Prakash Narain, Accountant Member - (1.) SINCE the above appeals relate to the same assessee and involve a common contention, they are disposed of by this consolidated order for the sake of convenience.
(2.) The assessee, which is a firm, deals in watches, spectacles and their spare parts. Besides, it also undertakes repair works. After the original assessments had been made for all the above three assessment years, a search was conducted at the business premises of the assessee and the residences of the partners on 29-3-1976 by the income-tax and customs departments. In this search, imported wrist watches valuing at Rs. 4,165 and some cash were found. Stock of the estimated value of Rs. 60,000 was also found. Some of the above articles were also seized in the search. Shri Parmeshwar Prasad Gupta, one of the partners of the assessee-firm, admitted in his statement recorded at the time of the search, that the assessee-firm had an account with Allahabad Bank, Reti Chowk, Gorakhpur. The ITO also received information that the assessee had made several remittances through the above bank to different parties at different places. On the basis of this information and on the basis of the articles found in the search, the ITO was of the view that the income of the assessee had escaped assessment for all the above assessment years by reason of omission and/or failure on the part of the assessee to disclose fully and truly all material facts necessary for its assessment. He, therefore, initiated proceedings under Section 147(a) of the Income-tax Act, 1961 ('the Act'). He served notices under Section 148 of the Act on 22-5-1976. Returns were duly filed by the assessee in response to the above notices declaring more or less the income originally assessed. It is not necessary to give their details as they are irrelevant for the present appeals.
(3.) THE ITO also confronted the assessee with details of a number of drafts sent through Allahabad Bank. THE drafts were of different amounts and had been sent by different persons to different parties at different places. Out of them, the assessee admitted to have sent six drafts in the assessment year 1972-73, five drafts in the assessment year 1973-74 and only one draft in the assessment year 1974-75. It was contended that the other drafts had not been purchased either by the assessee or on its behalf and that it had nothing to do with any one of them. THE ITO for the reasons given below, held that the assessee was directly connected with all the drafts and that they had also been sent by it or on its behalf towards the purchase of foreign watches from different places : (i) During the search operation carried out on 29-3-1976 under Section 132, by the income-tax department and customs department it was found that the assessee was dealing in foreign watches. (ii) 145 foreign wrist watches valued at Rs. 4,165 were found from the business premises of the assessee and the said watches were seized by the customs authorities. (iii) Unaccounted cash amounting to Rs. 11,922 was found from the residential premises of Shri Parmeshwar Prasad Gupta, one of the partners of the assessee-firm during the search operation. (iv) During the search operation on 29-3-1976, cash of Rs. 7,378 was found and the cash as per cash book was Rs. 11,024. (v) Unaccounted sales to the extent of Rs. 2,572 were found from the business premises of the assessee. (vi) Estimated stock of Rs. 60,000 approximately. was found but the same could not admit any check or verification in the absence of any day-to-day stock register. (vii) Shri Parmeshwar Prasad Gupta, one of the partners of the firm, admitted in his statement recorded during the search operation on 29-3-1976 that the assessee-firm had account with Allahabad Bank, Reti Chowk Branch, Gorakhpur. (viii) Some of the drafts purchased out of the total value of drafts of Rs. 5,81,551 (Rs. 5,65,284 and Rs. 7,53,476. for the assessment years 1973-74 and 1974-75) have been accepted by the assessee. THEre is no reason to believe that remaining drafts out of the same list of purchases of drafts was not purchased by the assessee. (ix) Shri Parmeshwar Prasad Gupta, one of the partners of the assessee-firm, purchased draft for Rs. 15,000 on 29-1-1971 and sent the same to Bombay. During the proceedings under Section 132(5), the purchase of the draft was denied. An Inspector was deputed to examine the application for the purchase of the draft in the bank and it was reported that the signature on the back of the application was legible and was signed by Shri Parmeshwar Prasad Gupta. THE amount of Rs. 15,000 was included in the order under Section 132(5) of the Income-tax Act passed in this case on 24-6-1976. (x) Similarly, another draft for Rs. 4,000 was purchased by Shri Parmeshwar Prasad Gupta on 29-3-1973 and draft No. 48/239 was sent to Bombay. THE purchase of this draft was also denied. An enquiry was made through the Inspector and it was reported that the signature on the back of the application was legible and was signed by Shri Parmeshwar Prasad Gupta. THE Inspector's report was shown to the assessee. THE assessee failed to explain the nature and source of the purchase of draft of Rs. 4,000. THE amount of Rs. 4,000 was included in the total income of the assessee in the order passed under Section 132(5) of the Act on 24-6-1976. (xi) It was found that the assessee had purchased drafts on 26-10-1970 forRs. 11,282 as under: JUDGEMENT_12323_TLIT0_19840.htm THE assessee was asked to explain as to why these drafts were not debited in the books of the assessee. THE assessee came forward with the explanation that the value of draft was debited after four months on 29-3-1971. (xii) THE assessee purchased two drafts on 4-5-1970 as under : JUDGEMENT_12323_TLIT0_19841.htm THE assessee Was asked to explain as to why these drafts were not recorded in the books. THE assessee came forward with the explanation that these drafts were purchased on 4-5-1970 and the amount was not withdrawn from the cash book and subsequently adjusted in the bank account with Allahabad Bank on 15-7-1970. (xiii) THE assessee has purchased draft for Rs. 6,000 on 7-11-1974 and for Rs. 2,500 on 24-12-1974. THE amount was not withdrawn from the cash book on these dates and the obvious inference is that these purchases were made from undisclosed sources. No doubt the assessee came' forward with the explanation that these drafts were purchased by taking money from Smt. Rampati Devi, one of the partners of the assessee-firm. (xiv) A draft for Rs. 6,916 was sent by Shri Bhagoti Prasad, an employee of the assessee, to one Shri Hari Shanker at Bombay on 23-2-1970 but the purchase of this draft does not find place in the books of the assessee. (xv) THE specimen signatures of the employees of the assessee, namely, Shri Vinod Kumar, Sukhdeo Pd., Bhagoti Prasad and Nand Lal in Hindi have been obtained. THE signatures of Shri Parmeshwar Prasad partner has also been obtained though the application for purchase of draft has been made in different names and signed under different names, the handwriting resembles. (xvi) THE assessee made an application under Section 144A to the IAC (Central), Allahabad, on 6-3-1981 and requested the IAC to issue direction to the ITO to drop the proceedings. THE IAC (Central), Allahabad, rejected the assessee's petition on 9-3-1981.;