| SooperKanoon Citation | sooperkanoon.com/72863 |
| Court | Income Tax Appellate Tribunal ITAT Agra |
| Decided On | Nov-28-2003 |
| Judge | N Karhail, M Gusia |
| Reported in | (2004)82TTJAgra689 |
| Appellant | Deena Nath Agarwal |
| Respondent | Assistant Commissioner of Income |
2. During the course of hearing conscised grounds of appeal were filed by the appellant. However, before taking up the grounds of appeal, the facts of the case are necessary to discuss.
3. In this case search and seizure under Section 132(1) was conducted at the residential premises of the assessee on 4th Sept., 1995 wherein, the appellant was residing with his two brothers, Shri Shyam Sunder Agarwal and Shri Pramod Kumar Agarwal, who are the employees of M/s Bhagwati Abhushan Bhandar, where action under Section 132 has separately been taken by the Department. During the course of search, statement of the appellant was recorded under Section 132(4) of the IT Act. It was deposed by him that he is engaged in the business of trading of silver ornaments on commission basis and his earnings are of Rs. 1200 per month. No valuables were found during the course of search. However, the loose papers and diaries marked as Annexs. SA-1, DNA-2, SSA-2, SSA-3 and SSA-4 were seized. The loose papers in Annex.
DNA-2 related to the appellant Shri Deena Nath Agarwal and pertain to the period 1994-95. In the case of Shyam Sunder Agarwal, who is brother of the appellant residing in the same premises, action under Section 132 was also taken and in that case appeal has been decided by this Bench in ITA No. 5550/Del/1996 on 29th Aug., 2003. During the course of assessment proceedings for the block period, notice under Section 158BC(a) of the IT Act was issued to the appellant on 6th Nov., 1995, which was served on him on 15th Nov., 1995, wherein, the assessee was required to file the return of undisclosed income for the block period 1st April, 1985 to 1st Sept., 1995. The assessee filed return for the block assessment on 8th March, 1996 declaring nil undisclosed income as under: 5. The first ground of appeal is that the disallowance of business expenses amounting to Rs. 32,026 is wrong and arbitrary.
6. During the course of assessment proceedings, the assessee was required to explain the nature of entries recorded in loose papers. It was submitted that the appellant is engaged in trading of silver on a very small scale and the papers in Annex. DNA-2 relate to financial year 1994-95 only. As per assessment order, it was explained by the assessee that he has no business after 31st March, 1995. The assessee had not maintained any books of accounts in respect of his business activities. However, on the basis of entries recorded in the loose papers, the assessee compiled the trading account for the asst. yr.
1995-96 relevant to the financial year 1994-95. The assessee has shown gross total income at Rs. 51,277, on which there is no dispute.
However, the assessee has claimed business expenses of Rs. 32,026 as under:Travelling Expenses 14,400Dalali 910Expenses against purchases 2,183Hotel expenses 4,060Helper 9,000Misc. expenses 1,473 7. On the basis of above claim, the assessee submitted that the income earned remained below taxable limit for the asst. yr. 1995-96.
8. According to the AO, the income has not been computed in accordance with the provisions of Section 158BB of the IT Act for the reason that the assessee has claimed estimated expenses mentioned above, which are not reflected in the seized documents. The AO further mentioned in the assessment order that as per Section 158BB, the undisclosed income should be the aggregate of the total income of previous year falling within the block period computed, in accordance with the provisions of Chapter IV (Section 14 to Section 59) as a result of search and other material or the information as are available with the AO, With reference to the above, the AO held that the assessee is not entitled for any other claim of exemption, rebate or deduction for the block period. Therefore, the computation of undisclosed income furnished by the assessee/appellant is not acceptable and thus, the claim of estimated expenses of Rs. 32,026 was disallowed and the gross total income was assessed to tax at income of Rs. 51,277 for the asst, yr.
1995-96.
9. During the course of hearing before us, the learned counsel for the assessee vehemently argued that in view of the provisions of Sub-section (2) of Section 44AA, the assessee is not liable to maintain the books of account. Therefore, the expenditure of Rs. 32,026 should have been allowed as according to him under the provisions is of IT Act, the gross profit cannot be taxed. It is only the net profit required to be taxed. He further argued that as per the provisions of Section 158BB(1), the undisclosed income of the block period shall be the aggregate of the total income of the previous years falling within the block period computed in accordance with Chapter IV containing in Section 28 to Section 43 of the IT Act, 1961. It is further argued that the expenses, which are incidental to the business, are allowable under Section 28 to Section 43 and should have been allowed irrespective of the fact that the expenditure has not been recorded in the loose documents, seized during the course of search. It is further submitted that there are two principles of commerce. Firstly, there cannot be a profit without sale and, secondly, there cannot be a sale without business expenses. The business expenses permissible under law should have been allowed by the AO and it is the demand of natural justice. In support of his arguments, he placed reliance on the decision of Hon'ble Supreme Court in the case of Calcutta Co. Ltd v. CIT (1959) 37 ITR 1 (SC), wherein it has been held as under: "That the appellant here is being assessed in respect of the profits and gains of its business and the profits and gains of the business cannot be determined unless and until the expenses or the obligations, which have been incurred are set off against the receipts. The expression 'profits and gains' has to be understood in its commercial sense and there can be no computation of such profits and gains until the expenditure which is necessary for the purpose of calling the receipts is deducted therefrom." 10. The learned counsel further placed reliance on the decision of Tribunal, Jodhpur Bench, in the case of Chitra Devi v. Asstt CIT (2002) 77 TTJ (Jd) 640, wherein it has been held as under: "When in any particular previous year, the assessee claims his income to be below taxable income, even then the total undisclosed income of that previous year has to be included in the aggregation of total income as provided in Section 158BB(1), and therefore, benefit of 'minus', i.e., of reducing from the above aggregated total income as provided in Section 158BB(1), has to be allowed as provided in Section 158BB(1)(C)(b)." 11. It is further pleaded by the learned counsel for the assessee that in the case of Shyam Sunder Agarwal, the brother of the appellant, who is residing in the same premises, covered under Section 132, this Bench, in his order mentioned in foregoing paragraphs, has allowed the estimated expenses claimed by Shri Shyam Sunder Agarwal of Rs. 16,949 from gross total income of Rs. 21,425 and thus, this Bench has allowed expenditures to the extent of 80 per cent. He further argued that in the instant case, out of gross total income of Rs. 51,277, the estimated expenditures claimed at Rs. 32,026 remained only at 63 per cent.
12. On the other hand, the learned Departmental Representative argued that no doubt the GP cannot be taxed, but simultaneously reasonableness of the expenditures has to be seen. The learned Departmental Representative further argued that the claim is made on the basis of memory and human memory is too short to recollect the expenses pertaining to the period 1st April, 1994 to 31st March, 1995 at the time of assessment proceedings held in the year 1996. He further argued that entire business activities were carried out at Mathura, as seized documents do not indicate purchase and sales outside the city of Mathura. Therefore, travelling expenses of Rs. 14,400, hotel expenses of Rs. 4,060 and the payment to helper of Rs. 9,000 are highly excessive.
13. During the course of hearing before us, the learned counsel for the assessee furnished a paper book containing 131 pages and photo copies of seized records in total number 69 pages, which are placed on record.
The learned counsel has drawn our attention to page 10 of the photo copy of seized documents, which was seized from the residential premises of the appellant and it is a sale made to M/s Payal Jewellers, a party of Faridabad. It is evident from the same paper that the party has got the silver tested by M/s Jai Hind Bullion Silver Test Centre, 6, Sarafa Bazar, Faridabad on 29th Oct., 1994. Similarly, he has also drawn our attention to page Nos. 17 and 20 of the seized papers to prove that the sales were made outside Mathura for which journey was undertaken and hotel expenditures were incurred by the assessee. He further argued that the total payment of Rs. 9,000 to a helper in the year is less than Rs. 1000 per month, which cannot be said to be excessive. Hence, the learned counsel for the assessee tried to justify the claim of business expenses of Rs. 32,026.
14. We have carefully considered the submissions of the learned counsel for the assessee as well as the learned Departmental Representative.
15. We are in agreement with the learned counsel that the gross profit cannot be cited. We also agree that the profit cannot be earned without any expenditure. Therefore, having regard to the facts and circumstances of the case and the decision of Hon'ble Supreme Court in the case of Calcutta Co. Ltd. (supra) and of Tribunal, Jodhpur in the case of Chitra Devi (supra), and also the decision of this Bench in the case of assessee's brother, mentioned in foregoing paragraphs, we allow this ground of appeal.
16. The second ground of appeal is that the Asstt. CIT was wrong to assess the stock of silver weighing 9.075 kg. (net) valuing at Rs. 61,885 for the asst. yr. 1996-97.
17. The facts of the issue are that as per p. 4 of the assessment order, the assessee has deduced profit of silver @ 3.78 per cent on the sale of ornaments at 181.945 kg. and GP of 6.877 kg. and Majoori at the rate of Rs. 27.64 per kg, totalling to Rs. 5,029. The AO in his order recasted the trading account as under: 18. The AO further mentioned that closing stock as on 31st March, 1995 remained at 22.579 kg. gross, which has been converted into purity (c) 60 per cent and arrived at the figure of 13.545 kg. net (In the assessment order, it is mentioned that the assessee stated that the purity of silver is @ 60 per cent, but the learned counsel for the assessee outrightly denied and claimed the purity @ 40 per cent). It is further mentioned in the assessment order that if as per seized paper No. 4 of Annex. DNA-2 and also admitted by the assessee, pure silver of 4.471 kg. was returned during the period 1st April, 1995 to 26th June, 1995, then balance remained at 9.074 kg. net. No entry after 26th June, 1995 is made in said seized paper nor any silver was found during the course of search on 4th Sept., 1995. Therefore, the AO concluded that the silver of 9.074 kg. was sold by the assessee during the asst, yr.
1996-97, which in terms of value at 6,820 per kg. comes to Rs. 61,885 and thus Rs. 61,885 was added in asst. yr. 1996-97.
19. The learned counsel argued that the GP taken by the AO in recasted trading account at 6.878 kg. is pure silver of 100 per cent tunch while the other are silver ornaments having purity of only 40 per cent.
Therefore, the trading account has not been correctly recasted. The learned counsel further submitted that the opening balance of 12.077 kg. is gross weight, which if converted into pure silver of 100 per cent tunch, will come at 6.193 kg. net. Similarly, purchase of 185.569 kg. gross silver will be 106.443 kg. (net). The gross sales of 181.945 kg. will be 110.159 kg. net. Thus, the closing stock would be 15.701 kg. i.e., 9.354 kg. net. According to the learned counsel, the trading account of silver ornaments should, be recasted on purity basis because the assessee purchased the silver of 100 per cent tunch and in lieu of that exchanged with silver ornaments. This is the modus operandi validly followed in the silver market at Mathura. Therefore, the trading account should be made on 100 per cent purity basis, which would be as under: 20. Thus, according to the learned counsel for the assessee, the closing stock as on (sic), 1995 remained at 9.354 kg. net and out of that silver of 4.471 kg. net was returned as accepted by the AO. Thus, the balance of 4.883 kg. remained with the assessee (value comes @ Rs. 6,820 per kg. at Rs. 33,431), which also returned as is evident from the fact that during the course of search, no valuables were found either in the form of cash or silver/silver ornaments. Hence, no addition is called for in the asst. yr. 1996-97, as no business activity took place in the relevant period, which is evident from the fact that no paper was seized in this regard.
21. The learned Departmental Representative argued that there is no record of return of silver of 100 per cent tunch of 4.471 kg. However, we find that the same has been accepted by the AO and is verifiable from pp. 26 and 27 of the paper book. The learned counsel argued that this balance silver of 4.471 kg. net was also returned, which is proved by the fact that on the date of search and seizure at the premises of the assessee on 4th Sept., 1995, no silver bullion or ornaments or cash were found by the Search Party.
22. After considering the rival contentions and the factual position, ascertained from the assessment order and seized papers, we find force in the submissions of the learned counsel for the assessee. Therefore, we direct to delete the addition of Rs. 61,885 made on this count.
23. Ground No. 3 is that the Asstt. CIT was not correct to impose tax on the income, which is below the taxable limit.
24. The contention of the learned counsel for the assessee is that the income below the taxable limit cannot be taxed in the block assessment, which includes undisclosed income. In support of his submissions, he relied on the decision of Tribunal, Indore Bench, in the case of Smt.
Site Devi Daga v. Asstt. CIT (1999) 63 TTJ (Ind) 72, wherein it has been held that the income below the taxable limit in any assessment year does not form the part of undisclosed income under Section 158BB.25. The learned counsel for the assessee also placed reliance on the decision of Tribunal, Nagpur Bench (SMC) reported in Taxman Magazine Vol. 94 p. 226 [Kasturchand Baid v. Asstt. CIT] wherein the facts and decision of Tribunal, Nagpur Bench are as under: "The assessee's income for the asst. yr. 1995-96 was exempt upto Rs. 35,000. The income attributable to the asst. yr. 1995-96 had been determined by the AO at Rs. 34,703, which was below the taxable limit. Under Section 139(1), the assessee was not required to file the return for the asst. yr. 1995-96. For the subsequent assessment years, the assessee had filed the returns before the date of search because the income for those years was taxable. When the AO required the assessee to file the return for the block period, the assessee explained in the Note to the return that his income being below the taxable limit, he was not obligated to disclose it by filing the return of income. Note No. 5 in return Form No. 2B also supported the assessee's case.
The intention of the legislature was that in case where the assessee had not filed the return because the total income was below the taxable limit, such an income could not be treated as undisclosed income, cannot become undisclosed income for purposes of computation either--Even otherwise, it would be highly unfair and inequitious to tax the assessee on an income, which was otherwise below the taxable limit, on a higher flat rate simply because there had been a search by the IT authorities at this premises." 26. The learned Departmental Representative argued that when the assessment is for the block period, then it is not necessary to find out whether the income was below the taxable limit. In support of his contention, he placed reliance on the decision of Hon'ble Kerala High Court in CIT v. M.M. George (2002) 254 ITR 45 (Ker). However, we find that this judgment was given on 14th Dec., 2001, i.e., before amendment in Sub-clause (b) of Clause (C) of Sub-section (1) of Section 158 BB by Finance Act, 2002 w.e.f. 1st July, 1995.
27. We have carefully considered the rival contentions and we noted that by Finance Act, 2002, Sub-clause (B) of Clause (c) of Sub-section (1) of Section 158 BB has been inserted with retrospective effect from 1st July, 1995, according to which if the return has not been filed for the reason that there was no income exceeding the taxable income, it cannot be considered as undisclosed income. Having regard to these provisions and relying on the decisions of Tribunal, Jodhpur and Nagpur Benches, we allow this ground of appeal.
28. Ground No. 4 is that the Asstt. CIT is not correct to treat the loan given to Smt. Urmila as undisclosed income during the asst. yr.
1995-96. 29. It is mentioned at p. 5 of the assessment order that copy of bank a/c No. 9075 with Syndicate Bank, reveals that the assessee has deposited a sum of Rs. 52,750 on 15th May, 1995. On being asked while recording the statements during the assessment proceedings, the assessee deposed that the amount was received back from Smt. Urmila Devi to whom he advanced the loan on 25th Nov., 1994 through demand draft and the demand draft was purchased in cash from his outstanding recoveries. According to the AO, the assessee failed to give the details of recoveries. The AO asked to explain the purpose for which it was used after withdrawing from the bank on 16th May, 1995.
30. The assessee explained that the same was advanced to other parties, but he could not give the names of those parties. The AO mentioned in the assessment order that at one side the assessee claimed to be a man of no means and on the other side, he is advancing the amount of Rs. 52,750. Thus, he considered the same as undisclosed income and added in the period relevant to the asst. yr. 1995-96.
31. The learned counsel for the assessee at the outset argued that the bank statement was not found during the course of search but it was gathered by the AO from the assessee during the course of assessment proceedings. Hence, no cognisance should be given to such bank statement, as this was not the information gathered during the course of search. In support of his submission, he has placed reliance on the decision of Tribunal, Jodhpur Bench in the case of Chitra Devi v.Asstt. CIT (supra), wherein, at p. 646, it is held as under: "Though the statement of assessee recorded during the search with respect to his source of income may constitute an information available with AO, the same is not relatable to any evidence found as a result of search. Therefore, addition by way of undisclosed income of the assessee merely on the basis of the statement of assessee could not be made in the block assessment though the same may be considered in a regular assessment." 32. The learned counsel further placed reliance on the decision of Tribunal. Lucknow Bench in the case of Smt. Savitri Devi v. Asstt CIT (2002) 76 TTJ (Lucknow) 628, wherein at para 49, it is held as under: "In view of the legal position as discussed, it is clear that the addition in a block assessment on any ground or on any account can be made only on the basis of material found during the course of search and not otherwise. If the assessee has suppressed his/her income earned and has not disclosed any material particular, then addition can be made in the course of regular assessment or reassessment by undertaking proper enquiries after issuance of notice under Sections 142 and 143." 33. The learned counsel for the assessee further placed copy of Circular No. 215, dt. 12th/14th Aug., 1995, issued by CBDT, which is placed at pp. 28 to 31 of the paper book. At p. 30, the CBDT has clarified as under: "Though the block period can be extended upto ten years in a case where the assessee has not disclosed undisclosed income in any one or more of the previous years in the block periods and the AO also does not find any material indicating undisclosed income in any one or more of the previous years comprised in the block period, it will not be necessary to do the exercise of computing the undisclosed income for the relevant years and the exercise may be limited to the years in respect of which the undisclosed income has been found." 34. In addition to the above, the learned counsel for the assessee also invited our attention at p. 10 of the paper book, which is photo copy of S/B a/c No. 9075 in the name of Deena Nath Agarwal in Syndicate Bank, Chhata, Mathura. This bank account indicates that the assessee deposited the amount of Rs. 52,750 on 15th May, 1995. According to the learned counsel, this was the amount received back from Smt. Urmila Devi by bank draft, which was advanced to her by the assessee on 25th Nov., 1994. The assesses has also filed photo copy of return of income for the asst. yr. 1989-90, which is at p. 16 of the paper book and intimation under Section 143(1)(a) by the Department at p. 15, photo copy of return of income for the asst. yr. 1990-91 at p. 14 and intimation slip at p. 13, similarly, return of income for the asst. yr.
1991-92 at p. 12 and intimation slip at p. 11. All these returns were filed by assessee and the assessee was assessed before conducting search at the premises of the assessee. The learned counsel in his written submission at para 3 has mentioned as under: "The appellant has already filed return before action under Section 132(1) was taken, the details are as under: 35. Having regard to the fact that the bank statement was received by the AO during the assessment proceedings from the assessee himself and not found during the course of search, and keeping in view of the reliance placed by the learned counsel for the assessee, which has been discussed above and also having regard to the factual position that the assessee has already filed return of income before the date of search for the asst. yrs. 1986-87, 1989-90, 1990-91 and 1991-92, which was assessed in his hands. Therefore, the addition on account of loan given to Smt. Urmila Devi is directed to be deleted.
36. The 5th ground of appeal is that the Asstt. CIT was wrong in estimating the household expenses inspite of household expenses duly disclosed in the return of block assessment.
37. We noted from the assessment order at p. 6 that the AO has estimated the income for household expenditure as under: Asst. yr.
Amount (Rs.) 1987-88 15,000 1988-89 15,000 1992-93 18,000 1993-94 18,000 1994-95 18,000 1995-96 18,000 38. The learned counsel for the assessee has argued that as per the provisions of Section 158BB of the IT Act, 1961, there is no scope for estimating the income incurred on household expenditure. No documents or information in this regard was found during the course of search.
Therefore, the addition on account of household expenditure cannot be made. In this connection, the learned counsel for the assessee has again placed reliance on the decision of Tribunal, Jodhpur in the case of Chitra Devi (supra), wherein at p. 643, it is held as under: "No incriminating material/evidence was found as a result of search in respect of investment in house property. It is settled position of law that in a search case in block assessment additions can be made only on the basis of incriminating evidence/material found as a result of search and not without the same. In such a situation, no incriminating material/evidence in respect of investment in the house property having been found as a result of search on the assessee's premises, so an addition on account of investment in house property, etc., cannot justifiably be made. The addition, therefore, is liable to be deleted." 39. Having regard to the provisions of Section 158BB and the reliance placed by the learned counsel, we are of the view that the AO was not justified to make addition on the basis of, imaginary figures. Hence, the addition made on this account is deleted.