Income Tax Appellate Tribunal - Delhi
Asstt. Cit vs K.L. Jolly And Sons on 7 September, 2007
ORDER
P.N. Parashar, J.M.
1. These two appeals and cross-objections involving common issues and similar facts are being decided by a common order for the sake of convenience.
2. Shri Y.K Kapur and Shri Neeraj Gupta, Advocates appeared for the assessees whereas Shri Purushottam Tripuri, Senior Departmental Representative represented the revenue.
3. In IT(SS) A. No. 132/Delhi/2004 the revenue has taken two grounds which are as under:
On the facts and circumstances of the case, the Learned Commissioner (Appeals) has erred in (1) deleting addition on account of gift of Rs. 10 lakhs and Rs. 1,00,000 being 10 per cent premium on the gift ignoring that the alleged donor wasnot able to tell the details of Jolly Family at the time of recording of his statement.
(2) deleting the addition in respect of rental income, maintaining that the same is assessable in the hands of Mrs. Krishna Jolly, ignoring that entireinvestment in the impugned property was made by M/s. K.L. Jolly & Sons (HUF).
4. In IT (SS) A. No. 133/Delhi/2004 the revenue has taken ground No. 1 for challenging the deletion of addition of Rs. 10 lakhs on account of gift and of Rs. 1 lakh on account of premium as also for deletion and of Rs. 1,86,325 on account of another gift and of Rs. 18,632 on account of premium relating to that gift.
5. Ground No. 2 has been taken against the deletion of addition of Rs. 6,54,662 made by the assessing officer in respect of difference in the valuation of property No. B-205, Second Floor, Greater Kailash-I, New Delhi, ignoring the valuation report of DVO.
6. In the cross-objection No. 234/Delhi/2006 the assessee (HUF) has also challenged the validity of assessment proceedings initiated under Chapter XIV-B of the Income-Tax Act.
IT(SS) A. No. 132/Delhi/2004 & CO No. 233/Delhi/2006
7. Wherever the assessee has challenged the order of the assessing officer and that of the learned Commissioner (Appeals) by taking a legal plea in the cross-objection, the department has assailed the order of the learned first appellate authority for deleting the additions made by the assessing officer.
CO. No. 233/Delhi/20068. In the cross-objection No. 233/Delhi/2006 the assessee has taken only one ground to challenge the validity of the block assessment proceedings in Chapter XIV-B of the Income Tax Act. This ground is as under:
That the order of Commissioner (Appeals) upholding the validity of proceedings insofar as they relate to gifts, Commission on gifts and Rental Income, are bad in law being beyond the scope of Chapter XIV-B of the Income Tax Act, 1961 and also contrary to the ratio of judgments reported.
As the above ground raises a preliminary legal issue relating to the validity of the block assessment proceedings and scope of Chapter XIV-B, we consider it proper to take up this issue first.
9. The learned Counsel for the assessee assailed the validity of block assessment proceedings by submitting that this very amount of gift has been subjected to tax in the regular assessment done under Section 143(3). In this regard he invited our attention to the assessment order in the case of M/s. K.L. Jolly & Sons (HUF) for assessment year 1995-96, dated 18-3-1998 a copy of which has been filed at pages at 61 & 62 of the Paper Book. It was contended by him that after disclosure of the gift during the course of regular assessment, there was no legal justification for making the addition of the same in the block assessment under Section 158BD. Thus it was argued by him that the addition of Rs. 10 lakhs + Rs. 1 lakh made by the assessing officer while making assessment under Chapter XIV-B is not justified.
9.1 Regarding issue relating to rental income also it was submitted by him that this income has already been assessed in the case of Smt. Krishna Jolly and therefore, the same income stood disclosed and thus it cannot again be assessed in the hands of M/s. K.L. Jolly & Sons (HUF) in the block assessment. According to him, since this income stood assessed in the hands of one assessee, the same cannot be assessed in two hands. In this regard also he made reference to page 87 which contains details of income of Smt. Krishna Jolly from house property. This paper gives details of rent receipt from flat at Kaveri Apartments in assessment years 1996-97, 1997- 98 and 1998-99. It also contains details of interest paid to M/s. K.L. Jolly & Sons (HUF) and funds borrowed for investment in the house property. On the basis of these documents, it was submitted that firstly, it was not undisclosed income of the assessee and secondly, the addition could not be justified in the case of the assessee because the same income had already been considered in the case of another assessee.
10. The learned Departmental Representative on the other hand, justified the order of the assessing officer. It was submitted by him that simply because regular assessment was made under Section 143(3) in the case of the assessee in earlier year, it does not mean that the entire income was disclosed by the assessee. According to him if something requires deep scrutiny and that scrutiny was not done, then it would not mean that the income or details thereof were disclosed.
11. In rejoinder the learned Counsel for the assessee further explained that the gift of Rs. 10 lakhs was received in financial year 1993-94 which was credited by bank on 13-4-1994 as is evident from the statement of Bank. In this regard our attention was invited to the bank statement of the assessee of bank of India, Greater Kailash-II, New Delhi in which the amount of Rs. 10 lakhs has been credited on 13-4-1994. The learned Counsel further pointed out that FDR of Rs. 10 lakhs was taken in the same bank on 29-4-1994 which was out of the amount of gift received. For this purpose, he made reference to the entry of the bank account dated 29-4-1994 at page 60 of the Paper Book. It was further submitted by him that the interest on FDR was duly disclosed in the computation filed with the return for assessment in assessment year 1995-96. In this regard he also invited our attention to page 59 which is statement of affairs of the assessee. Pages 61 & 62 are the copy of the assessment order. According to the learned Counsel the gift amount of Rs. 10 lakhs received by the assessee was thus fully disclosed and the interest from FDR made out of the gifted amount was offered to tax by the assessee and the same was assessed by the department.
12. We have carefully considered the facts and circumstances of this matter, the entire material to which our attention was invited and rival submissions. The following facts remain undisputed:
(1) The assessee received gift of Rs. 10 lakhs by Cheque No. 365503, dated 24-3-1994 from Dr. Parwal.
(2) The cheque was deposited on 24-3-1994 and credit for the same was given by the bank on 13-4-1994. This is proved from the copy of bank statement at page 60 of the Paper Book.
(3) The assessee got the FDR of Rs. 10 lakhs prepared out of the amount of gift. FDR was made on 29-4-1994. This is also proved from the same bank statement available at page 60 of the Paper Book.
(4) The assessee had received interest on FDR which is also indicated in the bank statement.
13. The assessee has filed documentary evidence to show that the amount of cheque was credited in the bank account on 13-4-1994 and thus the transaction of gift and interest income earned from FDR of Rs. 10,00,000 which was prepared out of the amount of gift was duly disclosed to the department. It was shown that the assessee has filed copy of bank account which is available at P. 60 of Paper Book. From this document, the version of the assessee stands substantiated. The assessing officer while making assessment order for assessment year 1995-96 asked the assessee to explain the credit entry of Rs. 10 lakhs 13-4-1994 in his bank statement. In response to this the assessee had explained the entire facts including the amount of gift and the name of donor etc. A portion of the assessment order which is reproduced below clearly brings out these facts:
During the course of assessment proceedings vide order Sheet entry, 16-3-1998, the assessee was asked to explain the credit entry of Rs. 10 lakhs (13-4-1994) in his bank statement. In response to this the assessee filed a letter, dated 16-3-1998, in which he explained that the credit of Rs. 10 lakhs was received in the financial year 1993-94 i.e. assessment year 1994-95. The cheque was deposited on 24-3-1994 and the credit for the same was given by the bank on 13-4-1994. This amount was nothing but a gift received from Dr. D.P. Parwal, a Non-Resident Indian, Bombay. On 18-3-1998, the assessee filed a letter from Dr. D.P. Parwal in support of this contention. In view of this the submission of the assessee that the credit of Rs. 10 lakhs is a gift, is accepted. After discussion, the returned income is accepted.
14. From the above observations it is clearly established that the gift of Rs. 10 lakhs was accepted as genuine in the assessment order made for assessment year 1995-96. The assessee has also filed computation of income at page 53 of Paper Book for assessment year 1994-95. In this computation interest on FDR has been shown at Rs. 6,615. The assessee has also filed acknowledgement for filing return for assessment year 1994-95 which was filed on 28-8-1995. The computation of income filed with the return for assessment year 1995-96 available at page 55 of the Paper Book also shows interest on FDR. In view of the above it is clear that the assessee had disclosed the amount of gift and interest income thereon while filing income-tax return for assessment years 1994-95 and 1995-96 and this interest income has been duly assessed to tax in the course of regular assessment made under Section 143(3) in these two assessment years. Therefore, it cannot be said that the transaction of gift or interest thereon was undisclosed transaction.
15. It may be mentioned that as observed by the assessing officer the notice under Section 158BD of the Income Tax Act was issued to the assessee for initiating proceedings against him on 17-4-2001 and in response to this notice the assessee filed a return of block period showing 'Nil' undisclosed income on 1-6-2001. The assessment for assessment year 1995-96 relevant portion of which has been reproduced above, wherein the gift of the assessee was accepted, was made on 18-3-1998 i.e., long before the initiation of proceedings under Section 158BD against the assessee. It may further be pointed out that while filing the return, a copy of which is available at pages 3 to 27 of the Paper Book, the assessee has put a remark which is as under:
This return is filed under protest as the assessee has no undisclosed income. However, the return is being filed in compliance to notice issued by Asstt, Commissioner Circle 20(2), New Delhi vide letter dated 17-4-2001.
The assessee had taken objection to the initiation of the proceedings right from the very beginning. In his letter dated 28-4-2003 the assessee brought this fact to the notice of the assessing officer that the gift from Dr. Parwal has already been accepted in the case of the assessee in assessment year 1995-96. The relevant portion of the letter dated 28-4-2003 is as under:
Furthermore, this very gift from the donor, Dr. D.P. Parwal has been already accepted in the case of the assessee in assessment year 1995-96 under Section 143(3).
Even the Hon'ble Commissioner (Appeals), XV vide his orders in cases of Mr. Dalip Jolly, Mrs. Shoba Jolly, Mr. Pradeep Jolly and Mrs. Neena Jolly has been pleased to allow the gifts from the same donor, Dr. D.P. Parwal to the above named family members.
16. Before the Commissioner (Appeals) also the assessee had raised this objection by making submission in his letter dated 16-4-2003 available at pages 63 to 66 of the Paper Book. The relevant portion of this letter is as under:
In fact the issue as to the gifts received by the assessee-HUF from Dr. Parwal of Jaipur NRI was examine by the learned assessing officer in this very case for assessment year 1995-96 in which the gifts were received by the assessee-HUF from Dr. Parwal. After making thorough enquiry and investigation into the matter and taking into account the material the gift was accepted as genuine and order passed accordingly in the case of the HUF while framing regular assessment under Section 143(3) of the Income Tax Act for assessment year 1995-96. No grounds existed for taking proceedings under Section 158BD of the Act to assume any undisclosed income in respect of NRI gifts from Dr. Parwal in whose case the identity, creditworthiness and genuineness stood fully established to the satisfaction of the assessing officer who passed order accepting the gifts.
17. It may be pointed out that despite the specific submission neither the assessing officer nor the Commissioner (Appeals) examined the relevant matter to come to the conclusion that the amount of gift and interest thereon was undisclosed income of the assessee for taking action against him.
The undisclosed income has been defined in the Act as follows:
158B. In this Chapter, unless the context otherwise requires, -
(b) "Undisclosed Income" includes any money, bullion, jewellery or other valuable article or thing or any income based on any entry inthe books of account or other documents or transactions, wheresuch money, bullion, jewellery, valuable article, thing, entry in the books of account or other document or transaction represented wholly or partly income or property which has not been or would not have been disclosed for the purposes of this Act, or any expense, deduction or allowance claimed under this Act which is found to be false.
18. In the case of CIT v. Vikram A. Doshi (2002) 256 ITR 1291(Bom), the Hon'ble Bombay High Court has taken the view that the transaction disclosed in the return which was subject-matter of regular assessment ought not to be assessed in the block assessment.
19. In the case of CIT v. Vinod Danchand Ghodawat , the Hon'ble Bombay High Court has held that where an assessee in the wealth-tax returns, had disclosed value of gold and silver articles and jewellery, the source of investment in these articles found in the course of search cannot be probed into in block assessment. The relevant observations of the Hon'ble High Court are as under:
Chapter XIV-B of the Income Tax Act essentially proceeds on the basis that where an investment is made by an assessee which is unexplained, then the department is entitled to invoke the block assessment procedure. In the present matter, the assessing officer found that the source of acquiring the jewellery has not been explained by the assessee and, therefore, the assessing officer came to the conclusion that the unexplained investments in the ornaments were required to be treated as undisclosed income for the assessment year 1994-95. The same reasoning has been given by the assessing officer with regard to the silver articles and utensils which came to be detected during the above search. However, the Tribunal found that all the above-mentioned articles have been declared by the assessee in the return of wealth. The said return has been duly assessed. Under the above circumstances, the Tribunal was right in coming to the conclusion that the assessee has disclosed the value of the said articles in the wealth-tax return, which was accepted by the department and, therefore, the additions made by the department on the ground of undisclosed income was erroneous. In the present matter, the assessee had disclosed the above jewellery in his returns. The said returns were processed. The said returns were duly accepted. In the circumstances, Chapter XIV-B has no application to the facts of the case. For the above reasons, question Nos. 1 and 2 are answered in the affirmative, i.e. in favour of the assessee and against the department.
20. In the case of Bhagwati Prasad Kedia v. CIT , where the Hon'ble Calcutta High Court has pointed out to the distinction between the block assessment and the regular assessment by making reference to Explanation to Section 158BA. In that case, the assessee had taken advance from the company. There was a search and seizure resulting in block assessment of the assessee. During the block assessment, the assessee was called upon to explain the advance taken from the company. The assessee filed confirmatory letter of loan from the company including income-tax returns filed by the creditors. On the question whether the Income Tax Officer was entitled to question the loan amount which was the subject-matter of the regular assessment while making block assessment, the court observed as under:
eld, that the assessing officer was not entitled to question in block assessment the loan which was a subject-matter of the regular assessment. The assessing officer was wrong in holding that the said sum could be taxed in block assessment although the same featured in the regular books of account. When the loan creditor was an assessee and in whose assessment the loan advanced had been accepted by the revenue, the assessing officer was wrong in holding that the assessee was liable to pay tax on that loan money taken from that assessee.
In that case the Hon'ble Court further observed that On a composite reading of the said three parts of the Explanation it is crystal clear that the Legislature thought it fit to make a distinction between the block assessment and the regular assessment. As has been held by the Division Bench in Shaw Wallace and Co. Ltd.'s case (2001) 248 ITR 81 (Cal.) that there are three types of income within the meaning of the said Act of 1961, i.e., incomes which are offered for taxation, incomes which are shown in the return but deductions have been claimed wrongly and undisclosed income. The assessing officer while dealing with regular assessment is free to examine the veracity of the return as well as the claims made by the assessee with regard to exemption and/or deduction. Those can be considered under Section 143(3) of the said Act of 1961, whereas the third income being "the undisclosed income" is taxed and by way of block assessment resulting in search and seizure. Such block assessment is made under Section 158BA. The logic behind the two different modes of assessment, according to us, is that concealment of income and claiming deduction or exemption of taxes in respect of a disclosed income cannot be treated at par. The former is an offence which goes to the root of the matter and the other is on the basis of the causes shown by the assessee where the assessing officer is free to accept the justification shown or reject the same. The said two types of cases cannot be treated at part.
Hence, we hold that the assessing officer was not entitled to question the said loan in block assessment which is a subject-matter of the regular assessment. Hence, the assessing officer was wrong in holding that the said sum can be taxed in block assessment although the same featured in the regular books of account. Similarly, the Tribunal also committed error in upholding the decision of the assessing officer.
21. The issue relating to the meaning and scope of undisclosed income has been dealt with in detail by the Hyderabad Bench of Income Tax Appellate Tribunal in the case of Essem Intra-port Services (P) Ltd. v. Asstt. CIT (2000) 72 ITD 228 (Hyd). In that case the Bench has explained the block assessment proceedings as follows:
Chapter XIV-B lays down special procedure for assessment in search cases. The special procedure set out in Chapter XIV-B is a separate set of rules, by itself. For the purposes of this Chapter, the term 'undisclosed income' is defined. The definition of the term 'undisclosed income' is given in an 'inclusive' manner, but it is again made clear under Section 158B(b) that 'undisclosed income' includes money, bullion, jewellery, etc. only if they represent income or property which has not been or would not have been disclosed for the purposes of this Act. Therefore, we find that even though 'undisclosed income' is defined in an 'inclusive' manner, the scope and extent of the term 'undisclosed income' for the purposes of this Chapter XIV-B is contingent upon the fact that the undisclosed income should be borne out of materials representing income or property which has not been or would not have been disclosed by the assessee for the purposes of this Act. When certain information and details are already furnished in the returns of income or statements accompanying thereto, filed before the department, or when certain information and details are already recorded in the books of account maintained in the regular course of business, based on which returns of income would be filed in normal course, that very same information and details cannot be re-examined in the course of block assessment proceedings to arrive at any fresh conclusions, so as to result in determination of undisclosed income based on that materials. The true nature of undisclosed income, as it is construed in Chapter XIV-B is that the assessee has not or would not have disclosed that income to the department in the normal course,and such income should be found out by the department as a result ofsearch or requisition of books and details as provided under Section 132 of the Income Tax Act. Thus there are two elements to be satisfied so as to be treated as undisclosed income for purposes of this Chapter, i.e. the factum of non-disclosure on the part of the assessee should be existing, and the said non-disclosure should have been blown out as a result of search or requisition of books, etc. under Section 132 of the Act. It naturally follows therefore that whenever, the assessee has disclosed necessary information and details regarding income or expenses orcredit or property in the returns of income or in the statements accompanying the returns, or even if the books of account based on which returns would be filed contain those details, assessee gets away from the clutches of non-disclosure in respect of that income or property,etc. because those materials are already available, even in the absence ofany recourse to search operations under Section 132.
22. On examination of the provisions of Section 143 and other provisions relating to regular assessment as well as provisions relating to Chapter XIV-B, following proposition can be culled out:
(1) If an item of income or expenditure has already been subjected to regular assessment, then the same cannot be re-examined in the block assessment unless some incriminating or adverse material is found during the course of search.
(2) There should be positive factum of non-disclosure on the part of the assessee. Such a non-disclosure should have been detected as a result of search.
23. In the case of CIT v. Ravi Kant Jain (2001) 250 ITR 141(Del), the Hon'ble Delhi High Court has emphasized the need that in block assessment scope and ambit is limited to the material unearthed during the course of search. The observations of the Hon'ble Court are as under:
Block assessment under Chapter XIV-B of the Income Tax Act, 1961, is not intended to be a substitute for regular assessment. Its scope and ambit is limited in that sense to materials unearthed during search. It is in addition to the regular assessment already done or to be done. The assessment for the block period can only be done on the basis of evidence found as a result of search or requisition of books of account or documents and such other materials or information as are available with the assessing officer. Evidence found as a result of search is clearly relatable to Sections 132 and 132A.
24. Coming to the facts of the present case and applying the propositions formulated in the above referred cases, we can sum up discussion on the issue relating to undisclosed income in the case of present assessee by observing as under:
(1) No search was conducted in the case of the present assessee. This is evident from the fact that assessment in the case of the present assessee has been made under Section 158BD and not under Section 158BC.
(2) During the course of search no adverse or incriminating material relating to the gifts was found. The documents found during the course of search only affirmed the making of gift by Dr. Parwal to the assessee in a sum of Rs. 10 lakhs. There was no material or evidence to suggest that the gift was bogus or that it was purchased by the assessee or that the donor had taken any amount in consideration of the gift.
(3) There was no evidence of any premium having been paid by the assessee for taking the gift. The documents found during the course of search related to the transaction of gift and not to any transaction of paying any consideration for obtaining the gift. Even during post search inquiry or during assessment proceedings, no evidence was found to hold that the gift was obtained by the assessee by making any payment.
(4) There is no material on record to draw the conclusion that the assessee had invested his own undisclosed income for purchasing the gift.
25. In view of the above, since the transaction relating to gift stood disclosed and was considered in the regular assessment and no incriminating material was found during search or during post search inquiries, this transaction cannot be treated as undisclosed nor income from this transaction can be treated as undisclosed. In view of the provisions contained under Section 158B of the Income Tax Act, therefore, the action of the department in initiating proceedings under Section 158BD in relation to the gift cannot be justified in law.
26. So far as the next item of income which is about the rental income is concerned, about this item also the contention of the assessee was that the same was disclosed to the department. In this regard before the learned Commissioner (Appeals) following plea was taken by the assessee:
The issue as to the ownership of the property and the rental income being shown in the hands of Smt. K. Jolly and interest income being shown by the assessee-HUF are all relevant facts for regular assessment. There is no incriminating material found on search to support the revenue's case for taking action under Section 158BD of the Income Tax Act. Proceedings under Section 158BD are not to be based on any assumptions, surmises or conjectures. In the absence of there being any tangible evidence or material to show that the property in question belonged to the HUF and not to Smt. K. Jolly who is the real and beneficial owner, the proceedings under Section 158BD regarding that property also has to be dropped in the interest of justice and fair play. The assessee's case is also supported by the finding given by the learned Commissioner (Appeals) in the case of Smt. K. Jolly as stated above.
27. The learned Commissioner (Appeals) has not given any finding on this plea of the assessee. The learned Counsel for the assessee has brought to our notice the details of income of Smt. Krishna Jolly from house property as disclosed by her in assessment years 1996-97, 1997-98 and 1998-99 as well as the details of interest paid by her to M/s. K.L. Jolly & Sons (HUF). The details are as under:
Income of Mrs. Krishna Jolly from House Property (Flat at Kaveri Apartments) A.Y. 1996-97 A.Y. 1997-98 A.Y. 1998-99 (up to 3-9-1997) Rent Received 9,500 1,14,000 47,500 Less :
House Tax Paid
-
33,295
-
A.L.V. 9,500 80,705 47,500 Less:
Deduction u/s 24 1,900 16,141 9,500 (1/5th) 7,600 64,564 38,000 Less:
Interest paid to M/s. K. L. Jolly & Sons (HUF) on Funds borrowed for investment in house property:
11,250 1,35,000 56,250 (3,650) (70,436) 18,250 From the above, it is clear that there is no loss of tax to the revenue in the case of M/s. K. L. Jolly & Sons (HUF).
28. Since the details of rental income were disclosed by Smt. Krishna Jolly to the department and further since this rental income was subjected to regular assessment in her hands, this income can also not be treated as undisclosed income of the assessee and cannot be brought to tax by invoking Section 158BD. It may also be pointed out that during the course of search no incriminating material indicating that the house belonged to the assessee-HUF was found and therefore, the rental income shown in the hands of the assessee by taking recourse to Section 158BD is also not justified.
29. In view of the above, the block assessment order made in the case of the assessee under Section 158BD cannot be legally upheld and consequently the additions made by the assessing officer against the assessee in the block assessment order dated 30-4-2003 on account of alleged gift at Rs. 10 lakhs plus Rs. 1 lakh to talling Rs. 11 lakhs and on account of income from house property at Rs. 9,500 + Rs. 80,705 + Rs. 47,500 cannot be sustained. Thus total undisclosed income worked out by the assessing officer under Section 158BD for the assessment years covered under the block period at Rs. 12,37,705 is to be deleted because in view of our finding recorded above, the block assessment order cannot be upheld as there as no undisclosed income which was to be computed in the hands of the assessee on the facts and in the circumstances of the case.
30. Since block assessment order is held to be invalid and unjustified in law, all the additions made in the assessment order against the assessee are to be deleted. Consequently the ground taken by the assessee in the cross-objection stands allowed.
31. In the result, the cross-objection is allowed.
IT(SS) A. No. 132/Delhi/2004
32. Since we have deleted the additions by allowing the cross-objection in favour of the assessee, we are not required to deal with the grounds of revenue taken in this appeal on merits. However, we deem it proper to consider the grounds of appeal on merits also.
33. In ground No. 1 the revenue has challenged the deletion of addition of Rs. 10 lakhs on account of gift and Rs. 1 lakh being the premium on the gift.
34. The relevant facts concerning this matter in brief are as under:
A search and seizure operation under Section 132(1) of the Income Tax Act was conducted in Fena Group of cases on 3-9-1997. Search was also conducted in M/s. Saci Chemicals where the assessee i.e. M/s. K.S. Jolly & Sons (HUF) was a partner. During the course of search some papers were found from Shri Dalip Jolly at A 237, Okhla Industrial Area, Phase-I, New Delhi which showed that the Jolly family had taken gifts from one Dr. D.P. Parwal. One of the gifts was to M/s. K.L. Jolly & Sons, HUF i.e. the assessee. This gift was made through cheque and was dated 24-3-1994. The amount of gift was Rs. 10 lakhs. During the course of search proceedings statement of Dr. Parwal was recorded by ADIT, Investigation 2, Jaipur on 22-9-1997. The information regarding undisclosed income of M/s. K.L. Jolly & Sons (HUF) was passed on by the them JCIT-20 to the assessing officer i.e. Asstt. Commissioner of Income Tax, Circle 23(1), New Delhi who initiated action under Section 158BD against M/s. K.L. Jolly & Sons (HUF). The assessee filed a return in response to notice issued under Section 158BD for the block period from 1-4-1987 to 3-9-1997 in Form No. 2B declaring nil undisclosed income. The return was filed on 1-6-2001. Thereafter notice under Section 143(2), 143(1) and detailed questionnaire were issued.
35. The assessing officer on going through the statement of Dr. Parwal found that he was not able to exactly remember the names of the family members of Jolly and Pradip and also denied knowing the names of father, mother, wives and children of Jolly and Pradip. On examining the entire statement of the donor, the assessing officer inferred that he was not able to tell the details of the family nor even surname of the persons and had not visited them at their residence. Under these circumstances, he doubted the genuineness of the gift and concluded that so-called gifts were procured by Jollys in lieu of consideration.
36. Before the assessing officer the assessee pointed out that after the statement recorded on 22-9-1997 the donor wrote a letter to ADI, Jaipur in the month of November 1997 again reaffirming his relationship with Jolly family and confirmed the gift, but the assessing officer did not place any credence on this letter. Before the assessing officer the assessee also submitted that the gift was accepted by the assessing officer in assessment year 1995-96 while framing assessment order under Section 143(3). It was pointed out that bank statement and letter from Dr. Parwal regarding the gift was submitted to the assessing officer during the course of regular assessment and the same was accepted by him. The assessing officer rejected this contention also by observing that there was a lot of difference in circumstantial evidence while passing order under Section 143(3) for assessment year 1995-96 and after the date of search. He thus rejected the submissions of the assessee that gift was accepted by the assessing officer and therefore, the same should be treated as disclosed income.
37. Thus the assessing officer made addition of Rs. 10 lakhs by treating the gift as bogus and as undisclosed income of the assessee in the garb of gift. He also added 10 per cent of the amount of gift as premium/consideration paid from undisclosed sources called gift.
37.1 The assessing officer also made addition of Rs. 9,500, Rs. 80,705 and Rs. 47,500 in assessment years 1996-97, 1997-98 and 1998-99 on account of income from house property. Thus the total undisclosed income was worked out at Rs. 12,37,705. The assessing officer has taken into account the statement of Dr. Parwal recorded by ADIT, Investigation-2, Jaipur on 22-9-1997 during post search proceedings.
38. After discussing the statement in paras 4 to 7 of his order, he has recorded his conclusion in para 8 which is as under:
8. In view of the above, there are sufficient reasons to believe that the gifts from NRIs are not without consideration and have been purchased. It is not unreasonable to take note of the common phenomenon that receiving NRIs cheque is a common mode of money laundering. A payment of money cannot be considered a gift merely because the person giving the amount or the person receiving the amount calls or labels it by the way of 'gift'. It is obvious that the assessee's bold assertion of gifts cannot be accepted without ample undisputed evidences to prove the same.
39. In para 9 he has discussed another letter written by the donor in November 1997 to the ADIT (Inv.), Jaipur but has observed that this statement is just an afterthought. The assessee made reference to the letter of the donor namely Dr. Parwal dated 21-3-1994, bankers certificate and copies of letter addressed by Dr. Parwal to the then JCIT, Spl. Range 20, New Delhi and on the basis of these documents, it was contended before the assessing officer that the identity of Dr. Parwal is established, his creditworthiness, financial status and social status is proved and thus the genuineness of the gift is also proved. However, on perusal of para 12 of the order of the assessing officer it is found that he has mainly placed reliance on the statement of Dr. Parwal recorded by the ADIT, Investigation-2, Jaipur on 22-9-1997 and has held that the so-called gift was arranged by Shri Lakhotia, Advocate and friend of Dr. Parwal, for consideration. Thus he held gift of Rs. 10 lakhs as bogus and treated the same as undisclosed income of the assessee in the garb of gift. Thus he made an addition of Rs. 10 lakhs and also added an amount of Rs. 1 lakh i.e. 10 per cent of Rs. 10 lakhs being premium/consideration paid from undisclosed sources for obtaining the alleged gift. This amount was also added by him as undisclosed income of the assessee in assessment year 1994-95.
40. In appeal before Learned Commissioner (Appeals), the first argument of the assessee was that the gift received by the assessee of Rs. 10 lakhs having already been disclosed and considered from the point of view of taxability in the regular assessment under Section 143(3) in the case of the assessee for assessment year 1995-96, no legal valid proceedings can be taken in the hands of the assessee in the proceedings under Section 158BD read with Section 158BC of the Act.
41. The assessee also challenged the addition by submitting that the assessing officer has not properly appreciated the evidence and has drawn erroneous conclusion. In support of the arguments the assessee placed reliance on the following decisions:
(1) R.K. Syal v. Asstt. CIT (2000) 66 TTJ (Chd.) 656.
(2) ITO v. N. Sunitha (2001) 70 TTJ (Bang.) 27.
(3) Monga Metal (P) Ltd. v. Asstt. CIT (2000) 111 Taxman 175 (All.) (Mag.).
42. In appeal before the learned Commissioner (Appeals) the assessee also made detailed submissions in order to prove the identity and creditworthiness of the donor and the genuineness of the transaction. The assessee also placed reliance on the decision of Hon'ble Delhi High Court in the case of CIT v. Mrs. Sunita Vachani (1990) 184 ITR 1212 (Del) and that of Chandigarh Bench of ITAT in the case of R.K. Syal (supra).
43. The learned Commissioner (Appeals) had dealt with similar matter in the case of Shri Dalip Jolly in which case also the same donor had made the gift to another family member of this assessee. The facts and circumstances being similar in the two cases, the learned Commissioner (Appeals) extracted the entire discussion and his findings for deleting the addition in that case. He therefore, following the order in the case of Shri Dalip Jolly (supra), deleted the addition in the case of the present assessee by observing as under:
The perusal of the relevant paras of Commissioner (Appeals)'s order reproduced above, clearly shows that the addition made in the case of K.L. Jolly & Sons (HUF), the appellant, is exactly on the same reasoning and the assessing officer has not gathered any further facts or information and has mainly relied upon the information and facts gather by the assessing officer who passed the assessment order in the case of Sh. Dalip Jolly, cited above. The arguments raised by the appellant are also exactly on the same lines as were made in the case of Sh. Dalip Jolly. Even the case laws cited are same. The donor is also the same. After perusal of detailed facts & reasoning I am fully inclined to concur with the findings given by learned Commissioner (Appeals)-XV in the case of Sh. Dalip Jolly mentioned above. In the case of appellant the assessing officer has not brought on record that the donor has denied the factum of gift, that the donor does not posses the creditworthiness, that there was any incriminating document found during search which could have indicated exchange of money for the gift or any other indication pointing out the gift to be arranged or bogus. For the detailed reasoning given by the learned Commissioner (Appeals)-XV in the case of Sh. Dalip Jolly with which I fully agree, the addition made by the assessing officer in the case of appellant cannot be sustained. Accordingly, the addition of Rs. 11 lakhs (Rs. 10 lakhs on a/c of gift and Rs. 1 lakh on a/c of alleged premium) is deleted.
44. The learned Departmental Representative has challenged the findings of the learned Commissioner (Appeals) and has supported the order of the assessing officer. He pointed out that it is improbable and unnatural conduct on the part of the donor to give gift of Rs. 10 lakhs to assessee although he was not even knowing the names of the family members of the donee. He also placed reliance on the order of ITAT in the case of Chroma Business Ltd. v. Dy. CIT (2004) 4 SOT 214 (Kol.) and on the decision of Hon'ble Supreme Court in the case of Sumati Dayal v. CIT . Regarding subsequent letter written by the donor to the ADI, Jaipur, it was submitted by him that the earlier statement recorded on 22-9-1997 was the correct and true version which has been rightly considered by the assessing officer.
45. The contention of the learned Counsel for the assessee was that the assessing officer has totally ignored the subsequent letters of the donor and has not dealt with the same in the assessment order properly. According to the learned Counsel, no incriminating material was found during the course of search to show that the gift was bogus and whatever documents were found, were only corroborative to the genuineness of the gift. He further submitted that the revenue has not been able to bring out any material to prove that any consideration was paid by the assessee for acquiring the gift and therefore, the addition made merely on the basis of suspicion, surmises and conjectures cannot be justified. Regarding the statement of the donor recorded by the ADIT, Jaipur it was contended by him that this statement cannot be used against the assessee because no opportunity was given to him to cross examine the witness. It was also submitted by the learned Counsel for the assessee that the donor himself appeared before the assessing officer on 10th August and had confirmed the genuineness of the transaction before him but he did not record the statement in writing. According to the learned Counsel, this fact is further proved by subsequent letters of the donor 12-8-1999, 20-8-1999 and 13-9-1999 written to the assessing officer in which donor has also shown his social status as well as details of his bank account through which the alleged gift was made.
46. We have carefully considered the entire material on record and the rival submissions. The burden on the assessee was to prove the identity of the donor, his creditworthiness and the genuineness of the transaction of gift. The assessee had received gift in assessment year 1993-94. As observed by us while dealing with the ground of the assessee raised in the cross objection, we have held that the transaction of gift was duly disclosed by the assessee in that year and even the interest income had been offered for taxation.
47. In the search and seizure proceedings from the residence of Shri Dalip Jolly certain documents relating to gift made to M/s. K.L. Jolly & Sons (HUF) were found. These documents are filed at pages 82 and 85 of the Paper Book. We reproduce these documents as under:
Dated: 31-3-1994.
K.L. Jolly, of M/s. K.L. Jolly 7 Sons (HUF) Greater Kailash Part-2 Delhi-110048.
Mr. K.L. Jolly, I am enclosing herewith Cheque No. 365503, dated 21-3-1994 out of my NRE a/c No. 3317 with State Bank of India, NRI, Bombay for Rs. 1,000,000 (one million) only as a gift to HUF out of love and affection.
I, Accountant Member a Non-Resident Indian settled in Hongkong for more than five years, Y Passport No. is 625402.
Yours faithfully, Sd/-
(D.P. Parwal) Second document "Dated 17-3-1998.
TO WHOM IT MAY CONCERN I, Dr. D.P. Parwal S/o Sh. Rameshwar Lal Parwal Respect of Star Mansion, 18/F, Flat 4, Kowloon, Hong Kong do hereby confirm that I had given an amount of Rs. Ten lakhs by way of Gift to M/s. K.L. Jolly & Sons (HUF) through cheque No. 365503, dated 21-3-1994 drawn on SBI, NRI Branch, Bombay from my NRE Account No. 3317.
I was an NRI since last 23 years when the above gift was given by me.
Name : D.P. Parwal Sd/ Signature.
48. On closer examination of these documents it is found that this documentary evidence only support the case of the assessee. No incriminating document of any kind was found during the course of search to indicate or to create any doubt regarding the identity of the donor or the genuineness of the transaction. The assessee has also furnished copy of Cheque No. 365503, dated 21-3-1994 for Rs. 1,000,000 of State Bank of India, NRI Branch, Bombay in favour of M/s. K.L. Jolly & Sons (HUF) issued by Dr. D.P. Parwal which is at page 83 of the Paper Book.
49. The assessee has also placed on record letter of Dr. Parwal written to ADIT, Jaipur, dated 11-11-1997 available at page 4 of the Paper Book. In this letter he has made reference to the discussion on 22-9-1997 in reference to summons issued under Section 131 18-9-1997. In this letter the donor has confirmed the gifts by giving following details. The relevant contents of the letter are as under:
That I personally know Mr. Dalip Jolly and Mr. Pradeep Jolly and their father Shri K.L. Jolly and their other family members very well and that we have visited each others houses several times. As desired by you I am giving below their present addresses.
1.Mr. K.L. Jolly and Mr. Pradeep Jolly S-23, Greater Kailash-II, New Delhi - 110 040.
2. Mr. Dilip Jolly, 102, Friends Colony, New Delhi - 110 065.
That I have given gifts to them and their family members out of love and affection and I have no business dealing with them. Hence gifts have been given from my NRE Account No. l/NRE/30150 of State Bank of India, NRI Branch, Nariman Point, Bombay and the same can be verified by you. I am writing this letter to reiterate the facts so that my dear friends do not face any hardship.
I hope you would find the above in order and would request you to please include my above submissions as a part of my earlier deposition. I shall be glad to furnish any further details and clarifications required by you.
Similarly the assessee has filed the pass-port of Dr. Parwal, his permanent account number, bank pass-book of Hongkong, visa and other details which go to prove the identity of the donor beyond any doubt.
50. The assessing officer required the assessee to furnish documentary evidence in respect of gift received from Dr. Parwal, nature of relationship with him, purpose of gift, supporting documents along with copies of bank statements as per Clause 7 of the questionnaire issued during the block assessment proceedings. The assessee vide letter 9-4-2003 submitted that the transaction of gift has already been dealt with in assessment year 1995-96 and the genuineness of the gift was duly disclosed. In this regard reference was made by the assessee to the assessment order passed under Section 143(3) dated 18-3-1998, a copy of which has also been placed on record. Again the assessee made submission to the assessing officer vide letter dated 16-4-2003 and thereafter vide letter dated 28-4-2003. In the letter 28-4-2003 appearing at pages 76 to 78 of the Paper Book, the assessee made reference to the gift deed letter dated 21-3-1994, bank certificate regarding the proof that the payment was received on NRI Account of Dr. Parwal, letter of Dr. Parwal dated 30-8-1999, 13-9-1999. On the basis of this documentary evidence, it was submitted that the identity, creditworthiness of the donor is proved and genuineness of the gift is established.
51. In the letter dated 28-4-2003 the inaccuracies which appeared in the statement of Dr. Parwal recorded by the ADIT, Jaipur were also explained and certified by narrating circumstances. A relevant portion of this letter is being reproduced here as under:
(i) That Dr. D.P. Parwal's identity is clearly established as he appeared in person before the Learned Assessing Officer and categorically confirmed having given gifts to the family members of the assessee-firm from his own NRE A/c.
(ii) That Dr. D.P. Parwal has creditworthiness, financial status and the financial capacity (both in Hongkong and in India) to give gifts to the Jolly family.
(iii) That Dr. D.P. Parwal had his own finds in his own bank A/cs. In Hongkong from where he gave gifts by A/c payee cheques to the Jolly family.
(iv) That Dr. D.P. Parwal has himself established the long linkage, relationship, love and affection for Jolly family since 1956.
(C) In the cases of other family members of the assessee, which were dealt under Section 158BC of the Income Tax Act by the learned JCIT, Spl. Range 20, New Delhi (hereinafter referred as assessing officer), the love and affection towards the family of the assessee is proved by the following:
(i) Dr. D.P. Parwal letter dated 11-11-1997 given to the ADIT, Jaipur explaining that inaccuracies had crept into his statement recorded by the ADIT due to anxiety as he is a NRI for over 3 decades and was deposing before Income-tax department for the first time.
(ii) Dr. D.P. Parwal came all the way from Jaipur leaving his extremely busy business schedule and took pains to present himself personally before the learned assessing officer at Delhi on 10-8-1999 as the learned assessing officer had asked to produce Dr. D.P. Parwal. The Learned Assessing Officer asked Dr. D.P. Parwal to sign the order sheet to mark his attendance in her office.
(iii) Dr. D.P. Parwal took pains to write a letter dated 12-8-1999 (1st letter) directly to Learned assessing officer from Jaipur by speed post confirming his oral statement made before her during his appearance on 10-8-1999 before the learned assessing officer. The letter of D.P. Parwal dated 12-8-1999 is on record and is a very strong factual confirmation in support of his having made gifts to the assessee and the members.
In this letter Dr. D.P. Parwal described about his background, his relationship with Sh. K.L. Jolly's role in inspiring him and causing vital turning points in life. He further confirmed having given gifts to members of Jolly family.
(iv) Dr. D.P. Parwal took further pains to write another letter dated 30-8-1999 (2nd letter) from Jaipur directly to the learned assessing officer by speed post. This letter is on record and is very strong factual piece of evidence confirming the assessee's case.
In his letter, Dr. D.P. Parwal described about his financial status, big business and high value properties in India coupled with his social financial status and his philanthropic activities.
(v) Dr. D.P. Parwal took further pains and went to Hongkong and wrote yet an other letter (3rd letter) dated 13-9-1999 from Hongkong to the learned assessing officer. This letter was sent by Dr. D.P. Parwal to Sh. K.L. Jolly to be submitted by hand to the learned assessing officer.
This letter is on record and is very strong factual evidence in confirmation and in support of the assessee's case proving the genuineness of these gifts from Dr. D.P Parwal to the assessee to the hilt.
He further provided documentary evidence that the gifts given to Jolly family members are from his own funds in his own NRE A/c. He also submitted documentary evidences to prove that he submitted his own funds from his own bank A/cs. In Hongkong to his own NRE A/c in SBI, Bombay (NRI Branch) from where A/c payee cheques of gifts amounts were issued by him to members of the Jolly family. Furthermore, this very gift from the donor, Dr. D.P. Parwal has been already accepted in the case of the assessee in assessment year 1995-96 under Section 143(3).
Even the Hon'ble Commissioner (Appeals)-XV vide his orders in case of Mr. Dalip Jolly, Mrs. Shobha Jolly, Mr. Pradeep Jolly and Mrs. Neena Jolly has been pleased to allow the gifts from the same donor, Dr. D.P. Parwal to the above named family members.
It is also submitted that as per Section 5(1)(iib) of Gift Tax Act, the gifts from NRE Account are exempt from gift-tax and as per this sub-section, relation between donor and donee is not required.
The jurisdictional Hon'ble Delhi High Court ruling in the case of CIT, Delhi (Central-2) v. Mrs. Sunita Vachani (184 ITR Pages 121 to 123, Delhi), is binding and final and fully supports the assessee's case. The gist of the Hon'ble High Court of Delhi's judgment is:
Even though it may be surprising as to how large sum of money are received by a family in India by way of gifts from strangers from abroad, unless there is something more tangible than suspicion, it will be difficult to regard the moneys received in India from abroad as representing the income of the assessee in India.
52. We have referred to the letter of Dr. Parwal dated 11-11-1997 and other letters written by him to the assessing officer. In these letters, he has further given details of his acquaintance with the assessee. He has also given details of his business which was started in the name of Business Centre in 1997 which was inaugurated by Dy. Chief Minister of Rajasthan. With this letter also documents have been attached to show that Dr. Parwal commenced the business in 1997 in Jaipur and had used bank account in India as well as Hongkong. The documents are available at pages 28 to 121 of the Paper Book. On going through these documents nobody can doubt about the identity of the donor or his capacity to make the gift of Rs. 10 lakhs to the assessee. The genuineness of transaction of gift is also proved beyond doubt.
53. Thus from the entire documentary evidence whether collected during the course of search or furnished by the assessee before the departmental authorities or from the material furnished by the donor to ADIT, Jaipur and to the assessing officer, it is found that the clinching voluminous documentary evidence fully support the case of the assessee. To repeat, no document was found during the course of search or during post search enquiries to show anything against the genuineness of the gift. The assessing officer recorded the statement of the donee and from his statement also nothing adverse can be traced out. For reasons best known to him, the assessing officer did not examine the donor although the donor appeared before him and also wrote several letters to him. In any case the assessing officer himself could not collect any evidence or material to justify the findings that the gift was bogus or was procured by the assessee by paying some consideration. The learned Departmental Representative has not brought to our notice any incriminating material collected by the assessing officer during the assessment proceedings which goes to create doubt about the genuineness of the gift.
54. The only and main material taken into consideration by the assessing officer is the statement recorded by the ADIT, Jaipur. This statement was recorded by him during post search enquiry as is evident from the observation of the assessing officer in 3rd sentence of Para 4 at Page 2 of the assessment order, which is as under:
During the post search proceedings, the Income-tax department, Jaipur has recorded the statement of Dr. Parwal. In his report the ADIT, Investigation-2, Jaipur has stated that the claim of Dr. Parwal that he is a close friend of Jolly family and the gift was made due to friendship is doubtful....
From the above portion of the assessment order it is clear (1) that during post search proceedings the ADIT, Investigation-2, Jaipur recorded the statement of Dr. Parwal; (2) that after recording statement he sent a report to the assessing officer; and (3) that the reasons and the purpose or the background in which the ADIT, Investigation-2, Jaipur examined Dr. D.P. Parwal during post search proceedings is not known nor the department has brought such material on record.
55. This statement is the sole testimony on the basis of which the assessing officer has drawn adverse inference against the assessee and about the genuineness of the gift. Hence, we would like to deal about the competence and jurisdiction of the ADIT, Investigation-2, Jaipur for recording the statement during post search proceedings and also about the evidentiary value of such statement particularly in the context that this witness was not offered for cross examination to the assessee nor was examined by the assessing officer despite the fact that he wrote several letters to ADIT and assessing officer to clarify the so-called discrepancies and remained available before the assessing officer for getting himself examined.
56. Coming to the power, jurisdiction and legal competence of the ADIT, we have to trace out the powers of the departmental officers as given under Section 131(1) and 131(1A) of the Act. Whereas Section 131(1) deals with the powers of the assessing officer, Dy. Commissioner (Appeals), Joint Commissioner, Commissioner (Appeals) and Chief Commissioner or Commissioner. Section 131(1A) deals with the powers of Director General or Joint Director or Assistant Director or authorized officer. Former category deals with those officers who discharge judicial functions. These, powers are exercised while making assessment or deciding appeal or revision. These are judicial powers discharged while doing judicial or quasi-judicial function. Whereas the powers under Section 131(1) are in a way related to assessment proceedings, the powers under Section 131(1A) deal with pre-assessment stage and other than assessment proceedings. We consider it proper to reproduce the provisions of Section 131(1) and 131(1A) which are as under:
131. (1) The assessing officer, Deputy Commissioner (Appeals), Joint Commissioner, Commissioner (Appeals) and Chief Commissioner or Commissioner shall, for the purposes of this Act, have the same powers as are vested in a court under the Code of Civil Procedure, 1908 (5 of 1908) when trying a suit in respect of the following matters, namely:
(a) discovery and inspection;
(b) enforcing the attendance of any person including any officer of a banking company and examining him on oath;
(c) compelling the production of books of account and other documents; and
(d) issuing commissions.
(1A) If the Director General or Director or Joint Director or Assistant Director or Deputy Director or the authorized officer referred to in Sub-section (1) of Section 132 before he takes action under Clauses (i) to (v) of that sub-section, has reason to suspect that any income has been concealed, or is likely to be concealed, by any person or class of persons, within his jurisdiction, then for the purposes of making any enquiry or investigation relating thereto, it shall be competent for him to exercise the powers conferred under Sub-section (1) on the income-tax authorities referred to in that sub-section, notwithstanding that no proceedings with respect to such person or class of persons are pending before him or any other income-tax authority.
57. In the case of Arjun Singh v. Asstt. Director of Income-tax (Investigation) the Hon'ble Madhya Pradesh High Court has dealt with the scope and ambit of the powers given to the two categories of officers. The Hon'ble High Court has observed as under:
The purpose of the power under Sub-section (1) of Section 131 of the Income Tax Act, 1961, is in aid of action under some provision under the Act and it is a well-settled principle of law that all statutory bodies must act for the purpose of the statute even though the term 'for the purpose of the Act' is not expressly stated. The purpose of exercise of power under Sub-sections (1) and (1A) of Section 131 is not the same, as the power under Sub-section (1) operates in the field where the person is an assessee and proceedings are pending against him; whereas the power under Sub-section (1A) operates in the field where there is no proceeding for assessment pending against any such person or class of persons and the enquiry/investigation is necessary for the purpose of making any enquiry/ investigation on the basis of reason to suspect concealment or likelihood of concealment of income by such person or class of persons. The other requirement under Sub-section (1A) of Section 131 of the Act is that the authorities/officers mentioned therein in whose jurisdiction, the income is alleged to have been concealed or is likely to be concealed, must have reason to suspect which in fact, is a condition precedent for the exercise of power and such reason or suspicion must be based on tangible material on record legally cognizable and not merely hearsay, conjectures and surmises. The expression 'has reason to suspect that any income has been concealed or is likely to be concealed' clearly refers to a pre-assessment stage. The power under Section 131(1A) cannot be said to be an independent power in itself but is the power for the purpose of making enquiry and investigation relating to any income which has been concealed or is likely to be concealed by any person or class of persons, equipping with him with powers regarding discovery, production of evidence, etc., as provided under Sub-section (1) of Section 131 of the Act. The expression 'before he (i.e., the authorised officer) takes action under Clauses (i) to (v) of Section 132(1) of the Act.' is material and relevant, i.e., the power regarding discovery, production etc., as provided under Sub-section (1) of Section 131 can be exercised by the authorized officer before exercise of the power of search and seizure in Clauses (i) to (v) of Section 132(1). The power under Sub-section (1A) of Section 131 is only an enabling power regarding discovery, production of evidence, etc., before entering into the actual exercise of search and seizure under Section 132 of the Act. Such a power under Section 131(1A) cannot be exercised for the purpose of reopening of an assessment under Section 147.
On going through the above decision, it is clear that Sub-section (1A) of Section 131 enables the officers of the department to conduct pre-search enquiries. Regarding the requirement of Section 131(1A) the Hon'ble High Court has observed as under:
The other requirement under Sub-section (1A) of Section 131 of the Act is that the authorities/officers mentioned therein in whose jurisdiction the income is alleged to have been concealed or is likely to be concealed, must have reason to suspect which in fact, is a condition precedent for the exercise of power and such reason or suspicion must be based on tangible material on the record and legally cognizable and not merely some hearsay accusation, conjectures and surmise.
58. Thus the power can be exercised under Section 131(1A) of the Act for conducting investigation or enquiry relating to undisclosed income or property by any person or class of persons on the basis of reason to suspect that any income is concealed or likely to be concealed. As provided under Section 131(1A) such income should be concealed "within the jurisdiction of such authorities". So far as the present case is concerned, the department has not been able to show that the ADIT, Jaipur had any reason to suspect that income of the assessee was concealed income. The assessee was definitely not within his territorial jurisdiction. There was no case that the income has been concealed by the donor. No search was conducted in the case of the donor whose statement was recorded in Jaipur. Thus the legal competency of ADIT, Jaipur and authority of his jurisdiction to record the statement of Dr. D.P. Parwal is not justified and we are afraid the statement recorded by him can be justified in terms of his legal authority to do so. If the statement is found to be recorded by an authority not competent to do so, then its use in assessment proceedings has to be considered with that angle.
59. Now coming to the evidentiary value of the statement of Dr. Parwal it is also to be seen that as to under what circumstances this statement was recorded? The deponent i.e., this donor has clarified the circumstances under which he had given the gift and had categorically disclosed the full details of the family of the donee. He wrote several letters which have been referred to in the earlier part of this order. He also wrote letters to clarify his stand. However, the assessing officer did not examine him nor offered the opportunity to the assessee to cross examine him. The enquiry at the level of the assessing officer cannot be said to be complete. The witness remained un-cross-examined, un-confronted and no further enquiry was made which was necessary after the letters written by him. The assessing officer therefore, in our opinion has not discharged his functions properly. According to the rules of natural justice also the testimony cannot be utilized against a person if he had not been given opportunity to cross examine the witness.
60. In the case of CIT v. S.M. Agarwal (2007) 162 Taxman 3, the Hon'ble Delhi High Court upholding the view taken by the ITAT has held that "the statement made by S could not be said to be relevant evidence against the assessee since the assessee was not given any opportunity to cross-examine her and even from the statement no conclusion could be drawn that the entries made on the relevant page belonged to the assessee and represented his undisclosed income." In that case, during the course of search conducted at the premises of the assessee documents of certain monetary transaction such as advancement of loan by the assessee and also income by way of interest were found. On asking question the assessee explained that the account belonged to his daughter S but in her statement she denied to have any transaction with the assessee. On the basis of the statement of S, the assessing officer concluded that the assessee had earned income from undisclosed sources and accordingly added the amount of loan and interest to the income of the assessee. The Commissioner (Appeals) set aside the order of the assessing officer. On appeal by the revenue, the ITAT upheld the order and held that the assessing officer had taken into account the statement of S and had utilized the same against the assessee but the fact remained that the said statement was recorded behind the back of the assessee and no opportunity was given to him to cross-examine her. This view of ITAT was upheld by the Hon'ble Delhi High Court and the appeal of the revenue was dismissed.
61. In the instant case also firstly in the statement recorded by the ADIT, Jaipur, the donor had confirmed the transaction of gift made by him to the assessee and this statement, therefore, could not be said to be an adverse evidence against the assessee. Secondly, if certain discrepancies were noticed in the said statement then the ADIT, Jaipur, was required to provide opportunity to the assessee to confront him particularly when the donor wrote a subsequent letter dated 11-11-1997 to him explaining all the so-called doubts and discrepancies. Thirdly, the statement of the donor was recorded by the ADIT, Jaipur and not by the assessing officer and if the assessing officer wanted to utilize the same against the assessee or wanted to draw any adverse inferences on the basis of such statement against the assessee, then it was incumbent upon him to have afforded opportunity of cross-examination to the assessee. By not doing so, the assessing officer has violated the settled rules of natural justice. It may be pointed out that even before the assessing officer the donor appeared and there was full opportunity to the assessing officer to examine him. But despite his insistence the assessing officer neither examined him nor gave opportunity to the assessee to cross-examine him.
62. Test of human probability and circumstantial evidence can be applied in the context of some material and the inferences can be drawn on the basis of some evidence, documentary or oral or on the basis of some circumstances attributable to a particular transaction. In our opinion therefore, the ratio of decision in the case of Sumati Dayal (supra) cannot be applied to the facts and circumstances of the present matter. So far as gift by a non-relation is concerned, it has been held by the Hon'ble Delhi High Court in the case of CIT v. Mrs. Sunita Vachani (1990) 184 ITR 121 (Del), that "even though it may be surprising as to how large sums of money are received by a family in India by way of gifts from strangers from abroad, unless there is something more tangible than suspicion, it will be difficult to regard the moneys received in India from abroad as representing the income of the assessee in India."
63. Thus mere fact that a person gave a gift of huge money by itself cannot be a factor to doubt the genuineness of the transaction of gift unless there is some other material to create such doubt.
64. The Hon'ble Rajasthan High Court has examined the issue in the case of Nek Kumar v. Asstt. CIT (2004) 141 Taxman 313 (Raj). In that case the donor has given affidavit and also filed a declaration that she had given gift to the assessee. There being no material evidence to show that the money was deposited by the asses see or by any relative in the bank from where it came back to the assessee, it was held that the gift could not be treated as non-genuine.
65. In the case of ITO v. Kailash Chand Bansal (2003) 129 Taxman 112 (Del) (Mag.), the Income Tax Officer added the amounts of gifts received by the assessee on the ground that the assessee had failed to prove ingredients of love and affection and there was absence of any relationship between the donor and the donee. Income Tax Appellate Tribunal Delhi Bench 'C? observed that the assessee had adduced all necessary evidence in the form of gift deeds, affidavit of donor, bank's confirmation and copies of NRE bank accounts. On these facts, it was held that initial burden which lay upon the assessee had been discharged and the same was shifted to the assessing officer who had failed to bring sufficient material on record to disprove the gifts in question. The deletion of addition by the Commissioner was upheld by the Income Tax Appellate Tribunal.
66. In the case of CIT v. R.S. Sibal , the assessing officer noticed two deposits of Rs. 7 lakhs and Rs. 2.25 lakhs on 8-7-1993 and 12-8-1993 respectively in the assessee's bank account. The assesseewas required to explain the sources of the two amounts. The assessee gave details including the copies of gift-deeds and affidavits of the donors. However, the assessing officer treated the gift as non-genuine. The Commissioner (Appeals) deleted the addition which view was upheld by Income Tax Appellate Tribunal. The Hon'ble High court of Delhi followed the decision in the case of Sajan Dass & Sons v. CIT (2003) 264 ITR 4353 and upheld the view of the Income Tax Appellate Tribunal and made the following observations:
Held, dismissing the appeal, that the only ground on which the genuineness of the gifts had been doubted was the alleged failure on the part of the assessee to establish relationship between the donor and the donee. Both the lower appellate authorities had recorded a categorical finding that by producing the documents, the assessee had discharged the onus which lay on him with regard to the genuineness of the gifts. The inference drawn by the appellate authorities, on the appreciation of evidence was factual, giving rise to no question of law much less a substantial question of law.
Before the Hon'ble High Court one of the argument raised was that the assessee had not established the capacity of the donor to make, the aforenoted gift. It was also urged that there was no reason why two strangers would make gifts of heavy amounts as the assessee has failed to prove any love and affection between the said parties. The Hon'ble Delhi High Court rejected this contention and upheld the view taken by Income Tax Appellate Tribunal.
67. In view of the above decisions, it is clear that the genuineness of the gift cannot be doubted on surmises and conjectures. In the instant case, the donor had huge resources which have been brought on record and also on consideration of love and affection made the gift to the assessee. The assessing officer has doubted the genuineness of the gift only on the basis of suspicion without bringing any cogent material on record to disprove the genuineness of the gift. This approach, therefore, cannot be justified.
68. In view of the above, the order of the learned Commissioner (Appeals) and his findings for deleting the additions cannot be interfered with.
69. So far as the addition of Rs. 1 lakh made on account of premium paid for obtaining the gift is concerned, there is no material on record to prove that any amount was paid by the assessee directly or indirectly as premium for obtaining the gift. In absence of any such material, the addition cannot be justified. We, therefore, uphold the findings of the learned Commissioner (Appeals) on this count also.
70. The learned Authorised Representative had also brought to our notice the order of Dy. Director, Directorate of Enforcement, Delhi Zonal Office, 10-A, Jam Nagar House, Akbar Road, New Delhi rendered in the case relating to in contravention of Section 9(1)(a) and Section 9(1)(a), read with Section 64(2),of FERA, 1973. Vide order dated 17-3-2005 the Directorate of Enforcement has exonerated the assessee and other family members against charges labeled against them. The relevant observations of the concerned authority are as under:
...The other evidences relied upon in the Show Cause Notice i.e., the cheques and bank accounts statements made available by the Banker are not in any way a deciding factor on the genuineness or otherwise of the 'gifts' made by NRI for these documents by itself are proof of payments received from the NRI but not of any payments made to him. Further, it has been clearly laid down in the ATFE order dated 30-6-1997 in the matter of Sh. Virender Kumar Jain and others that in order to constitute the charge of contravention of Section 9(1)(a) it is necessary to prove that the person proceeded against
(i) has made any payment; and
(ii) the payment has been made to
(c) a non-resident, or
(d) to the credit of a non-resident.
...If there is no evidence the alleged transaction except the payment as also of the person who received the payment will be relevant. It is also to be appreciated that the evidence has to be of the specific transaction and amount involved, it cannot be in general terms.
If the above ratio is applied to the present case, I find that the Show Cause Notice is seriously lacking in the nature of evidence as indicated by the ATFE.
...In view of my above findings, hold that the charge of making payments at a premium to Dr. D.P. Parwal, NRI in lieu of 'gifts' received by S/Sh. K.L. Jolly & Sons, Dalip Jolly, Pradeep Jolly, Shobha Jolly, Neena Jolly for an amount of Rs. 1,10,00,000 is not sustainable.
The charge of contravention of Section 9(1)(a) read with Section 64(2) of Foreign Exchange Regulation Act, 1973 is, therefore, not established as alleged in the Show Cause Notice No. T-4/77/DZ/2001 /Dehradun (SCN I to V), 22-8-2001. Accordingly, S/Shri Dalip Jolly, Pradeep Jolly, K.L. Jolly, Shobha Jolly, Neena Jolly and Dr. D.P. Parwal are exonerated of the charges levelled in Memo. No. T-4/77/DZ/2001/Dehradun (SCN I to V), 22-8-2001.
From the above observations and findings of an independent authority under FERA, it is proved that the assessee had not paid any amount through Hawala for procuring the gift. In absence of any material to the contrary, this order therefore, also supports the version of the assessee and goes against the stand of the department. In view of the above and on the entirety of the facts and circumstances of the case, the ground taken by the revenue in the appeal deserves to be rejected. Consequently this ground is rejected.
71. Ground No. 2 - This ground is directed against the deletion of addition on account of rental income pertaining to the property purchased in the name of Smt. Krishna Jolly. The assessing officer made addition of Rs. 9,500, Rs. 80,705 and Rs. 47,500 on account of income from house property in the hands of the assessee for assessment years 1996-97, 1997-98 and 1998-99. Before the learned Commissioner (Appeals) while challenging the addition, it was proved that the property was purchased by Smt. Krishna Jolly and she had acquired the legal title and the ownership of the property. It was further submitted that since the funds are arranged from HUF it cannot be said that the property belongs to the HUF particularly when the owner who borrowed the funds was paying the interest. The details of interest paid for funds borrowed from HUF were also submitted before the learned Commissioner (Appeals). The learned Commissioner (Appeals) after considering the reasoning given by the assessing officer and the submissions of the assessee, deleted the addition by observing as under:
It is factually correct that the entire finances of Rs. 30 lakhs for purchase of property by Mrs. Krishna Jolly has been arranged from the HUF i.e., appellant. I agree with the learned. Counsel that merely on the grounds that funds have been arranged by HUF it cannot be legally said that the property purchased in the name of Mrs. Krishna Jolly becomes the property of the HUF especially in the light of the fact that HUF has advanced money in the form of loan at the rate of 4.5 per cent to Mrs. Krishna Jolly and it is not only a case of investing the money of the HUF in the name of a member of HUF. I also agree with the learned. Counsel that there is no purpose in diversion of income from HUF to Mrs. Krishna Jolly because had the property income been included in the hands of the HUF the tax liability is lesser because the interest received from Mrs. Krishna Jolly included in the income of the HUF is much larger than the rental income of the property. Therefore, there is no device to reduce the tax liability and accordingly there is no occasion to doubt the genuineness of the loan transaction, in view of above discussion it is held that the income from property belongs to Smt. Krishna Jolly and accordingly the same is ordered to be excluded from the income of the HUF i.e., appellant.
72. We have carefully considered the entire material on record and the rival submissions on this issue and fully justify the findings of the learned Commissioner (Appeals) after going through the material filed by the assessee on record to show that the property was purchased by Smt. Krishna Jolly and rental income from the same was offered to tax by her in earlier assessment years. Thus we uphold the finding of the learned Commissioner (Appeals) and reject this ground also.
73. In the result the appeal of the revenue stands dismissed.
IT (SS) A. No. 133/Delhi/2004 & CO No. 234/Delhi/2006
74. In this matter also, we take up the cross objection of the assessee first. The facts of this case are similar to the facts in the case of M/s. K.L. Jolly & Sons (HUF). In this case also the addition was made by the assessing officer of Rs. 10 lakhs on account of gift from Dr. Parwal and of Rs. 1,86,325 on account of alleged premium. The other addition has been made on account of difference in the valuation of property at B-205, Greater Kailash-I, New Delhi at Rs. 6,54,662. In this case also the learned Commissioner (Appeals) has deleted the addition of Rs. 13,04,957 and that of Rs. 6,54,662 against which the department has come in appeal, challenging the deletion of these additions made by the assessing officer.
CO. No. 234/Delhi/200675. The assessee has filed cross objection by taking following ground:
That the order of Commissioner (Appeals) upholding the validity of proceedings insofar as they relate to gifts and investment in property bearing No. B.205, Greater Kailash-I, are bad in law being beyond the scope of Chapter XIV-B of the Income Tax Act, 1961 and also contrary to the ratio of judgments reported.
76. In support of the ground of cross objection, the contention of the learned Counsel for the assessee before us was that the gift of Rs. 10 lakhs was received by the assessee from Dr. D.P. Parwal on 5-11-1993 i.e., in assessment year 1994-95 by cheque. It was pointed out that the assessment for assessment year 1994-95 was completed under Section 143(3) on 22-2-1996. The learned Counsel made reference to the documentary evidence and in particular to the bank passbook to show that the assessee had made FDR of Rs. 10 lakhs on 17-11-1993 by debiting to the Bank account No. 6424 with the Central bank of India out of the gifted amount. It is further shown that the interest of Rs. 42,000 earned from the said FDR prepared out of the gifted amount was duly disclosed in the interest income of FDRs.
77. The assessee has filed copy of computation of taxable income filed with the return for assessment year 1994-95. In this computation interest on FDR is shown at Rs. 64,412. The assessee also pointed out that as per certificate of the bank 8-6-1995 the total interest of Rs. 42,000 was received on the FDR of Rs. 10 lakhs and this interest was duly reflected. The learned Counsel also made reference to the assessment orders in the case of the assessee for assessment years 1993-94 and 1994-95 passed under Section 143(3). Copies of these assessment orders have been placed on record.
78. On going through the copy of the bank account No. 6424 filed by the assessee at page 6 of the Paper Book, it is found that the assessee had received gift of Rs. 10 lakhs which was credited in his bank account in Central Bank of India on 5-11-1993. Entry 7-11-1993 in this account shows that from the same bank FDR of Rs. 10 lakhs was taken. The bank certificate dated 8-3-1995 filed at page No. 4 of the Paper Book further shows that on the FDR of Rs. 10 lakhs, interest of Rs. 42,000 was earned up to 31-3-1994. The assessee had offered total interest on FDR at Rs. 64,412 in the computation of income filed for assessment year 1994-95 as per copy of computation available at page 3 of the Paper Book. The details of interest income on FDR of Rs. 64,412 are as under:
Particulars Amount On FDR of Rs. 10,00,000, dated 17-11-1993 As per Bank Certificate from Central bank of India 42,000 On FDR of Rs. 2,10,000, dated 21-3-2003 (compounded to Rs. 2,24,987) (Including Interest accrued Rs. 7,425 As per Bank Certificate from Central Bank of India) 22,412 Total 64,412
79. The assessment order for assessment year 1994-95 has been passed under Section 143(3) on the declared income of Rs. 1,41,930 which included interest income of Rs. 64,412 (Rs. 42,000 + Rs. 22,412). It may be pointed out that this assessment order was passed on 22-2-1996 whereas the search took place on 30-9-1997. Thus the assessment order is prior to search. In view of the above it is clear that the gift of Rs. 10 lakhs, the consequential FDR of Rs. 10 lakhs and the interest income on the said FDR at Rs. 42,000 stood declared and income therefrom was accordingly assessed by the department prior to the date of search. Hence, it cannot be said that the gift remained undisclosed. We have dealt with this matter in detail while dealing with a similar issue in the cross objection in the case of M/s. K.L. Jolly & Sons (HUF) and since the facts of this case are virtually similar, following the same reasoning, we allow the ground taken in the cross objection in this case also by holding that the proceedings under Section 158BD are bad in law being beyond the ambit and scope of Chapter XIV-B of the Income Tax Act. Accordingly cross objection stands allowed.
IT(SS)A. No. 133/Delhi/2004 (Revenue's Appeal)
80. Since we have deleted the additions by allowing the cross objection in favour of the assessee, we are not required to deal with the grounds of revenue taken in this appeal on merits. However, as these grounds were argued before us, we deem it proper to consider the grounds of appeal on merits also.
81. Ground No. 1 has been taken by the revenue in this appeal to challenge the deletion of addition of Rs. 10 lakhs on account of gift and Rs. 1 lakh being premium on the said gift. The assessing officer has made additions of Rs. 10 lakhs on account of the gift received from Dr. Parwal and of Rs. 1,00,000 being 10 per cent premium on the said gift. He also made addition of Rs. 1,86,325 and premium of 10 per cent at Rs. 18,632 as gift received from the same donor. The addition on account of undisclosed income has been made for assessment year 1994-95. This has been done on the same lines as has been done in the case of M/s. K.L. Jolly & Sons (HUF) in which case we have discussed the issue relating to genuineness of the gifts etc. in detail.
82. The learned Commissioner (Appeals) has discussed the issue in detail and has deleted the addition of Rs. 11 lakhs by observing as under:
The perusal of the relevant paras of Commissioner (Appeals)'s order reproduced above, clearly shows that the addition made in the case of K.L. Jolly & Sons (HUF), the appellant, is exactly on the same reasoning and the assessing officer has not gathered any further facts or information and has mainly relied upon the information and facts gather by the assessing officer who passed the assessment order in the case of Sh. Dalip Jolly, cited above. The arguments raised by the appellant are also exactly on the same lines as were made in the case of Sh. Dalip Jolly. Even the case laws cited are same. The donor is also thesame. After perusal of detailed facts and reasoning I am fully inclined to concur with the findings given by learned Commissioner of Income Tax (Appeals)-XV in the case of Sh. Dalip Jolly mentioned above. In the case of appellant the assessing officer has not brought on record that the donor has denied the factum of gift, that the donor does not posses the creditworthiness, that there was any incriminating document found during search which could have indicated exchange of money for the gift or any other indication pointing out the gift to be arranged or bogus. Forthe detailed reasoning given by the learned. Commissioner (Appeals)-XV in the case of Sh. Dalip Jolly with which I fully agree, the addition made by the assessing officerin the case of appellant cannot be sustained. Accordingly, the addition of Rs. 11 lakhs (Rs. 10 lakhs on a/c of gift and Rs. 1 lakh on a/c of allegedpremium) is deleted.
83. He has also deleted the additions of Rs. 1,86,325 and premium of Rs. 18,632 by observing as under:
Regarding the addition of Rs. 1,86,325 and premium of 10 per cent Rs. 18,632 as gift received from Dr. Parwal including the premium, the assessing officer has not made any detailed discussion in the body of the assessment order. The entire discussion pertains to the gift of Rs. 10 lakhs but in the final paragraph the assessing officer included the amount of Rs. 1,86,325 in the amount of Rs. 10 lakhs making the total gift at Rs. 11,86,325 from Dr. Parwal and treated the same as bogus as undisclosed income of the assessee and further added 10 per cent as premium on the above gift.
The appellant has challenged that the gift of Rs. 1,86,325 was received during the Immunity Period for assessment year 1992-93 and the same has been duly disclosed in the return and assessed. Even in his remand report submitted on 16-12-2003 vide letter No. ACIT/Cir. 23(1)/03-04/262 the assessing officer has not controverted the stand of the appellant pertaining to the gift of Rs. 1,86,325. The Appellant's claim that as per banker's certificate dated 18-12-1991 and 6-1-1992 the gift was received during the Immunity Period under the Immunity Scheme, 1991. In view of the fact that the gift of Rs. 1,86,325 was received during the Immunity Scheme of 1991, no addition is called for. Even otherwise the donor is the same i.e., Dr. D.P. Parwal from whom the gift of Rs. 10 lakhs is received which has been held as genuine on the basis of detailed reasons given above and on the same reasoning the gift of Rs. 1,86,325 can also not be disputed and the same is held as genuine. Accordingly, the addition of Rs. 1,86,325 + premium of Rs. 18,632 is deleted.
84. Before us, the learned Departmental Representative challenged the finding of the learned Commissioner (Appeals) by placing reliance on the order of the assessing officer. On the other hand, the learned Counsel for the assessee supported the order of the Commissioner (Appeals).
85. We have carefully considered the entire material on record and the rival submissions. The assessee has given details to prove the genuineness of the gift in the letter dated 23-4-2001 at pages 76 and 77 of the Paper Book. Relevant portion of the letter has already been reproduced hereinabove while deciding the appeal in the case of M/s. K.L. Jolly & Sons.
86. From the documents on record, it is found that no incriminating material was found during the course of search to suggest the non-genuineness of the gift. Further the assessee had filed the relevant documentary evidence to prove the identity of the donor, creditworthiness of the donor and also the genuineness of the gift. The assessing officer has doubted the genuineness of the gift on the basis of first statement of Dr. D.P. Parwal recorded by the ADIT, Inv. 2, Jaipur. Regarding the evidentiary value of his statement under the facts and circumstances of the matter, we have discussed this issue in detail while deciding the case of M/s. K.L. Jolly & Sons. By adopting the same reasoning in this case also, we uphold the finding of the learned Commissioner (Appeals) and reject ground No. 1 taken in this appeal by the revenue.
87. We may further mention that in relation to this gift also vide order dated 17-3-2005 the Directorate of Enforcement has exonerated the assessee and other family members against charges labeled against them. The relevant observations of the concerned authority have already been reproduced by us in para 57 hereinabove while deciding appeal in the case of M/s. K.L. Jolly & Sons. It has been held in this order that the assessee had not paid any amount through Hawala for procuring the gift. This order therefore, also supports the version of the assessee and goes against the stand of the department. In view of the above and on the entirety of the facts and circumstances of the case, the ground taken by the revenue in the appeal deserves to be rejected. Consequently this ground is rejected.
88. Ground No. 2 taken by the revenue challenges the deletion of addition of Rs. 6,54,662 made by the assessing officer on account of difference in the valuation of property bearing No. B-205, Second Floor, Greater Kailash-I, New Delhi. On the basis of Annexure A-12, the assessing officer noted the undisclosed investment of the assessing officer in property at B-205, Second Floor, Greater Kailash-I, New Delhi. The seller of the property was Shri Ram Kumar Mehra and the buyer was the assessee. Sale consideration was disclosed at Rs. 48 lakhs. The assessee was required to filed documentary evidence along with the investment made in the said property. The assessee filed valuation from Private Valuer valuing the property at Rs. 48 lakhs. It was submitted that the property was purchased for Rs. 48 lakhs by registered sale deed dated 28-7-1997. For determination of the value, the assessing officer referred the matter to the departmental Valuation Officer who valued the property at Rs. 54,54,662. The assessee was confronted with the valuation report and was directed to explain the difference of Rs. 6,54,662. The assessee vide letter dated 23-4-2003 submitted that the reference to the DVO was not legally justified. After considering the reply of the assessee the assessing officer made addition of Rs. 6,54,662 on account of difference worked out on the basis of report of the DVO and the sale consideration shown by the assessee.
89. In appeal before the learned Commissioner (Appeals) which was submitted that no incriminating material or any other evidence was found in the course of search. It was pointed out that the purchase of property was evidenced by the registered sale deed dated 1-8-1997 and the assessing officer could not bring out any material to point out that the sale consideration was incorrect. It was argued that the reference made by the assessing officer to the DVO to determine the cost of consideration was beyond the jurisdiction given by Section 55A of the Act. The assessee also filed report of approved valuer valuing the said property but this report was not considered by the assessing officer. The assessee further argued that since no incriminating document was gathered by the assessing officer it was not justified for making the assessment in the block assessment. In support of this submission, the assessee has relied on the decision of Income Tax Appellate Tribunal, Delhi Bench in the case of Ravi Prakash Agarwal (HUF) v. Asstt. CIT (2000) 67 TTJ 234 along with the decision in the case of Pioneer Publicity Corpn. v. Dy. CIT (2000) 67 TTJ (Del) 471 where it was held that no addition can be made on the basis of the report of the DVO unless some material is found to indicate payment of unrecorded consideration. The assessee also placed reliance on the decision of the Hon'ble Bombay High Court in the case of CIT v. Vinod Danchand Ghodavat (2001) 247 ITR 448 (Bom) where it was held that no addition could be made in the block assessment on the basis of report of the DVO obtained subsequent to the order of assessment. The learned Commissioner (Appeals) considered these submissions and deleted the addition by observing as under:
3.2 On going through the facts submitted and the assessment order, I find that this addition has apparently been made only on the basis of a Valuation Report. No other evidence of any unexplained investment hats been mentioned by the assessing officer, I am in agreement with the appellant that a reference to the VO in the present case was beyond the scope of Section 55A of the Act and further that the addition is not based on any evidence found during the search or any material gathered which could be relatable to such evidence. In any case, valuation made by the VO is a subjective valuation and the difference of less than 15 per cent between the valuation made and the amount declared by the appellant cannot be the basis of making an addition on a/c of unexplained investment. The decision of the income Tax Appellate Tribunal cited by the appellant are also squarely on the issue and in favour of the appellant. Considering the above, the addition of Rs. 6,13,746 is deleted.
The facts of the case of the appellant are exactly the same and similar. I agree with the detailed reasoning and the conclusion drawn by the learned Commissioner (Appeals) in the case of Sh. Dalip Jolly (Individual). The assessing officer has not brought any material on record which was found and seized during search indicating any unexplained investment in the purchase of property. The slight difference in valuation is only a difference of opinion and it cannot be made the subject-matter of undisclosed income pertaining to the block period until & unless there is some other supporting material indicating unaccounted investment found during search. The difference in valuation is below 15 per cent in the case of appellant as was in the case of Sh. Dalip Jolly (Individual). Therefore for the reasons given above and also as per reasons given by the learned Commissioner (Appeals)-XV mentioned above the addition made by the assessing officer on a/c of unexplained investment of Rs. 6,54,662 is deleted.
90. The learned Departmental Representative has only placed reliance on the order of the assessing officer whereas the learned Counsel for the assessee has placed on the order of Commissioner (Appeals).
91. We have carefully considered the entire material on record and the rival submissions. In this case, no evidence was found either during the course of search or during the post search enquiry regarding any money which was paid by the assessee for purchasing the property or for making any undisclosed investment in the property. It is settled legal position that in the block assessment order no addition can be made merely on the basis of report of DVO. The findings of the learned Commissioner (Appeals) in deleting tile addition are therefore, fully justified. We confirm the same. Consequently this ground is also rejected.
92. Consequently, the cross objection by the assessee is allowed whereas the appeal of the revenue is dismissed.
93. In the result, the cross objections filed by the assessee are allowed whereas the appeals filed by the revenue are dismissed.