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TMI Blog2008 (12) TMI 291X X X X Extracts X X X X X X X X Extracts X X X X ..... 2003. During the course of search, an inventory of stock was prepared after verification from the books of account and after considering the explanation of the assessee, the Assessing Officer had computed the shortage of stock weighing 5,350.590 grams and on estimated sales of Rs. 27,82,306, he had applied the G.P. rate of 24 per cent and had made an addition on the sales estimated on the basis of shortage of stock at Rs. 6,67,753 as under:- Stock as per books 14,645.090 gms. Stock found short 5,350.590 gms. Estimated sales @ Rs. 27,82,306 Rs. 520 per gram Gross profit @ 24% Rs. 6,67,753 (A.Y. 2002-03 @ 23%) 4. The CIT(A) confirmed the addition made by the Assessing Officer for shortage of stock. 5. The learned A.R. submitted that (i) shortage of stock was due to issue of jewellery weighing 2,650 gms. on 21-2-2003 to the partners and family members of the appellant; (ii) secondly, the Search Party had not searched the safes placed at first and second floor of the premises; (iii) thirdly, when no evidence, material or information as per provisions of section 158BB of the Income-tax Act was found, there was no justification for determination of undisclosed income of Rs. 6,67, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... been searched and the appellant had not claimed that any premises/floor/safe was left from searching by the Search party during the course of search. We are of the opinion that the search party was very vigilant and during the course of search, every nook or corner of the house and business premises is searched. Therefore, this contention of the assessee that the safes placed at first floor and second floor had not been search has no substance. 10. As regards the last contention of the appellant that as a result of search, no evidence, material or information as per provisions of section 158BB was found for determining the undisclosed income, we find that during the course of search incriminating documents were found, inventory of stock was prepared and after verification from regular books of account, the shortage was worked out on the basis of documents found at the premises of the appellant during the course of search. The scrutiny of documents revealed that there was shortage of stock. Therefore, we opine that the undisclosed income has been determined on the basis of inventory of valuable items, i.e., precious stone and jewellery prepared and on verification from the books, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the firm. In these papers position of stock and capital, etc. had been written for the purpose of distribution of assets among the partners. The appellant explained before the Assessing Officer that these papers were in the handwriting of his uncle late Shri Balraj Paraswani and these papers were written to assess the status as a whole of the entire family of Shri Raj Kumar Paraswani, Nand Lal, Narendra Kumar, Suresh Kumar and Bhupendra Kumar. It was further stated that no actual transaction had ever been effected. The firm M/s. Bhajandas & Brother Jewellers was constituted since 1986 with the following partners: (a) Nand Lal Paraswani (b) Narendra Kumar Paraswani (c) Smt. Kausilya Devi (d) Sh. Suresh Kumar There had been change in the partnership with effect from 1-4-2000. It was further claimed that no transaction related to partition had every taken place. The Assessing Officer observed that there was no change in the partnership of the firm up to 1-4-2000 but firm's stock was valued at Rs. 55,00,000 as per assessee's seized papers Annexure A-8. The stock position as on 30-9-1996 was as under:- Market price 22 Kt. Jewellery 7215.160 @442 = Rs. 21,31,891 14 Kt. Jewell ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e addition on the basis of partnership deed drawn. He has also contended that the ld. CIT(A) has erred in sustaining the addition on the basis of paper found from the possession of the third party. For the purpose, he has relied upon the following case laws:- (1) S.P. Goyal v. Dy. CIT [2002] 82 ITD 85 (Mum.) (TM). (2) Prarthana Construction (P.) Ltd. v. Dy. CIT [2001] 48 Taxman 112 (Ahd.) (Mag.). (3) T.S. Venkateshan v. Asstt. CIT [2000] 74 ITD 298 (Cal.). (4) S.K. Gupta v. Dy. CIT [1998] 62 TTJ (Delhi) 666. (5) Jagdamba Rice Mills v. Asstt. CIT [2000] 67 TTJ (Chd.) 838. (6) Rakesh Goyal v. Asstt. CIT [2003] 87 TTJ (Delhi) 151. (7) Aswani Kumar v. ITO [1992] 42 TTJ (Delhi) 644. (8) J.J. Enterprises v. CIT [2002] 254 ITR 216 (SC). (9) Hazari Lal Roop Chand v. CIT [1967] 65 ITR 488 (All.). (10) Jai Kumar Jain v. Asstt. CIT[2006] 99 TTJ (Jp.) 744. (11) JRC Bhandari v. Asstt. CIT [2003] 79 TTJ (Jodh.) 1. (12) ITO v. M.A. Chidambaram [1997] 63 ITD 203 (Mad.) (TM). (13) Bansal Strips (P.) Ltd. v. Asstt. CIT [2006] 99 ITD 177 (Delhi). 14. In the case mentioned at serial No. 1, it was held that loose sheet paper torn out of a diary could not be construed as books for the purp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en made on the basis of information contained in the specific documents, which indicated items of the jewellery, which were dealt in by the appellant. No plausible explanation regarding the excess stock had been furnished. Therefore, we are of the opinion that the learned CIT(A) had rightly sustained the addition on account of unexplained investment in the excess stock recorded on these papers. We are also of the opinion that the ld. CIT(A) had rightly sustained the addition for profit on deemed presumed sales, as no excess stock was found. Therefore, the ld. CIT(A) had rightly sustained the addition of Rs. 22,69,415 (21,68,348 + 1,08,067). We do not find any infirmity in the order of CIT(A) and the same is sustained for the reasons given therein. 22. In the result, the appeal of the assessee is dismissed. DISSENT ORDER Per Smt. Diva Singh, Judicial Member.-The draft order has been carefully considered by me. However, after due deliberation amongst us I find myself unable to concur with the reasoning and the findings arrived at therein. Accordingly in the circumstances I set out in detail the reasons for coming to a different finding other than the one arrived at in the draft or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... elied upon by the assessee as per pages 2 and 3 of the Assessment Order is as under:- "The assessee was required to file the evidence in respect of jewellery issued on 21-2-2003. The assessee has filed photocopies of issue vouchers from S.No. 401 to 419 dated 21-2-2003. In these issue vouchers jewellery has been shown issued to various persons including the partners and family members of the assessee on 21-2-2003. No other evidence has been filed." 6. As per the Assessment Order, the said evidence was dismissed by the Assessing Officer holding that during the course of search the assessee did not inform the search party that some jewellery was issued on 21-2-2003 with regard to which entries had not been made. 7. Another reason for not accepting the claim of the assessee by the Assessing Officer as per page 3 of the Assessment Order was as under:- "Besides, on 22-2-2003 search was also conducted at the residential premises of Shri Nand Lal Paraswani and also at other premises of family members. Shri Vikas Paraswani and Smt. Disha Paraswani were also staying with Shri Nand Lal Paraswani. At the time of search only jewellery of weighing 788.87 gms. was found at the residence. It ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the assessee 5 shop has ground floor, first floor and second floor. On each of the floor the assessee has safe in which the jewellery is kept/or safety reasons. The jewellery kept in safe of first and second floors was left from being searched. The assessee has not sold any jewellery out side the books of account. No evidence in the form of document or otherwise is found in search which may lead to the inference that the assessee has sold jewellery outside the books of account. The purchase and stock is duly recorded in the books and the stock found less than the disclosed stock cannot par take the nature of income or investment. Chapter XIV-B deals with the assessment of search cases which authorizes the Assessing Officer to assess the undisclosed income of Block Period on the basis of evidence found as a result of search. No addition can be made merely on the basis of suspicion. Without there being any proof." 12. The CIT(A) dismissed the arguments of the assessee observing as under:- "I have considered the facts and circumstances of the case and the arguments of the learned representative of the appellant. The Assessing Officer has worked out the weight of stock found sho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Sl. 401 to 500 in support of its contention." 13. A perusal of the impugned order shows that vide para 2.2 the CIT(A) referred to the fact that the Assessing Officer raised a very pertinent query i.e., if 2650 grams was issued on 21-3-2003 to the partners and the family members then where was this jewellery kept. 14. Similarly, he was of the view that if jewellery weighing 3606.052 grams has been returned to the partners family members and customers and the entries with regard to which in the night of 21-2-2003 were not made then why that jewellery was not found in the residential premises of the partners was questioned. Accordingly the said claim of the assessee vide para 2.3 of the impugned order was also dismissed. 15. At page 6 para 12 of CIT's order reference has also been made to the statement recorded of Shri Vikas Paraswani with regard to the query on account of difference in stock. The reply of the assessee in Hindi has been reproduced in the impugned order. Loosely which translated states that: "On account of the illness of my father I am not aware of the reason for the difference. It may be possible that it is kept safely with my father which may be found during the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The learned A.R. submitted that (i) shortage of stock was due to issue of jewellery weighing 2650 grams on 21-2-2003 to the partners and family members of the appellant; (ii) secondly, the search party had not searched the safes placed at first and second floor of the premises; (iii) thirdly, when no evidence, material or information as per provisions of section 158BB of the Income-tax Act was found, there was no justification for determination of undisclosed income of Rs. 6,67,753. Therefore, the addition is liable to be deleted." 21. Having gone through the finding on facts at paras 7, 8 and 9, I find myself unable to concur with the said finding. In view of the consistent stand of the assessee right from the inception, I am of the humble view that without assigning any cogent reason the same cannot be disregarded outright. The explanation offered by the assessee right from the inception is plausible namely that relevant entries on the night of 21-2-2003 were not made and on the next date search took place. The explanation with regard to necessary entries which could not be made as per the assessee was that the Accountant of the assessee was a part-time Accountant and the necess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... te. The said statements reproduced at pages 6 and 8 in the impugned order of Shri Vikas Paraswani was recorded during the search and rational mind can presume that Vikas Paraswani or anyone else for that matter would be aware that safes and almirahs on different floors would not be searched by the search party. At the cost of repeating as far as Vikas Paraswani was concerned, he was confident that the difference could be explained and found by the search party even eventually. Similarly, in response to the next question as observed he accepts that he is incapable of giving any statement on account of his mental confusion. This again is neither here nor there. However, what is important to be seen is that since the assessee before the Assessing Officer contended that on the different floors almirahs and safes had not been searched by the search party. The said assertion has to be understood in the context of the fact that despite unleashing the ultimate weapon with the department i.e., a search no incriminating document, evidence of investment and cash etc. suggesting sale outside books of account was found by the search party except a paltry cash of Rs. 4,660 only. In the face of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... st first be done. No discussion in the orders of the Tax Authorities thereon as observed has taken place and how the same has only been referred to as an illustration of sales outside books of assessee has been left completely unaddressed. 22. In these circumstances, for the reasons given hereinabove in detail the explanation with regard to the safes placed at first and second floor of the premises of the assessee deserves to be accepted. Since the revenue is unable to establish shortage of stock the question of estimating addition thereon does not arise. Accordingly, ground Nos. 1 to 4 in terms of the above detailed discussion on facts deserves to be allowed. 23. With respect to ground No. 5 the facts are found discussed in paras 12 and 13 in the leading draft order and the arguments on behalf of the assessee are found discussed in part of para 13 of the same. Vide paras 14 to 19 of the draft order the discussion takes places on case law. Para 20 records the facts that the learned D.R. relied upon the assessment order and the impugned order. Accordingly the said issue has been addressed at pages 5-8 in the leading draft order. On a careful perusal of the same and the finding at ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... per pages 1 and 2 of Annexure A-8 stock was valued at 55 lakhs. Excess stock was taken as 21,61,348 which was taken to having been sold outside the books of account of the assessee and a marginal profit of 5 per cent was applied working out at 1,08,067. Total investment and profit was taken as 22,69,415 as undisclosed income for assessment year 1997-98. 31. The said addition was challenged before the CIT(A) on various grounds. It was challenged on the ground that Shri Narendra Kumar Paraswani whose explanation has been taken note of was not a partner in the firm at the relevant point of time and in fact it was argued opportunity should have been granted to the assessee to explain the documents as at the relevant point of time Narendra Paraswani was not a partner of the firm and the statement and opportunity to the existing partners should have been taken and given respectively. In terms of the same it was contended that the said documents were found from the residence of Shri Narendra Kumar Paraswani who was not the partner of the assessee-firm at the relevant time and would not be interested in giving statement favouring the firm. In the context of the same it was elaborated that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it is accepted that the narration is in the handwriting of a dead person who alone can explain the same, it has been argued that the document has been found from the premises of the person who is no longer a partner and as such not interested in placing facts correctly, as such, on the basis of his statement if any the assessee it was argued cannot be saddled. Secondly if explanation of partners was still to be considered then the explanation of existing partners should have been taken. Thirdly and most importantly the only person who could have explained the scribbling it was argued is a dead person who committed suicide. Thus it was argued these are dumb documents. Referring to the orders of the Tax Authorities it was contended that they have only chosen to rely on part of one of the documents wherein 55 lakhs stock is mentioned and for reasons best known to the department have chosen to completely ignore the other portion of the document which too makes no sense and also the other document referred in the impugned order on which a lot of figures without any narration or dates or names etc. or whether they are incomes or expenditure and how it is relatable to the assessee to just ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ther in the assessment order or in the impugned order with regard to the two documents wherein evidently a lot of figures are found scribbled. With respect to document numbered as 1, only cognizance has been taken of the figure of 55 lakhs as stock. He said scribbling on the other side of the page continues with the narration on one side 27.50 followed by another scribbling of 27.50 and opposite side is found recorded 'Stock adha adha'. The various other figures scribbling in two different column above and below the scribbling of stock 55lakh and 27.5 and 27.5 with narration 'adha adha' also show the total as 418 on both sides and again the same is given with different break-ups below the figure of 55 lakhs etc. again totalling 418. There is no discussion in any of the orders of the Tax Authorities with regard to these scribbling. Similarly, there is no discussion again with regard to the bifurcation of 27.50 as 'adha adha' again in the impugned order. Same is the position of scribbling in document mentioned as 2 of this Annexure where various numbers are found scribbled without any narration of the nature of scribbling, date, person etc. No discussion thereon is there in the order ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stock weighing 6,294.500 gms. was found and the stock as per the books of account was to the extent of 14,645.090 gms. In other words, physical stock was much lower than the accounted stock to the extent of 5,350.590gms. The addition, it may be stated, was confined to the extent of gross profit which was estimated at 24 per cent on the estimated sales of the stock found short (5,350.590 gms.). When asked to explain the reasons of the difference, several reasons were given by the assessee. It was claimed by the assessee that on 21-2-2003, jewellery weighing 3606.052 gms. was returned to the partners, family members. and customers but the entries could not be made in the night of 21-2-2003. According to the department, it did not find the said stock even at the residential premises of the partners. The assessee had also not given any reason or occasion which necessitated the return of jewellery to the partners or their family members. The issue book which was maintained by the firm was also seized. It contained all the issues but did not find the return of the jewellery in dispute. It was contended that the shop of the assessee had ground floor, first floor and second floor and the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ations, it is quite possible that the assessee might have sold the stock outside the books of account and earned an undisclosed income which has not been accounted as sales. The department has not added the sale figure buthas only added the profit that can be attributed on such stock differences. The difference is not due to estimations but it is due to exact stock difference that was not existing when the search took place meaning thereby the assessee has sold the goods outside its regular books of account and has not accounted the sale values whereas it has already accounted for their purchases meaning thereby the profit on the goods that are already sold and not recorded in the books of account can represent an undisclosed income for the purpose of assessment under Chapter XIVVB of the Act. Therefore, having regard to the facts and circumstances of the case, I am of the view that the order of the learned AM requires to be upheld and I agree with his findings. The learned JM, in my view, has given credence to all the vague explanations offered by the assessee in respect of the stock that was not physically found. In my view, the learned JM was not correct in deleting the addition ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 158BC of the Act because the seized material was found on the search conducted on the third party, with which the assessee has no business relationship. It is for that person to explain the nature of the document and only if the explanation leads to the assessee, then the proceedings can be drawn against the assessee by following the procedure laid down under section 158BD of the Act and the addition made under section 158BC, it was argued, is simply based on an irrelevant document or a document which is really dumb in nature. The learned counsel for the assessee has heavily relied on the discussions made in the order of the learned JM. 8. The ld. D.R., on the other hand, strongly supported the findings of the order of the learned Accountant Member. According to him, the addition is based upon a search that took place within the family members of the assessee and they were required to explain the nature and contents of these papers. Otherwise, an addition in the manner which is made by the department requires to be upheld. 9. I have gone through the records carefully and I am unable to find any reason for making addition in the hands of the assessee. The addition is based upon th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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