- (1.) THE assessee is a registered firm and carries on the business of money-lending and sarafa. The previous year for the assessment years 1969-70 ended on March 31, 1969. A return of income was filed on August 26, 1969, declaring a total income of Rs. 28,620. On September 3, 1969, the business premises of the assessee and its partners were searched and, during the course of the search, a note book called Yadashat Bahi was recovered from the premises of Shri Sunder Lal, one of the partners. This diary was found containing entries of certain sales of ornaments to various parties mentioned therein. The ITO made enquiries from some of the parties mentioned in the note book, who admitted that they had got gold ornaments prepared from the assessee, for which different sums were paid by them. The assessee was furnished with this information and was given an opportunity to explain. The assessee pleaded that the so-called note book was in loose sheets which were got stitched by the officer, who conducted the raid and that the said note book only contained "kacha record" of the ornaments taken by the customers on approval. The assessee pleaded that if the goods were finally approved, the regular bills were made and in case of disapproval of the goods, no entry was made in the regular books of account. In support of his plea, the assessee produced the customers, whose names found mentioned in the diary. The said persons supported the case of the assessee. However, the ITO did not accept the statements of these parties and held that the assessee sold certain ornaments and kept the sale proceeds out of the books of account. The assessee also produced affidavits of certain other parties, who resiled from their earlier statements made before the I. T. Inspector and supported the assessee's contention that they had taken ornaments on approval. The ITO did not examine these parties, but in view of their earlier statements before the I. T. Inspector, he did not accept the affidavits of the said witnesses. However, the ITO came to the conclusion that most of the entries in the note book were reflected in the account books of the assessee and thus all the transactions were not kept outside the books of account of the assessee. The entries in the note book were for a period of about three months at the end of the accounting year and the total of such entries was about Rs. 45,000. The ITO, therefore, came to the conclusion that Rs. 45,000 had been invested by the assessee in purchase and sale of gold ornaments and as the nature and source of this investment was not satisfactorily explained, the amount of Rs. 45,000 was treated as the assessee's income from undisclosed sources. The total income was thereafter computed at Rs. 74,660.
(2.) THE assessee filed an appeal. The AAC set aside the assessment taking into consideration that the affidavits filed by the assessee of different customers were rejected without examining them, and the treatment of the entire sale as the assessee's income did not appear to be correct. The ITO was, therefore, directed to make fresh assessment according to law.
(3.) DURING the course of fresh assessment proceedings, the assessee produced only Banarsi Dass, who supported the assessee. His statement was not accepted by the ITO. Another customer, Girdhari Lal, was not produced. However, his affidavit supporting the case of the assessee was on the record. This was also not believed as there was an earlier statement made by him before the I. T. Inspector against the assessee. Similarly, Bansi Ram Bhandari affidavit was also disbelieved. The assessee also relied on the statements of Inderjit Vakil, Sudarshan Singh Bhandari and Gurnam Singh, but their statements were not accepted by the ITO. The ITO held that in each of these cases, the customers had actually purchased ornaments from the assessee. The ITO in the reassessment proceedings came to the conclusion that the quantum of sales kept outside the books of account was Rs. 2 lakhs out of which the income of the assessee was Rs. 16,000. Another amount of Rs. 15,000 was treated as the assessee's income from other sources. Thus, the ITO estimated the profit on sales outside the books of account at 8 per cent. and made an addition of Rs. 16,000 as profit kept outside the books of account. The total income was thereafter computed at Rs. 60,660.;