Income Tax Appellate Tribunal - Pune
K.K. Enterprises, Pune vs Assessee
Author: G S Pannu
Bench: G S Pannu
IN THE INCOME TAX APPELLATE TRIBUNAL
PUNE BENCH " A", PUNE
BEFORE SHRI I.C. SUDHIR, JUDICIAL MEMBER
AND SHRI G.S. PANNU, ACCOUNTANT MEMBER
S.No. ITA No Block Appellant Respondent
period
A.Y.
1 516/PN/07 97-98 M/s K.K. Enterprises, 15 Sonarupa Asstt.
to Complex, Kasarwadi, Pimpri, Pune Commissioner
2003- 18 - PAN AABFK4903D of I.T. Cen.
04 Cir.1 (1), Pune
2 1491/PN/08 -do- -do- Asstt. CIT. Cir.
8, Pune
3 517/PN/07 -do- Shri Sunil B. Bansal, Prop. Rohit Asstt. CIT Cen.
Trading Co. 156, Sonarupa Cir. 1(2), Pune
Complex, Kasarwadi, Pimpri, Pune
18 - PAN AAPPB9007R
4 1388/PN/07 97-98 M/s K.K. Enterprises, 15 Sonarupa Commissioner
to Complex, Kasarwadi, Pimpri, Pune of Income-tax
2003- 18 - PAN AABFK4903D (Appeals)-I,
04 Pune
5 1341/PN/07 -do- Shri Kamalraj Bansal (HUF), Prop. Asstt. CIT.
Brijmohan Bansal & Sons (HUF), Cen. Cir. 1(1),
62 Shanta Arcade, Telco Road, Pune
Chinchwad, Pune - PAN
AABHB2180B
Appellants by : Shri Nilesh Khandelwal
Respondent by : S/Shri Hareshwar Sharma & Sanjay Singh
ORDER
Per G S Pannu, A.M:
The captioned appeals relate to three assessees of the same Group and involve certain common issues and, therefore, they were heard together and a consolidated order is being passed for the sake of convenience and brevity.
2. We shall first take up ITA No 516/PN/07 in the case of M/s K.K. Enterprises, Pune.
2
3. ITA No 516/PN/07 is an appeal by the assessee directed against the order of the Commissioner of Income-tax (Appeals)-I, Pune dated 16.3.2007, which in turn has arisen from an order passed by the Assessing Officer under section 158BC(c) of the Income-tax Act, 1961 (in short "the Act") dated 30.9.2004 pertaining to the block period assessment years 1997-98 to 2003-04 (i.e. upto 5.9.2002).
4. The facts, in brief, are that the assessee is firm trading in Rubber and Rubber Chemicals. A search and seizure action under section 132 of the Act was carried out on 5.9.2002 at the godown of the assessee at S. No. 2/3 Plot No. 1, Vitthal Nagar, Dehu, Pune. Simultaneous search was also conducted at the residential premises of the partner, Shri Kamalraj Bansal at 9/4,Rajhans Building, Kashmiri Colony, Yerawada, Pune. Survey under section 133A was also carried out at the godowns and shop/office premises of the assessee at Shanta Arcade, Bhosari, Telco Road, Chinchwad, Pune and Sona Rupa Complex, Kasarwadi, Pimpri, Pune. In the course of search/survey, cash, jewellery, silver, FDR/shares, Stock as per inventory and Books & Documents/loose papers, were found and seized. In response to notice under section 158BC, assessee filed its return of income for the block period declaring NIL income. However, the undisclosed income was assessed at Rs 22,62,044/- after making various additions, which were carried in appeal before the Commissioner of Income-tax (Appeals). The Commissioner of Income-tax (Appeals) has since dismissed the appeal, against which the assessee is in appeal before us.
5. In so far as the first Ground of appeal is concerned, the plea of the assessee is that the assessment proceedings initiated and finalised are not in accordance with law and the assessment order passed by the Assessing Officer is not tenable in law. The specific grievance of the assessee is that the time provided to file block return in the notice issued under section 158BC was not of complete 15 days as required by section 158BC, and therefore, the impugned 3 assessment proceedings are not in accordance with law. The learned Counsel for the appellant stated at the time of hearing that this aspect of the controversy has already been dealt with by the Pune Bench of the Tribunal in the case of an assessee belonging to the same group, vide ITA No 1365/PN/2006 dated 30.6.2008 in the case ofr Late Mr Brijmohan Bansal (L/R Mr Kamalraj Bansal) v. ACIT, Cen.Cir.1 (1), Pune.
6. We have perused the said precedent and find that the Tribunal has not upheld the contention of the assessee, after appreciating the order of the Commissioner of Income-tax (Appeals) before it, which was on the same lines as the impugned order of the Commissioner of Income-tax (Appeals) which is before us, the relevant discussion by the Tribunal is contained in para 2.3, which is as under:
"2.3 We further hold that merely because it was mentioned in the notice issued u/s 158BC to file return within 15 days of the receipt would not render the notice ab inito void, but is a procedural irregularity liable to be cured. The assessee has not been able to show any serious and material prejudice caused to the assessee. The search warrant notice u/s 158BC and notice u/s 142(1) issued in the name of L/R of Brijmohan Bansal without specifying particular names of legal representatives also does not make the proceedings as void ab initio so that the assessment order is to be cancelled as without jurisdiction. The CIT(A) has decided the issue rightly in the light of several decisions referred to by him in his order. The Hon'ble Bombay high Court in the case of Shirish Madhullar Delvi v. Asstt.CIT (2006) 287 ITR 242 has held that section 158BC is a procedural section. Further, the Special Bench of the Tribunal in the case of Premier Ltd. V. DCIT reported in 281 ITR (AT) 107 (Delhi)(SB) has taken a view that the only remedy to challenge search action u/s 132 lies in the form of seeking issue of writ from the Hon'ble High Court.
2.4 In the light of the discussions made above, ground No. 1 raised by the assessee is rejected."
Following the above precedent, which has been rendered in similar facts and circumstances, we affirm the decision of the Commissioner of Income-tax (Appeals) and the Ground raised by the assessee is dismissed.
7. The next Ground raised by the assessee is directed against an addition of Rs 13,826/- made by the Assessing Officer on account of sales outside the account books, which has further been enhanced by an amount of Rs 3,64,974/- by the Commissioner of Income-tax (Appeals). Briefly put, the facts are that during the course of search, a loose paper marked as (15) to the Bundle No. 14 was found and seized, which contained certain notings. On being asked to 4 explain, assessee submitted that it pertained to rough quotations and workings for the enquiries from the customers. It was also submitted that it contained the details of bills of a concern, Jayshree Rubber & Jayshree Polymers and that the paper was prepared at the time of reconciliation of accounts with the respective parties. The Assessing Officer has observed that an amount of Rs 2 lakhs shown to have been received as per the document seized tallied with the copy of account of the party filed by the assessee but "there is no corresponding sale of Rs 3,78,000/- (total of Rs 1,84,800/- + 1,44,000/- written in the loose sheet) found in the copy of account of M/s Jayshree Rubber products." Therefore, he treated the same as sales made outside the account books and made an addition of Rs 13,826/- being gross profit @ 3.65% on Rs 3,78,800/- to the undisclosed income for the block period. As per the Commissioner of Income-tax (Appeals), not only the gross profit element, but the entire undisclosed sale found of Rs 3,78,800/- was liable to be assessed as undisclosed income, and therefore, he enhanced the total undisclosed income by a sum of Rs 3,64,974/-.
8. Against the aforesaid, learned Counsel submitted that the action of the lower authorities is unjustified, unwarranted and contrary to law and facts of the case. Our attention has been drawn to the written submissions dated 28.9.2004 addressed to the Assessing Officer and dated 17.11.2004 and 1.3.2007 addressed to the Commissioner of Income-tax (Appeals) in support of the case of the assessee. It has been vehemently submitted that no income is reflected by the impugned seized document, and it merely reflects rough workings of certain quotations obtained from the market and the "futuristic fund flow position" for that period so that the assessee could decide whether it should enter into a transaction or not. It was explained that the notings did not reflect any actual transactions. In the alternative, it was submitted that if the notings were to be taken as unrecorded sales, even then only the gross profit element thereof could be assessed as income, and not the entire amount of gross sales and in this regard reliance was placed on the decision of the Pune Bench of the Tribunal in 5 the case of M/s Ajinkya Electromelt (P) Ltd. ITA No 1027 & 1028/PN/97 dated 20.10.2004, and the Ahmedabad Bench (Third Member) in the case of ITO v. Gurubachhan Singh J. Juneja 55 ITD 75 (Ahd.).
9. On the other hand, the learned Departmental Representative has defended the addition of Rs 3,78,800/- sustained by the Commissioner of Income-tax (Appeals) by pointing out that the entire amount was an undisclosed transaction and, therefore, it has been rightly assessed as undisclosed income.
10. We have considered the rival submissions carefully. It is quite evident from the orders of the authorities below that some of the contents of the impugned seized document tallied with the regular account books of the assessee. Quite clearly, the assessee was expected to explain the contents of the document. The explanation rendered by the assessee that it was only rough notings is too general and vague, and, therefore, considering the entire gamut of facts and circumstances, the Assessing Officer was justified in treating the amount of Rs 3,78,800/- as unrecorded sales. However, the alternative plea of the assessee that only the profit element should be assessed instead of the gross amount of sale, is acceptable. There is no justification to treat the gross amount of sale as income, and this is in line with the decisions of our co-ordinate Benches in the cases of Ajinkya Electromelt (P) Ltd. (supra) and Gurubachhan Singh J. Juneja (supra). Thus, we delete the addition of Rs 3,64,974/- enhanced by the Commissioner of Income-tax (Appeals) and retain the addition of Rs 13,826/- made by the Assessing Officer. Accordingly, the order of the Commissioner of Income-tax (Appeals) is set aside and the Assessing Officer is directed to retain an addition of Rs 13,826/- only. Thus, on this Ground assessee partly succeeds.
11. The next Ground of appeal raised by the assessee is directed against an addition of Rs 51,488/- on account of undisclosed interest on FDRs. On this Ground, the learned Counsel for the assessee submitted that both the lower 6 authorities have accepted that the principal amount of FDR has been reflected in the regular accounts, therefore, the interest thereon cannot form part of the 'undisclosed income' and is beyond the scope of Chapter XIV-B of the Act. It is also contended that no material was found during the search which showed that the impugned interest was an undisclosed income within the scope of Chapter XIV-B of the Act.
12. On the other hand, learned Departmental Representative has defended the addition by pointing out that interest on FDR was not disclosed in the return of income and, therefore, it has been rightly assessed in the block assessment proceedings.
13. We have considered the rival submissions carefully. Chapter XIV-B of the Act permits assessment of undisclosed income of the block assessment of undisclosed income of the block period on the basis of the evidence found as a result of search or other documents and such other material or information with the Assessing Officer which is relatable to such evidence. Further, 'undisclosed income' is defined per section 158B(b) of the Act, inter alia, to include such income "which has not been or would not have been disclosed for the purposes of this Act". In the present case, it is undisputed that the principal amount of FDRs is reflected in the regular books of account, and the Commissioner of Income-tax (Appeals) notes that "it is a fact that the FDR is disclosed in the Return of income". Quite clearly, income arising from a disclosed asset cannot be classified as an 'undisclosed income' within the meaning of 158B(b) of the Act. Moreover, it is also clear from the orders of the authorities below, that there is no incriminating material found during search to show that the FDR interest was undisclosed. Therefore, in our view, the sum of Rs 51,488/- is beyond the purview of Chapter XIV-B of the Act, while it is liable to be considered in the course of regular assessment. Accordingly, the order of the Commissioner of 7 Income-tax (Appeals) is set aside and the Assessing Officer is directed to delete the addition of Rs 51,488/-. Thus, on this Ground, assessee succeeds.
14. The next Ground of appeal relates to the addition of Rs 27,600/- made on account of advances to employees. It appears that a small diary numbered as Bundle No. 1 to Annexure -A to the Panchanama dated 5.9.2002 was seized, wherein the Assessing Officer noticed that some figures with dates were mentioned. On being required by the Assessing Officer to explain, assessee stated that the entries represented advances given to the employees and that the entries were made in short form by putting decimal point before last two digits, i.e. for Rs 2600/-, it is written as 26.00. The Assessing Officer did not accept the explanation of the assessee as in his view such advances were not entered in the regular books of account. He accordingly treated the total of such advances amounting to Rs 27,600/- as undisclosed income of the assessee. In appeal, the Commissioner of Income-tax (Appeals) affirmed the action of the Assessing Officer for the reason that the submission of the assessee that the amounts were given out of disclosed funds remained unsubstantiated.
15. After considering the submissions of rival parties, we are of the considered opinion that the lower authorities were not justified in making the impugned addition. Before us, the learned Counsel for the assessee submitted that the amounts were given out of the disclosed funds of the assessee, and the assessee can be accepted to have disclosed sources for the small amount in question. We, therefore, do not find any reason to uphold the order of the Commissioner of Income-tax (Appeals) sustaining the addition of Rs 27,600/- made by the Assessing Officer to the undisclosed income of the assessee. We set aside the order of the Commissioner of Income-tax (Appeals) and direct the Assessing Officer to delete the impugned addition.
16. The last Ground raised by the assessee is directed against an addition of Rs 21,69,128/- which has been assessed as undisclosed income on account of 8 unexplained investment in excess stock. Briefly put the facts are that the assessee firm is a dealer in Rubber and Rubber Chemicals. In the course of search/survey operations, physical inventory of stock was determined at Rs 25,58,858/-. At the time of search, a tentative Trading/Profit & Loss account was prepared wherein the stock was computed at Rs 31,64,000/- and, in this manner, a deficit in stock of Rs 6,05,142/- was ascertained. The Assessing Officer has noted that during the course of assessment proceedings, the assessee was asked to reconcile the discrepancy. The assessee was also provided with the back-up hard disc, which was seized during the course of the search. On the basis of the aforesaid, the assessee reworked the Trading/Profit & Loss account and determined the closing stock at Rs 25,94,918/- and, in this manner, worked out a difference in stock at Rs 50,126/- only. The assessee explained before the Assessing Officer that the revised Trading/Profit & Loss Account was based on updated entries and also was supported by the relevant material and, therefore, the stock as per the final accounts stood fully explained and reconciled. The Assessing Officer, however, did not accept the reconciliation and the updated Trading/Profit & Loss Account and the same was rejected as an afterthought. The Assessing Officer also observed that the explanation furnished by the assessee was based on materials gathered after the search. The Assessing Officer also observed that certain loose papers and documents which were found during the course of search and were inventorized but were not seized, such material was not produced before the Assessing Officer during the course assessment proceedings. Considering the aforesaid, reconciliation of stock with the books of account prepared by the assessee was rejected. Instead, the Assessing Officer prepared a Trading account as on the date of search after considering the explanation rendered by the assessee in para 4 of the assessment order. He has accordingly computed the excess physical stock of Rs 21,69,128/- as on the date of search. Such amount has been added as undisclosed income on account of unexplained investment in stock. Before the 9 Commissioner of Income-tax (Appeals) also, assessee reiterated its submissions and in fact all the material in support of the corrected Trading account prepared by the assessee, was furnished before the Commissioner of Income-tax (Appeals). The Commissioner of Income-tax (Appeals) called for a Remand report from the Assessing Officer and, after considering the same, he sustained the action of the Assessing Officer in making the addition of Rs 21,69,128/- on account of unexplained stock. Against aforesaid, the assessee is in further appeal before us.
17. Before us, learned Counsel for the assessee vehemently submitted that the stated addition is improper, unjustified and contrary to the provisions of law and facts of the present case. It has been pointed out with reference to page 11 of the Paper Book wherein is placed the tentative Trading/Profit & Loss account prepared at the time of search wherein the closing stock as per books has been computed at Rs 31,64,000/- on the basis of which a deficit in physical stock was noticed at Rs 6,05,142/-. It has been pointed out that at the time of the physical inventory a deficit in physical stock vis-à-vis account books was noticed, whereas in the course of assessment the addition has been made on the plea that excess stock was physically found of Rs 21,69,128/-. It is pointed out that the tentative Trading/Profit & Loss account placed at page 11 is patently wrong, inasmuch as it does not contain any figure of the opening stock and that assessee had furnished a completed and updated Trading/Profit & Loss account during the course of assessment proceedings which has been totally ignored. Our attention was also invited to the statement of the partner Shri Sunil Bansal recorded at the time of search. It was pointed out that the partner had stated at the time of search that discrepancy of the deficit stock was on account of incomplete accounts and there was no admission of any unexplained investment in stock. It has also been pointed out that neither the Assessing Officer and nor the Commissioner of Income-tax (Appeals) have deemed it proper to consider the veracity of the updated/corrected Trading/Profit & Loss account prepared by the 10 assessee, which was supported by material and evidences. It was, therefore, contended that the lower authorities have erred in summarily making an addition without examining the pleas set-up by the assessee.
18. On the other hand, the learned Departmental Representative, appearing for the Revenue, pointed out that the assessee did not produce in the course of the assessment proceedings certain documents, which were identified/inventorised during the course of search but were not seized and that such action was primarily for the reason that the corrected Trading/Profit & Loss account was based on concocted material. In this manner, addition sustained by the Commissioner of Income-tax (Appeals) has been sought to be defended on behalf of the Revenue.
19. We have carefully considered the rival submissions. In order to briefly recapitulate the contours of the dispute, it is noticed that at the time of search/survey operation, physical inventory of the stock was undertaken. A tentative Trading account was prepared on the basis of which a deficit in stock vis-a-vis the physical inventory was noticed of Rs 6,05,142/-. It also transpires that a back-up of the computer hard disc was also taken at the time of search which also contained a Trading account which differed with the tentative Trading account prepared at the time of search. In the course of assessment proceedings, assessee also prepared a corrected Trading/Profit & Loss account after rectifying all omissions/errors. It has been explained by the learned Counsel for the assessee that this corrected Trading/Profit & Loss account was taken into consideration while filing the return of income for the block assessment. In terms of the said corrected Trading/Profit & Loss account, the stock as per the account books was reconciled with the physical inventory except for difference of Rs 50,126/-. The Assessing Officer, however, has reworked and determined the excess stock on the date of survey at Rs 21,61,128/-. As per the working of the Assessing Officer, stock as per the account books was Rs 3,89,730/- and the 11 stock on physical verification is taken at Rs 25,51,858/- thereby showing excess physical stock of Rs 21,69,128/-.
20. In the above background, the stand of the Revenue is that the corrected Trading account prepared by the assessee by way of which stock position is found to be reconciled is a concocted story which is based on facts and materials gathered after the search. In this connection, we have examined the tentative Trading account prepared at the time of search a copy of which is placed at page 11 of the Paper Book. On the basis of such tentative Trading/Profit & Loss account, stock as per books has been computed at Rs 31,64,000/- and after comparing the same with the physical stock found of Rs 25,58,858/- the deficit in physical stock was stated to be Rs 6,05,142/-. Ostensibly, the aforesaid working is erroneous, inasmuch as the tentative Trading/Profit & Loss account does not contain the figure for opening stock apart from other discrepancies sought to be explained by the assessee. In this connection, it is also notable that such deficit noticed at the time of survey, though erroneous, was put to the partner of the assessee firm by way of questions 26 & 27, copies of which have been placed in the Paper Book at pages 53 to 55. The partner was asked to explain as to why such deficit should not be treated as a result of unaccounted sales carried out by the assessee. The partner explained that there could be some bills for which goods were received, but the relevant bills were not received and, therefore, he could not explain anything further. In answer to a question No. 27, the partner also explained that the seized print out of stock tally generated from the computer by the search party does not contain an opening stock. The aforesaid answers clearly establish that at no stage the partner accepted the authenticity of the working of the stock discrepancy noticed by the search party. We are observing so for the reason that the Assessing Officer in the assessment order has noticed that the partner admitted the discrepancy found in the stock at the time of search. Quite clearly our reading of the relevant portion of the statement of the partner, which is placed in the Paper Book, does not justify the aforesaid 12 observation of the Assessing Officer. Be that as it may, we find that the assessee had submitted before the Assessing Officer a corrected Trading/Profit & Loss account. Vide written submission dated 28.9.2004 addressed to the Assessing Officer, a copy of which has been placed at pages 9 to 14 of the Paper Book. The assessee has furnished a reconciliation between the tentative Trading account based on hard disc as also the corrected Trading account. It has been explained by the assessee that the Trading account as per the back-up hard disc was neither complete nor final and such assertion was also made by the partner in the statement recorded at the time of search. In support of the corrected Trading account, the assessee also enclosed detailed ledger extract of all such differences and the supporting evidence for the corrections made. In so far as the tentative Trading account prepared at the time of search on 6.9.2002 the same was explained to be palpably wrong inasmuch as it did not contain the figure of opening balance. On this basis, it was explained that the correct stock figure has been incorporated in the corrected Trading account as on the date of search and, therefore, the gross profit as well as the closing stock vis-à-vis the updated Trading account be accepted. In our view, the aforesaid material has been completely ignored by the Assessing Officer. No effort has been made at any stage to verify the contentions put-forth by the assessee. The assessee had explained that certain transactions/rectifications remained to be incorporated while the tentative Trading account was prepared at the time of search and also on the basis of the back-up of the hard disc taken at the time of search by the search party. It was only after incorporating such entries, final Trading account was sought to be canvassed before the Assessing Officer. In our considered opinion, for insufficient reasons the material sought to be put-forth by the assessee has been ignored by the lower authorities. The plea of the Revenue that the discrepancy in stock was accepted by the assessee during the course of search is also untenable inasmuch as the partner of the assessee clearly explained in his statement that the stock deficit was primarily on account of 13 incomplete accounts and did not reflect unaccounted sales as sought to be made out by the Revenue. Considering the circumstances, in our view, it would be in the fitness of things that the matter is restored back to the file of the Assessing Officer who shall verify the explanations and material sought to be preferred by the assessee whereby closing stock as per the final accounts stood explained vis-à-vis physical inventory found at the time of search. Needless to say, in the ensuing remand proceedings, the Assessing Officer shall allow the assessee a reasonable opportunity of being heard and to produce relevant material and evidence in support of his stand and thereafter pass an order in accordance with law on this aspect. Therefore, on this Ground, assessee succeeds for statistical purposes.
21. In the result, ITA No 516/PN/07 in the case of M/s K K Enterprises is partly allowed.
22. We shall now take up ITA No 1491/PN/08 in the case of M/s K.K. Enterprises. This is an appeal by the assessee against the order dated 18.9.2008 passed by the Commissioner of Income-tax (Appeals) confirming the penalty levied by the Assessing Officer under section 158BFA(2) of the Act amounting to Rs 14,92,044/- for the block period 1997-98 to 2003-04. The block assessment finalised by the Assessing Officer determining the total undisclosed income at Rs 22,62,044/- as against NIL undisclosed income returned by the assessee, was the subject-matter of appeal before us in ITA No 516/PN/07 and for detailed reasons given in this order, we have set aside the issue relating to the addition of Rs 21,69,128/- assessed as undisclosed income on account of unexplained investment in excess stock to the file of the Assessing Officer for fresh adjudication. Similarly the enhancement made by the Commissioner of Income- tax (Appeals) of Rs 3,64,974/- as well as other additions made by the Assessing Officer, except the addition of Rs 13,826/- estimated as gross profit, have been deleted by us in the foregoing paragraphs of this order. In view of this factual 14 position, in our considered opinion, the levy of penalty under section 158BFA(2) of the Act is unwarranted and therefore, we set aside the impugned order of the Commissioner of Income-tax (Appeals) and the Assessing Officer is directed to delete the impugned penalty.
23. In the result, appeal in ITA No 1491/PN/08 in the case of M/s K K Enterprises is allowed.
24. We now take up ITA No 517/PN/07 filed by Shri Sunil B. Bansal. This is an appeal by the assessee directed against the order of the Commissioner of Income-tax (Appeals)-I, Pune dated 23.3.2007, which in turn has arisen from an order passed by the Assessing Officer under section 158BC(c) of the Act dated 30.9.2004 pertaining to the block period assessment years 1997-98 to 2003-04 (i.e. upto 5.9.2002).
25. In so far as the first Ground of appeal is concerned, the plea of the assessee is that the assessment proceedings initiated and finalised are not in accordance with law and the assessment order passed by the Assessing Officer is not tenable in law. Similar Ground has been dealt with by us in the case of the firm M/s K K Enterprises vide ITA No 516/PN/07 wherein we have affirmed the order of the Commissioner of Income-tax (Appeals). Following the precedent, which has been rendered in similar facts and circumstances, we affirm the decision of the Commissioner of Income-tax (Appeals) and the Ground raised by the assessee is dismissed.
26. Ground No. 2(b) relates to the addition of Rs 35,874/- estimated as gross profit and Ground No. 2(g) relates to the amount of Rs 42,450/- enhanced by the Commissioner of Income-tax (Appeals). Similar issues were considered by us in the case of the firm M/s K K Enterprises vide ITA No 516/PN/07 wherein we have set aside the enhancement made by the Commissioner of Income-tax (Appeals) and confirmed the addition relating to gross profit. Following the precedent, which has been rendered in similar facts and circumstances, we set aside the order of 15 the Commissioner of Income-tax (Appeals) in relation to the enhancement of Rs 42,450/- made by him and uphold his order with regard to the gross profit estimation. As a result, Ground No. 2(b) is dismissed, while Ground No, 2(g) is allowed.
27. The next Ground raised by the assessee is with regard to an addition of Rs 2,99,893/- made by the Assessing Officer on account of unexplained jewellery which has been treated as undisclosed income of the assessee for the block period. In brief, the facts are that out of the total jewellery/gold ornaments found, 974.5 gms.(net) valued at Rs 5,09,492/- was said to be belonging to the assessee and his wife Smt Poonam Bansal as the same was found in the bedroom of the assessee and on person with his wife. In the course of assessment proceedings, the assessee was asked to explain the source of acquisition of such jewellery. It was explained that the jewellery of Rs 1,05,000/- as on 31.3.2001 was reflected in the personal Balance sheet of the wife. Secondly, it was explained that balance jewellery was old and was in possession even before the block period. The Assessing Officer did not accept the latter explanation of the assessee, but allowed credit for 200 gms. of jewellery valued at Rs 1,04,600/- (being the value of jewellery as on the date of search). In this manner, after allowing total credit of Rs 2,09,600/- (i.e. Rs 1,05,000/- + Rs 1,04,600/-), balance of the jewellery amounting to Rs 2,98,893/- was added as undisclosed income of the assessee for the block period being unexplained investment in the acquisition of gold/jewellery. The said addition has since been sustained by the Commissioner of Income-tax (Appeals) against which assessee is in further appeal before us.
28. Before us, learned Counsel for the assessee referred to a chart placed at pages 12 to 14 of the Paper Book showing the jewellery and silver articles reflected in the personal Balance sheet of the assessee and other family members as on 31.3.2001 and pointed out that the jewellery in question was fully 16 explained. It was pointed out that even the CBDT Circular allows credit for 500 gms per married lady, 250 gms per unmarried lady and 100 gms per male member of the family. It is pointed out that after considering the jewellery disclosed by the various family members in the personal Balance sheets and the credit allowable in terms of the CBDT circular, no addition on account of any unexplained investment in jewellery found with the assessee and his wife is maintainable.
29. On the other hand, the learned Departmental Representative has relied upon the orders of the lower authorities in support of the case of the Revenue.
30. We have carefully considered the rival submissions. Ostensibly, out of total jewellery found in the course of search, 974.5 gms (net) valued at Rs 5,09,493/- was found from the bedroom of the assessee and on-person with his wife Smt Poonam S Bansal. The explanation rendered by the assessee was that part of the jewellery has been declared in the personal Balance sheet of his wife as on 31.3.2001 amounting to Rs 1,05,000/-. The assessee further explained that his immediate family consisted of self, wife Mrs Poonam S Bansal, daughter Sanchi S Bansal and son Kunal S Bansal. The claim of the assessee is that as per the CBDT Circular No 1916 dated 11.5.1994, the explainable jewellery can be ascertained as follows:
Sr.No. Name of the family Relation Credit of gold claimed as member per CBDT circular
1. Sunilraj Bansal Self 100 grams
2. Poonam S Bansal Wife 500 grams
3. Sanchi S Bansal Daughter 250 grms
4. Kunal S Bansal Son 100 grams Total 950 grams
31. On the other hand, as per the Revenue, apart from allowing credit of 210 grams a further credit of 200 grams of jewellery can be allowed on account of 17 acquisition at the time of marriage and other religious ceremonies etc., and in this manner balance of the jewellery of Rs 2,99,893/- remains to be explained and the same has been added as unexplained investment in the hands of the assessee. Quite clearly, the jewellery found with the assessee, if considered on family basis consisting of self, wife, daughter and son, is as per the CBDT Circular dated 11.5.1994 (supra) which gives guidelines in respect of the seizure of jewellery. Considering the guidelines stated by the CBDT as also the fact that personal Balance sheet of the assessee's wife reflected declared value of jewellery of Rs 1,05,000/-, in our view, the source of entire amount of jewellery of 974.5 grams (net) is liable to be considered as explained and there is no justification for making a part addition of Rs 2,99,893/- as made by the lower authorities. As a result, we set aside the order of the Commissioner of Income- tax (Appeals) and the Assessing Officer is directed to delete the addition of Rs 2,99,893/- made on account of value of unexplained gold and jewellery. The assessee succeeds on this Ground of appeal.
32. The next Ground of appeal raised by the assessee is directed against an addition of Rs 1,05,520/- on account of undisclosed investment in FDRs. Similar issue has been considered by us in ITA No 516/PN/07 in the case of the firm M/s K.K. Enterprises, wherein we have held that such addition on account of undisclosed investment in FDRs is beyond the purview of Chapter XIV-B of the Act, while it is liable to be considered in the course of regular assessment. Following the precedent, therefore, the order of the Commissioner of Income-tax (Appeals) is set aside and the Assessing Officer is directed to delete the addition of Rs 1,05,520/-. Thus, on this Ground, assessee succeeds.
33. The next Ground raised by the assessee is directed against an addition of Rs 10,57,894/- which has been assessed as undisclosed income on account of unexplained investment in excess stock. Similar issue has been considered by us in ITA No 516/PN/07 in the case of the firm M/s K.K. Enterprises, wherein we 18 have restored the issue back to the file of the Assessing Officer for fresh adjudication with certain directions. The facts and circumstances being identical, we follow the precedent, and set aside the order of the Commissioner of Income- tax (Appeals) on this issue and restore the same to the file of the Assessing Officer to be decided afresh in accordance with the directions given in ITA No 516/PN/07 (supra) and in accordance with law, after giving a reasonable opportunity of being heard to the assessee.
34. In the next Ground, the grievance of the assessee is that an amount of Rs 3,50,000/- worked out and offered by him as undisclosed income should have been adjusted against aggregate amount of additions made by the Assessing Officer and the said amount should have been deducted from the aggregate amount of income assessed as undisclosed income in the block assessment.
35. After considering the submissions of the rival parties, we are of the considered opinion that this aspect needs to be remanded back to the file of the Assessing Officer, who shall verify the claim of the assessee and allow necessary relief, if found in order. We hold so and direct the Assessing Officer to verify the claim of the assessee and allow necessary relief, if found in order, after giving a reasonable opportunity of being heard to the assessee.
36. In the result, ITA No 517/PN/07 in the case of Shri Sunil B Bansal is partly allowed.
37. We now deal with ITA No 1388/PN/07 filed by M/s K K Enterprises. This is an appeal by the assessee against the penalty order dated 26.9.2007 passed by the Commissioner of Income-tax (Appeals) under section 158BFA(2) of the Act on the amount of enhancement made by him in quantum appeal. In view of our decision to delete the enhancement made by the Commissioner of Income-tax (Appeals) in quantum proceedings in ITA No 516/PN/07, the impugned penalty imposed by the Commissioner of Income-tax (Appeals) does not survive and is accordingly deleted. As a result, assessee's appeal is allowed. 19
38. In the result, ITA No 1388/PN/07in the case of M/s K K Enterprises is allowed.
39. We now take up ITA No 1341/PN/07 filed by Shri Kamalraj Bansal (HUF), proprietor of Brijmohan Bansal l& Sons (HUF).. This is an appeal by the assessee directed against the order of the Commissioner of Income-tax (Appeals)-I, Pune dated 15.6.2007, which in turn has arisen from an order passed by the Assessing Officer under section 158BC(c) of the Act dated 29.11.2004 pertaining to the block period assessment years 1997-98 to 2003-04 (i.e. upto 5.9.2002).
40. In so far as the first Ground of appeal is concerned, the plea of the assessee is that the assessment proceedings initiated and finalised are not in accordance with law and the assessment order passed by the Assessing Officer is not tenable in law. Similar Ground has been dealt with by us in the case of the firm M/s K K Enterprises vide ITA No 516/PN/07 wherein we have affirmed the order of the Commissioner of Income-tax (Appeals). Following the precedent, which has been rendered in similar facts and circumstances, we affirm the decision of the Commissioner of Income-tax (Appeals) and the Ground raised by the assessee is dismissed.
41. The next Ground raised by the assessee is directed against an addition of Rs 4,16,488/- made by the Assessing Officer on account of unexplained jewellery which has been treated as undisclosed income of the assessee for the block period. In brief, the facts are that out of the total jewellery of 2338.50 grams found during the search, 1449.50 grams was claimed to be belonging to the family HUF, which has been considered by the Assessing Officer in the hands of the assessee HUF. On being asked to explain the source of acquisition of such jewellery, lit was contended that a sum of Rs 2,37,000 was shown in the Balance sheet as on 31.3.2001 by Smt Shanta B Bansal and Smt Rani Bansal. For the rest of the jewellery, it was explained that same was acquired out of disclosed 20 sources and it was old jewellery which was in possession of the assessee HUF even before the block period. The Assessing Officer allowed the credit for Rs 2,37,000/- and with regard to other claims, he observed that the assessee had not pin pointed the particular items of jewellery which was owned prior to the block period. However, considering the marriage and other religious ceremonies in which jewellery is received as a custom, he allowed a further credit of 200 grams valued at Rs 1,04,600/-. In this manner after allowing total credit of Rs 3,41,600/-, the balance of the jewellery amounting to Rs 4,16,488/- was treated as undisclosed income of the block period being unexplained investment in jewellery. The Commissioner of Income-tax (Appeals) has also sustained the addition against which the assessee is in appeal before us.
42. On the aforesaid dispute, the rival submissions remain the same as was the case in ITA 507/PN/07 in the case of Shri Sunil B Bansal. Following our decision in the said case, we direct the Assessing Officer to allow credit in terms of the CBDT Circular No 1916 dated 11.5.1994 (supra) and thereafter recompute the addition on this count, if any. This Ground of the assessee is allowed, as above.
43. The next Ground raised by the assessee is directed against an addition of Rs 74,042/- made by the Assessing Officer on account of silver items which has been treated as undisclosed income of the assessee for the block period. During the course of assessment proceedings, silver weighing 11506 grams valued at Rs 87,439/- was found in the bedrooms of Sri Sunil B Bansal and Shri Kamlraj Bansal. Keeping in view the customs in the society, the Assessing Officer allowed credit for 4000 grams of silver valued at Rs 13,397/- and the balance silver valued at Rs l74,042/- was treated as unexplained investment and accordingly added to the undisclosed income of the assessee for the block period. The said addition has since been affirmed by the Commissioner of Income-tax (Appeals) and thus, the assessee is in further appeal before us. 21
44. After hearing both the parties, we find that the assessee has been asserting all along that the silver items found are in existence prior to the period covered by the block assessment and consists of the family heirloom maintained as per family customs. This assertion has not been negated by the Revenue at any stage, but has been merely disbelieved. In this view of the matter, we see no reason to affirm the decision of the Commissioner of Income-tax (Appeals) and accordingly set aside the order of the Commissioner of Income-tax (Appeals) on this aspect and the Assessing Officer is directed to delete the addition of Rs 74,042/- made on account of unexplained silver. The assessee succeeds on this Ground.
45. Thus, the appeal of the assessee, Shri Kamalraj Bansal (HUF) in ITA No 1341/PN/07 is partly allowed.
Decision pronounced in the open Court on the 30th Day of August, 2011.
Sd/- Sd/-
(I.C. SUDHIR) (G.S. PANNU)
JUDICIAL MEMBER ACCOUNTANT MEMBER
Pune: Dated: 30th August, 2011
B
Copy of the order is forwarded to :
1. Appellants
2. Respondent
3. The CIT(A)-I Pune
4. The CIT-I Pune
5. The D.R, 'A' Bench, Pune
6. Guard File
"True copy" By order
Asstt. Registrar, ITAT, Pune Benches, Pune
22