TaxTMI 
TaxTMI 
1998 (12) TMI 112
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....arguments for all these appeals. The paper books for all these cases are also common. Out of 15 appellants 12 are engaged in trading and manufacturing activity of marble at Makrana. The main case of the group is appeal No. 19/Jp/1998 pertaining to Shri Mustaq Ahmed, the senior most family member of the group. The assessment order in this case is much exhausted and was made the basis of arguments by both the parties. We shall deal with all the cases together because the issues are similar and related and it would be appropriate for the sake of convenience. During the course of search, cash, jewellery, huge stock of marble blocks and slabs and loose documents indicating under billing of sales, suppression of sales and job work income were found. The assessee group has filed return under s. 158BC declaring undisclosed income of Rs. 1,54,08,341 for all the assessees of the group. The AO completed the assessment in all the cases at Rs. 14,98,52,154. Now we will take the appeals together of all the assessees, groundwise. 3. In relation to first ground pertaining to the opportunity, the facts were stated by the learned counsel but he opted for arguing the individual ground on merits. S....
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....e undisclosed income for the block period was determined on the basis of undisclosed assets and expenses. Thus, in aggregate total undisclosed income was determined at Rs. 14,98,52,154 by the AO. The learned authorised representative further stated that the AO also made an exercise in all the cases to determine the extent of undisclosed assets and undisclosed expenses for the block period though no addition was made on that basis except in case of Shri Anwar Ahmed because the undisclosed income determined by way of estimating the under billing, profit and suppressed sales, unrecorded job work and estimated profit for the current year was much more than the estimate of undisclosed assets and expenditure for all the period of group in respect of the block period. The details of determination of income, estimation of assets and expenditure are shown in Appendix 'A' enclosed with the synopsis of arguments filed before the date of hearing. 7. The learned authorised representative further argued that the difference of two items i.e. total undisclosed income determined and total undisclosed assets and unrecorded expenses determined by the AO comes to Rs. 9,62,08,324. It was further sta....
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..... Therefore, instead of making the estimate from this small size of sample, would be only a wild guess work, the estimation of undisclosed income should be based on assets/expenditure. To support further this argument, the learned counsel relied upon the theory of best judgment assessment as explained in various case laws. 7.3. In respect of the confessional statement recorded during the course of search, the learned authorised representative drew our attention to the quality of those statements and the fact that they were subsequently rebutted. It was argued that the statements cannot be made as the basis of assessment unless the admission made therein are free from all doubts and ambiguity. A person ought to have known the implication of confession made by him in clear and conclusive terms, which is absent in the present case. The decision reported in 1971 AIR 1542 was relied upon. The reliance was further placed on 60 Company cases p. 603 to explain the environment during the course of search and temptation prevailing during the search. According to the assessee, the temptation of Departmental officers, in searches to achieve the target is very high which play a significant r....
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....ffers from several contradictions in asmuch as he estimates 40% of gross profit rate from the current period at one place in his order, while determining the value of stocks the profit rate taken by him is 17% whereas while determining the profit rate on suppressed sales 60% has been adopted and as against all this, his action of making addition by estimating the under billing has resulted in a gross profit to the extent of 71% on sales. It was further pointed out that the DVO's report in respect of valuation of properties taken into account a profit rate of 10% as a manufacturer and 10% as a trader. Therefore, the order of the AO suffers from several contradictions. 7.7. Summarising his argument on this point, the learned authorised representative contended that in the facts of the present case where the unrecorded expenditure for the whole block period have been separately determined and unrecorded assets on the date of search have been identified and evaluated. The better approach to determine the undisclosed income is the basis of assets and expenditure as against mere estimation, presumption and a wild guess work for determining the undisclosed income by way of a positive w....
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....based on assets and expenditure is obviously better than making a wild guess without backing of assets/expenditure particularly when Department has no case that any asset remained undetermined. The estimate made by the AO is self-contradictory in the sense that it results in a unrealistic gross profit rate which is not even as per his own estimate at other places in the order. Concessions made in the present case carries no significance for the purpose of determination of income inasmuch as they are not absolute, they have been rebutted, not being completely relied by the AO also. The statements are very general in nature without bearing the reference of quality of goods, the specification of period and such other minute particulars which are utmost necessary for positive computation of income. The statement is very brief and not detailed. We are, therefore, of the view that the basis adopted by the AO for determining the undisclosed income is incorrect. When AO himself has identified and ascertained all the undisclosed assets as also all kinds of undisclosed expenditure including the household expenses, expenditure on marriages and Haj Yatra, acquisition of household items., jewel....
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....--------------------------------------- 1. 2. 3. 4. 5. ------------------------------------------------------------- Rs. Rs. Rs. ------------------------------------------------------------- 19/Jp/98 Mustaq Ahmed 2,66,04,671 1,05,93,743 1,60,10,924 25/Jp/98 S. Nawab Ali 2,75,26,093 99,59,706 1,75,66,387 33/Jp/98 Gayoor Ahmed 2,25,80,261 93,34,908 1,32,45,353 23/Jp/98 Salimuddin 2,00,56,200 72,96,924 1,27,59,276 26/Jp/98 Riyazur 1,29,51,164 71,57,804 57,93,360 &nb....
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....t of the regular return from asst. yr. 1997-98. However, in view of our findings of determination of income on the basis of assets and expenditure, all the assets acquired upto 18th Dec, 1996, and expenditure incurred upto that date would be considered for ascertaining the undisclosed income, therefore, there is no need for any positive calculation of income for the current period. It stands automatically taxed as a part of assets and expenditure. In the result, though the ground is technically rejected but as held above, the income shall be taxed on the basis of assets and expenditure. Resultant relief is already comprised in the amount of Rs. 9,62,08,324. 10. Ground No. 3 in 12 appeals relates to estimation of various undisclosed assets/expenditures on the basis of which no addition was made considering them to be covered by the additions made which were covered in ground No. 2. However, since that basis of addition is disapproved and while dealing with ground No. 2, the additions to the extent to which they are covered by ground No. 3 were sustained. It is necessary to deal with these grounds to consider the amounts of estimation on merit since they have been challenged by th....
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....aggregate of such amount was only Rs. 28,360 (Rs. 7075 + Rs. 7,100 + Rs. 10,000 + Rs. 7,685 + 6,500). Further in the statement of Afsana Bano she has stated that Rs. 15,000 were out of her own savings which we considered as explained. However, we do not find any merit in the claim of cash pertaining to so-called charitable fund. If the assessee claims some cash found with him belonging to some other person then the onus is on him to bring satisfactory evidence. Merely because in the statements recorded at the time of search, this fact was stated and subsequently no evidence was given, this addition, therefore, cannot be deleted. Thus the unexplained cash works out to Rs. 1,08,222 (Rs. 3,62,810 - 1,70,650 - 30,578 - 38,360 - 15,000). This addition would remain in the hands of Nawab Ali who has claimed this amount. The addition in respect of all other persons is hereby deleted. In the result, the following reliefs are being allowed and by this following grounds in various appeals stand disposed of. ------------------------------------------------------------- Appeal Name of the Ground Unexplained Addition Amount No. ....
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....bsp; -------- -------- -------- Total 3,62,810 1,08,222 2,54,588 ------------------------------------------------------------- 16. Next issue is in respect of gold jewellery. Total undisclosed investment has been determined at Rs. 9,35,508 in respect of all the persons. Out of which Rs. 1,62,540 has been estimated for the assessee Mustaq Ahmed. It was argued by the learned counsel that AO considered 25% of the jewellery claimed as explained and remaining as unexplained which has no logic. It was argued that apart from specific amounts offered as undisclosed income, the balance jewellery is very reasonable considering the number of married ladies and family members. Share of per member comes to only around 231 gms. It was further stated that the jewellery to the extent of 221 gms belonged to Noorjahan which is not disputed by the AO. 17. On the other hand, the learned Departmental Representative had relied upon the assessment order. 18. After consid....
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....sp; - 23,220 26/Jp/98 Riyazur 3(ii) 1,87,308 - 1,87,308 Rehman 21/Jp/98 Ahmed Hassan 3(ii) 44,376 - 44,376 20/Jp/98 Mukhtayar 3(i) 9,804 - 9,804 Ahmed -------- -------- -------- 24/Jp/98 Anwar Ali 4 1,44,480 - 1,44,480 ------------------------------------------------------------- 19. Next issue relates to addition on....
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....sp; - 1,690 20/Jp/98 Mukhtayar 3(i) 2,792 - 2,792 Ahmed 24/Jp/98 Anwar Ali 4 2,204 - 2,204 -------- -------- 1,80,272 1,80,272 ------------------------------------------------------------- 20. Next issue relates to addition on account of vehicles aggregating....
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.... these four additions. 23. So far as the assessee's claim of depreciation in respect of undisclosed vehicles is concerned, we find some force in the arguments that the depreciation on such vehicle is allowable. However, for the purpose of claim of depreciation, it is necessary that the assessee shows evidence for use of the vehicle for the purpose of business. Therefore, in absence of necessary details on record, we reject the claim of depreciation. The assessee is free to claim such depreciation in regular assessment of subsequent years by discharging its onus. In the result, the assessee gets following relief aggregating to Rs. 7,01,886 and the under-noted grounds of various appeals stand disposed of: ------------------------------------------------------------- Appeal Name of the Ground Unexplained Addition Amount No. assessee No. investment confirmed of de....
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....ocal society. 25. The learned Departmental Representative supported the order of the AO. 26. After hearing the rival submissions and considering the fact of the case, we find that the assessee's amounts as well as AO's amounts are merely estimates. Neither complete evidence is there with the assessee nor with the AO. We are left with the option to estimate only and considering the facts, we estimate the expenses at Rs. 1 lac, 1,50,000 and Rs. 2,25,000 on these three marriages. The rest of the additions are hereby deleted in the following manner, disposing of the under-noted grounds: ------------------------------------------------------------- Appeal Name of the Ground Unexplained Addition Amount No. assessee No. investment confirmed of determined relief  ....
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....------------------------------ Rs. Rs. ------------------------------------------------------------- 19/Jp/98 Mustaq Ahmed 3(x) 60,000 60,000 25/Jp/98 S. Nawab Ali 3(ix) 1,20,000 1,20,000 26/Jp/98 Riyazur 3(x) 30,000 30,000 Rehman --------- -------- 2,10,000 2,10,000 -------------------------------------------------------....
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....ready stated belong to Tahira and Nafisa and the only issue in these two appeals are regarding not giving the credit for withdrawals shown by Tahira and Nafisa in their regular returns. We find from the details of account offered by assessee that the expenses for the period from 1st April, 1996 to 18th Dec, 1996 have not been covered in the statement whereas the same is required because the estimation is being made on the basis of assets and expenditure for the whole block period. Total addition made by AO is Rs. 41,72,669 in the hands of 8 male members of the family whereas assessee has offered Rs. 3,39,084 in aggregate. The assessee has already shown a sum of Rs. 16,81,764 as withdrawal in regular books for the block period. Having considered the facts and withdrawals made, it would be reasonable to restrict the addition to the extent of Rs. 10,00,000 in aggregate. Thus in this way the total withdrawal comes to Rs. 26,81,764 for the whole block period which in our considered view are reasonable withdrawals for meeting out the household expenses. Thus the assessee would get a relief of Rs. 31,72,669. The amount of addition would be equally divided between the eight male members fo....
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....------- --------- --------- 41,72,669 10,00,000 31,72,669 ------------------------------------------------------------- This also disposes of appeal Nos. 21/Jp/93 and 28/Jp/98 completely. 29. Next issue relates to addition on account of household items aggregating to Rs. 7.09,590. The grievance of the appellant is that the AO has considered all household items for making this addition whether it is a refrigerator, double bed, geysers, night lamp or a fan. He has not accepted the most of these items are out of receipts on the occasion of marriages. The small items like night lamps, fan have to be considered out of household withdrawals. However, it was confessed that there may be some unexplained items acquired by the appellant group. 30. On the other hand, the learned Departmental Representative placed reliance on the order of the AO. 31. After considering the facts, we are of the opinion that it would be fair and reasonable if the addition is restricted to 50% o....
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....sp; 33,925 33,925 --------- --------- --------- 7,09,590 3,54,795 3,54,795 ------------------------------------------------------------- 32. Next issue for consideration is donation given by the assessee group which have been estimated at Rs. 25,000 per annum per family and Rs. 18,750 for the period from 1st April, 1996 to 18th Dec, 1996. It was argued on behalf of the assessee that the AO's allegation is not correct. Only 6 instances of donation given by the family were found. Five of them were of less than Rs. 1,000 and one is of Rs. 1,000. Therefore, the presumption of donation of Rs. 25,000 per annum for each family is without any basis. 32.1. The learned Departmental Representative has supported to order of AO. 32.2. After considering the facts and su....
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....nbsp; 3(v) 1,43,725 - 1,43,725 --------- --------- --------- 13,62,475 1,00,000 12,62,475 ------------------------------------------------------------- 33. Next issue is in respect of investment in construction of three properties owned by the group. The facts related to the additions are stated in the following table: ------------------------------------------------------------------------- Property Amt. Amount Valued by Valued by Valued by Addition disclosed surrendered assessee DVO AO &n....
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....her addition should have been made. In respect of Shalimar Hotel building, it was submitted that the AO has included certain amounts relating to electric wiring, switches, lamps, geysers, Acs and furniture in the valuation where the assessee has disclosed the amount of Rs. 5,40,394 in respect thereof separately in addition to the cost of buildings. 33.2. On the other hand, the learned Departmental Representative placed reliance on the assessment order. 33.3. We have gone through the facts, documents in the paper book and arguments put-forth. We find that the AO has not accepted even the valuation of the Departmental Valuer by taking a different construction period. The DVO is certainly more expert than the AO insofar as such views are concerned. Therefore, though there was no reason for going beyond the valuation of DVO since the DVO has adopted CPWD rates, we find it appropriate to allow the assessee's claim in respect of local PWD rates by following the consistent view of the bench. This bench has allowed a reduction of 15% to 25% on account of difference of valuation in CPWD rates and PWD rates. Here, we allow 20% deduction from the amount of valuation as per DVO subject t....
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....bsp; ----------- --------- --------- 1,04,70,352 46,79,200 57,91,152 ------------------------------------------------------------- 34. Next issue relates to estimation of investment in land at Rs. 10,45,000 in the hands of Riyzur Rehman challenged in ground No. 3(vii) in appeal No. 26/Jp/98. It was argued by the learned counsel that this land was jointly purchased by 5 members of the family group. The AO has wrongly considered the same in the hands of one assessee. The amount disclosed in the regular return for asst. yr. 1996-97 of these five persons in respect of this land is Rs. 1,90,000 + Rs. 1,23,510 and Rs. 15,000 for stamp charges and Rs. 5,000 for expenses (Rs. 66,702 each) aggregating to Rs. 3,33,510. It was explained that the addition was made by making the amount on which stamp duty was paid as the amount of investment without any other evidence of investment. No other material was found during the course of ....
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....ork with the assessee, it was submitted that the AO accepted merely 10% of the quantity claimed by the assessee in spite of evidence in the form of affidavit and identification marks available on record. Further it was also argued that the stocks within the mines was taken by the AO for valuation at the rates equal to the stocks available at the business premises. In respect of quality, it was submitted that there was damaged and wastage material also which were valued as good stocks. Statement of Gsyoor Ahmed were relied upon in respect of quality of stocks but not in damaged and wastage material. The photograph of damaged stocks were also shown in paper book. Regarding valuation of stock, it was submitted that the rates adopted by the AO were arbitrary and very high. Our attention was also drawn to the finding of the AO where he adopted the rates from certain seized papers reflecting the rates of better quality and in respect of thicker size of material which was applied to the whole stocks considering the same to be an average. Further the deduction on account of gross profit was given at 17% on the basis of disclosed gross profit rate, whereas the sales rate adopted are on the ....
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....taken by ADI who has seen the stocks physically. Further the AO himself subsequently released balance part of the seized stocks by taking its value at Rs. 50 lacs which has been valued at Rs. 1,11,42,658 in the assessment order as per the following details: ---------------------------------------------------------------- Annexure No. Valued by Valuation at the time of release AO ---------------------------------------------------------------- Rs. Rs. ---------------------------------------------------------------- Party 6. Annx. SB 12,84,500 Party 6. Annx. S. 70,76,828 Party 8. Annex. SS 9,95,200 Party 9. Annx. SS 2,89,430 Party 10. Annx. SSI  ....
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....cks disclosed as on 31st March, 1996 is being given and for the period from 1st April, 1996 to 18th Dec, 1996 no income on the basis of any business transaction is charged to tax since the same is comprised in the variation of stocks and other assets uptil the date of search as well as the expenditure incurred during this period upto 18th Dec., 1996, separately considered. 36. On the other hand, the learned Departmental Representative placed full reliance on the findings of the AO. 37. We have carefully considered the facts of this case, relevant papers relating to inventory and arguments advanced. We have also noted that the impugned stock is not available now as being released and sold out. As such no re-verification of valuation of stock is possible. We, therefore, consider it appropriate to disposed of this ground on the basis of material, on record. One thing which is very important to note is the significant difference in valuation done by ADI and subsequently done in the assessment order. Similar difference is there is respect of valuation at the time of release of stocks by the AO and that done subsequently in the assessment by the AO. Even such difference aggregate t....
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....p; released Total valuation as per AO ----------- 3,41,92,408 ------------------------------------------------------------ Since the average rates have been adopted at the time of release as well as by the AO, therefore, the value of stocks found and not seized may also be sealed down in the same proportion as in respect of stocks seized and released for the purpose of equalising the value of whole stocks. Thus: 37,52,296 x 1,65,68,712 (1,15,68,712 + 50,00,000) ----------------------- 3,04,40,112 (1,92,97,454+ 1,11,42,658) = Rs. 20,42,394 Therefore, the valuation of total stocks as per the basis adopted at the time of release works out to Rs. 1,86,11,106 (Rs. 1,15,68,712 + 50,00,000 + 20,42,394). However, the assess....
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....f statistics available in the material placed before us. However, we are of the view that there may be some difference on account of taking of stocks which may be left out at the time of taking of stocks by the search party and the assessee at the time of search. Therefore, we are of the view that to cover all the loopholes and difference in stock taking, we add a sum of Rs. 6 lacs and in this way total stocks come to Rs. 1,16,67,215. 38. The value of stocks disclosed as on 31st March, 1996 is undisputed Rs. 21,72,200, therefore, the value of undisclosed stock is determined at Rs. 94,95,015 which is divided among the various persons of the group on an estimated basis considering the undisclosed income as per their block returns: ------------------------------------------------------------- Appeal Name of the Value of Value of Estimated No. assessee stocks stock as value of  ....
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....nbsp; --------- 1,16,67,215 94,95,015 ------------------------------------------------------------- 39. Since the value of disclosed stocks has been taken as on 31st March, 1996, for determination of undisclosed investment upto 18th Dec, 1996, the income earned during the period from 1st April, 1996, to 18th Dec, 1996, is not liable to be taxed separately as the same is comprised in the valuation of stocks. We have no hesitation in accepting that since all the assets uptil 18th Dec, 1996, have been valued separately and all the expenditure upto 18th Dec, 1996, has also been considered under this assessment, no business transactions for the period from 1st April, 1996, to 18th Dec, 1996, have to be separately considered in regular assessments. This disposes of the under-noted grounds of the appellant group of appeals with the resultant relief mentioned there against: --------------------....