K.G. Bansal, Accountant Member - (1.) THIS appeal of the assessee arises out of the order of the DCIT, SR. Aurangabad (hereinafter called the AO), passed on 22.11.2998, under the provisions of Section 158BC read with Section 144 of the IT Act, 1961.
(2.) 1 The assessee had taken up 8 grounds of appeal and subsequently, 12 more grounds were taken up as additional grounds of appeal. The additional grounds pertain to the legality of initiation of search and seizure operation. However, in the course of hearing before us, the learned Counsel of the assessee pointed out that the issue involved in the dispute is only one, namely, that the learned AO erred in assessing the total undisclosed income at Rs. 49,25,000/- by relying on the declaration made Under Section 132(4) on 16.02.1996, which was retracted by way of filing a letter dated 10.04.1996. 2.2 In the assessment order, it is mentioned that the assessee is a private limited company, and its shareholders consist of persons from Mishrikotkar family and Goyal family. On the basis of returns filed in earlier years, it is seen that it has carried forward losses from year to year. Search and seizure operations were conducted at the premises of Mishrikotkar on 15.02.1996, in which some incriminating documents pertaining to the assessee were also found and seized. Statement of Shri Akalank, who is one of the directors of the assessee company, was recorded, in which he made declaration of undisclosed income of Rs. 48,95,000/-. The declaration was in respect of on money' received by the assessee from its customers by way of cash, which was stated to be not accounted in the books of the assessee. It is further mentioned that Shri Akalank made a further disclosure of Rs. 1.00 lakh in respect of other incriminating documents found in the course of the search. On 17.01.1997, the said Shri Akalank filed a letter admitting to the undisclosed income of Rs. 10.00 lakh in the names of various concerns, and in view thereof, no cognizance is taken, of the disclosure of Rs. 1.00 lakh made by Shri Akalank. It is also mentioned that a notice Under Section 158BC was issued to the assessee on 11.04.1996. Since the return of income was not furnished in response to this notice, a reminder was issued to the assessee on 02.09.1996. Further a letter dated 25.09.1996 was also served on the assessee on 04.10.1996. However, the assessee did no file the return of undisclosed income for the block period. It is also mentioned that a number of notices and summons were issued to the assessee, to which there was no response. Therefore, in absence of return of income, and in response to notice Under Section 142(1) and summons, assessment was ex-parte by invoking the provisions of Section 144. 2.3. Coming to the computation of income, it is pointed out that in the course of search operations, evidence was found that the assessee was receiving sale consideration by way of cheque and also in cash in respect of sale of shops, godowns and office. Annexure-A of the panchanama contained a chart showing receipts of both kinds. The chart clearly shows that the sale proceeds were realized both in cash and by way of cheques. It was admitted position that the sale proceed realized in cash was not accounted for in the books of account. It was also found that the assessee had purchased a plot of land admeasuring 752.75 sq.m. in the busy commercial locality in Jalna in 1981 for a consideration of Rs. 10,32,000/-. The authorized officer, in his report, had mentioned that the cost of plot had been inflated to reduce the profits with a view to evade tax. The assessee had built 562 sq.m. space of godown, 562 sq.m. of shops and 271.59 sq.m. of office on the aforesaid land in the basement, ground floor and the first floor respectively. In addition, 639 sq.m. of gallery space was also constructed on the first floor. In the course of assessment, the assessee had not furnished any details about the method of accounting followed by it, sales effected by it and the unsold work lying with it. In the absence of any detail, the AO assessed the undisclosed income at Rs. 49.25 lakh consisting of the declared amount of Rs. 48.95 lakh and disallowed interest of Rs. 30,000/-. Aggrieved by this order, the assessee has filed appeal before us. In the course of hearing before us, the assessee filed a paper book consisting of 125 pages. As pointed out earlier, a number of grounds were taken up regarding the validity of search and it was inter-alia prayed that search and seizure operation conducted Under Section 132 may be declared as null and void and consequently the order Under Section 158BC passed on the basis of legal search may also be declared as void. However, the matter regarding the jurisdiction of the Tribunal to look into the validity of the initiation of a search operation was decided by full bench of Hon'ble ITAT in the case of Promain Limited reported in 95 ITD 489. The full bench of the Tribunal held that assessment Under Section 158BC is based upon the conduct of a search. In other words, if it is shown that if a search has been conducted on the basis of a warrant of authorization, it will not be for the Tribunal to look into the matter of validity of initiation of search. In view of pendency of that case before the Hon'ble Tribunal, the assessee had been seeking adjournments before us also. However, on receipt of the decision, the learned Counsel did not argue those grounds of appeal, but stated that he would only keep the issue alive. The learned Counsel of the assessee thereafter confined himself to the merits of the computation of undisclosed income. In view of the decision of full bench of the ITAT in the case of Promain Ltd. the grounds of appeal in this behalf are dismissed.
(3.) 1 The learned Counsel referred to pages 59 & 60 of the paper book, which form the basis of the computation of undisclosed income by the AO. These pages contained the details of floor No. , shop No. , name of the party, sale cost, amount received in cash, amount received by way of cheque and the balance amount receivable. For the purpose of illustration, we may take the first entry. This pertains to shop No. 1 at the ground floor purchased by one Dinesh for 350. The cash amounting to 229 was received in cash and cheque of 121 was also received, leaving balance amount at Nil. The aggregate of cash received was 4895 on the basis of such figures. The AO concluded that in sale of various premises, 'on money' of Rs. 48.95 lakh was received and consideration by way of cheque stood at Rs. 20.64 lakh. The amount of Rs. 48.95 lakh was added in computation of income. Thereafter, the learned Counsel drew our attention to page 2 of the paper book, and in particular to answer to question No. 12, which is in the nature of confessionary statement of Shri Akalank M. Mishrikotkar. It was deposed that - " I have seen the said pages and state that the said pages pertain to Dhanvarsh Builders and Developers Pvt. Ltd. and the amount shown under the cheques have been duly shown in the regular books of accounts and the amounts shown under cash will be shown for 1996-97 assessment year as additional income over and above the book profits of Dhanvarsh Builders and Developers Pvt. Ltd., i.e., additional income to be declared is Rs. 48,95,0007-(Rupees forty eight lakh ninety five thousand) for 1996-97 assessment year"(unquote). The learned Counsel pointed out that this part of the statement was retracted on 10.04.1996. Apart from the aforesaid evidence, no other evidence was found regarding receipt of cash. No undisclosed cash was also found in the course of search. Thereafter, the learned Counsel drew our attention to the assessment order, which does not make any mention about retraction made by the assessee. The learned Counsel also pointed out that in the course of assessment proceedings, the AO had not appraised the assessee regarding any cross verification made by him with the customers of the assessee, which could suggest that the assessee received any amount over and above the amount disclosed in the books of account. On the basis of these facts, the case of the learned Counsel was that the impugned document was a dumb document from which no conclusion regarding undisclosed income could be drawn. 4.2. At this stage, it may be mentioned that the assessee was questioned by the Bench about the names mentioned in the document, cheque amounts received by it and then cross tallying with the amounts entered in the books of account. It was fairly conceded that the names mentioned therein were of the clients of the assessee and the amounts entered by way of cheque 'represented the sale consideration in an abbreviated form by removing three zeros. Therefore, the learned Counsel was asked as to how the impugned document could be termed as dumb document. The explanation was that the document does not bear the name of the assessee anywhere and no date is mentioned against any receipt. 4.3. In the alternative, the learned Counsel pointed out that even if the amounts entered in the cash column are taken as sale consideration received in thousands, then, the full consideration cannot be brought to tax in the hands of the assessee. In this connection, he relied on a number of case laws which may be summarized here: 4.4. The learned Counsel relied on the decision of Hon'ble ITAT Ahmedabad "C" Bench, in the case of Abhishek Corporation v. DCIT (1999) 63 TTJ 651. The ratio of that case was that the entire premium charged by the assessee cannot be treated as undisclosed income for the block period because the AO had not proved by bringing any material on record that the assessee did not make any investment to make alleged unaccounted sales. Accordingly, it was held that only profit rate can be applied to the unaccounted sale receipts. 4.5 The learned Counsel further relied on the decision of Hon'ble ITAT Delhi "B", Third Member, in the case of India seed house v. ACIT (2000) 69 TTJ 241. In that case, it was inter-alia held that the claim of unaccounted expenses made later was sustainable. It was further held that though the admission is a substantive piece of evidence, the same is not conclusive and it is open to the deponent to show that the confession was incorrect. In view thereof, it was also held that it was not permissible for the AO to ignore the expenses duly recorded in the seized material which are related to unaccounted sale. This case was apparently relied upon by the learned Counsel for the reason that on the document relied upon by the AO. after aggregating the cheque and cash receipts, there was a deduction of 4200 with the narration "appro - Rajendra" under the cash column. We find that after the entry of 4200, there is another entry of 579 with the narration "To be received" with the bifurcation "old 400 + Dhawal 179 - with AMM". Therefore, It appears that the seized paper contains some clue of expenditure 4200 in respect of Rajendra and another amount of 579 to be received from AMM. this amount is also cross verifiable if sale cost is cross tallied with cash rewired, cheque received and the balance receivable. 4.6. The learned Counsel relied on the decision of Hon'ble Gujarat High Court in the case of CIT v. President Industries (2002) 258 ITR 654. In that case, in the course of survey, excise records were found which disclosed sales not disclosed in the books of account of the assessee. The AO made addition of the entire sale proceeds. The Tribunal found there was no evidence to indicate that investments were made outside the books of account to make alleged sales, and therefore, it held that the entire sale proceeds could not be added, but only profit embedded in the sales could be added to the income. On reference by the Department, the Hon'ble High Court held that the sale proceeds could not represent the income of the assessee and only the excess of sale process over cost incurred could form profits, which could be included in the income of the assessee. 4.7. The learned Counsel again referred to the seized document regarding 'on money' and pointed out that this paper does not bear any name. It was also pointed out by him that the statement relied upon by the AO was retracted and, therefore, a retracted statement cannot constitute any piece of evidence, which could be used against the assessee. It was, therefore, argued that the dumb document and the retracted statement constituted no evidence on the basis of which an assessment of such a magnitude could be made. In this connection, he relied on the decision of Hon'ble ITAT Pune Bench, in the case of Chander Mohan Mehta v. ACIT(lnv.) [1999] 65 TTJ 327. In that case, the assessee was carrying on the business of money lending. In the course of search and seizure operation, certain loose papers were found and seized indicating the borrowings and lendings. However, the paper did not indicate the name of the assessee. In the statement recorded Under Section 131, the assessee admitted to the money lending activities and explained various figures noted in the seized material and also decoded figures. The assessee produced confirmation from creditors. The Hon'ble Tribunal came to the conclusion that seized documents along with the statement recorded Under Section 131 constituted valid piece of evidence, which could be used in assessing undisclosed income. However, the two taken together have to be read as a whole. Either the whole evidence has to be accepted or the whole evidence has to be rejected. If lending amounts have to be accepted, the borrowings mentioned in the seized paper have also to be accepted as genuine. 4.8. The learned Counsel relied on the decision of Hon'ble ITAT, Ahmedabad "B" Bench, in the case of ACIT v. Mrs. Sushiladevi S. Agarwal (1971) 49 TTJ 663. In that case, an addition Under Section 69 was made in respect of a shop purchased by the assessee, the consideration of which was shown at Rs. 2.50 lakh. The vendor claimed that the shop was sold for Rs. 11.51 lakh and the difference pertained to the goodwill, which was paid later on. The Hon'ble Tribunal pointed out that there was a likelihood of statement tendered at the time of search being at variance with subsequent statements and, therefore, the statement recorded during search and seizure operation may not be fully relied upon. The Tribunal further gave a finding that there was reason to believe the assessee's version that the vendor tried to introduce his own unaccounted money by cooking up a story. The vendor's books of account were not subjected to chemical examination, which could reveal forgery and thus his books of account lost credence. It was highly improbable that the vendor who initially agreed to sell shop for Rs. 11.51 lakh, later on sold it for Rs. 2.50 lakh. In a sense, the finding of the Hon'ble Tribunal was that statement Under Section 132 cannot be relied upon blindly and it is to be read with surrounding circumstances. 4.9. The learned Counsel relied on the decision of Hon'ble ITAT, Bombay "B" Bench, in the case of Deepchand & Co. v. ACIT (1995) 51 TTJ 421, in which it was inter-alia held that in absence of any supporting evidence to confirm the addition, the statement of two partners recorded at the time of search, later on retracted by filing proper evidence,cannot be relied upon (emphasis supplied). It may be mentioned here that no proper evidence has been filed by the assessee later on. 4.10. The learned Counsel also pointed out that the names of the directors also appeared in the seized material. It would be incomprehensible that the company charged 'on money' from the directors also and for this reason it was argued that the impugned seized material cannot be relied upon for making the aforesaid addition. In this connection, it may be mentioned here that it actual cost was higher than the cost recorded in the books, the charging of 'on money' from them will be in order and such an arrangement will be suitable and convenient for both the parties. 4.11. The learned Counsel also referred to the figure of 4200 finding place in the said paper. We have already taken note of this figure earlier. However, the learned Counsel's case may also be stated in this matter. It was his case that expenditure had also been incurred against the cash receipts and the expenditure could not be ignored. If the cash receipts could not be ignored, the impugned amount of Rs. 48.95 lakh cannot be brought to tax. In connection with the unaccounted expenditure, the learned Counsel drew our attention towards the statement of Shri Jaibhagwan Goyal, director of the assessee company, recorded under the provisions of Section 133A on 15.02.1996. In answer to question No. 8 regarding cost price of the purchase of the plot of land, it was answered that this plot had been purchased at a reasonable price and the entire payment has been made from time to time by way of cheques. It was further answered that no cash payment has ever been made for purchase of the said plot of land and in particular, any averment about payment over and above Rs. 10.32 lakh was not correct. The case of the learned Counsel was that from the tenor of questions and answers, it is clear that plot was purchased at higher value than the value recorded in the books of account. On the basis of this question and answer, it was sought to be argued that there was unaccounted expenditure also incurred in relation to the 'on money' received, and it will have to be taken into account while computing the real income. The learned Counsel also pointed out that on the basis of aforesaid proposition, unaccounted receipts were worked out at Rs. 31.04 lakh and the corresponding expenditure was worked out at Rs. 29.06lakh, leading to a surplus of Rs. 1.44 lakh. The working in this regard was placed in the paper book on pages 74 & 75. Therefore, it was argued that any amount exceeding Rs. 1.44 lakh could not have been brought to tax. The learned Counsel also referred to various agreements for the construction of the commercial complex placed in the paper book from pages 105 to 110 and two bills from Shri Anup Agrawal and Shri Rajender Agrawal dated 23.12.1996 and 24.12.1996 regarding the construction work. The purpose of pointing towards the bill was that the name of Rajender appeared in the seized paper against the entry of 4200 and, therefore, it was sought to be argued that there were payments to this party over and above the payments recorded in the books of account.;