Income Tax Appellate Tribunal - Nagpur
Kasturchand Baid vs Assistant Commissioner Of Income Tax, ... on 10 April, 1997
ORDER
J. Kathuria, A.M.
1. These four appeals by four different assessees belonging to the same group of assessees involve identical issues and are disposed of by a combined order for the sake of convenience.
2. We shall first take-up ITA No. 895/Nag/96 in the case of Shri Kasturchand Baid.
3. The facts show that there was an income-tax search on the residential and business premises of Shri Kasturchand (father) and his sons Sarvashri Paraschand, Sureshchand, Mallichand, Kamalchand and Mohanchand on 17th October, 1995. In the case of the present assessee, certain gold and cash was seized. In the order passed under s. 158BC(c), the AO held that the entire cash, jewellery, etc. seized stood explained. He, however, found that the assessee had not furnished the return of income for the asst. yr. 1995-96 till the date of search though the same was due earlier. Total income for the asst. yr. 1995-96 was computed at Rs. 34,703 which was treated as undisclosed income for the block period on which tax at flat rate was charged.
4. Shri P. C. Jain, the learned counsel for the assessee, submitted that an explanatory note to the block return of income was filed which reads as follows :
"As per s. 158B(b) the undisclosed income represents wholly or partly the income which is required to be disclosed for the purpose of this Act, but have not been disclosed. Accordingly where the return income is below the taxable limit, the assessee is not obligated to disclose it by filing of return of income. In such cases the income of the assessee being below taxable limit and not obligated to file the return, cannot be termed as undisclosed income."
It was pointed out that "undisclosed income" had been defined under s. 158B(b) of the Act. It was pointed out that the assessee was an individual and his total income for the asst. yr. 1995-96 was exempt upto Rs. 35,000. It was submitted that under s. 139(1) of the Act, there was no legal obligation on the assessee to have filed the return of income which was below the taxable limit. The learned counsel also pointed out that in return Form No. 2B at p. 2 thereof, the following note by way of instruction appears :
"5. Give the details in respect of the previous year on the basis of assessment order if the assessment/prima facie adjustment has been completed. Elsc. give the details on the basis of return of income filed. For the previous year which has not ended or for which the date of filing of the return under s. 139(1) has not expired and you are in a position to prove to the satisfaction of the AO that such income or the transactions relating to such income have been recorded in the blocks of account and documents maintained in the normal course, such income is to be indicated against that previous year. For any year, if one return has not been furnished for the reason that the total income was not above the maximum amount not chargeable to tax, the total income is to be mentioned against that previous year."
It was submitted that when there was no obligation on the part of the assessees to file the return and his total income was otherwise exempt for the asst. yr. 1995-96. The AO could not treat the same as undisclosed income under s. 158BB(c) of the Act, simply because the assessee had not filed the return for that year. It was submitted that otherwise the AO had found no undisclosed income in this case and the only 'undisclosed income' was the one pertaining to the asst. yr. 1995-96 for which the assessee for good and sufficient reasons had not filed the return. It was submitted that it would be extremely iniquitous and unfair to hold that the assessee had undisclosed income for an assessment year which was otherwise below the taxable limit and which would in the ordinary course have not attracted only tax liability. It was submitted that the return form, referred to above, clearly showed the intention of the legislature in not treating such income as undisclosed income.
5. The learned Departmental Representative submitted that Chapter XIV-B was a self-contained code and the reference to s. 139(1) of the Act. was irrelevant. It was submitted that under s. 158BB(c), the AO had to compute the undisclosed income for the block period by adding the income not disclosed in the return for a particular assessment year.
6. I have carefully considered the submissions of both the sides. The assessee is an individual. His income for the asst. yr. 1995-96 was exempt upto Rs. 35,000. The income attributable to asst. yr. 1995-96 has been determined by the AO at Rs. 34,703 which was below the taxable limit. Under s. 139(1) of the Act the assessee was not required to file the return for the asst. yr. 1995-96. I was informed that for subsequent assessment years, the assessee had filed the returns before the date of search because the income for those years was taxable. When the AO required the assessee to file the return for the block period, the assessee explained in the note to the return that his income being below the taxable limit, he was not obligated to disclose it by filing the return of income. Note No. 5 in return Form No. 2B also supports the assessee's case. At p. 2 dealing with the computation of total undisclosed income, the assessee is required to give details of returned/assessed income. There may be a case where the assessee has filed the return, but the assessment has not been completed. In such a case the returned income would be relevant. There may be another case where after the return has been filed, assessment has been made. In such a situation the assessed income may be relevant. There may be yet another case where there is no return because the due date for such return has not arrived and in the meantime the search has taken place. There may be yet another situation where the assessee has not furnished the return for a particular assessment year for the reason that the total income was not above the maximum amount not chargeable to tax. Note No. 5 in the return form deals with such situations and requires the assessee to show the same in the outer most column. Undisclosed income in respect of positive income has to be the difference between column (A) and column (C). If total income in column (A) for the asst. yr. 1995-96 is taken at Rs. 34,703 then the same has to be taken in column (C) also at the same figure. The difference between these two figures will be the undisclosed income which would come to 'nil'. The intention of the legislature, therefore, is that in case where the assessee has not filed the return because the total income was below the taxable limit, such an income cannot be treated as undisclosed income of the assessee for purposes of Chapter XIV-B of the Act. Sec. 158BB of the Act deals with the computation of undisclosed income. An income which cannot be treated as undisclosed income cannot become undisclosed income for purposes of computation either. Even otherwise, it would be highly unfair and iniquitous to tax the assessee on an income which is otherwise below the taxable limit, on a higher flat rate simply because there had been a search by the IT authorities at his premises. Looking to the scheme of the Chapter and the legislative intention, it is clear to me that the AO was totally wrong in computing undisclosed income at Rs. 34,703 for the block period. The assets which were found or seized at the time of search were duly explained by the assessee and no addition whatsoever has been made by the AO in respect of any undisclosed income as such. The only undisclosed income, according to the AO is the income of Rs. 34,703 for the asst. yr. 1995-96 which was below the taxable limit and for which the assessee was not obligated to file the return. I, therefore, hold that the AO was wrong in computing the undisclosed income at Rs. 34,703 which is hereby deleted. I, therefore, allow the assessees appeal.
7. Now I come to appeal ITA No. 896/Nag/96 in the case of Shri Sureshchand Baid. In this case also the only undisclosed income computed by the AO of Rs. 21,877 pertaining to the asst. yr. 1995-96. This assessee was also an individual whose income exempt from tax for the asst. yr. 1995-96 was Rs. 35,000. The assessee did not file the return for the asst. yr. 1995-96 because his income for that year was below the taxable limit. The AO has accepted the source of all other assets found be seized and not made any other addition of undisclosed income in this case except that of Rs. 21,877 for not filing the return for the asst. yr. 1995-96 for which the income was below the taxable limit.
8. Both the sides advanced the same arguments as in above case (ITA No. 895/Nag/96). For the reasons recorded above, the addition of Rs. 21,877 as undisclosed income is hereby deleted and the assessee's appeal is allowed.
9. Now I come to ITA No. 897/Nag/96 in the case of Shri Paraschand Baid. In this case also the facts are the same as in the above two cases except that the AO computed undisclosed income at Rs. 29,438 for the asst. yr. 1994-95 for which the assessee had not filed his return of income being below the taxable limit. For the asst. yr. 1994-95 the exemption limit in the case of an individual was Rs. 30,000 and the assessee who was an individual had total income of less than Rs. 30,000.
10. For the reasons mentioned in the case of Kasturchand Baid (ITA No. 895/Nag/96) above, the addition of Rs. 29,438 as undisclosed income is hereby deleted and the assessee's appeal is allowed.
11. Now I come to ITA No. 899/Nag/96 in the case of Shri Kamalchand Baid.
12. Ground No. 2 is regarding the addition of Rs. 34,367 as undisclosed income for the asst. yr. 1995-96 for which the assessee had not filed the return. The assessee is an individual whose income was exempt from tax upto Rs. 35,000. For the reasons mentioned in the case of Shri Kasturchand Baid (ITA No. 895/Nag/96) above, the addition of Rs. 34,567 as undisclosed income is hereby deleted. This ground, therefore, succeeds.
13. Ground No. 1 relates to the addition of Rs. 18,333 as unexplained cash.
14. The facts shows that at the time of search from 17th October, 1995, to 26th October, 1995, besides gold and silver, cash amounting to Rs. 8,45,144 was found out of which cash of Rs. 5,10,000 was seized. The assessee explained that out of Rs. 8,45,144 cash of Rs. 6,75,620 belonged to his proprietary concern styled as M/s Kasturchand Mohanchand. It tallied with the cash balance as per the cash books. It was further explained that an amount of Rs. 23,568 belonged to Shanti Vijay Market in which the assessee along with five other persons was a co-owner and the assessee was keeping the accounts for the same. It was also explained that a sum of Rs. 17,373 belonged to Kamal Refinery which was the proprietary concern of the assessee and which amount was duly reflected in the cash book of that concern. A sum of Rs. 1,00,000 was claimed to belong to Mahakoshal Engineers & Contractors (P) Ltd. in which the assessee's elder brother Paraschand Baid was a Director. It was submitted that the same belonged to the company and had been kept by the elder brother with the assessee for safe custody. The explanation of the assessee with regard to all the four above amounts was accepted by the AO. There was, however, an amount of Rs. 28,583 which the assessee claimed belonged to his wife Yashoda Bai. The AO gave credit for an amount of Rs. 10,250 (wrongly mentioned as Rs. 10,120 in the assessment order) and treated the balance of Rs. 18,333 (wrongly mentioned as Rs. 18,463 at p. 4 of the assessment order) as unexplained and hence undisclosed income of the assessee.
15. Shri Jain, learned counsel for the assessee, submitted that before the AO the assessee pleaded that his wife Smt. Yashoda Bai was a regular assessee, that her capital statement as on 31st March, 1994, showed cash and bank balance of Rs. 14,235 that she was having rental income and interest income which was coming from earlier years, that she had earned rental income of Rs. 13,200 and interest income of Rs. 3,840 for the year ending 31st March, 1995, that her rental income from 1st April, 1995, to 17th October, 1995, was Rs. 6,600 and interest from Kasturchand Mohanchand at Rs. 3,000 and that as per copies of the capital statement at pp. 11 and 12 of the assessee's compilation, the cash balance as on 31st March, 1995, was of the order of Rs. 22,435 and on 17th October, 1995, it amounted to Rs. 28,585. It was vehemently argued that the AO had not given any reasons as to why the cash balance of Rs. 28,585 be not accepted particularly when the credit entries and debit entries had not been found fault with. It was also submitted that at the time of search the statement of Smt. Yashoda Bai Baid had not been recorded and the assessee in his statement had stated that the cash of Rs. 8,45,144 partly belonged to him and his business concerns and partly to his wife. It was submitted that the AO had given the credit only for a sum of Rs. 10,230 and made an addition of Rs. 18,355 which was not warranted.
16. The learned Departmental Representative relied on the reasoning of the AO given in para 4.2 of the impugned order.
17. I have carefully considered the submissions of both the sides. It appears that the AO recorded the statement of the assessee but not of his wife. It is not disputed that Smt. Yashoda Bai was a regular income-tax assessee. It is also seen that she had rental income and interest income over the past several years. The assessee had filed copies of the capital statement before the AO. The AO has not adversely commented upon the sources of income nor has he found fault with the withdrawal, etc. On the debit side of the capital statement. According to this statement the cash balance as on 17th October, 1995 i.e., the date of search was of the order of Rs. 28,585. The assessee took the plea that a sum of Rs. 28,583 out of the cash found at Rs. 8,45,144 belonged to his wife. There is sufficient evidence on record to show that Smt. Yashoda Bai could possess cash of Rs. 28,583. She had the necessary sources of income for the same. The AO has not rebutted the evidence produced by the assessee. I, therefore, hold that there was no justification for making an addition of Rs. 18,333 as undisclosed income which is hereby deleted. Ground No. 1 also succeeds.
18. In the result, the appeal is allowed.