Per Shri K.C. Singhal, Judicial Member - This appeal is directed against the order of block assessment under section 158-BC of the Income-tax Act, 1961 passed by Asstt. CIT (Inv.) Cir. 1(4), Kolhapur. The block period consists of assessment years 1986-87 to 1995-96 and a period from 1-4-1995 to 11-9-1995 relevant to assessment year 1996-97.

2. The assessee is a partnership firm comprising of two partners viz., Shrinivas J. Bhat and Smt. Anjali Shanbhag. It is carrying on the business of hotel viz., Hotel Kiran at Miraj. The business premises of the assessee as well as residential premises of the partners were searched under section 132 on 12-9-1995 in the course of which, cash of Rs. 35,658 was found. In addition to it, certain incriminating books of account, loose papers were also found and seized by the department. The statement of partners and staff of the assessee firm were recorded. After considering the seizure record and statement of the assessee as well as the staff members and the explanation offered by the assessee, the Assessing Officer made various additions and determined the undisclosed income for the block period aggregating to Rs. 63,77,258. Aggrieved by the same, present appeal has been preferred by the assessee.

3. Firstly, we shall deal with the addition of Rs. 4.5 lakhs on account of ‘on money’ alleged to have been paid by Shri S.J. Bhat on purchase of flat and plot for his daughter Anjali Shanbhag in 1991. At the time of search, Shri S.J. Bhat was present at the residence of her daughter Smt. Anjali Shanbhag. The statement of Smt. Anjali Shanbhag was recorded under section 132(4). As per question No. 8, she was asked to explain how and when did she purchase the flat No. 4 in Chinar Apartment, Karve Road, Pune. In reply, it was stated by her as under :

"I have purchased this flat from M/s Sathe and Godse in 1991 for Rs. 7,70,000. I do not know from which bank the loans of Rs. 4,50,000 and Rs. 2,00,000 have been taken. I do not know about the money given other than that. My father can tell about it. Also, my father has booked a Plot of 10,000 sq. ft. area in 1991-92 near Sortur Hospital, Sangli Road, Miraj on the name of myself and my mother, Mrs. Shrinivas Bhat. I do not know how much money has been given for this and from where. My father can tell about it."

Thereafter, the statement of Shri S.J. Bhat, father of Smt. Anjali Shanbhag was recorded under section 132(4) on the same date. He was asked the question regarding the purchase of the aforesaid flat and plot. Question Nos. 3, 4 and 8 and answer to them was given as under :

Q. 3 : In whose name does this flat No. 4, ‘Chirar’ 41/5 Erandawana, Pune 4? Who purchased this flat ?

Ans. : This flat stands in the name of my daughter, Smt. Anjali Jayaram Shanbhag. I totally looked after the purchase of this flat. I purchased this flat from M/s Sathe Godse in 1991-92. The cost of this flat is Rs. 11,70,000. I paid Rs. 4,00,000, out of this in cash before the agreement. I paid the balance amount from time to time. I have thus paid the total amount of Rs. 11,70,000 of this flat uptil now. The sale deed of this flat has still not been executed. Out of this total amount, my daughter Smt. Anjali Jayaram Shanbhag had paid Rs. 4,20,000 for this place by raising loan on the policy in her husband’s and her name from LIC, Pune. Rs. 2,00,000 were taken from Sangli Urban Co-operative Bank, Miraj against the security of the place at Miraj and deposited for this flat and the remaining amount of Rs. 1,50,000 was deposited from the capital account of my daughter (Smt. Anjali Jayaram Shanbhag) in the firm Kiran Hotel. Cash of Rs. 4,00,000 was taken from the business of Kiran Hotel and Kiran Lodge. I have not indicated this amount in the income-tax return. I am prepared to pay the income-tax on this amount.

Q. No. 4 : Where else have you taken additional property in the name of your daughter Smt. Anjali Jayaram Shanbhag ?

Ans. : I had purchased a plot admeasuring 9000 sq. ft. in the name of my daughter in 1990-91. Half the above thereof was Rs. 1,50,000 and I transferred half share standing in the name of my wife, in the name of my daughter. Half the share was taken in the name of my daughter by giving Rs. 1,00,000. I had paid the balance Rs. 50,000 in cash in this transaction. I had taken this amount from my daughter’s capital account in Kiran Lodge and Kiran Hotel. I have not paid income-tax on these Rs. 50,000; so I am prepared to pay income-tax on these Rs. 50,000. I shall thus be paying income tax on this additional income of Rs. 4,50,000 of Kiran Hotel and Kiran Lodge. There is one Maruti car MGH 1201 in the name of my daughter. I have given this car to my daughter. It has been given to the daughter for household work and dropping the grand children in the school. This car is shown in the balance sheet of Kiran Lodge.

Q. No. 8 : As stated above, how the ‘on money’ of Rs. 4,50,000 spent for the flat at Pune (Flat No. 4, ‘Chinar’, Tarte Colony, Karve Road, Pune - 4) standing in the name of your daughter and the plot at Miraj standing in the name of daughter, Smt. Anjali Jayaram Shanbhag - got accumulated in the money of your firm?

Ans. : This amount of Rs. 4,50,000 got accumulated due to having indicated less(er) amount of profits of the firm in the income-tax return filed every year.

On 14-9-1995 the statement of Shri P.J. Shanbhag - husband of Smt. Anjali Shanbhag was also recorded. Question No. 4 and answer to it are as under :

Q. No. 4 : What are your movable and immovable assets? Please give the details.

(i)Immovable asset - As a co-owner (second name holder) in flat No. 4, I have got invested this flat and belongs entirely to my wife. My name is recorded as co-owner for facilitating to take her housing loan from LIC. Otherwise, than, this I have no interest in this house.

(ii)movable asset. ..........

Subsequently, Shri S.J. Bhat vide his affidavit dated 16-9-1995 retracted from his statement given under section 132(4) by alleging :

(1)that the statements were already prepared one as per their own will and he was forced to sign the statements by putting mental pressure by way of threats and fear.

(2)that the contents of these statements were not disclosed to the witnesses who were also hired one;

(3)that he was already under disturbed state of mind due to series of calamities of immeasurable magnitude for the last 15 years;

(4)that his son was suffering from mental and physical handicaps for last many years such as permanent headache.

(5)that his wife was suffering from physical illness for so many years, such as diabetes, B.P., heart disease, acidity, etc.

(6)the daughter Smt. Anjali was also suffering from low B.P.

In view of the above reasoning, it was stated by him in the affidavit that he was not connected with any transactions of the property purchased by his daughter and it was their own family matters. The statement given at the time of search was not binding on him or any other family members.

4. The Assessing Officer considered various statements mentioned above along with seized material. He was of the view that the assessee had paid ‘on money’ on the purchase of flat and plot for his daughter. Accordingly, he made an addition of Rs. 4.50 lakhs.

5. The learned counsel for the assessee Mr. Pathak submitted before us that there is no evidence on record to show that ‘on money’ was given by the assessee in respect of plot and the flat purchased by his daughter Anjali Shanbhag. According to him, the addition has been made solely on the basis of statement recorded under section 132(4) which stands retracted by an affidavit dated 16-9-1995. According to the terms of the affidavit, the statement of Shri S.J. Bhat was recorded under coercion by putting mental pressure, threats, etc. It was only out of fear that such statement was given by Mr. Bhat. Besides this, he was also having disturbed state of mind due to physical and mental illness for the reasons given in the affidavit. It was his submission that no evidentiary value can be given to such a statement which has been retracted successfully. In this connection, he referred to the decision of the Supreme Court in the case of Pullangode Rubber & Produce Co. Ltd. v. State of Kerala [1973] 91 ITR 18 for the proposition that retraction from admission is permissible in law. He referred to the decision of the Supreme Court in the case of P.K. Singh v. State of Manipur AIR 1956 SC 9 for the proposition that confession should be corroborated if it is retracted and such corroboration must be on the basis of independent evidence. He referred to the Delhi High Court decision in the case of S. Arjan Singh v. CWT [1989] 175 ITR 91 ¹ to contend that admission is an important piece of evidence but not conclusive. He then referred to the Orissa High Court in the case of Commissioner Of Income-Tax v. Biju Patnaik. [1991] 190 ITR 396 to submit that the statement under section 131 cannot be used by the assessee without giving an opportunity of rebuttal. The decision of the Bombay High Court in the case of Gordhandas Hargovandas v. CIT [1980] 126 ITR 560 was referred to in support of the contention that the Tribunal must follow certain criteria mentioned in the judgment while weighing the evidence. In addition to the above, he also referred to various Tribunal decisions as Pushpa Vihar v. Asstt. CIT [1994] 48 TTJ (Bom.) 389, Asstt. CIT v. Mrs. Sushiladevi S. Agarwal [1994] 50 ITD 524 (Ahd.) (Trib.), Jagdish Chand Gupta v. Asstt. CIT [1996] 56 TTJ (Chd.) 337, Deepchand & Co. v. Asstt. CIT [1995] 51 TTJ (Bom.) 421, Pushpa Vihar’s case (supra) and Gaurishankar Omkarmal v. ITO [1990] 37 TTJ (Ahd.) 353. It was also contended by him that principle of retraction is embedded in section 139 as revised return can be filed to cancel the mistake in the return filed under section 139(1). In view of the above, it was submitted by him that the assessee has rightly retracted from his statement given under section 132(4). He drew our attention to the statement of Mr. Bhat appearing at page 347 of the paper book which states that Rs. 50,000 was paid by cash while purchasing the plot for his daughter but in fact, the said amount was paid by cheque. He also stated that it has nowhere been stated that the sum of Rs. 50,000 was paid over and above the sale consideration as per the evidence. In fact, it had been stated by him that the value of the plot (half portion) was Rs. 1,50,000 out of which Rs. 1.00 lakh was paid by cheque and balance Rs. 50,000 by cash. When it was found by him that this statement is factually incorrect and the payment was made by cheque, he retracted the statement. It was further stated by him that the plot was transferred by the mother to his daughter and there is no question of paying ‘on money’ due to close relations. In respect of flat it was stated by him that there is no evidence to suggest payment of ‘on money’ by S.J. Bhat. Consequently, it was prayed by him that addition on this account be deleted.

6. In reply, the learned Departmental representative Mr. Sanjay Prasad has vehemently opposed the contention of Mr. Pathak by making various submissions. Firstly, it is submitted by him that there is no evidence on record that statement under section 132(4) was obtained under coercion or threat of any kind. The statement was recorded in the presence of panchas (witnesses). The assessee is incorrect in deposing that witnesses were hired one as there is no material on record to suggest the same. He drew our attention to page 365 of paper book No. 1 to show that witnesses were the neighbours of Anjali Shanbhag, daughter of Mr. S.J. Bhat who made a statement under section 132(4). According to him, these witnesses could not be hostile to the assessee nor there is any allegation to this effect. He further submitted that specific details given by Mr. Bhat in his statement were so specific that it could not be said that he was of unsound mind. Proceeding further, he submitted that authorised officers could not have known all the details of the transactions in advance and therefore, the contents of the affidavit to the effect that the statement was prepared according to the Will of the authorised officers cannot be said to be correct. According to him, the assessee on his own had stated that the sum of Rs. 4.00 lakhs was paid before the agreement and the balance of Rs. 7.7 lakhs were paid later on from time to time. In view of these facts he concluded by pleading that the statement of Mr. Bhat was made voluntarily and thus was binding on him.

6.1 The second submission of Mr. Prasad is that once it is shown that the statement was voluntary then, the assessee cannot be allowed to retract. He relied on the recent judgment of the Supreme Court in the case of Surjeet Singh Chhabra v. Union of India AIR 1997 SC 2560. Further there is no material on record to suggest the mistaken belief either of facts or law for making the retraction. He also referred to the decision of the Supreme Court in the case of Banarasi Das v. Kanshi Ram AIR 1963 SC 1165 and the Tribunal decisions in the cases reported at 59 ITD 29 Param Anand Builders (P.) Ltd. v. ITO [1996] (Mum.) and 61 ITD 35 (sic). He also referred to the provisions of sections 24, 25, 31 and 115 of the Evidence Act.

6.2 The third submission was that the statement under section 132(4) has greater evidentiary value than statement given under other provisions of the statute. The Legislature has specifically provided in its wisdom that such statement may be used in evidence while such requirement has not been specified in other sections like 131 and 133A. He was at great pains to submit that if such a statement is allowed to be retracted, then it would be a mockery of law. He then distinguished the case law referred to by Mr. Pathak.

6.3 On merits, it was submitted by him that Mr. Bhat has specifically stated that the sum of Rs. 4.00 lakhs was given before agreement. In answer to question No. 8 it has been admitted by him that this sum had been given out of suppressed profit of the firm. At the time of statement made at Pune, he could not have anticipated the duplicate set of books of Hotel at Miraj would have been found and seized. Despite this ignorance, he admitted that the payment was made out of undisclosed profits of the firm. What else is required for making the addition. Accordingly, he concluded by submitting at the addition made by the Assessing Officer was justified.

7. Rival submissions of the parties as well as material placed before us and the case law referred to by the parties have been considered carefully. The crucial question is whether the addition can be made on the basis of statement recorded under section 132(4) which is alleged to have been retracted by the assessee. It is settled law that admission by a person is a good piece of evidence though not conclusive and the same can be used against a person who makes it. The reason behind this is, a person making a statement stops the opposite party from making further investigation. This principal is also embedded in the provisions of the Evidence Act. But the statement recorded under section 132(4) is on a different footing. The Legislature in its wisdom has provided that such a statement may be used in evidence in any proceedings under the Income-tax Act, 1961. Therefore, in our opinion, great evidentiary value has been attached to such statement.

8. However, there are exceptions to such admission where the assessee can retract from such admission. The first exception exists where such statement is made involuntarily i.e., obtained under coercion, threat, duress, undue influence etc. But the burden lies on the person making such allegations to prove that statement was obtained by the aforesaid means. The second exception is where the statement has been given under some mistaken belief either of fact or law. It is well settled that there cannot be estopple against the law. If a person is not liable to tax in respect of any receipt, he cannot be made liable to pay tax merely because he has agreed to pay the tax in the statement under section 132. He can always retract in such situation. For example the assessee might have sold his agricultural land and not declared its sale proceeds in his income-tax return. If such agricultural land does not fall within the ambit of the words "capital asset" then no tax is payable. If the assessee had offered to pay tax on the profits on such sale under section 132(4), in our opinion, he can always retract from such statement. Similarly, if the assessee can show that the statement has been made on mistaken belief of facts, he can retract from the statement if he can show that facts on the basis of admission so made were incorrect. This is what has been held by the Hon’ble Supreme Court in the case of Pullangode Rubber & Produce Co. Ltd. (supra).

9. In view of the above discussions, we are of the view that admission made in statement under section 132(4) has great evidentiary value and is binding on a person who makes it. Therefore, the admission can be made on the basis of such admission by using the same in evidence. The Legislature was well aware that under the general law mere admission may not be conclusive one. The Income-tax Act is a specific Act and assessment has to be made on the basis of material gathered by the Assessing Officer. For this purpose, vast powers have been conferred on the Income-tax authorities for making investigation including the powers of search. If in the course of such search, the assessee makes some admission, he debars the authorised officer from making further investigation. In view of this, Legislature in its wisdom has provided that such statement can be used in evidence and the assessment can be made on the basis of such statement. The sanctity of such provision would be lost if the assessee is allowed to contend that no addition can be made on the basis of such admission. However, such admission can be retracted by the assessee only if the circumstances as mentioned in the earlier paragraphs are established by the assessee to exist.

10. In the present case, there is no evidence before us which may even indicate that statement under section 132 was obtained under coercion, threat, duress or undue influence. The contents of the affidavit to the effect that Mr. Bhat and his family members were physically and mentally ill, are not substantiated by any material or evidence on the record. The mere statement that Mr. Bhat was facing series of calamities of immeasurable magnitude and thus his family members were also suffering from permanent headache, diabetes, B.P., heart disease, acidity etc. is not sufficient to hold that he was so mentally disturbed that he could not make any sensible statement. In our opinion, no case has been made to prove that he was having a disturbed state of mind. If a particular Act is performed in discharge of official duties, the presumption is that act was performed bona fide. The search operations were conducted in the presence of witnesses. The allegations of Mr. Bhat that witnesses were hired one is also not supported by any material or evidence. The witnesses were in fact, the neighbours of Smt. Anjali Shanbhag, daughter of Mr. Bhat. This fact is apparent from the panchanama. There is no allegation that those witnesses were hostile either to Mrs. Anjali Shanbhag or Mr. Bhat. The other allegation that statement was written by the authorised officers, according to their own Will, also cannot be accepted for the reason that the details regarding purchase of property are so specific, which could not have been known by the authorised officers. Even the authorised Officers did not ask any specific question regarding payment of ‘on money’. The question asked for was "In what name does this flat No. 4, Chinar Apartment, 41/5 Erandawana, Pune ?" "Who purchased this Flat?" In response to these questions, he had replied that he purchased this flat for his daughter for Rs. 11.7 lakhs out of which Rs. 4.00 lakhs were paid in cash before the agreement. The balance sum of Rs. 7.7 lakhs was paid from time to time. He had given other details, that is, the year of purchase, name of the vendors, source of amount paid. The source of Rs. 4.00 lakhs has been stated to be out of business profits of Hotel Kiran, which had not been shown in the return of income. In view of such specific details, we are of the view that he was having sound state of mind and the statement was made voluntarily. The contention of the assessee that statement under section 132(4) was obtained under coercion or threat, is therefore, rejected.

11. However, on the basis of the material produced before us, we are of the view the assessee has been able to show that statement regarding payment of Rs. 50,000 in cash against purchase consideration of the plot at Miraj was under mistaken belief of facts. The agreement shows that entire payment of Rs. 1.5 lakhs was paid by cheques and drafts. Mr. Bhat also never said that said sum of Rs. 50,000 was paid over and above the consideration mentioned in the agreement. It was also specifically stated by him that plot was purchased for a total consideration of Rs. 1.5 lakhs. Moreover, the transfer of plot was by mother to the daughter and therefore, there was no possibility of passing any ‘on money’. In view of these facts, we hold that statement of Mr. Bhat that Rs. 50,000 was paid in cash was under mistaken belief of facts. In fact, the entire consideration was paid either by cheque or by drafts. Therefore, in our opinion, he could legally retract this part of the statement.

12. But regarding the payment of Rs. 4.00 lakhs, there is nothing on record to suggest that there was any mistaken belief of facts or law. There was categorical statement that flat was purchased by him for his daughter for Rs. 11.7 lakhs while the agreement was only for Rs. 7.7 lakhs and Rs. 4.00 lakhs was paid before the agreement out of the suppressed profits of the firm. Therefore, we do not accept the retraction of Mr. Bhat as far as the payment of Rs. 4.00 lakhs is concerned.

13. We have already expressed our view that the addition can be made on the basis of admission under section 132(4) unless specifically retracted. Mr. Bhat has not only admitted the payment of Rs. 4.00 lakhs before the agreement but also agreed that the same was paid out of suppressed profits of the firm. In our opinion, there is a direct nexus between the payment of ‘on money’ and suppressed profits of the firm M/s. Hotel Kiran.

14. The view which we have taken is supported by the decision of the Hon’ble Supreme Court in the case of Surjeet Singh Chhabra (supra). In that case, it was contended that the petitioner had retracted from his confession within six days and therefore, he was entitled to cross examine the panch witnesses before the authorities takes a decision on the proof of the offence. The Hon’ble Supreme Court held "we find no force in this contention. The Custom Officers are not police officers. The confession though retracted, is an admission and binds the petitioner. So, there is no need to call Panch witnesses for examination and cross examination by the petitioner". On the other hand, the decisions relied upon by Mr. Pathak are distinguishable on the facts. In the decision of the Supreme Court in the case of P.K. Singh ( supra), it was held that confessions even if inculpatory it should be corroborated if it is retracted. In that case, the retraction of the statement was not the subject matter of litigation but in the present case, the retraction itself has been disputed by the revenue. The Tribunal decisions relied upon by him are also distinguishable of facts. In the case of Pushpa Vihar (supra ), there was a confession that the assessee had suppressed sales and on that account, he had declared undisclosed income of Rs. 9,25,000. Subsequently, the statement was retracted on the ground that there was a factual mistake of fact, inasmuch as, the statement was made with reference to sales only. The Tribunal had accepted the contention of the assessee that the assessee might have mis-understood the contents of the statement. The Tribunal also took into consideration that statement was given by a person who was a non-matric and junior-most partner in the firm. But in the present case before us, we have not found any material to suggest that statement was given under coercion or threat as alleged by the assessee. In the case of Jagdish Chand Gupta (supra), a statement was recorded at a time when son of the assessee being got married and the assessee simply penned his signature on the statement recorded by the officers of the search party with a view to complete the formalities. But in the present case, it is not so. The contents of statement clearly show that the statement was given by the assessee with open mind. We need not repeat the other decisions of the Tribunal because, in our opinion, all these decisions are distinguishable on facts.

15. In view of the above discussions, we hold that the statement under section 132(4) was voluntarily made and there was no coercion or threat whatsoever. The contents of the statement are clear and unambiguous and the same are binding on the assessee. The assessee has been able to show that a part of statement regarding payment of Rs. 50,000 was given under mistaken belief of fact while there was no such belief with reference to other part of the statement regarding payment of Rs. 4.00 lakhs. Consequently, we confirm the addition of Rs. 4.00 lakhs. However, since the source of payment of Rs. 4.00 lakhs is the suppressed profits of the assessee firm, the assessee is entitled to set off against the suppressed business profits of the firm relating to the years ending 31-3-1991 to the extent the addition is ultimately sustained. The Assessing Officer is therefore, directed to set off the aforesaid addition against the suppressed business profits of the firm relating to assessment years 1986-87 to 1991-92 to the extent it is finally sustained. Though this plea was not raised before us, we are allowing the set off because in law, the person cannot be taxed twice over the same income. One cannot be taxed merely because of his ignorance in the pleadings. This ground is therefore, partly allowed.

16. The next issue relates to the addition on account profits out of suppressed sale. The addition made by the Assessing Officer is in two parts. The first part of the addition relates to assessment years 1994-95 to 1996-97 amounting to Rs. 11,28,131 while the second part relates to the addition of Rs. 32,19,082 pertaining to assessment years 1986-87 to 1993-94. The total addition thus comes to Rs. 43,47,213.

16.1 In the course of search, duplicate set of account books were found relating to the period from 1-4-1993 to the date of search i.e., 12-9-1995. Rough cash book was maintained by the Manager of the hotel Mr. Sitaram Bhat. This book contains entries of actual sales of the day. It also contains the entries of the expenditure incurred by him out of sale proceeds. The fair cash book was written by the Accountant Mr. Rajaram Kulkarni. This book contains entries of suppressed sales. It also contains entries of suppressed expenditure incurred by the Manager. The entries of suppressed expenditure were made to cover the suppressed sales. The statement under section 132(4) of Shri Sitaram Bhat was recorded. The relevant extract of his statement is being reproduced for the benefit of our order.

"Q. No. 3 : Give more information about the nature of your work.

Ans. : I work as Manager in Hotel Kiran. This includes managing the cash counter from the time the hotel opens till the time it closes. After the hotel closes I enter the sale amount in the wrought cash book and hand it over to the owner of the hotel Shri Shrinivas Janardan Bhat. Similarly, I purchase raw material for the hotel. Besides Hotel Kiran, I accept the cash collected from the receptionist of M/s Kiran Lodge and give to Shri Shrinivas Bhat.

Q. No. 9 : Who is entrusted with making entries in the rough and fair cash books of M/s Hotel Kiran ?

Ans. : Everyday, I count the amount in the cash box and enter the corresponding sale amount in the rough cash book in my own handwriting. I have been maintaining the cash book in this manner, i.e., since I have been employed. Shri Rajaram S. Kulkarni maintains the fair cash books.

Q. No. 10 : On what basis does Deewanji Shri Rajaram S. Kulkarni write the fair cash books ?

Ans. : I handover my rough cash books to Deewanji for making entries. I don’t know, or on what basis Deewanji writes the fair cash books.

Q. No. 14 : Where is the fair cash book and pass book before the financial year 1993-94 ?

Ans. : The 5-6 year old books have been destroyed. I do not know what was done with the remaining books or where they are.

The statement of Shri Shrinivas Bhat, Senior Partner of the firm was also recorded under section 132(4) on 13-9-1995. The relevant portion of the statement is extracted as under :

Q. No. 4 : Have you preserved the account books of your hotel business. If yes, which are they and where are they kept ?

Ans. : I have kept account books, rough cash books, fair cash books and pass books for business purpose. The mentioned account books have been kept in a room in the hotel since the financial year 1993-94.

Q. No. 5 : Where are the account books like rough cash books, fair cash books, pass books etc. before the financial year 1993-94 ?

Ans. : As the old books before the financial year 1993-94 had started getting spoilt and similarly our lawyer told us that the sales-tax and income-tax assessment had been completed and the books won’t be required. Therefore, some account books have been destroyed. The account books before the year 1993-94 got destroyed in that.

Q. No. 7 : Who writes the rough and fair cash books ?

Ans. : Our hotel manager Shri Sitaram Shrinivas Bhat writes the rough cash book and our accountant Shri Rajaram S. Kulkarni writes the fair cash books. As per my instructions, Shri Kulkarni indicates the sale amount less by 5-10% than the actual. I gave the above instructions about 2 years ago due to profit pressure.

Statement of Shri R.S. Kulkarni was recorded under section 131 on 27-9-1995. The relevant questions and answers are being reproduced :

Q. No. 2 : How long and since when you are doing the job of writing the books of account for Shrinivas Bhat ?

Ans. : I have been writing the books of account since 1974, starting of the hotel.

Q. No. 3 : What books of account do you maintain/write ?

Ans. : I write fair books of account, cash book, ledger, etc.

Q. No. 4 : On what basis do you write/make entries in fair cash book ?

Ans. : Shri Sitaram Bhat maintain the rough cash book. He gives me the rough cash book and bills of purchase which I use as the basis for writing the fair cash book.

Q. No. 5 : I will now show you the rough cash books 1993-94, 1994-95 and 1995-96. There is a discrepancy in the sale amounts indicated in the rough and fair cash books. How these discrepancies are observed when you say that you write the fair cash book based on the rough one ?

Ans. : Since 1993, Shrinivas Bhat has instructed me to indicate the sale amount in the fair cash book two or three thousand less than in the rough cash book or as per the situation. Accordingly, I have indicated the sale amount by reducing it, in the fair cash book. Shri Bhat had given instructions to reduce the daily sale amount by Rs. 2,000 to Rs. 3,000.

Q. No. 6 : Are all the bills of expenditure entered in the rough cash book also entered in the fair book ?

Ans. : As per instructions from the owner, Shri Shrinivas Bhat, bills for vegetables, milk are shown reducing these by half, vegetables are pur- chased every two-three days and the expenditure for that is noted in the rough cash book. However, expenditure of Rs. 50-60 for vegetables is indicated in the fair cash book, every day.

Q. No. 7 : How long and since when Sitaram Bhat has been giving you the rough cash book ?

Ans. : Sitaram Bhat has been giving me the rough cash book since 1993.

Q. No. 8 : On what basis were you maintaining the fair cash book prior to 1993-94 ?

Ans. : Prior to 1993-94 Sitaram Bhat used to give me a slip of paper writing thereon the sale amount every day and I used to enter that very amount in the fair cash book. Similarly, I used to enter the expenses in the fair cash book as per the bills.

Q. No. 9 : You have stated that you don’t enter all the amount corresponding to the bills for various purchases. How much purchase amount were you entering in the fair cash book every day ?

Ans. : I used to enter the bills to cover the sale amount which I was instructed to enter. Furthermore, there were instructions that a cash balance must be left over. Taking all these factors all the purchase amount was not indicated/entered in the fair cash book. For example expenses for purchase of vegetables have been shown every two days, however, expenditure of Rs. 50 to 60 has been shown every day, in the fair cash book. As per instructions of Shrinivas Bhat, only half the expenditure on milk is indicated/entered in the fair cash book.

Q. No. 10 : Where are the slip of papers given to you during 1974 to 1992?

Ans. : I have torn off the slips of paper (indicating the sale amount) upto 1974-75, 1992-93 after entering the details in the fair cash book.

Q. No. 11 : Since when Shrinivas Bhat has given you instructions to show only half the expenditure on milk and vegetables.

Ans. : These instructions were given since 1974, i.e., starting the hotel.

Statement of Shri Sitaram Bhat was also recorded under section 131 on 27-9-1995. The relevant question is Question No. 11 which is reproduced hereunder :

Q. No. 11 : In which book were you entering the daily sale amount before 1993-94 ?

Ans. : I used to note the daily sale on a piece of paper and hand it over to Mr. Kulkarni. Also, I used to note down the expenditure on that piece of paper. I used to hand over the bills to Mr. Kulkarni.

On the basis of seized papers and the statement recorded under sections 132(4) and 131, the Assessing Officer was of the view that the true profits have not been declared by the assessee in the regular returns. He therefore, recasted the trading account by crediting all sales as per rough cash book. On the expenditure side, he took all the figures shown in the regular cash book plus expenditure which according to him, incurred by the assessee, entered into the rough cash book but not accounted for in the fair cash book. As a specimen the recasted account for the financial year 1993-94 is reproduced as under :

Since the gross profit as per fair cash book was Rs. 6,57,994, he determined the undisclosed profit at Rs. 3,22,010 for assessment year 1994-95. In the same manner, he determined the undisclosed profit at Rs. 5,64,485 and Rs. 2,40,637 for assessment years 1995-96 and 1996-97 respectively.

16.2 On the basis of various statements mentioned above, the Assessing Officer was also of the view that assessee had suppressed sales in the earlier years also. Accordingly, he estimated the suppressed sales pertaining to assessment years 1986-87 to 1993-94 equal to 30 per cent of the disclosed sums. Relevant yearwise details are given at page 9 of the assessment order. The total addition on account of suppressed sales was made at Rs. 32,19,082.

17. The learned counsel for the assessee Mr. Pathak has vehemently assailed these additions. The first submission of Mr. Pathak is that once the entire sales have been included in the recasted trading account, the Assessing Officer should have allowed the deductions regarding expenditure incurred by the Manager out of such sales. According to him, the principles of "heads I win tails you loose" is not permissible in law. In support of his submissions, he relied on the decision of the Tribunal, Pune Bench in the case of Kantilal & Bros. v. Asstt. CIT [1995] 52 ITD 412 . He drew our attention to the recasted trading account prepared by the Assessing Officer who had allowed a sum of Rs. 2,28,916, Rs. 2,63,130 and Rs. 1,41,079 as net expenditure not debited in fair cash book for assessment years 1994-95 to 1996-97 respectively. But according to him, no working had been given by the Assessing Officer for ascertaining these figures. So according to him, the principle of natural justice were violated. At this stage, the assessee’s counsel was asked by the Bench about the correct figures of net expenditure not debited in the fair cash book. In response to the same, another paper book consisting of 90 pages has been filed. According to him, the actual net expenditure not accounted for in the fair cash book amounts to Rs. 6,71,612, Rs. 7,04,014 and Rs. 3,85,358 for assessment years 1994-95 to 1996-97 respectively against the figures worked out by the Assessing Officer. He has given detailed working at pages 1 to 35 of the second paper book.

17.1 The expenditures shown in the rough cash book also include expenditure of Rs. 4,03,564 and under the head ‘P.A. A/c’ which according to the Assessing Officer was of personal in nature. The details of such expenditure appear at page 35 of the second paper book. Out of this, Mr. Pathak himself has admitted before us that Rs. 2,45,431 were on personal account. However, it was pleaded by him that balance amount of Rs. 1,58,133 related to expenditure on provision, but he was unable to give any evidence. He further submitted that the Assessing Officer has himself made another addition of Rs. 3,40,000 out of aforesaid sum of Rs. 4,03,164 which according to him amounted to allowance of Rs. 63,564 as deduction by the Assessing Officer himself on the purchase of provisions. He prayed that reasonable deduction may be allowed.

17.2 Regarding addition of Rs. 32,19,082 it was contended by him that there is no evidence on record to prove that the assessee suppressed the sales in the earlier years. In support of his contention, he relied on the decision of the Supreme Court in the case of State Of Kerala v. C. Velukutty [1966] 60 ITR 239 , decisions of Orissa High Court in the case of State Of Orissa v. J.P Sikiria & Co. [1987] 67 STC 101, Ram Autar Ashok Kumar v. CST [1980] 45 STC 366 (All.) and the decision of the Tribunal, Bombay Bench in the case of Harish R. Kapadia [IT Appeal Nos. 1835 and 1836 (Bom.) of 1995], to which one of us (Shri K.C. Singhal) was a party. He also took us through the statement of Sitaram Bhat and Mr. Kulkarni to show that rough cash book was maintained only for assessment years 1994-95 to 1996-97 and there was no suppression of sales in earlier years. According to him, the entire addition is based on suspicion. Regarding the statement of Mr. Kulkarni, it was stated by him that Mr. Shrinivas Bhat was not well and he asked to sit outside the office when the statement of Mr. Kulkarni was being recorded. He drew our attention to the medical certificate appearing at page 416 of the paper book. In such circumstances, how he could cross examine when he did not know the contents. He had merely endorsed a statement of Mr. Kulkarni without knowing the contents of the same. According to him, this amounted to gross violation of natural justice and such statement could not be relied. In the course of hearing, the Bench had asked Mr. Pathak whether any specific request was made by the assessee for cross examination of Mr. Kulkarni, it was admitted by him that no such specific request was made. Proceeding further, it was submitted by him that such addition was never proposed by the Assessing Officer in his notice dated 13-5-1996 appearing at pages 217 and 218 of the paper book. Hence there is violation of principles of natural justice. In support of this contention, he referred to the Special Bench decision of the Tribunal in the case of Premier Colonisers v. Commissioner Of Income-Tax, Agra [1992] 41 ITD 57 (Hyd.) and the decision of Allahabad Bench of the Tribunal in the case of Raj Kumar Jain v. Asstt. CIT [1994] 208 ITR 22 (AT) and the decision of the Andhra Pradesh High Court in the case of CIT v. Tatavarthy Narayanamurthy [1972] 83 ITR 58 (FB). He then pointed out to the statement of Mr. Kulkarni. According to him, the answer to question No. 8 suggests that he had shown actual sales in his fair books and therefore, no suppression of sales. He further stated that only inference that can be raised is that the assessee suppressed the purchases which amounts to showing higher profit. It was also pleaded by him that if any addition is to be made on account of unexplained purchases the same has to be allowed as legitimate expenditure of business. Hence, no addition is possible. Reliance was placed on the decision of Patna Bench of the Tribunal in the case of Bharat Development (P.) Ltd. v. Commissioner Of Income-Tax, Delhi (Central). [1995] 52 ITD 103 .

17.3 He also referred to circular No. 717 dated 14-8-1995 at 215 ITR (St.) 70 to contend that case of earlier years could not be reopened unless there was any material to these years. It was also submitted by him that intention of the assessee was to suppress the sales only and not income because of levy of heavy sales-tax on the sales by restaurant and hotel. According to him, this was done to avoid the effect of notification of Maharashtra Government notified in the year 1994. Earlier to the notification, there was no incentive to evade the tax. In view of this, it was submitted by him that it was because of the State Government notification that the assessee started suppressing sales from 1993. Prior to that there was no suppression.

17.4 Alternatively, it was argued by him that the entire sale receipts could not have been assessed as undisclosed income. Income-tax is levy on income and therefore, the Assessing Officer should have determined the income arising out of the sales and assessed the same as undisclosed income.

18. The learned D.R. Mr. Sanjay Prasad submitted before us that whatever expenditure which were not accounted for in the fair books of account has been allowed by the Assessing Officer. He has furnished the working made by the Assessing Officer in respect of the amount allowed by him. The working is available at pages 1 to 21 of the departmental paper book. According to him, the Assessing Officer has ascertained the day-to-day expenditure in respect of vegetables, bread and milk which were not debited to fair cash book. Therefore, the question of giving further claim does not arise. It was also submitted by him that recasted trading account was given to the assessee for tendering any explanation in this regard. Since no explanation was given by the assessee, it cannot be said that there was any violation of principles of natural justice. He therefore, supported the order of the Assessing Officer.

18.1 Regarding the additions of Rs. 32,19,082 his submission was that statements of Mr. Sitaram Bhat, Mr. Kulkarni and Mr. Shrinivas Bhat are sufficient to indicate that rough cash book was being maintained in the similar manner in earlier years and therefore, the Assessing Officer was justified in estimating the suppressed sales pertaining to assessment years 1986-87 to 1993-94. He took us through statements given by these persons. Mr. Shrinivas Bhat, partner of the firm had stated in answer to question No. 5 that rough cash books of the earlier years had been destroyed by him. Similarly, Mr. Sitaram Bhat, the accountant of the firm in his answer to question No. 10 has stated that he had torn off the slips of papers for earlier years after entering the details in the fresh cash book. He also stated in answer to question No. 11 that he was processing the expenditure since 1974. He also drew our attention to answer to question No. 11 given by Mr. Sitaram Bhat wherein it has been said that prior to 1993-94, he used to note the daily sales on a piece of paper and hand it over to Mr. Kulkarni. He also used to note down the expenditure on that piece of paper.

18.2 He further submitted that evasion of sales-tax cannot be said to be the reason for evading the income-tax. It was also submitted by him that the notification by the Government of Maharashtra regarding levy of sales-tax was subsequent to the financial year 1993 when the assessee alleged to have started maintaining the rough cash book. Proceeding further, it was also stated by him that once the suppression of sales is proved on the record, the presumption can be made backward and forward. Reliance was placed on the decision of the Supreme Court in the case of Ambika Prasad Thakur v. Ram Ekbal Rai AIR 1966 SC 605. He also referred to the decision of the Tribunal in the case at Overseas Chinese Cuisine (India) (P.) Ltd. v. Asstt. CIT [1996] 55 TTJ (Bom.) (TM) 304 and the decision of the Supreme Court in the case of CST v. H.M. Esufali H.M. Abdulali [1973] 90 ITR 271 and also the decision of the Supreme Court in the case of Dhakeswari Cotton Mills Ltd. v. CIT [1954] 26 ITR 775 and also the decision of the Mysore High Court in the case of P. Venkanna v. CIT [1969] 72 ITR 328 .

18.3 It was also submitted by him that an opportunity was given to Mr. Shrinivas Bhat to cross examine Mr. Kulkarni. Since he refused to cross examine, the question of violation of principles of natural justice does not arise. Moreover, the same does not make the order void. In support of his contention, he relied on the following decisions :

(1)Guduthar Bros. v. ITO [1960] 40 ITR 298 (SC);

(2)Kapurchand Shrimal v. CIT [1981] 131 ITR 451¹ (SC);

(3)Addl. Commissioner Of Income-Tax, A.P v. Boina Suranna. [1980] 124 ITR 328² (AP);

(4)Commissioner Of Income-Tax v. Prem Syndicate. [1983] 141 ITR 290 (MP);

(5)Thakur V. Hari Prasad v. CIT [1987] 167 ITR 603³ (AP);

(6)CIT v. National Taj Traders [1980] 121 ITR 535⁴ (SC); and

(7)Superintendent (Tech. I) Central Excise v. Pratap Rai [1978] 114 ITR 231 (SC).

Thus, he distinguished the case law relied upon by the assessee’s counsel. Finally, he justified the order of the Assessing Officer.

19. Rival submissions of the parties, material produced before us and the case law referred to have been considered by us carefully. Firstly, we shall deal with the addition of Rs. 11,28,131. In our opinion, the contentions raised by Mr. Pathak are not without force. There is no dispute about the suppressed sales. There cannot also be any dispute to the legal proposition of Mr. Pathak that expenditures incurred out of suppressed sales have to be allowed since tax is to be levied on income and not receipts. The Assessing Officer has also allowed such expenditure but the dispute is limited to the computation of the expenditure which is to be allowed. For example, the Assessing Officer has allowed a sum of Rs. 2,28,916, Rs. 2,63,130 and Rs. 1,41,079 incurred by the assessee not account for in the fair cash book relating to assessment years 1994-95 to 1996-97 respectively, while as per the assessee, the expenditure which should have been allowed amounts to Rs. 6,71,612, Rs. 7,04,014 and Rs. 3,85,358 for assessment years 1994-95 to 1996-97 respectively. We have gone through the details filed by the assessee as well as the learned D.R. In our opinion, there is a fallacy in the working of the Assessing Officer. He has worked the net expenditure not accounted for in the fair cash book with reference to mainly vegetables, bread and milk. Probably, it was done by him keeping in view the statement of Mr. Kulkarni to the effect that partner of the firm had instructed him to reduce the expenditure on milk and vegetables by 50 per cent. But in our view, once the entire sales as per rough cash book have been taken in the recasted trading account, the Assessing Officer was duty bound to allow the entire expenditure incurred out of such sale proceeds. This could be done only by ascertaining the entire expenditure not accounted for in the fair cash book relating to all the items provided these were of revenue nature.

20. The total expenditure for the period from 1-4-1993 to 12-9-1995 which is not accounted for in the fair cash book as per assessee’s details is Rs. 17,60,984 which includes a sum of Rs. 4,03,564 incurred under the head ‘P.A. a/c’. The bifurcation of the P.A. a/c yearwise amounts to Rs. 1,67,384, Rs. 1,58,870 and Rs. 77,310 for assessment years 1994-95 to 1996-97 respectively as is apparent from the details given at page 35 of the second paper book. The perusal of such details shows that a sum of Rs. 2,45,431 relates to household expenses and other expenses of partners which undoubtedly cannot be allowed being personal or capital in nature. Even Mr. Pathak has also agreed to such disallowance. However, he has stressed that balance sum of Rs. 1,58,133 be allowed as expenditure on provisions. Since no material has been produced before us to substantiate this submission, the same cannot be allowed. We therefore, confirm the disallowance of Rs. 4,03,564 out of Rs. 17,60,984.

21. As far as balance amount of Rs. 13,57,220 is concerned, we agree in principle with Mr. Pathak that if such expenditure is of revenue nature, it has to be allowed. The assessee has furnished before us the day-to-day details of the expenditure which appears to be of revenue nature. But this requires verification by the Assessing Officer. We therefore, restore the matter to the file of the Assessing Officer for verification of the nature of expenditure mentioned above. The details filed before us shall be furnished by the assessee before the Assessing Officer who shall verify the same from the original record seized by the department and then allow the claim which is verified to be of revenue nature and found to be not accounted for in the fair cash book.

22. Regarding the addition of Rs. 32,19,082 on account of suppressed sales pertaining to assessment years 1986-87 to 1993-94, we are unable to accept the proposition of Mr. Pathak that no addition whatsoever can be made for earlier years. There cannot be any dispute to the proposition canvassed by him that no addition can be made for earlier years unless there is evidence to show the suppression of sales in those years. The addition cannot be made on mere suspicion. But if there is material or evidence to show the same, then certainly addition can be made. In our opinion, material or evidence need not be direct and it may be indirect or circumstantial evidence. In the present case, there is circumstantial evidence available in the form of statements of the assessee as well as its staff. The cumulative effect of the statements of Mr. Kulkarni, Sitaram Bhat and Shrinivas Bhat, in our opinion, clearly indicates that the assessee was suppressing the sales in earlier years also. There is no dispute that Mr. Sitaram Bhat and Mr. Kulkarni are employed with the assessee since beginning of the hotel business as is also apparent from their statements. Mr. Sitaram Bhat, Manager of the firm has admitted by giving a categorical statement that he was managing the sales counter and had been writing rough cash book wherein the actual sales were incorporated. The entries of the expenditure made by him were also incorporated therein. Question No. 9 and answer thereto is very relevant wherein it has been admitted by him that he had been maintaining such cash book in the above manner since his employment.

23. The above statement is corroborated by the statement of accountant Mr. Kulkarni, which was recorded much after the date of search i.e., 27-9-1995. It has been admitted by him that rough cash book was maintained by the management and on the basis of such rough cash book, he used to prepare the fair cash book by suppressing the figures of sales and expenditure recorded in the rough cash book (question Nos. 4, 5 and 6). A specific question being question No. 8 was asked about the basis of maintaining cash book prior to financial year 1993-94. It was stated by him that Mr. Sitaram Bhat used to give him slip of papers containing the sales of the day and he used to enter the very same amount in the fair cash book. The answer to question No. 9 suggests that he used to enter those purchase bills which were sufficient to cover the sales. He further stated in answer to question No. 10 that slips of earlier years from 1974 to 1992 had been torn off. Then, a specific question No. 11 was asked "since when Mr. Sitaram Bhat has given you instructions to show only half the expenditure of milk and vegetables" ? A clear statement was given by him that these instructions were being since 1974. Mr. Shrinivas Bhat in his statement dated 13-9-1995 had stated that rough cash book was being maintained by the firm. Such rough cash books for the financial year 1993-94 onwards were kept in a room while for earlier years these were destroyed (answer to question Nos. 4 and 5). In his earlier statement dated 12-9-1995 he had stated that he paid ‘on money’ of Rs. 4,00,000 on the purchase of flat for his daughter in 1991 and the same was paid out of accumulated suppressed business profits of the firm.

24. A combined reading of these statements shows that the assessee was not recording sales and expenditure correctly even in earlier years. A fair cash book was being written by the Accountant Mr. Kulkarni on the basis of material supplied by the Manager Mr. Sitaram Bhat. It is immaterial whether such material was in the form of rough cash book or slips. Since these were destroyed, the same could not be found in the search. But the fact remains that the assessee was maintaining the rough cash book and was not recording the correct sales and expenditure in the earlier years. Mr. Shrinivas Bhat, a partner of the firm, has stated clearly that rough cash books for the earlier years were destroyed.

25. Mr. Pathak’s reliance was on the answer to question Nos. 5 and 7 given by Mr. Kulkarni where he has stated that instructions to show lesser sales and expenditure was actually with effect from 1993. He also relied on the statement of Mr. Sitaram Bhat that there were slips of papers showing daily sales from 1993-94 and the statement of Mr. Kulkarni to the effect that he used to enter the very same amount in the fair cash book. In our opinion, while weighing the evidence, the entire evidence on record has to be considered as a whole and no conclusion can be drawn on the basis of a particular question and answer. We have already indicated that a partner of the firm himself has stated that rough cash book and other records of the earlier years were destroyed by him. His own statement under section 132(4) that payment of Rs. 4.00 lakhs as ‘on money’ paid in 1991 out of accumulated undisclosed profit of business corroborated the fact that he was not showing the correct profits in the earlier years. Mr. Sitaram Bhat has also clearly stated in answer to question No. 9 that rough cash book was being maintained in the similar manner since he was employed with the firm. In view of these specific admissions, it is futile to contend that there was no evidence or material for suppression of sales and expenditure in the earlier years. In our opinion, the assessee cannot get advantage of his own wrongs.

26. The contention of Mr. Pathak that there was violation of principles of natural justice is also not well founded. We find from the statement of Mr. Kulkarni that Assessing Officer had already allowed Mr. Shrinivas Bhat to cross examine Mr. Kulkarni which he refused. There is no evidence on record to suggest that Mr. Bhat was asked to sit outside the office and he did not know the contents of the statement. Even assuming that he did not know the contents, there is no dispute that statement of Mr. Kulkarni was supplied to the assessee and this fact was admitted before us. It was also admitted before us that the assessee never asked the Assessing Officer to allow the cross examination of Mr. Kulkarni. In these premises, it cannot be said that principles of natural justice were violated.

27. In view of the above discussions, we hold that rough cash book was being maintained by the assessee in the earlier years and it was not recording the sales and expenditure correctly. Consequently, the Assessing Officer was justified in estimating the sales of earlier years. Keeping in view the figures of suppressed sales for assessment years 1994-95 to 1996-97 we are of the view that estimate of 30 per cent of the returned sales adopted by the Assessing Officer was fair and reasonable. In view of the above finding, it is not necessary for us to discuss the case law and the circular relied upon by the parties.

28. However, in our opinion, the approach of the Assessing Officer treating the entire sales as undisclosed income is clearly erroneous, illegal and against the basic principles of Income-tax law. It has been found that the assessee was not only suppressing the sales but also not showing the correct expenditure. In view of these facts, the Assessing Officer could only estimate and assess the profits arising out of the suppressed sales. We therefore, set aside the addition and restore the matter to the file of the Assessing Officer for estimating the reasonable profits on estimated suppressed sales on the basis of material on record and then assess the same as undisclosed income.

29 to 43. [These paras are not reproduced here as they involve minor issues].

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