P.P. Jewellers (P) Ltd., P.P. ... vs Assistant Commissioner Of Income ... on 28 July, 2006 - Free Judgements of Supreme Court & High Court

Income Tax Appellate Tribunal – Delhi

P.P. Jewellers (P) Ltd., P.P. … vs Assistant Commissioner Of Income … on 28 July, 2006

Equivalent citations: (2007) 111 TTJ Delhi 187

Bench: R Easwar, Vice, P Jagtap

ORDER

P.M. Jagtap, Accountant Member

1. These three appeals filed by the assessees belonging to one group are direct appeals filed against three separate orders passed by the Assessing Officer Under Section 158BC for the block period and since some common issues are involved therein, the same are being disposed of by this single consolidated order.

2. The relevant facts of the case giving rise to these appeals are that a search and seizure operation was conducted in the cases belonging to the group of M/s P.P. Jewellers including all the following three assessees in the present case:

(A) M/s P.P. Jewellers (P) Ltd.

Status                    :   Private limited company
Directors                 :    (i) Shri Pawan Gupta,
                                   R/o A-13, C.C. Colony, New Delhi,
                              (ii) Shri Padam Chand,
                                   R/o BD-23, Vishakha Enclave, Pitampura, Delhi.
Address                   :   2708, Bank Street, Karol Bagh, New Delhi (ground floor).
Nature of business        :   Trading in gold, silver and precious stones and
                              manufacturing of ornaments on job work basis against the
                              material supplied by the customers.
(B)  M/s P.P. Jewellers (Delhi)
Status                    :   Partnership firm.
Partners                  :   Shri Kamal Gupta - 75%
                              Smt. Ratan Devi - 25%
Address                   :   1178, Kucha Mahajani, Chandni Chowk, Delhi.
Nature of business        :   Dealing in wholesale business of gold and gold ornaments
                              and manufacturing of gold ornaments on job work basis.
(C)  M/s P.P. Jewellers (India)
Status                    :   Partnership firm.
Partners                  :    (i)  Shri Balram Garg - 25%
                               (ii) Shri Sandeep Gupta - 15%
                              (iii) Smt. Renu Gupta - 35%
                               (iv) Smt. Manju Garg - 25%
Address                   :   674/675, Sadar Bazar, Delhi.
Nature of businesss       :   Trading in gold, silver and precious 
                              stones and manufacturing of ornaments 
                              on job work basis against material supplied by
                              the customers.

3. The premises of another concern i.e. P.P. Jewellers belonging to the same group Situated at 2708, Karol Bagh, New Delhi (first floor) was also covered in the aforesaid search and seizure operation. The said concern is a partnership firm with Mr. Pawan Gupta, Mr. Padam Chand, Mr. Amar Chand and Ms. Veena Rani as its partners and carries on the business which is primarily of exporting the gold jewellery. The said search and seizure operation in the cases of aforesaid assessees was conducted in pursuance of the following warrants of authorizations issued Under Section 132(1):

Serial No.

Issued in the name of

Premises searched

Date of commencement of search

P.P. Jewellers

674-675,

Sadar Bazar, Delhi.

10.10.96

P.P. Jewellers

2708, Beadon
Pura, Bank Street, Karol Bagh, New Delhi.

10.10.96

P.P. Jewellers

P.C. Gupta

G.R. Gupta

1378, 1379, Faiz Ganj, Gali No. 5, Azad Market, Bahadurgarh Road, Delhi.

10.10.96

P.P. Jewellers and P.P. Jewellers(P)
Ltd

1178,

Kucha Mahajani, Chandni Chowk, Delhi.

10.10.96

P.P. Jewellers

Ellar House, 8358, Model Basti, Near Filmisthan, Delhi.

10.10.96

4. The aforesaid search operation was finally concluded on 18.10.1996, during the course of which, the stock of gold, gold ornaments and diamond was physically verified and inventories were also prepared on such physical verification. The books of account and other documents were also seized during the said operation. Notices Under Section 158BC thereafter were issued the AO to the assessees which were complied by the assessees as follows:

M/s P.P. Jewellers (P) Ltd. filed its return of income in form 2-B showing its undisclosed income at Rs. 90 lakhs.

(ii) M/s P.P. Jewellers (India) filed its return of income in form 2-B showing its undisclosed income for the block period at nil on 24.9.1997.

(iii) M/s P.P. Jewellers (Delhi) filed its return of income in form 2-B on 24.9.1997 showing its undisclosed income for the block period at nil.

5. During the course of block assessment proceedings, several notices were issued by the AO requiring the assessees to furnish the necessary details and after considering the replies filed by them from time to time as well as the findings of the search, the AO completed the assessments Under Section 158BC by passing three separate orders on 31.10.1997 assessing the undisclosed income of the assessees for the block period as under:

(A)

M/s P.P. Jewellers (P) Ltd.

(i) Profit from undisclosed sales:

34,15,000/-

(ii) Alleged unexplained investment
made in circulating capital

27,65,000/-

(iii) Undisclosed income shown by the
assessee in its return of income (on protective basis):

90,00,000/-

Total:

1,51,80,000/-

(B)

M/s P.P. Jewellers (Delhi)

(i) Profit on undisclosed sales:

5,17,740/-

(ii) Alleged unexplained investment
made in

circulating capital:

6,59,589/-

Total:

11,77,329/-

(C)

M/s P.P. Jewellers (India)

(i) Profit on undisclosed sale of
silver:

19,500/-

(ii) Profit on undisclosed sale of
gold

ornaments.:

1,71,000/-

(iii) Alleged unexplained investment
in circulating capital

1,02,032/-

Total:

2,92,532/-

Aggrieved by the aforesaid assessments made by the Assessing Officer Under Section 158BC, all the three assessees have preferred the present appeals before the Tribunal.

6. In the original grounds raised by the assessees in these appeals, the assessments made by the AO Under Section 158BC have been challenged by the assessees in law as well as on facts. During the course of appellate proceedings before the Tribunal, the following two additional grounds have been sought to be raised by the assessees which are common in all the three appeals:

1. That the proceedings initiated Under Section 158BC of Chapter XIVB of the Income Tax Act had not validly been initiated against the assessee firm as there were no proceedings taken for search and seizure operations Under Section 132 of the Income Tax Act. In the absence of any valid panchnama evidencing search and seizure operations on the assessee, the entire proceedings taken in pursuance thereof were thus not valid and hence, the assessment framed by the learned Assistant Commissioner of Income Tax, Central Circle-1, made is un-sustainable in law.

2. That even otherwise the impugned assessment framed by the learned Assistant Commissioner of Income Tax, Central Circle-1, vide order dated 31.10.97 is without jurisdiction in as much as there was no service of a valid notice Under Section 158BC of the Act on the assessee.

As the issues raised by the assessees in the aforesaid additional grounds are purely legal issues and the facts material and relevant to adjudicate the same are already on record, we have admitted the said grounds keeping in view the decision of Hon’ble Supreme Court in the case of National Thermal Power Corporation v. CIT 229 ITR 383.

7. Since the preliminary issues challenging the validity of the impugned assessments have been raised by the assessee in the aforesaid additional grounds, we now proceed to consider and decide the same at the outset.

8. In support of the additional ground No. 1, the learned Counsel for the assessee submitted before us that none of the warrants issued in the present cases contained the name of any of the three assessees specifically and in the absence of the same, the entire proceedings taken in pursuance thereof including the impugned assessment orders passed by the AO Under Section 158BC were invalid and unsustainable in law. He submitted that a perusal of the warrants of authorization produced by the learned DR as per the direction of the Bench clearly shows that the said warrants were issued in the name of M/s P.P. Jewellers and not in the names of the three assessees in the present case viz. P.P. Jewellers (India), P.P. Jewellers (Delhi) and P.P. Jewellers (P) Ltd. He submitted that in the absence of such specific mention in the relevant warrants of authorization, it could not be assumed that the said warrants pertained to the assessees. He contended that there was thus no warrant of authorization issued in the name of the assessees and it is, therefore, to be held that there was no search initiated against them. Relying on the decision of Hon’ble Delhi High Court in the case of Ajit Jain v. Union of India and Ors. 242 ITR 302, he contended that there being no valid search conducted in the case of the assessees in accordance with law, the entire proceedings initiated against them under Chapter XIV-B are without jurisdiction and the assessments framed Under Section 158BC during the course of such invalid proceedings are liable to be quashed. He pointed out that this proposition propounded by the Hon’ble Delhi High Court in the case of Ajit Jain (supra) has been applied by the ITAT in various cases to quash the assessments made Under Section 158BC and also cited some of the said decisions of ITAT such as Mahabir Parsad Rungta, HUF v. ACIT 75 TTJ 309. He also relied on the decision of Delhi Special Bench of ITAT in the case of Promain Ltd. – 95 ITD 489 wherein it was held that a valid search is a mandatory precondition for assumption of jurisdiction under Chapter XIV-B and where there has been no warrant of authorization issued in the name of the assessee, no valid proceedings could be initiated against him under Chapter XIV-B. He further relied on the decision of Hon’ble Delhi High Court in the case of Pushpa Rani – 136 Taxman 627 wherein it was held that if there is no search warrant issued in the name of the assessee, the proceedings Under Section 158BC are without jurisdiction and void ab-initio. He contended that as per the provisions of Section 158BA, a valid search is a pre-condition for initiating the proceedings under Chapter XIV-B and such valid search should be evident from the warrant of authorization as well as from the panchnama drawn in the name of the assessee. He contended that in the present cases, neither the warrants of authorization issued Under Section 132(1) nor the panchnamas drawn during the course of search was in the name of the assessees and it, therefore, cannot be said that there was any valid search conducted in the cases of the present assessees.

9. The learned DR, on the other hand, submitted that all the three assessees in the present case were operating from the different premises situated at different places and since there was no ambiguity or confusion about the search operations conducted in their cases at respective premises, the omission of the word “Delhi” or “India” in the names mentioned in the search warrant was purely a case of mis-spelling of names that would not go to vitiate the search operation which was otherwise valid in the eyes of law. He contended that it was not a case of mistaken identity since there was no confusion either in the mind of the search party or even in the mind of the assessees about the search operations being conducted in their cases. Referring to some of the letters filed by the assessees before the AO, he pointed out that the assessees themselves had not mentioned/included the words “Delhi” and/or “India” in their names in the correspondence with the AO. He contended that the search warrants were shown to the representatives of the assessee present at the time of search and while signing the said search warrants or even the panchnamas drawn during the course of search, no objection was raised on behalf of the assessees about the mistake in mentioning the full name. He submitted that even the notices issued Under Section 158BC were duly complied with by the assessees by filing their returns in form 2-B and there was a participation also on their part in the proceedings for the block period wherein no such objection was raised by them. He contended that this objection now raised by the assessees after a period often years, therefore, need not be entertained.

10. The learned DR also contended that the other things being regular and legal, an innocuous omission to include the words “Delhi” and/or “India” in the name of the assessee, in any case, was only a technical mistake curable by recourse to the provisions of Section 292B. In support of this contention, he relied on the decision of Hon’ble Madras High Court in the case of Devranjan (I) v. Tamil Nadu Farmer Service Cooperative Federation 131 ITR 506 as well as that of Hon’ble Delhi High Court in the case of Sonu System P.Ltd. v. Chairman, CBDT 250 ITR 268. He also relied on the decision of Hon’ble Calcutta High Court in the case of Dy.Director of Income Tax (Inv.) v. Mahesh 262 ITR 338 and that of Hon’ble Punjab & Haryana High Court in the case of Jai Bhagwan Om Parkash v. Director of Inspection and Ors. 208 ITR 424 and pointed out that the facts involved in the case of Jai Bhagwan Om Parkash (supra) decided by Hon’ble Punjab & Haryana High Court as well as the issue involved therein are identical to that of the present cases in hand.

11. The learned DR also invited our attention to the provisions of Section 292B and pointed out that the expression “other proceedings” includes the search proceeding also and, therefore, the said provisions are sufficient to cure the mistake or omission in mentioning the correct names of the assessees in the search warrants. He contended that even the similar omission or mistake in the notices issued Under Section 158BC can be remedied by the provisions of Section 292B and the said, notices, in any case, not being the jurisdictional notices as held by Amritsar Special Bench of IT AT in the case of Smt. Mahesh Kumari Batra v. JCIT 95 ITD 152, any defect therein would not render the block assessment proceedings to be null and void.

12. In the rejoinder, the learned Counsel for the assessee submitted that the scope of Section 292B is very limited and it covers only a technical mistake or omission. He submitted that the mistake/omission in the present case pertains to a search warrant which relates to the jurisdictional aspect and such errors/infirmities having a bearing on the jurisdictional aspect, cannot be regularized Under Section 292B. He submitted that a search warrant issued Under Section 132(1) is not covered by the expression “other proceedings” used in Section 292B and such search warrant being a jurisdictional fact, any infirmity therein cannot be regarded as merely a technical omission which can be corrected by recourse to Section 292B. He submitted that all the four entities i.e. the three assessees in the present case and M/s P.P. Jewellers are independent concerns regularly assessed to tax and since they are different entities having separate partners/directors, it was for the Revenue to establish that warrant of authorization to initiate search Under Section 132(1) was issued against each assessee independently. He contended that all the decisions cited by the learned DR are distinguishable on facts and none of them being directly applicable to the facts of the present case, the reliance of the learned DR on the said decisions was clearly misplaced. For instance, he submitted that in the case of Jai Bhagwan Om Parkash (supra) before the Hon’ble Punjab & Haryana High Court, it was amply made out clear from the record that the business run by M/s Om Parkash Som Parkash was styled as Jai Bhagwan Om Parkash and, therefore, the search warrant issued in the latter name was held to be valid by their Lordships. He submitted that in the instant case, it is not that M/s P.P. Jewellers have carried on the business in the name of the assessees, but all the three assessees were separate entities having independent existence. Relying on the decision of Hon’ble Karnataka High Court in the case of Nenmal Shankarlal Parmer v. ACIT(Inv.) 195 ITR 582, he submitted that the mention of the correct addresses of the assessees in the search warrants would not go to establish that the said warrants were validly issued in the names of the assessees. Referring to the provisions of Section 292B, he submitted that the said provisions can be pressed into service only if there is technical defect or omission, but the same cannot be relied upon for curing the jurisdictional defect in the assessment, notice, summons or other proceedings. He contended that if the notice, summons or other proceedings taken up by an authority suffers from an inherent jurisdiction, the same cannot be cured by resorting to the provisions contained in Section 292B. In support of this contention, he relied on the decision of Hon’ble Punjab & Haryana High Court in the case of Norton Motors Ltd. – 275 ITR 595. Reliance was also placed by him on the decision of Allahabad Bench of ITAT in the case of ITO v. Jangi Lal 17 ITD 662 to contend that Section 292B cannot be brought to the aid of the Revenue to make an illegal act to be legal.

13. We have considered the rival submissions and also perused the relevant material on record. The preliminary issue raised by the learned Counsel for the assessee before us is that none of the search warrants issued in the case of these group assessees contained the name of any of the following three assessees and in the absence of the same, it cannot be said that there was any search warrant issued in the their names and that there was a valid search initiated or conducted so as to give jurisdiction to the Assessing Officer to proceed against Chapter XIV-B:

(i) M/s P.P. Jewellers (P) Ltd.

(ii) M/s P.P. Jewellers (Delhi).

(iii) M/s P.P. Jewellers (India).

14. In order to examine the veracity of this legal objection raised by the learned Counsel for the assessee, the Departmental Representative was directed by the Bench to produce the search warrants issued in this group of cases. Accordingly, he has produced total five search warrants so issued in original and also filed copies of the same alongwith the relevant panchnamas. A perusal of the same shows that there were in all five search warrants issued in this group of assessees, the summary of which is already given hereinabove while narrating the facts of the case. As is evident from the said summary, a warrant of authorization issued on 10.10.1996 to search the premises situated at 1178, Kucha Mahajani, Chandni Chowk, Delhi was in the joint name of M/s P.P. Jewellers and M/s P.P. Jewellers (P) Ltd. The name of one of the assessees in the present case i.e. M/s P.P. Jewellers (P) Ltd. thus was very much there contained in the said search warrant and the same also having been executed as is evident from the panchnama drawn in the joint name of M/s P.P. Jewellers and the assessee i.e. M/s P.P. Jewellers (P) Ltd., we hold that the search was not only initiated in the assessee’s case but the same was also conducted in accordance with law. It clearly shows that action Under Section 132(1) was duly taken in the case of M/s P.P. Jewellers (P) Ltd. Under Section 132(1) and there was thus a valid search initiated and conducted in the case of the said assessee giving jurisdiction to the Assessing Officer to proceed under Chapter XIV-B. The notice issued by him Under Section 158BC as well as the assessment completed by the impugned order, therefore, was valid in the eye of law and in our opinion, there was no legal infirmity as has been sought to be contended by the learned Counsel for the assessee.

15. As regards the remaining two assessees i.e. M/s P.P. Jewellers (Delhi) and M/s P.P. Jewellers (India), the contention of the learned Counsel for the assessee is that none of the five search warrants stated to be issued in the group of cases contained the name of these assessees specifically and since the said search warrants were issued particularly in the name of M/s P.P. Jewellers, another group concern having independent partners and independent existence, there was no valid search initiated or conducted in the cases of the said assessees. The learned DR, on the other hand, has contended that M/s P.P. Jewellers (Delhi) and M/s P.P. Jewellers (India) were having their business premises at 1178, Kucha Mahajani, Chandni Chowk, Delhi and 674/675, Sadar Bazar, Delhi respectively and both these premises were covered under the search warrants issued in the name of M/s P.P. Jewellers. He has contended that even though the words “Delhi” and “India” were not specifically included in the names of the assessees, the search was admittedly conducted at their premises in accordance with law and there was no confusion either in the mind of the search party or even in the mind of the assessees about the fact that a search operation Under Section 132(1) was taken in their cases. He has contended that the search action Under Section 132(1) thus in substance and effect was in conformity with and according to the intent and purpose of the Act and the non-mentioning of the complete/full names of the assessees was merely an inadvertent omission which could be cured Under Section 292B. In support of this contention, he has derived support from the various judicial pronouncements. The learned Counsel for the assessee, on the other hand, has also cited several case laws in support of his contention that the defect in not mentioning the name of the assessee clearly and specifically in the warrants of authorization was a jurisdictional one and the same could not be cured by recourse to the provisions of Section 292B. He has also contended that Section 292B does not apply to the search operation since the expression used therein “or other proceedings” does not cover the search operation conducted Under Section 132(1). He has further contended that Section 292B can be relied upon only if there is a technical defect or omission and not for curing an inherent lacuna affecting the jurisdiction of the authority like the one on hand in the present case.

16. After a careful consideration of the rival submissions in the light of facts borne out from record and judicial pronouncements cited at the bar, we find it difficult to agree with the contention of the learned Counsel for the assessee. There cannot be a quarrel to the proposition that if there is no warrant of authorization issued in the name of the assessee Under Section 132(1), the Assessing Officer in law cannot proceed under Chapter XIV-B to make a block assessment Under Section 158BC. The legal position emanating from the judicial pronouncements cited by the learned Counsel for the assessee is very clear on the point that in the absence of search warrant in the assessee’s case, he falls outside the scope of the term “a person in whose case action Under Section 132(1) has been taken” and, therefore, AO has no jurisdiction to issue notice Under Section 158BC to the assessee. The question before us in the present case, however, is that whether, in the facts and circumstances of the case, there was any search warrant which could be said to have been issued in the cases of two assessees in the present case i.e. M/s P.P. Jewellers (Delhi) and M/s P.P. Jewellers (India). In this regard, it is observed at the outset that the facts involved in the present case are different from the facts involved in the various cases cited by the learned Counsel for the assessee. For instance, in the case of Dhiraj Suri (supra), search warrant was issued in the name of the husband of the assessee and there being no search warrant issued in her name, the block assessment made by the AO was held to be void ab-initio by Delhi Bench of ITAT observing that search Under Section 132 is person specific and not premises specific. Similarly, in the case of Mahabir Prasad Rungata (HUF) (supra) cited by the learned Counsel for the assessee, search action Under Section 132(1) was conducted admittedly as a result of search warrant issued in the case of the partnership firm M/s Eastern Molasses Company and as specifically recorded by the AO himself in the block assessment order, it was a fact that no warrant Under Section 132(1) was issued in the case of the assessee i.e. Shri M.P. Rungata (HUF), partner of the said firm. Even in the case of Pushpa Rani (supra), the Tribunal had arrived at the conclusion that there were no search warrants issued in the names of the assessee and keeping in view this finding of fact recorded by the Tribunal, it was held by Hon’ble Delhi High Court that the appeal of the Revenue against the order of the Tribunal was not maintainable. In the case of Nenmal Shankarlal Parmer (supra) also, the seizure of assets and documents belonging to the partner in his individual capacity was effected on the basis of warrant issued in the name of the partnership firm and this action of the Department was not approved by Hon’ble Karnataka High Court in the absence of any reference whatsoever in the warrant of authorization that the documents and valuables so seized were found in the possession of the assessee.

17. In the present case, the facts involved are altogether different inasmuch as there were warrants issued to search the premises of both the assessees situated at 1178, Kucha Mahajani, Chandni Chowk, Delhi and 674/675, Sadar Bazar, Delhi and the names of the persons sought to be searched as contained in the said warrants were indicated as M/s P.P. Jewellers only and not M/s P.P. Jewellers (Delhi) and M/s P.P. Jewellers (India) which are the names of the assessee firms. It is no doubt true that there was another concern belonging to the same group in the name of M/s P.P. Jewellers having separate existence in law including that for the income tax purpose. However, the said firm was having its business premises situated at 2708, Karol Bagh, New Delhi (first floor) and there was a separate warrant of authorization issued to search the said premises which was in the name of M/s P.P. Jewellers. On the other hand, the two premises of the assessees in the present case i.e. M/s P.P. Jewellers (Delhi) and M/s P.P. Jewellers (India) were covered by separate warrants and there is nothing on record to suggest or indicate that M/s P.P. Jewellers having its business premises at 2708, Karol Bagh, New Delhi had anything to do with these two premises belonging to the two assessees in the present case. It was never the case of the Revenue that the warrants of authorization issued to search the premises at 1178, Kucha Mahajani, Chandni Chowk, Delhi and at 674/675, Sadar Bazar, Delhi were in connection with the partnership firm of M/s P.P. Jewellers and there was no such misconception or confusion either in the mind of the search party or even that of the assessees as is evident from the conduct of the assessee during the course of search proceedings and even during the course of block assessment proceedings. On the other hand, both the assessees participated in the search proceedings as well as in the block assessment proceedings knowing well that the warrants of authorization to search their premises were issued in their cases and their conduct during the course of the said proceedings sufficiently shows that there was no confusion whatsoever in their mind about the fact that the search operation was initiated and conducted in their cases. Having regard to all these relevant and material facts arising from the record, we are inclined to agree with the contention of the learned DR that the search operation in substance and effect was according to the intent and purposes of the Act and the same being in conformity with the relevant provisions, the inadvertent mistake in mentioning the full names of the assessees by omitting the words “India” and “Delhi” was a technical mistake which could be cured by recourse to the provisions of Section 292B.

18. Before us, the learned Counsel for the assessee has cited few case laws to contend that the mistake in not mentioning the complete and correct names of the assessees in the search warrants was an inherent lacuna affecting the very jurisdiction of the Assessing Officer and such a jurisdictional defect could not be cured by having resort to Section 292B. A perusal of these judicial pronouncements cited by the assessee, however, shows that the facts involved therein were entirely different from the facts of the present case and therefore the ratio laid down therein can not be of any help to the assessee in the present case. For instance, in the case of Jangi Lal (supra) cited by the learned Counsel for the assessee, assessment was framed by the AO in the status of HUF whereas the penalty order as well as consequent demand notice issued by him was in the status of individual and in these facts and circumstances, it was held by the Allahabad Bench of ITAT that such a defect was not covered by Section 292B. Similarly, in the case of Norton Motors (supra), the CIT had issued notice to the assessee proposing to cancel the registration of firm on the ground of error in the allocation of shares among the partners. But no notice was issued Under Section 158 read with Section 187 & 67 proposing to change the share allocation among the partners and the assessee thus did not get an opportunity to make representation in this regard. In these facts and circumstances, it was held by the Hon’ble Punjab & Haryana High Court that the CIT did not have jurisdiction to direct modification of the order passed by the Income Tax Officer Under Section 158 and the order passed by him could not be sustained by relying on Section 292B.

19. In the present case, the warrants of authorization were issued by the competent authority duly empowered to issue the same and the said warrants were issued in conformity with the relevant provisions of the Income Tax Act. As already discussed, the said warrants were not only issued but were also executed in accordance with the intent and purpose of the relevant provisions of the statute and there was no confusion either in the mind of the concerned authorities issuing and executing the said search warrants or even in the mind of the assessees about the real intention and purpose of issuance and execution of the same. In the case of Jai Bhagwan Om Prakash (supra) cited by the learned DR, the prescribed procedure for issue of warrant of authorization as well as execution thereof was meticulously followed and the learned Counsel for the assessee having failed to point out anything that might have violated any of the procedural safeguards provided in Rule 112 of the Income Tax Rules, Hon’ble Punjab & Haryana High Court held that the search proceedings could not be invalidated. In the case of Devarajan and Ors. (supra), the proceedings had been taken according to the intent and purpose of the Act and the minor infirmity in the warrant of authorization issued in form No. 45 was held to be protected by the provisions of Section 292B by the Hon’ble Madras High Court observing that the same was not misleading so as to vitiate the exercise of power in pursuance of the warrant of authorization. In the case of Sonu Systems (P) Ltd. (supra), the authorization for search in the name of the petitioner was made by the Additional Director and there was an innocuous omission to delete the word “Deputy” while adding the word “Additional” to the already existing expression “Deputy Director” in the panchnama. This omission/mistake, however, was held to be a clerical mistake by the Hon’ble Delhi High Court observing that the same could not be used as the foundation for nullifying or otherwise to prevent legitimate action and the search was held to be valid in the eye of law. In our opinion, all these decisions cited by the learned DR clearly support the case of the revenue that the expression “other proceedings” used in Section 292B very much covers the search proceedings and since the said proceedings taken up in pursuance of the provisions of Section 132(1) were in conformity with and according to the intent and purpose of the Act as discussed hereinabove, we are of the view that the omission of the words “India” and “Delhi” in the names of the assessees mentioned therein was clearly a clerical or technical mistake which could be cured by resorting to the provisions of Section 292B. In that view of the matter, we hold that the mistake in mentioning the complete names of the assessees by omitting the words “India” and “Delhi” was merely a clerical or technical mistake and since this defect/mistake is curable by resort to the provisions of Section 292B, the same could not be construed as any legal infirmity in the search warrants so as to vitiate proceedings taken in pursuance thereof. Similar is the position as regards the notices issued by the AO to the assessees Under Section 158BC which are also held to be valid relying on the provisions of Section 292B. We, therefore, find no merits in the additional grounds raised by the assessees in all these three appeals and rejecting the same, we now proceed to consider and decide the other grounds raised by the assessee challenging the additions made in the block assessment on merits.

20. In ground Nos. 1 to 4 of it’s appeal being IT(SS) A.No. 290/Del/1997, the assessee has challenged the additions of Rs. 34,15,000/-and Rs. 27,65,000/- made by the AO on account of profit on unaccounted sales and the alleged investment made in the circulating capital required for the purpose of unaccounted transactions respectively.

21. During the course of search conducted at the premises of the assessee situated at ground floor of 2708, Bank Street, Karol Bagh, inventory of physical stock of gold, gold ornaments and diamond was prepared on physical verification. The books of account and other documents found during the course of search were also seized. The stock of gold, silver and diamond physically found at the premises of the assessee during the course of search was found to be different from the stock as reflected in the books of account of the assessee in quantitative terms. The assessee company sought to explain the said difference by combining its stock with the stock of M/s P.P. Jewellers, another group concern who was operating from the first floor of the very same building. The case attempted to made out by the assessee in this regard was that the stock found during the course of search in its premises as well as in the premises of M/s P.P. Jewellers be combined together and quantity of stock so combined be compared with the stock of these two concerns appearing in their books of account so as to work out the exact difference. A statement of such combined stocks was also prepared and furnished by the assessee before the AO showing the difference and the following explanation was offered to reconcile the said difference:

Manufactured jewellery delivered by Veenu Jewellers at Karol Bagh shop out of the issue by Chandni Chowk shop.

App.3602 grams

Jewellery received back from Vimal Jewellers out of jewellery given on approval basis by Chandni Chowk shop.

4790 grams

New ornaments received from M/s
Arihant Jewellers against bill no. 41 dated 26.9.96 and 46 dated 5.10.96 weighing 13046 gms. against gold issued by P.P. Jewellers, Karol Bagh, New Delhi as per issue register seized. Copies of
bills referred to above enclosed.

13046 grams

Ornaments weighing 6420 gms. received from M/s Veenu Jewellers
against gold weighing 6000 gms. Issued
by P.P. Jewellers, Karol Bagh, New Delhi As per entry of issue found received
in the stock register.

6420 grams

Ornaments weighing 1020 gms. received from Janak Dhiraj Jewellers.

The firm M/s P.P. Jewellers Pvt.Ltd. had issued old gold ornaments weighing 1020 gms. to pradeep before search. Similarly
gold weighing 2333 gms. was issued
to Janak Dhiraj before search.

3516.310 grams

M/s P.P. Jewellers Pvt.Ltd., Karol
Bagh, New Delhi had received gold ornaments weighing 10521.600 gms. of 22 ct. from M/s Soni
Gunvantul Jamna Das Mandaha Ahmedabad on approval basis vide vouchers as per
copies enclosed.

10521.600 grams

Old ornaments weight 6700 gms. received from Sh. Ajay Goel Saharanpur
for conversion into new jewellery on 6.10.96.

6700 grams

M/s P.P. Jewellers Pvt.Ltd. Karol
Bagh, New Delhi had received gold ornaments weighing 19541.35 gms. of 22 ct. from M/s
Harshad Jewellers Ahmedabad on approval basis vide vouchers as per copies
enclosed.

19541.350 grams

Gold ornaments received for repairs
as per register maintained and repair book seized.

24634.49 grams

22. On the basis of the aforesaid explanation, the excess stock of both the concerns together was finally worked out by the assessee at 23 Kgs. of 22 Carat gold jewellery and it was claimed that value thereof can alone be assessed in the block assessment as its undisclosed income. This stand of the assessee, however, was not accepted by the AO. He held that the assessee company and M/s P.P. Jewellers are two distinct legal entities having independent business and since the said business was done from different premises, there was no reason to combine the stocks of both these concerns to work out the difference. He found that the transactions between these two concerns were duly recorded in their respective books of account including stock registers and there being no mix-up of the stock of inventory, the same was required to be considered separately in the case of each concern. As regards the explanation offered on behalf of the assessee company explaining the difference in stock, the AO examined and verified the same by making the necessary enquiries and after discussing each and every point in detail in his impugned order, he held that the explanation offered by the assessee was merely an afterthought based on fabricated and concocted transactions in order to reduce the huge difference of unexplained stock found during the course of search in the case of M/s P.P. Jewellers. For this inference, he also derived support from the fact that the documentary evidence produced by the assessee in support of the said explanation was not found from its premises during the course of search. He, therefore, rejected the explanation of the assessee and held that the stock of gold ornaments found during the course of search was short by 3878.35 gms. than the stock reflected in the books of account of the assessee whereas the stock of diamonds and silver found during the course of search was in excess by 11.25 Carats and 101.95 Kgs. respectively than the stock of said items as per the books of the assessee.

23. During the course of search, a number of loose slips were also found from the residence of the directors of the assessee company revealing that the assessee company was engaged in purchase and sales outside the books. On the basis of the said loose slips, the unaccounted sales were worked out by the Department at Rs. 2,30,68,055/-. The said working made by the Department, however, was claimed to be erroneous by the assessee and after pointing out various mistakes therein such as repetition of figures, order confirmations taken as sales, inclusion of some items which were already recorded in the stock tally etc., the assessee claimed that the exact value of unaccounted sale reflected in the said loose slips was Rs. 75,92,282/-. A detailed working of the said figure was also filed by the assessee before the AO giving all the relevant details. This working of the assessee, however, was rejected by the AO observing that the same was without any basis. He held that the said working furnished by the assessee company was its own admission that it was indulging in the sales outside the books of account. He, therefore, held that its books of account were neither complete nor correct and rejecting the same by invoking the provisions of Section 145(2), he estimated the unaccounted sales of the assessee at Rs. 2,50,00,000/-. On the basis of the said estimate, he worked out the profit of the assessee from unaccounted sales to the best of his judgment as well as the investment required to be made by the assessee in circulating capital for the unaccounted transactions as follows:

Profit on unaccounted sales

Total approx. sales as per loose
annexures pertaining to the assessee found and seized from various premises
as discussed above.

2,50,00,000

GP @ 13.66% on undisclosed
sales of Rs. 2,50,00,000/-treated as
assessee’s undisclosed profit for the A. Y. 1997-98.

34,15,000

Value of the Investment made
by the assessee for above unaccounted sales

Total circulating investment taken @ 20% on estimation of the total unaccounted
sales of Rs. 25000000/-.

50,00,000

Less:

Gross Profit available with the
assessee for circulating working capital taken at 10% of the Gross Profit arrived at on account
of unaccounted sales as discussed at point No. 2 of Head ‘A’ above (10% of Rs. 3415000/-)

3,41,500

Less:

Value of 3787 gms. of gold ornaments found short at the
time of search treated as assessee’s unaccounted sales i.e. the stock
available with him for making unaccounted sales as discussed under the Head
‘A’ above (3787 gms. x 500).

18,93,500

27,65,000

24. Accordingly, he made additions of Rs. 34,15,000/- and Rs. 27,65,000/- to the undisclosed income of the assessee on account of profit on undisclosed sales and unexplained investment made in circulating capital for the undisclosed transactions respectively. Keeping in view these additions made by him especially the addition on account of profit on undisclosed sales, the AO held that no separate additions were required to be made on account of value of excess stock of silver and diamond found during the course of search amounting to Rs. 5,73,212/- and Rs. 48,400/- respectively as well as on account of seized documents amounting to Rs. 3,20,000/-. In this regard, he held that the amount of profit on account of undisclosed sales was available to the assessee for making the said investments and, therefore, no separate additions were required to be made to its undisclosed income on these counts.

25. The learned Counsel for the assessee submitted before us that the main dispute relating to both the issues under consideration is about the ascertainment of the exact quantum of unaccounted sale from the loose slips found during the course of search. He submitted that as per the working made by the department, such sale was quantified at Rs. 2,30,68,055/- whereas the AO finally adopted such sale on estimated basis at Rs. 2.50 crores while making the addition on account of profit on such sale as well as alleged investment made in the circulating capital required for the unaccounted transaction. He contended that this estimation made by the AO was without any basis and even the working made by the department while determining the unaccounted sale on the basis of loose slips at Rs. 2,30,68,055/- suffered from many mistakes as pointed out by the assessee. In this regard, he invited our attention to the copy of detailed submissions made before the AO placed at page Nos. 11 to 13 of his paper book alongwith annexure and supporting details placed at pages 14 to 106 of his paper book to point out that the mistakes committed by the department in their working were specifically pointed out by the assessee with reference to each and every slip. He submitted that some of the said slips had been considered more than once in the said working made by the department and there were also some clear mistakes in treating some of the items reflected in the regular stock tally made by the assessee company as well as its sister concerns, as the unaccounted sales of the assessee company. He submitted that even some order confirmations were wrongly taken as unaccounted sale by the department of the assessee company and there were also some unexecuted orders forming part of the loose slips which have been considered by the Department as unaccounted sale of the assessee. Referring to the relevant details filed before the AO, he pointed out that the nature of each and every document/loose slip found during the course of search was explained on behalf of the assessee company and on the basis of these details, the quantum of unaccounted sale as arising from the relevant loose slips was also worked out by the assessee at about Rs. 76 lakhs. He submitted that the AO, however, ignored the same and proceeded to estimate the unaccounted sale of the assessee at Rs. 2.5 crores rejecting the submissions made on behalf of the assessee company without giving any cogent reasons. He contended that such unaccounted sale, therefore, ought to be taken at Rs. 76 lakhs as worked out by the assessee giving all the relevant details for the purpose of determining the income of the assessee from such unaccounted sale.

26. As regards the addition made by the AO on account of circulating capital required to be invested by the assessee in the unaccounted transactions, the learned Counsel for the assessee submitted that the fact of unaccounted sale alone would not go to establish any undisclosed investment made in such sale and the onus was, therefore, on the Revenue to establish that such investment indeed was made by the assessee. Relying on the decision of Hon’ble Gujarat High Court in the case of CIT v. President Industries 258 ITR 654 (652), Hon’ble M.P. High Court in the case of CIT v. Balchand Ajit Kumar 263 ITR 610 and Delhi Bench of ITAT reported in 99 ITD 177, he contended that in the absence of any evidence found as a result of search or brought on record by the Revenue during the course of assessment proceedings to establish the factum as well as quantum of any undisclosed investment made in the unaccounted sale as alleged, no addition on account of such alleged investment could be made especially in the block assessment. He also contended that it was imperative for the AO to give a cogent basis for computing such alleged investment and since there was no such basis given by him in the assessment order, the addition made by him on this count is liable to be deleted.

27. The learned DR, on the other hand, invited our attention to Annexure A-16 to show that some slips found during the course of search contained only weight and not the value. He contended that it was therefore fair & proper on the part of the AO to determine the value thereof on the basis of prevailing rates and to include such values for working out the total quantum of unaccounted sale made by the assessee. He submitted that the substantial difference was found in the stock inventorised during the course of search on physical verification and the stock as per the books of the assessee and the assessee could not explain the said difference to the satisfaction of the AO. He submitted that whatever explanation attempted to be given by the assessee was rejected by the AO giving cogent and convincing reasons and having regard to all these discrepancies found in the stock record as well as the loose slips found during the course of search showing voluminous unaccounted transactions, the estimate of unaccounted sale made by the AO at Rs. 2.5 crores was quite fair and reasonable. He submitted that the incriminating material found during the course of search as well as the subsequent enquiries/investigations made by the AO fully supported the said estimate. He also submitted that the unaccounted sale at Rs. 76 lakhs was worked out by the assessee only on the basis of some of the seized documents wherein values were clearly indicated, but the similar other seized loose slips were completely ignored by the assessee simply because only the quantity was mentioned therein without indicating the value thereof. He contended that such selective approach adopted by the assessee cannot be accepted and the unaccounted sale worked out at Rs. 76 lakhs on the basis of such selective approach should not be taken into account. He also contended that all the facts of the case have to be seen in totality including the discrepancies pointed out by the AO in stock to appreciate the estimate of unaccounted sale made by the AO. He submitted that on such appreciation, it can easily be inferred that the estimate of unaccounted sale made by the AO in the present case at Rs. 2.5 crores was quite fair and reasonable and both the additions made by him on account of profit on such unaccounted sale as well as investment required to be made in the circulating capital of such unaccounted transactions deserve to be confirmed. In support of this contention, he relied on the decision of Hon’ble Supreme Court in the case of Commissioner of Sales Tax, Madhya Pradesh v. H.M. Esufali H.M. Abdulali 90 ITR 271.

28. In the rejoinder, the learned Counsel for the assessee pointed out from page 17 of the assessment order that the unaccounted sale has been estimated by the AO only on the basis of the seized loose papers and not on the basis of any other adverse findings as attempted to be put forth by the learned DR.

29. We have considered the rival submissions and also perused the relevant material on record to which our attention was drawn during the course of hearing. It is observed that several loose slips found during the course of search were seized by the department as per Annexure A-1 to A-33. The said loose slips apparently represented unaccounted transactions of the assessee and, therefore, the Assessing Officer required the assessee to explain the contents of the said seized documents. In reply filed in writing on 25.10.1997, it was explained by the assessee that the said loose slips show the sales made in the books and outside books. It was also explained that the transactions reflected in the said loose slips were mostly recorded in the books of account of the assessee company. A detailed statement was furnished by the assessee alongwith the aforesaid written submissions explaining each and every loose slip found during the course of search with narration given in the last column called as “Remarks”. In the said column, it was indicated against each slip about the nature of the said document as well as the contents thereof. A copy of the said submissions alongwith the statement is filed by the learned Counsel for the assessee before us and a perusal of the same reveals that wherever the relevant seized documents represented the sale of the assessee and the same were not recorded in the books of account, nothing was indicated in the ‘Remarks’ column admitting thereby that the said documents represented unaccounted sale of the assessee company. On the other hand, some of the loose slips comprising weight confirmation slips, order confirmations etc did not represent any business transaction of the assessee and explanation to this effect was offered by the assessee by mentioning specifically the nature of the relevant loose slips in the ‘Remarks’ column. Similarly, some of the loose slips represented stock tally made by the assessee from time to time of different items and this aspect evident from the entries appearing in the loose slips as well as the substantial quantity or weight indicated therein was also pinpointed by the assessee in the ‘Remarks’ column of the statement against each of the relevant loose slips. It was also found by the assessee that some of the loose slips were appearing more than once in the statement prepared by the Department annexure-wise and these mistakes were also pointed out by the assessee in the said statement giving specific details in the ‘Remarks’ column against the relevant loose slips. All these submissions made by the assessee giving specific details, however, were rejected by the AO merely observing that the same were without any basis.

30. In this regard, it is interesting to note that the similar issue was involved in the case of other concern belonging to the same group i.e. M/s P.P. Jewellers (Delhi) and when the similar explanation was advanced by the assessee in the said case as regards the similar type of loose slips found during the course of search, the same Assessing Officer dealt with the same as follows on page 9 of his order passed in the said case:

Taking into consideration the shortage of 3.8 Kg. of primary gold it is concluded that assessee was indulged in unaccounted sales outside the books of accounts. Assessee’s contention that transactions recorded in the loose slips weighing almost 18 Kg. of gold were only unexecuted orders cannot be accepted in toto as some of the slips were dated as back as June/July 96. Moreover, these slips were not in the serial No. The assessee has failed to correlate each and every page of these annexures with that of regular books of account. However, keeping into consideration the nature of the trade possibility of cancellation and non-execution of some of the orders cannot be ruled out. Orders which were taken in the first week of October, 96 i.e., prior to the date of the search (search took place on 10.10.96) can be classified in unexecuted orders category. Since assessee has failed to furnish the complete details of these slips and also the evidences, I estimate 60% of the orders having been executed and accordingly sales to this extent are treated as assessee’s unaccounted and undisclosed sales, the profit of which has not been shown by the assessee in its regular books of account.

31. As is clearly evident from the aforesaid observations recorded by the AO in the case of M/s P.P. Jewellers (Delhi), the similar explanation offered by the assessee in the said case was accepted by the AO taking into consideration the very nature of the assessee’s business as well as the contents of the relevant loose slips. He, however, did not accept the same fully due to the failure of the assessee to furnish complete details of the loose slips as well as its failure to produce evidence to support and substantiate the same. Still, he accepted the stand of the assessee partly and in the absence of specific/complete details furnished by the assessee, proceeded to allow a relief of 40% and adopted the remaining quantity found recorded in the loose slips to the extent of 60% as the unaccounted sales of the assessee. In the present case of M/s P.P. Jewellers (P) Ltd., the assessee, however, had furnished the complete details of all the loose slips as discussed above and by giving specific narration of the contents of each and every slip therein, an attempt was made by the assessee company to explain the same as is evident from the copy of the said details placed on record before us. The AO, however, brushed aside all these submissions made on behalf of the assessee company simply by observing that there was no basis whereas the relevant details filed by the assessee, in our opinion, were sufficient to show that the submission made by the assessee in respect of each and every slip was specific and self-explanatory. The action of the AO in rejecting the said explanation altogether thus was not only contrary to the submissions/explanation offered by the assessee but also to his own order passed in the case of M/s P.P. Jewellers (Delhi) on a similar issue involving identical facts and circumstances. It is pertinent to note here that the submission made by the assessee in this regard was self-explanatory in the sense that the loose slips accepted by the assessee as representing its unaccounted sale invariably indicated the values of goods supplied whereas the remaining loose slips which were claimed to be not its unaccounted sale by the assessee company did not indicate any such values. In our opinion, the material available on record especially the written submissions filed by the assessee before the AO furnishing all the details was sufficient to establish that all the loose papers did not represent its unaccounted sale as presumed by the AO and his action in estimating the quantum of such unaccounted sale at Rs. 2.5 crores by treating all the loose papers as the documents evidencing the unaccounted sales of the assessee was without any basis and contrary to the facts arising from the record. On the other hand, the explanation of the assessee that only some of the said loose slips actually represented its unaccounted sale was duly supported and substantiated by the details filed by it as well as the contents of the said documents itself which clearly indicated value of such unaccounted sale and, therefore, the actual sale of the assessee outside books as evidenced by the said loose slips found during the course of search was only Rs. 75,92,282/- as against Rs. 2.5 crores taken by the AO. As such, considering all the facts of the case, we hold that the evidence found during the course of search in the form of various loose slips could establish the unaccounted sale of the assessee only to the extent of Rs. 75,92,282/- as against Rs. 2.5 crores taken by the AO for the purpose of making additions on account of profits on such unaccounted sale as well as alleged investment made in the circulating capital required for the purpose of effecting the said sale outside the books. We, therefore, modify his impugned order and re-compute both these additions made by him adopting the same basis but with the revised quantum of unaccounted sales as follows:

Profit on unaccounted sales

Total sales as per loose annexures
pertaining to the assessee found and seized from various premises as
discussed above.

75,92,282

GP @ 13.66% on undisclosed
sales of Rs. 75,92,282/-treated as assessee’s undisclosed profit for the AY. 1997-98.

10,37,106

Value of the Investment made by the
assessee for above unaccounted sales

Total circulating investment taken @ 20% on estimation of the total unaccounted
sales of Rs. 7592282/-.

15,18,456

Less:

Gross Profit available with the assessee for circulating working
capital taken at 10% of the Gross
Profit arrived at on account of unaccounted sales as discussed at point No. 2 of Head ‘A’ above (10% of Rs. 10,37,106/-)

1,03,710

Less:

18,93,500

Nil

32. Accordingly, we sustain the addition of Rs. 34,15,000/- made by the Assessing Officer on account of profit on unaccounted sales to the extent of Rs. 10,37,106/- and delete the addition of Rs. 27,65,000/- made by him on account of unexplained investment made in the circulating capital.

33. We may note here for the sake of clarity & completeness that the addition of Rs. 27,65,000/- made by the AO on account of alleged investment made in the circulating capital for the purpose of unaccounted transactions is also challenged by the learned Counsel for the assessee by contending that there was no evidence found during the course of search to establish the factum as well as quantum of the said investment. He has also contended that the onus to establish such factum and quantum of investment was on the Revenue and having clearly failed to discharge the said onus on evidence found as a result of search, the addition made on account of such alleged investment was not sustainable in law. However, having found that there was no such investment required to be made by the assessee in the unaccounted sale of Rs. 75,92,282/- as determined by us by adopting the same basis as taken by the AO in his assessment order, we do not deem it necessary to consider and deal with this contention of the assessee which has become only of academic nature.

34. In ground No. 5, the assessee has disputed the addition of Rs. 90 lakhs made by the Assessing Officer on protective basis on account of alleged excess stock.

35. As regards the difference found between the stock inventorised during the course of search on physical verification and the stock as per its books of account, the stand of the assessee was that the stocks belonging to it as well as belonging to M/s P.P. Jewellers operating from first floor of the very same building should be taken together and the difference, if any, should be finally worked out by combining stocks of both these concerns. A statement was also prepared by the assessee of such combined stock and the excess stock of gold jewellery was worked out as per the said statement at about 22 Kgs. The value of the said excess stock at Rs. 90 lakhs was surrendered by the assessee as its undisclosed income and the said amount was declared in its return of undisclosed income filed for the block period. The AO, however, did not accept the stand of the assessee of taking into consideration the stocks of both the concerns in a combined manner. According to him, both these concerns were independent entities operating from separeate premises and there being no mix-up in their operations, the difference in stock was required to be considered in their hands separately. Since on such consideration, the stock was found to be excess in the case of M/s P.P. Jewellers and not in the case of the assessee company, the AO did not make any addition to the undisclosed income of the assessee on account of excess stock on substantive basis. However, the assessee company having declared an amount of Rs. 90 lakhs as its undisclosed income on account of excess stock in the return of income filed for the block period, he included the said amount in the undisclosed income of the assessee on protective basis.

36. We have heard the arguments of both the sides and also perused the relevant material on record. It is observed that as per the finding given by the Assessing Officer himself in the assessment order, there was no excess stock of gold or gold jewellery found during the course of search conducted in the assessee’s case. On the other hand, the stock of gold inventorised during the course of search on physical verification was finally found by the AO to be short as compared to the stock as per the books of account of the assessee. He, however, still made the addition of Rs. 90 lakhs on account of excess stock of gold to the undisclosed income of the assessee on protective basis merely on the basis of the declaration made by the assessee company in its return of income. Before us, the learned DR has sought to support this action of the AO by submitting that the declaration of the said amount as his undisclosed income made by the assessee was conclusive and since the same bound the assessee, the AO was fully justified in including the amount so declared by the assessee company in its undisclosed income computed in the block assessment order. In this regard, it is observed that a similar issue had arisen for consideration before the Nagpur Bench of ITAT in the case of DCIT v. Sanmukhdas Wadhwani 85 ITD 734 and after considering the relevant provisions of Chapter XIV-B, it was held by the Tribunal that any income which is not chargeable to tax under the provisions of Chapter XIV-B could not be taxed merely because the same was offered by the assessee in his return of income. The observations recorded by the Tribunal in this regard in paragraph No. 11 are reproduced below:

11. The “undisclosed income” as defined in Clause (b) of Section 158B includes any money, bullion, jewellery or other valuable article or thing or any income based on any entry in the books of account or other documents or transactions, where such money, bullion, jewellery, valuable article, thing entry in the books of account or other document or transaction represents wholly or partly income or property which has not been or wound not have been disclosed for the purpose of the Income-tax Act. The manner and method of computation of undisclosed income of the block period is given in Section 158BB according to which the undisclosed income of the block period, in simple terms, shall be the aggregate of the total income (undisclosed income as well as disclosed income) of the previous years falling within the block computed in accordance with the provisions of Chapter IV as reduced by aggregate of total income or increased by aggregate of losses (i.e. disclosed income) of such previous years. The aggregate of such total income referred to in Section 158BB is to be computed on the basis of evidence found as a result of the search/requisition and such other materials or information as available with the Assessing Officer at the time of making the block assessment. Clause (c) of Section 158BC envisages passing an order of assessment and determination of the tax payable after determination of the undisclosed income of the block period and the order of the assessment so passed by the Assessing Officer should specify the manner in which the undisclosed income of the block period has been computed by him. It is, thus, clear that Chapter XIV-B, which is a self contained code, defines the expression “undisclosed income” chargeable to tax in the special assignment and the manner and method of computation of such income is also specified therein. In accordance with these special provisions, the Assessing Officer is required to determine the undisclosed income of the block period in a specific manner and the findings of the Assessing Officer regarding the undisclosed income are to be based on the material found as a result of search. A combined reading of these provisions makes it clear that the amount which is taxable as “undisclosed income” in the block assessment should fall within the scope and ambit of the definition expressly given in Chapter XIV-B and the amount which is not covered by the said definition cannot be subjected to tax in the block assessment even though declared as such by the Assessee in the return of income for block period. The procedure laid down in Chapter XIV-B also reveals that the Assessing Officer has to determine the undisclosed income of the block period in the manner specified in Section 158BB and this exercise is independent of the return filed by the Assessee for the block period. At this stage, it is useful to refer to the observations recorded by the Pune Bench of ITAT in the case of Control Touch Electronics (Pune) (P.) Ltd. (supra) to the effect that if any income is not taxable by virtue of any provision of the Act, then it cannot be taxed merely because it was offered by the Assessee in his return of income and there cannot be any such estoppel against statute.

37. For the above conclusion, the Tribunal also derived support from the decision of Hon’ble Delhi High Court in the case of Bharat General Insurance Co. Ltd. 81 ITR 303 and that of Hon’ble Supreme Court in the case of Narayanan v. Gopal AIR 1960 SC 235 holding that the proposition laid down in the said judicial pronouncements in the context of regular assessment is equally applicable in the matter of block assessment. The discussion made by the Tribunal on this point finds place in paragraph No. 12 of its order which is reproduced below:

12. It is observed that a similar issue in the context of regular assessment arose for consideration before the Hon’ble Delhi High Court in the case of CIT v. Bharat General Insurance Co.Ltd. wherein it was held by their Lordships that even if an assessee declares an income in the return, the Assessing Officer cannot assess it merely on that basis and he has to consider its taxability in the light of other circumstances de hors the admission made in the return. In the case of Narayanan v. Gopal AIR 1960 SC 235, the Hon’ble Supreme Court has held that an admission in the return is not conclusive and it would be decisive only if not subsequently withdrawn or proved to be erroneous. It is well-established that the object of an assessment is to determine the correct income and consequently the correct tax liability. In our opinion, this settled position equally holds good in the matter of block assessment also since the scope of undisclosed income assessable in the block assessment is specifically provided and the procedure for determination of such income is also clearly laid down. In these circumstances, any amount which is not assessable as undisclosed income for the block period cannot be assessed as such merely for the reason that the same was declared by the Assessee in the return for block period and there cannot be such estoppel against the statute. It, therefore, follows that if the assessee commits a patent mistake of fact or law while filing his return of undisclosed income Under Section 158BC, he cannot be assessed on such incorrect income merely on the basis of admission made in the return.

38. Since the issue under consideration as well as facts relating thereto involved in the present case are similar to that of the case of Sanmukhdas Wadhwani (supra) decided by the Tribunal, we respectfully follow the decision rendered by the Tribunal in the said case and hold that the addition of Rs. 90 lakhs made by the AO merely on the basis of the declaration made by the assessee company in its return of income without the same falling under the definition of “undisclosed income” given in Section 158B(b), was not sustainable. We, therefore, delete the same and allow ground No. 5 of the assessee’s appeal.

39. Now, we shall take up the grounds originally raised in the appeal filed in the case of M/s P.P. Jewellers (Delhi) being IT(SS) A.No. 291/Del/1997. There are as many as seven such grounds originally raised by the assessee in this appeal, but they all involve only two issues relating to the additions of Rs. 5,17,740/- and Rs. 6,59,589/- made by the AO on account of profit on unaccounted sales and alleged investment made in the circulating capital for the purpose of effecting such unaccounted sale respectively.

40. During the course of search, the cash found physically was much less than the cash balance reflected in the cash book regularly maintained by the assessee. Similarly, difference was found in the stock inventorised during the course of search on physical verification and the stock as reflected in the books of account of the assessee company. The assessee company made an attempt to explain this difference in cash as well as stock found during the course of search. On examination, the AO, however, found that the explanation offered by the assessee in this regard was not acceptable and after discussing the same in the light of enquiries made by him in detail in his assessment order, he rejected the same. He also held that the books of account maintained by the assessee were not reliable. During the course of search, certain loose slips were also found which were seized as per Annexures A-15, A-16, A-19, A-20, A-21, A-22, A-24, A-25, A-26, A-27, A-28 and A-33. Details of the transactions of gold ornaments effected by the assessee were apparently found recorded in the said loose slips. The total weight of the gold ornaments as per the transactions reflected in the said loose slips was worked out by the AO at 18,739 grams. When these loose slips were confronted by the AO to the assessee, it was explained on behalf of the assessee company that the transactions reflected therein did not entirely represent its unaccounted sale, but the same represented order confirmations/booking, goods received for repairs etc. It was also explained that the actual sales made against the said orders had been duly recorded in its books of account regularly maintained. In this regard, details were also furnished by the assessee correlating some of the loose slips with the date of execution of order and corresponding sales voucher. According to the AO, the assessee, however, could not correlate all the loose papers with the entries appearing in the regular books of account and having regard to this failure on the part of the assessee as well as keeping in view the difference found in cash as well as in stock during the course of search, he held that the aforesaid loose slips clearly reflected the unaccounted transactions of the assessee. However, taking into consideration the nature of the assessee’s business, he accepted the explanation of the assessee as regard the loose slips about the order confirmations, goods received for repairs etc. and giving deduction on this count to the extent of 40%, he estimated that out of the total quantity of 18,739 grams found involved in the transactions reflected in the loose slips, the quantity to the extent of 60% represented unaccounted sales of the assessee company. On the basis of the said estimate of unaccounted sales made by him, the AO worked out the additions on account of profit on undisclosed sales and alleged investment made in the circulating capital required to effect such unaccounted sales at Rs. 5,17,714/- and Rs. 6,59,589/- respectively on the basis of following working given on page 10 of his impugned order:

Total approx. gold in loose slips (as
discussed in preceding paras)

18739 gms.

60% of this treated
as unrecorded and undisclosed sales on estimation.

11243 gms.

Value of total undisclosed sales of 11243 gms. @ 500/gm.

Rs. 5621500/-

GP @ 9.21 (shown by
assessee in AY 1996-97) on Rs. 5621500/- to be treated as assessee’s undisclosed income for AY 1997-98. (1.4.96 to 10.10.96)

Rs. 517740/-

Investment:

Total unaccounted sale

5621500

Less: Value of 3978 gms. of gold found short @ 500/- gms.

1989000

3632500

Cost Value of above 3632500 x 90.79

100

3297946

20% of above taken
as investment

659589

With above discussion the undisclosed income is computed as under:

On a/c of profit on undisclosed sales

517740

On a/c of investment as discussed
above

659589

1177329

41. We have heard the arguments of both the sides and also perused the relevant material on record. As already noted hereinabove, similar issues involving identical facts and circumstances were involved in the case of M/s P.P. Jewellers (P) Ltd. In the said case, all the relevant details about each and every slip found during the course of search were completely furnished by the assessee unlike the present case on hand. We have already held in the preceding paragraphs of this order while disposing of the appeal filed in the case of M/s P.P. Jewellers (P) Ltd. that the said details were sufficient to support and substantiate the explanation offered by the assessee that all the loose slips did not represent its unaccounted sale and the quantum of unaccounted sales as evidenced by the said loose slips was only to the extent of Rs. 75,92,282/- as against Rs. 2.50 crores wrongly estimated by the AO. In the present case, a similar explanation offered by the assessee was accepted by the AO. However, in the absence of complete details filed by the assessee in respect of all the loose slips found during the course of search as well as the lack of evidence to support and substantiate the same, he adopted 60% of the total quantity of gold jewellery reflected in all the loose slips as representing the unaccounted sales of the assessee for the purpose of quantifying the unaccounted sales and determining the profit earned by the assessee on such quantum as well as investment required to be made in circulating capital for achieving such unaccounted sale. As rightly contended by the learned Counsel for the assessee before us, this estimate made by the AO while adopting 60% of the quantity as the unaccounted sales of the assessee was without any basis and the AO having not given any basis whatsoever for the said estimate, it becomes quite clear that the said estimate made by the AO was purely based on surmises and conjectures. In this regard, it is observed that complete details filed by the assessee in the case of M/s P.P. Jewellers (P) Ltd. about the similar types of loose slips found during the course of search conducted simultaneously clearly demonstrated that the actual unaccounted sale reflected in the loose slips was Rs. 75,92,282/- as against the figure of Rs. 2,30,68,055/- worked out by the Department by assuming that all the loose slips represented the unaccounted sales of the assessee, which gives a ratio of 33%. Since the nature of the assessee’s business as well as the contents of the loose slips found in its case were almost similar to that of M/s P.P. Jewellers (P) Ltd., we are of the view that it would be fair and reasonable to adopt this ratio of 33% which is based on the actual facts and figures as accepted by us in the said case as against the ratio of 60% adopted by the AO without any basis to work out the quantum of unaccounted sales as evidenced by the loose slips. Accordingly, we recompute the quantum of unaccounted sales as well as profit on such unaccounted sales and the investment in circulating capital as follows:

Total approx. gold in loose slips (as
discussed in preceding paras)

18739 gms.

33% of this treated
as unrecorded and undisclosed sales on estimation.

6183 gms.

Value of total undisclosed sales of 6183 gms. @ 500/gm.

Rs. 30,91,500/-

GP @ 9.21 (shown by
assessee in AY 1996-97) on Rs. 30,91,500/- to be treated as assessee’s undisclosed
income for AY 1997-98. (1.4.96 to 10.10.96)

Rs. 2,84,727/-

Investment:

Total unaccounted sale

Rs. 30,91,500/-

Cost Value of above

3091500 x 90.79

100

Rs. 28,06,772/-

20% of above taken
as investment

Rs. 5,61,354/-

Less: Value of stock of gold found
short by 3978 gms. @ Rs. 500/- per gram.

Rs. 19,89,000/-

NIL

42. Accordingly, we sustain the addition made by the Assessing Officer on account of profit on unaccounted sales to the extent of Rs. 2,84,727/- and delete the addition of Rs. 6,59,589/- made by him on account of alleged investment made in the circulating capital required for effecting the said unaccounted sale. We may clarify here that the basis adopted by the AO for working out the said investment in his assessment order is found to be suffering from a patent mistake inasmuch as the value of stock found short at the time of search was deducted by him at the first step itself from the quantum of total unaccounted sale whereas the same ought to have been deducted at the last stage after working out the quantum of investment required to be made in the circulating capital for unaccounted transactions. In the case of M/s P.P. Jewellers (P) Ltd., the later basis was adopted by the AO himself and, in our opinion, quite rightly so because the stock found short on physical verification at the time of search than the stock reflected in the books of account was available to the assessee for circulating in the unaccounted sale and the same, therefore, was not deductible from the quantum of unaccounted sale as done by the AO in the present case but the same was deductible from the estimated investment worked out at 20% of the cost of the value of unaccounted sale as done by the AO himself in the case of M/s P.P. Jewellers (P) Ltd. Thus, the quantum of investment required to be made by the assessee in circulating capital for effecting the unaccounted sale was required to be worked out initially without taking into consideration the shortage in stock and when the investment so worked out was found to be lower than the value of stock found short at the time of search, this quantum of shortage in stock itself was deemed to have been available with the assessee to explain the said investment.

43, Now, we shall take up the grounds originally raised in the remaining appeal filed in the case of M/s P.P. Jewellers (India) being IT(SS) A.No. 292/Del/1997 for consideration and decision. There are as many as seven such grounds, but the same involve only three issues relating to the additions of Rs. 19,500/- and Rs. 1,71,000/- made by the Assessing Officer on account of profit on unaccounted sale of silver and jewellery respectively as well as the alleged investment/required to be made by the assessee in circulating capital for effecting the said unaccounted sales.

44. During the course of search, cash found from the premises of the assessee was substantially lower than the cash balance reflected in its cash book. Similarly, difference was noticed in the stock inventorised during the course of search on physical verification and the stock as per the books of account of the assessee. The said difference in cash as well as stock was attempted to be explained by the assessee and after examining the said explanation in the light of material found during the course of search as well as brought on record by the assessee during the course of assessment proceedings, it was held by the AO that the stock of silver found during the course of search on physical verification was short by 21.50 Kgs. than the stock as per the books of account of the assessee. He, therefore, treated the quantity of 21.50 Kgs. of stock of silver found short as sold by the assessee outside the books of account and a profit calculated at the rate of 15% on the said unaccounted sale amounting to approx. Rs. 1,30,000/- worked out at Rs. 19,500/- was treated as the undisclosed income of the assessee. He also found the stock of gold jewellery inventorised during the course of search on physical verification to be short by 170 grams approx. than stock as per the books of account of the assessee. During the course of search, several small slip pads and small note books as well as loose papers inventorised as Annexures A-14 to A-18 were also found and seized from the business premises of the assessee. It was explained by the assessee that the said documents did not indicate any sale made by it outside the books of account and the same represented the receipt of jewellery for remaking on labour charges. It was also pointed out that the rates of labour charges as well as wastage mentioned in the said slips were sufficient to support and substantiate the explanation of the assessee. This explanation of the assessee, however, was not found acceptable by the AO keeping in view that the weight of the gold as well as rate of gold was also mentioned in the said slips. According to him, the charges mentioned in the said slips were for extra polishing work as well as making charges and it was thus not the work of labour charges alone as submitted by the assessee. He, therefore, rejected the explanation of the assessee and taking into consideration the contents of the relevant seized documents as well as the shortage in stock of jewellery found on physical verification, he held that the transactions reflected in the relevant seized documents entirely represented the unaccounted sales of the assessee. He also rejected the explanation of the assessee that some of the seized documents were unexecuted and pending orders in the absence of any correlation having been established in the regular books of account i.e. sales account, stock register etc. He, therefore, treated the total transactions found recorded in the seized documents amounting to Rs. 7,50,000/-as the unaccounted sale of the assessee and made the addition of Rs. 1,71,000/- to the undisclosed income of the assessee on account of profit calculated at the rate of 22.82% on the unaccounted sales. He also worked out the investment required to be made by the assessee in circulating capital for the said unaccounted transactions at Rs. 1,02,032/- as follows,:

Total undisclosed sales

750000

Less: Value of 178 gm of gold @ 500

89000

Cost value of above

77.18 x 661000

—-

100

510160

20% of above taken
as investment

102032

and added the same to the total undisclosed income of the assessee. While working out the total amount involved in the transactions reflected in the seized documents, he took the amounts mentioned therein as in the multiples of 100 and accordingly, computed the unaccounted sales at Rs. 7,50,000/-.

45. After considering the rival submissions and perusing the relevant material on record, it is observed that no satisfactory explanation as regards the shortage in silver of 21.5 Kgs. found during the course of search was offered by the assessee during the course of assessment proceedings before the AO. Even before us, the learned Counsel for the assessee has not been able to explain the said shortage and this being so, we find no infirmity in the impugned order of the Assessing Officer treating the said shortage as the sale made by the assessee outside the books of account and added the profit of Rs. 19,500/- of the said sale to the undisclosed income of the assessee.

46. As regards the determination of quantum of unaccounted sales, it is observed that the explanation of the assessee before the AO was that some of the loose slips found and seized during the course of search were its unexecuted and pending orders whereas some of them were for the receipt of jewellery for remaking on labour charges basis. This explanation of the assessee, however, was brushed aside by the AO without appreciating the nature of the assessee’s business as well as the contents of the relevant seized documents. As pointed out by the learned Counsel for the assessee before us, in some of such loose slips, a percentage of wastage as well as the rates of labour charges per gram were mentioned which, in our opinion, clearly support and substantiate the explanation of the assessee that the jewellery under the said loose papers was received for remaking on labour charges basis because in the case of sale of new jewellery, there was no occasion or relevance to mention the wastage. Moreover, the amounts mentioned in the said documents as Rs. 300/-, Rs. 140/- etc. also corroborated the stand of the assessee that it was a job taken on labour charges basis for remaking of jewellery and not the sale or supply of new jewellery as assumed by the AO by decoding the said amounts as Rs. 30,000/- and Rs. 14,000/-. Having regard to all these facts and circumstances of the case, we find it difficult to agree with the stand taken by the AO that all the loose papers found and seized during the course of search represented the unaccounted sale of the assessee and the entire amount of Rs. 7,50,000/- worked out by him by decoding the amounts at some places was the quantum of unaccounted sale made by the assessee. At the same time, the nature and contents of the loose papers as well as the fact that gold ornaments found during the course of search on physical verification were short than the stock as per the books of the assessee clearly show that the assessee was indulging in the transactions outside the books of account and its entire sale was not duly recorded in the regular books of account. As such, considering all the facts and circumstances of the case, we are of the view that it would be fair and reasonable to estimate the unaccounted sale of the assessee by adopting the same ratio of 33% as applied by us in the case of M/s P.P. Jewellers (P) Ltd. and M/s P.P. Jewellers (Delhi) to work out the quantum of unaccounted sale as evidenced by the loose papers found and seized during the course of search. Accordingly, we estimate such unaccounted sale at Rs. 2,47,500/- being 33% of Rs. 7,50,000/- and determine the quantum of profit from such unaccounted sale as well as the investment required to be made by the assessee in the circulating capital required for such unaccounted sale as follows:

Total undisclosed sale
(33% of Rs. 7,50,000/-)

Rs. 2,47,500/-

Profit on such unaccounted sale @ 22.82%

Rs. 56,479/-

Investment:

Total unaccounted sale

Rs. 2,47,500/-

Cost value of above

77.18 x 2,47,500

—–

100

Rs. 1,91,020/-

Investment at 20% of the above cost value

Rs. 38,204/-

Less: Value of stock found short by 178 grams @ Rs. 500/- per gram

Rs. 89,000/-

NIL

47. Accordingly, we sustain the addition made by the AO on account of profit on unaccounted sales of gold jewellery to the extent of Rs. 56,479/- and delete the addition made by him on account of investment made in the circulating capital to effect the unaccounted sales.

48. In the result, all the three appeals of the assessee are partly allowed.

Decision pronounced in the open Court on 28th July, 2006.

P.P. Jewellers (P) Ltd., P.P. … vs Assistant Commissioner Of Income … on 28 July, 2006

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P.P. Jewellers (P) Ltd., P.P. … vs Assistant Commissioner Of Income … on 28 July, 2006

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