Income Tax Appellate Tribunal - Allahabad
Assistant Commissioner Of Income Tax vs Fertilizer Traders [Alongwith Ita No. ... on 13 February, 2004
Equivalent citations: (2004)83TTJ(ALL)473
ORDER
1. ITA Nos. 762 & 763/All/1999 by the Revenue are directed against the common order of CIT(A), Varanasi dt. 18th May, 1999 in the case of both the assessees-respondents in respect of block period from 1st April, 1986 to 13th Feb., 1997, Both the assessees-respondents have also directed CO Nos. 14 and 15/All/2000 in both the departmental appeals.
2. ITA Nos. 304 & 305/All/2002 by both the assessees are directed against different orders of the CIT(A)-I, Kanpur dt. 14th Aug., 2002 passed under Section 158BC/154 of the IT Act, 1961.
3. In both the cases of the assessees, undisclosed income was computed and thereafter it was bifurcated in the case of both the assessees percentage wise on the identical facts. Since all the matters relate to the same assessees on identical facts, therefore, all the matters were heard together and we dispose of the same by this common order.
4. All the matters were directed to be taken up for out of turn hearing vide order dt. 7th Oct., 2002 passed in Stay Petition Nos. 19 and 20/All/2002 in the case of both the assessees. The stay was granted subject to certain conditions for a period of six months and next date of hearing was fixed for, final disposal of the appeal on 25th Nov., 2002. The aforesaid stay against the outstanding demand was extended vide order dt. 23rd Oct., 2003 for a further period of six months on the same terms and conditions as directed in Stay Petitions Nos. 10 and 11/All/2003. In pursuance of the directions in stay petitions, all the matters were taken up for out of turn hearing.
5. Since the facts are identical in all the matters and Revenue and both the assessees have taken common grounds of appeal in their respective appeals/cross-objections, therefore, for the sake of brevity, we reproduce the grounds of appeal taken in the case of the assessee M/s Fertilisers Traders.
6. ITA Nos. 762 and 763/All/1999 are directed on the following grounds, which are taken from ITA No. 762/All/1999, which are as under:
"1. That the learned CIT(A) has erred in giving relief of Rs. 31,89,238 in respect of 23 accounts while working out peak investment in the business representing undisclosed income of the assessee for the block period without any sound basis and completely ignoring the finding of the AO.
2. That the learned CIT(A) has erred in giving relief of Rs. 21,96,984 as regards bad debts which was disallowed by the AO without appreciating the fact that the assessee did not write off this amount in its books during the block period as envisaged under Section 36(2) of IT Act, 1961.
3. That the learned CIT(A) has erred in giving relief as regards excess stock/shortage of stock found during the course of search vis-a-vis its books of account regarding particular items, without appreciating the finding of the AO in the assessment order.
4. That the order of learned CIT(A) is erroneous and contrary to the facts as such should be set aside and order of AO be restored."
7. Both the assessees have filed cross-objections in ITA Nos. 762 and 763/All/1999 on the following grounds, which are taken from CO No. 14/All/2000 in the case of Fertilisers Traders :
"1. Because on a due consideration of attendant facts and circumstances of the case, particularly that the notice under Section 158BC had not been validly issued and served in accordance with the provisions of law, the learned CIT(A) should have held that the block assessment order dt. 24th Feb., 1999 passed by the AO was void ab initio.
2. Because owing to inherent illegality in the manner in which the notice dt. 5th Jan., 1998 under Section 158BC had been issued and served, the AO could not have been held to have validly assumed jurisdiction to pass block assessment order and consequently the learned CIT(A) should himself have declared the assessment order dt. 24th Feb., 1999 to be void ab initio.
3. Because the learned CIT(A) has erred in law and on facts in sustaining a part of the addition as had been made in the block assessment order dt. 24th Feb., 1999 on account of peak investment alleged to have been revealed by the computer printout seized during the course of search operation.
4. Because the appellant's version of peak investment should have been accepted and the entire addition over and above the same should have been deleted."
8. Both the assessees have filed ITA Nos. 304 and 305/All/2002 against the order of the CIT(A) passed under Section 158BC and 154 of the IT Act, 1961 on the following grounds and the grounds of appeal are reproduced as taken in the case of M/s Fertilisers Traders:
"1. Because the learned CIT(A) has erred in law and on facts in upholding the validity of the order dt. 4th Oct., 2000 that had been passed earlier by the Dy. CIT, Central Circle, Gorakhpur under Section 154 r/w Section 158BC, after holding that--
"....The AO did not only have the right, but in fact, it was his duty to correct any arithmetical mistake, that had occurred while working out of the peak in the original assessment order...." (Para 12)
2. Because the overall working of peak of the balances in various accounts, which formed the basis of computing the undisclosed income of the appellant in the block assessment order dt. 24th Feb., 1999, having already been the subject-matter of appeal (against the said block assessment order dt. 24th Feb., 1999) in terms of the appellate order dt. 18th May, 1999, no order of rectification under Section 154 could have been legally passed by the AO and view to the contrary as has been taken by the learned first appellate authority is wholly erroneous.
3. Because the learned CIT(A) after having himself noted in para 12 of the appellate order that--
".....The learned CIT(A) vide his order dt. 18th May, 1999 has determined the principle which is to govern the working of the peak...."
should have held that the block assessment order dt. 24th Feb., 1999 stood merged with the appellate order dt. 18th May, 1999 and the order dt. 4th Oct., 2000 passed by the AO in relation to the said very block assessment order, was wholly without jurisdiction.
4. Because the learned CIT(A), while holding in principle, that the AO was competent (in fact, the AO was obliged to do so) to pass the order under Section 154 dt. 4th Oct., 2000, in relation to block assessment order dt. 24th Feb., 1999, has missed to note and failed to consider that--
(a) during the course of extensive block assessment proceedings under Section 158BC (which got culminated into block assessment order dt. 24th Feb., 1999) the peak of the balances was worked out by the AO at Rs. 1,79,57,411;
(b) While working out such peak, the appellant's objection as to the manner of working out the peak as also selection of accounts at random basis (as had been resorted to by the AO) were overruled;
(c) such a consolidated peak (as had been worked out by the AO at Rs. 1,79,57,411) had been apportioned between the appellant and the other concerned namely Fertiliser Traders, on the basis of their respective turnovers;
(d) the entire working of peak (so made by the AO) which formed the basis of computation of undisclosed income for the purpose of assessment under Section 158BC in the cases of the appellant and the other concerned namely Fertiliser Traders was subject-matter of dispute in first appeal before the learned CIT(A), Varanasi;
(e) the learned CIT(A), Varanasi had adjudicated upon the entire controversy related to the working of peaks, in terms of his order dt. 18th May, 1999;
(f) after the appellate order dt. 18th May, 1999, the block assessment order dt. 24th Feb., 1999, no longer remained to be order of the AO;
(g) the abovereferred block assessment order dt. 24th Feb., 1999 was sought to be revised by the learned CIT, Central Kanpur in exercise of his revisionary jurisdiction under Section 263, on the same premise and under the similar circumstances under which the order under Section 154 dt. 4th Oct., 2000 had been passed.
(h) such an order under Section 263 had been quashed by the Hon'ble Tribunal vide its order dt. 15th Jan., 2002 passed in appeal numbers ITA 164 & 165/All/2001;
(i) in their order dt. 15th Jan., 2002 (copy of which was duly placed before the learned first appellate authority) the Hon'ble Bench had specifically held that--
"13. In view of above facts and circumstances and various decisions we are of the opinion that the orders of assessment for block period dt. 24th Feb., 1999 in case of both the appellant stood merged in the common order of the CIT(A) passed on 18th May, 1999 and therefore, no original order was in existence even on 16th April, 2000 the date of issue of notice under Section 263 of the Act; what to say of existence of original orders of assessment on 28th March, 2001 when the CIT passed the orders under Section 263 of the Act. That being the case the orders of the CIT passed under Section 263 of the Act on 28th March, 2001 were absolutely illegal and void ab initio."
and accordingly the appellate order (which is the subject-matter of present appeal) is wholly vitiated.
5. Because wholly without prejudice to the contention raised in the foregoing grounds there was no understatement of the working of peak in the block assessment order dt. 24th Feb., 1999, which could be rectified under Section 154, so as to enhance the computation of undisclosed income (as had been determined originally).
6. Because, on the other hand, the working of peak of the balances as had formed the basis of computation of undisclosed income, suffered from various mistakes, correction of which would have resulted into downward revision of the undisclosed income, and the learned CIT(A) was obliged under the law in due discharge of his appellate functions, to take specific note of such mistakes and give appropriate directions to the AO.
7. Because the learned CIT(A) has erred in law and on facts in holding that the ground taken by the appellant on the issue of initiation of proceedings under Section 158BFA(2) was not maintainable.
8. Because the order appealed against is contrary to fact, law and principles of natural justice."
9. During the course of hearing of cross appeals, both the assessees in their respective C.O. Nos. 14 and 15/All/2002 filed an application for admission of the additional ground. The additional ground was raised in Sl. No. 5 in the petition on the ground that the notice under Section 143(2) was not issued in the block assessment proceedings, as such block assessment order is liable to be declared as null and void. Both the applications of the assessee in their respective cross-objections were taken up together for hearing and the petition for admission of the additional ground in both the cross-objections filed by the assessees were allowed vide order dt. 7th April, 2003 and both the parties were directed to make their submissions on merits on these additional grounds of appeal on the next date of hearing. However, during the course of further arguments, the learned counsel for the assessee very fairly stated that the point at issue has been decided against the assessee by the Special Bench of the Tribunal in the case of Oswal Kishore & Sons v. Dy. CIT, therefore, he would not be pressing these additional grounds of cross-objection. In this view of the submission of the learned counsel for the assessee, the additional grounds taken in both the cross-objections are dismissed as not pressed.
10. The facts as taken from the record are that search and seizure operation was conducted under Section 132(1) of the IT Act at the business premises of both the assessees on 12th Feb., 1997 in pursuance of warrant of authorisation issued in the name of assessees and others. During the course of search and seizure operation at the business premises of the assessee, various unexplained and incriminating documents and papers were found. On the basis of seized documents, notice under Section 158BC(a) of the IT Act, 1961 was issued requiring the assessee to prepare a true and correct return of income including the undisclosed income in respect of which they are assessable for the block period on the prescribed form No. 2B and also to deliver the return within 45 days from the receipt of the notice. The said notice was served on the assessee and the assessee in compliance with the above notice filed its return of income in the prescribed form on 15th April, 1998 in the status of firm declaring total Income including the undisclosed income computed in accordance with the provisions of Section 158BB of the IT Act, 1961 in a sum of Rs. 1,23,57,500 (Rs. 78,09,940 + Rs. 47,560). The AO issued notice under Section 142 of the IT Act asking for the compliance along with the detailed queries. M/s Fertiliser Traders was having its partners as Vinod Saraf and Atul Saraf. M/s Saraf Trading Company was having partners, namely, Smt. Usha Devi Saraf, Smt. Prakashi Devi Saraf, Smt. Makhani Devi Saraf and Sri Arun Kumar Saraogi, The assessee is stated to be in occupation of agriculture and fertilisers trading. The AO observed that in a normal way on-money cannot be accounted in the regular books of accounts. Now with enough of liquidity available with the assessee outside the books of accounts, the assessee has tried to route this extra liquidity by way of introducing cash credit in the name of parties in his computer ledger account, namely fertiliser Traders led. 97, led. 96, led. STP. 94 and the assessee has introduced cash credit in the ledger accounts almost in the name of all the trading parties in M/s Fertiliser Traders and M/s Saraf Trading Company. During the course of search, computer and computer floppies were seized, The Department has taken out the printsout from the hard disc of the computer and computer floppies, which is normally in the form of ledger categorised in three headings:
1. Fertiliser Traders Led. To 97 for transaction for financial year 1996-97 till date of search.
2. Led. To 96 for financial year 1995-96
3. Led. To 94 for financial year 1994-95.
The scrutiny of the regular books of accounts as indicated above and from the regular books of accounts it was seen that there are heavy amounts of cash entries appearing as credit in the books of the assessee-group i.e. in the regular ledger accounts against their parties name. There are large number of heavy cash transactions as debit and credit entries in the name of various parties. The enquiries from the following parties were made:
1. Janta Khad Bhandar, Gulharia Bazar
2. Shri Hari Traders, Jhungia
3. Jaiswal Khad Bhandar, Naugarh
4. Akshay Lal Khad Bhandar, Gulharia
5. Madhesiya Khad Bhandar, Jhungia
6. Madhesiya Khad Bhandar, Gulharia.
The ADI recorded their statements and in their statements, the traders admitted that they are making purchases from the assessee and accepted the purchases made and bills raised on them on their payments. However, they denied huge cash transactions recorded in their ledger accounts. According to them, they were small traders and were not in a position to deposit the huge cash. According to the AO, it shows that the assessee was introducing his cash money in the name of these parties.
11. The AO after perusal of their statements, was of the view that the huge cash payments in lakhs were not made by them and in almost all the cases they asserted that they are persons with small capital and not able to pay full amount of bill in one go. The AO further observed that these persons take fertilisers on credit and make payments on instalment basis and as such in no circumstances they have left credit balances as they themselves are doing business on credit. The AO further observed that they withdrew from their cash credit limit and made payment of their bills. The AO further observed that they all asserted that they never made advances for future supply and that they asserted that they themselves have taken stock on credit, therefore, there is no question of further receiving of any cash from assessee's Group. According to the AO this shows that huge amount of cash debit in their accounts is not correct and in fact entries were made by the assessee himself out of assessee's unaccounted funds. The statement of Vinod Saraf was recorded under Section 131 of the IT Act, 1961 on 3rd June, 1997 and he was asked that there are various examples in the computer printsout which showed that the assessee introduced its cash in parties' accounts, which the parties have refused in their statements and said that these are not relating to them. The assessee was mainly asked to explain why these types of entries be not treated as cash credit introduced by the assessee in other persons' name. However, Sri Vinod Saraf replied that parties statements are not correct and he will explain the above only after complete study of the accounts and cross-examination of the parties. The copies of printsout were duly supplied to both the assessees. The books of accounts as had been maintained in regular course of business and written normally by the assessee were also found. Besides the above, computer installation was also found as mentioned above and the hard disc and floppies from the said computer installation were seized by the officer and thereafter by application of their programme, the datas were taken out from the computer hard disc. Such datas as mentioned above referred to three financial years 1994-95, 1995-96 and 1996-97. So far as financial year 1996-97 is concerned, computer printsout contained the record of transactions outside the regular books of accounts as well as the transaction found entered in the regular books of accounts. The AO himself separated the entries of two sets and gave the copies of printsout. It is necessary to mention that as per information supplied by the counsel for the assessee, the position of the regular returns of both the assessees are as under for various years :
M/s Fertiliser Traders
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Asst yr. Date of filing of return Date of assessment
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1995-96 31-10-1995 19-1-1996 under Section 143(1)(a) 1996-97 31-10-1996 3-2-1999 under Section 143(1)(a) 1997-98 31-10-1998 27-3-2000 under Section 143(3)
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M/s Saraf Trading Company
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Asst. yr. Date of filing of return Date of assessment
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1995-96 31-10-1995 19-1-1996 under Section 143(1)(a) 1996-97 31-10-1996 19-10-1998 under Section 143(1)(a) 1997-98 31-10-1998 27-3-2000 under Section 143(3)
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12. The AO on the above basis issued notice under Section 158BC of the IT Act, 1961 and in compliance of the notice both the assessees filed the return of income showing the "undisclosed income" of both the assessees, which was worked out at Rs. 1,23,57,500 as under:
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Rs.
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Undisclosed income as recorded in computer printsout. 1,45,54.484 Less: claim of bad debt 21,96,984 Balance 1,23,57,500
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Both the assessees itself bifurcated the above undisclosed income in the ratio of 36.8 per cent and 63.2 per cent respectively.
Accordingly the undisclosed income was shown by both the assessees as under:
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Name of assessee Percentage Undisclosed income as shown in
the return of income
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M/s Fertiliser Traders 36.8% Rs. 45,47,560 M/s Saraf Trading Co. 63.2% 78,09,940
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Total: Rs. 1,23,57,500
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13. Before proceeding further on the findings of the AO and the CIT(A), it would be necessary to mention some of the relevant paragraphs of the show cause notice issued by the AO raising queries on various points and reply filed by both the assessees. The AO raised the query vide letter dt. 13th July, 1998 alongwith notice under Section 142(1) of the IT Act, 1961, copy of which is filed in 1st paper book and the relevant paragraphs are on pp. 314 to 320:
"Cash Credits The scrutiny of your books of accounts and other details obtained in this regard reveals that two separate sets of ledger accounts have been maintained out of which one ledger has been prepared and maintained manually and other ledger has been drawn through computer printout. These ledgers have been verified and examined deeply. This exercise made suggestion that both are not bearing identical entries as required according to the norms of accountancy but are reflecting difference in entries. Further scrutiny also revealed that the cash receipts are shown against normal trading of your business which are not given place in manual ledger drawn. Certain parties have been shown to have paid cash against bill/order as payment of advance but the same has been found incorrect on enquiry.
Before drawing any conclusion the following traders were summoned in respect of enquiry.
(a) Janta Khad Bhandar, Gulheria Bazar
(b) Shri Hari Traders, Jhungia
(c) Jaiswal Khad Bhandar, Nausarh
(d) Achchey Lal Khad Bhandar, Guleria
(e) Madhesia Khad Bhandar, Jhungia
(f) Asian Fertilisers, Sardarnagar The summons issued have been complied with and the responsible persons have attended the proceedings. During the course of the proceedings the statement on oath has been recorded and the persons have been interrogated accordingly. The results obtained out of above has provided altogether different facts which are being discussed as under:
(a) Janta Khad Bhandar The proprietor of the concern Shri Murtaza Hussain was summoned under Section 131 of IT Act during the course of statement on oath and the ledger obtained out of computer printout was shown to him for 1997. The entries reflected at p. 603 and 604 was interrogated. He refuted the payments appearing therein and claimed that payment of huge amount has been wrongly shown. Further he was also interrogated regarding advance shown. In reply it was submitted that he is debtor of Vinod Saraf and in no way he is capable to advance any sum to him. The entries suggesting advance made by him is wrong.
Shri Hari Traders, Jhungia:
Shri Ganesh Madhesia the proprietor of the concern was also interrogated regarding the entries appearing at p. 167 and in reply he submitted that his account noted in the ledger is not correct. While answering the query regarding payment of Rs. 1,24,400 shown to have been made on 17th Nov., 1995, he categorically denied any deposit of this sum. To strengthen his plea he also added that the payments are made after making sales because of his financial condition, is not in a position to advance any amount.
(c) Jaiswal Khad Bhandar, Nausarh Smt. Vinita Jaiswal appeared in compliance of the notices. On being interrogated she submitted on oath that no advance is paid for purchasing fertilisers. She simply puts an order for supply to the agent and the goods are supplied at her shop and denies any advance in this regard.
(d) Achchey Lal Khad Bhandar, Gulheria Shri Achchey Lal Gupta proprietor of the concern submitted that the entries appearing at p. 115 in the ledger of 1996-97 amounting to Rs: 80,000 are not correct. He further added that the cash credit account No. 293 held at Gorakhpur Chhetriya Gramin Bank, Gulheria Branch bears below the above amount, as such the question of payment of this amount does not arise. In reply to the query he also pleaded that he is a trader of small trading limits and that the huge payments referred to above are beyond his financial approach. Thus the cash payment appearing in his ledger folio has been devised.
(e) Madhesia Khad Bhandar, Gulheria Similarly Shri Ram Asrey Gupta the proprietor of the concern was also interrogated particularly with reference to the ledger panna 101 of 1995-96 and he was required to substantiate the ledger entries and balances. In reply he added that he has never deposited Rs. 1,01,000, Rs. 90,200 and Rs. 93,000 and claimed that these entries are wrong because he is not financially capable of paying so much advance.
For evidence he also added that his cash credit limit as per cash credit account No. 292 bears the limit of Rs. 75,000 only and as such the huge amount referred to above is beyond his capacity. Apart from this, a peculiar phenomenon was noticed when he was asked to explain why the payment against bill of Rs. 45,000 was made with your balance appearing in the same ledger. In reply the advance payment or outstanding balance was denied. It was also claimed that the entries appearing therein are not correct and tenable.
(f) Madhesia Khad Bhandar, Jhungia:
Similar replies of the proprietor of the concern has also been advanced and the entries appearing in ledger have been denied.
(g) Tebriwal Trading Company The proceedings have been attended by authorised signatory of M/s Tebriwal Trading Company Shri Anil Kumar Agarwal. He refuted any cash payment made though admitted that all the payments made through cheque, banker cheque and draft are made and such payments have been claimed to be correct payments. After inspecting the computerised ledger account the cash payment appearing therein have categorically been denied on merit, and assured all payments channelised through negotiable instrument. The particular cash payment appearing in the ledger has also been examined by him and the same has also been denied after comparing his own ledger.
Asian Fertiliser Shri Ashok Kumar appeared in compliance with the notice issued in the name of Asian Fertilisers. In his reply in respect of made of transaction he denied any cash payment and claimed all payments have been made through bank. When he was categorically interrogated in respect of cash payment of Rs. 12,00,000 on 31st March, 1995 he again repeated same reply and denied any cash payment.
In the light of above narrations and facts of these discussions following points have emerged:
(i) The entries are not correct.
(ii) Cash deposits shown are not deposited by the persons denoted for.
(iii) Trading has been accepted but cash payment denied.
(iv) These are not made for adjustments.
If above facts are considered in the light of ledger entries, the onus to prove these entries lies upon the assessee. Considering this aspect of law an opportunity to prove the correctness of these entries were extended but the reply was not affording any substance which may lead to any dependable conclusion.
However, a further opportunity is being extended to you to explain entire defects pointed out and to substantiate the entries appearing in the ledger referred to above. Your reply should bear independent evidence, which may prove the submissions.
Please note that the analysis of the above facts and other facts bearing the facts other than the identical characteristics of the account has established the existence of your planned device of introducing your own money through undisclosed means. It also leads to suggest that the undisclosed money kept out of the flow of accounts had to be brought in the streamline of accounts and for this a plan was devised and designed. Under this plan, the unaccounted money was received by way of sales and the same was ledgerised on the ledger under the several ledger accounts, which has been found incorrect on verification and investigation made.
In this regard you are once again required to furnish your reply on each account discussed above. Please note every point raised in the reply should be supported with documentary evidences therefor. It is also important to note that all relevant papers, documents have been made available in accordance with your need and requirement. Thus your reply should be based on the documents and they should not be generalised. A critical analysis of every account should be furnished. In the absence of any dependable evidence, it would lead to the understanding that you have no reply to offer in your support and as such the cash in question would be treated as unexplained cash credits within the meaning of Section 68 of IT Act, 1961.
(4) Computer Printout During the course of search and seizure operation, complete floppies were seized out of which the printout has been drawn, the copy of which has also been made available to you. The programmed computer printout taken for 1994, 96, 97 have provided ledger. In the viewpoint of the above printout it has been gathered that manual ledger has also been maintained for the above period. In the light of general principles of accountancy both the- ledger should bear identical entries for the same period. But the scrutiny of these ledgers revealed that the entries are not showing identical transactions. The scrutiny of these ledgers revealed different entries in computer sheets. During the statement on oath, no satisfactory reply has been advanced but it has never been denied that the entries appearing in computer printout are not related to your business of fertiliser trading. After having no reply, the computer printout based ledger and ledger manually prepared have been compared and scrutinised. The scrutiny and verification of these ledgers reveal that some entries are common and some entries are passed only in computer prints and as such the same is not bearing identical figures which has created great doubt and suspicion. This also leads to believe that your concern has maintained two sets of accounts out of which one might be bearing transaction to be disclosed and another one is maintained for having concealed particulars of your true trading but not to be disclosed before the Department. Thus the accounts, developed are only to evade proper and true incidents of your business and its results. Apart from this, as per prevailing system of accountancy the goods sold are debited equal to the bill amount and on receipt of payment the same is credited to that account but the close scrutiny of the account suggests that in place of raising bills cash has been shown debited. In this regard, you are required to explain;
(a) Cash credited has been denied by the creditor as such explain as to why this cash should not be treated as introduction of your own money earned through undisclosed means.
(b) In several accounts of manual ledger the respective entries are shown as cash debit entry contrary to it, the same entry of cash credit has been shown as cash but at credit side of the book. Please explain the difference with support of your accounts drawn manually and computer ledger.
(c) Please explain the missing entries of computer printout manual ledger. The reply should be based upon the entries appearing in the accounts as referred to above.
(d) It has also been gathered from the scrutiny of computer printout that the accounts of Saraf Trading Company and Fertiliser Traders have been mixed. You have claimed the firms are enjoying separate units in the eyes of law. But as per the provisions of law and contents of partnership deed you are liable to maintain separate accounts and not mixed. In view of the above point, you are required to explain the reasons of mixing these accounts. Apart from the above if both the accounts are drawn in a mixed system the only possible inference could be drawn and that would be single unit account. Under these circumstances the claim of separate units fails on merit and single unit services. You are therefore required to explain as to why the claim of separate units of both firms may not be refused and the same of Sri Vinod Kumar Saraf.
(e) Normally the opening entry is made in a normal and general way of accountancy of the 1st day of the year but this has not reflected in the ledger folios under discussion, please explain.
Thus these discussions establish that the ledgers maintained are not reliable and as such are liable to be rejected on the following reasoning;
(i) does not bear true state of affairs;
(ii) does not bear complete details of your business activities;
(iii) not maintained in the chronological order not showing day-to-day activities.
(iv) is bearing discrepancies over writing gaps and missing entries.
(v) is also suffering from manipulation in respect of charging previous figures by pulling new and desired figures.
In this regard you are required to explain as to why the books prepared manually may not be rejected and the entries appearing in the computer printout may not be treated as actual trading of your business activities.
Sd/- Asstt. CIT(CC)."
14. The assessee filed the similar replies dt. 26th Aug., 1998, copy of which is filed in paper book-II, p. 58 and is reproduced as under:
"Before we proceed to explain specific queries contained in the aforesaid notice, we respectfully and humbly wish to draw your kind attention on the following :
(a) That Explanation (a) to Sub-section (2) of Section 158BA of the IT Act, 1961 reads as under :
"Explanation :--For the removal of doubts it is hereby declared that
(a) the assessment made under this Chapter shall be in addition to the regular assessment in respect of each previous year included in the block period,"
Thus, your goodself will kindly appreciate that present block assessment proceedings are in respect of income outside the regular books of accounts. The regular income as per regular books shall be dealt with only in regular assessment proceedings, therefore, the enquiries relating thereto may be excluded and also have not been covered in our separate reply. Refer Item No. 4 (computer printouts) at pp. 7 to 9 of your above show cause notice).
15. Both the assessees filed another common reply on the same day 26th Aug., 1998 against the aforesaid notices, copies of the same are filed in paper book-I at pp. 326 and 327:
"Cash credits Vide item No. (3) on pp. (3) to (7) of your notice much has been said about alleged unexplained cash-credits. In this regard our pointed reply is as under:
(1) You may provide and confront copies of statements of 8 persons mentioned on page No. (4) of your notice, in case you want to draw any inference based on statement of these persons recorded by you/Asstt. Director of IT (Inv.) or you want us to explain the contents under each sub-item (a to h) of page No. 4.
(2) A peak of all alleged unexplained cash credit may be drawn in case you are convinced that the credits in the customers' accounts are not creditworthy as alleged in your notice.
(3) Since computer printouts are patently incorrect and have been arbitrarily taken to the entire exclusion of the assessee or his staff, therefore, the assessee is not answerable for the mistakes in computer printouts. We also owe no explanation for the mixed entries of different firms taken together by the Asstt. Director of IT (Inv.) for whatever reasons. You will kindly appreciate that the opening and closing balances not appearing in the computer printouts which is merely a programming mistake. Similarly there are certain other patent mistakes in computer printouts which were time to time pointed out vide our written replies dt. 17th April, 1997 and statement of Sri Vinod Saraf recorded by Asstt. Director of IT (Inv.) on 30th June, 1997 Q. and Ans. at Sl. No. 1 copies of which are attached marked as Annex. 4 and 5 respectively.
4. Computer Printouts
(a) The regular books of accounts and transactions recorded therein are outside the purview of block assessment proceedings (Chapter XIV-B of the IT Act, 1961). Thus unless the assessee is allowed to use correct programme and take out correct printouts of seized floppies of the computer, neither the printouts taken at your end are reliable nor could lead to any logical and lawful conclusion.
(b) Your observations on p. 8 of your notice under item Nos. (a) to (d) are based on incorrect printouts as pointed out against item No. 3 hereabove under the head cash and credit. Hence are not cognisable and also could not be explained due to reasons explained above.
(c) Your observation on p. 9 of your notice under item No. (e) and in following paragraphs upto item No. 5 (stocks) are outside the ambit of block assessment (Chapter XIV-B) as these proceedings are block assessment proceedings and not regular assessment proceedings (refer Section 158BA(2) Expln. (a)."
16. The AO issued another notice to both the parties dt. 31st Aug., 1998 raising some queries on the issue, copy of which is filed in paper book-II on p. 25 and is reproduced as under:
"Please refer to the return of income furnished for the block assessment and this office query letter dt. 13th July, 1998 in respect of block assessment.
(1) It was required to explain and furnish reconciliation on the cash credits appearing in the computer printout taken out of computer floppies etc. vide query No. 8 appearing at pp. 12 and 13 of the said letter, but the reply of the same has not been furnished on the date of hearing fixed for compliance. Moreover, you have required that a clear copy of the cash credits should be provided to you for furnishing the explanation/reconciliation. Considering your request, a clear copy showing the complete details of the working is being made available to you for the year 1994-95, 1995-96 and 1996-97. You are, therefore, required to go through the annexed list showing the head-wise details of each person in whose names the cash credits are introduced and furnish the personwise reconciliation of each account along with written explanation and supporting evidences thereof. Your reply should also bear the;
(i) the respective evidences in support of each entry shown in the annexed list.
(ii) The chart of verification of each entry showing the account-based explanation.
(iii) evidence in respect of claims, if any made, the account being related to your trading.
Please note that your reply should be data based reply which may substantiate your claim."
17. Both the assessees filed their common reply dt. 14th Sept., 1998 before the AO, copy of which is filed in paper book-II from pp. 28 to 29:
"From:
Fertiliser Traders, Gandhi Nagar, Gorakhpur.
Date: 14th Sept., 1998 To, The Asstt. CIT, Central Circle, Gorakhpur.
Sir, Re: Fertiliser Traders--Block assessment proceedings With reference to your notice dt. 31st Aug., 1998, we wish to explain as under :
1. From perusal of the details of alleged unexplained cash credits supplied by you, it is noted that:
(a) In many accounts first there is cash' payment and thereafter there is a deposit. Therefore, if cash transactions are to be disbelieved (presuming, without admitting) then both debit and credit are to be treated alike and it is not possible to ignore the debit and add credit side only. Reliance in this regard is placed on the decision of Hon'ble Gauhati High Court in the case of Kamal Kumar Sahana v. CAT (1995) 216 ITR 217 (Gau).
(b) The cash deposits are preceded by sales of fertiliser through bills. Therefore, the cash payment against sales made earlier cannot be arbitrarily treated as cash credit much less unexplained within the meaning of Section 68 of the IT Act.
(c) Many credits treated to be in cash are actually through negotiable instruments i.e. Draft/Cheques.
Explanation of various accounts are given on the photocopy of the list provided by your good-self, being attached herewith. The assessee also craves leave of the Court to explain entries on the next date of hearing with the help of computer printouts, seized books of accounts and sales bills. It is also submitted that the payments received or made through negotiable instruments may very kindly be cross-verified from the bank accounts of respective parties, before drawing any adverse inference relating to explanation of such transactions.
2. In continuation to our explanation on cash credits in the name of few parties mentioned by your goodself in your earlier notice dt. 13th July, 1998 (on page four) sub-item No. (a) to (h) and after receipt of copies of statements of referred persons, we discussed the trading transactions as well as financial transactions with the concerned parties. Their depositions on oath are attached for your goodself's ready reference. From the affidavits attached, it will be seen and appreciated that the inference drawn from the statements of these persons are unfounded, incomplete and unilateral because full facts were not confronted to the aforesaid persons and their replies were taken after making fully confused and bringing them under mental stress and strain etc. In this regard and without prejudice to the proceedings conducted by the Asstt Director of IT (Inv.), Gorakhpur your goodself is requested to conduct an impartial and independent enquiry under Section 131 at assessee's cost before drawing any adverse-inference in haste. It will not be out of place to mention that unless full account is considered in totality and a peak of alleged unexplained cash credits is made, the alleged addition on the basis of working of cash credit supplied by you is unjustified, insupportable in law and on facts and in any case unsustainable.
3. The assessee has filed a detailed computation chart with explanatory notes in support of its returned income. The computation chart read with notes thereon are self-explanatory. However, in case any specific information is required, the same may be submitted for due compliance.
4. That the unexplained income for the entire block period was first determined as a whole. Thereafter the same has been bifurcated in the ratio of sales amongst two firms as explained in the computation of income itself. In case you have any other acceptable mode of bifurcation of total income between the two firms, which according to you would be more scientific, reasonable and appropriate then the same may be confronted to us. Thereafter, if necessary, we will make our detailed explanation thereon.
5. From perusal of your notice and the accountwise details of alleged unexplained credits following legal lacunas are noted:
(a) Your have taken only entire credit of the whole year of the alleged cash-
credit accounts as unexplained instead of making a datewise peak of all the accounts.
(b) The debits prior to the credits have not been considered and set off as per standard practice and legal norms.
(c) The transactions through negotiable instruments have not been considered in the judicious and equitable manner in the asst. yr. 1997-98 (financial year 1996-97) and is without any enquiry, investigation and cross-verification and have been arbitrarily and unilaterally treated as unexplained.
In the light of above general observations and specific observations in the photo copies of alleged unexplained credits provided by you, you are humbly requested to make proper and detailed examination and investigation de novo because the details provided are neither correct nor reveals correct state of affairs.
We shall be pleased to provide any further detail or explanation which your goodself may require after considering the requests of the assessee made hereinabove.
Thanking you, Sd.
Yours faithfully, For, Fertiliser Traders, Partner"
18. The AO issued another notice dt. 20th Jan., 1999 to both the assessees, which is common, copy of which is in paper book-II at pp. 67 and 68.
"F. No. S&S/Sarraf/ACIT/CC/GKP/98-99 Office of the Dy. CIT, Central Circle, Gorakhpur.
Dt. 20th Jan., 1999 To Fertiliser Traders, Gandhi Nagar, Gorakhpur.
Sub : Block assessment for the period 1st April, 1986 to 12th Feb., 1997 in the case of M/s Saraf Trading Company and Fertiliser Traders, Gandhi Nagar, Gorakhpur.
Printouts were taken (FT ledger 1997, ledger 96 and STP 1994) from floppies seized during the search which indicated that huge unaccounted income was earned which was again introduced back in business as cash credit in the name of different parties with whom trading was done by you. It also reflected responding debits/loans outstanding from different parties and your net assets in the form of debtors.
Total amount was calculated and figures supplied to you asking to explain why it should not be taken as your unaccounted income by letter F. No. S&S/Sarraf/ACIT/CC/GKP/98-99, dt. 31st Aug., 1998.
Your reply was received vide your letter undated received on 14th Sept., 1998 saying that gross amount should not be taken and only peak amount should be taken by the Department. Reliance was placed by you on a Gauhati High Court decision.
Now accordingly peak amount has been calculated as per chart enclosed. It shows cash credit introduced by you/debtors outstanding as on 31st March, 1995, 31st March, 1996 and on the date of search at Rs. 1,39,87,788, 1,79,57,411 and Rs. 1,77,48,156 respectively. The highest peak amount is 1,79,57,411 as on 31st March, 1996.
Please explain why these figures should not be taken as correct figures as representing undisclosed income of M/s Fertiliser Traders and Saraf Trading Company.
Date fixed for the purpose is on 25th Jan., 1999.
Sd. Girdhari Lal Asstt. CIT, Central Circle, Gorakhpur."
19. The common reply of both the assessees dt. 25th Jan., 1999 was filed before the AO. The relevant portion of the reply appears in the paper book-II p. 71 and is reproduced below :
"To Dt. 25th Jan., 1999 The Asstt. CIT, Central Circle, Gorakhpur.
Reg.: M/s Fertiliser Traders and Saraf Trading Company block assessment proceedings for the block period ended on 12th Feb., 1997, explanation regarding.
Dear Sir, With reference to your notice dt. 20th Jan., 1999, we wish to explain various issues inquired in the said notice, as under:
(a) That peak advised in your notice cannot be taken as correct because it suffers from various discrepancies pointed out earlier vide various replies filed from time to time."
The AO after considering the facts and circumstances of the case, seized material and replies of the assessee, passed almost common assessment order in the case of both the assessees vide separate assessment order dt. 24th Feb., 1999 whereby the undisclosed income on the basis of computer printouts was worked at Rs. 1,79,57,411, which represents the peak of the debit and credit entries in the computer printouts. The AO bifurcated the undisclosed income as determined above in the same ratio as was disclosed by the assessee in the percentage of 36.8 per cent in the case of M/s Fertiliser Traders and 63.2 per cent in the case of Saraf Trading Company. The relevant findings of the AO are mentioned in the assessment order in paras 4(i), 9, 10 and 11, which are taken from the assessment order of M/s Fertiliser Traders in ITA No. 762/All/1999 and are reproduced as under:
"4(i) Thus we see that entries recorded in FT led are the complete entries part of it goes to regular books of account maintained manually and part of the entries are those which do not tally with manual books of accounts. If we cross out all the entries from manual books of accounts in the financial year 1996-97, we have the left over entries of PP Account which represent cash introduced by the assessee himself out of his unaccounted income in the name of various parties.
The same exercise was carried out and the total amount was worked out at Rs. 13,75,18,039. Similarly, the entries recorded in ledger-96 & STP 94 shows the amount of assessee undisclosed income in the form of debtors outstanding which is nothing but the result of assets generated out of assessee's unaccounted income. Total for financial year 1995-96 and financial year 1994-95 comes to Rs. 15,68,76,203 and Rs. 16,45,52,771 respectively.
5.........
6.........
7.........
8.........
9. Moreover assessee has shown in its return of income filed in compliance of notice under Section 158BC the income at Rs. 1,23,57,500 (FT + STC together) after claim of bad debt Rs. 21,96,984 which means assessee admits the working of peak to the extent of Rs. 1,23,57,500 + 21,96,984 = 1,45,54,484. He has not given the working of the figure of Rs. 1,45,54,484 inspite of specific query given by the Department. Hence this correct peak is taken at Rs. 1,79,57,411 as on 31st March, 1996 as determined and stated in earlier paras.
10. The peak worked out on 31st March, 1995 at Rs. 1,39,87,788 is taken as income for the asst. yr. 1995-96.
The peak worked out on 31st March, 1996 is Rs. 1,79,57,411. The increase from 31st March, 1995 (Rs. 1,79,57,411 - 1,39,87;788) comes to Rs. 39,69,623.
This will be treated as income for asst. yr. 1996-97.
The peak worked out on 13th Feb., 1997 comes to Rs. 1,77,48,156 which is lower than peak on 31st March, 1996. Hence no part of it is taken as addition to the income for asst. yr. 1997-98.
11. The computer printout is for transactions relating to both concerns M/s Fertiliser Traders and M/s Saraf Trading taken together. There is no basis for bifurcating this into two concerns. Therefore, the assessee has taken the basis of ratio of disclosed turnover of STC and FT in ratio 63.2 per cent and 36.8 per cent. The same basis is being taken here. The calculation will be as under:
----------------------------------------------------------
Asst. yr. Total income STC 63.2% FT 36.8 %
Rs. Rs. Rs.
----------------------------------------------------------
1995-96 1,39,87,788 88,40,282 51,47,505
1996-97 39,69,623 25,08,801 14,60,821
1997-98 Nil Nil Nil
----------- ------------
1,39,49,083 66,08,326"
----------- ------------
20. The assessee claimed bad debt of Rs. 21,96,984 and asked for deduction out of the undisclosed income but the claim of the assessee was rejected by the AO precisely for the reasons that the assessee has not given details of the same despite specific enquiry and party-wise break up and copy of accounts are also not given. According to the AO, the assessee has also not claimed as to how this has become bad debt and whether the same was written off in its books. The AO has also observed that the assessee has not explained as to how the same was included in the trading receipt in the earlier years or made part of the trading. Claim of bad debt was accordingly disallowed.
21. The AO also mentioned in the assessment order that during the survey on 12th Feb., 1997/13th Feb., 1997, the inventory of stock of fertilisers was prepared and it was found that stock actually found was different than the stock entered in the books of accounts. The AO mentioned the relevant figures on p. 14 of the assessment order and after making bifurcation was of the view that in the case of M/s Fertiliser Traders, excess stock of the value of Rs. 58,500 was found and in the case of M/s Saraf Trading Company, the excess stock was found of the value of Rs. 87,245 and shortage of bags of the value of Rs. 1,39,150 in the case of M/s Fertiliser Traders was found. Similarly, shortage of Rs. 95,545 was found in the case of Saraf Trading Company. The details of survey were examined from the inventory prepared at the spot and the AO valued the same in paragraph 18 of the assessment order. The same is reproduced as under, which is taken from the case of M/s Fertiliser Traders in ITA No. 762/All/1999:
---------------------------------------------------------
Outside Sales G.P. Unaccounted income for
asst yr. 1997-98
---------------------------------------------------------
FT 1,39,150 3% 4,174
STC 95,545 3% 2,866
---------------------------------------------------------
The total income for FT is Rs. 58,500 + 4,174 - 62,674 and STC is Rs. 87,245 + 2,866 = 90,111 for asst. yr. 1997-98 in this head."
22. The AO considering the above, computed the undisclosed income in the case of M/s Fertiliser Traders at Rs. 66,71,600 and in the case of Saraf Trading Company at Rs. 1,14,39,194.
23. Both the assessment orders were challenged before the CIT(A) and the learned CIT(A) after considering the facts and circumstances of the case computed undisclosed income which was bifurcated in the ratio mentioned above and, thus passed the common impugned order dt. 18th May, 1999 in the case of both the assessees, The relevant findings of the CIT(A) are mentioned in paragraph 4 and are reproduced as under:
"4. First ground of appeal in both the cases relate to addition made on the basis of a consolidated peak of Rs. 1,79 crores prepared by the AO. The working of the peak was confronted to both the appellant firms in the course of assessment proceedings. The appellant firms vide their written replies dt. 25th Jan., 1999 filed objections on the working of peak. The learned counsel for the appellants vehemently argued that the peak of Rs. 1.79 crores prepared by the Department was not correct for the following reasons:
(a) In large number of accounts included in the working of the peak, there was no deposit of cash in the regular books of accounts corresponding to cash transaction recorded in the computer printouts of the ledgers. If we connect the logic of peak adopted by the AO given on p. 4 in paragraph 4(b) (to quote) "it is seen that there are heavy accounts in cash entries appearing as credit in the books of the assessee group i.e. in the regular books of account" then, it will be observed that there are no deposits which could be included in the working of the peak on the basis of these accounts. By a fair estimate, at least 30-35 lakhs, are unnecessarily included in peak on the basis of those accounts in which no cash deposits are appearing in the regular books of accounts.
(b) Similarly in the working of peak, accounts relating to fertiliser and cement such as accounts of Maihar Cement, M.O.P. account, M.P.K. account etc. are also included. It is apparent that debit balance in these accounts cannot represent introduction of cash allegedly unexplained cash credit.
(c) Some accounts, representing advance given to staff for purchase/expenses are also included in the working of the peak. The aggregate debit of these accounts is approx. Rs. 4,35,115 which also do not represent introduction of cash and deserves to be excluded from the amount of peak.
(d) The learned counsel has also submitted a list of 23 accounts aggregating to Rs. 31,89,238 which according to him are not in the nature of cash credit accounts which was forwarded to the AO for his comments. The comments of AO dt. 29th April, 1999 is also placed on respective files, objections of the AO are reproduced below:
1. Inspite of adequate opportunity given to the assessee (as details were provided to the assessee during the assessment proceedings), no such reply/submissions were made by assessee, hence it is an afterthought and your honour may be pleased to discard this list. This may not be accepted being as additional evidence.
2. Even if there are no cash deposits in the regular books corresponding to transactions recorded in the parallel books of account on computer in these accounts listed by the assessee and filed during appellate proceedings. All these accounts represent either cash credit introduced by assessee out of his undisclosed income, or represents debtors outstanding on close of the year. In any way, these balances show debts outstanding as a result of undisclosed income by the assessee. All these accounts have been rightly included in the working of peak representing undisclosed income.
3. The assessee-firm be not allowed to raise any new explanation in appeal if the same was not given before AO in block assessment proceedings.
4. The peak worked out at Rs. 1.79 crores is correct and the same is upheld.
The AO raised almost similar objections during the hearing of appeals before me on 29th April, 1999. The counsel for the appellant contended that the first objection is not maintainable because the peak was prepared by the AO himself and accounts were selected by him for inclusion in the peak. Further since the ledgers (regular books) and computer printouts were seized and available with AO, he could have verified that which accounts are in the nature of cash credits and which are of different nature. Regarding the second objection also the learned counsel contended that since the peak of Rs. 1.79 crores represent debit balance as on 31st March, 1996, therefore, any unnecessary debit balance taken into accounts will have the effect of increasing the debit peak. Since in at least 23 accounts specifically pointed out before me, neither there is any introduction of cash in the regular books nor there is any justification in adding these separately over and above the peak because time to time balance in various accounts keep changing i.e. the debit balance in one account may decrease by increase in other account or vice versa. As the maximum debit balance on a particular date is considered as the peak amount, therefore, the objection of assessee is not sustainable.
The counsel for the appellants further submitted that if objections on the working of the peak are properly considered and appreciated then it will be seen that practically there is no difference between the undisclosed income worked out by the appellants and the peak worked out by the Department. He also submitted a reconciliation statement explaining that except for a minor difference of Rs. 2,13,687 in the working of peak and Rs. 21,96,984 claimed as bad debts there is no significant difference in the undisclosed income returned by the appellant and determined by the AO. Hence the difference between the total undisclosed incomes determined by the appellant and a total undisclosed income determined and assessed by AO is insignificant and deserves to be ignored. The reconciliation submitted by the appellant is reproduced below.
Reconciliation of undisclosed income assessed by AO and undisclosed income by the appellants in their returns of income filed.
As per assessee (FT/STC)
Gross peak 1,45,54,484
Less: Bad debts 21,96,984 1,23,57,500
----------- -----------
Returned undisclosed income 1,23,57,500
As per AO
Peak for financial year 1,39,87,788
Peak for financial year 1996-97 39,69,623 1,79,57,409
--------- -----------
Income assessed (Peak) 1,79,57,409
Relief sought
(h) Accounts not reflecting 31,89,338
unexplained cash credit
(ii) Bad debts 21,96,984 53,86,222
--------- ---------
Resultant undisclosed income (peak) 1,25,71,187
-----------
The counsel for the appellants also submitted that due to paucity of time and large volume of transactions there may be some technical problems or defaults of trivial nature but the same are not sufficient to overlook or ignore the defects pointed out in the working of peak as by the appellant in their written reply dt. 25th Jan., 1999 filed in the course of block assessment proceedings before the AO, I find that the AO has not discussed the objections of the appellants either in the assessment order or in his comments dt. 29th April, 1999. The AO while reiterating that 23 accounts pointed out by the appellant be not excluded from the working of the peak, has failed to give any convincing reasons for non-exclusion. He has also not given any material or evidence to show that these 23 accounts represent cash credit in the regular books or the assessee has enjoyed any other benefit from these accounts."
"I have heard the AO and the counsel for the appellants and have also carefully gone through the case records, block assessment order and written submissions of the appellants. The AO has prepared a peak of transaction appearing in the computer printouts. On the premises that the appellants were introducing their own money in the name of several customers, the modus operandi adopted by the appellants for introduction pf their own money is briefly discussed here. The appellants have maintained two different sets of accounts (1) meant for disclosure to the IT Department hereinafter referred to as 'regular books' and their own control ledger on computer, hereinafter hereafter referred to as computer prints or parallel books. The appellant used to deposit cash amounts in regular books in the name (s) of customers and corresponding entry for the same amount was passed in parallel books by debit to same party's account. Thus in regular books appellant's own money was introduced as an advance received from customers and in parallel books of account, same amount was debited in the name of same party as advance given to them. Thus, on one hand, the appellant enjoyed cash credits by utilising their own unaccounted money and on the other hand for control and recovery purposes, parallel set of accounts represented amounts receivable from the various customers for fake credit given to them in the regular books. The basis of entire addition rests on this theory of the AO that all the customer accounts in parallel books (computer printouts) the debit balances represented money introduced in the regular books. The arguments of learned counsel for the appellant hit at the root of this theory by pointing out that if there are certain accounts in the computer printouts showing a debit but without corresponding introduction of cash in regular books of accounts then such debit balances should be excluded from working of the peak. It appears to be forceful and logical. The addition of Rs. 1.70 crores made by the AO on the basis of working of peak of transactions thus deserves modification with respect to at least 23 accounts aggregating to Rs. 31,89,238. In my opinion, the peak of Rs. 1.79 crores showing aggregate debit balance on 31st March, 1996 will be reduced if the debit balances of 23 parties aggregating to Rs. 31,89,238 are excluded from it. Accordingly, I reduce the peak of Rs. 1.79 crore to Rs. 1,47,680. The appellant gets relief of Rs. 31,89,238 on this account."
24. Thus, the CIT(A) accepted the claim of the assessee on the ground that there was error in the working of the peak.
As far as the claim of bad debt is concerned, the same was allowed by the CIT(A) on the ground that before him the assessee filed copy of accounts of 45 parties in which debit balances outstanding as on 12th Feb., 1997 were written off after the date of search but in the date of 12th Feb., 1997. The claim of the assessee to deduct bad debt out of undisclosed income was allowed.
25. As far as the addition of discrepancy in stock was concerned, it was revealed by the survey under Section 133A of the IT Act. The learned CIT(A) took a view that the AO has not given any cogent reason or evidence to support unaccounted sales and that there are possibilities of mistakes in noting down the stock tally. The CIT(A) was also of the view that in the total stock, minor differences in few items are not significant, Accordingly, the addition made by the AO on account of discrepancy in the stock was deleted. As a result the appeal of the assessee was partly allowed,
26. The Revenue felt aggrieved by the impugned order of the CIT(A) dt. 18th May, 1999 and filed these appeals on the ground mentioned above in ITA Nos. 762 and 763/All/1999, The assessee has filed cross-objections in both the Departmental appeals challenging the working of the peak and the part addition sustained by the CIT(A). In addition to this, other legal grounds are also taken which have also been reproduced above in this order.
27. However, the things would not end here. We may mention that after passing of the assessment order dt. 24th Feb., 1999 and the order of the CIT(A) dt. 18th May, 1999, the AO issued show cause letter dt. 17th July, 2000 under Section 154 of the IT Act for enhancing the peak as there were some mistakes in calculation of the peak amount of unexplained cash credits.
28. In order to consider all the appeals connected with the issue, it would be appropriate that in addition to the above facts, the following dates and events relating to filing of the appeals by both the parties be mentioned:
Dates Events 22-3-2000 Notice under s. 263 was issued by the CIT(Central), 23-2-2001 Kanpur in the case of both the assessees on the groundthat block assessment orders dt. 24th Feb., 1999 were erroneous and prejudicial to the interests of Revenue.
17-7-2000 Proceedings under s. 154 initiated by AO in relation to the block assessment orders passed in the case of both the assessees.
4-10-2000 Orders under s. 154 passed by the AO whereby the working of the peak of Rs. 1,79,57,411 had been taken to be representing the undisclosed income in the above block assessment orders was enhanced to Rs. 3,90,71,218 and the same was bifurcated in the same ratio as was claimed by the assessee and bifurcated in the assessment order.
9-11-2000 The rectification orders under s. 154 dt. 4th Oct., 2000 were challenged by both the assesses before the CIT(A), Varanasi.
28-3-2001 The CIT(Central) Kanpur set aside the block assessment orders dt. 24th Feb., 1999 in both the cases under s. 263 of the IT Act, 1961.
15-1-2002 The Tribunal, Allahabad Bench quash'ed the order under s. 263 dt. 28th March, 2001 on the ground after the block assessment orders dt. 24th Feb., 1999 were subjected to appellate order dt. 18th May, 1999, the block assessment orders, as such, ceased to exist and the same got merged with the appellate order dt. 18th May, 1999 on the issue of computation of undisclosed income.
14-8-2002 CIT(A)-I, Kanpur decided the appeals of the assessee . under s.
154 of the IT Act. The CIT(A) rejected the contention of the assessee about merger of the block assessment order dt. 24th Feb.. 1999 with the appellate order dt. 18th May, 1999. However, he directed the recomputation of the undisclosed income in the following manner in paragraph 13 of the order. The same is reproduced below as taken from ITA no. 304/AW2002: "13. Coming to the alternative plea of the appellant that the revised peak has been wrongly calculated by the AO inasmuch as the entries with respect to two parties have been included which should have in fact been excluded as per the principle determined by the CIT(A), I agree that this should not have been done by the AO. He is accordingly directed to verify the facts of the case to work out the peak on the basis of the principle determined by the CIT(A) in his appellate order inasmuch as if there are no credit entries against the names of these parties then these accounts should not be considered while determining the peak. Likewise he is also directed to rework the peak with respect to the remaining three parties after considering the objections of the appellant with respect to the same."
13-9-2002 Both the assessees filed second appeals against the said orders in ITA Nos. 304 and 305/A11/2002.
29. We have heard the learned Departmental Representative and the learned counsel for the assessee at length. The learned counsel for the assessee filed two separate paper books on quantum as well as on proceedings under Section 154 of the IT Act. The details of the same, relevant for the purpose of disposal of the appeal would be mentioned at the appropriate stage. The learned Departmental Representative also filed the working of the undisclosed income by the AO in all the three years. The learned Departmental Representative argued that documents were seized and the assessee was supplied copy of the same upon which the assessee has filed return of income in block period in prescribed form for both the assessees showing the undisclosed income in a sum of Rs. 1.23 crores, The learned Departmental Representative relied upon the finding of the AO and submitted that during the search data computer floppies were seized in which the details of business were found in the form of ledger. It disclosed unaccounted or undisclosed transactions which were not produced before the AO in the regular return. According to the learned Departmental Representative, there was some nexus between the entries of debit and credit side. The difference of the same was taken as undisclosed income on peak basis. The learned Departmental Representative placed before us copy of the summary sheet (Departmental Representative-I) of the balances as has been prepared by the AO from the ledger accounts appearing in the computer printouts as had gone into the computation of undisclosed income. The learned Departmental Representative has gone into to the same to explain the manner in which the computation of undisclosed income had been made in the block assessment. The learned Departmental Representative further argued that six parties were examined and they have admitted in their statements to have purchased goods from the assessee but denied to have made deposits with the assessee as is mentioned in the regular books of accounts. According to the learned Departmental Representative, they themselves purchased goods on credit, therefore, they denied any deposit as such. Therefore, both the entries of deposits and return of deposits were bogus and unaccounted money of the assessee. The learned Departmental Representative explained that debits and credits of each ledger account as appearing in the computer printouts were noted at the end of the year. The aggregate of figures was worked out so as to find out the peak at the end of the year. During the financial year 1994-95, relevant to the asst. yr. 1995-96 such peak was worked out to Rs. 1,39,87,788 and the said figure was taken as income of that year. Similarly, in the financial year relevant to the asst. yr. 1996-97, the peak was worked out at Rs. 1,79,57,411. Against this figure the peak of Rs. 1,39,87,788 was given set off and the resultant figure of Rs. 39,69,623 (Rs. 1,79,57,411 - Rs. 1,39,87,788) was taken as income for the asst. yr. 1996-97. As far as the year of search, such peak was worked out on credit figure of Rs. 1,77,48,156 and as the same was lower than the figure of Rs. 1,79,57,411 for the immediately preceding year, the said figure was held to be covered by the figure of Rs. 1.79 crores. The same being the highest peak amount of Rs. 1,79,57,411 was taken as undisclosed income for both the firms. The learned Departmental Representative explained the nature of the entries as found recorded in the computer printouts. The entries found recorded in the computer printouts were of three categories.
(i) Opposite entries are recorded in computer and manual account; debit entries in computer shown as credit in manual accounts.
(ii) Undisclosed entries shown as debit entries in computer accounts were not shown in manual accounts;
(iii) entries are found in regular accounts but not shown in computer accounts, therefore, those entries were not considered as undisclosed income by the AO.
According to the learned Departmental Representative, difference in manual account and computer accounts on the basis of the peak was taken as undisclosed income. The learned Departmental Representative further argued that the assessee claimed that in 23 parties accounts there are only debit balances as there are no credit entries in manual books of accounts. Therefore, the assessee was entitled to deduction of Rs. 31,89,230. According to the learned Departmental Representative, this plea was raised for the first time before the CIT(A). The CIT(A) referred documents to the AO for his comments and the AO filed reply and requested to disallow additional evidence. The learned Departmental Representative further argued that the AO replied that even if there are no credit entries in the books of assessee, it would be undisclosed income of the assessee, all representing transactions outside the books. The learned Departmental Representative further argued that the CIT(A) did not discuss any details of the entries of those 23 parties in the order, copy of which is filed in paper book-I p. 215. The learned Departmental Representative further argued that the approach of the CIT(A) is erroneous and unacceptable as he has failed to consider the debit entries shown in the computer account were outside the books of accounts and, therefore, should be treated as undisclosed income. The learned Departmental Representative further argued that the CIT(A) failed to consider the basic facts of the case and should not have deleted the addition and it should be held to be entries outside the books of accounts and should represent the income of the assessee. The learned Departmental Representative further argued that the assessee claimed bad debts in a sum of Rs. 21,96,984 in block assessment against undisclosed income. The learned Departmental Representative relied upon paragraph 12 of the AO's order and also the objection of the AO rejecting the claim of the assessee. The learned Departmental Representative further argued that the CIT(A) did not examine the objection of the AO. The CIT(A) himself admitted that bad debt was written off after the search and not in block period. Therefore, the CIT(A) was not justified in deleting the addition. According to the learned Departmental Representative, even no details were furnished before the AO. The learned Departmental Representative further argued that bad debts can be claimed against business income and not against undisclosed income. The learned Departmental Representative further argued that the CIT(A) has not seen even if the same were a bad debt outside the undisclosed income as computed by the AO. According to the learned Departmental Representative, benefit of bad debts has already been given while computing the income on peak basis in block period as income disclosed has already been deducted. The learned Departmental Representative further argued that income of such persons was not disclosed in block assessment. The learned Departmental Representative further argued that the cash credits may not be bad debts as it represents income of the assessee. The learned Departmental Representative further argued that, during the survey, on the same day excess stock was found for which no proper explanation was given before the AO.
Therefore, the CIT(A) was not justified in deleting the addition under this head. The learned Departmental Representative relied upon the observation of the AO mentioned in the assessment order.
30. On the other hand, the learned counsel for the assessee argued that the regular assessment is different from block assessment. According to him, the computer floppies and discs and books of accounts were seized and nothing was available with the assessee. According to the learned counsel for the assessee, the computer printouts were in the form of ledger of the parties in computer. According to the learned counsel for the assessee, all the copies were not supplied by the Department and, therefore, the assessee was not negligent in not furnishing all the details before the AO. The learned counsel for the assessee argued that the peak was taken for the asst. yr. 1996-97 but for the last year, return of income was filed along with the audit report, so no addition could be made in the asst. yrs. 1994-95 and 1995-96. The learned counsel for the assessee argued that the details came out in the survey cannot be used in the block assessment. The learned counsel for the assessee argued that the assessee objected to working of the peak and assessment by the AO but till now no details are furnished as to how the peak was worked out. The learned counsel for the assessee filed affidavit of Vinod Saraf (A.R.-I) alongwith Annex.-I and it was mentioned in paras 3,4,5 and 6 of the affidavit, which are reproduced for consideration:
"3. That the computer installation as also the hard disc and floppy as had been seized by the authorised officers under Section 132(1) was operated by the officials of the IT Department according to their own programme. Thereafter, they themselves retrieved the data which was in the form of nearly 2500 ledger accounts running into twenty volumes, and made copies of the computer printouts available to the assessee-firm".
4. That the said 'computer printouts' contained data/information about the 'assessee-firm' as also of the connected case of 'Saraf Trading Company'.
5. That, from the ledger accounts as contained in the computer printouts, the assessee firm got prepared;
(a) the cash book on day-to-day basis in 3 volumes, separately for each financial year viz., financial years 1994-95, 1995-96 and 1996-97 (year of search) relevant to the asst. yrs. 1995-96, 1996-97 and 1997-98; and
(b) date-wise summary of entries showing receipts and payments with the help of the professionals.
6. That the said 'date-wise summary' revealed that;
(a) peak of the investment during the period of three years was Rs. 47,60,184.70 which reached on 18th Dec., 1995 (internal p. 12 of the "summary" - Annex. I hereto);
(b) the negative cash balance at its "peak" was Rs. 45,49,628.19 which had reached on 30th Jan., 1997 (internal p. 20 of the said summary); and
c) the later figure is fully covered by the figure mentioned at Sl. No. (a) above.
A copy of the said statement running into 20 pages is enclosed and the same has been made as Annex.-I hereto."
31. The learned counsel for the assessee argued that the Tribunal, being last fact finding authority should consider this aspect of the matter that the Department has worked out the' peak on the basis of few selected ledger accounts. However, the Revenue-Department has seized the documents numbering in 2614. According to the learned counsel for the assessee, the summary submitted by the learned Departmental Representative (D.R.-I) showing computation of undisclosed income on the basis of peak as worked out by the AO is not complete compilation of search as details were in more than 2500 accounts and the AO picked only a few to make the addition and, therefore, there was no rational basis shown by the AO to work out the peak of undisclosed income. According to the learned counsel for the assessee, the chart furnished in affidavit and Annex.-I (A.R.-I) shows the working of the peak on the basis of entire seized material. Therefore, the working of the AO was incorrect. The learned counsel for the assessee relied on the order of Tribunal, Lucknow Bench in the case of Deepak Handa. According to the learned counsel for the assessee, all the relevant information with regard to ledger accounts appearing in the computer printouts was available with the AO and as such all the data were available with the Department and, therefore, the undisclosed income should be computed on the basis of entire documents seized. The learned counsel for the assessee further argued that the information with regard to 23 parties (copy of which is available in paper book I on page seized material and the custody of which was already held by the Department). The assessee has invited attention of the CIT(A) to the said information. According to the learned counsel for the assessee, since all the information borne out from the seized material, therefore, the objection of the AO was of no relevance and more so the comments of the AO were called for and, therefore, the CIT(A) was justified and within his powers to make enquiries even at the appellate stage. According to the learned counsel for the assessee, the CIT(A) was empowered to go through the details by inviting objection of the AO in this regard. The learned counsel for the assessee further argued that five parties were examined by the ADI, whose statements are relied upon by the AO. According to the learned counsel for the assessee, after search, ADI was not justified to record the statement of parties. He has relied on the order of the Tribunal, Allahabad Bench in the case of Moga Metals and also relied upon the judgment of Hon'ble Supreme Court in the matter of Smt Amiya Bala Paul v. CIT (2003) 262 ITR 407 (SC) and argued that no specific provision was made for the ADI to record statement subsequent to search, therefore, no reliance could be placed on such statements. The learned counsel for the assessee argued that the assessee filed affidavits of these parties before the AO in which it was stated that the ADI recorded their statements under duress. However, the AO did not controvert the facts stated by the parties. The learned counsel for the assessee further argued that the assessee has to explain the debits as the same in law was treated as his income. The assessee filed details of all the search material. The learned counsel for the assessee invited our attention to the details furnished in Annex.-I of AR-I filed along with the affidavit of Vinod Saraf in which on 18th Dec., 1995, peak of debit balance is shown in a sum of Rs. 47,60,184.70 and on 29th Jan., ,1997 peak of credit balance is shown in a sum of Rs. 45,49,628.19. According to the learned counsel for the assessee, peak of debit balance is, thus, of Rs. 47,60,184.70. The learned counsel for the assessee accordingly argued that the assessee declared undisclosed income in the return in block assessment at Rs. 1,23,57,500 which is already excessive. The learned counsel for the assessee relied upon the decision of Hon'ble Supreme Court reported in the matter of CIT v. Mahalakshmi Textiles Mills Ltd. (1967) 60 ITR 710 (SC) and argued that the point at issue could be decided even at the appellate stage. The learned counsel for the assessee invited our attention to the reply filed before the CIT(A), copy of which is filed in the paper book-II. He has referred to pp. 138 and 139 of the paper book and argued that even on calculation of the peak a minus figure of Rs. 2,88,09,045 would come out. Therefore, the computation by the AO was erroneous. The learned counsel for the assessee referred to paper book I at p. 205 and argued that it was submitted before the AO that all the printouts were not taken into consideration. The learned counsel for the assessee has also taken us through paper book I at pp. 207 and 215 and argued that all the details of 23 parties were submitted before the authorities below. The learned counsel for the assessee relied upon circular No. 14 dt. 11th April, 1955, copy of which has also been filed. The learned counsel for the assessee, on this basis argued that the officers of the IT Department should advise the assessee when approached by them as to their rights and liabilities and as to the procedure to be adopted for claiming relief. The learned counsel for the assessee relied upon the decision of Tribunal in the matter of Dy. CIT v. Sanmukhdas Wadhwani (2003) 80 TTJ (Nag) 648. The learned counsel for the assessee also relied upon the basis of the theory of peak credit from the book written by Sampath Iyengar 'Law of Income-tax', Vol. 3, 9th Edn., p. 3547, copy of which is also filed. The learned counsel for the assessee also relied upon the decision of Hon'ble Allahabad High Court in the matter of CIT v. Neemar Ram Badlu Ram (1980) 122 ITR 68 (All). The learned counsel for the assessee ultimately argued that the basis of the peak by the AO was defective as the entire seized material was not considered. On the other hand, on the basis of the same seized material taken out from the ledger, the entire debits and credits were taken together, according to which the maximum peak of Rs. 47,60,184 has come out and the assessee has already filed return in block assessment at a higher figure. Therefore, no further addition should be made in the hands of the assessee.
32. The learned counsel for the assessee further argued that the act of writing off debts is always done at the end of the year but it should relate to the same year. All the details were filed by the assessee before the AO. Details of bad debts were filed. Except four parties ail were mentioned in seized material and the summary prepared by the AO (D.R.-I). According to him, the AO discussed only undisclosed income and he did not discuss it was cash credit as stated by the learned Departmental Representative. Therefore, bad debt is to be excluded. According to him, all the details were filed, copy of which is also filed in the paper book-I on p. 217 before the AO.
33. The learned counsel for the assessee further argued that excess and shortage both were noticed by the AO. However, the difference was bona fide considering the nature of the business. He has further argued that in block assessment, on the basis of survey, no addition could be made. According to him, it is a subject-matter of regular assessment. He has relied upon the order of Tribunal, Lucknow Bench dt. 31st May, 2003 in the case of Dr. Ratan Kumar Singh.
34. The learned counsel for the assessee also argued on cross-objection and on grounds Nos. 1 and 2 submitted that notice under Section 158BC was vague in many respects. However, the assessee filed return of income and acted upon the notice. The learned counsel for the assessee fairly stated that the case of the assessee is covered by order of Tribunal, Allahabad Bench in the case of Dr. R.M.L. Mehratra v. Asstt. CIT (1999) 64 TTJ (All) 259 : (1999) 68 ITD 288 (All), wherein this point was decided against the assessee.
35. On the remaining grounds of cross-objections, the learned counsel for the assessee argued that the assessee filed its working of the peak on the basis of the same seized material in A.R.-I (affidavit of Vinod Saraf, Annex.-I). According to him, all those details were taken and prepared on the basis of details of computer printouts, copy of which was given to learned Departmental Representative and the same material was available with the Department, therefore, the entire method of working of the peak by the Department was defective as entire seized material was not considered. The learned counsel for the assessee further argued that computation of undisclosed income should have been made strictly in accordance with the charging provision as contained in Section 158BC of the IT Act. According to the learned counsel for the assessee, since all the ledger accounts and entries appearing therein are not taken into account, the computation of undisclosed income based on the entries in the ledger accounts in computer printouts could not be correctly made and if made would not be in accordance with the provisions of law. According to him, the voluminous data as were available in the ledger accounts (2614 in number) were arranged date-wise and the same has been filed before the CIT(A) during the course of proceedings in appeal against the rectification order dt. 4th Oct., 2000. Copies of the same have been filed in the paper book and the same were also filed in Annex-I along with the affidavit of Vinod Saraf (A.R.-I). According to him, on the basis of the said summary, which were prepared on the basis of entire seized material, revealed that peak of the debits was Rs. 47,60,184 and the said figure would cover up the negative cash balance of Rs. 45,49,628. The learned counsel for the assessee accordingly argued that the said peak of undisclosed income should be taken as correct. The learned counsel for the assessee placed reliance on the decision of Hon'ble Supreme Court in the matter of CIT v. Mahalaxmi Sugar Mills Co. Ltd. (1986) 160 ITR 920 (SC)
36. The learned Departmental Representative further argued that the details as submitted in paper book and (A.R.-I) in the affidavit of Vinod Saraf and in Annex,-I, were not filed before the CIT(A) when the appeal of the assessee was decided vide order dt. 18th May, 1999, therefore, the same should be ignored. According to the learned Departmental Representative even the assessee claimed against his own pleading. The learned Departmental Representative referred to paper book-I pp. 207 to 216 to show what relief was sought by the assessee and invited our attention that only on two items relief was sought in a sum of Rs. 53,86,222. According to the learned Departmental Representative whatever relief has been claimed by the assessee has been granted by the learned CIT(A). The learned Departmental Representative further argued that the AO issued show cause notice to the assessee on the basis of the working (D.R.-I) to explain the situation of peak (during the course of arguments we have asked the specific question to learned Departmental Representative to tell the total number of accounts in ledger as the assessee claimed that total number of ledgers was 2614. However, the learned Departmental Representative could not specify as to how many accounts in ledger were taken into consideration while calculating the peak). According to the learned Departmental Representative, the assessee did not claim the peak position as is claimed in the affidavit of Vinod Saraf. According to the learned Departmental Representative, this point is taken for the first time before the Tribunal and no opportunity is given to the AO to go through the correctness of the same. The learned Departmental Representative then argued that (A.R.-I) affidavit of Vinod Saraf and summary of seized documents are additional evidence in nature and hence the same may be ignored. The learned Departmental Representative relied upon--
(i) Parakh Foods Ltd. v. Dy. CIT (1998) 64 ITD 396 (Pune)
(ii) CIT v. Ajay Kumar Sharma (2003) 259 ITR 240 (Raj)
(iii) CIT v. Elegant Homes (P) Ltd. (2003) 259 ITR 232 (Raj)
(v) Hukum Chand Mills Ltd. v. CIT (1967) 63 ITR 232 (SC)
(vi) India Steel & Wire Products Ltd. v. CIT (1994) 208 ITR 740 (Cal)
(vii) S.N. Swarnammal v. CED (1973) 88 ITR 366 (Mad)
(viii) Manji Dana v. CIT (1966) 60 ITR 582 (SC)
(ix) Raj Kumar Man v. CIT (1977) 108 ITR 301 (Bom)
(x) T.V. Sundaram Iyengar & Sons Ltd. v. CIT (2000) 241 ITR 420 (Mad).
37. According to the learned Departmental Representative the statements recorded by the ADI show that inference could be drawn against making of duplicate set of accounts and explained the modus operandi of the assessee. According to the learned Departmental Representative, there cannot be a credit balance on many dates as shown in the affidavit, therefore, it is not reliable and is defective. According to the learned Departmental Representative, there can be various situations to calculate undisclosed income on debit and credit. According to the learned Departmental Representative if the details submitted in the affidavit and paper book for working out of the peak is considered, then entire case has to be looked into thoroughly, therefore, it is not necessary to consider it again. According to the learned Departmental Representative, the details of 23 parties were not filed before the AO. The learned Departmental Representative further argued that the nature of bad debts was enquired by the AO, therefore, the CIT(A) was not justified in granting relief to the assessee. According to the learned Departmental Representative, no second person is available. As it is undisclosed income, so no bad debt could be claimed. The learned Departmental Representative lastly argued that provisions of Section 158BB have been amended, therefore, material recovered during survey could be considered.
38. The learned counsel for the assessee submitted that the details submitted in the affidavit are not additional evidence as it contain no fresh information. The same details were furnished at various stages of the block assessment proceedings/rectification proceedings under Section 154 of the IT Act and in the revision proceedings under Section 263 of the Act in relation to the block assessment order which took place simultaneously. All such details were submitted before the CIT(A) during the course of the appeal proceedings. According to him, the same computation cannot be treated as additional evidence as it was merely a compilation based upon the seized material in the form of computer printouts containing the ledger accounts for the financial years involved in the appeal as the same were supplied by the Department. The only question had been whether such peak was properly considered by the learned AO. The learned counsel for the assessee filed details of the case laws relied upon in support of his contention.
39. We have considered the rival submissions and have gone through the material available on record more carefully. Before taking into consideration various addition on the issues, it would be appropriate to consider the details submitted in the affidavit of Vinod Saraf (marked AR-I) and Annex.-I attached with this affidavit summarising all the peak and debits and credits, which was prepared by the assessee on the basis of the seized material and the details submitted by the learned Departmental Representative, (marked D.R.-I), which was prepared by the AO for the purpose of computation of undisclosed income.
40. The learned counsel for the assessee has referred to datewise summary (in A.R.-I, Annex.-I) during the course of hearing and has taken us to various dates, copy of which was also supplied to the learned Departmental Representative but no counter-affidavit has been filed. We, therefore, think it proper to decide the issue as to whether the statement giving datewise summary of the balances 'A.R.-I', Annex.-I represents additional evidence as submitted by the learned Departmental Representative and if so whether it requires consideration while deciding the appeal. In order to decide this point, it is necessary to discuss about the nature of these date-wise summary sheets (A.R.-I, Annex.-I). As stated earlier, during the course of search action that took place on 12th Feb., 1997, apart from seizure of regular books of accounts, those maintained by both the assessees in computer installation along with hard disc had also been seized. It is admitted fact that printouts were taken by the authorised officers themselves from the said hard disc and copies of the same were made available to the assessee. These computer printouts as per assessee contained 2614 ledger accounts. The AO had computed the undisclosed income of the assessee, although he had been selective in this regard. We have already mentioned that the number of the ledger accounts have not been specified by the learned Departmental Representative despite specific query raised by us. According to the learned counsel for the assessee, the assessee has mostly arranged all the entries appearing in the said seized ledger account date-wise and chronologically. This whole data as were available in the computer printouts have been reduced to the sheets as is mentioned in Annex.-I along with affidavit of Vinod Saraf (marked AR-I). In other words, the same very data as was available in the computer printouts has been presented in the form where all the debits and credits have been systematically arranged by the assessee. Therefore, there is no dispute that this was the same material which was taken into consideration by the AO while computing the undisclosed income, though on selective basis. The system of calculation of the AO may be different. Therefore, in our view the said compilation-Annex.-I in the affidavit of Vinod Saraf (marked AR-I) cannot be termed as additional evidence or information as stated by the learned Departmental Representative therefore, it could be considered for the purpose of deciding all the appeals of the assessee and the Department and the cross-objection filed by the assessee.
41. We may also mention here that the details submitted in Annex.-I in the affidavit of Vinod Saraf marked A.R.-I had also been placed by the assessee in the paper book-II from pp. 224 to 243 and the copies of the paper book were duly supplied by the assessee to the learned Departmental Representative before commencement of the hearing of the appeals. Therefore, such material was available with the Department, but the same was not controverted by any reply of the AO or of the learned Departmental Representative. We may also mention that the same submissions were also made before the CIT(A) in the submissions dt. 9th Aug., 2001 in the appeal proceedings against the order passed under Section 154 of the IT Act, 1961 and the same details which are mentioned as date-wise summaries of balances of ledgers and as mentioned in A.R.-I, Annex.-I were also available before the CIT(A) in those proceedings. The relevant submission of the assessee are reproduced for the sake of convenience which is mentioned in para 5 of submissions dt. 9th Aug., 2001 in paper book-II p. 222.
"5. The appellants also beg to submit that random selection of accounts, for the purpose of working out 'peak' which formed part of the overall computation of undisclosed income, could not have been resorted to in view of the definition of the term of undisclosed income which for the sake of ready reference is reproduced hereunder:
'158B(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 article, thing, entry in the books of account or other document or transaction represent wholly or partly income or property which has not been or would not have been disclosed for the purposes of this Act.' The cash book as a whole as had been made with the help of computer printouts (seized material) should be considered. We ourselves have tried to analyse the said seized material viz., computer printouts (copy of which was made available to us by your goodself) and the result is that--
(a) there is a negative cash balance of Rs. 45.50 lakhs (nearly) in the cash book; and
(b) peak of the cash balances was nearly Rs. 48 lakhs on a particular date.
Thus overall introduction of cash (on account of which addition had been made in the block assessment order) was Rs. 45.50 lakhs (rounded up) only and in case whole of the cash balance (peak) is taken as "undisclosed asset", the undisclosed income of both the firms taken together will not exceed Rs. 93.50 lakhs (rounded up) only. For verification of the said contention, we are enclosing herewith a statement showing working of day-to-day cash balances covering the entire period starting from 1st April, 1994 to 12th Feb., 1997."
We may also mention that the similar submissions were also made before the learned CIT(Central), Kanpur in the proceedings under Section 263 of the IT Act. The appeals of the assessee in ITA Nos. 304 and 305/All/2002 and cross-objections of the assessee are pending on the same issue before us for consideration along with Departmental appeals. Since the Departmental appeals and the appeals of the assessee against the order under Section 154 and cross-objections are taken together for hearing and were pending before us on the same question of working of the peak for the purposes of determination of undisclosed income, therefore, it is relevant and necessary to adjudicate upon the submissions which are raised on the basis of marked A.R.-I, Annex.-I, copies of which are also filed in the paper book as mentioned above.
42. The powers of the Tribunal are defined under Section 254(1) of the IT Act, 1961 in which it is mentioned. "The Tribunal may, after giving both the parties to the appeal, an opportunity of being heard, pass such orders thereon as it thinks fit." Section 255(6) of the IT Act, 1961 is reproduced below for the sake of convenience:
"Section 255(6):--The Tribunal shall, for the purpose of discharging its functions, have all the powers which are vested in the IT authorities referred to in Section 131, and any proceeding before the Tribunal shall be deemed to be a judicial proceeding within the meaning of Sections 193 and 228 and for the purpose of Section 196 of the Indian Penal Code (45 of 1860), and the Tribunal shall be deemed to be a Civil Court for all the purposes of Section 195 and Chapter XXXV of the Code of Criminal Procedure, 1898 (5 of 1898)."
Therefore, the combined reading and plain interpretation of all these provisions of the IT Act above, would emerge that the Tribunal is vested with powers of a Civil Court under Civil Procedure Code when trying a suit as stated above and the proceedings before it are judicial in nature. Section 254 gives wide powers on the Tribunal to "pass such order thereon as it thinks fit" but the only fetter put by the legislature upon the Tribunal is to give opportunity of hearing to both the parties. These powers are to be exercised in all matters pending before the Tribunal.
43. The Hon'ble Kerala High. Court in CIT v. Smt P.K. Noorjehan (1980) 123 ITR 3 (Ker) has held "the right of appeal to the Tribunal and the powers of the Tribunal are to be found in Section 254 of the Act. Under Section 254, the Tribunal is to pass 'such orders on the appeal as it thinks fit," This is a wide power that is conferred upon the Tribunal. Unlike the case of a second appeal to this Court under Section 100 of the CPC, the power of interference by the Tribunal is not in anyway limited to consideration of questions of law or otherwise, so that it is open to the Tribunal to interfere with the judicial discretion exercised by the lower authorities and substitute the same by its own discretion."
44. The Punjab High Court in the case of Bipan Lal Kuthiala v. CIT (1957) 32 ITR 361 (Punjab) has held "the powers of the Tribunal in dealing with appeals are wider still, for Sub-section (3) of Section 33 enacts that the Tribunal may after giving both parties to the appeal an opportunity of being heard, "pass such orders thereon as it thinks fit." It may affirm, reverse or modify any order appealed from as justice may require, or may remand the case for further proceedings without determining the issues on the appeal, or finally dispose of the case by entering judgment or directing the Asstt. CIT to enter a particular judgment, The Tribunal can compel the production of documents, enforce the attendance of witnesses and issue commissions for their examination. They follow a procedure which conforms in many respect to that followed by Courts; i.e., the same functions as a Court and their proceedings partake of the nature of judicial proceedings. They have power to take and weigh evidence, to determine facts based upon the consideration of evidence and to make an order supported by findings. They have power to hear, to determine, and to enforce. The powers exercised by them affect the personal and private rights of private individuals and their determinations are final and conclusive. They must proceed in a judicial spirit, conform to rules of natural justice and come to judicial conclusions upon properly ascertained facts. Discretion conferred on a judicial or quasi-judicial Tribunal is an impartial legal discretion to be exercised in conformity with the spirit of law and in a manner to subserve rather than to defeat substantial justice.
45. The Hon'ble apex Court in the case of Esthuri Aswathiah v. CIT (1967) 66 ITR 478 (SC) has held "the function of the Tribunal in hearing an appeal is purely judicial. It is under a duty to decide all questions of fact and law raised in the appeal before it; for that purpose it must consider whether on the materials relied upon by the assessee his plea is made out. Conclusive proof of the claim is not predicated; the Tribunal may act upon probabilities, and presumptions may supply gaps in the evidence which may not, on account of delay or the nature of the transactions or for other reasons, be supplied from independent sources. But the Tribunal cannot make arbitrary decisions, it cannot found its judgments on conjectures, surmises or speculation. Between the claims of the public Revenue and of the taxpayers, the Tribunal must maintain a judicial balance."
46. The Hon'ble Supreme Court in the case of Hukumchand Mills Ltd. v. CIT (supra) held--
"The powers of the Tribunal in dealing with appeals are expressed in Section 33(4) of the IT Act in the widest possible terms. The word "thereon' in Section 33(4) restricts the jurisdiction of the Tribunal to the subject-matter of the appeals. The words "pass such order as the Tribunal thinks fit" include all the powers (except possibly the power of enhancement) which are conferred on the AAC by Section 31."
The Hon'ble Supreme Court further held--
"In the present case, the subject-matter of the appeal before the Tribunal was the question as to what should be the proper written down value of the buildings, machinery, etc. of the assessee for calculating the depreciation allowance under Section 10(2)(vi) of the Act. It was certainly open to the Department, in the appeal filed by the assessee before the Tribunal, to support the finding of the AAC with regard to the written down value on any of the grounds decided against it. It was argued on behalf of the appellant that the action of the Tribunal in remanding the case is not strictly justified by the language of Rule 27 or Rule 12. Even assuming that Rule 12 and 27 are not strictly applicable, we are of the opinion that the Tribunal has got sufficient power under Section 33(4) of the Act to entertain the argument of the Department with regard to the application of paragraph 2 of the Taxation Laws Order and remand the case to the ITO in the manner it has done. It is necessary to state that Rules 12 and 27 are not exhaustive of the powers of the Tribunal. The rules are merely procedural in character arid to not, in any way, circumscribe or control the power of the Tribunal under Section 33(4) of the Act. We are accordingly of the opinion that the Tribunal had jurisdiction to entertain the argument of the Department in this case and to direct the ITO to find whether any depreciation was actually allowed under the Industrial Tax Rules and whether such depreciation should be taken into consideration for the purpose of computing the written down value."
In this case, the Tribunal permitted the Department to raise the contention even being as the respondent. The Hon'ble Supreme Court in the above case, observed that the Tribunal had jurisdiction to permit the question to be raised for the first time in appeal.
47. The Hon'ble Supreme Court in the matter of Kapurchand Shrimal v. CIT (1981) 131 ITR 451 (SC) held--
"It is well known that an appellate authority has the jurisdiction as well as the duty to correct all errors in the proceedings under appeal and to issue, if necessary, appropriate directions to the authority against whose decision the appeal is preferred to dispose of the whole or any part of the matter afresh, unless forbidden from doing so by statue."
48. The Hon'ble Calcutta High Court in the matter of Raja Baldeodas Birla Santatikosh v. CWT (1991) 189 ITR 613 (Cal) held--
"In an appeal, it is open to the Tribunal to interfere with the discretion exercised by the lower authorities and substitute it by its own discretion. It is also open to the Tribunal to direct the authority to exercise its discretion where failure of such authority to exercise such discretion may result in an improper assessment."
49. The Hon'ble Supreme Court in the matter of CIT v. Mahalakshmi Textile Mills Ltd. (supra) held--
"Under Section 33(4) the Tribunal is competent to pass such orders on appeal "as it thinks fit". There is nothing in the IT Act which restricts the Tribunal to the determination of questions raised before the Departmental authorities. All questions, whether of law or of facts, which relate to the assessment of the assessee may be raised before the Tribunal. If for reasons recorded by the Departmental authorities in respect of a contention raised by the assessee, grant of relief to him on another ground is justified, it would be open to the Departmental authorities and the Tribunal and indeed they would be under a duty, to grant that relief. The right of the assessee to relief is not restricted to the plea raised by him."
50. The Hon'ble Supreme Court in the matter of CIT v. Mahalaxmi Sugar Mills Co. Ltd. (supra), held--
"There is duty cast on the ITO to apply the relevant provisions of the Indian IT Act for the purpose of determining the true figure of the assessee's taxable income and the consequential tax liability. That the assessee fails to claim the benefit of set off cannot relieve the ITO of his duty to apply Section 24 in an appropriate case."
51. The Hon'ble Gauhati High Court in the matter of Assam Company (India) Ltd. v. CIT (2002) 256 ITR 423 (Gau), held--
"The purpose of assessment proceedings before the taxing authority is to assess correctly the tax liability of an assessee in accordance with law. It is the duty of the taxing authorities to correctly assess the tax liability of an assessee by duly following the relevant provisions of law.
The language used in Section 254(1) of the IT Act, 1961, conferring powers on the Tribunal is in the widest possible terms. The ITAT Rules, 1963, framed by the Tribunal in exercise of its power under Section 255(5) of the Act are wholly for the purpose of regulating its own procedure and the procedure of the Benches of the Tribunal. The Rules therefore embody the principles of procedure to be followed by the Tribunal and its Benches for the discharge of its functions. The scheme of the Rules read as a whole does not suggest that the rules in any way have the effect of curtailing or circumscribing the power, authority and jurisdiction of the Tribunal in dealing with matters at its disposal. There is no prohibition in the rules totally precluding the Tribunal from considering any ground beyond those mentioned in the memorandum of appeal filed by a party, whether the assessee or the Department, in the absence of an appeal or the cross-objection by the other side projecting the new ground. It is a settled principle that procedural law is the hand-maid of justice. This view is enforced by the language of Rule 11 which does not require the Tribunal to be confined to the grounds set forth in the memorandum of appeal or taken by leave of the Tribunal provided the party who may be affected thereby had sufficient opportunity of being heard on that ground. There cannot be any estoppel against law. It is permissible on the part of the Tribunal to entertain a ground beyond those incorporated in the memorandum of appeal though the party urging the said ground had neither appealed before nor had filed a cross-objection in the appeal filed by the other party. However, if the assessee or the Department, without filing any appeal or a cross-objection seeks to urge a ground other than the grounds incorporated in the memorandum of appeal filed by the other side, the evidentiary fact in support of the new ground must be available on record."
The Hon'ble Gauhati High Court further held--
"That the Tribunal erred in not considering the contentions of the assessee that the warehouse charges were covered by Sub-clause (iv) of Section 35B(1)(b) of the Act, only on the ground that the assessee has not filed any appeal or the cross-objection."
52. All the above referred authorities are clearly applicable to the case of the assessee. The point before us had been the computation of undisclosed income on the basis of peak worked out from the seized material. The AO has prepared compilation of the peak, summary of which is filed in the paper book marked D.R.-I, on the basis of selective entries of ledger. However, the assessee has prepared the peak on the basis of the entire seized material and that too date-wise and chronologically. It is undisputed that those ledgers were recovered during survey operation. Therefore, no new material was produced before us: Even otherwise the facts mentioned above clearly suggest that this Tribunal has to consider the case of the assessee and the Revenue on the basis of entire seized material recovered during search operation. The peak should be worked out and considered on the basis of the entire material recovered during the search. The contentions so raised before us would decide the substantial rights of the parties. Therefore, in our view contentions of the learned Departmental Representative has no force and are liable to be rejected. We have already pointed out above that in the cross-objections and appeals of the assessee, the same material was produced before the CIT(A), therefore, it could not be ignored while deciding the appeals. We also mention here that Tribunal being the final fact finding authority, has to look into all the aspects of the material, may be legal or factual which are available on record. The only fetter upon it is that the other party should be given due and effective opportunity of being heard. In this case, copies of the paper book were supplied to the learned Departmental Representative well in advance and the copy of the affidavit of Vinod Saraf with marked A.R.-I Annex.-I was also supplied to learned Departmental Representative and we have heard the learned representatives of the parties on all the aspects of the matter of this issue. Therefore, considering the above facts it could not be held that Annex.-I, II and III filed along with the affidavit of Vinod Saraf (Marked A.R.-I) represent any additional evidence. But these are the compilation of the material already on record and, therefore, the same are necessary and relevant for proper decision of all the issues involved in all the appeals of the assessee and Department and cross-objections of the assessee in accordance with law. Hence the Annexures filed in the affidavit and details submitted in the paper book deserves consideration by the Tribunal.
53. The learned Departmental Representative relied upon the decision of the Hon'ble Kerala High Court in the matter of CIT v. N.T.A. Kareem (supra) in which it was held that the word "thereon" restricts the jurisdiction of the Tribunal to the subject-matter of appeal and the subject-matter of the appeal is constituted by the original grounds of appeal and such additional grounds as may be raised by leave of the Tribunal. The learned Departmental Representative also relied on the decision of the Hon'ble Supreme Court in the case of Hukumchand Mills Ltd. v. CIT (supra) and argued that the word "thereon" restricts the jurisdiction of the Tribunal to the subject-matter. We have already mentioned this decision above in which the Department, being the respondent, was allowed to raise contention which was not raised earlier. The learned Departmental Representative also relied upon decision of Calcutta High Court in the matter of Indian Steel & Wire Products Ltd. v. CIT (supra) in which additional ground was raised being alternate ground and Hon'ble High Court held that the Tribunal very correctly declined to admit the alternate ground. However, this is not so in the matter before us. The learned Departmental Representative further relied on the decision of Madras High Court in the matter of S.N. Swaranammal v. CED (supra) in which the Hon'ble Madras High Court held that the additional ground raised for the first time was correctly refused. The learned Departmental Representative also relied upon the decision of the Hon'ble Supreme Court in the matter of Manji Dana v. CIT (supra) in which the Tribunal observed that the contention sought to be raised before them had never been taken before the ITO or before the AAC and the question raised would necessary require investigation of fresh facts and was not permitted. The learned Departmental Representative further relied on the decision of the Hon'ble Madras High Court in the case of T.V. Sundaram Iyengar & Sons Ltd. v. CIT (supra) in which the additional ground was refused. The learned Departmental Representative also relied on the decision of the Hon'ble Bombay High Court in the matter of Ram Kumar Jalan v. CIT (supra) in which the application of the assessee to raise additional ground of appeal was disallowed by the Tribunal
54. We respectfully state that all these authorities are not applicable and are clearly distinguishable on facts. There is no absolute law to refuse additional ground in each and every case. It depends on various facts and circumstances. The allowing or refusing additional grounds would depend upon the facts of each case. However, in this case we have already observed above that the plea so raised by the assessee on the basis of summary of the peak datewise was raised before the CIT(A) in the proceeding under Section 154 of the IT Act, 1961. Same plea was also raised before the CIT(Central), Kanpur in the proceedings under Section 263 of the IT Act. Therefore, it cannot be termed as additional ground or additional information. Whatever material was seized during the search was compiled by the assessee datewise to work out the correct peak which would form the basis of computation of undisclosed income. Therefore, in our considered view, it would be relevant and appropriate to take into consideration the above facts mentioned in the affidavit of Vinod Saraf (marked A.R.-I) and as mentioned in Annex.-I, copies of which are also filed in the paper book. We, therefore, reject the contention of the learned Departmental Representative that the facts mentioned in the affidavit could not be taken into consideration. We are of the view that the annexure of the said affidavit as stated by us earlier, deserve our consideration, while deciding the various grounds of appeal raised in the appeals of the Department, assessee and cross-objections of the assessee.
55. Before proceeding further to decide this issue of the computation of the undisclosed income and the basis of the peak, it would be relevant to take other issues for the purpose of the disposal of the Departmental appeals.
Bad Debts
56. On the issue of bad debts amounting to Rs. 21,96,984, the CIT(A) allowed the claim of the assessee with which the Revenue is aggrieved. We do not agree with the argument of the learned Departmental Representative that the claim for bad debts is not admissible in block assessments. Section 158BB(1) clearly lays down that the undisclosed income of the block period shall be aggregate of total income of the previous year falling within the block period computed in accordance with the provisions of the Act. Section 158BH provides "save as otherwise provided in this Chapter, all other provisions of the Act shall apply to assessment made under this Chapter." From the above analysis, it follows that the claim of bad debts is admissible in principle in block assessment made under Chapter XXIV-B. However, this analysis alone would not go to resolve the controversy either way. The claim of bad debts is admissible under Section 36(1)(vii) of the IT Act which falls in Chapter IV-D dealing with the computation of profits and gains of business or profession. Therefore, the claim of bad debts is admissible only against the business income and under no other head of income not even in residuary head. In the present case, computation of undisclosed income is based on debits in computer printouts which has been treated as undisclosed assets of the assessee firm. Such undisclosed assets are admissible under Section 69 or Section 69A of the IT Act, 1961 under the head "income from other sources'. Such head of income is different from the head "profits and gains of business or profession". In the present case, no undisclosed income as such under the head "profits and gains of business or profession" has been assessed in block assessment. The learned Departmental Representative has, therefore, argued that the bad debts can be claimed against business income and not against undisclosed income. The learned Departmental Representative also rightly argued that the cash credit cannot be bad debt as it represents income of the assessee. Bad debt could be claimed if it represents income derived from some other person. The claim of bad debt is, therefore, not admissible to the assessee. We also agree with the submission of the learned Departmental Representative that the claim for bad debt could be allowed only on examination of accounts of the assessee as the bad debts under Section 36(1)(vii) could be allowed subject to provisions of Sub-section (2) of the IT Act, 1961 and we find that even the condition of Section 36(2)(i) of the IT Act, 1961 is not complied with in this case. Accordingly findings of CIT(A) are reversed and findings of AO are restored. The Departmental appeals on these grounds are accordingly allowed.
Excess Stock
57. The other issue involved in the Departmental appeals was the addition deleted by the CIT(A) on account of excess stock found during the course of survey under Section 133-A of the IT Act, 1961 and profit/stock found to be short, which has been treated to have been sold outside the books of accounts.
58. The learned CIT(A) has allowed the relief to the assessee looking to the volumes of the stock and the possibility of error in accounting. The learned Departmental Representative argued that the CIT(A) has wrongly allowed relief to the assessee. However, the counsel for the assessee supported the finding of the CIT(A).
59. We have considered the submissions in detail which are incorporated above. It is admitted fact that the discrepancies in the stock were detected as a result of survey under Section 133A of the Act. Chapter XIV-B is applicable only to the persons subject to search and computation of undisclosed income and it has to be necessarily based on material found during the course of search under Section 132 of the IT Act, 1961. The scope of survey under Section 133A was entirely different and the information gathered during the course of survey cannot be made the basis of addition in block assessment. The learned counsel for the assessee relied on the decision of the Lucknow Bench of Tribunal in the case of Dr. Ratan Kumar Singh v. Asstt. CIT in ITA No. 140 of 1997, dt. 31st May, 2003, copy of which has been filed. In that case, there was a search under Section 132(1) at the residential premises of the assessee from where no incriminating documents were found. Search was also carried out at the business premises of the assessee and during the course of survey, certain records were found and on that basis addition was made. The said additions were deleted on the ground that the same were outside the purview of block assessment. We find that the Tribunal, Lucknow Bench has considered the other decisions of the co-ordinate Benches while arriving at the said decision. By following the same decision of Lucknow Bench in the case of Dr. Ratan Kumar Singh (supra), we hold that the additions of Rs. 62,674 and Rs. 90,911 as has been made in the cases of both the assessees are not maintainable. We accordingly uphold the finding of the CIT(A) and dismiss the Departmental appeals on this issue. We may mention that the Departmental appeals are dismissed without considering the merits of the claim of the Revenue. As a result, this ground of appeals of the Revenue in the case of both the assessees is dismissed.
Computation of peak
60. The last issue is about the working of the peak of balances in large number of ledger accounts as appearing in computer printouts which had formed the sole basis of computation of undisclosed income, whether in block-assessment or in the rectification order under Section 154 in relation to the same from either assessment order or the proceedings under Section 263 of the IT Act as a result and conclusion of which the block assessment order itself has been set aside. Therefore, the main issue was only, i.e., manner of computation of peak of the balances and the inference that could be legitimately drawn from the working of the peak.
61. It is necessary to mention here that the data for the financial year 1996-97 as taken by the Department from the hard disc got mixed up and in the ledger accounts even such entries were referable to--
(i) Bills issued by the two firms in the regular course;
(ii) Bills received from customers through demand drafts/cheques.
The amounts deposited in the bank and withdrawn from the bank also got included although such amounts had duly appeared in the books of accounts. While giving copies of computer printouts, the AO in all fairness had segregated the figures directly to manual account and had duly specified the remaining figures that were liable to be considered in block assessment. This is borne out from the documents filed in the paper book and also finding given in paragraph 4(i) of the block assessment order. While compiling the statement referred to above, the assessee has duly taken into account all the remaining figures other than the figures which got squared out by corresponding entries in the manual set of accounts.
62. We are constrained to mention that at no stage the authorities gave a serious consideration to the points submitted by the assessee on the issue. As may be seen from the submissions of the assessee at various stages, the case of the assessee had been--
(i) That the block assessment order is separate and distinct from regular assessment order;
(ii) The computation of undisclosed income should be made strictly on the basis of computer printouts without any reference to the manual set of accounts referred to, regular books which had formed the basis of filing of the returns in normal course of asst. yrs. 1995-96 and 1996-97 and also for the asst. yr. 1997-98. The extension of the above plea was that the accounts as appearing in the computer printouts should be considered for the purposes of working out of the peak relevant for computation of undisclosed income and the working of the peak on the basis of pick and choose of the accounts should be avoided.
(iii) Lastly during the course of rectification proceedings under Section 154 both the assessees itself carried out the requisite exercise by preparing data-wise cash book from computer printouts and then from such cash book prepared a summary of the balances as arranged datewise (marked Annex-1). The said summary revealed that peak of the outgoings in that in the form of debits in the ledger accounts appearing in computer printouts was Rs. 47,60,184.70, which was worked out on 18th Dec., 1995 and peak of the negative cash balance as on 29th Jan., 1997 was Rs. 45,49,628.19 (credit balance).
63. We may also mention that during the course of assessment proceedings, the assessee vide explanation dt. 14th Sept., 1998 which is reproduced above, has specifically pleaded before the AO that unless full account is considered in totality and the peak of the alleged unexplained cash credits is made, alleged addition on the basis of working of cash credit supplied by the AO is unjustified, unsupportable in law and on facts and in any case, unsustainable. The assessee in the similar explanation stated before the AO that from the perusal of the notice and account-wise details of alleged unexplained credit, following legal lacunas are noted:
(a) You have taken only entire credit of whole year of the alleged cash credit account as unexplained instead making a date-wise peak of all the accounts;
(b) The debits prior to the credits have not been considered and set off as per standard practice and legal norms.
Therefore, the assessee submitted before the AO to make proper and detailed examination and investigation de novo because the details provided are neither correct nor revealed correct state of affairs. Despite the above explanation, the AO has not considered all the printouts of ledger accounts in the matter to work out the peak. During the course of arguments, the learned Departmental Representative could not specify about the details of the 23 parties upon which the learned CIT(A) has granted relief. Even the learned Departmental Representative could not point out as to how many accounts were considered by the AO while calculating the peak. It was very clear from the material available on record that the entire seized material in the form of ledger was not considered by the authorities below while working out the peak of the balances to make the addition by way of undisclosed investment in the block assessment. During the course of arguments, we have directed to supply this information but no information is yet supplied by the learned Departmental Representative. However, the assessee has submitted a chart according to which, the number of accounts as per original printouts used in all the three years had been 2614 and the number of accounts selected by the AO during the course of block assessment were 814 (in financial year 1994-95), 667 (in financial year 1995-96) and 688 (in financial year 1996-97) and, thus, only 2169 accounts were used by the AO while working out the peak of the balances. Paper book-II/213 is reply of AO in which he has admitted before CIT(A) that peak was taken on selection of ledger accounts. Therefore, by no stretch of imagination, it could be considered that the entire seized material was used by the AO while working out the peak of the balances.
It is needless to mention that ledger accounts represent entries recorded in cash book. Therefore, without recording all entries in cash book date-wise in chronological order, no proper ledger accounts would be made out. All entries in cash book are, therefore, most relevant and primary evidence under tax law. If all entries of cash book are not taken into consideration while making ledger accounts, then no proper final accounts could be prepared.
64. We may also mention that despite the aforesaid plea taken by the assessee, the case of the assessee was not considered in proper perspective and the contention of the assessee was rejected in a casual manner. After insertion of Explanation, which has three limbs (a), (b) and (c) from 1st July, 1995 itself, it stood clarified beyond doubt that block assessment under Chapter XIV-B can be made only in relation to undisclosed income and for the assessment of other income, the course is regular assessment. Both, the assessments are independent of each other and the income assessable in regular assessment cannot be included in the block assessment and vice versa. .
65. In the case of both the assessees, two sets of accounts were found during the course of search, which we have already referred to above and even in the submission of the learned Departmental Representative. The entries falling in third set which got included in the computer printouts in the financial year 1976-77 have already been segregated by the AO himself while supplying copies of computer printouts to the assessee. Therefore, there remains the deposits of only two sets of entries. In other words, the said two sets of entries define the outer limb of undisclosed income as assessable in block assessment. Looking to the nature of both the sides of entries, it is not necessary even to go into the nature of the credit in the manual sets, which have been termed as peak credits by the Revenue-Department. The reason being that the effect of such entries also got included in the overall peaks of the computer printouts. In view of our finding as aforesaid, it is not necessary to go into the arguments submitted on behalf of the assessee to the effect that the credits in the manual set of accounts could not be termed as bogus simply on the basis of statement as given by both the parties before the ADI (Inv.). Even if information collected by the ADI (Inv.) is treated to be the extraneous material in view of the decision of the Tribunal in the case of Moga Metals (P) Ltd v. Asstt. CIT (2000) 67 TTJ (All) 247 by taking into account aggregate of debits appearing in the computer printouts, the aggregate of various credits as appearing in the manual set of accounts also stand considered. Therefore, the issue whether any adverse inference could have been drawn in relation to the credits appearing in the manual set of accounts on the basis of statements recorded by the ADI wing is wholly academic and for this reason, we do not intend to go further into this aspect of the matter.
66. The summary of peak (marked A.R.-I) has been placed before the authorities below at various stages and the same formed part of the paper book also. Even if the affidavit of Vinod Saraf is ignored at this stage, the fact remains that the Annexure thereto which are summary (Annex.-I) was filed before the CIT(A) during the course of hearing of the appeal against the order under Section 154 and the submissions made before the CIT(Central), Kanpur during the course of proceeding under Section 263 of the IT Act. Both such matters are also connected with the present appeals. In terms of the discussion appearing above, we have already held that these Annexures do not even constitute additional information or additional evidence. It is not disputed that the said summary of the peak (A.R.-I) has been compiled solely on the basis of computer printouts supplied by the Revenue-Department itself. Even during the course of arguments, nothing is pointed out by the learned Departmental Representative that the said summary of the peak was not in accordance with the material supplied by the AO to the assessee on the basis of the seized material. The learned Departmental Representative mainly argued that such facts were not brought to the notice of the AO, but as is already mentioned above, the assessee submitted before the AO that the peak of the debit may be taken on the basis of full accounts by considering the case in totality. It was also submitted before the AO that while working out the peak the entire seized material be considered. Therefore, even if the assessee has prepared the said summary of the peak on the basis of the seized material, it was the duty of the AO to prepare the peak of the summary on the basis of entire seized material. We fail to understand as to how the AO has worked out the peak on the basis of pick and choose. It is settled law that in the block assessment, the computation of undisclosed income could be made only on the basis of seized material and matters seized during search. The AO cannot ignore some material. The law is also very clear that even if any loss is worked out on the basis of seized material, the set off of the loss has to be granted to the assessee. We are fortified in our view by order of Tribunal, Lucknow Bench dt. 4th Sept., 2003 in the case of M/s Singhania Polyester (P) Ltd. Therefore, the action of the AO was clearly unjustified to the extent that he has not considered the entire seized material while working out the peak. The action of the AO is itself unjustified and arbitrary.
67. The learned counsel for the assessee on the basis of working out of the entire seized material, intimated that on 18th Dec., 1995, there was a peak of debit balance in a sum of Rs. 47,60,184.70 and the credit balance of negative cash as on 29th Jan., 1997 was Rs. 45,45,49,628.19. Therefore, it appears that the peak of the negative credit balance is covered by the peak of debit balance.
68. On the basis of the above facts, the question that comes up for consideration is that how the undisclosed income of the assessee taken together should be calculated and worked out. In our view no defect whatsoever is encountered in this regard as Chapter XIV-B itself is a complete code. The provisions particularly those contained in Section 158BB read with Explanation thereto clearly goes go show that the income has to be computed in accordance with the provisions of this Act. The Act clearly lays down in terms of Sections 69 and 69A that such money, bullion, jewellery, article or thing and investments etc. source of which remained unexplained may be treated as income of the assessee. In the case of repetitive transactions appearing over a period of year or years, such transactions should be placed chronologically, datewise as the first entry and debit or credit as the case may be, shall provide the source for the subsequent entries. The learned counsel for the assessee during -the course of arguments, filed copy of the guidelines available in the Sampath Iyengar's Law of Income-tax Vol. 3, 9th Edn., p. 3547 to support such view. The same extract is reproduced as under:
"16. 'Peak credit' theory--One of the commonest defects of an assessee, where a single credit or number of credits appear in the books in the account of any particular person side by side with a number of debits is that they should all be arranged in serial order, that a credit following a debit entry should be treated as referable to the latter to the extent possible and that, not the aggregate but only the "peak" of the credit should be treated as unexplained. To give a simple example, suppose there are credits in the assessee's books in the account. A of Rs. 5,000 each on 1st Oct., 1990 and again on 5th Nov., 1990 but there is a debit by way of repayment shown on 27th Oct., 1990, the explanation will be that the credit appearing on 5th Nov., 1981 has or could have come out of the withdrawal/repayment on 27th Oct., 1981. This plea is generally accepted as it is logical and acceptable (whether the creditor is a genuine party or not), provided there is nothing in the material on record to show that a particular withdrawal/repayment could not have been available on the date of the subsequent credit.
A refinement or extension of the plea occurs where the credits appear not in the same account but in the accounts of different persons. Even then, if the genuineness of all the persons is disbelieved and all the credits appearing in the different accounts are held to be the assessee's own moneys, the assessee will be entitled to set off and a determination of the peak credit after arranging all the credits in the chronological order."
69. Such proposition was also considered by Hon'ble Allahabad High Court in the matter of CIT v. Neemar Ram Badlu Ram (supra) in which the relevant paragraphs are reproduced as under:
"The Tribunal also did not agree with the Departmental authorities that, merely because the assets in the balance sheet changed from time to time, the difference would not be available for explaining a similar difference in subsequent years."
The Tribunal inferred that there was a connection between unexplained assets and unaccounted moneys used in the business from year to year and observed:
"If a particular asset was sold and in its place new asset is purchased, that does not mean that fresh unaccounted money has been utilised; it is the same money that has changed face. An assessee cannot certainly be taxed on the change of investment every time."
The Hon'ble Allahabad High Court, considering the above facts of the case and observation of the Tribunal mentioned above, was of the view that the finding of the Tribunal cannot be said to be groundless. It was further held that the findings of the Tribunal are not speculative and the reference of the Revenue was dismissed.
70. The learned counsel for the assessee also filed copy of the CBDT circular No. 14 of 1955 dt. 11th April, 1955, which is reproduced as under:
"Officers of the Department must not take advantage of ignorance of an assessee as to his rights. It is one of their duties to assist a taxpayer in every reasonable way, particularly in the matter of claiming and securing reliefs and in this regard the officers should take the initiative in guiding a taxpayer where proceedings or other particulars before them indicate that some refund or relief is due to him. This attitude would, in the long run, benefit the Department for it would inspire confidence in him that he may be sure of getting a square deal from the Department. Although, therefore, the responsibility for claiming refunds and reliefs rests with the assessee on whom it is imposed by law, officers should--
(a) draw their attention to any refunds, or reliefs to which they appear to be clearly entitled but which they have omitted to claim for some reason or other;
(b) freely advise them when approached by them as to their rights and liabilities and as to the procedure to be adopted for claiming refunds and reliefs."
71. The learned counsel for the assessee also referred to the decision of the Nagpur Bench of the Tribunal in the matter of Dy. CIT v. Sanmukhdas Wadhwani (supra). The relevant paragraphs 11.12 and 13 are reproduced below:
"11. The "undisclosed income" as defined in Clause (b) of Section 158B 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 article, thing, entry in the books of account or other document or transaction represents wholly or partly income or property which has not been or would not have been disclosed for the purpose of the IT Act. The manner and method of computation of undisclosed income of the block period is given in Section 158BB according to which the undisclosed income of the block period, in simple terms shall be the aggregate of the total income (undisclosed income as well as disclosed income) of the previous years falling within the block computed in accordance with the provisions of Chapter IV as reduced by aggregate of total income or increased by aggregate of losses (i.e. disclosed income) of such previous years. The aggregate of such total income referred to in Section 158BB is to be computed on the basis of evidence found as a result of the search/requisition and such other materials or information as available with the AO at the time of making the block assessment. Clause (c) of Section 158BC envisages passing an order of assessment and determination of the tax payable after determination of the undisclosed income of the block periods and the order of the assessment so passed by the AO should specify the manner in which the undisclosed income of the block period has been computed by him. It is, thus, clear that Chapter XIV-B, which is a self-contained code, defines the expression "undisclosed income" chargeable to tax in the special assessment and the manner and method of computation of such income is also specified therein. In accordance with these special provisions, the AO is required to determine the undisclosed income of the block period in a specific manner and the findings of the AO regarding the undisclosed income are to be based on the material found as a result of search. A combined reading of these provisions makes it clear that the amount which is taxable as "undisclosed income" in the block assessment should fall within the scope and ambit of the definition expressly given in Chapter XIV-B and the amount which is not covered by the said definition cannot be subjected to tax in the block assessment, even though declared as such by the assessee in the return of income for block period. The procedure laid down in Chapter XIV-B also reveals that the AO has to determine the undisclosed income of the block period in the manner specified in Section 158BB and this exercise is independent of the return filed by the assessee for the block period. At this stage, it is useful to refer to the observations recorded by the Pune Bench of Tribunal in the case of Control Touch Electronics (Pune) (P) Ltd. v. Asstt. CIT (supra) to the effect that, if any income is not taxable by virtue of any provision of the Act, then it cannot be taxed merely because it was offered by the assessee in his return of income and there cannot be any such estoppel against statute.
12. It is observed that a similar issue in the context of regular assessment arose for consideration before the Hon'ble Delhi High Court in the case of CIT v. Bharat General Insurance Co. Ltd. (1971) 81 ITR 303 (Del),, wherein it was held by their Lordships that even if an assessee declares an income in the return, the AO cannot assess it merely on that basis and he has to consider its taxability in the light of other circumstances de hors the admission made in the return. In the case of Narayanan v. Gopal AIR 1960 SC 235, the Hon'ble Supreme Court has held that an admission in the return is not conclusive and it would be decisive only if not subsequently withdrawn or proved to be erroneous. It is well established that the object of an assessment is to determine the correct income and consequently the correct tax liability. In our opinion, this settled position equally holds good in the matter of block assessment also since the scope of undisclosed income assessable in the block assessment is specifically provided and the procedure for determination of such income is also clearly laid down. In these circumstances, any amount which is not assessable as undisclosed income for the block period cannot be assessed as such merely for the reason that the same was declared by the assessee in the return for block period and there cannot be such estoppel against the statute. It, therefore, follows that if the assessee commits a patent mistake of fact or law while filing his return of undisclosed income under Section 158BC, he cannot be assessed on such incorrect income merely on the basis of admission made in the return.
13. It is worthwhile to note here that the computation of undisclosed income of block period as provided by Section 158BB(1) is highly technical and complicated and it would be rather unjust to require an assessee to compute his undisclosed income correctly and precisely in a short period available for filing the block return. In the present case, a search and seizure operation was conducted simultaneously in the group cases related to the assessee and considering the various documents found during the course of search from the possession of different assessees, there was apparently no alternative but to compute the undisclosed income of the entire group in a consolidated manner and declare the same in the hands of different assessees belonging to one group on ad hoc basis. This is also evident from the fact that the assessee himself returned his undisclosed income for the block period at Rs. 7 lakhs on ad hoc basis without giving any break-up of the said amount. In such circumstances, when a detailed working made subsequently by the assessee of undisclosed income revealed that the total undisclosed income assessable in the hands of the assessee was lower than the returned income, we are of the opinion that the same has to be assessed at such lower, amount going by the concept of real income especially when the said working, was verified and found to be correct by the AO."
72. Considering the above discussion and the facts and circumstances of the case, if we give a close look to the block assessment order dt, 24th Feb., 1999 and the summary supplied by the learned Departmental Representative (D.R.-I) which is annexure of the assessment order, the AO himself has applied this theory. The only difference is that he has worked out the peak of the balances accountwise at the end of the year and that too without taking into consideration of all the accounts appearing in the computer printouts. In our considered opinion, the approach of the AO was unjustified in this regard. The correct principle is, as laid down by eminent jurist, Sampath Iyengar in the book referred to above and also ratio laid down in the case of Neemar Ram Badlu Ram (supra) that each debit and credit should be arranged chronologically irrespective of the fact that such debit/credit appearing in the accounts and that from each receipt and payment, the balances should be struck. Such a balance then would go to cover all the earlier and subsequent receipts, payment, investments etc. to the extent of the peak and that is assessable as undisclosed income in the hands of the assessee.
73. In the above cases, undisputably the peak of the debits which has been held to be represented unaccounted asset even by the assessee, would amount to Rs. 47,60,184.70 as per compilation submitted by the assessee (marked A-I). This date is very crucial, as it is only after the said date that peak of the negative cash balances appeared. In other words, if the peak of the debit balances as mentioned above, is considered as income, the same will cover negative cash balance also occurring later on. Therefore, the higher of the two figures mentioned above represented by net peak of the debit/credit is liable to be treated in principle the undisclosed income of the assessee. The learned Departmental Representative, during the course of arguments, merely stated that such facts were not brought to the notice of the AO and also stated that the said summary (marked A.R.-I) is incorrect and unreliable for the sole reason that it contained negative cash balances on a number of days, which is an impossibility. In our considered view, this cannot be a valid reason to dispute arithmetical accuracy of the said summary. From the negative cash balances as appearing in the said summary of the balances (marked A.R.-I) the. only logical conclusion that emerges is that the payments exceed receipts (to the extent of negative cash balance) on various dates, the source of which remained unexplained. Therefore, such an excess payment over the receipts represents nothing but undisclosed income of the assessee liable to be assessed as such in the block assessment, subject to the set off against the peak of debit/credit entries.
74. We are also aware of the fact that though the assessee has filed explanation before the AO to consider full accounts of the ledger for the purpose of working out of the peak, but the AO and the CIT(A) did not consider the same and have not given any finding. When, later on, the assessee prepared summary of the peak on the basis of the principle mentioned above, the AO and the CIT(A), while disposing of the matter under Section 154 of the IT Act, 1961, did not consider the same. Similarly, the CIT (Central), Kanpur did not consider this matter while taking action under Section 263 of the Act. Therefore, considering the above facts and in order to give opportunity to the AO to consider this aspect of the matter, it would be appropriate and reasonable to set aside the findings of the AO and the CIT(A) on the issue and restore the matter to the AO. In view of our above finding, we restore the issue relating to the computation part only of the undisclosed income to the file of the AO with the following directions:
(i) Each credit/debit entry appearing in the computer printouts for financial years 1994-95 and 1995-96 and computer printouts for financial year 1996-97 (as segregated by the AO himself at the original stage of computation of undisclosed income) shall be arranged chronologically and date wise.
(ii) From the aforesaid figure, the day-to-day cash book should be prepared (as is shown by the assessee) so as to find out the negative cash balance as on different dates.
(iii) Thereafter, in order to work out the computation of the undisclosed income, the receipts as well as the payments, as would be appearing in the cash book, shall be arranged date-wise chronologically.
(iv) While making such arrangements, the AO so far as financial year 1996-97 is concerned, shall exclude the amounts, which had already been segregated by him in the copies of computer printouts as had been available to the assessee on the grounds that segregated items were verifiable from manual account.
(v) The undisclosed income so worked out in the aforesaid manner shall be allocated between the two firms in the same ratio as had been done earlier at the time of the block assessment vide order dt. 24th Feb., 1999.
75. The above issue is accordingly set aside and restored to the file of the AO. The AO shall comply with directions mentioned above strictly. Since it is a matter of search on 12th Feb., 1997 and there was heavy demand in the matter, therefore, the AO is directed to take up the matter on day-to-day basis and shall comply with our directions within a period of four months for computation of undisclosed income. The assessee is also directed to co-operate with the AO and shall not seek unnecessary adjournments. We may make it clear that even if, as a result of exercise of recomputation of undisclosed income as has been directed by us above, the computation goes below the returned income, the same has to be taken as it is while giving effect to this order. Since this issue is restored to AO, therefore, there is no need to give finding with regard to 23 parties for which relief is granted by CIT(A). The cross-objections of the assessee are allowed as such.
76. As a result, the Departmental appeals in ITA Nos. 762 and 763/All/1999 are allowed partly and the cross-objections filed by the assessee in CO Nos. 14 and 15/All/2000 are also allowed partly as indicated above.
ITA Nos. 304 and 305/All/2002 (by assessee under Section 154 of IT Act)
77. The facts are similar as mentioned above. However, briefly it is stated that block assessment order dt. 24th Feb., 1999 was passed computing the undisclosed income for the block assessment period at Rs. 1,79,57,411. It was bifurcated in both the assessments. The assessment order was challenged before the CIT(A) and the CIT(A), vide order dt. 18th May, 1999, decided both the appeals of the assessee and granted part relief against which the Department was in appeal and the assessees were in cross-objections, which we have already decided above. It is worth to mention that the CIT (Central), Kanpur issued show cause notice under Section 263 of the IT Act on 22nd March, 2000 and 23rd Feb., 2001 as, according to him, the block assessment order was erroneous and prejudicial to the interests of Revenue as the computation of undisclosed income was not properly done by the AO. The CIT (Central), Kanpur ultimately passed the order under Section 263 of the IT Act on 28th March, 2001 setting aside the block assessment order and directing the AO to recompute the undisclosed income as per his directions. The assessee challenged the order under Section 263 of the IT Act, 1961 dt. 28th March, 2001 before the Allahabad Bench of the Tribunal, who vide order dt. 15th Jan., 2002 quashed the order of CIT (Central), Kanpur under Section 263 of the Act. In the meanwhile the AO, also issued notice under Section 154 of the IT Act, 1961 dt. 17th July, 2000 mainly on the grounds that while scrutinising the calculation of the undisclosed income certain mistakes have been noticed, which are apparent from records, in taking the figure from the computer printouts. The AO prepared the chart of the five parties for making the peak of the cash credit for enhancing the undisclosed income. The said chart is reproduced as under which is taken from the order under Section 154 of the IT Act dt. 4th Oct., 2000, which is subject-matter in these appeals:
Sl. No. C.S. No. Name of party Credit amount wrongly taken at assessment Correct credit amount Rs.
Rs.9 3
M/s Asian Fertiliser, Gorakhpur 15,00,000 1,50,000 62 18 M/s Bala Ji Khad Bhandar, Bahadurpur 69,11,309 59,11,309 146 113 M/s Ganesh Fertiliser & Chemicals 72,34,300 7,23,480 295 169 M/s Krishi Sewa Kendra Belthra Road.
39,27,346 29,27,346 642 288 M/s Vijai Kumar Sushil Kumar, Tamkhui 2,22,21,087 1,22,21,087 Total of all account taken for peak credit 13,47,45,134 11,57,13,577 entries.
According to the AO, thus, the correct total entries of the accounts should have been taken at Rs. 11,57,13,577, whereas it was wrongly taken at Rs. 13,47,45,134. Similarly, the total of all the debit entries of the selected accounts comes to Rs. 15,47,84,795 as against Rs. 15,27,02,546 adopted earlier during the course of the block assessment and, thus, the correct peak was taken at Rs. 3,90,71,218 as against wrongly adopted figures of Rs. 1,79,57,411. The AO, on the above basis, issued show cause notice to which the assessee filed reply dt. 24th July, 2000 and in which it was briefly submitted that only few accounts have been selected. Therefore, it was submitted that the so-called errors, as have been pointed out in the notice under reply, should not be treated in isolation with the entries appearing in large number of accounts which should have effect of reducing the debit balance to much lower level than the figures disclosed by the assessee in the return filed by them for block period. However, the AO did not agree with the reply of the assessee and passed the order under Section 154 of the IT Act, 1961, dt. 4th Oct., 2000. The AO gave benefit of the amount reduced by the CIT(A) vide order dt. 18th May, 1999 and ultimately revised the working. In the case of Fertiliser Traders it was taken at Rs. 1,23,96,279 and in the case of Saraf Trading Company, it was taken at Rs. 2,12,88,936 and thus, the total undisclosed income was taken at Rs. 3,36,85,215.
78. The order under Section 154 dt. 4th Oct., 2000 was challenged before the CIT(A) and it was submitted that the AO should not have passed the impugned order enhancing the peak worked out earlier because the CIT(A) in his order, has decided the issue and quantified the relief that was available to the assessee. It was also submitted that the working of the peak stood merged in the appellate order dt. 18th May, 1999 and, therefore, the same could not be varied by the AO. It was also argued that the Allahabad Bench of the Tribunal had upheld the claim of the assessee that the order of the AO stood merged with the order of the CIT(A) dt. 18th May, 1999 on the issue of working of peak by quashing the order of the CIT(Central), Kanpur under Section 263 of the Act. It was also submitted that there are certain calculation mistakes made by the AO in working out the revised peak in respect of those five parties and also the peak with respect to party No. 1 and 3, i.e., M/s Asian Fertiliser and M/s Ganesh Fertiliser could not have been included in the first place because there were no credit entries against their names in the regular books of accounts. It was argued that the addition made by the AO should be deleted. The learned CIT(A), after considering the facts and circumstances of the case and arguments of the assessee, passed the following order while dismissing the appeal of the assessee in paragraphs 12 and 13 of the impugned order dt. 14th Aug., 2002.
"12. I have considered the submissions of the appellant. I am unable to agree with his claim that since the working of peak by the AO in the original assessment order stood merged with the order of the CIT(A), therefore, it could not be varied. The learned CIT(A) vide his order dt. 18th May, 1999 has determined the principle which is to govern the working of the peak. It follows that in these circumstances any relief that was worked out on the basis of an incorrect working in the original assessment order cannot be considered to be final. The AO did not only have the right, but, in fact, it was his duty to correct any arithmetical mistake that had occurred while working out the peak in the original assessment order. These grounds of appeal are, therefore, dismissed and the action of the AO is confirmed.
"13. Coming to the alternative plea of the appellant that the revised peak has been wrongly calculated by the AO inasmuch as the entries with respect to two parties have been included which should have, in fact, been excluded as per the principle determined by the CIT(A), I agree that this should not have been done by the AO, He is accordingly directed to verify the facts of the case and to work out the peak on the basis of the principle determined by the CIT(A), in his appellate order in as much as if there are no credit entries against the names of these parties then these accounts should not be considered while determining the peak. Likewise he is also directed to rework the peak with respect to the remaining three parties after considering the objections of the appellant with respect to the same."
79. The assessee is in appeal before us with the following grounds. Since the grounds are common, therefore, the grounds taken in ITA No. 304/All/2002 are reproduced below:
"1. Because the learned CIT(A) has erred in law and on facts in upholding the validity of the order dt. 4th Oct., 2000 that had been passed earlier by the Dy. CIT, Central Circle, Gorakhpur, under Section 154 r/w Section 158BC, after holding that--
"....The AO did not only have the right, but in fact, it was his duty to correct any arithmetical mistake that had occurred while working out the peak in the original assessment order..." (para 12)
2. Because the overall working of peak of the balances in various accounts, which formed the basis of computing the undisclosed income of the appellant in the block assessment order dt. 24th Feb., 1999, having already been the subject-matter of appeal (against the said block assessment order dt. 24th Feb., 1999) in terms of the appellate order dt. 18th May, 1999, no order of rectification under Section 154 could have been legally passed by the AO and the view to the contrary, as has been taken by the learned first appellate authority, is wholly erroneous.
3. Because the learned CIT(A) after having himself noted in para 12 of the appellate order that--
"....The learned CIT(A) vide his order dt. 18th May, 1999 has determined the principle which is to govern the working of the peak...."
should have held that the block assessment order dt, 24th Feb., 1999 stood merged with the appellate order dt. 18th May, 1999 and the order dt. 4th Oct., 2000, passed by the AO in relation to the said very block assessment order, was wholly without jurisdiction.
4. Because the learned CIT(A), while holding in principle that the AO was competent (in fact, the AO was obliged to do so) to pass the order; under Section 154 dt. 4th Oct., 2000, in relation to the block assessment order dt. 24th Feb., 1999, has missed to note and failed to consider that--
(a) during the course of extensive block assessment proceedings under Section 158BC (which got culminated into block assessment order dt. 24th Feb., 1999), the peak of the balances was worked out by the AO at Rs. 1,79,57,411;
(b) while working out such peak, the appellant's objection as to the manner of working out the peak as also selection of accounts at random basis (as had been resorted to by the AO) were overruled;
(c) such a consolidated peak (as had been worked out by the AO at Rs. 1,79,57,411) had been apportioned between the appellant and the other concern namely Fertiliser Traders, on the basis of their respective turnovers.
(d) the entire working of peak (so made by the AO) which formed the basis of computation of undisclosed income for the purpose of assessment under Section 158BC in the cases of the appellant and the other concern, namely, Fertiliser Traders, was subject-matter of dispute in first appeal before the learned CIT(A), Varanasi.
(e) the learned CIT(A), Varanasi had adjudicated upon the entire controversy related to the working of peaks, in terms of his order dt. 18th May, 1999;
(f) after the appellate order dt. 18th May, 1999, the block assessment order dt. 24th Feb., 1999, no longer remained to be the order of the AO;
(g) the above referred block assessment order dt. 24th Feb., 1999 was sought to be revised by the learned CIT, Central Kanpur in exercise of his revisionary jurisdiction under Section 263, on the same premise and under the similar circumstances under which the order under Section 154 dt. 4th Oct., 2000 had been passed.
(h) such an order under Section 263 had been quashed by the Hon'ble Tribunal vide its order dt. 15th Jan., 2002 passed in appeal numbers ITA Nos. 164 & 165/ All/2001;
(i) in their order dt. 15th Jan., 2002 (copy of which was duly placed before the learned first appellate authority) the Hon'ble Bench had specifically held that--
"13. In view of above facts and circumstances and various decisions we are of the opinion that the orders of assessment for block period dt. 24th Feb., 1999 in case of both the appellant stood merged in the common order of the CIT(A) passed on 18th May, 1999 and, therefore, no original order was in existence even on 16th April, 2000, the date of issue of notice under Section 263 of the Act; what to say of existence of original orders of assessment on 28th March, 2001 when the CIT passed the orders under Section 263 of the Act. That being the case, the orders of the CIT passed under Section 263 of the Act on 28th March, 2001 were absolutely illegal and void ab initio."
And accordingly the appellate order (which is the subject-matter of present appeal is wholly vitiated.
5. Because wholly without prejudice to the contention raised in the foregoing grounds there was no understatement of the working of the peak in the block assessment order dt. 24th Feb., 1999, which could be rectified under Section 154, so as to enhance the computation of undisclosed income (as had been determined originally).
6. Because, on the other hand, the working of peak of the balances as had formed the basis of computation of undisclosed income, suffered from various mistakes, correction of which would have resulted into downward revision of the undisclosed income, and the learned CIT(A) was obliged under the law, in due discharge of his appellate functions, to take specific note of such mistakes and give appropriate directions to the AO.
7. Because the learned CIT(A) has erred in law and on facts in holding that the ground taken by the appellant on the issue of initiation of proceedings under Section 158BFA(2) was not maintainable.
8. Because the order appealed against is contrary to fact, law and principles of natural justice."
80. We have heard the learned counsel for the assessee and the learned Departmental Representative at length. The learned counsel for the assessee reiterated the same submissions made before the authorities below and argued that the AO should not have passed the order under Section 154 of the IT Act enhancing the peak as worked out earlier, because the CIT(A) vide order dt. 18th May, 1999 has decided the same issue and quantified the relief available to the assessee. Therefore, the working of the peak stood merged in the appellate order dt. 18th May, 1999 and as such the AO was not competent to pass rectification order. He also argued that the Tribunal, Allahabad Bench vide order dt. 15th Jan., 2002 quashed the order of the CIT (Central), Kanpur under Section 263 of the IT Act, 1961 and decided the same matter in issue by which it upheld the claim of the assessee that the block assessment order of the AO stood merged with the order of the CIT(A) dt. 18th May, 1999 on the issue of working of the peak. Therefore, the impugned orders are liable to be quashed. The learned counsel for the assessee has taken us minutely to the order of the Tribunal to support the contention, the copy of the same is filed in the paper book-E at p. 290 in ITA Nos. 164/All/2001 and 165/All/2001 in the case of both the assessees. The learned counsel for the assessee argued on merits that the assessee has prepared summary of the peak on the basis of arranging the same by date in chronological order, which is marked as A.R.-I and as discussed earlier, the same details were filed before the AO and the CIT(A). He further argued that the authorities below have not computed the peak on the basis of entire seized material and the assessee has prepared the summary of the same by utilising the entire seized material and according to the same, on 18th Dec., 1995, the debit balance comes to Rs. 47,60,184,70. Therefore, this peak should have been taken by the authorities below instead of enhancing it to Rs. 3.90 lakhs approximately. The learned counsel for the assessee further argued that the AO before the CIT(A) on 19th Jan., 2001 in the proceedings under Section 154 of the IT Act has admitted that the peak was prepared on the basis of the selected accounts and in paragraph 5, he has stated that the CIT(A) has upheld the selection of accounts of parties and also method of calculation of peak. Copy of the same is filed in the paper book-II at p. 213. The learned counsel for the assessee also referred to reply dt. 16th Jan., 2001, copy of which is filed in the paper book-II on pp. 133 to 139 and argued that even on the basis of working, minus figure of the peak would come out. He has further argued that if negative cash balance is not shown in the books of accounts, then it is undisclosed, income. If the same is shown in the books, then there is no undisclosed income.
81. On the other hand, the learned Departmental Representative argued that the counsel for the assessee has been addressing the conflicting arguments and before the AO, the assessee did not plead merger and sought further deduction but in the order under Section 154(1A), the plea of merger is taken. The learned Departmental Representative further argued that IT authorities can rectify mistake of its own as no other person can rectify it. He has further argued that the law does not curtail the powers of the AO to rectify the mistake as provided under Section 154(1A) of the IT Act, 1961. He has further argued that it was an arithmetical error and therefore the AO could rectify the same. He has further argued that the method of working was challenged before the CIT(A) and not arithmetical error. As the arithmetical error was not the subject-matter before the CIT(A), therefore, the assessment order would not merge with the appellate order. The learned Departmental Representative relied on the following decisions:
1. CST v. Vijay Int. Udyog(1985) 152 ITR 111 (SC).
2. Peico Electronics & Electricals Ltd. v. IAC (1993) 44 ITD 711 (Cal).
3. CIT v. B.L. Murarka (2001) 250 ITR 714 (Raj),
4. CIT v. Technico Enterprise (P) Ltd. (1994) 206 ITR 36 (Cal),
5. CIT v. East Coast Marine Products (P) Ltd. and Anr. (1990) 181 ITR 314 (AP).
6. Addl. CIT v. India Tin Industries (P) Ltd. (1987) 166 ITR 454 (Kar),
7. Vores Exclusive Tools (P) Ltd. v. ITO (1984) 19 TTJ (Bom) 328 : (1984) 7 ITD 620 (Bom),
8. CIT v. Jodhpur Diesels (2003) 259 ITR 92 (Raj),
9. CIT v. Paushak Ltd. (1997) 227 ITR 216 (Guj),
10. CIT v. Hind Wire Industries Ltd. (1993) 202 ITR 274 (Cal),
11. Bundy Tubing of India Ltd. v. CIT (2002) 253 ITR 286 (Mad),
12. CWT v. Uttam Chand Jain (2000) 245 JTR 838 (Del),
13. Sai Electrical v. ITO (1990) 32 ITD 186 (Del).
81.1 The learned Departmental Representative argued that the AO passed the order under Section 154 of the IT Act prior to order under Section 263 of the Act. He has further argued that there is no finding of Tribunal while passing the order under Section 263 of the Act to debar the AO from making rectification under Section 164. He has further argued that if the principle of merger is applicable, it requires reconsideration as Department could not present its case in right perspective before the Tribunal earlier. The learned Departmental Representative further argued that the assessee wanted rectification of certain mistakes, which were not part of the record of the AO and as such no such rectification could be made on those items. He has relied upon the following decisions:
1. Sharda Prasad v. CTT (1975) 100 ITR 373 (All),
2. Paramount Trading Corporation v. ITO (1980) 124 ITR 55 (All),
3. (1967) 63 ITR 232 (SC) (supra).
81.2 The learned Departmental Representative further argued that the grounds taken by the AO only should be decided as per decisions cited by him above.
82. The learned counsel in the rejoinder arguments, argued that the Revenue-Department had not challenged the finding of the Tribunal in order dt. 15th Jan., 2002 before the Hon'ble High Court. He has further argued that the findings given in the order of CIT(A) dt. 14th Aug., 2002 describing the principle of working out of the peak is also not challenged before the Tribunal. Therefore, the findings of the Tribunal and the CIT(A) have become final and can be read against the Department. The learned counsel for the assessee further argued that all the facts were before the Tribunal, Allahabad Bench to decide the matter earlier for working out the peak, therefore, the order of the Tribunal is binding upon the authorities below and the block assessment order stood merged in the appellate order of the CIT(A) as held by the Tribunal, Allahabad Bench. He has further argued that the ground No. 3 was taken before the Tribunal and on this specific point the Tribunal has given finding. He has further argued that the Tribunal, Allahabad Bench consciously considered whole of the issue for determination of the peak as made by the authorities below. The learned counsel for the assessee further argued that the CIT(A) vide order dt. 14th Aug., 2002 has directed that the principle determined by the CIT(A) earlier should be complied with against which there is ho appeal by the Revenue Department or any cross-objection. Therefore, the finding of the CIT(A) in the order dt. 14th Aug., 2002 would also be read against the Revenue.
83. We have considered the facts of the case, rival submissions and the material on record and details submitted in the paper book and the written submissions filed by the learned Departmental Representative. Before considering the rival submissions of the parties, we would like to mention that the Hon'ble Supreme Court in the matter reported in Gojer Brothers (P) Ltd., AIR 1974 SC 1380, held on the principle of merger in paragraph 18--
"The fundamental reason of the rule that there has been an appeal, the decree to be executed is the decree of the appellate Court is that in such cases, the decree of the Trial Court is merged in the decree of the appellate Court. In the course of time, this concept, which was originally restricted to appellate decree on the ground that an appeal is the continuation of suit came to be gradually extended to other proceedings like revision and even to proceedings before quasi judicial and executive authorities."
84. Therefore, the principle of merger is applicable to quasi-judicial authorities, like the IT authorities including the CIT(A). Therefore, the first question shall be whether the peak worked out by the AO as per block assessment order dt. 24th Feb., 1999 got merged with the appellate order of the CIT(A) dt. 18th May, 1999.
85. Before coming to the arguments of the learned Representatives of the parties as mentioned above, we would like to mention that both the appeals arise out of the order passed under Section 154 of the IT Act on 4th Oct., 2000 as is confirmed by the CIT(A) vide order dt. 14th Aug., 2002 with regard to the computation of the undisclosed income. The claim of the assessee since the beginning had been that the undisclosed income on the basis of peak of the credit should be calculated on the basis of entire seized material. The point in issue was considered and decided by us in the Departmental appeals as well as in cross-objections filed by the assessee in which we have restored the issue of computation of undisclosed income to the file of the AO with certain directions as to how to compute the undisclosed income. The matters in issue before us in these appeals are also same with regard to the computation of the undisclosed income and to see if there was any mistake apparent on record or whether the original assessment order dt. 24th Feb., 1999 stood merged with the appellate order of the CIT(A) dt. 18th May, 1999. Since we have already restored the matter in issue to the file of the AO with regard to the computation of undisclosed income on the basis of entire material, therefore, the point on rectification as such would not arise; therefore, we have to quash the order under Section 154 and the impugned order of the CIT(A) on this issue. Therefore, the point in issue with regard to the merger would be academic in nature at this stage. However, considering the peculiar facts and circumstances of the case and settling all the issues, we would like to decide the points raised by learned Representatives of parties. Prior to the issuance of the notice dt. 17th July, 2000 under Section 154, the CIT (Central), Kanpur had initiated the proceedings under Section 263 of the IT Act on 22nd March, 2000 and one of the grounds for initiating the said proceedings related to the said very mistakes as have been referred to in the notice under Section 154 of the IT Act with reference to the block assessment order dt. 24th Feb., 1999. So much so, that the said very chart of the five parties has been enclosed as Annex.-I to the notice dt. 22nd March, 2000. Copies of the said Annexures are available in the paper book as the CIT (Central), Kanpur has reproduced the same details in the order dt. 28th March, 2001 under Section 263 of the IT Act. The assessees objected to the very initiation of the rectification proceedings under Section 154 of the IT Act inter alia, on the ground of merger of block assessment order dt. 24th Feb., 1999 with the appellate order dt, 18th May, 1999 of the CIT(A). However, the AO rejected the objections and figure of the peak as had been worked out at Rs. 1,79,57,411 was substituted by Rs. 3,90,71,218 and the difference was taken as additional income of both the assessees. The above order under Section 263 was challenged in appeals before the Allahabad Bench of the Tribunal which decided the same matter vide order dt. 15th Jan., 2002 (copy of the order is filed in paper book No. 2 from pp. 290 to 361). We found from the above said order that Allahabad Bench of the Tribunal took into account whole of the proceedings that had taken place at the stage of block assessment proceedings as well as the appellate proceedings in relation to the same matter in issue. All the submissions made by the assessee and the facts of the case were discussed. The assessee has taken a specific ground No. 3 in appeal against the order under Section 263, which is reproduced as under:
"3. Because in any case, the block assessment order dt. 24th Feb., 1999 already stood merged with the appellate order dt. 18th May, 1999 on the specific issue of computation of undisclosed income on the basis of 'peak' of the balances as taken from computer printouts and the learned. CIT could not have revised the same under Section 263 of the IT Act, 1961 and view to the contrary, as taken by the learned CIT is erroneous."
86, The Tribunal, Allahabad Bench considering the entire grounds of appeal as mentioned above, decided the point in issue in favour of the assessee. The relevant paragraphs of the order of Tribunal dt. 15th Jan., 2002 (supra) are reproduced as under:
"10. If we consider the cases of the appellants before us in the light of our aforesaid view and the decisions of Hon'ble High Court of MP (supra), the unmistaken and unavoidable conclusion will be that the present cases are fully covered by the ratio of these two decisions of Hon'ble High Court of MP (supra), i.e.; after passing of orders under Section 154 in both these cases by the AO on 4th Oct., 2000 the original assessment orders for block period dt. 24th Feb., 1999 had ceased to exist (having merged in the orders of rectification under Section 154) and orders under Section 154 had come into existence. That being the case, there remained no initial orders of assessment for block period in existence so as to be amenable for revision by the CIT under Section 263 of the Act and, since no authority can revise an order which is not in existence, the orders passed by the CIT, Central, Kanpur on 28th March, 2001 revising the original assessment orders for block period dt. 24th Feb., 1999, in the cases of both the appellants before us, were without jurisdiction and hence void ab initio. The orders of the CIT dt. 28th March, 2001 are, therefore, quashed on this account also.
10.1 Without prejudice to our aforesaid findings, if we consider the validity or jurisdiction by the CIT or proceedings under Section 263 of the Act on the basis of concept of "merger" in the light of facts and circumstances of the case and the arguments advanced by the parties, we, as discussed hereunder unavoidably have to conclude the issue in favour of the assessee and against the Revenue.
10.2 The issue relating to the merger of assessment order of block period with the order of the CIT(A) had come before Tribunal, Allahabad in an unreported decision in the case of M/s Sahara India Mutual Benefit Co. Ltd. ITA No. 509/All/1999 for the asst. yr. 1994-95. The relevant part of facts, submissions advanced by the parties and that order is as under:
xxxxxx 12.1 After giving our thoughtful consideration to the rival submissions, facts and circumstances of the present cases and the ratio of the various decisions (supra), we are of the opinion that so far as the doctrine of merger, even after the amendment of the provisions of Section 263 is concerned, once any of the 'aspects' of an 'issue' is the subject-matter of appeal before the CIT(A), then, it is the 'issue' as a whole which is said to be the subject-matter of appeal and not only the 'aspect' alone.
12.2 Coming to the cases of the appellants before us and the issues involved in proceedings under Section 263 of the Act, we are of the opinion that the undisclosed income on the basis of so-called introduction of undisclosed cash by way of credit entries in manual books and corresponding debit entries of the same amount and also the credit entries made in computer printouts (account) on the actual receipt of cash could be determined only by way of taking the peak of debit and credit entries in the computer printouts and the issues relating to the undisclosed income on the basis of such entries being specifically raised by the appellants before the CIT(A) and having been considered by him, the whole of the issue relating to the computation of undisclosed income on the basis of such credit and debit entries in manual and computer accounts had merged in the order of the CIT(A) passed on 18th May, 1999.
13. In view of above facts and circumstances and various decisions, we are of the opinion that the orders of assessment for block period dt. 24th Feb., 1999 in case of both the appellants stood merged in the common order of the CIT(A) passed on 18th May, 1999 and, therefore, no original order was in existence even on 16th April, 2000 the date of issue of notice under Section 263(1) of the Act, what to say of existence of original orders of assessment on 28th March, 2001 when the CIT passed the order under Section 263 of the Act. That being the case, the orders of the CIT passed under Section 263 of the Act on 28th March, 2001 were absolutely illegal and void ab initio.
14. Presuming but not admitting for the sake of arguments that there were various aspects/angles for considering the issue relating to the computing of the undisclosed income on the basis of concerned accounts then also, we, in view of various decisions referred to in paras 9 and 10 above are of the opinion that it was the issue as a whole and not the aspect which was the subject matter of the appeal before the CIT(A) and therefore, we have to hold that the assessment orders for block period dt. 24th Feb., 1999 in the case of both the appellants had merged in the order of the CIT(A) passed on 18th May, 1999."
87. We find from the above order that the Tribunal, Allahabad Bench had discussed large number of case laws in the above order. We further find that the Tribunal, Allahabad consciously considered the whole of the issue of determination of the 'peak' by the AO. It is also relevant to mention that the above order of the Tribunal, Allahabad was not challenged by the Revenue-Department before the High Court. Further, the findings given in the impugned order dt. 14th Aug., 2002 are also not challenged by the Revenue-Department either in the cross-appeal or in the cross-objection before us. Therefore, the findings given in the order of the Tribunal, Allahabad Bench dt. 15th Jan., 2002 has become final between the parties as well as the findings of the CIT(A) in the order dt. 14th Aug., 2002 with regard to the 'principle' determined by the CIT(A) has become final from the side of the Revenue. Therefore, the findings given in the order of Tribunal, Allahabad Bench dt. 15th Jan., 2002 are binding on Department. Similarly, the findings of the CIT(A) in the impugned order dt. 14th Aug., 2002 are binding upon the Revenue Department with regard to principle determined by CIT(A). We, after considering the order of the Tribunal, Allahabad Bench, dt. 15th Jan,, 2002 in ITA Nos. 164 and 165/All/2001 find that the Tribunal has recorded a categorical finding about the merger of the block assessment order dt. 24th Feb., 1999 with the appellate order dt. 18th May, 1999. It is very significant to note here that the proceedings under Section 263 had been initiated by the CIT (Central), Kanpur precisely on the same grounds, on which the rectification proceedings had been initiated under Section 154 and an order has been passed on 4th Oct., 2000. The matter in issue in proceedings under Section 154 of IT Act was directly and substantially same as in the proceedings under Section 263 of IT Act. The finding of the merger as recorded by the Tribunal in the proceedings under Section 263 as above, are, therefore, clearly applicable in the appeals before us also. Before concluding the above order, we would like to discuss the case laws relied upon by the learned Departmental Representative.
88. The learned Departmental Representative relied upon (a) CIT v. East Coast Marine Production (P) Ltd (supra), in which it was held that the matters which are not covered by the appellate order are left untouched and to that extent ITO's order survives permitting exercise of revisional jurisdiction by the CIT under Section 263.
(b) CIT v. B.L. Murarka (supra) in which it was held that the expression "in relation to any matter other than the matter which has been so considered and decided" in Sub-section (1A) of Section 154 of the Act conveys that the subject-matter of appeal in all its aspects which can call for consideration on the dispute raised will always depend upon the nature of the dispute raised before the appellate authority and the answer cannot be found in the abstract.
(c) CIT v. Jodhpur Diesels (supra) in which it was held that the power under Section 263 of the CIT shall extend and shall be deemed always to have extended to such matters as had not been considered and decided in appeal.
(d) Asstt. CIT v. Tin Industries (P) Ltd. (supra), in which it was held that "in order to attract the provisions of Section 154 of the Act, there must be a mistake and it must be a mistake apparent from the record.
(e) CST v. Vijay In. Udyog (supra), in which it was held on account of mistake of the Tribunal in not clubbing the two appeals, the statutory right to appeal of one party could not be negatived. It is well settled proposition of law that no party should suffer on account of mistake of the Court or the Tribunal.
(f) Peico Electronics & Electricals Ltd. v. IAC (supra). In this case, it was held that the CIT was free to initiate action under Section 263 of the IT Act in respect of two different matters.
(g) CIT v. Technico Enterprises (P) Ltd. (supra), in which it was held that the issue of merger have not been considered by the first appellate authority and that the doctrine is applicable only to matters which are subject-matter of decision by the first appellate authority.
(h) Vores Exclusive Tools (P) Ltd. v. ITO (supra), in which it was held that the part of the order of ITO, which was left untouched by the appellate authorities, the ITO has jurisdiction to rectify any mistake appearing therein in exercise of his powers under Section 154.
(i) CIT v. Paushak Ltd. (supra), in which it was held that the Tribunal was in error in setting aside the order of the CIT made under Section 263 of the IT Act on the ground that the order of assessment should be treated as having been merged with the appellate order.
(j) CIT v. Hind Wire Industries Ltd. (supra), in which it was held that there is no merger of original order with regard to questions not considered when the order of rectification was passed.
(k) Bundy Tubing of India Ltd. v. CIT (supra) in which it was held that the issue of development rebate was not before the CIT(A), therefore, there was no merger of the order of ITO.
(1) CIT v. Uttam Chand Jain (supra), in which it was held that there was no merger when issue was not the subject-matter of appeal.
(m) The other case laws relied upon by the learned Departmental Representative reported in (1975) 100 ITR 373 (All) (supra) and (1980) 124 ITR 55 (All) (supra) are in respect of the point that for the mistake committed by the assessee would not be the subject-matter under Section 154.
(n) The learned Departmental Representative relied upon, decision of Kerala High Court in the matter of CIT v. N.T.A. Karim and the decision of Hon'ble Supreme Court in the matter of Hukumchand Mills Ltd. v. CIT (supra) with regard to powers of the Tribunal to decide the additional ground, which we have already referred to above in this order, while deciding the Departmental appeal and cross-objections of the assessees.
(o) At the cost of repetition, we may mention again that whatever order Tribunal has passed while deciding the appeal of the assessee in ITA Nos. 164 and 165/All/2001 vide order dt. 15th Jan., 2002 has become final as the same was not challenged by the Revenue-Department in appeal before the Hon'ble High Court. Therefore, the finding with regard to merger of the assessment order in the appellate order has become final and is binding upon the Revenue Department. Accordingly, we hold that the block assessment order dt. 24th Feb., 1999 got merged with the appellate order dt, 18th May, 1999 on the issue as a whole relating to the working of peak for the purpose of computing undisclosed income of assessable in the block assessment. Therefore, the AO has lost jurisdiction of rectifying the said block assessment order by invoking the provisions of Section 154 as the Revenue Department has not challenged the finding of the Tribunal before the High Court, in which Tribunal has held that the issue as a whole got merged with the appellate order.
89. The learned Departmental Representative has referred to large number of cases mentioned above. It is settled legal position that every case is precedent on its own facts, as has been held by the Hon'ble Supreme Court in the case of CIT v. Sun Engineering Works (P) Ltd (1992) 198 ITR 297 (SC). Since the Revenue Department has not challenged the findings of the Tribunal in the order dt. 15th Jan., 2002, therefore, the case laws as referred to by the learned Departmental Representative would not be applicable to advance his contentions as the findings of the Tribunal on the question of merger remained unchallenged. We may again mention that the point in issue has already been set aside to the file, of the AO to recompute the peak on the basis of directions given by us in this order. Therefore, the impugned order of the AO under Section 154 of the IT Act, 1961 dt. 4th Oct., 2000 and the appellate order of the CIT(A) dt. 14th Aug., 2002 are liable to be set aside and quashed. Accordingly, we set aside and quash the order dt. 4th Oct., 2000 and 14th Aug., 2002 impugned in both the appeals.
90. Both the appeals of the assessee are allowed.
As a result ITA No. 762/All/1999 and 763/All/1999 by Revenue are allowed partly. C.O. No. 14/All/2000 and 15/All/2000 by assessees are partly allowed. ITA Nos. 304 and 305/All/2002 are allowed.