TMI Blog2004 (1) TMI 333X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 drawn on the same date. Prohibitory order was also dt. 25th Feb., 2000 (APBP-9). This prohibitory order was lifted on 25th April, 2000. When Panchnama was drawn ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inal 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 articles found as a result of search. (v) Dr. C. Balakrishna Nayar Anr. vs. CIT Anr. (1999) 154 CTR (Ker) 523 : (1999) 237 ITR 70 (Ker): Held that power under s. 132(3) can be exercis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 irrespective of the fact whether any seizure was made or not. Therefore, we decline to interfere with the order of the learned CIT(A). 8. Ground No. 3: Levy of surcharge @ 10 per cent on tax on un ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 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 total income of previous year. The rates prescribed in the Finance Act cannot be extended for the undisclosed income of the block period. There is special procedure for the assessment of search cases. The Chapter XIV-B of IT Act deals with th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... B(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 of the block assessment. (b) The learned AO has presumed that the assessee would not have filed the return of income for asst. yr. 2000-2001 also but for the search. The learned AO has no material or evidence or basis to presume that the assessee would not have ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 vehicle in March, 1989 and in April, 1989 from the debtors. Therefore, the addition of Rs. 3.20 lakhs made by the AO was deleted by the learned CIT(A) for the reasons mentioned above. 20. The learned Departmental Representative relied upon the order of the AO and in the grounds of appeal, it was contested tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re, 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 seized diary. Therefore the realisation against the vehicles in the last month February, 1989, March, 1989 recorded in A-16 should also be taken as realisation of sale proceeds against owned vehicles. The AO should not be permitted to blow hot and cold in the same stream. Head ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ge 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 unexplained investment/expenses. 22. We heard the rival submissions. We find that the learned CIT(A) has given detailed reasons in deleting this addition as discussed above in his order. We also agree with the conten ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. Following facts and information emerged from the said inquiry: b.1 Agriculture land at Mukundpura: (i) The land is irrigated with two tube wells (ii) The land is very fertile and ground water is sufficient for irrigation of the crops ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 emerged from the spot inquiries. (d) The assessee has given his 8 bigha agriculture land situated at Mukundpura on contract/lease basis on 23rd Oct., 1993 for next 5 years at Rs. 40,000 per year. The contract agreement is under seizure vide p. 32 of Annex. A-8. This shows that the net agriculture income of the assessee from lease was Rs. 5,000 per bigha. When the self-cultivation is made the income will be much higher. The assessee has submitted detailed computation for the agricul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 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 made by the AO through two inspectors who submitted the report and estimated agricultural income of Rs. 10,000 to Rs. 15,000 per bigha. The agricultural land owned by the assessee is irrigated land, yielding good quantum of agricultural income. Eight bigha of agricultural land situated in Mukundpura was given by the assessee on contract/lease basis on 23rd Oct., 1993 for five years at Rs. 40,000 per year. This shows that net agricultural income from lease was Rs. 5,000 per bigha. The computation of agricultural income in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 given by the learned CIT(A). Therefore, we decline to interfere with his order. 34. Ground No. 4: Determination of purchase of vehicle at Rs. 58,37,693 in place of Rs. 72,00,000 computed by the AO: The brief facts of the case are that the AO has determined purchase of vehicles at Rs. 72 lakhs as against Rs. 58,37,693 computed on the basis of documents found as a result of search. It was stated by the AO that on the basis of seized documents purchases to the extent of Rs. 58,37,693 had been computed by the assessee himself. The assessee has not included purc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... per 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 recorded in the chart of the sales submitted by the assessee. iii. DL-2CA 9058 paper book p. 143: This is a blank affidavit executed by Mahendra Singh. The name of transferee, amount, date and signature of the executors (seller) at verification part of the affidavit is not mentioned. This vehicle came outside from Jaipur for arranging sales on commission basis. This paper indicates nothing to visualise that the assessee purchased the said vehicle. It is usual practice of the trade to keep some documents signed for facilitating the work of brokerage. iv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le 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 asst. yr. 2000-2001. Further the AO rejected 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 represents on brokerage basis. The AO concluded that the assessee has not recorded the purchase of vehicles against the sale 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as 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; over and above to Rs. 58,37,693. (c. 2) The learned AO without appreciating all the seized records and statements, has wrongly held that the sales transactions recorded in A-16 do not represent to sales on commission basis but 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 forms/other loose documents neither suggest the purchase nor indicate any investment by the assessee, therefore, the investment computed by the AO at 11,36,634 over and above to the investment in trading vehicles shown by the assessee in cash flow statement for patently wrong, and deserves to be deleted. The learned CIT(A) has not made any error in deleting the addition made by AO on account of investment in vehicles over and above to what the assessee has already shown in cash flow statement. 44. We have considered the rival submissions and perused the materials available on record. The addition of Rs. 4,35,114 was made by AO on account of undisclosed investment in vehicles in respect of 14 vehicles of which certain documents were found i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... T(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 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 recorded in A-16 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 sales against the purchase cannot be taken over and above to the sales re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 any error in 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 and by determining sales at Rs. 1,37,40,107 against Rs. 1,97,81,307 determined by AO. 49. We have considered the rival submissions. 50. The learned CIT(A) found while estimating the net profit that the AO has taken sales in respect of purchases of Rs. 58,37,693 and sales recorded in Annex. A-16 to the extent of Rs. 1,37,40,107 separately. The AO has also taken into consideration estimated sale value of Rs. 14 lakhs in respect of certain papers in respect of which no sale or purchase were recorded. In view of the fact that the assessee was able to co-relate ten of the purchases amongst purchases of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. 55A or to a competent authority under s. 269L". 54. We are also of the opinion that no addition can be made on the basis of valuation report especially when no incriminating documents indicating unexplained investment in the cost of the construction was found during the course of search. Reliance is also placed in the case of CIT vs. Rajendra Prasad Gupta (2001) 166 CTR (Raj) 83 : (2001) 248 ITR 350 (Raj). 55. In the light of above discussion, we find no reason to interfere with the order of the learned CIT(A) and the same is hereby sustained. 56. Ground No. 9: Deletion of addition of Rs. 1,50,000 made by AO on account of marriage expenses. The AO had discussed this issue at p. 28 of his order. The assessee declared expenditure in marriage as under: Asst. yr. Amount 19 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t 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 : The AO had discussed this issue at pp. 30 and 31 of his order. The brief facts of the case are that during the course of search, cash of Rs. 64,160 was found. The AO held that credit against cash reflected in cash flow statement as on the search Rs. 64,438 cannot be given as the cash flow statement was prepared after the search on estimate basis. In the search statement, the assessee stated that the cash available at residence was of Rs. 40,000 which represents the loans taken by him from Ladu and Kajod. Since in the block assessment proceedings, the assessee is at variance, it is difficult to find out the truth. He treated the explained cash at Rs. 28,660 plus 5,500 totalling to Rs. 34,160 representing the savings of the as ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
