1. These are the two appeals--one by the assessee pertaining to IT(SS)A No. 28/Jp/2003 against the order of the learned CIT(A) dt. 3rd Feb., 2003 for the block period 1st April, 1989 to 25th Feb., 2000 and the other by the Department pertaining to IT(SS)A No. 49/Jp/2003 for the block period 1st April, 1989 to 25th Feb., 2000 (asst. yr. 1990-91 to 2000-01 upto 25th Feb., 2000).
2. After hearing both the parties, we decide the appeals as under: IT(SS)A No. 28/Jp/2003 3. In this appeal first of all, we shall decide the following two grounds of the assessee.
1. On the facts and in the circumstances of the case, the learned CIT(A) erred in not declaring assessment order dt. 26th April, 2002 passed under Section 158BC of IT Act, as time barred by limitation.
It is contended that the Department issued only one warrant dt. 24th Feb., 2000, which was implemented on 25th Feb., 2000, therefore, the search should be deemed to be completed on 25th Feb., 2000, hence, assessment order made after two years from the last date of the authorisation, deserves to be declared as time-barred by limitation.
2. On the facts and in the circumstances of the case the learned CIT(A) erred in not declaring the order dt. 25th Feb., 2000 passed under Section 132(3) of IT Act as illegal and unwarranted more so when there was no practical difficulty in seizure of the documents and items on 25th Feb., 2000. It is contended that the order passed under Section 132(3) of IT Act, dt. 25th Feb., 2000 was against the spirit of law and only for other collateral purpose. Further, all the subsequent proceedings on the strength of PO order dt. 25th Feb., 2000 under Section 132(3) should be held illegal and void ab initio, thereby making the Panchnama drawn on 25th April, 2000 invalid and illegal.
4. The learned authorised representative submitted in this case that a search was conducted on 25th Feb., 2000. The Panchnama was also drawn on the same date. Prohibitory order was also dt. 25th Feb., 2000 (APBP-9). This prohibitory order was lifted on 25th April, 2000. When Panchnama was drawn and certain documents were seized and vehicles placed under prohibitory order had been released. The learned authorised representative submitted that the search party decided not to seize certain papers on the date of the search. The FDRs and certain loose documents were placed in the steel almirah, prohibitory order was issued under Section 132(3) of the IT Act in respect of the loose papers. The officers of investigation wing again visited the house of the assessee on 25th April, 2000. No fresh search was carried out but seizure of the loose papers and FDRs were made which were originally found on 25th Feb., 2000. The AO completed the block assessment on 26th April, 2000. The assessment was completed on 26th April, 2000 being more than two years after the completion of the search should be considered as barred by limitation. According to the authorised representative, the last of the authorisation was executed on 25th Feb., 2000. There was no authorisation for 25th April, 2000, therefore, proceedings of 25th April, 2000 cannot be said as proceedings under Section 132 of the IT Act. Therefore, the order dt. 26th April, 2000 deserves to be declared as time-barred by limitation and for this purpose the learned authorised representative placed reliance on the following case laws: (i) Kirloskar Investments & Finance Ltd. v. Asstt. CIT (1998) 67 ITD 504 (Bang) : In this case, the assessee was searched on 30th March, 1996. There was seizure of documents on 30th March, 1996 coupled with PO order under Section 132(3). On 21st May, 1996 the search party seized 22 files, which were covered by PO order issued on 30th March, 1996. The search concluded on 29th May, 1996. The AO completed the assessment on 30th May, 1997 on the strength of last authorisation on 29th May, 1996. Hon'ble Tribunal Bangalore Bench held that the block assessment framed on 30th May, 1997 is barred by limitation. Hon'ble Tribunal held that search comes to end when search party leaves premises after carrying with them seized material, and thus authorisation of search is fully implemented upon and execution is complete. Held that the last of authorisations in instant case having been executed on 30th March, 1996 not on 29th May, 1996.
(ii) Late Ananta N. Naik through LR v. Dy. CIT (2000) 66 ITJ (Pune) 533: Held that the search proceedings could not be kept continuous by passing order under Section 132(3). The final revocation order dt. 13th Dec., 1996 is wholly irrelevant for the purpose of limitation under Section 158BE. (iii) CIT v. Mrs. Sandhya P. Naik (2002) 253 ITR 534 (Bom). Bombay High Court has held that action under Section 132(3) can be resorted to, only if there is any practical difficulty in seizing the item, which is liable to be seized. When there is no such practical difficulty the officer is left with no alternative but to seize them. By passing a restraint order, the time-limit for framing of the order cannot be extended.
(iv) B.K. Nowalkha and Ors. v. Union of India and Ors. (1992) 192 ITR 436 (Del): Held that provision of Section 132(3) can be resorted to only when there was any practical difficulty in seizing the item which was liable to be seized. The Hon'ble High Court further held that there was no practical difficulty then the authorised officer has jurisdiction and duty to seize books of account, other documents, money, bullion, valuable articles found as a result of search.
(v) Dr. C. Balakrishna Nayar and Anr. v. CIT and Anr. (1999) 237 ITR 70 (Ker): Held that power under Section 132(3) can be exercised only if it is not practical to seize documents and articles. Further held that search cannot be prolonged without justification.
5. The learned Departmental Representative placed reliance on Expln. 2 under Section 158BE of the IT Act and also on the prohibitory order dt.
24th Feb., 2000 (Pb. 9). The learned Departmental Representative further submitted that the search was finally concluded on 25th April, 2000 when prohibitory order was lifted and panchnama was drawn (PB 12).
6. We have heard the rival submissions and perused the materials available on record as well as the provisions of law on this issue.
7. First of all, we shall deal with the case laws relied upon by the learned authorised representative in the case of CIT v. Mrs. Sandhya P.Naik, Late Ananta N. Naik through LR v. Dy. CTT, B.K. Nowalkha and Ors.
v. Union of India and Ors. and C. Balakrishna Nayar v. CIT and Anr.
(supra). In these cases it was held that prohibitory order under Section 132(3) can be issued where it is not practicable to seize the documents..... or other valuable article or thing. The learned authorised representative also relied upon the case of Kirloskar Investments & Finance Ltd v. Asstt. CIT (supra). The facts of this case is that the search under Section 132 was conducted on 25th Feb., 2000 and the AO had visited the house of the assessee on 8th April, 1996, 12th April, 1996 and 21st May, 1996. At p. 544 at para 57 in the case of Kirloskar Investments & Finance Ltd. v. Asstt. CIT (Bang) it was observed that the officials who visited the premises on various dates after gaps and after their repeated action of lifting and re-imposing of the restraining order did not feel any necessity for seizing of any files except on 21st May, 1996. It is, therefore, clear that the officials when they visited on 8th April, 1996, 12th April, 1996 till 21st May, 1996 were carrying out examination of the records that remained at the premises all the time and besides there was no difficulty in seizing the documents. We find the facts of this case are distinguishable from the facts of the appellant. In the case of the appellant the search was conducted on 25th Feb., 2000 and the prohibitory order was also imposed on the same date. From the perusal of the list of the items mentioned in prohibitory order under Section 132(3), it is evident that it was not practicable to seize the vehicles documents of which required verification on subsequent dates, Therefore, the prohibitory order had rightly been issued as there was practical difficulty before the AO and subsequently the prohibitory order was lifted by drawing last panchnama on 25th April, 2000. It is also pertinent to mention that prohibitory order was lifted in respect of vehicles and incriminating documents were seized by the authorised officer PB 13. Thus, the limitation will be considered from the date of last panchnama drawn i.e. on 25th April, 2000. Therefore, we conclude that the learned CIT(A) had rightly held that the completion of assessment was not barred by limitation as per Expln. 2 under Section 158BE of the Act. Our views are fortified by the judgment in the case of C. Ramaiah Reddy v. Asstt. CIT (2003) 81 TTJ (Bang)(SB) 1044 : (2003) 87 ITD 439 (Bang)(SB) whereby it was held that the Tribunal had no jurisdiction to adjudicate upon the validity of prohibitory order issued under Section 132(3) and the limitation is to be counted from the date of last Panchnama drawn irrespective of the fact whether any seizure was made or not. Therefore, we decline to interfere with the order of the learned CIT(A).
8. Ground No. 3 : Levy of surcharge @ 10 per cent on tax on undisclosed income: (a) There is special procedure for the assessment of search cases, The Chapter XIV-B of IT Act deals with the said special procedure.
Tax on undisclosed income should be computed in accordance with the provisions of Section 158BA(2) r/w Section 113 of IT Act. The Section 113 of the Act mandates that tax on undisclosed income should be charged at flat rate of 60 per cent. An amendment in this charging Section 113 was made through Finance Act, 2002. However, this amendment was made applicable w.e.f. 1st June, 2002. In the case of the assessee the Department has carried out the search on 25th Feb., 2000, therefore, this amendment is not applicable for the assessee. The amendment in Section 113 is not clarificatory.
Therefore, it cannot be put into operation with retrospective effect. Reliance is placed on following decisions: Apex Court's decision in the case of CIT v. Poddar Cement Ltd. (1997) 226 ITR 525 (SC). Kolkata Bench in the case of Jai Mica Supply Co. (P) Ltd. v. Asstt. CIT (2003) 79 TTJ (Cal) (TM) 953 : (2003) 86 ITD 93 (Cal) (TM). Several amendments in provisions relating to the block assessment were enacted through the Finance Act, 2002 and most of them were made applicable retrospectively. But amendment in Section 113 was not made applicable retrospectively, which shows the intention of the lawmakers. Therefore, this amendment cannot be applied for the searches held prior to 1st June, 2002 and surcharge cannot be levied in respect of the block assessments made for the searches completed before 1st June, 2002.
(c) The CBDT has issued Circular No. 8 of 2002, dt. 27th Aug., 2002 which is Explanatory Notes on provisions relating to direct taxes, Para No. 62.4 of the circular is in respect of amendment in Section 113 for levy of surcharge on block assessment tax and as per para 62.6 of the circular this amendment is applicable w.e.f. 1st June, 2002. This circular also supports that surcharge cannot be levied in respect of the block assessments made for the searches completed before 1st June, 2002. [See (2002) 258 ITR (St) 61].
(d) Further, rates prescribed in the Finance Acts are not applicable for the cases of searches held before 1st June, 2002. The rates given in particular Finance Act is applicable only to a particular assessment year not for the block period. This is clearly mentioned in Section 2 of the Finance Act. The part I of the First Schedule of Finance Act, 2000 prescribes the levy of surcharge at 10 per cent on income-tax computed in accordance with Section 113. But this First Schedule is subject to Section 2 of Finance Act, 2000. Section 2 of the Finance Act provides that the rates specified in Part I of the First Schedule are applicable for the assessment year commencing from 1st April, 2000. Therefore the rates specified in Part I of the First Schedule are not applicable for the block period. Block assessments comprise of 10 different assessment years and there being different rate of surcharge in different years and in most of the years comprised in the block period, there was no surcharge.
(e) It is also clear from cursory look over Section 4 of IT Act, that the rates prescribed in Finance Act is applicable only for the total income of previous year. In the search cases, tax is charged on undisclosed income for the block period--not on total income of previous year. The rates prescribed in the Finance Act cannot be extended for the undisclosed income of the block period. There is special procedure for the assessment of search cases. The Chapter XIV-B of IT Act deals with the said special procedure. Tax on undisclosed income should be computed in accordance with the provisions of Section 158BA(2) r/w Section 113 of IT Act. The Section 113 of the Act mandates that tax on undisclosed income should be charged at flat rate of 60 per cent. There is no reference in these sections to compute the tax on undisclosed income in accordance with the rates given in Finance Act. The charging section for the block assessment is 158BA(2), which does not speak anything about the rates prescribed in Central Act, Therefore, the rates prescribed in Finance Act are not applicable for the special assessment of the search cases.
The learned Departmental Representative relied on the order of the learned CIT(A) and contended that the surcharge had rightly been charged by the AO and no relief should be allowed to the assessee.
9. We have considered the rival submissions. We find that proviso to Section 113 had been inserted w.e.f. 1st June, 2002 for levying surcharge on undisclosed income. Prior to this date, no surcharge is leviable in view of proviso to Section 113 of the Act. The proviso of Section 113 is not clarificatory since it has increased the tax liability of the assessee. It cannot, therefore, have retrospective operation. This Bench of the Tribunal in the case of Mantri Katta & Co.
in IT(SS)A No. 23/Jp/2003, dt. 17th Oct., 2003, held that amendment in Section 113 is not applicable retrospectively. Therefore, no surcharge is leviable where search was carried out prior to 1st June, 2002. In this case, search was conducted on 25th Feb., 2000. Therefore, having regard to the submission of the learned authorised representative and the decision of this Bench in the case of Mantri Katta & Co. (supra), we hold that the surcharge is not leviable. Hence, we set aside both the orders of the lower authorities and direct the AO not to levy surcharge in this case.
10. Ground No: 4 : Determining Rs. 1,31,900 as undisclosed income of the assessee for the asst. yr. 2000-01 on account of interest income on loan for which the assessee has filed regular return: The learned AO held that the assessee would not have filed the return of income for asst. yr. 2000-2001 but for the search. Hence, the income for this assessment year was treated as undisclosed income notwithstanding the fact that regular return has been filed after the search.
11. The learned CIT(A) held that as per provisions of Section 158BB(1)(d) only such income is to be excluded from the income of the block period which is worked out of the transactions recorded in the books of account and other documents maintained in the normal course before search Memoranda diaries and other loose papers found by search party are not books of account and other documents maintained by the assessee in regular course of the business, hence benefit of Section 158BB(1)(d) is not of avail for the assessee.
12. The learned authorised representative made the following submissions; (a) The Department carried out search over the assessee on 25th Feb., 2000. The accounting year for the asst. yr. 2000-2001 was not completed as on the date of search. The return for asst. yr.
2000-2001 has not become due as on the date of search. It is an admitted fact that the assessee has filed regular return for this assessment year, which was on the record of the learned AO at the time of framing of the block assessment.
(b) The learned AO has presumed that the assessee would not have filed the return of income for asst. yr. 2000-2001 also but for the search. The learned AO has no material or evidence or basis to, presume that the assessee would not have filed return of income for asst. yr. 2000-2001.
(c) It is an admitted fact that the assessee has filed regular return for the asst. yr. 2000-2001, which the same AO has accepted it.
(d) The assessee was maintaining the records of vehicle transactions in the diary, of course, in a very crude and rough manner. The assessee was maintaining these diaries since long. Therefore, the diaries were maintained by the assessee in regular course of business. Thus, the assessee is covered by benefit of Section 158BB(1)(d).
13. The learned Departmental Representative relied upon the orders of the lower authorities.
14. We have considered the rival submissions and relevant provisions of law. In this connection, we shall rely on the case of CIT v. Nitin Munje wherein it was held that where date of filing of return under Section 139(1) had not expired till the time of search, the Tribunal's order holding that impugned income was not undisclosed income for the block period was valid. Similar was the decision in the case of Rajendra Kumar Kedia v. Dy. CIT 22 Tax World 506 (Jp). Therefore, we direct the AO to exclude the income for asst. yr. 2000-2001 from the undisclosed income of the block period.
15. Ground No. 5 is regarding admission of additional ground which is not being pressed by the learned authorised representative of the assessee. The same is hereby dismissed as not having been pressed.
17. Now we shall take up the Departmental appeal relating to ITSSA No.49/JP/2003.
18. Ground No. 1 : Deletion of Rs. 3,20,000 on account of opening cash in hand : The AO accepted the opening cash at Rs. 31,000 as against opening cash balance of Rs. 3.51 lakhs claimed by the assessee and treated balance Rs. 3.20 lakhs as undisclosed income of the assessee for the asst. yr. 1990-91 by holding that: (a) No evidence has been furnished that the sale of vehicle in February and March, 1989 were against own vehicle and not on brokerage basis; (b) The person showing paltry income quite hardly to imagine to have cash of Rs. 3,51,000. Even after 10 years when the search took place only a sum of Rs. 58,660 was found from the bed room of assessee's son, therefore, the assessee cannot possess such a huge cash Rs. 3,51,000 as opening cash.
19. The CIT(A) discussed this issue in para 12 and 13 at p. 5 and 6 of this order. It was observed by him that it is nowhere denied by the AO that the (sic) in the purchase and sale and other transactions in respect of vehicles before the block period. The sale of vehicles yielding sale proceed of Rs. 4,06,400 details of which have been given in Annex. A-16 have also not been disputed. The possession with the assessee measuring to 48 bighas and the income arising out of agricultural operation has been accepted by the AO in the subsequent assessment years. On the basis of these facts, the availability of cash or investment in the form of debtors etc. as on 31st March, 1989 cannot be ruled out. The availability of Rs. 3.51 lakhs as on 1st April, 1989 is an estimation by the assessee but full justification has been given and the claim is established from the seized records indicating availability of the sale proceeds of the vehicle in March, 1989 and in April, 1989 from the debtors. Therefore, the addition of Rs. 3.20 lakhs made by the AO was deleted by the learned CIT(A) for the reasons mentioned above.
20. The learned Departmental Representative relied upon the order of the AO and in the grounds of appeal, it was contested that assessee's land holding was 43 bighas only and not 48 bighas as on 1st April, 1989. The learned CIT(A) committed an error in ignoring a material fact that the assessee was involved in the sale of vehicle by and large on commission basis and only commission was earned and as such large cash was found at the assessee's residence at the time of search after a period of 10 years. So, there was no basis for accepting . availability of cash at Rs. 3.51 lakhs and the AO had rightly accepted a sum of Rs. 31,000 only as cash available on 1st April, 1989.
21. The learned authorised representative made the following submissions: (a) The learned CIT(A) has rightly deleted the addition considering the detailed submission based on the seized documents and agricultural income (PB p. A-5 to A-8).
(b) The CIT(A) has not erred in holding that the assessee holds agricultural land 48 bighas as on 1st April, 1989. The Department has wrongly mentioned in grounds of appeal that the assessee's land holding was 43 bighas and not 48 bighas. The land holding of the assessee can even be seen from the report of Commission appointed under Section 131(1)(d), besides the papers filed before the learned AO. The land holding of the assessee was as under as on 1st April, 1989.
From the above chart, it is apparent that there is no mistake in the order of CIT(A) as regard his finding for agricultural land holding of the assessee 48 bigha.
(c) It is admitted fact that the assessee is in the business of vehicle transaction much before the block period. It is also undisputed fact that the seized records show the realisation of sale proceedings of Rs. 2,76,200 in March, 1989 and February, 1989, and outstanding debtors of Rs. 1,30,200 as on 1st April, 1989.
(d) The assessee received cash of Rs. 2,76,200 in February, 1989 and March, 1989 against the vehicles transacted during the same period.
Besides Rs. 2,76,200 further, he received Rs. 1,30,200 in April, 1989 against these vehicles--transacted in the year 1988-89.
Therefore, total funds of Rs. 4,06,400 in the shape of cash and debtors were available to the assessee at the time of commencement of the block period.
(e) The learned AO held that these sales can't be considered as the "sales against own vehicle" as there is no evidence on these papers.
It is admitted fact that no regular books of accounts have been kept by the assessee in respect of vehicle dealing and brokerage.
Memorandum books have been kept in the shape of diaries, such as Annex. A-16, where sales of vehicle have been noted for various years in very crude and rough manner.
(f) The learned AO at p. 22-23 of his order has mentioned that the diary A-16 contains details of trading sales of own vehicles as there was hardly any mention of brokerage. As per the own version of the AO, the sales of vehicle recorded in A-16, should be considered as sales against owned vehicle since brokerage is not mentioned on the seized diary. Therefore the realisation against the vehicles in the last month February, 1989, March, 1989 recorded in A-16 should also be taken as realisation of sale proceeds against owned vehicles. The AO should not be permitted to blow hot and cold in the same stream. 'Head I win' and 'tail you loose', approach is alien to the principle of justice. The doctrine of 'approbate and reprobate' as borrowed in our jurisprudence from the Scotch Law gives strength to this basic rule. There cannot be approval and rejection in the same stream. To attempt to take advantage of one para and to reject the rest is against the fine norms of jurisprudence.
(g) The seized records reflect the purchases of vehicles of Rs. 8,60,287 on different dates in financial year 1988-89, the details of which is given at PB p. 174. When there is purchases of vehicles, it cannot be presumed that the sales are against brokerage vehicles.
(h) Besides this, the assessee has agriculture income since very long. As on 1st April, 1989; he held 48 bighas agriculture land. The opening cash balance is also represented by the sale proceeds of rabi crop. The crop of rabi comes in February-March and the assessee realised the sale proceeds of rabi crop.
(i) The learned AO held that the assessee couldn't possess such huge amount of cash as the Department found cash only a sum of Rs. 58,660 when the search took place. This finding of the learned AO is not in right perspective and without looking into the investments made by the assessee in the last two-three years and amount expended in three marriages during the block period. The assessee made investment in construction of house Rs. 7,25,000 in financial year 1999-2000, Rs. 2,90,000 in financial year 1998-99 and Rs. 3,60,000 in financial year 1997-98, totalling to Rs. 18,70,000 besides other investments in loans and expenses in marriages.
(j) From the cash balance found by the search party, it can't be visualised that the assessee couldn't have cash at the opening of the block period. The AO himself has accepted the huge opening cash balance shown in cash flow statement during the financial years 1990-91 to 1998-99, which was as under: The cash flow statement of the assessee is placed at paper book pp.
128-130. In most of the years comprising in the block period the assessee had huge cash balances as opening cash balance except in the year 1999-2000. This shows that, generally the assessee has huge cash balance in March-April because of the sale proceeds of agricultural products in March-April. The opening balance in financial year 1999-2000 was only Rs. 91,186 reason being huge investment in the financial year 1998-99, being Rs. 5,00,000 as loan and Rs. 2,90,000 in house construction.
(k) Without prejudice to above, it is submitted that the opening cash in hand cannot be taken as income of the block period as opening cash means closing cash balance as on 31st March, 1989, which is out of preview of block period. It is submitted that the learned AO has determined income and investment/ expenses, specifically in respect of each issue. He must have recast the cash flow statement on the basis of the assessed income and investment/expenses and shortfall if any, against the investment/expenses in subsequent assessment years could only be taxed as unexplained investment/expenses.
22. We heard the rival submissions. We find that the learned CIT(A) has given detailed reasons in deleting this addition as discussed above in his order. We also agree with the contention of the learned authorised representative that the finding of the AO is not in right perspective.
Adequate cash was not found during the course of search as the assessee had made investment in construction of house and also incurred expenses in marriages. So, this cannot be the reason for not accepting the opening cash balance. As regards the measurement of agricultural land at 48 bhigha, this fact is evident from the record filed before us and also from the submissions of the learned authorised representative as has been reproduced in this order. The sale of vehicles yielding sale proceed of Rs. 4,06,400 as per details given in Annex. A-16 had also not been disputed and the assessee was dealing in purchase and sale and other transactions in respect of vehicle before the block period. The possession of agricultural land at 48 bhigha and the income arising out of it had also not been disputed by the AO. The AO himself had accepted the opening cash balance in cash flow statement during the financial years 1990-91 to 1998-99. We also agree with the view of the learned authorised representative that the opening cash in hand cannot be taken as income of the block period as opening cash means closing of cash balance as on 31st March, 1998 which is out of the purview of the block period. Thus, the order of the learned CIT(A) is not lacnonic in any manner. Therefore, we decline to interfere in his order.
23. Ground No. 2 : Deletion of Rs. 7,65,000 by accepting agriculture income at Rs. 33,04,000 against Rs. 25,39,000 taken by AO: The AO had discussed this issue at pp. 10 to 12 in paras 20 to 21 of the assessment order. The assessee claimed the agricultural income at Rs. 33,04,000 for the block period (PB p. 128) against which the learned AO estimated agricultural income at Rs. 25,39,000. He disallowed Rs. 7,65,000 out of agricultural income declared by the assessee and determined the said disallowance as undisclosed income of the assessee for the previous assessment year comprising the block period.
24. The learned CIT(A) had discussed this issue at pp. 8 and 9 of his order. Considering the report of two inspectors, who made the detailed inquiry separately as regard agricultural income of the assessee, and computation chart of agricultural income submitted by assessee before AO, which is based on Girdawari Report, production figures certified by Agricultural Officer and prevailing market rate, the learned CIT(A) accepted the agricultural income shown by the assessee by holding that the computation made by AO is mere estimate without any basis and AO was not able to point out any mistake in the computation made by assessee.
25. The learned Departmental Representative relied upon the order of the AO.26. The learned authorised representative made the following submissions.
(a) The finding of CIT(A) is based on detailed submission made by the assessee (PB p. A-10 to A-15).
(b) The learned AO estimated the agriculture income at very lower side. The learned AO has not considered all the important facts and information gathered by the two different inspectors in the spot inquiries conducted by them in respect of agriculture income. The copy of the report is placed at paper book pp. 222-244.
(c) The inspector Shri P. Singh conducted the spot inquiries and his report dt. 16th April, 2002 is placed at paper book pp. 222 to 227.
Following facts and information emerged from the said inquiry: (ii) The land is very fertile and ground water is sufficient for irrigation of the crops (paper book p. 223) (iii) 2-3 crops are obtained from this agriculture land (paper book p. 223) (iv) Vegetables and other crops are obtained from this land (paper book p. 223) (v) Net agriculture income is about Rs. 10,000 to 15,000 per bigha per year (paper book p. 224) (i) The land is irrigated and tube well was found in good condition (paper book p. 224) (ii) The area is very fertile and ground water is sufficient for irrigation (paper book p. 225) (iii) 2-3 crops are obtained and major crops is vegetable, green peas, tomato, chilly, wheat etc. (paper book p. 225) (iv) Net agriculture income Rs. 10,000 to 15,000 per bigha per year, (paper book p. 225) (i) Wheat crop was in progress and crop of chilly was standing. The land is irrigated and tube well was found in good condition with submersible pump (paper book p. 226) (ii) The major crops used are wheat, tomato, maize, chilly and green peas etc. (paper book pp. 226 and 227) (iii) The net agriculture income is Rs. 8,000 to 10,000 per bigha (paper book p. 227).
(c) Inspector Shri T.R. Murlidharan also conducted spot inquiries separately and his report dt. 5th April, 2002 is at paper book p.
228 to 244, The main fact and information emerged from the report is, as under: c.1. Agriculture income at Mukundpura: (i) The agriculture land is irrigated and tube well was found in good condition (paper book p. 231).
(ii) Main crop grown are vegetables such as green chilly, tomatoes, wheat, bajara, groundnut, etc. (paper book p. 230) (iii) The annual net agriculture income is Rs. 15,000-20,000 per bigha (paper book p. 232).
(i) The agriculture land is irrigated and tube well was found in good condition (paper book p. 234) (ii) Main crop grown in the area is wheat, groundnut, peas, chilly, onion, etc. (paper book p. 234) (iii) The net annual agriculture income is Rs. 10,000-12,000 per bigha (paper book p. 234) (i) Main crops grown are wheat, tomato, green chilly, etc. (paper book p. 236) (ii) The land is irrigated and tube well was found there, which is used for irrigation purpose (paper book p. 235) (iii) Net annual agriculture income is around Rs. 10,000 per bigha (paper book p. 236) (i) Net agriculture income is Rs. 8,000 to 10,000 per bigha (paper book p. 238) (ii) The crop of wheat and chana was found in the field (paper book p. 238) (iii) The land is irrigated and irrigation is done from nearby well (paper book p. 238) Since, the assessee has sold the land on 1990-91, there is no evidence to show that the land was actually put to use for agriculture operations (paper book p. 239) From the above spot inquiries it is evident that the agriculture income taken by the AO is at lower side. The learned AO has not considered the facts and information emerged from the spot inquiries in right perspective.
The reports of the inspectors reveal that the land situated at Mukundpura, Bankhrota, Cheetwari and Risani--all are irrigated land and used for commercial crops like vegetables, which are highly profitable. The report further reveals that the net income per bigha is about Rs. 10,000-15,000; therefore, there is no basis to estimate the income at Rs. 5,000 per bigha for Mukundpura and Bankhrota land and Rs. 4,000 for the land at Cheetwari and Risan. The estimation of per bigha income is just 1/2 of the agricultural income emerged from the spot inquiries.
(d) The assessee has given his 8 bigha agriculture land situated at Mukundpura on contract/lease basis on 23rd Oct., 1993 for next 5 years at Rs. 40,000 per year. The contract agreement is under seizure vide p. 32 of Annex. A-8 (paper book p. 196). This shows that the net agriculture income of the assessee from lease was Rs. 5,000 per bigha. When the self-cultivation is made the income will be much higher. The assessee has submitted detailed computation for the agriculture income for the various years comprised in the block period. The copy is enclosed at paper book pp. 211 to 221. The assessee has also shown the agriculture income in his PBP 13.
The assessee has computed the income in scientific way--on the basis of Girdawari report, crop area, and average market rate of the crop.
The Girdawari report of the agriculture land situated at Mukundpura, Bhankrota, Cheethwari and Risani for various years comprised in block period is placed at paper book pp. 198-210. The copy of agricultural production per hectare certified by Asset. Agricultural Officer is placed at PB p. 197. No any defect was pointed out by the learned AO, in computation of agricultural income by the assessee.
It is relevant to mention here that the Part IV of Finance Act prescribes rules for computation of net agriculture income. Rule 10 of Finance Act prescribes that the provisions of IT Act relating to procedure for assessment, shall with the necessary modification apply in relation to the computation of the net agriculture income of assessee as they apply in relation to the assessment of total income. Therefore, even in the cases, where the books of accounts are not maintained, the computation of the net agricultural income should be made on best judgment by considering all the facts and information available before the AO. It should not be based on wild guess.
(e) During the course of the search the Department recorded the statement of the assessee, wherein the assessee has stated that he is selling agriculture crop for Rs. 3 to 4 lakhs per year and expenses are about Rs. 50,000 to 1,00,000 (paper book p. 16 back--answer to question No. 14). The statement was given extempore.
However, the income declared by the assessee is very close to the amount stated in the search statement. It is clear that the learned AO estimated the agriculture income at very lower side without considering all the facts and information gathered from the spot inquiries, seized material available on the record and the search statement. Therefore, no disallowance deserves to be made from the agriculture income shown by the assessee in the block period.
(f) Without prejudice to above, the learned AO held that the income shown in the excess as agriculture income is treated as undisclosed income as the assessee has shown undisclosed income in the garb of agriculture income.
28. The AO estimated the agricultural income at Rs. 25,39,000 as against Rs. 33,04,000 declared by the appellant for the block period and thereby disallowing Rs. 7.65 lakhs out of agricultural income declared by the appellant. The AO has given detailed working in the assessment order in which he estimated per bigha income ranging from Rs. 3,500 to Rs. 4,500 in the beginning of the block period to Rs. 4,000 to Rs. 5,000 at the end of the block period and taking into consideration agricultural holding with the assessee, the agricultural income has been computed at Rs. 25,29,000. It is evident from the perusal of the order of the learned CIT(A) that full enquiries were made by the AO through two inspectors who submitted the report and estimated agricultural income of Rs. 10,000 to Rs. 15,000 per bigha, The agricultural land owned by the assessee is irrigated land, yielding good quantum of agricultural income. Eight bigha of agricultural land situated in Mukundpura was given by the assessee on contract/lease basis on 23rd Oct., 1993 for five years at Rs. 40,000 per year. This shows that net agricultural income from lease was Rs. 5,000 per bigha.
The computation of agricultural income in all the assessment years relating to block period had been estimated on the basis of Girdawari report, crop area and average market rate of the crop. CIT(A) had given details reasons for estimation of income by the assessee and for deletion of addition of Rs. 7.65 lakhs made by the AO. Therefore, we decline to interfere with the order of the learned CIT(A) on this ground and the same is hereby sustained.
29. Ground No. 3 : Deletion of addition of Rs. 1,50,000 on account of opening investment in vehicle: The AO had discussed this issue at p. 17 of his assessment order.
The brief facts of the case are that the assessee has shown opening investment in vehicle business at Rs. 2,00,000 against which the AO allowed the benefit of Rs. 50,000 and made addition of Rs. 1,50,000 by holding that no seized material has been referred to in support of the opening investment in vehicle business.
30. The learned CIT(A) discussed this issue at p. 10 of his order and held that the opening investment in vehicle is based on the purchases recorded in the seized documents.
31. The learned authorised representative made the following submissions.
(a) The learned AO has accepted the investment in purchases at 24 per cent of the total purchases. (Finding of the AO at p. 16, para-e) (b) The assessee has submitted a chart at APB 15, showing the total purchases as per the seized documents amounting to Rs. 8,60,287 in the financial year 1988-89 (paper book p. 174).
(c) In the above chart, reference of the seized papers was also given. The copy of these seized paper is placed at paper book p.
183-195). The total purchases in the financial year 1988-89 comes to Rs. 8,60,287. The 24 per cent of Rs. 8,60,287 comes to Rs. 2,06,468, therefore, the opening investment in vehicles at Rs. 2,00,000 is quite reasonable and based on the seized material. The finding of the AO that the figure of Rs. 2,00,000 has been taken on estimate basis and as seized material has been referred in support of the opening capital, is patently wrong.
(d) The learned AO estimated the opening capital at Rs. 50,000, which has no basis.
In view of the above submission the addition of Rs. 1,50,000 in the asst. yr. 1990-91 on account of opening investment in vehicle purchase is unwarranted, and deserves to be deleted. The learned CIT(A) has not made any error in deleting the addition of Rs. 1,50,000 made by AO on account opening investment in vehicles.
33. The learned CIT(A) discussed this issue at pp.'10 and 11 of his order. In this case, the assessee had shown opening investment in vehicles at Rs. 2 lakhs whereas the AO has taken the same at Rs. 50,000. The learned CIT(A) found that the AO had not denied the transactions in vehicles before the block period and the transactions of Rs. 8,60,287 cannot be ruled out as this is based on the seized documents relating to financial year 1988-89. In view of admitted capital investment of 24 per cent on the turnover, the capital investment of Rs. 2 lakhs was justified. We are convinced with the reasons given by the learned CIT(A). Therefore, we decline to interfere with his order.
34; Ground No. 4 : Determination of purchase of vehicle at Rs. 58,37,693 in place of Rs. 72,00,000 computed by the AO: The brief facts of the case are that the AO has determined purchase of vehicles at Rs. 72 lakhs as against Rs. 58,37,693 computed on the basis of documents found as a result of search. It was stated by the AO that on the basis of seized documents purchases to the extent of Rs. 58,37,693 had been computed by the assessee himself. The assessee has not included purchases for 14 vehicles in respect of which some blank documents were found. Taking average purchase value of vehicle at Rs. 1 lakh, an amount of Rs. 14 lakhs was taken as purchase value of these vehicles. Purchase of vehicles amounting to Rs. 1,36,000 was pertaining to the asst. yr. 1989-90 which is outside the block period which has been excluded and the balance purchase amount comes to Rs. 71,01,693.
35. The learned CIT(A) has given his conclusion at p. 11 in para 24 of his order and deleted the addition made by the AO.36. The learned Departmental Representative relied upon the order of the AO.37. The learned authorised representative made the following submissions: The learned AO computed the purchase of vehicles as under: Purchase amount estimated for 14 vehicles against which only blank papers/receipts or RTO form were found and seized and no amount is mentioned on the said seized papers but vehicle number has been mentioned (a) The search party found certain forms, receipts, affidavits, etc.
generally used for the purpose of transfer of vehicles under Motor Vehicle Act. Most of these forms were not fully filled up. However, vehicle number has been mentioned over these forms in respect of 14 vehicles. The copy of the sample pages of these documents is placed at paper book pp. 140 to 149.
(b) The learned AO estimated the purchase amount against the abovesaid 14 vehicles at Rs. 1,00,000 per vehicle totalling to Rs. 14,00,000 over and above the amount of purchases computed by the assessee on the basis of financial records at Rs. 58,37,693 (paper book pp. 131 to 137). The learned AO took the purchases for the block period at Rs. 72,00,000 against the correct amount of Rs. 58,37,693 - 1,36,000 = 57,01,693. The learned AO is highly unjustified in making addition of Rs. 14,00,000 in purchase amount.
(c) These papers don't indicate that the assessee has purchased the vehicle for example: i. Vehicle No. RJ-01-C-2714 (paper book pp. 140 and 141). This is form of transfer of ownership of motor vehicle executed by Shri Pawan Kumar in favour of Shri Kherulla Khan, therefore, on the basis of this paper it can't be visualised that the assessee purchased the vehicle. This vehicle was found standing at the residence of the assessee at the time of search. Paper book p. 9. The search party recorded the statement of the assessee in respect of this vehicle (paper book p. 15 (back Q. No. 10). The assessee stated that this vehicle came to him through Kar Bazar for arranging the sales.
ii. RJ-14-1C-0261, paper book p. 142: This is blank receipt in respect of RJ-14-1C-0261 transacted by the assessee on brokerage basis. This paper does not show the purchase of vehicles by the assessee. This vehicle was sold for Rs. 2,07,000 on brokerage basis and duly recorded in the chart of the sales submitted by the assessee (paper book p. 136).
iii. DL-2CA 9058 paper book p. 143: This is a blank affidavit executed by Mahendra Singh. The name of transferee, amount, date and signature of the executors (seller) at verification part of the affidavit is not mentioned. This vehicle came outside from Jaipur for arranging sales on commission basis. This paper indicates nothing to visualise that the assessee purchased the said vehicle.
It is usual practice of the trade to keep some documents signed for facilitating the work of brokerage.
iv. Paper book p. 144: This is a blank agreement executed by Anil in respect of vehicle No. RJ-20-01-0934. Purchase can't be estimated on the basis of this paper more so when the assessee himself has computed purchases on the basis of financial transaction recorded in the seized documents. (paper book pp. 131-137).
(d) It is an admitted fact that the assessee is not maintaining books of account. He maintained financial record in very crude manner. The complete details as regards vehicle number etc. was not found recorded, in the financial records maintained by him.
Therefore, it is not possible to co-relate these blank documents with the financial transactions recorded in seized documents such as A-16. Therefore, it is highly unjustified to make the addition in purchase on the basis of transfer forms, receipts, etc. over and above the purchases computed by the assessee on the basis of seized documents.
39. The learned CIT(A) found that no purchase consideration had been found entered anywhere in the documents seized during the course of search in respect of 14 vehicles. The assessee is also doing the business of brokerage as it is evident from the seized records.
Therefore, in all likelihood, the papers relating to vehicles in respect of which no purchase consideration had been mentioned anywhere in the seized documents, it would be proper to take them as vehicles dealt in by the assessee in brokerage business and not purchases in outright basis. Therefore, the learned CIT(A) has rightly agreed with the arguments of the learned authorised representative and directed the AO to adopt the purchase amount of vehicles at (Rs. 58,37,693 minus Rs. 1,36,000) = Rs. 57,01,693 only in the block period instead of Rs. 72,00,000 taken by the AO. We are convinced with the reasons given by the learned CIT(A). Therefore, we decline to interfere with the order of the learned CIT(A) on this ground.
40. Ground No. 5 and 6 : Deleting the addition of Rs. 7,01,520 plus Rs, 4,35,114 totalling to Rs. 11,36,634 made by the AO on account of undisclosed investment in purchase of vehicle: The AO had discussed this issue at pp. 17, 22 and 23 of his order.
The learned CIT(A) has discussed this ground at pp. 12 to 15 of his order. The brief facts of this case are that the AO at p. 17 of his order held that the assessee had computed investment in purchase of vehicle without considering the 14 vehicles (zero value has been taken against them by the assessee and AO assumed the purchase value at Rs. 14,00,000) and AO estimated the purchase value at Rs. 4,13,000 in respect of vehicles where the date of purchase is not mentioned in the seized records. The AO held that the assessee has not taken into consideration the investment in purchase of vehicles amounting to Rs. 18,13,000 (Rs. 14,00,000 plus Rs. 4,13,000) in the cash flow statement. The learned AO compute unexplained investment of Rs. 4,35,114 being 24 per cent of the purchase value i.e. Rs. 18,13,000 for the asst. yr. 2000-2001.
Further the AO rejected the assessee's contention that the sales of trading vehicles and on brokerage basis both are recorded in A-16 and total sales as per A-16 is Rs. 1,37,40,107 which represents to sales against the purchase of vehicles computed at Rs. 58,37,693 and the rest of the sales represents on brokerage basis.
The AO concluded that the assessee has not recorded the purchase of vehicles against the sale of vehicles found recorded in A-16. He presumed that the sales recorded in A-16 are entirely against the trading vehicles and purchases against these sales are separate, over and above to Rs. 58,37,693 computed by the assessee. He computed 24 per cent of the investment in purchases of these vehicles at Rs. 7,01,520 and thus made addition of Rs. 11,36,634 (Rs. 7,01,520 plus Rs. 4,35,114) towards undisclosed investment in vehicle business.
41. The learned CIT(A) had deleted the addition of Rs. 11,36,634 for the reasons mentioned in para 27 and at pp. 13 to 14 of his order.
42. The learned Departmental Representative relied upon the order of the AO.43. The learned authorised representative made the following submissions.
(a) The computation of investment on alleged purchase of vehicle Rs. 14,00,000.
a. 1. The learned AO estimated investment @ 24 per cent of Rs. 14,00,000, which comes to Rs. 3,36,000. The learned AO estimated the purchase of Rs. 14,00,000 without any basis, without having any cogent material or evidence. He took the figure of Rs. 14,00,000 as purchases against 14 vehicles for which the Department found certain loose papers, wherein the vehicle number is mentioned, but amount and other details are not mentioned. Actually these are the forms and other required papers executed in respect of purchases/sales of the vehicle already recorded in A-16 or other documents for which detailed explanation has been submitted by the assessee for Ground No. 4.
(b) Investment: on purchases of Rs. 4,13,000 where date is not mentioned in financial transaction: (b.1) The CIT(A) has confirmed the investment @ 24 per cent of Rs. 4,13,000, which comes to Rs. 99,120 for asst. yr. 2000-2001 but held that addition will be made only to the extent of lesser cash availability in the cash flow chart after taking into account addition confirmed.
(c) Investment of Rs. .7,01,520 on the basis of sales transaction recorded in A-16.
(c.1) The learned AO presumed that the assessee has not recorded the purchases of vehicles against the sales of vehicles found recorded in A-16. He presumed that the sales recorded in A-16 are entirely against the trading vehicles and purchases against these sales are separate; over and above to Rs. 58,37,693 computed by the assessee.
Such presumption is against the human probabilities. When the assessee is recording purchase and sales both; it cannot be presumed that both are separate transactions. It is an admitted fact that the assessee did not maintain books of account, as he was not in a position to maintain the books of account. The accounts were maintained in the shape of the diary, which is in very crude and rough form and as a memoirs. The vehicles numbers are not available in respect of most of sales and purchases transactions. However, the assessee has correlated the purchases with sales in as much as 10 vehicles total amount to the extent of Rs. 12,79,000, which proves that the purchases and sales are not separate transactions. In other words, the purchases against the sales recorded in A-16 are not separate; over and above to Rs. 58,37,693.
(c.2) The learned AO without appreciating all the seized records.
and statements, has wrongly held that the sales transactions recorded in A-16 do not represent to sales on commission basis but represent entirely to the trading sales. It is an admitted fact that the assessee was also transacting the vehicles on brokerage basis.
The learned AO at p. 2 of assessment order has mentioned that the assessee derived income from commission on arranging motor vehicles to the customers. In the preliminary statement under Section 132(4) of IT Act, the assessee has categorically said that he was doing business of commission agent in sales of vehicles (PB. p. 14 answer to question No. 1). Therefore, the learned AO erred in rejecting the assessee's contention that the sales of trading vehicles and on brokerage basis both are recorded in A-16 and total sales as per A-16 is Rs. 1,37,40,107 which represents to sales against the purchase of vehicles computed at Rs. 58,37,693 and the rest of the sales represent on brokerage basis.
Therefore, on the basis of the sales recorded for A-16 no separate investment should be determined.
(d) The Department has no material to determine the investment of Rs. 11,36,634 over and above to the investment in trading vehicles shown by the assessee in cash flow statement, Nothing was found in support of the alleged investment and in absence of any incriminating material found during the search, neither the estimation of quantum of such investment, nor the addition of the same can be made. Reliance is placed on following decisions: a. Ashok Kumar Rastogi v. CIT Held that without reference to any supporting evidence or material ITO cannot make any addition as unexplained investment in trading activities outside the books. From the estimated sale, it cannot necessarily be inferred that the assessee has invested in unexplained business.
b. Radhey Shyam Tanwar v. Asstt. CIT 26 Tax World 250 (Jd).
Tribunal, Jodhpur Bench.
Held that Section 69 casts heavy burden on the Revenue to establish that the assessee, in fact, had made the investment and in the block assessment, the same needs to be established on the basis of material found during the search.
Held that if there is no finding or material about suppression of investment in acquiring goods which are subject to undisclosed sales no addition can be made for such investments.
(e) In the cases falling under Sections 69, 69A, 69B and 69C, the phraseology used goes to show that before any addition is .made under these sections, the condition precedent as to existence of investment, expenditure, etc. must be conclusively established by evidence and/or material on record. If Revenue cannot or fails to prove, the subject cannot be taxed. Reliance is placed on following decisions: Held that the onus is on Revenue to prove that the investment was made by the assessee.
(b) J.S. Parkar v. V.B. Palekar and Ors. (1974) 94 ITR 616 (Bom).
Kindly see observations in the dissenting judgment of Mukhi, J. (c) Lal Chand Agarwal v. Asstt. CIT 21 Tax World 213 (Jp) Tribunal Jaipur Bench.
The initial burden under Section 69 of IT Act is on Department to prove the investment has been made by the assessee.
The onus under Section 69 is on the AO to establish by cogent material or evidence that the assessee has made investment. The seized diary A-16 and forms/other loose documents neither suggest the purchase nor indicate any investment by the assessee, therefore, the investment computed by the AO at 11,36,634 over and above to the investment in trading vehicles shown by the assessee in cash flow statement for patently wrong, and deserves to be deleted. The learned CIT(A) has not made any error in deleting the addition made by AO on account of investment in vehicles over and above to what the assessee has already shown in cash flow statement, 44. We have considered the rival submissions and perused the materials available on record. The addition of Rs. 4,35,114 was made by AO on account of undisclosed investment in vehicles in respect of 14 vehicles of which certain documents were found indicating vehicles number, date, etc. but purchase amount was not mentioned. The AO presumed the purchase amount in respect of these 14 vehicles Rs. 14,00,000. Further, purchases of vehicles of Rs. 4,13,000 were found, where date of purchase was not mentioned in the documents. The AO computed the investment at 24 per cent on the purchases amount of these vehicles 14,00,000 + 4,13,000 -18,13,000 which comes to Rs. 4,35,114. The CIT(A) has held that the search documents does not indicate the purchases in respect of 14 vehicles, hence, no investment can be computed on this amount. However, he confirmed the addition of Rs. 99,120 on the purchases of vehicles of Rs. 4,13,000 where the date of purchase is not mentioned in the search documents and he considered these vehicles were purchases of asst. yr. 2001-02.
The addition of Rs. 7,01,520 is in respect of investment in vehicles made by AO considering there was no sale on brokerage basis. The sales in A-16 is recorded at Rs. 1,37,40,107 and the seized document reflects the purchase of vehicles at Rs. 58,37,693. The assessee computed investment in purchases of vehicles by considering the total purchases for the block period at Rs. 58,37,693 and the yearwise investment has been shown in cash flow statement on this total purchases of Rs. 58,37,693. As per the assessee, he was selling the self-owned vehicles as well as on brokerage basis. He sold self-owned vehicles of Rs. 58,37,693 and the rest of the sales, represent on brokerage basis. The CIT(A) considering the search statement and seized documents, held that without any evidence on records it cannot be considered, that the appellant in all the transactions of the sales recorded in Annex. A-16 involved purchase as well. Further, in any case, if the transactions increase in a particular year, the rotation becomes faster and the transaction time might take less than three months. We are convinced with the reasons given by the learned CIT(A). Therefore, we decline to interfere with the order of the learned CIT(A).
45. Ground No. 7 : Reducing the addition of Rs. 10,58,036 made by AO on account of profit on sales of vehicles to Rs. 5,49,604 by applying NP rate of 4 per cent against 5 per cent applied by AO.The AO estimated the sale of vehicles at Rs. 1,97,81,307 and applied net profit rate of 5 per cent and then made addition of Rs. 10,58,036.
46. The learned CIT(A) reduced this addition to Rs. 5,49,604 by applying the NP rate at 4 per cent as against 5 per cent applied by the AO.47. The learned Departmental Representative relied upon the order of the AO.48. The learned authorised representative made the following submissions.
(a) The learned AO estimated the sales against the purchases over and above to the sales recorded in A-16. The AO has no material to presume so. When the assessee is recording purchase and sales both, it cannot be presumed that both are separate transactions. It is an admitted fact that the assessee did not maintain books of account, as he was not in a position to maintain the books of account. The accounts were maintained in the shape of the diary, which is in very crude and rough form and as a memoirs. The vehicles numbers are not available in respect of most of sales and purchases transactions.
However, the assessee has correlated the purchases with sales recorded in A-16 in as much as 10 vehicles total amount to the extent of Rs. 12,79,000, which proves that the purchases and sales are not separate transactions. In other words, the sales against the purchase cannot be taken over and above to the sales recorded in A-16.
(b) The learned AO without appreciating all the seized records and statements, has wrongly presumed that the sales transactions recorded in A-16 represent entirely to the trading sales. It is an admitted fact that the assessee was also transacting the vehicles on brokerage basis. The learned AO at p. 2 of assessment order has mentioned that the assessee derived income from commission on arranging motor vehicles to the customers. In the preliminary statement under Section 132(4) of IT Act, the assessee has categorically said that he was doing business of commission agent in sales of vehicles (paper book p. 14 answer to question No. 1).
Therefore, the learned AO erred in rejecting the assessee's contention that total sales is Rs. 1,37,40,107 which represents to sales against the purchase of vehicles computed at Rs. 58,37,693 and the rest of the sales represent on brokerage basis.
(c) The learned AO estimated the profit by applying net profit rate of 5 per cent, the assessee has submitted a chart co-relating the purchase and sale of some vehicle. The average GP on sales comes to Rs. 6.70 per cent. The learned AO took the gross profit rate of 7.20 per cent instead of 6.70 per cent while estimating the net profit rate at 5 per cent.
(d) In most of the cases the assessee purchased the vehicle out of state and sold in Jaipur. This requires heavy expenditure on fuel and boarding, lodging expenses. Further, several expenditure on repair and maintenance is to be made. The learned AO credit against this expenditure for 7.20 per cent - 5 per cent = 2.2 per cent, which is very meager considering the expenses involved.
(e) The learned AO without appreciating all the seized records and statements, has wrongly held that the sales transactions recorded in A-16 represent entirely to the trading sales. It is an admitted fact that the assessee was also transacting the vehicles on brokerage basis. The learned AO at p. 2 of assessment order has mentioned that the assessee derived income from commission on arranging motor vehicles to the customers. In the preliminary statement under Section 132(4) of IT Act, the assessee has categorically said that he was doing business of commission agent in sales of vehicles (PB p. 14 answer to question No. 1). Therefore, the learned AO erred in rejecting the assessee's contention that the sales of trading vehicles and on brokerage basis both are recorded in A-16 and total sales as per A-16 is Rs. 1,37,40,107 which represents to sales against the purchase of vehicles (computed at Rs. 58,37,693) and the rest of the sales represent on brokerage basis.
(f) The profit margin in brokerage business is much lesser than the profit margin in trading of the own vehicle; therefore, it is highly unjustified to estimate the profit of 5 per cent on the entire sales recorded in A-16.
The learned CIT(A) has not made any error in reducing the addition of Rs. 10,58,036 made by AO on account of profit on sales of vehicles to Rs. 5,49,604 by applying NP rate of 4 per cent against 5 per cent applied by AO and by determining sales at Rs. 1,37,40,107 against Rs. 1,97,81,307 determined by AO.50. The learned CIT(A) found while estimating the net profit that the AO has taken sales in respect of purchases of Rs. 58,37,693 and sales recorded in Annex. A-16 to the extent of Rs. 1,37,40,107 separately.
The AO has also taken into consideration estimated sale value of Rs. 14 lakhs in respect of certain papers in respect of which no sale or purchase were recorded. In view of the fact that the assessee was able to co-relate ten of the purchases amongst purchases of Rs. 58,37,639 in the sales computed on the basis of Annex. A-16 to the extent of Rs. 1,37,40,107, it is established that purchases and sales cannot be in isolation to each other. However, gross profit of purchase and sales has been computed at 6.70 per cent. Similarly, on brokerage business, the profit has been stated by the assessee at about Rs. 4,000. This is approximately 4 per cent of the sale consideration. There are always certain expenses relating to purchase and sales of vehicles and also in brokerage business. Therefore, having considered the totality of the facts and circumstances of the case, the learned CIT(A) appropriately applied the net profit rate of 4 per cent on total sales of Rs. 1,37,40,107. Thus, the net income from purchase and sales of vehicles and brokerage business was estimated at Rs. 5,49,604 as against Rs. 10,58,038 computed by the AO.51. After going through the order of the learned CIT(A), we are of the opinion that the order of the learned CIT(A) is not laconic in any manner. Therefore, we decline to interfere with the order of the learned CIT(A).
52. Ground No. 8 : Deletion of addition of Rs. 3,22,000 made by AO by estimating the cost of construction on the basis of DVO's report at Rs. 23,74,110 in place of Rs. 20,25,000 shown by the assessee in cash flow statement: The brief facts of the case are that in this case, the AO had made addition of Rs. 3.22 lakhs towards unexplained cost of construction on the basis of the DVO's report. The learned CIT(A) observed that the difference in cost of construction disclosed by the assessee in cash flow statement and the valuation report of the DVO was only to the tune of 15 per cent. If deduction on account of CPED rates is given then the valuation will be approximately same as disclosed by the assessee. Further no incriminating document was found suggesting higher investment.
53. We have heard the rival parties and perused the materials available on record. The learned authorised representative has also placed reliance in the case of Smt Amiya Bala Paul v. CIT (2003) 262 ITR 407 (SC). It may be mentioned that the Hon'ble Supreme Court in the case of Smt Amiya Bala Paul (supra) observed that the "AO is not competent to call for the report from Valuation Officer". It was held that the AO cannot refer to the Valuation Officer the question of cost of construction except under Section 55A or 269L of the IT Act. The Hon'ble Supreme Court observed that :-- "It is not open to a Valuation Officer to act in his capacity as Valuation Officer otherwise than in discharge of his statutory functions. He cannot be called upon, nor would have the jurisdiction to give a report to the AO under the IT Act except when a reference is made under and in terms of s: 55A or to a competent authority under Section 269L".
54. We are also of the opinion that no addition can be made on the basis of valuation report especially when no incriminating documents indicating unexplained investment in the cost of the construction was found during the course of search. Reliance is also placed in the case of CIT v. Rajendra Prasad Gupta (2001) 248 ITR 350 (Raj).
55. In the light of above discussion, we find no reason to interfere with the order of the learned CIT(A) and the same is hereby sustained.
56. Ground No. 9 : Deletion of addition of Rs. 1,50,000 made by AO on account of marriage expenses.
The AO had discussed this issue at p. 28 of his order. The assessee declared expenditure in marriage as under:Asst. yr.
Amount1992-93 (Daughter's marriage) 2,00,0001995-96 (2nd Daughter's marriage) 2,50,0002000-01 (Son's marriage) 1,30,000 The AO observed marriage expenditure declared by the assessee are at lower side. Therefore, he estimated the shortfall of Rs. 50,000 in each marriage.
57. The learned CIT(A) has discussed this issue at p. 19 of his order and he deleted the addition of Rs. 1.50 lakhs towards marriage expenditure estimation by the AO without any evidence.
58. The learned Departmental Representative relied upon the order of the AO.59. The learned authorised representative relied on the order of the CIT(A).
60. We have considered the rival submissions and found that the learned CIT(A) observed marriage expenses estimated by the assessee to be quite reasonable in absence of any documentary evidence against him. The AO has increased his estimation by Rs. 50,000 for each marriage which is without any basis or evidence in his possession. We are of the opinion that no addition can be made on estimate basis in block assessment especially when no incriminating documents had been found indicating any type of expenditure incurred on solemnisation of these marriages.
Therefore, we decline to interfere with the order of the learned CIT(A).
61. Ground No. 10 : Deletion of addition of Rs. -25,000 made by AO in respect of gifts in three marriages: 62. The learned CIT(A) has discussed this issue at p. 19 of his order.
The three gifts of Rs. 25,000 in three marriages were considered as genuine and the same was accepted by the learned CIT(A).
63. The learned Departmental Representative relied upon the order of the AO.64. The learned authorised representative submitted that it is customary in Hindu families that the guests generally give cash gifts of small amounts for which no evidence can be obtained. The matter should be considered by applying the principles of human probabilities as held in the case of Sumati Dayal v. CIT (1995) 214 ITR 801 (SC).
65. We have considered the rival submissions. We are of the opinion that it is customary in Hindu families to give gifts at the time of marriage. Having regard to the customs prevalent amongst Hindu families and also having regard to the smallness of amount involved, we are of the opinion that the order of the learned CIT(A) is not laconic in any manner. Therefore, we decline to interfere with the order of the learned CIT(A).
66. Ground No. 11 : Deletion of addition of Rs. 30,000 made by the AO on account of cash found in search: The AO had discussed this issue at pp. 30 and 31 of his order. The brief facts of the case are that during the course of search, cash of Rs. 64,160 was found. The AO held that credit against cash reflected in cash flow statement as on the search Rs. 64,438 cannot be given as the cash flow statement was prepared after the search on estimate basis. In the search statement, the assessee stated that the cash available at residence was of Rs. 40,000 which represents the loans taken by him from Ladu and Kajod. Since in the block assessment proceedings, the assessee is at variance, it is difficult to find out the truth. He treated the explained cash at Rs. 28,660 plus 5,500 totalling to Rs. 34,160 representing the savings of the assessee and his wife and balance of Rs. 30,000 was treated as unexplained cash.
67. The learned CIT(A) after having considered the facts of the case had deleted the addition of Rs. 30,000.
68. The learned Departmental Representative relied upon the order of the AO.69. The learned authorised representative made the following submissions.
(a) The assessee has filed cash flow statement before the AO, which shows cash balance of Rs. 64,438 at the time of search (paper book p. 130). The learned AO has erred in not giving the credit of cash balance reflected in the cash flow statement.
(b) The learned AO has relied on the same cash flow statement. The entire block assessment is based on the said cash flow statement. He has examined the cash flow statement in detail. He has examined the source and utilisation of the funds shown in cash flow statement.
Wherever, he deemed fit, he made addition in source of funds i.e.
income and utilisation of funds i.e. assets and expenses. The closing cash balance is nothing but excess of available funds over utilisation. The cash in hand found by the search party represents to the cash available with him out of rotation/recycling of income/funds. The cash in hand reflected by cash flow statement justifies the cash in hand found by the search party. Therefore, the credit of cash balance reflected in the cash flow statement should be given.
(c) As regards the statement at the time of the search, the assessee has filed detailed explanation before the AO vide letter dt. 11th April, 2002. The assessee has explained that: 1. The statement was given extempore and nobody can tell the exact amount of cash in hand more so when he is not maintaining books of account.
2. He was under bona fide belief that Shri Ladu Ram and Kajod Mal had left the money at his house, as they promised to give on 24th Feb., 2000. It is relevant to mention here that the assessee was in need of money for some vehicle transactions and Shri Ladu Ram and Kajod Mal promised to the assessee to give Rs. 20,000 by each on 24th Feb., 2000. But later on, after the search, it came to the knowledge of the assessee that Shri Ladu Ram and Kajod Mal did not leave money at his house. Since the assessee had not received money from these persons, the transaction was not reflected in cash flow statement.
In view of the above submission, the addition made by the learned AO against the alleged unexplained cash deserves to be deleted. Thus, the learned CIT(A) has not made any error in deleting the addition of Rs. 30,000 made by AO on account of cash found by the search party.
70. We have heard the rival submissions and perused the relevant materials available on record. The learned CIT(A) has rightly held that the cash flow statement had not been disputed by the AO. The entire block assessment is based on the cash flow statement. The AO examined the source and utilisation of funds shown in cash flow statement. The closing cash balance as shown in the cash flow statement in nothing but excess available of funds or utilisation of cash. In this case, the cash to the tune of Rs. 64,160 was found by the search party whereas the cash available as per cash flow statement comes to Rs. 64,438.
Thus, the learned. CIT(A) has not committed any error in deleting this addition. Therefore, we decline to interfere with the order of the learned CIT(A).
71. In the result, the appeal filed by the assessee is partly allowed and the appeal filed by the Department is dismissed.