COMMISSIONER OF INCOME TAX Vs. S.B. INDUSTRIES

JUDGEMENT

(1.) 28/Gau/1996 for the asst. yr. 1991 -92. This appeal is admitted on the question : "Whether, on the findings arrived at by the Tribunal in regard to the transaction reflected in the seized register marked as SD -71, the Tribunal has committed an error in not assessing the profit of the assessee on the said transaction - Neglecting all the details the precise fact leading to the filing of the present appeal is that a search and seizure marked as NBD -1 to NBD -28, JMB -1 to JMB -36 and JMB -1 to JMB -12 were seized. Some documents/papers, etc. were also seized at the residence of Shri Raj Kumar Deorah, Zoo Road, Gauhati. The documents marked SD -20, SD -71 and SD -245 relate to the present respondents (assessee/M/s S.B. Industries, Amerigog, 9th Mile, Meghalaya for the asst. yr. 1991 -92). For the entries marked K and P appearing in the register seized marked SD -71, the respondent (assessee), in spite of giving appropriate opportunities could not clarify the entries. All those entries K and P are mainly recorded in rough books, loose sheets, exercise books and in other preliminary forms. The total amount of alleged purchases recorded in the entries K is Rs. 2,82,72,555 (rupees two crores eighty -two lakhs seventy -two thousand five hundred and fifty -five). The Asstt. CIT, Circle -II(1), Gauhati, under his assessment order had treated the said whole amount of Rs. 2,82,72,555 (rupees two crores eighty -two lakhs seventy -two thousand five hundred and fifty -five) recorded in the entries marked K as the income of the assessee and the total amount of K sale of Rs. 2,73,75,147 (rupees two crores seventy -three lakhs seventy -five thousand one hundred and forty -seven) had been treated as total amount of sales. Further, the Asstt. CIT, Circle II(1), Gauhati, under his assessment order had taken that the estimated net profit suppressed out of the above unrecorded sale as Rs. 1 lakh 10 thousand and that the total amount of tax payable by the respondent is Rs. 98,48,741 (rupees ninety -eight lakhs forty -eight thousand seven hundred and forty -one) for the asst. yr. 1991 -92. The respondent/assessee preferred first appeal before the first appellate authority, i.e., the CIT(A), Gauhati. The said wherein it has been held that the addition of Rs. 2,82,72,555 was wholly misconceived and accordingly, the same is deleted and also the addition of Rs. 1,10,000 is also deleted. The Revenue authority challenged the said order of the CIT(A) before the Tribunal, Gauhati Bench. The Tribunal had that the entire purchase reflected in the seized register marked SD -71 cannot certainly be considered as representing the profits of the assessee.

(2.) The learned Tribunal also further held that the statements of profits made by the AO at Rs. ,10,000 is also not sustainable in the eye of law and that the amount of Rs. 50,000 can be taken as net profit for the undisclosed transaction and, accordingly, directed the AO to modify the assessment order. appellant, filed the present appeal. The main grounds taken in the present appeal for challenging the order of the "(ii) For that from the materials on record the AO was fully justified in treating the entire amount of purchases of Rs. ,82,72,555 as deemed to be the income of the assessee from undisclosed sources. The AO was further justified in treating the entire entries of sale as undisclosed investment and thereafter in estimating the net profit suppressed out of the unrecorded sales at Rs. 1,10,000 and treating the same to be the concealed income of the assessee. (iii) For that there is a clear finding by the Tribunal at para 6 of Tribunal's order that the assessee was not able to explain that all unrecorded transactions as found in Annex. 71 are not related to the affairs of the assessee's business.

(3.) The Tribunal also recorded that the assessee had kept the transaction relating to the sales and purchases of goods out of the books of account and as found reflected in Annex. 71 under the head K. The initial burden was on the assessee to explain the said transaction amounting to Rs. 2,82,72,555. In the present case, there is a clear finding that the assessee was not able to explain the transaction. Therefore, the AO was justified in adding the aforesaid amount to the income of the assessee under the head 'Income from undisclosed sources'. The Tribunal fell in error in holding that the AO was only unjustified in making the said addition. The Tribunal was not justified in recording that the entire purchases reflected in the seized register cannot certainly be considered as representing the profits of the assessee. In view of the facts and circumstances, the Tribunal ought to have remanded/restored the matter back to the AO for taking a fresh decision in accordance with law. The Tribunal failed to do so and the same has vitiated the impugned order. The finding of the Tribunal is also vitiated by the element of perversity........... (v) For that insofar as the addition made by the AO of Rs. 1,10,000 under the head concealed income is concerned, the Tribunal in para 7 of the order recorded a finding that the profit of Rs. 1,10,000 estimated by the AO is purely based on estimate and without any supporting evidence. But the Tribunal also noted the facts that the assessee had also failed to furnish relevant details of the purchases and sales kept out of the regular books of account. The Tribunal took the view that the profit out of the undisclosed transaction is required to be reasonably estimated. The Tribunal held that in the absence of specific material or evidence on record, the estimate made by the AO is not sustainable in the eye of law but went on to hold that it would be proper and justified for a profit of Rs. 50,000 is taken as the net profit from the undisclosed transaction. It is submitted that if the AO's estimate is not sustainable in the eye of law, then applying the same principle the addition of Rs. 50,000 made by the Tribunal in place of Rs. 1,10,000 is also not sustainable in the eye of law. There is no material or evidence on record to support such quantification by the Tribunal. The AO had estimated the net profit suppressed out of the unrecorded sales as at Rs. 1,10,000 on the basis of the assessee's income shown in the return filed. If the Tribunal was not in agreement with such an estimate, it ought to have remanded/restored the matter back to the AO. The Tribunal's finding estimating the profit at Rs. 50,000 is vitiated by perversity."