1. The appellant-assessee has filed appeal against the order of the AO dt. 30th Aug., 1996. Shri Kanchan Kaushal, and Mridul Agrawal, F.C.As.
and Yogesh Agarwal, advocate attended on behalf of the appellant-assesses, whereas Shri Ram Lal, Departmental Representative represented the Revenue.
2. In brief, the facts of the case are that a search and seizure under Section 132 was carried out in the group consisting of (i) Disinfecto Chemical Industries (P) Ltd., (ii) Disinfacto Chemical Industries, Prop. Smt. Padmawati Agrawal, wife of Shri B.K. Agrawal, (iii) Shri B.K. Agrawal, and (iv) Shri Karunesh Agrawal son of Shri B.K. Agrawal and Smt. Radhika Singhal wife of Shri Karunesh Agrawal. Shri B.K.Agrawal is working as chemist and also looking after the business affairs of M/s. Disinfacto Chemical Industries, Prop. Smt. Padmawati Agrawal, wife of Shri B.K. Agrawal. Shri Karunesh Agrawal is also getting salary, interest and commission from M/s. Disinfacto Chemical Industries. Smt. Radhika Singhal is enjoying income from house property and other sources. Shri B.K. Agrawal besides enjoying salary was also in receipt of commission, interest and rent from M/s. Disinfacto Chemical Industries. During the course of search, assets were found as detailed in assessment in para 3 and besides the same, the assessee was found to be owner of house property situated at 43, Cantt Road, While considering the income, the AO observed that remuneration for services rendered by an employee in terms of the contract of employment on percentage of turnover achieved, it partakes the character of salary.
In view of the provisions contained in Rule 2(h) of Part A of IVth Schedule to the Act. Therefore, the payment of commission was assessed as salary as has been done by the assessee himself for the earlier asst. yrs. 1993-94 and 1994-95. The assessee did not file return of income for the asst. yr. 1995-96 within due dates on account of search and seizure operations as the books of account and other details were in the possession of the Revenue but the AO determined the entire income for the asst. yr. 1995-96 under the head "Salary" and "Commission", the income from house property, capital gains and the income from other sources as undisclosed income of the assessee.
Therefore, the assessee has taken ground in appeal against the same.
Against this treatment, the objection of the learned counsel is that the assessee has been filing return of income and disclosing income under the head "Salary" and "Commission", house property and other sources, for which a reference was made to pp. 93 to 113 of the paper book containing computation of income for the asst. yr. 1991-92 and the assessment order of the AO under Section 143 of the IT Act and also the order of the CIT under Section 263 of the IT Act. In view of the same, counsel of the appellant-assessee contended that since the assessee had been filing regular return of income and disclosing therein the income enjoyed under the various heads, therefore, there is no question of considering the same as undisclosed income of the assessee for the asst, yr. 1995-96 merely because the return of income could not be filed on or before the due date, specially when the delay took place on account of the search and seizure operations as the books of account and relevant papers necessary for the preparation of return of income were taken away by the search party and it took time to obtain copres of details for computation of the taxable income for the purpose of filing of the return of income. The counsel for the assessee also referred to pp. 1 to 7 of the paper book indicating payment of advance-tax for the current year at Rs. 59,120 including tax deducted at source for the asst yr. 1995-96 and also indicating that Rs. 3,663 was paid as self-assessment tax and in view of the same, whether the income of the assessee under the head "Salary" Commission", income from house property, capital gains and income from other sources for the asst. yr. 1995-96 should be considered as undisclosed income. Income of the assessee from these various sources earned from M/s. Dismfacto Chemical Industries were well-known as the Department is regularly assessing the firm and during the course of assessment proceedings, these facts are well before the AO. Moreover, after paying advance tax including TDS and self-assessment tax, the income for the asst. yr.
1995-96 cannot be said to be escaping for the purpose of income-tax.
The counsel also submitted that the assessee being an employee of M/s.
Disinfacto Chemical Industries, the details of payments are being disclosed by the employer through reports under Section 44AB of the IT Act. Therefore, there is no question of not disclosing or not filing the return of income by the assessee, which could have resulted in escapement of income-tax. It was further submitted that before income could be assessed as undisclosed income under Section 158BC of the IT Act, it should first be covered by the provisions of Section 158B(b) which defines undisclosed income. Therefore, merely because the return was filed late it could not be said that the assessee could not have disclosed the said income. So far as the disclosure of income for the purpose of the Act is concerned this would also mean disclosure by the employer and the employer filed details as per paper book pp. 104 to 113 containing statements under Section 40A(2)(b) of the IT Act and these details were there for the asst. yrs. 1992-93 to 1996-97. Since the assessee was disclosing its income regularly, there is no question of hiding any fact regarding the same. Since the audit of the firm in which the assessee was employed, was not completed as per the provisions of Section 44AB of the IT Act, therefore, the figures of commission to be received from the firm could not be computed and subsequently all the books of accounts and documents were seized by the Department and copies of the same as soon as were made available to M/s. Disinfacto Chemical Industries, the figures of commission was finalised and the appellant-assessee also furnished the return of income. In support of his contention, reliance as placed in L.R. Gupta and Ors. v. UOI (1992) 194 JTR 32 (Del) at p. 59, Vidya Madanlal Malani v. Asstt. CIT (2000) 69 TTJ (Pune) 456 : (2000) 74 ITD 341 (Pune), Salvi Divakar Shankar v. Asstt. CIT (2000) 66 TTJ (Pune) 698 : (2000) 72 ITD 552 (Pune) and in view of the same, Shri Kanchan Kaushal reiterated that the income of the appellant-assessee cannot be treated as undisclosed.
3. On the other hand, Shri Ram Lal, Departmental Representative supported the order of the AO and argued that where a return has not been filed within due date, the taxable income has to be considered as undisclosed income within the meaning of Clause (c) of Section 158BB of the IT Act and the same has to be assessed as undisclosed income.
Therefore, the order of the AO deserves to be upheld.4. We have considered the rival submissions as well as the relevant details placed before us in the form of paper book. After going through the case laws as well as the scheme of the Act and the relevant papers before us, especially the evidence that the details of payments of salary and commission, etc. were not only available as per the record of the employer for the purpose of audit under Section 44AB of the IT Act, but also in view of the fact that the tax was deducted at source and the assessee also paid advance tax and even the balance amount was paid as self-assessment tax. Therefore, there could be no intention on the part of the assessee for hiding the same from IT Department. Under the facts and circumstances, and material particulars, as referred to above, the income of the assessee cannot be treated as undisclosed income. After consideration of the scheme of Chapter XIV-B of the IT Act, Section 158BA is a charging section and in case of conflict, this section will prevail over the sections indicated in Chapter XIV-B.Sub-section (i) of Section 158BA which empowers the AO to proceed to assess the undisclosed Income in accordance with the provisions of Chapter XIV-B. Section 154BB provides how to compute such income and Section 158B defines undisclosed income and if the income does not fall within the ambit of Section 158B then question of computation thereof does not arise in view of the provisions of Section 158BA, which prevails over the procedural provisions of Section 158BB. We are in agreement with the view taken by the Pune Bench of the Tribunal in the case of Prakash Foods Ltd. v. Dy. CIT (1998) 64 ITD 396 (Pune). This view was also supported by the decision of Delhi High Court reported in (1992) 194 ITR 32 (Del): 59 Taxman 305 and also by Mumbai Bench decision in the case of Sunder Agencies v. Dy. CIT (1997) 59 TTJ (Mumbai) 610 : (1997) 63 ITD 245 (Mumbai). The view of the Pune Bench regarding the disclosure that even disclosure by the employer for the purpose of Section 44AB is a disclosure. Moreover, the income of the assessee under these heads is being regularly assessed year after year and for the asst. yr. 1995-96, the assessee has also paid advance tax and TDS leaving a small portion of tax to be paid as self-assessment tax. Therefore, in such circumstances, it cannot be said that the assessee had not or could not have disclosed such income to the IT Department.
5. In our opinion and in view of the discussion made above in genuine case like this, wherein the income does not fall within the provisions of Section 158B, the same should not be brought to tax under Section 158BA even though covered under Section 158BB(c). As there cannot be any intention on the part of the assessee, not to disclose such income and pay tax thereon, specially when the payment of advance tax and TDS is there and only a small portion remained to be paid as self-assessment tax and the same has also been paid. Under the facts and circumstances, the assessee's income under the head 'Salary, commission, rent and other sources' or from the firm and also income from other sources and capital gains could not be said to be the income which the assessee would not have disclosed. Therefore, the AO is directed not to treat the income of the assessee under the head "Salary, commission, house property, capital gains and income from other sources" as undisclosed income and in directed to exclude the same from the block assessment.
6. The next issue in the appellant-assessee's appeal is regarding the addition of Rs. 5,12,400 being the assessment in the house property situated at 43, Cantt. Road, Lucknow, as unexplained investment for the asst. yrs. 1992-93 to 1995-96 of Rs. 1,28,100 for each year under consideration. The addition has been made by the AO on the basis of DVO's report regarding which Shri Kanchan Kaushal submitted that the land was purchased in 1967 for a sum of Rs. 25,000 and the building was constructed in the year 1970 and additions and renovations were carried out subsequently up to the year 1982 on which the expenses were incurred to the extent of Rs. 78,000. Neither there was evidence available during the course of search nor any information could be filed by the assessee, therefore, reference was made to the Valuation Officer to ascertain the period of additions and renovations and cost and investments, etc. and the DVO came to the conclusion that the period of construction is from 1992 to 1995, for which he estimated the cost of construction/additions at Rs. 5,12,400, which the AO has treated as undisclosed income of the assessee. The objection of Shri Kaushal regarding the same is that the DVO has not considered the replies and the objections as are available from pp. 12 to 91 of the paper book and these objections were also before the AO. Shri K.Kaushal drew specific attention towards the objection, dt. 18th July, 1996, for making available to the appellant-assessee any evidence or information on the basis of which reference to valuation was made. The assessee also filed affidavit and other documents and evidence running into 7 pages contending that there was no material on record on the basis of which reference could have been made under Section 131(1)(d) of the IT Act. The similar contention was raised before the AO for which reference as made to the reply dt. 26th July, 1996, and the specific mention that no addition or alterations were made during the period relevant for the block assessment, especially when there was no evidence or record in the form of seized material to show that the property was constructed or renovated within the ten years covered by the block period. In view of registered valuer's report, dt. 26th April, 1983, disclosing the additions and alterations made in 1982-83, which was before the DVO additions and alterations could not be considered excepting in 1982-83 unless there was a documentary evidence and other material to do so and in view of the same, the AO could not have considered the cost of additions and alterations arbitrarily estimated by the DVO, specially when the DVO has not taken into consideration the approved valuer's report, dt. 26th April, 1983, which accounts for additions and alterations in 1982-83 only specifically when the DVO has no material whatsoever on record--in the form of seized material or documents to show that the appellant-assessee incurred any expenditure on cost of construction (alterations and additions within four years from 1992 to 1995) and even to support the contention of the DVO, the AO has no material to support the cost of investment worked out arbitrarily in the absence of any documentary evidence. Therefore, the addition of Rs. 5,12,400 deserves to be deleted in view of decision of Allahabad Tribunal in V.V.S. Alloys Ltd. v. Asstt. CIT (2000) 68 TTJ (All) 516, CIT v. Roshan Lal Seth (1989) 178 ITR 660 (P&H), CIT v. Vinod Danchand Ghodawat, Pune Tribunal in the case of Vrishali Hotels (P) Ltd. v. Asstt. CIT (2000) 66 TTJ (Pune) 692 at 694 & 695 and Indore Construction (P) Ltd. v. Asstt. CIT (2000) 66 TTJ (Ind) 420 : (1999) 71 ITD 128 (Ind) at 150 & 151.
7. On the other hand, the Departmental Representative, Shri Ram Lal relied on the order of the AO and reiterated that in view of the expert DVO's report, addition of Rs. 5,12,400 is justified and calls for no interference.
8. We have considered the rival submissions and the relevant details and the case laws. Since the AO and the DVO has not referred to any seized material on the basis of which cost of construction regarding the addition and alteration could be corelated within the block period, therefore, the valuation report regarding the estimate of construction as adopted by the DVO and taken into consideration by the AO cannot be upheld, specially when the DVO and the AO has not properly considered the approved valuer's report, dt. 26th April, 1983, which only covers the construction pertaining to additions and alterations carried out upto 1982-83, which is beyond the block period. Therefore, the action of the DVO in estimating the cost of alteration and addition in the absence of documentary evidence and treatment thereof as undisclosed investment in the construction cannot be upheld. In view of various case laws relied upon as referred to above. Therefore, the addition which is based on the DVO's report and the AO who has not brought any material on record that the appellant-assessee incurred any expenditure during the block period addition of Rs. 5,12,400 as undisclosed investment cannot be justified within the meaning of Section 158BB of the IT Act. Therefore, we direct the deletion thereof.