Income Tax Appellate Tribunal - Pune
Shradha Construction vs Assistant Commissioner Of Income-Tax on 29 October, 1999
ORDER
B. L. Chhibber, A.M.
1. The assessee is a partnership firm with Shri Shivaji Bhagwanrao Jadhav and Smt. Meera Shivajirao Jadhav as its partners and has been engaged in executing civil work of Government Departments mostly of Irrigation Department. The firm came into existence vide deed of partnership dt. 12th January, 1993, w.e.f. 13th November, 1992. Prior to the formation of partnership, Shri Shivajirao was doing the business in his individual capacity.
2. Search action under s. 132(1) of the IT Act, 1961, was carried on 8th August, 1996 to 10th August, 1996, on Shradha Construction group. Cash of Rs. 4,50,000, other assets and certain documents/books of accounts were seized during the course of search. The assessment was completed by the AO under s. 158BC r/w s. 143(3) for the block period 1st April, 1986, to 8th August, 1996. Aggrieved by the order of the AO the assessee is in appeal before us.
3. Four grounds have been raised. The same are discussed and disposed of as follows. Ground Nos. 1 and 2 read as under :
"1. On the facts and in the circumstances of the case, the learned Asstt. CIT erred in treating that the entire income of Rs. 1,51,29,500 as per the return filed by the appellant for asst. yr. 1996-97 as undisclosed income, on the ground that the appellant had not maintained proper books of accounts and that the return income was based on the statement of affairs. The learned Asstt. CIT erred in interpreting the provision of s. 158BB(1)(d) in this behalf. The appellant submits that the appellant did maintain books of accounts though incomplete and also other documents such as bank statement, vouchers, etc. from which the income could be computed. It is significant to note that even the Asstt. CIT has accepted the income returned as correct without making additions. The appellant, therefore, submits that on true and proper interpretation of s. 158BB(1)(d), the undisclosed income of the appellant for 1996-97 may kindly be taken as 'NIL'.
2. On the facts and in the circumstances of the case the learned Asstt. CIT erred in treating the income for the broken period from 1st April, 1996, to 8th August, 1996, amounting to Rs. 51,81,310 as undisclosed income without giving any consideration for the fact that for the said broken period also the appellant had maintained books of accounts though incomplete and had also other documents. On this basis the learned Asstt. CIT ought to have allowed deduction of Rs. 51,81,310. The appellant, therefore, submits that undisclosed income for the broken period 1st April, 1996, to 8th April, 1996, also may be taken as 'Nil'.
4. The AO has given an annexure to the assessment order. As per the working given in the annexure, undisclosed income is Rs. 1,91,84,969 as against Rs. 3,94,95,779 shown in the assessment order. There is no dispute so far as the computation of income is concerned but the assessee is aggrieved by treating income shown for asst. yr. 1996-97 and for part period of 1997-98 which are the years from which the date for return was not over as undisclosed income. According to the assessee, the income for asst. yr. 1996-97 was Rs. 1,52,29,500 and the income for asst. yr. 1997-98 (part period) was Rs. 51,81,310 and deduction for these amounts ought to have been allowed in computing the total undisclosed income of the block period. In para 4 of the assessment order, the AO has observed that the assessee has not maintained proper and regular books of accounts. "......... In view of this, the provisions of s. 145 of the Act are invoked and the assessment has been made in the manner provided under s. 144 of the Act". According to the AO as per the provisions of s. 158BB(i)(d) of the Act, which is applicable for the previous year which has not ended or the date of filing the return of income has not expired, the disclosed income has to be computed on the basis of entries, relating to such income or transactions as recorded in the books of accounts and other documents maintained in the normal course on or before the date of search. Then, the AO proceeds to observe the following :
"21. In the instant case, the assessee had not been maintaining proper books of accounts in the normal course. The P&L a/c. and balance sheet had not been prepared for any of the years falling within the block period. The assessee had worked out the undisclosed income only on the basis of statement on affairs as on 8th August, 1996, the date of search. Subsequently, the assessee had filed the return of income for asst. yr. 1996-97 only on the basis of statement of affairs and has not prepared its accounts. This clearly establishes that the assessee has not been maintaining books of accounts and other documents that are required to be maintained in the normal course.
22. The assessee was claiming sub-contracts in the names of various persons which were detected and admitted by the assessee to be not genuine and various assets in the name of other persons were found to be belonging to the assessee. From the records seized during search action in the form of incomplete accounts for asst. yr. 1996-97 and asst. yr. 1997-98, it is clear that the assessee would have continued to suppress its income in this manner, but for the search action. Also, the assessee has not paid any advance tax for asst. yr. 1996-97, the due dates for which had expired before search action, which also is an indication that the assessee would not have disclosed the income now shown for asst. yr. 1996-97 and for part period of asst. yr. 1997-98, but for the search action. Hence, the disclosed income for asst. yr. 1996-97 and the part period for asst. yr. 1997-98 is taken as 'Nil'."
accordingly, the AO treated the income shown by the assessee for asst. yr. 1996-97 and for part period for 1997-98 and as assessed as the undisclosed income and not the disclosed income as claimed by the assessee.
5. Shri K. A. Sathe, the learned counsel for the assessee, submitted that the assessee-firm was maintaining the regular books of accounts. Accounts of the firm were regularly audited and returns were filed upto asst. yr. 1995-96. Assessments were completed under s. 143(3) of the Act. Accounts for the asst. yr. 1996-97 were regularly maintained on computer. The assessee is doing the business in underdeveloped area where the qualified and experienced accountant and other office staff is not available. Chief accountant of the assessee has studied upto 12th standard in rural area. Hence, the accounts needed scrutiny by qualified accountant at the end of the year. At the time of search action on 8th August, 1996, accounting floppy along with other documents was seized. Faced with the seized floppy and other documents, the income for asst. yr. 1996-97 was Rs. 1,51,29,500 and the income for asst. yr. 1997-98 (part) was Rs. 51,81,310 and deduction for these two amounts ought to have been allowed in computing the total undisclosed income of the block return. In fact, in the annexure at p. 10 to the assessment order, the AO considered these two items of disclosed income and arrived at total undisclosed income at Rs. 1,91,84,969 but in the main assessment order did not allow any deduction for the return for assessed income for the asst. yrs. 1996-97 and 1997-98 and computed the total undisclosed income at Rs. 3,94,95,779. According to the learned counsel, income of Rs. 1,51,29,500 for asst. yr. 1996-97 and the income of Rs. 51,81,310 for asst. yr. 1997-98 is nowhere found to be incorrect in the assessment order, and there was no reason to believe that the assessee would not have disclosed any income whatsoever for these two years.
6. Drawing our attention to the definition of 'undisclosed income' under s. 158B, the learned counsel submitted that as far as asst. yrs. 1996-97 and 1997-98 were concerned, since on the date of search due dates for filing the returns for these two years had not yet arrived, there was no occasion for the assessee to disclose any income for these two years. Therefore, the AO is not justified in observing that but for the search the assessee would not have disclosed the above income. According to the learned counsel, there is ample material to show that from the seized record there was enough indication to show that the assessee would have disclosed some income. The first presumption of the AO that no income would have been disclosed for these two years is, therefore, totally unwarranted. The learned counsel further submitted that during the course of the search, 20 floppies were seized. According to the assessee, the assessee's records are prepared from the floppies. The basic data in the form of primary record is all available. For example, the assessee's receipts are entirely from the banks. Full bank details showing the receipts and payment are available. The assessee has maintained all the vouchers for the expenses which were also available during the course of search. Besides this, the assessee has maintained labour register, and stock register at different sites. From all these basic records, the assessee's accounts are written up and the income for the year could have been arrived at. According to the learned counsel, it was the assessee's case that though the assessee had all the basic figures, P&L a/c in normal manner was not arrived at. A statement of affair could be prepared from the seized floppies a copy of which was available to the assessee on its computer which showed income from asst. yr. 1996-97 at Rs. 9,69,04,056 and the income for the broken period of asst. yr. 1997-98 was loss of Rs. 61,99,654. It was by no means suggested that these two figures correctly represented profits of two periods. This was because the floppy though prepared on the basis of last year's opening balances was not properly fed as and when transactions took place. There were no transactions which had remained to be recorded on the floppies and, therefore, the assessee had to take the help of other primary records such as vouchers, bank statements, salary returns, etc. which were all fed again in the computer in order to find out the correct income. The return of such record showed an income of Rs. 1,75,29,501 and the balance sheet on that basis was prepared. The learned counsel drew our attention to the balance sheet for the period ended on 31st March, 1996, placed at p. 160 of the paper book. The learned counsel stated that even though this figure was arrived at after recording all the data into the computer to arrive at the correct income, the time for the audit was running out and the assessee was not sure to what extent even the figure of Rs. 1,75,29,501 will stand the test of audit. It, therefore, decided to prepare the statement of affairs for the period to arrive at the income which could be shown as income for the asst. yr. 1996-97. The learned counsel drew our attention to p. 120 of the paper book. According to this statement of affairs, income for that asst. yr. 1996-97 showed profit of Rs. 1,51,29,500. The learned counsel asserted that it was this income which the assessee showed in its return for the asst. yr. 1996-97 which came to be filed on 30th November, 1996, i.e., after the date of search.
7. As far as the asst. yr. 1997-98 is concerned, the learned counsel submitted that the assessee could not undertake the exercise which it did for the asst. yr. 1996-97 obviously because the period was a broken period and all the transactions on yearly basis could not have been reflected for the broken period. The assessee, therefore, decided to show income on the basis of total profits of block. The learned counsel drew our attention to the working of this income placed at p. 130 of the paper book. This page shows that the assessee had taken entire gross receipts upto 8th August, 1996, into account, reduced therefrom receipts pertaining to sub-contracts. These sub-contracts were genuine contracts about which there was no dispute. These figures could be found from floppies and other primary record. On the net profit receipts, the profit was arrived at. This profit was as per the working given on p. 26 of the paper book which shows a statement of affairs for the entire period from the start of the firm till the date of search. The profit for this period was Rs. 3,70,81,860 adding thereto profit of the sub-contract of Rs. 14,98,761 the total profit for the entire period was Rs. 3,55,83,099 which worked out to 14.3 per cent on the total receipts. By taking this as the basis, income for the contract business for the broken period was shown at Rs. 4,27,864. To this, profit on sub-contract of Rs. 3,59,090 was added. The profit on sub-contract also was found out as a percentage of profit arrived at on actuals. After adding other income of Rs. 5,43,576 total estimated income for the broken period was arrived at Rs. 51,81,306. This was against the loss as per the seized floppy of Rs. 61,99,654. The learned counsel submitted that it will thus be seen that in arriving at the period of 1996-97 and 1997-98 the assessee made bona fide effort to find out the correct income from the available record in the form of floppies and other primary record. Against this background, the Department has not pointed out any other material to show that the income arrived at by the assessee as above would not have been shown by it when the returns were actually filed. The learned counsel concluded that the seized floppies did not contain uptodate and correct accounting entries. But, according to him, it does not mean that the floppies showed any bogus or non-genuine entries. In this connection, he drew our attention to the details of figures found on the floppies (pp. 136 to 159 of the paper book). This gave figures of opening balance, details of transactions on debit and credit side and closing balance. It was pointed out that the opening balance on the seized floppy exactly tallied with the closing balances for asst. yr. 1995-96 for which the return was already filed with which audited accounts were also submitted. According to the learned counsel, this was the clinching proof that the seized floppies were meant to be disclosed to the Department as its record. The results found from the seized floppies cannot be brushed aside as irrelevant only because more adjustments were required to be made to arrive at the correct profit. The learned counsel therefore, submitted that the income shown by the firm for asst. yrs. 1996-97 and 1997-98 was based on the books of accounts (read computer floppy) and other documents maintained in the normal course on or before the date of search. Other documents meant all other basis data which the assessee had in its possession from which the ultimate income was found out.
8. Coming to the charge of the AO that in the earlier three years, the profit of the assessee was quite small, the learned counsel submitted that it is true. But that does not give rise to the presumption that the assessee would have continued to show same lower profit for asst. yr. 1996-97 for which the assessee showed profit of Rs. 1,51,29,500 on contract receipts of Rs. 9,14,68,850. This gives an average profit of 16.5 per cent; the profit for the broken period from 1st April, 1996, to 8th August, 1996, was 14.3 per cent; the profit for the rest of the period i.e., 9th March, 1996, to 31st March, 1997, was 33.69 per cent. The learned counsel pointed out that for the asst. yr. 1998-99 the assessee has filed its return of income in which its net contract receipts were Rs. 13,00,82,884 on which profit disclosed was Rs. 3,53,57,802 which gave a profit of 25.6 per cent. For the asst. yr. 1999-2000, the net receipts were Rs. 16,89,34,358 while the net profit was Rs. 4,05,81,724 which worked out to 24.2 per cent. The return for this year is yet to be filed. According to the learned counsel, these figures have been considered for paying advance tax. According to the learned counsel, this pattern of the profit shown for the subsequent years clearly indicates the assessee's stand that the assessee would not have shown lower profit as alleged, but would have shown much more improved profit genuinely worked out from the records maintained. Coming to the charge of the learned AO that the assessee had not paid advance tax and this indicated that it had no intention to show any income for asst. yr. 1996-97, the learned counsel submitted that non-payment of advance tax at worst could be a default on the part of the assessee. The assessee's liquidity position was not sound and, therefore, the assessee did not pay advance tax. But it could not mean that the assessee had no desire to show any income whatsoever for the current year. In support of his contention, the learned counsel relied upon the decision of the Indore Bench in the case of Smt. Sitadevi Daga vs. Asstt. CIT (1999) 63 TTJ (Ind) 72 : (1999) 67 ITR 151 (Ind), where the Indore Bench held that for determining whether income would not have been disclosed for the purpose of the Act, the AO has to examine the surrounding circumstances under which that income has been detected or where from income has been noticed by the AO during the course of the assessment. According to the learned counsel, the surrounding circumstances in the present case, go to show that the assessee had every bona fide intention to disclose the income for asst. yrs. 1996-97, 1997-98, because it has been amply demonstrated that the incomes shown by the assessee in asst. yrs. 1996-97 and 1997-98 were genuinely bona fide worked out on the basis of available data and no other data was found showing the assessee's intention otherwise. The learned counsel therefore, concluded that income of Rs. 1,51,29,500 for asst. yr. 1996-97 and income of Rs. 51,81,310 for 1997-98 may not be treated as undisclosed income, but it should be treated as disclosed income.
9. Shri Naresh Kumar, the learned senior Departmental Representative strongly supported the order of the AO. He submitted that the assessee had not maintained regular books of accounts. Otherwise, there was no necessity to prepare a statement of affairs. From p. 132 of the paper book, it is seen that the profit as per seized floppy was Rs. 9,69,04,056 whereas the correct profit was Rs. 1,75,29,501 which also was ultimately not shown. In explaining the difference, it has been pointed out by the assessee that the closing stock is not considered in the seized floppy which is of Rs. 13,65,837. Similarly, income from investment of supervision charges of Rs. 14,10,235 is not shown.
10. As per p. 119 of the paper book, the total income of the assessee for the asst. yr. 1996-97 is Rs. 1,51,29,500. The assessee had computed the total tax of Rs. 60,51,800. The payment made by the assessee through TDS is of Rs. 26,69,072 and the balance payable is Rs. 33,82,728. The total tax payable including interest under ss. 234B and 234C as per the computation of the assessee is Rs. 40,59,276. A sum of Rs. 30 lakhs was paid on 19th October, 1996, and balance of Rs. 10,59,276 was paid on 24th November, 1996. Thus, p. 119 of the paper book clearly shows that no advance tax for the asst. yr. 1996-97 was paid. According to the learned Departmental Representative this goes to prove that the assessee would not have shown income of Rs. 1,51,29,500 in regular course. It is only after the search that the assessee had disclosed this income just to escape the consequence of search. In support of his contention, the learned Departmental Representative relied upon the judgment of the Madras High Court in the case of B. Noorsingh vs. Union of India (1999) 105 Taxman 101 (Mad) at p. 104. According to the learned Departmental Representative the Madras High Court has taken judicial cognizance of the fact that a person who comes forward with the return or with further information after the search, does so only on account of the detection already made under the search. In the case of B. Noorsingh, the assessee had paid advance tax. Even then, the High Court held that the payment of advance tax by itself does not establish an intent to disclose the income. In the present case, the learned Departmental Representative pointed out that no advance tax was paid by the assessee and hence it had to be held that the assessee had no intention of declaring any higher income.
11. The assessee has shown profit of more than 14 per cent for these two years. No other contractor would have shown so much profit. The assessee's own record of the past year shows that average profit was only 1.46 per cent and on this basis the assessee would not have shown more than such percentage, but for the search. The learned Departmental Representative further submitted that it has been shown by the AO from the past records that the assessee has been showing non-genuine sub-contracts in the past and if this was the pattern in the earlier years, there are every reason to believe that the assessee would have continued to show the same pattern in the subsequent years. For this purpose, he relied on the decision of Third Member in the case of Overseas Chinese Cuisine vs. Asstt. CIT (1996) 55 TTJ (Bom) 304 (TM) : (1996) 56 ITD 67 (Bom) (TM).
12. As regards the submissions of the assessee that annexure to the assessment order (p. 21 of the paper book) itself did show that the AO had accepted that the assessee's disclosed income for asst. yr. 1996-97 was Rs. 1,51,29,500 and the income for asst. yr. 1997-98 was Rs. 51,81,310, the learned Departmental Representative submitted that such annexure was prepared only to reconcile the figures to show as to how ultimate undisclosed income has been arrived at. According to the learned Departmental Representative this annexure was not meant as a computation of income and what was relevant was the computation of income in the assessment order. As regards the reliance placed by the learned counsel for the assessee on the decision of the Indore Bench of the Tribunal in the case of Sitadevi Daga (supra), the learned Departmental Representative submitted that the facts of the assessee's case are distinguishable from the facts before Indore Bench. There was no allegation of the Revenue in Smt. Sitadevi Daga's case (supra) that these books were maintained for any other purpose. It was, therefore, held by the Indore Bench of the Tribunal that Revenue having made no efforts to prove that books were maintained for any other purpose than IT Act; the assessee could be held to have maintained books of accounts only for purposes of Act and thus returned income did not form part of undisclosed income. However, in the instant case it is the case of the Revenue that the assessee had not maintained any books of accounts at all. Therefore, the ratio of the decision of the Indore Bench of the Tribunal is not applicable in the instant case, The learned Departmental Representative reiterated that the assessee had not based his return of income on any books of account but based his return of income on the statement of affairs. The AO has also proved that the true income of the assessee could not have been computed from the floppies seized by the Department, since the floppies did not contain full and true picture of the business activities of the assessee. The learned Departmental Representative also produced before us the seized floppies and concluded that the action of the AO in treating the amount of Rs. 1,51,29,500 for asst. yr. 1996-97 and Rs. 51,81,310 for asst. yr. 1997-98 as undisclosed income of the assessee, is justified.
13. As a rejoinder, Shri K. A. Sathe submitted that since the floppies were seized by the Department, the figures in the seized floppies were available to the Department. The Department had also got hold of other records which were maintained by the assessee. If the assessee had maintained the basic record which was available at the time of search and it may not have been seized by the Department, it does not mean that the assessee could not compute profit from the same. Shri K. A. Sathe submitted that it was not the assessee's case that the seized floppies correctly showed income of asst. yrs. 1996-97 and 1997-98 but then the assessee had not shown income as per the floppies only as its current income, but had made genuine and bona fide efforts to find out the correct income. Various adjustments which were made to the results shown from the floppies were based on records. For example, if the closing stock was not shown in the floppy, same was found out from stock inventories which were already prepared at various sites. Income from the investments could be found out from various fixed deposits, KVP, NSC, etc. As regards the supervision charges, there were agreements with the sub-contractors. Sub-contract receipts were known and percentage of profit to be charged from them were also known. Therefore, these figures are also not from any other record other than one maintained by the assessee. As regards the increase in the contract receipts of Rs. 61,50,255 it was submitted by the learned counsel that the floppy showed receipts at Rs. 13,40,11,441. These figures were based on bank figures which in turn were reflecting contract receipts from the Government. These had necessarily to be adjusted for arriving at the gross receipts. Generally, every year the assessee prepares final contract receipts on the basis of TDS certificates which indicate gross receipts and various deductions made by the Government Department. It was from this exercise that it was found that the actual gross receipts were Rs. 14,01,61,696 as against net receipts of Rs. 13,40,11,441. Balance of Rs. 61,60,255 had, therefore, to be added for arriving at the profit.
14. As regards the contention of the learned Departmental Representative that since the assessee had not deposited advance tax for asst. yr. 1996-97 it had no intention to disclose income for that year, the learned counsel reiterated his submissions made earlier during the course of his arguments.
15. Replying to the learned Departmental Representative's allegation that the assessee had shown only 1.46 per cent profit in the past and would have continued to show such profit, it was contended that the assessee's subsequent records very clearly show that as and when the assessee started earning better profits, it had on his own shown more profit. Even for asst. yrs. 1997-98 and 1998-99 which are post-search assessments, the profit shown by the assessee is very substantial. According to the learned counsel, this also indicated that in this business, profit of 14 per cent shown by the assessee is not very unusual. The learned counsel submitted that it is true that in earlier years profit was less and this was admittedly because the assessee had shown some bogus contracts. But then for these earlier years the assessee agreed for the additions made and that is not subject-matter of dispute between the Tribunal.
16. As regard the contention of the learned Departmental Representative that the annexure to the assessment order was meant only to reconcile the figures, Shri Sathe repeated that this in fact showed what profit the AO had intended to adopt.
17. As regards the deductions on which the learned Departmental Representative placed reliance, the learned counsel submitted that these were distinguishable on facts. The decision of the Tribunal in the case of Overseas Chinese Cuisine (supra) was concerned, with the estimate to be made in a case where the assessee had not recorded correct sales. This was not the position here. On other hand, the position was exactly reverse. The Department was claiming that the assessee had overstated the profits rather than claiming that they were understated. The learned counsel also distinguished the decision of the Madras High Court in the case of B. Noorsingh (supra) on the ground that it dealt with the constitutional validity of s. 158BB of the Act. The learned counsel concluded that none of the contentions of the learned Departmental Representative were tenable in law or on facts.
18. After considering the rival submissions of the parties, we are of the view that the AO was legally not justified in considering the sums of Rs. 1,51,29,500 and Rs. 51,81,310 relating to the asst. yrs. 1996-97 and 1997-98 respectively as undisclosed income within the ambit of provisions of Chapter XIV-B. Admittedly, the search was carried out at the premises of the assessee between 8th August, 1996, to 10th August, 1996. The due dates for filing of the returns had not expired by that date. Therefore, the question of holding that the assessee would not have disclosed the income in respect of asst. yrs. 1996-97 and 1997-98 but for the search does not arise. On the contrary, the assessee is entitled to deduction in respect of such amounts under cl. (d) of s. 158BB(1) which is being reproduced for the sake of convenience.
"158BB(1)(d) : where the previous year has not ended or the date of filing the return of income under sub-s. (1) of s. 139 has not expired, on the basis of entries relating to such income or transactions as recorded in the books of account and other documents maintained in the normal course on or before the date of the search or requisition relating to such previous years."
A bare reading of the aforesaid clause clearly shows that the assessee is entitled to deduction in respect of income arrived at on the basis of entries relating to such income or transactions as recorded in the books of accounts and other documents maintained in the normal course on or before the date of the search. It is not the case of the Department that the assessee was maintaining double sets of accounts. On the contrary, the assessee was found keeping the accounts in the computer duly recorded on the floppies. Admittedly, the maintenance of accounts by computer was started by the assessee effective from asst. yr. 1996-97 and there is no material on record to suggest that computer based accounts were maintained prior to asst. yr. 1996-97. The maintenance of accounts with the assistance of computer are legally valid and no fault can be found with the assessee in maintaining such accounts. It has been categorically stated by the assessee that the opening balances entered in the computer tallies with the closing balances of the previous year and no material has been brought on record to suggest to the contrary. Therefore, it is held that the assessee was maintaining the computerised accounts in the normal course of business. No doubt, the entire entries were not found recorded in the floppies but major entries were duly recorded. The assessee was also maintaining some other record on the basis of which the accounts were finally completed and no fault has been found by the AO with such final results. Rather, the income computed by the assessee has been accepted by the AO. Therefore, it is difficult to uphold the finding of the AO in this regard. Consequently, it is held that the sums of Rs. 1,51,29,500 and Rs. 51,81,310 relating to the asst. yrs. 1996-97 and 1997-98 cannot be considered as undisclosed income of the assessee. Accordingly, the same deserve to be deleted.
19. From the above discussion, it is clear that in arriving at the profit for the asst. yrs. 1996-97 and 1997-98 the assessee made bona fide efforts to find out the correct income from the available record in the form of floppies and other primary records. Against this background the Department has not pointed out any other material to show that the income arrived at by the assessee as above would not have been shown by it when the returns were actually filed. In fact, as per annexure to the assessment order (p. 10 of the assessment order), the AO had accepted that the assessee's disclosed income for asst. yr. 1996-97 was Rs. 1,51,29,500 and the income for asst. yr. 1997-98 (broken period) Rs. 51,81,310. This in fact, showed what profit the AO had intended to adopt. The contention of the learned Departmental Representative that the annexure was prepared only to reconcile the figures to show as to how ultimate undisclosed income has been arrived at has no merit and the same is accordingly rejected.
20. As regards the contention of the learned Departmental Representative that for these two years, the assessee has overstated the profits, we do not find any merit in the same. It is true that in earlier three years, the profit of the assessee was quite small, but this does not give rise to the presumption that the assessee would have continued to show same lower profit for asst. yr. 1996-97. For asst. yr. 1996-97 the assessee showed a profit of Rs. 1,51,29,500 on contract receipts of Rs. 9,14,68,850. This gives an average of profit of 16.5 per cent. The profit for the broken period from 1st April, 1996, to 8th August, 1996, was 14.3 per cent. The profit for the rest of the period i.e., 9th March, 1996, to 31st March, 1997, was 33.69 per cent. As pointed out by the learned counsel, for asst. yr. 1998-99 the assessee has filed its return of income in which its net contract receipts are Rs. 13,80,82,884 on which profit disclosed is Rs. 3,53,57,802 which gives profit at the rate of 25.6 per cent. Further, as pointed out by the learned counsel and discussed in para (8) supra for the asst. yr. 1999-2000 for which the return is yet to be filed, the assessee has declared the profit of 24.2 per cent. Further, these figures have been considered for paying advance tax. This pattern of the profit shown for the subsequent year clearly indicates the assessee's stand that the assessee would have not shown the lower profit as alleged, but would have shown much more improved profit genuinely worked out from the records maintained.
21. Coming to the contention of the learned Departmental Representative that the assessee has not paid advance tax and this indicated that it had no intention to show any income for asst. yr. 1996-97, we again do not find any merit in the same. Non-payment of advance tax at worst could be a default on the part of the assessee. Further, non-payment of advance tax can be for several years. For example in a given case, the assessee may willingly fail to pay advance tax because it might be advantageous to him to pay interest under ss. 234B and 234C rather than pay heavy interest on borrowings made for the purpose of payment of tax. In our considered opinion, a mere non-payment of advance tax does not lead to the conclusion that the assessee would have not shown any income.
22. Now we come to the cases relied upon by the learned Departmental Representative. The decision of the Bombay Bench of the Tribunal in the case of Overseas Chinese Cuisine (supra) was concerned with the estimate to be made in a case where the assessee had not recorded correct sales. This is not the position in the case before us. On the other hand, the position is exactly reverse. The Department is claiming that the assessee had overstated the profits rather than claiming that they were understated. Accordingly, the decision of the Bombay Bench of the Tribunal in the case of Overseas Chinese Cuisine (supra) is of no assistance to the Revenue. The decision of the Madras High Court in the case of B. Noorsingh (supra) is also distinguishable on the ground that it deals with constitutional validity of s. 158BB. Moreover, in that case, the assessee had filed income-tax returns for the two years under s. 139(4) and not within the time allowed under s. 139(1). In the case before us, the returns for the asst. yrs. 1996-97 and 1997-98 were not even due and they were due to be filed after the search. In the course of judgment, the Hon'ble Judges have remarked that "disclosure is to be made by filing the return. Even in search cases where the time for filing the return under s. 139(1) has not expired, income disclosed in the books of account is not treated as undisclosed income". In the case of the assessee as discussed above, the income for the asst. yrs. 1996-97 and 1997-98 was in the computer floppies and other relevant documents. Accordingly, the ratio laid down by the Madras High Court in the case of B. Noorsingh (supra) rather favours the case of the assessee. The case of the assessee also gets support from the decision of Indore Bench of the Tribunal in the case of Smt. Sitadevi Daga (supra). We do not find any merit in the contention of the learned Departmental Representative that the case of the assessee is distinguishable on facts. The Indore Bench of the Tribunal had held as under :
"Once it was established from the documents available on record that only one inference could be drawn that the books were maintained for the purpose of the Act, the returned income could not be called an income which would not have been disclosed for the purpose of the Act. The onus was upon the Revenue to bring some material on record to prove that the books were maintained for other purposes than the Act and the returned income was an income which would not have been disclosed for the purpose of this Act. In these circumstances, the returned income declared by the assessee did not form part of the undisclosed income."
In the case of the assessee, it is duly established from the documents available on record that the assessee would have disclosed the income for the asst. yrs. 1996-97 and 1997-98.
23. In the light of the above discussion, we hold that there is no justification on the part of the AO to treat Rs. 1,51,29,500 for asst. yr. 1996-97 and Rs. 51,81,310 for asst. yr. 1997-98 as undisclosed income of the block period. He is directed to treat the same as disclosed income and allow the deduction therefor and then compute the tax liability of the assessee in respect of the remainder undisclosed income. These two grounds accordingly succeed.
24. Ground No. 3 reads as under :
"On the facts and in the circumstances of the case, the learned Asstt. CIT erred in making addition of Rs. 7,09,750 on account of 'on money' in flat purchase on piece of paper seized at the time of search which did not relate to the assessee as the flats are purchased by the partners and not by the assessee."
The AO in paras 11, 12 and 13 of the assessment order has discussed this issue of payment of 'on money' for purchase of flats at Pune and added Rs. 7,09,750 as undisclosed income. In para 11, the AO states "from the seized records (p. 23 of File No. 33 of Annexure 'A', copy of which is annexed), evidence was available of unaccounted payments made by the assessee for purchase of flats". When asked to explain this piece of evidence Shri S. B. Jadhav, disclaimed any knowledge about it on the ground that it is written on the letter-head of some other party and that it could be some calculations for some agreement which he could not remember. This explanation of the assessee was rejected by the AO on the following grounds :
(a) the calculations in the paper is admitted to be in the handwriting of Shri S. B. Jadhav;
(b) a careful analysis of the notings in the paper would show that they give details of money paid and balance to be paid by the assessee and the group;
(c) it is clearly mentioned that an amount of Rs. 7,09,750 has been paid.
According to the AO after being specifically asked, the assessee did not identify the transactions. He therefore, added a sum of Rs. 7,09,750 towards the on money in the purchase of flats in the asst. yr. 1997-98.
25. Shri K. A. Sathe, the learned counsel for the assessee submitted that the observations made by the AO are incorrect. M/s Shradha Construction, the assessee-firm, has not purchased any flats as the flats were purchased by the partners in their individual capacity and not by the assessee. Hence the addition made by the AO on account of 'on money' in purchase of flats as undisclosed income of the assessee based on some noting on piece of papers seized at the time of search did not relate to the assessee, is not correct and deserves to be deleted. The learned counsel further submitted that from the piece of paper how the figure of Rs. 7,09,750 is calculated could not be ascertained. Two flats out of this calculations are purchased in the following names :
(1) Shri Shivajirao Bhagwanrao Jadhav :
Rs.
Agreement price 8,21,875
Cash components 3,29,375
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Total 11,51,250
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Area 1,535 sq.ft.
Rate for sq.ft. Rs. 750
Flat price of Rs. 8,21,875 and stamp duty and registration charges is shown in the return of Shri Shivajirao Bhagwanrao Jadhav and Rs. 3,29,375 is shown as advance to Lodha Rane Associates in Schedule C-8 of the Block return. Agreement of flat is made on 23rd November, 1995.
(2) Mrs. Meera Shivajirao Jadhav :
Rs.
Agreement price 4,70,400
Stamp duty 7,920
Registration charges, etc. 5,021
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4,83,341
Cash components 1,34,000
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Total 6,17,341
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Area 672 sq. ft.
Rate per sq. ft. Rs. 900
Flat price of Rs. 4,83,341 is shown in the Block return of Mrs. Meera Shivajirao Jadhav and cash component is shown in the block return of Shri Shivajirao Jadhav as advance to Lodha Rane & Associates. Agreement is made on 30th May, 1996. On money of Rs. 4,63,375 is shown as advance to Lodha Rane Associates in the block return of S. B. Jadhav."
The learned counsel submitted that in view of the above, the addition made by the AO in the case of the assessee is not correct.
26. Shri Naresh Kumar, the learned Departmental Representative strongly supported the order of the AO. He submitted that even though a paper was found at the residence of the partner, it was found amongst other papers which clearly belong to the business and to that of the assessee-firm. When other papers lying in the residence of the partner could belong to the assessee-firm, there is no merit in the contention that this particular paper does not belong to the assessee.
27. We have considered the rival submissions. We have perused the seized paper placed at p. 270 of the paper book. It is on the letter-pad of Kothrud Petrol Circle, Kothrud, Pune. A perusal reveals that it does contain some transactions relating to purchase of flats, but it nowhere mentioned that the flats were purchased by the firm. As explained by the learned counsel and as per the details given above, the flats were purchased by the partners and accordingly, we see no justification for the impugned addition of Rs. 7,09,750 in the hands of the assessee-firm. This ground accordingly succeeds and the addition of Rs. 7,09,750 is deleted.
28. Ground No. 4 reads as under :
"The appellant craves leave to add, amend or alter the above grounds of appeal."
Obviously this ground is general in nature and calls for no comments.
29. In the result, the appeal is allowed.