2004 (1) TMI 333 - AT - Income Tax

Unexplained investment - Block assessment in search cases - Levy of surcharge @ 10 per cent on tax on undisclosed income - Opening cash in hand - Agriculture income - Determination of purchase of vehicle - Undisclosed investment in purchase of vehicle - Profit on sales of vehicles. HELD THAT - In the case of the appellant the search was conducted on 25th Feb. 2000 and the prohibitory order was also imposed on the same date. From the perusal of the list of the items mentioned in prohibitory order u/s 132(3) it is evident that it was not practicable to seize the vehicles documents of which required verification on subsequent dates. Therefore the prohibitory order had rightly been issued as there was practical difficulty before the AO and subsequently the prohibitory order was lifted by drawing last panchnama on 25th April 2000. It is also pertinent to mention that prohibitory order was lifted in respect of vehicles and incriminating documents were seized by the authorised officer PB 13. Thus the limitation will be considered from the date of last panchnama drawn i.e. on 25th April 2000. Therefore we conclude that the learned CIT(A) had rightly held that the completion of assessment was not barred by limitation as per Expln. 2 u/s 158BE of the Act. Our views are fortified by the judgment in the case of C. Ramaiah Reddy vs. Asstt. CIT 2003 (7) TMI 260 - ITAT BANGALORE whereby it was held that the Tribunal had no jurisdiction to adjudicate upon the validity of prohibitory order issued u/s 132(3) and the limitation is to be counted from the date of last Panchnama drawn irrespective of the fact whether any seizure was made or not. Therefore we decline to interfere with the order of the learned CIT(A). Levy of surcharge @ 10 per cent on tax on undisclosed income - We find that proviso to s. 113 had been inserted w.e.f. 1st June 2002 for levying surcharge on undisclosed income. Prior to this date no surcharge is leviable in view of proviso to s. 113 of the Act. The proviso of s. 113 is not clarificatory since it has increased the tax liability of the assessee. It cannot therefore have retrospective operation. This Bench of the Tribunal in the case of Mantri Katta Co. dt. 17th Oct. 2003 held that amendment in s. 113 is not applicable retrospectively. Therefore no surcharge is leviable where search was carried out prior to 1st June 2002. In this case search was conducted on 25th Feb. 2000. Therefore we hold that the surcharge is not leviable. Hence we set aside both the orders of the lower authorities and direct the AO not to levy surcharge in this case. Opening cash in hand - We find that the learned CIT(A) has given detailed reasons in deleting this addition as discussed above in his order. We also agree with the contention of the learned AR that the finding of the AO is not in right perspective. Adequate cash was not found during the course of search as the assessee had made investment in construction of house and also incurred expenses in marriages. So this cannot be the reason for not accepting the opening cash balance. As regards the measurement of agricultural land at 48 bhigha this fact is evident from the record filed before us and also from the submissions of the learned AR as has been reproduced in this order. The sale of vehicles yielding sale proceed of Rs. 4, 06, 400 as per details given in Annex. A-16 had also not been disputed and the assessee was dealing in purchase and sale and other transactions in respect of vehicle before the block period. The possession of agricultural land at 48 bhigha and the income arising out of it had also not been disputed by the AO. The AO himself had accepted the opening cash balance in cash flow statement during the financial years 1990-91 to 1998-99. We also agree with the view of the learned AR that the opening cash in hand cannot be taken as income of the block period as opening cash means closing of cash balance as on 31st March 1998 which is out of the purview of the block period. Thus the order of the learned CIT(A) is not lacnonic in any manner. Therefore we decline to interfere in his order. Agriculture income - The agricultural land owned by the assessee is irrigated land yielding good quantum of agricultural income. Eight bigha of agricultural land situated in Mukundpura was given by the assessee on contract/lease basis on 23rd Oct. 1993 for five years at Rs. 40, 000 per year. This shows that net agricultural income from lease was Rs. 5, 000 per bigha. The computation of agricultural income in all the assessment years relating to block period had been estimated on the basis of Girdawari report crop area and average market rate of the crop. CIT(A) had given details reasons for estimation of income by the assessee and for deletion of addition of Rs. 7.65 lakhs made by the AO. Therefore we decline to interfere with the order of the learned CIT(A) on this ground and the same is hereby sustained. Determination of purchase of vehicle - The learned CIT(A) found that no purchase consideration had been found entered anywhere in the documents seized during the course of search in respect of 14 vehicles. The assessee is also doing the business of brokerage as it is evident from the seized records. Therefore in all likelihood the papers relating to vehicles in respect of which no purchase consideration had been mentioned anywhere in the seized documents it would be proper to take them as vehicles dealt in by the assessee in brokerage business and not purchases in outright basis. Therefore the learned CIT(A) has rightly agreed with the arguments of the learned AR and directed the AO to adopt the purchase amount of vehicles at (Rs. 58, 37, 693 minus Rs. 1, 36, 000) Rs. 57, 01, 693 only in the block period instead of Rs. 72, 00, 000 taken by the AO. We are convinced with the reasons given by the learned CIT(A). Therefore we decline to interfere with the order of the learned CIT(A) on this ground. Undisclosed investment in purchase of vehicle - The assessee computed investment in purchases of vehicles by considering the total purchases for the block period at Rs. 58, 37, 693 and the yearwise investment has been shown in cash flow statement on this total purchases of Rs. 58, 37, 693. As per the assessee he was selling the self-owned vehicles as well as on brokerage basis. He sold self-owned vehicles of Rs. 58, 37, 693 and the rest of the sales represent on brokerage basis. The CIT(A) considering the search statement and seized documents held that without any evidence on records it cannot be considered that the appellant in all the transactions of the sales recorded in Annex. A-16 involved purchase as well. Further in any case if the transactions increase in a particular year the rotation becomes faster and the transaction time might take less than three months. We are convinced with the reasons given by the learned CIT(A). Therefore we decline to interfere with the order of the learned CIT(A). Profit on sales of vehicles - In view of the fact that the assessee was able to co-relate ten of the purchases amongst purchases of Rs. 58, 37, 639 in the sales computed on the basis of Annex. A-16 to the extent of Rs. 1, 37, 40, 107 it is established that purchases and sales cannot be in isolation to each other. However gross profit of purchase and sales has been computed at 6.70 per cent. Similarly on brokerage business the profit has been stated by the assessee at about Rs. 4, 000. This is approximately 4 per cent of the sale consideration. There are always certain expenses relating to purchase and sales of vehicles and also in brokerage business. Therefore the learned CIT(A) appropriately applied the net profit rate of 4 per cent on total sales of Rs. 1, 37, 40, 107. Thus the net income from purchase and sales of vehicles and brokerage business was estimated at Rs. 5, 49, 604 as against Rs. 10, 58, 038 computed by the AO. After going through the order of the learned CIT(A) we are of the opinion that the order of the learned CIT(A) is not laconic in any manner. Therefore we decline to interfere with the order of the learned CIT(A). In the result the appeal filed by the assessee is partly allowed and the appeal filed by the Department is dismissed.

Summary

Issues Involved:

1. Whether the assessment order dated 26th April 2002 passed u/s 158BC of the IT Act is time-barred by limitation.
2. Legality of the order dated 25th February 2000 passed u/s 132(3) of the IT Act.
3. Levy of surcharge @ 10% on tax on undisclosed income.
4. Determination of Rs. 1,31,900 as undisclosed income for the assessment year 2000-01.
5. Deletion of Rs. 3,20,000 on account of opening cash in hand.
6. Deletion of Rs. 7,65,000 by accepting agricultural income at Rs. 33,04,000.
7. Deletion of Rs. 1,50,000 on account of opening investment in vehicle.
8. Determination of purchase of vehicle at Rs. 58,37,693.
9. Deletion of Rs. 7,01,520 plus Rs. 4,35,114 on account of undisclosed investment in purchase of vehicle.
10. Reduction of addition of Rs. 10,58,036 to Rs. 5,49,604 by applying NP rate of 4% against 5%.
11. Deletion of Rs. 3,22,000 on account of cost of construction.
12. Deletion of Rs. 1,50,000 on account of marriage expenses.
13. Deletion of Rs. 25,000 on account of gifts in three marriages.
14. Deletion of Rs. 30,000 on account of cash found in search.

Summary:

1. Time-barred Assessment Order:
The assessee contended that the assessment order dated 26th April 2002 passed u/s 158BC of the IT Act was time-barred as the search concluded on 25th February 2000. The Tribunal held that the prohibitory order was lifted on 25th April 2000, and the limitation period should be counted from this date. Therefore, the assessment was not time-barred.

2. Legality of Order u/s 132(3):
The assessee argued that the order dated 25th February 2000 passed u/s 132(3) was illegal. The Tribunal concluded that the prohibitory order was rightly issued due to practical difficulties in seizing the documents and vehicles, and thus, the subsequent proceedings were valid.

3. Levy of Surcharge:
The assessee contended that the surcharge @ 10% on tax on undisclosed income was not applicable for searches conducted before 1st June 2002. The Tribunal agreed, holding that the amendment to section 113 was not retrospective, and thus, no surcharge was leviable.

4. Undisclosed Income for AY 2000-01:
The Tribunal directed the AO to exclude the income for the assessment year 2000-01 from the undisclosed income of the block period, as the return was filed before the due date.

5. Opening Cash in Hand:
The Tribunal upheld the CIT(A)'s deletion of Rs. 3,20,000, accepting the assessee's explanation of cash availability from vehicle sales and agricultural income.

6. Agricultural Income:
The Tribunal sustained the CIT(A)'s acceptance of agricultural income at Rs. 33,04,000, rejecting the AO's lower estimate and considering the inspector's reports and Girdawari reports.

7. Opening Investment in Vehicle:
The Tribunal upheld the CIT(A)'s deletion of Rs. 1,50,000, accepting the assessee's opening investment in vehicles based on seized documents.

8. Purchase of Vehicle:
The Tribunal agreed with the CIT(A) that the purchase amount of vehicles should be Rs. 57,01,693, rejecting the AO's higher estimate based on blank documents.

9. Undisclosed Investment in Vehicles:
The Tribunal upheld the CIT(A)'s deletion of Rs. 11,36,634, finding no evidence of additional investment beyond what was shown in the cash flow statement.

10. NP Rate Application:
The Tribunal sustained the CIT(A)'s application of a 4% NP rate, reducing the addition from Rs. 10,58,036 to Rs. 5,49,604, considering the nature of the assessee's business.

11. Cost of Construction:
The Tribunal upheld the CIT(A)'s deletion of Rs. 3,22,000, finding no basis for the AO's higher estimate based on the DVO's report.

12. Marriage Expenses:
The Tribunal agreed with the CIT(A) that the AO's addition of Rs. 1,50,000 was without basis and deleted it.

**13. Gifts in Marriages