2006 (1) TMI 180 - AT - Income Tax

Addition u/s 69C in respect of unexplained expenditure - Excess stock being found during the course of the search - Block Assessment in search case - search and seizure operations. HELD THAT - During the course of hearing before us the learned counsel for the assessee has categorically stated that during the course of search proceedings u/s 132 no incriminating material was found or detected that could point to payment of the alleged commission to Shri V.P. Jain. During the course of search proceedings no statement of Shri V.P. Jain was recorded. That statement is the sole basis so far as additions in respect of unexplained commission payments have been made in the assessments of various assessees of this group. Thus, it cannot be said that any material pointing towards undisclosed commission payments to Shri V.P. Jain was discovered during the course of the search. The learned DR has placed heavy reliance on the fact that during the course of search proceedings books of account were found wherein the transactions of the assessee with Shri V.P. Jain and various concerns of Shri V.P. Jain were found. During the course of search proceedings the books of account maintained by an assessee in the regular course are supposed to be found. Had such books of account been not found, that could have been a circumstance against the assessee. The argument that as the department decided to verify the contents of the books of account and enquired into genuineness thereof, the subsequent enquiry and material gathered should be treated as a result of search is far-fetched. As far as the books of account were concerned, the same support the case of the assessee and do not contain any incriminating material. Statement of Shri Ved Prakash Jain cannot be considered to be part of the search or even the result of the search. Such a statement could have been recorded in the ordinary course of enquiry in the case of the assessee. It is important to bear in mind that every enquiry conducted by the department after the date of the search cannot be presumed to be an enquiry as a result of the search unless and until that enquiry can be linked to some specific material or evidence detected during the course of the search. We are, therefore, of the considered opinion that the additions based on the statement of Shri V.P. Jain cannot be treated to be a consequence of the search carried out at the premises of the assessee before us. We, therefore, hold that these additions do not fall within the scope of order u/s 158BC of the Act and are, therefore, liable to be excluded for that reason alone. Addition u/s 69C - It is well-settled legal position after the judgment of Hon'ble Supreme Court in the case of Kishinchand Chellaram v. CIT 1980 (9) TMI 3 - SUPREME COURT that any material collected by the Assessing Officer behind the back of the assessee cannot be used against him unless the assessee has been allowed a chance to rebut the same. Furthermore, no reasons have been given as to why the statement of Shri V.P. Jain should be accepted to be true while the statement of the assessee well supported by regular-books of account should be assumed to be false. Thus, we do not see justification for additions made in the cases of the assessees before us on the ground of alleged unexplained payments to Shri V.P. Jain. We, therefore, delete the same. Excess stock being found during the course of the search - In the absence of no confirmation at all from the employees as to what for they were signing the documents, we are unable to attach such high degree of importance to their signatures obtained by the search party. Thus, it is clear to us that the manner in which stock taking has been done can hardly evoke any confidence. That being so the finding of excess stock being found during the course of search operation has been given by the authorities below on grossly inadequate material. That finding cannot be sustained even under the parameters of income-tax assessment proceedings not bound by technical rules of evidence. We, therefore, direct deletion of the additions made by the authorities below on the alleged excess stock, shortage of stock physically found during the course of search proceedings in all the appeals before us. Addition u/s 68 - With a view to assist the Assessing Officer and to reduce the rigour of the burden that lay upon the Assessing Officer, provisions of sections 68, 69, 69A to 69D have provided for certain deeming provisions where an assumption of income is raised in the absence of satisfactory explanation from the assessee. As these are deeming provisions the condition precedent for invoking such provisions are required to be strictly construed. The facts and circumstances giving rise to the presumption have to be established with reasonable certainty. The Assessing Officer cannot first make certain conjectures and surmises and thereafter apply the deeming provisions based on such conjectures and surmises. In the absence of adequate material as to the nature and ownership of the transaction, undisclosed income cannot be assessed in the hands of the assessee merely by arithmetically totalling various figures jotted down on the loose documents. In other words for the purpose of resorting to deeming provisions, dumb documents or documents with no certainty have no evidentiary value. After consideration of the matter we find ourselves substantially in agreement with these contentions. Accordingly, we hold that the addition has been made by the Assessing Officer on grossly inadequate material. The same is, therefore, directed to be deleted. Block Assessment in search case - The entire addition had been made by the Assessing Officer on the basis of pure estimate for which no particular material was relied upon. In a block assessment under Chapter XIV-B, there was no scope for such additions made on estimate based on conjectures and surmises. On consideration of the matter we do not agree with these contentions of the learned counsel for the assessee. If during the course of a search, a person is found to be living beyond his known sources of income, it cannot be said that no material is found during the course of the search. The air-conditioners, colour TVs, refrigerators etc. were found during the course of the search and it was also found that drawings disclosed by the assessee from time to time did not reflect acquisition of these items by the assessee. Thus, the factum of unexplained expenditure finds its root in the search carried out at the residential premises of the assessee. The assessee has herself admitted unexplained expenditure. We also do not accept the contentions of the learned counsel for the assessee that the estimate of total investments has been made by the Assessing Officer on pure estimate. No material has been relied upon by the assessee in the first instance in support of her contention that the total cost involved. No particulars of the date of acquisition and the party from whom acquired have been furnished. Under these circumstances, the Assessing Officer was left with no other option but to make a fair and reasonable estimate. In our opinion, the estimate for 9 air-conditioners, three colour televisions, refrigerators, DVD players, Home Theatre Systems etc. of high quality cannot be said to be unreasonable. We, therefore, uphold the addition made by the learned Assessing Officer. In the result, the appeal filed in the case of Smt. Anita Gupta shall be treated as partly allowed. The appeals filed by all other assesses shall be treated as allowed.

Summary

Issues Involved:
1. Alleged unexplained payment of commission.
2. Additions on account of excess stock found during the search.
3. Additions based on loose papers found during the search.
4. Unexplained expenditure in the construction of a house.
5. Unexplained investment in household goods.

Issue-wise Analysis:

1. Alleged Unexplained Payment of Commission:
The appeals involved search and seizure operations conducted at the premises of the Bansal group, leading to additions based on statements from Shri Ved Prakash Jain. The Assessing Officer (AO) made significant additions, alleging unexplained commission payments. The basis for these additions was the statement of Shri Jain, who initially claimed that he had made purchases from the Bansal group and received commission for billing without actual delivery of goods. However, Shri Jain later retracted his statement. The AO and CIT(A) upheld the additions, relying on the initial statement. The Tribunal found that no material was discovered during the search to support the commission payments and that the post-search statement could not form the basis for block assessment. The Tribunal held that the additions based on Shri Jain's statement were outside the scope of Section 158BC and thus deleted them.

2. Additions on Account of Excess Stock Found During the Search:
The AO made additions based on excess stock allegedly found during the search. The stock was inventoried on an estimated basis without actual weighment. The assessees argued that the method of stock-taking was inaccurate, leading to discrepancies. The CIT(A) partially upheld the additions, reducing the average weight per bundle. However, the Tribunal found the stock inventory process unreliable, noting that the search party did not use proper weighing methods and relied on eye estimation. The Tribunal directed the deletion of additions related to excess stock, citing inadequate material and the need for actual weighment.

3. Additions Based on Loose Papers Found During the Search:
The AO made additions based on loose papers found during the search, alleging unexplained income. The assessees argued that these papers were dumb documents with no corroborative evidence and did not belong to them. The CIT(A) upheld the additions, relying on the presumption under Section 132(4A). The Tribunal found that the loose papers did not constitute books of account or evidence of undisclosed income. It held that the AO could not make additions based on rough notings without corroborative material. The Tribunal directed the deletion of the additions, emphasizing the need for concrete evidence.

4. Unexplained Expenditure in the Construction of a House:
In the case of Smt. Anita Gupta, the AO made an addition for unexplained expenditure in house construction, based on an estimated cost of Rs. 72 lakhs. The assessee explained the sources of investment, declaring an additional income of Rs. 9 lakhs. The AO added Rs. 3 lakhs, which was not explained. The Tribunal found that the addition was outside the scope of Section 158BC, as no material indicating unexplained expenditure was found during the search. The Tribunal deleted the addition, holding that it had no link to the search proceedings.

5. Unexplained Investment in Household Goods:
The AO made an addition for unexplained investment in household goods found during the search. The assessee admitted an unexplained expenditure of Rs. 1,25,513, while the AO estimated the total cost at Rs. 3,60,000. The Tribunal upheld the addition, finding the AO's estimate reasonable and based on the high quality of the items found. The Tribunal rejected the assessee's argument that the addition was based on conjectures and surmises, noting the lack of supporting material from the assessee.

Conclusion:
The Tribunal allowed the appeals of the assessees, except for the addition related to unexplained investment in household goods, which was upheld. The Tribunal emphasized the need for concrete evidence and proper procedures in making additions under block assessment proceedings.