COMMISSIONER OF INCOME TAX, COCHIN Vs. ARYA BANGY

JUDGEMENT

(1.) This is an appeal filed by the revenue under section 260A of the Income-tax Act raising various questions of law as arising from orders of the Tribunal. We have heard the counsel for the revenue and counsel appearing for the respondent assessee. The assessment is a block assessment completed for the block period commencing from 1-4-1987 to 28-8-1997. The assessee is a partnership firm that was engaged in the manufacture and sale of wooden decorative doors, frames etc. In the course of search conducted on 28-8-1997, the department noticed that assessee was steadily engaged in the practise of unaccounted sales by accounting in seven cases only 10 per cent of the sale price. The documents recovered show that at the time of entering into contract with the purchasers for supply of materials, assessee shows the actual sale price and sales tax thereon. However, when sale is made, the bill raised is for much lower amount. Besides the above, the assessee was found to be engaged in suppression of 99 per cent of the price by recording in the books of account is only 1 per cent of the actual sale value. On verifying the bank accounts, Assessing Officer noticed that the surplus unaccounted income received were deposited in various bank accounts of partners. In the assessment order, details of as many as 47 bank accounts maintained by the partners and two relatives are given. What is clear from the bank account details is that partners started the account in a bank, closed it within two or three years and then started another account again, closed it after a duration of time and started another account and so as along with the recovery of purchase orders, sale bills, bank accounts and other records, the search team recorded statements from managing partner who confirmed the unaccounted business that was carried on. After search, the assessee was called upon to furnish return of undisclosed income. The assessee filed the return disclosing an additional unaccounted income of Rs. 32,88,333 for the block period. Besides this, assessee had filed returns for the assessment years 1997-98 declaring an income of Rs. 30,03,638 and for the year ending 1998-99 upto the date of search, assessee declared Rs. 15,34,342. The Assessing Officer assessed the undisclosed income at Rs. 2,13,09,241 as against Rs. 32,88,333 disclosed by the assessee.

(2.) The assessee filed appeal before CIT (Appeals), who refixed the undisclosed income by just making an addition of Rs. 5,00,000 to the undisclosed income returned by the assessee. Even though both the assessee and the department filed appeals before the Tribunal and Tribunal confirmed the order in the appeal, only department had filed this appeal before us and the assessee has accepted the order of the CIT (Appeals) making a further addition of Rs. 5 lakhs.

(3.) During hearing, the standing counsel for the department contended that neither the first appellate authority nor the Tribunal considered the correctness of the block assessment with, reference to seized materials or statements recorded which constitute evidence under section 132(4) of the Income-tax Act, The counsel for assessee on the other hand, contended that the questions raised pertain to only modification to the undisclosed income determined by first appellate authority and so much so, the same does not constitute any substantial question of law for interference by this Court. In the normal course, we do not think this Court can interfere with a modification in the estimation of income made in the assessment, that is modified by appellate authorities. However, what we notice in this case is that the block assessment runs into 50 pages and Assessing Officer has considered each and every material seized in the course of search and survey. The pattern of income returned by the assessee for the assessment years 1991-92 to 1996-97 show that the income for every year is a steady average of around 1.25 lakhs. However, after the search, the assessee filed income-tax return for 1997-98 declaring an income of Rs. 30,30,368, in addition to declaring undisclosed income of Rs. 32,88,333 for the block period. Therefore, the average undisclosed income returned by the assessee for each year is above Rs. 5,00,000, which is four times the income originally returned by the assessee. In the return filed, the assessee has given a note stating that the partners of the assessee have no other source of income and that the deposits made in the bank accounts represented business income of the firm. In the block assessment the Assessing Officer gives details of all the seized records and the bank accounts. However, on going through the appellate orders issued both by first appellate authority and the Tribunal, we notice that both these appellate authorities have not cared to look into the seized records or the statement recorded by the search team under section 132(4) of the Act which should constitute the basis for a block assessment.