TMI Blog2014 (10) TMI 391X X X X Extracts X X X X X X X X Extracts X X X X ..... he ritual of forwarding the evidence/material to the AO and obtain his report – Decided against revenue. Profit from own chity investment – Whether the assessee has not produced further evidences to prove the loss claimed in respect of certain AYs - Held that:- The deletion of addition is justified as there was no incriminating material found or seized during the course of search to suggest the addition for the AY 2002-03 - For the AY 2003-04, the material relating to the investment in own chity was found for the month of Feb and March 2003 - Since these chits were not terminated during the relevant year, the CIT(A) was of the view that the AO has computed the income by projecting the investments found for two months against the whole year and further estimated the income at 10% - there is no need for estimating the income for the AY 2003-04 in view of the fact that the chity reflected in the seized material for the relevant year are not terminated as on 31.3.2003 - the CIT(A) is justified in deleting the addition of ₹ 3,00,905/ for the AY 2003-04 - there was loss from own chity investment as per the working furnished by the assessee - The entire working furnished by the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es of the financial year so as to compute the interest income, which is an accepted method of assessment of income and advances when the day-to-day balances of loan is not available – the order of the CIT(A) is upheld – Decided against assessee. Income from chitty business of foreman’s commission – Held that:- The assessee furnished reconciliation statement with regard to collection of the foreman commission before the CIT(A) - The CIT(A), after going through the reconciliation statement observed that the foreman commission receivable for the AY 2002-03 was at ₹ 21,57,720 and for The AY 2008-09, it was ₹ 23,63,326 - he sustained the addition towards undisclosed foreman commission at ₹ 8,800/- for the AY 2006-07 and ₹ 16,06,951/- for the AY 2008-09 -The assessee could not controvert the above findings of the CIT(A) – thus, the order of the CIT(A) is upheld – Decided against revenue. Profit from terminated kuries disallowed – Held that:- The assessee filed the detailed working of the profit from the terminated kuries - after going through the details furnished by the assessee regarding the outstanding of terminated kuries, he quantities it at ₹ 3,1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... yments by the assessee - evidences furnished by the assessee, in support of his claim, were in order - since the trees sold were naturally and spontaneously grown, no question of taxability of the receipt arises – revenue has not doubted the certificate issued by the revenue authorities which suggest the availability of timber - it is natural to earn income from sale of trees – Decided against revenue. Investment in immovable property – Held that:- The assessees have furnished evidence before the CIT(A) and explained the investments in the properties in the cash flow statements - The CIT(A) had also called for remand report - the CIT(A) has observed that the unexplained investments in immovable properties were accounted for as fixed assets in the regular books of account of the firm in which the assesses were partners and the same cannot be considered as unexplained investment in immovable properties and it is to be excluded and the properties are owned by the assesses which are duly accounted for in the regular books of accounts – the order of the CIT(A) is upheld – Decided against revenue. Addition of personal drawings – Held that:- The AO estimated very huge drawings - the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The brief facts of the case are that the assessee is a partnership firm doing the business of chitty. The assessee filed its original return of income along with audit report u/s 44AB of the Act.There was a search operation at the business premises as well as the residences of its partners on 26th March 2008. There was no search or survey operation conducted in the business premises of the assessee s sister concerns i.e. M/s Edassery Ceramics, ET Decvassy Sons Edassery Jewellers, St Francis Clay Works, St Francis Clay D cor Tiles and St Francis Tile Industries on the same date. The funds of the assessee firm and its partners are intermingled with the funds of other sister concerns mentioned above. During the course of search operation an amount of ₹ 50,000/- and FD receipts worth ₹ 5,48,787/- were seized from the entire group. Subsequent to the search, the AO issued notice u/s 153A on 12.3.2009 and in response, the assessee filed return of income on 27.8.2009 showing ₹ 17,380/- as income.Due to certain reasons beyond the control of the assessee, the assessee could not file certain details before the AO on time. Accordingly, the AO made certain additions and com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s documents, which are necessary for the purpose of adjudicating the appeal before him and to decide the issue on merit. 8 We have carefully considered the rival submissions. In our opinion, having regard to the provisions relating to the appeals before the first appellate authority, a distinction has to be made between the evidence and material voluntarily furnished by an assessee in support of his appeal and the evidence / material requisitioned from an assessee by the first appellate authority with a view to proper disposal of proceedings before him. In our opinion while the provisions of rule 46A apply to the former, the same have no application to the latter. 8.1. Rule 46A of I.T. Rules has been inserted by the Income-tax (Second Amendment) Rules, 1973 with effect from 01-04-1973. This rule provides that an assessee shall not be entitled to produce before the first appellate authority evidence, whether oral or documentary, other than the evidence produced by him during the course of proceedings before the assessing officer. Rule however enumerate certain exceptional circumstances such as where the assessing officer has refused to admit evidence which ought to have been a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d in the case of CIT vs Dalmia Cement Bharat Ltd., reported in 36 Taxman 353 (Del). It, therefore, follows that the matters to be considered by the first appellate authority need not be confined to what was considered by the assessing officer while making the order appealed against. 8.3. The provisions of Rule 46A promulgated with effect from 01-04-1973 were challenged as being ultra vires to the provisions of Sections 250 and 251 of the Act in the case of Smt. Mohinder Kaur v. Central Government 104 ITR 120 (All). After consideration of the provisions of Sections 250 and 251 of the Act as well as Rule 46A of I.T. Rules the High Court arrived at the conclusion in the following words: Sub-rule (1) of the said rule lays down the circumstances in which alone the assessee is entitled to produce additional evidence. Sub-section (4) preserves the power of the Appellate Assistant Commissioner to make further inquiry as contemplated by Section 250 of the Act. Thus, it is clear that no part of rule 46A whittles down or impairs the power to make further inquiry conferred upon the Appellate Assistant Commissioner by Section 250 of the Act. Similarly, Sub-section (5) of the said section con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... missioner of Income-tax reported in102 ITR 525 (Cal) the Calcutta High Court have clearly held that where the CIT is not acting suo motu in admitting additional evidence, there must be some ground for admitting new evidence. The Calcutta High Court have further observed that in such a case the Tribunal can interfere with the discretion exercised by the first appellate authority in admitting the additional evidence. In the words of the High Court It is true, as was contended by counsel for the assessee, that the Appellate Assistant Commissioner has very wide powers and in the interests of justice he can make further enquiry and he can admit new ground of appeal. He can also give deductions not claimed by the assessee. As was held by the Calcutta High Court in the case of Union Coal Co. Ltd. v. Commissioner of Income tax reported in 70 ITR 45 (Cal). In this case counsel for the revenue also did not dispute that in certain circumstances the Appellate Assistant Commissioner had jurisdiction to admit new grounds if it was necessary to admit new evidence. The point in this case is not whether the Appellate Assistant Commissioner is entitled to admit new ground or evidence either suo mot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was given to the ITO would not meet the requirements of the above rule. Even if no such rule was in existence, ends of justice and fair play demand that when an assessee produces additional evidence in his appeal an opportunity is given to the ITO to test the evidence or to counter the effect of the evidence by producing evidence in rebuttal or otherwise. The reason is self evident. It stands to reason to presume that the ITO took his decision not to remain present because he considered it unnecessary to do so in the context of the existing record. He could not have anticipated or reasonably foreseen that the record was going to be augmented by adducing fresh evidence. Besides, he had a right to object to the production of additional evidence. Since something adverse to the ITO was sought to be done in the course of the appeal by way of augmenting the record, the ITO ought to have been heard and given an opportunity to meet with the additional material by way of cross examination, counter evidence and urging submissions in the context of the augmented record. Of course, if the appeal was going to be decided on the basis of the existing record of which he had notice, no such questio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... isions of rule 46A the Bombay High Court held that the first appellate authority was justified in not taking on record the fresh evidence sought to be produced before him by the assessee. In the course of the judgment, the High Court closely examined the provisions of Section 250(4) of the Act and the provisions of rule 46A and observed as under: On a plain reading of rule 46A, it is clear that this rule is intended to put fetters on the right of the appellant to produce before the Appellate Assistant Commissioner any evidence, whether oral or documentary, other than the evidence produced by him during the course of the proceedings before the Income-tax Officer, except in the circumstances set out therein. It does not deal with the powers of the Appellate Assistant Commissioner to make further enquiry or to direct the Income-tax Officer to make further enquiry and to report the result of the same to him. This position has been made clear by Sub-rule (4) which specifically provides that the restrictions placed on the production of additional evidence by the appellant would not affect the powers of the Appellate Assistant Commissioner to call for the production of any document or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... idence before the first appellate authority and not the rights of the first appellate authority to call for production of any fresh evidence or information. This aspect of the provisions of rule 46A is clear from the provisions of Sub-rule (4) of rule 46A itself that nothing contained in rule 46A shall affect the power of first appellate authority to direct the production of any document or examination of any witness to enable him to dispose of the appeal or for any other substantial cause including the enhancement of the assessment or penalty (whether on his own motion or on the request of the assessing officer. 9. In the instant case the entire additional evidence has come on the record of the first appellate authority because the first appellate authority decided to examine the facts of the case in depth and adjudicate upon the matter on the basis of evidence and material thus gathered. The learned CIT(A) was empowered to do so under the provisions of Section 250(4). The results of enquiry conducted by him could either go to further cement the case made out by the assessing officer or to help out the assessee against the findings of the assessing officer. The mere fact that t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... worked out the year wise investments in own chits based on the seized document for the AY 2004-05 to 2008-09. In respect of the AY 2003-04, the AO estimated the investment in own chits by projecting the figure for two months as per the seized material to the whole year. In respect of AY 2002-03, the AO arrived at the investment in own chits by taking the percentage growth of such investment from the AYs 2003-04 to 2004-05 as the basis of projection. The AO further estimated the profit earned from own chits @ 10%. 11.2 Before the CIT(A), it was submitted that the assessee firm was investing in own chits for business convenience. It was submitted that the AO was not correct in presuming that there will always be profit in respect of investment in chits. It was further submitted that the profit/loss in respect of own chits was based on the seized materials and accordingly, the total profit/loss in respect of various terminated own chits for the AYs 2004-05 to 2008-09 was a loss ofRs. 19,88,116/-. 11.3 After considering the submissions made by the assessee the CIT(A) observed that for the AY 2002-03, the addition on account of profit from own chitty investments was made purely on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not terminated as on 31.3.2003. Therefore, we find that the CIT(A) is justified in deleting the addition of ₹ 3,00,905/ for the AY 2003-04. 12.2 For the AY 2004-05 to 2008-09, a document marked as Annexure A-21, captioned office chitty subscription print -2003 containing the details of subscription of office chitties made by the firm was seized during the course of search. The AO worked out the yea-wise investments in respect of own chits and further estimated profit from the same at 10% on the assumption that usually subscribers invest in chits because it was more profitable than investing in banks or other financial institutions. Accordingly, the ld AR submitted that the investment in own chits are made not with a view of profit but under certain compelling circumstances. It was explained that sometimes certain kuries which are announced for commencement may not be fully subscribed and in that event, the assessee firm has to subscribe the unsubscribed tickets, otherwise the chit could not be commenced and it will affect the reputation of the firm. In certain cases, the subscribers who have paid certain installments may opt out due to various reasons and in that event, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rmed. Accordingly, the ground raised for other AYs also rejected. 14 Next common ground in these appeals relates to the deletion of addition of the income from Kuri late fee. 14.1 Facts of the case are that during the assessment proceedings, the AO found from the cash book for the AY 2007-08, the assessee has collected kuri late fee of ₹ 2,204,464/- for a period of 6 months from Oct 2006 to March 2007. The AO further projected the kuri late fee collected for 6 months to the full year and to other AYs on the assumption that percentage growth of kuri late fee collection was @ 10%. 14.2 On appeal, the CIT(A) observed that no incriminating materials relating to the income from kuri late fee were found/seized during the course of search.The CIT(A) observed that the AO has not verified whether the amount of ₹ 2,04,464/- is disclosed by the assessee in the return of income and madeand estimated addition of ₹ 4,08,928/- for AY 2007-08.. The CIT(A) observed that in the remand report, the AO admitted that the assessee has disclosed a sum of ₹ 3,83,968/- in the return of income under the head kuri late fee . Accordingly, the CIT(A) was of the view that no add ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncome for these in an assessment u/s 153A of the Act can be made only on the basis of incriminating materials discovered during the course of search. He found that the AO has not referred to any seized material while making the disallowance. He further observed that in the remand report also, the AO has not pointed out any seized material relating to the disallowance. Accordingly, he found that the disallowance was made on the basis of presumption and not on the basis of any material relating to the nexus between the borrowed funds and advances to sister concerns during the relevant years. Since there was no material detected or found during the course of search, which even remotely suggest that the advances made to the sister concerns are out of the borrowed funds, the AO was not justified in disallowing a portion of interest claimed on the borrowed funds in the AYs 2002-03 to 20067-07.Accordingly, he deleted the addition of ₹ 10,94,280/- for the AY 2002-03, ₹ 9,06,025/- for the AY 2003-04, ₹ 9,06,025/- for the AY 2004-05 and ₹ 16,32,612/- for the AY 2005-06. Against this, the revenue is in appeal before us. 17. We have considered the rival submissions a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... evant material on record. In this case, admittedly, the amount borrowed by the partners was credited to the assessee s firm and the corresponding payment was also made by the assessee including interest payments. According to the AO, the interest was to be borne by the partners and it was wrongly claimed by the assessee firm. However, there is no material to suggest that the partners were derived any benefit out of the loans availed by the assessee firm. In the absence of any material to suggest the benefits derived by the partners in a personal capacity, we are not in a position to accept the claim of the revenue. Accordingly, this ground raised by the revenue is rejected. 20. In the result, all the appeals filed by the revenue in ITA nos 539 to 545/Coch/2013 are dismissed. 21 Now we will take up the Cross Objections filed by the assessee. Cross Objections Nos 112 to 118/Coch/2013 : 22 The first common ground raised by the assessee in all these cross objections is regarding no search warrant and hence assessment is bad in law. 23 At the time of hearing, the ld AR of the assessee has not pressed this ground and accordingly, the same is dismissed as not pressed. 24 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to him, the true income can be estimated only by following average method.Accordingly, he observed that interest income shall be estimated on an average balance of advances. 27 We have considered the rival submissions and perused the relevant material on record. On this issue, the ld AR is not able to controvert the findings of the CIT(A). The CIT(A) has considered the average opening and closing balances of the financial year so as to compute the interest income, which is an accepted method of assessment of income and advances when the day-to-day balances of loan is not available, The findings of the CIT(A) in para 35.3 as under: 35.3 I have considered the arguments of the ld AR as well as the AO and the material available on record. The appellant firm is doing money lending business. The AO applied the rate of interest i.e. 20.56% on the balance as on the closing day i.e. 31st March, of every financial year. I find that this method is totally unfair, sinc4 the total advances vary day by day de to sanctioning of the new advances and closure of existing advances. It is the normal practice that if the day to day balances are not available for computing interest income on prod ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 281/- was not correct, and the correct figure was only ₹ 21,57,875/-. The AO further stated that the assessee has not reconciled the same with reference to the working sheet based on which the addition was made. In respect of the AY 2008-09, the AO reported that the foreman s commission receivable was only ₹ 17,05,250/- as against ₹ 26,04,095/- as computed in the assessment.On examination, the AO found that there was variation in the number of tickets in respect of certain chits as taken by the assessee and the seized documents, which was still explained. The AO further stated that the assessee could not furnish any convincing explanation regarding the heavy fall in the foreman s commission during the relevant year compared to the earlier year. Accordingly, the AO stated in the remand report that the income from foreman s commission as computed in the assessment for the AY 2008-09 may be sustained. 29.3 In the rejoinder before the CIT(A), the ld AR submitted before the CIT(A) that the working based on which the AO arrived at the figures of foreman s commission receivable was only received by the assessee now along with the copy of remand report and on verificat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ounts of ₹ 8,800/- for the AY 2006-07 and ₹ 16,06,951/-( total foreman s commission ₹ 23,63,326/- disclosed in the return of income ₹ 7,56,375/-) for the AY 2008-09 in their findings. 30 We have heard the parties and perused relevant material on record.On this issue, the assessee furnished reconciliation statement with regard to collection of the foreman commission before the CIT(A). The CIT(A), after going through the reconciliation statement observed that the foreman commission receivable for the AY 2002-03 was at ₹ 21,57,720 and for The AY 2008-09, it was ₹ 23,63,326/-.Accordingly, he sustained the addition towards undisclosed foreman commission at ₹ 8,800/- for the AY 2006-07 and ₹ 16,06,951/- for the AY 2008-09.The assessee could not controvert the above findings of the CIT(A). Being so, we are not in a position to disturb the above findings of the CIT(A) and addition sustained by the CIT(A) is confirmed. Accordingly, the ground taken by the assessee in its Cross Objection is rejected. 31 Next common ground relates to disallowance u/s 40(a)(ia) of the Act. 31.1 Facts of the case are that the AO noticed that for the AY 20 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inated kuries till the entire receivables are realized in full. It was submitted that if the AO s argument that credit balance outstanding in respect of terminated kuries are to be assessed as income is assumed to be correct, then the profit may be arrived at after reducing the receivables as irrecoverable. Accordingly, the assessee provided the detailed working for each AYs and as per the same, income has arisen only in respect of AYs 2007-08 and 2008-09 amounting to ₹ 1,37,192/- and ₹ 13,625/- respectively. 33.3 The CIT(A) forwarded the submissions to the AO for his report and after considering the remand report and other relevant materials, the CIT(A) found that the AO made the addition on the basis of the decision of the Hon ble jurisdictional High Court in the case of Guruvijaya Kuri Co Ltd., cited supra. The CIT(A) observed that even though the decision was rendered by the Hon ble High Court in the case of penalty proceedings u/s 271(1)(c), of the Act, while delivering the judgment, the Hon ble High Court observed that outstanding balance in respect of forfeited kuries which have been terminated long back cannot be treated as a liability and shall be assessed a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... und in these appeal is with regard to admission of additional evidence in violation of Rule 46A(1) of the IT Rules 1962. 37 This ground is identical to the ground raised by the revenue in its appeals in ITA Nos. 539 to 543/Coch/2013 in the case of New Kerala Investments which we have discussed in the foregoing paragraph 8 to 10 of this order. As the facts and circumstances are similar to the facts of the case of New Kerala Investments (supra); therefore, following our findings in the case of New Kerala Investments (supra), we dismiss the ground taken by the revenue in the present case also. 38 Next ground in ITA Nos 532, 533, 534 and 535 relates to estimate profit based on seized material. 38.1 The assessee has raised legal issue regarding initiation of proceedings u/s 153A of the AYs 2002-03 to 2005-06. The ld AR submitted that since the assessment for the AYs 2002-03 to 2005-06 were concluded as on the date of search and no proceedings are pending, the scope of assessment u/s 153A for these assessments years was restricted to the incriminating materials relating to those years found during the course of search.The assessee further submitted that since no incriminating ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d assets. The ld AR also submitted that the ITAT in the case of DCIT vs Matha Enterprises in ITA NO. 269 to 275/Coch/2010 has already decided in the above lines and this legal proposition was further confirmed in the case of Best Bakery and Ice Cream Parlour vs ACIT in ITA NBO. 498 and 499/Coch/2010. 39 On appeal, the CIT(A) observed that the second proviso of sec. 153A states that the assessment or reassessment pending on the date of initiation of the search or requisition shall abate and no further action shall be taken thereon and in this case, an assessment shall now be made u/s 153A of the Act. He further observed that the word pending occurring in the second proviso to sec. 153A is significant and it is further qualified by the words on the date of initiation of the search . According to the CIT(A), such assessments which are pending as on the date of search are liable to abate and the assessments which are not pending i.e. completed assessments as on the date of search would hold their base and would not abate. He further observed that the scope of assessment u/s 153 in the case of assessment that are abated and in the case of assessments that have been attained finality ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e findings of the CIT(A), which is confirmed in view of the decision of the Special Bench in the case of All Cargo Logistics Ltd (supra) wherein the Special Bench has observed and held as under: 66. We find that the solitary decision in this case by any High Court is in the case of Container Corpn. of India Ltd. (supra). In this case it has been held that an ICD is not a port but it is an inland port. The case of CFS is similar situated in the sense that both carry out similar functions, i.e., ware housing, customs clearance, and transport of goods from its location to the seaports and vice-versa by railway or by trucks in containers. Thus, the issue is no longer res-integra. Respectfully following this decision, it is held that a CFS is an inland port whose income is entitled to deduction u/s 80-IA(4). Question No. 2 is answered accordingly. 67. Now the matters of the assessee will go before the Division Bench which shall dispose of the appeals in the light of this Order. In the case of interveners, all the appeals will go back to the respective Division Benches who shall decide their grounds having regard to the facts of those cases and the findings given herein on the dis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... old ornaments as on the date of search as adopted in the assessment for valuation was not correct for the reason that deduction towards weight of stone and quantity of used ornaments are not considered. iii) For valuating new and old gold ornaments, the same rate was adopted in the statement. iv) The value addition of 12% made for making charges while valuation of stock was highly excessive. v) The market rate of gold as taken by the AO on various valuation dates are not correct. Further, 22 ct ornaments are valued at the rate of 24ct gold in the valuation made by the AO. vi) No accepted method of valuation of stock in trade was followed by the AO while valuing closing stock of gold ornaments of various assessment years. The assessee further furnished evidences in support of its arguments regarding the quantity and value of opening stock as on 1.4.2005 and also in respect of the percentage of value addition to be made towards making charges.The assessee further submitted that in respect of the profit and loss account prepared by the AO for the financial year 2007-08, expenditure towards depreciation and interest was not provided. The assessee also furnished detailed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pointed out by the assessee since it has a great bearing on the adjudication of the issue whether the seized records are fully reliable in the computation of income. 41.5 After considering the submissions and other relevant material, the CIT(A) was of the opinion that the seized books are not correct and complete and it do not reflect the true state of affairs of the assessee firm. Accordingly, he was of the view that a reasonable estimate of net profit was called for that may be earned from such type of business i.e retail trade in jewellery. He observed that in the present case the turnover for each assessment year reported in the seized books are not disputed at any stage of the proceedings. Regarding the net profit rate to be adopted, the assessee submitted that according to Bombay Bullion Association, the licensed dealers margin of profit in retail jewellery business was 3%. The assessee further submitted that the net profit ratio as per the regular accounts for the AYs 2006-07, 2007-08 and 2008-09 was 1.14%, 2.08% and 3.35% respectively.Accordingly, considering the totality of the facts and circumstances of the case, and keeping in mind the provisions of sec. 44AF of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ned to confirm the order of the CIT(A) on this issue. Accordingly, the ground taken by the revenue on this issue is dismissed. 46 In the result, the appeals filed by the revenue for all these Assessment Years in ITA Nos 532 to 538/Coch/2013 are dismissed. 47 Now, we will take up the Cross Objections filed by the assessee. CROSS OBJECTIONS No. 50 to 56/Coch/2013 48 The first ground is that since there is no search warrant, hence assessment is invalid. 48.1 Identical issue raised in the Cross Objections filed by the assessee in CO nos. 112 to 118/Coch/2013 in the case of New Kerala Investments. While deciding these Cross Objections, we have dismissed the ground taken by the assessee as not pressed. Accordingly, by following the findings in para No. 23 in that case, the ground taken by the assessee in the instant case is also dismissed as not pressed. 49 Next ground in Cos no. 54, 55 56/Coch/2013 relates to estimate of profit at 5% which is on higher side. 49.1 The revenue was in appeal before us on this issue.Since we have confirmed the order of the CIT(A) while deciding the revenue appeals, therefore, the ground taken by the assessee in its cross objection is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9 120/Coch2013, 110- 111/Coch2013 and 107 108/Coch2013 relates to assessment which are concluded and no incriminating materials found and there cannot be abatement. 60 Similar ground was taken before us by the assessee in the case of E T Devassy Sons in CO nos. 50 to 56/Coch/2013 and we have dismissed the ground taken by the assessee.Accordingly, following the findings in the Cross Objection in the case of E T Devassy Sons, we dismiss the ground taken by the assessee in the instant case is also. 61 In the result, all the Cross Objections filed by the assessees in Cross Objection Nos.121 to 122/Coch/2013, C.O. Nos. 119 120/Coch/2013, C.O. Nos. 110 111/Coch/2013 and C.O. Nos. 107 to 109/Coch 2013 are dismissed. ITA NO.518 to 524/Coch/2013-ITA No.613 to 637/Coch/2013 ITA No.638 to 644/Coch/201 -ITA No.573 to 579/Coch/2013 ITA No.566 to 572/Coch/2013-ITA No. 580 to 586/Coch/2013 ITA No. 612 TO 618/Coch/2013 (by the revenue ) CROSS OBJECTIONS Nos: CO nos. 57 to 63/Coch/2013 - CO nos.100 to 106/Coch/2013 CO nos. 79 to 85/Coch/2013 - CO nos. 86 to 92/Coch/2013 CO nos. 93 to 99/Coch/2013 - CO nos. 72 to 78/Coch/2013 CO nos. 65 to 71/Coch/2013 (by the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2007-08 120000 11,00,000 ii) Larger agricultural income has been introduced in the post search returns in order to partially explain the source of investigations detected at the time of search. iii) The assessee has disclosed the receipt of total agricultural income of only ₹ 1,00,000/-per annum from the family property of himself, wife and children, in the statement under section 132(4) of the Act. iv) On enquiry by the Assessing Officer, the Agricultural Income Tax Officer. Trichur, who has jurisdiction over the assessee informed that the assessee was not an Agricultural income Tax assessee on the rolls of his office. v) At the time of assessment proceedings, the assessee has not furnished evidences for expenditure incurred on agricultural operations like purchase of fertilizers, payment of wages, etc., and also for the sale of agricultural produce. Accordingly, the Assessing Officer estimated the agricultural income of the assessee and treated the difference as taxable income by placing reliance on the decision of the Pune Benches of the Tribunal in the case of Jaikisan R Agarwal Vs ACIT [(2006) 66 TTJ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the assessee and his family members are furnished as under: Sl. No. Name Paddy field (in acres) Dry land (in acres) Total area (in acres) 1. E.T.Devassy4.38 22.20 26.58 2. K.D.Lilly3.104.347.44 3. E.D. Shaju 11.376.66 18.03 4. E.D. Jaison6.34 3.76 10.10 5. E.D. Salu 20.62 6.33 26.95 6. E.D. Sabu 12.48 2.15 14.63 7. E.D. Benny 12.20 1.36 13.56 Total 70.49 46.80 117.29 65.4In order to prove the agricultural activities, the assessee furnished a certificate from the member of the concerned parliamentary constituency. The assessee also furnished certificates from the local panchayat President and concerned member of the Panchayat ward stating that the assessee is one of the best agriculturists in the surrounding area and cultivates nearly 70 acres of paddy field and 47 acres of other crops such as coconut, arecanut, pepper etc. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d with the documents produced by the assessee. The assessee hold approximately 26 acress of cultivable land in different villages in which 4 acres are paddy field. The agriculture income claimed by the assessee as per bills/vouchers produced as fresh evidences were verified with the original bills/vouchers with dealers and the genuineness was verified. I have verified the original bills/vouchers from the following dealers for the period from 02.04.2010 to 03.08.2010 and found genuine. S.No. Name the Trader/DealerPeriod From To 1. KPK Oil Mills02.04.201015.06.2010 2. Kottayam Rubbers28.04.201019.07.2010 3. Anna Coconut Products 01.05.201003.06.2010 4. St.Joseph Oil Mills 02.05.201022.06.2010 5. Aloor Service Co.op Bank01.06.201003.08.2010 6. Jeeva Bonemeal 21.07.201030.07.2010 It is pertinent to state that the agricultural income claimed to have earned by the assessee is for the assessment year 2010-11 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es and Industrial Land 26.67 acres), the following details were furnished by the assessee:- i) Details of the agricultural properties (in chart form) showing date of acquisition, document no. location with survey No. and village, extent,nature, crops, etc. ii) Details of the properties which were used for industrial purposes in chart form with details as above. iii) Copy of property purchase documents. 65.8 From the agricultural properties mentioned above, the assessee s family claimed agricultural income for the assessment years 2002-03 to 2008-09 as given below:- Asst. Year Paddy LandDry Land Total Agrl. Income claimed (Rs.) Extent (in acres) Agrl. Income (Rs.) Extent (in acres) Agrl. Income(Rs.) 2002-03 29.97 5,14,000 18.57 6,76,000 11,90,000 2003-04 33.72 6,41,000 22.19 8,34,000 14,75,000 2004-05 36.28 7,22,000 22.19 9,73,000 16,95,000 2005-06 37.50 8,33,000 22.96 10,92,000 19,25,000 2006-07 38.92 8,51,000 40.00 15,44,000 23,95,000 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urai, Tamil Nadu) -- 2.64 -2.64 - Total 70.4946.80117.29 65.10.The CIT(A) observed that the AO after verification of the above details and evidences stated in the remand report that the assessee Shri E.T. Devassy, held approximately 26 acres of cultivatable land in different villages out of which 4 acres are paddy filed, as claimed in the submissions before the CIT(A).It was further observed that In the case of the family members also, the Assessing Officer has no dispute with the extent of agricultural land cultivated by them. The CIT(A) noticed that the remark of the Assessing officer in the assessment order that the land holdings of the assessee were mainly used for industrial purposes was made without proper appreciation of the facts. It was observed by the CIT(A) that according to the Assessing officer, the Income Tax Inspector was satisfied with the documents produced by the assessee along with the submissions. The Assessing officer also stated that the bills/vouchers of sale of agricultural produce/expenditure towards agricultural operations for the period from 02-04-2010 to 03-08-2010, furnished by t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CIT(A) that the annual agricultural income per acre as certified by the Government authorities, from paddy fields belonging to the assessee group was ₹ 37,648/- against which the assessee has claimed only ₹ 24,343/- for the A.Y. 2008-09 and in respect of other crops, the annual agricultural income per acre as certified by the Government authorities was ₹ 92,092/- against which the assessee has claimed only ₹ 50,405/- for A.Y. 2008-09. The CIT(A) noticed that the annual agricultural income per acre claimed by the assessee group for the A.Y. 2002-03 to 2008-09 ranges from only ₹ 17,150/- to ₹ 24,343/- in the case of paddy and ₹ 36,402/- to the normal effect of price increase for the agricultural products year by year. The CIT(A) further observed that according to the assessee,if the agricultural income of the earlier years are extrapolated by applying the inflation index published by the CBDT, taking the certified income for the F.Y. 2009-10 as the base, the extrapolated income per acre for the F.Ys. 2001-02 to 2007-08 will be as under: Cost inflation index F.Y. Income from Paddy per acre (Rs.) Income from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cultural income claimed to have earned by the assessee is for the assessment year 2010-11 and not for the period under the search assessment period, needs to be considered. 65.14.Regarding the understatement of agricultural income in the original returns of income, the assessees submitted that it was under the wrong advice that if agricultural income was declared in the return, it would be taxed indirectly and tax liability would be more. Regarding the understatement of agricultural income in the statement taken at the time of search, the assessee explained that it was under the fear of being further interrogated about the deployment of agricultural income. Regarding the contention of the Assessing officer that the appellants are not assessees under the Kerala Agrl. Income Tax Act, the Ld. AR pointed out that as per section 3 of The Kerala Agrl. Income Tax Act, 1991, no agricultural income tax is payable by any person other than a company or a firm where the total extent of landed properties from which agricultural income is assessable, do not exceed 5 hectares. The agricultural income assessable do not include any income derived from cultivation of crops such as paddy, tapioca, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee has shown other income in the form of agricultural income. Since evidence brought on record suggest that the agricultural income earned by the assessee; therefore, we do not find any reason to interfere with the findings of the CIT(A), which is confirmed as the reasons advanced by the assessee also bonafide for variation in the agricultural income claimed in the original return filed after the search action.Accordingly, this ground in the above Revenue appeals is dismissed. 67 Since the facts and circumstances in other revenue s appeals in ITA Nos 631-637, 638-644, 573-579 and 566-572, 580-586 and 612-618/Coch/2013 are similar; therefore, by applying the above ratio, we are inclined to dismiss the similar ground in these appeals of the revenue also. 68. The next ground in I.T.A Nos. 518- 524, 631-637, 638-644, 573-579 and 566-572, 580-586 and 612-618/Coch/2013 is with regard to the deletion of disallowance of receipt from sale of trees. 68.1 For the sake of brevity, we consider the facts of the case as narrated by the CIT(A) in I.T.A. No. 518/Coch/2013. In the cash flow statements, the assessee claimed receipt from sale of trees for AY 2002-03 at ₹ 4 lacs and AY ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Assessing officer, it was clear that he had no dispute with the evidences in the form of tree sale agreements furnished by the assessee in support of his claim regarding receipt from sale of trees. The only issue pointed out by the Assessing officer, according to the CIT(A), was that these evidences were not furnished at the assessment stage. The CIT(A) further observed that the tree sale agreement properly described the name and address of the purchaser, the nature of trees and conditions of sale, schedule of payments and the data-wise receipt of payments by the assessee. The CIT(A) found that evidences furnished by the assessee, in support of his claim, were in order. According to the CIT(A), since the trees sold were naturally and spontaneously grown, no question of taxability of the receipt arises.Accordingly, considering the facts and circumstances of the case, the CIT(A) concluded that the Assessing officer was not correct in disallowing the receipt of ₹ 4,00,000/- for the A.Y. 2002-03 and ₹ 6,00,000/- for A.Y. 2003-04, from sale of trees as claimed by the assessee. Therefore, the CIT(A) deleted the addition of ₹ 4,00,000/- for the A.Y. 2002-03 and & ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the explanation offered by the assessee for not including certain fixed deposits in his cash flow statement. 71.5 On appeal, the CIT(A) considered all the fixed deposits which are mentioned by the Assessing Officer in the Assessment Order for each Assessment Year and offered explanation for not including certain deposits in his personal cash flow statements, which are tabulated as under: A.Y. 2007-08 Name of the bank Deposit No. Amount (Rs.) Explanation SCB, Kuruvallaserry 3760 45,000 Shown in the cash flow statement of Asstt. Year 2007-08 3762 40,000 4827 45000 Total 1,30,000 A.Y. 2004-05 Name of the bank Deposit No. Amount (Rs.) Explanation SCB,Venn ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Amount (Rs.) Explanation SCB,Vennoor 14736 50,000 Accounted in the books of the firm M/s. New Kerala Investments during the Asstt. Year 2007-08 14737 50,000 14736 50,000 Duplication Entry 14737 50,000 Duplication Entry CSB, Palayamparambu 20070059 3,281 Shown in the cash flow statement of Asst. Year 2007-08 20030060 4,375 20030061 3,281 20030062 3,281 20030063 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 20050220 29,291 20050221 29,291 Total 1,52,953 71.6.The Ld. AR relied upon the workings and evidences in the form of financial statements of the firm M/s. New Kerala Investments to substantiate his explanation regarding exclusion of certain fixed deposits from the cash flow statements. 71.7 After perusal of the evidences/explanations furnished by the Ld. AR, the CIT(A) observed that deposits appeared to be in order. The CIT(A) also observed that in the remand report, the Assessing Officer has not rebutted the explanation offered by the assessee for not including certain fixed deposits in the cash flow statements. Accordingly, the CIT(A) held that the assessee has taken care of all the unaccounted fixed deposits discovered during the course of search in his personal cash flow statements.Accofdingly, the CIT(A) deleted the addition of ₹ 1,20,000/- for the assessment year 2004-05, ₹ 6,00,000/- for the assessment year 2006-07, ͅ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... perties were ascertained on the basis of seized documents. The amounts shown as outflow towards investment in immovable properties in the cash flow statement was made as a result of an afterthought and hence be rejected. 74.2. The Ld. AR also submitted that no additional evidences were furnished by the assessee in respect of the above addition at the appellate stage. The assessee only explained that certain investments which were treated as not included in the cash flow statements are in fact reflected in the cash flow statement and further the reason for not including certain investments in the cash flow statements. According to the assessee, from the remand report, it can be seen that the Assessing Officer had no objection with regard to the merit of the explanation furnished by the assessee in respect of the addition towards investments in immovable properties. 74.3. On appeal, the CIT(A) observed that the Assessing Officer prepared a list of year-wise investment in immovable properties made by the assessee as under: Asst. Year Investment in immovable properties (Rs.) 2002-03 4016862 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Devassy E.T. 79,697 79,697 Accounted in the books of M/s. E.T. Devassy Sons Edassery Jewellers 28.05.2001 1792/01 12.557 cents Devassy E.T. 9,160 9,160 15.06.2001 (Agreement) 1792/01 12.557 cents Devassy E.T. 23,25,000 23,25,000 As per agreement date 15.06.2001, the appellant paid ₹ 2,00,000/-as advance for the purchase of this property (Accounted in the books of M/s. E.T.Devassy Sons Edassery Jewellers). This deal did not materialize an the property was not purchased by the appellant. 05.02.2002 517/02 20.456 cents Devassy E.T. 16,03,005 16,03,005 Accounted in the books of M/s. E.T. Devassy Sons, Edassery Jewellers. 40,16,862 A.Y. 2003-04 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Assessee s share (Rs.) Explanation 2003 2273/03 53.625 cents Devassy E.T., Lilly, Shaju others 22,405 7,468 Accounted in the books of St. Francis Clay D cor Tiles 16.05.2003 1353/03 38.5 cents Devassy E.T., Lilly, Shaju othres 15,120 5,040 Accounted in the books of M/s. St. Francis Clay D cor Tiles 19.07.2003 2569/03 3 acre 27.5 cents Devassy E.T. Joy Mandakan 1,40,021 70,011 Shown in the cash low statement for the assessment year 2004-05 01.09.2003 60 cents Devassy E.T. 2,24,005 2,24,005 Accounted in the books of Saj Cera Colours 08.10.2003 2894/03 34 cents Devassy E.T., Lilly, Shaju and others 13,441 4,480 Ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... asssy E.T. M.J. Joy 78,02,989 39,01,495 Shown in the cash flow statement of E.T. Devassy, E.D. Shaju and E.D. Salu. Actual investment of the appellant group is only ₹ 31,73,874/-. 16.11.2005 4 acres 40 cents Devassy E.T. M.J. Joy 9,32,555 4,66,278 Shown in the cash flow statement. 54,99,178 A.Y. 2007-08 Doc. Date Doc. No. Extent Name of the Purchaser Total cost including registration (Rs.) Assessee s share (Rs.) Explanation 06.06.2006 Shop Room Devassy E.T. 6,75,000 6,75,000 Shown in the unaccounted cash flow statement of New Kerala Investments 16.06.2006 2506/06 1 acre 33.407 cents Devassy E.T. (M/s. St. Francis Tile Industries ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... On the various dates in F.Y. 2007-08 Shares of Hotel Lucia Devassy E.T. 8,00,000 8,00,000 Shown in the cash flow statement of E.D. Shaju.. 02.01.2008 36.65 cents 96,75,000 96,75,000 This is not a purchase but sale of property. As per agreement dated 02.01.08, E.T. Devassy agreed to sell 36.65 cents of land to Mr. Antu for ₹ 96,75,000/-. A sum of ₹ 10,00,000/- was received as advance, which is shown in the cash flow statement as inflow. 29.02.2008 Manamadhurai Property Devassy E.T. 4,82,540 4,82,540 Shown in the cash flow statements of E.D. Sabu E.D. Jaison. 1,11,14,790 74.6 The assessee also furnished the evidences in the paper book to substantiate his explanation regarding exclusion of certain investments in immovable properti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ₹ 1,11,14,790/- for the assessment year 2008-09. Against this the Revenue is in appeal before us. 75. We have heard both the parties and perused the record. In these cases also, the assessees have furnished evidence before the CIT(A) and explained the investments in the properties in the cash flow statements. The CIT(A) had also called for remand report. After going through the remand report, the CIT(A) has observed that the unexplained investments in immovable properties were accounted for as fixed assets in the regular books of account of the firm in which the assesses were partners and the same cannot be considered as unexplained investment in immovable properties and it is to be excluded and the properties are owned by the assesses which are duly accounted for in the regular books of accounts. Being so, we have no hesitation in confirming the order of the CIT(A). This ground in all the Revenue appeals is rejected. 76 Since the facts and circumstances in other revenue s appeals in ITA Nos 631-637, 638-644; 566 to 572 and 612 to 618/Coch/2013 are similar; therefore, by applying the above ratio, we are inclined to dismiss the similar ground in these appeals of the rev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... AL 2008-09 96000 69600 37200 37200 240000 2007-08 90000 66000 36000 36000 228000 2006-07 84000 60000 36000 36000 216000 2005-06 78000 54000 36000 36000 204000 2004-05 72000 48000 36000 36000 192000 2003-04 66000 25200 25200 25200 141600 2002-03 60000 24000 24000 24000 132000 81.2 According to the Ld. AR, from the above table, it can be seen that the drawings admitted by the assessee and his family members for the assessment year 2008-09 and the drawings estimated by the Assessing Officer for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rt that in respect of Assessment Years 2005-06 to 2008-09, there is no huge disparity between the figure of drawings as admitted by the assessee and that estimated by the Assessing Officer. In fact, the Assessing Officer has not taken account of the drawings admitted by Shri E.D. Salu, E.D. Sabu and E.D. Benny in their cashflow statement and hence reached the conclusion that the drawings admitted are inadequate. Therefore, the CIT(A) was of the view that the further addition need not be made for the assessment years 2005-06 to 2008-09 towards personal drawings. Therefore, additions of ₹ 1,44,000/- for the assessment year 2005-06, ₹ 1,44,000/- for the assessment year 2006-07 ₹ 1,44,000/- for the assessment year 2007-08and ₹ 1,44,000/- for the assessment year 2008-09 were deleted. In respect of the assessment years 2002-03 to 2004-05, the drawings admitted by the assessee and family members were very low in comparison with drawings estimated by the Assessing Officer. On this issue, the assessee offered an explanation that while estimating drawings for these years the Assessing Officer has not taken into account of the general inflation in the economy year by y ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ishing the residential house. 83.3 In respect of the above, the Ld. AR submitted that Shri E.D. Jaison (who is also an assessee) has admitted the cost of construction of his residential house in his cash flow statement given below: Asst. Year Amount (Rs.) 2003-04 500000 2004-05 500000 2005-06 500000 Total 1500000 83.4 The Ld. AR further submitted that in respect of the valuation made by the Departmental Valuer, certain expenses in connection with residential house which were incurred subsequent to the search were included, the details of which are as under:- Sl. No. Particulars Amount (Rs.) 1. Cement Pavement Tiles 95,394 2. Horticultural Work 38,325 3. Gate 11,825 4. Kennel 15,000 Total 1,60,544 83.5. The Ld. AR also submitted that, in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re in fact incurred subsequent to the search and may be excluded from the valuation. The assessee furnished evidences for the purchase of tiles in the form of bills dated 31-10-2009, 03-11-2009 and 05-11-2009 and for purchase of gate in the form of invoice dated 10-11-2009. The CIT(A) found that no evidences were furnished regarding expenditure towards horticultural work, kennel and well. The CIT(A) found that submissions of the Ld. AR that own timber was used in the construction and the bricks/tiles used in the construction were procured from the business concerns of the assessee group at reduced prices, were not supported by any evidence. According to the CIT(A), the assessee has not offered any explanation regarding the cost of furnishing at ₹ 1,93,410/- estimated by the Assessing Officer. The CIT(A) found that the submission of the assessee regarding pavement work and installation of gate was in order. Therefore, the cost of pavement work at ₹ 95,394/- and cost of gate at ₹ 11,825/- (Total ₹ 1,07,219) included in the valuation report of the Departmental Valuer shall not be treated as unexplained investment for the assessment year 2005-06. The CIT(A) furt ..... X X X X Extracts X X X X X X X X Extracts X X X X
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