1998-VIL-123-ITAT-MUM
Income Tax Appellate Tribunal MUMBAI
IT (S & S) Appeal Nos. 50 and 131 (BOM.) of 1997
Date: 16.01.1998
HARAKCHAND N. JAIN
Vs
ASSISTANT COMMISSIONER OF INCOME-TAX
Shivram for the Appellant.
S.K. Zha for the Respondent.
BENCH
P.P. PARIKH, ACCOUNTANT MEMBER AND SMT. NIRMAL YADAV, JUDICIAL MEMBER.
JUDGMENT
Smt. Nirmal Yadav, J.M. - The above captioned two appeals filed by the assessee are directed against the order of the Asstt. CIT (Investigation), Circle-1(1) Kalyan passed under section 158BC of the Income-tax Act (hereinafter referred to as ‘Act’) relating to the block period commencing from 1st April, 1985, to 8th Feb., 1996. IT (S&S) A. No. 50/Bom/97 has been filed against the computation sheet dated 28-2-1997, while IT (S&S)/Bom/97 is against the speaking order of the even date. Since both the appeals relate to the same block period, for the sake of convenience, these are disposed by this common order.
2. The brief facts as culled out from the record are that the assessee is engaged in the business of construction and sale of residential/shopping projects in the name and style of Vikas Builders. The assessee filed his regular returns of income and assessment was made upto assessment year 1995-96. On 8th Feb., 1996, a search and seizure action under section 132 of the Act was conducted at the residential and business premises of the assessee.
During the course of search, cash, jewellery and documents with regard to the certain assets were found and seized. A notice under section 158BC was issued requiring the assessee to file return of income for the block period. However, the assessee did not file any fresh return. At the assessment stage, the assessee was directed to submit details of his assets and liabilities as the Assessing Officer was of the view that the assessee had not reflected the true facts in his balance sheet. The assessee furnished the details and explanation, but the same were not accepted by the Assessing Officer and the Assessing Officer assessed the assessee’s income at Rs. 1,59,59,342 for the block period. With regard to cash, assessee’s explanation was found satisfactory and, therefore, no addition on this account was made. Since aggrieved, the assessee filed the present appeal.
3. We have heard Shri Shivram, the learned counsel for the assessee and Shri S.K. Jha, the learned Departmental Representative and have perused the record. First of all, we shall with the legal issues raised by the assessee’s counsel.
4. The first contention of the learned counsel for the assessee is that no speaking order was passed within the prescribed time-limit, i.e., within one year from the end of the month in which the last of the authorisation for search was executed. According to the learned counsel, the intention of the legislature in using the words "within one year" does not mean one whole year; but it connotes 364 days and, therefore, the order should have been passed on 27th Feb., 1997 whereas the order has been passed on 28th Feb., 1997.
The learned counsel drew our attention to the provisions of sections 153(1)( a), 153(1)(b) and 263(2) of the Act wherein different wordings have been used such as "after the expiry of two years from the end of the assessment year or one year from the end of the financial year". In support, the learned counsel placed reliance on the following decisions :
(1) CIT v. Ekbal & Co. [1945] 13 ITR 154 (Bom.)
(2) Ms. Deepika A Mehta v. Asstt. CIT [reported at [1997] 57 TTJ (Mumbai) 104 (ITA No. 3532, 3553/Bom/94 (Mumbai Bench) decided on 26th June, 1996)].
On the other hand, the learned Departmental Representative submitted that the words "within one year" means that within the calendar year and the assessment order could be passed on the last day of the calendar year.
. On careful consideration of the rival submission, we do not agree with the contention of the learned counsel for the assessee. In the present case, the time-limit for completion of the block assessment as provided in section 158BE is within one year from the end of the month in which the last of the authorisation for search under section 132 of the Act was executed in cases where a search is initiated. The search in the present case was conducted on 8-2-1996, and, therefore, the limitation would be within year from the end of the month, i.e., February 1996 in which the authorisation for search under section 132 was executed. In order to compute the time-limit of one year, the calendar year has to be taken as one year. The limit would start from 1st March, 1996 and would end on 28-2-1997. The Assessing Officer has admittedly, passed the order on 28th of February 1997. The authorities relied by the learned counsel for the assessee are clearly distinguishable on the facts from the present case. Ekbal & Co.’s case does not help the assessee in any manner. In Ekbal & Co.’s case (supra), the issue involved was with regard to the serving of the notice requiring the assessee to furnish return of his income within such period not being less than 30 days. In these circumstances, the hon’ble High Court held that the notice was not issued within clear 30 days’ period and, therefore, the notice was held to be invalid. The observation of the hon’ble High Court are worth mentioning wherein the Court had held that "the word "within 30 days" is within two points of time, one at which the period begins and the other at which it expires". As per section 158BE, the time-limit begins on 1-3-1996, and expires on 28-2-1997. It is well established under the common law that the complete one year has to be taken as a calendar year which would expire at the midnight of 365th day. Accordingly, we hold that the impugned order passsed by the AO was within time-limit.
6. The next legal issue raised by the learned counsel is that the AO did not pass speaking order on 28th Feb., 1997. He had only passed a computation sheet which was served on the assessee on 1st March, 1997. The speaking order containing 38 pages was not served on the assessee on 28th Feb., 1997, or 1st March, 1997. According to the learned counsel, the speaking order was served on the assessee only on 30-8-1997, when stay application was being heard before the Tribunal. The learned counsel drew our attention to the different typography used in typing the orders as pp. 1, 37 & 38 are typed by typewriter whereas the other pages are typed on the printer (computer). According to him, since p. No. 1 was types and p. No. 2 was printed on the printer, p. 2 starts abruptly whereas the first paragraph ends at p. 1 itself. The learned counsel further pointed out that the assessee had requested for supplying him the copy of the speaking order. Even upto the month of May, 1997, vide letters dated 1-3-1997, 10-3-1997 and 29-5-1997. According to him, the order was only served on the assessee on 30-5-1997 at the time of hearing of the stay application of the assessee before the Tribunal. The learned counsel further submitted that the final computation of income in the computation sheet and the reference of the same in the body of the order does not tally which clearly shows that the speaking order under section 158BC was not typed and ready on 28-2-1997, the inference, therefore, only is that computation of income was served on the assessee. The learned counsel relied on the following decision for the proposition that non-speaking order is non est and invalid in the eyes of law :-
(1) Travancore Rayons Ltd. v. Union of India & Ors. AIR 1971 SC 862.
(2) Seimens Engineering & Manufacturing Co. of India Ltd. v. Union of India & Ors. AIR 1976 SC 1785; and
(3) Balakrishna & Sons v. STO 12 STC 272.
7. On the other hand, the learned Departmental Representative submitted that the speaking order was passed and served on the assessee on 28-2-1997, itself. The learned Departmental Representative drew our attention to the copy of the order wherein it has been specifically mentioned that the copy of the order has been sent to the assessee. He also pointed out that in response to the assessee’s letter dated 1-3-1997, the Asstt. CIT vide letter dated 6-3-1997, which is placed at p. 27 of the paper-book had informed the assessee that the order had already been issued and sent to the assessee and in case, he desired to have another copy of the order, he could apply after paying the copying charges. The learned Departmental Representative pointed out that even from the affidavit of the assessee which is at pp. 1 to 7 of the paper-book, it becomes abundantly clear that the assessee was very much present in the office of the Assessing Officer on 28-2-1997. The assessee has also admitted that he was served with one page order for the block assessment on the same date along with the assessment order of assessee’s wife Mrs. Badamibai at his residence at 12.05 midnight. The learned Departmental Representative submitted that from the affidavit of the assessee itself it is clear that the order was served on the assessee at the midnight i.e. night between 28-2-1997, and 1-3-1997. The assessee’s contention that the speaking order was served upon him on 30-5-1997 in the Tribunal at the time of the hearing of the stay application is falsified as there is no such mention of these facts in the order sheet of the Tribunal dated 30-5-1997.
8. As regards the difference in typography of the impugned order, the learned Departmental Representative submitted that as per the assessee’s own deposition, there was power failure on 28-2-1997 and in these circumstances it may not have been possible for the Assessing Officer to complete the entire order by computer printer and, therefore, pp.1, 37 and 38 might have been typed on a typewriter. The learned Departmental Representative further argued that the authorities cited by the learned counsel for the assessee are of no assistance to the assessee as the facts of all the three authorities are clearly distinguishable.
9. On careful consideration of the rival submissions, we do not find any substance in assessee’s contention. In the affidavit dated 5-7-1997, the assessee has deposed that he was asked to sign the acknowledgment slip without receiving the block assessment order. However, at para 16 of his own affidavit, he admit that at around 12.05 midnight he was served with the computation sheet by two inspectors of the Department. He further deposed that he was only served with one page order. These facts stated by the assessee does not at all prove that the impugned order was not passed on 28-2-1997. In fact, the computation sheet would only be prepared after the Assessing Officer considers all the facts and compute the additions under separate heads. In assessee’s case, the additions were made on several counts viz. on account of low withdrawals, cash credit, jewellery, cost of land and sale of residential flat and shops, etc., etc. Moreover, the additions in this case were for block assessment years, i.e. for 10 assessment years. It is beyond anyone’s imagination that computation could be arrived at without discussing the same in the main body of the order. As regards the assessee’s contention that the impugned body of the order has been typed by the computer printer while pp. 1, 37 & 38 had been typed by typewriter, the affidavit of the assessee clinches this issue wherein it has been stated that the assessee was present in the office of the Asstt. CIT, i.e., the Assessing Officer when there was power failure all over Maharashtra State. As per the assessee it was about 9.30 p.m. It may be possible that when there was power failure, last two pages of the order, i.e. the computation of income and the annexure might not have been typed by the computer printer and were typed by a typewriter. The first page of the order is merely a proforma to be filled in as it could not have been possible to type it in the computer printer. The next circumstance pointed out by the learned counsel is that there are discrepancies in the additions made in the body of the order and the computation sheet. The substantial difference pointed out by the learned counsel are given at p. 828 of the paper-book. The difference as seen from the paper-book is reproduced below :
|
Asst. yr. |
Income as per order |
Income as per computation sheet |
Difference |
|
1986-87 |
1,38,282 |
1,38,282 |
- |
|
1987-88 |
2,66,519 |
2,66,519 |
- |
|
1988-89 |
2,73,651 |
2,64,651 |
(-) 9,000 |
|
1989-90 |
3,18,108 |
3,19,005 |
897 |
|
1990-91 |
5,51,873 |
5,51,873 |
- |
|
1991-92 |
8,36,302 |
8,36,307 |
5 |
|
1992-93 |
21,93,198 |
22,93,198 |
1,00,000 |
|
1993-94 |
5,39,800 |
1,89,625 |
(-) 3,50,000 |
|
1994-95 |
3,76,800 |
3,76,800 |
- |
|
1995-96 |
41,22,030 |
48,59,880 |
7,37,850 |
|
1996-97 |
64,51,054 |
58,63,204 |
(-) 5,87,850 |
|
|
|
Difference |
1,08,098 |
A perusal of the entire order and the computation sheets it seems that there are arithmetical and typographical mistake according to which the computation sheet shows lesser addition to the extent of Rs. 1,08,103 in the income of the assessee. However, this fact does not raise any suspicion or doubt that the speaking order was not ready at the time of the computation. There could be some arithmetical and typographical mistake on account of wrong calculation. The authorities cited by the learned counsel are, in fact, of no help to him. In Travancore Rayons case (supra), the impugned order merely read as under :
"The Government of India have carefully considered the points made by the applicants but see no decision for interfering with the order in appeal and accordingly, the revision application is rejected".
The said order was stated to be lacuna and arbitrary by the hon’ble Supreme Court as no reason had been given for rejecting the application. In Seimens’ case (supra) also the Collector had not given the reasons for rejecting the assessee’s appeal for correcting the levy of import duty chargeable on Plot Motors when imported separately from Rayons Spinning Francs. The hon’ble Supreme Court has held that where an authority makes an order in exercise of a quasi-judicial function. It must record its reason in support of the order it makes. In Balakrishna & Sons’ case (supra), also the hon’ble Kerala High Court had held that the order making the best judgment assessment, must disclose the basis for the said assessment so that the higher authorities may know the grounds on which the assessment has been based. The facts of the above referred authorities are not at all applicable to the facts of the present case. In the present case, the AO has passed a detailed and well reasoned order giving all the facts and the basis for arriving at the conclusion. The computation is merely giving the details of income assessed for the entire block period which is not a separate order as projected by the assessee’s counsel.
10. The next issue raised by the learned counsel is that the order passed by the AO is not in accordance with the scheme as provided under Chapter XIVB of the Act. Our attention was invited to various provisions laid down in the said chapter. The learned counsel argued that section 158BA deals with the assessment of undisclosed income as provided under section 158B(b) of the Act. According to the learned counsel, the undisclosed income would mean income which is hidden from the Department. In support, the learned counsel made reference to the decision of the Delhi High Court in the case of L.R. Gupta v. Union of India [1992] 101 CTR (Del.) 179 : [1992] 194 ITR 32(Del), wherein the hon’ble High Court has held that expression "income" which has not been or would not be, disclosed for the purposes of the IT Act" means that income which is liable to tax but which the assessee has not returned in its IT return or made known to the IT Department. The learned counsel also invited our attention to the budget speech of the Finance Minister for the year 1995-96 reported in [1995] 212 ITR (St.) 87 and argued that as per the said speech, the new provision were incorporated for assessment of undisclosed income detected as a result of search initiated after 30th June, 1995. The learned counsel emphasised that the AO had proceeded on wrong presumption that he was at liberty to make rowing enquiries and examine the records of all the years during which the assessee has income and assessment were completed. The learned counsel further brought to our notice the CBDT Circular No. 707 dated 14th Aug., 1995 [1995] 126 CTR (St.) 85 : [1995] 215 ITR 33 (St.), at p. 37. The learned counsel further submitted that as per the said circular, the AO has been directed not to make any addition where undisclosed income had not been detected as a result of search. In support, the learned counsel placed reliance on the decision of the Tribunal, Mumbai Bench in the case of Sunder Agencies v. Asstt. CIT [1997] 59 TTJ (Mum.) 610 : [1997] 63 ITD 245 (Mum.) and Shankar Mahadev & Co. v Dy. CIT(S&S) (In ITA No. 86/Mum/96) and the decision of the Delhi Tribunal in the case of Express Movers (P) Ltd. v. Dy. CIT [1997] 59 TTJ (Del) 227 : [1997] 61 ITD 528 (Del).
11. On the other hand, the learned Departmental Representative contended that Chapters XIVB travels over the other provisions of the statute as section 158BA begins with non-obstante clause. The learned Departmental Representative invited our attention to the provisions of section 158B( b) vide which the procedure for computation of the undisclosed income for the block period is provided. The learned Departmental Representative pointed out that such income is to be computed in accordance with the provisions of Chapter XIVB on the basis of the evidence found during the search proceedings or requisition of books of accounts or documents and information which are available with the AO. He further argued that as per section 158B(b) it is for the assessee to establish to the satisfaction of the AO that any undisclosed income had already been disclosed in any return of the income filed by the assessee. The learned Departmental Representative further argued that the AO is not to be guided by the technical rules of evidence and he may act on material which in strict sense, may not be accepted as evidence in any Court of law.
12. In support, the learned Departmental Representative placed reliance on the decision of the Punjab & Haryana High Court in the case of Rajaram Kulwantrai v. Asstt. CIT [1997] 142 CTR (P&H) 292 : [1997] 227 ITR 187 (P&H) and the decision of the Kerala High Court in the case of N.T. John v CIT & Anr. [1997] 137 CTR (Ker) 656 : [1997] 228 ITR 314 (Ker), and submitted that the AO has made the addition on the basis of the documents and the books of accounts seized during the search.
13. The next contention of the learned Departmental Representative was that the circular cannot override the statutory provisions of law as circulars are merely clarificatory in nature. In support, the learned Departmental Representative placed reliance on the decision of the Supreme Court reported as Kerala Financial Corpn. v. CIT [1994] 119 CTR (SC) 164 : [1994] 210 ITR 129 (SC).
14. On careful consideration of the rival submissions, we feel that in order to adjudicate this legal issue it is pertinent to understand the object, implications, of provisions of Chapter XIVB of the Act. Chapter XIVB provides for a special procedure for assessment in search cases, where search action has been initiated after 30th June, 1995. The definition of ‘undisclosed income’ as provided in section 158B(b) of the IT Act reads as under :
"158B. (b)-"undisclosed income" includes any money bullion, jewellery or other valuable article or thing or any income based on any entry in the books of account or other documents or transactions, where such money, bullion, jewellery, valuable article, thing, entry in the books of account or other document or transaction represents wholly or partly income or property which has not been or would not have been disclosed for the purposes of this Act."
Section 158B provides the manner in which the assessment of undisclosed income as a result of search is to be made.
Section 158BA sub-cls. (1), (2) and (3) are reproduced below :
"158BA-(1) Notwithstanding anything contained in any other provisions of this Act, where after the 30th day of June, 1995 a search is initiated under section 132 or books of account, other documents or any assets are requisitioned under section 132 or books of account, other documents or any assets are requisitioned under section 132A in the case of any person, then, the AO shall proceed to assess the undisclosed income in accordance with the provisions of this Chapter.
(2) The total undisclosed income relating to the block period shall be charged to tax, at the rate specified in section 113, as income of the block period irrespective of the previous year or years to which such income relates and irrespective of the fact whether regular assessment for any one or more of the relevant assessment years is pending or not.
(3) Where the assessee proves to the satisfaction of the AO that any part of income referred to in sub-section (1) relates to an assessment year for which the previous year has not ended or the date of filing the return of income under sub-section (1) of section 139 for any previous year has not expired, and such income or the transactions relating to such income are recorded on or before the date of the search or requisition in the books of accounts or other documents maintained in the normal course relating to such previous years, the said income shall not be included in the block period."
Section 158BB further provides as to how the computation of the undisclosed income is to be made. Relevant provisions of section 158BB are reproduced below :
"158BB-(1) The undisclosed income of the block period shall be the aggregate of the total income of the previous year falling within the block period computed, in accordance with the provisions of Chapter IV, on the basis of 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 AO, as reduced by the aggregate of the total income, or as the case may be, as increased by the aggregate of the losses of such previous years, determined.
(2) In computing the undisclosed income of the block period, the provisions of sections 68, 69, 69A, 69B, and 69C shall, so far as may be, apply and reference to "financial year" in those sections shall be construed as references to the relevant previous year falling in the block period including the previous year ending with the date of search or of the requisition.
(3) The burden of proving to the satisfaction of the AO that any undisclosed income had already been disclosed in any return of income filed by the assessee before the commencement of search or of the requisition, as the case may be, shall be on the assessee.
(4) For the purpose of assessment under this Chapter, losses brought forward from the previous year under Chapter VI or unabsorbed depreciation under sub-section (2) of section 32 shall not be set off against the undisclosed income determined in the block assessment under this Chapter, but may be carried forward for being set off in the regular assessments."
15. On consideration of provisions of section 158B(b) and 158BB(1) we find that undisclosed income as defined in the Act has wide connotation. By bare reading of the provisions it is clear that undisclosed income means income which is liable to tax but the assessee has not disclosed the same in his IT return or made known to Revenue authorities. It would inter alia include any income based on any entry made in the books of account or other documents or transaction which has not been or would not have been disclosed for the purposes of the Act. The definition as provided by the legislature is inclusive and does not specify and restrict its operation to confine its scope. Section 158BB clearly provides that the undisclosed income of the block period shall be the aggregate of the total income of the previous year falling within the block period computed on the basis of evidence found as a result of search or requisition of books of account or the documents and such other material or information as are available with the AO as reduced by aggregate of total income. No addition can be made in any of the assessment year of the block period regarding which no material or information is available with the AO at the time of block assessment. In fact, the AO must correlate the evidence or the material found during the search or on the basis of the books of accounts seized during the search. The basic intention and objective is to consider the evidence for the tax liability of an assessee which the assessee is withholding or had not disclosed for the purposes of the Act. The scheme of Chapter IXVB which provides the special procedure for the block assessment and computation of the undisclosed income does not provide that the Revenue can make roving enquiries in respect of the assessment which has already been completed without any information or material in possession during the block period. In case, any material or information is found during the search or enquiry, even then, the AO has to correlate the such material/information with regard to the regular assessments which have already been completed and accepted. The provisions of Chapter XIVB does not give arbitrary and unlimited power to the AO to review the assessment completed unless and until there is any direct or clinching evidence to indicate that the assessee had withheld or had not disclosed any income. No ad hoc additions can be made merely on the basis of presumption or hypothesis. The words "such other material" as used in section 158BB(1) does not mean that the AO has got unfettered powers to override the rules of evidence so as to make the hypothetical and ad hoc additions. However, we are of the opinion that the undisclosed income as provided under section 158BB would certainly include any income based on any entry in books of account or documents where such entry in books of account or documents represents wholly or partly which has not been or would not have been disclosed for the purpose of this section by the assessee. For example, if entry representing income has been shown as liability or loan and not as income in the seized material, it would certainly come within the ambit of definition of undisclosed income provided such material has been found or has come to the knowledge of the AO from the books of accounts or the seized material during the search. As per sub-clause (3) of section 158BB(3), the burden to prove that any undisclosed income has already been disclosed in any return of income filed by the assessee before the search is certainly on the assessee. Accordingly, we may agree with the finding of the Tribunal, Mumbai Benches in the case of Sunder Agency v. Dy. CIT (supra ) and Shankar Mahadev v. Dy. CIT (supra ) that Chapter XIVB does not give unfettered powers to AO to review the assessment already completed until and unless there is any direct evidence that assessee had withheld or had not disclosed any income for the purpose of Act. The hon’ble Delhi High Court in the case of L.R. Gupta v. Union of India (supra) while considering the provisions of section 132 of the IT Act has also held that the income which is hidden from the Department is undisclosed income. The authorities cited by the learned Departmental Representative are of no help to the Revenue. In Raja Ram’s case (supra) the original income and the assessment under the provisions of Chapter XIVB had already been finalised for the block period. Thereafter the AO issued notice under section 143(2) relating to the asst. year 1988-89 & 1989-90 calling upon the assessee to submit certain information in connection with the return of income for the said years. The assessee objected to the issuance of the said notice on the ground that the assessment having been already completed under section 158BC of the Act which covers years in question, the AO had no jurisdiction to issue notice under section 143(2) of the Act, and the hon’ble High Court accepted assessee’s contention holding that after framing the assessment for a block period income of any year covered by any block period could not be determined afresh as all pending assessment of those years stood merged in collective assessment under section 158BC(c) of the Act.
16. In N.T. John’s case, the hon’ble Kerala High Court has merely held that block period consists of period of 10 years preceding the year in which the search was conducted. The search in that case was conducted during the previous year 1995-96 and, therefore, the asst. year 1993-94 was included in one of the 10 previous years as contemplated in section 158B of the Act, and therefore, it was held that the procedure provided for assessment of block assessment was applicable in the said case. The issue involved in the present case was not at all discussed or decided by the hon’ble Kerala High Court and accordingly, the ratio of the said case is not at all applicable to the present case.
17. As regards the circular, there is no dispute that the law laid down by the apex Court in Kerala Financial Corporation (supra) that the circular of the CBDT cannot override the statutory provisions of the Act. However, the Circular No. 707 of the CBDT is merely clarificatory in nature and does not override the main provisions of the Act.
18. Now, we shall discuss each addition separately in view of our discussion above.
(1) Addition on account of jewellery
(i)During the search, jewellery, weighing 1721.07 gms (gross) and 1,662,05 gms (net) was found out of which only 765.25 gms were seized. The assessee’s contention before the AO was that the jewellery belonged to his various family members which includes his wife, sons, daughters and grand daughter including the HUF. The assessee further claimed that the jewellery had been acquired by his family members out of their own sources over a long period of time. The AO after taking into consideration the explanation submitted by the assessee made addition only with regard to 926 gms of gold jewellery, the value of which was adopted at Rs. 4,63,000 and added under section 69A of the Act. The learned counsel for the assessee submitted that the AO has not accepted the assessee’s explanation that the jewellery belongs to his sons Kamlesh Jain, Nilesh Jain and Vikas Jain and daughters, Jayshree H Jain, Pushpa Sanklecha and grand daughter Anketa Jain and his wife Badamibai H Jain. The AO has given rebate of only 300 gms in respect of his wife and only 180 gms with regard to his daughters. The learned counsel brought to our notice the instructions issued by the CBDT vide circular (sic-instruction) No. 1916 dated 11th May, 1994 vide which guidelines in respect of seizure of jewellery and ornaments in course of search has been brought in. The said circular reads as under :
"Instruction No. 1916 dated 11th May, 1994
Subject : Guidelines for seizure of jewellery and ornaments in course of search.
Instances of seizure of jewellery of small quantity in course of operations under section 132 have come to the notice of the Board. The question of a common approach to situations where search parties come across items of jewellery, has been examined by the Board and following guidelines are issued for strict compliance :
(i)In the case of a wealth-tax assessee, gold jewellery and ornaments found in excess of the gross weight declared in the WT return only need be seized.
(ii)In the case of a person not assessed to wealth-tax gold jewellery and ornaments to the extent of 500 gms per married lady, 250 gms per unmarried lady and 100 gms per male member of the family need not be seized.
(iii)The authorised officer may, having regard to the status of the family, and the custom and practices of the community to which the family belongs and other circumstances of the case, decide to exclude a larger quantity of jewellery and ornaments from seizure. This should be reported to the Director of Income-tax/Commissioner authorising the search at the time of furnishing the search report.
(iv)In all cases, a detailed inventory of the jewellery and ornaments found must be prepared to be used for assessment purposes.
These guidelines may please be brought to the notice of the officers in your region."
(ii)A perusal of the above circular shows that in case of person not assessed to wealth-tax gold jewellery and ornaments to the extent of 500 gms per married lady, 250 gms per unmarried lady and 100 gms per male member of the family need not be seized. It further provides that having regard to the status of the family and custom and practice of the community to which the family belongs, the officer may exclude a large quantity of jewellery and ornaments and seizure. In the present case, there are four male members in the family, the assessee and his three sons. Similarly, there are two married ladies and one unmarried lady. The learned counsel for the assessee submitted that the jewellery of the assessee and his wife was low and was received by various occasions, like marriage delivery, birth, etc. and the jewellery belonged to the children was also received in similar occasions. On the other hand, the learned Departmental Representative argued that the assessee has not provided any evidence to explain the source of the investment in the jewellery.
(iii)On careful consideration of the rival submission we find that the assessee has not placed on record any evidence to prove that the jewellery has been received as gift by him by producing the GT return or any other evidence. However, we are conscious of the fact that in Indian society everyone receives gifts at the time of marriage and other occasions. Therefore, keeping in view the number of family members we are of the view that further rebate of 500 gms out of the entire jewellery may be treated as explained. The balance 426 gms of jewellery may be treated as addition under section 69A of the IT Act.
2. Personal withdrawals
(i)During the entire block assessment period of 10 years, the AO has made an addition of Rs. 4,15,173 on account of low withdrawals for personal expenses. The AO estimated the withdrawal of the assessee for the current previous year ending on 8-2-1996 i.e., asst. yr. 1996-97 at Rs. 65,000 and thereafter gave reduction of Rs. 5,000 per year on account of inflation in every preceding year and thereby estimated the withdrawals of personal expenses as under :
|
Asst. yr. |
Total family withdrawals |
Estimated family expenditure |
Amount to be added on account of low withdrawals |
|
|
Rs. |
Rs. |
Rs. |
|
1986-87 |
10,858 |
25,000 |
14,142 |
|
1987-88 |
13,000 |
30,000 |
17,000 |
|
1988-89 |
58,323 |
1,58,323 |
1,00,000 |
|
1989-90 |
24,892 |
45,000 |
20,108(18 months) |
|
1990-91 |
16,900 |
45,000 |
28,100 |
|
1991-92 |
23,302 |
50,000 |
26,698 |
|
1992-93 |
20,000 |
55,000 |
35,000 |
|
1993-94 |
19,375 |
60,000 |
40,625 |
|
1994-95 |
25,200 |
65,000 |
39,800 |
|
1995-96 |
41,300 |
70,000 |
28,700 |
|
1996-97 |
nil |
65,000 |
65,000 |
|
|
|
Total |
4,15,173 |
For the asst. yr. 1988-89, the withdrawals for personal expenses was estimated at Rs. 1,58,323 whereas the assessee had shown the expenses at Rs. 58,323. The said addition was made on the ground that the marriage of assessee’s daughter took place during the relevant assessment year, i.e., asst. yr. 1988-89. The AO issued show-cause notice dated 29-7-1997, asking the assessee as to why the personal expenditure for family be not estimated at Rs. 75,000 for asst. yr. 1996-97, and proportionately for the earlier years. The assessee did not file any explanation or reply to the said notice and accordingly, the AO estimated the additions as referred to above.
(ii)We have heard the rival submission. The learned counsel for the assessee submitted that the withdrawals were duly reflected in the capital account for each of the year and were accepted as such by the AO in the respective assessment years. He further submitted that no material was found during the course of search having nexus or highlighting that the assessee had not made correct disclosure with regard to the personal withdrawals and, therefore, the AO cannot made ad hoc addition on estimate basis. The learned counsel pointed out that even for the asst. yr. 1996-97, the assessee had shown the withdrawals at Rs. 59,591 in the accounts. On the other hand, the learned Departmental Representative placed reliance on the order of the AO and further argued that the assessee had shown very meagre withdrawals which do not commensurate with his life style and the number of family members.
(iii)On careful consideration of the rival submissions and on perusal of the record, we find that the assessee did not submit any explanation or reasoning in reply to show-cause notice dated 29-1-1997 to the effect that as to why the family expenditure should not be estimated at Rs. 75,000 for the asst. yr. 1996-97 and proportionate figure for the earlier years. The assessee opted for not replying the said notice nor submitted any explanation. The AO, however, seams to have made a reasonable estimate keeping in view the status, life style and the size of the family. In the asst. yr. 1988-89, the AO has mentioned that the assessee’s daughter’s marriage took place and the addition of Rs. 1 lakh in the said asst. yr. 1988-89 seems to be reasonable and, therefore, no interference is called for, with regard to the addition on account of low withdrawals for personal expenses.
3. Addition on account of unexplained cash credits
The AO has made various additions on account of unexplained cash credit for the block period from 1-4-1985 to 8-2-1996. We shall discuss the yearwise additions :
(i) Asst. yr. 1986-87
(a) During this assessment year, the following loans were received by the assessee from his near relations :
|
|
|
Rs. |
|
(1) |
Smt. Pankubai Jain-sister-in-law |
50,000 |
|
(2) |
Shri Vikas H. Jain-son |
20,900 |
|
(3) |
Shri Nilesh H. Jain-son |
20,900 |
|
(4) |
Shri Kamlesh H. Jain-son |
20,900 |
The AO made the addition on the ground that all the creditors are close relatives of the assessee and they did not have sufficient source of income. It was further held that the assessee failed to co-relate the loan towards the trust income received by the three sons of the assessee and accordingly, the assessee has failed to discharge the onus to prove the genuineness of the loan and creditworthiness of the creditors.
(b)The learned counsel for the assessee submitted that Smt. Pankubai who is the window of assessee’s brother, had advanced the leant of her past savings and the said loan had been reflected in the regular books of accounts. Smt. Pankubai had given the confirmation letter and in case the AO wanted to make verification, summons could have been issued to her. A perusal of the statement and the balance sheet for the asst. yr. 1986-87 which is placed at p. 887 of the paper-book, it is clear that the assessee had shown the loan as well as the interest paid to Smt. Pankubai along with the return. Similarly, the loan from Vikas Jain, Nilesh Jain and Kamlesh Jain have been reflected in the computation filed along with the return. As regards the source of income of the assessee’s sons, it was argued that they are beneficiaries of Shirodiya Trust which was assessed to tax. The assessee has filed the copies of the beneficiaries’ account in the trustees well as the copy of the order of the Tribunal in the trust’s case. The assessee has also filed the confirmation of all the four creditors which are placed at pp. 37 to 59. On the other hand, the learned Departmental Representative argued that mere confirmation is not sufficient to prove the capacity and identity of the parties who have advanced the loan.
(c)On careful consideration of the rival submission, all the documents on the record, we find that the assessee had proved the identity of the creditors and had also proved the creditworthiness and genuineness of the transaction. Except Smt. Pankubai, all the three creditors are assessed to tax and they have submitted the confirmation before the AO. Moreover, nothing was found during the search nor the AO has brought anything on record with regard to any information for disallowing the cash credit from the above four creditors. Rather, we are of the opinion that the assessee had already explained the cash credit in the earlier assessment and, therefore, no additions could have been made in the block assessment and, accordingly, the addition made by the AO was not justified. The AO has also made addition of Rs. 11,440 on account of interest on the above said loans. In view of our finding that the assessee had proved the genuineness of the loan,we delete the addition made on account of interest also.
(ii) Asst. yr. 1987-88
(a)The AO made the following additions during this assessment year :
|
|
|
Rs. |
|
(1) |
Vikas H. Jain-son |
60,000 |
|
(2) |
Nilesh H. Jain-son |
60,000 |
|
(3) |
Kamlesh H. Jain-son |
60,000 |
|
(4) |
Smt. Badami Jain-wife |
10,000 |
|
(5) |
Smt. Sangita Jain-daughter |
8,000 |
According to the AO, though the confirmation letter in respect of the above creditors have been filed, the assessee was not able to be establish the creditworthiness and the genuineness of the transaction. The assessee had also paid interest of Rs. 51,590 as interest on the above loans. The AO did not accept the contention of the assessee that his sons had advanced the loan out of the benefits received by them from Shirodiya Trust. In respect of Badamibai Jain and Sangita Jain, the AO observed that the assessee had failed to provide the bank details from which the credits could be verified. The learned counsel for the assessee contended that assessment for asst. yr. 1987-88 had been completed under section 143(3) of the Act and the assessee had disclosed all the loans which were accepted by the AO. The copy of the assessment order and the computation have been placed at pp. 892 to 898 of the paper-book. A perusal of the property account and the balance sheet which is at p. 893 shows that the assessee has shown the loan from all the above five creditors. As per the assessee, all the creditors are assessed to tax and the copies of their confirmation, capital account, balance sheet and IT return’s acknowledgment have been placed on the record, which are at pp. 37 to 69 of the paper-book. The learned counsel submitted that the assessee has proved the identity and capacity to advance loan of the creditors and has also proved the genuineness of the transaction. On the other hand, the learned Departmental Representative submitted that the assessee had failed to prove the regular source of income of all the creditors and, therefore, the AO was justified in making the addition.
(b)On careful consideration of the rival submission we find that the loan of all the parties have been accepted in the regular assessment under section 143(3). Moreover, in the block assessment, the AO has failed to bring any evidence or information on record relating to these loans being bogus. Moreover, the assessee had discharged the burden of proving the genuineness of the transaction and creditworthiness and identity of the creditors. All the creditors are assessed to tax and their capital account, balance sheet and the copy of the acknowledgments of the return have been placed on the record. All the three sons of the assessee are beneficiaries of Shirodiya Trust and are getting regular income from the same. Accordingly, we hold that no addition on account of cash credit could have been made by the AO, and therefore, the same are deleted. Consequently, the addition made on account of interest on these loans also stand deleted.
(iii) Asst. yr. 1988-89
(a)During this assessment year, the assessee had taken unsecured loan from the following parties :
|
|
|
Rs. |
|
(1) |
Sarosh V. Gautam |
50,000 |
|
(2) |
Shri Pannalal |
9,000 |
|
3) |
Mahavir Traders |
60,000 |
The AO made the addition mainly on the ground that the assessee failed to produce all the three creditors in spite of opportunity given to him. He also made addition on account of disallowance of interest on those loans amounting to Rs. 54,651.
(b)The learned counsel for the assessee argued that the assessment for the asst. yr. 1988-89 had been completed under section 143(3), copy of which is placed at pp. 907 to 908 of the paper-book. The assessee had disclosed all the cash credits in his assessment which was accepted by the AO in the regular assessment. He further argued that the AO has not brought any evidence or information or document to show that the cash credits are not genuine. He further argued that Pannalal and Mahavir Traders are assessed to tax. Their capital account, balance sheet and confirmations have been submitted which are placed at pp. 71 to 77 and 904 of the paper-book. The learned counsel argued that the AO could very well make verification as all the documents had been filed by the assessee. As regards Saroj v Gautam the learned counsel submitted that she had booked a flat for purchase vide agreement dated 23-1-1987, with Vikas Builders, (copy of the said agreement is placed at pp. 796 to 804 of the paper-book) and the payment had been made with regard to the said flat. On the other hand, the learned Departmental Representative submitted that the AO was justified in making the addition as the assessee failed to produce the creditors for verification and also failed to prove the creditworthiness of the creditors.
(c)On careful consideration of the rival submission we find that the AO was not justified in making the additions on account of the unexplained cash credit unless he had some positive evidence to prove that the cash credits were not genuine. The assessee has rather discharged the burden of proving the identity, creditworthiness and genuineness of the transaction. All the loans have been disclosed by the assessee in his original assessment which was accepted by the AO under section 143(3) of the Act. In this view of the matter, we delete the additions made by the AO on account of cash credit and the interest thereon.
(v) Asst. yr. 1989-90
(a)During this assessment year, the additions have been made on account of the loans from following persons:
|
|
|
Rs. |
|
(1) |
Saroj V. Gautam |
20,000 |
|
(2) |
Mahavir Traders |
50,000 |
|
(3) |
Nand Kishore Singh |
1,10,000 |
The AO made the addition on the same ground that the assessee failed to produce the creditors. The AO has further mentioned that in the list of the block holders submitted by the assessee, the names of Saroj Gautam and Nand Kishore Singh do not find mention, and therefore, it cannot be held that these persons owned a block or not. He further observed, that if these persons are loan creditors then assessee failed to prove the creditworthiness and genuineness of the transaction and accordingly made addition of Rs. 1,80,000 on account of unexplained cash credit and Rs. 1,18,000 as interest on the same.
(b)The learned counsel for the appellant argued that in case of Saroj V. Gautam the addition was made in the asst. yr. 1988-89 also. The assessee had placed copy of the original agreement which was with the AO and the amount was paid as advance on pursuance of the agreement. He further argued that the confirmation had also been furnished which is placed at p. 70 of the paper-book. Similarly, Nand Kishore Singh had also given an advance of Rs. 1,10,000 for the purchase of flat and the agreement was executed in the name of his wife, Mrs. Shanti Singh on 27-12-1989, copy of which is placed at p. 78 to 106 of the paper-book. As regards Mahavir Traders, the learned counsel submitted that the confirmation in respect of this party was submitted before the AO which is also placed at pp. 75-77 of the paper-book. It was further submitted that the said creditor is assessed to tax and their books were lying with the Revenue authorities at Kalyan as there was survey/search in case of the said party. He further argued that all details with regard to the cash credits referred to above were reflected in the balance sheet, and along with the returns of income. The AO has accepted the same in the regular assessment. However, the AO has failed to bring any fresh evidence or documents or information to prove that the loans are not genuine. The learned Departmental Representative relied on the order of the AO and argued that the assessee failed to produce the creditworthiness of the creditors.
(c)On careful consideration of the real submission and the documents on record, we find that the AO was not justified in making the additions as the assessee has discharged the burden of proving the identity, creditworthiness and genuineness of the transaction. The assessee had disclosed all the transactions during regular assessment and the same were accepted. The Revenue has miserably failed to bring any material on record to support the addition and accordingly, the additions are deleted along with the corresponding addition on account of interest on these advances.
(v) Asst. yr. 1990-91
(a)During this assessment year, the AO made an addition of Rs. 4,01,000 on account of unsecured loan from the following persons and also made addition of Rs. 1,22,773 on account of interest on the loans :
|
|
|
Rs. |
|
(1) |
Smt. Pankubai C. Jain |
15,000 |
|
(2) |
Mahavir Traders |
32,000 |
|
(3) |
Madhu Jain |
9,000 |
|
(4) |
Bhikabhai Patel |
50,000 |
|
(5) |
Jyotsana N. Patel |
20,000 |
|
(6) |
Tulsibai Patel |
30,000 |
|
(7) |
Champalal Thanmalji |
1,25,000 |
|
(8) |
Hasmukh A. Sanklecha |
15,000 |
|
(9) |
Samata M. Sanklecha |
15,000 |
|
(10) |
Rajesh M. Sanklecha |
15,000 |
|
(11) |
Ritesh M. Sanklecha |
15,000 |
|
(12) |
Nitendra C. Sanklecha |
20,000 |
|
(13) |
Anita C. Sanklecha |
20,000 |
|
(14) |
Dibesh C. Sanklecha |
20,000 |
The Assessing Officer made the addition in respect of Champalal Thanmalji holding that no confirmation letter had been filed which is the basic requirement to prove the genuineness of the loan. With regard to the loan creditors at serial Nos. 1 to 6, the confirmation letters have been filed, however, the creditors were not produced. The Assessing Officer observed that the cash flow details like bank account had not been produced and, therefore, the creditworthiness and genuineness of the transaction was not established. With regard to the creditors at serial Nos. 9 to 14 the bank accounts had been produced by the assessee, but the creditors had not been produced and, therefore, the additions have been made. The learned counsel for the assessee submitted that in respect of Pankubai, widow of assessee’s brother, the first loan had been received by the assessee in the assessment year 1986-87 also. It is urged that the confirmation had been submitted and the source was also explained by the assessee as having been advanced out of her husband’s savings. With regard to Mahavir Traders, the learned counsel submitted that the confirmation had been filed which is at p. 77 of the paper-book. He further submitted that there was a search in the case of the said creditor and the books were lying with the Department and, therefore, no other documents could be produced. However, the verification could be made from the records lying with the Department. The learned counsel submitted that Madhu Jain is the daughter of the assessee and is assessed to tax at Kalyan Income-tax Office and the computation of income, confirmation, capital account, balance sheet and the IT return’s acknowledgment have been placed on record at pp. 108 to 113 of the paper-book. With regard Bhikabhai Patel, Jyotsana N. Patel and Tulsibai Patel, the assessee had submitted the confirmation letters which are placed at pp. 114, 115, 120 to 128. It is further submitted that since these parties were not co-operating, the assessee had requested the Assessing Officer to issue summons vide his letter dated 6-2-1997, which is placed at pp. 116 to 118. However, the Assessing Officer did not issue any summons. As regards Champalal, the learned counsel stated that the Assessing Officer has wrongly observed that no confirmation letter in respect of Champalal has been submitted whereas Champalal had submitted letter dated 26-2-1997, before the Asstt. CIT (Inv.) explaining the source of fund with regard to loan of Rs. 1,25,000 wherein it is stated that the said loan was given by cheque on 29-2-1990, and the details of the funds raised for the said loan were also given in the said letter. Along with the said letter, the statement of income, capital account and balance sheet and Income-tax return’s acknowledgment were also annexed which are placed at pp. 131 to 137. With regard to other creditors i.e., at serial Nos. 8 to 14, it was submitted that they had appeared before the Assessing Officer and submitted the confirmation letters and statement of income which are placed at pp. 129 to 178. The parties appeared before the Assessing Officer and filed letters confirming the loans which are placed at pp. 139, 143, 147, 151, 155, 162 and 170 of the paper-book. The learned counsel further submitted that the loans were duly reflected in the assessee’s books and their returns have been accepted by the Assessing Officer in the regular books assessment. The Assessing Officer has not brought anything incriminating having been found during the course of search or otherwise to warrant the addition with regard to the loans referred to above.
(b)On the other hand, the learned Departmental Representative justified the addition on the ground that the assessee failed to prove the genuineness and creditworthiness of the creditors of the loan and relied on the order of the Assessing Officer.
(c)On careful consideration of the rival submissions and the documents on record, we are of the view that the Assessing Officer was not justified in making the addition when there is no incriminating evidence to co-relate the addition. The assessee has fairly discharged the burden of proving the identity, genuineness of transaction and creditworthiness of the creditors. Moreover, most of the creditors have been assessed to tax and statement of their accounts, balance sheet and income-tax acknowledgment have been filed. Some of the creditors even appeared before the Assessing Officer and submitted all the documents including the confirmation letters, and accordingly, we delete the additions for this assessment year made on account of the cash credits along with the interest of Rs. 1,22,773 added on account of disallowance of the above cash credits.
(vi) Assessment year 1991-92
(a)During this assessment year, the Assessing Officer made the addition of Rs. 4,30,000 on account of the following cash credits and interest of Rs. 1,82,100.
|
|
|
Rs. |
|
(1) |
Rajni G. Sanklecha |
40,000 |
|
(2) |
Sunil S. Sanklecha |
35,000 |
|
(3) |
Anil S. Sanklecha |
35,000 |
|
(4) |
Suresh P. Sanklecha |
60,000 |
|
(5) |
Mayur F. Sanklecha |
35,000 |
|
(6) |
Monica F. Sanklecha |
35,000 |
|
(7) |
Sapana F. Sanklecha |
40,000 |
|
(8) |
Kamlabai R. Choka (and not Kamlabai H. Sanklecha) |
50,000 |
|
(9) |
Sunderdevi Ranka and G.P. Ranka (and not Sunderdevi H. Sanklecha) |
1,00,000 |
|
|
|
4,30,000 |
The Assessing Officer made the addition on the ground that the assessee failed to produce the creditors and that all the creditors had deposited money in cash immediately prior to advancing the loan to the assessee. The Assessing Officer, therefore, observed that the accounts seems to have been opened by the creditors merely for advancing the loans which may be a play used by the assessee to introduce his unaccounted money through different means. The Assessing Officer further observed that the assessee failed to prove the identity and creditworthiness of the creditors.
(b)The learned counsel for the assessee submitted that loans from the above parties were duly entered in the assessee’s books of accounts. He further submitted that their confirmation, computation of income, income-tax acknowledgment, capital account and balance sheet were filed before the Assessing Officer which are placed at pp. 204 to 286 of the paper-book. He further argued that all the parties are assessed at Kalyan income-tax office and, therefore, it was not difficult for the Assessing Officer to make verification in respect of the above creditors. On the other hand, the learned Departmental Representative submitted that the Assessing Officer was justified in making the addition as discussed by the Assessing Officer that the assessee had used his own unaccounted money through these loan creditors by depositing the cash before the loan was advanced.
(c)On careful consideration of the rival submission and the material on record, we find that all the creditors have submitted their confirmation letters, computation of income, income-tax acknowledgments, capital accounts and their balance sheet. The assessee’s creditors have also explained the sources of their funds in their confirmation letter, and therefore, in our view, the Assessing Officer was not justified in making the additions. The assessee has discharged the burden of proving the identity, creditworthiness of the creditors and genuineness of the transaction and accordingly, the addition made on account of the loan and the interest thereon is hereby deleted.
(vii) Assessment year 1992-93
(a)During the assessment year 1992-93, the Assessing Officer has made of Rs. 80,000 on account of loan from Shri P.R. Davis. The Assessing Officer made the addition as no confirmation letters had been produced nor the creditor had been produced. The assessee had claimed that the creditors had paid advance for the block. But according to the Assessing Officer, in the list of block holders, the name of Shri P.R. Davis does not find mention. The learned counsel for the assessee submitted that Shri Davis had given an advance of Rs. 80,000 for purchase of a flat. The said amount was duly reflected in assessee’s accounts. The learned counsel submitted that agreement for the purchase of the flat was submitted before the authority but the copy of the same has not been furnished to the assessee in spite of several requests. The learned counsel submitted that the letters of the assessee in this regard are placed at pp. 833, 871 and 872 of the paper-book vide which the assessee had requested the Assessing Officer to supply him the copies of the flat agreement and cancellation agreement copy in respect of Shri Davis. On the other hand, the learned Departmental Representative argued that there is nothing on the record to prove that the assessee reflected loan of Rs. 80,000 advanced by Shri P.R. Davis. Even the letters at pp. 833 and 871 show that the assessee had requested the Assessing Officer to give him the copy of the agreement of one Shri T.R. Davis and not Shri P.R. Davis. However, the assessee has failed to prove that Shri P.R. Davis had advanced sum of Rs. 80,000 for purchasing the flat as no agreement has been placed on the record. In this view of the matter, we find that the Assessing Officer was justified in making the addition as the assessee failed to discharge the burden of proving the said advance.
(viii) Assessment year 1993-94
(a)During the assessment year 1993-94, the Assessing Officer has made the following additions :
|
|
Rs. |
|
Shobha Rajput |
1,00,000 |
|
Raju Singh |
1,00,000 |
|
Rikabchand Jain |
1,50,000 |
|
Kamla R. Dhoka |
50,000 |
The assesse filed the confirmation letters, Income-tax acknowledgment, computation of income, capital account and balance sheet in respect of the above persons which were submitted before the Assessing Officer and placed on record at pp. 422 to 451, pp. 258 to 266 of the paper-book. In the confirmation letter, the creditors have explained the sources of funds and also submitted the bank statement showing the said transaction. The Chartered Accountants of Shobha Rajput and Raju Singh appeared and filed the letters explaining the sources of funds. The learned counsel further submitted that in the original return of income, the assessee had disclosed and explained the loans and the same were accepted to be genuine by the Assessing Officer. According to him, the Assessing Officer has not disclosed any fresh or additional evidence to co-relate the addition in the block assessment.
(b)On careful consideration of the rival submission and the documents on the record, we find that the assessee had discharged the burden of proving the identity, creditworthiness of the creditors and genuineness of the transaction. He has placed on the record the statement of accounts, computation of total income, balance sheet and income-tax acknowledgment of the creditors. It is given on record that all the creditors are assessed to tax and had filed the documents as referred to above to prove the genuineness of the loan and the source of the funds to advance the same and, therefore, we are of the opinion that the Assessing Officer was not justified in making the addition. Accordingly, the addition on this account is deleted along with the disallowance of interest of Rs. 1,24,634.
(ix) Assessment year 1994-95
(a)During this assessment year, the Assessing Officer made addition of Rs. 50,000 on account of loan from Ramesh T. Oswal. The Assessing Officer made the addition on the ground that though confirmation letters was filed, no details were given in the confirmation letter and in spite of the repeated reminders, the creditor was not produced. The learned counsel for the assessee submitted that this amount of Rs. 50,000 is well proved as the LIC had paid money to Chhaganbhai R. Oswal. Copies of the LIC covering the letter were filed with the Assessing Officer. Copies of assessee’s account in the books of Ramesh T. Oswal, HUF were also submitted. He further submitted that the loans were duly reflected in the balance sheet for the assessment year 1994-95 which was accepted by the Assessing Officer.
(b)On careful consideration of the rival submission and the documents of the record, we find that the fact of Rs. 50,000 received from Shri Ramesh T. Oswal finds mention at p. 966 of the paper-book. The Assessing Officer has accepted the same in the regular assessment. In these circumstances, the Assessing Officer cannot, at this stage make the addition. The computation and assessment order is placed at pp. 961 to 965. Accordingly, we hold that the Assessing Officer was not justified in making the additions.
(x) Assessment year 1995-96
(a)During the assessment year 1995-96, the Assessing Officer made the addition of Rs. 24,45,000 as unexplained cash credits received from Vignahar Builders and Developers and Rs. 14,95,000 from Vikas Developers. With regard to the loan from Vignahar Builders and Developers, the Assessing Officer observed that the assessee filed confirmation letter on behalf of Vignahar Builders and Developers. Five of the seven partners of Vignahar Builders and Developers were examined on oath by the Assessing Officer on 19-2-1997. The gist of the statement of those partners is reproduced by the Assessing Officer and for ready reference, the same is reproduced below :
"(a)that the assessee maintains books of accounts in respect of Vignahar Builders and Developers and barring another partner Shri Kantilal Jain, the assessee alone is authorised to sign cheques and other documents. Shri Kantilal Jain, in his deposition in answer to question No. 6 has stated that he was never looked after actively any of the activities of the firm.
(b)that they are not aware of the transaction of Rs. 24.50 lacs with Vikas Builders as he has never taken them into confidence nor sought their concurrence.
(c)that their own capital contribution is limited and, therefore, they are not aware as to how the funds were generated for extending loans to Vikas Builders.
The AO observed that in view of the deposition of the partners, the assessee has made the entries merely to accommodate his income from unaccounted sources and, thereby made addition of the same under section 68 of the Act. The learned counsel for the assessee submitted that it is well proved from the documents and record that the partnership firm was in existence before the assessee joined as a partner. The firm filed Form Nos. 11 and 12 with the IT Department which finds the signatures of all the partners. He further submitted that none of the partners had denied that they are not the partners of the firm or they are just the benami partners. The learned counsel submitted that mere fact that the other partners are not aware of the day-to-day transactions does not lead to adverse inference with regard to the genuineness of the firm or the loan transaction. The confirmation letter from Vignahar Builders and Developers are placed at pp. 473 to 476 of the paper-book. The capital account of the partnership firm and the balance sheet are placed at pp. 481 to 483 to 483. The balance sheet at p. 483 clearly shows the advancing loan amount of Rs. 24,45,000 to Vikas Builders. The other documents such as the partnership deeds and the other P&L a/c, etc., are at pp. 484 to 527 of the paper-book. From the confirmation and the other documents, it is evident that Vignahar Builders and Developers had advanced the loan to Vikas Builders. The learned counsel submitted that this amount was used by Vikas Builders for the project which had been signed by partners of the firm. The learned counsel further argued that there is no iota of evidence from the record to show that the firms Vikas Builders and Vignahar Builders & Developers are benami of the assessee. He further argued that the loan was advanced through account payee cheque. The statements of the partners of Vignahar Builders & Developers are at pp. 789 to 793. The learned Department Representative, on the other hand, argued that from the statements of the partners, it is evident that the firms are benami of the assessee and other partners have nothing to do with the firm as they have no knowledge about any transaction or activity of the firm. He further argued that mere confirmation does not prove the genuineness of the transaction.
(b)On careful consideration of the rival submission and the documents on record, we find that all the partners have categorically stated that they are the partners of the firm. The firm Vignahar Builders & Developers as well as Vikas Builders are assessed to tax. In our opinion, the mere fact that the partners have stated that all the accounts have been maintained by the assessee would not prove that the assessee is the benamidar. Admittedly, the firm is assessed to tax wherein the names of the partners are there and their share of income has also been mentioned. The Revenue has failed to bring anything on record to prove that the firm Vignahar Builders & Developers is benami or the loan advanced to Vikas Builders by the said firm is assessee’s unaccountanted money. No such entry in any books of account or any other material has been found or pointed out by the AO. In this view of the matter, we hold that the AO was not justified in making the addition of Rs. 24,45,000. As regards the loan from Vikas Developers, the AO observed that no returns of income have been filed by Vikas Developers for the assessment year 1995-96 and 1996-97. He further observed that assessee’s wife and HUF are the partners of the said firm and since his wife being a household lady, she is not capable of looking after, the business interest and, therefore, the assessee himself is carrying on all the transactions and, therefore, assessee should prove that the transactions are genuine and accordingly the peak credit amounting to Rs. 14,95,000 was added in the income of the assessee. The learned counsel for the assessee argued that the firm Vikas Developers is regularly filing the return of income and assessee being the Karta of HUF is looking after the business. The firm, Vikas Developers had filed the return for the assessment year 1995-96. The intimation from the IT Department under section 143(1)(a) is at pp. 531 to 533 of the paper-book. The balance sheet for the assessment year 1995-96 and 1996-97 have been submitted at pp. 536 to 543 of the paper-book.
(c)On careful consideration of the rival submission and the documents on record, we find that firm Vikas Developers is assessed to tax independently and the loans have been reflected in the balance sheet of the firm. The mere fact that no interest was charged on the said loan would not cost any shadow of doubt that the said amount was not advanced by the firm, Vikas Developers. A perusal of the acknowledgment which is placed at p. 533 of the paper-book that the return for the assessment year 1995-96 received by the Revenue authority in the month of January 1996 and therefore, the observation of the AO that the creditor had not filed the return for the assessment year 1995-96 does not appear to be correct. In view of the fact that the creditor firm is assessed to tax independently and is genuine and that the loan appears in the balance sheet for the assessment year 1995-96 and there is no evidence to prove that the assessee has shown these entries merely to account his income from unaccounted source and, therefore, the AO was not justified in making the addition of Rs. 14,95,000. The assessee in his capital account and the balance sheet for the assessment year which is placed at p. 715 of the paper-book has clearly shown amount of Rs. 14,95,000 from Vikas Developers. We, therefore, delete the addition made by the AO on this account.
(xi) Assessment year 1996-97
(a)During this assessment year, the AO has made the following additions :
|
|
|
Rs. |
|
(a) |
Shantilal Rikabchand |
2,80,000 |
|
(b) |
Rikabchand N. Jain |
1,00,000 |
|
(c) |
Jivaraj Prajapati |
2,00,000 |
|
(d) |
Mahavir Kumar |
1,00,000 |
|
(e) |
Prakash Bafna |
1,00,000 |
The AO made the addition in all the above cases on the ground that the assessee failed to produce the creditors for verification of loan. With regard to Shantilal Rikabchand the AO observed that from his bank statement which was submitted by the assessee, the creditor had deposited substantial amount in cash just prior to advancing the loan to the assessee. Some amount is said to have been borrowed by the creditor from his wife. Her bank statement also show that cash was deposited just prior to advancing the loan. The AO further observed that both Shantilal and his wife had meagre source of income and, therefore, they could not have advanced such a huge amount to the assessee. Similarly, in Rikabachand’s case also, the AO observed that the creditor had deposited substantial amount in cash just prior to the date of advancing the loan. The learned counsel for the assessee submitted that copies of the confirmation letters, income-tax acknowledgments, computation of income, capital account and balance sheet of the creditors had been filed by the assessee before the AO which are placed at pp. 692 to 710, 445 to 447 and 809 to 813. Shri Shantilal R. Jain appeared before the AO and confirmed that he had advanced the loan to the assessee. He has further explained the source of the fund from where he had advanced the loan. His confirmation letters are placed at pp. 692 to 693 and the acknowledgment of the IT return and the bank statement, etc., are at pp. 694 to 700. The confirmation of Shri Jivaraj Prajapati and his bank statement are at pp. 702 to 705. The confirmation of Mahavir Kumar and the IT return acknowledgment is placed at 706. The confirmation of Rikabachand Jain are placed at pp. 445 to 447. Similarly, the confirmation and copy of the income-tax acknowledgment of Prakash Bafna was submitted by the assessee. Merely because the creditor could not be produced before the AO does not mean that the AO should draw adverse inference with regard to the genuineness of the transaction. The AO could issue summons and could also make verification from the IT returns filed by the creditor. The learned counsel argued that the previous for assessment year 1996-97 was to end on 31-3-1996, and the search proceedings was conducted on 8-2-1996, and, therefore, no addition could be made in the block assessment order for this year. On the other hand, the learned Departmental Representative submitted that the AO was justified in making the addition as none of the creditors were produced before the AO and from the documents on the record, it is apparent that Shri Shantilal R. Jain and Shri Rikabchand Jain had deposited the amount in cash just before advancing the loan.
(d)On careful consideration of the rival submission we do not agree with the argument of the learned counsel that no assessment for the assessment year 1996-97 could be made under the block assessment under section 158BC of the Act. In fact, as per the provisions of Chapter XIVB, the income of each of 10 years prior to the year of search would also include the assessment year 1996-97 and that has to be determined under the block period. In fact, the pending assessment of the block period would merge in the collective assessment under section 158BC(c). The special procedure has been introduced by Chapters XIVB for framing of assessment of search cases. Once the assessment is framed for a particular year failing within the block period of 10 years, then no other assessment under any other provisions of the Act can be framed as two assessments cannot be framed for the same assessment year. However, on merit, we find that the assessee has filed the confirmation letter and all the creditors are assessed to tax. Their bank statements and the income-tax acknowledgments have been placed on the record. The AO has not been able to co-relate any evidence from the record that the transactions are not genuine. As regards the creditworthiness, the mere fact that certain amount was deposited before advancing the loan would not cause any shadow of doubt with regard to the genuineness of the transaction. Shri Shantilal R. Jain has fully explained the sources of the fund for advancing the loan. Similarly, in case of other creditors there is nothing on the record to show that the creditors had not advanced the loan or that they do not have the capacity to do so. Their bank account clearly shows that they had sufficient funds to advance the loan. In these circumstances, we delete the additions made on account of unexplained cash credits. We may mention that the disallowance of the interest on the unexplained cash credits for the block period, i.e., assessment years 1986-87 to 1996-97, the unexplained cash credits which had been deleted, the assessee will get consequential relief on the interest also.
4. Additions on account of investment in immovable property.
(i) Addition on account of investment in land at Kasabe.
(a)The AO made addition of Rs. 1 lakh on account of purchase of land at Kasabe. The assessee purchased the land admeasuring 158 sq. ft. at Kasabe for a consideration of Rs. 1 lakh by a deed of conveyance which is placed at pp. 461 to 471 of the paper-book. The assessee offered this amount as his income in his statement under section 132(4) of the Act. The AO added the said amount as the assessee had no plausible explanation for the same. The learned counsel for the assessee submitted that the land was purchased by the assessee on behalf of Jain Community out of funds received from various parties for community activities. He further submitted that merely on the basis of statement under section 132, no addition could be made. In support, he placed reliance on the decision of the Supreme Court in the case of Shrikrishna v. Kurukshetra University AIR 1976 SC 376. On the other hand, the learned Departmental Representative contended that the assessee himself offered the said amount for tax and he has not retracted the said declaration and, therefore, the addition made by the AO was justified.
(b)On careful consideration of the rival submissions we find that the assessee himself had offered the amount of Rs. 1 lakh on account of purchase of land at Kasabe and till date that statement has not been retracted and, therefore, we do not find any ground to interfere with the order of the AO and accordingly, we confirm the said addition.
(ii) Addition on account of investment in land at Prakash Towers.
The assessee purchase land for developing residential-cum-shopping complex known as ‘Prakash Towers’. The said project was developed during the assessment years 1994-95 and 1995-96 by Vikas Builders. The land for the said project was purchased from three persons, i.e., Parvati Rane, Yashwant Rane and Shilpa Rane, the details of which are given as under :
|
S. No. |
Name |
Area sq. mtr. |
Value |
Rate per Sq. mtr. |
Date |
|
1. |
Parvati Mahadeo Rane & Ors. |
1,782.22 |
85 lacs |
4,770 |
1-8-1991 |
|
2. |
Yashwant Rane |
504,20 |
2.5 lacs |
496 |
1-8-1991 |
|
3. |
Shilpa Rane |
222.57 |
1.9 lacs |
856 |
24-2-1997 |
The AO made an addition of Rs. 18,53,564 under section 69A of the Act on account of purchase of land from Parvati Rane, Yashwant Rane and Shilpa Rane and treated the same as unaccounted investment in the land by the assessee. The AO has observed that there is a glaring difference in the rates of the land purchased from Parvati Rane on one hand and Yashwant Rane and Shilpa Rane on the other hand and, therefore, the assessee was asked to submit his explanation vide letter dated 21-2-1997. The proposal to adopt the rates at par with that of the land purchased from Parvati Rane was communicated to the assessee. The assessee in reply to the said letter objected by stating that the parts of the two plots of land purchased from Yashwant Rane and Shilpa Rane is included in Parvati Rane’s land and secondly, it was stated that the land of Yashwant Rane and Shilpa Rane was surrounded by the land owned by Parvati Rane and, therefore, the vendors had no option but to sell the land to the assessee at a lower rate. It was further stated that no other person could in anyway utilize these pieces of land, and, therefore, the assessee could bargain the price with the vendors. It was further stated that the FSI on the land belonging to Yashwant Rane and Shilpa Rane was lesser than the land available to Parvati Rane and, therefore, the rates of their land was lesser than the impugned plot. The AO, however, calculated the cost of land of Yashwant Rane and Shilpa Rane as under :
Yashwant Rane
Total Land504 sq. mtrs.Rate : 1.8 × 4770/2 = 4,364
Less - Chawl (Physically measured)
152
352
|
|
Rs. |
|
|
Consideration at Rs. 4,364 - 4364 × 352 |
15,36,128 |
|
|
Assuming 50 per cent reduction in the rate of |
3,31,664 |
|
|
land on account of encumbrance on152 sq. mt. |
|
_______ |
|
|
|
18,67,792 |
Shilpa Rane
|
Total Land |
222 sq. mt. |
|
||
|
Less - Encumbered land |
87.74 |
Rate 2,385 |
||
|
|
134 |
|
||
|
|
|
Rs. |
|
|
|
Consideration at Rs. 2,385 per sq. ft. |
3,19,590 |
|
|
|
|
50% reduction (as Yashwant Rane) |
1,06,132 |
|
|
|
|
on account of encumbrance |
4,25,722 |
|
|
|
|
Total consideration |
|
22,93,564 |
|
|
|
Less - Consideration as per agreement |
|
4,40,000 |
|
|
|
|
|
18,53,564 |
|
|
The AO, therefore, added a sum of Rs. 18,53,564
(b)The learned counsel for the assessee contended that the AO failed to take into consideration that the land belonging to Parvati Rane was the main plot of land whereas the land belonging to Yashwant Rane and Shilpa Rane was encumbered by the main plot. These plots were also encumbered by tenanted plot and, therefore, their rate could not be at par with the rate of Parvati Rane’s land. He further argued that the land of Parvati Rane was a commercial plot as there was a theater known as Prakash Talkies whereas the land of Yashwant Rane and Shilpa Rane were tenanted properties and, therefore, the vendors did not have any other option but to sell the same to the assessee at a lower price. He further contended that statement of the parties were recorded and they categorically stated that the land was sold to the assessee as mentioned in the agreement. The agreement of the parties are at pp. 298 to 344 of the paperbook. The learned counsel argued that the AO has made the addition merely on conjectures and surmises and there is no documentary or any other evidence or information with the AO to assess the rate of Yashwant Rane’s and Shilpa Rane’s land at par with the rate of Parvati Rane’s land. He further argued that the cost of the land had been duly reflected in the books of accounts of the assessee and had been accepted as such by the AO in the regular assessment and, therefore, without any fresh evidence, no addition could be made in the block assessment. On the other hand, the learned Departmental Representative argued that the AO has made the addition keeping in view the glaring difference in the rates of land stated at the same place. He heavily relied on the order of the AO.
(c)On careful consideration of the rival submission and the documents on record, we find that all the three vendors, viz., Parvati Rane, Yashwant Rane and Shilpa Rane appeared before the AO and their statements were recorded. They categorically admitted the consideration mentioned in the agreements. The AO has not brought any evidence on record to show that the consideration mentioned in the agreements and admitted by the vendors is not correct or there is any other evidence to show that the vendors as well as the assessee are suppressing the rates with regard to the land. From these facts, we find that there is no evidence on the record to show that the value as shown in the agreement was understated. Even on material was found during the course of search in this respect. Accordingly, we hold that the AO was not justified in estimating the cost of the land merely on conjectures and surmises.
(iii) Cost of construction of Prakash Towers
(a)On the date of search, out of the 7 storeys of Prakash Towers, the RCC and brick work had been carried out in respect of 5 storeys. The assessee submitted the details of expenses incurred on the construction upto the date of search vide his letter dated 10-1-1997 which is as under :
|
|
Rs. |
|
Expenses and labour |
8,29,650 |
|
Material |
33,53,308 |
|
KMC & MSEB charges |
2,34,091 |
|
Other expenses |
9,01,99 |
|
|
51,27,044 |
The AO referred the matter to the Department Valuation Officer (DVO), who determined the expenditure incurred on construction as on 22-11-1996, at Rs. 1,07,00,000 vide his report dated 24-1-1997. The expenses incurred as per the assessee’s books submitted by him to the DVO is Rs. 94,76,00,000 and accordingly, the AO added the difference of Rs. 12,04,000 on account of investment as undisclosed income. The learned counsel for the assessee submitted that valuation report was not furnished to the assessee. Therefore, without providing any opportunity, to rebut the same, furnishing the same, no addition should have been made on the basis of the vacation report. He further pointed out that the cost of construction as submitted by the assessee was Rs. 1,01,94,012 and not Rs. 94,76,000 as mentioned by the AO. The learned counsel drew our attention to pp. 596 and 597 of the paper-book wherein the details of the expenditure for the project New Prakash Talkies have been mentioned. Taking into consideration that the assessee had submitted the details of cost of construction at Rs. 1,01,94,012, if the addition could be made, would be the difference of Rs. 5,05,988. On the other hand, the learned Departmental Representative submitted that the AO has rightly made the addition of the difference between the valuation report and the cost of construction shown by the assessee himself.
(b)On careful consideration of the rival submission and the documents on record, we find that the DVO vide his report determined the expenditure incurred on construction at Rs. 1,07,00,000 whereas the assessee has brought to our notice that he expenditure as submitted by the assessee to the DVO upto 22-11-1996, was 1,01,94,012. However, the AO in his order has mentioned that the corresponding expenses incurred by the assessee as per books and submitted to the DVO is Rs. 94,76,00,000 and accordingly the AO added the difference of Rs. 12,04,000. From the record, we are unable to find as to what extent the expenditure has actually been incurred by the assessee and entered in his books of accounts. Accordingly, we are of the view that the matter may be restored to the AO to verify the record and the books of account of the assessee as to what was the actual expenditure incurred by the assessee on the construction upto 22-11-1996, and then to arrive at the conclusion. Accordingly, the matter with regard to the cost of construction is set aside.
(iv) Addition on account of understatement of saleable area.
(a)The project at Kalyan consists of 35 flats, 22 shops and 8 office accommodation. As per the agreements on record, the assessee sold flats @Rs. 700 per sq. ft. of the carpet area and shops at Rs. 1,142 per sq. ft. of carpet area. During the course of search, a diary was found wherein the areas of the flats and shops had been worked out differently on built up area basis. The same is annexed with the order of the AO as Annexure I. The AO further observed that in the cases of other builders who have been constructing similar projects in Kalyan, the rates ranges from Rs. 950 to Rs. 1,500 per sq. ft. per built up area whereas the assessee’s price was Rs. 700 per sq. ft. carpet area. The AO found that in other construction company by the name of Joginder Construction Co. (P.) Ltd. was charging at 650 per sq. ft. on papers and Rs. 350 per sq. ft. as on-money on the built up area. The AO observed that as per assessee’s calculation, the cost of project was at Rs. 2,90,61,538 whereas the total sale consideration as per his calculation comes to Rs. 2,72,39,550 which means that the assessee was suffering loss of over Rs. 18 lakhs. He further observed that if the cost of construction is taken as per the built-up area and the sale price is also taken as per the built-up area, even then the assessee would suffer loss but the same is not apparent from the figures furnished by the assessee as to how the assessee had worked out as per the carpet area or built-up area. The AO worked out the sale price of the flats as under :
"The receipts of the assessee @Rs. 700 per sq. ft. as per the area of flats at 28,970 sq.ft. worked out in prospect of sold out flats as per bundle No. C-2/39 would be Rs. 2,02,79,000 in respect of flats and Rs. 11,72,834 in respect of shops. As against this, the actual sale consideration receivable/received by the assessee as per agreements drawn out would be Rs. 1,49,43,600 in respect of flats and Rs. 9,00,000 in respect of shops. The difference of Rs. 56,06,054 (Rs. 2,02,79,000 + Rs. 11,72,834 - (Rs. 1,49,43,600 + Rs. 9,00,000) represents sale consideration for the area suppressed by presenting saleable area as carpet area instead of built-up area. Accordingly, this amount of Rs. 56,06,054 in respect of the shops and flats sold till the date of search are treated as the suppressed sale receipts of the assessee during the previous year ended 28-2-1990."
(b)We have heard the rival submissions. The learned counsel for the assessee contended that in all its projects he has sold the flats and the shops on the basis of the carpet area. He further pointed out that the estimated area was noted down in the seized note book for the purpose of stamp duty where the valuation is done on the basis of built-up area and not on carpet area. The learned counsel further contended that there cannot be any comparison with builders like Godrej Lok Udyan and Gaganpuri Builders referred by the AO as those builders are developing townships with various high-class facilities like swimming pool, health club, etc. With regard to the on-money received by Joginder Construction Co. whose statement was recorded by the AO, the learned counsel submitted that the mere statement of another construction company cannot be taken as the basis for addition or assuming that the assessee-company had also charged the on-money is not proper. The learned counsel submitted that addition cannot be made merely on the basis of suspicion. He further pointed out that the assessee has been maintaining the accounts regularly and, therefore, no addition could be made on presumption. In support, the learned counsel placed reliance on the following decisions :
(1) KP Varghese v. ITO [1981] 24 CTR (SC) 358 : [1981] 131 ITR 597 (SC);
(2) Umarchand Shah & Bros v. CIT [1960] 39 ITR 231 (SC); and
(3) St. Theresa Oil Mills v. State of Kerala [1970] 76 ITR 365 (Ker.)
The learned counsel argued that whatever is apparent from the records should be treated as real unless contrary is proved. In support, the learned counsel referred to the following decisions of the Supreme Court :
The learned counsel, therefore, argued that the entire additions have been made by the AO on presumptions and on the basis of the suspicion. He further argued that the AO did not furnish the copies of the statements of the parties recorded by him in the course of assessment proceedings nor he was given an opportunity to cross-examine them and, therefore, whatever material collected at his back cannot be used to make the additions.
(c)The learned Departmental Representative, on the other hand, argued that the additions have been made on the basis of the enquiry and the seized books of accounts. He further argued that when there is prima facie evidence against the assessee with regard to the receipt of money and if he fails to rebut the said evidence, it can be used against him by holding that it was a receipt of an income nature. He further argued that after taking into consideration the surrounding circumstances and applying the test of preponderance of probabilities, the AO has rightly made the addition. The learned Departmental Representative heavily relied on the order of the AO. He pointed out that the AO has discussed the seized note book wherein the built-up area with terrace separately is provided for and the payments received has been mentioned. In support, the learned Departmental Representative placed reliance on the decision of the Hon’ble Supreme Court in the case of Sumati Dayal v. CIT [1995] 125 CTR (SC) 124 : [1995] 214 ITR 801 (SC), CIT v. Precision Finance (P.) Ltd. [1994] 121 CTR (Cal.) 20 : [1994] 208 ITR 465 (Cal.).
(d)After considering the submissions of both the parties and the material on record, we find some force in the arguments of the learned counsel for the assessee. Apparently, of course, a doubt arises in the mind when the rates of comparable instances are given showing that the rates are on the basis of built-up area. The assessee has explained the seized note that the said calculations were made with regard to the stamp duty purposes. He has pointed out that as per the letter of the sub-Registrar, stamp duty is required to be paid on the basis of the built-up area of the flat. The said letter of the Registrar is at pp. 590 to 595 of the paper-book. The explanation submitted by the assessee was that the calculations were kept ready for the stamp duty purposes so that it would be possible to inform a prospective buyer the stamp duty payable by them. The learned counsel further pointed out that all the agreements with the buyers are entered into on the basis of carpet area and not on the basis of built-up area. In case, the assessee had sold the area on the built-up area basis the agreement would have been on the same basis.
As regards the rates as per the assessee he has charged the rate at Rs. 700 per sq. ft. or the flats and Rs. 1,142 for the shops on carpet area basis. As per the assessee, the rates in similar locality available with the sub-registrar has been submitted before the AO which shows that the rate prevalent at that time was Rs. 500 per sq. ft. whereas the assessee had charged Rs. 700 per sq. ft. We agree with the argument of the learned counsel that there cannot be any comparison with the cases of Godrej Builders and Lok Udyan as these parties have a high reputation in the market and, therefore, they can command a considerably high price on account of their name and reputation. Since the agreements of some of the purchasers are on the record, the AO could very well verify from the purchasers, the rates and the area from the purchases. The finding of the AO that even as per the assessee’s calculations he would suffer loss seems to be misconceived as at p. Nos. 690 and 691 of the paper-book, the assessee has given the project working wherein it is apparent that the profit @9 per cent has been made by the assessee. After going through all the facts and documents, we are of the opinion that the AO has made the addition merely on presumption and suspicion without any definite evidence which should form the basis of making the additions. In fact, the seized papers have already been explained by the assessee. However, no such assets have been found during the search which could show that the assessee had received on-money or he has shown the suppressed value of sale of flats. In fact, it is the duty of the Revenue to show that the assessee has received more than what has declared or disclosed by him as consideration. Therefore, the burden to prove the same was on the Revenue and not on the assessee. This burden should have been discharged by the Revenue by establishing the facts and circumstances from which a reasonable inference could be drawn that the assessee has not correctly declared or disclosed the consideration received by him and there was an understatement or concealment of the consideration. In the present case, the agreement between the parties are the basis evidence to show the sale consideration and the built-up area on which the shops and flats have been sold by the assessee and the Revenue could not bring out any evidence to show that the assessee has suppressed the sales merely on the basis of suspicion and presumptions. Accordingly, the addition on this account made by the AO deserves to be deleted and this ground of the assessee is allowed.
V. Excess receipt in the project at C.S. Pandit Site Ambernath
(a)The assessee in the name of Vikas Builders has undertaken a project at Ambernath on the land belonging to one Mr. C.S. Pandit. The said project was started in the previous year ending 31-3-1989, and completed in the previous year ending 31-3-1991. The assessee has shown a profit of Rs. 61,331. He showed closing work-in-progress at Rs. 2,38,706. The AO found that the land had been divided into two pieces. The project was constructed on one part of the land. However, the assessee included the entire cost of the land in the cost of the project. The AO observed that the total sale consideration comes to Rs. 12,13,696 as the assessee had given 1,060 sq. ft. of built-up area to the landlord in exchange for the land in addition to the purchase consideration of Rs. 1,75,000. He further observed that the assessee has sold the flat at the rate varying 128 to 375 sq. ft. However, in the course of search, agreement on stamp paper dated 19-4-1991 was found having executed between the assessee and C.S. Pandit at bundle No. C-1/6 wherein at p. 3 it is stated that the assessee, developer is entitled to deduct the compensation for the additional area over and above the 1,050 sq. ft. @ Rs. 350 sq. ft. built-up area from the balance amount payable to the owner by the developer and accordingly, the AO was of the view that the assessee had arrived at the figure of Rs. 300 per sq. ft. as the fair market value. Therefore, he has understated the price charged from the other buyers of the flat. The AO has observed that there seems to be no cogent reason as to why the assessee should charge more from the land owner and less from the other buyers. The assessee, on p. 203 of the paper-book has given the computation as under :
|
"Total area of project |
|
4,605 sq. ft. |
||
|
Less : Tenement Area |
|
|
||
|
Y.V. Jape |
582 sq. ft. |
|
||
|
Vithal Jagannath Sathe |
425 sq. ft. |
|
||
|
|
|
1007 sq. ft. |
||
|
Area for sale |
|
3,598 sq. ft. |
||
|
|
|
Rs. |
||
|
Area (own area include) |
3,598 × 300 |
10,79,400 |
||
|
Y.V. Jape |
|
83,920 |
||
|
V.J. Sathe |
|
54,600 |
||
|
|
|
12,17,920 |
||
|
Construction cost shown by assessee |
|
9,07,365 |
||
|
Land cost |
|
1,51,294 |
||
|
1,75,000 + 1,050 × 300 |
= 4,90,000 |
|
||
|
Less : W.I.P |
= Rs. 2,38,706 |
|
||
|
Profit shown by the assessee |
|
61,331 |
||
|
|
|
12,19,990" |
||
The AO, however, rejected the computation given by the assessee and computed it a fresh as under :
"Total land cost = 1,75,000 + 1,050 × 300 = 4,90,000
Half of it is attributable to the project already completed, i.e., land cost of project 2,45,000
Receipt from customers = 3,654 × 300 = 10,96,200
Receipt from owner (notional) = 1,050 × 300 = 3,15,000
|
Total receipts |
14,11,200 |
|
Construction cost shown by the assessee |
9,07,365 |
|
Land attributable to this project |
2,45,000 |
|
Profit shown by the assessee |
61,331 |
|
Excess receipts not declared by the assessee |
1,97,504" |
(b)The learned counsel for the assessee submitted that the property was a tenanted property having two tenants, viz., Y.V. Jape and V.J. Sathe. the tenants were given an equivalent area at a concessional rate of Rs. 120 per sq. fit. and for excess area at a concessional rate of Rs. 250 sq. ft. The agreement of both the tenants have been placed on record at pp. 183 to 200 of the paper-book. The learned counsel submitted that if the sale in case of the tenants is not considered the assessee has shown more profit than worked out by the AO. The learned counsel argued that the AO cannot estimate the sale on notional basis when the assessee has maintained the accounts regularly. In support, the learned counsel placed reliance on the decision of the Hon’ble Supreme Court in the case of Kalwa Dewo Dettam v. CIT (supra) and in the case of KP Varghese & Co. v. CIT (supra). He further argued that suspicion, however, strong cannot take place of the proof. On the other hand, the learned Departmental Representative argued that the AO has justified in making the addition as the assessee has offerred Rs. 300 per sq. ft. to the other buyer and on lesser rate to the land owner. The AO came to know about the price offered to the landlords from the seized documents in bundle No. C-1/16 found during the search.
(c)We have considered the rival submission and the documents on record. From the facts it is apparent that the assessee had agreed to give an equivalent area to the tenants at a concessional rate as per the agreements between the assessee and the tenants S/Shri V.J. Sathe and Y.V. Jape. The Revenue authorities have not questioned the genuineness of the agreements with the tenants and, therefore, impliedly accepted the same. Having done so, we find no reason as to why the said agreements were not considered by the AO while computing the profits. For the sake of arguments we may assume that the assessee may have to pay compensation to the tenants for getting the tenanted premises vacated, then the same would have been allowable as deduction. The AO has made the addition on notional basis without considering the agreements on record. In this view of the matter, we are of the opinion that the AO has not justified in making the addition on notional basis and accordingly, the addition of Rs. 1,97,504 on account of excess receipt in the project C.S. Pandit Site at Ambernath is deleted.
19. In view of our finding in paras 6, 7, 8 and 9, wherein we have held that the AO had passed a detailed and well-reasoned order and the computation was merely for giving the details of the income assessed for the entire block period which is not a separate order as projected by the assessee’s counsel, the appeal No. 50/Mum/1997 need not be decided separately. In fact, all the issues taken up in the said appeal have been discussed in detail in paras 6 to 9 of appeal No. 130/Mum/1997.
20. In the result, the appeal No. 50/Mum/1997 is dismissed whereas the appeal in ITA No. 130 is partly allowed.
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