9911796707
TMI Blog1998 (12) TMI 108X X X X Extracts X X X X X X X X Extracts X X X X ..... lt 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 that the assessee has returned an undiscl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e. 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 unexplained expenditure inasmuch as the seized papers does not suggest any cash outgoing, in any event the learned Dy. CIT ought to have allowed the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 89,60,004 11. The various disputes raised by the assessee in his grounds of appeal as summarised and detailed in the above paragraph shall be examined in this appeal in the paragraphs to follow, before which we would advent upon the general contentions of facts and law advanced by both the sides. 12. Shri K.S. Viswanathan, the learned counsel for the assessee, has raised two sets of arguments. The first set of arguments related to the evidence and basis of the various additions made by the AO. On this point, the learned counsel argued as follows: There are no basis for direct or indirect evidenc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... putation 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 assessment stage. He relied on the Supreme Court decision in National Thermal Power vs. CIT (1999) 157 CTR (SC) 249 : (1998) 229 ITR 383 (SC). In support of his alternate contention, the decisions in Pondicherry Railway Co. Ltd. vs. CIT 5 ITC 363 (PC), Kedarnath Jute Mfg. Co. vs. CIT (1971) 82 ITR 363 (SC) and CIT vs. S.C. Kothari 1974 CTR (SC) 137 : (1971) 82 ITR 794 (SC) among various other rulings are relied. 14. In their turn, the Revenue confronted both the sets of arguments advanced by the learned counsel for the assessee. On the first set of contentions, Shri T. Jaya Sankar, the learned Departmental Rep ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 retrospectively. He contended that as held by Delhi High Court in Yadu Hari Dalmia vs. CIT (1980) 17 CTR (Del) 234 : (1980) 126 ITR 48 (Del), s. 69C is a clarificatory provision and, therefore, any Explanation or proviso added to that provision has to be given retrospective operation. The learned senior Departmental Representative relied on a recent decision of the Supreme Court in CIT vs. Poddar Cements Ltd. (1997) 141 CTR (SC) 67 : (1997) 226 ITR 625 (SC) wherein the Court has held that "the presumption against retrospective operation is not applicable to declaratory statutes. A declaratory Act may be defined as an Act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 a peculiar situation where expenditure is found out, but no corresponding income/source is explained. It is different from the normal concept and method of income and its computation where receipt/income is reckoned first and the expenses are deducted therefrom. The case laws cited by the learned counsel for the assessee relate to the situations where income has to be computed in the normal concept method mentioned above. Therefore, those deductions are not relevant in this context where we are examining the deeming provision contained in s. 69C. 19. It is because of this peculiarity that s. 69C is inserted in Chapt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s 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 assessee had enough drawings out of which this payment could have been made. The aspect of drawings by the assessee has not been considered by the AO. Moreover, the assessee has already admitted unaccounted receipt for the period and offered for assessment. Therefore, the benefit of doubt should go to the assessee and the addition of Rs. 18,030 is deleted. 23. Addition No. 2--Ground No. 3 Financial year 1993-94--Asst. yr. 1994-95 Rs. 30,000 23.1 According to the AO, this is the payment to Ameer Khan, the cine artist, which has not been accounted by the assessee. In the course of investigation, a letter was addressed to Ameer Khan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 to be convinced that the collections from the distributors are not taken away by the assessee, but paid to the financier. The search was on 6th Dec., 1995. The Syndicate Bank Account No. 17959 of the assessee showed that an amount of Rs. 3,50,000 was withdrawn on 6th Dec., 1995. Therefore, prima facie the submission of the assessee has to be accepted. Moreover, as pointed out by the learned counsel, this amount has been considered for working out the peak cash deficit as on 6th Dec., 1995, and this peak cash deficit of Rs. 15,06,159 has already been considered for assessment. In the circumstances, the explanation of the assessee carries much weight and the finding of the AO is not convincing. Therefore, the addition of Rs. 3,50,000 is del ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lex 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 never called for. Subba Raju has made substantial investments therein. The telex message, however, is consistent with the assessee's contention that he took over the film in the middle of production and the payment was less than production expenses because of poor quality of the film. The hypothesis that Subba Raju is Benami requires strict proof and it cannot be assumed or presumed. 27.4. We considered the matter in detail. The addition has been made on the basis of the telex message. Apart from the telex message, dt. 12th June, 1995, the AO has no other evidence. According to the assessee, that film was taken over from A.V. Subba Raju on 15th Sept., 1995. The books of accounts of the assessee showed the purchase cost of the film at Rs. 28,27,975 credited in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing 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 out to Rs. 1,08,000 and not Rs, 1,43,000. Therefore, we modify the addition to Rs. 1,08,000. 30. Addition No. 9--Ground No. 15 Financial year 1995-96--Asst. yr. 1996-97 Rs. 36,997 30.1 This amount is the total of various unexplained expenses in respect of the Bombay flat worked out on the basis of seized material (Annexure A/1 p.16 to 24). The assessee has no much explanation to offer in this regard. The addition is therefore, confirmed. 31. Addition No. 10--Ground No. 11 Financial year 1995-96--Asst. yr. 1996-97 Rs. 2,725 31.1 The reasoning of the AO to allege unexplained bank deposits to the extent of Rs. 2,725 is not at all convincing. This addition is accordingly deleted. 32. Addition No. 11--Ground No. 12 Financial year 1995-96--Asst. yr. 1996-97 Rs. 21,00,000 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. 5,15,300 33.1. This amount has been added on the basis of the details collected from seized material seized from Bombay office. As per the paper seized, the total of various expenditure incurred at Madras for certain days in July, 1995, worked out to Rs. 7,10,000 against which the assessee has accounted only Rs. 1,94,700. The difference of Rs. 5,15,300 has been added by the AO as unexplained expenditure. 33.2. The contention of the assessee is that the paper contained only certain projected expenses and such notings in loose sheet cannot be conclusive proof of any actual expenditure incurred. 33.3. The details noted down in the seized paper related to hotel and other on the spot expenses relating to shooting of movie. During the relevant period, the film Rangeela was nearing completion and various studio works were being carried out at Madras. The particulars of expenses ..... X X X X Extracts X X X X X X X X Extracts X X X X
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