Income Tax Appellate Tribunal - Chennai
Sivabala Devi.R, Chennai vs Assessee on 21 June, 2012
IN THE INCOME TAX APPELLATE TRIBUNAL
'A' BENCH, CHENNAI
BEFORE Dr. O.K.NARAYANAN, VICE-PRESIDENT
AND SHRI V.DURGA RAO, JUDICIAL MEMBER
IT(SS)A No.112(Mds)/1998
Block Assessment Years : 1986-87 to 1996-97 (Upto 19-1-1996)
Smt. Sivabala Devi, The Assistant Commissioner
Flat No.6, Block K-III, of Income-tax,
Boganvilla Apartments, Vs. Central Circle II(4),
15th Street, Anna Nagar, Chennai.
Chennai-600 012.
PA/GIR No.24703-B.
(Appellant) (Respondent)
Appellant by : Shri V.Srinivasan, Chartered Accountant
Respondent by :Shri Shaji P Jacob, IRS, Addl.CIT
Date of Hearing : 21st June, 2012
Date of Pronouncement : 25th July, 2012
ORDER
PER Dr.O.K.NARAYANAN, VICE-PRESIDENT:
This is a block assessment appeal. The block assessment has been completed under section 143(3), read with sections 158BC and 158BD of the Income-tax Act, 1961. The
-2- IT(SS)A 112 of 1998 impugned block assessment is the one governed by the provisions of section 158BD of the Income-tax Act, 1961.
2. There was a search under section 132 of the Income-tax Act, 1961 on 19/20-1-1996 in the case of the co- brother of the assessee. According to the Assessing Officer, the documents and materials seized with reference to the above search have led to the framing of the impugned block assessment on the assessee under section 158BD of the Act. Accordingly, the relevant assessment years involved in the impugned block period are the assessment years from 1986-87 to 1996-97 (upto 19-1-1996).
3. According to the Assessing Officer, the seized records and materials made out a case of undisclosed income against the assessee. Therefore, he issued notice under section 158BC on 7-3-1997, which was served on the assessee on 18-3-1997. The assessee filed the return in Form No.2B on 26-5-1997. She admitted an undisclosed income of ` 2,31,098/- and paid tax of ` 1,38,659/-.
4. Later on, the Assessing Officer issued notice under section 143(2) on 29-5-1997 and set in motion the process of
-3- IT(SS)A 112 of 1998 assessment of undisclosed income in the case of the assessee. The Assessing Officer found that the assessee is the proprietrix of three business concerns, namely M/s.Bharani Yolkam International, M/s. Bharani Real Estate and Sri Bala & Co. M/s.Bharani Yolkam International is doing business as commission agent for M/s.The Karur Co-operative Handloom Export Production Project Limited. The said business was said to be commenced from the assessment year 1984-85. The rate of commission entitled for the assessee was 10%. The assessee claimed various expenditure in respect of the said business in the form of salary, rent, electricity and other establishment charges and had shown certain amounts as income from the said concern for all the assessment years included in the block period. But the Assessing Officer was of the view that the assessee has worked out the income and expenditure on an estimate basis and therefore the income disclosed by the assessee for the various years from the said business concern cannot be accepted as such. Instead, he treated 60% of the commission receipts as income of the assessee and the differential amounts were treated as
-4- IT(SS)A 112 of 1998 undisclosed income. The total commission income so determined by the Assessing Officer for the purpose of the block assessment comes to ` 5,99,405/- as shown below:-
Assessment Year Amount
1986-87 ` 48,610/-
1987-88 ` 20,016/-
1988-89 ` 23,485/-
1989-90 Nil
1990-91 ` 1,86,805/-
1991-92 ` 1,87,986/-
1992-93 ` 34,969/-
1993-94 ` 9,500/-
1994-95 ` 29,124/-
1995-96 ` 41,116/-
1996-97(upto 19.1.96) ` 17,794/-
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` 5,99,405/-
-----------------
5. M/s.Bharani Real Estate is a concern having real estate business. The Assessing Officer accepted the net income from Bharani Real Estate as returned by the assessee (paragraph 2.3.2 of the assessment order). The assessee has claimed an income of ` 20,000/- per annum from the assessment year 1991-92 onwards on sale of thorn trees from the patches of land purchased for development and sale as house plots.
-5- IT(SS)A 112 of 1998 These receipts were treated by the Assessing Officer as undisclosed income of the assessee. He computed an undisclosed income of ` 1,16,000/- against the sale of thorn trees as detailed below:-
Assessment Year Amount
1991-92 ` 20000/-
1992-93 ` 20,000/-
1993-94 ` 20,000/-
1994-95 ` 20,000/-
1995-96 ` 20,000/-
1996-97
(Upto 19.1.96) ` 16,000/-
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` 1,16,000/-
--------------
6. The other concern of the assessee, Sri Bala & Co, dealt with a property known as Loch End Compound in Kodaikanal. The assessee had entered into a purchase agreement with Indian Evangelical Lutheran Church Trust Association on 29.4.1991. The assessee had originally invested a sum of ` 10 lakhs by way of advance to the trust for purchase of the property. The assessee also invested ` 5 lakhs thereafter. Even though the assessee has taken over the possession of the property, the property could not be registered in her name for a
-6- IT(SS)A 112 of 1998 number of litigations. The assessee had spent money to develop the property for running the business of a guest house. She was earning rental income from the assessment year 1993-94 onwards. The assessee did not admit such rental income from the guest house as income, but on the other hand, set off the income against the work in progress for the reason that the main business of real estate did not commence. The Assessing Officer relying on various court decisions, including that of the Hon'ble Supreme Court in Tuticorin Alkali Chemicasls vs CIT (227 ITR 172) held that the rentals constituted income and treated such receipts as undisclosed income of the assessee. A total amount of ` 10,85,000/- has been adopted as the undisclosed income of the assessee on this ground. The details are as below:-
Assessment Year Amount
1993-94 ` 2,50,000/-
1994-95 ` 2,75,000/-
1995-96 ` 3,00,000/-
1996-97 (upto 19.1.96) ` 2,60,000/-
-------------------
` 10,85,000/-
-------------------
-7- IT(SS)A 112 of 1998
It is to be stated that the above income has been worked out by the Assessing Officer on an estimate basis and not on the basis of exact accounts.
7. As per the statements and details furnished by the assessee, the source of investments made by her in various businesses was availed by way of loans from about 42 persons. She has furnished the details of those persons from whom she availed such loans. According to the Assessing Officer, the genuineness of those loans was not proved and accordingly he treated the entire loan amounts as assessee's undisclosed income. A total of ` 75,31,500/- is taken as the undisclosed income of the assessee against the loan creditors. The year- wise particulars are as below:-
Assessment Year Amount
1991-92 ` 16,92,000/-
1992-93 ` 19,90,000/-
1993-94 ` 9,60,000/-
1994-95 ` 8,10,000/-
1995-96 ` 16,27,000/-
1996-96(upto 19.1.96) ` 4,52,000/-
-------------------
` 75,31,500/-
-------------------
-8- IT(SS)A 112 of 1998
8. While preparing the cash flow statements for the various assessment years included in the impugned block period, the assessee has taken credit for certain gifts said to be received by her. The Assessing Officer did not accept the genuineness of the gifts and treated the gifts as the undisclosed income of the assessee. The total amount on this point treated as undisclosed income of the assessee is ` 1,20,700/-, as shown below:-
Assessment Year Amount
1986-87 ` 3,000/-
1987-88 ` 3,500/-
1989-90 ` 4,000/-
1990-91 ` 42,500/-
1991-92 ` 4,200/-
1992-93 ` 7,500/-
1993-94 ` 15,000/-
1994-95 ` 11,000/-
1995-96 ` 28,000/-
1996-97(upto 19.1.96) ` 2,000/-
------------------
` 1,20,700/-
------------------
9. The assessee has taken credit for agricultural income obtained from various properties owned and held by her during the block period. But the Assessing Officer did not
-9- IT(SS)A 112 of 1998 accept the quantum of the agricultural income claimed by the assessee as such. He treated a portion of such agricultural income as non-agricultural in nature and thereby undisclosed income in substance. Such partial disallowance of agricultural income and impressing it as undisclosed income amounted to ` 1,97,200/-. The details are as below:-
Assessment Year Amount
1989-90 ` 12,000/-
1990-91 ` 17,000/-
1991-92 ` 17,000/-
1992-93 ` 34,000/-
1993-94 ` 34,000/-
1994-95 ` 34,000/-
1995-96 ` 34,000/-
1996-97(upto 19.1.96) ` 15,200/-
-----------------
` 1,97,200/-
-----------------
10. The assessee has claimed income by way of commission from M/s.Chenkumar Weavers Co-operative Production and Sales Society. The Assessing Officer treated the said commission income also as the undisclosed income of the assessee. The total comes to ` 38,538/- as stated below:
-10- IT(SS)A 112 of 1998
Assessment Year Amount
1991-92 ` 10,986/-
1992-93 ` 7,669/-
1993-94 ` 1,112/-
1994-95 ` 18,771/-
---------------
` 38,538/-
--------------
11. While considering the undisclosed income for the assessment year 1991-92, the Assessing Officer has rejected the claim of the assessee that she had received a loan of `2 lakhs from P.C.Palaniswamy of Erode for making investments in Sri Bala & Co and M/s.Bharani Real Estate. This loan of `2 lakhs is also added by the assessing authority as undisclosed income.
12. While mentioning about M/s.Bharani Real Estate, we have mentioned that the assessing officer has accepted the income as returned by the assessee. Accordingly, he has treated ` 1242 as the undisclosed income of the assessee for the assessment year 1993-94. In the case of the same business, the assessee has claimed a depreciation of ` 15,228 for the assessment year 1994-95 in respect of an air conditioner. The Assessing Officer held that the air conditioner was installed
-11- IT(SS)A 112 of 1998 in assessee's residential house and therefore the same could not be allowed. The said amount of ` 15,228/- was also treated as the undisclosed income of the assessee.
13. The assessee had sold a plot of land at Karur for a consideration of ` 1,80,000/-. The land was purchased in 1988. The Assessing Officer computed a capital gains of ` 1,50,650/- against the above transaction and treated the same as the undisclosed income of the assessee for the assessment year 1996-97. During the same assessment year, the assessee has claimed that she received a sum of ` 9,50,000/- by way of compensation from one Dr. Suriya Shekhar in cancellation of an agreement dated 9-2-1992 by which the assessee agreed to purchase a property at plot No.4530, Y-201, 5th Avenue, Anna Nagar, Madras-40. The Assessing Officer treated the sum of ` 9,50,000/- as the income of the assessee, as according to him, the assessee did not produce any evidence to establish that the said amount was received by way of compensation. For bringing the amount to tax, the Assessing Officer also relied on the decision of the Hon'ble Supreme Court in CIT v. G.R.Karthekeyan (201 ITR 866).
-12- IT(SS)A 112 of 1998
14. In her cash flow statement filed along with the block return, the assessee has shown the receipt of agricultural income from M/s.MBS Granites and according to the assessee the amount received from M/s.MBS Granites were her share from the agricultural income earned by the said firm. But the Assessing Officer treated those receipts as the undisclosed income of the assessee on the ground that the assessee has not produced any proof in support of her contention. A total amount of ` 4,66,000/- has been treated by the Assessing Officer as undisclosed income on the above ground. The details are as follows:-
Assessment Year Amount
1993-94 ` 1,25,000/-
1994-95 ` 1,25,000/-
1995-96 ` 1,20,000/-
1996-97(upto 19.1.96) ` 96,000/-
------------------
` 4,66,000/-
-------------------
15. The Assessing Officer has also treated the interest accrued in the bank accounts maintained in the name of the assessee's minor children by clubbing the same under section
-13- IT(SS)A 112 of 1998 64 of the Income-tax Act. The total amount comes to ` 30,375/- as follows:-
Assessment Year Amount
1992-93 ` 6,375/-
1993-94 ` 6,000/-
1994-95 ` 6,000/-
1995-96 ` 6,000/-
1996-97 (upto 19.1.96) ` 6,000/-
--------------
` 30,375/-
---------------
16. For the assessment year 1996-97 the assessee had shown an opening capital of ` 60,000/-. This was not accepted by the Assessing Officer and the same is treated as the assessee's undisclosed income.
17. A sum of ` 32,150/- was found in the course of search. Out of the above sum, the Assessing Officer treated ` 30,000/- as the undisclosed income of the assessee for the assessment year 1996-97.
18. As seen from the above paragraphs, the Assessing Officer has worked out the undisclosed income in the case of the assessee by estimating commission income; disbelieving the
-14- IT(SS)A 112 of 1998 gifts received by the assessee; disallowing the opening capital; treating the cash found in the course of search as undisclosed income; disallowing a portion of the agricultural income returned by the assessee; treating the guest house income as undisclosed income; treating the loan amounts as undisclosed income; agricultural share income from M/s.MBS Granites treated as undisclosed income; income from sale of thorn trees treated as undisclosed income, etc., etc. at ` 1,15,75,840/-.
19. The abstract of the undisclosed income as computed by the Assessing Officer is extracted below:-
Asst. Year Total Admitted Undisclosed
1986-87 ` 1,11,610/- -- ` 1,11,610/-
1987-88 ` 23,516/- -- ` 23,516/-
1988-89 ` 23,485/- -- ` 23,485/-
1989-90 ` 16,000/- ` 16,000/- ---
1990-91 ` 2,46,305/- -- ` 2,46,305/-
1991-92 ` 21,32,172/- -- ` 21,32,172/-
1992-93 ` 21,00,513/- -- ` 21,00,513/-
1993-94 ` 14,21,854/- -- ` 14,21,854/-
1994-95 ` 13,44,123/- -- ` 13,44,123/-
1995-96 ` 21,76,616/- -- ` 21,76,616/-
1996-97 ` 19,95,644/- -- ` 19,95,644/-
--------------------
Total undisclosed income ` 1,15,75,838/-
Or
` 1,15,75,840/-
----------------------
-15- IT(SS)A 112 of 1998
20. It is against the above block assessment that the assessee has filed the appeal before the Tribunal. In the exhaustive grounds of appeal filed before us, running to 23 grounds, the assessee has virtually challenged every addition made by the Assessing Officer in the impugned block assessment. In addition to the grounds raised on the merits of the various additions made by the Assessing Officer, the assessee has also raised additional grounds, which are legal in nature.
21. One of the legal grounds raised before the Tribunal is that the information and materials used by the Assessing Officer to complete the impugned block assessment under section 158BD had in fact already been furnished to the Assistant Director of Income-tax (Investigation), Madurai, as early as on 15-5-1995 itself, who had sought the relevant information from the assessee. In the course of search, no documents, materials or information other than those documents, materials or information furnished to the Assistant Director of Income-tax(Investigation), Madurai, on 15-5-1995
-16- IT(SS)A 112 of 1998 have been recovered. Therefore, there is no "undisclosure" as far as the case of the assessee is concerned and, therefore, the impugned assessment is void ab initio.
22. This legal ground was accepted by the Tribunal and it was held that the items reflected in the letter dated 15-5-1995 could not be considered as part of undisclosed income. The Tribunal held that those items, which were not reflected in assessee's letter dated 15-5-1995, alone could be considered for imputing a case of undisclosed income in the hands of the assessee.
23. On the basis of the above finding the Tribunal deleted the additions made by the assessing authority relating to those items which were reflected in the letter dated 15-5-1995, furnished by the assessee to the Assistant Director of Income- tax (Investigation) at Madurai. The remaining additions were considered by the Tribunal on merits. Some additions were confirmed and the others were deleted. In that manner the appeal was disposed of by the Tribunal through its order dated 14-2-2003.
-17- IT(SS)A 112 of 1998 24. The Revenue was aggrieved by the legal
proposition made by the Tribunal that the reply dated 15-5-1995 filed by the assessee to the Assistant Director of Income-tax (Investigation) at Madurai amounted to disclosure for the purpose of Chapter XIV-B. It was the case of the Revenue that the description of the items made in the said letter does not amount to disclosure as contemplated in the provisions of law arranged under that Chapter. Therefore, the order of the Tribunal was taken in appeal under section 260A of the Income- tax Act, 1961, before the Hon'ble jurisdictional High Court at Madras. The Hon'ble High Court disposed of the said appeal filed by the Revenue through the judgment of their Lordships delivered on 24-6-2010. After considering the issue in a very detailed manner, the Hon'ble High Court held that the communication made by the assessee in her letter dated 15-5-1995 to the Assistant Director of Income-tax(Investigation) does not amount to disclosure, as construed under Chapter XIV-B of the Income-tax Act, 1961. The Hon'ble High Court observed that the necessary ingredients settled down by law have been satisfactorily complied with by the Assessing Officer
-18- IT(SS)A 112 of 1998 while passing the order of assessment under section 158BD of the Act and in the absence of any illegality or irregularity in making such an assessment of individual items pointed out by the Tribunal, the interference with the order of the assessing authority by the Tribunal was not justified. The court held that the disclosure of income could be made by an assessee only through filing returns of income in accordance with law. Therefore, the Hon'ble High Court remitted the matter back to the Tribunal for considering those items which were held to be disclosed income by the Tribunal in view of the letter dated 15-5-1995. It is how this appeal has now come up before the Tribunal for the second time.
25. We heard Shri V.Srinivasan, the learned chartered accountant appearing for the assessee and Shri Shaji P Jacob, the learned Commissioner of Income-tax appearing for the revenue.
26. Now, as the matter stands, we have to examine each and every addition on the merits of the case, as directed by the Hon'ble jurisdictional High Court at Madras. Accordingly we are proceeding hereunder to decide those items one by one.
-19- IT(SS)A 112 of 1998
27. The ground Nos.1 to 6 in the grounds of appeal are general in nature.
28. The seventh ground is that the Assessing Officer has erred in taxing ` 60,000/-, being the opening capital, without appreciating the fact that the same is represented out of income earned prior to the block period. This issue was considered by the Tribunal in detail in its earlier order dated 14-2-2003. The opening capital shown by the assessee is ` 60,000/-. This is reflected in the cash flow statement filed by the assessee. The assessee comes from an affluent family. She has her own properties and businesses at different places. She has different sources of income including agricultural income. In these circumstances it is not possible to hold that the assessee could not have an amount of ` 60,000/- as opening cash capital in her hands. The assessee has offered a plausible explanation that the amount was appropriated from her past income. This explanation is just and reasonable, which has been allowed. Accordingly this addition is deleted.
29. Ground No.8 related to the issue of ` 3,55,361/- added by the Assessing Officer on an estimate basis in respect
-20- IT(SS)A 112 of 1998 of commission income. The assessee was running a business concern under the name and style of M/s.Sri Bharani Yolckms Internationals, which was earning commission income from orders placed with M/s.Karur Co-op. Handloom Export Production Project Ltd. right from the assessment year 1984-85. The assessee is not maintaining any regular books of account in respect of these transactions. The assessee estimated income by way of commission at 10% of the annual turnover. The Assessing Officer on the other hand, after allowing an expenditure of 40%, treated 60% as commission income of the assessee. It is how the addition of ` 3,55,361/- has been made by the assessing authority. In the present case, non maintenance of accounts is not so crucial, because the total turnover is always available, as the transactions are with M/s.Karur Co-op. Handloom Export Production Project Ltd. Only for the reason that the assessee has not maintained proper accounts towards expenditure, it is not justified to estimate the income at a very abnormal rate. It is to be seen that in the course of search, no incriminating materials were collected to support the case of the assessing authority. The details are
-21- IT(SS)A 112 of 1998 available in the statement of facts filed by the assessee in paragraph 7.01 as available in the records of the case. The year-wise details of the receipt of commission have been furnished by the assessee. The assessee also has taken a ground that at the time of search the due date for filing of the return for the assessment year 1996-97 was not due and therefore the commission income for that assessment year could not be considered as undisclosed income. The Hon'ble High Court of Karnataka at Bangalore in the judgment delivered by their Lordships on 19-9-2011 in the case of CIT vs. M/s.Gowri Gopal Textile Processing Pvt. Ltd. (ITA No.3051 of 2005) has held that in the entire scheme of arriving at the undisclosed income for the block period there is no scope for estimating the income. The court held that the Assessing Officer cannot estimate the undisclosed income. He has to compute the undisclosed income as provided under section 158BB(1). If it is a case of estimation of income, the court observed that it falls outside the said provision. The Hon'ble court further observed that in section 158BB the Parliament has consciously used two words, one "computing" and the other "assessment". The word
-22- IT(SS)A 112 of 1998 "computation" has not been defined in the Act. The meaning of the word is to be gathered from the scheme of the Act having regard to its ordinary grammatical meaning. In the context of the Act computation is a calculation, a method of determination by reckoning through calculation. In involves some methodical process with some amount of approximate mathematical precision based on the calculable data available. The word "computation" is completely distinct and different from the word "estimate", which means: the action of valuing or appraising: an approximate calculation based on probabilities. Under the scheme of the Act, the Assessing Officer has to compute the undisclosed income falling within the block period. He does not estimate or appraise the undisclosed income. In view of the above judgment of the Hon'ble Karnataka High Court, we hold that this addition made by the Assessing Officer, purely on estimate basis, cannot be sustained in law. Therefore, the addition of ` 3,55,361/- is deleted.
30. The next ground No.9 deals with the estimated addition of ` 38,538/- against commission income. For the
-23- IT(SS)A 112 of 1998 reasons stated in the above paragraph, this estimated addition of ` 38,538/- is deleted.
31. Ground Nos.10 and 11 raised by the assessee are against the addition of ` 1,16,000/- made by the Assessing Officer in the context of sale proceeds of thorn trees. The case of the Revenue is that the assessee was not maintaining any books of account for her real estate business. In the profit and loss account for the assessment years 1991-92 to 1997-98 filed after the search, the assessee has credited a sum of ` 20,000/- each year as income from sale of thorn trees but the same was not offered for taxation on the ground that the real estate business has not commenced and that it would only go to reduce the work-in-progress. The Assessing Officer has treated it as incidental income, following the principle laid down by the Hon'ble Supreme Court in the case of Tuticorin Alkali Chemicals & Fertilizers Ltd. vs. CIT, 227 ITR 172. Since the thorn trees are not cultivated by the assessee, it will not form part of agricultural income, as held by the Hon'ble Supreme Court in the case of Ramakrishna Deo vs. CIT, 35 ITR 312. The assessee's contentions are reflected in paragraph 10.01 of the detailed
-24- IT(SS)A 112 of 1998 statement of facts filed by her and available in the records. It is the contention of the assessee that the sale of thorn trees is inter-linked with the main business of real estate. We agree with the Revenue that the sale proceeds of thorn trees would not be in the nature of agricultural income, as those trees were naturally grown. But at the same time it does not take the colour of independent income to be taxed as such. The ratio of the judgment in the case of Tuticorin Alkali Chemicals & Fertilizers Ltd. vs CIT, 227 ITR 172 (S.C.) is not applicable to the present case. The assessee as a real estate developer has been developing properties by incurring expenditure. It is in the course of that developing that thorn trees were removed and they were sold for nominal amounts. The sale of thorn trees is not a regular activity of the assessee and the income therefrom does not constitute an independent source of income. As a matter of fact, it goes to reduce the expenses of the assessee in developing the land. In view of the above, we hold that there is no justification in treating the amount of ` 1,16,000/- as undisclosed income of the assessee. It would go to reduce the
-25- IT(SS)A 112 of 1998 expenditure of the assessee. Therefore, the addition of ` 1,16,000/- is deleted.
32. In ground No.12 the assessee has challenged the disallowance of claim of depreciation on air conditioner at ` 8,750/-. The case of the Assessing Officer is that the air conditioner was installed at the residence of the assessee and, therefore, the same cannot be considered as a business asset and therefore depreciation should be disallowed. We agree with the argument of the Revenue and this disallowance of ` 8,750/- is confirmed.
33. In ground Nos. 13 and 14 the assessee argues against estimation of income from Kodaikanal Guest House at ` 10,85,000/-. The estimation has been made for the assessment years 1993-94 to 1996-97. It is the case of the Revenue that the assessee had entered into a purchase agreement on 29-4-1991 with Indian Evangelical Lutheran Church Trust Association for purchase of property at Kodaikanal and advanced a sum of ` 10 lakhs to the seller. Subsequently, another sum of ` 5 lakhs was also paid as part consideration and possession of the property was taken over. Due to litigation, the
-26- IT(SS)A 112 of 1998 property could not be registered in the name of the assessee. The Revenue argues that the assessee has been running the guest house since 1993-94 and income therefrom has been returned so also the assessee has not maintained any books of account. It is in these circumstances, according to the Revenue, that estimation of income was warranted and as such the addition of ` 10,85,000/- has been made. The case of the assessee is that the property was never fully functional because of the dispute between the assessee and the seller of the property. Even the title of the property was not transferred in the name of the assessee. The litigation reached upto the Hon'ble Supreme Court. Meanwhile certain irregular income was received by the assessee by operating the guest house in a very nominal way and such negligible income was actually used for maintaining the guest house property.
34. There is no dispute regarding the basic fact that the guest house property was under litigation and the assessee could not get the title transferred in her name. This dispute in fact prevented the assessee from improving the facilities at the guest house and making it fully operational. As the guest house
-27- IT(SS)A 112 of 1998 property was not fully operational, there cannot be a case that the assessee was earning regular income by way of its commercial operation. The argument of the assessee that the operation of the guest house was only on a nominal level is to be accepted as a consequence of the facts of the case stated above. Therefore, naturally, the receipts also would be very nominal. Anyhow, the assessee has to keep the property in a good condition. Therefore, it is necessary to see that whatever income the assessee had received from the operation of the guest house was in fact spent for the upkeep and maintenance of the guest house property. Therefore, it is obvious that the assessee had not received any taxable income from the said property at Kodaikanal. Moreover, the Assessing Officer has made the addition on the basis of estimate. As already held by the Hon'ble Karnataka High Court in the case of CIT vs. M/s.Gowri Gopal Textile Processing Pvt. Ltd., estimation is not permissible in computing the undisclosed income in a block assessment. In the light of the above factual position, we find that the said addition of ` 10,85,000/- is not sustainable. It is accordingly deleted.
-28- IT(SS)A 112 of 1998
35. In the next ground No.15 the contention raised relates to the addition of ` 75,16,875/- made by the assessing authority as unexplained investment/creditors not proved. The assessee has made investments in the block period in her own name as well as in the name of her business concerns. Apart from her own capital introduced in the business, she has also shown having received loans from 42 persons. The Assessing Officer did not accept the genuineness of these loans received from 42 persons. He found that the loans are not evidenced by any promissory note or receipt issued by the assessee. All the loans are cash loans. Confirmation letters filed by the assessee during the course of block assessment proceedings do not indicate particulars such as assessment details of the lenders, source of funds for making the alleged loans, etc. The Assessing Officer, therefore, required the assessee to produce the creditors. The assessee could produce some creditors and could not produce the remaining creditors. On examining all these facts and examining the creditors, who appeared before him, the Assessing Officer found that many of the creditors did not have enough creditworthiness so as to advance amounts to
-29- IT(SS)A 112 of 1998 the assessee. It is in these circumstances that the Assessing Officer has disbelieved the credits/loans and made the addition of ` 75,16,875/-. The detailed submissions and explanations of the assessee in this regard are made in paragraph 13 of the statement of facts available on record. In short, it is the case of the assessee that she has taken loans from 42 persons for business purposes. The assessee had filed confirmation letters before the Assessing Officer in support of those credits. She could also produce some of the creditors before the Assessing Officer. Those creditors were examined. It is only for the reason that the Assessing Officer has disbelieved them, the additions were made.
36. We considered this matter very seriously. A set of loans received from twelve persons like Balu, Vijaya, Sriramulu totaled to ` 13,16,000/-. The amount of loan ranged from ` 16,000/- to ` 4 lakhs. The biggest amount of ` 4 lakhs comes from Dhaman Prakash (Dharmabal Associate). The reason pointed out by the Assessing Officer to disbelieve the credits is not convincing. The relevant particulars, such as income-tax assessment, etc., may not be applicable to small time lenders
-30- IT(SS)A 112 of 1998 who have given loans of ` 20,000/- and the like. In such cases a general appreciation of the situation is called for and to see whether such persons existed and they had reasonable source to advance such amount to the assessee. Regarding big amounts from LSP Oil Mills, Jagannathan, Sadasivam, etc., totaling to ` 10,27,375/-, the assessee has proved the genuineness upto a reasonable level. The case of the Assessing Officer is that the addresses of those persons are not available. It does not look true. The Assessing Officer must be aware of the particulars of those parties, who are otherwise assessees and closely connected to the assessee herself. For example, M/s.LSP Oil Mills is a well known concern in Salem.
37. One of the main aspects of the issue, which we would like to discuss, is that the details of these loans were available with the department in the course of search itself. This is because the particulars of these loans were furnished by the assessee to the Assistant Director of Income-tax(Investigation) at Madurai in her letter dated 15-5-1995. These are not the loans fabricated by the assessee after the search. Therefore, what is the position available at the time of search and available
-31- IT(SS)A 112 of 1998 in the record must be accepted as true unless otherwise proved. Here, the assessee herself supports that she had availed loans from such 42 persons. The details of particulars were available with the department even before the search and even in the course of such. Therefore, unless they are rebutted with strong evidence, the genuineness of the credits cannot be doubted by citing general deficiencies in the conduct of the assessee. Therefore, in the facts and circumstances of the case we do not find that the addition of ` 75,16,875/- is justified. Accordingly it is deleted.
38. The next ground No.16 relates to the contentions of the assessee against an addition of ` 1,97,200/- made by the Assessing Officer towards bogus claim of agricultural income. The assessee had claimed receipt of agricultural income in the block period out of the property purchased at Velayudham Palayam in the financial year 1997-98. The assessee earned agricultural income of ` 1,97,200/- for the block period. This was rejected by the Assessing Officer on the ground that no evidence of doing agricultural operations was furnished by the assessee.
-32- IT(SS)A 112 of 1998 It is also the case of the Assessing Officer that no expenses also have been found to be debited towards earning such income. We considered this issue. There is no dispute regarding the holding of properties by the assessee. It is also undisputed that the property is agricultural property. When the assessee is having agricultural property and offering agricultural income, the normal presumption is that the assessee is carrying on agricultural operations. Disclosure of agricultural income itself is prima facie evidence of carrying on agricultural operations. The next objection of the Assessing Officer is that the assessee has not debited expenses towards agricultural operations. It is to be seen that the assessee has offered net agricultural income on an estimate basis. Therefore, it is obvious that no separate expenditure account would be reflected in the particulars filed by the assessee. In these circumstances we find that there is no justification in rejecting the claim of the assessee towards agricultural income. Accordingly, the addition of ` 1,97,200/- is deleted.
39. In ground No.17 the argument of the assessee is against the addition of ` 4,66,000/- made by the Assessing
-33- IT(SS)A 112 of 1998 Officer after rejecting the claim of the assessee that she had received money from a firm M/s.MBS Granites, in which the assessee is a partner. In the cash flow statement filed by the assessee, the assessee has shown a total amount of ` 4,66,000/- availed from M/s.MBS Granites. The Assessing Officer added this amount to the assessee's undisclosed income on the ground that no evidence was produced to show that the assessee had received such amount from M/s.MBS Granites, in which she is a partner. The assessee has also explained that the firm had given her the sum of ` 4,66,000/- out of its agricultural income. The Assessing Officer disallowed the claim on the ground that there was no evidence produced to show that the firm M/s.MBS Granites had earned agricultural income in its hands. The explanations of the assessee are made in detail in paragraph 17 of the statement of facts. As rightly argued by the assessee, the disallowance could at best be applicable to the firm and not to the assessee. It is for the firm to prove the nature of income, whether agricultural income or not, in its hands. M/s.MBS Granites and the assessee are different persons. Therefore, if there is a doubt in the source, it is for the firm to
-34- IT(SS)A 112 of 1998 explain it. There is no justification in making an addition of ` 4,66,000/- in the hands of the assessee. It is accordingly deleted.
40. The next ground No.18 raised by the assessee is against the addition of ` 1,20,700/- made by the Assessing Officer against gifts stated to have been received from relatives. The assessee has shown an amount of ` 1,20,700/- in her cash flow statement as gifts received from relatives. This was disallowed by the Assessing Officer for want of evidence. This matter has been discussed in detail by the Tribunal in its earlier order dated 14-2-2003. The situation has not so far improved by the arguments of the assessee. Therefore, we find that the addition is justified. It is accordingly confirmed.
41. Ground Nos.19 and 20 relate to the arguments of the assessee against addition of ` 1,50,650/-. During the previous year relevant to the assessment year 1996-97 the assessee had sold a plot of land at Karur for a sum of ` 1,80,000/-. This is a small plot of land purchased in 1988 for a sum of ` 19,816/-. The Assessing Officer worked out the long- term capital gains on this transaction at ` 1,50,650/-. It is the
-35- IT(SS)A 112 of 1998 case of the assessee that the land was agricultural in nature and therefore there cannot be levy of capital gains. This claim was rejected by the Assessing Officer for want of evidence. It was also the argument of the assessee that it was offered for assessment for the assessment year 1996-97 in regular return. But there is no evidence. In these circumstances we confirm the addition of ` 1,50,650/-.
42. Ground Nos.21 and 22 relate to the arguments of the assessee against the addition of ` 9,50,000/-made by the Assessing Officer towards compensation received by the assessee. This issue was considered by the Tribunal in its earlier order dated 14-2-2003. After considering the issue in detail the Tribunal has held that the addition of ` 9,50,000/- is not justified. As there is no change in the position, we hold that the addition of ` 9,50,000/- is not warranted. It is accordingly deleted.
43. Ground No.23 relates to the addition of ` 30,000/- made by the Assessing Officer. This amount of ` 30,000/- was the cash found at the time of search. This was added by the Assessing Officer as undisclosed income. In view of the total
-36- IT(SS)A 112 of 1998 financial inflow and outflow of the assessee during the block period, it is very absurd to presume that the assessee could not have an amount of ` 30,000/- in her hands out of legitimate source of income. Therefore, we delete this addition of ` 30,000/-.
44. We have considered all the 23 grounds raised by the assessee on merits against various additions. We have disposed of all the grounds.
45. In result, this appeal filed by the assessee is partly allowed.
Order pronounced on Wednesday, the 25th of July, 2012 at Chennai.
Sd/- Sd/-
(V.Durga Rao) (Dr. O.K.Narayanan)
Judicial Member Vice-President
Chennai,
Dated the 25th July, 2012.
V.A.P.
Copy to: (1) Appellant
(2) Respondent
(3) CIT
(4) CIT(A)
(5) D.R.
(6) G.F.