Income Tax Appellate Tribunal - Ahmedabad
Income-Tax Officer vs Gurubachhan Singh J. Juneja. on 3 August, 1995
Equivalent citations: [1995]55ITD75(AHD)
ORDER
Per Shri B. L. Chhibber (Accountant Member) - This appeal by the Revenue is directed against the order of the CIT (Appeals), Ahmedabad Ground No. 1, reads as under :
"The learned CIT (Appeals) has erred in not granting an opportunity of being heard to the ITO in spite of specific request."
2. During the course of hearing before us, we specifically asked the learned DR to check up from the record whether no opportunity to represent was given to the ITO. The learned DR was fair enough to state that there was nothing on record to show that the opportunity was denied to the ITO. Accordingly we do not find any merit in this ground and dismiss the same.
3. Ground Nos. 2 and 3 read as under :
(2) The learned CIT (Appeals) has erred in deleting the addition of Rs. 10,85,003 made on account of unaccounted cash sales.
(3) The learned CIT (Appeals) has erred in directing to adopt the G. P. only on Rs. 2,43,339 when addition was made for undisclosed sales of Rs. 10,85,003.
3.1 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 6th & 7th September 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 scrutiny of these loose papers the learned ITO noted that these loose sheets comprised of daily sales effected for the period 15-7-1983 to the end of June 1984, and these sheets record the sales effected by the assessee on cash and credit basis. The ITO examined these loose sheets with reference to the books of account of M/s. Punjab Tyres and Paul Tyres for the period upto 31-3-1984 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 M/s. Punjab Tyres or M/s. Paul Tyres. In response to the show-cause notice issued by the ITO vide his letter dated 27-3-1987, the assessee filed a detailed explanation which has been reproduced by the ITO on page 4 of his order. The ITO was not satisfied with the Explanation furnished and made an addition of Rs. 10,85,003 on account of unaccounted sales.
3.2 Before the CIT (Appeals) detailed written submissions were furnished by the assessee which have been reproduced by the CIT (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 CIT (Appeals), accordingly deleted the addition of Rs. 10,85,003 but sustained the G. P. addition on 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 M/s. Punjab Tyres and M/s. 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 no account of various aforesaid reason 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 this may ultimately not mature as actual sales. The ITOs 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 ITOs 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 G. P. addition on difference of sales of Rs. 2,43,339."
3.3 The learned DR relied upon the order of the ITO while Shri J. P. Shah, the learned counsel for the assessee strongly supported the order of the CIT (Appeals). The learned counsel submitted that some loose sheets containing some rough jottings of the business transaction of the assessee were found during the course of search operation. Sales transaction jottings in these loose sheets were partly concluded to be by the ITO as unaccounted sales. The 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. M/s. 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. The learned counsel submitted that the nature of the business of assessee is that many times the assessee had to sell goods on approval or return basis both on cash basis or 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 into the loose sheets were exchanged because of change in size or when the purchaser insisted for the change in the manufacturer, viz., the customer who had 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 have been compared with the books of account. He, therefore, submitted that the CIT (Appeals) was right in holding that the addition of Rs. 10,85,003 was not called for and only G. P. addition on Rs. 2,43,339 was directed to be made.
3.4 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 DR. As per the version of the ITO, 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 ITO for making the addition of Rs. 10,85,003 being alleged sales made on cash basis and not recorded in the books of account because sales can not constitute undisclosed income more so when the ITO has accepted the genuineness of purchases of such goods. At the most an addition on account of G.P. rate on such sales could have been made which has been done by the CIT (Appeals). We accordingly uphold the action of the CIT (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 G.P. 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 G.P. rate should be applied on the entire sales of Rs. 10,85,003 which were not recorded in the books of account. The ITO is accordingly directed to apply G.P. rate of 2.36% on the amount of Rs. 10,85,003 and work out the addition. Accordingly ground No. 3 raised by the Revenue succeeds.
4. The next ground reads as under :
"The learned CIT (Appeals) has erred in deleting the addition of Rs. 1 lakh being the unaccounted advance to one Shri Rajiv Kapoor."
4.1 During the course of search receipt from Shri Rajiv Kapoor for Rs. 1 lakh dated 2-5-1983 was found. The assessee submitted during the course of search that his son Shri Jitendrapal Singh was Proprietor of M/s. Juneja Transport which was working as carting agents of M/s. Gandhinagar 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 2-5-1983 Shri Rajiv Kapoor the Manager of Gandhinagar Bottling Pvt. Ltd. called on assessees residence to collect the amount lying at his residence collected on their behalf by the assessee. The assessees 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 the possible defalcation by the recipient of the money. 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 ITO xerox copy of cash book page dated 2-5-1983 was produced. The ITO was not satisfied with the explanation furnished and added the amount of Rs. 1 lakh as assessees income from undisclosed sources.
4.2 On appeal, the CIT (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), 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.
4.3 The learned DR relied upon the order of the ITO. Shri J. P. Shah, the learned counsel for the assessee took us through the letter from Gandhinagar Bottling Pvt. Ltd. to the ITO dated 12-12-1984 (page 1 of the paper book) affidavit of Shri Rajiv Kapoor dated 19-5-1987 (Pages 17 to 18 of the paper book), assessees letter dated 27-3-1987 to the ITO (pages 2 to 6 of paper book), letter from Gandhinagar Bottling Pvt. Ltd. to ITO dated 22-2-1987 (pages 19 to 21 of 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 M/s. Juneja Transport for and on behalf of M/s. Gandhinagar Bottling Pvt. Ltd.
4.4 We have considered the rival submissions and find force in the submissions of the assessees counsel. We find that the assessee has taken a consistent stand right from the date of 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 M/s. Gandhinagar Bottling Pvt. Ltd. This stand stands vindicated by the sworn affidavit of Shri Rajiv Kapoor and the letters from M/s. Gandhinagar Bottling Pvt. Ltd. (supra) which have been rightly relied upon by the CIT (Appeals). Accordingly we do not find any infirmity in the findings of the CIT (Appeals) and decline to interfere. This ground is also dismissed.
5. In the result, the appeal is allowed in part.
Per Shri Phool Singh, Judicial Member - I have 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 ground Nos. 2 & 3 of the appeal of the revenue. Reasons for the same are mentioned in the following paragraphs.
2. To start with I am giving out the concerned ground Nos. 2 & 3 raised by the revenue in this appeal, as under :-
"2. That learned CIT (Appeals) has erred in deleting the addition of Rs. 10,85,003 made on account of unaccounted cash sales.
3. The learned CIT (Appeals) has erred in directing to adopt the G.P. Only on Rs. 2,43,339 when addition was made for undisclosed sales of Rs. 10,85,003."
3. Relevant facts are that the assessee, an individual deals in sales and purchases of tyres used by Trucks/Buses etc. and manufactured by different companies. The revenue authorities conducted a search and seizure operation at the business and residential premises of the assessee on 6th & 7-9-1984. 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 assessee. The Assessing Officer scrutinised these loose papers which comprised of daily sales effected for the period from 15-7-1983 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 to the business of assessee in the name of M/s. Punjab Tyres and M/s. Paul Tyres. The ITO examined these loose sheets with reference to the books of account of M/s. Punjab Tyres and M/s. Paul Tyres for the period upto 31-3-1984 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 M/s. Punjab Tyres or that of M/s. Paul Tyres. The ITO called upon the assessee to reconcile the same and in pursuance of the show-cause notice the assessee submitted the explanation vide letter dated 27-3-1987 (copy appearing on pp. 2 to 6 of the paper book of assessee). He took different pleas in his explanation and ITO reproduced the written submission in his assessment order and after considering the same concluded that 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 have not 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 assessed. The assessee came in appeal before the CIT (Appeals) I, Ahmedabad and before him also, the assessee relied upon his explanation dated 27-3-1987, submitted to ITO and also tried to explain the difference and also agreed to sustain the G.P. addition on difference of sales of Rs. 2,43,339 as the remaining amount of Rs. 8,41,664 was reconciled by the assessee as before the ITO who did not find substance in the same. However, the learned CIT (Appeals) accepted the contention of the assessee and 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 G.P. addition on difference of sales of Rs. 2,43,339 be added as proposed by the assessee before both the authorities. This order of CIT (Appeals) is subject matter of the grounds before us in the appeal of revenue.
4. The learned D.R. heavily placed reliance on the order of ITO and contended further that undisputedly loose sheets were seized in the raid operation and assessee was under obligation to explain the difference pointed out by the ITO which could not be done by him and ITO was justified in adding the same amount of Rs. 10,85,003 to the total income of assessee on account of unaccounted sales. Contrary to it, the learned counsel for assessee has relied upon the order of learned CIT (Appeals) and also submitted that in fact total sale shown by the assessee was more than Rs. 45 lacs while the total sale in the loose sheets was to the tune of Rs. 42.95 lacs and this circumstances alone was sufficient to conclude that all the sales mentioned in the loose sheets were entered in the books of account. The learned counsel further submitted that explanation given by the assessee before the ITO and the CIT (Appeals) was such that there was no justification for ITO to add as nature of business is such that so many times goods sold on approval basis are actually shown at cash sales but returned afterwards or sometime a part of the price of tyre is paid by the Driver/Owner of the vehicle in time of emergency and assessee used to show the said sale as cash sale and later on that unpaid amount remained uncleared for which 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 assessee was justified in asking the authorities below to assess the G.P. on remaining amount of Rs. 2,43,339 and to add in the total income of the assessee. This offer of assessee was to purchase peace and to cut short the period of litigation. The learned counsel pointed out that the learned CIT (Appeals) was justified in accepting the contention and explanation of the assessee and it requires no interference.
5. 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 ITO 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 M/s. Punjab Tyres and M/s. Paul Tyres, the business concerns of assessee and accountant of the assessee was very much in attendance at the time of 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 ITO is not challenged before us by the learned counsel for assessee. In view of these facts, it was obligatory on the part of assessee to explain the transactions relating to amount of Rs. 10,85,003 and ITO gave an opportunity to the assessee to explain the same and in response to this, the assessee admittedly has furnished a written reply dated 27-3-1987. This reply of the assessee is material one. It has been reproduced by the ITO 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 transactions and that the same are duly accounted for in the books of the respective concerns as and when transaction is finalized. During the period of account and at the time when raid took place we were not having 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 regular books unless it is actually effected or materialized.
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. This unticked items of sales amount to Rs. 8,41,664. This has not been deducted by your honour from the figure of Rs. 10,85,063. 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 honours kind reference and necessary action.
It may be stated that the above figure of difference is attributed to proposed or intended sales not ultimately materialized, difference in price, quality, type and quantity, return of goods and various other reasons having no effect ultimate sale as alleged.
With a view to purchase peace and avoid litigation, the assessee could have accepted reasonable and usual G.P. 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."
6. Apart from it, the assessee tried to explain in the same reply the reasons of difference by saying that sometimes customers Truck may be lying on the road due to bursting of tyre and the Drivers/Cleaners rushed to our godown of shops and tender part of the price money according to availability with them and in such transactions the cash sales is shown in the loose sheets but the remaining due amount takes time to come in the hands of assessee and sometimes credit memos are prepared and this creates difference. The other factor of this difference is that smetimes 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 into the difference.
7. The assessed, as apparent from para 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 G.P. and addition may be made accordingly. It was expected from the ITO to verify this part of reply of assessed. We have asked for the details of this statement but the same was not furnished and the learned counsel tried to satisfy us by showing two books of account of the assessee in which ITO 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 into the difference of Rs. 10,35,003. As pointed out above, the assessee was duty bound to give cogent explanation giving out details of each and every entry included in the amount of Rs. 10,85,003. But he failed to do so.
8. 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 ITO was to verify this claim of the assessee in detail but written submission of assessee which lasted upto 5 pages were disposed of by the ITO with the following observation :-
"The assessees 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 corresponding entry in the regular books of account. Besides each sales which are 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 unaccounted cash sales found. The entry in the unaccounted sales of Rs. 10,85,003 are included in the total income of the assessed."
This approach of the ITO is not justified at all.
9. Now comes the impugned order of this learned CIT (Appeals). A perusal of it shows that he has mentioned the pleas raised by the assessee before ITO as well as before him. Copy of written submission filed by the assessee before CIT (Appeals) is appearing on pp. 10 to 16 of the paper book and most of the pleas raised by the assessee do find place in the order of the learned CIT (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 M/s. Punjab Tyres and M/s. 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 ultimately not mature as actual sales. The ITOs finding that the sales in the regular books of account might not have been entered in the loose sheets is based on surmises. The ITOs 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 appellant to a major extent. The addition made is deleted but I sustain the G.P. addition on difference of sales of Rs. 2,43,339.
I am not able to find out as to how the CIT (Appeals) observed that assessee was able to tally the sales recorded in the books of account of M/s. Punjab Tyres and M/s. Paul Tyres with the sales jotted in the loose sheets. The assessee simply has given out vague reasons for difference in the amount of sales noted in the loose sheets and in the books of M/s. Punjab Tyres and M/s. 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 CIT (Appeals) are self-contradictory as at one place in the above referred to observations he noted that sales recorded in the books of account are more than the sales jotted down in the loose sheets and gave 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 para he criticized the observations of ITO that finding of ITO 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 CIT (Appeals) was not justified in accepting the contention of the assessee without verifying the correctness of the explanation and adding the G.P. of Rs. 2,43,339."
10. It is also relevant to point out that the 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 authorities below questioned the purchases. This point has not been scrutinized by the authorities. The assessees explanations were subject to scrutiny and while verifying the correctness each and every entry, details of which were given by the assessee before the ITO as mentioned above; the authorities below were under obligation to keep in mind the purchases made by the assessee and the position of stock after each of the sale. It has not come on record.
11. On the basis of above discussions, the only conclusion is that matter has not properly been processed from the very beginning. The facts of seizure of loose sheets are undisputed. The explanation of the assessee requires a fresh scrutiny in detail by the ITO concern 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 back to the ITO 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 observation made above may also be kept in mind. On these basis I am not in agreement with my learned brother for confirming the order of CIT (Appeals) on these two grounds.
12. So far as remaining grounds are concerned, I am in full agreement with the learned Accountant Member.
ORDER UNDER SECTION 255(4) OF THE I.T. ACT, 1961 Per Shri B. L. Chhibber (Accountant Member) - As we have difference of opinion on the following points, we refer the case to the Honble President as provided under section 255(4) of the IT Act, 1961 :
"1. Whether, on the facts and circumstances of the case, the learned CIT (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 CIT (Appeals) is justified in directing to adopt the G.P. only on Rs. 2,43,339 when addition was made for undisclosed sales of Rs. 10,85,003."
ORDER (THIRD MEMBER) 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 CIT (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 CIT (Appeals) is justified in directing to adopt the G.P. only on Rs. 2,43,339 when addition was made for undisclosed sales of Rs. 10,85,003."
2. This appeal filed by the Department is against the order of the CIT (Appeals) dated 26-8-1987 for the assessment year 1984-85, for which the previous year ended on 30-6-1983. The assessee is an individual. He is engaged in the business of tyres under the name and style of M/s. Punjab Tyres. For the assessment year under consideration the return of income was filed on 2-7-1986 showing total income at Rs. 950. Later on revised return was filed on 22-1-1987 showing income at Rs. 15,170. The revised return was filed in order to show income from property and share income from M/s. 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% on total sales of Rs. 1,35,49,907 as against gross profit rate of 2.2% on total sales of Rs. 1,34,09,015 in the preceding year.
3. Search under section 132 of the Income-tax Act, 1961, was carried out on 6th & 7-9-1984 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 15-7-1983 to the end of June 1984 and that these sales were on cash and credit basis. The loose sheets recorded the sales effected by M/s. Punjab Tyres and M/s. Paul Tyres (a proprietary concern of assessees son Jintendra Pal Singh). These loose sheets were examined with reference to the books of account of M/s. Punjab Tyres and M/s. Paul Tyres for the period upto 31-3-1984 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 M/s. Punjab Tyres (P.B.) or M/s. Paul Tyres (P.L.) Ltd. A show-cause notice dated 23-3-1987 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 27-3-1987. 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 transactions. The same are duly accounted for in the books of the respective concerns as and when transactions were finalised. During the relevant period we were not having 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 place in 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. This 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 materialized, difference in price, quality, type and quantity, return of goods and various other reasons having no effect on 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. 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 times 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 available with them and assures to pay the balance either on the same day or few days after. However, in the loose-sheets the same is immediately noted as cash sales. 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 some times 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 rear and 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.
4. The Assessing Officer did not accept the assessees 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 assessees 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 corresponding entry in the regular books of account. Besides each sale which are 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 unaccounted cash sales found. The entry in the unaccounted sales of Rs. 10,85,003 are included in the total income of the assessee."
In the assessment order passed under section 143(3) on 31-3-1987 the impugned addition was treated as business income. Aggrieved by the said addition, the assessee preferred an appeal before the CIT (Appeals).
5. Before the CIT (Appeals) the assessees counsel urged that the total cash sales appearing in the loose sheets from 15-7-1983 to 30-6-1984 were Rs. 42.95 lacs and the total cash sales of both the firms from 1-7-1983 to 30-6-1984 were more i.e. Rs. 45.31 lacs. The assessees counsel filed written submissions dated 17-8-1987 before the CIT (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 financial year. The assessees accounting period ends in June and if the figure is reconciled on the basis of assessees 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 times we have to sell our goods on approval or return basis both on cash basis or 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 into 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."
The assessee referred to his reply dated 27-3-1987 filed before the Assessing Officer. The assessee stated that the gross profit rate in the assessment year under consideration comes to 2.36%.
6. The CIT (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 M/s. Punjab Tyres and M/s. 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 ultimately not mature as actual sales. The ITOs 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 ITOs 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 G.P. addition on difference of sales of Rs. 2,43,339."
Aggrieved by the relief granted by the CIT (Appeals) the Revenue preferred an appeal before the Tribunal.
7. In the grounds of appeal the Revenue has raised the following grounds :-
"The learned CIT (Appeals) has erred in deleting the addition of Rs. 10,85,003 made on account of unaccounted cash sales.
The learned CIT (Appeals) has erred in directing to adopt the G.P. only on Rs. 2,43,339 when addition was made for undisclosed sales of Rs. 10,85,003."
8. 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 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 CIT (Appeals). He did not agree with the finding of the CIT (Appeals) that addition is to be made by applying 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 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 gross profit rate of 2.36% on the amount of Rs. 10,85,003 and work out the addition.
9. 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 the 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 assessees said contention by simply observing that the assessees 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 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 CIT (Appeals) observed that the assessee was able to tally the sales recorded in the books of account of M/s. Punjab Tyres (PB) and M/s. 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 CIT (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 authorities below questioned the purchases. The learned Judicial Member stated that this point has not been scrutinized 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 of the 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 back 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.
10. The arguments of the learned Departmental Representative before me were to the following effect : At para 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% on those sales of Rs. 10,85,003 is to be treated as the assessees income. The learned Judicial Member in para 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 scrutinized by the authorities. He further held that the authorities below were under 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 para 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 back 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.
11. The arguments of the assessees 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 1-12-1984. The same is given in the Revenues paper book No. 2 at pages 33 to 40. In para 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 Rs. 3 lakhs for the assessment year 1984-85. In the said para the Assessing Officer accepted that the notings in the seized papers related not only to the assessee but also to his son Shri Jintendra Pal Singh who carried on the business of tyres under the name and style of M/s. Paul Tyres. In the assessees paper book at page 9, the details of cash sales entered in the regular books of M/s. Punjab Tyres (PB) and M/s. Paul Tyres (PL) from 1-7-1983 to 30-6-1984 (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 lacs as culled out from the loose sheets for the period from 15-7-1983 to 30-6-1984. A comparison of the same would show that the theory of concealed sales is nothing but a mis-understanding. The total sales, as entered in the regular books, exceeded by Rs. 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 assessees business ? In the Revenues paper book No. 2, papers 1 to 9 show the monthwise figures of unaccounted cash sales of Punjab Tyres (PB) as well as M/s. 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 assessees claim that cash sales of Rs. thirty two lakhs were accounted for rupee to rupee in the books. This also means that Rs. 10.85 lakhs were not noted in the assessees books rupee to rupee. Eighty per cent of the jottings in the loose papers proved to be accounted sales rupee to rupee. Even this Rs. 10.85 lakhs did not related to the assessee alone. They related to the two concerns M/s. Punjab Tyres (PB) owned by the assessee and M/s. Paul Tyres (PL) owned by the assessees son Shri Jitendra Pal 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 & 11 of the Revenues 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 CIT (Appeals). However, the learned Accountant Member amended the order of the CIT (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 for the assessee has to go back ? There should be a finality and that too early. No body can do a job with precision. Tallying hundred per cent of the entries in the seized loose papers is a mirage. The assessees books of account and the results shown by them have been accepted in the earlier and later assessment years viz. 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.
12. 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 Rs. forty five lakhs in both the concerns M/s. Punjab Tyres (PB) and M/s. Paul Tyres (PL). Still Rs. 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 M/s. 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 back to the Assessing Officer. The seized loose-papers constituted primary evidence.
13. The assessees 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 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.
14. I have considered the rival submissions, case laws cited and papers filed before me by both the sides. As per the Assessing Officers instructions and directions, the Inspector verified the loose-sheets and cash books of PB and PL and arrived at "entries not exactly matching with the loose sheets and cash books" aggregating to Rs. 10,85,003. The Inspectors report can be seen at page 14 of the Revenues paper book No. 2. The working sheets are given at pages 1 to 9 of the said paper book. The Assessing Officer issued show-cause notice dated 23-3-1987 asking for the assessees objections to treat the abovesaid amount as assessees income from "undisclosed sources". The assessee furnished his reply dated 27-3-1987. He admitted that the above figure of Rs. 10,85,003 is the sum total of the exact amount not tallying with in the loose-sheets and the amounts as appearing in these 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 Revenues 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 Revenues 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.
15. 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 for 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 G.P. 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.
16. 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 Revenues 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 assessees 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. Asstt. CIT [1994] 208 ITR (AT) 22 (All.) and the judgment of the Honble Gujarat High Court in the case of CIT v. Smt. Dhirajben R. Amin [1983] 141 ITR 875 at page 886 and CIT v. Harikishan Jethalal Patel [1987] 168 ITR 472 (Guj.) and the judgment of the Honble Kerala High Court in the case of Travancore Tea Estates Co. Ltd v. CIT [1985] 154 ITR 745 at page 751 and CWT v. Mary Rockie [1987] 167 ITR 153 (Ker.) at page 156.
17. 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 Honble Allahabad High Court in the case of Ashok Kumar Rastogi (supra).
18. As held by the Honble Calcutta High Court in the case of CIT v. S. M. Omer [1992] 62 Taxman 46 only 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% on Rs. 10,85,003 is to be added, since the scope of 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 Members 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 & loss account of Punjab Tyres for the period 1-7-1982 to 30-6-1983 the net profit shown is Rs. 76,090 on sales of Rs. 1,35,49,907 yielding a net profit rate of 0.56%.
19. In the facts and circumstances of the case, I hold that the CIT (Appeals) is justified in deleting the addition of Rs. 10,85,003 made on account of unaccounted cash sales. The CIT (Appeals) is not justified in directing to adopt gross profit only on Rs. 2,43,339. I agree with the learned Accountant Member in this regard.
20. The matter will now go before the regular Bench for the final disposal of the appeal in accordance with the opinion of the majority.
ORDER Per Shri B. L. Chhibber (Accountant Member) - The learned Vice-President sitting as Third Member by his opinion dated 16-6-1995 has concurred with the views of Accountant Member and in accordance with the majority view, it is held as under :
(1) The CIT(A) is justified in deleting the addition of Rs. 10,85,003 made on account of unaccounted cash sales.
(2) The CIT(A) 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 G.P. rate should be applied on the entire sales of Rs. 10,85,003 which were not recorded in the books of account. The ITO is accordingly directed to apply G.P. rate of 2.36% on the amount of Rs. 10,85,003 and work out the addition.
2. In the result, the appeal is allowed in part.