Commissioner Of Income Tax Delhi vs S.Pritam Singh
2014 Latest Caselaw 6602 Del

$~R-128
*     IN THE HIGH COURT OF DELHI AT NEW DELHI
                                   Date of Decision: December 09, 2014
+     ITA 4/2003
      COMMISSIONER OF INCOME TAX DELHI
                                                           ..... Appellant
                          Through       Mr.Kamal Sawhney, Sr.
                                        Standing Counsel with
                                        Mr.Sanjay Kumar, Advocate

                          versus

      S.PRITAM SINGH
                                                         ..... Respondent

                          Through       Mr.Prakash Kumar, Advocate

      CORAM:
      HON'BLE MR. JUSTICE SANJIV KHANNA
      HON'BLE MR. JUSTICE V. KAMESWAR RAO

SANJIV KHANNA, J (ORAL)

This appeal by the Revenue pertains to block period, assessment

year 1986-87 to 13.10.1995, and impugns the findings recorded in the

order dated 26.06.2002 passed by the Income Tax Appellate Tribunal

in relation to deletion of addition of Rs.9,10,000/- on account of profit

from undisclosed sales i.e. sales made outside the books of accounts.

2. By order dated 19.12.2003, the following substantial question of

law was framed:-

"(a) Whether on the facts and in the circumstances of the case the Tribunal was correct in law in deleting the addition of Rs.9,10,000/- made on account of profits eawrned on unaccounted sales, notwithstanding the fact that additions on account of unexplained cash and unexplained investments in stocks had been restored to the file of the Assessing Officer for further investigations?"

3. The respondent assessee an individual was subjected to seizure

operations on 13.10.1995 at his residential and business premises under

Section 132 of the Income Tax Act, 1961. Seizure of incriminating

material including cash of Rs.12,42,950/- was made. Subsequently

notice under Section 158BC dated 15.03.1996 was issued requiring the

assessee to file return of income for the aforementioned block period.

The respondent assessee filed return on 27.08.1996 declaring

undisclosed income of Rs.14 lacs, the break up of which is as under:-

      "(a) Undisclosed cash               Rs.5,13,650
       (b) Excessive stock                Rs.6,07,900
       (c) On a/c of incriminating
      loose papers, expenses,
      undisclosed assets, marriage
      expenses                            Rs.2,78,450
                                          Rs.14,00,000"

4. The Assessing Officer however computed the undisclosed

income for the block period at Rs.37,81,674/- and had made addition

of Rs.9,10,000/- as profits on sales outside the books of accounts. Two other additions which had bearing on the issue in question, were

Rs.10,10,000/- on account of excess cash and Rs.8,84,127/- on account

of unexplained investment in excess stocks.

5. The Tribunal by the impugned order while examining addition

of unexplained cash, observed that the assessee had himself

surrendered Rs.5,13,650/- and in respect of Rs.4,63,300/- the

assessee's explanation should be accepted. Marriage of assessee's son

had taken place just 5 days before the date of search and Rs.1,63,300/-

was found in the envelopes, which were the gifts received on the

occasion of marriage. In respect of other amounts the assessee had

established and shown withdrawal of money from the bank accounts.

In respect of Rs.50,000/- an order of remand has been passed. We have

been informed by the counsel for the respondent assessee at the Bar

that addition of Rs.50,000/- has been sustained in the appeal effect

order and the assessee has accepted the said addition.

6. With regard to unexplained stock, the assessee had surrendered

Rs.6,07,900/- in the return for the block period. The Assessing Officer

had made further addition of Rs.2,76,227/-. The Tribunal restored the

issue to the Assessing Officer. It is stated at the Bar by the counsel for

respondent assessee that in the consequential or in the appeal effect

order, the Assessing Officer had sustained addition of Rs.1,58,910/- on

account of undisclosed stock and the said addition has been accepted by the assessee.

7. With regard to profit from undisclosed sales, the Assessing

Officer has recorded that a diary and certain loose papers were found.

The Assessing Officer computed the figures mentioned in the diary and

loose papers as Rs.1,37,62,147/-. The Assessing Officer held this

turnover of Rs.1,37,62,147/- was not recorded in the books of

accounts. He applied gross profit rate of 6.5% to compute undisclosed

profits of Rs.9,10,000/-. The stand of the assessee before the Assessing

Officer and the Tribunal was that the diary and the loose papers were

maintained for personal purposes. It included entries duly recorded in

the books of accounts. However, the papers/diary were not maintained

systematically and therefore the entries in the diary/loose papers could

not be matched with the entries in the books of accounts. Further, the

assessee had made surrender of cash as well as unaccounted stock. The

assessee had also surrendered Rs. 2,78,450/- as unaccounted income in

the block assessment return.

8. The Tribunal has dealt with the said issue in the following

manner:-

"At the time of search, loose papers and the small pocket diary was seized from my residence and from my business place. These documents are mostly the rough records kept by us for internal control purposes. My diary contains collective sale figure of our three business units. But it has not been maintained systematically to prove from the books of accounts maintained. The loose papers which are mentioned by your honour are related to our purchases as I am controlling most of the purchases and items are distributed according to the requirement as on different units. I keep the records of main suppliers. These slips are estimated amounts and unsystematically maintained, therefore, I cannot match the slips with the books of accounts maintained for all the units. However, I wish to point out that the totals which are arrived at, by your honour in respect of my diary are grossly wrong as the point given in the figures has been totally ignored.

Over and above all, we have surrendered all the assets cash and unaccounted expenses in our block returns. Whatsoever unaccounted cash, unaccounted stock and unaccounted expenses incurred, are surrendered is the result of business transactions not recorded in the books of accounts, on the points of law, facts and justice it is wrong to tax the same income twice, once on assets and secondly on the basis of transactions resulting with the creation of the assets.

Hence it is prayed that as your Honour is taxing the unaccounted cash, stocks and expenditure the transactions from which these assets are accumulated be ignored.

Apart from that, it was also contended that keeping in mind the fact that the assessee in his block assessment return has returned an amount of Rs.5,13,650/- apart from that Rs.6,07,900/- has been returned on account of excessive stock as such, an addition in the manner made out by the AO was not warranted in the facts and circumstances of the case.

Learned DR, on the other hand, placed, reliance on the impugned order.

Having heard the rival submissions and perused the material placed on our files and also considering the specific submissions made by the assessee before the A.O and also considering the fact that a surrender to the A.O and also facts that a surrender to the tune of Rs.5 lacs odd has been made on account of cash found at the time of the search and a surrender of Rs.6 lacs odd has been made on account of excessive stock in the return filed by the assessee for the block period as such, we are of the opinion that the addition estimating the income of the assessee on account of sales made outside the books of account is not warranted in the peculiar facts and circumstances. Accordingly, the addition made is deleted."

9. We have considered the reasoning given by the Tribunal

specifically the last paragraph quoted above and have reservation on

the reasons and the conclusion recorded by the Tribunal. The said

reasoning holds that the assessee had surrendered about Rs.5 lacs on

account of cash found at the time of search and also Rs.6 lacs on

account of excessive stock and therefore no addition should be made on account of profits outside the books of accounts. Thus the factum

that the assessee had earned undeclared profits outside the books was

accepted. In other words, the entries recorded in the diary etc. were

treated as incriminating and reliable material. In case the assessee was

transacting business outside the books of accounts, necessarily he

would have earned profit from the said transactions. Some profit would

have been used for personal expenses and entertainment etc. The entire

undisclosed profits would not have been redeployed in trade or for

purchase of undeclared stocks. The said factor and factum has not been

taken into account. Moreover the assessee was unable to explain and

match the entries given in the diary and the loose papers with the

entries found in the books of accounts. The transactions were for a

substantial amount.

10. In these circumstances we are inclined to remand the matter to

the Tribunal for fresh determination. However, counsel for the assessee

on instructions has stated that the assessee would like to surrender an

amount of Rs.2 lacs on account of undisclosed profits, in addition to

surrender of Rs.2,78,450/- which was made in the return of income. As

noted above, the assessee had also accepted addition of Rs.50,000/-

and Rs.1,58,910/- on account of unexplained cash and unexplained

excessive stock. The assessee had earlier accepted undisclosed income

of Rs.2,78,450/- in the block assessment return. In these circumstances, noticing the fact that the case relates to the block period, assessment

year 1986-87 to 13.10.1995, we accept the said concession made by

the counsel for the respondent assessee rather than pass an order of

remand. Thus, the total undisclosed income surrendered by the

assessee would be Rs. 4,78,450/-. Accordingly, the substantial question

of law is answered in favour of the Revenue and against the respondent

assessee and it is directed addition of Rs.2 lacs will be made to the

undisclosed income over and above the undisclosed income of Rs.14

lacs declared by the assessee and other addition of Rs.2,08,910/- made

by the Assessing Officer upon remand. The appeal is accordingly

disposed of. No costs.

SANJIV KHANNA, J.

V. KAMESWAR RAO, J.

DECEMBER 09, 2014/km