Assistant Commissioner of Income Vs. Smt. Radha Rani - Court Judgment

Excerpt:
1. this appeal arises from the order of learned cit(a), kota, vide order dt. 20th jan., 2005 for the block period 1990-91 to 1999-2000 and upto 7th april, 2000. 1. the learned cit(a) has erred in giving relief of rs. 1,20,000 on account of estimation of income made by the ao ignoring the fact that the same was made with reference to the papers seized during the course of search. 2. the learned cit(a) has erred in law and fact while deleting the surcharge levied as the finance act clearly laid down that surcharge is leviable on rate prescribed under section 113 of the act. the section 113 prescribes rate for block period only. the rates for block period would be governed by charging section 4 of the act, which says that rates prescribed under central act would be applicable to income of previous year.2. in ground no. 1, the revenue has objected to the deletion of additions of rs. 1,20,000 made by ao on account of estimation of income with reference to papers seized during the course of search. the brief facts of the case are that a search was carried out at the residential and business premises of sh. dilbagh kumar prop, of laxman das chanan das and its associate firms and family members, sister-concerns. sh.kewal kumar, husband of the assessee is elder brother of sh. dilbagh kumar. m/s sunil vegetable company is carrying on its business activity at plot no. 6-7, new subzi mandi, kota. during the course of assessment proceedings it was stated that all the three firms, i.e., (i) m/s laxman das chanan das (n) m/s gulshan kumar satish kumar and (ie) m/s sunil vegetables co. are carrying on their business activities from the above-mentioned address only and there is no other business place. it was stated that the business of sunil vegetables co. was started from 1st april, 1992 and regular returns of income had been filed since then and sh. kewal kumar the husband of the assessee stated that the prop, of sunil & co. is his wife smt. radha rani and he is managing the affairs and accounts of the shop. the ao vide para 2 of his order observed as under: 2.1 during the course of assessment proceedings it was stated that the assessee is a wholesale commission agent in the fruit and vegetable market at subzi mandi, kota. it was stated that the firm is receiving goods from different parties to be sold in the mandi on behalf of the sender of the goods. 2.2 it has been stated that all sales have not been recorded in the regular books of account. an effort was made to reconcile the figures of the seized material with that of the sales. it reveals that some of the items are not appearing in the books of account. as per annex. a-106 (p-75-79) revels that some sales have been entered by the assessee but whereas remaining sales have not been recorded in the regular books of account. similarly, as per annex. a-72, items appearing at pp. 48, 42, 38, 28, 21 and 1, p. 6 are also not appearing in the regular books of account, some items appearing in the annexure have not been found recorded in the regular books of account. the assessee's firm is a sister-concern of m/s gulshan kumar satish kumar. while finalising the assessment proceedings under section 158bc of m/s gulshan kumar it was observed that the papers relating to sales outside the books of account were found for the last two years only. the earlier papers were not seized which seems to be on account of being destroyed by the assessee. it appears that this practice is also being adopted in this case also. loose papers which were seized during the course of search and seizure operation relates to financial years 1998-99, 1999-2000 only and very few papers, say 10-20 papers, were seized which pertain to earlier years. this fact also strengthens the destroying of the papers relating to the sales outside the books of account on a regular interval. 2.3 in the light of above, the turnover of the assessee outside the books of account have to be estimated on the basis of the records available before me which were seized during the course of seizure operation. on the basis of seized records i estimate a commission income, which would have been arrived by the assessee of rs. 20,000 p.a. since the assessee is doing the business for the 8 years. similarly, in the light of above, i have to estimate the income earned by the assessee-firms in the early years also which have not been disclosed by the assessee because no papers have been found. undisclosed income for the remaining years is estimated for rs. 20,000 for each year. the estimation of income of earlier years got strength by the decision of apex court of the country in the case of cst v. h.m. esufali h.m. abdulali 1973 ctr (sc) 317 : (1973) 90 u'r 271 (sc). in this case, while deciding the issue of estimation of suppressed sales on the basis of seized material gathered, it has been observed that, "...it was not possible for the sto to find not precisely the turnover suppressed. he could only make an estimate of the suppressed turnover on the basis of the material before him, so long as the estimate made by him is not arbitrary and has nexus with facts discovered, the same cannot be questioned. in the very nature of things the estimate made may be an overestimate or an underestimate. but, that is no ground for interfering with the best judgment." 2.4 the supreme court has also pointed out that the assessee cannot be permitted to take advantage of his illegal acts and that it was his duty to place all the facts truthfully before the assessing authority. if he fails to do his duty, he cannot be allowed to call upon the assessing authority to prove conclusively what turnover he had suppressed. 2.5 this finding is based on the evidences gathered during the course of search operation. in this group heavy investment have been detected in ivps/kvps/mis etc., in the name of the family members which have not been disclosed in regular books of account and which were admitted as undisclosed income by the family members. on the basis of the above, the undisclosed income for the block period is estimated at rs. 1,60,000 which is added as undisclosed income. 2.6 on the basis of the seized records i estimate a commission income, which would have been avoided by the assessee, of rs. 20,000 p.a. since the assessee is doing the business for the last eight years only, it is presumed that rs. 1,60,000, i.e., (rs. 20,000 x 8), has been avoided by the assessee which is added as the undisclosed income of the assessee for the block period, on the basis of the abovereferred seized material.3. after considering the submission and decisions of various courts cited by learned counsel for the assessee, the learned cit(a) deleted the additions of rs. 1,20,000 being the additions for six years and retained the additions for two years amounting to rs. 40,000 as per observations made by learned cit(a) at p. 8 of his order as under: i have carefully taken into consideration the submission of the learned authorised representative, who on relying upon various authorities of law, pleaded that no addition to undisclosed income be made without there being material fact at the time of search. thus in nutshell, assessee filed return showing nil income which the ao assessed at rs. 1,60,000 for 8 years @ rs. 20,000 per year as undisclosed income for 8 years of the block period on the basis that some annexure as mentioned in the assessment order relating to years 1998-99 and 1999-2000 could not be tallied with the books and he estimated the profit for these 2 years @ rs. 20,000 per year and on this basis the estimated undisclosed income for earlier 6 years, though no record or any material for these 6 years was found, nor any evidence against the assessee or any incrementing documents were found, which has been mentioned by the ao in the assessment order in para 2.2 of p. 3. the case was discussed at length with the authorised representative with number of citation given by him. i conclude that so far as the income for the back 6 years, i.e., financial years 1992-93 to 1997-98 is concerned, 1 totally disagree with the ao, in estimating earlier year's undisclosed income, when he has himself conceded the fact that no records whatsoever was found for these 6 years. he has also not brought on record any incriminating documents against the appellant. the contention raised by the authorised representative and the various authorities cited and relied upon in his reply, have full force, and no adverse view can be taken against the appellant. the citation given by the ao is not at all applicable to the appellant's case, since the block assessment are to be based on material found or evidence available on record on search. addition or estimation of undisclosed income on mere conjectures or surmises without any material cannot be sustained in the eye of law. i, therefore, delete the additions of these 6 years, i.e., rs. 1,20,000 from the total undisclosed income of rs. 1,60,000 and so far as the income of the years 1998-99 and 1999-2000 is concerned as there was material with the ao, and the appellant having not brought any material of quantum of income comprising in the various annexures and seized papers as discussed in the assessment order, i am of the opinion that the ao was justified in computing undisclosed income which is rs. 40,000 for the 2 years, the same is therefore, confirmed.4. we have heard the parties. the assessee is carrying on the business of m/s sunil vegetable co. since 1st april, 1992 and regular returns of income of the assessee have been filed since then. during the course of search as per annexs. a-106 and a-72, ao made an observation that some sales have been entered by the assessee whereas remaining sales have not been recorded in regular books of account. the paper seized during the course of search were for financial years ending 31st march, 1999 and 31st march, 2000 i.e., for two years only. the earlier papers were not seized and the ao made the opinion that the assessee used to destroy the papers on a regular course of interval and, therefore, the papers relating to sales outside the books relating to earlier than 2 years as mentioned above, have been destroyed by the assessee. only 10 to 20 papers were seized for earlier years. but whether those papers relate to assessee's concern or any other concern of the family has not been clarified by ao in his order, since the loose papers found during course of search belonged to two other concerns of family also. the ao's opinion was that all the papers relating to sales outside books in the case of assessee are destroyed by the assessee. since the assessee has stated that he is doing business for the last 8 years, the ao estimated commission income of rs. 20,000 p.a., being income outside the books of the assessee for asst. yrs. 1999-2000, 2000-01 and six years earlier than 1999-2000 for which no papers have been found (ao p.4), i.e., 20,000 x 8 years = 1,60,000.5. the ao tried to strengthen his argument that during the course of search having interest in ivp/kvp/mis etc. in the name of family members, which have not been disclosed in regular books of account, which were admitted by family members as undisclosed income. therefore the assessee is presumed to have earned rs. 1,60,000 as undisclosed income. the learned cit(a), relying upon various decisions of courts, was of the view that, the ao found the material only for 2 years and, therefore, the ao could estimate the income for 2 years and, therefore, deleted the estimate for rest of years i.e., rs. 1,20,000 and sustained the additions of commission income for 2 years @ 20,000 per year at rs. 40,000. the assessee is not in appeal before us for rs. 40,000 addition.6. after appreciation of facts, we are of the view that the assessment under chapter xiv-b is a special procedure of assessment; what is assessed under chapter xiv-b is only the undisclosed income which can be assessed only on the basis of evidence found as a result of search and the ao cannot apply a rule of thumb while making assessment under chapter xiv-b and even if he has to estimate the undisclosed income, the same cannot be estimated on arbitrary basis, i.e., assessment has to be framed in the light of material that have come into possession of the ao during the course of the search. the assessee is assessed to income-tax by filing regular return of income, in the block period. the annexs. a-106 and a-72 are pertaining to asst. yr. 1999-2000 and asst.yr. 2000-01, which reveal that some sales have been entered by the assessee but remaining sales were not recorded in the regular books of account. for these two years the ao estimated the commission income @ rs. 20,000 per annum which is rs. 40,000. no basis for such estimations have been given by the ao in his order vide paras 2.1 to 2.7. the ao was in possession of 10 to 20 papers of earlier years. whether these papers belonged to assessee's firm or two other firms of the family which were also searched at the same premises, on the same day, no findings have been given by the ao as regards these papers. since the ao had given his findings as regards annexs. a-106 and a-72 that some sales have been found entered in regular books of account and whereas some items have not been found in regular books. on the other hand, the ao was of the view vide para 2.3 of his order that no papers for earlier years i.e., for six years, earlier than two years i.e., asst.yrs. 1999-2000 and 2000-01, as mentioned above, has been found and the assessee, in the view of ao must have destroyed those papers for earlier years (refer para 2.2 of ao's order). therefore, the ao does not have any material before him from where he could arrive at the conclusion that the assessee was carrying on the business in the earlier years than asst. yr. 1999-2000, which was not recorded in the regular books of account. therefore, no estimation can be made that the assessee for those 6 years i.e., from asst. yrs. 1992-93 to 1998-99 was earning any undisclosed income. in the absence of any other evidence found by the ao, the ao is not empowered to estimate the income for a larger period on the basis of annexure found in search showing undisclosed income for a particular period. every year, in the it act is an independent year. in each year income has to be computed on the basis of material found as a result of search. therefore, the ao has estimated the income for 2 years for asst. yrs. 1999-2000 and 2000-01.for other years i.e., for asst. yrs. 1992-93 to 1998-99, no material has been found by the ao, therefore, no estimation can be made for these years by the ao. therefore, the ao's presumption vide para 2.6 of his order that the assessee has avoided the income for 6 earlier years also, is without any material and only on conjectures and surmises. the counsel for the assessee has relied upon the decision for the case of 1. samrat bear bar v. asstt. cit (2000) 69 ttj (pune) (tm) 113 where it has been held that the ao is no doubt, empowered to estimate the undisclosed income earned by the assessee, but the estimate is possible only when there is material or evidence found during the search to unmistakably show that such income has been earned. the ao cannot presume that there must be some other material or evidence which is not found during the search and the assessee must have derived undisclosed income therefrom and further it was held by the third member agreeing with am as under: the very purpose of a search is to take the assessee by surprise and to assess his income on the basis of the evidence and materials found during the search. once the rationale behind the search is kept in view it would be clear that the law presumes that the assets or materials found in the course of the search are exhaustive of the undisclosed income of the assessee. the ao is no doubt empowered to estimate the undisclosed income earned by the assessee but the estimate is possible only when there is material or evidence found during the search to unmistakably show that such income has been earned. the ao cannot presume that there must be some other materials or evidence which is not found during the search and the assessee much have derived undisclosed income therefrom. in the present case, the only material available the diary which contains entries for a particular period relating to sale of liquor not disclosed to the department. there is no indication anywhere in the seized records to show that even in respect of the other periods the assessee was maintaining such a diary which was for some reason or the other not found in the course of the search. on the facts and circumstances of the case, the suppression of sale has to be limited to the period from 28th sept., 1988 to 25th aug., 1989 on the basis of entries of the suppressed sales in the diary found during the course of search which related to the period from 28th sept., 1998 to 25th sept., 1999. 2. dr. r.m.l. malhotra v. asstt. cit (1999) 64 ttj (au) 259 where it has been held: one should not forget that it is a search case in which a search party is supposed and expected to find out all the incriminating documents, material as also undisclosed assets. a search assessment, much less a block assessment, therefore, stands on a footing different than a normal assessment much less an assessment based on the best judgment of an ao. during search, firstly, no other diary or other record comparable to the note book marked as "b-1/23" were found by the search party for the remaining period, which normally would have been, were it being maintained and kept. though such a record could have been destroyed also from time to time, but in such a situation also, if the assessees had actually made a fortune of similar receipts in respect of the remaining part of the year, they must be reflected by certain assets, movable or immovable ought to have been found during the course of search. no such assets, despite the extreme step of search which amounts to a serious invasion on the rights of subjects and which is perhaps the last weapon in the arsenal of the department, were found, which could be attributed to any such patently hypothetical receipts. in view of this the multiplication formula adopted by the ao was not valid- cst v. km. esufali, h.m. abdulali distinguished.7. the counsel for the assessee further relied upon various other decisions as under, in support of his arguments that the undisclosed income under chapter xiv-b has to be determined on the basis of evidence, documents, material found during the course of search, and it is beyond power of ao to review assessments completed unless some direct evidence comes to knowledge of department as a result of search and ao cannot compute undisclosed income on estimated basis, presumptions and surmises and the ao cannot apply a rule of thumb while estimating the undisclosed income, i.e., he cannot estimate the undisclosed income on an arbitrary basis and he can do so only on the basis of material which had come into his possession: 1. jaya s. shetty v. asstt. cit (1999) 64 tij (mumbai) 561 : (1999) 69 1td 336 (mumbai);kapoor sons steels (p) ltd. v. asstt. cit (2001) 119 taxman 113 (chd); 4. cit v. ravikant jain (2001) 167 ctr (del) 566 : (2001) 250 itr 141 (del); 8. agrawal motors v. asstt. cit (2000) 66 ttj (jab) 130 : (1999) 68 itd 407 (jab): 9. smt. neena syal v. asstt. cit (2000) 69 ttj (chd) 516 : (1999) 70 jtd 62 (chd);n' tours v. asstt. cit 22 tax world 494 (jp); 8. the decision relied upon by the ao in the case of cst v. h.m.esufali h.m. abdulali 1973 ctr (sc) 317 : (1973) 90 ftr 271 (sc) has been distinguished in the case of dr. r.m.l. malhotra v. asstt. cit (supra) that the decision by the hon'ble apex court was with regard to sales-tax and central sales-tax and the assessment was a normal assessment and best judgment assessment under the state sales-tax act and central sales-tax act which is quite different from the search assessment under chapter xiv-b, in the present case. therefore the decision of the hon'ble apex court, in our opinion, is not applicable in the present case.9. the assessee (sic-ao) vide para 2.5 of his order has tried to strengthen his presumptions of estimating the income that heavy investments have been detected in ivps/kvps/mis etc. in the name of family members which have not been disclosed in the regular books of account and which have been admitted as undisclosed income by the family members.10. in this regard, though the ao is not specific about the investments as mentioned above but at the same time, if we agree with the findings of the ao, on one hand, then the ao has given his findings that such undisclosed income has been admitted as undisclosed income by the family members meaning thereby, that the other family members have disclosed those investments in their block return or such investments have been taxed in hands of such other family members. therefore, in such circumstances the alleged investments, cannot be taxed in hands of the assessee.11. with the above discussions, we are of the view that the ao while making the estimates for two years i.e., asst. yr. 1999-2000 and asst.yr. 2000-01 relied upon the seized annexs. a-106 and a-72. but the ao has not given any basis for calculation of commission income @ rs. 20,000 per annum for these two years. the learned cit(a) has deleted (sic-retained) the said addition of rs. 40,000 for asst. yrs. 1999-2000 and 2000-01 and there is no dispute before us, as regards sustenance of this addition by the learned cit(a). as regards estimation of rs. 1,20,000 pertaining to asst. yr. 1992-93 to asst. yr. 1998-99, we are convinced with the arguments of counsel for the assessee and the cases relied upon by him in that the ao does not have any material or evidence with him to make the assessment of undisclosed income and the undisclosed income cannot be computed on estimate basis on presumptions and surmises and assessment under chapter xiv-b is different from the normal assessment. therefore, the ao in the present case has framed the assessment while computing the undisclosed income for asst. yrs.1992-93 to 1998-99 without any material in possession and purely on conjectures and surmises. hence the learned cit(a) has rightly deleted the addition of rs. 1,20,000. thus, ground no. 1 of the revenue is dismissed.12. in ground no. 2, the revenue has challenged the deletion of surcharge under section 113 of the act. the counsel for the assessee has argued that the search in the present case was carried on 7th april, 2000, i.e., prior to 1st june, 2002. finance act, 2002 had brought an amendment in section 113 and surcharge was levied on block assessment from prospective effect and not from retrospective effect which further clarifies the intention of law-makers that surcharge has been levied w.e.f. 1st june, 2002 and prior to this there was no surcharge. the counsel for the assessee had relied upon the various judgments of jaipur bench where it has been held that the surcharge on block assessment is not leviable on searches carried prior to 1st june, 2002 as under: 2. radhey shyam khandelwal v. asstt. cit and vice versa in 32 tax world 44 (jp) 13. we are convinced with the arguments of counsel for the assessee and the decisions cited by him and are of the view that the search in the present case was carried on 7th april, 2000 and amendment in section 113 came into effect from 1st june, 2002 which is from the prospective effect. we rely upon the above decisions cited by learned counsel for the assessee that there cannot be any surcharge on assessee on whom searches have been carried out before 1st june, 2002. we also rely upon the decision in the case of km. sharma v. 1to where it has been held as under: a taxing provision imposing liability is governed by the normal presumption that it is not retrospective and the settled principle of law is that the law to be applied is that which is in force in the assessment year unless otherwise provided expressly or by necessary implication. even a procedural provision cannot, in the absence of clear contrary intendment expressed therein, be given greater retrospectivity than is expressly mentioned so as to enable the authorities to affect finality of tax assessments or to reopen up liabilities which have become barred by lapse of time.14. in view of above discussions and decisions, we are of the view that the amendment in section 113 for levy of surcharge on block assessment has to be with prospective affect and, therefore, the learned cit(a) has rightly deleted the surcharge under section 113 levied by the ao in the present case. thus ground no. 2 of the revenue is dismissed.

Judgment:
1. This appeal arises from the order of learned CIT(A), Kota, vide order dt. 20th Jan., 2005 for the block period 1990-91 to 1999-2000 and upto 7th April, 2000.

1. The learned CIT(A) has erred in giving relief of Rs. 1,20,000 on account of estimation of income made by the AO ignoring the fact that the same was made with reference to the papers seized during the course of search.

2. The learned CIT(A) has erred in law and fact while deleting the surcharge levied as the Finance Act clearly laid down that surcharge is leviable on rate prescribed under Section 113 of the Act. The Section 113 prescribes rate for block period only. The rates for block period would be governed by charging Section 4 of the Act, which says that rates prescribed under Central Act would be applicable to income of previous year.

2. In ground No. 1, the Revenue has objected to the deletion of additions of Rs. 1,20,000 made by AO on account of estimation of income with reference to papers seized during the course of search. The brief facts of the case are that a search was carried out at the residential and business premises of Sh. Dilbagh Kumar Prop, of Laxman Das Chanan Das and its associate firms and family members, sister-concerns. Sh.

Kewal Kumar, husband of the assessee is elder brother of Sh. Dilbagh Kumar. M/s Sunil Vegetable Company is carrying on its business activity at Plot No. 6-7, New Subzi Mandi, Kota. During the course of assessment proceedings it was stated that all the three firms, i.e., (I) M/s Laxman Das Chanan Das (n) M/s Gulshan Kumar Satish Kumar and (IE) M/s Sunil Vegetables Co. are carrying on their business activities from the above-mentioned address only and there is no other business place. It was stated that the business of Sunil Vegetables Co. was started from 1st April, 1992 and regular returns of income had been filed since then and Sh. Kewal Kumar the husband of the assessee stated that the Prop, of Sunil & Co. is his wife Smt. Radha Rani and he is managing the affairs and accounts of the shop. The AO vide para 2 of his order observed as under: 2.1 During the course of assessment proceedings it was stated that the assessee is a wholesale commission agent in the Fruit and Vegetable Market at Subzi Mandi, Kota. It was stated that the firm is receiving goods from different parties to be sold in the mandi on behalf of the sender of the goods.

2.2 It has been stated that all sales have not been recorded in the regular books of account. An effort was made to reconcile the figures of the seized material with that of the sales. It reveals that some of the items are not appearing in the books of account. As per Annex. A-106 (P-75-79) revels that some sales have been entered by the assessee but whereas remaining sales have not been recorded in the regular books of account. Similarly, as per Annex. A-72, items appearing at pp. 48, 42, 38, 28, 21 and 1, p. 6 are also not appearing in the regular books of account, some items appearing in the annexure have not been found recorded in the regular books of account. The assessee's firm is a sister-concern of M/s Gulshan Kumar Satish Kumar. While finalising the assessment proceedings under Section 158BC of M/s Gulshan Kumar it was observed that the papers relating to sales outside the books of account were found for the last two years only. The earlier papers were not seized which seems to be on account of being destroyed by the assessee. It appears that this practice is also being adopted in this case also.

Loose papers which were seized during the course of search and seizure operation relates to financial years 1998-99, 1999-2000 only and very few papers, say 10-20 papers, were seized which pertain to earlier years. This fact also strengthens the destroying of the papers relating to the sales outside the books of account on a regular interval.

2.3 In the light of above, the turnover of the assessee outside the books of account have to be estimated on the basis of the records available before me which were seized during the course of seizure operation. On the basis of seized records I estimate a commission income, which would have been arrived by the assessee of Rs. 20,000 p.a. Since the assessee is doing the business for the 8 years.

Similarly, in the light of above, I have to estimate the income earned by the assessee-firms in the early years also which have not been disclosed by the assessee because no papers have been found.

Undisclosed income for the remaining years is estimated for Rs. 20,000 for each year. The estimation of income of earlier years got strength by the decision of apex Court of the country in the case of CST v. H.M. Esufali H.M. Abdulali 1973 CTR (SC) 317 : (1973) 90 U'R 271 (SC). In this case, while deciding the issue of estimation of suppressed sales on the basis of seized material gathered, it has been observed that, "...it was not possible for the STO to find not precisely the turnover suppressed. He could only make an estimate of the suppressed turnover on the basis of the material before him, so long as the estimate made by him is not arbitrary and has nexus with facts discovered, the same cannot be questioned. In the very nature of things the estimate made may be an overestimate or an underestimate. But, that is no ground for interfering with the best judgment." 2.4 The Supreme Court has also pointed out that the assessee cannot be permitted to take advantage of his illegal acts and that it was his duty to place all the facts truthfully before the assessing authority. If he fails to do his duty, he cannot be allowed to call upon the assessing authority to prove conclusively what turnover he had suppressed.

2.5 This finding is based on the evidences gathered during the course of search operation. In this group heavy investment have been detected in IVPs/KVPs/MIS etc., in the name of the family members which have not been disclosed in regular books of account and which were admitted as undisclosed income by the family members. On the basis of the above, the undisclosed income for the block period is estimated at Rs. 1,60,000 which is added as undisclosed income.

2.6 On the basis of the seized records I estimate a commission income, which would have been avoided by the assessee, of Rs. 20,000 p.a. Since the assessee is doing the business for the last eight years only, it is presumed that Rs. 1,60,000, i.e., (Rs. 20,000 x 8), has been avoided by the assessee which is added as the undisclosed income of the assessee for the block period, on the basis of the abovereferred seized material.

3. After considering the submission and decisions of various Courts cited by learned Counsel for the assessee, the learned CIT(A) deleted the additions of Rs. 1,20,000 being the additions for six years and retained the additions for two years amounting to Rs. 40,000 as per observations made by learned CIT(A) at p. 8 of his order as under: I have carefully taken into consideration the submission of the learned Authorised Representative, who on relying upon various authorities of law, pleaded that no addition to undisclosed income be made without there being material fact at the time of search.

Thus in nutshell, assessee filed return showing nil income which the AO assessed at Rs. 1,60,000 for 8 years @ Rs. 20,000 per year as undisclosed income for 8 years of the block period on the basis that some annexure as mentioned in the assessment order relating to years 1998-99 and 1999-2000 could not be tallied with the books and he estimated the profit for these 2 years @ Rs. 20,000 per year and on this basis the estimated undisclosed income for earlier 6 years, though no record or any material for these 6 years was found, nor any evidence against the assessee or any incrementing documents were found, which has been mentioned by the AO in the assessment order in para 2.2 of p. 3.

The case was discussed at length with the Authorised Representative with number of citation given by him. I conclude that so far as the income for the back 6 years, i.e., financial years 1992-93 to 1997-98 is concerned, 1 totally disagree with the AO, in estimating earlier year's undisclosed income, when he has himself conceded the fact that no records whatsoever was found for these 6 years. He has also not brought on record any incriminating documents against the appellant. The contention raised by the Authorised Representative and the various authorities cited and relied upon in his reply, have full force, and no adverse view can be taken against the appellant.

The citation given by the AO is not at all applicable to the appellant's case, since the block assessment are to be based on material found or evidence available on record on search. Addition or estimation of undisclosed income on mere conjectures or surmises without any material cannot be sustained in the eye of law. I, therefore, delete the additions of these 6 years, i.e., Rs. 1,20,000 from the total undisclosed income of Rs. 1,60,000 and so far as the income of the years 1998-99 and 1999-2000 is concerned as there was material with the AO, and the appellant having not brought any material of quantum of income comprising in the various annexures and seized papers as discussed in the assessment order, I am of the opinion that the AO was justified in computing undisclosed income which is Rs. 40,000 for the 2 years, the same is therefore, confirmed.

4. We have heard the parties. The assessee is carrying on the business of M/s Sunil Vegetable Co. since 1st April, 1992 and regular returns of income of the assessee have been filed since then. During the course of search as per Annexs. A-106 and A-72, AO made an observation that some sales have been entered by the assessee whereas remaining sales have not been recorded in regular books of account. The paper seized during the course of search were for financial years ending 31st March, 1999 and 31st March, 2000 i.e., for two years only. The earlier papers were not seized and the AO made the opinion that the assessee used to destroy the papers on a regular course of interval and, therefore, the papers relating to sales outside the books relating to earlier than 2 years as mentioned above, have been destroyed by the assessee. Only 10 to 20 papers were seized for earlier years. But whether those papers relate to assessee's concern or any other concern of the family has not been clarified by AO in his order, since the loose papers found during course of search belonged to two other concerns of family also. The AO's opinion was that all the papers relating to sales outside books in the case of assessee are destroyed by the assessee. Since the assessee has stated that he is doing business for the last 8 years, the AO estimated commission income of Rs. 20,000 p.a., being income outside the books of the assessee for asst. yrs. 1999-2000, 2000-01 and six years earlier than 1999-2000 for which no papers have been found (AO p.

4), i.e., 20,000 x 8 years = 1,60,000.

5. The AO tried to strengthen his argument that during the course of search having interest in IVP/KVP/MIS etc. in the name of family members, which have not been disclosed in regular books of account, which were admitted by family members as undisclosed income. Therefore the assessee is presumed to have earned Rs. 1,60,000 as undisclosed income. The learned CIT(A), relying upon various decisions of Courts, was of the view that, the AO found the material only for 2 years and, therefore, the AO could estimate the income for 2 years and, therefore, deleted the estimate for rest of years i.e., Rs. 1,20,000 and sustained the additions of commission income for 2 years @ 20,000 per year at Rs. 40,000. The assessee is not in appeal before us for Rs. 40,000 addition.

6. After appreciation of facts, we are of the view that the assessment under Chapter XIV-B is a special procedure of assessment; what is assessed under Chapter XIV-B is only the undisclosed income which can be assessed only on the basis of evidence found as a result of search and the AO cannot apply a rule of thumb while making assessment under Chapter XIV-B and even if he has to estimate the undisclosed income, the same cannot be estimated on arbitrary basis, i.e., assessment has to be framed in the light of material that have come into possession of the AO during the course of the search. The assessee is assessed to income-tax by filing regular return of income, in the block period. The Annexs. A-106 and A-72 are pertaining to asst. yr. 1999-2000 and asst.

yr. 2000-01, which reveal that some sales have been entered by the assessee but remaining sales were not recorded in the regular books of account. For these two years the AO estimated the commission income @ Rs. 20,000 per annum which is Rs. 40,000. No basis for such estimations have been given by the AO in his order vide paras 2.1 to 2.7. The AO was in possession of 10 to 20 papers of earlier years. Whether these papers belonged to assessee's firm or two other firms of the family which were also searched at the same premises, on the same day, no findings have been given by the AO as regards these papers. Since the AO had given his findings as regards Annexs. A-106 and A-72 that some sales have been found entered in regular books of account and whereas some items have not been found in regular books. On the other hand, the AO was of the view vide para 2.3 of his order that no papers for earlier years i.e., for six years, earlier than two years i.e., asst.

yrs. 1999-2000 and 2000-01, as mentioned above, has been found and the assessee, in the view of AO must have destroyed those papers for earlier years (refer para 2.2 of AO's order). Therefore, the AO does not have any material before him from where he could arrive at the conclusion that the assessee was carrying on the business in the earlier years than asst. yr. 1999-2000, which was not recorded in the regular books of account. Therefore, no estimation can be made that the assessee for those 6 years i.e., from asst. yrs. 1992-93 to 1998-99 was earning any undisclosed income. In the absence of any other evidence found by the AO, the AO is not empowered to estimate the income for a larger period on the basis of annexure found in search showing undisclosed income for a particular period. Every year, in the IT Act is an independent year. In each year income has to be computed on the basis of material found as a result of search. Therefore, the AO has estimated the income for 2 years for asst. yrs. 1999-2000 and 2000-01.

For other years i.e., for asst. yrs. 1992-93 to 1998-99, no material has been found by the AO, therefore, no estimation can be made for these years by the AO. Therefore, the AO's presumption vide para 2.6 of his order that the assessee has avoided the income for 6 earlier years also, is without any material and only on conjectures and surmises. The counsel for the assessee has relied upon the decision for the case of 1. Samrat Bear Bar v. Asstt. CIT (2000) 69 TTJ (Pune) (TM) 113 where it has been held that the AO is no doubt, empowered to estimate the undisclosed income earned by the assessee, but the estimate is possible only when there is material or evidence found during the search to unmistakably show that such income has been earned. The AO cannot presume that there must be some other material or evidence which is not found during the search and the assessee must have derived undisclosed income therefrom and further it was held by the Third Member agreeing with AM as under: The very purpose of a search is to take the assessee by surprise and to assess his income on the basis of the evidence and materials found during the search. Once the rationale behind the search is kept in view it would be clear that the law presumes that the assets or materials found in the course of the search are exhaustive of the undisclosed income of the assessee. The AO is no doubt empowered to estimate the undisclosed income earned by the assessee but the estimate is possible only when there is material or evidence found during the search to unmistakably show that such income has been earned. The AO cannot presume that there must be some other materials or evidence which is not found during the search and the assessee much have derived undisclosed income therefrom. In the present case, the only material available the diary which contains entries for a particular period relating to sale of liquor not disclosed to the Department. There is no indication anywhere in the seized records to show that even in respect of the other periods the assessee was maintaining such a diary which was for some reason or the other not found in the course of the search. On the facts and circumstances of the case, the suppression of sale has to be limited to the period from 28th Sept., 1988 to 25th Aug., 1989 on the basis of entries of the suppressed sales in the diary found during the course of search which related to the period from 28th Sept., 1998 to 25th Sept., 1999.

2. Dr. R.M.L. Malhotra v. Asstt. CIT (1999) 64 TTJ (AU) 259 where it has been held: One should not forget that it is a search case in which a search party is supposed and expected to find out all the incriminating documents, material as also undisclosed assets. A search assessment, much less a block assessment, therefore, stands on a footing different than a normal assessment much less an assessment based on the best judgment of an AO. During search, firstly, no other diary or other record comparable to the note book marked as "B-1/23" were found by the search party for the remaining period, which normally would have been, were it being maintained and kept. Though such a record could have been destroyed also from time to time, but in such a situation also, if the assessees had actually made a fortune of similar receipts in respect of the remaining part of the year, they must be reflected by certain assets, movable or immovable ought to have been found during the course of search. No such assets, despite the extreme step of search which amounts to a serious invasion on the rights of subjects and which is perhaps the last weapon in the arsenal of the Department, were found, which could be attributed to any such patently hypothetical receipts. In view of this the multiplication formula adopted by the AO was not valid- CST v. KM. Esufali, H.M. Abdulali distinguished.

7. The counsel for the assessee further relied upon various other decisions as under, in support of his arguments that the undisclosed income under Chapter XIV-B has to be determined on the basis of evidence, documents, material found during the course of search, and it is beyond power of AO to review assessments completed unless some direct evidence comes to knowledge of Department as a result of search and AO cannot compute undisclosed income on estimated basis, presumptions and surmises and the AO cannot apply a rule of thumb while estimating the undisclosed income, i.e., he cannot estimate the undisclosed income on an arbitrary basis and he can do so only on the basis of material which had come into his possession: 1. Jaya S. Shetty v. Asstt. CIT (1999) 64 TIJ (Mumbai) 561 : (1999) 69 1TD 336 (Mumbai);Kapoor Sons Steels (P) Ltd. v. Asstt. CIT (2001) 119 Taxman 113 (Chd); 4. CIT v. Ravikant Jain (2001) 167 CTR (Del) 566 : (2001) 250 ITR 141 (Del); 8. Agrawal Motors v. Asstt. CIT (2000) 66 TTJ (Jab) 130 : (1999) 68 ITD 407 (Jab): 9. Smt. Neena Syal v. Asstt. CIT (2000) 69 TTJ (Chd) 516 : (1999) 70 JTD 62 (Chd);N' Tours v. Asstt. CIT 22 Tax World 494 (Jp); 8. The decision relied upon by the AO in the case of CST v. H.M.Esufali H.M. Abdulali 1973 CTR (SC) 317 : (1973) 90 FTR 271 (SC) has been distinguished in the case of Dr. R.M.L. Malhotra v. Asstt. CIT (supra) that the decision by the Hon'ble apex Court was with regard to sales-tax and Central sales-tax and the assessment was a normal assessment and best judgment assessment under the State Sales-tax Act and Central Sales-tax Act which is quite different from the search assessment under Chapter XIV-B, in the present case. Therefore the decision of the Hon'ble apex Court, in our opinion, is not applicable in the present case.

9. The assessee (sic-AO) vide para 2.5 of his order has tried to strengthen his presumptions of estimating the income that heavy investments have been detected in IVPs/KVPs/MIS etc. in the name of family members which have not been disclosed in the regular books of account and which have been admitted as undisclosed income by the family members.

10. In this regard, though the AO is not specific about the investments as mentioned above but at the same time, if we agree with the findings of the AO, on one hand, then the AO has given his findings that such undisclosed income has been admitted as undisclosed income by the family members meaning thereby, that the other family members have disclosed those investments in their block return or such investments have been taxed in hands of such other family members. Therefore, in such circumstances the alleged investments, cannot be taxed in hands of the assessee.

11. With the above discussions, we are of the view that the AO while making the estimates for two years i.e., asst. yr. 1999-2000 and asst.

yr. 2000-01 relied upon the seized Annexs. A-106 and A-72. But the AO has not given any basis for calculation of commission income @ Rs. 20,000 per annum for these two years. The learned CIT(A) has deleted (sic-retained) the said addition of Rs. 40,000 for asst. yrs. 1999-2000 and 2000-01 and there is no dispute before us, as regards sustenance of this addition by the learned CIT(A). As regards estimation of Rs. 1,20,000 pertaining to asst. yr. 1992-93 to asst. yr. 1998-99, we are convinced with the arguments of counsel for the assessee and the cases relied upon by him in that the AO does not have any material or evidence with him to make the assessment of undisclosed income and the undisclosed income cannot be computed on estimate basis on presumptions and surmises and assessment under Chapter XIV-B is different from the normal assessment. Therefore, the AO in the present case has framed the assessment while computing the undisclosed income for asst. yrs.

1992-93 to 1998-99 without any material in possession and purely on conjectures and surmises. Hence the learned CIT(A) has rightly deleted the addition of Rs. 1,20,000. Thus, ground No. 1 of the Revenue is dismissed.

12. In ground No. 2, the Revenue has challenged the deletion of surcharge under Section 113 of the Act. The counsel for the assessee has argued that the search in the present case was carried on 7th April, 2000, i.e., prior to 1st June, 2002. Finance Act, 2002 had brought an amendment in Section 113 and surcharge was levied on block assessment from prospective effect and not from retrospective effect which further clarifies the intention of law-makers that surcharge has been levied w.e.f. 1st June, 2002 and prior to this there was no surcharge. The counsel for the assessee had relied upon the various judgments of Jaipur Bench where it has been held that the surcharge on block assessment is not leviable on searches carried prior to 1st June, 2002 as under: 2. Radhey Shyam Khandelwal v. Asstt. CIT and vice versa in 32 Tax World 44 (Jp) 13. We are convinced with the arguments of counsel for the assessee and the decisions cited by him and are of the view that the search in the present case was carried on 7th April, 2000 and amendment in Section 113 came into effect from 1st June, 2002 which is from the prospective effect. We rely upon the above decisions cited by learned Counsel for the assessee that there cannot be any surcharge on assessee on whom searches have been carried out before 1st June, 2002. We also rely upon the decision in the case of KM. Sharma v. 1TO where it has been held as under: A taxing provision imposing liability is governed by the normal presumption that it is not retrospective and the settled principle of law is that the law to be applied is that which is in force in the assessment year unless otherwise provided expressly or by necessary implication. Even a procedural provision cannot, in the absence of clear contrary intendment expressed therein, be given greater retrospectivity than is expressly mentioned so as to enable the authorities to affect finality of tax assessments or to reopen up liabilities which have become barred by lapse of time.

14. In view of above discussions and decisions, we are of the view that the amendment in Section 113 for levy of surcharge on block assessment has to be with prospective affect and, therefore, the learned CIT(A) has rightly deleted the surcharge under Section 113 levied by the AO in the present case. Thus ground No. 2 of the Revenue is dismissed.