ORDER

Per Diva Singh, Judicial Member. - This is an appeal filed by the revenue against the order dated 16-1-2006 of CIT(A)-II, Agra pertaining to 2002-03 assessment year wherein the following grounds have been raised by the revenue :—

"(1) That the learned Commissioner of Income-tax (Appeals)-II, Agra has erred in law and on facts in deleting the addition of Rs. 96,181 made on account of difference between value of stock as per inventory of stock taken by the survey team and value of stock worked out by the assessee as it has been accepted by the assessee that there was difference of 0.61 per cent and assessee did not oppose addition of difference of Rs. 3 lakhs under the same head.
(2) That the learned Commissioner of Income-tax (Appeals)-II, Agra has erred in law and on facts in deleting the addition of Rs. 79,069 (Rs. 76,069) made on account of suppressed sales (sales estimated at Rs. 4,30,00,000 against disclosed sale of Rs. 4,25,50,982) in view of the facts that assessee could not explain blank bills and reason for low sale in comparison to preceding years.
(3) That the learned Commissioner of Income-tax (Appeals)-II, Agra has erred in law and on facts in deleting the addition of Rs. 7,62,485 made on account of entry in the loose papers found in the factory premises during the survey proceedings in spite of the fact that partner surrendered the amount in the statement recorded during the survey proceedings as he could not explain the same.
(4) That the decision of learned Commissioner of Income-tax (Appeals)-II, Agra being erroneous in law and on facts deserves to be quashed and that of the Assessing Officer deserved to be restored.
(5) That the appellant craves leave to add or alter any or more ground or grounds of appeal as may be deemed fit at the time of hearing of appeal."

2. The relevant facts of the case are that the assessee derives income from manufacturing of Diesel Engines. Survey under section 133A was conducted at the business premises of the assessee on 16-5-2001. On the said date inventory of books of account, bills etc., stock and assets found at the premises were prepared. The survey team valued the finished goods and raw material at Rs. 93,68,405. On the other hand, as per the trading account prepared by the assessee till the date of confirmation worked out to Rs. 67,64,568. A perusal of the Assessment Order shows that a large number of old blank cheques issued by different parties were also found. Cash of Rs. 2,10,500 was also found as against which cash balance as per the books of account of the assessee was Rs. 2,10,824.

3. At the time of survey the statement of Shri Radha Raman, one of the partners of the assessee-firm was recorded and he was required to reconcile the stock found at the time of survey with reference to the stock register. However, he expressed his inability to reconcile and surrendered additional income of Rs. 3,00,000 on account of difference in petty stock.

4. The Assessing Officer perusing the return of income declaring an income of Rs. 2,52,670 after issuing notice under sections 143(2) and 142(1) along with questionnaire etc. required the assessee to furnish the details of information along with books of account, bills, vouchers etc. found at the time of survey.

5. The necessary details and information were filed by the assessee. It was also submitted that all the purchases and sales are supported by bills and books of account. However, it was submitted that to cover up the difference in value of stock a surrender of Rs. 3,00,000 was made at the time of survey.

6. The Assessing Officer being of the view that since the difference in stock as on date came to Rs. 3,96,181 and the assessee had surrendered only amount of Rs. 3,00,000, difference of Rs. 96,181 was added to the income of the assessee as unexplained investment in the stock.

7. The Assessing Officer further observed that there was a decline in sales when compared to the preceding financial years. The following computation chart and sales G.P. and G.P. rate were referred to by him:—

8. The Assessing Officer was of the view that the assessee has not been able to explain the decline in sales. He was also of the view that since a large number of blank bills in the name of persons doing job work, painting etc. were found at the premises of the assessee. Accordingly the possibility of inflating job work/assembly charges/painting charges etc. could not be ruled out. Apart from the fact that there was difference in stock as compared to the book what was found at the time of survey not only in terms of number of items but in terms of values. Accordingly, he was of the view that the books of account of the assessee was not correct and complete and they were rejected under section 145(3). In this background, the Assessing Officer was of the view that the method of working out the income of the assessee is to estimate the sales and apply G.P. rate. Thus since there were unaccounted purchases, he was of the view that there must be unaccounted sales also. Therefore, the sales were estimated at Rs. 4,30,00,000 as against Rs. 4,25,50,982 shown by the assessee. The G.P. rate disclosed was 17.99 per cent which was applied thereto and the G.P. which worked out to Rs. 77,35,700 as against Rs. 76,56,631 declared by the assessee was taken note of. Accordingly an addition of Rs. 79,069 to the trading result shown by the assessee was made.

9. Apart from this the Assessing Officer also on the basis of a paper marked 64/107 of Annexure-A9 found at the time of survey observed that it contended entries of Rs. 7,42,485 and cash of Rs. 20,000. The said belonged to Radha Raman and the assessee-firm was confronted with this paper by the survey team and he was required to explain the nature and source of investment. Shri Radha Raman in his statement surrendered an amount of Rs. 8,00,000 on the basis of this paper. The relevant portion of the statement is reproduced at page 2 of the Assessment Order. (loosely translated it reads as under:-)

"during the survey this paper which has been shown to you in which Rs. 7.42 lakhs is recorded on both sides. What do you have to say about it. Apart from this from the other room in your office amount of Rs. 20,000 has been found does it pertains to this account is"

10. In reply thereto the said partners of the assessee-firm as per the statement reproduced has accepted. His statement reproduced in the order may be translated in the following manner:—

"Whatever has been found in this paper I accept the same as my undisclosed income and the amount found from the other room is also accepted as my undisclosed income. As such, an amount of Rs. 8,00,000 is surrendered by me. On this amount whatever tax is worked out in the year I shall accordingly as per rules make the payments thereof. On the said I shall claim a refund and against some other loss."

11. In view of the fact that the assessee had not disclosed the surrendered income the Assessing Officer required the assessee to explain the reasons thereto. A perusal of the Assessment Order shows that the assessee put forth the following explanation:—

"In respect of paper No. 64/107 observed by the survey team on 16-5-2001 and later on the statement of the one of the partner of the assessee-firm to link the surrender of an amount of Rs. 8,00,000 whatever stated during survey time was absolutely under mental pressure and under the unwritten and untold compulsion of the survey team. The higher income-tax authorities were intimated after the survey about the retraction that the statement of the one of the partner were taken under force and pressure and shall not have any binding on the assessee-firm or any of the partner of the assessee-firm and that the income of the assessee or any of its partners must be assessed on the merit of the case and search material if it is contrary to the anything recorded in the books of account. This is an established law that the criteria of assessment must be based on logical, evidential and correct calculation of the incomes of the assessee and not the undue pressure tactics. The so-called paper on which a figure of Rs. 7,42,485 was written is absolutely nothing to do with any concealed investment or income of the assessee or any of the partners of the assessee-firm. In a trade and industrial environment of an enterprises which running into operations of several crores of rupees of purchases, sales, banking operations, debtors and creditors it is highly amazing that any amount written on paper will constitute the incomes of the assessee. Moreover when this paper do not have any denotation or title or description on the top or middle or at the end of the paper. The calculation on the paper may or may not be related to the business transaction of the assessee. If it was the concealed or undeclared incomes of the assessee or any of its partner the survey team must have taken further evidence to that regard and must have put them on statement recorded of partner, which they never did. They never asked any further question on that regard before coming to any conclusion of treating them as the concealed incomes declared later on during survey operation. This paper belongs to the supplies or purchases made by the assessee-firm. The script writing on the paper does not belong to any of the partner of the assessee-firm. In any case it is highly inconsistent on the part of the survey team to not take any further details of that particular so-called investment at the survey time itself because no such information existed at that time. This clearly show that the acts of the survey team were biased were not done in good faith and consistent to normal practices and natural justice and done merely for limited purpose of forced admission of the partner of the assessee-firm that this paper belongs to the undeclared income of the assessee or partner of the assessee-firm. Assessee-firm and partner of the assessee-firm have full right to retract with their own admission in view of it. Assessee-firm and partner of the assessee-firm have full right to retract with their own admission in view of it. Assessee-firm on their own motion and on behalf of the all partners do hereby undertake that no investment of any nature on any movable or immovable assets out of the books of account and/or out of the concealed incomes of the assessee or its partners was made in any year. Assessee has declared all their incomes in the respective return of the incomes for financial year 2001-02 filed to your office on 31-10-2002 which was legally verified as true and correct and paid the income-tax thereon accordingly and acquired all assets of any nature out of his declared incomes only. Assessee would like to place reliance on the Hon'ble SC order in the matter of Pullangode Rubber Produce Co. Ltd. v. State of Kerala [1973] 91 ITR 18 (SC) . It was held in this case that "An admission is an extremely important piece of evidence but it cannot be said that it is conclusive. It is open to the assessee who made the admission to show that it is incorrect". Further in the matter of Nagubai Armal v. Shama Rao AIR 1956 SC 100 it was held by Hon'ble SC that "An admission is not conclusive as to the truth of the matters stated therein. It is only a piece of evidence, the weight to be attached to which must be depend on the circumstances under which it is made. It can be shown to be erroneous or untrue." Further in the matter of Krishan Lal Shiv Chand Rai v. CIT [1973] 88 ITR 293 (Punj. & Har.) it was held that "It is an established principle of law that a party is entitled to show and prove that the admission made by him probably is in fact not correct and true."

12. Not convinced by the explanation offered, an addition of Rs. 7,62,485 was made by the Assessing Officer in the following manner:—

"I have considered the reply of the assessee but there is no force in the same since the partner Shri Radha Raman had surrendered on his own the investment contained/noted in the above referred paper, the firm cannot escape from the statement of partner. So the amounts noted in the above paper which comes to Rs. 7,62,485 is treated as unexplained and will be added to the income of the assessee as unexplained investment."

13. Aggrieved by this the assessee went in appeal before the First Appellate Authority. In regard to the addition of Rs. 96,181 agitated by ground No. 1 of the revenue it was submitted on behalf of the assessee that survey team valued and compared the stock on a hypothetical figure of stock extrapolated on the basis of G.P. rates. It was also submitted that even if the finding of the survey team is considered then the actual stock found was less than the stock found declared in the books of account of the assessee. Accordingly the assessee could not have been charged for making investment which are not recorded in the books of account. As such, in the facts as they stand, the action of the Assessing Officer in invoking the provisions of section 69 was held to be not legally correct as it could not be said that for the declared stock assessee could be charged for making investments which are not recorded in the books. It was contended that it has been ignored by the Assessing Officer that the stock register was available despite this fact the survey team chose to compare the value of the closing stock with the value of the notional stock computed on the basis of incorrect G.P. It was submitted that it is a well-known fact that G.P. is not consistent in the same year for all the months for any assessee it varies according to the market conditions etc. Moreover, it is also well-known that the G.P. vary from year to year in the case of the assessee. In the fact of the assessee's case it was argued has varied in the last two years when compared to the current year from 17.80 to 17.99 per cent. Thus, the estimation of the stock based on the G.P. to compare the same with the stock found ignoring the stock register available was an incorrect method.

14. Apart from this it was submitted that in the valuing of the closing stock by the survey team an arithmetical error has occurred as per the Annexure prepared by the survey team to the extent of Rs. 46,460 in pages 3 and 8 of the Annexure-6. Thus, it was argued, if this arithmetical error is reduced the total stock valued on 16-5-2001 will work out to Rs. 94,04,865.

15. It was also submitted that the Assessing Officer cannot presume and force a business entity to run their business exactly on G.P. basis and draw adverse inference thereon simply because for shorter period considered during the survey the G.P. shown therein did not match with the average G.P. for the entire years.

16. It was also submitted that in the peculiar trade of the assessee where the assessee has on record dealt in hundreds of items which are used in the manufacture of Diesel Engine. The diesel engine can be of different horse powers as such the items used vary moreover. It was submitted that even in the same type of diesel engine the item costs would vary due to the fact of who is the manufacturer of the specific part used. On account of the use of items of different suppliers the cost can vary from 1 to 15 per cent whereas the difference between value of hypothetical stock to the actual stock is only 3.68 per cent. In the facts the actual facts have been completely ignored. It was submitted that when the surrender of Rs. 3 lakhs is accepted by the assessee is taken into consideration the difference would work out to a mere 0.61 per cent. Referring to the survey team itself it was submitted that there were many items and the value of closing stock as per stock register was ignored and the survey team instead itself wrote that they are valuing the same by approximation. In these peculiar facts the difference of 0.61 per cent it was argued in the value of notional stock when compared to the actual stock cannot be added to the income of the assessee.

17. These submissions are found recorded at pages 2, 3 and 4 of the impugned order.

18. Considering these the CIT(A) directed the Assessing Officer under section 250(4) of the Act to verify the facts submitted by the assessee.

19. As per the material available on record, the Assessing Officer did file a report dated 21-9-2005 furnishing comments and finding on other issues however he remained silent on the issue of addition on account of discrepancy in the stock.

20. However, the assessee vide its Rejoinder dated 11-9-2005 as per para 3 of the impugned order submitted that the basis of the addition is not that investments over and above what was recorded in the books of account of the assessee was found but instead the addition is based only on a hypothetical figure of the stock estimated by the survey team. It was also contended that the G.P. of any organisation cannot be fixed for any year or part of the year and determination of closing stock on the basis of GP of the earlier year can give an incorrect valuation. Accordingly, the very basis of the valuation taken by the survey team being based on the approximation basis it was argued is not a 100 per cent correct method so as to justify an addition. The fact that the nature of the various parts dealt with by the assessee has price variation on account of the manufactures of the said item which numbers in tens and thousands was reiterated. Further the survey team could not value the stock accurately in fact itself had resorted to approximation. It was also submitted that out of hundreds of paper taken by the survey team all transactions were answered by the assessee and were found recorded in the books of account and not even a single paper was found relating to the business transaction of the assessee which could not be answered by the assessee. Moreover, the Assessing Officer has remained silent in regard to the arithmetic inaccuracy of Rs. 46,460 pointed out. The reliance placed upon the survey team upon so-called trading account prepared for one month and 16 days was never placed on record according to the assessee and was merely an out of book exercise by the survey team. It was also contended that the same was not even shown to the assessee. The fact that April and part of May the period considered is normally a lean period for the assessee and application of uniform rate for the entire year on this basis was faulted with. These facts and submissions are found recorded at page 5 of the impugned order. Considering these the addition of Rs. 96,181 was deleted by the CIT(A) with the following reasoning:—

"(3.3) I have carefully considered the facts of the case and the submissions of the AR. In my view the appellant deserves to succeed. The facts of the case clearly indicate that valuation done by the survey team was not accurate and it was in slip shod manner. The appellant has pointed out arithmetical error of Rs. 4,640 in the inventory prepared by the survey team which was found correct. Even otherwise, it was not humanly possible to value each and every spare part with, finer precision. It is also an admitted fact that after valuing the stock survey team has confirmed it with hypothetical figure of closing stock extrapolated by utilizing earlier year G.P. rate. The earlier year G.P. rate was for full year and using the same parameter on the result of business operation for 1½ month cannot give accurate figure. In spite of these shortcomings, difference between actual and estimated stock was only 0.61 per cent. Considering the aforesaid fact, the amount surrendered by the appellant is sufficient to cover any discrepancy in stock and further addition made by the Assessing Officer was not warranted. In view of this, addition of Rs. 96,860 made by the Assessing Officer is deleted."

21. Aggrieved by this, the revenue is in appeal before the Tribunal.

22. The learned D.R. in the context of ground No. 1 placed reliance upon the Assessment Order. It was submitted by him that the surrender of Rs. 3 lakhs made by the assessee at the time of survey was honoured by him. However, on account of the difference in the valuation as per the survey team and as per the books of account of the assessee the addition of Rs. 96,181 was warranted. However, learned D.R. was required to address the Bench in regard to the arithmetical error pointed out by the assessee before the CIT(A) which had been referred to the Assessing Officer by the CIT(A) in response to which the Assessing Officer had continued to remain silent which fact has been taken note of by the CIT(A). However, the learned D.R. confined himself to the finding in the Assessment Order. He was also unable to address the Bench about the assertion of the assessee before the Assessing Officer and the CIT(A) that the valuation taken by survey team was based on estimation on the basis of the G.P. of the earlier years and approximation.

23. Learned A.R. on the other hand heavily relied upon the impugned order and the submissions advanced by the assessee reproduced in the impugned order and the rejoinder filed on behalf of the assessee it was his submission that a very detailed arguments have been advanced before the Assessing Officer and the CIT(A) which have been taken into consideration by the CIT(A). As such, heavy reliance has been placed upon the same.

24. We have heard the rival submissions and perused the material available on record. On a careful consideration of the same, we find ourselves in the peculiar facts and circumstances of the case unable to came to any contrary finding. The revenue has not made any attempt to establish on facts that there was no arithmetic error which has been agitated by the assessee and confronted to the Assessing Officer and taken into consideration by the CIT(A) in granting relief. The revenue has also not made any attempt to rebut the consistent argument of the assessee and the finding of the CIT(A) that the valuation made by the survey team is based on approximation and not on actuals and in fact has been extrapolated on the basis of G.P. of the earlier years. In the peculiar facts and circumstances of the case as they stand, we find no good reason to interfere with the impugned order. Ground No. 1 raised by the revenue as such is rejected.

25. In regard to the second issue addressed by the revenue, the relevant finding of the Assessing Officer has already been considered in the earlier part of this order. Aggrieved by this, addition of Rs. 79,069 on account of rejection of books of account of the assessee under section 145(3) of the Act and the resultant estimation of sales thereon to which G.P. rate disclosed by the assessee was applied. The assessee contended before the CIT(A) that he has maintained all necessary books of account and has been getting the accounts duly audited as per the statutory requirement under section 44AB of the Act.

26. It was also submitted that detailed explanation in regard to the reasons for the decline in sales was furnished in the course of the assessment proceedings itself. It was explained that the blank bills found at the time of survey belonged to various contractors who undertook work for the assessee in regard to painting in regard to persons doing job work of painting etc. Despite this fact the books of account were rejected and sales were estimated on an imaginary and hypothetical basis. In fact it was submitted that the G.P. rate shown by the assessee despite a decline in the sales had increased to 17.99 per cent were compared to 17.93 per cent in the immediately preceding assessment year i.e. in 2001-02 assessment year and 17.80 per cent in 2000-01 assessment year. Considering these submissions, addition was deleted by the CIT(A) observing as under :—

"(4.2) I have carefully considered the facts of the case, the submission of the AR and in my opinion, the appellant deserves to succeed. The Assessing Officer has rejected the books of account of the assessee on the ground that assessee has not furnished any explanation regarding decline in sales, large number of blank bills were found at the time of survey and there was difference in stock valued at the time of survey. The facts of the case clearly indicate that appellant has furnished explanation regarding decline of sales at the time of assessment proceedings. Moreover, mere decline of sales is not a sufficient ground for rejection of books of account. So far as blank bills and difference in stock is concerned, it has been explained by the appellant at the time of assessment proceedings and during the appellate proceedings also that blank bills found during the course of survey were in fact relate to various contractors working from the appellant premises. Similarly, the issue regarding difference in stock has already been dealt in detail in preceding paras. In view of these, reasons quoted by the Assessing Officer for rejecting the books of appellant are not justified. Moreover after rejecting the books the estimation of income was made by the Assessing Officer without any concrete basis for doing so. In case of Dhakeshwari Cotton Mill v. CIT 26 ITR 775 the Hon'ble Supreme Court had decided that once the books of account of the assessee are rejected then the profit has to be estimated on the basis of proper material available. However, the Assessing Officer is not entitled to make a pure guess and make estimation without reference to any evidence or any material at all. There must be something more than mere suspicion to support such addition. In case of appellant, the Assessing Officer has not referred any material or any evidence in support of estimation of sales at Rs. 4.30 crores as against sales declared by the appellant at Rs. 4.25 crores. The Hon'ble Supreme Court has reconfirmed the earlier stand in case of CIT v. K.Y. Pillai & Sons 64 ITR 411 where it has been decided that any lump sum add back to the trading result if found justified must be done in proper exercise of discretion objectively and judiciously on the basis of relevant material. In view of above judicial pronouncement and facts of the case, the addition made by the Assessing Officer on this account is not sustainable. I, therefore, delete the addition of Rs. 76,069 made by the Assessing Officer."

27. Aggrieved by this the revenue is in appeal before the Tribunal.

28. The learned D.R. though placed reliance upon the Assessment Order, however, he could not rebut the fact that the GP in the year under consideration despite a decline in the sales had increased. He could also not rebut the finding that the blank bills found during the survey pertained to various contractors working from the assessee's premises in regard to painting and other work of the Diesel Engines.

29. The learned A.R., on the other hand, relied upon the impugned order and the detailed submissions made before the Tax Authorities which has been taken into consideration by the CIT(A) and have been confronted to the Assessing Officer also.

30. We have heard the rival submissions and perused the material available on record and on a careful consideration of the same, we are of the view that in the peculiar facts and circumstances of the case, addition made by the Assessing Officer was not warranted. Merely because the sales were declining by itself was not a good reason for making the addition. The factum of availability of bills in regard to the job work and painting etc. done by the contractors from the assessee's premises has not been disputed by the revenue. Similarly the fact that when compared to the earlier years i.e. 2000-01, 2001-02 and in the year under consideration the GP has increased from 17.8 per cent to 17.93 per cent and 17.99 per cent respectively in the year under consideration despite the fact that sales have declined. Accordingly for the reasons, given herein above, the ground raised by the revenue in the peculiar fact and circumstances of the case does not have any merit and the same as such is rejected.

31. The next issue pertaining to addition of Rs. 7,62,485 based on loose paper marked 64 and 107 of Annexure-A9 which has been made the basis for the addition by the Assessing Officer has already been discussed in the earlier part of this order. In regard to this the submissions made on behalf of the assessee wherein it has been pointed out that on both these pages some numbered entries are recorded showing a balance figure of Rs. 7,42,485 out of which Rs. 5,60,100 was deducted and again the balance was shown at Rs. 1,82,485 which was further reduced by a figure of Rs. 1,30,000 leaving the final balance of Rs. 52,485. It was submitted that on these papers there was no narration, no name and no identification or signature of any person. In both the papers it was submitted the figures were identical however handwriting was different. Numerical entries recorded on these loose papers were as under :—

32. Reliance was placed to the statement of Radha Raman Agarwal recorded during survey proceedings.

33. In the course of appellate proceedings the addition was challenged on various grounds namely that these are mere notings and did not represent any form of investment either movable or immovable property nor does it reflect any transaction having taken place of any nature. As such it was contended that it is simply a piece of paper on which addition or subtraction of figures were noted without any narration. The action of the Assessing Officer in adding the same as unexplained investment merely on the ground that one of the partners of the assessee- firm has admitted so at the time of survey was assailed. The action of making the addition despite the fact that in the course of the assessment proceedings it has been explained to the Assessing Officer that the statement of one of the partners Shri Radha Raman Agarwal had been recorded under pressure and duress and as such is not binding. Reliance was placed on the retraction of the same made within five days by the said person vide letter dated 21-5-2001 which was made immediately 5 days after survey by Radha Raman Agarwal. The said letter was addressed to Joint Director, Income-tax Range-I, Agra. In view of the fact that there was no evidence by way of stamp intimating receipt of the same by the Department. The assessee was required to explain the same. The assessee continued to rely upon this letter as well as the decision of the Apex Court in the case of Pullangode Rubber Produce Co. Ltd. v. State of Kerala [1973] 91 ITR 18 for the proposition that an admission is merely an importance piece of evidence but it cannot be said to be conclusive and it is open to the assessee who made the admission to show that it is incorrect. In the facts of the present case it was contended on behalf of the assessee that on facts the admission was not justified as the said paper does not show that any concealed investment was made or income was earned by the assessee or any of the partners of the assessee-firm. Even the script writing on the paper does not belong to any of the partners. Reliance was also placed upon another judgment of the Apex Court in the case of Nagubai Ammal & Others v. B. Shama Rao & Others AIR 1956 SC 593 as well as the judgment of Punjab & Haryana High Court in the case of Krishan Lal Shiv Chand Rai v. CIT [1973] 88 ITR 293 .

34. On the basis of the above facts and position of law the following submissions were made on behalf of the assessee :—

"Paper No. 64/107 observed by the survey team on 16-5-2001 does not represent any form of investment in movable or immovable property or any transaction of any nature. It is simply plain paper on which sum additions and subtractions of figures are written.

Statement of the one of the partner of the appellant firm cannot be binding on all remaining partners when it relates to some materiality aspect. Statement of Partner Radha Raman Agarwal was also not given on behalf of the firm. That statement was made recorded by partner in his personal capacity only.

Statement of the partner was taken under absolute mental pressure and under the unwritten and untold compulsion of the Survey team. The higher income-tax authorities were intimated after the survey about the retraction that the statement of the one of the partner were taken under force and pressure and shall not have any binding on the assessee-firm or any of the partner of the assessee- firm and that the income of the assessee or any of its partners must be assessed on the merit of the case and search material if it is contrary to the anything recorded in the books of account.

This is an established law and applied practices that the criteria of assessment must be based on logical, evidential and correct calculation of the incomes of the assessee and not the undue pressure tactics.

The so-called paper on which a figure of Rs. 7,42,465 was written is absolutely nothing to do with any concealed investment or income of the assessee or any of the partners of the assessee-firm.

In a trade and industrial environment of an enterprises which running into operations of several crores of rupees of purchases, sales, banking operations, debtors and creditors it is highly amazing that any amount written on a paper will constitute the incomes of the assessee. Moreover when this paper do not have any denotation or title or description on the top or middle or at the end of the paper. The calculation on the paper may or may not be related to the business transaction of the assessee.

If it was the concealed or undeclared incomes of the assessee or any of its partner the survey team must have taken further evidence to that regard and must have put them on statement recorded of partner, which they never did. They never asked any further question on that regard before coming to any conclusion of treating them as the concealed incomes declared later on during survey operation.

This paper, most probably belongs to the supplies or purchases made by the assessee-firm. This is neither practicable nor possible for the appellant to look upon the thousands of accounts of debtors and creditors to match the figures of the papers to that account.

The script writing on the paper does not belong to any of the partner of the assessee-firm.

In any case, it is highly inconsistent on the part of the survey team to not take any further details of that particular so-called investment at the survey time itself because no such information existed at that time.

This clearly show that the acts of the survey team was biased and not done in good faith and consistent to normal practices and natural justice and done merely for limited purpose of forced admission of the partner of the assessee-firm that this paper belongs to the undeclared income of the assessee or partner of the assessee- firm.

Assessee-firm and partner of the assessee-firm had full right to retract with their own admission in view of the above which they did just after the conclusion of survey by making the intimation to the Joint Director. Appellant did not declared that amount of Rs. 8,00,000 on their return of income filed before the office of the ACIT Circle 4(1) on 31-10-2002. Appellant also did not deposited any Advance Tax on 15-9-2001, 15-12-2001 or 15-3-2002 as was said to be noted by the survey team in the forced statement of the one partner of the appellant.

Appellant-firm on their own motion and on behalf of the all partners do hereby further undertake that no investment of any nature on any movable or immovable assets out of the books of account and/or out of the concealed incomes or the assessee or its partners was made in any year. Assessee has declared all their incomes in the respective return of the incomes for financial year 2001-02 filed to your office on 31-10-2002 which was legally verified as true and correct and paid the income-tax thereon accordingly and acquired all assets of any nature out of his declared income only.

Reliance is also being made on the Hon'ble Supreme Court order in the matter of Pullangode Rubber Produce Co. Ltd. v. State of Kerala [1973] 91 ITR 18 . It was held in this case that 'An admission is an extremely important piece of evidence but it cannot be said that it is conclusive. It is open to the assessee who made the admission to show that it is incorrect'.

Further reliance is being placed in the matter of Nagubai Armal v. Shama Rao AIR 1956 SC 100 it was held by Hon'ble Supreme Court that 'An admission is not conclusive as to the truth of the matters stated therein. It is only a piece of evidence, the weight to be attached to which must be depend on the circumstances under which it is made. It can be shown to be erroneous or untrue'.

Further reliance is being placed in the matter of Krishan Lal Shiv Chand Rai v. CIT [1973] 88 ITR 293 (Punj. & Har.) it was held that 'It is an established principle of law that a party is entitled to show and prove that the admission made by him probably is in fact not correct and true'."

35. The above submissions were also referred to the Assessing Officer under section 250(4) by the CIT(A). The Assessing Officer as per his report is stated to have submitted that in regard to letter dated 21-5-2001 there is no such letter available on record and nor is there any material/noting to suggest that any such letter was filed by Shri Radha Raman Agarwal after the survey as such no cognizance of this letter it was submitted ought to be taken.

36. In the Rejoinder on behalf of the assessee it was submitted that the said letter was submitted in the office of the Joint Commissioner of Income-tax, Range-I, Agra. However, due to oversight or mistake the assessee had written Joint Director of Income-tax, Range-I in place of Income-tax Range-I. This minor mistake was said to be not a material defect.

37. It was also submitted in Rejoinder that statement of Shri Radha Raman Agarwal was in his personal capacity and otherwise also as far as the assessee-firm is concerned it is not binding. Apart from the above, submissions made before were also reiterated in the Rejoinder.

38. For ready reference relevant portion of the assessee's Rejoinder is reproduced in the impugned order is reproduced hereunder :—

"Retraction by the appellant of the statement given by one partner in their personal capacity which do not reflect the intention of the firm was evident by the fact that the same was submitted to the office of Joint Commissioner Range-1 Sh. Dileep Kumar, IRS. Due to oversight mistake appellant write the word 'Director' in place of 'Commissioner' which has no material effect.

Further appellant did not deposited any advance tax.

Further appellant also did not declare the same in their return of income of the relevant assessment year also.

Paper No. 64/107 observed by the survey team on 16-5-2001 does not represent any form of investment in movable or immovable property or any transaction of any nature. It is a simply plain paper on which sum additions and subtractions of figures are written.

Statement of the one of the partner of the appellant-firm cannot be binding on all remaining partners when it relates to some materiality aspect.

Statement of Partner Radha Raman Agarwal was also not given on behalf of the firm. That statement was made recorded by partner in his personal capacity only.

This is an established law and applied practices that the criteria of assessment must be based on logical, evidential and correct calculation of the incomes of the assessee and not the undue pressure tactics.

If it was the concealed or undeclared incomes of the assessee or any of its partner the survey team must have taken further evidence to that regard and must have put them on Statement recorded of partner, which they never did. They never asked any further question on that regard before coming to any conclusion of treating them as the concealed income declared later on during survey operation.

The script writing on the paper does not belong to any of the partner of the assessee-firm.

Appellant did not declared that amount of Rs. 8,00,000 on their return of income filed before the office of the ACIT, Circle 4(1) on 31-10-2002. Appellant also did not deposit any Advance Tax on 15-9-2001, 15-12-2001 or 15-3-2002 as was said to be noted by the survey team in the forced statement of the one partner of the appellant."

39. Considering these submissions, the CIT(A) deleted the addition of Rs. 7,62,485 for the following reasons :—

"(5.3) I have carefully considered the facts of the case, submissions of the AR and report of the Assessing Officer. In my opinion, the appellant deserves to succeed. The statement of Shri Radha Raman Agarwal was recorded in both the capacities of Director of M/s. Ravi Agriculture Equipment (P.) Ltd. as well as partner in appellant-firm besides as an individual. This fact is evident from the opening lines of statement recorded at the time of survey. The relevant portion of the statement is as under :—

'Statement on oath of Shri Radha Raman S/o Shri Late Kashi Prasad Aged about 54 years. Director of M/s. Ravi Agro Equipment Private Limited and partner in M/s. Ravi Agriculture Ind., Hathras Road, Agra recorded during the course of survey under section 133A of Income-tax Act on 16-5-2001.'

While answering, the question No. 1 Shri Radha Raman Agarwal has surrendered Rs. 8 lakhs as his undisclosed income. However, the entity in which the aforesaid surrender was made is not mentioned in his statement. Subsequently in question No. 3 he has been asked to explain whether he has also surrendered anything in the case of M/s. Ravi Agricultural Industries or not. In reply of which he submitted that he has surrendered Rs. 3 lakhs as undisclosed income in the aforesaid concern. The relevant portion is as under :—

"Prasna 3 - Ravi Agriculture Industries se bhi koi aaye samarpit ki hai?

Uttar 3 - Meiney uprokt firm mein petty stock mein bhi Rs. 3,00,000 ki aghoshit aaye mantey huay vit varsh 2001-02 mein surrender kiya hai"

Question No. 3 and answer to question No. 3 clearly indicates that the undisclosed income surrendered while replying question No. 1 was not in the hand of M/s. Ravi Agricultural Industries since Shri Radha Raman Agarwal has categorically stated in question No. 3 that he has surrendered Rs. 3 lakhs in the hand of appellant's firm. Therefore, contention of the appellant that the aforesaid surrender was made in individual capacity appears to be correct. Moreover, the Assessing Officer failed to establish concealment of income on the basis of any evidence or material gathered either during the course of survey or assessment proceedings indicating any evidence of unaccounted investment by the appellant to the tune of Rs. 7,42,485. Therefore, conclusion drawn by the Assessing Officer for treating the aforesaid amount as unexplained investment is not based on any material fact. Even at the time of survey Shri Radha Raman Agarwal was not probed further about nature of investment and nature of transactions relating to the aforesaid amount of Rs. 7,42,485. Without making any logical or conclusive enquiry and without collecting any evidence in this regard, the Assessing Officer has added the entire amount merely on the basis of statement of Shri Radha Raman Agarwal which was subsequently retracted since the appellant has not paid the advance tax and not included aforesaid amount while computing the total income of the concerned assessment year. Even if we ignore the alleged letter of the appellant submitted on 21-5-2001 retracting from the surrender, there are certain other ambiguity as noted above, regarding the manner in which the statement was recorded. During the course of assessment proceedings, the Assessing Officer has not made any attempt to even verify the status in which the statement was made and entity in which the aforesaid amount was surrendered. Either during the course of survey or during the assessment proceedings, no inquiries were made in respect of notings recorded on the aforesaid piece of paper. In fact balancing amount of the paper is Rs. 52,485 and not Rs. 7,42,485. A cursory glance clearly indicates that after crediting Rs. 7,42,485 in the aforesaid paper there are debit entry for Rs. 5,60,000 and Rs. 1,30,000. No inquiry was conducted by the Assessing Officer to ascertain the significance of these two debit entries and it was not explained why Rs. 7,42,485 was added instead of Rs. 52,465. During the course of assessment proceedings, appellant not only retracted from the surrender but also explained the circumstances in which the aforesaid statement was recorded. Vide his letter dated 23-3-2005 filed before the Assessing Officer appellant has submitted that if noting on the aforesaid piece of paper would have been concealed or undeclared income of the assessee, the survey team must have taken further evidence to that regard and must have put them on statement recorded of partner which they never did. It was explained by the appellant that this paper belongs to the supply or purchase made by the assessee-firm and writing on the paper does not belong to any of the partner of the assessee-firm. In spite of the aforesaid submission, the Assessing Officer has not made any enquiry in this regard and added the entire amount merely on the ground that there is no force in the assessee's contention since the partner Shri Radha Raman Agarwal had surrendered the aforesaid amount. While doing so the Assessing Officer has totally ignored the fact that even in his statement Shri Radha Raman Agarwal has never mentioned that the aforesaid income is being surrendered on behalf of M/s. Ravi Agricultural Industries. Moreover, wording of question No. 3 where Shri Radha Raman Agarwal was asked 'whether he has surrendered any income in Ravi Agricultural Industries also' clearly indicates that surrender of Rs. 8 lakhs in question No. 1 was not made by Shri Radha Raman Agarwal in capacity of partner of the firm M/s. Ravi Agricultural Industries. In this connection, reference may be made to the following decisions:—

(a) Hon'ble Supreme Court in the case of Pullangode Rubber Produce Co. Ltd. v. State of Kerala 91 ITR 18 has held that admission by assessee is not conclusive evidence and it is open to the assessee who made the admission to show that it is incorrect. During the course of appellate proceedings, the appellant rightly relied upon the aforesaid decision since in this case appellant has explained the circumstances in which the statement was recorded and also explained that noting on the aforesaid piece of paper has nothing to do with any unexplained investment by the appellant. By doing so, appellant has shifted the onus on the Assessing Officer to disprove aforesaid contention. However, the Assessing Officer failed miserably in doing so and added the entire amount, without making any inquiry, merely on the ground that Shri Radha Raman Agarwal has admitted the aforesaid amount as his undisclosed income during the course of survey proceedings.
(b) In case of Jayanti Lal Patel v. ACIT 23 ITR 568 the Hon'ble Rajasthan High Court has held that addition on the basis of a noting on a piece of paper cannot be sustained when it is not even in assessee's writing. The appellant's case is fully covered with aforesaid decision since the writing on the piece of paper was neither in the hand of Shri Radha Raman Agarwal or any other partner of the appellant firm.
(c) In the case of Manga Metal (P.) Ltd. v. ACIT 67 TTJ 247 (All.) it was held that burden is on the revenue to establish that figure appearing in the loose paper found in search constitute undisclosed income of the assessee.
(d) In case of CIT v. Mrs. Devi S. Luis 96 ITR 646 it was held that in spite of admission it is incumbent on the department to establish by relevant proof that amount in question was income in hand of the assessee. It was for the department to prove positively on the basis of other material that there was concealment of income.
(e) Similarly in the case of ACIT v. Staya Narain Agarwal 255 ITR 269, the assessee has given an admission that a particular amount has constituted his income. Such statement was made during the survey operation. It was held that the admission was not conclusive, the amount cannot be included in the income of the appellant.

In view of the aforesaid judicial pronouncements and the facts of the case that statement of Shri Radha Raman Agarwal was not recorded in proper manner, it was not brought on record that Shri Radha Raman Agarwal is surrendering the aforesaid amount in the hand of the appellant, in contrary, the question No. 3 of the statement indicates that surrender by Shri Radha Raman Agarwal was certainly not in the hand of appellant-firm and the fact that no further enquiry was made by the Assessing Officer during the course of assessment proceedings and no material or evidence was brought on record to prove that noting on the aforesaid piece of paper indicate unexplained investment of the appellant, the addition is unjustified and not sustainable. In view of this, I, therefore, delete the addition of Rs. 7,62,485 made on this account by the Assessing Officer."

40. Aggrieved by this, the revenue is in appeal before the Tribunal.

41. Learned D.R. placed reliance upon the Assessment Order. However, the factual finding on record namely that the statement of Shri Radha Raman Agarwal was recorded in both the capacity of Director of the company as well as partner in the assessee-firm and also in the individual capacity was not disputed. Further the finding of the CIT(A) that during the survey or for that matter in the assessment proceedings no enquiries were made in respect of noting mentioned in the paper linking the same to any investment or transaction has also not been rebutted by the revenue. The fact that after subtracting the balancing figure is Rs. 52,485 as per the reproduction of the impugned paper at page 8 of the impugned order which has been reproduced in the earlier part of this order was also not assailed by the learned DR. The CIT(A) has taken cognizance of the fact that even for a moment the letter of retraction written within 5 days is ignored the fact remains the ambiguities in regard to the manner in which statement was recorded namely in the individual capacity and director coupled with the fact that the figures mentioned neither during the survey or thereafter have been linked with any investment or income by the Assessing Officer has not been assailed. As such, these facts were also not addressed by the learned DR who has chosen to place reliance only on the Assessment Order.

42. Learned AR on the other hand placed heavy reliance upon the detailed findings based upon the detailed reasons advanced before the Assessing Officer and the CIT(A).

43. We have heard the rival submissions and perused the material available on record. In the facts as they stand which have been addressed at length in the earlier part of this order which have not been assailed by the revenue we find ourselves unable to come to any contrary view. On a perusal of the reproduction of the impugned paper cognizance of which has been taken by the Assessing Officer. It is seen that the balancing figure is Rs. 52,465 and how the addition of Rs. 7,42,485 has been made has not been addressed by the revenue at all. Apart from the fact that a surrender of Rs. 8 lakhs odd was made by the partner Shri Radha Raman Agarwal, the fact that the surrender was made in the individual capacity as well as the capacity of the director. In the facts of the present case, we find ourselves in concurrence with the finding of the CIT(A) on the basis of material on record as we find no basis in the Assessment Order to show as to how the amounts and figures mentioned in the piece of paper can be linked with the assessee in the facts as the narration is not in the handwriting of any of the partners of the firm as has been agitated by the assessee and has not been rebutted by the revenue either before the CIT(A) or before us. Moreover, the figures also have not been linked with any undisclosed investment etc. Thus, even if the letter of retraction allegedly within 5 days is ignored for a moment as considered by the CIT(A) the fact remains that in the Assessment Order also no effort has been made to discuss and link the amounts with the assessee. As considered by the CIT(A) no enquiry or material in the course of either survey proceedings or assessment proceedings have brought on record to justify the addition. The position remains the same as no efforts were made even before the Bench to justify, that this photocopy of the document pertained to transactions of the assessee relatable to investment etc., which have not been disclosed by the assessee. No such attempt has been made by the revenue before the Bench. As observed, the factum of surrender made by Shri Radha Raman Agarwal in different capacity has also not been assailed. Thus, on account of the peculiar facts and circumstances of the case which have been reproduced in the earlier part of this order and has been elaborately discussed at length, accordingly for the reasons given hereinabove, we find no good reason to interfere with the reasoning arrived at by the CIT(A). Being satisfied with the said findings, ground No. 3 raised by the revenue is also rejected.

44. In the result, appeal filed by the revenue is dismissed.

ORDER

Per B.R. Jain, Accountant Member. - Unable to agree with the findings and conclusion reached by my learned colleague, I proceed to write my separate order.

2. Briefly, the facts are that the assessee is engaged in the business of manufacture of diesel engines. A survey under section 133A of the Income-tax Act, 1961, was carried at the business premises of the assessee on 16-5-2001. The survey team took inventory of stocks and valued the same, at Rs. 93,68,405. The assessee himself prepared a trading account and worked out the inventory of stock of the value of Rs. 97,64,586. The statement of its partner Shri Radha Raman was also recorded. He was required to reconcile the stock difference with reference to stock register maintained by the assessee-firm. The assessee, however, showed its inability to reconcile the stock and accordingly, surrendered an amount of Rs. 3,00,000 on account of unexplained investment in the stock. Blank cheques, blank bills and other loose papers were also found.

3. During the course of assessment proceedings, the Assessing Officer required the assessee to explain difference in the stock. The assessee being unable to give any explanation stated that he had already surrendered a sum of Rs. 3,00,000. Accordingly an addition of Rs. 96,181 has been made for unexplained investment in the stock. The same stood deleted by the learned CIT (Appeals).

4. The Assessing Officer also rejected the accounts by invoking provisions of section 145(3) of the Act for the following reasons:—

(i) The sales of assessee during the year under consideration have declined to Rs. 4,25,50,982 as against Rs. 5,24,62,410 when compared to the immediately preceding year. No explanation regarding decline in sales was furnished by the assessee.
(ii) A large number of blank bills in the name of persons doing job work, painting etc., were found at the premises of the assessee which were taken to indicate that the assessee has inflated the job work, assembling charges and painting charges.
(iii) Difference in quantity as well as in value of various items of stock were found during the course of survey and the assessee admitted unexplained investment of Rs. 3,00,000 only on that account.

5. He, therefore, applying the provisions of section 145(3) of the Act, estimated the sales at Rs. 4,30,00,000 as against Rs. 4,25,50,982 disclosed by the assessee and a gross profit of Rs. 77,35,700 was worked out by applying G.P. rate declared at 17.99 per cent by the assessee. The difference in gross profit worked out at Rs. 77,35,700 with the gross profit disclosed at Rs. 76,56,631 was worked out at Rs. 76,069 and as such, a trading addition to that extent has been made.

6. This action of the Assessing Officer was assailed in appeal by raising grounds in appeal before the learned CIT (Appeals) as under:—

"7. That in framing the assessment, the Ld. ACIT has grossly erred in rejecting the account of the assessee-firm under section 145(3) and making the addition of Rs. 79,069 on the sales estimates at Rs. 4,30,00,000 against the declared sales of Rs. 4,25,50,982.

8. That even otherwise also Ld. ACIT failed to appreciate that assessee gave explanations about anything found at the time of survey during assessment proceedings. Further Ld. ACIT never gave opportunity of being heard in respect of any matter related to which additions were made by them in framing their assessment order."

7. The learned CIT (Appeals) after considering the facts and material on record held that the reasons quoted by the Assessing Officer for rejection of books of assessee are not justified. The assessee has furnished explanation regarding decline in sales at the time of assessment proceedings. Mere decline of sales is not sufficient ground for rejection of accounts. So far as blank bills and difference in stock is concerned, the assessee explained during the course of assessment proceedings that blank bills relate to various contractors working from the appellant's premises. As regards difference in stock, the same has already been dealt in earlier ground where unexplained investment for Rs. 96,181 has not been found and the addition on that account stands deleted. Furthermore, after rejection of account books, the estimation of income was stated to have been made by Assessing Officer without any concrete basis. He, therefore, deleted the addition of Rs. 79,069 made by the Assessing Officer. Aggrieved with the decision to delete addition of Rs. 79,069, the revenue has taken following ground in appeal :—

"2 That the learned Commissioner of Income-tax (Appeals)-II, Agra has erred in law and on facts in deleting the addition of Rs. 79,069 (Rs. 76,069) made on account of suppressed sales (sales estimated at Rs. 4,30,00,000 against disclosed sale of Rs. 4,25,50,982) in view of the facts that assessee could not explain blank bills and reason for low sale in comparison to preceding years."

8. The ld. Departmental Representative while assailing the order of ld. CIT (Appeals) contends that the Assessing Officer had rejected the accounts by giving valid reasons. After evaluating the entire material and facts on record, he estimated the sales at Rs. 4,30,00,000 as against sales of Rs. 4.25 crores declared by the assessee and by applying the same profit rate declared by assessee, an addition of Rs. 76,069 has been made but the ld. CIT (Appeals) without giving any basis for deleting the addition or even without making verification of facts himself accepted the pleas of assessee made before him on its face value itself. The addition so deleted, therefore, needs to be restored.

9. On the other, hand, the assessee's counsel relies on the findings reached by the ld. CIT (Appeals) and supports, the decision reached by him.

10. I have heard the parties and perused the material on record carefully. Under the peculiar facts of this case, I do not find myself in agreement with the reasoning and conclusion reached by learned CIT (Appeals) to delete the addition of Rs. 76,069 made by the Assessing Officer by rejecting the accounts and estimating the sales for the year under consideration. It is admitted position that difference in stock both in quantity and value have been found at the time of survey at the business premises of the assessee on 16-5-2001. The assessee was not able to reconcile the stock found at the time of survey with the stock recorded in the stock register maintained by it. Accordingly, he surrendered a sum of Rs. 3,00,000 on account of unexplained investment in the stock. The record reveals that the assessee himself prepared a trading account and worked out book stock at Rs. 97,64,586 as on the date of survey on 16-5-2001 as against which the stock actually found was at Rs. 93,68,405. The Assessing Officer after considering the explanation found that there was difference in stock to the extent of Rs. 3,96,181 out of which Rs. 3,00,000 stands already declared by the assessee as unexplained investment in the stock, the difference of Rs. 96,181 was added to assessee's income as unexplained investment in the stock. The learned CIT (Appeals) deleted the said addition as there was no such unexplained investment of Rs. 96,181 that could be added to the income of the assessee. The admitted fact, however remains that unexplained investment to the extent of Rs. 3,00,000 that came to be surrendered by the assessee is not denied. Let that as it may be, the fact also remains that there was an overall shortage of Rs. 3,96,181 as worked out by the Assessing Officer in his order after considering the explanation of the assessee. The assessee was not able to reconcile this difference. The only presumption for such a short stock that could be made is that the assessee has sold its stock outside the books. This gave a valid basis for taking action under section 145(3) of the Act. Reference may be had to the judgment by Bombay Tribunal in the case of Roop Niketan v. Asstt. CIT [2004] 1 SOT 739 , B. & Brothers Engineering Works v. Dy. CIT [2003] 78 TTJ 876 (Ahd.) (TM) and Janta Tiles v. Asstt. CIT [2000] 66 TTJ 695 (Pune) . That being the position, the ld. CIT (Appeals) can be said to have erred in saying that the reason quoted by the Assessing Officer for rejecting the books of account is not justified.

11. Another reason taken by the Assessing Officer for rejecting the books of account is that the sales of the assessee have declined to Rs. 4,25,50,982 during the year under consideration as against sales of Rs. 5,24,62,410 in the immediately preceding year. The assessee offered no explanation regarding this decline. The learned CIT (Appeals), however, was persuaded with the plea of the assessee that the detailed explanation regarding the reason for decline in sale was furnished at the time of assessment proceedings and without testing the explanation or even making any reference to any such explanation, jumped to a conclusion that the reason taken for rejection of accounts is not justified. As the sales have drastically declined and coupled with the fact that the stock factually was found short at the time of survey leading to the presumption that the sales were made outside the books, it was, therefore, not permissible nor logical for the ld. CIT (Appeals) to have discarded a good and valid reason taken by the Assessing Officer for rejection of account books.

12. The Assessing Officer has also taken one more reason to reject the books. At the time of survey that blank bills in the name of persons doing job work, painting etc., were found at the business premises of the assessee and therefore, there was a possibility of inflating job work, assembly charges and painting charges etc., by the assessee. The learned CIT (Appeals), however, found himself in agreement with the assessee's plea that these bills relate to various contractors working from his premises and rejected the reason taken by the Assessing Officer without factually verifying the facts himself otherwise. When the assessee was found to be holding short stock than the actual stock as per books, held by it, the availability of blank bills of the persons, who had been doing job work, painting, assembling etc., for the assessee in his premises was a good basis to presume that the blank bills have been kept by the assessee to inflate the expenditure under these heads. If the material was available in possession of revenue to draw a presumption against him and opportunity also had been given to the assessee to establish his claim, the burden was on assessee to prove his claim by bringing on record cogent material to rebut such presumption. This has, however, not been done by the assessee. The ld. CIT (Appeals), therefore, could not have reached a conclusion to say that this reason taken by the Assessing Officer for rejecting the accounts is not justified. For the failure of assessee in discharging its onus, the reason taken by the ld. Assessing Officer has to be upheld.

13. Keeping in view the over all facts and circumstances of the case and the findings as aforesaid, I do not find any justification in the action of the ld. CIT (Appeals) to come to the conclusion that the reason quoted by the Assessing Officer for rejecting the books of assessee are not justified. I, therefore, set aside his findings and restore the findings and reasons taken by the Assessing Officer which are good reasons to reach a satisfaction that the accounts of the assessee are not correct and complete and as such the rejection of accounts made under section 145(3) is also upheld.

14. The learned CIT (Appeals) has also stated in his order that the Assessing Officer after rejecting the books did not take any concrete basis for estimating the income. This is also not correct. As has already been found that there was a short stock to the extent of Rs. 3,96,181 found at the time of survey which is presumed to have been sold outside the books with gross profit earned thereon at the rate of 17.99 per cent and the short stock found being only for a period of say about 45 days, the assessee can be held to have rotated the same in the entire year thereby making more sales outside the books. Thus, after rejection of accounts, it was within the discretion of Assessing Officer to have estimated the income. Having regard to all these facts on record, the Assessing Officer thus took reasonable basis in estimating the sales at Rs. 4,30,00,000 only as against Rs. 4,25,50,982 declared by the assessee and by applying the same profit rate as declared by the assessee the addition of Rs. 79,069 so made is justified. By setting aside the order of ld. CIT (Appeals), I restore the decision taken by Assessing Officer. The ground in appeal by revenue, therefore, stands allowed.

15. Ground No. 3 reads as under :—

"That the learned Commissioner of Income-tax (Appeals)-II, Agra has erred in law and on facts in deleting the addition of Rs. 7,62,485 made on account of entry in the loose paper found in the factory premises during the survey proceedings in spite of the fact that partner surrendered the amount in the statement recorded during the survey proceedings as he could not explain the same."

16. Briefly the facts are that during the course of survey on business premises of assessee on 16-5-2001, a paper, marked 64/107 of Annexure A-9 was found. This paper contained entries of Rs. 7,42,485. Besides this, cash amounting to Rs. 20,000 was also found, which was not recorded in the books of account. At the time of survey, the assessee was confronted with this paper and was required to explain the nature and source of investment etc., Shri Radha Raman, partner of the assessee-firm admitted undisclosed income of Rs. 8,00,000 for the entries in this paper include- ing cash of Rs. 20,000 found in another room. He accordingly surrendered the same as additional income of the year under consideration and also agreed to pay tax thereon accordingly. The assessee however, did not return the income so surrendered. The Assessing Officer confronted the assessee with the document and required him to explain the entries and assign reason as to why the addition should not be made on account of entries made in the said paper and cash found from him.

17. The assessee's counsel informed the Assessing Officer that the surrender was not voluntary. The survey party has taken the surrender under pressure. It was also pleaded that the partner of the firm did not make the surrender in his capacity as partner. It was also stated that the paper under consideration does not have any denotation or title or description nor it is in the handwriting of any of the partner of the assessee-firm. The calculation on the paper may or may not relate to the business of the assessee. The paper belongs to supplies or purchase made by the assessee-firm. It was also asserted that in any case, the entries do not reflect any unexplained investment or income of the assessee. It was also informed that the assessee has already made retraction of this statement and as such, addition is not warranted.

18. The Assessing Officer being not satisfied with the explanation, proceeded to make addition of Rs. 7,42,485 on account of entries in the loose paper and Rs. 20,000 on account of cash found at the time of survey.

19. This action of the Assessing Officer was assailed in appeal. The ld. CIT (Appeals) found that the statement of Shri Radha Raman Agarwal was recorded in both the capacity as director of M/s. Ravi Agricultural Equipments (P.) Ltd., as well as partner of the assessee-firm besides as an individual. The learned CIT (Appeals) on perusal of reply to question No. 3 of the statement of Shri Radha Raman Agarwal taken during the survey proceedings, found that the surrender of Rs. 3,00,000 was made in the hands of the assessee-firm. He, however, recorded a finding that the assessee's contention that aforesaid surrender was made in the individual capacity appears to be correct. He also took note that the Assessing Officer failed to establish concealment of income on the basis of any evidence or material gathered during the course of survey or assessment proceedings indicating any unaccounted investment of the assessee-firm to the tune of Rs. 7,42,485 even though the letter of retraction of the statement does not have any acknowledgement from the department and is ignored for the purpose. He, therefore, reached a conclusion that the surender certainly was not in the hands of appellant-firm and the fact that no further enquiry was made by the Assessing Officer during the course of assessment and no material or evidence was brought on record to prove that the noting on the paper was unexplained investment by the appellant, the addition so made to the extent of Rs. 7,42,485 stood deleted.

20. The learned Departmental Representative while assailing the order of the authorities below contends that the addition was made on the basis of material found and statement given by the partner of the firm. The assessee has been making contradictory explanation, but has admitted of the same relatable to the supplies or purchases of the assessee-firm. During the survey proceedings also, it had admitted that the documents belong to the assessee-firm. The ld. CIT (Appeals) without factually verifying the documents or entries thereof or even without making any enquiries thereon accepted the plea of the assessee. His action to delete the addition is not justified.

21. On the other hand, the ld. counsel for the assessee places strong reliance on the facts and findings and conclusion reached by the ld. CIT (Appeals) and contends that no interference in the well-reasoned order is called for.

22. I have heard the parties and carefully perused the material on record. The piece of paper was recovered from the business premises of the assessee, which was duly marked as 64/107 of Annexure A-9. The assessee was confronted with the said paper and was required to explain the entries contained therein as well as unexplained cash to the extent of Rs. 20,000 found during the course of survey. The assessee's partner had admitted of its ownership and accordingly made a surrender of Rs. 8,00,000 covering undisclosed income from the entries in the said paper including the cash found at the business premises. He also agreed to pay tax on this additional income for the assessment year 2002-03, but did not do so in the return of income filed by it. Consequent to this, the Assessing Officer provided due and effective opportunity to explain the same and assign reasons as to why addition as per surrender made by him should not be made.

23. It is also an admitted position that the piece of paper was recovered from the premises of the assessee and has duly been inventorised. Even though the assessee has been making contradictory explanations, the explanation filed before the authorities below reveals that the assessee in his explanation has also admitted of the fact that "this paper belongs to the supplies or purchases made by the assessee-firm." The paper so recovered from the assessee's premises was available on the record of Assessing Officer though the same is not available in the records of the Tribunal. This paper available on the record of the Assessing Officer constituted a material for the purpose of making assessment in sub-section (3) of section 143 of the Income-tax Act, 1961. Reference may be had to the judgment rendered by Hon'ble Kerala High Court in the case of Vazhakala Estate v. State Of Kerala. [1994] 210 ITR 451. The Assessing Officer, therefore, was justified to take into consideration for framing the assessment on that basis. After the assessee had admitted of the fact before the survey proceedings that the documents belongs to it and it had made surrender of income on that basis and also in assessment proceedings had admitted that the entries contained therein relate to supplies or purchases made by the assessee-firm, the initial burden that lay upon the revenue stood shifted to the assessee. Thereafter, it was the duty of the respondent assessee to have reconciled those entries and have shown that it does not give rise to any income or investment with reference to the books of account maintained by it or otherwise by showing that the same has already taken part of the income estimated. The assessee, however, did not discharge the onus that lay upon him but had been making a tall claim otherwise that the document so found does not give rise to any unexplained investment or income belonging to him. Even the ld. CIT(A) appears to have been carried away by such unsupported claim made by the assessee. In fact, the learned CIT(A) while deleting the addition of Rs. 96,181 on account of unexplained investment had accepted the fact that there was surrender of Rs. 3,00,000 on account of unexplained investment in stock. The assessee respondent also did not deny this fact throughout the proceedings before either of the authorities below. The ld. CIT(A), however, while dealing with the ground of addition arising from this loose paper recorded a perverse finding of fact that the aforesaid surrender of Rs. 3,00,000 was made in individual capacity as can be found referred at internal page 13 of the impugned order. There is thus no proper application of mind to the facts by the ld. CIT(A) in reaching the conclusion which appears to have been so arrived on irrelevant consideration of facts. It is a matter of common knowledge that the incriminating documents or papers will not be maintained as explicitly and clearly as per the relevant books of account. If the documents under consideration did not contain denotation or title or description yet the fact remains that the entries thereof admittedly related to the supplies or pur- chases made by the assessee-firm and that being so, taking all the facts, circumstances and probabilities into consideration, it is clear that the ld. CIT(A) accepted the plea of the assessee half heartedly without making enquiry into the facts himself or requiring the assessee to reconcile the entries of purchases and sales with the sales recorded in its books of account if the same was not found done before the Assessing Officer. I, therefore, do not find any factual or legal justification in his action to delete the addition. His order, therefore is directed to be set aside and the matter is restored back to his file so that a proper and effective opportunity of being heard is given to the assessee to discharge the burden that stood shifted to him to explain the loose paper. After taking the evidence, the ld. CIT(A) shall take the decision afresh in accordance with law. He shall also pass a speaking order showing as to whether the amount surrendered for Rs. 3,00,000 on account of unexplained investment is taken part of this addition or otherwise the same needs to be sustained. Needless to add, the Assessing Officer shall also be given due and proper opportunity of being heard.

THIRD MEMBER ORDER

Per G.E. Veerabhadrappa (As a Third Member). - Since there was a difference of opinion between the learned Members who constituted Agra Bench in the case of aforesaid appeal, I was nominated as a Third Member by the President, Income-tax Appellate Tribunal, under section 255(4) of the Income-tax Act, 1961. The points of difference referred to me are as under:—

"1. Whether, on the facts and findings and having regard to position of law, the ld. CIT(A) is justified to set aside the decision to reject accounts under section 145(3) of the Act and thereby deleting the addition of Rs. 76,069 made by the Assessing Officer for difference of profit on sales estimated by him.
2. On the facts and findings whether the ld. CIT(A) is justified to delete the addition of Rs. 7,62,485 or his order needs to be set aside for allowing opportunity to assessee to explain and reconcile entries contained in the document inventorised as 64/107 of Annexure A-9?"

2. The assessee is a firm and derives income from manufacturing of diesel engines. A survey under section 133A was conducted at the business premises of the assessee on 16-5-2001. The inventory of the stocks was taken, which was worked out by the survey party at Rs. 93,68,405. The assessee was asked to prepare a provisional trading account till the date of survey. The value of the stocks was determined at Rs. 97,64,586. The statement of Shri Radha Raman, partner of assessee-firm was recorded. He was asked to reconcile the stock differences with reference to the stock register maintained by the firm at that time. The assessee-showed its inability to reconcile the stock and surrendered an additional income of Rs. 3 lakhs on account of such differences. In the course of assessment proceedings, the assessee was required to furnish certain details and information as mentioned in the questionnaire dated 28-12-2004 and to produce all the books of account, bills, vouchers etc. found at the time of survey and also for the year under consideration. All the purchase and sale bills along with the books of account were produced. The Assessing Officer was of the view that since the stock difference as on the date of survey was Rs. 3,96,181 as against which only Rs. 3 lakhs was surrendered, the difference of Rs. 96,181 was added to the income of the assessee representing unexplained investment in the stock. Before the CIT(A), it was contended that there was arithmetical error in the value of closing stock by the survey team. On verification of annexure prepared by the survey team, there was a mistake of Rs. 46,460 on pages 3 and 8 of Annexure-S. It was also contended before the CIT(A) that it was humanly impossible to value each and every spare part with fine accuracy. After all, the valuation of the stock by the survey team was done on hypothetical figure of closing stock extrapolated by utilizing the earlier year GP rate. In respect of these shortcomings, the difference between the actual and estimated cost was only claimed to be .61 per cent. Considering these facts, the ld. CIT(A) was of the view that the amount surrendered by the assessee was sufficient to cover up their discrepancy in stock and further addition was not warranted. The addition, therefore, got deleted. The revenue challenged this deletion apart from other addition before the ITAT. As regards this issue, the ld. Judicial Member found no reason to interfere with the findings of the ld. CIT(A). On this issue, although some discussion is made in the dissenting order of the Accountant Member, he has not given any finding adverse in relation to this specific addition. In fact, the question as framed before me does not contain even a reference to this. Accordingly, it is to be taken that there is no dissent in relation to this addition. Now, I deal with the points of difference referred to me.

3. Now, the first issue relates to an addition of Rs. 76,069 on account of trading addition. Before the Assessing Officer, the assessee furnished the following chart depicting sales, GP and GP rate for the year under consideration and the earlier two years:—

Having seen this chart, the Assessing Officer felt that there was a decline in sales but assessee did not furnish proper explanation. A large number of blank bills in the name of persons doing job work, painting etc. were found at the premises of the assessee, which indicated that the possibility of inflating job work charges cannot be ruled out. Having found certain stock differences in the course of survey, it was evident that the books of account of the assessee were not correct and complete and, therefore, provisions of section 145(3) were invoked, rejecting the books of account. The sales were estimated at Rs. 4,30,00,000 as against Rs. 4,25,50,982 shown by the assessee and a GP rate of 17.99 per cent was applied to the difference and an addition of Rs. 79,069 was made to the trading results shown by the assessee. It was pointed out before the CIT(A) that there was, in fact, an increase in the gross profit and the Assessing Officer has not found any specific instance of sale outside the books. It was also explained that the blank bills found during the course of survey were actually belonging to various contractors who worked for the assessee-firm. The CIT(A) was of the opinion that the reasons quoted by the Assessing Officer for rejecting the books of the assessee were not justified and the Assessing Officer has made a pure guess work without any material in arriving at the disputed addition. He deleted the addition.

4. The ld. J.M. concurred with these findings. The ld. A.M. justified the reasons which prompted the Assessing Officer to reject the books of account and restored the impugned addition.

5. I have heard both the sides and carefully gone through the impugned order. The ld. DR has filed written submissions. The very fact that there was discrepancy in the stock position at the time of survey shows that books of account maintained by the assessee were not authenticated. The Assessing Officer was quite liberal in estimating the sales of only Rs. 4,25,50,982 as against Rs. 45,24,62,410 shown in the preceding year, particularly when no cogent reasons were furnished by the assessee for such a sharp decline in sales. According to him, the order of the Accountant Member deserves to be upheld.

6. The learned counsel for the assessee vehemently supported the findings of the CIT(A) and the ld. J.M.

7. Ld. DR, on the other hand, supported the order of the Assessing Officer and the ld. A.M.

8. I have carefully considered the rival contentions and gone through the impugned orders. In my view, the order of the Judicial Member requires to be upheld having regard to the facts and circumstances of the case. The assessee has shown better profit percentage, as could be seen from the chart the assessee has furnished before the Assessing Officer. Unless the department has some material to show that there was sale outside the books of account, it was not correct to reject the books of account maintained by the assessee. Mere fall in the sales does not justify the rejection of the books of account without any other cogent material. Again, I may explain that the computation of the stock, during the course of survey, was based on certain estimations, interpolations and extrapolations. That by itself does not mean that the books of account maintained by the assessee, duly supported by purchase and sale bills which were produced before the Assessing Officer, deserve rejection. The blank bills found in the course of survey in the name of persons doing job work, painting etc. does not in any way lead that the sale figure disclosed by the assessee requires to be rejected. In my view, the rejection of the books of account by invoking provisions of section 145(3) is totally unwarranted and cannot be supported in the eyes of law. Having accepted this, the addition based on certain estimation of sales is correctly deleted by the CIT(A) as well as by the ld. Judicial Member. I agree with the findings of the ld. Judicial Member on this point.

9. As regards the next point of difference, the addition is made on the basis of entry recorded on certain loose papers marked as 64/107 of Annexure A-9 found during the course of search. On both these papers, some numerical entries were recorded, showing a balancing figure of Rs. 7,42,485, out of which a sum of Rs. 5,60,100 was deducted and again balance was shown at Rs. 1,82,485, which was further reduced by a figure of Rs. 1,30,000 leaving a final balance at Rs. 52,485. There was no narration, no name, no identification or signature of any person. In both the papers, figures were identical but handwriting was different. During the course of survey, the assessee was confronted with these papers. It appears that the partner agreed to surrender a sum of Rs. 8 lakhs on account of investment contained in this paper and the assessee, immediately thereafter, retracted before the tax authorities that the statement of surrender of the partner was taken under force and shall not have any binding on the appellant-firm or any of the partners of the appellant-firm and the income of the assessee must be assessed on the basis of merit. However, in the course of assessment proceedings, the addition to the extent of Rs. 7,62,485 was made in respect of the addition. Before the CIT(A), the assessee disputed the addition on the basis of these pieces of papers. It has also furnished a copy of the letter filed by the assessee on 21-5-2001 i.e., within five days after the survey where Mr. Radha Raman Agarwal retracted from the above surrender. The CIT(A) called for a remand report from the Assessing Officer. According to the ld. CIT(A), the Assessing Officer failed to establish concealment of income on the basis of any evidence or material gathered during the course of survey indicating the evidence of unaccounted investment by the assessee to the extent made. The addition was deleted by the ld. CIT(A). The ld. Judicial Member agreed with the findings of the CIT(A) and rejected the grounds raised by the revenue. Ld. AM, however, was of the view that the ld. CIT(A) accepted the plea of the assessee half-heartedly, without making inquiry into the facts himself or requiring the assessee to reconcile the entries of purchase and sale with the sales recorded in the books of account, if the same was not found done before the Assessing Officer. According to him, there was no legal justification in his action to delete the addition. He, therefore, restored the matter back to his file so that a proper and effective opportunity of being heard be given to the assessee to explain the loose papers. The issue has now come before me.

10. The ld. Counsel for the assessee strongly supported the findings of the CIT(A) and the discussions in the order of the ld. J.M. Ld. DR, on the other hand, strongly justified the addition in the light of discussion in the order of the A.M. According to him, the addition is made on the basis of loose papers found in the course of survey and it is a valid material for the purposes of making an assessment for the purposes of section 143(3) of the Income-tax Act. According to him, the surrender was made on the basis of incriminating material found at the time of survey. He, therefore strongly argued in favour of the confirmation of the order of the ld. A.M.

11. I have carefully considered the rival contentions and gone through the impugned orders. The Hon'ble Supreme Court in the case of Pullangode Rubber Produce Co. Ltd. (supra) has clearly held that an admission by the assessee is not conclusive evidence and it is always open to the assessee who made the submission to show that it is incorrect. The assessee, in this case, has explained that noting on the piece of paper has nothing to do with the unexplained investment made by the assessee. It has also been held in the case of Commissioner Of Income-Tax, Kerala v. Mrs. Doris S. Luiz [1974] 96 ITR 646 (Ker.) that even when there is admission, it is incumbent upon the department to establish by relevant material that the amount in question was income in the hands of the assessee. Here, the department is relying upon the surrender of the amount in the course of survey and the piece of papers found in the course of survey as basis for making the addition. The admission made by one of the partners has already been retracted within five days from the date of search. The CIT(A) in fact has referred those letters to the Assessing Officer in the remand proceedings. When the assessee has retracted the statement, an addition should be supported by enough material in the possession of the department. Now looking at the paper, it has some numerical figures but does not, in any way, show that it has some relationship with some business transactions of the assessee. The paper that was taken as a material for making the addition does not conclusively establish that it pertains to the business transaction of the firm. Now, the department is making the addition as a part of unexplained investment. What sort of investment the department has found is also not clear from the assessment order. The addition, in sum and substance, made by the department is clearly not supported by any material, which can point out to unexplained investment outside the books of the assessee. According to me, the addition has been correctly deleted by the CIT(A) in the light of the principle laid down by the Supreme Court in the case of Pullangode Rubber Produce Co. Ltd. (supra). The ld. JM. has correctly affirmed the finding of the CIT(A) and in my view, there was no need for the matter again being set aside to the CIT(A) for reconciliation of entries contained in the document inventorised as 64/107 of Annexure A-9 of the survey material. I agree with the findings of the ld. Judicial Member on the second issued.

12. In the light of aforesaid discussion, the matter may now be placed before the regular Bench for an appropriate order, in accordance with law.

ORDER

Per Hari Om Maratha, Judicial Member. - In this case, there was a difference of opinion between the Members constituting the original Bench. The learned Judicial Member had dismissed the appeal by the revenue whereas the ld. Accountant Member had restored the case to the file of ld. CIT(A). The learned Third Member has agreed with the view taken by the learned Judicial Member. Thus, in the light of the majority view, the appeal of the revenue stands dismissed.

2. In the result, the appeal of the revenue is dismissed.

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