H C Chandna P Ltd Vs Dy Cit - Citation 707464 - Court Judgment

Judgment:
ORDER

R.K. Gupta, J.M.

These are four appeals by four different assessed's against the orders of assessing officer passed under section 158BC relating to the block period from l-4-1985 to 22-4-1996. All the four cases relate to Chandna group and similar issues are involved, thereforee, they are disposed off by this single order.

2. The brief facts of the case are that a search and seizure operation under section 132 of the Income Tax Act was carried on 22-4-1996, at residential and business premises of Shri H.C. Chandna and his sons, namely, Shri O.P. Chandna and Shri S.K. Chandna. Chandna group is engaged in the business of trading in fabric which is used for garments to be exported out of India. Shri H.C. Chandna along with two sons and other family members have floated various companies, firms and proprietorships. The detail of premises searched are as under:

S1. No.

Name of the premises

Name of persons/concerns in whose name Panchnama prepared

F- 18, Lajpat Nagar, New Delhi.

Shri S.K. Chandna, Shri O.P. Chandna and Shri H.C. Chandna. This premises is residence of Shri O.P. Chandna.

A-4, First Floor, GK Enclave, Part-I, New Delhi.

Shri H.C, Chandna, Shri O.P. Chandna And Shri S.K. Chandna. This premises is residence of Shn S.K. Chandna.

B-222, Okhla. Indl. Estate, Phase-I, New Delhi.

M/s Chandna. Fabrics (P) Ltd., M/s H.C. Chandna (P) Ltd., M/s S.K. Chandna & Co. M/s Chandna Textile Traders.

(a) 30, Krishna Cloth Mkt. Chandni Chowk, Delhi.

M/s S.K. Chandna & Co.

(b) 30-B (2nd floor) Krishna Cloth Market, Chandni Chowk, Delhi.

M/s Chandra Fabrics (P) Ltd.

M/s H.C. Chandna (P) Ltd.

3. As per assessment order of these assessed's, from all the abovementioned premises a large number of incriminating documents, books of accounts etc. relating to various investments and also to various business activities of Chandnas through various business concerns were seized. Accordingly for the purpose of making block assessments in the case of all these assesseds, notices under section 158BC of the Income Tax Act were served on these assessed on 29-3-1996, calling for return of undisclosed income for the block period, i.e., from l-4-1985 to 12-2-1996, In response to above said notices, these assessed's did not file the returns of undisclosed income within the time allowed of 16 days from the date of service of notice. However, these assessed's filed the returns on 20-2-1997 declaring undisclosed income for the block period at Nil

4. As per order of assessing officer at p. 3 in case of M/s S.K. Chandna & Co,, various incriminating loose papers which were found during the course of search were creditor ledger, journal, cash book, journal ledger, purchase register,- bank register-, debit/credit note register (all for the year 1993-94). Likewise, the above records were found for the years 1994-95 and 1995-96 and the total of these documents as appended in the order of the assessing officer at p. 3, is 29. All these documents which were 'seized, were annexed to panchnama. During the assessment proceedings, the assessed was required to prepare the trading account from 1-4-1995 to the date of search, i.e., 22-2-1996. The trading accounts were prepared and were filed. The trading account in case of M/s. S.K. Chandna & Co. was prepared from 1-4-1995 to 17-2-1996, which are reproduced at p. 5 of the order of assessing officer; in the case of M/s Chandna Fabrics (P) Ltd. the trading account was prepared from 1-4-1995 to 12-2-1996, which are reproduced at p. 7 of the assessment order-, in the case of M/s H.C. Chandna (P) Ltd., the trading account was prepared from l-4-1995 to 22-2-1996, which are reproduced at pp. 4 and 5 of the order of assessing officer and in case of M/s Chandna Textile Traders, again the trading account was prepared from l-4-1995 to 22-2-1996 and the same is reproduced at pp. 3 and 4 of the order of the assessing officer. As per order of the assessing officer in the case of S.K. Chandna & Co. the main allegation against Chandnas was that they were indulging in huge tax evasion by way of carrying on business through some benami concerns and also by way of not disclosing true profits of various concerns of the assessed group, suppressing the sales and by showing low GP rate. After examining all the documents seized during the course of search, the assessing officer found that the assessed has not properly recorded the sales from l-4-1995 to 22-2-1996. It is also observed in the order that books of accounts were also incomplete. Though the reconciliation chart was filed before the assessing officer and as per all these assessed's the reconciliation charts filed by them were tallying with the figure of sales and purchases recorded in the regular books of accounts. During the assessment proceedings the assessing officer also examined the return filed for assessment year 1995-96 in all these cases. It is noted that as per audit report under section 44AB attached with the returns, no details of sales and purchases etc. in terms of quantity, as called for in note below column No. 3 of the report,' have not been given. It is further observed by the assessing officer that in seized records also there is no material to suggest that assessed has maintained the stock register which could tally with the stocks mentioned in the papers found. The assessing officer further noted that all these assessed's have been indulging in huge cash sales, which is not fully accounted for in the books of accounts. It is also noted by the assessing officer that the sale proceeds made in cash are not fully deposited in the bank. From all these facts mentioned in the order of the assessing officer, the assessing officer drew an inference that assessed has shown low GP rate while filing the regular returns. At annex. AA-19 seized from Okhla, it is noticed by the assessing officer that the assessed had made reverse calculation for applying the low GP rate. A copy of the trading account was found there, wherein it was noted that purchase required and sale bill required. From this document the assessing officer drew an adverse inference that it clearly shows that assessed is not showing full purchases and sales in books of accounts. It was also observed that the assessed is indulging in suppression of sales. From the statement of Shri S.K. Chandna and Shri O.P. Chandna, it was gathered by the assessing officer that they have clearly admitted that they are doing business in the name of benami concerns. thereforee, he drew an adverse inference that the GP rate shown while filing the regular return is not correct. Accordingly he picked up items of purchases and sales from 1-4-1995 to 22-2-1906 and prepared a chart. The prepared charts are annexed to the respective assessment orders. In these charts, the purchases and sales made are shown. The GP rate as per this chart was 7. 10per cent in case of S.K. Chandna & Co. and likewise the GP was arrived at in other cases also. Another chart was prepared by the assessing officer, by which the average GP rate was coming 0.26 per cent thereforee, after giving a marginal relief, the assessing officer held that if 7 per cent gross profit is applied for the block period, as in his view this gross profit ratio will be a reasonable one. Accordingly he applied GP rate on the sales shown by assessed while filing its regular returns of all these four assessed's and calculated the extra profit and made addition accordingly. For the period from 1-4-1996 to 2-2-1996, the assessing officer made estimation of sales of all these four concerns and on that estimation of sales, applied GP rate of 7 per cent. In each case the estimation of sales made by the assessing officer is as under :

Sale disclosed

Adopted by assessing officer

GP rate

Amount of GP

S.K. Chandna & Co.

6,06,83,898

6,18,93,541

43,32,548

Chandna Fabrics (P) Ltd,

4,80,18,607

5,00,18,607

35,01,302

H.C. Chandna (P) Ltd.

3,14,37,519

3,32,17,782

23,25,245

Chandna Textile Traders

1,76,92,837

1,98,35,492

13,88,484

5. In this way, the sales difference which was adopted by the assessing officer for all these concerns were of Rs. 12 lakh odd-, Rs. 20 lakh odd-, Rs. 17,80,263 & Rs, 21,42,655, respectively. While estimating the sales, the assessing officer allowed some deduction on account of expenses on these sales. These expenses, which were allowed on estimate basis, were as under:

S.K. Chandna & Co.

15,47,339

Chandna Fabrics

12,50,465

H.C. Chandna (P) Ltd.

Nil

Chandna Textile Traders

96,630

6. There was an interest income also which was also treated by the assessing officer as undisclosed income. In the case of S.K. Chandna & Co. and in case of Chandna Fabrics (P) Ltd. the interest income was taken Nil. However, in other cases i.e., in case of H.C. Chandna (P) Ltd. and Chandna Textile Traders the interest income of Rs. 11,346 and Rs. 24,473, respectively was treated as undisclosed income of these two assessed's, as no return was filed by assessed's. For the sake of clarification these details, as mentioned above, are taken from the written synopsis filed on 6-3-2003, by the counsel of the assessed, as they are undisputed. For further clarification the basis for estimation of sales in the case of S.K. Chandna & Co. and in case of Chandna Fabrics (P) Ltd. are similar and in other two cases, i.e., in case of H.C. Chandna (P) Ltd. and Chandna Textile Traders are similar. In first two cases the estimation made by the assessing officer is on the reason that in the course of search, a copy of rough trading account was found wherein it was reflected that some purchase are required and some sale bills are required. thereforee, drawing an adverse inference and looking some other discrepancies, which was on account of non-tallying of stocks, etc., the estimation of sales, as stated above, were made. In case of other two cases. i.e., H.C. Chandna (P) Ltd. and Chandna Textile Traders, the reason for estimating the sales was that as per sale register some bills were shown as cancelled and on some of the bills 'B' word was mentioned. As per the assessing officer the assessed could not prove the reason for cancellation of bills and why the word 'B' is mentioned could not be explained. thereforee, on average basis the sale of each, bill shown as cancelled and shown as written 'B', was arrived at and estimate of sales was made. In case of M/s H.C. Chandna (P) Ltd., out of total 608 bills, 58 have been cancelled and on 19 bills there was no entry as only the word 'B' was written, and thus for the remaining bills, i.e., 531 bills, the sale was shown at Rs. 4,43,53,245 as per sale register and thus, taking the average of sale per bill which comes to at Rs. 81,682 and in this way total sales of Rs. 15,52,000 was arrived by the assessing officer. Further a difference of Rs. 2,28,264 which could not be explained by assessed was also added in the estimate of sales over and above shown by the assessed.

7. Likewise, in case of Chandna Textile Traders, the average of cancelled bills and marked 'B' bills was arrived at Rs. 20 lakh. Total of such bills were 39 in numbers. Besides this, there was a difference of Rs. 1,42,655 as per sale register and as per trading account prepared by assessed as on 22-2-1996. The same was also added in estimated sales which was over and above shown by assessed. As already stated, on these sales also a 7 per cent GP rate was applied. In this way, the total undisclosed income of these four assessed's assessed by the assessing officer were as under :

S.K. Chandna & Co.

1,18,95,270

Chandna Fabrics (P) Ltd.

93,27,990

H.C. Chandna (P) Ltd.

31,52,410

Chandna Textile Traders

19,49,420

8. Now all these four assessed's are in appeal here before the Tribunal.

9. These appeals were fixed for hearing and hearing continued on various dates. The learned counsel has filed written submissions in all these cases along with a chart of additions, which consists of 16 pages separately. By these written submissions, each assessed has explained the facts of the case and objections in respect of additions made by assessing officer while completing the assessment under section 158BC. The reliance is also placed on various case laws mentioned in the written synopsis. The counsel of the assessed has pointed out the defect in the orders of the assessing officer while drawing the attention of the Bench on respective paragraphs of respective assessment orders. On a query from the Bench that some legal grounds are also taken while filing the appeals by these assessed's, at this point of time the learned counsel stated that the legal grounds taken, which are in fact, in regard to proper opportunity not allowed to the assessed, are not pressed.

10. On the other hand, lengthy arguments were made by the learned departmental Representative on behalf of the department. Firstly, the strong reliance was placed on the orders of the assessing officer. It was further stated that all these assessed's remained non-co-operative during the assessment proceedings. It was further explained that the notice for filing return of undisclosed income were issued by the assessing officer well in time, i.e., on 29-3-1996, and these assessed's were directed to file the return within the time allowed of 16 days from the date of service of such notice. However, these assessed's filed the returns only on 20-2-1997, declaring undisclosed income for the block period at Nil. It was further stated that there was only 8 days time left with the assessing officer to complete the assessment of all these assessed's, as the assessments were going to be time barred on 28-2-1997, even though the assessing officer allowed ample opportunity to the assessed's to explain their side. It was further stated that various incriminating documents were found and the statements of the Chandnas were recorded, wherein they have clearly admitted that they were indulged in illegal business activities, as they were doing the business in the name of benami firms. It was further stated that it is not correct that statement given by a person, which was not partner or director in these four concerns, does not have any effect because all the male members were handling the business of these assessed-firms. thereforee, adverse inference drawn by the assessing officer, which was on the basis of statements recorded of the directors/proprietor, was correct. It was further stated that all assessed-firms were doing the business from common premises and all the business premises were searched on the same date, thereforee, common panchnama was prepared. It was further stated by the learned departmental Representative that no doubt the additions made by the assessing officer are on account of enhancement of GP rate on the disclosed turnover while filing the regular returns by these assessed's, but there was a valid reason in enhancing the GP rate, as GP rate shown by these assessed's were not correct. In support of this contention, the attention of the Bench was drawn on the relevant portion of the order of the assessing officer, wherein it is stated that if a particular purchase and sale are taken into consideration, then the gross profit rate comes to more than 7 per cent. Further, attention of the Bench was drawn on annex. 1 and 2 appended with the assessment order. Regarding the enhancement of sales from 1-4-1995 to 22-2-1996, it was submitted that books were incomplete and as per documents found during the course of search, it was clearly seen that assessed had suppressed its sales.

11. In the case of S.K. Chandna & Co. and M/s Chandna Fabrics (P) Ltd., a document was found wherein it was stated that how much purchases are required and how much sale bills are required. It was further stated that in the case of other two assessed's, i.e., H.C. Chandna (P) Ltd. and Chandna Textile Traders, it was seen by the assessing officer that there are various cancelled bills and on some of the bills recorded in the sale register, the word 'B' was mentioned. No original copy of the cancelled bill or no Explanationn in regard to writing of word 'B' were filed before the assessing officer by these two assessed's; neither they were found during the course of search. However, it was fairly stated that if the original copy showing cancelled bills or 'B' marked would have shown, then of course there was no case of the department in estimating or enhancing the sales in cases of these two assessed's, i.e., H,C. Chandna (P) Ltd. and M/s Chandna Textile Traders. thereforee, it was submitted by the learned departmental Representative, that the assessing officer was correct in drawing adverse inference against all these four assessed's and in estimating the sales over and above declared by these assessed's for this period, i.e., 1-4-1995 to 22-2-1996. It was further stated that books of accounts maintained by assessed's were incomplete, as posting of the entries were not made up to the date of search.

12. Regarding the objection of the learned counsel that while completing the assessment under section 158BC, the addition can be made only on the basis of material found and the assessing officer has no power to disturb the trading results as already disclosed while filing the regular returns by these assessed's. It was stated that the provisions of section 158B(b) have been amended with effect from 1-7-1995. thereforee, the assessing officer is entitled to disturb the trading results already shown by the assessed. Regarding the contention of the learned authorised representative that search was conducted on 22-2-1996, i.e., before the closing of the financial year, thereforee, the time for filing the return has not expired, hence no addition can be made because all the books relating to the period were maintained and all the purchases and sales were vouched, it was stated by the learned departmental Representative that a rough trading accounts were found by which it was mentioned that so much purchases are required and so much bills are required, which shows that assessed is maintaining books of accounts in a reversal manner just to arrive at a figure that how much GP rate has to be declared of the previous year, thereforee, the books maintained by assessed's cannot be accepted and the assessing officer was right in rejecting the books and making the estimate of sales by holding that assessed was suppressing its sales. It was further stated that the assessing officer was more than reasonable because he has accepted the purchases shown for the entire block period. The assessing officer has also not disturbed the sales up to assessment year 1995-96. The assessing officer has only applied higher GP rate of 7 per cent which was on the basis of sales made from l-4-1995 to 22-2-1996. And the assessing officer has enhanced the sales on estimate basis only for the period from l-4-1995 to 22-2-1996. Further the attention of the Bench was drawn on relevant paras of the orders of the assessing officer. It was further submitted that in two cases there was interest income, thereforee, those were also treated by the assessing officer as undisclosed income because the assessing officer has already rejected the books of accounts. Accordingly it was submitted that amended provisions of law are applicable and the assessing officer was correct in rejecting the books of accounts and applying the provisions of section 145(2) of the Income Tax Act. Again it was repeated that the assessing officer has prepared a trading account on the basis of material found, then only he arrived at the figure of 7 per cent GP rate which was applied by him for all the years pertaining to the block period.

13. It was further stated that there was one more reason in disturbing the trading results while completing the assessments under section 158BC because common books of accounts were maintained by these concerns and statement of Shri O.P. Chandna was recorded who himself admitted that he is indulging in business activities which were not recorded in the books of accounts and they were made in the name of benami concerns. It was further stated that some sale instances were noted by the assessing officer and it was found that they were not recorded in the books of accounts. It was again repeated that notices were issued as early as in the month of October, 1996. However, all these assessed's willfully avoided all the notices and the returns were filed only on 20-2-1997, because there was only 8 days time left for completing the assessments under section 158BC. It was further stated that Shri O.P. Chandna and Shn S.K. Chandna have surrendered a sum of Rs. 25 lakh each, which clearly shows that the assessed's were indulging in illegal activities and, thereforee, there was undisclosed income. Accordingly the assessing officer was correct in applying the higher rate of gross profit and making the additions thereafter.

14. Regarding the plea of the learned counsel that assessed was not confronted with the material on the basis of which adverse inference has been drawn against assessed, it was submitted by the learned departmental Representative that on each and every date, the assessed was confronted with the relevant material and was required to file the Explanationn. On this point the attention of the Bench was drawn on relevant portion of the order of the assessing officer in each case. It was further stated that there was evidence with the assessing officer that assessed has not applied a correct GP rate and these evidences were shown to the assessed; in support of this contention the attention of the Bench was drawn on para 6 at P. 4 in case of S.K. Chandna & Co. thereforee, it was submitted that after taking into consideration these evidences, the assessing officer prepared his own trading account and as per trading account prepared by the assessing officer, the GP rate arrived at 7.86 per cent; whereas the assessing officer has applied only 7 per cent GP rate. thereforee, it was again stated that the GP rate applied by the assessing officer was reasonable.

15. Regarding the objection that trading results of the year, of which the return has already been filed, cannot be disturbed, it was stated that as per provisions of section 158B(a) the assessing officer can disturb the trading results of the year, for which the return has been filed because the trading results shown by assessed's were not reliable and as the assessing officer has already rejected the books of accounts, thereforee, he was reasonable in applying the higher GP rate for the year, for which the returns were already filed by the assessed. Further reliance was placed on the decisions reported in CST v. H.M Esufali H.M Abdulali : [1973]90ITR271(SC) ,- Dr. S. Surendranath Reddy v. Asst CIT (2000) 6B TTJ (Hyd) 384 and Rajnik & Co. v. Asstt. CIT (2001) 251 ITR 561 . A case list was also filed by the learned departmental Representative on which the reliance was placed by the learned departmental Representative on account of various reasons for estimating the sales and applying a higher GP rate of earlier years, for which the returns have already been filed.

16. It was further stated that in para 9 of synopsis at p. 22 in case of S.K. Chandna & Co. the assessed has tried to explain the difference found as per bill pass register marked as AA-21 and AA-43, but this Explanationn was not filed before the assessing officer, thereforee, it cannot be taken into account here. However, it was fairly stated that whether the Explanationn by assessed is correct or not, that can be examined at the end of assessing officer. thereforee, if the matter in this regard is restored to the file of the assessing officer for examining this Explanationn, then he has no objection.

17. In last, the learned departmental Representative while placing reliance on the orders of the assessing officer, stated that the assessing officer was so reasonable because he has only estimated the sale of the current year i.e., from 1-4-1995 to 22-2-1996, and all the sales declared by these assessed's for prior to this period have been accepted by the assessing officer. TherefoLe, the GP rate applied by the assessing officer was fair and should be sustained.

18. In counter-reply, the learned counsel filed a three page synopsis and it was further stated that though he heavily relying on his synopsis filed earlier, however, it was stated that it is incorrect on the part of the learned departmental Representative that assessed has not filed any reply. In this context it was submitted that assessed has replied each and every letter of the assessing officer and it was always requested that if any further informations are required, then those should be informed to the assessed and they will be filed accordingly. In support of this contention, the learned counsel invited the attention of the Bench on copies of various replies filed before assessing officer from time to time. Regarding the Explanationn in para 9 at p. 22 in case of S.K. Chandna & Co., it was stated that assessed had filed required Explanationn before the assessing officer, however, the assessed was not required to file any further Explanationn, thereforee, for this reason no Explanationn was filed. Accordingly it was submitted that it cannot be said that this is a new Explanationn. Regarding the cancelled bills and marked 'B' bills, it was submitted before the assessing officer that they are ready to produce the cancelled bills in originals as and when required. However, the assessing officer never required to produce these bills. The attention of the Bench was drawn on copies of cancelled bills placed in the paper book. On requirement from the Bench, a list of cancelled bills and bills marked 'B' along with copies of such bills were filed by the learned counsel on a later stage, i.e., on 6-8-2003, the date on which the hearing of these cases were completed.

19. We have heard rival submissions and considered them carefully. We have also perused the relevant material on which our attentions were drawn by both the parties. We have also considered various case laws relied upon by both the parties, along with relevant sections which are applicable here on the facts of the present case.

20. Undisputedly the assessing officer has not disturbed the turnover up to the assessment year 1995-96 in all these cases, as he has accepted the turnover shown by these assessed's while filing their regular returns. The assessing officer has only enhanced the GP rate to 7 per cent against the GP rate shown by these assessed's, which was ranging between 2 per cent to 4 per cent, while completing the assessments under section 158BC on the turnover shown by these assessed's falling in the block period. As mentioned above, the search was conducted on 22-2-1996, on the premises of these assessed's and from 1-4-1995 to 22-2-1996, the assessing officer has estimated the turnover of these assessed's and applied a GP rate of 7 per cent

21. First of all we will examine that whether the assessing officer can disturb the trading results which has already been duly disclosed while filing the regular returns and they have been accepted also. The learned departmental Representative has strongly stated that provisions of section 158B(b) under Chapter XIV-B, have been amended by the Finance Act, 2002, with retrospective effect from 1-7-1995, thereforee, the amended provisions are applicable as the assessments were completed after I-7-1995. It was further submitted that as per amended provisions of section 158B(b), the assessing officer has power to disturb the trading results shown while filing the regular returns if he found some material during the course of search that the assessed has not declared true profits. Further the attention of the Bench was drawn on provisions of section 158BB, where the procedure of computation of undisclosed income of the block period is described. The learned departmental Representative has also placed reliance on various case laws in support of this contention which we have already mentioned above. Before proceeding further we would like to see first the provisions of section 158B(b) and provisions of section 158BB(l)(d) of the Income Tax Act, which are applicable on the facts of the present case. The relevant portion of these provisions are as under :

'158B. In this Chapter, unless the context otherwise requires,-

(a) xx xx xx

(b) 'undisclosed income' includes any money, bullion, jewellery or other valuable article or thing or any income based on any entry in the books of account or other documents or transactions, where such money, bullion, jewellery, valuable article, thing, entry in the books of account or other document or transaction represents wholly or partly income or property which has not been or would not have been disclosed for the purposes of this Act, or any expense, deduction or allowance claimed under this Act which is found to be false.'

158BB. (1) The undisclosed income of the block period shall be the aggregate of the total income of the previous years falling within the block period computed, in accordance with the provisions of this Act, on the basis of evidence found as a result of search or requisition of books of account or other documents and such other materials or information as are available with the assessing officer and relatable to such evidence, as reduced by the aggregate of the total income, or as the case may be, as increased by the aggregate of the losses of such previous years, determined,

(a) xxx x xx

(b) x x x x x x

(d) where the previous year has not ended or the date of filing the return of income under sub-section (1) of section 139 has not expired, on the basis of entries relating to such income or transactions as recorded in the books of account and other documents maintained in the normal course on or before the date of search or requisition relating to such previous years;

22. After carefully considering these provisions, we find that the assessing officer can make any addition of the block period if he finds any material which shows that that part of income has not been disclosed by assessed. As per provisions of section 158BB(l), all those figures have to be reduced which have already been shown and assessed either under section 143 or 144 or 147/148. Undisputedly no material whatsoever was found by the search party during the course of search, which suggests that these assessed's have not disclosed their income fully and truly Chapter XIV-B is a special chapter by which only income can be computed which has not been disclosed by assessed falling under the block period. The assessing officer has drawn an adverse view on the basis of sale register relating to the period 1-4-1995 to 22-2-1996, and picked up some figures of sales and then arrived at a figure of GP rate, which was of 7.86 per cent in some cases and in some other case it was 7.46 per cent and after allowing a marginal relief, the assessing officer applied a GP rate of 7 per cent for all the years falling under the block period. Though provisions of section 158B(b) were amended with retrospective effect from 1-7-1995, but under these provisions also it has been provided that entry in the books of accounts or other document or transaction represents wholly or partly income or property which has not been or would not have been disclosed for the purpose of this Act. As stated above, undisputedly no material whatsoever was found up to the assessment year 1995-96, which suggests that any part of income has not been disclosed by the assessed. thereforee, the contention of the learned departmental Representative that the assessing officer can disturb the trading results of earlier year, in our considered view, has no weight or leg to stand. We have considered various case laws relied upon by the learned departmental Representative and found that they are in regard to regular assessments, as while completing the assessment during assessment proceedings if assessing officer found that assessed has not declared fully and truly trading results, then he can reopen the assessments of earlier years also. However, as stated above, no material whatsoever was found by the search party for the years falling under block period up to assessment year 1995-96. As also stated above that Chapter XIV-B is a special chapter under which only income which has not been disclosed, can be assessed and those also on the basis of material found during the course of search. Assessment under Chapter XIV-B and assessment under sections 143, 144 and 147/148 are altogether different. If assessing officer found that assessed has not disclosed fully and truly particulars of income while filing the regular returns, then he can resort the provisions of section 142(l), 143(2) or section 147/148, but while completing the assessment under section 158BC, he cannot draw any adverse inference on the returned income already disclosed while filing the regular returns. The Benches of the Tribunal and various High Courts have already taken such view. thereforee, the decisions relied upon by the learned departmental Representative are distinguishable and not applicable on the facts of the present case.

23. In the case of Sunder Agencies v. Dy. CIT (1997) 63 iTD 245 (Mum), the Tribunal has held that the perusal of prescription of section 158BA of the Income Tax Act within the pale of Chapter XIV-B of the Income Tax Act provides that addition could not be made as an undisclosed income on the basis of presumption and assumptions and that the assessing officer cannot review completed assessment unless some direct evidence comes to the knowledge of the department, as a result of search, indicating clearly the factum of undisclosed income.

23.1 In the instant case no such material has come to the knowledge of the assessing officer, neither any evidence or any other information was brought on record by the assessing officer other than Annexs. AA-21; AA-43 and AA-57, which undisputedly relates to the period from 1-4-1995 to 22-2-1996.

24. In the case of J.K. Narayanan (HUF) v. Asstt. CIT (1999) 69 iTD 104 (Mad), similar view was taken.

24.1 In the case of CIT v. N.R. Papers and Boards Ltd. : [2001]248ITR526(Guj) the Hon'ble Gujarat High Court has held that 'The Tribunal has arrived at a conclusion that 'if prior to the date of search, the assessed has disclosed the particulars of income or expenditure either in the return or in the books of account or in the course of proceedings to the assessing officer or where the return has not become due, the same are duly recorded in the regular books of accounts, then, in our opinion, such income cannot be treated as undisclosed income'. The assessed has disclosed the particulars of income or expenditure in the return/books of account and on the same material, the assessing officer wants to take a different view. Such income cannot be treated as undisclosed income so as to tax a person at the rate of 60 per cent. The Tribunal has placed reliance upon the judgment of this court in the case of N.R. Paper & Board Ltd. & Ors. v. Dy. CIT : [1998]234ITR733(Guj) and in view of the aforesaid decision it cannot be said that the view taken by the Tribunal requires any interference.'

25. In the case of CIT v. Vinod Danchand Ghodawat : [2001]247ITR448(Bom) , the Hon'ble Bombay -High court has held that wherein it was shown that jewellery found during search was admitted in WT returns and accepted by the assessing officer in wealth-tax assessment, it could not, thereforee, be treated as undisclosed.

26. In the case of Pradip C. Patel v. Dy. CIT the Tribunal has held that in Chapter XIV-B the concept of undisclosed income is introduced. The term 'undisclosed income' is defined in this Chapter in section 158B(b). As per the definition, 'undisclosed income' includes (i) any money, bullion, jewellery or other valuable article or thing (hereinafter referred to as 'such asset') or (ii) any income based on any entry in the books of account or other document or transaction (hereinafter referred to as 'such document') where 'such asset or 'such document' represents wholly or partly, income or property which has not been disclosed or which would not have been disclosed for the purpose of this Act.

27. In the case of Bhagwati Prasad Kedia v. CIT : [2001]248ITR562(Cal) , the Hon'ble Calcutta High Court has held that the details of loan creditors were furnished in the regular assessment itself and, thereforee, it was not entitled to question them in the block assessment. It was further held that the block assessment is not a substitute for regular assessment and they should be considered in the regular assessment and not in the block assessment.

28. Similar view has been taken by various other Benches of the Tribunal and some of the cases are reported as Ellen barrie Industrial Gases Ltd. v. Jt. CIT , Indore Construction (P) Ltd. v. Asstt. CIT (2002) 66 TTJ (Ind) 420 : (1999) 71 ITD 128 (Ind), Harakchand N. Jain v. Asstt. CIT (1998) 61 TTJ (Mum) 223, Essen Intra Port Services (P) Ltd. v. Asstt. CIT and P.K. Ganeshwar v. Dy. CIT (2002) 80 ITD 429 (Che).

29. After perusing all these decisions and in view of our discussions above that any addition can be made while completing the assessment under section 158BC, that can only be made on the basis of any material found or information received by assessing officer from which it can be ascertained that assessed has not disclosed fully and truly facts of income already disclosed. As stated above, no evidence has been found to conclude that assessed has failed to disclose any transaction, which is in the nature of an income and has not been entered by it in the books of accounts. On the contrary the assessing officer himself admitted that assessed had entered into transactions which, though, have all been disclosed, yet the assessing officer estimated the higher GP rate for the entire block period up to assessment year 1995-96. thereforee, we are not hesitant in holding that there was no evidence or material with the assessing officer to adopt a higher GP rate for the block period up to assessment year 1995-96. Accordingly, the entire additions made for the block period up to assessment year 1995-96 are deleted by us in all the four cases.

30. Now we will take up the additions made by assessing officer from 1-4-1995 to 22-2-1996, the date on which the search took place. First we will take up the matter in regard to H.C. Chandna (P) Ltd. and M/s Chandna Textile Traders, where the assessing officer has estimated the sales on the basis of cancelled bills and marked 'B' against some blank bills. The facts of these cases have already been discussed in detail above at pp. 7 to 10 of this order. As already stated above that during the course of search, some cancelled bills were shown in the sale register and also there were marked 'B' against some blank bills. The assessing officer adopted average sale of these bills and estimated sales of Rs. 15,52,000 and Rs. 20 lakhs in the case of H.C. Chandna (P) Ltd. and M/s Chandna Textile Traders, respectively. The sale registers in which the entries of bill-wise were made, were part of regular books of accounts. The due date of filing the return has not expired as the search was made on 22-2-1996. Even the last date of the year has not ended which was 31-3-1996. thereforee, these transactions cannot be treated as undisclosed transactions. Neither any estimate can be made as no other material or evidence was found by the assessing officer. Even during the course of hearing of appeal, the learned departmental Representative has fairly conceded that if original copies of cancelled bills could have been produced, then the department has no case for making any addition. On these submissions of the learned departmental Representative, the Bench required to produce the original cancelled bills and in reply at the very same time, the counsel of the assessed has shown the blank bills, which were duly cancelled. On direction of the Bench, the list of cancelled bills, along with photocopies of blank cancelled bills or marked 'B' bills were filed by the learned counsel and after examining these cancelled bills and comparing with the entries in the sale register, we found that these cancelled bills were part of the regular bill books maintained by the assessed for its business purposes. All the bill numbers were entered in the sale register and they were tallied, either they were issued on the basis of sales made or they were cancelled bills as they were entered in the sale register Seriall-wise. We further found that even each assessed has filed regular return for assessment year 1996-97 with the department and as per statement of the learned counsel, the same has been accepted also. Copies of the acknowledgement receipt of the returns were filed by the learned counsel of the assessed during the course of hearing.

31. In view of all these facts and circumstances and in view of the various case laws discussed above, we found that there was no basis for making any estimation of sales by the assessing officer. Accordingly, we delete the estimation of sales made by the assessing officer.

31.1 The assessing officer has applied 7 per cent GP rate on the entire sales recorded by the assessed either in the books of accounts or estimated by him. The reason for adopting the higher GP rate we have already discussed somewhere above. As we have already held that there was no cogent reason for adopting a higher GP rate against the GP rate shown by these assessed's. thereforee, for this period also we cancel the adoption of higher GP rate. Accordingly, the additions made on account of higher gross profit rate and on account of estimation of sales are deleted in these two cases, i.e., in the case of H.C. Chandna (P) Ltd. and Chandna Textile Traders.

32. Besides the estimation of higher GP rate and estimation of sales, the assessing officer has made an addition of Rs. 11,346 and Rs. 24,473, respectively in these two cases, on account of interest income, treating them as undisclosed income of these two assessed's. The interest income was duly disclosed by the assessed's and it is amply proved itself, as no additions have been made on account of undisclosed deposits, These interest incomes pertain to this year and as entire sales from l-4-1995 to 22-2-1996, has been treated by assessing officer as undisclosed, thereforee, interest income was also treated by the assessing officer as undisclosed. We are sorry to mention here that the assessing officer has not applied his mind at all These interest incomes were part of regular income and they were shown earlier also. The investments on which the interest income was earned was not even questioned by the assessing officer. thereforee, with these remarks we cancel these two additions also.

33. There was a further addition of Rs. 2,28,264 in sales in the case of H.C. Chandna (P) Ltd. and difference of Rs. 1,42,655 in case of Chandna Textile Traders. These differences were found by the assessing officer on the basis of sale register maintained by assessed. We have already held that sale register was part of regular books of accounts, and the date of filing of the return was not due, as the search was conducted before the close of the year. thereforee, it cannot be said that these differences could not be or would not have been reconciled while preparing the final return of income at the time of auditing of accounts, as the accounts are liable to audit as per provisions of section 44AB of the Act. thereforee, in view of these facts and circumstances, we cancel the estimation of sales of these two amounts, as mentioned above, in case of these two assesseds.

34. Now we will take up the additions from l-4-1995 to 22-2-1996, in cases of two remaining assesseds, i.e., M/s S.K. Chandna & Co. and M/s H.C Chandna (P) Ltd. In these two cases the estimate of sales were made by Rs. 12 lakh and Rs. 17,80,263 over and above the sales shown by assessed as per sale register. The gross profit rate of 7 per cent was applied in these two cases also on the basis of same reasoning, as discussed above. The estimation of sales were made by the assessing officer by drawing an adverse inference on a paper found during the course of search, wherein it was mentioned that how much purchases are required and how much sate bills are required. From this document, it was inferred by the assessing officer that the assessed is adopting reversing method to show its sales and purchases. thereforee, he made an estimate of sales of Rs. 12 lakh and Rs. 17,80,263 over and above the sales already shown in the sale register. We have discussed the issue in detail that without any cogent material or evidence, no addition or estimate is possible while making the assessment under section 158BC. If any rough estimate or trading account was found, the assessing officer could have considered that trading account only but he was not supposed to make any estimation of sales without any direct evidence of sales. Neither any evidence was found nor there was any material that assessed has made purchases or have made sales, which were not recorded in the sale register. thereforee, for the same reasoning as given above while disposing other issues which were similar in nature, we cancel the estimation of sales in these cases also.

35. For the same reasoning we cancel the estimate of higher GP rate also. Accordingly, the entire additions are cancelled which were made on account of estimation of sales and on account of higher GP rate applied by the assessing officer. For the sake of completeness in these two cases also the assessed had filed its regular returns, copy of acknowledgement of receipt of returns were also filed during the course of hearing. As stated by the counsel of the assessed that even assessments have already been completed on the basis of regular returns filed by these assesseds. It was also stated by the learned counsel that all the discrepancies were reconciled while filing the regular return, as the due date was not expired when the search took place.

36. For the sake of further clarification, the entire additions made by the assessing officer in these four cases are deleted here by us, because we have held that all the estimated sales and GP rate application were based on sale registers or rough paper found, were part of regular records relating to assessment year 1996-97. As stated by the learned counsel, the assesseds had already filed regular returns on the basis of same material, thereforee, the assessing officer is free to take any action on the basis of regular returns, if he feels so. The reason for these directions are that search was conducted before the end of the year and due date for filing the return for assessment year 1996-97 was not expired.

37. Though some grounds were not pressed, which were in regard to proper opportunity, etc., however, as the entire additions have been deleted here by us, thereforee, it will be treated that the appeals of the assesseds are allowed.

38. Before parting, we will like to further mention that the contention of the learned departmental Representative that Shri O.P. Chandna and Shri S.K. Chandna have categorically admitted in their statements that they were indulging in illegal activities which were done in the name of benami concerns and they have made some surrender of undisclosed income also, thereforee, it is clear that the Chandna group was earning undisclosed income, are not relevant here because the assessments in the case of Shri S.K. Chandna and Shri O.P. Chandna were separately completed under section 158BC and whatever the incomes were shown or earned in the name of benami concerns, those have already been considered in their cases. thereforee, no adverse inference can be drawn in these cases, as no adverse material or any other incriminating documents were found in these cases which we have already discussed in detail above.

39. In the result, the appeals of all these four assessed are allowed.

Subject	Direct Taxation
Court	Delhi High Court
Decided On	Sep-19-2003
Case Number	IT(SS)A No. 44/Del/1997 19 September 2003 Block period 1 April 1985 to 22 February 1996
Reported in	(2004)91TTJ(Del)243
Appellant	H.C. Chandna (P) Ltd.
Respondent	Dy. Cit
Advocates:	Salil Aggarwal,;for the assessed; Salil Gupta,;for the Revenue
Cases Referred	and P.K. Ganeshwar v. Dy.

H.C. Chandna (P) Ltd. Vs. Dy. Cit - Court Judgment