Income Tax Appellate Tribunal - Ahmedabad
M.S. Hostel, Baroda vs Assessee on 3 January, 2011
IN THE INCOME TAX APPELLATE TRIBUNAL
AHMEDABAD BENCH " A "
Before Shri MUKUL Kr. SHRAWAT, JUDICIAL MEMBER and
Shri D.C. AGRAWAL, ACCOUNTANT MEMBER
Date of hearing : 10/12/2010 Drafted on: 03/1/2011
IT(ss)A No.216/AHD/2004
Block Period ending on 20/09/2001
M.S. Hostel Vs. The ACIT
New Sama Savli Road Central Circle-2
Baroda Baroda
PAN/GIR No. : AACFM 4056 C
(APPELLANT) .. (RESPONDENT)
Appellant by : Shri U.S. Bhati, A.R.
Respondent by: Shri Anil Kumar, CIT-DR
ORDER
PER SHRI MUKUL Kr. SHRAWAT, JUDICIAL MEMBER :
This is an appeal at the behest of the Assessee which has emanated from the order of the Learned CIT(Appeals)-II, Ahmedabad dated 20/05/2004.
2. There was some typographical defect in the grounds raised by the assessee, therefore, the corrected version was referred before us as reproduced below:-
1. The learned Commissioner of Income Tax (Appeals) erred in fact and in law in rejecting the contention of the appellant that the Assessing Officer has erred in fact and in law in invoking the provisions of Chapter XIV B of the Income Tax IT(ss)A No.216/Ahd/2004 M.S. Hostel vs. ACIT Block period ending on 20/09/2001 -2- Act, 1961 ("the Act") by virtue of a notice U/s.158 BC which is defective in its form and contents.
It is most respectfully submitted that the notice issued U/s.158BC of the Act is defective in its form and contents and therefore the entire proceedings under Chapter XIV B initiated by the defective notice is void ab initio and it may be so held and the assessment be annulled.
2. The learned Commissioner of Income Tax (Appeals) erred in fact and in law in rejecting the contention of the appellant that the AO had framed the assessment and had made additions without giving proper opportunity of being heard to the appellant. The AO had made the additions without giving reasonable opportunity of being heard to the appellant and denying the basic principles of nature justice to the appellant.
3. The learned Commissioner of Income Tax (Appeals) erred in fact and in law in rejecting the above contention of the appellant without appreciating the fact that the AO had issued the notice u/s.158BC without specifying the status of the appellant and the assessment has been made in the status of 'Trust' despite the fact that the appellant is a 'Firm'.
4. The learned Commissioner of Income Tax (Appeals) erred in fact and in law in not appreciating the fact that the AO had made the additions to the undisclosed income of the appellant without verifying whether the income sought to be added is included and is part of the books of accounts maintained in normal course of business and no evidence was detected during the course of search to point out any discrepancy in the same.
5. The learned Commissioner of Income Tax (Appeals) erred in fact and in law in confirming the addition of Rs.40,000 made IT(ss)A No.216/Ahd/2004 M.S. Hostel vs. ACIT Block period ending on 20/09/2001 -3- by the AO on ground of loans not recorded in the books of accounts.
6. The learned Commissioner of Income Tax (Appeals) erred in fact and in law in confirming the addition of Rs.36,79,049 for AY 2000-01 and Rs.29,24,585 for AY 2001-02 made by the AO by rejecting the books of accounts of the appellant and by estimating the income of the appellant based on rough working in Annexure A-11 page no.83 found during the course of search.
It is submitted that no independent evidence is being brought on record by the AO for coming to the conclusion that there is suppression of income and hence it is most respectfully submitted that the addition made on this ground is required to be deleted.
7. The learned Commissioner of Income Tax (Appeals) erred in fact and in law in confirming the action of the AO in levying interest u/s.158BFA(1) of the Income Tax Act, 1961.
8. Your assessee craves a right to add to or amend, alter, substitute, delete or withdraw all or any of the grounds of appeal.
3. At the outset, the Learned Authorised Representative of the assessee Mr.U.S. Bhati has stated not to press Ground Nos.1 to 3, hence hereby dismissed being not pressed.
4. Apropos Ground No.4, the same appears to be general in nature and the arguments as raised in that context are being covered while arguing Ground No.6, to be decided acordingly hereinbelow.
5. Ground No.5 is not seriously contested and hereby dismissed.
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6. Apropos Ground No.6, facts in brief as emerged from the corresponding block assessment order passed u/s.158BC r.w.s. 158BG of the I.T.Act were that the assessee was subjected to search operation as prescribed u/s.132 of the I.T.Act on 20/09/2001. Thereupon, a notice u/s.158BC of the I.T.Act was issued and in compliance a block return was filed, however, undisclosed income was declared at Rs. NIL. The issue revolved around a file which was seized during the course of search operation marked as Annexure 'A-11'. In that document there was a working of alleged profit of Rs.36,79,049/- for the Financial Year 1999-2000 relevant for the Assessment Year 2000-01. The said calculation was written in pen- ink and just thereinbelow there were certain figures stated to be written in pencil. The allegation of the Revenue Dept is that the profit has been reduced by those figures which were written in pencil. An explanation was called for to furnish the veracity of the profit so computed in the said seized paper. It has also been asked to place on record the evidences in respect of those entries written in pencil. In compliance, the assessee has submitted as follows:
"1. Vide para 5 of your letter you have pointed out that there is working of profit for the year of Rs.36.79 lacs. Further there are entries recorded therein for reducing the profit. We have to submit that the said statement pertains to the provisional working (some days prior to the end of the accounting year) for planning the tax payment (advance tax). While making the rough estimate, the accountant normally informs the partners about the entries which have not yet been passed for want of the bills in this regard. You would appreciate that even the depreciation accounted for there is on a approximate basis. Since closing entries and provision for IT(ss)A No.216/Ahd/2004 M.S. Hostel vs. ACIT Block period ending on 20/09/2001 -5- various expenses are not made, the said account is extract of provisional figures and the audited accounts thereafter is the final account. If you propose to check the veracity of any of the expenses, please do let us know and we shall submit complete details thereof."
6.1. The main contention of the assessee was that the said working was nothing but a provisional working which was made few days prior to the end of the accounting year simply to plan the payment of advance tax. It was a rough estimate therefore only provisional figures were taken by the Accountant. The accounts were finalized as also audited thereafter. The said explanation was dismissed by the Assessing Officer on the ground that the profit declared in the return has to be connected with the profit recorded in the said paper and that the reply being general in nature, hence, could not be relied upon. He has also mentioned that there were withdrawals through bearer cheques, hence, expenses were inflated and so, according to him, there was suppression of profit due to which the books of account as well have been rejected. Thereafter, in the succeeding paragraphs of the assessment order the Assessing Officer has concluded that it was a case of suppression of profit, and that a profit was computed in the seized document as per assessee's own calculation, therefore, held as undisclosed income for Assessment Year 2000-01. With the result, an amount of Rs.36,79,049/- was taxed as undisclosed income for Assessment Year 2000-01 in the block period. Being aggrieved the matter was carried before the first appellate authority.
7. Before the first appellate authority, the assessee has raised few objections against the said addition; as reproduced below:-
IT(ss)A No.216/Ahd/2004 M.S. Hostel vs. ACIT Block period ending on 20/09/2001 -6- "(i) The Assessing Officer has not shown any incorrectness in the Books of account.
(ii) Profit of Rs.35 lakhs for assessment year 2000-01 and 2002-
03 estimated by the Assessing Officer is after rejection of the Books of account under section 145 of the Act.
(iii) Books of account have been audited under section 44AB of the Act and the Auditors were satisfied about the correctness and completeness of the Books of account.
(iv) The Assessing Officer has relied upon the profit working shown on Page 83 of Annexure A-11 only to the extent be found the same favourable to him. The Assessing Officer has not considered the expenses written below Rs.36,79,049.85.
(v) The Assessing Officer has worked out the profit on the basis of said Trial balance at Rs.19,74,457/- for six months and extrapolated the same to Rs.39,48,914/- for the whole year.
(vi) The Assessing Officer has erred in not reducing the profit of Rs.5,23,000/- shown as income for assessment year 2000-01 out of Rs.36.79 lakhs.
7.1. The Learned CIT(Appeals) has passed a cryptic and short judgement in respect of the impugned addition. It is worth to mention that there was an another addition of Rs.29,24,585/- which we shall discuss in the following paragraphs, however, the Learned CIT(Appeals) has clubbed both the issues and thereupon held in one paragraph as follows:
IT(ss)A No.216/Ahd/2004 M.S. Hostel vs. ACIT Block period ending on 20/09/2001 -7- "The Assessing Officer has worked out the profit of Financial Year 2001-02 at Rs.39,48,914/- on the basis of six months' profit of Rs.19,74,457/-. The Assessing Officer has applied the ratio of 15.8% for arriving at profit of assessment year 2002-03. The gross receipt of assessment year 2001-02 is declared at Rs.2,33,16,900/-, therefore, profit @ 15% would be Rs.34,97,535/-
. Thus profit to the extent of Rs.29,24,585/- (i.e. Rs.34,97,534/- - Rs.5,72,950/-) is added as undisclosed income of the block period. In view of the facts and circumstances of this case and observations of the Assessing Officer the additions are justifiable. The Assessing Officer has looked in to the arguments raised by the appellant and I do agree to the same. In view of these facts both the aforesaid additions are sustained."
7.1 Since the additions were confirmed, therefore, now the assessee is further in appeal.
8. From the side of the appellant, Learned Authorised Representative Mr.U.S. Bhatti appeared and his vehement contention was that by the very nature of the document which was seized by the Revenue Department it was evident that there was some noting by the Accountant of the assessee who had made a rough computation for the purpose of calculation of advance tax. His another objection was that the Assessing Officer had not made any attempt to tally the figures either on the credit side or on debit side, as mentioned in the seized paper, with the figures finally recorded in the books of account of the assessee. If that exercise would have been made, then there ought to be no question of treating the profit calculated therein as an undisclosed profit. Rather, all those relevant figures of the said seized document have duly been incorporated in the regular Books of account duly finalized and also duly audited.
IT(ss)A No.216/Ahd/2004 M.S. Hostel vs. ACIT Block period ending on 20/09/2001 -8- He has also pointed out that some of the amounts mentioned in the said paper on receipt side were towards lower side than the receipts as actually shown in the books of account. For example, fees income shown as per the seized document was at Rs.2,65,03,300/-, however, when the books got finalized, the total fees was disclosed at Rs.2.91 crores under two heads; viz. Rs.2.21 corers fees income and Rs.70 lacs advance fees. He has also pointed out that the said rough calculation which was an estimated calculation only for the purpose of payment of advance tax, therefore, the depreciation was mentioned in round figure at Rs.14 lacs. However, the correct depreciation was finally debited as per the audited books of account. Likewise, provision for expenses have been made and in some places on the said seized document it was specifically mentioned that few of the expenses were related to the month of March and due to the said reason an approximate figure was taken merely for the purpose of an estimated calculation of the profit to pay the advance-tax thereon.
8.1. A legal argument has also been raised by the Learned Authorised Representative that if the Assessing Officer is reading the said seized paper, then he should have read the entire paper as a whole. The AO must not have ignored the figures eve if written in pencil only. Those figures were related to the expenditure which were yet to be recorded for the remaining period, such as, laundry expenses, cold drink expenses, vegetables, misc. expenses or other expenses and for which bills were yet to be received at that point of time.
IT(ss)A No.216/Ahd/2004 M.S. Hostel vs. ACIT Block period ending on 20/09/2001 -9- 8.2. Ld. AR has thus concluded the arguments that it was unjust on the part of the Assessing Officer to take into account the figures which were suitable to the Revenue Department and ignored those figures which were otherwise found written on the same seized paper. Merely by writing in pencil did not liable to be ignored. By referring the provisions of section 132(4A) of the I.T.Act he has argued that the document found in possession has to be treated as a true document, therefore, no part of it should have been over-looked.
10. From the side of the Revenue, Learned Departmental Representative Mr.Anil Kumar, CIT(DR) has placed reliance on the orders of the authorities below. He has emphasized that the profit as computed in the seized paper was over and above the profit which was disclosed in the books of account. He has argued that the correctness of the figures written in that seized paper has not been challenged by the assessee. If the assessee wanted to challenge the correctness of the said paper, then the assessee had sufficient opportunity to explain the figures mentioned in the said seized paper. Mr. Kumar has thus commented that the assessee has not even attempted to file a reconciliation of those figures written on the seized paper. Instead of pinpointing the defects, the assessee has chosen to file a general reply that the said paper was nothing but a rough computation of calculation of profit for the purpose of payment of advance tax. He has placed reliance on the decision in following cases:-
Sl.No(s) Decision in the case of ... Reported in...
IT(ss)A No.216/Ahd/2004 M.S. Hostel vs. ACIT Block period ending on 20/09/2001
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1. CIT vs. DR. M.K.E. Memon [2001] 248 ITR 310 (Bom.)
2. Rajnik & Co. vs. Asst.CIT [2001] 251 ITR 561 (A.P.)
3. Rajendra Kumar Lahoty vs. [2004] 266 ITR DCIT 621 (Raj.) 10.1. Ld. CIT (DR) has concluded that since the document in question was an incriminating material which was unearthed as a result of search, hence, rightly made the basis for the computation of undisclosed income of the block period.
11. We have heard both the sides at length and also carefully perused the material placed before us as also the orders of the authorities below.
An undisputed fact is that a document marked as Annexure 'A-11' was found during the course of search operation. The ground in question revolves around the notings recorded on the said seized document. At this juncture it is also worth to clarify that apart from this document there was no reference in the assessment order of any other undisclosed asset or incriminating material, whether any detected during the search . As a result, the impugned addition has been made only on the basis of said document. An another fact is also not in dispute that this document was written by an Accountant of the assessee. Further this fact has not been denied by either side , specially the appellant, that the accountant has systematically written the incomings and the out-goings on that paper . On the basis of the Debit and Credit entries a profit has been computed therein. That alleged profit was an amount of Rs.36,79,049/-. Whether it was the final figure of the profit, supposed to have been computed by the IT(ss)A No.216/Ahd/2004 M.S. Hostel vs. ACIT Block period ending on 20/09/2001
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said accountant, remained under dispute through out. Further, the core reason for the existence of the controversy was that just below the impugned calculation of profit it was found that certain figures of the expenditure were written not in Ink but in fact written by Pencil. On one hand the Revenue Department has ignored those figures written by Pencil while calculating the Undisclosed Income , however, on the other hand the assessee has insisted upon to consider the said document as a whole without ignoring any of the figures written on the said paper either by Ink or by Pencil. Reason for the said insistence was that if all the incomings and the out goings, as depicted on the said paper, were to be taken into account then there was hardly any profit for taxing as U.D.I. in the hands of the assessee. An English version of the said document is placed before us. It was noticed that the said document was for the Financial Year 1999-2000. There were three columns on that paper, first column depicted 'Heads of the Particulars', second "Aavak" i.e. Income and the third column was "Kharch" i.e. Expenditure. Since it is written by an Accountant, hence, the figures noted therein were neatly written in one column as "income" and in the other column as "expenses". Several Heads of particulars were serially written, namely "fee income", "food expenses", "salary expenses", "building repair (Hostel)", "student welfare expense", "electric expenses (both income and expenditure)"
and so-on, running upto thirty-three numbers. As per the description of the paper, certain amounts in round figures written were Hostel building rent( Rs.36,00,000/-); Reserve fees( Rs.28,00,000/-) and Food Income (Rs.29,00,300/-) by the said Accountant. There was a mention of Auditor fees( 12,000/-) and liability of bank interest on over draft IT(ss)A No.216/Ahd/2004 M.S. Hostel vs. ACIT Block period ending on 20/09/2001
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(Rs.50,000/-) etc. It is also true that Depreciation was accounted for in round figure of Rs.14 lacs and has been mentioned under the column "expenses". Thereafter, just below, certain provisions for expenses have been made, such as, Provision for salary( 3,00,000/-), Provision for telephone expenses( Rs. 35,000/-), Provision for electricity (Rs.3,00,000/-), etc. There was a specific mention of "Approximate expenses for the month of March" of Rs.10 lacs, that too was in round figure. Upto this level, a profit has been computed of Rs.36,79,049/-. The Assessing Officer has lifted this figure from seized document and made the basis of assessment for the purpose of Undisclosed Income for the said block period. An another undisputed fact is that just below the said computation of profit, the said Accountant has written certain figures in pencil. Those figures were in round amounts which were not taken into account by the Assessing Officer. So the strong objection and vehement contention is that if certain figures were found mentioned in a seized material, then it was unfair on the part of the Assessing Officer to consider one segment of the document and overlook the other segment. It was contested that a portion was assessed and rest of the figures were ignored without assigning any cogent basis. The figures written in pencil are namely "Provision" (Rs.7,54,000/,) "BumiyaDiary"
(Rs.5,00,000/) "HimatDalpat"(Rs.6,00,000/) "Laundry"(Rs.3,00,000/-), etc. in pencil. It has also been mentioned that certain bills were also receivable at that time and that was being the fag end of the financial year therefore those expenses were noted in round figure by the accountant but later on at the time of finalization of accounts the accurate figures as per the bills were incorporated.
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12. In the light of the above background and the explanation tendered before us, as also considering the observations of the Revenue Department, we can form an opinion that since the document in question has reflected part of the figures absolutely accurate which were later on recorded in the regular books of accounts and part of the figures were in round figures, which were also recorded on actual figures on finalization of the accounts on receiving the bills, therefore that paper was nothing but in the nature of projection of figures meant for the purpose of computation of estimated profit for the Financial Year in question, stated to be for the purpose of payment of advance tax. It cannot be ruled out, being a common practice, that generally an Accountant of an institution put in writing the estimated figures before the close of the accounting period and those projected figures are placed before the Directors/ Partners/ Owners to take necessary action for the purpose of payment of advance tax. This common practice cannot be brushed aside in this case merely because of the reason that this assessee was subjected to search and seizure action. A very strange attitude has been noted by us that there was no specific statement recorded during the course of search in respect of the said document by the Revenue Department. We have perused the assessment order as also the compilation filed before us and have noticed that the Revenue Department had not taken an utter normal procedure of recording a statement of any of the Director to ascertain the exact nature of the document and the purpose for which it was written by the said Accountant. Even before us, the statement of the Accountant is not on record. A statement recorded at the time of search operation is an IT(ss)A No.216/Ahd/2004 M.S. Hostel vs. ACIT Block period ending on 20/09/2001
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important material which later on gives a correct picture of the seized material. Now the time had gone, therefore, we have to rely upon the explanation of the assessee tendered during the course of assessment proceedings. As per the written submissions before the Assessing Officer and Learned CIT(Appeals), it was categorically mentioned that the said seized document was nothing but the provisions or projections for the purpose of payment of advance tax. It is also worth to note that along with the said document, the Revenue Department has also found two other trial balances and those were by and large accepted. In the result, considering the totality of the circumstances under which the alleged document was recovered and the other documents recovered, it can be held that the document was in the nature of projection or estimation written by the Accountant of the institution meant for the purpose of payment of advance tax. Now the question is that even if it was so, then the figures mentioned therein can have a bearing on the computation of undisclosed income as prescribed under Chapter XIV-B of the I.T.Act. It is true that for the purpose of computation of undisclosed income the origin should be the evidence found as a result of search or requisition of books of account or other document or information collected by the search party. The law is very clear that subsequent to the seizure, it is mandatory on the part of the Revenue Department to investigate the nature of the document so that the correct undisclosed income can be determined. Undisputedly, the primary onus is on the assessee to explain the nature of the entries recorded on any seized material. But if the Revenue Department is not convinced with the said explanation, then it is expected to investigate the same. In the IT(ss)A No.216/Ahd/2004 M.S. Hostel vs. ACIT Block period ending on 20/09/2001
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present case this approach of the Department is wanting. It could have been justifiable if the correctness of the figures noted in the document were examined and verified from the regular books of accounts. Rather it is nobody's case that none of the figures have tallied with the regular books. Facts have revealed that most of the incomings and outgoings were made the part of the regular books. It is also not the case of the Revenue that duplicate set of books of accounts were detected. Also it is not the case of the Revenue that an undisclosed business was unearthed consequence upon the search operation. Rather a simple exercise could have been done that all those amounts which got tallied with the amounts recorded in the regular books could have been accepted being already made the part of the regular books and in respect of the rest of the amounts it could have been ascertained whether they have been actually incurred or what portion had been accounted for in the regular books. By doing this exercise one could have arrived at the figure of an undisclosed income or alternatively inflated figure of expenses, if any. Contrary to this, the A.O. has just lifted one figure of profit from the middle of the document and treated the same as Undisclosed Income instead of weighing the correctness of the whole paper.
12.1 Before we arrive at any conclusion it is worthwhile to first enquire about the case laws cited from the side of the Revenue by the learned CT-DR, Mr. Anil Kumar. He has cited a decision of the Hon'ble Bombay High Court in the case of Commissioner of Income-tax Vs Dr. M.K.E. Memon, 249 ITR 310. On careful reading of this judgment, in our opinion, the view taken therein supports the case of the assessee. The IT(ss)A No.216/Ahd/2004 M.S. Hostel vs. ACIT Block period ending on 20/09/2001
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Hon'ble Court has categorically opined that exercise under section 143(3) for regular assessment stands on a different footing in contrast to the exercise undertaken by the AO under Chapter-XIV-B whereby the AO has to assess only the undisclosed income. The Court has stated that the scope of regular assessment is quite different from the scope of the assessment under Chapter-XIV-B. The regular assessment is to ensure that the assessee has not understated the income or had not computed excessive loss or had not underpaid tax in any manner whereas what is assessed under Chapter XIV-B is only the undisclosed income for the block period. While estimating the undisclosed income under Chapter- XIV-B, the AO cannot apply a rule of thumb. The AO cannot estimate the undisclosed income on an arbitrary basis", the Hon'ble Court has given its finding. Likeiwse in the present case, we have also expressed similar view and therefore it goes in favour of the assessee.
The learned CIT-DR has placed reliance on Rajnik & Co. Vs. ACIT, 251 ITR 561 (AP), however, we have noticed that a partner of the firm had admitted the practice of suppression of sales. An estimation was made on the basis of the material on record and statement of the partner. When the issue was before the Tribunal, the suppression of turnover as well as proportionate undisclosed income was re-determined on consideration of the material and that was upheld by the Hon'ble High Court. Contrary to this, there is no question of extrapolation in the present appeal, as before us and moreover, the paper in question has not been taken into account in its totality. The case law as referred by the learned CIT-DR was rather IT(ss)A No.216/Ahd/2004 M.S. Hostel vs. ACIT Block period ending on 20/09/2001
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on its own facts, therefore, cannot be said to be applied in any manner on the present set of facts of this appeal.
Finally, reliance was also placed by the CIT-DR on Rajendra Kumar Lahoty Vs Deputy Commissioner of Income-tax, 266 ITR 621 (Raj) wherein the expenditure incurred on certain special occasions such as graha pravesh, death of father of assessee and birth of grand-daughter were not recorded in the books of accounts. On appreciation of the relevant facts of the case and on the basis of the evidence detected, those additions have been made on appreciation of the facts and circumstances of the case. Because the said decision was based upon the facts of that case, therefore, cannot be said to be applied on the appeal before us.
12.2 We have come across a decision of the Hon'ble Rajasthan High Court in the case of SMS Investment Corporation, 207 ITR 364 (Raj) wherein the Hon'ble Court opined that in accordance with the provision of Section 132(4A), if any document is found in the possession or control of any person in the course of search, it may be presumed that such documents belong to such person and that the contents are true. The Court has also stated that such presumption is however rebuttable. Likewise, in the case of Ushakant N. Patel Vs Commissioner of Income- tax , 282 ITR 553 (Guj), the Court has stated that the material seized consequence upon the search has contents, which are true as defined in section 132(4A), presumption is that the transaction as reflected in the seized documents are written truthfully and the contents has to be relied upon.
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12.3 We have also come across a decision of ITAT, Pune Bench in the case of Dhanvarsha Builders & Developers (P.) Ltd. Vs DCIT, 102 ITD 375 (Pune) wherein it was held that a document which was found consequence upon a search should be read as a whole. The relevant part of the decision is reproduced below:
"So far as the argument of the assessee that the impugned papers not only showed the receipts but also the expenditure and, therefore, the document should be read as a whole and deduction for the expenditure incurred should be given to the assessee while computing undisclosed income was concerned, the seized document should be read as a whole if it ha sot be relied upon. It cannot be read only to the extent it is advantageous to be revenue and not read when it become disadvantageous to the revenue. It is an accepted principle of interpretation of document that they should be read as a whole, as persons of common prudence will read them. They cannot be read in bits and parts to suit the convenience of one party or the other. Therefore, the expenditure would also have to be read on proper appreciation of the documents."
12.4. It is also equally important to read a document as it was found during the course of search. The provisions of section 132(4A) of the I.T.Act is worth to mention because where any books of account, etc. are found in the possession or in control of any person in the course of search, it may be presumed that such books of account or other document, etc. i) belong to such person and ii) the contents of the document are true. Naturally, when a person is writing a document for his own consumption or reading, then whatever stated therein has to be true and correct. A document is not written with the apprehension that the same may be subject to search operation in future. Particularly when IT(ss)A No.216/Ahd/2004 M.S. Hostel vs. ACIT Block period ending on 20/09/2001
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the Revenue is making an allegation that the document is question was a secret document to record the unaccounted receipts and expenditure then considering this allegation it has to be believed that the entire document was meant for the personal reading of the writer and not for the public consumption. Hence whatsoever written was with the motive to hide the contents from the public. Therefore, the presumption is that the document seized during the course belongs to the person in whose possession it was found and the contents are truly stated in the seized document. Number of case laws for this legal proposition can be quoted, however, keeping brevity in mind once the law is settled, then all those decisions are not to be repeated. The only exercise which is a must and in every case has to be undertaken is that the document must go through the test of investigation. The assessee is duty bound to tender his explanation by narrating each and every entry and if the Assessing Officer is not satisfied with that explanation or consider necessary to investigate the correctness of the explanation, then he is empowered to exercise such powers by issuing summons, etc. In the present case, certain figures were noted in a document which was alleged to be the estimated figures for advance tax purpose, but the Assessing Officer was expected to tally those figures with the regular books of account. If those figures were tallying with the books of account, then naturally those were nothing but already disclosed in the regular course, hence, definitely out of the ambits of the clutches of Chapter XIVB of the I.T.Act. It is also expected to judge the estimated figures in the light of the figures already recorded in the regular books of account. The receipts, as also the expenditure, should have been supported by cogent evidence viz. bills, vouchers, or IT(ss)A No.216/Ahd/2004 M.S. Hostel vs. ACIT Block period ending on 20/09/2001
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bank entries, etc. On the other hand, figures noted on estimated basis may or may not have such circumstantial evidences but the fact remains that those projections or estimations ought to be part and parcel of the regular books of account. Now at this stage that failure or fallacy of the Revenue Department can not be cured. The only option left is to direct the Revenue to recalculate the undisclosed profit by taking into account all the entries noted in the said seized document. By directing so we hereby adhere to the fundamental rule, as laid down in the statute itself and confirmed in several decisions, that the Revenue must not pick and choose from a seized document but must take into account the document in its' entirety. Once this exercise has not been done by the Revenue Authorities, then it is incumbent to restore this part of the ground back to the stage of the Assessing Officer to further investigate the nature of the entries recorded in the said seized material and if already found recorded in the books of account, then those figures should be excluded for the purpose of computation of undisclosed income. We order accordingly.
13. Ground No.6 has another segment of addition of Rs.29,24,585/- for Assessment Year 2001-02. There was a piece of evidence marked as Annexure 'A-12' which was stated to be a trial balance for the period of 01/04/2001 to 19/09/2001. It was a projection for six months and on that basis, the Assessing Officer has found that the profit percentage was about 15%. The Assessing Officer has taken a holistic view that if the percentage of profit was 15% for the period 01/04/2001 to 19/09/2001, then the same ought to be for year 2001-02. For Assessment Year 2001- 02, the gross receipts were at the figure of Rs.2,33,16,900/- over which IT(ss)A No.216/Ahd/2004 M.S. Hostel vs. ACIT Block period ending on 20/09/2001
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the profit estimated at 15% to arrive at a figure of Rs.34,97,534/-. However, as per books, the profit declared was Rs.5,72,950/-, therefore, the rest of the amount, i.e. Rs.29,24,585/- was taxed as undisclosed income in the hands of the assessee. Relevant portion of the Assessing Officer's order is reproduced below:-
"In view of the clear evidences of glaring defects in books of accounts as has been discussed in para 5 and due to the fact that profits of A.Y. 2000-01 and 2002-03 are found actually to be more Rs.35 lacs, the assessee's books of accounts for A.Y. 2001-02 are liable for rejection u/s.145. The Honourable Supreme Court in the case of CST Vs H.M. Esufali H.M. Abduali (1973) reported in 90 ITR 271 has upheld this view. As hard evidences are fond for both the years preceding and succeeding A.Y. 2001-02, from the seized material, there is a case of involving provisions of section 145 and accordingly, profit fo A.Y. 2001-02 is computed as under:-
A.Y. Cross receipt Profit % of turnover
2002-03 2,49,41,890/- 39,48,814/- 15.8%
The gross receipt of A.Y. 2001-02 is declared at Rs.233,16,900/-. Therefore, profit @ 15% will come to Rs.34,97,534/-. As against the declared profit has been Rs.5,72,950/-. Therefore the profit to the extent of Rs.29,24,585/- (i.e. 34,97,534/- - 5,72,950/-) has been suppressed and in all circumstantial evidences found in the search the said amount of rs.29,24,585/- is added as undisclosed income of the block period for A.Y. 2001-2002."
14. We have already noted hereinabove, the Learned CIT(Appeals) has passed a very cryptic judgement without going into the details of the nature of the addition as well as the basis on which the Assessing Officer has estimated the profit of the assessee for block assessment, therefore there is nothing much to refer about the said judgement.
IT(ss)A No.216/Ahd/2004 M.S. Hostel vs. ACIT Block period ending on 20/09/2001
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15. We have heard both the sides. We have perused the material placed before us. A fundamental objection is raised before us that in the absence of any incriminating material for the year 01-02 of the block period whether it was justifiable to adopt an estimated figure of percentage of profit as "Undisclosed Income" defined U/s 158B(b) of the Act. As far as the block period assessment is concerned, an assessment has to be confined with the seized material recovered during the course of search. As far as the addition in question is concerned, the same is not based upon any cogent or direct evidence on the basis of which it could be said with authenticity that the profit for the year in question was definitely earned by the assessee at 15% which has not been or would not have been disclosed in the regular course. We may like to point out at this juncture that the proceedings as per Chapter XIVB of the I.T.Act are not the assessment proceedings as per the regular assessment procedure prescribed in the IT Act. Chapter XIV B has laid down a "Special Procedure for Assessment of Search Cases" There are certain specific assessment proceedings through which assessee is subjected to 60% of rate of income tax. Therefore, the Assessing Officer is expected to confine the assessment within the seized document and the material recovered. Hence, there is no scope of an estimation or presumption, as held in the case of Dr. M.K.E. Memon (supra) 15.1 In the light of the above discussion and on analysis of the case laws referred, it can be summarised that the criteria defined for making an assessment under Chapter XIV-B of the Act are that the assessment IT(ss)A No.216/Ahd/2004 M.S. Hostel vs. ACIT Block period ending on 20/09/2001
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must revolve around the seized material; that the computation of "Undisclosed Income" as defined under Section 158B(b) must be based upon incriminating material; that "Undisclosed Income" should have direct and live link with the suppressed facts may be sales, investment, purchases, so and so forth; that the "Undisclosed Income" was to be that amount which has not been brought to the accounts of the assessee in the regular course of the business; that the "Undisclosed Income" is unaccounted cash, jewellery, valuable articles, assets and/or any unaccounted transaction; that the "Undisclosed Income" is also to be based upon an admission or an offer made during the search operation by any such person based upon the material found in his possession. These are few points for determination of undisclosed income which can be considered for an assessment under Chapter-XIV-B but these are only suggestive and not exhaustive, therefore, other like nature points can also be added. However, the AO's action do not come within the purview of these items hence the said action is hereby reversed.
We, therefore, hold that once there was no specific evidence in the possession of the Revenue Department that the assessee had actually earned that rate of profit for the year under consideration, which was actually more than the profit disclosed by the assessee, then such an addition had no basis to treat an estimated income as an "undisclosed income" for the block period. We hold accordingly and the addition of Rs.29,24,585/- is, hereby cancelled. This part of the ground is allowed.
IT(ss)A No.216/Ahd/2004 M.S. Hostel vs. ACIT Block period ending on 20/09/2001
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16. Ground No.7 in respect of levy of interest u/s.158BFA(1) of the I.T.Act is consequential in nature.
17. In the result, appeal of the Assessee is partly allowed but for statistical purpose.
Order signed, dated and pronounced in the Court on 11/02/2011.
Sd/- Sd/-
( D.C. AGRAWAL) ( MUKUL Kr. SHRAWAT )
ACCOUNTANT MEMBER JUDICIAL MEMBER
Ahmedabad; Dated 11 / 02 /2011
T.C. NAIR, Sr. PS
Copy of the Order forwarded to :
1. The Assessee.
2. The Department.
3. The CIT Concerned
4. The ld. CIT(Appeals)-II, Ahmedabad
5. The DR, Ahmedabad Bench
6. The Guard File.
BY ORDER,
स×याǒपत ूित //True Copy//
(Dy./Asstt.Registrar), ITAT, Ahmedabad