9911796707
TMI Blog2002 (10) TMI 824X X X X Extracts X X X X X X X X Extracts X X X X ..... on the basis of seized material separately and has also assessed the value of the unexplained assets found in the search as undisclosed income of the Block Period, then their mutual set off should have been allowed and such additions should have been telescoped and covered into one addition because it was neither fair nor reasonable to treat the same as having independent and separate existence, 6. the learned Assessing Officer erred in law and has violated the principles of natural justice in not examining the parties despite the specific request made by the assessee to issue notices under section 131 of the Act. 7. the value of unexplained assets as found in the search could only be treated as undisclosed income for the Block Period. 8. the assessment of undisclosed income of the Block Period at Rs. 97,70,210 is unjustified, arbitrary & hypothetical. 9. the addition of Rs. 6,940 as per Para 11 of the order are materially incorrect. 10. the addition of Rs. 1,89,000 for the cash shortage are materially incorrect, 11. in disbelieving the statement of Shri Madan Mohan Khattar, Rukshan Wahebi, Saroj Lalwani & Vikram Raj are materially incorrect, 12. the addition of Rs. 6 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the assessee are materially incorrect. Out of the aforesaid grounds ground No. 1 is general in nature whereas the ld. A.R. does not wish to press ground Nos. 9 and 15 respectively relating to addition of Rs. 6940 and Rs. 14000, the same are therefore dismissed as withdrawn. 2. The facts in brief are that a search under section 132(1) of the Act was conducted at the residential premises at 58, Shyamla Hills Road, Bhopal and in the business premises at Alankar Jewellers, proprietor Shri Madanlal Narendrakumar (HUF) on 14-7-1995 which was continued till 18-7-1995. Besides these the search was also conducted at the old residential building at 22, Hawamahal Road, Bhopal. In response of the notices issued under section 158BC of the Act, the assessee filed return accepting the undisclosed income as declared in return at Rs. 40,00,000 whereas the Assessing Officer has computed the same at Rs. 97,70,210. The assessee has questioned this block assessment order on several grounds before us. 3. We have considered the arguments advanced by the parties in view of the materials available on the record and have gone through the order impugned as well judgments relied on by the parties. 4. G ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssment order and has justified this addition merely on the basis that the jewellery were not found recorded in the repairing register and further on the basis that statements of (a) Madanmohan Khattar, (b) Saroj Lalwani, (c) Ruksana Vazh, and (d) Vikram Ray cannot be relied upon since it was recorded by the Income-tax Inspector. It appears from the record that the explanation of the assessee during search remained that he being jeweller had also received jewelleries from the customers for the purpose of repairing/remaking during the course of business, which were deposited in seizure and out of which in maximum items tags are attached mentioning the names of the customers and the items which are untagged, the assessee is ready to identify as to which customers these belong and the searching party is at liberty to make query from those customers. The ld. A.R. draws our attention to copy of panchnama placed at page Nos. 323 to 327 of the paper book marked as "Annexure-M1 to M5" and submits that the assessee was not owner of the item listed in panchnama Annexure-M1 to M5 but these were the items belonging to the different persons who had given to the assessee for repairing p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the items mentioned in panchnama Annexure-M1 to M5 in the repairing registers the ld. A.R. submits that in the shop there are retail counters which are manned by different salesmen, general customers who visit the shop carrying their jewellery items for repairing purposes usually contact the salesmen sitting on the counters and deliver the same to them, who as per the standing instructions of the proprietor of the shop record the particulars of such items in the repairing registers, but there are many customers who are very old and intimate to the proprietor, whenever they come directly go to the owner of the shop who always sit on the main counter or in his cabin and their dealings are directly with him only, and therefore whenever such customers come for the purpose of repairing of jewellery items, they deliver the items directly to the owner and since the owner directly received such item usually he puts a tag on it and keeps with him. As these items were directly received by the owner and not routed through the salesmen, they do not appear in the repairing register maintained by the staff, submits the ld. A.R. The ld. A.R. submits further that due to aforesaid reason the said ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nes represent accumulation of past several years and all the said purchases were truly and fully recorded in the account books and their purchase price, therefore, the value of precious stones as appearing in the account books was at the purchase cost, and the assessee had also furnished before the Assessing Officer a chart showing the opening stock, purchases and sales of precious stones from the year 1981-82 to 1994-1995 (page No. 41 of the paper book). The ld. A.R. submits that the difference in value had arisen because the entire stock was valued by the departmental valuer as per the market rate prevailing as on 14-7-1995 i.e., on the date of search ignoring the fact that the said items of precious stones/gems represented the accumulation of purchases of several years and in the search also no material or evidence was found showing purchases of precious stones outside the regular books of account. For example, the ld. A.R. draws our attention to the contents of the page No. 43 of the paper book i.e., bill dated 27-10-1993 for the purchase of precious stones and submits that the weight of the items mentioned in the bill is 52.25 carat and the rate per carat was Rs. 5,260, the de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... icer in the as'sessment order has accepted the explanation of jewellery held by Gopibai Simhal, Sushila Simhal and Narendra Simhal on the ground that these persons had declared the jewellery in their wealth-tax returns but the Assessing Officer has not accepted the explanation of the assessee with regard to the jewellery owned and possessed by the following family members on the grounds that these persons are not wealth-tax assessee and therefore presumed that the same represent the undisclosed income of the assessee:-- S. No. Name of Family member Relationship with Narendra Simhal Gross Weight (in gms) Net Weight (in gms) (after deducting 15% from gross weight) 1. Rashmi Simhal (aged about 23 years) Daughter 120 102 2. Archana Simhal (aged about 21 years) Daughter 105 89 3. Tripti Simhal (aged about 16 years) Daughter 105 89 4. Nitya Simhal (aged about 10 years) Daughter 110 94 5. Madanlal Narendra kumar (HUF) Members -- 800 680 Narendrakumar Simhal and Mother Gopibai Simhal The ld. A.R. submits further that in respect of jewellery weighing about 800 grams the assessee in his reply (page Nos. 48 to 50) had submitted that the said jewellery was a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the intention underlying CBDT instructions No. 288/63/93-IT(Inv) II issued on 11-5-1994 is also relevant with reference to dealing provisions of section 69A, under the such instructions that 500 grams jewellery is permitted to be retained in the case of a married lady, 250 grams for unmarried lady and 100 grams for male member of family. 10. The ld. D.R. on the contrary banks upon assessment order. 11. After considering the arguments advanced by the parties, in view of the materials available on the record and the judgments relied on by the party, we find substance in the contentions of the ld A.R. and accordingly delete the addition of Rs. 5,80,620 while allowing ground No. 14 of the appeal in favour of the assessee. 12. Ground No. 16 - It is related to the addition of Rs. 2,50,000, which the Assessing Officer has made on the basis that the assessee has explained this amount as it had made investment of Rs. 2,05,000 during the assessment year 1996-97 as the investment has been made before 14-7-1995. The facts in brief are that pawned gold jewellery worth Rs. 5,00,836 as per annexure J-1 were found alongwith loose papers from the residence of the assessee. In these seized ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of business of the assessee and expenditure incurred on repairing of car is deductible business expenditure. The ld. A.R. submits further that assessee had shown net income i.e., after considering the business expenditure which includes non-recorded expenditure, therefore Assessing Officer is not justified in making separate addition for unexplained businesses expenditure on the basis of seized papers. The ld. A.R. further draws our attention to the following citations : (i) M.K. Mathivathanan v. ITO 31 ITD 114 (Mad.), and (ii) Nishant Housing Development (P.) Ltd. v. ACIT 52 ITD 103 (Pat.) and submits that where unexplained expenditure was actually incurred for business purposes and not recorded in the books, such expenditure would be allowed separately as a business expenditure. The ld. A.R. draws our attention to the inserted proviso to section 69(c) amended by Finance Act 1998 (No. 2) w.e.f. 1-4-1999 and circular No. 772 dated 23-12-1998 which categorically specify that unexplained expenditure deemed as income, cannot be allowed as a deduction under any head of income and this amendment will take effect from 1-4-1999 and will accordingly apply to A.Y. 1999-2000, it goes to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sales. (ii) Abhishek Corporation v. DCIT 63 TTJ 651 (Ahd.) - in this case it was held that even though it is established from the seized document that assessee was receiving premium/on-money on booking of flats, the entire receipt on on-money/premium cannot be treated as undisclosed income of the assessee, only net profit can be applied on unaccounted sales/receipts for making addition, and (iii) Kishore Mohanlal v. ACIT 64 TTJ 543 - in this case also it was held that only the net profit is to be assessed on sales. 16. The ld. D.R. on the other hand banks upon the order of assessing officer. 17. After considering the arguments advanced by the parties in view of the materials available on record, we find force in the contention of the ld. A.R. and are of the view that addition made by the Assessing Officer by taking the total sales value as an income is totally unjustified and net profit rate should have been applied on sales out-side the books of account and whatever profit was earned by the appellant that was invested in the shape of excess stock found during the search, thus there was no need of separate addition even for net profit earned on sales made outside the books ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0 Rs. 1,65,600, and Rs. 3,85,000 have been questioned in these grounds made on account of alleged purchases of gold jewellery on the basis of diary seized. The Assessing Officer has dealt with the additions of Rs. 6,98,490 and Rs. 1,65,600 at page No. 18 of the order on the basis of a small diary marked as "seizure item No. D-13". The Assessing Officer has observed that the said diary reflects purchases of gold jewellery weighing 20,930-380 gms. and also refers a payment of Rs. 8,64,850 to Goldsmith and accordingly these transactions has not been accounted for in the regular books of account and calculated the sale value of these purchases outside the books of account and applied the gross profit rate at 17.16% while making the additions. The Assessing Officer remained of the further view at page No. 20 of its order that for these transactions mentioned in the seized diary the assessee must have required the working capital of Rs. 3,85,000. The Assessing Officer has arrived at the this amount of Rs. 3,85,000 on the basis that maximum gold at a time was purchased at 1035 gram and taking their purchases at Rs. 372 per gram. 19.1 The ld. A.R. submits that the assessee was n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... per the judgments cited in this regard we find force in the submission of the ld. A.R. that the N.P. rate should have been applied and whatever profit was earned that was invested in the shape of excess stock found during the search and thus there was also no need of separate working capital. There is no evidence on the record that assessee had invested the income earned on the sale outside the books of account elsewhere. Under these circumstances, we are of the view that the Assessing Officer was not justified in making the aforesaid three additions. The ground Nos. 30, 31, and 32 are thus allowed in favour of the assessee and the additions shown therein are deleted. 19A. The addition of Rs. 3,99,680 has been made for gross profit on sales and addition of Rs. 4,52,880 has been made on account of peak purchases outside the account books on the basis of seized papers B-16 page Nos 35 to 61 (page No. 86 to 111 of paper book). The Assessing Officer has dealt with these additions at page No. 13 of its order. The ld. A.R. in support of these grounds adopts the arguments advanced by him while arguing ground Nos. 30, 31 and 32. The ld. D.R. on the contrary banks upon assessment order. Co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fficer without any evidence to the contrary, submits the ld. A.R. while referring the following judgments :-- (i) Smt. Gunvantibai Ratilal v. CIT, 146 ITR 140/144 (MP), (ii) L. Sohanlal Gupta v. CIT, 33 ITR 786, 791 (All.), and (iii) Chandermohan Mehta v. ACIT [1999] 71 ITD 245 (Pune). 20.2 The ld. D.R. on the contrary justifies the assessment orders in this regard. 20.3 We have considered the arguments advanced by the parties in view of the materials on record and have also gone through the order impugned and judgments cited by the party. We find force in the submission of the ld. A.R. as the Assessing Officer has denied the acceptance of affidavit of different persons filed by the assessee on the sole basis that the assessee had given these informations after one year from the date of search and there is nothing on the record to show that assessee was required by the Assessing Officer to produce the persons sworn affidavit to test the veracity of the affidavit, which was the proper course available before the Assessing Officer in case of any doubt over the truthness of the affidavit. We thus delete the addition of Rs. 2,62,632 and allow the ground No. 33 of the appeal in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... He further submits that additions on unrelated seized papers which is not related to the assessee as it appears from the face of the seized papers, is on conjecture and surmises and totally unjustified. (v) addition of Rs. 3363 on the basis of seized paper B-17 page Nos. 18 and 19 which is a hotel bill of Crown palace on the finding that said bill is not entered in the regular books of account of the assessee. The ld. A.R. submits that substantial withdrawals for household expenses having been made by the assessee which includes this expenditure also therefore no separate addition is warranted on this account. (vi) Addition of Rs. 2,000 on the finding that Narendra Simhal is a President of Chamber of Commerce and in his capacity as a president, he has made payment of Rs. 2,000 to Chamber of Commerce which is not entered in the regular books of account. The ld. A.R. submits that the said paper is only a request letter issued by the Bhopal Chamber of Commerce to get the Sarafa Association enrolled as a member of Bhopal Chamber of Commerce & Industries and assessee had not made any payment as alleged by the Assessing Officer. The addition is based on merely surmises and conjectur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in view of the judgments cited in support of ground Nos. 20 to 25, 28 & 29 only the net profit is to be assessed on sales and whatever profit was earned that was invested in the shape of excess stock found during the search, there was no need of separate addition. We accordingly delete the additions referred in ground Nos. 35 and 36 of the appeal. These grounds are thus allowed in favour of the assessee. 26. Ground No. 37 - Addition of Rs. 3,77,950 has been made on account of sale outside the books of account on the basis of rough calculation found on seizure item B-16 page Nos. 1 to 34 (page Nos 240 to 272 of the paper book). The Assessing Officer has dealt with this addition at page No. 27 of its order. The Assessing Officer has admitted this fact that on the seized slips neither the price of jewellery nor the names of owners have been mentioned but dates have been mentioned. 27. The ld. A.R. refers the contents of page Nos. 238 to 240 of the paper book i.e., the explanation furnished to the Assessing Officer in this regard. He submits further that these seized slips do not show any sale or purchase, these were dump papers only and thus do not convey any sort of transaction, n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion 132(4A). Like in the present seized slips the revenue wanted to make use of these, it was the duty of the revenue to collect necessary evidence which might provide an acceptable narration to the various entries. No such evidence has been produced by the revenue and therefore the Assessing Officer was not justified in making the addition in question. The addition is thus deleted. The Ground No. 37 is allowed in favour of the assessee. Ground No. 38 - It is related to the addition of Rs. 3,80,000 for the loans taken by the assessee. This addition has been dealt with by the Assessing Officer at page No. 28 of the order, wherein he has justified the addition on the basis that the assessee did not produce the creditors for examination though he had filed confirmation from most of the creditors and that the said creditors were not income-tax payees though they had given the loan to the assessee by account payee cheques. 29.1 The ld. A.R. submits that all the credits were appearing in the regular account books of the assessee and after the block assessment the Assessing Officer had made a regular scrutiny assessment for A.Y. 1996-97 and in the said assessment proceedings pursuant to ..... X X X X Extracts X X X X X X X X Extracts X X X X
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