2005 (3) TMI 429 - AT - Income Tax

Undisclosed income - Addition on account of deficit stock - survey action taken u/s 133A - Unexplained expenditure and unexplained investment - loose paper seized - Disallowance u/s 40A(3) - Unexplained jewellery - Addition towards deposit certificates at the time of search operation. HELD THAT - The material gathered during the course of survey operations may be used for the purpose of the addition made in the regular assessment but no addition under this Chapter XIV-B can be made until and unless it is proved that the materials or informations so gathered are relatable to the evidence found as a result of search or requisition of books of account or documents. Our aforesaid view is duly supported by the case law relied on by the learned AR as given hereinabove. The learned DR could not bring on record any other case law which had taken a contrary view. The judgments of the co-ordinate Bench are binding on us to maintain judicial discipline. We therefore respectfully following the three judgments of Tribunal as has been relied by the learned Authorised Representative delete the addition so made. The alternate plea of the assessee does not require any adjudication in view of the fact that we have allowed this ground of appeal of the assessee. In the result the addition of Rs. 3, 76, 062 stands deleted. Unexplained expenditure and unexplained investment - In our opinion onus is on the AO to prove that the transactions as stated in the loose paper which is not found from the possession of the assessee relate to the assessee is more. The AO in this case has not discharged the onus and no addition can be made merely on the basis of surmises and conjectures specially when part of the transactions were considered in the case of the assessee s husband. This is a settled law that a paper has to be read in toto not in part. We therefore delete the additions. Thus the ground No. 3 of the assessee is allowed. Addition u/s 69 - No iota of evidence was produced before us to support the affidavit. The affidavit cannot be taken by us as it is an additional evidence not before the authorities below. Thus we do not find any substance in the submission of the learned AR. In our opinion the onus was on the assessee to prove the source of the investment. The assessee failed to adduce the evidence. We therefore confirm the addition made by the AO. Thus the 4th ground of the appeal stands dismissed. Disallowance u/s 40A(3) - The entries recorded in the regular books of account cannot be said to have not been disclosed by the assessee. Such disallowance may be made by the AO while making regular assessment but not under the block assessment. We therefore delete the disallowance by relying on the judgment of Tribunal in the case of Janta Tiles vs. Asstt. CITJanta 1999 (4) TMI 148 - ITAT PUNE . Thus this ground of the appeal has been accepted. Unexplained jewellery - We are of the view that for ascertaining the undisclosed jewellery of the family the jewellery as disclosed by B. Durga Prasada Rao measuring 1, 937 gms. should also be considered by the AO. The total jewellery found from the family was 5, 315 gms. while the total jewellery disclosed by all the members of the family was 4, 645 gms. Thus the total excess jewellery found was 670 gms. By allowing credit for 500 gms. as has been allowed by the AO as the assessee was not a wealth-tax assessee in view of the instruction of the CBDT we are of the firm opinion that the undisclosed jewellery remains only 170 gms. we therefore set aside the order of the AO and reduce the addition from Rs. 5, 45, 560 to Rs. 78, 200 by valuing 170 gms. @ Rs. 460 per gm. as has been taken by the AO. Thus this ground of appeal of the assessee is partly allowed and the addition to the extent of Rs. 78, 200 is sustained. Addition towards deposit certificates at the time of search operation - AO made the addition stating that since the assessee has not filed any evidence for the gifts received therefore the explanation of the assessee cannot be accepted. The learned AR before us submitted that it is customary in Hindu society in which the assessee belongs that when a marriage is solemnised the gifts in the form of cash are given by the relatives and friends. The explanation advanced by the assessee in our opinion was a reasonable explanation especially when no investment from the marriage gifts has been accepted. Keeping the status of the family a sum of Rs. 25, 000 must have been received by the assessee by way of small gifts at the time of marriage and other occasional functions. Therefore we delete the addition of Rs. 25, 000. Thus in the result the appeal of the assessee is partly allowed.

Issues Involved:
1. Addition of Rs. 3,76,062 on account of deficit stock.
2. Additions of Rs. 10,89,370 and Rs. 6,28,831 as unexplained expenditure and unexplained investment.
3. Addition of Rs. 1 lakh as unexplained investment.
4. Addition of Rs. 14,080 based on estimated profit.
5. Addition of Rs. 1,24,463 under s. 40A(3) for cash payments.
6. Addition of Rs. 5,45,560 for unexplained gold jewelry.
7. Addition of Rs. 25,000 for deposit certificates.

Detailed Analysis:

1. Addition of Rs. 3,76,062 on account of deficit stock:
The assessee argued that the addition cannot be made in the block assessment under Chapter XIV-B as it is a special code for determining undisclosed income based on material found during the search. The tribunal agreed, stating that s. 158BB(1) does not allow using material seized during a survey operation for block assessment. The tribunal cited various cases to support this view and concluded that the addition of Rs. 3,76,062 should be deleted.

2. Additions of Rs. 10,89,370 and Rs. 6,28,831 as unexplained expenditure and unexplained investment:
These additions were based on a piece of paper found during the search at the residence of the assessee's husband. The tribunal noted that the paper, which lacked a date and signature, was found at the husband's premises and not at the business premises of the assessee. The tribunal emphasized that the onus was on the AO to prove that the transactions on the loose paper related to the assessee, which was not done. The tribunal deleted the additions of Rs. 10,89,370 and Rs. 6,28,831, stating that the AO's conclusions were based on surmises and conjectures.

3. Addition of Rs. 1 lakh as unexplained investment:
The AO added Rs. 1 lakh as unexplained investment, which the assessee claimed was from marriage gifts. The tribunal noted that the assessee failed to provide evidence for the source of the investment and thus upheld the AO's addition of Rs. 1 lakh.

4. Addition of Rs. 14,080 based on estimated profit:
The AO estimated a 10% profit on sales recorded in seized documents, resulting in an addition of Rs. 14,080. The assessee did not press this ground, and the tribunal dismissed it as 'Not pressed.'

5. Addition of Rs. 1,24,463 under s. 40A(3) for cash payments:
The AO disallowed cash payments in excess of Rs. 10,000 under s. 40A(3). The tribunal held that such disallowances are relevant for regular assessment and not for block assessment under Chapter XIV-B, which deals only with undisclosed income based on search evidence. The tribunal deleted the addition of Rs. 1,24,463.

6. Addition of Rs. 5,45,560 for unexplained gold jewelry:
The AO added the value of 1,186 grams of gold as unexplained jewelry. The tribunal found that the jewelry belonged to the assessee's father-in-law and was disclosed in his wealth tax return. The tribunal concluded that only 170 grams of jewelry could be considered unexplained and reduced the addition to Rs. 78,200.

7. Addition of Rs. 25,000 for deposit certificates:
The AO added Rs. 25,000 for deposit certificates found during the search, which the assessee claimed were purchased from marriage gifts. The tribunal accepted the assessee's explanation, noting that it is customary to receive cash gifts at marriages, and deleted the addition.

Conclusion:
The appeal of the assessee was partly allowed, with several additions being deleted or reduced based on the tribunal's findings.

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