TaxTMI 
TaxTMI 
2004 (1) TMI 333
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.... 158BC of IT Act, as time barred by limitation. It is contended that the Department issued only one warrant dt. 24th Feb., 2000, which was implemented on 25th Feb., 2000, therefore, the search should be deemed to be completed on 25th Feb., 2000, hence, assessment order made after two years from the last date of the authorisation, deserves to be declared as time-barred by limitation. 2. On the facts and in the circumstances of the case the learned CIT(A) erred in not declaring the order dt. 25th Feb., 2000 passed under s. 132(3) of IT Act as illegal and unwarranted more so when there was no practical difficulty in seizure of the documents and items on 25th Feb., 2000. It is contended that the order passed under s. 132(3) of IT Act, dt. 25th Feb., 2000 was against the spirit of law and only for other collateral purpose. Further, all the subsequent proceedings on the strength of PO order dt. 25th Feb., 2000 under s. 132(3) should be held illegal and void ab initio, thereby making the Panchnama drawn on 25th April, 2000 invalid and illegal. 4. The learned authorised representative submitted in this case that a search was conducted on 25th Feb., 2000. The Panchnama was also ....
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....(ii) Late Ananta N. Naik through LR vs. Dy. CIT (2000) 66 TTJ (Pune) 533: Held that the search proceedings could not be kept continuous by passing order under s. 132(3). The final revocation order dt. 13th Dec., 1996 is wholly irrelevant for the purpose of limitation under s. 158BE. (iii) CIT vs. Mrs. Sandhya P. Naik (2002) 178 CTR (Bom) 448 : (2002) 253 ITR 534 (Bom). Bombay High Court has held that action under s. 132(3) can be resorted to, only if there is any practical difficulty in seizing the item, which is liable to be seized. When there is no such practical difficulty the officer is left with no alternative but to seize them. By passing a restraint order, the time-limit for framing of the order cannot be extended. (iv) B.K. Nowalkha & Ors. vs. Union of India & Ors. (1992) 101 CTR (Del) 73 : (1992) 192 ITR 436 (Del): Held that provision of s. 132(3) can be resorted to only when there was any practical difficulty in seizing the item which was liable to be seized. The Hon'ble High Court further held that there was no practical difficulty then the authorised officer has jurisdiction and duty to seize books of account, other documents, money, bullion, valuable ....
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....perusal of the list of the items mentioned in prohibitory order under s. 132(3), it is evident that it was not practicable to seize the vehicles documents of which required verification on subsequent dates. Therefore, the prohibitory order had rightly been issued as there was practical difficulty before the AO and subsequently the prohibitory order was lifted by drawing last panchnama on 25th April, 2000. It is also pertinent to mention that prohibitory order was lifted in respect of vehicles and incriminating documents were seized by the authorised officer PB 13. Thus, the limitation will be considered from the date of last panchnama drawn i.e. on 25th April, 2000. Therefore, we conclude that the learned CIT(A) had rightly held that the completion of assessment was not barred by limitation as per Expln. 2 under s. 158BE of the Act. Our views are fortified by the judgment in the case of C. Ramaiah Reddy vs. Asstt. CIT (2003) 81 TTJ (Bang)(SB) 1044 : (2003) 87 ITD 439 (Bang)(SB) whereby it was held that the Tribunal had no jurisdiction to adjudicate upon the validity of prohibitory order issued under s. 132(3) and the limitation is to be counted from the date of last Panchnama drawn....
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....nce Acts are not applicable for the cases of searches held before 1st June, 2002. The rates given in particular Finance Act is applicable only to a particular assessment year not for the block period. This is clearly mentioned in s. 2 of the Finance Act. The part I of the First Schedule of Finance Act, 2000 prescribes the levy of surcharge at 10 per cent on income-tax computed in accordance with s. 113. But this First Schedule is subject to s. 2 of Finance Act, 2000. Sec. 2 of the Finance Act provides that the rates specified in Part I of the First Schedule are applicable for the assessment year commencing from 1st April, 2000. Therefore the rates specified in Part I of the First Schedule are not applicable for the block period. Block assessments comprise of 10 different assessment years and there being different rate of surcharge in different years and in most of the years comprised in the block period, there was no surcharge. (e) It is also clear from cursory look over s. 4 of IT Act, that the rates prescribed in Finance Act is applicable only for the total income of previous year. In the search cases, tax is charged on undisclosed income for the block period-not on tota....
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..... yr. 2000-2001 but for the search. Hence, the income for this assessment year was treated as undisclosed income notwithstanding the fact that regular return has been filed after the search. 11. The learned CIT(A) held that as per provisions of s. 158BB(1)(d) only such income is to be excluded from the income of the block period which is worked out of the transactions recorded in the books of account and other documents maintained in the normal course before search Memoranda diaries and other loose papers found by search party are not books of account and other documents maintained by the assessee in regular course of the business, hence benefit of s. 158BB(1)(d) is not of avail for the assessee. 12. The learned authorised representative made the following submissions: (a) The Department carried out search over the assessee on 25th Feb., 2000. The accounting year for the asst. yr. 2000-2001 was not completed as on the date of search. The return for asst. yr. 2000-2001 has not become due as on the date of search. It is an admitted fact that the assessee has filed regular return for this assessment year, which was on the record of the learned AO at the time of framing ....
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.... quite hardly to imagine to have cash of Rs. 3,51,000. Even after 10 years when the search took place only a sum of Rs. 58,660 was found from the bed room of assessee's son, therefore, the assessee cannot possess such a huge cash Rs. 3,51,000 as opening cash. 19. The CIT(A) discussed this issue in para 12 and 13 at p. 5 and 6 of this order. It was observed by him that it is nowhere denied by the AO that the (sic) in the purchase and sale and other transactions in respect of vehicles before the block period. The sale of vehicles yielding sale proceed of Rs. 4,06,400 details of which have been given in Annex. A-16 have also not been disputed. The possession with the assessee measuring to 48 bighas and the income arising out of agricultural operation has been accepted by the AO in the subsequent assessment years. On the basis of these facts, the availability of cash or investment in the form of debtors etc. as on 31st March, 1989 cannot be ruled out. The availability of Rs. 3.51 lakhs as on 1st April, 1989 is an estimation by the assessee but full justification has been given and the claim is established from the seized records indicating availability of the sale proceeds of the ve....
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....sessee received cash of Rs. 2,76,200 in February, 1989 and March, 1989 against the vehicles transacted during the same period. Besides Rs. 2,76,200 further, he received Rs. 1,30,200 in April, 1989 against these vehicles-transacted in the year 1988-89. Therefore, total funds of Rs. 4,06,400 in the shape of cash and debtors were available to the assessee at the time of commencement of the block period. (e) The learned AO held that these sales can't be considered as the "sales against own vehicle" as there is no evidence on these papers. It is admitted fact that no regular books of accounts have been kept by the assessee in respect of vehicle dealing and brokerage. Memorandum books have been kept in the shape of diaries, such as Annex. A-16, where sales of vehicle have been noted for various years in very crude and rough manner. (f) The learned AO at p. 22-23 of his order has mentioned that the diary A-16 contains details of trading sales of own vehicles as there was hardly any mention of brokerage. As per the own version of the AO, the sales of vehicle recorded in A-16, should be considered as sales against owned vehicle since brokerage is not mentioned on the seize....
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.... 1997-98 9,45,781 1998-99 7,09,763 The cash flow statement of the assessee is placed at paper book pp. 128-130. In most of the years comprising in the block period the assessee had huge cash balances as opening cash balance except in the year 1999-2000. This shows that, generally the assessee has huge cash balance in March-April because of the sale proceeds of agricultural products in March-April. The opening balance in financial year 1999-2000 was only Rs. 91,186 reason being huge investment in the financial year 1998-99, being Rs. 5,00,000 as loan and Rs. 2,90,000 in house construction. (k) Without prejudice to above, it is submitted that the opening cash in hand cannot be taken as income of the block period as opening cash means closing cash balance as on 31st March, 1989, which is out of preview of block period. It is submitted that the learned AO has determined income and investment/ expenses, specifically in respect of each issue. He must have recast the cash flow statement on the basis of the assessed income and investment/expenses and shortfall if any, against the investment/expenses in subsequent assessment years could only be taxed as unexplai....
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....ly as regard agricultural income of the assessee, and computation chart of agricultural income submitted by assessee before AO, which is based on Girdawari Report, production figures certified by Agricultural Officer and prevailing market rate, the learned CIT(A) accepted the agricultural income shown by the assessee by holding that the computation made by AO is mere estimate without any basis and AO was not able to point out any mistake in the computation made by assessee. 25. The learned Departmental Representative relied upon the order of the AO. 26. The learned authorised representative made the following submissions. (a) The finding of CIT(A) is based on detailed submission made by the assessee. (b) The learned AO estimated the agriculture income at very lower side. The learned AO has not considered all the important facts and information gathered by the two different inspectors in the spot inquiries conducted by them in respect of agriculture income. The copy of the report is placed at paper book pp. 222-244. (c) The inspector Shri P. Singh conducted the spot inquiries and his report dt. 16th April, 2002 is placed at paper book pp. 222 to 227.....
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....igha c.4. Agriculture land at Risani: (i) Net agriculture income is Rs. 8,000 to 10,000 per bigha (ii) The crop of wheat and chana was found in the field (iii) The land is irrigated and irrigation is done from nearby well c. 5. Agriculture land at Newta: Since, the assessee has sold the land on 1990-91, there is no evidence to show that the land was actually put to use for agriculture operations. From the above spot inquiries it is evident that the agriculture income taken by the AO is at lower side. The learned AO has not considered the facts and information emerged from the spot inquiries in right perspective. The reports of the inspectors reveal that the land situated at Mukundpura, Bankhrota, Cheetwari and Risani-all are irrigated land and used for commercial crops like vegetables, which are highly profitable. The report further reveals that the net income per bigha is about Rs. 10,000-15,000; therefore, there is no basis to estimate the income at Rs. 5,000 per bigha for Mukundpura and Bankhrota land and Rs. 4,000 for the land at Cheetwari and Risan. The estimation of per bigha income is just 1/2 of the agricultural income e....
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....cts and information gathered from the spot inquiries, seized material available on the record and the search statement. Therefore, no disallowance deserves to be made from the agriculture income shown by the assessee in the block period. (f) Without prejudice to above, the learned AO held that the income shown in the excess as agriculture income is treated as undisclosed income as the assessee has shown undisclosed income in the garb of agriculture income. 27. We have considered the rival submissions. 28. The AO estimated the agricultural income at Rs. 25,39,000 as against Rs. 33,04,000 declared by the appellant for the block period and thereby disallowing Rs. 7.65 lakhs out of agricultural income declared by the appellant. The AO has given detailed working in the assessment order in which he estimated per bigha income ranging from Rs. 3,500 to Rs. 4,500 in the beginning of the block period to Rs. 4,000 to Rs. 5,000 at the end of the block period and taking into consideration agricultural holding with the assessee, the agricultural income has been computed at Rs. 25,29,000. It is evident from the perusal of the order of the learned CIT(A) that full enquiries were mad....
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....,00,000 has been taken on estimate basis and as seized material has been referred in support of the opening capital, is patently wrong. (d) The learned AO estimated the opening capital at Rs. 50,000, which has no basis. In view of the above submission the addition of Rs. 1,50,000 in the asst. yr. 1990-91 on account of opening investment in vehicle purchase is unwarranted and deserves to be deleted. The learned CIT(A) has not made any error in deleting the addition of Rs. 1,50,000 made by AO on account opening investment in vehicles. 32. We have heard rival submissions. 33. The learned CIT(A) discussed this issue at pp. 10 and 11 of his order. In this case, the assessee had shown opening investment in vehicles at Rs. 2 lakhs whereas the AO has taken the same at Rs. 50,000. The learned CIT(A) found that the AO had not denied the transactions in vehicles before the block period and the transactions of Rs. 8,60,287 cannot be ruled out as this is based on the seized documents relating to financial year 1988-89. In view of admitted capital investment of 24 per cent on the turnover, the capital investment of Rs. 2 lakhs was justified. We are convinced with the reasons gi....
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....ial records at Rs. 58,37,693. The learned AO took the purchases for the block period at Rs. 72,00,000 against the correct amount of Rs. 58,37,693 - 1,36,000 = 57,01,693. The learned AO is highly unjustified in making addition of Rs. 14,00,000 in purchase amount. (c) These papers don't indicate that the assessee has purchased the vehicle for example: i. Vehicle No. RJ-01-C-2714. This is form of transfer of ownership of motor vehicle executed by Shri Pawan Kumar in favour of Shri Kherulla Khan, therefore, on the basis of this paper it can't be visualised that the assessee purchased the vehicle. This vehicle was found standing at the residence of the assessee at the time of search. Paper book p. 9. The search party recorded the statement of the assessee in respect of this vehicle (back Q. No. 10). The assessee stated that this vehicle came to him through Kar Bazar for arranging the sales. ii. RJ-14-1C-0261, paper book p. 142: This is blank receipt in respect of RJ-14-1C-0261 transacted by the assessee on brokerage basis. This paper does not show the purchase of vehicles by the assessee. This vehicle was sold for Rs. 2,07,000 on brokerage basis and duly recor....
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....iven by the learned CIT(A). Therefore, we decline to interfere with the order of the learned CIT(A) on this ground. 40. Ground No. 5 and 6 : Deleting the addition of Rs. 7,01,520 plus Rs. 4,35,114 totalling to Rs. 11,36,634 made by the AO on account of undisclosed investment in purchase of vehicle: The AO had discussed this issue at pp. 17, 22 and 23 of his order. The learned CIT(A) has discussed this ground at pp. 12 to 15 of his order. The brief facts of this case are that the AO at p. 17 of his order held that the assessee had computed investment in purchase of vehicle without considering the 14 vehicles (zero value has been taken against them by the assessee and AO assumed the purchase value at Rs. 14,00,000) and AO estimated the purchase value at Rs. 4,13,000 in respect of vehicles where the date of purchase is not mentioned in the seized records. The AO held that the assessee has not taken into consideration the investment in purchase of vehicles amounting to Rs. 18,13,000 (Rs. 14,00,000 plus Rs. 4,13,000) in the cash flow statement. The learned AO compute unexplained investment of Rs. 4,35,114 being 24 per cent of the purchase value i.e. Rs. 18,13,000 for the ass....
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.... the basis of sales transaction recorded in A-16. (c.1) The learned AO presumed that the assessee has not recorded the purchases of vehicles against the sales of vehicles found recorded in A-16. He presumed that the sales recorded in A-16 are entirely against the trading vehicles and purchases against these sales are separate; over and above to Rs. 58,37,693 computed by the assessee. Such presumption is against the human probabilities. When the assessee is recording purchase and sales both; it cannot be presumed that both are separate transactions. It is an admitted fact that the assessee did not maintain books of account, as he was not in a position to maintain the books of account. The accounts were maintained in the shape of the diary, which is in very crude and rough form and as a memoirs. The vehicles numbers are not available in respect of most of sales and purchases transactions. However, the assessee has correlated the purchases with sales in as much as 10 vehicles total amount to the extent of Rs. 12,79,000, which proves that the purchases and sales are not separate transactions. In other words, the purchases against the sales recorded in A-16 are not separate; ov....
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....suppression of investment in acquiring goods which are subject to undisclosed sales no addition can be made for such investments. (e) In the cases falling under ss. 69, 69A, 69B and 69C, the phraseology used goes to show that before any addition is made under these sections, the condition precedent as to existence of investment, expenditure, etc. must be conclusively established by evidence and/or material on record. If Revenue cannot or fails to prove, the subject cannot be taxed. Reliance is placed on following decisions: (a) CIT vs. Daya Chand Jain Vaidya (1975) 98 ITR 280 (All). Held that the onus is on Revenue to prove that the investment was made by the assessee. (b) J.S. Parkar vs. V.B. Palekar & Ors. (1974) 94 ITR 616 (Bom). Kindly see observations in the dissenting judgment of Mukhi, J. (c) Lal Chand Agarwal vs. Asstt. CIT 21 Tax World 213 (Jp) Tribunal Jaipur Bench. The initial burden under s. 69 of IT Act is on Department to prove the investment has been made by the assessee. The onus under s. 69 is on the AO to establish by cogent material or evidence that the assessee has made investment. The seized diary A-16 and form....
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....llant in all the transactions of the sales recorded in Annex. A-16 involved purchase as well. Further, in any case, if the transactions increase in a particular year, the rotation becomes faster and the transaction time might take less than three months. We are convinced with the reasons given by the learned CIT(A). Therefore, we decline to interfere with the order of the learned CIT(A). 45. Ground No. 7: Reducing the addition of Rs. 10,58,036 made by AO on account of profit on sales of vehicles to Rs. 5,49,604 by applying NP rate of 4 per cent against 5 per cent applied by AO. The AO estimated the sale of vehicles at Rs. 1,97,81,307 and applied net profit rate of 5 per cent and then made addition of Rs. 10,58,036. 46. The learned CIT(A) reduced this addition to Rs. 5,49,604 by applying the NP rate at 4 per cent as against 5 per cent applied by the AO. 47. The learned Departmental Representative relied upon the order of the AO. 48. The learned authorised representative made the following submissions. (a) The learned AO estimated the sales against the purchases over and above to the sales recorded in A-16. The AO has no material to presume so. When the assess....
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.... The learned AO without appreciating all the seized records and statements, has wrongly held that the sales transactions recorded in A-16 represent entirely to the trading sales. It is an admitted fact that the assessee was also transacting the vehicles on brokerage basis. The learned AO at p. 2 of assessment order has mentioned that the assessee derived income from commission on arranging motor vehicles to the customers. In the preliminary statement under s. 132(4) of IT Act, the assessee has categorically said that he was doing business of commission agent in sales of vehicles. Therefore, the learned AO erred in rejecting the assessee's contention that the sales of trading vehicles and on brokerage basis both are recorded in A-16 and total sales as per A-16 is Rs. 1,37,40,107 which represents to sales against the purchase of vehicles (computed at Rs. 58,37,693) and the rest of the sales represent on brokerage basis. (f) The profit margin in brokerage business is much lesser than the profit margin in trading of the own vehicle; therefore, it is highly unjustified to estimate the profit of 5 per cent on the entire sales recorded in A-16. The learned CIT(A) has not made ....
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....n cash flow statement and the valuation report of the DVO was only to the tune of 15 per cent. If deduction on account of CPED rates is given then the valuation will be approximately same as disclosed by the assessee. Further no incriminating document was found suggesting higher investment. 53. We have heard the rival parties and perused the materials available on record. The learned authorised representative has also placed reliance in the case of Smt. Amiya Bala Paul vs. CIT (2003) 182 CTR (SC) 489 : (2003) 262 ITR 407 (SC). It may be mentioned that the Hon'ble Supreme Court in the case of Smt. Amiya Bala Paul observed that the "AO is not competent to call for the report from Valuation Officer". It was held that the AO cannot refer to the Valuation Officer the question of cost of construction except under s. 55A or 269L of the IT Act. The Hon'ble Supreme Court observed that:- "It is not open to a Valuation Officer to act in his capacity as Valuation Officer otherwise than in discharge of his statutory functions. He cannot be called upon, nor would have the jurisdiction to give a report to the AO under the IT Act except when a reference is made under and in terms of s.....
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....00 62. The learned CIT(A) has discussed this issue at p. 19 of his order. The three gifts of Rs. 25,000 in three marriages were considered as genuine and the same was accepted by the learned CIT(A). 63. The learned Departmental Representative relied upon the order of the AO. 64. The learned authorised representative submitted that it is customary in Hindu families that the guests generally give cash gifts of small amounts for which no evidence can be obtained. The matter should be considered by applying the principles of human probabilities as held in the case of Sumati Dayal vs. CIT (1995) 125 CTR (SC) 124 : (1995) 214 ITR 801 (SC). 65. We have considered the rival submissions. We are of the opinion that it is customary in Hindu families to give gifts at the time of marriage. Having regard to the customs prevalent amongst Hindu families and also having regard to the smallness of amount involved, we are of the opinion that the order of the learned CIT(A) is not laconic in any manner. Therefore, we decline to interfere with the order of the learned CIT(A). 66. Ground No. 11: Deletion of addition of Rs. 30,000 made by the AO on account of cash found in search : ....