1999-VIL-110-ITAT-PNE
Equivalent Citation: TTJ 067, 139,
Income Tax Appellate Tribunal PUNE
Date: 16.03.1999
HOTEL VRINDAVAN.
Vs
ASSISTANT COMMISSIONER OF INCOME-TAX,.
BENCH
Member(s) : B. L. CHHIBBER., K. C. SINGHAL.
JUDGMENT
B.L. CHHIBBER, A.M.:
The assessee is a registered partnership concern which commenced business operations since 1960 with two partners (1) Shri M.V. Kamat and (2) Shri V.R. Patankar. The hotel located in the heart of the city of Kolhapur, is run by both the partners. It is mainly restaurant and tea shop.
2. A survey operation under s. 133A of the IT Act, 1961, was taken at the business premises of the assessee-firm on 27th June, 1996. Simultaneously, the search operation under s. 132 of the Act was carried on at various business and residential premises of the Kamat Group. The search action was conducted at the residence of partner Shri V.R. Patankar and also at the residence of other partner Shri M.V. Kamat on 27th June, 1996. The search action under s. 132 of the Act was also conducted at the residential premises of Shri R.M. Acharya, who is manager of the firm M/s Hotel Vrindavan. As a result of search operation, the assessment has been completed under s. 158BC of the IT Act, 1961 for the block period 1987-88 to 1997-98. The assessee is in appeal against the block assessment framed by the AO. Four grounds have been raised. The same are discussed and disposed of as follows:
3. Ground No. 1 read as under:
"The learned Asstt. CIT erred in holding, without any evidence that there was escapement of sales for the period 1st Jan., 1986 to 2nd Nov., 1986 (Asst. yr. 1987-88) merely because suppression was found in the seized books for subsequent period. There is no presumption in law that if subsequently there was suppression, there must be such suppression in earlier year and the onus to prove such presumption was on the Department. The learned CIT erred m putting a negative burden on the appellant not realising that appellant could not prove the non-existence of a fact. The net profit for asst. yr. 1987-88 at Rs. 1,24,265 calculated on this presumptive basis, is not justified. The said addition may kindly be deleted."
During the course of search and survey operation, it was found that the assessee-firm was suppressing sales. For the asst. yr. 1987-88 as per the seized documents, the suppressed sales pertained to only for 4th Nov., 1986, to 31st Dec, 1986 (assessee was following calender year as the accounting year). The AO presumed that since the sales were suppressed in the subsequent part of the asst. yr. 1987-88 and in the subsequent years, the assessee must have suppressed the sales for the earlier period also. Following the pattern followed by the assessee in the subsequent period and assessment years the AO estimated the sales and worked out the profit at Rs. 1,24,265 for the whole asst. yr. 1987-88.
4. Shri K.A. Sathe, the learned counsel for the assessee submitted that the AO has estimated for asst. yr. 1987-88 undisclosed income at Rs. 89,011 without any sound material found for major part of the year. The addition is intangible i.e., on account of material found for 3rd Nov., 1986 to 31st Dec, 1986. The learned counsel further submitted that on p. 7, the AO himself has admitted that there is no scope for presumption and assumption for computing past sales and expenses and contradictory to this statement, he computed the net profit on presumed sales. He submitted that the AO should estimate the sales and expenses for the period 4th Nov., 1986 to 31st Dec, 1986 for which there was material in the hands of AO and according to the learned counsel such addition would at best works out to Rs. 28,000.
5. Shri C.M. Bhake, the learned Departmental Representative strongly supported the order of the AO. He submitted that the assessee had followed a specific pattern for suppressing the sales all these years and the AO was justified in presuming that the sales must have been suppressed in the earlier years also. He submitted that there were circumstantial evidence to this effect. He therefore, submitted that the entire addition deserves to be upheld.
6. We have considered the rival submissions and perused the facts on record. The provisions under Chapter XIV-B are the special provisions. These were brought on the statute book specially and specifically for assessment of undisclosed income detected as a result of search. The Hon'ble Tribunal Bombay, in the case of Sunder Agencies in IT(SS)A No. 87/Mum/1996 at para 22 has held as under:
"22. It is abundantly clear from the perusal of the prescription of s. 158BA that within the pale of Chapter XIV-B assessment could be made only in respect of the undisclosed income. Such undisclosed income must come as a result of search. This section does not provide a licence to the Revenue for making roving enquiries connected with the completed assessments. It is beyond the power of the AO to review the assessments completed unless some direct evidence comes to the knowledge of the Department as a result of search which indicates clearly the factum of undisclosed income. Without such evidence of material the AO is not empowered to draw any material presumption as to the existence of undisclosed income. A presumption is an inference of fact drawn from other known or proved facts. It is the rule of law under which Courts are authorised to draw a particular inference from a particular fact, until and unless the truth of such Chapter XIV-B does not give power to the Revenue to draw the presumption in regard to the undisclosed income. The AO could proceed on the basis of material detected at the time to search and the evidence gathered."
Thus, there is no scope for presumption in the statute inasmuch as the provisions under Chapter XIV-B are concerned. The maxim of English Law as propounded by Holroyd, J. prescribes: "It is better that ten guilty men should escape rather than one innocent should suffer". The principle of justice requires that no one should be punished on the basis of presumption. From the reading of the order of the AO it is noted that the addition has been made on the presumption that if the assessee was suppressing the sales and expenses for the subsequent year, he must have suppressed the sales and expenses for the earlier years also. Such addition cannot be confirmed as the same is not supported by cogent material and evidence. We accordingly direct the AO to add profit on account of suppressed sales and expenses for the period from 4th Nov., 1986 to 31st Dec, 1986, only in the asst. yr. 1987-88. This ground accordingly succeeds in part.
7. Ground No. 2 reads as follows:
"The learned Asstt. CIT erred in adding investment of Rs. 5,00,000 in FD with Mahavir Pat Sanstha on protective basis even though it was explained to be out of undisclosed business income of the appellant computed separately."
During the course of search action at the residence of Shri D.C. Naik, who is employee of M/s Hotel Vrishali, 60 FDRs made with Mahavir Nagar Pat Sanstha, Kolhapur were found and seized. Each FDR was of the value of Rs. 20,000. Shri D.C. Naik disowned the FDRs found. He stated that the said FDRs were given to him about 3 years back by Shri Girish M. Kamat. A statement of Shri Girish M. Kamat was recorded on 5th July, 1996, by the ADI (Survey), Kolhapur, wherein in answer to question No. 4, he admitted that on page No. 18 the noting of FDR in Mahavir Nagari Pat Sanstha are made by him and the FDRs were kept with D.C. Nayak one of the employees of Kamat Group. He further submitted that the FDRs belonged to various persons of the group and here it may be worthwhile to reproduce question No. 4 and answer to the same.
"Q.4. Kindly explain the entries made on page Nos. 18 and 19 in the said red colour crystal pocket book.
A.4 It is the noting of the FDRs made in Shri Mahavir Nagar Sahakan Pat Sanstha Ltd., Kolhapur. On para No. 18, names of our various concerns viz., M/s S & N Construction, M/s Vijayalaxmi Constructions, myself Girish Kamat, Kamat Restaurant, M/s Urvashi, partly Vrindavan are noted. On the same page Group and 12L donote twelve lacs of the whole group. On p. 19, the words Mahaveer Pat means Shri Mahaveer Nagari Pat Sanstha Ltd. and FDR means fixed deposit receipts the words 12L means rupees twelve lacs.:
According to the AO the bifurcation as to the holding of each member concern could not be given by Girish M. Kamat at the stage of recording his statement on 5th July, 1996. He was directed to produce 45 persons in whose names the FDRs were made. He stated in answer to question No. 8 that all the 45 names are fictitious and therefore, he could not produce them or give then addresses. He was asked to explain the sources of Rs. 12 lakhs made in 45 fictitious names. He stated that the source of investment was out of business concerns of Kamat Group. Later on his written reply dt. 29th May, 1997 Shri Girish M. Kamat gave personwise investment as under:
------------------------------------------------
Name of the concern Amount of FD FDR No.
(Rs.)
------------------------------------------------
M/s Hotel Vrindavan 5,00,000 603 to 624
628 to 630
M/s S.N. Construction 3,40,000 631 to 644
668 to 670
Shri M.V. Kamat 2,00,000 658 to 667
Mrs. P.M. Kamat 20,000 645
Shri G.M. Kamat 1,40,000 671 to 677
------------------------------------------------
The assessee-firm disclosed a sum of Rs. 5,00,000 as its undisclosed income and offered for taxation. The AO was of the view that the entire FDRs aggregating to Rs. 12 lakhs belonged to Shri G.M. Kamat. Since the assessee had disclosed a sum of Rs, 5 lakhs, he assessed the same on protective basis. The grievance of the assessee is that the amount of Rs. 5,00,000 should not have been assessed on protective basis but on substantive basis because it had duly declared the amount of Rs. 5,00,000 as undisclosed income.
8. Shri K.A. Sathe, the learned counsel for the assessee submitted that the fact of ownership of the fixed deposits claimed by the assessee out of undisclosed income of the firm, the same should have been assessed on substantive basis. He drew our attention to a page in crystal pocket diary which was admitted by Shri Girish M. Kamat as belonging to him. He drew our attention to the contents of paper and noting placed at p. 2 of the paper book which on one side records the FDR as 12L and the other side i.e., left side the names of the group concern and pointed out that the name Vrindavan appears on the said paper. He further drew our attention to question No. 4 and answer to the same and the statement of Shri Girish M. Kamat which has been reproduced above and submitted that it cannot be said that the entire Rs. 12 lakhs belonged to Shri Girish M. Kamat Moreover, the assessee-firm had declared an amount of Rs. 5 lakhs on account of fixed deposits with Mahaveer Pat Sanstha as undisclosed income of the firm and the same ought to have been accepted by the AO.
9. Shri C.K. Bhake, the learned Departmental Representative strongly supported the order of the AO. He submitted that no reliance can be placed on the paper placed at p. 2 of the paper book which contains the name of the concern book but does not give the exact amount deposited by each group with Mahaveer Pat Sanstha. He submitted that this paper is a dumb paper and should be rejected outright. This paper was written in the hand of Shri Girish M. Kamat. The presumption is that the contents of it pertains to Girish M. Kamat and the entire amount of Rs. 12 lakhs is assessable in the hands of Mr. Girish M. Kamat. Accordingly, though the assessee declared a sum of Rs. 5 lakhs as its undisclosed income, the AO was justified in assessing the same on protective basis.
10. Alternatively, he argued that even if on the basis of paper seized during the search and placed at p. 2 of the paper, the amount of Rs. 12 lakhs should be assessed in the hands of the assessee on proportionate basis.
11. We have considered the rival submissions and perused the facts on record. From question No. 4 and reply to it in the statement of Shri Girish M. Kamat it is evident that the FDRs aggregating to Rs. 12 lakhs with Mahaveer Pat Sanstha did not belong to Shri Girish M. Kamat but to the concern of Kamat group. This fact is also further clear from the seized paper placed at p. 2 of the paper book. In our view this is not a dump paper. Its contents speak for themselves. As pointed out above, on the right side of the paper, it is written the name of Mahavir Pat and FDR 12L meaning thereby Rs. 12 lakhs. On the other side of the paper are given the names of concerns of Kamat group and the name of the assessee i.e., Vrindavan promptly appear on the left side of the paper book. The paper has to be read as a whole. It cannot be read in bits. On the basis of the contents of the paper, the assessee declared as sum of Rs. 5 lakhs on account of FDRs with Mahaveer Pat Sanstha as undisclosed income. Accordingly, a sum of Rs. 5 lakhs stands owned by the assessee-firm and accordingly it should be assessed on substantive basis in the hands of the assessee. We are unable to agree with the contention of the learned Departmental Representative that the average of Rs. 12 lakhs should be worked out and then only the proportionate amount should be assessed on substantive basis in the hands of the assessee-firm, because when the assessee categorically owns up a sum of Rs. 5 lakhs it cannot be assessed on a lesser amount worked out on the basis of average. Under the circumstances, we hold that the amount of Rs. 5 lakhs should be assessed on substantive basis in the hands of the assessee-firm. This ground accordingly succeeds.
12. Ground No. 3 reads as under:
"The learned Asstt. CIT erred in adding total amount of Rs. 2,64,644 for different years separately even though the undisclosed income on account of suppression of sales was separately calculated. The amount of Rs. 2,64,644 has, been added wrongly once again to undisclosed income of respective years."
Here the facts are very clear. In spite of undisclosed income calculated by the AO in his assessment order for different years, he has once again added the figure of Rs. 2,64,644 disclosed by the assessee, as undisclosed income. Obviously this is the double addition which fact has been admitted by the learned Departmental Representative. We accordingly hold that there is no justification for the double addition. The amount of Rs. 2,64,644 is accordingly deleted. This ground accordingly succeeds.
13. Ground No. 4 reads as under:
The appellant craves leave to add, alter, omit or substitute any of above grounds at the time of hearing of the appeal."
This ground is general in nature and calls for no comments
14. In the result, the appeal is allowable in part.
K.C. SINGHAL, J.M.:
After going through the order proposed by my learned brother, I find myself in complete agreement with the conclusions arrived at by him. However, I would like to add few words in respect of grounds No. 1 disputing the addition made by the AO in respect of estimated suppressed sales and purchases for the period from 1st Jan., 1986 to 2nd Nov., 1986, because of my observations in the order dt. 9th Feb., 1999, in the case of M/s K.M. Khopade in ITA (SS) No. 281/PN/97 wherein it has been held by me that where the regular books of account are discarded because of the seized materials and the seized material is not a complete record of all the unaccounted transactions, then the estimate of undisclosed income can be made by applying the provisions of ss. 145 and 143(3) of the IT Act, 1961. In that case, it was found by me as a fact that seized material was not a complete record of the unaccounted transactions, but was a mere compilation of such transactions. In view of such fact, the estimate of undisclosed income was held to be justified in principle. However, in the present case, the said legal principle cannot be applied because of the distinguishable facts. In the present case, the seized material is a complete record of unaccounted sales and purchases from 3rd Nov., 1986, to the date of search. Such seized material is in the form of diaries, which were in continuity right from 3rd Nov., 1986, till the date of search. There is no material whatsoever to suggest that there was any transaction outside the books of account prior to 3rd Nov., 1986. In view of these distinguishable facts, I completely agree with the conclusion arrived at by my learned brother on this issue.
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