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TMI Blog2019 (1) TMI 891X X X X Extracts X X X X X X X X Extracts X X X X ..... ess undisclosed income for a block period, comprising of assessment years prior to the date of search, on the basis of the materials recovered at the search and other other evidences available before the AO relatable to such material. At the risk of repetition, it has to be noticed that the block assessment prescribed under Chapter XIV-B also confers power on the AO to make assessment on the best of judgment. Question Nos.(i) and (ii) are answered in favour of the Revenue and against the assessee. We hence set aside the order of the Tribunal and the first appellate authority and confirm the under-invoicing of sale bills at ₹ 90,50,924/-. Undisclosed purchases - There is no claim by the assessee that the Bank did not eventually grant the loan and even if it was so, it was incumbent upon the assessee to establish that the balance-sheet was not prepared in accordance with law and not based on the actual stock retained in the assessee's premises. The fact that there was a lesser stock at the end of the year only raises a presumption that the excess stock as disclosed in the balance-sheet and profit and loss account filed before the Bank was sold off in the intervening period. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Vinod Chandran, J . : Simultaneous search and seizure proceedings under Section 132 of the Income Tax Act, 1961 [for brevity the Act ] was made on 02.03.2000, in six business concerns coming under a group, known as Orma Group of concerns. The residence of the Directors were also searched. Block assessment was carried out for the period 1990-91 to 1999-2000 and broken period upto 02.03.2000, on all the concerns. Modifications were made by the appellate authorities, against which appeals were filed by the Revenue against all the concerns. Five of such appeals were withdrawn by the Department in pursuance of the litigation policy of the Government of India. The sole appeal surviving is with respect to a Private Limited Company; also coming under the said group. 2. The issues arising from the assessment order as challenged by the assessee before the Tribunal were on the question of undisclosed investments as also the undisclosed income detected under four separate heads of under-invoicing, undisclosed sales, investments in unaccounted purchases, and interest income. The AO found that the undisclosed income was in excess of the undisclosed investments. An assessm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d loans was, hence, confined to ₹ 84,000/-. The investment in the office building, found to be undisclosed, coming to ₹ 1,25,720/-, was not seriously challenged by the assessee and the same stood confirmed. The further investment found is with respect to development of land at Kothakulangara, Angamaly. The five Directors of the Company had purchased properties, measuring 85.806 cents, and constructed an office building therein belonging to the Directors in their individual capacity. The AO found the land to be low lying and requiring filling up for the purpose of construction. The undisclosed investment for development of property was found to be ₹ 10,00,000/-. The first appellate authority found that there was absolutely no evidence to arrive at such an amount and no enquiry has been conducted to that end. The entire amounts said to have been invested for development of land was set aside. The total undisclosed investment, as confirmed by the first appellate authority, was found to be ₹ 23,22,200/-. 4. The first appellate authority then looked at the undisclosed income as found by the AO. The AO had found suppression of sale to the extent of 10% on the s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... akhs; totalling the unaccounted sales of ₹ 25 lakhs. The undisclosed income so estimated from the unaccounted sales was spread over for the assessment years 1996-97 to 2000-01. The appellate authority also looked into the seized materials as discussed by the AO. The seized materials were, a document showing an expenditure of ₹ 1,80,000/- to a supplier, seizure of cash amounting to ₹ 8,15,000/- by the police which was owned up as relating to M/s.Orma Marble Palace and a balance-sheet and profit and loss statement submitted to the State Bank of Travancore, Angamaly Branch on 30.08.1995. The balance-sheet submitted to the Bank for the purpose of availing of loan indicated a reserve and surplus of ₹ 35 lakhs with the closing stock of ₹ 60.2 lakhs. It was based on this that the AO determined the unaccounted purchases for the year 1996-97 at ₹ 28,66,305/-. The defence of the assessee was that the balance-sheet was submitted to the Bank to procure Overdraft of ₹ 60 lakhs. There was also a contention raised that the document as obtained from the SBT, Angamaly Branch was not admissible in the block assessment proceedings for the same having not been ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the five months in the assessment year 2000-01, at ₹ 6,66,500/-. The first appellate authority found that such determination of interest income and the decoding of the figures was without any basis. The entire interest income determined as undisclosed was set aside. The first appellate authority, hence, computed the undisclosed investments and undisclosed income in the following manner: For the block period, the first appellate authority sustained an addition of ₹ 23,22,200/- as undisclosed income. 7. The Department filed an appeal before the Tribunal and the assessee filed a Cross Objection. On the question of excess stock detected amounting to ₹ 20,61,480/-, the Revenue's grounds were rejected and the assessee's grounds were partly allowed; directing the AO to allow breakage allowance at 25%. The undisclosed investment on land and property as restricted by the first appellate authority at ₹ 1,51,000/- was upheld by the Tribunal, rejecting the Revenue's appeals. The scaling down of gifts and loans as asserted to be from non-residents was also confined to that allowed in first appeal, being ₹ 84,000/-. On the undisclosed invest ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arried out in the earlier years? (iii) Whether the Tribunal was correct in having affirmed the view of the CIT (Appeals) that the balance-sheet submitted by the assessee before the Bank as on 31.08.1995 cannot be relied on for reason of that document having not been recovered on search and the figures reflected therein being anomalous when compared with the figures in the balance-sheet filed by the assessee as on the close of the respective assessment years? (iv) Whether the Tribunal was correct in having deleted the estimation made by the AO at the rate of ₹ 5 lakhs per year on the unaccounted sales which could have been carried out by the assessee? (v) Ought not the Tribunal have sustained the undisclosed interest income which was based on the assessee's own entries in a Diary recovered on search? (vi) Had not the Tribunal acted in a totally perverse manner in deleting the additions made by the A.O? 10. The learned Senior Counsel appearing for the assessee-respondent heavily relied on the judgments of the Bombay, Rajasthan and Delhi High Courts to contend that Chapter XIV-B of the Act lays down a special procedure for assessment and it has to be treated d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d for the later period ₹ 53.22 lakhs. The AO made an assessment on best judgment, for the entire block period at ₹ 2.33 crores. The assessee challenged the estimation made and also disputed the addition of ₹ 47.28 lakhs, which was asserted to have been refunded to candidates; who on preliminary check up were found to be unfit. The Tribunal allowed both the contentions. The Division Bench approved the view of the Tribunal, which was on facts. It was noticed that the appellant had been registered as a panel doctor for the Saudi Consulate in 1984 and Qatar and Kuwait consulates in 1986 and 1991 respectively. The estimation made prior to November 1993 on the basis of the post November 1993 records were found to be arbitrary for reason of the various relevant factors having not been considered. The relevant factors as noticed by the Division Bench were the adverse impact of the Gulf war, the possibility of the professional fees remaining static for the entire 10 years being remote, the refund having been effected to candidates found unfit at the initial stage who were charged only a nominal fee and so on and so forth. The arbitrariness was insofar as the Department hav ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al's order was upheld, since therein the AO had not recorded whether the returns filed by the assessee were in accordance with the facts that came to light during the course of search and seizure. The estimate made also could not be correlated to the material on record which were recovered on search. 14. The Delhi High Court in Ravi Kant Jain succinctly found the nature of the special provisions under Chapter XIV-B as follows: The special procedure of Chapter XIV-B is intended to provide a mode of assessment of undisclosed income, which has been detected as a result of search. As the statutory provisions go to show, it is not intended to be a substitute for regular assessment. Its scope and ambit is limited in that sense to materials unearthed during search. It is in addition to the regular assessment already done or to be done. The assessment for the block period can only be done on the basis of evidence found as a result of search or requisition of books of account or documents and such other materials or information as are available with the Assessing Officer. Evidence found as a result of search is clearly relatable to section 132 and 132A . 15. What is dis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt years prior to the year in which the search was conducted. It was found that the statement of the partner and the employees recorded and documents collected are relevant and admissible in respect of all matters for the purpose of any investigation connected with any proceeding under the Income-tax Act ( sic para 13) . As to the estimation made for the prior years for which there was no relevant material recovered, specifically relating to those previous years, it was held that the statements clearly indicated that there was a suppression of sales by around 20%. The slips recovered were relating only to the year in which the search was conducted; still it was held that Chapter XIV-B does not mandate that in making block assessment there should be evidence regarding concealment of income for every year in the block period. 18. Sunny Jacob Jewellers and Wedding Centre was an assessment under Section 153A, wherein the question again arose as to whether there was a mandate to collect information and evidence for each and every one of six previous years. Therein also, estimate slips were collected from the jewellery, which recorded price lower than that actually received fr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he group did not show the actual sale price in the bills. The rate of suppression was stated to be 5% to 8% for variety of goods ranging between 32 to 50 rupees per square feet. For the higher value items, there was no suppression, according to the Director. The submission on oath by the Director was found to be an under-statement by the AO based on the other evidences. The Computer Operator of the assessee herein had stated the practise of first taking the customers around the stock yard for choosing the required items. After the selection, an estimate is prepared on the Computer and printout taken with copy. A copy is given to the customer showing the actual price and then later a bill is prepared, wherein a reduced amount is shown and at times all the items sold are not shown. The statements of the employees in the group concerns also revealed the modus operandi adopted by the group, which was uniform and disclosed a definite pattern. On the extent of suppression, the computer printout of sales tax report, product-wise and purchase reports were referred to. In the assessee's business premises, on 01.03.2000 the actual sales as per the daily statement seized as sheet No.36 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent-assessee and other group concerns. Though the evidence relates to the year in which the search was carried out, as we have already found, it could lead to estimation being made by the AO. The AO is not divested of the power to make assessment on the best of his judgment by reason only of the proceedings being under Chapter XIV-B for the purpose of block assessment. 22. On the sustainability of the estimation, the AO found, on the basis of supporting material as also the statements, that 2/3rd of the turnover has been suppressed. The disclosed turnover constituted only 1/3rd of the actual sales made from the business premises. In certain cases, the assessee had recorded more than 1/3rd of the actual sale price. Hence, on a consideration of the total circumstances, it was proposed to make a fair estimate of average undisclosed sales turnover at 50% of the actual sales in the pre-assessment notice. Objections were filed by the assessee and a detailed consideration was made. Though it was alleged that the employees had made their statements under duress, they were not produced for cross-examination. Some of the specific instances of under-invoicing mentioned in the pre-assessmen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ity and confirm the under-invoicing of sale bills at ₹ 90,50,924/-. 24. On the question of undisclosed purchases, the same has been arrived at for the particular year wherein a balance-sheet was recovered from the SBT, Angamaly Branch. The contention raised by the assessee based on the words employed in Section 158BB is also to the extent that the balance-sheet and profit and loss account as on 31.08.1995 submitted before the Angamaly Branch of the SBT cannot be relied on since it is not a material recovered on search. We recall that Section 158BB speaks of computation of undisclosed income on the basis of evidence found as a result of search or requisition of books of account or other documents and such other materials or information as are available with the Assessing Officer and relatable to such evidence. Hence, any other material or information as are available with the AO relatable to the evidence recovered on search could be relied on for carrying out a block assessment. In this context, we notice our own judgment in I.T.A.Nos.28 and 29 of 2010 dated 14.08.2018 [ P.A.Ahamed v . C.I.T. ]. Therein the assessee was in appeal against re-assessment proceedings allegin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the details of the assessee's transaction with a builder and interior decorator was disclosed. In a survey conducted at the premises of the builder, a payment of ₹ 95,16,000/- was detected, which had not been accounted for. The assessee contended that the same cannot be taken into account in the block assessment for reason of the undisclosed income being not supported by any material recovered in search. The learned Judges quoted Section 158BB and laid emphasis on the words 'on the basis of evidence found as a result of search or requisition of books of account or other documents and such other materials or information as are available with the AO and relatable to such evidence' and held that this prescribed the boundary which has to be followed. The power of survey being specifically provided under Section 133A, any material or the evidence found or collected in a survey which has been simultaneously made at the premises of a connected person can be utilized while making the block assessment. 11. In the present case also, the block assessment indicates that certain details were obtained at the time of search and more details were called for from the respec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sold in the intervening period. Hence, in the very same assessment year in which the purchases were made, the sale has to be presumed and the profit on such sale has to be treated as undisclosed income of the assessee. We direct the AO to add gross profit at 10% to the unaccounted purchases and make addition of profit alone being ₹ 2,86,630/- especially since the unaccounted purchases has already been added on as an undisclosed income. We, hence, answer question No.(iv) partly in favour of the assessee and partly in favour of the Revenue. 27. On the undisclosed interest income, we find that there is absolutely no basis for the AO to have taken the figures from the rough book and converted it into lakhs. We do not think, there is any basis for the additions made. We, hence, answer question No.(v) in favour of the assessee and against the Revenue and confirm the deletion of the undisclosed interest income made by the AO. 28. On question No.(vi) raised, we find on the aspects in which it was held in favour of the Revenue that the Tribunal had egregiously erred and acted in a perverse manner. We, hence, confirm the addition made by the AO. We also reduce from the total, NR ..... X X X X Extracts X X X X X X X X Extracts X X X X
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