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TMI Blog2013 (10) TMI 609X X X X Extracts X X X X X X X X Extracts X X X X ..... d income becomes understandable, as where the assessee is ‘found’ during search to have placed no value on some or a specific part of the construction, or some other defect in the assessee’s claim discovered in search, viz. as where a difference or discrepancy is found with regard to the materials or the quality of goods used in construction, which is not consistent with that reflected per the books of account. It is in that case that the valuation report, pressed for by either party, in respect of its claim/s, may assume significance. The deduction of Rs.75.93 lakhs claimed and allowed to the assessee, it may be clarified, is not for under-valuation of the cost of project with reference to the regular books of account, but on account of it having established utilization of the money toward construction of the project, income from which is being brought to tax as undisclosed income, to that extent and, thus, deductible in computing the undisclosed income earned therefrom. The same is in our view rightly restricted by the Revenue to the sum as borne out of the materials as found as a result of search, i.e., Annexure A-1. The Revenue, by doing so, we may again clarify, is not in any ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the name 'Shivam Shopping Centre' at Malad, Mumbai during the relevant (block) period, on behalf of M/s. Jimet Enterprises Ltd. (JEL) and Shivam Shopping Centre Ltd. (SSCL). In both these companies, the assessees, along with their family members, were share-holders. Power of attorney/s was executed in favour of the two brothers by both the companies as well as their family members. The sole selling rights for the major area of the said project was sold to one, Shri Shantilal Gandhi, for Rs.1,07,08,423/- (after adjusting his brokerage at Rs.36,64,500/-). Even the dates on which this amount was received by the assessees were found listed at page 35 of Annexure A-1 of the seized material. The manner of its working was also recorded thereat, which stands reproduced at page 4 of the assessment order. These facts are undisputed, so that, being not recorded in the assessees' books of account, formed part of the undisclosed income; the share of Sharad S. Ruia and Kamal S. Ruia therein being 2/3rd and 1/3rd respectively. The assessees, however, claimed the cost of the project at Rs.393.47 lacs, as against at an aggregate of Rs.298.89 lacs, as recorded in the books of JEL (Rs. 195.53 lacs) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unt (net of interest of Rs.3,81,060/-) of the said loans, i.e., Rs.27,68,940/-, could be added. The AO was, however, of the view that entire advanced amount of Rs.33,31,040/- was liable to be considered as the assessee's income, i.e., on the basis of the unaccounted assets. So, however, he concurred with the assessee that the entire amount of interest bearing loans was given out of construction receipts. With no other unaccounted assets having been found during search, he, therefore, made no separate addition for this sum of Rs.33,31,040/-. The interest income arising thereon, however, was to be separately added, and which was done for the relevant years, i.e., to which it pertained, being A.Ys. 1996-97 to 1999-2000. 3.3 In appeal, the ld. CIT(A) did not find merit in the assessee's case inasmuch as it's claim could only be on the basis of seized material, or evidences lead in relation thereto. Toward this, the only material available was by way of Annexure A-1, bearing the amount of Rs.8.01 lacs and Rs.67.92 lacs, at page 9 and pages 41, 42 thereof. The AO had however erred in restricting the amount as per page 9 of Ann. A-1 to Rs.3 lacs and, accordingly, directed the expenditur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... finally allowed credit of Rs.75.93 lacs to the assessees in respect of the construction expenses, i.e., as evidenced by the material found during search, so that the same is in accordance with law, and no grievance ought to obtain. 5. We have heard the parties, and perused the material on record. 5.1 We may at first briefly visit the law in the matter. The Calcutta High Court in Dy. CIT v. Shaw Wallace and Co. Ltd. [2001] 248 ITR 81 (Cal.) reversed its own earlier decision rendered by a single judge in [1999] 238 ITR 13 falling in the line with the view of the other High Courts, as that of the Gujarat High Court in N.R. Paper and Board Ltd. v. Dy. CIT [1998] 234 ITR 733 (Guj), the Kerala High Court in Malayil Bankers v. Asst. CIT [1999] 236 ITR 869 (Ker), and its own decision in Caltradeco Steel Sales (P.) Ltd. v. Dy. CIT [2000] 243 ITR 643 (Cal). The uniform view of the courts is that the jurisdiction in respect of block assessments under Chapter XIV-B of the Act has to be limited to what is discovered during search and what comes out of enquiry on such materials, while the normal additions have to be tackled under the normal procedure by invoking powers under section 142(1), 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ifying the assessee's claim with regard thereto, even independent of a search or requisition. The said report becomes relevant in block assessment proceedings u/c. XIV-B and, accordingly, reliance thereon for assessment of undisclosed income becomes understandable, as where the assessee is 'found' during search to have placed no value on some or a specific part of the construction, or some other defect in the assessee's claim discovered in search, viz. as where a difference or discrepancy is found with regard to the materials or the quality of goods used in construction, which is not consistent with that reflected per the books of account. It is in that case that the valuation report, pressed for by either party, in respect of its claim/s, may assume significance. The deduction of Rs.75.93 lakhs claimed and allowed to the assessee, it may be clarified, is not for under-valuation of the cost of project with reference to the regular books of account, but on account of it having established utilization of the money toward construction of the project, income from which is being brought to tax as undisclosed income, to that extent and, thus, deductible in computing the undisclosed incom ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , it by itself validates that for the other; the two earning the same in a defined ratio. We may though reiterate that it is neither necessary nor crucial to the assessment of undisclosed income that its utilization is also found, but where so, makes the Revenue's case impregnable. Rather, it cannot even be said that all the undisclosed income of an assessee would be found on search, as only as much of it as is discernible and borne out with reference the material found as a result of search, that could be brought to tax as undisclosed income. As such, the non-finding of the destination of the share of the undisclosed income of Sh. Kamal S. Ruia would be to no material consequence. The other aspect of the matter is the absence of matching of dates, i.e., the dates of realization of on money on one hand, and the extension of cash loans on the other, without which it could not be said that the extension of the cash loans arise solely out of the undisclosed income from construction business. The same, however, is to little effect, as where not so, it could rather make the assessee additionally liable to explain the source of cash loans, while even allowing full credit leaves a gap of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . The same is in any case rendered academic in view of the AO having allowed full telescoping benefit against the undisclosed income from construction business. Rather, there is a contradiction in the claim of the assessee of the AO having held of the entire amount of the loans advanced being liable to be assessed, i.e., Rs.33.31 lacs. This is as, if so, he could not have possibly allowed telescoping benefit for this sum against the assessed income from the construction business, which is at Rs.24.11 lacs, for this sum, so that the balance Rs.8.20 lacs (33.31 - 24.11) would stand to be assessed by him as undisclosed income, which is not the case; the only income in respect of the cash loans that stands separately assessed being the interest income. 6.2 The second limb of the grievance projected per the assessee's ground # 2 is equally incomprehensible. This is as once the assessee has been allowed full telescoping benefit by the AO against the income from the construction business, it matters little whether the investment in cash loans was out of the receipt of the construction business, which indeed, as claimed by the assessee, it would be, or from income therefrom. The income fr ..... X X X X Extracts X X X X X X X X Extracts X X X X
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