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TMI Blog2008 (7) TMI 840X X X X Extracts X X X X X X X X Extracts X X X X ..... ers had disclosed about 36 power looms in their returns filed and about 72 power looms were undisclosed. During the search, statement of Mr. Masoomkhan was recorded. He has admitted that the investment in power looms and kandi machines inclusive of transportation and installation charges at Rs. 28,80,000, which worked out to Rs. 40,000 per power loom. He has also admitted that the above investments represents undisclosed investments out of undisclosed income and had offered Rs. 28,80,000 for taxation in the hands of himself and his three brothers for the assessment year 2004-05. Relevant portion of the statement of Shri Masoomkhan is reproduced as under : Question No. 11. Please state the investment and year of investment in respect of 72 additional power looms found? Answer : Additional 72 power looms has been installed in April 2003. Each brother has 18 power looms standing in their names, i.e., (1) In the name of Shri Masoomkhan Pathan 18 power looms. (2) In the name of Shri Aizazkhan Pathan 18 power looms. (3) In the name of Shri Razzakkhan Pathan 18 power looms. (4) In the name of Shri Wahidkhan Pathan 18 power looms. These power looms are second hand. The cost o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as additional income from hiring of power looms. Such income had been offered right from the assessment year 1999-2000 onwards. The Assessing Officer, however, rejected the contention on behalf of the assessee. According to the Assessing Officer, the assessee could not produce purchase bills of the looms to show that these looms were purchased prior to 1999. The Assessing Officer, therefore, considered the investment in purchase of 72 looms as unexplained investment made by the assessee and his three brothers and that the value of such investment so made Rs. 28,80,000, which had to be assessed equally in the hands of the assessee and his three brothers. With regard to the income from leasing of 72 power looms, the Assessing Officer noticed that these power looms were installed in five different sheds as per the following details : Details of total looms in each shed and names of shed owners Page No. Name of shed No. of looms 9 Gopi Khata M. H. No. 836/B (1) Shri Masoomkhan (2) Shri Aizazkhan (3) Shri Razzakkhan 24 39 Soma Compound M. H. 1152/4 (Kashi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t and year of investment in respect of 72 additional power looms found. Answer : Additional 72 power looms have been installed in April, 2003. Each brother has 18 power looms standing in their names, i.e., (1) Masoomkhan 18 power looms ; (2) Aizazkhan 18 power looms ; (3) Razzakkhan 18 power looms ; and (4) Wahidkhan 18 power looms. It was submitted that the above statement of the assessee indicated that the said power looms were installed in April 2003 and as such the alleged undisclosed investment in the looms ought to have been made in the assessment year 2003-04 ; but the Assessing Officer did not believe this statement and made the impugned addition in the assessment year 200203. It was contended that from the above facts, it was clear that the sole basis for this addition on account of undisclosed looms is nothing but an erroneous statement made by the assessee. It was then contended that while making this impugned addition, the Assessing Officer has not considered the entire statement of the assessee. It was pointed out on behalf of the assessee that after question No. 11, the assessee was asked question No. 13, which reads as under: Question : The additional 72 lo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... abbirkhan on October 22, 1999. (iii) M. H. No. 226/1, was purchased in the name of Shri Masoomkhan and late Shri Shabbirkhan on April 11, 1996. (iv) M. H. No. 1199, was purchased in the name of Shri Masoomkhan, Aizazkhan, Sakinabi and Shri Shabbirkhan on January 7, 1997. It was argued that in view of the aforesaid documentary evidence, it stands conclusively proved that all the four sheds were purchased prior to April 1999 and coupled with the statement of the assessee that the looms were purchased at the time of purchasing sheds, it can only be inferred that all the power looms were purchased prior to April 1999. It was submitted that such conclusion is quite logical. To further corroborate the plea of the assessee, reference was made to the electricity bills issued by the electricity board, i.e., MSEB and it was argued that the quantum of bills raised in the period prior to April, 1999 showed running of 72 power looms and more prior to April, 1999. It was contended that the assessee and his family members were illiterate persons and were scared and was in a confused state of mind. The investigation officer by taking undue advantage of the precarious mental condition of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ence was made to the electricity bills issued by the electricity board, i.e., MSEB and it was argued that the quantum of bills raised in the period prior to April, 1999 showed running of 72 power looms and more prior to April, 1999. It was contended that the assessee and his family members were illiterate persons and were scared and was in a confused state of mind. The investigation officer by taking undue advantage of the precarious mental condition of the assessee and his family members, induced him to state in his alleged statement on oath on January 27, 2005 that the assessee and his family members have purchased four power looms sheds for Rs. 40,00,000 in the financial year 2003-04. The assessee was further made to state in his statement that the said alleged undisclosed looms were purchased when the said power loom sheds were purchased, i.e., in the financial year 2003-04. Later on when the investigation officer came across the registered documents he realised that the sheds were purchased prior to the assessment year 1999-2000 and he realised futility of his attempt to bring the investment in the said power loom sheds along with the looms installed therein to tax and as such ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . We are, however, of the view that even the Assessing Officer did not consider this statement of the assessee that 72 power looms were installed in April 2003 as true. The Assessing Officer himself considered the investment in power looms as having been made by the assessee only in the assessment year 2002-03. If, the Assessing Officer goes strictly by the statement of the assessee referred to above, then the addition ought to have been made only in the assessment year 2004-05 ; therefore, the statement of the assessee that the power looms were purchased just before purchase of 4 sheds should be accepted as correct. The evidence regarding purchase of 4 sheds in the form of registered sale deed clearly establishes the date of their purchase as prior to November 10, 1998. In our view the documentary evidence coupled with the statement at the time of search recorded under section 132(4) in which it was stated that the power looms were purchased and installed when the sheds were purchased has to be given more credence and reflects the true state of affairs. The Revenue authorities in the absence of any other evidence cannot seek to bring the undisclosed investment in purchase of power ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... In this regard, we notice that in response to question No. 10, in the statement recorded under section 132(4), on January 27, 2005, the assessee had categorically stated that 108 looms belong to the family members and that out of the above investment in 36 power looms has alone been disclosed to the Income-tax Department by the assessee, his three brothers and other family members. Question No.11 and the answer thereto are as follows : Question No. 11 : Please state the investment and year of investment in respect of 72 additional power looms found. Answer : Additional 72 power looms have been installed in April, 2003. Each brother has 18 power looms standing in their names, i.e., (1) Masoomkhan 18 power looms ; (2) Aizazkhan 18 power looms ; (3) Razzakkhan 18 power looms and (4) Wahidkhan 18 power looms. These power looms are second hand. The cost of per power loom is Rs. 40,000. We have not disclosed the above power looms in our returns of income. Hence, we are offering Rs. 28,80,000 (72 x 40,000) for the financial year 2003-04 relevant to the assessment year 200405. The tax on the above will be paid at the earliest. In the order of assessment it is seen that the As ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ertain this plea. Consequently, the first ground of the appeal in the assessment year 2002-03 of the assessee is allowed with the aforesaid observations. The second common ground in both assessment years is with regard to rental income from hiring of looms. On this issue, we find that in the first statement recorded under section 132(4), the assessee had stated that the rental income from hiring of looms was Rs. 500 per power loom per month. In the later statement recorded by the Assessing Officer on February 4, 2005, rental income has been claimed to Rs. 1,200 per power loom per month, the Revenue authority has relied on the later statement. We notice that there has been no basis whatsoever for the earlier statement as well as the later statement. We, however, notice that from the seized document the following was noticed as the rental income from renting of power loom from some of the buildings owned by the assessee : (i) Gopi Khata (Soma compound) 24 looms-rent received is Rs. 2,02,700 for the period from May 2001 to January 2002, i.e., 9 months which works out to Rs. 938 per loom per month. (ii) Bullalla Khata (Kashihar compound) 16 looms-period of 11 months amoun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er power loom per month would be an appropriate deduction for the assessee s expenses. We arrive at this figure on an ad hoc basis taking into consideration that there is absence of any other evidence and also taking note of the fact that some expenses need to be incurred for earning rental income. We also make it clear that the aforesaid expenses would be over and above the depreciation, which has already been allowed by the Assessing Officer. We, therefore, allow the second ground of the assessee in part. In ground of Appeal No. 3 in I. T. A. No. 502/Mum/08, the assessee has challenged the order of the learned Commissioner of Income-tax (Appeals) in confirming the addition of Rs. 13,78,000 made by the Assessing Officer on account of undisclosed and unexplained amounts of loans and advances. The relevant facts in brief are that the Assessing Officer during the course of assessment proceedings observed that the assessee in his statement under section 132(4) has disclosed Rs. 17,28,000 as undisclosed income and offered the same for taxation in the assessment year 2004-05. However, on perusal of the balance-sheet filed by the assessee, he observed that although the amount of Rs. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 004-05. He submitted that the advances given in the assessment year 2002-03 were refunded by the debtors which were available to the assessee for giving loans and advances to the borrowers. He further submitted that even after excluding the undisclosed income declared on account of power loom hire charges, the assessee declared income of Rs. 33,52,540 as against which the total undisclosed assets found were only Rs. 30,25,000. He submitted that the additional income exclusive of power loom income declared by the assessee is sufficient to cover up the unrecorded assets except investment in purchase of power looms found at the time of search. He accordingly, submitted that the Assessing Officer may be directed to give telescoping benefit of undisclosed income declared in earlier years against the assets acquired including cash found at the time of search. The learned Departmental representative on the other hand submitted that no evidence whatsoever, was filed before the Assessing Officer or before the learned Commissioner of Income-tax (Appeals) to suggest that loans and advances given by the assessee to various persons were returned back by those persons for which cash was availa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... amu and Rs. 25,000 from Ayyez Bhai. He has also shown to have received Rs.40,000 as Qualis hire charges and withdrawn an amount of Rs. 1,55,000 from Canara Bank. We further find the Assessing Officer has not considered properly the cash flow statement prepared by the assessee showing additional income during the various years. If those additional income declared by the assessee are not utilised for any other purpose and if the assessee can satisfactorily explain the same to the Assessing Officer that the said income is in fact available to him for advancing loans and advances only and not for any other purpose, then there is some force in the contention of the assessee that the benefit of telescoping should be given. We, therefore, are of the considered opinion that the matter needs readjudication at the level of the Assessing Officer who shall decide the issue afresh and in accordance with law in the light of our above observations after giving adequate opportunity of being heard to the assessee. We hold and direct accordingly. The ground of Appeal No. 3 raised by the assessee is accordingly allowed for statistical purposes. In the result appeals by the assessee are partly allow ..... X X X X Extracts X X X X X X X X Extracts X X X X
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