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TMI Blog2020 (10) TMI 752X X X X Extracts X X X X X X X X Extracts X X X X ..... al was ₹ 2,77,727/-, the AO preferred to go with the higher value, on the basis of Registered valuer s report, at the time of determining total undisclosed income towards the investment in Cattle Shed. While considering undisclosed investment in Sai Farm House, the AO adopted the value as per the seized material, which was more than the amount determined by the Registered Valuer at ₹ 37,05,500/- and the DVO at ₹ 49,76,921/-. However, while finding out unexplained investment in Cattle Shed, the AO chose to go with the higher value given by the Registered Valuer in preference to the amount as appearing in the seized material. Such approach, in our considered opinion, is not correct. The AO was supposed to determine the extent of undisclosed income towards undisclosed investment in Sai Farm House and Cattle shed on the basis of seized material. The total amount which called for the addition comes to ₹ 57,66,245/- (₹ 54,88,518 + ₹ 2,77,727). As against this, the assessee voluntarily declared undisclosed income of ₹ 53,91,887/-. This shows that further addition on this score is called for at ₹ 3,74,358/-. We, therefore, restrict the add ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Assessee by : Shri Krishna Gujarathi Revenue by : Shri Deepak Garg ORDER PER R. S. SYAL , VP : These two cross appeals one by the assessee and the other by the Revenue arise out of the order passed by the CIT(A)-13, Pune on 28-03-2016 in relation to the block period 01-04-1996 to 27-08-2002. 2. Briefly stated, the facts of the case are that a search u/s.132 of the Income-tax Act, 1961 (hereinafter also called the Act ) was carried out in Rao Group of cases on 27-08-2002, of which the assessee is a member. Several incriminating documents/material were found during the course of search. Notice u/s.158BC of the Act was issued and was served on the assessee on 18-02-2003 requiring him to file return for the block period. The assessee filed block return on 04-04-2003 declaring undisclosed income of ₹ 4,43,77,020/-. The Assessing Officer (AO) passed the block assessment order on 26.6.2008 determining total undisclosed income at ₹ 9,16,76,879/-. The assessee partly succeeded before the ld. CIT(A). This is how, both the sides have preferred respective appeals before the Tribunal. 3. The assessee has filed concise grounds and also an additional ground. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r the rejection of settlement petition 11-07-2006 10 The AO passed an order u/s.142(2A) for Special Audit and served the order on the same day 02-08-2006 11 Appellant filed Writ Petition No.2534 of 2006 before Hon. Bombay High Court against order u/s.142(2A) and other grounds 17-09-2006 12 Hon. Bombay High court granted the stay against the proceeding u/s.142(2A) only (no stay was granted against the assessment proceeding) 09-10-2006 13 Hon. Bombay High court quashed and set aside the order dated 02-08-2006 of AO passed u/s.142(2A) and issued the directives for fresh opportunity to the Appellant for the purpose of Special Audit 14-01-2008 14 AO issued third notice u/s.143(2) 11-02-2008 15 AO issued notice u/s.142(2A), dated 11-02-2008 and served on 11-02-2008 16 Appellant filed his stay in respect of show cause Notice ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 132 or for requisition under section 132A, as the case may be, was executed in cases where a search is initiated or books of account or other documents or any assets are requisitioned on or after the 1st day of January, 1997. (2) . Explanation 1.-In computing the period of limitation for the purposes of this section,- (i) . (ii) the period commencing from the day on which the Assessing Officer directs the assessee to get his accounts audited under sub- section (2A) of section 142 and ending on the day on which the assessee is required to furnish a report of such audit under that sub- section; or (iii) . (iv) in a case where an application made before the Settlement Commission under section 245C is rejected by it or is not allowed to be proceeded with by it, the period commencing on the date on which such application is made and ending with the date on which the order under sub-section (1) of section 245D is received by the Principal Commissioner or Commissioner under sub-section (2) of that section, shall be excluded: Provided that where immediately after the exclusion of the aforesaid period, the period of limitation referred to in sub-s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... period given in the clause could not be excluded. This contention was based on the fact that the assessee had not maintained any regular books of account and hence there could have been no question of ordering any audit u/s 142(2A) of the Act. 9. We are afraid that this contention is sans merit. It is noticed that when the AO passed the first order u/s 142(2A) on 2.8.2006, the assessee filed a writ petition before the Hon ble Bombay High Court. In the first writ petition, the assessee challenged two issues covered by two orders, viz., the order of the Settlement Commission refusing to admit his application and second, the first order passed by the AO u/s 142(2A) of the Act. Insofar as the second issue is concerned, the operative part of the final judgment dated 14.1.2008 of the Hon ble High Court, as contained in para 8, reads as under : `In so far as consequential order dated 2.8.2006 under section 142(2A) of the Income Tax Act, learned Counsel fairly conceded that they would give hearing to the petitioner. In the light of that, order dated 2.8.2006 is quashed and set aside. The matter is referred back to the respondent no. 2 to pass fresh order after giving the petitioner ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be determined not only by the books of account, but even by other documents which are available, in the course of an assessment and at any stage subsequent thereto may become available to the AO. To give a narrow meaning to the expression 'accounts' so as to confine it to the books of account, submitted by the assessee simplicitor, would amount to giving an interpretation which would completely defeat the very object of the section . The Revenue in its affidavit in reply further argued that incriminating documents were seized from the premises of the assessee, which required expert examination and further during the course of hearing before the Respondent No.2, before granting approval for proposal of order u/s.142(2A), it was conceded by the petitioner that books of account were maintained but these were not presently with the petitioner, as was enumerated in para 6 of the order grating approval of the proposal u/s.142(2A) by Respondent No.2 on 14-02-2008. Considering the arguments from both the sides, the Hon ble Bombay High Court in its interim order passed on 3.6.2008, against the second order u/s 142(2A), held as under:- `Heard the learned Counsel for the parties. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ently commence with the filing of return or issue of notice and terminate with the issuance of notice of demand on completion of assessment. Special Audit u/s.142(2A) is a part of assessment proceedings. Even the caption of section 142 namely Inquiry before the Assessment , which falls within Chapter XIV, being, Procedure for assessment, makes it clear that special audit u/s.142(2A) is a part of assessment proceedings. Even sub-section (2A) of section 142, dealing with the special audit, itself states that: `If, at any stage of the proceedings before him, the Assessing Officer, having regard to the nature and complexity of the accounts, volume of the accounts, doubts about the correctness of the accounts, multiplicity of transactions in the accounts or specialised nature of business activity of the assessee, and the interests of the revenue, is of the opinion that it is necessary so to do, he may, . direct the assessee to get the accounts audited . As the Hon ble High court in its interim judgment dated 03-06-2008 categorically ordered that it was `not inclined to stay the assessment proceedings , it evidently meant that the 2nd order u/s.142(2A) was not invalidated by it. There r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Sai Farm House and Cattle Shed at ₹ 66,26,118/- (₹ 54,88,518 + 12,37,600). After reducing the amount offered by the assessee at ₹ 53,91,887/-, the AO made addition of ₹ 13,34,231/-. No relief was allowed in the first appeal, against which the assessee has preferred the instant appeal. 21. We have heard both the sides and gone through the relevant material on record. Before proceeding to decide the amount liable to be added because of unexplained investment in Sai Farm House and Cattle Shed, it is relevant to note that section 158BC deals with the procedure for block assessment in the case of person searched u/s.132 of the Act. Clause (b) of section 158BC, which is relevant for our purpose, provides that: `the Assessing Officer shall proceed to determine the undisclosed income of the block period in the manner laid down in section 158BB and the provisions of section 142. shall, so far as may be apply . This brings us to section 158BB, which deals with the Computation of undisclosed income of the block period. Sub section (1) of section 158BB provides that The undisclosed income of the block period shall be the aggregate of the total income .. on the bas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... preferred to go with the higher value, on the basis of Registered valuer s report, at the time of determining total undisclosed income towards the investment in Cattle Shed. While considering undisclosed investment in Sai Farm House, the AO adopted the value as per the seized material, which was more than the amount determined by the Registered Valuer at ₹ 37,05,500/- and the DVO at ₹ 49,76,921/-. However, while finding out unexplained investment in Cattle Shed, the AO chose to go with the higher value given by the Registered Valuer in preference to the amount as appearing in the seized material. Such approach, in our considered opinion, is not correct. The AO was supposed to determine the extent of undisclosed income towards undisclosed investment in Sai Farm House and Cattle shed on the basis of seized material. The total amount which called for the addition comes to ₹ 57,66,245/- (₹ 54,88,518 + ₹ 2,77,727). As against this, the assessee voluntarily declared undisclosed income of ₹ 53,91,887/-. This shows that further addition on this score is called for at ₹ 3,74,358/-. We, therefore, restrict the addition made and sustained in the first ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... omputer disk of sundry debtors was seized from the hardware maintained at Vansale Highway Services which contained details of year-wise debtors turning bad starting with the Financial Year 1996-97. As regards the F.Y. 96-97, there were 192 accounts of the truck owners to whom credit sales were made but the amount of ₹ 3,25,637/- was not realizable. Similarly for the F.Y.1997-98, the assessee stated that there were 58 accounts of the truck owners to whom credit sales were made but there were no operations in such accounts, making the amount recoverable as bad debt. Amount of such bad debts was determined at ₹ 1,28,953/-. Similarly for the F.Y. 1998-99, there were 104 accounts of the truck owners to whom credit sales were made with whom there were no operations amounting to ₹ 2,39,473/-. In the like manner, from the F.Y.1998-99 upto 31-08-2002, the amount of such Bad Debts was tabulated at ₹ 8,22,841/-, ₹ 18,02,789, ₹ 34,80,771/- and ₹ 12,50,568/- respectively, totaling in all to ₹ 80,51,032/-. The assessee submitted that he maintained party- wise credit sale cards which reflected sale transactions as well as recovery from debtors which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ound at the time of search having record of transactions relating to such gross undisclosed income of ₹ 1.59 crore also ought to have been considered for determining the net undisclosed income includible in the total income. Details of bad debts from such business outside the books of account found at the time of search depicted a figure of ₹ 80.51 lac, which should also have been considered. 27. It is cardinal principle that insofar as business outside the books of account is concerned, it is the initial investment and profit margin from such business, which calls for addition and not the full amount of sale. Instantly, we are concerned with the sale of petrol and diesel etc. outside the books of account, which runs on thin margin. Once there is a cycle of making purchase of petrol and diesel etc. outside and books of account and its later sale, the AO should have considered the profit element from such sale and the initial investment. As against the total sale outside the books of account at ₹ 1.59 crore, the assessee itself offered undisclosed income of ₹ 68.69 lakh. 28. It is duty of the authorities to guide the assessee, if there is some excess of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 14,43,754/- due from M.S. Swami Highway Services wrongly entered in the list. The assessee s contention to this extent cannot be accepted. As regards the Bad Debts of ₹ 20,86,788/-, we are inclined to accept the contention of the assessee for the reasons given hereinbefore. If the amount of bad debts is reduced, the net amount of debtors outside the books of account comes to ₹ 47,70,650/-. When we consider such sale outside the books of account and the amount offered by the assessee at ₹ 5.04 lakh with the surplus amount offered in respect of M/s Sushila Vansale Highway Services, we hold that no addition is called for. The combined position of both the petrol pumps on this score is that there were gross sales outside the books of account at ₹ 2.28 crore (₹ 1.59 crore plus ₹ 68.57 lakh). Combined amount of bad debts is ₹ 1.01 crore (₹ 80.51 lakh plus ₹ 20.86 lakh). Combined net good sales made outside the books of account come to ₹ 1.27 crore (₹ 2.28 crore minus ₹ 1.01 crore). As against this, the combined amount offered by the assessee is ₹ 73.73 lakh (₹ 68.69 lakh plus ₹ 5.04 lakh). This giv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... educe it by the figure of excess of assets over liabilities as pertaining to the apparent owners. If we make such a calculation, the amount of excess of assets over liabilities relatable to the assessee in relation to the two petrol pumps comes to ₹ 9,93,429, as has been tabulated at page 95 of the impugned order. It is this amount which was liable to be included in the total income. The ld. AR admitted that ₹ 9,93,429/- was not included by the assessee the block return. We, therefore, confirm the addition to the extent of ₹ 9,93,429/- against ₹ 24,14,161/- deleted by the ld.CIT(A). 35. The only other ground which remains in the Revenue s appeal is against the deletion of addition of ₹ 2.01 crore made by the AO u/s.40A(3) of the Act. 36. Succinctly, the facts of this ground are that during the course of verification of record, the AO found that the assessee made payments in cash of ₹ 10,07,15,113/- exceeding ₹ 20,000/- in contravention of section 40A(3) of the Act. 20% of such amount was disallowed u/s.40A(3) leading to addition of ₹ 2,01,43,022/-. The ld. CIT(A), relying on certain decisions referred to on pages 113 and 114 of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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