Per Shri B.L. Chhibber (Accountant Member).—The assessee was a partnership firm formed on 28-7-1987 but the same was dissolved with effect from 31-3-1992 which was doing the business of Beer Bar and Permit Room. A search and seizure action under section 132 was conducted on 27-6-1996 at the business premises and the residence of group of Shenvi cases.

2. In response to notice under section 158BC the assessee filed an income-tax return declaring undisclosed income at Rs. 2,00,000. The block assessment order was made on 27-6-1997 determining the total undisclosed income of Rs. 6,95,650. Aggrieved by the order of the Assessing Officer, the assessee is in appeal before us. Three grounds have been raised. The same are discussed and disposed of as follows :

3. Ground No. 1 reads as follows :

"The learned ACIT was not justified in including in the hands of the appellant the suppressed food sales and gross profit thereon in spite of the fact that the appellant had a licence only as a Beer bar and was not permitted to sell any food items. The ld. ACIT was not justified in concluding that the food sales shown in the seized record in fact represented sales of snacks and basing on that his estimate of suppressed sales and G.P.

The appellant submits that suppression of sales and the G.P. thereon on account of food items was not the undisclosed income of the appellant and addition made on that account may kindly be deleted."

4. During the course of search, a diary (Mohan Meken Ltd.) was found and seized at the residence of Shenvi family, viz. Sitasadan. Shenvi family was running Samrat Beer Bar since 1-4-1988 and Samrat Dining since 23-6-1988, both at one premises at 511/KH, New Shahupuri, Kolhapur. Though the diary did not indicate that it contained entries relating the assessee, the partner admitted that the entries may be related to Samrat Beer Bar and Samrat Dining (vide answer to question No. 16 of the Statement of Shrikant S. Shenvi dated 23-8-1996). As per the rules regulating the Bars, a liquor cannot be served where food is served. In the diary information regarding the sales of Bar and sales of food for the period from 28-9-1988 to 25-8-1989 was found. They were separately mentioned in two places. Samrat Beer Bar (assessee) sells beer, liquor and readymade items like groundnut, chana, cold drinks etc. Another firm of the Shenvi family, Samrat Dining which cooks and sells food, dinner etc. is situated in the same building. Samrat Beer Bar and Samrat Dining are partitioned only by a glass wall and both are managed by the same Manager. Before the Assessing Officer the assessee contended that during the period for which the sales are recorded in the diary, the assessee was selling only Beer, Cold drinks and snacks and not food. In this connection, the assessee furnished a copy of the Beer Bar licence issued in 1984-85 and renewed upto 1991-92. The assessee claimed that the sales of food refer to Samrat Dining where the food is sold. However, this claim of the assessee was rejected by the Assessing Officer on the ground that the assessee "has not been able to adduce any evidence in support of the claim". The Assessing Officer states in para 7 in 23rd line on page 3 of the assessment order that "on the perusal of the returns of income for the assessment years 1989-90 and 1990-91, it can be seen that there are two trading accounts. One under the heading ‘Production Trading Account’ and the other under the head ‘Beer Trading Account’. Apparently, the production means snacks and other food that they were permitted to sell." The Assessing Officer concluded that the "assessee has not been able to ‘conclusively’ prove this stand that sales of ‘food’ mentioned in the diary in fact relate to Samrat Dining." In para 10 on page 4 of the assessment order, the Assessing Officer states as follows :

"The total sales of ‘food’ and ‘Bar’ taken together for the period 28-9-1988 to 31-3-1989 for 185 days are Rs. 5,44,268. The average sales works out to Rs. 2,942 per day (Rs. 5,44,268 divided by 185 days). The yearly sales, therefore, comes to Rs. 10,59,120 (Rs. 2,942 × 360 days)."

In para 11 on page 4 of the assessment order, the Assessing Officer states as follows :

"Similarly, for the assessment year 1990-91 the sales recorded in the diary for the period from 1-4-1989 to 25-8-1989, i.e. for 147 days are at Rs. 5,80,583. The average sales comes to Rs. 3,949 per day i.e. (Rs. 5,80,583 divided by 147 days). The yearly sales on this average basis works out to Rs. 14,21,820 (Rs. 3,949 × 360 days)."

He held that the net profit of 40% will be fair and reasonable on such suppressed sales in view of the following factors :

(a)The business of the assessee firm is situated in the heart of the city closed to the bus stand and railway station where there is sufficient inflow of tourist as well as usual public;

(b)The hotel enjoys very good reputation;

(c)The hotel is open from morning to mid-night; and

(d)The percentage of profit is always on the higher side where unaccounted business transactions are carried on.

When the Assessing Officer put up the matter on applying 40% to the suppressed sales, the assessee submitted that the percentage of profit cannot be 40% but will have to be taken at 23% for the assessment year 1989-90 and 27% for the assessment year 1990-91 which is the average gross profit declared in the two Trading Accounts Rejecting the arguments of the assessee, the Assessing Officer applied the rate of 40% and worked out the additions aggregating to Rs. 6,95,649 as per the following details in para 14 on page 5 of the assessment order :

A.Y.		Actual sales for the year determined as disclosed above		Sales recorded and shown in the R/I		Suppression of sales		Undisclosed income 40% N.P.
1989-90		Rs. 10,59,120		Rs. 3,40,196		Rs. 7,18924		Rs. 2,87,569
1990-91		Rs. 14,21,820		Rs. 4,01,621		Rs. 10,20,199		Rs. 4,08,080
						Rs. 17,39,123		Rs. 6,95,649

5. Shri K.A. Sathe, the learned counsel for the assessee submitted that Samrat Beer Bar is a partnership consisting of four partners, viz.

1.Smt. Pushpamala Jagadale;

2.Shri Shrikant S. Shenvi;

3.Sou Shama Shenvi;

4.Sou Uma Shenvi;

and Samrat Dining is owned by four partners, viz.

1.Shri Ramesh S. Shenvi;

2.Shri Satish S. Shenvi;

3.Smt. Saroja S. Shenvi;

4.Sou Sudha S. Shenvi.

Samrat Dining was started on 26-6-1988 and Samrat Beer Bar was started just earlier.

It is further submitted that the learned Assessing Officer was not justified in including in the hands of the assessee the suppressed food sales and gross profit thereon in spite of the fact that the assessee had a licence only as a Beer Bar and was not permitted to sell any food items. Even otherwise, except the statement of the partner who linked the diary with Samrat Beer Bar and Samrat Dining, the learned Assessing Officer had no positive material to connect the diary only to Samrat Beer Bar. Therefore, the Assessing Officer was not justified in holding that the food sales shown in the seized record in fact, represented sales of snacks and based on that his estimate of suppressed sales and G.P. is unwarranted. He drew our attention to Rule 18 of the Bombay Foreign Liquor Rules, 1953 which reads as under :

"Combination of other business not permitted - The trade and import licensee shall not in any case combine the business of the sale of foreign liquor with any other business in or on the same premises."

The rule 37 also prohibits any other business. Besides Rule 51(1) sale of foreign liquor in any place other except in the licensed premises which does not allow the assessee to serve liquor in dining hall. Further Rule 51 and under section 52(1) restricts the sale of foreign liquor only to permit holders. He further submitted that the Assessing Officer has also verified that the sale of food is of Samrat Dining and that sale of Samrat Dining had been included in the sale of food noted in the seized diary. The sale of food of Samrat Dining for the year ended 31-3-1989 is Rs. 7,70,603 and the sale which can be calculated from the seized diary upto 31-3-1989 is Rs. 2,07,370. Further, the sale of food of Samrat Dining from 1-4-1989 to 31-3-1989 is Rs. 9,09,113 which includes the sale of food calculated from diary of Rs. 2,05,419. In this connection, he drew our attention to P & L a/c enclosed on page WS-19. The sales as per Books of Account of Samrat Dining and as per seized diary are as follows :

Period	Sales of food as per books of account of Samrat Dining	Sale of food as per seized diary
28-9-1988 to 31-3-1989	Rs. 3,56,252	Rs. 2,07,370
1-4-1989 to 25-8-1989	Rs. 2,92,092	Rs. 2,05,419

He, therefore, submitted that there was no justification in including in the hands of the assessee the suppressed sales and G.P. thereon in spite of the fact that the assessee had a licence only as a Beer Bar and was not permitted to sell any food items.

6. Shri Adhir Jha, the learned D.R. relied upon the order of the Assessing Officer.

7. We have considered the rival submissions and perused the facts on record. From the arguments of the assessee it is clear that neither the Law allows the food to be prepared and served at Samrat Beer nor the assessee prepared and served any food. The assessee served only readymade products like cold drinks, groundnuts, chana and alike snacks. The assessee is not having any cooking facilities or arrangements to prepare food. Also there was no need to prepare the food here because the same was available at immediately next door at Samrat Dining. The Assessing Officer has accepted that there are two trading accounts of Samrat Beer Bar, one under the heading Production Trading Account and other under the head Beer Trading Account and he has observed that production means snacks and other food that they were permitted to sell. In other words, the Assessing Officer has accepted that only cold drinks and general food like groundnuts are sold and classified as production trading in Samrat Beer Bar. This food sale can only be of Dining sale. Therefore, the Assessing Officer has erred in taking the ‘food’ mentioned in the diary as relating to cold drinks and snacks relating to Samrat Beer Bar, only because it is written in the same diary. He has ignored the fact that both Samrat Dining and Samrat Beer Bar were in the same premises partitioned only by a glass wall and managed by the same Manager. Under the circumstances, we hold that the Assessing Officer is not justified in including in the hands of the assessee the suppressed food sales and gross profit thereon. This ground accordingly succeeds and the addition made for the suppressed sales and gross profit thereon is deleted.

8. Ground No. 2 reads as follows :

"The ld. ACIT further erred in estimating that there was suppression of sales to the extent of 70% of the actual sales. The said estimate based on only some few days of the seized material was not called for. The estimate of suppressed sales of the Beer Bar are excessive and the same requires to be substantially reduced. The estimate of G.P. at the rate of 40% also is equally excessive and the same may kindly be taken at a reasonable figure. In view of this, the appellant submits that the undisclosed income shown by the appellant at Rs. 2,00,000 for the block period may kindly be accepted."

9. As per the seized diary, there were suppressed sales of Beer etc. for the period from 29-8-1988 to 25-8-1989. The Assessing Officer states that the "assessee would have continued the same pattern of suppressing the sales even for the broken periods for the financial year. Therefore, the average sales are worked out to determine the yearly sales. Therefore, he worked out the suppression of sales at 70% and by applying the rate of 40% worked out the profit along with the profit worked out as aforesaid as discussed in ground No. 1 (supra). The assessee had shown undisclosed income at Rs. 2,00,000 for the block period but the Assessing Officer did not give any credit for the same and added the profit on entire sales both on Beer bar and Samrat Dining as undisclosed income of the assessee firm.

10. Shri K.A. Sathe, the learned counsel for the assessee submitted that the said estimate based on some of the seized material was not called for. The estimates of suppressed sales of the Beer Bar are excessive and the same require to be substantially reduced. The estimate of G.P. at 40% is also equally excessive.

11. Shri Adhir Jha, the learned D.R. submitted that though the suppressed sales as per the seized diary pertain to the period 29-8-1988 to 25-8-1989, the assessee would have continued the same pattern for suppressing the sales even for the broken periods and accordingly the action of the Assessing Officer is justified in view of the judgment of the Apex Court in the case of CST v. H.M. Esufali H.M. Abdulali [1973] 90 ITR 271.

12. We have considered the rival submissions and perused the facts on record. In our opinion, there is no justification for the presumption raised by the Assessing Officer that the assessee must have suppressed the sales. In the entire block period, particularly when no material was found in the course of search to this effect. The only material found was the entries of the suppressed sales in the diary which related to the period 29-8-1988 to 25-8-1989. Thus the suppression of sales has to be limited to the period from 29-8-1988 to 25-8-1989. We also do not approve of the average multiplication formula adopted by the Assessing Officer. We also do not agree with the learned D.R. that the ratio laid down in the case of H.M. Esufali H.M. Abdulali (supra) will apply to the facts of the present case, because it is a search case in which the search party is supposed and expected to find out all the incriminating documents, material as also undisclosed assets. A search assessment, much less a block assessment, therefore, stands on a footing different than a normal assessment much less an assessment based on the best judgment of an Assessing Officer. In this view, we are supported by the decision of the Allahabad Bench of the Tribunal in the case of Dr. R.M.L. Mehrotra v. Asstt. CIT [1999] 68 ITD 288 . It would be worthwhile to reproduce para 26 of the said decision which reads as under :

"26.Now passing on the multiplication formula adopted by the Assessing Officer, we find ourselves unable to accord our nod to it. In the first place, one should not forget that it is a search case in which a search party is supposed and expected to find out all the incriminating documents, material as also undisclosed assets. A search assessment, much less a block assessment, therefore, stands on a footing different than a normal assessment much less an assessment based on the best judgment of an Assessing Officer. It is for this reason that the ratio of the Apex Court decision reported in the case of H.M. Esufali H.M. Abdulali [1973] 90 ITR 271 would not come to the rescue of the Department, as there it was a sales-tax matter and a best judgment assessment was required to be made. The material that the Sales-tax Officer was possessed of was the figure of 19 days sale by the assessee not entered in their books of account. The Summit Court held that in such situation it was not possible for the Officer to find out precisely the turnover suppressed and he could only embark on estimating the suppressed turnover on the basis of the material before him, in which some amount of guesswork was inevitable. In contradistinction to these facts, in the present case, the assessee was searched (emphasis supplied). During this search, firstly, no other diary or other record comparable to the notebook marked as "B-1/23" were found by the search party for the remaining period, which normally would have been were it being maintained and kept. We are conscious that such a record could have been destroyed also from time to time. But in such a situation also, if the assessees had actually made a fortune of similar receipt in respect of the remaining part of the year, they must be reflected by certain assets, movable or immovable ought to have been found during the course of search. No such assets, despite the extreme step of search which amounts to a serious invasion on the rights of subjects and which is perhaps the last weapon in the arsenal of the Department, were found, which could be attributed to any such patently hypothetical receipts. In view of this we are unable to concur with the Department to the multiplication formula adopted by the learned Assessing Officer."

13. In view of the above position, we direct the Assessing Officer to restrict the suppressed sales for the period from 29-8-1988 to 25-8-1989. As regards the application of 40% by the Assessing Officer we find the same is very excessive. Under the similar circumstances, in the case of Urvashi Kohlapur v. Asstt. CIT (Inv) Cir. 1(2) in [IT (SS) A. No. 87 (Pune) of 1987], we have held that the application of rate of 12% will be fair and reasonable. But since the assessee itself made a request before the Assessing Officer to apply the G.P. rate at 23% for assessment year 1989-90 and 27% for assessment year 1990-91 which are the average G.P. declared in the two Trading Accounts, we direct the Assessing Officer to apply the same rate, i.e. 23% for assessment year 1989-90 and 27% for assessment year 1990-91. The Assessing Officer is directed to work out the addition on the suppressed sales as per our directions given above and if the addition so worked out is less than Rs. 2,00,000 then no addition would be called for, because the assessee has declared undisclosed income at Rs. 2,00,000. If the addition so worked out exceeds Rs. 2,00,000 then only the difference between such addition worked out and Rs. 2,00,000 would be added. This ground accordingly succeeds in part.

14. Ground No. 3 reads as under :

"The appellant craves leave to add, alter, omit or substitute any of the above grounds at the time of hearing of the appeal."

Obviously this ground is general in nature and calls for no interference.

15. In the result, the appeal is allowed in part.

Per Singhal (JM)

16. After going through the order proposed by my learned Brother, I am unable to agree with his view discussed in paras 12 and 13 of his order that no estimate can be made on suppressed sales in the block assessment made under the provisions of Chapter XIV-B and consequently the addition on account of suppressed sales is to be restricted to the actual suppression found on the basis of material seized or found in the course of search. This very issue arose for our consideration in the case of K.M. Khopade in [ITA(SS) 281 (Pune) of 1997 dated 9-2-1997] and we could not arrive at a unanimous view. My learned Brother was of the view that addition on account of suppressed sales or income arising therefrom is to be restricted to actual suppressed sales on the basis of material found or seized in the course of search. I was, however, of the view that estimate could be made in respect of suppressed sales or income arising therefrom in the block assessment under Chapter XIV-B. Therefore, for the reasons given by me in that case, it is hereby held that estimate of suppressed sales can be made in block assessment and consequently, the Assessing Officer was justified in estimating the suppressed sales. It is not the case of the assessee that estimate made by the Assessing Officer is irrational or without any nexus. Therefore, the order of the Assessing Officer is upheld on this issue, however, subject to exclusion of the sales relating to food as held by my Brother, to which there is no dispute. The other part of the order of my learned Brother relating to the application of the net profit is also agreed and accepted by me. Accordingly, I allow the appeal of the assessee partly.

THIRD MEMBER ORDER

Per Shri R.V. Easwar, Judicial Member - The following difference of opinion has been referred to me under section 255(4) of the Income-tax Act, 1961 for my decision :

"whether on the facts and circumstances of the case, the suppression of sales has to be limited to the period from 28-9-1988 to 25-8-1989 on the basis of entries of the suppressed sales in the diary found during the course of search which related to the period from 28-9-1988 to 25-8-1989 or such suppression of sales has to be estimated for the assessment years 1989-90 and 1990-91?"

2. The brief facts may be noticed. The assessee is a partnership firm engaged in the business of running a beer bar and permit room. The firm was established on 28-7-1987 and dissolved w.e.f. 31-3-1992. There was a search under section 132 of the Act on 27-6-1996 at the business premises. In the course of the search, a diary was found at the residence of Shenvi family which was running the beer bar since 1-4-1988. The diary contained certain entries from 28-9-1988 to 25-8-1989. It is not in dispute that the entries related to the assessee. The entries contained information regarding the sale of liquor and sale of food.

3. In response to notice under section 158BC, the assessee filed a return of income declaring undisclosed income of Rs. 2 lakhs. The Assessing Officer while processing the return, noticed that there were entries in the diary for the period 28-9-1988 to 25-8-1989 relating to suppressed sale of beer etc. and on the basis of these entries, he concluded that the assessee would have continued the same pattern of suppressing the sales even for the broken periods for the financial year. He worked out the suppression of sales at 70% and applying the rate of 40% as gross profit, arrived at the profit which was not disclosed to the income-tax authorities at Rs. 2,87,569 for the assessment year 1989-90 and Rs. 4,08,880 for the assessment year 1990-91, comprised in the block period. The total addition thus came to Rs. 6,95,649.

4. The assessee appealed to the Tribunal and contended that the estimate based on the seized material was not called for, that at any rate the estimate was excessive and required to be substantially reduced. On behalf of the department, it was contended that though the actual entries related only to the period 28-9-1988 to 25-8-1989, it would be a reasonable inference that the assessee would have continued the same pattern for suppressing the sales even for the broken period. It was, therefore, contended on the basis of the judgment of the Supreme Court in the case of H.M. Esufali, H.M. Abdulali (supra) that the estimate made by the Assessing Officer was fully justified.

5. The ld. Accountant Member (AM) who wrote the leading order held that a search assessment or a block assessment stands on a different footing from a normal assessment and that in the absence of any material to show that the assessee had suppressed the sales for the entire block period, an estimate of such sales cannot be made on the basis of the entries contained in the diary found during the search. According to him, the suppression of sales should be limited to the period 28-9-1988 to 25-8-1989. He did not also approve of the average multiplication formula adopted by the Assessing Officer. In reaching this conclusion, the ld. AM referred to the order of the Allahabad Bench of the Tribunal in the case of Dr. R.M.L. Mehrotra (supra).

6. For the above reasons, the ld. AM directed the Assessing Officer to restrict the suppressed sales for the period 28-9-1988 to 25-8-1989. As regards the application of the rate of profit, he found the rate of 40% adopted by the Assessing Officer to be excessive. Therefore, following certain other orders of the Tribunal, he directed the Assessing Officer to apply the rate of 23% for the assessment year 1989-90 and 27% for the assessment year 1990-91.

7. The ld. Judicial Member was unable to agree with the aforesaid conclusion of the ld. AM. He was unable to agree with the view of the ld. AM that no estimate can be made on suppressed sales in the block assessment made under the provisions of Chapter XIVB. He referred to an earlier order of the Tribunal in the case of K.M. Khopade (supra) wherein a similar view taken by the ld. AM had been dissented from by him. According to the ld. Judicial Member (JM), an estimate can be made in respect of suppressed sales or income arising therefrom even in a block assessment made under Chapter XIVB. He referred to the reasons given by him in his dissent in K.M. Khopade’s case (supra), and held that in the present case, the Assessing Officer was justified in estimating the suppressed sales. He therefore upheld the order of the Assessing Officer on this issue, subject to the exclusion of the sales relating to food, as held by the ld. AM. He also agreed with the ld. AM regarding the rate of profit to be applied.

8. Thus, the difference between the ld. JM and the ld. AM is only in respect of the issue as to whether in an assessment under Chapter XIVB of the I.T. Act, the Assessing Officer is empowered to estimate the suppression of sales for a larger period on the basis of the diary found showing suppression of sales for a particular period comprised in the block period ?

9. Before I proceed to give my decision on the basis of the arguments advanced before me, a few further facts have to be noticed. According to the seized diary, the total sales in the food section and the bar section for the period 28-9-1988 to 31-3-1989 relevant for the assessment year 1989-90 came to Rs. 5,44,268. The Assessing Officer worked out the average daily sales at Rs. 2,942 (Rs. 5,44,268 divided by 185 days). He thereafter multiplied the average daily sales by 360 to arrive at the sales for the year ended 31-3-1989 which came to Rs. 10,59,120. Similarly, he worked out the sales for the previous year ended 31-3-1990 at Rs. 14,21,820. He compared this with the sales of Rs. 3,40,196 for the assessment year 1989-90 and Rs. 4,01,621 for the assessment year 1990-91 as recorded in the books and shown in the return of income. On this basis, the suppressed sales was arrived at Rs. 7,18,924 and Rs. 10,20,199 respectively for the assessment year 1989-90 and 1990-91 on which 40% was applied as net profit.

10. I have heard the rival contentions. It may straightaway be clarified that so far as food items are concerned, there is no difference between the ld. JM and the ld. AM that the sales thereof should be excluded from consideration. There is also no difference with regard to the rate of profit to be applied. The only difference is with regard to the question as to whether an estimate of suppressed sales for the whole period can be made, based on the entries contained in the seized diary.

11. The ld. counsel for the assessee sought to distinguish the view taken by the ld. JM in K.M. Khopade’s case (supra) by pointing out that in that case the ld. JM has himself stated that the seized record was not complete because there were materials to indicate that the seized record itself was not complete and therefore, it was, that the ld. JM in para 134 of the order has taken the view that it is possible to estimate suppressed sales even in a case of block assessment based on the seized materials. My attention was drawn in particular to paras 132 to 134 to show that the seized materials themselves were not complete and there was inherent evidence to show this position, and if that is the position, it is possible to estimate the income based on such inherent evidence. The ld. counsel for the assessee, however, submitted that in the present case, there is no such inherent evidence to show that the seized material itself was not complete and therefore, it is not possible to estimate the suppressed sales.

12. I must now notice that the difference of opinion between the Members constituting the Bench which heard K.M. Khopade’s case (supra) was referred to the Third Member who has agreed with the view taken by the ld. JM in that case. That is, the Third Member has upheld the view that in a block assessment, it is open to the Assessing Officer to estimate the suppressed income for a longer period on the basis of the materials indicating suppressed sales for a lesser period, and consequently to estimate the income on that basis. Referring to this order, the ld. counsel for the assessee pointed out that the facts of the present case are different in the sense that in the present case, there is nothing to show that the seized material is not a complete record to suppressed sales and that the assessee had other records showing suppressed sales which were not found in the course of the search. According to him, if the only material that is found showing suppressed sales is the diary, the Assessing Officer can only take the figures of suppressed sales as per the diary and he cannot estimate further suppressed sales on the basis of the entries in the diary.

13. The ld. counsel for the assessee further submitted that the view taken by the ld. Third Member [K.M. Khopade’s case (supra)] overlooks the omission of section 145 in clause (b) of section 158BC. It is submitted that the Legislature had advisedly excluded the applicability of section 145 to a block assessment and therefore the view of the Third Member that section 145 also applies to block assessment is erroneous. With reference to the view of the ld. Third Member that it is inherent in section 143(3) that the Assessing Officer can estimate the income, the ld. counsel for the assessee pointed out that this view is erroneous since separate provision such as section 144, section 145 etc. have been made for estimating the income and section 143(3) itself cannot be stated to empower the Assessing Officer to estimate the income.

14. The ld. counsel for the assessee relying on the Gujarat High Court decision in N.R. Paper & Board Ltd. v. Dy. CIT [1998] 234 ITR 733/ 101 Taxman 525 contended that a block assessment is very much different from a regular assessment under the normal provisions of the Income-tax Act and this position has also been clarified by the Finance Act, 1998, by inserting an Explanation below sub-section (2) of section 158BA. Accordingly, it was contended that a block assessment has to necessarily be framed on the basis of the evidence found during the search and nothing beyond that, as otherwise, it will frustrate the very object of introducing special provisions for assessment in search cases. He contended that though the Assessing Officer is empowered to estimate the income for the purpose of quantifying the same, it can be done only on the basis of the evidence actually found during the search and it is not open to the Assessing Officer to assume that the assessee must have earned more income over and above what has been shown by the seized material. In other words, the contention is that if the Assessing Officer finds material or evidence to show suppression of income, he can estimate the income on the basis of such evidence or material in the absence of any indication as to the exact amount of income earned, but it is not open to the Assessing Officer even in the absence of any evidence or material found in the course of search, to guess or presume that there must be further suppression and the assessee must have earned income therefrom. If there are materials or evidence, the income can be estimated; but if there are no materials or evidence, such material or evidence cannot be imagined or presumed to exist and the income cannot be presumed or suspected to have been earned therefrom. This is what was vehemently contended on behalf of the assessee. In support of his contentions, the ld. counsel for the assessee also relied on the Allahabad High Court judgment in CIT v. Mahesh Chand [1993] 199 ITR 247 and the order of the Tribunal (Third Member) reported in D.N. Kamani (HUF) v. Dy. CIT [1999] 70 ITD 77 (Pat.)(TM).

15. The ld. DR submitted that the facts in Khopade’s case were not different and even in that case, the ld. Third Member has held that even in the absence of any evidence, the Assessing Officer is empowered to estimate the income. He submitted that the facts of the assessee’s case are similar to the facts in K.M. Khopade’s case (supra) and therefore the same decision is applicable. In this connection, he drew my attention to the judgment of the Supreme Court in the case of Union of India v. Raghubir Singh [1989] 178 ITR 548 and pointed out that I as Third Member do not have the power to differ from the Third Member’s view expressed in K.M. Khopade’s case (supra). Reference was also made to the judgment of the Supreme Court in the case of Paras Laminates (P.) Ltd. v. Customs, Excise & Gold (Control) Appellate Tribunal [1990] 183 ITR 167 (Delhi). The ld. DR also submitted that the power of estimation is inherent in section 143(3) itself as held by the ld. Third Member in Khopade’s case and that an intelligent or honest guesswork is permissible even in a block assessment and the only condition is that the principles of natural justice must be followed and the assessee should be given an opportunity of meeting the case. With regard to the reliance placed by the ld. counsel for the assessee on the judgment of the Gujarat High Court (supra), the ld. DR submitted that the decision was not relevant for the present controversy.

16. The ld. DR further pointed out that the question posed before me has nothing to do with the quantification of the income and all that I have to decide is whether the suppression of sales has to be limited to the period for which the diary has been written up or whether such suppression of sales can be estimated for the accounting periods relevant to the assessment years 1989-90 and 1990-91.

17. Reliance was also placed by the ld. DR on the order of the Third Member in the case of Overseas Chinese Cuisine v. Asstt. CIT [1996] 56 ITD p. 67 (Bom.) (TM).

18. In reply, the ld. counsel for the assessee agreed that the question of quantification of the income was not before me. He however clarified that estimate of the income in a block assessment is possible only if there are materials or evidence to indicate that such income has arisen and no such estimate can be made in the absence of any such material.

19. On a careful consideration of the rival contentions, I am inclined to agree with the view taken by the ld. AM. In K.M. Khopade’s case (supra), the ld. JM himself says in para 132 of his order that apart from the records which were seized during the search, there were certain other records from which entries were made in the Bharna register and that such other records might not have been found in the course of the search due to various reasons including the destruction of the same by the assessee. In the same paragraph, the ld. JM has also referred to three instances showing availability of unaccounted cash receipts outside Bharna registers or diaries or loose papers found in the course of the search and has held that this leads to the only conclusion that the seized material is not the complete record of unaccounted transactions. According to the ld. JM in K.M. Khopade’s case (supra), the assessee had certain other record of unaccounted transactions which was not found in the course of the search, of which there was sufficient indication in the seized record itself, as was clearly shown by the three instances referred to by him. It was in this background that in paragraph 134, the ld. JM posed the question thus :

"Having held that the seized record is not the complete record of unaccounted transactions, the question which arises is whether these facts justify the estimation of undisclosed income ?"

He then proceeded to refer to various judgments of the Supreme Court to hold that since there were indications that the seized record was not the complete record of unaccounted transactions and since there were instances to show that the assessee did earn income from certain other transactions, an estimate of such income from those other transactions had to be necessarily made. Thus, in my view, the facts on which the opinion of the ld. JM, with whom the learned Third Member agreed, was based, were entirely different from the facts obtaining in the present case. To recapitulate, in K.M. Khopade’s case (supra), there were materials to indicate that the seized material was not the complete record of unaccounted transactions and that the assessee had certain other record of such transactions which could not be traced in the course of the search. No such evidence which would show suppression of sales in respect of the period other than the period 28-9-1988 to 25-8-1989 has been found in the course of the search. There is no other indication to suggest that the seized diary was not exhaustive of the unaccounted transactions relating to sale of liquor. Under such circumstances, the decision in K.M. Khopade’s case (supra) is clearly distinguishable and is not applicable to the facts of the present case.

20. The above view of mine is sufficient to dispose of the present dispute, but I will refer to only one argument canvassed by the ld. counsel for the assessee on the basis of the judgment of the Gujarat High Court in N.R. Paper & Board Ltd.’s case (supra). It was argued on behalf of the assessee that a block assessment was wholly different from a regular assessment and the yardsticks which are to be applied to regular assessments while estimating the assessee’s income cannot be automatically incorporated into the provisions dealing with a block assessment. Reliance was placed in support of this contention on the judgment of the Gujarat High Court in the case of N.R. Paper & Board Ltd. (supra). At page 742 of the report, the Hon’ble High Court has held that the assessment of undisclosed income under Chapter XIV-B is altogether a different matter from the regular assessments. It is pointed out that under section 158BB, for computing the undisclosed income of the block period, the Assessing Officer has to compute the total income of the relevant previous years on the basis of the evidence found as a result of search or requisition of books of account or documents and such other materials or information as are available with the Assessing Officer. The High Court proceeds to observe that the evidence found under section 132 and section 132A would constitute the evidence found as a result of search etc. The statements made before the authorised officer during the search would also constitute evidence. The evidence gathered by the authorised officer under section 132 along with the other material seized, marked or inventoried would be available before the Assessing Officer when he exercises his power to assess the undisclosed income. This evidence found and material available should be the basis for computing the undisclosed income. These observations do indicate that in the very scheme of a block assessment, any guess work or estimate is excluded from reckoning. The position would however be different, if as happened in the case of K.M. Khopade (supra), there is inherent evidence in the seized material itself to show that the seized material is not the complete record of unaccounted transactions or where there are indications to show that the assessee had certain other record of unaccounted transactions which was not unearthed in the course of the search. To hold that even in the absence of any such evidence or material, the Assessing Officer would be empowered to estimate the income is fraught with dangerous consequences. The very purpose of a search is to take the assessee by surprise and to assess his income on the basis of the evidence and materials found during the search. Once the rationale behind the search is kept in view, it would be clear that the law presumes that the assets or materials found in the course of the search are exhaustive of the undisclosed income of the assessee. The Assessing Officer is no doubt empowered to estimate the undisclosed income earned by the assessee, but the estimate is possible only when there is material or evidence found during the search to unmistakably show that such income has been earned. The Assessing Officer cannot presume that there must be some other material or evidence which is not found during the search and the assessee must have derived undisclosed income therefrom. For example, if documents relating to purchase of a property by the assessee in Marine Drive, Bombay, which has not been disclosed to the Income-tax department are found during the search, the Assessing Officer is undoubtedly empowered to estimate the investment made in the purchase of the said property, if the precise figure of investment is not available. However, he cannot presume that the assessee must have similarly purchased properties in Nariman Point or in Bandra or in Pune, merely because one property in Marine Drive was purchased by the assessee without disclosing the investment to the income-tax authorities. That would be possible if, for instance, there is a noting in the same document or there is some material or evidence to the effect that the assessee had made an investment in a property also in Nariman Point. That noting or material would constitute evidence on the basis of which the Assessing Officer would be empowered to estimate the investment. This is what had happened in K.M. Khopade’s case (supra). However, in the present case, the only material available is the diary which contains entries for a particular period relating to sale of liquor not disclosed to the department. There is no indication anywhere in the seized record to show that even in respect of the other periods, the assessee was maintaining such a diary which was for some reason or the other not found in the course of the search. Had there been any such indication or evidence apart from a mere presumption, the Assessing Officer would have been certainly within his rights to make an estimate of that income also. In that situation, the present case would have clearly been caught within the ratio of K.M. Khopade’s case (supra).

21. I make it clear that I am not entering into the controversy as to whether the provisions of section 145 can be read into the provisions of Chapter XIV-B or whether section 143(3) itself empowers the Assessing Officer to estimate the income even in search cases. The ld. counsel for the assessee had also contended on the basis of section 158BC(b) that section 145 does not find mention therein. He had also contended that the true import of section 158BH which was relied upon by the ld. Third Member in K.M. Khopade’s case (supra) is that all other provisions of the Act will apply to an assessment which has been made under Chapter XIV-B, which means that the recovery and collection proceedings etc. which come into operation after the assessment is made are applicable to the block assessment and such provisions do not include section 145. Not only is it unnecessary to enter into such controversy in the view I have taken on the facts of the present case, but it would also be improper for me to seek to question the correctness or otherwise of the view taken by the majority in K.M. Khopade’s case. As I have already pointed out, the facts of the present case are different from the facts of K.M. Khopade’s case (supra). The view taken by the ld. Third Member in Khopade’s case with regard to the applicability of section 145 and section 143(3) giving the power to the Assessing Officer to estimate the assessee’s undisclosed income must be understood in the background of the facts in that case. It is unnecessary therefore for me nor would it be proper to decide these points in the present case.

22. For the aforesaid reasons, I agree with the conclusion of the ld. AM.

23. The appeal will now go before the regular Bench for passing orders on the basis of the majority view.

Per Chhibber, Accountant Member.—The learned Judicial Member, Shri R.V. Easwar, sitting as Third Member, by his opinion dated 12-6-2000 has concurred with the views of the Accountant Member. In accordance with the majority view, the directions contained in para 13 of the order of the Accountant Member stand. The appeal is allowed in part.