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TMI Blog2017 (9) TMI 1704X X X X Extracts X X X X X X X X Extracts X X X X ..... se appeals common question of law and facts are involved hence they are decided by this common judgment. 2. By way of these appeals, the appellant has assailed the judgment and order of the tribunal whereby tribunal has dismissed the appeal of the department and partly allowed the appeal of the assessee. 3. This court while admitting the appeals framed following substantial question of law:- Appeal No.108/2014 admitted on 12.5.2016 "(I) Whether the ITAT order is perverse in deleting the entire addition of ₹ 1,11,00,000/- on account of unexplained investment in house property, ignoring the statement recorded u/s 132(4) of the assessee surrendering ₹ 1 crore on this point and also ignoring the logical computation of construction cost by the AO based on findings of fact? (ii) Whether the ITAT order is perverse in deleting the addition on account of disallowance of interest of ₹ 2,81,685/- ignoring that the assessee had claimed the deduction in the profit & loss account of his business concern. In view of the above it is humbly prayed that the Hon'ble Court may please to allow the appeal and quash/set aside the order of the tribunal (Annexure-3) and CIT (A) to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tigation and to purchase the peace with the understanding that no penalty is levied in the circumstances. We also understand that the offer make would cover the expected income which may be found recorded in the seized papers. However we would wish to submit that the precise appointment of income (with reference to the time period covered under the Act) offered would be possible only after the necessary linking of the papers with each other and also the other papers/documents and records available in this respect. Thanking You Signed by Nirmal Kumar Agarwal and Damodar Das Agarwal" 7.3 In post search proceedings the assessee was again examined u/s 131 of the IT Act where also he again admitted the facts of unaccounted cash advances. On due analysis of the seized papers it is further found and admitted by the assessee that he was omitting two zeors while recording the transactions on papers. Relevant question and answer of his statement dated 21.11.2009 u/s 131 of the IT Act is reproduced below:- 7.4 In reply Q. No.5 of his statement recorded on 21.11.2009 u/s 131 of the IT Act, 1961 he categorically admitted that these papers contained the transactions which are not rec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... garding taking weight of jewellery during search is not correct inasmuch as in the valuation sheets/ inventory prepared during search and gross weight and net weight of jewellery found were taken but while considering the investment some confusion had occurred. The discrepancy in the weight taken is tabulated by the assessee in his written submission at page 2 as under:- Gross weight as per valuation sheets Net weight as per valuation sheets Conversion to 18/20/22 average 20 Ld. CIT(A). Deduction for impurity etc. (15%) Net Weight of Jewellery found Net Weight of jewellery as declared in the W.T. returns of the family for the year ended on 31.03.2008 filed on 31.07.2008 i.e. much before the search 10810.33 9803.81 7843.048 1176.457 6666.591 6315.120 Remarks Remarks Remarks Remarks Remarks Remarks It is the total weight of the item found valued and inventorized. To clarify it is submitted that these items contained dori,wax, lack, threads, steel wires, plastic bushes all of which have no gold content, however the stones studded are inclusive in this weight for which separate deduction has been given. This weight is after reducing the factor of dori, wax, lack, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e members in the Wealth Tax Act filed upto assessment year 2008-09 and search took place on 24-08-2009 which is almost after expiry of 17 months. We are in agreement with the ld. AR that during this period of 17 months, the acquisition of some jewellery in social ceremonies and other like occasions looking to the family of the assessee is not ruled out. As per CBDT instruction stated above, the other family members also get credit upto 1800 gms as there are two married ladies and two male members. For each married lady, 250 gms and each male members 100 gms credit has to be given. There is some dispute regarding giving credit as per instruction of CBDT in question. However, the Hon'ble Rajasthan High Court has clearly spelled out this benefit in the case of Patti Devi vs. ITO 240 ITR 727. The Hon'ble Karnataka High Court and Gujarat High Court have also taken similar view. Therefore, after considering the deduction on account of purity, the CBDT instruction and the value of the precious and semi precious stones jewellery available with the assessee can be treated as explained. Therefore, the addition of ₹ 56,99,767/- made on account of unexplained investment i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t condition and treated by the assessee as deaf and dumb and rough pieces of papers lying in the dustbin kept in the house of the assessee. These papers are marked as Annexure AS-1 pages no. 4 to 6 and 8. It was further argued that certain entries were also found noted on the back side of these papers. This fact is not denied by the AO but the same has not been taken into consideration. When the query was raised to the ld. DR in this regard, he fairly submitted that these were found in torn conditions from the dust bin and were passed as stated above. After considering the state of these papers, we have found that the AO in his order has clearly ignored this contention of the assessee. In this regard, pages 27 at para 7.13 of the assessment order is relevant. We have found from records and submissions of the ld. AR that during course of search, no incriminating documents disclosing the alleged advances made by the assessee to various persons was found or seized. The Revenue found and seized cash lying in the private lockers and the same have already been offered by the assessee as an additional income in the return filed for the year under consideration which also covers with the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ve received back these amounts and this amount being higher than the amount of advances as calculated above, on the entries contained in each individual paper, she has upheld the addition of ₹ 7.74 crores based on the entries found noted at pages 16 and 17 which is cash balances available at a particular point of time in safe deposit vaults." 6. Regarding question no.2 he has taken us to the order of the tribunal which reads as under:- "13.3 We have heard both the parties and have gone through the orders of the lower authorities and perused the materials available on record. We find that the assessee has claimed payment of interest paid as expenses and the loss under the head 'Income from other Sources' at ₹ 9,06,470/- which is to be adjusted against others heads of income. The assessee is engaged in the finance brokerage activities and the income from such activities is reflected under the head "Income from Business and the interest claimed under the head "Income from other Sources,is of similar nature. Therefore, we are in agreement with the submissions advanced by the ld. AR and the same should have been allowed as business expenditure. Hence, this ground No. 4 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s failed to appreciate the fact that the amount of ₹ 1,10,000/- appearing in the name of G Rana in page 7 of Annexure AS-1 is duly appearing at page 8 in Sl. No. 10 left hand side, therefore, no separate addition on this score could be made. Page No. 8: An addition of ₹ 5,78,00,000/- was made by Ld. AO by alleging that the assessee has made unexplained advances which were found recorded on this page. Entry-wise observations of the AO on this seized paper are at page 31 of the assessment order. While making the addition the AO himself was not sure whether he is making addition on account of advance given or advance taken or the payments made or for the payments received and has played blow hot and blow cold. During the course of appellate proceedings vide letter dated 21.08.2013 (APB 1-5) assessee explained each individual entry of this page but Ld. CIT(A) ignored the same and confirmed the amount of advances worked out at ₹ 5,78,00,000/- by Ld. AO. In this regard it is submitted that the Ld. AO while working out the addition has read the papers in the manner that he has considered the entries found noted at the left side of the paper as the source / receip ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... right side of paper and in no case could be considered as receipt and actually these are the payment made. Even for the arguments sake, if the allegation of the AO is accepted that it is the amount of interest, in such a situation it is the payment of interest on the advances received by the assessee and not the advances given as has been alleged by the AO. To prove the contradictory approach and in addition to above, on the remaining entries appearing at the right side of the paper i.e. Annexure AS-1, Page 8, the AO has added two zeros to the figures appearing against each individual entry and made the addition of ₹ 1,31,00,000/- making the total addition to ₹ 5,78,00,000/- on the basis of this paper, thus such an approach being based on no material and rational, deserves to be hold bad in law. Page No. 19 of Annexure AS-1: An addition of ₹ 2,93,62,350/- was made on the basis of the entries noted in the said paper which are ascribed by the AO at page 17 and 18 of the assessment order wherein he has extrapolated the figures mentioned by adding 2, 3 or 5 zeroes to the figures appearing in the said paper without assigning any reason for doing so. The Ld. CIT(A) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ₹ 26,47,500/- [Sl. No. 23]. 3. Further the total of the table as mentioned in the assessment order at page 18 has been done at ₹ 2,93,62,350/- instead of the correct total of ₹ 2,54,97,300/- thereby making an extra addition of ₹ 38,65,050/- on account of totaling mistake. From the above submission, it is submitted that the AO while completing the assessment order has proceeded in arbitrary manner and as per his sweet will without having based his conclusions on any logical grounds resulting into the huge addition of ₹ 14,64,25,495/- made towards the entries found noted in pages No.4 to 8 and 19 of Annexure AS-1 seized from the residence of the assessee, by ignoring the fact that the assessee has already admitted and offered an additional income of ₹ 10,00,35,045/-which duly covers the amounts found noted in these papers. Page 16 & 17: With regard to the entries contained in the pages No. 16 & 17 of Annexure AS-1, it is submitted that these pages contained entries of the movement of cash from the private lockers from time to time. The locker in Birani Safe is denotes by "J" and locker at Ganpati Plaza is denoted by "P". It is pertinent to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 60,000 5,00,000.00 50,000 4,50,000.00 55,000 5,05,000.00 6,000 5,11,000.00 25,000 5,36,000.00 73,000 4,63,000.00 28,000 4,35,000.00 20,000 4,55,000.00 25,000 4,30,000.00 59,000 4,89,000.00 28,000 5,17,000.00 50,000 5,67,000.00 5,89,00,000 2,76,00,000 Attention of your honours is invited to the paper book page 15 wherein it is explained that the entries appearing in page 17 of Annexure A-7 are reproduced at page 16 of Annexure AS-1 and the entries appearing at page 16 are appearing at pages 4, 5 and 6 of Annexure AS-1 and entries contained in pages 4, 5 & 6 thus stood merged in page 8 of Annexure AS-1, therefore, it is submitted that the page 8 of Annexure AS-1 contains all the entries as were found noted in other pages i.e. pages 4, 5, 6, 7, 16 & 17 and therefore page 8 is required to be considered for working out the undisclosed income of the assessee. The perusal of the page 8, would reveal that the total of left hand side comes to ₹ 10,96,651/- [actual figure 10,96,65,100/-] and right hand side total comes to ₹ 1,35,620/- [actual figure 1,35,62,000] and the balance amount of ₹ 9,61,031/- [actual figure 9,61,03,100/-] could at the mo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e friends and relatives of both the sides as well as on the auspicious occasion of birth of a child whether male or female and the CBDT, looking to such cutoms prevailing throughout India, in one way or the another, came out with this Circular and we accordingly are of the firm opinion that it should also mean that to the extent of the aforesaid jewellery, found in possession of the varoius persons, even source cannot be questioned. It is certainly 'Stridhan' of the woman and normally no question at least to the said extent can be made. However, if the authorized officers or/and the Assessing Officers, find jewellery beyond the said weight, then certainly they can question the source of acquisation of the jewellery and also in appropriate cases, if no proper explanation has been offered, can treat the jewellery beyond the said limit as unexplained investment of the person with whom the said jewellery has been found. 13. Admittedly, looking to the status of the family and the jewellery found in possesssion of four ladies, was held to be reasonable and therefore, the authorized officers, in the first instance, did not seize the said jewellery as the same being within the to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sion in the family. Even otherwise, the jewellery is personal wearing in nature and the revenue has not placed any material on record to show that the items, which were found, were not personal wearing of the ladies." 9.2 In Commissioner of Income Tax vs. Prafulbhai@ Rohitbhai J. Shah reported in (2013) 33 taxman.com 147 (Gujarat) wherein Gujarat High Court held as under:- 3. When challenged before the Tribunal, it concurred with the findings of the CIT(A) by briefly holding that out of the total disclosure made for the block period by the assessee of ₹ 2.76 crore, the remaining jewellery was covered by the Board's Circular and was already reflected in the books of accounts. We see no reason to entertain this issue as we are convicted by the reasoning given by the CIT(A) at length and also the logic assigned by the Tribunal. In any case, this being predominantly the factual aspect and when has been considered appropriately by both the authorities, no entertainment is necessary. 5. When the Revenue challenged the same before the Tribunal, it on discussion of the findings of the CIT(A) deleted entire sum and interest. This issue again is based on the factual matrix present ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... referring to the profit and loss account, which as noted hereinabove, would not reflect any profit as the assessee had not claimed any profit, and to the balance sheet part of the return of income, the Assessing Officer has made no effort to ascertain as to whether, in fact, the assessee has expended more amount than disclosed in the return of income. In the opinion of this court, while the report of the DVO may form the foundation for reopening the assessment, there must still be some reasons which warrant holding the belief that income chargeable to tax has escaped assessment so as to necessitate issuance of a notice under section 148 of the Act. The facts reveal that the entire basis for reopening the assessment of the petitioner for the year under consideration is the report of the DVO without verification of any facts to support such conclusion. The Assessing Officer has not recorded any satisfaction about the correctness or otherwise of the contents of the report of the DVO. 10. In the aforesaid premises, the court is of the view that considering the material before the Assessing Officer and the nature of inquiry made by him, except for the report of the DVO, there was no t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... corollary, he would then reject the books of account as not reflecting the correct position and then proceed to make the assessment on the basis of estimation, for which purpose he can resort to the provisions of s. 142A of the Act and make a reference to the Valuation Officer for estimating the value of such investment. Thus, on a plain reading of s. 142A of the Act, it is apparent that the question of estimating the value of any investment would arise only when the books of account are not reliable. Accordingly, the AO would first be required to reject the books of account before making a reference to the Valuation Officer. The rejection of books of account should precede the reference to the Valuation Officer. As rightly contended by the learned counsel for the assessee, the report of the Valuation Officer cannot form the foundation for rejection of the books of account. 10. In the context of the controversy in issue it may also be germane to notice the provisions of s. 145(2) of the Act as it stood at the relevant time, which provided that where the AO is not satisfied with the correctness or completeness of the accounts of the assessee, or where no method of accounting ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dment, the Assessing Officer has to have reason to believe that income has escaped assessment, but this does not imply that the Assessment Officer can reopen an assessment on mere change of opinion. The concept of "change of opinion" must be treated as an inbuilt test to check the abuse of power. Hence after April 1, 1989, the Assessing Officer has power to reopen an assessment, provided there is "tangible material" to come to the conclusion that there was escapement of income from assessment. Reason must have a link with the formation of the belief." 7. Coming back to the plea raised by the counsel for the revenue that Section 142Acame to be introduced at a later point of time and the cases which have been cited above were in the context of earlier provision and in the pre-amended Section 142Ahad no element of rejection of books and therefore since in view of this change of statutory provision, the ratio laid by the aforesaid two decisions referred to above are not applicable. In fact, on going through the two decisions it is found by this Court that the Court in case of Goodluck has dealt with the effect that both the provisions contained under Section ..... 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