Income Tax Appellate Tribunal - Ahmedabad
Harishkumar J. Gupta vs Deputy Commissioner Of Income Tax on 27 December, 1999
ORDER
R. K. Bali, A.M.
1. This is a fact appeal filed by the assessee against the order, dated 31st December, 1996 passed by the Dy. CIT(A), Special Range-5, Ahmedabad under s. 158BC r/w s. 143(3) of the IT Act, 1961. The assessee has taken the following substantive grounds :
(1) The learned AO has passed an order in violation of principles of natured justice.
(2) The learned AO has erred in making an addition of Rs. 2,50,000 on account of unexplained cash found at the time of search.
(3) The learned AO has erred in making an addition of Rs. 4,63,000 on account of alleged undisclosed/unexplained household expenses incurred by the assessee during the block period.
(4) The learned AO has erred in disallowing deduction claimed by the assessee in respect of returned/assessed income of Rs. 12,21,105 as detailed below :
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Asst. yr. Income Tax paid
Rs. Rs.
1986-87 52,300 5,437
1987-88 56,205 6,289
1988-89 75,644 11,997
1994-95 4,65,105 1,54,700
1995-96 5,71,851 1,61,124
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Total 12,21,105 3,39,547
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2. Briefly the facts are that the assessee is an individual who mainly derives income from salary as a Joint Managing Director of M/s Electrotherm (India) Ltd. Prior to joining M/s Electrotherm (India) Ltd. in 1993, the assessee was working with M/s Alfa-Laval (I) Ltd. and Tetrapak (I) Ltd. Pune. There was a search and seizure operation under s. 132 of the IT Act, 1961 in the case of M/s Electrotherm (India) Ltd. group of concerns and their Directors on 12th December, 1995 and along with the other Directors, the assessee's premises were also searched at 19, Uganda Park Society, Memnagar, Ahmedabad During the course of search at the residence of the assessee and also of a locker No. 477 at Bank of Baroda. Vijay Char Rasta, Ahmedabad in the joint names of Mrs. Usha Gupta and the assessee, total cash amounting to Rs. 2,67,050 and jewellery valuing Rs. 3,87,381 were found. Out of this, the cash amounting to Rs. 2,50,000 was seized. Thereafter a notice under s. 158BC was issued by the AO and in response to the said notice the assessee filed a return in Form No. 2B on 7th November, 1996, for the block period declaring total undisclosed income at Rs. 50,000. Along with the return the assessee has filed the following note :
"(1) The return is filed in response to notice issued under s. 158BC of the IT Act.
(2) The return of income for the asst. yrs. 1994-95 and 1995-96 have been filed within the time provided under the provision of s. 139(4) of the Act and, therefore, only additional income to the income declared in the original return of income has been taxed @ 60 per cent. As the "ROI" have been filed, therefore, cl. (c) of the s. 158BB(1) will not be applicable.
1(3) The assessee being an individual having salary and income from other sources was not maintaining regular books of account and records has not earned any income other than income declared in regular ROI. However, to cover any omission/errors if found/noticed at any time during the course of assessment, proceedings a lump sum additional income of Rs. 50,000 has been declared and in absence of any records and books of accounts he is not in a position to give yearwise break-up of unaccounted income and as such the additional income declared in the asst. yr. 1995-96 is in fact the additional income for the aforesaid entire block period and not for the particular year as shown in ROI."
3. As against the undisclosed returned income of Rs. 50,000, the AO completed the assessment on a total undisclosed income of Rs. 19,34,105 vide order, dated 31st December, 1996. The assessee has challenged the various additions made by taking specific grounds as enumerated in para 1 above which we will proceed to adjudicate as under :
4. As regards the grounds relating to the action of the AO in violation of principles of natural justice, the learned authorised representative of the assessee submitted that he did not want to press the same. Accordingly ground No. 1 raised by the assessee is dismissed as having not been pressed.
5. As regards ground No. 2 is concerned, the AO has made an addition of Rs. 2,50,000 on account of cash found and seized amounting to Rs. 2,50,000 out of the total cash of Rs. 1,91,050 found from the residence and Rs. 76,000 found from locker No. 477 at Bank of Baroda, Vijay Char Rasta, Ahmedabad. The AO has discussed this issue in paras 7 to 9 at pp. 3 to 9 of the assessment order. The AO has made the addition on the basis of statements of the assessee as well as his wife recorded at the time of search wherein the assessee has admitted that he will be having cash of about Rs. 2 lacs lying in the house which solely belonged to him. As regards the cash of Rs. 76,000 found from the locker, the explanation of the assessee at the time of search was that this contains Rs. 20,000 on account of tour advance drawn by him in the last month and debited in the books of the company and the balance was belonging to the wife and daughter of the assessee which was kept for buying jewellery meant for the marriage of the daughter. As regards the source of cash found from the locker, the assessee's explanation during the course of search was that this represents the amount received by his wife from her mother, brothers and savings of herself and their daughter who was employed with Mardia Chemicals. However, during the course of assessment proceedings the assessee changed his stand and claimed that out of the total cash found, Rs. 1,50,000 belonged to the company M/s Electrotherm (India) Ltd. and Rs. 20,000 was the tour advance. The balance cash found from the locker belonged to the assessee's wife and children which was accumulated over the years by his wife from savings and receipts of gifts at the time of Diwali, Bhaiduj, Birthdays, etc. The AO however, made an addition of Rs. 2,50,000 on account of unexplained cash found from the residence as well as locker as the undisclosed income of the assessee and the AO also rejected the explanation given by the assessee during the course of assessment proceedings as an afterthought and relying on the spontaneous statement recorded at the time of search wherein the assessee admitted that he was having about Rs. 2 lacs at his home which exclusively belonged to him and also the fact that it was improbable for the assessee to keep Rs. 76,000 in cash in the locker out of his disclosed income and also disbelieving the claim of the wife as she was an educated lady regularly assessed to tax and having been account to keep Rs. 76,000 in the form of cash in the locker.
6. Before, us, the learned authorised representative of the assessee submitted that the AO has erred in wrongly interpreting the statement of the appellant-assessee at the time of search and he further erred in placing reliance on the statement of the assessee's wife which was duly corrected at the time of search itself. It was submitted that out of the cash of Rs. 1,91,050 found from the residence, cash of Rs. 1,50,000 belonged to the company M/s Electrotherm (India) Ltd. of which the assessee was a Joint Managing Director. Necessary confirmation in this regard was filed by the assessee during the course of assessment proceedings to the effect that a sum of Rs. 1,50,000 cash belonging to the company was left by the Director Shri Shailesh Bhandari for safe custody with the assessee at the time of his departure for official tour on 10th December, 1995, and the same was recorded in the books of accounts of M/s. Electrotherm (India) Ltd. It was submitted that the assessee's daughter Miss Smriti Gupta was serving with M/s Mardia Chemicals as Project Engineer and the cash of Rs. 76,000 found from the locker represented the savings of the assessee's wife Mrs. Usha Gupta as well as that of Miss Smriti Gupta, daughter of the assessee and was kept for making a provision of marriage expenses for purchase of jewellery, etc. of the daughter Smriti Gupta who was of marriageable age. Accordingly it was submitted that the entire cash found from the residence as well as the locker was satisfactorily explained and the AO was not justified in making the addition of Rs. 2,50,000 on account of alleged unexplained cash found at the time of search.
7. The learned Departmental Representative strongly relied on the order of the AO and further submitted that right at the beginning of the search, the assessee spontaneously accepted that he will be having cash of approximately Rs. 2 lacs at his residence which entirely belonged to him. As such the subsequent story that Rs. 1,50,000 out of this cash belonged to the company M/s Electrotherm (India) Ltd. was only an after-thought to escape from tax liability. It was submitted that even wife of the assessee Mrs. Usha Gupta has stated that the cash found at the residence belonged to the assessee and not to the company M/s. Electrotherm (India) Ltd. It was submitted that the certificate from Shri Shailesh Bhandari, Director of M/s Electrotherm (India) Ltd. stating that Rs. 1.5 lacs found from the residence belonged to the company and the same was left with the assessee on 10th December, 1995, by Shri Bhandari while going on tour on 10th December, 1995 was merely an after-thought to avoid the correct tax liability by the assessee. Similarly, it was submitted that the cash found from the locker belonging to the daughter and wife is also devoid of any logic because the daughter as well as wife are having regular bank accounts in Bank of India and State Bank of India and there were regular deposits and withdrawals in those accounts. As such there was no justification for Mrs. Usha Gupta or Miss Smriti Gupta to keep Rs. 76,000 as cash in the locker and in fact this also belonged to the assessee and as such the addition of Rs. 2,50,000 was rightly made by the AO.
8. We have considered the rival submissions and have also gone through the order passed by the AO and the statement of the assessee recorded at the time of search. A perusal of the statement the relevant portion of which has been reproduced by the AO in the assessment order clearly indicates that at the time of search the assessee has taken the stand that out of cash found, Rs. 20,000 pertained to the tour advance drawn in last month and the same was debited in the books of accounts. About the balance money, the assessee at the time of search claimed that it belonged to him and it did not belong to his employer. In this view of the matter it is difficult to believe the subsequent plea taken by the assessee during the course of assessment proceedings that out of the cash found, Rs. 1.5 lacs belonged to the company M/s. Electrotherm (India) Ltd. It is also pertinent to note that at the time of search the assessee's wife Mrs. Usha Gupta stated that the cash found from the residence is on account of commission received by the assessee from the company which appears to be more probable and may represent the correct state of affairs. As regards the amount of Rs. 76,000 found from the locker it is seen that the locker is being mainly operated by Mrs. Usha Gupta wife of the assessee who is income-tax assessee in her own right and her explanation at the time of search was that the amount was kept in the locker for buying jewellery for the daughter's marriage and the same was the accumulated savings of Mrs. Usha Gupta as well as the daughter Miss Smriti Gupta out of gifts received on ceremonial occasions like Diwali, Bhaiduj, etc. as well as from the mother of the assessee as well as mother of Mrs. Usha Gupta and her brothers and sisters. Merely because Mrs. Usha Gupta has not deposited the cash accumulated over a period in her bank account, cannot make the same as the undisclosed income of the assessee particularly when at the time of search both the assessee as well as his wife admitted that the money found from the locker belonged to the wife Mrs. Usha Gupta. In this view of the matter we are of the opinion that the AO was not justified in taxing the entire amount of Rs. 2,50,000 as undisclosed income because the consistent stand of the assessee during the course of statement recorded at the time of search and even subsequently with regard to the tour advance of Rs. 20,000 and the amount of Rs. 76,000 found from the locker remained the same. Accordingly we will uphold the addition on account of cash found from the residence to the extent of Rs. 1,54,000 only because we are unable to believe the subsequent explanation given by the assessee during the course of assessment proceedings that Rs. 1.5 lacs belonged to the company M/s. Electrotherm (India) Ltd. Accordingly the addition on account of unexplained cash found is sustained to the extent of Rs. 1,50,000 and this ground of appeal is partly allowed.
9. Ground of appeal No. 3 relates to the action of the AO in making an addition of Rs. 4,63,000 on account of alleged unexplained household expenses. The AO has discussed this issued in para 10 at pp. 10 to 14 of the assessment order. The addition again is based on the statement of the assessee's wife recorded by the Authorised Officer at the time of search wherein she is claimed to have admitted their household expenses at Rs. 20,000 per month. However, during the course of recording of the statement of the assessee he specifically stated that the household withdrawals/expenses are Rs. 5,000 per month and the explanation of the assessee with regard to the statement of his wife was that she mentions monthly expenses at Rs. 20,000 per month after taking into consideration the telephone bill, electricity bill, car expenses, etc. which are reimbursed by the company to the assessee. The AO however held that the explanation of the assessee was not satisfactory and he estimated the expenditure on the basis of the statement of the wife of the assessee and also the fact that the wife has stated that the educational expenses of their children were Rs. 1 lac per annum. The AO accordingly made an addition of Rs. 4,63,000 as computed hereunder :
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Asst. yr. Household Exp. Estimated household Addition
declared expenses
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Rs. Rs. Rs.
1994-95 38,000 1,60,000 1,22,000
1995-96 54,000 1,80,000 1,26,000
1996-97 45,000 1,60,000
upto
December 95 1,00,000 2,15,000
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4,63,000
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10. Before us, the learned authorised representative of the assessee submitted that the AO has erred in making an addition of Rs. 4,63,000 on account of alleged unexplained household expenses under s. 69C of the Act and submitted that the AO has not properly appreciated the statement given by Mrs. Usha Gupta at the time of search which was clarified by the assessee at the time of search itself. It was submitted that the statement of Mrs. Usha Gupta at the time of search was a broad statement in relation to the position at the time of search and the amount of household expenses were indicated by her on a guess work and after including the expenditure on various facilities provided by the company like house, medical reimbursement, leave travel concession, vehicle running expenses, telephone expenses, etc. It was submitted that the assessee clarified this position during the search itself wherein he explained that the household expenses were approximately Rs. 5,000 per month which fact has been ignored by the AO. It was further submitted that the AO has further erred in making extra addition of Rs. 1 lac for the period 1st April,1995 to December, 1995 as educational expenses of the sons of the assessee. It was submitted that during the course of assessment proceedings the assessee has produced the evidence by way of receipt of school fees, etc. to prove that the educational expenses were approximately Rs. 5,000 per annum and, therefore, the addition of Rs. 1 lac on account of educational expenses disregarding the factual data is totally unwarranted. He accordingly submitted that the addition of Rs. 4,63,000 (including Rs. 1 lac for educational expenses) on account of alleged unexplained household expense, should be deleted.
11. The learned Departmental Representative strongly relied on the order of the AO and further submitted that Mrs. Usha Gupta is an educated lady and she submitted before the AO that their monthly expenses were Rs. 20,000 and as such the AO was quite justified in estimating the household expenses keeping in view the statement of Mrs. Usha Gupta. He accordingly supported the order of the AO.
12. We have considered the rival submissions and have also gone through the order passed by the AO. The details of household withdrawals shown by the assessee during the course of assessment proceedings for the asst. yrs. 1985-86 upto December, 1995 included in the block period are as under :
Accounting year H. H. Withdrawals
1985-86 28,000
1986-87 28,500
1987-88 33,000
1988-89 36,000
1989-90 33,000
1990-91 43,000
1991-92 38,000
1992-93 51,000
1993-94 38,000
1994-95 54,000
Upto December, 1995 45,000
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Total 4,27,500
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13. It appears that the AO has not made any addition on account of alleged low household withdrawals shown by the assessee upto asst. yr. 1993-94 included in the block period but has made an addition of Rs. 1,22,000 for asst. yr. 1994-95; Rs. 1,26,000 for asst. yr. 1995-96 and Rs. 2,15,000 for asst. yr. 1996-97 (upto December, 1995). Thus, the total additions made were Rs. 4,63,000 inclusive of Rs. 1 lac on account of alleged unexplained educational expenses of children. The family of the assessee consists of the assessee, his wife Mrs. Usha Gupta, daughter Miss Smriti Gupta who is working with M/s Mardia Chemicals, sons Prashant Gupta and Rajat Gupta. During the course of assessment proceedings the assessee explained that his wife was not in a proper state of mind at the time of search and the statement given by her regarding the household expenses at Rs. 20,000 per month was inclusive of house rent, telephone bill, medical relief, vehicle expenses, etc. which are reimbursed to the assessee by the company. The total tuition fees paid by the assessee for his two sons Prashant Gupta was Rs. 4,500 per month and hostel of Rs. 560 per annum. The tuition fees of Rajat Gupta was only Rs. 158 per annum. As such it is not conceivable to think that the assessee was spending Rs. 1 lac per annum on the education of his children. The assessee is a Chemical Engineer who have been a salaried employee since 1966. He has worked from 2nd July, 1966 to 19th October, 1967 with M/s Eicher Tractors and from 25th October, 1967 to 31st August, 1992 with M/s Alfa Laval (I) Ltd. From 1st September, 1992 to 31st October, 1993, he was working as Managing Director of Tetrapack India Ltd. From 1st November, 1993, onwards he was working as Jt. Managing Director of M/s Electrotherm (India) Ltd. Except the statement of the wife of the assessee, there is no other material brought on record by the AO to justify the addition of Rs. 4,63,000. However, the fact remains that at the time of search a sum of Rs. 1,91,050 in cash was found from the residence and a sum of Rs. 76,000 was found from the locker. The finding of so much cash itself indicates a fairly high standard or living enjoyed by the assessee and his family members. During the course of search the assessee's wife Mrs. Usha Gupta admitted that the assessee was receiving commission from M/s. Electrotherm (India) Ltd. However, no such commission was disclosed in the returns filed by the assessee. It is no doubt true that in order to invoke the provisions of s. 69C the AO is required to establish the condition precedent as to the existence of the expenditure or understatement of that expenditure by evidence/material on record to justify the addition by enumerating various items of proved undisclosed expenditure during the relevant previous year, which has not been precisely done by the AO in the case of the assessee. However, the fact remains that one of the sons of the assessee was studying in the Govt. Engineering College, Pune. It is no doubt true that the tuition fees and hostel fees of Prashant Gupta, son of the assessee was only Rs. 5,000 per annum; yet the assessee must be incurring expenditure on the boarding and lodging of his son who was studying in Govt. Engineering College, Pune which will be in addition to the normal household expenses. The tuition fees of the other son Rajat Gupta who was studying in 9th standard at the relevant time was only Rs. 158 per annum and that son was staying with the assessee. Therefore, taking into consideration the totality of the facts and circumstances of the case as well as the human probabilities and the return of undisclosed income at Rs. 50,000 filed by the assessee for the block period we think it fair and reasonable to sustain an addition of Rs. 50,000 on account of unexplained household expenses for the block period as against Rs. 4,63,000 made by the AO. The assessee will be entitled to a relief of Rs. 4 lacs in this regard and this ground of appeal is partly allowed.
14. Ground of appeal No. 4 relates to the action of the AO in disallowing the deduction of returned/assessed income amounting to Rs. 12,21,105 in the block period 1985-86, 1986-87, 1987-88, 1994-95 and 1995-96 from the total income. The AO has discussed this issue in para 11 at pp. 14 and 15 of the assessment order. The AO disallowed the claim of the assessee on the ground that the returns for asst. yrs. 1986-87, 1987-88 and 1988-89 were not filed and the returns for asst. yrs. 1994-95 and 1995-96 were filed beyond the time under s. 139(1) i.e. on 23rd August, 1996 and 2nd August, 1996 respectively. According to the AO in terms of s. 158BB(c) the assessee is not entitled to any deduction for the declared/assessed income as the income for these two years has to be taken at Rs. NIL.
15. The learned authorised representative of the assessee submitted that the deduction of Rs. 12,21,105 in respect of the disputed years was admissible to the assessee as the returned/assessed income for these years cannot be considered as the undisclosed income of the assessee. It was submitted that the assessee is a salaried employee and TDS was deducted at source from the salary paid to the assessee and in support of this the assessee has furnished details of salary certificates issued by the employer for asst. yrs. 1986-87, 1987-88 and 1988-89 in Form No. 16 at pp. 11, 12 and 13 of the paper book. The assessee has also furnished statement of income for asst. yr. 1994-95 along with the salary certificate in Form No. 16 along with the challans for the tax paid at pp. 19 to 32 of the paper book and for asst. yr. 1995-96 at pp. 33 to 40 of the paper book. It was submitted that the income declared in the returns though filed belatedly cannot be considered as undisclosed income within the meaning of s. 158BB as these are to be considered while framing regular assessment of each assessment year. Reliance was placed on the decision of the Gujarat High Court in the case of N.R. Paper and Board Ltd. & Ors. vs. Dy. CIT (1998) 234 ITR 733 (Guj) as well as the decision of the Bombay Bench of the Tribunal in the case of Sunder Agencies vs. Dy. CIT (1997) 63 ITD 245 (Mumbai) and the decision of the Madras Bench of the Tribunal in the case of J. K. Narayanan (HUF) vs. Asstt. CIT (1999) 64 TTJ (Mad) 823 and the decision of the Nagpur Bench of the Tribunal in the case of Smt. Jatan Bai Baid vs. Asstt. CIT (1998) 96 Taxman 24 (Nag)).
16. The learned Departmental Representative on the other hand, strongly relied on the order of the AO and submitted that the action of the AO is perfectly justified on a plain reading of the provisions of s. 158BB(c) of the Act.
17. We have considered the rival submissions and have also gone through the order passed by the AO. Chapter XIV-B of the IT Act, 1961 lays down a special procedure for assessment of search cases and provides for assessment of "undisclosed income" as a result of search under s. 158BB(1) r/w s. 158BC of the Act, what is assessed is the undisclosed income of the block period and not the total income or loss of the previous years required to be assessed in the normal regular assessment under s. 143(3). The regular assessment is to assess the total income of the previous year where a return is required to be filed under s. 139 and the AO considers it necessary or expedient under s. 143(2) to ensure that the assessee had not understated the income. The proceedings relating to regular assessment and those relating to assessments of undisclosed income as a result of search operate in different planes. The income earned by the assessee from salary for the disputed years is required to be assessed under s. 143 as TDS was deducted at source and the information relating to the income earned for all the disputed years is contained in the returns filed by the assessee. The returns might be belated or even invalid but the information contained therein showing earning of income from salary, income from other sources in the form of dividend, interest income and capital gains, etc. was a valid information imparted by the assessee to the AO. The information contained in the returns was not unearthed by the Department consequent to the search. Accordingly it will not be possible to say that the income declared in the returns for these years i.e. 1986-87, 1987-88, 1988-89, 1994-95 and 1995-96 could be considered as the undisclosed income of the assessee for the purpose of framing assessment under Chapter XIV-B. Sec. 158BB only prescribes the method of computing the undisclosed income of the block period. However, prior to making such computation, the existence of undisclosed income as such is required to be shown. In this case the income declared by the assessee for the five years in his returns though filed belatedly cannot be considered as the undisclosed income. Hence the question of applying cl. (c) of s. 158BB for the purpose of computing the undisclosed income for the block period cannot arise in relation to this disclosed income of Rs. 12,21,105 in the returns filed. Accordingly we direct the AO to exclude the income of Rs. 12,21,105 from the block period and assess it in accordance with law while framing the regular assessment.
18. In the result, the appeal is partly allowed.