Income Tax Appellate Tribunal - Cochin
M.P. Ramachandran Nair vs Assistant Commissioner Of Income Tax on 19 September, 1997
ORDER
M. M. Cherian, A.M.
1. This is an appeal arising out of the order of assessment under s. 158BC of the IT Act passed by the Asstt. CIT, Investigation Circle, Kottayam, on the assessee, M. P. Ramachandran Nair, Ayiroor, for the block asst. yrs. 1986-87 to 1996-97.
2. The assessee is an individual deriving income mainly from financing business and also having interest in partnership concerns. The assessee, his associate C. Gopalan Nair, and their relatives are the persons having interest in those concerns. On 29th November, 1995 the Department conducted a search under s. 132 of the IT Act in the residential premises of the assessee, as also in his business premises and in the premises of the concerns in which he was interested. In response to a notice issued under s. 158BC of the IT Act, the assessee filed the return of income on 11th November, 1996 declaring an undisclosed income of Rs. 2,25,000, for the block period 1st April, 1985 to 29th November, 1995. The assessment was completed on a total income of Rs. 11,20,870. In arriving at the income for various years, the AO considered the investments and outgoings including the assessee's personal expenses. Aggrieved with the assessment of the undisclosed income at Rs. 11,20,870 for the block period the assessee has filed this appeal before the Tribunal.
3. On behalf of the assessee, K. K. Ramachandran, chartered accountant submitted before us that the AO was not justified in assessing the undisclosed income of the block period without accepting the assessee's claim regarding the source for the investments. It was stated that in explaining the source for the investments and outgoings the assessee had filed before the AO a cash-flow statement showing the opening cash balance as on 1st April, 1985 at Rs. 3,50,000 Ramachandran stated that the assessee was working in UAE from 1977 till 1985 and that he was earning substantial income, from which he was making remittances regularly to his wife and that there was thus savings of Rs. 3.5 lakhs available with him as on 1st April, 1985, to explain the various investments. According to the learned representative, the AO was not correct in rejecting the claim regarding the availability of the opening cash balance, merely because the assessee was not in a position to furnish evidence in support of the claim. Ramachandran further submitted that the additions were made for the various assessment years mainly because the assessee could not produce evidence to show the availability of the opening cash balance and also for the reason that the withdrawal of money from Manju Enterprises was not evidenced with book entries. Ramachandran stated that during the previous year relevant to the asst. yr. 1994-95 the assessee had purchased a property at Ranni for Rs. 10,10,500 and that for explaining the various investments during the previous year in the cash-flow statement the assessee had shown inter alia, Rs. 6,75,000 as withdrawn from Manju Enterprises. According to the learned representative, it was a fact noticed by the search party that there was shortage of cash in the three branches of Chilambinath Bank and that in the sworn statement recorded from the assessee it was stated clearly that the assessee and his associate Gopalan Nair were in the practice of taking the cash balances without making entries in the books of accounts. It was also stated that the manager of the concern had also made the similar statement regarding the withdrawal of money by the two partners. According to Ramachandran, the assessee had made use of Rs. 6,75,000 from Manju Enterprises for investment in the property. His contention was that when both the partners and the manager had categorically affirmed the fact regarding drawings of money, the AO was not correct in rejecting the claim merely because there were no entries in the books of accounts to show the withdrawal of funds. Ramachandran further submitted that in the cash-flow statement for the year 1994-95 (asst. yr. 1995-96) the assessee had shown the repayment of the amount to Manju Enterprises in two instalments of Rs. 6 lakhs and Rs. 75,000 and that this would definitely show that it was the amount drawn in the earlier year that was repaid in the previous year relevant to the asst. yr. 1995-96. The AO had not taken into account the repayment of the sum of Rs. 6.75 lakhs Manju Enterprises and arrived at the cash balance available with the assessee at Rs. 6,61,785. According to the learned representative, there was no evidence to show that the assessee was having such a large amount of cash balance with him as on 31st March, 1995, which was also not proved with availability of cash at the time of search, and so de-hors the theory of cash balance, it would go to show that the amount was paid back by the assessee to Manju Enterprises. Ramachandran contended that taking the asst. yrs. 1994-95 and 1995-96 together it could be seen that there was ample evidence to show that the assessee had withdrawn Rs. 6,75,000 from Manju Enterprises and also repaid subsequently, as confirmed by the partners and the manager of that concern.
It was then contended that the AO was not correct in estimating the personal and household expenses of the assessee. Ramachandran stated that the assessee had estimated the expenses at very reasonable amount after taking into account the agricultural income available for meeting the expenses. He also submitted that in the cash-flow statement for the years 1988-89 onwards the assessee had shown Rs. 4,000 as the agricultural income. He drew our attention to the sworn statement of the assessee and stated that the assessee had clarified that there were agricultural properties in his name and also in the name of his wife with which he could earn agricultural income to meet the household expenses. The learned representative made an earnest plea for reducing the estimate of the household expenses and also for giving credit for the agricultural income. It was then stated that for the asst. yr. 1993-94 the assessee had filed the return showing an income of Rs. 98,020 including agricultural income of Rs. 22,000 and that the ITO, Thiruvalla had issued an intimation under s. 143(1)(a) on 31st May, 1996, accepting the income as returned. It was stated that in the assessment no credit was given for the income already assessed. The learned representative thus urged us to delete the additions made by the AO and to accept the income of the block period as returned by the assessee.
4. On behalf of the Revenue, K. R. Sudhakaran Pillai, the Departmental Representative submitted that the assessment in this case had been made after making proper enquiries and verification of the assessee's claim regarding the source for the various investments. It was stated that the AO had given ample opportunity for proving the source of the funds for the investments and outgoings and wherever possible the AO had also given credit for the source as explained by the assessee. As regards the opening cash balance of Rs. 3,50,000 as on 1st April, 1985, Sudhakaran Pillai stated that though the assessee claimed that he was earning substantial income from his employment in the Gulf, there was nothing to show that he had brought with him the sum of Rs. 3,50,000.
According to the Departmental Representative, when the assessee claimed that such a large amount was available, it was for him to substantiate the claim with necessary evidence. As regards, the statement that the shortage of cash in the three branches of Chilambinath Bank, Sudhakaran Pillai stated that there was nothing to indicate the shortage was the cash of Rs. 6,75,000, which the assessee claimed to have withdrawn. It was stated that when the assessee was carrying on business with other persons, it would be against commonsense to believe that the partners would be taking away cash from the common account without making any entries in the books of accounts. Drawing our attention to the sworn statement, Sudhakaran Pillai submitted that the assessee's claim was that the shortage was on account of money withdrawn for the construction work of Sree Constructions. It was also claimed in the sworn statement that the cash withdrawn was introduced in the books of Sree Construction in the name of the assessee, C. Gopalan Nair or Chilambinath Bank. According to the Departmental Representative, there was nothing to show in the sworn statement that money withdrawn from Chilambinath Bank was utilised by the assessee for investment in the Ranni properties or in any other property and so no credence could be given for the sum of Rs. 6,75,000 in explaining the investments during the previous year relevant for the asst. yr. 1994-95. Regarding the house expenses, Sudhakaran Pillai stated that considering the status of the family, the expenses of Rs. 5,000 as estimated by the assessee for the asst. yr. 1985-86 or 1986-87 was not at all adequate, especially when the assessee was keeping the life-style of a non-resident. It was pointed out that the assessee is having three children including a college-going daughter and that he was also maintaining a car and so the estimate of the expenses at Rs. 10,000 per month by the AO was quite reasonable. It was also stated that the estimates for the subsequent years were quite reasonable, not warranting interference at this stage. As regards the income as determined in the intimation under s. 143(1)(a) for the asst. yr. 1993-94, the learned Departmental Representative submitted that by mistake only credit was not given and that the assessee would be given due credit after verification.
5. We have given due consideration to the submissions on both sides and gone through the assessment order and the paper-book filed by the assessee's representative. As already stated, the assessment of the undisclosed income for various years has been made on the basis of the investments and outgoings. The AO has also considered the cash-flow statement furnished by the assessee to explain the source for the investments. The first point to be considered here is the claim regarding the availability of the opening cash of Rs. 3,50,000 as on 1st April, 1985. The claim is that as a non-resident employed in UAE till 1985 the assessee was getting substantial income and so he could have made a saving of Rs. 3,50,000. It is not the claim that the money was lying in his bank account as the savings of the earlier years. It is difficult to believe that the savings were remaining with the assessee's wife as cash in the house. In his sworn statement the assessee had confirmed that his wife had an account with Indian Overseas Bank, Ayiroor Branch and that he was also having accounts with a number of banks. The learned representative was not able to give any convincing reason why the assessee or his wife was keeping in the house in cash the large sum of Rs. 3,50,000 if it represented the savings of the earlier years. The assessee had made investment of Rs. 50,000 in Manju Enterprises in the previous year relevant to the asst. yr. 1986-87. As the assessee returned from the UAE in 1985 and the investment was in the same year, we are of the view that credit can be given for the sum of Rs. 50,000 invested during the year as out of the savings of the earlier years. That would mean that for the asst. yr. 1986-87 the source for the investment in M/s. Manju Enterprises is fully explained. The AO estimated the household expenses for the year at Rs. 12,000 as against Rs. 5,000 as shown by the assessee. The estimate adopted by the AO appears to be reasonable having regard to the size of the family and other relevant facts. But still we hold that there is no income to be considered as undisclosed income for this year in view of the fact that the total income for the year would be below the taxable limit. It may be mentioned here that if the income is below the taxable limit, there is no obligation to file the return of income. Thus, for the asst. yr. 1986-87 the assessee had no obligation to file the return of income and so the sum of Rs. 12,000 cannot be treated as undisclosed income for the purpose of s. 158BC. In this context it may be mentioned that Note No. 5 in the return Form 2B shows the intention of the legislature is that in a case where the assessee has not filed the return because the total income is below the taxable limit, such income cannot be treated as undisclosed income for the purpose of Chapter XIVB of the IT Act. Even otherwise it would be highly unfair and inequituous to tax the assessee on an income which is otherwise below the taxable limit, on a higher flat rate simply because there had been a search by the Department on his premises. In this context we may also refer to the decision of the Tribunal Nagpur Bench in the case of Kasturchand Baid vs. Asstt. CIT (1997) 58 TTJ (Nag) 253. Hence we delete the sum of Rs. 12,000 from the undisclosed income to be assessed for the block period.
6. For the asst. yr. 1987-88 the assessee has to explain the source for the investment of Rs. 19,500 in Manju Enterprises. Though the assessee explains the source as the cash balance of Rs. 3,50,000 as on 1st April, 1985, we have already held that the claim of availability of the cash to that extent cannot be accepted. Hence, the source for the investment remains unexplained. The estimate of the house expenses at Rs. 12,000 for this year appears to be reasonable. Hence, the assessment of Rs. 31,500 as the undisclosed income is to be upheld.
7. For the asst. yr. 1988-89 apart from investment in Manju Enterprises, the source for investment in 30.5 cents of land is also to be explained. The AO has estimated the personal expenses for this year at Rs. 15,000. Though the estimate is reasonable, we find that credit should be given for the agricultural income which has also been utilised for meeting the household expenses. The assessee has already given the details about the agricultural properties held by him and also by his wife, in the sworn statement recorded on 29th November, 1995. From the assessment order it can be seen that the AO has not given credit for the agricultural income. No reason has also been given as to why the assessee's claim was not found acceptable. In the circumstances we direct the AO to allow credit for a sum of Rs. 4,000 as the agricultural income spent for household expenses. The assessee thus gets a reduction of Rs. 4,000 on this account. In the cash-flow statement the assessee has shown Rs. 40,000 as loan from Ammukutty Amma. In the assessment order the AO has not dealt with this claim. From the order it is also not clear as to whether any enquiries had been made in regard to the claim. In the circumstances of this case, we direct the AO to give the assessee an opportunity to furnish evidence to prove the genuineness of the loan. The AO will go through the evidence and decide the matter in accordance with law.
8. For the asst. yrs. 1989-90 and 1990-91 also we hold that the assessee is to be given credit for Rs. 4,000 as agricultural income available for meeting the house expenses. The AO has estimated the house expenses for asst. yr. 1989-90 at Rs. 15,000 and for the asst. yr. 1990-91 at Rs. 18,000. The estimates appear to be reasonable and we do not allow any relief on that count.
9. For the asst. yr. 1991-92 the AO has arrived at the undisclosed income at Rs. 3,000 after adjusting the income already assessed. For this year the household expenses had been estimated at Rs. 18,000. In view of the fact that the assessee's claim of agricultural income is found acceptable, we hold that there is no further amount to be assessed as undisclosed income for this year. Hence the sum of Rs. 3,000 added as undisclosed income for the asst. yr. 1991-92 is deleted.
10. For the asst. yr. 1992-93 the AO has estimated the house expenses at Rs. 24,000. In the circumstances of the case, we are of the view that the expenses can be reasonably estimated at Rs. 20,000. The assessee thus gets a reduction of Rs. 4,000 from the undisclosed income assessed for this year.
11. For the asst. yr. 1993-94 the AO has estimated the household expenses at Rs. 10,000, but for this year there was no amount added as undisclosed income on the basis of investments or outgoings. The total income for this year was assessed at Rs. 67,400 on account of interest, salary and income under the head "Other sources" as offered for assessment by the assessee. But there is evidence to show that for this year the assessee filed the return declaring a total income of Rs. 98,020 on 31st August, 1994 in the Income-tax Office Ward-I, Thiruvalla. The assessee's representative also filed before us a copy of the intimation issued by the AO under s. 143(1)(a) of the IT Act on 31st May, 1996, accepting the income as returned (Annexure-IV of the paper-book). The sum of Rs. 98,020 (including agricultural income of Rs. 22,000) has not been given credit in the impugned order of assessment. In view of the income already assessed under s. 143(1)(a), the addition for this year is deleted.
12. The main addition has been for the asst. yr. 1994-95, i.e., to the extent of Rs. 6,02,296 as undisclosed income on account of the investment in a property at Ranni. The assessee made the investment of Rs. 10,10,500 in the property and his claim was that for the purpose he had drawn Rs. 6,75,000 from Manju Enterprises in which he was a partner. Manju Enterprises is the firm which was carrying on the business in the name of Chilambinath Bank. In the course of the search on 29th November, 1995, there was cash shortage of Rs. 26,22,379 noticed in the three branches of Chilambinath Bank. The claim was that the partners, Ramachandran Nair and Gopalan Nair were in the practice of withdrawing money from that bank without recording in the books of accounts. This was also affirmed by the manager. The AO did not accept the claim that the assessee had withdrawn Rs. 6,75,000 from Manju Enterprises for purchasing the property as the withdrawal was not recorded in the books of accounts. That resulted in the addition of Rs. 6,02,296 as the discrepancy to be explained after taking into account the entire outgoings and investments of the previous year. It was submitted before us by the learned representative that the practice of the assessee and the other partner withdrawing money was also confirmed by the manager. The learned representative also drew our attention to the cash-flow statement filed by the assessee for the financial years 1993-94 and 1994-95 (Annexure-I in the paper-book). In the financial year 1993-94 the sum of Rs. 6,75,000 is shown as loan from Manju Enterprises, which is the name of the firm. In the cash-flow statement for the financial year 1994-95 there are two payments to Manju Enterprises, Rs. 6 lakhs and Rs. 75,000. It was pointed out that while considering the assessment for the year 1995-96 the AO did not include the payment of Rs. 6,75,000 to Manju Enterprises only because it was accepted that the payment was only by way of return of the money withdrawn earlier in the financial year 1993-94. We find force in the contention that taking the transactions for the two years together the claim of withdrawal of Rs. 6,75,000 and the repayment in the subsequent year can be accepted as properly explained. In the assessment order the AO has also referred to the statement of the manager regarding the withdrawal of money by the partners. The AO has not given any reason why the statement of the manager was disbelieved. In view of the fact that the repayment has not been doubted by the AO, we hold that there is no justification for rejecting the claim that the assessee had utilised Rs. 6,75,000 from the withdrawal from Manju Enterprises for the purpose of investment in the property. In this view of the matter we delete the addition for the asst. yr. 1994-95.
13. For the asst. yrs. 1995-96 and 1996-97, the assessment of the undisclosed income has been on the basis of the income as shown by the assessee in the cash-flow statement. For both the years only the interest from firms and salary from the firms, as admitted by the assessee, have been brought to tax. As such, we find no reason to interfere.
14. In the result, this appeal filed by the assessee is partly allowed.