TaxTMI 
TaxTMI 
1998 (12) TMI 108
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...., 1995, to 20th Jan., 1996. As a result of the search operations, the IT authorities seized a lot of records in the form of loose slips as well as computerised accounts for the previous years 1993-94, 1994-95 and partly for 1995-96 in addition to cash of Rs. 3,40,000 out of Rs. 3,50,000 found at the Bombay residence. On processing the above-mentioned seized materials, the AO came to a conclusion that the appellant had undisclosed income to be assessed under the provisions of Chapter-XIV-B of the IT Act as introduced by the Finance Act, 1995. 3. Therefore, he issued notice under s. 158BC(a) calling for return for the block period. The appellant filed the block return which was verified by the AO and being not satisfied, proposed an estimate based on the seized materials. The proposal was communicated to the assessee, who filed detailed objections and explanations before the AO. The AO, after going through the objections, explanations, sworn statements of the assessee and other concerned persons and on the basis of the materials seized at the time of searches, completed the block assessment, against which the assessee has now come in appeal before the Tribunal. 4. It is stated ....
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.... made addition of Rs. 64,000 on account of rent of office maintained at Bombay as same is allowable as deduction in computing taxable income. 10. The learned Dy. CIT ought not to have made addition of Rs. 1,43,000 being expenditure incurred on the lease premises. 11. The learned Dy. CIT, ought not to have disallowed a sum of Rs. 2,725. 12. The learned Dy. CIT, ought not to have added a sum of Rs. 21,00,000 placing reliance on the sworn statement of the appellant without bringing any further evidence on record, suggesting that so much payments were actually made to the technicians, artists. In any event the learned Dy. CIT ought to have appreciated that the same is allowable as deduction in computation of total income. 13. The learned Dy. CIT, ought not to have added a sum of Rs. 5,15,300 as unexplained expenditure, inasmuch as the seized papers suggests that only so much cash was required for various purposes. It did not mean that actually it had been expended. In any event the learned Dy. CIT, ought to have appreciated and allowed the same as a deduction in the computation of taxable income. 14. The learned Dy. CIT, ought not to have added a sum of Rs. 18,95,000 as ....
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....xpenditure 18,030 2. 3 1993-94 1994-95 Payment to Ameer Khan not recorded in the books 30,000 48,030 3. 4 1994-95 1995-96 Unexplanation expenditure 62,941 62,941 4. 6 1995-96 1996-97 Unexplained expenditure for which no entry has been passed in accounts and not covered by peak cash deficit 2,78,350 5. 7 1995-96 1996-97 Unexplained cash found 3,50,000 6. 8 1995-96 1996-97 Unexplained expenditure for production of film 34,63,661 7. 9 1995-96 1996-97 Rent paid 64,000 8. 10 1995-96 1996-97 Renovation 1,43,000 9. 15 1995-96 1996-97 Flat maintenance 36,997 10. 11 1995-96 1996-97 Unexplained cash deposit 2,725 11. 12 1995-96 1996-97 Cash payments to artists 21,00,000 12. 13 1995-96 1996-97 Unexplained production expenses at Madras 5,15,300 13. 14 1995-96 1996-97 Unexplained expenditure 18,95,000 88,49,033 Total ....
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.... return of income for the asst. yr. 1996-97, as major portion of the income from the films like Rangeela and Nayak were earned by the assessee during the previous year period relevant to the asst. yr. 1996-97. 13. In his second set of arguments, the learned counsel explained his grounds on alternate remedy legally available to the assessee. He contended that items alleged as unaccounted expenditure and added by the AO towards undisclosed income, are all, barring certain personal expenses, items expended for the purpose of business and, therefore, liable to be allowed as admissible expenses in the computation of undisclosed income. He argued that as the alleged unaccounted expenses are business expenditure, any addition made on that ground would be set off by the corresponding deduction as admissible business expenditure. He submitted that these are all expenses incurred in the course of production of films. So, according to him, barring the personal expenses, the balance items should be allowed as deduction. The learned counsel argued that the above alternate contention has to be considered by the Tribunal even though the assessee had not raised such a contention at the assessme....
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....the alternate ground advanced by the assessee, Shri C.P. Ramaswamy, the learned senior Departmental Representative, argued at length. According to Shri Ramaswamy, those undisclosed expenses are deemed as the income of the assessee under s. 69C, and no deduction is permissible from that deemed income even if those undisclosed expenses are incurred for the purpose of the business of the assessee. He argued that s. 69C is a deeming provision by which income is deemed against unexplained expenditure and, therefore, once income is deemed against unexplained expenditure the same shall be added and the expenditure cannot be claimed as deduction. According to the learned senior Departmental Representative, this position of law is now expressly declared by the proviso inserted at the end of s. 69C by the Finance (No. 2) Act, 1998, w.e.f. 1st April, 1999, as follows: "Provided that, notwithstanding anything contained in any other provision of this Act, such unexplained expenditure which is deemed to be the income of the assessee shall not be allowed as a deduction under any head of income." According to him, the proviso is declaratory in nature and is, therefore, applicable retrospecti....
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....iture is business expenditure, it should be deducted out of the income deemed against the very same expenditure. If such expenditure is allowed to be deducted, the very object and purpose of s. 69C would be defeated. Whenever income is deemed against unexplained expenditure and the very same unexplained expenditure, be in the nature of business expenditure, is allowed as deduction, then in all such cases, the income so deemed would be set off by the corresponding deduction. If this position is accepted, then s. 69C would serve no purpose. It becomes non est. We cannot read off a provision of law as of no use or for no purpose to serve. Sec. 69C is inserted in the Act as a rule of convenience to take cognizance of income to the extent of unexplained expenditure. Sec. 69C presupposes not only the income against unexplained expenditure, but also the financial year to which that income is to be considered by stating that "....the amount covered by such expenditure or part thereof, as the case may be, may be deemed to be the income of assessee for such financial year", so that the deemed income may not be filtered away through different previous year periods. 18. Sec. 69C deals with ....
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....te to the evidence and the basis for various additions made by the AO and examine whether those additions are sustainable or not. The various additions are already summarised in para. 10 above. 22. Addition No. 1-Ground No. 03 Financial Year 1993-94-Asst. yr. 1994-95 Rs. 18,030 22.1. In ground No. 3, the assessee has contended against a total addition of Rs. 3,91,630 made up of three amounts, viz., Rs. 3,43,600, Rs. 18,030 and Rs. 30,000. The amount of Rs. 3,43,600 related to the cash deficit noticed in the accounts for financial year 1993-94, which has already been offered by the assessee as undisclosed income in his block return. As stated by us in paras. 9 and 10 above, the amounts already returned by the assessee as undisclosed income will not be considered in this appeal. The other two amounts are added by the AO. The amount of Rs. 18,030 is considered in this paragraph and other amount of Rs. 30,000 is considered in the next paragraph. 22.2. The amount of Rs. 18,030 has been added by the AO on the basis of seized document A/2 p. 49. The amount was paid towards life-time tax of car. No doubt, the payment is proved. The contention of the assessee is that the asse....
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....ntioned above along with the items of expenditure. The assessee has no much explanation towards the items of excess baggage, hiring of cabs and personal expenses. Inflated expenditure does not mean actual cash outflow and, therefore, cannot be construed as unexplained expenditure. Therefore, the amount of Rs. 72,000 is deleted. 26. Addition No. 5-Ground No. 7 Financial year 1995-96-Asst. yr. 1996-97 Rs. 3,50,000 26.1. This amount was the cash found at the time of search at Bombay, out of which Rs. 3,40,000 was seized by the Department. The AO treated the amount as undisclosed income on the ground that the assessee had made initially an admission to that effect. But as submitted by the learned counsel, there is no such admission from the side of the assessee. Initially it was stated that the amount was handed over by one Jamu Sugandh out of collections received from distributors. Later, he stated that the amount was withdrawn from Syndicate Bank a/c. The assessee further stated that the bank accounts of the assessee were operated by Jamu Sugandh through the signed cheques handed over by the assessee in advance as Jamu sugandh had financed the film in large way and he had....
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....oves that Varma exercises full control over the production of the film. 27.2. Therefore, the AO held that A.V. Subba Raju was only a name-lender. Accordingly, the AO added Rs. 34,63,661 to the undisclosed income of the assessee, being the unexplained portion of his investment in the film, after deducting Rs. 4,00,000 towards creditors and Rs. 16,75,000 already reflected in the accounts. 27.3. The assessee objects to the addition on the ground that it is arbitrary and without any basis. The contentions are as follows-The assessee or Raju has never admitted this. A telex message by itself; (sic) already been explained. Assessee's premises were thoroughly searched by the Department. No material, whatsoever, relating to this film was ever found out. The telex message recording the total expenses shows that the assessee has no records of those expenses. It also shows that the books might be elsewhere; otherwise the details as per the telex message could not have been made. Such records are not with the assessee has been proved by the search itself. They are with someone else. The assessee was never asked any question with reference to this film. The books of 2010 Creations were ne....
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....s no basis for working out the unexplained expenditure in this regard. The addition of Rs. 34,63,661 is, therefore, deleted. 28. Addition No. 7-Ground No. 9 Financial year 1995-96-Asst. yr. 1996-97 Rs. 64,000 This is the amount of rent paid by the assessee for his Bombay flat at Rs. 8,000 per month. The payment has not been accounted. The assessee has no case against this. The addition is confirmed. 29. Addition No. 8-Ground No. 10 Financial year 1995-96-Asst. yr. 1996-97 Rs. 1,43,000 29.1 This amount represented the expenses incurred by assessee outside the accounts for the renovation of his Bombay flat. The assessee contends that the details were collected from loose sheets and such loose sheets could not be taken as proper evidence. The sheet containing the details was seized at the time of search. The sheet contained separate details regarding purchase of tiles, fittings, etc. and payment of labour. Therefore, the AO is justified in treating the same as towards expenses on renovation. If not so, it is the duty of the assessee to explain and convince. The same was not done. But, we find that the correct total of the expenses as per the seized slip works o....
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....The assessee has stated the details of payments made to the artists for the film 'Rangeela' at the time of search. The details were furnished in unequivocal terms. We cannot believe the version of the assessee that those details were made casually and from faded memory. The details of the payments made to the leading stars of the cinema world for the assessee's prestigeous movie project, that too, during the relevant period, when the production of movie was in actual progress, could not be faded away out of memory by any amount of fatigue and exhaustion. The high rate of the stars and the huge amounts paid by the assessee would be at the tip of his fingers even during sleep. Because, the payments made to the leading artists are the major chunk of the total expenditure incurred for a film. 32.6. Therefore, we are not inclined to accept the argument of the assessee in this regard. 32.7. Accordingly, the addition is confirmed. But the actual difference is Rs. 20,90,000 and not Rs. 21 lakhs as approximated by the AO. We direct the AO to make an addition for the correct amount of Rs. 20,90,000. 33. Addition No. 12-Ground No. 13 Financial year 1995-96-Asst. yr. 1996-97 Rs.....