1. This appeal of the assessee has been directed against the block assessment order of the Asstt. CIT, Cir. 1(1), Jalandhar, for the block period from 1st April, 1985 to 10th Oct., 1995.
2. During the course of hearing of the appeal, the assessee vide his letter dt. 24th Feb., 2005 requested for admission of the following additional ground of appeal: 1. That the learned AO has erred in making the following additions since no evidence has been found during the course of search: (a) Addition on account of foreign remittance in the name of self and wife.
(b) The other additions were also not liable to be made since no evidence has been found during the course of search and treatment of same as undisclosed income on the basis of presumption is uncalled for.
3. The learned Counsel for the assessee, Sh. Sudhir Sehgal, submitted that the additional ground raised by the assessee is purely legal in nature for which all relevant facts are already on record. The case does not warrant any further investigation into the facts. Relying on the judgment of Hon'ble Supreme Court in the case of National Thermal Power Co. Ltd. v. CIT , the learned Counsel for the 4. The learned CIT (Departmental Representative), Sh. Kuldip Singh, on the other hand, opposed the admission of additional ground. He drew our attention to letter dt. 19th Jan., 2006 of Shri P.S. Sachdev, the then Addl. CIT (Tribunal), where objections to the admission of the additional ground have been submitted in writing. He submitted that these may also be taken into account. In the written submissions, the learned Departmental Representative has submitted that the Tribunal being the final fact finding authority, it is its fundamental duty to unveil the device to determine the true nature of a transaction.
However, it is settled law that the Tribunal cannot travel beyond the subject-matter of appeal. New legal issues can be considered for the first time by the Tribunal, yet this power cannot transcend the entire assessment and cannot consider in its scope issues which are not a matter of controversy between the two parties at the stage of assessment or before the CIT(A). The learned Departmental Representative has further submitted that where an additional ground seeks to narrow down or destroy the scope of the earlier grounds, it can no longer be termed as an additional ground. Relying on the judgment of Hon'ble Calcutta High Court in the case of Indian Steel & Wire Products Ltd. v. CIT , the learned Departmental Representative has submitted that an additional ground or plea which altogether changes the complexion of the case as originally brought before the first appellate authority and the Tribunal in the second appeal cannot be raised at the stage of hearing before the Tribunal. He has also stated that Rule 11 of the ITAT Rules, 1963, confers inherent power on the Tribunal to admit a new ground. However, Rule 11 must be read as subservient to the provisions of the Act providing for right to appeal. He relied on the judgment in the case of CIT v. Karamchand Premchand (P) Ltd. (1969) 72 ITR 254 (Guj) (But there is no such judgment reported in 72 ITR 254) [It should be 74 ITR 254-- Ed.] in support of his contention that if a particular point is decided by the AO and such point is not considered by the first appellate authority, then additional ground cannot be permitted. He has also stated that block assessment in this case was completed in October, 1996. The additional ground being raised by the assessee is taken after a gap of 9 years. The learned Departmental Representative has, therefore, submitted that the additional ground should not be admitted.
5. We have heard both the parties and have carefully considered the rival contentions. This appeal relates to block assessment completed by the AO under Section 158BC of the IT Act, 1961 (in short 'the Act').
This is the first appeal before the Tribunal against the block assessment. It is no doubt true that this issue was not raised before the AO during the course of block assessment proceedings. Nevertheless, it is purely a legal issue for which relevant facts are already on record. Their Lordships of Supreme Court in the case of National Thermal Power Co. Ltd. v. CIT (supra) have observed that the power of the Tribunal vested under Section 254 in dealing with appeals is expressed in the widest possible terms. The purpose of the assessment proceedings before the taxing authorities is to assess correctly the tax liability of an assessee in accordance with law. The Hon'ble apex Court has further observed that there is no reason to restrict the power of the Tribunal under Section 254 only to decide the grounds which arise from the order of the CIT(A). Both the assessee as well as the Department have a right to file an appeal/cross-objection before the Tribunal. The apex Court further observed that the Tribunal should not be prevented from considering a question of law arising in assessment proceedings, although not raised earlier provided all relevant facts relating to such issue are already on record. When the request of the assessee for admission of additional ground is seen in the light of the ratio of the aforesaid judgment, it is clear that the ground is purely legal in nature, for which relevant facts are already on record. Therefore, relying on the judgment of apex Court in the case of National Thermal Power Co. Ltd. v. CIT (supra), the additional ground raised by the assessee is admitted.
6. As regards the merits of the additional ground, the learned Authorised Representative submitted that the IT authorities carried out search and seizure action at the premises of the assessee on 10th Oct., 1995. Notice under Section 158BC was issued and served on the assessee.
The assessee filed return for block assessment on 18th April, 1996 declaring therein income of Rs. 12,72,470. The learned Authorised Representative further submitted that during the course of search total assets worth Rs. 48,35,978, which also included undisclosed household expenses amounting to Rs. 1.20 lakhs were found and the assessee had himself disclosed the same vide his letter dt. 3rd June, 1996, which was a reply to the questionnaire issued by the AO. The sources of the same were also disclosed at p. 10 of the paper book and the balance amount of Rs. 12,72,470 was disclosed in the block return as income from undisclosed sources. He submitted that during the course of search evidence in the form of copies of foreign bank drafts received and credited in the bank accounts of the assessee were found. Similarly, bank passbooks where the said drafts were credited were also found during the course of search. The assessee was being assessed to income-tax in the earlier assessment years. However, no books of account had been maintained. The income was shown purely on estimate basis. He submitted that there was no evidence to show that the assessee had managed/obtained these bank drafts by making payments from undisclosed income. He submitted that scope of block assessment under Chapter XIV-B is confined only to determine undisclosed income on the basis of material found during the course of search. He submitted that in the present case, there was no evidence found during the course of search to show that the assessee had obtained/received foreign bank drafts out of undisclosed income. Therefore, no addition in respect of the same could be made while completing the block assessment.
7. The learned CIT (Departmental Representative), Sh. Kuldip Singh, on the other hand, submitted that it is incorrect to say that the AO has made addition by referring to any document which was not found during the course of search. He submitted that in the present case the copies of 17 foreign bank drafts received by the assessee were found and seized during the course of search. Besides, the bank passbooks of the assessee, where these foreign bank drafts were credited, were also found during the course of search. He referred to pp. 3 and 4 of the assessment order, where the assessee was questioned about the names and addresses of the persons from whom these bank drafts had been received.
The assessee expressed his inability to indicate their names and addresses either in India or abroad. He submitted that the assessee also took contradictory stands. Initially, he submitted that the accounts received were interest-free loans. Later, he submitted that these were a kind of 'Amanat' from friends. He further stated that during the course of block assessment proceedings, the assessee was issued a questionnaire to furnish the value of total assets owned by the assessee. In reply thereto, the assessee furnished details of assets worth Rs. 48,35,975. In order to explain the source of acquisition of these assets, the assessee submitted that these were acquired out of foreign remittance of Rs. 24,95,862 in his name and Rs. 9,46,998 being foreign remittances received by his wife. Thus, it is the assessee who had sought assistance of the foreign remittance in order to explain the source of undisclosed assets. Therefore, it is not correct to say that the Revenue has made the addition by relying on any evidence or material which was not found during the course of search.
Thus, the learned Departmental Representative has contended that the additional ground deserves to be dismissed on merits.
8. We have heard both the parties at some length and have given our thoughtful consideration to the rival submissions, examined the facts, evidence and material placed on record. The undisputed facts of the case are that the search and seizure action was carried out at the premises of the assessee on 10th Oct., 1995. During the course of search, certain books of account/documents and valuables were found and seized. The assessee was carrying on the business of pawning of jewellery and making sale of gold ornaments. No doubt, the assessee was being assessed to tax right from the asst. yr. 1986-87 onwards.
Admittedly, the assessee had not maintained any books of account. The income was being shown on estimate basis, without there being any copies of P&L a/c, balance sheet and capital account, etc. The income shown in the regular returns filed from the asst. yrs. 1986-87 to 1995-96 prior to the date of search varied from Rs. 16,000 to Rs. 75,000, in all aggregating to Rs. 3,41,061. The assessee also admitted that income disclosed in the regular returns was sufficient to meet household expenses. In fact, the assessee had also included undisclosed income of Rs. 1,20,000 utilised for meeting unaccounted household expenses. Therefore, apparently, the value of assets disclosed at Rs. 48,35,978 could not be linked to income disclosed in the regular returns filed before the date of search. It is also a fact that during the course of search and seizure action, copies of foreign bank drafts indicating receipts of Rs. 24,95,862 from non-resident accounts by the assessee and Rs. 9,46,998 being foreign remittances of the wife received, were found during the course of search. Besides, copies of bank passbooks of the assessee and his wife where the bank drafts were deposited and credited, were also seized during the course of search.
It was conceded by the assessee that these receipts or bank accounts were not disclosed in the returns of income filed by the assessee prior to the date of search, though the claim of the assessee is that since no books of account were maintained, the assessee was under no obligation to disclose the same in the regular returns. It is also a fact that the assessee was questioned about the nature of transactions by way of foreign remittances in his statement recorded on 21st Dec, 1995 i.e. after the search but before the issue of notice under Section 158BC. The questions and answers have been noted on pp. 3 and 4 of the block assessment order. It is a fact that the assessee could not indicate the names and addresses of the persons from whom these foreign remittances had been received. Neither local addresses in India nor abroad of these persons were indicated. In fact, he was categorically asked as to whether he has maintained any separate details or diary anywhere else or whether any correspondence was exchanged between him and the persons who had sent money from abroad. He categorically stated that neither any details were maintained, nor any correspondence was exchanged. He stated that the only information about receipt from 10 friends or more was received on telephone. He was categorically asked to state whether the money so received was a gift or loan, to which, he replied that the money was neither loan or gift. These friends trusted him completely, although he did not remember their names. He also stated that the said money was to be kept in safe custody as 'Amanat'.
We have also referred to a copy of the assessee's reply dated nil, placed at pp. 1 to 8 of the paper book submitted before the AO during the course of assessment proceedings. On p. 6 at sl. No. 17, the assessee had categorically stated that the amounts received from NRIs were not gifts, but were in the nature of loans. These were returnable by the assessee and represented his liability. Thus, the original stand of the assessee that these NRIs remittances were loans and his subsequent statement that these were 'Amanat', were actually contradictory. Be that as it may, the AO has not made any separate addition on account of the unexplained foreign remittances. The basis of the addition remains the investment in assets of the value of Rs. 48,35,978, for which, there is no dispute with regard to their value.
9. Chapter X1V-B of the Act was inserted by the Finance Act, 1995 w.e.f. 1st July, 1995, which provides a special procedure for assessment in search cases. Section 158BC provided the procedure for block assessment in cases where search and seizure action was carried out by the IT authorities under Section 132(1) of the Act. Section 158BD, however, deals with the procedure of block assessments in cases other than those of the persons searched under Section 132(1) and where during the course of search and seizure action of the person searched, evidence or material has been found indicating the undisclosed income of a person other than that searched by the IT authorities. The procedure for block assessment is separate and distinct from that for regular assessments. This is a code in itself. Section 158BB(1) deals with computation of undisclosed income of the block period. The same provides that computation of the undisclosed income of the period shall be the aggregate of the total income of the previous years falling within the block period computed in accordance with the provisions of the Act, on the basis of evidence found as a result of search, or requisition of books of account, or other documents and such other materials or information as are available with the AO and relatable to such evidence, as reduced by the aggregate of the total income, or as the case may be, as increased by the aggregate of the losses of such previous years. This section was amended by the Finance Act, 2002 with retrospective effect from 1st July, 1995 when the expression 'relatable to such evidence was added to the then existing provisions. From the provisions of the Act, it is absolutely clear that the scope of block assessments is confined to computation of undisclosed income, on the basis of evidence found as a result of search, or requisition of books of account, or other documents and such other materials or information as are available with the AO and relatable to such evidence.
10. Now it is a fact that in this case, the search and seizure action carried out by the IT authorities revealed assets worth Rs. 48,35,978 during the block period. It is also a fact that the total income disclosed in the regular returns aggregated to Rs. 3,41,061. It is also a fact that the assessee declared undisclosed income amounting to Rs. 12,72,470 in the block return. It is also a fact that in order to explain the source of acquisition of the assets worth Rs. 48,35,978, the assessee took assistance in the form of foreign remittances in his own name and in the name of his wife. Further, evidence in the form of copies of foreign bank drafts and bank passbooks, where these amounts were credited were found during the course of search. The enquiries made by the IT authorities relating to foreign remittances were also on the basis of documents found and seized during the course of search.
Therefore, the same were fully covered under the provisions of Section 158BB(1) of the Act. The AO has neither referred to any material nor any document which was not found during the course of search. The learned Counsel has not been able to specify even a single document referred to by the AO for making the addition, which was not found during the course of search. The mere fact that the assessee had received amounts by way of foreign remittances does not by itself explain the source of acquisition of the assets found during the course of search. The assessee was not even able to indicate the names and addresses of the persons from whom the foreign remittances had already been received. It is pertinent to mention that the AO has not even made any separate addition on account of the unexplained foreign remittances and the assessee has not been able to link any assets acquired out of the foreign remittances for which addition has been made by the AO. The learned Counsel has relied on several judgments in support of the proposition that the undisclosed income can be determined only on the basis of evidence found during the course of search. These are as under: (i) Decision of Tribunal, Delhi Bench, in the case of Dy. CIT v. Dolly Farms & Resorts (P) Ltd. (2001) 15 IT. Rep. 159 (Del); (ii) Decision of Tribunal, Delhi Bench, in the case of Dy. CIT v. Mahavir Woollen Mills (2001) 15 I.T. Rep. 237 (Del); (iii) Decision of Tribunal, Delhi Bench [sic-Delhi High Court] in the case of CIT v. Ravi Kant Jain (2001) 15 I.T. Rep. 539 (Del): (2001) 251 ITR 141 (Del)(AT) [sic-(2001) 167 CTR (Del) 566 : (2001) 250 ITR 141 (Del)]; (iv) Decision of Tribunal, Mumbai Bench, in the case of Asstt. CIT v. Jaya S. Shetty (2000) 12 I.T. Rep. 526 (Mumbai); (v) Decision of Tribunal, Nagpur Bench, in the case of Elite Developers v. Dy. CIT (2000) 68 TTJ (Nag) 616: (2000) 73 ITD 379 (Nag); (vi) Decision of Tribunal, Mumbai Bench, in the case of Sunder Agencies v. Dy. CIT (1997) 59 TTJ (Mumbai) 610 : (1997) 63 ITD 245 (Mumbai);Harakchand N. Jain v. Asstt. CIT (viii) Decision of Tribunal, Jodhpur Bench, in the case of Chitra Devi v. Asstt. CIT (2002) 77 TTJ (Jd) 640;P.K. Ganeshwar v. Dy. CIT (2004) 91 TTJ (Chennai) 970 : (2002) 80 ITD 429 (Chennai); (x) Judgment of Hon'ble Rajasthan High Court in the case of CIT v. Rajendra Prasad Gupta (2001) 166 CTR (Raj) 83 : (2001) 248 ITR 350 (Raj); (xi) Decision of Tribunal, Chennai Bench, in the case of Vignesh Flat Housing Promoters v. Dy. CTT (2002) 77 TTJ (Chennai) 873;Smt.
Savitri Devi v. Asstt. CIT We have no quarrel with the proposition that the scope of block assessment is confined only to evidence and material found during the course of search and such other material or information as is available with the AO and relatable to such evidence. But in the present case, we find that the evidence and material relied upon by the AO relate to the documents and information seized during the course of search.
Therefore, none of these judgments is applicable to the facts of the present case. Thus, we do not find any merit in the submissions of the additional ground of the assessee. Accordingly, the same is rejected.
11. Now we take up regular grounds of appeal taken in the memorandum of appeal. At the outset, the learned Counsel for the assessee submitted that ground No. 7 relating to rejection of the claim of the assessee for not allowing deduction of income of Rs. 2,55,000 for the asst. yr.
1996-97 reflected in the books of account in the form of note pads seized during the course of search, ground No. 8 relating to non-deduction of income for the asst. yr. 1995-96, ground No. 9 relating to not taking correct figures of undisclosed income for the asst. yrs. 1991-92, 1992-93,1994-95 and 1995-96, respectively, are not pressed. Therefore, these grounds are dismissed as not pressed.
Similarly, ground No. 10 is general in nature, which does not call for any comments. Therefore, the same is dismissed as such.
12. The remaining grounds which require adjudication by the Bench are as under: 1. That the AO has erred in making addition of Rs. 33,00,000 on the ground that assets of the assessee to that extent were unexplained on the date of the search (10th Oct., 1995).
2. That the AO has erred in not giving credit for full income disclosed in the return in Form 2B. 3. That the AO has erred in not giving credit for money left by father.
4. That the AO has erred in not excluding assets acquired out of income already assessed.
5. That the AO has erred in holding that foreign remittances received by the assessee are not genuine.
6. That the AO has erred in holding that foreign remittances received by the wife of the assessee are not genuine. This finding is not relevant in the case of the assessee. Her remittances may be excluded.
13. The facts common for all the above-mentioned grounds are that the assessee vide his letter dt. 3rd June, 1996, furnished the list of all assets along with their value to the AO and these aggregated to Rs. 48,35,975. This also included unaccounted household expenses of Rs. 1,20,000. As regards the source of acquisition of these assets, the assessee explained as under:(i) Capital acquired over the years 1,00,000(ii) Gold sold in 1987 1,15,000(iii) Money/investment left by father in 1990 in the form of cash/gold/other assets 2,50,000(iv) Sale proceeds of old house 1,95,000(v) Undisclosed income shown in the block assessment return 12,72,470(vi) Foreign remittance from NRE a/cs in the name of self 24,95,862(vii) Foreign remittance received by wife 9,46,998 --------------- The assessee submitted that the normal household expenses were met out of the income disclosed in the regular return. Thus, it was submitted that the source of assets including undisclosed household expenses aggregating to Rs. 48,35,975 stood fully explained by sources of Rs. 53,75,330. The AO examined the explanation of the assessee and observed that there was no evidence with regard to the money left by the assessee's father in the year 1990. He observed that the assessee did not furnish any evidence that his late father had assets worth Rs. 2,50,000 available at the time of his death and these were handed over to the assessee. He also observed that the capital of Rs. 1 lakh acquired over the years by the assessee along with the sale proceeds of gold and old house appeared to be acceptable. He also observed that the undisclosed income of Rs. 12,72,470 disclosed in the return for block assessment could also be considered for acquiring the assets. As regards the foreign remittance received by the assessee and his wife, the AO observed that these amounts flowed into the bank account of the assessee only in September, 1994. These were represented by immediate withdrawals of the same. He supported his observation with the fact that at the time of search, assets worth the total amount of foreign remittances were not found. He also observed that during the course of search block assessment proceedings, the assessee failed to furnish exact details of the names and addresses of the persons from whom the foreign remittances had been received. The assessee could not even furnish the Indian addresses of the alleged foreign remitters. He also referred to questions asked by the AO and the answers given by the assessee during the course of the statement recorded by the AO on 21st Dec, 1995. He also referred to the faxed copies of certain letters allegedly received from some of the non-residents, who alleged to have sent the money to the assessee. He observed that a perusal of those letters revealed that these were fabricated documents as the language of the letters was stereotyped and as they appeared to have been written in the same hand. He also observed that signatures of the alleged foreign remitters were different from the signatures as appended in the bank record. He particularly referred to the signatures of S/Sh. Shiv Kumar, Sarabjit Behl, K.S. Sahota and Pardeep Kumar. He also noted that the amounts received by the assessee, which were claimed to be 'Amanats' of the non-residents, represented mostly withdrawals from non-residents external accounts. He observed that the amounts deposited in non-residents accounts carried a higher rate of interest on which even no income-tax was chargeable. Thus, he did not agree with the explanation of the assessee that these persons had kept huge amounts as 'Amanat' without charging any interest, particularly when this involved substantial monetary loss of interest which was otherwise tax free. The AO also took note of the fact that the entire deposits were received in a short period of 3 months followed by immediate withdrawals. Thus, he concluded that the assessee had tried to give a colour of 'white money' to his undisclosed funds/assets through these bank entries by first receiving the alleged foreign remittances and then withdrawing the same for handing over the same money to the persons from whom or through whom the alleged foreign remittances were received. He also observed that the assets equal to the value of foreign remittances to the extent of Rs. 34,42,830 were also not found in the course of search. He further supported his finding with the observation that if the amounts were received as 'Amanat', how the assessee was able to tell their names and addresses and how he intended to return the said amount to those persons. Thus, the AO concluded that the so-called foreign remittances received by self and his wife were nothing but the assessee's own undisclosed funds routed through bank transactions. He, therefore, declined to give any credit against the assets owned by the assessee. The AO observed that the assessee had declared undisclosed interest income from pawning to the extent of Rs. 11,00,000 in the returns filed for block assessment.
In addition, the AO also observed that the claim of the assessee for capital acquired by the assessee at Rs. 1,00,000, gold sold in 1987 at Rs. 1,15,000 and sale proceeds of old house at Rs. 1,95,000 seemed to be acceptable. He has allowed credit for the same aggregating to Rs. 4,10,000. Thus, the total of these amounts along with undisclosed interest income of Rs. 11,00,000 disclosed from pawning business comes to Rs. 15,10,000 (Rs. 11,00,000+ Rs. 4,10,000). After adjusting the amount of Rs. 15,10,000 against the total value of assets declared by the assessee at Rs. 48,35,975, the AO observed that the source of acquisition of assets worth Rs. 33,00,000 remained unexplained. He, therefore, made the addition for the same accordingly. While making addition, the AO did not allow any credit for the amount of Rs. 2,50,000 stated to have been received from the father. The assessee is aggrieved with the order of the AO. Hence, this appeal before this Bench.
14. The learned Counsel for the assessee, Sh. Sudhir Sehgal, submitted that during the course of assessment proceedings, the assessee had filed detailed replies placed at pp. 1 to 16 of the paper book. He drew our attention to p. 1 of the paper book, where it was mentioned that the assessee's father died on 3rd Sept., 1990, at the age of 65 years.
He was carrying on business as a goldsmith and had never maintained any books of account. The assessee had also explained that his father was residing with him and his other two brothers had separated from his father. It was also submitted that since no books of account had been maintained by his father, he could not furnish any documentary evidence of what he had left at the time of his death. He was assessed to tax.
Even the copies of assessment orders were furnished. He referred to p.
1 of the paper book. Thus, the learned Counsel submitted that considering these facts, it is reasonable to presume that a person who worked as a goldsmith for about 45 years should be possessed of 60 to 65 gms. of gold and some cash. Thus, the assessee had claimed credit of Rs. 2,50,000 for the same. The AO has rejected the claim on the ground that no documentary evidence has been furnished by the assessee. The AO has also observed that apart from the assessee, there were his two other brothers, who must have also received their share from the father. But the learned Counsel submitted that the AO totally lost sight of the fact that the assessee's father was staying with the assessee. He contended that the credit of Rs. 2,50,000 should be allowed. He further stated that a sum of Rs. 1,00,000 being capital of the assessee over the years, was accepted by the AO as per para 3 at p.
3 of the assessment order. However, no credit for the same has been allowed by the AO while computing the undisclosed income. The learned Counsel for the assessee further submitted that foreign remittances worth Rs. 9,46,998 were received by Smt. Sunita Verma, wife of the assessee. He referred to p. 9 of the assessment order, where the details of two drafts received by wife are separately indicated. He further submitted that Smt. Sunita Verma was being assessed to tax separately. If the AO was not satisfied about the genuineness of those remittances, he should have made the addition in her hands under Section 158BD of the Act, even though, these drafts were credited to the joint account of the assessee and his wife. Thus, he submitted that there was no justification for making an addition of Rs. 9,46,998.
14.1 He further submitted that there is no doubt about the fact that the assessee had received foreign remittances of about Rs. 34 lakhs. He submitted that necessary evidence in the form of copies of bank drafts, through which the amounts were received along with bank passbooks of the assessee and his wife wherein these amounts were credited, were found during the course of search. These have also been admitted by the AO vide his letter dt. 20th March, 2007 filed before the Tribunal. He submitted that all throughout the assessee had stated that these were neither gifts nor loans. However, when the attention of the learned Authorised Representative was drawn to p. 6 para 17 of the paper book, which is a copy of the reply submitted before the AO, where it was stated that the foreign remittances were not gifts but were in the nature of loans, the learned Counsel did not make any further submission on this point. However, he submitted that during the course of the statement recorded by the AO, as referred to at pp. 3 and 4 of the assessment order, the assessee had submitted that he did not know either the local or the foreign addresses of the persons, who remitted the amounts. But during the course of block assessment proceedings, the assessee filed photocopies of the letters of the persons who had sent the foreign remittances. These amounts were remitted from NRE accounts of the persons residing abroad, the details whereof are at pp. 28 to 30 of the paper book. He submitted that these confirmatory letters along with copies of bank drafts are placed at pp. 31 to 58 of the paper book. He submitted that the AO has observed that the amounts received by way of foreign remittances by the assessee and his wife were nothing but the assessee's own secret funds routed through bank transactions in the shape of foreign remittances. He submitted that during the course of search, no evidence was found which could show that the assessee had given his own money for obtaining foreign remittances. He submitted that the addition made by the AO falls in the realm of surmises and conjectures. No addition for the same can be made in the block assessment on the basis of such surmises and conjectures. He relied on the following judgments:Monga Metals (P) Ltd. v. Asstt. CIT (iii) Decision of Tribunal, Nagpur Bench in the case of Elite Developers v. Dy. CIT (supra);D.N. Kamani (HUF) v. Dy. CIT (1999) 65 TTJ (Pat)(TM) 504 : (1999) 70 ITD 77 (Pat)(TM); (v) Decision of Tribunal, Kolkata Bench, in the case of Jt. CIT v. The Gramophone Co. of India Ltd. .
15. The learned Departmental Representative, on the other hand, heavily relied on the block assessment order. He submitted that the case of the assessee requires to be examined in the light of the fact that in the regular returns filed for the various assessment years, the assessee had declared very nominal income on estimate basis. During the course of search, incriminating documents, materials and assets came to light.
On the basis of search, the assessee himself admitted undisclosed income of Rs. 12,72,470 in the block return. During the course of search, foreign remittances to the tune of Rs. 34.80 lakhs received during the period of 3 months from September, 1994 onwards, followed by immediate withdrawals of the same, came to light. Neither the bank accounts where these amounts were credited nor the foreign remittances were ever disclosed by the assessee in the regular returns. Therefore, the entire addition made in the block assessment is based on the documents, materials and evidence found during the course of search.
The AO has not made any addition on the basis of any material which was not found during the course of search. He further stated that the factum of the asses see owning assets worth Rs. 48,35,975 is not in doubt, as the details for the same were furnished by the asses see himself. The AO has not made any addition on account of the foreign remittances. It is only the asses see who has tried to explain the source of assets found during the course of search with the help of the foreign remittances. He submitted that in the present case, the asses see was not able to indicate the names and addresses of the persons, both local and foreign from whom foreign remittances were received: In fact, the asses see submitted that no such details had been maintained.
He also drew our attention to p. 4 of the assessment order, where the asses see had subsequently stated that the amounts received by way of foreign remittances were as 'Amanat' whereas earlier, it was stated that the amounts in question were loans from friends. He submitted that the AO has rejected the claim of the asses see by taking notice of all material facts. Relying on the judgment of Hon'ble Supreme Court in the case of Sumati Dayal v. CIT , the learned Departmental Representative submitted that the issue in question requires to be decided after considering the surrounding circumstances and applying the test of human probability. He further relied on the decision of Tribunal, Amritsar Bench in the case of A.P.S. Associates (P) Ltd. v.Asstt. CIT (2006) 101 TTJ (Asr) 15 : (2006) 101 ITR 215 (Asr)(AT) where, by relying on the judgment of Hon'ble apex Court in the case of Sumati Dayal v. CIT (supra), it was held that the onus for proving the source of credits in the accounts of the asses see was purely on the asses see and such issues need to be decided by applying the test of preponderance of human probabilities. He further stated that the asses see had not produced any evidence about the money left by the father.
In the absence of any evidence, the AO was justified in not allowing the credit for the same. As regards the foreign remittance received in the name of the assessee's wife, the learned Departmental Representative submitted that it is a fact that the amounts were credited in the joint bank account of the asses see and his wife. He relied on the judgment of Hon'ble Kerala High Court in the case of P.K.Narayanan v. CIT in support of the contention that if the source of the amounts held in the name of the wife was not proved, addition could be made in the hands of the husband. He further submitted that it is not a case where the AO has made the addition merely on the basis of suspicion and conjectures. Addition has been made on the basis of concrete evidence found during the course of search. Thus, he submitted that the order of the AO does not merit any interference.
16. We have heard both the parties in extenso and have given our thoughtful consideration to the rival contentions, gone through the facts, evidence and material placed on record. We have also referred to the relevant pages of the paper book to which our attention has been drawn. The undisputed facts of the case are that although the asses see was being assessed to tax right from the asst. yr. 1986-87, only a nominal income varying from Rs. 16,000 for the asst. yr. 1986-87 to Rs. 75,000 for the asst. yr. 1995-96 aggregating to Rs. 3,41,061 was declared in the regular returns. The asses see has also admitted that such income has been utilised for meeting the household expenses. In fact, the value of the assets disclosed at Rs. 48,35,975 also included an amount of Rs. 1,20,000 being unaccounted household expenses met out of undisclosed income. This fact again confirms the position that the source of the assets disclosed did not relate to the income disclosed in the regular returns. It is also a fact that income was declared on estimate basis and no books of account had been maintained. It is also a fact that the total value of assets including unaccounted household expenses, as admitted by the asses see, aggregated to Rs. 48,35,975.
This is so declared and accepted by the Revenue. It is also a fact that in the block return, the asses see himself declared undisclosed income of Rs. 12,72,470. All these assets of Rs. 48,35,975 have been acquired during the block period. Now the only question that requires to be decided by this Bench is whether on the basis of the evidence and material on record, it could be said that the asses see has explained the source of acquisition of the assets.
16.1 The first aspect that requires to be decided is about the source of capital of Rs. 1,00,000 accumulated over the years. On p. 3 of the block assessment order, the AO has categorically stated that the capital acquired by the asses see, shown at Rs. 1,00,000, seems to be acceptable apart from sale proceeds of gold and old house. At p. 7 of the block assessment order, the AO has allowed credit of Rs. 1,00,000 for the capital acquired over the years, sale of gold in 1987 at Rs. 1,15,000 and sale proceeds of old house at Rs. 1,95,000 in all aggregating to Rs. 4,10,000. In addition, he has allowed credit for undisclosed interest from pawning of jewellery to the extent of Rs. 11,00,000. Thus, credit has been allowed to the asses see to the extent of Rs. 15,10,000, i.e., Rs. 4,10,000 + Rs. 11,00,000. After reducing this amount of Rs. 15,10,000 from the total value of the assets at Rs. 48,35,975, the AO has made the addition of the remaining amount of Rs. 33,00,000. Therefore, we do not find any merit in the ground of appeal of the asses see that grant of Rs. 1,00,000 has not been allowed to the asses see. Therefore, this ground of appeal is dismissed.
16.2 The next aspect of the case that requires to be examined is whether the source of acquisition of assets to the extent of foreign remittances of Rs. 34,00,000 in the name of self and wife could be accepted or not. Before deciding this matter, we wish to make it clear that the AO has not made any separate addition on account of unexplained foreign remittances. The AO has not accepted the explanation of the asses see with regard to the source of acquisition of the assets out of foreign remittances. While dealing with the additional ground of appeal, we have already rejected the said ground for the reason that the AO has not made any addition on any other basis except by relying on the documents and material seized during the course of search, which, inter alia, also included bank drafts and bank passbooks wherein the foreign remittances were credited and these were not disclosed to the IT Department. There is no quarrel with the proposition of the learned Authorised Representative that Chapter XIV-B is a code in itself and deals with the procedure for computation of undisclosed income of the block period. We also agree with the submission of the learned Counsel that the scope of block assessment is confined only to the material and evidence found during the course of search. Sub-section (b) of Section 158B defines undisclosed income as under: Section 158B(b) : 'Undisclosed income' includes any money, bullion, jewellery or other valuable Article or thing or any income based on any entry in the books of account or other documents or transactions, where such money, bullion, jewellery, valuable article, thing, entry in the books of account or other document or transaction represents wholly and partly income or property which has not been or would not have been disclosed for the purposes of this Act, or any expense, deduction or allowance claimed under this Act, which is found to be false.
A bare reading of the above section shows that undisclosed income covers any money, bullion, jewellery or other valuable Article or thing or any income based on any entry in the books of account or other documents or transactions, where such money, bullion, jewellery, valuable article, thing, entry in the books of account or other document or transaction represents wholly and partly income or property which has not been or would not have been disclosed for the purposes of the Act. Besides, it also includes any expenses, deduction, or allowance claimed under the Act, which was found to be false. When we examine the case of the asses see in the light of the above definition of undisclosed income, there is no doubt that the asses see had not maintained any books of account. None of the assets found during the course of search was disclosed in the returns filed by the asses see because income was shown on estimate basis. Even the bank accounts had not been disclosed to the IT authorities. No evidence has been placed before us to show that these bank accounts were declared before the IT authorities. Foreign remittances credited in the said account were also not disclosed to the IT Department. Therefore, the additions made by the AO fall in the definition of undisclosed income. Nevertheless, the issue that still requires to be decided is whether on the basis of the evidence and material on record, the entire addition made by the AO to the extent of Rs. 33,00,000 is justified. As regards the source of the assets explained with the help of the foreign remittances, the AO has taken into account the following important facts while rejecting the claim of the asses see: (i) The foreign remittances surfaced in the bank account of the asses see and his wife in the month of September, 1994 and continued for 3 months. The amounts credited by way of the foreign remittances were immediately withdrawn.
(ii) Most of the assets having value of Rs. 48,35,975 stood already acquired prior to the receipt of foreign remittances. The withdrawals for the foreign remittances were not represented by any investment in the assets. The AO has categorically stated that loans advanced against pawning of jewellery exceeding Rs. 10,00,000 were lying blocked on the date of search and even before the dates of the foreign remittances. Thus, the AO has held that the source of acquisition of these assets cannot be linked with the foreign remittances and the foreign remittances were only managed to give colour of 'white money' to the assessee's undisclosed assets/funds.
(iii) The asses see has taken contradictory stands. Initially, he stated that the amounts received were in the nature of loans. Later, he stated that these were in the nature of 'Amanat'.
(iv) The asses see, in his statement recorded on 21st Dec, 1995, could not even indicate the local and foreign addresses of the persons who admitted the foreign remittances. He also denied to have maintained any such details in some diary or some other notebook, etc. There was absolutely no correspondence between the asses see and the parties who sent the foreign remittances.
It is settled law that once the amounts have been received by the asses see, the onus is on him to prove the source and genuineness of those credits. The onus is on the asses see to establish the identity of the creditors and their creditworthiness and the genuineness of the transactions. Reliance in this regard is placed on the decision of Hon'ble Calcutta High Court in the case of Shankar Industries v. CIT and two judgments of the Hon'ble Supreme Court in the cases of Sumati Dayal v. CIT (supra) and the latest judgment in the case of CIT v. P. Mohanakala (2007) 210 CTR (SC) 20 : (2007) 291 ITR 278 (SC). In the last judgment, the Hon'ble Supreme Court has held that the mere fact that the money came by way of bank cheques and was paid through the process of bank transaction was not by itself of any consequence. The issue has to be decided by taking into account proper appreciation, material and other attending circumstances available on the record. Referring to the judgment of Hon'ble Supreme Court in the case of Sumati Dayal v. CIT (supra), the Hon'ble Supreme Court has held that such matter can be decided by applying the test of human probabilities. Now in the present case, when we apply the ratio of these judgments, we find that the asses see has failed to prove the source and genuineness of these foreign remittances. There is absolutely no evidence placed on record to link a particular investment out of the foreign remittances. In fact, the AO has recorded a clear finding that most of the assets had been acquired before the date of search and before the receipt of the foreign remittances. The asses see has not placed any material or evidence before this Bench to controvert such finding of the AO. Unless any evidence is furnished by the asses see to show that the amounts withdrawn from the foreign remittances were invested in the assets, the claim of the asses see with regard to the source of acquisition of these assets out of the foreign remittances cannot be accepted, more so, when the so-called foreign remittances had not come out of the disclosed income of the asses see.
16.3 Apart from the above, the reply of the asses see to the AO placed at pp. 10 to 16 of the...explains the position with regard to the acquisition of the various assets. Para 7 on p. 13 of the paper book indicates the year-wise position of loans advanced against pawning. The year-wise position indicated therein is as under: The asses see has also added that these were advances and that as these were made for small periods, most of the amounts were received back during the year. As against the above, the asses see has shown loan advanced against pawning of jewellery at Rs. 26,51,800 in the total value of the assets at Rs. 48,35,975. The foreign remittances came in the month of September, 1994. The loans against pawning of jewellery already stood at a higher amount. The asses see could claim credit only if he could link the withdrawals out of the foreign remittances with the acquisition of the assets. There is no material or evidence placed on record. Therefore, the loans being covered out of existing assets prior to the date of receipt of the foreign remittances, the asses see is not entitled to any credit for the same. The other main asset disclosed by the asses see is residential house including plot worth Rs. 15 lakhs. The cost of construction of house property as valued by the Departmental valuer is at pp. 59 to 64 of the paper book and is indicated at Rs. 13,92,200. The period of construction has been indicated from April, 1993 to May, 1995.The foreign remittances came in September, 1994, when the major part of the house stood already constructed. In any case, the asses see has not furnished any evidence to link any part of the investment in the construction out of withdrawals made from foreign remittances. Therefore, such withdrawals cannot be linked with the cost of construction of the asses see. As regards the remaining assets, the same are of insignificant value and mostly relate to the period prior to the receipt of the foreign remittances. Thus, apart from the reasons given by the AO for not accepting the source of investment in the assets out of withdrawals from the foreign remittances, we also find that there is no evidence to link the acquisition of the assets with the withdrawals from the foreign remittances.
16.4 Further, we have already stated that AO has not made any separate addition on account of the foreign remittances. He has only considered whether the assets could be considered as explained. However, the other reasons given by the AO that the asses see failed to mention the names and the addresses of the persons from whom the foreign remittances were received, the contradictory stands that these were loans and later stating that these were 'Amanat', also go to prove that the asses see has not discharged the onus of proving the source and genuineness of such foreign remittances, much less that these were invested in the acquisition of the assets owned by the asses see. Moreover, during the course of search, no evidence, no document indicating exchange of correspondence between the asses see and the persons who remitted the amounts to the asses see, was found. When we apply the test of human probabilities, it appears strange that if they were really close friends to trust the asses see with lakhs of rupees, there is absolutely no evidence of exchange of correspondence to show such friendship. Moreover, the amounts were given out of non-resident external accounts, where interest earned on the same is exempt under the IT Act. It appears rather strange that such persons would not trust the bank and would rather trust the asses see with whom such close intimacy or relationship has not at all been established. Even the so-called confirmations filed during the course of block assessment proceedings are stereotyped letters, which again do not show their addresses in India and the nature of the amount sent. Nowhere have they stated that the amounts were as 'Amanat', as contended by the asses see. Even the factum of friendship with the asses see has not been mentioned in the letters. The mere fact that the amounts have been received from non-resident accounts and through banking channels does not by itself prove the source and genuineness of the credits. Reliance in this regard is placed on the judgment of Hon'ble Supreme Court in the case of CIT v. P. Mohanakala (supra) and the judgment of the Hon'ble Delhi High Court in the case of Sajjan Dass & Sons v. CIT (2003) 181 CTR (Del) 581 : (2003) 264 ITR 435 (Del). Thus, on the basis of such evidence and material placed on record, we are of the considered opinion that the AO was justified in not allowing credit for the foreign remittances against the source of acquisition of the assets owned by the asses see. To sum up, we conclude that addition made by the AO is justified because the assets have not been acquired out of the withdrawals from foreign remittances, no evidence to link the acquisition of assets with the foreign remittances has been adduced either before the AO or even before this Bench and even otherwise the asses see has failed to prove the source and genuineness of credits under Sections 68 and 69 by establishing the identity, creditworthiness of creditors and genuineness of transactions. It is pertinent to mention that provisions of Sections 68 and 69 have been specifically made applicable to block assessments. Thus, this ground of appeal is rejected.
17. The next ground relates to foreign remittances received in the name of Smt. Sunita Verma, wife of the asses see. It is the claim of the asses see that Smt. Sunita Verma was a separate asses see and, therefore, addition, if any, should have been made in her hands under Section 158BD of the Act. We do not find any merit in this ground of appeal of the asses see also. There is no asset owned by the wife, which has been included in the value of assets of Rs. 48,35,975. There is no evidence to link the investment in the assets owned by the asses see out of withdrawals from the foreign remittances of the wife.
Therefore, there is no question of allowing any credit of such remittances. As regards the claim of the asses see that addition should have been made in the hands of the assessee's wife under Section 158BD, we have observed that no addition has been made by the AO on account of undisclosed income represented by the foreign remittances. The issue in question is about the source of acquisition and investment made in the assets belonging to the asses see. The asses see has failed to explain.
Further, the finding recorded in respect of earlier ground would also apply to this ground of appeal. Therefore, there is no question of making any addition in the hands of the assessee's wife. This ground of appeal, being devoid of any merit, the same is rejected.
18. The last aspect of the case which requires to be considered is the credit of Rs. 2,50,000 being value of gold ornaments/money etc.
received from the father at the time of his death in 1990. The AO has rejected the claim of the asses see on the ground that there is no evidence furnished by the asses see and that further the assessee's father also had two other sons. The AO has presumed that these assets must have been distributed among his three sons. However, the reply of the asses see placed at p. 1 of the paper book shows that his father was also being assessed to tax and copies of his assessment orders were also stated to have been enclosed with the reply. The asses see had also explained that his two brothers got separated from the father much earlier and, therefore, the assets left by the father came to him alone. The asses see had also stated that his father was staying with him till his death in 1990. The AO has similarly rejected this submission of the asses see. He has not referred to the copy of the assessment order indicating the extent of income declared, as to whether it could be said that he was a man of means, capable of owning assets worth Rs. 2,50,000 which asses see claimed to have received in 1990. The AO has also not made any enquiry with the two brothers to find out whether they too had received any share out of the assets owned by the father and also whether the father was in a position to give any assets to the asses see. Once the asses see had made a specific claim before the AO, it was his duty to examine the issue further before rejecting the claim of the asses see. We are, therefore, of the opinion that the asses see is entitled to credit of Rs. 2,50,000 being assets received from his father in the absence of any enquiry and rebuttal by the AO or by the learned Departmental Representative before the Bench about the claim of the asses see. Thus, we set aside the order of the AO and direct him to allow credit of Rs. 2,50,000. This ground of appeal is allowed.
19. No other ground particularly ground Nos. 2 and 4 for not giving credit to income disclosed in Form No. 2B and excluding assets acquired out of income already disclosed was argued before this Bench.
Therefore, it is presumed that the asses see has no further grievance in the matter. These grounds are disposed of in these terms.