Income Tax Appellate Tribunal - Ahmedabad
Pradip C. Patel vs Deputy Commissioner Of Income Tax on 8 January, 1997
ORDER
R.K. Bali, A.M.
1. This is a first appeal against the order dt. 30th September, 1996, passed by the Dy. CIT (Asstt.), Spl. Range 45, Ahmedabad under s. 158 BC r/w s. 143(3) which order has been passed with the a prior approval of the CIT Gujarat in terms of the provisions of s. 158BC. In the various grounds raised by the assessee, the objection is with regard to the addition of Rs. 5,81,000 made by the AO on account of difference of household expenses for the period 1st April, 1985 to 26th September, 1995 in the block assessment years.
2. Appeal in this case was filed on 28th October, 1996 and the assessee moved a petition dt. 1st November, 1996 to the Asstt. Registrar, Tribunal, Ahmedabad requesting for fixation of the case out of turn on account of heavy demand and mental pressure on the assessee. The appeal was directed to be fixed out of turn in the month of December, 1996 by the then Sr. Member Shri B. L. Chhibber vide his order dt. 11th November, 1996 available on record. It was under these circumstances that the appeal came to be fixed on 5th December, 1996.
3. Briefly the facts are that there was a search operation on the premises of the assessee at 9, Trilok Bungalows, Bodakdev, Ahmedabad on 26th September, 1995 and during the course of search, the assessee made a disclosure of unaccounted income amounting to Rs. 20,77,200 in a statement recorded under s. 132(4). In response to notice issued under s. 158BC on 28th November, 1995, the assessee filed a return of income declaring total income at Rs. 20,79,600 on 20th February, 1996, for the block period as under :
Period Asst. yr. Income
1-4-1993 to 31-3-1994 1994-95 12,400
1-4-1994 to 31-3-1995 1995-96 13,98,080
1-4-1995 to 31-3-1996 1996-97 6,98,120
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20,79,600
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4. The assessee has claimed to be deriving income from card game and cricket betting. At the time of search on 26th September, 1995, cash amounting to Rs. 77,200 was found out of which Rs. 70,000 was seized. Apart from this, the assessee was found in possession of other valuable and household items as per annexure of the Panchnama dt. 26th September, 1995 amounting to Rs. 6,98,000 and jewellery valuing Rs. 76,700 only. The disclosed income of Rs. 20,79,600 referred to in para 3 above was attributable to the following investments :
Rs.
(i) Residential house at 9, Trilok Bungalows, Bodakdev, Ahmedabad 13,00,000
(ii) Investment in items shown in annexure Q of the Panchnama dt. 26th September, 1995 7,00,000
(iii) Cash found during the course of search 77,200
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20,77,200
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While completing the assessment, the AO found that there was an earlier search and seizure operation in the case of the assessee on 9th April, 1990 by the Police Inspector, Ellisbridge, Ahmedabad at the then residence of the assessee at 20, Patel Vas, behind Hasubhai Chambers, Madalpur, Ellisbridge, Ahmedabad, when cash amounting to Rs. 41,80,900 was seized. On getting the information from the police department, the intelligence wing of the department found a sum of Rs. 1,01,400 also from a locker No. 810 of the assessee in Panchratna Safe Deposit Vault (P) Ltd., Doctor House, Ellisbridge, Ahmedabad. In a statement recorded under s. 132(4), the assessee made a disclosure, of Rs. 43,62,705 from betting business and filed the return of income for asst. yr. 1991-92. Accordingly on the basis of the material found during the search as well as the seizure of cash, the assessment was framed for the asst. yr. 1991-92 at an income of Rs. 45,62,705.
5. From these facts, the AO came to the conclusion that since the assessee had made a disclosure of Rs. 63,39,905 (43,62,705 + 20,77,200) in a span of about five years and the amount disclosed was based upon the unaccounted cash found in the possession of the assessee along with undisclosed investments made by him in the purchase of a house and other household articles, the assessee must be spending substantial amounts for household purposes which were not commensurate to the withdrawals shown by the assessee in the books of account maintained from the financial year 1990-91 onwards. Accordingly the AO estimated the amount of household expenditure for the block period of 10 plus years as per para 8.2 of the assessment order at a figure of Rs. 7,10,000 as against the disclosed expenditure of Rs. 1,29,000 by withdrawals in the account of the assessee and his wife and thereby made an addition of Rs. 5,81,000 on account of undisclosed income for the block period.
6. The assessee is aggrieved and has filed this appeal against the order of the AO for making this addition of Rs. 5,81,000. Shri N. R. Divetia and Shri Anil Kashatriya, Advocates, appeared on behalf of the assessee and submitted that the AO had erred in estimating the household expenditure for the period relating to asst. yrs. 1986-87 to 1995-96 and upto 26th September, 1995 at Rs. 7,10,000 without any basis and without giving a specific show-cause notice to the assessee in this regard. It was submitted that the learned CIT, Gujarat-3, Ahmedabad had also granted mechanical approval under s. 158BG without giving any opportunity to the assessee. It was submitted that the addition of Rs. 5,81,000 made by the AO suffered from totalling mistakes which were apparent from paras 7 and 8 of the assessment order. It was submitted that the totals of withdrawals of the assessee and his wife as stipulated in para 7, p. 6 of the assessment order contained a short totalling of Rs. 20,000 because the total of withdrawals actually came to Rs. 1,49,000 instead of Rs. 1,29,000 taken by the AO. Besides that, it was submitted that the AO had wrongly noted the withdrawals of the assessee's wife in the period 1995 till the date of search at Rs. 15,000 whereas as per the books, it was Rs. 16,000. It was further submitted that for the asst. yr. 1990-91, there was withdrawal of Rs. 20,000 which had not been taken into consideration. Thus, the withdrawals as per books shown by the assessee were Rs. 1,29,000 as taken by the AO in para 7 at p. 6 of the assessment order plus Rs. 20,000 on account of totalling error plus Rs. 20,000 on account of non-inclusion of expenditure in asst. yr. 1990-91 plus wrong noting of withdrawals of wife at Rs. 15,000 instead of Rs. 16,000 for the period 1st April, 1995 to 26th September, 1995, and these came to Rs. 1,70,000. Thus it was submitted that the addition of Rs. 5,81,000 made by the AO on account of undisclosed income would get reduced to Rs. 5,40,000 only.
7. It was further submitted that there was absolutely no justification for making even this addition of Rs. 5,40,000. The learned counsel for the assessee has furnished a chart indicating the addition made by the AO on the basis of estimate of household expenses by the AO vis-a-vis shown by the assessee and his wife as under :
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Asst. yr. Shown by Estimated Difference
assessee by AO
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Rs. Rs. Rs.
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1986-87 Nil 40,000 40,000
1987-88 Nil 40,000 40,000
1988-89 Nil 40,000 40,000
1989-90 Nil 60,000 60,000
1990-91 20,000 60,000 40,000
1991-92 24,000 60,000 36,000
1992-93 23,000 80,000 57,000
1993-94 23,000 80,000 57,000
1994-95 24,000 1,00,000 76,000
1995-96 26,000 1,00,000 74,000
1-4-1995 to 26-9-1995 30,000 50,000 20,000
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1,70,000 7,10,000 5,40,000
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It was submitted that the assessee is 34 years old now and he was married in 1992. He does not have any children. In the course of proceedings under s. 132(5) relating to earlier search carried out at his premises on 9th April, 1990, the assessee had stated that he started his betting business only one year prior to the date of search i.e. 9th April, 1990 and his income for asst. yr. 1990-91 was between Rs. 20,000 to Rs. 25,000 gross and since net income was below the taxable limit, no return was filed and his household expenditure was met out of that income. Prior to the asst. yr. 1990-91, the assessee was not having any income and the household expenses were met out of the rental income of the family and past savings of the family because at that time, the assessee used to live along with his mother. It was submitted that the learned CIT in proceedings under s. 264 for the asst. yrs. 1990-91 and 1991-92 had accepted this plea of the assessee and for asst. yr. 1990-91 had directed the AO to take the income of the assessee at Rs. 25,000 vide order dt. 26th February, 1996. It was submitted that except for the cash and various household items, investment in respect of which was surrendered by the assessee in statement recorded under s. 132(4), there was no evidence to suggest that the assessee had incurred any expenditure which justified the fantastic estimates made by the AO for household expenses totalling Rs. 7,10,000 for the block period. It was submitted that the reasoning given by the AO for estimating the household expenses was that the assessee was having electronic goods which showed the assessee's standard of living. It was submitted that the so-called electronic goods and TV, music system, refrigerator, air-conditioner, etc. and there was no finding as to whether these items of household were with the assessee during the period prior to the date of first search. Even otherwise the assessee had disclosed the investment made in the purchase of household goods including the electronic items and the possession of these items could not justify the estimate of household expenditure. It was submitted that s. 158BB(2) made it clear that the provisions of ss. 68 to 69C applied for the block period assessments and the AO was entitled to go into the unexplained expenditure etc. as per the above provisions and bring to tax the said amounts as undisclosed income. It was submitted that although technically the AO would be entitled to go into the unexplained expenditure by the assessee during the block period because the search assessment is in the nature of reassessment proceedings but on a mere change of opinion, he could not ignore the decision of the earlier assessing authority which in the case of the assessee for asst. yr. 1990-91 happened to be a CIT. It was submitted that if there was new material found during the course of search justifying the addition on account of unexplained expenditure, the AO would be justified in making it. However, any addition made on account of alleged unexplained household expenses without any material would not be justified at all and should be deleted. It was submitted that the alleged high standard of living could not be supported by the material available on record because the total amount of jewellery found belonging to the wife of the assessee was 110 grams only which could not be called excessive or unreasonable. Accordingly it was submitted that there was no justification for making even the addition of Rs. 5,40,000 (actual addition made by the AO Rs. 5,81,000) which should be deleted.
8. Shri Sandeep Pradhan, the learned Departmental Representative supported the order of the AO and further submitted that the assessee was found to be in possession of huge amounts of cash on two occasions when searches were carried out at his premises which were surrendered in statement recorded under s. 132(4) which indicated that the assessee was enjoying a high standard of living and the estimate of household expenses by the AO for the block period could not be called excessive or unreasonable keeping in view the amount of income disclosed by the assessee in search proceedings under s. 132(4) on 9th April, 1990 as well as 26th September, 1995. He accordingly supported the order of the AO.
9. We have considered the rival submissions. In Chapter XIV-B the concept of "undisclosed income" is introduced. The term "undisclosed income" is defined in this Chapter in s. 158B(b). As per the definition, "undisclosed income" includes (i) any money, bullion, jewellery or other valuable article or thing (hereinafter referred to as 'such asset') or (ii) any income based on any entry in the books of account or other document or transaction (hereinafter referred to as 'such document') where 'such asset' or 'such document' represents wholly or partly, income or property which has not been disclosed or which would not have been disclosed for the purposes of this Act.
9.1 The definition is not exhaustive and, therefore, the normal concealed or undisclosed income shall also fall within the scope of the term 'undisclosed income' for the purpose of this Chapter.
9.2 The definition refers to 'such asset' and the income based on 'such document' if the same represents (wholly or partly) income or property which has not been disclosed or which would not have been disclosed for the purpose of this Act. The language indicates that the income or the property which has either been disclosed or which would have been disclosed for the purpose of the Act shall not form part of the 'undisclosed income'.
9.3 From this, it appears that the requirement of disclosure of income for the purpose of this Act presupposes that the income or the property in question is otherwise required to be disclosed for the purpose of the Act. Therefore, if, to begin with, certain income is not required to be disclosed for the purpose of this Act, the question of treating the same as 'undisclosed income' on the ground that the same has not been disclosed for the purpose of this Act, should not arise. For example, if the assessee does not have taxable income, then, he has no obligation to furnish the return of income under s. 139, and, therefore, there is no obligation under the Act for him to disclose any income for the purpose of the Act. Therefore, if the income of the assessee is below taxable limit, then, even if he has not furnished return of income, the same can never form part of the 'undisclosed income' for the purpose of this Chapter. This view also finds support from Note No. 5 given in return of income (Form No. 2B).
10. In the present case, the claim of the assessee is that he was not having any taxable income prior to asst. yr. 1990-91 and as such no returns were filed and his household expenses were being met out of the rental income of the family and savings of his father and other members of the family. In order to invoke the provisions of s. 69C, the AO has to establish the condition precedent as to the existence of expenditure or understatement of that expenditure by evidence and/or material on record to justify the addition. If the AO cannot, or fails to prove the existence of material indicating the unexplained expenditure or understatement of expenditure, the assessee cannot be taxed. Mere ipse dixit of the AO about the personal expenditure is not enough to sustain an addition and there must be material to support the addition. Here reference to the status is not enough to sustain an addition though it may be sufficient to make further probe into the affairs of the assessee which the AO has failed to do. In a case where there is direct and clear evidence to show that an assessee has incurred some expenditure on an item which he has not recorded in his books at all or which exceeds the amounts recorded and he does not offer an explanation regarding the source from which the expenditure was incurred or the explanation offered by him is unsatisfactory, it is open to the AO to treat the amount of expenditure or the unexplained part of it as having been made out of the assessee's income from undisclosed sources of the relevant accounting year. It was because of this that the assessee offered to disclose the investment made by him in house property as well as in various household items including the refrigerator, air-conditioner, TV, etc. as the undisclosed income. However, to make an addition of alleged unexplained household expenditure, the AO has first to record a finding that there were various items of proved undisclosed expenditure during the relevant previous years, the source of which the assessee is unable or unwilling to explain satisfactorily. In the present case, there is no finding of such an unexplained expenditure having been incurred by the assessee in any of the accounting years relevant to the asst. yrs. 1986-87 to 1995-96 as well as the period 1st April, 1995 to 26th September, 1995. Keeping in view the totality of the facts and circumstances of the case and also the fact that the assessee was a bachelor till 1992, it cannot be said that the expenditure shown for household purposes was inadequate. There is no finding by the AO about the assessee having any personal domestic servant, any extraordinarily high electric bills, huge payments as membership of any clubs, etc. which could justify the estimate of expenditure made by the AO for the different assessment years included in the block assessment period. In the absence of such a finding, the only course left for us is to delete the addition as the same cannot be sustained for want of adequate supporting material. Accordingly, the addition of Rs. 5,81,000 (which actually ought to have been Rs. 5,40,000) is directed to be deleted.
11. In the result, the appeal is allowed.