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TMI Blog2003 (5) TMI 521X X X X Extracts X X X X X X X X Extracts X X X X ..... making an addition of ₹ 10,71,000 as undisclosed income on account of the alleged undervaluation of closing stock as on 31st March, 1995, on wholly illegal, erroneous and untenable grounds. (b) The learned Dy. CIT has erred in law and on the facts and circumstances of the case in observing that the appellant has not followed FIFO system or the average purchase price system for valuation of the closing stock, on wholly illegal, erroneous and untenable grounds. (c) Without prejudice to ground Nos. 3(a) and (b), the learned Dy. CIT has erred in law and on the facts and circumstances of the case in rejecting the appellant's alternate plea that assuming the closing stock as on 31st March, 1995, was to be increased by ₹ 10,71,000, the value of the opening stock as on 1st April, 1995, should consequently be increased by the same amount which would have the effect of reducing the income for the period from 1st April 1995 to 29th Sept., 1995 (falling within the block period), by the same amount. 4. The learned Dy. CIT has erred in law and on the facts and circumstances of the case in making an addition of ₹ 11,40,000 on account of the alleged unaccounte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g an addition of a sum of ₹ 15,000 on account of the alleged unaccounted/unexplained advance under s. 69 of the IT Act, on wholly illegal, erroneous and untenable grounds. 13. The learned Dy. CIT has erred in law and on the facts and circumstances of the case in making an addition of a sum of ₹ 35,000 on account of the alleged payment made to Shri Surinder Gulati of M/s Architect Allied, Faridabad, in case under s. 69/69C of the IT Act, on wholly illegal, erroneous and untenable grounds. 2. Grounds Nos. 14 and 15 are general in nature and in any case the learned counsel for the appellant did not make any submissions on the said grounds and these would, therefore, stand rejected. 3. Ground Nos. 1 and 2 are inter-connected having the same set of facts and to summarize these, we go to the order of the AO wherein the following facts are noted : The assessee-company purchased two industrial plots at DLF Industrial Estate-I, Faridabad, the first bearing No. 54-A and the other No. 4. The first was purchased for a consideration of ₹ 9.50 lakhs on 18th March, 1995, but there was an agreement to purchase between the parties, which was struck on 14th Oct., 199 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on either side. It is no useful material for rational belief as to suppression of real consideration that passed in a transaction. Further, as observed by the Supreme Court in the case of C.B. Gautam vs. Union of India Ors. (1992) 108 CTR (SC) 304 r/w (1993) 110 CTR (SC) 179 : (1993) 199 ITR 530 (SC), in a given transaction, there might be several bona fide considerations, which might induce a seller to sell his immovable property at less than what might be considered to be the fair market value. Therefore, the question is not what the market value is, the question is whether the assessee has paid a higher price than recorded in the sale deed. Unless that fact is established and there is material for a conclusion that the assessee did not disclose the full consideration, no addition can be made on the basis of a valuation report. It is further submitted that Hon'ble Supreme Court, in the case of K.P. Varghese vs. ITO Anr. (1981) 24 CTR (SC) 358 : (1981) 131 ITR 597 (SC) has held that burden of proving understatement or concealment of consideration rests on the Revenue. No document or paper has been found by the Department at the time of search to prove that we have p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aluer had not given any details about any market survey having been carried out to support the valuations and in contradistinction thereto the DVO had given the instances as also the grounds on which the valuation had been arrived at. According to the AO the report of the DVO was, therefore, to be relied upon and not the valuation report submitted by the assessee. 8. On the basis of the aforesaid facts the AO concluded that the difference between the disclosed amount and the valuations accorded to the properties in the report of the DVO represented the on money which had been passed on to the seller for the purchase of the properties in question. According to the AO most of the properties were being sold with a considerable amount of 'on money' on them. This, according to him, was matter of common knowledge and market practice, which could not be denied. In concluding, the AO made an addition of ₹ 22.99 lakhs, i.e., ₹ 12.13 lakhs + ₹ 10.86 lakhs as the undisclosed income of the assessee and the deeming provisions of s. 69 were applied. This addition, as already stated, is the subject-matter of the first two grounds before the Tribunal. 9. The lea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... counsel placed reliance on P.K. Ganeshwar vs. Dy. CIT (2002) 80 ITD 429 (Chennai), but highlighting at the same time that it was only the amendment carried out in sub-s. (1) of s. 158BB by the Finance Act, 2002, w.e.f. 1st June, 2002, that the evidence gathered in post-search enquiries could be made the basis for proceeding with a block assessment. 13. Reliance was also placed on C.M. Mehta vs. Asstt. CIT (1999) 65 TTJ (Pune) 327; Digvijay Chemicals Ltd. vs. Asstt. CIT (2000) 68 TTJ (Del) 280; Samrat Beer Bar vs. Asstt. CIT (2000) 69 TTJ (Pune)(TM) 113 : (2000) 251 ITR 1 (Pune)(TM)(AT) and Patel Rajesh Kumar Kantilal Co. vs. Asstt. CIT (1998) 62 TTJ (Ahd) 189 for the proposition that undisclosed income in a block assessment had to be computed on the basis of the evidence found as a result of the search, additions based on suspicion and surmises are not covered in a block assessment and such assessment has to be based on concrete material, the AO cannot proceed by presuming that there must be some other material or evidence, which was not found during the course of the search. 14. For the proposition that details and income which are already recorded in the books of accounts ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nvestment in the two properties stands reflected in the books of accounts and we may refer to p. 104 which contains in details of the investment in the two plots which comprises of the cost, the stamp duty and the other miscellaneous charges. The total investment in two plots, i.e., ₹ 19,16,148 finds a place in the assessee's audited accounts and a reference may be made to p. 173 which is the schedule of fixed assets as also the capital work-in-progress for the previous year ending 31st March, 1995, with corresponding figures for asst. yr. 1994-95 also reflected therein. As rightly contended by the learned counsel and once again not challenged on behalf of the Revenue, the regular assessment under s. 143(3) came to be made on 31st Jan., 1997, and the search took place much earlier i.e., on 29th Sept., 1995. In other words, the AO in the regular assessment made under s. 143(3) did not choose to make any addition on account of the investment in the two plots. 19. Coming to the legal position, the learned counsel cited before us apt and relevant case law, which we have already summarized in the earlier part of the present order. Not finding it necessary to say anything on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o the period 1994-95 the value of the stock as on 31st March, 1995, worked out as follows : (i) Raw material 1,09,77,000 (ii) Work-in-progress 26,95,000 (iii) Finished goods 17,07,000 1,53,79,000 22. According to the AO the aforesaid figures reflected undervaluation of stock to the tune of ₹ 10.71 lakhs as on 31st March, 1995, and this according to the AO meant suppression of profit by the same amount. On being asked as to why the sum in question be not treated as unaccounted income for the block period the assessee by means of a written explanation submitted as under : The rate applied for wire rods was wrongly taken at ₹ 24.37 per kg. and ₹ 24.24 per kg. as against 21.96 per kg. As the discrepancy was detected in checking at the time of audit of final accounts by the auditors' representatives, the same were corrected and incorporated in audited balance sheet. The corrected statement is also amongst the seized papers (see Annexure 17, pp. 16 and 19 working sheets of sterling tools). The ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e system and the arbitrary valuation method, which had been adopted was, therefore, liable to be rejected. 25. The AO further observed that most of the raw material had already been converted into work-in-progress and while taking the valuation at the end of the accounting period the assessee had taken the value of work-in-progress at cost price instead of taking the proper valuation of the work-in-progress. Considering the assessee's explanation to be of a general nature, the AO treated the same to be unsatisfactory and vis-a-vis the assessee's submission before the CIT during the course of hearing on 27th Sept., 1996, that the assessee may be allowed the benefit of the revised opening stock as on 1st April, 1995, the AO observed that this issue could not be considered in the block assessment and that the assessee was free to file a revised return for asst. yr. 1996-97 if it so chose. In the final analysis, the AO made the addition to the tune of ₹ 10.71 lakhs as undisclosed incomes. 26. In respect of the aforesaid grounds the initial submission of the learned counsel was that there was no 'difference' in the quantity found and the difference was only i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ity to the assessee. In case what the assessee says turns out to be correct and it is in fact not a case of two separate valuations with a view to hoodwink the Department but a legitimate and proper correction of one valuation by a second working, then apparently no addition would be required to be made. The learned counsel has categorically stated and which has not been countered by the learned Departmental Representative that the 'difference' is only on account of the valuation and in so far as the items/quantity is concerned, there is no dispute between the parties. The AO is also required to reconsider the assessee's submission pertaining to the benefit of a revised opening stock as on 1st April, 1995, being given inasmuch as we are of the view that in a block assessment where a number of years are involved, in case an addition is made by the AO in respect of the valuation of the closing stock for any one year falling in the block period, then obviously a figure of revised opening stock has to be adopted for the subsequent assessment year. One cannot be telling the assessee as the AO has done that in so far as the block assessment is concerned, the addition is made, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ade on the same day and the search took place on 29th Sept., 1995. In support of the aforesaid submissions, the assessee filed copies of the lorry receipts pertaining to the dispatch of goods by M/s JCT Ltd., dharam kanta Slip etc. Further, according to the assessee material weighing 43.910 M.T. supplied by three other parties and received on 28th Sept., 1995, was not entered in the register on the same day. A similar explanation was given in respect of goods weighing 28.825 M.T. received from two parties on 28th Sept., 1995, but no entered in the excise register on the same day. 33. As per the assessment order, the Asstt. Director of IT considered the aforesaid explanation furnished and made enquiries from some of the parties and who in turn confirmed the transactions as stated by Shri M.L. Aggarwal. In the light of the aforesaid credit was given to the tune of 98.095 M.T. and the value of the excess stock was worked out at ₹ 11,99,220. This was proposed to be treated as unaccounted investment of the assessee, but the assessee in turn pleaded that the stock-taking was done on estimate basis and the visual estimate could not be considered as the actual weight of the stoc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o actual weighment of the stock and everything had been worked out by approximations. At p. 143 there is a reference to the generation of scrap and ultimately the difference, which remains is indicated at 14.034 M.T. and the stand of the assessee is that the physical inventory taken by the search party included dust, floor sweepings, packing material, scrap and other types of waste material and the value thereof would be quite negligible. 37. In our opinion, this issue as in the earlier ground would be required to be restored back to the file of the AO for the limited purpose of examining the two main submissions of the assessee, the first pertaining to the calculation being carried out by the search party without actual weighment and on approximations and secondly, the question of scrap generated. We, however, note that even as per assessee's own calculation at p. 143 of the paper book there is still a difference of 14.034 M.T. In other words, the facts and circumstances of the case do warrant an addition, but the quantum thereof can be decided by the AO to whose file we are restoring the matter back for re-adjudication. 38. It may, however, be not out of place to mentio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... issions, we are of the view that the facts and circumstances of the case do justify an addition, but considering the submissions made by the learned counsel about the percentage as also taking into account the fact that the difference is somewhat of a nominal nature taking into account the magnitude of business carried on by the assessee as also the quantum of material involved, we feel that an addition of ₹ 25,000 would be fair and reasonable as against the two additions aggregating ₹ 38,000. We order accordingly. 43. As regards ground No. 6, the addition pertains to Annexure 2 of the loose paper bundle seized from the residence of Shri M.L. Aggarwal, M.D. of the assessee, at C-606, New Friends Colony, New Delhi. This revealed expenditure on different dates as also advances to certain parties. The assessee was to explain whether these outgoings were accounted for or not and in response thereto he filed reply dt. 16th Sept., 1996, wherein the following submissions were made : Annexure 2 of the materials seized from C-606, New Friends Colony, New Delhi. Pages 1 to 108 : These are rough papers written by some of our employee(s) mentioning therein expenses inc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... paper book was that the peak amount be added and which was ₹ 16,215. According to him this aspect of the matter was probably overlooked by the AO while making the assessment. The learned Departmental Representative supported the order of the AO. 48. Considering the aforesaid submissions as also the quantum involved, we restore the matter back to the file of the AO asking him to examine p. 148 as also take into account the assessee's submission pertaining to the taxability of the peak amount and not an addition to the tune of ₹ 1,06,046. 49. The facts pertaining to ground No. 8 are that one of the documents seized from 5-A, DLF Industrial Estate, Faridabad, reflected an amount of ₹ 31,000 given on 21st July, 1994, to one Billu . On being asked to explain, the assessee in a written reply stated that the amount in question was given to one Shri R.K. Aggarwal (family name Billu ) on temporary basis by Shri M.L. Aggarwal, the managing director of the company out of the cash balance in the books of accounts. The further explanation was that subsequently the amount had been recovered. This explanation did not satisfy the AO as according to him the amount had ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f this issue is restored back to the file of the AO asking him to carry out the necessary verification about the correct date and thereafter deal with the matter on merits. 55. Coming to ground No. 10, the reference was once again to a document found during the course of search and which reflected a payment to the tune of ₹ 40,000. The assessee by means of a written communication explained that it purchased a machine from M/s K.B. Machine Industry, Amritsar, for a sum of ₹ 2,19,336 against which a payment of ₹ 1,79,336 was made and the debit balance in their account was adjusted through said purchases. This explanation did not satisfy the AO, who proceeded to treat the sum of ₹ 40,000 as the additional unaccounted income of the assessee. 56. During the course of the hearing the learned counsel for the appellant invited attention to pp. 152 and 156 of the paper book reiterating the submissions made before the AO. According to him nothing had been paid outside the books of accounts. The learned Departmental Representative supported the order of the AO. 57. A perusal of p. 155 of the paper book shows that this is the submission made before the AO and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ument found during the course of the search. The relevant extract is reproduced at p. 24 of the assessment order at the top. The assessee was asked to explain the entries made in the said document and in response thereto it submitted that a payment of ₹ 15,000 had been made to one Shri Surinder Gulati of M/s Architect Allied, Faridabad, and in support thereof a copy of account of the said party was furnished. It was observed by the AO that the copy of account did reveal that a sum of ₹ 10,000 had been paid to the said person by means of a cheque on 17th Jan., 1995, but the cash amounts had not been reflected in the said copy of account. Further, according to the AO, the sum of ₹ 10,000 on 17.1 mentioned CH which meant a cheque and on the same analogy the other amounts against which cash was written reflected cash payments to Shri Surinder Gulati or M/s Architect Allied and these were in thousands. On the ground that the total of such cash entries viz., ₹ 35,000 had been given by the assessee-company to Shri Surinder Gulati of M/s Architect Allied out of unexplained sources, the AO proceeded to add the amount in question. 62. Before us the submissions of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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