2006 (3) TMI 248 - AT - Income Tax

Block Assessment - unexplained cash - whether or not the income as per the returns not furnished for the years prior to the date of search is liable to be included in the undisclosed income? - HELD THAT - As per balance sheet and capital account furnished for AY 1989-90, we note that the closing capital balance has been taken at Rs. 71,118. It is further observed that the assessee had not filed his return of income for the first time in 1994. Rather he is an existing assessee since several years back. The copy of the income-tax assessment order of the assessee for the AY 1979-80 has been placed on record. This order was passed on 9th July, 1980 in which total income after deductions was assessed at Rs. 10,670. Thus, the age of the assessee and other necessary material we find that there is no reason to doubt the availability of this much capital. For all the subsequent years the assessee has made available capital accounts, balance sheets and cash flow statements, the particulars of which tally with the chart of incomes as per returns already filed contained in p. S-1 of the paper book. Unexplained investment in gold ornaments - It is clear that the gold jewellery which should have been available with the assessee comes at 1030.886 grams, as against which gold ornaments weighing 939.800 grams were found during the course of search. In such circumstances there cannot be any addition on account of unexplained investment in the gold jewellery. The ground taken by the assessee is allowed and that of the Revenue is dismissed. Estimation of income - We have given our separate finding in respect of the three calculations made by the AO. The undisclosed income is to be computed on the above basis after excluding the amount already shown by the assessee and considered by the AO in the block assessment order. The AO is directed to give effect to our finding and determine the amount of undisclosed income resulting from the business operations of the assessee. It is made clear that the amount which already stands offered for taxation should not be added once again as has been discussed in the preceding para. These grounds are allowed pro tanto. Whether or not the income as per the returns not furnished for the years prior to the date of search is liable to be included in the undisclosed income? - Insofar as the income of the years which is below taxable limit and the returns were not furnished, the same are liable to be excluded by virtue of amendment to s. 158BB(1)(b) carried out with retrospective effect from 1st July, 1995. The Hon'ble Kerala High Court in the case of CIT vs. M.M. Thomas 2003 (3) TMI 37 - KERALA HIGH COURT has held that the income below the taxable limit of previous years could not be included as undisclosed income of the block period. In view of these facts and the amendment carried out, it becomes apparent that the income for AY 1989-90 to 1992-93 and AY 1995-96 could not have been included in the block assessment as the income in these years is below the taxable limit. We find that for the AY 1997-98 the income has been declared and assessed at Rs. 62,484. The return for this year was filed on 31st Oct., 1998 which is within the time prescribed u/s 139 and 158BB provides for its exclusion. This ground is, therefore, accepted. Unexplained investment in deposit with CRB - We observe that the gifts were received by the assessee along with his wife through account payee cheque and the evidence of having received the cheques was found during the course of search. The remaining amount of Rs. 37,500 has been rightly attributed by the learned CIT(A) to have come out of job receipts on the basis of various annexures. In our considered view, the learned CIT(A) was justified in deleting this addition. Interest on deposit with CRB - AO was right in accepting the source of deposit but was unjustified in treating the interest income in the hands of the assessee for the reason that the house belonged to the HUF and to his father Shri Manohar Lal Soni. It is further found that Shri Anand Prakash Soni HUF was assessed to wealth-tax for the AY 1985-86 and this house was shown as HUF's house and was admitted by the AO while passing the order. Thus, there was no question of taxing the interest income in the hands of the present assessee. We uphold the impugned order on this score. Unexplained investment in the property - It is noted that the main basis for making the addition is the difference in the value determined by the DVO and that shown by the assessee in the sale deed. Apart from the DVO's report no material was found in the search which could show that the assessee had made more investment than that declared in the sale deed. The Hon'ble Bombay High Court in the case of CIT vs. Vinod Danchand Ghodawat 2000 (6) TMI 13 - BOMBAY HIGH COURT has held that no addition of undisclosed income can be made only on the basis of DVO's report. We note from the assessment order that as per the AO, the assessee had admitted to surrender the amount for taxation on the basis of DVO's report. We have perused his statement, copy of which is available at the paper book. The assessee had stated in answer to question No. 2 that he was ready to pay tax as per rules. He has not surrendered the amount of Rs. 1,20,000 for taxation. Apart from that, we find that the house was purchased by three persons and the assessee was one of the co-owners. Thus, we find no justification in making addition of Rs. 1,20,000. We hold that the learned CIT(A) rightly proceeded to delete this addition. The cross-objection filed by the assessee is simply in support of the reliefs allowed in the first appeal. As the Departmental appeal has been separately disposed of, the cross-objection becomes infructuous. In the result, the appeal of the Revenue is dismissed, the C.O. of the assessee has become infructuous and the appeal of the assessee is partly allowed.

Summary

Issues Involved:

1. Confirmation of addition on account of unexplained cash.
2. Addition on account of unexplained investment in gold ornaments.
3. Addition on account of unexplained bank deposits.
4. Addition on account of investment in household items.
5. Estimation of income as per seized annexures.
6. Addition on account of household expenses.
7. Inclusion of undisclosed income for non-furnishing of returns.
8. Deletion of addition made for unexplained investment in CRB deposit.
9. Deletion of addition on account of interest on CRB deposit.
10. Deletion of addition on account of unexplained investment in KVP.
11. Deletion of addition on account of unexplained deposit in the bank account of the assessee's wife.
12. Deletion of addition on account of unexplained investment in property.

Detailed Analysis:

1. Confirmation of Addition on Account of Unexplained Cash:
The assessee was subjected to a search action under s. 132(1) on 15th July 1998, where cash of Rs. 47,760 was found, out of which Rs. 40,000 was seized. The AO did not accept the assessee's explanation regarding the source of the cash due to lack of verifiable evidence for the claimed transactions. However, the Tribunal found that the cash flow statement provided by the assessee was reliable and matched the transactions, thus ordering the deletion of the Rs. 40,000 addition.

2. Addition on Account of Unexplained Investment in Gold Ornaments:
Gold ornaments weighing 939.8 grams were found during the search. The AO did not accept the explanations provided by the assessee regarding the source of these ornaments, leading to an addition of Rs. 3,74,052. The Tribunal, however, found the explanations, supported by wealth-tax assessment orders and a will, credible and concluded that the gold jewellery available with the assessee was explainable, thus dismissing the addition.

3. Addition on Account of Unexplained Bank Deposits:
The AO made additions for unexplained bank deposits totaling Rs. 1,64,000 across various assessment years. The Tribunal, upon reviewing the cash flow statements and bank records, found that the deposits were explainable through regular sources declared in the cash flow statements and deleted the additions.

4. Addition on Account of Investment in Household Items:
The AO made additions for various household items and vehicles, totaling Rs. 1,22,750. The Tribunal found that these items were recorded in the cash flow statements and balance sheets of respective years, and thus, the additions were unjustified. The Tribunal ordered the deletion of the entire addition.

5. Estimation of Income as per Seized Annexures:
The AO made several additions based on seized annexures, estimating job charges and profits from the business of manufacturing and Nagina setting of gold ornaments. The Tribunal found that the AO's estimations were not fully backed by the material on record and that the assessee's explanations were credible. The Tribunal upheld part of the CIT(A)'s reduction of the additions and directed the AO to recompute the undisclosed income accordingly.

6. Addition on Account of Household Expenses:
The AO estimated household expenses and made additions for unexplained household expenses totaling Rs. 2,03,960. The Tribunal noted that the AO's approach of combining income earned with expenses and investments was incorrect. The Tribunal concluded that no addition was justified towards household expenses as the income had already been accounted for.

7. Inclusion of Undisclosed Income for Non-Furnishing of Returns:
The AO included income for years where returns were not filed or filed late, treating it as undisclosed income. The Tribunal found that income below the taxable limit for the relevant years should not be included as undisclosed income, and thus, excluded the income for those years from the block assessment.

8. Deletion of Addition Made for Unexplained Investment in CRB Deposit:
The AO made an addition of Rs. 77,500 for unexplained investment in CRB deposit. The Tribunal found that the gifts received were through account payee cheques and the remaining amount was from job receipts, thus deleting the addition.

9. Deletion of Addition on Account of Interest on CRB Deposit:
The AO added interest income from CRB deposit to the assessee's income. The Tribunal found that the interest income should not be taxed in the hands of the assessee as the source of the deposit was from the sale of an HUF property, thus upholding the deletion.

10. Deletion of Addition on Account of Unexplained Investment in KVP:
The AO made an addition for unexplained investment in KVP in the name of the assessee's minor son. The Tribunal found that the investment was reflected in the cash flow statement and thus deleted the addition.

11. Deletion of Addition on Account of Unexplained Deposit in the Bank Account of the Assessee's Wife:
The AO made an addition for unexplained deposit in the bank account of the assessee's wife. The Tribunal found that the amount was reasonable as petty savings and thus deleted the addition.

12. Deletion of Addition on Account of Unexplained Investment in Property:
The AO made an addition based on the DVO's report for the difference in the value of the property purchased. The Tribunal found no material evidence other than the DVO's report to support the addition and thus upheld the deletion.