ACIT, Ernakulam V. M/s Orma Marble Palace, Kottayam

ITSSA 45/COCH/2004

• Counselvise Citation: [2010] 124 COUNSELVISE.COM (IT) 9169 (ITAT-COCHIN)
• Duration Of Justice: 6 year(s) 1 month(s) 15 day(s)
• Appeal Type: Income Tax (Search & Seizure) Appeal
• Pronouncement Date: 22-06-2010
• Appeal Filed By: Department
• Bench Allotted: DB
• Next Hearing Date: 13-05-2010
• Assessment Year: misc
• Appeal Filed On: 07-05-2004
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: A K THATTAI
• Assessee Lawyers: P J BABU
• Keywords: Unexplained investment; Gift; Search and seizure; Document seized; Tangible material; Block assessment; Documents seized; FORM 2B; CHAPTER XIVB; CHAPTER IV
• Section: 132; 158BC(c); 158BC; 158B(b); 158B(a); 69; 113

Judgement Text

1IN THE INCOME TAX APPELLATE TRIBUNAL COCHIN BENCH, COCHIN BEFORE SHRI N.VIJAYAKUMARAN & SHRI SANJAY ARORA I.T.(S&S)A.NO.45/COCH/2004 BLOCK A.Y:1990-91 TO 1999-200 AND BROKEN PERIOD UPTO 2-3-2000 THE ASST. COMMISSIONER OF INCOME-TAX,CIRCLE-1(2), ERNAKULAM. VS. M/S. ORMA MARBLE PALACE , KOTTAYAM. PA NO.AAAFO 3363 J (APPELLANT) (RESPONDENT) & I.T.(S&S)A.NO.25/COCH/2004 BLOCK A.Y:1990-91 TO 1999-200 AND BROKEN PERIOD UPTO 2-3-2000 M/S. ORMA MARBLE PALACE, KOTTAYAM. PA NO.AAAFO 3363 J VS. THE ASST. COMMISSIONER OF INCOME-TAX,CIRCLE- 1(2), ERNAKULAM. (APPELLANT) (RESPONDENT) REVENUE BY SHRI A.K. THATTAI, CIT., DR ASSESSEE BY SHRI P.J. BABU, C.A O R D E R PER N.VIJAYAKUMARAN,J.M: THESE ARE CROSS APPEALS. THESE APPEALS ARE DIRE CTED AGAINST THE ORDER DATED 14-01-2004 OF CIT(APPEALS)- V, KOCHI. THE BLOCK ASSESSMENT YEARS INVOLVED ARE 19 90-91 TO 1999-2000 AND BROKEN PERIOD UPTO 02-03-2000. THES E IT(S&S) A NOS./25 & 45/COCH/2004 M/S. ORMA MARBLE PALACE 2 APPEALS ARISE OUT OF THE ASSESSMENT COMPLETED U/S.1 58BC(C) OF THE I.T.ACT,1961. 2. THE FACTS OF THE CASE IN BRIEF ARE THAT THE ASSE SSEE IS ENGAGED IN THE BUSINESS OF MARBLES, TILES, ETC. T HE BUSINESS WAS COMMENCED IN THE ASSESSMENT YEAR 1997- 98. THERE ARE FOUR OTHER CONCERNS IN THIS GROUP, VIZ. A) M/S. ORMA GRANITE PALACE, ANGAMALY; B) M/S. ORMA AGENCIES, ANGAMALY; C) M/S. ORMA MARBILE PALALCE PVT.LTD., ANGAMALY; & D) M/S. NEW ORMA MARBLE PALACE, KOTTAYAM. THE INCOME-TAX DEPARTMENT CONDUCTED A SEARCH OPERAT ION U/S.132 OF THE I.T.ACT,1961 IN THE ABOVE CONCERNS A S WELL AS IN THE RESIDENCE OF SHRI P.K. JOSEPH, DIRECTOR. S UBSEQUENT TO THE SEARCH, THE ASSESSING OFFICER ISSUED A NOTIC E U/S.158BC, WHICH WAS SERVED ON THE ASSESSEE ON 07-0 4-2000 AND IN RESPONSE TO THIS NOTICE, ASSESSEE FILED A RE TURN OF INCOME IN FORM 2B DECLARING UNDISCLOSED INCOME AT RS.2,22,909/-. FROM THE SCRUTINY OF THE RECORDS, I NCLUDING THE SEIZED MATERIALS THE ASSESSING OFFICER WAS OF T HE VIEW THAT THERE WERE UNDER INVOICING OF SALES, UNACCOUNT ED PURCHASES AND SALES, UNACCOUNTED STOCK, UNEXPLAINED IT(S&S) A NOS./25 & 45/COCH/2004 M/S. ORMA MARBLE PALACE 3 INVESTMENTS IN LAND AND PROPERTIES. ACCORDINGLY A PRE- ASSESSMENT NOTICE WAS ISSUED ON 11-03-2002, TO WHIC H ASSESSEE FILED A REPLY DATED 16-03-2002 DENYING THE ALLEGATIONS MADE BY THE ASSESSING OFFICER. 2.1 DURING THE COURSE OF ASSESSMENT PROCEEDINGS, TH E ASSESSING OFFICER DETERMINED THE UNDISCLOSED INCOME BASED ON THE ESTIMATION MADE REGARDING THE UNDER INVOICIN G COMPUTED AT 10% ON THE DECLARED SALE AMOUNTING TO RS.7,08,947/-, RS.15,15,650/- AND RS. 9,41,917/- (T OTALING TO RS.32,04,917) RESPECTIVELY FOR THE ASSESSMENT YE AR 1998- 99, 1999-2000 AND 2000-01 (UPTO 02-03-2000). ACC ORDING TO THE ASSESSING OFFICER, THIS HAS BEEN DONE BASED ON THE BASIS OF THE STATEMENTS TAKEN FROM VARIOUS PERSONS, WHO WERE EITHER DIRECTLY CONNECTED WITH THE ASSESSEE OR OTHER GROUP OF CONCERNS. IN THE CROSS EXAMINATION, SOM E OF THE PERSONS CONTRADICTED THEIR STATEMENT AND SUBMITTED THAT THEY HAVE CHANGED THEIR STAND UNDER DURESS. ACCOR DING TO THE ASSESSEE, THE STATEMENTS OBTAINED FROM SOME OF THE PERSONS WERE UNDER DURESS AND SUCH EVIDENCE COULD N OT BE TAKEN INTO ACCOUNT. THE AO HAS NOTED IN THE ASSES SMENT ORDER THAT SIX PURCHASERS WERE ISSUED COUPONS UNDER THE CUSTOMER CARE SCHEME WHEREIN PURCHASE PRICE WAS MUC H IT(S&S) A NOS./25 & 45/COCH/2004 M/S. ORMA MARBLE PALACE 4 MORE THAN THE BILL AMOUNT. THE ASSESSEE CROSS EXA MINED THOSE PERSONS AND THEY HAVE ACCEPTED THE UNDER INVO ICING. THE SUBMISSION OF THE ASSESSEE WAS THAT THIS WAS A CONCESSIONAL SCHEME. THE ASSESSING OFFICER DID NOT ACCEPT THE SUBMISSION OF THE ASSESSEE. IT WAS THE VIEW OF THE AO THAT THE OTHER SISTER CONCERN OF THE ASSESSEE WAS ALSO INDULGED IN THE SALES SUPPRESSION. THUS, THE ASSE SSING OFFICER GAVE A FINDING THAT THERE WAS SUPPRESSION O F SALES AND ACCORDINGLY ESTIMATED THE SUPPRESSION FOR THE T HREE ASSESSMENT YEARS, AS NOTED EARLIER. AGGRIEVED, THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE CIT(APPEALS ). 2.2 ON APPEAL, THE CIT(APPEALS) WAS OF THE VIEW THA T THERE WERE SOME INSTANCES IN THE FORM OF STATEMENTS WHICH INDICATE UNDER INVOICE OF SALE FOR THE ASSESSMENT Y EAR 2000- 01(PART PERIOD). THE ASSESSEE COULD NOT DENY THAT THE SALE SUPPRESSION HAS NOT BEEN MADE TO SOME EXTENT. BUT THE DEGREE AND EXTENT OF SALE SUPPRESSION DURING THE AS SESSMENT YEAR 2000-01 OR EARLIER ASSESSMENT YEARS FALLING UN DER THE BLOCK PERIOD IS A MATTER OF DISPUTE AND ALSO A QUES TION OF SUBJECTIVE ASSESSMENT BASED ON THE ESTIMATE. THE LD. CIT(APPEALS) FOUND THAT THE ASSESSING OFFICER INIT IALLY ESTIMATED THE SALE SUPPRESSION @ 50% ON DECLARED AL E BUT IT(S&S) A NOS./25 & 45/COCH/2004 M/S. ORMA MARBLE PALACE 5 RESTRICTED TO 10% WHILE COMPUTING THE UNDISCLOSED I NCOME. ACCORDING TO THE LD. CIT(APPEALS) THE DEFINITION U/ S.158B(B) INTENDS TO ASSESS UNDISCLOSED INCOME ON ASSET GENER ATION METHOD RATHER THAN INCOME GENERATION METHOD. THE UNDISCLOSED INCOME CAN BE ESTIMATED ONLY ON TANGIBL E EVIDENCES WHICH HAVE BEEN REVEALED AS A RESULT OF S EARCH. THE LD. CIT(APPEALS) FURTHER OPINED THAT IN THE INSTANT CASE, THE APPELLANT HAS BEEN FOUND WITH EXCESS STOCK OVER AND ABOVE ACCOUNTED IN THE BOOKS OF ACCOUNTS. IN ADDITION, T HE UNDISCLOSED ASSET HAS ALSO BEEN FOUND IN THE CASE OF PARTNERS A ND FAMILY MEMBERS OF THE PARTNERS. THE UNDISCLOSED INCOME H AS BEEN CONSIDERED AND DETERMINED SEPARATELY IN THE CASE OF ALL MEMBERS AND PARTNERS. UNDER THESE CIRCUMSTANCES, IF THE U NDISCLOSED INCOME IS ESTIMATED ON ACCOUNT OF UNDER INVOICING O F SALE, IT WILL AMOUNT TO DOUBLE TAXATION. ACCORDING TO THE LD. CIT(APPEALS), EVEN WHILE COMPUTING THE TOTAL UNDISC LOSED INCOME, THE ASSESSING OFFICER HAS CHOSEN NOT TO MAK E ANY SEPARATE ADDITION ON ACCOUNT OF UNEXPLAINED INVESTM ENT FOUND IN EXCESS TOCK AND TELESCOPE THE SAME WITH TH E UNDISCLOSED INCOME GENERATED FROM SUPPRESSION OF SA LE. IF THE AO HAS GOT SOME INSTANCES OF SALE SUPPRESSION D URING THE COURSE OF SEARCH AND SEIZURE OPERATION THAT DOE S NOT MEAN THAT THERE WAS SUPPRESSED THE SALE ON THE ENTI RE SALES. FURTHER, IF THE ASSESSING OFFICER GOT SOME EVIDENCE THAT THE IT(S&S) A NOS./25 & 45/COCH/2004 M/S. ORMA MARBLE PALACE 6 ASSESSEE HAS SUPPRESSED THE SALES IN CERTAIN CASES, IT DOES NOT MEAN THAT THE SAME PERCENTAGE OF SUPPRESSION HA S BEEN MADE IN ALL OTHER CASES. THERE CANNOT BE SUCH PRE SUMPTION IN THE EYE OF LAW. WITHOUT ANY MATERIAL SUPPORT, T HE ASSESSING OFFICER HAS MADE A LUMPSUM ESTIMATE ON TH E SALE SUPPRESSION AT 10% ON THE DECLARED SALE. SUCH AN ESTIMATE DID NOT SERVE ANY PURPOSE WHERE THERE IS CLEAR CUT EVIDENCE AVAILABLE ON RECORD REGARDING UNEXPLAINED INVESTMEN T MADE BY THE ASSESSEE AND ITS PARTNERS. IN A NUTSHELL, THE LD. CIT(APPEALS) HELD THAT IT IS MORE APPROPRIATE TO AV OID THE QUANTIFICATION OF SALE SUPPRESSION ON ESTIMATE BASI S. FURTHER, THE LD. CIT(APPEALS) FOUND THAT THE SEARC H AND SEIZURE OPERATION HAS NOT REVEALED ANY EVIDENCE TO SAY THAT THERE WAS SALE SUPPRESSION DURING THE ASSESSMENT YE ARS 1998-99 AND 1999-2000. RELYING ON THE ORDERS OF T HE TRIBUNAL IN THE CASE OF DN DAMANI (HUF) VS. DCIT (1999) 70 ITD 77(PAT) AND SUNDER AGENCIES VS. DCIT 6 ITR 24 5 (MUM), THE LD. CIT(APPEALS) HELD THAT PRESUMPTIVE ESTIMATION IS NOT PERMITTED UNDER BLOCK ASSESSMENT. HE FURTHER HELD THAT ADDITION U/S.158B(B) CANNOT BE BA SED ON JEJUNE REASONINGS OR GUESS WORK. COMPUTATION OF UNDISCLOSED INCOME U/S.158B(B) SHOULD BE ON THE BAS IS OF EVIDENCE FOUND AS A RESULT OF SEARCH OR REQUISITION OF THE IT(S&S) A NOS./25 & 45/COCH/2004 M/S. ORMA MARBLE PALACE 7 BOOKS OF ACCOUNT OR DOCUMENTS AND SUCH OTHER MATERI ALS OR INFORMATION AS ARE AVAILABLE WITH THE ASSESSING OFF ICER. FURTHER HE RELIED ON THE DECISION OF THE HONBLE GU JARAT HIGH COURT IN THE CASE OF CIT VS. SHAMBULAL C. BACKKANIWALA -245 ITR 488 WHEREIN IT HAS BEEN HELD THAT THE ESTIMATE OF TURNOVER AND PROFIT WERE OUTSIDE THE SCOPE OF BLOCK ASSESSMENT. 2.3 THUS HAVING DISCUSSED THE ISSUE AT LENGTH, THE LD. CIT(APPEALS) HELD THAT THE UNDISCLOSED INCOME HAS T O BE DETERMINED ONLY ON THE BASIS OF UNEXPLAINED INVESTM ENT APPEARING IN EXCESS TOCK OVER AND ABOVE SHOWN IN TH E BOOKS OF ACCOUNT AND NOT ON THE BASIS OF ESTIMATION OF SU PPRESSION OF SALE AND THE EXCESS TOCK FOUND IS NOTHING BUT HA S ARISEN OUT OF SUPPRESSION OF SALE. ACCORDINGLY, THE LD. C IT(APPEALS) DELETED THE ADDITION OF RS.32,04,064/- ON ACCOUNT O F SUPPRESSED SALE. AGAINST THIS DELETION OF ADDITION , THE REVENUE IS IN APPEAL IN IT(S&S)A NO. 45/COCH/2004 . 3. THE LD. D.R. VEHEMENTLY SUPPORTED THE ORDER OF T HE ASSESSING OFFICER AND SUBMITTED THAT THE ASSESSING OFFICER BASED ON THE SEARCH MATERIALS AND STATEMENTS OF THE VARIOUS PERSONS RECORDED AT THE TIME OF SEARCH CAME TO THE IT(S&S) A NOS./25 & 45/COCH/2004 M/S. ORMA MARBLE PALACE 8 CONCLUSION THAT THERE WAS SUPPRESSION OF SALES. THOUGH THE ASSESSING OFFICER INITIALLY ESTIMATED THE SUPPRESSI ON AT 50% ON THE DECLARED SALES, BUT CONSIDERING THE TOTALITY OF THE FACTS AS NARRATED IN THE ASSESSMENT ORDER, REDUCED THE SAME TO 10%, WHICH HAS BEEN KNOCKED DOWN BY THE LD. CIT(APPEALS). THEREFORE, THE LD. D.R. PRAYED FOR SETTING ASIDE THE ORDER OF THE LD. CIT(APPEALS) AND RESTORA TION OF THE ASSESSMENT ORDER. 4. ON THE OTHER HAND, THE LD. COUNSEL FOR THE ASSES SEE MADE AN ELABORATE ARGUMENT. THE LD. COUNSEL SUBMI TTED THAT THE ASSESSING OFFICER HELD THAT THERE WAS SUPP RESSION OF SALE TO THE EXTENT OF 10% ON THE DISCLOSED SALES DU RING THE ASSESSMENT YEARS 1998-99, 1999-2000 AND 2000-01 (PA RT PERIOD). THE BASIS FOR ESTIMATING THE UNDISCLOSE D INCOME ON THIS ACCOUNT HAS BEEN SOME INCRIMINATING DOCUMEN TS FOUND DURING THE SEARCH RELATING TO ASSESSMENT YEAR 2000- 01. THERE WAS NO DISCRETE MATERIAL FOUND IN RELAT ION TO UNDER INVOICING OF SALE FOR THE ASSESSMENT YEARS 19 98-99 AND 1999-2000. THE ASSESSING OFFICER HAS PLACED RE LIANCE ON THE STATEMENTS TAKEN OUT FROM THE EMPLOYEES, WHI CH ARE GENERAL IN NATURE AND THE STATEMENTS HAS ALSO BEEN CONTRADICTED LATER ON IN SOME CASES. MOST OF THE S TATEMENTS IT(S&S) A NOS./25 & 45/COCH/2004 M/S. ORMA MARBLE PALACE 9 DO NOT HAVE ANY RELEVANCE WITH THE APPELLANT AS THE Y DO NOT DIRECTLY RELATE TO THE ASSESSEE. SUCH STATEMENTS ARE SWEEPING IN NATURE, WHICH CANNOT BE TAKEN AS EVIDEN CE UNLESS THEY ARE CORROBORATED WITH SOME EVIDENCE. THE ASSESSING OFFICER HAS TRIED TO IMPORT THE ADVERSE M ATERIAL FOUND IN THE GROUP CONCERN. THIS IS NOT PERMISSIB LE UNDER LAW. EACH AS HAS A SEPARATE ENTITY AND STATE OF A FFAIRS OF OTHER CONCERNS OF OTHER CONCERNS CANNOT BE MIXED UP WITH THE ASSESSEE. HE SHOULD HAVE RESTRICTED THE MATER IAL RELATING TO THE ASSESSEE FOR DETERMINING THE UNDISC LOSED INCOME. THERE ARE FEW INSTANCES OF UNDER INVOICIN G OF SALES, BUT SUCH INSTANCES ARE ONLY FOR THE ASSESSME NT YEAR 2000-01 (PART PERIOD) AND NOT A SINGLE INSTANCE HAS BEEN QUOTED OR FOUND RELATING TO THE PRECEDING ASSESSMEN T YEARS AND AS SUCH A COMMON THEORY FOR ALL THE YEARS SHOUL D NOT BE ADOPTED. THE LD. COUNSEL FOR THE ASSESSEE PLACED RELIANCE ON A NUMBER OF DECISIONS, VIZ. A) CIT VS. C.J.SHAH & CO. -246 ITR 671 (BOM); B) CIT VS. RAJENDRA PRASAD GUPTA 248 ITR 350 (RAJ.); C) CIT VS. DR. MKE MENON -248 ITR 310 (BOM); D) CIT VS. SMT. USHA TRIPATHY -249 ITR 4 (ALL); E) K.MOIDU ALIAS KUNHIPPA V. ACIT(2002) 256 ITR 76 (COCH)(AT) IT(S&S) A NOS./25 & 45/COCH/2004 M/S. ORMA MARBLE PALACE 10 TO THE EFFECT THAT BLOCK ASSESSMENT SHOULD BE WITH REFERENCE TO THE MATERIAL IN POSSESSION OF THE A, SINCE IT IS AN ASSESSMENT OF UNDISCLOSED INCOME. NO ARTIFICIAL E STIMATE COULD BE MADE IN THE BLOCK ASSESSMENT. SEIZED MAT ERIAL IS ESSENTIAL FOR ESTIMATE UNDER BLOCK ASSESSMENT, ETC. 4.1 THE LD. COUNSEL FOR THE ASSESSEE FURTHER CONTEN DED THAT THE AO ON THE BASIS OF THE INCRIMINATING MATERIAL F OUND IN THE SEIZED DOCUMENTS WHICH ARE RELATING TO ONLY FOR A.Y.2000-01 HAS MADE A SWEEPING ESTIMATION OF THE ADDITIONAL PROFIT AT FLAT RATE OF 10% FOR THE ENTIR E BLOCK PERIOD WITHOUT ANY SUPPORTING MATERIAL. UNDER CHAP TER XIV B OF BLOCK ASSESSMENT UNDISCLOSED INCOME INCLUDES A NY MONEY, BULLION, JEWELLERY OR OTHER VALUABLE ARTICLE S OR THE ENTRY IN THE BOOKS OF ACCOUNTS OR OTHER DOCUMENT OR TRANSACTIONS WHICH WOULD NOT HAVE BEEN FOR PURPOSE OF THE ACT. IT CLEARLY TALKS ABOUT THE DISCRETE AND TANG IBLE INCOME WHICH HAS BEEN UNEARTHED BY SEARCH AND SEIZURE OPER ATION AND NOT THE INCOME BASED ON WILD GUESS OR ESTIMATIO N. THIS PARTICULAR PROPOSITION OF LAW HAS BEEN HELD IN LARG ER NUMBERS OF THE DECISION MADE BY INCOME-TAX APPELLATE TRIBUN AL AND THE HIGH COURTS. THE INCOME-TAX APPELLATE TRIBUNAL, MUMBAI BENCH IN THE CASE OF SUNDER AGENCIES VS. DCI T -63 IT(S&S) A NOS./25 & 45/COCH/2004 M/S. ORMA MARBLE PALACE 11 ITD 245 HAS OBSERVED THAT ADDITION U/S.158B(B) CANNOT BE BASED ON JEJUNE REASONING OR GUESS WORK. IT IS IM PERATIVE THAT THE DEPARTMENT MUST HAVE IN ITS POSSESSION COGENT M ATERIAL AND/OR EVIDENCE TO SUPPORT THE ADDITION . THE LD. ASSESSING OFFICER HAS NOT MADE ANY ATTEMPT TO EXAMINE THE EVI DENTIARY VALUE OF THE GIFT BOOK. ITS RELEVANCE IN THE FACT S OF THE PRESENT CASE IS A DARK CAT. THIS CANNOT BE USED A S A PANOPLY FOR MAKING THE ROVING ENQUIRIES. IT APPE ARS THAT THE ASSESSING OFFICER IS LOOKING FOR A BLACK CAT IN A DARK ROOM, WHICH MAY OR MAY NOT BE THERE. HE TRANSGRES SED THE BOUNDARIES OF SECTION 158B(A) WHILE MAKING THE ADDI TION. SECTION 158B(B) CONTEMPLATES THAT THE UNDISCLOSED I NCOME OF THE BLOCK PERIOD SHALL BE THE AGGREGATE OF THE TOTA L INCOME OF PREVIOUS YEAR FALLING WITHIN THE BLOCK PERIOD. IT IS TO BE COMPUTED IN ACCORDANCE WITH THE PROVISIONS OF CHAPT ER IV (SEC.14-59). SUCH COMPUTATION SHOULD BE ON THE BA SIS OF EVIDENCE FOUND AS A RESULT OF SEARCH OR REQUISITION OF THE BOOKS OF ACCOUNT OR DOCUMENTS AND SUCH OTHER MATERI AL OF INFORMATION AS ARE AVAILABLE WITH THE ASSESSING OFF ICER. 4.3 RELYING ON THE DECISION OF THE TRIBUNAL IN THE CASE OF D.N. KAMANI (HUF) VS. DCIT (1999) 70 ITD 77(PAT) (T M), THE LD. COUNSEL FOR THE ASSESSEE CONTENDED THAT THE IT(S&S) A NOS./25 & 45/COCH/2004 M/S. ORMA MARBLE PALACE 12 ASSESSING OFFICER CANNOT MAKE ADDITION ON THE GROUN D OF PRESUMPTION AND GUESS WORK. 4.4 WITH REGARD TO THE MULTIPLICATION FORMULA ADOPT ED BY THE ASSESSING OFFICER, THE LD. COUNSEL FOR THE ASSE SSEE RELIED ON THE DECISION OF THE TRIBUNAL IN RML MEHROTA VS. ACIT - 68 ITD 288 (ALL) AND IN THE CASE OF DR. SURENDRANATH REDDY V. ACIT 72 ITD 205(HYD) WHEREIN THE TRIBUNAL HAS HELD AS UNDER: EVEN THOUGH UNDISCLOSED INCOME ASSESSED IS FOR THE BLOCK PERIOD, THAT UNDISCLOSED INCOME SHALL BE THE AGGREG ATE OF TOTAL INCOME OF THE PREVIOUS YEARS FALLING WITHIN T HE BLOCK PERIOD, OF COURSE, SUBJECT TO THE ADJUSTMENTS OF IN COME OR LOSS ALREADY RETURNED OR ASSESSED. EVEN THOUGH AGG REGATE OF INCOME IS TAKEN, INCOME HAS TO BE COMPUTED ON THE B ASIS OF EVIDENCE FOUND OUT AS A RESULT OF SEARCH. THE LA W STATED IN THIS PROVISION IS THAT UNDISCLOSED INCOME HAS TO BE COMPUTED FOR THE PREVIOUS YEARS SEPARATELY ON THE BASIS O EV IDENCE FOUND AS A RESULT OF SEARCH. IN ORDER TO COMPUTE THE INCOME SEPARATELY FOR EACH PREVIOUS YEAR, UNDER THESE PROV ISIONS, THERE HAS TO BE EVIDENCE FOUND OUT AS A RESULT OF S EARCH FOR EACH PREVIOUS YEAR FALLING WITHIN THE BLOCK SEPARAT ELY. IN ORDER TO DETERMINE THE UNDISCLOSED INCOME OF PREVIO US YEAR FALLING WITHIN THE BLOCK PERIOD, THERE SHOULD BE A CORRESPONDING AND MATCHING MATERIAL AVAILABLE FOR T HAT PREVIOUS YEAR. THE MATCHING PRINCIPLE IS VERY IMPO RTANT. FURTHER, FOR THE PURPOSE OF INCOME TAX ASSESSMENT, THE UNIT OF ASSESSMENT IS ONE YEAR COVERED BY THE PREVIOUS Y EAR RELEVANT TO THE ASSESSMENT YEAR. THIS IS A SPECIF IC AND IT(S&S) A NOS./25 & 45/COCH/2004 M/S. ORMA MARBLE PALACE 13 INDEPENDENT UNIT OF ASSESSMENT FOR INCOME TAX PURPO SES. THAT PRINCIPLE OF UNIT OF ASSESSMENT YEAR IS NOT DI LUTED IN BLOCK ASSESSMENTS ALSO. IN BLOCK ASSESSMENT ALSO, THE UNIT OF COMPUTATION IS THE PREVIOUS YEAR COVERED BY THE CORRESPONDING ASSESSMENT YEAR FALLING WITHIN THE BL OCK PERIOD. THE UNDISCLOSED INCOME REMAINS UNCHANGED. THEREFORE, THE UNDISCLOSED INCOME HAS TO BE INVARIA BLY DETERMINED WITH REFERENCE TO EACH PREVIOUS YEAR INC LUDED IN THE BLOCK PERIOD ON THE BASIS OF MATCHING EVIDENCE COLLECTED AS A RESULT OF SEARCH FOR THAT YEAR. WHEN THERE I S NO MATERIAL AT ALL IN RELATION TO A PARTICULAR PREVIOU S YEAR FALLING WITHIN THE BLOCK, NO UNDISCLOSED INCOME COULD BE DE TERMINED FOR THAT YEAR IN THE LIGHT OF THE MATCHING PRINCIPL E DISCLOSED ABOVE. IN THE ABOVE OF THE ABOVE DISCUSSION, AS THERE IS NO EVIDENCE OF UNDISCLOSED INCOME FOR THE PREVIOUS YEA R 1994- 95 IN RELATION TO V.D.C. AT HIMAYATNAGAR, NO UNDISC LOSED INCOME COULD BE COMPUTED FOR THAT CENTRE FOR THE AS SESSMENT YEAR 1995-96. 4.5 THE LD. COUNSEL FOR THEE ASSESSEE URGED US TO V ERIFY THE FOLLOWING: A) COPY OF THE RETRACTED STATEMENT BY MR. C.Y. ELDHO, AN EMPLOYEE OF M/S. NEW ORMA MARBLE PALACE, KOTTAYAM (PAGE 87 TO 103 OF PAPER BOOK); B) COPY OF THE STATEMENT OF LAJIO JOSEPH, MG. DIRECTOR (PAGE 104 TO 113 OF THE PAPER BOOK); & IT(S&S) A NOS./25 & 45/COCH/2004 M/S. ORMA MARBLE PALACE 14 C) AFFIDAVIT OF KR VENUGOPALAN WHICH CONTAIN NO UNDER VALUATION (PAGES 114-115 OF THE PAPER BOOK). 4.6 THUS, THE LD. COUNSEL FOR THE ASSESSEE VEHEMEN TLY CONTENDED THAT NO UNDISCLOSED INCOME CAN BE ESTIMAT ED THE FOR THE ASSESSMENT YEARS 1998-99 AND 1999-2000 AS N O TANGIBLE MATERIAL ON RECORD IN RESPECT OF THESE ASS ESSMENT YEARS AND UNDER INVOICING SALES RELATING TO THE ASS ESSMENT YEAR 2000-01 MAY BE RESTRICTED TO THE ACTUAL DETECT ION IN THE INCRIMINATING DOCUMENTS FOUND IN THE SEARCH. 4.7 ACCORDINGLY, THE LD. COUNSEL FOR THE ASSESSEE S UPPORTED THE FINDINGS OF THE LD. FIRST APPELLATE AUTHORITY. 5. THE ASSESSING OFFICER FOUND THAT THE ASSESSEE WA S ENGAGED IN UNACCOUNTED PURCHASES AND SALES . THE ASSESSING OFFICER POINTED OUT IN THE PRE-ASSESSMENT NOTICE THAT THE ASSESSEE IS MAKING UNACCOUNTED PURCHASE, R ELYING ON THE SEIZED DOCUMENT AMA 14 SHEET NO.36. THE ASS ESSEE REPLIED THAT THIS SHEET CONTAINS THE ENTRIES REGARD ING MATERIALS PURCHASED FOR CONSTRUCTION OF BUILDING. IT WAS FURTHER STATED THAT THESE EXPENSES ARE UNACCOUNTED BECAUSE THEY DO NOT RELATE TO THE PURCHASE OF TRADING ITEMS LIKE MARBLE OR GRANITE. HOWEVER, THE ASSESSING OFFICER FOUND IT(S&S) A NOS./25 & 45/COCH/2004 M/S. ORMA MARBLE PALACE 15 THAT SUCH EXPENSES INCLUDE AN ITEM OF RS.11,80,000/ - UNDER THE NAME C/O. LIJO SAKA. SAKA STANDS FOR M/S. SA KA GRANITES, BIJAPUR, A REGULAR SUPPLIER OF GRANITES T O THE ASSESSEE. FURTHER, AMA-14 SHEET 36 CLEARLY SHOWED UNACCOUNTED SALES IN CASH TOTALING RS.5,65,533/-. ACCORDING TO THE ASSESSING OFFICER, THE ASSESSEE CO ULD NOT MAKE ANY EXPLANATION IN THIS REGARD. 5.1 ON 6-8-1999, THE CHALAKUDY POLICE SEIZED CASH O F RS.8,15,000/- FROM ONE YOONUS SALIM, SON OF SHRI C.P.ABDULLA, C/O. CEE CEE MARBLES & GRANITES, VELIM UKKU, MALAPPURAM DIST. WHILE HE WAS TRAVELING IN A FORD C AR (KL- 7S-1854) REGISTERED IN THE NAME OF M/S. ORMA MARBLE PALACE PVT.LTD. SHRI YOONUS COULD NOT OFFER ANY EXPLANAT ION REGARDING THE CASH AND THEREFORE IT WAS DEPOSITED I N THE COURT BY THE POLICE. IN THE MEANTIME, ASSESSEE CL AIMED OWNERSHIP OF THE AMOUNT CONTENDING THAT THE MONEY I N QUESTION WAS SENT WITH SHRI YOONUS FOR PAYING TO BA NGALORE PARTIES AGAINST PURCHASES MADE FROM THEM. HOWEVER , THE ASSESSING OFFICER DID NOT BELIEVE THE VERSION OF TH E ASSESSEE AND HELD THAT THE MONEY SEIZED BY THE POLICE WAS UNACCOUNTED MONEY OF THE ASSESSEE AND WAS CARRYING TO BANGALORE FOR DISTRIBUTING AMONG THE BUSINESS CONCE RNS FROM IT(S&S) A NOS./25 & 45/COCH/2004 M/S. ORMA MARBLE PALACE 16 WHOM ASSESSEE HAS MADE UNDISCLOSED PURCHASES. THE AO FURTHER FOUND THAT MARBLE WORK MORE THAN RS. 6 LAKH S WAS SOLD TO BIMAPALLY MOSQUE, TRIVANDRUM, WHICH IS FULL Y UNACCOUNTED. 5.2 AT THE TIME OF SEARCH TWO CPUS WERE SEIZED AND ON GOING THROUGH THE SAME CERTAIN ENTRIES WERE FOUND W HICH WERE NOT ACCOUNTED AND ASSESSEE EXPLAINED AHT RS.1, 41,564 MARKED AS RECEIPTS FROM STERLING IS ACTUALLY UNACCO UNTED SALES TO THAT PARTY WHICH IS NAMED AS P.A. KURIAKOS E GOLD SUPER MARKET, ANGAMALLY. ASSESSEE EXPLAINED THAT AGAINST THIS AMOUNT, ASSESSEE RECEIVED GOLD AND OFFERED THA T THIS AMOUNT MAY BE TREATED AS UNACCOUNTED SALES. 5.3 SIMILARLY, THERE WAS AN ACCOUNT OF DR. MURALI, CHALAKUDY, IN CPU. OUT OF THIS ACCOUNT, AN AMOUNT OF RS.1,03,550/- WAS STATED AS UNACCOUNTED SALES BY AS SESSEE. THUS, THE ASSESSING OFFICER WAS OF THE CONSIDERED V IEW THAT THERE WAS UNACCOUNTED PURCHASES AND SALES AND ACCOR DINGLY ASSESSING OFFICER COMPUTED THE UNDISCLOSED PURCHASE S AT 10% OF THE DECLARED PURCHASES. IT(S&S) A NOS./25 & 45/COCH/2004 M/S. ORMA MARBLE PALACE 17 5.4 THE ASSESSING OFFICER FOUND THAT THE GROSS PRO FIT RATE EARNED WAS AN AVERAGE OF 25%, THE SALES AND GR OSS PROFIT WHICH WILL BE THE UNDISCLOSED INCOME AND AC CORDINGLY DETERMINED THE UNDISCLOSED INCOME TOTALING RS.8,58 ,083/- FOR THE ASSESSMENT YEARS 1998-99, 1999-2000 AND 200 0-01. 5.5 IN VIEW OF THE ABOVE, THE ASSESSING OFFICER WA S OF THE VIEW THAT THERE WAS UNEXPLAINED INVESTMENT ON ACCOUNT OF UNACCOUNTED PURCHASES WHICH HAS TO BE CONSIDERED AS INCOME U/S.69. CONSIDERING THAT 3 M ONTHS CREDIT IS AVAILABLE IN THIS BUSINESS, THE INITIAL C APITAL, EACH YEAR, IN THIS BUSINESS IS TAKEN AT 25% OF THE PURCH ASES WHICH WILL BE TREATED AS A ROLLING CAPITAL. 1/4 TH OF SUCH AMOUNT WILL BE THE INCOME U/S.69 EACH YEAR AS UNE XPLAINED INVESTMENT IN THE UNEXPLAINED PURCHASES. ACCORDIN GLY, THE ASSESSING OFFICER DETERMINED 1/4 TH UNEXPLAINED INVESTMENT AT RS.1,88,011 AND RS.1,25,648 TOTALING TO RS.3,13, 659/- RESPECTIVELY FOR THE ASSESSMENT YEARS, VIZ. 1998- 99 AND 1999-2000. FOR THE ASSESSMENT YEAR 2000-01 NO UNEXPLAINED INVESTMENT HAS BEEN DETERMINED. 6. AGAINST THE ABOVE FINDINGS OF THE ASSESSING OFFI CER, ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE LD . IT(S&S) A NOS./25 & 45/COCH/2004 M/S. ORMA MARBLE PALACE 18 CIT(APPEALS). THE LD. FIRST APPELLATE AUTHORITY AF TER HEARING THE ASSESSEE AND PERUSING THE MATERIALS AVAILABLE O N RECORD CAME TO THE CONCLUSION THAT THERE WAS DEFINITE AND CONCRETE MATERIAL TO HOLD THAT THE ASSESSEE WAS ENGAGED IN T HE OUTRIGHT PURCHASE AND SALE. THE CIT(APPEALS) WAS OF THE VIEW THAT THE ASSESSING OFFICER TRAVELLED FAR AWAY TO MAKE A CASE REGARDING THE OUTRIGHT PURCHASE, SALES AND GRO SS PROFIT THEREON. SUCH KIND OF GUESS AND ESTIMATION IS NOT PERMITTED IN THE BLOCK ASSESSMENT. NO TANGIBLE MATERIAL WAS FOUND DURING THE COURSE OF SEARCH ON THE BASIS OF WHICH I T IS POSSIBLE TO INFER THAT THE ASSESSEE HAD MADE ANY OU TRIGHT PURCHASE AND SALE OVER AND ABOVE ACCOUNTED IN THE R EGULAR BOOKS OF ACCOUNT. THE ASSESSING OFFICER HAS NOT P OINTED OUT A SINGLE INSTANCE RELATING TO ASSESSMENT YEARS 1998 -99 AND 1999-2000 OF HAVING ANY PURCHASE AND SALE OF BUILDI NG MATERIAL OUTSIDE THE BOOKS. THEREFORE, ANY ESTIMA TION OF GROSS PROFIT FOR THE ASSESSMENT YEARS 1998-99 AND 1 999- 2000 IS UNFOUNDED AND CANNOT BE SUSTAINED. THERE IS NOT AN IOTA OF EVIDENCE TO SHOW THAT THERE WAS ANY INVE STMENT ON THIS ACCOUNT. THEREFORE, ACCORDING TO THE CIT(A PPEALS), THE ADDITION MADE U/S.69 ON ACCOUNT OF UNEXPLAINED INVESTMENT IN RESPECT OF OUTRIGHT PURCHASES AND SAL E WAS WITHOUT ANY BASIS AND FAR FETCHING. THUS, THE LD . IT(S&S) A NOS./25 & 45/COCH/2004 M/S. ORMA MARBLE PALACE 19 CIT(APPEALS) DELETED THE ADDITION OF RS.8,58,083/- ON ACCOUNT OF ESTIMATED GROSS PROFIT AND RS.3,13,659/- IN RESPECT OF UNEXPLAINED INVESTMENT. 7. NOW THE REVENUE IS AGGRIEVED AND IN APPEAL BEFOR E THE TRIBUNAL. THE LD. D.R. SUPPORTED THE ORDER OF THE ASSESSING OFFICER AND SUBMITTED THAT AFTER DUE CONSIDERATION AND PERUSAL OF THE SEIZED MATERIALS, AS DISCUSSED IN TH E ASSESSMENT ORDER, THE ASSESSING OFFICER CAME TO THE CONCLUSION THAT THERE WERE UNDISCLOSED PURCHASES AN D SALES. THE LD. D.R. SUBMITTED THAT THE CIT(APPEALS) FAILED TO NOTE THAT THE INVESTMENT REVEALS ONLY A VERY SMALL FRACT ION OF CONCEALMENT AS WHATEVER HAS BEEN EXPENDED WILL NEVE R BE REFLECTED AS INVESTMENT. THE LD. D.R. SUBMITTED T HAT THE LD. CIT(APPEALS) WITHOUT APPRECIATING THE FACTS OF THE CASE DELETED THE ADDITIONS ON ACCOUNT OF UNEXPLAINED INV ESTMENT AND UNACCOUNTED PURCHASES. THE LD. D.R. URGED US TO SET ASIDE THE ORDER OF THE LD. CIT(APPEALS) AND RESTORE THAT OF THE ASSESSING OFFICER. 8. THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT ONE OF THE INSTANCES GIVEN BY THE ASSESSING OFFICER IS A D OCUMENT SHOWING AN EXPENDITURE OF RS.1,80,000/- FOUND IN A MA-14 IT(S&S) A NOS./25 & 45/COCH/2004 M/S. ORMA MARBLE PALACE 20 SHEET NO.36 UNDER THE HEAD LIJO SAKA. THE VERSIO N OF THE ASSESSEE BEFORE THE AUTHORITIES WAS THAT THIS IS RE LATED TO THE PURCHASE OF MATERIAL FOR CONSTRUCTION OF BUILDI NG. IF IT WAS ON ACCOUNT OF PURCHASE OF MARBLE OR GRANITE, NA TURALLY C FORM SHOULD HAVE BEEN ISSUED BY KGST. IN THE ABSENCE OF ANY SPECIFIC EVIDENCE TO SUPPORT THE FINDING OF THE ASSESSING OFFICER, THE FINDINGS OF THE ASSESSING OF FICER WILL NOT STAND. THE ASSESSEE HAD ONLY C FORM PURCHASE S AS PER THE KGST ACT DURING THE BLOCK PERIOD. IT IS NOT P OSSIBLE TO PROCURE RAW MATERIAL AS REGISTERED DEALER WITHOUT U SING C FORM. NO INSTANCE OF NON C FORM PURCHASE WAS RE PORTED DURING THE BLOCK PERIOD. THE ASSESSEE ALSO EXPLAI NED THAT THE REPORTED UNACCOUNTED PURCHASE WERE RELATING TO THE PURCHASED OF BUILDING MATERIAL AND NOT CONNECTED WI TH THE PURCHASE OF USUAL COURSE OF RAW MATERIAL. IT WAS THE SUBMISSION OF THE ASSESSEE THAT MARBLE AND GRANITE WERE NOT AVAILABLE AT ANGAMALLY. REGARDING THE SEIZURE OF RS.8,15,000/- BY POLICE FROM ONE SHRI YOONUS SALIM, THE SAID AMOUNT WAS REFUNDED TO M/S. ORMA GRANITE PALACE, ANGAMALLY, IN LIEU OF THEORDER OF HONBLE HIGH CO URT IN CRL. M.C.NO.8532/01 DATED 10-08-2007. THE OTHER INSTAN CE OF SALE OF MARBLE FOR RS.6 LAKHS TO BEEMA PALLY, TRIVA NEDRUM, WAS NOT AT ALL CONNECTED WITH THE ASSESSEE. IT WAS ACTUALLY IT(S&S) A NOS./25 & 45/COCH/2004 M/S. ORMA MARBLE PALACE 21 RELATING TO M/S. NEW ORMA MARBLE PALACE, KUMARANELL OR, KOTTAYAM. REGARDING THE UNACCOUNTED SALES, SALE ON 01- 03-2000 AMOUNTING TO RS.114,442/-, SALE TO PA KURIA KOSE FOR RS.141,564/- AND SALE TO DR. MURALI FOR RS.103, 550/- WSERE SUSTAINED BY THE CIT(APPEALS) IN THE CASE OF ORMA MARBLE PALACE (P) LTD., ANGAMALLY. THUS, THE LD. COUNSEL FOR THE ASSESSEE URGED US NOT TO INTERFERE WITH THE FINDING OF THE LD. CIT(APPEALS) AND THE APPEAL OF THE REVENUE ON THIS POINT MAY BE DISMISSED. 9. IN RESPECT OF METHOD OF COMPUTATION OF UNDISCLOS ED INCOME, THE LD. COUNSEL FOR THE ASSESSEE CONTENDED THAT THE ASSESSING OFFICER DETERMINED THE UNDISCLOSED INCOME ON THE BASIS OF INCOME METHOD FOR VARIOUS ASSESSMENT YEA RS FALLING UNDER THE BLOCK PERIOD AFTER TAKING INTO AC COUNT ALL THE MATERIAL FOUND DURING THE COURSE OF SEARCH. AT THE SAME TIME, THE ASSESSING OFFICER HAS ALSO DETERMINED THE UNDISCLOSED INCOME ON THE BASIS OF ASSET METHOD B Y DETERMINING THE UNEXPLAINED INVESTMENT. SINCE THE ASSESSING OFFICER FOUND THAT THE QUANTUM OF UNEXPLA INED INVESTMENT IS LESS THAN THE QUANTUM OF UNDISCLOSED INCOME COMPUTED ON THE BASIS OF INCOME METHOD, THE ASSES SING OFFICER COMPUTED THE UNDISCLOSED INCOME ONLY ON THE BASIS OF IT(S&S) A NOS./25 & 45/COCH/2004 M/S. ORMA MARBLE PALACE 22 INCOME METHOD. THE CIT(APPEALS) FOUND THAT THE UNDI SCLOSED INCOME SUSTAINED IN RESPECT OF ASSET METHOD IS MORE THAN THEN UNDISCLOSED INCOME COMPUTED UNDER INCOME METH OD. THEREFORE, THE UNDISCLOSED INCOME IS TO BE TAKEN ON LY ON THE BASIS OF ASSET METHOD AND THE UNDISCLOSED INCOME DETERMINED ON INCOME METHOD DEEMED TO HAVE TELESCOP ED IN THE UNEXPLAINED INVESTMENT. SECTION 158B(B) ITSELF IS LEANING TOWARDS THE DETERMINATION OF UNDISCLOSED IN COME ON THE BASIS OF UNEXPLAINED INVESTMENT FOUND DURING TH E SEARCH. IN THIS PARTICULAR CASE THE UNDISCLOSED INCOME DETE RMINED BY THE ASSESSING OFFICER IS MAINLY ON ESTIMATE BASIS, WHICH DOES NOT HAVE CREDIBLE MATERIAL SUPPORT. IN THIS WAY, THERE IS MORE SUBJECTIVELY INVOLVED IN DETERMINING THE UNDIS CLOSED INCOME BY INCOME METHOD IN THIS PARTICULAR CASE WHE REAS DEFINITELY THE UNDISCLOSED INCOME HAS BEEN DETERMIN ED ON ASSET METHOD BASED ON MERE OBJECTIVE FACTS REVEALED AS A RESULT OF SEARCH. IN THIS CASE, THE ASSESSING OFFI CER HAS MADE THE BLOCK ASSESSMENT ON ALMOST ALL THE ASSESSA BLE ENTITIES OR UNITS INCLUDING THE DIRECTORS/FAMILY ME MBERS OF THE APPELLANT. IF THE UNDISCLOSED INCOME IN RESPE CT OF DIFFERENT SOURCES UNDER BLOCK ASSESSMENT IS TAXED O N INCOME METHOD AND AT THE SAME IF THE UNEXPLAINED INVESTMEN T APPEARING IN THE NAME OF DIRECTORS AND FAMILY MEMBE RS IS IT(S&S) A NOS./25 & 45/COCH/2004 M/S. ORMA MARBLE PALACE 23 TAXED, THEN IT WILL AMOUNT TO DOUBLE TAXATION, UNLE SS THE TELESCOPING OF INCOME IS ALLOWED. THEREFORE, THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT CONSIDERING THE PEC ULIAR CIRCUMSTANCES OF THIS PARTICULAR CASE, INCOME HAS T O BE NECESSARILY TAXED ON ASSET METHOD ONLY. IT IS THE FURTHER SUBMISSION OF THE LD. COUNSEL FOR THEE ASSESSEE THA T THE DEPARTMENT HAVE NO OBJECTION FOR CONFIRMING THE UNDISCLOSED INCOME IS TO BE TAKEN ONLY ON THE BASIS OF THE ASSET METHOD. 10. WE HAVE HEARD THE PARTIES TO THE DISPUTE AND PE RUSED THE MATERIALS ON RECORD INCLUDING THE PRECEDENTS RE LIED UPON BY BOTH SIDES. ON A PERUSAL OF THE FACTS OF CASE AND THE MATERIALS AVAILABLE ON RECORD, WHICH IS DISCUSSED I N THE FOREGOING PARAGRAPHS, IT IS VITAL CLEAR THAT THE A DDITIONS HAVE BEEN MADE BY THE ASSESSING OFFICER ON THE BASI S OF ASSUMPTIONS AND PRESUMPTIONS, WHICH IS PROHIBITED I N THE BLOCK ASSESSMENT. TO THIS EFFECT, THE LD. CIT(AP PEALS) AS WELL AS THE LD. COUNSEL FOR THE ASSESSEE HAS RELIED ON PLETHORA OF DECISIONS, SOME OF WHICH HAVE BEEN DISC USSED IN THE PRECEDING PARAGRAPHS. FURTHER, UNDER SECTION 1 58BB OF THE ACT, THE PROCEDURE FOR COMPUTING THE UNDISCLOSE D INCOME OF THE BLOCK PERIOD HAS BEEN GIVEN. IT PROVIDES T HAT THE IT(S&S) A NOS./25 & 45/COCH/2004 M/S. ORMA MARBLE PALACE 24 UNDISCLOSED INCOME OF THEE BLOCK PERIOD SHALL BE TH E AGGREGATE OF THE TOTAL INCOME OF THE PREVIOUS YEARS FALLING WITHIN THE BLOCK PERIOD COMPUTED IN ACCORDANCE WITH THE PROVISIONS OF THIS ACT, ON THE BASIS OF EVIDENCE FO UND AS A RESULT OF SEARCH OR REQUISITION OF BOOKS OF ACCOUNT OR OTHER DOCUMENTS AND SUCH OTHER MATERIALS OR INFORMATION A S ARE AVAILABLE WITHIN THE ASSESSING OFFICER AND RELATABL E TO SUCH EVIDENCE WITH CERTAIN OTHER CONDITIONS. THE EMPHASI S HAS BEEN GIVEN FOR DETERMINATION OF TOTAL INCOME ON THE BASIS OF EVIDENCE FOUND AS A RESULT OF SEARCH OR REQUISITION OF BOOKS OF ACCOUNT OR OTHER DOCUMENTS AND SUCH OTHER MATERI ALS OR INFORMATION AS ARE AVAILABLE WITH THE ASSESSING OFF ICER AND RELATABLE TO SUCH EVIDENCE. WHILE DECIDING THE ISS UE, THE HONBLE MADRAS HIGH COURT IN THE CASE OF CIT VS. J.K. NARAYANAN 293 ITR 198 AS WELL AS IN THE CASE OF CIT VS. G.K. SENIAPPAN -284 ITR 220 HELD THAT PREFIX TO THE WORD EVIDENCE (SUCH), ASSUMES MUCH SIGNIFICANCE AND IN DICATES ONLY THE EVIDENCE FOUND AS A RESULT OF SEARCH OR RE QUISITION OF BOOKS OF ACCOUNTS OR OTHER DOCUMENTS AT THE TIME OF SEARCH. THE WORD SUCH IS USED AS A PREFIX TO TH E WORD EVIDENCE, WHICH ASSUMES MUCH SIGNIFICANCE IN THIS PROVISION, AS IT INDICATES ONLY THE EVIDENCE FOUND AS A RESULT OF SEARCH OR REQUISITION OF BOOKS OF ACCOUNT OR OTH ER IT(S&S) A NOS./25 & 45/COCH/2004 M/S. ORMA MARBLE PALACE 25 DOCUMENTS, AT THE TIME OF SEARCH. ANY OTHER MATERIA L CANNOT FORM THE BASIS FOR COMPUTATION OF UNDISCLOSED INCOM E OF THE BLOCK PERIOD. THE FINDING OF THE LD. FIRST APPELL ATE AUTHORITY IS BASED ON APPRECIATION OF FACTS AVAILABLE ON RECO RDS AND DECISIONS OF THE VARIOUS HIGH COURTS AND INCOME-TAX APPELLATE TRIBUNAL. THEREFORE, WE FULLY AGREE WI TH THE REASONINGS ADOPTED BY THE LD. CIT(APPEALS) IN DELET ING THE ADDITIONS MADE BY THE ASSESSING OFFICER ON UNDISCLOSED INCOME ON ACCOUNT OF UNDER INVOICING OF SALES BILLS ; ON ACCOUNT OF UNDISCLOSED PURCHASES AND SALES AND UNEXPLAINED INVESTMENT IN UNACCOUNTED PURCHASES. HENCE, RESPECTFULLY FOLLOWING THE ABOVE DECISIONS OF THE H ONBLE MADRAS HIGH COURT, WE HAVE NO HESITATION IN UPHOLDI NG THE ORDER OF THE LD. CIT(APPEALS) ON THESE ISSUES. 11. THE OTHER GROUND IN THE REVENUES APPEAL RELATE S TO THE ISSUE OF SURCHARGE ON INCOME-TAX. THE CONTENTION OF THE REVENUE IS THAT THE CIT(APPEALS) WAS NOT JUSTIFIED IN DELETING SURCHARGE ON INCOME-TAX ON THE FINDING THA T THE AMENDMENTS BROUGHT IN TO SECTION 113 BY A NEW PROVI SO HAS ITS EFFECT ONLY FROM 1-6-2002. IT(S&S) A NOS./25 & 45/COCH/2004 M/S. ORMA MARBLE PALACE 26 12. WE HEARD RIVAL SUBMISSIONS. WE FIND THAT THIS I SSUE IS NOW COVERED AGAINST THE ASSESSEE BY THE DECISION OF THE HONBLE APEX COURT IN THE CASE OF CIT VS. RAJIV BHATARA - 310 ITR 105. RESPECTFULLY FOLLOWING THE RATIO LAID DOWN BY THE HONBLE SUPREME COURT, WE SET ASIDE THE ORDER O F THE LD. CIT(APPEALS) ON THIS ISSUE AND ALLOW THE APPEAL OF THE DEPARTMENT IN RESPECT OF LEVY OF SURCHARGE U/S.113 OF THE ACT. 13. IN THE RESULT, THE APPEAL OF THE REVENUE IS PAR TLY ALLOWED. 14. NOW WE SHALL DEAL WITH THE APPEAL OF THE ASSES SEE IN IT(S&S) A NO.25/COCH/2004 . IN THE PRE-ASSESSMNT NOTICE, THE ASSESSING OFFICER COMMUNICATED THE MARKET VALUE OF UNACCOUNTED STOCK FOUND AT THE TIME OF SEARCH, VIZ. A MARBLETILES 738 SQ. MTRSM ARKET VALUE ESTIMATED AT AN AVERAGE RATE OF RS.500 SQ.MTR. RS.3,69,000 B GRANITESLABS 152 SQ. MTRS. MARKET VALUEOF ESTIMATED AT AN AVERAGE RATE OF RS.1500 PER SQ.METR. RS.2,28,000 C GRANITETILES - 2702 SQ.MTRS. ESTIMATED MARKETVALUE@RS.1200/- PER SQ. MTR. IT(S&S) A NOS./25 & 45/COCH/2004 M/S. ORMA MARBLE PALACE 27 RS.32,42,400 D BROKEN MARBLE - 61 TONS MARKET VALUE ESTIMATED RS.1,83,000 THE ASSESSEE SUBMITTED THAT THERE WAS IRREGULAR MEASUREMENT MADE BY SEARCH TEAM. IT WAS STATED TH AT NORMAL BREAKAGE ALLOWANCE WHICH IS BETWEEN 15% AND 35% HAS NOT BEEN ALLOWED AND THE RATES APPLIED IS NOT C ORRECT. ASSESSEE HAD FURNISHED A STATEMENT OF VALUATION OF STOCK BASED ON THE PURCHASE PRICE OF MATERIAL IN THE LAST THREE MONTHS (FIRST IN FIRST OUT METHOD). AS PER THIS C ALCULATION, THE RATE OF MARBLE TILE WORKS OUT TO RS.230/- PER S Q.MTR., GRANITE SLABS RS.200/- PER SQ.MTR., GRANITE TILE RS .130/- PER SQ.MTR. AND BROKEN MARBLE RS.0.51 PER KG. THE ASS ESSING OFFICER FOUND MERIT IN THE SUBMISSION OF THE ASSESS EE AND TAKEN THE VALUE OF MARBLE TILES AT RS.250/- PER SQ. MTR., GRANITE SLABS RS.220/- PER SQ.MTR., GRANITE TILE RS .450/- PER SQ.MTR. AND BROKEN MARBLE RS.1 PER KG. AND ACCORDIN GLY VALUED THE EXCESS STOCK AT RS.44,94,840/- AND ADDED THE SAME AS UNDISCLOSED INCOME OF THE ASSESSEE U/S.69 O F THE I.T.ACT. AGGRIEVED BY THE ABOVE FINDING OF THE AS SESSING OFFICER, ASSESSEE FILED APPEAL BEFORE THE CIT(APPEA LS). IT(S&S) A NOS./25 & 45/COCH/2004 M/S. ORMA MARBLE PALACE 28 14.1 BEFORE THE LD. CIT(APPEALS), THE COUNSEL FOR THE ASSESSEE SUBMITTED THAT THERE WAS PATENT MISTAKE I N CALCULATING THE TOTAL PHYSICAL STOCK OF GRANITE TIL ES. THE OBJECTION RAISED BY THE ASSESSEE WAS FORWARDED TO T HE ASSESSING OFFICER FOR HIS COMMENTS AND FOR A SPECIF IC REPORT ON THE MATTER. IN COMPLIANCE, THE ASSESSING OFFICE R FURNISHED A REMAND REPORT TO THE FIRST APPELLATE AU THORITY. THE ASSESSING OFFICER WAS ALSO APPEARED BEFORE THE LD. CIT(APPEALS) AND VERIFIED THE ORIGINAL CALCULATION SHEET MADE BY DDIT/ADIT AND IT WAS FOUND THAT AS PER THE ORIGI NAL CALCULATION SHEET MADE BY THE DDIT/ADIT THE PHYSIC AL STOCK OF GRANITE TILES AS ON THE DATE OF SEARCH WAS ONLY 466.36 SQ.METER WHEREAS THE STOCK MENTIONED IN THE APPRAI SAL REPORT WAS 3466 SQ.METER. THIS FACT HAD BEEN ACCE0 PTED BY THE ASSESSING OFFICER IN THE ORDER SHEET DATED 13-1 -2004. THUS, THE PHYSICAL STOCK OF GRANITE TILE WAS TAKEN AT 467 SQ. METER AS CALCULATED BY THE ASSESSEE HIMSELF. ACCO RDINGLY, THE LD. CIT(APPEALS) REDUCED THE VALUE OF 2235 SQ.M ETER GRANITE TILES AMOUNTING TO RS.9,61,050/- FROM THE V ALUE OF EXCESS STOCK COMPUTED BY THE ASSESSING OFFICER AMOU NTING TO RS.14,94,840/-. BY THIS WAY, THE VALUE OF EXCE SS TOCK DETERMINED AT RS.5,33,790/-. IT(S&S) A NOS./25 & 45/COCH/2004 M/S. ORMA MARBLE PALACE 29 14.2 THE OTHER OBJECTION RAISED BY THE ASSESSEE BE FORE THE CIT(APPEALS) WAS IN RESPECT OF DAMAGE, BREAKAGE , CRACKS, WASTAGE, ETC. THE ASSESSEE CLAIMED 15 TO 35%. THE ASSESSING OFFICER DID NOT ACCEPT THE CLAIM OF T HE ASSESSEE ON THE GROUND THAT THE SAME WAS CONSIDERED WHILE DETERMINING THE VALUE OF THE PHYSICAL STOCK OF MATE RIAL. THE CIT(APPEALS) FOUND THAT THERE WAS SOME MENTION OF D AMAGE OF MATERIAL IN THE CLOSING STOCK INVENTORY, DAMAGE IN RESPECT OF ALL THE MATERIALS, LOSS OF MATERIALS IN TERMS OF ITS VALUE DUE TO CRACKS AND CUTTING OF EDGES. THE LD. CIT(APPEALS) WAS OF THE VIEW THAT THE ASSESSING OFF ICER HAS NOT TAKEN INTO ACCOUNT ALL THESE FACTS WHILE COMPUT ING THE CLOSING STOCK VALUE. HENCE, THE LD. CIT(APPEALS) ALLOWED A LUMPSUM AMOUNT OF RS. 1 LAKH (WHICH IS SLIGHTLY MOR E THAN 1% ON DISCLOSED SALE OF TURNOVER AT RS.94 LAKHS) AN D THUS RESTRICTED THE ADDITION TO RS.4,33,790/- ON THIS CO UNT. FURTHER, THE LD. CIT(APPEALS) MADE IT CLEAR THAT A NY UNDISCLOSED INCOME ON ACCOUNT OF UNDER INVOICING OF SALE BILL IF AT ALL ESTIMATED WAS TELESCOPED IN UNDISCLOSED I NCOME FOUND IN EXCESS STOCK. AGAINST THIS SUSTENANCE OF ADDITION, ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL. IT(S&S) A NOS./25 & 45/COCH/2004 M/S. ORMA MARBLE PALACE 30 14.3 THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED TH AT THE BREAKAGE ALLOWANCE OF RS.1 LAKH IS NOT SUFFICIE NT FOR A FAIR AND REASONABLE MEASUREMENT. THE LD. COUNSEL FURTHER SUBMITTED IN AN IDENTICAL SITUATION THERE WAS AN IN DEPENDENT MEASUREMENT WAS CONDUCTED BY AN ADVOCATE/COMMISSION ER APPOINTED BY THE HONBLE HIGH COURT OF KERALA IN OP NO.4274/1999-N IN THE TWO LORRY LOADS MARBLE MATERI ALS OF A SISTER CONCERN NAMED M/S. ORMA MARBLE PALACE, KOTTA YAM. IN THE FIRST MEASUREMENT THE EXCESS QUANTITY DIFFER ENCE WAS 1157 SQ.FT. IN THE FIRST LORRY AND 997 SQ.FT. IN TH E SECOND LORORY AFTER ALLOWING A NORMAL BREAKAGE ALLOWANCE. IN THE INDEPENDENT MEASUREMENT, THE ADVOCATE COMMISSIONER CLARIFIED THAT IF BROKERAGE ALLOWANCE TOO IS GRA NTED THERE IS NO SCOPE FOR A SUSPICION OF EXCESS QUANTITY IN E ITHER LORRY. HENCE, THE HONBLE HIGH COURT FOUND THAT THERE WAS NO MATERIAL DIFFERENCE IN THE MEASUREMENT AND RELEA SED THE MATERIAL DETAINED BY THE SALES TAX AUTHORITIES. I N AN ANOTHER MEASUREMENT THE INSPECTORS IN CHARGE HAS NO TICED A BREAKAGE ALLOWANCE UPTO 35%.(NOTICE NO.269/98-2929 PAGE 15 OF THE PAPER BOOK). THUS, THE LD. COUNSE L FOR THE ASSESSEE CONTENDED THAT THE ALLOWANCE GRANTED BY TH E FIRST APPELLATE AUTHORITY IS VERY LESS AND THE ACTUAL BRE AKAGE IT(S&S) A NOS./25 & 45/COCH/2004 M/S. ORMA MARBLE PALACE 31 ALLOWANCE MAY BE IN BETWEEN 15% TO 35% IN CERTAIN SITUATIONS AND ACCORDINGLY PRAYED FOR MORE ALLOWANC E. 15. WE HAVE HEARD RIVAL SUBMISSIONS AND PERUSED TH E MATERIALS AVAILABLE ON RECORD. THE HONBLE KERALA H IGH COURT IN OP NO.4274/99 APPOINTED ONE ADVOCATE/COMMISSIONE R TO TAKE AN INDEPENDENT MEASUREMENT IN THE CASE OF A SI STER CONCERN NAMED M/S. ORMA MARBLE PALACE, KOTTAYAM. THE LD. ADVOCATE/COMMISSIONER HAS FILED THE REPORT STAT ING THAT IF BREAKAGE ALLOWANCE IS GRANTED, THERE IS NO SCOPE FOR SUSPICION OF EXCESS QUANTITY IN EITHER LORRY. THI S REPORT IS AVAILABLE IN PAGE 6 OF ASSESSEES PAPER BOOK. ON THE BASIS OF THE INSPECTION REPORT FILED BY THE LD. COMMISSIONER/ADVOCATE THE HONBLE HIGH COURT FOUND THAT THERE WAS NO MATERIAL DIFFERENCE IN THE MEASUREMENT AND RELEASED THE GRANITES, WHICH WAS DETAINED EARLIER B Y THE SALES-TAX INTELLIGENCE SQUAD. IN THE PRESENT CASE ALSO THERE IS NO EXCESS STOCK FOUND BY THE SALES-TAX DEP ARTMENT. AS IN THE CASE OF ANOTHER MEASUREMENT ALSO, THE BRE AKAGE ALLOWANCE WAS GIVEN UPTO 35%. 15.1 THE MARBLE IS A NATURAL PRODUCT AVAILABLE IN THE MARBLE QUARRY. IT HAS TO BE EXCAVATED FROM THE EA RTH IN WHICH IT IS EMBEDDED. WHILE EXCAVATING, THE MARBL E HAS TO IT(S&S) A NOS./25 & 45/COCH/2004 M/S. ORMA MARBLE PALACE 32 BE EXCAVATED AS IT COMES OUT AND THEN IT REQUIRES T O BE POLISHED AND GRAINS IF ANY HAS TO BE REMOVED AS IMP URITIES. WHILE SO THE RAW MARBLE WILL BE SOLD IN THE MARKET. THE PURCHASERS WILL TAKE THE MARBLE AS SUCH AND THE ACT UAL MEASUREMENT CAN BE ARRIVED OUT ONLY AFTER IT WAS CU T INTO MARKETABLE SEIZED. IN MARKET, THE BIGGER SIZE W ILL FETCH GOOD SALE VALUE. IF ANY DEFECT IS FOUND THAT DEFE CTS WILL BE REMOVED BY CUTTING OUT THAT DEFECT PORTION. HENCE , IN THE CASE OF MARBLE PURCHASE, THE EXACT MEASUREMENT IS N OT PRACTICALLY POSSIBLE. HENCE, WE ARE OF THE FIRM V IEW AND IN THE ABSENCE OF ANY ADDITION TO THE EXCESS STOCK BY THE SALE TAX AUTHORITIES; WE REVERSE THE FINDING OF THE AUTH ORITIES AND DIRECT THE ASSESSING OFFICER TO ALLOW THE BREAK AGE ALLOWANCE AT 25%, UNDER THE ABOVE FACTS AND CIRCUMS TANCES. IN THE RESULT, THE ISSUE IS PARTLY ALLOWED IN FAVOU R OF THE ASSESSEE. 16. IN THE RESULT, THE APPEAL OF THE REVENUE AND TH E ASSESSEE ARE PARTLY ALLOWED. SD/- SD/- (SANJAY ARORA) (N.VIJAYKUMARAN) ACCOUNTANT MEMBER JUDICIAL M EMBER ERNAKULAM, DATED THE 22 ND JUNE,2010. PM. IT(S&S) A NOS./25 & 45/COCH/2004 M/S. ORMA MARBLE PALACE 33 COPY FORWARDED TO: 1. THE ACIT.,CIRCLE-1(2), ERNAKULAM. 2. M/S. ORMA MARBLE PALACE, MANJOOR POST, KOTTAYAM-686 603. 3. CIT(A)-V, KOCHI. 4. CIT, KOCHI. 5. D.R.