TMI Blog2005 (9) TMI 259X X X X Extracts X X X X X X X X Extracts X X X X ..... statement of family members as per which cash in hand is Rs. 2,06,305 as against Rs. 1,83,210 found. This takes care of household withdrawals also. Similarly, the amount of Rs. 16,660 which is found from the room of children as per the Panchnama is covered by their petty savings. Thus, the addition made on account of unexplained cash is unjustified and the entire addition is deleted. Hence, the ground of the assessee is allowed and that of the Department is dismissed. Unexplained jewellery and silver items - We find that the learned CIT(A) has rightly deleted the addition for unexplained jewellery considering the CBDT Instruction No. 1916, dt. 11th May, 1994, decision of Karnataka High Court in case of Smt. Pati Devi vs. ITO and decision of Tribunal in various cases and disclosure of jewellery under VDIS as well as wealth tax return. So far as silver jewellery of 16.895 kgs. is concerned, it is reasonable looking to the size and status of family of the assessee consisting assessee himself, his three sons, three daughters-in-law and children. In view of this, no interference is called for in the order of the learned CIT(A). Hence, this ground of the Department is dismissed. Sale of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... these facts, the CIT(A) has rightly directed that interest cannot be charged for the period of delay in the supply of photocopy of the seized material. Hence, the ground of the Department is dismissed. In the result, appeal of the assessee is partly allowed and that of the Department is dismissed. - HON'BLE SATISH CHANDRA, J.M. AND B.P. JAIN, A.M. For the Appellant : P.C. Parwal and Bhupinder Mantri, Advs. For the Respondent : Chavi Anupam, Adv. ORDER B.P. Jain, A.M.: 1. The above cross-appeals are against the order of learned CIT(A), dt. 5th June, 2003 for the block period asst. yrs. 1991-92 to 2000-01 and upto 9th Aug., 2000. Search was conducted on 9th Aug., 2000. For the sake of convenience, we have decided to take assessee's grounds of appeal and the related grounds in Departmental appeal first and then remaining grounds of the assessee's appeal as under: Ground No.1 (1) (Assessee's appeal) : Confirming the addition in respect of cash found amounting to Rs. 26,910 Ground No. 1 (Departmental appeal) : Reducing the addition of Rs. 3,18,370 to Rs. 26,910 on account of unexplained cash 2. The brief facts of this ground are that a search was conducted at the busi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the firm's book at Rs. 1,26,234 has also not been disputed. Appellant's son has stated at the time of search/survey itself that a sum of Rs. 2,75,000 was taken by Shri Salim Khan for making certain purchases. Therefore, learned AO on the one hand is accepting the statement of Shri V.K. Jain and on the other hand is not accepting that the payment to Shri Salim Khan. Nothing incriminating during the course of search has been found to suggest that the payment of Rs. 2,75,000 was made to Shri Salim Khan out of undisclosed sources. The payment of Rs. 2,75,000 has been stated by the appellant's son and the source is well-explained from the Disawar account and from the cash availability in the books of account. He, therefore, found that sufficient cash was available in the books of account of the appellant to make the payment of Rs. 2,75,000 to Shri Salim Khan. He accordingly deleted the addition of Rs. 2,75,000. 4. The learned Authorised Representative submitted that it is general practice in the assessee's business since last several years that whenever purchases of scrap are to be made from the State of Gujarat, either assessee or his employee, Shri Salim go to Gujara ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rom time-to-time and accumulate their savings. He further stated that the observation of the AO that no reliance can be placed on the cash balance extracted by the assessee on 9th Aug., 2000 as returns of income were filed after the date of search is of no consequence since as on the date of search, the due date of filing of return for the year ended on 31st March, 2000 has not expired and, therefore, the return were filed after search which was accepted by the AO. In view of these submissions, the learned Authorised Representative claimed that Departmental appeal on this ground be dismissed and the addition sustained by the learned CIT(A) at Rs. 26,910 be deleted. 5. On the other hand, learned Departmental Representative relied on the order of AO. 6. We have considered the rival submissions and relevant material on record. We agree with the contention of the assessee that as on the date of search, the due date of filing of return has not expired and, therefore, the receipt and payment account submitted by the assessee cannot be ignored altogether. We further noted that addition of Rs. 2,75,000 has been made by the AO not on the basis of cash found at the time of search but on the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent in working capital 9,43,30 8,67,836 75,464 6(A) Purchases of cloths 4,464 4,464 -- 8(D) Profit on unrecorded sales 95,705 -- 95,705 8. The brief facts of the case are that assessee is engaged in trading of iron and scrap. In search stock was found short and certain papers relating to unrecorded sales/purchases were found. On the basis of the same, assessee offered certain income in the block return but the AO made further addition. 9. The learned CIT(A) allowed part relief against which both assessee and Department are in appeal by taking the different grounds as tabulated above. 10. We heard both the parties in detail on these additions. After considering the rival submissions, our decision on these grounds are as below: Ground No. 1(2a) of assessee and ground No. 4 of Department : Addition on account of trading profit of Rs. 10,066 : 11. In search stock of scrap was found short by 38.276 MT. Its sale value was taken at Rs. 3,82,763. On this sale assessee estimated profit of 7.37 per cent and offered Rs. 28,210 in the income. The AO estimated the profit at 10 per cent to make addition of Rs. 10,066. The learned CIT(A) applied rate of 8 per cent to sustain the addition at Rs. 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Rs. 2,39,876 18. The brief facts of these ground are that the AO held that above loose paper shows transaction of sales of Rs. 23,98,760. Since assessee has not replied on this paper, he applied profit rate of 10 per cent to make addition of Rs. 2,39,876. The learned CIT(A) held that the said transaction relates to purchase of goods in name of Valia Steel Industries. He assumed that profit arising out of this deal must have been shared by both the parties and, therefore, addition of Rs. 1.19,938 was confirmed and balance deleted. 19. The learned Authorised Representative argued that the said paper records the transaction of purchases made by Valia Steel Industries, Mumbai, from Railways. The amount of Rs. 10,00,000 given by assessee to Valia Steel Industries noted on this paper is duly recorded in the regular books of account. He, therefore, prayed for deletion of the addition whereas learned Departmental Representative supported the order of the AO. 20. After perusing the material on record, we agree with the contention of the learned Authorised Representative that the loose paper records the noting in respect of purchases made by M/s Valia Steel Industries, Mumbai, from Railways. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ealized by way of sale and no investment remained in purchases. Hence, the addition is deleted. This ground of the assessee is allowed. Ground No. 1(5) of assessee and ground No. 9 of Department : Addition of Rs. 9,43,300 on account of unexplained investment in working capital : 25. The brief facts of these grounds are that the AO observed at p. 48 of his order that out of the total unrecorded sale of Rs. 25,58,943, peak amount is Rs. 9,43,300 as per p. 74 of Annex. A-24. He, therefore, made addition of Rs. 9,43,300 for unexplained investment in unrecorded sales. The learned CIT(A) reduced the GP margin from this sale to arrive at the investment and thus confirmed addition of Rs. 8,67,836. 26. After considering the rival submissions, we agree with the submission of learned Authorised Representative that had the investment in purchases remained, stock would have been found in excess in search. As against this, the stock was found short by 38.276 MT in search. This shows that recorded stock is sold out of books. Further, the amount of Rs. 9,43,300 is not of a single transaction but for the various dates between 2nd Aug., 2000 to 8th Aug., 2000. Hence, no addition for investment in wo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... : The assessee Earned income of Rs. 3 lakhs on account of this page 3,00,000 The close link of Smt. Mayadevi Jain and Atul Jain with the appellants has been established which the appellant has not denied. 3,37,000 Page 4 : The page contains the amount of Rs. 22.000 and Rs. 15,000 shown as profits of ..... and Kota, respectively, to be given to JKMK by M/s Ajay Iron Steels (AIS). The profit is not recorded in books. 37,000 The appellant is dealing in scrap which is used by M/s Ajay Iron Re-rolling Mills belonging to Smt. Maya Devi Jain. The relationship and the common nature of the business established that JKMK does not mean anything other than the business of the appellant. Addition is confirmed. 2. Diary A-3, page No. 3: Shri Atul Jain Admitted the transaction in name of JKMK (Jai Kumar Mahendra Kumar, proprietary concern of assessee) are unrecorded. These transactions are unrecorded purchases of assessee 5,55,810 Sales to the extent of Rs. 25,58,943 and deemed sales to the extent of shortage of Rs. 3,82.763 have already been considered in the hands of the appellant. Therefore, unrecorded purchases and sales include the amount of Rs. 5,55,810. Therefore, separate addition is not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arly when entire premises of the assessee has also been searched on the same date and all the papers found during search has been considered for making the block assessment. Exhibit 2 : Addition on account peak investment is not justified when addition for unexplained investment in purchases, GP, etc. are already made in the hands of assessee as discussed earlier and no excess stock was found. 35. On the other hand the learned Departmental Representative supported the order of the AO. 36. We have considered the rival submissions and perused the material on record. We find that addition is made on the basis of the papers found from Shri Atul Jain. In search these papers were not confronted to the assessee. From the assessment order it is not borne out whether Atul Jain has stated these papers as pertaining to the assessee. No presumption can be drawn against the assessee under s. 132(4A) of the IT Act, 1961. in respect of a paper not (recovered) from him. No addition can be made on the basis of documents found from the third party in the absence of corroborative evidence' as held in case of J.R. G. Bhandarj vs. Asstt. CIT (2003) 79 TTJ (Jd) 1, where it was held as under: In our ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... off Ground No. 12 (Departmental appeal) : Allowing the benefit of telescoping to the assessee 38. After considering the rival submission, we are of the opinion that principally the set off of investment/expenditure should be allowed against the income but only to the extent such investment/expenditure is after the earning of income. The AO is, therefore, directed to consider the income which is assessed after giving effect of this order and allow set off of investment/expenditure only to the extent the same is after earning of income so as to avoid double taxation. Hence, ground NO.3 of the assessee is allowed for statistical purposes and ground No. 12 of the Department is dismissed. 39. Now we shall take up the remaining grounds of Departmental appeal: Ground No. 2: Deleting the addition of Rs. 4,43,693 made by the AO on account of unexplained jewellery and silver items 40. The brief facts of this ground are that during the course of search gold jewellery weighing 1.786.60 gms. net and silver weighing 16.895 kgs. net were found as per Annex. 3, dt. 5th Sept., 2000. Apart from this gold jewellery weighing 110 gms. (net) was found on person of family members. The assessee explained ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ellant and his married sons' family were staying together, the availability of 16.895 kgs. of silver items is not substantial. Therefore, the addition of Rs. 1,30,092 on account of silver items is also not justified. 42. The Authorised Representative submitted that the assessee's family consists of assessee himself, his three sons, three daughter-in-laws and children. The jewellery held by family is reasonable looking to the size of the family, number of female and male members, status of the family and the spirit of CBDT Instruction No. 1916, dt. 11th May, 1994 where it is clarified that in searches gold jewellery of 500 gms. per unmarried lady and 100 gms. per male member need not be seized. Though this instruction (is) with reference to seizure of jewellery, the spirit of this instruction for ascertaining the reasonability of jewellery in assessment is accepted by Karnataka High Court in case of Smt. Pati Devi vs. ITO (2000) 159 CTR (Kar) 28 : (1999) 240 ITR 727 (Kar) and by the Hon'ble Tribunal in various cases. He further submitted that the jewellery disclosed in VDIS is either part of jewellery found or is source for any new jewellery found during search. The Auth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and treated the sale proceeds as undisclosed income of the assessee for the block period by observing that in the VDIS, these family members had disclosed holding of unexplained loose diamonds which were subsequently sold but the assessee and his family members never had any loose diamonds. The declaration of loose diamonds made by them in their VDIS declaration was bogus and the loose diamonds declared under this scheme never existed. This declaration was meant only for the purpose of creating non-existing assets by paying tax at a very low rate. Such non-existing loose diamonds were later on shown to be sold to M/s Tambi Exports. The sales claim to be made by M/s Tambi Exports is also unverifiable. These facts show that actually no loose diamonds ever existed in these transactions and this is only a paper device used to bring the unaccounted income in the books of account by paying very nominal tax and by making misuse of the VDIS Scheme. The AO further observed that the principle established by Supreme Court in case of McDowell Co. Ltd. vs. CTO (1985) 47 CTR (SC) 126 : (1985) 154 ITR 148 (SC) and Sumati Dayal vs. CIT (1995) 125 CTR (SC) 124 : (1995) 214 ITR 801 (SC) are applicab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sult of search under s. 132. Therefore, factum of nondisclosure is essential for considering any amount to be undisclosed income of the assessee. Therefore, in absence of any evidence against the appellant, it cannot be held that the receipt of money from family members is bogus deposit merely because he is the head of the family. 47. The learned Authorised Representative has raised various contentions in his written submissions. Briefly his contentions are as under: (a) No incriminating material was found in search to establish the sale of diamonds as bogus. (b) Statement of assessee in respect of VDIS declaration or sale of diamond jewellery was not taken either in course of search or in course of proceedings before Am/AO. (c) The VDIS disclosures have been made by the family members and not by the assessee. (d) The sale of diamonds/diamond jewellery to Tambi Exports has been shown by the family members in their respective returns filed before search. The sale proceeds have been received by the respective persons and deposited in their bank accounts and subsequently the money has been given as deposit to the appellant by the respective persons. (e) Once the declaration under VDIS ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d Representative contended that AO cannot make addition for the credit entries in the books of the firm, if the amount credited is not more than the amount declared. (m) Learned Authorised Representative relied on the decision of this Bench in case of Shripal Kataria in IT(SS)A Nos. 52 and 76/Jp/2001, dt. 29th Nov., 2001 and the decision of Gujarat High Court in case of Nitin P. Shah alias Modi vs. Dy. CIT (2005) 194 CTR (Guj) 306, 322 and distinguished the decision relied on by the AO. He accordingly prayed for upholding the order of the learned CIT(A). 48. On the other hand, the learned Departmental Representative relied on the order of the AO. 49. We have considered the rival submissions and gone through the material on record. Admittedly, assessee has neither made any disclosure of diamonds under the VDIS nor he has sold any diamond. The disclosure and the sale is made by the family members who have declared the same in their regular returns filed before search. The VDIS declaration by the family members has been accepted and certificate under s. 68(2) of the Finance Act, 1997, has been issued by the learned CIT. The proprietor of M/s Tambi Jewellers who purchased the diamonds ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al Ajai Kumar HUF and Smt. Vijaya Devi. The CIT, Udaipur has accepted the said disclosure of Shri Shripal Kataria, Shripal Ajai Kumar HUF and Smt. Vijaya Devi to be valid disclosures and issued certificate under s. 68(2) of the Finance Act, 1997 on 22nd Feb., 1998, 15th Feb., 1998 and 22nd Feb., 1998 respectively. The valuation reports of jewellery disclosure were also. filed along with the disclosures made by the assessee, assessee's HUF and his wife after verification of the existence of the jewellery. The certificates issued by the CIT, Udaipur, have not been withdrawn. The sale bills are also in the names of said persons, which have been credited in their respective accounts. Neither any material was found or brought on record by the AO that there has been laundering of undisclosed income, nor it was found as a result of search from Which it could be said that appellant gave cash for arranging sale bill or for taking payments in the names of these persons. Parties to whom sales have been made have also not denied the genuineness of all the transactions with them. The disclosed jewellery, which stood as already sold, could not be held to be bogus because the same was not fou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ground are that the AO charged interest under s. 158BFA(1) from the due date for filing of block return as per notice under s. 158BC(a). 53. The learned CIT(A) held that interest under s. 158BF A should not be imposed for the period of delay in the supply of photocopy of the seized material to the appellant. 54. After hearing the rival submissions, we find that the assessee has repeatedly requested various authorities of the Department but despite of his requests the Department has not provided the copies of seized records. In case of Dy. CIT vs. Late Ratan Lal Jain (2001): 73 TTJ (Pat) 364 it is held that although the provisions for charging interest under s. 158BFA, in case of delayed filing, of block return, seem to be mandatory, yet inasmuch as interest is of penal nature, at least to some extent, in such a case, it has got to be considered that if the delay be not attributable to the assessee, he cannot be penalised by way of charging of interest under s. 158BFA. This view is also followed by this Bench of Tribunal in case of Asstt. CIT vs. Balchand Baldawa in IT(SS)A No. 5/Jp/2OO3. In these facts, the CIT(A) has rightly directed that interest cannot be charged for the period ..... X X X X Extracts X X X X X X X X Extracts X X X X
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