Deputy Commissioner of Income Tax Vs. Raj Kumar Agarwal [Alongwith Ita - Court Judgment

Excerpt:
1. those two appeals by the revenue in relation to two different but connected assessees and cross-objections by the assessees arise out of the common order passed by the learned cit(a) on 3rd march, 2003 in relation to block period 1st april, 1990 to 31st oct., 2000. since common issues are raised in all these appeals, we are, therefore, proceeding to dispose them of by this consolidated order for the sake of convenience.2. briefly stated, the facts of this case are that search action was taken against the assessee on 31st oct., 2000 during the course of which certain incriminating material/documents were found. a combined panchnama was drawn [or the residence situated at c-39, ambawadi, jaipur, jointly occupied by shri tara chand and shri raj kuraar, the assessee in the instant case. in the bedroom of smt. archana, jewollory listed at pp. 1 and 2 of annex. j was found having gross weight of 1009.120 gms. and 747.700 gins., as against net weight 897,00 gms. and 619.470 gms., respectively. the ao treated gross weight of 747.700 gms.as riot explained. item 5 of annex. j valued at rs. 17,807 was also treated as unexplained. the remaining jewellery was accepted by the ao as the same was disclosed in the vd1s of the wife of the assessee, smt.archana. in the first appeal, the learned cit(a) deleted the same.3. we have heard both the sides and perused the relevant material on record. it is observed that the total gold ornaments found at the time of search were at 2072.25 gms. as against it, the total jewellery declared by the assessee and the other members of the family residing in the same house was as under: devi as per it return and under vdis 1806.750 gms. (b) as per wt return of smt. ratni devi 524.880 gms. (c) as per vdis of smt. archana devi 893.950 gms. (d) as per it return of shri tarachand 116.640 gms. ------------------ hence it is clear that as against 3342.220 grns. of gold jewellery declared by the assessee and his other family members, gold ornaments found at the time of search were only 2072.25 gms, and hence gold ornaments were less by 1269.97 gms. there is nothing on record to show that the gold jewellery belonging to the mother, of the assessee who was residing in the same premises was kept at another place and hence the same having been found in assessee's room cannot be disbelieved. in our considered opinion, the learned cit(a) was justified in deleting this addition.4. second ground of revenue's appeal is against the deletion of addition of rs. 60,300 on account of value of perquisites.5. the ao made addition of rs. 60,300 being the value of perquisites on the basis of rule 3 of it rules, 1962. the learned cit(a) deleted the said addition.6. having hoard the rival submissions and perused the relevant material on record, it is observed that no material was found during the course of search showing the personal use of car by the assessee-director in shubh grami marmo (p) ltd, jaipur. it is noticed that the addition on account of value of perquisites, in the absence of any material found during the course of search, is part of regular assessment and is beyond the ken of block assessment. the definition of undisclosed income as given in section 158b(b) is categoric and does not include such type of additions within its sweep. we, therefore, uphold the impugned order on this score.7. ground no. 3 deals with the deletion of addition of rs. 1,62,428 made by the ao on account, of unexplained investment in construction of property situated at ambawadi, 8. the ao referred the matter of valuation to the dvo who worked out investment at rs 21,22,100. this house was constructed by throe brothers, namely, sim ramesh chand, shn rajkumar and shri ramchand.details of investment made by the three persons in the asst. yrs. 1997 98 to 2001-02 were at rs. 18,34,565. the ao considered a sum of rs. 3,62,177 as not utilized towards construction thereby leaving a sum of rs. 14,72,388 available for construction. the difference in the two figures being the amount worked out by the dvo and investment accepted to have been made by the co-owners was worked out at rs. 6,49,712. the assessee being l/4th co-owner, the ao made addition of rs. 1,62,428 in the hands of the assessee. the learned cit(a) deleted the said addition.9. having regard to the facts of the case, it is found that the only basis with the ao to make addition is the figure of investment by the assessee in the construction of the building as estimated by the dvo vis-a-vis that disclosed by the assessee and other co-owners in their earlier books of account. it is an admitted position that no material was found during the course of search to show that the assessee had invested more than that disclosed in the regular books. by now it is a settled legal position that only the valuation officer's report unsubstantiated. with any material found in the course of search showing unexplained investment cannot be made the basis for addition.it has been held so in cit v. vinod danchand ghodawat and cit v. khushlal chand mrmal kumar . the later decision was rendered after considering the amendment in section 158bb by finance act, 2002 with retrospective effect from 1st july, 1995.there is no dearth of the orders passed by the tribunal deleting the additions made only on the basis of report furnished by the dvo. this view was taken in agarwal motors v. asstt. cit (2000) 66 ttj (jab) 130 : (1999) 68 itd 407 (jab), smt. noena syal v. asstt. cit (2000) 69 77'j (cm) 616 : (1999) 70 i'l'd 62 (chd) and jaya s. shetty v. asstt. cit (1999) 64 ttj (mumbai) 5m : (1999) 69 itd 336 (mumbai). in view of the overwhelming legal position settled in assessce's favour, worked of the considered opinion that no infirmity can be found in the impugned order on this score. even on merits, it, is rioted that the dvo estimated the value of property at rs. 21,22,100 by applying cpwd rates and the investment shown by the assessee and other co-owners was at rs. 18,34,68b. the difference between the two figures is only 15.67 per cent which is less than 20 per cent as being allowed by the jodhpur bench of the tribunal to scale down the valuation to state pwd rates in consonance with the view of the hon'ble jurisdictional high court. as regards the exclusion of the amount by the ao as not having been utilized for the purposes of construction in house, it is observed that the ao hold it to be spent beyond the construction period. however, no basis for such exclusion has been given by the ao. we, therefore, uphold the impugned order on this count.10. last effective ground of the revenue's appeal is against the deletion of addition of rs. 2,22,500 made by the ao on account of alleged gifts received from kalika family and others.11. on the scrutiny of assessment records, it was observed by the ao that the assessee had received the following gifts in asst. yrs.1992-93 to 2000-01 and in the asst. y rule 1998-99 from shri s.n.kalika family: asst. yr. 1992-93 12,500 kalika asst. yr. 2000-01 1,00,000 pradip kalika asst. yr. 2000-01 1,00,000 vijay kalika asst, y rule 1998-99 5,000 kum, surbhi from shri vijay kalika asst. y rule 1998-99 5,000 master pankaj from shri praciip kalika the ao observed that the test of human probability and surrounding circumstances did not suggest that the assessee might have received such huge gifts. ho, therefore, made addition, which was deleted in the first appeal.12. we have hoard both the sides and perused the relevant material on record. it is noticed that the said gifts received by the assessee were duly disclosed in the books of account for which regular returns was furnished. no material was found during the course of search, which could justify or even remotely suggest that the gifts were not genuine.where the items are already declared in the return of income and duly assessed by the revenue, the same cannot be taken as undisclosed income for the purposes of making block assessment. it has been so held in the case of cit v. vikiam a. doshi (bom). in the context of additions made on account of unaccounted cash creditors, it has been held by the hon'ble calcutta high court in the case of bhagwati prasad kodia v. cit that the cash creditors disclosed in the books of account cannot be added in the assessment made under section 158bc, but can only be considered in the regular assessment. in view of these facts, we are satisfied that the learned cit(a) was justified in deleting this addition.13. ground no. 1 of the assessee's cross-objection was not pressed. the same, therefore, stands dismissed, 14. the only other ground, which survives for our consideration in the assessee's cross-objection, is against the levy of surcharge.15. it is noticed that the search was conducted on 31st oct., 2000.proviso to section 1 13 mandating the levy of surcharge on tax in the case of block assessment cases was inserted by finance act, 2002 w.e.f.1st june, 2002, its operation has not been made retrospective in any manner. hence it is clear that the surcharge could be leviable only if search is conducted after this specified date, where the search is conducted on an earlier date, the tax determined thereon would not be increased by the amount of surcharge. this view has been consistently taken by several benches of the tribunal, the learned authorised representative has placed on record a copy of the -order in this regard passed by the jaipur bench of the tribunal on 1st aug., 2005 in the case of shubh gram maimo (p) ltd. v. dy. cit in it(ss)a no. 30/jp/2003.in view of this position, we are satisfied that the learned cit(a) was not justified in holding the levy of surcharge as valid.16. in the result, the appeal of the revenue is dismissed and the cross-objection of the assessee is partly allowed.17. first ground in the revenue's appeal is against the deletion of addition of rs. 1,74,500 made on account of alleged gifts received from kalika family and others.18. doth the sides are in agreement that the facts and circumstances of this ground arc similar to that of ground no. 4 in the appeal of raj kumar agarwal (supra). following the view taken above, we uphold the impugned order on this score.19. first ground of the cross-objection was not pressed by the learned authorised representative. the same is, hence, dismissed. second effective ground is against the levy of surcharge.20. here also, it is observed that search was carried on 21st oct., 2000. the legal position discussed above would squarely apply to this ground also. following the view taken above, we direct that surcharge is not leviable.21. in the result, the appeal of the revenue is dismissed and the cross-objection of the assessee is partly allowed.

Judgment:
1. Those two appeals by the Revenue in relation to two different but connected assessees and cross-objections by the assessees arise out of the common order passed by the learned CIT(A) on 3rd March, 2003 in relation to block period 1st April, 1990 to 31st Oct., 2000. Since common issues are raised in all these appeals, we are, therefore, proceeding to dispose them of by this consolidated order for the sake of convenience.

2. Briefly stated, the facts of this case are that search action was taken against the assessee on 31st Oct., 2000 during the course of which certain incriminating material/documents were found. A combined Panchnama was drawn [or the residence situated at C-39, Ambawadi, Jaipur, jointly occupied by Shri Tara Chand and Shri Raj Kuraar, the assessee in the instant case. In the bedroom of Smt. Archana, jewollory listed at pp. 1 and 2 of Annex. J was found having gross weight of 1009.120 gms. and 747.700 gins., as against net weight 897,00 gms. and 619.470 gms., respectively. The AO treated gross weight of 747.700 gms.

as riot explained. Item 5 of Annex. J valued at Rs. 17,807 was also treated as unexplained. The remaining jewellery was accepted by the AO as the same was disclosed in the VD1S of the wife of the assessee, Smt.

Archana. In the first appeal, the learned CIT(A) deleted the same.

3. We have heard both the sides and perused the relevant material on record. It is observed that the total gold ornaments found at the time of search were at 2072.25 gms. As against it, the total jewellery declared by the assessee and the other members of the family residing in the same house was as under: Devi as per IT return and under VDIS 1806.750 gms. (b) As per WT return of Smt. Ratni Devi 524.880 gms. (c) As per VDIS of Smt. Archana Devi 893.950 gms. (d) As per IT return of Shri Tarachand 116.640 gms.

------------------ Hence it is clear that as against 3342.220 grns. of gold jewellery declared by the assessee and his other family members, gold ornaments found at the time of search were only 2072.25 gms, and hence gold ornaments were less by 1269.97 gms. There is nothing on record to show that the gold jewellery belonging to the mother, of the assessee who was residing in the same premises was kept at another place and hence the same having been found in assessee's room cannot be disbelieved. In our considered opinion, the learned CIT(A) was justified in deleting this addition.

4. Second ground of Revenue's appeal is against the deletion of addition of Rs. 60,300 on account of value of perquisites.

5. The AO made addition of Rs. 60,300 being the value of perquisites on the basis of Rule 3 of IT Rules, 1962. The learned CIT(A) deleted the said addition.

6. Having hoard the rival submissions and perused the relevant material on record, it is observed that no material was found during the course of search showing the personal use of car by the assessee-director in Shubh Grami Marmo (P) Ltd, Jaipur. It is noticed that the addition on account of value of perquisites, in the absence of any material found during the course of search, is part of regular assessment and is beyond the ken of block assessment. The definition of undisclosed income as given in Section 158B(b) is categoric and does not include such type of additions within its sweep. We, therefore, uphold the impugned order on this score.

7. Ground No. 3 deals with the deletion of addition of Rs. 1,62,428 made by the AO on account, of unexplained investment in construction of property situated at Ambawadi, 8. The AO referred the matter of valuation to the DVO who worked out investment at Rs 21,22,100. This house was constructed by throe brothers, namely, Sim Ramesh Chand, Shn Rajkumar and Shri Ramchand.

Details of investment made by the three persons in the asst. yrs. 1997 98 to 2001-02 were at Rs. 18,34,565. The AO considered a sum of Rs. 3,62,177 as not utilized towards construction thereby leaving a sum of Rs. 14,72,388 available for construction. The difference in the two figures being the amount worked out by the DVO and investment accepted to have been made by the co-owners was worked out at Rs. 6,49,712. The assessee being l/4th co-owner, the AO made addition of Rs. 1,62,428 in the hands of the assessee. The learned CIT(A) deleted the said addition.

9. Having regard to the facts of the case, it is found that the only basis with the AO to make addition is the figure of investment by the assessee in the construction of the building as estimated by the DVO vis-a-vis that disclosed by the assessee and other co-owners in their earlier books of account. It is an admitted position that no material was found during the course of search to show that the assessee had invested more than that disclosed in the regular books. By now it is a settled legal position that only the valuation officer's report unsubstantiated. with any material found in the course of search showing unexplained investment cannot be made the basis for addition.

It has been held so in CIT v. Vinod Danchand Ghodawat and CIT v. Khushlal Chand Mrmal Kumar . The later decision was rendered after considering the amendment in Section 158BB by Finance Act, 2002 with retrospective effect from 1st July, 1995.

There is no dearth of the orders passed by the Tribunal deleting the additions made only on the basis of report furnished by the DVO. This view was taken in Agarwal Motors v. Asstt. CIT (2000) 66 TTJ (Jab) 130 : (1999) 68 ITD 407 (Jab), Smt. Noena Syal v. Asstt. CIT (2000) 69 77'J (CM) 616 : (1999) 70 I'l'D 62 (Chd) and Jaya S. Shetty v. Asstt. CIT (1999) 64 TTJ (Mumbai) 5M : (1999) 69 ITD 336 (Mumbai). In view of the overwhelming legal position settled in assessce's favour, worked of the considered opinion that no infirmity can be found in the impugned order on this score. Even on merits, it, is rioted that the DVO estimated the value of property at Rs. 21,22,100 by applying CPWD rates and the investment shown by the assessee and other co-owners was at Rs. 18,34,68b. The difference between the two figures is only 15.67 per cent which is less than 20 per cent as being allowed by the Jodhpur Bench of the Tribunal to scale down the valuation to State PWD rates in consonance with the view of the Hon'ble jurisdictional High Court. As regards the exclusion of the amount by the AO as not having been utilized for the purposes of construction in house, it is observed that the AO hold it to be spent beyond the construction period. However, no basis for such exclusion has been given by the AO. We, therefore, uphold the impugned order on this count.

10. Last effective ground of the Revenue's appeal is against the deletion of addition of Rs. 2,22,500 made by the AO on account of alleged gifts received from Kalika family and others.

11. On the scrutiny of assessment records, it was observed by the AO that the assessee had received the following gifts in asst. yrs.

1992-93 to 2000-01 and in the asst. y Rule 1998-99 from Shri S.N.Kalika family: Asst. yr. 1992-93 12,500 Kalika Asst. yr. 2000-01 1,00,000 Pradip Kalika Asst. yr. 2000-01 1,00,000 Vijay Kalika Asst, y Rule 1998-99 5,000 Kum, Surbhi from Shri Vijay Kalika Asst. y Rule 1998-99 5,000 Master Pankaj from Shri Praciip Kalika The AO observed that the test of human probability and surrounding circumstances did not suggest that the assessee might have received such huge gifts. Ho, therefore, made addition, which was deleted in the first appeal.

12. We have hoard both the sides and perused the relevant material on record. It is noticed that the said gifts received by the assessee were duly disclosed in the books of account for which regular returns was furnished. No material was found during the course of search, which could justify or even remotely suggest that the gifts were not genuine.

Where the items are already declared in the return of income and duly assessed by the Revenue, the same cannot be taken as undisclosed income for the purposes of making block assessment. It has been so held in the case of CIT v. Vikiam A. Doshi (Bom). In the context of additions made on account of unaccounted cash creditors, it has been held by the Hon'ble Calcutta High Court in the case of Bhagwati Prasad Kodia v. CIT that the cash creditors disclosed in the books of account cannot be added in the assessment made under Section 158BC, but can only be considered in the regular assessment. In view of these facts, we are satisfied that the learned CIT(A) was justified in deleting this addition.

13. Ground No. 1 of the assessee's cross-objection was not pressed. The same, therefore, stands dismissed, 14. The only other ground, which survives for our consideration in the assessee's cross-objection, is against the levy of surcharge.

15. It is noticed that the search was conducted on 31st Oct., 2000.

Proviso to Section 1 13 mandating the levy of surcharge on tax in the case of block assessment cases was inserted by Finance Act, 2002 w.e.f.

1st June, 2002, Its operation has not been made retrospective in any manner. Hence it is clear that the surcharge could be leviable only if search is conducted after this specified date, Where the search is conducted on an earlier date, the tax determined thereon would not be increased by the amount of surcharge. This view has been consistently taken by several Benches of the Tribunal, The learned Authorised Representative has placed on record a copy of the -order in this regard passed by the Jaipur Bench of the Tribunal on 1st Aug., 2005 in the case of Shubh Gram Maimo (P) Ltd. v. Dy. CIT in IT(SS)A No. 30/Jp/2003.

In view of this position, we are satisfied that the learned CIT(A) was not justified in holding the levy of surcharge as valid.

16. In the result, the appeal of the Revenue is dismissed and the cross-objection of the assessee is partly allowed.

17. First ground in the Revenue's appeal is against the deletion of addition of Rs. 1,74,500 made on account of alleged gifts received from Kalika family and others.

18. Doth the sides are in agreement that the facts and circumstances of this ground arc similar to that of ground No. 4 in the appeal of Raj Kumar Agarwal (supra). Following the view taken above, we uphold the impugned order on this score.

19. First ground of the cross-objection was not pressed by the learned Authorised Representative. The same is, hence, dismissed. Second effective ground is against the levy of surcharge.

20. Here also, it is observed that search was carried on 21st Oct., 2000. The legal position discussed above would squarely apply to this ground also. Following the view taken above, we direct that surcharge is not leviable.

21. In the result, the appeal of the Revenue is dismissed and the cross-objection of the assessee is partly allowed.