Judgment:
ORDER
SMT MOKSH MAHAJAN, A.M. :
These four appeals relating to three independent assessees are taken together and disposed of by passing a single order. It is for the reason that the facts are common and decision taken on either case has a bearing on the other. At the outset it may be mentioned that appeal filed in ITA No. 8419/Del/1991 is stated to have been filed out of time inasmuch as there is a delay of one day in filing the appeal. After hearing the assessee, the same is condoned and the appeal is admitted to be disposed of on merits.
2. Out of four appeals filed, in the case of Shri Kamal Singh appeals have been filed both by the assessed as well by the Revenue. In the cases of Shri Prem Singh and Shri Rakesh Singh appeals have been filed by the Revenue alone.
3. Briefly stating the facts, Shri Kamal Singh, Shri Prem Singh and Shri Rakesh Singh are brothers. They are stated to have a common residence wherein, while the upper portion of the house is used for residential purposes, in the ground floor business activities are stated to be carried on by all the brothers. The business consists of manufacture of silver chains and chains made of gilt and iron, etc. Search and seizure operations were carried out in the aforesaid premises on 18th April, 1987. During the course of searches following articles were discovered :
(1) Silver wires in 17 bundles weighing 41.05 kgs.
(2) Silver chain (Purity 80 per cent.) weighing 2.35 kgs.
(3) Silver wire (Purity 80 per cent.) weighing 4 kgs.
(4) Silver scrap weighing 17 kgs.
In addition, machines used for manufacture of chains were also found. Cash of Rs. 5,715 was found from the residential as well from the business premises. As none of the brothers was present at the time when the searches were carried out, the statement of Smt. Satyawati w/o Shri Kamal Singh was recorded. On the basis of the statement, cash found was held to have been properly explained and no part of it was seized. Subsequently, statement of Shri Rakesh Singh could only be recorded as Prem Singh did not appear in response to the summons issued by the AO.
4. In response to the notice issued to Shri Kamal Singh to explain the source of acquisition of the silver and other articles as found in the premises, it was submitted that the same did not belong to him as his business consisted of manufacture of chains from gilt, copper and iron. Silver and silver chains in turn belong to Shri Rakesh Singh and Shri Prem Singh who had filed the returns for asst. yrs. 1983-84 to 1986-87 under the Amnesty Scheme. In the list of investment filed before the Department, Shri Kamal Singh did not own up any item of silver. So was the case in regard to the proceedings taken under s. 132(5) of the Act.
5. In his statement, on the other hand, Shri Rakesh Singh owned that in addition to the manufacture of silver chains, he also carried out work for his brother Shri Kamal Singh for which he was in receipt of remuneration. He also submitted that out of 30 machines, 6 or 7 belong to him and 7 or 8 to Shri Prem Singh. The remaining machines belong to Shri Kamal Singh. The income earned from the activity was stated to be Rs. 15,000 to Rs. 17,000 a year. While explaining the source of investment reference was made to the statement of affairs filed along with the return for asst. yr. 1986-87 wherein the investment in fine silver was declared at 15.214 kgs. and valued at Rs. 61,046 and further investment of Rs. 10,000 was shown as advance.
6. In the case of Shri Prem Singh the investment in silver ornaments as on 31st March, 1986, was stated to be to the extent of Rs. 50,175. According to him, after considering the fine metal silver contents the same was stated to have weighed at 13 kgs. He too drew attention to the advances made at Rs. 15,000 as reflected in the statement of affairs filed for asst. yr. 1986-87. In this manner they tried to explain the acquisition of silver found in the premises. As per the statements made, no addition was called for. Relying on these statements Shri Kamal Singh argued that no part of silver or silver chains belonged to him and as such the addition could not be made in his hands. He along with his brothers challenged the fine contents of silver in the silver scrap, silver chains as taken by the authorised officer during the course of searches. The AO rejecting the contentions of Shri Rakesh Singh and Shri Prem Singh held that the silver wires, silver, silver scrap and silver chains found in the work-shop-cum-residential premises belong to Shri Kamal Singh and the unexplained investment is to be brought to tax in his hands. He also rejected the assessees Explanationn in regard to the fine contents of silver in the stock as found in the premises at the time of searches. After having come to this conclusion he proceeded to make an addition of Rs. 2,08,923 on account of unexplained investment in silver wire, silver chains and silver scrap in the hands of Shri Kamal Singh. As the returns for asst. yr. 1988-89 were also filed by Shri Rakesh Singh and Shri Prem Singh the income in their hands were brought to tax on protective basis. In the case of Shri Kamal Singh the expenditure claimed in respect of salary paid to Shri Rakesh Singh and rent and supervision charges paid to Shri Ram Singh, the assessees father, was disallowed. Income from job receipts was also brought to tax on estimate basis. Another addition on account of unexplained deposits at Rs. 40,500 was also made. The learned CIT(A) after considering the facts held that no addition can be made in the hands of Shri Kamal Singh in the case of unexplained investment in the silver, silver-chains and silver scrap, etc. According to him the assessments on substantive basis have to be made in the hands of S/Shri Rakesh Singh and Prem Singh who admitted that the same belong to them and only in regard to the income from manufacture of chains from gilt and copper is to be assessed in the hands of Shri Kamal Singh. He, however, upheld the disallowance made in regard to the salary paid to Shri Rakesh Singh, brother of the assessed and rent and supervision charges paid to Shri Ram Singh, father of the assessee. As regards the purity of silver, no discussion was made in the order of the CIT(A). On the above facts, while the assessed Shri Kamal Singh, is in appeal against the disallowance of salary and supervision charges, the Revenue is in appeal against the relief allowed on various accounts by the learned CIT(A). In the case of S/Shri Rakesh Singh and Prem Singh the Revenue is agitated over the finding of the learned CIT(A) in regard to the relief allowed on account of unexplained investment and addition made in respect of business income.
7. The first common issue raised in these four appeals relates to the question as to whom the business in manufacture of silver and silver chains belong to. Whether to Shri Kamal Singh as held by the AO or to Shri Rakesh Singh and Shri Prem Singh as admitted by them.
In this regard the learned authorised representative has strongly relied on the admission by Shri Rakesh Singh in his statement as accompanied with the returns filed by him for asst. yrs. 1983-84 to 1986-87. The learned Departmental Representative pointing out certain discrepancies in the statement of Shri Rakesh Singh and that of the statement of affairs filed, argued that the entire business belongs to Shri Kamal Singh. Similar was the case in regard to Shri Prem Singh in whose case the learned authorised representative strongly relied on the returns filed for asst. yrs. 1983-84 to 1986-87. According to him in the face of the admission by two brothers, the AO committed an error in not accepting the same and holding that the entire business belonged to that of Shri Kamal Singh. As per the arguments advanced in the absence of any cogent evidence brought on record, the business income from silver is to be rightly examined in the case of two brothers, namely, S/Shri Prem Singh and Rakesh Singh and not Shri Kamal Singh. The stand of the learned Departmental Representative on the other hand, was that in her statement Smt. Satyawati w/o Shri Kamal Singh admitted that her husband did carry out business in manufacture of silver chains. The returns filed in the cases of two brothers namely, S/Shri Rakesh Singh and Prem Singh were under the Amnesty Scheme which were accepted. The AOs had no occasion to test the veracity of the statements made in the returns. It is only on discovery made during the course of searches carried on that it came to the notice of the Department that the business actually belongs to Shri Kamal Singh. Interlinked with this question was the investment stated to be assessable in the hands of three brothers. According to the learned authorised representative, in case the statement of affairs for asst. yr. 1986-87 in the hands of two brothers are taken into consideration, the entire stock found at the time of searches stand proved more so when the actual contents of fine metal in the silver is taken into consideration. The AO, argued the learned authorised representative put the purity of silver content at a higher figure than what was warranted. In support of his version reliance was placed on the order of Shri Ram Singh, father of the three brothers, wherein in similar circumstances content of silver was taken to be lesser than the one in the case of the three brothers. Combined with this in case the advances made by two brothers as reflected in the statement of affairs for asst. yr. 1986-87 are taken into consideration no addition whatsoever becomes maintainable in the case of three brothers. The learned Departmental Representative on the other hand, strongly argued that the fine content of silver in the articles as found was valued by the expert and as such it is difficult to accept the assessees version without there being any evidence to the contrary. The opinion of the expert deserves acceptance in the face of mere statement made by the assessed who is an interested party. The learned Departmental Representative argued that the entire business was carried on by Shri Kamal Singh which stands proved in view of the machines owned by him and the accompanying circumstances as pointed out by the AO.
8. We have carefully considered the rival submissions. We have also perused the material as brought on record specifically the ones to which our attention was drawn. Admittedly as per the version of Shri Rakesh Singh and Prem Singh the business in the manufacture of silver chains is carried on by them. This is further tried to be supported by the disclosure of silver in the balance-sheets filed for asst. yr. 1986-87 which has been reproduced by the AO in the assessment order of Shri Kamal Singh. In this context we find that in her statement Smt. Satyawati w/o Shri Kamal Singh did point out that her husband has been carrying on business in manufacture of silver and gilt chains. No such corroboration was made from Shri Kamal Singh. His statement on this count was not recorded by the AO. On the other hand, in his statement Shri Rakesh Singh clearly admitted that he has been carrying on business of manufacture of silver chains. Though the statement of Shri Prem Singh could not be recorded, the material on record in the form of balance sheet for asst. yr. 1986-87 show that he had silver ornaments to the tune of Rs. 50,172. This apart, the returns filed for asst. yrs. 1983-84 to 1986-87 in the cases of both the brothers namely, S/Shri Rakesh Singh and Prem Singh have been accepted by the AO. Even for the sake of argument if it is admitted that no enquiries were made in regard to the returns so filed by the two brothers it is undisputed that these returns have been filed prior to the searches conducted on their premises. As this was not sufficient, the assessments for asst. yrs. 1987-88 have been finalised in the cases of three brothers accepting their versions in regard to the nature of business carried on by them. In this context one cannot lose sight of the fact that while framing the assessments for asst. yr. 1987-88 the fact of searches being conducted in their premises was before the respective AOs. The assessments have also been framed under s. 143(3) of the Act. The basis for deviating from the finding from asst. yr. 1987-88 as is available in the order for asst. yr. 1988-89 is that in the balance sheet for asst. yrs. 1984-85 and 1985-86 no silver has been disclosed by S/Shri Rakesh Singh and Prem Singh. The manner in which the balance sheets have been drawn clearly show that these are otherwise not in accordance with the accounting norms. These are more or less statement of affairs made by S/Shri Rakesh Singh and Prem Singh. Though doubts can be raised on the way the accounts are made and the income returned, nonetheless this is not sufficient to hold that the entire stock of silver found in the house belonged to Shri Kamal Singh. Specifically so when he was not confronted with the conclusion as drawn on the material as was available before the AO. On the facts thereforee, the only conclusion which could be drawn was that the stock in silver belonged to two brothers namely, S/Shri Rakesh Singh and Prem Singh as admitted by them in their returns. At this juncture, we would like to make it clear that while arriving at this finding we are aware of the statement of Smt. Satyawati w/o Shri Kamal Singh, wherein she has stated that her husband carries on business in manufacture of silver and gilt chains. As stated earlier in the light of the material as discussed above the aforesaid fact may cast a doubt against Shri Kamal Singh but is not sufficient to lead to the conclusion that the business in manufacture of silver chains belong to Shri Kamal Singh. thereforee, we agree with the finding of the learned CIT(A) that the addition of Rs. 2,08,000 is not sustainable in his hands and has to be considered in the hands of two brothers namely, S/Shri Rakesh Singh and Prem Singh. This would dispose of first and second grounds of appeal raised by Revenue in the case of Shri Kamal Singh.
9. This would bring us to the relief allowed at Rs. 12,500 on account of addition made by the AO in regard to the cost of acquisition of the metals found in the premises and the source of acquisition thereof. The AO made the addition on the ground that the source of the articles namely, copper, gilt and iron rods was not considered in the hands of Shri Kamal Singh while framing assessment for asst. yr. 1987-88. The learned CIT(A) under the impression that the addition is linked with the wastage in silver articles, deleted the same as the ownership of the same was held to be that of Shri Rakesh Singh and Prem Singh. This is not borne out by the order of the AO as is evident from para 12 at page 6 of the order. The AO had made the addition at Rs. 12,500 on account of acquisition of metals such as copper, gilt and iron. According to him as the source of acquisition was not enquired into by the AO for asst. yr. 1987-88, the same has to be estimated and brought to tax. In this context, we find that as stated by the learned authorised representative and not rebutted by the learned Departmental Representative, the assessed has been assessed to tax since long. In absence of any material to hold that the articles found were in excess what was brought to tax in the earlier assessment years in our considered view the addition is not sustainable. Thus, we uphold the order of the learned CIT(A) but on different ground.
10. The fourth ground of appeal pertains to relief allowed on account of addition of Rs. 23,161 made on account of job receipts. The AO has discussed the issue in para 15 of the assessment order for asst. yr. 1988-89. As per the observations made therein, the assessed has declared total receipts of Rs. 96,839 on which gross profit was declared at Rs. 49,305 giving a rate of about 51 per cent. On examination of accounts it was found by the AO that in support of the version he had maintained only cash book and ledger. In regard to the expenses the assessed had issued his own vouchers. After taking into consideration that in the earlier assessment year the income was assessed on estimate basis the receipts were estimated at Rs. 1,20,000 and the addition of Rs. 23,161 was made. On these facts the assessees version was that as no material was brought on record to show that the job receipts shown were not correct no addition was called for. The learned Departmental Representative, on the other hand, strongly supported the order of the AO. The learned CIT(A) deleted the addition after holding that no discrepancy was found in the accounts.
11. On the facts, admittedly the expenses claimed by the assessed are not verifiable by way of independent evidence. Taking into consideration that only cash book and ledger have been maintained by the assessed we are of the considered view that the estimate resorted to by the AO was not incorrect. However, taking into consideration the extent of business, we would uphold the addition to the extent of Rs. 10,000 and allow a relief of Rs. 13,161.
12. The next ground of appeal pertains to relief allowed on account of addition of Rs. 40,500 made for unexplained deposits. The AO made the addition after noting the amount of Rs. 40,500 in the names of four parties namely, Shri Kachu Singh, Shri Gulzari, Shri Rati Ram and Shri Bahadur Singh. The addition was made on the ground that the assessed did not discharge his onus to prove the liabilities so claimed were genuine and hence no addition was called for on that account. In this context we find that the names of all the four creditors appeared in the balance sheets for asst. yrs. 1983-84 to 1987-88 as noted by the AO from the records of the assessee. No material has been brought to show that the amounts were raised from these parties in the year under consideration in which the same had to be enquired into. The enquiry if at all needs to be instituted in the year in which the credits appeared for the first time. In absence of any material to hold otherwise, the learned CIT(A) rightly deleted the addition made on this ground. thereforee, we would uphold his order on the issue.
13. This would bring us to the contentions raised by the assessed in his appeal for asst. yr. 1988-89. The first ground of appeal relates to the impurities of silver, wastage and overvaluation. Since this is connected with the silver articles which are held to be owned by two brothers namely, S/Shri Rakesh Singh and Prem Singh, we need offer no comments on this ground and dismiss it.
14. Coming to the disallowance of salary of Rs. 9,350 paid to Shri Rakesh Singh we find that there is no supporting evidence to the effect that Shri Rakesh Singh acted as an employee of his brother Shri Kamal Singh for which he was suitably remunerated. From the statement of Shri Rakesh Singh it was not shown that the odd jobs which he carried on behalf of his brother were as an employee. On the other hand, Shri Rakesh Singh had his own business for which he had engaged employees of his own. The copy of account as produced before us further show that no monthly remunerations were paid to Shri Rakesh Singh for the services rendered. In the circumstances, we are of the considered view that the addition was rightly sustained by the CIT(A) which we uphold.
15. The last ground raised by Shri Kamal Singh (assessee) relates to confirmation of disallowance of Rs. 24,000 paid in respect of hire charges of machinery and profession charges to his father, Shri Ram Singh. For asst. yr. 1988-89 the assessed claimed deduction of Rs. 24,000 as supervision and hire charges of machinery belonging to Shri Ram Singh, his father. The plea raised was that, as the year was that of raid, the assessed could not devote his full attention to the work for which he had to engage the services of his father who stopped doing his own business. For carrying on the activity the assessed also hired the machines belonging to his father for which as well supervision he was paid Rs. 24,000 as charges. The assessees version was not accepted by the AO on the ground that the assessed had sufficient machinery with him and he had been doing business since long. As he was capable of looking after his business there was no question of making payment to his father for supervision and hiring charges of machinery. The learned CIT(A) agreeing with the finding so given sustained the addition.
16. Before us it was submitted that as the proceedings under s. 132(5) of the Act were going on during the year under consideration, the assessed was preoccupied with the IT Department and as such could not devote his attention to his work. On the other hand, Shri Ram Singh whose premises were also raided stopped his business during the year. The assessee, thereforee, requested Shri Ram Singh to look after his work for which he had to be compensated. This apart, as the machines owned by Shri Ram Singh were also used by Shri Kamal Singh, the hire-charges for the same were paid. According to the learned authorised representative the facts as stated did not warrant the disallowance of deduction as claimed. The learned Departmental Representative on the other hand, supported the order of the learned CIT(A).
17. We have considered the rival submissions. We find that as admitted by Shri Rakesh Singh in his statement, out of 30 machines while 13 machines belonged to the two brothers namely, S/Shri Prem Singh and Rakesh Singh, remaining 17 were that of Shri Kamal Singh. While there is no material brought on record to show that the assessed hired the machines belonging to his father, the income returned for the year also does not support his assertion. In absence of any material on record to show that the extent of business carried on during the year under consideration required the hiring of more machines we are unable to agree with the contention of the learned authorised representative. In the circumstances, we would uphold the disallowance made in this respect by the AO and as confirmed by the learned CIT(A).
18. In the result, the Revenue appeal is partly allowed and the assessees appeal is dismissed.
19. Coming to the appeals filed by the Revenue in the cases of S/Shri Prem Singh and Rakesh Singh, we find that the common grounds have been raised. The first common ground relates to relief of Rs. 1,04,462 made on account of unexplained investment in silver, silver chains and silver scrap in the case of both the assessees. This is directly connected with the addition of Rs. 2,08,923 made in the hands of Shri Kamal Singh. While the addition on account of unexplained investment in silver stock was made on substantive basis in the hands of Shri Kamal Singh, half of the amount was added in the hands of the other two brothers, S/Shri Rakesh Singh and Prem Singh, on protective basis. The issue has been discussed in detail in para 9 hereinabove. We have already held that the addition if at all maintainable is to be made in the hands of S/Shri Rakesh Singh and Prem Singh.
Therefore, it is quantum of the addition as made which is to be discussed in the hands of the two brothers. The issue in question is whether both the parties had rendered sufficient evidence to explain the acquisition of stock as found in the premises during the course of searches. The articles discovered and seized have been mentioned while discussing the addition in the hands of Shri Kamal Singh, so we need not repeat. The issue in question pertains to the net weight of silver articles as found in the premises. In this regard we find that the value of silver wires in 17 bundles was taken at Rs. 1,41,023 by the approved valuer after holding the purity of silver at 66 per cent. and accounting for wastage at 3 per cent. The net weight as arrived at by the approved valuer was 41-050-000. The silver scrap and silver chains were not got valued and the contents of the silver in the same were taken by the AO at 80 per cent. in regard to the silver chains and 50 per cent. in regard to the silver scrap. The total value arrived at by him was as under :
Rs.
(1) 41.050 kgs. silver
1,41,023
(2) 17 kgs. silver scrap taking purity to the extent of 50 per cent.
42,500
(3) 4 kgs. silver wire (80 per cent. purity) & 2.350 kgs. of silver wire 2
5,400
Total addition
2,08,923
The assessees version, on the other hand, was that while in the case of silver wire weighing 41.050 kgs. the purity could not be more than 66 per cent., in case of silver scrap at 40 per cent. and in case of silver chains at 50 per cent. On this basis the net weight of silver worked out by the assessed in the written submissions was 36.975. The later was explained to be accounted for in the stock as reflected in the balance sheet of S/Shri Rakesh Singh and Prem Singh for asst. yr. 1986-87 and the advances made at Rs. 10,000 and Rs. 15,000 as reflected in the same balance sheets. This version of both the assessees was accepted by the learned CIT(A) and after taking into account the assessment made for asst. yr. 1987-88 at Rs. 30,000 each, no addition was held to be warranted in the case of either party.
20. On the facts as stated above, while the learned authorised representative heavily relied on the order of the learned CIT(A), the learned Departmental Representative on that of the AO. In this regard we find that except for the valuation of approved valuer in regard to the silver wire there is no other valuation report either furnished by the assessed or for that matter procured by the AO. In the circumstances it is very difficult to arrive at the purity of the silver contents in regard to the silver chains and the silver scrap. As regards silver wire, since the report of the approved valuer has not been rebutted by way of bringing any evidence by the assessee, we are unable to accept his plea on this count. Nonetheless the fact remains that for the other two items there is no conclusive evidence to support the estimate of either side. Taking into account the silver reflected in the balance sheet of both the assessees as well as the advances as made, we are of the considered view that the stock of entire silver has not been explained satisfactorily by the parties. In the circumstances, the full relief allowed by the learned CIT(A) was not in order. We would sustain an addition of Rs. 25,000 each to be made in the hands of both the parties and uphold the remaining relief as allowed by the learned CIT(A) at Rs. 79,461 and Rs. 79,462, respectively.
21. The second common contention raised relates to relief allowed on account of estimate of business income. From the material placed before us it is found that both the assessees filed returns for asst. yr. 1988-89 declaring income of Rs. 22,000. As explained in the written submissions, Shri Rakesh Singh estimated job income at Rs. 15,000 and Shri Prem Singh at Rs. 22,000. While Shri Rakesh Singh also included the salary income earned from Shri Kamal Singh, the return of Shri Prem Singh showed no such income. The AO estimated the job work income of Shri Rakesh Singh at Rs. 30,000 and that of Shri Prem Singh at Rs. 30,000. The learned CIT(A) confirmed an addition of Rs. 6,000 allowing a relief of Rs. 3,000 in the case of both the parties in regard to the job receipts. An addition of Rs. 6,000 on this account was confirmed. In view of the fact that no accounts were maintained by the parties relief allowed at Rs. 3,000 in the hands of both the parties is by no means unjustified or unreasonable. The Revenue wrongly mentioned the amount of Rs. 9,000 in the ground of appeal raised in both the cases. We would uphold the order of the learned CIT(A) on the issue in the cases of both the assessees and dismiss the appeals filed by the Revenue.
22. In the result, ITA Nos. 8419, 8422/Del/1991 and 5405/Del/1990 are partly allowed whereas assessees appeal in ITA No. 5899/Del/1990 is dismissed.