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TMI Blog1998 (12) TMI 108X X X X Extracts X X X X X X X X Extracts X X X X ..... eized a lot of records in the form of loose slips as well as computerised accounts for the previous years 1993-94, 1994-95 and partly for 1995-96 in addition to cash of Rs. 3,40,000 out of Rs. 3,50,000 found at the Bombay residence. On processing the above-mentioned seized materials, the AO came to a conclusion that the appellant had undisclosed income to be assessed under the provisions of Chapter-XIV-B of the IT Act as introduced by the Finance Act, 1995. 3. Therefore, he issued notice under s. 158BC(a) calling for return for the block period. The appellant filed the block return which was verified by the AO and being not satisfied, proposed an estimate based on the seized materials. The proposal was communicated to the assessee, who filed detailed objections and explanations before the AO. The AO, after going through the objections, explanations, sworn statements of the assessee and other concerned persons and on the basis of the materials seized at the time of searches, completed the block assessment, against which the assessee has now come in appeal before the Tribunal. 4. It is stated that the assessee has returned an undisclosed income of Rs. 44,48,600 as follows: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt of office maintained at Bombay as same is allowable as deduction in computing taxable income. 10. The learned Dy. CIT ought not to have made addition of Rs. 1,43,000 being expenditure incurred on the lease premises. 11. The learned Dy. CIT, ought not to have disallowed a sum of Rs. 2,725. 12. The learned Dy. CIT, ought not to have added a sum of Rs. 21,00,000 placing reliance on the sworn statement of the appellant without bringing any further evidence on record, suggesting that so much payments were actually made to the technicians, artists. In any event the learned Dy. CIT ought to have appreciated that the same is allowable as deduction in computation of total income. 13. The learned Dy. CIT, ought not to have added a sum of Rs. 5,15,300 as unexplained expenditure, inasmuch as the seized papers suggests that only so much cash was required for various purposes. It did not mean that actually it had been expended. In any event the learned Dy. CIT, ought to have appreciated and allowed the same as a deduction in the computation of taxable income. 14. The learned Dy. CIT, ought not to have added a sum of Rs. 18,95,000 as unexplained expenditure inasmuch as the seized pap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Rs. Rs. 1. 3 1993-94 1994-95 Unexplained expenditure 18,030 2. 3 1993-94 1994-95 Payment to Ameer Khan not recorded in the books 30,000 48,030 3. 4 1994-95 1995-96 Unexplanation expenditure 62,941 62,941 4. 6 1995-96 1996-97 Unexplained expenditure for which no entry has been passed in accounts and not covered by peak cash deficit 2,78,350 5. 7 1995-96 1996-97 Unexplained cash found 3,50,000 6. 8 1995-96 1996-97 Unexplained expenditure for production of film 34,63,661 7. 9 1995-96 1996-97 Rent paid 64,000 8. 10 1995-96 1996-97 Renovation 1,43,000 9. 15 1995-96 1996-97 Flat maintenance 36,997 10. 11 1995-96 1996-97 Unexplained cash deposit 2,725 11. 12 1995-96 1996-9 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... idence for making allegations of unaccounted expenditure and subsequent additions as undisclosed income. The learned counsel further argued that almost the entire undisclosed income worked out and assessed by the AO has already been reflected in the block return filed by the assessee for the asst. yr. 1996-97 for the period till the search and in regular return of income for the asst. yr. 1996-97, as major portion of the income from the films like Rangeela and Nayak were earned by the assessee during the previous year period relevant to the asst. yr. 1996-97. 13. In his second set of arguments, the learned counsel explained his grounds on alternate remedy legally available to the assessee. He contended that items alleged as unaccounted expenditure and added by the AO towards undisclosed income, are all, barring certain personal expenses, items expended for the purpose of business and, therefore, liable to be allowed as admissible expenses in the computation of undisclosed income. He argued that as the alleged unaccounted expenses are business expenditure, any addition made on that ground would be set off by the corresponding deduction as admissible business expenditure. He submit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nature of sworn statements made by the assessee. He submitted that the block assessment in this case has been completed on the basis of proper material and clear evidence, that the assessment does not suffer from any infirmity, whether factual or legal and, therefore, needs to be sustained in toto; and the assessee s appeal may be dismissed. 15. On the alternate ground advanced by the assessee, Shri C.P. Ramaswamy, the learned senior Departmental Representative, argued at length. According to Shri Ramaswamy, those undisclosed expenses are deemed as the income of the assessee under s. 69C, and no deduction is permissible from that deemed income even if those undisclosed expenses are incurred for the purpose of the business of the assessee. He argued that s. 69C is a deeming provision by which income is deemed against unexplained expenditure and, therefore, once income is deemed against unexplained expenditure the same shall be added and the expenditure cannot be claimed as deduction. According to the learned senior Departmental Representative, this position of law is now expressly declared by the proviso inserted at the end of s. 69C by the Finance (No. 2) Act, 1998, w.e.f. 1st Ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... about the source of such expenditure. The thrust is towards the source of expenditure only, and not towards the nature of expenditure. It may be personal in nature, or business expenditure or capital expenditure or whatsoever. The provision is not bothered about the nature of the expenditure at all. Therefore, one cannot say that where the expenditure is business expenditure, it should be deducted out of the income deemed against the very same expenditure. If such expenditure is allowed to be deducted, the very object and purpose of s. 69C would be defeated. Whenever income is deemed against unexplained expenditure and the very same unexplained expenditure, be in the nature of business expenditure, is allowed as deduction, then in all such cases, the income so deemed would be set off by the corresponding deduction. If this position is accepted, then s. 69C would serve no purpose. It becomes non est. We cannot read off a provision of law as of no use or for no purpose to serve. Sec. 69C is inserted in the Act as a rule of convenience to take cognizance of income to the extent of unexplained expenditure. Sec. 69C presupposes not only the income against unexplained expenditure, but a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nder the deeming of income under s. 69C itself futile. Therefore, the alternative ground advanced by the assessee regarding the deductibility of unexplained expenditure from the corresponding deemed income cannot be accepted and accordingly dismissed. 21. Therefore, we will examine the first set of grounds advanced by the assessee which relate to the evidence and the basis for various additions made by the AO and examine whether those additions are sustainable or not. The various additions are already summarised in para. 10 above. 22. Addition No. 1 Ground No. 03 Financial Year 1993-94 Asst. yr. 1994-95 Rs. 18,030 22.1. In ground No. 3, the assessee has contended against a total addition of Rs. 3,91,630 made up of three amounts, viz., Rs. 3,43,600, Rs. 18,030 and Rs. 30,000. The amount of Rs. 3,43,600 related to the cash deficit noticed in the accounts for financial year 1993-94, which has already been offered by the assessee as undisclosed income in his block return. As stated by us in paras. 9 and 10 above, the amounts already returned by the assessee as undisclosed income will not be considered in this appeal. The other two amounts are added b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Rs. 2,78,350 25.1 The above addition consists of three amounts, which are as follows: Rs. Excess baggage A/RV/1 p. 13 16,450 Inflated expenditure A/RV/1 pp. 7 8 72,000 Hiring of cabs A/2 p. 15 67,900 Personal expenses 1,22,000 2,78,350 These expenditures are evidenced by seized documents in the form of loose sheets, the reference numbers of which are mentioned above along with the items of expenditure. The assessee has no much explanation towards the items of excess baggage, hiring of cabs and personal expenses. Inflated expenditure does not mean actual cash outflow and, therefore, cannot be construed as unexplained expenditure. Therefore, the amount of Rs. 72,000 is deleted. 26. Addition No. 5 Ground No. 7 Financial year 1995-96 Asst. yr. 1996-97 Rs. 3,50,000 26.1. This amount was the cash found at the time of search at Bombay, out of which Rs. 3,40,000 was seized by the Department. The AO treated the amount as undisclosed income on the ground that the assessee had made initially an admission to that effect. But as submitted by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessee at Hyderabad and virtually depends on the assessee even for personal expenditure; (3) his only source of income was 12 acres of ancestral agricultural land belonging to the joint family and it was not proved that Raju had any source of funds to invest in film production; (4) that out of total investments in film as per accounts of Rs. 24,27,000 excluding creditors, the assessee has financed to the extent of Rs. 16,75,000; (5) that the telex message sent to the Bombay office of Varma itself proves that Varma exercises full control over the production of the film. 27.2. Therefore, the AO held that A.V. Subba Raju was only a name-lender. Accordingly, the AO added Rs. 34,63,661 to the undisclosed income of the assessee, being the unexplained portion of his investment in the film, after deducting Rs. 4,00,000 towards creditors and Rs. 16,75,000 already reflected in the accounts. 27.3. The assessee objects to the addition on the ground that it is arbitrary and without any basis. The contentions are as follows The assessee or Raju has never admitted this. A telex message by itself; (sic) already been explained. Assessee s premises were thoroughly searched by the Depa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee is that Subba Raju has no independent financial sources to produce a film. That is not a matter to be answered by the assessee. The AO should have confronted Raju with those questions. There is no sanctity for making addition in the hands of the assessee for the reason that Raju has no sources of his own. 27.7. Therefore, we find no lawful evidence on record to implicate the assessee in the initial production of the firm. ANAGANAGA OKA ROJU in the light of the telex message. Therefore, there is no basis for working out the unexplained expenditure in this regard. The addition of Rs. 34,63,661 is, therefore, deleted. 28. Addition No. 7 Ground No. 9 Financial year 1995-96 Asst. yr. 1996-97 Rs. 64,000 This is the amount of rent paid by the assessee for his Bombay flat at Rs. 8,000 per month. The payment has not been accounted. The assessee has no case against this. The addition is confirmed. 29. Addition No. 8 Ground No. 10 Financial year 1995-96 Asst. yr. 1996-97 Rs. 1,43,000 29.1 This amount represented the expenses incurred by assessee outside the accounts for the renovation of his Bombay flat. The assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (-) 2,50,000 Ahmedkhan 2,00,000 1,30,000 (-) 70,000 Total 55,50,000 34,60,000 (-) 20,90,000 Rounded off to Rs. 21,00,000. 32.3. In view of the categorical admission which was never disputed during the course of investigation, the AO treated the above difference as unaccounted payments made out of unaccounted cash receipts from distributors and added to the undisclosed income of the assessee. 32.4. The contention of the assessee is that the statement at the time of search was given out of memory without any access to books and details and, therefore, those casual statements made out of fade memory cannot be taken as the basis for the addition. 32.5. We considered this matter. The assessee has stated the details of payments made to the artists for the film Rangeela at the time of search. The details were furnished in unequivocal terms. We cannot believe the version of the assessee that those details were made casually and from faded memory. The details of the payments made to the leading stars of the cinema world for the assessee s prestigeous movie project, that too, during the relevant period, when the produ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee and worked out on the basis of seized document Annexure/A/V/2). The seized document worked out a total of Rs. 28.60 lakhs against which an amount of Rs. 9,65,000 has been reflected in the entries relating to bank account and cash account. The difference of Rs. 18,95,000 has been added by the AO as unexplained expenditure. 34.2. The contentions of the assessee are that the seized paper contained only preliminary estimates for some part of film production and those jottings in a loose sheet of paper could not be acted upon as evidence for the purpose of making additions. 34.3. We considered the matter in detail. The AO has considered the matter in detail in paragraphs 082B, 082C and 082D of the assessment order. The persons against whom payments were recorded as paid are very much related to the assessee s business as artists, technician, manager, etc. Certain others are personally related to him. The payments even though made in codes, certain amounts have been recorded in the books in its full value. Certain payments included in the seized paper have been passed through accounts, totalling to Rs. 9,65,000. 34.4. Therefore, there is no force in the arguments of th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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