ORDER
Bhavnesh Saini, J.M.
1. This first appeal by assessee is directed against the order of Asstt. CIT, Circle-I, Saharanpur, dt. 31st Oct., 1996, for (block) asst. yrs. 1986-87 to 1996-97 upto the period 13th Oct., 1995, passed under Section 143(3) r/w Section 158BC of the IT Act.
2. Since large number of issues are involved in this appeal, therefore, it is necessary to reproduce all the grounds of appeal for the sake of convenience upon which this appeal is filed challenging the impugned assessment order. The grounds of appeal are as follows :
“1. That the learned AO erred in estimating the concealed income of the appellant for the block period from asst. yrs. 1986-87 to 1996-97 (upto the period 13th Oct., 1995) at Rs. 15,71,316 (Fifteen lakhs seventy one thousand three hundred sixteen) ignoring or wrongly rejecting the explanation given by the appellant and/or by resorting to conjectures and surmises.
2. That learned AO erred in estimating additional income in the assessment order at various places on the basis of documents not relating to the appellant (but alleged to be relating to the wife of the appellant) though the appellant and his wife had agreed that any adverse material in the case of the wife of the appellant be considered in the hands of the appellant. All such additions made in the case of the appellant are illegal.
3. That the learned AO erred in making certain adverse observations at various places in the assessment order, by ignoring or wrongly rejecting the explanations given by the assessee/appellant and by resorting to conjectures and surmises.
4. That the assessment order passed by the learned AO is against law and facts of the case.
Asst. yr. 1986-87
5. That the learned AO erred in estimating an additional income of Rs. 1,488 in the cases of the appellant on the basis of certain entries in the books of account of M/s Tarachand Sat Pal, Patiala, by holding that this amount is an unexplained cash credit for the asst. yr. 1986-87.
Asst. yr. 1987-88 : Nil Asst. yr. 1988-89 6. That the learned AO erred in estimating an additional income of Rs. 32,892 in the cases of the appellant on the basis of certain entries in the books of account of M/s Rajastan Honey and Drug Laboratory (P) Ltd., Alwar by holding that this amount is unexplained investment for the asst. yr. 1988-89. Asst. yr. 1989-90 7. That the learned AO erred in estimating an additional income of Rs. 2,20,620 in the cases of the appellant for the asst. yr. 1989-90, as below : (a) Rs. 20,620 on account of certain entries in the books of account of M/s Radhika Amorces, Shivkasi, by holding that this amount is an unexplained investment. (b) Rs. 2 lakhs on account of certain entries in the bank a/c. No. 1869 in Vijaya Bank, Saharanpur, by holding that this amount is an unexplained investment. Asst. yr. 1990-91 8. That the learned AO erred in estimating an additional income of Rs. 97,902 in the case of appellant for the asst. yr. 1990-91, as below : (a) Rs. 2,392 on account of certain entries in the books of account of M/s Baba Chemicals, Alwar, by holding that this amount is an unexplained. (b) Rs. 17,010 on account of certain entries in the books of account of M/s Chaudhary Salt Peter Industries, Mathura, by holding that this amount is an unexplained investment. (c) Rs. 1,700 being estimated profit on the alleged sale of goods (purchased for Rs. 17,010 from M/s Chaudhary Sale Peter Industries, Mathura) by estimating profit rate of 10 per cent on the aforesaid sales. (d) Rs. 12,550 on account of certain entries in the bank a/c No. 1262 in the Punjab Co-operative Bank Ltd., Saharanpur, by holding that this amount is an unexplained investment. (e) Rs. 14,250 on account of purchase of a Kinetic Honda scooter by his wife, namely, Smt. Praveen Chopra. (f) Rs. 50,000 on account of entries in the books of M/s Radhika Amorces, Shivkasi, relating to M/s Praveen Traders (owned by the wife of the assessee), by holding that this amount is an unexplained investment. Asst yr. 1991-92 9. That the learned AO erred in estimating an additional income of Rs. 2,64,430 in the case of appellant for the asst. yr. 1991-92, as below : (a) Rs. 55,000 on account of certain entries in the books of account of M/s Baba Chemicals, Alwar, by holding that this amount is an unexplained (investment). (b) Rs. 1,36,737 on account of certain entries in the bank a/c No. 1262 by holding that this amount is an unexplained investment. (c) Rs. 10,693 on account of certain entries in the books of account of M/s Kaka Fire Works, Shivakasi, relating to M/s Parveen Traders (belonging to the wife of the appellant), by holding that this amount is an unexplained. (d) Rs. 62,000 on account of certain FD accounts in the name of the appellant in Oriental Bank of Commerce, Baharanpur, by holding that this amount is an unexplained investment. Asst yr. 1992-93. 10. That the learned AO erred in estimating an additional income of Rs. 53,586 in the case of appellant for the asst. yr. 1992-93 as below : (a) Rs. 2,304 being estimated interest income on the FDR of Rs. 62,000 (considered in the asst. yr. 1991-92). (b) Rs. 2,087 by estimating suppressed purchases of Rs. 20,869.70 on the basis of certain entries in the books of account of M/s Rajan Fire Works Factory, Shivkasi, and by assuming that the aforesaid purchases have been sold by applying a profit rate of 10 per cent on the aforesaid amount of Rs. 20,869.70. (c) Rs. 49,195 on account of certain entries in the bank a/c No. 1262 in the Punjab Co-operative Bank Ltd,, Saharanpur, by holding that this amount is an unexplained investment. Asst. yr. 1993-94. 11. That the learned AO erred in estimating an additional income of Rs. 6,15,789 in the case of appellant for the asst. yr. 1993-94 as below : (a) Rs. 1,76,332 on account of certain entries in the seized diary marked Annex. A-1/21 (alleged to be in the handwriting of Sh. Ashish Chopra, son of the appellant) by holding that this amount is an unexplained investment. (b) Rs. 77,551 by estimating suppressed sale of Rs. 25,85,047 on the basis of certain entries in the aforesaid seized diary marked Annex. A-1/21 and estimating a profit of 3 per cent on the aforesaid sales. (c) A sum of Rs. 3,61,906 being estimated unexplained capital required for conducting the aforesaid assumed sale of Rs. 25,85,047. (d) The learned AO has erred in making an addition of Rs. 4,75,000 on account of alleged payment to Sri Kaileshwari Fire Works, Sivakasi, as unexplained investment on the basis of copy of accounts obtained from the above party. The addition has been set off against the addition of undisclosed income for the earlier years. (e) The learned AO has erred in making an addition of Rs. 69,918 on account of alleged payment to M/s Yen Yestee Agencies, Sivakasi, as unexplained investment on the basis of copy of accounts obtained from the above party. The addition has been set off against the addition of undisclosed income for the earlier years. (f) The learned AO has erred in making an addition of Rs. 2,83,140 on account of alleged payment to M/s Rajan Fire Works, Sivakasi, as unexplained investment on the basis of copy of accounts obtained from the above party. The addition has been set off against the addition of undisclosed income for the earlier years. (g) The learned AO has erred in making an addition of Rs. 3,34,000 on account of construction in office building and Rs. 1,20,000 on account of construction of basement as unexplained investment on the basis of valuation of the DVO. The addition has been set off against the addition of undisclosed income for the earlier years. Asst. yr. 1994-95 12. That the learned AO erred in estimating an additional income of Rs. 1,78,879 in the case of appellant for the asst. yr. 1994-95 as below : (a) A sum of Rs. 54,225 by estimating suppressed purchases of Rs. 3,61,498 on the basis of certain entries in the books of M/s S.K.F.W., Shivakasi, and assuming that the aforesaid purchases have been sold by applying a profit rate of 15 per cent on the aforesaid amount of Rs. 3,61,498. (b) A sum of Rs. 4,714 by estimating suppressed purchases of Rs. 47,114 on the basis of certain entries in the books of M/s Radhika Amoreces Industries, Shivakasi, relating to M/s Parveen Traders (belonging to the wife of the appellant) and by assuming that the aforesaid purchases have been sold by applying a profit rate of 15 per cent on the aforesaid amount of Rs. 47,144. (c) Rs. 1,19,940 being estimated interest income on the assumed loans on the basis of certain entries on p. 58 of the seized diary marked Annex. A-1/21. (d) The learned AO has erred in making an addition of Rs. 6,05,150 on account of alleged payment to Sri Kaileshwari Fire Works, Sivakasi, as unexplained investment on the basis of copy of accounts obtained from the above party. The addition has been set off against the addition of undisclosed income for the earlier years. (e) The learned AO has erred in making an addition of Rs. 72,908 on account of construction in office building as unexplained investment on the basis of valuation of the DVO. The addition has been set off against the addition of undisclosed income for the earlier years. Asst. yr. 2995-96 13. That the learned AO erred in estimating an additional income of Rs. 30,730 in the case of appellant for the asst. yr. 1995-96 as below : (a) A sum of Rs. 28,000 by estimating suppressed purchases of Rs. 2,80,000 on the basis of bank draft of Rs. 2,80,000 alleged to be purchased by assessee and assuming that the aforesaid purchases have been sold by applying a profit rate of 10 per cent on the aforesaid amount of Rs. 2,80,000. (b) A sum of Rs. 644 by estimating suppressed purchases of Rs. 6,438 on the basis of cash sale bill No. 12, dt. 29th July, 1994, in the books of M/s Arasan Match Industries Ltd., Shivkasi, and by assuming that the aforesaid purchases have been sold by applying a profit rate of 10 per cent on the aforesaid amount of Rs. 6,438. (c) A sum of Rs. 2,086 by estimating suppressed purchases of Rs. 20,862 on the basis of a bill No. 70, dt. 7th July, 1994, in the books of M/s Radhika Amorces Industries, Shivakasi, and by assuming that the aforesaid purchases have been sold by applying a profit rate of 10 per cent on the aforesaid amount of Rs. 20,862. (d) The learned AO has erred in making an addition of Rs. 1,08,576 on account of alleged payment to M/s Rajasthan Rasainik Udyog, Alwar, as unexplained investment on the basis of copy of accounts obtained from the above party. The addition has been set off against the addition of undisclosed income for the earlier years. (e) The learned AO has erred in making an addition of Rs. 60,000 on account of alleged payment to M/s Kaileshwari Fire Works, Sivakasi, as unexplained investment on the basis of copy of accounts obtained from the above party. The addition has been set off against the addition of undisclosed income for the earlier years. (f) The learned AO has erred in making an addition of Rs/ 6,10,000 on account of alleged payment to M/s Ravindra Fire Works Industries and Ravindra Fire Works, Sivakasi, as unexplained investment on the basis of copy of accounts obtained from the above party. The addition has been set off against the addition of undisclosed income for the earlier years. (g) The learned AO has erred in making an addition of Rs. 2,15,650 on account of alleged payment to M/s Standard Fire Works, Sivakasi, as unexplained investment on the basis of copy of accounts obtained from the above party. The addition has been set off against the addition of undisclosed income for the earlier years. (h) The learned AO has erred in making an addition of Rs. 2,000 on account of alleged payment to M/s We Two Fire Works by M/s Praveen Traders, as unexplained investment on the basis of copy of accounts obtained from the above party. The addition has been set off against the addition of undisclosed income for the earlier years. (i) The learned AO has erred in making an addition of Rs, 7,000 on account of alleged receipt from M/s Sham Sunder & Co., Moga, by M/s Praveen Traders, as unexplained investment on the basis of copy of accounts obtained from the above party. The addition has been set off against the addition of undisclosed income for the earlier years. (j) The learned AO has erred in observing to make an addition on account of investment required for unrecorded purchases on which profit has been estimated as per ground Nos. 13 (a), 13(b) and 13(c) but no addition has been quantified as the same is covered from the additions of undisclosed income for the earlier years. (k) The learned AO has erred in making an addition of Rs. 40,000 on account of cash deposited in account No. 12 with O.B.C. Shekhpura, Kadian, The addition has been set off against the addition of undisclosed income for the earlier years. (l) The learned AO has erred in making an addition of Rs. 2,16,759 on account of investment in the construction of godown by M/s Praveen Traders on the basis of own estimate. The addition has been set off against the addition of undisclosed income for the earlier years. (m) The learned AO has erred in making an addition of Rs. 2,236 on account of investment in construction of office building of Subhash Fire Works as unexplained investment on the basis of copy of accounts obtained from the above party. The addition has been set off against the addition of undisclosed income for the earlier years. Asst yr. 1996-97 (previous year 1st April, 1995 to 13th Oct., 1995) 14. (a) The learned AO has erred in estimating an additional income of Rs. 75,000 in the case of appellant for the asst. yr. 1996-97 on the basis of several loose papers and documents found at the premises of the assessee at the time of search on 13th Oct., 1995, by observing that these papers indicate that the assessee/appellant has been making sales outside the books of account. (b) The learned AO has erred in making an addition of Rs. 1,42,500 on account of alleged capital required for conducting the sales as per Annex. A-2 for which addition of net profit has been made in ground No. 14(a). The addition has been set off against the addition of undisclosed income for the earlier years. (c) The learned AO has erred in making an addition of Rs. 4,40,000 as unexplained investment on account of purchase of old Maruti Esteem car by assuming that the car has been purchased in a bogus name. The addition has been set off against the addition of undisclosed income for the earlier years." 3. We have heard learned Representatives of both the parties at length and gone through the details submitted in the paper book by the parties as pointed out during the course of the arguments.
4. The learned counsel for the assessee filed summary of the grounds of the appeals issue-wise. The learned counsel for the assessee mainly submitted that no corroborative material was found during the search to show that the copies of the accounts obtained from parties are more correct than the entries recorded in the regular books. He has further submitted that books of account of the assessee cannot be rejected as no mistake was found in the books and that assessee is responsible for recording in his books of account. He has further submitted that the AO though called for accounts of different parties, but no right to cross-examine has been given and that AO cannot make roving post-search enquiries if there is no seized material available on record. The learned counsel for the assessee relied upon decision of Delhi High Court in the matter of CIT v. Ravikant Jain (2001) 250 ITR 141 (Del) and order of Chennai Bench of Tribunal in the matter of P.K. Ganeshwar v. Dy. CIT (2004) 91 TTJ (Chennai) 970 : (2002) 80 ITD 429 (Chennai). The learned counsel for the assessee further submitted that since no material found in search to suggests whether any sale or purchase has taken place outside the books of account, therefore, application of GP rate on presumption is bad in law. He has further submitted that AO cannot make addition in the block assessment in respect of deposits and FDRs which were not found during the course of the search, but, found in the post-search enquiries made from the bank. He has further submitted that the bank accounts or FDRs were not collected from the assessee as well as same were not in the handwriting of the assessee. He has further submitted that AO cannot make addition in the block assessment on the basis of DVO’s report as all the investments in the properties were already shown in the regular return of income. He has further submitted that findings on the books of account of the assessee are defective. He has relied upon the order in the case of Vaishali Hotels (P) Ltd. v. Asstt. CIT (2000) 66 TTJ (Pune) 692 in which it was held that no addition can be made on the basis of valuation report when all the expenses for construction are recorded in the books prior to search. The learned counsel for the assessee also taken us to all the additions made by the AO and submitted that all the additions have been made merely on presumptions and the diary seized during the course of the search did not reveal any incriminating evidence against the assessee and that no net profit rate can be applied against the assessee in block assessment. On the other hand the learned Departmental Representative submitted that incriminating evidence was seized during the course of the search and that AO can make post-search enquiry in respect of the material recovered during the course of the search. He has further submitted that according to Section 158BC of the IT Act, AO can make investigation in respect to material seized during the course of the search, therefore, post-search enquiries conducted by the AO were relatable to the evidence seized during the course of the search and, as such, there is no illegality in the enquiries made by the AO. The learned Departmental Representative further submitted that AO is not restricted to the finalization of the assessment only on the basis of search material as he can make further enquiry on the basis of material seized during the course of search. The learned Departmental Representative further submitted that provisions of Section 145 are applicable in the block assessment as Section 158BC(b) was amended retrospectively. He has further submitted that income thus can be estimated by estimating the book results. The learned Departmental Representative relied upon Khopade Kisan Rao Manikrao v. Asstt. CIT (2000) 69 TTJ (Pune)(TM) 135 : (2000) 250 ITR 18 (AT)(Pune). The learned Departmental Representative further submitted that AO though did not expressly state in the assessment order to invoke the provisions of Section 145, but, impledly recorded the finding that the book results of the assessee are not acceptable and reliable. The learned Departmental Representative relied upon Dhondiram Dalichand v. CIT (1971) 81 ITR 609 (Bom) and CIT v. K.Y. Pilliah & Sons (1967) 63 ITR 411 (SC). The learned Departmental Representative submitted that seized material is filed in the paper book submitted by the Department. He has further submitted that additions are not made on the basis of search/seized material and thereafter post-search enquiry was conducted to verify the same and explanation of the assessee was called for in this regard, however, assessee did not reply satisfactorily, therefore, additions are justified. The learned Departmental Representative further submitted that on the basis of bank counterfoils seized during the course of the search AO made enquiries from bankers and assessee was given opportunity to explain the bank accounts and copies of the third parties, but the assessee failed to explain the material collected during the search. The learned Departmental Representative taken us briefly to the additions made and submitted that additions are justified in the matter. The learned Departmental Representative relied upon findings of the AO. The learned Departmental Representative, lastly, argued that since strict principle of Evidence Act is not applicable to the income-tax proceedings, therefore, on the principle of preponderance of probability, the findings of the AO are justified The learned counsel for the assessee, in the rejoinder, submitted that AO only relied on post-search enquiries and as such no addition is justified. He has further submitted that AO has given set off himself, however, he has not rejected the books of the assessee under Section 145 of the IT Act and no link has been established between the assessee and the accounts of the third parties. The learned counsel for the assessee further submitted that search was made at the time of Diwali and the nature of the committee in which assessee was dealing/doing fire work. Therefore, certain parties come for estimates which have been relied upon by the AO without any reasons as no estimate was liable to be read against the assessee as no such estimate finally converted into any transaction.
5. We have bestowed our careful consideration. We have gone through the findings of the AO and the material pointed out by parties in their paper books.
6. Chapter XIV-B starts with s, 158B and provides the definition of “block period” and “undisclosed income”. “Undisclosed income” is relevant in this case, which is reproduced below as amended by the Finance Act, 2002, w.e.f. 1st July, 1995 :
“Section 158B(b) ‘undisclosed income’ 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 would not have been disclosed for the purpose of this Act, or any expense, deduction or allowance claimed under this Act which is found to be false.”
This section shows that the following conditions must be satisfied to treat the income as undisclosed income, i.e., :
(i) It must be in the form of money, bullion, jewellery, other valuable article or thing or should constitute income or property based on any entry in the books of account or other document or transaction;
(ii) It should be averred that the assets or entry in the books represents wholly or partly income or property which has not been or would not have been disclosed for the purpose of this Act.
(iii) or any expenses, deduction or allowance claimed under this head, which is found to be false.
Section 158BB(1) provides for computation of undisclosed income of the block period and is reproduced as under:
“The undisclosed income of the block period shall be the aggregate of the total income of the previous years falling within the block period computed, in accordance with the provisions of this Act, on the basis of evidence found as a result of search or requisition of books of account or other documents and such other materials or information as are available with the AO and relatable to such evidence.”
7. We, after considering the above provisions, are of the opinion that even if there is an amendment in the above sections, the scheme or purpose of enacting Chapter XIV-B has not undergone a major change in the sense that the block assessment pertaining to a number of years remains distinct from assessment under Section 143(3) pertaining to a single assessment year. The block assessment could be made in respect of undisclosed income if during the block period undisclosed income is recovered as a result of evidence found during the course of search and not as a result of other documents or material which came to the possession of the AO subsequent to the conclusion of search operation, unless and until such material or document is relatable to such evidence recovered during the course of the search. The amended definition of Section 158BB as mentioned above clearly suggests that some evidence is to be found as a result of search operation and it is only thereafter that the remaining part of the provisions come into play and that too the remaining evidence must be relatable to the evidence recovered during the course of the search. The other amendment in Section 158B(b) which is reproduced above has enlarged the meaning of the term “undisclosed income” by including therein “any expense, deduction or allowance claimed under this Act which is found to be false.” What has to be seen is that the valuable articles, documents or transactions which represent wholly or partly income or property which has not been or would not have been disclosed for the purpose of this Act. Therefore, before coming to analyse what is undisclosed income, it is necessary to be seen that such income has not been or would not have been disclosed for the purpose of this Act. If any such article or thing or income has already been disclosed to the Department prior to the search, it cannot be termed that the same has not been or would not have been disclosed for the purpose of this Act. Therefore, whatever items or articles have been shown to the Department prior to the search cannot be treated as undisclosed income. We are fortified in our view by the order dt. 21st March, 2003, of Delhi Bench of the Tribunal in the case of Pinaki Mishra in which the Tribunal held :
“We are, however, not in agreement with the stand taken on behalf of the Revenue that the evidence filed prior to the date of search with the Department and not enquired into can be examined in block assessment. In our opinion whatever has been left out in regular assessment can be reassessed or re-examined with reference to those provisions which are relatable to an assessment under Section 143(3) and by this we mean provisions of Sections 147/148, 263 and, where applicable, provisions of Section 154, etc. But, such re-computations of the income cannot be done in the block assessment, which straightaway carries inordinate high rate of tax of 60 per cent.”
8. The Hon’ble Bombay High Court in the case of CIT v. Vinod Danchand Ghodawat (2001) 247 ITR 448 (Bom) observed :
“Where the value of the gold and silver articles and jewellery had been disclosed in the assessee’s wealth-tax return which was accepted by the Department. Held, that Chapter XIV-B of the IT Act, 1961, had no application to the facts of the case and the addition made by the Department on the ground of undisclosed income was erroneous.”
9. The Hon’ble Calcutta High Court in the case of Bhagwati Prasad Kedia v. CIT (2001) 248 ITR 562 (Cal) observed :
“The Explanation to Section 158BA of the IT Act, 1961, makes it clear that the legislature thought it fit to make a distinction between the block assessment and the regular assessment. In the case of regular assessment, the AO is free to examine the veracity of the return as well as the claims made by the assessee, whereas the undisclosed income is taxed by way of block assessment as a result of search and seizure. The logic behind the two different modes of assessment is that concealment of income and claiming deduction or exemption in respect of a disclosed income cannot be treated at par. The former is an offence which goes to the root of the matter and the other is on the basis of the causes shown by the assessee where the AO is free to accept the justification shown or reject the same.
There was a search and seizure resulting in block assessment of the assessee. During the block assessment, the assessee was called upon to explain the advance taken from a company. The assessee had filed the confirmation letter of loan from the company including income-tax file numbers of the creditor. The income-tax authorities held that the said loan was a fictitious one and was to be considered as undisclosed income of the assessee during the period under consideration. On the question whether the AO was entitled to question the loan amount which was the subject-matter of regular assessment, while making block assessment, Held, that the AO was not entitled to question in block assessment the loan which was a subject-matter of the regular assessment. The AO was wrong in holding that the said sum could be taxed in block assessment although the same featured in the regular books of account. When the loan creditor was an assessee and in whose assessment the loan advanced had been accepted by the Revenue, the AO was wrong in holding that the assessee was liable to pay tax on that loan money taken from that assessee.”
10. In case of CIT v. Ravi Kant Jain (supra), the Hon’ble Delhi High Court observed :
“Block assessment under Chapter XIV-B of the IT Act, 1961, is not intended to be a substitute for regular assessment. Its scope and ambit is limited in that sense to materials unearthed during search. It is in addition to the regular assessment already done or to be done. The assessment for the block period can only be done on the basis of evidence found as a result of search or requisition of books of account or documents and such other materials or information as are available with the AO. Evidence found as a result of search is relatable to Sections 132 and 132A.
Held, that admittedly, the undisclosed income was not determined on the basis of any search material and the AO was proceeding within the scope of the assessment and not within the scope of exercising jurisdiction under Chapter XIV/-B and Section 158BA. Therefore, Section 158BA of the Act had no application to the facts of the case.”
11. In the case of Sunder Agencies v. Dy. CIT (1997) 59 TTJ (Mumbai) 610 : (1997) 63 ITD 245 (Mumbai), Tribunal, Mumbai Bench ‘B’ held as under :
“Section 158BA of the IT Act, 1961 – Search and seizure – Block period 1st April, 1985 to 16th Nov., 1995 – Whether within pale of Chapter XIV-B assessment could be made only in respect of undisclosed income and such undisclosed income must come as a result of search – Held, yes – Whether Section 158BA does not provide a license to Revenue for making roving enquiries connected with completed assessment and is beyond power of AO to review assessments completed unless some direct evidence comes to knowledge of Department as a result of search which indicates clearly factum of undisclosed income – Held, yes – Whether scheme of Chapter XIV-B gives power to revenue to draw presumption in regard to undisclosed income – Held, no – Assessee claimed 1 to 1.5 per cent out of total sales as ‘sales promotion expenses’ – During search proceedings a book called ‘gift register’ was seized from assessee’s business premises – Gift register related to sale promotion expenses – In earlier assessment proceedings covering block period in question, such expenses were disclosed and disallowances were made – Neither any incriminating material revealing undisclosed income came to light nor enquiry regarding sales promotion expenses in proceeding under Section 132(1) was made – Whether addition on account of sales promotion expenses on estimate basis could be justified – Held, no.”
12. In the case of Digvijay Chemical Ltd v. Asstt. CIT (2000) 68 TTJ (Del) 280, Tribunal, Delhi Bench “E”, held that “additions based on suspicion and surmises are not covered under Section 158B(b)”. It was further held that “the addition under Section 158B(b) must be made on concrete material.”
13. In the case of P.K. Ganeshwai v. Dy. CTF (supra), Tribunal, Chennai Bench “C” held –
“Section 158BA of the IT Act, 1961 – Block assessment search cases – Assessment of undisclosed income as a result of search – Whether, where undisclosed income is found not on basis of evidence found as a result of search but on investigation and inquiries made following search, such income could be included as undisclosed income of block period computed under Chapter IV – Held, no – Whether Chapter XIV-B is a special provision for assessment of undisclosed income found as a result of search only and there is no scope for considering items that could be considered under regular assessment – Held, yes.”
14. The facts as taken from the record are that a search and seizure operation was concluded in the month of October, 1995, itself. Notice under Section 158BC was issued to the assessee and was also served upon the assessee. The AO issued statutory notice under Section 142(1) r/w Section 158BC time to time on different dates. During the course of the proceedings assessee was also given computer print out of details of annexures of documents found during the course of the search. The assessee is engaged in business of manufacture and trading of fire works. Some of the fire works like sparkles are manufactured by the assessee at his premises and the other fire works are purchased by him from various manufacturers mainly from Shivakasi which are subsequently sold on whole sale basis. The documents seized from the assessee’s premises were broadly classified in the following categories : (1) Regular books accounts, bill book, dealer call report book (order form), etc., (2) Loose papers. This contained business correspondence of the assessee with various parties, rough estimates/rough bills showing different calculations for goods sold by the assessee. These have been found mainly for financial year 1995-96 (3) Diary belonging to Ashish and Sravan Chopra which contains the details regarding the business of the assessee. (4) Total cash of the Rs. 7,53,485 was found at the business premises out of which Rs. 7 lakhs were seized as per annexures. (5) Inventory of the stock during search was also prepared and total stock of Rs. 8,49,239 was found at the factory premises and godown of the assessee which was not seized. The assessee is running proprietary concern in the name of M/s Subhash Fire Works, Gangoh, Ambala Link Road, Saharanpur. One more business firm in the proprietorship of Smt. Praveen Rani Chopra in the name and style of M/s Praveen Traders is also doing business in the family of the assessee. The affairs of this business were also being looked after mainly by the assessee. This fact was accepted by Smt. Praveen Chopra in her statement recorded during the search. It has been requested by the assessee, Sri Subash Chopra, that as he was looking after whole business, all unexplained transactions should be considered in his hand. Similar request was also made by Smt. Praveen Chopra. The AO in view of the admissions made by the above parties considered the undisclosed income in the hands of the assessee only. During the course of the assessment proceedings several discrepancies were noted prima facie. These discrepancies were mainly in the copies of account of the assessee in the books of parties with whom the assessee had business transaction during past year. These copies were received as a result of enquiries under Section 133(6). Some entries in the loose papers were also found to be unexplainable and were not entered in the books of account. These details/discrepancies noted were confronted to the assessee vide various statutory notices served on the assessee. The AO, considering the seized material and material collected at assessment stage in pursuance of the seized material and considering the explanation of the assessee, framed the block assessment order from the asst. yrs. 1986-87 to 1996-97 and computed undisclosed income of the block period in a sum of Rs. 15,71,316. The AO made various additions of undisclosed income and has himself given the set off of the undisclosed income to that of the undisclosed investment. The net result was taken as computation of undisclosed income on various additions which we shall refer to separately. The learned Departmental Representative filed the detailed paper book containing the copies of the seized material The learned Departmental Representative summarized the seized material as under:
1. Evidence relied on by the AO in the assessment order (Annex. A).
(a) Diary Annex. A/1/21, p. 1 to p. 58
(b) Annex. A-2/4, pp. 16, 17, 18
2. Documents related to the synopsis submitted by the assessee (Annex. B)
3. (a) Annex. A1 – p. 58.
(b) Annex. A-2(I), p. 8
(c) Annex. A-2 (VHH), pp. 21, 61
(d) Annex. A-2(X), pp. 42, 51, 55
(e) Annex. A-2(XI), pp. 45A, 57 to 77.
(f) Annex. B3, p. 95
(g) Annex. B-22, pp. 3, 5
(h) Annex. B-25, p. 8 (i) Annex. B-B1, p. 113.
The learned Departmental Representative took us through the paper book filed by the Department and submitted that during the course of the search several diaries/loose papers/dealers call reports were found and seized either in loose or in booklet form. These papers suggest that assessee had made unaccounted sales/purchases outside the books of account. In dealers call reports, advances received from the dealers were found mentioned. Several of these advances were not found reflected in the regular books of account. In fact, modus operand! was to substantially under-invoice, sales to outside station parties and to make substantial cash sales outside the books of accounts. The various loose papers, bank accounts and diary showed that the practice was being adopted by the assessee regularly since past year. The learned Departmental Representative further submitted that the additions made by the AO in the assessment order may be divided into following categories :
(1) Unaccounted sales outside books of account.
(2) Unexplained cash introduced by assessee in the purchases made outside books of account.
(3) Profit earned on undisclosed sales.
(4) Unexplained money in purchase of movable assets like vehicle FDRs, etc., in the name of family members (wife).
(5) Unexplained monies introduced by assessee in his bank accounts.
(6) Loans given by assessee to different parties from undisclosed sources.
(7) Extract of capital required to make undisclosed sales.
(8) Unexplained investment in construction of office building.
(9) Unexplained investment in construction of godown by M/s Praveen Traders.
The learned Departmental Representative denied that any such addition has been made which is not based on seized material as far as synopsis by assessee is concerned. Separate remarks are given against each addition and photo copies of the papers found during the course of the search operations are being filed in the paper book which will show that the name of the concerned parties surfaced from seized material and in such condition AO is bound to make enquiries from the related party so that various transactions made by the assessee with that party could be verified and the same may be tallied with regular books of account of the assessee. The learned Departmental Representative submitted that as differences were noticed between copies of the accounts maintained in the books of account of the assessee vis-a-vis those maintained in the books of outside party, the same were treated as undisclosed sales or unexplained purchases made by assessee. The learned Departmental Representative submitted that the seized material shows that the additions made in the assessment order are based on enquiries which were made after taking the clue from the seized material. The learned Departmental Representative has also taken us to various additions which we shall take up separately.
15. Considering the above history, facts and submissions of the parties, we are of the view that according to Section 158BB(1), the block assessment could be made in respect of undisclosed income if during the block period undisclosed income is recovered on the basis of evidence found during the course of the search. The AO can also make post-search enquiries provided that the same are relatable to the evidence recovered during the course of the search. Section 158BC(b) also provides procedure for block assessment and provides that the AO shall proceed to determine the undisclosed income of the block period in the manner laid down in Section 158BB and provisions of Section 142, Sub-sections (2) and (3) of Section 143, Section 144 and Section 145 shall as far as may be applied to the block assessment. Therefore, after amendment he aforesaid provisions are applicable retrospectively. The provisions of Sections 143(3), 144 and 145 would also be applicable in respect of computation of income for the block assessments. Tribunal, Pune Bench, on majority of view in the matter of Khopade Kishan Rao Manik Rao (supra) held that provisions of Section 145 can be applied while assessing the undisclosed income under Chapter XIV-B of the IT Act.
16. In this appeal, the Revenue Department during the course of the search recovered incriminating evidence from the assessee showing undisclosed income from the names of various parties dealing with the assessee and loose papers. Rough estimate, etc. were also found along with the bank counter foils which show that the assessee had not entered those transactions in the regular books of account which were also seized during the course of the search proceedings. The Revenue Department on analyzing the regular accounts book, dealers call reports and seized material, i.e., diary and loose paper and bank counterfoils, etc. was of the view that the assessee had been making unaccounted sales and purchase outside the books of account as well as made undisclosed investments. The Revenue Department also came to know that the assessee had got undisclosed investment in the purchase of the FDRs, etc. On the basis of the seized material, the AO issued various statutory show-cause notices to the assessee and the assessee filed replies before the AO. The AO on the basis of the seized material made enquiries from different parties who had dealings with the assessee which were found recorded in the seized material and came to know that assessee has understated the sales or that purchases have not entered into or that the accounts of the assessee do not tally with the accounts of the third parties. The assessee could not give satisfactory reply before the AO, therefore, the AO made the additions on different issues. The AO also during the course of the assessment proceedings observed that assessee has different bank accounts and also got certain FDRs which have not been shown to the Department, therefore, they were treated as undisclosed income and investments. In the backdrop of the aforesaid facts, it is clear that AO on the basis of seized material made enquiry into the matter after search. The documents, material and information as were available with the AO at the assessment stage were relatable to such evidence which were recovered during the course of the search. Therefore, AO has rightly treated it as undisclosed income of the assessee. The contention of the learned counsel for the assessee that the AO made roving enquiry without having seized material, is liable to be rejected. The contention of the learned counsel for the assessee that no corroborative material was found during the search is also liable to be rejected. The contention of the learned counsel for the assessee that no proper opportunity was given to explain the material is also liable to be rejected as the AO has issued various statutory notices to the assessee and the assessee filed various replies before the AO. Therefore, AO gave proper opportunity to the assessee to rebut the seized materials collected during the course of the search as well as at the assessment stage which were relatable to the search material. In view of the above, now, we consider various additions issue-wise as submitted by the learned counsel for the assessee in the summary of common grounds of the appeal. The AO in view of the admission by the assessee and his wife held that all the finances of the business were controlled by the assessee himself and Smt. Praveen Chopra, wife of the assessee, was accordingly acting as a name lender and even the capital of the Smt. Praveen Chopra was also being managed and controlled by the assessee himself. The AO further held that whole business including the business of M/s Praveen Trader was actually run by the assessee himself and belongs to assessee only. The AO, therefore, taken all the undisclosed investments and considered in the hands of the assessee only which were seized during the course of the search. These findings of the AO have not been challenged before us. Therefore, the finding of the AO becomes final on this point.
17. The learned counsel for the assessee during the course of the arguments filed summary of the common grounds of appeals issue-wise which is related to different grounds and both parties have argued this appeal issue-wise as is submitted by the learned counsel for the assessee. Therefore, we propose to take various grounds of appeal which are the issues raised in the summary of the common grounds of the appeal for the purpose of disposal of this appeal.
18. The learned counsel for the assessee submitted that ground Nos. 1 to 4 are general in nature and, therefore, the same do not call for any finding. Now, we take up the remaining grounds as under issue-wise.
19. Issue No. 1 : The learned counsel for the assessee submitted that in the block assessment, AO cannot make addition on sole basis of some differences in copies of accounts obtained from third parties under Section. 133(6). It is also stated that no corroborative material was found to justify the addition and that assessee is responsible for recording in his books of account. We have rejected the contention of the learned counsel for the assessee as regards to the post-search enquiries made by the AO as these enquiries Were mainly relatable to the evidence recovered during the course of the search. Therefore, AO was justified in taking up the additions against the assessee. Assessee was also given opportunity to rebut the material collected against the assessee. Therefore, now, we take the additions on merits on this issue ground-wise.
20. Ground 5 : During the course of the enquiries, in this case account of the assessee in the books of M/s Tara Chand Sat Pal, Patiala, to whom assessee has sold fire work during this year was received. On comparing this account it was found that assessee has shown cash of Rs. l,487.75ps., received from the party on 1st Dec, 1985, whereas as per party account the amount of Rs. 1,787.75ps. was shown to have been paid on 29th Jan., 1986. The assessee in reply to the discrepancies submitted that the entry shown by the party is wrong and the payment shown by the assessee is correct. The AO, therefore, made the addition of Rs. 1,488. This addition is based upon seized material which was collected during search. The assessee could not explain satisfactorily this addition as regards cash entry made prior to the payment made by the party. Therefore, AO was justified in making the addition. This addition is, therefore, confirmed.
21. Ground No. 6 : It is stated that as a result of enquiry, the account of the assessee in the books of M/s Rajasthan Honey & Drug Laboratory (P) Ltd., Alwar, was received which shows that the assessee has made payment of Rs. 47,360 on 26th Dec, 1987, by pay order, whereas the account of the assessee shows that Rs. 12,980 have been paid on 10th Oct., 1987, and Rs. 34,380 have been paid on 27th March, 1988. AO, therefore, was of the view that the assessee had made payment outside books of account of Rs. 34,380. The assessee submitted before AO that payment shown by the assessee is correct and as per cash book and ledger. The AO has taken payment of the amount of Rs. 34,380 on 26th Dec, 1987, to be from unaccounted sources. Since addition of unexplained amount of Rs. 1,488 was made, therefore, the addition of Rs. 32,892 was made. The concerned party has shown the payment through pay order, but the assessee claimed it to be by cash. The discrepancy was not clarified, therefore, AO rightly treated this amount to be undisclosed income. No interference is called for and addition is, therefore, confirmed.
22. Ground No. 7(a): During the course of the enquiries, account of assessee in the books of M/s Radhika Amorces, Shivkasi, was received which shows that the assessee had made payment of Rs. 55,000 by bank draft on 3rd Feb., 1989, whereas no corresponding entry was found in the books of account of the assessee. The assessee explained this discrepancy and submitted that the entry shown in the books of account of the assessee are correct. The reply of the assessee was not accepted by the AO as the enquiry from the bank clearly reveals that the draft was purchased on 10th Dec., 1988, from Vijaya Bank, Saharanpur, which was made payable in Madurai Branch and the purchase of the draft has not been denied by the assessee in his reply. The AO was, therefore, of the view that this clearly shows that the assessee’s explanation in this regard is false and Rs. 55,000 have been introduced by the assessee in his business from undisclosed sources. Therefore, it was treated as unexplained cash introduced. Since other additions were made, therefore, set off was given to the assessee and addition of Rs. 20,620 was made. Nothing much is explained by learned counsel for the assessee on this issue. The draft is prepared in town of assessee at Saharanpur. Considering the finding of the AO, we do not find any justification to interfere in the order of the AO. As a result, this addition is confirmed.
23. Ground No. 8(a) : During the course of the enquiries, an account of the assessee in the books of M/s Baba Chemicals, Alwar, was obtained which shows that the assessee has made payment of Rs. 57,392 by cash as on 25th Jan., 1990. The same payment was shown by the assessee on 30th Jan., 1990, in his books of account. Regarding this assessee has explained that the entry shown in the account of the assessee are correct and the entries shown by the parties are wrong. The AO however did not accept the reply of the assessee as the assessee has shown payment in the books of account on later date and treated it to be unexplained investment. After giving set off of the other unexplained income the addition of Rs. 2,392 was made. This addition is made on the basis of search material. This addition appears to be based upon the finding that entry is made only on later date. There is, however, no dispute that both the payments have been shown of the same amount and it is not clarified on record as to how that other party has shown cash on an earlier date. The third party has not been examined in this regard and moreso both the payments are same and stated to have been disclosed in the books of account prior to search, therefore, it cannot fall within the scope of undisclosed income. As such, we do not find any justification to sustain this addition. As a result, this addition is deleted.
24. Ground No. 8(b) : The account of the assessee in the book of M/s Chaudhary Salt Petre Industries, Mathura, was obtained during the course of the assessment which shows that the assessee has purchased goods from it vide bill No. 29, dt. 30th July, 1989, for Rs. 10,440, by bill No. 33, dt. 21st Aug., 1989, for Rs. 5,520 and by bill No. 38 dt. 16th Sept., 1989 for Rs. 1,050 for which the payment has been made by the assessee in cash on subsequent dates. No corresponding purchasers or payments were shown in the books of account of the assessee. In reply to the show-cause notice, assessee submitted that goods sent by the party were not useful and, therefore, return back, however, no evidence was laid to prove the contention. Therefore, AO directed to make addition of Rs. 17,010. It is an admitted fact that assessee obtained the goods from the aforesaid party, but according to the assessee the same were returned, but, no evidence was filed by the assessee in this regard. The concerned seller has shown payment in his books of account as well as recorded sales to assessee. Therefore, these incriminating materials clearly suggest that assessee has made unaccounted purchase and made unexplained investment. Therefore, the addition is confirmed.
25. Ground No. 8(f) : During the course of the enquiries, copies of the account of M/s Praveen Traders were obtained in the books of account of M/s Radhika Amorces, Shivakasi. The account received from party was that the assessee deposited Rs. 15,000 on 20th May, 1989, whereas the books of account of M/s Praveen Traders show Rs. 40,000 deposited on 18th Oct., 1989. The discrepancy was not clarified by the assessee and it was merely stated that entries in the books of account of the assessee are correct. AO rejected the contention of the assessee as unexplained investment is made by the assessee and unexplained fund/money was introduced in the business by assessee from undisclosed sources. Therefore, AO made the addition of Rs. 50,000. It is submitted that the aforesaid addition is made on the basis of enquiries conducted on the basis of seized material recovered during the course of the search. Counsel for assessee mainly stated that this addition is similar to that of the addition made in ground No. 5 upon which we have already confirmed addition. The assessee has not been able to clarify the aforesaid discrepancy. Therefore, the addition is confirmed.
26. Ground No. 9(a): During the course of the enquiries, account of assessee in the books of account of Baba Chemicals, Alwar, was received which shows that assessee has made payment of Rs. 55,000 on 7th Jan., 1991, by pay order, whereas books of account of the assessee show that payment has been made by cheque on later date. The assessee was asked to explain difference in dates of payment. It was submitted by assessee that entries showing in the books of account of the assessee are correct and the pay order shown by the parties was wrong. The explanation of the assessee was not accepted and addition was made of the aforesaid amount. The learned counsel for the assessee submitted that assessee made payment by cheque, therefore, it should have been accepted by the AO. We find force in the submission of the learned counsel for the assessee as assessee made payment by cheque, but, the AO has not brought any evidence on record if assessee has got prepared the pay order as shown by M/s Baba Chemicals, therefore, the addition is liable to be deleted. We, accordingly, delete the addition. This ground of appeal of the assessee is allowed.
27. Ground No. 9(c) : During the course of the enquiries, copy of account of M/s Praveen Traders in the books of Kaka Fire Works, Shivakasi, was obtained which shows that cash of Rs. 10,693 has been paid on 22nd March, 1991. The same payment were shown by M/s Praveen Traders in its books of accounts on 29th March, 1991. The assessee explained that entries have been made by the party as per their own convenience. Therefore, no adverse inference should be drawn against the assessee. However, AO made the addition. This addition is made on the basis of explanation called on seized material, but, the fact remains that there is only difference of 7 days in showing the payment. The transaction has been shown by the assessee in the books of account and was disclosed in the relevant asst. yr. 1991-92 in the accounts of the assessee. Therefore, the same cannot be said to be payment made out of undisclosed income. This addition cannot be made in block assessment under Chapter XIV- B. We, accordingly, delete the addition.
28. Ground No. 10(b): During the course of the enquiries, account of assessee in the books of account of M/s Rajan Fire Works Factory, Shivkasi, was obtained which shows that the assessee has made purchases from the party by bill No. 74 for Rs. 20,869.70ps. on 25th June, 1991, for which cash payment of the same amount has been made. No corresponding entry was found in the books of account of the assessee. The assessee explained before the AO that goods cannot be brought in Uttar Pradesh without Form No. 31 of the ST Department. Accordingly, information given by parties was wrong. The explanation of the assessee was not accepted by the AO as no further evidence has been given by the assessee in this regard. Since assessee has not shown purchase of the aforesaid amount in the books of account, therefore, the same was treated as unexplained payment outside the books, however, no separate addition was made by the AO as set off is given because of the availability of the unexplained fund. Counsel for assessee reiterated the same submission which was made before the AO and submitted that no addition can be made. The learned Departmental Representative referred to the seized material upon which enquiry was conducted in the matter. But, we find from the seized material that some payments through draft of the different amounts have been shown, but, no evidence as referred to purchase made of the aforesaid amount was recovered during the course of the search. The explanation of the assessee is reasonable that purchases cannot be brought in Uttar Pradesh without Form No. 31 of the ST Department. Therefore, we do not find any justification to sustain the addition as no satisfactory material is available on record to say that assessee has in fact made purchases from the aforesaid party on cash. As a result, this addition is deleted.
29. Ground No. 11(d) : During the course of the enquiries from outside parties and copies of accounts in the books of M/s Kaileshwari Fire Works, Shivkasi, were also obtained. According to AO this is one of the important parties from whom the assessee purchases most of the fire works and most of the turnover of the assessee is on account of sale of fire works of this firm. In the account of this party, discrepancies in the account received from M/s Kaileshwari Fire Works and that of the party account in the books of account of the assessee has been found. Most of the discrepancies are in the nature of the payments or deposits given by the assessee for purchasing fire works in advance. In some of the accounts there is a discrepancy in the dates shown by the assessee in his books of account and that shown by the party in its books of account. Thus, discrepancies could not be explained by the assessee at all and the discrepancies have been found for asst. yrs. 1993-94, 1994-95 and 1995-96. In the year under consideration, on 23rd Sept., 1992, cash of Rs. 75,000 has been deposited by the assessee with the aforesaid party and no corresponding entry has been found in the books of account of the assessee and no explanation is given by the assessee before the AO. Therefore, it was taken that payments were made from unexplained sources. Similarly, assessee has deposited total payment of Rs. 4,51,000 on 16th March, 1993, 20th March, 1993 and 23rd March, 1993, by way of different drafts of different denominations as per the account received from the aforesaid party. In this regard, the assessee has not been able to give any satisfactory explanation. He has claimed that the payment is Rs. 3,51,000 instead of Rs. 4,51,000. The AO found the claim of the assessee factually wrong as the total of the various drafts sent is Rs. 4,51,000. The assessee also claimed that on 27th March, 1993, M/s Sri Kaileshwari Fire Works has debited Rs. 51,000 in his account which has reduced the net payment. The AO found the claim of the assessee as correct and, therefore, the n3t payment made by the assessee in the month of March was Rs. 4 lakhs and the total payment made by the assessee to the aforesaid party is Rs. 4,75,000 which was found to be unexplained investment made by the assessee from undisclosed sources. No separate addition was made on account of unexplained investment and undeclared profit, and the unexplained fund available with the assessee, as a result of different additions. The learned counsel for the assessee merely stated that purchases could not be taken in Uttar Pradesh without sales-tax form, This explanation is not acceptable in this addition as according to the AO unexplained payment was made through drafts and it perhaps has not been disputed by the assessee. The assessee has not shown the material recovered by the AO in his books of account, therefore, the same clearly falls within the definition of undisclosed income. As a result, the aforesaid addition is sustained and this ground of appeal of the assessee is rejected.
30. Ground No. 11 (e) : During the course of the enquiries, account of assessee of M/s Praveen Traders was received from M/s Yen Yen Yestee Agency, Shivkasi, from whom. M/s Praveen Traders has made purchases of fire works and payment of Rs. 69,918 has been made to the party after 12th March, 1993, in the month of March on various dates as per the accounts received from the party. The corresponding payment has been shown by the assessee in his books of account on later date in the month of March. The assessee did not explain the discrepancy. Accordingly, this amount was found to be unexplained investment by way of payment outside books of account. However, no separate addition was made as sufficient and undisclosed income was available because of different additions. On the similar issue, we have deleted the different additions as the amount is shown in the books of account though on different dates as the same appear to be in cash. Therefore, it cannot be stated to be undisclosed investment. It may be one of the discrepancies in the books of account of the assessee for the purpose of rejecting the book results of the assessee but, certainly, it can never be treated as undisclosed investment in the purchases, We, accordingly, delete this addition.
31. Ground No. 11 (f) : The account of M/s Praveen Traders was obtained from M/s Rajan Fire Works, Shivkasi. In this account, the amount received by the party shows that assessee had made payments of Rs. 2,28,000 and Rs. 55,140 on 30th Jan., 1993. The books of account show that payment of Rs. 2,28,000 was made on 30th March, 1993. This entry could not be explained by the assessee and very vague explanation has been given by him in response to the show-cause notice. According to the AO, explanation says that party has probably written 30th Jan., 1993, instead of 30th March, 1993, and there is no difference in the purchases made. Assessee further submitted that it appeared that there is a mistake while noting down this amount in the ledger of the party. However, AO did not accept explanation of the assessee and accordingly payment of Rs. 2,83,140 was taken unexplained and unexplained investment in the business. However, no separate addition was made because of the availability of the amount on account of additions under different heads. We find that purchases have been shown in the books of account though payments are made on different dates that do not prove that it was unexplained investment outside books of account. On similar issues, we have deleted different additions. We, accordingly, delete this addition also.
32. Ground No. 12(d) : The assessee account in the books of M/s Sri Kaileshwari Fire Works, Shivkasi, shows that an amount of Rs. 5,80,000 has been paid by the assessee by way of different bank drafts and cash on 13th Sept., 1993, 14th Sept., 1993 and 23rd Sept., 1993. The total of these payments comes to Rs. 5,80,000. Also on 14th March, 1994, assessee has deposited Rs. 25,150 by way of cash as per account of the assessee received from the party. The corresponding entries are not appearing in the books of account. Regarding this discrepancy assessee submitted that in fact payments are made to the party and the same have been shown in the books of account. For this year, cash book of the assessee, i.e., M/s Sri Subhash Fire Works, is not available as the same has been misplaced by the assessee. The account of M/s Sri Kaileshwari Fire Works, Shivkasi, in the ledger of the assessee does not show any such payment as is mentioned in the account received from the party. The assessee tried to explain before the AO that as per ledger account, there is balance of Rs. 57,616, whereas the balance sheet shows actual position. In the balance sheet Rs. 5,07,329, are appearing in the head of sundry debtor/ advance given to the suppliers in the name of M/s Sri Kaileshwari Fire Works, Shivakasi. The assessee tried to explain that due to some reason or mistake, the corresponding ledger entries were not noted from cash book as it is clearly indicated by difference of balance in the ledger and that in the balance sheet. The AO was of the view that in the absence of any proof regarding date of payment, the contention of the assessee was not accepted as the cash book was main piece of evidence which should have proved the contention of the assessee regarding dates of payments. Therefore, Rs. 6,05,150 are treated as unexplained investment in the business by way of payment outside books of account. However, no separate addition was made on account of availability of the funds because the additions made on different heads. Considering the above facts and circumstances and the nature of the addition and that assessee could not prove its contention by any material or evidence, we do not find any reason to interfere in the finding of the AO. We, accordingly, maintain the same and dismiss this ground of appeal of the assessee.
33. Ground No. 13(d) : During the course of the enquiries, account of the assessee in the books of account of M/s Rajasthan Rasainik Udyog, Alwar, shows that the assessee has made cash purchase of Rs. 1,08,576 on 6th April, 1994. The books of account of the assessee show payment, of Rs. 58,576 on 26th Oct., 1994 and Rs. 50,000 on 28th March, 1995, by cheques. Regarding this, no proper explanation was given by the assessee. It was stated that payment made by assessee through cheque is correct. However, AO treated it to be unexplained payment and made the addition. However, no separate addition was made as unexplained fund was available because of addition on different heads. The learned counsel for the assessee submitted that payment is made by cheques, Therefore, the explanation of the assessee is to be accepted. We find force in the submission of the learned counsel for the assessee as the concerned party has shown payment by cheques, but, in fact assessee has made payment by cheques of the aforesaid purchase. Purchase is shown as well as payment through cheques is shown, therefore, explanation of the assessee is liable to be accepted in the ordinary course of the business. No adverse inference can be drawn against the assessee and moreso, since the transaction is shown in the books of account, therefore, it cannot be treated to be unexplained investment or undisclosed income of the assessee. As a result, this addition is deleted.
34. Ground No. 13(f) : During the course of the enquiries, accounts of M/s Praveen Traders in the books of account of M/s Ravindra Fire Works Industries and Ravindra Fire Works, Sivakasi, were obtained. The books of accounts of the party, M/s Ravindra Fire Works, show credit of Rs. 2,19,292 in the account of the assessee by way of transfer through the account of M/s Pappin Brothers. The assessee was specifically asked to explain the discrepancy. The assessee has explained that amount shown by the party is not correct and he has no concern with M/s Pappin Brothers. Further, enquiry were made from Sivakasi and copies of the accounts of M/s Pappin Brothers, Ravindra Fire Works Industries and Ravindra Fire Works were obtained which indicated that M/s Ravindra Fire Works has an account with M/s Pappin Brothers, Saharanpur, in which a deposit of Rs. 2,20,000 has been made by various demand drafts. All such drafts were of State Bank of India and Union Bank of India which were purchased from Saharanpur. The deposits were made by demand drafts dt. 27th May, 1994, for Rs. 10,000 by demand draft dt. 13th May, 1994, and 17th May, 1994 for Rs. 1,40,000 and by demand draft dt. 20th May, 1994, for Rs. 70,000 to M/s Praveen Traders on 17th March, 1995.
35. Similarly, in Ravindra Fire Works Industries account of M/s Pappin Brothers also appears in which Rs. 1,30,000 have been deposited on 3rd June, 1994, by way of different bank drafts purchased. This amount has been transferred to M/s Praveen Traders on 17th March, 1995. Further enquiries were made from the bank regarding bank drafts deposited in these accounts. These drafts were serially numbered and were purchased from two banks only, namely, Vijaya Bank and Bank of Baroda. According to the enquiries, for the draft Nos. 0005745, 20005754 which were purchased by the assessee from Bank of India and draft Nos. 0005690 to 0005704 which were purchased by the assessee by the same bank were also made. AO noted that draft Nos. 0005690 to 5704 were found in the account received from M/s Ravindra Fire Works and enquiries were made for the balance draft just on the basis of the assumption that since all other drafts are serially numbered, it was quite possible that draft falling between these two numbers might have been purchased by the assessee. The enquiries from the bank reveal that the draft Nos. 0005745 to 5754 were purchased on 17th May, 1994. Actual demand draft numbers of these drafts were Nos. 449 to 458. The draft Nos. 0005690 to 5704 were purchased from Bank of Baroda on 13th May, 1994, and the actual drafts Nos. 390 to 404, the numbers written by the party in his books of account were the printed number, whereas, the numbers given by the bank were serially numbered of the drafts which were written on drafts issued by handwritten. On analysis of the draft application slips, photocopies of which were called under Section 133(6), clearly indicates that handwritings on the draft application slips are of Shri Ashish Chopra and Subhash Chopra as the handwritings on these draft applications slips is the same as were found in the documents seized during the course of the search which were in the handwritings of Shri Ashish and Subhash Chopra or the employees of the assessee, who use to issue the bills.
36. The other drafts were purchased from Vijaya Bank. Enquiries were also made from this bank and the same position was found as above. The assessee was asked to explain why the amount of the total of the drafts purchased from the Bank of India totaling to Rs. 5 lakhs and other drafts found deposited in the account of M/s Pappin Brothers, the total of which is Rs. 1,10,000 be not treated as the unexplained investment and be added to the income of the assessee Assessee merely replied that lie has no concern with M/s Pappin Brothers. The amount deposited in the account does not belong to him. AO, however, did not accept the contention of the assessee as the facts and circumstances clearly suggest that M/s Pappin brothers is a benami concern of the assessee in which assessee used to deposit drafts totaling to several lakhs and the enquiries from the bankers clearly suggest that in fact assessee purchased these drafts and deposited in the account of assessee through the transfer from M/s Pappin Brothers, therefore, AO did not believe that assessee has no concern with M/s Pappin Brothers, Saharanpur, as no firm or businessman will transfer such huge amount, through, account of one party to another without any justification. The AO accordingly made addition of Rs. 6,10,000. However, no separate addition has been made as undisclosed funds were available due to other additions. The learned counsel for the assessee submitted that no material was found in search against the assessee and there is no handwriting of the assessee. On the other hand, the learned Departmental Representative relied upon findings of the AO and argued that AO made enquiries into the matter on the basis of seized materials as certain incriminating materials were available which were recovered during search and AO made enquiries only on seized material and came to know about the facts as mentioned by the AO in the assessment order. The learned Departmental Representative further submitted that different bank counterfoils were recovered which clearly suggested that assessee made unexplained investment in various drafts and was also having connection with M/s Pappin Brothers. Considering the above facts and circumstances and submissions, we are of the view that sufficient material was available with the AO which was collected in post-search enquiry on the basis of the seized material recovered during the search against the assessee. The assessee could not explain satisfactorily the addition proposed to be made by the AO. The special facts were within the knowledge of the assessee as regards M/s Pappin Brothers which assessee has not disclosed. Since the assessee has failed to explain the above deposits in the draft, therefore, AO was justified in drawing adverse presumption against the assessee. The AO has also rightly compared the handwriting of the assessee from the admitted handwriting available on record. Therefore, comparison made by the AO could be taken into consideration as the same is legally admissible under law. The assessee merely denied the handwriting which is not sufficient to rebut the finding of the AO. We, accordingly, do not find any justification to interfere in the findings of the AO. We maintain his finding and dismiss this ground of the appeal of the assessee.
37. Ground No. 13(g) : The assessee’s account in the books of Standard Fire Works was also received as a result of enquiry which shows that the assessee had made payments to the party of Rs. 4,075 on 7th June, 1994, and Rs. 2,11,575 on 20th June, 1994. These entries could not be co-related with the entries found in the books of account of the assessee. In the books of account of the assessee, assessee has made payment to the party on 24th March, 1994, of Rs. 1,24,091 by cheque. The assessee was asked to clarify the discrepancy. However, assessee has stated that payment made by the assessee and shown in the books of account is correct. The addition was however made by AO. No separate addition was made because of availability of the undisclosed funds because of different additions. We find that assessee has made payment by cheque and such payment by cheque should not have been disbelieved by the AO. AO has not brought any evidence on record to show that assessee in fact made payment of the amount which has shown by the party in June, 1994. We, accordingly, do not find any justification to sustain the addition. As a result, this addition is deleted.
38. Ground No. 13(h) : In the accounts received from the two parties of Shivakasi, AO found that the assessee deposited Rs. 2,000 on 11th June, 1994. No corresponding entry was made by the assessee in his books of account. It was merely explained that payment is made by the agent to the party to obtain the order. AO disbelieved the explanation of the assessee and made the addition. Considering the above explanation of the assessee, it is clear the payment made by the agent is deemed to be made on behalf of the principal. Therefore, assessee should have made corresponding entry of this amount in books of account. Therefore, it is, clearly undisclosed investment by the assessee. The addition is, therefore, confirmed.
39. Ground No. 13(i) : From the accounts of the assessee received from M/s Sham Sunder & Co., Moga to whom M/s Praveen Traders- has made sales, the accounts received from the party showed that the assessee has received cash of Rs. 7,571 on 23rd Sept., 1994, whereas the books of account of the assessee show cash receipt from the party of Rs. 7,000 on 4th Aug., 1994. The assessee was asked to explain the cash receipt, but, assessee failed to explain, Therefore, AO treated the receipt on 4th Aug., 1994, to be undisclosed payment and made the addition. No satisfactory explanation is given before us, as such, we do not find it proper to interfere in the finding of the AO. The addition is, therefore, confirmed.
40. The above additions are decided on the basis of material available on record. We may clarify that the AO made the enquiries because of search material recovered from the possession of the assessee. During the assessment, explanation of the assessee was called for and on failure of the assessee to explain the same material, AO drawn inference against the assessee and made the additions. The AO can make enquiry into at the assessment stage on the basis of the seized material. However, where no material was recovered, AO is not justified to make roving enquiry against the assessee. Considering the above discussion and various additions above, the issue No. 1 is partly decided in favour of the assessee.
41. Issue No. 2 : The learned counsel for the assessee submitted that in the block assessment AO cannot make addition on the basis of assumed sales/purchases on the sole basis of difference in copies of the accounts obtained from different parties under Section 133(6) and estimate the gross profit. On this issue, the learned counsel for the assessee submitted the chart showing the various additions on the basis of estimation of the gross profit.
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Ground No. Amount of addition GP estimation
(Rs.)
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8(c) 1,700 10%
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10 (b) 2,087 10%
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12(a 54,225 15%
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12(b) 4,714 10%
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13(a) 28,000 10%
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13(b) 644 10%
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13 [CIT (A)] 2,086 10%
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42. The learned counsel for the assessee submitted that there is no material found in the search to suggest whether any sale or purchase has taken place for the amount alleged by the AO. He has further submitted that no addition can be made on presumption in the block assessment. He has further submitted that AO has adopted different GP rates for different additions. On the other hand, the learned Departmental Representative submitted that the AO on the basis of discrepancies and seized material available on record rejected the book results and rightly directed to make additions by estimating gross profit. On consideration of the above facts, we are of the view that the learned Departmental Representative was justified in contending that the GP rate can be estimated even in the block assessment after amendment under Section 158BC(b) of the IT Act by which the provisions of Section 144/145 of the IT Act are applicable retrospectively. In this case, seized material was recovered during the search which clearly suggested that assessee has made sales and purchases outside the books of account which have not been satisfactorily explained before the AO. Therefore, book results of the assessee are liable to be rejected. Even, Tribunal, Pune Bench, in the matter of Khopade Kishan Rao Manik Rao (supra) held that the provisions of Section 145 can be applied while assessing the undisclosed income under Chapter XIV-B of the IT Act. Since various seized materials found during the course of the search suggest that assessee has made undisclosed sales and purchases and also made unexplained investments outside the books of account upon which various additions have been made, proved that the books of account of the assessee are not reliable and no proper income of the assessee could be deduced. The assessee in the regular returns has shown the book results, but, after search various seized materials were recovered which suggest that the assessee made the transaction outside the books of account. Therefore, book results of the assessee were not acceptable. Though the AO has not specifically mentioned about the rejection of the book results under Section 145 of the IT Act, but, from finding given in the assessment order on the basis of seized material, it is clearly proved that the provisions of Section 145 are clearly attracted in this case and would also prove that AO was not satisfied about the correctness or completeness of the accounts of the assessee and, as such, AO rightly directed to apply GP rate because of various additions. The learned Departmental Representative relied upon the decision of the Bombay High Court in the matter of Dondimm Dalichand (supra) in which it was held that ITO need not make an explicit statement to the effect that profit made cannot be properly deduced from the accounts of the assessee. It is sufficient if his order has the effect of impliedly recording such findings. Therefore, we do not find any merit in the statement of the learned counsel for the assessee that no GP rate can be estimated in the block assessment. However, we find that for the GP rates as estimated by AO on different heads as mentioned above ranging from 10 per cent to 15 per cent, AO has not given any basis whatsoever for making difference in the GP rates. Assessee is stated to have shown GP rate of 6.8 per cent and AO has directed to apply 10 per cent to 15 per cent GP rates. Therefore, there is no justification to apply GP rate of 15 per cent on ground 12(a) mentioned above. The GP rate of 10 per cent appears to be reasonable and, therefore, considering the rule of consistency, we direct the AO to apply GP rate of 10 per cent on the grounds mentioned above upon which main addition is sustained, We may also clarify that since the GP addition is based upon addition on different heads, therefore, the addition would be sustained by the AO only on the additions which have been confirmed by us in this order. Likewise, we may clarify t-hat on ground No. 8(b) we have sustained the addition on merits upon which ground 8(c) is raised for addition of Rs. 1,700 by way of GP rate, therefore, this addition is maintained. Similarly, on ground No. 10(b), we have deleted addition on merits. Therefore, GP rate addition on ground 10{b) in a sum of Rs. 2,087 shall be treated to be deleted. These two examples have been given by us for clarification of the AO. Therefore, AO shall sustain the addition of the gross profits on the additions which have been confirmed in this order. Issue No. 2 is decided partly in favour of the assessee and is disposed of in terms above.
43. Issue No. 3 : The learned counsel for the assessee submitted that AO cannot make addition in the block assessment on account of alleged bank account deposits and FDRs in the similar name, not found at the time of search, but, found in the post-search enquiries from various banks. On this issue ground Nos. 7{b), 13(k), 9(d) and 10(a) are raised which we take up separately.
44. On the other hand, learned Departmental Representative submitted that various unaccounted bank transactions were recovered during the course of the search as well as various bank counter foils were recovered and as such the AO made the enquiries with different bankers on the basis of the search material, Therefore, the subsequent enquiry made by the AO was relatable to the search material and evidence recovered during the course of the search. The learned Departmental Representative further submitted that mere denial of the assessee for opening of these accounts and FDRs is not acceptable and as such AO was justified in making the addition, Considering the above facts and the details of the search material filed in the record, we are of the view that the learned counsel for the assessee is not justified in contending that no search material relating to this issue was recovered during the course of the search. The record shows that material was recovered during the course of the search showing unaccounted bank accounts and bank transactions upon which AO made proper enquiry into the matter and collected further material against the assessee upon which proper explanation of the assessee was called for. However, the assessee failed to explain the material collected by the AO during the course of the search and as such AO was justified in sustaining the additions. Now, we take the different additions on merits.
45. Ground No. 7(b) ; During the course of the enquiry from the bank an account No. 1869 in Vijaya Bank, Saharanpur, was found in the name of the assessee. In that account an amount of Rs, 2 lakhs was deposited by cash on 5th Nov., 1988. From this account, various drafts issued to different parties were purchased. The assessee was asked to explain the entries in respect of bank account. Assessee submitted that this amount is not related to him and he is not in a position to explain the entries. Further enquires from the bank were made. The account opening form and the draft application slips through which the drafts were purchased and also the deposit slips through which amounts of Rs. 2 lakhs were deposited have been called from the bank. It has been found by the AO that account is in the name of M/s Subhash Fire Works, Gangoh Road, Saharanpur, and the person authorized to operate account was Sri Hariom. The name and address shown in this account is same to that of the assessee. AO also found that handwriting on the papers to be the same of the assessee as well as his son which was compared from the admitted handwriting on the papers available on record recovered during the course of the search. Therefore, AO concluded that these are unaccounted transaction in the bank by the assessee outside the books of account which have not been shown to the Department. Therefore, it was treated to be undisclosed cash introduced from undisclosed sources and addition of Rs. 2 lakhs was made. The learned counsel for the assessee simply stated that there is no handwriting of the assessee and that account was recovered during the post-search enquiry. We do not accept the explanation of the learned counsel for the assessee. The bank account and the address is in the name and address of the assessee. Assessee has not shown as to what steps he has taken either against the banker or the concerned person for opening the account in his name and address. Assessee remains silent and has only filed vague reply. The post-search enquiry was made by the AO on the basis of seized material. The handwriting was found similar to that of the assessee which was compared by the AO from the admitted handwriting available on the seized material. In the absence of any explanation, AO was justified in making the addition. We confirm the addition and dismiss this ground of appeal of the assessee.
46. Ground No. 13(k) : Assessee has bank a/c No. 12 in Oriental Bank of Commerce, Shekhpura Kadiem. It was found that there was a credit entry in this bank account on 7th Sept., 1994, showing cash deposit of Rs. 75,000, whereas in the cash book of the assessee it was shown as deposit of Rs. 35,000 only. AO accordingly made addition of Rs. 40,000. The learned counsel for the assessee did not press this ground of appeal of the assessee and submitted that addition may be confirmed. Considering the above submissions of the learned counsel for the assessee, the addition is confirmed and this ground of appeal of the assessee is rejected.
47. Ground No. 9(d) : During the course of the enquiries from various banks, three FD accounts in the name of Subhash Chand Ambala Road, Saharanpur, were found in Oriental Bank of Commerce, Halalpur, Saharanpur. These accounts were 181, 183, 685/90. The amounts of Rs. 20,000, Rs. 20,000 and Rs. 22,000 were deposited. These FDRs have subsequently been encashed and deposited in the bank a/c No. 2112 of the same bank. The assessee merely denied the FDRs. On enquiry from the bank, it was revealed that money has been deposited by assessee in the bank account in the aforesaid FDRs and the handwriting was also found of the assessee as well as of his son. This addition is based upon the list of papers seized from the premises of the assessee during search. Therefore, AO made the addition. Nothing is argued on this issue before us except merely denying of having any FDRs in the name of the assessee. Considering the finding of the AO and that the additions are based upon enquiries conducted by the AO on the basis of search material, we do not find any justification to interfere in the order of the AO. This addition is, therefore, confirmed and this ground of appeal of the assessee is dismissed.
48. Ground No. 10(a) : AO made the addition of Rs. 2,304 being interest on the aforesaid FDRs upon which ground 9(d) is taken. Since we have confirmed the addition on ground 9(d), therefore, this addition is also confirmed. As a result, this ground of the appeal of the assessee is rejected. This issue is decided against the assessee and in favour of the Department.
49. Issue No. 4 : The learned counsel for the assessee submitted that in the block assessment, AO cannot make addition on the basis of DVO report or self- estimation as actually, investment is recorded in books of accounts and returns of income have been filed for all the years prior to the search. He has further submitted that all the properties are declared in the return prior to search and no material was found during search for any unrecorded investments in the properties. He has further submitted that basement in question was very old one and no material was recovered to show that there is any undisclosed investment and the basement which was not in use at any point of time. He has filed copies of the balance sheets in the paper book at pp. 260, 263, 267 and 271 showing investment in the properties in different years as well as referred to the reply filed as regards construction of basement at p. 134 of the paper book. The learned counsel for the assessee further submitted that search was conducted on 13th Oct., 1995, and reference of DVO for estimating cost of construction was made on 3rd Oct., 1996, and since there is no material available on record, therefore, no addition in the block assessment can be made. On the other hand, the learned Departmental Representative submitted that report of the DVO is admissible in evidence as Section 142A has been introduced in the IT Act with retrospective-effect. Therefore, AO is competent to make a reference to the DVO. On consideration of the above submission, we find that assessee has shown cost of the construction in the return of income through different balance sheets in different assessment years. Copies of the balance sheet have been filed in the paper book on the pages mentioned above showing the cost of construction by assessee in different years. The returns for earlier years were filed prior to the search. The AO referred the matter to the DVO during the course of the assessment and directed to make addition on ground 11(g) in a sum of Rs. 85,956, on ground No. 12(e) in a sum of Rs. 72,908, on ground No. 13(1) in a sum of Rs. 2,16,759 and on ground No. 13, addition is made in a sum of Rs. 2,236. These additions are mainly made on account of difference in the valuation shown by the assessee in the return of income filed prior to search and in the report of the DVO collected on reference after search. Admittedly, no seized material was found during the course of the search to show that assessee made undervaluation in the cost of construction of the building, that is, office building, office godown and godown. Similarly, AO on examination found that assessee has basement which was full of water. Addition of Rs. 1,20,000 was made on ground No. 11(g). The assessee explained that basement is old one which is not in use as it was closed and because of the water collected in the basement, therefore, it was never in use. On this issue also, there is no seized material available on record to show that assessee made any undisclosed investment in the construction of the basement. AO found that walls are old one and only on the basis of observation by the valuation department, AO came to opinion that there is an investment in the basement. There is no denial that Section 142A is introduced retrospectively by which reference could be made by AO to the Department Valuation Officer. But, such reference could only be made during the pendency of the proceedings. However, the present proceeding under assessment is the block assessment under Chapter XIV-B and the addition could be made only on the basis of undisclosed income found as a result of evidence recovered during the course of the search or material or documents collected during the course of the investigation which are relatable to the evidence recovered during the course of the search. Since in this case, no material or evidence is recovered during the course of the search on this issue, therefore, AO is not competent to make a reference and make post-search investigation to make the addition in the hands of the assessee. Tribunal, Pune Bench, in the matter of Vaishali Hotels (P) Ltd. (supra) held that “All the expenditure on construction of building is duly recorded in books of account and no material or evidence whatsoever was found at the time of search which could show that assessee had spent any amount outside the books of accounts. Accordingly, the addition is based on report of DVO and it cannot be said that anything was hidden from the knowledge of the Department. Even in the course of the assessment proceedings, the AO brought no material on record that certain sum was incurred on cost of construction outside the books of the account of the assessee. He has simply followed the DVO’s report which was not accepted by the assessee because it was based on pure estimation. Therefore, without going into the merits of the case, the impugned addition cannot be treated as undisclosed income within the meaning of Section 158BB. The addition accordingly deleted.” As a result, the entire additions mentioned above are deleted and this issue is decided in favour of the assessee on grounds mentioned above.
50. Issue No. 5 ; On this issue various different additions are made by the AO which were take up as under.
51. Ground No. 8(d): During the course of the enquiries from bank, the account No. 1262 in the name of Subash Chand, Gango Road, Saharanpur, was found in Punjab Co-operative Bank, Saharanpur. This bank account had various credit entries by clearing and the amounts which were deposited in the bank were withdrawn by the assessee. In this regard, assessee has explained that these entries in this account are out of collection made from outstation which were converted into drafts as it was not safe to bring much amount in cash from outstation. The assessee could not further correlate the entries with specific sales or parties from whom he has received the money. Therefore, AO treated this account as the unexplained money which was found with the assessee and made the addition of Rs. 12,550. Similar submission is reiterated by counsel for assessee before us. However, fact remains that the assessee could not correlate any entries with the bank account to that of any parties with whom assessee had dealing. Therefore, the contention of the assessee is rejected and the addition is confirmed.
52. Ground No. 8(e) : During the year, Kinetic Honda scooter has been purchased in the name of Smt. Praveen Chopra which has not been disclosed in the books of account. The source of investment in the purchase of the scooter has been explained by assessee being “Istridhan” of Smt. Praveen Chopra. Since, Smt. Praveen Chopra was regular assessee and the amount of investment in scooter was not shown to the Department, therefore, AO treated it undisclosed expenditure and made the addition. The learned counsel for the assessee submitted that investment in the scooter is shown in the books of account in the financial year 1989-90. Copy of the ledger account is filed at p. 275 of the paper book. The learned Departmental Representative submitted that assessee has changed his version before the Tribunal. However, considering the fact that scooter is also shown to the Department, it cannot be said to be undisclosed expenditure. Therefore, this addition is deleted.
53. Ground No. 9(b) : In account No. 1262, with the Punjab Co-operative Bank Ltd., Saharanpur, the total amount deposited by assessee during the asst. yr. 1991-92 is Rs. 1,36,737. It was treated as undisclosed income. We have confirmed the addition on the same issue on ground 8(d) above. Therefore, this addition is also confirmed.
54. Ground No. 10(c): It is also same addition as regards a/c No. 1262 in which deposit is made in Punjab Co-operative Bank Ltd., therefore, this addition is confirmed on the same reasoning as is given above.
55. Ground No. 11 (a) : During the course of the search and seizure operation, a diary written by Sri Ashish Chopra (son of the assessee) was found which was seized as per Annex. A1-21. This diary is written from p. 1 to p. 58 and is in the handwriting of Sri Ashish Chopra. It was submitted by assessee that diary was used by Ashish Chopra for noting down the transactions related to business of the assessee and the work given to him, etc. AO on perusal of this diary found that this diary was used by Sri Ashish Chopra while he was on tour for collecting outstanding payment from various parties. Some of the notings of the diary match with the account books maintained by the assessee which proved that this diary has transactions which pertain to business of the assessee. This fact is also admitted, by assessee in his submission. The transactions noted in diary pertaining to asst. yr. 1993-94 mainly at p. 9 of the diary starts with dt. 27th March, 1992. It appears that Sri Ashish Chopra started his tour from this date onwards. After some pages, i.e., p. 13 date of 1st April, 1992, is written in the handwriting of Shri Ashish Chopra and after that, all the transactions pertain to financial year 1992-93 which are confirmed by various dates noted on this diary. This clearly shows that payments from transactions received by Sri Ashish Chopra which are hided in the diary are receipts of the assessee’s business for financial year 1992-93 and, therefore, additions were made in asst. yr. 1993-94. Assessee was given copy of the diary and explanation of the assessee was sought. Assessee did not explain the entries in the diary. The AO on the basis of reply of the assessee found that assessee accepted this fact that this diary contains the transaction, related to the business of the assessee. AO found that at p. 58, it is the account of M/s Nandalal Mahavir Prasad to whom loan of Rs. 8,33,000 has been given by the assessee, out of which Rs. 6 lakhs were received back on various dates during the year and balance is outstanding. The AO noted the entries in the assessment order and found that interest is also to be charged on that ground. The AO on the basis of seized material and vague reply of the assessee was of the view that Rs. 8,33,000 are held to be unexplained money found in the possession of the assessee which has been given by him to M/s Nandalal Mahavir Prasad as loan. However, no addition is made of the full amount and addition is made in a sum of Rs. 1,76,332 as unexplained funds were available because of action on other issues. The learned counsel for the assessee submitted that there is no corroborative evidence to the diary. No evidence of loan given is found and that there had been no dealing and the AO has made addition mainly on presumptions. The learned counsel for the assessee relied upon the reply filed before the AO. On the other hand, the learned Departmental Representative submitted that son of the assessee was managing the affairs of the assessee and was aware of the transactions and p. 58 of the diary is the loan account which has not been fully explained. Therefore, AO was justified in making the addition of the aforesaid amount. On consideration of the above facts and finding of the AO, we are of the view that the AO made this addition on the basis of the entries contained in the diary seized during the course of the search. Admittedly, the diary was written by son of the assessee which pertains to the business of the assessee. These facts are not disputed even before us. Therefore, this addition is virtually based upon the material and evidence recovered during the course of the search. Specific entries have been recorded as regards giving loan to M/s Nandalal Mahavir Prasad. The details contained in the diary clearly speaks of the transactions between the assessee and the aforesaid party. Therefore, AO was justified in making the addition in the hands of the assessee as assessee failed to explain the entries in the diary. The contention of the assessee is liable to be rejected since the diary speak against the assessee specifically and assessee failed to explain the entries in the diary. Therefore, AO rightly made addition in the hands of the assessee. No interference is called for in the matter. As a result, this ground of appeal of the assessee is dismissed.
56. Ground No. 11(b) : The AO on the basis of other pages of the diary seized during the course of the search found various receipts of the assessee on account of sales made to different parties during the year under consideration. While some of the entries were correlated by the assessee with the books of accounts of M/s Praveen Traders and M/s Subhash Fire Works, the other entries could not be correlated by the assessee. The assessee was given show- cause notice dt. 14th Oct., 1996, and assessee was directed to explain unexplained receipts of the assessee. However, assessee submitted a chart showing the amounts received which are noted in the diary and the sales made to those parties which are shown in the books of accounts of the assessee. It has further been submitted by assessee that noting on this diary is on account of collection made by Shri Ashish Chopra on account of sales in different years. However, he could not explain the following entries namely (1) p. 12, M/s Arora Fire Works (2) p. 24, M/s Shiv & Co. (3) p. 24, different parties of Batala (4) p. 27, different other parties (5) p. 29, Shri Harbancilal (6) p. 36, Shri Mohanlal Ravikumar (7) p. 37, M/s Pushpa Traders (8) p. 37, Shri Vinod (9) p. 39, Vinod Trader (10) p. 39, M/s Pushpa Traders (11) p, 39, D.R. Gupta (12) Receipt from R.D. Makheeja, at pp. 40, 41, 42 (13) M/s Ahuja General Store, at p. 40, (15) Bansilal, at p. 41 (16) P. 41 Krishnalal & Sons (17) p. 42, Bahadur and Amit Store (18) p. 43, entries of different parties and in the name of Subhash General Store (19) p. 44, account of Batala and Topendas and Shakti General Store (20) p. 45 46, 47 different amounts have been received from different persons (21) p. 48 Bansilal (22) p. 48, again account of the parties says the amount outstanding (23) p. 49, Khem Chand and Jaswanth Dihatti (24) p. 50, Makho (25) p. 54 noting of the purchase from STP Ltd., (25) p. 58, purchase from Radhik Amorces. The AO noted all the details in the assessment year from pp. 14 to 21 which are not repeated here for the sake of brevity. The AO on the basis of the transaction recorded in the diary worked out the total sales outside the books which came to Rs. 25,85,047 and AO further found that in asst. yr. 1993-94, net profit rate shown by the assessee is 2.6 per cent and accordingly, directed to apply net profit rate of 3 per cent and made the addition of profit in a sum of Rs. 77,551 on account of profit from undisclosed sales. It is not disputed before us that this dairy was seized during the course of the search and is written by son of the assessee in respect of the transactions outside the books of account of the assessee. The AO had been generous in not making further addition of the undisclosed sales/purchases. The AO has mainly made the addition or account of profits from undisclosed sales. The learned Departmental Representative submitted that assessee has failed to explain these transactions recorded in the diary. Therefore, AO was justified in making the addition. We find force in the submission of learned Departmental Representative, We accordingly, maintain the addition as the additions have not been explained by the assessee at all. Therefore, AO was justified in applying the net profit rate for the purpose of taking profit from undisclosed sales. This addition is therefore, confirmed and this ground of the appeal of the assessee is rejected.
57. Ground No. 11(c) : The AO on the basis of the above addition and undisclosed sales made the addition of Rs. 3,61,906 on account of capital required for making sales. Since the above addition of the net profit rate on ground 11(b) is confirmed, therefore, AO was justified in making the addition of the aforesaid ground. We confirm this addition and dismiss this ground of appeal of the assessee.
58. Ground No. 12(c) : The AO on the basis of p. 58 of the diary seized during the course of the search found that loan is given by assessee to M/s Nandalal Mahavir Prasad and on such loan assessee received interest amount with the final settlement and accordingly, directed to make addition of Rs. 1,19,940 being interest received on the loan amount of Rs. 8,33,000. We have confirmed the addition on account of the loan transaction. Therefore, this addition is also confirmed as is related to the seized material collected during the course of the search on ground No. 11(a). Therefore, this ground of appeal of the assessee is rejected.
59. Ground No. 13(e): During the course of the enquiries, copy of the account of assessee in the books of M/s Shivakasi Fire Works was obtained. On 6th April, 1994, deposit of Rs. 60,000 has been mentioned. These entries are not found in the books of account of the assessee. It is stated on that the amount received from the party that entry has been squared up on the same day. These entries are not found in the books of account of the assessee and assessee could not offer any explanation. Therefore, it was treated undisclosed income. However, no separate addition was made because of undisclosed funds available on other additions. The learned counsel for the assessee submitted that no seized material was recovered on this issue. The learned Departmental Representative also could not specify. Therefore, this addition is deleted.
60. Ground No. 13(j) : This addition is based upon ground Nos. 13(a), 13(h), 13(1), 13 (b) and (c) and as such the AO shall be guided by different findings on these issues while giving set off on issue of the ground 13(j).
61. Ground No. 14(a) : The AO on the basis of seized material and considering the fact that the assessee had sales outside the books of account and that huge cash was available with the assessee and stock was found short, was of the view that the assessee had been doing business outside books of account. The assessee had shown net profit rate of 3.8 per cent in asst. yr. 1995-96. Therefore, AO estimated sales and directed to apply net profit rate of 5 per cent on the estimated sales of Rs. 15 lakhs and made the addition of Rs. 75,000. The learned counsel for the assessee submitted that different net profit rate is applied in different years. The learned Departmental Representative submitted that on the basis of the loose papers 16, 17 and 18 found during the course of the search, AO found that assessee had been making sales outside books of account. Therefore, book results were rightly rejected. He has further submitted that stock was also found not comparable with the books of account. Therefore, net profit rate is rightly applied. It appears from the submission of the assessee that assessee has virtually challenged that net profit rate of 5 per cent as excessive. According to AO assessee had made sales of Rs. 13,03,012 outside the books of account which were rounded off to Rs. 15 lakhs. Assessee had shown net profit rate of 3.8 per cent in financial year 1994-95 and, as such, in the asst. yr. 1996-97 AO had applied net profit rate of 5 per cent It cannot be, therefore, said to be excessive estimate of the sales and net profit. Addition is, therefore, confirmed.
62. Ground No. 14(b) : On the same issue AO was of the view that for making sales outside the books of account assessee required the capital and as such assessee made unaccounted investment in’ the capital for the purpose of making sales, and made the addition of Rs. 1,42,500. This addition is based upon the above ground 12(a). Accordingly, this addition is also confirmed as is based upon sound reasons of the AO. As a result, this addition is confirmed.
63. Ground No. 14(c) : On this issue during the course of the search Maruti car No. HR01C-7506 was found in the premises of the assessee. On enquiry it was revealed that car was initially registered in the name of Paras Ram and assessee explained that he had purchased secondhand car for a sum of Rs. 2,50,000 which is shown in the regular books of accounts. AO made enquiry. As the seller was from Chandigarh, but, seller was not found, therefore, it was presumed by AO that assessee is benami owner of the car and has purchased new car and made the addition of Rs. 4,40,000. However, no separate addition was made as undisclosed funds were available because of addition on different issues. The learned counsel for the assessee submitted before us that car was registered in other’s name originally and no material was found during search to show that assessee was benami owner of the car. The investment in the car in a sum of Rs. 2,50,000 is also shown to the Department. Therefore, learned counsel for the assessee submitted that merely because original owner of the car was not found is no ground to make the addition in the hands of the assessee. The learned Departmental Representative, on the other hand, submitted that the estimate is reasonable and relied upon the findings of the AO. We do not agree with submission of the learned Departmental Representative that addition is justified in the matter. The assessee stated to have purchased secondhand car and no material was found during the course of the search to show that assessee has made any investment from undisclosed funds in the car. Since no material was found during the course of the search, therefore, the addition on account of value of the car in the block assessment is not permissible. The addition is, therefore, deleted. As a result, this ground of appeal of the assessee is allowed. No other issue is argued or pressed before us.
64. Considering the above discussion, we confirm various additions as indicated above. However, we may clarify here that AO has given set off as he has not made additions of the various amounts in the computation of undisclosed income in different block period as undisclosed funds were available. However, we have partly maintained the additions and some of the additions have been deleted on merits. Therefore, AO shall be guided by the finding in this order in giving set off to the various additions and in case no separate addition is made because of availability of the funds on other additions and AO find that those additions have been deleted upon which set off is given, then the AO shall be entitled to make additions separately on account of deletion of the main addition for which set off is given in the assessment year. As a result, the appeal of the assessee is partly allowed as indicated above.