Income Tax Appellate Tribunal - Chandigarh
Khosla Ice & General Mills, Ambala City vs Assessee on 19 March, 2002
IN THE INCOME TAX APPELLATE TRIBUNAL
CHANDIG ARH BENCH 'B', CHANDIG ARH
BEFORE SHRI G. S.PANNU, ACCOUNTANT MEMBER
AND MS.SUSHMA CHOW LA, JUDICIAL MEMBER
I.T.(SS)A. No.32 /Chandi/2002
( Block Assessment Period 01.04.1988 to 07.10.1998 )
Khosla Ice & General Mills. Vs. D.C.I.T. (Investigation),
604, Circular Road, Circle-II,
Ambala City. Ambala.
And
I.T.(SS)A. No.44 /Chandi/2002
( Block Assessment Period 01.04.1988 to 07.10.1998 )
A.C.I.T., Vs. Khosla Ice & General Mills.
Ambala. 604, Circular Road,
Ambala City.
And
I.T.(SS)A. No.33 /Chandi/2002
( Block Assessment Period 01.04.1988 to 07.10.1998 )
M/s Ved Parkash Pardeep Kumar, Vs. D.C.I.T. (Investigation),
Circular Road, Circle-II,
Ambala City. Ambala.
And
I.T.(SS)A. No.43 /Chandi/2002
( Block Assessment Period 01.04.1988 to 07.10.1998 )
A.C.I.T., Vs. M/s Ved Parkash Pardeep Kumar,
Ambala. Circular Road, Ambala City.
And
I.T.(SS)A. No.38 /Chandi/2002
( Block Assessment Period 01.04.1988 to 07.10.1998 )
Smt.Bharti Khosla (Ind), Vs. D.C.I.T. (Investigation),
630, Circular Road, Circle-II,
Ambala City. Ambala.
And
2
I.T.(SS)A. No.39 /Chandi/2002
( Block Assessment Period 01.04.1988 to 07.10.1998 )
Smt.Prem Lata Khosla, Vs. D.C.I.T. (Investigation),
630, Circular Road, Circle-II,
Ambala City. Ambala.
And
I.T.(SS)A. No.50 /Chandi/2002
( Block Assessment Period 01.04.1988 to 07.10.1998 )
A.C.I.T., Vs. Rakesh Khosla (HUF),
Ambala. 630,Circular Road,Ambala City.
PAN: -
(Appellant) (Respondent)
Assessee by : Shri Vineet Krishan
Department by : Smt. Sunita Puri
O R D E R
P e r G . S . P AN N U , AM :
The captioned appeals relate to assessees of same group called 'Khosla Group'. Since some of the issues involved are common and arise from a single search and seizure operation u/s 132(1) of the Income-tax Act, 1961 (in short 'the Act'), we are passing a common order for the sake of convenience.
2. Before we take up for consideration the individual appeals as per the respective Grounds of appeal, it would be expedient to narrate the background of the dispute. The primary fact leading to the captioned appeals is that a search and seizure operation u/s 132(1) of the Act was conducted at various 3 residential and business premises of the group on 7.10.1998. Thereafter, notices u/s 158BC of the Act were issued and in response the assessees filed their respective returns of income, which have been subject to block assessment in terms of Chapter-XIVB of the Act. In the search operation, certain documents and material were found and seized as per the respective Panchnamas prepared. The Assessing Officer has determined undisclosed income in the course of block assessment proceedings finalized in the case of the captioned assesses at figures higher than those returned. The additions so made were carried in appeal before the Commissioner of Income-tax (A), who has allowed partial relief. Not being satisfied with the orders of the Commissioner of Income-tax (A), captioned assessees are in appeal before the Tribunal and in certain cases, Revenue has also contested the reliefs granted by the Commissioner of Income-tax (A) by way of captioned appeals, before the Tribunal.
3. In the above context, we have extensively heard the rival counsels. The assessee as well as the Revenue has filed Paper Books in the respective appeals, to which our attention was drawn during the course of the hearing. The submissions made by the rival counsels have been considered and the material to which our attention was drawn has been perused. On the basis of the aforesaid, we proceed to take up the individual appeals hereinafter.
4. We first take up IT(SS)A.Nos.32 and 44/Chandi/2002 which are cross appeals by the assessee and the Revenue 4 respectively in the case of M/s Khosla Ice and General Mills, Ambala City and arise from the order of the Commissioner of Income-tax (A) dated 19.3.2002 with respect to the block assessment finalized by the Assessing Officer u/s 158BC of the Act dated 30.10.2000 pertaining to the block period 1.4.1988 to 7.10.1998. The assessee is a partnership firm constituted of two partners, S/Shri Rajesh Khosla and Ved Parkash Khosla holding 95% and 5% share in profits and losses of the firm respectively. The firm is engaged in running of rice sheller in Ambala. In response to a notice u/s 158BC of the Act issued by the Assessing Officer requiring the assessee to file its return of undisclosed income, assessee filed a return on 7.2.2000 declaring Nil undisclosed income. The Assessing Officer however, determined the total undisclosed income for the block period at Rs.27,65,690/- in the assessment finalized u/s 158BC of the Act on 30.10.2000. The additions made by the Assessing Officer were challenged in appeal before the Commissioner of Income-tax (A), who allowed partial relief. The assessee as well as the Revenue are in appeal against the order of the Commissioner of Income-tax (A) on various Grounds which we shall deal in seriatim hereinafter.
5. In the appeal of the assessee, the first Ground raised is general in nature and the same does not require any adjudication and is accordingly dismissed.
6. The second Ground raised by the assessee reads as follows :-
5
"2. That the learned Commissioner of Income- tax (A) in the absence of actual weighment of paddy and rice lying loose in heaps at the time of search has erred in estimating the alleged excess stock at 40 Qtls as against 75.37 Qls worked out by the Assessing Officer on estimation without any basis, thereby retaining an addition of Rs.33,200/-. In fact there is no difference in stock."
On this aspect, the Assessing Officer had made a total addition of Rs.83,287/- which had been reduced to Rs.33,200/- by the Commissioner of Income-tax (A), which is contested by the assessee by way of the above Ground of appeal. The Revenue, in the cross appeal, has contested the relief of Rs.50,087/- allowed by the Commissioner of Income-tax (A) by way of Ground No.(i). Since the respective Grounds raised by the assessee as well as the Revenue relate to the same controversy, the two Cross-Grounds are being taken up together.
7. Briefly stated the dispute on this issue is on account of inventory of stock found at the time of search. At the time of search at the business premises of the assessee firm, a physical inventory of stock was prepared. In the course of assessment proceedings, the assessee was required to reconcile difference in the stock found on physical verification vis-a-vis the stock position as per the books of account, as on the date of search. The Assessing Officer noted that at the time of search, stocks of paddy, rice, nakku and polish were found. The Assessing Officer, after considering the replies of the assessee and the position depicted in the books of account 6 has concluded that in physical terms there was an excess stock of rice of 75.37 qtls. found during search as compared to the stock position as per the books of account. The Assessing Officer applied sale price of Rs.2251/- per qtl. on such excess stock and computed the undisclosed income at Rs.83,287/-.
8. The assessee firm contended before the Commissioner of Income-tax (A) that the Assessing Officer was not justified in making the impugned addition because the difference in the stock was computed only on an estimate basis. It was pointed out that certain quantity of rice and paddy was found lying in loose heaps during physical inspection and was not actually filled in bags. Such number of bags were estimated, while no actual weighment was done. It was explained that procurement and actual shelling of paddy had started only 2-3 days before the date of search and in such a short span of time there would not be much difference, if the stock was actually weighed. It was pointed out that assessee was maintaining complete stock registers, which were found and examined during the course of search. Further, with regard to the value of Rs.2251/- per qtl. applied by the Assessing Officer, it was contended that such rate was relating to Basmati rice, whereas in the case of the assessee, the only rice found was Parmal, which had a lower sale rate. The Commissioner of Income-tax (A) agreed with the plea of the assessee that the excess stock calculated by the Assessing Officer involved an element of estimation. He also agreed with the assessee that the rate of rice taken at Rs.2251/- per qtl. by the Assessing Officer was not justified. An error in the addition computed by the Assessing Officer was 7 also noticed, in as much as the Commissioner of Income-tax (A) has pointed out that the cost of 75.37qtls. of excess stocks calculated by the Assessing Officer at Rs.83,287/- was wrong because the same came to Rs.67,657/- after applying the rate adopted by the Assessing Officer. The Commissioner of Income-tax (A) has partially agreed with the assessee and scaled down the estimate of excess stock to 40 qtls. instead of 75.37 qtls and adopted the sale rate of Rs.830/- per qtl, on the basis of sale bills of the assessee, thereby retaining an addition of Rs.33,200/- (i.e.Rs.830x40 qtls) and deleted the balance of Rs. 50,087/-.
9. In the above background, the learned counsel for the assessee has vehemently argued that in the absence of any actual weighment of the stock done at the time of physical verification, the difference in physical stock viz-a-viz the stock maintained as per the books of account, is not reliable so as to constitute an undisclosed income assessable to tax under Chapter-XIVB of the Act. It was submitted that by merely estimating the physical quantity of stock, it could not be said that there was any undisclosed income detected during the course of search with respect to the difference vis-à-vis the stock as per the books of account. In this regard, reliance was placed on the decision of the Delhi Bench of the Tribunal in the case of Bansal Strips (P) Ltd. Vs. ACIT, 99 ITD 177 (Del).
10. On the other hand, the learned D.R. appearing for the Revenue has assailed the order of the Commissioner of Income-tax (A) and supported the addition made by the 8 Assessing Officer. The first argument put-forth by the learned D.R. is that the physical inventory undertaken at the time of search was in the presence of the assessee and the same was not objected to, at any stage prior to the showcause notice issued by the Assessing Officer during the assessment proceedings. Therefore, according to her, the excess stock worked out by the Assessing Officer in para 5.5 of his order, cannot be assailed by the assessee at this stage. It is emphasized that evidently at the time of search, physical stock was found in excess of the stock shown in the books of account and, therefore, the addition in question has been rightly made in the block assessment finalized u/s 158BC of the Act.
11. W e have carefully examined the rival stands on this aspect. From the orders of the authorities below, it is evident that the impugned addition has been made on account of excess stock found at the time of search in comparison to the stock position in the books of account. The primary contention of the assessee is that the physical verification of stocks was carried out on estimation and therefore, the difference in stock, does not establish any undisclosed income in the hands of the assessee. On this point, in our considered opinion, the learned CIT-DR has rightly contended that the Physical Inventory was tabulated in the course of search proceedings in the presence of the assessee firm or its representative and there is no material on record to show that any objections have been raised by the assessee at the earliest opportunity against such inventory. Even otherwise, we find ample force in the observation of the CIT(Appeals) that since there was loose 9 heaps of rice and paddy, certain element of estimation in physical inventory could not be ruled out. Considering the fact position, we therefore are not inclined to entertain the present objection of the assessee that the physical inventory during search did not reveal any excess stock. Regarding the quantification of the addition, it is seen that the Assessing Officer estimated the excess stock at 75.37 qtls. of rice and applied a rate of Rs.2251/- per quintal to compute the addition at Rs.83,287/-. The CIT(Appeals) has scaled down the estimation of excess stock to 40 qtls. and has adopted a rate of Rs. 830/- per quintal to work out an addition of Rs.33,200/-. In our view, rate of Rs.830/- adopted by the CIT(Appeals) is quite justified because the assessee pointed out that the rate adopted by the Assessing Officer was of Basmati Rice, whereas admittedly, in this case the excess stock found was of Parmal Rice Variety, whose sale rate is ostensibly lower. At page 30 of the Paper Book is placed copy of the sale bill of the assessee which corroborates the adoption of the rate of Rs.830/- per quintal by the CIT(Appeals). Considering the overall circumstances, we hereby affirm the order of the CIT(Appeals) on this aspect. Accordingly, Ground No.2 in the appeal of the assessee and Ground No.(ii) in appeal of the Revenue are dismissed.
12. The third Ground of appeal raised by the assessee reads as follows:-
"3. That the learned Assessing Officer proceeded on wrong assumption and the 10 learned Commissioner of Income-tax (A) erred in confirming the same that D.No.22 of Annexure A-18 belonged to the appellant and contained details of sale of rice as the document under reference is a dumb document and does not belong to the appellant.
Therefore, the addition of Rs.11,76,596/- and Rs.5,95,000/- and their confirmation is highly unjustified."
Briefly stated the factual position on this dispute can be appreciated as follows. In the course of search operation at the residence of Shri Pardeep Khosla S/o Shri Ved Parkash Khosla, a document identified as D No.22 of Annexure A-18 was found and seized. A copy of the said document has been placed in the Paper Book of the assessee at page No. 95. This document contained some notings on the front as well as the back side, which have been reproduced by the Assessing Officer in para 8.1 of his order. The said document contained the words "Khosla Sahib" at the top of the front page. The Assessing Officer required the assessee to explain the nature of the noting made on both sides of the document. As per the Assessing Officer, in terms of section 132(4A) of the Act, burden is on the assessee to explain the contents of the document found during the course of search. After considering the explanation rendered by the assessee, which has been reproduced by the Assessing Officer in para 8.3 of his order, he has inferred that the transactions noted on the document, reflect unaccounted sales of rice and broken rice undertaken by the assessee. Accordingly, in relation to the transactions on the front side of the document, he treated the same as 11 unaccounted sale consideration of rice, amounting to Rs.5,95,900/-, and assessed it as un-disclosed income for the assessment year 1998-99. Similarly, with regard to the transactions on the back side of the document, a sum of Rs.11,17,596/- has been treated as unaccounted sale consideration of broken rice, which is assessed as un- disclosed income for the assessment year 1998-99. The Commissioner of Income-tax (A) has also upheld the additions made by the Assessing Officer.
13. In this background, the learned counsel for the assessee has reiterated before us similar submissions which were made before the Assessing Officer as well as before the Commissioner of Income-tax (A), which are on the following lines. The stand of the assessee is that the document does not pertain either to the firm or to any of its partners; that it is neither written by any of the partners or munim of the assessee firm; that the nature of the notings made in the document are not in the knowledge of the assessee or its partners; that except mention of "Khosla Sahib", it does not bear the name of any person and under such circumstances the said document cannot be attributed to the assessee firm or its partners; it is further submitted that the said document does not show the nature of notings of the figures contained therein; that the Assessing Officer as well as the Commissioner of Income-tax (A) merely presumed that it reflected sales of rice and broken rice, without there being any evidence or material to support the same; that the document does not even show the nature of goods, its quality or variety, etc. to support the theory of the 12 Assessing Officer that the document shows unaccounted sales. Further it is pointed out that there is no material whatsoever, to support the presumption of the Assessing Officer that the entries relate to the financial year relevant to the assessment year 1998-99, for which the addition has been made. In nutshell, it is contended that the impugned document was only a dumb document which does not show any income much less un-disclosed income assessable in the hands of the assessee under Chapter-XIV-B of the Act. On this aspect, the assessee has relied upon on the following decisions :-
i) Jagdamba Rice Mills,67 TTJ 838(Chd)
ii) Ashwani Kumar Vs. ITO,39 ITD 183(Del)
iii) Bansal Strips (P) Ltd.,99 ITD 177 (Del)
iv) Deluxe Sanitary Appliances Vs. ACIT,
I.T.A.No. 379/CHD/01
14. It was, therefore, argued that no addition can be made on the basis of the impugned document since the same was not a speaking document as it did not contain any narration/description etc. of the entries noted therein. The learned counsel also submitted that section 132(4A) of the Act, relied by the Assessing Officer, only raises a rebuttable presumption that the said document pertains to the assessee, and the assessee has demonstrated that the said document neither pertains to it and nor does it reflect any unaccounted sales effected by the assessee and, therefore, the burden cast on the assessee in terms of section 132(4A) of the Act has been discharged. At this stage, the learned counsel also referred to the written submissions dated 30.10.2000, filed 13 before the Assessing Officer, wherein the presence of such document with the assessee has been explained. It was explained that the document in question was inadvertently left at assessee's premises by a visitor and the same got mixed-up with assessee's own papers without getting noticed. W ith regard to the sustenance of addition by the Commissioner of Income-tax (A), it is submitted that though the Commissioner of Income-tax (A) concurred with the assessee that the document was not written by any of the members of Khosla family but at the same time he has held that the notings contained in the document belonged to the Khosla family. It is submitted that this contradiction in the approach of the Commissioner of Income-tax (A), clearly showed that the conclusion of the Commissioner of Income-tax (A) is unsustainable.
15. On the other hand, the learned D.R. appearing for the Revenue has defended the conclusion drawn by the lower authorities by relying on the discussion made in the respective orders. Firstly, it is contended by the learned D.R. that the document was found in the residence of the son of one of the partners of assessee firm and it contained the name of "Khosla Sahib" and, therefore, in terms of section 132(4A) of the Act, there was a presumption that the same belonged to the assessee firm. In any case, it is contended by the learned D.R. that the document having been found in the residential premises, the onus was on the assessee to explain the notings made therein. In this connection, the learned D.R. pointed out that the document was seized from the residence of Shri Pardeep Khosla, S/o Shri Ved Parkash Khosla and in the 14 course of statement recorded at the time of search, Shri Pardeep Khosla was required to explain the contents of the impugned document. In this connection, copy of the statement of Shri Pardeep Khosla recorded on 7.10.1998, at the time of search was referred to. It is pointed out that Shri Pardeep Khosla denied any knowledge of the said document during his examination on the date of the search. During the course of assessment proceedings, the assessee firm was confronted with the said document because the case of the Assessing Officer is that the entries in the said document indicate bill number, weight, rate and the amount at which the sales have been made by the assessee. It is explained that looking at the amounts entered in the column of rate, Assessing Officer has inferred that the entries on the front side of the document reflect sales of rice and the entries on the back side reflect sales of broken rice. The learned D.R. also pointed out that in the absence of any explanation put-forth by the assessee, the Assessing Officer was justified in making the impugned addition.
16. W e have considered the rival submissions carefully. The sum and substance of the dispute in this Ground relates to the addition made by the Assessing Officer on the basis of a document seized during the course of search from the residence of Shri Pardeep Kumar Khosla, who is son of Shri V.P.Khosla, a partner of the assessee firm. The addition has been made by the Assessing Officer in order to determine undisclosed income of the Block Period 01.04.1988 to 07.10.1998 in terms of chapter XIV-B of the Act. It is a settled 15 proposition that undisclosed income of the block period is to be computed in accordance with the provisions of the Act, based on the evidence found as a result of the search or other documents and such other material and information as is available with the Assessing Officer, which is relatable to such evidence. Section 158BB of the Act permits determination of undisclosed income primarily on the basis of the evidence found as a result of search. In this case, the impugned document containing some entries was seized from the residence of an individual who is son of one of the partners of the assessee firm. The firm submitted that the seized document was neither in the handwriting of any of the partners and nor did it belong to the firm or any of its partners. The Assessing Officer, however treated the figures on the front side of the document as reflecting sale consideration of rice and the figures appearing on the back side of the document as reflecting sale consideration of broken rice, sold by the assessee outside the books of account. No doubt, while completing an assessment, Assessing Officer is not bound by the strict rules of evidence. He is entitled to draw his own conclusions and inferences based on the cumulative effect of various circumstances, considering the tests of human probabilities also. So however, while technical rules of evidence may not strictly apply to assessment proceedings under the Act, yet no assessment can be based on mere suspicion, conjectures and surmises. In this case, the document in question was confronted to the assessee and as per the Assessing Officer, presumption u/s 132(4A) of the Act operates against assessee and therefore, the assessee is 16 liable to explain the said document. Section 132(4A) provides that where any books of account, other documents, money, bullion, jewellery or other valuable articles or things are found in the possession or control of any person in the course of search, it may be presumed that such items belong to such person and that the contents of such books of account and other documents are true. Quite clearly, in terms of Section 132(4A) of the Act, a person found in possession or control of any document or other asset is required to explain the same. It is well understood that the presumption in Section 132(4A) is a rebuttable presumption and such a presumption by itself is not conclusive to fasten any tax liability on the person found in possession or control of any document or other asset mentioned in section 132(4A) of the Act.
17. In this background, we may now consider the facts of the instant case. A copy of the seized document in question has been placed at page 95 of the Paper Book. The entries found noted on the front-side as well as on the back-side have been enumerated by the Assessing Officer in para 8.1 of assessment order. Even a cursory glance at the impugned document shows that there is no description of the nature of entries made therein. It does not indicate as to whether the entries reflect purchases effected by the assessee or sales effected by the assessee, infact it does not even contain the name of the assessee firm. It is also clear that the document is unsigned. In nut-shell, a perusal of the document indicates that there is no language used to decipher the figures and the entries made therein. The Assessing Officer has presumed that entries on 17 the front-side reflect sales of rice while the entries on the back-side reflect sales of broken rice. Pertinently, we find no corroborative evidence on record to support the inference of the Assessing Officer that the entries in the said document reflect sales of rice and broken rice. Neither is there any material to show that such sales have been undertaken by the assessee outside the books of account.
18. Notably, the said document was found from the residence of Shri Pardeep Kumar Khosla, son of one of the partners of the assessee firm. In the course of hearing, learned CIT-DR has furnished a report of the Assessing Officer dated 14.10.2009 whereby it is pointed out that the said document was confronted to Shri Pardeep Kumar Khosla also during the course of search proceedings on 07.10.1998. A copy of the statement of Shri Pardeep Kumar Khosla recorded on 07.10.1998 has also been placed on record. In reply to a question, it has been deposed by Shri Pardeep Kumar Khosla that he had no knowledge about the document. No further questions have been put to Shri Pardeep Kumar Khosla on the stated document. During assessment proceedings, assessee firm was confronted with the said document and in response, it was contended that the said document did not pertain to the assessee firm. It was further contended that the entries made in the said document were neither in the handwriting of any of the partners nor of the 'Munim' of the assessee firm. It was also contended that the same does not bear the name of the assessee firm. Clearly, the assessee firm denied the ownership of the document and also the inference sought to be 18 drawn by the Assessing Officer. Clearly, in the face of denials by the person on whom the seized document was found (i.e. Sh. Pradeep Kumar Khosla) and the assessee firm and, considering that there is no clinching narration of the entries made in the document to link the assessee firm, the burden was on the Revenue to establish that the seized document reflected any income in control and possession of the assessee firm. In our considered opinion, assessee rightly contended that the impugned document was a dumb document in as much as it does not contain any intelligible narration in support of the inference drawn by the Assessing Officer that it reflected sales carried out by the assessee outside the regular books of account.
19. When a dumb document, like the present before us, is to be made the basis to fasten tax liability on the assessee, the burden is on the Revenue to establish with corroborative evidence that the nature of entries contained therein reflect income and also that such income was in the control of the assessee. Thus, in this case, Revenue has to establish, with necessary corroborative evidence, that various entries contained in the seized document reflect sales of rice and broken rice effected by the assessee. Ostensibly, no cogent evidence or material has been brought out by the Assessing Officer to support his inference that the entries recorded in the seized document reflect sales effectuated by the assessee outside the books of account. In fact, strictly speaking the said document cannot be said to have been found in the possession of the assessee firm as it has neither been recovered from the 19 business premises of the assessee firm and nor from any of its partners. On the contrary, it has been found on Shri Pardeep Khosla, son of one of the partners of the assessee firm. Curiously, when Shri Pradeep Kumar Khosla was questioned about the seized document, he has merely denied knowledge about it. W ithout any further questioning, it is inexplicable as to what prompted the Assessing Officer to conclude that the document pertained to the assessee firm.
20. Considering the entirety of circumstances, in the absence of any material to support the nature and ownership of the entries found in the seized document, no addition is permissible in the hands of the assessee as undisclosed income by merely arithmetically totaling various figures jotted down on such document. Thus, we are inclined to agree with the contentions raised by the assessee that the impugned addition is untenable. W e hold so.
21. Before parting, we may refer to the argument taken by the CIT(Appeals) to sustain the impugned addition. As per the CIT(Appeals), though document was not written by any of the members of the Khosla family, but according to him, because of the presence of words 'Khosla Sahib' on top of the document, it has to be presumed that the document is in respect of transactions of Khosla family. For the said reason, he has upheld the impugned addition in the hands of the assessee firm. In our considered opinion, the conclusion drawn by the CIT(Appeals) is in variance with the material and facts on record. There is no justification to infer that the entries in the 20 impugned document reflect sales effected by the assessee firm and therefore, the addition is unsustainable. Even if the presumption of the CIT(A) that the impugned document is in respect of transactions of Khosla family is accepted, yet it is not enough to make the impugned addition, since there is nothing to suggest that the entries contained in the seized document reflect sales undertaken by the assessee firm outside the books of account. This aspect of the matter has been overlooked by the CIT(Appeals) and therefore, we find no merit in the impugned conclusion of the CIT(Appeals). Accordingly, we set aside the order of the CIT(Appeals) and direct the Assessing Officer to delete the additions of Rs.5,95,500/- and Rs.11,76,596/- made as unaccounted sale of rice and broken rice respectively. Thus, on Ground No.3, assessee succeeds.
22. The fourth Ground of appeal raised by the assessee reads as follows:-
"4. That the learned Commissioner of Income-tax (A) erred in sustaining the addition of Rs.34,500/- on account of alleged undisclosed investment in the purchase of scooter in the name of Nathi Ram."
The brief facts relating to the said addition are as follows. Document Nos.40 to 42 of Annexure A-26 seized from the business premises of the assessee firm and document Nos.33 to 35 of Annexure AA-9 seized from the residence of Shri Ved Parkash Khosla, partner of assessee firm, relate to the purchase of a scooter. It was found to have been purchased in the name of one Shri Nathi Prasad, employee of assessee firm 21 on 13.2.1998. The Assessing Officer noticed in the assessment order that when Shri Nathi Prasad was examined by the authorized officer on 17.10.1998 in the course of search, he denied the ownership of the scooter. Therefore, the assessee f irm was required to explain the aforesaid in the course of the assessment proceedings.
23. In reply, the assessee furnished a confirmation from Shri Nathi Prasad stating that the statement given to the authorized officer in the course of search was under threat and pressure. On being asked to produce Shri Nathi Prasad alongwith his driving licence for personal examination, the assessee failed to produce the said witness before the Assessing Officer. The Assessing Officer further noted that there is no explanation regarding the source of funds for purchase of scooter. Accordingly, the Assessing Officer treated the cost of scooter Rs.34,500/- as un-disclosed investment made by the assessee firm in benami name and assessee it as un-disclosed income for the assessment year 1998-99.
24. In appeal before the Commissioner of Income-tax (A), assessee submitted that the scoter belonged to Shri Nathi Prasad and relied upon the confirmation filed before the Assessing Officer. The Commissioner of Income-tax (A) has upheld the action of the Assessing Officer for the reasons stated in the assessment order. According to the Commissioner of Income-tax (A), the investigations and material on record show that the assessee had failed to establish that the scooter belonged to Shri Nathi Prasad and, 22 therefore, he has sustained the addition. Against such addition, assessee is in appeal before us.
25. Before us the learned counsel for the assessee has reiterated similar stand as manifested in the orders of the authorities below.
26. On the other hand, the learned D.R. has relied upon the orders of the lower authorities and has pointed out that the admission of employee Shri Nathi Prasad in the course of statement recorded at the time of search clearly established that the scooter was purchased by the assessee firm in benami name. Therefore, the Assessing Officer and thereafter the Commissioner of Income-tax (A) were justified in sustaining the impugned addition.
27. We have considered the rival submissions carefully. Clearly, the documents seized indicate purchase of scooter effected by the assessee firm in the name of one of the employees Shri Nathi Prasad. Therefore, it was imperative for the assessee to establish the source of such purchase. The claim of the assessee before the Assessing Officer based on a confirmation from the employee is contrary to the statement tendered by the said employee before the authorized officer during the course of search on 17.10.1998. In the statement recorded on 17.10.1998, the employee denied the ownership of scooter. The confirmation to the contrary by the employee filed before the Assessing Officer was not followed up by producing him for examination, when called for by the Assessing Officer. In these circumstances, in our view, the Assessing Officer 23 rightly concluded that in the absence of any explanation regarding the source of funds coming forth from the assessee, the cost of scooter is to be assessed as undisclosed income in the hands of the assessee. In our view, the CIT(Appeals) made no mistake in sustaining the impugned addition. Hence, on Ground No.4, assessee fails.
28. In the result, the appeal of the assessee in IT(SS)A No.32/Chandi/2002 is partly allowed.
29. Now, we may take up the cross appeal of the Revenue vide ITSS/44/Chandi/2002, which is also directed against the order of the CIT(Appeals) dated 19.03.2001.
30. The Grounds of Appeal raised by the Revenue read as under :
(i). The Ld. CIT(A) erred in law/facts deleting the addition of Rs. 83287/- as the stock was calculated in the presence of the assessee.
(ii). The Ld. CIT(A) erred in law/facts deleting the addition of Rs.50263/- of unaccounted purchase of paddy as the A.O. has taken the amount of Rs. 50263/- only one time in his order.
(iii). The Ld. CIT(A) erred in law/facts deleting the addition of Rs. 8,20,065/- on account of purchase of paddy out of books as the assessee has failed to produced any supporting evidence.
(iv). The Ld. CIT(A) erred in law/facts deleting the addition of Rs. 36575/- on account of undisclosed income on the sale of Rice bran.
(v). The Ld. CIT(A) erred in law/facts deleting the addition of Rs. 27,500/-, as this expenditure was remained unexplained on the part of the assessee.24
31. Ground No. (i) has already being dealt by us, while considering Ground No. 1 in the appeal of the assessee. W e proceed to consider and dispose off the remaining Grounds of appeal in seriatim hereinafter.
32. By way of Ground No. (ii), the dispute pertains to an addition of Rs. 50,263/- on the ground that the assessee had purchased 170 bags of paddy weighing 60 kg each, from M/s Ram Sarup Praveen Kumar outside the books of account. The CIT(A) has deleted the addition by accepting the plea of the assessee that such investment is part of the income surrendered of Rs. 11,65,000/-, details of which have been noted by the CIT(A) in para 5.5 of the impugned order. Considering the finding of the CIT(A), which has not been assailed on the basis of any cogent material, we find no merit in the present Ground raised by the Revenue, Accordingly Ground No. (ii) is dismissed.
33. By way of Ground No.(iii), the dispute pertains to an addition of Rs.8,20,065/- made by the Assessing Officer on the ground that the assessee had purchased paddy outside the books of account. Briefly stated, the facts in this regard can be understood as follows. This addition is based on a bundle of loose papers seized during the course of search which have been titled as Annexure A-24. According to the Assessing Officer, the seized documents reflect purchases of paddy on different dates from different commission agents. The entries in the seized documents were confronted to the assessee firm during the course of assessment proceedings. In reply, 25 assessee admitted that the seized documents were in the handwriting of one Shri Sudesh Jain, Broker-cum-Auctioneer and belonged to him. It was also admitted by the assessee that the entries in the seized documents showed purchases of paddy effected by the Broker for the assessee firm as well as for two other concerns, namely M/s Ganeshi Rice Mills and M/s Ambala Rice Mills. In the background of such explanation, Assessing Officer verified the entries of purchases relating to the assessee firm with respect to books of account maintained. In paras 7.2 to 7.16, Assessing Officer noted various discrepancies amounting to Rs.8,20,065/-. Accordingly, an addition of Rs.8,20,065/- was made as undisclosed income on account of unaccounted purchases for the assessment year 1998-99 comprised in the block period 1.4.1988 to 7.10.1998.
34. In appeal before the CIT(Appeals), assessee contended that admittedly the document pertained to Shri Sudesh Jain, Auctioneer-cum-Broker who had effected purchases not only on behalf of the assessee but also two other concerns. It was pointed out that this fact was admitted by Shri Jain during his examination by the Assessing Officer. Under these circumstances, it was pointed out that the entries in the said document pertaining to the assessee were duly verified with books of account during assessment proceedings, while entries which did not carry name of any concern, have been wrongly attributed to the assessee. It was pointed out that there was no material to establish that the entries which did not contain the name of the purchaser, were purchases made by the assessee firm. Apart from the aforesaid, assessee dealt with 15 26 items of such purchases and explained that such transactions did not pertain to the assessee. Submissions of the assessee in this regard have been reproduced by the CIT(Appeals) in para 6.2 of his order. After considering the submissions of the assessee, CIT(Appeals) concluded that the assessee was able to bring on record documentary evidence to prove that purchases corresponding to the addition made by the Assessing Officer were effected by other concerns and not by the assessee firm. For the said reason, addition was deleted by the CIT(Appeals), against which Revenue is in appeal before us.
35. Before us, learned CIT-DR has vehemently argued that the CIT(A) has deleted the addition by considering explanations which were not put forth to the Assessing Officer and accordingly the addition has been wrongly deleted by the CIT(Appeals).
36. In reply, learned counsel for the respondent assessee pointed out that assessee had explained before the Assessing Officer the relevant entries. It was submitted that in the course of verification exercise carried out during assessment proceedings, the Assessing Officer, at no stage indicated that any entry in the seized document was left out or that there was any discrepancy or further explanation required from the assessee viz-a-viz its books of account. Under these circumstances, the assessee was required to bring out necessary explanations before the CIT(Appeals). It is further pointed out that there was no basis with the Assessing Officer 27 to treat the purchases in the hands of the assessee where there was no description of the purchaser found in the seized document, which ostensibly pertained to the Broker.
37. W e have considered the rival submissions carefully. After having perused the orders of the lower authorities, in our considered opinion, the CIT(Appeals) made no mistake in deleting the addition made by the Assessing Officer, as the following discussion would show. It is quite clear that the seized document A-24 belonged to Shri Sudesh Jain, Broker- cum-Auctioneer, who made purchases from commission agents on behalf of the assessee firm and other concerns. It also transpires from the record that Shri Sudesh Jain was examined by the Assessing Officer on 25.09.2000 during the course of assessment proceedings, who admitted the aforesaid position. The Assessing Officer has also accepted the position that the entries found in the seized documents were made by Shri Sudesh Jain, which contained purchases made by him on behalf of the other concerns including the assessee firm. The entries contained in this document showing assessee firm as purchaser, were duly verified by the Assessing Officer with the books of account maintained by the assessee and no adverse view has been drawn by the Assessing Officer. The entries which contained the names of other purchasers have also been left out by the Assessing Officer. The entries in the said document which did not contain the name of any purchaser, have been considered by the Assessing Officer to be reflecting purchases made by the assessee outside the books of account. In the assessment order, we do not find any reason advanced 28 by the Assessing Officer to infer that such entries reflect purchases effected by the assessee outside the books of account. There is neither a reference to any such deposition by the Broker nor any other material has been referred by the Assessing Officer, to support his hypothesis that such entries pertained to the assessee. On this basis itself, we find no justification for the impugned addition. Even otherwise, as per the factual appraisal made by the CIT(Appeals), the purchases in question do not pertain to the assessee firm. Though the learned CIT-DR may be correct in submitting that such explanation was not before the Assessing Officer, but the reasons for the same are not far to seek. Evidently, after having verified the entries in the seized document viz-a-viz the books of account maintained by the assessee firm, there is nothing to show that the Assessing Officer show-caused the assessee to explain any further entries of the seized document and in any case, the document belonged to Shri Sudesh Jain, and it was his duty to explain the contents of the same. Therefore, the impugned addition has been made by the Assessing Officer in violation of the principles of natural justice. Further, in respect to each of the impugned entries, assessee explained before the CIT(Appeals) that the same could not be attributed to the assessee. Before us, there is no material to negate the factual findings arrived at by the CIT(Appeals) in this regard, therefore there is no justification to interfere with the decision of the CIT(Appeals). Therefore, considering the entirety of circumstances, we find that the CIT(Appeals) made no mistake in deleting the impugned 29 addition. Accordingly, the Ground No. (iii) raised by the Revenue is dismissed.
38. By way of Ground No. (iv), the dispute pertains to an addition of Rs. 36,575/- on the ground that the assessee had made unaccounted sale of 221 bags of rice bran to M/s Partap Extractions Ltd. The brief fact are that in the course of search, there receipts dated 04/10/98, 05/10/98 and 06/10/98 issued by M/s Partap Extractions Ltd. were found. These receipts showed rice bran received by the said concern from the assessee firm. The sale of such rice bran was not accounted for in the books of account by the assessee till the date of search on 07/10/98. On being confronted during the assessment proceedings, assessee explained that the relevant sale was accounted on 21/10/98. As per the Assessing Officer, but for the search having taken place on 07/10/98, the impugned sale would not have been disclosed by the assessee and therefore the impugned sale amounting to Rs. 36,575/- was assessed as 'undisclosed income' for the assessment year 1999-2000. The CIT(A) has since deleted the addition, against which Revenue is in appeal before us.
39. Before us, Ld. CIT-DR contended that the said sum was rightly assessed as undisclosed income, since till the date of search the sale was not accounted for in the account books, while the delivery of material was accepted by the other concern.
40. The Ld. Counsel for the assessee contended that the CIT(A) has appreciated that the sale bill was to be prepared 30 only after the Laboratory report regarding yield of bran oil, which was awaited on the date of search and therefore the sale was accounted for on later date, on receipt of the laboratory report.
41. W e have considered the rival submission carefully. In this case, on the date of search it was found that the assessee had supplied material to a concern, for which no sale bill had been raised. The sale bill was raised on a subsequent date. It is explained by the assessee that sale bills are not raised on the basis of delivery challans only, but are raised after ascertaining the oil content in the rice bran supplied. The assessee explained before the CIT(A), that the Gate Pass/delivery challans issued by the assessee firm contain a note in this regard and as per this practice the sale bill of supplies made to M/s Partap Extractions Ltd. of 222 bags of rice bran between 04/10/98 to 06/10/98 was raised on 21/10/98 and the same has been accounted for in the account books by the assessee as well as the purchaser concern, accordingly. In our view, the business practice explained by the assessee has not been found to be non-existent, in much as, relevant laboratory test reports were also before the CIT(A). No material has been led by the Revenue to negate the material/explanation considered by the CIT(A) to delete the addition. As a result, we find no merit in Ground No. (iv) raised by the Revenue challenging the deletion of Rs. 36,575/-. Accordingly, the Ground No. (iv) raised by the Revenue is dismissed.
31
42. By way of Ground No. (v), the dispute pertains to an addition of Rs. 27,000/- made by the Assessing Officer on account of unexplained expenditure towards contribution to Rice Millers Association. The Assessing Officer noticed a document seized during search which showed the detail of collections made by Rice Association in the year 1996-97. As per this document, Rs. 27,000/- was stated to have been collected from the assessee firm, whereas there was no corresponding entry of such payment in the account books maintained by the assessee firm. Therefore, the Assessing Officer made an addition of Rs. 27,000/- as unexplained expenditure. The CIT(A) has since deleted the addition, against which Revenue is in appeal before us.
43. Before us, Ld. CIT-DR contended that the seized document reflected incurring of expenditure by the assessee, which was not entered in the books of account and therefore the addition was maintainable in the hands of the assessee firm u/s 69C of the Act.
44. On the other hand, Learned Counsel for the respondent assessee submitted that the seized document only showed a proposal of the Association to collect money, but ultimately no such collection was made. Further, the document did not belong to the assessee firm and it was merely a rough calculation left behind in the assessee's premises and cannot be considered as authentic.
45. We have considered the rival submissions carefully. Before an addition u/s 69C of the Act can be made for 32 unexplained expenditure, it has to be established that expenditure has been incurred. In this case, the document in question does not prove incurrence of expenditure by the assessee. The document in question, a copy of which is placed at page 17 of the Paper Book filed by the Revenue, is a plain paper and is unsigned and unauthenticated on behalf of the Rice Association and therefore it does not establish incurrence of expenditure by the assessee. There is no corroborative evidence to prove incurrence of expenditure by the assessee and therefore, in our view, the CIT(A) rightly deleted the impugned addition. The conclusion of the CIT(A) is hereby affirmed and Ground No. (v) raised by the Revenue is dismissed.
46. In the result, appeal of the Revenue in IT(SS)A No.44/Chandi/2002 is dismissed.
47. Now, we take up cross appeals in ITSS/33/Chandi/2002 and ITSS/43/Chandi/2002 preferred by the assessee and Revenue respectively in the case of M/s Ved Parkash Pardeep Kumar, which are directed against the order of the CIT(Appeals) dated 19.03.2002, which in turn has arisen from block assessment finalized by the Assessing Officer u/s 158BC of the Act dated 30.10.2000 pertaining to the Block period 01.04.1988 to 07.10.1988. The assessee is a partnership firm constituted of three partners, Shri ved Parkash Khosla, Pradeep Khosla HUF and Shri Lavish Khosla (minor) and is engaged in the businesses of running a Cold Store in Village Sarangpur and commission agency in Ambala City. 33
48. In the appeal of the assessee, the first Ground raised is general in nature and the same does not require any adjudication and is accordingly dismissed.
49. The second Ground raised by the assessee reads as under :
"That the learned Commissioner of Income Tax (Appeals) erred in restricting the relief to Rs.25,670/- as against the claim of Rs.1,01,170/- out of a total addition of Rs.5,57,048/-, on account of construction of Cold Storage."
On this aspect, Assessing Officer had made additions of Rs.5,57,048/- and Rs.77,890/- for the assessment year 1998-99 and 1999-2000 respectively. The CIT(Appeals) deleted a sum of Rs.25,670/- out of Rs.5,57,048/- and the entire sum of Rs.77,890/-. In its appeal, assessee has contended that the CIT(Appeals) erred in restricting the relief to Rs.25,670/- as against claim of Rs.1,01,170/- out of the total addition of Rs.5,57,048/-.
50. The Revenue in its cross appeal has contested the reliefs of Rs.77,890/- and Rs.25,670/- allowed by the CIT(Appeals) by way of Ground No.1 as under :-
"1. in deleting the addition of Rs.25,670/- out of Rs.5,57,058/- and Rs.77,890/- on account of unrecorded expenses on construction of old storage as the explanation of the assessee was rejected at the time of asstt. By the AO in the absence of any documentary evidence."
Since, the above respective Grounds raised by the assessee as well as the Revenue relate to the same controversy, the two Grounds are being taken up together.
34
51. Briefly stated, the dispute is on account of expenses on construction of cold storage which were found unrecorded in the books of account. In the course of search operation, certain documents were seized which showed expenses on construction of cold storage, which were not found recorded in the regular books of account maintained by the assessee. The Assessing Officer computed such expenses at Rs.5,57,048/- and Rs.77,890/- for the period relevant to assessment year 1998-99 and 1999-2000 respectively. He made additions in respect of such amounts in the respective assessment years comprised in the block period. The CIT(Appeals) has deleted the addition of Rs.77,890/- on the ground that such funds were available out of a sum of Rs.11,65,000/- surrendered by the assessee. The details of such surrender have been enumerated by the CIT(Appeals) in paras 5.2 to 5.4 of the impugned order. In this connection, before us learned CIT-DR has not controverted the factual finding of the CIT(Appeals) and accordingly, we find no reasons to interfere with the decision of the CIT(Appeals).
52. In so far as the addition of Rs.5,57,048/- made by the Assessing Officer in relation to assessment year 1998-99 is concerned, assessee had challenged only a sum of Rs.1,01,170/- before the CIT(Appeals). As per assessee, the Assessing Officer made double addition to the tune of Rs.1,01,170/-. As per assessee, the seized documents showing expenses on construction of cold storage, included certain expenses which were accounted for in the regular books of account maintained. It was contended that the expenses 35 which were accounted for in the books of account out of Rs.1,01,170/- were required to be excluded from the impugned addition. The CIT(Appeals) examined the claim of the assessee and noted that amounts of Rs.7,470/-, Rs.8,200/- and Rs.10,000/- totaling to Rs.25,670/- stood counted twice by the Assessing Officer and accordingly, he allowed relief to that extent.
53. Before us, learned counsel for the assessee has referred to pages 2 to 4 of the Paper Book to point out the written submissions made before the CIT(Appeals) on this aspect. On the other hand, learned DR while opposing the plea of the assessee has assailed the partial relief allowed by the CIT(Appeals).
54. W e have considered rival submissions on this aspect and find that the conclusion drawn by the CIT(Appeals) does not require any interference. As per assessee, the Assessing Officer while working out the addition, did not exclude wages/salary paid to S/Shri Narain, Pardeep and Ram Kumar, which were debited in the books of account. Though, this plea has been raised by the assessee before the CIT(Appeals) as also before us, but there is no material on record to substantiate that the impugned expenses found recorded in the seized document correspond to the expenses entered in the books of account. Therefore, in our view, the conclusion of the CIT(Appeals) is fair and proper and is hereby affirmed. The partial relief allowed by the CIT(Appeals) of Rs.25,670/-is also proper in as much as the finding is that such amount has been 36 counted twice by the Assessing Officer, and such finding has not been shown by the Revenue to be wrong. Accordingly, Ground No.1 in the respective appeals of the assessee and the Revenue are dismissed.
55. The third Ground raised by the assessee reads as under :
"That without appreciating the facts and figures furnished and in view of the provisions of Section 132(4A) the learned CIT(A) erred in holding that the appellant has not been able to explain the stock of 1231 bags of potato."
The dispute in this Ground relates to the action of the Assessing Officer in holding that 1231 bags of potatoes valued at Rs.5,90,886/- belonged to the assessee and therefore, the same was treated as undisclosed income of the assessee. On this aspect, the CIT(Appeals) has reduced the addition to Rs.4,76,210/-, which is contested by the assessee by way of the above Ground of Appeal. The Revenue, in the cross appeal has contested the relief of Rs.1,14,670/- allowed by the CIT(Appeals) by way of the following Ground No.2 :
"2. in restricting the addition of Rs.4,76,210/- out of Rs.5,90,880/- on account of undisclosed income in the purchase of 1231 bags of potatoes as the addition was made by the AO at the market rate.
Since the respective Grounds raised by the assessee as well as the Revenue relate to the same controversy, the two cross Grounds are being taken up together. The dispute in brief pertains to an excess stock of potatoes of 1231 bags found with the assessee. As per the statement of one Shri Raj 37 Kishan Sharma, Munshi of the Cold Storage, the stock belonged to one Shri Subhash Chand of village Thol. Further, the said person admitted that the said stock was not recorded in the books of account. The Assessing Officer noticed that the said Shri Subhash Chand did not admit the ownership of 1231 bags of potatoes. The Assessing Officer further noticed on the basis of document No.9 of Annexure A-10 seized during the course of search that the assessee had advanced loans to Shri Subhash Chand on various dates amounting to Rs.4,76,210/-. Out of such loan, assessee had received back 4,75,000/- during September,1998. The Assessing Officer valued such stock at Rs.5,90,880/- and treated it as undisclosed income of the assessee. In appeal before the CIT(Appeals), assessee contended that the loans given to Shri Subhash Chand to the extent of Rs.4,76,210/- was surrendered and also submitted that the stock of the potatoes in question should be taken as having been purchased by Shri Subhash Chand out of the loan given by the assessee. Assessee also contended before the CIT(Appeals) that the documents seized contained the word "Shri S.C." written on the top which clearly showed that it belonged to Shri Subhash Chand and therefore, the said stock of potatoes could not be assessed in the hands of the assessee firm. The assessee had also challenged the value of potatoes adopted by the Assessing Officer at Rs.5,90,880/- which, according to the assessee was excessive and did not correspond to the market rate of potatoes at the time of search. The CIT(Appeals) considered the submissions of the assessee and held that the assessee has not been able to explain the stock of potatoes to the extent of 1231 bags and 38 therefore, the addition was upheld in principle. So however, he adopted the rate of Rs.200/- per bag to estimate the value of the stock, as against Rs.480/- per bag considered by the Assessing Officer. The value, thus came to Rs.2,46,200/-.
However, the CIT(Appeals) found that such value was much less than the loan admitted to have been advanced to Shri Subhash Chand and accordingly, the addition was retained to the extent of loan, i.e. Rs.4,76,210/-.
56. Before us, learned counsel for the assessee vehemently argued that Shri Raj Kishan Sharma, Munshi of the Cold Storage clearly submitted in the course of the search proceedings itself that the stock of potatoes belonged to Shri Subhash Chand. It was pointed out that the said statement was correct and was spontaneously offered at the time of search whereas, the Assessing Officer has relied upon a denial of Shri Subhash Chand, which was of a subsequent date. It is pointed out that denial of Shri Subhash Chand is not reliable as admittedly, he has business dealings with the assessee firm. In fact, it is pointed out that there is no evidence that assessee was effecting purchases of potatoes. Assessee was running cold storage and it was merely giving loans to persons who in- turn purchased potatoes. The learned counsel further pointed out the unreliability of the statement of Shri Subhash Chand by arguing that the said person has denied even loan transactions with the assessee but the assessee had surrendered such loan amount of Rs.4,76,210/-. Such denial of loan transaction by Shri Subhash Chand has not been accepted by the Assessing Officer because he has made an addition of Rs.44,559/- as 39 interest earned by the assessee on loans given to Shri Subhash Chand.
57. On the other hand, learned DR has defended the order of the Assessing Officer by pointing out that the assessee had failed to discharge its onus of proving satisfactorily the stock of 1231 bags of potatoes. The learned DR also assailed the partial relief allowed by the CIT(Appeals) by pointing out that there was no basis for the CIT(Appeals) to restrict the addition to the extent of the loan advanced to Shri Subhash Chand.
58. W e have considered the rival submissions carefully. In the context of 1231 bags of potatoes, it is clear that the same was found in the possession of the assessee. It is also clear from the material on record that the explanation rendered by the assessee that it belonged to Shri Subhash Chand has not stood the test of verification in as much as Shri Subhash Chand denied ownership of the stock. In these circumstances, in our view the Assessing Officer was justified in putting the burden on the assessee to explain the source of stock found with the assessee firm. However, we find no justification with the CIT(Appeals) to have restricted the addition to Rs.4,76,210/-. The Assessing Officer valued the stock at Rs.480/- per bag which according to him was the market rate of potatoes on the date of search. This rate was disapproved by the CIT(Appeals) on the basis of published rates produced by the assessee, which showed that a bag of potato weighing 80 Kg was priced between Rs.150/- to Rs.200/-. For this reason, CIT(Appeals) adopted rate of Rs.200/- per bag and valued excess stock at 40 Rs.2,46,200/-. Thereafter, the CIT(Appeals) noted that such value was less than the loan admitted to have been advanced to Shri Subhash Chand of Rs.4,76,210/-. There is no justification with the CIT(Appeals) to sustain the addition at Rs.4,76,210/- as against the actual value of stock at Rs.2,46,200/-, especially the loan of Rs4,76,210/- has been surrendered for income separately. Considering the material on record, we therefore, deem it fit and proper to hold that the assessee has failed to explain satisfactorily the stock of 1231 bags of potatoes and an addition to the extent of its value at Rs.2,46,200/- is merited. Accordingly, the order of the CIT(Appeals) is set aside and the Assessing Officer is directed to retain an addition of Rs.2,46,200/- as against Rs.5,90,880/- made by him. Thus, on Ground No.3, assessee partly succeeds, whereas Ground No.2 of the Revenue is dismissed.
59. The fourth Ground raised by the assessee reads as under :
"That without appreciating the facts and provisions of Section 132(4A), the learned Commissioner of Income Tax (Appeals) erred in holding that 2427 bags of potato belonged to the appellant and not to Shri Subhash Chand.".
On this aspect, the Assessing Officer made an addition of Rs.11,64,960/- on account of alleged investment in 2427 potato bags. The CIT(Appeals) deleted a sum of Rs. 6,79,560/-and the balance of Rs.4,85,400/- has been sustained, which is contested by the assessee in its appeal. The Revenue, in cross appeal has contested the relief of Rs. 6,79,560/- allowed by the CIT(Appeals) by way of the following Ground No.4 - 41
"4. in restricting the addition to the extent of Rs.4,85,400/- out of Rs.11,64,960/- on account o excess stock of 2427 potato bags as the addition was made by the AO at the market rate.
Since the respective Grounds raised by the assessee as well as the Revenue relate to the same controversy, the two cross Grounds are being taken up together.
60. The dispute, in brief, relates to a document seized during the course of search operation which contained details of shifting and storing of potato bags in the cold storage, which were entered in lot numbers 'SK' and 'P'. Total potato bags stored as per such lots was 2427. The Assessing Officer required the assessee to show cause why the investment in 2427 potato bags be not considered as undisclosed income of the firm. In reply, assessee submitted that the document in question was not belonging to the firm and further, that the entries regarding shifting of potato bags with lot numbers 'SK' and 'P' related to 1231 bags of Shri Subhash Thol. It was also submitted that the said document appeared to be an account prepared by Shri Subhash Chand Thol and therefore, the same could not constitute any undisclosed income of the assessee firm. The Assessing Officer rejected the plea of the assessee by noticing that the said document was found in the pocket of Shri Pardeep Khosla and in the absence of any explanation regarding the stock shown therein, an amount of Rs.11,64,960/- being the value of 2427 potato bags @ Rs.480 per bag was assessed as undisclosed income for the assessment year 1999- 2000 comprised in the block period.
42
61. In appeal, the CIT(Appeals) noted that Shri Subhash Chand Thol did not accept the ownership of 2427 bags of potatoes in question and therefore, the onus was on the assessee to prove that such stock actually belonged to the other person. The CIT(Appeals) further reduced the addition to Rs.4,85,400/- by valuing the cost of 2427 bags @ Rs.200/- per bag as against Rs.480/- per bag considered by the Assessing Officer.
62. Against the aforesaid, learned counsel for the assessee vehemently argued that the denial made by Shri Subhash Chand Thol was self-serving and further that the Assessing Officer has merely relied upon a document to infer that assessee had invested in such stocks whereas, in actuality, no such stock was found at the time of search operation.
63. On the other hand, learned DR contended that the lower authorities were justified in concluding that the ownership of 2427 bags of potatoes in question vested with the assessee. Moreover, according to her, the Assessing Officer was justified in valuing the stock @ Rs.480/- per bag in terms of the market value of potatoes on the date of search.
64. In this connection, we have considered the rival submissions carefully. The primary dispute on this issue relates to the ownership of stock found noted as per the seized document titled as Annexure A-14. The explanation of the assessee was that the same belonged to one Shri Subhash Chand Thol and further that such document was inadvertently 43 left by him in the premises of the assessee which got mixed up in the papers. We have examined this aspect and find that the Assessing Officer has rejected such plea by noticing that the said document was found in the possession of Shri Pardeep Khosla and therefore, in our considered opinion, the burden was on the assessee to explain such document. Furthermore, Shri Subhash Chand Thol has not accepted the ownership of potatoes and therefore, the authorities below rightly required the assessee to explain the source of investment in such stocks. The Assessing Officer considered the entire stock of 2427 bags of potatoes as unexplained and valued the same at Rs.11,64,960/- @ Rs.480/- per bag. In our considered opinion, in principle the Assessing Officer was justified in making the impugned addition. So however, the value of stock adopted by him at Rs.480/- per bag, is unjustified. Assessee explained that the rate of potatoes per bag was Rs.200/- at the relevant point of time, and CIT(Appeals) accordingly, adopted a rate of Rs.200/- per bag to value the unexplained stock of 2427 bags at Rs.4,85,400/-. W e find no reasons to interfere with the relief allowed by the CIT(Appeals) which is fair and proper. Accordingly, Ground No.4 raised in the appeal of the assessee as well as that of the Revenue is dismissed.
65. The fifth Ground raised by the assessee reads as under :
"That the learned CIT(Appeals) without appreciating the written submissions and provisions of Section 132(4A) erred in sustaining an addition of Rs.4,50,000/- thereby indirectly upholding that 3150 bags of onions belonged to the appellant."44
The dispute in this Ground relates to an addition of Rs.22,88,250/- made by the Assessing Officer by holding that 3051 bags of onion belonged to the assessee, which remain unexplained and accordingly it was treated as undisclosed income of the assessee. On this aspect, the CIT(Appeals) has reduced the addition to Rs. 4,50,000/-which is contested by the assessee by way of above Ground of Appeal. The Revenue in its cross appeal has contested the relief of Rs.4,50,000/- allowed by the CIT(Appeals) by way of Ground No.5 stated below :
"5 in restricting the addition to the extent of Rs.4,50,000/- out of Rs.22,88,250/- on account of excess stock of 3051 onion bags as the addition was made by the A.O. at the market rate.
66. Since the respective Grounds raised by the assessee and the Revenue relate to the same controversy, the two cross Grounds are being taken up together.
67. As per the seized document, Assessing Officer found that onion bags were stored in the cold storage of the assessee and that 3051 such bags of onions were taken out by the owners before the date of search. However, the Assessing Officer noticed that the assessee firm did not enter such stock in the stock register seized and therefore, he show caused the assessee as to why the investment in 3051 onion bags @ Rs.1500/-per qtl. amounting to Rs.22,88,250/- be not treated as unexplained investment.
68. In response, assessee explained that 3051 bags of onions were received from one Shri Sucha Singh for chhatai and were kept in veranda and were returned from there itself 45 and not stored in the Cold Storage, therefore, the same were not entered in the stock register. Out of this stock, 21 kattas were retained by the assessee for domestic use. It was also explained that no amount was charged for use of the space from Shri Sucha Singh Thus, as per the assessee, such stock did not belong to it and ownership of the same was of Shri Sucha Singh. The Assessing Officer has stated that Shri Sucha Singh was summoned u/s 131 of the Act and his statement was recorded on 17.10.2000 wherein he denied ownership of such stock. The Assessing Officer also noticed that even during examination by the Authorized officer on 11.12.1998, the said person had denied having kept 3051 onion bags in the cold storage of assessee. The Assessing Officer further noticed that Shri Sucha Singh was cross-examined by the counsel of the assessee during assessment proceedings. On both these occasions, Shri Sucha Singh admitted to have kept only 300 onion bags with the assessee, which were lifted by him in two weeks' time. Therefore, in the light of the evidence on record, Assessing Officer concluded that the explanation furnished by the assessee with regard to 3051 bags of onion was incorrect and hence rejected. Hence, investment of Rs.22,88,250/-, being the cost of 3051 onion bags was assessed as undisclosed income of the assessee firm for the assessment year 1999-2000 comprised in the block period.
69. Before the CIT(Appeals) also, assessee contended that the said stock was not owned by it. The pleas of the assessee have since been rejected by the CIT(Appeals). However, 46 CIT(Appeals) noticed that the rate adopted by the Assessing Officer at Rs.1500 per qtl. was arbitrary whereas the rate at the relevant point of time ranged from Rs.250/- to Rs.350/- per quintal. He, therefore, adopted a rate of Rs.300/- per qtl. and estimated the cost of 3051 bags of onion at Rs.4,50,000/- and such addition has been sustained out of total addition of Rs.22,88,250/- made by the Assessing Officer.
70. In the above background, the learned counsel for the assessee vehemently argued that the CIT(Appeals) has not appreciated that the said stock did not belong to the assessee and that the denial by Shri Sucha Singh was self-serving. It is submitted that the lower authorities have not even given the credit for 300 bags of onion which have been admitted by Shri Sucha Singh of having been kept with the assessee firm.
71. On the other hand, learned CIT-DR has defended the order of the Assessing Officer, as according to her, burden was on the assessee to prove that the said stock was not owned by it. In this case, the record clearly shows that the burden cast on the assessee has not been discharged and therefore, CIT(Appeals) was wrong in allowing even the partial relief.
72. W e have considered the rival submissions carefully. In our view, having regard to the facts and material on record, the Assessing Officer was justified in assessing the value of 3051 bags of onion in the hands of the assessee firm. Assessee explained that the said stock belonged to one Shri Sucha Singh, who denied the averments of the assessee. From the assessment order, it appears that even during cross 47 examination by the counsel of the assessee, the said Shri Sucha Singh denied the ownership of 3051 bags of onions. Infact, during cross examination, he only admitted having kept 300 bags of onions with the assessee. Therefore, to above extent, the credit is to be allowed to the assessee. In so far as the valuation of the stock is concerned, we find that the Assessing Officer valued the stock at an average market rate which was computed at Rs.1500/- per quintal. The CIT(Appeals), on the other hand, has valued the stock on the basis of published rates produced by the assessee corresponding to the dates found recorded in the seized document. The seized document, a copy of which has been placed at page 87 of the Paper Book, shows the transactions during 27.05.1998 to 05.06.1998. The CIT(Appeals) refers to newspaper report of the relevant period, wherein the rate of onion has been given at Rs.250/- to 350/- per quintal. He has adopted a rate of 300/- per quintal to arrive at the value of 3150 bags of onions, which, in our view, is fair and proper. Therefore, the rate adopted by the CIT(Appeals) is hereby affirmed. However, the quantity of unexplained onions is to be taken at 2850 bags as against 3150 bags considered by the authorities below in view of the admission by Shri Sucha Singh of having kept 300 bags with the assessee. Accordingly, addition of Rs.3,60,000/- is sustained and the Assessing Officer is directed to delete the balance addition out of Rs.22,88,250/-. Accordingly, Ground No.5 in the appeal of the assessee is partly allowed whereas, Ground No.5 in the appeal of the Revenue is dismissed.
48
73. The sixth Ground raised by the assessee reads as under:
"That the learned CIT(Appeals) erred in confirming the addition of Rs.2,18,443/- on account of alleged interest from S/Shri Jagtar Singh Anil Kumar and Subhash Chand."
On this Ground, brief facts are that in terms of document Nos. 5, 6 & 9 of AA-10 seized from the residence of Shri Ved Parkash Khosla, it was found that certain interest from S/Shri Subhash Chand, Anil Kumar and Jagtar Singh was due as on 30.09.1998. The Assessing Officer calculated interest upto the date of search at Rs.3,28,843/- and required the assessee to explain as to why the same not be treated as undisclosed income assessable in the hands of the assessee. After considering the explanations of the assessee, he computed undisclosed income as follows :
Shri Jagtar Singh Rs. 8,676/-
Shri AnilKumar Rs.1,65,608/-
Shri Subhash Chand Rs. 44,559/-
-----------------------
Total Rs.2,18,843/-
-----------------------
The above sum of Rs.2,18,843/- has been assessed as
undisclosed income on account of interest upto 07.10.1998 on loans given to the above persons as per seized document Nos. 5, 6 & 9 of AA-10.
74. In appeal before the CIT(Appeals), assessee did not challenge the addition of Rs.8676/- in respect of Shri Jagtar Singh, whereas in respect of Shri Anil Kumar and Shri Subhash Chand amounting to Rs.1,65,608/- and Rs.44,559/- respectively, it was challenged by submitting that no such 49 interest was received or receivable. In support, it was pointed out that the statements of the said persons were recorded, during the course of which both persons denied any liability to pay such interest to the assessee firm. The CIT(Appeals), however, has sustained addition on the ground that the interest income has been assessed on the basis of seized documents, which clearly showed transactions outside the books of account. Accordingly, an addition of Rs.2,18,843/- has been sustained, against which, assessee is in appeal before us.
75. Before us, learned counsel has relied upon the submissions made before the lower authorities, which have already been noted by us in the earlier paragraph. On the other hand, learned CIT-DR has defended the order of the lower authorities by placing reliance on the same.
76. Having considered the rival stands and perusing the orders of the lower authorities, we f ind that the CIT(Appeals) made no mistake in sustaining the addition of Rs.2,18,843/-. As correctly pointed out by the CIT(Appeals), the seized documents clearly show interest income accruing in the hands of the assessee from loan transactions carried out outside the books of account. The denial by the two borrowers namely, s/Shri Anil Kumar and Subhash Chand does not distract from the evidence showing interest income accruing to the assessee outside the account books. Accordingly, we uphold the sustenance of addition by the CIT(Appeals), and, accordingly Ground No.6 raised by the assessee is dismissed. 50
77. T h e a ss e s se e h a s a l s o r a i se d a n a d d i t i o n a l G r o u n d of A p p e a l wh i c h r e a d s a s u n d e r :
" T h a t t h e l e a r n e d C I T ( A p p e a ls ) n o t w it h s t a n d i n g t h e d o cu me n t a r y e v i d e n ce o n re c o rd t h a t 3 1 5 b a g s o f p o t a t o b e lo n g e d t o S h r i A n i l K u ma r a l i a s T i t u a n d n o t t h e a s s e s s e e ig n o r e d a s s e s s e e ' s p l e a b e f o re h i m t a k e n a s p e r g r o u n d N o . 4 . H e s i mp l y d e c i d e d t h e s e c o n d l i mb o f t h i s g r o u n d r e la t in g t o v a l u a t io n o f t h e s t o c k u n d e r r e f e re n c e . "
The dispute in this G ro u n d arises f ro m an a d d i t io n of R s . 1 5 , 1 9 , 2 0 0 / - m a d e b y t h e A s se s s in g O f f i c e r wi t h r e s p e ct t o 3 1 65 b a g s o f p o t a t o e s a n d l o a n t ra n sa c t io n in re l a t i o n t o o n e S h r i A n il K u m a r. O u t o f t h e t o t a l o f R s . 1 5 , 1 9 , 2 0 0 / - , A s se s s i n g O f f i c e r m a de a n a d d it i o n o f R s. 9 , 0 0 , 0 0 0 / - o n su b s t a n t i ve b a s i s a s u n e xp la i n e d l o a n h a vi n g b e e n a d va n ce d b y t h e a s s e ss e e , f o r t h e a s se s sm e n t ye a r 1998-99 and b a la n c e of R s. 6 , 1 9 , 2 0 0 / - wa s assessed as u n d i s c lo s e d in co m e for the a s se s sm e n t ye a r 1999-2000 on p r o t e c t i ve b a s i s . O n t h i s a s p e c t , C I T (A p p e a l s ) s u st a in e d t h e a d d i t io n o f R s . 9 , 0 0 , 0 0 0 / - a n d d e le t e d t h e p ro t e c t i ve a d d i t io n o f t h e assessee of Rs.6,19,200/-. T h e R e ve n u e , i n i t s c r o ss a p p e a l h a s c o n t e st e d t h e r e l ie f a l lo we d b y t h e C I T (A p p e a l s ) b y w a y o f f o l lo wi n g Ground No.3 :-
"in restricting the addition of Rs.9,00,000/- out of Rs.15,19,200/- on account excess stock of 3165 bags of potatoes as the addition was made by the A. O. at the market rate."
78. S i n ce t h e re s p e c t ive G r o u n d s ra i s e d b y t h e a s se s se e a s we l l a s t h e R e ve n u e r e l a t e t o t h e s a m e co n t ro ve r s y, t h e t wo c ro ss G r o u n d s a r e b e in g t a k e n u p t o g e t h e r . In brief, the facts are that d u r in g t h e co u r se o f s e a r ch o p e ra t i o n , 3 1 6 5 p o t a t o b a g s we r e f o u n d i n t h e c o ld st o re a g a i n st t h e n a m e s o f f o u r p e r so n s , n a m e l y S / S h r i 51 N a n d L a l, G u l sh a n , V a r i n d e r a n d D a r s h a n . I t wa s f o u n d t h a t t h e s a i d f o u r p e r so n s we r e b e n a m i o f o n e S h r i A n i l K u m a r S / o S h Mu l a kh R a j , wh o a d m it t e d t h i s f a c t i n h is d e p o s i t io n b e f o r e t h e D DI T , A m b a la o n 1 0 . 1 1 . 1 9 9 8 . S h r i A n i l K u m a r a l so f i l e d a n a f f id a vi t c l a im i n g o wn e r sh ip o f 3 1 5 0 p o t a t o b a g s a n d t h e st o c k wa s a l s o r e l e a s e d t o h im . I n o n e o f t h e d o cu m e n t s e i ze d d u r in g t h e s e a r ch o p e r a t io n , a c c o u n t o f S h r i A n i l K u m a r wa s n o t i ce d , wh e re b y i t wa s e vi d e n t t h a t t h e a s s e s se e h a d a d va n c e d a s u m o f Rs . 1 3 , 0 0 , 6 0 0 / - on va r i o u s dates and had a l so r e ce i ve d back a sum of Rs.4,00,000/-. Out of the total amount of Rs . 1 3 , 0 0 , 6 0 0 / - , R s . 4 , 0 0 , 6 0 0 / - wa s a d va n ce d b y wa y o f b a n k d r a f t a n d t h e b a l a n ce o f R s . 9 , 0 0 , 0 0 0 / - wa s a d va n ce d t o in c a s h . T h e a s se s se e a s we l l a s S h r i A n i l K u m a r a c c e p t e d t h e a sp e c t o f t h e lo a n o f R s . 9 , 0 0 , 0 0 0 / - h a vi n g b e e n t r a n sa c t e d i n c a sh o u t s i d e t h e a c co u n t b o o k s . In this background, A s se s s i n g O f f i ce r va l u e d 3165 potato bags at Rs.15,19,200/- by a d o p t in g a rate of Rs.480/- per bag. R s . 9 , 0 0 , 0 0 0 / - a d va n ce d o u t s id e t h e b o o k s o f a c co u n t wa s a s s e ss e d b y t h e A s se s s in g O f f i ce r a s u n d i s c lo s e d in c o m e , b e in g u n e xp la i n e d loans for the a ss e s sm e n t ye a r 1998-99 wh i l e the b a la n c e of R s . 6 , 1 9 , 2 0 0 / - wa s a s s e s se d o n p r o t e c t i ve b a s i s i n re l a t io n t o t h e a s s e s sm e n t ye a r 1 9 9 9 - 2 0 0 0 co m p r i se d in t h e b l o ck p e ri o d .
79. I n a p p e a l b e f o r e t h e CI T ( A p p e a l s ), a s s e s s e e co n t e n d e d t h a t a s p e r t h e e vi d e n c e o n r e co r d , 3 1 6 5 p o t a t o b a g s b e lo n g e d t o S h r i A n i l K u m a r a n d in ve s t m e n t t h e r e in wa s a l s o m a d e b y t h e sa i d p e r so n a n d t h e re f o r e , i t s va l u e co u ld n o t b e a s se s se d i n t h e h a n d s o f t h e a s se s s e e o n p r o t e c t i ve b a si s . T h e C I T ( A p p e a l s ) d i r e c t e d Assessing Officer to adopt the rate of Rs.200/- per bag for the p u rp o se s of va lu i n g 3165 bags of potatoes, wh i c h ca m e to 52 Rs.6,33,000/-. A s p e r t h e C I T ( A p p e a l s ) , sa i d a m o u n t wa s lo we r t h a n t h e a m o u n t o f l o a n a d va n c e d b y t h e a s se s se e t o S h r i A n il K u m a r a n d t h e r e f o r e , wh i l e r e t a in in g a d d it i o n o f R s. 9 , 0 0 , 0 0 0 / - o n a c c o u n t o f lo a n a d va n ce d o u t s id e t h e b o o k s o f a c c o u n t , h e d e le t e d t h e p r o t e ct i ve a d d i t i o n o f R s. 6 , 1 9 , 2 0 0 / - m a d e i n t h e h a n d s o f t h e assessee.
80. B e f o r e u s , le a rn e d co u n se l f o r t h e a s s e s s e e c o n t e n d e d t h a t t h e C I T (A p p e a l s ) h a s m e re l y d e ci d e d o n e l im b o f t h e d i s p u t e r e l a t in g t o va lu a t io n o f s t o c k u n d e r r e f e re n ce wh i l e h e h a s i g n o re d t h e p l e a o f t h e a ss e s se e t h a t t h e d o c u m e n t a r y e vi d e n c e o n re c o rd s h o we d t h a t 3 1 6 5 p o t a t o b a g s d id n o t b e l o n g t o t h e a s s e s se e b u t i t b e lo n g e d t o S h r i A n i l K u m a r.
81. On the other hand, le a rn e d CIT-DR contended that t he C I T (A p p e a l s ) e r r e d i n r e st r i c t in g t h e a d d i t io n t o R s . 9 , 0 0 , 0 0 0 / - o u t o f t h e t o t a l a d d i t io n o f R s . 1 5 , 1 9 , 2 0 0 / - s i n c e t h e s t o c k wa s va l u e d b y t h e A ss e ss i n g O f f ic e r a t t h e p r e va i l in g m a r k e t ra t e .
82. W e h a ve co n s i d e re d t h e r i va l s u b m i s s i o n s c a re f u l l y. B e f o r e p r o ce e d i n g t o a d ju d i ca t e o n t h e m e r i t s o f t h e r i va l c o n t e n t io n s, i t wo u l d b e a p p r o p r i a t e t o s t a t e t h a t t h e a d m i s s io n o f a d d i t io n a l G r o u n d o f A p p e a l wa s s o u g h t t o b e j u st if ie d o n t h e g r o u n d t h a t i t wa s o m i t t e d t o b e r a i s e d in t h e M e m o o f A p p e a l b e in g a b o n a f i d e o ve r s i g h t . T h e l e a r n e d co u n se l h a d p o in t e d o u t t h a t t h e a d d i t io n a l G r o u n d d o e s n o t re q u i r e a n y f r e sh a p p r e c ia t io n o f f a c t s o t h e r t h a n t h o s e a l re a d y o n r e co r d . I t is co n t e n d e d t h a t e ve n o t h e r wi s e , a s s e s s e e i s c o m p e t e n t t o a g i t a t e a p o in t wh i c h wa s d e c i d e d a g a in s t h i m b y t h e C I T ( A p p e a l s ) e ve n a s a re s p o n d e n t i n t h e a p p e a l o f t h e R e ve n u e a n d in t h i s r e ga r d , r e f e r e n c e wa s m a d e t o R u l e 2 7 o f t h e 53 I n co m e T a x A p p e l l a t e T r ib u n a l Ru l e s, 1 9 6 3 . I t wa s , t h e r e f o re s u b m i t t e d t h a t t h e a d d it i o n a l G r o u n d o f A p p e a l b e a d m i t t e d f o r a d ju d i ca t io n . T h e l e a r n e d C I T - D R, t h o u g h o p p o se d t h e p ra ye r f o r a d m i s s io n o f a d d i t i o n a l g r o u n d , b u t s h e h a s n o t se r i o u s l y d i s p u t e d t h e c la i m o f t h e a s s e s s e e t h a t it is e n t i t le d t o r a is e s u ch G r o u n d e ve n a s a r e sp o n d e n t i n t h e a p p e a l o f t h e R e ve n u e o n t h e st r e n g t h o f Ru l e 2 7 o f t h e A p p e l la t e T r i b u n a l R u l e s , 1 9 6 3 .
83. H a vi n g c o n s id e re d t h e r i va l s t a n d s o n t h i s a sp e ct , we d e e m it f it a n d p ro p e r t o a d m i t t h e a d d i t io n a l G ro u n d o f A p p e a l s i n ce , i t c l e a r l y a r i se s f ro m t h e o rd e r o f t h e C I T ( A p p e a l s ). Fo r t h i s r e a so n , b o t h t h e p a r t i e s we r e a l s o p e rm i t t e d t o m a ke a r g u m e n t s o n m e r i t s, wh i c h we h a ve n a rr a t e d in t h e e a r l ie r p a ra g r a p h s.
84. H a vi n g c o n s i d e r e d r i va l m e r it s o f t h e r i va l s u b m i s s io n s, we f in d t h a t t h e d i s p u t e e s se n t i a l l y r e vo l ve s a r o u n d t h e s t o c k o f 3 1 65 p o t a t o b a g s a n d t h e se i ze d d o cu m e n t s h o wi n g l o a n s a d va n c e d t o S h r i A n i l K u m a r o u t s i d e t h e b o o k s o f a c co u n t . I n t h e co n t e xt o f 3 1 6 5 b a g s o f p o t a t o e s , it i s e vi d e n t t h a t S h r i A n i l K u m a r h a s o wn e d u p t h e sa i d st o c k a n d i n f a c t , t h e A ss e s s in g O f f i ce r h a s n o t m a d e a s u b st a n t i ve a d d it io n , b u t o n l y o n p r o t e c t i ve b a s is i n t h e h a n d s o f t h e a s s e ss e e f i rm . T h e C I T ( A p p e a l s ) i n p a ra 7 . 2 o f t h e im p u gn e d o r d e r h a s n o t i ce d t h a t t h e o wn e r sh ip o f 3 1 6 5 b a g s wa s c la im e d b y S h r i A n i l K u m a r b y wa y o f a n a f f id a vi t a n d a ls o in t h e st a t e m e n t r e c o rd e d b y D D I T , A m b a l a o n 1 0 . 1 1 . 1 9 9 8 a n d f u r t h e r t h a t s u c h s t o c k wa s r e le a se d t o S h r i A n i l K u m a r b y D D I T , A m b a la . Under t h e s e c i r c u m st a n ce s , t o wh i c h t h e re i s n o c o n t ro ve r t s i o n b y t h e R e ve n u e , we f i n d n o e r ro r i n t h e a p p ro a ch o f t h e C I T ( A p p e a l s ) i n d e le t in g t h e a d d i t io n m a d e o n p r o t e c t i ve b a s i s in t h e h a n d s o f t h e a s s e s s e e wi t h r e sp e ct t o t h e va l u e o f t h e s t o c k o f 3 1 6 5 b a g s . In 54 f a c t , t h e a d d i t io n a l G r o u n d o f A p p e a l r a i s e d b y t h e a s se s s e e is m i s - c o n ce i ve d in a s m u c h a s t h e r e is n o a d d it i o n su s t a i n e d b y t h e C I T (A p p e a l s ) wi t h r e s p e c t t o 3 1 6 5 b a g s o f p o t a t o e s , wh e r e a s t h e a d d i t io n s u st a in e d is only of Rs . 9 , 0 0 , 0 0 0 / - re p re s e n t in g loan a d va n c e d t o S h r i A n i l K u m a r o u t s id e t h e a c co u n t b o o k s. I n t h is c o n n e c t i o n , t h e r e i s n o j u st if i ca t io n t o d e l e t e t h e s a i d a d d i t i o n b e ca u s e t h e a s p e c t o f t h e a ss e s se e h a vi n g a d va n ce d su c h l o a n o u t s i d e t h e b o o k s o f a c c o u n t h a s b e e n a c ce p t e d b y t h e a s se s se e a s we l l a s S h r i A n i l K u m a r. T h e re f o r e , i n o u r vi e w, t h e C I T (A p p e a l s ) m a d e n o m i s t a ke i n su s t a i n in g t h e a d d it i o n o f R s. 9 , 0 0 , 0 0 0 / - o n s u b st a n t i ve b a s is i n t h e h a n d s o f t h e a s s e ss e e o n a cc o u n t o f u n e xp l a i n e d l o a n a d va n c e d t o S h r i A n i l K u m a r i n t h e a s se s sm e n t ye a r 1 9 9 8 -9 9 co m p r i se d i n t h e b l o c k p e r i o d . I n t h e r e su l t , t h e a d d i t io n a l G r o u n d r a i s e d b y t h e a ss e s se e a s we l l a s G r o u n d N o . 3 r a i s e d b y t h e Re ve n u e a re d i sm i s s e d .
85. R e s u lt a n t l y, appeal of the a s s e s se e in ITSS(A) N o . 3 3 / Ch a n d i / 2 0 0 2 i s p a r t l y a l l o we d .
86. N o w, we t a k e u p t h e c r o ss - a p p e a l o f t h e R e ve n u e i n I T S S ( A ) 4 3 / Ch d / 2 0 0 2 . I n t h i s a p p e a l , G ro u n d N o s . 1 t o 5 h a ve a l r e a d y b e e n c o n s id e r e d wh i l e c o n s i d e r i n g t h e r e s p e c t i ve G r o u n d s o f A p p e a l r a i s e d i n t h e a p p e a l o f t h e a ss e s se e , in t h e e a r l i e r p a r a g r a p h s . T h e r e m a in i n g G r o u n d s a r e c o n s id e re d a s f o l l o ws .
87. The sixth Ground raised by the Revenue reads as under:
"6.in directing the A.O. take the figure in hundred instead of lacs and delete the addition to the tune of Rs.11,98,800/-55
The facts in brief are as follows. Document No. 1 of Annexure A-
15 was seized from the residence of Shri Pardeep Khosla which had the following entries.
11-86 Ugajar Singh
5-75 Lachi
13-00 Titu
1-50 B.L.
4-75 Pappu
The Assessing Officer deciphered the aforesaid figures as
representing lacs. In the present Ground the issue is in relation to the three entries against the names of S/Shri Lachi, Pappu and B.L. which have been construed as Rs.5,75,000/-, Rs.1,50,000/- and Rs.4,75,000/- respectively. As per the Assessing Officer, sum of Rs.12,00,000/- represented by the three entries after decoding, represents undisclosed income of the assessee-firm for the assessment year 1999-2000 comprised in the block period 01.04.1988 to 07.10.1998.
88. W ith respect to the aforesaid, assessee contended before the CIT(A) that the entries have been wrongly taken as loan transactions, and were labour charges. It was explained that Shri Pradeep Khosla, at the time of recording of his statement on 27.10.1998 in response to question No. 7 stated that the said entries may be labour charges in respect of the persons named in the seized document. Secondly, in so far as entries against the names of Tittu and Ugajar Singh were concerned, the same were admitted to be entries of loans of Rs.13,00,600/- and Rs.11,91,000/- respectively. Thirdly, assessee gave c e r t a in examples out of the seized material where it had adopted the figures in decimals i.e. amount written by the assessee was 1/100th of the actual amount. The illustrative list of such entries 56 provided by the assessee have been reproduced by the CIT(A) in para 10.3(iii) of his order. Fourthly, assessee contended that document No. 1 of Annexure A-15, which contained the disputed e n t r i e s , w a s p a r t o f a d i a r y i n w h i c h a l l t h e f i g u r e s h a ve b e e n written in decimals, and the entries in question should be taken as being 1/100th of the actual amount meaning thereby that the total amount in question in respect of the three persons should be taken as Rs.3696/- and it was further explained that the said figure represented labour charges recoverable from the said persons. The CIT(A) has accepted the submissions of the assessee by making the following discussion :
"10.4. I have carefully applied my mind to the stated facts and submissions of Ld. AR in my opinion, the arguments adduced on behalf of the appellant cannot be brushed aside to me, it appears that persons in the Khosla family are compulsively writing even trivial expenses in a coded form without their being any reason or justification for the same. To elaborate this aspect, I would like to refer to the statement of Shri Pardeep Khosla recorded on 27.10.1998 wherein Shri Pardeep Khosla was specifically questioned regarding certain trivial expenses, some of the instances being as under:-
i) "6.00" on account of "petrol expenses Motor cycle". The Assessing Officer, recording the statement has deciphered the figure in question as representing Rs.600/- (Question No. 19).
ii) "2.00" on account of "T. Bill, STD". The Assessing officer, recording the statement has deciphered the figure in question as representing Rs.200/- (Question No.21).
iii) "8.00" "Bajri". The Assessing Officer, recording the statement has deciphered the figure in question as representing Rs.800/-
(Question No.26).
10.5 From the above, it is explicitly clear that Shri Pardeep Khosla has been writing even trivial expenses on account of telephone bill and petrol etc. in a coded form, without there being any justification or need. Needless to say that "6.00" or "2.00" can not mean Rs.6,00,000/- and Rs.2,00,000/- on account of petrol 57 e x p e n s e s a n d t e l e p h o n e S T D e x p e n s e s r e s p e c t i v e l y. A p p a r e n t l y , K h o s l a 's a r e h a b i t u a l o f w r i t i n g m o s t o f t h e figures in coded form. Keeping all these aspects as well as other submissions of Ld. AR in my mind, in my opinion, the Assessing Officer was not justified in deciphering figures as representing the amount in "lacs" while he himself has at all other places deciphered the figures as representing in "hundreds". The balance of convenience is obviously in favour of the appellant. The Assessing Officer is directed accordingly." Against the aforesaid decision, Revenue is in appeal before us. Before us, Ld. CIT-DR has contended that the entries in the seized documents have been rightly decoded by the Assessing Officer as representing amount in lacs. According to her, out of the five entries, two entries in the name of S/Shri Ugajar Singh and Tittu are admittedly loan transactions which are in lacs and therefore the other three entries against the names of S/Shri Lachi, B. L. and Pappu should also be understood as representing loan transactions and figures in lacs. It is also p o i n t e d o u t t h a t t h e A s s e s s i n g O f f ic e r h a s o b s e r v e d i n p a r a 9 . 2 of the assessment order that when Shri Pardeep Khosla was confronted with the document during his examination on 27.10.1998 by the Authorized Officer, he stated that he did not know the context in which these entries were made, though he admitted that the same were in his handwriting. It is further pointed out that some loans found recorded in the seized documents have also been surrendered by the assessee and therefore it could not be said that the impugned entries do not reflect loan transactions. Further, it is contended that the persons named in document No. 1 of Annexure A-15 were commission agents and assessee was found to have advanced loans to commission agents as per various documents found and admitted by the assessee. Further, in this context, attention was 58 invited to page 113 of the Paper-book filed by the assessee wherein the loan transaction with Mr. Lachi has been recorded. It is also pointed out that assessee had surrendered a loan of Rs.9,00,000/- advanced to Mr. Tittu in the assessment year 1998-99 and Rs.4,10,000/- was surrendered in respect of loan and interest on account of Shri Ugajar Singh in assessment year 1999-2000 comprised in the block period. Therefore, according to the Ld. CIT DR on the basis of human probabilities the entries in question were rightly decoded by the Assessing Officer as representing loan transactions and the figures are in lacs.
89. On the other hand, the Ld. Counsel for the assessee pointed out that the CIT(A) was justified in disregarding the decoding done by the Assessing Officer because the impugned entries recorded against the names of S/Shri Lachi, B. L. and Pappu were for labour charges and not loan transactions. It was pointed out that the loan transactions surrendered by the assessee, were found recorded in the seized documents in completeness and not in decimals, as is the case with the impugned entries. It is further pointed out that it is wrong to say that Shri Pradeep Kumar Khosla, when confronted with the said document on 27.10.1998 showed ignorance as to the context in which the impugned entries were written by him. In this regard, a reference was made to the contents of the statement of Mr.Pradeep Khosla recorded on 27.10.1998, a copy of which has b e e n p l a c e d o n r e c o r d b y t h e L d . D e p a r t m e n t a l R e p r e s e n t a t i ve . 59
90. W e have considered the rival submissions carefully. As is evident from the aforesaid, the dispute relates to interpretation of the values to be accorded to the figures found written in seized document No. 1 of Annexure A-15 against the names of S/Shri Lachi, B.L. and Pappu. Admittedly, the document was found from the residence of Shri Pradeep Khosla who admitted that the same was in his handwriting. Shri Pradeep Khosla was examined in the context of this document by the Authorized Officer at the time of search on 27.10.1998. Question No. 7 was put to him with regard to the aforesaid entries in the seized document. He deposed that the entries may be on account of labour charges and apart therefrom he had no further knowledge of the same. However, in relation to question No. 8 wherein he was asked about the entry of 13.00 against the name of Tittu, he deposed that the same did not represent loan transaction. He was further questioned on the entries in relation to S/Shri Tittu and Ugajar Singh by way of question Nos. 10 & 11. It was put to him that Shri Ved Parkash Khosla had admitted of having a d va n c e d l o a n s o f R s . 1 1 , 9 6 , 0 0 0 / - a n d R s . 1 3 , 0 0 , 0 0 0 / - t o S / S h r i Ugajar Singh and Tittu respectively and therefore he was asked as to whether the entries in question were loan entries. It was deposed by him that he had no knowledge of the loans a d va n c e d , b u t c l e a r l y h e d i d n o t e xp l a i n t h e e n t r i e s m a d e i n t h e seized document. From the deposition of Shri Pradeep Khosla, it is evident that the replies were not fully clear. The replies furnished did not exhibit complete knowledge in the context of the seized documents. Be that as it may, it has been put-forth 60 by him that the entries in question may be on account of labour charges. It is also evident that no question was put to him with regard to the values to be assigned to the decimal figures recorded in the document. It is only during assessment proceedings that the Assessing Officer proceeded to decode the entries as representing figures in lacs. Under these circumstances when the Department did not confront the assessee at the appropriate stage when the assessee was being questioned with respect to the seized document, subsequently the burden was on the Assessing Officer to support his decoding of the figures being in lacs. There is no corroborating evidence w i t h t h e A s s e s s i n g O f f i c e r t o i n f e r t h a t t h e f i g u r e s h a ve b e e n written in lacs. On the contrary, CIT(A) has brought out various instances in the statement of Shri Pardeep Khosla wherein even trivial expenses written in decimal figures were interpreted as being in hundreds and not in lacs and such a position has been accepted by the Assessing Officer. Therefore, considering the overall circumstances, we are inclined to uphold the interpretation placed by the CIT(A) in preference to that of the Assessing Officer. Thus, on Ground No. 6 Revenue has to fail.
91. The seventh Ground raised by the Revenue reads as under:
"7. in directing the A.O. on the above ground to delete the addition of Rs.16,78,320/- made on account of loans in the face of result of post search enquiries.61
I n t h i s G ro u n d , d i s p u t e r e la t e s t o a n a d d i t i o n o f R s . 1 6 , 8 0 , 0 0 0 / -
m a d e b y t h e A s se s s i n g O f f i ce r o n t h e b a s i s o f d o cu m e n t No . 8 2 o f A n n e xu r e A - 0 9 se ize d d u r i n g t h e co u r s e o f s e a r c h . T h e A s se s s i n g O f f i ce r n o t ic e d ce r t a in entries in the se i ze d d o cu m e n t wh i c h c o n t a in e d t h e n a m e s a n d f i g u re s in d e c im a ls . The detail of the e n t r ie s is noted by the A s se s s in g O f f i ce r in para 10 of the a s s e s sm e n t o rd e r . In p a ra 10.1 of the a s s e ss m e n t order, A s s e s s i n g O f f i ce r h a s id e n t if i e d t h e p a r t i cu l a r s o f t h e p e r s o n s wh o s e n a m e s a p p e a r in t h e se i ze d d o c u m e n t . H e co n s id e re d t h e n o t in g s i n t h e s e i ze d d o cu m e n t a s re f l e c t in g a d va n c e s m a d e b y t h e a s s e s s e e t o ' a rh a t i ya s ' wh i c h we r e n o t re co r d e d i n t h e b o o k s o f account. A f t e r co n s id e r in g t h e d e t a i l o f t r a n s a ct i o n s r e co r d e d in t h e d o cu m e n t , a n a d d i t i o n o f R s. 1 6 , 8 0 , 0 0 0 / - wa s m a d e b y t h e Assessing O f f i ce r r e p r e s e n t in g u n d i s c lo s e d income for the a s s e s sm e n t ye a r 1 9 9 9 -2 0 0 0 . T h e C I T (A p p e a l s ) h a s s i n c e d e le t e d t h e a d d i t i o n t o t h e e xt e n t o f R s . 1 6 , 7 8 , 3 2 0 / - b y h o l d in g t h a t t h e A s s e s s i n g O f f i c e r wa s n o t j u st if ie d in d e c i p h e r in g t h e f i g u re s i n t h e s e i ze d d o c u m e n t a s r e p r e s e n t in g t h e a m o u n t i n ' L a c s ', wh i c h a c c o rd i n g t o h im re p re s e n t e d f i gu r e s i n ' h u n d r e d s ' . A g a i n s t su c h a d e c i s io n o f t h e C I T ( A p p e a l s ) , Re ve n u e is in a p p e a l b e f o r e u s .
92. B e f o re u s, learned CIT-DR has submitted that the C I T (A p p e a l s ) e r r e d i n d i s r e g a rd i n g t h e s t a n d o f t h e A s s e s s i n g O f f i ce r t h a t t h e im p u g n e d t r a n sa c t i o n s r e p r e se n t e d t h e a m o u n t i n ' l a c s ' . I t wa s p o i n t e d o u t t h a t t h e sa i d d o cu m e n t wa s c o n f ro n t e d t o S h r i R a k e sh K h o s la a t t h e t im e o f t h e s e a r c h o p e ra t io n a n d h e h a s a d m i t t e d t h a t t h e d o cu m e n t i s in h i s h a n d wr i t i n g . T h e l e a r n e d CI T - D R h a s r e f e r r e d t o p a ra g r a p h N o s . 1 1 . 2 a n d 1 1 . 3 o f t h e o r d e r o f t he 62 C I T (A p p e a l s ) t o p o i n t o u t t h a t t h e a d d i t io n h a s b e e n d e le t e d o n a wr o n g c o m m e n t s .
93. On the other hand, le a rn e d counsel for the r e sp o n d e n t assessee has defended the action of the C I T (A p p e a l s ) by p o in t in g o u t t h a t t h e i s su e st a n d s o n s i m i la r f o o t in g a s r e f l e ct e d i n G r o u n d N o . 6 r a i se d b y t h e R e ve n u e .
94. W e h a ve c o n s i d e re d t h e r i va l s u b m is s i o n s c a r e f u l l y. O n t h is a s p e c t , so m e p e r t i n e n t f a c t s wh i c h a r e re l e va n t t o d e c i d e t h e c o n t r o ve r s y a r e a s f o l l o ws . T h a t t h e d o c u m e n t in q u e s t io n wa s s e i ze d f ro m t h e r e s i d e n ce o f S h r i Ra k e sh K h o s l a wh o a d m i t t e d t h a t t h e e n t r ie s a re in h i s h a n d - wr i t i n g . T h e A s se s s in g O f f i c e r h a s c a t e g o r i c a l l y e s t a b l i s h e d t h e i d e n t i t y o f t h e p e r so n s wh o s e n a m e s we r e f o u n d re co r d e d in t h e se i ze d d o c u m e n t . A s p e r t h e A s s e s s i n g O f f i ce r , Shri Ved P a r k a sh K h o sl a a d m it t e d of h a vi n g g i ve n a d va n c e s i n ca s h a n d o u t s i d e t h e b o o k s o f a c co u n t t o C o m m i ss i o n Agents. T h e p e rs o n s s o id e n t if ie d a r e s t a t e d t o b e C o m m i ss i o n A g e n t s a n d a g a in st t h e i r n a m e s, a m o u n t o f lo a n s h a ve b e e n wr i t t e n i n t h e se i ze d d o cu m e n t in d e c im a l f i g u re s a n d d e c im a l s h a ve b e e n t a ke n t o b e i n ' L a c s ' b y t h e A ss e s s in g O f f i c e r. I n t h is b a c k g r o u n d , t h e C I T (A p p e a l s ) h a s s ca l e d d o wn t h e a d d it i o n b y t r e a t in g t h e f i g u re s in ' h u n d re d s '. W it h o u t o p in i n g on the m e r it s of the i n f e re n c e d r a wn b y t h e C I T ( A p p e a l s ) , i t i s s e e n t h a t t h e r e i s n o f in d in g b y t h e C I T ( A p p e a l s ) wi t h re s p e c t t o t h e n a t u r e o f e n t r i e s m a d e t h e re i n . I n f a ct , we f in d t h a t t h e o r d e r o f t h e C I T ( A p p e a l s ) c o n t a in s a s e r io u s i n f i rm i t y i n a s m u c h a s h e h a s n o t e ve n s t a t e d t h e su b m i s s io n s o r p l e a s ra i se d b y t h e a s s e ss e e . Though, in para 11.2 of h i s o rd e r , the CI T ( A p p e a l s ) refers to "t h e a rg u me n t s a d d u ce d o n b e h a lf o f t h e a p p e l la n t ", ye t , t h e r e i s n o m e n t i o n o f 63 s u c h a r g u m e n t s in t h e im p u g n e d o r d e r . M o r e o ve r , n o n e o f t h e r e a so n in g s d e l i b e ra t e d b y t h e A s se ss i n g O f f ic e r in t h e a s se s sm e n t o r d e r h a ve b e e n a d d r e s se d b y t h e C I T (A p p e a l s ) b e f o r e r e st r i c t in g t h e a d d it i o n t o R s. 1 6 8 0 / - in s t e a d o f R s . 1 6 , 8 0 , 0 0 0 / - . Q u i t e c le a r l y, t h e o rd e r o f t h e CI T (A p p e a l s ) i s u n -s u s t a i n a b le a s t h e d i sp u t e h a s n o t b e e n a d d r e sse d a n d a d ju d ic a t e d in a n a p p r o p ri a t e m a n n e r . T h e re f o r e , wi t h o u t o p i n in g o n t h e m e r i t s o f t h e d is p u t e , we s e t a s i d e t h e o r d e r o f t h e C I T (A p p e a l s ) a n d r e s t o r e t h i s G r o u n d b a c k t o h i s f i le t o b e a d j u d i ca t e d a f re sh a f t e r a l l o wi n g t h e a s se s se e a r e a so n a b le o p p o rt u n it y o f b e i n g h e a rd , i n a c c o rd a n c e wi t h l a w. T h u s, o n G r o u n d N o . 7 , Re ve n u e s u c c e e d s.
95. The eighth Ground raised by the Revenue reads as under:
"8. in deleting the addition of Rs.4,48,873/- as the fact that this amount was shown in the return of income is not verifiable from the details filed by the assessee.
The dispute in this ground relates to an addition of Rs.4,48,873/-
made by the Assessing Officer on the basis of document No. 4 of Annexure A-15. The said document contained entries in respect of a d va n c e s t o S h r i A . K . K h a n n a . O n t h e b a s i s o f t h e s e i z e d document the loan of Rs.3,53,364/-, interest of Rs.50,000/- and rent of Rs.45,007/- was assessed as undisclosed income of the assessee for the assessment year 1998-99. Before the CIT(A) assessee explained that it had offered for tax undisclosed income of Rs.13,77,000/- in the return of income. Out of the said amount, a sum of Rs.12,60,465/- was relatable upto 31.12.1997 and the amount of Rs.4,48,873/- stands included in the said amount therefore the Assessing Officer was not justified in making the impugned addition twice. The CIT(A) noticed that the detail of 64 income offered for taxation in the assessment year 1998-99 was as under:
" 1. Cash returned and received back 1264465.00 upto 31.12.1997 as per Annexure A.
2. Amount surrendered in the hands 112535.00 of Titu and Subhash Thol, Excess amount Total amount surrendered in the 1377000.00 Names of Titu and Subhash Thol in F.Y. 1997-98
3. F. Y. 98099 Advance Paid to Jagir Singh 290241.00 Interest received from Jagir Singh 118495.00 4100000.00 Grand Total 1787000.00"
Against the aforesaid, Revenue is in appeal before us. As per the Ld. CIT-DR the surrender of income by way of loans and interest thereon by the assessee cannot be correlated with the impugned addition because no cash flow statement was furnished before the Assessing Officer to verify whether the impugned addition could be set-off against the income surrendered in the assessment year 1998-99.
96. On the other hand, Ld. Counsel for the assessee submitted that the CIT(A) has verified the contention of the assessee, as is evident from the finding recorded by in para 12.5 of the impugned order.
97. W e have considered the rival submissions carefully. It is quite clear from the order of the CIT(A) that assessee had surrendered certain income by declaring the same in the return of income filed in Form No.2B, in response to notice issued u/s 158BC of the Act. The utilization of such surrendered income has also been explained by the assessee which has been noted 65 by the CIT(A) in para 12.4 of the impugned order. Evidently, the total undisclosed income offered for taxation is Rs.17,87,000/- as detailed in the earlier paragraph, which included a sum of Rs.12,64,465/- representing cash returned and received back upto 31.12.1997. The utilization of Rs.12,64,465/- has been explained by the assessee in the following manner as noted by the CIT(Appeals) in para 12.4 of his order :-
1. Sh. Ashok Khanna 3,53,365.00 Loan 50,500.00 Interest 45,008.00 Rent
2. Sh. Pappur Khanna 1,50,000.00 Loan 20,300.00 Interest 34,856.00 Rent
3. Shugan Chand 45,000.00
4. Lachhi 2,06,000.00
5. Lachhi Maru 20,000.00
6. Kishan Lal 50,000.00
7. Subhash Thol 50,000.00
8. Romesh 27,000.00
9. Naresh Saha 1,24,693.00
10. Darshan Lal 32,500.00
11. Rent received as per 51,243.00 D. No. 11 of Annexure A-18 from Ramesh Total 12,64,465.00"
Ostensibly, it is evident from above that the amount of Rs.4,48,873/- representing amount received from Shri Ashok Khanna has been offered for taxation as undisclosed income for the assessment year 1998-99 comprised in the block period 01.04.1988 to 07.10.1998. In the absence of any cogent material t o n e g a t e t h e f i n d i n g o f t h e C I T ( A ) b a s e d o n t h e a b o ve n o t e d position, we find no reasons to interfere with the action of the CIT(A). Accordingly, the Ground of Appeal raised by the Revenue is dismissed.66
98. The ninth Ground raised by the Revenue reads as under:-
"in deletion of Rs.2,05,331/- as the fact this amount was shown in return of income is not verifiable from the details filed by the assessee."
The facts relevant to the above Ground are as follows. On the basis of a seized document No. 9 of Annexure A-16, Assessing Officer noted certain entries regarding advances paid to Shri Papu Khanna of Rs.1,50,000/-, Rs.20,300/- as interest thereon and Rs.81,356/- as rent on account of storage of potatoes bags in the cold store. Before the Assessing Officer, assessee's explanation was that the advance of Rs.1,50,000/- and interest thereon of Rs.20,300/- was already returned by the assessee as undisclosed income in form No. 2B filed and therefore no separate addition was required. The Assessing Officer did not accept the said plea, as according to him, the detail of undisclosed income declared in form No. 2B was not furnished by the assessee and therefore such plea was unverifiable. However, out of the rent of Rs.81,356/-, a sum of Rs.46,500/- was found recorded in the regular books of account and therefore addition of only Rs.34,856/- was made on account of rent not recorded in the regular books of account. In this manner, a total addition of Rs.2,05,331/- (i.e. Rs.1,50,000/- + Rs.20,300/- + Rs.34,856/-) was made as undisclosed income relating to the assessment year 1998-99 comprised in the block period.
99. In appeal before the CIT(A), assessee reiterated its stand that the said amount stood disclosed in the return filed in Form No. 2B. The CIT(A) considered the details of income 67 disclosed by the assessee in the return filed in form No. 2B and upheld the submissions of the assessee. Against such an action of the CIT(A), Revenue is in appeal before us.
100. Before us, Ld. CIT-DR reiterated the same argument as taken with respect to Ground No. 8 dealt with by us in the earlier paragraphs. As per Ld. CIT-DR, Assessing Officer was justified in making the impugned addition, because it was not verifiable that the said sum was declared in the return of income, as per the details filed by the assessee before the Assessing Officer. On the other hand, Ld. Counsel for the assessee submitted that the contention of the assessee has been verified by the CIT(A) on the basis of the details noted by the CIT(A) in paras 12.3 and 12.4 of the impugned order.
101. W e have considered the rival submissions carefully. In this case, assessee had filed a return of income on 07.02.2000 in response to a notice issued under section 158BC of the Act declaring undisclosed income of the Block Period of Rs.17,87,000/-. The detail of such amount has been noticed by the CIT(A) in para 12.3 of the order and which has also been considered by him while disposing off Ground No. 8 above. Similarly, the utilization of the income so surrendered has also been examined by the CIT(A) as per details reproduced by him in para 12.4 of his order. On the basis of the aforesaid details it is clear that the amounts in question pertaining to Shri Papu Khanna has been offered by the assessee for taxation in the return filed in form No. 2B and therefore the CIT(A) rightly deleted the addition made by the Assessing Officer. Ostensibly, the action of the CIT(A) is justified since it seeks to obviate the 68 double addition. Though, the Revenue has challenged the deletion by saying that the plea was not verifiable on the basis of the details before the Assessing Officer, however the factual matrix considered by the CIT(A) on the basis of the material before him, has not been shown to be wrong. Therefore, in the absence of any material to controvert the factual findings of the CIT(A), we find no reasons to interfere with the action of the CIT(A). Accordingly, the Ground of appeal raised by the Revenue is dismissed.
102. The tenth Ground raised by the Revenue reads as under:
10. in deleting the addition of Rs.5,89,193/- on account of repayment of money by the several persons by way of rent of cold storage and interest as the fact this amount was shown in return of income is also not verifiable from the details filed by the assessee.
Briefly stated, an addition of Rs.5,89,193/- was made by the Assessing Officer on account of alleged unaccounted rent and interest on the basis of document Nos. 5 & 6 of Annexure A-16 seized during the course of search, as per the discussion in paras 13.1 to 13.2 of the assessment order. The CIT(A) has deleted the addition for the same reasons as dealt with in Ground Nos. 8 & 9 above. As per the CIT(A) the said amount stands covered in the income surrendered by the assessee in form No.2B.
103. On this aspect the rival stands remain the same as noted by us in Grounds Nos. 8 & 9 above. For the reasons ascribed for affirming the order of the CIT(A) in Ground Nos. 8 & 9 above, on this Ground also the order of the CIT(A) is liable to 69 be affirmed. However, it is noticed that the CIT(A) deleted the entire addition of Rs.5,89,193/- made by the Assessing Officer even though the plea of the assessee, as noted in para 14.2 of the impugned order, was that only a sum of Rs.5,74,993/- was already shown in the return of income. Thus, the order of the CIT(A) is modified to this extent and the Assessing Officer is directed to delete an amount of Rs.5,74,993/- instead of Rs.5,89,193/- deleted by the CIT(A). Thus, for statistical purposes, the Ground raised by the Revenue is partly allowed.
104. The eleventh Ground raised by the Revenue reads as under:-
"11. in deleting the addition of Rs.1,13,410/- out of addition of Rs.3,14,410/- made by the A.O. on account of cash received from Sh. V. P. Khosla and Sh. Pardeep Khosla as submission made by the assessee were accepted at the time of assessment."
In this Ground, the Revenue has challenged the action of the CIT(Appeals) in deleting addition of Rs.1,13,410/- out of the total addition of Rs.3,14,410/- made by the Assessing Officer. As per the discussion in the assessment order, the addition of Rs.3,14,410/- was based on document No.17 of Annexure A-15 and document No.6 of Annexure A-16 which were seized from the residence of Shri Pardeep Khosla. On the basis of document No.17 of Annexure A-15, undisclosed income of Rs.1,52,600/- has been assessed for assessment year 1998-99 on account of unaccounted cash receipts as per entries found in the seized document. On the basis of document No.6 of Annexure A-16, undisclosed income of Rs.1,61,810/- for the assessment year 1998-99 has been made as unexplained cash 70 receipt found recorded in the seized document. The CIT(Appeals) deleted the addition by making the following discussion in para 16.3 of his order :
"I have carefully applied my mind to the facts and circumstances of the case regarding the impugned addition which totals at Rs.3,14,410/-. It is seen that the addition of Rs.5,57,048/- has been made as unexplained investment in the construction of cold store during the assessment year 1998-99. Even if it is presumed that version of the Assessing Officer is correct and the appellant has received rental income outside books of account, then these receipts will cover unexplained investment in the construction of cold store. It is worthwhile to note that the impugned addition made by the Assessing Officer is less than the addition made in the construction of cold store which means that any income arising to the appellant outside books of account, automatically stands adjusted against unexplained investment in the construction of cold store. In view of this position, the impugned addition of Rs.1,13,410/- is hereby deleted."
Before us, rival counsels have advanced arguments in support of their respective stands, which remain the same as manifested in the orders of the authorities below. In terms of the finding of the CIT(Appeals), it is noticed that he has allowed the set-off of unaccounted cash found recorded in the impugned documents against the addition made on account of unexplained investment in construction of Cold Storage during the assessment year 1998-99. The CIT(Appeals) had sustained an addition ofRs.5,31,378/- on account of unexplained investment in the construction of Cold Storage during the assessment year 1998-99 which has also been upheld by us in para 54 of the order. The reasoning extended by the CIT(Appeals) in our view, is fair and proper and it has not been shown to be unreasonable in any manner. Therefore, we affirm the order of the CIT(Appeals) on this Ground. Accordingly, the Revenue fails on this Ground.
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105. The twelfth Ground raised by the Revenue reads as under:-
12. in deleting the addition of Rs.2,74,450/- on account of unaccounted expenses/receipts as the assessee could the explain the entries on the basis of which addition was made.
Th i s G r o u n d r e l a t e s t o a n a d d i t i o n o f R s . 2 , 7 4 , 4 5 0 / - m a d e b y t h e Assessing Officer on account of unaccounted expenses. This addition was made by the Assessing Officer on the basis of loose papers in Annexure A-22 seized from the premises of M/s Khosla Cold Storage. As per the Assessing Officer, some of the documents in this Annexure were in respect of expenses incurred on various dates, which were not recorded in the books of account. Accordingly, an amount of Rs.1,82,050/- and Rs.92,400/- was determined as expenses made out of undisclosed income and accordingly, addition was made in respect of assessment years 1999-2000 and 1998-99 respectively.
106. In appeal, assessee contended that the amount of Rs.1,82,050/- in the assessment year 1999-2000 on account of unaccounted expenditure on construction of Cold Storage building was already declared in the income of Rs.4,60,000/- surrendered. The CIT(Appeals) noticed that the assessee had surrendered income to the extent of Rs.1,87,757/- as against a figure of Rs.1,82,050/- adopted by the Assessing Officer in the return of income filed in Form No. 2-B. The CIT(Appeals), while deleting the addition of Rs.182,050/- referred to the detail of Rs.4,60,000/- as noted by him while disposing of 72 another Ground of Appeal before him. W ith regard to the balance of Rs.92,400/-, the assessee explained that the said expenditure was in relation to a cost of 84000 bricks purchased at Rs.1100/- per thousand, which was duly accounted for in the books of account and in support, relevant copy of ledger account was furnished. Considering the said submissions, CIT(Appeals) deleted the addition of Rs.92,400/- also. In this background, the Revenue is in appeal before us.
107. On this aspect, learned CIT-DR has merely relied upon the discussion in the assessment order, whereas the learned counsel for the respondent assessee has defended the order of the CIT(Appeals) by placing reliance on the same.
108. W e have perused the orders of the lower authorities and considered the rival submissions on this aspect and find no cogent reasons to interfere with the findings of the CIT(Appeals), which are based on relevant material. In fact, the Revenue has not assigned any reasons to show that the CIT(Appeals) made any mistake in deleting the aforesaid additions for the reasons stated in the impugned order. Accordingly, the Ground of Appeal raised by the Revenue is dismissed.
109. Ground No. 13 raised by the Revenue reads as under:
"13. in deleting the addition of Rs.5000/- and Rs.1,88,091/- and allowing partly relief of Rs.4600/- on account of expenses met out of income or receipts not accounted for in the books of A/cs as the fact this amount was shown in return 73 of income is also not verifiable from the details filed by the assessee.
The dispute in this Ground relates to an addition made by the A s s e s s i n g O f f i c e r b y r e l y i n g o n A n n e xu r e A - 2 2 s e i ze d f r o m M / s Khosla Cold Storage. As per the Assessing Officer, the said annexure contained 65 pages and the accountant of the assessee-firm Shri Raj Kishan Sharma in presence of Shri Rajesh Khosla, during the course of his examination on 03.10.2000, admitted that the documents in this annexure are in respect of expenses incurred on the various dates outside the account books. Accordingly, Assessing Officer made addition on account of unaccounted expenses in three assessment years comprised in the block period as under:
Assessment Year 1997-98 Rs. 5,000/-
Assessment Year 1998-99 Rs. 176,174/-
Assessment Year 1999-2000 Rs.1,88,091/-
110. In appeal before the CIT(A), assessee challenged the aforesaid additions. The CIT(A) retained addition of Rs.1,71,574/- out of Rs.1,76,174/- and deleted the balance of Rs.1,88,091/- and Rs.5000/-. Before us, Revenue has challenged the additions deleted by the CIT(A).
111. W e have perused the respective orders of the authorities below. The CIT(A) has deleted the addition by accepting the following explanation rendered by the assessee:
"As regards addition of Rs.1,88,091/- in the asstt. Year 1999-2000 the appellant had already taken into account an amount of Rs.1,94,321/- as per the said annexure A- 14 and A-18 as per details enclosed as Annexure-37. This expenditure was met out of the funds available from loans/advances made and received back as 74 discussed supra. The figure of Rs.1,94,321/- stands included in 4,60,000/-. In the light of these facts no separate addition is called for. Accordingly the addition of Rs.1,88,091/- deserves to be deleted.
For the addition of Rs.5000/- made on the basis of D. No.3 of Ann. A-18 (Copy enclosed as Annexure 38) it is submitted that the said document does not belong to the appellant firm. The printed material thereon i.e. oil seals and rubber parts shows that it relates to truck, as oil seals and rubber parts are not used by the appellant. Truck is owned by Shri Pardeep Khosla in his individual capacity and he has been returning income therefrom in accordance with the provisions of section 44AE. The returned income has been accepted in all the relevant years. In view of these facts no addition is called for either in the case of the appellant or Sh. Pardeep Khosla. It is therefore, requested that the addition of Rs.5000/- may kindly be deleted."
On the basis of the aforesaid, it is evident that there is no justification to sustain additions of Rs.1,88,091/- and Rs.5000/- since the same have already been offered for tax in the respective hands. There is no material to negate the findings of the CIT(Appeals) in this regard. Even the scaling down of addition of Rs.1,76,174/- to Rs. 1,71,574/- is fair and proper in view of the following explanation rendered by the assessee before the CIT(A):
"In the asstt. Year 1998-99 an addition of R s . 1 , 7 6 , 1 7 4 / - h a s b e e n m a d e d e t a i l s o f w h i c h a re given at pages 33-34 of the Asstt. order in paragraph
17. it is submitted that the total expenditure as per D. No. 7 of Annx. A-14(copy enclosed) works out to Rs.77,400/- and not Rs.82,000/- adopted by the Ld. Assessing Officer. Thus there is excess addition of Rs.4,600/-."
Although, the Revenue has preferred to raise the above Ground of Appeal, but no cogent material has been brought on record before us, to dislodge the reasoning adopted by the CIT(Appeals) to delete the additions. Accordingly, Ground No. 13 raised by the Revenue is dismissed.
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112. The last Ground raised by the Revenue reads as under:
"14. in deleting the addition of Rs.46,860/- on account of unexplained rent receipts from cold storage as the explanation of the assessee is not supported by documentary evidence".
In this Ground the dispute pertains to an addition of Rs.46,860/- made by the Assessing Officer on account of unaccounted rent receipts from the business of cold storage. This addition was based on document No. 22 of Annexure A-27 seized from M/s Khosla Ice & General Mills and document No. 35 of Annexure A- 26 seized from the residence of Shri Pardeep Khosla. The Assessing Officer noticed that as per document No. 22 of Annexure A-27, 36608 potato bags were stored during the financial year 1996-97. As per document No. 35 of Annexure A- 26, it showed 38703 bags were stored. As per the ledger of the assessee-firm, it was found that rent of only 33164 bags was recorded. Thus, the Assessing Officer required the assessee to explain as to why rent in respect of 5539 bags (i.e. 38703-33164) be not be treated as undisclosed income. Assessee explained that as per document No. 35 of Annexure A- 26, actually 33940 bags were stored and not 38703, as noted by the Assessing Officer because with respect to the balance of 4758 bags, only labour charges were recovered and not storage charges. As per assessee's calculation, there was a difference of 781 bags between the rent accounted for in the books of account and the number of bags found stored as per document 35 of Annexure A-26. The difference of 781 bags was explained as unclaimed potatoes which had to be thrown out to clear the space as such stock had rotten. Assessing Officer accepted the 76 contention of the assessee that the difference was only of 781 bags, but in absence of any evidence of unclaimed stock, he treated the rent of 781 bags @ 60 per bag amounting to Rs.46,860/- as undisclosed income of the assessee for the assessment year 1997-98 comprised in the block period. The CIT(A) has deleted the addition by accepting the plea of the assessee that such stock was unclaimed and no rent was charged.
113. Before us, Ld. CIT DR submitted that the explanation of the assessee has been accepted by the CIT(A) without any documentary support and therefore the addition has been wrongly deleted.
114. On the other hand, Ld. Counsel for the respondent- assessee has relied upon the order of the CIT(A) in support of the case of the assessee.
115. Having considered the rival submission, in our view, the Assessing Officer is justified in making the impugned addition because there is no material on record to support the plea that no rent was recovered for 781 bags and instead such stock r e m a i n e d u n c l a i m e d . I n f a c t , t h e e vi d e n c e f o u n d d u r i n g s e a r c h , reflected unaccounted storage of potato bags and there is no evidence to suggest that the same were unclaimed or the rent was not received for such stock. Further, there is no detail furnished by the assessee to show that the damaged stock belonged to a particular concern. W e therefore set-aside the order of the CIT(A) and restore the addition made by the Assessing Officer. Thus, on this Ground Revenue succeeds. 77
116. Resultantly, appeal of the Revenue in IT(SS)A. No. 43/Chandi/2002 is partly allowed.
117. Now, we take up appeal of the assessee vide IT(SS)A. No.38/Chandi/2002 in the case of Smt.Bharti Khosla which is directed against the order of the CIT(Appeals) dated 19.03.2002, which in turn arises from an order passed by the Assessing Officer under Section 158BC of the Act dated 30.10.2000 for the block period 01.04.1988 to 07.10.1998.
118. Briefly stated, the facts are that subsequent to a search action u/s 132(1) of the Act on the assessee on 07.10.1998, she filed a return of income disclosing undisclosed income at Rs.2,18,000/- for the assessment years 1993-94 (Rs.50,000/-), assessment year 1997-98 (Rs.1,28,000/-) and assessment year 1999-2000 (Rs.40,000/-) comprised in the block period 01.04.1988 to 07.10.1998. The Assessing Officer, finally assessed the undisclosed income for the block period, in an assessment finalized u/s 158BC on 20.10.2000, at Rs.3,53,625/-. The CIT(Appeals) has allowed partial relief, against which the assessee is in appeal before us on the following two Grounds of Appeal :
"1. That the learned Commissioner of Income Tax has erred in retaining an addition of Rs.1,00,000/- out of the total addition of 78 Rs.1,30,625/- on account of alleged unexplained investment in jewellery.
2. That the learned Commissioner of Income Tax(Appeals) erred in confirming the addition of Rs.5000/- made on estimate basis by the learned Assessing Officer on account of alleged cost of arranging the gift."
In the first Ground, the dispute relates to an addition of Rs.1,00,000/- sustained by the CIT(Appeals) on account of unexplained investment in jewellery. In brief, the facts are, that at the time of search u/s 132(1) of the Act, jewellery of 1381.960 grams was found with the assessee. Out of above, Assessing Officer considered 894.380 grams of jewellery as explained and the balance of 487.580 grams was considered as unexplained in the hands of the assessee. The Assessing Officer put the value of this unexplained jewellery @ Rs.3500/- per 10 grams, which came to Rs.1,70,625/-. Since the assessee had disclosed a sum of Rs.40,000/- on account of jewellery in the return of income filed in Form No. 2B, the balance of Rs.1,30,625/- was assessed as undisclosed income for the assessment year 1999-2000 comprised in the block period.
119. The CIT(Appeals) has since allowed partial relief. According to the CIT(Appeals), after taking into account jewellery attributed to the husband and son of the assessee, only 400 grams of jewellery be taken as unexplained. He, therefore, valued 400 grams of jewellery @ Rs.3500/- per 10 grams at Rs.1,40,000/- and after reducing Rs.40,000/- declared by the assessee, the balance of Rs.1,00,000/- has been assessed as undisclosed income.
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120. Before us, learned counsel for the assessee submitted that CIT(Appeals) was not justified in attributing to the husband and son of the assessee only jewellery to the extent of 87.580 grams. It is contended that the entire jewellery considered as unexplained could be attributable to the husband and son of the assessee and therefore, no addition was maintainable.
121. On the other hand, learned DR has relied upon the orders of the authorities below.
122. W e have considered the rival submissions carefully. W e find no reasons to interfere with the order of the CIT(Appeals) as no cogent reason has been advanced by the appellant before us. Accordingly, on Ground No.1, assessee fails.
123. In Ground No.2, issue relates to addition of Rs.5000/- made by the Assessing Officer as cost of gift obtained by the assessee from one Shri Swarna. The gift in question of Rs.1,28,000/- was surrendered by the assessee in the return of income filed. According to the Assessing Officer, the assessee must have spent certain amount over and above, the value of gift to obtain the same clandestinely. The CIT(Appeals) has also upheld the addition of Rs.5000/- on this count.
124. From the orders of the lower authorities, we find, there is no iota of evidence to show that such expenditure has been incurred by the assessee even if the assessee has admitted that the gift was bogus. In an assessment under Chapter XIV-B of the Act, income is liable to be assessed only on the basis of evidence and not on mere surmises. Therefore, the impugned 80 addition could not be made in the hands of the assessee in the absence of any evidence. Accordingly, the same is hereby deleted.
125. In the result, appeal of the assessee in ITSS/38/Chd/2002 is partly allowed.
126. Now, we take up the appeal in IT/SS/39/Chandi/2002 in the case of Mrs. Prem Lata Khosla which is directed against the order of the CIT(Appeals) dated 19.03.2002, which in turn has arisen from block assessment finalized by the Assessing Officer under section 158BC of the Act dated 30.10.2000 pertaining to the Block Period 01.04.1988 to 07.10.1988. The Grounds of Appeal raised by the assessee are as under :-
1. That the order passed by the Ld. Commissioner of Income Tax (Appeals) u/s 250(6) is contrary to law and facts.
2. That the Ld. Commissioner of Income Tax (Appeals) erred in confirming an addition of Rs.53,319/- out of total addition of Rs.1,05,819/- on account of alleged unexplained investment in jewellery.
127. The first Ground raised is general in nature and the same does not require any adjudication and is accordingly dismissed.
128. The second Ground relates to an addition of Rs.53,319/- sustained by the CIT(A) as unexplained investment in jewellery. In this regard, brief facts are that during the course of search, jewellery to the extent of Rs.1777.340 gms. was found at the residence as well as in the locker of the assessee. Out of this, Assessing Officer treated 1475 gms. of jewellery as explained 81 and the balance jewellery of 302.340 gms. valued at Rs.1,05,819/-, was treated as unexplained and assessed as undisclosed income.
129. Before the CIT(A), assessee submitted that the jewellery considered explained in the hands of Mrs. Meena Khosla at 700 gms. is incorrect because she had stated that 60 tolas of jewellery was available with her and in that light, the weight of jewellery belonging to her be taken at 877 gms. instead of 700 gms. considered by the Assessing Officer. The CIT(A) gave the benefit of 70 gms. on this count. Further, with regard to 50 tolas of jewellery in the hands of the assessee, it was explained that the equivalent weight in gms. is 580 gms. and not 500 gms., as considered by the Assessing Officer. This plea has also been accepted by the CIT(A). Accordingly, benefit of 150 gms. of jewellery was allowed and the balance of 152.340 gms. was considered as unexplained.
130. Not being satisfied with the order of the CIT(A), assessee is in appeal before us. After hearing the parties, we find no fresh arguments except those considered by the authorities below. The appellant has not brought out any cogent material or evidence to negate the impugned order of the CIT(A). The only plea raised is that the assessee is a wealth tax p a ye e . T h e a f o r e s a i d d o e s n o t e s t a b l i s h t h e s o u r c e s o f j e w e l l e r y of 152.340 gms. considered unexplained by the CIT(A), especially when there is no detail on record regarding the jewellery declared in the W ealth Tax proceedings. Accordingly, the order of the CIT(A) is hereby sustained and the Ground raised by the assessee is dismissed.
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131. Resultantly, the appeal of the assessee in IT(SS)A 39/Chandi/2002 is hereby dismissed.
132. Now we take up appeal in ITSS 50/Chd/2002 in the case of Shri Rakesh Khosla, HUF. This appeal of the Revenue is directed against the order of the CIT(Appeals) dated 19.03.2002 which in-turn has arisen from an order passed by the Assessing Officer u/s 158BC of the Act dated 30.10.2000 for the block period 01.04.1988 to 07.10.1998. The solitary Ground raised by the Revenue reads as under :
"The learned CIT(Appeals) erred in law/in facts in deleting the addition of Rs.55,000/- and Rs.2,10,000/- on account of gift given by an NRI not having any relationship with the assessee which was added relying on the judgement of the Hon'ble P&H High Court in the case of Shri Lal Chand Kalra V IT reported in 22 CTR (P&H) 135."
In this case, after an action u/s 132(1) of the Act against the assessee on 07.10.1998, notice u/s 158BC of the Act was issued, in response to which assessee filed a return of income declaring undisclosed income at Rs.1,70,000/-. In an assessment finalized u/s 158BC on 30.10.2000, the total undisclosed income for the block period was determined at Rs.4,41,500/-. The additions made in assessment were carried in appeal before the CIT(Appeals). The CIT(Appeals) allowed partial relief, against which Revenue is in appeal before us.
133. The dispute essentially pertains to gifts received by the assessee which have been considered as unexplained. The first issue is with regard to an addition of Rs.55,000/- which comprises of two portions, viz, Rs.50,000/- representing a gift from one Shri Charnamat Singh and Rs.5,000/- being the 83 estimated cost of arranging this gift of Rs.50,000/-. The second issue is with regard to the addition of Rs.2,10,000/- which comprises of two portions, viz, Rs.2,00,000/- representing a gift from one Mr.Dharampal and Rs.10,000/- as estimated cost of arranging the gift of Rs.2,00,000/-.
134. In the assessment order, Assessing Officer observes that document No.11 of Annexure A-14 seized during the course of search is a copy of Demand Draft representing gift received by the assessee from Shri Charanamat Singh. Demand Draft is dated 18.04.1994 and has been issued by the donor from his NRE account maintained with State Bank of Patiala, Phillaur branch. The Assessing Officer has treated the gift as unexplained as according to him, the assessee could not establish the identity or capacity of the donor to advance gift and also the occasion for the gift, since the donor and the donee are strangers to each other. For the above reason, gift of Rs.50,000/- has been added as assessee's undisclosed income and a further addition of Rs.5,000/- has also been made as payment of commission for obtaining the said gift, thus, the total addition of Rs.55,000/-. The CIT(Appeals) has since deleted the impugned addition.
135. Before us, learned DR vehemently argued that the Assessing Officer has established that the donor and donee were strangers and further that the donor did not have the financial capacity to give the gift. The learned DR has referred to the investigations carried out by the Assessing Officer. According to her, the Assessing Officer obtained a copy of the 84 bank account of the donor and statement of Shri Kashmira Singh, a cousin of the donor was also recorded to ascertain the facts. On the basis of such exercise, it was found that the donor Shri Charanamat Singh had no financial capacity to give gift to any person and in this case, assessee did not have family or social relations with the donor and under these circumstances, the amount of gift was treated as unexplained. In the course of her submissions, learned CIT-DR has relied upon the judgement of Hon'ble Punjab & Haryana High Court in the case of Subhash Chander Sekhri V DCIT, 290 ITR 300.
136. On the other hand, learned counsel for the respondent assessee vehemently argued and supported the conclusion drawn by the CIT(Appeals). It has been contended by the learned counsel that in the course of search, no evidence has been found to show ingenuinity of the gift and therefore, the addition has been made on mere conjectures and surmises. He pointed out that the gift of Rs.50,000/- has been declared by the assessee HUF in its Balance sheet for the year ending 31.3.1995 and therefore, the same could not form a part of the undisclosed income within the meaning of Chapter XIV-B of the Act. In support, reliance has been placed on the following decisions :
i) CIT V Vinod Danchand Ghodawat 247 ITR 448 (Bom)
ii) Bhagwati Prasad Kedia V CIT, 248 ITR 562 (Cal)
iii) CIT V Vikram A.Doshi 256 ITR 129 (Bom.)
137. W e have considered the rival submissions carefully.
The first and the foremost issue to be addressed in this dispute 85 relates to the undisclosed income, that is liable to be considered for the purpose of Chapter XIV-B of the Act. In this connection, a brief reference to the scheme of the block assessment envisaged in Chapter XIV-B of the Act is relevant. Chapter XIV-B of the Act lays down the procedure for block assessment proceedings and is intended to operate simultaneously with the normal scheme of assessment laid down in Chapter XIV of the Act. It is quite well settled that both the assessment schemes are independent of each other. They are not mutually exclusive in as much as a block assessment under Chapter XIV-B is not intended to be a substitute for a regular assessment, since it is intended to assess only undisclosed income. Section 158BB of the Act clearly shows that undisclosed income has to be computed on the basis of the evidence found as a result of search or other documents and materials or information available with the Assessing Officer and relatable to such evidence. The central theme of Section 158BB is that the undisclosed income of the block period is to be computed with reference to the material or evidence available with the Assessing Officer, which is relatable to the evidence found as a result of search. In other words, any material or information which might be available with the Assessing Officer but which is not found as a result of search or is not relatable to an evidence found as a result of search, cannot form the basis for computation of undisclosed income. Similarly, the definition of "undisclosed income" in Section 158B(b) reveals that if any asset or any income as recorded in the books of account or document, has been disclosed or have been intended to be disclosed to the income 86 tax authorities, the same would be outside the pale of "undisclosed income" for the purposes of Chapter XIV-B of the Act. In the case of Vikram A.Doshi (supra), undisclosed income was computed by the Assessing Officer on the basis of certain transactions. It was found that such transactions were disclosed by the assessee in the return of income, which was a subject matter of regular assessment. Therefore, it was held that such transactions, which were disclosed in regular returns, ought to have been assessed in the regular assessment and not in a block assessment under Chapter XIV-B of the Act.
138. In the case of Vinod Danchand Ghodawat (supra) during search it was found that the assessee had constructed a bungalow on which an expense of Rs.4.16 lacs was incurred. The Assessing Officer, thereafter referred the matter to the Department Valuer, who valued the property at Rs.6.66 lacs and accordingly, the difference was added to the income of the assessee as undisclosed income under Chapter XIV-B of the Act. Similarly, value of gold and silver articles and jewellery was also added in the hands of the assessee as undisclosed income, which were found to have been disclosed in the regular Wealth Tax Returns, filed by the assessee. On both the aspects, as per the Hon'ble Bombay High Court, the provisions of Chapter XIB-B had no application.
139. In the above background, coming back to the facts of the present dispute, it is clear that the gift of Rs.50,000/- received by the assessee from Mr.Charanamat Singh was disclosed to the Department by the assessee HUF. The said 87 gift has also been reflected in the Balance sheet of the assessee, HUF as on 31.3.1995, a copy of which has been placed in the Paper Book at page 9. Furthermore, assessee has furnished a questionnaire dated 05.10.2000 issued by the Assessing Officer wherein in para 3, it is noted that the assessment record of the assessee HUF for the assessment year 1995-96 reveals a credit in the assessee HUF's account of Rs.50,000/-. As per the assessee, the reference to the credit of Rs.50,000/- is the gift in question which has been disclosed in the Balance sheet filed alongwith the return of income for the assessment year 1995-96.
140. Apart therefrom, we have carefully perused the block assessment order dated 30.10.2000 and also the Paper Book filed by the Revenue. In this Paper Book, Revenue has placed copies of the documents seized during the course of search with regard to the gifts in question. The documents are photocopies of the demand draft by way of which the gifts have been received by the assessee. No other document or evidence is claimed to have been found during the course of search. In fact, it is only the enquiries made by the Department subsequent to the search which has formed the basis for holding that the gift in question is unexplained. Thus, in the course of search, there is no evidence found which proves the falsity of the gift. At this stage, we may refer to the following conclusions drawn by the Assessing Officer in para 5.4(iii) which reads as under :
"5.4(iii) The explanation give, therefore, is rejected. There is no love and affection between the donor and 88 the donee. They are strangers to each other. The Hon'ble Punjab & Haryana High Court's decision in Lal Chand Kalra V CIT reported in 22 CTR (P&H) 135 is applicable. The amount ofRs.50,000/- is treated as assessee's undisclosed income paid in "cash to the alleged donor for obtaining the draft". In addition, a sum of Rs.5000/- is also estimated to have cost to the assessee by way of commission for obtaining the draft. The total undisclosed income on this account is determined at Rs.55,000/-. The alleged gift of Rs.40,000/- from the above account to Mrs.Meena Khosla has also been treated as her undisclosed income in her own case u/s 158BD of the Act."
The aforesaid reveals that the charge made against the assessee is that Rs.50,000/- is treated as assessee's undisclosed income because the said amount has been paid in cash to the alleged donor for obtaining the draft. In our view, there is no evidence found as a result of a search to prove that any cash was paid by the assessee to the donor for obtaining the impugned gift. Notably, the only evidence which is referred to, in the assessment order is a copy of the Demand draft evidencing receipt of money from the donor. There is no evidence to support the plea of the Assessing Officer that assessee had paid cash to the alleged donor for obtaining the impugned gift. Therefore, having regard to the provisions of Section 158BB of the Act, the said amount of gift could not be made a subject matter of computation of undisclosed income. At this point, we may also address the argument set up by the learned CIT-DR that the provisions of Section 158BB also invest the Assessing Officer with power to compute undisclosed income on the basis of the documents, materials or information which are available with him. According to her, in this case the enquiries made with regard to the bank account of the donor and also from a family member of the donor clearly establish the ingenuinity of the gift in question. In our view, the 89 argument of the learned CIT-DR is misplaced as following discussion would show. Section 158BB of the Act as inserted initially, prescribed for computation of undisclosed income on the basis of evidence found as a result of search or requisition of books of account or document and such other materials or information as are available with the Assessing Officer. The said expression was amended by Finance Act 2002 with retrospective effect from 01.07.1995 to read "........in accordance with the provisions of this Act, on the basis of evidence found as a result of search or requisition of books of account or other documents and such other materials or information as are available with the Assessing Officer and relatable to such evidence........". The difference in the two expressions is evident. Initially, the undisclosed income was to be computed on the basis of the evidence found as a result of search and such other information or material which may be available with the Assessing Officer. Notably, after the amendment, the other material or information available with the Assessing Officer is further qualified in as much as the same can be made the basis to compute undisclosed income only in case it is "relatable to such evidence". Pertinently the expression "such evidence", refers to the evidence which has been found as a result of search. In other words, Assessing Officer is permitted to collect further material and information after the search also, in order to compute undisclosed income, but the same can be used to compute undisclosed income, only if it is relatable to the evidence found as a result of the search. While learned CIT-DR is correct in saying that the post-search enquiries are relevant, so however, they can form the basis to 90 compute undisclosed income only if they are relatable to the evidence found as a result of the search. As noted earlier, in this case, there is no evidence found as a result of search which showed that the gifts were ingenuine in as much as the only material and evidence found and exhibited by the Assessing Officer is the copies of Demand Drafts by way of which the assessee had received the gifts. There is no evidence found in search that the assessee had paid cash in lieu of the impugned gift. Therefore, the result of post-search enquiries done cannot be made a basis to compute 'undisclosed income' under Chapter XIV-B in this case, because in the absence of any incriminating evidence found during search, the post-search enquiries cannot be said to be "relatable to such evidence"; within the meaning of Section 158BB of the Act, without opining on the merits of the claim of the Assessing Officer that gifts are ingenuine, we hold that it was impermissible for him to make such an addition in the hands of the assessee in view of the restrictive provisions of Section 158BB read with Section 158B(b) of the Act. Certainly, the verification exercise carried out by the Assessing Officer can be a subject matter of regular assessment. So however, the same cannot form the basis for making addition in terms of Section XIV-B of the Act, in view of our aforesaid discussion. Therefore, in conclusion, we hold that the Assessing Officer was not justified in making addition of Rs.50,000/- as undisclosed income on account of gift claimed to have been 91 received from Mr.Charanamat Singh. Since the amount of Rs.50,000/- has been deleted, there is no justification to sustain the addition of Rs.5,000/- estimated to be cost of commission for obtaining the gift. There is no evidence that the assessee has incurred such expenditure, and accordingly the entire addition of Rs.55,000/- is directed to be deleted.
141. It was a common point between the parties that the facts and circumstances in relation to the addition of Rs.2,10,000/-, which represents gift from Shri Dharampal are identical to the gift received from Shri Charanamat Singh. Accordingly, our decision in the aforesaid paragraphs squarely applies to the addition of Rs.2,10,000/- made by the Assessing Officer on account of gift from Shri Dharampal.
142. In conclusion, we uphold the ultimate conclusion drawn by the CIT(Appeals) in deleting the impugned additions, albeit on a different ground.
143. In the result, the appeal of the Revenue in ITSS 50/Chd/2002 in the case of Shri Rakesh Khosla, HUF is dismissed.
144. In the final analysis, the captioned appeals are disposed off as follows :
i) Assessee's appeal in I T (S S )A N o . 3 2 / Ch a n d i 2 0 0 2 is p a r t l y a l lo we d .
ii) R e ve n u e ' s appeal in IT(SS)A No . 4 4 / Ch a n d i / 2 0 0 2 is d i sm i s s e d .92
iii) Assessee's appeal in I T (S S )A N o . 3 3 / Ch a n d i 2 0 0 2 is p a r t l y a l lo we d .
i v) R e ve n u e ' s appeal in IT(SS)A No . 4 3 / Ch a n d i / 2 0 0 2 is p a r t l y a l lo we d .
i v) Assessee's appeal in I T (S S )A N o . 3 8 / Ch a n d i 2 0 0 2 is p a r t l y a l lo we d .
v) Assessee's appeal in IT(SS)A N o . 3 9 / Ch a n d i 2 0 0 2 is d i sm i s s e d .
vi) R e v e n u e ' s a p p e a l i n I T (S S ) A No . 5 0 / Ch a n d i 2 0 0 2 i s d i sm i s s e d .
Order pronounced in the Open Court on 09.09.2010.
Sd/- Sd/- (S US HMA CHOW LA ) ( G.S.PANNU) JUDICIAL MEMBER ACCOUNTANT MEMBER Dated : 09th Sept.,2010. 'Poonam' Copy to : The Appellant/The Respondent/The CIT (A)/The CIT/The DR.