Income Tax Appellate Tribunal - Hyderabad
Essem Intra-Port Services (P) Ltd. vs Assistant Commissioner Of Income-Tax on 23 March, 1999
Equivalent citations: [2000]72ITD228(HYD)
ORDER
O. K. Narayanan, A.M.
1. This is a block assessment appeal. The block period runs from 1st April, 1985 to 3rd January, 1996. The search operations were conducted on 3rd January, 1996. The assessee is a private limited company having its office at Visakhapatnam. The company is doing business in transporting, clearing and forwarding and ware-housing especially in the background of Visakhapatnam port operations. During the financial years 1994-95 and 1995-96, the assessee-company had a contract with Rajasthan State Mines & Minerals Development Corporation for transporting of lime-stone, and for this purpose the assessee had opened a branch office at Udaipur.
2. Search operations were conducted on 3rd January, 1996 in the business premises of the assessee-company and its associate company, M/s Essem Marbles (P) Ltd. and the residential premises of the company's directors, S/Shri B. Satyanarayana and V. G. Chacko and at the residence of one Sri M.Ch. Dora, who is a director of the associate company. Besides the search and seizure operations, survey operations under s. 133A were also carried out at various godowns of the assessee-company and also at its branch office at Udaipur on the same day. All the inter-connected cases involved in the search and survey operations were transferred to the Asstt. CIT, Circle-2 at Visakhapatnam, by the order of the CIT, Visakhapatnam dt. 20th June, 1996 passed under s. 127 of the Act. Accordingly, the block assessment order challenged in this appeal has been passed by the Asst. CIT, Circle 2, Visakhapatnam, by her order dt. 30th January, 1997.
3. In the course of search operations, floppy discs, books, loose-sheets and documents were found out which related to the accounts and activities of the assessee-company for various years. The details available in these materials were compared and examined with the regular books of accounts of the assessee-company and its returns of income filed before the search. The comparison and examination brought out various instances of discrepancies and incongruencies. These discrepancies and incongruencies were placed before B. Satyanarayana, the managing director of the assessee-company, who made statements before the officers on 3rd January, 1996 and 23rd February, 1996. On the basis of the materials and information collected as stated above, the AO issued a notice to the assessee-company under s. 158BC(a)(1) requiring the assessee to file its return of income for the block period including its undisclosed income. The assessee-company, filed its block return on 23rd December, 1996 declaring an undisclosed income of Rs. 13,16,292.
4. The AO, on the basis of the block return filed by the assessee-company called for various details, particulars and evidences and completed the block assessment and her order dt. 31st January, 1997 fixing the total undisclosed income at Rs. 81,86,634, as against undisclosed income returned of Rs. 13,16,292. The various additions made by the AO in this block assessment come to Rs. 68,70,342. The assessee-company has challenged all the additions made by the AO through the various grounds raised in this appeal.
5. The facts and circumstances of this case have been discussed in detail in the assessment order running to 16 pages. Therefore, we are not inclined to reproduce the same in this order for fear of repetition. Therefore, we proceed straightaway to decide upon the various additions challenged in this appeal.
6. Before going into the various disputes raised in the appeal, let us first examine the composition of the undisclosed income admitted and returned by the assessee-company. The total of the undisclosed income admitted by the assessee-company is Rs. 13,16,292. It is made up of two items, viz. Rs. 9,16,292 and Rs. 4,00,000. The details of Rs. 9,16,292 are available in para 4 of the assessment order and the details of Rs. 4,00,000 are available in para 7 of the assessment order. We have already made a mention of the transporting contract the assessee-company had for the transport of lime-stones, in para 1 above. During the survey operations at the Udaipur Branch office conducted on 3rd January, 1996, details were found regarding payments made by the assessee-company under the head 'Re. 1 Account'. Payments were made at the rate of Re. 1 per ton of minerals transported. According to B. Satyanarayana, the managing director of the assessee-company, these payments were made "for the smooth running of business at Udaipur" and were not recorded in the regular books of accounts. The total tonnage of minerals transported till the date of survey was 9,16,292 tons, and the total payments come to Rs. 9,16,292 under the head "Re. 1 Account". This amount was offered by the assessee-company as undisclosed income and has been accepted by the AO.
7. The assessee-company usually utilises the services of M/s. PBL Transport Corporation for executing various transport contracts. As on 31st March, 1992, there was an excess credit balance of Rs. 4,95,547 in the books of assessee-company against the said PBL Transport Corporation for which the assessee-company could not give any satisfactory explanation to the AO. On this ground, the assessee-company offered an amount of Rs. 4 lakhs as undisclosed income.
8. It is how the total of Rs. 13,16,292 returned by the assessee-company as undisclosed income has been worked out. Now the various disputes relating to the undisclosed income additionally determined and assessed by the AO are considered in the following paragraphs.
9. The additional undisclosed income of Rs. 68,70,342 determined by the AO has been made up of the following six items :
Rs.
(i) Unexplained credits in receipts and payments account 14,20,000
(ii) Unexplained credit balance in the name of M/s PBL
Transport Corporation 95,547
(iii) Cash deficit as on 1st August, 1991 5,47,107
(iv) Unaccounted cash payments 75,000
(v) Unverifiable labour charges 19,38,846
(vi) Difference in the construction of warehouse 27,93,842
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68,70,342
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10. In respect of the above disputed amounts, we heard Shri S. Rama Rao, for the assessee-company and Shri T. Jayashankar for the Revenue. Shri S. Rama Rao, the learned counsel for the assessee argued that the additional items of undisclosed income as determined by the AO are without any basis or evidence and therefore arbitrary and unsustainable. Regarding the unexplained credits in the receipts and payments account, the learned counsel contended that, the assessee-company has discharged its onus by explaining the nature of credits as share application money received from various persons for the shares of M/s Essem Marbles (P) Ltd. and also by having produced the confirmation letters from those persons along with details of the sources of investments, etc. In the matter of cash deficit as on 1st August, 1991, the learned counsel contended that there would be no cash deficit as alleged, if the credit balance in the name of M/s PBL Transport Corporation which has already been considered in this assessment is taken note of. The learned counsel submitted that it would be a case of duplication. In the case of labour charges, the learned counsel contended that the liability has been paid of subsequently and that the deposition of one K. Appala Naidu made before the AO has confirmed the explanation of the assessee-company. Shri Rama Rao argued that there is no reason to make an addition on the ground of differential cost of construction of warehouse; that the cost incurred for the construction has been properly accounted in the books; that the Departmental valuation is without any basis; that the assessee-company has already disclosed the details in its accounts and the returns filed even before the search and therefore, the same does not come under the purview of s. 158BC assessment. The learned counsel relied on certain decisions of the Tribunal, such as the ones reported in 64 ITD 396 and 68 ITD 407, etc.
11. Shri T. Jayashankar, the learned Senior Departmental Representative, supported the assessment order. According to him, credits in the receipts & payments accounts have been proved to be unaccounted cash transactions in respect of the assessee-company's business at Udaipur. That this position has been reiterated by the statement of B. Satyanarayana, the managing director of the assessee-company as well as the statement of Prasad, the manager of the assessee-company at Udaipur. That the explanations like share application money, etc. are only convenient arguments subsequently invented to white-wash the unaccounted transactions. He submitted that the cash deficit of Rs. 5,47,107 cannot be telescoped into the credit balance with M/s PBL Transport Corporation as advanced by Shri Rama Rao, as those amounts are products of entirely different contexts and the credit balance with M/s PBL Transport Corporation has already been employed for share application money with M/s Essem Marbles (P) Ltd. and would not be available to set off against the deficit cash balance on 1st August, 1991. Regarding the unverifiable labour payments, the learned Departmental Representative submitted that it related to inflated expenses account and squarely comes under the scope of undisclosed income. Regarding the difference in the cost of construction of godown, the learned Departmental Representative argued that as proved by the Departmental valuation, the cost has been understated by the assessee-company in its accounts and, therefore, the differential amount has to be treated as undisclosed income. The learned Departmental Representative argued that the amount invested by the assessee-company in the construction of godowns has not been fully disclosed in the books of account and, therefore, the provisions of s. 69B are attracted. The learned Departmental Representative argued that the law specifically has provided for the application of s. 69B etc. in the course of a block assessment made under s. 158BC. The learned Departmental Representative contended that the facts such as the assessee-company has disclosed the factum of construction in the books of account and the return filed and the matter was known to the AO even before the search, etc. will not change the position especially because the provisions of ss. 68, 69, 69A, 69B and 69C are embedded in s. 158BB(2) for the purpose of block assessment to be made under s. 158BC. Therefore, the learned Departmental Representative submitted that the block assessment order may be confirmed.
12. We heard both sides in details and perused the rival contentions in the light of the case-files, paper-books filed and written submissions, and proceed to examine the disputes and contentions in the following paragraphs -
13. Unexplained credits in receipts & payments account Rs. 14,20,000
14. The details of this amount have been discussed by the AO in paras-5 and 6 of her order in pp. 4 to 6. At the time of survey at Udaipur branch office, a receipt and payment account was found out, wherein two cash receipts of Rs. 13,50,000 and Rs. 70,000 were shown from "XXX" and "BSN" respectively. When asked about the details, M. S. D. Prasad, manager of the Udaipur branch office stated that the amounts were arranged and paid by B. Satyanarayana for the purchase of marbles. A fax copy of the account was transmitted to Visakhapatnam and was put before Satyanarayana. In his statement recorded on 3rd January, 1996, Satyanarayana offered both the amounts totalling to Rs. 14,70,000 as his undisclosed income in the hands of the assessee-company.
15. Later, in the course of block assessment proceedings, Satyanarayana retracted from his earlier admission and further stated that the amount of Rs. 13.5-lakhs represented the share application money collected from various persons at Udaipur for allotment of shares in M/s Essem Marbles (P) Ltd.
16. The assessee-company furnished a list of 43 persons who stated to have applied for the shares along with their letters and statements of sources of investments, etc.
17. The AO, however, disbelieved the later version of the event presented by the assessee-company and treated the entire amount of Rs. 14.2-lakhs as undisclosed income of the assessee-company.
18. We considered the matter. In his statement dt. 3rd January, 1996, B. Satyanarayana has stated that he had no idea about these amounts and he could not explain the sources. He stated that ". . . . . . . I disclose the above stated amount of Rs. 14,20,000 as my income for the block period in the hands of the Co.". Later, Satyanarayana has further stated that the money was arranged from certain people at Udaipur totalling Rs. 13,50,000 to pay to sundry creditors for purchase of marbles. These admissions are supported by the statement of M. S. P. Prasad, branch manager at Udaipur made on the same day at Udaipur. He stated that the amounts were arranged by B. Satyanarayana for the purchase of marbles. When these statements and admissions are put together, we find that these amounts related to unaccounted transactions carried out by the assessee-company at Udaipur. A. Venukumar, in his statement made on 3rd January, 1996 has stated that "Every 15 days a statement and voucher come from Udaipur site office". The receipts and payments account related to the period June-July 1995. The survey at Udaipur was on 3rd January, 1996. If the amounts were collected by way of share application money, the details would have been already transmitted to head office at Visakhapatnam and found place in the accounts maintained at the head office. Later on, the assessee-company has produced confirmation-cum-source letters for an amount of Rs. 13,50,000 stating that they have invested for the amount of 13,50,000 stating that they have invested for the shares of M/s Essem Marbles (P) Ltd. The assessee-company has never at the time of search and survey operations whispered anything about the share-application money. Instead, the responsible persons had stated that the amounts related to business transactions at Udaipur. Even though, the assessee-company has filed confirmation letters, no applicant from Udaipur was produced before the AO. All the payments are stated to be made in cash. The assessee-company has not produced the share allotment details made to those applicants in the share capital of M/s Essem Marbles (P) Ltd. Even before the Tribunal, such necessary details and evidence such as share application form, allotment letters, share-holders register, share certificates, etc. with reference to the allotment of shares in M/s Essem Marbles (P) Ltd. to those Udaipur people were not produced. According to the assessee-company, those share application monies were received in June-July, 1995. Even after about four years, now in 1999, the assessee-company could not produce such relevant evidence and substantiate its contention.
19. Therefore, in the facts and circumstances of the case, we find that the later version of share-application money is an afterthought and the confirmation-cum-source letters filed before the AO are only self-serving evidence.
20. Therefore, we confirm the addition of Rs. 14,20,000 as the undisclosed income of the assessee-company for the impugned block period.
Unexplained Credit Balance Rs. 95,547 Re. M/s. PBL Transport Corporation
21. The assessee-company has not raised any specific ground against the addition of Rs. 95,547 as undisclosed income. Therefore, this addition is not considered in this order.
Cash deficit as on 1st August, 1991 Rs. 5,47,107
22. As per the details collected from the seized materials the AO has found that the assessee-company has made various cash payments to different transport contractors which have not been reflected in the accounts. When the AO did recast the cash book with such unaccounted cash payments, the AO found that there is a peak deficit cash balance of Rs. 5,47,107 as on 1st August, 1991. When this matter was put to the assessee-company it was stated that the payment vouchers were prepared at the site, but actual payments were made only subsequently when cash is available and the vouchers are accounted in the books only at the time of actual payments and therefore, there would not be any deficit in cash balance. But this explanation was not substantiated by the assessee-company through evidence. Therefore, the AO treated this amount as undisclosed income and brought under the assessment. The details of this addition are available in para 8 of the assessment order.
23. We considered this matter. The explanation of the assessee that vouchers were prepared at site and payments were made later has not been proved even in the light of a single; such instance. Therefore that explanation cannot be accepted.
24. The alternate contention of the learned counsel was that if the amount of Rs. 4,95,547 already considered in the assessment is set off against this amount, then there would not be any deficiency in the cash balance or at least the difference between Rs. 5,47,107- Rs. 4,95,547 need alone be added on this ground.
25. The case of Rs. 4,95,547 has been stated by the AO in para 7 of her order, out of which the assessee-company has offered Rs. 4 lakhs as undisclosed income, and the AO has added the balance of Rs. 95,547. We have mentioned these facts in paras 7 and 14 of this order. The excess credit balance of Rs. 4,95,547 in the account of M/s PBL Transport Corporation was found as on 31st March, 1992, whereas the impugned deficit cash balance was worked out as on 1st August, 1991. Moreover, Rs. 4 lakhs out of this credit balance was transferred by the assessee-company towards share application money in M/s. Essem Marbles (P) Ltd. Therefore, that much amount is not at all available in the hands of the assessee-company for any such set off.
26. In the circumstances, the contention of the assessee fails. We confirm the addition of Rs. 5,47,107 as undisclosed income in the hands of the assessee-company.
Unaccounted cash payment Rs. 75,000
27. The seized material p. 92 of No. ESEM/A-34 contained the particulars of cash payment of Rs. 75,000 made to M/s Amya Sales Co., Calcutta on 6th December, 1992. This payment was not accounted. No source was explained. Therefore, it is confirmed as undisclosed income.
Unverifiable labour charges Rs. 19,38,846
28. In the course of assessment proceedings, the AO noticed that for the successive years, the assessee-company has been showing outstanding payment towards cargo clearing expenses. This liability as on 31st March, 1995 was Rs. 19,38,846. For the reasons stated in para 10 of the assessment order, the AO treated this outstanding liability as undisclosed income and assessed to tax.
29. On this issue, the assessee-company had given detailed explanations before the AO. That out of this outstanding balance, Rs. 5,53,000 was paid during financial years 1995-96 and the entire balance was fully paid off during financial year 1996-97. Assessee-company produced vouchers before the AO. That previously the assessee-company had been handling bulk cargo like fertilisers etc. at the port as sub-contractors of big Calcutta firms. That the handling of bulk cargo consists of various operations like bagging, stacking, loading and unloading which are all highly labour intensive, involving deployment of 600 to 800 labourers at a time under the supervision of different Mistries. That the per head liability might be around Rs. 2000 as on the date of balance sheet. That the assessee-company has reduced the bulk cargo operations during the financial year 1995-96 and totally stopped during financial years following.
30. We find that the explanations offered by the assessee-company are satisfactory. The observations of the AO that the vouchers produced by the assessee-company were only self-serving evidence has to be viewed in the light of the nature of payment. The labour payments are usually supported by self-vouchers. K. Appala Naidu who deposed before the AO has stated that payments were due from the assessee-company even though he could not remember the exact amount. In the circumstances, we do not find any justification to treat the outstanding balance in the balance sheet as on 31st March, 1995 as the undisclosed income of the assessee-company.
31. The alternative contention of the learned counsel for the assessee is that the outstanding expenses, already reflected in the balance sheet not only as on 31st March, 1995, but also balance sheets for the earlier years, have already been brought to the notice of the AO from time to time. Therefore, on a re-examination of the information or details already disclosed, the AO cannot draw any fresh and adverse inference so as to construe any undisclosed income, while framing the block assessment, because those materials have already been disclosed by the assessee to the Department, in the form of balance sheets and statements filed along with the returns, and based on the very same materials, assessments for some of the years have also been completed. On this point, the learned Departmental Representative argued that even if certain information and details have already been filed before the Department along with the returns of income or available with the assessee in his books of account and statements, maintenance of which is already known to the Department, still in the course of search, if any new findings are made, on the basis of those very materials, undisclosed income could be inferred and determined by the AO. For this proposition, the learned Departmental Representative argued that the definition of the term 'undisclosed income' given in s. 115B(b) is an 'inclusive' definition. He also relied on the provisions of s. 158BB(2), wherein the provisions of s. 68, s. 69, s. 69A, s. 69B and s. 69C are made applicable to the block assessment proceedings as well. Further s. 158BB(1) provided that undisclosed income shall be computed in accordance with the provisions of Chapter-IV. The learned Departmental Representative also relied on the provisions of s. 158BH, wherein it is stated that save as otherwise provided, all provisions of this Act, shall apply to assessments made under Chapter XIV-B.
32. We examined this matter and arguments carefully. Chapter-XIV-B lays down special procedure for assessment in search cases. The special procedure set out in Chapter-XIV-B is a separate set of rules, by itself. For the purposes of this chapter, the term 'undisclosed income' is defined. The definition of the term 'undisclosed income' is given in an 'inclusive' manner, but it is again made clear under s. 158B(b) that 'undisclosed income' includes money, bullion, jewellery, etc. only if they represent income or property which has not been or would not have been disclosed for the purposes of this Act. Therefore, we find that even though 'undisclosed income' is defined in an 'inclusive' manner, the scope and extent of the term 'undisclosed income' for the purposes of this Chapter XIV-B is contingent upon the fact that the undisclosed income should be borne out of materials representing income or property which has not been or would not have been disclosed by the assessee for the purposes of this Act. When certain information and details are already furnished in the returns of income or statements accompanying thereto, filed before the 'Department, or when certain information and details are already recorded in the books of account maintained in the regular course of business, based on which returns of income would be filed in normal course, that very same information and details cannot be re-examined in the course of block assessment proceedings to arrive at any fresh conclusions, so as to result in determination of undisclosed income based on that materials. The true nature of undisclosed income, as it is construed in Chapter-XIV-B is that the assessee has not or would not have disclosed that income to the Department in the normal course, and such income should be found out by the Department as a result of search or requisition of books and details as provided under s. 132 of the IT Act. Thus, there are two elements to be satisfied so as to be treated as undisclosed income for purposes of this Chapter, i.e. the factum of non-disclosure on the part of the assessee should be existing, and the said non-disclosure should have been blown out as a result of search or requisition of books, etc. under s. 132 of the Act. It naturally follows therefore that whenever, the assessee has disclosed necessary information and details regarding income or expenses or credit or property in the returns of income or in the statements accompanying the returns, or even if the books of account based on which returns would be filed contain those details, assessee gets away from the clutches of non-disclosure in respect of that income or property, etc. because those materials are already available, even in the absence of any recourse to search operations under s. 132. Therefore, we do not agree with the learned Departmental Representative's arguments on this aspect.
33. The learned Departmental Representative, though pointed out so many other enabling provisions under Chapter-XIV-B to add strength to his arguments, we are afraid, we cannot agree with him. The rate of tax applicable to the income determined in terms of this Chapter XIV-B is a special rate prescribed under s. 113. The computation of undisclosed income provided under s. 158BB does not provide for set off of unabsorbed depreciation or loss. The set off has to be claimed in the regular assessments. Explanations to s. 158BA state that block assessments are in addition to regular assessments. All these special features of block assessments bring out the point that computation of undisclosed income is necessarily governed by special set of rules provided in Chapter XIV-B. Therefore, these special provisions have to be construed strictly and we cannot enlarge the scope of these provisions, so as to permit re-examination of what has been or what would have been the subject-matter of regular assessments or reassessments. The scope of undisclosed income, as we have already considered is conditioned by the factum of disclosure whether made or not made by the assessee before the date of search, or likely to be made in the normal course on the basis of books of account maintained by it. Reliance placed by the learned Departmental Representative on the application of other provisions of the Act in matters relating to the provisions under Chapter XIV-B are only enabling provisions available to the AO wherever corresponding provisions are not provided for under this chapter.
34. In the instant case, the AO has observed these outstanding balances from the balance sheet of the assessee-company only, prepared for the year ending 31st March, 1995. It is on the basis of the information available from the balance sheet that the AO has proceeded to examine the issue and form his opinion. The assessee had already filed copy of balance sheet along with other statements of account and details with the return of income filed for the asst. yr. 1995-86 much before the date of search. As noted by AO, the outstanding amount payable under this head has been brought forward by the assessee-company from year to year, and as such respective outstanding balances were reflected in the balance sheets of earlier years as well. The balance sheets for earlier years were also filed along with the returns for the concerned years by the assessee, right from asst. yrs. 1991-92 to 1995-96. For the asst. yrs. 1991-92 and 1992-93, based on such returns, assessments were completed under s. 143(3), and for the subsequent two assessment years, viz. 1993-94 and 1994-95 returns of the assessee were processed under s. 143(1)(a) of the Act. The latest return for the asst. yr. 1995-96 was pending before the AO at the time of search operations. From the above details, we find that the factum of liability towards labour payments has been brought to the notice of the AO year after year, through returns and accompanying documents, and there cannot be any element of non-disclosure on the part of the assessee in relation to this liability. Examining these factual aspects in the light of our discussion on the scope of determination of undisclosed income in block assessments under Chapter XIV-B, we cannot say that there was any non-disclosure in this case. Therefore, this amount of Rs. 19,36,346 deleted from the computation of undisclosed income made by the AO.
35. Valuation difference Rs. 27,93,842
36. The next point of dispute is the amount of Rs. 27,93,842 determined by the AO as the undisclosed income of the assessee-company for the block period. The facts and circumstances of this addition have been discussed in detail by the AO in paras 11 and 12 of her order. The assessee had constructed a warehouse during the financial years 1993-94 to 1995-96. According to the assessee-company and as per its books of account, the cost of construction is Rs. 58,48,252. In the course of search operation investigation, the issue of valuation was referred to the Departmental Valuation Officer, who determined the cost of construction at Rs. 1,08,02,617. The AO proposed to treat the differential cost as the undisclosed income of the assessee-company. The assessee-company raised objections which were replied by the Departmental Valuation Officer, and after considering the objections and other points, the AO determined the cost of construction of the warehouse at Rs. 86,42,094. He has given a deduction of 10 per cent towards personal supervision and another deduction of 10 per cent towards rate variation, as compared to the rates adopted by CPWD. After giving deduction of this 20 per cent from the Departmental value of Rs. 1,08,02,617, the AO has worked out the cost of construction at Rs. 86,42,094. The AO held the difference of Rs. 27,93,842 (Rs. 86,42,094 - Rs. 58,48,252) as the undisclosed income of the assessee-company.
37. In para 17 above, we have discussed in detail, the scope of the term 'undisclosed income' as construed under the provisions of Chapter XIV-B of the Act. In the light of that discussion, we find that this differential amount cannot be treated as the undisclosed income of the assessee-company for the reason that the assessee has already disclosed the factum of construction of the warehouse, and also its cost as per the books of account to the Departmental authorities even before the search and seizure operations. All the relevant records and related facts are very much available before the Departmental authorities even before the search and seizure operations, and we cannot say that but for the search, they would not have become available to the Department. Therefore, on this short ground, we delete this amount of Rs. 27,92,842 treated as undisclosed income in this block assessment.
38. After considering all the contentions and detailed arguments of the parties, we have adjudicated all the issues raised before us in this block assessment appeal. We have deleted the undisclosed income adopted by the AO on account of outstanding labour payments, vide para 17.7 above, and on account of differential cost of construction vide para 18.2 above. All other items of undisclosed income determined by the AO have been confirmed. The AO is directed to modify the block assessment in the light of directions given in para 17.7 and para 18.2 above.
39. In the result, assessee's appeal is allowed in part.