2004 (2) TMI 271 - AT - Income Tax

Block Assessment in search case - Unexplained investment in jewellery - Unexplained investment in shares made out of the HUF sources - short term loss on sale of 1300 IPCL shares - investment in house property disclosed during search proceedings - difference of opinion between the two Members - Third member Order. Whether, the Accountant Member is justified in upholding the order of CIT(A) allowing the short term capital loss of Rs. 3,48,300 or Judicial Member is justified in reversing the order of ld. CIT(A) on this issue for the assessment year 1993-947 - Whether, the Accountant Member is justified in reducing the addition of Rs. 2 lakhs to Rs. 12,500 or Judicial Member is justified in upholding the order of ld. CIT(A) confirming the addition of Rs. 2,00,000. HELD THAT - The Accountant Member held that the loss incurred in these transactions was allowable and there was no infirmity in the order of the CIT(A) by observing that the assessee was found to be carrying on several transactions in shares as per seized material found during the search - that one of which was treated to be the contract note for purchase of shares of IPCL; that from the details of the transactions it was seen that the assessee had entered into valid contract for purchase and sale of shares; that brokers have raised bills for the same; that the assessee had made payments in full for purchase of shares; and that the delivery was effected; that the transactions were at market price. He, therefore, held that in such a situation to hold that only because the payment was made even subsequent to the contract for sale, the transaction was colourable device would be purely on surmise and contrary to the facts. According to him, the assessee had discharged the onus of proving the genuineness of the transactions. He also observed that the assessee cannot be said to be controlling the record of the broker and only because the broker could not produce certain material called by the Assessing Officer or could not appear in person would not be a valid ground for holding the transaction as bogus or colourable device. According to him, the assessee had actually incurred the loss which was not a fictitious loss. Observing that the brokers have confirmed the transactions as per bills and contract notes raised by them, the transaction in sale and purchase of shares had taken place and the loss incurred on such transactions was, according to him, therefore, allowable. The Accountant Member held that the assessee had proved by furnishing valuation report in respect of the house property that there was no major renovation of the house during the relevant financial year. According to him, the assessee had stated that disclosure was towards investment in furniture and household goods only and there was no disclosure in respect of investment in renovation of the house or house property and even no material was found which suggested that any renovation in the house was carried out during the year. Thus, according to him, the statement if interpreted in proper perspective indicated that no disclosure was made towards investment in renovation of house. He also observed that even otherwise, a statement was made under mistaken facts or under wrong interpretation of law which can very well be retracted by giving cogent reasons for the same supported by necessary evidence which according to him, was given by the assessee by way of filing valuation report showing no investment in house property and investment found as per Annexure V of the Panchnama being of the value less than Rs. 47,500. He, therefore, restricted the addition of undisclosed income invested in household articles to Rs. 12,500 only (Rs. 47,500 - Rs. 35,000). The Judicial Member , on the other hand; observed that the counsel of the assessee could not furnish the share certificate number, distinctive number; that in the delivery note dated 1-3-1993 the distinctive numbers and share certificate numbers have not been mentioned against the column of distinctive number and share certificate number and similarly in the correspondence with Jagdish P. Patel the assessee could not point out the distinctive number or share certificate number of ICICI shares delivered to the assessee. He also observed that the search was conducted on 16-2-1993 and there was no evidence regarding the purchase of shares of IPCL and ICICI found by the search party though from the perusal of the statement recorded and seized material it could be seen that the search party seized loose papers which were contained in file Annexure A-9 which were confronted to the assessee during the course of search vide question No. 39. He, therefore, formed an opinion that the Assessing Officer was fully justified in taking the view/that the alleged loss in the purchase and sale of shares was a colourable device to siphon off the income declared by the assessee during the course of the search. He gave an additional finding also stating that the assessee has not produced evidence of delivery i.e., distinctive numbers and certificate numbers before the departmental authorities or even before the Tribunal and, therefore, it was a speculation loss not allowable to be set off against his income except against profits and gains if any of any other speculation business. The Judicial Member, on the other hand, held that in the statement u/s 132(4) t he assessee had stated that he had made investment for renovation, furniture, purchase of TV, etc. for about Rs. 2 lakhs which is evident from the perusal of details given in answer to question No. 46 of the statement making disclosure of Rs. 2 lakhs and the reply to question No. 7 clearly giving the source of earning of undisclosed income. It was a voluntary statement and was binding on the assessee in view of the judgment of the Kerala High Court in the case of V. Kunhambu Sons 1995 (12) TMI 33 - KERALA HIGH COURT according to him, neither before the Assessing Officer nor before the CIT(A) the assessee has furnished the cash-flow statement of the HUF and in the return of HUF for assessment year 1993-94 the assessee had disclosed agricultural income of Rs. 1,86,987 which was furnished in the month of February, 1994 even though in reply to question No.7, the assessee had stated that approximately the yearly agricultural income of the HUF was Rs. 1 lakh which, according to him, indicated that the assessee had inflated the agricultural income to cover up the undisclosed income in the absence of any cash-flow chart. The CIT(A), according to him, gave cogent reason for upholding the addition and he upheld the same. Third member Order - It is not a case of pressure or coercion having been applied against the assessee. It was a statement in the presence of two witnesses and not an extraction from the assessee. In my opinion, the valuation report cannot be equated as proof of the assessee having not invested money for the house or household goods or furniture therein. The valuer has stated that he has inspected the property on 24-12-1994 for both the valuations. Both the reports were signed on 26-12-1994. These dates are much after the dates of search. As to what were the construction earlier and what were made during the period under consideration and upto the date of inspection is not known. The furniture and household goods for which the declaration was made might not be there in existence on the date of the inspection. Therefore, not much reliance can be placed on the valuation reports vis-a-vis the declaration made by the assessee. The Panchnama only shows the household goods and furniture and not the investment in the house and therefore, this also cannot be a ground for demolishing the version of the assessee made u/s 132(4) of the Act stating that he has invested Rs. 2 lakhs in the house and household goods. Not only at one place, the assessee has stated at other places that he has invested Rs. 2 lakhs in repairs / renovation, furniture and household goods and for the sake of convenience. In my opinion, therefore, the addition of Rs. 2 lakhs was rightly made and the Judicial Member was right in upholding the same. In conformity with the majority opinion, in Revenue's Appeal, we reverse the order of ld. CIT(A) allowing short term capital loss with regard to 1300 IPCL shares and 400 ICICI shares and further upheld the order of ld. In the result, the appeal of the revenue for the assessment years 1990-91 to 1992-93 are dismissed and for the assessment year 1993-94 partly allowed. The appeal of the assessee for the assessment year 199394 is dismissed.

Summary

Issues Involved:
1. Deletion of addition on account of unexplained investment in shares.
2. Deletion of addition of Rs. 10,000 in respect of cash found during the search.
3. Deletion of addition of Rs. 40,900 towards unexplained investment in jewellery.
4. Deletion of addition of Rs. 11,16,150 as unexplained investment in shares claimed by the assessee to have been made out of the HUF sources.
5. Deletion of loss on sale of shares amounting to Rs. 3,48,300.
6. Addition of Rs. 2,00,000 as investment in house property disclosed during search proceedings.

Summary:

1. Deletion of Addition on Account of Unexplained Investment in Shares:
The Tribunal upheld the CIT(A)'s decision that the investment in shares was explained by withdrawals from HUF funds. The CIT(A) found that the HUF had been in existence for several years with agricultural income and the withdrawals shown in the returns were higher than household expenses, thus covering the investments in shares. The Tribunal agreed that the withdrawals from HUF funds were available for explaining the investments in shares.

2. Deletion of Addition of Rs. 10,000 in Respect of Cash Found During the Search:
The Tribunal sustained the deletion of the addition of Rs. 10,000, as the cash was properly explained by the assessee as a withdrawal from the firm M/s. Krishna Exclusive, confirmed by the firm's certificate and account copy.

3. Deletion of Addition of Rs. 40,900 Towards Unexplained Investment in Jewellery:
The Tribunal upheld the CIT(A)'s decision to delete the addition of Rs. 40,900, accepting the explanation that the jewellery was received as gifts from the father-in-law of the assessee's wife, supported by affidavits and considering the CBDT Instruction No. 1916.

4. Deletion of Addition of Rs. 11,16,150 as Unexplained Investment in Shares Claimed by the Assessee to Have Been Made Out of the HUF Sources:
The Tribunal confirmed the CIT(A)'s decision that the investment in shares was explained by the agricultural income of the HUF, which was supported by bills and accepted by the revenue authorities. The Tribunal found no fault in the assessee filing the return after the date of search as the time limit had not expired.

5. Deletion of Loss on Sale of Shares Amounting to Rs. 3,48,300:
There was a difference of opinion between the members. The Judicial Member found the transactions to be a colourable device to siphon off income and alternatively held the loss to be speculative. The Accountant Member upheld the CIT(A)'s decision allowing the loss, finding the transactions genuine. The Third Member agreed with the Judicial Member, reversing the CIT(A)'s order and disallowing the loss.

6. Addition of Rs. 2,00,000 as Investment in House Property Disclosed During Search Proceedings:
There was a difference of opinion between the members. The Judicial Member upheld the addition based on the statement under section 132(4), while the Accountant Member reduced the addition to Rs. 12,500. The Third Member agreed with the Judicial Member, upholding the addition of Rs. 2,00,000.

Conclusion:
- The appeals of the revenue for the assessment years 1990-91 to 1992-93 were dismissed.
- For the assessment year 1993-94, the revenue's appeal was partly allowed.
- The assessee's appeal for the assessment year 1993-94 was dismissed.