TMI Blog2015 (8) TMI 764X X X X Extracts X X X X X X X X Extracts X X X X ..... sed income for the block period. At the best, it may be assessable in the regular assessment provided the time limit is available under the statutory provisions. This Tribunal is of the considered opinion that the total investment made by the assessee and his family members to the extent of ₹ 3,62,14,950/- was not supported by any of the search material, therefore, the same cannot be treated as undisclosed income for the block period. Accordingly, the orders of the lower authorities are set aside and the Assessing Officer is directed to delete the entire addition of ₹ 3,62,14,650/-. - Decided in favour of assessee. unexplained investment/deposit in City Union Bank - CIT(A) deleted part addition - Held that:- When the assessee has received ₹ 13,40,22,400/- from M/s Indian Telephone Industries Ltd. towards the contract awarded for taking photographs for preparing electoral identity cards, this Tribunal is of the considered opinion that the assessee might have deposited the money from the above said amount received from M/s Indian Telephone Industries Ltd. It is pertinent to note that no material was found during the course of search operation and what was availab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee. Unexplained interest payment -CIT(A) deleted addition - Held that:- It is not in dispute that the loan was borrowed through cheque and the payment of interest was also made through cheque. M/s Mansi Mercantile Co. debited the interest in the account of the assessee on 24.2.2001. The transaction was entered in the books of account by way of journal entry. Since the loan was received by way of cheque and the payment of interest to the extent of ₹ 1,08,000/- was also paid by way of cheque, this Tribunal is of the considered opinion that the payment of interest to the extent of ₹ 1,08,000/- cannot be treated as from undisclosed source of the assessee. Therefore, the CIT(A) has rightly deleted the addition.- Decided in favour of assessee. Unexplained investment made in M/s Karishma Investments - Held that:- This Tribunal is of the considered opinion that when admittedly ₹ 5 lakhs was paid from savings bank account of the assessee maintained with Central Bank of India, the CIT(A) ought to have deleted the same. In the absence of any other material to show that the assessee has earned the money from undisclosed source, this Tribunal is of the considered op ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nion that making addition of ₹ 53,17,300/- is not called for. Apart from that, in view of the judgments of the Madras High Court in P. K. Ganeshwar (2008 (11) TMI 70 - MADRAS HIGH COURT ) and G. K. Senniappan (2006 (1) TMI 87 - MADRAS High Court ), in the absence of any material found during search operation, no addition can be made towards undisclosed income for the block period. Accordingly, the orders of the lower authorities are set aside and the Assessing Officer is directed to delete the addition of ₹ 53,17,300/-. Addition towards telecast rights - No doubt the Revenue authorities found payment of ₹ 3 lakhs during the course of search operation for obtaining telecast rights of two feature films ‘Mustafa’ and ‘Dr. Ambedkar’. While considering the investment made by the assessee in production of the feature film, this Tribunal found that the assessee invested the same from the business receipts of ₹ 13,40,22,400/- received from M/s Indian Telephone Industries. The CIT(A) has confirmed the addition only to the extent of ₹ 2,25,000/-. This Tribunal is of the considered opinion that the assessee might have invested out of the business receipts of & ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mpute the undisclosed income on the basis of the material found during the course of search operation and the information which is relatable to the material found during the course of search operation. The Assessing Officer is not referring to any of the search material in the assessment order. It is also not the case of the Revenue that any material was found during the course of search operation. In those circumstances, this Tribunal is of the considered opinion that the same cannot be taken as undisclosed income for the block period. Accordingly, the orders of the lower authorities are set aside and the Assessing Officer is directed to delete the addition - Decided in favour of assessee. Unexplained expenditure - Held that:- Disallowance of 8% is very high, however, disallowance of 2% of the total claim of expenditure would meet the ends of justice. Accordingly, the orders of the lower authorities are modified and the Assessing Officer is directed to estimate the unexplained expenditure at 2% of the total expenditure claimed in M/s Rukmani Industries at ₹ 2,88,25,244/-. In other words, 2% of ₹ 2,88,25,244/- shall be treated as unexplained expenditure for the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... i N. Devanathan, Advocate ORDE PER N.R.S. GANESAN, JUDICIAL MEMBER Both the Revenue and assessee filed appeals for the block period 1.4.1996 to 5.12.2002 and for assessment year 2000-01. The assessee also filed appeal for the assessment year 2003-04. Since common issue arises for consideration in all the appeals, we heard them together and dispose of the same by this common order. 2. Let us first take up Revenue s appeal I. T.(SS)A. No. 18/Mds/2013. 3. Shri N. Rengaraj, ld. Departmental Representative submitted that there was a search in the premises of the assessee on 5.12.2002 and several incriminating documents were found during the course of search operation. According to the ld. DR, the assessee was proprietor in M/s Rukmani Industries and M/s Telesystems International. The assessee was awarded contract by Government of India to take photographs for voters identity card. The Revenue authorities also found investment to the extent of ₹ 1,99,64,950/- in M/s Diksaat Transworld Ltd. The assessee, by letter dated 10.12.2004 gave the details of equity shares held by him and his family members in M/s Diksaat Transworld Ltd. as on 5.12.2002. The share appli ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r brother of the assessee , Shri T. Thiagarajan is said to be looking after Win TV. Shri T. K. Thiruvengadan, father of the assessee, does not have any independent source of income of his own. According to the ld. DR, the assessee claimed before the lower authorities that the investment was made from the jewellery declared by the respective family members under VDIS. However, no vouchers or documentary evidence for sale of jewellery was produced before the lower authorities. Referring to the judgment of the Apex Court in Sumathi Dayal vs CIT, 214 ITR 801, the ld. DR submitted that the burden lies on the assessee to prove that what is apparent is not the real one. In the absence of any material to indicate that the family members have substantial income for making investment in M/s Diksaat Transworld Ltd., according to the ld. DR, the Assessing Officer has rightly made the addition to the extent of ₹ 3,62,14,950/-. However, the CIT(A) found that if the investment by family members in the share of the company was bogus then it was free to proceed with the family members in respect of the income. The CIT(A) further found that the family members are assessed separately, therefore ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld. Counsel submitted that no material was found to establish that the assessee has invested any funds in the share application of the company. Referring to the assessment order, the ld. Counsel submitted that the Assessing Officer asked the assessee to furnish the details with regard to the investment in M/s Diksaat Transworld Ltd. on the date of search. The assessee filed all the details as called for by the Assessing Officer. The Assessing Officer came to the conclusion that the family members of the assessee do not have any independent source of income even though all the family members of the assessee are independently assessed. Referring to the disclosure made by the family members under VDIS, the ld. Counsel submitted that the Assessing Officer ignored the entire asset and investment which was declared to the Department under the VDIS. According to the ld. Counsel, the disclosure made by the assessee and his family members to the Department in respect of the investment, assets and jewellery under the VDIS cannot be ignored while computing the undisclosed income. Referring to the judgment of the Apex Court in Sumathi Dayal(supra), the ld. Counsel submitted that the entire in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... izure of relevant material. The fact remains that during the course of search operation u/s 132A of the Act, no material was found with regard to investment made either by the assessee or by his family members in M/s Diksaat Transworld Ltd. The entire information was furnished by the assessee much after the search by letter dated 10.12.2004 and 22.12.2004. The information furnished by the assessee may be relevant for the purpose of computing the income in the regular assessment. The legislature has prescribed a specific method for computing the undisclosed income for the block period. Therefore, the Assessing Officer is bound to follow the procedure prescribed for computing the undisclosed income for the block period. The CIT(A) found that the Assessing Officer has fully ignored the disclosure made by the respective family members under VDIS. He further found that the addition towards equity shares and share application money in the name of family members cannot be sustained. Accordingly, he deleted the addition to the extent of ₹ 1,99,64,950/-. The CIT(A) also failed to consider the provisions of section 158BB of the Act. The CIT(A) further found that the assessee could not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat no material was found during the course of search operation with regard to deposits in City Union Bank. The assessee has withdrawn a sum of ₹ 3,05,00,000/- during the financial year 1997-98 and another sum of ₹ 10,00,000/- on 7.10.1998. According to the ld. Counsel, the assessee has received ₹ 13,40,22,400/- from M/s Indian Telephone Industries Ltd. The above payment was received during the financial years from 1996-97 to 1998-99. This is apparent from the assessment order at para 2.4 (page 3). The assessee explained before the Assessing Officer that the money received from M/s Indian Telephone Industries Ltd was deposited in the bank account and the same was withdrawn. The staff of the assessee has taken the money to various other places to fix the video cameras to carry out the work of taking photographs. Out of this money, a sum of ₹ 2.82 crores was deposited by the assessee personally. When the assessee admitted receipt of ₹ 13,40,22,400/- from M/s Indian Telephone Industries Ltd. for taking photographs of the voters to prepare identity card, the ld. Counsel submitted that deposit of such money in the bank account cannot be treated as undisclos ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . The fact remains that the assessee was engaged by M/s Indian Telephone Industries Ltd. for taking photographs to prepare electoral identity card of the citizens. The assessee has received ₹ 13,40,22,400/- from M/s Indian Telephone Industries Ltd. during the financial years 1996-97 to 1998-99. This fact was brought to the notice of the Assessing Officer by way of letter dated 17.11.2004. The Assessing Officer, in fact, referred this letter at page 2, para 2.4 of his order. When the assessee has received ₹ 13,40,22,400/- from M/s Indian Telephone Industries Ltd. towards the contract awarded for taking photographs for preparing electoral identity cards, this Tribunal is of the considered opinion that the assessee might have deposited the money from the above said amount received from M/s Indian Telephone Industries Ltd. It is pertinent to note that no material was found during the course of search operation and what was available with the Assessing Officer is only the bank statement. The assessee has explained the receipt of ₹ 13,40,22,400/- from M/s Indian Telephone Industries Ltd. which was not disputed by the Assessing Officer. In the absence of any other materi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... source of making investment and the payments were made by demand draft, there is no question of any addition as undisclosed income. The ld. Counsel further submitted that no material was found during the course of search operation. In the absence of any material found during the course of search operation, according to the ld. Counsel, the Assessing Officer cannot treat the investment as undisclosed income of the assessee. 16. We have considered the rival submissions on either side and also perused the material available on record. From the order of the CIT(A) it appears that the dispute is with regard to land purchased by M/s Dimka Petro Products Ltd from M/s IDL Industries Ltd., Hyderabad. The assessee has not purchased any land. The payments were made by account payee cheques and demand draft. In fact, the payments were made from the accounts of the maintained at City Union Bank and Lakshmi Vilas Bank. The deposit made in the account was already considered and it was found that the same was made from the business receipt of the assessee. Therefore, the CIT(A) found that making a further addition with regard to payment made by the assessee to M/s IDL Industries Ltd would amoun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... transaction was entered in the books of account by way of journal entry. Since the loan was received by way of cheque and the payment of interest to the extent of ₹ 1,08,000/- was also paid by way of cheque, this Tribunal is of the considered opinion that the payment of interest to the extent of ₹ 1,08,000/- cannot be treated as from undisclosed source of the assessee. Therefore, the CIT(A) has rightly deleted the addition. 21. In assessee s appeal, the assessee has raised a ground with regard to addition of ₹ 5 lakhs towards investment made in M/s Karishma Investments. 22. Shri N. Rengaraj, ld. Departmental Representative submitted that the assessee is a partner in M/s Karishma Investments alongwith his wife Smt. D. Meenakshi. For the purpose of participating in the auction for allotment of parking slot, the assessee paid a sum of ₹ 15 lakhs being the deposit with Chennai Metropolitan Development Authority(CMDA). The assessee has paid a sum of ₹ 5 lakhs on 8.3.2000 from savings bank account with Central Bank of India. In fact, the Assessing Officer found that it was not possible to verify the entries in the individual books of account in the ab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al Bank of India, the CIT(A) ought to have deleted the same. In the absence of any other material to show that the assessee has earned the money from undisclosed source, this Tribunal is of the considered opinion that the CIT(A) ought to have deleted the entire addition of ₹ 15 lakhs. Accordingly, the order of the CIT(A) is set aside and the Assessing Officer is directed to delete the addition of ₹ 5 lakhs towards investment made by the assessee in M/s Karishma Investment. 25. The next issue in assessee s appeal is with regard to cash payment to Shri Rakesh Sarin and transactions with S/Shri Thirunavukarasu and Karthikeyan and Jayaprakash. 26. Shri N. Devanathan, ld. Counsel submitted that during the course of search operation at the office of M/s Diksaat Transworld Ltd., the Revenue authorities found a diary. The assessee s transaction with Shri Rakesh Sarin between 24.4.1996 to 30.4.1996 was found in the diary. The Assessing Officer also found that the assessee has paid a sum of ₹ 10 lakhs in cash on 27.4.1996. The assessee explained before the Assessing Officer that transaction with Shri Rakesh Sarin was in respect of temporary financing activities. The a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ] 308 ITR 124. Therefore, this Tribunal is of the considered opinion that the CIT(A) is not justified in confirming the addition. Accordingly, the orders of the lower authorities are set aside and the Assessing Officer is directed to delete the addition of ₹ 10 lakhs. 29. Now, coming to the transaction with Shri Thirunavukarasu and Shri Karthikeyan, the ld. Counsel submitted that the Assessing Officer found that the assessee entered into a transaction with Shri Thirunavukarasu and Shri Karthikeyan to the extent of ₹ 23,50,000/-. According to the ld. Counsel, this transaction was found during the course of survey operation at the office of M/s Diksaat Transworld Ltd. The assessee explained before the Assessing Officer that the transaction period relates to July and August 1996. During that period the assessee was State President of Bahujan Samaj Party and Shri Thirunavukarasu was one of the State Secretaries. The assessee further explained before the Assessing Officer that they use to collect money from the public for party activities. Out of this, payments were made to Shri Thirunavukarasu and Shri Karthikeyan during the above said period. The Assessing Officer wante ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er is directed to delete the addition of ₹ 28,36,000/- for the block period. 32. Now coming to the transaction with Shri Jayaprakash, the ld. Counsel submitted that on the basis of the material found during the course of survey operation at the office of M/s Diksaat Transworld Ltd. the Assessing Officer made addition of ₹ 5,10,000/-. According to the ld. Counsel, the payment was made towards reimbursement of expenditure incurred by the said Shri Jayaprakash on behalf of the assessee. In the absence of any material found during the course of search operation, according to the ld. Counsel, there cannot be any addition. 33. On the contrary, Shri N. Rengaraj, ld. DR submitted that during the course of survey operation at the office of M/s Diksaat Transworld Ltd. the Revenue authorities found payment of ₹ 5,10,000/- by the assessee to one Shri Jayaprakash. Though the assessee explained before the Assessing Officer that it was a reimbursement of expenses incurred by Shri Jayaprakash, the copies of the accounts were not filed before the Assessing Officer. In the absence of any copy of accounts indicating the source and details of payment, the CIT(A) confirmed the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 22.1.1001. In the absence of any material, the CIT(A) came to the conclusion that the assessee was the de facto proprietor of M/s Dimka Productions. This being the block assessment, according to the ld. Counsel, there is no question of any de facto ownership in the absence of any material. According to the ld. Counsel, the proprietorship concern of the assessee M/s Telesystems International contributed a sum of ₹ 9,91,000/-. Apart from that the assessee has nothing to do with M/s Dimka Productions. Therefore, the addition of ₹ 53,17,300/- is not called for. 37. On the contrary, Shri N. Rengaraj, Ld. Departmental Representative submitted that the assessee claimed that his brother Shri T. Thiagarajan was proprietor of M/s Dimka Productions. However, on the statement recorded by the Revenue authorities on 7.10.2003, the assessee categorically stated that he was the proprietor of M/s Dimka Productions. Therefore, it was clear that the assessee is the de facto owner. The ld. DR further submitted that the assessee contributed ₹ 36,91,600/- during the period 4.9.1998 to 25.3.1999. M/s Telesystems International has contributed ₹ 6,76,900/-. Another sum of ₹ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee has earned any other income from any other sources, this Tribunal is of the considered opinion that making addition of ₹ 53,17,300/- is not called for. Apart from that, in view of the judgments of the Madras High Court in P. K. Ganeshwar (supra) and G. K. Senniappan (supra), in the absence of any material found during search operation, no addition can be made towards undisclosed income for the block period. Accordingly, the orders of the lower authorities are set aside and the Assessing Officer is directed to delete the addition of ₹ 53,17,300/-. 39. Now coming to the addition of ₹ 2,25,000/- towards telecast rights, the ld. Counsel submitted that the assessee has received ₹ 2 lakhs from Shri P. G. Srikanth for telecast rights. However, the Assessing Officer found that the purchase of telecast rights was not explained properly. The Assessing Officer has also made addition of ₹ 25,000/- towards payment for the film Dr. Ambedkar . Totally, the Assessing Officer made an addition of ₹ 2,25,000/- out of ₹ 3 lakhs. According to the ld. Counsel, no material was found during the course of search operation. In fact, the assessee pai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the contrary, Shri N. Rengaraj, Ld. Departmental Representative submitted that the Revenue authorities found two bills dated 31.1.1999 for purchase of jewellery during search operation. On examination, the assessee admitted that he purchased jewellery by paying cash and source was not known. The assessee has also clarified that he purchased lot of jewellery during that period. Therefore, the CIT(A) has rightly confirmed the addition. 45. We have considered the rival submissions on either side and also perused the material available on record. Admittedly, the Revenue authorities found two bills for purchase of jewellery to the extent of ₹ 1,35,000/-. The assessee claims that lot of jewellery was purchased during that period and he could not explain the source for purchasing jewellery to the extent of ₹ 1,35,000/-. Since the assessee himself admitted that he could not explain the source for purchase of jewellery to the extent of ₹ 1,35,000/-, for which receipt was found during search operation, this Tribunal do not find any infirmity in the orders of the lower authorities. Accordingly, the addition of ₹ 1,35,000/- towards purchase of jewellery is confirmed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f search operation. In view of the above, the orders of the lower authorities are asset aside and the Assessing Officer is directed to delete the addition of ₹ 10,57,000/-. 50. The next ground of appeal is with regard to investment of ₹ 2,08,133/- in Kottivakkan property. 51. Shri N. Devanathan, ld. Counsel for the assessee submitted that assessee s wife, Smt. D. Meenakshi purchased 13.5 centrs of land for ₹ 4,50,000/- on 11.2.1197. Out of this, she sold 5.5 cents of land for ₹ 1,50,000/- on 29.1.2001. Similarly, the assessee s sister Smt. Kamala purchased 13.5 cents of land for ₹ 4,50,000/- and sold 11 cents of land for ₹ 4 lakhs on 23.9.2000. The Assessing Officer made addition of ₹ 10,16,307/- as undisclosed income for the block period. On appeal by the assessee, the CIT(A) found that Smt. D. Meenakshi, wife of the assessee has taken loan of ₹ 3 lakhs from Lakshmi Vilas Bank. Rest of the amount was paid out of her earnings. The CIT(A) also found that assessee s wife declared her income under VDIS. The CIT(A) found that balance of ₹ 2,08,153/- was not satisfactorily explained. In respect of investment made by Smt. Kamala ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 00/- on the ground that the same was not disclosed in the regular assessment. According the ld. Counsel, no material was found during the course of search operation. In the absence of any search material, according to the ld. Counsel, there cannot be any addition for the block period. 56. On the contrary, Shri N. Rengaraj, ld. Departmental Representative submitted that the Assessing Officer made addition of ₹ 1,54,500/- towards fixed deposit and investment in shares of City Union Bank, Vijaya Bank etc. Since the investment in the fixed deposit and shares were not disclosed in the regular course, the Assessing Officer has taken the same as undisclosed income of the assessee for the block period. The assessee made an attempt to explain before the CIT(A) that the children received gifts. However, in the absence of any material to support the claim of receipt of gifts, the CIT(A) confirmed the addition. 57. We have considered the rival submissions on either side and also perused the material available on record. The Assessing Officer has to compute the undisclosed income for the block period u/s 158BB(1) of the Act. In other words, the Assessing Officer has to compute the u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed by the CBDT. According to the ld. Counsel, as per the guidelines issued by the CBDT, the Assessing Officer cannot take up the case for scrutiny. The entire disallowance of ₹ 1.25 crores was made by the Assessing Officer on the basis of suspicion, surmises and presumption. The ld. Counsel further submitted that unless and until the assessee incurred an expenditure of ₹ 2,88,25,244/- he could not have completed the project at all. According to the ld. Counsel, the CIT(A) ought to have allowed the entire claim of the assessee without restricting the same to 8%. 62. We have considered the rival submissions on either side and also perused the material available on record. Admittedly, the assessee was awarded a contract from Indian Telephone Industries Ltd. From the order of the Assessing Officer it appears that the assessee claimed that it was an on-going project, therefore, income has to be taxed on the basis of project completion method. For the year under consideration, the assessee has declared ₹ 11,04,120/- as income from M/s Rukmani Industries and another sum of ₹ 13,31,686/- as income from M/s Telesystems International. Another sum of ₹ 23,43,2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was taken up for scrutiny as per the guidelines issued by the CDBT. No instruction issued by the CBDT was violated, therefore, the Assessing Officer has rightly taken the return for scrutiny assessment u/s 143(3) of the Act. 64. In the result, the appeal of the Revenue I. T. A. No. 1187/Mds/2013 is dismissed and the appeal of the assessee I. T. A. No.1022/Mds/2013 is partly allowed. 65. Now, coming to the appeal of the assessee for assessment year 2003-04, Shri N. Devanathan, ld. Counsel for the assessee submitted that the Assessing Officer made addition of ₹ 13,08,000/- towards unexplained cash credit u/s 69A of the Act. According to the ld. Counsel, the entire deposits in the bank were made out of the collections of sundry debtors, refund of deposit and sale of property at Puzhal. The explanation of the assessee, according to the ld. Counsel, was not even considered by the lower authorities. Since the assessee has sufficient resources for making the deposits, according to the ld. Counsel, the addition made by the Assessing Officer is not sustainable. 66. On the contrary, Shri A. V. Sreekanth, Ld. Departmental Representative submitted that the Assessing Officer fou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessee deposited ₹ 99,500/- from sundry debtors collection of ₹ 46,100/-, out of realization of loans and advances and another sum of ₹ 3000/- from refund of deposits. The balance of ₹ 3,08,000/- was confirmed by the CIT(A). The assessee could not substantiate the deposit of ₹ 3,08,000/- in Canara Bank on 21.9.2002. Therefore, this Tribunal is of the considered opinion that the CIT(A) has rightly confirmed the addition of ₹ 3,08,000/-. 68. Now, coming to ₹ 10 lakhs, the CIT(A) found that the assessee has received a sum of ₹ 6,49,820/- in cash on sale of property on 11.12.2002. The CIT(A) found that the remaining balance or ₹ 3,50,180/- was not substantiated. The fact remains that the assessee s wife Smt. D. Meenakshi also received a sum of ₹ 3,61,011/- on sale of the very same property on 11.12.2002 and Shri N. Pradeep Kumar has also received a sum of ₹ 9,89,169/-. The fact remains that the assessee, his wife Smt. D. Meenakshi and Shri N. Pradeep Kumar are joint holders of the property and they have totally received ₹ 20 lakhs on sale of the property. Even though the assessee appears to have received ..... X X X X Extracts X X X X X X X X Extracts X X X X
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