Income Tax Appellate Tribunal - Ahmedabad
Patel Babubhai Kantilal & Co.,, Surat vs Assessee
IN THE INCOME TAX APPELLATE TRIBUNAL
AHMEDABAD BENCH "C" AHMEDABAD
Before Shri Mahavir Singh, Judicial Member and
Shri A.N.Phauja, Accountant Member
IT(SS) A No.203 & 211/ Ahd/2005
Block assessment :1996097 to
20.6.2002
Date of hearing:1.11.10 Drafted:8.11.10
M/s. Patel Babubhai V/s. Commissioner of
Kantilal & Co., 5/663, Income-tax (Appeals)-II,
Haripura, Bhavani Vad, Ahmedabad
Opp. Dhobi Sheri, Surat
Pan No.AAEFP7192E
Assstt. Commissioner of V/s. M/s. Patel Babulal
Income-tax, Circle-3, Kantilal & Co. 5/663,
Room No.507, Aaykar Haripura, Bhavaniwad,
Bhavan, Majauragate, Surat
Surat
(Appellant) .. (Respondent)
IT(SS) A No.233/ Ah d/2006
Block assessment: 1991-92 to
20.11.2000
Dy. Commissioner of V/s. M/s Patel Somabhai
Income-tax, Central Maganlal & Co., 5/687,
Circle-3, Aayakar B/Haripura, Bhavani
Bhwan, Majura Gate, Vad, Surat
Surat Pan No.AADFP1184B
(Appellant) .. (Respondent)
IT(SS) A No.204 & 210/ Ahd/2005
Block assm:1996-97 to 20.06.2002
M/s. Patel Somabhai V/s. Commissioner of
Maganlal & Co., 5/687, Income-tax (Appeals)-II,
Haripura, Bhavani Vad, 2 n d Floor, Aaykar
Surat Bhavan, Ashram Road,
Pan No.AADFP1184A Ahmedabad
IT(SS)A No.203-05/Ahd/05, 210-12/Ahd/05 & 233/Ahd/06 B.P. 1/4/96 to 20.6.02, 91-92 to 20.1.00
ACIT, Central Circle 3 SRT v. Patel Group Page 2
Assstt. Commissioner of V/s. M/s. Patel Somabhai
Income-tax, Circle-3, Maganlal & Co. 5/687,
Room No.507, Aaykar Haripura, Bhavaniwad,
Bhavan, Majauragate, Surat
Surat
(Appellant) .. (Respondent)
IT(SS) A No.205 & 212/ Ahd/2005
Block assessment:1996-97 to
20.06.2002
M/s. Patel Madhavlal V/s. Commissioner of
Maganlal & Co. 3/139, Income-tax (Appeals)-II,
Navapura, Parsi Sheri, Ahmedabad
Surat
Pan No.AADFP2740F
Assstt. Commissioner of V/s. M/s. Patel Madhavlal
Income-tax, Central Maganlal & Co. 3/139,
Circle-4, Surat Navapura, Parsi Sheri,
Surat
(Appellant) .. (Respondent)
Assessee by :- Shri S,N.Soparkar, SR-AR
Revenue by:- Shri Shelly Jindal, CIT-DR
ORDER
PER BENCH:-
Out of seven appeals - 3 by the assessee and four by Revenue are arising out of the order of Commissioner of Income-tax(Appeals)-II, Surat in different appeal No. CIT(A)-II/CC.3/46-47,23, 227/04-05/05-06 different dates, i.e. 25-05-2005 & 06-10- 2006. The block assessments were framed by the ACIT, Central Circle-3-4. Surat u/s.158BC(c) of the Income-tax Act, 1961 (hereinafter referred to as 'the Act') vide his different order dated 31-01-2005, 18-02-2005 and 06-03-2006 for the block assessment 01-04-1996 to 20-06-2002 and 1991092 to 20-01-2000 respectively.
Now we will take up assessee's appeal in IT(SS)A 203/Ahd/2005 & Revenue's appeal in IT(SS)A No.211/Ahd/2005.
IT(SS)A No.203-05/Ahd/05, 210-12/Ahd/05 & 233/Ahd/06 B.P. 1/4/96 to 20.6.02, 91-92 to 20.1.00 ACIT, Central Circle 3 SRT v. Patel Group Page 3
2. The first common issue in IT(SS)A No. 211/Ahd/2005 of Revenue's appeal and that of assessee in IT(SS)A No.203/Ahd/2005, is as regard to the order of CIT(A), in restricting the addition at Rs.1,76,985/- out of the total addition made by Assessing Officer at Rs.66,12,159/- on account of unaccounted commission income as undisclosed income of the block period. For this, Revenue has raised the following ground No.1:
IT(SS)A No.211/Ahd/2005 "1. The CIT(A) has erred in law and on facts in restricting the addition of Rs.66,12,159/- made on account of unaccounted commission income to Rs.1,76,985/-."
And assessee has raised the following ground No.1(A), 1(B) to 2(A) 2(B):-
IT(SS)A No.203/Ahd/2005.
"1(A) In the facts & circumstances of the case, the learned Commissioner of Income-tax (Appeals)-II, Ahmedabad should have accepted that irregularities regarding commission income of Delhi branch as estimated by assessing officer at Rs.72,112/= is for the period 01.04.2002 to 20.06.2002(not for the period 15.05.2002 to 20.06.2002).
1(B) In the facts & circumstances of the case, the learned Commissioner of Income-tax (Appeals)-II, Ahmedabad should have accepted & reduced the estimated commission income of Delhi branch for the period 01.04.2002 to 20.06.2002 at Rs.72,112/= instead of Rs.1,76,985/=.
2(A) In the facts & circumstances of the case, the learned Commissioner of Income-tax (Appeals)-II, Ahmedabad erred in giving direction to the assessing officer to add income of Rs.1,76,985/= in the returned income though the assessing officer himself in the assessment order gave set off of commission income from the unaccounted cash found/seized/disclosed in the return of income for the block period.
2(B) In the facts & circumstances of the case, the learned Commissioner of Income-tax (Appeals)-II, Ahmedabad erred in directing the assessing officer to add Rs.1,76,965/= over and above the returned income though the said estimated commission income is covered/included in the unaccounted cash found/seized/disclosed in the return of income for the block period."
3. The brief facts are that the assessee-firm is carrying on the business of Angadia i.e. courier/carting agent which collects the posts, parcels, packets, valuables like cash, bullions, diamond etc. from constituents at its various branches in Gujarat, Mumbai and Delhi and deliver the same as per the instruction of the sender at Branches at relevant stations. The assessee-firm receives service charges/commission for rendering service to the constituents for transferring post, IT(SS)A No.203-05/Ahd/05, 210-12/Ahd/05 & 233/Ahd/06 B.P. 1/4/96 to 20.6.02, 91-92 to 20.1.00 ACIT, Central Circle 3 SRT v. Patel Group Page 4 parcels, insured covers, cash, valuables etc. from one station to other, as per the instruction of the constituents. As the assessee-firm works as a courier/transport agent, very much akin to postal services, whatever cash, valuables it receives during the course of its business, remains in its possession as courier/Bailey and it does not become the owner, ownership of the articles remains with senders/receivers. The assessee has following 25 branches:-
Sr. Place/City Address
No
1 Surat 5/663, Haripura, Bhavaniwad
2 Ahmedabad Gr Fir., Germal Silver Mkt. Mirchi Pole, Ratan
Pole
3 Mumbai 18/20, German Silver Bldg Nop.3, Bhuleshwar
4 Malad C-2/2, Ratanpuri, Gaushala Lane, Daftary Road,
Diamond Hall
5 Ahmedabad 37, Vandna Cloth Market, Panch Kuan
6 Navsari Chikuwadi, Sattapir, Zaveri Bazar
7 Bharuch Zaveri Mohallo, Lalubhai Chakla
8 Ankleshwar Gaushala bazar, Near Post Office
9 Vadodara Kansara Pole, M.G. Road
10 Dahod Opp. Subhadra Mkt. M.G. Road
11 Ghodra Opp. Nutan School, Saparia Bazar, Patelwada
12 Lunawada 12, Super Mkt. 1st Flr., Nr Bus Stand
13 Anand Abaov Bank of Maharastra, Station Road
14 Junagadh 9, Bhagwati Complex, Madh St. Magnath Road
15 Rajkot 2, Raghuvir Tower, Modi Sheri, Soni Bazar
16 Dholka Near Kuber Ji Temple
17 Deesa Gandhi Chowk
18 Patan Above Glasswala, Nr Sardar Chowk
19 Palanpur E-119, Panchratna, Amir Road
20 Kalol 18, H.M. Latiwala, Nr UCO Bank
21 Nadiad Dabhan Bhagod, Nr UCO Bank
22 Edar Bhavna Mkt. S.T. Bus Road
23 Himmatnagar Naza Bazar, Tower Rd. Opp. Old State Bank
24 Mehsana Jaishree Mkt. Opp. Taluka Panchayat
25 Delhi 321, Kuccha Ghasi Ram, Chandni Chowk
IT(SS)A No.203-05/Ahd/05, 210-12/Ahd/05 & 233/Ahd/06 B.P. 1/4/96 to 20.6.02, 91-92 to 20.1.00 ACIT, Central Circle 3 SRT v. Patel Group Page 5 A search u/s.132 of the Act was carried out at Delhi Branch Office of the assessee by ADIT (Inv.), Unit-VI(2), New Delhi. During the course of search cash of Rs.35,46,200/- was found, out of which cash of Rs.35 lakh was seized and various books of account and other documents were found and seized and inventoried as Annexure-A/1 to Annexure-A/8 vide panchnama dated 20-06-2002. According to the Assessing Officer, seized documents and books of account contains unaccounted transaction of the assessee and accordingly notice u/s 158BC of the Act was issued on 17-10-2002 and in response to the same, assessee filed its block return on 26- 11-2002 after getting extension of 45 days, declaring undisclosed income at Rs.35 lakh. Subsequently, notice u/s.143(2) of the Act was issued on 03-01-2003 requiring the assessee to explain. The assessee was requested vide show cause notice dated 03-02-2004 to explain how the cash found and seized is declared in the books of account. The assessee vide its reply dated 14-06-2004 stated that assessee-firm has filed its return income for the block period disclosing undisclosed income at Rs.36,00,000/- covering the unaccounted cash found and seized. Thus, the assessee admitted cash found at Rs.35,46,200/- as undisclosed income of the assessee for the block period. As regards to balance cash amounting to Rs.1 lakh found and seized from the Delhi office but assessee explained that cash was acquired by the assessee-firm during ordinary course of business. The assessee admitted to have earned unaccounted commission, which is found in the form of cash. The Assessing Officer considered the explanation of the assessee and accepted the cash of Rs.33,69,250/- as unexplained cash and balance Rs.1,76,985/- to be set off against the unaccounted commission income. Further, the Assessing Officer, on the basis of seized materials found during the course of search, noted that the assessee has transferred a sum of Rs.2,40,37,528/- and by working out the rate of commission @ Rs.2/- per thousand in normal course of business, estimated the unaccounted commission at Delhi branch at Rs.72,112/-, in view of evidence of 33 days found as under:-
"8.3 Therefore, in this case, evidence of 33 days were found, it would be proper to treat the undisclosed commission income for the F.Y starting from 1.4.2002 to 20.6.2002. Therefore, the estimation is taken for 81 days.
9. Unaccounted income on undisclosed turnover of Delhi Branch during the block period:-
IT(SS)A No.203-05/Ahd/05, 210-12/Ahd/05 & 233/Ahd/06 B.P. 1/4/96 to 20.6.02, 91-92 to 20.1.00 ACIT, Central Circle 3 SRT v. Patel Group Page 6 The total unaccounted turnover of the Delhi branch as contained in the loose paper of annexures, as worked out and discussed above, pertains to the 33 days sis of Rs.2,40,37,528/-. Applying the ratio of the commission @ Rs.3/- per Rs.1000/-, the total unaccounted commission for the Delhi branch comes to Rs.72,112/-".
Similarly, the Assessing Officer applying same formula for other 24 branches, estimated the assessee's income at Rs.66,12,159/-in para- 10 & 10.1 of his assessment order as under:-
"10. Undisclosed income of the assessee on the basis of income derived in delhi Branch:-
Apart from Delhi branch, the assessee is running its business from 24 branches, which is listed in the earlier para of the said order. In the business of angadia i.e. cash transfer from one branch to another branch and there are always two branches involve i.e. sender branch and receiving branch. The evidence for unaccounted transactions contained in the annexures, as sated above have been found, which shows that there is transfer of unaccounted found from various branches of the assessee firm. Therefore, it is proper to infer that such unaccounted transactions are carried out not only by Delhi branch, but all the branches of the assessee firm and the unaccounted commission is recorded outside the cash book of the branch where the commission is collected. In view of the above, the ratio of regular commission income for all the branches for period 1.4.2002 to 20.6.2002 and regular commission income of Delhi branch for the same period is applied to the other branches also.
10.1 The total recorded commission income for the period 1.4.2002 to 20.6.2002 for all the branches of the assessee firm comes to Rs.16,95,270/-
and share of Delhi branch is Rs.45,375/-. Thus, the ratio of undisclosed income of assessee vis-à-vis Delhi branch for said period comes to 37:1. It would be proper to apply the same ratio for computing the total undisclosed income of the assessee, if the undisclosed income of Delhi branch is determined. On this basis, the total undisclosed income of assessee comes to Rs.66,12,159/- (Rs.1,76,985/- x 37). Out of this, the unaccounted commission of Rs.1,76,985/- is being considered as available in cash."
Aggrieved, assessee preferred appeal before CIT(A).
4. The CIT(A) sustained the addition of Rs.1,76,985/- and deleted the balance addition by giving following finding in para-5 of his appellate order:-
"05. I have carefully considered the contentions raised by the appellant in the aforesaid para and have gone through the assessment order also. In this regard it is observed that controversy with regard to the period of unaccounted commission income of Delhi branch is futile since the Assessing Officer has worked out the above commission on the basis of seized records and evidences found during the course of search proceedings. The Assessing IT(SS)A No.203-05/Ahd/05, 210-12/Ahd/05 & 233/Ahd/06 B.P. 1/4/96 to 20.6.02, 91-92 to 20.1.00 ACIT, Central Circle 3 SRT v. Patel Group Page 7 Officer has arrived at a figure of Rs.1,76,982/- of unaccounted commission income of Delhi branch on the basis of material found during the course of search proceedings. The Assessing Officer has allowed adequate opportunity of being heard to the appellate during the course of block assessment proceedings directing therein to produce the evidence as to how the transactions recorded in the seized materials were recorded in the regular books of account. It was noted that the appellant has transferred cash outside the regular books of account on which commission has not been recorded in the regular Books of account. Such transfer of cash in total amounts to Rs.2,40,37,528/-. The appellant was also allowed adequate opportunity of being heard with regard to the rate of commission for which satisfactory explanation could not be furnished hence the Assessing Officer constrained to apply the rate of Rs 3 per Rs.1000/- and commission was computed accordingly. The Assessing Officer has discussed at length in the assessment order the evidences on the basis of which such rate was applicable. Thus the issues regarding period of earning unaccounted commission income and the percentage applicable in the turnover detected during the search proceedings are settled and the appellant has no ground or valid point against the same. The Assessing Officer's observations have been perused by me and the same are found to be in order as per facts of this case. However, looking to the nature of business carried on by the appellant and administration of Delhi branch the Assessing Officer was not justified in applying the same ratio of unaccounted commission income of Delhi branch to rest of the branches without pointing out any evidence or without bringing in record any adverse material. It is also to be appreciated that no such or survey action was carried out at such branches which would have revealed the correct position. It is also an undisputed fact that no material whatsoever was found during the course of search or past search inquiries which would enable the Assessing Officer to arrive at unaccounted commission income. The appellant's contention that many of its branches are so small which are situated in towns and villages where there can not be such voluminous transactions is to be appreciated. It is clear that no evidence has been found that the appellant firm is suppressing income at other branches. Thus, in view of the facts that the Assessing Officer has estimated the unaccounted commission income on the basis of unaccounted commission income of Delhi branch without placing on record any evidence or materials, the issue has to be clinched on the basis of dominating facts. The inference drawn by the Assessing Officer has no legal or factual backing because that formula can not be applied since the appellant has other branches. The Assessing Officer has not located any evidence of any unaccounted income in respect of 37 branches picked up for making above addition. The estimating income of other branches on the basis of findings of Delhi branch can not be approved. The total addition comprises of unaccounted commission income of Rs.1,76,985/-, therefore, addition to that extent is sustained and the remaining addition of Rs.64,35,174/- is deleted. Since the appellant has suo moto returned income of Rs.36,00,000/- on account of unexplained cash, the income of Rs.1,76,985/- sustained above will be added to the returned income".
IT(SS)A No.203-05/Ahd/05, 210-12/Ahd/05 & 233/Ahd/06 B.P. 1/4/96 to 20.6.02, 91-92 to 20.1.00 ACIT, Central Circle 3 SRT v. Patel Group Page 8 Aggrieved, against the order of CIT(A), Revenue came in appeal against deletion of addition of Rs.66,121,159/- estimated by the Assessing Officer and assessee came in appeal against sustenance of addition of Rs.1,76,985/-.
5. We have heard the rival contentions and gone through the facts and circumstances of the case. We find that the Ld. counsel for the assessee supported the order of CIT(A) that no search material was found relating to other branches evidencing that the assessee has earned any unaccounted commission income. The Ld counsel for the assessee before us stated that the block assessment can be framed on the basis of search material found as a result of search and in no other way estimated can be made relating to other branches, from where no search material was found and no search was conducted. According to Ld. DR the Assessing Officer can estimate the undisclosed income from unaccounted transaction found during the search from the Delhi branch which show that the assessee has transferred cash amounting to Rs.2,40,37,528/-. Similarly, the assessee might have earned commission from other 25 branches, where he is carrying on similar business. In view of the above facts recorded by the Assessing officer in the block assessment order, the Ld. CIT DR stated that in view of the provisions of the block assessment have a major change by the Finance Act,2002 and most of the amended provisions have been given retrospective effect w.e.f. 01.07.1995. The definition of undisclosed income has been substantially enlarged w.e.f. 01.07.1995 and it includes the expenses, deduction or allowance claimed under the Act, which is found to be false. Explanation has been added below section 158BA(2) specifying the scope of both type of assessment i.e. block assessment and regular assessment. Provisions of section 158BB(1) and section 158BC have been amended. These amended provisions were not before the CIT(A). According to him, the law has also developed a lot. He referred to the decision of the Hon,ble Gujarat High Court in the case of N.R. Paper & Board Vs DCIT (1998) 234 ITR 733 (Guj). is not frequently quoted as an authority. Decisions have come where estimation of income under block assessment has been held to be justified likewise the estimation of expenses etc. The addition made on account of unexplained cash credit recorded in the regular books of account, been held to be justified by the Hon'ble Rajasthan High Court in the case of CIT v. Ajay Kumar Sharma (2003) 259 ITR 241 (Rja) as well as the Ahmedabad Tribunal. Block assessment on the basis of post search IT(SS)A No.203-05/Ahd/05, 210-12/Ahd/05 & 233/Ahd/06 B.P. 1/4/96 to 20.6.02, 91-92 to 20.1.00 ACIT, Central Circle 3 SRT v. Patel Group Page 9 enquiry has been held to be justified by the Hon'ble Ahmedabad Tribunal N.K. Proteins Ltd. v. DCIT (2004) 83 TTJ 904 (Ahd). The Assessing Officer though not specifically applied the provisions of section 145 as were not applicable at that point of time, however, in the amended provisions, the provisions of section 145 are made effective from 01.07.1995. Therefore, while deciding the case, it should be looked into, whether the case require a second look at the level of CIT(A) or the Assessing Officer. The Ld. DR further argued that the case was to be decided by the CIT(A) keeping in mind the findings recorded in the case of N. K. Proteins Ltd. (supra), wherein the Hon'ble Tribunal has decided the issue of arrangement of bogus bills where the bills were given by name lenders. Accordingly, the Ld. DR required the Bench to upheld the block assessment order framed by the Assessing officer.
6. We find that during the course of search, carried out at Delhi branch of assessee-firm, from where the Revenue found that the assessee has earned commission income on unaccounted transaction and Assessing Officer applying the same ratio has estimated the undisclosed income for other 25 branches without any search material. Now, the question arises is, whether without any search material the Assessing Officer during block assessment proceedings can estimate undisclosed income or not? In similar circumstances Tribunal in the case of ACIT v. M/s. Patel Maganlal Shankerdas & Co. in ITT(SS)No 220/Ahd/2005 dated 28-11-2005 has considered the facts and decided the issue as under:-
"7. We have heard the rival submissions and perused the orders of the lower authorities and the material available on record. In the instant case, we find that during the course of search carried out at Delhi branch of the assessee firm, the A.O found that the material which evidenced that the assessee has made transfer of cash of Rs.5,87,34,539/- and commission income earned on this transaction was not accounted for by the assessee. Accordingly, the A.O added the commission income earned by the assessee which was estimated at Rs.2,37,874/- as undisclosed income of the assessee. The A.O further observed that the assessee must have carried out similar transactions at its other 29 branches also. He estimated that unaccounted commission income earned at other branches on the basis of unaccounted income determined for the Delhi branch thereby making addition of Rs.92,86,760/-. In appeal, the Ld. CIT(A) deleted the add made by the A.O on the ground that no search material was found evidencing that the assessee has earned unaccounted commission income for the other branches. In the above facts and circumstances of the case. We are of the considered opinion that in an assessment framed under the block assessment, addition can be made to the income of the assessee only on the basis of material found as a result of search or on the basis of inquiry made on the basis of the material found IT(SS)A No.203-05/Ahd/05, 210-12/Ahd/05 & 233/Ahd/06 B.P. 1/4/96 to 20.6.02, 91-92 to 20.1.00 ACIT, Central Circle 3 SRT v. Patel Group Page 10 during the course of search. As no material was found from other 29 branches of the assessee firm evidencing the fact that the assessment has earned unaccounted commission income from transaction not accounted for in the regularly maintained books of account of the assessee, we find no infirmity in the order of the Ld. CIT(A) in deleting the addition of unaccounted commission income of Rs.92,86,760/-. Consequently, we confirm the order of the Ld. CIT(A) and dismiss the ground of appeal of the Revenue."
7. We find from the facts of the case that the Assessing Officer has made the addition on the basis that during the course of search, certain delivery slips, notings were found which the assessee-firm could not link with the bharatias and commission income there on with the cash book and an amount of Rs.2,40,37,528/- is worked out as the amount transferred by the assessee-firm in respect of which commission is not recorded in the books of account for the period from 17-05-2002 to 20-06-2002 by Delhi branch. He estimated the commission at Rs.3/- per thousand, Rs.72,112/- on ( Rs.2,40,37,528/-/1000 x 3) for 33 days (for the period from 17-05- 2002 to 20-06-2002. Accordingly, he applied the commission per/day by 81 for the period from 01-04-2002 to 20-06-2002 at Rs.1,76,985/- and similarly he applied estimate of Delhi branch for all branches and estimated the unrecorded commission at Rs.66,12,159/-. The assessee has given working of volume of transaction from the seized paper as under:-
As per Annexure-1,2,3 Rs.1,98,61,820/- (for the period 17.5.02 to 20.6.02) Annexure-8, Page-1 Rs. 25,93,258 (for the period 01.04.02 to 08.06.02) (for the period 01.4.02 to Other as per Annexure-A-8 Rs. 15,82,450 For the period 01.04.02 to 20.06.02 Rs.2,40,37,528
The assessee contended that the transaction of Rs.2,40,37,528/- is for the period from 01-04-2002 to 20-06-2002 including the amount of page-1 Annexure-8 amounting to Rs.25,93,258/-, but the Assessing Officer ignored its period i.e. 1-4- 2002 to 8-6-2002 but it is clear from the seized paper that there is nothing on the said seized paper for the above period. Accordingly, the commission for Delhi office worked out at Rs.48,075/- and that also is to be set off against the disclosure made by the assessee at Rs.36 lakh in the block return and this position has been admitted by AO in its order at para-10.1 as under:-
IT(SS)A No.203-05/Ahd/05, 210-12/Ahd/05 & 233/Ahd/06 B.P. 1/4/96 to 20.6.02, 91-92 to 20.1.00 ACIT, Central Circle 3 SRT v. Patel Group Page 11 "10.1 The total recorded commission income for the period 1.4.2002 to 20.6.2002 for all the branches of the assessee firm comes to Rs.16,95,270/-
and share of Delhi branch is Rs.45,375/-. Thus, the ratio of undisclosed income of assessee vis-à-vis Delhi branch for said period comes to 37:1. It would be proper to apply the same ratio for computing the total undisclosed income of the assessee, if the undisclosed income of Delhi branch is determined. On this basis, the total undisclosed income of assessee comes to Rs.66,12,159/- (Rs.1,76,985/- x 37). Out of this, the unaccounted commission of Rs.1,76,985/- is being considered as available in cash."
As per the Assessing Officer, the unaccounted commission of Rs.1,76,985/- is being considered as available in cash and this finding has become final and this aspect has not been challenged before the CIT(A) but CIT(A) has wrongly sustained this addition even though this issue was not before him.
8. From the above facts, as regards to ratio of undisclosed income assessed by Assessing Officer vis-à-vis Delhi branch for the above period to 37:1, we find that the Assessing Officer has just made an estimate while computing undisclosed income for the block period. In view of the above facts recorded by the Assessing officer in the block assessment order, the Ld. CIT DR stated that in view of the provisions of the block assessment have a major change by the Finance Act,2002 and most of the amended provisions have been given retrospective effect w.e.f. 01.07.1995. The definition of undisclosed income has been substantially enlarged w.e.f. 01.07.1995 and it includes the expenses, deduction or allowance claimed under the Act, which is found to be false. Explanation has been added below section 158BA(2) specifying the scope of both type of assessment i.e. block assessment and regular assessment. Provisions of section 158BB(1) and section 158BC have been amended. These amended provisions were not before the CIT(A). According to him, the law has also developed a lot. He referred to the decision of the Hon,ble Gujrat High Court in the case of N.R. Paper & Board Vs DCIT (1998) 234 ITR 733 (Guj). is not frequently quoted as an authority. Decisions have come where estimation of income under block assessment has been held to be justified likewise the estimation of expenses etc. The addition made on account of unexplained cash credit recorded in the regular books of account, been held to be justified by the Hon'ble Rajasthan High Court in the case of CIT v. Ajay Kumar Sharma (2003) 259 ITR 241 (Rja) as well as the Ahmedabad Tribunal. Block assessment on the basis of post search enquiry has been held to be justified by the Hon'ble Ahmedabad Tribunal N.K. IT(SS)A No.203-05/Ahd/05, 210-12/Ahd/05 & 233/Ahd/06 B.P. 1/4/96 to 20.6.02, 91-92 to 20.1.00 ACIT, Central Circle 3 SRT v. Patel Group Page 12 Proteins Ltd. v. DCIT (2004) 83 TTJ 904 (Ahd). The Assessing Officer though not specifically applied the provisions of section 145 as were not applicable at that point of time, however, in the amended provisions, the provisions of section 145 are made effective from 01.07.1995. Therefore, while deciding the case, it should be looked into, whether the case require a second look at the level of CIT(A) or the Assessing Officer. The Ld. DR further argued that the case was to be decided by the CIT(A) keeping in mind the findings recorded in the case of N. K. Proteins Ltd. (supra), wherein the Hon'ble Tribunal has decided the issue of arrangement of bogus bills where the bills were given by name lenders. Accordingly, the Ld. DR required the Bench to upheld the block assessment order framed by the Assessing officer.
9. In view of these facts and discussions, the moot question arises, whether Assessing officer can estimate for the entire block period on the basis of seized documents for the limited period or not? For this, now we have to go to the provisions of the block assessment as enumerated in Chapter XIV-B of the Act. The relevant Chapter XIV B which consists, of Sec. 158B to Sec 158BH was introduced by the Finance Act 1995 w.e.f. 1-7-1995 to make procedure of assessment of cases in which search is initiated u/s 132 or where books of A/c, other documents or any assets are requisitioned u/s132A. The chapter is titled (special procedure for assessment of search cases). The scheme of block assessment enacted under this chapter laying down procedure for the block assessment proceedings is intended by the legislature to operate simultaneously with the normal and regular scheme of assessment indicate under chapter XIV of the Act. Both the tax schemes are independent of each other and they are not mutually exclusive. Block assessment under Chapter XIV B is not intended to be a substitute for regular assessment. Its scope and ambit is limited in that sense to material unearthed during search. Therefore, if the search action does not disclose undisclosed income, the question of any assessment being framed under that chapter is simply improper and outside the purview of that chapter. Clause (b) of Section 158B contains inclusive definition of undisclosed income and reads as under:-
"(b) 'Undisclosed income' includes any money, bullion, jewellery or other valuable article 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 articles, thing, entry in the books of account or other document or transaction represents wholly or partly income or property which IT(SS)A No.203-05/Ahd/05, 210-12/Ahd/05 & 233/Ahd/06 B.P. 1/4/96 to 20.6.02, 91-92 to 20.1.00 ACIT, Central Circle 3 SRT v. Patel Group Page 13 has not been or would not have been disclosed for the purposes of this Act (or any expense, deduction or allowance claimed under this Act which is found to be false)".
If we analyze the aforesaid definition, it provides that undisclosed income includes: -
(i) Any money, bullion, jewellery or other valuable article or thing or,
(ii) Any income based on any entry in the books of account or other documents or transactions;
(iii) Such money, bullion, jewellery, valuable article, thing, entry in the books of account or other documents or transactions 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 aforesaid analysis of the definition, it clearly emerges that if any asset or any income as recorded in the books or documents has been disclosed or intended to be disclosed to the income tax authorities, this would be outside the pale of undisclosed income as defined under clause (b) as above.
We may next refer to section 158BB, which provides for computation of undisclosed income of block period. The section expressly and unequivocally provides that the undisclosed income has to be computed "on the basis of evidence found as a result of search ...... and such other materials or information as are available with the assessing officer and relatable to such evidence." The expression "relatable to such evidence" has been inserted by the Finance Act, 2002 retrospectively w.e.f. 1.7.1995. A bare reading of this provision would indicate that undisclosed income has to be computed on the basis of evidence and material found during search. Any material or evidence, available to the AO, which is not related to search would not form the basis for computation of undisclosed income. On the basis of this legal provision, we are of the firm view that the income which the assessee had duly disclosed in the regular assessment and the books relating thereto not showing any unearth income and the returns and documents filed by the assessee subsequently will not entrust the jurisdiction on the assessing officer to make assessment under Chapter XIV.
10. Now we have to consider the case laws referred by both the sides. First we will deal with the case law Hon'ble Rajasthan High Court in the case of CIT v. Ajay IT(SS)A No.203-05/Ahd/05, 210-12/Ahd/05 & 233/Ahd/06 B.P. 1/4/96 to 20.6.02, 91-92 to 20.1.00 ACIT, Central Circle 3 SRT v. Patel Group Page 14 Kumar Sharma (2003) 259 ITR 240 (Raj) came to be relied on by the Ld. DR. The High Court held as under:-
"However, we are agree with Mr. Singh that merely because some entries in the books of account if shown, that does not prohibit the Assessing officer to tax that amount in the block period, if that amount has not been taxed in the regular assessment. When the cash credits are not taxed in the relevant assessment years, that can be treated as undisclosed income and can be taxed after search in the block period."
Further the Ahmedabad Tribunal in the case of N. K. Proteins Limited v. DCIT (2004) 83 TTJ 904 (Ahd) held as under:- (from head notes, para 96-99 of the judgment) "The addition in respect of unexplained deposits, in the bank accounts of various suppliers were made in the cases of NKPL and NKIL on protective basis with the observation that further inquires will be made from various branches of banks to ascertain that which other concerns have given such cheques which have been deposited in the bank accounts of these bogus suppliers. The Department did not make any serious efforts to make effective investigation or deep further probe in this regard after completion of the assessments on 30th April, 2001. Some letters were sent to the bakers in the month of March to May, 2001 and thereafter the matter was not pursued. The deposits in the bank accounts of these bogus supplies can be validly added in the hands of any of these assessees only if the Department discharges the burden of proving that these suppliers were benamidars of any one of these three assessees of N.K. Group and the Department has to further discharge the burden of proof that the deposits in these bank accounts by way of cheques were made out of funds provided by these persons or concerns of N.K. Group. Such a burden has to be discharged by the Revenue by bringing positive and clinching evidence on record. No such evidence has been brought on record by the Department to prove that the cheques of third parties deposited in the bank accounts of these suppliers were out of funds provided by any of these three assessees. In order to prove that the bank accounts in the names of these suppliers are benami accounts or that the suppliers are benamidar persons / concerns, the following tests are very vital and significant; (i) who provided the funds for deposits, (ii) who enjoyed these funds, (iii) what is ultimate destination of these funds. The Department has to prove by bringing on record definite, positive and clinching evidence on all these three aspects to support their conclusion that there these bank accounts are benami accounts and deposits in these bank accounts in the names of suppliers really belong to NKPL or NKIL or N and they were the persons who enjoyed these funds and the entire funds have directly or indirectly flown back in their favour. The degree of proof for proving the concept of benami bank accounts / benami persons is very stronger and that has to be discharged by bringing positive material on record. Such conclusion cannot be derived on the basis of mere suspicion and surmises. It may be relevant here to repeat once again that so far as purchases claimed to have been made by NKPL and NKIL from these concerns are concerned, the burden was on the assessees to prove genuineness of purchases but the same principle would not apply when the Department wants to treat the entire IT(SS)A No.203-05/Ahd/05, 210-12/Ahd/05 & 233/Ahd/06 B.P. 1/4/96 to 20.6.02, 91-92 to 20.1.00 ACIT, Central Circle 3 SRT v. Patel Group Page 15 deposits in these bank accounts in the names of various suppliers as benami deposits / benami accounts of these assessees. The names and particulars of parties who deposited the cheques in the bank account of these suppliers after the search have also not been brought on record. It was primary duty of the Department to find out as to which other parties / concerns have given these cheques which have been deposited in the bank accounts of these bogus parties. The Department has completely failed to discharge such burden, which heavily lies on them to support their conclusion that any of these three assessees were real owners of cheques of all such other concerns / third parties deposited in the bank accounts of these bogus suppliers. The Department has also not made any investigation to prove destination of the funds withdrawn by self cheques and by other cheques given to other parties. The Department has thus failed to discharge the burden of proving that the origin and destination of these funds were these assessees and none else. The CIT(A) has rightly deleted the additions - CIT(A) vs. Daulatram Rawatmal 1972 CTR (Supreme Court) 411 : (1973) 87 ITR 349 (Supreme Court)relied on Similarly, the Hon'ble Rajasthan High Court in the case of Ramjas Nawal v. CIT (2003) 183 CTR (Raj) 144, 152, 153, it has been held that where particular income shown in the name of a firm, which was found to be non-genuine, has been found to belong to the assessee and his two sons, which fact is admitted by the assessee himself during the search, addition of such income in the hands of the assessee and his two sons in equal shares was held justified notwithstanding the entries in the books of account of the said firm. The Hon'ble Bombay High Court also deliberated on the estimation in the case of CIT v. C.J. Shah & Co. (2000), 246 ITR 671, 672 (Bom), wherein, it is stated that, where material is detected after search and seizure operations are carried out, the Assessing officer is required to determine the undisclosed income. In such cases additions are generally based on estimates. In matters of estimation some amount of latitude is required to be shown to the Assessing officer particularly when relevant documents are not forthcoming. However, it dos not mean that the Assessing officer can arrive at any figure without any basis by adopting an arbitrary method of calculation. We find that as a result of amendment made (w.r.e.f. 1-7-1995) in section 158BB by the Finance Act, 2002, the provisions in Chapter VI-A should be taken into consideration in determining the undisclosed income of the block period and the Section 158BB(1) has been amended to clarify that the block assessment of undisclosed income is based on the evidence found in the search and material, or information gathered in post search inquiries made on the basis of evidence found in the search. In view of the above IT(SS)A No.203-05/Ahd/05, 210-12/Ahd/05 & 233/Ahd/06 B.P. 1/4/96 to 20.6.02, 91-92 to 20.1.00 ACIT, Central Circle 3 SRT v. Patel Group Page 16 legal position, when co-related with the facts of the present case, it is a fact that the AO found from the seized material that the period for which the seized material pertains to 17-05-2002 to 20-06-2002. The Assessing officer after analyzing the seized materials found from the assessee re-worked the inflated commission for the entire block period after applying a formula as noted above. This is not justified in view of the above legal and factual position. No doubt, the Assessing officer can make reasonable estimate on the basis of seized material relatable to the evidences and information. Accordingly, the Assessing officer at the best can estimate the inflation in commission on the basis of seized materials found during the course of search or as there is relatable material, which is found during the course of search. Even from bear reading of amendment made (w.r.e.f. 1-7-1995) in section 158BB by the Finance Act, 2002, the provisions in Chapter VI-A is very clear that, while determining the undisclosed income of the block period, the provisions of Section 158BB(1) has been amended to clarify that the block assessment of undisclosed income is based on the evidence found in the search and material, or information gathered in post search inquiries made on the basis of evidence found in the search. When co-related with the facts of the present case, it is a fact that the AO found from the seized material that there is no material which suggest any commission income earned by the assessee in other branches. Accordingly, this issue of the Revenue's appeal is dismissed and that of the assessee is allowed.
11. The next issue in this appeal of the Revenue in IT(SS)A No.211/Ahd/2005 is as regards to the order of CIT(A) deleting the addition made on account of unexplained cash found during the course of search. For this, the Revenue has raised the following ground No.2:-
"2. The C.I.T.(A) has erred in law and on facts in directing to delete the addition of Rs.33,69,215/- made on account of unexplained cash found at the time of search U/s.132 of the I.T. Act, 1961 and in further holding that the addition is clearly covered under returned undisclosed income."
12. The brief facts leading to the above issue are that during the course of search u/s.132 of the Act, carried out at Delhi Branch Office of the assessee by ADIT (Inv.), Unit-VI(2), New Delhi, cash of Rs.35,46,200/- was found, out of which cash of Rs.35 lakh was seized and various books of account and other documents were found and seized and inventoried as Annexure-A/1 to Annexure-A/8 vide panchnama dated 20- IT(SS)A No.203-05/Ahd/05, 210-12/Ahd/05 & 233/Ahd/06 B.P. 1/4/96 to 20.6.02, 91-92 to 20.1.00 ACIT, Central Circle 3 SRT v. Patel Group Page 17 06-2002. The assessee was requested vide show cause notice dated 03-02-2004 to explain how the cash found and seized is declared in the books of account. The assessee vide its reply dated 14-06-2004 stated that assessee-firm has filed its return income for the block period disclosing undisclosed income at Rs.36,00,000/- covering the unaccounted cash found and seized. Thus, the assessee admitted cash found at Rs.35,46,200/- as undisclosed income of the assessee for the block period. As regards to balance cash amounting to Rs.1 lakh found and seized from the Delhi office but assessee explained that cash was acquired by the assessee-firm during ordinary course of business. The assessee admitted to have earned unaccounted commission, which is found in the form of cash. The Assessing Officer considered the explanation of the assessee rejected the same and the cash of Rs.33,69,250/- was treated as unexplained cash and balance Rs.1,76,985/- to be set off against the unaccounted commission income. Aggrieved, assessee preferred appeal before CIT(A).
13. The CIT(A) deleted the addition of unexplained cash found during the course of search at Rs.33,69,215/- by giving following finding in para-6 of his appellate order:-
"06 The next grievance of the appellant is with regard to addition of Rs.33,69,315/- on account of unaccounted cash. The appellant submitted that the Assessing Officer was not justified in making the above addition on account of cash found during the course of search because the same is covered under the disclosure of undisclosed income of Rs.36 lakhs in the block return. The addition made by the Assessing Officer is simply double addition without appreciating the facts of this case. The addition so made is not in accordance with law as no further evidence has been found or no adverse material is placed on record. The above addition is clearly covered under the returned undisclosed income by the appellant. The Assessing Officer has nowhere made separate case or raised separate grounds for making above addition. Under these circumstances the aforesaid addition of Rs.33,69,315/- is deleted."
Aggrieved, Revenue came in appeal before the Tribunal.
14. We have heard the rival contentions and gone through the facts and circumstances of the case. We find that the assessee vide its reply dated 14-06- 2004 stated that assessee-firm has filed its return income for the block period disclosing undisclosed income at Rs.36,00,000/- covering the unaccounted cash IT(SS)A No.203-05/Ahd/05, 210-12/Ahd/05 & 233/Ahd/06 B.P. 1/4/96 to 20.6.02, 91-92 to 20.1.00 ACIT, Central Circle 3 SRT v. Patel Group Page 18 found and seized. Thus, the assessee admitted cash found at Rs.35,46,200/- as undisclosed income of the assessee for the block period. As regards to balance cash amounting to Rs.1 lakh found and seized from the Delhi office but assessee explained that cash was acquired by the assessee-firm during ordinary course of business. The assessee admitted to have earned unaccounted commission, which is found in the form of cash. It is the claim of the assessee that the undisclosed income returned in the block return by the assessee will cover the cash found and seized at Rs.35 lakh and the balance of Rs.1 lakh will also cover the disclosure. The Revenue before us could not point out that it is not the same cash, which is disclosed as undisclosed income and even the assessee has enclosed the copy of computation of undisclosed income and block return filed in Form No.2B as enclosed in the assessee's paper book. From this block return, it is clear that the assessee has disclosed the cash at Rs.35 lakh as undisclosed income and also a sum of Rs 1 lakh. Accordingly, we confirm the order of CIT(A) deleting the addition. This issue of Revenue's appeal is dismissed.
Coming to cross- appeals in IT(SS)A No.212/Ahd/2005 by Revenue and that of assessee in IT(SS)A No.205/Ahd/2005.
15. The first common issue in these cross-appeals is as regards to the order of CIT(A) restricting the addition at Rs.13,06,767/- and further directing to allow the set off of this against return of income of Rs.15 lakh. For this, Revenue has raised the following ground No.1:-
IT(SS)A No.212/Ahd/2005 "1. The CIT(A) has erred in law and don facts in restricting the addition of Rs.21,30,425/- made on account of unaccounted cash found at the time of search U/s 132 of the IT. Act. to Rs.13,06,767/- and further in directing to allow set off of the same against the returned income of Rs.15 Lac."
And assessee has raised the following addl. Ground:-
IT(SS)A No.205/Ahd/2005
1. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in upholding the addition in respect of unexplained cash of Rs.9,06,900/- when the assessee had explained that out of the said sum of Rs.9,06,900/-, Rs.3,75,500/- and Rs.5,27,400/- were received by the assessee in the course of angadia business and belonging to the various parties and it did not belong to the assessee."
IT(SS)A No.203-05/Ahd/05, 210-12/Ahd/05 & 233/Ahd/06 B.P. 1/4/96 to 20.6.02, 91-92 to 20.1.00 ACIT, Central Circle 3 SRT v. Patel Group Page 19
16. The brief facts leading to the above common issue are that the assessee-firm is carrying on the business of angadia i.e. the similar nature of business as dealt with in the above IT(SS)A No.211/Ahd/2005 and 203/Ahd/2005. A search action u/s.132 of the Act was carried out by the ADIT (Ind.) - Unit - 2, New Delhi on 20-6-2002 at Delhi branch of assessee-firm. During the course of search cash of Rs.24,95,750/- was found, out of which cash of Rs.24.50 lakh was seized and various books of account and other documents were found and seized vide panchnama dated 20-06- 2002. Further, during the course of revocation processing from one almirah on 16- 08-2002, a cash of Rs.9,27,400/- was found & seized. Along with search at Delhi branch, a consequential survey u/s 133 of the Act at various branches of the assessee-group was carried on the same date and found the cash as under:-
Mumbai Branches:- (Cash found)
st
(i) 102, A Panchratna, 1 Floor, Opera House, Mumbai Rs.2,14,300
(II) 46, 2nd Bhoiwada, Bhuleshwar Road, Mumbai Rs. 22,320
(III) Shak Market, 3rd Fofalwadi, Bhuleshwar Road, Mumbai Rs. 22,500 Surat Branches:-
(I) 3/139, Navpura, Parsi Sheri, Sura Rs.23,61,700
(II) 184, Kubernagar, Vibhag-I, Katargam Road, Surat Rs.34,500
(III) 25, Ratnasagar Building, Varachha Road, Surat Rs.5,28,870
The cash found as above, at Mumbai Branches and at Surat Branches were recorded in the books of accounts and available as cash-in-hand, accordingly the same was treated as explained and not seized. According to the Assessing Officer, in view of seized documents and books of account contains unaccounted transaction of the assessee and accordingly notice u/s 158BC of the Act was issued on 20-10- 2002 and in response to the same, assessee filed its block return on 04-03-2003 after getting extension of 45 days, declaring undisclosed income at Rs.15 lakh. Subsequently, notice u/s.143(2) of the Act was issued on 28-02-2003 requiring the assessee to explain. The assessee was requested vide show cause notice dated 10- 06-2003 to explain the source of cash found and seized at Rs.24,95,700/- and Rs.9,27,400/- on 20-06-2002 and 16-08-2002 respectively. The assessee replied vide letter dated 08-09-2003 as under:-
Cash found as per Ann-C dtd.21.06.02 24,95,700
Cash found as per Ann-C dtd.16.98.02 9,27,400
Total 34,23,100
IT(SS)A No.203-05/Ahd/05, 210-12/Ahd/05 & 233/Ahd/06 B.P. 1/4/96 to 20.6.02, 91-92 to 20.1.00 ACIT, Central Circle 3 SRT v. Patel Group Page 20 Cash found as on 21.06.2002 Cash found as per Annexure-C of panchanama 24,95,700 dtd.21.06.2002 Less: Cash belonging to five parties as per 9,14,500 Annexure-C of panchanama dtd.21.06.02 Cash balance of the firm 15,81,200 Less: Cash balance as per cash book of the firm 11,81,333 Excess cash found during search 3,99,867 Cash found as on 16.08.2002 Cash found as per Annexure-C of Panchanama 9,27,400 dtd.16.08.2002 Less: Cash belonging to ten parties as per Annexure- 9,27,400 C of Panchanama dtd.16.06.02
17. Out of the cash at Rs.24.50 lakh, the Assessing Officer has accepted the explanation of the assessee to the extent of cash availability as per the books of account at Rs.11,52,675/-, in view of genuineness of entries found in cash book. For the balance cash of Rs.13,43,025/- the assessee claimed to have been belonging to various constituents but the Assessing Officer treated it as unexplained. Out of the cash of Rs.13,43,025/-, the balance cash of Rs.9,14,500/- the assessee claimed to be belonging to the following five parties:-
(i) Shri Sanjay Kohli Rs. 4,50,000/-
(ii) Shri Pawan Kumar Sharma Rs. 80,000/-
(iii) Shri Chander Prakash Rs. 2,49,500/-
(iv) Shri Shammi Sharma Rs. 85,000/-
(v) Shri Rohit Khandelwal Rs. 50,000/-
Total Rs. 9,14,500/-
Further, the other cash seized on 16-08-2002 amounting to Rs.9,27,400/- was stated to be belonging to the following constituents:-
1. Om Prakash Rs.1,00,000/-
2 Satischandra Gupta Rs. 17,000/-
3. Shyam Uppal Rs.1,00,00/-
4. Chirag Sharma Rs.2,00,000/-
5. Chandra Kumar Rs.2,00,000/-
6. Harish Rs. 70,000/-
7. Navin Juneja Rs. 45,000/-
8. Tarun Rs. 35,000/-
9. Girish Rs.1,40,000/-
10. Bhagvandas Rs. 20,000/-
Total Rs.9,27,400 IT(SS)A No.203-05/Ahd/05, 210-12/Ahd/05 & 233/Ahd/06 B.P. 1/4/96 to 20.6.02, 91-92 to 20.1.00 ACIT, Central Circle 3 SRT v. Patel Group Page 21
18. The assessee before the Assessing Officer claimed that this cash was neither found from the possession of the assessee nor its employees but it was found & seized from the parties possession directly at the time search, when these parties entered in the business premises of the assessee and even these parties have admitted this fact during the course of responding to notices u/s.133(6) of the Act. The Assessing Officer has given a finding to that effect in respect of above parties as under:-
"[i] Sanjay Kohli - Shri Sanjay Kohli is alleged to be owner of cash of Rs.4.50 lakh by the assessee. During the course of search proceedings, when Shri Kohli was asked to explain the source of said cash on the spot, he claimed that he was working with Shri Binod Banka, C.A. and the cash in question belonged to Shri Pamod Kumar Banka. However, in response to Notice u/s.133(6) of the Act it has been now claimed that cash of Rs.4.50 lakh belongs to Shri Sajjan Kumar Khemka who is doing agricultural work in Bhagalpur. It has been further claimed that Shri Sajjan Kumar Khemka is father-in-law of Shri Binod Banka and he had come to Delhi for buying cloth to set up a shops. There seems to be contradiction in the two version of Shri Kohli, because on the spot, at the time of search, he had claimed that the cash in question belonged to Shri Pramod Kumar Banka. However, subsequently, it has been held to be belonging to his father-in-law, i.e. Shri Sajjan Kumar Khemka. Considering the change in the stand, I hold that Shri Kohli has not furnished necessary evidence to prove ownership of cash of Rs.43.50 lakh. In case of Mahendra Chimanlal Shah v. ACIT (49 TTJ 677), the money deposited in banks was surrendered during the course of search in the statement recorded u/s.132(4) of the Act. While filing the return, the deposits were not shown as income on the belief that they were not of loans but no evidence for loans was produced. Subsequently, the assessee came out with story that the bank deposits were made out of withdrawals from the same bank accounts a few months ago. In view of shifting stand taken by the assessee; the Hon'ble Ahmedabad Tribunal held that Department was justified in relying upon the statement recorded u/s.132(4) is preference to the subsequent statements. The cash of Rs.4.50 lakh is treated as unexplained cash in the hands of the assessee.
[ii] Shammi Sharma - In response to notice u/s.133(6) of the Act, Shri Sharma, vide his reply has stated that he had withdrawn cash of Rs.25,000/- from the bank account and cash of Rs.60,000/- was available out of cash balance. When Shri Sharma was asked on the spot during the course of search to explain the sources of cash of Rs.85,000/-, he informed that money in question had been received from one Shri Bchan Singh Prop of M/s. Shriman Times and his cell phone no was also furnished. However, Shri Bechan Singh informed on his cell phone number to the authorised officer that he had not given any money to Shri Shammi Sharma. Now in response to Notice u/s.133(6) of the Act, it has been alleged that the cash of Rs.85,000/- is as per the cash balance available and cash sales of Rs.13,500/- was made on the date of search itself. He has also filed X-erox copy of his cash book, wherein no cash sales have been seen during the period i.e. 1.4.2002 to IT(SS)A No.203-05/Ahd/05, 210-12/Ahd/05 & 233/Ahd/06 B.P. 1/4/96 to 20.6.02, 91-92 to 20.1.00 ACIT, Central Circle 3 SRT v. Patel Group Page 22 20.6.2002. However, cash sales of Rs.13,500/- has been shown on the date of search itself. This shows that X-erox cop of cash book furnished by Shri Shammi Sharma is not a genuine piece of evidence. In view of this fact, the explanation offered by Mr Shammi Sharma is not acceptable as there is shift in his stand at the time of search and later explanation.
[iii] Om Prakash - In response to Notice u/s.133(6) of the Act, he vide his reply dated 17.1.05 has stated that the cash of rs.1 lakh seized belongs to Amar Sai Trades and the said cash was to be given to Reynold Appliances through the assessee firm. On gong through the reply, it is seen that Shri Om Prakash has not furnished any explanation reading sources of cash, copy of bank account, extract of cash book or any other relevant documents to prove the ownership of said cash of Rs.1 lakh. Further from the documents furnished by Shri Om Prakash, it is seen that total sales of M/s. Amar Sai Traders, during the financial year 2002-03 was at Rs.7 lakh. Therefore, it is improbable that there would have been cash balance of Rs.1 lakh on the date of search. Under the circumstances, the explanation offered by said party vide letter dated 17.1.2005 is not acceptable.
[iv] Shyam Uppal - In response to notices u/s.133(6) of the Act, he vide his reply dated 19.1.2005 has stated that he has taken interest free loans from his wife and other relatives. The assessee has filed affidavits along with his above reply. On going through the details filed, it is seen that the loan taken from various persons are in cash. He has no furnished his PAN, copy of acknowledgement of return of income filed by him. If any, circle/Ward where he is being assessed to tax, etc. The explanation offered by him is not acceptable in absence of corroborating evidences.
[v] Tarun - In response to notice u/s.133(6) of the Act, he vide his reply dated 14.11.05 has stated that he has not done any transaction with M/s. Madhavlal Maganlal & Co. and denied ownership of cash of Rs.35,000/-. Thus, it is crystal clear that the assessee's claim that amount of Rs.35,000/- belongs to Shri Tarun is false and incorrect.
[vi] Girish - In response to summons u/s. 131 of the Act, he vide his reply dated Nil has stated that he as a working partner of M/s. A.P. Woollens had withdrawn from Oriental Bank of Commerce, G.T. Road, Panipat cash of Rs.90,000/- and Rs.50,000/- on 3.8.02 and 7.8.02. respectively. In support of his claim, he has filed the extract of bank statement, copy of acknowledgment along with PAN etc. The claim of Shri Girish as regards ownership of cash seems to be genuine and hence same is accepted.
[vii] Shri Chirag Sharma - In response to notice u/s.133(6) of the Act, Shri Pataram Sharma, father of Shri Chirag Sharma attended on 19.1.2005 and filed the copy of affidavit dated 24.09.2003. On 19.1.2005, statement u/s.131 of the Act was recorded of Shri Pataram Sharma. In his statement, he stated that his approximate agricultural income is Rs.2 to Rs.3 lacas. Shri Pataram Sharma, intended to purchase second hand tractor, as he had come to know that there are many tractors for sale at Surat. He came to Surat and decided to purchase one tractor from Village Olpad, Surat for an amount of Rs.2 lac. IT(SS)A No.203-05/Ahd/05, 210-12/Ahd/05 & 233/Ahd/06 B.P. 1/4/96 to 20.6.02, 91-92 to 20.1.00 ACIT, Central Circle 3 SRT v. Patel Group Page 23 Therefore, he instructed his son Shri Chirag Sharma to send an amount of Rs 2 lac from his past savings to Surat through the assessee-firm. Shri Chirag Sharma, went to the office of the assessee firm to deliver the ash of Rs.2 lac, at that time the search action was carried out by the Department and a sum of Rs.2 lacs was seized from Shri Chirag Sharma. The party is agriculturist and not assessed to tax. No books of accounts are maintained. No evidences as regards savings have been furnished. Accordingly, claim of Shri Chirag Sharma as regards ownership of cash of Rs.2 lac is not accepted.
[viii] Shri Pawankumar Sharma - In response to notice u/s.133(6) of the Act, Shri Pawankumar Sharma has claimed that the cash of Rs.80,000/- belongs to him. It has been further claimed that he had received the said cash from his friends for transfer to a friend in Kanapur who was sick. However, he has not furnished any evidence in this regard. He has no furnished his PAN or the copy of return of income for A.Y 2002-03. The name and addresses of the friends from whom cash was received have not been disclosed to the Department. Similarly, the identity of friend in Kanpur to whom the said cash was to be transferred has not been disclosed to the Department. Therefore, it is crystal clear that Shri Pawankumar Sharma has failed to explain the sources of cash of Rs.80,000/- allegedly belonging to him.
[ix] Shri Chander Prakash - Shri Chander Prakash has claimed in response to Notice u/s.133(6) of the Act that he had received a sum of Rs.2 lac from Laxmi Narayan Pen Store, Sadar Bazar and cash of Rs.50,000/- was received from M/s. Sanjay Optical, Fatepuri, Delhi. However, he has not furnished any conformation from these two parties in support of his claim. Further, it is not known whether these two concerns had cash balance of Rs.2.50 lac on the date of search or not. Considering the above facts, the submission furnished by Shri Chander Prakash, as regard the ownership of cash of Rs.2,49,500/- is not found acceptable.
[x] Shri Rohit Khandelwal - In response to Notice u/s.133(6) of the Act he has informed that he had come to Delhi for buying some electrical goods for M/s Krishna Udhyog. However, he has not explained as to how he had received cash of Rs.50,000/- from M/s Krishna Udhyog. He has not field any confirmation from M/s Krishna Udhyog. Considering the above fact, I hold that he has failed to explain the sources of cash of Rs.50,000/-.
[xi] Shri Rajesh Gupta - Shri Rajesh Gupta has claimed in response to Notice u/s.133(6) of the Act that amount of Rs.95,000/- belongs to proprietary concern (M/s. Yezdi Electricals) of his wife Smt. Renu Gupta. The amount in question is claimed to have been sent for making purchases from M/s. Amita Enterprises, Rajkot. The copy of cash book submitted shows hardly any sales inn the month of April and May 2003. However, in the month of June 2002, there are huge cash sales in round figures to inflate cash balance. In all probability, the evidence furnished by Shri Rajesh Gupta is cooked up to lend creditability to his explanation and same is therefore rejected."
19. The assessee before us as well as before lower authorities explained the manner and circumstances in which the above two cash of Rs.18,421,900/- was IT(SS)A No.203-05/Ahd/05, 210-12/Ahd/05 & 233/Ahd/06 B.P. 1/4/96 to 20.6.02, 91-92 to 20.1.00 ACIT, Central Circle 3 SRT v. Patel Group Page 24 found and seized from various constituents as above. The assessee explained that after commencement of search at assessee's premises, the Department caught hold of above said parties either at the time of their entering in the assessee's office or on finding them with cash outside assessee's office, they were taken inside the office of assessee firm. They prepared separate independent punchnamas/inventories for the cash found from them and seized the cash from each of them and also recorded their statements. It was explained by the assessee that the parties from whom cash was found were not present in the office premises of the assessee-firm at the time of commencement of search and accordingly cash of Rs.9,14,500/- on 20-06-2002 and amount of Rs.9,27,400/- on 16-08-2002 were not found in the office premise of the assessee-firm at the time of commencement of the search otherwise separate inventories would not have been prepared. The assessee stated that these persons, from whose possession cash was found, either came into office or were taken to the office by the Department from outside the office on finding them with cash after commencement of the search. As cash was found from each of the parties at different times after the commencement of search, separate inventories were prepared as and when they came or were taken into the office premise of the assessee. After making the inventories, their statements were also recorded. This is clear from inventories prepared where in it is specifically written that the cash belong to so and so person and found from those parties was neither handed over by those persons to the assessee-firm nor was accepted / received by the assessee-firm before the same was found and seized by the Department. As it was not received by he assessee-firm from those parties, no acknowledgement receipts were prepared and issued/given to them. The Department during the course of search after seizing the cash from the possession of respective parties, recorded their statements and were allowed to go. Even the Department got their identifications done by taking addresses and telephone Nos. According to the assessee, when Department caught hold of the persons, to whom cash belonged, seized cash from them, recorded their statements on oath and they were never introduced to the assessee-firm, it is not possible for assessee to file explanation regarding:-
i) Who are they, what they are doing?
ii) Whether the addresses given by them are correct or not?
iii) What is source of cash found/seized from them in their hands?
iv) Why they are not coming forward to claim the amount?
IT(SS)A No.203-05/Ahd/05, 210-12/Ahd/05 & 233/Ahd/06 B.P. 1/4/96 to 20.6.02, 91-92 to 20.1.00 ACIT, Central Circle 3 SRT v. Patel Group Page 25 During the course of assessment proceedings, some of the constituents presented themselves/filed evidences in response to letter issued u/s.133(6) of the Act accepting the ownership explaining the possession and source of the cash in their hands and this fact can be verified from the assessment records.
20. We have heard the rival contentions and gone through the facts and circumstances of the case. We find that this is a fact that these two amounts of Rs.9,14,500/- and Rs.9,27,400/- belonged to the constituents as explained by assessee. This fact has not been controverted by Revenue before us. The explanation submitted by assessee before us that after commencement of search at assessee's premises, the Department caught hold of above said parties either at the time of their entering in the assessee's office or on finding them with cash outside assessee's office, they were taken inside the office of assessee firm. Even it is a fact that punchnamas/inventories for the cash found from them and seized the cash from each of them were prepared independently by the Search Party and also recorded their statements. It is also a fact that the parties from whom cash was found were not present in the office premises of the assessee-firm at the time of commencement of search and accordingly cash of Rs.9,14,500/- on 20-06-2002 and amount of Rs.9,27,400/- on 16-08-2002 were not found in the office premise of the assessee- firm at the time of commencement of the search otherwise separate inventories would not have been prepared. We find from the explanation, which is not controverted by the Revenue even before us, that from whose possession cash was found neither came into office nor were taken to the office by the assessee from outside but the Department caught hold of these persons and taken in the office on finding them with cash after commencement of the search. As cash was found from each of the parties at different times after the commencement of search, separate inventories were prepared as and when they came or were taken into the office premise of the assessee. After making the inventories, their statements were also recorded and this is clear from inventories prepared wherein it is specifically written that the cash belong to so and so person and found from those parties and seized by the Department. As it was not received by assessee-firm from those parties, no acknowledgement receipts were prepared and issued/given to them. The Department during the course of search after seizing the cash from the possession of respective parties, recorded their statements and they were allowed to go. Even IT(SS)A No.203-05/Ahd/05, 210-12/Ahd/05 & 233/Ahd/06 B.P. 1/4/96 to 20.6.02, 91-92 to 20.1.00 ACIT, Central Circle 3 SRT v. Patel Group Page 26 the Department got their identifications done by taking addresses and telephone Nos. In view of these facts, we are of the view that this cash belongs to the Constituents and the Department, if at all, has to take any action, the same should have been taken in the hands of Constituents and not in the hands of assessee. Accordingly, we confirm the order of CIT(A) deleting the addition but as regards to additional ground raised by assessee, we are of the view that the addition cannot be sustained in respect to constituents cash but the income returned by the assessee of undisclosed income in the block return will not go below Rs.15 lakh. Accordingly, this issue of the Revenue's appeal is dismissed and that of assessee's appeal is allowed.
21. The next issue in this appeal of Revenue in IT(SS)A No.212/Ahd/2005 is as regards to the order of CIT(A) deleting the addition of Rs.19,83,315/- made by Assessing Officer on account of unaccounted cash received as per Annexure-A/2 of the seized books of account. For this, Revenue has raised the following ground No.2:-
"2. The C.I.T(A) has erred in law and on facts in directing to delete the addition of Rs.19,83,315/- made on account of unaccounted cash receipts as per Annexure A-2 of seized Books of accounts."
22. The brief facts leading to the above issue are that during the course of search Annexure-A/2 to panchnama dated 20-06-2002 were found and seized, which contains incriminating documents and books of accounts. The Assessing Officer required the assessee to explain page No.18-20 of Annexure-A/2 and according to him it works out unaccounted cash receipts of Rs.19,83,315/- as undisclosed income of the assessee. The relevant page-18-20 read as under:-
" "Jai matadi"
11/6 pay 21/6
84.81}
83.28} x 6.50 =30,723=00
307=00
------- ------------
168.09 31,030=00
-------- -------------
85.86
102.72 x 10600 =5,62,102=00
188.58
--------- 5,93,132=00 Total
Less Payment 2,93,132=00 Pay on 20/6
IT(SS)A No.203-05/Ahd/05, 210-12/Ahd/05 & 233/Ahd/06 B.P. 1/4/96 to 20.6.02, 91-92 to 20.1.00 ACIT, Central Circle 3 SRT v. Patel Group Page 27
----------------
3,00,000=00 Balance Page no.19:
83917/-= 420263 on 3/6 12 Adv
73738/- 418908 5/6 due
170000 2487
4095 2892
174095 5379
173738 1284
357 4095
----- -----
Page no.20:
Shubham 24 / 484
N 2,93,000"
The assessee explained that these papers do not belong to it and these are dump documents as it does not contain any name, date or any specification whether these relate to advances, giving of loans or any other document. According to assessee, as it is in the business of angaria services, it might have been paper belonging to some one else. According to it, the notings do not show the name of the person who has to receive, who has to pay the amount and the pages neither bear name nor signature and therefore third presumption that signature and every other part of such books of account and other documents which purport to be handwriting of any particular person on which may reasonably assumed to have been signed by or to be in the handwriting of any particular person are in that person's handwriting do not apply. The Assessing Officer has not believed the explanation of the assessee and rejected the claim of the assessee in view of the fact that even during special audit carried out u/s142(2A) of the Act in the instant case, no records were produced for verification of these seized documents. Accordingly, the AO assessed this amount of Rs.19,83,315/- as undisclosed income of the assessee for the block period. Aggrieved, assessee preferred appeal before CIT(A) and CIT(A) deleted the addition by giving following findings at page-16 of his appellate order:-
"I have carefully perused the contentions raised by the appellant and have also gone through the judicial pronouncements relied upon. The ratio of judgments given against each case is apparently applicable to the facts of this case. The seized paper does not bear the name of the appellant nor it is in the handwriting of any of the partners. The seized paper does not bear any date or year or reference to the appellant on the basis of which inference can be IT(SS)A No.203-05/Ahd/05, 210-12/Ahd/05 & 233/Ahd/06 B.P. 1/4/96 to 20.6.02, 91-92 to 20.1.00 ACIT, Central Circle 3 SRT v. Patel Group Page 28 drawn as to make addition in the hands of the appellant. The paper is merely a dumb paper where joltings are made by someone and as explained by the appellant someone might have left such paper in the shop premises out of fear or confusion. The Assessing Officer has not appreciated complete facts of this case. The addition has been made in a mechanical manner i.e. totaling up the figures whatever are available on the seized paper. Thus looking to the facts of this case, explanation given by the appellant and judicial pronouncements relied upon. I am of the view that the addition of Rs.19,83,315/- is uncalled for hence the same is deleted.
Aggrieved, Revenue came in appeal before us.
23. We have heard the rival contentions and gone through the facts and circumstances of the case. We find that these pages do not relate to advances or giving of loans and do not relates to assessee's or its business i.e. angadia i.e. couriers. During the course of search, not a single evidence was found that the assessee-firm is carrying on any other business other than angadia i.e. courier business. We find that the employees of the assessee-firm look after Delhi branch and no partner is looking after day-to-day business of the Delhi branch and none of its employee can either read or write English and therefore question of pages belonging to the assessee-firm is a remote possibility. The noting do not show the name of the person who has to receive who has to pay the amount and moreover these pages neither bear name nor signature. Therefore third presumption is that every part of such books of account and other documents which purport to be handwriting of any particular person on which may reasonably assumed to have been signed by or to be in the handwriting of any particular person are in that person's handwriting do not apply. This issue has been dealt with in the case of Satnam Singh Chhabra v. DCIT (2002) 74 TTJ 976 (Luc) by ITAT Lucknow Bench, wherein it is held that, "loose paper found during the search of the assessee's premises on the letter pad of a third party with some noting in unidentified handwriting had no evidentiary value and no addition could be made on the wale basis of said paper as the contents of the documents could not be linked or correlated with the assessee". Accordingly, we are of the view that these pages 18- 20 of Annexure-A/2 are not related to assessee and no assessment on the basis of these documents can be made in the hands of the assessee of undisclosed income. This issue of the Revenue's appeal is dismissed.
IT(SS)A No.203-05/Ahd/05, 210-12/Ahd/05 & 233/Ahd/06 B.P. 1/4/96 to 20.6.02, 91-92 to 20.1.00 ACIT, Central Circle 3 SRT v. Patel Group Page 29
24. The next common issue in these cross-appeals is as regards to the order of CIT(A) restricting the addition at Rs.2.52 lakh as against the addition made by Assessing Officer at Rs.6,79,834/- on account of unexplained investment of silver ornaments. For this, Revenue has raised the following ground No.3:-
IT(SS)A No.212/Ahd/2005 (Revenue's appeal) "3. The CIT(A) has erred in law and on the facts ins restricting the addition of Rs.6,79,834/- made on account of unexplained investment in silver ornaments to Rs.2,52,000/-."
And assessee has raised the following ground No.2 & 3:-
IT(SS)A No.205/Ahd/2005 (assessee's appeal) "2(A) In the facts & circumstances of the case, the learned Commissioner of Income-tax (Appeals)-II, Ahmedabad erred in confirming the addition of Rs.2,52,000/= of silver ornaments belonging to various constituents.
2(B) In the facts & circumstances of the case, the learned Commissioner of Income-tax (Appeals)-II, Ahmedabad should have deleted the addition of Rs.2,52,000/= as the silver ornaments were received and in possession of the appellant firm in ordinary course of the Angadia business as courier.
3. Without prejudice to the above, in the facts & circumstances of the case, the learned Commissioner of Income-tax (Appeals)-II, Ahmedabad erred in directing the assessing officer to add Rs.2,52,000/= in respect of jewellery to returned undisclosed income of the appellant firm in view of the fact that the said amount is already covered by the undisclosed income of Rs.15 lacs declared by the appellant firm in the return for the block period."
25. The brief facts leading to the above common issue are that during the course of revocation proceedings of search on 16-08-2002 silver ornaments valued at Rs.6,97,832/- was found and seized. During the course of search, the assessee could not explain the acquisition of silver ornaments. During the course of assessment proceedings the assessee contended that these belong to various constituents and these silver ornaments are accounted for. The assessee replied vide letter dated 08-09-2003 and 16-03-2003 as under:-
"Reply dt. 8.9.2003 :- All the silver /utensils found during the course of search in different packets/parcels belongs to various constituents as per the list enclosed herewith, received during ordinary course of angadia business for transferring the same from one station to another as per the instruction of the constituents.
Reply dt. 16.10.2003: Regarding seized jewellery/silver utensils belonging to different constituents their confirmations in the form of affidavits, IT(SS)A No.203-05/Ahd/05, 210-12/Ahd/05 & 233/Ahd/06 B.P. 1/4/96 to 20.6.02, 91-92 to 20.1.00 ACIT, Central Circle 3 SRT v. Patel Group Page 30 acknowledgement receipts of return of income copy of purchase bills-stock statements [where applicable] & receipt issued by the assessee firm are enclosed herewith."
The assessee filed the affidavits and sale bills of silver ornaments sold to respective parties by the constituents namely Shri Dineshchanda A Adesara, Jayantilal G Tudia, Vinod K Akbari, Sanjay D Kapadia, Amritlal Liladhar & Sons, Umesh Jivanlal Dhamecha, Jadavbhai R Akbari and Hirachand N Shah. But the Assessing Officer simply rejected the application of the assessee by stating that no evidence has been produced by the assessee for seized silver ornaments at Rs.6,79,834/- and its ownership. Aggrieved, assessee preferred appeal before CIT(A) and CIT(A) partly confirmed the addition and partly deleted the addition at page-19 of his appellate order:-
"I have perused the evidences raised by the appellant and noticed the facts in each case. The aforesaid explanation is self explanatory hence further comments are not required. Confirmation in respect of parties at No.1 to 4 (Dineshchandra Amrutlal), No.7 (Akbari Vinod Kanjibhai), No.9 (Smt. Amrutlal Liladhar & Son), No.10 (Umeshkumar Jivanlal) No.11, 12 (Savjibhai R Akbari) and No.13, 14 (Adinath Jewellers). The total value of the utensils and ornaments explained in the above heads comes to Rs.4,27,835/= (Rs.156358 + Rs37580/- + Rs.24242 + Rs.24000 + 109605 +Rs.76050). Looking to the nature of business of the appellant and explanation with supporting evidence furnished by the appellant during the curse of assessment proceedings, the above amount is no required to be added back to the income of the appellant. Thus out of total addition of Rs.6,79,834/- an addition of Rs.4,27,835/- as discussed above is deleted. However, remaining amount of jewellery which could not be explained at all by the appellant during the course of assessment proceedings amounting to Rs.2,51,999/- (Rs.1,97,965/- + Rs.15,912/- + Rs.38,122/-) is treated as unexplained and added to the returned undisclosed income of the appellant. The addition is rounded off to Rs.2,52,000/-"
26. We have heard the rival contentions and gone through the facts and circumstances of the case. We find that the CIT(A) has accepted the explanation in respect of Dineshchandra A Adesara, Vinod K Akbari, Amritlal Liladhar & Sons, Umeshkumar Jivallal Dhamecha, Savjibhai R Akbari and Adinath Jewellers and for rest of others the CIT(A) in the absence of any evidence has confirmed the addition. Accordingly, we find no infirmity in the order of CIT(A) and we confirm the same. This common issue of both the appeals is dismissed.
IT(SS)A No.203-05/Ahd/05, 210-12/Ahd/05 & 233/Ahd/06 B.P. 1/4/96 to 20.6.02, 91-92 to 20.1.00 ACIT, Central Circle 3 SRT v. Patel Group Page 31
27. The next issue in this appeal of Revenue in IT(SS)A No.212/Ahd/2005 is as regards the order of CIT(A) deleting the addition of unexplained cash of Rs.10,000/-. For this, Revenue has raised the following ground No.4:-
"4. The CIT(A) has erred in law and on the facts in directing to delete the addition of Rs.10,000/- made on account of unexplained expenditure in respect of payment made to M/s. R.J. Exports."
28. The brief facts leading to the above issue are that during the course of search, a document in the shape of receipt of payment of Rs.10,000/- to M/s R.J Exports was found at page No.25 & 26 of Annexure-A/2 dated 20-06-2002. The assessee explained that this amount of Rs.10,000/- being damages paid to M/s R.J. Exports not debited in the regular books of account. According to Assessing Officer, the assessee itself has admitted that this expenditure is unaccounted and accordingly held the same as undisclosed income of the block period. The CIT(A) deleted the addition by giving following finding at page-20 of his appellate order:-
"07.The fourth ground of appeal relates to an addition of Rs.10,000/- in respect of seized papers. Some loose papers as per Annexure A-2 Page No.25 & 26 were found and seized during the course of search. During the course of assessment proceedings in response to show cause notice as to why the payments as per receipt No.24949 by the appellant should not be treated as its unaccounted expenditure. In this regard the appellant firm submitted vide reply dated 18.02.2005 that the amount of Rs.10,000/- being damages paid to R.J. Exports not debited in the regular books of account due to accounting mistake and therefore same was not debited in the Books of account. The appellant stated that the said unaccounted expenses are covered under the disclosure, hence, no separate addition is required to be made. The argument raised by the appellant has considerable force and the amount is backed by the disclosure of undisclosed income, hence, the above addition is deleted."
29. We have heard the rival contentions and gone through the facts and circumstances of the case. We find that the CIT(A) has deleted the addition on one premise that this expenditure is covered by disclosure made by the assessee. We find that the assessee has made disclosure of Rs15 lakh and this expenditure of Rs.10,000/- is explained to be covered by this disclosure and this will be within the disclosed amount. Accordingly, we find no infirmity in the order of CIT(A) and we confirm the same. This issue of Revenue's appeal is dismissed. IT(SS)A No.203-05/Ahd/05, 210-12/Ahd/05 & 233/Ahd/06 B.P. 1/4/96 to 20.6.02, 91-92 to 20.1.00 ACIT, Central Circle 3 SRT v. Patel Group Page 32
30. The next issue in assessee's appeal IT(SS) A No.205/Ahd/2005 is as regards to the order of CIT(A) confirming the addition of Rs.1.40 lakh. For this, assessee has raised the following ground No.1:-
"1. In the facts & circumstances of the case, the learned Commissioner of Income-tax (Appeals)-II, Ahmedabad erred in directing to assessing officer to add Rs.1,40,000/= belonging Gautam, in spite of the fact that the same has been accepted by the assessing officer in assessment, without any reason."
31. The brief facts are that Assessing Officer during the course of assessment proceedings accepted the cash of Rs.1.40 lakh is belonging to Shri Girish by giving following finding in block assessment order:-
"[vi] Girish - In response to summons u/s 131 of the Act, he vide his reply dated Nil has stated that he as a working partner of M/s.A.P. Woollens had withdrawn from Oriental Bank of Commerce, G.T .Road. Panipat cash of Rs.90,000/- and Rs.50,000/- on 3.8.02 & 7.8.02 respectively. In support of his claim, he has filed the extract of bank statement, copy of acknowledgement along with PAN etc. The claim of Shri Girish as records ownership of cash seems to be genuine and hence same is accepted."
32. We have heard the rival contentions and gone through the facts of the case. We find that CIT(A) has confirmed this cash belonging to Shri Girish as unexplained, even though before him this was not the issue. Accordingly, we delete the addition and allow the appeal of assessee.
Now coming to Revenue's appeal in IT(SS)A No.233/Ahd/2006.
33. The first issue in this appeal of Revenue is as regards to the order of CIT(A) in deleting the addition made by Assessing Officer on account of estimate of income after invoking the provisions of Section 145 of the Act. For this, Revenue has raised the following three effective grounds:-
"1. The CIT(A) has erred in law and on fact in directing to delete the 1addition of Rs.14,75,07,176/- made on account of estimated income of the assessee which was made after invoking provisions of Section 145 of the Act.
2. The CIT(A) has erred in law and on facts in holding that in absence of any evidence the A.O was not justified in applying the ratio, which was applied to workout the unrecorded income of Delhi Branch, for working out the unrecorded income of remaining branches when he had accepted the estimation of unrecorded income and modus operandi of the assessee.
IT(SS)A No.203-05/Ahd/05, 210-12/Ahd/05 & 233/Ahd/06 B.P. 1/4/96 to 20.6.02, 91-92 to 20.1.00 ACIT, Central Circle 3 SRT v. Patel Group Page 33
3. The CIT(A) ought to have upheld the additions, which were made after rejecting books of accounts, and that provisions of Section 145 can also be invoked in block assessment."
34. The brief facts leading to the above issue are that the original block assessment for the block period 1-4-1991 to 20-11-2000 was completed vide block assessment order dated 29-11-2002 determining undisclosed income at Rs.23,69,26,020/-. This block assessment was subject to challenge before CIT(A) who vide order No. CIT(A)-II/CC.2/03/2000-01 dated 21-03-2003 allowed relief at Rs.11,62,39,540/- and sustained the balance addition. Against this order of CIT(A) the Department preferred appeal before Tribunal and Tribunal "C" Bench of Ahmedabad vide order in IT(SS)A No.227/Ahd/2003 dated 12-08-2004 set aside the order of CIT(A) and restored the matter back to the file of Assessing Officer for giving opportunity for examination and cross-examination as well as providing material to the assessee. And now, the Revenue aggrieved against the order of CIT(A), against the impugned order, is in present appeal. A search was conducted by Narcotic Control Bureau, Delhi Zonal Unit, R.K. Puram, New Delhi on 05-07-2000 on branch office of assessee-firm at M/s. Soma Maganlal Patel, 320 Kucha Ghasiram, Chadni Chowk, Delhi from where certain documents along with cash of Rs.9.30 lakh were taken into possession. Narcotic Control Bureau (NCB for short) sent information to the DIT (Inv.), who in turn issued authorization u/s.132 of the Act dated 15-11-2000 and requisitioned cash amounting to Rs.9.30 lakh as well as books of account and other documents seized by NCB. Subsequently, a notice u/s 158 BC of the Act was issued on assessee-firm dated on 05-03-2001 and it filed its block return on 23-04- 2001 declaring undisclosed income at Nil. Notice u/s 143(2) was issued on 08-01- 2002. The assessee-firm the is carrying on the business of Angadia i.e. courier/carting agent which collects the posts, parcels, packets, valuables like cash, bullions, diamond etc. from constituents at its various branches in Gujarat, Mumbai and Delhi and deliver the same as per the instruction of the sender at Branches at relevant stations. The assessee-firm receives service charges/commission for rendering service to the constituents for transferring post, parcels, insured covers, cash, valuables etc. from one station to other, as per the instruction of the constituents. As the assessee-firm works as a courier/transport agent, very much akin to postal services, whatever cash, valuables it receives during the course of its business, remains in its possession as courier/Bailey and it does not become the IT(SS)A No.203-05/Ahd/05, 210-12/Ahd/05 & 233/Ahd/06 B.P. 1/4/96 to 20.6.02, 91-92 to 20.1.00 ACIT, Central Circle 3 SRT v. Patel Group Page 34 owner, ownership of the articles remains with senders/receivers. The assessee has following 19 branches:-
1 Surat Ratnasagar, Ground floor Varachha Road, Surat 2 Surat 1087, Adarsh Market, 1st Floor, Ring Road, 3 Mumbai 211/A, Panchratna, 2nd Floor, Operat House 4 Mumbai 132/A, Bhagatwadi, Gr. Floor, Bhuleshwar 5 Malad 106,Shukra Buildings, 1st Floor, Gaushala (E)
6. Bhivandi 201/A, 2nd, E-2, Gopal Nagar 7 Navsari Lokandwala Bldg. 1st Floor, Sattapir 8 Delhi 320, Kucha Ghashiram Gr. Floor, Chandi Chowk 9 Ahmedabad 104, Knak Chambers, 1st Floor, Gandhi Chowk 10 Ahmedabad Lodhewala Chamber, 1st Floor, Reid Road 11 Ahmedabad Diamond Market, 1st Floor, Bapunagar 12 Indore Venus Tower, Ground Floor, 168 Jail Road 13 Bhavnagar Silver Market, 1st Floor, Vohra Bazar 14 Mehsana Jaishree Market, 1st Floor 15 Unjha High School Building, 1st Floor, Shop No.18, St. Rd. 16 Patan Anupam Building, 1st Floor, Amir Road 17 Vishnagar 1st Govind Chakla, Station Road 18 Palanpur E-101, Panchratna 1st Floor, Amir Road 19 Disa Room No.45, 1st Floor, Nr. Govt. Hospital
35. The Assessing Officer during the course of block assessment proceedings in view of the seized papers Annexure-A/49, which pertain transactions relating to Delhi branch for the month of June'00, noted that the amount received and sent by Delhi branch. In view of these papers, which are under:-
Date Recd. By Delhi Sent by Delhi
1/6/2000 2780 5377
2/6/2000 1500 10661
3/6/2000 2782 46232
5/6/2000 7255 3246
6/6/2000 6778 4482
8/6/2000 2427 4004
IT(SS)A No.203-05/Ahd/05, 210-12/Ahd/05 & 233/Ahd/06 B.P. 1/4/96 to 20.6.02, 91-92 to 20.1.00 ACIT, Central Circle 3 SRT v. Patel Group Page 35 7/6/2000 1584 2945 9/6/2000 5154 2823 10/6/2000 3636 3390 12/6/2000 1593 6029 13/6/2000 2038 3464 14/6/2000 13836 3722 15/6/2000 1198 3920 16/6/2000 2064 3755 17/6/2000 1028 6229 19/6/2000 3845 5080 20/6/2000 13370 5372 21/6/2000 3000 4800 22/6/2000 1537 3726 23/6/2000 606 1540 24/6/2000 3249 3487 26/6/2000 17822 6861 27/6/2000 2081 8624 28/6/2000 167153 3465 29/6/2000 4993 4580 30/6/2000 1345 4596 Total 124216 121809 The Assessing Officer further noted that in seized materials three 000 are already omitted as mentioned in Annexure-A/49 in view of the statement of Shri Jaswantbhai recorded during NCB search on 05-07-2000. Therefore, according to AO, the total incoming and outgoing from Delhi branch for the month of Jun'00 was Rs.24,60,25,000/- consisting of incoming of Rs.12,42,16,000/- and outgoing of Rs.12,18,09,000/-. The AO also noticed that the assessee is charging commission ranging from 1 to 6 per 'thousand' on the transfer of money, which has been admitted by Shri Jaswantbhai during his statement before NCB on 07-07-2000. The AO after rejecting the book results for the entire block period u/s.145 of the Act estimated the unaccounted income for the Delhi branch for seven months and twenty days i.e. from 01-04-2000 to 20-11-2000 applying the formula in the ratio of 7: 67. IT(SS)A No.203-05/Ahd/05, 210-12/Ahd/05 & 233/Ahd/06 B.P. 1/4/96 to 20.6.02, 91-92 to 20.1.00 ACIT, Central Circle 3 SRT v. Patel Group Page 36 The AO also noted that the assessee itself has declared Rs.41 lakh on 16-08-2000 for the financial year 2000-01. Accordingly, the AO in view of seized loose papers as Annexure-A/49 estimated the unaccounted turnover of assessee at Rs.23,95,53,000/- and total unaccounted outgoing Rs.12,13,42,000/- and the unaccounted incoming of Rs.11,82,11,000/- in Delhi branch and average period of estimation as discussed above of 7.67 months is applied to the above unaccounted turnover. The total turnover of Delhi branch comes to Rs.183,73,71,510/- ( 7.67 x Rs.23,95,53,000/-). If the commission @ 2/- per thousand is applied the total unaccounted commission for Delhi branch for the block period comes to Rs.37,73,640/-. The AO in view of the above facts, estimated the undisclosed income of assessee at Rs.15,20,24,118/- by estimating the same as commission receipt for all branches by relying the papers found for Delhi branch by giving following finding in para-9.8 of his block assessment order:-
"9.8 The total receipt of the assessee for F.Y 2000-01 of all the branches comes to Rs.50,22,402/-. The assessee has sated that out of this receipt of Rs.50,22,402/-, Rs.32,44,019/- are related to commission earned on cash transaction during the year and Rs.17,8,383/- are related to parcel. As no evidence relating to unaccounted commission on parcel was found. While working out the ratio, only commission earned on cash transferred of Rs.32,44,019/- should be considered. Therefore, the facts are accepted and the ratio is worked out on commission of Rs.32,44,019/-. The cash commission for all braches is Rs.32,44,019/- and Delhi share of such surplus is Rs.76,412/- as per P & L A/c. field with the return of income for A.Y 2001-
02. Thus the total ratio of total cash commission income of Delhi branch ratio comes to 31: 1. Accordingly, it would be proper to apply the same ratio is applied while computing the unaccounted income of the as. If the above ratio of 41:1 is applied the total undisclosed income of the assessee comes to Rs.15,20,24,118/- [3244019 x 41].
The Assessing Officer out of this undisclosed income allowed the amount declared by assessee in the regular return at Rs.45,16,942/- and computed undisclosed income at Rs.14,75,00,796/-. Aggrieved, assessee preferred appeal before CIT(A).
36. The CIT(A) deleted the addition by giving finding in para-8 of his appellate order.
"8. The appellant has filed paper book containing 236 pages. I have considered the assessment order, the submission of the appellant and the paper book submitted by the appellant. On consideration of the entire facts it is noticed that the income assessed by the Assessing Officer is based on seized material contained in Annexure-A-49 wherein unaccounted IT(SS)A No.203-05/Ahd/05, 210-12/Ahd/05 & 233/Ahd/06 B.P. 1/4/96 to 20.6.02, 91-92 to 20.1.00 ACIT, Central Circle 3 SRT v. Patel Group Page 37 commissions income for the transfer of unaccounted cash is worked out at Rs.4,16,942/-. The annexure-A-49 is containing the details of transfer of cash from Delhi branch to different other branches and from different branches to Delhi Branch. It is an accepted fact that the transfers as per Annexure-A-49 are unrecorded transfers. The period covered by this annexure is June, 2000. There is no other seized material referred to regarding transfer in similar way for other period. There is no other seized material or any evidence to show that there where similar cash transfers between other branches interesse. Considering the provisions of section 1598B(b) and 158BA(3), I appreciate the arguments of the appellant that the income for the block period is to be considered based don the documents and evidence found as a result of search. As the seized documents relate to cash transfer by Delhi Branch for the month of June, 2000 based on same seized material the Assessing Officer has applied the analogy that similar transfers are carried out in the entire broken period. In view of this position I hold that the Assessing Officer was justified in estimating the unrecorded income for the entire broken period based on the seized material annexure-A-49. However, having regard to the nature of business of the appellant and the fact that the material was found only in respect of the Delhi Branch. I am of the opinion that there was no justification for the Assessing Officer in applying the same ratio for working out the unaccounted commission income of the remaining branches, without any evidence on record that there were similar transfers at the other branches. No search or survey was carried out at other branches and no material was available on record to establishes that similar transfers were carried out at other branches. The department has also not carried out any such requires which would support to arrive at the conclusion that unaccounted income for similar transaction is earned by other branches. In the circumstances, it cannot be said that the appellant earned unaccounted commission income for similar transactions at other branches.
The Assessing Officer was therefore not justified in applying the ratio of unaccounted commission income of Delhi branches to the commission income for other branches. A similar situation had arisen in the case of M/s. Patel Bhagvandas & Co. who were also doing Angadia business. In the appellate order dated 18.05.2006 their case passed by the CIT(A)., Ahmedabad while dealing with similar situation observed as under:-
'However, looking to the nature of business carried on by the appellant and administration of Delhi Branch the Assessing Officer was not justified in applying the same ratio of unaccounted commission income of Delhi branch to rest of the branches without pointing out any evidence or without bringing on record any adverse material. It is also to be appreciated that no search or survey action was carried out at such branches which would have reveled the correct position. It is also undisputed fact that no material whatsoever was fund during the course of search or past search inquiries which would enable the Assessing Officer to arrive at unaccounted commission income. The appellant's contention that many of its branches are so small which are situated in towns and villages where there cannot be such voluminous transactions is to be appreciated. It is clear that no evidence has been IT(SS)A No.203-05/Ahd/05, 210-12/Ahd/05 & 233/Ahd/06 B.P. 1/4/96 to 20.6.02, 91-92 to 20.1.00 ACIT, Central Circle 3 SRT v. Patel Group Page 38 found that the appellant firm is suppressing income at other branches. Thus, in view of the facts that the Assessing Officer has estimated the unaccounted commission income on the basis of unaccounted commission income of Delhi branch without placing on record any evidence or materials, the issue has to be clinched on the basis of dominating facts. The inference drawn by the Assessing Officer has no legal or factual backing because that formula cannot be applied since the appellant has other branches. The Assessing Officer has not located any evidence of any unaccounted income in respect of 37 branches picked up for making above addition. Thus, estimating income of other branches on the basis of finding of Delhi branch cannot be approved. The total addition comprises of unaccounted commission income of Rrs.1,76,985/-, therefore, addition to that extent is sustained and the remaining addition of rs.6435,174/- is deleted. Since the appellant has suo moto returned income of Rs.36,00,000/- on account of unexplained cash, the income of Rs.1,76,985/- sustained above will be added to the returned income."
The findings given by me are thus supported by the decisions of my predecessors in a similar situation. Accordingly, I hold that the Assessing Officer was not justified in estimating the income of the other branches by applying ratio of unaccounted income of the Delhi Branch. In view of the above position, the estimate of income of Delhi branches made by the Assessing Officer only is sustained which is Rs.37,73,640/-. However, the appellant itself has disclosed income of Rs.45,16,942/- as discussed in para 9.9 of the assessment order. Accordingly, the income estimate by the Assessing Officer is covered by the income so accounted for by the appellant. Considering these fact, the amount declared by the appellant has to be adjusted against the income worked out by the Assessing Officer. The unaccounted income for the lock period would be Rs. Nil. The resultant estimated income at Rs.14,75,07,176/- ( Rs.15,20,24,118 - Rs.45,16,942/-) is accordingly deleted."
Aggrieved, against deletion of this addition, Revenue came in appeal before the Tribunal.
37. Before us the Ld. CIT-DR stated that the facts are exactly identical in the present case what was before us in IT(SS)A No.211/Ahd/2005 of Revenue's appeal, wherein we have decided this issue in para-2-10 of this order. Ld counsel for the assessee fairly stated that this issue is exactly same and facts are exactly identical. On identical facts the lower authorities have made addition by applying a formula.
38. After going through the facts of the present case and facts in IT(SS)A No.211/Ahd/2005 of the Revenue's appeal, we find that the issue is squarely IT(SS)A No.203-05/Ahd/05, 210-12/Ahd/05 & 233/Ahd/06 B.P. 1/4/96 to 20.6.02, 91-92 to 20.1.00 ACIT, Central Circle 3 SRT v. Patel Group Page 39 covered in favour of the assessee and against the Revenue. Following the same, we dismiss this issue of the Revenue's appeal.
39. The next issue in this appeal of Revenue is as regards to deleting the levy of surcharge in the block assessment. For this, Revenue has raised the following ground No.4:-
"4. The CIT(A) has erred in law and on facts in directing to delete the surcharge levied u/s.113 of the Act of Rs.1,93,86,248/- holding that surcharge was leviable only in respect of search carried out after 01.06.2002."
40. At the outset, Ld. CIT-DR stated that this issue is covered in favour of Revenue and against the assessee by the decision of Hon'ble Supreme Court in the case of CIT v. Suresh N Gupta (2008) 297 ITR 322 (SC), wherein it is held that once Section 158BB is to be read with Section 4 then the relevant Finance Act of the concerned year would automatically stand attracted to the computation under Chapter-XIV-B Section 158BB looks to Section 113. The provision was inserted in Section 113 to indicate that the Finance Act of the year in which the search was initiated would apply. The provision was only clarificatory in nature. There is no question of retrospective effect. The proviso has to be read as it stands Prior to June, 1,2002, in several cases, tax was prescribed sometimes in the Income-tax Act and sometimes in the Finance Act and sometimes in both. This made liability uncertain. Therefore, clarification was needed. The proviso is curative in nature. The proviso only clarifies that out of the four dates, Parliament has opted the date, namely, the year in which the search under Section 158BC is initiated, which date would be relevant for applicability of a particular Finance Act. Ld. counsel for the assessee also conceded the position. As the issue is squarely covered in favour of the Revenue and against the assessee, we allow this issue of the Revenue's appeal.
Coming to cross-appeals in IT(SS)A No.204/Ahd/2005 by assessee and that of Revenue's in IT(SS)A No.210/Ahd/2005.
41. The first common issue in these cross-appeals is as regards to the order of CIT(A) restricting the addition of unaccounted cash found at the time of search amounting to Rs.10 lakh as against the addition made by Assessing Officer at Rs.40,28,450/-. For this, assessee has raised the following ground No.1(A) & 1(B):-
IT(SS)A No.204/Ahd/2005 (for assessee) IT(SS)A No.203-05/Ahd/05, 210-12/Ahd/05 & 233/Ahd/06 B.P. 1/4/96 to 20.6.02, 91-92 to 20.1.00 ACIT, Central Circle 3 SRT v. Patel Group Page 40 "1(A) In the facts & circumstances of the case, the learned Commissioner of Income-tax (Appeals)-II, Ahmedabad erred in confirming the addition of Rs.10 lacs and should have accepted the same as received by Delhi branch from partner Shri Chinubhai Mohanlal Patel.
1(B) In the facts & circumstances of the case, the learned Commissioner of Income-tax (Appeals)-II, Ahmedabad should have deleted the addition of Rs.10 lacs."
And Revenue has raised the following ground No.1:-
IT(SS)A No.210/Ahd/2005 (for Revenue) "1. The CIT(A) has erred in law and on facts in restricting the addition of Rs.40,28,450/- made on account of unaccounted cash found at the time of search u/s.132 of the Act to Rs.10,00,000/-."
42. The brief facts are that the assessee-firm is carrying on the business of Angadia i.e. courier/carting agent which collects the posts, parcels, packets, valuables like cash, bullions, diamond etc. from constituents at its various branches in Gujarat, Mumbai and Delhi and deliver the same as per the instruction of the sender at Branches at relevant stations. The assessee-firm receives service charges/commission for rendering service to the constituents for transferring post, parcels, insured covers, cash, valuables etc. from one station to other, as per the instruction of the constituents. As the assessee-firm works as a courier/transport agent, very much akin to postal services, whatever cash, valuables it receives during the course of its business, remains in its possession as courier/Bailey and it does not become the owner, ownership of the articles remains with senders/receivers. A search u/s.132 of the Act was carried out at Delhi Branch Office of the assessee by ADIT (Inv.), Unit-VI(2), New Delhi. During the course of search cash of Rs.88,56,090/- was found, out of which cash of Rs.87 lakh was seized and various books of account and other documents were found and seized and inventoried vide panchnama dated 20-06-2002. According to the Assessing Officer, seized documents and books of account contains unaccounted transaction of the assessee and accordingly notice u/s 158BC of the Act was issued on 03-02-2004 and duly served upon the assessee on 09-02-2004 and in response to the same, assessee filed on 03-01-2005 and 24-01-2005 after getting extension of 45 days declaring Nil income. Subsequently, notice u/s.143(2) of the Act was issued on 01-08-2003 requiring the assessee to explain. The assessee was requested vide show cause IT(SS)A No.203-05/Ahd/05, 210-12/Ahd/05 & 233/Ahd/06 B.P. 1/4/96 to 20.6.02, 91-92 to 20.1.00 ACIT, Central Circle 3 SRT v. Patel Group Page 41 notice dated 03-02-2004 to explain the source of cash found and evidence how the same is shown in the regular books of account. The assessee furnished the explanation of the cash, which is reproduced as under:-
"During the course of the search at Delhi branch on 20.06.2002, cash was found as under:
(A) Cash found at the commencement of Rs.43,49,240 search belonging to
(a) Assessee firm cash balance as per Rs.40,28,450 cash book
(b) Constituents in respect of which primary Rs. 3,20,790 evidences found during the course of search Rs.43,49,240 (B) Cash found on various persons as they had entered into assessee firm's office or Rs.45,06,850 were dragged into assessee's office by the authorized officers after commencement of search The assessee explained the cash of Rs.40,28,450/- as cash available in the books of account as on 20-06-2002 of Rs.40,47,417/-. The Assessing Officer has not accepted the explanation of the assessee by stating that the cash book on the date of search was written up to 16-06-2002. It was stated that cash book of Delhi branch having cash balance including cash of Rs.10 lakh received from Chinubhai M Patel, the partner at Delhi office on 18-06-2002, which was sent by him on 17-06-2002 from Surat for purchase of immovable property at Delhi. The AO noted that the cash book written up to 16-06-2002 was having cash balance of Rs.30,44,007/- and assessee is regularly transferring the cash to its Head office and there was no independent evidence to show that the payment as well as receipt of cash was there during 17-
06-2002 to 20-06-2002. Accordingly, the cash book written up to 16-06-2002 was not had reliable and addition of undisclosed income in respect to cash of Rs.40,28,450/- was made to the block return for the block period. Aggrieved, assessee preferred appeal before CIT(A).
43. The CIT(A) deleted the addition in respect to cash available in the books at Rs.30,44,007/- to the extent of Rs.30,28,450/- and the balance Rs.10 lakh was sustained by giving following finding in para-6 of his appellate order:-
"06 I have carefully considered the contentions of the appellant in the aforesaid paras and facts of the case. So far as the entries recorded in the cash book up to the date of search are concerned, it is an undisputed fact that IT(SS)A No.203-05/Ahd/05, 210-12/Ahd/05 & 233/Ahd/06 B.P. 1/4/96 to 20.6.02, 91-92 to 20.1.00 ACIT, Central Circle 3 SRT v. Patel Group Page 42 cash of Rs.30,44,007/- was available as on 16.06.2002. The reasons given by the Assessing Officer for making additions are totally irrelevant and against facts of the case and modus operandi of the appellant's business. In fact the transactions relating to cash belonging to constituents is never credited or debited in the cash book. Payments made to the constituents in respect of amount received by their respective corresponding parties at branches is neither credited in the cash book of the receiving branch, transferred to the delivering branches nor is debited in the cash book of the delivery branch at the time of payment. The cash received from the constituents for transferring the other branches is treated just like commodity. The appellant firm never utilizes is own cash as per the cash book for making the deliveries. There is no question of making payment to the constituents out of the cash balance of the appellant firm. In the light of these facts and circumstances the Assessing Officer was not justified in rejecting the claim of the appellant reading cash of Rs.30,44,007/- which was available on 16.06.2005 i.e. prior to the search. The argument of the Assessing Officer that cash book is not reliable is not valid. It is only a sweeping allegation so far as the above cash as on 16.06.2002 is concerned. This entry can not be made in anticipation of search at all. The introduction of cash of Rs.10,00,000/- received from the partner as on 18.06.2002 is an afterthought since no documentary evidence was found during the course of search. The statement of any employee without a supporting evidence can not be relied upon. The amount being quite huge, a note must have been kept or entry should have been made prior to the search which took place on 20.06.2002. Under these circumstances addition of Rs.30,28,450/- representing the cash n hand in the cash book prior to the date of search is deleted but addition of Rs.10,000/- stated to be received from one of the partners being an after thought is confirmed."
44. We have heard the rival contentions and gone through the facts and circumstances of the case. We find that the assessee has explained that cash book is regularly maintained by the assessee-firm at Delhi branch and was written up to 16-06-2002 at the time of search and closing balance as on 16-06-2002 was at Rs.30,44,007/-. We find from records that the assessee has completed cash book on the basis of seized records from 16-06-2002 till the date of search i.e. upto 20-06- 2002, showing therein mainly and only the commission income received by Delhi branch during the ordinary course of angadia business on the basis of seized bharatias and records. The amount of Rs.10 lakh received from Shri Chinubhai M Patel, partner of the assessee-firm on 18-06-2002 for which the employee of the assessee-firm, Shri Jashwantbhai stated in his statement recorded during the course of the search the fact of receipt of the same and to substantiate this fact an affidavit of Shri Chinubhai M Patel and xerox copies of relevant pages of cash book and copy of account from the books of the Surat Head office and xerox copy of relevant pages of cash book of Delhi branch were filed before the authorized officers as well as IT(SS)A No.203-05/Ahd/05, 210-12/Ahd/05 & 233/Ahd/06 B.P. 1/4/96 to 20.6.02, 91-92 to 20.1.00 ACIT, Central Circle 3 SRT v. Patel Group Page 43 during the course of the block assessment proceedings. Even now before us the assessee has filed copies of the same in paper book at page Nos.1 to 4. We further find that even the auditor during the course of special audit has observed as under:-
"An amount of Rs.10,00,000/ received from Shri Chinubhai Mohanlal credited in books of account on 18.06.2002."
From the above facts, it is clear that Rs.10 lakh is sent by Shri Chinubhai M Patel during the course of search itself, which was admitted by Shri Jaswantbhai employee of the firm on the spot during the course of recording of statement. Taking into consideration, in totality the facts of the case, we are of the view that cash balance as per books of account as on 20-06-2002 was Rs.41,93,150/- and the assessee has produced sufficient evidences to prove the same. Accordingly, we feel that this cash of Rs.40,28,950/- is explained and no addition on this account can be sustained. Accordingly, this common issue of the Revenue's appeal is dismissed and that of the assessee is allowed.
45. The next issue in this appeal of Revenue in IT(SS)A No.210/Ahd/2005 is as regards to the order of CIT(A) deleting the addition of unaccounted cash found at the time of search. For this, Revenue has raised the following ground No.2:-
"2. The CIT(A) has erred in law and on facts in directing to delete the addition of Rs.320,790/- made on account of unaccounted cash found at the time of search u/s.132 of the Act."
46. The brief facts leading to the above facts are that this cash of Rs.3,20,790/- was found and seized from the assessee in different packets, bundles which were received by Delhi branch from other branches to be delivered to the parties. The assessee was required to explain and accordingly assessee stated that all the items were tagged with the labels showing the name and addresses of the sender & receivers. The search party removed the labels from each bundles and mixed all the cash with cash of the assessee-firm. The respective branches issued acknowledgment receipts to the senders of the cash after tagging cash with labels & entries are made in the bharatias and assessee keeps the xerox copies of the acknowledgment. Further the assessee has stated that the cash has been delivered to the parties and copy of statement showing name and address, telephone nos. have been etc. filed. The Assessing Officer has not accepted the statement made by IT(SS)A No.203-05/Ahd/05, 210-12/Ahd/05 & 233/Ahd/06 B.P. 1/4/96 to 20.6.02, 91-92 to 20.1.00 ACIT, Central Circle 3 SRT v. Patel Group Page 44 assessee and cash was found from the possession of the assessee. The assessee further requested to produce the parties or to file the conformation of all the parties but could not produce either the party or the confirmation. The assessee has not furnished the detailed addresses of the parties and whether the parties are assessed to tax or not and the cash found is their accounted cash or not, source of cash of Rs.3,20,790/- allegedly belonged to the constituents remain unexplained. In view of the position, the cash of Rs.3,20,790/- is treated as unexplained cash and added as undisclosed income of the assessee. Aggrieved, assessee preferred appeal before CIT(A).
47. The CIT(A) deleted the addition made by Assessing by giving following findings at page-9 of his appellate order:-
" .. ... I have carefully perused the submissions of the appellant with regard to addition of Rs.3,20,790/- on account of unaccounted cash. The AO has ignored the primar8y evidence filed b the appellant on the ground that parties were not produced. The Assessing Officer alleged that it was not known whether these parties are assessed to tax or not and the cash fond is their accounted cash or not. In this regard it is observed that the business of the appellant is 'angadia' i.e. courier/postal service. In this line of business it is neither the practice to verify the correctness of names and addresses given by the constituents nor to verify the contents of the articles. The practice being followed is that after receiving the articles from the constituents, receipts are issued to them and after recording them in 'bhartias' i.e. the daily sheets, they are sent to various branches through their daily service and delivered. It is seen that the appellant during the course of assessment proceedings, had filed detailed statements showing names and addresses, telephone no. and their confirmatory signatures as to cash received by them. In my opinion the Assessing Officer was not justified in suspecting the cash when so much evidence was furnished before him. Thus looking to the aforesaid discussion the addition of Rs.3,20,790/- is deleted."
48. Before us the Ld. CIT-DR stated that the facts are exactly identical in the present case what was before us in IT(SS)A No.205/Ahd/2005 of assessee's appeal, wherein we have decided this issue in para-16-20 of this order. Ld counsel for the assessee fairly stated that this issue is exactly same and facts are exactly identical. On identical facts the lower authorities have made addition by applying a formula.
49. After going through the facts of the present case and facts in IT(SS)A No.205/Ahd/2005 of the assessee's appeal, we find that the issue is squarely IT(SS)A No.203-05/Ahd/05, 210-12/Ahd/05 & 233/Ahd/06 B.P. 1/4/96 to 20.6.02, 91-92 to 20.1.00 ACIT, Central Circle 3 SRT v. Patel Group Page 45 covered in favour of the assessee and against the Revenue. Following the same, we dismiss this issue of the Revenue's appeal.
50. The next issue in this appeal of assessee in IT(SS)A No.204/Ahd/2005 is as regards to the order of CIT(A) in confirming the addition of Rs.44,11,850/- belonging to the various constituents. For this, assessee has raised the following ground No.2(A) to 2(C):-
"2(A) In the facts & circumstances of the case, the learned Commissioner of Income-tax (Appeals)-II, Ahmedabad erred in confirming the addition of Rs.44,11,850/= belonging to various constituents.
2(B) In the facts & circumstances of the case, the learned Commissioner of Income-tax (Appeals)-II, Ahmedabad erred in confirming the addition of Rs.44,11,850/= belonging to various constituents particularly in view of the fact that the said amount was directly taken in to custody and seized by the authorized officers from the constituents after the commencement of search and it is proved beyond doubt that the amount was not possessed/owned by the appellant firm.
2(C) In the facts & circumstances of the case, the learned Commissioner of Income-tax (Appeals)-II, Ahmedabad should have deleted the addition of Rs.44,211,850/=."
51. The brief facts leading to the above issue are that the assessee explained the cash of Rs.45,06,850/- to be belonging to constituents. The assessee stated that this cash was neither found in the possession of the assessee nor its employees but was found and seized from the parties directly either at the time of search or while entering the business premises of the assessee by authorized officers. The assessee stated that the cash was not belonging to the assessee-firm and in order to verify the facts of the cash, during the course of search action, the following parties were issued summons by the ADIT (Inv.) New Delhi but either the letter were not served or the parties did not attend for the claim of cash/jewellery. As none of the party claimed ownership or cash/jewellery before the ADIT (Inv.) New Delhi. Further, during the course of assessment proceedings, to examine the source of acquisition of cash, the parties were issued letter u/s.133(6) but none of the parties expect few responded to the summons and they did not make any application for claiming the said cash and details of the parties who responded to the letter issued u/s.133(6) of the Act are [a] Depak Son [b] Jamnadas [c] Madanlal & [d] Shri Girish B Parmar. Accordingly, the Assessing Officer accepted the ownership of cash is in respect of IT(SS)A No.203-05/Ahd/05, 210-12/Ahd/05 & 233/Ahd/06 B.P. 1/4/96 to 20.6.02, 91-92 to 20.1.00 ACIT, Central Circle 3 SRT v. Patel Group Page 46 Shri Depak Soni and Shri Girish B Parmar as explained and the balance cash of Rs.44,11,850/- was added as undisclosed income of the assessee for the block period. Aggrieved, assessee preferred appeal before CIT(A). The CIT(A) confirmed the action of Assessing Officer. Aggrieved, assessee came in second appeal before us.
52. Before us Ld. counsel for the assessee stated the fact that during the course of search the authorized officer have found & seized the cash from each of them prepared separate independent inventories and also recorded their statements. In the inventories prepared, it is specifically written that the cash belong to so and so person. He stated that xerox copies of inventories and statements are available on the records of the Department and the assessee has also taken photo copies, which are part of assessee's paper book. He argued that the parties from whom cash was found were not present in the office premise of the assessee-firm at the time of commencement of search otherwise separate inventories would not have been prepared. He argued that the persons from whose possession cash were found either came into office or were taken in the office by the authorised officers from outside the office on finding cash with them after commencement of the search. He argued that from those parties, neither acknowledgment receipts were issued nor any document was found. He argued that authorized officers recorded statements of those persons on oath wherein various information like names, addresses of possessors, name addresses and telephone nos. of owners of the cash, purposes of possessing cash by those persons are also recorded and the Department is having full first hand information. He argued that Assessing Officer has without considering the explanation filed by the assessee-firm added Rs.44,11,850/- on the ground that it is not proved by the assessee that the cash belonged to the other parties. He argued that the findings of Assessing Officer is not proper as cash was seized from the constituents, their statements were also recorded by the authorized officers and they were allowed to go by the authorized officers before introducing them to the assessee-firm. The identification, addresses and telephone nos. were with the authorized officers and Department and these were given to the assessee-firm when the block assessment proceedings were in progress.
IT(SS)A No.203-05/Ahd/05, 210-12/Ahd/05 & 233/Ahd/06 B.P. 1/4/96 to 20.6.02, 91-92 to 20.1.00 ACIT, Central Circle 3 SRT v. Patel Group Page 47
53. On the other hand Ld. CIT-DR argued that the assessee's arguments that cash belonged to other persons which was required to be transferred to the respective addresses are not appreciable because the Assessing Officer has made addition after conducting necessary enquiries u/s.133(6) of the Act. According to him, the cash was found at the premises of assessee. Hence onus to prove that the same rightfully belonged to someone else is upon it only. He further argued that these persons involved did not turn up to claim the respective amounts as pleaded by the assessee and possession is the only criteria for making the addition. Ld. CIT- DR stated that this amount belonging to 12 persons as discussed above were not claimed by them, and this shows that the amount must be taxed and should not be left out. Further he stated that the ownership of cash in the hands of respective persons should have been established and genuineness of the amount is required to be established but the assessee failed to do so. Accordingly, he supported the orders of the lower authorities.
54. We have heard the rival contentions and gone through the fact and circumstances of the case. We find that this cash was found from the 12 persons entering with cash in the premises of the assessee during the continuation of search proceedings. We find from the records that the authorized officer found & seized the cash from each of them and prepared separate independent inventories and also recorded their statements. In the inventories prepared, it is specifically written that the cash belong to so and so person. We find that xerox copies of inventories and statements are available on the records of the Department and the assessee has also taken photo copies, which are part of assessee's paper book. It is also a fact that the parties from whom cash was found were present in the office premise of the assessee-firm at the time of commencement of search otherwise separate inventories would not have been prepared and persons from whose possession cash were found either came into office or were taken in the office by the authorised officers from outside the office on finding cash with them after commencement of the search. It is also a fact that no acknowledgment receipts were issued to these parties by the assessee. It is also a fact that the authorized officers recorded statements of those persons on oath wherein various information like names, addresses of possessors, name addresses and telephone nos. of owners of the cash, purposes of possessing cash by those persons are also recorded and the Department is having IT(SS)A No.203-05/Ahd/05, 210-12/Ahd/05 & 233/Ahd/06 B.P. 1/4/96 to 20.6.02, 91-92 to 20.1.00 ACIT, Central Circle 3 SRT v. Patel Group Page 48 full first hand information. In view of the above information and facts available on records, we are of the view that the lower authorities without considering the explanation filed by the assessee-firm added Rs.44,11,850/- on the ground that it is not proved by the assessee that the cash belonged to the other parties, whereas it is a fact that this cash was seized from the constituents, their statements were also recorded by the authorized officers and they were allowed to go by the authorized officers before introducing them to the assessee-firm. The identification, addresses and telephone nos. were with the authorized officers and Department. In view of the above facts and circumstances, we are of the considered view that this cash of Rs.44,11,850/- belongs to 12 constituents as named in the block assessment order in view of the above reasons. Accordingly, we allow this issue of assessee's appeal.
55. However, income determined in pursuance to our aforesaid direction in the case of these assessee's shall not go below the returned income.
55. In the result, Revenue's appeal in IT(SS)A No.233/Ahd/2006 is partly allowed, Revenue's appeals in IT(SS)A No.210-212/Ahd/2005 are dismissed, assessee's appeals in IT(SS)A No.203-204/Ahd/2005 are allowed and in IT(SS)A No.205/Ahd/2005 is partly allowed.
Order pronounced in Open Court on 30/11/2010
Sd/- Sd/-
(A.N.Phauja) (Mahavir Singh)
(Accountant Member) (Judicial Member)
Ahmedabad,
Dated : 30/11/2010
*Dkp
Copy of the Order forwarded to:-
1. The Appellant.
2. The Respondent.
3. The CIT(Appeals)-ii, Surat
4. The CIT concerns.
5. The DR, ITAT, Ahmedabad
6. Guard File.
BY ORDER,
/True copy/
Deputy/Asstt.Registrar
ITAT, Ahmedabad