Full Judgment
A survey operation under section 133A of the Income Tax Act, 1961, was taken at the business premises of the assessee-firm on 27-6-1996.
Simultaneously, the search operation under section 132 of the Act was carried on at various business and residential premises of the Kamat Group. The search action was conducted at the residence of partner Shri V.R. Patankar and also at the residence of other partner Shri M.V.Kamat on 27-6-1996. The search action under section 132 of the Act was also conducted at the residential premises of Shri R.M. Acharya, who is manager of the firm M/s Hotel Vrindavan. As a result of search operation, the assessment has been completed under section 158BC of the Income Tax Act, 1961 for the block period 1987-88 to 1997-98. The assessee is in appeal against the block assessment framed by the assessing officer. Four grounds have been raised. The same are discussed and disposed of as follows "The learned Assistant Commissioner erred in holding, without any evidence that there was escapement of sales for the period 1-1-1986 to 2-11-1986 (Assessment year 1987-88) merely because suppression was found in the seized books for subsequent period- There is no presumption in law that if subsequently there was suppression, there must be such suppression in earlier year and the onus to prove such presumption was on the department. The learned Commissioner erred in putting a negative burden on the appellant not realising that appellant could not prove the non-existence of a fact. The net profit for assessment year 1987-88 at Rs. 1,24,265 calculated on this presumptive basis, is not justified. The said addition may kindly be deleted." During the course of search and survey operation, it was found that the assessee-firm was suppressing sales. For the assessment year 1987-88 as per the Seized documents, the suppressed sales pertained to only for 4-11-1986, to 31-12-1986 (assessee was following calender year as the accounting year). The assessing officer presumed that since the sales were suppressed in the subsequent part of the assessment year 1987-88 and in the subsequent years, the assessee must have suppressed the sales for the earlier period also, Following the pattern followed by the assessee in the subsequent period and assessment years the assessing officer estimated the sales and worked out the profit at Rs. 1,24,265 for the whole assessment year 1987-88.
Shri K.A. Sathe, the learned counsel for the assessee submitted that the assessing officer has estimated for assessment year 1987-88 undisclosed income at Rs. 89,011 without any sound material found for major part of the year. The addition is intangible i.e., on account of material found for 3-11-1986 to 31-12-1986. The learned counsel further submitted that on p. 7, the assessing officer himself has admitted that there is no scope for presumption and assumption for computing past sales and expenses and contradictory to this statement, he computed the net profit on presumed sales. He submitted that the assessing officer should estimate the sales and expenses for the period 4-11-1986 to 31-12-1986 for which there was material in the hands of assessing officer and according to the learned counsel such addition would at best works out to Rs. 28,000.
Shri C. M. Bhake, the learned Departmental Representative strongly supported the order of the assessing officer. He submitted that the assessee had followed a specific pattern for suppressing the sales all these years and the assessing officer was justified in presuming that the sales must have been suppressed in the earlier years also. He submitted that there were circumstantial evidence to this effect. He therefore, submitted that the entire addition deserves to be upheld.We have considered the rival submissions and perused the facts on record. The provisions under Chapter XIV-B are the special provisions.
These were brought on the statute book specially and specifically for assessment of undisclosed income detected as a result of search. The Hon'ble Tribunal Bombay, in the case of Sunder Agencies in IT(SS)A No.87/Mum/1996 (1998) 1 DTC 166 (Mum-Trib) : (1997) 63 ITD 245 (Mum-Trib)) at para 22 has held as under : "22, It is abundantly clear from the perusal of the prescription of s.
158BA that within the pale of Chapter XIV-B assessment could be made only in respect of the undisclosed income. Such undisclosed income must come as a result of search This section does not provide a licence to the Revenue for making roving enquiries connected with the completed assessments. It is beyond the power of the assessing officer to review the assessments completed unless some direct evidence comes to the knowledge of the department as a result of search which indicates clearly the factum of undisclosed income. Without such evidence of material the assessing officer is not empowered to draw any material presumption as to the existence of undisclosed income. A presumption is an inference of fact drawn from other known or proved facts. It is the rule of Law under which courts are authorised to draw a particular inference from a particular fact, until and unless the truth of such Chapter XIV-B does not give power to the revenue to draw the presumption in regard to the undisclosed income. The assessing officer could proceed on the basis of material detected at the time to search and the evidence gathered." Thus, there is no scope for presumption in the statute inasmuch as thus provisions under Chapter XIV-B are concerned. The maxim of English Law as propounded by Holroyd, J. prescribes . "It is better that ten guilty men should escape rather than one innocent should suffer". The principle of justice requires that no one should be punished on the basis of presumption. From the reading of the order of the assessing officer it is noted that the addition has been made on the presumption that if the assessee was suppressing the sales and expense for the subsequent year, he must have suppressed the sales and expenses for the earlier years also. Such addition cannot be confirmed as the same is not supported by cogent material and evidence. We accordingly direct the assessing officer to add profit on account of suppressed sales and expenses for the period from 4-11-1986 to 31-12-1986, only in the assessment year 1987-88. This ground accordingly succeeds in part.
''The learned Assistant Commissioner erred in adding investment of Rs. 5,00,000 in FD with Mahavir Pat Sanstha on protective basis even though it was explained to be out of undisclosed business income of the appellant computed separately." During the course of search action at the residence of Shri D.C. Naik, who is employee of M/s Hotel Vrishali, 60 FDRs made with Mahavir Nagar Pat Sanstha Kolhapur were found and seized. Each FDR was of the value of Rs. 20,000 Shri D.C. Naik disowned the FDRs found. He stated that the said FDRs were given to him about 3 years back by Shri Girish M.Kamat. A statement of Shri Girish M. Kamat was recorded on 5th July, 1996, by the ADI (Survey), Kolhapur, wherein in answer to question No.4, he admitted that on page No, 18 the noting of FDR in Mahavir Nagari Pat Sanstha are made by him and the FDRs were kept with D.C. Nayak one of the employees of Kamat Group. He further submitted that the FDRs belonged to various persons of the group and here it may be worthwhile to reproduce question No. 4 and answer to the same.
''Q.4. Kindly explain the entries made on page Nos. 18 and 19 in the said red colour crystal pocket book.
A.4 It is the noting of the FDRs made in Shri Mahavir Nagar Sahakari Pat Sanstha Ltd., Kolhapur. On para No. 18, names of our various concerns viz., M/s S & N Construction, M/s Vijayalakshmi Constructions, myself Girish Kamat, Kamat Restaurant, M/s Urvashi, partly Vrindavan are noted. On the same page Group and 12L donote twelve lacs of the whole group. On p. 19, the words Mahaveer Pat means Shri Mahaveer Nagari Pat Sanstha Ltd. and FDR means fixed deposit receipts the words 12L means rupees twelve lacs: According to the assessing officer the bifurcation as to the holding of each member concern could not be given by Girish M. Kamat at the stage of recording his statement on 5-7-1996. He was directed to produce 45 persons in whose names the FDRs were made. He stated in answer to question No. 8 that all the 45 names are fictitious and therefore, he could not produce them or give their addresses. He was asked to explain the sources of Rs. 12 lakhs made in 45 fictitious names. He stated that the source of investment was out of business concerns of Kamat Group.
Later on his written reply dt. 29-5-1997 Shri Girish M Kamat gave personwise investment as under : The assessee-firm disclosed a sum of Rs. 5,00,000 as its undisclosed income and offered for taxation. The assessing officer was of the view that the entire FDR aggregating to Rs. 12 lakhs belonged to Shri G.M.Kamat. Since the assessee had disclosed a sum of Rs. 5 lakhs, he assessed the same on protective basis. The grievance of the assessee is that the amount of Rs. 5,00,000 should not have been assessed on protective basis but on substantive basis because it had duly declared the amount of Rs. 5,00,000 as undisclosed income.
Shri K.A. Sathe, the learned counsel for the assessee submitted that the fact of ownership of the fixed deposits claimed by the assessee out of undisclosed income of the firm, the same should have been assessed on substantive basis. He drew our attention to a page in crystal pocket diary which was adimitted by Shri Girish M. Kamat as belonging to him.
He drew our attention to the contents of paper and noting placed at p.
2 of the paper book which on one side records the FDR as 12L and the other side i.e., left side the names of the group concern and pointed out that the name Vrindavan appears on the said paper. He further drew our attention to question No. 4 and answer to the same and the statement of Shri Girish M. Kamat which has been reproduced above and submitted that it cannot be said that the entire Rs, 12 lakhs belonged to Shri Girish M. Kamat. Moreover, the assessee-firm had declared an amount of Rs. 5 lakhs on account of fixed deposits, with Mahaveer Pat Sanstha as undisclosed income of the firm and the same ought to have been accepted by the assessing officer.
Shri C. K. Bhake, the learned Departmental Representative strongly supported the order of the assessing officer. He submitted that no reliance can be placed on the paper placed at p 2 of the paper book which contains the name of the concern book but does not give the exact amount deposited by each group with Mahaveer Pat Sanstha. He submitted that this paper is a dumb paper and should be rejected outright. This paper was written in the hand of Shri Girish M. Kamat. The presumption is that the contents of it pertains to Girish M. Kamat and the amount of Rs. 12 lakhs is assessable in the hands of Mr. Girish M. Kamat.
Accordingly, though the assessee declared a sum of Rs. 5 lakhs as its undisclosed income, the assessing officer was justified in assessing the same on protective basis.
Alternatively, he argued that even if on the basis of paper seized during the search and placed at p. 2 of the paper, the amount of Rs. 12 lakhs should be assessed in the hands of the assessee on proportionate basis.
We have considered the rival submissions and perused the facts on record. From question No. 4 and reply to it in the statement of Shri Girish M. Kamat it is evident that the FDRs aggregating to Rs. 12 lakhs with Mahaveer Pat Sanstha did not belong to Shri Girish M. Kamat but to the concern of Kamat group. This fact is also further clear from the seized paper placed at p. 2 of the paper book. In our view this is not a dump paper. Its contents speak for themselves. As pointed out above, on the right side of the paper, it is written the name of Mahavir Pat and FDR 12L meaning thereby Rs. 12 lakhs. On the other side of the paper are given the names of concerns of Kamat group and the name of the assessee, i.e., Vrindavan promptly appear on the left side of the paper book. The paper has to be read as a whole. It cannot be read in bits. On the basis of the contents of the paper, the assessee declared as sum of Rs. 5 lakhs on account of FDRs with Mahaveer Pat Sanstha as undisclosed income. Accordingly, a sum of Rs. 5 lakhs stands owned by the assessee-firm and accordingly it should be assessed on substantive basis in the hands of the assessee. We are unable to agree with the contention of the learned Departmental Representative that the average of Rs. 12 lakhs should be worked out and then only the proportionate amount should be assessed on substantive basis in the hands of the assessee-firm, because when the assessee categorically owns up a sum of Rs. 5 lakhs it cannot be assessed on a lesser amount worked out on the basis of average. Under the circumstances, we hold that the amount of Rs. 5 lakhs should be assessed on substantive basis in the hands of the assessee-firm. This ground accordingly succeeds.
"The learned Assistant Commissioner erred in adding total amount of Rs. 2,64,644 for different years separately even though the undisclosed income on account of suppression of sales was separately calculated.
The amount of Rs. 2,64,644 has been added wrongly once again to undisclosed income of respective years. " Here, the facts are very clear. In spite of undisclosed income calculated by the assessing officer in his assessment order for different years, he has once again added the figure of Rs. 2,64,644 disclosed by the assessee as undisclosed income. Obviously this is the double addition which fact has been admitted by the learned Departmental Representative. We accordingly hold that there is no justification for the double addition. The amount of Rs. 2,64,644 is accordingly deleted. This ground accordingly succeeds.
"The appellant craves leave to add, alter, omit or substitute any of above grounds at the time of hearing of the appeal."