9911796707
TMI Blog1999 (12) TMI 126X X X X Extracts X X X X X X X X Extracts X X X X ..... er. According to the learned counsel s. 159BG of the IT Act provides that no order under s. 158BC shall be passed without the previous approval of the CIT or Director of Income-tax, and this requires that the CIT should issue a pre-assessment notice and give the assessee a hearing. It is argued that though a letter was issued by the CIT to the assessee, the same did not satisfy the requirements of pre-assessment notice. It is contended that the prescribed procedure for making a block assessment in the instant case was not followed and the assessing authority has determined the alleged undisclosed income without taking into account the income declared and assessed in respect of various years. 3. The learned Departmental Representative, on the other hand, argued that proper opportunity of hearing was given to the assessee at various stages of assessment and the assessee had also given due explanation of seized documents and was also supplied with the copies of statements, and therefore, the assessee cannot allege any lack of opportunity. It is also stated by the learned Departmental Representative that it is not necessary for the CIT to issue a pre-assessment notice because there i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing to the assessee again when the AO has already given adequate opportunity of hearing to the assessee. We may mention here that wherever such an opportunity of hearing is required to be given to the assessee there are specific provisions in the Act. For instance under ss. 144A and 144B which are now omitted by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1st April, 1989, the Dy. CIT is/was required to give opportunity of hearing to the assessee before issuing directions which are prejudicial to the assessee. No such provision has been made in s. 158BG of the Act for the simple reason that the AO had already given opportunity of hearing to the assessee on the issues involved while determining the undisclosed income and repetition of affording opportunity of hearing by the CIT is not required because there is no such provision in the s, 158BG. If, however, the CIT desires to get clarification from the assessee he may give opportunity of hearing to the assessee, but if the CIT does not desire any further clarification from the assessee then no such opportunity of hearing to the assessee is necessary. Therefore, there is no infirmity on this count in the order passed by the AO. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of 15,633.98 gms. Was found. However, the stock declared in the books of account maintained by the assessee was 9,852.02 gms. only. The value of the excess stock of 5,781.96 gms. of gold jewellery approximately at Rs. 24 lakhs was admitted by Sri P. Krishnasamy Gounder, partner of the assessee, as the undisclosed income of the assessee. Gold jewellery of 6.5 kgs. was also seized at the time of search by the Department. The statement given by the said Krishnasamy Gounder, partner was retracted later on and different explanations were offered in respect of excess stock of jewellery as mentioned at p. 2 of the assessment order. For the reasons stated by the AO at pp. 3,4,5 and 6 of the assessment order the AO did not accept the explanation of the assessee. The AO considered the report of the valuer for the purpose of determining the value of the stones embedded in the jewellery found at the time of search. It was also found by the AO that no purchase or sale of stones are recorded in the books of account after 31st March, 1995. The AO further considered the assessee1 s explanation regarding the gold jewellery given by one Sri A.R. Janardhanam, goldsmith on the date of search as well ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat as regards the jewellery claimed to have been received from other persons such as from Sri Janardhanam and M/s Thirupathi Jewellery Works, Bombay, etc. the explanation offered by the assessee was duly considered and rightly rejected by the AO. It is pointed out that the assessee did not have any trading relations with M/s Thirupathi Jewellery Works Bombay, and further of the said party was not found at the address given when a letter was addressed by the AO to them. It is therefore, pleaded by the learned Departmental Representative that this matter may be remitted to the AO for detailed enquiry. 10. We have carefully considered the rival submissions, material on record as well as the written submissions of both the parties. The AO while completing the assessment and determining the net weight of jewellery and its value as well as weight of stones and its value, has relied on the report of the valuer. But the report of the valuer was not given to the assessee and the assessee-firm was not confronted with the valuation report before finalisation of the assessment. Therefore, the assessee-firm had no opportunity to put forward its claim regarding the net weight of jewellery and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... explanation which has been mentioned by the AO on pp. 6 and 7 of the assessment order. It was claimed by the assessee that Rs. 4,50,000 out of cash of Rs. 11,09,373 belongs to the family, representing the agricultural income of the family which was kept with the firm for safety and security. The firm also claimed that a sum of Rs. 4 lakhs was kept by Sri S.V. Venkatesan, who was an employee of State Bank of India. He claimed that he received advance on sale of lands belonging to his family members which was kept with the bank in fixed deposit. This money was withdrawn on 3rd April, 1995, as there was dispute among the family members as to how to share the sale consideration. The dispute could not be settled despite efforts of the elders in the family. On 23rd Sept., 1995, he had handed over the cash to Mr. K. Prabhu for arbitration as the family of Mr. Prabhu was well known to him. The AO also considered that as per the statement of Sri Venkatesan the amount of Rs. 4 lakhs was handed over in the form of Rs. 500 notes only. But as per Panchnama on the date of search only 410 notes of Rs. 500 were available. The AO considered that it is difficult to believe that Mr. Venkatesan has k ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ow it was resolved and whether the said sum was advanced with the concurrence of other parties are not made clear. These issues have to be examined by the AO. It is, therefore, submitted by the learned Departmental Representative that the matter may be set aside for reconsideration of facts. 14. We have carefully considered the rival submissions and material on record. It was submitted by Sri Venkatesan before the AO that he received advance on sale of agricultural land belonging to his family which was kept in fixed deposit with the bank. This money was withdrawn on 3rd April, 1995, since there was dispute among the family members regarding sharing of the sale consideration. There is no evidence to show how the money was kept after 3rd April, 1995, upto 23rd Sept., 1995, on which date Shri Venkatesan claimed to have handed over the cash to Mr. Prabhu for arbitration. It is also not clear whether the cash was handed over to Mr. Prabhu for arbitration and where the cash was lying from 3rd April, 1995 to 23rd Sept., 1995. We are also not aware as to what happened in the case of Sri Venkatesan to whom as per assessee's counsel a notice under s. 158BD has been issued. Therefore, keep ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... out Rs. 8,1000. It is, therefore, argued that apart from business income the two families had income from other sources out of which the family expenditure was indurred. The learned Departmental Representative on the other hand, supported the order of the AO and stated that the estimate of expenditure for the families as made by the AO is very reasonable. 17. We have carefully considered the rival submissions and facts and circumstances of the case. Sec. 158B(b) defines "undisclosed income" and the manner in which the undisclosed income has to be computed by the AO as prescribed in s. 158BB of the Act. For the sake of convenience the provisions of ss. 158B(b) and 158BB are reproduced below: "Sec. 158B(b): "undisclosed income" includes any money, bullion, jewellery or other valuable article or thing or any income based on any entry in the books of account or other documents or transactions, where such money, bullion, jewellery, valuable article, thing, entry in the books of account or other document or transaction represents wholly or partly income or property which has not been or would not have been disclosed for the purposes of this Act." "Sec. 158BB(1) The undisclosed inco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bullion, jewellery, valuable article, thing, entry in the books of account or other document, etc. which represents wholly or partly income or property which has not been or would not have been disclosed for the purpose of the IT Act. Under s. 158BB the undisclosed income for the block period shall be the aggregate of the total income of the previous years falling within the block period computed, in accordance with the provisions of Chapter IV, on the basis of evidence found as a result of search or requisition of books of accounts or documents and such other materials or information as are available with the AO while estimating the drawings the AO has not referred to any evidence found as a result of search or such other material or information which could show that the drawings of the families of Krishnaswamy Gounder and K. Prabhu were not sufficient during the assessment years falling within the block period. Therefore, the estimate of income which is not based on any evidence found as a result of search or other material or information, cannot be sustained in assessment of income for the block period under s. 158BC of the IT Act, 1961. The addition of Rs. 70,400 made by the AO ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... st. yr. 1992-93. This ground of appeal is rejected. 21. The seventh ground is that the AO erred in adding a sum of Rs. 1,05,012 in the accounts of the partners as Moi or gifts on festive occasions. The AO observed that the partners have received a sum of Rs. 1,05,012 as Moi and came to the conclusion that the partners have participated in transactions relating to the givers of the presents and made presents themselves. Since no expenditure relating to such presents made to others is recorded in the books, the said expenditure was assumed to be borne out of the undisclosed income of the assessee only. The AO, therefore, included the said sum of Rs. 1,05,012 in the undisclosed income of the assessee. 22. We have heard both the parties and carefully considered the material on record. As discussed in para. 17 of this order the AO can make addition of the undisclosed income only on the basis of evidence or material or information available with him. With regard to the expenditure of Rs. 1,05,012 the AO has not referred to any material, evidence or information while estimating the moi presumed to have been given by the assessee. The assessment under s. 158BC is under a special proced ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Rs. 1,50,000 as the AO has not referred to any material or information or evidence on the basis of which the undisclosed income of Rs. 1,50,000 had been determined. 27. The tenth ground is regarding addition of Rs. 51,000 as undisclosed income being the credit in the current account of K. Prabhu, on 9th June, 1987. The assessee was not able to offer any explanation for the said credit, and hence the AO taxed the same as undisclosed income. 28. It is argued by the learned counsel that the account of the partner in the firm has to be explained by the partner and insofar as there is no dispute that the credit represents an amount brought in by the partner, even assuming without conceding that the partner is not in a position to explain the source of such credit, the addition can be made only in the hands of the partner and not in the hands of the firm. The learned Departmental Representative on the other hand supported the order of the AO. 29. We have carefully considered the rival submissions. On the facts stated by the assessee's counsel it is clear that no proper opportunity had been given to the assessee to explain the credit in the current account of partner Sri Prabhu. We ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f Rs. 46,500 is deleted. This ground raised by the assessee is thus allowed. 33. Ground No. 13 is that the AO erred in holding that agricultural income declared by the assessee and supported by accounts which are maintained in the normal course of business are not genuine, real and acceptable. The assessee has declared total agricultural receipts of Rs. 33,73,102. The AO for the reasons discussed at pp. 12 to 15 of the assessment order, estimated the agricultural income of the family at Rs. 16,12,500 and treated the difference of Rs. 17,60,602 (Rs. 33,73,102 - Rs. 16,12,500) as undisclosed income of the assessee brought into the books as agricultural income. 34. It is argued by the learned counsel for the assessee that substantial portion of agricultural produce is coconut. It is stated that the AO has relied on a book maintained by one A.K. Rathnam, coconut merchant, who made purchases from the family members of partners of the assessee-firm. The AO observed certain discrepancy between the income shown by the assessee and the figures in Sri Rathnam's register, in the months of April and June, 1995. It is pointed out by the learned counsel that the register maintained by Sri Ra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8BB. We, therefore, set aside this issue to the file of the AO and direct the AO to re-examine the issue after giving opportunity of being heard to the assessee and then determine the undisclosed income for each year separately after taking into consideration the income declared by the assessee for each year and total income determined under s. 158BC. This issue is, therefore, restored to the file of the AO. For statistical purposes, this ground raised by the assessee is treated as allowed. 37. The next ground is that the AO erred in adding the value of 578.85 gms. as unaccounted personal jewellery of the family of the partners. The AO stated that at the time of search gold jewellery of 1,963.10 gms. was found. The AO observed that the assessee has filed a central excise declaration on 16th July, 1988, showing jewellery of 1,681.75 gms. It was further, noticed that Mrs. K. Laxmiammal had sold jewellery of 577.50 gms. in September, 1991 and October, 1994. He, therefore, arrived at a figure of 578.85 gms. which was not explained which the AO treated as the undisclosed income of the assessee. 38. Before us the learned counsel for the assessee argued that the excess jewellery was f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as to be computed in accordance with the provisions of Chapter IV. The AO has not mentioned even the date of purchase of Kisan Vikas Patra, Indira Vikas Patra, UTI, shares, etc. and for which assessment year the various investments relates. He should have determined the undisclosed income on the basis of investment for each assessment year separately in accordance with the procedure laid down in s. 158BB and we direct the AO to determine the undisclosed income for each assessment year separately in the block period in accordance with those provisions. Before determining the undisclosed income the assessee should be given adequate opportunity of being heard and explain how the investments in question totalling to Rs. 65,000 are connected with its business. Since the issue is remitted to the file of the AO this ground of appeal is treated as allowed for statistical purposes. 43. Ground Nos. 16 to 19 are raised by the assessee relating to loan creditors, loan creditors to the partners of the firm, addition towards value of motor, and investment in household appliances. The AO found that the assessee has not discharged the liability of certain sundry creditors aggregating to Rs. 2,05 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... income. We have to therefore, set aside various grounds of appeal for fresh consideration including grounds of appeal Nos. 16 to 19 reproduced in para 43 of this order because the determination of undisclosed income is not in accordance with the provisions of s. 158BB. There is no indication in the assessment order whether the assessment for the assessment years consisted in the block period was completed under s. 143(1), 143(3) or 144 of the Act. Since the computation of total income has not been done by the AO in accordance with Chapter IV as per s. 158BB read with Explanation, we remitted various issues to the file of the AO for fresh consideration and decision in accordance with law. The AO should, therefore, compute the undisclosed income by computing the aggregate to total income and reducing therefrom, or as the case may be, as increased by the aggregate of the losses of such previous years determined under s. 143,144 or s. 147. The AO will, no doubt, afford reasonable opportunity of hearing to the AO. It may be specifically mentioned that the AO should establish connection as to how the undisclosed income pertains to the assessee-firm. For statistical purposes ground Nos. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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