M/s. Ambika Traders, Indore V. The Assistant Commissioner of Income Tax, Circle- 2(1), Indore

CO 14/IND/2010

• Counselvise Citation: [2011] 122 COUNSELVISE.COM (IT) 6759 (ITAT-INDORE)
• Duration Of Justice: 1 year(s) 5 month(s) 13 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 22-12-2011
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: DB
• Assessment Year: misc
• Appeal Filed On: 09-07-2010
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Assessee Lawyers: KESHAV SAXENA
• Keywords: Unexplained expenditure; Business income; Search and seizure; Loose papers; Retrospective amendment; Block assessment
• Section: 69C; 143(3); 133A; 145

Judgement 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. : AAFFA4615P I.T. (SS) A.NO. 59 / IND /20 10 BLOCK PERIOD : 1.4.1990 TO 26.9.2000 ACIT, M/S. AMBIKA TRADERS, CIRCLE 2(1), V S 29/11, GORAKUND, INDORE. M.G. ROAD, INDORE. APPELLANT RESPONDENT C.O.NO.14/IND/2010 (ARISING OUT OF I.T.(SS)A.NO.59/IND/2010) BLOCK PERIOD : 1.4.1990 TO 26.9.2000 M/S. AMBIKA TRADERS, ACIT, 29/11, GORAKUND, VS CIRCLE 2(1), M.G. ROAD, INDORE. INDORE. CROSS OBJECTOR RESPONDENT DEPARTMENT BY : SHRI KESHAV SAXENA, CIT DR RESPONDENT BY : SHRI HITESH CHIMNANI, C. A. DATE OF HEARING : 1 9 .12.2011 DATE OF PRONOUNCEMENT : 22 .12.2011 -: 2: - 2 O R D E R PER R. C. SHARMA, A.M. THIS IS AN APPEAL FILED BY THE REVENUE AND CROSS OBJECTION BY THE ASSESSEE AGAINST THE ORDER OF CIT( A) DATED 11.3.2010 FOR THE BLOCK PERIOD 1.04.1990 TO 26.9.20 00 IN THE MATTER OF ORDER PASSED U/S 158BC READ WITH SECTION 143(3) OF THE INCOME-TAX ACT, 1961. 2. FACTS OF THE CASE ARE THAT THE ASSESSEE IS A PARTNE RSHIP FIRM DERIVING INCOME FROM SALE AND PURCHASE OF RADY MADE GARMENTS AND THREADS. A SEARCH WAS CONDUCTED AT THE RESIDENTIAL PREMISES OF THE PARTNERS ON 26.9.2000 A ND A SURVEY WAS CONDUCTED AT THE BUSINESS PREMISES OF TH E ASSESSEE FIRM. CERTAIN PAPERS AND BOOKS WERE SEIZED . IN RESPONSE TO NOTICE U/S 158BC THE ASSESSEE FILED THE RETURN SHOWING THE TOTAL UNDISCLOSED INCOME AT RS. 2,50,00 0/-. 3. THE AO HAS COMPUTED UNDISCLOSED INCOME AS UNDER : - 1. LOOSE PAPERS LPS-1 PAGE 13(A) TO 13(B)UNRECORDED SALES RS. 42,620/- 2. LOOSE PAPERS LPS-5 (PAGE 1 TO 108) RS. 10,07,662/- (I)UNRECORDED SALES & PURCHASE RS. 10,07,662/- -: 3: - 3 (II)UNEXPLAINED EXPENDITURE U/S 69C RS. 31,490/- (III)UNDISCLOSED EXPENDITURE U/S 69C RS. 2,50,000/- 3. LOOSE PAPERS ANNEXURE LPS-2 (PAGE 1 TO 45) (I) UNRECORDED SALES RS. 2,095,423/- (II)UNRECORDED INVESTMENT IN PURCHASES RS. 2,06,420/- (III)UNEXPLAINED EXPENDITURE U/S 69C RS. 2,40,016/- 4. LOOSE PAPERS ANNEXURE LPS-3 (PAGE 1 TO 78) (I) UNRECORDED SALES RS. 6,15,753/- 5. LOOSE PAPERS FOUND DURING SURVEY U/S 133A (I) UNRECORDED SALES RS. 11,85,296/- (II)UNRECORDED PURCHASES RS. 95,212/- (III)UNEXPLAINED EXPENDITURE U/S 69C RS. 1,44,737/- 6. DIFFERENCE IN STOCK WHICH WAS FOUND DURING THE COURSE OF SURVEY U/S 133A RS. 1,21,033/- TOTAL RS. 42,35,662 OR RS. 42,35,660/- 4. BY THE IMPUGNED ORDER, THE LD. CIT(A) REDUCED THE T OTAL ADDITION TO RS. 4 LAKHS AFTER HAVING THE FOLLOWING OBSERVATIONS, AGAINST WHICH THE REVENUE IS IN FURTHER APPEAL BEFO RE US AND ASSESSEE HAS ALSO FILED CROSS OBJECTION FOR NOT DEL ETING THE -: 4: - 4 ENTIRE ADDITION MADE BY THE ASSESSING OFFICER AND W HICH HAS BEEN RETAINED BY THE LD. CIT(A) TO THE EXTENT OF RS . 1.50 LAKHS :- 4. FACTS ON RECORD, FINDINGS RECORDED BY THE ASSESSING OFFICER, COP OF SEIZED PAPER FILED AND CONTENTIONS OF THE APPELLANT FIRM HAVE BEEN DULY CONSIDERED ON VARIOUS GROUNDS RAISED ARE FOUND TO BE CORRELATED AND CONNECTED WITH ONLY ISSUE OF DETERMINATION OF UNDISCLOSED INCOME ON THE BASIS OF PAPERS FOUND IN SEARCH AND SEIZURE AS WELL AS SURVEY OPERATION AND HENCE ARE CONSIDERED TOGETHER. 4.1 IT IS AN ADMITTED FACT THAT PAPERS RELATING TO THE APPELLANT FIRM WERE FOUND DURING SEARCH OPERATIONS CONDUCTED AT RESIDENCE OF SHRI UDHALAL VALECHA AND SHRI SURESH VALECHA ON 29.09.2000 AND RETURN HAS BEEN FILED BY THE ASSESSEE IN RESPONSE TO NOTICE ISSUED U/S 158BB READ WITH SECTION 158BD HENCE THE -: 5: - 5 ASSESSMENT HAS NECESSARILY TO BE MADE ON THE BASIS OF MATERIAL FOUND IN SEARCH. 4.2 THE AMENDMENT MADE BY THE FINANCE ACT, 2002 RETROSPECTIVELY FROM 01.07.1995 INSERTING SECTION 145 ALSO IN SECTION 158BC(B) DOES NOT ENTITLE THE AO TO INVOKE THE PRINCIPLE LAID DOWN IN HM ESUFALI CASE IN EACH AND EVERY CASE THAT TOO FOR A PERIOD SPANNING OVER 10 YEARS. THE ENABLING AMENDMENT MEANS THAT AS FAR AS MAY BE THE PROVISIONS OF SECTION 145 SHALL ALSO BE APPLICABLE TO THE BLOCK ASSESSMENT CASES. THE UNDISCLOSED INCOME U/S 158BB HAS TO BE COMPUTED BROADLY ON THE BASIS OF EVIDENCE FOUND DURING SEARCH. THIS IS A SPECIAL PROVISION. THE RETROSPECTIVE AMENDMENT TO SECTION 158BC(C) IS AN ENABLING PROVISION AND A GENERAL ONE ALSO AS IS CLEAR FROM THE USE OF THE WORDS AS FAR AS MAY BE, APPLY IN THIS PROVISION. HENCE, ACCORDING TO THE PRINCIPLE GERALIA SPECIALIBUS NON DEROGANT, SECTION 158BC(C) -: 6: - 6 CANNOT OVER RIDE SECTION 158BB. IN TRUTH, THERE IS NO CLASH AS SUCH. AS REGARDS PRESSING INTO SERVICE BY THE ASSESSING OFFICER OF THE APEX COURT JUDGMENT, THE SAME IS MISPLACED PRIMARILY BECAUSE IN THAT CASE AN ESTIMATE OF UNDISCLOSED SALES HAD TO BE MADE IN AN EX- PARTE ASSESSMENT. THE VERY FACT THAT THE IMPUGNED ASSESSMENT HAS BEEN MADE U/S 158BC READ WITH SECTION 143(3) AND NOT U/S 158BC READ WITH SECTION 144, THERE IS NO QUESTION OF MAKING A BEST JUDGMENT ASSESSMENT NOR ANY ESTIMATION OF SALES FOR SUCH BEST JUDGMENT ASSESSMENT. THE INSERTION OF SECTION 145 THROUGH THE AMENDMENT ALSO DOES NOT ENABLE THE AO TO EXTRAPOLATE OR ESTIMATE FIGURES FOR OTHER YEARS ON THE BASIS OF FIGURES AVAILABLE ONLY FOR ONE YEAR, IN EVIDENCE FOUND AS A RESULT OF SEARCH, UNLESS THERE ARE CORROBORATORY EVIDENCE OR ADMISSION IN STATEMENT RECORDED THAT SIMILAR MODUS OPERANDI WAS IN PRACTICE IN -: 7: - 7 OTHER YEARS ALSO. IN OTHER WORDS, UNDISCLOSED INCOME HAS TO BE COMPUTED ON THE BASIS OF EVIDENCE FOUND AS A RESULT OF SEARCH AND NOT BY EXTRAPOLATING AND ESTIMATING FIGURES ON THE BASIS OF NOTHING FOUND AS A RESULT OF SEARCH, IN THE MANNER SUGGESTED BY SUCCESSOR AO IN REMAND REPORT SUBMITTED. FURTHER SUCH SUGGESTION IS AGAIN, TOTALLY OPPOSED TO THE APPROACH OF AO, WHO COMPLETED ASSESSMENT BY MAKING ADDITION FOR NOT ONLY TOTAL SALES AS PER LOOSE PAPERS FOUND BUT ALSO ADDED ENTIRE PURCHASES AS UNDISCLOSED INCOME OF THE APPELLANT. 4.3 ASSESSMENT IN THE SEARCH CASES ARE REGULATED BY THE SPECIFIC PROVISIONS APPLICABLE TO BLOCK ASSESSMENT AND NOT OTHERWISE. WHERE ASSESSEE FURNISHES EXPLANATION OF EACH AND EVERY SEIZED DOCUMENT, THE EXPLANATION CANNOT BE BRUSHED ASIDE WITHOUT PROPER APPLICATION OF MIND. IN THE APPELLANTS CASE A REASONABLE ATTEMPT HAS BEEN -: 8: - 8 MADE TO EXPLAIN EVERY SEIZED DOCUMENT. THEREFORE, EACH AND EVERY PURCHASE AND SALE [INVOLVED IN THE FACT OF UNRECORDED SALES BY THE APPELLANT ] CANNOT BE ASSESSED AS ASSESSEES UNDISCLOSED INCOME OVER AND ABOVE EACH OTHER. THUS, THE ELEMENT OF MAKING ESTIMATION IS NOT CONTEMPLATED IN CHAPTER XIVB AT LEAST ON THE FACTS OF THE PRESENT APPELLANTS CASE AND IN THE MANNER SUGGESTED BY SUCCESSOR AO. 4.4 THE APPELLANT FIRM HAS STATED IN ITS LETTER DATED 13.03.07 THAT THE AO HAS NOT TAKEN COGNIZANCE OF THE DECISION OF HON'BLE MP HIGH COURT IN THE CASE OF AJITIKUMAR BALCHAND REPORTED AT 263 ITR 610 AND THAT OF HON'BLE GUJARAT HIGH COURT REPORTED AT 258 ITR 654. AS PER DECISION IN THE CASE OF AJIT KUMAR BALCHAND ONLY NET PROFIT ON UNRECORDED SALES HAS TO BE ADDED TO THE TOTAL INCOME OF THE ASSESSEE. IN ITS ANOTHER LETTER DATED 17.5.07, THE ASSESSEE HAS FAIRLY ESTIMATED UNRECORDED SALES AT R. 11,00,000/- ON -: 9: - 9 THE BASIS OF LPS1, LPS2, LPS 3 AND OTHER LOOSE PAPERS. WHILE FILING RETURN THE ASSESSEE HAS ESTIMATED PROFIT @ 16.66 % ON SALES OF RS. 15,00,000/- THE FIGURE WILL DEFINITELY BE LESS THAN RS. 2,50,000/- AS SHOWN BY THE ASSESSEE AND IT WILL TAKE CARE OF CAPITAL ELEMENT EMPLOYED IN UNACCOUNTED BUSINESS, AS CONTENDED BY THE APPELLANT. DURING DISCUSSION THE AR OF THE ASSESSEE VEHEMENTLY ARGUED THAT THE FIRMS ASSERTION GETS FULL SUPPORT FROM THE DECISION OF I.T.A.T., INDORE BENCH IN THE CASE OF MADANLAL NARENDRAKUMAR BHOPAL VS. ACIT, BHOPAL [2003] 31 ITC 123. THIS VIEW OF THE INDORE BENCH OF I.T.A.T. STANDS FULLY SUPPORTED BY THE LATER DECISION OF THE HON'BLE JURISDICTIONAL HIGH COURT IN THE CASE OF AJITKUMAR BALCHAND (SUPRA). 4.5 CONSIDERING ALL FACTS AND CIRCUMSTANCES OF THE CASE AND AFTER CAREFULLY CONSIDERING THE DECISIONS CITED BY THE ASSESSING OFFICER AS WELL -: 10: - 10 AS BY THE APPELLANT FIRM, IT IS SEEN THAT THE AO HAS MADE ADDITION FOR UNRECORDED SALES AT RS.10,07,662/- + RS. 2,95,423/- + RS. 6,15,753/- I.E. RS. 19,18,838/- BASED ON DOCUMENTS FOUND IN SEARCH AND FURTHER RS. 11,85,296/- ON THE BASIS OF DOCUMENTS FOUND IN SURVEY. IT HAS BEEN HIGHLIGHTED IN WRITTEN SUBMISSION DATED 18.8.05 FILED BY THE APPELLANT THAT THE AO HAS MADE ADDITION ON DUPLICATE AND TRIPLICATE AND HAS ASSESSED SALES ON THE BASIS OF LOOSE PAPERS BILLS AND AGAIN IN LPS-3 ANNEXURE, WHERE TOTAL LEDGERS ARE MAINTAINED. SUCH ASSERTION OF APPELLANT HAS NOT BEEN REBUTTED BY THE SUCCESSOR AO IN REMAND REPORT AND AO WENT TO SUGGEST ALTOGETHER ANOTHER APPROACH FOR DETERMINATION OF INCOME FOR ENTIRE BLOCK PERIOD. THUS, FINALLY IT MAY BE SUMMED UP THAT UNDISCLOSED SALES MAY AT THE BEST BE DETERMINED AT RS. 20 LAKH ON THE BASIS OF ALL EVIDENCES FOUND INCLUDING THOSE IN SURVEY AND -: 11: - 11 APPLY THE SAME GROSS PROFIT RATE AS APPLIED BY APPELLANT IN DECLARING UNDISCLOSED INCOME AT RS. 2,50,000/-ON UNRECORDED SALES OF RS. 15 LAKHS I.E. 16.67 %, RS. 3.34 LAKHS AND THE SAME IS FURTHER ROUNDED UP TO COVER OTHER PAYMENTS NOT RELATED WITH SALES AND PURCHASES. ACCORDINGLY, THE TOTAL UNDISCLOSED INCOME IS DIRECTED TO BE TAKEN AT RS. 4 LAKH WHICH WILL ALSO COVER ADDITION FOR EXCESS STOCK AND SEPARATELY ADDED AT RS. 1,21,033/-, WHICH AS EXPLAINED BY APPELLANT WAS MAINLY ON ACCOUNT OF RATE DIFFERENCE ETC. 5. IT WAS ARGUED BY THE LD. AUTHORIZED REPRESENTATIVE THAT THE AO HAS MADE DUPLICATE AND TRIPLICATE ADDIT IONS AND HAS NOT GIVEN ANY DETAILS ABOUT FIGURES ARRIVED AT BY HIM. HE FURTHER SUBMITTED THAT IN THE REMAND REPORT, THE AO HAS TAKEN THE FIGURES OF BS-1 AND LPS-3 AS THE SALES OF THE A SSESSEE WHEREAS BS-1 IS THE LEDGER ACCOUNT OF THE VARIOUS P ARTIES IN WHICH THE TRANSACTIONS ARE RECORDED. HE POINTED OUT THAT SAME TRANSACTIONS ARE ALSO RECORDED IN LPS-3. ACCORDINGL Y, HE -: 12: - 12 SUBMITTED THAT THERE WAS DUPLICATION OF THE ADDITIO N AND THE LD. CIT(A) AFTER CALLING FOR A REMAND REPORT REDUCE D THE ADDITION TO THE EXTENT OF RS. 4 LAKHS. HE FURTHER S UBMITTED THAT THE LD. CIT(A) WAS NOT JUSTIFIED IN SUSTAINING ADDI TION OF RS. 1.50 LAKHS AND SAME DESERVES TO BE DELETED IN FULL. 6. ON THE OTHER HAND, THE LD. CIT D.R. POINTED OUT LOO SE PAPERS LPS-1(PAGES 1 TO 115) AS MENTIONED BY THE AS SESSING OFFICER IN HIS ORDER WITH RESPECT TO WHICH VARIOUS ADDITIONS WERE MADE BY THE ASSESSING OFFICER. AS PER LD. CIT D.R. , ADDITION WAS MADE WITH REFERENCE TO THE LOOSE PAPE RS AND DOCUMENTS FOUND DURING COURSE OF SEARCH AND FOR WHI CH ASSESSEE COULD NOT FURNISH SATISFACTORY EXPLANATION AND WHICH WERE NOT FOUND RECORDED IN THE REGULAR BOOKS OF ACC OUNT. 7. WE HAVE CONSIDERED THE RIVAL CONTENTIONS, CAREFULLY GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW AN D REMAND REPOT, AND ALSO COPY OF SEIZED PAPERS FILED BY THE ASSESSEE BEFORE THE CIT(A) AS PLACED AT PAGES 1 TO 65 OF THE PAPER BOOK. FROM THE RECORD, WE FOUND THAT THE AO HAS DISCUSSED VARIOUS LOOSE PAPERS CONTAINED IN LPS-1 (PAGES 1 TO 115), W ITH REFERENCE TO WHICH ADDITION WAS MADE. OBSERVATION OF THE AO -: 13: - 13 WITH REGARD TO THE VARIOUS PURCHASES AS FOUND IN TH E LOOSE PAPERS WAS THAT NO ENTRY WAS FOUND IN REGULAR BOOKS AND THE ASSESSEE COULD NOT SATISFACTORILY EXPLAIN THE SAME. WITH REGARD TO THE CONTENTION OF THE ASSESSEE THAT DUPLICATE AN D TRIPLICATE ADDITION WAS MADE WITH RESPECT TO THE SAME AMOUNT, THE LD. CIT(A) CALLED FOR A REMAND REPORT FORM THE AO. THE AO SUBMITTED HIS COMMENTS VIDE HIS LETTER DATED 29.1.2 007. WE HAD GONE THROUGH THE REMAND REPORT AND REPLY OF THE ASSESSEE FILED THEREON. FROM THE RECORD, WE FOUND THAT THE A DDITIONS HAVE BEEN MADE WITH REGARD TO THE UNACCOUNTED PURCH ASES AND SALES AS FOUND IN LPS-5. OTHER ADDITIONS WERE M ADE WITH RESPECT TO THE UNDISCLOSED EXPENDITURE U/S 69C. IT WILL SERVE THE END OF JUSTICE, IF WE TAKE THE PEAK AMOUNT OUT OF THE VARIOUS PAGES REFERRED BY THE ASSESSING OFFICER IN LPS-5. THE PEAK AMOUNT OF UNRECORDED SALES WILL COVER NOT ONLY INVESTMENT IN COST OF GOODS BUT ALSO THE PROFIT ELE MENT IN THE SALES. THE LD. CIT(A) HIMSELF HAS FOUND THAT THE AO HAS MADE ADDITION FOR UNRECORDED SALES AT RS. 10,07,662/- + RS. 2,95,423/- + RS. 6,15,753/- I.E. RS. 19,18,838/- BA SED ON DOCUMENTS FOUND IN SEARCH AND A FURTHER ADDITION OF RS. -: 14: - 14 11,85,296/- WAS MADE ON THE BASIS OF DOCUMENTS FOUN D IN SURVEY. THE LD. CIT(A) FURTHER HELD THAT UNDISCLOSE D SALES AT BEST MAY BE DETERMINED AT RS. 20 LAKHS ON WHICH HE APPLIED THE GROSS PROFIT RATE AS SHOWN BY THE ASSESSEE AND ARRIVED AT A FINAL ADDITION OF RS. 4 LAKHS AND OBSERVED THAT THI S ADDITION WILL COVER OTHER ADDITIONS ON ACCOUNT OF EXCESS STO CK AND THE ADDITION MADE ON ACCOUNT OF DIFFERENCE IN RATES. HO WEVER, THE LD. CIT(A) HAS NOT CONSIDERED THE COST ELEMENT INVO LVED IN UNRECORDED PURCHASE/SALES AS FOUND IN LOOSE PAPERS LPS-5 PAGES 1 TO 108. THUS, EVEN IF WE AGREE WITH THE CON TENTION OF CIT(A) THAT THERE WAS MULTIPLE ADDITIONS, BUT AT TH E VERY SAME TIME, WE CANNOT IGNORE THE COST ELEMENT INVOLVED IN THE UNRECORDED PURCHASES, THE SOURCE OF WHICH COULD NO T BE EXPLAINED BY THE ASSESSEE. IN THE LOOSE PAPERS, WE FOUND PEAK ENTRY OF RS. 10,07,772/-. IF WE RETAIN THE ADDITIO N TO THE EXTENT OF RS.10,07,772/- FOR WHICH ASSESSEE COULD N OT EXPLAIN THE SOURCE AND ALSO PROFIT EARNED ON THE SALE OF SU CH ITEMS, IT WILL ALSO COVER THE OTHER ADDITIONS MADE BY THE ASS ESSING OFFICER ON ACCOUNT OF UNEXPLAINED EXPENDITURE AND T HE EXCESS STOCK FOUND DURING COURSE OF SEARCH AS COMPARED TO THE STOCK -: 15: - 15 DULY RECORDED IN THE REGULAR BOOKS OF ACCOUNT. WE, ACCORDINGLY, MODIFY BOTH ORDERS OF LOWER AUTHORITIE S AND DIRECT THE AO TO RETAIN THE ADDITION TO THE EXTENT OF RS. 10,07,662/-, IN PLACE OF ADDITION OF RS. 42,32,662/- MADE BY THE ASSESSING OFFICER AND WHICH HAS BEEN REDUCED BY THE LD. CIT(A ) TO THE EXTENT OF RS. 4 LAKHS. 8. IN THE RESULT, THE APPEAL OF THE REVENUE IS ALLOWED IN PART, WHEREAS THE CROSS OBJECTION FILED BY THE ASSE SSEE IS DISMISSED. THIS ORDER HAS BEEN PRONOUNCED IN THE OPEN COURT ON 22 ND DECEMBER, 2011. (JOGINDER SINGH) ( R.C.SHARMA) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : 22 ND DECEMBER, 2011. CPU* 2122