1. Of these three appeals, first two appeals are cross-appeals one by the assessee and the other by the Revenue against the order of CIT(A) dt. 25th Jan., 2003 for the block period 1st April, 1989 to 20th Jan., 2000 and the third appeal is by the assessee against the order of CIT(A) dt. 24th Nov., 2004 for asst. yr. 2001-02.
ITA No. 429/Ahd/2003 for block period 1st April, 1989 to 20th Jan., 2000 (assessee's appeal): 1. The assessment made under Section 158BC r/w Section 158BD dt.
28th Feb., 2002 is ab initio void, illegal and invalid. It is therefore prayed that the same be cancelled.
2. In the facts and circumstances of the case and in law the learned CIT(A) considering that the assessment proceedings being initiated on the basis of vague notice under Section 158BC and that the notices under Section 142(1) and 143(2) having not been issued within prescribed time under the law, ought to have held the assessment as invalid and therefore ought to have cancelled the same.
3. The learned CIT(A) erred in holding that your appellant had made investment of Rs, 4,47,700 in shares and debentures which was unexplained and further erred in confirming the addition of Rs. 2,47,700 on this account (Rs. 2,00,000 was already offered by the appellant).
4. The learned GIT(A) erred in holding that the stock of silver article seized of Rs. 15,17,000 belonged to your appellant only and further erred in confirming addition of Rs. 4,93,367 on this account.
5. The learned CIT(A) erred in holding that investment in gold ornaments of Rs. 20,6000 was unexplained and further erred in confirming the addition of Rs. 20,600.
6. The learned CIT(A) erred in holding that the total advance as per Annex. A-6 and A-12 of Rs. 11,15,315 were unaccounted as against Rs. 5,00,000 disclosed by your appellant and further erred in confirming the addition of Rs. 6,15,315 on the account.
7. The learned CIT(A) erred in holding that the investment made in house property by Mrs. Sohini Chokshi, wife of the appellant, which was accounted for and disclosed in the return filed by her, was covered by the provisions of Chapter XIV-B of the Act.
8. The learned CIT(A) erred in holding that the investment made by Mrs. Sohiniben Chokshi, wife of your appellant, in the residential house of Rs. 7,26,538 was the unaccounted investment of your appellant and further erred in confirming the addition of Rs. 7,26,538.
9. The learned AO erred in confirming the addition of Rs. 10,000 on account of Nepal Tour Expenses.
IT(SS)A No. 35/Ahd/2004 for block period 1st April, 1989 to 20th Jan., 2000 (Revenue's appeal): 1. The learned CIT(A) has erred in law and on facts in deleting the addition of Rs. 4,94,400 made on account of undisclosed income in share and debenture.
4. Ground Nos. 1 and 2 of assessee's appeal for block period 1st April, 1989 to 20th Jan., 2000 were not pressed by the learned Authorised Representative of the assessee at the time of hearing and accordingly they are rejected.
5. As regards ground No. 3 of assessee's appeal and the only ground of Revenue's appeal for block period 1st April, 1989 to 20th Jan., 2000, the facts of the case are that there was a search operation under s, 132 at the residential and business premises of the assessee on 20th Jan., 2000. During the course of search, face value of shares and debentures of Rs. 2,13,300 were found and seized. In the return of block period the assessee has offered undisclosed income of Rs. 2 lakh for investment in shares. At the time of assessment proceedings the AO noticed that the loose paper file marked as A/1 contains the details of investment in shares and debentures. He made out a detailed chart therefrom which is annexed to the assessment order and on the basis of such chart, he came to the conclusion that actual investment in the shares by the assessee was Rs. 9,42,100. He, therefore, made an addition of Rs. 7,42,100 (Rs. 9,42,100 - Rs. 2,00,000 disclosed by the assessee) for undisclosed investment in shares and debentures. On appeal, the CIT(A) found that the AO has considered the total application made by the assessee for shares/debentures while in large number of cases the amount was refunded. He noted that the total refund received by the assessee was Rs. 4,94,100. Accordingly he came to the conclusion that actual investment was Rs. 4,47,700 only. He, therefore, sustained the addition to the extent of Rs. 2,47,700 (Rs. 4,47,700 - Rs. 2,00,000). Both the parties are aggrieved with the order of CIT(A) hence in appeal before us.
6. At the time of hearing before us, the learned Authorised Representative of the assessee argued at length. He also filed the break up of investment in shares/debentures person-wise/date-wise and pointed out that total investment was actually of Rs. 4,68,800 and not Rs. 4,47.700 as taken by the CIT(A). However, this investment was made by five persons and the person-wise summary of the investment was as under:______________________________________________________________________________ Name of the person Amount Assessment Remarks invested particulars______________________________________________________________________________C.J. Choksi (Appellant) 2,59,200 ABNPC Rs. 2 lakhs were offe- 1373L red and have been______________________________________________________________________________Abha Choksi (Appellant's 59,200 Not assessed Got married to ShriDaughter) to tax Sarang Shah on 21-11-1994. Left India______________________________________________________________________________Sarang Choksi 5,000 Not assessed Got married to Smt.(Appellant's son-in-Law) to tax Abha Choksi on 21-11-1994. Left India______________________________________________________________________________Sohiniben C. Choksi 87,700 ACAPD Assessed to tax since(Appellant's wife) 4844R asst. yr. 1992-93.
Order under Section______________________________________________________________________________Ankit C. Choksi 57,700 ABNPC Assessed to tax since(Appellant's son) 1594P many years. Order under Section 158BD He contended that the investment by the assessee was only Rs. 2,59,200 out of which Rs. 2,00.000 is already offered by the assessee in the block period. Therefore, the addition which is required to be sustained is only Rs. 59,200.
7. The learned Departmental Representative has not disputed the principle that the only net investment, can be added and not the gross amount of shares application made by the assessee, part of which was received back. However, he contended that out of the above five persons, Ms. Abha Choksi was not having any source of income at the relevant time and she is not; assessed to tax. No evidence has been filed by the assessee that the above investment was from her own independent source. Similarly, Shri Sarang Choksi, assessee's son-in-law is not assessed in India and, therefore, his investment should also be considered in the hands of the assessee.
8. We have carefully considered the rival contentions and perused the material placed before us. The detailed break-up of date-wise/person-wise shares is annexed as an Annex. A to this order.
From the assessment order also it is evidenced that the AO has noted the refund of share application money received by the assessee but has not considered the same. He has made the addition on the basis of total application money paid by the assessee. In our opinion only the net investment is to be considered. The assessee has furnished the break-up of net investment person-wise. The learned Departmental Representative has not pointed out any mistake therein. From such person wise break-up, we find that Smt. Sohiniben C. Choksi, wife of the assessee and Shri Ankit C. Choksi, son of the assessee are assessed to tax separately and even they have been assessed under Section 158B for the block period. In view of the above, in our opinion the investment in shares by Smt. Sohiniben C. Choksi and Shri Ankit C. Choksi cannot be considered in the hands of the assessee. They have to be considered in their respective hands. So far as Ms. Abha Choksi is concerned, we find that she is not assessed to tax and the assessee has not explained the source of investment by her. No confirmation is filed from her that the shares actually belonged to her. At the time of search these shares were found from the assessee's premises though she was married on 21st Nov., 1994. In view of the above facts, in our opinion, investment by Ms. Abha Choksi is to be considered in the hands of the assessee. The investment by Shri Sarang Choksi son-in-law is only Rs. 5,000. However, no confirmation from him is filed. The assessee also could not explain why those shares were found from the assessee's possession, in view of above, we accept the contention of learned Departmental Representative that the above investment was made by the assessee in the name of his daughter/son-in-law. Thus the total investment to be considered in the hands of assessee is Rs. 2,59,200 + Rs. 59,200 + Rs. 5,000 Rs. 3,23,400. The assessee has already offered the income of Rs. 2 lakhs for unexplained investment in shares. Therefore, we sustain the addition of Rs, 1,23,400 (Rs. 3,23,400 - Rs. 2,00,000).
9. Apropos ground Nos. 4, 5 & 6, the facts relating to these grounds are that the assessee derives income from pawning mainly of silver ornaments. The pawned and forfeited ornaments are either re-polished or remade after melting and then being sold- During the course of search following assets were found and seized : -Silver & roopa ornaments 2,58,225 (*) 2,58,225 _____________ _______________ Gold ornaments 20,600 Nil _____________ _______________ The assessee filed the return disclosing income of Rs. 25,55,858 under the following heads: 7. Investment in Silver Articles 2,58,225 __________ From the above it is clear that the assessee offered income of Rs. 10,23,633 for investment in silver and Rs. 5,00,000 for advances, The AO made further addition of Rs. 4,93,367 for investment in silver, Rs. 20,600 for investment, in gold and Rs. 6,82,235 for investment in moneylending business. The same is sustained by the GIT(A) hence this appeal by the assessee.
10. At the time of hearing before us, it is submitted by the learned Authorised Representative of the assessee that the business of the assessee was pawning mainly on the security of silver ornaments. The forfeited ornaments were re-polished or remade and thereafter were being sold. From the business premises 332.920 Kgs. of silver ornaments valued at Rs. 15,83,470 were found. The above silver ornaments included the ornaments of Ankit C. Choksi 18.332 Kgs. and Chandravadan J. Choksi HUF 61.289 Kgs, Thus the total 79,621 Kgs, (18,332 Kgs. + 61.289 Kgs.) of silver articles were belonging to others, The remaining silver articles of 253.299 kgs. (332.920 - 79.621) valued at Rs. 10,23,633 is offered as income of the block period. The above silver articles were of the pawning business carried on by the assessee. The assessee is not well educated and is not conversant with the proper accountancy procedure or the provisions of the IT Act. The assessee by mistake further offered a sum of Rs. 5 lakhs for unexplained investment in the pawning articles. When the assessee is carrying on the pawning business either the money advanced against the pawned articles could be treated as unexplained investment or the pawned articles can be valued and treated as unexplained investment. However, under no circumstances, the amount, advanced as well as the pawned articles both can be treated as unexplained investment. The total income offered by the assessee against unexplained investment in the pawning business is Rs. 15,23,633 (Rs, 10,23,633 for investment in silver articles + Rs. 5 lakhs for advances). The total value of the silver and gold found relating to pawning business was only Rs. 10,44,233 (Rs. 10,23,633 + 20,600).
Similarly the money advanced in the pawning business even as per AO is only Rs. 11,15,315. Therefore, either considering the advances in the moneylending business or the value of pawning articles, the disclosure made by the assessee is more than the unexplained investment.
Therefore, no further addition can be made. He also pointed out that the silver ornaments found from the assessee's residential premises at 66.210 kgs. has been separately offered as unexplained investment. He, therefore, submitted that the addition made by the AO for unexplained investment in silver articles, gold ornaments and advances in moneylending business may be deleted.
11. The learned Departmental Representative on the other hand, heavily relied upon the orders of the authorities below and he stated that the AO has given cogent reason for making the addition and the learned CIT(A) has rightly sustained the same. The order of the GIT(A) should be sustained.
12. We have carefully considered the submissions of both the sides and perused the material placed before us. When an assessee is found to be carrying on moneylending business which is not recorded in the books of account, the Revenue authorities would be justified to ask for the source of investment in such moneylending business. If the assessee is unable to explain the source of investment in moneylending business the same has to be treated as unexplained investment. When the details of amount advanced is available, normally, the unexplained investment has to be worked out on the basis of the amount actually advanced by the assessee. The pawned articles are only the security against the money advanced. However, where the details of money actually advanced against such pawned articles are not available, then as an alternative the value of pawned articles can also be taken into consideration for determining the investment by the assessee in the moneylending business. However, under no circumstances, both can be considered for determining the unexplained investment by the assessee. In this case, the assessee has offered sum of Rs. 10,23,633 for unexplained investment in the silver articles and Rs. 5 lakhs for unexplained advances in the pawning business. Thus the total income offered by the assessee is Rs. 15,23,633. The total money advanced by the assessee as per AO himself is Rs. 11,15,315 which is less than the income already disclosed by the assessee. Even if the value of silver articles are to be considered, we find that the total ornaments found from business premises is 332.920 kgs. valued at Rs. 15,83,470. Shri Ankit K. Choksi son of the assessee is carrying on business of trading in silver ornaments and he is assessed to tax prior to search. At p. 39 of assessee's paper book there is computation of income of Ankit Choksi for asst. yr. 1999-2000 which is filed on 17th June, 1999 i.e. prior to the search. At p. 40 there is trading account showing closing stock of silver articles at Rs. 1,09,575. Similarly Shri Chandravadan J. Chokshi HUF is also assessed to tax prior to the search, and stock of silver ornaments with him as on 31st March, 1999 was Rs. 2,30,754. In the above circumstances, we do not find any justification for disbelieving the submission of the assessee that at the time of search silver ornaments seized from business premises included the silver ornaments belong to the trading business of Ankit Choksi at 18.332 kgs. and Chandravadan J. Choksi at 61.289 kgs. The remaining silver ornaments at business premises was at 23.299 kgs. valued at Rs. 10,33,633. The gold ornaments found from business premises were valued at Rs. 20,600. Thus the total value of gold/silver articles found from assessee's business premises which can be said to be relating to or received from moneylending business of the assessee is Rs. 10,44,233. The income offered by the assessee is Rs. 15,23,633. Therefore, either we consider the advance in the moneylending business or the value of total gold/silver articles relating to or derived from the moneylending business the income disclosed by the assessee is more than the unexplained investment in the moneylending business. Therefore, in our opinion there was no justification for making a further addition in this regard. Accordingly we delete the addition of Rs. 4,93,367 sustained by the CIT(A) for unexplained investment in silver articles, Rs. 20,600 in unexplained investment in gold ornaments and Rs. 6,15,315 for unexplained advances in the moneylending business.
13. Apropos ground Nos. 7 & 8 of assessee's appeal, at the time of hearing before us, it is submitted by the learned Counsel that Smt.
Sohini Choksi wife of the assessee, is assessed to tax prior to the search. The purchase of land as well as year-wise construction is duly disclosed, in her return of income filed year after year. The return of income was filed prior to the search. After the search, block assessment under Section 158BB has already been made in the hands of Smt. Sohiniben Choksi. Therefore, there is no justification for making any addition for house construction made by Smt. Sohiniben Choksi in the hands of the assessee. He also stated that in her statement Smt.
Choksi never stated that the investment in the house was made by the assessee.
14. The learned Departmental Representative on the other hand, relied upon the orders of the authorities below.
15. We have carefully considered the rival submissions and perused the material placed before us. The assessee has filed before us, the details of the computation and the balance sheet of Smt. Sohiniben Choksi from asst. yr. 1992-93 onwards. We find that the return for asst. yr. 1992-93 was filed in the month of November, 1992. Return for asst. yr. 1993-94 was filed in March, 1994. In the balance sheet of 31st March, 1993 which was filed along with that of asst. yr. 1993-94, the land as well as the building under construction was disclosed. In the statement of affairs of March, 1994 again the land and building under consideration was disclosed and this return was filed on 29th March, 1995. Similar is the position in the subsequent years. Thus when year after year Smt. Sohiniben Choksi has filed her returns of income and in the balance sheet the purchase of land as well as investment in the building construction is disclosed, in our opinion there is no justification for coming to the conclusion that the investment in the building was made by the assessee. The AO has presumed the investment in building to be made by the assessee on the only ground that during the course of search in her statement she stated that she did not know how much was incurred towards the construction of the house. However, this by itself is not sufficient to hold that the investment in the house was' made by the assessee. Smt. Sohiniben Choksi is residing in a small place Dahod and it was for the first time in her life that her statement was being recorded and if at that time she could not remember how much was incurred towards the construction of house, it cannot be inferred that the investment in the house was not made by her but by her husband. It is nowhere stated by her that the investment in the house was not made by her, The AO in the block assessment has also mentioned that she does not have any source of income. However, we find that she filed the returns year after year since 1992. The AO has not treated that income as belonging to the assessee. The AO has also issued notice under Section 158BD and made the assessment in the hands of Smt. Sohiniben Choksi under Section 158BD. In the above circumstances, in our opinion there was no justification for making the addition for investment in the house belonging to Smt. Sohiniben Choksi in the hands of the assessee especially when she is assessed to income-tax much prior to search in which the investment in the house was already disclosed year after year. Under Section 158BC the AO has to determine the undisclosed income of the assessee during the block period. Since the residential house does not belong to the assessee and moreover the construction of the house has already been disclosed to the Revenue much prior to the search, therefore, the investment in such house cannot be considered as undisclosed income of the assessee, In view of the above, we delete the addition made in respect of house belonging to Smt. Sohiniben Ghoksi.
16. Ground No. 9 is against the addition of Rs. 10,000 sustained by the CIT(A) in respect of Nepal Tour expenses. At the time of hearing before us, the learned Authorised Representative for the assessee could not give any satisfactory explanation for the sources of the above expenditure of Rs. 10,000; accordingly we do not find any justification to interfere with the orders of lower authorities in this respect.
Therefore, the addition of Rs. 10,000 is sustained. Ground No. 9 of assessee's appeal is rejected.
1. The learned CIT(A) erred in holding that your appellant had given advances of Rs. 11,15,315 outside the books of account.
2. The learned CIT(A) erred in holding that your appellant had earned interest @ 2 per cent per month on advances and further erred in confirming the income of Rs. 2,67,675.
3. The learned CIT(A) erred in confirming the addition of Rs. 20,093 being disallowance of business loss on sale of silver ornaments.
18. Ground No. 1 is only the statement of some facts and not a ground at all. Ground No. 3 is not pressed by the learned Authorised Representative of the assessee at the time of hearing. Accordingly the only ground surviving is ground No. 2 which is with regard to the addition of Rs. 2,67,675 made by the AO for interest income on the advances on moneylending business.
19. At the time of hearing before us it is submitted by the learned Authorised Representative that there was search at the residential-curn-business premises of the assessee on 20th Jan., 2000.
During the course of search it was found that the assessee was carrying on moneylending business which was not disclosed. The pawned silver articles belonging to the moneylending business were seized at the time of search and the assessee has offered the investment in the moneylending business as undisclosed income. To pay the tax on such undisclosed income the assessee has sold such pawned articles. When the pawned articles have been sold, naturally no borrower would repay the borrowed money to the assessee. Therefore, where is the guestion of receiving interest by the assessee.
20. The learned Departmental Representative could not controvert the above submissions made by the learned Authorised Representative. While disposing of the assessee's appeal for the block period we have noted that, out of the silver articles found at the business premises valued at Rs. 15,83,470 the silver articles valued at Rs. 15,17,000 was seized by the Revenue. Such silver articles were utilized only for the payment of taxes by the assessee. In fact, in the same assessment year, i.e., for asst. yr. 2001-02 the assessee has claimed the loss on the sale of such silver articles which were sold for the payment of taxes of undisclosed income. When the pawned silver articles have already been sold there is no question of recovery either of principal amount advanced or the interest thereon. In view of above we delete the addition of Rs. 2,67,675 made by the AO for interest deemed to be receivable from the advances in moneylending business.
21. In the result, assessee's appeals are partly allowed while the Revenue's appeal is dismissed.