TaxTMI 
TaxTMI 
2001 (7) TMI 272
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....led the returns in Form No. 2B declaring the undisclosed income at nil. After making enquiries and considering the seized documents, the Assessing Officer passed the impugned orders of assessment under section 158BC of the Income-tax Act determining the undisclosed income to the extent of the cash shortage trading into account the outgoings. Except the interest income, all other incomes of each assessee were assessed at 50% of the difference in cash. In the case of Shri Moidu, alias Kunhippa, the income assessed was Rs.12,73,990 and in the hands of Shri Kunheedutty the assessment was on income of Rs.12,72,930. Aggrieved with the assessments of the undisclosed income of the block period as above, the assessees have filed these appeals before the Tribunal. 3. At the time of hearing, Shri C.B.M. Warrier, Chartered Accountant appeared on behalf of the assessee and Shri Amba Shankar Dev, the Senior Departmental Representative on behalf of the Revenue. 4. The first common ground in these two appeals is that the Assessing Officer was not correct in treating a sum of Rs.5,61,600 as the undisclosed income of the block period on account of the unexplained investment in the purchase of ....
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....he land. Shri Warrier contended that though there was the total sum of Rs.2 lakhs withdrawn from the N.R.E. account of Shri Kunheedutty, there was nothing to correlate the withdrawal with the investment and that the cash was used for other investments and outgoings. Shri Warrier further stated that the document was dated 2-11-1991 whereas the cash withdrawals from the bank account were made on 30-11-1991 and so the sum of Rs.2 lakhs could not have been utilised for purchasing this property. 7. Per contra, Shri Amba Shankar Dev, the Senior Departmental Representative submitted that the assessee had purchased a number of properties and it was established beyond doubt that in respect of those transactions the considerations were understated in the documents. Drawing our attention to the assessment order, the learned departmental representative pointed out that there was the purchase of 23.5 cents of land by document No. 2839 for the consideration of Rs.4 lakhs as recorded in the document. But the evidence gathered by the Assessing Officer showed that the actual consideration paid was Rs.32 lakhs and that the addition on that account had not been disputed by the assessee. He further....
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....e purchase consideration was Rs.32,000. There is evidence to show that in a number of purchases by the assessees there was under-statement of the purchase consideration. The assessee also accepted the additions made in respect of other transactions. In respect of these transactions the consideration shown in the documents was around Rs.1,000 per cent. In view of the fact that in all those transactions the actual price paid by the assessees was higher amounts, it could be reasonably presumed that in respect of the purchase of 32.75 cents by document No. 3101 also the price paid by the assessee must have been higher than the consideration-of Rs.32,000 as recorded in the document. The consideration of Rs.2 lakhs as found by the Assessing Officer also appears to be reasonable having regard to the under-statement of consideration as admitted by the assessees in respect of other investments The learned Representative of the assessee contends that the withdrawal of Rs.2 lakhs on 30-11-1991 could not be correlated with the purchase of 32.75 cents of land as the document is showing the date 2-11-1991. From the letter issued by the Assessing Officer on 26-8-1997 it is seen that the document ....
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....th the Assessing Officer to conclude that there was the investment of Rs.14,50,000 in the purchase of Valancherry property. The learned representative stated that the assessee had admitted the investment of Rs.6.46 lakhs and that should have been accepted by the Assessing Officer. Shri Warrier pointed out that in the sworn statement recorded on 26-9-1996 Shri Moidu had stated that though there was withdrawal of Rs.14,50,000 during the previous year, only Rs.7,10,000 had been utilised for investment in Valancherry property including the registration expenses and that the balance amount had been utilised for other outgoings. According to Shri Warrier, there was the claim of Shri Moidu that out of the cash of Rs.8 lakhs withdrawn from the NRE account in July 1994, Rs.4 lakhs was deposited in S/B Account. It was the contention of Shri Warrier that the Assessing Officer was not correct in treating the sum of Rs.4 lakhs also as investment in the property. Shri Warrier submitted that the Assessing Officer ought to have accepted the investment of Rs.7,10,700 as shown by the assessee in the cash flow statement. 11. Shri Amba Shankar Dev, the learned departmental representative, on the ot....
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....by the assessee in the cash flow statement. This ground of appeal is thus decided in favour of the assessee. 13. In the next ground the assessee is disputing the addition on account of unexplained investment in the construction of residential quarters. The assessee had started the construction of the residential quarters during the year 1987-88 and completed the construction in 1992-93. In the cash flow statement the assessee had shown the total investment at Rs.7,04,000, i.e., Rs.2.84 lakhs for the ground floor and Rs.4.2 lakhs for the first floor. The documents seized in the course of the search showed that till 12-3-1991 there was investment of Rs.4,74,512. The Assessing Officer did not accept the investment as shown in the cash flow statement an he proceeded to estimate the same at Rs.8,92,297. Apart from the investment as reflected in the seized document, the Assessing Officer added the amounts as shown by the assessee to arrive at the investment at Rs.8,97,297 and on that basis made the addition of Rs.1,93,000 as undisclosed income of the block period. 14. The learned representative Shri Warrier submitted before us that the Assessing Officer was not correct in consideri....
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.... Assessment year 1988-89 as declared by the assessee Rs. 1,00,000 Assessment year 1989-90 as per the seized books Rs. 1,57,306 Assessment year 1990-91 as declared by the assessee Rs. 1,50,000 Assessment year 1991-92 as per the seized books Rs. 2,69,991 Assessment year 1992-93 as declared by the assessee Rs. 1,20,000 ---------------  ....
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.... the Assessing Officer by mixing the two sets of figures would not give the correct investment in the building. In this context we may refer to a report from a registered valuer produced before us by the learned representative of the assessee. This report dated 31-12-1998 shows the investment in the building at Rs.7,33,000. But then this report was obtained by the assessee after the completion of the assessment and so the Assessing Officer had no occasion to consider the same. Having regard to the further investment made during the assessment year 1992-93, we are of the view that it would be reasonable to estimate the cost of construction of the building at Rs.7,50,000. We accordingly direct the Assessing Officer to adopt the cost at Rs.7,50,000 as against Rs.8,97,297 as taken in the assessment. 17. The assessee constructed a residential building in Thriprangodu Panchayat, Tirur Taluk during the period from 23-6-1991 to 6-2-1994. In the cash flow statement the total investment in the building was shown at Rs.7,15,000 as under: ---------------------------------------------------------------------------- Assessment year 1992-93 ....
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.... ---------------------------------------------------------------------------- Additions were made for the assessment years 1992-93, 1993-94 and 1994-95 on that basis. 18. On behalf of the assessee, Shri Warrier contended that the Assessing Officer was not at all justified in estimating the cost of construction at Rs.12 lakhs merely because the Inspector had made the estimate at Rs.12,58,380. The learned representative objected to the valuation by the Income-tax Inspector with the contention that he was not qualified to make an estimate of the cost involved in the construction of a modern building. It was his contention that when the assessee had furnished the report of a registered valuer who was a retired Executive Engineer of Kerala P.W.D., the Assessing Officer should not have brushed aside his report. Shri Warrier contended, that if the report by the registered valuer was not found acceptable, the Assessing Officer ought to have got the property valued by the departmental valuer and not ventured to rely on the report of the Inspector. Shri Warrier further stated that before making his own estimate at Rs.12,58,380, the Inspector had not obtained any details from the assess....
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.... was shown by the valuer at Rs.1,176. We are in agreement with the Assessing Officer that the value taken is on the low side. As per the seized documents the assessee had incurred expenditure of Rs.2,50,685 on the purchase of wood. But the additional expenditure considered by the registered valuer was Rs.34,676 only. As pointed out by Shri Warrier the cost of wood used in the building as such was included in the cost estimated for the ground floor and the first floor, totalling Rs.6,50,000. Only the cost of the extra work was shown at Rs.26,000, i.e., for teak as the wood used. We do not think any adjustment is required for the cost of timber used in the building, over and above the value adopted by the registered valuer. It is our considered view that the cost of construction of the residential building in this case can be estimated at Rs.10,50,000. The Assessing Officer, will adopt this figure as against the cost of Rs.1,20,000 as considered in the assessment. 21. The assessees next object to the cost of construction of the flats being estimated at Rs.6 lakhs. In the cash flow statement the investment declared was Rs.2,50,000. The Assessing Officer found that as per the seized....
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.... assessment year 1992-93. Though Shri Warrier vehemently opposed the addition, he could not give any reason as to why the amount was shown as an outgoing in the cash flow statement. The source for the expenditure was also not properly explained. In the circumstances of this case, we confirm the addition as unexplained income. 24. The dispute in the next ground is regarding the agricultural income to be given credit for explaining the investments and outgoings during the block period. In the cash flow statement the assessee has taken credit for a total sum of Rs.6,20,000 as the agricultural income available for the block period of 10 years. The assessee gave credit for Rs.3,30,000 only. 25. Shri Warrier submitted before us that the Assessing Officer was not justified in not allowing fully the claim of the agricultural income of Rs.6,20,000 to explain the outgoings during the block period. It was stated that the assessee had purchased 216 cents of land in 1986, and then 150 cents in 1991. There were also smaller plots purchased in 1991 and 1994. From all these properties the assessees were getting agricultural income from the sale of coconuts. In the paper book filed before us,....
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....p; 25,000 1989-90 25,000 1990-91 30,000 1991-92 30,000 1992-93 &n....
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....ncome for the assessment years 1993-94 and 1994-95. 27. Before us Shri Warrier submitted that for each year the assessees were showing very reasonable estimates for the personal and household expenses. For the assessment years 1995-96 and 1996-97 the expenses were shown at Rs.1 lakh and for the broken period in the assessment year 1997-98 the expenses were shown at Rs.1,50,000. It was the contention of the learned representative that there was no basis for the Assessing Officer to make a higher estimate of the expenses for the assessment years 1993-94 and 1994-95. He also submitted that there was no material gathered in the course of the search, which would justify an enhancement in the domestic expenses to warrant addition in a block assessment under section 158BC. The learned departmental representative, on the other hand, submitted that the assessees had shown the expenses of Rs.50,000 for the assessment years 1990-91, 1991-92, 1992-93, 1993-94 and 1994-95. It was his contention that the expenses could not remain the same for all the five years and so the Assessing Officer was justified in making some adjustment for the last two years. The learned departmental representative ....
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....he learned representative of the assessee for allowing basic exemption for each year cannot be therefore accepted. However, we are in agreement with Shri Warrier that in respect of those years in which the income assessed is below taxable limit, the assessee was under no obligation to disclose the same through a return of income and so such amounts are not to be included in the total undisclosed income of the block period. In other words, if the income assessed for any of the assessment years included in the block period is below the taxable limit, the same is to be excluded in the computation of the total undisclosed income. We accordingly direct the Assessing Officer to exclude from the computation of the total undisclosed income of the block period, the incomes of those years which are found to be below the taxable limit. 31. In the result, these two appeals filed by the assessees are partly allowed. The Assessing Officer will revise the assessments accordingly. Per K.P.T. Thangal, J.M.--I have gone through the order of my learned brother confirming partial additions made in the block assessments in the case of the assessees. I am unable to agree with the conclusions arriv....
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....ted addition is on account of the purchase of 32.75 cents of land for a stated consideration of Rs.32,000. This property was purchased by document No. 3101 dated 2-11-1991. The Assessing Officer noticed that the assessees had withdrawn a total sum of Rs.2,00,000 on the date of registration from the N.R.E. account No. 1300 of Sri Kunheedutty. According to the Assessing Officer the withdrawals had necessarily correlated with the purchase of the property. Since the Assessing Officer was not satisfied with the explanation of Sri Kunheedutty about the utilisation of the withdrawals from his N.R.E. account he inferred that the assessees had paid Rs.2 lakhs for the purchase of the property in question as against Rs.32,000 shown in the cash flow statement. 5. The next disputed amount is the addition made on account of the purchase of a property at Valancherry. Document No. 2535 dated 31-8-1994, Document No. 2175 dated 28-7-1994 and document No. 3330 dated 22-11-1994 showed that the assesee had purchased 24 cents of land. As per the documents registered the total consideration was Rs.3,58,000, but the assessees had shown total investments in the above plots of lands at Rs.6,46,000 in the....
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....nstruction. The assessees had declared only a sum of Rs.2.50 lakhs though they had spent an amount of Rs.6,00,000 upto the date of search. The Assessing Officer accordingly treated the sum of Rs.6,00,000 as an outgoing. 9. The Assessing Officer made another addition of Rs.45,000 on account of repairs of vehicles etc., which was not reflected in the cash flow statement. So this sum was treated as an outgoing. Another fact came to the notice of the Assessing Officer was that payment of Rs.10,000 for the road and Rs.12,000 as gifts indicated in the same book on which expln. had not been offered. Hence these sums were also taken as outgoings in the assessment year 1992-93. 10. The assessees claimed agricultural income of Rs.30,000 for the assessment year 1987-88, Rs.50,000 each for the assessment years 1988-89, 1989-90, 1990-91 and 1991-92, Rs.65,000 for the assessment year 1992-93, Rs.70,000 for the assessment years. 1993-94, 1994-95 and 1995-96, Rs.80,000 for the assessment year 1996-97 and Rs.35,000 upto 26-9-1996. The Assessing Officer found that the assessee's agricultural income was shown at a higher figure for each of the assessment years and therefore he resorted to estim....
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....date of search). A perusal of para. 10 of the block assessment orders would show that the assessees' family consisted of his father, mother, married sisters, brothers-in-law etc. It is well established that in the absence of proof that the entire household expenses were met by the assessees, even if the expenses were found to be more, the assessees alone cannot be burdened with the expenses. It is not disputed that the assessees are non-resident Indians. No other income was generated to the assessees from any internal source. No evidence has come to light that the assessees had any income in India. The difference in the investments in the purchase of lands even according to the Assessing Officer can be attributed to the withdrawals from the N.R.E. accounts. The only reason that weighed with the Assessing Officer to make the addition was that there was difference between the consideration shown in the documents and the actual payments made by the assessees. I am afraid, in the case of a Non-resident Indian, this alone is not sufficient to bring the difference to tax. Even according to the Assessing Officer the assessee had sufficient sources and withdrawals were made from the N.R.E.....
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....s of land at Valancherry; (iii) on account of construction of residential quarters; (iv) on account of construction of residential building; (v) on account of furnishing the house; (vi) on account of construction of flat; (vii) on account of estimated agricultural income; (viii) personal expenses. THIRD MEMBER ORDER Per Shri O.K. Narayanan, Accountant Member.--These two block assessment appeals were originally heard by the regular Bench consisting of the Hon'ble Judicial Member and the Hon'ble Accountant Member. The original order was authored by the learned Accountant Member, who sustained these block assessments, but after granting certain reliefs on various issues agitated in these appeals. He held that the appeals should be partly allowed. But, the learned Judicial Member was of the view that there is no justification in sustaining any of the additions made by the Assessing Officer. He found that the undisclosed income made in the form of various additions are only estimated additions, for which there is no justification in a block assessment. On the basis of the above general view, the learned Judicial Member allowed the appeals filed by the assessees. ....
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....ey left India way back in 1978. They have been making substantial investments in Kerala through purchase of land and construction of buildings, especially from 1986 and onwards. There was a big transaction in November 1995, when the assessees purchased a property for Rs.32 lakhs, but where the consideration declared in the registered document was only Rs.4 lakhs. Sensing a huge case of under-valuation and payments of on-money, the department carried out a search under section 132 of the Income-tax Act, 1961. The search was conducted on 26-9-1996 in the residential premises of the assessees at Tirur. Documents and other particulars were seized at the time of search. On examination of the documents relating to the purchase of immovable properties, the department found out successive cases of under-valuation in property purchases. On the basis of these background materials, the Assessing Officer issued notices to the assessees for filing the returns in form 2B, of the undisclosed income of the assessees. The assessees declared Nil income. But the Assessing Officer by his block assessment order dated 30-9-1997 has determined a total undisclosed income of Rs.12,73,990 and Rs.12,72,930 r....
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....eated as the undisclosed income of the assessees. It is in the above manner that the Assessing Officer has determined the undisclosed income at a sum of Rs.12,73,990, and Rs.12,72,930, respectively. 6. In short, the Assessing Officer has made out the undisclosed income on the basis of four different principal grounds. The first of such grounds is the sum total of the difference between the ostensible consideration and the actual consideration paid by the assessees for acquiring landed properties. The second ground is the additional estimate made by the Assessing Officer towards the cost of construction of various buildings, such as residential quarters, residential house and flats. The third ground is the additional estimate made by the Assessing Officer against the personal expenses of the assessees' family residing in Kerala. The fourth important ground is the reduction made by the Assessing Officer in the estimated agricultural income declared by the assessees. 7. In the course of the block period the assessees have purchased five plots of land. In all these cases there is on-money payment. The document have been registered for a lesser amount. This position has been by an....
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....by making an addition of Rs.1,40,000. As pointed out by the learned Judicial Member, no evidence was available in the course of search to make out an addition towards the personal expenses of the assessees' family members. This has been done exclusively on an estimate basis. From the above, what I find is that the undisclosed income computed by the Assessing Officer in these cases are made out of the various additions made by him purely on estimate basis. The Assessing Officer has made such additions on estimate basis against the purchase of Valancherry property, construction of residential quarters, residential building and flats. He has repeated this estimated addition in the case of agricultural income by reducing such income stated by the assessees, and also in the case of family expenses by enhancing it on an estimate basis. 9. It is clear, therefore, that if the estimated additions made by the Assessing Officer are taken out, there is no case of undisclosed income in these cases. This is because the entire moneys spent by the assessees for purchasing properties, including the on-money payments, are covered by the foreign remittances made by them from time to time. The cost....