TMI Blog2005 (6) TMI 503X X X X Extracts X X X X X X X X Extracts X X X X ..... , Investigation Circle, Division-I, Calicut. In response to the notice issued by the assessing authority, the assessee filed cash flow statement for the period 1-4-1987 up to 30-9-1997, the date of search. The assessment was made by the Assessing Officer based on the cash flow statement filed at the time of hearing. The assessment was completed fixing the income at Rs. 41,80,620 as against the income returned at nil . The major addition was on account of certain advances and cash credits not accepted by the Assessing Officer, withdrawals from NRE account of the assessee not accepted as source and a residential house built by the assessee during the block period, the cost of which was estimated by the Valuation Officer. Aggrieved by this order of the Assessing Officer, the assessee moved the matter in appeal before the first appellate authority who gave certain relief. The income determined by the Assessing Officer was Rs. 26,92,680 after giving effect to the Commissioner of Income-tax (A) s order. While disposing of the appeal, the Commissioner of Income-tax (A) did not consider as source certain cash credits and certain withdrawals from the bank account. There was also an estimat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0 1993-94 12,500 1994-95 14,500 1995-96 14,500 1996-97 16,500 1997-98 16,500 1998-99 8,250 (up to the date of search) He concluded that this would be normally sufficient for meeting the assessee s normal family expenses and so the claim of opening cash balance of Rs. 1,40,000 was totally rejected. Aggrieved, the assessee moved the matter before the first appellate authority before whom it was contended that : ( i )the assessee had sufficient business income abroad and he had come to India on various occasions and withdrawn money from NRE account and the possession of reasonable amount could not be negatived. The inspection of agricultural properties was conducted in a lean season and the assessee had substantial crops in the months of January, February, March etc. ( ii )The assessee had built up sufficient funds from his business and agricultural operations periodically and the conclusion regarding non-availability of cash balance is without any basis. 6. The Commissioner of Income-tax (A), after consider ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y the assessing authority after a period of twelve years, the coconut tree was not fruit bearing. The Commissioner of Income-tax (A) has made an observation that inspection cannot be made after ten years and estimation cannot be made on that basis. A sum of Rs. 75,000 was allowed as opening balance. The total disallowance has been made on the basis of assumption that the appellant has inflated the agricultural income. This assumption is not based on any documentary evidences found at the time of search. As per section 158BB, block assessment can be made only on the basis of evidences found during the course of search. Reliance is placed on the decision of Commissioner of Income-tax v. Ravikant Jain 250 ITR 141 (Delhi). The same point has been considered regarding the estimation of agricultural income by honourable Cochin Bench in the case of K. Moidu v. ACIT 256 ITR 77 (AT)." 7A. On the other hand, the ld. departmental representative relied upon the contents of the orders of the Assessing Officer and Commissioner of Income-tax (A) and reiterated the same as his submissions. He pleaded that the Commissioner of Income-tax (A) has already given enough relief and hence, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for estimating the cost of construction of residential house of your appellant. The Valuation Officer estimated the cost of construction of residential house as Rs. 16,60,300 when he visited the property in September 1999. The Commissioner of Income-tax (A) directed to give 10 per cent deduction for accepting PWD rates and for self-supervision. Reduction given by the Commissioner of Income-tax (A) is not sufficient considering the rate applied by the valuation officer. Further to this, no documentary evidence was found out during the course of search operations regarding the undisclosed income in respect of house construction. ( b )As per section 158BB, the undisclosed income of a block period shall be aggregate of total income of the previous years falling within the block period computed on the basis of evidence found during search. In the appellants case no documents or books of account were seized in respect of undisclosed income of your appellant. The assessment was made on the basis of valuation report of the valuation officer in respect of the house constructed by the appellant during 1992 to 1997. The difference between cost of construction admitted in the cash flow stat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Rs. 12,10,971 which was totally ignored by the Assessing Officer. The plinth area rate based on CPWD rates is on the higher side and the appellant was not given any reduction towards self-supervision. CPWD is not relevant to semi-urban areas like the suburbs of Calicut where considerable cheap labour and materials at the lower cost are available. The appellant submitted that he had not engaged any contractor or consultant and the construction was supervised by his own relations and due deduction should have been given. The construction was actually completed in 1999 and the Panchayat tax was levied only from 1999. The Assessing Officer has presumed the cost involved in converting the car garage into a room at Rs. 50,000 and cost of filling the residential plot at Rs. 1 lakh and this has no basis." 11. The Commissioner of Income-tax (A), after considering the submissions of the assessee in the light of the facts of the case, has observed that it was true that CPWD rate was adjustable to various types of construction in different parts of the country and that, however, in semi-urban areas like Feroke, the application of CPWD rates might not be very realistic. The Tribunal (Cochi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s made reference to valuation officer under section 131 of the Income-tax Act. As per the decision of the Hon ble Supreme Court, in the case of Smt. Amiya Bala Paul v. CIT [2003] 262 ITR 407 , the assessing authority does not have any power to refer to valuation department to assess the cost of construction under section 131 of the Income-tax Act. Thus, the reference itself is invalid. Hence, the question of relying on those documents not found during the course of search is not correct. Even after introduction of section 142A, the assessing authority does not have power to refer to an approved valuer to assess the cost of construction under section 131. 12A. On the other hand, the ld. departmental representative relied upon the orders of the lower authorities and reiterated the contents thereof as his submissions. 13. We have heard rival submissions and considered the facts and materials on record including the decisions relied before us by the parties. We find that the Hon ble M.P. High Court in the case of Khushlal Chand Nirma Kumar ( supra ), has held as under : "Admittedly, during the search in the premises of the assessee nothing was found with regard to the i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al. Your appellant is a non-resident and was maintaining NRE account with Canara Bank. The withdrawal from these accounts is mainly for the purpose of his investments in India and household expenditure. Relevant bank accounts were produced to the assessing authority and assessing authority rejected your appellant s withdrawal from these bank accounts a sum of Rs. 9,90,000. This disallowance was restricted to Rs. 5,57,500 by the Commissioner of Income-tax (A). The Commissioner of Income-tax (A) has not appreciated that the explanations given by your appellant is relating to the block period spread over for ten years. Your appellant also explained that blank cheques were signed and entrusted with the relatives. Certain investments were made by the appellant during the block period. The Commissioner of Income-tax (A) ought to have given the sum of Rs. 9,90,000 as a source for the purpose of cash flow statement. 7. Your appellant while preparing the cash flow statement and estimating the income for relevant previous years has taken certain credits from his brother and certain close friends as a source. In most of the cases, affidavits were filed and there were withdrawals from NRE Ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o also payment of Mohammed Ali, Aboobacker and Zubaida had no relation to the investment made by the assessee. With respect to the payment made to Shri Kareem in connection with the purchase of the Pavmani Road property the Assessing Officer had entered into a complicated working by which he concluded that payment made to one Shri Rao Saheb, Power of Attorney holder, could not be regarded as advance for the property and part of the amount was paid by Shri Kareem to one Shri Mammu Mammed who had no connection with the property transactions. On the whole he concluded that the entire sum of Rs. 5 lakhs given to Shri Kareem could not be related to the investment in property as claimed by the assessee. Aggrieved by this order of the Assessing Officer, the assessee moved the matter in appeal before the first appellate authority before whom it was contended that investment in Canara Bank amounting to Rs. 2 lakhs remaining as a short-term deposit was subse-quently utilised for the assessee s investment and it is reflected in the bank account. The withdrawals made by three persons were for the investment in the assessee s name and the payment made to Shri Kareem was utilised for investment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... during the block period Rs. 29.48 lakhs. As per the Reserve Bank of India directions a non-resident external account cannot be operated by a non-resident as well as a resident. Since his close relatives were resident during the period, the assessee used to give cheques signed by him to his wife during the period. The bank operations were done by his wife through some of the relatives and some of the cheques were drawn in the name of relatives. The assessing authority should have considered these withdrawals for the purpose of cash flow. Instead, the assessing authority did not accept Rs. 9,90,000 withdrawn in different names from the assessee s NRE accounts. The Commissioner of Income-tax (A) gave a relief of Rs. 4,32,500 out of these drawings and directed the assessing authority to consider as a source. Your appellant did not have any known source of income in India. The amounts have come from NRE accounts. The department has not come out with any documentary evidence about existence of any assets other than those shown in the cash flow statement. The addition confirmed by the Commissioner of Income-tax (A) to the extent of Rs. 5,57,500 is unjustified." On the other hand, the l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dvance of Rs. 3,25,000 to your appellant and the amount was withdrawn from State Bank of India from his NRE Account. There were withdrawals from this account to the extent of Rs. 4,18,000. The Commissioner of Income-tax (A) has not considered these evidences while disallowing the source of Rs. 3,25,000. (3) Loan from A.K. Abdulla - The creditor is a non-resident and the amount was withdrawn from his NRE account. The total credit was Rs. 2,35,000. The Commissioner of Income-tax (A) did not allow a sum of Rs. 60,000 as a source since these withdrawals were made in somebody s name. The creditor has not stated in the affidavit that the payment was lump sum payment. (4) Vengat Beerashsa - The creditor has appeared before the assessing authority in response to the notice under section 131 of the Income-tax Act. He is your appellant s uncle. In his statement given before the assessing authority he has confirmed the payment. There was no contradiction in his statement as alleged by the assessing authority. The creditor is a man of means and the assessing authority has not disputed his creditworthiness. (5) The Commissioner of Income-tax (A) went wrong in not considering the amoun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... affidavit to the above effect duly attested by the attache of Abudhabi Embassy. ( c ) The creditworthiness of Shri Abdul Azeez is not disputed. ( d ) He has advanced the funds for the purchase of property Shri Chandukutty, document writer, has confirmed the same. ( e ) Shri Abdul Azeez used to leave signed cheque leaves with members of the family and withdrawals were made by those persons and the money advanced to the assessee." 22. After considering the contentions of the assessee, in the light of the facts and circumstances of the case, the Commissioner of Income-tax (A) has observed as under : "It is true that Shri Abdul Azeez is a man of means. He has filed an affidavit duly attested by the attache of Abudhabi Embassy confirming the transaction. It is true that the creditor has been identified and the creditor is found to be creditworthy. However, the crucial statement in the affidavit is that the above-said amount was withdrawn from his NRE account No. 2192 with Federal Bank, Cheruvannur. The Assessing Officer made a threadbare analysis of the bank statement. Cheque issue to the appellant is shown only on one date viz., 6-1-1997 for Rs. 1 lakh. The contention ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessing Officer added back a sum of Rs. 3,25,000 alleged to have been received from Shri Ummer Farooque. The Assessing Officer called for evidence in support of the funds received from Shri Ummer Farooque shown in the cash flow statement. In reply the assessee filed an affidavit from Shri Ummer Farooque showing withdrawal from NRE account. The Assessing Officer noticed that the affidavit did not contain details of payment such as amounts and dates. The Assessing Officer proceeded to obtain copies of NRE account from State Bank of India. He analysed the withdrawals made during the year 1996-97 and found that cheques were not issued to the assessee as claimed. He took the stand that the withdrawals must have been for some other purposes since no cheque was issued to the assessee. There was also no evidence to show that the funds withdrawn from the bank were handed over to the assessee for purchase of property. Aggrieved by the above order of the Assessing Officer, the assessee moved the matter in appeal before the Commissioner of Income-tax (A) before whom it was contended that : "the Assessing Officer should have accepted the affidavit and confirmation given by the creditor. It i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... heque leaves from the bank. He found that Rs. 1,75,000 was encashed by Shri Abdulla himself and the balance amount of Rs. 60,000 by two different persons. The Assessing Officer took the stand that no cheque was issued in the name of the assessee or his relations. Withdrawal by Shri Abdulla might be for expenses in connection with his own house construction. He, therefore, concluded that the receipt of Rs. 2,35,000 from Shri A.K. Abdulla was false and could not be relied upon. Aggrieved by this order of the Assessing Officer, the assessee moved the matter before the first appellate authority, before whom it was contended that Shri Abdulla has discharged his responsibility by confirming the transaction and filing the affidavit duly signed by the attache of Embassy of India, Abu Dhabi. The Assessing Officer has not denied the creditworthiness of Shri A.K. Abdulla. His conclusion that the funds withdrawn would have been utilised for Shri Abdulla s house construction is represented to be far fetched. After hearing the contention of the assessee and considering the same in the light of the facts and circumstances of the case, the Commissioner of Income-tax (A) held as under : "The fili ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... de of payment, refund of the amount and other connected issues. The statement recorded from Shri Vengat Beerasha was that "the above amounts were paid on those dates by cash". The Assessing Officer noticed that the appellant left India on 26-11-1995 after a stay of 33 days and he came back to India only in 1996. So the story of direct payment of cash by Sri Vengat Bava was to be fictitious. He also found that the major withdrawal of Rs. 1,50,000 was in respect of a cheque issued to one Shri Mohammed Koya. The statement given by Shri Beerasha did not in any way confirm payment of money to the appellant with reliable evidence. The claim of loan from Shri Beerasha was therefore, rejected. Aggrieved by this order of the Assessing Officer, the assessee moved the matter in appeal before the first appellate authority before whom, it was contended that Shri Beerasha was a man of means and he had confirmed the transaction with reference to the dates and the inference drawn by the Assessing Officer was without any basis. 25. After considering the contentions of the assessee in the light of the facts of the case, the Commissioner of Income-tax (A) came to the following conclusion : "At ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... brothers along with the source from where they have taken the money and subsequent registered document in the name of his brothers, sworn statement of the appellant and the statement of document writer at the date of search clearly prove the genuineness of the transactions. Loan transactions : The loan from Ummer Feroque, A.K. Abdulla and Vengat Beerasha were confirmed by the creditors by filing affidavits. Both Ummer Feroque and A.K. Abdulla were non-residents. Their confirmations also show the NRE account Nos. from where they withdrew the amount. Both these credits were not accepted as a genuine credit since the cheques were not drawn in the name of your appellant. In the case of A.K. Abdulla, the credit of 1,75,000 has been accepted by the Commissioner of Income-tax (A). Your appellant was also in India when he accepted the cash from Ummer Feroque who happened to be a non-resident. Vengat Beerasha the third creditor appeared before the assessing authority and produced the pass book. In all these cases, the genuineness, identity and capacity have already been proved. The block assessment is entirely different from the regular assessment. The matters like cash credit can be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t any material to show that the withdrawal of money was by the assessee and there was no evidence of receipt of money, as rightly observed by the Commissioner of Income-tax(A), the assessee has to prove the actual receipt of the funds. The Commissioner of Income-tax (A) has also found that the Assessing Officer noticed that each withdrawal has been made by various persons and there was no evidence to show that the money withdrawn had been paid to the assessee. Thus, in our considered opinion, the revenue has brought materials on record to prove that what is stated in the affidavit cannot be accepted as it is unless revenue s contentions are met by the assessee. Thus, we do not find any infirmity in the order of the Commissioner of Income-tax (A) in confirming the cash credit of Rs. 3,25,000 from Shri Ummer Farooque. 30. As far as Shri A.K. Abdulla is concerned, out of Rs. 2,35,000, the Commissioner of Income-tax (A) himself has deleted Rs. 1,75,000. In respect of the remaining Rs. 60,000, the Commissioner of Income-tax (A) found that the Assessing Officer has verified and found out that withdrawal was made by one Shri Sasi Kumar and Shri M.V. Kunhu Mon and it was for the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed nor the details of the income-tax assessments of the creditors are available on record. In such circumstances, we are unable to accept the contention of the ld. representative, that cash credit can be considered only in regular assessment. Further, sub-section (2) of section 158BB reads as under : "In computing the undisclosed income of the block period, the provisions of sections 68, 69, 69A, 69B and 69C, so far as may be, apply and references to "financial year" in those sections shall be constructed as references to the relevant previous year falling in the block period including the previous year ending with the date of search or of the requisition." A simple reading of the above sub-section would show that except section 69D, which has been specifically omitted by the Legislature, the other provisions are specified in the above sub-section. Thus, it would go to show that even in the block assessment, the provisions of section 68 (cash credit) are applicable. On this reasoning also, the contention of the ld. representative has to fail. Thus, ground No. 8 of the assessee fails. 33. During the course of hearing, the assessee has filed two additional grounds along with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r noticed that the assessee s family consisted of himself, wife and four children. He also had to maintain his old mother. Though the assessee was abroad, his visit to India frequent. The life style was of a high order and considering these factors the Assessing Officer re-worked the household expenses as under : F.Y. 1992-93 Rs. 62,000 F.Y. 1993-94 Rs. 60,000 F.Y. 1994-95 Rs. 80,000 F.Y. 1995-96 Rs. 80,000 F.Y. 1996-97 Rs. 1,00,000 F.Y. 1997-98 Rs. 50,000 (Part of the year) Aggrieved by this order of the Assessing Officer, the assessee moved the matter in appeal before the first appellate authority before whom the assessee contended that the estimate made by the Assessing Officer is on the higher side. It is observed that the assessee family consisted of the assessee, his wife and four children. The children are studying in school and the family is leading a moderate life. After considering the submis-sions in the light of the facts, the Commissioner of Income-tax (A) sustained the order of the Assessing Officer for the reason that t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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