHD/2008 C. O. NO.83/AHD/2008 -15- 15 FROM INTERNAL ACCRUALS/DAILY TURNOVER OF THE TRADE AVAILABLE CAPITAL FROM EARLIER YEARS AS THIS TRADE HAD BEEN CARRIED ON SINCE LONG AND FROM THE AVAILABILITY OF CAPITAL DEP LOYING FROM THE ERSTWHILE FIRM M/S. SAILESHKUMAR NATHALAL APART FROM THE REMNANTS FROM IS DISCLOSURE OF RS.35 LAKHS. IN ANY CASE THE CAPITAL OF THE FATHER (RS.18.22 LAKHS) NA MELY SHRI DASHRATHBHAI WAS ALWAYS AVAILABLE. MOREOVER THE I NCOME EARNED DURING THE FINANCIAL YEAR 2001-02 I.E. RS.12 .96 LAKHS COMPRISING THE PROFITS AND COMMISSION WAS AVAILABLE ON A DAY TO DAY BASIS I.E. ON GENERATION AND NOT AT THE END OF THE FINANCIAL YEAR. ALSO THERE WAS NO B ASIS TO ESTIMATE THE CAPITAL REQUIREMENT AT 10% OF THE TURN OVER. IT IS ALSO ARGUED THAT THE DISBELIEF OF THE A O THAT T HE APPELLANT HAD NOT BENEFITED FROM THE GOODWILL/CAPIT AL OF THE FIRM M/S. SHAILESHKUMAR NATHALAL WAS ONLY ON A VAG UE SUSPICION. IN FACT THE DEBTORS OF THIS FIRM AND OF THE APPELLANT WERE THE SAME. IT IS ALSO SUBMITTED THAT UNDER CHAPTER XIV-B OF THE ACT THE CONCLUSIONS DRAWN WE RE TO BE BASED ON EVIDENCE FOUND DURING SEARCH/UNEARTHED IN INQUIRIES AND NOT ON THE BASIS OF ESTIMATES PARTICU LARLY WHEN THEY WERE UNREASONABLE. THUS WHEN ALL ENTRIES / DETAILS OF THE UNRECORDED TRANSACTIONS HAD BEEN FOU ND IN THE SEIZED DOCUMENTS IT STANDS TO REASON THAT THER E WOULD HAVE BEEN SIMILAR ENTRIES OF THE UNACCOUNTED CAPITA L DEPLOYED IF SUCH WAS THE CASE. HOWEVER THERE IS N O EVIDENCE ON RECORD OF ANY DEPLOYMENT OF UNACCOUNTED CAPITAL DURING THE BLOCK PERIOD. THE CAPITAL WOUL D HAVE BEEN DEPLOYED AT THE INITIATION OF THE UNACCOUNTED TRADING MUCH BEFORE THE BLOCK PERIOD. FOR SUBSEQUENT YEARS THE INCOME EARNED ITSELF WOULD BE INVESTED/ROTATED. THE A O WAS NOT JUSTIFIED IN MAKING THE ADDITION FOR UNDISC LOSED CAPITAL SEPARATELY FOR THE BLOCK PERIOD. IT IS SEEN THAT THE A O FELT THAT NO ADVANTAGE OF THE GOOD WILL ETC. OF THE FIRM M/S. SHAILESHKUMAR NATHALAL A FAMILY FIRM HAD FLO WN TO THE ASSESSEE. THIS ASSUMPTION HAS NO BASIS PARTICULARLY AS THE BUSINESS OF M/S. SHAILESHKUMAR NATHALAL HAD CEASED AFTER FINANCIAL YEAR 1999-2000 THE FATHER AND BROTHERS O F THE APPELLANT WERE PARTNER IN THAT FIRM WHICH WAS HAND LING THE SAME BUSINESS. NO REGULAR BOOKS HAD BEEN MAINTAINED FOR THE UNACCOUNTED BUSINESS WHICH HAD BEEN IN EXISTENC E BEFORE THE BLOCK PERIOD AS WELL. NO RECORDED EVIDEN CE WAS FOUND INDICATING THE DEPLOYMENT OF UNACCOUNTED CAPI TAL DURING THE BLOCK PERIOD AND / OR OF THE CAPITAL DEP LOYMENT OF UNACCOUNTED CAPITAL DURING THE BLOCK PERIOD AND/OR OF THE CAPITAL DEPLOYMENT BEING @10% OF THE UNACCOUNTED IT (SS)A NO.39 AND 40/AHD/2008 C. O. NO.83/AHD/2008 -16- 16 TURNOVER IN EVER YEAR. IN ABSENCE OF ANY SUCH EVIDE NCE AND THE FACT THAT THERE WAS AVAILABILITY OF CAPITAL WIT H THE APPELLANT/THE FAMILY FIRM APART FROM THE ROTATION O F FUNDS/DISCLOSURE MADE BY THE FIRM AND THE APPELLANT THERE WAS NO JUSTIFICATION FOR MAKING SEPARATE ADDITION F OR THE ESTIMATED UNDISCLOSED INVESTMENT OF RS.24 30 282/-. AS SUCH THE ADDITION IS DELETED AND THE RELATED GROUND OF APPEAL IS ALLOWED. 11. THE LEARNED COUNSEL FOR THE ASSESSEE REITERATED THE SUBMISSIONS MADE BEFORE AUTHORITIES BELOW. HE HAS ALSO FILED WR ITTEN SUBMISSION. HE HAS SUBMITTED THAT THE ISSUE IS COMMON IN BOTH THE APPEALS WHETHER UNACCOUNTED TURNOVER DISCOVERED DURING SEARCH ADMIT TED BY THE ASSESSEES AND DISCLOSED IN THE RETURN FOR THE BLOCK PERIOD WOULD NECESSARILY ENTAIL ESTIMATED ADDITION ON ACCOUNT OF UNDISCLOSED INVESTMENT FOR SUCH UNACCOUNTED TURNOVER WITHOUT AN Y EVIDENCE DISCOVERED DURING THE SEARCH OR MATERIAL GATHERED A S A RESULT OF POST SEARCH INQUIRIES EMANATING FROM THE SAID EVIDENCES. HE HAS SUBMITTED THAT M/S. SAILESHKUMAR NATHALAL PATEL FIRM WAS IN EXISTENCE FOR MORE THAN 20 YEARS PRIOR TO THE BLOCK PERIOD WHICH DISCO NTINUED SOMETIME AROUND APRIL/MAY 2002. CHIRAGKUMAR IS NEPHEW OF SHA ILESHBHAI AND TAKEN OVER THE BUSINESS. BOTH THE PARTIES ARE LICEN SED COMMISSION AGENTS (ADATIAS) OPERATING IN THE AGRICULTURAL PROD UCE MARKET COMMITTEE AND THEY EARNED COMMISSION @1% - 1.5%. THE SEIZED D OCUMENTS FOUND IN SEARCH REVEALED UNACCOUNTED TRANSACTIONS O F TURNOVER OF COMMISSION SALES AND DIRECT SALES ON WHICH PROPER I NCOME WAS ALREADY DISCLOSED IN THE RETURN OF INCOME FILED FOR THE BLO CK PERIOD. THE RULE OF MARKET COMMITTEE WOULD NOT PROVE THE ACTUAL TRANSAC TIONS CARRIED OUT BY THE ASSESSEE. THE COMMISSION SALES DID NOT REQUIRE ANY INVESTMENT AND NO EVIDENCE OR MATERIAL WAS FOUND IN SEARCH TO PROVE UNACCOUNTED INVESTMENT BY THE ASSESSEES IN THEIR BUSINESSES. T HE A O AND THE CIT (A) HAVE PASSED CONTRADICTORY ORDERS IN BOTH THE CA SES. WHILE MAKING THE ADDITION IN THE CASE OF SHAILESHKUMAR IN A SUM OF RS.1.48 LACS CIT IT (SS)A NO.39 AND 40/AHD/2008 C. O. NO.83/AHD/2008 -17- 17 (A) HAS PASSED A CONTRARY ORDER AS AGAINST THE ORDE R PASSED IN THE CASE OF CHIRAGKUMAR D PATEL. SINCE NO MATERIAL WAS FOUND IN SEARCH TO INDICATE UNDISCLOSED INVESTMENT THE ENTIRE ADDITIO N SHOULD HAVE DELETED. IN SUPPORT OF HIS CONTENTIONS HE HAS RELIE D UPON FOLLOWING DECISIONS: 1) ASHOKKUMAR RASTOGI VS CIT 55 TAXMAN 433 (ALL.) 2) CIT VS GIRISH CHAUDHURY 296 ITR 619 (DEL.) 3) CIT VS ASHIM KISHNA MONDAL 270 ITR 160 (CAL.) 4) CIT VS P. K. GANESHWAR 308 ITR 124 5) CIT VS KHUSHAL CHANDRA NIRMALKUMAR 263 ITR 77 (M P) 6) CIT VS VINOD DANCHAND 247 ITR 448 (BOM.) HE HAS SUBMITTED THAT DATA OF PEAK PREPARED BY THE A O IS INCORRECT. THE ASSESSEE HAS DISCLOSED CORRECT INCOME IN THE RE TURN FOR THE BLOCK PERIOD SHOWING THE CORRECT PROFIT RATE WHICH IS SUP PORTED BY RECORD AND THAT THE PEAK PREPARED BY ASSESSEE ON THE BASIS OF THE SEIZED PAPER SHOWS THAT PAYMENTS TO THE FARMERS HAVE BEEN MADE A FTER A PERIOD OF INTERVAL. NO EVIDENCE WAS FOUND DURING THE COURSE O F SEARCH TO SHOW PAYMENTS TO FARMERS ARE MADE ON THE SAME DAY. THUS WORKING OF THE ASSESSEE IS BASED UPON SEIZED PAPERS. FOR EARNING O F COMMISSION INCOME NO CAPITAL OR INVESTMENT IS REQUIRED. 12. ON THE OTHER HAND LEARNED D R RELIED UPON THE ORDER OF THE A O AND SUBMITTED THAT PEAK WAS WORKED OUT BY THE A O A S PER THE SEIZED PAPERS AND FOR CARRYING OUT UNDISCLOSED TRANSACTION S UNDISCLOSED INVESTMENT IS REQUIRED. HE HAS SUBMITTED THAT THE A O ON PROPER APPRECIATION OF SEIZED MATERIAL CORRECTLY MADE THE ADDITIONS WHICH LEARNED CIT (A) SHOULD NOT HAVE DELETED. LEARNED D R SUBMITTED THAT DURING THE COURSE OF SEARCH DOCUMENTS WERE FOUND WH ICH WERE CONFRONTED TO THE ASSESSEE AND THE ASSESSEE ADMITTE D UNDISCLOSED INVESTMENTS IN THE NAMES OF THE PARTNERS. THEREFORE ADDITION WAS RIGHTLY MADE BY THE A O AND FURTHER ASSESSEE ADMITT ED THE TURNOVER ON IT (SS)A NO.39 AND 40/AHD/2008 C. O. NO.83/AHD/2008 -18- 18 THE BASIS OF THE SAME SEIZED MATERIAL. THEREFORE L EARNED CIT (A) SHOULD NOT HAVE DELETED THE ADDITION. 13. WE HAVE CONSIDERED RIVAL SUBMISSIONS AND PERUSE D THE FINDINGS OF THE AUTHORITIES BELOW. 13.1 CHAPTER XIV-B STARTS WITH SEC. 158B AND PROVIDES TH E DEFINITION OF BLOCK PERIOD AND UNDISCLOSED INCOME. UNDISCLOS ED INCOME IS RELEVANT IN THIS CASE WHICH IS REPRODUCED BELOW AS AMENDED BY FINANCE ACT 2002 W.E.F. 1.7.1995: S.158B(B) UNDISCLOSED INCOME INCLUDES ANY MONEY BULLION JEWELLERY OR OTHER VALUABLE ARTICLE OR THI NG OR ANY INCOME BASED ON ANY ENTRY IN THE BOOKS OF ACCOUNT O R OTHER DOCUMENTS OR TRANSACTIONS WHERE SUCH MONEY BULLIO N JEWELLERY VALUABLE ARTICLE THING ENTRY IN THE BO OKS OF ACCOUNT OR OTHER DOCUMENT OR TRANSACTION REPRESENTS WHOLLY OR PARTLY INCOME OR PROPERTY WHICH HAS NOT BEEN OR WOU LD 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 MU ST 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 CONSTITUT E 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 TH E BOOKS REPRESENTS WHOLLY OR PARTLY INCOME OR PROPERT Y WHICH HAS NOT BEEN OR WOULD NOT HAVE BEEN DISCLOSED FOR THE PURPOSE OF THIS ACT . (III) FOR ANY EXPENSES DEDUCTION OR ALLOWANCE CLAIMED UNDER THIS HEAD WHICH IS FOUND TO BE FALSE. SECTION 158BB(1) PROVIDES FOR COMPUTATION OF UNDISC LOSED 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 Y EARS IT (SS)A NO.39 AND 40/AHD/2008 C. O. NO.83/AHD/2008 -19- 19 FALLING WITHIN THE BLOCK PERIOD COMPUTED IN ACCORD ANCE WITH THE PROVISIONS OF THIS ACT ON THE BASIS OF EV IDENCE FOUND AS A RESULT OF SEARCH OR REQUISITION OF BOOKS OF ACCOUNT OR OTHER DOCUMENTS AND SUCH OTHER MATERIALS OR INFORMATION AS ARE AVAILABLE WITH THE AO AND RELATA BLE TO SUCH EVIDENCE AS REDUCED BY THE AGGREGATE OF THE TO TAL 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. 1 47 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 U/S 139 [OR IN RESPONSE TO A NOTICE ISSUED UNDER SUB-SECTION (1 ) OF SEC. 142 OR SECTION 148] BUT ASSESSMENTS HAVE NO T BEEN MADE TILL THE DATE OF SEARCH OR REQUISITION O N THE BASIS OF THE INCOME DISCLOSED IN SUCH RETURNS; [(C) WHERE THE DUE DATE FOR FILING A RETURN OF INCO ME HAS EXPIRED BUT NO RETURN OF INCOME HAS BEEN FILED - (A) ON THE BASIS OF ENTRIES AS RECORDED IN THE BOOK S 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 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 INCO ME HAS EXPIRED BUT NO RETURN OF INCOME HAS BEEN FILED AS NIL IN CASES NOT FALLING UNDER CLAUSE (C);] (D) WHERE THE PREVIOUS YEAR HAS NOT ENDED OR THE DATE O F FILING THE RETURN OF INCOME UNDER SUB-SECTION (1) O F SEC. 139 HAS NOT EXPIRED ON THE BASIS OF ENTRIES RELATI NG TO SUCH INCOME OR TRANSACTIONS AS RECORDED IN THE BOOK S OF ACCOUNT AND OTHER DOCUMENTS MAINTAINED IN THE NORMA L IT (SS)A NO.39 AND 40/AHD/2008 C. O. NO.83/AHD/2008 -20- 20 COURSE ON OR BEFORE THE DATE OF THE SEARCH OR REQUI SITION 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 O RDER; (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 UN DISCLOSED INCOME - (A) THE TOTAL INCOME OR LOSS OF EACH PREVIOUS YEAR SHAL L FOR THE PURPOSE OF AGGREGATION BE TAKEN AS THE TOT AL INCOME OR LOSS COMPUTED IN ACCORDANCE WITH THE PROVISIONS OF [THIS ACT] WITHOUT GIVING EFFECT TO S ET 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;] (B) OF A FIRM RETURNED INCOME AND TOTAL INCOME ASSESSE D 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;] (C) ASSESSMENT UNDER SECTION 143 INCLUDES DETERMINATION OF INCOME UNDER SUB-SECTION (1) OR SUB-SECTION (1B) OF SEC. 143. (2) IN COMPUTING THE UNDISCLOSED INCOME OF THE BLOC K PERIOD THE PROVISIONS OF SECTIONS 68 69 69A 69B AND 69C SHALL SO FAR AS MAY BE APPLY AND REFERENCES TO F INANCIAL YEAR IN THOSE SECTIONS SHALL BE CONSTRUED AS REFER ENCES TO THE RELEVANT PREVIOUS YEAR FALLING IN THE BLOCK PER IOD IT (SS)A NO.39 AND 40/AHD/2008 C. O. NO.83/AHD/2008 -21- 21 INCLUDING THE PREVIOUS YEAR ENDING WITH THE DATE OF SEARCH OR OF THE REQUISITION. (3) THE BURDEN OF PROVING TO THE SATISFACTION OF TH E AO THAT ANY UNDISCLOSED INCOME HAD ALREADY BEEN DISCLO SED IN ANY RETURN OF INCOME FILED BY THE ASSESSEE BEFORE T HE COMMENCEMENT OF SEARCH OR THE REQUISITION AS THE C ASE MAY BE SHALL BE ON THE ASSESSEE. (4) FOR THE PURPOSE OF ASSESSMENT UNDER THIS CHAPTE R LOSSES BROUGHT FORWARD FROM THE PREVIOUS YEAR UNDER CHAPTER VI OR UNABSORBED DEPRECIATION UNDER SUB-SEC TION (2) OF SECTION 32 SHALL NOT BE SET OFF AGAINST THE UNDISCLOSED INCOME DETERMINED IN THE BLOCK ASSESSMENT UNDER THI S CHAPTER BUT MAY BE CARRIED FORWARD FOR BEING SET O FF IN THE REGULAR ASSESSMENTS. 13.2 WE AFTER CONSIDERING THE ABOVE PROVISIONS AR E OF THE OPINION THAT EVEN IF THERE IS AN AMENDMENT IN THE ABOVE SECTIONS THE SCHEME OR PURPOSE OF ENACTING CHAPTER XIV-B HAS NOT UNDERGONE A MAJOR CHANGE IN THE SENSE THAT THE BLOCK ASSESSMENT PERTAINING TO A NUMBER OF YEARS REMAINS DISTINCT FROM ASSESSMENT U/S 143(3) PERTAINING TO A SINGLE A Y. THE BLOCK ASSESSMENT COULD BE MADE IN RESPECT OF UNDISCLOSED INCOME IF D URING THE BLOCK PERIOD UNDISCLOSED INCOME IS RECOVERED AS A RESULT OF EVID ENCE FOUND DURING THE COURSE OF SEARCH AND NOT AS A RESULT OF OTHER DOCUM ENTS OR MATERIAL WHICH CAME TO THE POSSESSION OF THE AO SUBSEQUENT TO THE CONCLUSION OF SEARCH OPERATION UNLESS AND UNTIL SUCH MATERIAL OR DOCUMEN T IS RELATABLE TO SUCH EVIDENCE RECOVERED DURING THE COURSE OF THE SEARCH. THE AMENDED DEFINITION OF SEC. 158BB AS MENTIONED ABOVE CLEARLY SUGGESTS T HAT SOME EVIDENCE IS TO BE FOUND AS A RESULT OF SEARCH OPERATION AND IT IS ONLY THEREAFTER THAT THE REMAINING PART OF THE PROVISIONS COME INTO PLAY AND THAT TOO THE REMAINING EVIDENCE MUST BE RELATABLE TO THE EVIDENCE RECOVERE D DURING THE COURSE OF THE SEARCH. THE OTHER AMENDMENT IN SEC. 158B(B) WHI CH IS REPRODUCED ABOVE HAS ENLARGED THE MEANING OF THE TERM UNDISCL OSED INCOME BY INCLUDING THEREIN ANY EXPENSE DEDUCTION OR ALLOWA NCE CLAIMED UNDER THIS ACT WHICH IS FOUND TO BE FALSE. WHAT HAS TO BE SEE N IS THAT THE VALUABLE ARTICLES DOCUMENTS OR TRANSACTIONS WHICH REPRESENT WHOLLY OR PARTLY INCOME OR PROPERTY WHICH HAS NOT BEEN OR WOULD NOT HAVE BE EN DISCLOSED FOR THE IT (SS)A NO.39 AND 40/AHD/2008 C. O. NO.83/AHD/2008 -22- 22 PURPOSE OF THIS ACT. THEREFORE BEFORE COMING TO AN ALYZE WHAT IS UNDISCLOSED INCOME IT IS NECESSARY TO BE SEEN THAT SUCH INCOME HAS NOT BEEN OR WOULD NOT HAVE BEEN DISCLOSED FOR THE PURPOSE OF THIS ACT . IF ANY SUCH ARTICLE OR THING OR INCOME HAS ALREADY BEEN DISCLOSED TO THE D EPARTMENT PRIOR TO THE SEARCH IT CANNOT BE TERMED THAT THE SAME HAS NOT B EEN OR WOULD NOT HAVE BEEN DISCLOSED FOR THE PURPOSE OF THIS ACT. THEREFO RE WHATEVER ITEMS OR ARTICLES HAVE BEEN SHOWN TO THE DEPARTMENT PRIOR TO THE SEARCH CANNOT BE TREATED AS UNDISCLOSED INCOME. 13.3 THE HONBLE BOMBAY HIGH COURT IN THE CASE OF C IT 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 ASSESSEES WEAL TH-TAX RETURN WHICH WAS ACCEPTED BY THE DEPARTMENT. HELD THAT CHAPTER XIV-B OF THE IT ACT 1961 HAD N OT APPLICATION TO THE FACTS OF THE CASE AND THE ADDITI ON MADE BY THE DEPARTMENT ON THE GROUND OF UNDISCLOSED INCO ME WAS ERRONEOUS. 13.4 THE HONBLE 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 M AKES IT CLEAR THAT THE LEGISLATURE THOUGHT IT FIT TO MAK E A DISTINCTION BETWEEN THE BLOCK ASSESSMENT AND THE RE GULAR 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 UNDISCLOSE D INCOME IS TAXED BY WAY OF BLOCK ASSESSMENT AS A RES ULT OF SEARCH AND SEIZURE. THE LOGIC BEHIND THE TWO DIFFER ENT MODES OF ASSESSMENT IS THAT CONCEALMENT OF INCOME A ND CLAIMING DEDUCTION OR EXEMPTION IN RESPECT OF A DIS CLOSED INCOME CANNOT BE TREATED AT PAR. THE FORMER IS AN O FFENCE 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 TH E SAME. THERE WAS A SEARCH AND SEIZURE RESULTING IN BLOCK ASSESSMENT OF THE ASSESSEE. DURING THE BLOCK ASSESS MENT IT (SS)A NO.39 AND 40/AHD/2008 C. O. NO.83/AHD/2008 -23- 23 THE ASSESSEE WAS CALLED UPON TO EXPLAIN THE ADVANCE TAKEN FROM A COMPANY. THE ASSESSEE HAD FILED THE CONFIRMA TION LETTER OF LOAN FROM THE COMPANY INCLUDING INCOME TA X FILE NUMBERS OF THE CREDITOR. THE INCOME-TAX AUTHORITY H ELD THAT THE SAID LOAN WAS A FICTITIOUS ONE AND WAS TO BE CONSIDERED AS UNDISCLOSED INCOME OF THE ASSESSEE DU RING THE PERIOD UNDER CONSIDERATION. ON THE QUESTION WHETHER THE AO WAS ENTITLED TO QUESTION THE LOAN AMOUNT WHICH W AS THE SUBJECT 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 MATTE R OF THE REGULAR ASSESSMENT. THE AO WAS WRONG IN HOLDING THAT THE SAID SUM COULD BE TAXED IN BLOCK ASSESSMENT ALT HOUGH THE SAME FEATURED IN THE REGULAR BOOKS OF ACCOUNT. WHEN THE LOAN CREDITOR WAS AN ASSESSEE AND IN WHOSE ASSE SSMENT THE LOAN ADVANCED HAD BEEN ACCEPTED BY THE REVENUE THE AO WAS WRONG IN HOLDING THAT THE ASSESSEE WAS LIABL E TO PAY TAX ON THAT LOAN MONEY TAKEN FROM THE ASSESSEE. 13.5 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 ASSE SSMENT. ITS SCOPE AND AMBIT IS LIMITED IN THAT SENSE TO MAT ERIALS UNEARTHED DURING SEARCH. IT IS IN ADDITION TO THE R EGULAR ASSESSMENT ALREADY DONE OR TO BE DONE. THE ASSESSME NT FOR THE BLOCK PERIOD CAN ONLY BE DONE ON THE BASIS OF E VIDENCE 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 ASSESSMEN T AND NOT WITHIN THE SCOPE OF EXERCISING JURISDICTION UND ER CHAPTER XIV-B AND SEC. 158BA. THEREFORE SEC. 158BA OF THE ACT HAD NO APPLICATION TO THE FACTS OF THE CASE. 13.6 IN THE CASE OF SUNDER AGENCIES VS. DCIT 63 IT D 245 ITAT MUMBAI BENCH B HELD AS UNDER: IT (SS)A NO.39 AND 40/AHD/2008 C. O. NO.83/AHD/2008 -24- 24 SEC. 158BA OF THE IT ACT 1961 SEARCH AND SEIZURE BLOCK PERIOD 1.4.1985 TO 16.11.1995 WHETHER WITHIN PALE OF CHAPTER XIVB ASSESSMENT COULD BE MADE ONLY IN RESPE CT OF UNDISCLOSED INCOME AND SUCH UNDISCLOSED INCOME MUST COME AS A RESULT OF SEARCH HELD YES WHETHER SEC. 15 8BA DOES NOT PROVIDE A LICENSE TO REVENUE FOR MAKING ROVING ENQUIRIES CONNECTED WITH COMPLETED ASSESSMENT AND I S BEYOND POWER OF AO TO REVIEW ASSESSMENTS COMPLETED UNLESS SOME DIRECT EVIDENCE COMES TO KNOWLEDGE OF DEPARTMENT AS A RESULT OF SEARCH WHICH INDICATES CL EARLY 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 SAL ES AS SALES PROMOTION EXPENSES DURING SEARCH PROCEEDI NGS A BOOK CALLED GIFT REGISTER WAS SEIZED FROM ASSESSE ES BUSINESS PREMISES GIFT REGISTER RELATED TO SALE P ROMOTION EXPENSES IN EARLIER ASSESSMENT PROCEEDINGS COVERI NG BLOCK PERIOD IN QUESTION SUCH EXPENSES WERE DISCLOSED AN D DISALLOWANCES WERE MADE NEITHER ANY INCRIMINATING MATERIAL REVEALING UNDISCLOSED INCOME CAME TO LIGHT NOR ENQUIRY REGARDING SALES PROMOTION EXPENSES IN PROCE EDING U/S 132(1) WAS MADE. WHETHER ADDITION ON ACCOUNT OF SALES PROMOTION EXPENSES ON ESTIMATE BASIS COULD BE JUSTI FIED HELD NO. 13.7 IN THE CASE OF DIGVIJAY CHEMICAL LTD. VS. ACIT 68 TTJ 280 ITAT 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 U/S 158B(B) MUST BE MADE ON CONCRETE MATERIAL. 13.8 IN THE CASE OF P.K. GANESHWAR VS. DCIT 80 ITD 429 (CHENNAI) ITAT CHENNAI BENCH C HELD SEC. 158BA OF THE IT ACT 1961 BLOCK ASSESSMENT S EARCH CASES ASSESSMENT OF UNDISCLOSED INCOME AS A RESUL T OF SEARCH WHETHER WHERE UNDISCLOSED INCOME IS FOUND NOT ON BASIS OF EVIDENCE FOUND AS A RESULT OF SEARCH BUT O N INVESTIGATION AND INQUIRIES MADE FOLLOWING SEARCH SUCH INCOME COULD BE INCLUDED AS UNDISCLOSED INCOME OF B LOCK PERIOD COMPUTED UNDER CHAPTER IV HELD NO WHETH ER 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. IT (SS)A NO.39 AND 40/AHD/2008 C. O. NO.83/AHD/2008 -25- 25 13.9 HON'BLE MADRAS HIGH COURT IN THE CASE OF CIT V S P. K. GANESHWAR 308 ITR 124 HELD THAT SINCE THE INFORMATION RELATING TO THE FIXED DEPOSITS IN FICTITIOUS NAMES WAS NOT FOUND DURING THE COURSE OF SEARCH IT COULD NOT BE USED TO ARRIVE AT THE UNDISCLOSED INCOME UNDER THE BLOCK ASSESSMENT U/S 158BD OF THE IT ACT. 13.10 HONBLE CALCUTTA HIGH COURT IN THE CASE OF CI T VS. ASHIM KRISHNA MONDAL 270 ITR 160 AT PAGES 163 AND 164 OBSERVED: THE PRINCIPLE THAT HAS BEEN LAID DOWN FOR THE PURPO SE OF MAKING ASSESSMENT ARE SETTLED PROPOSITION AS WAS RE FERRED TO BY THE LD. TRIBUNAL IN THE CASE OF SUNDER AGENCI ES VS. DCIT [1997] 63 ITD 245 (MUMBAI); T.S. KUMARASAMY VS . ACIT [1998] 65 ITD 188 (MAD) AT PAGE 206 AND INDOR E CONSTRUCTION (P) LTD. VS. ACIT [1999] 71 ITD 128 (I NDORE) WHEREIN THE MUMBAI BENCH OF THE ITAT THE MADRAS BE NCH OF THE ITAT AND THE INDORE BENCH OF THE ITAT RESPE CTIVELY 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 PROCEE D ON CONJECTURES AND/OR SURMISES AND ARRIVE AT AN ESTIMA TION INSTEAD OF COMPUTATION. THE WORD COMPUTATION CONN OTES A DIFFERENT MEANING THAN ESTIMATION OR APPRAISAL. COMPUTATION PRESUPPOSES A CALCULATION ON THE BASIS OF THE MATERIALS WHICH IS SOMETHING DIFFERENT FROM ESTIMA TION OR APPRAISAL AND IT MUST BE BASED ON METHODICAL CALCUL ATION WITH SOME AMOUNT OF APPROXIMITY TO MATHEMATICAL PRO CESS ON THE MATERIALS AVAILABLE ON SEARCH AND SEIZURE. 13.11 ITAT DELHI BENCH (TM) IN THE CASE OF DANG & CO. PVT. LTD. VS. DCIT 277 ITR (AT) 190 HELD: THE ASSESSEE EXPLAINED THAT IT WAS AN ESTATE AGENT AND THE AMOUNT RECEIVED BY THE ASSESSEE WAS AN ADVANCE RECE IVED TOWARDS PURCHASE OF CERTAIN PROPERTIES. ASSUMING IT WAS A LOAN RECEIVED BY THE ASSESSEE IT WAS NOT IN DISPUTE THA T THE ASSESSEE HAD FILED ITS REGULAR RETURN OF INCOME FOR THE AY 1 994-95 DISCLOSING THE AMOUNT IN THE BALANCE-SHEET. IF IT W AS A LOAN THE AMOUNT THEREOF COULD HAVE BEEN ADDED TO THE TOTAL I NCOME U/S 68 ONLY IF IT WAS HELD TO BE A NON-GENUINE LOAN. THE G ENUINENESS COULD HAVE BEEN GONE INTO ONLY IN THE COURSE OF REG ULAR ASSESSMENT WHEN THE ASSESSEE HAD DULY DISCLOSED THE AMOUNT IN IT (SS)A NO.39 AND 40/AHD/2008 C. O. NO.83/AHD/2008 -26- 26 ITS BALANCE-SHEET. THE ASSESSEE HAD DISCHARGED ITS PART OF THE OBLIGATION BY DISCLOSING THE AMOUNT IN THE BALANCE- SHEET AND BY FILING THE RETURN. IT WAS NOT THE ASSESSEES FAULT THAT NO ASSESSMENT WAS MADE. IT WAS OF NO CONSEQUENCE UNDER WHICH HEAD THE AMOUNT WAS DISCLOSED IN THE BALANCE-SHEET. IF I T WAS AN ADVANCE FROM A CUSTOMER FOR PURCHASE OF PROPERTY I T COULD NOT BE TREATED AS INCOME BECAUSE IT WAS MERELY AN ADVAN CE TOWARDS PURCHASE OF PROPERTY AND IN NO WAY THE INCOME OF TH E ASSESSEE. WHEN THE AMOUNT STOOD DULY DISCLOSED IN THE REGULAR RETURN OF INCOME THE AO COULD NOT RESORT TO BLOCK ASSESSMENT PROCEEDINGS TO GO INTO ITS GENUINENESS AND SUBJECT IT TO A HIGH ER RATE OF TAX. THE ADDITION OF RS.55 LAKHS WAS NOT JUSTIFIED. 13.12 HONBLE 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 OF THE CENTRAL BOARD OF DIRECT TAX ES WOULD MAKE IT CLEAR THAT THERE HAD BEEN NO SPECIFIC EFFECT THAT T HE AMENDMENT EFFECTED TO SEC. 158BB IN THE FINANCE ACT 2002 WI TH EFFECT FROM JULY 1 1995 WOULD BE APPLICABLE TO THE INSTANT CA SE AS THE BLOCK PERIOD COVERED TEN YEARS COMMENCING 1986 TO 1996. E MPHASIS HAD BEEN GIVEN TO THE FACT THAT THE EVIDENCE MUST HAVE BEEN FOUND DURING SEARCH AND ONLY THEREAFTER THE QUESTION OF G ATHERING ANY MATERIAL INFORMATION WOULD ARISE BASED ON THE SEARC H INQUIRY. ADMITTEDLY DURING THE SEARCH IN THE PREMISES OF TH E ASSESSEE NOTHING WAS FOUND WITH REGARD TO THE INVESTMENT IN THE HOUSE. THE CONTENTION THAT THE VALUATION REPORT OF THE DEPARTM ENT VALUATION OFFICER WAS OBTAINED AND WAS CONFRONTED TO THE ASSE SSEE BUT HE WAS NOT ABLE TO GIVE ANY EXPLANATION AND THEREFORE IT S HOULD BE ACCEPTED AS EVIDENCE COULD NOT BE ACCEPTED IN VIEW OF THE PR OVISIONS OF SEC. 158BB AND THE LAW LAID DOWN BY THE BOMBAY HIGH COUR T IN THE CASE OF CIT VS. VINOD DANCHAND GHODAWAT [2001] 247 ITR 4 48. 13.13 HONBLE GAUHATI HIGH COURT IN THE CASE OF CIT VS. ARMAN SHEIKH 293 ITR 266 HELD: DISMISSING THE APPEAL THAT THE TWO AMOUNTS WERE R ECEIVED BY THE ASSESSEE FROM A GOVT. AGENCY BY CHEQUES AND THE Y WERE DEPOSITED IN THE BANK ACCOUNT OF THE ASSESSEE AND D ULY REFLECTED IN THE REGULAR BOOKS OF ACCOUNT. THE AO RELIED UPON A PART OF THE ENTRIES IN THE BOOKS OF ACCOUNT AND REJECTED THE OT HER PART. SINCE THE ENTRIES MADE IN THE BOOKS OF ACCOUNT BEFORE THE DAT E OF SEARCH AND SEIZURE HAD BEEN ACCEPTED THE AMOUNT IN QUESTION O UGHT 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 T HE AYS 2000-01 IT (SS)A NO.39 AND 40/AHD/2008 C. O. NO.83/AHD/2008 -27- 27 AND 2001-02 HAD NOT FALLEN DUE. THE RETURNS FOR THE AYS BASED ON REGULAR BOOKS OF ACCOUNT WERE FILED AFTER SEARCH DI SCLOSING THE BANK DEPOSITS. THERE WAS NO MATERIAL TO SHOW THAT THE AS SESSEE INTENDED TO HIDE ANY PART OF HIS INCOME FOR THE ASSESSMENTS UNDER APPEAL. THUS THE BANK ACCOUNTS OUGHT NOT TO HAVE BEEN TREA TED AS UNDISCLOSED BANK ACCOUNTS AND COULD NOT BE THE SUBJ ECT MATTER OF BLOCK ASSESSMENT PROCEEDINGS. 13.14 HONBLE DELHI HIGH COURT IN THE CASE OF GIRISH CHO UDHARY 163 TAXMAN 608 HELD THERE IS NO BASIS AS TO HOW AO CAME TO CONCLUSIO N THAT 48 WAS RS.48 LAKHS. NO MATERIAL IS THERE TO SUPPORT SUCH F INDING OF THE AO. IT IS DUMB DOCUMENT. ADDITIONS DELETED. 13.15 HON'BLE ALLAHABAD HIGH COURT IN THE CASE OF A SHOKKUMAR RASTOGI VS CIT 55 TAXMAN 433 HELD THAT IT APPEARED FROM RECO RD THAT NO EVIDENCE OR MATERIAL HAD BEEN REFERRED TO OR RELIED UPON FOR TR EATING THE SUM OF RS.50 000/- AS UNEXPLAINED INVESTMENT AND ONLY CIRC UMSTANCE WHICH HAD BEEN REFERRED IN THIS CONNECTION WAS THE ESTIMATED SALES OF RS.4 24 396/-. FROM THE ESTIMATED SALES IT COULD NOT NECESSARILY B E INFERRED THAT THE ASSESSEE HAD INVESTED RS.50 000/- IN SOME UNEXPLAIN ED BUSINESS. IT BEING NOT A NECESSARY INFERENCE WAS A PURE GUESS AND FIN DINGS SEEM TO BE BASED ON SURMISES AND CONJECTURES WITHOUT THERE BEI NG ANY EVIDENCE OR MATERIAL IN SUPPORT THEREOF. THEREFORE THE ADDITIO N OF RS.50 000/- TO THE INCOME OF THE ASSESSEE AS UNEXPLAINED INVESTMENT WA S NOT JUSTIFIED. 14. CONSIDERING THE FACTS OF THE CASE IN THE LIGHT OF THE ABOVE LEGAL PROPOSITIONS IT IS CLEAR THAT NO RECORDED EVIDENCE WAS FOUND DURING SEARCH INDICATING THE DEPLOYMENT OF UNACCOUNTED INVESTMENT /CAPITAL DURING THE BLOCK PERIOD. LEARNED D R DID NOT POINT TOWARDS ANY EVIDENCE OR MATERIAL FOUND OR RECOVERED DURING THE COURSE OF SEARCH TO P ROVE THAT THE ASSESSEE MADE INVESTMENT IN UNACCOUNTED TRANSACTION/BUSINESS . PROFIT IS ALREADY DECLARED ON THE BASIS OF THE SEIZED MATERIAL. THE D OCUMENTS SEIZED SHOWED/INDICATED ASSESSEES HAVE EARNED UNDISCLOSED INCOME ON ACCOUNT IT (SS)A NO.39 AND 40/AHD/2008 C. O. NO.83/AHD/2008 -28- 28 OF UNRECORDED TURNOVER IN THE BOOKS OF ACCOUNTS WHI CH IS ALREADY DECLARED IN THE RETURN FOR THE BLOCK PERIOD. THE A O THUS MA DE THE ADDITIONS ON ACCOUNT OF UNDISCLOSED INVESTMENTS ONLY ON PRESUMPT IONS. FURTHER NO CAPITAL/INVESTMENT IS REQUIRED FOR UNACCOUNTED COMM ISSION AND IN THE CASES OF THE ASSESSEES BULK WAS COMMISSION SALES. I T WAS AVAILABLE TO THE ASSESSEE APART FROM OPENING BALANCES OF THE LAST YE ARS AVAILABLE WITH THEM. THE PEAK THEORY WORKED OUT BY THE A O FOR THE PURPOSE OF MAKING ADDITION ON ACCOUNT OF UNDISCLOSED INVESTMENTS WAS NOT VALID BECAUSE THE SEIZED PAPER BS-44 SHOWED THAT THERE IS A TRADE PRA CTICE AS A COMMISSION AGENT TO ALLOW FOR A PAYMENT THE GRACE PERIOD FROM 15 TO 30 DAYS AND PAYMENTS ARE MADE TO THE FARMERS WHEN THE SALES WER E REALIZED AND ADEQUATE CASH BALANCE IS AVAILABLE WITH THE ASSESSE E. THEREFORE THE ASSUMPTION OF THE A O AND HIS WORKING OF THE PEAK C REDIT SUFFERED FROM FATAL FLAW AND WAS NOT BASED ON ANY EVIDENCE OR MAT ERIAL. THE A O PRESUMED PAYMENT ON THE SAME DAY BY FOLLOWING THE R ULES OF MARKETING COMMITTEE WITHOUT POINTING OUT FROM THE SEIZED PAPE RS WHETHER SUCH PRACTICE WAS FOUND FROM THE SEIZED PAPERS. MOREOVER THE MARKET COMMITTEE RULES CANNOT BE TREATED AS EVIDENCE FOUND AS A RESULT OF SEARCH. FURTHER NO EVIDENCE WAS FOUND THAT SUCH PAYMENTS W ERE MADE BY THE ASSESSEES TO THE FARMERS ON THE SAME DAY. THE EXPLA NATION OF THE ASSESSEE THAT THEY HAVE SUFFICIENT FUNDS AVAILABLE PRIOR TO THE SEARCH HAD NOT BEEN ADVERSELY COMMENTED UPON BY THE LEARNED D R. THE PEAK WORKED OUT BY THE A O WAS RIGHTLY REJECTED BY THE LEARNED CIT (A). IN BOTH THE CASES THE ASSESSEE ON THE BASIS OF THE SEIZED DOCU MENTS SUFFICIENTLY DECLARED UNDISCLOSED INCOME IN THE RETURNS FOR THE BLOCK PERIOD THEREFORE FURTHER ADDITIONS WERE CLEARLY UNJUSTIFIED ON THE M ATTER IN ISSUE. WE MAY ALSO NOTE THAT THE ASSESSING OFFICER IS SAME IN BOT H THE CASES AND DATE OF ORDER AND FACTS ARE ALSO SAME BUT CONTRADICTORY FI NDINGS HAVE BEEN GIVEN IN BOTH THE CASES. SIMILARLY LEARNED CIT (A) IN TH E CASE OF CHIRAGKUMAR D PATEL ON PROPER APPRECIATION OF FACTS AND LAW RIGHT LY HELD THAT IN THE IT (SS)A NO.39 AND 40/AHD/2008 C. O. NO.83/AHD/2008 -29- 29 ABSENCE OF ANY EVIDENCE THERE WAS NO JUSTIFICATION FOR MAKING SEPARATE ADDITION FOR THE ESTIMATED UNDISCLOSED INVESTMENTS. HOWEVER IN THE CASE OF SHAILESKUMAR ON THE SAME FACTS THE LEARNED CIT (A) BY ESTIMATING 10% OF THE TURNOVER CONSIDERED AS UNDISCLOSED INVESTMEN T AND RESTRICTED THE ADDITION TO RS.1.48 000/- WHICH IS TOTALLY UNJUSTIF IED AND NOT IN ACCORDANCE WITH LAW. THOUGH AS PER SECTION 158 BC (B) OF THE IT ACT THE UNDISCLOSED INCOME COULD BE DETERMINED ON ESTIMATE BASIS BY APP LYING PROVISIONS OF SECTION 144 AND 145 OF THE IT ACT BUT IN THE ABSEN CE OF ANY EVIDENCE SUCH PROVISIONS CANNOT BE RESORTED TO AS ARE THE PRESENT CASES. CONSIDERING THE ABOVE DISCUSSIONS WE ARE OF THE VIEW THE LEARNED C IT (A) ON PROPER APPRECIATION OF FACTS AND LAW RIGHTLY DELETED THE S UBSTANTIAL ADDITIONS ON ACCOUNT OF UNDISCLOSED INVESTMENTS BUT HE WAS NOT JUSTIFIED IN RESTRICTING THE ADDITION TO RS.1 48 000/- IN THE CASE OF SHAILE SHKUMAR N. PATEL. ACCORDINGLY THE ORDERS OF THE LEARNED CIT (A) ARE CONFIRMED IN DELETING THE ADDITIONS ON THE MATTER IN ISSUES AND FURTHER THE O RDER OF THE LEARNED CIT (A) IN THE CASE OF SHAILESHKUMAR IS SET ASIDE TO TH E EXTENT OF RESTRICTING THE ADDITION TO RS.1.48 000/-. IN THE RESULT ADDITION OF RS.1 48 000/- IS ALSO DELETED. BOTH THE DEPARTMENTAL APPEALS HAVE NO MERI T AND ARE ACCORDINGLY DISMISSED. THE CROSS OBJECTION OF THE ASSESSEE IS A LLOWED. 15. IN THE RESULT BOTH THE DEPARTMENTAL APPEALS AR E DISMISSED AND THE CROSS OBJECTION OF THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN OPEN COURT ON 25 TH MARCH 2011. SD/- SD/- (D.C. AGRAWAL) ACCOUNTANT MEMBER (BHAVNESH SAINI) JUDICIAL MEMBER PLACE : AHMEDABAD DATE : 25-03-2011 IT (SS)A NO.39 AND 40/AHD/2008 C. O. NO.83/AHD/2008 -30- 30 COPY OF THE ORDER FORWARDED TO: 1) : ASSESSEE 2) : DEPARTMENT 3) : CIT(A) 4) : CIT CONCERNED 5) : DR ITAT. BY ORDER DR/AR ITAT AHMEDABAD