M/s. Frontier Stores, Jabalpur V. ACIT, Jabalpur

ITSSA 9/JAB/2007

• Counselvise Citation: [2014] 122 COUNSELVISE.COM (IT) 0071 (ITAT-JABALPUR)
• Duration Of Justice: 6 year(s) 11 month(s) 15 day(s)
• Appeal Type: Income Tax (Search & Seizure) Appeal
• Pronouncement Date: 28-03-2014
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: DB
• Next Hearing Date: 25-03-2014
• Assessment Year: misc
• Appeal Filed On: 13-04-2007
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: AP SRIVASTAVA
• Assessee Lawyers: K K UPADHYAYA
• Keywords: Bogus purchase; Unexplained investment; Gift; Business income; Depreciation; Search and seizure; Opportunity of being heard; Period of limitation; Valuation report; Block assessment; Documents seized; Unabsorbed depreciation
• Section: 69C; 143(3); 32; 147; 69; 145; 132; 144; 139

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, JABALPUR BENCH, JABALPUR BEFORE : SHRI BHAVNESH SAINI, JUDICIAL MEMBER AND SHRI T.S. KAPOOR, ACCOUNTANT MEMBER IT(SS)A NO. 16/JAB./2007 BLOCK PERIOD : 01.04.1996 TO 10.10.2002 A.C.I.T., CIRCLE 1(1), VS. M/S. FRONTIER STORE S, JABALPUR. 1442, WRIGHT TOWN, JABALPUR. (PAN : AAAFF 9669 F) IT(SS)A NO. 09/JAB./2007 BLOCK PERIOD : 01.04.1996 TO 10.10.2002 M/S. FRONTIER STORES, VS. A.C.I.T., CIRCLE 1(1) , 1442, WRIGHT TOWN, JABALPUR. JABALPUR. (APPELLANT) (RESPONDENT) REVENUE BY :S/SHRI A.P. SRIVASTAVA & SAPAN USRETH E, ADV. ASSESSEE BY : SHRI K.K. UPADHYAYA, DR DATE OF HEARING : 25.03.2014 DATE OF PRONOUNCEMENT : 28.03.2014 ORDER PER BHAVNESH SAINI, J.M.: BOTH THE CROSS APPEALS ARE DIRECTED AGAINST THE O RDER OF LD. CIT(A)-I, JABALPUR DATED 09.03.2007 FOR THE ABOVE BLOCK PERIO D. 2. BRIEFLY, THE FACTS OF THE CASE ARE THAT THE ASSE SSEE IS A REGISTERED FIRM ENGAGED IN THE BUSINESS OF WHOLESALE TRADING OF MEDICINES. IN THIS CASE, SEARCH ACTION WAS ITA NO. IT(SS)A NO. 16 & 09/JAB./2007 2 CONDUCTED ON 09/10.10.2002 U/S. 132 OF THE IT ACT. THE AO FRAMED THE BLOCK ASSESSMENT ORDER U/S. 158BC ON 23.06.2005, DETERMIN ING THE TOTAL UNDISCLOSED INCOME OF RS.1,92,67,792/-. THE BLOCK ASSESSMENT OR DER WAS CHALLENGED BEFORE THE LD. CIT(A), WHO HAS ALLOWED THE APPEAL OF THE ASSES SEE PARTLY. THE ASSESSEE AS WELL AS THE REVENUE ARE IN CROSS APPEALS AS ABOVE. 3. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS, PERUSE D THE FINDINGS OF THE AUTHORITIES BELOW AND CONSIDERED THE MATERIALS AVAI LABLE ON RECORD. BEFORE PROCEEDING FURTHER TO DECIDE THE RESPECTIVE GROUNDS OF APPEAL ON MERITS, IT WOULD BE RELEVANT TO DISCUSS THE PROVISIONS CONTAINED UND ER CHAPTER XIV-B OF THE IT ACT FOR THE PURPOSE OF COMPUTING UNDISCLOSED INCOME DUR ING THE BLOCK PERIOD. 3.1 CHAPTER XIV-B STARTS WITH SEC. 158B AND PROV IDES THE DEFINITION OF BLOCK PERIOD AND UNDISCLOSED INCOME. UNDISCLOSED INCO ME IS RELEVANT IN THIS CASE, WHICH IS REPRODUCED BELOW AS AMENDED BY FINAN CE ACT, 2002 W.E.F. 1.7.1995: S.158B(B) UNDISCLOSED INCOME INCLUDES ANY MONEY, BULLION, JEWELLERY OR OTHER VALUABLE ARTICLE OR THING OR ANY INCOME BASED ON ANY ENTRY IN THE BOOKS OF ACCOUNT OR OTHER DOCUMENT S OR TRANSACTIONS, WHERE SUCH MONEY, BULLION, JEWELLERY, VALUABLE ARTI CLE, THING, ENTRY IN THE BOOKS OF ACCOUNT OR OTHER DOCUMENT OR TRANSACTI ON REPRESENTS WHOLLY OR PARTLY INCOME OR PROPERTY WHICH HAS NOT B EEN OR WOULD NOT HAVE BEEN DISCLOSED FOR THE PURPOSE OF THIS ACT, OR ANY EXPENSE, ITA NO. IT(SS)A NO. 16 & 09/JAB./2007 3 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 CONSTITUTE INCO ME OR PROPERTY BASED ON ANY ENTRY IN THE BOOKS OF ACCOUNT S 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 PROPERTY WHIC H HAS NOT BEEN OR WOULD NOT HAVE BEEN DISCLOSED FOR THE PURPO SE OF THIS ACT . (III) OR ANY EXPENSES, DEDUCTION OR ALLOWANCE CLAIMED UND ER THIS HEAD, WHICH IS FOUND TO BE FALSE. SECTION 158BB (1) PROVIDES FOR COMPUTATION OF UNDIS CLOSED INCOME OF THE BLOCK PERIOD AND IS REPRODUCED AS UNDER: (1) THE UNDISCLOSED INCOME OF THE BLOCK PERIOD SHALL BE THE AGGREGATE OF THE TOTAL INCOME OF THE PREVIOUS YEARS FALLING WITHIN THE BLOCK PERIOD COMPUTED, IN ACCORDANCE WITH THE PROVI SIONS OF THIS ACT, ON THE BASIS OF EVIDENCE 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 RELATABLE TO SUCH EVIDENCE AS REDUCED BY THE AGGREGATE OF THE TOTAL INCOME, OR AS THE CASE MAY BE, AS INCREASED BY THE AGGREGATE O F 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 A SSESSMENTS; ITA NO. IT(SS)A NO. 16 & 09/JAB./2007 4 (B) WHERE RETURNS OF INCOME HAVE BEEN FILED U/S 139 [OR IN RESPONSE TO A NOTICE ISSUED UNDER SUB-SECTION (1) O F SEC. 142 OR SECTION 148] BUT ASSESSMENTS HAVE NOT BEEN MADE TILL THE DATE OF SEARCH OR REQUISITION, ON THE BASIS OF THE INCOME DISCLOSED IN SUCH RETURNS; [(C) WHERE THE DUE DATE FOR FILING A RETURN OF 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 NORMA L COURSE ON OR BEFORE THE DATE OF THE SEARCH OR REQUI SITION WHERE SUCH ENTRIES RESULT IN COMPUTATION OF LOSS FO R ANY PREVIOUS YEAR FALLING IN THE BLOCK PERIOD; OR (B) ON THE BASIS OF ENTRIES AS RECORDED IN THE BOOK S OF ACCOUNT AND OTHER DOCUMENTS MAINTAINED IN THE NORMA L COURSE ON OR BEFORE THE DATE OF THE SEARCH OR REQUI SITION 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) OF SEC. 139 HAS NOT EXPIRED, ON THE BASIS OF ENTRIES RELATING TO SUCH I NCOME OR TRANSACTIONS AS RECORDED IN THE BOOKS OF ACCOUNT AN D OTHER DOCUMENTS MAINTAINED IN THE NORMAL COURSE ON OR BEF ORE THE DATE OF THE SEARCH OR REQUISITION RELATING TO SUCH PREVIOUS YEARS; (E) WHERE ANY ORDER OF SETTLEMENT HAS BEEN MADE UNDER S UB- SECTION(4) OF SEC. 245D, ON THE BASIS OF SUCH ORDER ; (F) WHERE AN ASSESSMENT OF UNDISCLOSED INCOME HAD BEEN MADE EARLIER UNDER CLAUSE (C) OF SEC. 158BC, ON THE BASI S OF SUCH ASSESSMENT. ITA NO. IT(SS)A NO. 16 & 09/JAB./2007 5 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 TOTAL INCOM E OR LOSS COMPUTED IN ACCORDANCE WITH THE PROVISIONS OF [THIS ACT] WITHOUT GIVING EFFECT TO SET OFF OF BROUGHT FORWARD LOSSES UNDER CHAPTER VI OR UNABSORBED DEPRECIATION UNDER S UB- SECTION (2) OF SECTION 32; [PROVIDED THAT IN COMPUTING DEDUCTIONS UNDER CHAPTE R VI-A FOR THE PURPOSES OF THE SAID AGGREGATION, EFFECT SH ALL BE GIVEN TO SET OFF OF BROUGHT FORWARD LOSSES UNDER CHAPTER VI OR UNABSORBED DEPRECIATION UNDER SUB-SECTION (2) OF SE C. 32;] (B) OF A FIRM, RETURNED INCOME AND TOTAL INCOME ASSESSE D FOR EACH OF THE PREVIOUS YEARS FALLING WITHIN THE BLOCK PERI OD SHALL BE THE INCOME DETERMINED BEFORE ALLOWING DEDUCTION OF SALARY, INTEREST, COMMISSION, BONUS OR REMUNERATION BY WHAT EVER NAME CALLED [TO ANY PARTNER NOT BEING A WORKING PAR TNER]; PROVIDED THAT UNDISCLOSED INCOME OF THE FIRM SO DET ERMINED 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 SHA LL, SO FAR AS MAY BE, APPLY AND REFERENCES TO FINANCIAL YEAR IN THO SE SECTIONS SHALL BE CONSTRUED AS REFERENCES TO THE RELEVANT PREVIOUS YEAR FALLING IN THE BLOCK PERIOD INCLUDING THE PREVIOUS YEAR ENDING WITH THE DATE OF SEARCH OR OF THE REQUISITION. (3) THE BURDEN OF PROVING TO THE SATISFACTION OF TH E AO THAT ANY UNDISCLOSED INCOME HAD ALREADY BEEN DISCLOSED IN AN Y RETURN OF INCOME FILED BY THE ASSESSEE BEFORE THE COMMENCEMEN T OF SEARCH OR THE REQUISITION, AS THE CASE MAY BE, SHALL BE ON TH E ASSESSEE. ITA NO. IT(SS)A NO. 16 & 09/JAB./2007 6 (4) FOR THE PURPOSE OF ASSESSMENT UNDER THIS CHAPTE R, LOSSES BROUGHT FORWARD FROM THE PREVIOUS YEAR UNDER CHAPTE R VI OR UNABSORBED DEPRECIATION UNDER SUB-SECTION (2) OF SE CTION 32 SHALL NOT BE SET OFF AGAINST THE UNDISCLOSED INCOME DETER MINED IN THE BLOCK ASSESSMENT UNDER THIS CHAPTER, BUT MAY BE CAR RIED FORWARD FOR BEING SET OFF IN THE REGULAR ASSESSMENTS. 3.2 WE, AFTER CONSIDERING THE ABOVE PROVISIONS, ARE OF THE OPINION THAT EVEN IF THERE IS AN AMENDMENT IN THE ABOVE SECTIONS, THE SC HEME OR PURPOSE OF ENACTING CHAPTER XIV-B HAS NOT UNDERGONE A MAJOR CHANGE IN T HE SENSE THAT THE BLOCK ASSESSMENT PERTAINING TO A NUMBER OF YEARS REMAINS DISTINCT FROM ASSESSMENT U/S 143(3) PERTAINING TO A SINGLE ASSESSMENT YEAR. THE BLOCK ASSESSMENT COULD BE MADE IN RESPECT OF UNDISCLOSED INCOME IF DURING THE BLOC K PERIOD UNDISCLOSED INCOME IS RECOVERED AS A RESULT OF EVIDENCE FOUND DURING THE COURSE OF SEARCH AND NOT AS A RESULT OF OTHER DOCUMENTS OR MATERIAL WHICH CAME TO THE POSSESSION OF THE AO SUBSEQUENT TO THE CONCLUSION OF SEARCH OPERATION UN LESS AND UNTIL SUCH MATERIAL OR DOCUMENT IS RELATABLE TO SUCH EVIDENCE RECOVERED DU RING THE COURSE OF THE SEARCH. THE AMENDED DEFINITION OF SEC. 158BB AS MENTIONED A BOVE CLEARLY SUGGESTS THAT 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) WHICH I S REPRODUCED ABOVE HAS ENLARGED THE MEANING OF THE TERM UNDISCLOSED INCOM E BY INCLUDING THEREIN ANY EXPENSE, DEDUCTION OR ALLOWANCE CLAIMED UNDER THIS ACT WHICH IS FOUND TO BE ITA NO. IT(SS)A NO. 16 & 09/JAB./2007 7 FALSE. WHAT HAS TO BE SEEN IS THAT THE VALUABLE AR TICLES, DOCUMENTS OR TRANSACTIONS WHICH REPRESENT WHOLLY OR PARTLY INCOME OR PROPERTY WHICH HAS NOT BEEN OR WOULD NOT HAVE BEEN DISCLOSED FOR THE PURPOSE OF THIS ACT . THEREFORE, BEFORE COMING TO ANALYZE WHAT IS UNDISCLOSED INCOME, IT IS NECESSARY TO BE SEEN THAT SUCH INCOME HAS NOT BEEN OR WOULD NOT HAVE BEEN DISCLOSED FOR THE P URPOSE OF THIS ACT. IF ANY SUCH ARTICLE OR THING OR INCOME HAS ALREADY BEEN DISCLOS ED TO THE DEPARTMENT 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. THEREFORE, W HATEVER ITEMS OR ARTICLES HAVE BEEN SHOWN TO THE DEPARTMENT PRIOR TO THE SEARCH CA NNOT BE TREATED AS UNDISCLOSED INCOME. 3.3 THE HONBLE BOMBAY HIGH COURT IN THE CASE OF CI T 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 WEALTH-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 INCOME WAS ERRONEOUS. 3.4 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 MAKE A DISTI NCTION BETWEEN THE ITA NO. IT(SS)A NO. 16 & 09/JAB./2007 8 BLOCK ASSESSMENT AND THE REGULAR ASSESSMENT. IN THE CASE OF REGULAR ASSESSMENT, THE AO IS FREE TO EXAMINE THE VERACITY OF THE RETURN AS WELL AS THE CLAIMS MADE BY THE ASSESSEE, WHEREAS TH E UNDISCLOSED INCOME IS TAXED BY WAY OF BLOCK ASSESSMENT AS A RES ULT OF SEARCH AND SEIZURE. THE LOGIC BEHIND THE TWO DIFFERENT MODES O F ASSESSMENT IS THAT CONCEALMENT OF INCOME AND CLAIMING DEDUCTION O R EXEMPTION IN RESPECT OF A DISCLOSED INCOME CANNOT BE TREATED AT PAR. THE FORMER IS AN OFFENCE WHICH GOES TO THE ROOT OF THE MATTER AND THE OTHER IS ON THE BASIS OF THE CAUSES SHOWN BY THE ASSESSEE WHERE THE AO IS FREE TO ACCEPT THE JUSTIFICATION SHOWN OR REJECT THE SAME. THERE WAS A SEARCH AND SEIZURE RESULTING IN BLOCK ASSESSMENT OF THE ASSESSEE. DURING THE BLOCK ASSESSMENT, THE A SSESSEE WAS CALLED UPON TO EXPLAIN THE ADVANCE TAKEN FROM A COMPANY. T HE ASSESSEE HAD FILED THE CONFIRMATION LETTER OF LOAN FROM THE COMPANY INCLUDING INCOME TAX FILE NUMBERS OF THE CREDITOR. THE INCOME -TAX AUTHORITY HELD THAT THE SAID LOAN WAS A FICTITIOUS ONE AND WA S TO BE CONSIDERED AS UNDISCLOSED INCOME OF THE ASSESSEE DURING THE PE RIOD UNDER CONSIDERATION. ON THE QUESTION WHETHER THE AO WAS E NTITLED TO QUESTION THE LOAN AMOUNT WHICH WAS THE SUBJECT MATT ER OF REGULAR ASSESSMENT, WHILE MAKING BLOCK ASSESSMENT. HELD, THAT THE AO WAS NOT ENTITLED TO QUESTION IN BLOCK ASSESSMENT THE LOAN WHICH WAS A SUBJECT MATTER OF T HE REGULAR ASSESSMENT. THE AO WAS WRONG IN HOLDING THAT THE SA ID SUM COULD BE TAXED IN BLOCK ASSESSMENT ALTHOUGH THE SAME FEAT URED IN THE REGULAR BOOKS OF ACCOUNT. WHEN THE LOAN CREDITOR WA S AN ASSESSEE AND IN WHOSE ASSESSMENT THE LOAN ADVANCED HAD BEEN ACCEPTED BY THE REVENUE, THE AO WAS WRONG IN HOLDING THAT THE A SSESSEE WAS LIABLE TO PAY TAX ON THAT LOAN MONEY TAKEN FROM THE ASSESSEE. 3.5 IN CASE OF CIT VS. RAVI KANT JAIN, 250 ITR 141 (DEL.), THE HONBLE DELHI HIGH COURT OBSERVED: BLOCK ASSESSMENT UNDER CHAPTER XIV-B OF THE IT ACT, 1961, IS NOT INTENDED TO BE A SUBSTITUTE FOR REGULAR ASSESSMENT. ITS SCOPE AND AMBIT IS LIMITED IN THAT SENSE TO MATERIALS UNEARTH ED DURING SEARCH. IT IS IN ADDITION TO THE REGULAR ASSESSMENT ALREADY DONE OR TO BE DONE. THE ASSESSMENT FOR THE BLOCK PERIOD CAN ONLY BE DONE ON THE ITA NO. IT(SS)A NO. 16 & 09/JAB./2007 9 BASIS OF EVIDENCE FOUND AS A RESULT OF SEARCH OR RE QUISITION OF BOOKS OF ACCOUNT OR DOCUMENTS AND SUCH OTHER MATERIALS OR INFORMATION AS ARE AVAILABLE WITH THE AO. EVIDENCE FOUND AS A RESU LT OF SEARCH IS RELATABLE TO SECTIONS 132 AND 132A. HELD, THAT, ADMITTEDLY THE UNDISCLOSED INCOME WAS N OT DETERMINED ON THE BASIS OF ANY SEARCH MATERIAL AND THE AO WAS PROCEEDING WITHIN THE SCOPE OF THE ASSESSMENT AND N OT WITHIN THE SCOPE OF EXERCISING JURISDICTION UNDER CHAPTER XIV- B AND SEC. 158BA. THEREFORE, SEC. 158BA OF THE ACT HAD NO APPL ICATION TO THE FACTS OF THE CASE. 3.6 IN THE CASE OF SUNDER AGENCIES VS. DCIT, 63 ITD 245, ITAT, MUMBAI BENCH B HELD AS UNDER: 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 RESPECT OF UN DISCLOSED INCOME AND SUCH UNDISCLOSED INCOME MUST COME AS A R ESULT OF SEARCH HELD, YES WHETHER SEC. 158BA DOES NOT PR OVIDE A LICENSE TO REVENUE FOR MAKING ROVING ENQUIRIES CONNECTED WI TH COMPLETED ASSESSMENT AND IS BEYOND POWER OF AO TO REVIEW ASSE SSMENTS COMPLETED UNLESS SOME DIRECT EVIDENCE COMES TO KNOW LEDGE 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 REGAR D TO UNDISCLOSED INCOME HELD, NO ASSESSEE CLAIMED 1 TO 1.5 PER C ENT OUT OF TOTAL SALES AS SALES PROMOTION EXPENSES DURING SEARCH PROCEEDINGS A BOOK CALLED GIFT REGISTER WAS SEIZED FROM ASSESSE ES BUSINESS PREMISES GIFT REGISTER RELATED TO SALE PROMOTION EXPENSES IN EARLIER ASSESSMENT PROCEEDINGS COVERING BLOCK PERIO D IN QUESTION, SUCH EXPENSES WERE DISCLOSED AND DISALLOWANCES WERE MADE NEITHER ANY INCRIMINATING MATERIAL REVEALING UNDISC LOSED INCOME CAME TO LIGHT NOR ENQUIRY REGARDING SALES PROMOTION EXPENSES IN PROCEEDING U/S 132(1) WAS MADE. WHETHER ADDITION ON ACCOUNT OF SALES PROMOTION EXPENSES ON ESTIMATE BASIS COULD BE JUSTIFIED HELD NO. ITA NO. IT(SS)A NO. 16 & 09/JAB./2007 10 3.7 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 CO VERED U/S 158B(B). IT WAS FURTHER HELD THAT THE ADDITION U/S 158B(B) MUST BE MADE ON CONCRETE MATERIAL. 3.8 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 RESULT OF SEA RCH WHETHER, WHERE UNDISCLOSED INCOME IS FOUND NOT ON BASIS OF E VIDENCE FOUND AS A RESULT OF SEARCH BUT ON INVESTIGATION AND INQU IRIES MADE FOLLOWING SEARCH, SUCH INCOME COULD BE INCLUDED AS UNDISCLOSED INCOME OF BLOCK PERIOD COMPUTED UNDER CHAPTER IV HELD, NO WHETHER CHAPTER XIV-B IS A SPECIAL PROVISION FOR AS SESSMENT OF UNDISCLOSED INCOME FOUND AS A RESULT OF SEARCH ONLY AND THERE IS NO SCOPE FOR CONSIDERING ITEMS THAT COULD BE CONSIDERE D UNDER REGULAR ASSESSMENT HELD, YES. 3.9 HONBLE CALCUTTA HIGH COURT IN THE CASE OF CIT VS. ASHIM KRISHNA MONDAL, 270 ITR 160 AT PAGES 163 AND 164 OBSERVED: THE PRINCIPLE THAT HAS BEEN LAID DOWN FOR THE PURPO SE OF MAKING ASSESSMENT ARE SETTLED PROPOSITION AS WAS REFERRED TO BY THE LD. TRIBUNAL IN THE CASE OF SUNDER AGENCIES VS. DCIT [1 997] 63 ITD 245 (MUMBAI); T.S. KUMARASAMY VS. ACIT [1998] 65 IT D 188 (MAD), AT PAGE 206 AND INDORE CONSTRUCTION (P) LTD. VS. ACIT [1999] 71 ITD 128 (INDORE) WHEREIN THE MUMBAI BENCH OF THE ITAT, THE MADRAS BENCH OF THE ITAT AND THE INDORE B ENCH OF THE ITAT, RESPECTIVELY, HAD HELD THAT THE INCOME FOR BL OCK ASSESSMENT UNDER SEARCH AND SEIZURE PROCEDURE IS TO BE COMPUTE D STRICTLY ON THE ITA NO. IT(SS)A NO. 16 & 09/JAB./2007 11 BASIS OF THE DOCUMENTS SEIZED; AND IT CANNOT PROCEE D ON CONJECTURES AND/OR SURMISES AND ARRIVE AT AN ESTIMATION INSTEAD OF COMPUTATION. THE WORD COMPUTATION CONNOTES A DIFFERENT MEANING THAN ESTIMATION OR APPRAISAL. COMPUTATION PRESUPPOSES A CALCULATION ON THE BASIS OF THE MATERIALS, WHICH IS SOMETHING DIFF ERENT FROM ESTIMATION OR APPRAISAL AND IT MUST BE BASED ON MET HODICAL CALCULATION WITH SOME AMOUNT OF APPROXIMITY TO MATH EMATICAL PROCESS ON THE MATERIALS AVAILABLE ON SEARCH AND SE IZURE. 3.10 ITAT, DELHI BENCH (TM) IN THE CASE OF DANG & C O. 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 RECEIVED TO WARDS PURCHASE OF CERTAIN PROPERTIES. ASSUMING IT WAS A LOAN RECEI VED BY THE ASSESSEE, IT WAS NOT IN DISPUTE THAT THE ASSESSEE H AD FILED ITS REGULAR RETURN OF INCOME FOR THE AY 1994-95 DISCLOSING THE AMOUNT IN THE BALANCE-SHEET. IF IT WAS A LOAN, THE AMOUNT THEREOF COULD HAVE BEEN ADDED TO THE TOTAL INCOME U/S 68 ONLY IF IT WAS HEL D TO BE A NON- GENUINE LOAN. THE GENUINENESS COULD HAVE BEEN GONE INTO ONLY IN THE COURSE OF REGULAR ASSESSMENT WHEN THE ASSESSEE HAD DULY DISCLOSED THE AMOUNT IN ITS BALANCE-SHEET. THE ASSE SSEE 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 CONSEQUEN CE UNDER WHICH HEAD THE AMOUNT WAS DISCLOSED IN THE BALANCE- SHEET. IF IT WAS AN ADVANCE FROM A CUSTOMER FOR PURCHASE OF PROPERTY , IT 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 HIGHER RATE OF TAX. THE ADDITION OF RS.55 LAKHS WAS NOT JUSTIFIED. 3.11 HONBLE MP HIGH COURT IN THE CASE OF CIT VS. K HUSHLAL CHAND NIRMAL KUMAR, 263 ITR 77 HELD: ITA NO. IT(SS)A NO. 16 & 09/JAB./2007 12 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. 3.12 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 THEY WE RE DEPOSITED IN THE BANK ACCOUNT OF THE ASSESSEE AND DULY REFLECTED IN THE REGULAR BOOKS OF ACCOUNT. THE AO RELIED UPON A PART OF THE ENTRIES IN THE BOOKS OF ACCOUNT AND REJECTED THE OTHER PART. SINCE THE ENTRIES MADE IN THE BOOKS OF ACCOUNT BEFORE THE DATE OF SEARCH A ND SEIZURE HAD BEEN ACCEPTED, THE AMOUNT IN QUESTION OUGHT NOT TO HAVE BEEN TREATED AS UNDISCLOSED. THE SEARCH TOOK PLACE ON JU LY 20, 2000, AND AUGUST 9, 2000, ON WHICH DATES THE RETURN FOR THE A YS 2000-01 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 UND ER APPEAL. THUS, THE BANK ACCOUNTS OUGHT NOT TO HAVE BEEN TREATED AS UNDISCLOSED ITA NO. IT(SS)A NO. 16 & 09/JAB./2007 13 BANK ACCOUNTS AND COULD NOT BE THE SUBJECT MATTER O F BLOCK ASSESSMENT PROCEEDINGS. 3.13 HONBLE DELHI HIGH COURT IN THE CASE OF GIRISH CHOUDHARY, 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 FINDING OF THE AO. IT IS DUMB DOCUMENT. ADDITIONS DELETED. 3.14. THE HONBLE RAJASTHAN HIGH COURT IN THE CASE OF KISHAN KUMAR & OTHERS, 215 CTR 181 ALSO HELD THAT U/S 158 BB OF THE IT ACT , COMPUTATION OF UNDISCLOSED INCOME IS TO BE MADE ON THE BASIS OF EVIDENCE FOUND AS A RESULT OF SEARCH OR ACQUISITION OF BOOKS OF ACCOUNT OR OTHER DOCUMENTS AND SUCH OTHER MATERIAL OR INFORMATION AS ARE AVAILABLE WITH THE AO AND RELATA BLE TO SUCH EVIDENCES AND IT DOES NOT INCLUDE ANY FICTIONAL OR PRESUMPTIVE INCOM E, TO BE LIABLE TO, OR CAPABLE OF BEING INCLUDED IN THE AGGREGATE OF THE UNDISCLOSED INCOME. 4. IN VIEW OF THE ABOVE LEGAL POSITION, NOW WE TAKE UP BOTH THE APPEALS AS UNDER : DEPARTMENTAL APPEAL : 5. ISSUE NO. 1 : IN THIS ISSUE, THE REVENUE CHALLENGED THE DELETION OF ADDITION OF RS.10,50,000/- MADE ON ACCOUNT OF PROFI T ON SALES OUTSIDE THE BOOKS. THE AO ON ANALYSIS OF THE BOOKS OF ACCOUNT FOR THE FINANCIAL YEARS 1998-99 AND ITA NO. IT(SS)A NO. 16 & 09/JAB./2007 14 1999-2000 FOUND THAT CORRESPONDING TO A LARGE NUMBE R OF ENTRIES OF CASH DEPOSITS IN THE BANK, THERE WERE NO ENTRIES IN THE CASH BOOK . OBVIOUSLY THESE WERE THE ENTRIES ON UNEXPLAINED CASH DEPOSITS AND WHICH MADE THE AO TO INFER THAT CASH SO INTRODUCED IN THE BANK OUGHT TO HAVE BEEN THE PROCE EDS OF SUCH SALES WHICH HAD BEEN MADE OUTSIDE THE BOOKS. IN THE FINANCIAL YEAR 1998-99 THE TOTAL OF SUCH DEPOSITS WAS RS 43,97,500/- AND IN THE NEXT YEAR IT WAS RS. 62,29,700/-.BOTH THESE AMOUNTS THUS WERE REGARDED TO BE OF THE SALES MADE OUTSIDE THE BOOKS AND ON WHICH PROFIT @5% THOUGH WAS ESTIMATED BUT WAS NOT B ROUGHT TO TAX FOR THE REASON THAT THE WHOLE OF THE AMOUNT OF DEPOSITS HAD BEEN T AXED SEPARATELY THUS TAKING THE PROFIT AGAIN WOULD AMOUNT TO DOUBLE TAXATION. HOWEV ER FOR REST OF THE YEARS FALLING IN THE BLOCK PERIOD, THE AO ESTIMATED THE SALES AND DETERMINED THE PROFIT BY APPLYING THE GP RATE OF 5% .A TOTAL ADDITION OF RS. 10.50 LAKHS THUS HAS BEEN MADE. 6. THE LD. COUNSEL FOR THE ASSESSEE IN HIS WRITTEN SUBMISSIONS BEFORE THE LD. CIT(A) HAS STATED THAT SUCH AN ESTIMATED ADDITION I S OUTSIDE THE SCOPE OF BLOCK ASSESSMENT. IN A BLOCK ASSESSMENT CASE, THE UNDISC LOSED INCOME IS TO BE DETERMINED ON THE BASIS OF THE TRANSACTIONS/INVESTM ENTS/ASSETS FOUND AS A RESULT OF THE SEARCH ACTION WHICH HAVE NOT BEEN DISCLOSED OR WOULD NOT HAVE BEEN DISCLOSED. THE AO HAS NOT POINTED TO ANY TRANSACTION, RECORD OR DOCUMENTS WHICH MAY BE POINTED OUT THAT THE ASSESSEE WAS CARRYING OUT SALE S OUTSIDE THE BOOKS AND HENCE ITA NO. IT(SS)A NO. 16 & 09/JAB./2007 15 ESTIMATING SUCH SALES IS UNCALLED FOR AS IT IS AGAI NST LAW AND MOREOVER SECTION 145 HAS NOT BEEN INVOKED NOR IS INVOKABLE IN ANY OF YEA RS. 7. THE LD. CIT(A), CONSIDERING THE EXPLANATION OF T HE ASSESSEE DELETED THE SAME ADDITION. HIS FINDINGS IN PARA 3.2 OF THE APPELLATE ORDER ARE REPRODUCED AS UNDER : 3.2 I HAVE CAREFULLY CONSIDERED THE FACTS ON RECOR D AND THE SUBMISSIONS MADE BY THE LD AR. IN A BLOCK ASSESSMEN T CASE, THE UNDISCLOSED INCOME IS TO BE COMPUTED ON THE BASIS OF THE MATERIAL FOUND AS A RESULT OF THE SEARCH ACTION AND IS TO BE COMPUTED ON THE BASIS OF THE TRANSACTIONS/INVESTMENTS/ASSETS WHICH HAVE NOT BEEN DISCLOSED OR ARE NOT INTENDED TO DISCLOSED. THE AO IN RESPECT OF THE IMPUGNED ADDITION OF THE PROFIT ON SALES ALLEGEDLY MADE OUTSIDE THE BOOK OF ACCOUNT, HAS NOT POINTED OUT TO ANY RECORD OR DOCUMENTS WHICH MAY SHOW THAT THE ASSESSEE DID CARRYING OUT S ALES OUTSIDE THE BOOKS. IN SUCH CIRCUMSTANCES, ANY SUCH ADDITION TO THE UNDISCLOSED INCOME WOULD BEYOND THE PURVIEW OF THE BLOCK ASSESS MENT. THE AO THEREFORE WAS NOT JUSTIFIED IN ESTIMATING THE SALES ALLEGEDLY MADE OUTSIDE THE BOOKS AND COMPUTING THE PROFIT THEREON WHEN THERE IS NO EVIDENCE TO SHOW THAT THE ASSESSEE DID CARRY OUT SA LES OUTSIDE THE BOOKS. IN VIEW OF THESE FACTS THESE ADDITIONS OF ES TIMATED PROFIT IN EACH OF THE YEARS AMOUNTING TO RS 10.50 LAKHS ARE HEREBY DELETED. 8. ON CONSIDERATION OF THE RIVAL SUBMISSIONS, WE AR E OF THE VIEW THAT THE LD. CIT(A) WAS JUSTIFIED IN DELETING THE ADDITION. IT I S ADMITTED FACT THAT THE AO HAS NOT POINTED OUT ANY RECORD OR DOCUMENT TO SHOW THAT THE ASSESSEE CARRIED OUT ANY SALES OUTSIDE THE BOOKS OF ACCOUNT. IN THE ABSENCE OF ANY INCRIMINATING MATERIAL FOUND AGAINST THE ASSESSEE DURING THE COURSE OF SEARCH, S UCH ADDITION COULD NOT BE MADE ITA NO. IT(SS)A NO. 16 & 09/JAB./2007 16 IN BLOCK ASSESSMENT. THE ADDITION WAS RIGHTLY DELET ED. THIS GROUND IS, ACCORDINGLY, DISMISSED. 9. ISSUE NO. 2 : THE REVENUE CHALLENGED THE DELETION OF ADDITION OF RS.97,80,083/- ON ACCOUNT OF UNEXPLAINED CASH DEPOS IT IN THE BANK ACCOUNT. THE ASSESSEE ON GROUND NO. 2 CHALLENGED THE CONFIRMATIO N OF THE ADDITION OF RS.8,47,117/- ON THIS ISSUE AND IT IS CLAIMED THAT NO ADDITION COULD BE MADE BECAUSE NO EVIDENCE WAS FOUND AS A RESULT OF SEARCH TO SUSTAIN THIS ADDITION. THE ASSESSEE CHALLENGED THE ADDITION OF UNEXPLAINED CAS H DEPOSITS AMOUNTING TO RS.43,97,500/- AND RS.62,79,700/-. THE AO ON VERIFI CATION FOUND THAT CORRESPONDING TO A NUMBER OF DEPOSITS IN THE BANK T HERE WERE NO ENTRIES IN THE CASH BOOK AND THE SAME, THEREFORE, WERE HELD TO BE UNEXP LAINED CASH DEPOSITS AND WERE BROUGHT TO TAX. 10. THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED BEF ORE THE LD. CIT(A) THAT THE ASSESSEE IN HIS REPLY FURNISHED TO THE AO VIDE LETT ER DATED 17.06.2005 HAD MADE SUBMISSION ON THIS ISSUE BUT WHICH WERE NOT CONSIDE RED. IN THE FIRST YEAR I.E. F.Y.1998-99 , THE AO HAS POINTED OUT TO NINE SUCH E NTRIES OF CASH DEPOSITS AMOUNTING TO RS.43,97,500/-.THE FIRST ENTRY IS DATE D 25.11.1998 OF RS. 5,08,500/- IN THE CASH BOOK, THE ENTRY OF DEPOSIT HOWEVER IS O F RS.5.00 LAKHS I.E. THE AMOUNT ITA NO. IT(SS)A NO. 16 & 09/JAB./2007 17 STATED IN THE CASH BOOK IS LESS BY RS.8,500/-. LIKE WISE IN RESPECT OF THE DEPOSIT OF RS 4,03,500/- MADE ON 27.01.1998 THE CORRESPONDING ENTRY IN THE CASH BOOK HAS MISTAKENLY BEEN ENTERED ON 01.02.1999. IT CAN BE SE EN THAT EVEN ON 27.01.1999 AS PER CASH BOOK, THERE WAS SUFFICIENT CASH BALANCE T O MAKE A DEPOSIT OF RS.4,03,500/-.THUS OBVIOUSLY BY MISTAKE, THE ENTRY WAS MADE IN THE CASH BOOK ON1.2.1999. LIKEWISE HE HAS SOUGHT TO EXPLAIN ALL T HESE ENTRIES BUT STILL IN RESPECT OF SOME OF THE ENTRIES THERE IS DIFFERENCE IN THE A MOUNT DEPOSITED AND THE AMOUNT REFLECTED IN THE CASH BOOK AND THE TOTAL OF WHICH C OMES TO RS.14,55,550/-. ON THIS DIFFERENCE, THE LD. COUNSEL FOR THE ASSESSEE HAS ST ATED THAT THERE ARE LARGE NUMBER OF ENTRIES OF WITHDRAWALS BUT CORRESPONDINGLY THERE IS NO ENTRY OF DEPOSIT OR OF PAYMENT MADE TO MEET ANY EXPENSES. LIST OF SUCH ENT RIES WAS FURNISHED AND THE TOTAL OF WHICH CAME TO RS. 14,55,550/-. THE CONSOLI DATED CHART OF SUCH ENTRIES OF CASH DEPOSIT AND WITHDRAWALS AS FURNISHED BY THE AS SESSEE IS REPRODUCED BY THE LD. CIT(A) AT PAGE 8 OF THE APPELLATE ORDER. IT WAS, TH EREFORE, SUBMITTED THAT THE IMPUGNED CASH DEPOSITS THUS GET FULLY EXPLAINED WIT H REFERENCE TO THE VARIOUS ENTRIES OF WITHDRAWALS SHOWN IN THE CASH BOOK. HE A LSO FURNISHED A CASH FLOW STATEMENT BY TAKING INTO ACCOUNT THE ACTUAL STATE O F AFFAIR AND WHICH SHOWED THAT A SUM OF RS.50 ONLY REMAINED TO BE EXPLAINED. HE OF C OURSE ADMITTED THAT THE CASH BOOK WAS NOT MAINTAINED BY THE THEN ACCOUNTANT IN A PROPER MANNER BUT ADDED THAT THE ISSUE BEFORE US IS WHETHER THE IMPUGNED CASH DE POSIT IN THE BANK ARE FROM ITA NO. IT(SS)A NO. 16 & 09/JAB./2007 18 EXPLAINED SOURCES OR NOT? IN THIS REGARD HE SUBMITT ED THAT THE PROVISIONS OF SECTION 69 ARE APPLICABLE TO A BLOCK ASSESSMENT CASE AND IT IS THUS INCUMBENT UPON THE AO TO CONSIDER THE EXPLANATION OF THE ASSESSEE IN RESP ECT OF ANY INVESTMENT OR DEPOSIT MADE IN THE BANK. ALL THESE DEPOSITS IN THE BANKS T HUS CAN BEEN SEEN TO HAVE BEEN MADE FROM EXPLAINED CASH. A COPY OF THE ASSESSEES SUBMISSIONS WAS GIVEN TO THE AO WHO AFTER VERIFICATION REPORTED THAT THE FACTS R ELATED TO THE A.Y. 1998-99 WERE CORRECT. HOWEVER HE INSISTED THAT THESE IMPUGNED DE POSITS CONSTITUTED TO BE THE ASSESSEES UNDISCLOSED INCOME SINCE CORRESPONDING T O THE DATE OF DEPOSIT THERE WAS NO ENTRY IN THE CASH BOOK. 10.1. AS REGARD THE NEXT ACCOUNTING PERIOD WHERE DE POSITS AMOUNTING TO RS.62,79,700/- WERE FOUND TO BE NOT EXPLAINED IN TH E ABSENCE OF THE CORRESPONDING ENTRIES IN THE CASH BOOK, THE LD COUNSEL FOR THE AS SESSEE IN RESPECT OF THESE DEPOSITS ALSO FURNISHED DETAILS OF THE CORRESPONDING ENTRIES POSTED AT TIMES ON THE NEARBY DATES OR AT TIMES OF AN AMOUNT SLIGHTLY DIFFERENT F ROM THE AMOUNT DEPOSITED. HOWEVER ON CONSIDERING THESE ENTRIES, THE DIFFERENC E STILL TO THE EXTENT OF RS.16,48,500/- REMAINED TO BE EXPLAINED. AGAIN HE C LAIMED THAT IN THIS YEAR THERE WERE CERTAIN ENTRIES OF CASH WITHDRAWALS IN THE CAS H BOOK BUT CORRESPONDING TO WHICH, THERE IS NEITHER ANY DEPOSIT IN THE BANK NOR ANY PAYMENT MADE TO MEET ANY EXPENSES. THE DETAILS OF SUCH ENTRIES WERE ALSO FUR NISHED AND THE TOTAL OF WHICH ITA NO. IT(SS)A NO. 16 & 09/JAB./2007 19 CAME TO RS.13,93,933/- AND THUS EVEN ON CONSIDERING THESE ENTRIES THE DIFFERENCE HOWEVER REMAINED TO THE EXTENT OF RS.2,54,867/-.THE DETAILS AS PROVIDED BY THE LD COUNSEL FOR ASSESSEE WERE GIVEN TO THE AO FOR VERIF ICATION. ON VERIFICATION HE FOUND THAT THE ENTRY DATED 10.1.2002 OF RS.5,92,200 /- HAD BEEN WRONGLY CLAIMED CREDIT. THE LD COUNSEL ADMITTED THIS FACT AND REFUR NISHED THE WORKING ALONG WITH CASH FLOW STATEMENT WHICH SHOWED THAT THE DIFFERENC E WORKED TO RS. 8,47,067 AND NOT RS.2,54,867/-. ON THIS DIFFERENCE, IT IS STATED THAT SINCE THE MATTER IS VERY OLD AND THE RECORD IS VERY VOLUMINOUS, THE ASSESSEE IS FACING DIFFICULTY IN TRACING OUT ALL THE CORRESPONDING ENTRIES. 11. THE LD. CIT(A), CONSIDERING THE EXPLANATION OF THE ASSESSEE DELETED THE SUBSTANTIAL ADDITION AND CONFIRMED THE ADDITION OF RS.8,47,117/-, ON WHICH THE ASSESSEE IS IN APPEAL. THE FINDINGS OF THE LD. CIT( A) IN PARA 4.4 OF THE APPELLATE ORDER ARE REPRODUCED AS UNDER : 4.4 I HAVE CAREFULLY CONSIDERED THE FACTS ON RECOR D AND THE SUBMISSIONS MADE BY THE RIVAL PARTIES. THE ISSUE BE FORE US IS OF THE ALLEGED UNEXPLAINED DEPOSIT IN THE BANK. IT IS HOWE VER NOTED THAT CORRESPONDING TO THESE DEPOSITS THERE ARE ENTRIES I N THE CASH BOOK BUT AT TIMES OF AN AMOUNT DIFFERENT FROM THE AMOUNT DEP OSITED AND AT TIMES IT HAS BEEN POSTED ON THE NEARBY DATE BUT COR RESPONDING TO WHICH THERE IS NO DEBIT ENTRY. IT IS WELL SETTLED P OSITION OF LAW THAT AN ADDITION FOR THE UNEXPLAINED INVESTMENT U/S 69 CAN ONLY BE MADE IF THE ASSESSEES EXPLAINATION HAS NOT BEEN FOUND TO BE S ATISFACTORY. OF COURSE A TOTAL DIFFERENCE OF RS.8,47,117/- FOR BOTH THE YEARS REMAINED UN EXPLAINED. THE ADDITION THUS TO EXTENT OF RS.8,4 7,117/- CAN ONLY BE SUSTAINED. THE ASSESSEE THUS GETS A RELIEF OF RS.98 ,30,133/-. ITA NO. IT(SS)A NO. 16 & 09/JAB./2007 20 12. ON CONSIDERATION OF THE RIVAL SUBMISSIONS, WE ARE OF THE VIEW, THE LD. CIT(A) WAS JUSTIFIED IN DELETING THE ADDITION AS CHALLENGE D BY THE REVENUE. THE ASSESSEE HAS FURNISHED EXPLANATION WITH REGARD TO AVAILABILI TY OF CASH AS PER CASH BOOK. THE CONSOLIDATED POSITION AS PER VERSION OF THE AO AND AS PER BOOKS OF ACCOUNT WAS ALSO EXPLAINED WHICH TALLY AND IS REPRODUCED AT PAG E 8 OF THE APPELLATE ORDER. THUS, THE CASH DEPOSITS WERE FULLY EXPLAINED. EVEN THE AO ON VERIFICATION FOUND THE EXPLANATION OF THE ASSESSEE TO BE CORRECT. THE LD. CIT(A) ON PROPER APPRECIATION OF THE EXPLANATION OF THE ASSESSEE WAS JUSTIFIED IN DE LETING THE ADDITION. THEREFORE, THE DEPARTMENTAL APPEAL HAS NO MERIT AND HAS TO BE DISM ISSED. THOUGH THE LD. CIT(A) MAINTAINED THE ADDITION OF RS.8,47,117/-, BUT IT IS NOT CLARIFIED WHETHER THE SAID ADDITION MADE IN THE BLOCK PERIOD WAS BASED UPON AN Y SEIZED MATERIAL FOUND DURING THE COURSE OF SEARCH AS IS CLAIMED BY THE AS SESSEE. BUT IT IS ALSO EQUALLY A FACT THAT THE ASSESSEES COUNSEL ADMITTED BEFORE TH E LD. CIT(A) THAT THE WORKING ALONG WITH CASH FLOW STATEMENT SHOWED THE DIFFERENC E OF RS.8,47,067/-. IT IS, THUS, ADMISSION ON THE PART OF THE ASSESSEE TO SHOW THAT THE ASSESSEE ADMITTED THIS ADDITION BEFORE THE LD. CIT(A) AND ON SUCH ADMISSIO N, THE APPEAL OF THE ASSESSEE ON THIS GROUND WOULD NOT BE MAINTAINABLE. ONCE, THE AS SESSEE ADMITTED THE ADDITION BEFORE THE LD. CIT(A) OF THE PART AMOUNT AND FAILED TO MAKE EXPLANATION FURTHER, WE ARE OF THE VIEW THAT THE ORDER OF THE LD. CIT(A) SH OULD NOT BE INTERFERED WITH. ITA NO. IT(SS)A NO. 16 & 09/JAB./2007 21 GROUND NO. 2 OF APPEAL OF THE ASSESSEE IS, THUS, AL SO LIABLE TO BE DISMISSED. AS A RESULT, BOTH THE CROSS APPEALS ON THIS ISSUE ARE DI SMISSED. 13. ISSUE NO. 3 & 4 : THE REVENUE ON THESE ISSUES, CHALLENGED THE DELETION OF ADDITIONS OF RS.28,55,707/- ON ACCOUNT OF UNEXPLAINED PURCHASE AND RS.28,23,958/- ON ACCOUNT OF INFLATED PURCHASES. DU RING THE ASSESSMENT PROCEEDINGS, THE AO WITH VIEW TO VERIFY THE ASSESSE ES PURCHASES CALLED FOR THE FIGURES OF PURCHASES FROM THE ASSESSEES SUPPLIERS . ON COMPARISON, HE FOUND THAT IN RESPECT OF SOME OF THE SUPPLIERS, THE TOTAL SALE S REPORTED BY THEM WERE MORE THAN THE PURCHASES ACCOUNTED FOR BY THE ASSESSEE AND THE TOTAL OF SUCH DIFFERENCES CAME TO RS.28,55,707/-, AND WHICH THE AO CONSIDERED TO B E CASE OF SUPPRESSION OF PURCHASES. FURTHER IN RESPECT OF THREE OF THE SUPPL IERS HE FOUND THAT THE SALES REPORTED BY THEM TO BE LESS THAN THE PURCHASES ACCO UNTED FOR BY THE ASSESSEE AND THE TOTAL OF DIFFERENCES CAME TO RS. 28,23,958/- AN D WHICH THE AO CONSIDERED TO BE A CASE OF INFLATION OF PURCHASES. THE AO MADE THE A DDITIONS OF BOTH THESE FIGURES AS BEING THE AMOUNT OF UNACCOUNTED PURCHASES AND IN FLATED PURCHASES. 14. THE LD COUNSEL FOR THE ASSESSEE IN HIS SUBMISSI ON HAS STATED BEFORE THE LD. CIT(A) THAT THE AO HAS MADE THIS ADDITION WITHOUT C ONSIDERING THE ASSESSEES REPLY AND ALSO WITHOUT CONFRONTING THE INFORMATION OBTAINED FROM THE VARIOUS ITA NO. IT(SS)A NO. 16 & 09/JAB./2007 22 SUPPLIERS. MORE-OVER IT IS STATED THAT SUCH ADDITIO N IS BEYOND THE SCOPE OF BLOCK ASSESSMENT. IN THIS REGARD IT IS STATED THAT IN A B LOCK CASE, THE UNDISCLOSED INCOME IS TO BE DETERMINED ON THE BASIS OF THE TRANSACTIONS/I NVESTMENTS WHICH HAVE NOT BEEN DISCLOSED OR WOULD NOT HAVE BEEN DISCLOSED AND WHIC H COME TO NOTICE AS A RESULT OF THE SEARCH ACTION. THE AO HAS NOT POINTED OUT TO AN Y SPECIFIC TRANSACTION OF PURCHASE WHICH HAS BEEN SUPPRESSED OR IS BOGUS I.E INFLATED. AS A MATTER OF FACT, ON THE ALLEGED SUPPRESSION OF PURCHASES OF RS.28,55,70 7/- NO ADDITION CAN BE MADE , SINCE IF IT IS SO CONSIDERED THAT THE PURCHASES HAV E BEEN SUPPRESSED BY THIS AMOUNT, THEN IT MEANS THAT THE ASSESSEE HAD ALREADY DECLARE D PROFIT MORE BY THIS AMOUNT. FURTHER IT IS ALSO CONCEIVABLE AS TO WHY ONE WOULD SUPPRESS THE PURCHASES AS IT DOES NOT SERVE ANY PURPOSE SINCE BY SUPPRESSING THE PURC HASES ONE IS INCREASING THE PROFIT AND PAYING THE TAX ON IT. ON THE ALLEGED INF LATION OF PURCHASES IT IS STATED THAT THIS DIFFERENCE HAS BEEN WORKED OUT ON THE BASIS OF INCOMPLETE INFORMATION. IN THIS REGARD IT IS STATED THAT THE AO ON VERIFICATION CAR RIED OUT AT THE BACK OF THE ASSESSEE FOUND THAT THE PURCHASES FROM THREE OF THE SUPPLIER S WAS REPORTED BY THEM AT FIGURES MUCH LESS THAN THE PURCHASES ACCOUNTED FOR BY THE ASSESSEE AND THE TOTAL OF THE DIFFERENCES WORKED TO RS 28,58,851/-.THE MAJOR DIFFERENCE OF ABOUT RS. 25.00 LAKHS WAS NOTED IN THE CASE OF M/S. NOVARTIES. IT I S CLAIMED THAT ALL THE PURCHASES MADE FROM THIS SUPPLIER ARE VERIFIABLE WITH RESPECT TO THE PURCHASE INVOICES. FURTHER THE ASSESSEE ALSO FILED A COPY OF ACCOUNT D ULY CERTIFIED BY THE SUPPLIER TO ITA NO. IT(SS)A NO. 16 & 09/JAB./2007 23 SHOW THAT THE ASSESSEE HAD ACCOUNTED FOR ALL THE PU RCHASES. THE AO ON VERIFICATION FOUND THAT THE ASSESSEES CONTENTION TO BE CORRECT. AS REGARDS THE SECOND PARTY NAMELY M/S NATURAL REMEDIES, THE ASSESSEE FILED A C ERTIFIED COPY OF ACCOUNT AS PROVIDED BY THE SUPPLIER AND ON VERIFICATION THE AO FOUND THAT ALL THE PURCHASES MADE FROM THIS PARTY ARE TALLYING WITH THE PURCHASE S ACCOUNTED FOR BY THE ASSESSEE IN HIS BOOKS OF ACCOUNTS. AS REGARDS THE THIRD PART Y I.E M/S SEREUM INTERNATIONAL, THE TOTAL PURCHASES ARE RS. 3,57,030/- BUT AS PER T HE INFORMATION PROVIDED BY THIS COMPANY TO THE AO THE SALES ARE RS.2,74,473/-.THERE IS THUS DIFFERENCE OF RS.82,540/- AND ON THIS IT IS STATED THAT THE AO ON LY OBTAINED THE COPY OF ACCOUNT FROM M/S SEREUM INTERNATIONAL LTD. BUT THE TOTAL PU RCHASES ACCOUNTED FOR BY THE ASSESSEE INCLUDE THE PURCHASES WHICH HAVE BEEN MADE FROM ITS SISTER CONCERN OF THE NAME M/S SEREUM INSTITUTE OF INDIA LTD. THE PURCHAS ES FROM THESE TWO CONCERNS HAVE BEEN ACCOUNTED UNDER ONE ACCOUNT FOR THE REASO N THAT ALL THESE PURCHASES HAVE BEEN MADE FROM THEIR COMMON C&F AGENT M/S RAJPAL ME DICAL AGENCIES OF INDORE. HE ALSO POINTED OUT TO THE FACT THAT ALL THE PURCHA SES OF M/S SEREUM INTERNATIONAL LTD ARE DULY APPEARING IN THE CONSOLIDATED ACCOUNT. THE REST OF THE PURCHASES ARE IN RESPECT OF THE PRODUCTS OF M/S SEREUM INSTITUTE OF INDIA LTD. THIS ACCOUNT HAS DULY BEEN CONFIRMED BY M/S RAJPAL MEDICAL AGENCY. ITA NO. IT(SS)A NO. 16 & 09/JAB./2007 24 14.1. ON THE ALLEGED SUPPRESSIONS OF PURCHASES, THE AO WAS DIRECTED TO CARRY OUT VERIFICATION IN RESPECT OF SUCH ACCOUNTS WHERE MAJO R DIFFERENCE HAS BEEN NOTED. ON CARRYING OUT THIS VERIFICATION, HE FOUND THAT ONLY IN RESPECT OR THE ACCOUNT OF NICOLAS PHARMA A DIFFERENCE OF RS.4,323/- STILL REM AINS. ON THIS DIFFERENCE, THE LD COUNSEL FOR THE ASSESSEE HAS STATED THAT THIS DIFFE RENCE COULD NOT BE ON ACCOUNT OF PURCHASE WHICH HAS NOT BEEN ACCOUNTED FOR BY THE AS SESSEE AND IF IT IS SO, THEN IT IS FOR THE AO TO POINT OUT THE PURCHASE INVOICE. MOREO VER, EVEN IF SUCH IS THE CASE, STILL NO ADDITION CAN BE MADE. IT IS STATED THAT TH E DIFFERENCE OUGHT TO HAVE BEEN ON ACCOUNT OF POSTING OF AN INCORRECT FIGURES OF SOME DEBIT OR CREDIT ENTRY. IN ANY CASE, IT IS STATED THAT THE DIFFERENCE IS TOO SMALL TO TA KE ANY COGNIZANCE. 15. THE LD. CIT(A), CONSIDERING THE EXPLANATION OF THE ASSESSEE DELETED BOTH THE ADDITIONS. HIS FINDINGS IN PARA 5.3 OF THE APPELLAT E ORDER ARE REPRODUCED AS UNDER : 5.3 ON CAREFUL CONSIDERATION OF THE FACTS, I FIND THAT SUCH ADDITIONS FIRST OF ALL ARE BEYOND THE SCOPE OF BLOC K ASSESSMENT FOR THE REASON THAT THESE ADDITIONS HAVE BEEN MADE ON ASSUM PTIONS THAT THE BOOKS OF ACCOUNTS OF ASSESSEE ARE NOT RELIABLE AND ONLY OF THE SUPPLIERS ARE RELIABLE. SUCH A PRESUMPTION IS NOT A VAILABLE IN BLOCK ASSESSMENT CASE. THE ONUS IS UPON AO TO POINT OUT T O THE TRANSACTION WHICH HAS EITHER NOT BEEN ACCOUNTED FOR OR WOULD NO T HAVE BEEN ACCOUNTED FOR. THE AO HAS NOT POINTED OUT TO ANY SU CH TRANSACTION AND THUS THE ADDITIONS MADE ARE BEYOND THE SCOPE OF BLOCK ASSESSMENT. IN ANY CASE, THE ADDITION ON ACCOUNT OF THE ALLEGED SUPPRESSIONS OF PURCHASES IS MISCONCEIVED SINCE IF IT IS SO CONSIDERED, THEN IT MEANS THAT THE ASSESSEE BY SUPPRESSING THE PURCHASES HAS SHOWN MORE PROFIT. IF IT IS SO, THEN NO FURTHER ADD ITION IN BLOCK ASSESSMENT CAN BE MADE, BUT FOR WHICH THE AO HAS TO PIN POINT THE ITA NO. IT(SS)A NO. 16 & 09/JAB./2007 25 TRANSACTIONS OF BOGUS PURCHASES WHICH HAVE BEEN REC ORDED IN THE BOOKS. THE AO HAS NOT POINTED OUT ANY SUCH TRANSACT ION. MOREOVER, THE AO ON REVERIFICATION DID NOT FIND THE DIFFERENC E TO EXIST ANY MORE. IN VIEW OF THESE FACTS, BOTH THE ADDITIONS ARE HERE BY DELETED. 16. ON CONSIDERATION OF THE RIVAL SUBMISSIONS, WE A RE OF THE VIEW THAT THE LD. CIT(A) WAS JUSTIFIED IN DELETING THE ADDITION. THE AO MADE BOTH THE ADDITIONS ON ASSUMPTIONS THAT THE BOOKS OF ACCOUNT OF THE ASSESS EE ARE NOT RELIABLE. THE AO HAS NOT POINTED OUT IF THESE ADDITIONS ARE BASED ON ANY SEIZED MATERIAL. NO ADDITION COULD BE MADE ON PRESUMPTION IN BLOCK ASSESSMENT. T HE LD.CIT(A) ON PROPER APPRECIATION OF FACTS AND LAW CORRECTLY DELETED THE ADDITION. THIS GROUND IS ACCORDINGLY DISMISSED. 17. ISSUE NO. 5 : IN THIS ISSUE, THE REVENUE CHALLENGED THE DELETION OF ADDITION OF RS.17,09,913/- ON ACCOUNT OF EXCESS STO CK. DURING SEARCH IT WAS FOUND THAT THE ASSESSEE WAS RECORDING ITS OUT- GOINGS AND INCOMINGS TO STOCK ON ACCOUNT OF SALES AND PURCHASES ON COMPUTER BY USING A SOFTW ARE OF THE NAME MEDICO WHICH IS SPECIFICALLY DESIGNED FOR THE DRUG AND MED ICINE INDUSTRY. DURING SEARCH PRINT OUTS OF STOCK INVENTORIES AS PER THE SOFTWARE AS ON 31 ST MARCH OF EACH FINANCIAL YEAR BESIDES AS ON DATE OF SEARCH I.E ON 1010.2002 WERE TAKEN OUT. THE AO HOWEVER HAS HELD THAT INVENTORY IS NOT RELIABLE FOR THE REASON THAT THE ASSESSEE WAS FOUND TO BE MAKING SALES OUTSIDE THE BOOKS AND ALSO HE DID NOT CO-OPERATE WITH ITA NO. IT(SS)A NO. 16 & 09/JAB./2007 26 THE AUDITOR IN GETTING THE SPECIAL AUDIT DONE. IN S UCH CIRCUMSTANCES HE HELD THAT ALL THE STOCK FOUND DURING SEARCH COULD NOT BE HELD TO BE EXPLAINED, THE VALUE OF WHICH IS RS.1,20,76,964/-. DURING THE COURSE OF SEARCH AC TION, ONE OF THE PARTNERS SHRI J.S WADHWA IN THE STATEMENT RECORDED ADMITTED THAT THE VALUE OF STOCK CAN BE TAKEN ON AVERAGE OF THE STOCKS MAINTAINED DURING ALL THESE Y EARS AND WHICH THE AO WORKED OUT AT RS.1,03,66,836/-.THE DIFFERENCE OF THE TWO O F RS.17,09,913/-, THUS, WAS BROUGHT TO TAX AS EXCESS STOCK. 18. IT WAS SUBMITTED BEFORE THE LD. CIT (A) THAT TH E ASSESSEE HAS DULY MAINTAINED THE STOCK REGISTER BUT ON THE COMPUTER AND THE AO H AS NOT POINTED OUT TO ANY INSTANCE WHICH MAY SUGGEST THAT THIS INVENTORY MAIN TAINED ON THE COMPUTER IS NOT RELIABLE. THE SEARCH PARTY IN FACT TOOK THE PRINT O UT OF THE STOCK POSITION AS ON THE DATE OF SEARCH AND BASED IT TO VERIFY THE PHYSICAL STOCK AND ON VERIFICATION, THEY DID NOT FIND ANY DIFFERENCE AND HENCE IN SUCH CIRCUMSTA NCES NO ADDITION CAN BE MADE. FURTHER, HE HAS STATED THAT EVEN IF THE AO IS TO GO BY THE ADMISSION OF MR. WADHWA I.E THE AVERAGE CLOSING STOCK VALUE IS TO BE CONSID ERED AS THE BASIS FOR FINDING OUT THE DIFFERENCE THEN ALSO NO DIFFERENCE GETS WORKED OUT. THE AO HAS WORKED OUT THE AVERAGE AT RS. 1,03,66,836/- BUT WITHOUT TAKING THE STOCK OF THE BRANCH UNIT. IF THE STOCK OF THE BRANCH UNIT IS CONSIDERED THEN THE VAL UE OF THE AVERAGE STOCK COMES TO ITA NO. IT(SS)A NO. 16 & 09/JAB./2007 27 R.1,21,49,255/-.THIS POSITION HAS ALSO BEEN VERIFIE D BY THE AO WHO WAS PRESENT DURING APPELLATE PROCEEDINGS. 19. THE LD. CIT(A) CONSIDERING THE EXPLANATION OF T HE ASSESSEE DELETED THE ADDITION. HIS FINDINGS IN PARA 7.2 OF THE APPELLATE ORDER ARE REPRODUCED AS UNDER : 7.2 ON CAREFUL CONSIDERATION OF THE FACTS, I FIND THAT ADDITION MADE IS BEYOND THE SCOPE OF BLOCK ASSESSMENT AS IN THE ABSENCE OF ANY FINDINGS THAT THE STOCK INVENTORY MAINTAINED ON THE COMPUTER IS NOT RELIABLE. IN FACT, THE PHYSICAL STOCK WAS FOUND TO BE MATCHING WITH THIS INVENTORY AND THUS NO ADDITION ON ACCOUNT OF THE AL LEGED EXCESS STOCK IS SUSTAINABLE. MOREOVER IF THE AO IS GO BY THE VAL UE OF THE AVERAGE STOCK THEN ALSO NO DIFFERENCE GETS WORK OUT. THIS A DDITION THEREFORE IS DELETED. 20. ON CONSIDERATION OF THE RIVAL SUBMISSIONS, WE A RE OF THE VIEW THAT SUCH ADDITION IN THE BLOCK ASSESSMENT IS WHOLLY UNJUSTIF IED. THE AO MERELY REJECTED THE EXPLANATION OF THE ASSESSEE FOR THE PURPOSE OF MAKI NG THE ADDITION. NO MATERIAL WAS FOUND DURING THE COURSE OF SEARCH TO SUSTAIN SU CH ADDITION. THE SAME IS, THEREFORE, OUTSIDE THE CONCEPT OF BLOCK ASSESSMENT. THIS GROUND OF REVENUE IS, ACCORDINGLY, DISMISSED. IN THE RESULT, THE DEPARTME NTAL APPEAL IS DISMISSED. 21. ISSUE NO.6 : THE ASSESSEE ON GROUND NO.1 OF ITS APPEAL CHALLENG ED THAT THE BLOCK ASSESSMENT ORDER IS BARRED BY LIMITA TION. ITA NO. IT(SS)A NO. 16 & 09/JAB./2007 28 22. THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT SEARCH IN THIS CASE WAS CONDUCTED ON 9/10.10.2002. THEREFORE, ACCORDING TO SECTION 158BE, THE BLOCK ASSESSMENT ORDER SHOULD HAVE BEEN PASSED WITHIN TWO YEARS FROM THE END OF THE MONTH IN WHICH THE LETTER OF AUTHORIZATION FOR SEAR CH U/S. 132 WAS EXECUTED. THEREFORE, BLOCK ASSESSMENT ORDER SHOULD HAVE BEEN PASSED ON OR BEFORE 31.10.2004. HOWEVER, BLOCK ASSESSMENT ORDER HAS BEE N PASSED U/S. 158BC ON 23.06.2005. HE HAS FURTHER SUBMITTED THAT THE AO IN ORDER TO GET THE LIMITATION EXTENDED ILLEGALLY ISSUED THE ORDER U/S. 142(2A) FO R SPECIAL AUDIT ON 27.10.2004, WHICH WAS JUST BEFORE ONE OR TWO WORKING DAY OF THE END OF THE LIMITATION TO PASS THE ASSESSMENT ORDER. HE HAS SUBMITTED THAT THE AO COULD HAVE DIRECTED FOR SPECIAL AUDIT U/S. 142(2A) WITH PREVIOUS APPROVAL OF THE CC IT OR THE CIT. IN THE CASE OF ASSESSEE, NO SUCH PREVIOUS APPROVAL OF CCIT OR CIT HAS BEEN BROUGHT ON RECORD. THE ASSESSEE SOUGHT INFORMATION UNDER RIGHT TO INFO RMATION ACT FROM THE REVENUE DEPARTMENT TO SUPPLY COPY OF APPROVAL GRANTED BY TH E CIT, BUT IT WAS INFORMED THAT THE RELEVANT FILE IS NOT TRACEABLE. THE ASSESSEE AL SO FILED APPEAL UNDER RIGHT TO INFORMATION ACT BEFORE THE LD. CCIT WHO HAS ALSO DI RECTED TO TRACE OUT THE RELEVANT FILE AND SUPPLY COPY OF APPROVAL TO THE ASSESSEE, B UT TILL DATE NO SUCH APPROVAL HAS BEEN PROVIDED. HE HAS RELIED UPON THE DECISION OF R AJASTHAN HIGH COURT IN THE CASE OF CIT VS. BAJRANG TEXTILES, 294 ITR 561, IN WHICH THE DIRECTION OF THE AO FOR SPECIAL AUDIT ONE DAY BEFORE EXPIRY OF THE LIMITATI ON FOR COMPLETION OF BLOCK ITA NO. IT(SS)A NO. 16 & 09/JAB./2007 29 ASSESSMENT WAS NOT FOUND JUSTIFIED. HE HAS FURTHER SUBMITTED THAT THE AO WITHOUT ANY APPLICATION MADE BY THE ASSESSEE EXTENDED THE P ERIOD OF GETTING THE SPECIAL AUDIT UPTO 30.06.2005 VIDE ORDER DATED 04.01.2005, WHICH IS ALSO AGAINST THE PROVISIONS OF SECTION 142(2C) OF THE IT ACT. HE HAS SUBMITTED THAT SINCE THE BOOKS OF ACCOUNT WERE ALREADY WITH THE REVENUE DEPARTMENT , THEREFORE, NO LIABILITY COULD BE ATTACHED TO THE ASSESSEE FOR NON-COMPLETION OF S PECIAL AUDIT. HE HAS SUBMITTED THAT THE ASSESSMENT ORDER IS, THEREFORE, CLEARLY IL LEGAL AND BARRED BY LIMITATION. THE LD. DR, HOWEVER, RELIED UPON THE ORDERS OF THE AUTH ORITIES BELOW. 23. ON CONSIDERATION OF THE RIVAL SUBMISSIONS AND T HE FACTS OF THE CASE, WE ARE OF THE VIEW, THE MATTER REQUIRES RECONSIDERATION AT TH E LEVEL OF THE LD. CIT(A). SECTION 142(2A) PROVIDES SPECIFICALLY THAT PREVIOUS APPROVA L OF CCIT OR THE CIT SHOULD BE OBTAINED BEFORE DIRECTING FOR SPECIAL AUDIT BY THE AO U/S. 142(2A) OF THE IT ACT. NO APPROVAL WAS BROUGHT ON RECORD. THE ASSESSEE MAD E SEVERAL ATTEMPTS TO GET THE APPROVAL OF CCIT OR CIT EVEN THROUGH MOVING APPLICA TION UNDER RIGHT TO INFORMATION ACT, BUT THE SAME WAS NOT PROVIDED TO H IM DESPITE DIRECTION ISSUED BY THE CCIT ALSO IN THE MATTER. THE LD. CIT(A), THEREF ORE, SHOULD HAVE VERIFIED THIS FACT FROM THE RECORD AND IN CASE SAME WAS NOT MADE AVAILABLE TO HIM, HE SHOULD HAVE TAKEN ADVERSE INFERENCE AGAINST THE REVENUE TH AT THERE IS NO SUCH PREVIOUS APPROVAL OF THE CCIT OR THE COMMISSIONER FOR GETTIN G THE SPECIAL AUDIT DONE BY THE ITA NO. IT(SS)A NO. 16 & 09/JAB./2007 30 AO. FURTHER, ACCORDING TO PROVISO TO SECTION 142(2C ), THE AO COULD EXTENT THE PERIOD OF FILING SPECIAL AUDIT ON AN APPLICATION MA DE IN THIS BEHALF BY THE ASSESSEE AND FOR ANY GOOD AND SUFFICIENT REASONS. THE LD. CI T(A) FAILED TO TAKE NOTE THAT BOTH THE CONDITIONS HAVE TO BE SATISFIED THAT THE A SSESSEE MADE REQUEST FOR EXTENSION OF TIME AND FOR ANY GOOD AND SUFFICIENT R EASON. THE WORD AND HAS BEEN USED IN THIS SECTION. THEREFORE, BOTH THE COND ITIONS SHALL HAVE TO BE SATISFIED. THE LD. CIT(A) WAS, THEREFORE, REQUIRED TO VERIFY B OTH THE THINGS IF SATISFIED IN THE CASE OF ASSESSEE FOR THE AO TO EXTEND THE PERIOD OF LIMITATION TO GET THE SPECIAL AUDIT. IT APPEARS THAT THE LD. CIT(A) HAS NOT ADDRE SSED TO ANY OF THE LEGAL SUBMISSIONS RAISED BY THE ASSESSEE IN THIS REGARD A ND WITHOUT ANY JUST REASONS REJECTED THE CLAIM OF ASSESSEE. IN THE ABSENCE OF A NY SPECIFIC FINDING OF FACT ON THIS ISSUE, WHICH IS PURELY LEGAL IN NATURE AND GOES TO THE ROOT OF THE MATTER, THE CLAIM OF ASSESSEE CANNOT BE IGNORED TO CHALLENGE THE LEGALIT Y OF PASSING THE ASSESSMENT ORDER IN THE MATTER. THEREFORE, WE ARE OF THE VIEW THAT THE MATTER REQUIRES RECONSIDERATION AT THE LEVEL OF THE LD. CIT(A). WE ACCORDINGLY SET ASIDE THE IMPUGNED ORDER OF THE LD. CIT(A) WITH DIRECTION TO RE-DECIDE THIS ISSUE IN ACCORDANCE WITH LAW BY VERIFYING ALL THE FACTS FROM THE RECORD AND IN CASE RELEVANT RECORDS ARE NOT PRODUCED BEFORE HIM BY THE REVENUE DEPARTMENT, HE SHOULD TAKE ADVERSE INFERENCE AGAINST THE REVENUE AND SHALL PAS S THE ORDER IN ACCORDANCE WITH ITA NO. IT(SS)A NO. 16 & 09/JAB./2007 31 LAW BY GIVING REASONABLE SUFFICIENT OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. IN THE RESULT, GROUND NO. 1 OF APPEAL OF THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. 24. IN THE RESULT, DEPARTMENTAL APPEAL IS DISMISSED AND THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT. SD/- SD/- (T.S. KAPOOR) (BHAVNESH SAINI) ACCOUNTANT MEMBER JUDICIAL MEMBER *AKS/- COPY OF THE ORDER FORWARDED TO : 1. APPELLANT 2. RESPONDENT 3. CIT(A), CONCERNED BY ORDER 4. CIT, CONCERNED 5. DR, ITAT, JABALPUR 6. GUARD FILE SR. PRIVATE SECRETARY ITAT, CAMP AT JABALPUR