1999 (12) TMI 126 - AT - Income Tax

Issues Involved:
1. Violation of IT Act and principles of natural justice.
2. Computation of the block period.
3. Addition towards undisclosed income from unaccounted stock of gold jewellery.
4. Addition of undisclosed cash.
5. Addition of income due to shortfall in drawings.
6. Addition of income from current account entry.
7. Addition of income from Moi or gifts on festive occasions.
8. Addition of expenditure for shop-warming function.
9. Addition of income from Moi received on a partner's 60th birthday.
10. Addition of unexplained credit in the partner's current account.
11. Addition of marriage expenses of a partner.
12. Addition of Moi gifts received by a partner.
13. Addition of income from agricultural operations.
14. Addition of unaccounted personal jewellery.
15. Addition of unaccounted investment in financial instruments.
16. Addition of sundry creditors as undisclosed income.
17. Addition of loan creditors to partners as undisclosed income.
18. Addition of the value of motor as undisclosed income.
19. Addition of investment in household appliances as undisclosed income.

Issue-wise Detailed Analysis:

1. Violation of IT Act and Principles of Natural Justice:
The assessee argued that the assessment was violative of the IT Act and principles of natural justice, alleging that a reasonable opportunity was not provided. The Department contended that adequate opportunities were given and that there was no requirement for the CIT to issue a pre-assessment notice. The Tribunal found that the CIT is not required to give an opportunity of hearing before approving the assessment order as the AO is responsible for providing adequate opportunity. The Tribunal concluded that there was no infirmity in the order passed by the AO on this count.

2. Computation of the Block Period:
The assessee contended that the AO erred in computing the block period from 1st April 1985 to 28th Sept 1995. The Tribunal clarified that the block period consists of ten previous years preceding the year of the search, including the period up to the date of the search. The AO correctly considered the period from 1st April 1985 to 28th Sept 1995 in accordance with the provisions of s. 158B(a) of the Act. This ground was rejected.

3. Addition Towards Undisclosed Income from Unaccounted Stock of Gold Jewellery:
The AO added Rs. 15,68,275 towards undisclosed income from unaccounted gold jewellery. The Tribunal noted that the valuation report was not provided to the assessee before finalizing the assessment, denying the assessee an opportunity to explain. The matter was remitted to the AO for further verification and to provide the valuation report to the assessee for comments. This issue was set aside for fresh consideration.

4. Addition of Undisclosed Cash:
The AO added Rs. 6 lakhs as undisclosed cash. The Tribunal found that the explanation regarding the source of cash was not adequately verified. The matter was restored to the AO for fresh consideration to determine the truthfulness of the explanations provided by the assessee, including the agricultural income and the cash claimed to belong to Sri Venkatesan.

5. Addition of Income Due to Shortfall in Drawings:
The AO added Rs. 70,400 due to insufficient drawings by the partners. The Tribunal held that the estimate was not based on any evidence found during the search or other material information. The addition was deleted as it did not meet the criteria for undisclosed income under s. 158BC.

6. Addition of Income from Current Account Entry:
The AO added Rs. 46,420 as undisclosed income from a credit entry in the partner's current account. The Tribunal confirmed the addition, noting that the credit was explained by the assessee as sale proceeds of firm's assets and there was no evidence to dispute the AO's findings.

7. Addition of Income from Moi or Gifts on Festive Occasions:
The AO added Rs. 1,05,012 as undisclosed income assuming the partners made equivalent gifts. The Tribunal deleted the addition, stating that the AO did not refer to any material evidence or information to support the presumption.

8. Addition of Expenditure for Shop-Warming Function:
The AO added Rs. 10,000 as undisclosed expenditure for a shop-warming function. The Tribunal found the estimate excessive and reduced the addition to Rs. 5,000.

9. Addition of Income from Moi Received on a Partner's 60th Birthday:
The AO added Rs. 1,50,000 as undisclosed income assuming equivalent gifts were made by the partners. The Tribunal deleted the addition, noting the lack of material evidence or information to support the presumption.

10. Addition of Unexplained Credit in the Partner's Current Account:
The AO added Rs. 51,000 as undisclosed income from an unexplained credit in the partner's current account. The Tribunal remitted the issue to the AO for fresh consideration and to provide the assessee an opportunity to explain the credit.

11. Addition of Marriage Expenses of a Partner:
The AO added Rs. 15,000 as undisclosed income for marriage expenses of a partner. The Tribunal deleted the addition, stating that the expenditure was related to the partner and not the firm, and there was no evidence to prove that the firm's funds were used.

12. Addition of Moi Gifts Received by a Partner:
The AO added Rs. 46,500 as undisclosed income assuming equivalent gifts were made by the partner. The Tribunal deleted the addition, noting the lack of material evidence or information to support the presumption.

13. Addition of Income from Agricultural Operations:
The AO added Rs. 17,60,602 as undisclosed income by estimating the agricultural income. The Tribunal found that the assessee was not given adequate opportunity to address the valuation report and discrepancies pointed out by the AO. The issue was remitted to the AO for fresh consideration and to determine the undisclosed income for each year separately.

14. Addition of Unaccounted Personal Jewellery:
The AO added the value of 578.85 gms of personal jewellery as undisclosed income. The Tribunal noted that the AO failed to establish the connection between the jewellery and the firm's business. The issue was remitted to the AO for proper consideration.

15. Addition of Unaccounted Investment in Financial Instruments:
The AO added Rs. 65,000 as undisclosed income from investments found at the partners' residence. The Tribunal remitted the issue to the AO to determine the undisclosed income for each assessment year separately and to establish the connection between the investments and the firm's business.

16-19. Addition of Sundry Creditors, Loan Creditors to Partners, Value of Motor, and Investment in Household Appliances as Undisclosed Income:
The AO added various amounts as undisclosed income under these heads. The Tribunal found that the AO did not determine the undisclosed income in accordance with the provisions of s. 158BB. The issues were remitted to the AO for fresh consideration and to compute the undisclosed income for each assessment year separately, ensuring proper linkage to the firm's business.

Conclusion:
The appeal was partly allowed for statistical purposes, with several issues remitted to the AO for fresh consideration and proper determination of undisclosed income in accordance with the IT Act provisions.

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