Income Tax Appellate Tribunal - Jabalpur
Agrawal Motors vs Assistant Commissioner Of Income-Tax on 21 December, 1998
ORDER
P. Mohanarajan, J.M.
1. This appeal is by the assessee directed against the assessment, order dt. 31st September, 1997 under s. 158BC of the IT Act, 1961, herein after referred to as Act.
2. We have heard both the sides and perused the records. A search was conducted on 12th January, 1996 to 20th January, 1996 at the premises of the assessee and the residential premises of the members of the HUF which resulted in the seizure of the following assets :
Found Seized Cash 1,36,869 75,000 Jewellery 72,681 Nil Stock 1,05,26,150 13,45,960
3. The assessee (HUF) derives income from business. Head office is located at Baldeobag and the branches are at Marhatal and Ranjhi at Jabalpur. The branches at Chhindwara and Kareli were closed earlier. The assessee deals in tractors, trax; agricultural equipment, T.V., refrigerators, automobile two wheelers, diesel, petrol and other consumer durable products. A notice under s. 142(1) was issued to the assessee for making a block asset. for asst. yr. 1985-86 to 1995-96 and 1st April, 1995 to 12th January, 1996. A questionnaire was also issued. The assessment proceeding was commenced on 16th December, 1996 and completed on 29th January, 1997 (copy of AO adjudication pp. I to VII of paper book). The assessee had filed replies dt 18th December, 1996, 21st December, 1996, 30th December, 1996, 2nd January, 1997, 6th January, 1997, 6th January, 1997, 7th January, 1997, 9th January, 1997, 17th January,1997 and 20th January, 1997 before the AO for the queries raised for every additions made in the assessment order.
4. The value of stock and jewellery and the cash seized during search as undisclosed income of the assessee has been treated as explained by the assessee and the AO had passed orders accordingly.
5. However, the AO, sought to proceed further with the assessment in relation to several other documents found during the course of search and on the points of differences of certain stock positions and made additions thereon and the same are challenged by the assessee in this appeal. The counsel for the assessee had filed a paper book containing relevant documents and written submission before us. Free English translation of certain documents written in Hindi also has been filed.
6. Ground No. 1 relates to an addition of Rs. 4,400 added as profit from sale of Mopeds out of books. 32 Mopeds were found during search. As per book 37 should have been the stock. The AO was of the view that 5 Mopeds had been sold out of books. It was explained by the learned counsel for the assessee that for inspection of the vehicles, the senior employees used to take the vehicles for test ride while they go home and bring it back next day. As there was search going on from 12th January, 1996, the employees after coming to know the same did not enter the premises and the vehicles were with them resulting in short of 5 Mopeds. These Mopeds has frame and chasis No. and engine No. directly supplied by the manufacturers and the same cannot be sold without records as these vehicles have to be registered with Transport authority by the purchasers. The learned Departmental Representative supported the assessment order.
7. We find much force in the submission by the learned counsel for the assessee. The vehicles cannot be registered with transport authorities without proper documents and such vehicle cannot be used on road without registration. In this background, the explanation of the assessee that the Mopeds were in possession of senior employees for inspection cannot be brushed aside and the same sounds reasonable. Therefore, the addition under this head is deleted.
8. The next ground of appeal is against the addition of Rs. 1,700 as profit from sale of refrigerators. During the course of search of the business premises of the assessee 508 refrigerators were found on physical verification. As per books, 512 refrigerators were in stock. Therefore, the AO inferred that 4 refrigerators were sold outside books. He made the addition for profit on sale of 4 refrigerators amounting to Rs. 1,700.
9. At the time of hearing before us, learned counsel for the assessee contended that some mistake was committed by the authorised officer while counting the stock of refrigerators. He submitted that perhaps the empty packing carton was counted as new refrigerators. However, the learned counsel for the assessee could not substantiate this contention with any evidence. The stock was taken in the presence of assessee/his employees. Therefore, in the absence of any evidence, the contention that some mistake was committed while counting the refrigerators cannot be accepted. The addition of Rs. 1,700 is upheld.
10. The third ground relates to an addition of Rs. 3,676 on petrol and diesel account. In para 12 of assessment order, it has been observed as follow. In diesel and petrol 4,725 litres of petrol were found and diesel at 4,653 litres were found. As per book, petrol and diesel closing stock was Rs. 2,12,036. The assessee explained before the AO that there is no difference in the stock position with the books. This was not accepted by the AO on the ground that the assessee at the time of search did not furnish quantitative detail but furnished provisional figures of closing stock. The AO did not specifically spell out any shortage of these commodities in the order. Therefore, we are of the view that the addition is made without any basis. Hence, the same is deleted.
11. The next ground of appeal relates to an addition of Rs. 16,118 as profit from sale of TV sets outside the books. The AO pointed out that the stock as per books of account on the date of search was Rs. 15,54,291 while the stock found on the date of search by physical verification was Rs. 11,79,452. Thus, there was shortage of stock to the tune of Rs. 3,74,839. The AO treated it as sale outside the books and estimated the profit at Rs. 16,118.
12. At the time of hearing before us, it was contended by the learned counsel for the assessee that difference in the stock was only on the valuation of the stock and there exists no difference in the quantity of the stock. The learned Departmental Representative relied on the assessment order. The contention of the learned counsel cannot be accepted because he has not given any details with regard to the quantity of stock. As no plausible explanation is given in the difference in the value of stock as found at the time of search and the value as disclosed in the books of account, we find no justification to interfere with the view taken by the AO that the stock was sold outside the books. We accordingly confirm the addition of Rs. 16,118.
13. The next ground of appeal relates to the addition of Rs. 2,35,585 as excess stock of 'prestosign' and furniture. In para 19 of the assessment order, the AO has recorded the finding that the total stock of 'prestosign' found on the date of search was Rs. 4,29,753 while as per books closing stock shown was Rs. 1,92,168. He, therefore, treated the difference as excess stock and made the addition thereof as unexplained investment.
14. At the time of hearing before us, learned counsel for the assessee contended as under :
"As per Annexure 4(7) p 2 of seizure memo, stock of prestosign is Rs. 56,218 as per the valuation of the search party. As per Annexure 4(8) p 1 stock is valued at Rs. 1,19,800 and as per Annexure 4(8) p. 2 stock is valued at Rs. 1,29,635. When total comes to Rs. 3,05,653. The seizure memo Annexure 4(8) p. 1 also includes a furniture item valued at Rs. 16,800 which is stock of M/s Freezing Point Enterprises and has been shown as stock in that firm. This is because the Head office of the Freezing Point Enterprises is at Baldeobag, which also happens to be the Head office of M/s Agrawal Motors and due to inadequate space in showroom some bulky items are often stored at Baldeobag.
Thus the actual stock of prestosign, minus the furniture erroneously added, as per the valuation of the search party comes to Rs. 2,88,853"
He further contended that the above stock of Rs. 2,88,853 was valued at market rate while the assessee will leave the closing stock at cost. If from the above amount valued at market price the margin of profit shown by the assessee which is around 30% is reduced then there will be no excess stock.
15. The learned Departmental Representative relied upon the assessment order. However, the learned Departmental Representative as well as the AO appeared before us could not explain how the value of total stock on the date of search was taken at Rs. 4,29,753.
16. After considering the submissions of both the sides, we are of the opinion that this issue needs re-examination at the end of the AO. We direct the AO to verify the Panchnama and record the finding about the value of stock of prestosign as found on physical verification. He shall also verify whether the value taken by the search party was at cost or at market value. If it is taken at market value then he shall arrive at the cost price of such stock and thereafter compare the same with the stock as shown in the books of account. After arriving at the above figure he shall make a suitable addition in accordance with the law. He shall also give adequate opportunity of being heard to the assessee.
17. The next ground relates to shortage in accessories as detailed below :
Accessories Shortage Cultivator 8 D.F. Cultivator 2 Trolley 1 Subseiler 1 The assessee explained that there was no shortage as these goods were available in different godowns and that this was a counting mistake. The learned counsel also reiterated the same before this Tribunal.
18. We are unable to agree with this explanation. When it is the case of the assessee that there were counting mistake or stocks were available in different parts of godown or show room, it is for the assessee to reconcile and explain for the shortage since this has not been done, the addition of Rs. 13,750 is confirmed.
19. The next ground relates to an addition of Rs. 50,000 on account of scrap found at the time of search. The scrap was not found recorded in books. Hence, the same was valued at Rs. 50,000 as undisclosed income of the assessee for the block period. The explanation by the assessee that the scrap materials has been shown with the stock of spares and accessories of Luna Mopeds was not accepted by the AO. The learned counsel submitted that the AO had taken the figure of Rs. 50,000 without any consideration of weight, volume and market value of scraps. These scraps were accumulation of discarded old part of Luna Mopeds. Whenever new spares replaced the discarded old parts were dumped in scrap lot, which has no value at all.
20. The availability of scrap is not in dispute. But it was brought to our notice that scrap lot consists of worn out, broken and unserviceable parts of Mopeds, which include cables and rubber waste. But at the same time, it cannot be said that the scrap has no value at all. In our view, valuing the scrap at Rs. 50,000 cannot be reasonable. Therefore, considering the facts and submissions made, determining the value of scrap at Rs. 25,000 would be just and reasonable and we order accordingly. The addition is modified as above.
21. The ground No. 8 of the assessee's appeal is against the addition of Rs. 9,06,894 as unexplained investment towards the cost of construction of B.P. Complex, while ground No. 9 is against the addition of Rs. 7,51,670 as profit on sale of flats of B.P. Complex. Since both these grounds are inter-linked we deem it proper to consider and dispose of them together.
The facts in this respect are that Shri B. P. Agarwal (individual) was the owner of a plot measuring 7,500 sq. ft. at Baldeobagh. He entered into an agreement with the assessee on 20th March, 1991. As per the agreement, the assessee was permitted to construct a commercial complex on the said plot and Shri B. P. Agarwal was to be given a super built up area of 4,000 sq. ft. or a consideration of Rs. 7,50,000 in case the constructed area was not to the satisfaction of Shri B. P. Agarwal. The assessee constructed the B.P. Complex which consisted of ground floor and 3 more floors. The period of construction was from the year 1991 to 1996. The total cost of construction disclosed by the assessee was Rs. 41,77,587. The AO, during the course of assessment, proceedings, referred the matter to the Departmental Valuation Officer (DVO) for determining the cost of construction of the said complex. The DVO worked out the cost of construction at Rs. 50,87,481. The AO considered the difference of Rs. 9.06,894 as unexplained investment by the assessee and made the addition therefor. The assessee had shown the part portion of the complex during the financial years 1992-93, 1993-94 and 1994-95. The position of sale and GP disclosed in each year is as under :
Financial year Asst. yr. Sale G.P.
1992-93 1993-94 22,57,000 4,52,100
1993-94 1994-95 11,07,000 2,83,565
1994-95 1995-96 8,48,318 2,93,286
1995-96 1996-97 Nil Nil
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Total 42,12,318 10,28,951
G.P % 24.42%
The profit as above was disclosed in the respective years by the assessee. However, while completing the assessment of block period the AO opined that the profit disclosed by the assessee is too low. The AO was of the opinion that in comparable cases 35% of the cost was disclosed by other builders. He accordingly estimated the profit at 35% which resulted in the addition of Rs. 7,51,670 as undisclosed profit.
22. The learned counsel for the assessee argued at length. His arguments were two fold :
(a) He contended that both the above additions, namely the addition for unexplained investment as well as undisclosed profit are out of the purview of the Chapter XIV-B. He submitted that as per s. 158BA assessment of undisclosed income as a result of search is to be made. The undisclosed income is also defined in Chapter XIV-B and only the income which is detected as a result of search can be said to be undisclosed income. He contended that the assessee has disclosed the cost of construction as well as the sale of flats in the respective years. The income earned in respective years is offered to tax by the assessee. In the search, the Department has found and seized large number of papers as well as books of account. The papers were related to the construction of B.P. Complex. During the course of assessment proceedings, a query was raised with regard to search paper and an explanation was filed. The AO has not found a single paper/evidence to establish that the assessee has incurred any expenditure which was not recorded in the books of account. Similarly, no evidence was found to show that the receipt from the sale of the portion of B.P. Complex was not fully recorded. The addition is made merely on estimate which is not permissible so far as the assessment under Chapter XIV-B is concerned. In support of this contention, he relied upon the decision of Tribunal, Mumbai Bench, in the case of Sunder Agencies vs. Dy. CIT (1997) 59 TTJ (Mumbai) 610 : (1997) 63 ITD 245 (Mum).
(b) That the assessee has constructed B.P. Complex as a commercial asset. The assessee has maintained regular books of account in which complete date-wise details of expenditure are maintained. The expenditure is fully vouched. The AO has not pointed out a single defect in the books of account or the voucher maintained by the assessee. He submitted that as the assessee has constructed the commercial complex for resale any expenditure incurred is a permissible expenditure.
Therefore, if the assessee will disclose less expenditure, then actually incurred it will expose the assessee to the higher profit and eventually to higher tax. He further submitted that the assessee filed the report of approved valuer who has estimated the cost of construction of the said complex at Rs. 33,59,000. He contended that the DVO has adopted the plinth area rate as specified by CPWD. The rates normally adopted by CPWD are much higher than the local market rates. Jabalpur is a cheap city and here the rates of labour and the materials are cheaper than other Metropolitan cities. He also contended that the DVO has allowed rebate for contractors profit at 7.5% while the assessee himself has disclosed the profit exceeding 20%. The AO while considering the trading result, has considered the profit to 35% but while considering the cost of construction has taken the profit at 7.5% only. Thus, the Department is blowing hot and cold at the same time i.e. adopting different profit for estimating cost of construction and different while determining the profit from sale of the part of the complex. In view of the totality of the facts he submitted that there is no difference either in the cost of construction shown by the assessee or in the profit disclosed by the assessee.
23. The learned Departmental Representative as well as DVO supported the assessment, order as well as the valuation report issued by the DVO. The learned Departmental Representative submitted that during the course of search proceedings, it was noticed by the search party that a huge commercial complex was constructed by the assessee. Large number of papers relating to such construction were found and seized during the course of search. Therefore, the AO was fully justified while completing the assessment of block period to consider the cost of construction as well as the profit derived from B.P. Complex. With regard to the valuation report, it was contended by the learned DVO that the CPWD rates are adjusted to the local rate as per the cost index of the place where the construction is situated. Therefore, the contention of the learned counsel that the rates of CPWD adopted is untenable. He further submitted that in the valuation report submitted by the approved valuer he has taken the rate without any basis. Therefore, the approved valuer's report submitted by the assessee cannot be relied upon. The learned Departmental Representative further submitted that the AO has properly worked out the profit on sale of the part of B.P. Complex. The profit of 30% is shown in other comparable cases and the same is adopted by the AO. He, therefore, contended that the assessment order is perfectly justified and be upheld.
24. We have carefully considered the arguments of both the sides. The contention of the assessee is two folds :
(a) That the addition for cost of construction as well as the profit on sale of flats of B.P. Complex are outside the purview of Chapter XIV-B.
(b) Even on facts of the case, the addition is not justified. Chapter XIV-B provides special procedure for assessment of search cases. It was inserted by Finance Act, 1995. The Hon'ble Finance Minister during his speech delivered in Parliament on 15th March, 1995 stated as follows :
"Hon'ble Members are aware that the searches conducted by the IT Department are an important means of unearthing black money. However, undisclosed incomes have to be related to the different years in which the income was earned and as such assessments are unduly delayed. In order to make the procedure more effective, I am proposing a new scheme under which undisclosed income deleted as a result of search shall be assessed separately at a flat rate of 60%. An appeal against the order can be filed directly before the Tribunal."
Similar view was expressed in the Notes on Clauses of the Finance Bill. Sec. 158B(b) defines the word "undisclosed income" as under :
"undisclosed income" includes any money, bullion, jewellery or other valuable articles or thing or any income based on any entry in the books of account or other documents or transactions, where such money, bullion, jewellery, valuable article, thing, entry in the books of account or other document or transaction represents wholly or partly income or property which has not been or would not have been disclosed for the purposes of this Act."
From the above definition of undisclosed income, it is clear that any income or property which is either wholly or partly has not been disclosed or would not have been disclosed for the purpose of the IT Act would be considered as undisclosed income. In the case of the assessee, we find that the assessee had disclosed the construction of the B.P. Complex in the respective years. The income earned on sale of part portion of the complex was also disclosed in the respective years. In the search of the assessee's premises large number of papers and the books of account were found and seized. During the course of assessment proceedings, the AO raised the queries relating such papers. The reply dt. 30th December, 1996, filed by the assessee is placed at pp 117 to 122 of the paper book. In the reply, the assessee has explained a large number of loose papers to be relating to the construction of B.P. Complex. However, no finding is recorded by the AO that a single paper/document is found un-recorded in the books of account. Similarly, no evidence is found as a result of search to establish that the sale proceeds of the part portion of the complex is not properly recorded. Thus, in our opinion, it cannot be said that there was any undisclosed income detected, as a result of search relating to either construction or sale of B.P. Complex. While taking this view, we also support the views of Tribunal in the case of Sunder Agencies (supra).
25. That even on the facts of the case, the addition is not justified. It is a very peculiar situation that the Department while estimating the cost of construction has allowed a rebate of 7.5% on estimated contractors' profits. On the other hand, while determining the profit on sale of part portion has estimated the profit at 35%. No plausible explanation could be given by the learned Departmental Representative or the AO for adopting different yardstick, as above. The assessee had disclosed the profit of 24.42% in respect of portion of the complex sold by it. If this rate of profit is reduced as against 7.5% reduced by the DVO, the cost of construction works out to almost similar to the cost of construction disclosed by the assessee. It would be clear from the following working :
Rs.
Cost of construction determined by DVO before
allowing rebate for contractors' profit 54,89,766
Less : Contractors' profit as shown by the
assessee i.e. @ 24.42% ...... 13,40,600
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Revised cost of construction 41,49,166
Cost of construction shown by the assessee 41,77,587
From the above working, it is seen that if the cost of construction is worked out after reducing the contractors' profit rate disclosed by the assessee the difference remains negligible. In view of the above, we hold that the additions made by the AO are neither tenable on facts nor on law. Accordingly, the additions of Rs. 9,06,894 and Rs. 7,51,670 are deleted.
26. Ground No. 10 is against the addition of Rs. 48,67,520 as unexplained investment under s. 69D. The facts of this case are that during the course of search of the assessee's premises a file titled as "List of Depositors" was found from the hard-disc of one of the computer installed in the assessee's premises. It was the claim of the Revenue that it was a hidden file which could be retrieved by the computer operators of the Department. It was the opinion of the AO that the figures in the list found originally were mentioned in decimals only and the correct amounts were three figures more than what was mentioned originally. He has given the list found from the assessee's computer as Annexure 'B' and has also given the expanded version of such list which are the correct amounts as per the claim of the Revenue as Annexure 'C' of the assessment order. As per expanded figures, the total borrowing by the assessee amounted to Rs. 48,67,520. The AO was of the view that this money was borrowed by the assessee on hundi in cash. He, therefore, held that the borrowing was in violation of s. 69D of the IT Act. Accordingly, he made the addition of Rs. 48,67,520.
27. At the time of hearing before us, the learned counsel for the assessee argued at length. He submitted that the addition is made by invoking the provision of s. 69D of the IT Act. The onus is upon the Revenue to prove that money was borrowed on hundi. No evidence is brought on record by the AO to establish that any money was borrowed on hundi. Hundi is a bill of exchange which should be made by drawer and signed by both the parties. In the case of the assessee, not a single document which can be said to be 'hundi' was found. The Revenue has found only the proforma of promissory notes fed in a computer, that too in the case of only one person. The proforma is not at all a document much less a reliable evidence. There is no signature of either the borrower or the lender on the so-called print of the proforma. Thus, it is no evidence at all. He finally contended that no borrowing was made by the assessee much less the borrowing on hundi.
28. He further contended that s. 69D is a provision for considering the borrowing on hundi to be a deemed income. Thus, what is being taxed under s. 69D is a deemed income and not undisclosed income. Under Chapter XIV-B, the assessment is to be made in respect of undisclosed income found as a result of search. Since borrowing on hundi is not an undisclosed income it is out of the purview of the Chapter XIV-B. In support of this contention, he refers to s. 158BB(2). As per the section, it has been mentioned that while determining the undisclosed income for block period s. 68, 69, 69A, 69B and 69C shall be applicable. However, the legislator has specifically omitted to mention s. 69D. He stated that this omission is well considered because s. 69D is not a provision for taxing on undisclosed income and, therefore, has been rightly excluded by the legislator from Chapter XIV-B.
29. He further contended that even on the facts of the case, no addition is called for as there was no borrowing by the assessee (HUF) or its member. During the course of search, a list was found from a computer installed in the assessee's premises. It was alleged by the Revenue that the list was a hidden file. He contended that there was no such hidden file and the allegation that it was a hidden file is not correct. He further contended that the claim of the Revenue that the figures in the list were mentioned in decimals and the correct amount was approximately thousand times more than mentioned in the list was imaginary and absolutely without any basis or evidence. The AO has tried to corroborate the said finding with the statement of so-called depositors. However, the statement of the depositors were recorded behind the back of the assessee and no opportunity was allowed to cross-examine such depositors, despite a specific request made by the assessee in this respect. He further submitted that statement of Shri Ashok Kumar, one of the so-called depositors, was recorded on the same day on which the assessee appeared before the AO for the assessment proceedings. Despite this, the AO preferred to record the statement of such depositor behind the back of the assessee. Why he did so is best known to the AO himself ? He, therefore submitted that such a statement which was recorded behind the back of the assessee has no evidenciary value and they cannot be used against the assessee as an evidence. He submitted that one of the employee of the assessee namely Abhay Dutt Jha was doing fraudulent activities with the firm by forging signature of Mr. Sekhar Agarwal, a co-partner of the assessee (HUF). He had withdrawn cash from the office as well as from bank by forging the signature of Mr. Sekhar Agarwal. Later on, when caught, he admitted his misdeeds and repaid part of the amount. His affidavit admitting his misdeeds was filed before the AO and placed at pp 250 & 251 of the paper book. In view of the totality of the facts, he submitted that there was no borrowing by the assessee on hundi and no addition was called for. In support of his contention, he relied upon the following decisions :
Udeyraja Goliya (HUF) vs. Asst. CIT (1998) 64 ITD 21 (Bom)(TM);
Girdhar Agency vs. Asstt. CIT (1997) 59 TTJ (Pat) 620 (TM) : (1997) 63 ITD 63 (Pat); and Amar Natawarlal vs. Asstt. CIT (1997) 57 TTJ (Ahd) 454 : (1997) 60 ITD 560 (Ahd).
30. The learned Departmental Representative submitted that during the course of search of the assessee's premises, some files were found stored in a computer. One of the such file was a list of depositors. During the course of assessment proceedings, the assessee was questioned about this file number of times. However, no proper explanation was given by the assessee. This file was a hidden file in the computer and which could be found and de-coded by the computer operators of the Department. A few persons from such list of depositors were examined by the AO and they confirmed having advanced money to the assessee. The amount stated to have been advanced by those persons was thousand times more than what was stated in the list found originally. This fact support the case of the Revenue that in the list found the figures were mentioned in decimals. He further contended that the onus was upon the assessee to explain the entries found recorded in the list found at the time of search. There is presumption under s. 132(4A) about the correctness of such list. It was for the assessee to rebut the contents of noting on such list. Since the assessee has not given any evidence to rebut the noting in the list of depositors, the AO was justified in relying upon such list. He stated that the contention of the assessee that he has no connection with the list and does not know the person mentioned in the list is unbelievable because the list included the names of the assessee's wife, and mother-in-law. He concluded that the assessee had borrowed the money in cash on hundi in excess of the limit prescribed by s. 69D. There was clear violation of s. 69D. Therefore, the AO was fully justified in making the addition. The same should be upheld.
31. We have carefully considered the arguments of both the sides and have perused the relevant materials brought before us. In this case, the AO has made the addition under s. 69D of the IT Act. Sec. 69D provides where any amount is borrowed on hundi from any person otherwise than through the account payee cheque drawn on a bank the amount so borrowed shall be deemed to be the income of the assessee borrowing the amount. Therefore, before invoking provision of s. 69D it has to be established by the Revenue that the amount was borrowed on hundi. The word 'hundi' has not been defined in Income-tax, therefore, its common meaning has to be considered. Hundi in a common commercial parlance denotes an indigenous form of bill of exchange. The CBDT also in its Circular No. 208 (F. No. 208/7/76-1M-II) dt. 15th November, 1976, explaining provisions of s. 69D observed as under :
"A 'hundi' in a common commercial parlance, denotes an indigenous from of bill of exchange, by and large in vernacular language, which is used by mercantile community in India."
Bill of exchange is defined in s. 5 of Negotiable Instruments Act, 1981 as under:
"A "Bill of exchange" is an instrument in writing containing an unconditional order, signed by the maker, directing a certain person to pay a certain sum of money only to, or to the order of a certain person or to the bearer of the instrument."
From the above, it is apparent that a bill of exchange has following ingredients :
(i) It should be in writing and signed by maker.
(ii) It should contain an unconditional order directing a certain person to pay a specified amount.
(iii) The amount should be payable to bearer of the instrument or to the order of a certain person.
32. In the present case, we find that not a single document which can be called hundi was found in respect of any of the alleged borrowing. The only evidence found was a promissory note found fed in the computer. It's print was taken out and annexed as Annexure 'D' to the assessment order. From the perusal of the print, it is clear that it was not signed by either of the party. A promissory note, which was not signed by borrower can at most be a document which was proposed to be executed. However, under s. 69D the addition can be made in respect of the money actually borrowed and not for the money which might have been proposed to be borrowed. Moreover, the form of promissory note as annexed along with the assessment, order does not direct any other person to make the payment, but it says "We promise to pay". While in bill of exchange, there is a direction to other party to make the payment. This position would be further clear from s. 7 of Negotiable Instrument Act, where "Drawer, drawee and payee are defined". In view of above legal and factual position we have no hesitation to hold that the Department has not been able to produce a single document before us to establish that the money was borrowed on hundi. Moreover under Chapter XIV-B, the assessment has to be made of undisclosed income. The "deemed income" and "undisclosed income" are different items. Therefore, the deemed income cannot be brought within the purview of Chapter XIV-B. This view of ours also find support from the provision of s. 158BB(2) which reads as under :
"In computing the undisclosed income of the block period, the provisions of ss. 68,69,69A,69B and 69C shall, so far as may be, apply and references to "financial year" in those sections shall be construed as references to the relevant previous year falling in the block period including the previous year ending with the date of search of the requisition."
From the above, it is evident that the legislator had made provision of ss. 68,69,69A,69B and 69C applicable while computing the income of block period. Thus all provisions from s. 68 to 69C are specified, but s. 69D has been omitted. Thus, the intention of the legislator is clear that s. 69D is out of the purview of Chapter XIV-B. In view of these facts, as well as the provisions of Chapter XIV-B, we have no hesitation to hold that the addition made by the AO under s. 69D cannot be upheld.
33. Before parting with this ground of appeal, we would like to make a few observations about the facts of this case for the sake of completeness. In this case, a file was found from the computer installed at the business premises of the assessee. Said file contained the list of depositors. Printout of the same is annexed along with the assessment order as Annexure 'B'. The Revenue is of the opinion that the figures mentioned in the list are not correct figures and they are mentioned in decimals only. The AO opined that the correct figures could be taken by putting three zeros further i.e. thousand times more than the figures mentioned in the list. The AO has annexed the expanded figures in the Annexure 'C' to the assessment order. From this Annexure 'C', we find that it is neither signed by the assessee nor by the witnesses unlike Annexure 'B' which is signed by the witnesses as well as the assessee. Thus, it is apparent from the printout made as Annexure 'B' was taken during the course of search but Annexure 'C' is the printout prepared by the Department subsequent to the search. The learned Departmental Representative has vehmently contented that there is a presumption about the correctness of the document found at the time of search, as per s. 132(4). He stated that unless the presumption is rebutted by the assessee the same would be applicable and any document found at the time of search can be used against the assessee. However, the presumption would apply only in respect of document found at the time of search and not for its expanded version. As per the list found at the time of search, the borrowing was within the tune of a few thousands rupees only. The Department has expended it to more than Rs. 48 lakhs. Therefore, the burden was upon the Revenue to establish that the figures mentioned in the list, found at the time of search was not the correct figure but thousand times more was the correct figure. It was also contended by the learned Departmental Representative that statement of some of such depositors, whose names are mentioned in the list, was recorded by the AO. In such a statement, the amount deposited by 6 persons is thousand times more than the amount mentioned in the list found originally. However, we find that the statement of such depositors was recorded behind the back of the assessee and despite specific request by the assessee no opportunity was allowed to cross-examine such depositors. We also find that the statement of one depositor, namely, Mr. Ashok Kumar was recorded on 3rd January, 1997. On the same date, i.e. 3rd January, 1997, the assessee also appeared and his case was heard. Both these facts are evident from pp 6 & 7 of the order sheet produced before us. We are unable to understand why the statement of Shri Ashok Kumar was received behind the back of the assessee, specially when the assessee also appeared before the AO on the same date. However, whatever the reason might be, the fact remains that the statement of depositors were recorded behind the back of the assessee and the assessee was not allowed to cross-examine such depositors. Therefore, such statement cannot be used as evidence against the assessee. In the absence of such statement of the depositors there remains no iota of evidence to establish that the actual amount of borrowing was thousand times more than what was mentioned in the list found from computer. In view of the totality of above facts as well as the legal position discussed above, we find no justification for the addition of Rs. 48,67,520 made under s. 69D. The same is deleted.
34. The next ground of appeal is against the addition of Rs. 12,46,949 + Rs. 2,33,252 as undisclosed income from sale of tractors and accessories. The facts in this respect are that the assessee is dealing in "Messy Ferguson" Tractor of TAFE (Tractors and Farm Equipments) Ltd., Madras. The assessee has sold 695 tractors during the block period. On verification, it was found by the AO that the assessee was issuing different invoices for different purposes i.e. the invoices issued for bank finance purposes was of more value than the value entered in the books of account. The AO had found difference in the invoices for 53 tractors. He has prepared a detailed list in respect of such invoices. The list is marked as Annexures 'E' & 'F' of the assessment order. As per the details given in Annexure 'E' the sale value of tractors and accessories accounted for in the books of account was Rs. 1,06,18,237 while as per the invoices issued to the bank it was Rs. 1,18,65,186. The difference was Rs. 12,46,949. The AO made the addition for the same. Further 6 more cases of similar nature was found by the AO and he made the addition of Rs. 2,33,252 in respect of such 6 cases.
35. At the time of hearing before us, the learned counsel for the assessee argued at length. He admitted that there is difference in the invoices given to the bank and the invoices issued to the customer and entered in the books of account. He explained that invoices given to the bank was in the nature of quotation. The difference between the value of invoices to the bank and actual invoices was on account of two reasons. (a) Usually there is time gap of 3 to 10 months between the date of invoices and the sanction of loan by the banks. Actual delivery of the tractor and accessories are given only after the loan is sanctioned from the bank. The prevailing rate as on the date of delivery is charged to the customer and entered into the books of account. There is variation in the price during the period when the quotation was given to the bank and actual delivery of the tractor. The fresh quotation/proforma invoice is usually not given because it will again require the same time period of 3 to 10 months to sanction the revised loan. Therefore with the bank invoice remains which was issued a few months back than the actual sale taking place of sale. (b) As per the norms of the bank, the tractor is not financed unless the farmer purchases some accessories, which are necessary for the application for agricultural purposes. Therefore, in all the quotations/proforma invoices issued to the farmers for bank finance purposes a few accessories are mentioned. However, after the finance of tractor by the bank, the farmers many a time do not purchase the accessories. It is because the assessee is dealing in the accessories of Messy Ferguson (MF) which are much costly than the local made agricultural accessories. The assessee prepares the final invoices in respect of the tractor and the accessories actually purchased by the assessee. Actual price of such tractor and accessories on the date of actual purchase is mentioned in this invoice. In the books of account this correct invoice is entered. The excess amount, if any, sanctioned by the bank is refunded to the customer or adjusted towards the expenses on registration etc of the tractor.
36. The assessee had given the detailed explanations in respect of the 53 transactions pointed out by the AO. The AO has not pointed out any single mistake in such explanation. The detailed explanation given by the assessee is verifiable from the books of account in the possession of the Department. He further submitted that the assessee did maintain the day-to-day quantitative details of the accessories. All the purchases of the accessories are from MF. No discrepancy in respect of such day-to-day quantitative details or the purchase of the accessories etc. is found. He submitted that the accessories mentioned in the invoice to the bank was not for actual sale of accessories but it was only a quotation/proforma invoice. He further submitted that the AO disbelieved the refund of money to the customers on the ground that cheque issued to the customers were encashed by Shri Chandrika Prasad, an employee of the assessee. He explained that the customers of the assessee are all farmers from various villages. They are not aware of the banking procedure. Therefore, Shri Chandrika Prasad went to bank with them to assist them to encash their cheques. After encashing the cheques, money was handed over to them. He pointed out that for the perusal of Annexure 'E' to the assessment order, it is evident that the assessee recorded in the books of account the sale value of the tractors at Rs. 98,29,212 as against the value in the invoices to the bank at Rs. 97,10,571. Thus the value recorded in the books of account was more than the invoices issued by the assessee. It was because the price of the tractor has increased during the period of the issuance of invoices to the bank and actual sale of tractors. Only the sale price of accessories was recorded less in the books of account than shown in the invoices to the bank. It was because many customers did not actually purchase the accessories, but had taken the proforma invoice for submission to the bank. He further pointed out that this fact was explained during the course of search itself. In support of this contention, he referred to the reply given by Mr. Shekhar Agarwal, a co-parcener of the assessee. Such reply is at pp 226 and 228 of the paper book. He further submitted that the entire addition made by the AO is based on the presumption surmises and without appreciation of the correct facts. The additions are liable to be deleted.
37. The learned Departmental Representative heavily relied upon the assessment order. He submitted that the assessee was issuing different invoices to the bank than what was entered in the books of account. The invoices issued to the bank was higher in value than the value shown by the assessee in its books of account. He submitted that in the explanation of the assessee there was variation in the price of tractor during the time taken in sanction of loan is without any supporting or corroborative evidence. He further relied upon the assessment order and Annexures 'E' & 'F' of the said order. He contended that there was no satisfactory evidence of the refund of the money to the customers where the higher price was shown in the invoices to the bank. The assessee was charging more price than the price fixed by the company and it was the reason for the difference between the amount shown in the bank and the amount recorded in the books of account. He, therefore, contended that the addition has been rightly made by the AO. The same should be upheld.
38. We have carefully considered the arguments of both the sides and have perused the materials placed before us. The undisputed facts are that the assessee is dealing in the tractors and accessories of MF. There was variation in the amount shown in the invoices issued to the bank and the amount recorded in the books of account. The AO found this difference in respect of 53 items and the details of each and every item is given in Annexure 'F' to the assessment order. In Annexure 'B' to the assessment order the AO has summarised the total of sale price to the bank and recorded in the books of account which is as under :
Sale price recorded in the books of account Rs. In respect of tractor 98,29,212 In respect of accessories 7,89,025 Sale price shown in the Invoices issued to the Bank In respect of tractor 97,10,571 In respect of accessories 21,54,615
From the perusal of the above figures, it is apparent that the sale value of the tractors recorded in the books of account is more than the sale value of the tractors shown in the invoices issued to the bank. This demolishes the charge of the Revenue that the assessee was charging higher price than the price fixed by the company and which was the reason for difference between the sale price shown to the bank and sale price recorded in the books of account. In fact, the sale price shown in the books of account is more than the sale price shown to the bank. However, there is much difference between the sale of the accessories shown in the books of account and the sale of the accessories shown in the invoices issued to the bank. The assessee had tried to explain the difference with the contention that certain accessories mentioned in the invoices issued to the bank were actually not sold. In support of this contention, he has relied upon the day-to-day quantitative records of the accessories maintained by the assessee. The assessee has also given the explanation in respect of each and every sale of tractors and accessories and explained the cause of difference. The AO has enclosed reply of the assessee as Annexure 'G' to the assessment order. However, he did not make any specific comment in respect of such reply and not controverted the same. However, the assessee has also not filed any corroborative evidence to support its contention that the sale of the accessories as recorded in the books of account was the correct sale and not the sale mentioned in the invoices issued to the bank.. Further, the difference in the sale of accessories cannot be treated as profit. It is only the profit of such undisclosed sale is liable to be taxed and not the entire sale price itself. During the course of search, it was found that the quantities of accessories were more in the books of account than what were physically found. The AO has treated the same as sale outside the books of account. We have also upheld such addition. The AO has estimated the profit at 10% of the cost price. The sale of the accessories was out of the accessories shown in the stock as per books of account. Applying the same principle, we are of the opinion that on difference in the sale of accessories profit @ 10% should be added as undisclosed profit. The sale value of the accessories as per the bank invoices was Rs. 21,54,615 while as per amount entered in the books of account it was Rs. 7,89,025. The difference is Rs. 13,65,590. Further in respect of 6 items details of which are given in para 70 of the assessment order, the AO found difference of Rs. 2,33,252. Considering these two items we take the sale of accessories out of books at Rs. 16 lakhs and estimated the profit @ 10% thereon. Accordingly, we uphold the addition of Rs. 1,60,000 as against the addition of Rs. 12,46,949 and Rs. 2,33,252.
39. The next ground of appeal is against the addition of Rs. 4,29,800 which was made by the AO as unexplained expenditure on account of payment of commission to bank officials. The facts relating to this issue are that during the course of search of the assessees premises sales register was found in which details of certain payments to bank officials are mentioned. The total payments as per this register was Rs. 4,29,800. Before the AO, it was claimed by the assessee that the register belongs to the sales agents to whom the assessee pays the commission on sales effected by them. The commission paid to the sales agents are duly recorded in the books of account. No commission to any of the bank officials is paid by the assessee. However, this explanation by the assessee was not accepted by the AO and he made the addition of Rs. 4,29,800 as unexplained expenditure under s. 69C of the IT Act.
40. At the time of hearing before us, it was submitted by the learned counsel for the assessee that the assessee derives income from sale of tractor and its accessories. Sales are effected through commission agents. The commission agents are not the employees of the assessee but they are paid commission on the sales effected by them. He submitted that this position was explained by the assessee during the course of search itself. Names and addresses of the commission agents was also supplied during the search. In the register also, the names of the commission agents to whom which particular register belongs was also mentioned. He further contended that the loan for purchase of tractor, if any, is sanctioned to the customer who buys the tractor. Therefore, if at all, any person will entertain to the bank officials, then the person to whom the loan is sanctioned will entertain. However, the assessee is paying commission to the commission agents and if commission agents for getting more sales help the customers to get the loan promptly sanctioned it was for the commission agents to explain in such payment to the bank officials, either by them or by the customer to whom the loan is sanctioned. He pointed out that during the four financial years the payment made by the assessee to the commission agents was around Rs. 15 lakhs which was many times more than the amount claimed to have been paid to the bank officials. In view of these facts, he submitted that there was no payment by the assessee which was not recorded in the books of account and, therefore, there is no question of any unexplained expenditure calling for addition under s. 69C.
41. The learned Departmental Representative relied upon the assessment order. He submitted that the sales register was found in the assessee's premises during the course of search. In the register, payment to various bank officials are noted. When the register was found from the assessee's premises onus was upon the assessee to explain the entries found recorded in such register. The amount is admittedly not recorded in the books of account. The assessee failed to give any plausible explanation in respect of the transactions recorded in the sales register. Therefore, the AO was fully justified in treating the expenditure as unexplained expenditure under s. 69C of the IT Act.
42. We have carefully considered the arguments of both the sides, and have perused the materials brought to our knowledge. The photo copy of the register found is placed from pp 151 to 179 of the paper book. In p 151 itself, there is an index which exhibits which page of the register belongs to which person. For example at srl. No. 1, there is Mr. Arun Tiwari to whom pp 1 to 23 belong. Similarly, at srl. No. 2 There is M. P. Chandrabanshi to whom pp 24 to 35 belong. At p 52 of the register in the heading itself, it is mentioned Mr. Arun Tiwari. Thus, when in the register found at the time of search, the name of the person to whom the register belongs is mentioned, the presumption is the register belongs to those persons whose names are mentioned in the register itself. Under s. 69C, addition can be made where it in found that the assessee has incurred any expenditure and he is unable to explain the source of such expenditure. Thus, the primary thing to be found is whether the assessee has incurred any expenditure ? In this case, some amounts are found recorded in the register found from assessee's premises. It is the case of the Revenue that these amounts are payments made to bank officials. Now the payments will be made to the bank officials for sanction of any loan. No loan is sanctioned to the assessee for which said payments could have been made by the assessee. Loans were sanctioned to the different farmers who purchase the tractors from the assessee. Thus, the payment if at all, made to the bank officials, would have been made by the customers to whom the loan was sanctioned. The assessee is effecting the sale through the commission agents. The total commission paid by the assessee in the 4 financial years is amounted to Rs. 14,94,708 as under :
Rs.
Financial year 1992-93 1,03,701.00
Financial year 1993-94 4,32,989.70
Financial year 1994-95 6,55,368.00
Financial year 1995-96 (upto 12-1-96) 3,02,650.00
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Total 14,94,708.00
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These commission agents are not the employees of the assessee but they do attend the premises of the assessee and visit to the farmers who could buy tractors. They help the farmers to complete the bank formalities to get the loan sanctioned. For this purpose, they keep their records in the said sales register. Thus the normal presumption would be the payment if any to the bank officials would have been made primarily by the customer or by the commission agents. There is no evidence at all that any payment is made by the assessee to the bank officials. The only evidence on which Department is relying upon is the sales register found from the assessee's premises. Though the register is found from the assessee's premises in register itself it has been mentioned in unambiguous words the name of the commission agents to whom the registers belong. Considering the totality of the facts, we have no hesitation to hold that no evidence is brought on record by the Revenue to prove that any expenditure in the form of payment to bank of officials was made by the assessee. Therefore, s. 69C cannot be applied in the case of the assessee. We may also mention that the payment made to the commission agents which is more than Rs. 14 lakhs is also recorded in the books of the assessee and the correctness of such payment is not in dispute before us. Accordingly, we delete the addition of Rs. 4,29,800.
43. The next ground of appeal is against the addition of Rs. 1 lakh as cash deposit as per register found at the time of search. The AO made the addition of Rs. 1 lakh with the following observation :
"Annexure AIJJ/2/31 p 9 : In p 9, the assessee has received in cash Rs. 1,00,000 on 1st July, 1994 for one year deposits @ 20% interest per annum which has not been posted in the books of account. The assessee could not given any satisfactory reply on the above receipt. The sum of Rs. 1,00,000 is added as the income of the assessee for the block period."
44. At the time of hearing before us, it was submitted by the learned counsel for the assessee that the only reason given by the AO for making the addition was that the said amount of Rs. 1 lakh was not posted in the books of account. He contended that the entire amount of Rs. 1 lakh was posted in the books of account and the same was also explained to the AO vide reply dt. 2nd January, 1997. Copy of the reply is placed at page 126 of the paper book. He also furnished the photo copy of the said register at p. 216 of the paper book and pointed out that in the said register initially the deposit of Rs. 1 lakh is mentioned and then there was break-up of such Rs. 1 lakh with the names of the persons and the amount from each person. He submitted that when the entire amount is recorded in the books of account and which is duly explained there was no question of any addition.
45. The learned Departmental Representative on the other hand, submitted that the first amount of Rs. 1 lakh written on page No. 216 is different than the various other amounts mentioned below which total to Rs. 1 lakh. He submitted that the assessee explained the other amounts mentioned in p 216 but not the first amount of Rs. 1 lakh.
46. We have carefully considered the arguments of both the sides and have perused the relevant documents. At p. 216, there is photo copy of the impugned register which was found and seized at the time of search. The first line of the said page is 1st July, 1994 Rs. 1,00,000 cash deposit for one year @20%. Then there is mention of names of the persons and the amount. The details of such names of the persons and its explanation by the assessee is in assessee's reply dt. 2nd January, 1997, which is placed at p. 126 of the paper book. The same is reproduced below :
Name CBF No. LF No. Amount Pramod Agarwal 97 38 18,000 Diksha Agarwal 97 48 18,000 Akshay Agarwal 97 51 18,000 Amber Agarwal 97 51 18,000 M. K. Agarwal 97 51 17,000 Lata Agarwal 37 11,000
Thus, all the above amounts are duly found recorded in the books of account. Thus, the explanation of the assessee that assessee first narrated that a total deposit of Rs. 1 lakh is accepted on the interest rate of 20% and thereafter gave the break-up and the amount taken from each person seems probable. Accordingly, we hold that there was no unexplained deposit as mentioned by the AO, as per register found from the assessee's premises. Accordingly, we delete the addition of Rs. 1,00,000.
47. The next ground of appeal is against the disallowance of Rs. 24,920 being foreign travel expenses. The facts relating to this expenses are that Shri B. P. Agarwal, Karta of the assessee (HUF), visited Mauritius and debited a sum of Rs. 24,920 in the books of account. The AO made the addition on the ground that the expenditure was not incurred for the purpose of business.
48. We have considered the arguments of both the sides. In the present appeal, we are considering the assessment of block period as per Chapter XIV-B of the IT Act. We have already discussed while deciding ground Nos. 8 & 9 of the assessee's appeal. In our opinion, under Chapter XIV-B, the assessment of undisclosed income found as a result of search is to be made and any other addition/disallowance which is not covered by such undisclosed income found as a result of search is out of the purview of the Chapter XIV-B. The expenditure incurred on a foreign travel of the assessee was duly mentioned in the books of account. The only dispute is whether the expenditure was incurred for the purpose of business or not. In our opinion, this point has to be examined in a regular assessment and not in the assessment of block period under Chapter XIV-B. Accordingly, we delete the addition of Rs. 24,920.
49. In the result, assessee's appeal is partly allowed.