A. Sadasivam Vs. Assistant Commissioner of - Court Judgment

Excerpt:
1. the assesses has filed this appeal against the block assessment order dated september 30, 1997, for the block period financial year 1986-87 to august 27, 1996.2. at the relevant point of time, the assessee was working as vice president (finance), liquor division in shaw wallace and co. ltd., calcutta. a search was conducted in the residential premises of the assessee on august 27, 1996. a similar search was conducted by the department in different places relating to shaw wallace and co. ltd. during the course of search no assets were seized from the residence of the assessee. in the locker maintained by the assessee and his wife some shares of rs. 68,000 was found but not seized by the department.pursuant to the notice under section 158bc, the assessee filed return showing undisclosed.....

Judgment:
1. The assesses has filed this appeal against the block assessment order dated September 30, 1997, for the block period financial year 1986-87 to August 27, 1996.

2. At the relevant point of time, the assessee was working as Vice President (Finance), Liquor Division in Shaw Wallace and Co. Ltd., Calcutta. A search was conducted in the residential premises of the assessee on August 27, 1996. A similar search was conducted by the Department in different places relating to Shaw Wallace and Co. Ltd. During the course of search no assets were seized from the residence of the assessee. In the locker maintained by the assessee and his wife some shares of Rs. 68,000 was found but not seized by the Department.

Pursuant to the notice under Section 158BC, the assessee filed return showing undisclosed income of Rs. 2,45,670 for the block period in relation to dividends received by the assessee on shares. In the block assessment framed by the Assessing Officer ("the AO") different additions were made which are being discussed hereinafter.

3. The first addition is regarding Rs. 7.90 lakhs which according to the Assessing Officer was received by the assessee from Shaw Wallace and Co. Ltd. This issue has been discussed by the Assessing Officer in para. 3 of his order. It has been mentioned therein that during the course of search at the residence of Sri Shyam Lutheria a box containing loose papers marked as annexure A-2 was seized. Sri Lutheria's residence was searched at Bombay. According to Sri Lutheria the papers were given to him by Sri Kishore Chhabria for safe keeping.

Sri Chhabria admitted in his statement that he had given these papers to Sri Lutheria. According to the statement of Sri Lutheria, the papers contained some transactions of Shaw Wallace and Co. Ltd. Those were written by Sri Kishore Chhabria or by Sri P. R. Pandya, an ex-employee of Shaw Wallace and Co. Ltd. According to the noting of the loose papers and statement of Sri Lutheria the transactions of cash outside the regular books of account were being maintained by Sri T. S.Venkataswamy, Sri Gopalan and Sri Narayan Dadlani. Subsequently, the present assessee, i.e., Sri A. Sadasivam, as Vice President (Finance), came in place of Sri J. Gopalan. According to the statement of Sri Shyam Lotheria, the appellant, Sri Sadasivam, Sri T. S. Venkatesan and Sri Srinivasan were maintaining these cash transactions of the company.

As per the statement of Sri Pandya, the amount of Rs. 7.90 lakhs was paid to the assessee. His statement was recorded at Bombay. According to the statement of Sri Pandya, similar payments were made to Sri Venkatasan and Sri Srinivasan who were all managing the undisclosed cash accounts of the company. In view of the above mentioned circumstances, the Assessing Officer held that the amount of Rs. 7.90 lakhs should be treated as undisclosed income of the assessee.

Accordingly, the addition was made.

4. Sri S. K. Majumdar, learned counsel appearing on behalf of the assessee, has submitted that simply on the basis of the statement of two persons of Shaw Wallace and Co., viz., Sri Shyam Lutheria and Sri P. R. Pandya, the addition has been made in the hands of the assessee.

Learned counsel has brought to our notice different portions of the statement of Sri Lutheria which has been quoted in the assessment order wherein it has been mentioned that Sri P. R. Pandya had made a statement that he had given money to the present assessee. There is no other material on record to support the addition made by the Assessing Officer. Learned counsel has further submitted that nothing was recovered from the possession of the assessee nor anything was seized by the search party in support of the allegation levelled against him.

It was further submitted that the Assessing Officer has failed to give opportunity to rebut the allegation levelled against the assessee. A copy of the statement made by Sri Pandya was not supplied to the present assessee or the opportunity of cross-examination was allowed by the Assessing Officer before utilising the statement made by Sri Pandya against the assessee. Therefore, there has been a clear violation of natural justice. Learned counsel has further brought to our notice that in similar circumstances the additions made against Sri Venkatesan and Sri Srinivasan were deleted by the Tribunal. The copy of the order passed by the Tribunal in I. T. (SS) A. No. 106 (Cal) of 1999 in the case of Sri Srinivasan and T. S. Venkatesan v. Asst. CIT [2000] 74 ITD 298 (Cal), has been filed along with the compilation. In the case of T.S. Venkatesan, the same is reported in [2000] 74 ITD 298. The copy of the same has been placed on the record.

5. On the other hand, Sri D. K. Ghosh, the learned Departmental Representative, has supported the action of the Assessing Officer and submitted that on the basis of the statement of Sri Pandya the addition was rightly made in the hands of the assessee. The assessee could not controvert the statement made by Sri Pandya during the assessment stage.

6. Having heard both the sides and on a perusal of the material on record we find that a search was conducted in different places of the country in respect of Shaw Wallace and Co. Ltd. Some loose papers were found from the residence of Sri Lutheria at Bombay. Those papers were given to Sri Lutheria by Sri Kishore Chhabria of the company. In those papers some cash transactions outside the books of account were written. The papers were written by Sri Pandya, an ex-employee of the company. In his statement, Sri Lutheria has said that these affairs were being maintained by Sri Gopalan, Sri Venkatesan and thereafter, by Sri Srinivasan and Sri Sadasivam. According to the statement of Sri Pandya, he had given money to the assessee and that is the only ground for the present addition. It is an admitted fact that the assessee was not allowed to cross-examine Sri Pandya or Sri Lutheria before making the addition. It is also an admitted fact that whatever transaction of unaccounted money was being maintained by these persons, belonged to the company, viz., Shaw Wallace and Co. Ltd. There is no other material on record to support the fact that the money was given to the assessee.

Nothing was seized from the premises of the assessee. On going through the decisions of the Tribunal in the case of S. Srinivasan and T. S.Venkatesan v. Asst. CIT [2000] 74 ITD 298 (Cal), we find that their cases also stand on the same footing and considering the relevant facts in detail the Tribunal deleted similar addition made in the hands of those two persons. In view of the aforesaid circumstances, we find that there is no justification in making the addition in the hands of the assessee. Accordingly, the addition is deleted.

7. The next ground of appeal is regarding addition of Rs. 8,44,800 on account of share transactions.

8. During the course of search share certificates of Rs. 68,000 were found which was duly mentioned in the panchanama as annexure 2. At the time of filing the block return the assessee had filed a list of shares owned by him, his wife and his brother, Sri Krishnan, who was staying in USA. During the course of search, a diary was found containing the details of the share transactions maintained by the assessee which was marked as AS-2. Regarding the source of investment in shares the assessee explained before the Assessing Officer that his source of investment in shares was also in house rent allowance received by the wife of the assessee, viz., Mrs. Sadasivam. The brother of the assessee, Sri Krishnan, purchased the shares from his own income. On the basis of the diary maintained by the assessee (AS-2), the Assessing Officer came to the conclusion that certain shares were shown as to be sold. Some of the shares were shown as sold and other shares were shown as purchased. The assessee was served with notice under Section 142(1) dated September 15, 1997, in relation to the query raised by the Assessing Officer in respect of the share transactions. The assessee by letter dated September 19, 1997, asked some time for filing the details because he was away from Calcutta at that time. According to the Assessing Officer, last opportunity was allowed for September 22, 1997, for furnishing the documents. However, the assessee did not appear to file any document. Accordingly, the details of shares were mentioned by the Assessing Officer in his order and he held that the assessee could not explain regarding sale proceeds received from sale of shares and also failed to furnish explanation regarding purchase of shares. Hence, the entire sale proceeds were taken as undisclosed income of the assessee.

9. Learned counsel on behalf of the assessee has submitted that the document marked AS-2 was found during the course of search. A copy of the said document has been annexed at pages 97 and 98 of the paper book. According to learned counsel, on a perusal of the said document it would be clear that it is not with regard to sale and purchase of shares but only speculations have been mentioned and most of the shares mentioned therein are unsold shares. The Assessing Officer without understanding the outcome of the document just prepared the list of shares and the total value of the same was treated as undisclosed income of the assessee which is not proper. Our attention was drawn to the statement of shares purchased by the assessee which was filed before the Assessing Officer, a copy of which is available at pages 99 to 102 of the paper book. According to learned counsel, the list of the shares which was purchased on behalf of Sri Krishnan is also available at page 103 of the paper book. Learned counsel has further submitted that the assessee was not allowed reasonable opportunity to explain his stand before making the impugned addition. It was submitted by learned counsel that the Assessing Officer has clearly mentioned in his order at para. 6.3 that the assessee by letter dated September 19, 1997, asked for some time for giving clarification because he was away from Calcutta. The Assessing Officer allowed last opportunity till September 22, 1997, i.e., only after three days and on September 30, 1997, the assessment was framed. From the action of the Assessing Officer it is clear that no reasonable opportunity was allowed to the assessee for explaining the seized document in respect of the share transaction. On the other hand, without understanding the notings mentioned therein the Assessing Officer made addition of the entire value of the shares.

According to learned counsel the action of the Assessing Officer clearly violated the principle of natural justice.

10. On the other hand, the learned Departmental Representative heavily relied on the assessment order and further submitted that the assessee was allowed sufficient opportunity by the Assessing Officer. However, no explanation was adduced on his behalf. It was further submitted that the details which have been submitted along with the paper book are new evidence and were not available before the Assessing Officer and require further verification.

11. Having heard both the sides we find that during the course of search share certificates of Rs. 68,000 was found in the locker of the assessee which were not seized. Further, the document marked at AS-2 was found during the course of search where some details of shares have been entered by the assessee. A copy of the document is available at pages 97 and 98 of the paper book. The assessee had submitted before the Assessing Officer the list of the shares purchased by him, his wife and his brother, copies of which are at page 99 of the paper book.

While this issue was discussed by the Assessing Officer, he sought clarification from the assessee and by letter dated September 19, 1997, written by the assessee no information was submitted by him because at that time he was at Bombay and accordingly he asked for some time for filing the details. The Assessing Officer allowed last opportunity on September 22, 1997. According to the Assessing Officer, the assessee did not file anything on that date, hence, ultimately, the assessment was framed on September 30, 1997. The assessee has filed before us a copy of the order sheet maintained by the Assessing Officer which goes to show that on September 11, 1997, the assessee appeared before the Assessing Officer and filed some documents containing bank statement.

In the order sheet it has been mentioned that according to the statement of the assessee the entire transaction was duly reflected in the regular income-tax return and the case was adjourned to September 16, 1997, by the Assessing Officer on the same day. The Assessing Officer recorded the statement on oath, under Section 131 of the Income-tax Act, of the assessee. It has been mentioned in the order sheet. According to the assessment order at paras 62 and 63, thereafter on September 15, 1997, the Assessing Officer served a notice on the assessee under Section 142(1) of the Act in relation to the query raised by him regarding share transaction. It is clear that on September 19, 1997, the assessee had written a letter praying for some time because he was in Bombay at that time. The last chance was allowed to the assessee on September 22, 1997, i.e., only after three days. It is not mentioned in the order as to whether this information of last opportunity was served on the assessee or not. It is fact that on September 22, 1997, the assessee did not appear and no details were filed as required by the Assessing Officer and the assessment was framed on September 30, 1997, after getting approval from the Commissioner. From the above circumstances, we are satisfied that the assessee was not allowed reasonable opportunity of hearing by the Assessing Officer before deciding the issue. From the copy of the order sheet filed by the assessee dated January 8, 1997, to September 11, 1997, we find that on all the dates the assessee appeared personally before the Assessing Officer. Even in response to telephone message the assessee appeared before the Assessing Officer on different dates.

According to the assessee, the Assessing Officer has wrongly made the addition without understanding the contents of the seized material.

From the order itself it is clear that the Assessing Officer required some more information from the assessee in relation to the share transaction. Considering the entire circumstances, in our opinion, the present issue should be reconsidered by the Assessing Officer.

Accordingly, the impugned finding is set aside and the matter is remitted back to the Assessing Officer for fresh consideration after allowing opportunity of hearing to the assessee.

12. The next addition of Rs. 4,29,115 is on account of house rent allowance (HRA) received by the assessee from Shaw Wallace and Co.

13. The assessee submitted the list of shares to the Assessing Officer and explained that the shares were purchased by him and by his wife from the amount of house rent allowance received by them. According to the assessee, he purchased a flat being No. 3B at No. 86B, Manoharpukur Road, Calcutta, which was given to his wife on lease. The employer of the assessee, i.e., Shaw Wallace and Co., Ltd. entered into a leave and licence agreement with Mrs. S. Revati, wife of the assessee, dated March 30, 1992, by which the premises was taken by Shaw Wallace and Co.

Ltd., for which fee of Rs. 3,600 per month was payable to Mrs. Revati.

Copies of the letters dated March 25, 1992, and March 30, 1992, have been filed along with the paper book at pages 93 to 96. The details of the house rent allowance received by the assessee from his employer has been filed by Shaw Wallace and Co. Ltd. copy of which is available at page 92 of the paper book. The Assessing Officer for clarification of the issue recorded the statement of the assessee which is at page 23 of the paper book. It has been stated by the assessee that the assessee was entitled to 75 per cent, of the basic salary as house rent allowance. According to the assessee, the property was given to his wife by the assessee and the same was further leased out by his wife to Shaw Wallace and Co. Ltd. In reply to the question as to why the entire amount of Rs. 1,80,000 of house rent allowance should not be taxed in the hands of the assessee, it was stated by the assessee that the employer had valued the perquisites provided to the assessee and taxed the same as per the provisions of the Income-tax Act. Therefore, there is no reason for treating the amount of the house rent allowance as undisclosed income. Ultimately, the issue was discussed by the Assessing Officer at paras. 4.4 to 4.9 of his order. The Assessing Officer came to the conclusion that Shaw Wallace and Co. Ltd. was paying house rent allowance as rent and for furniture and fixtures. The rent was paid in cheque in favour of the assessee's wife which was deposited in her bank account. A portion of the amount was being paid by her to the assessee. This amount was received by the assessee and offered for taxation. Out of this rent received by the assessee and his wife they used to invest in shares. Ultimately, the Assessing Officer concluded the assessee had wrongly shown the amount as income from house property from the assessment year 1992-93 and the entire amount of house rent allowance has to be treated as part of his salary and the same was treated as undisclosed income for the block period.

14. Learned counsel on behalf of the assessee has submitted that the addition was made without any basis. The flat was purchased by the assessee and it was leased to his wife and the company used to pay rent to the wife which was verified by the Assessing Officer from Shaw Wallace and Co. Ltd. Our attention was drawn to the relevant papers in this regard as mentioned above. It was further submitted that the details of rent received by the assessee and his wife were filed before the Assessing Officer. The assessee had already disclosed the same in his return of income and it has been admitted by the Assessing Officer in his order at para. 4.7. Further, it was submitted that the addition is not based on any material found during the course of search. Only because the assessee had wrongly shown the receipt as house property income the addition was made by the Assessing Officer and such addition is beyond the purview of undisclosed income.

15. On the other hand, the learned Departmental Representative has supported the finding recorded by the Assessing Officer.

16. Having heard both the sides, we find that this addition was made by the Assessing Officer treating the house rent-allowance received by the assessee as his undisclosed income. According to the arrangement between the assessee and his wife the flat was leased out to the wife by the assessee and the same was taken into account by Shaw Wallace and Co. Ltd. The amount of rent was being paid by Shaw Wallace and Co. Ltd. to the assessee's wife. A portion of the rent was retained by her and the balance was being paid by her to the assessee. It is a fact that the assessee used to offer the amount as income from house property. At para. 4.8 the Assessing Officer has mentioned that the assessee had wrongly shown the income as his income from house property and, according to him, the same should be treated as part of salary.

Therefore, according to the Assessing Officer, it is undisclosed income. Under Section 158B(b), the definition of undisclosed income includes any transaction entry in the books of account or money, bullion, jewellery, etc., which has not been or would not have been disclosed for the purpose of this Act. In the present case, it is an undisputed fact that the assessee used to disclose the amount by him as the house property income in the regular income-tax proceeding as found by the Assessing Officer. Therefore, in our opinion, the definition of undisclosed income cannot be applied in the present case. Further, the computation of undisclosed income of the block period under Section 158BB is to be based on the evidence found as a result of search or requisition of the books of account or documents and such other materials or information as are available with the Assessing Officer.

Admittedly, the present addition is not based on any such material found during the course of search. In view of the aforesaid circumstances, we are of the view that the present addition cannot be made as undisclosed income of the assessee. Accordingly, the addition is deleted.

17. The next issue is regarding addition of Rs. 1,50,000 on account of cost of the flat.

18. During the course of search some loose documents marked as AS-I were seized. Pages 66 to 68 marked as S-1 contained transaction in respect of purchase of flat. According to the agreement, payment in cash of Rs.1.5 lakhs Was made by the assessee. Regarding the source of the amount of Rs. 1.5 lakhs, it was stated by the assessee by letter dated September 2, 1997, before the Assessing Officer that initially four persons, viz., Sri S. K. Bhattacharya, Smt. A. K. Jain, Sri Laxminarain and Sri Shankar Murarka, gave loan of Rs. 1.5 lakhs to the assessee. The assessee had repaid the loan after taking fresh loan from ten persons. Most of them are relatives of the assessee. The assessee replied before the Assessing Officer that original four persons were not available and they were already paid the amount taken by the assessee. Regarding the persons who re-financed by letter dated September 2, 1997, the assessee had given the names and addresses of the persons to the Assessing Officer. Thereafter, the Assessing Officer came to the conclusion at para. 5.2 that the assessee failed to produce any confirmation from the persons who had arranged finance. By letter dated September 2, 1997, the assessee had only submitted the names of such persons but no addresses were mentioned therein nor income-tax file number was mentioned. Accordingly, the explanation of the assessee was not accepted and the amount of Rs. 1.5 lakhs was treated as undisclosed investment for the block period under Section 69B of the Act.

19. On the other hand, the learned Departmental Representative has submitted that the assessee failed to produce any evidence in support of his contention that the loans were taken from different persons.

Accordingly, the addition was rightly made by the Assessing Officer.

20. We have heard both the sides and have perused the material on record. The assessee had paid cash of Rs. 1.5 lakhs to the builder for purchasing the flat. Regarding the source of the fund the assessee had explained by letter dated September 2, 1997, before the Assessing Officer copy of which is at pages 104 and 105 of the paper book. From the said letter we find that initially the amount was financed by four persons, viz., Sri S. K. Bhattacharya, Sri A. K. Jain, Sri Laxminarain and Sri Shankar Murarka. At page 110 of the paper book, the assessee had mentioned the names of those persons, their addresses and the amount of loan given by them. Sri Bhattacharya expired in 1997. Sri Laxminarain, according to the assessee, returned from Malaysia and settled at Chennai. Sri A. K. Jain had already expired on August 22, 1996. Sri Murarka left service of Shaw Wallace and Co. Ltd. and thereafter there was no contact. According to the assessee since those persons were in urgent need of money the assessee had to borrow the amount of Rs. 1.5 lakhs from seven persons who are mostly relatives of the assessee. They had given money to the assessee ranging from Rs. 9,000 to Rs. 37,000. The details of their names are available in the letter dated September 2, 1997. The assessee had also mentioned their relationship in the said letter. The Assessing Officer has rightly said that the addresses of those persons are not mentioned in the letter.

Further, the assessee had brought on record the confirmations from four persons which are available at pages 106 to 109 of the paper book where the addresses of those persons have been mentioned. From the letter dated September 2, 1997, it is clear that Sri S. K. Bhattacharya had already expired from whom the assessee had received Rs. 18,000. The remaining persons are relatives of the assessee. It appears that the Assessing Officer was not justified in holding that the addresses were not there. At least in the confirmations filed by the assessee the names and addresses of the creditors have been clearly mentioned, which were not considered by the Assessing Officer. Therefore, in our opinion, this issue should go back to the Assessing Officer for fresh consideration. Accordingly, we set aside the impugned finding recorded by the Assessing Officer and remit the matter back to him for deciding afresh after giving opportunity of hearing to the assessee.

21. The next addition is of Rs. 35,000 for payment made by the assessee on account of lift.

22. According to the Assessing Officer at page 67 of the seized material it was mentioned that the payment for lift to be made at the time of handing over possession of Rs. 30,000 or maximum of Rs. 35,000.

From the details with regard to the expenses of a flat it was noticed by the Assessing Officer that the sum of Rs. 35,000 has not been mentioned. Accordingly, the Assessing Officer was of the view that the amount of Rs. 35,000 was paid by the assessee in cash and the same was treated as undisclosed investment under Section 69B of the Act.

23. Learned counsel on behalf of the assessee has brought to our attention to the certificate dated February 27, 1998, issued by the promoter, a copy of which is at page 112 of the paper book. According to the said certificate, the assessee had paid Rs. 4.45 lakhs which includes cost of lift provided in the building. It was submitted that there was delay in delivery of the flat in favour of the assessee.

Therefore, it was agreed between the assessee and the developer that the extra amount of money for lift would not be charged from the assessee due to the delay in handing over the flat. The aforesaid fact is supported by the above mentioned certificate. Hence, no addition was called for.

24. On the other hand, the learned Departmental Representative has submitted that the certificate was issued on February 27, 1998, i.e., after framing of the block assessment. Therefore, the said material cannot be relied upon.

25. Having heard both the sides we find that in one piece of paper found during search it was mentioned that the payment for lift was to be made between Rs. 30,000 and Rs. 35,000. Approximately 50 per cent, of the same was to be made in cash and the remaining portion by cheque.

In the detailed break up of the expenses for flat and along with the regular return there was no mention that such payment was made by the assessee on account of lift. The contention of the assessee that due to delay in delivery of the flat the assessee did not pay the amount to promoter as per their understanding. This contention of the assessee appears to be reasonable because otherwise at least the portion of the amount which was to be paid through cheque would have been disclosed by the assessee. There is no other material in support of the finding recorded by the Assessing Officer that the amount was in fact paid by the assessee. In view of the aforesaid circumstances, we direct to delete the addition.

26. The last issue is regarding relief under Section 80L of the Act.

The Assessing Officer disallowed deduction under Section 80L from the undisclosed income computed by him on the ground that such relief is not allowable in respect of the block assessment.

27. Having heard both the sides we find that under Section 158BH, save and except what is provided in Chapter XIV-B, all other provisions of this Act shall apply. In view of the aforesaid circumstances, in our opinion, the provision of the Section 80L is applicable. Accordingly, we direct the Assessing Officer to allow relief under the said provision.