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TMI Blog2005 (6) TMI 503X X X X Extracts X X X X X X X X Extracts X X X X ..... tigation 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 estimated additi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8 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that : (i)the assessee had sufficient business income abroad and he had come to India on various occasions and withdrawn money from NRE account and the possession of reasonable amount could not be negatived.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 considering the submis- sions of the assessee, in the light of the facts of the case, was of the view that it was true that the assessee had substantial funds abroad from his business activities and he had also with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mation 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, the impugned order need not be disturbed." 8. We have heard the rival submissions and considered the facts and materials on record. The first appellate authority has observed that it is true that the assessee had substantial ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 statement and the value determined by the valuation cell was taken as undisclosed income. As explained earlier the undisclosed income has to be arrived at based on documentary evidence/materials found out during the course of search and not on the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t 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 (Cochin Bench) has held in several cases like Upasana Hospitals that State PWD rate with reasonable modification is applicable to constructions in semi-urban and rural areas. He noticed that the CPWD rate was more relevant to metropolitan areas and urban centres and in Panchaya ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 investment in the house. The contention that the valuation report of the Departmental Valuation Officer was obtained and was confronted to the assessee but he was not able to give any explanation and, therefore, it should be accepted as evidence could not be accepted in view of the provisions of sec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt'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 Account. Your appellant has proved the identity of the creditor and capacity of the creditor and the genuineness of the transactions. The initial burden which lay upon him was discharged by the appellant. There cannot be one general or universal proposition of law which could be guiding yardstick in the matter. Ea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ho 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 in purchase of property. The conclusion regarding non-payment of Rs. 2,32,500 towards cost of the property was vehemently questioned. The assessee had prepared detailed analysis of investment and expenditure from the bank accounts and so the conclusion drawn by the Assessing Officer was without any basis. 17. After considering the ld. counsel for the assessee, the Commissioner of Income-tax (A) has observed as under : "Admittedly payment made to Kunhiali, payment made to Mohammed Ali, p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 ld. departmental representative relied on the orders of the revenue authorities and reiterated the same as his submissions. The ld. departmental representative has specifically relied on the contents of para 14(ii) of the Commissioner of Income-tax (A) order. He posed a question as to how the amounts drawn by strangers are allowable as source for the assessee. 19. We have heard the rival submissions and considered the facts and materials on record. The Commissioner of Income-tax (A) has observed th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 00 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 amount received from V. Abdul Kareem, brother of the appellant for purchase of a plot of land at Calicut. V. Abdul Kreem is an NRE. The agreement for sale of land to him is confirmed by the document writer at the time of search on 30-9-1997. The appellant has arranged for the purchase of land by V. Abdul Kareem. This fact is further evidenced by the sale deed registered in the name of V. Abdul Kareem. It was totally incorrect for assessing the same in the hands of the appellant. In all these cases, the affidavits were filed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se, 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 of the appellant is that cheques were issued to various family members and they used to withdraw funds from his NRE account. However, the appellant has not established a link between the persons to whom cheques were issued and the appellant himself. There is no confirmation from any of the persons to whom cheques were issued. The appellant could have produced evidence from persons like Shri P.K. Mohammed Kuty, V. Basheer, P.V. Ummer etc. who have encashed the cheques. There is no mention by Shri Abdul Azeez that money was routed through the above pers ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee 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 is observed that Shri Ummer Farooque is a man of substantial means and he had issued several cheques in his native place in the name of various persons and money was given to the appellant to purchase property at Calicut. The Assessing Officer should not have considered the affidavit filed by the creditor to be false and without basis. According to the appellant the primary responsibility of filing confirmation from the creditor and proving his creditworthiness has been complied with and the action of the Assessing Officer to further suspect the withdrawals is legally not correct." 23. The ld. first appellate authority, after considering these su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 filing of affidavit and confirmation of loan transaction by Shri A.K. Abdulla are not disputed. The Assessing Officer has verified the relevant bank transactions. His objection is primarily with the withdrawal of cash by Shri Abdulla and some others. He is of the opinion that the cheque should have been drawn in the name of the appellant or his representatives. However, it is noticed that Rs. 1,75,000 was withdrawn by Shri Abdulla himself. This is confirmed by the Assessing Officer in the assessment order. Shri Abdulla has admitted the transaction. So the presumption that the money withdrawn by Shri Abdulla might have been utilised for his own house construction ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 the outset it has to be mentioned that the appellant failed to produce Shri Beerasha even though he was his next door neighbour. The Assessing Officer had to summon him and take statements regarding the alleged transactions. It is true that Beerasha confirmed payment of money to the appellant on four different dates in 1995. It was stated by Shri Beerasha that the amounts were paid in cash. The payments were also said to have been made to the appellant directly. However, the Assessing Officer found that the appellant could not have directly received the amount in November 1995 itself. The appellant has not brought before me any evidence to rebut then above inference of the Assessing Officer. The statement given by Shri Beerasha i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d 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 considered only in the regular assessment. Reliance is placed on the decision of Calcutta High Court in the case of Bhagvati Prasad Kedia v. Commissioner of Income-tax 248 ITR 562 (Cal.)." 27. On the other hand, the ld. departmental representative reiterated the contents of the assessment order and the first appellate order as his submissions. He pleaded that the Commissioner of Income-tax (A) has also given certain relief and given reasons for confirming the other additions and hence, there is no need for disturbing the impugned order. 28. We have heard the rival submissions and considered the facts and materials on record including the case law relied on by the ld. representative of the assessee. In respect of the loan transactions with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rming 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 assessee to establish that the funds withdrawn by these persons had been received by him. There is no confirmation to the above effect. In this view of the matter, we find that the assessee has miserably failed to meet the contentions of the revenue as regards the sum of Rs. 60,000, and hence, mere filing of the affidavit would not help the assessee. Thus, we do not find any infirmity in the order of the first appellate authority as regards the confirmation of addition of Rs. 60,000 being loan from Shri A.K. Abdulla. 31. Turning to the case of Shri Vengat Beerasha, the Assessing Officer has pointed out that the assessee had left India on 26-9-1995 and hence the statement given by Shri Vengat Beerasha that he has directly paid cash to the assessee in the month of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tted 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 the petition for admission of the same. In the petition, it has been stated that these grounds had been inadvertently omitted and since these grounds are relating to block assessment, the same be admitted and decided on merits. The grounds are as under : '(1) As per section 158BB of the Income-tax Act, the undisclosed income of the block period shall be the income of the previous years on the basis of evidences found as a result of search. In the appellant's case, there was no evidence found during the course of search for the estimation of the personal expenditure of your appellant. Hence, this addition cannot be made in the block assessment. The addition was Rs. 1,20,000 for the block period. Reliance is placed on the decision of Cochin Bench in the case of K. Moidu v. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ool 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 the Assessing Officer has considered the normal living standard of the assessee and his family and that the enhancement made was admitted by the assessee and that the estimate made by the Assessing Officer could not be regarded as excessive since the family consisted of assessee's wife, aged mother and four children and there was also other expenditure like expenditure on car, travel, medical expenses etc. Thus, the Assessing Officer's order was confirmed by the Commissioner of Income-tax (A) and the assessee is on second appeal before us with the additional ground extracted as above. 36. At the time of hearing, the ld. representative for the assessee reiterated the ground raised before us and relied on the decision of the Tribunal (Cochin Bench) in the case of K. Moidu Alias Kunhippa (supra). On the other hand, the ld. departmental representative submitted that the opinion that the block assessment can be made only on the basis of the evidences found out during the course of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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