ORDER
R.P. TOLAni J.M.:
This set of nine appeals pertain to same assessee. Issues are inter-related. Hence, disposed of by this common order.
2. Appeal No. 12/Bom/1995 for assessment year 1992-93 is taken first. Grounds raised are as under :
'(1) In the facts and circumstances of the case, the learned Commissioner (Appeals) erred in sustaining following multiple and separate additions :
Particulars
Amounts Rs.
(i)
Addition on account of alleged shortage in gold stock
13,05,331
(ii)
Addition on account of alleged unexplained investment in TV/VCR, etc.
1,69,000
(iii)
Addition on account of alleged unexplained investment in vehicles, etc. at Valsad
5,00,000
(iv)
Addition on account of alleged unrecorded realization of coal ash
80,000
(v)
Addition on account of alleged low household withdrawals
30,000
(vi)
Addition on account of rejecting audited book results of Bhagat Paper & Board Mill, Valsad by estimating gross profit @ 14.5 per cent
5,24,992
(vii)
Loan from Amarchand Meghaji added under section 68 of the Act
50,000
(viii)
Addition on account of alleged unexplained alleged cash deposits in A/c No. 503 of Punjab National Bank, Worli Branch
7,28,500
2. The learned Commissioner (Appeals) erred in rejecting the plea of your appellant praying for deletion of multiple additions by setting off source of income against application/investment. The learned Commissioner (Appeals) ought to have appreciated that, in the absence of any evidence/material to the contrary, the claim of the appellant was tenable and the assessing officer was duty bound to grant such set off.
3. In the facts and circumstances of the case, the learned lower authorities ought to have granted suitable set off of additions made in the preceding year/s to the extent they relate to the addition made the year under reference for example, the addition of 32,53,728 sustained in respect of unexplained investment in Kalyan Jewellers for assessment year 1990-91 ought to have been set off for the addition made in respect of Kalyan Jewellers for the year under reference.
4. The learned Commissioner (Appeals) erred in rejecting the plea of your appellant for deletion and/or revision of interest levied under section 234B of Rs. 52,69,776 and under section 234C of Rs. 3,40,412. In the facts and circumstances of the case, levy is improper, invalid as it has been charged without taking into consideration value of assets seized and retained by the department towards tax dues.'
In that year, search and seizure operations were carried on in assessee's premises on 3-3-1992. At the residential premises of the assessee, valuables in the form of gold jewellery and diamond articles were found. The value of unexplained assets was determined at Rs. 1,23,82,871, which was offered for taxation by the assessee in statement under section 132(4), on which the assessee has been assessed. The assessee carried on business of gold and jewellery in the name and style of Kalyan Jewellers at Opera House. During the course of search, gold stock of 16,558 grams was found as against which the stock as per books was found to be 8,001 grams. The assessee, in the statement under section 132(4), owned up this excess stock of 8,557 grams and the value thereof at Rs. 34,21,765 was offered for taxation, which also has been assessed.
3. Simultaneous search was carried out on one Mr. R.C. Motta, father-in-law of cousin of the assessee, where one loose paper was found. The search party was of the view that the paper represented stock of 20,005 grams as on 25-2-1992, as against which the physical quantity of stock on the date of search was 16,558 grams. The manager was questioned in this behalf, who replied that the loose paper showed the approximate weight of gold ornaments. Therefore, the same was not tallying with the actual weight taken. During the course of assessment proceedings, the assessee was asked questions in this behalf. By that time, the manager, Mr. Chheda, had left the services. Therefore, the assessee was not in a position to explain details in this behalf. To buy peace, the assessee agreed for addition of Rs. 13,05,331. The assessing officer made this addition; in the first appeal the assessee explained that the addition was made under mistaken belief, the Commissioner (Appeals), however confirmed the same. This is challenged by the assessee in ground No. l(i). During the course of search, in the guest house of Bhagat Paper and Board Mill, certain electronic articles like TV, VCR, etc., were found and an addition of Rs. 1,69,000 was confirmed, the same is challenged in ground No. l(ii). The assessee was found to be owner of eight vehicles, out of which two were accounted for. The other vehicles included foreign racing car and four foreign motor cycles. The assessing officer made addition of Rs. 10 lakhs, which was reduced by the Commissioner (Appeals) to Rs. 5 lakhs. This is challenged by assessee in ground 1(iii). Addition on account of sale of coal ash, which is generated in the manufacturing process, is challenged by the assessee in ground 1(iv). In the year in question, the assessee realized a sum of Rs. 83,636 plus sales-tax thereon from such sales, which were duly incorporated in the books. In the statement under section 132(4), the manager had indicated that on an average annually a sum of about Rs. 80,000 is realized by disposing coal ash of about 200 tons at Rs. 400 per ton. Based on this statement of manager, the assessing officer added a sum of Rs. 80,000 as suppressed sale of coal ash. It shall be pertinent here to mention that this type of addition has been made in all the years under appeal. The assessing officer further made addition of Rs. 30,000,on account of alleged low household withdrawals, which was confirmed by Commissioner (Appeals). The same is challenged by assessee in ground No. 1(v).
4. Ground No. 1(vi) pertains to addition on account of estimated GP in the case of Bhagat Paper and Board Mill by rejecting books of account. The assessee is manufacturer of mill board having factory at Valsad and selling branch at Mumbai. Earlier separate accounts were maintained for both these units and from assessment year 1992-93 onwards both the above units were merged and consolidated accounts were maintained. The assessee reported GP of 2.36 per cent, which was found to be very low as compared to earlier year. The relevant books are maintained by the assessee, which, includes quantitative details of stock. The goods manufactured by assessee are subjected to excise. According to assessee, the excise department have verified the consumption on several occasions and no variation was noticed. The excise authorities visited on 29-2-1992, i.e., four days prior to search action and no variation was found. The assessee's case is the stock and consumption were under regular check of excise authorities, who also carried out separate excise audits. The assessee's manufacturing process of mill board was from waste and scrap paper, etc. by recycling the same through automatic machine. In the manufacture of mill board by recycling, the consumption and yield would depend on the quality of waste utilized and there cannot be fixed standards in the quality of waste, which is received by the assessee. Under these circumstances, the GP in this trade fluctuates from year to year. The assessee supplied various details in this behalf to show that the GP of the assessee widely varied in all the years, which is as under :
Asst. yr.
GP Rate
1991-92
17.21
1992-93
2.36
1993-94
1.40
1994-95
6.55
1995-96
10.76
1996-97
8.17
1997-98
8.98
1998-99
6.66
1999-00
14.59
2000-01
4.44
2001-02
2.56
The assessee's case was that no defects were pointed out in the books of account, purchase and sales were by account-payee cheques, no document was found in the course of search to suggest that any discrepancy was there in consumption or that sales were made outside books of account. In any case, same was not possible due to stringent check by excise authorities. 'The assessing officer was not satisfied with the explanation and made the addition. The assessee preferred first appeal. The Commissioner (Appeals) held that it was true that yield would depend upon the quality of the waste paper used by the assessee and the GP cannot remain constant in every year as it would vary depending upon the manufacture. However, he sustained the addition holding that the assessee did not make out a case that low quality of paper was used and looking at the past history, the GP rate was retained at 14.5 per cent instead of 17.2 per cent adopted by assessing officer.
5. Ground No. 1(vii) pertains to loan from Amarchand Meghji of Rs 50,000 added under section 68. The assessee received a loan of Rs. 50,000 through account payee cheque from M/s. Amarchand Meghji. The finding of assessing officer and Commissioner (Appeals) is that no confirmation letter was filed by the assessee and the addition was confirmed.
6. Regarding ground No. 1 (viii), the facts are during the course of statement under section 132(4), the assessee had declared an amount of Rs. 1,91,70,574 as undisclosed income, which included Rs. 15 lakhs cash deposited in Punjab National Bank. However, the declaration was made subject to verification, which is clear from answer to question No. 7 of the statement recorded on 4-3-1992, where the assessee stated that the offer of deposit in Punjab National bank of Rs. 15 lakhs approx. was subject to verification. The declaration was made without going through the seized record and reserving the right to modify the same subject to verification. However, at the time of filing of the return, the assessee included disclosure of Rs. 1,91,70,574. However, during the course of assessment, on verification of record, the assessee found that the total cash deposited in the account was as under :
Asst. yr. 1991-92
Rs. 7,71,500
Asst. yr. 1992-93
Rs. 1,00,000
Total
Rs. 8,71,500
The assessee explained the above position to assessing officer and requested that the disclosure to the extent of Rs. 8,71,500 may be taken as income and the undisclosed income shall be reduced by Rs. 7,28,000. It shall be pertinent here to mention that in assessment year 1991-92 the Commissioner (Appeals) deleted the addition of Rs. 7,71,500 also. The department has not filed appeal against that order. In fine, the assessee deposited only Rs. 1,00,000 in assessment year 1992-93. The Commissioner (Appeals), however, held that the assessee himself had offered the total amount of Rs. 15 lakhs, which included amount of Rs. 7,28,500. Having done so, the assessee should not have grievance against his own declaration. The addition was confirmed.
7. By ground No. 2, the assessee has pleaded that multiple additions have been made and suitable telescoping effect should be given, which has been denied to the assessee by lower authorities.
8. By ground No. 3, the assessee has agitated that the addition of Rs. 32,53,728 was made in assessment year 1990-91. Having made this addition, suitable set off should be given in respect of various additions including the addition of Rs. 13,05,331 made in respect of alleged shortage of gold stock of Kalyan Jewellers in ground No. l(i).
9. The ground regarding interest under section 234B is consequential in nature.
10. The learned counsel for the assessee contended that the assessee had surrendered an amount of Rs. 91,90,574, which was subject to verification as the assessee had not seen the entire seized record. The assessee offered this amount in the return of income but on verification it was found that declaration in respect of some additions was not correct and as the same was subject to verification, necessary changes were requested to be made by reducing the amount of offer. It was contended that, from the computation of income it is clear that the assessing officer has made an addition of Rs. 1,91,90,574 on the basis of declaration by bringing to tax an amount of Rs. 1,84,19,074 in assessment year 1992-93 and Rs. 7,71,500 for assessment year 1991-92. In addition to above, the assessing officer has gone beyond the offer of the assessee and has made further additions, which are challenged by the assessee. Coming to ground No. 1(i), it was contended that the addition income offered includes the jewellery found from Kalyan Jewellers also. Besides, the additional of Rs. 13,05,331 has been made not on finding excess stock but finding lesser stock. The addition was made on the basis of a paper found from the premises of residence of Mr. R.C. Motta, father-in-law of the cousin of the assessee. It shall be pertinently observed that the paper was not seized from the assessee. The content of the paper gave an indication that on 25-2-1992, the stock of the gold ornaments was 20,005 grams, whereas after eight days, i.e., on 3-3-1992, on the date of search, the stock was found to be 16,558 gms, which was short by 3,447 gms. The addition has been made not on any other material but only when the assessee found that the manager, Shri Chhedda, has left the service and there was no choice but to accept the same. In first appeal, the assessee contended that the assessee was proprietor of M/s. Kalyan Jewellers. Excess jewellery has been found from the residential premises of the assessee also, for which a separate offer of additional income has been made. The assessee removed some ornaments from the shop and kept at his residence. Therefore, there was no discrepancy. The Commissioner (Appeals) sustained the addition on the ground that there was no entry in the books of account for removing jewellery from shop to residence. Besides, the assessee has disclosed this in his statement. The learned counsel contended that excess jewellery has been found from the assessee's residential premises, which has been accepted as unaccounted and offered for taxation. The same being unaccounted jewellery, the question of making any entry in the books against its removal from the shop to residence does not arise. The jewellery found from residence was Rs. 1.85 crores. The shortage, for which the addition has been made, is easily accommodated in the declaration of about Rs. 1.85 crores of jewellery found from assessee's premises, which has been offered for taxation. It was contended that the assessing officer has treated the same as unrecorded sales also. Alternatively, the assessing officer has sustained the addition by holding the same to be unrecorded sales. The entire amount of sales cannot be brought to tax. At the most, GP is alternatively liable for addition, which also has to be set off as the additions have been made on account of various other assets and the telescoping has to be given. Reference was made to CIT v. Jawanmal Gemaji Gandhi : [1985]151ITR353(Bom) , CIT v. Tyaryamal Balchand (1987) 165 ITR 453 . The learned Commissioner (Appeals) has not considered any of the arguments of the assessee and summarily confirmed the addition made by the assessing officer. It was contended that the addition is liable to be deleted, even if it is to be added, it has to be the GP and the same has to be telescoped with other additions.
11. Coming to ground 1(ii), the learned counsel contended that various intangible additions have been made separately in assessee's case. It was contended that suitable telescoping, i.e., set off, should be given. Reliance was placed on case laws referred to in ground 1(i) above.
12. Regarding ground No. l (iii) also, the learned counsel contended that the assessing officer had initially proposed by his letter dated 18-3-1994, as to why an addition of Rs. 6 lakhs should not be made. However, in the course of assessment proceedings an addition of Rs. 10 lakhs was made, which was reduced to Rs. 5 lakhs by Commissioner (Appeals). It was contended that the foreign made motor cycles were very old and the estimate of Rs. 5 lakhs is excessive. The assessee has already offered in his return an amount of Rs. 5 lakhs towards the foreign car. The basis of estimation of value of motor cycle has not at all been given. The estimate is unjustified. It was further contended that suitable telescoping effect in this respect should also be given.
13. In respect of ground 1(iv), it was contended that the assessee has recorded the sales of coal ash in the books of account and paid sales-tax thereon. These proceeds have been duly included in the account books. No material has been found during the course of search that any excess coal ash was generated or sold by the assessee. The additions have been made merely relying on the statement of a manager, who had given a sweeping statement that annually a sum of Rs. 80,000 is realized by disposing coal ash of about 200 tons @ Rs. 400 per ton. The assessing officer has made this addition without realizing that the assessee has already included the sale of coal ash in its books and without any material a further addition on the basis of a sweeping statement of a manager cannot be made. It was contended that the addition is highly unjustified; without any proper basis.
14. Regarding ground 1(v), i.e., household withdrawals, the learned counsel contended that the assessee has shown household expenses at Rs. 1,30,000. The family of the assessee consisted of three members with simple living standard. It was pleaded that the household withdrawals were commensurate. Not satisfied, the assessing officer made an addition of Rs. 1,20,000, which was reduced to Rs. 30,000 by the Commissioner (Appeals). The assessee has made a huge declaration of undisclosed income. No material has been brought on record to suggest that the assessee had incurred more household expenses. Therefore, the addition is not proper. Alternatively, it was pleaded that suitable telescoping should be given.
15. Coming to ground 1(vi) regarding GP addition, it was contended that the assessee is maintaining regular books of account with quantitative details of stock. The manufacturing process comprises of recycling of waste. Proper excise records are maintained, which are under regular check of the excise authorities. Reference was made to the excise records on the paper book. The excise authorities had visited on 29-2-1992, i.e. four days prior to search and no variation was found. Our reference was invited to that report also. The learned counsel referred to the variation in GP chart and contended that the chart itself will reveal that the yield and GP ratio are widely fluctuating facts in the assessee's line of manufacturing. No document has been found in the course of search to suggest that there was discrepancy in consumption or that sales were made outside books of account, In fine, there are no adverse facts on record to corroborate that the assessee manipulated the GP. The learned Commissioner (Appeals) has accepted the fact that the yield would depend upon the quality of waste paper used and that it is not possible that the GP would remain at constant rate every year and the GP would vary depending upon the manufacture. In spite of these observations, merely because there is higher GP in preceding year, the GP has been increased. The learned counsel relied on International Forest Co. v. CIT , Pandit Bros. v. CIT , for the proposition that no addition could be made merely on the basis of low yield or low GP by rejecting books of account.
16. Regarding ground No. 1 (vii), it was contended that the loan was received by an account payee cheque and the lender was assessed to tax. The loan has been subsequently repaid also, which goes to show that it was a genuine loan. Alternatively it was contended that telescoping effect may be given in respect of other additions.
17. Regarding ground No. 1 (viii), it was contended that the total declaration of undisclosed income made included a sum of Rs. 15 lakhs, which was deposited in the Punjab National Bank. This amount was included subject to verification as at the time of statement, seized record was not available. On verification of record, the Commissioner (Appeals) observed that an amount, of Rs. 1,00,000 only was deposited in the bank in this year and an amount of Rs. 7,71,500 was deposited in assessment year 1991-92, which was also recorded in the books of account and the Commissioner (Appeals) deleted the addition. The said amount of Rs. 1,00,000 was deposited in the bank account out of cash balance, which is also verified from the books of the assessee. Under these circumstances, this amount having been verified from books of account cannot be added as undisclosed income. Commissioner (Appeals) has observed these facts. However, he has confirmed the addition on the basis that the assessee himself had offered the amount of Rs. 7,28,500 for assessment year 1992-93. Therefore, the assessee should have no grievance on his own declaration. In fine, the learned counsel contended that the offer of declaration was subject to verification. On verification, the assessee could demonstrate that the same has been accounted for the same cannot be added merely because the assessee in his statement offered the same subject to verification.
18. Regarding ground Nos. 2 and 3, it was contended that the undisclosed income has been offered in respect of various items. The additions in different years are inter- connected. Therefore, proper set off in respect of income offered for taxation and the additions made over and above should be given in the interest of justice.
19. The learned Departmental Representative, on the other hand, relied on the orders of lower authorities and opposed the plea of telescoping/set off of undisclosed income offered with the various other additions made by the lower authorities contending that these additions are separate in nature and the burden to establish the advantage of telescoping is on the assessee.
20. We have heard the rival submissions and perused the material available on record. The assessing officer has added the additional income of the assessee under section 132(4) to the income of the assessee as under ;
Asst. yr. 1992-93
Rs. 1,84,19,074
Asst. yr. 1991-92
Rs. 7,71,500
Total
Rs. 1,91,90,574
The above amount has been brought to tax. Over and above, the assessing officer has made various additions. Coming to ground 1(i), the assessed undisclosed income includes declaration made on account of excess gold found from the proprietorship concern of the assessee known as M/s. Kalyan Jewellers. The addition has been made on the basis of a paper found from the premises of one Mr. R.C. Motta, father-in-law of the cousin of the assessee, and not from assessee's premises. The paper indicated that on 25-2-1992 the assessee had stock of 20,005 gms. of gold ornaments, as against which the actual stock found from Kalyan Jewellers on 3-3-1992, i.e., after eight days at the time of search, was 16,558 gms, thus leading to a shortage of 3,447 gms. The assessee explained the same by saying that excess stock was found from the residential premises, which has been offered for taxation as undisclosed income. The gold ornaments representing above shortage were taken from the shop, i.e., Kalyan Jewellers, to assessee's residence. Since the gold ornaments found at the residence have been offered for tax as undisclosed income, no separate addition in respect of the shortage, which belongs to assessee himself being the proprietor of M/s. Kalyan Jewellers should be made. The statement accepting the same as income was made as the concerned person had left the services, and the assessee at the time of assessment was unable to explain the same. These facts were narrated before the Commissioner (Appeals). The Commissioner (Appeals) has not considered this explanation and summarily confirmed the addition made by the assessing officer. The learned counsel contended that this amounts to double addition as within eight days the assessee cannot be supposed to be owner of the same ornaments at two places. The assessee made the declaration of excess gold found from the residential premises. Kalyan Jewellers is nothing but the proprietorship concern of the assessee. Therefore, the gold ornaments found from the residential house and business premises cannot be treated separately. According to assessee, the explanation given by the assessee is reasonable as the residential premises were searched and excess gold found from there on 3-3-1992, was declared as undisclosed income. The impugned paper is not found from the premises of the assessee and the purport of the same is an indication that eight days prior the assessee had more ornaments, which, according to the assessee, were taken to residential house. Under these circumstances, we are of the view that the addition in question is not called for. The same is deleted. Ground No. 1(i) of the assessee is allowed.
21. Regarding ground 1(ii), we are of the view that the assessee has not been able to explain this addition. Therefore, the same is confirmed. However, as far as the telescoping of the same with income offered as undisclosed income is concerned, we are of the view that the declaration by the assessee is on specific items, burden of proving the interconnection for availing the benefit of telescoping is on the assessee, for which no sufficient case has been made out. Therefore, the grounds raised by the assessee for telescoping of undisclosed income declared are dismissed.
22. Coming to ground 1(iii), the assessing officer made addition of Rs. 10 lakhs, which has been sustained at Rs. 5 lakhs. The assessee has, in addition, already offered Rs. 5 lakhs towards foreign car. The finding of the Commissioner (Appeals) is 'it is not known as to what make and old the impugned vehicles are and, therefore, the addition was scaled down to Rs. 5 lakhs'. In the absence of any basis, the estimate assumes the nature of pure guess work. However, looking at the entirety of facts, we are of the view that the assessee deserves some relief on estimate. The addition in this behalf is restricted to Rs. 3 lakhs. As far as telescoping is concerned, we are of the view that the declaration made by the assessee is on specific items, burden of proving the inter-connection for availing the benefit of telescoping is on the assessee, for which no sufficient case has been made out. Therefore, the ground raised by the assessee for telescoping of undisclosed income declared is dismissed.
23. Regarding ground 1(iv), i.e., addition on account of realization of coal ash, the assessee has shown the sale of coal ash at Rs. 83,636 and paid sales-tax thereon. No incriminating material has been found in this behalf to suggest that any coal ash was sold by the assessee outside books of account. The addition has been made merely on the basis of a sweeping statement of a manager without pointing out any particular year. In the absence of any incriminating material, we are of the view that the addition is not called for. The same is deleted. Ground 1(iv) of the assessee is allowed.
24. Similarly regarding ground 1(v) being addition of Rs. 30,000 on account of low household withdrawals, no incriminating material has been found that the assessee spent more amount. Besides the addition has been sustained only on the basis that the assessee was having a better life style. The addition becomes ad hoc in nature, which cannot be sustained. The same is, therefore, deleted.
25. Coming to ground 1(vi), as the facts emerge, the assessee was maintaining regular books of account including quantitative details, which were subject to excise regulations and were verified by these authorities from time to time. On 29-2-1992, i.e., four days prior to search also the authorities visited the premises and no variation was found. Admittedly, raw material of the assessee is waste and scrap paper and the manufacturing process is carried out by recycling through automatic machines and the consumption depends on the raw material's quality, which cannot be standardized since the quality of waste and scrap papers supplied is not in the hands of the assessee. A comparison of the GP chart referred to above, clearly shows that the GP in the assessee's line of business varies and is dependent on various factors. The same is variable and not static. The Commissioner (Appeals) also has accepted this fact that the yield would depend upon the quality of the waste paper used by the assessee and that the GP cannot remain constant every year. However, while sustaining addition, he has not considered these aspects objectively and has relied only on the GP of preceding year ignoring that in other years the GP rate is variable and has touched the low of 1.40 per cent also. In the course of search, no material was found to suggest that the assessee has indulged in unaccounted excess production, no defects in the books of account in this behalf have been pointed out. The sole basis of GP addition is comparison only with assessment year 1991-92 ignoring other years. We find merit in the argument of learned counsel and his reliance on the cases of International Forest Co. and Pandit Bros. cited supra for the proposition that no addition could be made merely on the basis of low yield or low GP by rejecting book, results. Under these circumstances, the addition on account of GP is deleted.
26. Regarding ground 1(vii), since the assessee could not produce confirmation in this behalf before both the lower authorities, the addition is sustained. As far as the telescoping is concerned, we are of the view that the declaration made by the assessee is on specific items, burden of proving the interconnection for availing the benefit of telescoping is on the assessee, for which no sufficient case has been made out. Therefore, the ground raised by assessee for telescoping undisclosed income declared is dismissed.
27. Coming to ground 1(vii), as the facts emerge, the deposit in the Punjab National bank in this year was only Rs. 1,00,000 which was also from the account books of the assessee. The Commissioner (Appeals) verified this aspect from the account books. Despite verification, the addition has been upheld merely because of the statement of the assessee, which again was conditional subject to verification as the seized material was not available with the assessee at that time. We are of the view that the assessee has properly explained the nature of deposit in Punjab National bank from its account books. The addition cannot be made merely because the assessee offered the same subject to verification as the verification establishes that the deposit was explained. Under these circumstances, the addition cannot be sustained. The same is deleted. Ground 1(viii) of the assessee is allowed.
28. Regarding ground Nos. 2 and 3 relating to telescoping, we are of the view that the declaration made by the assessee is on specific items, burden of proving the inter- connection for availing the benefit of telescoping is on the assessee, for which no sufficient case has been made out. Therefore, the grounds raised by the assessee for telescoping undisclosed income declared are dismissed.
29. Ground No. 4, i.e., interest under section 234B, is consequential in nature. The assessing officer shall give the effect while giving effect to this order. In the result, assessee's appeal is partly allowed.
Asst. yr. 1990-91-Appeal Nos. 10/Bom/1995 and 102/Bom/1995
30. The assessee's appeal raises following grounds of appeal :
'(1) In the facts and circumstances of the case, the learned Commissioner (Appeals) erred in sustaining following multiple and separate additions :
Particulars
Amount (Rs.)
(A)
Addition on account of rejecting audited book results of Bhagat Paper & Board Mill, Bombay, by estimating gross profit @ 15 per cent
3,12,838
(B)
Addition made by assessing officer on account of alleged capital of appellant Rs. 60,00,000
Less : 27,46,280 relief granted by Commissioner (Appeals) Addition sustained by Commissioner (Appeals) 32,53,720
32,53,720
(2) The learned Commissioner (Appeals) erred in rejecting the plea of your appellant praying for deletion of multiple additions by setting of source of income against application/investment. The learned Commissioner (Appeals) ought to have appreciated that in the absence of any evidence/material to the contrary, the claim of the appellant was tenable and the assessing officer was duty bound to grant such set off.
(3) The learned Commissioner (Appeals) erred in rejecting the plea of your appellant for deletion and/order revision of interest levied under section 234B of Rs. 13,87,808 (Revised figure after giving effect to Commissioner (Appeals) order) and under section 234C of Rs. 4,498. In the facts and circumstances of the case, levy is improper, invalid as it has been charged without taking into consideration value of assets seized and retained by the department towards tax dues.'
31. Revenue appeal raises following ground of appeal :
'On the facts and in the circumstances of the case and in law, the learned Commissioner (Appeals) erred in allowing relief of Rs. 27,46,280 out of addition of Rs. 60 lakhs made on account of cash introduced in capital account, ignoring the fact that the assessee failed to prove with evidence the source of cash of Rs. 60 lakhs introduced. He further erred in holding that set off of accounted stock of Rs. 27,46,280 to be given by relying on the balance sheet produced before him, without appreciating the fact that the sources of cash introduced in the capital stood unexplained.'
32. In effect, ground No. 1-B of the assessee's appeal and ground raised by revenue's appeal are inter-connected as the Commissioner (Appeals) gave part relief, against which revenue is in appeal and the assessee challenges the retention of part addition.
33. Coming to ground No. 1-A in assessee's appeal, as already mentioned, the assessee has a cardboard paper manufacturing factory at Valsad and selling branch at Bombay. In the year in question, the assessee maintained his books of account in a different manner as compared to assessment year 1992-93. In assessment year 1992-93, consolidated account for factory and Bombay sales office were maintained, whereas in this year the assessee was maintaining separate set of accounts for factory and branch office at Bombay. The assessee's products are subject to excise. The goods are removed from the factory at invoice price and are transferred to Bombay Branch at the same price. The Bombay Branch thereafter sells the goods at prevailing competitive market price. Due to stiff competition, the assessee suffered loss in this year. The assessing officer rejected the book results of the assessee by observing that the assessee did not produce books of account. The contention of the assessee was that the books were lying in the custody of the assessing officer. This fact was accepted by assessing officer, who attended the appellate proceedings before Commissioner (Appeals).
The Commissioner (Appeals) sustained GP at 15 per cent on the basis of GP rate of earlier and later years as given by assessing officer. The contention of the assessee is that the assessing officer has given wrong figures as the same pertained to Valsad factory and not of Bombay sales office. Therefore, the basis of addition itself is incorrect. The learned counsel for the assessee contended that books of account of the assessee were duly audited and were lying with the department. That was the reason the books could not be produced. The assessing officer did not examine these books. Therefore, could not find any fault therewith. On the direction of Commissioner (Appeals), the assessing officer supplied information contending that the GP of the assessee for assessment year 1989-90 was 16 per cent and for 1991-92 was 17 per cent. The same is not correct. The position of GP of Bombay Branch in earlier and subsequent years is as under :
Asst. yr.
G.P.
N.P.
1989-90
0.55%
(-)-49%
1990-91
(-)1.37%
(-)2.57%
1991-92
(-)3.12%
(-)3.30%
The GP position of Valsad factory was as under :
Asst. yr.
G.P.
1989-90
16.57%
1990-91
13.67%
1991-92
17.20%
It was contended that a perusal of the above charts will show that in the year under question the assessee has earned GP of 13.67 per cent at Valsad factory unit, for which the assessing officer supplied the details. The loss was suffered only at Bombay Branch, for which no details were supplied. In earlier years, the Commissioner (Appeals) has accepted that the GP cannot remain same, which is a settled proposition of accountancy and law also. The assessing officer has not pointed out any defect in the books of account. The assessee manufactures mill-board paper out of recycled waste paper and the GP percentage depends on various factors, which are not in the control of the assessee. The goods of the assessee are subject to control of excise.
34. Learned Departmental Representative relied on the orders of lower authorities.
35. We have heard the rival contentions and perused the material available on record. The report supplied by the assessing officer does not corroborate with the allegation that the assessee suffered with losses. The above charts show that the assessee earned GP of 13.67 per cent on Valsad factory. The books of Bombay and Valsad unit were separately maintained. Therefore, the basis adopted by the lower authorities in estimating the GP cannot be sustained. Besides, the books of account were in the custody of the department. We have already deleted the addition of GP in assessment year 1992-93. For the reasons recorded therein and the observations made above, the GP addition made for this year is also deleted. Ground 1-A of the assessee is allowed.
36. Coming to ground No. 1-B of the assessee's appeal and the ground raised by revenue, the brief facts are search and seizure operations were carried on in assessee's and related premises, details whereof are described above in appeal for assessment year 1992-93. A loose paper was seized from the residence Shri R.C. Motta, who is father-in-law of cousin brother of assessee. The assessee offered for taxation undisclosed income to the extent of Rs. 1,91,90,574. Details in this behalf are narrated in assessment year 1992-93. Over and above acceptance of this declaration, in the assessment proceedings for assessment year 1990-91 the assessee was asked to explain this paper. The assessee, vide letter dated 17-3-1993, replied that the same was written by accountant, Shri Narendra Chhedda, who had already left the services. The assessee, however, replied as under :
'It is pertinent to note in this connection that whatever unexplained stock-in-trade was found during the course of search action is already offered for tax during the previous year relevant to assessment year 1992-93 and thereby all income related to gold and silver business is already considered in the assessment year 1992-93.
Your observation that our client had invested Rs. 60 lakhs by way of cash out of total capital of Rs. 79,37,041 is not correct because the figure of Rs. 79,37,041 represents the debit side and calculation of Rs. 60 lakhs represents capital and loans invested in the business of Kalyan Jewellers.'
The assessing officer, however, was of the view that the disclosure of unaccounted stock made in statement under section 132(4) was for assessment year 1992-93. However, the seized paper mentioned the date of investment of Rs. 60 lakhs as 29-10-1989 and the same falls within the accounting period 1989-90. The assessee's explanation was not accepted and it was held that the assessee has not explained about any source of this investment. The addition was made. Aggrieved, the assessee preferred appeal before Commissioner (Appeals). During the course of hearing, the assessing officer was also present. It was submitted that the said paper was a sort of trial balance for S.Y. 10-11-1988 to 29-101989. The paper contained both accounted as well as unaccounted business of M/s. Kalyan Jewellers (Gold department), a proprietary concern of the assessee. Assessee furnished a chart showing that the amounts reflected in the paper tallied exactly with the books of account. A trading account was also prepared, which showed a book stock of Rs. 27,46,280 on 29-10-1989. Both these charts were verified by assessing officer during the course of appeal hearing and accepted these facts. The Commissioner (Appeals) was of the view that out of the stock of Rs. 52,42,860 shown on the loose paper, stock of Rs. 27,46,280 was accounted as per books and the balance of Rs. 32,53,720 was unaccounted. The assessee pleaded that in the course of search, excess stock of gold jewellery of Rs. 34,21,765 was found at the premises of Kalyan Jewellers, which was accepted as undisclosed income by the assessee. The same was offered for taxation in assessment year 1992-93 and taxes were paid thereon. The proprietory concern and its business were same; the paper pertained to the same. The unaccounted stock reflected in that paper was the same as has been found from the premises of Kalyan Jewellers and, therefore, no separate addition based on this paper should be made. The plea of the assessee was negatived by the Commissioner (Appeals) in this behalf. The assessee is in appeal against this part retention and the revenue is in appeal against the part relief given by the Commissioner (Appeals).
37. The learned counsel for the assessee contended that a trading account was prepared from the audited books of account from 1-4-1989 to 29-10-1989, so as to arrive at the gold stock as on 29-10-1989, which came to Rs. 27,46,280. In the alleged paper, the gold stock was shown at Rs. 52,43,860. The assessing officer without verifying these aspects, made the addition of Rs. 60 lakhs as proprietor's cash. The Commissioner (Appeals) considered these aspects and held that the seized paper contains both accounted as well as unaccounted business entries, which were verified from the books. He was of the view that the assessee had explained the stock to the extent of Rs. 27,46,280 as shown in the books. However, the Commissioner (Appeals) did not appreciate the fact that the assessee in respect of same proprietorship business, i.e., Kalyan Jewellers, has offered an amount of Rs. 34,21,766 as undisclosed income on account of excess stock of gold jewellery found from the premises of Kalyan Jewellers. If the assessee was holding undisclosed stock since a long time and if any paper is found for the earlier period containing entry in this behalf, the logical conclusion will be that it is the same excess stock, which the assessee was carrying. The addition in this year has not been made on actual excess stock found but on the basis of a paper, which is unsigned, not written by the assessee and the same is only a trial balance. In this backdrop, the learned counsel made following propositions :
(i) The loose paper was not written by the assessee. The same was not seized from the assessee's residence nor his business premises. Therefore, no addition can be made merely on the basis of this loose paper as the same is a dump document. Reliance was placed on S.P. Goyal v. Dy. CIT .
(ii) The paper was not written by the assessee but by an accountant, who had left the services. Therefore, the contents were not known to the assessee. This fact was answered in question No. 2 to statement recorded on 10-11-1993, under section 131. Once the document is not found from the assessee and is not in the handwriting of the assessee, the burden is on the department to prove that the same represented undisclosed income of the assessee.
(iii) In the search action, excess gold was actually found from the assessee and disclosure of Rs. 34,21,765 was made, which was offered to tax. The excess stock represented by this paper, if at all, is nothing but an entry of the excess stock held by the assessee over a period of time. The addition can be made on this behalf once, the same having been accepted in assessment year 1992-93, the department cannot make double addition in this year. Reliance was placed on CIT v. Jawanmal Gemaji Gandhi and CIT v. Tyaryamal Balchand (cited supra). The learned counsel stressed the point that the department accepts the fact that the loose paper belongs to Kalyan Jewellers and the disclosure on account of excess gold also has been made in the case of Kalyan Jewellers, which is more than the excess stock as per the loose sheet. Therefore, there was no justification to retain the addition. During the course of search also the assessee had made declaration of undisclosed income subject to verification as the loose papers were not available and after verification the disclosure in this behalf having been made in assessment year 1992-93, no further addition is called for in this year. Reliance was placed on following case laws for the proposition that double taxation cannot be made in the hands of the assessee for the same income :
(1) Laxmipat Singhania v. ClT : [1969]72ITR291(SC)
(2) CIT v. Smt. T P. Sidhwa : [1982]133ITR840(Bom)
38. The learned Departmental Representative, on the other hand, contended that the loose paper contained an item, proprietor's cash at Rs. 60 lakhs. The assessee could not explain the source of this capital. Therefore, the addition should have been sustained by Commissioner (Appeals) on the basis of this entry and not on the basis of excess stock. Order of assessing officer was relied. Alternatively Departmental Representative supported the order of Commissioner (Appeals).
39. The learned counsel for the assessee, in reply to revenue appeal, contended that it is admitted on the record that the paper in question contained accounted as well as unaccounted entries, which have been tallied from the books of account. Therefore, all the debit entries have been taken, which represent the total of trial balance on debit side. The accountant, in his own understanding, on the credit side first made the entries of creditors, Bhagat Paper and Board Mill, Dayabhai and profit. The difference between the debit side and these figures was written by him as proprietor's cash, which is without any basis. Therefore, though no cognizance of this paper should have been taken, nevertheless Commissioner (Appeals) found out the item of stock and made the same as basis of addition, which is the only logical way as the entry of Rs. 60 lakhs has no basis and authority. The assessee prepared trial balance till 29-10-1989, to explain the position, which has not been controverted by assessing officer. Therefore, the revenue's plea to make this entry as base is without consideration of the relevant material.
40. We have heard the rival submissions and perused the material available on record. The Commissioner (Appeals)'s clear finding is that the paper was verified and found to contain accounted as well as unaccounted entries and the same was in the form of a trial balance. The assessing officer also verified the same and some of the accounts like, electricity, telephone, salary, advertisement, etc. are tallying by rupee to rupee. Under these circumstances, we are of the view that the paper belonged to the assessee's business and merely it was written in the hands of an accountant, who left the service, cannot be considered to ignore the paper as not related to assessee's business. The assessee prepared a trading account from 1-4-1989 to 29-10-1989, which showed that there was excess stock of Rs. 32,53,720. We are of the view that the Commissioner (Appeals) considered the issue in right perspective by verifying the trading account prepared and tallying it with the books of the assessee. Therefore, we are unable to accept the revenue's ground that the whole addition should be made on the basis of one entry. Therefore, revenue appeal is dismissed.
41. Coming back to the assessee's appeal, it is clear from the record that the paper pertained to M/s. Kalyan Jewellers, a proprietary concern of the assessee, from the same premises excess gold was found during the course of search to the extent of Rs. 34,21,765. The excess stock found also indicates that the contents of stock in the loose paper are inter-related also. The assessee was doing regular business of gold ornaments and the excess stock in the given circumstances must be carried on when it is actually found. There is every possibility that in earlier papers it will find a reference. Consequently, the facts of the issue before us support each other and we are of the view that the entry of stock found on this loose paper was culminated into an addition when the same was physically found in excess during the course of search. The assessee having offered Rs. 34,21,765 as undisclosed income on account of excess stock and the department having accepted and assessed the same, no further addition is called for in this year. Therefore, this ground of the assessee is allowed.
42. Ground No. 2 in assessee's appeal pertains to giving set off of the income declared towards multiple additions. We are of the view that the declaration made by the assessee is on specific items; burden of proving the interconnection for availing the benefit of telescoping is on the assessee, for which no sufficient case has been made out. Therefore, the ground raised by the assessee for telescoping of undisclosed income declared is dismissed. In the result, assessee's appeal is partly allowed.
Asst. yr. 1991-92-Appeal No. 11/Bom/1995.
43. This is assessee's appeal. Following two grounds are raised :
'(1) In the facts and circumstances of the case, the learned Commissioner (Appeals) erred in sustaining following multiple and separate additions :
Particulars
Rupees
(A)
Addition on account of alleged unrecorded realization of coal ash
80,000
(B)
Addition on account of alleged low household expenses
40,000
(2) Learned Commissioner (Appeals) erred in rejecting the plea of your appellant praying for deletion of multiple additions by setting off source of income against application/investment. The learned Commissioner (Appeals) ought to have appreciated that in the absence of any evidence/material to the contrary, the claim of the appellant was tenable and the assessing officer was duty bound to grant such set off.
(3) In the facts and circumstances of the case, the learned lower authorities ought to have granted suitable set off at additions made in preceding year to the extent they relate to the additions made during the year under reference.'
44. The addition on account of coal ash has already been considered by us in detail while deciding ground No. 1(iv) for assessment year 1992-93. For the same reasons, addition in this behalf in this year is also deleted.
45. Coming to ground 1-B, we have dealt with the issue of addition on account of household withdrawals while deciding ground No. 1(v) for assessment year 1992-93. Relying on the same reasons, addition on this count in this appeal is also deleted.
46. In the result, assessee's appeal is allowed.
Asst. yrs. 1993-94, 1994-95 and 1995-96.
47. These three revenue's appeals raise common ground challenging the decision of Commissioner (Appeals) in reducing GP addition as under :
Asst. year
GP percentage retained by CIT(A)
1993-94
14.5%
1994-95
14.5%
1995-96
12%
We have already dealt with the issue of GP addition in detail while deciding ground No. 1(vi) in appeal for assessment year 1992-93 and ground No. 1-A in appeal for assessment year 1991-92 and have deleted the GP additions retained by Commissioner (Appeals). For the same reasons, the revenue's appeals are dismissed.
Asst. yr. 1996-97-Appeal Nos. 6156 and 6131.
48. The first ground of the assessee and revenue appeals is common. The assessing officer estimated the gross profit of the assessee @ 14 per cent making addition of Rs. 6,95,846. The Commissioner (Appeals), following his earlier year's order, directed to adopt estimated GP rate at 12 per cent thereby reducing the addition to Rs. 4,54,528. The assessee is aggrieved against retention of GP addition and the revenue is aggrieved for the relief given. We have heard both the parties. We have already decided the issue of GP in assessment years 1990-91 and 1992-93. The Commissioner (Appeals) has followed his earlier order. Facts and circumstances are same. Therefore, following our earlier orders, the addition made on account of GP is deleted, thereby assessee's first ground is allowed and, revenue's first ground is dismissed.
49. Second ground of the assessee challenges retention of addition at Rs. 30,000 being interest disallowed holding the same to be pertaining to preceding previous year in the business of M/s. Kalyan Jewellers. Further grievance made by the assessee is that the Commissioner (Appeals) has enhanced the assessment. The assessee's contention is that the assessee was following mixed system of accounting and therefore, the claim of interest was justified, as against which the finding of lower authorities is that the interest pertained to preceding year and the assessee cannot depart from mercantile system. We have heard both the parties and perused the material available on record. The claim of interest of the assessee is not in doubt. It is only the question of year of allowability. The assessee claims his method of accounting to be mixed system of accounting, which is mentioned in the audit report. The assessing officer has observed that there is a remark in the audit report that following cash system of certain expenses, the interest is claimed but no basis thereof is given. Since the assessee has not given any basis as to how the claim of interest on cash basis was made, we are of the view that the disallowance was correctly made. The same is upheld. This ground of the assessee is dismissed.
50. The third ground of the assessee pertaining to interest under sections 234B and 234C is consequential in nature.
51. Second ground of the revenue appeal is as under :
2. On the facts and in the circumstances of the case and in law, the learned Commissioner (Appeals) has erred in :
(a) setting aside the issue related to the addition of Rs. 12,59,000 as income from undisclosed sources made on the basis of the intimation received from the Anti Corruption Bureau, Mumbai;
(b) overlooking the fact that the assessing officer had made the addition of Rs. 12,59,000 only after conducting a detailed examination of the cash flow statement submitted by the assessee and the assessee's submissions regarding his agricultural holding, details of crops grown, etc'
52. The learned counsel for the assessee contended that the Commissioner (Appeals) has set aside this issue, consequential order under section 250 has been passed by the assessing officer on 26-3-2002 whereby the assessee has been granted relief. Therefore, this ground of the revenue becomes in fructuous. Learned Departmental Representative concedes. Since the order giving effect to the issue in question has already been passed giving relief to the assessee, the ground raised by the revenue becomes infructuous and is dismissed.
53. In the result, assessee's appeal is partly allowed and revenue's appeal is dismissed.