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TMI Blog2013 (5) TMI 501X X X X Extracts X X X X X X X X Extracts X X X X ..... es of the assessee whose salary was not found to be recorded in the seized documents, they have stated in their statements that 35 to 40 labourers were also working at the mines. The expenses relating to workers alongwith other expenses were found recorded in the seized documents but the other expenses recorded in the books of account were very meagre for the unrecorded sales. Therefore, CIT(A) was justified in observing that the G.P. Rate on the recorded sales in various years applied by the AO and net profit rate as claimed by the assessee were not correct for determining the undisclosed profit on the unrecorded sales & was fair and reasonable while applying the G.P. Rate at 20% on the undisclosed sales. CIT(A) was also justified in giving the set off to the undisclosed income of preceding year and the year under consideration for unrecorded debtors because nothing was brought on record to substantiate that undisclosed income was utilized by the assessee elsewhere other than the undisclosed / unrecorded trading activities. We therefore, do not see any merit in this appeal of the Department. Against revenue. - ITA Nos. 373,377 & 378 /JU/2010 - - - Dated:- 4-4-2013 - Shri H ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as ' the Act' in short) at the residential premises of the assessee on 7-9-2005 13-09-2005 and survey operations u/s 133A of the Act were conducted at the business premises of various group concerns. During those operations, cash, jewellery, valuables, books of account and incriminating documents were found and seized as per annexures to the panchnama dated 7-09-2005 13-09-2005. Thereafter, notice u/s 153A of the Act was issued to the assessee and in response to which the return of income was filed on 16-10-2006 declaring the same income which was declared in the original return of income. The assessment was completed by the Assessing Officer u/s 153A read with Section 143(3) of the Act on a total income of Rs. 15,74,150/-. During the course of search operations, the Assessing Officer observed that the documents/ diaries as per annexures A-2, A-3, A-5, A-6, A-9, A-23 and A-25 were found and seized vide panchnama dated 7-09-2005 at the residential premises of the assessee. He further observed that in those documents/ diaries, details of sales made during various financial years , some of which were written in coded form, were found and Shri Shanti Lal Paliwal, husband of the as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... annexure on 14/5/2001. For this figure, Shri Shanti Lai Paliwal has clearly mentioned in statement that it was in fact Rs.25200/- and the same was arrived by multiplying by Rs.1000/- or by mentioned three zeros with this figure. Similar type of illustration was again given by Shri Shanti Lal Paliwal regarding Anx.A.2, A.3 and A.5 in which details of production and labors payments by the contractors were kept by Shri Shanti Lai Paliwal. Out of these annexure, for Anx.A.3 page No. 1, Shri Shanti Lai explained the figure 9 as 9000 and also explained the figure 3.600 as 3600. By these examples, it is crystal clear that the method of decoding as explained by Shri Shanti Lal Paliwal was correct. In fact, he was the person who has written these figures in coded form and therefore, he had rightly narrated the method of decoding. By applying this decoding the figures arrived are actual figures. For instances, at page No. 2 of Anx.A.2, there are sales which comes to Rs.168000/- for the period 9/4/2003 to 21/4/2003. For the period of 12 days, sales of Rs.168000/- can be effected very easily which has been done in the real sense. In view of these facts, it is clear that the method of decoding ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e annexures were found with him because the payment of machine hiring charges was guaranteed by him. These facts were reconfirmed by him subsequently in response to Q.no.4 of his statement recorded on 26.09.2005. The appellant was not debiting any expenditure towards payment to contractors for removal of wastage etc. in her books of account. (c) The A.O. despite categorical statements of Shri Shanti Lai Paliwal, treated the sales of laffars and khandas as per annexures A-l, A-2, A-3, A-4, A-5, A-6, A-23 and A-25, (relevant for the assessment years 2003-04, 2004-05 and 2006- 07) as part of the appellant's undisclosed sales. He acted in a very unfair and unjust manner by accepting one part of Shri Shanti Lal Paliwal's statement which was favourable to the Revenue and rejecting the other part. It was pointed out that the courts including apex court have repeatedly held that being a quasi-judicial authority, the A.O. cannot act in an arbitrary and capricious manner. He is required to act in a fair and just manner to give justice to the assessee. He cannot pick and choose from the evidence and facts placed before him and use them selectively to the detriment of the assessee. (d) The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the rate of profit on which undisclosed profit on sale was required to be determined. Therefore, the determination of undisclosed profit from unaccounted sales on the basis of gross profit rate was not proper. (iv) However, as the unaccounted expenses, although fairly wide spread, were not complete in all respect and did not cover all the years forming part of block assessment, it was essential to estimate undisclosed profit from unaccounted sales during block period. Under the facts and circumstances in the appellant's case, the most appropriate method of determining undisclosed profit on unaccounted sales would be the net profit rate because it would take care of various unaccounted expenses not considered in determination of gross profit. (e) The A.R. relied on the judgment of Hon'ble Madhya Pradesh High Court in the case of C.I.T. vs. Bal Chand Ajit Kumar (263 ITR 610), Hon'ble Gujarat High Court in the case of C.I.T. vs. President Industries, (258 ITR654)and Hon'ble Indore Bench of Income-tax Appellate Tribunal in the case of Eagle Seeds Ltd. vs. A.C.I.T. (100 ITD 301) for the proposition that only net profit rate can be applied on the unaccounted sales to arrive at the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... income for the assessment year 2000-01 became the source of funds available with the assessee for investment in undisclosed assets including debtors since no undisclosed assets except sundry debtors were found in the assessment year 2000-01. The ld. CIT(A) was of the view that so long as the available accumulated undisclosed income of the assessee for the earlier years as increased by the undisclosed profit from unaccounted sales was more than the undisclosed debtors of that year, no addition could be made on account of undisclosed debtors in a particular assessment year. The ld. CIT(A) held that undisclosed income declared by the assessee and computed by the Revenue was available to the assessee for the purpose of explaining the other additions / investments and the same would also be available to the assessee for set off purposes in respect of the agreed or other additions. Reliance was placed on the following case laws. 1. S. Kuppuswami Mudaliar vs CIT, 51 ITR 757 (Mad) 2. Anantharam Veerasinghaiah Co. vs CIT,123 ITR 457 (SC) 3. CIT vs Prem Chand Jain, 189 ITR 230 (P H) 4. CIT vs Tyaramal Balchand, 163 ITR 453 (Raj.) The ld. CIT(A) further observed that the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xpenses were ignored, it would result in determination of undisclosed income of the assessee dehors the seized material and caused great injustice to the assessee, the ld. CIT(A) was of the view that for the purpose of computing undisclosed profit on unaccounted sales, G.P. Rate was to be applied unless there was an evidence to indicate that expenses were incurred outside the books of account to effect those unaccounted sales but in the absence of such evidence, it has to be presumed that the expenses as shown in the books of account were sufficient to effect unaccounted sales also. But at the same time, if there was any evidences that unaccounted expenses were incurred, the same had to be considered to arrive at the correct figure of undisclosed profit on unrecorded sales. The ld. CIT(A) categorically stated that photocopies of the relevant seized material filed by the assessee as per Annexure C to her letter dated 28-01-2010, revealed that various expenses on petrol, diesel, payment to driver, and machine helper, labour charges, staff welfare expenses etc. had been shown and those did not pertain to assessment year under consideration but the documents indicated that various expe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed that the ld. CIT(A) applied the profit rate which was less than the profit rate declared by the assessee in the books of account. Therefore, the ld. CIT(A) was not justified in reducing the addition made by the Assessing Officer. It was further stated that since the sundry debtors were appearing in the seized documents, the addition was rightly made by the Assessing Officer and the ld. CIT(A) was not justified in allowing set off of sundry debtors against undisclosed income of the preceding year and undisclosed profit determined by him for the year under consideration. 3.8 In his rival submissions, the ld. counsel for the assessee reiterated the submissions made before the authorities below and supported the impugned order passed by the ld. CIT(A). 3.9 We have considered the submissions of both the parties and gone through the materials available on record. In the instant case, it is noticed that the Assessing Officer while determining the profit on undisclosed income of the assessee clubbed the undisclosed sales recorded in the books of account and also applied the average G.P. Rate of six years where the G.P. Rate declared was less than average G.P. Rate and where reverse ..... 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