1. These two cross-appeals-one by the assessee and Anr. by the Revenue in addition to the assessee's cross-objection emanate from the order passed by the CIT(A) on 10th April, 2001 in relation to the block period ending on 15th July, 1998 comprising of the asst. yrs. 1989-90 to 1999-2000.
2. First ground of the assessee's appeal is general containing summary of all the additions made and sustained, which have been specifically spelt out in further grounds.
3. Ground No. 2 is against the confirmation of addition of Rs. 40.000 on account of unexplained cash. Briefly stated, the facts of the case are that the assessee was subjected to search action under Section 132(1) on 15th July, 1998. In the course of search, cash of Rs. 47,760 was found out of which a sum of Rs. 40,000 was seized. On being called upon to explain the source of the cash, it was stated by the assessee during the course of assessment proceedings that he, in his preliminary statement recorded on the date of search viz. 15th July, 1998, had claimed to have Rs. 35,000 at his residence. A sum of Rs. 1,47,500 was withdrawn by the assessee from his bank account No. 4879 with SBBJ on 16th April, 1998 and out of that, gold worth Rs. 50,000 was purchased from Ghanshyam Soni, an amount of Rs. 50,000 was given to his wife Smt.
Santosh Soni in cash and the balance amount of Rs. 47,500 was lying at his residence.The AO did not accept the assessee's explanation because though the sum of Rs. 1,47,500 was withdrawn from the bank on 16th April, 1998 but its application claimed for purchase of gold worth Rs. 50,000 and equal sum stated to have been given to his wife was not verifiable. The AO observed that the assessee had not given complete address of the said Shri Ghanshyam Soni nor produced voucher for the purchase of gold worth Rs. 50,000. It was further noticed that the cash was withdrawn on 16th April, 1998 and no record was maintained indicating day-to-day incoming and outgoing and hence the cash balance of Rs. 47,760 was not subject to verification. He however, accepted the genuineness of cash to the extent of Rs. 7,760 and made addition for the balance amount of Rs. 40,000 under Section 69A of the Act. No relief was allowed in the first appeal.
4. We have heard both the sides and perused the relevant material on record. The undisputed fact is that the assessee was doing the work of goldsmith. Earlier he was doing the job of Nagina setting but later on started doing jobs of manufacturing (including jobs of polishing and nagina setting). It is further not disputed that the assessee had not maintained his books of account. Returns for the asst. yrs. 1989-90 to 1992-93 were not furnished as in his opinion the income was below the taxable limit and hence there was no requirement for filing of return.
However, return for the asst. yrs. 1993-94 and 1994-95 were filed on 20th Oct., 1994 and the computation of income and capital account for the asst. yrs. 1989-90 to 1992-93 were furnished along with the return for the asst. yr. 1993-94. This fact is corroborated from p. 17 of the assessment order. No return for the asst. yr. 1995-96 was filed as the income was below the taxable limit. Again returns for the asst. yrs.
1996-97 and 1997-98 were filed on 31st March, 1998 and 31st Oct., 1998 respectively. Search action was taken on 15th July, 1998 and the return for the asst. yr. 1998-99 was filed on 30th Oct., 1998. Since no books of account were maintained by the assessee for and upto the year of search, the assessee furnished copies of balance sheet, capital account and year-wise cash flow statement before the AO on the basis of the returns earlier filed and considering the transactions for the years in which the returns were not filed as the income was below taxable limit.
Such year-wise detail starting from asst. yr. 1989-90 upto asst. yr.
1998-99 are available on pp. 196 to 275 of the paper book. Though such details were made available to the AO but he refused to take cognizance of the same on the ground that these were made after the date of search incorporating the transactions found recorded in note books, loose papers and bank transactions. Such finding is contained in para 26 of the assessment order. As would be seen infra that the AO took into consideration these statements of the earlier years including balance sheet etc. for making addition on account of household expenses. Hence on the one hand he refused to consider these details enabling the assessee to explain the source of transactions, on the other, he considered those very details for making addition on account of household expenses. Such a course of action blowing hot and cold in the same breath cannot be upheld. Be that as it may, the crucial question which looms large over the landscape of the factual matrix of the instant case is to decide as to whether or not the assessee is entitled to furnish cash flow statement to explain the transactions, when no books of account are maintained? In our view the reply to this question has to be in affirmative for the obvious reason that all the transactions, assets or incomes of a person, not maintaining books of account, cannot be said to be undisclosed income, moreso when the income earned is negligible not warranting the maintenance of books of account as per the provisions of the Act and the assessee is regularly assessed to tax having filed his returns of income in due course. If the view of the AO is accepted, it would play havoc upon such small assessees and would bring both the disclosed and undisclosed income within the purview of 'undisclosed income'. In such circumstances it becomes the duty of the AO to verify the balance sheet and cash flow statement, etc., with the necessary material including the details already available, filed along with the returns in the past. The so-called incriminating material gathered during the course of search is required to be tallied with the cash flow statement and the additions are to be made only for the amounts which are not properly explainable. We are therefore, unable to endorse the opinion of the authorities below on this count.
5. Adverting to the facts of the case, it is noted that the first balance sheet filed by the assessee is for the asst. yr. 1989-90 and no return was filed for this year because the income was below the taxable limit at Rs. 17,400. A detailed chart incorporating the assessment years from 1989-90 to 1998-99 with the amount of income declared and the dates of furnishing the returns, wherever the income is taxable, has been made available at p. S-l of the paper book. As per balance sheet and capital account furnished for asst. yr. 1989-90, we note that the closing capital balance has been taken at Rs. 71,118. It is further observed that the. assessee had not filed his return of income for the first time in 1994. Rather he is an existing assessee since several years back. The copy of the income-tax assessment order of the assessee for the asst. yr. 1979-80 has been placed on record. This order was passed on 9th July, 1980 in which total income after deductions was assessed at Rs. 10,670. Considering the totality of the facts, the age of the assessee and Anr. necessary material we find that there is no reason to doubt the availability of this much capital. For all the subsequent years the assessee has made available capital accounts, balance sheets and cash flow statements, the particulars of which tally with the chart of incomes as per returns already filed contained in p.
S-l of the paper book.
6. The dispute in this ground is the addition of Rs. 40,000 on account of the availability of cash as on the date of search. From the deposition of assessee recorded on the date of search we find that it was made clear that he had withdrawn a sum of Rs. 1,47,500 from the bank on 16th April, 1998 out of which gold was purchased for Rs. 50,000, an equal amount was given to his wife and the balance amount was available with him. The withdrawal of the sum from bank on this date is duly verifiable from the copy of bank statement placed on record and that fact has also not been disputed by the AO. The only reason for which the AO had not accepted the claim of the assessee in this regard is that the assessee had not adduced any evidence for the purchase of gold worth Rs. 50,000. It is strange that the AO is not accepting the utilization of cash on the ground that the purchase voucher was not available. There is every reason for the AO to doubt a transaction in which a bill is found during the course of search and the source of spending the amount is not coming up. We are confronted with a converse situation in which no bill for purchase of gold was found and the assessee's explanation for having spent a sum of Rs. 50,000 out of the amount withdrawn from bank, on this transaction has been found unacceptable by the AO. It is further noticed that the AO doubted the availability of cash from bank on the ground that the amount was withdrawn on 16th April, 1998 whereas the search took place on 15th July, 1998. Here it is important to note that we are dealing with a search case in which each and every aspect, nook and corner of the assessee's premises is thrown open before the search team and there is no possibility of anything escaping the attention of the officers.
There is no reference in the assessment order, even remotely suggesting the utilization of the sum of Rs. 1,47,500 elsewhere, withdrawn by the assessee from bank. On the perusal of the cash flow statement for the period 1st April, 1998 to 15th July, 1998, copy placed at p. 261 of the paper book, it is palpable that the withdrawal of Rs. 1,47,500 is duly reflected and the closing cash balance on the date of search is at Rs. 97,198.05, which is certainly more than Rs. 47,760 found at the time of search. Under these circumstances we are of the considered opinion that no addition on this count is warranted. We, therefore, order for the deletion of addition of Rs. 40,000. 7. Ground No. 3 of the assessee's appeal and ground 1 of the Revenue's appeal deal with the addition on account of unexplained investment in gold ornaments. The facts apropos of this ground are that gold ornaments weighing 939.8 grams (net) were found during the course of search. On being show caused to explain the source of this gold jewellery, it was stated by the assessee that gold ornaments of 959.364 grams belonged to the following persons:1. Anand Soni, HUF as per WT assessment order 644.436 gms. (net) for asst. yr. 1985-863. Smt. Santosh Devi received through will 198.280 gms. (net) 959.364 gms. (net) The assessee enclosed copies of wealth-tax assessment orders for asst.
yr. 1985-86 in the case of Shri Anand Prakash Soni (HUF) and wealth-tax assessment order in the case of Shri Suraj Prakash Soni assessee's brother for the asst. yr. 1985-86. The AO did not accept the explanation of the assessee because of the statement given by him and his wife at the time of search. He extracted some portions of the statements recorded under Section 132(4) and thereafter discussed the availability of gold jewellery vis-a-vis the assessee's contention separately. He noted that Shri Anand Prakash Soni (HUF) had claimed gold jewellery of 644.436 grams (net) as belonging to it in the light of the wealth-tax assessment order passed for the asst. yr. 1985-86 in which the assessee's net wealth was determined inclusive of this much of gold jewellery. He did not accept the possession of the gold jewellery to this extent for the reason that the assessee had not furnished any wealth-tax return after asst. yr. 1985-86 and further no list of ornaments was ever filed. As regards the gold ornaments of 116.640 grams purchased by the assessee Shri A.P. Soni were concerned, that was also not accepted because the assessee had not furnished the bill of Shri Ghanshyam Soni from whom the gold was allegedly purchased and the payment of Rs. 50,000 was stated to have been made out of cash withdrawal of Rs. 1,47,500. The claim of Smt. Santosh Soni having received 198.280 grams (net) gold jewellery by way of Will of late Shri Ramchandra was also not accepted by the AO because she had not disclosed this fact at the time of search. It was further observed by the AO that the assessee's brother Shri Suraj Prakash had also claimed to have received jewellery from Shri Ramchandra Soni as per his Will.
It was also noticed that sale bill of gold ornament issued by one Shri Ramchandra Swarankar was found during the course of action under Section 132(1) in which the name of the assessee was shown as seller for 139.75 grams and that of his wife Smt. Santosh Bala was shown as seller for 585.2 grams. The AO however accepted that Smt. Santosh Soni, the wife of the assessee received 62 tolas of gold ornaments at, the time of her marriage and the assessee received a gift of ornaments of 3.69 tolas. Accordingly it was held that 70 tolas of gold ornaments were received by the assessee and his wife at the time of their marriage. Resultantly, an addition for 876 grams (939.8 minus 63.8 grams {possession of 70 tolas accepted to have been received by the assessee and his wife at the time of marriage minus 63.79 tolas sold}) was made which amounted to Rs. 3,74,052. In the first appeal the learned CIT(A) came to the conclusion-that total gold ornaments weighing 815.149 grams were acceptable. This included 644.436 grams possessed by the HUF, 198.28 grams received by assessee's wife out of the Will of Shri Ramchandra and 72.433 grams (equivalent of 6.21 tolas) accepted by the AO himself. Accordingly he restricted the addition to Rs. 10,526 by allowing the relief of Rs. 3,63,526. Both the sides are in appeal against their respective stands.
8. We have heard the rival submissions and perused the relevant material on record. It is noticed that the total gold ornaments found during the course of search were to the tune of 939.8 grams. As per the wealth-tax assessment order of Shri Anand Prakash Soni (HUF), the possession of gold jewellery was determined at 644.436 grams. The AO did not accept the same for the reason that the assessee had not furnished copy of list of ornaments attached with the wealth-tax return for asst. yr. 1985-86 nor any such return was filed thereafter. It is severely plain that the possession of gold ornaments weighing 644.436 grams of Shri Anand Soni (HUF) has been accepted by the Department in the asst. yr. 1985-86. There is absolutely no reason as to why this explanation be not accepted on the flimsy grounds such as non-furnishing of the copy of list of ornaments attached with the return of wealth. Unless the assessee claims or the Revenue brings on record some evidence showing the dispossession of jewellery, the claim for its possession cannot be negatived. Coming to the receipt of gold ornaments by Smt. Santosh Soni, wife of the assessee, as per the Will of Shri Ramchandra Soni weighing 198.280 grams, we find that the Will was found during the course of search and one of the other legatees namely Shri Suraj Prakash Soni, assessee's brother, also claimed receipt of gold jewellery through this Will. The copy of the Will is available at p. S-31 to S-32 of the paper book and the name of Smt.
Santosh Devi against whom 20 tolas are mentioned, find its due place.
We further note that the Tribunal in the case of Shri Suraj Prakash Soni has accepted the receipt of gold jewellery out of the Will of Shri Ramchandra. Copy of such order is available at p. S-211 onwards of the paper book and the relevant discussion is made on p. S-237. These facts indicate that there cannot be any reason for doubting the receipt of gold jewellery of 198.280 grams by Smt. Santosh Soni as per the Will of Shri Ramchandra. We further find that the assessee, had claimed to have purchased gold jewellery of 116.64 grams from one Shri Ghanshyam Soni with Rs. 50,000 withdrawn by him, from his bank on 16th April, 1998.
The source of the amount is duly explained as having come out of the withdrawals made from the bank. In these circumstances there cannot be any ground for not accepting the purchase of gold to this extent. We further observe that the AO himself had accepted the receipt of gold ornaments of 70 tolas by the assessee and his wife on their marriage.
The AO has further taken note of the fact that the assessee and his wife have sold 744.95 grams of gold. When this position is considered, the final availability of gold comes out to be as under :(i) Anand Prakash Soni HUF (as evidenced by WT order) 644.436 gms.(ii) Smt. Santosh Soni (as per Will of Shri Ramchandra 198.280 gms.
Soni and accepted in the case of assessee's(iii) Anand Prakash Soni (purchased) 116.640 gms.(iv) Smt. Santosh Soni and Shri Anand Soni 186.480 gms.
(on marriage, 70 tolas) Less : Sold (63.79 tolas) 744.950 gms.
Balance gold ornaments which should be Hence, it is clear that the gold jewellery which should have been available with the assessee comes at 1030.886 grams, as against which gold ornaments weighing 939.800 grams were found during the course of search. In such circumstances there cannot be any addition on account of unexplained investment in the gold jewellery, The ground taken by the assessee is allowed and that of the Revenue is dismissed.
9. Ground Nos. 4 and 5 of the assessee's appeal and ground No. 6 of the Departmental appeal deal with the addition on account of unexplained bank deposits. The facts of these grounds are that the assessee maintained bank account No. 4879 in his name and another account No.4880 in the joint names of self and wife with SBBJ. Cash deposits in these accounts during the block period were as under : The AO observed that the assessee could not satisfactorily explain the sources of these deposits in the bank accounts. Resultantly addition for Rs. 28,000, Rs. 40,000, Rs. 25,000, Rs. 56,000 and Rs. 15,000 were made in the asst. yrs. 1989-90, 1991-92, 1992-93, 1996-97 and 1997-98 respectively. In the first appeal the learned CIT(A) got partly satisfied with the assessee's explanation and sustained the additions of Rs. 28,000, 15,000 and Rs. 25,000 as unexplained bank deposits. Both the sides are in appeal against their respective stands.
10. We have heard both the sides and perused the relevant material on record. The AO has made the additions by considering the entries of deposits in the bank accounts of the assessee. The learned CIT(A) allowed relief on account of entries which were individually explained by the assessee but sustained the addition for the amounts which were generally explained. Insofar as the allowing of part relief is concerned, we find that the sources thereof were clearly explainable and the learned CIT(A) had rightly proceeded to delete these additions.
Now turning to the additions sustained for the asst. yr. 1989-90, it is noticed that the cash flow statement for this year is available at p.
198 of the paper book from which it is apparent that the three entries namely Rs. 5,000, Rs. 11,000 and Rs. 12,000 are shown to have been deposited in bank on 9th March, 18th March and 21st March, 1989. We have dealt with the reliability of the balance sheets, income statements, capital accounts and cash flow statements for the asst.
yrs. 1989-90 to 1998-99 in one of the foregoing paras. Since the entries totalling Rs. 28,000 are duly reflected in the cash flow statement for the asst, yr. 1989-90, in our considered opinion there is no ground for not accepting the source of these entries. Insofar as two entries of Rs. 25,000 and Rs. 15,000 representing the deposits in the bank on 11th Feb., 1991 and 25th Feb., 1992 (wrongly mentioned in the assessment order as 25th Feb., 1991). are concerned, we note that the entry of Rs. 25,000 finds its place in cash flow statement for the asst. yr. 1991-92, a copy of which is available at p. 208 of the paper book. The other entry of Rs. 15,000 is a deposit of cheque received from one Shri Narpat Singh Kothari on 25th Feb., 1991 which was withdrawn and given back to him after 3 days. Both the entries of debit and credit for Rs. 15,000 each can be found in the copy of bank statement placed before us. The AO has considered only one side of the pass book namely the deposits and ignored the other side, namely the withdrawals. Since an equal amount was received and returned to a party which is duly reflected in the pass book, there is no occasion for making addition only for the deposit of the amount. Coming to the amount of Rs. 25,000 accepted by the learned CIT(A) we find same is also shown in the cash flow statement. All the relevant receipts and payments shown in the cash flow statement in this year are reconcilable with the entries recorded in balance sheet and capital account of the assessee. The learned CIT(A) deleted the additions of Rs. 56,000 and Rs. 15,000 on account of deposits in bank account in the asst. yrs.
1996-97 and 1997-98. These transactions are also duly reflected in the cash flow statements for the concerned period. In our considered opinion the learned CIT(A) rightly deleted the additions partly but was not justified in sustaining the remaining additions on this count because the deposits emanated from the regular sources declared in cash flow statements. We, therefore, direct the deletion of this addition in entirety. The grounds raised by the assessee are allowed and that of the Revenue is dismissed.
11. Ground No. 6 of the assessee's appeal and Ground No. 7 of the Revenue's appeal relate to addition on account of investment in household items. In the course of such operation some household articles were found. The assessee was also found to be the owner of car and scooter. The assessee explained the investment made in the purchase of vehicles and Anr. household articles as under:Si. Name of articles Investment Financial Mode ofNo. Yr.
Payment5.
BPL Washing Machine (in 8,800 1998 Cash the name of Santosh) The assessee, in his statement under Section 132(4) admitted that the investment in the household articles was not recorded anywhere as he was not maintaining any account books. In the course of assessment proceedings it was contended that all the household articles and vehicles were duly considered in the balance sheets of the respective assessment years and hence no addition was called for. Not convinced, the AO made addition of Rs. 5,000, Rs. 9,000, Rs. 22,000, Rs. 7,150, Rs. 2,300, Rs. 31,500 and Rs. 8,800 in the asst. yrs. 1989-90, 1993-94 to 1997-98 and 1999-2000 respectively. The learned CIT(A) treated the items other than scooter and car as explained. Resultantly the addition was restricted to Rs. 47,000 and relief was allowed for Rs. 38,750.
Both the sides are assailing the impugned order to the extent it is adverse to their interest.
12. Having considered the rival submissions and gone through the necessary material on record, we find that all the household items have been duly recorded in the cash flow statements of the respective years.
The purchase of car is shown in cash flow statement for the period 1st April, 1996 to 31st March, 1997 at p. 245 of the paper book. This amount of car is duly reflected in the balance sheet for the year ending 31st March, 1997. Similar is the position for the purchase of scooter which has been shown in the cash flow statement at p. 223 of the paper book and equal amount is shown in the balance sheet for the year ending 31st March, 1994 at p. 221 of the paper book. Regarding the other items which have been treated as explained by the learned CIT(A), we find that these are normal household items like freeze, sofa set and geyser etc. These small amounts totalling Rs. 38,750 spreading over a number of years cannot be doubted and have to be treated as out of the withdrawals for household expenses. In our considered opinion the learned CIT(A) rightly deleted the addition to the extent of Rs. 38,750 but erred in sustaining the addition on account of purchase of scooter and car. We, therefore, order the deletion of the entire addition.
13. Ground No. 8 of the assessee's appeal and Ground Nos. 10, 11 and 12 of the Departmental appeal relate to'the estimation of income as per Annex, A-2, 6 to 9. The facts apropos of these grounds are that these annexures are the note books and loose papers found during the course of search containing details of ornaments got manufactured through artisans. The assessee had recorded weight of gold with impurity received from customers for renovation/remaking of gold ornaments, details of items, weight returned to the customers, weight of wastage, weight of alloy mixed and payments paid to artisans. The AO has drawn charts at pp. 19 and 21 to 26 of the assessment order showing the details such as weight of, gold ornaments, job charges received, impurities mixed etc. on the basis of these annexures. Three types of calculations were made for making additions. We will discuss each of them separately.
14. First calculation is made vide para 37 of the assessment order for the asst. yrs. 1997-98, 1998-99 and 1999-2000 in which the starting point is the quantity of gold, ornaments manufactured by the assessee on the basis of loose papers. The assessee is not disputing the quantity noted by the AO. The AO noticed that these annexures contained detail of job charges received on certain occasions. It was contended by the assessee that job charges were not received separately but gold was retained in lieu of alloy/impurity mixed in the gold ornaments. The AO did not find this contention to be acceptable for the reason that the assessee in his statement under Section 132(4) has admitted that he charged Rs. 6 per gram as job work and out of it, Rs. 3 per gram was paid to artisans. It was further admitted by the assessee that the gold ornaments were made of 22 ct. whereas the assessee charged the amount of pure gold. The AO further observed that the diaries and note book did not give complete and true picture as the names of the customers and their addresses etc. were not properly recorded. In the light of these facts the AO estimated job charges @ Rs. 30 per gram for these three years and multiplied it with weight of the gold ornaments calculated on the basis of the annexures. He than calculated profit on account of retention of gold in lieu of the alloy mixed by applying 11.83 per cent on the amount of investment in gold ornaments worked out by multiplying the quantity of gold as per annexures with the rate of gold per 10 grams. This percentage of 11.83 consisted of two parts, viz., 8.33 per cent being the difference between 24 ct. to 22 ct. and 35 per cent being the soldering made of copper/silver. Accordingly addition of Rs. 2,02,314 was made in the asst. yr. 1997-98, Rs. 6,17,194 in the asst. yr. 1998-99 and Rs. 5,98,893 in the asst. yr.
1999-2000. In the first appeal the learned CIT(A) opined that there was no material,with the AO to estimate job charges @ Rs.. 30 per gram. He, therefore, deleted the addition to that extent. About the other part of the addition in all the three years, he reduced the rate to 09 per cent instead of 11.33 per cent applied by the AO. Both the sides are in appeal on their respective stands.
15. We have heard both the sides and considered the material available on record. We have also looked into the copies of annexures produced before us on the basis of which additions were made. At the outset we would like to mention that the case before us through these grounds is not a- mere estimation of undisclosed income by the AO. It is the making of estimate from the incriminating material found in the search which did not contain complete particulars to enable the AO for working out the exact undisclosed income. Section 158BC permits the AO to determine the undisclosed income for the block period and the applicability of the provisions of Sections 144 and 145 has been duly enshrined. The nutshell of this legal position is that where incriminating material is found in search showing the fact of assessee having earned the income but the details are not sufficient, then the AO gets empowered to make a fair estimate of the income on the basis of such material. Adverting to the facts of the instant case we note that the seized material contained details at certain places showing the receipt of job charges. On the perusal of these annexures with the assistance of the assessee in person we have observed that in some cases job charges have been shown separately along with the difference in value between 24 ct. and 22 ct. and in certain other cases only the assessee had received the excess of gold resulting from the alloy mixed. We note that the AO has not only applied 8.33 per cent rate representing the difference between 24 ct. to 22 ct. but also added 3.5 per cent on account of mixing of copper alloy. Naturally when 8.33 per cent is considered as assessee's retention on account of mixing of alloy, there cannot be any question of adding 3.5 per cent again towards the profit of the assessee on account of retention of gold.There is no material to show that the assessee had received 3.5 per cent extra in addition to 8.33 per cent. We further note that the assessee had mentioned in his statement that he was charging Rs. 6 per gram as job work out of which Rs. 3 per gram was paid to artisans.
Considering both the aspects being the receipt of job charges and profit on account of retention of gold in lieu of alloy mixed, we are of the considered opinion that the learned CIT(A) was justified in applying 9 per cent rate towards the assessee's profit (net after deducting the job charges paid to artisans). This would take care of both the components namely, job charges and profit on account of retention of gold in lieu of alloy mixed.
16. Second calculation made by the AO is at p. 24 of the assessment order according to which he made addition of Rs. 5,09,345 in asst. yr.
1997-98, Rs. 1,98,215 in asst. yr. 1998-99 and Rs. 13,626 in asst. yr.
1999-2000. These amounts of additions pertained to the business of Nagina setting. It was noticed that as per details available in Annex.
A-8 from pp. 25 to 94, the assessee carried out the work of nagina setting. These details were in the shape of weight of gold ornaments, weight of stones, name of artisans through whom the work was got done, wastage, weight of gold ornaments returned and payments made to customers. Name of the customers and job charges received were not recorded in this note book. On being called upon to explain the reasons for not recording the job charges, it was stated that no job charges were received as the assessee retained gold in lieu of impurity mixed.
It was also claimed that some wastage was given to the artisans. It was further clarified that the assessee had not retained any gold in view of the impurity mixed as the gold ornaments given to artisans were out of gold ornaments in Annex. A-8 recorded from pp. 1 to 25 in respect of which he had shown job receipts and wastage retained. The assessee gave few examples to show that the gold ornaments remade were sent for Nagina setting. Such reconciliation is tabulated on p. 23 of the assessment order. For example page No. 1 of Annex. A-8 shows weight received from artisans at 128.400 grams which was sent for polishing and thereafter for Nagina setting through Annex. A-8 p. 53 with the weight of 127.400 grams. It was noticed by the AO that the assessee did nagina setting work in respect of gold ornaments weighing 10269.17 grams as per Annex. A-8. The year-wise break-up was found at 7249.380 grams (for asst. yr. 1997-98), 2821,880 grams (for asst. yr. 1998-99) and 197.910 grams (for asst. yr. 1999-2000 upto 15th July, 1998). It was opined by the AO that this quantity of 10269 grams of gold ornaments was in fact got manufactured by the assessee and also the work of Nagina setting was got done through artisans. He took these figures for the three years as the basis for making addition.
Accordingly he worked out job charges at the rate of Rs. 30 per gram and also applied 11.83 per cent being the profit on account of retention of gold in lieu of alloy mixed. From this figure he allowed deduction being the wastage to artisans. This resulted into the additions at the above referred amounts. The learned CIT(A) deleted this addition in entirety.
17. We have heard both the sides and gone through the relevant material on record. The case of the AO is that the weight of gold ornaments at Annex. A-8 from pp. 25 to 94 represents the manufacturing work got done by the assessee on which it had received job charges at Rs. 30 per gram and profit on account of retention of gold in lieu of the alloy mixed.
On the contrary it has been vehemently argued by the assessee's counsel that these pages represent the gold ornaments sent for Nagina setting out of those which were got manufactured by the assessee through Annex.
A-8 pp. 1 to 25. It is found that the AO has himself recorded a finding that there is no mention of the receipt of impurity by the assessee in the shape of job charges on these pages. We further find that the total of gold ornaments got manufactured by the assessee in these three years comes to 17760 grams which has been considered for the purposes of making addition vide calculation No. 1 discussed in an earlier para. On the contrary, the total of pages of Annex. A-8 pp. 25 to 94 being considered by the AO for making addition in this calculation towards Nagina setting comes to 10268 grams. We find that though the calculation has been made by the AO in three different years for the total gold ornaments got manufactured by the assessee, but there is no solid reason for bifurcating the total into the three years namely, 1997-98 to 1999-2000. The details as per annexures do not bear any date at most of the places. In such circumstances there should have been no reason to view the assessee's contention with suspicion on this aspect.
Moreover we find that the assessee has reconciled some details of Annex. A-8 from pp. 1 to 24 with those sent for Nagina setting recorded on pp. 25 to 94 of Annex. A-8. Such details are contained in para 41 of the assessment order. Considering the totality of the facts we are of the considered opinion that the entries on pp. 25 to 94 of Annex. A-8 were the details of gold ornaments sent for Nagina setting which were not manufactured by the assessee and income therefrom has been considered as per calculation No. 1 above. In our opinion the learned CIT(A) was justified in deleting this addition.
18. Calculation No. 3 made by the AO at page No. 26 of the assessment order is for the asst. yrs. 1995-96, 1996-97 and 1997-98. He found that Annex. A-6 and A-7 contained details of job work of Nagina setting done by the assessee in the period from 3rd Nov., 1994 to 1st March, 1996.
The details such as name of the person whose job work of Nagina setting was done, weight of ornament, number of stones fitted, weight of stone, wastage, rate per nag and total job charges received were recorded in this diary. The assessee had shown income on account of job receipts in the details furnished by him through balance sheets, income statements, capital accounts and cash flow statements for these assessment years at Rs. 34,047. Rs. 68,614 and Rs. 20,882 respectively. From the detail of these amounts it was observed by the AO that the assessee had not shown the impurity retained by him in the chart. It was explained that in these years the assessee was carrying out only the work of Nagina setting and no gold ornaments were got manufactured by it. The assessee was asked to furnish name and address of the customers from whom gold ornaments were received for the purposes of Nagina setting but no such details was furnished. Since the assessee was carrying out the same business of manufacturing of gold ornaments, it was held by the AO that the assessee's explanation was not acceptable. Accordingly he calculated job charges at the rate of Rs. 30 per gram, profit on account of retention of gold in view of alloy mixed at 11.83 per cent and also added the job charges shown by the assessee amounting to Rs. 34,047, Rs. 68,614 and Rs. 20,882 towards Nagina setting. This resulted into making of additions at Rs. 2,49,301, Rs. 5,52,635 and Rs. 1,48,525 in the asst. yrs. 1995-96 to 1997-98. In the first appeal, the learned CIT(A) deleted the addition of job charges @ Rs. 30 and also profit on account of retention of gold at 11.83 per cent. He however, sustained the addition at the amounts shown by the assessee himself towards job charges and the value of wastage as per chart on p. 25 of the assessment order. Accordingly addition of Rs. 49,173, Rs. 1,05,456 and Rs. 29,316 was retained in these three years.
19. We have heard both the sides and gone through the relevant record.
The case of the learned Departmental Representative is that there was absolutely no material to indicate that the assessee was not getting the gold ornaments manufactured and was only doing the job of Nagina setting. She contended that the learned CIT(A) failed to appreciate that the additions made in the subsequent years of the block period were on the strength of the similar material as was available for the three assessment years considered by the AO in this calculation. On the contrary the learned Authorised Representative argued that the learned CIT(A) was not justified in sustaining the additions inclusive of job receipts which were already offered for taxation by the assessee. It was contended that the amount of job receipts shown by the assessee ought not to have been reconsidered by the CIT(A). We note that insofar as the showing of job receipts amounting to Rs. 34,047, Rs. 68,614 and Rs. 20,882 in the asst. yrs. 1995-96 to 1997-98 are concerned, the same are duly reflected in the capital accounts and cash flow statements etc. for these years. Naturally if these amounts stand included in the calculation of undisclosed income, then the same should not be reconsidered as it would amount to double addition. Now we turn to the main objection of the learned Departmental Representative that labour charges at the rate of Rs. 30 per gram and profit in the shape of retention of gold at 11.33 per cent were rightly considered by the AO.We have perused the relevant pages of Annex. A-8 to take stock of the actual position. We observed from these pages that on the one side of the page the name of the person from whom gold ornaments have been received is mentioned and also the item of gold jewellery along with the weight. On the corresponding side it has been mentioned the return of the same item of gold jewellery fitted with Nagina after retaining the surplusage. In all cases the item received tallies with the item returned. This shows that the assessee was receiving the gold jewellery as such and was only deployed by the customers (mostly wholesalers) to do the job of Nagina fitting. The learned Departmental Representative was requested to go through the relevant documents of the annexure and invite our attention towards any instance where the fact of receipt of a particular item and the return of a different item was available. No such instance could be pointed out. On the contrary the assessee along with his Authorised Representative has shown that the items relating to these years pertained only to the job of Nagina fitting and no manufacturing was done by the assessee or some outsider artisan. Pages Nos. 158 to 165 of the paper book are the summary of these documents on the basis of which the AO had opined the assessee to have done manufacturing as well as Nagina fitting. On the perusal of these pages along with the photocopies of various documents of Annex. A-8 we find that the assessee was usually charging 300 milligrams of the gold against the fitting of 100 stones. The learned Departmental Representative could not draw our attention towards any paper of these annexures to show that the fact of having done manufacturing was mentioned thereon. Under these circumstances we are of the considered opinion that the finding of the AO is based on presumption and is not backed by any relevant material. In our view, the only possible addition that could have been made on this score is towards the conversion of gold wastage received by the assessee in the form of his labour and job receipts separately disclosed. The learned CIT(A) has rightly directed to consider only these two items as the undisclosed income in the three assessment years under consideration.
20. We have given our separate finding in respect of the three calculations made by the AO in the foregoing paras. The undisclosed income is to be computed on the above basis after excluding the amount already shown by the assessee and considered by the AO in the block assessment order. The AO is directed to give effect to our finding and determine the amount of undisclosed income resulting from the business operations of the assessee. It is made clear that the amount which already stands offered for taxation should not be added once again as has been discussed in the preceding para. These grounds are allowed pro tanto.
21. Ground No. 7 of the assessee's appeal and ground No. 8 of the Revenue's appeal deal with the addition on account of household expenses. In the course of search operation, the assessee in his statement recorded under Section 132(4) gave head-wise detail of household expenses. He stated that his elder son was studying in 9th class, his younger son was also a student and the total annual school fee was at Rs. 9,200. He admitted the expenses of Rs. 1,500 per month on meals of the family, Rs. 1,500 per month on cloth, petrol, phone, electricity and entertainment etc. These details were recorded vide question Nos. 25 to 33 of his statement. Accordingly, the sum total of these household expenses was determined by the AO at Rs. 35,780. In addition to that the assessee also admitted that he made a religious trip to Mata Vaishno Devi with his family in June, 1996 and spent Rs. 7 to 8,000. Besides, that he admitted to have paid land and building tax of Rs. 15,710. The AO observed that the assessee had not maintained any books of account. He, therefore, estimated the household expenses, withdrawals disclosed as per the balance sheets filed and thereafter determined the amount of unexplained household expenses as under :Asst. yr.
Estimated HH Withdrawals Unexplained Exps.
Made HH expenses The learned CIT(A) sustained addition of Rs. 23,700 being the amount of land and building tax and the amount spent on visit to Mata Vaishno Devi. The remaining amount of addition was deleted on the premise that it was made by the AO on estimate basis. The Revenue is disputing the excess relief allowed, whereas the assessee has challenged the sustenance of partial addition. 22. We have heard the rival submissions and perused the relevant material on record. It has been vehemently argued by the learned Authorised Representative that the addition was totally unwarranted because it was made by the AO on account of his estimate of household expenses. He invited our attention towards certain decisions in which the addition made on estimate basis of household expenses was deleted by the Tribunal, as being outside the purview of block assessment. Insofar as the reliance of the learned Authorised Representative on certain decisions is concerned, we find that the ratio laid down in such cases is not applicable to the facts of the instant case. There is no quarrel over the proposition that there is no place for making estimates in the computation of undisclosed income in the block assessment. But the distinguishing feature in this case is the admission of the assessee in statement recorded, under Section 132(4) for details of expenses incurred. From the bare perusal of Sub-section (4) of Section 132, it is discernible that the statement under this sub-section may be used in evidence in the proceedings under this Act. We are equally conscious of the fact that the assessee can come out of the rigour of his admission by retracting. In such a case the onus is very heavy upon the assessee to lead strong evidence in support of his retraction. Where a simple statement is made retracting from the deposition under Section 132(4), that cannot be accepted. Be that as it may, we find that here the assessee had admitted the amount of household expenses in his statement and the contents thereof have not been disputed. We further find that the assessee's statement would carry more weight in the instant case because no books of account were maintained by him. Under these circumstances such a deposition made by the assessee would become evidence in the block assessment proceedings and constitute the basis for addition. This view has been taken by us on an earlier occasion also. In the light of this position we are not inclined to accept the assessee's contention in this regard.
23. We observe that the AO has framed this block assessment in a very peculiar manner, inasmuch as he has not only included the incomes earned by the assessee but has also brought the expenditures incurred and investments made within the purview of block assessment. If a person earns Rs. 100, out of which a sum of Rs. 60 is spent on household expenses, Rs. 30 is invested and the remaining sum of Rs. 10 is kept in hand, the addition which can be made is of Rs. 100 being the income earned by the assessee. There may be another possibility in which the AO may. compute the income on the basis of the amount spent by the assessee and retained in the shape of investments etc. In this example again the amount of Rs. 100 (Rs. 60 + Rs. 30 + Rs. 10) would become the subject-matter of taxation. In no situation the income can be taken at more than Rs. 100 by considering the income earned and also the amount invested. We are confronted with a case in which the AO has made addition for more than Rs. 100. In the first instance he computed the income earned by the assessee from his business and then he also taxed the household expenses, investments made etc. This course of action adopted by the AO has no legal sanctity. He could have either considered the income aspect or the expenditure and investment aspect and not a combination of these two. In the foregoing paras we have adjudicated upon the inclusion of income earned by the assessee from his business during the block: period. There is no warrant for making separate additions towards household expenses incurred out of such income. In this view of the matter we are of the considered opinion that no addition at all was justified towards household expenses.
24. Ground No. 9 is against the confirmation of additions on account of undisclosed income for non-furnishing of returns of income for the asst. yrs. 1989-90 to 1992-93, 1995-96 and-1997-98. The AO noted that the assessee had income from job work of gold ornaments etc. but the returns of income for asst. yrs.1989-90 to 1992-93, 1995-96 were not furnished before the due dates. He, therefore, held that the provisions of Section 158BB were attracted. It was further noticed that the returns of income for asst. yrs. 1997-98 and 1998-99 were filed on 31st Oct., 1998 after the date of search though the due date of filing such returns had already expired. By taking assistance from the case of Komal Wazir v. Dy. CIT (SS) A No. 295/Mum/1997, dt. 1st Jan., 1999 it was held that the contention of the assessee of his not having any obligation to file the return of income for the years in which it did not exceed the maximum (sic-minimum) taxable limit, could not be accepted. He, therefore, included the undisclosed income as shown by the assessee in his computation of income, balance sheet and cash flow statement etc. for the asst. yrs. 1989-90 to 1992-93, 1995-96, 1997-98 and 1998-99. In the first appeal the learned CIT(A) held that the AO was justified in including the income for asst. yrs. 1989-90 to 1992-93, 1995-96 and 1997-98. As regards the asst. yr. 1998-99 it was held that since the assessee had furnished return after the date of search, the undisclosed income computed for this year was to be substituted with the income shown by the assessee for this year after search because the return was filed after the search and it was not the declared income.
25. We have heard the rival submissions and perused the relevant material on record in the light of precedents cited before us. The question which falls for our consideration is to decide as to whether or not the income as per the returns not furnished for the years prior to the date of search is liable to be included in the undisclosed income? Insofar as the income of the years which is below taxable limit and the returns were not furnished, the same are liable to be excluded by virtue of amendment to Section 158BB(1)(b) carried out with retrospective effect from 1st July, 1995. The Hon'ble Kerala High Court in the case of CIT v. MM. Thomas has held that the income below the taxable limit of previous years could not be included as undisclosed income of the block period. In view of these facts and the amendment carried out, it becomes apparent that the income for asst. yrs. 1989-90 to 1992-93 and asst. yr. 1995-96 could not have been included in the block assessment as the income in these years is below the taxable limit. We find that for the asst. yr. 1997-98 the income has been declared and assessed at Rs. 62,484. The return for this year was filed on 31st Oct., 1998 which is within the time prescribed under Section 139 and Section 158BB provides for its exclusion. This ground is, therefore, accepted.
26. Ground No. 10 regarding the charging of interest under Section 158BFA(1) was not pressed by the learned Authorised Representative.
27. Ground No. 2 of the Revenue's appeal is against the deletion of addition of Rs. 77,500 made for unexplained investment in deposit with CRB. The facts of this ground are that the assessee deposited a sum of Rs. 1 lakh as per Annex. A-2 p. 2 with CRB on 23rd Dec, 1995. On being called upon to explain the source of investment it was stated that he received a gift of Rs. 20,000 from Shri Naresh Soni and similar amount was gifted by Smt. Neeta Soni to his wife. It was explained that these amounts were received through cheque and the amount was transferred to his bank account No. 4879 from account No. 4880. It was further explained that a sum of Rs. 22,800 was received from LIC and then cash of Rs. 7,200 and Rs. 30,000 was deposited in his bank. Thereafter a cheque of Rs. 1 lakh was issued in favour of CRB Capital Market Ltd. The amount of Rs. 37,200 was already surrendered by the assessee in asst. yr. 1996-97. The AO observed that Shri Naresh Soni and Smt. Neeta Soni had confirmed that they had not made any gifts to any person. Accordingly the AO treated Rs. 77,500 as unexplained investment and made addition for the same. The learned CIT(A) deleted this addition.
28. Having regard to the facts of the case and the relevant material before us we observe that the gifts were received by the assessee along with his wife through account payee cheque and the evidence of having received the cheques was found during the course of search. The remaining amount of Rs. 37,500 has been rightly attributed by the learned CIT(A) to have come out of job receipts on the basis of various annexures. We have discussed in an earlier para that where income has been taken on the basis of income earned then no addition should be made for the investments made out of such income. In our considered view, the learned CIT(A) was justified in deleting this addition.
29. Ground No. 3 is against the deletion of addition of Rs. 6,639 in asst. yr. 1996-97 and Rs. 17,481 in asst. yr. 1997-98 on account of interest on deposit with CRB. The AO found that a sum of Rs. 1,75,000 was invested by the assessee in CBR Capital Fixed Deposit Scheme on 23rd Dec, 1995 for one year, the principal with interest of Rs. 21,708 was received on 16th Dec, 1996 and thereafter a sum of Rs. 1,75,000 was again deposited with CRB on 24th Dec, 1996. It was explained by the assessee that a cheque of Rs. 1,50,000 was received against the sale proceeds of house owned by the assessee and his father. This cheque was deposited in the bank account No. 4880 and then the amount was invested in CBR Capital Fixed Deposit Scheme. The AO charged Rs. 6,639 and Rs. 17,481 to tax in asst. yrs. 1996-97 and 1997-98 respectively towards the amount of interest. However, no doubt was raised as regards the source of Rs. 1,50,000 as no addition was made on this score. In the first appeal the learned CIT(A) deleted this addition.
30. We have heard both the sides and gone through the relevant material on record. The evidence for the sale of house at Rs. 1,50,000 in the shape of sale deed is available at pp. 142 to 146 of the paper book. As per this sale deed the house was sold on 3rd Nov., 1995. The AO was right in accepting the source of deposit but was unjustified in treating the interest income in the hands of the assessee for the reason that the house belonged to the HUF and to his father Shri Manohar Lal Soni. It is further found that Shri Anand Prakash Soni HUF was assessed to wealth-tax for the asst. yr. 1985-86 and this house was shown as HUF's house and was admitted by the AO while passing the order. Under these circumstances there was no question of taxing the interest income in the hands of the present assessee. We uphold the impugned order on this score.
31. Ground No. 4 is against the deletion of addition of Rs. 10,000 made on account of unexplained investment in KVP in the name of minor son.
On being show caused to explain the source of investment, it was explained that the amount was invested out of his regular business funds and was duly recorded in the cash flow statement. Not convinced, the AO made the addition which came to be deleted in the first appeal.
We have perused the cash flow statement for the period 1st April, 1995 to 31st March, 1996, copy placed at p. 237 of the paper book in which the said investment is duly reflected. In our considered opinion the AO was not justified in making any addition out of the amounts shown in cash flow statement which is made out of the income duly assessed. This ground is not accepted.
32. Ground No. 5 is against the deletion of addition of Rs. 12,883 made on account of unexplained deposit in the bank account in the name of Smt. Santosh Devi the wife of the assessee. She had deposited a sum of Rs. 1,90,000 in her bank account and the source of which was stated to be sale proceeds of her gold ornaments amounting to Rs. 1,77,117 and the remaining amount of Rs. 12,883 was shown to have been invested out of her petty savings. The AO accepted the source of Rs. 1,77,117 but made the addition for the remaining amount of Rs. 12,883. The learned CIT(A) deleted this addition. We find that the lady got married in the year 1982 and the possession of this much amount cannot be held to be unreasonable out of Stridhan. In our opinion the learned CIT(A) rightly proceeded to delete this addition. This ground is not accepted.
33. Ground No. 9 is against the deletion of addition of Rs. 1,20,000 made on account of unexplained investment in the property. The assessee purchased a house in co-ownership with his wife and father for Rs. 3,90,000. During the course of statement it was admitted that the house was purchased for this amount. However, it was admitted that if valuation made by DVO came at a higher figure he would pay that tax. On a reference, the DVO estimated the value of the house at Rs. 5,10,000 and the AO made addition of Rs. 1,20,000 in assessee's hands as his undisclosed income. The learned CIT(A) deleted the same. It is noted that the main basis for making the addition is the difference in the value determined by the DVO and that shown by the assessee in the sale deed. Apart from the DVO's report no material was found in the search which could show that the assessee had made more investment than that declared in the sale deed. The Hon'ble Bombay High Court in the case of CIT v. Vinod Danchand Ghodawat has held that no addition of undisclosed income can be made only on the basis of DVO's report. We note from the assessment order that as per the AO, the assessee had admitted to surrender the amount for taxation on the basis of DVO's report. We have perused his statement, copy of which is available at p. 319 of the paper book. The assessee had stated in answer to question No. 2 that he was ready to pay tax as per rules. He has not surrendered the amount of Rs. 1,20,000 for taxation. Apart from that, we find that the house was purchased by three persons and the assessee was one of the co-owners. In these circumstances we find no justification in making addition of Rs. 1,20,000. We hold that the learned CIT(A) rightly proceeded to delete this addition.
34. The cross-objection filed by the assessee is simply in support of the reliefs allowed in the first appeal. As the Departmental appeal has been separately disposed of, the cross-objection becomes infructuous.
35. In the result, the appeal of the Revenue is dismissed, the CO. of the assessee has become infructuous and the appeal of the assessee is partly allowed.