VIJAY GUPTA Vs. ASSISTANT COMMISSIONER OF INCOME TAX.

JUDGEMENT

(1.) THIS appeal is filed by the assessee and the relevant assessment year involved is 1985-86.

(2.) THE first objection is against the order of the CIT(A) confirming the assessment order passed by the Assessing Officer ("AO" for short) where the income from M/s Meghalaya Timber Industry was estimated at Rs. 3 lakhs and the G.P. was estimated at 15 per cent of the estimated sales and allowing deduction of 1/3rd of the estimated GP as trading expenses.

(3.) THE brief facts of the case are that the assessee is an individual and the assessment order was passed under s. 143(3)/251 of the IT Act, 1961. The assessee filed return of income on 9th January, 1987 showing total income at Rs. 19,040 along with the computation of income, balance sheet and evidence of prepaid taxes. No P&L a/c or other details in respect of timber business was filed along with the return of income. In fact, it was stated by the AO that no proper account was kept by the assessee. On 8th May, 1987 a search under s. 132 of the Act was conducted at the business premises of M/s Meghalaya Timber Industry, Khonapara and also at the residence of the assessee at Guahati. Various books of account and other documents were found and seized. The statement of the manager of the above timber business was also recorded under s. 132(4) of the Act. A search was also conducted at the residential premises of the assessee at Laitumkhra, Shillong, and some jewelleries etc. were seized. The Department also carried out search and seizure action in the business premises of M/s Gupta Brothers where the assessee was a partner and also in the business premises of M/s Gupta Enterprises where the assessees brothers are partners. Books of account and other documents and valuable were also seized. The assessment order under s. 143(3) was passed on 30th March, 1988, which was set aside by the CIT(A) directing the AO to pass fresh assessment order. The assessment proceedings were then taken up by the AO. The assessee appeared before the AO from time to time. It was stated that no separate books of accounts in the personal capacity were maintained. It was also stated that books of account and vouchers regarding timber business was maintained but not available with the assessee as these documents were misplaced/lost during search and seizure operation on 8th May, 1987. A summary statement relating to computation of income was filed. The AO considered the submissions made by the assessee, documents, etc. found and seized during the course of search operation and further documents produced during the course of assessment proceedings. The AO for the detailed reasons stated in his assessment order (sic) that the written explanation furnished by the assessee along with the enclosure and other details were examined and relevant seized materials had also been scrutinised and examined properly. He came to the conclusion that no regular and proper books of account depicting the position of sales and purchases, expenses and opening and closing stock are admittedly available except few vouchers of sales. He also found that the profit declared from timber business was prima facie totally inconsistent for the detailed reasons stated by him. As regards the total sales and other expenses the AO for the detailed reasons stated at pp. 8 and 9 of his assessment order did not accept the submissions and claims made by the assessee during the course of assessment proceedings. He, therefore, took a view that the profit cannot be properly computed on the basis of the seized documents. Applying the provision of s. 144 of the Act and also having regard to the fact that sales shown as per the register K -4 being Rs. 27,65,000, the total sales was estimated at Rs. 30 lakhs. While estimating the sales the AO also considered sale -proceeds of firewood and coal and saw dust. The AO also found that the assessee returned GP of more than 10 per cent in the asst. yr. 1986 -87. In view of above and for the detailed reasons stated at p. 10 of the assessment order, the AO estimated the GP at 15 per cent of the sales. Allowing 5 per cent of the gross sales expenses, the net profit from timber business was taken at Rs. 3 lakhs which comes to 10 per cent of estimated sales.