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The Income- Tax Act, 1995
Section 158BD in The Income- Tax Act, 1995
Section 145(3) in The Income- Tax Act, 1995
Section 158B(b) in The Income- Tax Act, 1995
Section 158BC in The Income- Tax Act, 1995

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Income Tax Appellate Tribunal - Indore
Gothi Jewellers, vs Assessee

1

IN THE INCOME TAX APPELLATE TRIBUNAL

INDORE BENCH, INDORE

BEFORE SHRI JOGINDER SINGH, JUDICIAL MEMBER AND SHRI R.C. SHARMA, ACCOUNTANT MEMBER

IT(SS)A No. 82/Ind/2005

Block period 1.4.1996 to 25.10.2002

Asstt. Commr. of Income Tax

1(1), Bhopal Appellant V/s.

Gothi Jewellers

Itarsi

PAN - AABFG2231Q Respondent CO No. 108/Ind/05

(Arising out of IT(SS)A No. 82/Ind/2005) Block period 1.4.1996 to 25.10.2002

Gothi Jewellers

Itarsi Objector Vs

Asstt. Commr. of Income Tax

1(1), Bhopal Respondent 2

IT(SS)A No. 91/Ind/2005

Block period 1.4.1996 to 25.10.2002

Asstt. Commr. of Income Tax

1(1), Bhopal

Appellant

Vs

Satishchand Samirmal Gothi

Itarsi

PAN - ABYPG-0275-E Respondent CO No. 112/Ind/05

(Arising out of IT(SS)A No. 91/Ind/2005) Block period 1.4.1996 to 25.10.2002

Satishchand Samirmal Gothi

Itarsi Objector Vs

Asstt. Commr. of Income Tax

1(1), Bhopal Respondent IT(SS)A No. 88/Ind/2005

Block period 1.4.1996 to 25.10.2002

Asstt. Commr. of Income Tax

1(1), Bhopal Appellant Vs

Sudhir Samirmal Gothi

Itarsi

PAN - ABYPG-0274-F Respondent 3

CO No. 111/Ind/05

(Arising out of IT(SS)A No. 88/Ind/2005) Block period 1.4.1996 to 25.10.2002

Sudhir Samirmal Gothi

Itarsi Objector Vs

Asstt. Commr. of Income Tax

1(1), Bhopal Respondent IT(SS)A No. 84/Ind/2005

Block period 1.4.1996 to 25.10.2002

Asstt. Commr. of Income Tax

1(1), Bhopal Appellant Vs

Sanjay Samirmal Gothi

Itarsi

PAN - ADZPG-5189-P Respondent CO No. 110/Ind/05

(Arising out of IT(SS)A No. 84/Ind/2005) Block period 1.4.1996 to 25.10.2002

Sanjay Kumar Samirmal Gothi

Itarsi Objector Vs

Asstt. Commr. of Income Tax

1(1), Bhopal Respondent 4

IT(SS)A No. 83/Ind/2005

Block period 1.4.1996 to 25.10.2002

Asstt. Commr. of Income Tax

1(1), Bhopal Appellant Vs

Samirmal Gothi

Itarsi

PAN - ADJPG-2883-M Respondent CO No. 109/Ind/05

(Arising out of IT(SS)A No. 83/Ind/2005) Block period 1.4.1996 to 25.10.2002

Samirmal Phoochand Gothi

Itarsi Objector Vs

Asstt. Commr. of Income Tax

1(1), Bhopal Respondent IT(SS)A No. 92/Ind/2005

Block period 1.4.1996 to 25.10.2002

Asstt. Commr. of Income Tax

1(1), Bhopal Appellant Vs

Gothi Brothers

Itarsi

PAN - AAAHG-6186-K Respondent 5

CO No. 113/Ind/05

(Arising out of IT(SS)A No. 92/Ind/2005) Block period 1.4.1996 to 25.10.2002

Gothi Brothers

Itarsi Objector Vs

Asstt. Commr. of Income Tax

1(1), Bhopal Respondent IT(SS)A No. 34/Ind/2006

Block period 1.4.1996 to 25.10.2002

Pushpadevi Satishchand Gothi

PAN - AFWPG-0379-R Appellant Vs

Asstt. Commr. of Income Tax

1(1), Bhopal Respondent IT(SS)A No. 33/Ind/2005

Block period 1.4.1996 to 25.10.2002

Indiradevi Sudhirkumar Gothi

Itarsi

PAN - AFWPG-0363D Appellant Vs

Asstt. Commr. of Income Tax

1(1), Bhopal Respondent 6

IT(SS)A No. 225/Ind/2007

Block period 1.4.1996 to 25.10.2002

Asstt. Commr. of Income Tax

1(1), Bhopal Appellant Vs

Smt. Sushila Devi Gothi

Itarsi

PAN - ADZPG - 7872J Respondent Department by : Shri Keshav Saxena, CIT DR Assessee by : Shri S.S. Deshpande, FCA ORDER

PER BENCH

This bunch of appeals and cross objections arises out of different orders of the learned Commissioner of Income Tax (Appeals) dated 23.3.2005, 12.1.2006, 12.1.2005 and 21.9.2007 in the matter of block assessment orders framed u/s 158BC read with section 143(3) of the Income Tax Act.

7

IT(SS) A No. 82/Ind/05

2. The facts, in brief, are that a search and seizure action u/s 132(1) of the Act was carried out on 23.10.2002, 24.10.2002 and 25.10.2002 at the business and residential premises of the assessee of Gothi family, Itarsi, which deals in purchase/sale of silver and gold ornaments and also carrying on pawning and Girvi business. Shri Sudhir Kumar Gothi and Shri Sanjay Kumar Gothi are the partners of the firm M/s Gothi Jewellers having equal shares. During the course of search and seizure action, cash, gold and silver jewellery, FDRs, books of accounts and loose papers were seized. Thereafter, notice u/s 158BC of the Act was issued for the block period 1.4.1996 to 25.10.2002 by the then Assessing Officer the ACIT 3(1), Bhopal, on 4.7.2003 which was served on the assessee on 7.7.2003 8

requiring the assessee to file the return of total income including undisclosed income for the block period in Form No. 2B. Thereafter, the assessee filed the return in Form No. 2B on 22.7.2003 declaring the total undisclosed income at Rs. 45 lacs for the block period. Thereafter, notice u/s 143(2) of the Act was issued on 28.5.2004 and served on the assessee on 4.6.2004. Since there was change in incumbent, another notice u/s 143(2) of the Act was issued on 4.8.2004. Notice u/s 142(1) of the Act along with a questionnaire was issued on 3.9.2004 vide which the assessee was required to furnish the required details on or before 13.9.2004.

3. So far as the present appeals are concerned, it involves following members of Gothi Family :- 9

Samirmal Gothi

Age : 77 years

Wife

Sushila Devi Gothi

Age 74 years

Satishchand Sudhir Kumar Sunil Sanjay Gothi Gothi Kumar Kumar Age 54 Age 48 years Gothi Gothi years (Son) Age : 42 Age : 38 (Son) years years (son) (son)

Wife

Wife Wife

Pushpa Indra Gothi Kiran Suman Gothi Age : 44 years Gothi Gothi Age : 50 Age : 38 Age : 35 years years years

4. The concerns associated with this Gothi group were as under :-

(1) M/s Gothi Jewellers, Sarafa Bazar, Itarsi (a partnership firm doing the business of sale and purchases of gold & silver ornaments and pawning).

10

(2) M/s Gothi Brothers, Sarafa Bazar, Itarsi (assessed as partnership firm during block period and doing the business of trading in electrical motors and pumps, diesel engines, pipes and other allied products.)

5. After the search, block assessments were framed in respect of the following persons :- (i) M/s Gothi Jewellers, Itarsi

(ii) Satishchand Samirmal Gothi , Itarsi (iii) Sudir Samirmal Gothi

(iv) Sanjay Kumar Samirmal Gothi

(v) Samirmal Gothi

(vi) Samirmal Phoolchand Gothi

(vii) M/s. Gothi Brothers, Itarsi

(viii)Pushpa Devi Satishchand Gothi

(ix) Indra Devi Sudhir Kumar Gothi

11

(x) Smt. Sushila Devi Gothi

6 Revenue and the above-named persons/concerns are in appeal before us against the order of CIT(A). In the case of M/s Gothi Jewellers, Sarafa Bazar, Itarsi, the assessment was completed at a total undisclosed income of Rs. 2,03,47,326/- after reducing the undisclosed income of Rs. 45,00,000/- surrendered by the assessee firm in the block return.

7. The first ground taken by the revenue is against the order of the learned Commissioner of Income Tax (Appeals) giving relief of Rs.99,37,245/- out of the total addition of Rs. 1,08,69,789/- made by the Assessing Officer on account of entries alleged to be found in the loose papers on account of sales effected outside the books of accounts.

12

8. The facts, in brief, are that during the course of search certain loose papers were found from the residence of partner of the assessee firm Shri Sudhir Kumar Gothi. As per the AO noting on these loose papers indicated sales effected by the assessee firm which have not been recorded in the regular books of account. The AO estimated total of various entries in the loose papers forming part of BS-1 to BS -8 comes at Rs.4,41,51,189/-. However, AO estimated sales of gold ornaments at Rs. 4 crores and by applying the GP rate of 20% worked out GP addition of Rs.73,64,746/-. As the assessee has disclosed GP of Rs.6,35,254/- on the total sales of Rs.49,01,366/- for the block period comprising asstt. Year 1997-98 to 2002-03 and the period 1.4.2002 to the date of search. Addition was made for the difference in GP worked out by the AO. The AO also 13

estimated sales of silver at Rs.3.50 crores by applying GP of 27% and addition of Rs.84,82,580/- was made. Thus, total GP addition on account of undisclosed sales was worked out at Rs. 1.58 crores. After giving credit for the excess cash of Rs. 88,931/-, gold jewellery of Rs.47,15,172/-, excess silver of Rs. 1,17,184/- and unexplained expenditure of Rs. 56,250/-, an addition of Rs.1,08,69,789/- was made by the AO. Aggrieved by the above estimation, the assessee approached to the CIT(A) and contended that the AO has not given working of the figures arrived at on account of profit on undisclosed sales. It was submitted that without concrete evidence no addition can be made u/s 158B(b) of the Act. The CIT(A) analysed each and every document marked as BS-1 to BS-8 and worked out actual profit on the transactions entered therein. The CIT(A) found that it 14

was not possible to work out any income component from the entries in respect of BS-5 or BS-6. The CIT(A) also observed that AO was not able to link the totals with pages BS-6. In respect of BS-1 CIT(A) worked out the unaccounted sales at Rs. 22,09,803/-. By applying GP rate of 20% on these sales, he worked out the unaccounted profit thereon. In respect of BS-2, CIT(A) reached to the conclusion that unaccounted purchase of jewellery boxes/purse worked out to be Rs. 35,000/-. Accordingly, the same was added as undisclosed income of the assessee. Thereafter, CIT(A) computed the income in respect of all these documents at para 13.15 of his appellate order and worked out undisclosed income at Rs. 9,32,544/- in respect of documents referred to by the AO marked as BS-1 to BS-3 and BS-5 to BS-8. 15

Precise observations and findings of the learned CIT(A) are as under :-

"(i)BS-1 Neel Sagar Note book

(a) It was admitted by the appellant that the said note book contained the record of unaccounted sale transactions of gold ornaments. Most of the entries were scored off and as per the appellant if the unscored off entries which were legible with mention of date of transaction were segregated they totaled upto Rs. 22,09,803/- with assessment yearwise bifurcation as under :- S.No. A.Y. Amount Rs. 1 1997-98 1100 2 1998-99

3 1999-2000 44,130 4 2000-01 656703 5 2001-02 1455636 6 2002-03 51484 7 2003-04 750 (upto

25.10.02)

Total 2209803

(b) It was submitted by the ld. A.R. that the totals made by the A.O. do not indicate any date and it was not clear However, he could decipher scored off entries. (c) When the ld. AR's attention was drawn to the fact that scored off entries may also relate to transactions which may have bearing on computation of undisclosed income, 16

(d) it was submitted that it was a matter of conjecture and as on date the said transactions cannot be verified. (e) The A.O. as stated earlier only gave the pagewise totaling without reference to date of transaction and nature of transaction and totals may include both sides viz. debit as well as credit. On inspection of some specific pages with scored off entries it appeared that it was not possible to arrive at any logical inference from such entries. (f) However, the availability of excess stock & admission of unrecorded transactions made the present case a fit case for invoking provisions of section 145(3) & I feel that considering the admission about unrecorded transaction with datewise details given by the appellant and the fact that separate addition for cash & excess stock has been sustained, the ends of justice will be met if the profit is worked out on admitted unaccounted sales of Rs.22,09,803 and deny the appellant any telescopic benefit for the addition sustained so that the interest of revenue is also safeguarded.

(g) The net profit on the same will be taken at 20% as the appellant itself had hown G.P. of 18.27% in A.Y. 97-98 & 20.8% for the period 1.4.2002 to 25.10.02. No allowance for expenses will be given & this will cover the unexplained investment component & other unaccounted expenses.

(ii) BS-2

(a) BS-2 is the note book (96 pages) bearing the name of Sudhir Gothi. The A.O. as in the case of BS-1 has totaled up all the figures without mention of date, nature of transaction & 17

whether it related to gold/silver amounts. The A.O. has computed Rs. 5,72,871/- as under :-

S.No. Book No. Page No. Amount 1 BS-2 2 48540 2 -do- 3 6002 3 -do- 16 5248 4 -do- 16 47425 5 -do- 17 14802 6 -do- 18 290075 7 -do- 22 122000 8 -do- 25 7500 9 -do 26 1400 10 -do- 27 17700 11 -do- 33 2480 12 -do- 37 9699 Total 572871

(b) Again it was not possible to link above figures with date and nature of transaction. The ld. A.R. in this regard only mentioned that some of the transactions in the note book relate to purchase of jewellery box/purse and estimated amount is Rs. 35000/-. He also did not furnish any details of computation with datewise computation of the amount of Rs. 35,000/-. So according to me, the ends of justice will be met if this amount of Rs. 35,000/- admitted as unaccounted purchase of jewellery boxes/purse is 18

accepted & is assessed as investment/unexplained investment for the period 1.4.2002 to 25.10.2002 but at the same time any telescopic benefit for the addition sustained is not given. (iii) BS-3

(a) BS-3 is the note book containing telephone number, addresses, satta transaction,Shayari, rough calculation etc. The A.O. had arrived at a figure of Rs.2,03,34,621 as under :- No. Book No. Page No. Amount 1 BS-3 1 16612856 2 -do- 4 2696 3 -do- 6 3194469 4 -do- 6 21644 5 -do- 6 29400 6 -Do- 7 79500 7 -do- 7 113900 8 -do- 8 64622 9 -do- 25 16000 10 -do- 26 70750 11 -do- 26 6200 12 -do- 27 13500 13 -do- 28 10700 14 -do- 30 45900 15 -do- 30 52484 Total 20334621

(b) The ld. AR took objection to above computations also. It was submitted that page 1 of the said note book contained telephone numbers & the A.O. had mistakenly 19

taken the same as financial transactions. It was pointed out that the names were also mentioned & the numbers were as under :-

555385

3012145

3717702

3711474

379422*

3793590*

8366

552003

490770

(*number not legible)

© The A.O. was also called during the course of hearing and after perusing the photocopy of page 1 of BS-3, he conceded that numbers apparently were telephone numbers. (d) It was further submitted by the ld. A.R. that all the other pages of BS-3 were not relevant & relate to rough calculations for satta business & only the page 7 copy of account of the Sanju Bhai is relevant. The entries were as under :-

Shri Sanju Bhai

Dena (Dr.) Lena (Cr.)

16.5.96 4400.00 5000.00 17.5.96 6000.00 5400.00 18.5.96 15600.00 8000.00 20.5.96 29000.00 16000.00 13500.00 8000.00

8500.00 12000.00

6300.00 0000.00

9600.00 16000.00

20

6000.00 8500.00

98900.00 113900.00

(Net) 15900

(Actual differences comes to Rs.15999

(e) It was submitted that Rs.15,900 may be taken at Satta income.

(f) After perusing the papers Rs. 15,900/- will be taken on Satta Income for the A.Y. 1997-98. No telescopic benefit will be given for the additions sustained for stock/cash.

(iv) BS-5 & BS-6

(a) BS-5 related to satta business & BS-6 consisted of scored off entries.

(b) It was submitted that BS-5 does not give any indication of income with reference to period. On some pages calculation were given without name. BS-6 contained all scored off entries & it was not clear However, could the A.O. read & interpret the entries. The ld. A.R. stated that these entries may be relating to repair work. ©(ii) I find that for BS-5, the A.O. has made the totals of various pages as under :-

S.No. Book No. Page No. Amount 1 BS-5 2 46500 2 BS-5 2 56500 3 BS-5 3 53000 4 BS-5 3 29600 21

5 BS-5 3 56000 6 BS-5 4 138073 7 BS-5 4 56010 8 BS-5 5 59350 Total 495033

(ii) In the same manner the A.O. has perhaps added all scored off entries of BS-6 to arrive at the figure of 3585186.

(g) After perusing these note books, I agree with the ld. A.R. that it was not possible to work out any income component from the entries in respect of of BS-6 & for BS-6. There was difficulty in finding out the period & amount. Any comment on the amount of Rs. 35,85,186 worked out by the A.O. was not possible. The A.O. was also not able to link the totals with pages of BS-6. (h) As stated earlier, I have denied any telescope benefit to the appellant for the additions sustained for excess stock etc. and income component if any in BS-5 & BS-6 will take care of it & so separate addition for the entries/transactions in BS-5 & BS-6 is not being made. (v) BS-7

(a) The A.O. had totaled the entries on various pages of BS-7 to arrive at the figure of 7581902. (b) It was submitted that BS-7 includes miscellaneous types of transactions. Some of entries relate to sale of Gur. Some are Girvi slips. Some relate to payment of House tax. Some are transportation receipts. Some relates to sugarcane sale which were sold to Bhopal Sugar Mills, Sehore. It was submitted that reconciliation was not possible. It was submitted that 22

for income component turnover may be taken at 50% of the totals because all the entries did not necessarily relate to income. Assessment yearwise link up was also possible. As a specimen the ld. AR enclosed photocopies of some such entries.

(c) After perusing the same I find that some of entries relates to bank deposits in Sahkari Bhoomi Vikas Bank, Itarsi, in the name of Smt. Chetan Bai (Rs. 20,000 on 5.8.99), in the Sanjay Kumar (Rs.10,000 on 1.11.99), Sugar cane sale made in Jan-Feb. 2000, transport receipt pertaining to the period Feb., 2000. Girvi slips (Sept., 2002), Sale of gur 7.3.96 etc. as both the appellant & the AO have not given the yearwise break up and transactions spread out to period relating toA.Y. 1996-97 & 2001-02 & the ld. AR in the absence of reconciliation had accepted that turnover of the business (other than gold & silver ornaments) may be taken at 50% of the totals worked out by the A.O., the more appropriate option will be to estimate the turnover at 20 lakhs each for the A.Y. 1997-98 & 2002-03 & estimate net profit at 10% on the same. Again any telescopic benefit for the additions sustained for excess 23

stock etc. will be denied & unexplained component of investment in the above transaction will be taken to be included in the profit.

(vi) BS-8

(a) The A.O. has arrived at the figure of Rs. 3,96,827/- as under :-

No. Book No. Page No. Amount 1 BS-8 2 42200 2 -do- 3 126206 3 -do- 3 1132 4 -do- 5 3160 5 -do- 10 6400 6 -do- 12 12175 7 -do- 13 20099 8 -do- 14 113930 9 -do- 16 23405 10 -do- 18 44520 11 -do- 19 3600 Total 396827

(b) As per the A.O., the transactions related to F.Y. 2001-02 i.e A.Y. 2002-03.

© The ld. A.R. declined to give any comments on BS-8. (d) As no explanation come forward from the appellant despite opportunity at the appellate stage, the turnover as above will be accepted as correct & net profit at 10% of the same will be adopted for the A.Y. 2002-03.

24

11.13(a) SUMMING UP the outcomes in the preceding paragraph, it appeared that the A.O. had not confronted the appellant with the outcome & basis of his computation of figure of 4,41,51,189. The entries in the seized books were scored off, included rought jottings, contained telephone number (wrongly taken as financial transactions), entries related to satta/Girvi and sale of Gur & sugarcane. The ld. A.R. was given all the opportunity to collect the papers & understand the basis of totals from the A.O. and had come forward with some explanation.

(b) The ld. A.R. after going through the totals & seized couemtns conceded that they do contain unrecorded transactions & through specific submissions in writing were not made by the ld. A.R. after perusing the papers logical conclusions have been drawn and in the process an attempt was made to find out the relevant period also.

114.14 The Assessing Officer did not come forward with any further elaboration except making pagewise totals of all 25

figures without mentioning the period, nature of transaction & whether it related to the appellant. At the appellate stage instead of totally ignoring such numerical totals an attempt was made to arrive at some logical inference. There was consensus on the figure of modified turnover & unexplained investments/transactions. The ld. A.R. on 22.2.05 had himself worked out modified turnover & the same are accepted with a rider. The interest of revenue was also to be safeguarded because the income component from scored off entries could not be ascertained coupled with the fact that there was no evidence to suggest that income generated through such transactions represented unexplained assets in the shape of stock/cash for which separate addition has been sustained. So telescopic benefit to the appellant in the other additions sustained is being denied. Computation of undisclosed income is thus as under :- A. BS-1

Book A.Y. Turnover Undisclosed Remark No. net profit (20%) Rs.

BS-1 1997-98 110 220 Unaccou 26

1998-99 - - nted 1999-2000 44130 8826 sale of 2001-02 656703 131340.60 gold 2001-02 1455636 291127.20 orname 2002-03 51484 10296.80 nts 2003-04 750 150 admitte (Upto d by the 25.10.02) ld. A.R. Total 2209803 441960.60 Or

Rs.441961

B. Book No. BS-2

Unexplained Investment in purchase

Of jewellery box/purse for the period

1.4.02 to 25.10.02 (A.Y. 2003-04) Rs. 35,000 B. Book BS-3

Satta Income from satta pertaining

The A.Y. 1997-98 Rs.15,900 D. BS-5 & BS-6

Income implication not

Possible to work out

E. BS-7

Sale of Gur, Sugarcane, Girvi, transportation, etc. i.e. miscellaneous business income)

A.Y. Turnover Undisclosed net profit

1996-97 20 lakhs 2 lakhs 2001-02 20 lakhs 2 lakhs 27

Total 4 lakhs

F. BS-8

(Turnover of business for A.Y. 2002-03 as worked out by A.O. accepted as the ld. A.R. did not give any comment) A.Y. Turnover Undisclosed net profit

2002-03 3,96,827 39,683 13.15. Undisclosed income

Sr. No. Book No. Estimated Remark undisclosed

income

1 BS-1 Rs.441961 Income from sale of gold ornaments,

assessment

yearwise break up

available in para

13.5(a) above

2 BS-2 Rs. 35,000 Investment in purchase of

Jewellery

boxes/purses (A.Y.

2003-04) .

3 BS-3 Rs.15,900 Income from Satta A.Y. 1997-98

4 BS5&6 - Income component could not work out

5 BS-7 Rs.4,00,000 Miscellaneous income sale of Gur,

Sugarcane, Girvi,

etc. Relevant

A.Y.1996-97 &

28

2001-02

6 BS-8 Rs.39,693 Miscellaneous business income

A.Y. 2002-03

Total Rs.9,32,544

11.16 The total estimated undisclosed income is thus rs. 9,32,544 worked out from BS-1 to BS-3 & BS5. No telescopic benefit will be allowed to the appellant as discussed in preceding paragraphs from the additions already sustained. As the A.O. had made addition of Rs. 10869789, this will imply relief of Rs.99,37,245 to the appellant"

9. Against the above order of the learned CIT(A) the revenue is in appeal before us and the assessee is in cross objection against retaining the addition of Rs. 9,32,544/-.

10. It was submitted by the learned CIR DR that if BS-1 to BS-8 are read together, one would reach a conclusion that the learned Assessing Officer was justified in making the addition in question and as such the learned Commissioner of Income tax (Appeals) was 29

wrong in granting part relief to the assessee without any concrete basis. He further submitted that the entries in the loose papers even if scored off by the assessee, profit thereon can be worked out. As per the learned DR, the AO was justified in taking into account even the scored off entries in the loose papers. He, therefore, submitted that as such, the order of the learned Commissioner of Incometax (Appeals) deserves to be set aside and that of the Assessing Officer sustained.

11. On the other hand, the learned counsel for the assessee submitted that CIT(A) has analysed each and every document found during the course of search in respect of sales outside the books of account. The CIT(A) has also called for a remand report from the AO and the assessee's comments thereon and accordingly after considering the same, reached to the conclusion that addition on account of profit earned on 30

unaccounted sales should be Rs. 9,32,544/-. He further submitted that even the addition of Rs. 9,32,544/- retained by CIT(A) deserves to be deleted.

12. We have considered the rival submissions of the parties and gone through the material available on record. With regard to addition made by the Assessing Officer on account of seized documents BS-1 and BS -3, BS -5 and 6. BS -7, BS -8, we find that the AO not only estimated profit out of entries found in loose papers but also estimated profit in respect of the period for which neither any document was found nor any profit was earned by the assessee firm. There was no reason much less than a cogent reason to estimate sale and profit for which nothing was found during search nor thereafter even after making detailed inquiry and investigation. Profit on of such entries worked out at Rs. 9,32,544/- as per the detailed findings recorded by the learned 31

Commissioner of Income Tax (Appeals) in his appellate order at pages 22 to 31. After analyzing each and every document with regard to which addition was made by the Assessing Officer by estimating sales, the learned Commissioner of Income Tax (Appeals) reached to the conclusion after giving due opportunity to the Assessing Officer and also calling comments from the assessee that total income in respect of sale of gold ornaments as per BS-1 works out to be Rs. 1,41,961/-, BS-2 Rs. 35,000/- being investment in purchase of jewellery boxes/purse during the assessment year 2003-04, BS-3 Rs. 15,900/- being income from Satta business during the assessment year 1997-98. Out of BS-5 and 6 nothing could be worked out. Out of BS-7 Rs. 4 lacs being miscellaneous income from sale of Gur, sugarcane, Girvi, etc. relevant to the assessment year 1997-98 and 2001-02. BS-8 Rs. 39,693/- being miscellaneous 32

business income for the assessment year 2002-03. Thus, the total income in respect of all these documents was worked out at Rs. 9,32,544/-. The CIT(A) recorded a finding to the effect that some of the papers so found was undated and dumb documents and some of the documents contained telephone numbers which were treated by the AO as unaccounted sales, even the AO present during the appellate proceedings accepted this fact. The detailed findings recorded by the learned Commissioner of Income Tax (Appeals) is as per material on record which has not been controverted by the department by bringing any positive material on record. We accordingly do not find any reason to interfere in the finding of CIT(A) in upholding the addition of Rs.9,32,544/- out of total addition of Rs.1,08,69,789/- made by the Assessing Officer. Now we come to the decision cited by the learned CIT DR in the case of M. 33

Yusufali; 90 ITR 271 in support of the contention of extrapolation of unaccounted sales found during the course of search to the remaining period of search. In this regard, we have carefully gone through the decision of Yusufali (supra) wherein in the course of regular assessment estimation of income by extrapolating was held to be justifiable. However, in the instant cases before us, unaccounted income is to be worked out on the basis of material found during the course of search. As per provisions of section 158BB(b) of the Act undisclosed income includes any income based on any entry in the books of account or other documents or transactions where such transactions represent wholly or partly income which has not been or would not have been disclosed for the purposes of this Act. In the instant case before us, CIT(A) has analysed each and every document found during the course of search which 34

indicated undisclosed transactions on which CIT(A) worked out profit and addition has been sustained. There is no indication nor any material was found during the search to show that in respect of other periods also the assessee has undertaken any sales without recording the same in the regular books of account. Even the AO is empowered to make investigation after search and use the material found during the course of search for arriving at undisclosed income but in the absence of any material much less a cogent material, no estimation is permissible under block assessment under Chapter VIA of the IT Act. Accordingly, the unaccounted income computed by CIT(A) at Rs. 9,32,544/- as per the documents found during the course of search, do not require any interference on our part. However, while computing the addition of Rs. 9,32,544/- on account of profit on 35

unaccounted sales, the learned Commissioner of Income Tax (Appeals) has not given benefit of telescoping, therefore, this part of the learned Commissioner of Income Tax (Appeals) is not justifiable. As per our considered view, when income is worked out on account of unaccounted sales and profit earned thereon, the same is available to the assessee for procuring any trading goods. Accordingly, such income is eligible for set off against the excess cash, excess stock of gold and silver jewellery found during the course of search and unaccounted expenditure, if any. We, therefore, direct the Assessing Officer to allow set off of such income of Rs. 9,32,544/- against the excess cash and stock of gold and silver jewellery found during the course of search. 13 In view of the above, we confirm the action of the learned Commissioner of Income Tax (Appeals) in deleting the addition of Rs. 99,37,245/- out of total 36

addition of Rs. 1,08,69,789/-. In addition to this, we also direct the Assessing Officer to allow telescoping of profit worked out at Rs. 9,32,544/- on account of entries in the seized document, against the excess cash/gold/silver found during the course of search. We direct accordingly.

14. The next ground of revenue relates to deletion of addition of Rs. 56,250/- on account of purchase of packing material. We find that after analyzing BS-1/34, CIT(A) reached to the conclusion that unexplained inv in purchase of jewellery box/purse works out to be Rs. 35,000/-, accordingly, he confirmed the addition to the extent of Rs. 35,000/- while dealing with income earned by the assessee out of unaccounted sales found in the loose papers. Nothing was pointed out by the learned DR to controvert the finding of CIT(A) to the effect that correct amount of such addition was Rs. 35,000/-. 37

Accordingly, we do not find any infirmity in the order of CIT(A) in deleting the addition in question and confirm the same.

C.O. No. 108/Ind/2005

15. In this cross objection, the assessee has taken the following grounds :-

i. On the facts and circumstances of the case, the learned Authority below erred in law in making addition of Rs. 88,931/- by A.O. and sustaining the addition at Rs. 1,00,000/- by CIT(A) on the ground of excess cash.

ii. On the facts and circumstances of the case, the learned Authority below erred in law in making and sustaining the addition at Rs. 47,15,172/- on the ground of excess gold ornaments. iii. On the facts and circumstances of the case, the learned Authority below erred in law in making 38

and sustaining the addition at Rs. 1,17,184/- on the ground of excess silver ornaments and articles.

iv. On the facts and circumstances of the case, the learned Authority below erred in law in law in making addition of Rs.1,08,69,789/- and sustaining the addition at Rs. 9,32,544/- on the ground of material seized viz. loose papers. v. On the facts and circumstances of the case, the learned Authority below erred in law in not allowing the telescopic benefit of the addition sustained on the ground of excess cash at Rs. 1,00,000/- and Rs. 9,32,544/- on the ground of loose papers, in all Rs. 10,32,544/- while confirming addition of excess gold at Rs. 47,15,172/- and excess silver at Rs. 1,17,184/- in all Rs. 48,32,356/- and further erred in not 39

allowing proportionate telescopic benefits in both the cases of partners of the firm i.e. in the case of partners Sudhir Kumar and Sanjay Kumar Gothi respectively.

15. So far as ground no. 1 is concerned, facts are that during the course of search at the business premises of M/s Gothi Jewellers, cash of Rs. 1,11,515/- was found. Out of this Rs. 80,000/- was seized vide Panchnama dated 23.10.2004. At the time of search, cash book was written up to 12.10.2002 showing a cash balance of Rs. 22,584/-. Thus, there was a difference of cash of Rs.88,931/-. The Assessing Officer asked the assessee to give the source and nature of acquisition of the above cash. Vide letter dated 21.9.2004 the assessee stated that the cash of Rs. 1,11,515/- was found during search and cash balance as on the last working day as per books of accounts was Rs. 43,797/- 40

and as such the excess cash was Rs. 67,718/-. As per the assessee, the excess cash was Rs. 67,718/- whereas as per the revenue it was Rs. 88,931/-. The Assessing Officer found that the assessee has completed the books of accounts from 12.10.2002 to 23.10.2002 which was an after though. He, therefore, did not give any credit for the same. The Assessing Officer, therefore, considered the excess cash of Rs.88,931/- found during the course of search to be the unexplained cash and added the same to the income of the assessee for the assessment year 2003-04 for the block period under consideration. On appeal, the learned Commissioner of Income Tax (Appeals) enhanced the undisclosed cash to Rs. 1 lac. Now the assessee is in cross objection before us.

16. Before us, the learned counsel for the assessee submitted that the transactions for the period from 41

12.10.2002 to 23.10.2002 were recorded on loose papers but could not be recorded in cash book by the accountant who was on leave on account of illness of his mother. He further submitted that computation of excess cash of the firm without taking into account the excess cash found at the residence was not proper. He submitted that at the residence cash with both the partners, Shri Sudhir Kumar and Sanjay Gothi was Rs. 5,41,820/- out of which cash of Rs.2 lacs was received from Shri Damodar Choudhary against an agreement to sell the land at Town Improved Trust, Itarsi, and as the normal cash available with the partners out of the withdrawals and out of savings was assumed to be at Rs. 11,820/- only, the balance excess cash of Rs. 3,30,000/- (Rs. 5,41,820 - Rs. 2,00,000 - Rs. 11,820) belonged to the firm which was covered in the amount of Rs. 45 lacs surrendered in the return submitted u/s 42

158BC of the Act. He, therefore, submitted that in this way, no separate addition for cash in hands of the firm was called for and the order of the lower authorities on this count deserves to be set aside and accordingly the assessee be granted relief.

17. On the other hand, the learned CIT DR while supporting the order of the learned Commissioner of Incometax (Appeals) opposed the above submissions of the assessee by submitting that the orders of the lower authorities are speaking ones and as such no interference is called for.

18. We have considered the rival submissions of ld. representatives of both sides and perused the material available on record. We find that the AO was justified in making the addition of Rs.88,931/- on account of excess cash found during the course of search, subject to our direction hereinabove for allowing telescoping of 43

profit earned out of unaccounted sales as worked out by the CIT(A).

19. The next ground relates to the order of the learned Commissioner of Income Tax (Appeals) confirming the addition of Rs. 47,15,172/- made by the Assessing Officer on account of excess gold ornaments.

20. In this regard the AO observed that the trading account position was drawn as on 22.10.2002 but subsequently by overwriting the date was changed to 12.10.2002. The assessee explained that the trading stock position was drawn as on 12.10.2002 as the cash book was written upto 12.10.2002 but the Assessing Officer did not agree with this submission of the assessee. The Assessing Officer by ignoring the purchases made by the assessee between 12.10.2002 to 22.10.2002 worked out the excess stock of gold at Rs. 44

47,15,172/- and treated the same as unexplained income of the assessee for the block period.

21. In appeal before the learned Commissioner of Income Tax (Appeals) in addition to the submissions made before the Assessing Officer, the assessee submitted that in the preliminary statement Shri Sudhir Kumar Gothi stated that no gold jewellery is purchased on credit which is not recorded in the books of accounts of the firm and the trading account was prepared on the basis of the books of accounts and was delivered to the department to ascertain the stock of the jewellery. It was pointed out that in the statement given on 25.10.2002 before conclusion of search, Shri Sudhir Gothi had stated that 8 kgs jewellery was purchased from M/s Trishla Enterprises, Mumbai, vide bill no. 379 and 380 dated 18.10.2002 and 19.10.2002. At the time of initial statement, Shri Sudhir Gothi was not keeping 45

well and so he did not mention this fact. The bill no. 379 was available during the course of search and bill no. 380 was received by FAX. The search party conveniently omitted to seize this paper and ultimately the assessee had to send the bills to ADI. It was submitted that 7985.650 gms of jewellery was received from M/s Trishla Enterprises, Mumbai and that the same was not entered in the books of accounts . The affidavit and confirmation letter from the said party conclusively proved that the purchases were indeed made and the Assessing Officer in his wisdom did not think it necessary to issue notice u/s 131 of the Act. It was also submitted by the ld. Counsel for the assessee before the learned Commissioner of Income Tax (Appeals) that in the line of the assessee's business, credit purchases are made on approval quite often and the bills were normally received after a lapse of few days. 46

The assessee also contradicted the allegation of the Assessing Officer that the bills were obtained by manipulation. Reliance on the decision of the Hon'ble Calcutta High Court in the case of CIT v. Kamdhenu Vyapar Company Limited; 182 CTR 600 was also made with the submission that without undertaking verification by issuing summons u/s 131 of the Act, the Assessing Officer had rejected the bonafides of purchases and so the reasons given by the Assessing Officer has no basis.

22. The learned Commissioner of Income Tax (Appeals) did not agree with the submissions of the assessee and confirmed the addition made by the AO.

23. Felt aggrieved by the above order of the learned Commissioner of Income Tax (Appeals), the assessee is in cross objection before us.

47

24. The learned counsel for the assessee apart from reiterating the submissions made before the authorities below, submitted that in the preliminary statement Shri Sudhir Gothi has stated that no gold jewellery was purchased on credit which is not recorded in the books of accounts of the firm and the trading account was prepared on the basis of the books of accounts and was delivered to the department to ascertain the stock of the jewellery. He submitted that in the statement dated 25.10.2002 given before the conclusion of the search, Shri Sudhir Gohti had clearly stated that 8 kgs jewellery was purchased from M/s Trishla Enterprises, Mumbai, vide bill nos. 379 and 380 dated 18.10.2002 and 19.10.2002. He further submitted that since these bills did not suit the department, these were not seized during the course of search by the search party. However, after the search, the assessee sent these bills 48

to the ADI. He submitted that 7985.650 gms of jewellery was received from M/s Trishla Enterprises, Mumbai and that the same was not entered in the books of accounts. This fact was mentioned by the assessee itself during the course of search. He further submitted that the affidavit and confirmation letter from the said party conclusively proved that the purchases were made but the Assessing Officer did not issue notice u/s 131 of the Act. He submitted that it is a regular trend in the business of the assessee to make credit purchases on approval and if the same are approved, naturally the bills are issued after a lapse of few days. He submitted that the allegation of the Assessing Officer that the bills were obtained by manipulation was without any base. The learned counsel for the assessee by placing reliance on the order of the Hon'ble High Court of Calcutta in the case of CIT v. Kamdhenu Vyapara Co. Ltd.; 182 CTR(Cal) 49

600 submitted that without undertaking verification by issuing summons u/s 131 of the Act, the Assessing Officer has rejected the purchases made by the assessee and the reasons given by the Assessing Officer are also without any basis. The learned counsel for the assessee relied upon the arguments made before the learned Commissioner of Incometax (Appeals) and submitted that the learned Commissioner of Incometax (Appeals) was not justified in sustaining the addition in question. The learned counsel for the assessee further submitted that while maintaining the addition for the excess stock of gold, the learned Commissioner of Income tax (Appeals) did not accept the assessee's submission regarding purchase of gold Jewellary of 7,985.650 gms. from Trishala Enterprises, Mumbai. The learned Commissioner of Incometax (Appeals) also did not accept the plea of the assessee that the total Jewellary of the 50

family and the stock of the firm should be considered together. It was submitted by the learned counsel for the assessee that the learned Commissioner of Incometax (Appeals) has discussed about the preliminary statement and also the notings on the loose papers as also the transactions of Laxmichand Kesrichand Gothi, the another concern with whom there were transactions of Trishala Enterprises but surprisingly did not agree with the contention of the assessee and confirmed the addition of Rs. 47,15,172/-. It was further contended that the learned Commissioner of Incometax (Appeals) also did not accept the plea of the assessee for silver utensil and maintained the addition. The learned counsel for the assessee submitted that it was pleaded before the lower authorities that the assessee's cash book was written up to 12.10.2002 and on the basis of these account books, the statement of trading account 51

was prepared at the time of the search and the stocks were arrived at. It was further submitted that the ld. AO has remarked at pages 4 of the assessment order and the ld. CIT (A) and page 16 para 9.13 of his order that the original date has been changed from 22.10.2002 to 12.10.2002 while preparing the trading account at the time of the search. However, they did not give any credit for the purchases made from Trishala Enterprises, Mumbai. The learned counsel for the assessee further submitted that it needs mention here that during the course of the search bill no. 379 was available and the bill no. 380 was called upon fax during the course of the search. The ld. AO and the ld. CIT (A) have not taken the cognizance of the confirmation and the affidavit of Trishala Enterprises that the goods were supplied to the assessee and the transaction is recorded in their books. The payments were also made through account payee 52

drafts and cheques subsequently. During the course of the search the bills were not seized though available and the ld. ADI was requested to verify the transaction from the suppliers which was verified and found correct. Learned AR further submitted that the only objection raised against the assessee was that during the course of the preliminary statement, the partner did not disclose this transaction. It was further submitted that in the affidavit dated 25.10.2002 (page 59 of the PB) and in the statement recorded during the course of search on 25.10.2002 (Page 67 & 68 of PB), the partner clearly stated that he was not keeping well and was hospitalized for some time and because of the absence of the munim on account of mother's illness the entries could not be made in the books. These bills since not seized purposefully, were sent to the ADI Wing along with affidavit on 25.10.2002 (Page 2 of PB). In this 53

connection, the learned counsel for the assessee invited our attention to the order of Hon'ble Bench dated 31.8.2006 in the case of Laxmichand Kesrichand Gothi in SS No. 79/Ind/05 (PB page 70) wherein the Hon'ble Tribunal accepted the purchase of Gold from Trishala Enterprises (Page 82 of PB and para 22). The learned counsel for the assessee submitted that the facts of this case and the case in hand are similar. He further invite our attention to the position of the stocks as per the department and the assessee which is as under :- Dept. Ass. Dept. Ass. OS 3835.550 3835.550 Sales 1396.820 1396.820 Pur. 1366.820 1366.820 CS 3805.550 11966.880 (Upto 12.10)

5202.370.1 5202.370

Purchases from Trishala 7985.650

Purchases from Bhopal 142.410

Purchases Local 33.270

13363.700

54

He further submitted that the stocks found during the course of search was 15129.480 gms. Thus the difference as per department is 11323.930 gms. and as per assessee it is 3162.600 gms. amounting to Rs. 13,15,641 @ 416 per gms.

25. The learned counsel for the assessee further submitted that even assuming that the purchases were not found of 142.41 gms. at the time of the search, the total amount of excess stock would amount to Rs. 13,59,242.56. The silver stock is found in access by Rs. 1,17,184/- totalling Rs. 14,76,426/-.The assessee has surrendered vide his affidavit an amount of Rs. 22,10,259/-. The learned counsel for the assessee submitted that in this way, there was an excess surrender of Rs. 7,33,833/- which pertains to excess Jewellary found at the residence of partner. 55

26. The learned counsel for the assessee submitted that the ld. AO has made the addition on account of excess stock found and also on account of gross profit for alleged unrecorded sales. He while computing the additions gave a deduction from the profits of an amount of excess stock found (Page 8 of Ass. Order). The ld. CIT (A), however has upheld the addition on account of excess stock and cash and has also maintained the addition of Rs. 9,32,544/- on account of profits on alleged unrecorded transactions in loose papers marked as BS 1 to 7. The ld. CIT(A) while maintaining the additions has remarked at page 23 (e), 24(d), 26(f), 28(c) and 29 (11.14), and 31(11.16) that telescopic benefit will not be allowed from the additions made on account of gross profit. In this backdrop, the learned counsel for the assessee submitted that the ld. CIT(A) has sustained double additions once on account of the income 56

surrendered by the assessee and secondly on account of the assets found with the assessee.

27. The learned counsel for the assessee submitted that the addition on account of GP on unrecorded sales cannot be sustained since the same are already covered in the disclosure of the income made by the assessee on account of the excess stock and cash found during the course of the search. The undated and dumb documents have also been considered. The learned counsel for the assessee submitted that to put an insult to the injury, the learned Assessing Officer has treated the telephone numbers as unaccounted sales, which fact was accepted by the ld. AO himself during the course of appellate proceedings before the learned Commissioner of Income tax (Appeals). The learned counsel for the assessee, therefore, submitted it itself 57

gives a clear-cut picture as to how the additions are being made by the revenue.

28. The learned counsel for the assessee further submitted before us that while filing the return, the assessee has specifically mentioned that the girvi transactions found in the room of Smt . Sushiladevi Gothi belong to firm and the undisclosed income declared at Rs. 45,00,000/- includes such transactions. It was submitted by the learned counsel for the assessee that the ld. AO has not taken any cognizance of this note.

29. In the wake of above arguments, the learned counsel for the assessee submitted that there was no justification on the part of the authorities below to make and sustain the addition in question which deserves to be struck down.

58

30. On the other hand, the learned CIT DR relied on the order of the learned Commissioner of Incometax (Appeals) and submitted that authenticity of purchases made from Trishla Enterprises wasa not proved by the assessee nor the payment for such purchases was made during the year of purchases, therefore, CIT(A) was justified in ignoring the purchases made from Trishla Enterprises. He further submitted that the search was conducted on 22.10.2002 and the assessee was asked to prepared trading account as on 22.10.2002, therefore, there was no justification for preparing the trading accounts as on 12.1.2002. As per the learned CIT DR there was over-writing in the trading account so prepared, therefore, purchases made by the assessee between 12.10.2002 to 22.10.2002 were rightly ignored by the revenue authorities.

59

31. We have considered the rival submissions of ld. representatives of both sides and perused the material available on record. From record we find that during the course of search physical inventory of gold ornaments lying in shop was taken and thereafter the assessee was asked to state the position of gold ornaments as per its books of accounts. At the very same time, there was search at the residential premises of the partner Sudhir Kumar Gothi and Sanjay Gothi located at the same premises at the first floor, shop M/s Gothi Jewellers was situated on ground floor. Addition was also made with reference to jewellery found at the residence of the partners as assessee firm in their individual assessment. The assessee, M/s Gothi Jewellers filed block return disclosing income of Rs.45 lacs to cover up the excess cash, gold found at shop and residence of the partners as well as to cover 60

up unaccounted profit in respect of unrecorded transactions of sales on loose papers found during the course of search. While working out the income with respect to the unaccounted sales found on loose papers, the AO allowed telescoping of such income against the excess gold found during search. However, the CIT(A) re-worked out the profit on unaccounted sales but did not allow telescoping of such income against the excess jewellery found. The revenue is in appeal before us against the relief allowed by CIT(A) with respect to profit worked out on account of transactions found in the loose papers whereas the assessee is in cross objection against the addition sustained by CIT(A) on account of excess jewellery and cash found during search and for not allowing telescoping of unaccounted income against the excess jewellery.

61

32. The assessee is also aggrieved by the order of the learned CIT(A) in not allowing setting off of disclosure of Rs. 45 lacs in the return of Gothi Jewellers against the excess gold found at the residence of its partners.

33. We have considered the rival contentions, carefully gone through the orders of the authorities below, statement recorded during the course of search and various documents placed on record. From record we find that there was search at the business premises of Gothi Jewellers as well as residential premises of partners. Cash, gold jewellery, silver jewellery along with loose papers, diaries, were seized during search. During the course of search it was found that the cash book of the firm was written up to 12.10.2002. The assessee was asked to prepare trading account as per books to find out stock of gold and silver jewellery. The 62

assessee worked out stock as per books written up to 12.10.2002. As there was over-writing with respect to date mentioned on the trading account so prepared, the AO stated that trading account was prepared upto 22.10.2002 but subsequently by overwriting the date was changed to 12.12.2002. During the course of search itself it was explained that trading stock position was drawn as on 12.10.2002 as the cash book was written only upto 21.10.2002 but the AO did not agree, therefore, he did not allow the purchases made during 12.10.2002 to 22.10.2002. The AO accordingly worked out excess stock of gold valuing Rs. 47,15,172/- as unexplained income of the assessee firm. It was submitted before CIT(A) that trading account was prepared on the basis of books of accounts written up to 12.10.2002 and was delivered to the department. However, in the statement given by the assessee during 63

search u/s 132(4) on 25.10.2002 were ignored wherein it was clearly stated that 8 kg jewellery was purchased from Trishla Enterprises, Mumbai vide bill no. 279 and 380 dated 18.10.2002 and 19.10.2002. Bill No. 379 was available during search and bill no. 380 was received by fax. However, the search party did not seize these bills and ultimately the assessee sent them to the ADI. An affidavit and confirmation letter from the said party conclusively proved that purchases were made and AO in his wisdom did not think it necessary to issue notice u/s 131 to the supplier if there was any doubt in his mind for purchases. We found that under similar circumstances coordinate Bench in the case of group concern M/s Laxmichand Kesharichand Gothi ; IT(SS) A No. 79/Ind/05 had accepted the purchases shown from M/s Trishla Enterprises. We also find that facts of the instant case are even at a better footing 64

where bills were found during search and in the statement recorded under section 132(4) the fact of purchases through these two bills were clearly noted. In the statement recorded on 25.10.2002 the partners clearly stated about the transactions and the bills were found during search and were sent to ADI on the last date of the search itself. In the affidavit dated 25.10.2002 and in the statement recorded during the course of search on 25.10.20023 the partners of the firm clearly stated that he was not keeping well and was hospitalized for some time and because of absence of Munim on account of mother's illness, the entries could not be made in the books. In view of these facts and documents available on record, we do not find any justification in the orders of the lower authorities in not considering the purchases made through Trishla Enterprises while working out the excess stock found at 65

the shop and residence of the partners of the firm. The assessee firm has filed return under section 158BC declaring undisclosed income at Rs. 45 lacs. In the return itself a note was given that complete copies of seized records had not been supplied by the department in spite of various requests and as such the disclosure of Rs. 45 lacs is made on account of discrepancies, rough jotting, loose papers, excess stock of gold and silver found at the shop and residence of both the partners besides excess cash found at the shop and residential premises of the partners. However during search bifurcation of such income was not given but it was given before CIT(A) along with affidavits of partners Shri Sudhir Gothi and Sanjay Gothi wherein surrender was made for excess cash and on account of excess gold and silver found in the shop and the residential premises of the partners.

66

34. In view of the above discussion and considering the documents placed on record, we direct the AO to take into account jewellery of 7,985.650 gms purchased from Trishla Enterprises, Mumbai, while working out the excess jewellery.

35. The detailed bifurcation of Rs. 45 lacs as surrendered by the assessee in the block return was given by the assessee which included excess amount of gold ornaments and silver found at shop and residence of partners. In the hands of Sanjay Kumar Gothi, an addition of jewellery of 1044 gms valuing Rs. 4,17,600/- was made out of which CIT(A) has deleted the addition of Rs. 3,17,600/-. As per detailed discussion made hereinafter, we have confirmed the order of CIT(A) to the extent of addition deleted by him on account of jewellery amounting to Rs. 3,17,600/-, the balance excess jewellery found at the residence is to be considered as a 67

part of disclosure of Rs. 45 lacs in the return of the assessee firm. Similarly, addition of Rs.18,18,539/- on account of jewellery of 3972.78 gms found at the residence of Sudhir Kumar Gothi was made in his hands by the AO. CIT(A) has deleted the addition with respect to jewellery of 2011 gms amounting to Rs.9,20,539/-. We have confirmed the order of CIT(A) as per the discussion made hereinafter for deleting the addition in the hands of Sudhir Kumar Gothi on account of jewelery amounting to Rs.9,20,539/-. We direct the AO to consider the balance of the excess gold jewellery as a part of disclosure of Rs. 45 lacs made by the assessee firm. The same is required to be adjusted out of the income of Rs.45 lacs surrendered by the assessee firm in the block return. Similarly silver found at the residence of partner to the extent such addition is confirmed by CIT(A) in their individual assessment should be 68

considered as part of disclosure of Rs. 45 lacs of Gothi Jewellers. As we have already discussed that disclosure of Rs. 45 ,lacs was also made to cover excess jewellery and cash found at the residence of the partners which was situated just above the shop of M/s Gothi Jewllers, we direct the AO to consider excess cash found at the residence of partners, namely, Sudhir Gothi and Sanjay Kumar Gothi, as having been declared in the block return of the firm filed at Rs. 45 lacs, to the extent available. We direct accordingly.

36. Before parting with the matter, it is pertinent to mention here that after computing overall excess stock of gold and silver found at business premises and residence of partners, the AO should allow telescoping of income worked out by CIT(A) on unaccounted sales amounting to Rs. 9,32,544/- and the balance is to be considered out of the income of Rs. 45 lacs surrendered 69

by the assessee firm. However, in no case assessed income should fall below the returned income of Rs. 5 lacs. We direct accordingly.

37. The next ground pertains to confirmation of addition of Rs. 1,17,184/- by the learned Commissioner of Income Tax (Appeals) on the ground of excess silver ornaments and articles.

38. The Assessing Officer found that during the course of search, silver articles weighing 205.79 gms (net weight) valuing Rs. 8,89,252/- were found but as per the books of accounts, the stock of silver was having value of Rs. 7,72,068/-. When the assessee was asked to explain the same, it was submitted that the excess silver jewellery in the books amounted to Rs. 1,18,183/-. The Assessing Officer, however, added the excess value of stock of Rs. 1,17,184/- (Rs. 889252 (-) 772078). On appeal, it was submitted before the learned 70

Commissioner of Income Tax (Appeals) that the said excess stock of silver was included in the surrendered undisclosed income of Rs. 45 lacs and the disclosure also included part of the silver found at the residence of Shri Sudhir Gothi which belonged to the firm (approx. weight 30 kg value Rs. 137250/-.) After considering the facts of the case in view of the submissions of the assessee, the learned Commissioner of Income Tax (Appeals) found that the assessee has not disputed the excess stock of silver and had merely stated that the same is included in the surrendered amount of Rs. 45 lacs which also includes 30 kgs of silver belonging to the firm but kept at the residence of Shri Sudhir Kumar Gothi. He observed that the question of grant of any credit for the silver kept at the residence of Shri Sudhir Kumar Gothi does not arise for want of any supporting evidence. Likewise, specific credit for the difference in 71

the value of excess stock of silver in Rs. 45 lacs too could not be considered though ultimately with the deduction of Rs. 45 lacs from the computation of undisclosed income, the assessee is getting the relief. The learned Commissioner of Income Tax (Appeals) , therefore, for the reasons discussed by him in respect of excess gold in para 9.17 of his order, observed that the telescopic benefit for excess silver stock addition in respect of separate G.P. addition will not be given. Against this finding of the learned Commissioner of Income Tax (Appeals), the assessee is in cross objection before us.

39. The learned counsel for the assessee submitted that the said excess silver was included in the surrendered undisclosed income of Rs. 45 lacs and the disclosure also included part of the silver found at the residence of Shri Sudhir Gothi which belonged to the 72

firm (approximate weight 30 kg value Rs. 1,37,250/-. He, therefore, pleaded that as such, the learned Commissioner of Incometax (Appeals) was not justified in confirming the addition made by the Assessing Officer.

40. On the other hand, the learned CIT DR strongly relied upon the orders of the authorities below and submitted that since the assessee has not disputed the excess stock of silver, the learned Commissioner of Incometax (Appeals) was justified in confirming the addition.

41. We have considered the rival submissions of ld. representatives of both sides and perused the material available on record. It is clear from the above that excess silver jewellery was found on physical verification during the course of search as compared to the stock of silver ornaments as per the books of accounts. We 73

confirm the addition on account of excess silver jewellery found during the course of search but at the same time direct the AO to allow telescoping against the profit computed on unaccounted sales.

42. The next ground relates to deletion of addition of Rs. 56,250/- made by the Assessing Officer on account of purchase of packing materials.

43. Brief facts are that the during the course of search a loose paper BS-1/34 was found indicating petty expenses of Rs.56,250/-. The Assessing Officer did not agree with the explanation of the assessee and added the same to the total income of the assessee as unexplained expenditure. On appeal, the learned Commissioner of Income Tax (Appeals) observed that since the ld. Counsel for the assessee conceded that estimated purchases of jewellery boxes/purse, etc. can be taken at Rs.35,000/-, he had confirmed the addition 74

of Rs. 35,000/- with a rider that no telescopic benefit for the same shall be given. In this way, the learned Commissioner of Income Tax (Appeals) deleted the addition of Rs.56,250/-. Against this, the revenue is in appeal before the Tribunal.

44. Before us, the learned CIT DR relied upon the order of the Assessing Officer and submitted the learned Commissioner of Incometax (Appeals) was not justified in deleting the addition made by the Assessing Officer. On the other hand, the learned counsel for the assessee supported the order of the learned Commissioner of Incometax (Appeals).

45. We have considered the rival contentions, carefully gone through the orders of the authorities below and find from record that addition has been made by the Assessing Officer on account of petty expenses which were noted on the loose slips amounting to Rs. 75

56,250/-. The learned Commissioner of Income Tax (Appeals) has allowed telescoping of such unaccounted expenses out of income of Rs. 9,32,544/- estimated on account of other loose papers found during the course of search indicating unaccounted sales of the assessee. No interference is required in this part of the order of CIT(A) in confirming the addition and allowing telescoping of such expenses out of income of Rs. 9,32,544/- worked out on unaccounted sales.

46. In the result, the appeal of the revenue in ITA No. 82/Ind/2005 is dismissed whereas CO filed by the assessee is allowed in part in terms indicated hereinabove.

IT(SS) A No. 91/Ind/05

47. The ground no. 1 taken by the revenue in appeal is that the learned Commissioner of Income Tax (Appeals) was not justified in giving relief of Rs.25,000/- 76

out of total addition of Rs. 8,25,000/- made by the Assessing Officer on account of unexplained cash found during the course of search and seizure operation.

48. The Assessing Officer found that during the course of search at the residence of the assessee, cash amounting to Rs.8,54,900/- was found out of which Rs.8,02,400/- was found in the bedroom of the assessee and balance of Rs. 52,500/- was found in the bedroom of Shri Sanjeev Gothi, son of the assessee. The Assessing Officer added Rs. 8,25,000/- as unexplained cash for the block period.

49. By the impugned order CIT(A) confirmed AO's action after giving relief of Rs. 25,000/-.

50. Against the above action of the learned Commissioner of Income Tax (Appeals), the revenue is before us.

77

51. The learned CIT DR submitted before us that the learned Commissioner of Incometax (Appeals) was not justified in giving relief of Rs. 25,000/- to the assessee as the total addition was made by the Assessing Officer after taking into account the statement made by the assessee during the course of search.

52. On the other hand, the learned counsel for the assessee submitted that the statement recorded at the time of search in which Rs. 8 lacs were surrendered, was given in haste without keeping in mind the cash balances and stock positon of the stock viz. M/s Gothi Brothers & M/s Gothi Fertilizers.

53. We have considered the rival submissions of the parties and gone through the material available on record. The facts, in brief, are that the assessee is an individual doing business of sale and purchase of fertilizers, pesticides and seeds in the name of M/s 78

Gothi Fertilizes as proprietorship concern. The assessee was also associated with two more concerns M/s Gothi Brothers and M/s Asim Agencies. M/s Gothi Brothers was dealing in electrical pumps, diesel engine pump sets, hardware tools, etc. During the course of search cash amounting to Rs.8,02,400/- was found in the bed room of the assessee and Rs. 52,500/- was found in the bed room of his son Sanjeev Gothi. Total sum of Rs.8,54,900/- was added by the AO in the assessee's income. By the impugned order, CIT(A) deleted addition of Rs. 25,000/- and confirmed the balance addition. The revenue is in appeal before us and the assessee has also filed cross objection.

54. From record we find that before the search party, contention of the assessee was that cash belonged to three business identities viz. Gothi Brothers, Gothi Fertilizers and Aim Agencies. Regarding bifurcation it 79

was stated that opening cash balance of M/s Gothi Brothers, M/s Gothi Feritlizers and M/s Asim Agencies was Rs.26,377/-., Rs. 39.980/- and Rs.10,029/- total of which comes to Rs.76,386/-. Cash of Rs. 50,000/- was found short in the business premises of Gothi Brothers. We also found that stock of M/s Gothi Brothers was found short by Rs.4,72,834/- whereas stock of Gothi Fertilizers was short by Rs.63,891/-. Thus total shortage of stock was found at Rs. 5,36,725/- . However, the statement given at the time of search in which Rs. 8 lacs were surrendered was given in the haste without keeping in mind the cash balance and stock position of all these firms. The shortage found in the stock can be considered to be sold without recording the same in the books of accounts. The sale proceeds of such stock is available to the assessee which can be considered for availability of cash with the assessee. 80

ITAT coordinate Bench in the case of Madanlal Narendrakumar; 31 ITC 153 has held that shortage in cash found as compared to availability of cash as per books can be considered for investment in the excess stock found. On the same analogy, the shortage in stock can be considered as sale out of books and the amount received on such sales is available with the assessee to explain the cash found. It is not the case of the department that the amount received out of sale of unaccounted stock was utilized somewhere else. Accordingly, we direct the AO to reduce the addition on account of cash found out of shortage of stock of Rs. 5,36,725/- and Rs.50,000/- being short cash in the business premises of Gothi Brothers. Thus, we direct the AO to reduce the addition made on account of cash by Rs. 5,86,725/- (Rs.5,36,725/- + Rs.50,000/-). In the result, net addition on account of cash is worked out to 81

be Rs.2,68,175/- (Rs..8,54,900 - Rs.5,86,725/-). We direct accordingly.

55. The ground no. 2 taken by the revenue in appeal is that the learned Commissioner of Income Tax (Appeals) was not justified in giving relief of Rs.8,15,347/- out of total addition of Rs. 9,35,600/- made by the Assessing Officer on account of unexplained investment in gold jewellery found during the course of search and seizure operation.

56. The facts, in brief, are that the Assessing Officer observed that during the course of search at the residence of the assessee, gold jewellery weighing 2552.95 gms (net weight) valuing Rs. 10,37,160/- was found. Before the Assessing Officer it was submitted that in the wealth tax return of Smt. Pushpa Gothi wife of the assessee gold ornaments weighing 95 tolas equivalent to 1107 gms were disclosed as on 31.3.1989. 82

Further HUF of the assessee Shri Satishchand Samirmal Gothi had also disclosed gold ornaments and jewellery under VDIC at 720 gms as on 1.4.1987. The middle son of the assessee and his wife also got gold ornaments in marriage and other ceremonial occasions. The Assessing Officer did not agree with the explanation of the assessee and made addition of Rs.9,35,600/- out of the jewellery valuing Rs. 10,37,160/- and allowed the balance amount. On appeal, the learned Commissioner of Incometax (Appeals), after discussing the issue at length, granted relief of Rs. 8,15,347/-.

57. The learned CIT DR strongly placed reliance on the order of the Assessing Officer and submitted that in the statement recorded at the time of search the assessee himself has stated that he did not remember as to how much jewellery was received by his wife during her marriage and how many jewellery has been 83

purchased for his wife by him. He also submitted that the jewellery declared by the assessee in VDIS, 1997 did not match with any of the jewellery items found at the residence of the assessee. As such, the learned Commissioner of Incometax (Appeals) was not justified in granting relief to the assessee.

58 On the other hand, the learned counsel for the assessee, placing reliance on the order of the learned Commissioner of Incometax (Appeals), submitted that in the wealth tax return of Smt. Pushpa Gothi wife of the assessee, gold ornaments weighing 95 tolas equivalent to 1107 gms were disclosed as on 31.3.1989. Further, HUF of the assessee, shri Satishchand Samirmal Goth had also disclosed gold ornaments and jewellery under VDIS Scheme at 720 gms as on 1.4.1987. Shri Sanjeev Gothi, the middle son of the assessee, received 202 gms of gold ornaments from her mother and around 48 gms 84

in marriage and on other ceremonial occasions. The wife of Shri Sanjeev Gothi, Smt. Sapna Gothi also received gold ornaments in marriage and on subsequent ceremonial occasions from paternal and maternal family members and the same could be estimated at 750 gms. He, therefore, pleaded that as such there was no justification to treat any item of gold ornaments as unexplained.

59. We have considered the rival contentions, carefully gone through the orders of the authorities below and find from record. Addition made on account of jewellery amounting to Rs.9,35,000/- was deleted by CIT(A) to the extent of Rs8,15,347/- after having the following observations :-

10.7 I have carefully considered the submissions made by the learned AR. It is true that appellant could not recollect the details of ornaments received in his marriage and declared in the VDIS at the time of search. The appellant had clearly stated if any ornaments were found to be omitted in the income tax return, the appellant was prepared to pay the tax on the same. He, thereafter, admitted undisclosed income of Rs.8 lacs for cash found at the residence. So according to me, the credit has to 85

be allowed to the appellant for the declaration made in the wealth tax return and the VDIS, 1997 which adds upto 1107+720=1827 gms . Considering the various members of the family of the appellant (excluding Shri Sanjiv Gothi & Smt. Sunita Gothi who were staying with the grand father Shri Samirmal Gothi, if credit is allowed for 500 gms per married lady 250 gms per unmarried daughter and 100 gms per male member then the quantity of the ornaments computed as per above norm together with declaration made will be as under :- Sr.No. Name of the family member Amount permissible/declared

before the

department

1 Shri Satishchand Gothi (Ind.) 2 Smt. Pushpa Gothi (wife of appellant ) 1107 gms (declared in WT return)

3 Shri Sanjeev Gothi (son) 100 gms 4 Smt. Sapna Gothi (wife of Sanjeev 500 gms Gothi)

5 Ku.Deepika Gothi (daughter) of Sanjeev 250 gms Gothi)

6 Master Varun Gothi (son of Shri 100 gms Sanjeev Gothi)

7 Shri Sachin Gothi (son of Shri Sanjeev 100 gms Gothi)

Total 2257 gms 10.8 The above working is supported by Hon'ble ITAT, Indore ruling in the case of Madanlal Narendra Kumar (HUF) Bhopal vs. ACIT reported in (2003) 31 ITC 123.

10.9 Since the total ornaments found were 2552.95 gms, this meant about 295.95 gms of ornaments were more than the permissible limit. The alleged claim of gifts from relatives cannot be accepted for want of supporting evidence and the appellant has been given reasonable allowance for the availability of ornaments as per the circular. I will treat 296 gms of ornaments as unexplained investment in the hands of the appellant. This is further supported by inadequate drawings for household of Rs 86,542/- made during the block period (refer para 9.10). 86

I am of the opinion that entire excess over the permissible limit does not warrant any separate addition for the gold ornaments. 10.10 The proportionate value of 296 gms of gold ornaments is Rs. 1,20,253/-. The same will be treated as undisclosed income of the appellant for the assessment year relevant to period 11.04.02 to 25.10.02. As the Assessing Officer has added Rs.9,35,600/- the appellant will get relief of Rs. 8,15,347/-."

The revenue is in appeal before us. We have considered the rival contention and find from record that after considering the jewellery declared in the wealth tax return of Smt. Pushpa Gothi wife of the assessee and also after considering the jewellery which can be possessed by various family members as per CBDT Circular No. 1916 dated 11.5.1994, CIT(A) deleted the addition of 2257 gms of jewellery. Detailed findings have been recorded at para 10.7 to 10.10 of his appellate order. The findings recorded by CIT(A) is as per material on record and we do not find any reason to interfere with the same. In the result, the ground taken in this regard both by the revenue and the assessee are dismissed. 87

60. The ground no. 3 taken by the revenue in appeal is that the learned Commissioner of Income Tax (Appeals) was not justified in giving relief of Rs.74,304/- out of total addition of Rs. 1,39,000/- made by the Assessing Officer on account of unexplained purchase of silver utensils found during the course of search and seizure operation.

61. The facts, in brief, are that the Assessing Officer observed that during the course of search silver items weighing 27.41 kg. valuing Rs. 1,42,896/- were found and in the initial statement, Shri Sapna Gothi, daughter-in-law of Shri Satishchand Gothi did not state anything about silver items found at the residence. Before the lower authorities it was contended that 10 kgs of silver ornaments and utensils were declared in the assessment year 1987-88 but no copy of computation sheet was furnished. The Assessing Officer 88

did not accept the explanation of the assessee and treated silver valuing Rs. 1,39,000/- as undisclosed income of the assessee. On appeal, the learned Commissioner of Incometax (Appeals) after discussing the issue at length held that considering the status of the family, it would be proper to give total credit of 15 kgs of silver (inclusive of 10 kg disclosed in wealthtax return). So, the silver items weighing 12.41 kgs were treated as unexplained investment u/s 69A of the Act, for proportionate value for which comes to Rs. 64,696/- which amount was added as undisclosed income for the assessment years relevant for the block period under consideration. He also observed that while sustaining the addition of Rs. 64,696/- for silver items, the telescopic benefit given to the assessee in respect of gold ornaments has been taken into account. He, therefore, 89

allowed relief of Rs.74,304/-. The relevant findings of the CIT(A) are as under :-

"11.3 I have carefully considered the submissions made by the ld. AR. Since 10 kgs of silver ornaments, coins & utensils weighing were disclosed in the wealth tax return for the A.Y. 1989-90, the appellant is eligible to get credit of the same (Smt. Krishna Wanti Batra vs. ACIT reported in (2004) 85 TTJ (Del) 550 is relevant). However, the contention that the balance was acquired subsequently by way of gifts, ceremonial occasions, etc. cannot be accepted on its face value because there will be occasions when the appellant will be giving these articles by way of gifts to other relatives & friends. The cumulative withdrawals of Rs. 6,05,800/- for the block period as stated earlier work out to Rs. 86,542/- per annum and can hardly be said to be adequate to meet the requirements of family having more than six members. However, considering the status of the family, the ends of justice will be met if the total credit of 15 kgs of silver (inclusive of 10 kg disclosed in wealth tax) is given to the appellant. So silver items weighing 12.41 kgs will be trerated as unexplained investment u/s 69A of the IT Act, 1961. The proportionate value for the same comes to Rs.64,696/- and this amount will added as undisclosed income for the assessment years relevant to the block period 01.04.2002 to 25.10.2002. While sustaining the addition of Rs. 64,696/- for silver items the telescopic benefit given to the appellant in respect of gold ornaments has been kept in mind. 11.4 Since the Assessing Officer had added Rs.1,39,000/- this will imply relief of Rs.74,304/- to the appellant." Against the above findings of CIT(A), the revenue is in appeal before us.

62. The learned CIT DR relied upon the order of the Assessing Officer and contended before us that since 90

during the course of search itself Smt. Sapna Gothi, daughter-in-law of Shri Satishchand Gothi did not state anything about the silver items found at the residence, the Assessing Officer was justified in making the addition. He further submitted that before the Assessing Officer it was contended that 10 kgs of silver ornaments and utensils were declared in the assessment year 1987-88 but no copy of the computation sheet was furnished. As such, the Assessing Officer was fully justified in treating the silver valuing Rs. 1,39,000/- as undisclosed income of the assessee.

63. On the other hand, the learned counsel for the assessee submitted that the Assessing Officer failed to consider the fact that daughter-in-law of the assessee, Smt. Sapna Gothi, and other members of HUF also acquired the utensils and ornaments on various occasions from year to year. He strongly argued that 91

looking to the status of the family, possession of the balance quantity of 17.41 kgs of silver was quite reasonable and the same should have been accepted by the Assessing Officer. He added that the withdrawals by Shri Satishchand Gothi and Shri Sanjeev Goth during the block period were Rs. 6,05,800/- for which a chart giving the yearwise break up was also furnished. He submitted that the acquisition of silver was otherwise also proved from the withdrawals. In this way, the learned counsel for the assessee pleaded that the learned Commissioner of Incometax (Appeals) was quite justified in granting part relief to the assessee.

64. We have considered the rival contentions, carefully gone through the orders of the authorities below and find from record that after recording detailed findings at para 11.3 the learned CIT(A) has deleted the addition of Rs. 74,304/-. The finding recorded by the 92

learned CIT(A) was as per material on record and not controverted by the department by bringing any positive material on record. We, therefore, do not see any reason to interfere with the same. Accordingly, ground raised by the revenue and the assessee both are dismissed.

65. The ground no. 4 taken by the revenue in appeal is that the learned Commissioner of Income Tax (Appeals) was not justified in giving relief of Rs.38,15,846/- out of total addition of Rs. 38,25,846/- made by the Assessing Officer by applying gross profit rate of 7% on estimated sales after rejecting the books of accounts u/s 145(3) of the Act.

66. The Assessing Officer observed that the stock of M/s Gothi Fertilizers was of R. 6,34,374/- but on verification the stock was found to be of the value of Rs.5,70,483/-. Thus, there was shortage of Rs. 63,891/-. The books of accounts were also not complete 93

at the time of search and the above position was drawn after updating the entries. As the sales and purchases of goods did not reflect, the actual position of transactions made by M/s Gothi Fertiliers, the Assessing Officer concluded that books of accounts were not complete and the assessment could be made in the manner provided u/s 144 in view of the provisions of section 145(3) of the Act. The Assessing Officer thereafter applying the decision in the case of CST vs. H.M. Esufali H.M. Abdulali; 90 ITR 271 estimated the sales at Rs. 8 crores for the block period as against the sales of Rs. 3,47,42,580/- disclosed by the assessee in the regular assessment. The gross profit @ 7% was applied and corresponding gross profit addition as undisclosed income of the assessee at Rs. 38,25,846/- was made. Against this attitude of the Assessing Officer, the assessee went in appeal before first appellate 94

authority with the prayer to delete the addition in question. The learned Commissioner of Incometax (Appeals), however, after considering the factual position applied the decision of the Pune Bench of the Tribunal in the case of Janta Tiles v. ACIt; 66 TTJ 695, wherein it was held that the shortage of stock may be the result of suppression of gross profit arising out of the suppressed sales, observed that the shortage of stock for the suppressed sales was of Rs.63,891/- or say Rs. 64,000/-. So, he observed that the ends of justice will be met if the supresed sales are estimated at Rs. 1 lac and the gross profit @ 10% i.e. Rs. 10,000/- is adopted for the same. In this way, he granted relief of Rs.38,15,846/- and sustained the addition of Rs. 10,000/- as undisclosed income for the block period under consideration.

95

67. The learned CIT DR contended that on verification of stock the Assessing Officer found that there was shortage of stock of Rs. 63,891/-. He also contended that the books of accounts maintained by the assessee were incomplete at the time of search. He further submitted that certain loose papers seized contained unrecorded sales of M/s Gothi Fertilizers. As such, the learned Commissioner of Incometax (Appeals) was not justified in granting part relief to the assessee. He, therefore, prayed that the order of the learned Commissioner of Incometax (Appeals) deserves to be set aside and that of the Assessing Officer maintained.

68. On the other hand, the learned counsel for the assessee submitted that since total assets are already considered while framing the assessment by the Assessing Officer which consisted of the total undisclosed investments in stocks and certain 96

expenditure incurred, the Assessing Officer was not justified in making the addition in excess of the assets found during the course of search. He further submitted that u/s 158B(b) no addition could be made without any concrete evidence, which is clearly absent in the present case. He submitted that since the Assessing Officer has made the addition on account of undisclosed assets, no separate addition could be made on account of undisclosed income by rejecting the figures of the books of accounts.

69. We have considered the rival contentions, carefully gone through the orders of the authorities below and find from record that estimation of sales and addition on account of GP was made by the AO on the plea that shortage of Rs.63,891/- was found on account of stock of Gothi Fertilizers. The AO rejected book results and estimated profit by applying extrapolation. 97

By the impugned order CIT(A) restricted the addition by computing profit on the shortage of stock considering the same as sold outside the books. Following was the precise observation of CIT(A) :-

"12.5 I have carefully considered the submissions made by the ld. AR. The ld. AR had not controverted the fact that the books of accounts were incomplete, the stock was found to be short and there were loose papers which indicated unrecorded sales. As such, the AO was justified in invoking the provisions of section 145(3). It is true that for business profit, a comparison of assets of the business at two dates is one of the recognized method but in (1911) 1 ch. 92 it has been held that the rule ceases to apply when the rights of the revenue are affected. At the same time I also agree that AO's estimation of sales & estimation of GP was arbitrary & the addition of Rs. 38,25,846/- was high pitched. Secondly as per the definition of section 158B(b), the undisclosed income should have been relatable to the material found during the course of search and it is not understood how the AO can estimate sales for all assessment years falling in the block period without relating the same to some material relevant to the particular block period. The more appropriate course would have been to estimate the sales for the shortage of stock and apply an appropriate GP rate because one of the possibility of shortage of stock could have been effecting sales without maintaining record in the regular books.

Hon'ble ITAT, Pune, in the case of Janta Tiles vs. ACIT (2000) 66 TT (Pune) 695 had held the shortage of stock may be the result of suppression of gross profit arising out of the suppressed sales. In the present case, the shortage of stock for the suppressed sales of Rs. 63,891/- or Rs. 64,000/- say. Besides there were some loose papers indicating unrecorded sales so (admitted by the appellant). So ends of justice will be met if the suppressed sales for the assessment year relevant to the period 01.04.2002 to 25.10.2002 are estimated at Rs. 1 lac and the GP @ 10% i.e. Rs. 10,000/- is adopted for the same. This will result in addition of Rs. 10,000/- as undisclosed income in the hands of the appellant for the period 01.04.2002 to 25.10.2002. 98

12.7 Since the Assessing Officer has made addition of Rs.38,25,846/-, this will imply relief of Rs.38,15,846/- to the appellant."

70. We have considered the rival contentions and find that merely on the basis of shortage in stock of Rs. 63,891/-found during the course of search, the AO has rejected the books of accounts and estimated profit out of unaccounted sales at Rs.38,25,846/-. However, CIT(A) after considering the actual shortage found in stock restricted the addition by estimating profit on such shortage of stock and also considering the loose papers indicating unrecorded sales. In view of our discussion in the case of Gothi Jewellers (supra), we hold that the AO was not justified in estimating the sales for the period for which no incriminating material was found. Without any material much less than a concrete material extrapolation of sales was not justified. In view of detailed findings recorded which was as per material 99

on record, the CIT(A) was justified in restricting the addition to the extent of Rs. 10,000/-.

71. The ground no. 5 taken by the revenue in appeal is that the learned Commissioner of Income Tax (Appeals) was not justified in deleting the addition of Rs.4,00,000/- made by the Assessing Officer on account of household withdrawals during the block period.

72. The facts, in brief, are that the Assessing Officer found that the withdrawals made by the assessee are inadequate for a family comprising of the assessee himself, his wife, three sons and their family. Considering the size of the family, the Assessing Officer estimated the household expenditure from undisclosed income at Rs. 4 lacs and added the same to the assessee's total income. Against this, the assessee filed an appeal before the learned Commissioner of Incometax 100

(Appeals) and submitted that the addition was made by the Assessing Officer without any evidence on record. The learned Commissioner of Incometax (Appeals) finding substance in the contentions of the assessee deleted the addition in question. The relevant findings of the CIT(A) are as under :-

14.5 I have carefully considered the submissions made by the learned AR. I agree with him that in the absence of any positive material on the record to show that appellant had spent more amount on household expenses than disclosed in the return, addition for low household expenses cannot be made in the block assessment proceedings.

14.6 As such the estimated addition of Rs. 4 lakhs cannot be sustained. The same is deleted. "

Now the revenue is before us against deletion of addition.

73. The learned CIT DR strongly placed reliance on the order of the Assessing Officer and submitted that since the withdrawals made by the assessee were inadequate for a big family comprising of the assessee himself, his wife, three sons and their family, the 101

Assessing Officer was fully justified in estimating the household expenses at Rs. 4 lacs.

74. On the other hand, the learned counsel for the assessee submitted that since no paper was found indicting that the assessee has incurred any expenditure outside the books of accounts, no addition u/s 158B(b) of the Act towards undisclosed income could be made. He further submitted that in the absence of any documentary evidence about incurring of any expenditure, no addition could be made in the block assessment.

75. We have considered the rival contentions, carefully gone through the orders of the authorities below and find from record that no document was found during the course of search to indicate incurring of household expenses more than what was shown by the 102

assessee. We, therefore, do not find any reason to interfere with the findings of the CIT(A).

76. The ground no. 6 taken by the revenue in appeal is that the learned Commissioner of Income Tax (Appeals) was not justified in directing the Assessing Officer to allow credit of Rs.1,00,000/- being the undisclosed income disclosed in the return for the block period.

77. The assessee disclosed a sum of Rs. 1 lac in the return filed for the block period but the Assessing Officer did not allow the same. On appeal, the learned Commissioner of Incometax (Appeals) observed since the Assessing Officer had allowed credit of Rs. 45 lacs in the case of M/s Gothi Jewellers on similar facts, the Assessing Officer ought to have allowed credit of Rs. 1 lac surrendered as undisclosed income in the return. 103

He directed the Assessing Officer accordingly. Now, the revenue is in appeal before us.

78. The learned CIT DR relied upon the order of the learned Commissioner of Incometax (Appeals). On the other hand, the learned counsel for the assessee submitted that since the assessee has duly disclosed the undisclosed income of Rs. 1 lac in the block return, the learned Commissioner of Incometax (Appeals) was fully justified in directing the Assessing Officer to give credit for the same.

79. We have considered the rival contentions, carefully gone through the orders of the authorities below and do not find any flaw in the order of the learned Commissioner of Incometax (Appeals) for giving credit of Rs. 1 lac disclosed in block return. CO No. 112/Ind/05

104

80. All the issues taken in the cross objection have been dealt with while disposing of the revenue's appeal in IT(SS) A No. 91/Ind/2005 hereinabove. IT(SS)A No. 88/Ind/2005

81. The revenue has assailed the order of first appellate authority on the following grounds :- "On the facts and in the circumstances of the case, the learned CIT(A) erred in -

1. giving relief of Rs. 15,000/- out of total addition of Rs.3,49,915/- rightly made by the Assessing Officer on account of excess cash found during the course of search and seizure operation.

2. giving relief of Rs. 9,20,539/- out of total addition of Rs. 18,18,539/- rightly made by the Assessing Officer on account of unexplained investment in gold jewellery as per finding of search and seizure operation.

105

3. giving relief of Rs. 58,568/- out of total addition of Rs. 1,59,013/- rightly made by the Assessing Officer on account of unexplained investment in silver utensils as per finding of search and seizure operation

4. deleting the addition of Rs.4,00,000/- rightly estimated by the Assessing Officer as expenditure on household expenses from undisclosed sources.

82. So far as Ground no. 1 is concerned, we find that during the course of assessment proceedings, the Assessing Officer noted that total cash of Rs.5,41,820/- was found from the bedroom of the assessee and that of his brother, Sanjay Gothi. Out of this, cash of Rs. 3,49,915/- was found in the bedroom of Sudhir Samirmal Gothi and cash of Rs. 1,90,195/- (correct figure is Rs. 1,91,905/-) was found from the bedroom of 106

Shri Sanjay Gothi. The Assessing Officer, therefore, called upon the assessee to explain as to wherefrom the cash of Rs. 5,41,820/- was lying with him in the bed room. In his turn, the assessee explained that Rs. 2 lacs were received by him from Shri Damodhar Choudhary for purchase of plot and Rs. 3,41,820/- came out of past savings of the assessee, his wife, Smt. Indira Gothi, Shri Sanjay Gothi, Suman Gothi, part of agricultural income, cash received from friends, relatives, from in-laws and from parents in the past several years. This explanation of the assessee did not find favour with the Assessing Officer. He observed that the alleged cash of Rs. 2 lacs was claimed to have been received only a fortnight ago before the date of search. The assessee did not produce Shri Damodar Choudhary for examination before the Assessing Officer. He further observed that the assessee did not discharge the onus lay upon him to prove the 107

source of the said sum. As such, the Assessing Officer rejected the explanation of the assessee. In regard to the explanation given by the assessee for the amount of Rs. 3,41,820/- representing the past savings of various family members, the Assessing Officer observed that the assessee was not able to give the source of possession and nature of acquisition and as such he did not accept the explanation of the assessee. In this view of the matter, the Assessing Officer treated the cash amounting to Rs. 5,41,820/- as undisclosed income of the assessee and entire cash of Rs. 3,49,915/- which was recovered from the bedroom of the assessee was assessed as unexplained income in his hands.

83. Being aggrieved with the above action of the Assessing Officer, the assessee preferred appeal before the learned Commissioner of Incometax (Appeals) and reiterated the submissions made before the 108

Assessing Officer. The learned Commissioner of Incometax (Appeals), after considering the matter in the light of the submissions made before him, did not find himself in agreement with the submissions of the assessee in regard to Rs. 2 lacs alleged to have been taken by the assessee from Shri Damodar Choudhary and confirmed the addition in question before him. As regards the balance of Rs.1,49,915/- it was observed by the learned Commissioner of Incometax (Appeals) that considering the status of the assessee, a credit of availability of cash of Rs. 15,000/- at residence could be given to the assessee considering his total withdrawals during the block period under consideration. He, accordingly, granted relief of Rs. 15,000/- to the assessee. Against this action of the learned Commissioner of Incometax (Appeals), the revenue is in appeal before us.

109

84. The learned CIT DR relied upon the assessment order whereas the learned counsel for the assessee relied upon the order of the learned Commissioner of Incometax (Appeals).

85. We have considered the rival contentions, carefully gone through the orders of the authorities below and find from record that to explain the availability of cash the assessee has filed affidavit and letter from Damodar Choudhary stating that amount was given to the assessee against agreement to sell. In the interest of justice, we restore this ground back to the file of AO for verifying the agreement to sell executed with Damodar Choudhary wherein advance of Rs. 2 lacs was given to the assessee. The AO may also issue summon to Damodar Chaudhary u/s 131 for examination. While deciding the issue, the AO should consider the excess cash against the disclosure of Rs. 45 110

lacs made in the hands of the assessee firm, M/s Gothi Jewellers.

86. Coming to Ground no. 2 we find that the Assessing Officer found that during the course of search and seizure action, in the bedroom of the assessee, gold jewellery weighing 3972.78 gms (net weight) was found. The assessee explained the source thereof as under :- (i) Received from mother

Smt. Sushiladevi vide

Gift deed in the year 1974 1154 gms (ii) Belonging to Smt. Indra Gothi

w/o the assessee 780 gms (iii) Belonging to Sweta Gothi (daughter) 680 gms (iv) Belonging toSiddartha Gothi (son) 385 gms 2995 gms

As regards the explanation regarding availability of 1150 gms of gold ornaments, the Assessing Officer found that since the assessee did not disclose the same in the wealthtax return for any of the years, the stand of the assessee could not be accepted. As regards the 111

contention that 780 gms of gold ornaments belonged to Smt. Indra, the Assessing Officer found that since Smt. Indra Gothi in her statement denied to have any gold jewellery with her and stated that she was in possession of Rs. 10,000/- only with her, the explanation offered by the assessee could not be accepted. As such, the Assessing Officer did not accept the same. As regards the ornaments weighing 680 gms claimed to be belonging to Sweta Gothi (daughter) and 385 gms belonging to Siddhartha Gothi (son), the submission regarding having received the said jewellery on various occasions like birthday, etc. was also not accepted by the Assessing Officer as the assessee did not give the source of details of acquisition of the jewellery. The Assessing Officer, therefore, treated the entire gold ornaments weighing 3972.78 gms valuing 112

Rs.18,18,539/- and added this amount to the total income of the assessee as unexplained investment.

87. On appeal, the learned Commissioner of Incometax (Appeals) after considering the submissions of the assessee in the light of the facts available on record, observed that so far as the ornaments weighing 1150 gms are concerned, the explanation of the assessee was plausible. He also observed that since the net weight of the ornaments was taken by the Assessing Officer at 911 gms, he was not justified in giving credit of 911 gms to the assessee. As regards gold of 680 gms in the name of daughter and 385 gms of gold in the name of son, the learned Commissioner of Incometax (Appeals) found that the source shown by the assessee as gifts was not verifiable and lacked evidence. He also observed that in pursuance with the CBDT circular no. 1916, appropriate credit has to be allowed to the assessee and his family 113

members. He accordingly allowed the following credit out of the jewellery found from the bedroom of the assessee :-

(i) Jewellery received from the mother of Smt. Sudhiladevi Gothi as gift 911 gms (ii) Smt. Indra Gothi (wife) 500 gms (iii) Ku. Sweta Gothi

(unmarried daughter) 250 gms (iv) Ku. Megha Gothi

(unmarried daughter) 250 gms (v) Siddhartha Gothi (Son) 100 gms Total - 2011 gms

In view of the above, he found that as the gold ornaments weighing 3972.78 gms were found, the remaining quantity of ornaments 1961.78 (3972.78 (-) 2011) gms would be treated as unexplained investment u/s 69A of the Act in the hands of the assessee, the proportionate value of which came to Rs. 8,98,000/-, which was treated as unexplained income of the assessee for the block period under consideration. The learned Commissioner of Incometax (Appeals), 114

accordingly, granted relief of to the assessee. Against this finding, the revenue has approached the Tribunal by way of the present ground taken in the appeal.

88. The learned CIT DR relied upon the order of the Assessing Officer while learned counsel for the assessee relied upon the order of the learned Commissioner of Incometax (Appeals).

89. We have considered the rival submissions of the parties and gone through the material available on record and find that the addition of Rs.18,18,539/- was made on account of jewellery of 3972.78 gms found at the assessee's premises. By the impugned order, CIT(A) deleted the addition of Rs.9,20,539/- in respect of 2011 gms after having the following observations :- "9.5 I have considered the submissions made by the ld. AR. I find that even if the appellant's contention is accepted, he is not in a position to explain the entire gold ornaments weighing 3972.78 gms as he had offered explanation for 2995 gms of gold only. I however proposed to adjudicate the 115

matter on the basis of the declaration made before the department in the past & the CBDT circular dated 11.5.94.

9.6 Regarding gold ornaments weighing 1150 gms, I agree with the contention of the ld. AR that once the source is disclosed and availability is proved the same cannot be taxed as undisclosed income u/s 158B(b). The non-filing of Wealthtax returns did not mean that the ornaments represented undisclosed income of the appellant. The action if any for failure to file the wealthtax returns ought to have been taken under the Wealthtax Act by the AO during the course of regular assessment. I further find that gift tax assessment order was passed by the AO on 30.11.78 for the A.Y. 75-96 in the name of Smt. Sushiladevi Gothi where the AO accepted the gift of 1150 gms of gold ornaments (gross weight) to the appellant. The net weight of the gold ornaments was taken at 911 gms by the AO and according to me the AO was not justified in not giving the credit of 911 gms to the appellant. 9.7 Regarding the gold of 680 gms in the name of daughter and 385 gms of gold in the name of Son the affidavit dated 25.10.2002 is self serving in nature and the source given as gifts from relations is not verifiable & lacks supporting evidence. 9.8 No evidence has been brought on record to show that gold ornaments were recent acquisitions. Hence I do agree that in pursuance to CBDT Circular no. 1916 appropriate credit has to be allowed to the appellant and his family members, notwithstanding the AO's assertion about the statement recorded at the time of search. This is also supported by ruling of Hon'ble ITAT, Indore 116

Bench in the case of Madanlal Narendra Kumar (HUF) Bhopal Vs. ACIT reported in (2003) 31 ITYC

123. Accordingly following credit is to be given to the appellant out of the jewellery found from his bedroom.

(i) Jewellery received from the

Mother of Smt. Sushiladevi

Gopthi as gift 911 gms (ii) Smt. Indra Gothi (wife) 500 gms (iii) Kumari Sweta Gothi (unmarried

daughter) 250 gms (iv) Kumari Megha Gothi (unmarried

daughter) 250 gms (v) Siddhartha Gothi (Son) 100 gms Total 2011 gms

9.9 Since the gold ornaments weighing 3972.78 gms were found, the remaining quantity of ornaments 1961.78 (3972.78 - 2011) gms will be treated as unexplained investment u/s 69A in the hands of the appellant for the assessment year relevant to the block period 1.4.02 to 25.10.02. 9.10 The proportionate value of the same comes to Rs.8,98,000/-. The same will be treated as unexplained income of the appellant for the block period 1.4.02 to 25.10.02. Since the AO has made addition of Rs.18,18,539/-, this will mean relief of Rs.9,20,539/- to the appellant."

90. Against the order of CIT(A) the revenue is in appeal before us and the assessee has filed cross objection against retaining addition of Rs.8.98 lacs. 117

91. We have considered the rival submissions of the parties and gone through the material available on record and find that after considering jewellery received from mother Smt. Sushiladevi Gothi as gift, in respect of which gift tax assessment order was passed by the AO on 30.11.1978 for the assessment year 1975-76 in the name of Smt. Sushiladevi Gothi where the AO accepted gift of 1150 gms of gold ornaments. On the basis of net weight of gold ornaments at 911 gms CIT(A) gave relief. With respect to other family members, by considering the CBDT circular dated 11.5.1994 CIT(A) has given appropriate credit. There is no infirmity in the order of CIT(A) in deleting the addition of Rs.9,20,539/-. With respect to balance addition of Rs.8.98 lacs retained by CIT(A), in terms of our observation in the case of Gothi Jewellers hereinabove, we direct the AO to consider excess jewellery of Rs.8.98 lacs as a part of disclosure 118

and the surrender of Rs.45 lacs made by M/s Gothi Jewellers in this regard. We direct accordingly.

92. Coming to Ground no. 3 extracted above, we find that out of 34.758 kgs (net weight) of silver found from the bedroom of the assessee, the assessee had explained that 9889 gms were coins for Pooja, 2673 gms were silver utensils and there was one silver box weighing 150 gms. He submitted that all these items were meant for domestic use. It was submitted before the lower authorities that the balance of the silver items found had been accepted to be the stock of M/s Gothi Jewellers which was kept at the resident and so no addition for the silver ornaments and articles could be made. It was also submitted that the firm M/s Gothi Jewellers had already surrendered Rs. 45 lacs as undisclosed income for the block period in the block return filed by it. These submissions of the assessee did 119

not find favour with the Assessing Officer as in his opinion only disclosure without source thereof was not sufficient to accept the assessee's version. He, therefore, treated the entire silver ornaments weighing 34.758 kilograms (net weight) valuing 1,59,013/- as undisclosed income of the assessee for the block period under consideration.

93. Aggrieved, the assessee went in appeal before first appellate authority and reiterated the submissions made before the learned Assessing Officer. Moreover, it was pleaded that the aggregate weight of such items was 12802 gms. However, silver payals, silver silly belonged to the firm and this fact was specifically mentioned in the Panchnama prepared at the time of search and disclosed in the case of the firm while making the disclosure of Rs. 45 lacs. In this way, it was submitted, the rest of the silver may be treated as stock of the firm. 120

94. The learned Commissioner of Incometax (Appeals) after considering the submissions of the assessee in the light of the facts of the case, observed that the firm M/s Gothi Jewellers while surrendering Rs. 45 lacs as undisclosed income neither gave the yearwise breakup nor linked the disclosure to specific assets giving the period of acquisition. In the case of the assessee the learned Commissioner of Incometax (Appeals) accepted the submissions of the assessee that considering his status, silver coins, utensils and box could be treated as explained. As for the rest of the silver items weighing 21956 gms (34758 (-) 12802) he observed that the same would be treated as unexplained investment of the assessee for the block period under consideration. Accordingly, the proportionate value of Rs. 1,00,445/- was treated as unexplained income of the assessee. In this view of the matter, the learned 121

Commissioner of Incometax (Appeals) granted relief of Rs.58,568/- out of the addition of Rs. 1,59,013/- made by the Assessing Officer. Felt aggrieved with the relief granted by the learned Commissioner of Incometax (Appeals), the revenue is now before us.

95. It was contended by the learned CIT DR that since the assessee explained the disclosure of silver items, ornaments and jewellery but did not give any cogent explanation as to the source thereof, the Assessing Officer was fully justified in making the addition.

96. On the other hand, the learned counsel for the assessee apart from reiterating the submissions made before the lower authorities, submitted that silver articles (coins and utensils) were articles of personal effects and were received at the time of marriage which took place more than 20 years ago. The aggregate 122

weight of such items was 12802 gms. He further submitted that silver payals, silver silly belonged to the firm and this fact was specifically mentioned in the Panchnama and duly disclosed by the firm in its return while making disclosure of Rs. 45 lacs. This way, it was contended, the rest was apparently the stock of the firm which did not belong to the assessee. He, therefore, pleaded that there is no infirmity in the order of the learned Commissioner of Incometax (Appeals) which warrants interference by this Hon'ble Court and as such his order deserves to be confirmed.

97. We have considered the rival submissions of the parties and gone through the material available on record. Addition on account of silver utensils, Pooja coins, silver boxes and other silver articles found during search, were made by the AO at Rs.1,59,013/-. By the 123

impugned order CIT(A) deleted the addition of Rs.58,568/- after having the following observations :- "10.6 In the present case the appellant has contended that following items were meant for the domestic use and should not be treated as unexplained assets :-

(i) Puja coins 9889 gmns (ii) Silver utensils 2763 gms (i) Silver box 12802 gms 10.7 I accept the appellant's contention that considering his status and quantity, silver coins, utensils and box can be treated as explained. However, remaining silver items weighing 21956 gms (34758 - 12802) will be treated as unexplained investment of the appellant for the assessment year relevant to block period 1.4.02 to 25.10.02. Consequently the proportionate value of Rs. 124

1,00,445/- will be treated as unexplained income of the appellant for the assessment year relevant to the block period 1.4.02 to 25.10.02. Since the AO has made the addition of Rs. 1,59,013/-, the appellant will get relief of Rs.58,568/-" Against the above order of CIT(A), revenue is in appeal before us and the assessee has also filed cross objection.

98. We have considered the rival submissions of the parties and gone through the material available on record. After recording finding with respect to the Puja coins, silver utensils, etc. CIT(A) has deleted the addition by considering the status of the assessee. We do not find any reason to interfere with the findings of CIT(A) wherein he has deleted addition with respect to 12,802 gms of silver amounting to Rs.58,568/-. We, therefore, confirm the action of CIT(A). As per our observation while dealing with ground no. 2, we direct the AO to 125

consider the excess silver jewellery, to extent retained by CIT(A), as a part of disclosure and surrender of Rs. 45 lacs made by Gothi Jewellers in which the assessee is a partner. We direct accordingly.

99. In the result, grounds taken by the revenue and assessee are dismissed.

100. Coming to Ground no. 4, we find that the Assessing Officer observed that the assessee had made very low withdrawals for household expenditure. So he made addition of Rs. 4 lacs towards low household expenses. In appeal, it was submitted by the assessee that the assessee was living in a joint family with his father and brother and the total withdrawals of the family were quite sufficient to meet out the day to day needs of the family. It was submitted that since during search no paper was found indicating any extra expenditure on household having been made by the 126

assessee, the Assessing Officer was not justified in disbelieving the withdrawals shown by the assessee. The assessee also submitted that the estimated addition made by the Assessing Officer does not fall under the purview of section 158B(b) of the Act and as such it was totally illegal. These submissions of the assessee did not find favour with the Assessing Officer and he made the impugned addition. On appeal, the learned Commissioner of Incometax (Appeals) agreed with the submissions of the assessee and observed that the Assessing Officer has arbitrarily added Rs.4 lacs without indicating any reason or justification or bringing any material on record to show that the assessee had incurred more expenditure than shown in the return of income. He, therefore, deleted the same. Now, the revenue is in appeal before us

127

101. The learned CIT DR submitted relied upon the order of the Assessing Officer and submitted that for a big family like that of the assessee, it was practically not possible to run the kitchen and incur other household expenses within the meager amount of Rs. 2,78,072/- withdrawn by the assessee. On the other hand, the learned counsel for the assessee submitted that the assessee was living in a joint family and not only the amount withdrawn by utilized by the assessee for household expenses but other family members also used to contribute their share by way of sharing in many requirements of the family which is an Indian tradition and as such, the amount withdrawn by the assessee for household expenses was quite sufficient to meet out the day to day needs of the family.

102. We have considered the rival submissions of the parties and gone through the material available on 128

record. Addition of Rs. 4 lacs on account of household expenditure was deleted by the CIT(A) by observing as under :-

"11.3 I agree with the ld. AR. The A.O. has arbitrarily added Rs. 4,00,000/- without indicating any reason or justification or bringing any material on record to show that the appellant had incurred more expenditure than shown in the return of income. The addition of Rs. 4,00,000/- is therefore deleted."

103. We have considered the rival submissions of the parties and gone through the material available on record that no paper was found during search about household expenditure, therefore, no addition can be made in the block assessment. In view of our discussion (supra) on similar ground, we do not find any infirmity in the order of CIT(A).

104. In the result, the appeal of the revenue is dismissed whereas the cross objection of the assessee is allowed in part.

129

CO No. 111/Ind/05

105. In this cross objection, the assessee has raised an additional ground with regard to charging of surcharge at Rs. 44,720/-.

106. In the cross objection, the assessee has raised the following grounds :-

"1. On the facts and circumstances of the case, the learned Authority below erred in law in making addition of Rs.3,49,915/- and sustaining the addition at Rs.3,34,915/- on the ground of excess cash.

2. On the facts and circumstances of the case, the learned Authority below erred in law in making addition of Rs.18,18,539/- and sustaining the addition at Rs. 8,98,000/- on the ground of excess gold ornaments.

130

3. On the facts and circumstances of the case, the learned Authority below erred in law in making addition of Rs. 1,59,013/- and sustaining the addition at Rs. 1,00,445/- on the ground of excess silver ornaments and utensils.

4. On the facts and circumstances of the case, the learned Authority below erred in law in making and sustaining the addition at Rs.1,57,312/- on the ground of investment in F.D.R. including interest accrued thereon.

5. On the facts and circumstances of the case, the learned Authority below erred in not considering the additional ground raised claiming due and proper relief/deduction of the additions made with regard to undisclosed income and determined in the case of the firm M/s Gothi Jewellers, Itarsi, wherein the 131

respondent holds 50% share and further erred in not considering the fact that cash and part of the gold and silver ornaments seized from the respondent partner are the belongings of the said partnership firm M/s Gothi Jewellers, Itarsi.

6. On the facts and circumstances of the case, the learned Authority below erred in law in not allowing the proportionate telescopic benefit to the extent additions sustained in the case of the said firm M/s Gothi Jewellers, Itarsi.

107. So far as Ground no. 4 is concerned, we find that the Assessing Officer found that accrued interest of Rs.50,378/- on FDRs was not disclosed in the return of income for various assessments of the block period and besides the interest, four FDRs worth Rs.1,06,934/- were in the name of Miss Sonal and 132

Shweta Gothi, daughters of the assessee, The investment in these FDRs was made in the block period and this investment also constituted undisclosed income of the assessee. In this view of the matter, the Assessing Officer treated Rs. 1,57,312/- as undisclosed income of the assessee. On appeal, the learned Commissioner of Incometax (Appeals) observed that since the assessee did not file any cash flow statement and had not linked up the withdrawals with the investments and further there is no evidence of cumulative gifts being converted into FDRs, the contention of the assessee regarding receipt of gifts is not acceptable. As such, the addition in question was confirmed by first appellate authority against which the assessee is before us.

108. Before the Tribunal, in regard to interest of Rs. 50,378/-, the learned counsel for the assessee did not have any say. So far as the investment of Rs. 133

1,06,934/- on FDRs in the names of daughters, he submitted that these were made out of the gifts received by the children of the family at various occasions and as such the lower authorities were not justified in treating the investment of Rs. 1,06,934/- as undisclosed income of the assessee.

109. On the other hand, the learned CIT DR supported the orders of the lower authorities.

110. We have considered the rival contentions, carefully gone through the orders of the authorities below. Keeping in view the status of the assessee family, small gifts to children on various occasions cannot be ruled out. Accordingly, the AO is directed to delete the addition of Rs. 1,06,934/-. Addition on account of interest on these FDRs amounting tonRs. 50,378/- is confirmed.

134

111. So far as Ground no. 5 is concerned, we have discussed the issue in the case of Gothi Jewellers; IT(SS) A No. 82/Ind/2005. The AO is directed to follow the reasonings given therein and allow set off of excess jewellery and cash against the income of Rs. 45 lacs surrendered in the case of Gothi Jewellers.

112. Coming to Ground no. 6, we have discussed the issue in the case of Gothi Jewellers. The AO is directed to follow the same and allow set off of excess jewellery and cash against the income of Rs. 45 lacs surrendered in the case of Gothi Jewellers.

113. In the result, the appeal of the revenue is dismissed whereas the cross objection of the assessee is allowed in part.

IT(SS)A No. 84/Ind/2005

114. In this appeal, the revenue has taken the following grounds :-

135

"On the facts and in the circumstances of the case, the learned CIT(A) erred in :

1. giving relief of Rs. 5,000/- out of total addition of Rs. 1,91,905/- rightly made by the Assessing Officer on account of unexplained cash found during the course of search and seizure.

2. Deleting the addition of Rs. 3,17,600/- rightly made by the Assessing Officer on account of unexplained investment in gold jewelery found during the course of search and seizure operation.

3. Deleting the addition of Rs.32,698/- rightly made by the Assessing Officer on account of unexplained purchase of silver utensils found during the course of search and seizure operation.

136

4. Giving relief of Rs. 3,50,000/- rightly estimated by the Assessing Officer on account of household expenses considering inadequate withdrawal during block period.

115. The assessee is a partner in Gothi Jewellers. As regards Ground no. 1, the Assessing Officer observed that total cash of Rs. 5,41,820/- was found from the residence of the assessee and his brother, Sudhir Kumar Gothi out of which , Rs. 3,49,915/- was found in the bedroom of Sudhir Samirmal Gothi and cash of Rs. 1,91,905/- was found in the bedroom of the assessee. After considering the explanations of the assessee, the Assessing Officer treated the entire cash of Rs. 5,41,820/- as unexplained income and assessed Rs. 3,49,915/- which was recovered from the bedroom of Shri Sudhir Gothi as unexplained income in his hands. The Assessing Officer assessed the balance cash of Rs. 137

1,91,905/- found in the bedroom of the assessee as unexplained income. On appeal, after considering the explanation of the assessee, the learned Commissioner of Incometax (Appeals) granted relief of Rs. 5,000/- and the balance amount was treated as undisclosed income of the assessee u/s 69A of the Act. Being aggrieved, the revenue is in appeal before us.

116. After considering the facts of the case in the light of the arguments advanced before us, we find that during the course of search cash of Rs.1,91,965/- was found in the room of Sanjay Gothi which was added by the AO to the assessee's income. After giving relief of Rs.5,000/- CIT(A) has retained the addition. By way of cross objection, the assessee is in appeal before us.

117. We have considered rival contentions and find from the record that availability of cash was explained by the assessee in the form of Rs.2 lacs received from 138

Shri Damodar Choudhary who had given the amount for purchase of plot and balance amount out of past savings of the family members. However, no documentary evidence could be produced either before the lower authorities or before the Bench to substantiate the claim of cash holding. Accordingly we do not find any reason to interfere with the orders of the lower authorities and confirm the action of CIT(A) in retaining the addition of Rs.1,91,965/-. In view of the observation made by us in the case of Gothi Jewellers, the AO is directed to set off the balance addition of Rs.1,91,965/- against the surrendered income of Rs.45 lacs in the hands of the firm M/s Gothi Jewellers, to the extent available.

118. Coming to Ground no. 2 we find that during the course of search, gold ornaments weighing 1044 gms (net weight) amounting to Rs. 4,17,600/- were recovered from the bedroom of the assessee. The assessee 139

submitted before the Assessing Officer that 600 gms of gold jewellery belonged to his wife, Smt. Suman Gothi, and it was her "Stridhan", 350 gold jewellery was received by him from his childhood and at the time of marriage, etc. from the parents and friends and 150 gms of gold jewellery belonged to his son, Chetan Gothi which had been received from the family friends and relatives. The assessee also pleaded before the Assessing Officer that credit is permissible in view of the CBDT Circular No. 1916. These explanations of the assessee did not find favour with the Assessing Officer. He, accordingly added Rs. 3,17,600/- to the total income of the assessee as undisclosed income. Against this treatment, the assessee approached the learned Commissioner of Incometax (Appeals) who, after considering the matter in the light of the submissions made before him, held that the assessee and his family 140

members were entitled to get credit of 950 gms of gold ornaments in the normal course. He also observed that considering the status of the assessee and the background of the assessee's wife, credit of 1044 (-) 950 gms of gold ornaments could also be given to the assessee. This way, first appellate authority deleted the addition of Rs.3,17,600/- against which the revenue is before us.

119. The learned CIT DR submitted that the assessee has totally failed to explain as to from whom the alleged gifts of gold jewellery were received by him and his family members. The assessee could not also produce any documentary evidence in support of the same. As such, the lower authorities were fully justified in making and confirm the addition in question.

120. On the other hand, the learned counsel for the assessee submitted that as per the Board's circular 141

dated 11th may, 1994, the family of the assessee could possess 500 gms (wife) + 250 gms (unmarried daughter) + 200 gms (for self and son) of gold ornaments which added upto 950 gms which could not be treated as undisclosed income of the assessee.

121. We have considered the rival submissions of the parties and gone through the material available on record and find that addition was made on account of jewellery of 1044 gms valuing Rs.4,17,600/- found in the assessee's possession. By the impugned order, CIT(A) deleted the addition to the extent of Rs. 3,17,600/- after having the following observations :- "9.5 I have carfefully considered the submissions made by the ld. AR. It appears that the AO intended to add the entire gold ornaments weighing 1044 gms (net weight) valuing Rs. 4,17,600/- but due to some typographical error or other omission only Rs. 3,17,600/- were added in the appellant's income as undisclosed income allowing the credit of Rs.1,00,000/- to the appellant in the process. 9.6 Coming to the merits of the contention of the ld. AR that the appellant and his family members were eligible for the credit of ornaments as per the Board's Circular no. 1916 dated 11.5.96, I agree that the same has to be considered. Hon'ble ITAT, Indore had already allowed credit for the gold ornaments as per circular. The ruling of 142

Hon'ble ITAT Indore in the case of Madanlal Narendra Kumar (HUF) Bhopal vs. ACIT reported in (2003) 31 ITC 123 is relevant. 9.7 So otherwise also the appellant and his family members are eligible to get the credit of 950 gms of gold ornaments in the normal course. Further credit of 1044 - 950 gms = 94 gms of gold ornaments can also be given to the appellant and his family members considering the status of appellant & background of the appellant's wife. Further nothing has been brought on record to show that the ornaments were acquired recently.

9.8 The addition of Rs.3,17,600/- is therefore deleted."

122. The revenue is in appeal against the order of CIT(A) and the assessee has filed cross objection alleging addition of Rs. 1 lac confirmed by CIT(A).

123. We have considered the rival submissions of the parties and gone through the material available on record and find that after considering the Board Circular No. 1916 dated 11.5.1994 and order of ITAT in the case of Madanlal Narendrakumar (supra) CIT(A) has given credit of 950 gms of gold ornaments and further credit of 94 gms considering status of the assessee and background of her wife. We do not find any infirmity in the order of CIT(A) in applying the CBDT circular for 143

deciding the matter. With respect to the addition of Rs. 1 lac retained by CIT(A), in view of our discussion in case of Gothi Jewellers, the same is to be set off against the income of Rs.45 lacs surrendered by M/s Gothi Jewellers in which the assessee is a partner to the extent available. We direct accordingly.

124. Coming to Ground no. 3, we find that during the course of search and seizure operations at the residence, in all silver items weighing 41.386 kgs (net weight) were found out of which 6.628 kgs (net weight) were found in the bedroom of Shri Sudhir Gothi. The rest of the silver items were found in the bedroom of the assessee. Before the Assessing Officer, the assessee submitted that 1.748 kgs of silver utensils were used by him for domestic purposes and balance of silver items have been accepted as stock of M/s Gothi Jewellers kept at the residence and the firm had already surrendered 144

Rs. 45 lacs as undisclosed income. The stock of silver kept at the residence was included in the same and as such no addition was warranted. This explanation of the assessee did not find favour with the Assessing Officer as in his opinion there was no documentary evidence to show that silver items found at the residence formed part of the stock of the firm. The Assessing Officer, therefore, added silver items valuing Rs. 32,698/- as undisclosed income of the assessee.

125. The assessee carried the matter in appeal with the submission that the silver items weighing 6.628 kgs found at the residence were reasonable considering the status of the assessee family and as such the addition of Rs. 32,698/- was unreasonable. The learned Commissioner of Incometax (Appeals) after considering the facts of the case, observed that he has already held in the case of Shri Sudhir Kumar Gothi and in the case 145

of M/s Gothi Jewellers that no credit for the contention that stock of silver items of the firm was kept at the residence could be given. However, in the case of Sudhir Kumar Gothi considering the status of the family, he had already allowed credit of 12.802 kgs of silver utensils and articles vide appellate order dated 23.3.2005. He, therefore, held that no addition of 6.628 kgs of silver items found in the bedroom of the assessee was called for considering the status of his family and the facts obtaining in the case. The learned Commissioner of Incometax (Appeals), therefore, deleted the addition in question. Aggrieved by the said deletion, the revenue is in appeal before us.

126. The learned CIT DR relied upon the orderof the Assessing Officer and submitted that the learned Commissioner of Incometax (Appeals) was not justified in deleting the addition made by the Assessing Officer. 146

On the other hand, the learned counsel for the assessee, relying upon the order of the first appellate authority, submitted that silver items weighing 41.386 kgs (net weight) were found during search out of which 6.628 kgs (net weight) were found in the bedroom of the assessee. He submitted that 1.748 kgs of silver utensils were used by the assessee for domestic purposes and the balance of silver items was accepted as stock of M/s Gothi Jewellers and the firm had already surrendered Rs. 45 lacs as undisclosed income which included stock of silver kept at the residence. He, therefore, pleaded that considering the status of the family of the assessee ,no addition was warranted.

127. We have considered the rival submissions of the parties and gone through the material available on record that addition on account of silver utensils of 6.628 kg valuing Rs.32,698/- was deleted by CIT(A) after 147

observing that silver utensils were meant for domestic purposes and considering the status of the family no addition was warranted for 6.628 kgs. Nothing was brought on record to controvert the findings recorded by CIT(A). Accordingly, we do not find any reason to interfere in the finding of CIT(A) resulting into deletion of addition of Rs.32,698/.

128. The next ground no. 4 relates to granting relief of Rs. 3,50,000/- added by the Assessing Officer to the total income of the assessee on account of inadequate withdrawals to meet out the day to day needs of the family. The Assessing Officer found that the family of the assessee consisted of the assessee, his wife, Smt. Suman Gothi, son Chetan and daughter Ku. Ritika. The children were school going and keeping in view the high standard of living, the Assessing Officer estimated the household expenses at Rs. 3,50,000/- which were made 148

out of the undisclosed sources of income of the assessee. In appeal, it was contended by the assessee before the learned Commissioner of Incometax (Appeals) that the assessee family was residing jointly with father and brother and was not required to incur heavy withdrawals for household expenses as other members of the family also contributed towards household expenses. It was also submitted that the Assessing Officer did not bring any positive material on record to show that the assessee had incurred more than expenditure than shown by the assessee on household expenses. The learned Commissioner of Incometax (Appeals), after considering the explanation of the assessee observed that if the explanation of the assessee was not acceptable to the assessee, the addition towards low household expenses could have been made by the Assessing Officer u/s 143(3) of the Act and not in the 149

proceedings u/s 158B(b) of the Act. He, therefore, deleted the addition.

129. Now, the revenue is in appeal before us.

130. The learned CIT DR submitted that the for a big family like that of the assessee, where school going children are there and the family having a standard of living, it is unbelievable that the household expenses could be met out within the amount withdrawn by the assessee and as such the the learned Commissioner of Incometax (Appeals) was not justified in deleting the addition made by the Assessing Officer.

131. On the other hand,,the learned counsel for the assessee submitted the burden lies upon the revenue to prove that the assessee had incurred the household expenses out of undisclosed income which burden the revenue has failed to discharge. It was, therefore, argued that the learned Commissioner of Incometax 150

(Appeals) was justified in deleting the addition made by the Assessing Officer.

132. We have considered the rival submissions of the parties and gone through the material available on record. Addition made on account of household expenses amounting to Rs.3,50,000/- was deleted by CIT(A) by observing that no papers were found about household expenditure having been incurred above the withdrawn shown in the return. It was also observed that no addition can be made in the block assessment without any incriminating material. We do not find any infirmity in the order of CIT(A).

133. In the result, the appeal of the revenue is dismissed.

CO No. 110/Ind/05

134. In this cross objection, the assessee has raised an additional ground with regard to charging of 151

surcharge at Rs. 11,571/-. This issue with regard to levy of surcharge in addition to normal rates of tax in case of block assessment has already been decided by the Hon'ble Supreme Court in favour of revenue . Accordingly, the ground taken by the assessee is dismissed.

135. The assessee has raised the following grounds in this cross objection :-

"1. On the facts and circumstances of the case, the learned Authority below erred in law in making addition of Rs. 1,91,905/- and sustaining the addition at Rs.1,86,905/- on the ground of excess cash.

2. On the facts and circumstances of the case, the learned Authority below erred in law in making and sustaining the addition at Rs.1,40,405/- 152

on the ground of investment in FDR &

IVP/KVP.

3. On the facts and circumstances of the case, the learned Authority below erred in law in not considering the additional ground raised, claiming due and proper relief/deduction of the additions made with regard to undisclosed income disclosed and determined in the case of the firm M/s Gothi Jewellers, Itarsi, wherein the respondent holds 50% share and further erred in not considering the fact that cash seized from the respondent partner is belongings of said partnership of firm.

4. On the facts and circumstances of the case, the learned Authority below erred in law in not allowing the proportionate telescopic benefit to 153

the extent additions sustained, in the case of the said firm M/s Gothi Jewellers, Itarsi."

136. By way of ground no. 1 the assessee has challenged the making the addition of Rs.1,91,905/- and sustaining the addition at Rs. 1,86,905/- on the ground of excess cash.

137. Since the facts relating to this ground are identical with the facts narrated above while dealing with ground no. 1 of IT(SS) A. No. 84/Ind/05 (departmental appeal), we need not repeat the same over here again.

138. So far as Ground no. 2 is concerned, we find that during the course of search, FDRs, KVPs and IVPs worth Rs. 1,40,405/- were found by the search party. The assessee explained before the Assessing Officer that the same FDRs, KPVs and IVPs aggregating to Rs. 1,40,405/- belonged to his wife, Smt. Suman Gothi in 154

her individual capacity and were made out of her past savings and presents from relatives and friends. The Assessing Officer, however, found that the assessee did not adduce any documentary evidence in support this submission. He, therefore, added the value of these assets amounting to Rs.1,40,405/- as undisclosed income to the of the assessee. On appeal, the learned Commissioner of Incometax (Appeals) finding no force in the submissions made before him, confirmed the action of the Assessing Officer. Now, the assessee is before us by way of this ground taken in the cross objection.

139. Before us, the learned counsel for the assessee submitted that on the facts of the case, the authorities below were not justified in making and confirming the addition in question. On the other hand, the learned CIT DR relied upon the orders of the lower authorities 155

and submitted that they have rightly made and confirmed the addition.

140. We have considered the rival submissions of the parties and gone through the material available on record. Addition of Rs.1,40,405/- was made for KVP, IVP and FDRs. From record we find that KVP, IVP were belonging to the following family members :- 20000 Chetan Gothi

10000 Sanjay Gothi

8000 Nirmala Devi

6405 Chetan Gothi

10000 Sanjay Gothi

96000 IVP & KVP in the name of Smt. Suman Gothi (not assessed).

141. As source of funds of the IVP and FDRs was not explained by the assessee, therefore, addition was warranted in the assessee's hands. Even before us, nothing could be submitted to controvert the finding of the lower authorities. Accordingly, we confirm the 156

action of the AO for making addition in the assessee's hands.

142. So far as Ground nos. 3 4 are concerned, we direct the AO to follow the reasoning given by us in the case of Gothi Jewellers in which the assessee is a partner.

143. In the result, the appeal of the revenue is dismissed whereas the cross objection of the assessee is allowed in part in terms indicated hereinabove. IT(SS)A No. 83/Ind/2005

144. The Ground no. 1 raised by the revenue in this appeal is that on the facts and in the circumstances of the case, the learned CIT(A) erred in giving relief of Rs. 4,74,815/- out of total addition of Rs.9,08,702/- rightly made by the Assessing Officer on account of unexplained gold jewellery found during the course of search and seizure operation.

157

145. The facts, in brief, are that during the course of search, from the bedroom of the assessee, gold ornaments (net weight) weighing 2465.08 gms were found in regard to which it was explained by the assessee that the same were declared under VDIS, 1997 and the ornaments belonged to Smt. Sushiladevi Gothi. However, during the course of assessment proceedings, the assessee changed his statement by showing the gold jewellery as under :-

(i) Gold jewellery belonging to

Smt. Sushiladevi 1153 gms (ii) Gold jewellery belonging to

Shri Samirmal Gothi 350 gms (iii) Gold jewellery belonging to Smt. Suneeta Gothi and Shri Sandeep Gothi

(grandson and daughter-in-law) 1160 gms Total = 2663 gms

Less : 200 gms (gold ornaments on person Balance 2463 gms The Assessing Officer did not accept the above explanation since there was deviation in the original 158

statement given at the time of search and the above statement furnished during the course of assessment proceedings. He held that gold ornaments allegedly declared in the return for the assessment year 1978-79 need not be the ones found at the time of search. He, therefore, allowed credit for 250 gms only and added 2213 gms of jewellery valuing Rs. 9,08,702/- as unexplained investment. Against this, the assessee went before the learned Commissioner of Incometax (Appeals). So far as the explanation relating to Smt. Sushiladevi was concerned, the learned Commissioner of Incometax (Appeals), after considering the detailed submissions made before him, observed that the credit for availability of 903 gms of gold had to be given as this was declared and accepted in the Wealthtax return of Smt. Sushila Devi. He held that as per the Board's circular, availability of 500 gms of gold can be accepted. 159

He, however, considering the totality of facts and status of Smt. Sushiladevi, allowed credit of 903 gms of gold.

146. He further observed that in the cases of Shri Samirmal Gothi and Shri Sandeep Gothi (grandson) also, credit for 100 gms each i.e. 200 gms could be allowed as envisaged in the said circular of CBDT.

147. Regarding Sunitadevi, the contention of the assessee was that following credit has to be allowed in respect of Sandeep Gothi and his wife :- 250 gms received in gift from Smt. Sushiladevi 200 gms received in gift from mother, Pushpadevi On 16.9.1981

110 gms received in gift at the time of marriage from In-laws of family and friends some ten years ago. _________

560 gms

+ 600 gms gold ornaments of (grand daughter-in-law) Smt. Sunita Gothi received at the time of Marriage being the only daughter including __________ Gift received on several occasions. 1160 gms

160

148. The learned Commissioner of Incometax (Appeals) did not agree with the above reasoning for want of any supporting evidence. The learned Commissioner of Incometax (Appeals) further observed as under :-

"(C) I have allowed full credit of gold of 903 gms to Smt. Sushiladevi and another 200 gms for ShriSamirmal Gothi and Shri Sandeep Gothi. For an unmarried daughter, the Circular allows 250 gms of gold. In the present case, the ends of justice will be met if Mrs. Sunita Devi (considering her background) is allowed credit for 300 gms of gold for the ornaments found in the bedroom of Smt. Sushila Devi. (d) It is also seen that any identification and segregation of such ornaments among the alleged owners has neither been done by the A.O. nor by the appellant Shri Samirmal Gothi.

6.12 (i) So I allow the credit of availability of ornaments as under :-

903 gms declared by Smt. Sushiladevi in Wealthtax 200 gms belonging to Shri Samirmal Gothi and Shri Sandeep Gothi

300 gms part of the ornaments belonging to Smt. Sushiladevi

_________

1403 gms total admissible credit

------------

(ii) Since ornaments found were 2465.98 gms (net), this means that ornaments to the extent of 1062.08 gms will be treated as unexplained income of Shri Samirmal Gothi (for the block period 1.4.02 to 25.10.02) & proportionate value to be taken will be 161

Rs. 4,33,887/-. Since the A.O. has added Rs. 9,08,702/-, this will imply relief of Rs.4,74,815/- to the appellant."

Against the above order of the learned Commissioner of Incometax (Appeals), the revenue is in appeal before the Tribunal and the assessee has also filed cross objection.

149. We have considered rival contentions and find from the record that During the course of search, jewellery weighing 2663 gms were found valuing Rs. 9,08,702/-, out of this CIT(A) deleted addition Rs. 4,74,815/- after having the following observations :- 6.11 (i) In the present case Smt. Sushila Devi had disclosed gold ornaments (net weight) 903 gms as per Wealthtax assessment order dated 30.11.78 for the A.Y. 1078-79. In fact she was owning 2046 gms of gold (net) and had gifted 911 gms of gold (net) to her son Sudhir Kumar Gothi on 11.11.74 (the gift tax assessment order for A.Y. 1995-96 was passed on 30.11.78). Subsequently Smt. Sushiladevi claimed to have received 250 gms of gold ornaments from relatives or in-laws on several occasions over a period of 20 years and so possession of 1153 gms of gold was claimed. (ii) I am of the opinion that the credit for availability of 903 gms of gold had to be given as this was declared and accepted in the Wealth tax return. Further accretions as claimed on behalf of the appellant as well as AO's assumption that gold ornaments quantity may not have remained intact over a span of 25 years cannot be accepted for want of any evidence. In fact if one goes by the Board's Circular, availability of 500 gms of gold only can be accepted but considering the totality of facts and status of Smt. Sushiladevi, I will allow the credit of 903 gms of gold. (iii) Likewise in the hands of Shri Samirmal Gothi & Shri Sandeep Gothi (grandson) credit for 100 gms each can be allowed as envisaged in the circular.

162

(iv) (a) Regarding Sunitadevi the ld. AR's contention has been that following credit has to be allowed in respect of Shri Sandeep Gothi & his wife.

250 gms Received in gift from Smt. Sushiladevi 200 gms Received in gift from mother Pushpadevi on 16.9.81 100 gms Received in gift at the time of marriage from in-laws of family & friends some ten years ago.

560 gms

+ 600 gms gold ornaments of (grand daughter-in-law) Smt.Sunita Gothi received at the time of marriage being the only daughter including gift received on several occasions ------------

1160 gms

(b) I do not agree with the above reasoning for want of any supporting evidence. Normally credit for 500 gms of gold could have been given to Smt. Sunita Devi as per Board Circular for a married lady but considering the peculiarity of the caase where Smt. Sunita Devi was staying at Hyderabad just before the search and after coming to Itarsi instead of staying with her mother-in-law preferred to stay with grandparents of the husband, the credit has to be restricted. The fact that Shri Samirmal Gothi did not refer to Smt. Sunita Devi in the statement at the time of search & there is little probability of investment/gifts in the shape of gold ornaments to the couple who had no issue also goes against the argument advanced by the ld. AR.

(c) I have allowed full credit of gold of 903 gms to Smt. Sushiladevi & another 200 gms for Shri Samirmal Gothi and Shri Sandeep Gothi. For an unmarried daughter the Circular allows 250 gms of gold. In the present case the ends of justice will be met if Mrs. Sunita Devi (considering her background) is allowed credit for 300 gms of gold for the ornaments found in the bedroom of Smt. Sushila Devi. (d) It is also seen that any identification and segregation of such ornaments am ong the alleged owners has neither been done by the AO nor by the appellant Shri Samirmal Gothi. 6.12 (i) So I allow the credit of availability of ornaments as under :- 903 gms declared bySmt, Sushgiladevi in Wealthtax 200 gms belonging to Shri Samirmal Gothi & Shri Sandeep Gothi 300 gms part of the ornaments belonging to Smt. Suahiladevi 1403 gms total admissible credit.

(ii) Since ornaments found were 2465.98 gms (net), this means that ornaments to the extent of 1062.08 gms will be treated as unexplained income of Shri Samirmal Gothi (for the block period 1.4.02 to 25.10.02) 163

and proportionate value to be taken will be Rs. 4,33,887/-. Since the AO has added Rs. 9,08,702/-, this will imply relief of Rs.4,74,815/- to the appellant."

150. As per the finding recorded by CIT(A) the wife of the assessee Smt. Sushiladevi has already declared 903 gms in her wealth tax return, 200 gms belonged to Samirmal Gothi and Sandeep Gothi and 300 gms belonging to Smt. Sushiladevi Gothi. Thus, total relief of 1403 gms was allowed by CIT(A). This finding of CIT(A) has not been controverted by bringing any positive material on record. The CIT(A) has considered the ornaments of married grand-daughter-in law Smt. Sunita Gothi only at 300 gms instead of 500 gms which she can possess as per CBDT Circular. Accordingly we direct the AO to give further relief of 200 gms while computing addition on account of ornaments.

151. The Ground no. 2 raised by the revenue in this appeal is that on the facts and in the circumstances of the case, the learned CIT(A) erred in giving relief of Rs. 164

23,834/- out of total addition of Rs.1,13,445/- rightly made by the Assessing Officer on account of silver items and utensils found during the course of search and seizure operation.

152. The facts, in brief, are that during the course of search, statement of Shri Sameermal Gothi was recorded and it was stated by him that all the silver items were declared under VDIS, 1997. He further stated that the items belonged to Smt. Sushiladevi Gothi who was not present and she will explain the same later. The assessee stated before the Assessing Officer that 6.393 kgs of jewellery was mixed, 19.385 kgs comprised of domestic utensils and 1.6 kgs comprised of old silver coins. It was also contended that 6.393 kgs of silver ornaments included the jewellery of Smt. Sunita Devi wife of the assessee's grandson. However, the Assessing Officer did not accept the submissions of the assessee 165

and allowed only the credit of 5.47 kgs of silver to the assessee and added 22 kgs of silver as unexplained investment to the total income of the assessee which resulted into corresponding addition of Rs. 1,13,445/-. Against this action of the Assessing Officer, the assessee went in appeal before the learned Commissioner of Incometax (Appeals) with the submission that considering the status of the family, the possession of 27.378 kgs of silver which included domestic utensils of 19 kgs was very reasonable and the addition was unjustified.

153. The learned Commissioner of Incometax (Appeals), in his turn, after considering the submissions of the assessee in view of the material facts of the case, observed as under :-

"7.5 ......... According to me, considering the status of the family and the declaration of silver in the wealth tax return of Smt. Sushiladevi Gothi, the ends of justice will be 166

met if credit for 10 kgs of silver in the shape of ornaments and silver utensils is granted considering that silver items were declared about 25 years ago and the appellant in the intervening period might have acquired some utensils/items in view of social customs. Correspondingly 17.378 kgs of silver ornaments and utensils will be treated as unexplained investment. The value of the same in the same proportion comes to Rs. 89,611/- and will be added as unexplained income u/s 69A for the assessment year relevant to the block period 1.4.02 to 25.10.02. Since the A.O. has added Rs. 1,13,445/-, this will imply relief of Rs. 23,834/- (Rs. 1,13,445(-) Rs. 89,611/-)."

154. Dis-satisfied with the above observation and relief granted by the first appellate authority, the revenue is in appeal before us.

155. The learned CIT DR while supporting the order of the Assessing Officer strongly refutted the order of the learned Commissioner of Incometax (Appeals).

156. We have considered the rival contentions, carefully gone through the orders of the authorities below and find from record that the addition of Rs. 167

1,13,445/- for 22 kg of silver utensils was deleted by CIT(A) to the extent of Rs.23,834/- after observing that Smt. Sushiladevi Gothi wife of the assessee has declared ornaments weighing 1 kg in her wealth tax return for the assessment year 1978-79. He further observed that considering status of the family and declaration of silver in the wealth tax return of Shri Sushiladevi Gothi ends of justice will be met if credit of 10 kg of silver in the shape of ornaments and silver utensils is granted considering that silver items were declared about 25 years ago and the assessee in the intervening period might have acquired some utensils/items in view of social customs. No interference is required in the finding of CIT(A). Accordingly, ground taken by both the revenue and the assessee is dismissed.

157. The Ground no. 3 raised by the revenue in this appeal is that on the facts and in the circumstances of 168

the case, the learned CIT(A) erred in deleting the addition of Rs. 18,35,741/- (correct amount is Rs. 18,39,741/-) rightly made by the Assessing Officer on account of unexplained investment in pawning business.

158. The facts, in nutshell, are that during the course of search and seizure operation, gold jewellery weighing 6328 gms (net weight) valuing Rs. 16,46,236/- and silver jewellery weighing 23.453 kgs (net weight) valuing Rs. 1,93,505/- were found. Both these were claimed by the assessee to be from pawning activity. Shri Sudhir Gothi s/o Shri Sameermal Gothi stated that a total of Rs. 18,39,741/- has been invested in the jewellery found. It was also claimed that no books of accounts were maintained for this and, therefore, they declared the same as undisclosed income for the last 4 - 5 years. This statement was supported by Shri Sameermal Gothi. The Assessing Officer, however, 169

found that the same has not been declared by the assessee in his block return as it was claimed to be the business of his wife. After considering the explanation of the assessee in this regard, the Assessing Officer found that since the above jewellery was found from the residence of Shri Sameermal Gothi, which was claimed to have pertained to Smt. Sushila Devi Gothi w/o the assessee, the same was added to the total undisclosed income of the assessee on substantive basis and on protective basis in the case of Smt. Sushiladevi Gothi. Aggrieved with this, the assessee filed an appeal before the learned Commissioner of Incometax (Appeals) with the plea that in the case of M/s Gothi Jewellers, an additional plea was taken that a finding may be given that unaccounted investment of Rs. 18,35,741/- wrongly admitted as attributable to Smt. Sushila Devi Gothi belonged to the firm M/s Gothi Jewellers and is 170

included in the surrender of undisclosed income of Rs. 45 lacs. The learned Commissioner of Incometax (Appeals) has discussed this issue in detail in the case of M/s Gothi Jewellers vide his order dated 23.3.2005 wherein it was held that unaccounted investment of pawning business of Rs. 18,35,741/- was liable to be assessed in the hands of Smt. Sushila Devi Gothi in view of the statement of Shri Sameermal Gothi and Shri Sudhir Kumar Gothi given at the time of search. In this view of the matter, the learned Commissioner of Incometax (Appeals) deleted the addition in question with the following findings :-

"8.1 In the case of M/s Gothi Jewellers, Sarafa Bazar, an additional plea was taken that a finding may be given that unaccounted investment of Rs. 18,35,741/- wrongly admitted as attributable to Smt. Sushila devi Gothi belonged to the firm M/s Gothi Jewllers, Sarafa Bazar, Itarsi, and is included in the surrender of undisclosed income of Rs. 45 lacs. The matter was discussed and adjudicated in para No. 5.0 to 5.11 of the appellate order in the case of M/s Gothi Jewellers bearing No. IT-377/04- 171

05 dated 23rd March, 05. It was held that the unaccounted investment of pawning business of Rs.18,35,741/- was liable to be assessed in the hands of Smt. Sushila Devi Gothi in view of the statement of Shri Sameermal Gothi and Shri Sudhir Kumar Gothi given in the time of search. 8.2 The addition of Rs. 18,35,741/- is therefore deleted from the hands of the appellant though for altogether difference reasons. The AO was unjustified in making addition in the hands of the appellant ignoring the statements given by the appellant and his son at the time of search." Now the revenue is in appeal.

159. The learned CIT DR supported the order of the Assessing Officer while opposing the order of the learned Commissioner of Incometax (Appeals) with further submission that the learned Commissioner of Incometax (Appeals) was not justified in granting relief to the assessee. On the other hand, the learned counsel for the assessee supported the order of the learned Commissioner of Incometax (Appeals).

160. We have considered the rival submissions of the parties and gone through the material available on 172

record. The CIT(A) has held that unaccounted investment in pawning business was liable to be assessed in the hands of Smt. Sushila Devi Gothi. Accordingly, the addition made in the hands of the assessee was deleted by him. As the pawning business was done by Smt. Sushila Devi Gothi, addition is required to be considered in her hands. Accordingly, CIT(A) was justified in deleting the addition in the assessee's hands.

161. The Ground no. 4 raised by the revenue in this appeal is that on the facts and in the circumstances of the case, the learned CIT(A) erred in deleting the addition of Rs.3,00,000/- rightly estimated by the Assessing Officer on account of household expenses during the block period.

162. The facts, in brief, are that the Assessing Officer found that the assessee had withdrawn a meager 173

amount of Rs. 1,53,000/- for household expenses during the entire block period. The family of the assessee comprised of himself and his wife. In the opinion of the Assessing Officer, the withdrawals made by the assessee were not sufficient to meet out the day to day needs of the family considering the status of the assessee. He, therefore, estimated the withdrawals for the block period at Rs. 4,53,000/- and made a corresponding net addition of Rs.3 lacs. Aggrieved, the assessee went in appeal before the learned Commissioner of Incometax (Appeals) and submitted that apart from the withdrawals by the assessee, his wife also withdrew a sum of Rs.2,79,000/- from her agricultural income to meet out the household expenses. It was also stated that the agricultural income was duly disclosed in the income tax return filed by the wife of the assessee. The learned Commissioner of Incometax 174

(Appeals), after considering the submissions of the assessee in the light of the withdrawals made by the assessee and his wife, observed that in the absence of any positive material on record to show that the assessee had spent more amount on household expenses than disclosed, the addition for low household expenses could not be made in the hands of the assessee. He, therefore, deleted the addition made by the Assessing Officer. Aggrieved by this deletion, the revenue is in appeal before the Tribunal.

163. The learned CIT DR supported the order of the Assessing Officer while the learned counsel for the assessee supported the order of the learned Commissioner of Incometax (Appeals).

164. We have considered the rival submissions of the parties and gone through the material available on record. The addition made on account of household 175

expenditure of Rs.3 lacs was deleted by CIT(A) by observing that no papers were found during search showing expenditure on household which has not been disclosed in the return. Addition for low household expenses cannot be made in the block assessment proceedings. The CIT(A) also observed that withdrawals/agricultural income of the assessee's wife who was also income tax assessee was not considered by the AO while estimating addition on account of household expenses. We do not find any reason to interfere with the order of CIT(A) and confirm the same.

165. The Ground no. 5 raised by the revenue in this appeal is that on the facts and in the circumstances of the case, the learned CIT(A) erred in directing the Assessing Officer to verify the FDRs worth Rs. 91,535/- and give relief if found eligible.

176

166. The facts, in brief, are that during the course of search, FDRs and NSCs worth Rs. 13,47,843/- were found and seized. Among these, FDRs of Rs. 1,37,190/- were figuring in the books of Dharamshala Trust. The assessee stated that this fact could be verified from the books of accounts seized by the department. It was clarified that the name of the assessee was appearing in the FDRs because he was the President of the trust. The Assessing Officer, therefore, added the investment in the FDR of Rs. 1,37,190/- as undisclosed income to the total income of the assessee. In appeal before the learned Commissioner of Incometax (Appeals), the assessee produced a certificate from the bank authorities confirming that some FDRs were purchases in the name of Shri Samirmal Gothi from the savings bank account ofShri Laxmichand Gothi Dharmshala Trust operated by Shri Samirmal Gothi, the assessee in 177

the present case. The particulars of such FDRs were also given and it was seen that total of such FDRs works out to be Rs. 95,538/-. In view of this certificate, first appellate authority observed that the assessee could at the most be given relief of this amount only subject to verification that FDR of Rs. 1,37,190/- included the following three FDRs :-

Amount No.

Rs.31,535/- 595261

Rs.30,000/- 595500

Rs.30,000/- 595391

The above details were forwarded by first appellate authority to the learned Assessing Officer for remand report but he did not offer any comment thereon. The learned Commissioner of Incometax (Appeals), therefore, concluded that as the bank authorities have confirmed that FDRs were purchased out of the saving account of 178

Laxmichand Gothi Dharamshala Trust, the assessee will be eligible for a relief of Rs.91,535/- if the above FDRs are included in the FDRs of Rs. 1,37,190/-. Against this direction, the revenue is in appeal before us and the assessee has also filed cross objection for sustaining part of addition on account of FDR.

167. The learned CIT DR contended that the learned Commissioner of Incometax (Appeals) was not justified in restoring back the matter to the Assessing Officer for verification. On the other hand, the learned counsel for the assessee submitted that instead of restoring the matter back to the file of the AO, the learned Commissioner of Incometax (Appeals) should have deleted the addition.

168. After considering the submissions of the parties in view of the above facts, we do not find any merit in the order of the learned Commissioner of Incometax 179

(Appeals) in restoring the matter back to the AO with regard to FDR of Rs.91,535/-. In respect of addition of Rs.1,37,190/- made on account of FDRs, we found that bank authorities have confirmed that three FDRs of Rs. 91,535/-(FDR No. 595261 Rs. 31,535/- + FDR No. 595500 Rs. 30,000/- and FDR No. 595391 of Rs. 30,000/-) were purchased out of the savings bank account of Laxmichand Gothi Dharamshala Trust. Even on calling by CIT(A) to the AO to send his remand report, the AO kept mum. As the source of deposit was explained, we direct the AO to delete addition to the extent of Rs.91,535/-. We confirm the balance addition made on this account.

169. The Ground no. 6 raised by the revenue in this appeal is that on the facts and in the circumstances of the case, the learned CIT(A) erred in directing the Assessing Officer to give credit of Rs. 2,00,000/- on the 180

amount surrendered by the assessee. The Assessing Officer in the case of M/s Gothi Jewellers has considered and allowed the deduction of Rs. 45 lacs from the undisclosed income determined by him. In the case of the assessee, though the assessee had not given any yearwise bifurcation linking the asset with the disclosure made and the period to which such asset related, the Assessing Officer also had not identified any specific item representing the undisclosed income surrendered by the assessee. On appeal, the learned Commissioner of Incometax (Appeals) finding that the addition has been made twice, once on account of amount disclosed by the assessee and secondly on account of other valuables, directed the Assessing Officer to give credit of Rs. 2 lacs surrendered by the assessee out of the undisclosed income worked out by him. The relevant findings of the CIT(A) are as under :- 181

"12.1 The grievance of the appellant is justified. I find that in the case of M/s Gothi Jewellers the AO has considered and allowed the deduction of Rs. 45 lacs from the undisclosed income determined by him. In the prsent caase, though the appellant had not given any yearwise bifurcation linking the asset with the disclosure made and the period to which such asset related, the AO also had not identified any specific item representing the undisclosed income surrendered by the appellant.

12.2 The AO as such will allow the credit of Rs. 2 lakhs surrendered by the appellant out of the undisclosed income worked out by him. The ground is allowed."

Against this finding, the revenue is in appeal before us.

170. The learned CIT DR contended that the learned Commissioner of Incometax (Appeals) was not justified in directing the Assessing Officer to give credit of Rs. 2 lacs surrendered by the assessee out of the undisclosed income worked out by him. On the other hand, the learned counsel for the assessee relied on the order of the learned Commissioner of Incometax (Appeals).

171. We have considered the rival submissions of the parties and gone through the material available on 182

record. Since the assessee himself has declared Rs. 2 lacs in the block return, there is no infirmity in the order of CIT(A) in directing the AO to allow credit of Rs. 2 lacs surrendered by the assessee.

172. The Ground no. 7 raised by the revenue in this appeal is that on the facts and in the circumstances of the case, the learned CIT(A) erred in deleting the addition of Rs.5,29,362/- rightly made by the Assessing Officer on account of unexplained investment in construction of house property on the basis of Govt. Approved Valuer.

173. The Assessing Officer observed that the assessee was residing in a three storeyed residential building at Itarsi. The said house was valued by the Government approved valuer at Rs. 16,63,000/- on 24.10.2002. During the course of assessment proceedings, the assessee was asked to furnish the 183

details and source of investment. The Assessing Officer, after considering the reply filed by the assessee, allowed credit of Rs.11,33,638/- towards the investment in the cost of construction. Since the Government approved Valuer estimated the cost of construction at rs. 16,63,000/-, the Assessing Officer added the difference of Rs. 5,29,362/- as undisclosed income of the assessee. Against this finding, the assessee went in appeal before the learned Commissioner of Incometax (Appeals) and made detailed submissions as mentioned in paras 13.2, 13.3 and 13.4 of the appellate order under appeal. The learned Commissioner of Incometax (Appeals), after considering the same in the light of the facts of the case and the documents placed before him by the assessee during the course of appellate proceedings, found that the assessee was not confronted with the report of the Government approved Valuer. The bank account 184

wherefrom the withdrawals were made was disclosed in the return of income. As such, the addition for unexplained investment could not have been made during the block period. In view of the details of sources of funds furnished by the assessee and mentioned at page 21 of the appellate order, it was found by the learned Commissioner of Incometax (Appeals) that the assessee has sufficiently explained the sources of funds. He also held that the question of investment in the construction of house which was apparently made on the basis of the report of the Government approved Valuer without confronting it to the assessee, could not be a subject matter of undisclosed income of the block period considering the facts of the case. Based on these findings, the learned Commissioner of Incometax (Appeals) deleted the addition of Rs. 5,29,632/- made by 185

the Assessing Officer. The relevant findings of the CIT(A) are as under :-

"13.9 I find merit in appellant's contention that he was not confronted with the report of the Govt. Approved Valuer. Further there is no documentary evidence to show that the appellant had made more investment than claimed. The bank account from where the withdrawals were made was disclosed in the return of income. So the addition for unexplained investment could not have been made for the block period. The difference on account of the estimate of Govt. Approved Valuer could not have been treated as undisclosed income u/s 158B(b) of the Income Tax Act, 1961 considering the facts of the case.

13.10 The only question remains is whether the appellant had the sources available for the investment. I find that on page 55 of the paper book, the appellant has explained the sources of funds by giving the following credits in the bank account with the corresponding debits made towards the construction of house :-

Source of Funds

Credits Debits Rs. 7,25,000 withdrawn from Rs.1133638 withdrawal for CBI Betul A/c No. 11658 house const. & repairing and maintenance

Rs.5,31,000 loan from Rs.90,000/- withdrawal for Smt.Sushila Devi Gothi agriculture land purchase at (29.10.2001) Raisalpur Rs. 50,000/- advance cash

Received from Ganeshprasad

186

Sahu towards agreement of

Sale of Betul plot

________________________ ____________________ Total Rs.1306000 Rs.1223638.00 13.11 The above details thus also explain the fund availability. 13.12 So the question of investment in the construction of house which was apparently made on the basis of the report of the Govt. Approved Valuer without confronting it to the appellant cannot be a subject matter of undisclosed income of the block period considering the facts of the case. 13.13 I, therefore, delete the addition of Rs.5,29,632/-. The ground is allowed."

The above action of the learned CIT(A) is under challenge by the revenue before us.

174. The learned CIT DR submitted that the learned Commissioner of Incometax (Appeals) was not justified in deleting the addition made by the Assessing Officer as the addition was made on the basis of approved Valuer's report.

175. On the other hand, the learned counsel for the assessee contended that the report of the approved Valuer was not supplied to the assessee by the revenue. He pleaded that all the vouchers relating to expenses 187

incurred in the construction of the said building as also payment slips were maintained by the assessee and produced before the Assessing Officer. Moreover, old building was demolished and the wood and other material thereof was used in the new building as a result of which the cost of construction was reduced. The learned Commissioner of Incometax (Appeals) was, therefore, fully justified in granting relief to the assessee.

176. We have considered the rival submissions of the parties and gone through the material available on record. Addition made on account of investment in construction of house on the basis of valuation report was deleted by CIT(A) by observing that no papers were found showing any additional investment in the property. The details of bank accounts were filed and the addition was made purely on the basis of valuation report which cannot be sustained in view of decision of 188

Hon'ble jurisdictional High Court reported at 263 ITR

77. We, therefore, confirm the action of CIT(A). CO No. 109/Ind/2005

177. The Ground no. 1 raised by the assessee is that on the facts and in the circumstances of the case, the Authority below erred in law in making and sustaining the addition at Rs. 25,000/- on the ground of excess cash.

178. In regard to the above ground, we find that from the bedroom of the assessee cash of Rs. 70,849/- was found during the course of search and seizure action. As per the Assessing Officer, out of this, Rs. 12,000/- and Rs. 23,678/- were proposed to be considered in the hands of Seth Laxmichand Gothi Dharamshala as the cash was kept in separate envelopes and related to Dharmshala. For the remaining cash of Rs. 35,171/- it was explained by the 189

assessee that a part of it was for kept for household expenses and the rest belonged to children. The Assessing Officer allowed credit of Rs. 10,171/- as personal cash in the hands of the assessee and the remaining cash of Rs. 25,000/- was assessed as unexplained cash. Aggrieved with this finding, the assessee preferred to go before the learned Commissioner of Incometax (Appeals) and submitted that looking to the status of the family and the normal practice with the ladies, the Assessing Officer ought to have accepted the cash of Rs.35,171/-. Apart from this, it was also submitted that the assessee and his wife were also having agricultural income. The learned Commissioner of Incometax (Appeals), however, did not agree with the assessee's submissions and observed that since no evidence has been produced in support of the contentions of the assessee particularly when other 190

family members were also found to have been indulging in unaccounted transactions, the Assessing Officer was justified in making the impugned addition on account of excess cash. Against this finding, the assessee is before us.

179. The learned counsel for the assessee submitted that for a family of the status of the assessee, it was a small thing to keep small cash of Rs. 35,171/- at residence and as such the learned Commissioner of Incometax (Appeals) was not justified in confirming the addition made by the Assessing Officer. On the other hand, the learned CIT DR relied upon the orders of the lower authorities.

180. We have considered the rival contentions, carefully gone through the orders of the authorities below and find from record that the assessee apart from business income, was also having agricultural income 191

and keeping the status of the assessee in view, we do not find any justification in making and confirming the addition in question and delete the same.

181. The Ground no. 2 raised by the assessee is that on the facts and in the circumstances of the case, the Authority below erred in law in making addition of Rs. 9,08,702/- and sustaining the addition at Rs.4,33,887/- on the ground of excess gold ornaments.

182. The facts relating to this ground have been dealt with while dealing with ground no. 1 of IT(SS) A. No. 83/Ind/05 (departmental appeal), we need not repeat the same over here again and confirm the action of CIT(A) in this regard and dismiss the ground raised in cross objection.

183. The Ground no. 3 raised by the assessee is that on the facts and in the circumstances of the case, the Authority below erred in law in making addition of 192

Rs.1,13,445/- and sustaining the addition at Rs.89,611/- on the ground of excess silver ornaments and utensils.

184. Since the facts relating to this ground are identical with the facts narrated above while dealing with ground no. 2 of IT(SS) A. No. 83/Ind/05 (departmental appeal), we need not repeat the same over here again and the decision arrived at by us therein shall prevail.

185. The Ground no. 4 raised by the assessee is that on the facts and in the circumstances of the case, the Authority below erred in law in making addition of Rs. 1,37,190/- and sustaining addition of Rs. 45,655/- on the ground of investment in FDR.

186. Since the facts relating to this ground are identical with the facts narrated above while dealing with ground no. 5 of IT(SS) A. No. 83/Ind/05 193

(departmental appeal), we need not repeat the same over here again. We, therefore, following the reasonings given above while deciding similar ground in the revenue's appeal, confirm the addition of Rs. 45,655/-.

187. The Ground no. 5 raised by the assessee is that on the facts and in the circumstances of the case, the Authority below erred in law in making and sustaining the addition at Rs. 1,00,000/- on account of cash deposits made in bank accounts.

188. On scrutiny of details furnished by the assessee, the Assessing Officer observed that there were cash deposits of Rs. 50,000/- each on 25.6.1996 and 26.6.1996 aggregating to Rs. 1 lac in the Central Bank of India. Dis-satisfied with the assessee's reply, the Assessing Officer added Rs. 1 lac to the total income of the assessee as undisclosed income. On appeal, the assessee stated that the assessee had withdrawn cash 194

from the bank in earlier months and the said amount was available with the assessee. The learned Commissioner of Incometax (Appeals) observed that the assessee could not explain the source. Accordingly, confirmed the addition in question. Now, the assessee is before us by way of this ground of cross objection.

189. The learned counsel for the assessee contended that a bare perusal of the bank statement would make it clear that the assessee had withdrawn substantial amount of Rs. 1,55,000/- in the months of April, May and June, 1996. He further submitted that these deposits of Rs. 50,000/- each were made out of these withdrawals and cash balances available with the assessee. As such, the assertion of the Assessing Officer that these deposits were taken from two different persons was without any basis. On the other hand, the 195

learned CIT DR supported the order of the learned Commissioner of Incometax (Appeals).

190. We have considered the rival contentions, carefully gone through the orders of the authorities below. The source of deposit is explained out of withdrawals from bank in the months of April, May and June, 1996. There is no harm if the AO verify the same and decide the issue afresh. Accordingly, the matter is restored back to the file of the AO with the above direction.

191. In the result, the appeal of the revenue is dismissed whereas the cross objection of the assessee is allowed in part.

IT(SS)A No. 92/Ind/2005

192. In this appeal, the revenue has taken Ground no. 1 to the effect that the learned Commissioner of Incometax (Appeals) was not justified in restricting the 196

addition to Rs. 6,36,451/- out of the total addition total addition of Rs.50,50,212/- rightly estimated by the Assessing Officer on account of profit from undisclosed sales.

193. The facts, in brief, are that the Assessing Officer found that the cash book of M/s Gothi Brothers was not completed on the date of search and it contained numerous cuttings and over-writings. He stated that the loose papers found during the course of search revealed undisclosed sales and purchases. He also stated that the assessee has admitted that it has made unrecorded sales. He also found that during the course of search, total stock of Rs. 9,96,945/- was found and as per the books, the value of stock at cost price was Rs. 14,69,779/- i.e. there was shortage of stock of Rs. 4,72,834/-. Regarding this discrepancy, it was explained before the Assessing Officer by Shri 197

Satishchand Gothi that the business of the three entities viz. M/s Gothi Brothers, M/s Gothi Fertilizers and M/s ESSEM was carried out from the common premises and it was possible that the bills might not have been issued resulting in the difference in question. As per the AO, the above facts clearly attracted provisions of section 145(3) of the Act and he, therefore, rejected the books of accounts of the assessee and estimated the sales at Rs. 7.50 crores for the block period and took gross profit at 10% of the same. In the block period, the assessee had disclosed sales ofRs. 2,68,22,366/- and the gross profit was Rs. 24,49,788/-. This resulted in corresponding addition of Rs.50,50,212/-. Having been aggrieved with this treatment of the Assessing Officer, the assessee approached the learned Commissioner of Incometax (Appeals) by way of filing the appeal before him. It was submitted before him that the provisions ofr section 198

145(3) were not applicable to the instant case. He also contended that no addition could be made on account of estimation in the absence of any finding with regard to any valuables, investments, assets and entry found during the course of search. He also submitted that the estimation was very high pitched and no undisclosed assets or investments were found other than disclosed in the return of income. Therefore, it was submitted, no addition is called for on the guess work. The learned Commissioner of Incometax (Appeals) considering the submissions of the assessee in view of the facts obtaining in this case and for the reasons discussed by him at paras 11.5 to 11.14 held that the addition for the assessment years relevant to the block period under consideration would be of Rs. 6,36,451/-. The learned Commissioner of Incometax (Appeals) further concluded as under :-

199

"11.14 (i) In view of the discussion in the preceding paragraphs, after applying the provisions of section 145(3), to arrive at a reasonable estimate of undisclosed income, the unrecorded sales can be taken as 20% of the disclosed sales for the A.Y. 97- 98 to 20012-02 and GP on the same can be taken at 10%.

(ii) For the F.Y.2001-02 the unaccounted sales as discussed above can be estimated at 5 lakhs i.e. about 1/7th of admitted sales of Rs. 34.5 lakhs as 7 assessment years are falling in the block period. (iii) For the period 1.4.2002 to 25.10.2002, the unrecorded sales can be taken at Rs. 5,00,000/- (as shortage of stock was Rs. 4,72,834/-). (iv) The GP will be taken at 10% for all these years falling in the block period. The yearwise computation of undisclosed income will be as under :-

F.Y. Relevant Turnover Unaccounted GP on A.Y. disclosed turnover unaccounted estimated turnover at

(20% of 10% i.e.

disclosed undisclosed

turnover income

where

figures

available

96-97 98-99 6685467 1337093 133709 97-98 98-99 6609740 1321948 132195 98-99 1999-00 5881330 1176266 117627 99-00 2000-01 3538259 707652 70765 2000-01 2001-02 4107570 821554 82155 2001-02 2002-03 - 500000 50000 Period 2003-04 - 500000 50000 1.4.02 to

25.10.02

200

Total 6364513 636451 11.5 Accordingly the addition for the assessment years relevant to the block period is Rs. 636451. 11.16 Since the AO has made addition of Rs.50,50,212/- this will result in relief of Rs.44,13,761/- to the appellant. The addition sustained will take care of the component of unexplained investment in the transaction of unrecorded sales and the assessment background of the appellant firm. As the appellant will also be getting further benefit of Rs.3,00,000/- surrendered as undisclosed income (separately agitated in ground no. 5), it should care of the appellant's grievance about the high pitched estimation of income without reference to the assets found. Otherwise also the rule that profit can be ascertained by comparison of assets of the business at the two dates ceases to apply where the rights of revenue are involved as held in (1911) 1 Ch. 92.

11.17 The ground no. 3 is adjudicated accordingly." Against the above finding, the revenue has come up before us.

194. The learned CIT DR contended before us that the learned Commissioner of Incometax (Appeals) has reduced the unrecorded sales without giving any reasons for the same, by estimating unrecorded turnover at 20% of recorded turnover and estimating income at 10% of the same, which comes to Rs. 6,36,451/-. He submitted that the case of the assessee 201

for calculation of unrecorded sales based on diaries at Rs. 34,53,401/- is wrong. He submitted that the assertion of the assessee that the diary contained rough and torn papers is not correct. He further submitted that if it is extrapolated for the entire block period, it will result into at least 5 fold increase. He, therefore, pleaded that the order of the Assessing Officer deserves to be maintained and that of the learned Commissioner of Incometax (Appeals) set aside.

195. On the other hand, the learned counsel for the assessee submitted that the learned Assessing Officer has estimated the sales at Rs. 7.50 crores and has estimated the GP at 10%. The G.P. disclosed by the assessee has been reduced and the balance amount of Rs. 50,50,212/- has been assessed as an undisclosed income of the assessee. He pleaded that such estimation could not have been made in the absence of 202

any undisclosed assets or expenditure being found. He further submitted that the search was conducted at the business premises of the firm and also at the residence of Shri Satishchand Gothi and all undisclosed assets found in the possession of the members of the family and the firms have been taxed in their respective hands. He, therefore, submitted that in the absence of any undisclosed assets having been found, the best judgment assessment could not have been made on hypothetical grounds based on surmises and conjectures, which deserves to be struck down. He submitted that the learned Assessing Officer should have made the addition on the basis of net profit per centage to the extent of the undisclosed assets found and undisclosed expenditure incurred by the assessee. In this behalf, the learned counsel for the assessee drew our attention to the direct judgment of the Hon'ble High 203

Court of Madhya Pradesh in the case of CIT v. Balkishen Ajit Kumar; 263 ITR 610.

196. The learned counsel for the assessee prayed that in view of the above, the order of the learned Commissioner of Incometax (Appeals) deserves to be upheld.

197. We have considered the rival contentions, carefully gone through the orders of the authorities below and find from record. While framing the block assessment the AO observed that cash book of M/s Gothi Brothers was not complete on the date of search and it contained numerous cuttings and over-writings. He further stated that loose papers were found which represented undisclosed sales. The AO also observed that stock was found less by Rs. 4,72,834/-. The AO rejected the books of accounts and estimated sales of Rs.7.50 crores after applying GP rate of 10% made an 204

addition of Rs.50,50,212/-. By the impugned order CIT(A) restricted the addition to the extent of Rs. 6,36,451/-. It was submitted by the ld. AR that AO has committed error in determining the total at Rs.69.54 lacs in place of correct entries to the tune of Rs.34.53 lacs. He also invited our attention to complete details of Rs. 34 lacs filed before the lower authorities and pointed out that AO has taken the figure double in a number of cases for debits and credits. It was also submitted that sales cannot be estimated for whole block period but have to be taken actual on the basis of loose papers as held by coordinate Bench in case of Sunita Jite Packers; 13 ITJ 608. We have considered the rival submissions of the parties and gone through the material available on record and found that after considering the sales disclosed by the assessee in the assessment year 1997- 98 to 2001-02, CIT(A) has arrived at the actual figure of 205

undisclosed turnover after applying the profit rate of 10% retained addition to the extent of Rs. 6,36,451/-. CIT(A) observed that the addition sustained will take care of component of unexplained investment in transaction of unrecorded sales. The detailed findings recorded by CIT(A) with respect to sale of assessment year 1997-98 to 2001-02 and working out of undisclosed turnover has not been controverted by revenue by bringing any positive material on record. Following the reasoning given in the case of Gothi Jewellers hereinabove, we do not find any reason to interfere with the findings of CIT(A) for arriving at the figure of actual profit earned on unaccounted sales and thereby retaining the addition to that extent.

198. The next ground taken by the revenue is that the learned Commissioner of Incometax (Appeals) was not justified in deleting the addition of Rs.4912/- on 206

protective basis rightly added by the Assessing Officer on account of unexplained cash found during the course of search and seizure operation.

199. During the course of search at the business premises of M/s Gothi Brothers cash of Rs.17,660/- was found which was explained by the assessee as belonging to three business identities viz. M/s Gothi Brothers, M/s Gothi Fertilizers and M/s Eseem Agencies. The assessee also gave bifurcation of the same with reference to the books of accounts. The Assessing Officer accepted the explanation of the in regard to Rs. 12,748/- as per books of accounts and the remaining amount of Rs. 4,912/- was added as unexplained on protective basis in the hands of the assessee. Against this, the assessee went in appeal before the learned Commissioner of Incometax (Appeals). The learned Commissioner of Incometax (Appeals) held 207

that after rejection of books of accounts u/s 145(3) of the Act and estimation of undisclosed income, separate addition for cash was unwarranted. He, therefore, deleted the protective addition of Rs. 4,912/-. We do not find any infirmity in the order of CIT(A). CO No. 113/Ind/05

200. The Ground no. 1 raised by the assessee is that on the facts and in the circumstances of the case, the Authority below erred in law in making addition of Rs.50,50,212/- and sustaining addition of Rs.6,36,451/- on the ground of alleged discrepancies in the sales and in loose papers.

201. Since the facts relating to this ground are identical with the facts narrated above while dealing with ground no. 1 of IT(SS) A. No. 92/I2nd/05 (departmental appeal), we need not repeat the same over here and confirm the addition retained by CIT(A). 208

202. The Ground no. 2 raised by the assessee is that on the facts and in the circumstances of the case, the Authority below erred in law in not allowing the telescoping benefit to the extent of addition sustained in the case of partner/proprietor.

203. After hearing the parties on this issue, we are of the view that nothing could be placed before us to allow benefit of telescoping to the extent of additions sustained in the case of partner/proprietor. Accordingly, this ground of the assessee is dismissed.

204. In the result, the appeal of the revenue and the Cross Objection of the assessee are dismissed. IT(SS) A No. 34/Ind/06

205. In this appeal, the assessee has taken Ground no. 1 to the effect that on the facts and circumstances of the case, the learned CIT(A) erred in law in upholding 209

the issue of Notice u/s 158BD without reasonable basis and findings on record.

206. In this case, notice u/s 158BD read with section 158BD of the Act was issued for the block period by the ACIT 3(1), Bhopal, on 23.7.2003 requiring the assessee to file the return of total income including undisclosed income for the block period in Form No. 2B within 20 days of the receipt of the notice. The assessee requested for further time for filing return of income for the block period. The Assessing Officer granted extension upto 7.9.2003 to file the block return. The assessee filed the return in Form No. 2B on 1.9.2003 declaring undisclosed income for the block period at Nil. In appeal before the learned Commissioner of Incometax (Appeals) the assessee raised a legal issue that the Assessing Officer was not justified in issuing notice u/s 158BD of the Act and in framing the assessment u/s 210

158BD of the Act without providing the basis and reasons recorded for issue of captioned notice u/s 158BD and as such the block assessment order was bad in law and required to be annulled. The learned Commissioner of Incometax (Appeals) did not agree with the assessee's contention and held that initiation of proceedings u/s 158BD of the Act was justified. Against this order of the learned Commissioner of Income Tax (Appeals), the assessee has come up in second round of litigation before us.

207. The learned counsel for the assessee submitted before us that the learned Commissioner of Incometax (Appeals) without giving any reason, has rejected this ground of the assessee. On the other hand, the learned CIT DR relied upon the order of the learned Commissioner of Incometax (Appeals).

211

IT(SS)A No. 225/Ind/07

208. In this appeal, the revenue has taken Ground no. 1 to the effect that on the facts and in the circumstances of the case, the learned CIT(A) has erred in quashing the block assessment proceedings initiated by the A.O.

209. The facts, in brief, are that search and seizure action u/s 132(1) of the Act was made at the residential premises at 5th Lane, Itarsi, whereas the said search and seizure was made in the case of Samirmal Gothi, the husband of the assessee. The notice u/s 158BC read with section 158BD was issued for the block period by the Assessing Officer on 23.7.2003 and served upon the assessee, requiring her to file the return of total income including undisclosed income for the block period in Form No. 2B within 20 days of the receipt of the notice. At the top of the notice the Assessing Officer had 212

marked "notice u/s 158BD" which was underlined by him. Thereafter the assessee filed the return in Form No. 2B on 1.9.2003 declaring undisclosed income for the block period at NIL. However, the Assessing Officer did not accept the nil income and computed the income of the assessee for the block period as detailed in the assessment order. Aggrieved, the assessee preferred appeal before the learned Commissioner of Incometax (Appeals). It was submitted that the said notice u/s 158BC read with section 158BD of the Act was issued by the Assessing Officer without recording 'satisfaction' and communicating the same to the assessee, which is mandatory. It was made specific by the assessee while filing the return that the return is being submitted in compliance to the notice issued u/s 158BD of the Act, keeping the rights of the assessee reserved particularly with regard to findings for issue of notice under 213

reference and on the issue of jurisdiction over the assessee who is not only resident of Itarsi but also assessed to income tax at Itarsi regularly and thus the notice u/s 158BD is inconsistent with the provisions made under the Income Tax Act.

210. The learned Commissioner of Incometax (Appeals), after considering the submissions of the assessee and the material placed before him, observed as under :-

" I have seen the manner in which the block assessment proceedings have been conducted by the A.O. and also the submissions made by the representatives. It may be seen here that the A.O. was silent all along regarding satisfaction reached by him before initiating the block assessment proceedings in this case. In view of the facts, circumstances and also the legal position brought out by the representatives, the action of the A.O. in initiating the block assessment proceedings have to be quashed. Thus, the appeal of the appellant on this point is allowed.

Against the above findings, the revenue has come up before us.

214

211. The learned CIT DR submitted that the learned Commissioner of Incometax (Appeals) was not justified in quashing the assessment order. He relied upon the order of the Assessing Officer.

212. In his turn, the learned counsel for the assessee submitted that since the case of the assessee was not transferred to the Assessing Officer having jurisdiction over the assessee, the Assessing Officer has no jurisdiction to issue a notice and assess that assessee. He further submitted that as per provisions of section 158BD of the Act, it is a mandatory condition that the Assessing Officer before proceeding under that section must be satisfied that any undisclosed income belongs to any person other than the person with respect to whom search was made u/s 132 . In support of his contention, the learned counsel for the assessee 215

relied on the decision of the Hon'ble Apex Court in the case of Manish Maheshwari vs. ACIT; 208 CTR (SC) 97.

213. We have considered the rival contentions and have also carefully gone through the orders of the authorities below. We find from record that the present case was not transferred to the Assessing Officer having jurisdiction over the assessee. We further find that as per section 158BD of the Act, where the Assessing Officer is satisfied that any undisclosed income belongs to any person, other than the person with respect to whom search was made u/s 132 or whose books of accounts or other documents or any assets were requisitioned under section 132A, then the books of accounts, other documents or assets seized or requisitioned shall be handed over to the Assessing Officer having jurisdiction over such person and that Assessing Officer shall proceed u/s 158BC against such 216

person and the provisions of this Chapter shall apply accordingly. In this case, the Assessing Officer did not record his 'satisfaction' before issue of notice u/s 158BD of the Act. The decision of the Hon'ble Apex Court in the case of Manish Maheshwari vs. ACIT; 208 CTR (SC) 97 relied upon by the assessee clearly supports our view. IT(SS) A No. 33, 34/Ind/2006 and IT(SS) 225/Ind/07

214. In all these cases, assessments were framed u/s 158BD of the Act. The legal ground taken by the assessee relates to non-recording of satisfaction u/s 158BD by the Assessing Officer which is a mandatory requirement before initiation of proceedings. The learned counsel for the assessee submitted that assumption of jurisdiction by the Assessing Officer u/s 158BD was not justified since there was no satisfaction to the effect that any document was found during the course of search indicating any undisclosed income of 217

present assessees so as to empower the Assessing Officer to assume jurisdiction u/s 158BD. Our attention was also drawn to the proceedings dated 23.7.2003 which merely stated in view of the circumstances mentioned regarding search and in view of the proposal made by the investigating wing in the appraisal report, notice u/s 158BD was bad in law. As per the ld. Counsel for the assessee, even the issue with regard to treating the appraisal note as satisfaction for the purpose of section 158BD has been dealt in detail by the Coordinate Bench in the case of Chirchid Hydro Limited reported at 17 ITJ 197 order dated 29.10.2010.

215. We have considered the rival submissions of ld. representatives of both sides and perused the material available on record. We find that the jurisdiction to frame assessment has been assumed by the Assessing Officer u/s 158BD of the Act, under which recording of 218

satisfaction is a condition mandatory which has not been complied with. Even after giving opportunity to the department, nothing could be produced before us to substantiate that any such satisfaction was recorded by the Assessing Officer before initiation of such proceedings u/s 158BD of the Act. The issue with regard to assumption of jurisdiction u/s 158BD of the Act without recording of satisfaction has been elaborately dealt with by the coordinate Bench in the case of Chirchind Hydro (supra) wherein following was the observation of the Bench :-

"78. We have considered the rival contentions, carefully gone through the orders of the authorities below and deliberated on the case laws referred by the lower authorities in their respective orders and by the respective counsels during the course of hearing before us. From the record we find that the search was carried out at the residential premises of directors/partners of these concerns and not at the premises of these concerns. After the search was carried out at the residence of directors/partners of these associate concerns, assessment was framed in respect of these concerns u/s 153C of the Act on the plea that incriminating material was found during the course of search at the residence of 219

partners/directors. The assumption of power by the Assessing Officer u/s 153C of the Act for framing the assessment is subject to the condition that the Assessing Officer assessing the search party, is satisfied that the jewellery or other valuable articles or things or books of accounts or documents or assets, seized or requisitioned, pertain to some person other than the person referred to in section 153A, then the books of accounts or the documents or assets seized or requisitioned, shall be handed over by the Assessing Officer of searched person to the Assessing Officer having jurisdiction over such other person and that the Assessing Officer shall proceed against each of such persons and issue such other person notice and assess or reassess income of such other person in accordance with the provisions of section 153A of the Act. The opening word of section 153C speaks that not-with-standing anything contained in sections 139, 147, 148, 149, 151 and 153, where the Assessing Officer is "satisfied" that any money, jewellery or books of accounts or documents seized or requisitioned belongs to a person other than the person referred to in section 153A, meaning thereby the Assessing Officer is to record a satisfaction to the effect that such jewellery or document so seized does not belong to the searched person but to some other person referred to in section 153A of the Act. Thus, the pre-requisite of section 153C is that the Assessing Officer making the assessment of the searched person has to satisfy himself that some material found during the course of search and seizure belongs to some person other than the searched person. Then the Assessing Officer making the assessment of searched person has to hand-over the said incriminating material belonging to some person other than the searched person to the Assessing Officer having jurisdiction over the said other person. Thereafter, the Assessing Officer having the jurisdiction over the person other than the searched 220

person shall issue a notice u/s 153C to such other person and assess his income in terms of the provisions of section 153A of the Act. Thus, the notice u/s 153C of the Act is to be issued only after recording of satisfaction. The assumption of jusrisdiction to issue notice and frame assessment under section 153C read with section 153A is acquired by the Assessing Officer only after having been satisfied and such satisfaction is recorded in writing. These provisions of section 153C are in pari materia with the provisions of section 158BD which provides that the Assessing Officer making the assessment of the searched person has to satisfy himself that some undisclosed income found by him belongs to some person other than the searched person and then he or the Assessing Officer having jurisdiction over such other person after receipt of record from the Assessing Officer of the searched person has to issue notice u/s 158BD of the Act and has to assess income of such other person. The provisions of section 158BD of the Act were examined in detail by the Hon'ble Supreme Court in the case of Manish Maheshwari; 208 CTR 97. The said Hon'ble Supreme Court decision was followed by the Hon'ble Delhi High Court in the case of New Delhi Auto Finance Limited; 300 ITR 83. The Hon'ble Supreme Court has laid down a proposition that the Assessing Officer making the assessment of the searched person has to necessarily record in writing the specific objective satisfaction which is mandatory to the effect that the undisclosed income found by him, on the basis of seized material, belongs to some person other than the searched person. Insofar as the provisions of section 153C of the Act are in pari materia with the provisions of section 158BD of the Act with regard to the requirements of recording necessary satisfaction by the Assessing Officer of searched person, the law laid down by the Hon'ble Supreme Court in the case of Manish Maheshwari (supra) shall apply with full 221

force in case of initiation of proceedings u/s 153C. The assumption of jurisdiction and framing of assessment by the Assessing Officer u/s 153C without recording such satisfaction is void ab initio. Applying the proposition of law laid down by the Hon'ble Supreme Court, as discussed above, it is quite evident that recording of satisfaction before issue of notice u/s 153C is mandatory and in case where no such satisfaction has been recorded by the Assessing Officer in the case of searched person to the effect that some incriminating material so found belongs to some other person, the assessment framed u/s 153C will be liable to be quashed. However, detailed finding has been recorded by the learned Commissioner of Incometax (Appeals) after examining the assessment records of the concerned person/parties to the effect that no satisfaction has been recorded by the Assessing Officer of the searched person. This finding of the learned Commissioner of Incometax (Appeals) has not been controverted by the department by bringing any positive material on record. Accordingly, applying this propostion of law, the assumption of jurisdiction and framing of assessment in the instant cases by the Assessing Officer u/s 153C were bad in law.

79. It was argued by Shri K.K. Singh, the learned CIT DR, that satisfaction note, as stipulated u/s 153C of the Act, is to be seen in the context of satisfaction note prepared by the ADIT in the form of appraisal note after the search is over. He placed on record a copy of the appraisal note which is prepared by the ADIT after the search was over wherein details of search having been carried out along with the survey carried out on the same family members of the group, were duly mentioned along with assertion for issue of notice u/s 153C in cases of assessee not covered by search but where only survey action has been undertaken. It was contended by the learned CIT DR that whenever a search is being planned, on the basis 222

of detailed information collected by the department and after due application of mind, strategies are finalized in respect of places/persons/concerns where search and seizure action u/s 132 of the Act is to be undertaken as well as the places/persons/concerns where action u/s 133A of the Act will serve the purpose. The whole action of search and survey is planned at a time and the department also keeps in mind that there should not be any harassment to the persons/concerns falling in the same group, who are not so important but are very much relevant and associated with the assessee, which necessitated simultaneous survey at their premises, so that nothing is left out. Our attention was drawn to various lists prepared as a part of appraisal note duly mentioning the names of the persons along with their addresses, date of search, who are appearing in the warrant of authorization u/s 132. A list was also prepared to show the premises wherein survey was undertaken u/s 133A of the Act. In the appraisal note, a list was also given where action u/s 153C of the Act was intended to be initiated. As per the learned CIT DR, such list comprises of the persons other than the person at whose premises search is being carried out in respect of the documents found at such places which pertain to the person other than person against whom action u/s 132 was undertaken. As per the learned CIT DR , it is not only the Officer framing the assessment should be considered as Assessing Officer for recording satisfaction but the other Officers involved in the search and survey like ADIT/DDIT should also be considered. Our attention was also drawn to the provisions of sub-section (7A) of section 2 defining the Assessing Officer to mean Assistant Commissioner, Deputy Commissioner, Assistant Director, Deputy Director or the ITO, who is vested with the relevant jurisdiction by virtue of directions or orders issued under sub-section (1) or sub-section (2) of section 120 223

or any other provision of this Act and the Additional Commissioner or the Additional Director or Joint Commissioner or Joint Director, who is directed under clause (b) of sub-section (4) of that section to exercise or perform all or any of the powers and functions conferred on or assigned to an Assessing Officer. As per the learned CIT DR, under the new scheme of section 153A/C, there is no need to find out undisclosed income, but the assessment is made after the search is carried out to assess or reassess the income of the assessee for the immediately preceding six assessment years and the current assessment year falling upto the date of search. He further contended that under the old scheme of section 158BC/158BD of the Act, the department was to assess the undisclosed income on the basis incriminating documents found during the course of search whereas under the new scheme of section 153A/153C, where a search is initiated u/s 132 or books of accounts or other documents or any assets are requisitioned u/s 132A, then the department has to assess or reassess the total income of such assessee for six assessment years immediately preceding the assessment year relevant to the previous year in which such search is conducted or requisition is made. Accordingly, it was pleaded that judicial cognizance given to the language of section 158BD in case of Manish Maheshwari by the Hon'ble Supreme Court insofar as recording of necessary satisfaction is concerned, should not be taken while interpreting section 153C of the Income tax Act under the new scheme of framing assessment in search cases. As per the learned CIT- DR, in the new scheme of the Act, appraisal report amounts to satisfaction by the Assessing Officer for issuing a notice u/s 153C of the Act.

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80. On the other hand, in reply to the learned CIT DR's contentions, it was argued by the learned counsel for the assessee that even under the new scheme of assessment u/s 153C of the Act, satisfaction is to be necessarily recorded by the Assessing Officer of the searched person indicating the documents seized or requisitioned, which belong to a person other than the person referred to in section 153A of the Act. He invited our attention to the precise language used in section 153C of the Act which categorically requires the Assessing Officer's satisfaction to the effect that valuables, seized documents found during the course of search, which belong to a person other than a person searched and the procedure of handing over of these documents/valuables, etc. to the Assessing Officer having jurisdiction over such other person and thereafter obligation of the Assessing Officer of such other person to proceed against each such other person and issue such other person notice and thereafter to assess or reassess the income of such other person in accordance with the provisions of section 153A of the Act. As per the learned counsel for the assessee, copy of such satisfaction note should be given to the assessee whereas the appraisal note, as referred by the learned CIT DR, is a confidential document prepared by the department for their internal use and copy of which is not handed over to the assessee. Such appraisal report is a secret document prepared by the department and which is not open to the assessee, therefore, cannot be treated at par with the satisfaction note as contemplated u/s 153C of the Act with regard to the documents seized during the proceedings u/s 132, which is alleged to be belonging to a person other than the person referred to in section 153A of the Act. Reliance was also placed on the proposition laid down by the Hon'ble Supreme Court in the case of 225

Manish Maheshwari; 289 ITR 341(supra) and G.K. Drive Shaft; 259 ITR 19 and the decision of the jurisdictional Tribunal in the case of Rishi Construction; 10 ITJ 346 and Asnani Builders; 10 ITJ

618.

81. We have deliberated upon the contentions of the learned CIT DR, Shri K.K. Singh and learned counsel for the assessee, Shri H.P. Verma, with regard to interpretation of recording of satisfaction while assuming jurisdiction u/s 153C of the Act. Even in the new scheme of framing of assessment in case of search cases, the legislature has clearly stipulated the requirement for recording of satisfaction while assuming jurisdiction to issue notice and frame assessment u/s 153C of the Act which requires that satisfaction to be recorded with reference to the documents and other materials found during the course of search belonging to a person other than the searched person. Prima facie, Assessing Officer of searched person should form an opinion with regard to any document, valuable, etc. as found during the course of search that such document, which is declined by the searched person, actually belongs to some other person against whom proceedings u/s 153C are required to put into operation. After such recording, of satisfaction, the documents so seized should be handed over to the Assessing Officer of such other person. The legal requirement of recording of such satisfaction cannot be substituted by appraisal note which is prepared by the search party after completion of search insofar as such appraisal note is a secret document prepared by the department for their internal use, contents of which are not conveyed to the assessee nor its copy is supplied to the assessee even on making a written request. The appraisal note so prepared by the department is meant to monitor after the search proceedings are over so as to ensure exhaustive assessment of all 226

searched person with respect to their correct income and to plan a strategy for further deep inquiry and investigation of documents found during the course of search. Since copy of such appraisal note is not supplied to the assessee, it cannot be taken at par with the requirement of recording of satisfaction note as stipulated u/s 153C of the Act, which is a mandatory requirement. What is the legislative intent of such satisfaction and in what manner it should be recorded has been dealt with in the judicial pronouncements in the cases of Manish Mahehwari and G.K. Drive Shaft by the Hon'ble Supreme Court. Accordingly, we are not inclined to agree with the proposition that the appraisal note prepared by the department should be treated as a satisfaction note as required to be recorded in terms of section 153C of the Act so as to empower the Assessing Officer to assume jurisdiction to issue notice and thereafter frame assessment u/s 153A read with section 143(3) of the Act.

82. In view of the above discussion, we do not find any infirmity in the order of the learned Commissioner of Incometax (Appeals) who has quashed the assessment framed u/s 153C of the Act. Further, the detailed finding recorded by the learned Commissioner of Incometax (Appeals) with respect to recording of satisfaction has not been controverted by the department by bringing any positive material on record. We, therefore, do not find any infirmity in the order of the learned Commissioner of Income tax (Appeals) quashing the assessments framed u/s 153C of the Act in the cases of all these assesses."

216. The Hon'ble Calcutta High Court in the case of Subhashchandra Bhaniramka v. ACIT; 320 ITR 349 held 227

that satisfaction must be independent and contains reasons. Satisfaction recorded had to be independent and subjective and not a casual reference to the seized materials. Similarly, Hon'ble Delhi High Court in the case of Anupam Sweets; 321 ITR 485 held that no satisfaction recorded in case of assessee i.e. third person, assessments on assessee not justified and bad in law and without jurisdiction. Similar view has been taken by Delhi High Court in case of New Delhi Auto Finance Pvt. Ltd. 300 ITR 83 wherein it was held that no satisfaction having been recorded in the case of the assessee and therefore the notice issued was vague and show patent non-application of mind and was not valid.

217. Recently, the Hon'ble Delhi High Court in the case of CIT vs. Radhey Shyam Bansal held as under :- 228

"(ii) The word "satisfaction" has not been defined in the act. By its very nature "satisfaction" must precede the sending of papers/documents by the searched person's A.O. to the third person's A.O. Mere use or mention of the word 'satisfaction' in the order/note will not meet the requirement of concept of satisfaction as used in s. 158BD. The satisfaction has to be in writing and can be gathered from the assessment order, if it is so mentioned/recorded, or from any other order, note or record maintained by the A.O. of the person searched. The A.O. must reach a clear conclusion that good ground exists for the A.O. of the third person to initiate proceedings as material before him shows or would establish "undisclosed income" of a third person. There must be rational and tangible nexus between the material found in search and the satisfaction : (iii) On facts (without going into the issue of whether the A.O. was "functus officio"), the assessment order passed in the case of Manoj Aggarwal does not show any "satisfaction" that any undisclosed income belongs to the assessee. Though Manoj Aggarwal's A.O. wrote a letter to the assessee's A.O. informing him that the assessee was providing bogus accommodation book entries and the quantum of transactions was given as per Annexures, the Annexures were missing from the file. No evidence and material was brought on record to show that the assessee had received cash for the entries. So, the onus on the A.O. that there was valid satisfaction was not discharged."

218. In the case of Indra Devi Gothi; IT(SS) 34/06 and Smt. Pushpadevi Gothi; IT(SS) 34/06 we find that no satisfaction was recorded as envisaged u/s 158BD, 229

therefore, assessment framed without recording of satisfaction is set aside on this legal ground itself. The findings recorded by the learned CIT(A) in the case of Sushiladevi Gothi (IT(SS)A No. 225/Ind/07) to the effect that no satisfaction has been recorded by the AO as envisaged u/s 158BD has not been controverted by the department by bringing any positive material on record. The finding recorded by the CIT(A) is as per material on record. Applying the proposition of law as discussed in the above cases to the facts of the instant case i.e. ITA No. 225/Ind/2007, we do not find any infirmity in the order of CIT(A) in annulling the assessment framed u/s 158BD without recording satisfaction. The issue in all these three appeals in (IT(SS) A No. 33, 34/Ind/2006 and IT(SS) A No. 225/Ind/2007 is squarely covered by 230

the aforesaid order, accordingly the assessment framed u/s 158BD is held to be null and void.

219. In the result, all the appeals of the revenue are dismissed whereas cross objections filed by the assessee are allowed in part/dismissed, as indicated above. Order pronounced in open Court on 18th August, 2011.

(R.C. SHARMA) (JOGINDER SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER Indore

Dated - 18th August, 2011

Copy to : Appellant/Respondent/CIT/CIT(A)/DR Dn/-

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