2005 (6) TMI 503 - AT - Income Tax

Summary

Issues Involved:
1. Restriction of opening cash balance.
2. Cost of construction of the residential house.
3. Restriction of cash withdrawals from NRE account.
4. Non-acceptance of certain loans/credits.
5. Estimation of personal expenditure.
6. Inclusion of incomes below taxable limit in block assessment.

Detailed Analysis:

1. Restriction of Opening Cash Balance:
The assessee claimed an opening cash balance of Rs. 1,40,000, which was restricted to Rs. 75,000 by the CIT(A). The Assessing Officer (AO) had rejected the claim based on the inspection of agricultural land and estimated agricultural income. The Tribunal noted that the CIT(A) accepted the substantial funds abroad and withdrawals from the NRE account but still estimated the opening cash balance at Rs. 75,000 without any material evidence. The Tribunal directed the AO to accept the opening balance of Rs. 1,40,000, following the decision in K. Moidu Alias Kunhippa's case, which stated that estimations in block assessment are not permissible without specific evidence.

2. Cost of Construction of the Residential House:
The assessee declared the cost of construction at Rs. 6,15,000, while the Departmental Valuation Officer estimated it at Rs. 16,60,300. The CIT(A) allowed a 10% deduction for PWD rates and self-supervision. The Tribunal held that no addition could be made in block assessment based on the valuation report alone if no documentary evidence was found during the search. The Tribunal relied on the decisions in CIT v. Khushlal Chand Nirmal Kumar and CIT v. Vinod Danchand Ghodawat, which emphasized that additions must be based on evidence found during the search.

3. Restriction of Cash Withdrawals from NRE Account:
The AO disallowed Rs. 9,90,000 out of the withdrawals from the NRE account, which was reduced to Rs. 5,57,500 by the CIT(A). The Tribunal upheld the CIT(A)'s decision, noting that the assessee failed to explain how funds given to certain individuals were reflected in investments. The Tribunal found no improvement in the assessee's case and upheld the disallowance.

4. Non-Acceptance of Certain Loans/Credits:
The Tribunal reviewed the loans from Abdul Azeez, Ummer Farooque, A.K. Abdulla, and Vengat Beerasha. It upheld the CIT(A)'s partial acceptance and rejection based on the lack of corroborative evidence linking the withdrawals to the assessee. The Tribunal emphasized that mere affidavits without supporting evidence are insufficient, and the burden of proof lies with the assessee to establish the receipt of funds.

5. Estimation of Personal Expenditure:
The AO re-estimated household expenses, which was confirmed by the CIT(A). The Tribunal, following the decision in K. Moidu Alias Kunhippa's case, held that the AO was not justified in making additions based on enhanced estimates of household expenses without evidence found during the search. The Tribunal allowed the assessee's additional ground on this issue.

6. Inclusion of Incomes Below Taxable Limit in Block Assessment:
The Tribunal allowed the additional ground, stating that the AO must exclude incomes of those years which are below the taxable limit from the total undisclosed income of the block period. This decision was supported by the Patna High Court in CIT v. Smt. Lily Tobias, which held that non-taxable income should not be treated as undisclosed income.

Conclusion:
The appeal was partly allowed, with the Tribunal directing the AO to accept the opening cash balance as claimed, disallowing additions based on valuation reports without evidence, and excluding non-taxable incomes from the block assessment. The Tribunal emphasized the need for specific evidence in block assessments and upheld the CIT(A)'s decisions where the assessee failed to provide sufficient proof.