Judgment:
These seven appeals filed by the assessees of the same group, are directed against the block assessments made by the assessing officer.
Since the facts and issues involved are identical, these appeals have been taken together and are being disposed of by a consolidated order for the sake of convenience.
The Tribunal vide its order dated 20-3-1998 while disposing of the stay petitions filed by these assessees had directed that the appeals would be fixed for out of turn hearing.
At the outset we note with pain and regret the shockingly outrageous conduct of Shri A.K. Singh, the learned Departmental Representative who represented the revenue before us. The appeals were taken up for hearing on 30-6-1999 and Shri R.N. Vepari, the learned counsel for the assessees who had come from outstation argued the matter for about an hour and when he was about to conclude his arguments, Shri Singh interrupted the proceedings to say that a short adjournment be allowed since the second paper-book filed by the learned counsel was not available in his records. Since the said paper-book merely contained the written submissions of the learned counsel, Shri Singh was asked to argue the matter in the light of the oral submissions made by the counsel and written submissions would be excluded. However, this did not satisfy the learned Departmental Representative and he requested for a short adjournment which was allowed by the Bench adjourning the appeals to 7-7-1999. On 7-7-1999 Shri Singh again came up with a request for adjournment. This time on the pretext that case records and appraisal report has not been received from the assessing officer. On his request being declined by the Bench Shri Singh was visibly annoyed and left the court in a huff. The matter did not end here. On 8-7-1999 Shri Singh filed two letters in succession with the Registry. In the first letter Shri Singh requested for short adjournment of one month and in the other letter Shri Singh has, in gross misrepresentation of the facts unfortunately made observations which are untrue. Shri Singh states : "Despite the request the Bench unilaterally heard the appeals and kept the appeal as part heard..........." As we have already observed there was no request for adjournment when the appeals were taken up on 30-6-1999 and the request was made only towards the concluding stage of the arguments of the learned counsel for the assessee. The Bench allowed a short adjournment as per request of the learned Departmental Representative. As indicated earlier, the Departmental Representative again came up with a request for adjournment on the next day of hearing citing an entirely different pretext, which was declined. We feel that Shri A.K. Singh has conducted himself in a manner which is highly unbecoming of a Government officer.
These seven assessees belong to, what the assessing officer has called, B.M. Group of cases, A few background facts which are relevant for adjudicating the issues involved in these appeals, may be indicated.
Search operations were conducted by the income-tax authorities on the business and residential premises of the members of the group on 16-11-1995, resulting in the seizure of documents and records as well as various unexplained assets like jewellery, cash, stocks, investments in immovable property, etc. were found. The main concerns of the group are partnership firms viz. M/s B.M. Silk Mills. M/s M. Rajendra & Co.
and M/s Akshay Fabrics. These firms are engaged in the business of manufacture of art silk, grey cloth in Surat. The partners in the above firms are three brothers, viz., Shri Bharat I, Jariwala, Mahesh I.Jariwala and Rajendra I. Jariwala and their family members. Each brother has 1/3rd controlling interest either directly or indirectly in the above firms. The constitutions of the three firms are as under : The minor children are the daughter and son of Shri Rajendra Ishwerlal Jariwala.
Smt. Bharatiben B. Jariwala having 35% share is the wife of Shri Bharatbhai I. Jariwala and the minors are the children of Mahesh I.Jariwala.
Apart from the above, all the three brothers and their father Shri Ishwarlal Khushaldas Jariwala have interest in the construction activity. They have constructed building known as Shreeram Market in the name of M/s. Bharat Enterprises.
During the search operations the three brothers and their father surrendered on 17-11-1995, concealed income under section 132(4) amounting to Rs. 75 lakhs as under : Unaccounted income admitted under section 132 (Rs. in lakhs) On 14-12-1995, while the authorised officers lifted the prohibitory orders under section 132(3) of the Act, the aforementioned members of the group filed a letter before the ADL, Surat giving the bifurcation of the disclosed amount of Rs. 75 lakhs, which is placed on pages 11 to 13 of the paper-book. The bifurcation of the disclosed amount have also been detailed in the assessment orders by the assessing officer. The disclosed amount of Rs. 75 lakhs was bifurcated as under : The amount withdrawn by the partners out of the unaccounted income of the firm, and invested, utilised by them as under.
Investment in jewellery in the case of Shri Maheshbhai group (203.50 gms).
The amount withdrawn by the partners out of the unaccounted income of the firm and invested, utilised by them as under : The assets in respect of income disclosed are in form of misc.
receivables/liquid assets, misc. investment etc.
The assets in respect of income disclosed are in form of withdrawals made and invested for purchase of jewellery etc.
While giving this bifurcation, the letter of the assessee contained the following observations : "Bifurcation given below is broadly outline and not exact as we have to go through voluminous seized materials. Moreover, books of accounts are also not with us. The bifurcation given below is subject to change after detailed verification with the books of accounts." The assessees of the group filed their returns of income disclosing the same amount of unaccounted income as indicated above and paid taxes thereon as under : Subsequently during the course of assessment proceedings the assessing officer pointed out certain discrepancies in respect of the figures of excessive stock disclosed by the group as well as investments made in the purchase of shops in the Shriram Market etc. Thereupon the assessees of the group filed a letter dated 18-10-1996, pointing out that the earlier disclosure has been made subject to verification with the books of accounts lying seized with the department and the final figure of disclosure was indicated in the letter at Rs. 75,39,027. The reconciliation of the disclosed amounts is contained in the letter dated 18-10-1996, placed at pp. 14 to 17 of the paper-book. In the revised disclosure filed on 18-10-1996, details of disclosed income in the cases of the seven assessees of the group have been given as under : The amount withdrawn by the partners out of the unaccounted income of the firm and invested, utilised by them as under : The amount withdrawn by the partners out of the unaccounted income of the firm and invested, utilised by them as under : The assets in respect of income disclosed are in form of withdrawals made and invested for purchase of jewellery, etc.
E. Shop at Sriram Market in the hands of Shri Bharatbhai, Maheshbhai, Rajendrabhai and Ishwarbhai The impugned block assessments have been made by the assessing officer broadly keeping in view the disclosure made by the group. The disputes which are being agitated in the present appeals mainly pertained to the grievance of the assessees that double additions have been made by the assessing officer in the cases of the three firms as well as the three partners involved in the present batch of appeals.
First we take up the grounds of appeal in the cases of the three firms, viz. B.M. Silk Mills. M. Rajendra & Co. and Akshay Fabrics and deal with the issue of double additions. In the identically worded grounds of appeal in the cases of the three firms it is stated that the assessing officer has made additions : (b) on account of further excess in stock when there was no such excess stock as per final bifurcation of the disclosure amount given during the assessment proceedings.
As per the revised disclosure vide assessees letter dated 18-10-1996, from the details reproduced herein before it would be seen that the disclosed income in the cases of the three assessee firms are as under: As against this the unaccounted income in the cases of the three firms earlier admitted during the course of the search on 17-11-1995, and the original disclosure on 14-12-1995, as indicated earlier are as under : The difference has arisen because of figures of unaccounted stock indicated by assessee in the revised disclosure as well as exclusion of one item of asset occurring in the original disclosure with the narration "miscellaneous receivables/liquid assets, miscellaneous assets, etc." In the revised disclosure this item has been omitted by the assessee on the ground that this item represented merely balancing figure in the original disclosure and does not represent any tangible assets found by the department. These are thus the only issues involved in the firms appeals which according to the assessee has resulted in double additions.
First we take up the excess stock declared by the three firms in the original disclosure as well as in the revised disclosure and the treatment accorded to the same in the impugned block assessment of the three firms.
Unaccounted stock : During the course of search operations, combined stock was inventorised by the search party in respect of the three firms viz. M/s B.M. Silk Mills. M. Rajendra & Co. and M/s Akshay Fabrics. It appears that consolidated inventorisation was undertaken in the absence of actual bifurcation of the stocks of the respective firms. Total stock found at the premises comprised : The search party then proceeded to work out the aggregate stock of the three concerns as per their books of accounts as under : Comparing the total consolidated stock of the three firms found at the business premises with the aggregate figure of stocks as reflected in the books of the concerns, the search party arrived at the following excessive stock : The above excess stock was surrendered in the hands of two firms as under : The above excess stock was offered for taxation by the two firms in their returns. Now at this stage it is relevant to mention that with regard to the third concern viz. M/s Akshay Fabrics no excess stock was allocated even though the said firm carried out its business at the same premises and its stock was also included in the total stock of yarn and cloth found at the premises. In the details of the original disclosure made on 14-12-1995, it would be seen that the third concern, M/s Akshay Fabrics disclosed an amount of Rs. 3,00,000 under the ad hoc category viz., misc. receivable/liquid assets, misc., investments etc.". Subsequently during the assessment proceedings the assessing officer observed that while working out the excess stock, the excess yarn has been valued at the rate of 190 per kg. whereas the average purchase price of yarn works out to Rs. 200 per kg. Similarly the assessing officer observed that the excess stock of cloth has not been correctly worked out and the total cloth found during search aggregates to 1,55,380 mtrs, whereas in the calculations adopted by the assessee the figure has been adopted at 1,40,226 mtrs. Thus the excess stock adopted by the assessee is at a lesser figure by 15,154 mtrs. On the basis of the workings made by the assessing officer, the total excess stock found during search has been valued at Rs. 51,55,037 as against Rs. 45,09,336 offered in the original disclosure. In so far as the figure of excess stock found during search in respect of the entire group is concerned, the figure of Rs. 51,55,037 as arrived at by the assessing officer during the assessment proceedings is not being disputed before the assessing officer by the three firms. However the representatives of the group reconciled the figures by filing a revised disclosure in which excess stock has been offered for taxation as under : The assessing officer however did not accept the allocation of the excess stock and proceeded to add the difference in the two disclosures on account of extra figures of excess stock by making the following additions : The assessing officer did not allocate any portion of the excess stock to M/s Akshay Fabrics on the ground that in the original disclosure no excess stock was disclosed in the hands of the said firm.
The learned counsel strongly assailed the approach of the assessing officer and argued that once the block assessments in the cases of the group have been made on the basis of disclosure made by the assessee and all unexplained assets like stock and jewellery, investments, etc.
as found during the search operations have been duly included in the disclosure of the group, the assessing officer is not justified in substituting his own estimated figures of disclosed income without citing any rationale basis in support thereof. The income-tax authorities during search have prepared a consolidated inventory of stock in respect of the three firms and the excess stock as worked out on the basis of the books of the three firms has been duly surrendered by the three firms in the original disclosure. The surrendered figure is Rs. 45,09,336 whereas subsequently on reworking of the stock the figure has been worked out at Rs. 51,55,037. According to the learned counsel there is no valid reason why no portion of the unaccounted stock is to be allocated to M/s Akshay Fabrics. The learned counsel submitted that in the original disclosure the balancing item of Rs. 3,00,000 in respect of Akshay Fabrics in fact represents the excess stock and should have been accepted by the assessing officer.
We have carefully considered the submissions of the learned counsel, and perused the orders of the assessing officer, in the cases of the firms. The papers and documents furnished in the compilation by the learned counsel for the assessee has also been perused by us. The dispute before us lies in a very narrow compass. The figure of excess stock Rs. 51,55,037 is not disputed by the revenue as well as by the counsel for the assessees. The excess stock has been found at the combined premises of the three firms of the group in fact the working of the excess stock has been made on the basis of the books of account of the three firms including M/s Akshay Fabrics. In the circumstances we see no valid reasons as to why the entire unaccounted stock has been allocated on an ad hoc basis by the assessing officer between the two firms M/s B.M. Silk Mills and M/s M. Rajendra & Co. only. We do not think that the revenue holds the position that stocks of M/s Akshay Fabrics are entirely accounted for and no portion of the stocks found at the combined premises is attributable to unaccounted stock of Akshay Fabrics. Any such view would be contrary to the realities and actualities of the situation. This is particularly so when a disclosure of Rs. 3 lakhs has been made by M/s Akshay Fabrics at the time of search and also while filing the original disclosure as well as revised disclosure by the representatives of the group. The amount of Rs. 3 lakhs disclosed by M/s Akshay Fabrics would in our opinion take care of the excess stock of M/s Akshay Fabrics found during the search as is being claimed by the firm. Merely because in the original disclosure the disclosure has been made on account of "miscellaneous receivable/liquid assets", etc. would not by itself justify the view of the assessing officer that no portion of the excess stock found at the combined premises would be attributable to Akshay Fabrics. The amount of Rs. 3,00,000 has been disclosed and the disclosure has been accepted by the department. Therefore, the apportionment of the excess stock found at the combined premises among the three firms, as per the revised disclosure made by the group vide letter dated 18-10-1996, is in our opinion fully justified.
The second issue pertains to the figures on account of miscellaneous assets included in the original disclosure. The stand of the assessees before the assessing officer has been that these were the balancing figures whereas the assessing officer has proceeded on the basis that these figures represent miscellaneous receivables as well as assets which have not come to the notice of the department during search operations and it is for the assessee to come up with the particulars of such assets.
The figures on account of miscellaneous receivables, liquid assets, etc. as appearing in the original disclosure of the three firms are as under : (details of disclosure as per para 6 above) The reasons given by the assessing officer for not excluding the aforesaid amounts from the disclosure of the group are as under : (1) The assessees have disclosed the miscellaneous assets, liquid assets only after verification i.e. after nearly one month from the date of search.
(2) The above retraction was made after 11 months from the date of search without any substance.
(3) The retraction was made only when the excess stock worth Rs. 6.4 lakhs was determined during the assessment proceedings.
(4) The assessee did not furnish the details of parties from whom the amounts are receivable.
Particulars of liquid assets included in the miscellaneous items have also not been furnished. Such miscellaneous assets have been admitted at the time of the first disclosure and no retraction can be allowed at a later date.
The learned counsel drew our attention to the observations made by the representatives of the group while filing the original disclosure of Rs. 75,00,000 vide letter dated 16-12-1995.
"Bifurcation given below is broadly outline and not exact as we have to go through voluminous seized materials. Moreover, books of accounts are also not with us. The bifurcation given below is subject to change after detailed verification with the books of accounts which are at present seized by the department." The learned counsel further submitted that since the books of accounts were lying with the income-tax authorities, the disclosure of Rs. 75,00,000 was made "subject to change after detailed verification with the books of accounts". Learned counsel further pointed out that no assets of the nature of unaccounted receivables or any other tangible assets have been found by the department during the search operations and no assets actually found exceeded over and above the figures disclosed by the group. These miscellaneous figures, according to the learned counsel represented the balancing figures so as to bring about the aggregate total of Rs. 75,00,000 for the group which had been earlier disclosed at the time of search operations on 16-11-1995. While filing the final disclosure these miscellaneous and ad hoc balancing figures have been excluded and reconciled figures have been adopted for making the final disclosure at the figure of Rs. 75,39,027.
We find substance in the contentions of the learned counsel. The reasons given by the assessing officer as reproduced above do not carry conviction during the course of search whatever assets, stocks, jewellery, investments, etc. were found by the income-tax authorities the same have been surrendered by the group while making the total disclosure of Rs. 75,00,000 which has been further modified to Rs. 75,39,027. In the original disclosure total tangible assets, investments, etc. are reflected of the value of Rs. 70,51,608 whereas a further sum of Rs. 4,48,391 has been added in the original disclosure as per the details given above for rounding up the disclosed figure to Rs. 75,00,000. We are unable to understand and appreciate the insistence of the AO, that even the ad hoc and miscellaneous amounts included in the original figure of disclosure for rounding up the amount to Rs. 75,00,000 is considered as representing the actual receivable amounts of the assessee. There is no evidence on record that any such receivables are owed by any party or that any such liquid asset or investment have been proved on the basis of the search operations conducted by the income-tax authorities. Merely because certain amounts were included in the disclosure for rounding up the disclosed amount to Rs. 75,00,000 would not by itself provide irrefutable evidence that such concealed assets or receivables aggregating to the amount of Rs. 4,48,391 exist which are liable to be included in the block assessment. In our opinion since the original disclosure was admittedly a provisional disclosure and the assessee had specifically indicated that the amounts disclosed were subject to verification from the books of accounts lying with the income-tax authorities, the ad hoc figures have been rightly excluded in the revised disclosure furnished on 18-10-1996.
Apart from the dispute with respect to the above mentioned miscellaneous items as well as the allocation of excess stock, the assessing officer has accepted other modifications made in the final disclosure as compared with the original disclosure. Thus, if we reconcile the original disclosure made on 16-12-1995 with the figures reflected in the final disclosure made on 18-10-1996 we find that the following modifications have been made : (1) Miscellaneous items of Rs. 4,48,391 have been excluded from the final disclosure. We have already discussed above the exclusion of these items.
(2) With regard to jewellery owned by various members of the group, the figures in the two disclosures show variations. There is a decrease in the value of unaccounted jewellery in the following cases : (3) An amount of Rs. 1,40,000 on account of shops has been disclosed further in the hands of Ishwarlal K. Jariwala.
(4) With regard to the excess stock in the final disclosure has shown an increase as under : Thus, the net effect of the above modification is that the total disclosure have increased from 75 lakhs to Rs. 75,39,027. The assessing officer disputed the exclusion of miscellaneous items of Rs. 4,48,391 which we have discussed above and held in favour of the assessee. With regard to all other modifications the assessing officer has raised no dispute except that with regard to the allocation of the excess stock which we have already discussed vide paras 10, 11 & 12 above. Thus if the adjustment made in the final disclosure are accepted as above, the unaccounted income in the cases of the three firms would be determined as under : We hold accordingly. This disposes of the three appeals in the cases of the three main concerns of the group viz. B.M. Silk Mills, M. Rajendra & Co-and Akshay Fabrics.
Appeals in the cases of the three partners viz. Mahesh I. Jariwala, Rajendra I. Jariwala and Bharat I. Jariwala.
In these three appeals of the partners a major dispute is against the double additions. The main grievance is that the additions made in the cases of the aforesaid three firms on account of unexplained assets found at the residence of the partners like jewellery, household assets, etc. have again been added back in the partners cases by invoking the provisions of section 28(iv) of the Income Tax Act, 1961.
There is no dispute that the unexplained assets like the jewellery and other household items like T.V. vedio, refrigerator, washing machine, etc. found at the residence of the partners have been acquired out of the undisclosed income of the firm and the same have been duly disclosed by these firms and taxes paid thereon. The assessing officer however again proceeded to include the value of these unexplained items in the hands of the partners on the ground that the partners are using the assets of the firm and value of the perquisites under section 28(iv) is liable to be included. On these basis additions have been made in the cases of the partners as under : The assessing officer has included the value of the aforesaid undisclosed assets again in the hands of the partners on the ground that these unexplained assets are owned by the firm but these were being used by the partners for their individual benefits. On these basis the assessing officer invoked the provisions of section 28(iv) and proceeded to make the additions again in the hands of the partners.
The assessing officer has placed reliance on the decision of Madhya Pradesh High Court in the case of V.P. Warrier v. CIT (1990) 181 ITR 303 (MP). The learned counsel, strongly assailed these additions and argued that double additions have been made first in the hands of the firm and then the same assets have been included in the partners cases by taking resort to section 28(iv). According to the learned counsel the assets belonged to the partners and have been acquired by the partners after making withdrawals from the firm out of the undisclosed income of the firm. The learned counsel further added that entries have actually been passed in the books of the firm crediting capital accounts of the partners with the share of undisclosed income of the firm and debiting the partners account by the withdrawals made by the respective partners for acquiring undisclosed assets. With regard to the Madhya Pradesh High Court decision relied upon by the assessing officer the learned counsel argued that the judgment related to a case where the assets were owned by the firm and the same were used by the partners for their personal purposes and a nominal amount on account of personal user was included in partners cases. The. learned counsel urged that the decision does not help the case of the department.
We have carefully considered the reasoning adopted by the assessing officer as well as the submissions made by the learned counsel before us. It is relevant to note here that in so far as the unexplained assets in question are concerned, there is no dispute that the value of these assets have already been included in the firms cases where the assessees are partners. The revenue seeks to include the unexplained assets again in the hands of the partners by taking recourse to section 28(iv). Explanation appended to section 158BB clearly provides that the undisclosed income of a firm shall not be chargeable to tax again in the hands of the partners. In the instant case the household assets have been found at the residential premises of the partners. These are being used by the partners. Merely because the firms in which these assessees are partners have surrendered the value of these assets for assessment purposes would not by itself prove that the assets are owned by the firms. It is to be noted that the assets include inter alia investments made by the partners in immovable properties. For example; investment of Rs. 2 lakh each have been made by the three partners for the immovable properties in Dumas. No attempt appears to have been made by the revenue to say that these immovable properties have been acquired in the name of the firm and they are owned by the firm. The firms have made disclosures of their unaccounted income and the partners have withdrawn these funds for acquiring assets for their personal use. Such assets cannot be brought to tax in the hands of the partners by including in the block assessments.
Regarding the invokation of the provisions of section 28(iv) we have no hesitation in holding that the withdrawals made by the partners from the firm for acquiring assets for their personal use does not constitute benefit or perquisite as envisaged under section 28(iv).
These assets or investments which are held by the partners like household valuables or Dumas property do not represent business assets of the assessee-firms. These are the assets of the partners and there is no question of applying section 28(iv). The decision in V.P.Werriers case cited supra by the assessing officer renders no assistance to the case of the revenue. In the said case a partner of the firm was using the residential premises, car and telephone belonging to the firm and a sum of Rs. 3,600 only was included in the income of the partner under section 28(iv). In the instant case the facts are entirely different inasmuch as the assets in question have been acquired after making withdrawals from the firm and belonged to the partners. In any case there is no justification whatsoever for the assessing officer to proceed to include the entire value of the assets on the basis of the slim thread of personal user by invoking section 28(iv). Section 28(iv) in our opinion does not apply. The double additions made in the cases of the aforesaid three partners are therefore deleted.
The addition of Rs. 11,657 made by the assessing officer in the case of the firm M/s M. Rajendra & Co. on account of unexplained jewellary.
This addition is disputed vide ground No. 6 in the case of M. Rajendra & Co.
The learned counsel did not press this ground and the same is, therefore, dismissed.
In the, cases of the three partners as above as well as their father Shri Ishwarlal K. Jariwala the assessing officer has made additions on account of low withdrawals for household expenses. The two partners viz. Shri Mahesh I. Jariwala and Rajendra I. Jariwala reside in the same house with their father Shri Ishwarlal K. Jariwala. The third brother Shri Bharat I. Jariwala resides independently in a separate house.
In the case of Bharat I. Jariwala the assessing officer has discussed the issue of inadequacy of household expenses at pp. 11 to 13 of the assessment order and brought out detailed facts in support of the conclusion that the household expenses shown by Shri Bharat Jariwala were inadequate. During the course of the statement of Smt. Bhartiben Jariwala, wife of the assessee recorded under section 132(4) she stated that her household expenses excluding expenses such as purchases of dal, oil, rice are Rs. 5,000 per month. The statement of the assessee was also recorded on the same day and he stated that his household expenses are of the order of Rs. 5,000 per month. The assessee furnished the yearwise expenses incurred for household purposes for the last three assessment years as under : The family of the assessee comprised of four members including one son and one daughter. His son Shri Nikhil is studying at Bangalore. His daughter is studying at Surat for B.E. computer engineering course.
Details of expenses incurred on education of the children were called for but the same were not furnished. Further details of expenditure such as electricity charges at the residence were not furnished. The assessing officer noted that the assessee has got a holiday rest house at Dumas and the same has been acquired along with his brothers out of undisclosed income. Further unaccounted investment in the construction of the residential property has been admitted at Rs. 5 lakhs. On the basis of these facts and also looking to the substantial amount of unaccounted investment and expenditure made by the assessee, the assessing officer proceeded to estimate the house hold expenses as under and made the additions aggregating to Rs. 1,13,000 in the block assessment Looking to the facts and circumstances the case the addition on account of household expenses made by the assessing officer appears to be fair and reasonable. No interference in the case of Shri Bharat I. Jariwala is in our opinion called for.
Now coming to the cases of other two brothers viz. S/Shri Mahesh and Rajendra, living jointly with their father Shri Ishwarlal Jariwala, the break-up of withdrawals made by each member and the estimates of household expenses made by the assessing officer are reflected in the following chart : The detailed facts with regard to the household expenses have been by the assessing officer in the respective assessment orders of the family members. The assessing officer has referred inter alia to the statements recorded under section 132(4) as well as the standard of living as reflected in the various unexplained household valuables found at the residence as also the investments made in the personal rest house at Dumas by the family members. The family of Rajendra I.Jariwala, Mahesh I. Jariwala and Ishwarlal Jariwala consisted of 12 persons as a whole. The children of Maheshbhai and Rajendrabhai are studying at various prestigeous educational institutions in Surat. The assessing officer accordingly made the estimates of household expenses as per col. 4 and made additions as per clause 5 in the chart reproduced above.
Having regard to the facts and circumstances of the case we feel that the household expenses shown by the various members of the family are inadequate. However, we feel that it would be fair and reasonable to estimate the household expenses in the cases of the two brothers and their father as under : (3) Shri Ishwarlal Jariwala : The household expenses shown at Rs. 53,000 for assessment year 1993-94 and Rs. 84,000 for assessment year 1995-96 appear to be reasonable whereas for assessment year 1994-95 the expenses shown at Rs. 24,000 are low and we would sustain the estimate of Rs. 60,000 as made by the assessing officer for this assessment year.
The additions on account of household expenses made in the cases of the four family members would accordingly be modified as directed above.
The assessing officer has made further additions of Rs. 6,700 and Rs. 20,000 in the cases of Shri Rajendrabhai and Ishwarlal respectively in respect of silver utensils found during search. Looking to the status of the family as well as the old family traditions, we feel that the silver utensils as found during the search cannot be treated as unexplained, These additions are accordingly deleted.
The next dispute pertains to the additions on account of unexplained cash made in the cases of Bharatbhai and Ishwarlal amounting to Rs. 14,750 and 13,408. From the residence of Shri Bharatbhai cash amount of Rs. 3,14,750 was found by the search party, out of which an amount of Rs. 3,00,000 was seized. M/s B.M. Silk Mills in which Shri Bharatbhai was a partner included the above-mentioned seized cash of Rs. 3,00,000 in the disclosure of the group. Regarding the balance of Rs. 14,750 it was stated by the assessee that it represents savings from the past withdrawals for household expenses and gifts from relatives on the occasions of various festivals. The explanation offered by the assessee appears to be fair and reasonable and, therefore, the addition of Rs. 14,750 made in the hands of Shri Bharatbhai is deleted. Similarly in the case of Shri Ishwarlal Jariwala total cash found during the search at the residence amounted to Rs. 1,88,408 out of which Rs. 1,75,000 was seized by the search party. The amount of Rs. 1,75,000 has been disclosed in the disclosure made in the case of B.M. Silk Mills towards undisclosed assets of the said firm. Regarding the balance amount of Rs. 13,408 a similar explanation as given in the case of Shri Bharat Jariwala above has given. The explanation that the amount represents the savings of the family out of household withdrawals as well as gifts on festivals etc. appears to be reasonable. The addition of Rs. 13,408 made in the case of Shri Ishwarlal Jariwala is therefore, deleted.
Two shops bearing Nos. 7 & 8 in the Sriram Market belonging to the members of the family were treated as unexplained. The value of these shops Rs. 1,40,000 has been disclosed by Shri Ishwarlal Jariwala in the revised disclosure of the group as reproduced vide para 6.1 above. The assessing officer however, has allocated the unexplained investment of Rs. 1,40,000 equally in the hands of the three brothers and their father and an addition of Rs. 35,000 in each case has been made. These additions were being disputed by the four assessees viz. Shri Maheshbhai, Rajendrabhai, Bharatbhai and their father Shri Ishwarlal.
This ground is not pressed by the learned counsel and the same is, therefore, dismissed in each case.
A sum of Rs. 7,27,125 has been added in the case of Shri Ishwarlal Jariwala on account of capital gains for introduction of land in partnership firm M/s Bharat Builders and organisers.
The facts in brief are that the assessee transferred his land to the partnership firm M/s Bharat Enterprises which has constructed and sold the shops known as Sriram Market, Ring Road, Surat. The land was transferred on 2-11-1986, relevant to the assessment year 1987-88. The assessee joined the said firm as a partner and his capital account has been credited by an amount of Rs. 25,56,420. The other partners, viz.
three sons, Shri Bharatbhai, Maheshbhai and Rajendrabhai each had debit balances in the books of the firm. The assessing officer noticed that the construction of shops under the project of Shriram Market was actually started on the land of the assessee even before he was inducted as a partner in the firm. According to the assessing officer the land has been transferred at the market price and no capital gain in respect of the transfer has been declared by the assessee in his personal assessment for assessment year 1987-88. The assessing officer therefore, computed the capital gain at Rs. 7,48,766 by invoking the provisions of section 45(2) of the Income Tax Act, 1961, and made the addition towards the undisclosed income in the block assessment.
The contentions made by the learned counsel before us in fact reiterate the points which were raised before the assessing officer during the assessment proceedings. The assessing officer has pressed into service the judgment of the Apex Court in McDowell & Co. v. CTO (1985) 154 ITR 148 (SC) and observed that the introduction of the land at market rate in the books of the firm is in fact a non-genuine devise resorted to with the purposes of evading capital gains.
The contentions raised by the learned counsel against the aforesaid addition may be briefly enumerated as under : (1) The issue of assessing the capital gain for assessment year 1987-88 does not spring from the seized material and documents during the course of search and therefore, the same cannot be added by way of undisclosed income. The learned counsel referred to the definition of undisclosed income contained in clause (b) of section 158B and argued that the issue of capital gain is beyond the purview of block assessment. In support of this contention reliance is placed on the various decisions of the Tribunal as under : (iii) R. Ramanathan v. Assistant Commissioner (1998) 65 ITD 108 (Mad-Trib); (v) T.S. Kumarasamy v. Assistant Commissioner (1998) 65 ITD 188 (Mad-Trib); Further reference is made to the decision of Delhi High Court in the case of L.R. Gupta & Ors. v. Union of India & Ors. (1992) 194 ITR 32 (Del).
(2) The learned counsel argued that M/s Bharat Enterprises. (in the name of M/s Bharat Builders & Organisers) is an existing assessee and assessments have been made from year to year including for assessment year 1987-88. The contention of the assessing officer that the firm is a non-genuine entity, therefore, cannot be sustained.
The learned counsel further submitted that the assessee has been assessed under the income-tax as well as the wealth-tax for various assessment years. For assessment year 1987-88 with the return of income filed by the assessee, full facts pertaining to transfer of land by way of capital contribution was duly disclosed before the income-tax authorities. The enclosed notes with the return read as under : "The assessee has contributed land at Begampura, in partnership M/s Bharat Builders & Organisers, for Rs. 25,56,420 as a capital contribution the capital gain tax liabilities in this case does not arise in view of judgment of Supreme Court in case of CIT v. Bai Shirinbai K. Kooka (1962) 46 ITR 86 (SC) and Kartikeya V. Sarabhai v.CIT (1982) 138 ITR 425 (Guj)".
On merits it is argued that in view of the judgment of Supreme Court in the case of Sunil Siddharthbhai v. CIT (1985) 156 ITR 509 (SC) no capital gain arose on the transfer of asset by the partner to the firm while joining the firm.
(3) section 45(3) specifically refers to the profits or gains arising from the transfer of capital asset by a person to a firm in which he becomes a partner. This section has been introduced with effect from 1-4-1988 and would therefore, not be applicable for assessment year 1987-88.
After careful consideration of the facts and circumstances of the case as well as the submissions made by the learned counsel as above we are inclined to delete the addition of Rs. 7,27,125 made in the case of Ishwarlal Jariwala. The issue of capital gains on the transfer of land by Shri Ishwarlal Jariwala to the firm M/s Bharat Enterprise was outside the purview of the definition of undisclosed income as contained in section 158B(b). The various decisions of the Tribunal relied upon by the learned counsel fully support the view taken by us here. We are therefore, fortified in our view by the decisions of the Delhi High Court in the case of L.R. Gupta v. Union of India (supra) and Gujarat High Court in the case of N.R. Paper & Board Ltd. & Ors. v.Deputy CIT (1998) 234 ITR 733 (Guj) Shri Ishwarlal Jariwala is an existing assessee and has filed the return for assessment year 1987-88 disclosing the facts regarding the transfer of land to the firm. Any capital gains liable to be assessed in his hands could possibly be the subject-matter of regular assessment as per the regular procedure laid down under the Income Tax Act. During the course of search operations no such materials have been found by the department from the residence of the assessee or the business premises etc. which may form the basis for assessing the capital gain by way of undisclosed income as per the provisions of section 158B(b). Therefore, on legal grounds the addition is liable to be deleted. Even on merits we find that the provisions of section 45(3) have been introduced with effect from 1-4-1988 and would not apply in the instant case for assessment year 1987-88. Any attempt to levy capital gains by invoking the provisions of section 45(2) would be negatived by the decision of Supreme Court in the case of Kartikeya v. Sarabhai v. CIT (supra) cited by the learned counsel.
In so far as the applicability of McDowell case is concerned the assessing officer has already made assessments in the case of M/s.
Bharat Enterprises in the status of registered firm and in the face of these assessments the assessing officer is not justified in treating the transaction of transfer of land to firm as a colourable transaction. Thus, even on merits no case has been made out by the revenue. In the circumstances we delete the addition of Rs. 7,27,125 in the case of Ishwarlal Jariwala.
One common ground in all the seven appeals related to denial of opportunity by the Commissioner while according approval to the block assessments. This ground however has not been pressed by the learned counsel and the same is, therefore, dismissed.
No other ground has been pressed by the learned counsel for the assessee. The Registry would send copy of this order to the CBDT and Chief Commissioner, Ahmedabad so as to appraise them of the facts contained in paras 3 above.
In the result, the seven appeals filed by the assessees are partly allowed as above.