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THE COMMISSIONER OF INCOME TAX, TRICHUR Versus DR. P. SASIKUMAR

2016 (7) TMI 1227 - KERALA HIGH COURT

Suppression of consultation fee - Held that:- The findings of the Tribunal with respect to the addition towards suppression of consultation fee for the assessment years 2002-03 to 2005-06 and 2008-09 cannot be sustained and the order of the assessing officer has to be restored and we do so. - suppression of income from surgeries and sale of lenses - Held that:- In respect of the assessment years other than 2007-08 and 2008-09, we find that absence of any incriminating material unearthed on s .....

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the inaccuracy of which was evident from the statement of the employees of the assessee recorded by the assessing officer himself. The Tribunal has, therefore, found that the facts contained in the statement ought to have been corroborated and that the assessing officer did not cross verify the statement with other employees. It was also found that the assessing officer has factually ignored the salary payments made to two cousin brothers of the assessee, whose services were availed of by him. O .....

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- Disallowance of a part of the expenditure claimed under the head 'consumables and medicines' - Held that:- We find that the assessing officer disallowed 80% of the amount claimed by the assessee which was confirmed by the CIT (Appeals). The Tribunal, however, modified the same and directed the assessing officer to restrict disallowance to 30% of the expenditure claimed. This again is a factual finding and there is no reason to upset the same. - Addition on unexplained gifts under sectio .....

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de the order of the CIT (Appeals) and directed the assessing officer to delete the addition relating to the gifts - I.T.A.Nos.34, 47, 48, 49, 50, 55, 56, 75, 76, 97, 98, 128, 131 and 132 of 2013 - Dated:- 12-7-2016 - ANTONY DOMINIC AND DAMA SESHADRI NAIDU, JJ. FOR THE APPELLANT : ADVS.SRI.P.K.R.MENON,SR.COUNSEL, GOI(TAXES) SRI.JOSE JOSEPH, SC, FOR INCOME TAX FOR THE RESPONDENT : ADV. SRI.T.M.SREEDHARAN (SR.), ADV. SRI.V.P.NARAYANAN, ADV. SMT.BOBY M.SEKHAR, ADV. SMT.DIVYA RAVINDRAN JUDGMENT Anton .....

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isposed of by this common judgment. 2.The assessee is an Ophthalmic Surgeon working in Palakkad. He has a clinic called Vijayam Eye Clinic for treating outpatients, and he also performs surgeries in a hospital by name M/s.Sai Nursing Home, Olavakkode. The department conducted search and seizure operation on 5.12.2007. Consequent to that, assessments for the assessment years 2002-03 to 2008- 09 were reopened and completed under section 153A of the Income Tax Act, 1961, whereby, the assessing offi .....

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of assessment under section 153A of the Act and the correctness of the deletion ordered. 3.We heard the learned senior standing counsel for the Revenue and the learned senior counsel who appeared for the assessee. 4.From the order of the Tribunal, we find that, at the outset, the Tribunal has answered the contention of the assessee with respect to the scope of assessments made under section 153A of the Act. Thereafter, the Tribunal has dealt with each of the issues raised before it. For conveni .....

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leted assessments shall not abate and only the assessments or reassessments relating to any of the six assessment years, which are pending on the date of initiation of search, shall abate. Further it has been held that the completed assessments, through automatically reopened as per the provisions of sec.153A, yet they can be disturbed only in respect of those issues for which some incriminating materials requiring such disturbance is unearthed during the course of search proceeding. Since major .....

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whether similar defects exist in those years or not. In such a situation, in our view, it is not necessary to satisfy the condition that some incriminating materials concerning to those issues should have necessarily been found out in respect of those assessment years. In so far as the above conclusion of the Tribunal is concerned, we find that this very question has been considered by this Court in the judgment in ITA.169/15 and connected cases, where this Court has answered the question thus: .....

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ellate Tribunal. In order to consider the issue, we think it is profitable to extract Section 132 (1) and clause (a) and subsection (4). "132. Search and seizure (1) Where the Director General or Director or the Chief Commissioner or Commissioner or Additional Director or Additional Commissioner or Joint Director or Joint Commissioner in consequence of information in his possession, has reason to believe that - (a) any person to whom a summons under subsection (1) of section 37 of the India .....

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uthorised officer may, during the course of the search or seizure examine on oath any person who is found to be in possession or control of any books of account, documents, money, bullion, jewellery or other valuable article or thing and any statement made by such person during such examination may thereafter be used in evidence in any proceeding under the Indian Income-tax Act, 1922 (11 of 1922), or under this Act." 18. On going through Section 132 of the Income Tax Act, what we find is th .....

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oduce, or cause to be produced, such books of account or other documents as required by such summons or notice etc. etc., can authorise the officers referred therein to enter and search any building etc. etc. Such authorised officer under sub-section (4) of Section 132 may during the course of search or seizure examine on oath any person who is found to be in possession or control of any books of account, document, money, bullion, jewellery or other valuable article or thing and any statement ma .....

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ging Partner of the firms in question has given a voluntary statement to the Assessing Officer that there is a undisclosed income of ₹ 2.75 Crores, which according to the learned counsel, was retracted by the Managing Partner subsequently. Thus it can be seen that even according to the assessee, there was a disclosure made by giving a statement during the course of search and therefore, the Assessing Officer, by virtue of the power conferred on him under section 153A was competent to issue .....

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3A in a proper manner, it is appropriate to extract the said provision, which reads thus: 153A. [(1)] Notwithstanding anything contained in section 139, section 147, section 149, section 151 and section 153, in the case of the person where a search is initiated under section 132 or books of account, other documents or any assets are requisitioned under section 132A after the 31st day of May, 2003, the Assessing Officer shall- (a) issue notice to such person requiring him to furnish within such p .....

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ediately preceding the assessment year relevant to the previous year in which such search is conducted or requisition is made. Provided that the Assessing Officer shall assess or reassess the total income in respect of each assessment year falling within such six assessment years: Provided further that assessment or reassessment, if any, relating to any assessment year falling within the period of six assessment years referred to in this sub-section pending on the date of initiation of the searc .....

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sessment year relevant to the previous year in which search is conducted or requisition is made. [(2)] If any proceeding initiated or any order of assessment or reassessment made under subsection (1) has been annulled in appeal or any other legal proceeding, then, notwithstanding anything contained in sub-section (1) or section 153, the assessment or reassessment relating to any assessment year which has abated under the second proviso to sub-section (1), shall stand revived with effect from the .....

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e tax shall be chargeable at the rate or rates as applicable to such assessment year." 20. On a plain reading of Section 153A, it is clear that once search is initiated under Section 132 or a requisition is made under Section 132A after the 31st day of May 2003, the Assessing Officer is empowered to issue notice to such person requiring him to furnish return of income in respect of each assessment year following within six assessment years referred to in clause (b). It further treats the re .....

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rst proviso, the Assessing Officer is bound to assess or reassess the total income with respect to each assessment year following the six assessment years specified in sub-clauses (a) and (b) of Section 153A. However, even if no documents are unearthed or any statement made by the assessee during the course of search under section 132 and no materials are received for the aforespecified period of six years, the assessee is bound to file a return, is the scheme of the provision. Even though the s .....

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nder Section 153A. In the light of the judgment of this Court, the aforesaid conclusion of the Tribunal cannot be sustained. 6. Having answered the first question in favour of the Revenue and against the assessee, we shall now proceed to examine the other findings of the Tribunal. 7. In paragraph 7 of its order, on the basis of its conclusion with respect to the scope of assessment under section 153A, the Tribunal has held that the assessments relating to the assessment years 2002-03 to 2006-07 .....

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ssue considered by the Tribunal is in relation to the estimation of suppressed consultation fee. The assessing officer had estimated the suppressed consultation fee for the assessment years 2002-03 to 2008-09. This has been set aside by the Tribunal relying on its conclusion on the scope of the assessment under section 153A and by stating in paragraph 10 of its order thus: in view of the legal position discussed in the preceding paragraphs, the assessing officer could not make any addition for a .....

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ized record was applicable for the first 9 months of the financial year and, therefore, set aside the order of the CIT (Appeals) in this regard on the reasoning that: Accordingly, we are of the view that no addition could be made for the assessment year 2008-09 also, as the department has failed to bring on record any actual suppression of consultation fee on the basis of seized record . According to us, the findings of the Tribunal with respect to the addition towards suppression of consultatio .....

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rmed by the assessee was found to be only ₹ 600/- whereas the assessee was found to be charging ₹ 8400/- from the patients. In the other package of surgery where PMMA lenses are used, it was found that the assessee was charging ₹ 2000/- from patients, while the bill seized from the assessee showed that the price was only ₹ 208/-. When the assessee was questioned on the price difference, he maintained that the PMMA lens were being supplied by M/s.J.N.surgicure directly to .....

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out ₹ 1800/- per lens. Though it was the case of the assessee that the concern started its business only in the year relevant to the assessment year 2007-08, yet the suppressed income for all the years under consideration was computed by the assessing officer on the presumption that the assessee could have adopted the same methodology in those years also. On that basis, the assessing officer computed the gross collections for the relevant assessment year 2008-09 and treating that as the ba .....

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with the estimation made by the assessing officer. In so far as the sale of lens is concerned, it was concluded by the CIT (Appeals) that the profit of sale of PMMA lenses was ₹ 1800/- per lens in the year relevant to the assessment year 2008-09 and for other years, the profit was reduced by ₹ 50/- per year. He rejected the plea of the assessee that M/s.J.N.Surgicure had started business only in the assessment year 2008-09. Accordingly, the undisclosed income towards surgery also wa .....

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reported the number of surgeries performed by him and it is also an undisputed fact that there was no difference in the surgery fees charged by the assessee. Both the AO as well as Ld CIT(A) has proceeded to compute the profit on sale of PMMA lens by following their own methods. From the observations of Ld CIT(A), which were extracted in the preceding paragraphs, we notice that the methodology adopted by the AO was suffering from many defects and consequently it has given illogical results. Besi .....

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lens only in respect of the lens supplied by M/s.J.N Surgicure. The Ld CIT(A) also accepts the fact that the said concern came into existence only in the financial year relevant to the assessment year 2007-08. Having observed so, the Ld CIT(A) went on further to observe that the pattern of earning profit margin on supply of lens to the patient did exist even in earlier years . This observation of Ld CIT(A) did not have support of any material. Thus we find that the first appellate authority has .....

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lue of PMMA lens supplied to them was in the range of ₹ 100/- to ₹ 300/- per lens. In page 17 of MMA-24, the sale price of PMMA lens was shown at ₹ 600/- per lens. Thus the sale price of PMMA lens was in the range of ₹ 100/- to ₹ 600/- as per the evidence gathered by the AO. 22. The AO has also conducted enquiries with Shri S.M.Ouseph, the proprietor of M/s.J.N. Surgi cure and also examined the books of accounts of the said concern. It was noticed that the said conc .....

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by M/s.J.N. Surgi cure also tallied with the amount collected from the patients, in our view, effectively, the AO could not establish that the assessee has actually made any profit on the sale of lenses. The conclusion reached by the AO that the assessee has made profit of ₹ 1800/- per lens is also, in our view, on the basis of surmises and conjectures, as the evidences found during the course of search itself showed that the cost of lens ranges from ₹ 100/- to ₹ 600/-. Hence, .....

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ingly, since the department has found some evidence concerning M/s.J.N. Surgi cure and since the assessee has also accepted the existence of some profit element in respect of supplies made by that concern, we are of the view that the estimate, if any, in respect of suppressed surgical fee receipts could be made only in respect of PMMA lens supplied by M/s.J.N. Surgi cure and not by any other concern. Since the said concern has started business only in the year relevant to the assessment year 200 .....

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bsence of any material or any information suggesting any suppressed profit element in respect of purchases made in other years, in our view, it would not be correct on the part of the tax authorities to estimate the profit from the purchase of PMMA lens/ suppression of surgery receipts for assessment years 2002-03 to 2006-07. Accordingly, we set aside the orders of Ld CIT(A) in respect of suppressed surgery receipts for assessment years 2002-03 to 2006- 07 and direct the AO to delete the additio .....

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377; 600/- per lens. Hence the presumption of the tax authorities that the profit was ₹ 1800/- per lens, is also in our view, not correct. It is also not established that M/s.J.N. Surgi cure has parted the entire profit with the assessee. The business deal is normally finalized according to the understanding reached between the seller and buyer. It is also quiet common that the businessmen fixes different selling price to different customers. Hence the selling price charged to one customer .....

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ively. Accordingly, the AO is directed to calculate the profit on the above quantities by applying a rate of ₹ 600/- per lens. The order of Ld CIT(A) stands modified accordingly. 13. A reading of the above findings of the Tribunal would show that the findings are completely factual and these findings do not give rise to any question of law for the consideration of this Court in an appeal filed under section 260A of the IT Act. That apart, in respect of the assessment years other than 2007- .....

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of salary and expenses claimed by the assessee. Here again, on the basis of the sworn statement of the assessee, the assessing officer has come to the conclusion that the assessee was incurring ₹ 10,000/- per month as salary and, accordingly, restricted the salary to ₹ 1,20,000/- for the year relevant for the assessment years 2007-08 and 2008-09. For other years, proportionate reduction was allowed in salary. These additions were confirmed by the CIT (Appeals). Reading of paragraph 2 .....

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er employees. It was also found that the assessing officer has factually ignored the salary payments made to two cousin brothers of the assessee, whose services were availed of by him. On this basis, the Tribunal, after recognizing that the only option was to estimate a reasonable amount towards salary expenses, estimated ₹ 21,500/- as the monthly salary payment for the assessment year 2008- 09. On that basis, the Tribunal has estimated the salary payments for the years 2002-03 to 2008-09 .....

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directed the assessing officer to restrict disallowance to 30% of the expenditure claimed. This again is a factual finding and there is no reason to upset the same. 16. The issue that was thereafter considered by the Tribunal is with respect to the assessments of gifts under section 68 of the Act. Admittedly, the assessee had received gifts from his father-in-law, brother-in-law and brother during the years relevant to the assessment years 2002-03 to 2007-08. The assessing officer has disallowed .....

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he donors and all the donors are close relatives of the assessee herein. In the instant cases, the gifts have not been received in instruments issued by the foreign banks. Instead, all the donors have issued cheques from their respective Non Resident External bank accounts maintained in the Indian banks. The peculiar feature of these bank accounts are that the deposits into these bank accounts could be made only in foreign currencies, i.e., the account holders cannot deposit Indian currencies in .....

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zed book with the bank accounts of the donors. On a perusal of the said noting, in our view, it is possible to interpret that they were pertaining to some other transactions, altogether not connected with the gifts. The AO has also failed to understand that the Indian cheques or Indian currencies cannot be deposited into NRE bank accounts. Hence, it cannot normally be presumed that the assessee has funded the money required for issuing the gift cheques. Thus, in our view, the AO has reached such .....

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te with regard to the fact that the donors have made deposits into these NRE accounts by bringing foreign currencies from abroad. The assessee herein, being resident Indian, could not have foreign currencies with him. The AO has taken adverse view on the ground that the donors have failed to produce copies of certain forms required to be filed under the Foreign Exchange Management Act. In our view, the failure on the part of the donors to comply with the procedural formalities, if any, under any .....

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essee. There is no dispute that all the donors are close relatives of the assessee. There is no material on record to suggest that the assessee has compensated these donors in lieu of receipt of gifts. All these facts go to establish the genuineness of gift. Though the tax authorities have relied upon host of decisions, all those decisions lay down various principles for accepting the cash credits. In our view, the assessee has discharged the primary burden of proof placed upon him u/s 68 of the .....

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x Court in the above cited case:- The authorities upheld the opinion formed by the AO that the explanation offered was not satisfactory. The assessees did not take the plea that even if the explanation is not acceptable the material and attending circumstances available on record do not justify the sum found credited in the books to be treated as a receipt of an income nature. The burden in this regard was on the assessees. We have already explained the peculiar characteristics of the NRE bank a .....

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to the gifts. Accordingly, we set aside the order of Ld CIT(A) on this issue and direct the AO to delete the additions relating to the gifts. 17.The above reasoning of the Tribunal would show that in so far as this case is concerned, on facts, there was sufficient materials before the Tribunal to prove the identity of the donors who are close relatives of the assessee, the source and the creditworthiness of the donors. As far as the genuineness of the transactions is concerned, there was nothing .....

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ow statement submitted by the assessee under the head 'Deficiency in Cash flow'. The additions made under this head were confirmed by the first appellate authority. The Tribunal has set aside the additions and remitted the matter to the assessing authority for the reason that it was satisfied that the additions on account of cash deficiencies require re-examination. In so far as this order is concerned, we see no reason to interfere with that finding either. 19. The Tribunal has gone int .....

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2 ad 43 of the order of the Tribunal would show that the case of the assessee itself was a contradictory one. Initially the assessee had claimed that he had received a gift from his father-in-law, though his father-in-law had not declared the cost of the item in his cash flow statement. Subsequently, the assessee himself represented that he had included ₹ 10 lakhs in his cash flow statement filed before the assessing officer and pleaded that credit should be given to him. After taking note .....

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ar as it has interfered with the order of the first appellate authority upholding addition of ₹ 15,59,880/- and restore the order of the assessing officer. 20. In so far as the Bangalore property is concerned, there also, the case has been dealt with by the Tribunal in paragraphs 44 and 45 which read thus: 44. The next specific issue in the appeal of the assessee relates to the addition of ₹ 16.75 lakhs made towards the difference in the purchase cost of Bangalore property. The said .....

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45.00 lakhs. However, it was noticed that the assessee has actually accounted only ₹ 28.25 lakhs in his books. The AO also noticed that he had withdrawn a sum of ₹ 14.50 lakhs on the same day through two cheques. When questioned about the contradictions between his reply given in the sworn statement and the books of account, the assessee submitted that he originally contemplated to purchase a property jointly with another person named Shri.Michael of Ernakulam for a sum of ₹ 5 .....

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ce in consideration. The Ld CIT(A) also confirmed the said addition. The case of the assessee is that the AO did not find any material to show that the assessee has actually paid ₹ 45.00 lakhs for purchase of Bangalore property. 21. A reading of the findings of the Tribunal shows that the assessee did not have a consistent case that the Tribunal has set aside the order of the fist appellate authority by putting the entire burden of proof on the assessing officer. Secondly, if the case of t .....

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eals filed by the Revenue. The first issue considered by the Tribunal was regarding the correctness of the first appellate authority s order in telescoping the benefit. Having considered the issue in the light of the reasons given by the Tribunal in paragraph 47 of its order, we are inclined to think that the Tribunal was justified in its conclusion. Proceeding to the correctness of the findings of the Tribunal with respect to the addition of difference in cost of construction of residential bui .....

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; 1,10,05,000/-. During the course of search, the department seized a report given by a registered architect for the purpose of bank, in which the cost of construction was shown at ₹ 1,70,00,000/-. The AO treated the difference of ₹ 59,95,000/- between the two figures cited above as the income of the assessee and assessed the same in three years as detailed below:- Assessment year 2004-05 - 10,79,000 Assessment year 2005-06 - 23,98,000 Assessment year 2006-07 - 25,18,000 It is pertin .....

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tten submission before the Ld CIT(A), wherein he requested the Ld CIT(A) to consider only the Registered Architect's report and not the DVO's report. The AO contended so on the ground that the report of the Architect was submitted to the bank and it was also counter signed by the assessee. The AO further submitted that the report of the DVO could be rejected in favour of more reliable evidence, i.e., architect's report seized by the department. 50. However, the assessee brought to th .....

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also consider the issues not specifically raised before the Ld CIT(A). a) CIT vs. Kashi Nath Chandiwala (2006) (228 ITR 318) (All) b) CIT Vs. Mcmillan & Co (1958) (33 ITR 182) (SC) c) CIT Vs. Shapoorfi Pallonji Mistry (1962) (44 ITR 891) (SC) d) CIT Vs. Kanpur coal syndicate (1964) (53 ITR 225) (Cal) e) CIT Vs. Hardutory Motilal Chamaia (1967) (66 ITR 443) (SC) The assessee further submitted that the report of the architect do not certify that he has inspected the premises. Accordingly he s .....

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esidential building in all the three years with the following observation. 29. I have considered the relevant facts and provisions of law with regard to the issue involved. I find that the addition based by the Assessing Officer on the basis of certificate of registered architect seized during the course of search action which estimated the cost of construction of residence of the appellant at ₹ 1.7 cr as against ₹ 1,00,05,000 disclosed by the appellant during period relevant to A.Yr .....

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ould not be relied upon in preference to the seized document wherein higher estimation is done by a registered architect and on the basis of which the addition has been made. The Assessing Officer also pleaded that no addition was made on the basis of report of the DVO and therefore, the same cannot be depended upon to deal with this addition. It is seen that the seized document on which the Assessing Officer relied upon is not the valuation of cost of construction but an estimate prepared by an .....

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ant was seeking to procure a loan from the bank. I therefore, find that the additions made by the Assessing Officer in A.Yrs. 2004-05 to 2006-07 were not sustainable even on the basis of the above seized document which estimates the cost of construction completed up to 17.11.2006 to be only of ₹ 80 lakhs as against over ₹ 1 Crore declared by the Appellant. I, therefore, find that no unaccounted investment can be determined even on the basis of specific seized document relied upon by .....

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Appellant was fully aware of the same as his property was inspected and he responded to the proceedings before DVO. The report of the DVO in all fairness, therefore, ought to have been supplied to the appellant as it was his normal right to know the outcome of proceedings before DVO and more particularly so when a huge addition had been slapped on his alleging unaccounted investment in the construction of house. The decision of Guwahati high court (supra) relied upon by the Assessing officer was .....

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onstruction of residential building of the appellant was completed in march 2006 and therefore, the seized document dated 17.11.2006 prepared for procuring a bank loan from HDFC Bank only projecting further construction of ₹ 90 lakhs. Such construction was not done by the Appellant upto 29.10.2009 when his property was inspected by the DVO. The Appellant also informed to the Assessing Officer vide letter of 15.12.2009 that no part of this loan from HDFC Bank procured on 20.11.2006 was used .....

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