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TMI Blog2004 (3) TMI 358X X X X Extracts X X X X X X X X Extracts X X X X ..... come. But at the same time, it is well settled principle of law that in such search cases no estimation of income is permissible. In the instant case, the entire books of accounts were available with the AO and except these books of accounts, there was no material or information which was in the possession of the AO to show that the assessee had earned any income over and above the income shown in the books of accounts. The income could be estimated only keeping in view the above three types of evidence on record. In this case, to our opinion, the learned AO has estimated the income on hypothetical basis taking into consideration the over all nature of the business in question of the same and similar line of business without giving any example on record. It is the fact that the labour charges by goldsmith on order basis are received with reference to the weight of the gold/silver ornaments manufactured as well as the design in question which involves a particular amount of labour. To that extent the learned CIT(A) has also accepted the plea of the appellant. But he has reduced the addition from 20 per cent to 5 per cent. The CIT(A) has rightly observed that the receipts from custom ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is not a punitive assessment and one has to try and make a fair estimate nearer to the true affairs. An estimation based on assets and expenditure is obviously better than making a wild guess without backing of assets/expenditure particularly when the Department has no case of any asset remained undermined. In the result, this appeal of the assessee is partly allowed and the appeal of the Department is dismissed. X X X X Extracts X X X X X X X X Extracts X X X X ..... ermitted to be raised. The ground reads as under: "That on the facts and circumstances of the case and in law the assessment order passed by the learned AO under s. 158BD of IT Act, 1961 on 28th March, 2001 is barred by limitation as per provisions of s. 158BE(1)(a) and as such the same is liable to be quashed." 5. The learned Authorised Representative Shri U.C. Jain has submitted in relation to the above that the additional ground is a purely legal ground and no further investigation of the facts are required, so in the light of settled principles of law, this ground should be allowed to be raised. The decisions on which the learned Authorised Representative Shri U.C. Jain has relied are: (i) The Hon'ble Rajasthan High Court in the case of Harish Chandra Golecha (HUF) vs. CIT (1981) 21 CTR (Raj) 104 : (1981) 132 ITR 806 (Raj) has held that: "If a point of law is implicit in or covered by the question referred to by the Tribunal and no additional facts are necessary to support that point, it may be raised for the first time before the High Court in a reference notwithstanding that it was not raised before or considered by the Tribunal. The expression "que ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which was raised by the petitioner that he should be granted relief by way of set-off. The Tribunal was, therefore, in my view, in error in holding that it could not do so without investigating fresh facts which it did not even care to outline." (iv) The Hon'ble Supreme Court in the case of National Thermal Power & Co. Ltd. vs. CIT (1999) 157 CTR (SC) 249 : (1998) 229 ITR 383 (SC) following its own earlier decision in the case of Jute Corporation of India vs. CIT (1990) 88 CTR (SC) 66 : (1991) 187 ITR 688 (SC) laid down at p. 387 as under: "The view that the Tribunal is confined only to issues arising out of the appeal before the CIT(A) takes too narrow a view of the powers of the Tribunal [vide e.g. CIT vs. Anand Prasad (1981) 128 ITR 388 (Del), CIT vs. Karamchand Premchand (P) Ltd. (1969) 74 ITR 254 (Guj) and CIT vs. Cellulose Products of India Ltd. (1985) 44 CTR (Guj) (FB) 278 : (1985) 151 ITR 499 (Guj) (FB)]. Undoubtedly, the Tribunal will have the discretion to allow or not allow a new ground to be raised. But where the Tribunal is only required to consider a question of law arising from the facts which are on record in the assessment proceedings we fail to see ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2 to 5. By giving them up the assessee could not confer jurisdiction on the ITO where he had none. Therefore, the Tribunal was bound to hear the assessee and could not reject the appeal on the ground that grounds Nos. 2 to 5 were not agitated before the AAC and thus could not be permitted to be agitated before it." (viii) The Hon'ble Tribunal, Jodhpur Bench in the case of Naresh Kumar Ajmera vs. ITO has held at pp. 425 and 426 as under: "It is observed that the assessee has not raised the above grounds before learned CIT(A) disputing the trading addition in ground No. 1, raised before the learned CIT(A). However, considering that the assessee has raised legal issue in the additional ground, which goes to the root of the matter in dispute and keeping in view the settled legal position that such legal objection can be raised at any stage of the appellate proceedings. We admit the additional ground raised by the learned counsel for the assessee." 6. On the other hand, learned Departmental Representative Shri D.R. Zala has controverted the request of the learned Authorised Representative, by stating that the ground cannot be admitted now, even though it is a legal g ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ), the AO is competent to pass an assessment order within a period of one year from the end of the month in which notice under s. 158BD was served on the assessee, where the search was initiated prior to 1st Jan., 1997. 11. The learned Departmental Representative strongly contested the above proposition and submission made by the learned Authorised Representative. The only dispute hinges around the word "initiation of search". According to learned Authorised Representative the initiation of search takes place on the date which search warrant was issued by the competent authority and this date was 30th Dec., 1996. The search warrant was executed on 3rd Jan., 1997 and the AO was competent to pass an order within one year of the date of service of notice under s. 158BD. 12. The learned Authorised Representative's contention is that from the copy of panchnama of both coparceners against whom search warrants were issued on 30th Dec., 1996, there is no doubt that the search was initiated on 30th Dec., 1996. From assessment order, it is clear that notice under s. 158BD of the Act was issued on 8th March, 1999 and served on 15th March, 1999 the assessment was completed on 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rised Representative has relied on the following decisions: (i) Decision of Hon'ble Supreme Court in the case of D.M. Manasvi vs. CIT 1972 CTR (SC) 437 : (1972) 86 ITR 557 (SC). In this case, the Hon'ble Supreme Court while dealing with initiation of penalty proceedings held as under at pp. 561-562 of the report: "The fact that notices were issued subsequent to the making of the assessment orders would not, in our opinion, show that there was no satisfaction of the ITO during the assessment proceedings that the assessee had concealed the particulars of his income or had furnished incorrect particulars of such income. What is contemplated by cl. (1) of s. 271 is that the ITO or the AAC should have been satisfied in the course of proceedings under the Act regarding matters mentioned in the clause of that sub-section. It is not, however, essential that notice to the person proceeded against should have also been issued during the course of the assessment proceedings. Satisfaction in the very nature of things precedes the issue of notice and it would not be correct to equate to the satisfaction of the ITO or AAC with the actual issue of notice. The issue of notice is a consequ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nder: "In the present case, the ITO during the course of assessment proceedings felt satisfied that there was concealment of income and that inaccurate particulars were furnished by the assessee. After arriving at the aforesaid satisfaction, while passing the assessment order on 14th April, 1967, the ITO directed that notice under s. 271(1)(c) r/w s. 274 be issued to the assessee. He, thereafter, referred the proceedings to the IAC who also issued a notice to the assessee under s. 274(1) to show cause why penalty should not be imposed upon him. Thus, in our view, the proceedings were properly initiated by the ITO and then referred to the IAC because the minimum penalty imposable would have exceeded Rs. 1,000. We, therefore, hold that the penalty proceedings were properly initiated in the present case. The question referred by the Tribunal, Jaipur Bench, Jaipur, is answered in the affirmative and in favour of the Department and against the assessee." (iii) Decision of Hon'ble Supreme Court in the case of Central Provinces Manganese Ore Co. Ltd. vs. ITO (1991) 98 CTR (SC) 161 : (1991) 191 ITR 662 (SC) has stated that the ITO, in initiating proceedings under s. 147(a) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... asthan High Court under s. 260A of the IT Act, 1961 (hereinafter referred to as 'the Act'). The appeal was admitted by the Hon'ble High Court on 1st Dec. 2002 and the following questions of law were framed: "(i) Whether, in the facts and circumstances of the case, remission of income on the basis of regular books of accounts found during the search could be sustained with reference to the provisions of s. 145 of the IT Act, 1961, which has been made retrospectively applicable to the block assessment w.e.f. 1st July, 1995, but which provisions were not applicable at the time of making of the block assessment without there being compliance of the requirement of s. 145 before resorting to best judgment assessment? (ii) Whether in taking resort to the block assessment for the block of 10 assessment years in question, income for the asst. yr. 1997-98, return for which has not fallen due, could be included in the block period for the reason that return for that assessment year has not been filed? (iii) Whether block assessment made by assessing authority as modified by Tribunal can be sustained in view of the amended cl. (c) of s. 158BB of the IT Act, 1961 as inserted by the F ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... relied on the Hon'ble Jurisdictional High Court in the case of Phusraj Gangabishan vs. CIT wherein the above Hon'ble Supreme Court decision has been followed. In the light of these submissions, the learned Authorised Representative has submitted that the time limit available to the AO under s. 158BE(2) was only one year from the date of issue of notice under s. 158BD on 8th March, 1999 as the case of the appellant falls in cl. (a) of s. 158BE(2). Since the date of initiation of search as per the authorisation in the search warrant was 30th Dec., 1996, i.e., before 1st Jan., 1997. So, according to him, the order passed under s. 158BD r/w s. 158BC on 28th March, 2001 is barred by limitation and the assessment done is, therefore, bad in law. 24. On the other hand, the learned Departmental Representative Shri T.R. Chawla has submitted that the Expln. 2 to s. 158BE brought to the statute book by the Finance (No. 2) Act 1998 with retrospective effect from 1st July, 1995 that the execution of authorisation means conclusion of search by recording last panchnama drawn on the basis of warrant of authorisation issued. According to the learned Departmental Representative, this Explanation cla ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... [Note: The first quoted matter is Expln. 2 to s. 132 and not Expln. 2 to s. 158BE Expln. 2 to s. 158BE starts from "For removal..."--Ed.] 26. The reading of the above Explanation makes it clear that the execution of the warrant means conclusion of a search as recorded in the last Panchnama. Execution of warrant is that the premises sought to be search is initiated and search is commenced based on the warrant of authorisation already obtained. To settle as to what is the meaning of "initiation" and when exactly the initiation took place in this case, we have to revert to the various definitions and decisions. The Hon'ble Madras High Court in the case of J.D.B. Srinivasan vs. Secretary to the Government of Tamil Nadu (1994) 92 STC 631 and another case (1958) 33 ITR 670 (Mad) has held that "to initiate means to originate or to take first step". Likewise, the Hon'ble Calcutta High Court has held in the case of Nilesh Hemani vs. CIT (1999) 155 CTR (Cal) 283 : (1999) 239 ITR 517 (Cal), particularly at p. 522 that "such proceeding was initiated when the search warrant was signed". The Hon'ble Kerala High Court has held in the case of T.O. Abraham ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s Mangilal Rameshwarlal (HUF). After the search, proceedings under s. 158BD of the Act were initiated against M/s Mangilal Rameshwarlal Soni (HUF) Sunaron Ka Bas, Jodhpur by sending a notice dt. 8th March, 1999. The details of the books of accounts relevant to M/s Mangilal Rameshwarlal Soni (HUF) according to books of accounts found and seized from the residence of Shri Rameshwarlal Soni and Shri Suraj Prakash Soni are given below: Shri Rameshwarlal Soni: A-12 Ledger 1.1.86 to 31.12.1986 Pages 1 to 86 A-5 Ledger 1.1.1987 to 22.12.1987 Pages 1 to 148 A-3 Ledger 1.1.1989 to 31.1.1990 Pages 1 to 189 A-4 Ledger 3.1.1990 to 13.2.1991 Pages 1 to 213 ii. A-10 Ledger 1991 Pages 1 to 217 A-11 Ledger 1992 Pages 1 to 226 A-7 Ledger 1993 Pages 1 to 224 A-9 Ledger 1994 Pages 1 to 189 A-12 Ledger 1995 Pages 1 to 199 A-13 Ledger 1996 Pages 1 to 171 A-14 Ledger 20.10.1996 to 1.1.1997 Pages 1 to 52 Corresponding Ledger A-5 Diary (Cash Book) 1.1.1993 to 31.12.1993 A-7 A-6 Diary (Cash Book) 1.1.1994 to 31.12.1994 A-9 A-1 Diary (Cash Book) 1.1.1995 to 31.12.1995 A-12 A-2 Diary (Cash Book) 1.1.1996 to 21.10.1996 A-13 31. In response to notice under s. 158BD ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t while preparing and delivering gold ornaments the purity of 20 to 22 carats as per practice in the trade. The assessee had stated that normally old gold ornaments having 22 carats purity is purchased and same is melted to form new ornaments. The alloy of silver, gold and copper is used for welding of ornaments and that is hardly 1 to 1-1/4 per cent of the weight of ornaments and to this extent chheejat, shortage of gold ornaments also occur. The rates prevailing on which the purchase of old gold ornament is made is sold at the same rate and that rate is charged from the customer and only job work income is earned by the assessee. The Department also was of the view that this submission of the assessee is not verifiable as the rates at which gold ornaments purchased is not mentioned in the entries relating to purchase of gold/gold ornaments and only consolidated figure of purchase price is mentioned. So the AO concluded that the return of income filed by the assessee in form 2B is not based on facts and realities of the case because the assessee had not kept the details and rough notes of the receipts shown in the return of income in form 2B which was necessary for getting necessa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts of gold ornaments or silver ornaments etc. The AO was of the opinion that no goldsmith will ever remain contented with this income in the shape of majdoori only. He further observed that the goldsmith does earn in the shape of gold which is saved by him on account of mixing of alloys in the gold and silver ornaments. According to the AO the goldsmiths charge for 24 carats of gold purity whereas the purity in gold ornaments is ranging between 20 to 22 carats normally. For polish etc. extra charges are taken. The wastage in the process of manufacturing of gold articles is very nominal and in no way less than 12 per cent of total gold manufactured is kept by the goldsmith as a hidden profit with him. The assessee has not kept any record of giving the gold to karigars for making gold ornaments or receipt of gold ornaments after finishing of a particular job. So, in the absence of that the verification of availability of gold cannot be ascertained and there is no other alternative but to charge to tax the undisclosed income to the assessee in the shape of gold saved on account of impurities to the extent of 12 per cent as stated above. In addition to this on account of profit from th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s maintained by the appellant, and thereafter estimated the income of the appellant without regards to the nature of business of the appellant and the explanation offered by the appellant. The AO computed the income of the appellant thereby making an addition of Rs. 1,33,54,717 in the income from job work, by applying a flat rate of 20 per cent on the total amount credited in the customers account. While estimating the above income at 20 per cent, the AO on hypothetical and imaginatory ground, presumed an income of 12 per cent on account of mixing and melting, 5 per cent as majdoori or labour charges and 3 per cent on account of profit presumed to be earned by the appellant from difference while debiting the gold price, the nag powai, dori bandhai, etc., to the account of the customers. The learned CIT(A), while giving specific findings as regards each defect pointed out by the AO as erroneous, and accepting the claim of the appellant, erred in giving an incorrect conclusion, which though lead to a substantial relief but, confirmed the basis of estimation of the AO, which was formed on hypothetical and imaginary grounds. The relief given by the learned CIT(A) was to the extent that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to our opinion, the learned AO has estimated the income on hypothetical basis taking into consideration the over all nature of the business in question of the same and similar line of business without giving any example on record. 42. It is the fact that the labour charges by goldsmith on order basis are received with reference to the weight of the gold/silver ornaments manufactured as well as the design in question which involves a particular amount of labour. To that extent the learned CIT(A) has also accepted the plea of the appellant. But he has reduced the addition from 20 per cent to 5 per cent. The CIT(A) has rightly observed that the receipts from customers for working out the income of the appellant from labour charges, on account of retention of gold and on account of income from nagina setting, etc. is very very high and is not supported by any documentary evidence. It is revealed from the documents seized during the course of search that the appellant had recorded labour charges income from nagina setting and also had recorded cheejat wherever received. 43. So, in our opinion, the income estimated by AO and sustained to some extent by the learned CIT(A) is not borne o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which relates to deletion of addition of Rs. 5,50,559 on account of unexplained opening capital shown by the assessee in the first year of block assessment year without considering the fact that the assessee had not been assessed to tax and the accretion of capital to the extent of Rs. 5,50,559 was not verifiable from any reliable evidence. 47. The learned Departmental Representative Shri D.R. Zala has submitted that the appellant had shown opening capital for the asst. yr. 1997-98 (sic-1987-88) at Rs. 5,50,559 on the basis of ledger kept by it. According to the learned AO, the appellant had not been assessed to tax. According to the learned Departmental Representative, the appellant had not been assessed to tax and accretion of capital to that extent is not verifiable from any other record. So, the entire capital of Rs. 5,50,559 is taken to have been introduced in the accounting year relevant to the asst. yr. 1987-88. This amount is undisclosed income of the appellant for the asst. yr. 1987-88. 48. On the other hand, the learned Authorised Representative Shri U.C. Jain has submitted that the AO was not justified in making the addition of Rs. 5,50,559 on account of initial capita ..... X X X X Extracts X X X X X X X X Extracts X X X X
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