Income Tax Appellate Tribunal - Ahmedabad
Income-Tax Officer vs Gurubachansingh J. Juneja on 16 June, 1995
ORDER
B.L. Chhibber, (Accountant Member)
1. This appeal by the Revenue is directed against the order of the Commissioner of Income-tax (Appeals)-I, Ahmedabad. Ground No. 1 reads as under :
" The learned Commissioner of Income-tax (Appeals) has erred in not granting an opportunity of being heard to the Income-tax Officer in spite of specific request."
2. During the course of hearing before us, we specifically asked the learned Departmental Representative to check up from the record whether no opportunity to represent was given to the Income-tax Officer. The learned Departmental Representative was fair enough to state that there was nothing on record to show that the opportunity was denied to the Income-tax Officer. Accordingly, we do not find any merit in this ground and dismiss the same.
3. Grounds Nos. 2 and 3 read as under :
(2) The learned Commissioner of Income-tax (Appeals) has erred in deleting the addition of Rs. 10,85,003 made on account of unaccounted cash sales.
(3) The learned Commissioner of Income-tax (Appeals) has erred in directing to adopt the gross profit only on Rs. 2,43,339 when addition was made for undisclosed sales of Rs. 10,85,003.
4. The assessee, an individual, deals in tyres manufactured by different companies. A search was conducted at the business and residential premises of the assessee on September 6 and 7, 1984. Loose papers belonging to items C-4 to C-15 were seized from the residence of the assessee at 7, Sunrise Park, Ahmedabad. On a scrutiny of these loose papers, the learned Income-tax Officer noted that these loose sheets comprised daily sales effected for the period from July 15, 1983, to the end of June, 1984, and these sheets record the sales effected by the assessee on cash and credit basis. The Income-tax Officer examined these loose sheets with reference to the books of account of Punjab Tyres and Paul Tyres for the period up to March 31, 1984, with the help of the accountant of the assessee and found that sales to the tune of Rs. 10,85,003 were not found either in the books of Punjab Tyres or Paul Tyres. In response to the show-cause notice issued by the Income-tax Officer, vide his letter dated March 27, 1987, the assessee filed a detailed explanation which has been reproduced by the Income-tax Officer on page 4 of his order. The Income-tax Officer was not satisfied with the explanation furnished and made an addition of Rs. 10,85,003 on account of unaccounted sales.
5. Before the Commissioner of Income-tax (Appeals), detailed written submissions were furnished by the assessee which have been reproduced by the Commissioner of Income-tax (Appeals) in his order. The crux of the explanation was that the cash sales jotted down in the loose sheets were accounted for in the books of account- The Commissioner of Income-tax (Appeals), accordingly, deleted the addition of Rs. 10,85,003 but sustained the gross profit addition on a difference of Rs. 2,43,339 with the following remarks :
" From the foregoing explanation of the appellant, it is clearly obvious that the appellant has been able to tally the sales recorded in the books of account of Punjab Tyres and Paul Tyres with the sales jotted down in the loose sheets. The various reasons furnished by the appellant about the fact that all the sales indicated in the loose sheets have been duly accounted for in the regular books of account, are reasonably acceptable. In such trade, there are on account of various aforesaid reasons sales entries which have later on to be modified or reversed. In any case, the sales recorded in the books of account are more than the sales jotted down in the loose sheets. This is so because certain sales were entered in the regular books of account, but were not recorded in the loose sheets on account of various reasons. It is not necessary to enter all the sales in the loose sheets and at the same time it is not required to enter the promised or intended sales in the regular books of account since they may not ultimately mature as actual sales. The Income-tax Officer's finding that the sales in the regular books of account might not have been entered in the loose sheets is based only on surmises. The Income-tax Officer's presumption of ticked or unticked as well as rounded or unrounded sales transaction has no valid and tenable basis. In this background, I am inclined to accept the contention of the appellant to a major extent. The addition made is deleted but I sustain the gross profit addition on difference of sales of Rs. 2,43,339."
6. The learned Departmental Representative relied upon the order of the Income-tax Officer while Shri J. P. Shah, learned counsel for the assessee strongly supported the order of the Commissioner of Income-tax (Appeals). Learned counsel submitted that some loose sheets containing some rough jottings of the business transactions of the assessee were found during the course of the search operation. Sales transaction jottings in these loose sheets were partly concluded to be by the Income-tax Officer as unaccounted sales. Learned counsel further submitted that in the proceedings under Section 132(5), the unticked items in these loose sheets were totalled to Rs. 42.95 lakhs while total cash sales of both the concerns, viz., Punjab Tyres and Paul Tyres, for the accounting year in question were more than Rs. 45 lakhs which were recorded in the books of account. Learned counsel submitted that the nature of the business of the assessee is that many times the assessee had to sell goods on approval or return basis both on cash basis and credit basis. In the loose sheets, the assessee also entered such articles which were sold on approval or return basis. Further, in many cases, goods sold and entered in the loose sheets were exchanged because of change in size or when the purchaser insisted on the change in the manufacturer, viz., the customer who had purchased the tyre of "Dunlop" company afterwards changed it for any other manufacturer like "Ceat", "Modi", etc. In such cases, there may be difference in dates and rates and hence, the sale of Rs. 10,85,003 could not have been compared with the-books of account. He, therefore, submitted that the Commissioner of Income-tax (Appeals) was right in holding that the addition of Rs. 10,85,003 was not called for and only gross profit addition on Rs.2,43,339 was directed to be made.
7. We have considered the rival submissions and perused the facts on record. We have also gone through the seized material, i.e., the loose sheets, photo copies of which were placed before us by the learned Departmental Representative. As per the version of the Income-tax Officer, on the basis of loose sheets, sales to the tune of Rs. 10,85,003 were made on cash basis and were not recorded in the books of account. He accordingly made the addition of Rs. 10,85,003. We do not find any justification in the action of the Income-tax Officer for making the addition of Rs. 10,85,003 being the alleged sales made on cash basis and not recorded in the books of account because sales cannot constitute undisclosed income, more so, when the Income-tax Officer has accepted the genuineness of purchases of such goods. At the most an addition on account of gross profit on such sales could have been made which has been done by the Commissioner of Income-tax (Appeals). We accordingly uphold the action of the Commissioner of Income-tax (Appeals) deleting the addition of Rs. 10,85,003. But we do not agree with his finding that an addition is to be made by applying the gross profit rate only on sales of Rs. 2,43,339 being the difference between Rs. 10,85,003 and Rs. 8,41,664. In our opinion, the gross profit rate should be applied on the entire sales of Rs. 10,85,003 which were not recorded in the books of account. The Income-tax Officer is accordingly directed to apply the gross profit rate of 2.36 per cent. on the amount of Rs. 10,85,003 and work out the addition. Accordingly, ground No. 3 raised by the Revenue succeeds.
8. The next ground reads as under :
"The learned Commissioner of Income-tax (Appeals) has erred in deleting the addition of Rs. 1 lakh being the unaccounted advance to one, Shri Rajiv Kapoor."
9. During the course of the search, a receipt from Shri Rajiv Kapoor for Rs. 1 lakh dated May 2, 1983, was found. The assessee submitted during the course of the search that his son, Shri Jitendranal Singh, was proprietor of Juneja Transport, which was working as carting agents of Gandhi-nagar Bottling Pvt. Ltd., Gandhinagar, and that this amount was collected from various places by the truck drivers as against the sale proceeds of bottles and this money, as a normal practice, was to be handed over to the bottling company. On May 2, 1983, Shri Rajiv Kapoor, the manager of Gandhinagar Bottling Pvt. Ltd., called at the assessee's residence to collect the amount lying at his residence collected on their behalf by the assessee. The assessee's son was not present at that time and as the assessee had not much acquaintance with Mr. Rajiv Kapoor, as a matter of abundant caution obtained a personal receipt from him of having received Rs. 1 lakh. The assessee explained before the search party that this was obtained only to safeguard against possible defalcation by the recipient of the money. A necessary confirmation letter in this regard was produced at the time of proceedings under Section 132(5). Further, at the time of assessment proceedings at the instance of the Income-tax Officer, a xerox copy of the cash book page dated May 2, 1983, was produced. The Income-tax Officer was not satisfied with the explanation furnished and added the amount of Rs. 1 lakh as the assessee's income from undisclosed sources.
10. On appeal, the Commissioner of Income-tax (Appeals) went through the statement of the assessee made during the search proceedings, submissions made by the assessee during the course of proceedings under Section 132(5), the sworn affidavit of Shri Rajiv Kapoor and held that the assessee had discharged the primary/secondary onus of proof by consistent explanation and documentary proof. He accordingly deleted the addition of Rs. 1 lakh.
11. The learned Departmental Representative relied upon the order of the Income-tax Officer. Shri J. P. Shah, learned counsel for the assessee, took us through the letter from Gandhinagar Bottling Pvt. Ltd. to the Income-tax Officer dated December 12, 1984 (page 1 of the paper book), the affidavit of Shri Rajiv Kapoor dated May 19, 1987 (pages 17 and 18 of the paper book), the assessee's letter dated March 27, 1987, to the Income-tax Officer (pages 2 to 6 of the paper book), the letter from Gandhinagar Bottling Pvt. Ltd. to the Income-tax Officer dated February 22, 1987 (pages 19 to 21 of the paper book), and submitted that the assessee had produced sufficient evidence in support of his contention that he had nothing to do with the receipt of Rs. 1 lakh and that the same was collected by his son, Shri Jitendrapal Singh, proprietor of Juneja Transport, for and on behalf of Gandhinagar Bottling Pvt. Ltd.
12. We have considered the rival submissions and find force in the submissions of the assessee's counsel. We find that the assessee has taken a consistent stand right from the date of the search to the appellate stage that he had nothing to do with the receipt of Rs. 1 lakh. It was the amount collected by Shri Jitendrapal Singh who had collected the same for and on behalf of Gandhinagar Bottling Pvt. Ltd. This stand stands vindicated by the sworn affidavit of Shri Rajiv Kapoor and the letters from Gandhinagar Bottling Pvt. Ltd. (supra) which have been rightly relied upon by the Commissioner of Income-tax (Appeals). Accordingly, we do not find any infirmity in the findings of the Commissioner of Income-tax (Appeals) and decline to interfere. This ground is also dismissed.
13. In the result, the appeal is allowed in part.
Phool Singh, (Judicial Member)
14. I have had the privilege to go through the order prepared by learned brother, Shri B. L. Chhibber, Accountant Member, and also to discuss the matter at length with him, but I am unable to persuade myself to agree to his findings on grounds Nos. 2 and 3 of the appeal of the Revenue. The reasons for the same are mentioned in the following paragraphs.
15. To start with, I am giving out the concerned grounds Nos. 2 and 3 raised by the Revenue in this appeal, as under :
"2. That the learned Commissioner of Income-tax (Appeals) has erred in deleting the addition of Rs. 10,85,003 made on account of unaccounted cash sales.
3. The learned Commissioner of Income-tax (Appeals) has erred in directing to adopt the gross profit only on Rs. 2,43,339 when addition was made for undisclosed sales of Rs. 10,85,003. "
16. The relevant facts are that the assessee, an individual, deals in sales and purchases of tyres used by trucks/buses, etc., manufactured by different companies. The Revenue authorities conducted a search and seizure operation at the business and residential premises of the assessee on September 6 and 7, 1984. During that search operation loose papers relevant to these two grounds of the Revenue and marked C-4 to C-15 were seized from 7, Sunrise Park, Ahmedabad, the residence of the assessee. The Assessing Officer scrutinised these loose papers which comprised daily sales effected for the period from July 15, 1983, to the end of June, 1984. These sales entered in these loose sheets include cash sales and credit sales. The assessee mentioned that these loose sheets were concerning the business of the assessee in the name of Punjab Tyres and Paul Tyres. The Income-tax Officer examined these loose sheets with reference to the books of account of Punjab Tyres and Paul Tyres for the period up to March 31, 1984, with the help of the accountant of the assessee and concluded that sales to the tune of Rs. 10,85,003 were not found either in the books of Punjab Tyres or those of Paul Tyres. The Income-tax Officer called upon the assessee to reconcile the same and in pursuance of the show-cause notice the assessee submitted the explanation vide letter dated March 27, 1987 (copy appearing on pages 2 to 6 of the paper book of the assessee). He took different pleas in his explanation and the Income-tax Officer reproduced the written submission in his assessment order and after considering the same concluded that the explanation regarding the difference of sales was not convincing because each sale entry in the loose sheet must be having a corresponding entry in the regular books of account which was missing and some sales might not have been entered in the loose sheets as directly recorded in the books of account. Accordingly, the amount of Rs. 10,85,003 on account of unaccounted sales was included in the total income of the assessee. The assessee came in appeal before the Commissioner of Income-tax (Appeals)-I, Ahmedabad, and before him also, the assessee relied upon his explanation dated March 27, 1987, submitted to the Income-tax Officer and also tried to explain the difference and also agreed to sustain the gross profit addition on the difference of sales of Rs. 2,43,339 as the remaining amount of Rs. 8,41,664 was reconciled by the assessee before the Income-tax Officer who did not find substance in the same. However, the learned Commissioner of Income-tax (Appeals) accepted the contention of the assessee and the explanation of the assessee was taken as correctly reconciling the difference of Rs. 8,41,664 out of Rs. 10,85,003 and further concluded that the gross profit addition on the difference of sales of Rs. 2,43,339 be added as proposed by the assessee before both the authorities. This order of the Commissioner of Income-tax (Appeals) is the subject-matter of the grounds before us in the appeal of the Revenue.
17. The learned Departmental Representative heavily placed reliance on the order of the Income-tax Officer and contended further that undisputedly loose sheets were seized in the raid operation and the assessee was under an obligation to explain the difference pointed out by the Income-tax Officer which could not be done by him and the Income-tax Officer was justified in adding the same amount of Rs. 10,85,003 to the total income of the assessee on account of unaccounted sales. Contrary to it, learned counsel for the assessee has relied upon the order of the learned Commissioner of Income-tax (Appeals) and also submitted that in fact total sales shown by the assessee was more than Rs. 45 lakhs while the total sales in the loose sheets was to the tune of Rs. 42.95 lakhs and this circumstance alone was sufficient to conclude that all the sales mentioned in the loose sheets were entered in the books of account. Learned counsel further submitted that the explanation given by the assessee before the Income-tax Officer and the Commissioner of Income-tax (Appeals) was such that there was no justification for the Income-tax Officer to add, as the nature of business is such that so many times goods sold on approval basis are actually shown as cash sales but returned afterwards or sometimes a part of the price of tyres is paid by the driver/owner of the vehicle in times of emergency and the assessee used to show the said sale as a cash sale and later on that unpaid amount remained uncleared for which a credit memo was prepared and this sort of transactions were existing and in all the amount of such transactions was Rs. 8,41,664 and the assessee was justified in asking the authorities below to assess the gross profit on the remaining amount of Rs. 2,43,339 and to add it in the total income of the assessee. This offer of the assessee was to purchase peace and to cut short the period of litigation. Learned counsel pointed out that the learned Commissioner of Income-tax (Appeals) was justified in accepting the contention and explanation of the assessee and it requires no interference.
18. After hearing the learned representatives of the parties and on going through the materials placed before us, it is relevant to point out that undisputed facts have come on record and they are that a raid was conducted at the residence and business premises of the assessee in which loose sheets containing sales transactions of tyres, marked as C-4 to C-15 were seized. The Income-tax Officer has specifically mentioned in the assessment order that he had compared the entries appearing in these loose sheets C-4 to C-15 with reference to the books of Punjab Tyres and Paul Tyres, the business concerns of the assessee and the accountant of the assessee was very much in attendance at the time of the said scrutiny. The amount of Rs. 10,85,003 could not be reconciled as sales relating to this amount did not figure in the books of account of these two concerns. This observation of the Income-tax Officer is not challenged before us by learned counsel for the assessee. In view of these facts, it was obligatory on the part of the assessee to explain the transactions relating to the amount of Rs. 10,85,003 and the Income-tax Officer gave an opportunity to the assessee to explain the same and in response to this, the assessee admittedly has furnished a written reply dated March 27, 1987. This reply of the assessee is a material one. It has been reproduced by the Income-tax Officer in his order and I am also giving out the relevant portion of the same in the following paragraph :
" I have already explained to your honour the nature of the entries appearing in those loose sheets orally that they represented various aspects of our business transactions, such as cash sales, credit sales, goods intended to be delivered, etc., and the loose sheets are nothing but mere jottings of the day-to-day various aspects of the transactions and that the same are duly accounted for in the books of the respective concerns as and when the transaction is finalised. During the period of account and at the time when the raid took place we were not having a full time accountant and the loose sheet notings are kept to write up the accounts in its proper way as the proprietor is not conversant with the accounting procedures. As soon as the transactions are entered in the books of account of the concerned firm, the respective entries are rounded off by indicating PB for Punjab Tyres and PL for Paul Tyres. These items which are rounded off in the loose sheets represented the credit sales. The items which remained to be rounded off really represented the cash sales and the same are duly accounted for in the books of account of the respective firms and the cash memos will prove this contention. Promised or intended sales were also recorded and the same cannot find place in the regular books unless it is actually effected or materialised.
After verification of the loose sheets with the books of account, your honour have come out with a figure of Rs. 10,85,003 being the difference to be added as income from undisclosed sources. We have already submitted to your honour that the above figure is the sum total of the exact amount not tallying with the loose sheets and the amounts as appearing in our books for various reasons which are elaborated later on in this reply. We have submitted a detailed statement of cash sales remaining unticked in our books after the verification of the figures with the loose sheets. These unticked items of sales amount to Rs. 8,41,664. This has not been deducted by your honour from the figure of Rs. 10,85,003. If this figure of Rs. 8,41,664 is deducted, the net amount of sales differing on account of the misunderstanding comes to Rs. 2,43,339. A statement of unticked items of sales as appearing in our books is once again enclosed for your honour's kind reference and necessary action.
It may be stated that the above figure of difference is attributed to proposed or intended sales not ultimately materialised, difference in price, quality, type and quantity, return of goods and various other reasons having no effect on the ultimate sale as alleged.
With a view to purchase peace and avoid litigation, the assessee could have accepted reasonable and usual gross profit addition on difference of Rs. 2,43,339 without any admission on its part for the alleged concealment of income or any other default or guilt."
19. Apart from it, the assessee tried to explain in the same reply the reasons for the difference by saying that sometimes customers' trucks may be lying on the road due to bursting of tyres and the drivers/cleaners rushed to our godown or shops and tender part of the price money according to the availability with them and in such transactions the cash sale is shown in the loose sheets but the remaining due amount takes time to come in the hands of the assessee and sometimes credit memos are prepared and this creates difference. The other factor of this difference is that sometimes truck owners book certain number of tyres of particular size but later on change for a number of reasons and even change the make of the tyres and it results in the difference.
20. The assessee, as apparent from paragraph 2 of the above reply, has given a statement of unticked items of sales as appearing in his books for Rs. 8,41,664 and asserted that in case this amount is deducted out of Rs. 10,85,003 then the difference shall be of Rs. 2,43,395 and for that he agreed that it may be taken as the amount for calculation of the gross profit and addition may be made accordingly. It was expected from the Income-tax Officer to verify this part of the reply of the assessee. We have asked for details of this statement but the same were not furnished and learned counsel tried to satisfy us by showing two books of account of the assessee in which the Income-tax Officer has marked "tick". It has not been explained by the assessee before us as to how this amount of Rs. 8,41,664 is arrived at. The explanation of the assessee was that in some cases, customers have changed the size, number and/or make of the tyres or sometimes part of the price money was charged and later on cash sale was converted into credit sales and it all resulting in the difference of Rs. 10,85,003. As pointed out above, the assessee was duty bound to give a cogent explanation giving out the details of each and every entry included in the amount of Rs. 10,85,003. But he failed to do so.
21. However, the assessee is not to be blamed because at least he submitted a detailed statement of cash sales remaining unticked in his books amounting to Rs. 8,41,664 as mentioned, then the Income-tax Officer was to verify this claim of the assessee in detail but the written submission of the assessee which lasted up to five pages was disposed of by the Income-tax Officer with the following observation :
" The assessee's explanation as regards the difference of sales not recorded in the books of account is not convincing because for each sale entry in the loose sheets, there must be a corresponding entry in the regular books of account. Besides, each sale which is found in the cash book might not have been entered in the loose sheets and have been directly recorded in the books of account. In the circumstances, it is not possible to give any relief for the unaccounted cash sales found. The entry in the unaccounted sales of Rs. 10,85,003 is included in the total income of the assessed."
22. This approach of the Income-tax Officer is not justified at all.
23. Now conies the impugned order of the learned Commissioner of Income-tax (Appeals). A perusal of it shows that he has mentioned the pleas raised by the assessee before the Income-tax Officer as well as before him. A copy of the written submission filed by the assessee before the Commissioner of Income-tax (Appeals) is appearing on pages 10 to 16 of the paper book and most of the pleas raised by the assessee do find a place in the order of the learned Commissioner of Income-tax (Appeals) and his observation deciding the matter in controversy is as follows :
" From the foregoing explanation of the appellant, it is clearly obvious that the appellant has been able to tally the sales recorded in the books of account of Punjab Tyres and Paul Tyres with the sales jotted down in the loose sheets. The various reasons furnished by the appellant about the fact that all the sales indicated in the loose sheets have been duly accounted for in the regular books of account are reasonably acceptable. In such trade, there are on account of various aforesaid reasons sales entries which have later on to be modified or reversed. In any case, the sales recorded in the books of account are more than the sales jotted down in the loose sheets. This is so because certain sales are entered in the regular books of account but were not recorded in the loose sheets on account of various reasons. It is not necessary to enter all the sales in the loose sheets and at the same time, it is not required to enter the promised or intended sales in the regular books of account since these may ultimately not mature as actual sales. The Income-tax Officer's finding that the sales in the regular books of account might not have been entered in the loose sheets is based on surmises. The Income-tax Officer's presumption of ticked or unticked as well as rounded off or unrounded sales transaction has no valid and tenable basis. In this background, I am inclined to accept the contention of the appellant to a major extent. The addition made is deleted but I sustain the gross profit addition on difference of sales of Rs. 2,43,339."
24. I am not able to find out as to how the Commissioner of Income-tax (Appeals) observed that the assessee was able to tally the sales recorded in the books of account of Punjab Tyres and Paul Tyres with the sales jotted in the loose sheets. The assessee simply has given out vague reasons for the difference in the amount of sales noted in the loose sheets and in the books of Punjab Tyres and Paul Tyres, but did not explain each and every entry for a total of Rs. 8,41,664. In the same way, the above observations of the Commissioner of Income-tax (Appeals) are self-contradictory as at one place in the above-referred to the observations he noted that sales recorded in the books of account are more than the sales jotted down in the loose sheets and gave the explanation that by observing that certain sales are entered in the regular books of account but were not recorded in the loose sheets on account of various reasons. In the same paragraph, he criticised the observations of the Income-tax Officer that the finding of the Income-tax Officer to the effect that sales in the regular books of account might have not been entered in the loose sheets is based only on the surmises. So the Commissioner of Income-tax (Appeals) was not justified in accepting the contention of the assessee without verifying the correctness of the explanation and adding the gross profit of Rs. 2,43,339.
25. It is also relevant to point out that learned counsel for the assessee argued before us that purchases are vouched and there was no occasion for the assessee to sell tyres out of books nor the authorities below questioned the purchases. This point has not been scrutinised by the authorities. The assessee's explanations were subject to scrutiny and while verifying the correctness of each and every entry, details of which were given by the assessee before the Income-tax Officer as mentioned above, the authorities below were under an obligation to keep in mind the purchases made by the assessee and the position of stock after each of the sales. It has not come on record.
26. On the basis of above discussions, the only conclusion is that the matter has not properly been processed from the very beginning. The facts of the seizure of loose sheets are undisputed. The explanation of the assessee requires a fresh scrutiny in detail by the Income-tax Officer concerned as in the original assessment order, the explanation has been disposed of in a cursory manner and addition was made without any solid basis. However, its deletion has also been made in the same fashion without touching the real controversy by the first appellate authority. Accordingly, the matter is restored to the Income-tax Officer who will examine the case of the assessee afresh and decide the matter according to law after providing an opportunity of being heard to the assessee and the observation made above may also be kept in mind. On these bases, I am not in agreement with my learned brother for confirming the order of the Commissioner of Income-tax (Appeals) on these two grounds.
27. So far as the remaining grounds are concerned, I am in full agreement with the learned Accountant Member.
ORDER OF REFERENCE TO THIRD MEMBER B.L. Chhibber, (Accountant Member)
28. As we have a difference of opinion on the following points, we refer the case to the hon'ble President as provided under Section 255(4) of the Income-tax Act, 1961 :
"(1) Whether, on the facts and circumstances of the case, the learned Commissioner of Income-tax (Appeals) is justified in deleting the addition of Rs. 10,85,003 made on account of unaccounted cash sales ?
(2) Whether, on the facts and circumstances of the case, the learned Commissioner of Income-tax (Appeals) is justified in directing to adopt the gross profit only on Rs. 2,43,339 when addition was made for undisclosed sales of Rs. 10,85,003 ? "
ORDER OF THIRD MEMBER A. Satyanarayana, (Vice-President)
29. This appeal has come before me for my opinion as a Third Member under Section 255(4) of the Income-tax Act, 1961, as the Members who heard the appeal originally could not agree. They referred the following points of difference :
" (1) Whether, on the facts and circumstances of the case, the learned Commissioner of Income-tax (Appeals) is justified in deleting the addition of Rs. 10,85,003 made on account of unaccounted cash sales ?
(2) Whether, on the facts and circumstances of the case, the learned Commissioner of Income-tax (Appeals) is justified in directing to adopt the gross profit only on Rs. 2,43,339 when addition was made for undisclosed sales of Rs. 10,85,003 ?"
30. This appeal filed by the Department is against the order of the Commissioner of Income-tax (Appeals) dated August 26, 1987, for the assessment year 1984-85, for which the previous year ended on June 30, 1983. The assessee is an individual. He is engaged in the business of tyres under the name and style of Punjab Tyres. For the assessment year under consideration, the return of income was filed on July 2, 1986, showing the total income at Rs. 950. Later on a revised return was filed on January 22, 1987, showing an income at Rs. 15,170. The revised return was filed in order to show income from property and share income from Patel Transport Co., which were not disclosed in the original return of income. In the year under consideration, the assessee has disclosed a gross profit rate of 2.3 per cent. on the total sales of Rs. 1,35,49,907 as against the gross profit rate of 2.2 per cent. on the total sales of Rs. 1,34,09,015 in the preceding year.
31. A search under Section 132 of the Income-tax Act, 1961, was carried out on September 6 and 7, 1984, at the residential as well as the business premises of the assessee. In the course of the search, books of account and documents were seized. On a scrutiny of the loose papers (items C-4 to C-15), it was found that daily sales were effected for the period from July 15, 1983, to the end of June, 1984, and that these sales were on cash and credit basis. The loose sheets recorded the sales effected by Punjab Tyres and Paul Tyres (a proprietary concern of the assessee's son, Jitendrapal Singh). These loose sheets were examined with reference to the books of account of Punjab Tyres and Paul Tyres for the period up to March 31, 1984, with the help of the accountant of the assessee. It was found that sales to the extent of Rs. 10,85,003 were not found either in the books of Punjab Tyres (PB) or Paul Tyres (PL). A show-cause notice dated March 23, 1987, was issued to the assessee calling for the explanation as to why an addition of the said amount should not be made as income from undisclosed sources for the assessment year 1984-85. The assessee filed a written reply dated March 27, 1987. In the said reply, the assessee explained the entries in the loose sheets as under :--The entries in the loose sheets represented various aspects of our business transactions, such as cash sales, credit sales, goods intended to be delivered, etc. The loose sheets are nothing but mere jottings of the day-to-day various aspects of the transactions. The same are duly accounted for in the books of the respective concerns as and when the transactions were finalised. During the relevant period, we were not having a full time accountant and the loose sheet notings were kept to write up the accounts in its proper way as the proprietor was not conversant with the accounting procedures. As soon as the transactions were entered in the books of account of the concerned firms, the respective entries were rounded off by indicating PB for Punjab Tyres and PL for Paul Tyres. These items which were rounded off in the loose sheets represented the credit sales. The items which remained to be rounded off really represented the cash sales. The same are duly accounted for in the books of account of the respective firms and the cash memos would prove this contention, Promised or intended sales were also recorded and the same could not find a place in the regular books unless it was actually effected or materialised. After verification of the loose sheets with the books of account, you have come out with a figure of Rs. 10,85,003 being the difference to be added as income from undisclosed sources. As already submitted, the above figure is the sum total of the exact amount not tallying with the loose sheets and the amounts as appearing in our books for various reasons which are elaborated in this reply. We have submitted a detailed statement of cash sales remaining unticked in our books after the verification of the figures with the loose sheets. These unticked items of sales amount to Rs. 8,41,664. This has not been deducted by you from the figure of Rs. 10,85,003. If this figure of Rs. 8,41,664 is deducted, the net amount of sales differing on account of the misunderstanding comes to Rs. 2,43,339. A statement of unticked items of sales as appearing in our books is once again enclosed for your kind reference and necessary action. The above figure of difference is attributed to the proposed or intended sales not ultimately materialised, difference in price, quality, type and quantity, return of goods and various other reasons having no effect on the ultimate sale as alleged. With a view to purchase peace and avoid litigation, the assessee could have accepted the reasonable and usual gross profit addition on difference of Rs. 2,43,339 without any admission on its part for the alleged concealment of income or any other default or guilt. The purchases are fully vouched and the same are with reputed limited companies and their authorised dealers. There is no possibility for any other source of purchase. I may be allowed to explain as to how the cash sales difference arose between the loose sheets and the figures as per the cash books. Ours is a pretty old business and is known in the transport circle traditionally. In our business it so happens many a time that our customers' trucks may be lying on the road during their trips due to bursting of tyres, etc., and the drivers and/or cleaners of such truck owners rush to our godown or shops and tender whatever cash is available with them and assures to pay the balance either on the same day or a few days after. However, in the loose sheets, the same is immediately noted as a cash sale. But in certain cases cash may not have come within a reasonable time and hence later on credit memos must have been prepared and the cash must have been adjusted against the same. Again in certain cases, the party must have given almost the round-about figure of the goods taken by them but the bills may be a little over the cash as has been shown in the loose sheets. This marginal amount is normally considered as discount. This is one of the factors which contributed to the difference of figures as per the loose sheets and the account books. Another factor which contributed to the difference is on account of the fact that in certain cases the amount may not be tallying with the loose sheets and the bills as the description of goods will be differing. This is because of the fact that sometimes truck owners book certain numbers of tyres of a particular size but later on change it for a number of reasons peculiar to the transport trade. To quote an example the size of the tyres used in the rear and the front are different and his need for the tyres at a particular moment must have changed at the time of booking and the actual delivery.
32. The Assessing Officer did not accept the assessee's explanation. He added an amount of Rs. 10,85,003 in the total income of the assessee as unaccounted sales by observing as under :
" The assessee's explanation as regards the difference of sales not recorded in the books of account is not convincing because for each sale entry in the loose sheets there must be a corresponding entry in the regular books of account. Besides, each sale which is found in the cash book might not have been entered in the loose sheets and have been directly recorded in the books of account. In the circumstances, it is not possible to give any relief for the unaccounted cash sales found. The entry in the unaccounted sales of Rs. 10,85,003 is included in the total income of the assessee. "
33. In the assessment order passed under Section 143(3) on March 31, 1987, the impugned addition was treated as business income. Aggrieved by the said addition, the assessee preferred an appeal before the Commissioner of Income-tax (Appeals).
34. Before the Commissioner of Income-tax (Appeals), the assessee's counsel urged that the total cash sales appearing in the loose sheets from July 15, 1983, to June 30, 1984, were Rs. 42.95 lakhs and the total cash sales of both the firms from July 1, 1983, to June 30, 1984, were more, i.e., Rs. 45.31 lakhs. The assessee's counsel filed written submissions dated August 17, 1987, before the Commissioner of Income-tax (Appeals). Part of the said written submissions were as under :
" The unticked cash sales as per the books of the appellant after the reconciliation with the loose sheets in respect of Punjab Tyres alone was Rs. 8,41,664. Similar figure in the books of Paul Tyres had not been included in the figure of Rs. 8,41,664. Moreover, this difference was worked out on the basis of the financial year, The assessee's accounting period ends in June, and if the figure is reconciled on the basis of the assessee's accounting period there would not be any difference as worked out by the learned Income-tax Officer for the purpose of addition to the income returned.
It is, therefore, humbly submitted that the approach of the learned Income-tax Officer is erroneous and is untenable in law and unwarranted on facts. The impugned addition may, therefore, kindly be deleted.
It may once again be emphasised here that our procedure of sales includes the following aspects : Many a time we have to sell our goods on approval or return basis both on cash basis and credit basis. In the loose sheets we also entered such articles which are sold on approval or return basis. Further, in many cases goods sold and entered in the loose sheets are exchanged because of change in size or when the purchaser insists for the change in the manufacturer, viz., the customer who has purchased the tyre of 'Dunlop' company afterwards changed it into any other manufacturer like 'Ceat', 'Modi', etc. In such cases there may be difference in dates and rates and, hence, the sale of Rs. 10,85,003 could not be compared with the books of account.
Further, our total cash sales as per books of account are to the tune of Rs. 45,31,446 which is more than the total of the loose sheets as has been mentioned by us before the learned Income-tax Officer. Instead of considering the above aspect, the learned Income-tax Officer made the addition of Rs. 10,85,003 to the total income of the appellant. When our sales as per books of account exceeds the total of loose sheets, there is no question of adding any amount to our income. It is, therefore, once again humbly submitted that the impugned addition in question may be deleted in toto and the appeal of the assessee be allowed in full as prayed for in the grounds of appeal. "
35. The assessee referred to his reply dated March 27, 1987, filed before the Assessing Officer. The assessee stated that the gross profit rate in the assessment year under consideration comes to 2.36 per cent.
36. The Commissioner of Income-tax (Appeals) accepted the submissions of the assessee and reduced the addition to Rs. 2,43,339 by observing as under :
" From the foregoing explanation of the appellant, it is clearly obvious that the appellant has been able to tally the sales recorded in the books of account of Punjab Tyres and Paul Tyres with the sales jotted down in the loose sheets. The various reasons furnished by the appellant about the fact that all the sales indicated in the loose sheets have been duly accounted for in the regular books of account, are reasonably acceptable. In such trade, there are on account of various aforesaid reasons sales entries which have later on to be modified or reversed. In any case, the sales recorded in the books of account are more than the sales jotted down in the loose sheets. This is so because certain sales are entered in the regular books of account, but were not recorded in the loose sheets on account of various reasons. It is not necessary to enter all the sales in the loose sheets and at the same time it is not required to enter the promised or intended sales in the regular books of account since this may not ultimately mature as actual sales. The Income-tax Officer's finding that the sales in the regular books of account might not have been entered in the loose sheets is based only on surmises. The Income-tax Officer's presumption of ticked or unticked as well as rounded or unrounded sales transaction has no valid and tenable basis. In this background, I am inclined to accept the contention of the appellant to a major extent. The addition made is deleted but I sustain the gross profit addition on difference of sales of Rs. 2,43,339."
37. Aggrieved by the relief granted by the Commissioner of Income-tax (Appeals), the Revenue preferred an appeal before the Tribunal.
38. In the grounds of appeal, the Revenue has raised the following grounds :
" The learned Commissioner of Income-tax (Appeals) has erred in deleting the addition of Rs. 10,85,003 made on account of unaccounted cash sales.
The learned Commissioner of Income-tax (Appeals) has erred in directing to adopt the gross profit only on Rs. 2,43,339 when addition was made for undisclosed sales of Rs. 10,85,003. "
39. The learned Accountant Member observed that there was no justification in the action of the Assessing Officer in making the addition of Rs. 10,85,003 being the alleged sales made on cash basis and not recorded in the books of account because sales cannot constitute undisclosed income, more so, when the Assessing Officer has accepted the genuineness of purchases of such goods and that at the most an addition on account of gross profit on such sales could have been made which has been done by the Commissioner of Income-tax (Appeals). He did not agree with the finding of the Commissioner of Income-tax (Appeals) that addition is to be made by applying the gross profit rate only on sales of Rs. 2,43,339 being the difference between Rs. 10,85,003 and Rs. 8,41,664. He held that the gross profit rate should be applied on the entire sales of Rs. 10,85,003 which were not recorded in the books of account. Accordingly, he directed the Assessing Officer to apply the gross profit rate of 2.36 per cent. on the amount of Rs. 10,85,003 and work out the addition.
40. According to the learned Judicial Member, the amount of Rs. 10,85,003 could not be reconciled as sales relating to this amount did not figure in the books of account of these two concerns. This observation of the Income-tax Officer was not challenged before the Tribunal by counsel for the assessee. The assessee submitted a detailed statement of cash sales remaining unticked in the books of account amounting to Rs. 8,41,664.
The Income-tax Officer was expected to verify this claim of the assessee in detail. But the Assessing Officer disposed of the assessee's said contention by simply observing that the assessee's explanation as regards the difference of sales not recorded in the books of account was not convincing because for each sale entry in the loose sheets there must be a corresponding entry in the regular books of account ; that each sale which is found in the cash book might not have been entered in the loose sheets and has been directly recorded in the books of account. The learned Judicial Member stated that this approach of the Income-tax Officer was not justified at all. The learned Judicial Member stated that he was not able to find out as to how the Commissioner of Income-tax (Appeals) observed that the assessee was able to tally the sales recorded in the books of account of Punjab Tyres (PB) and Paul Tyres (PL) with the sales recorded in the loose sheets. The assessee did not explain each and every entry for a total of Rs. 8,41,664. He further observed that the Commissioner of Income-tax (Appeals) was not justified in accepting the contention of the assessee without verifying the correctness of the explanation and adding the gross profit of Rs. 2,43,339. The learned Judicial Member also observed that the assessee argued before the Tribunal that purchases were vouched and that there was no occasion for the assessee to sell tyres out of books, nor the authorities below questioned the purchases. The learned Judicial Member stated that this point has not been scrutinised by the authorities below. The authorities below were under obligation to keep in mind the purchases made by the assessee and the position of stock after each sale. It has not come on record. In that view of the matter, he concluded that the matter has not properly been processed from the very beginning, The explanation of the assessee required fresh scrutiny in detail by the Assessing Officer as in the original assessment order the explanation has been disposed of in a cursory manner and addition was made without any solid basis, Its deletion has also been made in the same fashion without touching the real controversy by the first appellate authority. In the circumstances, he restored the matter to the Assessing Officer with a direction to examine the case of the assessee afresh and decide the matter according to law after providing an opportunity of being heard to the assessee and after keeping in mind his observations.
41. The arguments of the learned Departmental Representative before me were to the following effect:--At paragraph 3.4 of his order the learned Accountant Member agreed with the Assessing Officer that sales amounting to Rs. 10,85,003 were made on cash basis and were not recorded in the books of account. The basic issue to be decided is whether the whole unrecorded sales of Rs. 10,85,003 have to be treated as income of the assessee or only the gross profit rate at 2.36 per cent. on those sales of Rs. 10,85,003 is to be treated as the assessee's income. The learned Judicial Member in paragraph 10 of his order observed that the assessee argued before the Tribunal that purchases were vouched and that there was no occasion for the assessee to sell tyres out of books and that the authorities below have not questioned the purchases and that this point had not been scrutinised by the authorities. He further held that the authorities below were under an obligation to keep in mind the purchases made by the assessee and the position of stock after each of the sales and that the same has not come on record. Further, the learned Judicial Member in paragraph 11 of his order concluded that the matter has not been properly processed from the very beginning. In that view of the matter, he restored the matter to the Assessing Officer with the direction to him to examine the case of the assessee afresh. Hence, the order of the learned Judicial Member is to be upheld.
42. The arguments of the assessee's counsel before me were to the following effect :--The order under Section 132(5) of the Income-tax Act, 1961, was passed by the Assessing Officer on December 1, 1984. The same is given in the Revenue's paper book No. 2 at pages 33 to 40. In paragraph 6(g) of the said order, on a scrutiny of the seized loose papers, marked at Sl. Nos. 4 to 15 of annexure "C", the income of the assessee from undisclosed sources was determined at rupees three lakhs for the assessment year 1984-85. In the said paragraph, the Assessing Officer accepted that the notings in the seized papers related not only to the assessee, but also to his son, Shri Jitendrapal Singh, who carried on the business of tyres under the name and style of Paul Tyres. In the assessee's paper book at page 9, the details of cash sales entered in the regular books of Punjab Tyres (PB) and Paul Tyres (PL) from July 1, 1983, to June 30, 1984 (relevant for the assessment year 1985-86), were given. The total aggregated to Rs. 45,31,466, The so-called unaccounted sales as per the order under Section 132(5) are Rs. 42.95 lakhs as culled out from the loose sheets for the period from July 15, 1983, to June 30, 1984. A comparison of the same would show that the theory of concealed sales is nothing but a misunderstanding. The total sales, as entered in the regular books, exceeded by rupees three lakhs as compared to the loose sheets. Hence, the books of the assessee are correct and the same should have been accepted. Did these loose sheets of papers represent the repository of unaccounted sales or some ready and rough memory assistance of various aspects of the assessee's business ? In the Revenue's paper book No. 2, papers 1 to 9 show the month-wise figures of unaccounted cash sales of Punjab Tyres (PB) as well as Paul Tyres (PL) at Rs. 10,85,003. The jottings in the seized papers show unaccounted cash sales at Rs. 42.95 lakhs as per the order under Section 132(5). The Assessing Officer added only Rs. 10.85 lakhs in the assessment order made under Section 143(3). This means that the Assessing Officer has accepted the assessee's claim that cash sales of rupees thirty-two lakhs were accounted for rupee by rupee in the books. This also means that Rs. 10.85 lakhs were not noted in the assessee's books rupee by rupee. Eighty per cent. of the jottings in the loose papers proved to be accounted sales rupee by rupee. Even this Rs. 10.85 lakhs did not relate to the assessee alone. They related to the two concerns Punjab Tyres (PB) owned by the assessee and Paul Tyres (PL) owned by the assessee's son, Shri Jitendrapal Singh. The assessee showed and proved that sales to the extent of Rs. 8,41,664 were duly accounted for in the regular books of the assessee. These details are given at pages 10 and 11 of the Revenue's paper book and the assessee fairly offered for an addition of gross profit on sales of Rs. 2,43,339 (Rs. 10,85,003 minus Rs. 8,41,664). This plea of the assessee was accepted by the Commissioner of Income-tax (Appeals). However, the learned Accountant Member amended the order of the Commissioner of Income-tax (Appeals) and held that the gross profit rate should be applied on the entire sales of Rs. 10,85,003. The learned Judicial Member restored the matter back to the Assessing Officer. The matter relates to the year 1983. Ten years have already elapsed. What does the assessee have to go back for ? There should be a finality and that too early. Nobody can do a job with precision. Tallying hundred per cent. of the entries in the seized loose papers is a mirage. The assessee's books of account and the results shown by them have been accepted in the earlier and later assessment years, viz., the assessment years 1983-84, 1986-87, 1987-88 and 1988-89. Copies of these assessment orders have been filed before the Tribunal. Though the assessee could have got more relief, he is accepting the order of the learned Accountant Member.
43. In reply the Departmental Representative contended that the investment in the goods which resulted in the unrecorded sales of Rs. 10,85,003 should also be added under Section 69 of the Act. This was not considered by the Assessing Officer and the learned Accountant Member. The assessee might have recorded cash sales of rupees forty-five lakhs in both the concerns, Punjab Tyres (PB) and Paul Tyres (PL). Still rupees ten lakhs remained unaccounted for. If the explanation of the assessee is not accepted, unaccounted sales amounted to Rs. 10 lakhs. The income in respect of the transactions in the seized loose papers relating to Paul Tyres (PL) should not have been added in the assessment of the assessee. For this purpose, the assessment of the assessee should be restored to the Assessing Officer. The seized loose papers constituted primary evidence.
44. The assessee's counsel countered that there was no material brought on record by the Revenue to hold that the assessee had made unexplained investment outside the books and so the learned Departmental Representative cannot argue now that investment in the goods which resulted in the alleged unaccounted sales of Rs. 10,85,003 should also be added. Reference can be made to the judgment of the Allahabad High Court in the case of Ashok Kumar Rastogi v. CIT [1991] 55 Taxman 433 (All).
45. I have considered the rival submissions, case-law cited and papers filed before me by both the sides. As per the Assessing Officer's instructions and directions, the inspector verified the loose sheets and cash books of Punjab Tyres and Paul Tyres and arrived at "entries not exactly matching with the loose sheets and cash books" aggregating to Rs. 10,85,003. The inspector's report can be seen at page 14 of the Revenue's paper book No. 2. The working sheets are given at pages 1 to 9 of the said paper book. The Assessing Officer issued a show-cause notice dated March 23, 1987, asking for the assessee's objections to treat the abovesaid amounts as the assessee's income from "undisclosed sources". The assessee furnished his reply dated March 27, 1987, He admitted that the above figure of Rs. 10,85,003 is the sum total of the exact amounts not tallying with those in the loose sheets and the amounts as appearing in their books for various reasons elaborated in the reply. The assessee submitted a detailed statement of cash sales remaining unticked in their books after verification with the loose sheets. Such unticked cash sales amounted to Rs. 8,41,664. The working sheets given by the assessee in this regard can be seen at pages 10 and 11 of the Revenue's paper book No. 2. The said working sheets were checked by the inspector and in his report he stated that the correct figures remaining unticked as per cash book would come to Rs. 8,83,234. The details of the figures given by the inspector were given at pages 12 and 13 of the Revenue's paper book No. 2. This revised figure of Rs. 8,83,234 was not indicated by the Assessing Officer in his assessment order. Hence, the learned Judicial Member cannot find fault with the Assessing Officer that he has not verified the claim of the assessee in the matter of cash sales recorded in the books of account amounting to Rs. 8,41,664.
46. With a view to purchase peace and to avoid litigation, the assessee accepted "reasonable and usual gross profit addition on difference of Rs. 2,43,339" without any admission on his part of the alleged concealment of income. This offer from the assessee has been wrongly misunderstood by the Assessing Officer as he observed in the assessment order as "the assessee agrees in order to purchase peace the gross profit addition of Rs. 2,43,339." The assessee has not agreed for the gross profit addition of Rs. 2,43,339. He only agreed for addition of gross profit on sales of Rs. 2,43,339.
47. The learned Judicial Member observed that the assessee did not explain each and every entry for a total sum of Rs. 8,41,664. The assessee in fact explained in the statement filed before the Assessing Officer which is given in pages 10 and 11 of the Revenue's paper book No. 2. The learned Judicial Member has observed that the matter has not properly been processed from the beginning and that the explanation of the assessee requires a fresh scrutiny in detail by the Assessing Officer. In my opinion, it cannot be said like that. The Assessing Officer has processed the assessee's case in his own way to the best of his ability. It may not be up to the standard expected by the learned Judicial Member. On that account, the Revenue cannot be given a second innings to improve its case to make an addition. For this proposition, reference may be made to the decision of the Third Member in the case of Raj Kumar Jain v. Asst. CIT [1994] 208 ITR (AT) 22 (All) and the judgments of the Gujarat High Court in the cases Of CIT v. Smt. Dhirajben R. Amin [1983] 141 ITR 875 at page 886 and CIT v. Harikishan Jethalal Patel [1987] 168 ITR 472 and the judgments of the Kerala High Court in the cases of Travancore Tea Estates Co. Ltd. v. CIT [1985] 154 ITR 745 at page 751 and CWT v. Mary Rockie [1987] 167 ITR 153 at page 156.
48. The Revenue had not proved by bringing any material on record before me that the assessee did make any investment to make the alleged unaccounted sales of Rs. 10,85,003. Hence, no addition needed to be made on account of investment that would have been made as argued by the Departmental Representative before me. Reference can be made to the judgment of the Allahabad High Court in the case of Ashok Kumar Rastogi v. CIT [1991] 55 Taxman 433.
49. As held by the Calcutta High Court in the case of CIT v. S. M. Omer [1993] 201 ITR 608 only the net profit rate can be applied on unaccounted sales for the purpose of making the addition. However, I cannot come to a different finding altogether on my own to the effect that only net profit at the rate of 0.56 per cent. on Rs. 10,85,003 is to be added, since the scope af an order under Section 255(4) is very limited. I have only to agree either with the learned Judicial Member or with the learned Accountant Member.
The wordings of Section 255(4) are "such point or points shall be decided according to the opinion of the majority of the members of the Appellate Tribunal who have heard the case, including those who first heard it". If the Third Member happens to give a different opinion, there cannot be any majority opinion. The Third Member's opinion will only result in three opinions as against two opinions before the difference is referred to him under Section 255(4). Here I may mention that according to the trading and profit and loss account of the Punjab Tyres for the period July 1, 1982, to June 30, 1983, the net profit shown is Rs. 76,090 on sales of Rs. 1,35,49,907 yielding a net profit rate of 0.56 per cent.
50. In the facts and circumstances of the case, I hold that the Commissioner of Income-tax (Appeals) is justified in deleting the addition of Rs. 10,85,003 made on account of unaccounted cash sales. The Commissioner of Income-tax (Appeals) is not justified in directing to adopt the gross profit only on Rs. 2,43,339. I agree with the learned Accountant Member in this regard.
51. The matter will now go before the regular Bench for final disposal of the appeal in accordance with the opinion of the majority.
ORDER B. L. Chhibber, (Accountant Member)
52. The learned Vice-President sitting as Third Member by his opinion dated June 16, 1995, has concurred with the views of the Accountant Member and in accordance with the majority view, it is held as under ;
(1) The Commissioner of Income-tax (Appeals) is justified in deleting the addition of Rs. 10,85,003 made on account of unaccounted cash sales.
(2) The Commissioner of Income-tax (Appeals) is not justified in directing to adopt the gross profit only on Rs. 2,43,339 being the difference between Rs. 10,85,003 and Rs. 8,41,664. It is held that the gross profit rate should be applied on the entire sales of Rs. 10,85,003 which were not recorded in the books of account. The Income-tax Officer is, accordingly, directed to apply the gross profit rate of 2.36 per cent. on the amount of Rs. 10,85,003 and work out the addition.
53. In the result, the appeal is allowed in part.