Delhi High Court

India Seed House vs Assistant Commissioner Of Income ... on 24 January, 2000

Equivalent citations: (2001) 69 TTJ Del 241

ORDER

V. Dongzathang, Senior V.P. : July, 1998

This appeal of the assessee is relevant for the block period 1-4-1986, to 20-7-1996. The assessee is a firm engaged in the business of trading in seeds of different varieties. Export to some neighbouring countries are also made. The firm consists of two partners, namely, Shri Purshottam Das Saini and his mother Smt. Punno Devi sharing 50 per cent each. A search under section 132 of the Income Tax Act was conducted at the premises of the assessee on 20-7-1996. The assessee filed return of income under section 158BC on 27-6- 1997, declaring a total undisclosed income of Rs. 5 lakh for the block period.

2. The assessing officer found that several documents and books were seized at the time of operation under section 132 of the Act. These documents and books contained various transactions of unaccounted nature for the period. The assessing officer examined these details and recorded his findings as below :

Annexure A-5 : This is an exercise book with record of bills for sales for the period 10-2-1995, to 7-11- 1995.

Annexure A-6 .. This is a note book with a record of bills for the sale for the period 8-11-1995, to 19-7-1996.

Annexure A-7 : This is a note book having a record of bill for sale for the period from 27-4-1994, to 10-2-1995.

The entire sale for the above period aggregated to Rs. 1,43,98,428.

The Annexure A-8 and A-9 are relating to bills for the period 1-4-1995, onwards. The total sales recorded in these Annexure worked out to Rs. 2,78,16,000 as follows :

Annexure A-8 Rs. 76,86,000

Annexure A-9 Rs. 2,01,27,000

The assessing officer, therefore, worked out the unaccounted sales for the period from 1-4-1994, to 31-3-1996, as follows :

Rs.

(1) 1-4-1994, to 31-3-1995, and 1-7-1996, to 19-7-1996

1,43,98,428

(2.) 31-3-1996, to 30-6-1996

76,89,000

(3) 1-4-1995, to 31-3-1996

2,01,27,000

4,22,14,428

The assessing officer confronted the assessee with these figures in the hearings before him. The assessing officer also proposed to apply a G.P. rate of 7 per cent on these unaccounted sales. The assessee did not deny the fact of unaccounted sales as worked out by the assessing officer. The assessee, however, claimed that the undisclosed income worked out by the assessing officer should be reduced by expenses incurred in the process of making unaccounted sales. The assessee specifically pointed out to pp. 516 to 529 of Annexure A-9 recovered from Aryapura, Delhi, stating that these expenses should be deducted from the income estimated on the basis of 7 per cent g.p. as worked out by the assessing officer. The assessee also pointed out that the expenses in the form of seed cleaning expenses, warehousing charges, packing charges are to be allowed from the gross profit determined by the assessing officer. The assessee, therefore, claimed that a sum of Rs. 4,25,090 for the period from 1-4-1996, to 20-7-1996, and a sum of Rs. 11,00,455 for the period from 1-4-1995, to 31-3-1996, are liable to be deducted from the income determined by the assessing officer. The assessing officer, however, did not accept the claim as no specific break-up of working out expenses deductible were furnished by the assessee.

The assessing officer also disputed the correctness of the totalling of the expenses which according to him comes to Rs. 72,415 in place of Rs. 4,25,090 claimed by the assessee in regard to expenses appearing at pp. 524 of Annexure A-8. Similarly, for the expenses appearing at pp. 516 to 520 in Annexure A-9, it was found by the assessing officer that the actual total comes to Rs. 7,12,711 instead of Rs. 11,00,455 claimed by the assessee. The assessing officer, therefore, held that the amounts claimed by the assessee are not supported by reliable documents. The assessing officer also was of the view that the g.p. rate applied at 7 per cent had duly taken care of the expenses incurred by the assessee for the earning of the profit. It was also his view that the deductible expenses have already been claimed in the regular books of account and, therefore, the assessee could not be given further benefit by allowing deductions on account of the documents seized. Even in any case, it was the view of the assessing officer that the exact claim of expenses could not be quantified for lack of details and, therefore, the assessee was not entitled to the deduction claimed.

3. The assessee also retracted the statement recorded during the post-search enquiries. It was the claim of the assessee that the statements recorded by the assessing officer after the search were not legally valid and the same cannot be treated as evidence without any evidence to support such statements. The assessee, therefore, said that the offers of admissions/surrender should not be made the basis for making the assessment. The assessing officer however, found that the assessee was given proper opportunity and, therefore, whatever admissions and surrenders made during the assessment proceedings are valid and the same has to be taken into account. He, accordingly worked out the income on account of unaccounted sales at Rs. 10,07,890 on the sale of Rs. 1,43,98,428 and a sum of Rs. 19,47,120 on a sale of Rs. 2,78,16,000.

4. The assessee is still aggrieved and has come up in appeal before the Tribunal. Shri O.S. Bajpai, the learned counsel, vehemently objected to the addition on this account. According to him, the addition was without any basis and only on the basis of the statement which was retracted by the assessee at the first opportunity. According to him, it is well settled that a party's admission is substantive evidence and if such admission is clearly and unequivocally made is the best evidence against the party making it. Though the same is not conclusive, the onus shifts on the maker on the principle that what a party himself admits to be true may reasonably presume to be so and until the presumption is rebutted the fact admitted must be taken to be established as held by the Hon'ble Supreme Court in the case of Thiru John & Ors. v. The Returning Officer AIR 1977 SC 1724. It is also submitted that even if confession is inculpatory but corroboration is necessary if the confession is retracted as held by the Hon'ble Supreme Court in the case of Rangambam Kalan Joy Singh v. State of Manipur AIR 1956 SC 9 (V. 43 C. 3 Jan). Since the assessee in this case retracted the statement made before the assessing authorities, it is submitted that the said statement cannot be the basis for assessment without any corroboration as held by the Hon'ble Supreme Court in the above cases. The learned counsel also cited the decision of the Hon'ble Supreme Court in the case of Pallangoda Rubber Produce Co. Ltd. v. State of Kerala & Anr. (1973) 91 ITR 18 (SC) for the proposition that admission is an extremely important piece of evidence but it cannot be said that it is conclusive. It is open to the assessee who made the admission to show that it is incorrect and the assessee should be given a proper opportunity to show that the books of account do not disclose the correct state of facts.

5. Reliance is also placed on the decision in the case of Sir Shadi Lal Sugar & General Mills Ltd. v. CIT (1987) 168 ITR 705 (SC) wherein it was observed : "From the assessee agreeing to additions to his income, it does not follow that the amount agreed to be added was concealed income. There may be a hundred and one reasons for such admission i.e., when the assessee realises the true position, it does not dispute certain disallowance but that does not absolve the revenue from proving the mens rea of quasi criminal offence."

Shri O.S. Bajpai the learned counsel of the assessee also challenged the legality of the statement obtained from the assessee by the revenue authorities. According to him, the statement was taken by the revenue authorities in their office without any legal assistance to the assessee. The statements were recorded in English. There is no evidence that the statement was read out to the deponents in the language they understand before obtaining the signatures. There are no witnesses to the statement. These statements, therefore, are not valid evidence for the purpose of making assessment as they are not legally valid. On receipt of statements supplied to the assessee, the assessee immediately sent its objection on 27-9-1996, copies of which are placed at p. 105 of the paper book. It is, therefore, submitted that the assessing officer was not justified in making the addition on the basis of the statement as burden shifts to the department which was not discharged.

6. With regard to the merit, it is submitted that the assessee immediately claimed deduction of the expenses incurred by the assessee which were recorded in the seized books of accounts. The assessing officer rejected the claim without any basis and applied a G.P. rate of 7 per cent. If the expenses claimed by the assessee on the basis of the documents seized during the year are deducted then the net profit comes to approximately 1.5 per cent which is normal profit in the regular business of the assessee from year to year. It is, therefore, submitted that even if any addition is to be made then the profit on account of unaccounted sales should not exceed more than 1.5 per cent.

7. On the other hand, Shri L.S. Negi, learned senior Departmental Representative vehemently supported the order of the assessing officer. According to him the unaccounted sales were computed from the papers seized from the assessee. The nature of undisclosed sale was admitted by the assessee. While working out the gross profit, the assessing officer has already taken into account the expenditure on account of purchase and other expenses. It is, therefore, submitted that the application of g.p. rate of 7 per cent on the total turnover is fair and reasonable and calls for no interference.

With regard to the reliability of the statements of the assessee admitting the turnover and the rate of gross profit, it is submitted that there can be no better evidence than the admission of the assessee itself and, therefore, the statement cannot be ignored by estimating the profit from the unaccounted sales. It is, therefore, claimed that no interference is called for in this regard.

8. We have carefully considered the rival submissions, in the light of the material on record. From the details of the evidence in the record, it is an admitted position that the assessee made unaccounted sales to the tune of Rs. 4,22,14,428 for the period from 1-4-1994, to 31-3-1996. It is also an admitted fact that the assessee incurred expenditure for the purchase of these goods sold by the assessee outside the books. The assessing officer estimated the gross profit rate of 7 per cent on the sales. In the course of the assessment proceedings, the assessee was confronted with the proposed estimate of profit which apparently was agreed to by the assessee. It is, however, the case of the learned counsel before us that the statement was not a legally admissible evidence as the same was taken in camera at the office of the investigating officer. The assessee was not given or allowed any legal assistance. The statement was recorded in english. It is also not certified that the statement was duly read out to the deponents in the language they know before obtaining the signatures. There is definitely a flaw in the statement obtained by the revenue authorities. Full reliance cannot be made on such statement. The case laws cited by the learned counsel before us duly support the claim that the statement or confession which was retracted cannot be a basis for making addition without any corroborative evidence. The partners of the assessee in this case gave statements on 20-7-1996, 10-9-1996, and 12-9-996. When the copies of the statements were furnished to the assessee, the assessee wrote a letter dated 27-9-1996 claiming that the expenses entered in the documents seized at the time of search should be deducted from the gross profit determined by the assessing officer. This claim was reiterated at the time of assessment proceedings. The assessing officer rejected the claim on the reasoning that the expenses claimed by the assessee have not been correctly worked out. The expenses incurred by the assessee are not quantifiable as there was no breakup or complete details of unaccounted purchases, corresponding to the unaccounted sales. In such a case, it was his view that the expenses incurred were claimed by the assessee in its regular books of accounts and, therefore, no further deduction was required on this account.

9. We are unable to agree with the reasoning of the assessing officer. The assessee in this case did not seriously object to the application of gross profit rate of 7 per cent. It, however, claimed certain expenses of revenue nature in the form of cleaning expenses, warehouse charges and packing charges, etc. as found in Annexure A-8 and A-9. If these expenses are deducted from the profit estimated by the assessing officer, the net profit rate comes to approximately 1.5 per cent which is the normal profit of the assessee in the regular business. We are, therefore, inclined to allow adjustment of these expenses and estimate the net profit of the assessee on account of unaccounted sales at 1.5 per cent. This rate of profit compares favourably with the profit rate disclosed in the past by the assessee as follows :

Assessment year

1993-94

0.54%

1994-95

0.29%

1995-96

0.28%

1996-97

0.10%

1997-98

0.11%

The assessing officer is accordingly directed to recompute the net profit on the unaccounted sales of Rs. 4,22,14,428 on this basis.

10. The next main ground is in regard to the addition of a sum of Rs. 26,87,340 on account of peak investment in the purchases for assessment year 1996-97. The assessing officer considered the question of unrecorded purchases after making addition on account of unaccounted sales. According to him there were many unrecorded purchases on the basis of which unaccounted sales were made by the assessee. For the period from 1-4-1995, to 31-3-1996, it was found that the unaccounted sales totalled a sum of Rs. 2,01,27,000. The assessing officer, therefore, worked out undisclosed purchases on the basis of this figure by deducting the gross profit worked out at 7 per cent. The assessing officer estimated the turnover cycle at one month and therefore, worked out the peak figure of purchase for one month at Rs. 33,02,430. Deducting the element of g.p. @ 7 per cent from this, he estimated unaccounted peak investment at Rs. 26,87,340. The assessee, however, submitted that most of the purchases were credit purchases and the payments were made after selling the goods. A reference was made to Annexure A-3 at p. 24 wherein the outstanding amount payable to suppliers in view of the creditors balance of Rs. 61,36,159 as on 31-3-1996, was reflected. The assessing officer, however, did not accept the claim. According to him the claim that no payments were made for purchases was far-fetched. Referring to the Benami bank account maintained by the assessee, it was found that during the period in question, there were both debits and credits and, therefore, obviously the debits in the period would relate to corresponding unaccounted purchases effected in the same period. He also found that there was unaccounted purchase totalling Rs. 4,12,000 (debited in Annexure A-9) made over the period of just eight days. He, therefore, held that unaccounted peak investment worked out at Rs. 26,87,240 on a total turnover of more than Rs. 4.2 crores was fair and reasonable. He, accordingly added back as unexplained investment in the purchases for the period during the assessment year 1996-97.

11. Aggrieved by the said addition, the assessee came up in appeal before us. Firstly, the learned counsel of the assessee submitted that the addition in this case is without any basis as there is no mention of the section under which the addition was made.

Reliance was placed on the decision of the Tribunal in the case of Assistant CIT v. Sailesh S. Shah (1997) 63 ITD 153 (Mumbai). According to the learned counsel the benefit of presumption cannot be taken without specific mention of the section. Secondly, the addition is baseless as the investment was estimated hypothetically on the basis of sales made during the period. Replying on the decision of the Hon'ble Supreme Court in the case of Janki Ram Bahadur Ram v. CIT (1965) 57 ITR 21 (SC) it was submitted that it was for the revenue to establish that the profit earned in a transaction is within the taxing provision and is on that account liable to be taxed as income. The nature of the transaction must be determined on a consideration of all the facts and circumstances which are brought on the record of the Income Tax Authorities. According to the learned counsel of the assessee, there is no finding of any specific purchases unaccounted during the year. The peak investment can only be considered on the basis of actual purchases made from day-to-day. Just because there was a turnover it cannot be said that there would be corresponding unaccounted purchases. The presumption made by assessing officer is totally baseless. The assessee in this case gave a valid explanation stating that the purchases were made on credit and the payments were made after realisation of the sale proceeds. Referring to p. 41 of the paper book, it was submitted that the purchases on credit is beyond doubt. Reiterating the claim made before the assessing officer, it was submitted that the documents seized at the time of the search reflected trade creditors to the tune of Rs. 61,36,159 as against debtors which stood at Rs. 19,16,008. Considering the rotation of the money and the cycle of turnover, it is submitted that the purchases are fully covered by these trade credits available to the assessee. The assessing officer also did not appreciate the fact that the credits and debits in the benami bank account supports the stand taken by the assessee, that the payments were made after realisation of the sale proceeds of the goods purchased on credit. There is, therefore, no basis for making addition of Rs. 26,87,340 on mere presumption and is liable to be deleted.

12. On the other hand Shri L.S. Negi, the learned senior Departmental Representative supported the order of the assessing officer. According to him, the assessee did not deny the unaccounted sales of more than Rs. 2 crores for the period on the basis of which the assessing officer worked out the peak investments which have not been accounted for. The claim of the assessee that the goods were purchased on credit have not been substantiated. The assessee has been making purchases to the tune of Rs. 4,12,000 within a period of 8 days. In that view of the matter, the unexplained investment computed by the assessing officer for the assessment year 1996-97 at Rs. 26,87,340 is more than fair and reasonable particularly when the unaccounted sales during the above period was found to be at least Rs. 4.2 crores. It is also submitted that the assessee itself has already offered the unexplained investment for taxation and there is, therefore, no plausible reason for reversal of the offer earlier made. It is, therefore, submitted that no interference is called for in this regard.

13. We have carefully considered the rival submissions, in the light of the material on record. From the order of the assessing officer and the material placed on our record, it is an admitted fact that the assessee made unaccounted sales. Admittedly the unaccounted sales for the period from 1-4-1995, to 31-3-1996, was to the tune of Rs. 2,01,27,000. It was the explanation of the assessee that the purchases were made on credit and the payments for the purchases were made after realisation of the sale proceeds. In support of this claim, reliance was placed on the Annexure A-3 at p. 24 recovered from D-21, Bhagat Singh Marg, at the time of search. The said p. 24 reflected an amount payable to the suppliers due to creditors balance at Rs. 61,36,159 as on 31-3-1996. The debit side shows a sum of Rs. 19, 16,008. It is, therefore, the claim of the assessee that more than Rs. 42 lakhs were available at any point of time on account of creditors supply for goods. If the assessee makes even the turnover of 5 times during the year, the total turnover would come to more than Rs. 2 crores. The assessing officer, however, did not appreciate this aspect and held that there could not be sale without purchase by the assessee. The assessing officer further, stated that the credits in the benami account during the period in question were admittedly relating to unaccounted sales as reflected in Annexure A-9. Obviously, the debits in this period would relate to corresponding unaccounted purchases effected during the same period. We are unable to appreciate the reasoning of the assessing officer. If there is no credit in the account there could not be corresponding debit. The credits and debits in the bank account do support the claim of the assessee that the payments were made to the supplier after realising the sale proceeds from the purchasers. The above facts cannot be used against the assessee for rejecting the claim that the purchases were made on credit and the payments were made after realising the sale proceeds.

14. The learned counsel before us vehemently argued that no addition can be made without specific mention of the section under which the additions were made. The assessing officer in this case made the addition on the basis of unexplained investment in the purchase of goods. Such unexplained investment will be covered by the provisions of section 69. However, the preconditions for assessing unexplained investment in a case is where there is investment in a particular thing. There appears to be no provision for making addition on presumption of investment under section 69. The Tribunal, Bombay Bench in the case of Sailesh S. Shah (supra) considered similar issues. In that case the addition to the income was made on account of income from commission, undisclosed investment and interest on undisclosed income on the basis of loose papers seized from the assessee during operation under section 132 of the Income Tax Act. The assessing officer neither mentioned any material or evidence to show on what basis figures came to be worked out nor the sections 69 and 69B were invoked nor did he discharge burden to prove that alleged receipts were assessee's income. The Tribunal considered the said addition and it was held that the addition being merely on the basis of suspicion and, therefore, could not be sustained. If the case of the assessee is considered in the light of the above decision, it is seen that there was no specific unexplained investment found in the Annexure which were treated as unexplained investment. The unexplained investment was merely estimated on the basis of the turnover less the gross profit and, therefore, the investment for a period of one month was estimated on that basis. Since there is no specific investment which can be said to be unrecorded in the books of account, the addition made by the assessing officer on estimated basis cannot be upheld. Even in any case, peak investment presupposes actual purchases of each day less the resources available in the form of balance of the previous day plus sale proceeds received during the course of the day. If the investments of the assessee are worked out on the basis of the documents found, at the time of the search, the assessee has the benefit of purchase on credit to the tune of Rs. 42 lakhs on a particular day. If the turnover of these credit purchases are made at 5 to 10 times during the year, the unaccounted sales during the period are more than covered. There is, therefore, no basis for making any addition on account of peak investment on account of unaccounted purchases. The addition is accordingly deleted.

The above view taken by us has the indirect support of the decision of the Hon'ble Supreme Court in the case of Janki Ram Bahadur Ram (supra). In that case, the Hon'ble Supreme Court held that the nature of the transaction must be determined on a consideration of all the facts and circumstances which are brought on the record of the Income Tax Authorities and then it is for the revenue to establish that the profit earned in a transaction is within the taxing provision and is on that account liable to be taxed as income. In this particular transaction there is no finding that the assessee actually made unaccounted purchase which can be treated as investment for the purpose of working out peak investment. Since the claim of the assessee of having facilities for credit purchase remains unrefined peak investment cannot be worked out merely on presumption and on estimate basis. We hold accordingly and delete the addition in this account.

15. The next ground is in regard to the addition of a sum of Rs. 4,12,000 under section 40A(3) read with section 158B of the Income Tax Act. In this regard, it is seen that this issue is directly covered in favour of the assessee by the decision of the jurisdictional High Court in the case of CIT v. Banwarilal Bansi Dhar (1998) 229 ITR 229 (All). In that case, it was held by the Hon'ble Allahabad High Court that no disallowance could be made in view of the provisions of section 40A(3) read with rule 6DD(j) of the Income Tax Rules, 1962, as no deduction was allowed to and claimed by the assessee. When the gross profit rate was applied that would take care of everything and there was no need for the assessing officer to make scrutiny of the amount incurred on the purchases made by the assessee. Respectfully following the said decision, we hold that there is no reason for making separate addition under section 40A(3) of the Act in the instant case as the income was determined on the basis of the gross profit rate which the Hon'ble High Court held would take care of everything. The addition on this account is accordingly deleted.

16. The next ground relate to the following additions :

Rs.

(a) Undisclosed income on unaccounted sales for the period from 31-3-1996, to 20-7-1996

2,81,164

(b) Undisclosed income on account of unaccounted sales on the basis of benami bank account No. 42063 with State Bank of India, Azadpur

2,62,035

(c) Undisclosed income on unaccounted sales on the basis of benami bank account No. 5556 with Union Bank of India, Azadpur

3,96,488

Insofar as the addition of Rs. 2,81,164 is concerned, it is seen that the assessing officer found debit and credit figures amounting to Rs. 12,61,237 and Rs. 40,16,628, respectively, in the Annexure A-2 recovered from B-21, Bhagat Singh Marg. It is a small note book in which the debit and credit entries are noted. It was explained by the assessee that these transactions related to assessment year 1983-84. In the absence of any specific dates in the note book and the entries made therein, the assessing officer held that the entries related to the present period. Applying the same G.P. rate of 7 per cent on the estimated sale of Rs. 40,16,628, he made an addition of Rs. 2,81,164. This addition was made for the period 31-3-1996, to 20-7- 1996, of the block assessment.

The assessing officer also found that the assessee was maintaining bank account No. 42063 with State Bank of India, Azadpur. The bank account was maintained in the name of M/s. Anil Kumar & Co. It was explained that this account belonged to M/s. Anil Kumar Khurana & Co. which was used by them for the last two years. The transactions of the earlier period did not relate to the assessee. The assessing officer, however, did not accept the contentions. The assessing officer, therefore, totalled up the credit entries in the bank account since 1986 and worked out the total credit at Rs. 37,43,359. He applied the same g.p. rate of 7 per cent and added a sum of Rs. 2,62,035 as undisclosed income of the assessee for the period from 1-4- 1986, to 31-3-1994.

Similarly, the assessing officer found that credit entries to the extent of Rs. 56,64,115 were made in the account with Union Bank of India, Azadpur. He, therefore, applied the same g.p. rate of 7 per cent and added a sum of Rs. 3,96,488.

17. The assessee is aggrieved and has come up in appeal before the Tribunal.

Shri O.S. Bajpai, the learned counsel reiterated, the same submissions as made before the assessing officer. With regard to the addition of Rs. 2,81,164, it was submitted that the transactions relate to that of Saini Enterprises and it related to the assessment year 1984-85. It is, therefore, claimed that the said amount would not be assessed during the block period even if it is assumed to be of the assessee.

Insofar as the addition of Rs. 2,62,035 in the bank account with State Bank of India, it is submitted that the account was in the name of Shri Anil Kumar and the account was operated by him for Arhat business in fruits and vegetables for which he was holding a licence from the agricultural marketing produce committee. It is, therefore, submitted that the same cannot be assessed in the hands of the assessee.

Similar stand has been taken in regard to the credit entries in the Union Bank of India, which is claimed to be belonging to Anil Kumar for Arhat business in fruits and vegetables.

Even assuming without admitting that transactions are of the assessee, then, it is submitted by the learned counsel of the assessee that the rate of profit should be reasonably adopted as in the regular business of the assessee.

18. On the other hand, Shri L.S. Negi, the learned Departmental Representative strongly supported the order of the assessing officer. According to him, the transactions have been duly recorded in the documents seized at the time of the search. The assessee itself admitted on various occasions about the undisclosed and unaccounted sales. In such a case, the assessing officer was fully justified in treating it as the undisclosed business of the assessee and thereby applying a profit rate of 7 per cent which is fair and reasonable. It is, therefore, submitted that no interference is called for in this regard.

19. We have carefully considered the rival submissions in the light of the material on record. From the order of the assessing officer and the various statements given by the partners of the assessee, it cannot be denied that the assessee has been making unaccounted sales from time to time. It is also clear that the margin of profit in this line is not as high as in other business. In the regular business, the net profit rate never crossed beyond 1 per cent in the past. In such a case, it will meet the ends of justice if the income from this transaction and credit entries, etc. is estimated at 1.5 per cent. The assessing officer is directed to recompute the income from unaccounted sales/transactions on this basis.

20. The last ground is in regard to the addition of Rs. 31,079 on account of commission receipts. The learned counsel before us did not press this ground at the time of hearing. It is accordingly dismissed as not pressed.

In the result, the appeal stands partly allowed.

U.B.S. Bedi, J.M. 12th Feb., 1999

I have gone through the proposed order of learned brother word by word but despite my best persuasion I have not been able to fully convince myself either with the findings or with the conclusions as arrived at by him. My reasons for the same are given in the subsequent paragraphs of my order.

2. This appeal relates to the block period 1-4-1986, to 20-7-1996, and relevant facts are like this that assessee is a firm engaged in the business of trading in seeds of different varieties. Export to some neighbouring countries are also made by the firm. The firm comprised of two partners, namely, Shri Purshottam Das Saini and his mother Smt. Punno Devi sharing 50 per cent each. A search and seizure operation was conducted under section 132 of the Income Tax Act at the premises of the assessee on 20-7- 1996. Assessee filed return of income under section 158BC on 27-6-1997, declaring a total undisclosed income of Rs. 5 lakhs for the block period. During the course of search operation under section 132 of the Income Tax Act, several documents/books were seized which reflect transactions of unaccounted nature. A detailed questionnaire based on seized material was issued by the assessing officer vide his office letters dated 8-7-1997, 27-7-1997, confronting the assessee on the specific descriptions detected therein. Assessee was stated to have been supplied with photocopies of these seized records. Detail of several difference found in the books of account of the assessee was also confronted to the assessee during the post-search enquiries. Assessee is stated to have made admissions/surrenders of various amounts during the course of statements recorded on 10-9-1996, 12-9-1996, and vide its letter dated 24-9-1996, during these enquiries as recorded by the assessing officer in the assessment order. It was also noted by the assessing officer that facts were once again verified from the seized materials and accordingly confronted to the assessee along with photocopies of aforesaid statements/letters. Assessee filed its submissions and explanations vide letters dated 11-7-1997, 14-7-1997, 18-7-1997 and 19-7-1997. Assessing Officer examined these details and recorded his findings as below :

(a) Annexure A-5 : This is an exercise book with record of bills for sales for the period 10-2-1995, to 7-11-1995.

(b) Annexure A-6 : This a note book with a record of bills for the sale for the period 8-11-1995, to 19-7-1995.

The entire sale for the above period aggregated to Rs. 1,43,98,428.

Annexure A-8 and A-9 are relating to bills for the period 1-4-1995, onwards. The total sales recorded in these Annexure worked out to Rs, 2,78,16,000 as follows

Rs.

Annexure A-8

76,86,000

Annexure A-9

2,01,27,000

The assessing officer, therefore, worked out the accounted sales for the period from 1-4-1994, to 31-3-1996, as follows :

Rs.

1. 1-4-1994, to 31-3-1995 and 1-7-1996, to 19-7-1996

1,43,98,428

2. 31-3-1996, to 30-6-1996

76,89,000

3. 1-4-1995, to 31-3-1996

2,01,27,000

4,22,14,428

3. The assessing officer confronted the assessee with these figures in the hearings before him. The assessing officer also proposed to apply a g.p. rate of 7 per cent on these unaccounted sales as admitted by Shri Purshottam Das Saini, partner of the assessee-firm in his statement. The assessee did not deny the fact of unaccounted sales as worked out by the assessing officer. The assessee, however, claimed that the undisclosed income worked out by the assessing officer should be reduced by expenses incurred in process of making unaccounted sales. The assessee specifically pointed out to pp. 516 to 529 of Annexure A-9 recovered from Aryapura, Delhi, stating that these expenses should be deducted from the income estimated on the basis of 7 per cent g.p. as worked out by the assessing officer. The assessee also pointed out that the expenses in the form of seed cleaning expenses, warehousing charges, packing charges are to be allowed from the gross profit determined by the assessing officer. The assessee, therefore, claimed that a sum of Rs. 4,25,090 for the period from 1-4-1995, to 20-7-1996, and a sum of Rs. 11,00,455 for the period from 1-4-1995, to 31-3-1996, are liable to be deducted from the income determined by the assessing officer. The assessing officer, however, did not accept the claim as no evidence material or specific break-up of working out expenses deductible as claimed were ever furnished by the assessee. Assessing Officer also disputed the correctness of the totalling of expenses which according to him comes to Rs. 72,415 in place of Rs. 4,25,090 claimed by the assessee in regard to expenses appearing at pp. 516 to 520 in Annexure A-9, it was found by the assessing officer that the actual total comes to Rs. 7,12,711 instead of Rs. 11,00,455 claimed by the assessee. The assessing officer, therefore, held that the amounts claimed by the assessee are not supported by reliable documents. The assessing officer also was of the view that the g.p. rate applied at 7 per cent had duly taken care of the expenses incurred by the assessee for the earning of the profit. It was also his view that the deductible expenses have already been claimed in the regular books of account and, therefore, the assessee could not be given further benefit by allowing deductions on account of the documents seized. It was also noted by the assessing officer that the exact claim of the expenses could not be quantified for the lack of details and, therefore, assessee was not entitled to deduction claimed. Above all assessing officer noted that in fact the assessee has itself at answer Nos. 5 and 6 of letter dated 11-7-1997, has admitted that : "Annexure A-8 and A-9 seized from the godown premises at Aryapura, Indira Market, are details of sales made outside the books of account and the assessee agreed to the application of gross profit rate of 7 per cent of sales so recorded." Similarly, admission had been made in respect of Annexure A-5, Annexure-6 and Annexure-7. Assessee was confronted with the aforesaid Annexure and nature of sales accounted for/reflected therein during the post-search enquiries. Since perusal of these statements reveal that assessee had accepted and admitted not only to the undisclosed nature of above-mentioned transactions in figures but also agreed for addition to be worked out by applying proper rate of 7 per cent and exact amount of profit was specifically admitted to be added in the income. The statement of Shri Purshottam Das Saini, the managing partner, recorded on 10-9-1996, 12-9-1996, and letter dated 24-9-1996, placed on record clearly brings out this fact. Vide question No. 7 of his statement recorded on oath dated 12-9-1996, assessee was asked to explain and it is at p 134 of Annexure A-8 (sale account of Rs. 76,89,000) and page No. 128 of Annexure A-9 (sale account of Rs. 2,01,27,000). As per assessment order in his answer, assessee clearly stated as under : .

"............ these are unaccounted sales for the period 14-1-1996, to 30-6-1996, and 1-4-1995, to 31-3-1996, respectively, which comes to a total figure of Rs. 2,78,16,000. Vide question 3 of the same statement, the assessee was asked to furnish the figure of income accruing in this sale amounting to Rs. 2,78,16,000. In his reply at answer No. 3, it was stated as under :

.......... yes, I have admitted total amount of unaccounted sales of Rs. 2,87,16,000 for the period 1-4-1995, to 19-7-1996. Taking the g.p. rate of 7 per cent which has been reflected by the firm in previous years, unaccounted income on the account of sales out of the books comes to Rs. 19,47,120. In the same statement, in his reply to question No. 4 with respect to disclosure of income, it was stated "Yes. I went to disclose a sum of Rs. 19,47,120 as income accruing from unaccounted sales for the period 1-4-1995, to 30-6-1996, which I offer for taxation as undisclosed income from sales outside the books of account."

4. In view of above the assessing officer noted that an amount of Rs. 19,47,120 represent undisclosed income of the assessee for the period 1-4-1996, to 30-6-1996, and 1-4-1995, to 31-3-1996. This covers unaccounted for sales reflected in Annexure A-8 and A-9.

5. With respect to other unaccounted for sales aggregating to approximately Rs. 1,43,98,428 reflected in Annexure A-5, A-6 and A-7 the same pertained to the period 1-4-1994, to 31-3-1995, and 1-7-1996, to 19-7-1996. It was also noted that these bills for sales of this period have not been accounted for in regular books of account and on being confronted with the evidence the assessee had admitted that these figures represent unaccounted sales and he has surrendered the income aggregating on total undisclosed sales and he has surrendered the income aggregating on total undisclosed sales of Rs. 1,43,98,248 for the period 27-7-1994, to 31-3-1995, and for the period 1-6-1996, to 19-7-1996, vide letter dated 24-9-1996. Taking g.p. rate at 7 per cent, undisclosed income of these sales worked out at Rs. 10,07,890. So the assessing officer held that this amount represents undisclosed income of the assessee for the above period. The Annexure wise/period wise break-up of unaccounted sales and the fact of admission of the same by the assessee vide aforesaid statements were once again confronted to the assessee by assessing officer vide his office letter/questionnaire, dated 8-7-1997/27-7-1997, and subsequently the assessee in his reply dated 11-7- 1997, at points 5 and 6 has not agitated the undisclosed nature of sales reflected in Annexure A-5, A-6 and A-7 recovered from D-21, Bhagat Singh Marg, and Annexure A-8 and A-9 recovered from the premises of Aryapura Chowk, Delhi. The application of 7 per cent g.p. rate has also not been disputed by the assessee as noted by the assessing officer. However, certain points have been raised in the submission of the assessee which as noted by assessing officer in assessment order are detailed as under :

"(vii) The assessee has pointed out that figures of undisclosed income worked out by this office, should be reduced by expenses incurred in the process of making unaccounted sales. Attention has been drawn towards p 516 to 570 of Annexure A-9 recovered from Aryapura, Delhi. However, no specific break-up or working of expenses deductible, was furnished by the assessee. In response to further queries on this point, the assessee vide point No. 4 of his letter, dated 19-7-1997, has furnished certain explanations in this respect.

Extracts of certain seized papers of Annexure A-8 and A-9 have been filed. These papers are purported to reflect unaccounted expenses jotted down, including seed cleaning expenses, warehousing charges, packings, etc. On the basis of above mentioned pages, the assessee has claimed expenses of Rs. 4,25,090 for the period 1-4-1996, to 20-7-1996, and Rs. 11,00,455 for the period 1-4-1995, to 31-3-1996. However, the deductions claimed on the account are not acceptable. This is owing to the following reasons :

(i) Firstly the totals of expenses reflected in these pages worked out by the assessee are not correct. The total of expenses appearing at p. 524 (Annexure A-8) comes to Rs. 72,415 instead of Rs. 4,25,090, the totals of expenses appearing at pp. 516 to 520 (Annexure A-9) come to Rs. 7,12,711 instead of Rs. 11,00,455 claimed by the assessee. Therefore, the facts submitted by the assessee are not reliable.

(ii) The expenses incurred by the assessee are not quantifiable. This is especially so because no break-up or complete details of unaccounted purchases, corresponding to the unaccounted sales have been submitted by the assessee. This is despite specific requirements made in this regard. Seized materials on record are also not complete in this respect. Therefore, the exact figure of expenses deductible cannot be verified or worked out in absence of relevant unaccounted purchase details. Even though the element of gross profit on unaccounted sales would normally be more than the declared figure, the assessee has been given reasonable consideration by application of 7 per cent rate. This would, therefore, offset the element of expenses including therein. The fact that the assessee has been including therein large scale transaction of the unaccounted nature, reveals that all methods have been used to avoid tax, in this scheme of things it is justifiable to deduce that the expenses incurred were claimed by the assessee in its regular books of account. A perusal of the P&L a/c filed for this period reveals that average expenses of Rs. 10. 17 lakhs have been claimed by the assessee from time to time. If the claim of expenses by the assessee was justified an extract of P&L a/c have been prepared by the assessee on the basis of details available with him. No such evidence or working has been furnished. In the facts and circumstances of the case, contentions of the assessee on the issue of expenses, cannot be allowed or quantified for lack of purchase and other relevant details.

(viii) The assessee, vide his reply on the question of unaccounted sales, at point Nos. 5 and 6 of letter dated 11-7-1997, has submitted that unaccounted sales on the basis of Annexure A-5, A-6 and A-7 and A-8 and A-9 (as discussed in the preceding paras) have been considered at the time of filing of return of income under section 158BC. A perusal of the return of income under section 158BC reveals that a total undisclosed income of Rs. 5 lakhs for the entire blockperiod, has been declared.

The assessee has not furnished a proper explanation of the break-up of undisclosed amounts declared in the aforesaid return filed under section 158BC. No working has been given to justify the same. In view of the elaborate discussion on the unaccounted sales made in the preceding paras and in the light of specific admissions made by the assessee, the amounts of disclosure made by the assessee, are obviously disproportionate to the undisclosed income by the assessee, are obviously disproportionate to the submissions on the issue of expenses deductible, has already been considered. In the facts and circumstances of the case, the return of undisclosed income filed by the assessee is not acceptable.

The assessee vide his letter, dated 11-7-1997, has raised certain objections on the legal validity of statements recorded during the post-search inquiries and has attempted to withdraw the offers of admissions/surrender made therein. Without any prejudice to the validity of the same the fact that assessee indulged in unaccounted sales is beyond dispute. After perusal of seized materials, the assessee was confronted with the same set of facts, during proceedings under section 158BC, vide this office letter/questionnaire, dated 8-8-1997/27-8-1997, and therefore, necessary opportunity was given. The figures of unaccounted sales worked out on basis of seized papers have not been disputed by the assessee. In fact, it is clearly admitted by the assessee that Annexure A-5, A-6, A-7 and Annexure A-8, A-9 (as discussed earlier) are records of unaccounted sales. Application of G.P. rate of 7 per cent is also acceptable to the assessee, as per his own submissions. The present issue raised by the assessee has, therefore, no bearing on the actual facts of the case. Moreover, the statements recorded are valid as per relevant provisions of the Income Tax Act.

In the view of the foregoing, period-wise break-up of the net undisclosed income worked out on the basis of unaccounted sales reflected in Annexure A-5, A-6 and A-7 (recovered from D.21, Bhagat Singh Marg) and Annexure A8 and A-9 (recovered from godown at Aryapura Chowk), is as under :

Undisclosed income to be added back

Period

Rs.

(i) 1-4-1994, to 31-3-1995 and 1-7-1996, to 19-7-1996

10,07,890

(ii) 1-4-1995, to 31-3-1996 and 31-3-1996, to 30-6-1996

19,47,120

Amounts of Rs. 10,07,890 and 19,47,120 are accordingly added back as undisclosed income of the assessee for the respective periods.

6. Assessee aggrieved by the order of assessing officer with respect to the above additions has come up in appeal and the learned counsel for the assessee Shri O.S. Bajpai vehemently objected to the additions on this account. According to him addition was without any basis and only on the basis of statement which was retracted by the assessee at the first opportunity. According to him it is well settled that the party's admission is substantive evidence and such admission is clearly and unequivocally made is the best evidence against the party making it. Though the same is not conclusive, onus shifts on the maker of the statement on the principle that what a party himself admits to be true may reasonably be presumed to be so and until the presumption is rebutted the fact admitted to be taken to be established as held by the Hon'ble Supreme Court in the case of Thiru John & Ors. v. The Returning Officer AIR 1977 SC 1724. It was also submitted that even if the confession is inculpatory but corroboration is necessary if the confession is retracted as held by the Hon'ble Supreme Court in the case of Rangambam Kalan Joy Singh AIR 1956 SC 9. It was also submitted that since the assessee in his case, has retracted the statement made before the assessing officer, such statement cannot be made basis for assessment without any corroboration as held by the Hon'ble Supreme Court in the above cases. The learned counsel also cited the decision of Hon'ble Supreme Court in the case of Pallangoda Rubber Produce Co. Ltd. v. State of Kerala & Anr. (1973) 91 ITR 18 (SC) for the proposition that admission is extremely an important piece of evidence but it cannot be said that it is conclusive. It is open to the assessee who made the admission to show that it is incorrect and assessee should be given opportunity to show that the books of account do not disclose the correct state of facts.

7. Reliance was also placed on the decision in the case of Sir Shadi Lal Sugar Mills v. CIT (1987) 168 ITR 705 (SC), The learned counsel for the assessee also challenged the legality of statement obtained from the assessee by the revenue authorities. According to him it was taken by the revenue authorities in their office without any legal assistance to the assessee. The statements were recorded in English. There is no evidence that the statements were read out to the deponent in the language he understands before obtaining his signatures. There is no witness to the statement. These statements, therefore, are not valid evidence for the purpose of making assessments as they are not legally valid. However, he admitted that copies of statements were duly supplied to the assessee and the assessee also submitted objections on 27-9-1996. It was thus emphasised that the assessing officer was not justified in making additions on the basis of statements as burden shift on the department which was not discharged.

8. With regard to the merits the learned counsel for the assessee submitted that the assessee claimed deduction of expenses incurred by the assessee which were recorded in the seized books of account. The assessing officer rejected the claim of the assessee without any basis and applied a g.p. rate of 7 per cent. If the expenses claimed by the assessee on the basis of documents seized are detected then a net profit comes approximately to 1.5 per cent which is normal profit rate in the regular business of the assessee from year to year. It was thus submitted that even if addition is to be made then the profit on account of unaccounted sales should not exceed more than 1.5 per cent.

9. The learned Departmental Representative vehemently supported the order of assessing officer while relying upon the basis and reasoning as given by the assessing officer. He further submitted that unaccounted sales were audited by the auditor and the nature of undisclosed sales were duly admitted by the assessee. While working out the g.p. the assessing officer has already taken into account the expenditure on account of purchase and other expenses. Despite assessing officer's best efforts the assessee has neither been able to substantiate the purchases nor any expenses. Since the assessee could not show the basis or supporting evidence or material of expenses noted in the seized documents and so these could not be allowed and it was taken rightly that the expenses accounted for in the seized documents have actually been claimed against accounted for sales in the books of account being maintained by the assessee and shown to the Income Tax Authorities. So application of g.p. rate of 7 per cent on the total turnover is fair and reasonable and it was submitted that the same calls for no interference.

10. With regard to reliability of the statement of the assessee admitting the turnover and the rate of gross profit, etc. it was submitted that there can be no better evidence than admission of the assessee himself and the assessee has neither successfully withdrawn the statement nor it was established to be erroneous. Therefore, the statement cannot be ignored for estimating the profit for unaccounted sales which fact has duly been admitted by the assessee in the statements and letters submitted in post-search enquiry and also during the proceedings. It was thus pleaded that no interference is called for and appeal of the assessee deserves to be dismissed in this regard.

11. After having gone through the rival submissions in the light of material on record it is admitted position that the assessee made unaccounted sales to the tune of Rs. 4,22,14,428 for the period from 1-4-1994, to 31-3-1996. It is also an admitted fact that the assessee was confronted with the proposed profit which was agreed to by the assessee in his statement made and letters furnished. It is, however, the case of the assessee's counsel before the Tribunal that the statement was not a legally admissible evidence as the same is recorded in the office of the investigating officer and as the assessee was not given or allowed any legal assistance and moreover the statement was recorded in English and it was not certified that the statement was duly read over to the persons making the statements in the language they know before obtaining the signatures. As there is a flaw in the statement obtained by the revenue authorities thus pleaded that full reliance cannot be made on such statement when particularly, same was retracted by the assessee vide letter dated 27-9-1996. So the statement or confession cannot be made the basis for making addition without any corroborative evidence. It was also submitted that when copies of statements were furnished to the assessee (sic he) wrote a letter dated 27-9-1996, claiming that the expenses entered in the document seized at the time (sic of) search should be deducted from the gross profit determined by the assessing officer. This claim was reiterated at the time of assessment proceedings and this claim of the assessee was rejected by the assessing officer on the basis that the expenses claimed by the assessee have not been supported by any evidence or material, also not correctly worked out and the same are not quantifiable as there was no break-up or complete details of unaccounted purchases corresponding to the unaccounted sales. So in view of assessing officer, expenses incurred must have already been claimed by the assessee in its regular books of account and, therefore, no further deduction was required, on this account, to be allowed.

12. After carefully considering the submissions made, case law cited and recording of statement and reading it out to the assessee is concerned it was pointed out by the learned Departmental Representative at the time of arguments that before signing necessary certificate in English was recorded by Shri Purshottam Das Saini, managing partner in his own hand (by himself) and this fact when confronted to the counsel for the assessee, he could not controvert the same. Therefore, this plea of the assessee is found to be not valid and the same is rejected. As regards other objections about statement I am of the view that since strict technical rules of evidence were not applicable to tax proceedings, therefore, other objections which are in the nature of technical objections are found to be of no consequence more so when assessee has himself relied upon and agreed for fixing of turnover as admitted in the statement. Therefore, these pleas are not tenable and as such rejected.

13. As regards retraction of statement is concerned, it was vehemently argued by the learned counsel of the assessee that letter dated 27-9-1996, is clear retraction of admission made by the assessee during post-search enquiries and by virtue of the said letter assessee while confirming the deposition regarding conducting of unaccounted sales were concerned he categorically pleaded for deduction of expenses as appearing in the seized documents. Therefore, it was emphasised by the assessee's counsel that gross profit as agreed to by the assessee in his statement should be further subjected to deduction of expenses and necessary relief in this regard is necessary. It was also submitted that claim of deduction of expenses as found in the seized documents by writing this letter amount to retraction of admission made in the statement recorded in the post-search enquiries and the same has been done at very first chance after copies of statements were supplied to the assessee. Therefore, admission made in the statement so far as gross profit agreed to be assessed is concerned, deduction on account of claim for expenses incurred and found to be recorded in the seized documents is liable to be allowed and only balance could be taxed which approximately, after deducting the said expenses, comes to around 1.5 per cent and the same rate of profit is being earned by the assessee (sic as) per books of account and past history of the case.

14. Submissions made on behalf of the assessee have been carefully considered and contents of the letter of assessee dated 27-9-1996, as placed at p. 105 of the paper book filed are reproduced herebelow :

Dt. 27th Sept., 1996

The Addl. DIT

Unit II

New Delhi.

Kind attn : Mr. Shravan Kumar

Respected Sir,

In continuation to your enquiries/discussion, kindly note we have been practicing unaccounted sales against unaccounted purchases which we do not enter even in other books of accounts seized by you. Similarly, we have been indulging in practice not to record even unaccounted expenses incurred against unaccounted sales. But for your kind attention, please note some of our expenses incurred against unaccounted sales have been recorded against personal accounts of Shri Purshottam Dass (PDS) and our Mr. Raman. Almost all expenses occurred at our office India Market has been debited to account of Raman (for record only in expenses occurred at our Azadpur office has been debited to account of Shri Purshottam Das (PDS) maintained in our unaccounted ledger (Annexure A-8 p. 186 and Annexure A-8 p. 125, for year 1996-97 it has been recorded in Annexure A-9 page No. 102 and p. 100. You are requested to deduct the amounts from out gross profit calculated by you.

Kind attention in this order will be highly appreciated and obliged.

With best regards

for India Seed House

Sd/- (Purshottam Dass Partner)

15. As per contents of this letter, it is found that there is no mention of either retraction of any admission made or it is apparent or could be inferred that there is retraction of earlier admission/statement made by the assessee but only request was made to deduct the amounts of expenditure incurred against gross profit calculated on unaccounted for sales. However, it is admitted in the above letter that the assessee has been practicing unaccounted sales against unaccounted purchases which the assessee does not enter even in other books of accounts as seized by the department. To support this assessee's counsel relied upon the Hon'ble Supreme Court's decision in the case of Thiru John. & Ors. v. Returning Officer (supra) wherein it was held that even if confession is retracted then corroboration is necessary. Support was taken from Rangambam Kalan Joy Singh (supra). It was pleaded by the assessee's counsel that since the assessee, in this case, has retracted from the detected statement earlier made before the tax authorities, therefore, the said statement cannot be made basis for assessment without any corroboration as held by the Hon'ble Supreme Court in the above case. Assessee's counsel further cited the case of Hon'ble Supreme Court in the case reported in (1973) 91 ITR 18 (SC) (supra) for the proposition that admission is extremely an important piece of evidence but it cannot be said that it is conclusive and it is open to the assessee who made admission to show that it is incorrect and the assessee should be given a proper opportunity to show that the books of account do not disclose the correct state of facts. Similarly, reliance was also placed on the decision in the case of Sir Shadi Lal Sugar & General Mills Ltd. v. CIT (supra) wherein it was held that "from the assessee agreeing to additions to its income, it does not follow that amount agreed to be added was concealed income. There may be a hundred-one reasons for such admission i.e., when the assessee realised the true position it does not dispute certain discussions. But that does not absolve the revenue from proving mens rea of quasi criminal offence". Assessee's counsel also submitted that assessee immediately claimed deduction of expenses incurred by the assessee which were recorded in the seized books of account and assessing officer rejected the claim without any basis and applied a g.p. rate of 7 per cent and action of assessing officer is neither proper nor justified.

16. To rebut these submissions of assessee's counsel, the learned Departmental Representative submitted that there is a clear admission on the part of the assessee with regard to unaccounted for sales as well as gross profit rate of 7 per cent on such sales and there is a specific mention of exact amount with regard to the relevant period in such statement. Therefore, there was no retraction of such admission nor any evidence or material was produced to claim such deduction by assessee and assessing officer could not give deduction or expenses as claimed. Assessee has also not been able to justify claim of deduction as claimed when assessing officer specifically pointed out that the figures of expenses claimed to have been incurred in connection with unaccounted for sales are not correctly totalled even. No details or evidence with regard to purchases or expenses were ever furnished. So the claim of the assessee has rightly been rejected by the assessing officer and the same needs to be confirmed.

17. Since law is well settled that what is admitted by the party to be true must be presumed to be true unless the contrary is shown. Therefore, an admission, as a piece of evidence, binds an assessee insofar as the facts are concerned. An admissions, is substantive evidence; it is the best evidence that an opposing party can relying upon and though not conclusive is decisive of the matter, unless successfully withdrawn or proved erroneous as held by the Hon'ble Supreme Court in the case of Narain Bhagwant Rai Balajiwala AIR 1960 SC 100. Though the value of admission must depend upon the circumstances which they are made and possible motives for incorrect statement by interested persons should not be ignored and in order to retract from such admission, it is incumbent upon the assessee to show that admission made by him before the Income Tax Authorities is erroneous or he must successfully withdraw it. Unless he does so, and gives a satisfactory explanation with regard to that admission, the admission made by him shall be binding upon him. In this case admission with regard to unaccounted sales to the extent of Rs. 4,22,14,428 was admitted by Shri Purshottam Das Saini, partner of the assessee, himself, voluntarily, for the period under consideration and similarly admission to the extent of 7 per cent of gross profit on the sales for the block period in the same statement was made by the same partner of the assessee Shri Purshottam Das Saini on the basis that firm had been earning and reflecting similar rate of gross profit in the previous years and there is no categorical or specific retraction of admission which was made by the assessee willingly and without any coercion, threat or any other influence as recorded by him at the close of the statement, on each of the occasions and relevant portion of statement made on 12-9-1991, stands reproduced in earlier paragraph of this order. Assessee has also not been able to show that admission made by him in the statement made on various occasions is either erroneous or he has withdrawn such admission. Similarly, assessee could not justify either calculation mistake as pointed out with respect to expenses claimed to have been incurred by the assessee, as found recorded in the seized documents or could be able to support such expenses with any documentary form, were not other evidence more so when even purchases, being unaccounted for, were not supported by either purchase invoices or any other documentary evidence. Therefore, in view of facts and circumstances it cannot be held that either the assessee could be able to establish that admission, made in the statement voluntarily and willingly recorded, is erroneous or it was withdrawn successfully by adducing necessary evidence to support the claim made with respect to expenses incurred. Since no material or evidence was adduced to justify such expenses, the inference of the assessing officer that these expenses must have been accounted for against the sales being recorded in the books of account of business being disclosed i.e., other than the sales found unaccounted for. Assessee has himself voluntarily and willingly offered to have earned profit @ 7 per cent on the unaccounted for sales as being reflected in the previous years and there being no supportive documentary evidence or material to justify the claim of expenses alleged to be in seized documents or to support purchases, etc. therefore, in my considered view action of assessing officer is fully justified in accepting the admission of the assessee to be true and conclusive as nothing has proved contrary to this. While holding so, I rely upon Hon'ble Supreme Court has reported in AIR 1960 SC 100 (referred to supra) wherein it was held as under :

"As admission is the piece of evidence when as opposing party can rely upon, and though not conclusive is decisive, Matter, unless successfully withdrawn or proved is erroneous. "

18. Since admission made by the assessee with respect to earning of 7 per cent gross profit on the unaccounted for sales of Rs. 4,22,14,428 has neither been proved erroneous nor successfully withdrawn with any evidence. Therefore, assessing officer was fully justified in taxing the same as income of the assessee as offered by the assessee in his statement recorded at various stages. The case law as relied upon by the assessee's counsel is of no help to the assessee as neither any books of accounts nor any other documents to support purchase or expenses have been adduced to justify the claim of the assessee made in letter dated 27-9-1996. There is no retraction as claimed by the assessee in the said letter even because retraction means to withdraw, to draw back, to withdraw a vow, promise or the like, to make is dis a row, a statement or an opinion., to withdraw or shrink back to withdraw as unjustified as a statement or opinion and no such categorical or specific mention is therein the said latter called by the assessee as so-called retraction letter, dated 27-9-1996, as reproduced above and simple request was made to work out profit after giving deduction of expenses incurred as per seized documents and that too without any evidence or material to justify such expenses. In the absence of corroboration of claim of expenses as pointed out by the assessing officer with regard to both of the periods and other documentary evidence to justify such claim, I am of the considered view that assessing officer was justified to hold that the view the g.p. rate applied by 7 per cent has duly taken care of the expenses incurred by the assessee for earning of profit and alleged deductible expenses must have already been claimed in the regular books of account and assessee could not be given further benefit for allowing deduction on account of claim of expenses are per seized documents. Therefore, the view of the assessing officer is upheld and this ground of appeal gets dismissed in view of facts and circumstances and discussion as made above.

19. The next ground is with regard to the addition of Rs. 26,87,340 on account of peak investment on the purchases for the assessment year 1996-97. assessing officer, during the course of proceedings, considered the question of unrecorded purchases after making addition on account of unaccounted sales. According to the assessing officer there were many unrecorded purchases on the basis of which unaccounted sales were made by the assessee. For the period from 1-4-1995, to 31-3-1996, it was found that unaccounted for sales totalled a sum of Rs. 2,01,27,000. assessing officer, therefore, worked out undisclosed purchases on the basis of this figure by deducting g.p. worked out at 7 per cent, assessing officer estimated the turnover at one month and, therefore, worked out the peak figure of purchases of one month at Rs. 33,02,430. Deducting the element of g.p. at 7 per cent from this unaccounted peak investment was estimated by him at Rs. 26,87,340. Assessee, however, submitted that most of the purchases were credit purchases and the payments were made after selling the goods. A reference was also made to Annexure 3-A at p. 24 wherein outstanding amount payable to the supplier in view of credit balance of Rs. 61,36,159 as on 31-3-1996, was reflected, assessing officer however, did not accept the claim of the assessee in this regard. According to him the claim that no payment was made for purchase was far-fetched. Referring to the benami bank account maintained by the assessee, it was found that during the period in question there were both debits as well as credits and, therefore, obviously the debits in the period would relate to corresponding unaccounted purchases affected in the same period. He also during the proceedings found that there was unaccounted purchases totalling Rs. 4,12,000 (debited in Annexure A-9) made over the period of just 8 days. He, therefore, held that unaccounted peak investment worked out at Rs. 26,87,240 on a total turnover of more than Rs. 4.2 crores was fair and reasonable and the assessee too has offered vide his statement dated 16-9-1996, made before Additional DIT, Unit II(2), Investment, New Delhi. Therefore, he added back as unexplained investment in the purchases for the period during assessment year 1996-97 at Rs. 26,87,240 and aggrieved by this addition assessee has come up in appeal and is before the Tribunal.

20. The learned counsel for the assessee submitted that addition in this case is made without any basis, firstly, as there is non-mention of any section under which the addition was made and reliance was placed on Tribunal decision as reported Asstt. CIT v. Sailesh S. Shah (1997) 63 ITD 153 (Mumbai). According to the assessee's counsel the benefit of presumption cannot be taken without specific mention of section. Secondly, the addition is baseless as investment was estimated hypothetically on the basis of sales made during the period. Relying on the decision of the Hon'ble Supreme Court in the case of Janki Ram Bahadur Ram v. CIT (1965) 57 ITR 21 (SC) it was submitted that it was for the revenue to establish that the profit earned in a transaction is within the taxing provision and is on that account liable to be taxed as income. The nature of the transaction must be determined on a consideration of all the facts and circumstances which are brought on the record of the Income Tax Authorities. According to the learned counsel of the assessee there is no finding of any specific purchases unaccounted during the year. The peak investment can only be considered on the basis of actual purchases made from day-to-day. Just because there was a turnover it cannot be said that there would be corresponding unaccounted purchases. The presumption made by the assessing officer is totally baseless. The assessee in this case gave a valid explanation stating that the purchases were made on credit and the payments were made after realisation of the sale proceeds. Referring to p. 41 of the paper book, it was submitted that the purchases on credit is beyond doubt. Reiterating the claim made before the assessing officer, it was submitted that the documents seized at the time of the search reflected trade creditors to the tune of Rs. 61,36,159 as against debtors which stood at Rs. 19,16,008. Considering the rotation of the money and the cycle of turnover, it is submitted that the purchases are fully covered by these trade credits available to the assessee. The assessing officer also did not appreciate the fact that the credits and debits in the benami bank account supports the stand taken by the assessee, that the payments were made after realisation of the sale proceeds of the goods purchased on credit. There is, therefore, no basis for making addition of Rs. 26,87,340 on mere presumption and is liable to be deleted.

21. On the other hand, Shri L.S. Negi, the learned senior Departmental Representative supported the order of the assessing officer. According to him, the assessee did not deny the unaccounted sales of more than Rs. 2 crores for the period on the basis of which the assessing officer worked out the peak investment which have not been accounted for. The claim of the assessee that the goods were purchased on credit have not been substantiated. The assessee has been making purchases to the tune of Rs. 4,12,000 within a period of 8 days. In that view of the matter, the unexplained investment computed by the assessing officer for the assessment year 1996-97 at Rs. 26,87,840 is more than fair and reasonable particularly when the unaccounted sales during the above period was found to be at least Rs. 4 crores. It is also submitted that the assessee itself has already offered the unexplained investment for taxation and there is, therefore, no plausible reason for reversal of the offer earlier made. It is therefore, submitted that no interference is called for in this regard and order of assessing officer requires to be confirmed.

22. I have carefully considered the rival submissions in the light of material on record as emerging from the order of assessing officer and material placed on record. It is an undisputed fact that assessee made unaccounted for sales for the block period to the extent of more than Rs. 4.2 crores. Admittedly, the unaccounted sales for the period 1-4-1995, to 31-3-1996, was to the tune of Rs. 2,01,27,000. It was the explanation of the assessee that purchases were made on credit and payments for the purchases were made after realisation of sale proceeds. Reliance was placed in support of Annexure A-8 at p 24 recovered from D-21, Bhagat Singh Marg, at the time of search. As per assessee's counsel at p. 24 reflected amount payable to the creditors at Rs. 61,36,159 as on 31-3-1996, and the debit side shows as sum of Rs. 19,16,008. It was, therefore, the claim of the assessee that more than Rs. 42 lakhs were available at any point of time on account of creditors, supply for goods and if the assessee makes even the turnover at five to ten times during the year, the total turnover comes to more than 1 crore but as per assessee's counsel the assessing officer, however, did not appreciate this aspect and held that there could be no sale without purchase by the assessee. Assessing Officer further stated that purchase in the benami accounts during the period in question was admittedly related to unaccounted sales reflected in Annexure A-9. Obviously, the debit in this period would relate to corresponding unaccounted purchases affected during the same period. But at no point of time assessee could substantiate its claim regarding credit balance with any documentary or any other evidence and in post-search enquiries statement was voluntarily and willingly made on 10-9-1996, before Additional DIT, Unit II(2), Investigation, New Delhi, and in reply to question Nos. 5 and 6 assessee has himself offered this account of unaccounted investment of Rs. 26,87,340 for taxation as unexplained investment and question Nos. 5 and 6 along with answers as given in the statement recorded before Additional DIT are given hereunder :

"Q.5 : Annex. A-3 of the documents seized at D-21, Bhagat Singh Marg, Adarsh Nagar, Delhi, contains the figures of total dasti debit and credit at an amount of Rs. 19,16,008 and Rs. 61,36,159, respectively, at page No. 24. Kindly explain the same ?

Ans. The figures appearing at p. 24 as the dasti debit at Rs. 19,16,008 represents the payments to be received from the parties who had taken goods and have not yet made payments fully, similarly the figures appearing at p. 24 as dasti credit at Rs. 61,36,159 represents the payment to be made by us for purchases. The detailed break-up of parties to whom the payments have to be made are given in page Nos. 13 and 14 and back page of 15 and 16 to 23. Similarly the detailed break-up of parties from whom the payments are to be received are made on the pages as mentioned above.

Q. 6 : Are all these parties mentioned in pp. 13 to 23 of Annex. A-3, of the seized documents at D-21, Bhagat Singh Marg, Adarsh Nagar, Delhi, also recorded in Annexure A-9 of the seized documents, which is duplicate ledger for the period 1-4-1995, to 31-3-1996 ?

Ans. 6 : Yes, all these parties mentioned in the pp. 13 to 23 of Annex. A-3, of the seized documents at D-21, Bhagat Singh Marg, Adarsh Nagar, Delhi, have been taken from the duplicate ledger, i.e., Annex. A-9 of the seized documents for the period 1-4-1995, to 31-3-1996."

23. Since there is a clear admission made by the assessee in his statement made (relevant portion reproduced above) and no other evidence or material has been adduced to substantiate the claim made of creditors balance at Rs. 61,36,159 as on 31-3-1996, when onus of proving the same heavily lies on assessee, therefore, the action of assessing officer is justified and calls for no interference at the level of the Tribunal. Therefore, while rejecting this ground of appeal I confirm the order of the AO, in this regard. So far as case law relied upon by the assessee's counsel is concerned, I am of the view that the same is distinguishable on facts and found to be not applicable to the present case.

24. The next ground relates to addition of a sum of Rs. 4,12,000 under section 40A(3) read with section 158B of the Income Tax Act. So far as this ground of appeal is concerned, I fully agree with the conclusion and finding as arrived at by the learned brother except recording of fact regarding issue being covered by jurisdictional High Court's decision in CIT v. Banwarilal Bansidhar (1998) 229 ITR 229 (All) because this is a case of Delhi. So, Allahabad High Court's decision cannot be said to be decision of the jurisdictional High Court. As far as conclusion is concerned, I fully concur with the view of the learned brother.

25. As regards next issue relates to the following additions :

(a) Undisclosed income of unaccounted for sales for the period 31-3-1996, to 28-7-1996, Rs. 2,81,164.

(b) Undisclosed income on account of unaccounted sales on the basis of benami account No. 42063 with State Bank of India, Azadpur Rs. 2,62,035.

(c) Undisclosed income on account of unaccounted sales on the basis of benami bank account No. 5556 with Union Bank of India, Azadpur Rs. 3,96,488.

26. So far as these additions are concerned, I fully agree with learned brother as regards estimation of sales are concerned, but as regards estimation of profit on these sales is concerned, I disagree with later part of finding and on the basis and reasoning as recorded with regard to the first issue I uphold the finding of assessing officer as regards application of profit rate of 7 per cent on these sales is concerned. Therefore, the action of assessing officer as regards conducting of unaccounted for sales and estimation of profit is concerned, my view concurs with the first finding of estimation of sales and differs with application of profit rate which was directed to be applied by learned brother at 1.5 per cent instead of 7 per cent applied by assessing officer. But I confirm the action of assessing officer in this regard. As a result, the appeal of the assessee gets partly accepted.

16th March, 1999

REFERENCE UNDER SECTION 255(4) OF THE INCOME TAX ACT, 1961

Since we have not been able to come to an agreed conclusion on certain points, we refer the following questions to the Hon'ble President for opinion by a Third Member:

"1. Whether, on the facts and circumstances, the addition made by the assessing officer of Rs. 29,55,010 on unaccounted for sales of Rs. 4,22,14,428 for the block period and of Rs. 26,87,340 on account of peak investment in purchases for assessment year 1996-97, on the basis of admission made by the assessee was justified or the assessee is entitled to further relief on account of subsequent stand taken in the course of assessment proceedings ?

2. Whether, on the facts and in the circumstances, the assessing officer was justified in applying the profit rate of 7 per cent on undisclosed sales for the period 31-3-1996, to 20-7-1996, and on the undisclosed sales on the basis of two bank accounts or it should be reduced to 1.5 per cent?'

Phool Singh, J.M. (As a Third Member): 24th Jan., 2000

There being difference of opinion between the two members who heard the above captioned appeal, following questions under section 255(4) of the Income Tax Act, 1961, were referred to the President, Tribunal. The President, Tribunal, has nominated me to express my opinion on the question of difference, reproduced below :

"1. Whether, on the facts and circumstances, the addition made by the assessing officer of Rs. 29,55,010 on unaccounted for sales of Rs. 4,22,10,428 for the block period and of Rs. 26,87,340 on account of peak investment in purchases for assessment year 1996-97, on the basis of admission made by the assessee was justified or the assessee is entitled to further relief on account of subsequent stand taken in the course of assessment proceedings ?

2. Whether, on the facts and in the circumstances, the assessing officer was justified in applying the profit rate of 7 per cent on undisclosed sales for the period 31-3-1996 to 20-7-1996 and on undisclosed sales on the basis of two bank accounts or it should be reduced to 1.5 per cent ?

2. At the very outset it may be pointed out that question No. 2 does not contain the correct dates but the real controversy involved in that question is as to whether the assessing officer (hereinafter referred to as the "assessing officer") was justified in applying the profit rate of 7 per cent on undisclosed sales for the period 1-4-1994, to 31-3-1996, or it should be reduced to 1.5 per cent. To decide the controversy involved basically in two grounds, it will be in the fitness of things to narrate the facts in nutshell. The assessee, a registered firm, was having two partners, viz., Purshottam Das Saini and his mother Punno Devi, sharing 50 per cent each; the assessee-firm was found engaged in the business of trading in seeds of different varieties and even exporting seeds to some of the neighbouring countries. A search and seizure operation under section 132 of the Income Tax Act, 1961 (hereinafter referred to as "the Act"), was conducted at the business and residential premises of the assessee and its employees on 20-7-1996, resulting into seizure of incriminating documents. The assessee filed returns of income under section 158BC on 27-7-1997, for the block period 1-4-1986, to 20-7-1996, declaring a total undisclosed income of Rs. 5 lakh in the block period. It is undisputed fact that assessing officer from the material during the search operation worked out the unaccounted sales for the block period from 1-4-1994 to 31-3-1996, as follows :

Rs.

1-4-1994, to 31-3-1995 & 1-7-1996 to 19-7-1996

1,13,08,428

31-3-1996 to 30-6-1996

76,80,000

1-4-1995, to 31-3-1996

2,01,27,000

2.1. The assessing officer during assessment proceedings confronted the assessee with these figures and on the basis of statement recorded during the search and post-search proceedings also proposed to apply a gross profit rate of 7 per cent on these unaccounted sales. The assessee admitted the fact of unaccounted sales as worked out by the assessing officer but the plea raised by the assessee was that income work out by the assessee should be reduced by the expenses incurred in the process of making unaccounted sales. Reliance was placed by the assessee on pp 516 to 529 of Annexure A-9 recovered from Aryapura, Delhi, and it was submitted that expenses mentioned therein be deducted from the income estimated on the basis of gross profit rate of 7 per cent. The nature of expenses stated to be as of seed cleaning expenses, warehouse charges, packing charges, etc. The amount of expenses for the period 1-4-1996 to 20-7-1996, was shown at Rs. 4,25,090 and expenses for the period 1-4-1995, to 31-3-1996, were calculated at Rs. 11,00,155 which were sought to be reduced from the amount of income worked out by the assessing officer after applying the rate of gross profit. The assessing officer did not find favour with the plea of the assessee mainly on the ground that no specific break-up of working out expenses were furnished by the assessee. He disputed the correctness of the detail of the expenses as he was of the opinion that total expenses comes to Rs. 72,415 as against Rs. 4,25,000 claimed by the assessee and Rs. 7,12,711 instead of Rs. 11,00,155. He was also of the opinion that the amounts claimed by the assessee have already been supported by reliable documents and deductible expenses have already been claimed by the assessee in the regular books of account and as such the assessee could not be given further benefit by allowing deduction on account of seized documents. He was of the opinion that gross profit rate was much higher in such type of business and by applying assessee for the earning of the profit. He, accordingly, rejected the plea after noting exact claim of expenses could not be quantified for the lack of details and thus deductions claimed were not allowable. The assessing officer took into consideration the statement recorded at the time of search in which Purshottam Das Saini, managing director of the assessee-firm specifically admitted that rate of gross profit at 7 per cent be applied on unaccounted sale of Rs. 1,43,98,428 and unaccounted sale of Rs 2,78,16,000 and he offered undisclosed income of Rs. 10,07,890 and Rs. 19,47,120, respectively, on these two transactions and assessing officer made the additions of these two amounts as undisclosed income of the assessee for the block period

2.2. The assessee challenged this very addition before the Tribunal and the first plea from the side of the assessee was that no doubt Purshottam Das Saini admitted in his statement for application of gross profit rate at 7 per cent but at the time of recording of his statement he was not aware of the actual implication thereof and as soon as he got copies of the statement and after going through the seized material, he at once moved before the concerned authorities stating therein that though he was not retracting from the statement made at the time of search but accounted expenses appearing in the seized material be taken into consideration ' while working out the necessary addition on account of unaccounted sales. This was also submitted before the Bench that no doubt admission made by the assessee is the best piece of evidence to be used against it such presumption is rebuttable and assessee had a right to rebut the same and he will be at liberty to prove that admission was not correct in view of the material available on record and reliance was placed on the decision of Hon'ble Supreme Court in the case of Thiru John v. Subrahamanyan AIR 1977 SC 1524 and that of ratio in the case of Rangambam Kalan Joy Singh v. State of Manipur AIR 1956 SC 9. It was the plea of the assessee that in the case in hand the assessee had made a plea before the assessing officer proved that his statement recorded at the time of search stands rebutted from the material in the custody of department and thus said statement cannot be the basis for making the addition. Further reliance was placed on the decision of Hon'ble Supreme Court in the case of Pallangoda Rubber Produce Co. Ltd. v. State of Kerala & Anr. (1973) 91 ITR 18 (SC) in which Their Lordships have laid down that admission is an extremely important piece of evidence but it cannot be said that it is conclusive. It is open to the assessee who made the admission to show that it is incorrect and the assessee should be given a proper opportunity to prove that the books of account did not disclose the correct state of facts. The plea of the learned counsel for the assessee before the Tribunal was that statement of the assessee, was also not recorded as per procedure because no legal assistance was provided to the assessee. The statement was recorded in English. It was not read out to the assessee in the language he understood before obtaining his signatures nor there was any witness to the statement. On this basis it was the plea that there was no valid evidence for the purpose of making assessment.

2.3. On merit it was the case of the assessee that expenses incurred by the assessee which were recorded in the seized material were claimed immediately after the assessee came to know and in case those expenses are allowed then the rate of gross profit will come to 1.5 per cent which was normal rate of profit in the business of assessee year to year.

2.4. The learned Departmental Representative placed reliance on the order of assessing officer and submitted that unaccounted sales were computed from the papers seized from the assessee and that was admitted to the assessee. Purshottam Das Saini, managing director of the assessee-firm, also admitted for application of gross profit rate at 7 per cent on all the unaccounted sales and thus assessing officer was justified in giving effect to the admission of the assessee which had not been properly retracted in anyway and assessing officer rightly thrown away the theory of assessee for giving benefit of alleged unexplained expenses.

2.5. It appears that the Hon'ble Senior Vice-President (AM) find force in the submissions of the assessee and did not agree with the reasoning of the assessing officer. Taking into consideration the net rate shown by the assessee from assessment year 1993-94 onwards he was of the opinion that net profit rate of 1.5 per cent shall be the correct proposition as expenses written in the seized material are to be adjusted out of the income and if done so the net profit rate of 1.5 per cent would be commensurate to the earlier rate being shown by the assessee and accepted by the department.

2.6. As against it the learned JM based his finding on the statement of the assessee and he noted that said admission was best piece of evidence on which department can rely. He was also in agreement with the view taken by the assessing officer for rejecting the plea of the assessee for adjustment of the expenses appearing at the Annexure A-8 and A-9 of the seized material containing the details of expenses of Rs. 4,25,090 and Rs. 11,00,455. He confirmed the addition resulting into the first point of difference in between the two Members.

2.7. So far as the second point of difference is concerned, it emulates from the ground No. 8 of the assessee's appeal. Facts relevant to that are that during assessment proceedings the assessing officer on the basis of admitted unaccounted sales proceeded to consider the question of unrecorded purchases. He noted that unaccounted sales of Rs. 2,01,27,000 relates to period 1-4-1995, to 31-3-1996. The assessing officer estimated the turnover cycle at one month and worked out the peak figure of purchases for one month at Rs. 35,02,430. He worked out undisclosed investment amount at Rs. 26,87,340 after deducting the element of gross profit worked out at 7 per cent. The plea of the assessee before assessing officer was that most of the purchases were credit purchases and payments were made after selling the goods. To substantiate this plea, reliance was placed by the assessee to p. 24 of Annexure A-3 wherein the outstanding amount payable to the supplier in view of credit balance of Rs. 61,36,150 as on 31-3-1996, was reflected and an amount of Rs. 19,16,008 was recoverable from different purchasers. The assessee submitted that this document which was seized at the time of search indicates that purchases were usually being made at credit and sales were also being made in cash and on credit and amount was being paid to suppliers as and when the amount was realised from purchasers. The assessing officer did not find any force in the claim so submitted before him. He noted that theory of the assessee that payments were made for purchases after realisation from purchaser, was not tenable and for that he referred to the Benami bank account maintained by assessee in which it was found that there were both debits and credits and debits in the said period related to the corresponding unaccounted purchases effected in the same period. He also noted unaccounted purchases totalling Rs. 4,12,000 (debited in Annexure A-9) made over the period of just eight days and thus he concluded that unaccounted peak investments worked out at the time of search at Rs. 26,87,240 which was also admitted too by the assessee in his statement, was the correct figure for making the addition as it was also fair and reasonable on a total turnover of more than Rs. 4.2 crores on unaccounted sales and he made the addition accordingly.

2.8. The plea of the assessee before the Tribunal was that there is no mention of the section under which the addition was made and reliance was placed on the decision in the case of Assistant Commissioner v. Sailesh S. Shah (1997) 63 lTD 153 (Mum-Trib) in which it was concluded by the Bench that benefit of presumption cannot be taken without specific mention of the section. It was also the plea that the peak investment was estimated hypothetically on the basis of unaccounted sales made during the period which was not warranted in view of the ratio of Hon'ble Supreme Court in the case of Janki Ram Bhadur Ram v. CIT (1965) 57 ITR 21 (SC).

2.9. The next plea was that there was no finding of any specific purchases unaccounted during the period and peak investment can only be considered on the basis of actual purchases made from day-to-day., the assessing officer was not justified to work out the peak on the basis of turnover alone. It was on the basis of presumption and such an addition is not tenable particularly after ignoring the seized material which was going to prove that purchases were being made on credit and payments were made after realisation of the sale proceeds. Reliance was placed on p. 41 of the paper-book which was containing the details of liability of assessee to the extent of Rs. 61,36,159 as against credit of Rs. 19, 16,008. Accordingly to the assessee, this document if read as a whole would clear the whole position that assessee was purchasing seeds on credit and on that date he was having liability of more than Rs. 40 lakhs and if that is taken into consideration then there will be no justification to work out the amount of peak investment as assessee was having rotation money to enable him to go for a turnover of Rs. 40 lakh.

2.10. The Departmental Representative relied upon the order of assessing officer and particularly on the admission of assessee at the time of statement in which he admitted the correctness of the amount of peak worked out at Rs, 36,87,340 and reiterated the reasons given by the assessing officer.

2.11. After considering the submissions of respective representatives of the parties, the Hon'ble Senior Vice-President did not find any basis to agree with the view of the assessing officer. He did find force in the plea of assessee that purchases were being made on credit and the payment for the purchases were being made after realisation of the sale proceeds. As this plea of the assessee did find support from page No. 24 of Annexure A-3, copy of which was appearing at p. 41 of the paper-book, in which creditor's balance was shown as Rs. 61,36,156 as against debit side of Rs. 19,16,008 as on 31-3-1996. He noted that more than Rs. 42 lakh were available at any point of time on account of creditor's supply for goods and if assessee makes the turnover on five times during the year, the total turnover would come to Rs. 2 crore and assessing officer failed to take notice of this very fact. It was also opined that assessing officer was not justified in making the addition on estimate basis as there was no specific investment which could be said to be unrecorded in the books of account. On the basis of documents found at the time of search it was concluded that assessee can he given benefit of purchases on credit to the tune of Rs. 42 lakh on a particular day and then if turnover of this credit purchase are made five to ten times during the year the accounted sales during the year stand covered and thus addition was deleted.

2.12. As against it the learned JM took into consideration the submission of learned representatives of the parties and after finding force in the reasons recorded in the assessment order and after reproducing the reply of Purshottam Das Saini to the question Nos. 5 and 6 he was of the opinion that there was a clear admission made by the assessee in his statement and there was no evidence or material from the side of assessee to substantiate the claim made of creditors' balance at Rs. 61,36,159 as on 31-3-1996. Onus was on the assessee to prove that the creditors' balance was Rs. 61,36,159 which he failed to discharge and thus the learned JM was of the opinion that action of the assessing officer was justified and called for no interference at the level of the Tribunal. The learned JM accordingly confirmed the addition resulting into second point of difference between the two learned Members.

3.1 So far as first point of difference is concerned, the learned counsel for the assessee had reiterated the same submissions as were taken before the Bench. The learned counsel for the assessee submitted at the very beginning that undisputedly the assessee in his statement admitted unaccounted sales of Rs. 4,22,14,423 and even admitted for application of gross profit rate of 7 per cent to the above unaccounted sales but as soon as the assessee was made available the copies of statement after week of seized material, he moved an application on 27-9-1996, just after seven days of the search to the Addl. DIT, Unit 11, New Delhi (copy thereof appearing at page No. 105 of the paper-book), and it was submitted by the assessee that assessee-firm was practicing in unaccounted sales against unaccounted purchases which did not enter even the books of account seized during the search but reference was made to page Nos. 125 and 126 of Annexure A-8 and page Nos. 100 and 102 of Annexure A-9 in which expenses incurred by the assessee-firm in relation to unaccounted sales were mentioned and it was prayed that the expenses mentioned therein may be deducted from the gross profit calculated by the revenue . The plea of the assessee's learned representative is that these expenses were not recorded in the profit & loss account and were in addition to the expenses claimed by the assessee in relation to accounted sales. The assessing officer was not justified to infer that assessee had already claimed these expenses in the profit & loss account as there is no specific finding of assessing officer on that point.

3.2. The other plea of the learned counsel was that assessing officer was not justified to observe that there had been no details of these expenses. My attention was drawn to page Nos. 14 to 16 of the paper- book which are details of the expenses of Rs. 11,04,055, and these are copies of page Nos. 516 to 521 of Annexure A-9. In the same way my attention was drawn to p. 106 which was calculation of unaccounted expenses appearing in these papers was found included in the profit & loss account. On this basis the contention was that addition was of justified and-the same had been rightly deleted by the learned He also placed reliance on the reasoning noted by the learned AM.

3.3. As against it the learned Departmental Representative submitted that learned JM had considered all the points in detail and rightly gave weight to the spontaneous statement recorded at the time of search. The learned Departmental Representative submitted further that statement of Purshottam Das Saini was recorded twice during the search operation and at that time he never referred to the expenses which he claimed afterwards after getting the necessary advice. Relying upon the decision of Hon'ble Supreme Court in the case of Surjeet Singh Chabra v. Union of India & Ors. AIR 1997 SC 2560 it was submitted that Income Tax authorities are riot to be treated as police officer as then Lordships observed in the above referred case m relation to customs officials. If the confession is made then it is an admission and binds the petitioner even though it was retracted. According to learned Departmental Representative the admission was the best piece of evidence which can be used against the person who makes it and no doubt law is clear that assessee can prove that the statement given by him was incorrect but in the case in hand there is no material on record to prove that statement made by the assessee at the time of search admitting the rate of profit & loss account at 7 per cent on unaccounted sales of Rs. 4.22 crores was made under wrong impression and the plea about deduction of expenses is afterthought and no importance can be attached to it.

3.4. The learned Departmental Representative again referred to p. 71 of the paper-book which is copy of statement of Purshottam Das Saini in which he specifically admitted that rate of profit & loss account at 7 per cent be applied to the amount of unaccounted sales and in view of this clear-cut statement, nothing can be added. Shri Purshottam Das Saini further admitted that he had disclosed Rs. 19,47,120 as income arising from unaccounted sales of Rs. 2,78,18,000 for the period 1-4-1995, to 8-6-1996. If there was clear-cut statement then the plea of the assessee for giving benefit of expenses out of this will not be allowed to be entertained. There is no plea from the side of assessee that statement recorded by ADI was under pressure, coercion or threat, etc. This statement cannot be allowed to be retracted particularly in view of the fact that there is no justification from the side of assessee to show that said statement was made under any threat, etc. The learned Departmental Representative further placed reliance on the reasoning given by the assessing officer for not entertaining the plea of assessee for allowing the deduction on account of unrecorded expenses as assessing officer rightly noted that there was no detail of the expenses nor there was any basis for quantification of the expenses. About the detail of expenses appearing at pp. 16 to 17 and 106 to 120, the learned Departmental Representative pointed out that the statement of Rajinder Pal, copy of which is appearing at p. 99 and about A-B, he stated that the same is containing list of guests invited by him to attend the marriage of his son Ravi Pal and details of gifts received from them. So, as per the learned Departmental Representative this detail is not relating to expenses of the unaccounted sales but towards marriage expenses of son of Rajinder Pal. In view of these facts the learned Departmental Representative submitted that these documents were not going to help the assessee and learned assessing officer was justified in rejecting the plea.

3.5. After considering the admissions of the learned representative of the assessee and after going through the facts it may be noted that facts which are not in dispute are that search and seizure operations were carried on 20-7-1996, at the assessee's premises as well as residence of partners and statement of Purshottam Das Saini, managing director, was recorded in which he admitted that he had carried out unaccounted sale of Rs. 4,22,14,428 for the period 1-4-1994. to 19-7-1996. He also admitted that gross profit rate at 7 per cent be applied and he admitted to the factum of undisclosed income of Rs. 10,07,890 on unaccounted sale of Rs. 1,43,98,428 and a sum of Rs. 19,47,120 a sale of Rs. 2,78,16,000 resulting into addition of Rs. 29,55,010. The only plea which is for consideration before me is as to whether the assessee be allowed deduction of alleged expenses of Rs. 4,25,090 for the period 1-4-1996 to 20-3-1996, and a sum of Rs. 2,11,455 for the period 1-4-1995, to 31-3-1995, claimed by the assessee before the assessing officer or not.

3.6. It is well settled proposition of law that admission of a party is substantive piece of evidence and if such admission is clearly and unequivocally made, is the best evidence against the party making it though the same is not conclusive. The onus shifts on the maker of the principle that what a party himself admits to be true may reasonably be presumed to be so and until the presumption is rebutted, the fact admitted must be taken to be established as held by the Hon'ble Supreme Court in the case of Thiru John v. Subrahamanyan (supra) and not only this the Hon'ble Supreme Court in the case of Pallangoda Rubber Produce Co. Ltd. v. State of Kerala & Ors. (supra) has also laid down that admission is extremely important piece or evidence but it cannot be said to be conclusive. The other important observation made by Their Lordship is that it will be open to the assessee who made the admission to show that it is incorrect and assessee should be given a proper opportunity to show that the books of account disclose the correct state of facts. If the said proposition of law is applied to the facts of the case then it was obligatory on the part of revenue authorities to give an opportunity to assessee that he was at liberty to show that admission made by him during the course of search was in anyway incorrect and for that he could take help from the account books/seized material, etc. In the case in hand, the assessee after 7 days of the admission made moved application dated 27-9-1996, copy of which appears at p. 105 of the paper-book sticking to his statement but submitted on the basis of seized material the necessary deduction of expenses noted in pp. 125 and 186 of Annexure A-8 and pp, 102 and 100 of Annexure A-9 be made from the gross profit to be calculated. This prayer of the assessee deserved to be scrutinized at the time of assessment proceedings. The assessing officer had rejected the plea of the assessee by observing that details of the expenses were not there, secondly, the assessee had not submitted specific break-up of working out expenses.

Thirdly the assessee has claimed deductible expenses in the regular books of account. The other plea is that calculations are not correct and he gave out his own calculation at Rs. 72,415 for Rs. 4,25,090 claimed by the assessee and Rs. 7,12,711 in place of Rs. 11,00,455 claimed by the assessee and lastly on the ground that gross profit rate at 7 per cent be applied and that would cover the plea of the assessee as in identical nature of business the rate of gross profit is more. All these grounds on which the assessing officer rejected the plea of the assessee are not tenable.

3.7. The learned counsel for the assessee had taken me through the details of expenses, Page Nos. 14 to 16 are copies of the details of expenses amounting to Rs. 11,00,455 and admittedly these are relating to the expenses of business being carried out by the assessee. In the same way details of Rs. 9,24,055 as appearing at pp. 105 to 200 of the paper-book and the learned Departmental Representative was not in a position to point out any specific instance which may show that these expenses are not related to the business of the assessee or there was any calculation mistake and how these expenses are not quantifiable. Not only this the assessing officer has not made any scrutiny to point out that any of the expenses entered into in the seized material did find place in profit and loss account. Once documents are seized and on the basis of seized material the assessing officer is working out the amount of unaccounted sale then it is not permissible for the assessing officer to ignore the expenses duly recorded in the seized material if those are relating to unaccounted sales. The very grounds on which assessing officer did not find favour with the claim of the assessee are not tenable and it does not transpire that there was any totalling mistake in the detail of expenses claimed by the assessee out of unaccounted sales or there was not detail of expenses or any of the expenses did find place in the regular books of account. If these were not the facts then as observed above these documents found at the time of search are to be given the same importance as to the documents which go to establish unaccounted sales and from these documents the only inference is that assessee's earlier statement proves to be incorrect. As observed by Their Lordship, assessee can prove from the books of account about the falsity of statement recorded by authorities and in the case in hand the falsity of the statement to that extent proved to be false from the help of seized material only and it was rightly concluded by the Hon'ble Senior Vice-President (AM) that expenses were to be allowed out of the undisclosed income. It was rightly pointed out by the assessee before the assessing officer and before the Bench that if these expenses are allowed to be deducted then rate of net profit will be at 1.5 per cent which is even better than the profit record of the assessee for earlier years. In this connection my attention was drawn to paper No. 116 of the paper-book which contains the amount of turnover, rate of gross profit as well as net profit rate. In assessment year 1993-94 and assessment year 1997-98 the net profit rate was ranging between 0.11 per cent to 0.54 per cent while in the case in hand if deduction are allowed then net profit rate will be 1.5 per cent and that will take care of the fact that these are block assessment proceedings and assessee admitted indulging in unaccounted sales. This approach was justified one and accordingly. I concur with the view taken by the Hon'ble Senior Vice-President (AM) in giving credit to the plea of the assessee for allowing the deduction on account of expenses found duly recorded in the seized material out of unaccounted sales resulting into net profit rate of 1.5 per cent.

4. So far as the second point of difference is concerned, the reliance of the learned assessing officer as well as that of learned JM is on the statement of Purshottam Das Saini who in his statement recorded at the time of search on 20-7-1996, admitted that peak investment in any particular month will be Rs. 26,87,340 and copy of the statement is appearing at p. 72 of the paper-book. Purshottam Das Saini admitted that he was offering Rs. 26,87,340 for taxation as unexplained investment. The learned counsel for the assessee submitted that assessing officer failed to take notice of the important part of statement of Purshottam Das Saini recorded on 12-9-1996, itself. Copy of that statement is appearing at p. 65 of the paper-book and particularly question Nos. 5 and 6 are relevant and learned JM has reproduced the same in his order. The learned counsel submitted that in question No. 5 Purshottam Das Saini was asked to explain paper No. 41 seized at the time of search in which entries of Rs. 10,16,008 was appearing as a Dasti debit and Rs. 61,36,159 was appearing as Dasti credit. The learned counsel for the assessee submitted Shri Purshottam Das Saini had clarified that Rs. 10, 16,008 represented payments to be received from the parties and Rs. 61,36,159 represented the payment to be made by the assessee for purchases and detailed break-up of the parties to whom the payments have to be made were. given at pp. 13 to 23 of the paper-book. The learned counsel for the assessee submitted before me that this part of statement was relevant which was recorded on 12-9-1996, itself which is two days after the earlier statement and this statement clarifies the clear position which had been completely ignored by the assessing officer. If that statement is taken into consideration then position will be the same as appreciated. by the Hon'ble senior Vice-President. Relying upon the reasoning of Hon'ble Supreme Court in case off Pallangoda Rubber Produce Co. Ltd. (supra) the learned counsel submitted that assessee by seized material had been able to prove that his earlier statement was incorrect and there was no basis for making addition.

4.1. Reiterating the earlier submissions as made before the Bench the learned counsel for the assessee submitted that addition was made without any basis but estimated on hypothesis and on the basis of unaccounted sales made during the period. There is no finding of any specific purchases unaccounted during the period under consideration. The peak investment can only be considered on the basis of actual purchases made from day-to-day Merely on the basis of turnover of Rs. 4.22 crores there cannot be any justification for assessing officer to work out the peak investment on the cycle of one month. The learned counsel placed reliance on the order of Hon'ble senior Vice-President and submitted that he rightly gave credit to the paper No. 41 of the paper-book which indicates that assessee was having liability of Rs. 42 lakh on 31-3-1996, and that proves the theory of the assessee that assessee-firm was making purchases on credit and that plea was rightly believed and there was justification for deleting the addition.

4.2. As against it the learned Departmental Representative reiterated the same submissions which were taken before the Bench and also submitted that paper No. 41 of paper-book is not containing any date and there is no description to the effect that assessee was making purchases on credit. The assessing officer was justified to ignore the said document. The assessee was indulging in making unaccounted sales and volume thereof exceeded Rs. 4 crore and in such circumstances the assessing officer was justified to make estimate of peak investment which might have been made by the assessee in the initial stage and addition was justified.

4.3. In his rejoinder the learned counsel submitted that assessing officer has not made, any, addition on the basis of alleged initial investment made by the assessing officer but he has worked out the addition on the basis of estimated peak investment on monthly basis. The other plea of the learned counsel for the assessee was that paper No. 41 of the paper-book is containing date and this was at the end of 31-3-1996, and there was no justification for making any addition on the basis of estimate alone. Reliance was also placed on the decision of Tribunal Delhi Bench D in the case of Asstt. CIT v. Sailesh S. Shah (supra) which has rightly been appreciated by the Hon'ble senior Vice-President in his order.

4.4. After going through the submissions of the learned representatives of the parties as well as after considering the material on record I am again conscious of the reasoning of Their Lordships of Supreme Court rendered in the case of Pallangoda Rubber Produce Co. Ltd. (supra) in which it has been observed that admission of assessee is best piece of evidence but not conclusive and he be given an opportunity to explain that his statement was not correct. Applying that analogy to the facts of the present case it may be pertinent to note that assessee had been able to prove from the seized material itself that assessee was making purchases on credit and making payment from realisation of same. It is apparent from a perusal of page No, 41 of the paper-book that assessee was having liabilities of Rs. 61,36,159 as against credit of Rs. 19,16,008 resulting into excess liabilities of more than Rs. 42 lakh. This paper was very much in custody of the department from the time of search and that paper cannot be ignored. But assessing officer had ignored the same and made the addition on estimate basis. The peak investment cannot be worked out in this case as there had been no material with the assessing officer to arrive at the figure of peak investment. If paper No. 41 of the paper-book is taken into consideration the fact is apparent that assessee was in the habit of making purchases on credit from suppliers and returning the amount to suppliers after realisation from the sale consideration. The amount of Rs. 42 lakh approximately as liability on a particular day is indicative of the fact that if this was the procedure then assessee must be having a turnover of more than Rs. 2 crore as observed by the Hon'ble senior Vice-President and rightly so as this paper alone proves the very practice being adopted by the assessee that purchases were being made on credit and that falsity the earlier statement given at the time of search. The learned JM has relied upon the statement recorded on 10-9-1996, alone and observed that there was no evidence to prove that Rs. 61,36,158 was the amount of correct liabilities but this is evidence from paper No. 41 which stands explained by the assessee vide his statement dated 12-9-1996, a copy of which is appearing at page No. 65 relied upon by the learned counsel. The statement of Shri Purshottarn Das Saini specifically explained this paper No. 41 of the paper-book by saying that Rs. 61,36,159 represented the payment to be made by the firm for purchases and Rs. 19,16,008 representing payment to be received from the parties. Not only this he gave out the detailed break-up of parties to whom the payments were to be made and from whom the payments were to be received. If this is the position then how it can be presumed that earlier statement is to be given importance in view of the documentary evidence seized at the time of search which was also explained by the assessee in the statement recorded which is after two days of the earlier statement. The assessing officer has not brought out any material to meet this explanation of the assessee. It can be concluded that it being block assessment no addition can be made merely on the basis of statement recorded at the time of search which stands fully proved to be incorrect in view of the material itself which was seized at the time of search. As is apparent from the discussion above, the paper No. 41 was seized at the time of search and Purshottam Das Saini, managing director of the assessee-firm in his statement dated 12-9-1996, clarified the very situation appearing at page No. 41 and that fact cannot be ignored because if addition is going to be made on account or unaccounted sale to work out the undisclosed income of the assessee then any document seized at the time of search cannot be ignored particularly when assessee had come with specific plea that assessee-firm was making purchases at credit and making repayment after realisation of the said amount and that plea stood proved by the seized material itself. The basis for making addition on account of alleged peak investment was purely on estimate and there was no justification to work out the amount of addition on estimate basis which was put up to assessee who initially admitted to the said suggestion of search party but later on when searching party put up him paper No. 41 he himself explained the very position and that paper goes to prove that theory of assessee about making purchases on credit stands proved and thus there was no room for making any addition on estimate basis in respect of peak investment. Considering all the facts and circumstances I concur with the view taken by the Hon'ble senior Vice-President that addition on this account was not warranted.

5. The matter will now go to the regular Bench for passing order as per majority view.