| SooperKanoon Citation | sooperkanoon.com/73925 |
| Court | Income Tax Appellate Tribunal ITAT Ahmedabad |
| Decided On | Apr-19-2005 |
| Judge | G Agarwal, I Bansal |
| Reported in | (2005)98TTJ(Ahd.)108 |
| Appellant | The Deputy Commissioner of |
| Respondent | Bhogilal Mulchand |
2. ITA No. 47BQ/Ahd/96 -for Asst.Year 1993-94 - By Assessee M/s Bhogilal Mulchand Kandoi and ITA No. 51/Ahd/97 - Asst. Year 1993-94 -By the Revenue in the case of M/s Bhogilal Mulchand Kandoi : ======================================================================= ========= "The following grounds are without prejudice to each other. In view of the facts of the case as well as law. Learned CIT(A) erred ; (1) In making out new case of addition by applying gross profit rate of 25% upon so-called unaccounted sales of Rs. 1350799/- thereby making gross profit addition of Rs. 337700/- which is a new source of addition not made by the AO and no particular show cause notice was given, hence, prayed that this addition is to be deleted which s decided as per the CIT(A)'s order page 28 para 11.
(2) In not appreciating the facts that no specific defect has been pointed out in books itself and the appellant has already reconciles Annexure -Assessment Order 24 with Annexure - A/51 and as such there is no case of any unaccounted sales nor there is any supporting evidence of unaccounted sales was found, hence, CIT(A) has erred in confirming so-called unaccounted sales of Rs. 1350799/- for the purpose of making gross profit addition.
(3) in confirming the disallowance of Rs. 6000/- out of telephone expenditure.
(4) In confirming disallowance of Rs. 10494/- in respect of vehicle expenditure inter alia depreciation. It is said that there is no such personal use as far as the expenditure is concerned and because of the block system introduced, there is no case of any persona! use by the partner.
(5) In not appreciating the facts that the appellant totally denies liabilities to pay interest Under Section 234 of the Act, and as such he ought to have decided the issue on facts as well as law, which he fails when he gives consequential direction as per order's page 35 para 20.
(1) The Id CIT(A) has erred in law and on facts in deleting the addition of Rs. 24 lakhs.
(2) The id CIT(A) has erred in law and on facts in holding that a sum of Rs. 6,15,800/- out of Rs. 24 lacs belongs to Shri Kamleshkumaj B Kandoi.
(3) The id CIT(A) has erred in deleting the addition of Rs. 7,22,770/-.
(4) The Id CIT(A) has erred in Jaw and on facts in directing to tax only on Rs. 3,37,700/- being 25% profit of unrecorded sales of Rs. 13,50,799/- as against addition of Rs. 24 lakhs and further trading addition of Rs. 7,22,770/- referred in ground No. 1 & 3.
4. Ground Nos. 1, 2 and 4 of Revenue's appeal and Ground Nos. 1 and 2 of the assessee's appeal are inter related. The facts of the case are that the assessee is a Partnership Firm which derives income from manufacturing and sale of sweets. The firm is consisting of following partners :- Action under Section 132 of the Income-tax Act, 1961 ["the Act" in short] was conducted on 5-11-92 at the residence-cum-shop premises at 26, Suhasnagar Society, Ashram Road, Ahmedabad , where Shri Kamleshbhai and Shri Nitibhai were residing. Simultaneously survey operations Under Section 133A of the Act were carried out at the shop of the assessee at Maneck Chowk, Ahmedabad and also at manufacturing place at Golwad, Ratanpole, Ahmedabad. During the course of search operations, statement of Shri Kamleshbhai B Kandoi [Shri K B Kandoil - a partner of the assessee firm was recorded Under Section 132(4) of the Act on 6-11-92.
In his statement recorded Under Section 132(4) Shri KB Kandoi disclosed an additional income of Rs. 24 lakhs for taxation. He has also specified the assets acquired and the expenses incurred out of the above income of Rs. 24 lakhs. However, in the return of income the amount of Rs. 24 lakhs which was disclosed Under Section 132(4) was not shown as income. The AO after seeking explanation of the assessee in this regard made an addition of Rs. 24 lakhs. Shri K B Kandoi in his return of income has offered an additional income of Rs. 6,15,800/-. to explain the unexplained cash, bank deposits and investment in shares, etc. However, the AO was of the opinion that the above cash, bank deposits, investment in shares etc. wire part of the disclosure of Rs. 24 lakhs by the assessee firm. Therefore the AO assessed the sum of Rs. 6,15,800/- in the hands of Shri K B Kandoi on protective basis.
5. On appeal, the CIT(A) was of the view that in the case of the firm only unrecorded sale of Rs. 13,50,799/- was found and therefore 25% of such unrecorded sale i.e. Rs. 3,37,700/- is to be added as against the sum of Rs. 24 lakhs added by the AO. He therefore restricted the addition of Rs. 24 lakhs made by the AO to Rs. 3,37,700/-, He has also held that the sum of Rs. 6,15,800/- disclosed by Shri K B Kandoi should be assessed on substantive basis in his hands. The Revenue has challenged the above finding of the CIT(A) vide Ground Nos. 1, 2 and 4 of its appeal in the case of the assesses firm and also by filing separate appeal in the case of Shri K B Kandoi. The assessee has also challenged the finding of the CIT(A) with regard to sustenance of addition for unrecorded sales at Rs. 3,37,700/- vide Ground Nos. 1 and 2 of the assessee's appeal.
6. At the time of hearing before us, the learned CIT-DR argued at length. He submitted that during the course of search the statement of the partner Shri K B Kandoi was recorded and he has admitted the low gross profit disclosed in the accounts and also unrecorded sales. He has also admitted that the cash found from his residence is out of unrecorded sale. After admitting the unrecorded sale, he has declared the income of Rs. 24 lakhs as unrecorded income of the assessee firm for the current year i.e. the year of search. He has also stated the investment of above undisclosed income of Rs. 24 lakhs. The learned DR contended that the disclosure of the assessee was specific, item-wise disclosure without any coercion or undue pressure. The assessee retracted the above disclosure vide affidavit dated 23-2-93. However, the retraction was an after-thought and since the disclosure was very specific and based on the material found at the time of search, the AO was justified in making the addition on the basis of disclosure and rejecting the retraction by the assessee. He has also stated that apart from the statement of the assessee, the loose papers were found at the time of search which prove the sale outside the books. Thus the disclosure by the assessee was duly corroborated with the evidence found at the time of search. In support of his contentions, the learned DR has relied upon the following decisions :- 7. On the other hand, the learned counsel for the assessee argued at length and contended that the addition of Rs. 24 lakhs made by the AO was not at all justified. He submitted that the CIT(A) ought to have deleted the entire addition of Rs. 24 lakhs, rather than sustaining a part of the addition i.e. Rs. 3,37,700/-. He heavily relied upon the retraction made by Shri K B Kandoi in the form of affidavit dated 23-2-93. He pointed out that in the affidavit dated 23-2-93 Shri K B Kandoi has explained the circumstances under which the disclosure was extracted from him. In the affidavit he has clarified that he was only looking after the purchase and sale and he did not know the production of sweets. The search has started on 5-11-92 at about 6-30 in the morning and the statement was concluded on 6-11-92 at 12=30 noon. Shri K B Kandoi was fully tired and he gave the statement as was persuaded by the search party He has also stated that the search party had stated to Shri K B Kandoi that unless the sum of Rs. 24 lakhs is declared, harassment will follow. In the above circumstances the disclosure was made. The learned counsel further submitted that the investment of Rs. 24 lakhs as recorded in reply to question No. 38 is fully explainable.
He submitted that some cash, investment in shares and bank accounts which belonged to Shri K B Kandoi have been separately disclosed by him in his income tax return. The gold ornaments belonged to the assessee's mother and other lady members and there was no unexplained investments in renovation of furniture. There were no unrecorded trade debtors or other debtors as stated by Shri KB Kandoi. Therefore, except the cash and investment in shares, there was no unexplained investment. The learned counsel has also vehemently contended that there was no sale outside the books of accounts and even if there is any sale outside the books of accounts, then entire sale consideration outside the books is not the income but it is only net profit on such unrecorded safe, which can be added to the total income of the assessee. In support of is contentions, he has relied upon the following decisions :- 8. We have carefully considered the arguments of both the sides and perused the material placed before us. We find that on 5-11-92 search has taken place at the premises of the assesses at 26, Suhasnagar Society, Ashram Road, Ahmedabad. During the continuation of search i.e.
on 6-11-92 the statement of the partner Shri K B Kandoi was recorded in which he declared an income of Rs. 24 lacs. Question Nos. 5, 8, 11, 14, 13, 22, 23 and 33 to 33 which are relevant with regard to disclosure of Rs. 24 lacs by Shri K B Kandoi are as under :- Q-5 Please give the information on manufacturing cost of KAJU KATRI in your firm ?Ans In 8.5 KAJU KESAR KATRI 6 killo Kaju (cashew nut) Rs. 700/- 2,25 killo sugar Rs. 20/- Q-6 Keeping in mind your answers to question Nos. 4 and 5, you have informed that your gross profit is 30% to 40%. Is this profit correct Q-11 During the search of your house cash of about Rs. 3,95,000/- is found. You inform as to whom this cash belongs Ans I am looking after the sales of Manekchowk shop and my younger brother Nitin is looking after the sales of Ashramroad shop.
Q-18 Today during search cash of Rs. 68,990/- is found from your shop whereas as per the cash book it is Rs. 66,196/-. Give information for the excess cash of Rs. 2,794/-.
Q-22 To whom the cash of Rs. 3,95,000/- found from your residence belong to Ans This is the income of the sales made during Diwali which is not recorded in the books of accounts. This entire Rs. 3,95,000/- are not recorded in the books.
Ans I daily eat five (pan) masala. At present I have reduced it. One maasala costs rupees five thus the expenseon masala is Rs. 25/-.
Q-34 Do you agree that during the course of search books of accounts and other papers found it is proved that you make sales out of books Ans Yes. I fully agree, I do not record all the sales in the books and effect sales outside the books.
Q-35 Give information as to how many percentage of sales is not shown in the books of accounts of both the branches of your M/s kandoi Bhogilal Mulchand.
Ans. In both the branches of my M/s Kandoi Bhogilal Mulchand we do not show about 35% sales in the books of accounts. Last year we have shown total sale in the books because last year there was more competition and new was started. We commenced not recording in the books only from the current year.
Q-36 Give information of income of the current year recorded and not recorded in the books.
Ans. The unrecorded income of both the branches of our firm is approximately Rs. 24,00,000/- which I want to declare, Q-37 Give complete information of the Income of Rs. 24,00,000/- which you want declare as not recorded in the books of account.
Ans We have made sales of approximately 35% which is outside the books that is not recorded in the books. The details of this unrecorded sales are mentioned in the different papers found from our house. The amount of Rs. 24,00,000/- which we want to declare is completely available in these papers.
Q-38 Give information as to how have you invested the unrecorded and earned income of Rs. 24,00,000/- which you want to declare.
A- This unrecorded income of Rs. 24,00,000/- is invested as follows :- (i) Cash of about Rs. 6,00,000/- to Rs. 6,25,000/- is lying in our house. One cup-board which you have opened Rs. 3,96,015/- is found.
This cash is unrecorded income. The remaining Rs. 2,00,000/- to Rs. 2,25,000/- are in another cup-board, the key of which is not with us at present. By evening we will engage the ksarigars and find it out.
You will get the same after opening this cup-board.
(ii) During the survey of our shop cash of Rs. 68,990/- is found out of which Rs. 66,196/- is in the books. The remaining Rs. 2,794/- is concealed income as stated above.
(iii) We both brothers have invested Rs. 43,600/- in the names of our sons s Akash Kamleshbhai and Harsh Nitinbhai with "Valiabh Sanchit Nidhi Yojna" which is out of our concealed income.
(iv) In the names of our wives and we two brothers have invested about Rs. 25,000/- in shares which is out of our unrecorded income.
These shares are kept with our relation. His name is Rameshbhai. I have no knowledge of his address.
(v) The gold ornaments worth Rs. 3,80,,000/- and silver utensils and ornaments worth Rs. 45,500/- found and seized by you during the search of our house are purchased out of unrecorded income The remaining jewellery (ornaments) which is 380 gms found during the search is received during marriages of my brother and myself. Also the ornaments of diamond worth Rs 50,000/- are received at the time of marriage.
(vi) During the course of search of our house valuable articles as per Annexure P are found. Out of these only Maruti Van valued at Rs. 55,000/- is recorded in the books of accounts the remaining are purchased out of unrecorded income The total value of the same is Rs. 1,01,200/-.
(vii) I declare unrecorded stock worth Rs. 2,00,000/- found during the search of our house, shop and factory.
(viii) I declare Rs. 3,00,000/- spent in renovation and furniture of our house which is out of unrecorded income.
(ix) I further declare Rs. 3,50,000/- which is not recorded In our books of accounts which comprises of sweets supplied to our various customers during Diwali and Rakshabandhan.
(x) I further declare Rs. 3,00,000/- given over to our various relative's and friends during some occasion or as loans which is out of unrecorded income.
(xi) Over and above this about Rs. 56,000/- are expended towards different occasions in our house which is also out of unrecorded income of the current year.
9. The above statement was retracted by the assessee vide affidavit dated 23-2-93 i.e. after three and half months of the disclosure. The AO has not accepted the retraction and relying upon the statement given at the time of search he made the addition of Rs. 24 lacs. Therefore, now the question is whether the disclosure by the assessee is to be believed or the retraction is to be believed. Section 132(4) provides as under :- (4) The authorised officer may, during the course of the search or seizure, examine on oath any person who is found to be in possession or control of any books of account, documents, money, bullion, jewellery or other valuable article or thing and any statement made by such person during such examination may thereafter be used in evidence in any proceeding under the Indian Income-tax Act, 1922 (11 of 1922), or under this Act.
[Explanation.-For file removal of doubts, it is hereby declared that the examination of any person under this sub-section may be not merely in respect of any books of account, other documents or assets found as a result of the search, but also in respect of all matters relevant for the purposes of any investigation connected with any proceeding under the Indian Income-tax Act, 1922 (11 of 1922), or under this Act.] 10. Thus the above sub-section empowers the Authorised Officer to examine on oath any person during the course of search provided such person is found in possession of any books of account, documents or any valuable article or thing. The above statement can be used against the assesses in the proceedings under the IT Act, it is a settled law that admission by a person is good piece of evidence though not conclusive and the same can be used against the person who makes if. The reason behind this is a person making a statement stops the opposite party from making further investigation. More over under the IT Act the Legislature itself has provided that the statement given Under Section 132(4) can be used against the person giving such statement. Therefore, the statement Under Section 132(4) is an important piece of evidence against the assessee. However, the statement is not conclusive and the person giving the statement can retract the same under certain circumstances, (i) The first circumstances is where the statement is not given voluntarily but it was obtained under coercion, threat or undue influence. But the burden is upon the person making the statement to prove that the statement given by him was not voluntary. The assesses can discharge this burden by giving a direct evidence of coercion or threat by the Authorised Officer or by circumstantial evidence in this regard. The time gap between the statement and the retraction of statement would also one of the important points to be taken into account while deciding whether the statement was voluntary or not. (ii) The other circumstance is where the statement was given under the mistaken belief of either fact or Saw. Here again the burden is upon the person giving the statement to prove that the statement given by him was factually incorrect or was untenable in law.
11. This view of ours is supported by the decision of the Tribunal Ahmedabad Bench in the case of Manharlal K Chokshi (supra) and Hotel Kiran (supra).
12. The learned counsel for the assesses has relied upon several decisions to support his contention that the addition cannot be made on the basis of statement only. However, we find that the facts in all those cases were different than the facts in the case of the assessee.
In the case of Pullangode Rubber Produce Co. Ltd. (supra) the assessee has recorded the expenditure towards immature plants as capital expenditure but for the purpose of Kerala Agricultural Income tax Act, 1950, claimed the same as revenue expenditure. On the above facts, their Lordships of the Hon'ble Apex Court held "such admission is an extremely important piece of evidence but it cannot be said that it is conclusive. It is open to the assessee who made the admission to show that it is incorrect and the assessee should be given a proper opportunity to show that the books of account do not disclose the correct state of facts." 13. In the case of Abdul Qayume, 184 ITR 404 the Hon'ble Allahabad High Court held as under :- "An admission or an acquiescence cannot be the foundation for art assessment, where the income is returned under an erroneous impression or misconception of law It is always open to art assessee to demonstrate and satisfy the authority concerned that a particular income was not taxable in his hands and that it was returned under an erroneous impression of law. Each assessment year is an independent year and it is always open to the taxpayer to contend that he had wrongly been assessed in the past." 14. The learned counsel for the assessee has also heavily relied upon the decision of the ITAT Rajkot Bench in the case of Smt Ranjnaben M Shah (supra), wherein the Tribunal held as under :- "However, during the proceedings of Section 132(5) the assessee have retracted from their statements. The retraction has not been accepted by the Revenue on the ground that no evidence has been shown by the assessee in support of the retraction. It is true that the simple denial cannot be considered as a denial in the eyes of law. But when no activity has been undertaken by the assessee, how it can be proved by way of evidence that such activity has ever been undertaken by the assessee except simple dental what other evidence can be produced by the assessee. The evidence ought to have been collected by the Revenue during the search in support of the disclosure statement. Had the Revenue found any material and then obtained a disclosure from the assessee, then the assessee might not have been able to retract from their disclosure statements. But additions made only on the basis of disclosure statements normally should not be confirmed in the absence of corroboration. in the eyes of law the general rule of practice is that if is unsafe to rely upon a confession only without any corroboration. Hence, the Revenue ought not to have made the additions. The additions are deleted." 15. Let us examine the facts of the case in the tight of the legal provisions as enumerated above. From question Nos. 5 end 6 of the statement it is evident that Shri K B Kandoi admitted that the correct gross profit should be 30% to 40%. it is not in dispute that the gross profit disclosed in the books of account was even less than 25%.
Therefore, Shri K B Kandoi was aware that the gross profit disclosed by the assesses in the books was lees. With regard to question No. 18, Shri K B Kandoi admitted that the assessee did not show small sale in the books. From question Nos. 22 and 23, it is clear that the cash of Rs. 3,95,000/- was found from the assessee which Shri KB Kandoi has admitted to be unrecorded cash and he has also admitted that it is from the unrecorded sale made during Diwali period. With regard to question No. 33 he admitted that his personal expenditure on eating Pan Masala is Rs. 25/- per day. With regard to question No. 34, he reiterated that the assessee did not record all the sales in the books of account and effect the sales outside the books. Thus it was found and admitted that the assessee was suppressing the sales. Similarly it was also found and admitted that the gross profit disclosed in the books of account was low than the actual gross profit. Unexplained assets were also found.
After admitting the unrecorded sale, low gross profit, unexplained assets, etc. Shri K B Kandoi admitted the unrecorded income of the assessee firm at Rs. 24 lacs. He has also explained the utilization of the above income of Rs. 24 lacs, which are given in detail in reply to question No. 38. The retraction of the statement is made after three and half months. If the above statement was extracted under coercion and/or threat, what prevented the assessee to retract the statement soon after the conclusion of the search. Moreover except the allegations in the affidavit, there is no direct or circumstantial evidence brought on record by the assesses to prove that the statement was taken under coercion or threat. Several loose papers were found at the time of search which prove the sale outside the books, Shri K 6 Kandoi himself in his statement has admitted the unrecorded sale. These evidences corroborate the genuineness of the statement given at the time of search. No iota of evidence is given by the assesses in support of retraction. The ITAT Rajkot Bench in the case of Smt Ranjnaben M Shah (supra) accepted the retraction because no evidence was found at the time of search in support of the disclosure of income made in the statement. However, in the case under consideration before us we find that the Revenue has found evidence of suppression of sale, suppression of gross profit and also the unrecorded assets. Therefore, the above decision of the ITAT Rajkot Bench relied upon by the assesses would not be applicable to the facts of the assessee's case.
16. At the time of hearing before us, the learned counsel for the assessee tried to explain each and every item relating to the utilization of Rs. 24 lacs stated by Shri KB Kandoi in reply to question No. 33. He submitted that the unexplained cash, deposits in the investment in the names of minor children of the partners and the investments in valuables found from the residence which in total amounts to Rs. 6,15,800/- were disclosed by Shri K B Kandoi as his persona! income in his return of income. However when a specific query was raised at the time of hearing whether Shri K B Kandoi has any independent source of income, the learned counsel fairly admitted that the only source of income of Shri K B Kandai is the share income from the firm. Moreover we also find that in reply question Nos. 22 and 23 Shri K B Kandoi has clearly admitted that unrecorded cash is out of unrecorded sale of the assessee firm, 17. In the above circumstances the contention of the assessee that there was no undisclosed income of the assessee firm but there was undisclosed income of the partner Shri K B Kandoi, cannot be accepted.
The learned counsel for the assessee has also contended that there was no unexplained investment in gold ornaments, stock, furniture/ renovation. He also contended that there were no loan and advances to the friends and no money was recoverable from the customers. However, we find that the Revenue has made the addition of Rs. 24 lacs as the income disclosed by Shri K B Kandoi in his statement recorded at the time of search. No separate addition has been made for unexplained investment in gold ornaments, unaccounted stock, renovation and furniture and for sundry debtors or for loan and advances to the relatives. The unexplained assets were only a corroborative evidence to examine whether the statement of Shri KB Kandoi was voluntary or not.
18. After considering the facts of the case and arguments of both the sides, we have already held that the statement given by Shri K B Kandoi was voluntary and there were corroborative evidences to support such statement, therefore, how the above sum of Rs. 24 lacs was utilised or invested by the partners of the firm, is irrelevant and since no separate addition has been made for any such investment in gold ornaments, stock, furniture, renovation, sundry debtors, loans and advances to relatives, etc., we do not find it necessary to examine the assessee's contention with regard to the above investments / expenditure.
19. It was also vehemently contended by the learned counsel that the sum of Rs. 24 lacs was unrecorded sale and therefore only the net profit on such unrecorded sale can be estimated. He has mentioned that the net profit of the assessee is only 1.08% and therefore only 1.08% of the sum of Rs. 24 lacs can be added, in support of this contention he has heavily relied upon the decision of the Hon'ble Jurisdictional High Court in the case of President Industries (supra). We find that in the above decision the Hon'ble Jurisdictional High Court refused to admit the Revenue's application Under Section 256(2) holding that no question of law which required to be referred to the High Court, arises out of the order of the Tribunal. In that case the Tribunal has decided the issue in favour of the assessee. The Revenue filed an application Under Section 258(1) requiring the Tribunal to refer the question of law to the Hon'ble Jurisdictional High Court. The Tribunal rejected the Revenue's application Under Section 256(1). Thereafter, the Revenue moved to the High Court Under Section 256(2) seeking direction to the Tribunal for referring the question of law to the Hon'ble Jurisdictional High Court. However such application Under Section 253(2) was rejected by the Hon'ble Jurisdictional High Court, Therefore, when a High Court rejects the application Under Section 256(2) it cannot be said that it was a decision of the High Court on merits. The High Court has only declined to entertain the Revenue's application Under Section 256(2) whereby the Revenue has requested the High Court to direct the Tribunal to refer the question of law.
20. The learned counsel for the assesses has also relied upon the decision of the Hon'ble Calcutta High Court in the case of CIT v. S M Omer, 201 ITR 608, However we find that in the case of S M Omer, the assessee has received a cheque of Rs. 1,13,603/- from the Controller of Defence Accounts (Navy). The AO treated the entire sum as income of the assessee. On appeal, the CIT(A)directed to apply the net profit rate on the above receipt. The decision was upheld by the Tribunal. On a reference by the Revenue, the Hon'ble Calcutta High Court has held - "that Section 69 of the IT Act, 1961, was not applicable in the instant case. The assesses supplied the goods after incurring certain cost and after manufacturing the goods and the amount that was received from the Defence Department could not represent the net income but it was the sum received including the profit and expenditure. The Tribunal was justified in upholding the deletion of Rs. 1,01,649/-." 21. Thus in the case of S M Omer there was evidence that the assessee incurred certain expenditure for manufacturing of goods which were supplied to the Defence Department and therefore the net profit rate was applied. The learned counsel for the assessee has also relied upon the decision of the ITAT Ahmedabad Bench in the case of ITO v.Gurubachansingh J Juneja, 216-ITR-99 (And) (AT), wherein the Third Member of Tribunal directed to apply the net profit rate on the unrecorded sales.
22. Whether unrecorded sale itself is income or only a net profit on such unrecorded sale is the income, would depend upon the facts of each case. Where an assessee made purchases outside the books and also sells goods outside the books, naturally the profit i.e. the difference between the sale price and the expenditure incurred by the assessee, is the income from unrecorded sale. However where the assessee records ail the expenditure in the books of account but part of the safe consideration is not recorded in the books of account, then the unrecorded safe itself would be the income of the assessee. In the case under consideration before us it is nowhere the claim of the assessee that any purchase or expenditure was not recorded in the books of account. The cash found at the time of search at Rs. 3,95,000/- was explained to be out of unrecorded sale. This clearly shows that the entire unrecorded safe was income of the assesses because had part of the unrecorded sale been utilised for incurring any expenditure, the cash would not have been available Moreover in the case under consideration before us the addition of Rs. 24 lacs by the AO is not made for unrecorded sale but the addition is made of the amount disclosed by Shri K B Kandoi at the time of search.
23. In para-15 we have held that the disclosure was voluntary and it is also corroborated with the evidence found at the time of search. We therefore reverse the order of the CIT(A) on this point and uphold the addition of Rs. 24 lacs.
24. Shri K B Kandoi has disclosed in the return of income an additional income of Rs. 6,15,800/- as against the income of Rs. 24 lacs disclose by him in the hands of the assesses firm in his statement Under Section 132(4). Since the AO made the addition of Rs. 24 lacs in the hands of the assesses firm, he has assessed the sum of Rs. 6,15,800/- in the hands of Shri K B Kandoi on protective basis. The CIT (A) did not uphold the finding of the AO with regard to the addition of Rs. 24 lacs in the hands of the assessee firm. Therefore, he had directed the AO to assess the sum of Rs. 6,15,800/- in the hands of Shri K B Kandoi on substantive basis. However, while disposing of Ground No. 1 of Revenue's appeal, we have upheld the order of the AO with regard to the addition of Rs. 24 lacs which was made by him on the basis of disclosure made by Shri K B Kandoi in the case of the assessee firm, therefore, no addition of Rs. 6,15,800/- is required to be made in the hands of Shri K B Kandoi. We therefore allow Ground No. 2 of Revenue's appeal.
25. Ground No. 3 of Revenue's appeal is against deletion of GP addition of Rs. 7,22,770/-. We have heard both the sides and perused the material placed before us. The assessee has disclosed the Gross Profit of Rs. 14,36,871/- on the turn over of Rs. 73,65,473/-. The GP rate works out to 20.18% The AO rejected the books of account and applied GP rate of 30% which resulted in the addition of Rs. 7,22,770/-. The.
CIT(A) deleted the addition. Hence the Revenue was in appeal. While disposing of Ground No. 1 of Revenue's appeal we have sustained the addition of Rs. 24 lacs made by the AO on the basis of statement of Shri K B Kandoi. After considering the above sum of Rs. 24 lacs the GP of the assessee would be more than 50% which is much more that the GP rate applied by the AO. Therefore there is no justification for sustaining any addition on account of low GP. We therefore reject Ground No 3 of Revenue's appeal.
26. Ground No. 4 of Revenue's appeal and Ground Nos. 1 and 2 of assessee's appeal are against the direction of the CIT(A) to make the addition of Rs. 3,37,700/- being 25% of unrecorded sales of Rs. 13,50,799/-. As against the addition of Rs. 24 lacs made by the AO on the basis of statement of Shri K B Kandoi, the CST(A) has directed the AO to sustain the addition of Rs. 3,37,700/- only on the basis of 25% of the unrecorded sales worked out by him at Rs. 13,50,799/-. However while disposing of Ground No. 1 of Revenue's appeal we have sustained the addition of Rs. 24 lacs and therefore no separate addition of Rs. 3,37,700/- is required to be sustained. Accordingly, Ground Nos. 1 and 2 of assessee's appeal and Ground No. 4 of Revenue's appeal are deemed to be allowed.
27. Ground Nos. 3 and 4 of assessee's appeal are against the disallowance of Rs. 6000/- out of telephone expenses and Rs. 10,494/- out of vehicle expenses. The same were not pressed at the time of hearing. Accordingly, Ground Nos. 3 and 4 of assessee's appeal are rejected.
28. Ground No. 5 of assessee's appeal is against charging of interest Under Section 234. At the time of hearing before us both the parties admitted that charging of interest is consequential. We, therefore, direct the AO to recalculate the interest after determination, of income as per this order.
ITA No. 960/Ahd/97- Asst.Year 1993-94 - Revenue's appeal in the case of Shri K B Kandoi - ======================================================================= ========= 29. The only ground raised in this appeal by the Revenue reads as under :- "The Id CIT(A) has erred in law and on facts in holding that a sum of Rs. 6,15,800/- out of Rs. 24,00,000/- disclosed Under Section 132(4) of the IT Act in the case of the firm belong to Shri Kamleshkumar B Kandoi in this individual capacity." 30. An identical ground was raised by the Revenue vide Ground No. 2 in the case of M/s Kandoi Bhogilal Mulchand wherein Shri K B Kandoi is partner. For the detailed discussion in para-24 we hold that no separate addition of Rs. 6,15,800/- is required to be made in the case of Shri K B Kandoi.. Accordingly, the addition made by the AO on protective basis and which was directed to be made on substantive basis by the CIT(A), is deleted.
ITA No. 2455/Ahd/99 - Asst.Year 1992-93 - Revenue's appeal in the case of M/s Bhogilal Mulchand Kandoi - ======================================================================= ========= 31. The only ground raised in this appeal by the Revenue reads as under :- "The Id CIT(A) has erred in law and on facts in deleting the addition made the AO for the amount of Rs. 2,13,941/- on the ground of estimation of GP at the rate of 24%." 32. We have heard both the parties and perused the material placed before us. For the year under consideration the assesses has disclosed the sales of Rs 65,62,616/- on which gross profit of Rs. 13,61,123/- was disclosed. The AO rejected the books of account and applied the GP rate of 24% which resulted in the addition of Rs. 2,13,941/-. The same is deleted by the CIT(A). Hence this appeal by the Revenue.
33. We have heard both the parties and perused the material placed before us. The assesses has filed the comparative chart of sale and gross profit of various years. From the said chart we find that in the immediately preceding year i.e. 1991-92 the assessee disclosed GP rate of 22.13% on sales of Rs. 41,03,964/-, The AO rejected the books of account and applied the GP rate of 30%. On appeal, the CIT(A) reduced the rate of GP from 30% to 25%. The assessee filed the appeal before the Tribunal against the order of the CIT(A). However later on the assessee settled the dispute under KVSS. Thus the fact remains in the preceding year, the assessee accepted the GP rate of 25% applied by the CIT(A). We also find that during the course of search on 6-11-92 the statement of Shri K B Kandoi partner of the assessee firm was recorded in which he has admitted the GP rate of 30% to 40%. The AO has also recorded the finding that the assessee has not maintained the stock records In the absence of quantitative records for consumption of raw material & production of finished goods, correctness of the sale cannot be verified. During the course of search evidence of safe outside books was found. Considering totality of the entire facts, we uphold the rejection of books of accounts. The GP rate of 24% applied by the AO cannot be said to be unreasonable or excessive. We therefore reverse the order of the CIT(A) on this point and restore that of the AO. (iv) Assessee's appeal - ITA No. 4780/Ahd/96 is deemed to be partly allowed for statistical purpose.