9911796707
TMI Blog2008 (8) TMI 779X X X X Extracts X X X X X X X X Extracts X X X X ..... 4 and 5 of annexure B3 had to be read as hundreds and not in thousands ignoring the continuous shift in the stand of the assessee, documentary evidence in the form of seized papers and inquiries conducted by the Department. 2. That in the circumstances and the facts of the case, the learned Commissioner of Income-tax (Appeals) had erred in interpreting the contents of pages 4 and 5 of annexure B3 in isolation to the disregard of other seized materials which suggest inference to the contrary. 3. That the learned Commissioner of Income-tax (Appeals) has erred in granting further relief as per directions although it was not claimed as per grounds of appeal. 4. That the learned Commissioner of Income-tax (Appeals) had erred in blindly relying on the illusory observations and order of the Assessing Officer of the firm by attributing transactions of the assessee to the firm on the basis of the changed version after the assessee received the order of firm. 5. That in the circumstances and the facts of the case, the learned Commissioner of Income-tax (Appeals) had erred in holding that the assessee did not have the financial worthiness to do business on such a large scale thereby cont ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... w diaries marked annexures B1, B2 and B3 were found and seized from the assessee's business and residential premises, which reflected large transactions of purchases and sales of rough and polished diamonds. In response to a notice under section 158BC of the Act, the assessee filed return of income disclosing dalali income of Rs. 2,00,000 from transactions reflected in seized papers and paid tax thereon. The entries in diaries seized contained purchases and sales of diamonds. annexure B3 pages 4 and 5 contains a trial balance of investments up to the period ending Diwali 1995, i.e., up to October 20, 1995. Pages 4 and 5 reflect the identical state of financial affairs of payables and receivables at the end of the year. The relevant pages 4 and 5 of annexure B3 are reproduced by the Assessing Officer as well as by the Commissioner of Income-tax (Appeals) in their respective orders and for the sake of understanding and clarity, we are again reproducing the same as under : Aav. Baki 20.10' (Receivables as on 20.10) (1) 345 Shri Purant (opening) (2) 4945 Rough ni ughrani (money receivable on account of rough diamonds) (3) 12815 Rough stock + ghat + chalu (Rough diamonds st ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... equently, the assessee was engaged in the activity of miscellaneous manufacturing on a very small quantity of rough diamonds, manufacturing and selling the polished diamonds in a licensed market in rented premises during April 1, 1993 to Diwali 1995 as per his unaccounted activities reflected on pages 4 and 5 of annexure B3. The Assessing Officer during the course of block assessment proceedings first of all required the assessee to explain pages 4 and 5 of annexure B3, as the assessee owned up to these transactions of pages 4 and 5 of annexure B3 and stated that the said pages reflected the position of his receivables/ payables as on Diwali, 1995. The Assessing Officer framed the point of dispute as under : (i) Whether the figures are in actuals as alleged by the assessee or in thousands. (ii) Whether figures of 4961, 819 and 1280 actually represent investment or are in the nature of repairs as alleged by the assessee. (iii) Whether the amount of 80757 claimed to be receivable from Dahyabhai Nanjibhai was actually due or not. (iv) Whether the liability of 922 towards Shivam Exports can be correlated with incurring of certain expenses as alleged by the assessee or not. The As ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee replied and explained the transactions recorded in the seized document annexure B2 pages 4 and 5. The reply of the assessee is discussed in relevant paragraph 6.5 of block assessment order which reads as under : "6.5 In response vide letter dated August 25, 1999, the assessee has stated that page 4 was his consolidated trial balance as on Diwali '95 for the unaccounted business of dalali/ commission and miscellaneous manufacturing business. The assessee further claimed that he was engaged in the activity of polished diamonds/rejections on a very small scale basis during 1993, 1994, 1995. Thus he was running 4 to 5 ghanties in a building taken on rent at Katargam area. The assessee was purchasing small lots of rough diamonds on credit basis of 120 days and was manufacturing the same within 10 to 15 days. He was selling the polished diamonds on the credit basis of 60 to 90 days. Therefore, considering the manufacturing cycle of 15 days, the lock in period of debtors and manufacturing expenses was 75 to 105 days. The working capital in the form of debtors and manufacturing expenses was locked in for the period of 75 to 105 days against which the working capital in the form of curr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 22 was the amount payable to M R a creditor for purchase of rough diamonds. 5. Rs. 9,000 was net profit for the year ended on Diwali '93 6. Rs. 18,400 was net profit for the year ended on Diwali '94 7. Rs. 36,000 was net profit for the year ended on Diwali '95." In view of the above reply, the assessee claimed that his net worth for the entire block period did not exceed Rs. 2 lakhs, hence proposal for estimating the income by applying the decoding theory and forecasting the statistical method was not necessary. It was claimed by the assessee that he was engaged in the activity of job work as a small job worker with M/s. Vallabhbhai Manjibhai and Co. during the period April 1, 1991 to March 31, 1993 at Bortalav, Bhavnagar and he was engaged in the activity of miscellaneous manufacturing work on a very small scale by purchasing small quantity of rough diamonds, manufacturing the same on four to five ghanties which were run in the rented premises and selling the polished diamonds in local market. The assessee has narrated the regular activities done in these years as under : AY Nature of activity/ source of income 1994-95 Salary from M/s. Bhavani Gems and diamonds dalali/ com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... remains unsubstantiated. On the other hand, the seized papers clearly show that the assessee had 284 ghanties and 4 generators of 125 KVA along with other accessories in his possession. In addition to the above, he had made substantial investments in Dhabi Falia factory and other buildings. The assessee has claimed that he was purchasing small lots of rough diamonds on credit basis of 120 days and after manufacturing the same within 10 to 15 days, he was selling the polished diamonds on credit basis of 60 to 90 days. Accordingly, it is alleged that no initial or recurring investment was needed for manufacturing towards purchase cost of rough diamonds or for payment of labour charges. In my opinion, this explanation of general nature cannot be accorded any due cognizance. The period of credit on purchase and sale and manufacturing cycle is applicable to all kinds of business not excluding diamond business. Therefore, the assessee's case cannot be taken as an exceptional one. The exceptional circumstances if any, have not been cited by the assessee. I would like to mention here that not even a single party of due worthiness in these alleged transactions has been produced by the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ery much to the assessee. The job workers categorically stated during the course of search that they had no control over their alleged bank accounts (being opened by employees of the assessee). After taking their signature on blank cheques, cash equivalent to amount deposited by cheques was withdrawn from their bank accounts by employees of the assessee. Therefore, the anomaly is not difficult to understand. As there was no capital in the books of M/s. Shivam Exports when it came into existence, the unaccounted income of the assessee of preceding period was utilised to show outstanding labour charges. The papers seized from the premises of M/s. Shivam Exports clearly showed that it was maintaining unaccounted stock of rough diamond and there was suppression of yield on large scale. During the course of search proceedings, quantitative reconciliation of rough and rejected diamonds was carried out in the case of M/s. Shivam Exports. At this juncture, partner and employees of M/s. Shivam Exports claimed approximately 49000 carats of rough diamonds as rejected diamonds and their value was claimed at Rs. 14,00,000. However, the Department got these 49000 carats of diamonds valued by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns shall constitute sufficient and reliable evidence to charge him with liability. In a similar way, the assessee being engaged in the activities of trading of rough diamonds and manufacturing, it can be safely presumed that at the time of search, his goods/cash were in transit or sale proceeds had not become due. In such a situation, entries in diaries and loose papers have to be utilized for estimating undisclosed income of the assessee. I am of the opinion that but for the search, the assessee would have never disclosed these transactions to the Department." Similarly, the Assessing Officer has considered the figure of Rs. 4,961 representing repair expenses for four ghanties. The assessee before him took the plea that these were repairs of four ghanties and even submitted voucher of Mistry Bhupatibhai Manjibhai. The Assessing Officer stated that this repair is investment in any asset, i.e., this figure of Rs. 4,961, if decoded, by putting thousand (000) after this figure, then the true investment will be reflected. For this, the Assessing Officer has made independent inquiries from various parties and finally gave his findings in paragraph 6.7(e) which reads as under : "6.7(e) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s recorded that the assessee has failed to disclose the complete identities of MR and D Naresh to whom amounts were shown as payable. As regards the amount of Rs. 80,757 which was receivable from Shri Dahyabhai Nanjibhai on account of sales made to him on credit basis, the Assessing Officer examined Shri Dahyabhai Nanjibhai on oath and he denied that the said amount was payable to him. The assessee was provided with an opportunity to examine Shri Dahyabhai Nanjibhai, but he did not cross examine. As regards the amount of Rs. 1,965, the assessee stated that this amount was advance given to various workers as on Diwali 1995. The assessee could not furnish the names and addresses of the workers, who were doing job work for Shivam Exports and were paid in cash by the assessee. As regards the amount of Rs. 922, which pertains to expenses incurred on behalf of M/s. Shivam Exports, the Assessing Officer brought to the notice of the assessee that had he incurred the expenses on behalf of M/s. Shivam Exports, he was to be reimbursed fully for the same. The assessee also tried to explain by explaining that he has taken Rs. 2,000 from Shivam Exports and incurred expenses of Rs. 1,078 and t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9,61,000 Less : Withdrawal for two years 18,86,000 Investment in Swet raj Makan 8,19,000 6,15,14,000 Payable to D Naresh 1,26,50,000 Investment in con struction and furni ture of Dabhi Falia Factory 12,80,000 Payable to Shivam Exports 9,22,000 Payable to MR 2,92,22,000 Advances to workers 19,65,000 Payable to SD and KL on account of local rough 35,79,000 Sundry debtors for rough diamonds 49,45,000 Receivable from Mumbai and stock 8,07,57,000 Cash in hand 3,45,000 Rough stock, stock of Ghat and work-in-progress 1,28,15,000 10,78,87,000 10,78,87,000 For decoding the Assessing Officer has finally given his findings in paragraph 6.14 of his order and also narrated the similarities of this case with that of the case of Bhojraj Kishanchand v. CIT [1994] 209 ITR 500 of the hon'ble Bombay High Court in paragraph 6.15 and the similarities recorded are given therein. The relevant paragraph 6.14 and the similarities given in paragraph 6.15 read as under : "6.14 It is very pertinent to mention here that the fact that the figures on pages 4 and 5 of annexure B3 are actually in thousands, is amply corroborated by the other seized papers which show that after Diwali 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessee's representative to cross-examine him showed that the assessee had nothing to say in the matter and there was no merit whatsoever in the explanation. (6) In the present case also, there is a shift in the assessee's stand from time to time. (7) In the present case also, the story of four persons doing repairing work for ghanties and purchase of furniture instead of alleged repairs was put forward in the subsequent stages. Similarly, the claim that Swetraj building was owned by M/s. Bhawani Gems was put forward in the subsequent stages where as initially the assessee had claimed that he had taken the Swetraj building on rent from Shri Khadabhai. Similarly, the storey of taking Rs. 2,000 or Rs. 20,000 from M/s. Shivam Exports and incurring expenses of Rs. 1,038 was put forward in the subsequent stages. (8) The entries of seized papers are also not reflected in the assessee's regular books of account. (9) In the present case also, the so called 'vouchers' have been rejected by the undersigned as cooked up evidence. (10) In the present case, the assessee has not disowned the said trial balance." The Assessing Officer, in view of the above detailed discussion, has estima ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... therefore the impugned figure of 4961 cannot be taken as Rs. 4,96,100, i.e., in hundreds. However if the investments are taken in thousands of 4961 then only the figures will reconcile. Therefore, it becomes clear that the assessee had made investment in 284 ghanties and generators to the tune of Rs. 40 lakhs. As far as balance investment of Rs. 9,61,000 is concerned, it can be safely presumed to have been made in electric motors attached with ghantis (without which ghantis cannot run), lathe machines, (required for production), catories, round safe machine, dies and pinner machine and installation charges. In my opinion, there is no ostensible reason to repudiate the above findings as no machine can run without its essential accessories.' 6.14 Vide letter dated September 23, 1999, the assessee has stated that on page 4 of annexure B3, against the profit of Rs. 63,400, figure of 634 has been circled off (round mark). Thus, Rs. 63,400 which was already noted as 634 cannot be estimated by adding further digits. If the assessee's explanation in this regard is accepted, then it would mean that the figure of 10827 representing his receivables which was also circled off should be const ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the appellant in the books of M/s. Shivam Exports for the assessment year 1996-97 has been given. In this firm, the appellant had introduced capital of Rs. 40,000 only. Had the appellant been in a possession of so much income or cash, the appellant would have invested much more amount in the firm. On the basis of these arguments and other arguments, the appellant's representative has claimed that there is a case of adding any zeros against the notings on the paper. The courts have held that in the block assessment, estimated addition cannot be made. By adding two zeros, the unaccounted withdrawals for household expenses comes to Rs. 1 lakh for each of the brothers for two years. The addition made in the case of brother of the appellant on this account, is purely on estimate basis and is lessthan Rs. 2 lakhs. Thus, on decoding, by putting two zeros, there will not be a wide difference between the unaccounted household expenses of the appellant and his brother estimated and shown on pages 4 and 5 of annexure B3. Considering the cost of normal ghanti at Rs. 900 each and the cost of the old generator set at Rs. 50,000 each, the investment in ghanties and generators will work out to a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assets and these were only repair expenses. The appellant has not constructed Dabhi Falia factory and also has not made investment in Swetraj building. The appellant had not made investment in ghanties and generators. In such circumstances, such repair expenses, etc., have to be allowed as deduction out of the income to be computed by the Assessing Officer. In case, the appellant is found owning such assets, the appellant has to be allowed depreciation for the various years. To sum up, the Assessing Officer will take the income for the assessment years 1994-95 to 1996-97 by adding two zeros and such income will include the income shown for these years in the return. However, this will be subject to the fact that no portion of this income is taxed in the hands of Mr. Ghanshyam H. Shankar, brother of the appellant, on substantive basis. Out of this income, the Assessing Officer will allow deduction in respect of expenditure as per items 5, 6 and 7 of pages 4 and 5. In case, the Assessing Officer locates any of these unaccounted assets owned by the appellant, the Assessing Officer will restrict the deduction to the extent of depreciation on these assets for various years." Before g ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ani and DN as Dahyabhai Nanjibhai. The assessee claimed to be doing dalali of rejected diamonds and rates mentioned on these seized papers are recorded in rupee terms. The assessee claimed to be earning dalali income at the rate of 0.50 per cent. to 0.75 per cent. Before the Assessing Officer the assessee also claimed as regards to annexure B2 to be containing details of lot wise assorting of rough diamonds and claimed that this lot of rough diamonds was recorded in the regular books of account of the firm of M/s. Shivam Exports. It was also claimed that pages 10 and 11 of annexure B1 was the details of amount received of Rs. 1,24,406 from various angadias written as "Angadia Aavak". Similarly pages 1, 3, 14, 17, 18, 19, 20 and 22 of annexure B3 claimed to be containing the details of dalali income. The Assessing Officer in view of the seized papers and after scrutinising the same noted in his assessment order, as under: "7.9 A close scrutiny of the seized papers in question showed that the transactions were related to purchase of rough diamonds and not with rejection as alleged by the assessee for the following reasons. (a) The assessee had claimed that page 3 contained details ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Exports for the period April 1, 1996 to March 31, 1997, furnished by the assessee, it is seen that amount of Rs. 18,14,298 ($ 52818 at 34.35) has been credited on May 8, 1996 and on August 6, 1996 the assessee has made payment of Rs. 18,14,298 by cheque drawn on Bank of India, Mumbai. The same is reproduced below for sake of convenience. M/s. Super Gems April 1, 1996 to March 31, 1997 Dr. (Rs.) Cr. (Rs.) 8.5.96 By import SUO-298 ct 2201.39 US$ 52818 at 34.35 18,14,298 6.8.96 To bank 18,14,298 1.2.97 By import SUO-679 ct. 9672.56 US $ 208918 at 36 75,21,048 25.3.97 By import SUO-880 ct. 3000.06 US $ 124395 at 36.09 44,89,516 31.3.97 By exchange difference 6,268 31.3.97 To exchange difference 7,464 31.3.97 To closing balance 1,20,09,268 1,38,31,030 1,38,31,030 From the ledger account, it was also seen that M/s. Shivam Exports in addition to above imports in April, 1996 had also imported 9672.56 carats of rough diamond in February, 1997 and 3000.06 carats of rough diamond in March 97 from M/s. Super Gems." In view of the above discussion, the Assessing Officer decoded the documents annexures B1 and B2 by giving the following findings in paragraph 7.10, whic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urchased for price of Rs. 2,73,680. I am constrained to say that price of rough diamonds generally cannot be so low (Rs. 53 per carat) whereas if two zeros are put, then purchase price would correspond to price prevailing in market (Rs. 5300 per carat). (d) The various entries of 'angadia kharch'(expenses) and 'angadia aawak'(receipts) on pages 10 and 11 of annexure B1 clearly show that rough diamonds were regularly sold at Mumbai and receipts for above sales were received in cash from Bombay through angadia. As regards pages 1, 2, 3, and 4 of annexure B2 seized from the assessee's residence, it was claimed that various entries on the said pages related to assortment of rough diamonds out of particular quantity of lot of rough diamonds on specific date. However, the assessee's submissions are being rejected for the following reasons. (i) The entries on left hand side of pages 1, 2, 3 and 4 related to sale of rough diamonds and entries on right hand side of pages 1, 2, 3 and 4 related to purchase of rough diamonds. (ii) The carats and purchase/sale price on these pages have been simply added and grand total appears at the bottom of pages 1, 2, 3 and 4. Thus, we find that 5610.56 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nexure B1 $ 5235 35 = 1,83,225 To misc. expenses as per page 10 of annexure B1 11,20,000 To net profit 1,64,66,870 1,83,96,095 1,83,96,095 Accordingly, the undisclosed profits of Rs. 1,64,66,870 are added to income of the assessee for the assessment year 1997-98. The purchases of Rs. 11,86,20,905 are not recorded in the books of account. The sources of purchases of rough diamonds remain unexplained. The decision of the Kerala High Court (CIT v. G. Anandarajan [1997] 228 ITR 664) is relevant in the present context. In the said case, there was sale of commodity in excess of what was available as per books of account. When confronted, the assessee could not give proper explanation regarding sources of investment for purpose of excess stock sold. The High Court accordingly held that the amount of undisclosed investment was assessable as the assessee's income. To be fair and reasonable, since the assessee had capital of Rs.6,34,00,000 by Diwali 1995, it would be logical to presume that some of the investments were made out of these funds. Accordingly, the investment to the extent of Rs. 6,34,00,000 out of total investment of Rs. 11,86,20,905 is treated as explained subject to t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... entries are not shown by the M/s. Shivam Exports (e.g. page 29) the Assessing Officer has made appropriate addition in the case of M/s. Shivam Exports. The appellant in his statement dated September 24, 1997 made before the ADI in reply to question 22, has given the details about the pages in annexure B1. The Assessing Officer of M/s. Shivam Exports has treated the entries of annexure B1 as pertaining to M/s. Shivam Exports, while completing the assessment. On pages 12 to 16 of the assessment order of M/s. Shivam Exports (extract reproduced earlier), the Assessing Officer of M/s. Shivam Exports has held that the appellant was only an employee of M/s. Bhavani Gems before becoming a partner of M/s. Shivam Exports and did not have financial capacity to carry out business on such a large scale. On the papers seized, the name "Shivam" has been mentioned at a number of places. The Assessing Officer of M/s. Shivam Exports has taken the entries made on annexures B1, B2 and B3 (except for pages 4 and 5) as belonging to M/s. Shivam Exports only. In the written submission, the appellant's representative has claimed as under : 'On page 22 of the assessment order at paragraph 6.14 the Assessin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the order of the Commissioner of Income-tax (Appeals)-IV, Baroda in that case is also enclosed (pages 262 to 267). Similarly, in the other case of M/s. Bhadiadara Diamonds (order placed at pages 268 to 290) the profits were determined and not the undisclosed purchase or sales charged as undisclosed income. In the case of Shri Himmatbhhai K. Bhadiadara the assessee had accepted the contents of seized material and made disclosure of Rs.52,00,000 in his individual case during the course of search as well as during post search proceedings. The Assessing Officer after verification of entries in seized material and having regard to investigation adjudicated that the transactions belong to firm and not to its partner. The copy of the assessment order is enclosed (pages 291 to 297). The Commissioner of Income-tax (Appeals)-IV, Baroda, also confirmed that income belongs to firm and not to the partner. The copy of order of the Commissioner of Income-tax (Appeals)-IV, Baroda is enclosed (pages 298 to 305). Even in the case of the brother of the appellant, addition has been made on the basis of pages 4 and 5 of annexure B3, holding that all the other annexures are pertaining to M/s. Shivam ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iamond business. Learned counsel for the assessee admitted that during the course of search annexures B1, B2 and B3 were found and seized and admitted that the same belongs to the assessee where the assessee has noted few of the expenditure relating to business and receivables and payables. It was argued that first of all the Assessing Officer has erred in not accepting the evidence produced before him in regard to the entries made in the trial balance seized as annexure B3 pages 4 and 5. Learned counsel contended that the lower authorities have relied on various inapplicable decisions, the facts of which have no relation to the facts of the assessee and ignored the correct decisions relied on by the assessee. The decisions relied on by learned counsel for the assessee are that of the Income-tax Appellate Tribunal in Asst. CIT v. Karodilal Agarwal [1994] 50 TTJ (Jab) 393, M. V. Mathew v. ITO [1993] 46 TTJ (Coch) 353, ITO v. W. D. Estate P. Ltd. [1993] 46 TTJ (Bom) 143, CIT v. S. M. S. Investment Corp. Ltd. [1994] 207 ITR 364 (Raj), Rajpal Singh Ram Avtar Singh v. ITO [1991] 39 TTJ (Delhi) 544, Satishbhai Jayantilal Shah v. Asst. CIT [1996] 57 TTJ (Ahd) 424. Learned counsel further ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eals) be deleted. Learned counsel for the assessee argued that the Assessing Officer has not appreciated the facts and made addition of Rs. 1,84,380 for page 2 of annexure B2 in disregarding the details of lots and weight in carats of assortment of rough diamonds accepted by the Assessing Officer of M/s. Shivam Exports after due verification with import register manufacturing register, lot register, jangads and stock register. The addition is based on the accounted paper belonging to M/s. Shivam Exports for the purposes of high pitching the block assessment. It was argued that the Assessing Officer has considered the quantitative information of the paper as the financial information showing complete lack of knowledge of diamonds business and even understanding the contents of lot of diamond and simply proceeded on the paper found and just multiplying the figures appearing on the seized paper by applying three "zeros", i.e., in thousand. Learned counsel for the assessee further argued as regards to the addition of Rs. 1,76,600 for page 7 of annexure-B1, which as per the explanation in SOF generated the undisclosed income of Rs. 99,854. It was argued that the Assessing Officer has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... whereas for the period before November 1996 he has added all the purchases as the investment of the assessee and did not consider the sale proceeds for set off against purchases for the purpose of making the huge additions. He has also considered the figure of Rs. 12,44,06,000 against the purchases of Rs.11,86,20,905 for the purpose of working out profit of Rs. 1,64,66,870. Thus, sale proceeds of Rs. 12,44,06,000 assumed by the Assessing Officer has been utilised for the purpose of making the following three additions : (1) Net profit of Rs. 1,64,66,870 as per paragraph 7 of the assessment order. (2) Purchase as unexplained investment at Rs. 5,52,20,905. (3) Profit of Rs. 1,09,44,413 worked out as per paragraph 8 of the assessment order. Learned counsel for the assessee argued that the total double addition has been made at Rs. 8,26,32,188 against one figure of sales, whereas according to the observation of the Assessing Officer, the figure of net profit comes to Rs. 38,84,440, which has in fact done by the Assessing Officer of M/s. Shivam Exports. He further argued that the Assessing Officer has erred in decoding the figures in dollars as there is no evidence or even the mark ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... page 16 is the quotation from the foreign broker sent to M/s. Shivam Exports for the purpose of procuring the orders, if the M/s. Shivam Exports finds it suitable. According to the market trend prevalent in Antwerp, the brokers or the foreign suppliers send the quotation, the rate, quality, size of lot, i.e., quantity available and the name of supplier for the purpose of consideration of cost by the Indian buyers. No rough diamonds in response to this quotation was purchased on account of higher rates and lower quality. Accordingly, leaned counsel for the assessee argued that the Commissioner of Income-tax (Appeals) has rightly deleted the addition on second issue after considering the arguments of the assessee as well as the facts of the case. He further argued that the Commissioner of Income-tax (Appeals) on the first issue, in the given facts and circumstances, and in view of the above arguments has erred in partly sustaining the addition by applying two zeros, i.e., the figure of hundred to the figures of seized papers. The Commissioner of Income-tax (Appeals) has no basis while applying the figure of hundred. Accordingly, learned counsel for the assessee urged the Bench to de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1, B2 and B3 were seized from the assessee. On pages 4 and 5 of the loose paper file of this annexure B3, the assessee has worked out the position of his receipts or receivables, stock, payments/ payables as on Diwali, 1995. The contents of pages 4 and 5 are almost similar except small deviations. The assessee has explained the entries noted in pages 4 and 5 of annexure B3. The relevant entries in annexure B3 pages 4 and 5 are reproduced in paragraph 2 at pages 4 to 6 above. During the course of block assessment proceedings, a statement of the assessee was recorded on July 9, 1999, where he owned up these transactions of this seized annexure. The assessee also admitted that these transactions are not recorded in its books of account. As the detailed facts discussed above, while discussing the block assessment order, we have narrated that how the Assessing Officer has reached the conclusion that decoding of these documents are necessary. whether, really the decoding of transactions recorded in these documents are to be made as done by the lower authorities, or whether, we can decode the transactions as recorded in the seized documents annexure B3 pages 4 and 5 under the given facts ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ge 18 above. In view of these facts, now we have to discuss the case law cited by both the sides for application of law on these facts. Whether, in view of the above facts and circumstances, the seized papers annexure B1, B2, and B3 can be decoded by applying the figure of three "zeros" or two "zeros", i.e., in "thousand" or in "hundred", as interpreted by the lower authorities. Can by applying three zeros or two zeros, the Assessing Officer can estimate the income of the assessee while framing block assessment under Chapter XIV-B of the Act. The learned Departmental Representative as well as the Assessing Officer, in his block assessment order heavily relied on the case law of the hon'ble Bombay High Court in the case of Bhojraj Kishanchand [1994] 209 ITR 500 wherein the hon'ble High Court has held as under (page 506) : "This question was not referred to the High Court as desired by the assessee. On bare perusal of the question referred to this court, duly extracted in the opening part of this order, it is obvious to us that the question referred to this court is not a question of law but it is a pure question of fact. As soon as the hearing commenced, learned counsel for the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see in respect of the nature and source of the abovereferred amount was satisfactory or not. We are not at all satisfied with the submission made by learned counsel for the assessee that there was no material before the authorities below on the basis of which the findings referred to in the question set out in the opening part of this order could have been recorded. The reference court is not the first appellate court. In a reference under section 256 of the Income-tax Act, 1961, it is not open to the High Court to embark upon a reappraisal of the evidence. Even the question of sufficiency of evidence cannot be gone into in a reference made under section 256 of the Income-tax Act, 1961. The view taken by the Tribunal is clearly a reasonably possible view and is supported by the evidence on record. The Tribunal was entitled to reach its own conclusion while scrutinising the explanation of the assessee in respect of the above item of addition to the income of the assessee in respect of the above item of addition to the income of the assessee and draw inferences as deemed fit and reasonable. It is enough to state that the finding recorded by the Tribunal is not perverse and is support ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t documents are not forthcoming. However, it does not mean that the Assessing Officer can arrive at any figure without any basis by adopting an arbitrary method of calculation, in the present matter, A3, A4 and A6 nowhere records the turnover of the assessee as found by the Tribunal and yet on the wrong basis of the incoming and outgoing cash transactions, the Assessing Officer has arrived at the turnover. Moreover, the peak investment was Rs.40,14,806 for three months. However, there is no material seized to justify any figure to be included for a period earlier to the said period of three months. In the circumstances, the Tribunal has recorded a finding of fact and has held that the addition of Rs. 3.40 crores was totally unjustified. The entire finding of the Tribunal is based on the facts." The hon'ble Rajasthan High Court in the case of CIT v. S. M. S. Investment Corp. Ltd. [1994] 207 ITR 364 has considered the issue as regards to the interpretation of the document found during the course of search. The hon' ble High Court has drawn the presumption that the document belonged to the assessee in whose possession it was found and the document is to be read as true in accordance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... declined to pay the interest. The finding which has been recorded being a finding of fact on the basis of which the presumption stands rebutted, and the matter being covered by the decision given by this court dated April 13, 1988 (see CIT v. SMS Investment Corporation [1988] 173 ITR 393 (Raj)) we are of the opinion that the Income-tax Appellate Tribunal was justified in upholding the finding of the Commissioner of Income-tax (Appeals) that the reopening of the assessment under section 147(a) was not justified." Similarly, in the present case also the seized annexures B1, B2 and B3 are found from the possession of the assessee and these are to be read as true. It is pertinent to note that section 158BB(1) has been amended (with retrospective effect from July 1, 1995) to clarify that the block assessment of undisclosed income is to be based on evidence found in the search and material, or information gathered in post-search inquiries made on the basis of evidence found in the search. The hon'ble Madhya Pradesh High Court in the case of CIT v. Khushlal Chand Nirmal Kumar [2003] 263 ITR 77 has held that with regard to investment in construction, addition cannot be made in a block a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... concluded that where the Tribunal has come to a certain factual conclusion about the nature of the paper seized during the course of a search and has observed that it did contain certain materials which were sufficient to come to a conclusion about a cash payment having been made in addition to those made by cheques and drafts, such a conclusion is essentially a factual conclusion and the hon'ble High Court has declined to interfere with the same. The hon'ble High Court has held as under (page 299) : "Four appeals were filed by the four assessees. Appeal IT(SS) A. No. 32/Delhi of 1996 relates to the present appellant. During the course of search and seizure proceedings certain slips were found, which, the Assessing Officer concluded, contained details of payment beyond those which were made by cheques and drafts and were duly reflected in the books of account. The assessee's stand before the Tribunal was that the documents were 'dumb documents' which did not contain full details about the dates of payment and its contents were not corroborated by any material and could not be relied upon and made the basis of an addition. The Tribunal considered this aspect and observed that on c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Dr. S. Bharti [2002] 254 ITR 261, wherein the hon'ble Delhi High Court has held as under (page 262) : "The Revenue has failed to prove that the assessee had made any undisclosed investment in the properties named above. Thus, concurring with the findings given in the cases referred to by learned counsel, we hold that the Assessing Officer was not justified in making any addition on account of undisclosed investment in any of the five properties. Thus, the additions made by the Assessing Officer on account of undisclosed investment in the house properties are deleted. When the amount of Rs. 21 lakhs was found in the locker in the Bank of Maharashtra and further sum of Rs. 1.89 lakhs was fond in locker No. 362 in the Allahabad Bank, these amounts could be easily said to have come from professional receipts only. No other activities are being done by the assessee. Thus, the natural conclusion is that the cash amount found in these two lockers as well as the cash amount found during the course of search at the premises No. 18/49, East Patel Nagar, have come out of professional receipts only. As these amounts have already been considered and taken by the assessee while filing the re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gle simple house. In view of these facts, now we have to consider the case law of the hon'ble Bombay High Court in the case of CIT v. C. J. Shah and Co. [2000] 246 ITR 671 wherein the hon'ble High Court has clearly considered that in cases where material is detected after search and seizure operations are carried out, the Assessing Officer is required to determine the undisclosed income. In such cases additions are generally based on estimates. In matters of estimation some amount of latitude is required to be shown to the Assessing Officer particularly when relevant documents are not forthcoming. However, it does not mean that the Assessing Officer can arrive at any figure without any basis by adopting an arbitrary method of calculation. Similarly, the Assessing Officer has interpreted these documents relating to the second issue and decoded the same, based on the figures noted by the assessee on pages 1, 2, 3 and 29 of annexure B2 as well as pages 3, 4, 5, 6 and 9 of annexure B1. The Assessing Officer has stated that the assessee has made substantial unexplained investment in rough diamonds. As per him, the actual unexplained investment in rough diamonds for the year 1995 was fou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Officer as well as the Commissioner of Income-tax (Appeals) has wrongly interpreted the seized documents by applying "thousand" or "hundred", i.e., three "zeros" or two "zeros" to the figures of the seized documents without any basis. Accordingly, we delete the additions made by the Assessing Officer and partly confirmed by the Commissioner of Income-tax (Appeals). However, we are of the considered view that the addition to the extent of Rs. 6,34,000, is to be sustained reason being the seized document annexure B3 relating to the first issue are very clear that these are not recorded in the regular books of account of the assessee. Accordingly, we sustain the addition to the extent of Rs. 6,34,000 and balance is deleted. Accordingly, this first issue of the Revenue's appeal is dismissed and that of the assessee's appeal is partly allowed. As regards the second issue of the Revenue's appeal, the Commissioner of Income-tax (Appeals) has discussed the issue after considering the assessment order and the appellate orders of M/s. Shivam Exports. It is a clear finding of fact that annexures B1 and B2 and all entries made therein have been considered for taxation in the hands of M/s. Sh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ceipts and not payments. Similarly, the credit balance of outstanding has been worked out at 6.74 carats and that it is only for the purchase that the payments are outstanding. It is for the creditors for purchase whose balance arrears are credited in the accounts of purchasers. A reading of the above accounts shows that 58.74 (diamonds) the goods worth 41.08 was deposited and which was deducted by writing the work 'Jama' (credit) showing that there is purchase of 58.74 diamonds worth 41.08 have been credited with the party called 'M R'. In this background, the Commissioner of Income-tax (Appeals) rightly observed that the Assessing Officer ought to have considered the figure of 17.69 being the difference 59.74 and 31.08 as purchases, instead of sales. This would affect the working of the profit by reducing the profit worked out by the Assessing Officer double the amount of Rs. 17,69,000, because the figures 17.69 will be debited in the profit and loss account instead of being credited as sales done by the Assessing Officer. The Commissioner of Income-tax (Appeals) was also right in observing that the total of miscellaneous expenses 120 which has been multiplied by the Assessing Of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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