Judgment:
These two cross-appeals, one by the assessee and other by the Revenue relating asst. yr. 1989-90 are taken up together and disposed of by this common order for the sake of convenience. ITA No. 2128 is the appeal by the assessee wherein as many as 25 grounds of appeal have been raised. However, the dispute as projected in these 25 grounds is with regard to the action of the Departmental authorities in making/sustaining the following additions/disallowances : (a) Rs. 50,000 cash seized out of a sum of 56,350/- found at the time of search at the premises of the assessee on 12th July, 1988. (Ground of appeal Nos. 2 to 5); (b) An amount of Rs. 3,19,452 on account of unexplained investment in gold jewellery/ornaments (Ground of appeal Nos. 6 to 10); (c) Rs. 26,400 on account of unexplained investment in 4.44 Kgs. Silver articles/utensils (Ground of appeal Nos. 11 to 30); (d) Addition on account of low household expenses (Ground of appeal Nos. 14 & 15); (e) Rs. 17,737 on account of Lonavala expenditure (Ground of appeal Nos. 16 & 17); (f) Rs. 28 lacs on account of unexplained investment/expenditure as recorded in loose papers No. 22, 23, 24, 25, & 30 found and seized at the time of search. (Ground of appeal Nos. 18 to 24); 2. ITA No. 2462 is the appeal by the Revenue wherein the grounds taken are as under : (i) The learned CIT(A) has erred, both in law and on facts, in holding that the weight shortage of 1429.650 gms. in gold ornaments and 8.850 cts. of diamonds will not be treated as long term capital gain and consequently deleting an addition of Rs. 1,39,507 being taxable capital gains.
(ii) The learned CIT(A) has erred, both in law and on facts, in adopting figure of Rs. 1,000 only for decoding of page Nos. 24 & 25 as against Rs. 1,00,000 adopted by the AO and consequently in deleting unexplained investment/advances and expenses amounting to Rs. 96,36,000 and Rs. 15,90,000 added as a result of decoding of various figures recorded on page Nos. 24 & 25 respectively.
(iii) The learned CIT(A) has erred, both in law and on facts, in deleting the unexplained investment of Rs. 13,000 made on account of household articles.
3. Briefly, the facts are that the assessee Shri Amar Natwarlal Shah is having share income from registered firms M/s. Reliable Construction Co., Surat and M/s. Mahavir Enterprises, Surat. The assessee also receives remuneration as Director from (P) Ltd. Companies. Besides the above sources of income, the assessees wife, his brother, his mother, and brothers wife along with his minor children have interests in various firms and co-operative societies which are engaged in the business of Contractor/Supervisor carrying on the business of project development activities. As noted by the AO at page 3 of the assessment order, the assessee and his family members are connected with the following business organisations : 4. There was a search and seizure action under s. 132 on 12th July, 1988 at the premises of firms, company, and residential premises of the assessee, his family members and business associates. Certain loose papers, ornaments & cash were seized from the residence of the assessee, and the statement of his wife Mrs. Kamal A. Shah and mother Smt. Urmi N. Shah was recorded. On the date of the search, the assessee was away from Surat; as such, his statement could not be recorded on the same day, but was subsequently recorded on 15th July, 1988, and thus again on 5th Sept., 1988, 7th Oct., 1988 & 14th Oct., 1988.
As mentioned earlier during the course of search on 12th July, 1988, cash of Rs. 56,350 was found from the residence of the assessee out of which cash of Rs. 50,000 was seized, as according to the AO, Smt. Kamal A. Shah, wife of the assessee was not able to explain the source of cash found.
4.1 In the course of proceedings under s. 132(5) of the Act when the assessee was asked to explain the source of acquisition and nature of possession of the cash so found in the course of search, the assessee has claimed that the cash found was belonging to his various concerns.
The AO, however, rejected the explanation given by the assessee and treated the amount of Rs. 50,000 as the income from undisclosed sources while passing the order under s. 132(5).
4.2 In the course of assessment proceedings also, the assessee repeated the statement made earlier during the course of proceedings under s.
132(5), but the AO was of the view that the explanation cannot be accepted as the cash books of various concerns of which cash was claimed to be belonging, were found incomplete. The AO has noted the explanation of the assessee submitted vide letter dt. 25th Feb., 1993 (at page 3 of the assessment order) according to which the cash balances available with the various concerns as on 12/15th July, 1988 was as under : It was explained by the assessee to the AO that out of the cash balances belonging to the various firms/companies amounting to Rs. 65,297, Rs. 56,350 was lying at the residence. It was submitted that all the books of the above referred concerns were seized by the Departmental authorities on 12th July, 1988 and it was only subsequently that the assessee was able to complete the books of account upto the date of search. It was explained to the AO during the course of assessment proceedings that no doubt the books of accounts of those concerns were not written upto the date as mentioned by the AO at page 5 of the assessment order. However, since no cash transactions had taken place between the period up to which the books of the concerns were written and up to the date of seizure it did not affect the cash balances available in the various firms. The AO, however, rejected the explanation given by the assessee on the ground that the amount of Rs. 56,350 found during the search was recovered from five different locations in the residential house of the assessee as mentioned at page 6 of the assessment order and the assessees wife Smt. Kamal A. Shah and mother Smt. Urmilaben N. Shah has not mentioned that the cash available in the house belongs to various firms in which the assessee and his family members are associated as partners/directors. According to the AO, Smt. Urmilaben N. Shah, mother of the assessee, in reply to question No. 8 in the statement recorded under s. 132(4) on 12th July, 1988 replied that she was having Rs. 7,000 cash with her and cash of Rs. 3,000 to Rs. 4,000 belonged to children of his son and this is out of their savings. From the above, the AO concluded that the explanation subsequently given by Shri Amar N. Shah that the cash found belongs to various firms/companies and other concerns was only an afterthought.
He, accordingly, rejected the explanation and made the addition of Rs. 50,000. The assessee appealed and the learned CIT(A), for the reasons given in para 2 of the impugned order, upheld the action of the AO. The assessee is aggrieved with the above findings of the Departmental authorities and has filed his second appeal before us.
5. During the course of search, gold ornaments weighing 1968,300 gms.
valued at Rs. 7,85,945 were found; out of which gold ornaments weighing 359.5 gms. valued at Rs. 95,283 and diamond items valued at Rs. 2,53,500 were seized on 13th July, 1988. Subsequently, gold ornaments weighing 430.600 gms. valued at Rs. 91,359 recovered from the locker were seized on 5th Sept., 1988. Total seizure of gold ornaments and diamond items valuing Rs. 4,40,142 was effected.
6. In the course of assessment proceedings, the assessee claimed that valuation of gold ornaments in terms of weight, grouping & identification of individual items has not been done properly and, therefore, he had made a request for re-grouping, reighing & re-identification. The above request was initially rejected by the AO, later on the CIT, Central, Ahmedabad has allowed the request of the assessee vide letter No. HQ. Cent. 134-4/88, dt. 11th March, 1992.
Accordingly, re-grouping, re-weighing & re-identification was done of the seized jewellery/ornaments on 20th March, 1992. During the course of proceedings under s. 132(5) as well as during the course of assessment proceedings, it was claimed on behalf of the assessee that 2 kangans mentioned at Item No. B-19 weighing 59 gms. belonged to Smt.
Anju Arun Gupta, who is the sister of assessees wife. Similarly, 2 kangans mentioned at Item No. B-20 weighing 58 gms. were claimed to be belonging to Smt. Nandaben Gupte, another relation of the assessee. 4 bangadies & 4 Patlas mentioned at Item No. 33 of the panchnama weighing 157 gms. valued at Rs. 42,390 were claimed to be belonging to Smt.
Neelaben Uday Pradhan, who is the sister of the assessees wife and resides at Bombay. The AO, however, rejected the explanation on account of certain alleged discrepancy in the statement of Smt. Kamal A. Shah and the ladies to whom the ornaments were claimed to be belonging as discussed at pages 8 to 13 of the assessment order. He, accordingly, held that the amount of Rs. 70,762 represented unexplained investment of the assessee in the seized gold ornaments which were claimed to be belonging to Smt. Anju Arun Gupte, Smt. Nandaben Gupte & Smt. Neelaben Uday Pradhan. Besides that, the AO also held jewellery items valuing Rs. 40,916 which were claimed to be belonging to minor Vishal Amar Shah as also the unexplained investment of the assessee. Similarly, items valuing Rs. 34,035 belonging to minor Sagar Amar Shah, son of the assessee was also treated as unexplained investment of the assessee under s. 69A. The AO also made an addition of Rs. 4,607 on account of items of gold ornaments/jewellery which were claimed to be belonging to Smt. Meenaben A. Shah, wife of Shri Atul N. Shah, brother of the assessee. The AO also added an amount of Rs. 37,600 on account of items claimed to be belonging to minor Vikram A. Shah and Shri Atul N. Shah for the reasons given from pages 18 to 24 of the assessment order. The AO also treated an amount of Rs. 83,165 on account of unexplained investment made by Smt. Kamal A. Shah in certain items as the undisclosed income of the assessee for the reasons given from pages 24 to 28 of the assessment order. The AO also held an amount of Rs. 48,367 as the unexplained investment in relation to gold ornaments which were claimed to be belonging to Shri Amar N. Shah, the assessee and he thereby made a total addition of Rs. 3,19,452 on account of unexplained investment made in gold jewellery/ornaments as per the reasoning given in part-I, sub-para (1) & part-II(7) of the assessment order.
7. The AO while making the addition rejected the explanation of the assessee that the gold jewellery/ornaments found and seized from the premises as well as locker were duly accounted for by the assessee and his family members in their WT returns which were filed prior to the date of search on the ground that the items mentioned in the valuation reports annexed with the returns filed varied from the items found at the time of search. The AO also concluded that the items which were declared in the WT returns filed prior to the date of search and which were not found actually at the time of search must have been sold by the assessee outside the books of account. He, accordingly, made a further addition of Rs. 1,39,507 on account of long-term capital gain on sale of jewellery as per the reasoning given in part-III of the assessment order at pages 32 & 33 of the assessment order.
8. Aggrieved with the order of the AO, the assessee filed appeal to the CIT(A) and the learned CIT(A) vide his order, dt. 24th Sept., 1993 upheld the addition of Rs. 3,19,452 on account of unexplained investment in jewellery, but deleted the addition of Rs. 1,39,507 on account of long-term capital gain. Both the assessee and the Revenue are aggrieved with the above finding of the CIT(A). The assessee has challenged the action of the CIT(A) in sustaining the addition of Rs. 3,19,452; whereas the Revenue is agitating the relief of Rs. 1,39,507 allowed by the CIT(A) on account of long term capital gain added by the AO.9. During the course of search, silver utensils weighing 36.5 kgs. were found, but nothing was seized. In the course of assessment proceedings it was explained that the silver utensils belonged to the following members : (iii) Vishal 1.4 kg. Minor children of S/Shri Amar N. Shah & Atul N.Shah The AO, however, accepted the explanation only with regard to the silver utensils belonging to Shri Amar N. Shah and Shri Atul N. Shah, but rejected the explanation with regard to silver utensils/articles belonging to the minor children of the assessee & his brother and treated the investment in 4.4 kgs. of silver amounting to Rs. 26,400 as income of the assessee from undisclosed sources under s. 69A of the Act. The assessee appealed and the learned CIT(A) upheld the addition, for the reasons given in para 4 of the impugned order. The assessee is aggrieved with the order of the CIT(A) and has filed the second appeal before us.
10. The AO made a further addition amounting to Rs. 17,737 on account of certain loose papers seized from the residence from where it was apparent that the assessee has taken a tour during the period from 10th June, 1988 to 13th June, 1988 to Lonawala. The total expenditure recorded in those papers came to Rs. 17,737 as per bill, dt. 13th June, 1988. The explanation of the assessee was that the assessee along with his friend Shri Subodh Gandhi has taken a tour to Lonawala and he has contributed a sum of Rs. 4,000 only towards the total expenditure and the bill of Lonawala tour belonged to the entire group and were in the name of his friend Shri Subodh Gandhi, who had forgotten the bill at his residence. The assessee requested the AO to summon Shri Subodh Gandhi, whose address was given, but the AO held that since the paper was found from his residence, the expenditure must have been incurred by him. He, accordingly, made an addition of Rs. 17,737. The assessee appealed and the learned CIT(A), for the reasons given in para 7 of the impugned order, upheld the action of the AO. The assessee is aggrieved and has come up in second appeal against the action of the learned CIT(A).
11. During the course of assessment proceedings, the AO found that the assessee along with his wife, mother and two minor children were living jointly whereas his brother Atul N. Shah, his wife Smt. Meena A. Shah and son Vikram Atul Shah were residing separately. The AO found that the total withdrawals in the case of Amar N. Shah (Indl.) Amar N. Shah (HUF) and Kamal A. Shah were to the extent of Rs. 1,42,072. Out of this, the AO found that a sum of Rs. 1,09,657 was on account of specific expenses found recorded in the seized paper as mentioned on page 37 of the assessment order. Accordingly, only a sum of Rs. 32,435, according to the AO, was available for household expenses which was considered low. He, accordingly, made an addition of Rs. 20,000 on account of low household withdrawals. The assessee appealed and the learned CIT(A) for the reasons given in para 6.1 of the impugned order upheld the action of the AO. The assessee is aggrieved and has filed the second appeal before us.
12. The AO made an addition of Rs. 13,000 on account of unexplained investment made in household articles found at the time of search namely, Akai Amplifier Rs. 2,000, Philips cassette player Rs. 3,000 and fridge Rs. 8,000 on the ground that no documentary evidence was produced for the purchase of these articles. It was explained to the AO that the fridge was purchased during the asst. yr. 1988-89 and the investment of Rs. 8,000 was debited in the books of account of the partnership firm M/s. K. B. Desai & Co. as withdrawal of the assessee and the books of K. B. Desai & Co. were seized during the search. As regards the other two items, it was claimed that those were purchased by the deceased father of the assessee. The AO, however, rejected the explanation and made the addition of Rs. 13,000. The assessee appealed and the learned CIT(A) for the reasons given in para 5 of the impugned order deleted the addition. The Revenue is aggrieved with the action of the CIT(A) and has appealed before us.
13. The assessee is a partner in various firms which are engaged in the construction line. Besides that, the assessee is a Director in Vimla Silk Mills (P) Ltd., which is engaged in processing of textile. During the course of search, certain loose papers were found from a briefcase of the assessee, which were seized in the form of a file as per Annexure A-3 of the panchanama, dt. 13th July, 1988. The AO examined those loose papers in detail and came to the conclusion that pages Nos.
22, 23 & 30 contain certain figures written for the period 1st June, 1988 to 9th July, 1988 and page Nos. 24 & 25 were reflecting certain amounts in the name of various persons. On 12th July, 1988 the assessee was not present; as such, his explanation could not be obtained at the time of seizure. Subsequently on 5th Sept., 1988, the statement of the assessee was recorded with regard to the various entries made on the seized papers. In the statement the assessee admitted that the handwriting on these papers resembles his handwriting, but he avoided to explain the nature and contents and purpose for which these loose papers were written. The AO examined the assessee again on 7th Oct., 1988 and 14th Oct., 1988 with a view to obtain his explanation with regard to the entries made on the loose papers and since no satisfactory explanation was offered by the assessee, the AO decoded the figures mentioned in the seized paper nos. 22, 23, 24 & 25 representing undisclosed receipts amounting to Rs. 1,55,38,000 vide order, dt. 19th Oct., 1988, passed under s. 132(5) of the Act.
14. Subsequently, when the regular assessment proceedings were taken up, the AO required the assessee to explain the nature of those entries appearing in the seized paper vide notice, dt. 17th Sept., 1990 in response to which the assessee submitted that he will not be in a position to explain the entries unless photo copies of the loose papers were supplied to him. The AO, accordingly, supplied photo copies of the loose papers to the assessee on 26th Sept., 1990 and the assessee then filed a detailed explanation explaining those entries vide his first written submission, dt. 12th Oct., 1990. The AO, however, rejected the explanation given by the assessee for the reasons given in detail in the assessment order as recorded at pages 40 to 75 of the assessment order and made an addition of Rs. 1,35,99,434 on account of unexplained expenditure/investment and advances as against the estimation of unrecorded receipts computed in the order under s. 132(5) at Rs. 1,55,88,000. While making the addition of Rs. 1,35,99,434, the AO decoded the figure mentioned at page Nos. 22, 23 & 30 by multiplying the figures mentioned in the seized paper by Rs. 1,000. However, while decoding the figures mentioned at pages 24 & 25, decoding was done by multiplying the figures mentioned in the seized papers by Rs. 1 lac.
15. Aggrieved with the order of the AO, the assessee filed appeal and the learned CIT(A) for the reasons given in para (viii) of the impugned order sustained the addition of Rs. 28 lacs and allowed relief of Rs. 1,12,26,000. While allowing the relief, the learned CIT(A) held that the decoding should be done by multiplying the figure noted in the seized paper by Rs. 1,000 and not by Rs. 1 lac as done by the AO in relation to figures coded at page Nos. 24 & 25 of loose papers. The assessee as well as the Revenue both are aggrieved with the above order of the CIT(A). The assessee has challenged the retention of Rs. 28 lacs whereas the Revenue is aggrieved with the relief of Rs. 1,12,26,000 allowed by the CIT(A).
16. We will take up the assessees appeal first. Ground of appeal No. 1 is of general nature and calls for no comments. Ground of appeal Nos. 2 to 5 pertain to the addition made by the AO, which was sustained by the CIT(A) amounting to Rs. 50,000 out of the cash of Rs. 56,350 found from the residential premises of the assessee. A reference to page 6 of the assessment order indicates the places from where the total cash of Rs. 56,350 was found as under : (iii) Tijori kept in the bedroom of mother of the assessee Smt.
Urmilaben It was submitted that the learned AO has rejected the contention of the assessee that the cash represents the cash balances of various concerns where the assessee and his family members are interested. It was pleaded that the explanation of the assessee has been rejected on the ground that cash-books of various concerns were not written up-to-date and cash balances were not struck. It was pleaded that at the time of search, which was started on 12th July, 1988 and concluded on 13th July, 1988 temporarily, the assessee was not present in the residential premises, he being out of station. It was submitted that his statement was recorded for the first time on 15th July, 1988 wherein he explained that the cash found from the residence represented the cash balances belonging to the various concerns in which the assessee and his family members have interests. It was submitted that in the statement recorded under s. 132(4) on 15th July, 1988 at 8.15 A.M., in response to Q. No.35, the assessee has clearly stated that the cash balances as on today (15th July, 1988) of various concerns are as under : It was pleaded that the assessee in statement recorded on 15th July, 1988 has stated that there are no cash transactions in the various concerns after the dates up to which those cash books were written as mentioned by the AO at page 5 of the assessment order, and as such, the cash balances on 15th July, 1988 or for that matter on 12th July, 1988 will be the same as on the date up to which the books were written as mentioned at page 5 of the assessment order. It was pleaded that the books of account pertaining to the above concerns were seized by the Departmental authorities on 12th July, 1988 and the cash balances arrived at by the assessee were on the basis of cash books of the various concerns seized by the Department. It was submitted that out of the 8 concerns mentioned above, 5 have been assessed by the Asst. CIT, C. C. 2, Surat for the asst. yr. 1989-90 and there is no adverse finding in the cases of these assessees regarding the cash balances held by these concerns. Shri P. F. Jain, the learned representative of the assessee furnished the GIR No., date of the order and copies of the order in respect of the following concerns and submitted that the total of cash balances as per the day book of these concerns comes to Rs. 50,893.35 as detailed below : It was submitted that keeping in view the overall availability of cash in the books of various firms which is more than the cash found, credit for available cash has to be allowed when there is no evidence or finding that it has been utilised somewhere else. It was submitted that the AO has unnecessarily placed undue emphasis on the statement of Smt.
Urmilaben, mother of the assessee recorded on 12th July, 1988 with regard to availability of cash in the house at about Rs. 11,000. It was submitted that Mrs. Kamal A. Shah, whose statement was also recorded on 12th July, 1988, has stated that the cash in the house may be about Rs. 30,000. It is also pertinent to note that Rs. 15,000 was found from the briefcase of the assessee. Accordingly, it was stated that if all the statements are appreciated in proper perspective then it will be seen that there is no flaw in their statements and moreover, the mother as well as wife of the assessee may not be fully aware of the facts regarding the cash balances available in the various firms in which the assessee and his family members are interested as the day to day functioning of the various concerns is being looked after by the assessee, his brother and his employees. As regards the finding of the cash from different places in the house, it was submitted that this alone cannot be made the basis for rejecting the good explanation that the cash available with the assessee as per the books of account of the various concerns was much more than the cash actually found at the time of search. He, accordingly, submitted that the addition of Rs. 50,000 made by the AO, and as sustained by the CIT(A) is without any justification.
17. Shri M. K. Mirani, the learned senior Departmental Representative supported the order of the AO as well as the CIT(A). Shri M. K. Mirani, the learned Departmental Representative read extensively from the order of the AO from pages 4 to 7 and submitted that the finding of cash from cupboard kept in the room of the servant and the study-room of children goes against the theory of submission made on behalf of the assessee that the cash found represented the cash balances available in the various concerns in which the assessee and his family members have interests. He, accordingly, submitted that the AO as well as the CIT(A) were justified in making/sustaining the addition of Rs. 50,000.
18. We have considered the rival submissions. The assessee is a partner in M/s. Reliable Construction and M/s. Mahavir Enterprises and he is also a director of M/s. Vimla Silk Mills (P) Ltd. His wife and mother along with his brother and his wife have interests in various firms which are engaged in the business of supervision/construction of various building projects. It is no doubt true that at the time of search the books of account of the various concerns in which the assessee and his family members have interests were not written up-to-date and even the cash balances were not struck, but this alone cannot be made the basis for rejecting the explanation given by the assessee, because the books can be completed by incorporating the transactions relating to the various concerns after the date upto which these were recorded in the books and taking them up to the date of search. This exercise was done subsequently by the assessee and as per that exercise, the cash balances available with the various concerns as mentioned in para 16 at page 14 of this order comes to Rs. 65,297.08.
It is pertinent to note that in respect of five of the above concerns, assessment orders have been passed by the AO assessing them in March, 1992, as per the details given on page 15 of this order and there is no adverse finding regarding the cash balances held by these concerns. As such, it is clear that since the cash found at the time of search was less than the cash available as per the books of various firms and there is no evidence or finding that the cash available with the various concerns has been utilised elsewhere, the cash found has to be treated as explained. The mere fact that the cash was found at various places in the house cannot be the ground for rejecting the explanation given by the assessee particularly, in view of the finding that the books of account of the various concerns were not written for a period of more than three months in some cases and as such, the possibility of cash with various members of the family is not destructive of the argument of availability of cash with the assessee. Moreover, it is pertinent to note that there have been withdrawals for household purposes by the assessee and his various family members, and the cash with the servant/children can be out of those withdrawals or out of savings from gifts or pocket-money received by the servant/children from friends and relations of the assessee who happens to visit them.
In this view of the matter, we are of the considered opinion that the addition of Rs. 50,000 made by the AO, as sustained by the CIT(A), is not at all justified and is directed to be deleted.
19. Ground of appeal Nos. 6 to 9 relate to the addition of Rs. 3,19,452 made by the AO and confirmed by the CIT(A) on account of unexplained investment in gold ornaments/diamond jewellery. It was submitted that the learned AO has discussed this issue at pages 7 to 32 of the assessment order and the finding of the learned AO has been confirmed by the learned CIT(A) without considering the submission made by the assessee by passing a perfunctory order. It was pleaded that the jewellery found from the residence of the assessee is all old and was duly declared in the WT returns of the family members and there is no evidence with the Departmental authorities that any purchase of jewellery was made by the assessee during the asst. yr. 1989-90. It was submitted that the ornaments belonging to various members of the family duly declared in their WT returns prior to the date of the search are as under : Besides, the assessees brother and his wife has also filed returns declaring jewellery in their WT returns as under : Besides the above family members who are assessed to wealth-tax, the jewellery and ornaments belonging to minor children of the assessee and his brother, as per the valuation report available, is as under : Thus, the total of gold ornaments, diamond ornaments & silver utensils declared comes to 2943.500 grams, 106 carets & 37.645 kgs. respectively as against the ornaments found during the search were as under : It was submitted that from the details of jewellery available with the assessee it is clear that the jewellery actually found at the time of search was less than the jewellery declared and as such, no addition was called for. It was submitted that at the time of search Mrs. Kamal A. Shah and the assessee made a statement that certain items of jewellery belonging to Smt. Anju Arun Gupte, Smt. Nandaben Gupte & Smt.
Neela Uday Pradhan were also found. It was pleaded that Mrs. Kamal A.Shah stated the correct position in regard to ornaments namely, item B-19, B-20 & B-33 comprising of 2 kangans, 2 kangans, 4 bangadi & 4 patlas actually belonged to these relatives although as per the gold ornaments available with the family members of the assessee, there was no need to cook up such explanation. It was submitted that these ladies in their statements, which were recorded by the AO under s. 131 have admitted the ownership of those ornaments, but the AO has treated those ornaments as belonging to the assessee on account of certain minor inconsistencies in the statements recorded. It was further submitted that the description of ornaments found at the time of search and those given in the valuation reports filed along with the WT returns of the assessee and his family members differ slightly, because at the time of search, gold ornaments belonging to all the family members were mixed up and inventory of the same was prepared in the punchanama of the assessee alone although the Departmental authorities were fully aware that the ornaments belonged to different members of the family of the assessee and those family members were WT assessees having filed their WT returns declaring the ornaments belonging to them. It was submitted that when the assessee was asked to reconcile the gold ornaments found and the ornaments as declared in the returns, it was pleaded that family members of the assessee have incurred expenditure for getting the old ornaments converted into the new ornaments of different design & shape and for that, vouchers were furnished before the AO, copies of which have been furnished to us also at pages 218 to 230 of the paper-book. It was submitted that the AO did issue summons to M/s.
Virchandbhai Harjivandas & Bros a registered valuer and also to Shri Navinbhai V. Chokshi to verify the avak javak vouchers for doing repairing work on the ornaments belonging to the assessee and his family members. It was further submitted that in relation to the jewellery found and seized, the assessee had made representation for re-grouping & re-weighing to the AO, which was not immediately allowed, but subsequently at the intervention of CIT, Central, Ahmedabad the seized jewellery was re-grouped and re-weiged by the Departmental valuer and the result of the re-weighing and the original punchanama prepared indicates certain differences which are quite apparent and which indicate that at the time of seizure, the weighing was not properly done. A reference was made to the punchanama prepared at the time of search on 12th July, 1988 and the punchanama prepared during re-weighing on 20th March, 1992, which indicate the followings : As mentioned in Panchnama No. the search weighed on during reweighing weighed 12th July, 1988 on 20th March, 1992 From the above, the learned representative of the assessee Shri P. F.Jain submitted that it is quite clear that in respect of Item B-28 the weight was 39.000 and number of diamonds mentioned was 311 and the weight in cts. was 10.00; whereas at the time of re-weighing this item was weighed 39.300 gms., the number of diamonds accounted was 330 and weight in cts. was 12.10. Similarly in respect of Item B-32, the weight on 12th July, 1988 was 124.000 while the weight of the same item on 20th March, 1992 was 173.200. Accordingly, it was submitted that on an overall view of the whole affairs and the fact that the jewellery declared by the assessee and his family members in the WT return filed prior to the date of search and also the jewellery belonging to the minors in respect of which additions were made in the hands of the assessee in asst. yr. 1982-83, there was absolutely no justification for making any addition on account of alleged unexplained investment in the jewellery. It was submitted that there was a search & seizure operation in the case of the assessee on 26th Aug., 1981 also and as per the assessment order for asst. yr. 1982-83 dt. 26th June, 1985 the value of gold ornaments found from the house and lockers were 1455.5 gms. silver 4400 gms. as per details below : (B) : From Locker No. 1662 & 1742 gold ornaments weighing 1098 gms.
were found which belonged to following : (C) : 30.25 Tolas were explained as under : 167.5 gms. belonged to above three members & covered in WT returns.
It was further submitted that the additions were made in the hands of the assessee as well as his brother on account of unexplained jewellery declared in the hands of minor children and the AO in the assessment year under consideration has again made the addition on the ground that the jewellery belonging to the minors was not declared by the assessee and his brother in WT returns. It was pleaded by the learned representative of the assessee that by simply making the additions in the hands of the assessee in asst. yr. 1982-83 the fact that jewellery belonged to the minor does not change and as such, the jewellery belonging to the minors was not declared in the WT returns filed by the assessee, his brother and their family members. Accordingly, it was submitted that the addition made by the AO as sustained by the CIT(A) is not at all justified in the facts and circumstances of the case.
20. Shri M. K. Meernai, the learned senior Departmental Representative supported the orders of the AO as well as the CIT(A) and he read extensively from the order passed by the AO from pages 7 to 32 of the assessment order and particularly, pages 8 to 14 to prove that the explanation given by the assessee with regard to certain ornaments belonging to Mrs. Anju Arun Gupte, Mrs. Nandaben Gupte & Mrs. Neela Uday Pradhan was of a made-up story and the ornaments actually belonged to the assessee. He, accordingly, submitted that the AO as well as the CIT(A) were perfectly justified in making/sustaining the impugned addition of Rs. 19,452.
21. We have considered the rival submissions. A perusal of the summary of ornaments belonging to the family duly declared as mentioned in para 19 above clearly indicates that the accounted for jewellery by the assessee and his family members was more than the jewellery actually found at the time of search from the residence of the assessee as well as his brother. At the time of recording statement of Mrs. Kamal A.Shah she referred to the jewellery belonging to Mrs. Neelaben which was found from her residence. She did not refer to the jewellery belonging to other ladies namely, Mrs. Anju Arun Gupte and Mrs. Nanda Gupte because those items of jewellery were found from the Locker No. 1742 belonging to Mrs. Kamal A. shah and Mrs. Meena Atul Shah All the three ladies have confirmed the ownership of those ornaments mentioned at items B-19, B-20 & B-33 of the panchanama and certain minor discrepancies in their statements will not make the ownership of these ornaments as incorrect. Moreover as mentioned above since the overall ownership of gold ornaments/jewellery owned by the assessee and his family members and declared in the WT returns is more than the jewellery actually found at the time of search, there was no justification for making any addition whatsoever on account of the so-called unexplained investment in jewellery. It is also pertinent to note that the assessee has furnished evidence in the form of vouchers from goldsmith/jeweller for re-making/alterations of some items of jewellery and the AO did issue summon to goldsmith/jeweller to verify the receipt and return of these ornaments to the assessee and nothing adverse was found against the assessee. Keeping in view the totality of, the facts and circumstances of the case, and also the fact that certain additions on account of unexplained investment in jewellery belonging to the minors had already been made in the asst. yr. 1982-83 in the case of the assessee as well as in the case of Shri Atul N. Shah there was absolutely no justification for making any addition in the case of the assessee for the assessment year under consideration.
Moreover, it is also pertinent to note that the jewellery at the residence as well as in the lockers found were in the possession of Smt. Urmilaben because the tijori was in the bedroom of Smt. Urmilaben Similarly, Locker No. 1742 from where the jewellery was found and seized belonged to Mrs. Kamal A. Shah and Mrs. Meena Atul Shah and as such, no addition on account of the alleged unexplained investment could be made in the hands of the assessee, because a person found in possession of jewellery will be the owner as per the decision of the Honble Supreme Court in the case of Chuharmal vs. CIT (1988) 172 ITR 250(SC). Thus, the addition of Rs. 3,19,452 is directed to be deleted.
22. Grounds of appeal Nos 11 to 13 are directed against the action of the Departmental authorities in sustaining an addition of Rs. 26,400 on account of unexplained investment in silver utensils being 4.44 kgs. It was submitted that the AO as well as the CIT(A) has failed to appreciate that the above silver utensils were not other than the silver which was declared by the minors in the asst. yr. 1982-83, but was taxed in the hands of the assessee in that year and, therefore, on any view of the matter, there is no justification of making any addition in respect of those very items of silver as unexplained investment in the assessment year under consideration, which had already been taxed in the asst. yr. 1982-83. It was submitted that the learned AO adjudicated this issue against the assessee simply on the ground that the assessee has not declared these utensils in his WT return. It was submitted that these utensils actually belonged to the minor children of the assessee and his brother and it was altogether a different matter that the contention of the assessee was not accepted for income-tax purposes and the value of these silver utensils was taxed in the hands of the assessee. These could not been declared in the WT returns of the minors as the minors were not liable to wealth-tax. It was submitted that the valuation report in the case of minors were obtained prior to the date of search. Accordingly, it was submitted that there was no justification for making this addition.
22.1 Shri M. K. Meerani, the learned Departmental Representative supported the order of the AO as well as the CIT(A).
23. We have considered the rival submissions and have gone through the order passed by the AO as well as the CIT(A). The disputed item of silver utensils which have been added by the Departmental authorities are as under :- During the search carried on 26th Aug., 1981, besides the above silver utensils, certain other ornaments weighing 75 gms., 83 gms. & 53 gms.
were claimed as belonging to the minors Visal, Sagar and Vikram, which were claimed as gifts received by the minors from their maternal-uncle, aunty, grandmother, etc. The above explanation was not accepted by the AO and he made addition on account of investment in gold ornaments and silver utensils claimed to be belonging to the minors in the hands of their father/natural guardian Shri Amar N. Shah and Shri Atul N Shah.
Non-acceptance of explanation offered by the assessee resulted into fastening of additional IT liability for the asst. yr. 1982-83 in the case of Shri Amar N. Shah and Shri Atul N. Shah. However, this did not change the ownership of silver utensils and as such, these were not shown by the assessee as well as his brother Shri Atul N. Shah in their WT returns from asst. yr. 1983-84 onwards to 1988-89. These facts are available on records of the Department and the assessments of the assessee and his brother for WT purposes have been completed by passing orders under s. 16(3). In this view of the matter, if silver utensils are once again treated as unexplained and added to the assessees income on the very same reasoning, then it will tantamount to double addition.
Accordingly, we will hold that the AO as well as the CIT(A) were not justified in making this disputed addition of Rs. 26,400 on account of unexplained investment in silver utensils belonging to the minors, which is directed to be deleted.
24. Ground of appeal Nos. 14 & 15 are directed against the action of the AO as confirmed by the CIT(A) in making/sustaining the addition of Rs. 20,000 on account of low household expenses. The AO during the course of assessment proceedings found that the assessee along with his wife and his HUF Amar N. Shah has withdrawn an amount of Rs. 1,42,072 on account of household expenses. The AO has recorded the details of the withdrawals at page 36 of the assessment order as under :- Out of the above, the AO has mentioned at page 37 of the assessment order that an amount of Rs. 1,09,657 was for certain specific items which leaves only a sum of Rs. 32,435 for household expenses which were considered low. The AO observed that at the time of search Mrs. Kamal Amar Shah has stated that her household expenses are about Rs. 5,000 to Rs. 6,000 per month. The AO, accordingly, asked the assessee to show-cause why the household expenses should not be estimated at Rs. 5,000 per month other than those which were specifically excluded on account of specific expenses mentioned at page 37. After considering the explanation of the assessee, the AO made an addition of Rs. 20,000 which was confirmed by the CIT(A).
25. Shri P. F. Jain, the learned representative of the assessee submitted that the expenditure of Rs. 32,435 was quite sufficient for a family of five persons particularly when the school fees, electricity, salary of servants were debited separately. He, accordingly, submitted that the AO as well as the CIT(A) were not justified in sustaining the addition of Rs. 20,000 on account of low household expenses.
26. Shri M. K. Meerani, the learned senior Departmental Representative supported the order of the AO as well as the CIT(A) and further submitted that a perusal of details of expenditure for which specific withdrawals were made amount to Rs. 1,09,657 clearly indicates the standard of living of the assessee. It was submitted that the electricity bill alone was an amount of Rs. 33,304 which gives an indication of standard of living of the assessee. Besides that, the assessee was having a gardener, a servant and a mali. As such, the estimate of household expenses made by the AO at Rs. 5,000 per month was rather on the lower side and as such, the AO as well as the CIT(A) were justified in making the addition. It was further submitted that the monthwise details of withdrawals as mentioned at page 39 of the assessment order indicates that there were practically nil withdrawals in the month of April, May & July; whereas as per the admission of the assessees wife, they were incurring Rs. 5,000 per month as expenditure.
He, accordingly, submitted that the addition of Rs. 20,000 is quite in order.
27. We have considered the rival submissions and have also gone through the orders passed by the AO as well as the CIT(A). The assessee is a partner in various firms which are engaged in the business of construction of multi-storey flats. Besides that, the assessee is also director in Vimla Silk Mills (P) Ltd., which is engaged in the processing of textiles. A perusal of the details of expenditure found recorded on various papers at the time of search as reproduced at page 37 of the assessment order indicates that the assessee has incurred an expenditure of Rs. 1,09,657 on specific items like air-ticket for foreign tour, electricity bill, school fees, salary to servants & mali, municipal taxes of the bungalow, which leaves an amount of Rs. 32,432 only for household expenses, which has rightly been considered by the Departmental authorities as low keeping in view the number of family members living with the assessee and the servants employed by him.
Accordingly, we will uphold the action of the Departmental authorities in making the addition of Rs. 20,000 which is based on the admission of the assessee as well as his wife that their monthly expenditure are in the vicinity of Rs. 5,000 per month. Accordingly, this ground is adjudicated against the assessee.
28. Ground of appeal Nos. 16 & 17 are directed against the action of the AO as well as the CIT(A) in making an addition of Rs. 17,737 on account of Lonawala expenses. It was submitted by Shri P. F. Jain, the learned Representative of the assessee that the assessee along with his friend Shri Subhodh Gandhi has undertaken a tour during the period from 10th June, 1988 to 13th Aug., 1988 to Lonawala. The total expenditure for this tour came to Rs. 17,737 as per bill, dt. 13th June, 1988. It was submitted that the assessee has explained that the total expenditure of Rs. 17,737 was incurred by the party and the assessees share came to Rs. 4,000 only which was debited in the books. It was submitted that the bill was in the name of Shri Subhodh Gandhi, who had forgotten the bill at his residence and the assessee has requested the AO to summon Shri Subhodh Gandhi, whose address was given, but the AO held that since the paper was found from the residence of the assessee, the expenditure must have been incurred by him and, he, accordingly, made an addition which was wrongly and unjustifiably confirmed by the learned CIT(A). He, accordingly, submitted that the addition of Rs. 17,737 should be deleted.
29. Shri M. K. Meerna, the learned senior Departmental Representative supported the orders of the AO as well as the CIT(A) and further submitted that since the complete address of Shri Subhodh Gandhi was not given by the assessee to the AO Shri Subhodh Gandhi could not be summoned.
30. We have considered the rival submissions and have also gone through the orders passed by the AO as well as the CIT(A). The addition has been made by the AO simply on the ground that the assessee has failed to produce any confirmation letter from his friend Shri Subhodh Gandhi that the expenditure on account of stay and hotel bill was borne by him. However, the AO failed to issue any summons to Shri Subodh Gandhi in this regard. Admittedly, the hotel bill was in the name of Shri Subodh Gandhi and the assessee has requested the AO to issue summon to Shri Subodh Gandhi in this regard. On the other hand, the assessee has in fact debited a sum of Rs. 4,000 on account of Lonawala tour in his books, which according to the assessee, was his share of the total expenditure of Rs. 17,737. In this view of the matter, we are of the opinion that the Departmental authorities were not justified in making the addition of Rs. 17,737 on account of Lonawala tour, the bill of which was in the name of Shri Subodh Gandhi. Even otherwise if the assessee has incurred any further expenditure over and above the amount of Rs. 4,000 accounted for in his withdrawals on account of Lonawala tour expenses, the same will be taken care of by the addition of Rs. 20,000 sustained by us on account of low household withdrawals. In the result, the addition of Rs. 17,737 is directed to be deleted.
31. Ground of appeal Nos. 18 to 25 relating to the addition of Rs. 28 lacs sustained by the CIT(A) out of the total addition of Rs. 1,35,99,434 made by the AO will be taken up with ground of appeal No. 2 of the Revenues appeal.
32. Coming to ground of appeal No. 1 in the Revenues appeal, the grievance of the Revenue is that the CIT(A) has erred in law and on facts in holding that the weight shortage of 1429.650 gms. in gold ornaments and 8.850 cts. of diamonds will not be treated as long-term capital gain and consequently in deleting the addition of Rs. 1,39,507 being taxable capital gains. The learned first appellate authority has dealt with this issue in para 2(iii) at page 4 of the impugned order as under : "Vide the impugned assessment order, the AO has presumed that the appellant might have sold some of the ornaments and jewellery and has made an addition of Rs. 1,39,507 as long-term capital gain on a hypothetical basis. However, the appellant has objected to the AOs action. It is the appellants contention that the relevant ornaments and jewellery have been taxed by the AO under s. 16(3) of the WT Act.
Moreover, it is the appellants contention that he has not sold any ornaments and jewellery and that the AO has wrongly presumed that the appellant might have sold some ornaments and jewellery. Considering the appellants submissions and also considering the fact that the AOs presumption about the alleged sale of ornaments and jewellery is not supported by any material, the impugned addition of Rs. 1,39,507 stands deleted." 33. After hearing the parties to the dispute, we are of the opinion that the learned first appellate authority was perfectly justified in deleting the impugned addition of Rs. 1,39,507 on account of alleged long-term capital gains on a hypothetical basis. It is an admitted position that no evidence of the alleged sale of jewellery was found by the search party from the residence as well as the business premises of the assessee, and the presumption of sale was made by the AO only on the ground that some of the items shown in the valuation report annexed with the WT returns filed for the asst. yr. 1986-87 were not found at the time of search from where the AO presumed that these must have been sold. The explanation of the assessee was that those items were modified/altered by family members of the assessee and in respect of the above contention, copies of vouchers were produced indicating that labour charges, etc. were paid by the assessee to goldsmith/jeweller.
The AO also verified these vouchers issued by the goldsmith/jeweller by issuing summons to them. In this view of the matter, we are of the opinion that there was no basis for assuming that part of the jewellery was sold by the assessee in the assessment year under consideration particularly so as there was absolutely no evidence indicating the sale of jewellery/ornaments by the assessee or his family members.
Accordingly, we do not find any merit in this ground taken by the Revenue, which is, accordingly, dismissed.
34. Coming to ground No. 3, which is directed against the action of the CIT(A) in deleting the addition of Rs. 13,000 on account of unexplained investment made in the household articles, it is seen that the learned first appellate authority has discussed this issue in para (v) at page 5 of the impugned order as under : "Vide the impugned assessment order, the AO has mentioned that the appellant has not been able to prove the source of acquisition of refrigerator, cassette-player and amplifier. In the circumstances, the AO has added the sum of Rs. 13,000 representing the unexplained investment made in the said items. However, the appellant has objected to the AOs action. It is the appellants contention that the refrigerator was purchased during the accounting year relevant to the asst. yr. 1988-89 and that the investment of Rs. 8,000 in the said refrigerator was shown in the books of accounts of the firm, M/s.
Kishore B. Desai & Co. and that the said books had been seized during the search. Regarding the cassette-player and amplifier, it is the appellants contention that the same were old articles and had been purchased many years back by the appellants late father. Considering the facts and appellants submissions, it is held that the AO has wrongly made the impugned addition of Rs. 13,000. Accordingly, the addition of Rs. 13,000 stands deleted." 35. After hearing the parties to the dispute and going through the order passed by the CIT(A), we are of the opinion that there is no justification in taking a view which is different from that of the CIT(A) in this regard whose order we will uphold and for that, we make the reasoning and conclusion of the learned first appellate authority as recorded in para (v) at page 5 of the impugned order, relevant portion of which has been reproduced by us above, as our own.
36. Grounds of appeal No. 18 to 23 in ITA No. 2128/Ahd/1994, which is the assessees appeal and ground of appeal No. 2, which is the Revenues appeal, pertain to the loose papers torn from the letter-paid kept in the briefcase of the assessee at his residence. These papers are numbered 22, 23, 24, 25 & 30, photo-copies of those have been given to us at pages 115 to 121 of the paper-book and the english translation of these papers have also been given at pages 290 to 292 of the paper-book. The addition made by the AO was of Rs. 1,35,99,434 under the heading "Unexplained expenditure, advances/income". The pagewise addition as mentioned at page 75 of the assessment order is as under :- The learned CIT(A) has held that wherever multiplier of Rs. 1 lac has been used by the AO, the same be substituted by Rs. 1,000. Accordingly, the addition consequent to the above direction of the CIT(A) is sustained to the extent of Rs. 28 lacs. The Revenue as well as the CIT(A) both are aggrieved with the order of the CIT(A) and has come up in appeal before us.
37. Shri P. F. Jain, the learned Representative of the assessee submitted that the entire addition based on decoding of figures found in the loose papers lacks basis and deserves to be fully deleted. It was submitted that the addition is neither tenable legally nor factually and it is based on suspicion, surmises, conjectures and imagination of the learned AO which went on changing from time to time.
It was submitted that there is no cogent evidence in respect of the additions made by the AO. It was pleaded that the good evidence adduced by the assessee during the course of assessment proceedings has been just brushed aside on the basis of pre-determined approach, & prejudice and the addition made is more or less based on the finding recorded in the order passed under s. 132(5) which alone cannot be the basis of an order made under s. 143(3).
38. Shri P. F. Jain, the learned Representative of the assessee further submitted that a reference to the loose papers seized on the basis of which the entire addition is based clearly indicates that although at some places date is mentioned against the figures, but no year is mentioned therein. Also, there is no mention whether the figures are in Rs. or in grams or Kgs. or meters. There is also no indication as to which side reflects what i.e. whether it is the debit side or credit side or whether it is receipt or payment. It was submitted that besides the recording of the statement of the assessee at four different points, the AO has issued three show cause-notices to the assessee namely, show-cause notice, dt. 17th Sept., 1990, show-cause notice, dt.
16th Feb., 1993 and show-cause notices, dt. 1st March, 1993. The assessee has given detailed reply to these show-cause notices on 12th Oct., 1990, and 10th March, 1993, copies of which were furnished to us also at pages 275 to 279 and 280 to 289 of the paper-book. It was submitted that the decoding theory of the AO has been denied by the assessee from the very beginning. During the course of search, the assessee has no doubt, not disclosed the nature of figures mentioned in the loose-papers on the ground that he was not remembering them but he also denied that figures are in coded form. In this connection Shri P.F. Jain, the learned Representative of the assessee drew our attention to the statement of the assessee recorded under s. 132(4) on 15th July, 1988 (paper-book page 301 and in reply to question No. 26) the assessee has categorically stated that no code is utilised for writing figures and hence, the question of these amounts being in code does not arise.
As per question No. 27 of the statement, the figures according to the Department were in code of 100; whereas as per the assessment order finally passed code of 10, 100, 1,000 & 1,00,000 has been applied which indicates that whole exercise of decoding by the AO is imaginative. It was further submitted that as per the order passed under s. 132(5), the loose paper No. 30 as decoded as nil - may be as the entries on the page seems to be struck off, whereas in the assessment order it has been decoded for an amount of Rs. 12,93,300. It was submitted that the AO at page 45 of the assessment order to justify the decoding theory has mentioned that the assessee when a statement was recorded about the nature of entries on the seized paper has been replying that he did not remember and then all of a sudden the entries have been remembered after two years of search and as such, the AO held that the explanation offered in response to the show-cause notice is not correct. The CIT(A) also in his order on pages 13 & 14 has observed that "the assessee did not choose to explain the nature of figures written on the loose papers during the course of action under s. 132 as also during the course of proceedings under s. 132(5). As such, the assessees explanation can neither be considered nor accepted. The assessees contention that he could not explain the nature of figures earlier since some of the relevant books of account had been seized by the IT Department cannot be accepted". It was submitted that the AO as well as the CIT(A) have not appreciated the submissions made by the assessee properly for the reasons mentioned hereunder : (i) As mentioned earlier in his very first statement recorded on 15th July, 1988, the assessee has categorically denied the decoding theory and has asserted that the figures contained in the loose papers are as it is and not coded.
(ii) Search was concluded on 5th Sept., 1988 and order under s. 132(5) was simultaneously passed on 10th Oct., 1988 without supplying the copies of loose papers to the assessee.
(iii) The copies of loose papers were supplied to the assessee only in September 1990 (26th Sept., 1990) and as soon as the assessee received copies of loose papers, he replied vide his letter, dt. 12th Oct., 1990 explaining the nature of entries on the seized papers. Reference was made by the learned Representative of the assessee to the applications seeking copies of loose papers, copies of which were furnished at pages 421 to 424 of the paper-book. It was submitted that the late supply of the loose papers is supported by a reference to page 43 of the assessment order itself wherein the AO has observed as under : "In the course of examination of oath under s. 131 of the Act, the assessee was allowed the sufficient time to go through the contents of seized papers and also allow to inspect the same. Even in question the figures, names of persons and dates of notings were incorporated in the question and answers to leave least doubt of any ambiguity on account that the assessee was not allowed to access of the seized loose papers." 39. It was further submitted that the AO has been arbitrarily changing the manner of coding merely on imagination. It is apparent from different yardsticks having been applied to different places as mentioned below : (a) Page No. 23 has been decoded by multiplying figures by 100 but 1,000 A. R. Corpn. appearing on page 4, Annexure I, attached to the assessment order has been decoded as 1,000 as it is, similarly 3,900.
Azad has been decoded as 3,900 as it is. Dushyant 14,000 has been decoded as 1,40,000 only taking multiplier of 10 only as against multiplier of 100 applied to other figures. Page 2 of Annexure I Naribhai 500 has been decoded as 5,000 applying multiplier of 10 only.
(b) On page 25 below the name Hajibhai except against entry of 9/4 (1.5) decimal is visible whereas there is no decimal against any other entries.
As per assessment order addition of Rs. 96,36,000 was made for this single page only. The CIT(A) directed decoding by multiplier of 1,000 only. Consequently the addition got reduced substantially. Except against two figures against name of Hemand i.e. 5 10/7 & 5 2/7 there is no date against any figure. Further below the name Atul net working is only. 14, whereas it has been wrongly mentioned as 1.50 & 75 in Annexure III of the AO. It The figure 10,000 against Tolivo has been kept as it is. It shows inconsistency in the method of decoding which proves that there is no basis for decoding and hence figures have to be accepted as explained by the appellant.
(c) The figures on page No. 25 denotes quantity of cutpieces of Vimla Silk Mills and whereas page No. 24 is account of defective claimless sarees & as per appellants explanation all the entries pertain to financial year 1987-88 only. The respective entries are duly accounted for in the books of Vimla Silk Mills (P) Ltd. (d) The entries of loose-paper No. 29 have been treated as fully explained. It appears on page 119 of paper-book. The explanatory chart for this page appears on page No. 429 of paper-book. The entries of 15, 50 & 10 in the name of United & Premchandbhai explained as sale of sarees of Vimla Silk Mills (P) Ltd. for accounting year 1987-88. If these are correct, then there is no reason to disbelieve appellant for entries of other loose papers.
(e) On paper-book page No. 431 to 435 there are loose-papers of LIC diary - similar notings were there. They have been decoded in the same fashion as mentioned in order under s. 132(5) - relevant page of order being 14 to 18 (refer paper-book page Nos. 250 to 254), as a result addition of Rs. 34,76,928 was made for asst. yr. 1987-88 vide order, dt. 27th March, 1990. These loose papers were explained as pertaining to cement bags & weight of steel of M/s. Kamal Builders. (refer page No. 276 of paper-book para 4). The order was set aside & while re-making the order as per CIT(A)s direction, the said explanation of the appellant has been accepted by the Department and the said decoded addition stands deleted.
On the same parity the explanation offered for asst. yr. 1989-90 by the assessee deserves to be accepted.
(f) Loose pages Nos. 22, 23 & 30 have been explained as deposits from various members of NTC/society, labour bill, expenses of Vimla Silk Mills (P) Ltd., Bills of Vimla Silk Mills (P) Ltd. etc., as mentioned in explanation charts appearing on pages No. 425, 426 & 430 of the paper-book -relevant bills, membership receipts, etc. have been produced & submitted to Department.
(g) The members who were called in person by issuing summons have confirmed the payment as it appears on the loose paper. The seventeen confirmations of such members appear on pages No. 122 to 139 of the paper-book.
In the light of the above submissions, it was pleaded that since the coding has no basis regarding the multiple to be applied in view of the decision of the honble Supreme Court in the case of Dhakeshwari Cotton Mills vs. CIT (1954) 26 ITR 775 (SC), the entire addition is required to be deleted.
40. It was further submitted that no assets representing the receipt of alleged on money have been pointed out by the AO and that material evidence is absent. Accordingly, it was submitted that in respect of the alleged on money, without admitting but assuming that any addition can be made, then that can be done only in the income of the corresponding firms which were carrying on the business of construction and supervision of building projects in which the assessee was a partner.
41. In his detailed written replies submitted in response to the show-cause notices, the assessee has explained some of the entries in the loose sheets as relating to Vimla Silk Mills (P) Ltd. and produced vouchers etc. to prove it. The AO has rejected the explanation on the ground that it was not given at the time of search, but two years later. It was submitted that the assessee could not have given this explanation and the proof during the period of two years, because there is no such procedure under the Act, that when he got the proof and explanation, he could at once communicate it to the AO. The assessee could not have done it until he got another opportunity by way of show-cause notice. Even copy of loose sheets were supplied to the assessee on 26th Feb., 1990, and thereafter the assessee gave necessary reply explaining the entries.
42. It was submitted that the AO has held that the vouchers which are relied to explain the entries in the loose sheets are yellow; whereas the other vouchers are green and that, therefore, those yellow vouchers are interpolation and not genuine. It was submitted that an assessee who was actually manipulating and interposing these papers will certainly take care to see that the new vouchers are absolute like the others and will not take the risk of putting any papers of different colours. It was pleaded that the AO has observed that the punching holes are new, but an assessee who is interposing the pages will also be very careful in punching the holes in the new pages directly in vertical lines with the holes in the original papers. It was submitted that the AO has relied on the forensic report, but no copy of the report was supplied to the assessee inspite of repeated requests. It was submitted that the AOs conclusion that the vouchers are fabricated is based merely on circumstantial evidence as the clerks of the assessee who handled this kind of work of preparing vouchers, cash memos, etc., have not been examined. Had it been done, the clerks might have deposed that such voucher books with different colours and negligently binding with punching holes in negligent way were sold in the market. Accordingly, it was submitted that the finding of the AO that the vouchers are fabricated is merely based on suspicion. Shri P.F. Jain, the learned Representative of the assessee further submitted that the AO has recorded the statement of some of the flat holders under s. 131 to test his theory of on money received by the assessee and all of them have supported the contention of the assessee that no on money was paid and the amount mentioned against the names of those flat holders were in fact represented membership/share contribution fee of the various societies/construction projects. It was submitted that because of these statements, the AO changed his stand of making the addition from on money receipts to unexplained investment/expenditure in the assessment order finally passed. It was submitted that in the order proposed under s. 132(5) the AO has decoded the additional income at Rs. 1,55,88,000. In the show-cause notice the addition proposed to be made was Rs. 2,35,88,434; whereas as per the decoding in the assessment order, the total addition made is Rs. 1,35,99,434.
Accordingly, it was submitted that the AO himself was not clear as to what should be done of the entries on the loose papers and has arbitrarily made the disputed addition of Rs. 1,35,99,434 after rejecting reasonable explanation given by the assessee. Accordingly, it was submitted that the entire addition is required to be deleted.
43. Shri M. K. Meerani, the learned senior Departmental Representative relied on the order of the AO and has extensively read from pages 40 to 75 of the assessment order. Shri Meerani, the learned senior Departmental Representative in particular referred to page 49 of the assessment order relating to entries of A. R. Corpn. and Ajad to prove the theory of decoding as these two entries were first written in code form as 10/00 & 39/39 and the same was subsequently written in decoding form and giving the key to be used by multiplying the code entry by Rs. 1,000. Shri Meerani, the learned senior Departmental Representative submitted that once these two entries are held to be written in code form, then it necessarily follows that all other entries were also in code form. It was further submitted that the finding of the AO as recorded at pages 52 to 70 of the assessment order clearly indicates that the vouchers/cash memos produced of Vimla Silk (P) Ltd. to explain the entries were fabricated. On a query from the Bench as to whether any prosecution has been launched against the assessee for fabrication of evidence under the IPC, the learned senior Departmental Representative could not categorically state that in fact prosecution has been launched. Shri P. F. Jain, the learned Representative of the assessee also stated that no prosecution notice for the alleged fabrication of evidence was issued to the assessee, nor any prosecution proceedings for fabrication of evidence were a launched in a criminal Court. The learned senior Departmental Representative accordingly, submitted that keeping in view the detailed discussion and analysis given by the AO in the assessment order, the addition made on the basis of loose papers amounting to Rs. 1,35,99,434 should be sustained and the order of the CIT(A) should be reversed to that extent.
44. We have considered the rival submissions and have gone through the order passed by the AO as well as the CIT(A), and the copies of loose papers which have been made as annexures to the order passed by the AO, copies which were furnished to us also in the paper-book. It is pertinent to note that the loose papers seized are written in Gujarati vernacular and the year is not mentioned over any of these papers although the date and month are mentioned. The AO has presumed that to be of 1988 and thus, made the disputed addition on the basis of alleged decoding. It is also pertinent to note that while passing the order under s. 132(5), the addition proposed was on account of on money receipts relating to the various construction projects undertaken by the firms in which the assessee and his family members are interested.
As per order under s. 132(5), the proposed concealed income relating to the assessment order under consideration was decoded as under : 45. Subsequently, as per the show-cause notice issued by the AO, dt.
1st March, 1993, the decoding of these very loose papers for the purpose of making the addition was made as under : However, at the time of passing the order, dt. 31st March, 1993, the decoding was done by the AO as under : Thus, the stand of the AO himself has been changing frequently. It is no doubt true that certain loose papers written in Gujarati were found from the letter-paid in the briefcase of the assessee during the course of search and initially the assessee stated that the writing on the papers resembles his handwriting but he avoided to explain the entries on the loose papers on the ground that he was not remembering them.
These papers were seized and the assessee could get copies thereof only after about two years when he tried to explain them by furnishing the necessary evidence in support of the various entries. According to the assessee, loose paper Nos. 22, 23 & 30 contained the name of the persons from whom some money was taken as membership fees/share application money on account of their being members of the co-operative societies/non-trading corporation which were managing the construction project in which flats were allotted to those persons; whereas the page Nos. 24 & 25 represented the income/expenditure in relation to claimless sarees & cutpieces sold by M/s. Vimla Silk Mills (P) Ltd. It is pertinent to note that the premises of the assessee were searched on 12th July, 1988 and the total cash found was only Rs. 56,350. It is also pertinent to note that there was a search and seizure operation earlier in the case of the assessee on 26th Aug., 1981 and the cash seized at that time also was Rs. 37,009 only.
Thus, the cash seized during the search and seizure operation on 12th July, 1988 or even on 26th Aug., 1981 was quite negligible in comparison to the huge addition of Rs. 1,35,99,434 made by the AO on account of alleged unexplained investment/expenses, etc. It is pertinent to note that no assets representing the alleged investment of Rs. 1,35,99,434 has been found by the Departmental authorities during the course of search. The relevance and admissibility of a piece of evidence, which is sought to be used against the assessee at the assessment proceedings can be questioned by him in such proceedings.
The presumption created under s. 132(4A) in respect of the books of account, other documents, money, bullion other valuable articles or things, etc. found in the possession or control of any persons in the course of search is limited in scope and is restricted to the summary proceedings under s. 132. Such presumption does not extend to the proceedings of regular assessment in the case of the assessee. Search proceedings are neither pre-requisite proceedings nor a part of the process of assessment. Assessment proceedings are quite independent of search proceedings. Search proceedings may take place either before or after assessment proceedings and can have relevance to the assessment proceedings only if some incriminating evidence affecting the assessability of income of the assessee is found and seized in such proceedings. As mentioned earlier, it is pertinent to note that no year is mentioned on the seized paper; whereas the AO has mentioned 1988 and as such, there is no basis for the addition made by the AO in the asst.
yr. 1989-90. A complete copy of the forensic report obtained by the AO was not supplied to the assessee inspite of repeated requests and although there is a clear finding in the assessment order that the vouchers/cash memos & books of account of Vimla Silk Mills (P) Ltd. were fabricated to explain the entries on the loose papers, no prosecution proceedings were launched against the assessee or any other director of Vimla Silk Mills (P) Ltd. Copies of statements of members of the housing societies were recorded by the AO at the back of the assessee, but these were also not given to the assessee inspite of repeated requests presumably because they are favourable to the assessee and while making the addition, the basis of addition made in the order under s. 132(5), which was on account of on money receipts in relation to booking of flats was changed into unexplained investment/expenditure in the assessment order. Important witnesses on whom the assessment order depends; such as, clerks who were handling the vouchers and the purchase of stationery and writing the books of account of Vimla Silk Mills (P) Ltd. were not examined by the AO and the finding given in the assessment order about the fabrication of evidence is based on surmises and conjectures only. It may be further pointed out that in the asst. yr. 1987-88, additions were made by the AO on the basis of loose papers seized during the search by resorting to the provisions of s. 144 by making an addition of Rs. 35,80,151 in the case of the assessee vide order, dt. 27th March, 1990. That assessment was set aside by the CIT(A) vide order, dt. 28th Oct., 1992 and in the fresh assessment made, no addition was made by the AO on account of entries in the seized papers vide order, dt. 31st March, 1995. Similarly for the asst. yr. 1988-89, no addition was made on account of entries in the seized loose papers and the order was passed on 22nd March, 1991.
46. At the cost of repetition, we may point out that no tangible assets in the form of unexplained investment were found at the time of search which could have justified the addition of Rs. 1,35,99,434. It is no doubt true that the assessee and his family members are having interests in various firms which are engaged in the real estate/multi-storey flats construction business. However, there is no evidence to show that the assessee in fact had received on money payments in respect of flats sold by various firms in which the assessee and his family members are interested. We do not for a moment suggest that there was no prevalence of on money payments in the real estate/sale of flats in the multi-storey building business; but addition on account of on money payments or unexplained investments would not be justified even if general note is taken of what is described by the Revenue authorities as notorious practice, in the absence of tangible evidence. The only evidence available in this case is some notings in Gujarati which resembles handwriting of the assessee in regard to which the assessee has furnished explanation to the effect that entries on page Nos. 23, 24 & 30 represented receipts of share application/membership fees of the flat owners in various co-operative housing societies and non-trading corporation which were managing the projects supervised/constructed by the firms in which the assessee and his family members are interested. Entries at page Nos. 24 and 25 are stated to be on account of receipts for the sale of claimless sarees & cutpieces. The fact that page Nos. 24 & 25, relate to Vimla Silk Mills (P) Ltd., is supported by the writing of Vimla at the top of the loose paper No. 24. Even if the explanation given by the assessee is rejected on the basis of finding recorded in the assessment order that the vouchers and cash memos produced relating to Vimla Silk Mills (P) Ltd. was not contemporaneous records, even then there is no justification in making this huge addition of Rs. 1,35,99,434 in the hands of the assessee. Even if it is assumed that the assessee has received on money in respect of flats constructed, developed by the various firms in which the assessee and his family members were interested, then the addition at the most could be made in the hands of the firms and not in the hands of the assessee. Similarly, if the explanation with regard to the sales of claimless sarees and cutpieces belonging to Vimla Silk Mills (P) Ltd. is not believed even then it cannot be the basis of making any addition in the hands of the assessee although action could be taken in the hands of Vimla Silk Mills (P) Ltd., if the facts and circumstances of the case so justify. Thus, keeping in view the totality of the facts and circumstances of the case, we are of the opinion that the addition of Rs. 1,35,99,434 cannot be sustained and is directed to be deleted.
47. In the result, whereas ground of appeal No. 2 in the Revenues appeal is dismissed; ground of appeal Nos. 18 to 23 in the assessees appeal are allowed.
48. In the result, the appeal filed by the assessee is partly allowed; whereas, the appeal filed by the Revenue is dismissed.