Income Tax Appellate Tribunal - Chandigarh
Acit, Cc-Iv vs Sweety Traders on 15 September, 2006
ORDER
Joginder Singh, Judicial Member
1. This appeal is by the revenue challenging the order of the Id CIT(A) dated 1,10.2004 on the following grounds:
1. The Id CIT(A) has erred both in law and on facts of the case in deleting the addition of Rs. 26,24,981/- made on account of payment of unexplained fabrication charges and unexplained investment in the purchase of yarn.
2. It is prayed that the order of the Id CIT(A) be cancelled and that of the Assessing Officer may be restored.
3. The appellant craves leave to add or amend any grounds of appeal before the appeal is heard or disposed off.
2. The brief facts in the present appeal are that search was conducted on 23.2.2002. Notice under Section 158BC of the act was issued on 22.10.2003 as per which the assessee was required to file the return. The assessee filed the return in the prescribed form on 7.11.03 declaring undisclosed income at NIL. A detailed questionnaire was issued on 15.1.04, in response to which the authorized representatives of the assessee attended the assessment proceedings. The Id Assessing Officer asked the assessee to produce books of accounts so that the material seized may be got verified there from, to which the assessee claimed that the books of accounts for the relevant financial year were not traceable and as such it is not possible to reconcile the same. The assessee got fabrication work done from M/s Virka Textiles and M/s Shivam Knitting Works. As per the Assessing Officer, fabrication work by M/s Virka Textiles in respect of 10586.680 kg of yarn was @ Rs. 26/- per kg, and thus the total expenditure in this account was worked out to Rs. 1,69,387/-. Likewise, in the account of M/s Sweety Traders, a sum of Rs. 39,284/- was incurred for fabrication. This amount was taken as undisclosed income of the assessee for the block period. As per certain pages of Document A-10 containing details of fabrication done by the assessee from M/s Shivam Knitting Works in respect of 4104.664 kg of yarn, the fabrication charges were worked out to Rs. 65,675/- which were taken as undisclosed income of the assessee. As per the Id Assessing Officer, fabrication work was done in respect of 14691.344 kg of yarn (10586.680 kgs plus 4104.664 kgs) from these two parties, and thus an addition of Rs. 23,50,615/- on account of alleged investment for the block period was made. The total unexplained investment was thus calculated at Rs. 26,24,961/-. The assessment was carried in appeal wherein the impugned addition was deleted. Now, the revenue is aggrieved and is in appeal before the Tribunal.
3. During arguments, we have heard Mrs. Rekha Shukla, Id Sr. DR and Sh. Ashwani Kumar, learned Counsel for the assessee. During argument, the major plea of the ld Sr. DR is that the books of accounts were not found during search, nor even produced during assessment proceedings despite repeated opportunities provided to the assessee. Thus, there was no option with the Assessing Officer but to frame the assessment as per available record. A strong plea was raised by the Id DR that even the books of accounts of two concerns were not produced so that the required verification can be done. Mrs. Rekha Shukla further contended that there was no mention of sale and these were trading expenses. As such, the Id first appellate authority has not gone into the merits of the case. Thus, the finding of the ld CIT(A) is not correct. Our attention was invited to Section 158 BB of the act. Reliance was placed on the decision of the Hon'ble Jurisdictional High Court pronounced in 265 ITR 642 and 74 ITD 117 (Pune) On the other hand, the learned Counsel for the assessee strongly defended the orders of the first appellate authority by contending that certain vouchers were found, books of accounts were not found/seized, business has been closed down and whatever expenses were incurred have already been taken care, no incriminating documents were found and there was no evidence on record that assessee was involved in any illegal activity. We have considered the rival submissions.
4. The only ground raised by the revenue pertains to deleting the addition of Rs. 26,24,981/- made on account of payment of unexplained fabrication charges and unexplained investment in the purchase of yarn. The yarn weighing 4104.664 kg was got fabricated from M/s Shivam Knitting Works and the Id Assessing Officer applied the rate of Rs. 16/- per kg as fabrication charges which was worked out to Rs. 65,675/- and 10856.680 kg was got fabricated from M/s Virka Textile Private Limited at Rs. 1,69,387/-. The plea was raised by the learned Counsel for the assessee that as per trading account of the assessee firm, a sum of Rs. 2,26,441/- was debited as charges for the assessment year 1996-97 and a sum of Rs. 2,05,610/- was debited as fabrication charges for the assessment year 1997-98, meaning thereby the amount of Rs. 1,69,387/- was lesser than the figure debited to the trading account of the assessee firm as the expenditure thereon was duly debited in the books of accounts. Likewise, in the case of M/s Shivam Knitting Works the total fabrication charges was debited at Rs. 2,26,441/-. The Id Assessing Officer worked out that 14,691.344 kg unaccounted purchases were made which was calculated at Rs. 23,50,615/- by applying the rate of Rs. 160/- per kg. The major plea raised by the assessee during argument was that there was no evidence with the revenue that the assessee was involved in any number two business and only certain vouchers were found and not the books. If the assessment order and also that of the order of Id CIT(A) is analysed, there is no dispute to the fact that certain papers/documents were seized. Section 158 BB (1) of the Act speaks about computation of undisclosed income of the block period which is on the basis of evidence found as a result of search or requisition of books of accounts or other documents and such other material or information available with the Assessing Officer.... The requirement of the Section in our opinion is fulfilled as certain documents were seized during proceedings and it is not the case that nothing was found from the assessee. The Id Assessing Officer has not imported any material other than which was seized during the proceedings. However, the element of estimation cannot be ruled out when the assessee is unable to furnish the details For this proposition, we are supported by the decision of the Hon'ble Jurisdictional High Court pronounced in the case of Ved Parkash v. CIT 265 ITR 642 (P&H) wherein the assessment was on estimated basis on the material found during search proceedings. The Hon'ble Jurisdictional High Court clearly held that some element of estimation was unavoidable. This is also a fact that individual entries were not got verified so the finding of the Id CIT(A) is not correct. At the same time, the stand of the revenue further fortifies by the fact that the books of accounts of two concerns were also not produced by the assessee so that the facts can be verified. As such, it seems that the Id CIT(A) has not gone into merits of the case, specially when Section 158 BB of the Act speaks about any document.
5. However, Keeping in view the principles of natural justice that no person should be condemned unheard, we are of the view that this file may be sent to the file of the Id Assessing Officer for fresh adjudication. The assessee may be afforded due opportunity to substantiate its claim. The assessee is also at liberty to produce the record from M/s Shivam Knitting Works and M/s Virka Textiles Private Ltd., if so desires.
6. In the result, appeal of the revenue is allowed for statistical purposes only.
N.K. Saini, Accountant Member
1. After going through the proposed order and having discussion with my learned brother, I am unable to persuade myself to agree with the conclusion arrived at para No. 5, Page No. 5 of the proposed order, therefore, I hereby pass a separate dissenting order.
2. Although my learned brother had discussed the facts in the proposed order but I want to discuss separately the facts in brief which are as under:
3. In this case, a search was conducted on 23.2.2002 and the assessee filed the return in the prescribed form on 7.11.2003 declaring undisclosed income at Rs. nil. The return filed by the assessee in response to notice under Section 158BC of the Income-tax Act was in time. Thereafter the Assessing Officer issued a detailed questionnaire. During the course of block assessment proceedings, the Assessing Officer asked the assessee to produce the books of account so that the seized material may be got verified therefrom. The assessee informed that the books of account for the relevant financial year were not traceable and as such it was not possible to reconcile the seized material with the books of account. Since the books of account were not traceable, the Assessing Officer proceeded to finalize the assessment on the basis of seized material and conveyed to the assessee the details of the seized documents marked as A-10, according to which the assessee got the fabrication work done from M/s Virka Textile, Ludhiana and M/s Shivam Knitting Works, Ludhiana. Pages 1 to 6 related to the fabrication work done by M/s Virka Textile, Ludhiana which was in respect of 10586.680 kgs of yarn and the fabrication charges were paid @ Rs. 16/- per kg. The total expenditure on that account worked out at Rs. 1,69,387/-. Pages 12 and 13 of the seized documents revealed that a sum of Rs. 39,284/- was incurred for fabrication work got done by the assessee Since the assessee had not got the same verified from the regular books of account that amount was taken as undisclosed income of the assessee for the block period. Pages 14 to 25 of the document A-10 contained the details of fabrication got done by the assessee from M/s Shivam Knitting Works, Ludhiana in respect of 4104.664 kgs of yarn. On these pages, the period mentioned was of financial years 1995-96 and 1996-97, the rate stated therein was Rs. 16/- per kg and the expenditure worked out to Rs. 65,675/-. The Assessing Officer pointed out that the assessee had not been able to get this expenditure verified from its regular books of account, the same was taken to be out of the undisclosed income of the assessee. The assessee submitted that it had debited ; much more expenditure in respect of fabrication charges in the trading account for the relevant financial year than what had been worked out by the Assessing Officer. The Assessing Officer , on the other hand, was of the view that it was not significant that the expenditure under the same head had been booked at a higher or a lesser figure in the trading account. Since the assessee had not produced books of account, the Assessing Officer inferred that the assessee failed to discharge its obligation and the expenditure mentioned in the seized material was to be taken out of undisclosed income of the assessee. The Assessing Officer also asked the assessee to produce the books of account of M/s Virka Textiles Pvt. Ltd and M/s Shivam Knitting Works for the purpose of necessary verification. The assessee contended that in spite of search, no books of account were found and in view of non-availability of a nonexistent, inability to have got the verification made in respect of fabrication charges was not possible and no adverse inference was drawable and should have been drawn. It was emphasized that fabrication charges debited to the trading and Profit & Loss Account were much more than the expenditure worked out. The Assessing Officer did not find merit in the contention of the assessee and was of the view that the assessee had got the fabrication work done in respect of 10.586.680 kgs + 4104.664 kgs of yarn from M/s Virka Textiles Pvt. Ltd and M/s Shivam Knitting Works respectively. In the absence of books of account, the Assessing Officer considered that the assessee had made investment in the purchase of 14.693.344 kgs. of yearn and that investment remained unverifiable. The Assessing Officer applied the rate of Rs. 160/- per kg. and worked out the investment at Rs. 23,50,615/- In this manner, a total addition of Rs. 26,24,960/- (Rs. 1,69,387 + Rs. 39,284 + 65,675 + 23,50,615) was made i.e. for fabrication charges and investments made .
4. The assessee carried the matter to the learned Commissioner of Income-tax (Appeals) and submitted that the assessee had closed its firm on 30.11.1997 and there has been no business activity after that date. It was stated that the books of account of the assessee were not found during the course of search for the financial years 1995-96 and 1996-97 and despite best efforts made by the assessee the same could not be located and hence could not be produced before the Assessing Officer. It was explained that the total fabrication work got from M/s Virka Textiles Pvt. Ltd. was to the tune of 10586.680 kgs and by applying a rate of Rs. 16/- the Assessing Officer worked out the fabrication charges paid to M/s Virka Textiles Pvt. Ltd. at Rs. 1,69,387/- Likewise, yarn weighing 4104.664 kgs was got fabricated from M/s Shivam Knitting Works, by applying a rate of Rs. 16/-, the fabrication charges paid to M/s Shivam Knitting Works were worked out to Rs. 65,675/- by the Assessing Officer. It was stated that the assessee debited a sum of Rs. 2 26,441/- as job charges in the trading account for the assessment year 1996-97 and for the assessment year 1997-98, a sum of Rs. 2,05,610/- was debited. It was submitted that the fabrication charges paid to M/s Virka Textiles Pvt. Ltd. in the financial year 1995-96, were much less than the figure debited to trading account of the assessee firm which naturally meant that whatever yarn was got fabricated the expenditure thereon was duly debited in the books of account. Similarly, for the financial year 1996-97, the fabrication charges debited to the trading account were at Rs. 2,26,441/- and amount of Rs. 65,675/- payable to M/s Shivam Knitting Works was only a part of expenditure which was already debited to the trading account. It was further stated that the Assessing Officer arbitrarily presumed that whatever fabrication had been got done from these parties, for the purpose the assessee might have purchased yarn outside the books of account and by applying a rate of Rs. 160/- per kg. of yarn for 14691.344 kgs, such unaccounted purchase was worked out at Rs. 23,50,615/- and the addition was made. It was submitted that no such evidence was found during the course of search which could fall within definition of undisclosed income. It was accordingly prayed that all the additions deserve to be deleted which were based on presumptions, assumptions, surmises and conjectures.
5. The learned Commissioner of Income-tax (Appeals) after considering the submission of the assesses observed that the expenditure claimed under the head fabrication charges paid to M/s Virka Textiles Pvt. Ltd. and M/s Shivam Knitting Works was much less than the fabrication charges debited to the trading account. It was further observed that the mere fact that the books could not be found during the search would not warrant disallowance of the expenditure in its entirety. Reliance was placed on the following case laws:
i) Pooja Bhatt v. ACIT 73 ITD 205 (Mum)
ii) Dr. R.M.L. Mehrotra v. ACIT 68 ITD 288 (All)
iii) David Dhawan v. ACIT 71 ITD 1 (Mum)
6. The learned Commissioner of Income-tax (Appeals) was of the view that there was no scope for assumptions and surmises in block assessment proceedings and that no arbitrary formula could be applied in block assessment proceedings as the same has to be based with reference to the incriminating material found during the search and that the evidence/findings pertaining to a particular period could not be telescoped or transported into other periods without cogent reasons or tangible evidence. Reliance was placed on the following case laws:
i) CIT v. J. Shah & Co. 246 ITR 671 (Bom)
ii) Jaya S. Shetty v. ACIT (ITAT D Bench, Mumbai) and Samrat Beer Bar v. ACIT 75 ITD 19 (Pune)
ii) Monga Metals (P) Ltd. v. ACIT 67 TTJ 248 (All)
iii) Elite Developers v. Dy. CIT 73 ITD 379 (Nag)
iv) Dy. CIT v. D.N. Kamani (HUF) 70 ITD 77 (Pat)
7. The learned Commissioner of Income-tax (Appeals) further opined that the addition in block assessment could be made only on the basis of evidence found during the course of search and if no material has been found during the course of search, then no addition could be made on presumptions. Reliance was placed on the following case laws:
i) Dy. CIT v. Dolly Farms & Resorts (P) Ltd. (2001) 15 I.T.REP, 159(ITAT, Del)
ii) CIT v. Ravi Kant Jain (2001) 15 I.T.REP. 539 (Del)
iii) Dy. CIT v. Elite Developers (2000) 73 ITD 379 (Nag. Trib.)
iv) Dy. CIT v. Sunder Agenciew (1997) 63 ITD 24 5 (Mum. Trib)
v) ACIT v. Harakchand N. Jain (1998) 61 TTJ 223 (Mum. Trib.)
8. As regards to the addition of Rs. 23,50,650/- the learned Commissioner of Income-tax (Appeals) observed that the addition was presumptuous as it was based on pure guess work, since no evidence to this effect was found during the search, the mischief of Section 158B(b) was not attracted. It was observed that when sales had been accepted, how could the purchases be held to be non-genuine. Accordingly the additions made by the Assessing Officer were deleted.
9. Now the Revenue is in appeal. During the course of hearing, the learned Departmental Representative submitted that the books of account of the assessee were neither found during the course of search nor were produced during the assessment proceedings and the Assessing Officer made assessment on the basis of documents found during the course of search. She pointed out that the vouchers were seized during the course of search and only on the basis of vouchers the addition had been made by the Assessing Officer. So ii can not be said that no evidence was found during the course of search. She further stated that the assessee did not produce the books of account of M/s Virka Textiles Pvt. Ltd. and M/s Shivam Knitting Works. So the reconciliation of the entries reflected in the documents found during the course of search viz-a-viz the books of the persons to whom payments had been made, was not done. As such, the learned Commissioner of Income-tax (Appeals) was not justified in deleting the addition. Reliance was placed on the following case laws:
i) Ved Prakash v. CIT 265 ITR 642 (P&H)
ii) Ircon International Ltd. v. DCIT (2000) 74 ITD 117 (Del)
10. In his rival submission, the contentions of the learned Counsel for the assessee were that certain vouchers were found during the course of search and the expenses shown in the trading account were much more than the expenses found in the vouchers, As such, all the expenses were accounted for. He further stated that every document found during the course of search could not be considered as incriminating document and since the Assessing Officer had accepted the sales, there was no scope to presume that the purchases were made outside the books of account, particularly when the Assessing Officer had not doubted the trading account of the assessee.
11. Although the above submissions were made by both parties to strengthen their respective case but my learned brother had proposed to remand the issues back to the file of the Assessing Officer vide para 5 of the proposed order. However, no reason has been assigned why these issues to be sent back to the file of the Assessing Officer for fresh adjudication. The Hon'ble Gujrat High Court in the case of Rajesh Babubhaii Damania v. CIT (2000) 251 ITR 541 held as under .-
It was the duty of the Tribunal to ascertain the reasons which were given by the Commissioner of Income-tax (Appeals) in whose order the order of the Assessing Officer had merged. The Tribunal committed an error of law in restoring the matter to the Assessing Officer.
12. From the above ratio laid down by the Hon'ble Gujarat High Court, it is clear that it is the duty of the Tribunal to ascertain the reasons which were given by the Commissioner of Income-tax (Appeals) in whose order the order of the Assessing Officer had merged. In the instant case, the Assessing Officer made the addition on account of job charges paid to M/s Virka Textiles Pvt. Ltd. and M/s Shivam Knitting Works whose books were not produced by the assessee. No other reasons had been given. The Assessing Officer had not considered this vital fact that the expenses shown by the assesses on account of fabrication job charges in the trading account were much more than the expenses mentioned in the documents found during the course of search because the documents found curing search were pertaining to only two parties and not to all the persons to whom fabrication job charges had been paid by the assessee. It is well settled that in the block assessment the addition can be made only for that income which is not disclosed by the assessee or which had been unearthed by the department. In the instant case there was no such evidence found during the course of search that the assessee earned the undisclosed income to make the payment of fabrication job charges to M/s Virka Textiles Pvt. Ltd. and M/s Shivam Knitting Works. Therefore, the addition on this account was not called for. Similarly, the addition made by the Assessing Officer on account of investment in purchases was arbitrary since the Assessing Officer had accepted the trading results. He had not mentioned that the assessee suppressed the sales. The Assessing Officer had not brought any material on record to substantiate that the assessee had sold the goods outside the books of account from the purchases presumed by him. It is, therefore, clear that the Assessing Officer made the additions only on the basis of surmises and conjectures which is not tenable in the eyes of law. In that view of the matter, the learned Commissioner of Income-tax (Appeals) was fully justified in deleting the additions made by the Assessing Officer because the additions were made only on the basis of surmises and conjectures and not on the basis of any material found during the course of search. Considering the totality of the facts discussed here-in-above, I do not agree with my learned brother in sending this issue back to the file of the Assessing Officer since the learned Commissioner of Income-tax (Appeals) has passed a just order in accordance with law after appreciating the facts in right perspective and no interference is called for in the impugned order.