DCIT, UDAIPUR V. Smt. Mohini Bai Paliwal, RAJSAMAND

ITA 373/JODH/2010

• Counselvise Citation: [2013] 120 COUNSELVISE.COM (IT) 3056 (ITAT-JODHPUR)
• Duration Of Justice: 2 year(s) 10 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-04-2013
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Next Hearing Date: 21-02-2013
• Assessment Year: 2001-2002
• Appeal Filed On: 31-05-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: DR DEEPAK SEHGAL
• Assessee Lawyers: DEVENDRA MEHTA
• Keywords: Business income; Income from undisclosed sources; Search and seizure; Document seized; Source of fund; Block assessment; Documents seized
• Section: 143(3); 133A; 153A; 132

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL JODHPUR BENCH, JODHPUR BEFORE SHRI HARI OM MARATHA, JUDICIAL MEMBER AND SHRI N.K. SAINI, ACCOUNTANT MEMBER ITA NOS. 373,377 & 378 /JU/2010 ASSESSMENT YEARS : 2001-02, 2002-03 & 2004-05 PAN: AFEPP 7263 H THE DCIT VS. SMT. MOHANI BAI PALIWAL CENTRAL CIRCLE- 1 W/O LATE SHRI SHANTI LAL PAL IWAL UDAIPUR M/S KRISHNA MINING, VPO KELWA DISTT RAJSAMAND (APPELLANT) (RESPONDENT) DEPARTMENT BY : DR. DEEPAK SEHGAL ASSESSEE BY : SHRI DEVENDRA MEHTA DATE OF HEARING : 13-03-2013 DATE OF PRONOUNCEMENT :04-04-2013 ORDER PER N.K. SAINI, AM THESE THREE APPEALS BY THE DEPARTMENT ARE DIRECTED AGAINST SEPARATE ORDERS EACH DATED 25-03-2010 OF LD. CIT(A),CENTRAL, JAIPUR FOR THE ASSESSMENT YEAR 2001-02, 2002-03 AND 2004-05. IN THESE APPEALS, THE ISSUES INVOLVED ARE COMMON HAVING IDENTICAL FACTS AND THE APPEALS WERE HEARD TOGETHER. SO THESE APPEALS A RE BEING DISPOSED OFF BY THIS COMMON ORDER FOR THE SAKE OF CONVENIENCE. 2.1 FIRST WE WILL DEAL WITH ITA NO. 373/JU/2010 FOR THE ASSESSMENT YEAR 2001-02. FOLLOWING GROUNDS HAVE BEEN RAISED IN THIS APPEAL. 1. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE CIT(A), CENTRAL, JAIPUR HAS ERRED IN APPLYING G.P. RATE OF 20% THEREBY DELETING THE ADDITION OF RS. 5,14,196/- OUT OF TOTAL ADDITION OF RS. 14,71,796/- MADE ON ACCOUNT OF UNDISCLOSED PROFIT FROM UNACCOUNTED SAL ES. 2. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CA SE, THE CIT(A), CENTRAL, JAIPUR HAS ERRED IN DELETING THE ADDITION OF RS. 12,07,000/- MADE ON ACCOUNT OF UNDISCLOSED DEBTORS. 3. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CA SE, THE CIT(A), CENTRAL, JAIPUR HAS ERRED IN HOLDING THAT THE UNDIS CLOSED INCOME FOR THE ASSESSMENT YEAR 2000-01 HAD BECOME SOURCE OF FUNDS AVAILABLE WITH THE APPELLANT FOR INVESTMENT IN UNDISCLOSED ASSETS INCL UDING DEBTORS IN 2 SUBSEQUENT ASSESSMENT YEARS EVEN THOUGH NO PROOF OF AVAILABILITY OF SUCH FUNDS WAS PRODUCED BY THE ASSESSEE. 3.1 VIDE GROUND NO. 1, THE GRIEVANCE OF THE DEPARTM ENT RELATES TO DELETION OF ADDITION OF RS. 5,14,196/- OUT OF ADDITION OF RS. 14,71,796/ - MADE BY THE ASSESSING OFFICER ON ACCOUNT OF UNDISCLOSED PROFIT FROM UNACCOUNTED SAL ES AND GROUND NO. 2 RELATES TO THE DELETION OF ADDITION OF RS. 12.07 LACS MADE BY THE ASSESSING OFFICER ON ACCOUNT OF UNDISCLOSED DEBTORS. BOTH THESE GROUNDS ARE CORRELA TED AND WERE ALSO DECIDED BY THE LD. CIT(A) SIMULTANEOUSLY. THEREFORE, THESE ARE ADJUDIC ATED TOGETHER. 3.2 THE FACTS OF THE CASE IN BRIEF ARE THAT THE ASS ESSEE IS AN INDIVIDUAL DERIVING INCOME FROM MINING ACTIVITIES WHICH ARE PRIMARILY LOOKED A FTER BY HER HUSBAND AND SON. THE ASSESSEE FILED THE ORIGINAL RETURN OF INCOME ON 31- 07-2001 DECLARING INCOME OF RS. 1,02,356/-. THEREAFTER A SEARCH OPERATION WAS CARRI ED OUT U/S 132 OF THE INCOME TAX ACT, 1961 (HEREINAFTER REFERRED TO AS THE ACT IN SHOR T) AT THE RESIDENTIAL PREMISES OF THE ASSESSEE ON 7-9-2005 & 13-09-2005 AND SURVEY OPERAT IONS U/S 133A OF THE ACT WERE CONDUCTED AT THE BUSINESS PREMISES OF VARIOUS GROUP CONCERNS. DURING THOSE OPERATIONS, CASH, JEWELLERY, VALUABLES, BOOKS OF ACCOUNT AND IN CRIMINATING DOCUMENTS WERE FOUND AND SEIZED AS PER ANNEXURES TO THE PANCHNAMA DATED 7-09 -2005 & 13-09-2005. THEREAFTER, NOTICE U/S 153A OF THE ACT WAS ISSUED TO THE ASSESS EE AND IN RESPONSE TO WHICH THE RETURN OF INCOME WAS FILED ON 16-10-2006 DECLARING THE SAM E INCOME WHICH WAS DECLARED IN THE ORIGINAL RETURN OF INCOME. THE ASSESSMENT WAS COMPL ETED BY THE ASSESSING OFFICER U/S 153A READ WITH SECTION 143(3) OF THE ACT ON A TOTAL INCOME OF RS. 15,74,150/-. DURING THE COURSE OF SEARCH OPERATIONS, THE ASSESSING OFFICER OBSERVED THAT THE DOCUMENTS/ DIARIES AS PER ANNEXURES A-2, A-3, A-5, A-6, A-9, A-23 AND A-2 5 WERE FOUND AND SEIZED VIDE PANCHNAMA DATED 7-09-2005 AT THE RESIDENTIAL PREMIS ES OF THE ASSESSEE. HE FURTHER OBSERVED THAT IN THOSE DOCUMENTS/ DIARIES, DETAILS OF SALES MADE DURING VARIOUS FINANCIAL YEARS , SOME OF WHICH WERE WRITTEN IN CODED FORM, WERE FOUND AN D SHRI SHANTI LAL PALIWAL, HUSBAND OF 3 THE ASSESSEE ADMITTED THAT ANNEXURE A-9 WAS RELATED TO THE SALE OF UNACCOUNTED MARBLE BLOCKS, HE CATEGORICALLY STATED THAT A-2, A-3, A-5, A-6, A-23 AND A-25 RELATING TO THE SALE OF LAFFERS AND KHANDAS, THE SALE PROCEEDS OF WHICH BELONGED TO THE CONTRACTORS AFTER DEDUCTION OF MACHINE HIRING CHARGES. THE ASSESSING OFFICER DID NOT ACCEPT THE ABOVE CONTENTIONS AND INCLUDED THE SAME IN COMPUTING THE UNACCOUNTED SALES OF THE ASSESSEE ALONGWITH UNACCOUNTED SALES AS PER ANNEXURE A-9. TH E UNACCOUNTED SALES ON THE BASIS OF VARIOUS DOCUMENTS WERE DETERMINED BY THE ASSESSING OFFICER AT RS. 1,93,11,701/- FOR THE ASSESSMENT YEARS 2000-01 TO 2006-07 OUT OF WHICH UN ACCOUNTED SALES FOR THE ASSESSMENT YEAR UNDER CONSIDERATION WERE DETERMINED AT RS. 47. 88 LACS. ON THE SAID SALES, THE ASSESSING OFFICER APPLIED THE G.P. RATE OF 30.74% W HICH WAS HIGHER OF THE AVERAGE GROSS PROFIT FOR THE ASSESSMENT YEARS 2000-01 TO 2006-07 (30.68%), TO DETERMINE THE UNDISCLOSED PROFIT FROM UNACCOUNTED SALES. THE ASSESSING OFFICE R APPLIED THE G.P. RATE OF 30.74% ON THE TOTAL SALES OF RS. 52.63 LACS WHICH INCLUDED U NACCOUNTED SALES OF RS. 47.88 LACS AND ACCOUNTED SALES OF RS. 4.75 LACS AND COMPUTED THE G ROSS PROFIT AT RS. 16,17,846/- AND AFTER REDUCING GROSS PROFIT AS PER BOOKS OF ACCOUNT AT RS . 1,46,050/- HE COMPUTED UNDISCLOSED PROFIT AT RS. 14,71,796/-. THE ASSESSING OFFICER A LSO DETERMINED UNDISCLOSED DEBTORS AS PER ANNEXURE A-9 AT RS. 12.07 LACS BUT MADE ADDITION ON ACCOUNT OF UNDISCLOSED PROFIT BECAUSE IT WAS HIGHER THAN THE UNDISCLOSED DEBTORS . THE RELEVANT FINDING HAD BEEN GIVEN BY THE ASSESSING OFFICER AT PAGE 8 AND 9 OF THE ASSESS MENT ORDER WHICH READS AS UNDER:- DURING THE COURSE OF SEARCH OPERATIONS, IN THE ST ATEMENT SHRI SHANTI LAI PALIWAL HAS EXPLAINED IN DETAIL THE PROC ESS OF DECODING NOT ONLY AT ONE PLACE BUT AT MANY PLACES AND ACCORDING TO HIM, THE DECODING WAS TO BE DONE BY MENTIONING THREE ZEROS OR BY MULTIPLYING 10 00 TO THE FIGURES WRITTEN IN THE ANNEXURE. THE ASSESSEE HAS FAILED TO JUSTIFY HI S VARIOUS ARGUMENTS/CLAIMS BY GETTING VERIFIED THE FIGURES WRITTEN IN THE ANNEXUR E WITH THE FIGURE IN HIS BOOKS OF ACCOUNTS BY TAKING ACTUAL FIGURES OF THESE ANNEX URE OR BY TAKING TWO ZEROS WITH ACTUAL FIGURES OF THE ANNEXURE. IT IS UNBELIEV ABLE THAT ANY SALE OF MARBLE BLOCKS/LAFFERS MAY BE OF RS.25.200 AS BEING MENTION ED IN PAGE NO. 8 OF ANX.A.9 WHICH IS THE ACTUAL FIGURES AS WRITTEN IN T HE ANNEXURE ON 14/5/2001. 4 FOR THIS FIGURE, SHRI SHANTI LAI PALIWAL HAS CLEARL Y MENTIONED IN STATEMENT THAT IT WAS IN FACT RS.25200/- AND THE SAME WAS ARRIVED BY MULTIPLYING BY RS.1000/- OR BY MENTIONED THREE ZEROS WITH THIS FIGURE. SIMIL AR TYPE OF ILLUSTRATION WAS AGAIN GIVEN BY SHRI SHANTI LAL PALIWAL REGARDING AN X.A.2, A.3 AND A.5 IN WHICH DETAILS OF PRODUCTION AND LABORS PAYMENTS BY THE CONTRACTORS WERE KEPT BY SHRI SHANTI LAI PALIWAL. OUT OF THESE ANNEXURE, FOR ANX.A.3 PAGE NO. 1, SHRI SHANTI LAI EXPLAINED THE FIGURE 9 AS 9000 AND ALSO EXPLAINED THE FIGURE 3.600 AS 3600. BY THESE EXAMPLES, IT IS CRYSTAL CLEAR THAT T HE METHOD OF DECODING AS EXPLAINED BY SHRI SHANTI LAL PALIWAL WAS CORRECT. I N FACT, HE WAS THE PERSON WHO HAS WRITTEN THESE FIGURES IN CODED FORM AND THE REFORE, HE HAD RIGHTLY NARRATED THE METHOD OF DECODING. BY APPLYING THIS D ECODING THE FIGURES ARRIVED ARE ACTUAL FIGURES. FOR INSTANCES, AT PAGE NO. 2 OF ANX.A.2, THERE ARE SALES WHICH COMES TO RS.168000/- FOR THE PERIOD 9/4/2003 TO 21/4/2003. FOR THE PERIOD OF 12 DAYS, SALES OF RS.168000/- CAN BE EFFE CTED VERY EASILY WHICH HAS BEEN DONE IN THE REAL SENSE. IN VIEW OF THESE FACTS , IT IS CLEAR THAT THE METHOD OF DECODING AS EXPLAINED BY SHRI SHANTI LAL PALIWAL WA S CORRECT AND THEREFORE, ALL THE CODED FIGURES ARE BEING DECODED BY MULTIPLYING BY 1000 OR BY ADDING THREE ZEROS AGAINST THE FIGURES WRITTEN IN THE CODED FORM IN ALL THE ANNEXURE. THUS, ARGUMENTS OF THE ASSESSEE TO TAKE THE ACTUAL FIGURES WRITTEN IN THE VARIOUS ANNEXURE OR TO TAKE THE FIGURES BY MENTIONING TWO Z EROS AGAINST THEM ARE PATENTLY AFTER THOUGHT AND ONLY THE ATTEMPT TO TWIS T THE ACTUAL FACTS OF THE CASE AND THEREFORE, CANNOT BE ACCEPTED. THIS ALSO CLEAR THAT THE ASSESSEE HAS TOTALLY FAILED TO GET VERIFIED THE UNACCOUNTED SALE S/PRODUCTION/EXPENSES FOUND IN THE FORM OF LOOSE INCRIMINATING DOCUMENTS WERE SEIZED IN THE FORM OF VARIOUS ANNEXURE DURING THE COURSE OF SEARCH OPE RATION. THEREFORE, ALL THESE REMAIN UNVERIFIABLE AND FOUND TO BE NOT RECORDED IN REGULAR BOOKS OF ACCOUNTS. AS FAR AS THE ARGUMENTS OF THE ASSESSEE REGARDING U NACCOUNTED EXPENSES IN THE NAMES OF VARIOUS CONTRACTORS ARE CONCERNS, ENTRIES OF WHICH HAVE ALSO BEEN FOUND IN THE VARIOUS ANNEXURE, THE EXPENSES ARE APP EARING IN THESE ENTRIES RELATED TO THE PRODUCTION OF GOODS HAS NOT BEEN REC ORDED IN HER REGULAR BOOKS OF ACCOUNTS. SOME UNACCOUNTED SALES/PRODUCTION HAS BEEN FOUND IN THE FORM OF VARIOUS INCRIMINATING DOCUMENTS FOUND AND SEIZED AS PER VARIOUS ANNEXURE DURING THE COURSE OF SEARCH OPERATION. THEREFORE, T HIS ARGUMENT OF THE ASSESSEE IS ALSO NOT ACCEPTABLE. ALL THESE SALES/RECEIPTS RE MAINS UNVERIFIABLE AND THE SAME ARE BEING CONSIDERED ACCORDINGLY.' 3.3 THE ASSESSEE CARRIED THE MATTER TO THE LD. CIT( A) AND THE SUBMISSIONS AS MADE IN PARA 5.1 OF THE IMPUGNED ORDER ARE REPRODUCED VERBA TIM AS UNDER- (A) THERE WAS NO DISPUTE REGARDING ANNEXURE A-9 ( RELEVANT FOR THE ASSESSMENT 5 YEARS 2000-01, 2001-02 AND 2002-03) WHICH REPRESENT ED PARTY-WISE UNDISCLOSED SALES OF BLOCKS WRITTEN IN MULTIPLES OF RS.1,000/-. THIS FACT WAS CONFIRMED BY SHRI SHANTI LAL PALIWAL IN HIS STATEMENT RECORDED U/S. 1 32(4) ON 13.09.2005. (B) SHRI SHANTI LAL PALIWAL CATEGORICALLY STATED IN RES PONSE TO Q.NO.9 AND Q.NO. 14 OF HIS STATEMENT RECORDED U/S. 132(4) ON 0 7.09.2005 THAT ANNEXURES A-L,A-2, A-3, A-4, A-5, A-6, A-23 AND A-25 AND A-26 WERE RELATED TO CONTRACTORS WORKING AT THE APPELLANT'S MINES AND RE PRESENTED PRODUCTION AND SALES OF LAFFARS AND KHANDAS AND THEIR SALES PROCEE DS BELONGED TO CONTRACTORS AFTER DEDUCTING EXPENSES RELATING TO MACHINE HIRING CHARGES. THESE ANNEXURES WERE FOUND WITH HIM BECAUSE THE PAYMENT OF MACHINE HIRING CHARGES W AS GUARANTEED BY HIM. THESE FACTS WERE RECONFIRMED BY HIM SUBSEQUENTLY IN RESPONSE TO Q.NO.4 OF HIS STATEMENT RECORDED ON 26.09.2005. THE APPELLANT WAS NOT DEBITING ANY EX PENDITURE TOWARDS PAYMENT TO CONTRACTORS FOR REMOVA L OF WASTAGE ETC. IN HER BOOKS OF ACCOUNT. (C) THE A.O. DESPITE CATEGORICAL STATEMENTS OF SHRI SHA NTI LAI PALIWAL, TREATED THE SALES OF LAFFARS AND KHANDAS AS PER ANNEXURES A -L, A-2, A-3, A-4, A-5, A-6, A-23 AND A-25, (RELEVANT FOR THE ASSESSMENT YEARS 2 003-04, 2004-05 AND 2006- 07) AS PART OF THE APPELLANT'S UNDISCLOSED SALES. H E ACTED IN A VERY UNFAIR AND UNJUST MANNER BY ACCEPTING ONE PART OF SHRI SHANTI LAL PALIWAL'S STATEMENT WHICH WAS FAVOURABLE TO THE REVENUE AND REJECTING THE OTH ER PART. IT WAS POINTED OUT THAT THE COURTS INCLUDING APEX COURT HAVE REPEATEDLY HEL D THAT BEING A QUASI-JUDICIAL AUTHORITY, THE A.O. CANNOT ACT IN AN ARBITRARY AND CAPRICIOUS MANNER. HE IS REQUIRED TO ACT IN A FAIR AND JUST MANNER TO GIVE J USTICE TO THE ASSESSEE. HE CANNOT PICK AND CHOOSE FROM THE EVIDENCE AND FACTS PLACED BEFORE HIM AND USE THEM SELECTIVELY TO THE DETRIMENT OF THE ASSESSEE. (D) THE DETERMINATION OF UNDISCLOSED PROFIT FROM UNACCO UNTED SALES BY THE A.O. BY APPLYING HIGHER OF THE AVERAGE GROSS PR OFIT RATE FOR THE BLOCK PERIOD AND GROSS PROFIT FOR THAT YEAR ON TOTAL SALES INCLU DING UNACCOUNTED SALES WAS 6 PATENTLY WRONG BECAUSE OF THE FOLLOWING REASONS:- (I) PROFIT ON DISCLOSED SALES WAS DULY ACCOUNTED FO R AND SHOWN IN THE RETURN OF INCOME FILED BY THE APPELLANT. THE IN CLUSION OF ACCOUNTED SALES FOR DETERMINATION OF UNDISCLOSED PROFIT ON UN ACCOUNTED SALES, APPLYING THE HIGHER OF AVERAGE GROSS PROFIT RATE AND THE GRO SS PROFIT RATE OF RELEVANT YEAR AND REDUCING GROSS PROFIT OF THE RELEVANT YEAR , AMOUNTED TO REJECTION OF BOOKS OF ACCOUNT OF THE APPELLANT INDI RECTLY. (II) THE UNDISCLOSED PROFIT DOES NOT MEAN GROSS PRO FIT ON UNACCOUNTED SALES BUT MEANS UNDISCLOSED PROFIT FROM UNACCOUNTED SALES DETERMINABLE ON THE BASIS OF SEIZED MATERIAL. THE MOST IDEAL SITUAT ION IS TO CONSIDER ALL UNACCOUNTED INCOME AND ALL UNACCOUNTED EXPENSES AND DETERMINE CORRECT UNDISCLOSED PROFIT. BUT THAT IDEAL SITUATION GENERA LLY DOES NOT EXIST. WHEN ONLY A PART OF UNACCOUNTED EXPENSES ARE FOUND DURIN G SEARCH, THE NEED TO ESTIMATE UNDISCLOSED INCOME ARISES. AS THE GROSS PR OFIT RATE COVERS ONLY TRADING EXPENSES AND NOT VARIOUS OVERHEADS LIKE ADM INISTRATIVE EXPENSES, SELLING AND DISTRIBUTION EXPENSES, FINANCIAL EXPENS ES, ETC. WHICH ARE ALSO INCURRED BY THE ASSESSEE, THE DETERMINATION OF UNDI SCLOSED PROFIT ON THE BASIS OF GROSS PROFIT RATE IS NOT PROPER. (III) IN THE APPELLANT'S CASE, THE SEIZED MATERIAL POINTED TOWARDS SEVERAL EXPENSES WHICH WERE NOT RECORDED IN THE BOO KS OF ACCOUNT BUT WERE VERY RELEVANT FOR DETERMINING CORRECT UNDISCLOSED I NCOME. SUCH UNACCOUNTED EXPENSES WERE FOUND RECORDED IN ANNEXURE A-L (PAGE 1-10), ANNEXURE A-4 (PAGE 1-14), ANNEXURE A-23 (PAGE 10), OF ANNEXURE A -25 (PAGE 60), ANNEXURE A-26 (PAGE 1, 4-12, 13-14, 16-18), ANNEXUR E A-30 (PAGE 4, 5 AND 6) AND THE STATEMENT OF SHRI HARI SHANKAR AND SHRI MOHINDER RECORDED DURING SEARCH AND SEIZURE PROCEEDINGS. BROADLY, THE THESE UNACCOUNTED EXPENSES WERE RELATED TO SALARIES PAID TO VARIOUS EMPLOYEES WORKI NG AT MINES E.G. SHRI HARI SHANKAR, SHRI MOHINDER SINGH, MUNIMJI, WATCHMAN ETC ., TELEPHONE CHARGES, 7 SIM CHARGES, STAFF WELFARE EXPENSES, PAYMENTS TO CO NTRACTORS, MOTOR CAR EXPENSES, MACHINE HIRE CHARGES ETC. THESE EXPENSES WERE FAIRLY LARGE SPREAD AND WERE NOT CONSIDERED BY THE A.O. IN DETERMINATIO N OF THE RATE OF PROFIT ON WHICH UNDISCLOSED PROFIT ON SALE WAS REQUIRED TO BE DETERMINED. THEREFORE, THE DETERMINATION OF UNDISCLOSED PROFIT FROM UNACCOUNTE D SALES ON THE BASIS OF GROSS PROFIT RATE WAS NOT PROPER. (IV) HOWEVER, AS THE UNACCOUNTED EXPENSES, ALTHOUGH FAIRLY WIDE SPREAD, WERE NOT COMPLETE IN ALL RESPECT AND DID NO T COVER ALL THE YEARS FORMING PART OF BLOCK ASSESSMENT, IT WAS ESSENTIAL TO ESTIM ATE UNDISCLOSED PROFIT FROM UNACCOUNTED SALES DURING BLOCK PERIOD. UNDER THE FA CTS AND CIRCUMSTANCES IN THE APPELLANT'S CASE, THE MOST APPROPRIATE METHOD O F DETERMINING UNDISCLOSED PROFIT ON UNACCOUNTED SALES WOULD BE TH E NET PROFIT RATE BECAUSE IT WOULD TAKE CARE OF VARIOUS UNACCOUNTED EXPENSES NOT CONSIDERED IN DETERMINATION OF GROSS PROFIT. (E) THE A.R. RELIED ON THE JUDGMENT OF HON'BLE MADHYA P RADESH HIGH COURT IN THE CASE OF C.I.T. VS. BAL CHAND AJIT KUMAR (263 ITR 610), HON'BLE GUJARAT HIGH COURT IN THE CASE OF C.I.T. VS. PRESID ENT INDUSTRIES, (258 ITR654)AND HON'BLE INDORE BENCH OF INCOME-TAX APPEL LATE TRIBUNAL IN THE CASE OF EAGLE SEEDS LTD. VS. A.C.I.T. (100 ITD 301) FOR THE PROPOSITION THAT ONLY NET PROFIT RATE CAN BE APPLIED ON THE UNA CCOUNTED SALES TO ARRIVE AT THE FIGURE OF UNACCOUNTED PROFIT. (F) ALTERNATIVELY AND WITHOUT PREJUDICE, IT WAS ALSO SU BMITTED THAT IF AT ALL THE UNDISCLOSED PROFIT ON UNACCOUNTED SALES IS TO B E DETERMINED ON THE BASIS OF GROSS PROFIT RATE, THE GROSS PROFIT RATE OF THE REL EVANT ASSESSMENT YEAR SHOULD BE APPLIED AND NOT THE HIGHER OF THE AVERAGE GROSS PRO FIT RATE OR THE GROSS PROFIT RATE FOR THAT YEAR. THE ADOPTION OF THE HIGHER OF T HE AVERAGE GROSS PROFIT RATE OR GROSS PROFIT RATE FOR THAT YEAR AMOUNTED TO SAYI NG THAT 'THE HEAD I WIN, THE TAIL YOU LOSE'. THE ADOPTION OF AVERAGE GROSS PROFI T RATE WAS JUSTIFIABLE ONLY IF 8 THE GROSS PROFIT RATE OF EVERY ASSESSMENT YEAR WAS NOT DETERMINABLE. IN THE APPELLANT'S CASE, THE GROSS PROFIT RATE OF EACH ASS ESSMENT YEAR WAS COMPUTED BY THE A.O. HIMSELF ON THE BASIS OF ASSESSEE'S TRAD ING RESULT, WHICH CLEARLY SHOWED THAT THE TRADING RESULTS AS PER BOOKS OF ACC OUNT WERE ACCEPTED BY HIM. THEREFORE, THE ADOPTION OF THE HIGHER OF AVERAGE G. P. RATE AND G.P. RATE OF A PARTICULAR YEAR AND INCLUSION OF SALES UNACCOUNTED FOR IN THE BOOKS OF ACCOUNT IN THE UNACCOUNTED SALES FOR THE PURPOSE OF DETERMINING UNDISCLOSED INCOME OF THE ASSESSEE WAS PATENTLY WRONG AND UNJUS TIFIED. (G) AS REGARDS TAXATION OF HIGHER OF THE UNDISCLOSE D PROFITS AND UNDISCLOSED DEBTORS AS UNDISCLOSED INCOME OF THE APPELLANT, THE A.R. SUBMITTED THAT THE IMPUGNED PROPOSITION WAS PROPER IN THE FIRST YEAR W HEN HER UNDISCLOSED DEBTORS EXCEEDED HER UNDISCLOSED PROFITS FROM UNACC OUNTED SALES. THEREFORE, IN THE ASSESSMENT YEAR 2000-01, THE ASSESSMENT OF U NDISCLOSED INCOME ON THE BASIS OF UNDISCLOSED DEBTORS WAS PROPER. BUT IN THE SUBSEQUENT YEARS, THE UNDISCLOSED INCOME SO ASSESSED WAS AVAILABLE WITH T HE APPELLANT FOR INVESTMENT IN UNDISCLOSED ASSETS INCLUDING DEBTORS. THEREFORE, IN THE SUBSEQUENT YEARS, THE UNDISCLOSED INCOME SHOULD HAV E BEEN DETERMINED ON THE BASIS OF UNDISCLOSED PROFITS ALONE SO LONG AS THE U NDISCLOSED DEBTORS OF THAT YEAR WERE LESS THAN THE SUM OF UNDISCLOSED INCOME D ETERMINED IN EARLIER YEARS AND UNDISCLOSED PROFIT OF THAT YEAR. 3.4 THE LD. CIT(A) AFTER CONSIDERING THE SUBMISSION S OF THE ASSESSEE OBSERVED THAT AN ADDITION OF RS. 22.33 LACS MADE BY THE ASSESSING O FFICER IN THE PRECEDING YEAR I.E. ASSESSMENT YEAR 2000-01 HAD BEEN UPHELD BY HIM VIDE ORDER DATED 16-02-2010. HE THEREFORE, AGREED WITH THE PROPOSITION OF THE ASSES SEE THAT IN THE SUBSEQUENT YEARS, THE UNDISCLOSED INCOME FOR THE ASSESSMENT YEAR 2000-01 BECAME THE SOURCE OF FUNDS AVAILABLE WITH THE ASSESSEE FOR INVESTMENT IN UNDISCLOSED ASS ETS INCLUDING DEBTORS SINCE NO UNDISCLOSED ASSETS EXCEPT SUNDRY DEBTORS WERE FOUND IN THE ASSESSMENT YEAR 2000-01. THE 9 LD. CIT(A) WAS OF THE VIEW THAT SO LONG AS THE AVA ILABLE ACCUMULATED UNDISCLOSED INCOME OF THE ASSESSEE FOR THE EARLIER YEARS AS INCREASED BY THE UNDISCLOSED PROFIT FROM UNACCOUNTED SALES WAS MORE THAN THE UNDISCLOSED DEBTORS OF THAT YEAR, NO ADDITION COULD BE MADE ON ACCOUNT OF UNDISCLOSED DEBTORS IN A PARTICULAR ASS ESSMENT YEAR. THE LD. CIT(A) HELD THAT UNDISCLOSED INCOME DECLARED BY THE ASSESSEE AND COM PUTED BY THE REVENUE WAS AVAILABLE TO THE ASSESSEE FOR THE PURPOSE OF EXPLAINING THE O THER ADDITIONS / INVESTMENTS AND THE SAME WOULD ALSO BE AVAILABLE TO THE ASSESSEE FOR SET OF F PURPOSES IN RESPECT OF THE AGREED OR OTHER ADDITIONS. RELIANCE WAS PLACED ON THE FOLLOWING CAS E LAWS. 1. S. KUPPUSWAMI MUDALIAR VS CIT, 51 ITR 757 (MAD) 2. ANANTHARAM VEERASINGHAIAH & CO. VS CIT,123 ITR 457 (SC) 3. CIT VS PREM CHAND JAIN, 189 ITR 230 (P&H) 4. CIT VS TYARAMAL BALCHAND, 163 ITR 453 (RAJ.) THE LD. CIT(A) FURTHER OBSERVED THAT THE ASSESSEE O BJECTED TO THE INCLUSION OF THE SALES AS PER BOOKS OF ACCOUNT IN THE UNACCOUNTED SALES BECAU SE PROFIT FROM SALES AS PER BOOKS OF ACCOUNT WAS ALREADY INCLUDED IN THE TOTAL INCOME OF THE ASSESSEE AND WAS OFFERED FOR TAXATION. THE SAID OBJECTION OF THE ASSESSEE WAS AC CEPTED BY THE LD. CIT(A) FOR THE REASON THAT UNDISCLOSED PROFIT WAS TO BE DETERMINED ON THE BASIS OF UNDISCLOSED SALES AND NOT ON THE BASIS OF SALES AS PER BOOKS OF ACCOUNT BECAUSE THE PROFIT ON THE SALES AS PER BOOKS OF ACCOUNT WAS ALREADY INCLUDED IN THE RETURN OF INCO ME FILED BY THE ASSESSEE, THEREFORE, THE SALES AS PER BOOKS OF ACCOUNT OF THE ASSESSEE SHOUL D NOT BE CONSIDERED FOR THE PURPOSE OF DETERMINING UNDISCLOSED PROFIT ON UNACCOUNTED SALES . 3.5 AS REGARDS OTHER OBJECTIONS OF THE ASSESSEE TH AT THE ASSESSING OFFICER SHOULD HAVE TAKEN THE GROSS PROFIT RATE OF THE RELEVANT ASSESSM ENT YEAR AND NOT THE AVERAGE PROFIT RATE FOR THE ASSESSMENT YEAR 2000-01 TO 2006-07. THE LD. CIT (A) CONSIDERED SAID CONTENTION TO BE REASONABLE BY OBSERVING THAT THE ASSESSING OFFICER HAD TAKEN DIFFERENT STANDS WHILE APPLYING THE G.P. RATE ON UNACCOUNTED SALES IN DIFF ERENT YEARS AND THAT IN A PARTICULAR ASSESSMENT YEAR IN WHICH THE G.P. RATE SHOWN BY THE ASSESSEE WAS LESS THAN THE AVERAGE 10 G.P. RATE OF 30.68%, HE HAD APPLIED THE G.P. RATE O F 30.68%. THE LD. CIT(A) CITED THE EXAMPLE FOR THE ASSESSMENT YEAR 2000-01 WHEREIN THE G.P. RATE SHOWN BY THE ASSESSEE WAS 26.07% AND THE ASSESSING OFFICER APPLIED THE G.P. RATE OF 30.68%. HOWEVER, IF IN ANY ASSESSMENT YEAR, THE G.P. RATE SHOWN BY THE ASSESSE E WAS MORE THAN THE G.P. RATE OF 30.68%. THE ASSESSING OFFICER APPLIED THAT G.P. RAT E E.G. IN THE ASSESSMENT YEAR UNDER CONSIDERATION THE G.P. RATE OF 30.74% WAS APPLIED. ACCORDING TO THE LD. CIT(A), THE ABOVE SAID CONTRARY STAND TAKEN BY THE ASSESSING OFFICER WAS NOT JUSTIFIED, ACCORDINGLY , HE WAS OF THE VIEW THAT ONLY THE G.P. RATE OF THAT PARTICULAR ASSESSMENT YEAR HAS TO BE TAKEN UNLESS THE ASSESSING OFFICER HAD EVIDENCE TO JUSTIFY THE APPLI CATION OF HIGHER G.P. RATE FOR THAT ASSESSMENT YEAR. THE LD. CIT(A) POINTED OUT THE CON TENTION OF THE ASSESSEE THAT UNDISCLOSED PROFIT SHOULD HAVE BEEN DETERMINED ON THE BASIS OF NET PROFIT RATE BECAUSE THE SEIZED MATERIAL CONTAINED A LARGE NUMBER OF EVIDENCES WHIC H CLEARLY POINTED TOWARDS THE FACT THAT THE ASSESSEE INCURRED SEVERAL EXPENSES OUTSIDE THE BOOKS OF ACCOUNT AND IF SUCH EXPENSES WERE IGNORED, IT WOULD RESULT IN DETERMINATION OF U NDISCLOSED INCOME OF THE ASSESSEE DEHORS THE SEIZED MATERIAL AND CAUSED GREAT INJUSTICE TO T HE ASSESSEE, THE LD. CIT(A) WAS OF THE VIEW THAT FOR THE PURPOSE OF COMPUTING UNDISCLOSED PROFIT ON UNACCOUNTED SALES, G.P. RATE WAS TO BE APPLIED UNLESS THERE WAS AN EVIDENCE TO I NDICATE THAT EXPENSES WERE INCURRED OUTSIDE THE BOOKS OF ACCOUNT TO EFFECT THOSE UNACCO UNTED SALES BUT IN THE ABSENCE OF SUCH EVIDENCE, IT HAS TO BE PRESUMED THAT THE EXPENSES A S SHOWN IN THE BOOKS OF ACCOUNT WERE SUFFICIENT TO EFFECT UNACCOUNTED SALES ALSO. BUT AT THE SAME TIME, IF THERE WAS ANY EVIDENCES THAT UNACCOUNTED EXPENSES WERE INCURRED, THE SAME H AD TO BE CONSIDERED TO ARRIVE AT THE CORRECT FIGURE OF UNDISCLOSED PROFIT ON UNRECORDED SALES. THE LD. CIT(A) CATEGORICALLY STATED THAT PHOTOCOPIES OF THE RELEVANT SEIZED MATE RIAL FILED BY THE ASSESSEE AS PER ANNEXURE C TO HER LETTER DATED 28-01-2010, REVEALED THAT VAR IOUS EXPENSES ON PETROL, DIESEL, PAYMENT TO DRIVER, AND MACHINE HELPER, LABOUR CHARGES, STAF F WELFARE EXPENSES ETC. HAD BEEN SHOWN AND THOSE DID NOT PERTAIN TO ASSESSMENT YEAR UNDER CONSIDERATION BUT THE DOCUMENTS 11 INDICATED THAT VARIOUS EXPENSES WERE BEING INCURRED BY THE ASSESSEE OUTSIDE THE BOOKS OF ACCOUNT. THE LD. CIT(A) REFERRED THE STATEMENTS OF SHRI HARI SHANKAR PALIWAL RECORDED DURING THE COURSE OF SURVEY AT MINES ON 7-09-2005 W HEREIN HE STATED THAT HE HAD BEEN WORKING AS AN EMPLOYEE AT THE MINES FOR THE LAST FO UR YEARS AT A MONTHLY SALARY OF RS. 4500/- AND THAT SHRI MOHINDER SINGH, OPERATOR WAS ALSO WORKING AT A MONTHLY SALARY OF RS. 2,725/-. APART FROM THAT, IT WAS ALSO STATED BY HIM THAT 35 TO 40 LABOUR PERSONNELS WERE WORKING AT THE MINES. THE LD. CIT(A) ALSO POINTED O UT THAT SHRI MOHINDER SINGH IN HIS STATEMENT RECORDED ON 7-09-2005 STATED THAT HE, SH RI HARI SHANKAR, ONE ACCOUNTANT AND ABOUT 35 TO 40 LABOURERS WERE WORKING AT THE MINES. THE LD. CIT(A) FURTHER OBSERVED THAT FROM PERUSAL OF THE PROFIT AND LOSS ACCOUNT FOR THE FINANCIAL YEAR 2000-01 RELEVANT TO ASSESSMENT YEAR UNDER CONSIDERATION, IT WAS SEEN TH AT AFTER ARRIVING AT THE FIGURES OF GROSS PROFIT, ONLY FEW EXPENSES LIKE ACCOUNTING CHARGES ( RS.3,000/-), BANK CHARGES (RS. 100/-), GENERAL EXPENSES (RS. 2,834/-) AND SALARY (RS.12,0 00/-) HAD BEEN SHOWN. THUS IT WAS CLEAR THAT LARGE NUMBER OF EXPENSES INCURRED BY THE ASSES SEE WERE NOT ENTERED IN THE BOOKS OF ACCOUNT. THEREFORE, THE LD. CIT(A) WAS OF THE VIEW THAT THE EXISTENCE OF A NUMBER OF UNACCOUNTED EXPENSES CLEARLY SHOWS THAT THE DETERMI NATION OF THE UNDISCLOSED PROFIT FROM UNACCOUNTED SALES ON THE BASIS OF STRAIGHTWAY APPLY ING THE G.P. RATE WAS NOT THE CORRECT BASIS. HE WAS OF THE VIEW THAT NEITHER THE G.P. RAT E OF 30.74% AS APPLIED BY THE ASSESSING OFFICER NOR NET PROFIT RATE OF 11.26% AS CLAIMED BY THE ASSESSEE COULD BE APPLIED ON THE UNACCOUNTED SALES. HE THEREFORE, CONSIDERED IT FAIR AND REASONABLE TO ESTIMATE THE PROFIT RATE AT 20% ON THE UNRECORDED SALES. ACCORDINGLY, THE UN ACCOUNTED PROFIT ON UNRECORDED SALES OF RS. 47.88 LACS BY APPLYING THE G.P. RATE OF 20% WAS DETERMINED AT RS. 9,57,600/- AND SINCE THE FIGURE OF UNDISCLOSED DEBTORS AT RS. 12.07 LACS WAS LESS THAN THE SUM TOTAL OF UNDISCLOSED INCOME OF RS. 22.33 LACS UPHELD BY THE LD. CIT(A) FOR THE PRECEDING ASSESSMENT YEAR AND UNACCOUNTED INCOME OF RS. 9,57, 600/- UPHELD FOR THE YEAR UNDER 12 CONSIDERATION, NO FURTHER ADDITION IN RESPECT OF UN DISCLOSED SUNDRY DEBTORS WAS STATED TO BE CALLED FOR. 3.6 NOW THE DEPARTMENT IS IN APPEAL. 3.7 THE LD. DR STRONGLY SUPPORTED THE ORDER OF THE ASSESSING OFFICER AND SUBMITTED THAT THE LD. CIT(A) APPLIED THE PROFIT RATE WHICH WAS LESS THAN THE PROFIT RATE DECLARED BY THE ASSESSEE IN THE BOOKS OF ACCOUNT. THEREFORE, TH E LD. CIT(A) WAS NOT JUSTIFIED IN REDUCING THE ADDITION MADE BY THE ASSESSING OFFICER. IT WAS FURTHER STATED THAT SINCE THE SUNDRY DEBTORS WERE APPEARING IN THE SEIZED DOCUMENTS, THE ADDITION WAS RIGHTLY MADE BY THE ASSESSING OFFICER AND THE LD. CIT(A) WAS NOT JUSTIF IED IN ALLOWING SET OFF OF SUNDRY DEBTORS AGAINST UNDISCLOSED INCOME OF THE PRECEDING YEAR AN D UNDISCLOSED PROFIT DETERMINED BY HIM FOR THE YEAR UNDER CONSIDERATION. 3.8 IN HIS RIVAL SUBMISSIONS, THE LD. COUNSEL FOR T HE ASSESSEE REITERATED THE SUBMISSIONS MADE BEFORE THE AUTHORITIES BELOW AND SUPPORTED THE IMPUGNED ORDER PASSED BY THE LD. CIT(A). 3.9 WE HAVE CONSIDERED THE SUBMISSIONS OF BOTH THE PARTIES AND GONE THROUGH THE MATERIALS AVAILABLE ON RECORD. IN THE INSTANT CASE, IT IS NOTICED THAT THE ASSESSING OFFICER WHILE DETERMINING THE PROFIT ON UNDISCLOSED INCOME OF THE ASSESSEE CLUBBED THE UNDISCLOSED SALES RECORDED IN THE BOOKS OF ACCOUNT AND ALSO APP LIED THE AVERAGE G.P. RATE OF SIX YEARS WHERE THE G.P. RATE DECLARED WAS LESS THAN AVERAGE G.P. RATE AND WHERE REVERSE WAS THE POSITION, THE G.P. RATE OF THE SAID RELEVANT YEAR W AS APPLIED TO DETERMINE THE UNDISCLOSED INCOME. IN OUR OPINION, THE SAID ACTION OF THE ASSE SSING OFFICER WAS NOT JUSTIFIED. THEREFORE, THE LD. CIT(A) RIGHTLY OBSERVED THAT THE RECORDED SALES SHOULD NOT HAVE BEEN INCLUDED IN THE UNACCOUNTED SALES FOR DETERMINING U NDISCLOSED PROFIT. IN THE PRESENT CASE, IT IS ALSO NOTICED THAT ONLY FEW EXPENSES RELATING TO UNDISCLOSED SALES WERE FOUND RECORDED IN THE BOOKS OF ACCOUNT AND APART FROM THOSE EXPENSES , VARIOUS OTHER EXPENSES WERE INCURRED BY THE ASSESSEE WHICH WAS EVIDENT FROM THE STATEMEN T OF SHRI HARI SHANKAR PALIWAL AND 13 SHRI MOHINDER SINGH, EMPLOYEES OF THE ASSESSEE WHOS E SALARY WAS NOT FOUND TO BE RECORDED IN THE SEIZED DOCUMENTS, THEY HAVE STATED IN THEIR STATEMENTS THAT 35 TO 40 LABOURERS WERE ALSO WORKING AT THE MINES. THE EXPENSES RELATING TO WORKERS ALONGWITH OTHER EXPENSES WERE FOUND RECORDED IN THE SEIZED DOCUMENTS BUT TH E OTHER EXPENSES RECORDED IN THE BOOKS OF ACCOUNT WERE VERY MEAGRE FOR THE UNRECORDED SAL ES. THEREFORE, THE LD. CIT(A) WAS JUSTIFIED IN OBSERVING THAT THE G.P. RATE ON THE R ECORDED SALES IN VARIOUS YEARS APPLIED BY THE ASSESSING OFFICER AND NET PROFIT RATE AS CLAIM ED BY THE ASSESSEE WERE NOT CORRECT FOR DETERMINING THE UNDISCLOSED PROFIT ON THE UNRECORDE D SALES. IN OUR OPINION, THE LD. CIT(A) WAS FAIR AND REASONABLE WHILE APPLYING THE G.P. RAT E AT 20% ON THE UNDISCLOSED SALES. HE WAS ALSO JUSTIFIED IN GIVING THE SET OFF TO THE UND ISCLOSED INCOME OF PRECEDING YEAR AND THE YEAR UNDER CONSIDERATION FOR UNRECORDED DEBTORS BE CAUSE NOTHING WAS BROUGHT ON RECORD TO SUBSTANTIATE THAT UNDISCLOSED INCOME WAS UTILIZED B Y THE ASSESSEE ELSEWHERE OTHER THAN THE UNDISCLOSED / UNRECORDED TRADING ACTIVITIES. WE THE REFORE, DO NOT SEE ANY MERIT IN THIS APPEAL OF THE DEPARTMENT. 4.0 AS REGARDS OTHER APPEALS FOR THE ASSESSMENT YEA R 2002-03 AND 2004-05IS CONCERNED, IT IS NOTICED THAT SIMILAR GROUNDS ARE RAISED BY TH E DEPARTMENT, THE ONLY DIFFERENCE IS IN THE FIGURES AND EVEN THE RIVAL CONTENTIONS WERE THE SA ME AS WERE FOR THE ASSESSMENT YEAR 2001- 02. THEREFORE, OUR FINDINGS GIVEN IN ITA NO.373/JU/ 2010 FOR THE ASSESSMENT YEAR 2001-02 SHALL APPLY MUTATIS-MUTANDIS FOR THE APPEALS IN ITA NOS. 377 & 378/JU/2010 FOR THE ASSESSMENT YEARS 2003-04 AND 2004-05 RESPECTIVELY. 5.0 IN THE RESULT, THE APPEALS OF THE DEPARTMENT A RE DISMISSED. (ORDER PRONOUNCED IN THE OPEN COURT ON THIS 04-0 4-2013) SD/- SD/- (HARI OM MARATHA) (N.K. SAINI) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 04 TH APRIL, 2013 MISHRA COPY TO:- 14 1.THE APPELLANT 2. THE RESPONDENT 3. THE LD. CIT 4. THE LD. CIT(A) 5. THE DR ASSISTANT REGISTRAR 6. THE GUARD FILE ITAT, JODHPUR