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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 ..... on of Rs. 84,07,790 in the facts and circumstances of the case. The orders of the AO and CIT(A) are in violation of the principles of natural justice and also bad in law, because they have estimated the turnover for three earlier years of the block period i.e. from the asst. yr. 2000-01, when the seized material related to 57 days only from 26th Nov., 2002 to 21st Jan., 2003. (3) The CIT(A) and the AO are not justified in estimating the net profit at 4 per cent as against the disclosed net profit of 3.28 per cent which is based on income-tax records. (4) Addition of Rs. 14,86,218 The CIT(A) is not justified in estimating the capital required to run the undisclosed portion of business at Rs. 14,86,218 as against Rs. 2,55,378 admitted by the appellant. (5) Any other ground or grounds of appeal that may be urged at or before hearing. The learned Authorised Representative submitted that ground Nos. 1 and 5 are general in nature. 3. Brief facts of the case are that the assessee company is engaged in the business of production and sale of Rawa from wheat. Search under s. 132 was conducted at the business premises of the company and residential premises of its directors on 21st ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ccounted sales Profit @ 4% Undisclosed income 2000-01 1,45,19,052 85,66,240 10.70 9,16,58,768 36,66,351 36,66,351 2001-02 1,30,06,669 76,73,935 10.30 7,90,41,530 31,61,661 31,61,661 2002-03 1,16,10,226 68,50,033 11.30 7,74,05,372 30,96,215 30,96,215 1-4-2003 to 21-1-2004 79,85,448 47,11,414 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 assessee through bank accounts and on the basis of the said bank accounts the assessee has already declared the unaccounted income. Therefore, there is no question of further more income as undisclosed income. It is also the submission of the learned Authorised Representative that the AO calculated the suppressed turnover for the period for which no material was found at the time of search. The AO calculated the turnover merely on the basis of presumptions, surmises and con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ness 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 been calculated and the same was offered by the assessee himself while filing the return of income of the block period. The income on turnover as well as investment in running unaccounted business was also declared by the assessee. It is an admitted fact that there was no material found for the earlier years. The bank account through which the unaccounted turnover was made pertained to the period 4th Dec., 2002 to 23rd Jan., 2003. As stated above, the assessee has offer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 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. The Tribunal, Mumbai Bench (Third Member) in the case of Morarjee Goculdas Spg. & Wvg. Co. Ltd. vs. Dy. CIT (2005) 98 TTJ (Mumbai)(TM) 201 : (2005) 95 ITD 1 (Mumbai)(TM) held as under: 9. Sec. 158BB provides for computation of undisclosed income to be the aggregate of the total income of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y 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 Department that a person is having undisclosed income. When in such an extraordinary action no material is found at the time of search, we are of the considered view that in those circumstances, if cannot be said that there was undisclosed income. In the case under consideration, whatever undisclosed income on the basis of material is found at the time of search has been offered by the assessee in the return filed for the block period. It is also a fact that in the statement recorded it was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (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. (iv) Any other ground will be raised at the time of hearing of appeal. 10. At the time of hearing, the learned representatives of the parties pointed out that there is a mistake in the order of the CIT(A) at p. 14 in mentioning the date for the period 26th Nov., 2002 to 21st Jan., 2003 which the CIT(A) has written as 11th Jan., 2003 whereas the period was 57 days. Since while deciding IT(SS)A No. 167/Hyd/2006 the addition has been deleted, this mistake is not material. Thus, on merits, after corre ..... X X X X Extracts X X X X X X X X Extracts X X X X
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