2003-VIL-183-ITAT-DEL
Equivalent Citation: ITD 087, 035, TTJ 081, 734,
Income Tax Appellate Tribunal DELHI
Date: 13.01.2003
KAY CEE ELECTRICALS.
Vs
DEPUTY COMMISSIONER OF INCOME-TAX.
BENCH
Member(s) : K. C. SINGHAL., M. V. NAYAR.
JUDGMENT
Per Singhal, J.M.--This appeal is directed against the order of block assessment comprising the block period from1-4-1985 to24-8-1995 passed by DCIT, Special Range-36,New Delhi.
2. Briefly stated, the facts are these: The assessee firm was engaged in the business of processing and manufacturing of copper rods from ingots at B-7, Jhilmil, Shahdara,Delhi. A search and seizure operation was carried out under section 132 at various places on 24-8-1995 in the course of which unaccounted cash of Rs. 36,46,545 along with 19 slips were found from an almirah kept at B-11/3, Jhilmil, Shahdara and the same were seized. In addition, certain stocksGreece, furnace oil and copper scrap etc. were also found. In response to notice under section 158BC, the assessee filed the return for the block period disclosing nil undisclosed income.
3. In the course of assessment proceedings, it had been noted that cash found and seized from B-11/3, Jhilmil, Shahdara was not accounted for in the regular books maintained by the assessee. It was also noted that J.K. Aggarwal, partner of the firm had admitted in his statement recorded under section 132(4) that such cash represented business income of the firm for the current year. Since this income was not disclosed in the block return, the assessee was asked to show-cause as to why such cash should not be considered as undisclosed income in the block period. The assessee vide his letter dated12-8-1996submitted that this cash was received on trust from various business associates but the same was offered as business income since unsupported by any evidence. Accordingly, it was prayed that this amount may be included in the income of the firm. The Assessing Officer, considering the provisions of section 158B(b) and the fact that this sum was not recorded in the regular books of account, held that this cash had not been and would not have been disclosed as income of the assessee in the regular books of account. Accordingly, this amount was included in the total undisclosed income for the block period.
4. Regarding 19 slips, it was found on the basis of panchnama that these slips were strapped to the cash found from B-11/3, Jhilmil, Shahdara. Assessee was asked to explain the nature and contents of these slips. The assessee vide letter dated 23-8-1996 submitted that (i) these slips were merely dumb papers; (ii) these were not found from the possession and control of the assessee since premises B-11/3, Jhilmil Shahdara did not belong to the assessee; (iii) these slips did not suggest earning or receipt of any income which had not been recorded in the books of assessee; (iv) these slips were neither in the handwriting of any partner of the assessee firm nor written under the instructions of the partners; (v) that all the slips except Slip No. 15 might have been left over by any customer in the premises not belonging to the assessee; (vi) there was no narration written on these slips; (vii) some of these slips did not record any figure. Regarding slip No. 15, it reiterated above reply and further submitted that it appear to be some sort of tally of which assessee had no knowledge. Further, no such cash mentioned on these slips was handled by the assessee or any of his employee. It was also submitted that provisions contained in section 68 to 69D were not applicable.
5. The Assessing Officer rejected the above submissions by observing that (i) the premises B-11/3, Jhilmil, Shahdara was owned by three male partners and husband of one lady partner of the assessee firm; (ii) the key of the premises was with the employee of the assessee; (iii) the search party was allowed inside only after the premises was given by the supervisor of the assessee firm; (iv) the cash and stock found from the same premises were not disputed by assessee; (v) these slips were attached with the cash through rubber band; (vi) slips contained names like J.K. Aggarwal, Vinod Tempo, Shashi Metal; Ved Metal, Madhu Wire etc. wire etc. which show that these slips were connected to assessee's line of business. Accordingly, it was held by him that these slips belonged to the assessee and the onus to explain the same was on assessee. It was also held by him that these slips related to unaccounted transactions of the assessee. It was also noted by him that unaccounted cash and these slips were kept under lock and key. It was also noted by him that coins worth Rs. 9200 mentioned at slip No. 15 coincided with the detail of cash found. In the final analysis, the Assessing Officer made the addition of Rs. 27,27,052 on the basis of amounts written on slip Nos. 2, 3,10 to 14, 16, 18 & 19, addition of Rs. 71,06,918 on the basis of figures written on slip No. 15 and ad hoc addition of Rs. 2 lakhs on the basis of other slips on which no figure was mentioned. Thus, the total addition of Rs. 1,00,33,970 was made on account of unexplained slips.
6. The Assessing Officer also made addition of Rs. 2,09,841 on account of unexplained stock found from the aforesaid premises.
7. Aggrieved by the aforesaid additions made by Assessing Officer, the assessee has challenged the same by filing this appeal before the Tribunal.
8. Regarding the addition of Rs. 36,46,545 on account of unexplained cash, it has been fairly admitted by the assessee's counsel that this amount was found from the almirah kept at B-11/3, Jhilmil, Shahdara which was not accounted in the regular books of account kept by the assessee. Further, he has assailed the order of Assessing Officer by contending that if the assessee makes the statement under section 132(4) to the effect that the cash found represents the current income for the period ending the date of search and the previous year has not ended and the return is not due by that date then such income cannot be understood as undisclosed income in view of the provisions of Explanation 5 to section 271(1)(c) read with section 158BA(3) and section 158B(b) irrespective of the fact that such cash was not recorded in the regular books of account. In this connection, he took us through the relevant provisions mentioned above and the statement of the assessee under section 132(4). He also submitted that there was no material to hold that assessee would not have disclosed this sum in the return. He also drew our attention to page 27 of the paper book, which is the trading and profit and loss account for the period 1-41995 to 23-8-1995 (period prior to search) wherein cash seized by the department has been included in the profit and loss account and this was offered for taxation in the assessment year 1996-97. He also invited our attention to the assessment order for assessment year 1996-97 wherein the net loss of Rs. 15,16,037 as per Profit and Loss account mentioned above has been accepted after making certain disallowances but later on the sum of Rs. 36,45,545 has been excluded from the assessment proceedings which has been assessed as undisclosed income for the block period. According to him, this income was duly shown in the regular books and, therefore, no assessment under the provisions of Chapter XIVB could be made.
9. On the other hand, the learned DR has strongly objected to the aforesaid arguments of the assessee's counsel by contending that Chapter XIVB is a complete code by itself for assuming the undisclosed income as a result of search and, therefore, the provisions of Explanation 5 to section 271C cannot be invoked. He also referred to the provisions of section 158BF to point out that provisions of section 271(1)(c) were not applicable to the block assessment. Regarding section 158BA(3) it was submitted that cash was found on24-8-1995and it was not found recorded in the regular books. According to him, no advantage could be taken by the assessee by including the same in the profit and loss account for the period prior to the date of search. Accordingly, the provisions could not be invoked particularly when it is undisputed fact that such cash was unrecorded. It was further pointed out that such cash was found at the place from where assessee was not carrying on the business of recorded transaction. Therefore, it cannot be said that assessee would have disclosed this amount. According to him, this income falls within the ambit of section 158B(b).
10. After hearing both the parties, we do not find force in the contention of the learned counsel for the assessee. As rightly pointed out, Chapter XIVB contains special provisions for assessing the undisclosed income found as a result of search carried out after30th June, 95. It is the settled rule of interpretation that such provisions overrides the general provisions. Therefore, the general provisions of assessment contained elsewhere in the Act, would not be applicable for determining and assessing the undisclosed income unless such provisions are made applicable by virtue of any provision contained in Chapter XIVB. Section 158BF provides that the provisions of section 271(1)(c) for levy of penalty for concealment of income would not be applicable in respect of undisclosed income determined under this chapter. Therefore, in our opinion, recourse to the provisions of Explanation 5to section 271(1)(c) cannot be taken for determining the scope of undisclosed income. Chapter XIVB contains special provisions in section 158B(b) to define the undisclosed income and, therefore, one has to restrict to that definition only for determining such income.
11. There is another fallacy in the argument of learned counsel for the assessee. The provisions of Explanation 5 to section 271(1)(c) are deeming provisions and, therefore, application of such provisions has to be restricted to penalty proceedings and its scope cannot be extended to assessment proceedings. Even otherwise, the provisions of Explanation 5(b)(ii) can be applied only if the conditions specified therein are satisfied. One of the conditions is that assessee must specify in his statement under section 132(4) the manner in which such income has been derived. Perusal of the statement under section 132(4) shows that assessee has not stated the manner in which cash seized was earned. It only states that such cash represents current year's income. The modus operandi for earning such income has not been disclosed. Therefore, even on this ground, the contention of the assessee fails. We may clarify that we are not laying down any principle to the effect that scope of undisclosed income can be determined with reference to aforesaid Explanation 5. These observations have been made just to reject the contention of the learned counsel for the assessee on alternate ground. Otherwise, in principle, we have already held that the scope of undisclosed income has to be seen only with reference to section 158B(b).
12. Further, the contention of the learned counsel for the assessee that cash of Rs. 36 lakhs and odd found in the course of search does not represent undisclosed income even within the definition of section 158B(b) cannot be accepted. For the benefit of this order, such provisions are quoted below:
"Section 158B(b): "undisclosed income" includes any money, bullion, jewellery or other valuable article or thing or any income based on any entry in the books of account or other documents or transactions, where such money, bullion, jewellery, valuable article, thing entry in the books of account or other document or transaction represents wholly or partly income or property which has not been or would not have been disclosed for the purposes of this Act: The basis of the argument of Mr. Aggarwal is that there is no material to suggest that assessee would not have disclosed this amount in its return of income inasmuch as the time prescribed for filing of the return had not expired as the previous year itself had not ended and further the period for making advance tax payment was still available. We are not convinced with such arguments of the learned counsel for the assessee. Undisputedly, the regular books of account were maintained by the assessee for recording the income from disclosed sources. Whatever income was intended to be disclosed was duly entered in such regular books of account. Admittedly, such cash was over and above the cash shown in the regular books maintained by the assessee. Such cash was also found in a separate almirah kept at a place different from the place where the regular business of manufacturing was carried on. From the same almirah certain slips were also found along with such cash which also do not find place in the regular books of account. The manner in which such cash was generated was also not disclosed by the assessee in his statement under section 132(4). There are two possibilities i.e. either such cash was generated out of the unaccounted transactions of the business carried on by the assessee or from some other activities unconnected with such business. It is also not the case of the assessee that such income was being disclosed in the past. The manner in which such income was generated was within the special knowledge of the assessee which the assessee has failed to disclose. In our considered opinion, once the entire transactions which could generate such income were kept secret and not entered in the regular books of account then it has to be reasonably inferred and has to be held that assessee would not have disclosed the same in his return of income and such income would not have been disclosed but for the search carried out by the Department. Section 158BA(3) to which also reference was made by Mr. Aggarwal does not help him since such income is not recorded in the regular books of the assessee for the previous year as also admitted by him. We may clarify that such cash found in the course of search has been included by the assessee in the Profit & Loss account and the balance sheet for the period 1-4-1985 to 23-8-1995 to suit its own convenience for preparing its return but the fact remains that such cash was never part of the regular books of the assessee for the previous year under consideration. The counsel for the assessee has also referred to the regular assessment order for assessment year 1996-97 to contend that no defect has been found by the assessee in the regular books of account and the profit and loss account prepared by the assessee has been accepted which includes such cash found in the search. We are afraid how such order of assessment helps the assessee. Having found as a fact that such cash was kept at a secret place i.e. almirah kept at a different place and was not found entered in the regular books of account, no benefit can be given to the assessee merely on the ground that it was later on (after search) included in the profit and loss account and balance sheet for the period ending 23rd August, 95 (prior to the date of search). In view of the above discussion, it is held that the sum of Rs. 36,45,545 found in the course of search represented undisclosed income of the assessee within the meaning of section 158B(b) and, therefore, was rightly assessed as such by Assessing Officer. The order of the Assessing Officer is, therefore, upheld on this issue.
13. Coming to the addition of Rs. 1,00,33,970 on account of 19 slips found from the premises B-11/3, Jhilmil, Shahdara, the learned counsel for the assessee has vehemently challenged the same by raising various submissions. Firstly, it was submitted that these slips were found from the premises which is neither owned nor belonged to the assessee. Therefore, it cannot be said that these slips were found from the possession and control of the assessee as mentioned in section 132(4A). According to him, before drawing any adverse inference, it must be established that such slips were under the control of the assessee and intended to be possessed by him as held by the Tribunal in the case of Ashwani Kumar v. ITA [1991] 39 ITD 183 (Delhi). Proceeding further, it was submitted that presumption under section 132(4A) can be raised only for the limited purpose i.e. for section 132(5) proceeding as held by the Hon'ble Delhi High Court in the case of Daya Chand v. CIT [2001] 250 ITR 327. Secondly, it was submitted that all these slips were dumb documents without any narration and consequently, no addition could be made on the basis of such slips. In support of this proposition, he again relied on the decision of Tribunal in the case of Ashwani Kumar as well as the Third Member decision in the case of S.P. Goel v. Dy. CIT [2002] 82 ITD 85 (Mum.). He also drew our attention to the photocopies of such slips and pointed out that out of 19 slips, 9 slips were without any name or amount and, therefore, no adverse inference was drawn by the Assessing Officer himself. Regarding the balance slips, it was submitted that the nature of the transaction was not clear from these slips. It could not be either receipt or expenditure. Further, all receipts cannot be considered as income. These slips were also not in the handwriting of either the employee or the partner of the assessee firm. It was also submitted that it has been observed that such slips were supported with cash but it is not clear as to which slip was strapped with what amount of cash. He also drew our particular attention to slip No. 15 on the basis of which major addition of Rs. 71,06,918 has been made. It was pointed out by him that on left hand side, the sum of Rs. 71,06,918 has been written and out of which the sum of Rs. 40,76,001 has been deducted and the balance amount has been shown at Rs. 30,30,917. Below this figure, various figures are written under the head "safe" which totals to Rs. 30,06,400. He then drew our attention to left hand side of the slip to pointed out that there are various figures of cash in various denominations which totals to Rs. 24,518 and to this figure is added the figure of Rs. 30,06,400 written on the right hand side and thus the final figure comes to Rs. 30,30,918 which tallies with the figure written on the top of right hand side. At the bottom, the date of21-8-1995is written. According to him, at the best, it can be presumed that there were total receipts of Rs. 71,06,918 out of which total payments were made for Rs. 40,76,000 up to 21-8-1995 and the balance amount of Rs. 30,30,917 was available as on 21-8-1995 with the assessee either in cash or in the names written on this slip. He also admitted that coins worth Rs. 9200 that is placed in the inventory almost tallies with the coins found at the time of search. Hence, it was pleaded that even if any adverse inference is to be drawn then the maximum addition to be made could not exceed the sum of Rs. 30,30,917. It was further submitted that even this addition should be set of against the addition on account of cash found if such addition is to be sustained. He also drew our attention to page 10 of the assessment order where the Assessing Officer himself has mentioned that double addition could not be made but the same was being made as the assessee had not owned such slips. He has also submitted that ad hoc addition of Rs. 2 lakhs on the basis of the slips of which no narration is given, is simply on suspicions. In view of these submissions, it was prayed that such addition may be deleted.
14. On the other hand, the learned Sr. DR has vehemently defended the action of Assessing Officer. Firstly, he submitted that the fact that cash and 19 slips were found from the almirah under the lock and key kept at the premises B-11/3, Jhilmil, Shahdara, is not in dispute. He also drew our attention to the panchnama to point out that these slips were strapped with cash with rubber band. The fact that certain stocks were also found from this premises is also not in dispute. Further, the premises is owned by three male partners and husband of lady partner of the assessee firm. In these circumstances, it was pleaded that it could not be argued by the learned counsel for the assessee that such slips did not belong to the assessee or were not found from the possession and control of the assessee. Once, it is shown that such slips were found from the possession and control of assessee then onus is on the assessee to explain the contents of these slips since such contents were within the special knowledge of the assessee. According to him, in the absence of reasonable explanation, the adverse inference can be drawn against the assessee.
15. Proceeding further, he submitted that it has been admitted by the learned counsel for the assessee that coins of Rs. 9200 stated on slip No.
15 tallies with the coins found at the time of search. He also drew our attention that the figure of Rs. 3,95,000 in the name of Sushil J. mentioned on this slip which tallies exactly with the narration of slip No. 3. Accordingly, it was argued by him that all these slips belonged to the assessee and might be related to the unaccounted activity carried on by the assessee. He also submitted that partner of the assessee had admitted in his statement under section 132(4) that cash found was the current year's income not accounted so far. This indirectly shows that these slips related to such unaccounted activity. Since the assessee has not given any reasonable explanation, the Assessing Officer was justified in making the additions on the basis of such slips. However, he has no objection if the set off is allowed with reference to the sum of Rs. 3,95,000 in the name of Sushil J. since this figure appears twice on the slips. Further, he did not make any comment on the observations of the Assessing Officer that set off could be allowed with reference to the addition made on account of cash found from the premises of the assessee as observed at page 10 of the assessment order.
16. Rival submissions have been considered in the light of material produced and the case law referred to. It is a well settled principle that burden lies on the revenue to bring the assessee within the net of taxation. Reference can be made to the judgment of the Hon'ble Supreme Court in the case of Parimisetti Seetharamamma v. CIT [1965] 57 ITR 532. Further, reference can be made to another judgment of the Supreme Court in the case of CIT v. Chari & Chari Ltd. [1965] 57 ITR 400. Therefore, if the revenue wants to assess in respect of any income not recorded in the regular books of account then revenue must prove that such income was earned by the assessee. However, such burden of revenue is not immutable as explained by the Hon'ble Supreme Court in the case of CIT v. Best & Co. (P.) Ltd. [1966] 60 ITR 11 wherein at page 18 it was explained as under:
'At this stage the question of burden of proof raised at the Bar may be noted. In Commissioner of Income-tax v. Chari & Chari, this court observed:
"....it must in the first instance be observed that it is for the revenue to establish that a particular receipt is income liable to tax......"
We may point out, as some argument was advanced on the question of proof, that this court did not lay down that the burden to establish that an income was taxable was on the revenue was immutable in the sense that it never shifted to the assessee. The expression "in the first instance" clearly indicates that it did not say so. When sufficient evidence, either direct or circumstantial, in respect of its contention was disclosed by the revenue, an adverse inference could be drawn against the assessee if he failed to put before the department, material which was in his exclusive possession. This process is described in the law of evidence as shifting of the onus in the course of a proceeding from one party to the other. There is no reason why the said doctrine is not applicable to income-tax proceedings. While the income-tax authorities have to gather the relevant material to establish that the compensation given for the loss of agency was a taxable income, adverse inference could be drawn against the assessee if he had suppressed documents and evidence, which were exclusively within his knowledge and keeping.'
The perusal of the above clearly shows that if the revenue brings some direct or circumstantial evidence and the relevant information is within the special knowledge of the assessee then in the absence of disclosure of such information by the assessee, adverse inference can be drawn against the assessee. The Hon'ble Delhi High Court in the case of CIT v. Motor General Finance Ltd. [2002] 254 ITR 449 has held that if the assessee does not furnish the information/material in his possession then adverse inference can be drawn against the assessee. The relevant observation are quoted below:
"Held, allowing the appeal that since the assessee, despite several opportunities granted, did not produce the relevant documents, an adverse inference had to be drawn against the assessee. As the assessee could not produce any document, an adverse inference in terms of section 114 of the Evidence Act, 1872 had to be drawn to the effect that, had those documents been produced, they would have gone against the interest of the assessee."
The Hon'ble Supreme Court in the case of Chuharmal v. CIT [1988] 172 ITR 250 has held that though the rigour of the Evidence Act would not be applicable to income-tax proceedings but the basic principle of Evidence Act would apply to income-tax proceedings. In that case, it was held that if the assessee does not explain the source of asset found from him then the presumption can be drawn that he is the owner of such asset. This legal position was applied in view of the basic principle contained in section 110 of the Evidence Act.
17. In view of the above discussion, the legal position that emerges is where any asset or other thing is found from the possession and control of the assessee which is not recorded in the regular books of account maintained by him, then the initial burden on the revenue can be said to be discharged and the onus shifts to the assessee explaining the source of the assets or contents of the papers, documents or the books found from his possession/control. At this stage, it may be clarified that words "possession and control of the assessee" has to be understood as explained by the Tribunal in the case of Ashwani Kumar at page 193 wherein it was held as under:
"In order to attract the presumption under section 132(4A) the first requirement is that the document should be found in possession or control of the assessee. In this, case, the revenue has been saying that the document was found inside the shop of the assessee. However, there is nothing in the orders of the authorities below to show that the slip was in possession and control of the assessee. Everything physically present inside the shop of a person may not be in the person's control and possession. For proving possession it is necessary to show that the person concerned had the intentio possessendi. In this case nothing of that sort is pointed out by the authorities below."
18. In the present case, unlike the case of Ashwani Kumar, 19 slips were found from the safe custody of the assessee along with the cash of Rs. 36 lakhs and odd from an almirah kept at B-11/3, from where stock of copper strips and wire, grease, furnace oil etc. were found, strapped with cash by rubber band though it is not clear as to which part of the cash these slips were strapped. On these facts, it cannot be said that these slips were not found from the possession and control of the assessee particularly when ownership of cash and stock found from the same premises is not disputed by the assessee. It is also undisputed fact that cash found was unaccounted cash generated from undisclosed sources inasmuch as it has been admitted by the assessee under section 132(4) that it represented its current year's income which is not recorded in the books of account maintained by the assessee. There is also no dispute that these slips were found from the same almirah from which such huge cash was found. If such cash and stocks is owned by the assessee then there is no reason for the assessee to disown such slips and consequently, legal inference can be drawn that such slips also belong to the assessee. Keeping such slips along with unaccounted cash in the same almirah shows unequivocal intention of the assessee to possess the same for the reasons best known to it. Accordingly, it is held that these slips belong to the assessee and, therefore, it was for the assessee to explain the contents of these slips since the same were within the special knowledge of the assessee. Failure to explain its contents, the revenue would be entitled to draw adverse inference. It may be clarified that ownership of the premises is irrelevant for the finding recorded by us since ownership of cash and stock has not been disputed.
19. Let us now examine the seized slips, its evidentiary value and justification of the addition made by the Assessing Officer on the basis of these slips. Since no explanation has been offered by the assessee about the contents of the slips, an adverse inference is drawn to the effect that these slips related to the undisclosed business activity carried on by the assessee, which is corroborated by unaccounted cash of Rs. 36lakhs and odd found in the course of search.
20. The perusal of the asstt. order shows that three additions have been made on the basis of these slips. The addition of Rs. 27,27,052 has been made on the basis of 10 slips bearing Nos. 2, 3,10 to 14, 16, 18 and 19 by taking the figures mentioned on these slips as income of the assessee (detail given at page 9 of the assessment order). The addition of Rs. 71,06,918 has been made on the basis of slip No. 15 and the addition of Rs. 2 lakhs has been made on ad hoc basis in respect of the remaining slips on which no amount is mentioned.
21. As far as addition of Rs. 2 lakhs is concerned, we are of the view that no addition was warranted on mere suspicion. Suspicion, howsoever grave, is not the substitute for the evidence. Since the remaining slips did not contain any amount, the same can be treated only as dumb document on the basis of which no addition can be made on the decision of Tribunal in the case of Ashwani Kumar and S.P. Goel. Accordingly, the addition of Rs. 2 lakhs is hereby deleted.
23. Regarding the other slips, we have already drawn adverse inference to the effect that such slips related to the transaction of unaccounted business of the assessee. The main slip is slip No. 15 on the basis of which addition has been made. Being the most important slip, its contents are reproduced below:
500 X 45 = 22500 7106918
50 X 13 = 650 4076001
20 X 24 = 480 -----------
10 X 54 = 540 3030917
05 X 63 = 315 -----------
01 X 33 = 33 'Safe'
--------- Coins = 9200
24518 VM = 243000
3006400 Sushil J = 395000
--------- Sunil J = 238000
3030918 Rawat = 50200
Cash = 2071000
-----------
3006400
-----------
21-8-1995"
The perusal of the above slip shows that there were currency notes of different denominations amounting to Rs. 24,518. Besides this, there were coins of Rs. 9200 and other cash of Rs. 20,71,000. In addition, there are certain figures against certain names. All these totals to Rs. 30,30,980. The date on the slip is21-8-1995. These figures, therefore, reveal that assessee had so much liquidity of funds in the form of cash or the amount with these persons against whom these figures are written. On the top of right hand side, there appears to be reconciliation of the incomings and outgoings and the balance amount tallies with the unaccounted financial statement of the assessee as on21-8-1995. At this stage, it is important to note that figure of Rs. 3,95,000 against the name of Sushil J. tallies with the description in slip No.3. Further, it has been admitted before us that the coins found in the course of search are the same as mentioned on this slip. These facts do reiterate and support the inference drawn by us that these slips related to the transactions of undisclosed business. If any person carried on such business then there are bound to be unrecorded receipts as well as payments. Therefore, in such cases, if any material shows incomings and outgoings, then we are of the view that only net receipts should be considered as undisclosed income. The close scrutiny of slip No. 15 shows that total receipts and payments up to 21-8-1995 were Rs. 71,06,918 and Rs. 40,76,001 leaving net balance of Rs. 30,30,917 which tallies with the financial statement of the undisclosed cash and various amounts with various persons mentioned on this slip. In our opinion, the only inference which can be drawn from such statement of affairs is that the various sums of Rs. 2,43,000, Rs. 3,95,000, Rs. 2,38,000 and Rs. 50,200 were due to the assessee from SIShri V.M. Sushil J., Sunil J. and Rawat respectively. So on the basis of these slips, it is held that assessee had unaccounted cash of Rs. 21,04,718 (Rs. 20,71,000 + Rs. 9,200+ Rs. 24,518) and the various amounts aggregating Rs. 9,26,000 were due to the assessee from the above persons as on 21-8-1995 and consequently, the addition for the entire amount of Rs. 71,06,000 could not have been made on the basis of this slip.
24. As far as other slips are concerned, it is noted that certain amounts are mentioned against certain names, details of which are given below:
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S.No. Parchi No. Name Amount
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01 2 J.K. Aggarwal 1,00,000.00
02 3 Sushil Jain 3,95,000.00
03 10 Ved Metal 5,85,000.00
04 11 Sunil Jain 2,46,115.00
05 12 Vinod Tempo 2,00,000.00
06 13 Madhu Wire 3,44,745.00
07 14 Vinod Tempo 2,03,000.00
08 16 Shanti Metal 3,07,000.00
09 18 Madhu Wire 3,44,745.00
10 19 Madhu Wire 1,447.00
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27,27,052.00
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As already mentioned that the sum of Rs. 3,95,000 on Slip No.3 tallies with the figure given on Slip No. 15 discussed above. Accordingly, inference can be drawn to the effect that these slips pertain to amounts due from the persons whose names are written on these slips. As a necessary corollary, further inference can be drawn that by the date of 21-8-1995, the sum of Rs. 3,95,000 could not be recovered by the assessee from Sushil J. otherwise his name would not have appeared in the financial statement as on 21-8-1995 on slip No. 15. That would also mean that the amounts mentioned on other slips except two slips dated23-8-1995were received by the assessee by21-8-1995as their names do not appear on the reconciliation statement on Slip No. 15. This is further corroborated by the facts that the total realization of Rs. 70 lakhs and odd up to21-8-1995on Slip No. 15 was much more than the amounts mentioned on other slips (except two slips dated23-8-1995). Therefore, it is held that total unaccounted cash and amount due to the assessee aggregating Rs. 30,30,918 as on 21-8-1995 would cover all other slips (except two slips dated 23-81995) and consequently, no separate addition could be made on the basis of these slips.
25. As far as two slips dated 23-8-1995 are concerned, if we examine the same along with the cash available with the assessee and cash found from the assessee's possession on the date of search, the only inference that can be drawn is that these two amounts of Rs. 5,85,000 and Rs. 1 lakh were recovered from Ved Metal and J.K. Aggarwal respectively which would corroborate the increase of cash availability with the assessee on the date of search. If this cash is added to the cash as on 21-8-1995 then cash availability would increase to Rs. 27,89,718 (Rs. 21,04,718 + Rs. 6,85,000) as against cash found at Rs. 36,46,545. Still, there is a gap between the two figures of cash. Therefore, reasonable inference can be drawn that assessee must have recovered the cash due from Sushil J. and Ved Metal appearing on slip No. 15. If such cash is added then total cash available on the date of search would come to Rs. 36,65,718 which is very nearer to the cash found. That means the sum of Rs. 50,200 might have remained unrecovered from Mr. Rawat. That means the total addition which could have been made on the basis of these slips would only to the extent of Rs. 37,15,918 (Rs. 36,65,718 + Rs. 50,200) as against Rs. 1,00,33,970 made by the Assessing Officer. Since we have already held that these slips and cash found from the safe custody of assessee related to undisclosed business of the assessee, we further hold that above addition has to be set off against the addition of Rs. 36,45,575 on account of unexplained cash sustained by us. The Assessing Officer himself has accepted this legal position at page 10 of the assessment order but separate additions were made by him because the assessee disowned these slips. In view of the above discussion, we restrict the addition on account of these slips to Rs.69,373 (Rs. 37,15,918 - Rs. 36,46,545). The order of the Assessing Officer is, therefore, modified accordingly.
26. The last issue relates to the addition of Rs. 2,09,841 on account of undisclosed stock. This issue has been discussed by the Assessing Officer at pages 10 & 11 of the assessment order. As mentioned earlier, certain stocks were found from the premises of the assessee, the detail of which is given below:
B-7, Jhilmil Industrial Area
Grease 2200 kgs.
Furnace oil 67 CM (Deptt)
B-11/3 Jhilmil Industrial Area:
Copper Scrap 850 kgs.
According to the Assessing Officer, the aforesaid stock was unaccounted and the assessee was not in a position to explain the same. Accordingly, he made the addition of Rs. 48,400 in respect of the stock of grease by applying the rate of Rs. 22 per kg., addition of Rs. 25,441 in respect of furnace oil by applying the rate of Rs. 4.37 per litre and the addition of Rs. 1,35,000 in respect of scrap applying the rate of Rs. 150 per kg. It may be mentioned that while making the addition, the Assessing Officer has taken the quantity of scrap as 900 kgs. It was also noted by the Assessing Officer that there was no stock of zinc available at the time of search though as per their register the closing stock of zinc was 26.7 kgs. Accordingly, he also made addition of Rs. 10,000 on this account. Thus, the total addition made on this account amounted to Rs. 2,09,841.
27. The learned counsel for the assessee has vehemently assailed the aforesaid additions by submitting that the scrap was generated in the course of manufacturing activity carried on by the assessee and, therefore, the same could not be considered as undisclosed income in as much as such scrap could be accounted for only on the date of sale. Regarding the other additions, it was submitted by him that no proper opportunity was given to the assessee to explain the same. Further, it was not clear as to how the department was able to quantify the furnace oil as 67CM in the tank. Regarding the addition on account of zinc, it was submitted that no addition could be made on account of shortage and at the best only the g.p. could be added. On the other hand, the learned DR drew our attention to panchnama to point out that the Assessing Officer has wrongly mentioned scrap though it was copper strips. Regarding the other submission of the assessee, he relied on the order of Assessing Officer. In reply, it has been stated by the learned counsel for the assessee that it was actually scrap and there is no dispute between the assessee and the Assessing Officer on this account. Even the scrap is in the form of strips which are very small in size and the learned DR cannot make out a new case.
28. After hearing both the parties, we are of the view that this issue requires fresh adjudication after considering the relevant facts. The learned DR has not been able to point out as to how the furnace was quantified as 67CM in the tank. As far as scrap is concerned, there is no dispute between the parties and the Assessing Officer himself has considered such scrap as copper scrap. However, it is not clear on what basis the rate of Rs. 150 per kg. was taken by the Assessing Officer. We further agree with the learned counsel for the assessee that if the scrap is generated out of the manufacturing activity of the assessee then it has to be accounted for only at the time of sale. However, this plea can be accepted only if the assessee had disclosed either the sale of such stock in the regular books of account for assessment year 1996-97 or declare the same in the closing stock for such year. This fact requires verification. If the Assessing Officer finds that either the sale or the closing stock of such scrap has been declared in the regular books of account then no addition would be made. Otherwise, the Assessing Officer would be at liberty to make the addition on account of such scrap after ascertaining the price of such scrap. As far as other items are concerned, the Assessing Officer shall allow an opportunity to the assessee to explain the same and then adjudicate on the basis of material produced before him. As far as addition in respect of zinc is concerned, we are in agreement with the learned counsel for the assessee that only the gross profit on account of shortage can be added. Accordingly, the order of Assessing Officer is set aside on this issue and the matter is restored to his file for fresh adjudication in the light of the above observations.
29. In the result, appeal of the assessee is partly allowed.
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