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TMI Blog2007 (7) TMI 356X X X X Extracts X X X X X X X X Extracts X X X X ..... the statement recorded at the time of search. Such addition merely on the basis of arbitrary or notional income on the assumption that since there was suppression of turnover for the period 1st April, 2002 to 21st Jan., 2003 and therefore, by same proportion there was suppression of turnover/income for the earlier years and subsequent year/period, is not sustainable. There is no suppression of turnover or sales or unaccounted business of earlier years; there is no question of making any addition on account of investment for running the unaccounted business for earlier years/subsequent period to search. We, therefore, delete the addition sustained by the CIT(A) on account of suppression of turnover and enhanced by the CIT(A) on account of capital employed for running the unaccounted business. So far as the ground regarding net profit rate of 4 per cent is concerned, this ground becomes infructuous as we have held that there was no unaccounted turnover in earlier years. Therefore, the question of applying 4 per cent net profit rate does not arise. The assessee's appeal is allowed. In the result, Appeal of the assessee is allowed, Appeal filed by the Revenue and CO No. f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... noted details of bank account at page Nos. 11 and 12 of the assessment order. On the basis of the seized documents, evidences and bank accounts the assessee has admitted having suppressed the sales to the extent of Rs. 1,32,79,680 during the period from 1st April, 2002 to 21st Jan., 2003 (upto the date of search) on which the undisclosed net profit of Rs. 4,35,573 was estimated at the rate of 3.28 per cent. In addition, the assessee company offered for taxation a sum of Rs. 2,55,378 as the undisclosed capital invested to run the undisclosed portion of business. Thereby the assessee disclosed the total amount of Rs. 6,90,951 as undisclosed income in the return filed for the block period. The AO did not accept the above declarations and estimated the undisclosed sales/turnover and the undisclosed profit @ 4 per cent of sales for the entire block period i.e. from 1st April, 1999 to 21st Jan., 2003 as under: Total credits in the bank statement 80,56,175 Less : Excess credited on 14-12-2002 7,00,000 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 11.54 5,43,69,718 21,74,789 21,74,789 Total 30,24,75,388 1,20,99,016 1,20,99,016 The assessee filed appeal before the CIT(A). The first appellate authority confirmed the action of the AO regarding the estimate of sales/turnover, relying on the judgment of the apex Court in the case of CST vs. H.M. Esufali H.M. Abdulali (1973) 90 ITR 271 (SC) and the decision of the jurisdictional High Court in the case of Rajnik CO. vs. Asstt. CIT (2001) 171 CTR (AP) 117 : (2001) 251 ITR 561 (AP). However, the CIT(A) found that the working of suppressed sales made by the AO was not correct since the undisclosed sale proceeds deposited in the bank account were considered for only 39 days while the actual deposits were more and related to 57 days. The CIT(A) considered the revised working filed by the assessee and found that the ratio of accounted sales to unaccounted sales comes to 100.41 against 100.59 computed by the AO. The CIT(A) applied the ratio to earlier years and calculated the unaccounted turnover during ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mating initial capital investment in the undisclosed business. Adopting the same basis, the undisclosed turnover for financial year 1999-2000 was computed by the CIT(A) at Rs. 14,86,218. The CIT(A) accordingly directed the AO to make a further addition of Rs. 14,86,218 and accordingly enhanced the addition made by the AO after providing opportunity of hearing to the assessee. 4. The learned Authorised Representative submitted that in short the issue involved in the grounds of appeal is pertaining to sustaining of addition of Rs. 84,07,790 on account of alleged suppression of sales and Rs. 14,86,218 on account of estimation of capital required to run undisclosed portion of the business and net profit rate applied by the AO at 4 per cent against net profit declared by the assessee at 3.28 per cent. The learned Authorised Representative submitted that whatever material was found at the time of search, the assessee himself has calculated undisclosed income and the same was shown in the block return which included unaccounted as well as investment to run the said undisclosed business. The learned Authorised Representative submitted that the unaccounted business was run by the assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... net profit rate at 3.28 per cent on the basis of books of account and other supporting material. 5. The learned Departmental Representative, on the other hand, relied upon the order of the CIT(A) and also relied upon the judgment of the apex Court in the case of H.M. Esufali and also on the judgment of the jurisdictional High Court in the case of Rajnik Co. The learned Departmental Representative submitted that suppression of sales was the regular practice of business of the assessee and therefore the estimate of suppressed sales and income hereon was rightly estimated for earlier years. The learned Departmental Representative submitted that the estimation made for earlier years is supported by the above judgments. The learned Departmental Representative urged that the order of the CIT(A) may be confirmed. 6. We have heard the learned representatives of the parties and records perused. The admitted facts of the case are that during the search, it was found that the assessee was running unaccounted business through bank accounts which were opened for that specific purpose. There is no dispute on the fact that whatever income from unaccounted turnover through bank account has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... informed my father Gyan Kumar Agarwal and with his approval only I opened this account in fictitious name and operated the same. Q. 26 From the account it is clear that certain sales and purchases pertaining to AFIL are being effected outside the books of account, for a specific period, i.e. from 4th Dec., 2002 to 23rd Jan., 2003. Do you mean to say that earlier and after the above period, there were no sales and purchases outside the books of account? Ans. Earlier to 4th Dec., 2002, I am new to business, I am not aware of any such bank account operated by any person relating to AFIL. Subsequent to 23rd Jan., 2003, due to shock because of search and seizure operations by IT authorities, we did not operate any such fictitious account. 6.1 On the basis of the above position of admitted facts, we find that neither any material was found at the time of search nor any admission was made regarding suppression of sales for the earlier years. 6.2 Sec. 158BB(1) requires that the undisclosed income of the block period shall (be) the aggregate of the total income of the previous year falling within the block period computed in accordance with the provisions of this Act, on the bas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e' includes money, bullion, jewellery etc., only if they represent income or property which has not been or would not have been disclosed for the purposes of this Act. Therefore, we find that even though 'disclosed income' is defined in an 'inclusive' manner, the scope and extent of the term 'undisclosed income' for the purposes of this chapter is contingent upon the fact that the undisclosed income should be borne out of material representing income or property which has not been or would not have been disclosed by the assessee for the purposes of this Act. 7. From the above discussion, we find that if there is no material found as a result of search, the arbitrary estimate cannot be made for the purpose of computation of undisclosed income of the block period. The legislature in its wisdom has rightly inserted such clauses for computation of undisclosed income of the block period and only the undisclosed income which is to be computed on the basis of evidence and material found as a result of search. The action of search is an extraordinary action under the IT Act. Generally it is taken on the basis of evidence and material under possession of the D ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n of Rs. 84,07,790 sustained by the CIT(A) on account of suppression of turnover and Rs. 14,86,218 enhanced by the CIT(A) on account of capital employed for running the unaccounted business. 8. So far as the ground regarding net profit rate of 4 per cent is concerned, this ground becomes infructuous as we have held that there was no unaccounted turnover in earlier years. Therefore, the question of applying 4 per cent net profit rate does not arise. The assessee's appeal is allowed. IT(SS)A No. 3/Hyd/2006 9. This appeal is filed by the Revenue raising the following grounds: (i) The order of the CIT(A) is not acceptable on facts of the case. (ii) The CIT(A) ought to have noticed that the total amount of deposits in the two bank accounts identified during the course of assessment proceedings cover only 47 days period and not 57 days as observed in the appeal order though the period was mentioned as 26th Nov., 2002 to 11th Jan., 2003 in the appeal order itself. (iii) The CIT(A) ought to have adopted the period of 47 days for working out the average rate of wheat, which ultimately was taken to estimate the sales effected outside the books by the assessee company. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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