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TMI Blog2002 (9) TMI 274X X X X Extracts X X X X X X X X Extracts X X X X ..... the reasons to believe that the assessee possesses undisclosed income/asset so as to justify action under s. 132, not disclosed to the assessee. He has contended that at the request of assessee s authorised representative the Tribunal had issued directions to the Departmental Representative for producing the same before the Tribunal for perusal but the same were not shown to the Tribunal, nor to the assessee He has cited Kusumlata vs. CIT (1989) 180 ITR 365 (Raj), in his support. He has also cited Dr. A.K. Bansal vs. Asstt. CIT (2000) 67 TTJ (All)(TM) 721 : (2000) 73 ITD 49 (All)(TM), Janak Ram Sharma vs. Director of Inspection (Inv) (1995) 127 CTR (P H) 440 : (1995) 215 ITR 234 (P H), and ITO vs. Lakmani Mewaldas 1976 CTR (SC) 220 : (1976) 103 ITR 437 (SC). He has contended that if there are no reasons having rational nexus with the belief then the entire proceedings deserve to be quashed. 5. In the written statement of assessee it has been contended that there is no material with the Director to form a belief that any of the conditions laid down in s. 132(1) exists in the case of the assessee-appellant. It has been contended that at no stage, prior to search, any notice under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) existed. He has contended that search cannot be ordered merely on the basis of suspicion. He has contended that the assessee was never assessed to tax before search. He has contended that the Tribunal is competent to examine whether the reasons exist or not. He has contended that when the Department is refusing to produce the reasons before the Tribunal for the Tribunal s perusal then adverse inference has to be drawn that there do not exist any reasons for the required belief. 8. We have considered the rival contentions, the relevant material on record, as also the cited decisions. In (2002) 67 TTJ (All) 72 : (2002) 73 ITD 49 (All), it has been held that when the assessee challenges the validity of search and the satisfaction of conditions or existence of circumstances specified in cls. (a), (b) or (c) of sub-s. (1) of s. 132, the Tribunal has power/jurisdiction and is also bound to decide the issue by calling for record of authorities authorizing search, and can satisfy itself with regard to the authorization having been issued in accordance with law. 9. In (1989) 180 ITR 365 (Raj), the Hon ble Rajasthan High Court has held that though the Court cannot go into the sufficien ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nefit from the cited decision. 14. From the above discussion of various judgments the legal position that emerges is.that the Court/Tribunal has the jurisdiction, as also the duty, to examine the validity of the authorization for search when the same is challenged before the Court/Tribunal, and then the Court/Tribunal can, on perusal/examination of the same, adjudicate as to whether there did exist or not, the required condition precedent for issuance for authorization of search. 14A. In the instant case, it may be noted that the assessee has challenged the validity of the assessment order as being bad in law and in facts and as being violative of the principles of natural justice, as agitated in ground No. 1 raised before us, and in the contention raised before us during arguments that there was no reason for belief that the assessee will not produce the books of accounts or other documents or has undisclosed income in possession. At assessee s request the Tribunal specifically directed the Departmental Representative to furnish the record/reasons before Tribunal for perusal and it is contained in Tribunal s order-sheet dt. 12th Oct., 2001. The appeals were adjourned to 21st D ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntended that no such opportunity of being heard is necessary to be given to the assessee by CIT before granting approval. 16. We have considered the rival contentions. In our considered opinion, there being no statutory provisions for affording opportunity of being heard to the assessee by CIT/Director (or Joint CIT/Joint Director) before granting approval to the AO for passing assessment order for the block period, as is evident from the proviso to s. 158BG which provides for the said previous approval, and there being ample opportunity to the assessee-appellant for contesting various additions made in the block assessment before the appellate authority/Tribunal, and explaining the assessee s position there and thus there being no material prejudice to the assessee for non-affording of opportunity of being heard to the assessee before granting of the said previous approval by the CIT/Director and there also being statutory time-limit for framing of the assessment for the block period which may also get affected by providing the aforesaid opportunity of being heard before granting previous approval, it cannot be held that there is legal requirement for affording an opportunity of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... As regards PPS having not stated anything about the gold ornaments weighing 95 gms. in his statement mentioned above, the learned authorised representative of assessee has contended that they have answered only the questions put to them and no specific question regarding this having been put to PPS he has not stated the same. In our considered opinion, considering all the facts and circumstances of the case, and in particular the fact that PPS does the job work of manufacturing gold ornaments and does not have a shop of his own and that he resides in the same house with the present assessee, CD. who does not do the job work of manufacturing gold ornaments but does only tailoring, and also the fact that these gold ornaments were found in the possession of PPS and it was specifically stated at the time of preparation of inventory also that these were in his possession for job work, that is, for fixing of stones and repairing, as is evident from Panchnama placed on p. 3 of PB, the addition made by AO is not justified and uncalled for. We, therefore, delete this addition. 19. Serial No. 2 on p. 149 of PB pertains to ground No. 14(ii) which disputes the addition of Rs. 39,000 on acco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... It is settled position of law that in a search case in block assessment additions can be made only on the basis of incriminating evidence/material found as a result of search and not without the same. In such a situation, no incriminating material/evidence, in respect of investment in the house property, having been found as a result of search of the assessee s premises, so an addition on account of investment in house property but cannot justifiably be made. The addition, therefore, is liable to be deleted. 22. However, we may consider the otherwise position as well. Assuming the position to be otherwise, we agree with the contention of the learned authorised representative of assessee that the cost of construction has to be determined on the basis of local PWD rates and not on the basis of CPWD rates, as has been laid down by the Hon ble jurisdictional High Court in the case of Hotel Joshi referred to above. In the instant case, as the DVO s valuation report is based on CPWD rates, so the same cannot be accepted in preference to registered valuer s report wherein the valuation has been made on the basis of Rajasthan State PWD rates; and no other specific lacuna/defect has been ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion of house property, we have already decided there above in the negative. 26. Ground No. 14(iii) disputes the addition of Rs. 31,271 on account of investment in synthetic stones and labour charges. The learned authorised representative of assessee has contended that this addition has been made on the basis of Ex. A-2, found at the shop during the course of survey and brought from shop to the residence wherefrom the same was seized. He has contended that the job work of manufacturing ornaments is carried on by the two sons of the present assessee, but not by the present assessee, and so no addition on the basis of the said job work charges can be made in the hands of the present assessee. It has also been contended that no synthetic stones were found at the shop nor at the residence. As against this, the learned Departmental Representative of Revenue has contended that this addition has been made on the basis of incriminating document found during search. He has contended that the AO has rightly made the addition. He has thus supported the orders of AO. 27. We have considered the rival contentions as also the relevant material on record. As is evident from record that the job ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on account of investment in purchase of gold ornaments, on the basis of stock diary of assessee s son, Raj Kumar in asst. yr. 1993-94. Ground No. 15 disputes the addition of Rs. 30,707 in asst. yr. 1994-95. Ground No. 13 and 15(i) dispute the addition of Rs. 2,67,315 in asst. yr. 1996-97. The learned authorised representative of assessee has contended that these additions have been made on the basis of entries in diaries in Ex. A-2 and Ex. A-4 belonging to assessee s son. He has contended that the present assessee, CD, is not doing any business of manufacturing of gold ornaments, but her sons only are doing the business of manufacturing of gold ornaments. He has contended that these two diaries Ex. A-2 and Ex. A-4 were found at the shop of assessee s son where survey under s. 133 A was conducted and the said diaries were brought from that shop at the residence which is in common of assessee and assessee s sons, and were seized at the residence. He has contended that the diaries are in the handwriting of sons. He has contended that no addition, on the basis of entries in the diaries pertaining to job work of manufacturing of gold ornaments, can be made in the hands of assessee, par ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he said bank account. It has been contended that the said paper, as placed on p. 116A of the PB, is a letter issued by the bank to Kala Mandir intimating the closure of bank account. It has been contended that the AO presumed this account to be belonging to present assessee, CD, and obtained statement of account from the bank, on the basis of which he made the above two additions. It has been contended that nominal balances were maintained by Shri Dau Lal Soni and deposits used to be withdrawn immediately. It has been contended that the AO failed to bring material on record to show that this account belongs to the assessee. 34. As against the above, the learned Departmental Representative of Revenue has contended that the AO has made this addition on the basis of bank deposit. He has contended that the assessee s plea has been that this bank account does not belong to her. He has contended that the said deposits are in the name of Kala Mandir which is a proprietary concern of Late Shri O.P. Soni (who expired in the yr. 1981), husband of present assessee (CD). He has contended that on enquiry the AO found these deposits were made by assessee. He has thus supported the orders o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing search. In the written statement of assessee, reliance has been placed on the decision of Jaipur Tribunal in the case of Ram Raj Soni, and Abdul Gaffar A. Nadiadwala vs. Dy. CIT (2001) 70 TTJ (Bom) 462 : (2000) 75 ITD 394 (Bom). 37. As against the above, the learned Departmental Representative of Revenue has contended that this addition has been made on account of job work income utilised to meet household expenses. He has contended that the AO estimated the job work income on the basis of estimate of household expenses based on the statement of assessee and her two sons. He has thus supported AO s order. 38. We have considered the rival contentions, the relevant material on record as also the cited decisions. From the perusal of record we find it amply established that the present assessee, CD, has been doing only the tailoring/stitching work and not any goldsmithy s job work. In such a situation, we find no justification for making any addition on account of goldsmithy s job work income in her hands. Besides, her two sons, namely, PPS and RK are already major and are being assessed separately as the present assessee (CD) is being assessed, for the very same block period; ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of search though the same may be an evidence obtained during search. Accordingly, in view of the provision of s. 158BB(1) as it stands amended vide Finance Act, 2002, w.r.e.f 1st July, 1995, an addition, on account of household expenses deemed to have been met out of job work income, estimated on the basis of statement recorded during search, cannot justifiably be made in the block assessment as the said statement does, not fall within the embracement of evidence found as a result of search, nor within that of information relatable thereto. The addition, as such is liable to be deleted. 40. We may observe that the use of the term "information" in s. 158BB(1) does not get rendered redundant and its insertion in this statutory provision is not without significance. We may take an instance for illustration sake. Suppose a document is found during search, which indicates that the assessee has to collect some demand draft or some amount from some person, (may be a bank) where it has been received in assessee s name; but the document does not spell out the figure of amount, nor its nature, nor the source. But from the statement of assessee or some other person recorded by the authori ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t. Sita Devi Daga vs. Asstt. CIT (1999) 63 TTJ (Ind) 72 : (1998) 67 ITD 151 (Ind). It has also been contended in the written statement that the income earned from NSC and stitching work was far below taxable limit, and so the same cannot be taxed as undisclosed income. 44. As against the above, the learned Departmental Representative of Revenue has contended that the AO has made these additions as the assessee could not properly explain the source of investment in NSC and in purchase of FDR. He has contended that the NSC and FDR having remained unexplained so the AO rightly made the addition in respect of amounts invested therein as also the interest thereon. He has thus supported the orders of AO. 45. We have considered the rival contentions, the relevant material on record as also the cited decisions. In (2002) 80 ITD 429 (Chennai) Tribunal Chennai has held that undisclosed income found, not on the basis of evidence found as a result of search but on investigations and enquiries made following search, could not be included as undisclosed income of block period computed under Chapter IV. In (1998) 67 ITD 151 (Ind) Tribunal Indore has held that the income below taxable limit in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l course upto the date of search or requisition where such income is below taxable limit, for any previous year falling in the block period, as provided in cl. (c), sub-cl. (A). (iii) In any other case wherein due date for filing of return has expired but no return has been filed, which does not fall in any of the above two categories i.e. in cl. (c), sub-cl. (A) or cl. (c) sub-cl. (B), no benefit of minus i.e. of reducing of income out of the above aggregation of total income will be allowable. 47. As discussed above in para 46 of this order, it is evident that when in any particular previous year, the assessee claims his income to be below taxable income, even then the total undisclosed income of that previous year has to be included in the aggregation of total income as provided in s. 158BB(1), and thereafter, benefit of minus , i.e. of reducing from the above aggregated total income as provided in s. 158BB(1), has to be allowed as provided in s. 158BB(1)(c)(B). In other words, in such a situation, the income of that previous year wherein the same is stated to be below taxable limit, after inclusion of the undisclosed income of that year within the aggregation of total in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he case of Prem Prakash Soni. Ground Nos. 1 to 5 dispute the service of notice under s. 158BC to be not valid. The learned authorised representative of assessee has contended that the notice under s. 158BC was not validly served on the present assessee Shri Prem Prakash Soni (for short, PPS). He has contended that the said notice is shown to have been served by AO on present assessee PPS on 12th Dec., 1996, whereas no such notice on the said date was served on present assessee PPS; and the present assessee had appeared before AO on 20th Jan., 1997, in response to notice under s. 131 and the AO might have obtained his signature on 20th Jan., 1997, without any knowledge of the same to the assessee. He has contended that the block assessment was getting time barred on 31st Jan., 1997, and so if the notice was to be served on 20th Jan., 1997, the assessee would not have got statutory period of 16 days for filing the return before 31st Jan., 1997. He has contended that, in fact, the assessee did not file any return in response to any such notice under s. 158BC and he has referred to assessee s letter on p. 1 of the PB disputing the service of notice under s. 158BC on 12th Dec., 1996. He ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... egal issue as contained in the grounds 1 to 5 and mentioned at Sl. No. 9 at the said chart has already been dealt with by us above. 58. Ground No. 7 disputes the addition of Rs. 3,08,000 in asst. yrs. 1989-90 to 1996-97 being the block period, on account of estimated job work income. The learned authorised representative of assessee has contended that no incriminating document was found as a result of search for making addition on account of job income. He has contended that there is no basis to estimate different income for different years by AO as no such material on support thereof has been found during search. He has cited (1999) 63 TTJ (Ind) 72 : (1998) 67 ITD 151 (Ind) in his support. In the written statement of assessee it has been contended that the AO has estimated the assessee s income from job work for asst. yr. 1989-90 to 1996-97 as under: Asst. yr. Amount Rs. 1989-90 35,000 1990-91 36,000 1991-92 37,000 1992-93 38,000 1993-94 39,000 1994-95 40,000 1995-96 41,000 1996-97 42,000 He has contended that as the AO has assigned the re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ontended that as admitted by the Department the assessee is manufacturing gold ornaments on the basis of orders and the customers used to provide either gold ornaments or the cash for purchase of gold on their behalf. It has been contended that these seized documents being Annexure A-2 no where suggests that the assessee made investment of his own in purchase of gold to the tune of Rs. 31,271. He has contended that these pages show the total volume of. work carried out by assessee and on which the assessee has earned only job work income and, therefore, the addition made by the AO is liable to be deleted as no such gold or debtors were found at the time of search. It has also been contended that the AO has made this addition on protective basis whereas in the case of assessment under Chapter XIV-B there is no scope for any assessment on protective basis. It has also been contended that the very papers were found at the shop where survey under s. 133A was carried out and not found as a result of search. As against this, the learned Departmental Representative of Revenue has contended that the AO has made this addition rightly and the same is based on seized documents. He has relied ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rted by his balance sheet. It has also been contended that as a result of search no paper or document was found which suggests such investment. 63. As against the above, the learned Departmental Representative of Revenue has contended that this addition of Rs. 48,000 has been made on the basis of submissions of assessee. He has contended that the issue of construction of house has been considered by the AO in the case of CD and therein it was revealed that the present assessee (PPS) contributed Rs. 48,000 towards the cost of construction and so the AO made the addition and rightly so. He has supported the AO s orders. 64. We have considered the rival contentions as also the relevant material on record. As regards quantum we have treated the present assessee s contribution at Rs. 38,000 only and not Rs. 48,000. From the perusal of record we find that the AO has discussed this issue in para No. 2 on p. 6 of his assessment order in the case of present assessee. In the case of present assessee s mother CD, the AO discussed the issue of investment in the construction of residential house in para 4 on pp. 6 to 17 and some of the incriminating documents, that is, Annexure A-1 to Annex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nner that share certificates were found during search. As such, this income is on the one hand includible in the aggregation of the total income of all the previous years of the block period and on the other hand it is not eligible for the benefit of minus/reduction out of the above total aggregated total income, for the reason that it does not satisfy the conditions as laid down in cl. (c)(B) of s. 158BB(1). In s. 158B(b) in the definition of undisclosed income , the words used are "which has not been or would not have been disclosed" for the purpose of this Act. The first part of expression that is "which has not been (disclosed)" refer to assessment years relating to which the due date for filing of return of income, has already, expired; and the second part of expression, that is, "which would not have been disclosed" refer to that assessment year relating to which the due date for filing of return has not yet expired on the date of search/requisition. In that view of the matter, we find the addition made by AO to be quite proper and justified and so we make no interference therein. 68. Sl. No. 5 on p. 43 of PB pertains to ground No. 11 which disputes the addition of Rs. 9,25 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d during search. In that view of the matter, we find this addition to be not sustainable. We, therefore, delete this addition. 70. Sl. No. 6 on p. 43 of paper book, pertains to ground No. 12 which disputes the addition of Rs. 90,715 in asst. yr. 1996-97 on account of purchase of granite and marble. The learned authorised representative of assessee has relied on his written statement. In the written statement of assessee it has been contended that at the time of survey, at the business premises of assessee, some rough papers were found which might have been left by the customers inadvertently. It has been contended that no marble or granite was found at the time of search at the business premises of the assessee and at the residence. It has been contended that the assessee is not dealing in marble or granite and so this addition based on some rough papers is not justified. It has been contended that these papers were not found as a result of search, and as such, cannot be made the basis for making the addition in the hands of assessee. It has also been contended that the AO s observation that no explanation was submitted by assessee during assessment proceedings is not correct, pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uring search or any information relatable to such evidence. Accordingly, addition in respect of this amount being investment in purchase of motor-cycle cannot be made as undisclosed income, in the block assessment. We, therefore, delete this addition. 74. Sl. No. 8 on p. 43 of PB disputes the addition of Rs. 130 in asst. yrs. 1991-92 to 1995-96, on account of bank interest. This is consequential to ground No. 11 (Sl. No. 5). As we have deleted the addition of Rs. 95,200 made on account of deposits in the bank, while our discussion made above in respect of ground No. 11 this addition of Rs. 130 on account of interest on bank deposit is also not sustainable. We, therefore, delete this addition. 75. In the result ITSSA No. 4/Jp/97 of assessee PPS is allowed in part as indicated above. 76. Now we take up ITSSA No. 3/Jp/97 being of Raj Kumar (for short R.K.). The learned authorised representative of assessee has relied on his written statement on all the grounds of appeal. The learned Departmental Representative of Revenue has relied on the orders of AO in respect of all the grounds. 77. Ground Nos. 1 to 4 contain single issue disputing the block assessment order made under s. 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... thin the block period but being prior to the current year, i.e., asst. yr. 1996-97, the estimate of assessee s job work income for the same cannot justifiably be made for the reason that basis for the same, as provided/specified in s. 158BB(1) is found to be not available on record, and so the AO s action in determining the assessee s job work income for the previous year prior to asst. yr. 1996-97, falling within the block period, on the basis of estimate proportionate to assessee s estimated income for the current year i.e. asst. yr. 1996-97 is legally not tenable. As such, the assessment year falling within the block period but being prior to the current asst. yr. 1996-97 assumed the same position as that of the other assessee PPS, and to that extent the issue pertaining to RK becomes identical with that of PPS on that count. In that view of the matter the addition on account of present assessee s job work income is restricted to Rs. 42,000 and the rest of the addition on account of assessee s job work income for assessment years which fall within the block period, but are prior to current year, i.e., asst. yr. 1996-97 is deleted. 80. Sl. No. 2 on p. 74 of PB pertains to groun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the present assessee RK furnished on record for the block period, though assessee s allegation has been that the notice.under s. 158BC was not served on assessee on 12th Dec., 1996, as alleged by the Department, but served on 20th Jan., 1997, but due to non-producing of convincing supportive evidence we have not accepted the assessee s allegations regarding the date of service of notice upon him under s. 158BC, but the fact remains that there is no block return of present assessee on record and the block assessment order stands passed on 30th Jan., 1997. In such a situation, we feel that the assessee has not been allowed proper opportunity of being heard regarding this addition, prior to the making of this addition by AO. The issue is no less substantial, nor of meagre amount, and the plea of assessee has been of there being no investment of assessee in purchase of gold. As such considering all the facts and circumstances of the case, and taking a circumspect view of the entire fact-situation, we find the impugned order of AO in making this addition as undisclosed income of assessee for the assessment year mentioned above, falling in the block period to be not tenable in law, a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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