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TMI Blog2011 (3) TMI 922X X X X Extracts X X X X X X X X Extracts X X X X ..... e was found from the seized papers. Moreover the market committee rules cannot be treated as evidence found as a result of search. - in the absence of any evidence there was no justification for making separate addition for the estimated undisclosed investments, Cross Objection of the assessee allowed. - 39 & 40 (AHD.) OF 2008 - - - Dated:- 25-3-2011 - BHAVNESH SAINI, D.C.AGRAWAL, JJ. Shelley Jindal for the Appellant. Vijay Ranjan for the Respondent. ORDER Bhavnesh Saini, Judicial Member. This order shall dispose of both the departmental appeals and the cross objection of the assessee. Both the parties submitted that facts and issues are same in both the appeals. Therefore, both were heard together and disposed of accordingly. IT (SS) A No.39/Ahd./2008 C.O. No.83/Ahd./2009 2. The departmental appeal and the cross objection of the assessee are directed against the order of Learned Commissioner of Income Tax (Appeals)-III, Ahmedabad dated 5th December, 2007 for the above block period. The revenue challenged the order of the learned CIT (A) in deleting the addition of Rs.37,84,360/- on account of undisclosed investment. The assessee in the cross objectio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bjections on several grounds to the assumption/working of the A O. The A O has produced the gist of his working/assumption and of the objections of the assessee from page 8 onward of the assessment order. The A O has reproduced the submissions of the assessee. Broadly, it has been submitted to the A O that the deals with the cultivators were carried out through bids/auction in the open market and were based on mutual trust. The payment to these cultivators was generally made later as per the trade practice, once deals were finalized. Evidence of belated payments was found in the seized record and had been pointed out to the A O also. Thus, the basic premise of the A O that the payments had been made on the same date was invalid and this lacuna alone made his computation of the undisclosed investment, void ab initio. Further the purchases were made on credit on the strength of the good will and long term personal and business association of the assessee, apart from being the trade practice. Further, the A O had chosen invalid data to prepare the peak balance. The seized material BS-42, 45 and 47 was relevant for the period between 18-10-1998 to 27-10-1999 and the seized annexure BS- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... emporaneous evidence in support of the plea that there was a time lag between the sale/purchases and receipt/payment of proceeds. In response, it was emphasized by the assessee that this evidence was contained in annexure BS-44. The A O however, noted that since the turnover over Rs.2.95 Crores has not been entered in regular books, the circumstantial evidence was of great important. The A O expressed it in the following words: "Under these circumstances, I am constrained to judge the facts in a more rational and judicious manner than to restrict myself to the closed walls of either some preferred pieces of evidences selected by the assessee or the pleas of the assessee harping on the evidences not found." The A O also held that the unaccounted income of Rs.7.58 earned from understated interest and in the form of unaccounted debtors of Rs.6.81 lacs was invested in the unaccounted trade stating "which fact is also evident from the continuity of the notings in the papers contained in annexure BS-44". Hence, he did not make separate additions for these two amounts. As the assessee had already disclosed the income of Rs.35 lacs the net addition made by the A O came to be Rs.39.32 l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ade of the assessee. On the same reasoning, the unaccounted capital investment in the case of own trade of Rs.99 lacs would be about Rs. 10 lacs. This capital was already available to the assessee from the past disclosures, income from current trade, profits already shown apart from the disclosure of Rs.35 lacs made in the block return etc. 5. The learned CIT (A) considering the findings of the A O in the light of the submissions of the assessee restricted the addition to Rs.1,48 lacs and deleted the balance addition. His findings are reproduced as under: "7. The contentions were carefully considered. It has been accepted by the A O and the appellant that the total unaccounted turnover comprised of commission trade of Rs.1.96 crores and own trading of Rs.99.38 lakhs. In case of commission trading, the A. O. had presumed, on the basis of marketing laws, that payments were made /received simultaneously. The appellant has however pointed out that the trade practice, as commission agent, allowed for payment within grace period ranging from 15 to 30 days and when the sales were realized and/or there was adequate cash balance. Instances of such payments after the date of transaction ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ition of Rs.24,30,284/- on account of undisclosed investment. 8. The facts of the case are that the assessee, a trader and commission agent of spices at Unjha was subjected to survey u/s 133A of the IT Act, on 6-6-2002 during the course of action u/s 132 of the IT Act in case of certain traders of spices. The A O, on the basis of documents seized from one such trader namely, M/s. S. N. Traders and in the premises of Shri Dashrathbhai, father of the appellant felt that provisions of section 158BD of the IT Act were attracted in case of the assessee and accordingly served notice, after recording satisfaction. In response, the assessee filed block return on 20-08-2004 at the disclosed income of Rs.25 lacs. The A O computed the unaccounted turnover of the assessee from the seized annexure/regular books of accounts during the block period as under: Year Sales F. Y. Commission Sales General sales Total sales 2000-01 39,25,855/- 43,98,373/- 83,24,228/- 2001-02 93,65,232/- 2,91,21,496/- 3,84,86,728/- 2002-03 - 89,49,005/- 89,49,005/- Total 1329 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ears. The A O thereafter, sought to compute the unaccounted capital in the manner, narrated on page 8 of the assessment order. In this computation of the unaccounted capital estimated by him at Rs.24,30,282/-, the A O noted that the profits earned during this period have been set of but that this set off will not be available if the assessee retracted form his declared undisclosed income of Rs.25 lacs and/or if the declared income was modified consequent to any subsequent proceedings. The A O as per page 8, felt that unaccounted capital deployed in financial year 2000-01 was Rs.4,39,837 and Rs.19,90,445/-in assessment year 2001-02 and Rs.8,95,900/- was the capital need to be deployed for financial year 2002-03 against which he adjusted the capital available. Thus, the A O held that the assessee has deployed unaccounted capital of Rs. 24.30 lacs in effecting the unaccounted turnover. The A O further calculated from the seized records the commission trade as under: Assessment year Total unaccounted commission trade 2000-01 Rs.39,25,855/- 2001-02 Rs.93,65,232/- The A O also calculated from the records undisclosed profits of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fit estimated at Rs.1,87,941/- the correct figure was Rs.59,612/- as rectified vide order dated 19-4-2006 u/s 154 of the IT Act. 9. Before the learned CIT (A) it was submitted that there was no dispute regarding the quantum of the undisclosed trade of the sale of the spices and working as a commission agent, The assessee has estimated GP/Net profit on the unaccounted sales, only as per declare GP/NP. The declared undisclosed income of Rs.25 lacs was adequate enough to cover the undisclosed income as was shown in the letter dated 6-5-2005 submitted to the A O. The investment/expenditure were made out of the income generated/funds available including that of the earlier firm/disclosed undisclosed income of self and the firm totalling to Rs. 60 lacs and that the A O was not correct in estimating the capital investment at 10%. Thus, the undisclosed own turnover in assessment year 20001-02 was Rs.43.98 lacs and it was unjust to estimate the initial capital at Rs.42.44 lacs. It was explained in the letter dated 17-5-2005 to the A O that as to how and why funds of over Rs.15 lacs of the erstwhile firm M/s. Sailesh Nathalal Patel were also available for business and that these funds were ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... closed income. It is pointed out that the seized material and copy of balance sheet itself could have revealed this fact. It was further submitted that the action of the A O in computing the commission income at Rs.2,82,401/- against the declared commission of Rs.1.99 lacs was also not justified. The A O had computed the same in the following manner: Commission Rs.1,97,242/- From market fees Rs. 65,669/- Interest Rs. 19,460/- Rs.2,82,401/- It was submitted that firstly, there was no requirement of capital in the business of commission agent and no need for estimating interest. The money, as soon as received from the buyer, was transferred to the supplied of the goods after deducting the commission at the market yard rats. The market fee was to be collected from the buyer and was not part of commission. 10. The learned CIT (A) considering the submissions of the assessee deleted the addition and allowed the ground of appeal. His findings in Para 13 of the impugned order are reproduced as under: "13. The contentions were considered carefully. It has been argued by the ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... period as well. No recorded evidence was found indicating the deployment of unaccounted capital during the block period and / or of the capital deployment of unaccounted capital during the block period and/or of the capital deployment being @10% of the unaccounted turnover in ever year. In absence of any such evidence and the fact that there was availability of capital with the appellant/the family firm apart from the rotation of funds/disclosure made by the firm and the appellant, there was no justification for making separate addition for the estimated undisclosed investment of Rs.24,30,282/-. As such the addition is deleted and the related ground of appeal is allowed." 11. The learned Counsel for the assessee reiterated the submissions made before authorities below. He has also filed written submission. He has submitted that the issue is common in both the appeals, whether unaccounted turnover discovered during search admitted by the assessees and disclosed in the return for the block period would necessarily entail estimated addition on account of undisclosed investment for such unaccounted turnover without any evidence discovered during the search or material gathered as a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or investment is required. 12. On the other hand, learned D R relied upon the order of the A O and submitted that peak was worked out by the A O as per the seized papers and for carrying out undisclosed transactions, undisclosed investment is required. He has submitted that the A O on proper appreciation of seized material correctly made the additions which learned CIT (A) should not have deleted. Learned D R submitted that during the course of search documents were found which were confronted to the assessee and the assessee admitted undisclosed investments in the names of the partners. Therefore, addition was rightly made by the A O and further assessee admitted the turnover on the basis of the same seized material. Therefore, learned CIT (A) should not have deleted the addition. 13. We have considered rival submissions and perused the findings of the authorities below. 13.1 Chapter XIV-B starts with sec. 158B and provides the definition of "block period" and "undisclosed income". "Undisclosed income" is relevant in this case, which is reproduced below as amended by Finance Act, 2002 w.e.f. 1.7.1995: S.158B(b) "undisclosed income" includes any money, bullion, jewellery o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... books of account and other documents maintained in the normal course on or before the date of the search or requisition where such entries result in computation of loss for any previous year falling in the block period; or (B) On the basis of entries as recorded in the books of account and other documents maintained in the normal course on or before the date of the search or requisition where such income does not exceed the maximum amount not chargeable to tax for any previous year falling in the block period; (ca) where the due date for filing a return of income has expired, but no return of income has been filed, as nil, in cases not falling under clause (c);] (d) where the previous year has not ended or the date of filing the return of income under sub-section (1) of sec. 139 has not expired, on the basis of entries relating to such income or transactions as recorded in the books of account and other documents maintained in the normal course on or before the date of the search or requisition relating to such previous years; (e) where any order of settlement has been made under sub-section(4) of sec. 245D, on the basis of such order; (f) where an assessment of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e provisions, are of the opinion that even if there is an amendment in the above sections, the scheme or purpose of enacting Chapter XIV-B has not undergone a major change in the sense that the block assessment pertaining to a number of years remains distinct from assessment u/s 143(3) pertaining to a single AY. The block assessment could be made in respect of undisclosed income if during the block period undisclosed income is recovered as a result of evidence found during the course of search and not as a result of other documents or material which came to the possession of the AO subsequent to the conclusion of search operation unless and until such material or document is relatable to such evidence recovered during the course of the search. The amended definition of sec. 158BB as mentioned above clearly suggests that some evidence is to be found as a result of search operation and it is only thereafter that the remaining part of the provisions come into play and that too the remaining evidence must be relatable to the evidence recovered during the course of the search. The other amendment in sec. 158B(b) which is reproduced above has enlarged the meaning of the term "undisclosed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The assessee had filed the confirmation letter of loan from the company including income tax file numbers of the creditor. The income-tax authority held that the said loan was a fictitious one and was to be considered as undisclosed income of the assessee during the period under consideration. On the question whether the AO was entitled to question the loan amount which was the subject matter of regular assessment, while making block assessment. Held, that the AO was not entitled to question in block assessment the loan which was a subject matter of the regular assessment. The AO was wrong in holding that the said sum could be taxed in block assessment although the same featured in the regular books of account. When the loan creditor was an assessee and in whose assessment the loan advanced had been accepted by the Revenue, the AO was wrong in holding that the assessee was liable to pay tax on that loan money taken from the assessee." 13.5 In case of CIT v. Ravi Kant Jain [2001] 250 ITR 141/117 Taxman 28 (Delhi), the Hon'ble Delhi High Court observed: "Block assessment under Chapter XIV-B of the IT Act, 1961, is not intended to be a substitute for regular assessment. Its sco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed u/s 158B(b). It was further held that "the addition u/s 158B(b) must be made on concrete material." 13.8 In the case of P.K. Ganeshwar v. Dy.CIT [2002] 80 ITD 429 (Chennai), ITAT, Chennai Bench "C" Held - "Sec. 158BA of the IT Act, 1961 - Block assessment search cases - Assessment of undisclosed income as a result of search - Whether, where undisclosed income is found not on basis of evidence found as a result of search but on investigation and inquiries made following search, such income could be included as undisclosed income of block period computed under Chapter IV - Held, no - Whether Chapter XIV-B is a special provision for assessment of undisclosed income found as a result of search only and there is no scope for considering items that could be considered under regular assessment - Held, yes." 13.9 Hon'ble Madras High Court in the case of CIT v. P. K. Ganeshwar [2009] 308 ITR 124 held that since the information relating to the fixed deposits in fictitious names was not found during the course of search, it could not be used to arrive at the undisclosed income under the block assessment u/s 158BD of the IT Act. 13.10 Hon'ble Calcutta High Court in the case of CIT v ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... disclosed in the regular return of income, the AO could not resort to block assessment proceedings to go into its genuineness and subject it to a higher rate of tax. The addition of Rs.55 lakhs was not justified." 13.12 Hon'ble MP High Court in the case of Khushlal Chand Nirmal Kumar (supra) held: "Held, that a perusal of the unamended and amended provisions and the circular of the Central Board of Direct Taxes would make it clear that there had been no specific effect that the amendment effected to sec. 158BB in the Finance Act, 2002, with effect from July 1, 1995, would be applicable to the instant case as the block period covered ten years commencing 1986 to 1996. Emphasis had been given to the fact that the evidence must have been found during search and only thereafter the question of gathering any material information would arise based on the search inquiry. Admittedly, during the search in the premises of the assessee nothing was found with regard to the investment in the house. The contention that the valuation report of the Department Valuation Officer was obtained and was confronted to the assessee but he was not able to give any explanation and therefore it should be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he light of the above legal propositions it is clear that no recorded evidence was found during search indicating the deployment of unaccounted investment/capital during the block period. Learned D R did not point towards any evidence or material found or recovered during the course of search to prove that the assessee made investment in unaccounted transaction/business. Profit is already declared on the basis of the seized material. The documents seized showed/indicated assessees have earned undisclosed income on account of unrecorded turnover in the books of accounts which is already declared in the return for the block period. The A O thus made the additions on account of undisclosed investments only on presumptions. Further, no capital/investment is required for unaccounted commission and in the cases of the assessees bulk was commission sales. It was available to the assessee apart from opening balances of the last year's available with them. The peak theory worked out by the A O for the purpose of making addition on account of undisclosed investments was not valid because the seized paper BS-44 showed that there is a trade practice as a commission agent to allow for a payment ..... X X X X Extracts X X X X X X X X Extracts X X X X
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