Vildirect: IncomeTax-caselaws-2001-VIL-159-ITAT-CHN

2001-VIL-159-ITAT-CHN

Equivalent Citation: ITD 081, 242, TTJ 075, 864, [2002] 256 ITR 76 (Coch.) (AT)

Income Tax Appellate Tribunal COCHIN

Date: 02.07.2001

K. MOIDU.

ASSISTANT COMMISSIONER OF INCOME TAX.

BENCH

Member(s) : DR. O. K. NARAYANAN., K. P. T. THANGAL., M. M. CHERIAN.

JUDGMENT

Per M.M. Cherian, Accountant Member--As common grounds are involved in these two appeals filed by the two assessees, Shri K. Moidu, alias Kunhippa, and his brother Shri K. Kunheedutty, they are consolidated in a common order for the sake of convenience.

2. The two brothers, Shri Moidu and Shri Kunheedutty were carrying on business in the Gulf countries. On 26-9-1996 the department conducted a search under section 132 of the Income-tax Act in their residential premises at Tirur. The documents seized in the course of the search showed their Joint investments in the purchase of landed properties and the construction of residential buildings. Proceedings were separately initiated under section 158BC of the Income-tax Act calling for the returns of income to be filed for the block period ending on 26-9-1996. In response to the notice they filed the returns in Form No. 2B declaring the undisclosed income at nil. After making enquiries and considering the seized documents, the Assessing Officer passed the impugned orders of assessment under section 158BC of the Income-tax Act determining the undisclosed income to the extent of the cash shortage trading into account the outgoings. Except the interest income, all other incomes of each assessee were assessed at 50% of the difference in cash. In the case of Shri Moidu, alias Kunhippa, the income assessed was Rs.12,73,990 and in the hands of Shri Kunheedutty the assessment was on income of Rs.12,72,930. Aggrieved with the assessments of the undisclosed income of the block period as above, the assessees have filed these appeals before the Tribunal.

3. At the time of hearing, Shri C.B.M. Warrier, Chartered Accountant appeared on behalf of the assessee and Shri Amba Shankar Dev, the Senior Departmental Representative on behalf of the Revenue.

4. The first common ground in these two appeals is that the Assessing Officer was not correct in treating a sum of Rs.5,61,600 as the undisclosed income of the block period on account of the unexplained investment in the purchase of 216 cents of land. The Assessing Officer came to know that the assessees had purchased 216 cents of land from one Narayanan Moosad and his family members at a recorded price of Rs.2 lakhs. In the cash flow statement filed before the Assessing Officer the consideration was shown at Rs.2 lakhs. On enquiries with the vendors it was revealed that the sale consideration was Rs.2,600 per cent and that they had received a total sum of Rs.5,61,600 in July 1986, partly by cash and partly by cheque. On the basis of the information gathered in the enquiries, the Assessing Officer considered the investment at Rs.5,61,600 as against Rs.2 lakhs admitted in the cash flow statement. In the assessment the Assessing Officer thus reduced the cash balance available with the assessee for explaining the cash outgoings for the subsequent years. Though in the first ground the assessee has objected to the addition, at the time of hearing the learned representative Shri Warrier submitted that this ground was not being pressed. Hence this ground is treated as dismissed.

5. In the next ground the assessee is challenging the addition on account of investment in the purchase of 32.75 cents of land. In the cash flow statement the investment was shown at Rs.32,000 for the reason that as per the registered document the recorded price was Rs.32,000. On going through the bank account of Shri Kunheedutty the Assessing Officer found that on 30-11-1991 there were three withdrawals (Rs.50,000, Rs.1,00,000 and again Rs.50,000), totalling Rs.2 lakhs from the NRE A/c No. 1300. The Assessing Officer concluded that the entire sum of Rs.2 lakhs must have been paid as consideration for purchasing the property and as the assessee had accounted for the cash outgoing of Rs.32,000 only, the balance amount was the undisclosed income of the assessment year 1992-93. Accordingly the undisclosed income for the assessment year 1992-93 was assessed at Rs.1,20,570.

6. Shri Warrier, the learned representative of the assessee, submitted before us that the Assessing Officer was not correct in holding that the consideration for the purchase of the land was Rs.2 lakhs as against the recorded price of Rs.32,000 as per the document. According to the learned representative, there was no evidence gathered by the Assessing Officer to show that anything more than the recorded consideration had been paid for purchasing the land. Shri Warrier contended that though there was the total sum of Rs.2 lakhs withdrawn from the N.R.E. account of Shri Kunheedutty, there was nothing to correlate the withdrawal with the investment and that the cash was used for other investments and outgoings. Shri Warrier further stated that the document was dated 2-11-1991 whereas the cash withdrawals from the bank account were made on 30-11-1991 and so the sum of Rs.2 lakhs could not have been utilised for purchasing this property.

7. Per contra, Shri Amba Shankar Dev, the Senior Departmental Representative submitted that the assessee had purchased a number of properties and it was established beyond doubt that in respect of those transactions the considerations were understated in the documents. Drawing our attention to the assessment order, the learned departmental representative pointed out that there was the purchase of 23.5 cents of land by document No. 2839 for the consideration of Rs.4 lakhs as recorded in the document. But the evidence gathered by the Assessing Officer showed that the actual consideration paid was Rs.32 lakhs and that the addition on that account had not been disputed by the assessee. He further stated that even in respect of 216 cents of land purchased from Narayanan Moosad and others (as per the first ground of appeal), the consideration shown in the document was Rs.2 lakhs, whereas the actual purchase price was Rs.5,61,600. The departmental representative pointed out that by document No. 405 dated 25-4-1991 there was the purchase of 1.50 acres of land for the apparent consideration of Rs.1.5 lakhs, but the Assessing Officer established that the actual consideration paid by the assessee was Rs.6,95,000. Shri Amba Shankar Dev submitted that the addition on that basis had been accepted by the assessee. With the help of these details the learned departmental representative submitted that in an these documents the assessee was showing the consideration around Rs.1,000 per cent only, but the actual purchase price was much more. In the case of 32.75 cents purchased under document No.3101 also the price was shown around Rs.1,000 per cent. It was the contention of the learned departmental representative that in respect of this transaction also there was understatement of consideration and that at the rates prevailing in 1991 the property could not have been purchased for the price of Rs.32,000. The learned departmental representative added that the Assessing Officer found that there was the total sum of Rs.2 lakhs withdrawn from the bank account of Shri Kunheedutty on 30-11-1991. Shri Amba Shankar Dev further stated that though the document was showing the date of 2-11-1991, it was registered on 30-11-1991, on the date on which the sum of Rs.2 lakhs was withdrawn from the bank. Shri Amba Shankar Dev also brought to our notice the letter issued by the Assessing Officer on 26th August, 1997 requiring the assessee to furnish clarification regarding the investments in immovable properties. In para 2.5 of the above letter it is shown that the assessees had purchased this property on 30-11-1991. It was the contention of the learned departmental representative that the amount withdrawn on 30-11-1991 could be utilised for the investment and in that sense there was no discrepancy in dates as suggested by the assessee's representative.

8. Considering the rival submissions and the facts of the case as brought on record, we find that there was the total sum of Rs.2 lakhs withdrawn from the NRE account of Shri Kunheedutty on 30-11-1991. As the document No. 3101 the purchase consideration was Rs.32,000. There is evidence to show that in a number of purchases by the assessees there was under-statement of the purchase consideration. The assessee also accepted the additions made in respect of other transactions. In respect of these transactions the consideration shown in the documents was around Rs.1,000 per cent. In view of the fact that in all those transactions the actual price paid by the assessees was higher amounts, it could be reasonably presumed that in respect of the purchase of 32.75 cents by document No. 3101 also the price paid by the assessee must have been higher than the consideration-of Rs.32,000 as recorded in the document. The consideration of Rs.2 lakhs as found by the Assessing Officer also appears to be reasonable having regard to the under-statement of consideration as admitted by the assessees in respect of other investments The learned Representative of the assessee contends that the withdrawal of Rs.2 lakhs on 30-11-1991 could not be correlated with the purchase of 32.75 cents of land as the document is showing the date 2-11-1991. From the letter issued by the Assessing Officer on 26-8-1997 it is seen that the document was registered on 30-11-1991 and from the assessment order it is clear that the registration was on the same date on which cash of Rs.2 lakhs was withdrawn from the bank. Merely because the document is showing the date 2-11-1991, it does not mean that the consideration was paid on that date and not on the date of registration. In the circumstances of this case, we find that the Assessing Officer was justified in considering Rs.2 lakhs as the amount paid on 30-11-1991 for the purchase of 32.75 cents as per document No. 3101. This ground is therefore decided against the assessee.

9. The next ground in this appeal is regarding the addition in respect of unexplained investment in purchasing 24 cents of land at Valancherry. The documents seized during the search included three deeds showing the purchase of a total area of 24 cents by three documents (1)8 cents by document No. 2535 dated 31-8-1994 for consideration of Rs.1.65 lakhs (2)8 cents by document No. 2175 dated 28-7-1994 for Rs.1.60 lakhs and (3)8 cents by document No. 3330 dated 22-11-1994 for Rs.33,000. As per these documents, the total investment came to only Rs.3,58,000. On going through the N.R.E. account No. 11604 in the name of Shri Moidu the Assessing Officer found that there was withdrawal of Rs.3 lakhs on 30-8-1994. Similarly, there was withdrawal of Rs.8 lakhs on 28-7-1994 from the NRE A/c No. 1713 in his name. On 22-11-1994 the date on which document No. 3330 was registered, there was withdrawal of Rs.3,50,000 from his NRE A/c No. 1713. On the basis of the withdrawals from the bank account the Assessing Officer concluded that the total investment in the purchase of 24 cents of land through these three documents must have been Rs.14,50,000. In the cash flow statement the investment was shown at Rs.6.46 lakhs, even though the documented price was Rs.3,58,000 only. That was said to be on the basis of the value fixed by the Registration authorities after imposing a fine of Rs.4,300 for under-statement of consideration. The Assessing Officer did not accept the consideration of Rs.6.46 lakhs as shown by the assessee in the cash flow statement and he proceeded to treat the sum of Rs.14,50,000 as the investment and on that basis made the addition of Rs.8,70,700 for the assessment year 1995-96, including the registration expenses.

10. Before us, Shri Warrier contended that there was no evidence with the Assessing Officer to conclude that there was the investment of Rs.14,50,000 in the purchase of Valancherry property. The learned representative stated that the assessee had admitted the investment of Rs.6.46 lakhs and that should have been accepted by the Assessing Officer. Shri Warrier pointed out that in the sworn statement recorded on 26-9-1996 Shri Moidu had stated that though there was withdrawal of Rs.14,50,000 during the previous year, only Rs.7,10,000 had been utilised for investment in Valancherry property including the registration expenses and that the balance amount had been utilised for other outgoings. According to Shri Warrier, there was the claim of Shri Moidu that out of the cash of Rs.8 lakhs withdrawn from the NRE account in July 1994, Rs.4 lakhs was deposited in S/B Account. It was the contention of Shri Warrier that the Assessing Officer was not correct in treating the sum of Rs.4 lakhs also as investment in the property. Shri Warrier submitted that the Assessing Officer ought to have accepted the investment of Rs.7,10,700 as shown by the assessee in the cash flow statement.

11. Shri Amba Shankar Dev, the learned departmental representative, on the other hand submitted that from the details gathered from the bank accounts the Assessing Officer could correlate each purchase with the withdrawal of cash from the NRE account on the same date or on the previous day. According to the learned departmental representative, the assessee could not show as to how the cash withdrawn on those dates have been utilised, apart from stating vaguely that the withdrawals must have been utilised for various outgoings. It was the contention of the learned departmental representative that in the absence of any evidence to show that the withdrawals from the bank account had been utilised for other purpose, the Assessing Officer was justified in treating the cash withdrawal of Rs.14,50,000 as utilised for the purchase of Valancherry property.

12. It is nobody's case that for the purchase of the three properties by document Nos. 2535,2175 and 3330 the consideration paid by the assessee was the documented price of Rs.3,58,000 only. Even according to the assessee, the purchase price paid was Rs.6.46 lakhs, and in the cash flow statement the investment was shown at Rs.7,10,700 including the registration expenses. That was the consideration as fixed by the Registration authorities in the proceedings taken against the assessee for understatement of consideration. Though there was the total sum of Rs.14,50,000 withdrawn from the bank account immediately before the date of registration of the three plots, the assessees' claim was that out of the sum of Rs.8 lakhs withdrawn from the bank account on 28-7-1994, Rs.4 lakhs was deposited in an S.B. Account. In his sworn statement recorded at the time of search on 26-9-1996 Shri Moidu affirmed that out of the withdrawal of Rs.8 lakhs, Rs.4 lakhs had gone into his S.B. Account. That amount was thus not available for payment towards the purchase consideration. Apart from that, the Registration authorities had initiated proceedings for under-statement of consideration and imposed fine on the assessees. The value as fixed by them was Rs.6.46 lakhs for the total area of 24 cents. We are in agreement with the learned representative that in the absence of any evidence to rebut the assessees' claim that the balance amount had been utilised for other outgoings, we think it is reasonable to accept the investment in Valancherry property at Rs.7,10,700 including the registration expenses, as admitted by the assessee in the cash flow statement. This ground of appeal is thus decided in favour of the assessee.

13. In the next ground the assessee is disputing the addition on account of unexplained investment in the construction of residential quarters. The assessee had started the construction of the residential quarters during the year 1987-88 and completed the construction in 1992-93. In the cash flow statement the assessee had shown the total investment at Rs.7,04,000, i.e., Rs.2.84 lakhs for the ground floor and Rs.4.2 lakhs for the first floor. The documents seized in the course of the search showed that till 12-3-1991 there was investment of Rs.4,74,512. The Assessing Officer did not accept the investment as shown in the cash flow statement an he proceeded to estimate the same at Rs.8,92,297. Apart from the investment as reflected in the seized document, the Assessing Officer added the amounts as shown by the assessee to arrive at the investment at Rs.8,97,297 and on that basis made the addition of Rs.1,93,000 as undisclosed income of the block period.

14. The learned representative Shri Warrier submitted before us that the Assessing Officer was not correct in considering the total investment in the residential quarters at Rs.8,97,297 when the actual investment till 31-3-1991 as per the seized documents came to Rs.4,74,512 only. It was his contention that the Assessing Officer was not correct in adding the sum of Rs.4,74,512 to the cost as declared by the assessee. According to Shri Warrier the sum of Rs.4,74,512 is the cumulative total of the investment from 6-10-1987 till 12-3-1991. As there was no documentary evidence to show the investment of Rs.8,97,287 as estimated by the Assessing Officer, the learned representative urged us to accept the investment of Rs.7,04,000 as admitted by the assessee.

15. The learned departmental representative submitted that the Assessing Officer had proceeded to make a reasonable estimate of the investment after considering the expenditure as reflected in the seized accounts. According to Shri Amba Shankar Dev, as the building was completed in the year ending 1992-93 there was further investment over and above the sum of Rs.4,74,512 as shown in the accounts and so the Assessing Officer was justified in making the addition for the remaining period as declared by the assessee. It was submitted that the total investment of Rs.8,97,297 estimated by the Assessing Officer was quite reasonable having regard to the total area of 548 sq. mts.

16. The assessee constructed the two storeyed building with five shop rooms and five residential quarters on the ground floor and seven residential quarters on the first floor. The assessee has shown the investment of Rs.7,04,000 for the entire property. After inspecting the property the Assessing Officer estimated the cost of construction at Rs.9,13,300, adopting a plinth area rate of Rs.1000 per sq. mtr. for the shop rooms, at Rs.1,500 per sq. mtr. for the residential area on the ground floor and at Rs.2,000 per sq. mtr. for the residential area on the first floor. But then the Assessing Officer did not go by that figure for the purpose of assessment. In the cash flow statement the assessee had shown the investment at Rs.7,04,000 for the period from the year ending 31-3-1987 to 31-3-1992. The Assessing Officer arrived at the sum of Rs.8,97,297 as under:

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Assessment year 1987-88 as declared by the assessee Rs. 1,00,000

Assessment year 1988-89 as declared by the assessee Rs. 1,00,000

Assessment year 1989-90 as per the seized books Rs. 1,57,306

Assessment year 1990-91 as declared by the assessee Rs. 1,50,000

Assessment year 1991-92 as per the seized books Rs. 2,69,991

Assessment year 1992-93 as declared by the assessee Rs. 1,20,000

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Total Rs. 8,97,297

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It can be seen from the above that the adjustments made by the Assessing Officer were in respect of the assessment year 1989-90 and assessment year 1991-92 only. For the other years the investments as declared by the assessee were accepted. As per the accounts found during the search the investment till 12-3-1991 came to Rs.4,74,512 only. But the assessee has shown the investment till 31-3-1991 at Rs.6,92,000. We do not see any reason to doubt the investment of Rs.6,92,000 as admitted by the assessee in the cash flow statement. Further, we do not think the Assessing Officer is correct in accepting the value declared by the assessee for some years, and then the value as per the accounts for the other years. In this connection it was explained by Shri Warrier that during the period of construction both assessees were outside India and that the Caretaker who was carrying out the works was keeping some account, mainly showing actual payment to various persons. He pointed out that the seized accounts showed payment of Rs.1,30,871 during the period of two months from 16-12-1988 to 25-2-1989. That does not mean the payment was for the work done during the period of two months. Similarly, the sum of Rs.2,69,991 was not the payment for the work done during the period of six months from 8-9-1990 to 12-3-1991, but the payment made during that period in respect of all the works completed earlier. In other words, the contention of Shri Warrier is that in the estimate made by the assessee the basis adopted was the extent of work done in each year and that in the accounts maintained by the assessee and found by the search party, the basis was actual payment, without quantification of the work and so it would not be correct to mix up the two methods. It was pointed out that though as per the seized accounts the payment during the year ending 31-3-1988 was Rs.47,215 only the actual investment for the assessment year 1988-89 as admitted by the assessee was Rs.1,00,000 and the Assessing Officer had accepted the latter figure. We agree with the learned representative that the estimate of the investment by the Assessing Officer by mixing the two sets of figures would not give the correct investment in the building. In this context we may refer to a report from a registered valuer produced before us by the learned representative of the assessee. This report dated 31-12-1998 shows the investment in the building at Rs.7,33,000. But then this report was obtained by the assessee after the completion of the assessment and so the Assessing Officer had no occasion to consider the same. Having regard to the further investment made during the assessment year 1992-93, we are of the view that it would be reasonable to estimate the cost of construction of the building at Rs.7,50,000. We accordingly direct the Assessing Officer to adopt the cost at Rs.7,50,000 as against Rs.8,97,297 as taken in the assessment.

17. The assessee constructed a residential building in Thriprangodu Panchayat, Tirur Taluk during the period from 23-6-1991 to 6-2-1994. In the cash flow statement the total investment in the building was shown at Rs.7,15,000 as under:

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Assessment year 1992-93 Rs. 1,50,000

Assessment year 1993-94 Rs. 2,50,000

Assessment year 1994-95 Rs. 3,15,000

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At the instance of the Assessing Officer, the Income-tax Inspector inspected the property and reported that it was a first class construction with modern facilities. According to his estimate, the cost of the construction came to Rs.12,58,380. Before the Assessing Officer, the assessee filed a valuation report by the registered valuer, in which the cost of construction was estimated at Rs.9,40,000. The Assessing Officer felt that the report of the registered valuer had suffered from various defects and so the same was not acceptable. On the basis of the report of the Inspector the Assessing Officer felt that it would be reasonable to estimate the cost of construction at Rs.12 lakhs as under:

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Assessment year 1992-93 - Rs. 1,50,000

Assessment year 1993-94 - Rs. 4,07,780

Assessment year 1994-95 - Rs. 6,42,220

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- Rs. 12,00,000

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Additions were made for the assessment years 1992-93, 1993-94 and 1994-95 on that basis.

18. On behalf of the assessee, Shri Warrier contended that the Assessing Officer was not at all justified in estimating the cost of construction at Rs.12 lakhs merely because the Inspector had made the estimate at Rs.12,58,380. The learned representative objected to the valuation by the Income-tax Inspector with the contention that he was not qualified to make an estimate of the cost involved in the construction of a modern building. It was his contention that when the assessee had furnished the report of a registered valuer who was a retired Executive Engineer of Kerala P.W.D., the Assessing Officer should not have brushed aside his report. Shri Warrier contended, that if the report by the registered valuer was not found acceptable, the Assessing Officer ought to have got the property valued by the departmental valuer and not ventured to rely on the report of the Inspector. Shri Warrier further stated that before making his own estimate at Rs.12,58,380, the Inspector had not obtained any details from the assessees regarding the construction. Shri Warrier added that the assessee has shown the cost of construction at Rs.7,15,000 and that the same was reasonable having regard to the area and the type of construction, particularly because of the availability of cheap labour in the locality.

19. The learned departmental representative supported the order of the Assessing Officer and submitted that having regard to the total area of construction of a modern residential building the cost of Rs.12 lakhs as adopted by the Assessing Officer was only reasonable. Shri Amba Shankar Dev stated that as could be seen from the valuation report, it was a first class construction with wood panelling and luxurious furnishings including marble flooring. According to him, the cost of Rs.7,15,000 as shown the assessee in the cash flow statement was an underestimate, particularly in the light of the cost of construction of Rs.9,40,000 as shown by the registered valuer.

20. We have given due consideration to the submissions on both sides and gone through the report of the registered valuer which is appearing at pages 15 to 19 of the paper book furnished by the assessee's representative. We find force in the contention of the learned representative that the Assessing Officer was not correct in going by the estimate made by the Income-tax Inspector, who has adopted plinth area rates for the different floors. This does not appear to be a valuation made on a scientific basis. We find force in the contention of the learned representative that if the report of the registered valuer was not acceptable, the Assessing Officer should have referred the property for valuation by the departmental valuation cell. The cost of Rs.12 lakhs as estimated by the Assessing Officer cannot be accepted as the same is not based on any relevant data. The registered valuer has estimated the cost of construction at Rs.9,40,000. It appears to us that the estimate by the registered valuer can be accepted with adjustments for the mistakes/defects as noticed by the Assessing Officer. It appears that as per the seized materials the assessee had purchased 1800 sq. ft. of white marble and incurred expenses of Rs.1,20,825 including the transporting and finishing charges. As against this the registered valuer has taken the additional expenses at Rs.26,000 only. The additional investment for hand-rails for the staircase was shown by the valuer at Rs.1,176. We are in agreement with the Assessing Officer that the value taken is on the low side. As per the seized documents the assessee had incurred expenditure of Rs.2,50,685 on the purchase of wood. But the additional expenditure considered by the registered valuer was Rs.34,676 only. As pointed out by Shri Warrier the cost of wood used in the building as such was included in the cost estimated for the ground floor and the first floor, totalling Rs.6,50,000. Only the cost of the extra work was shown at Rs.26,000, i.e., for teak as the wood used. We do not think any adjustment is required for the cost of timber used in the building, over and above the value adopted by the registered valuer. It is our considered view that the cost of construction of the residential building in this case can be estimated at Rs.10,50,000. The Assessing Officer, will adopt this figure as against the cost of Rs.1,20,000 as considered in the assessment.

21. The assessees next object to the cost of construction of the flats being estimated at Rs.6 lakhs. In the cash flow statement the investment declared was Rs.2,50,000. The Assessing Officer found that as per the seized records the assessee had purchased materials worth Rs.3,04,723 for the construction. The Assessing Officer presumed that the investment as declared by the assessee was in addition to the cost of materials of Rs.3,04,723. On that basis the Assessing Officer estimated the total investment at Rs.6 lakhs. We find merit in the contention of the learned representative Shri Warrier that the investment as shown by the assessee was not without considering the cost of materials. It was submitted by the learned representative that the construction of the flats was not completed at the time of the search and that most of the materials were lying without being actually used. We do not accept the plea that materials worth Rs.3,04,723 were lying unutilised. The assessee must have used the materials in the construction and incurred expenses by way of labour charges etc. In the assessment order, the Assessing Officer has not given the details regarding the stage at which the construction had reached at the time of the search. Still having regard to the purchase of materials worth Rs.3,04,723, we think it would be reasonable to estimate the cost of construction till 26-9-1996 at Rs.5 lakhs. The Assessing Officer will revise the addition for undisclosed income, considering the investment at Rs.5,00,000, as against Rs.6,00,000 included in the assessment.

22. In the next ground the assessee is disputing the addition of Rs.50,000 towards the cost of furniture. The Assessing Officer noticed that though the assessees had furnished their residential building, no amount was shown in the cash flow statement towards the cost of furniture. Shri Warrier submitted that the furniture in the building was presented by the assessees' friends and relatives at the time of the house warming ceremony. But there is no evidence to show that all the costly furniture in the house was received as presents. In the circumstances of this case we find no reason to interfere with the addition on this account.

23. From the seized documents the Assessing Officer found that the assessee spent Rs.45,000 in vehicle repairs during the year ending on 31-3-1992. This was not shown in the cash flow statement as an outgoing for the assessment year 1992-93. The assessee had no explanation as to how the cost of repairs of vehicles was met. The sum of Rs.45,000 was thus included in the undisclosed income for the assessment year 1992-93. Though Shri Warrier vehemently opposed the addition, he could not give any reason as to why the amount was shown as an outgoing in the cash flow statement. The source for the expenditure was also not properly explained. In the circumstances of this case, we confirm the addition as unexplained income.

24. The dispute in the next ground is regarding the agricultural income to be given credit for explaining the investments and outgoings during the block period. In the cash flow statement the assessee has taken credit for a total sum of Rs.6,20,000 as the agricultural income available for the block period of 10 years. The assessee gave credit for Rs.3,30,000 only.

25. Shri Warrier submitted before us that the Assessing Officer was not justified in not allowing fully the claim of the agricultural income of Rs.6,20,000 to explain the outgoings during the block period. It was stated that the assessee had purchased 216 cents of land in 1986, and then 150 cents in 1991. There were also smaller plots purchased in 1991 and 1994. From all these properties the assessees were getting agricultural income from the sale of coconuts. In the paper book filed before us, there are two certificates from the Village Officer regarding the number of coconut trees in the assessees' properties. But these certificates issued on 24-3-1998 had not been furnished before the Assessing Officer. We do not thus place any reliance on the certificates obtained after the completion of the assessments on 30-9-1997. Before the Assessing Officer it was claimed that there were 206 yielding trees in the area of 216 cents purchased in 1986 and 120 yielding trees in the property purchased in 1991. Enquiries made by the Assessing Officer showed that 216 cents purchased from Sri Narayanan Moosad in 1986 was lying in a neglected condition and that the assessee was getting only very low income. From the note book seized during the search the Assessing Officer found that the yield of coconuts was properly recorded. After considering the submissions of both sides and going through the details as available in the assessment order, we think it would be reasonable to give credit for the agricultural income as under:

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Assessment year Agricultural income

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Rs.

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1987-88 20,000

1988-89 25,000

1989-90 25,000

1990-91 30,000

1991-92 30,000

1992-93 35,000

1993-94 40,000

1994-95 40,000

1995-96 50,000

1996-97 50,000

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The Assessing Officer will give credit for the agricultural income as above, to explain the outgoings for various years and compute the undisclosed income accordingly.

26. In the next ground the dispute is regarding the estimate of the personal and household expenses with a view to arrive at the undisclosed income with reference to the outgoings. From para 10 of the assessment order it can be seen that the Assessing Officer had accepted the assessee's estimate of the expenses except for the assessment years 1993-94 and 1994-95. In the cash flow statement the assessee had estimated the expenses for the assessment years 1993-94 and 1994-95 at Rs.50,000 each. Considering the size of the family and the standard of living, the Assessing Officer felt that the estimate of the expenses at Rs.50,000 was on the low side and he proceeded to make his own estimate at Rs.70,000. For the other years the estimate shown by the assessees were not disturbed. The enhancement of the expenses as above has resulted in addition in the undisclosed income for the assessment years 1993-94 and 1994-95.

27. Before us Shri Warrier submitted that for each year the assessees were showing very reasonable estimates for the personal and household expenses. For the assessment years 1995-96 and 1996-97 the expenses were shown at Rs.1 lakh and for the broken period in the assessment year 1997-98 the expenses were shown at Rs.1,50,000. It was the contention of the learned representative that there was no basis for the Assessing Officer to make a higher estimate of the expenses for the assessment years 1993-94 and 1994-95. He also submitted that there was no material gathered in the course of the search, which would justify an enhancement in the domestic expenses to warrant addition in a block assessment under section 158BC. The learned departmental representative, on the other hand, submitted that the assessees had shown the expenses of Rs.50,000 for the assessment years 1990-91, 1991-92, 1992-93, 1993-94 and 1994-95. It was his contention that the expenses could not remain the same for all the five years and so the Assessing Officer was justified in making some adjustment for the last two years. The learned departmental representative submitted that the estimate of the expenses of Rs.70,000 for the assessment years 1993-94 and 1994-95 was quite reasonable.

28. Having regard to the facts and considering the submissions on both sides, we are inclined to agree with the learned representative of the assessee that the Assessing Officer was not justified in making the addition in the block assessment by merely making an enhanced estimate of the household expenses. True, in arriving at the undisclosed income with reference to the total investments and the outgoings the personal and household expenses are to be taken into account. The assessees have estimated the expense at Rs.50,000 for the assessment years 1993-94 and 1994-95. From the assessment order we find that the assessees' family consists of their father, mother, married sisters and brothers-in-law. The assessees were mostly outside India during the relevant period and so their expenses are not to be included. There was also the claim that the assessees' father was getting agricultural income, which had also gone for meeting the household expenses. Shri Warrier hag also made another submission before us that there was rent of Rs.500 per month received, which could also be utilised for meeting the domestic expenses. The assessees themselves have shown the expenses at Rs.1 lakh each for the assessment years 1995-96 and 1996-97. Looking into the estimate made by the assessees for the assessment years 1987-88 to 1997-98, it appears to us that the estimates are quite reasonable and there is no need for making a higher estimate for the assessment years 1993-94 and 1994-95. We thus decide this ground in favour of the assessees and delete the addition for the assessment years 1993-94 and 1994-95.

29. The last ground in these appeals is to the effect that the Assessing Officer was not correct in denying the basic exemption available for each assessment years included in the block period.

30. It is provided in section 113 of the Income-tax Act that the total undisclosed income of the block period determined under section 158BC shall be charged to tax at the rate of 60 per cent. It can thus be seen that in respect of the undisclosed income of the block period levy of tax is not as per the Schedule to the Finance Act. In section 113 there is no provision to allow the basic exemption and to levy tax on the excess amount. The plea raised by the learned representative of the assessee for allowing basic exemption for each year cannot be therefore accepted. However, we are in agreement with Shri Warrier that in respect of those years in which the income assessed is below taxable limit, the assessee was under no obligation to disclose the same through a return of income and so such amounts are not to be included in the total undisclosed income of the block period. In other words, if the income assessed for any of the assessment years included in the block period is below the taxable limit, the same is to be excluded in the computation of the total undisclosed income. We accordingly direct the Assessing Officer to exclude from the computation of the total undisclosed income of the block period, the incomes of those years which are found to be below the taxable limit.

31. In the result, these two appeals filed by the assessees are partly allowed. The Assessing Officer will revise the assessments accordingly.

Per K.P.T. Thangal, J.M.--I have gone through the order of my learned brother confirming partial additions made in the block assessments in the case of the assessees. I am unable to agree with the conclusions arrived at by the Accountant Member and hence this dissenting order.

2. Both the assessees are non-residents and left India somewhere in the year 1978. They were carrying on textile business in Sultanate of Oman. It is not disputed that they had made considerable remittances to their N.R.E. accounts in India regularly. They were also making substantial investments in immovable properties from 1986 onwards in India. On a perusal of the assessment orders it becomes clear that the assessees had invested in the construction of a flat. There were heavy transactions by November 1985 which amounted to Rs.32,00,000, whereas the such transactions, as per documents came to Rs.4,00,000 only. There was a search and seizure operation at the premises of the assessees in September, 1996 during the course of which documents relating to purchase of lands were seized which revealed under-valuations by the assessees. The transactions were verified with the sellers and on a perusal of the documentary and other evidence, the Assessing Officer made substantial additions under Chapter XIVB of the Act.

3. It was noticed that the assessees had purchased 23.5 cents of land at Tirur by document No. 2839 dated 25-11-1995. The consideration paid for the property was shown at Rs.4,00,000. However, it was revealed that the actual investment in this property was Rs.32,00,000, which was admitted by the assessees in their cash flow statements. It was noticed that the assessees had purchased 216 cents of land from one K. Narayanan Moosad and his family members. The consideration as per document was Rs.2,00,000. But when enquiries were made with the seller and his family members it was revealed that the total consideration paid by the assessees was Rs.5,61,600. The Assessing Officer therefore came to the conclusion that the assessees had paid a sum of Rs.5,61,600 for the above property against Rs.2,00,000 mentioned by them in the cash flow statements by making withdrawals from their N.R.E. accounts. The Assessing Officer accordingly inferred that there was under-valuation of the property and that the value of the property purchased would be taken at Rs.5,61,600 as against Rs.2,00,000 shown by the assessees in the cash flow statements during 1987-88. However, the assessee's learned representative stated before the Bench that he is under instruction not to press this ground.

4. Another disputed addition is on account of the purchase of 32.75 cents of land for a stated consideration of Rs.32,000. This property was purchased by document No. 3101 dated 2-11-1991. The Assessing Officer noticed that the assessees had withdrawn a total sum of Rs.2,00,000 on the date of registration from the N.R.E. account No. 1300 of Sri Kunheedutty. According to the Assessing Officer the withdrawals had necessarily correlated with the purchase of the property. Since the Assessing Officer was not satisfied with the explanation of Sri Kunheedutty about the utilisation of the withdrawals from his N.R.E. account he inferred that the assessees had paid Rs.2 lakhs for the purchase of the property in question as against Rs.32,000 shown in the cash flow statement.

5. The next disputed amount is the addition made on account of the purchase of a property at Valancherry. Document No. 2535 dated 31-8-1994, Document No. 2175 dated 28-7-1994 and document No. 3330 dated 22-11-1994 showed that the assesee had purchased 24 cents of land. As per the documents registered the total consideration was Rs.3,58,000, but the assessees had shown total investments in the above plots of lands at Rs.6,46,000 in the cash flow statements taking into account the fact that the Registration Authorities had detected evasion of stamp duty. During the search as a consequence of scrutiny of the assessees' N.R.E. accounts, it was noticed that they had withdrawn Rs.8,00,000 on 28-7-1994 from the N.R.E. account No. 1713, Rs.3,00,000 on 30-8-1994 from the N.R.E. account No. 11604 and Rs.3,50,000 on 22-11-1994 from the N.R.E. account No. 1713 totalling Rs.14,50,000. The Assessing Officer vide para. (v) of the assessment order came to the conclusion that the assessees had purchased the land utilising the withdrawals from the N.R.E. accounts, but chosen to show a less amount. The Assessing Officer also came to the conclusion that the total investment by the assessee during the period ended 31-3-1995 came to Rs.15,16,700 as against Rs.7,10,700 admitted by them in the cash flow statement. Hence he made the addition.

6. The next addition was made on account of the undeclared investment in the construction of residential quarters. The expenditure declared in the cash flow statement was Rs.7,04,000 (for ground floor, Rs.2.84 lakhs and for first floor Rs.4,20,000). On inspection by the Inspector of Incometax this building was valued at Rs.9,13,685. Taking a fair view of the matter, the Assessing Officer estimated the value at Rs.8,97,297. The difference was treated as the undisclosed investment in the building.

7. The assessees constructed a residential building during the period 23-10-1991 to 6-2-1994. As per cash flow statement the investment was to the tune of Rs.7,15,000 during the assessment years 1992-93, 1993-94 and 1994-95. The Inspector who visited the property estimated the cost at Rs.12,58,380. On the basis of the inspection report, the facts of which had been given to the assessees, the cost of construction of the property was taken at Rs.12,00,000. The Assessing Officer added a sum of Rs.50,000 being the expenditure towards new furnishings in the house also which was not reflected in the cash flow statement. In doing so, the explanation that these furnitures were presented by relatives and friends was rejected by the Assessing Officer. The Assessing Officer therefore took the expenditure of Rs.50,000 as an outgoing in the year 1994-95.

8. The assessees constructed a flat and as per the seized records, the value of the materials purchased came to Rs.3,04,723 for the construction. The assessees had declared only a sum of Rs.2.50 lakhs though they had spent an amount of Rs.6,00,000 upto the date of search. The Assessing Officer accordingly treated the sum of Rs.6,00,000 as an outgoing.

9. The Assessing Officer made another addition of Rs.45,000 on account of repairs of vehicles etc., which was not reflected in the cash flow statement. So this sum was treated as an outgoing. Another fact came to the notice of the Assessing Officer was that payment of Rs.10,000 for the road and Rs.12,000 as gifts indicated in the same book on which expln. had not been offered. Hence these sums were also taken as outgoings in the assessment year 1992-93.

10. The assessees claimed agricultural income of Rs.30,000 for the assessment year 1987-88, Rs.50,000 each for the assessment years 1988-89, 1989-90, 1990-91 and 1991-92, Rs.65,000 for the assessment year 1992-93, Rs.70,000 for the assessment years. 1993-94, 1994-95 and 1995-96, Rs.80,000 for the assessment year 1996-97 and Rs.35,000 upto 26-9-1996. The Assessing Officer found that the assessee's agricultural income was shown at a higher figure for each of the assessment years and therefore he resorted to estimate the agricultural income for the block assessment years 1987-88 to 1996-97 at Rs.3,33,000. The Assessing Officer also did not accept the personal expenses estimated by the assessees. Aggrieved by the above additions, the assessees have come in appeal before the Tribunal.

11. I have gone through the block assessment orders. A perusal of the orders would make it clear that the Assessing Officer himself has admitted the fact that during the period 1-4-1995 to 30-11-1995 the withdrawals by the assessees from their N.R.E. accounts were to the tune of Rs.19,35,000 and after reducing the above sum by Rs.3.25 lakhs deposited in the SB account, the balance available with them was Rs.16.10 lakhs. Thus, according to the Assessing Officer the shortage as on 30-11-1995 came to Rs.12,70,821 which was included as income for the block assessment years.

12. I am unable to agree with the conclusion reached by the learned Accountant Member retaining the additions made by the Assessing Officer for the following reasons:

(a) There is no evidence to indicate that the assessees had any income on the basis of the seized material other than the foreign remittances;

(b) Addition was made on account of construction of residential quarters. It is the case of the assessee that the Inspector's report regarding the valuation of the building was not provided to the assessees for verification. So also the estimated addition in respect of the investment in the construction of a residential building;

(c) It is seen vide ground No. 4 of the grounds of appeal that copy of the valuation report was also not furnished to the assessee to rebut the estimation. Addition made without giving an opportunity to the assessee to rebut the estimation is against the principles of natural justice and has no legal sanctity;

(d) Coming to the disallowance of agricultural income it is made on estimate basis. It is only an estimation against estimation, which cannot be done under Chapter XIV-B. Such addition can be made only in a regular assessment;

(e) Coming to the addition on account of personal expenses the claim of the assessee was that the expenses were Rs.40,000 for each of the assessment years 1987-88, 1988-89 and 1989-90, Rs.50,000 for each of the assessment years 1990-91 to 1994-95, Rs.1,00,000 for the assessment years 1995-96 and 1996-97 and Rs.1,50,000 upto 26-9-1996 (upto the date of search). A perusal of para. 10 of the block assessment orders would show that the assessees' family consisted of his father, mother, married sisters, brothers-in-law etc. It is well established that in the absence of proof that the entire household expenses were met by the assessees, even if the expenses were found to be more, the assessees alone cannot be burdened with the expenses. It is not disputed that the assessees are non-resident Indians. No other income was generated to the assessees from any internal source. No evidence has come to light that the assessees had any income in India. The difference in the investments in the purchase of lands even according to the Assessing Officer can be attributed to the withdrawals from the N.R.E. accounts. The only reason that weighed with the Assessing Officer to make the addition was that there was difference between the consideration shown in the documents and the actual payments made by the assessees. I am afraid, in the case of a Non-resident Indian, this alone is not sufficient to bring the difference to tax. Even according to the Assessing Officer the assessee had sufficient sources and withdrawals were made from the N.R.E. accounts for purchase of lands. It is the case of the assessees that they were compelled to show less value in the documents as the selling parties wanted it that way. May be, the assessees are guilty of showing less value for the properties in the documents and thereby causing revenue loss to the Government on account of reduced stamp duty. Assessees may be punishable for the offence under some other Act, but that alone is not sufficient to tax the assessees under the provisions of the Income-tax Act, 1961, since the only income generated from the internal source is the rental income which is taxable as rental income under the Act. But the rental income declared by the assessees was accepted and no addition was made under this head.

13. Coming to the addition made on account of personal expenses, I have already noted above that where the assessee lives with other family members, even if the expenses were actually more than what was declared, the assessee cannot be burdened with the excess amount in the absence of concrete proof showing more spending by the assessees than declared. While framing the assessment under Chapter XIV-B. So also the estimated disallowance of agricultural income claimed by the assessees. It is only an estimation against estimation.

14. For the reasons stated above, I am unable to agree with the conclusion arrived at by my learned brother.

15. I accordingly allow the appeals.

ORDER UNDER SECTION 255(4) OF THE INCOME-TAX ACT, 1961

As we have difference of opinion on the conclusion, the following questions are referred to the Hon'ble President of the Tribunal, under section 255(4) of the Income-tax Act, 1961, for the decision of the Third Member:

Points of difference:

(1) Whether in the case of the assessee, who is a non-resident with no known source of income in India, there is material or justification for upholding partly or fully any of the additions made by the Assessing Officer to the total income returned by the assessee under Chapter XIV of the Income-tax Act, 1961?

(2) If the answer to the above question is in the affirmative--

Whether, on the facts and in the circumstances of the case, there is any justification for upholding partly or fully the additions made on the following grounds:--

(i) Investment in the purchase of 32.75 cents of land;

(ii) Addition on account of the purchase of 25 cents of land at Valancherry;

(iii) on account of construction of residential quarters;

(iv) on account of construction of residential building;

(v) on account of furnishing the house;

(vi) on account of construction of flat;

(vii) on account of estimated agricultural income;

(viii) personal expenses.

THIRD MEMBER ORDER

Per Shri O.K. Narayanan, Accountant Member.--These two block assessment appeals were originally heard by the regular Bench consisting of the Hon'ble Judicial Member and the Hon'ble Accountant Member. The original order was authored by the learned Accountant Member, who sustained these block assessments, but after granting certain reliefs on various issues agitated in these appeals. He held that the appeals should be partly allowed. But, the learned Judicial Member was of the view that there is no justification in sustaining any of the additions made by the Assessing Officer. He found that the undisclosed income made in the form of various additions are only estimated additions, for which there is no justification in a block assessment. On the basis of the above general view, the learned Judicial Member allowed the appeals filed by the assessees. In short, where the learned Accountant Member has allowed the appeals partly, the learned Judicial Member has allowed the appeals fully. As there was a difference of opinion between the Hon'ble Members in disposing the impugned appeals, the matter was referred to the Hon'ble President for nominating a Third Member for the purpose of deciding the points of difference. The Hon'ble President nominated me as a Third Member in this case by his order dated 14-3-2001 and directed me to hear on the points of difference.

2. The points of difference unanimously referred by the Hon'ble Members of the regular Bench are reproduced below:

1. Whether in the case of the assessee, who is a non-resident with no known source of income in India, there is material or justification for upholding partly or fully any of the additions made by the Assessing Officer to the total income returned by the assessee under Chapter XIV of the Income-tax Act, 1961?

2. If the answer to the above question is in the affirmative--

Whether, on the facts and in the circumstances of the case, there is any justification for upholding partly or fully the additions made on the following grounds:

(i) Investment in the purchase of 32.75 cents of land;

(ii) Addition on account of the purchase of 25 cents of land at Valancherry;

(iii) on account of construction of residential quarters,

(iv) on account of construction of residential building,

(v) on account of furnishing the house,

(vi) on account of construction of flat,

(vii) on account of estimated agricultural income,

(viii) personal expenses.

3. I heard Shri C.B.M Warrier, the learned Chartered Accountant for the appellant-assessees, and Shri K.A. Gopinathan, the learned Senior departmental representative, for the Revenue. The original order authored by the learned Accountant Member has exhaustively dealt with the entire facts and circumstances of these cases. Therefore I am not inclined to repeat the recital of the facts, mainly for fear of repetition. I will discuss the facts in brief where it is felt necessary for deciding the points of difference. Wherever a detailed picture of the facts is required, easy reference may be made to the original order authored by the learned Accountant Member.

4. The assessees in these cases are brothers. They are non-resident Indians doing business in the Sultanate of Oman. They left India way back in 1978. They have been making substantial investments in Kerala through purchase of land and construction of buildings, especially from 1986 and onwards. There was a big transaction in November 1995, when the assessees purchased a property for Rs.32 lakhs, but where the consideration declared in the registered document was only Rs.4 lakhs. Sensing a huge case of under-valuation and payments of on-money, the department carried out a search under section 132 of the Income-tax Act, 1961. The search was conducted on 26-9-1996 in the residential premises of the assessees at Tirur. Documents and other particulars were seized at the time of search. On examination of the documents relating to the purchase of immovable properties, the department found out successive cases of under-valuation in property purchases. On the basis of these background materials, the Assessing Officer issued notices to the assessees for filing the returns in form 2B, of the undisclosed income of the assessees. The assessees declared Nil income. But the Assessing Officer by his block assessment order dated 30-9-1997 has determined a total undisclosed income of Rs.12,73,990 and Rs.12,72,930 respectively in the hands of the appellant-assessees. The assessments were completed under section 158BC of the Income-tax Act, 1961.

5. The Assessing Officer has worked out the undisclosed income on incorporating different components. The dominant part of the undisclosed income determined by the Assessing Officer is the difference between the ostensible consideration stated by the assessee in the registered documents and the actual consideration paid to the sellers for purchasing the properties. During the block period, the assessees have purchased five plots of land. The Assessing Officer has found out concealment of consideration in all the five transactions. In addition to the under-statement of purchase consideration as stated above, the Assessing Officer has also estimated the cost of certain buildings constructed by the assessees during the relevant period. The assessees have constructed buildings in the nature of residential quarters, residential house, flats, etc. The Assessing Officer has estimated the cost of construction of the above buildings at a rate higher than the cost of construction conceded by the assessees. The Assessing Officer has treated the differential estimate of the cost of construction of buildings as another component of undisclosed income in the hands of the assessees. The Assessing Officer has also constructed undisclosed income in various other miscellaneous items, such as purchase of furniture, construction of compound wall, repair of vehicle, etc., etc. Apart from the above specific cases of land and buildings, the Assessing Officer has also estimated the personal expenses of the families of the assessees residing in Kerala. The Assessing Officer found that the personal expenses disclosed by the assessees as per the cash flow statements filed by them are low, compared to their expected level of living. Therefore, the officer estimated the personal expenses at a higher level. The above difference was also considered as undisclosed income in the hands of the assessees. In the cash flow statements filed by the assessees, they have declared agricultural income from various properties held by them. The Assessing Officer was of the view that the agricultural income declared by the assessees for the block period are on the higher side. Therefore, he estimated the agricultural income at a reduced rate. This difference was also treated as the undisclosed income of the assessees. It is in the above manner that the Assessing Officer has determined the undisclosed income at a sum of Rs.12,73,990, and Rs.12,72,930, respectively.

6. In short, the Assessing Officer has made out the undisclosed income on the basis of four different principal grounds. The first of such grounds is the sum total of the difference between the ostensible consideration and the actual consideration paid by the assessees for acquiring landed properties. The second ground is the additional estimate made by the Assessing Officer towards the cost of construction of various buildings, such as residential quarters, residential house and flats. The third ground is the additional estimate made by the Assessing Officer against the personal expenses of the assessees' family residing in Kerala. The fourth important ground is the reduction made by the Assessing Officer in the estimated agricultural income declared by the assessees.

7. In the course of the block period the assessees have purchased five plots of land. In all these cases there is on-money payment. The document have been registered for a lesser amount. This position has been by and large admitted by the assessees. The serious objections raised by the assessees were only in respect of the purchase of 32.75 cents of land by document No. 3101 dated 2-11-1991. According to the assessees, the purchase consideration was Rs.32,000, whereas according to the Assessing Officer it was Rs.2 lakhs. Even if the purchase cost of that property is taken as Rs.2 lakhs, as held by the Assessing Officer and confirmed by the learned Accountant Member in his order, I find that the entire on-money payments made against all the purchases are covered by N.R.E. remittances sent by the assessees. As per the cash flow statements prepared by the Assessing Officer himself, there is a withdrawal of Rs.73,22,007 from the N.R.E. accounts of the assessees. It is a fact that the assessees have understated the actual consideration paid for acquiring different properties. There were on-money payments. But in this particular case, all such onmoney payments are covered by the foreign remittances made by the assessees. Therefore, there is no case of undisclosed income as far as the issue of under-statement of purchase consideration is concerned. White money as well as on-money, both are covered by foreign exchange remittances.

8. The real edifice of the undisclosed income in this case is built on the additions created by the Assessing Officer by way of estimating the cost of construction of various buildings. In the case of Valancherry property, the assessees have disclosed a purchase cost of Rs.7,10,700, against which the Assessing Officer has estimated the purchase cost at Rs.15,16,700. The learned Accountant Member in his order has found that there was no evidence with the Assessing Officer to make such an estimate, and he has directed the Assessing Officer to accept the sum of Rs.7,10,700 as disclosed by the assessees. It is seen that the addition made by the Assessing Officer on an estimate basis towards this single property works out to Rs.8,06,000. Likewise, in the case of residential quarters, residential house and flat, the Assessing Officer has estimated the cost of construction in excess of the amounts conceded by the assessees in their cash flow statements. Similarly, the assessees have admitted family expenses for a sum of Rs.7,20,000 for the block period. The Assessing Officer has, on the other hand, estimated family expenses to a sum of Rs.8,60,000, thereby making an addition of Rs.1,40,000. As pointed out by the learned Judicial Member, no evidence was available in the course of search to make out an addition towards the personal expenses of the assessees' family members. This has been done exclusively on an estimate basis. From the above, what I find is that the undisclosed income computed by the Assessing Officer in these cases are made out of the various additions made by him purely on estimate basis. The Assessing Officer has made such additions on estimate basis against the purchase of Valancherry property, construction of residential quarters, residential building and flats. He has repeated this estimated addition in the case of agricultural income by reducing such income stated by the assessees, and also in the case of family expenses by enhancing it on an estimate basis.

9. It is clear, therefore, that if the estimated additions made by the Assessing Officer are taken out, there is no case of undisclosed income in these cases. This is because the entire moneys spent by the assessees for purchasing properties, including the on-money payments, are covered by the foreign remittances made by them from time to time. The cost of construction of the buildings to the extent declared by the assessee in the cash flow statements are also covered by such foreign remittances. What remains as outflow in the hands of the assessees are the items such as family expenses, repair of vehicles, construction of compound wall and such other miscellaneous items, which again are covered by the balance of the foreign remittances coupled with the agricultural income and rental income available to the assessees.

10. In the facts and circumstances of the case, it is found that the undisclosed income worked out by the Assessing Officer in these cases is the direct result of additions made by him on an estimate basis under various heads of cost of construction, purchase of properties, personal expenses and other miscellaneous items, etc.

11. I agree with the learned Judicial Member that there is no scope for such general estimations in a block assessment in the absence of specific and speaking materials. In the case of the assessees, the department did not have any incriminating materials to prove that the assessees had expended money in excess of the amount admitted by them to have spent for constructing various buildings. In a block assessment, generally estimated additions cannot be justified.

12. Therefore, in the result, I agree with the learned Judicial Member and hold that the impugned appeals are to be allowed. I order accordingly.

13. The matter will now go back to the regular Bench for passing appropriate orders.

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