AI Structured Summary
Not yet generated for this judgment
Judgment
N. Kumar, J.—The revenue has preferred this appeal against the order passed by the Tribunal which has partly allowed the appeal preferred by the Assessee deleting the amount in excess of Rs. 10,00,000/- as undisclosed income.
The Assessee is a private limited company engaged in the business of processing the sarees supplied by the manufacturer/dealers. A search was conducted at the premises of the Assessee on 6.10.1998. During the course of search the Assessee was found to be preparing two types of delivers challans. In one type of challan the company''s name, phone number, sales-tax number, etc., were mentioned. In another type of challan, only serial number was appearing without, the name, etc. of the Assessee The Managing Director in his statement admitted that generally for second type of challan, the transactions are not accounted in the books of accounts. The deliver; challans for unaccounted transactions was found for the period 9.9.1997 to 13.1.1998 and 1.1.1998 to 26 9.1998 (89 days). The assessing officer made a comparison between the regular delivery challan and imprinted delivery challan for the said period. The details of sarees delivered both through the regular and through imprinted delivery challans were fully available for the month of October 1997. The estimate was being made taking this month as the basis. The total value of the bills raised in October 1997 was Rs. 5,84.446/- at an average cost for processing per saree at Rs. 57/-. Thereafter, he proceeded to estimate the turnover for the full year taking the above ratio and arrived at Rs. 90.94.965/- for two years 1997-98 and 1998-99. He gave deduction of 50% of the said amount, towards expenditure and he arrived at the total undisclosed income at Rs. 39.13,500/- and levied tax on the said amount. The Assessee on his part after admitting that he was maintaining two accounts and he had also destroyed few receipts, offered Rs. 10.00,000/- as the undisclosed income which was not accepted.
Therefore, the Assessee preferred an appeal against the order passed by the assessing officer. But, the Commissioner of Income Tax (Appeals) declined to interfere with the block assessment order.
Aggrieved by the same, the Assessee preferred an appeal to the Tribunal. The Tribunal held that the seized material is for limited period of 89 days. The seized material revealed only quantitative information and not the actual amount of undisclosed turnover. It is on that basis the assessing officer has estimated the average sales price. Damages were also estimated. The unaccounted turnover for the entire block period was estimated The computation of undisclosed income as per Section 158BBB(1) has to be on the basis of evidence found as a result of search and such other material or information as are available with the assessing officer and relatable to such evidence. Since the Assessee has admitted to carrying an transaction outside books of accounts, the assessing officer had no option but to estimate the income. The Assessee admitted having destroyed the slips for unaccounted transactions. However, the fact also remains that at the time of search, no evidence regarding assets/investment are found. Cash found during the course of search is only Rs. 6� lakhs. As an icing on the cake, the Assessee has declared an income of Rs, 10.00,000/-. The Assessee is a young entrepreneur of just 24 years. The concern has also not worked for more than two years. Even the assessing officer has not found any undisclosed income pertaining to the assessment year 1997-98. Therefore, the Tribunal held that the income declared by the Assessee of Rs. 10,00,000/- is proper and do not need further enhancement and therefore, it restricted the computation of undisclosed income at a sum of Rs. 10.00,000/- as declared by the Assessee and granted the relief on that basis. Aggrieved by the said order, the revenue is in appeal.
The learned Counsel for the revenue assailing the impugned order contended that, admittedly the Assessee had maintained a parallel account. It had destroyed the chits. What is seized pertains to only 89 days. In the case of block assessment, the income of the entire block period is to be taken into consideration. In the absence of any other material and in the light of the admission, the assessing officer was justified in making an estimate of the undisclosed income on the basis of the seized material. The Tribunal was not justified in restricting the undisclosed income to the admitted amount of Rs. 10,00,000/- and thus committed an error in interfering with the well considered order passed by the assessing officer as well as the appellate authority.
Per contra, the learned Counsel for the Assessee supported the impugned order,
This appeal was admitted to consider the following substantial questions of law on 1.9.2006:
(1) Whether, the Tribunal was correct in holding that the material seized during search indicting that the Assessee had for continues period of 89 days had been selling goods which were not being accounted for and that the cash of Rs. 6.50 lakhs was also seized and the Managing Directors statement recorded disclosed that such a unaccounted, transaction had been carried, on for the entire duration of the business which was taken into account for estimating the undisclosed income for the entire block period by the assessing officer which could not be made applicable to the block assessment?
(2) Whether the tribunal was correct in holding that only undisclosed income of the Assessee pursuant to a search of Rs. 12.00,000/- should be accepted in the block period and not the estimation made for the block period by the assessing officer of Rs. 23,51,609/ on the seized material?
Section 158BB deals with computation of undisclosed income of the block period. Sub section (1) of Section 158BB reads as under:
Computation of undisclosed income of the block period. 158BB(1) The undisclosed income of the block period shall be the aggregate of the total income of the previous years falling within the block period computed, in accordance with the provisions of this Act on the basis of evidence found as a result of search or requisition of books of account or other documents and such other materials or information as are available with the assessing officer and to such evidence, as reduced by the aggregate of the total income, or as the case may be, as increased by the aggregate of the losses of such previous years.
Therefore, while computing the undisclosed income for the block period, the evidence found as a result of search or requisition of books of account or other documents and such other materials or information as are available with the assessing officer and relatable to such evidence has to be taken into consideration. In other words, the computation of undisclosed income should be based on such evidence which is seized during search which is not accounted in the regular books of account. It is the aggregate of the total income of the previous year falling within the block period and the undisclosed income which is substantiated by the evidence at the time of seizure is to be taken into consideration. Out of the said aggregate income the aggregate of the total income determined in accordance with Section 143 or Section 144 or Section 147 has to be reduced.
Therefore, in the entire scheme of arriving at the undisclosed income for the block period there is no scope for estimating the income. It should be on actuals. In other words the assessing officer cannot estimate the undisclosed income the has to compute the undisclosed income as provided u/s 158BB(1). If it is a case of estimation of income it falls outside the said provision. In Section 158BB the Parliament has consciously used two words, one ''computing'' and the other ''assessment''. The word "computation" has not been defined in the Act. The meaning of the word is to be gathered from the scheme of the Act having regard to its ordinary grammatical meaning. In the context of the Act, computation is a calculation, a method of determination by reckoning through calculation. It involves some methodical process with some amount of approximate mathematical precision based on the calculable data available. The word "computation" is completely distinct and different from the word "estimate", which means; the action of valuing or appraising; an approximate calculation based on probabilities. Under the scheme of the Act, the Assessing Officer has to compute the undisclosed income falling within the block period. He does not estimate or appraise the undisclosed income. As opposed'' to this the word ''assessment'' has been defined to mean ''re-assessment'' as well. The ordinary meaning of the word "assessment" is; the action of assessing: the amount assessed; the determination of the amount of taxation; the scheme of charge or taxation; valuation of property or income for the purpose of taxation. The word "assess" is a comprehensive word, and in a taxing statute it often means the computation of the income of the Assessee, the determination of the tax payable by him, and the procedure for collecting or recovering the tax. The term assessment is flexible capable of one of many meanings. It will take its colour from the context in which it occurs. It bears a very comprehensive meaning, it can comprehend the whole procedure for ascertaining and imposing liability upon the taxpayer. Therefore, u/s 158BB the assessing authority has to compute the undisclosed income falling within the block period. He is not expected to assess the undisclosed income. It is only in the event of assessment of undisclosed income, if accounts books are not available, if accounts books are destroyed, if there is a suppression of actual sales, taking into consideration the totality of the circumstances, the conduct of the parties, the way in which the accounts are maintained, and the incriminating materials which are unearthed, it is open to the assessing authority to estimate the income of the assesee. But, when he is obliged only to compute, it should be based on the calculation which in turn should be based on the material seized during search.
In the instant ease admittedly the seized material showed undisclosed income for a period of 89 days. On that basis the assessing officer has estimated the undisclosed income for 365 days and then has arrived at the undisclosed income for two years. Such a computation of income based on estimation is contrary to the aforesaid statutory provision. It is in that context when the total value of the undisclosed income for 89 days as reflected in the receipts which were seized amounted to Rs. 5.48,000/- and on the admission of the Assessee that he has destroyed similar receipts in the past, when he offered Rs. 10,00,000/- as the undisclosed income, taking into consideration that he was a young entrepreneur of 24 years and he had started the business just two years back, the Tribunal was justified in accepting Rs. 10,00,000/- as the undisclosed income which is in far excess of the undisclosed income as could be gathered from the seized material and in deleting the excess undisclosed income as arrived at by the assessing authority. In that view of the matter, we do not see any justification to interfere with the order passed by the Tribunal. No merits. The substantial questions framed are answered in favour of the Assessee and against the revenue. Accordingly the appeal is dismissed.