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2005 (9) TMI 259 - AT - Income TaxUnexplained cash - Search And Seizure - trading of iron and scrap - difference in cash as per cash book and that physically found - block return - Unexplained jewellery and silver items - Sale of diamonds/diamond jewellery - Charging of interest u/s 158BFA(1). HELD THAT - We noted that Shri Vinod Kumar Jain has nowhere stated that Rs. 2, 75, 000 was given to him only yesterday. We further noted that an amount of Rs. 1, 84, 946 was lying in the Disawar account in the regular books of account. Thus in all the assessee-firm has availability of Rs. 3, 11, 180 (1.84, 946 1.26, 234) in the books whereas cash was found at business premises at Rs. 5, 605 only. Thus the balance of Rs. 3, 05, 775 is enough to explain the amount of Rs. 2, 75, 000 given to Salim as per the statement of Shri Vinod Kumar Jain. The learned CIT(A) is therefore right in deleting this addition. The amount of Rs. 26, 910 is covered by the amount available as per cash flow statement of family members as per which cash in hand is Rs. 2, 06, 305 as against Rs. 1, 83, 210 found. This takes care of household withdrawals also. Similarly the amount of Rs. 16, 660 which is found from the room of children as per the Panchnama is covered by their petty savings. Thus the addition made on account of unexplained cash is unjustified and the entire addition is deleted. Hence the ground of the assessee is allowed and that of the Department is dismissed. Unexplained jewellery and silver items - We find that the learned CIT(A) has rightly deleted the addition for unexplained jewellery considering the CBDT Instruction No. 1916 dt. 11th May 1994 decision of Karnataka High Court in case of Smt. Pati Devi vs. ITO and decision of Tribunal in various cases and disclosure of jewellery under VDIS as well as wealth tax return. So far as silver jewellery of 16.895 kgs. is concerned it is reasonable looking to the size and status of family of the assessee consisting assessee himself his three sons three daughters-in-law and children. In view of this no interference is called for in the order of the learned CIT(A). Hence this ground of the Department is dismissed. Sale of diamonds/diamond jewellery - Admittedly assessee has neither made any disclosure of diamonds under the VDIS nor he has sold any diamond. The disclosure and the sale is made by the family members who have declared the same in their regular returns filed before search. The VDIS declaration by the family members has been accepted and certificate u/s 68(2) of the Finance Act 1997 has been issued by the learned CIT. The proprietor of M/s Tambi Jewellers who purchased the diamonds was examined by the AO who accepted the purchases made by him from these family members. In search no incriminating material was found to hold that the sale is bogus. The statement of the family members heavily relied on by the AO cannot be a basis for drawing an adverse inference in view of the retraction of these statements and the affidavits of the family members filed before the AO which remained uncontroverted. The sale proceeds were received by the family members and credited in their respective bank account. From these bank accounts the assessee received the loan which is duly reflected in the regular returns. In this case also the sale proceeds of diamonds declared under VDIS were first credited in the bank account of family members and then they provided deposits to the assessee. Thus in the hands of the assessee the credit is fully explained. Thus the addition cannot be made in the hands of the assessee. We are of the opinion that the declaration made under VDIS and the sale of diamonds declared therein cannot be held to be bogus/non-existent as held by the AO. The addition made in the assessee s hands is therefore rightly deleted by the learned CIT(A). This ground of the Department is therefore dismissed. Charging of interest u/s 158BFA(1) - We find that the assessee has repeatedly requested various authorities of the Department but despite of his requests the Department has not provided the copies of seized records. In case of Dy. CIT vs. Late Ratan Lal Jain 2001 (9) TMI 267 - ITAT PATNA it is held that although the provisions for charging interest u/s 158BFA in case of delayed filing of block return seem to be mandatory yet inasmuch as interest is of penal nature at least to some extent in such a case it has got to be considered that if the delay be not attributable to the assessee he cannot be penalised by way of charging of interest u/s 158BFA. In these facts the CIT(A) has rightly directed that interest cannot be charged for the period of delay in the supply of photocopy of the seized material. Hence the ground of the Department is dismissed. In the result appeal of the assessee is partly allowed and that of the Department is dismissed.
Issues Involved:
1. Addition in respect of unexplained cash. 2. Addition in trading results. 3. Additions based on loose papers found in the search of a third party. 4. Benefit of telescoping/set off. 5. Addition on account of unexplained jewelry and silver items. 6. Addition on account of sale of diamonds/diamond jewelry. 7. Charging of interest under section 158BFA(1). Issue-wise Detailed Analysis: 1. Addition in Respect of Unexplained Cash: The search conducted on 9th August 2000 revealed cash of Rs. 1,83,210, which the AO considered unexplained. The CIT(A) confirmed the addition of Rs. 26,910 but accepted Rs. 16,460 as petty savings of children and deleted the addition of Rs. 2,75,000 given to Shri Salim Khan. The Tribunal found that the cash flow statement and the Disawar account explained the cash of Rs. 2,75,000, and the entire addition was unjustified. Thus, the ground of the assessee was allowed, and that of the Department was dismissed. 2. Addition in Trading Results: The AO made several additions based on discrepancies in trading results, which were partially upheld by the CIT(A). The Tribunal upheld the CIT(A)'s decisions, finding the profit rates and estimates reasonable. Specific additions, such as Rs. 10,066 for iron and steel scrap, Rs. 54,570 for firewood, and Rs. 67,315 for unrecorded sales, were upheld. However, the Tribunal deleted the addition of Rs. 1,50,660 for unexplained purchases and Rs. 9,43,300 for unexplained investment in working capital, finding that these were already accounted for in the sales and profits taxed. 3. Additions Based on Loose Papers Found in the Search of a Third Party: The AO made additions based on loose papers found in the search of Shri Atul Jain, which were partially upheld by the CIT(A). The Tribunal found that no corroborative evidence linked these papers to the assessee and deleted the entire addition of Rs. 3,37,000. The Tribunal emphasized that additions could not be made based on documents found from a third party without corroborative evidence. 4. Benefit of Telescoping/Set Off: The Tribunal agreed that the set-off of investment/expenditure should be allowed against the income but only to the extent such investment/expenditure is after the earning of income. The AO was directed to consider the income assessed after giving effect to the order and allow the set-off accordingly. 5. Addition on Account of Unexplained Jewelry and Silver Items: The AO added Rs. 4,43,693 for unexplained jewelry and silver items, which the CIT(A) deleted. The Tribunal upheld the CIT(A)'s decision, finding the jewelry reasonable given the size and status of the family and considering the CBDT Instruction No. 1916 and the Karnataka High Court decision in Smt. Pati Devi vs. ITO. 6. Addition on Account of Sale of Diamonds/Diamond Jewelry: The AO treated the sale proceeds of diamonds declared under VDIS by family members as bogus and added Rs. 86,46,406 as undisclosed income of the assessee. The CIT(A) deleted the addition, finding no incriminating material in the search and accepting the VDIS declarations. The Tribunal upheld the CIT(A)'s decision, noting that the sale proceeds were credited in the family members' bank accounts and then given as deposits to the assessee, which was fully explained. 7. Charging of Interest Under Section 158BFA(1): The AO charged interest under section 158BFA(1) for the delay in filing the block return. The CIT(A) directed that interest should not be imposed for the period of delay in supplying photocopies of the seized material. The Tribunal upheld this decision, finding that the delay was not attributable to the assessee. Conclusion: The appeal of the assessee was partly allowed, and that of the Department was dismissed. The Tribunal provided detailed reasoning for each issue, emphasizing the need for corroborative evidence and the reasonableness of the estimates and declarations made by the assessee and his family members.
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