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TMI Blog2000 (1) TMI 147X X X X Extracts X X X X X X X X Extracts X X X X ..... and in accordance with the provisions of Chapter IV and on the basis of evidence found as a result of search and no more. In doing so, the manner and the basis provided under s. 158BB has to be strictly followed and complied which in the instant case has not been even attempted and complied. 8. That the learned Dy. CIT has failed to appreciate that no addition can be made on the mere admission, particularly when it had been established that admission was made on complete misconception and on vague assumptions and as such no addition was warranted. The various circumstances under which the statement was given has been blissfully ignored. The learned Dy. CIT had failed to appreciate that the deponent was a highly diabetic and was suffering from high blood pressure and had been discharged just a few days before the search and had been re-admitted immediately thereafter. That the assessment made is thus totally untenable both on facts and in law and is without jurisdiction. "10. That without prejudice to the above and in the alternative, the learned Dy. CIT has erred in making an addition of Rs. 1,15,00,000 on account of alleged unexplained investment in stocks. The submissions ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment framed in violation of provisions of ss. 158BB and 158BC(c) of the Act, the grounds at Sr. Nos. 8 and 10 to 14 relate to another issue i.e. addition of Rs. 1,15,00,000 on account of alleged unexplained investment and the grounds at Sr. Nos. 15 to 17 challenge another addition of Rs. 1,03,437 made on account of alleged sales outside books of accounts. 2.4. During the course of hearing, the learned counsel for the assessee submitted that the issues and the questions for consideration on merits, in respect of grounds at Sr. Nos. 8 and 10 to 14 can be set out as under: "1. Whether, on the aforesaid facts, the addition made of Rs. 1.15 crores and allegedly representing the undisclosed investment in stocks, on the basis of a mere statement under s. 132(4) by Shri R.P. Monga is valid and is sufficient in sustaining in law the addition in disregard of the voluminous evidence adduced to establish the entire value of stocks found was duly recorded in books and no stock was found unrecorded? 2. Whether the addition of Rs. 1.15 crores made as undisclosed investment in stocks under Chapter XIV-B of the IT Act is sustainable in the law disregarding the burden under the aforesaid chapt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stock on the basis of retail price list whereas the assessee sells its stocks as per the wholesale price list. A revised working of stock on the basis of wholesale price list was filed in which the value was arrived at Rs. 1,91,44,195. It was claimed that there was no discrepancy in the stocks found during the course of search. 3.4. The AO observed that in the statement recorded during the course of search on30th Aug., 1995, Shri R.P. Monga had surrendered a sum of Rs. 1.15 crores as undisclosed investment in stocks. He further pointed out that the assessee's authorised representative. Rawla Co., had also vide their letter dt. 26th Oct., 1995, submitted before the ADI (Inv.) that the unexplained investments in stock of M/s R.P. Lock Co. (the assessee) was Rs. 1.15 crores and an undertaking was also given that this amount will be disclosed in the return for the block period and taxes would be paid. The AO, therefore, required the assessee to show cause as to why addition of Rs. 1.15 crores be not made in the undisclosed income of the assessee for the block period when the surrender of this amount was made at the time of search which was confirmed subsequently after due consid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... op any further investigations." 3.5 The facts concerning the other addition of Rs. 1,03,437 are that during the course of search on14th Aug., 1995, at the residential premises of the partners of the assessee's firm at 9/8. East Patel Nagar,New Delhi, a list of stocks was found which was listed at pp. 6-18 of Annexure A-3. As per order of the AO, the list was of the stocks "found at the premises of Bashiruddin Co.". The AO required the assessee to state as to whether the stock as per the aforesaid list was taken into account in the regular books of accounts. In reply, the assessee submitted vide letter dt.30th July, 1996, that M/s Bashiruddin Co. were selling duplicate material under the assessee's trade-mark ofHarrisonlocks. The premises of the said persons were raided and material seized. It was contended that the assessee had filed a case in a Court of law against the aforesaid party. However, the relevant file was not produced despite more than one opportunity allowed by the AO. The AO, therefore, refused to accept assessee's contention. He inferred that the assessee had actually made sales outside the accounts books to M/s Bashiruddin Co. and the story put forth by it w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h (PB p/95) Patel 14th Aug., 9,26,717 - 77,99,175 Nagar 1995 (PBp/100-124) (PB p/420-430) Aligarh 21st Aug., (incomplete) 30th Aug., 1995 2,65,09,340 1995 (PB p/5-70) (PB p/401-419) --------------------------------------------------------------- 4.3. In the above background, the learned counsel for the assessee contended that in the statement given by Shri R.P. Monga on 30th Aug., 1995, copy placed at pp. 169 to 175, he went mainly by the second valuation of stocks at Aligarh and Patel Nagar (Delhi) taken at Rs. 2,65,09,340 and Rs. 77,99,175, respectively. What he had stated was that, "I voluntarily disclose a sum of Rs. two (2) crores twenty-five lakhs and offer the same as additional income in excess of income(s) already declared before the IT Department. "According to the learned counsel, the statement related to all assessees of the group. The learned counsel then drew our attention to following break-up given by Shri Monga as per details given at pp. 173-174: Rs. Cash found at Punjabi Bagh and Patel Nagar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng as per price list circulated to various shopkeepers on which they were expected to sell various items. Out attention was also invited to a statement placed on p. 431 of the paper book as per which the total value of stock on wholesale price basis, after excluding the gross profit of 15 per cent was worked out at Rs. 1,91,44,195. Various workings placed on record was also referred to. The learned counsel contended that since the stock found during the course of search was well within the value of stock as per books. In the return filed on31st July, 1996, undisclosed income for the block period was shown at 'nil'. Further, in other letters, copy placed at pp. 469-474, specific instances of mistake in valuation involving substantial amounts were pointed out. According to the learned counsel, at the time of approval by the learned CIT also, the mistakes in valuation were pointed out and the learned CIT had directed the AO to get the position clarified from the ADI. The learned counsel prayed that the file of the learned CIT may be called to verify this fact. 4.5. The learned counsel also referred to the entries in the order-sheets, copy placed at pp. 127 to 139 of the paper book a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Hon'ble High Court appointing a person as "Commissioner", a copy of the Hon'ble High Court orders dt.9th Nov., 1987, was placed before the Bench. It was argued that in any case, merely because the list was found, it could not be legally concluded that the assessee has made the sales outside the accounts books. 5. The learned Departmental Representative submitted that Chapter XIV-B of the IT Act prescribed a special procedure for assessment of search cases. According to him, two significant features of the procedure are that the income is to be computed for "block period" defined in s. 158B(a) and the assessment made under the Chapter is in addition to the regular assessment. The learned Departmental Representative submitted that the AO has not gone beyond the block period and has also not included the regular income of the assessee in the present assessment. It was submitted that in the circumstances even if there were some procedural lapse on the part of the AO, it did not go to the root of the matter and the assessment could not be held to be invalid, as was contended by the learned counsel. 5.2. For the addition of Rs. 1,15,00,000 on account of unexplained investment in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ental Representative to the factual mistakes in calculations, as pointed out by the assessee to the AO vide its letter dt.5th Aug., 1996, copy placed at pp. 469-470 of the paper book, he submitted that on the limited issue the matter could go back to the AO for verification of facts. 5.3. About the list of stocks found at the residence, the submission of the learned Departmental Representative was that since the assessee did not make available any documentary evidence in support of its plea, the AO had no other alternative but to draw an adverse inference. He further submitted that if in the light of High Court order, copy of which is now placed before the Bench, it is felt that the matter requires reconsideration, it could go back to the AO. 6. We have given our utmost consideration to the facts and circumstances of the case, the material to which our attention was invited and the rival submissions. We would first take up the issues relating to the impugned addition of Rs. 1.15 crores made on account of unexplained investment in stocks. From the AO's discussion under the head "Unexplained Investment in Stocks", it would be seen that he has initially proceeded on the basis of v ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o details are given in the assessment order nor the learned Departmental Representative was able to throw any light on this aspect. About the controversy as to who had actually valued the inventories, we would only say that the fact that stocks have been valued at retail sale price is more important, because even if it was the assessee who had prepared the list on the basis of retail sale price, it was incumbent upon the AO to ascertain the correct valuation as per the method adopted by the assessee. In our considered opinion no significance can be attached to the fact that the assessee was itself a party to the process of valuation at the initial stage, particularly when the assessee has been crying hoarse that valuation of its stocks as per retail price list was not correct. Also, it had further pointed out various calculation mistakes in the valuation, which aspect has not at all been considered by the AO. We had ourselves looked into the two sets of lists and found various discrepancies in calculation itself. To give an example, in one list, in respect of East Patel Nagar, the value of 18 pieces of Mortice Locks of Code No. 121 is taken at Rs. 3,888 @ Rs. 216 per piece (item 13 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the method of valuation but the AO has not given any basis or data for valuing the stock at retail sale price. About the last aspect i.e., some stock remaining uninventorised, we would only say that this is a mere presumption and hence it cannot be given any weight. Above all, there is not even a whisper that by making a surrender, the assessee stalled further investigation in the matter. We would also point out that even the calculation mistakes pointed out by the assessee, were ignored by the AO. 6.3. On a careful consideration of the facts and circumstances of the case and in view of the foregoing discussion, we are of the considered opinion that the matter has to go back to the AO for a fresh decision on consideration of various aspects, including the following. Ordered accordingly. (i) As to what is the method adopted by the assessee in earlier years and in the year under consideration for the valuation of the closing stock as on the last day of the previous year relevant to asst. yr. 1996-97. (ii) For determining the value of stocks as per the abovementioned method of valuation. In doing so, the calculation mistakes pointed out by the assessee should be specifically ta ..... X X X X Extracts X X X X X X X X Extracts X X X X
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