TMI Blog2014 (10) TMI 1029X X X X Extracts X X X X X X X X Extracts X X X X ..... learned CIT(A). CIT(A) has confronted the assessing officer with the evidence thus received and the material thus gathered and allow the assessing officer to have his say in the matter vide remand report dated 29.4.2013 and being done so this dispute have no merits. No requirement in law that the first appellate authority should invariably consult or confront the assessing officer every time an additional evidence that was not filed before the assessing officer comes on the record of the first appellate authority. Where the additional evidence is obtained by the first appellate authority on its own motion, there is no requirement in law to consult / confront the assessing officer with such additional evidence. In such cases Sub-rule (2) of rule 46A requires the first appellate authority to allow the assessing officer a further opportunity to rebut the fresh evidence filed by the assessee. Even that requirement cannot be said to be a rule of universal application. If the additional evidence furnished by the assessee before the appellate authority is in the nature of clinching evidence leaving no further room for any doubt or controversy in such a case no useful purpose served ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... IT(A) in deleting the addition; accordingly, the same is confirmed. The ground raised by the revenue is accordingly rejected. Disallowance of interest paid on deposits - AO found that the assessee firm has advanced funds to its sister concerns without charging interest and accordingly, he made proportionate disallowance in respect of interest paid on deposits @ 12% p.a and made addition to the total income for AYs 2002-03 to 2005-06 and AYs 2006-07 to 2008-09, no addition was made on this account since the entire interest paid was disallowed u/s 40(a)(ia) - HELD THAT:- In this case, the addition was made by the AO without referring any seized material and the addition was only on presumption without any material to show that borrowed funds have been advanced to sister concerns during the relevant assessment years. In the absence of any material to suggest that the advance made to sister concerns were out of borrowed funds, the deletion of addition by the CIT(A) for the assessment year under consideration is justified. Accordingly, this ground raised by the revenue is accordingly rejected. Disallowance of interest claimed on housing loan - HELD THAT:- In this case, admitte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ved that there was no dispute in respect of the disallowance u/s 40(a)(ia) and accordingly, the same was sustained. We do not find any infirmity in the order of the CIT(A) on this issue. Disallowance of profit from terminated kuries - AO assumed that the auction discount due to the subscribers who have forfeited kuries was kept as a liability in the balance sheet of the assessee firm, even after the termination of the chitties and the assessee firm has neither returned the auction discount nor offered the same as income in the return of income - 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 ₹ 3,13,771/- and sustained the same and deleted the balance ₹ 31,11,054/ for the kuries which have not been terminated as on 31.3.2008. The CIT(A) given relief in respect of kuries which are not terminated . While doing so, the CIT(A) relied on the judgment of the Hon ble jurisdictional High Court in the case of Guruvijaya Kuri Co Ltd, [ 2008 (1) TMI 267 - KERALA HIGH COURT] We do not find any reason to inte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erties where the trees were grown. The reason for rejection of the assessee s plea by the Assessing officer is that the certificate from the Revenue authorities was not produced before him. However, the AO has not doubted the certificate issued by the revenue authorities which suggest the availability of timber therein. Being so, it is natural to earn income from sale of trees. Accordingly, we do not find any reason to interfere with the order of the CIT(A) and the same is confirmed. This ground of the Revenue is rejected. Addition towards investments in fixed deposits/Investment in SB A/c.- HELD THAT:- Considering the additional evidence and the remand report called for from the Assessing Officer and after receiving the comments from the Assessing Officer on the additional evidence given by the assessee, the CIT(A) was of the opinion that the explanation given by the assessee was proper since the assessee has properly substantiated the fixed deposit in the cash flow statement and therefore, the CIT(A) deleted the addition. The CIT(A) was satisfied with the explanation of the assessee regarding the source of fixed deposits. Being so, in the absence of any contrary evidence fu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , cost of kennel, cost of horticultural work, cost of well, etc., were not proved by the assessee with sufficient evidences. Therefore, the CIT(A) deleted the additions accordingly. - I.T.A. Nos. 539 to 545, 532 to 538, 592 & 593, 587 to 591, 525 to 531, 594 to 600, 518-524, 566-572, 573-579, 580-586, 612-618, 631-637, 638-644/Coch/2013 & Cross Objections Nos. 112 to 118, 50 to 56, 121 & 122, 119 & 120, 110 & 111, 107 to 109, 57- - - - Dated:- 10-10-2014 - I.T.A. Nos. 539 to 545/Coch/2013, 532 to 538/Coch/2013, 592 593/Coch/2013, 587 to 591/Coch/2013, 525 to 531/Coch/2013, 594 to 600/Coch/2013, 518-524/Coch/2013, 566-572/Coch/2013, 573-579/Coch/2013, 580-586/Coch/2013, 612-618/Coch/2013, 631-637/Coch/2013, 638-644/Coch/2013 Cross Objections Nos. 112 to 118/Coch/2013, 50 to 56/Coch/2013, 121 122/Coch/2013, 119 120/Coch/2013, 110 111/Coch/2013, 107 to 109/Coch/2013, 57-63/Coch/2013, 93-99/Coch/2013, 86-92/Coch/2013, 72-78/Coch/2013, 65-71/Coch/2013, 100-106/Coch/2013, 79-85 /Coch/2013 S/Shri N.R.S. Ganesan, JM Chandra Poojari, AM Assessee By: Shri Jose Kappen Revenue By: Shri M Anil Kumar, CIT(DR) ORDER PER BENCH: These appeals by the reven ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5 96,10,868 2008-09 3,23,590 1,50,73,489 Total 24,67,280 4,76,60,454 5 Aggrieved, the assessee went in appeal before the CIT(A). In the course of hearing the CIT(A) had admitted various documents relating to various issues dealt by the AO. Against this, the department raised the ground that there is violation of Rule 46A of I T Rules. 6 The contention of the ld DR is that in the course of adjudicating the appeal before him, the CIT(A) admitted new/fresh evidences. Admittedly, in these cases, the CIT(A) while adjudicating the issue, certain fresh evidences, were produced by the assessee and the CIT(A) called for remand report on 14-03-2013 from the AO. The AO sent remand report vide his report dated 29-04-2013. After considering the remand report, the CIT(A) admitted the evidences and adjudicated the appeals filed before him. 7. The contention of the ld AR is that in these cases, the assessment order u/s 153A of the act was passed by the AO on 29.12.2009. The assessee explained the reasons for filing the fresh materials before the CIT(A) dur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to provide the assessing officer a reasonable opportunity to examine the fresh evidence or to cross examine the witness produced by the assessee or to produce any evidence or document or any witness in rebuttal of the additional evidence produced by the assessee. 8.2. The provisions of Section 250(4), on the other hand, empower the first appellate authority to make such further enquiry as he thinks fit or to direct the assessing officer to make further enquiry and report the result of the same. The provisions of Section 250(4) are the provisions of long standing that existed under 1922 Act also in Section 31 of that Act. In the case of CIT v. Kanpur Coal Syndicate 53 ITR 225 (SC) the Supreme Court have held that the first appellate authority can do what the assessing officer could do and can also direct the latter to do what the latter has failed to do. In the case of Jute Corporation of India Ltd v. CIT 187 ITR 688 (SC) and in the case of CIT v. Nirbheram Daluram 224 ITR 610 (SC) the Supreme Court have held that the powers of the first appellate authority over an assessment are all pervasive and they are not confined to the matters considered by the assessing officer. There ar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ommissioner conferred upon him by that rule and in addition it gives a right to the assessee in the matter of production of additional evidence. 8.4. Similar issue came for consideration by Kerala High Court in the case of CIT v. K Ravindranathan Nair 265 ITR 217 (Ker). The High Court held that the provisions of Sub-rule (4) of rule 46A laid down that the powers of the appellate authority Under Section 250 was not affected. The Kerala High Court further observed that on consideration of the provisions of rule 46A particularly Sub-rule (4) thereof and the provisions of Section 250(1) of the Income-tax Act conferring power on the Commissioner of Income-tax (Appeals), we are also of the view that in spite of the provisions of rule 46A(1), the provisions of Section 250 enable the Commissioner of Income-tax (Appeals) to accept additional evidence in appropriate cases which power has been preserved by Sub-rule (4) of rule 46A also. If the provisions of rule 46A, Sub-rule (4) thereof, are held to be mandatory that will go against the provisions of Section 250 of the Act conferring power on the first appellate authority to enquire into the matter and pass appropriate orders. In other w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s ever offered or referred to. If without any explanation at all the Appellate Assistant Commissioner admits evidence at the invitation of the parties, he would be exercising, in our opinion, discretion not properly. He has undoubtedly a discretion vested in him to admit additional evidence in appropriate cases but admission of evidence at the instance of an assessee without any ground or explanation would not be exercising discretion properly and in such a case the appellate authority is competent, in our opinion, to interfere with the discretion exercised by the Appellate Assistant Commissioner. Reliance in this connection may be placed on the observations in the case of Ramgopal Ganpatrai Sons Ltd. v. Commissioner of Excess Profits Tax reported in 24 ITR 362 (Bom); in the case of Byramji Co. v. Commissioner of Income tax reported in 11 ITR 286 ( Nag). 8.6. In the case of CIT v. Vali Mohamed Ahmedbhai 134 ITR 214 (Guj), the Gujarat High Court have held as under: If any additional evidence submitted by an assessee is accepted behind the back of the assessing officer and the assessing officer is not given proper opportunity to rebut the same, it would amount to the violation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... st could have been passed behind the back of the ITO in violation of the principles of natural justice. At the cost of repetition, it be stated that notice of appeal cannot be equated with notice of a future application to lead additional evidence which no one could have anticipated or reasonably foreseen. Ordinarily, the appeal would be decided on the evidence recorded in the course of assessment proceedings. The ITO, therefore, may not, in a given case, think it necessary to remain present at the hearing of the appeal. He, however, cannot be expected to anticipate that additional evidence might be produced by the assessee in his appeal. It is for this reason that it is necessary to give him an opportunity to meet the additional evidence. The Tribunal has, therefore, fallen into an error in rejecting the plea of the revenue that the AAC ought to have given an opportunity to the ITO to examine the additional evidence or to cross examine the witnesses whose evidence was taken on record or to rebut the additional evidence. We, therefore, answer the question referred to us in the negative and against the assessee . 8.7. The proposition that the first appellate authority can admit a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the omission of the ground from the form of appeal was not willful. It is clear from the above provisions that the powers of the Appellate Assistant Commissioner are much wider than the powers of an ordinary court of appeal. The scope of his powers is co-terminus with that of the Income-tax Officer. He can do what the Income-tax Officer can do. He can also direct the Income-tax Officer to do what he failed to do. The power conferred on the Appellate Assistant Commissioner under Sub-section (4) of Section 250 being a quasi-judicial power, it is incumbent on him to exercise the same if the facts and circumstances justify. If the Appellate Assistant Commissioner fails to exercise his discretion judicially, and arbitrarily refuses to make enquiry in a case where the facts and circumstances so demand, his action would be open for correction by a higher authority . 8.8 Thereafter the High Court again observed at page 8 in the following words: On a conjoint reading of Section 250 of the Act and rule 46A of the rules, it is clear that the restrictions placed on the appellant to produce evidence do not affect the powers of the Appellate Assistant Commissioner under Sub-section (4) o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r every time an additional evidence that was not filed before the assessing officer comes on the record of the first appellate authority. Where the additional evidence is obtained by the first appellate authority on its own motion, there is no requirement in law to consult / confront the assessing officer with such additional evidence. There may be cases where additional evidence is admitted by the first appellate authority on a request or application being made by the assessee. In such cases Sub-rule (2) of rule 46A requires the first appellate authority to allow the assessing officer a further opportunity to rebut the fresh evidence filed by the assessee. Even that requirement cannot be said to be a rule of universal application. If the additional evidence furnished by the assessee before the appellate authority is in the nature of clinching evidence leaving no further room for any doubt or controversy in such a case no useful purpose served on performing the ritual of forwarding the evidence / material to the assessing officer and obtain his report. In such exceptional circumstances the requirement of Sub-rule (3) may be dispensed with. 10. In view of the above discussion, we ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , 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 disputed issues to the extent the same are found relevant in the cases before them. Accordingly, the addition for the AY 2002-03 was deleted by the CIT(A). 12 We have heard the parties and perused the relevant material on record. In our opinion, 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. Accordingly, we do not find that the CIT(A) is justified in deleting the estimated add ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... only in respect of AY 2004-05 and 2007-09. 12.3 In respect of the other years, there was loss from own chity investment as per the working furnished by the assessee. The entire working furnished by the assessee was forward to the AO for verification and report. After considering the remand report of the AO, the CIT(A) found that the entire working furnished by the assessee was verifiable with the seized record A-21 and the AO has not reported any discrepancy on cross verification of the same. The only dispute raised by the AO was that the assessee has not produced further evidences to prove the loss claimed in respect of certain AYs. According to the CIT(A), the AO has also worked out the year-wise investments and estimated income solely on the basis of the seized material A-21. The working of the assessee was also on the basis of the same seized material A-21 and on its verification, the AO has not pinpointed any deviation of the assessee from the seized material. Accordingly, he observed that the view of the AO that the assessee has to adduce further evidences to prove the loss in respect of own chitty investments was not in order. Accordingly, the CIT(A) was of the view that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rved that the assessee offered the income under the head other kuries income at ₹ 10,22,276/- which includes income from kuri late fee also. It was pointed out by the assessee that the income from kuri business under various heads are disclosed separately in the financial statements for the AY 2007-08 but in respect of FY 2008-09, the CIT(A) found that various items of income are clubbed together and disclosed in the respective financial statement. Accordingly, after considering the relevant material, the CIT(A) was of the opinion that there was no reason to disbelieve the submissions made by the assessee that other kuri income offered includes income from kuri late fee. The CIT(A) observed that the AO has made the addition only on pure guess work and not on the basis of any material found/seized during the course of search. Accordingly, the addition of ₹ 4,49,821/- made by the AO for the AY 2008-09 was deleted. We do not find any infirmity in the findings of the CIT(A) in deleting the addition; accordingly, the same is confirmed. The ground raised by the revenue is accordingly rejected. 15 Next ground relates to disallowance of interest paid on deposits. 16. Fac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ngly rejected. 18 Next ground relates to disallowance of interest claimed on housing loan. 18.1 Facts of the case are that according to the AO, the balance sheet of the assessee firm for the AYs 2003-04 to 2007-08 shows a liability towards housing loan of ₹ 3 lacs availed from State Bank of India. The AO assumed that the loan and repayment of the same relate to personal account of the partners and hence, disallowed the interest on this loan which was debited to the P L account of the assessee firm. 18.2 On appeal, the CIT(A) after considering the assessment order, the submissions of the assessee , the remand report of the AO, the rejoinder filed by the assessee and the relevant material on record deleted the addition. While deleting the addition, the CIT(A) relied the decision of the Special Bench of this Tribunal in the case of All Cargo Logistics Ltd (supra). The CIT(A) observed that since no incriminating materials relating to the interest paid on housing loan, the AO was not justified in disallowing the same for the AYs 2003-04 to 2006-07. Accordingly, the disallowance of ₹ 27,750/- for the AYs 2003-04, ₹ 26,258/- for the AY 2004-05, ₹ 24,749/- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... way of excess interest in respect of money lending business. The reason cited by the AO for making addition towards the same are that ; i) Sri E D Shaju, the partner of the firm admitted during the course of search that the firm was charging interest @ 15%, 18% and 21% for gold loan/pro note loan and is accounting only 12% in the books of accounts.; ii) Certain documents seized from the Head Office and Branches of the assessee firm shows that the assessee firm was collecting interest over and above 12% from the customers. iii) Certain gold loan closing slips seized from the premises of the assessee firm shows that a portion of the interest collected from customers was not accounted in the books. Accordingly, the AO rejected the books of account and estimated the interest income from money lending business by taking weighted average of interest rate charged by the assessee firm. 26.2 On appeal, the CIT(A) observed that since the AO has no dispute with the mistakes pointed out by the ld counsel; being so, he observed that the advances to be considered for estimation of income for these years as follows: i) As on 31.3.2002 ₹ 38,55,950 ii) As on 31.3.2003 &# ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on the average balance of advances Accordingly, he held that the addition on account of excess interest collected from customers has to be made only in respect of AYs 2002-03, 2004-05 and 2006-07 to 2008-09 and sustained the excess interest for AY 2002-02 at ₹ 75,869/-; for AY 2004-05 at ₹ 7,68,217/- for AY 2006-07 at ₹ 12,44,6571/- for AY 2007-08 at ₹ 32,21,172 and fr AY 2008-09 at ₹ 23,93,400/- . 28 In view of the above, we do not find any reason to interfere with the findings of the CIT(A), which is confirmed. The ground raised by the assessee in all these cross objections is dismissed. 29 Next common ground relates to addition on account of income from chitty business of foreman s commission. 29.1 According to the AO, the assessee was not fully accounting the foreman s commission received from conducting chits. He observed that the assessee was conducting 36 nos of chits during the period from AY 2002-03 to 2008-09. The AO worked out foreman s commission that may be receivable for each AY and treated the difference between the same and the foreman s commission disclosed in the return of income. 29.2 Before the CIT(A), the ld AR subm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ), after considering the assessment order, submissions of the assessee, remand report of the AO and the rejoining of the assessee and other relevant material on record, found that the assessee has not disputed the addition of ₹ 8,800/- made for the AY 2006-07. The CIT(A) observed that in respect of AY 2002-03, the AO worked out the foreman s commission receivable at ₹ 24,36,281/- as against ₹ 21,57,720/- as admitted by the assessee in the return of income. He further observed that in the rejoinder, the AR pointed out certain errors in the computation of foreman s commission receivable in respect of kuri number 10 and 18 as made by the AO and reconciled the differences. 29.5 In respect of AY 2008-09, the CIT(A) observed that the AO worked out the foreman s commission receivable at ₹ 26,04,095/- as against ₹ 7,56,375/- disclosed in the return of income and ₹ 17,05,250/- which was subsequently admitted by the assessee in the appeal. He further observed that in the rejoinder, the assessee submitted that the correct foreman s commission receivable for the AY 2008-09 was at ₹ 23,63,326/-. The CIT(A) observed that the assessee reconciled the di ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any infirmity in the order of the CIT(A) on this issue. Accordingly, the ground raised by the assessee in its cross objection is rejected. 33 Next common ground in the cross objection relates to disallowance of profit from terminated kuries. 33.1 The AO assumed that the auction discount due to the subscribers who have forfeited kuries was kept as a liability in the balance sheet of the assessee firm, even after the termination of the chitties. According to the AO, the assessee firm has neither returned the auction discount nor offered the same as income in the return of income. The AO treated the sum of ₹ 34,24,825/- as outstanding credit balance in respect of kuries which were terminated and thus the same were brought to tax. While doing so, the AO placed reliance on the decision of the Hon ble Kerala High Court in the case of CIT vs Guruvijaya Kuri Co Ltd reported in 302 ITR 239 (Ker). 33.2 Before the CIT(A), the ld AR submitted that for the above action of the AO, he has not brought on record any details in the assessment order regarding computation of the figure viz ₹ 34,24,825/- as profit from terminated kuries. According to the ld AR, such a figure was no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tracted the outstanding balance in respect of chits that have been terminated beyond three years from the cut-off date i.e. 31.3.2008 and as per the list, the total outstanding credits works out to ₹ 3,13,771/-. According to the CIT(A), the working seems to be in order. Accordingly, considering the facts and circumstances of the case in its entirety and the aforesaid decision of the Hon ble jurisdictional High Court, the CIT(A) was of the opinion that an addition of ₹ 3,13,771/- has to be made for the AY 2008-09 on account of profit in respect of chtis forfeited by subscribers. Therefore, he sustain the addition of ₹ 3,13,771/- on this count and the balance of ₹ 31,11,054 was deleted. 34 We have heard the parties and perused the relevant material on record. 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 ₹ 3,13,771/- and sustained the same and deleted the balance ₹ 31,11,054/ for the kuries which have not been terminated as on 31.3.2008. The CIT(A) given relief in respect of kuries whic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... operation conduced u/s 132 of the I T act, the AO was bound to issue notices to the assessee firm to furnish return for each assessment year falling within the six assessment years immediately preceding the asst year relevant to the previous year in which the search was made. Thus, according to the AO, under the provisions of law, notice u/s 153A are to be issued for all the six assessment years irrespective of whether materials relating to all these assessment years were found or seized during the course of search. In the report, the AO admitted that in the case of assessee firm, the income tax returns for the AYs 2002-03 to 2005-06 were processed u/s 143(1) of the I T Act as on the date of search and there were no proceedings pending in respect of these years as on the date of search. But, according to the AO, under the current scheme of search assessment, the AO was empowered to assess or reassess the total income of all the six assessment years notwithstanding that the Income Tax assessment for certain years were concluded as on the date of search. Therefore, according to the AO, the objection of the assessee regarding initiation of assessment proceedings for the AY 2002-03 to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat in other case the Special Bench held that the assessment u/s 153A will be made on the basis of incriminating material, which in the context of relevant provisions means books of account and other documents found in the course of search but not produced in the course of original assessment and undisclosed income or property found during the course of search. Therefore, in respect of completed assessments, addition to income can be made u/s 153A/C only on the basis of assessment year specific incriminating material found and seized. 39.1 The CIT(A) observed in the case of the assessee firm, the income tax assessment for the AYs 2002-03 to 2005-06 have been completed as on the date of search. In this case, the assessments for the AYs 2002-03 to 2005-06 had been completed under summary scheme u/s 143(1) and the time limit for issue of notice u/s 143(2) had expired as on the date of search. The CIT(A) observed that there was no assessment pending in respect of these Asst Years and in such a situation, there was no question of abatement. Therefore, addition could be made only on the basis of incriminating material found during the course of search. In the remand report, the AO sta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... figures in the seized books of account are higher than the figures given in the return of income. The AO found that the Managing Partner of the assessee firm admitted that the books of account seized are the actual accounts. Therefore, the AO arrived at a conclusion that the accounts corresponding to the financial statements filed along with the return are false and not reliable. Hence, the AO prepared financial statements from the seized books of account and treated the net profit as per the same as the income from business for the AYs 2006-07 , 2007-08 and 2008-09 as detailed below: Asst Year Net profit as per seized books as per AO Income taken by the AO for the purpose of Assessment 2006-07 35,75,439 35,75,439 2007-08 (-) 35,49,500 Nil 2008-09 69,81,555 69,81,555 41.2 The assessee submitted that the final accounts prepared by the AO from the seized record are not correct since the seized records are incomplete. According to the assessee, the financial sta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essment order, submissions made by the assessee, remand report of the AO and the relevant material available on record observed that during the search in the premises of M/s Edassery Jewellers, books of account in the form of day book and ledger for the AYs 2006-07 to 2008-09 were found and seized. The AO prepared profit loss account and balance sheet from the seized books of account and on comparing the financial statements prepared from the seized books with the financial statements filed along with the return of income, it was revealed that the stock in trade, purchases, sales expenses etc., do not tally and practically all the figures in the seized accounts are higher than the figures reported in the return of income. Therefore, the AO was of the view that there was large scale suppression of sales and purchases and manipulation of other figures in consonance with the turnover declared by the assessee. According to the AO, Sri E D Sabu, partner in charge of the assessee firm admitted during the course of search that the firm was keeping two sets of account books and the seized books are the actual accounts of business. Therefore, by relying on the seized books, the AO compute ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ricted to the following amount to the respective asstt years: Asst Year Total income estimated(Rs) Income returned (Rs) Addition (Rs) 2006-07 12,47,888 1,03,809 11,44,079 2007-08 15,00,921 1,37,483 13,63,438 2008-09 15,08,894 1,05,898 14,02,996 Accordingly he directed the AO to modify the assessment for the AYs 2006-07, 2007-08 and 2008-09. 42 We have heard the rival submissions and perused the material on record. According to the CIT(A) the seized books are not correct and complete and it do not reflect the true state of affairs of the assessee firm and hence he was of the view that a reasonable estimation to be done so as to compute the correct income of the assessee. Considering this, the CIT(A) taken the clue from section 44AF of the Act and estimated the net profit @ 5% of the turnover. We do not find any infirmity in the findings of the CIT(A), which is confirmed. Accordingly, the ground take ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee) Cross Objection Nos.121 to 122/Coch/2013 Cross Objection Nos. 119 120/Coch2013 Cross Objection Nos. 110 111/Coch/2013 Cross Objection Nos. 107 to 109/Coch2013 51 The first ground in all these appeals relates to admission of additional evidence in violation of Rules 46A(1) of the IT Rules 1962. 52 Identical issue was considered in the case of New Kerala Investment another while deciding the appeals in ITA No. 539 to 545/Coch/2013 where we have decided the issue against the revenue and in favour of the assessee. In view of our findings in the foregoing paras 8 to 10 in the case of New Kerala Investment, we decide the issue in favour of the assessee and against the revenue. Accordingly, the ground taken by the revenue in all these appeals is dismissed. 53 Next issue in all the appeals relates to estimate of profit based on seized materials. 54 We have considered identical issue while deciding the appeals of the revenue in ITA NO. 532 to 535/coch/2013 in the case of E T Devassy Sons wherein we have dismissed the ground raised by the revenue. Since the facts and circumstances are similar, we decide this issue against the revenue and in favour of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ies, we find that this issue came up for consideration in the Department appeals in I.T.A. Nos. 539 to 545/Coch/2013 in the case of New Kerala Investments and we have discussed the issue in the foregoing paras 8 to 10 and decide the issue in favour of the assessee. Accordingly, following our findings in the case of New Kerala Investments (supra), we dismiss the ground taken by the revenue in all these appeals also. 64. 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 treatment of agricultural income. 65. The facts on this issue being the same, for the sake of brevity, we consider the facts as narrated by the CIT(A) in I.T.A. No. 518/Coch/2013 for the AY 2002-03. The assessee claimed agricultural income in the returns under section 153A of the I.T. Act as under: Asst. Year Agricultural Income 2002-03 5,00,000 2003-04 6,00.000 2004-05 7,00,000 2005-06 8,00,000 2006-07 10,00,000 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2002-03 5,00,000 40,000 4,60,000 2003-04 6,00,000 50,000 5,50,000 2004-05 7,00,000 55,000 6,45,000 2005-06 8,00,000 65,000 7,35,000 2006-07 10,00,000 80,000 9,20,000 2007-08 11,00,000 90,000 10,10,000 2008-09 12,50,000 1,00,000 11,50,000 65.2 Before the AO, it was submitted by the assessee that he owns 4.38 acres of paddy field and 22.20 acres of other agricultural properties cultivated with coconut, arecanut, nutmeg, plantain etc. Details of the extent of paddy field and other agricultural land cultivated by the assessee and income derived therefrom during the Assessment Years from 2002-03 to 2008-09 are tabulated as under : Assessment Year Paddy field (in acres) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 65.4 In 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. In order to prove the quantum of agricultural income earned from various properties, the assessee furnished certificates from the jurisdictional agricultural officers/village officers who have inspected the agriculture properties and verified the crops therein. The certificates issued by the concerned agriculture/village officers under whose jurisdiction the various agricultural pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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/Dealer Period From To 1. KPK Oil Mills 02.04.2010 15.06.2010 2. Kottayam Rubbers 28.04.2010 19.07.2010 3. Anna Coconut Products 01.05.2010 03.06.2010 4. St.Joseph Oil Mills 02.05.2010 22.06.2010 5. Aloor Service Co.op Bank 01.06.2010 03.08.2010 6. Jeeva Bonemeal 21.07.2010 30.07.2010 It is pertinent to state that the agricultural income claimed to have earned by the assessee is for the assessment year 2010-11 and not for the period under the search assessment period. Hence, it cannot be accepted as an evidence for the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 Land Dry 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 9,7 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5,000 8.13 6,30,000 Kallur Thekkemuri 8.47 3,00,000 - - 8.47 3,00,000 West Chalakkudy 40.24 16,00,000 2.85 2,75,000 43.09 18,75,000 Kallur Vaddakkummuri 6.99 - 13.28 13,00,000 20.27 13,00,000 Irinjalakuda - - .96 95,000 .96 95,000 Thorapalli Agraharam, Hosur (Tamil Nadu) - - 12.05 10,84,950 12.05 10,84,950 Bodichipally Anusohai Kelamangalam, (Tamil Nadu - - 1.45 1,46,500 1.45 1,46,500 Perambra - - .53 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... und that none of the evidences/submissions made by the assessee was rebutted by the Assessing officer in the remand report. From the working provided by the assessee, the CIT(A) observed that the average annual agricultural income per acre claimed by the assessee for the assessment years 2002-03 to 2008-09, which are tabulated as under: Asst. Year Paddy (Rs.) Per acre Other crops such as coconut, arecanut, nutmeg, pepper, platinum etc. (per acre) (Dry land area) 2002-03 17,150 36,402 2003-04 19,000 37,584 2004-05 19,900 43,848 2005-06 22,213 47,560 2006-07 21,865 38,600 2007-08 21,288 47,409 2008-09 24,343 50,405 65.12 It was further observed by the CIT(A) that from the working of agricultural income, as certified by the authorities, it can be seen tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ,134 426 2001-02 25,376 62,074 65.13 The CIT(A) observed that the assessee has claimed nominal income from agriculture per acre for each year in comparison with the extrapolated income worked out as above. The CIT(A) found that the certificates given by the concerned Agrl. Officers/Village Officers are elaborate and prove that the assessees are getting income from the same during the Assessment Years 2002-03 to 2008-09. They also found that the fields were well cultivated year by year which proved that the assessee was doing paddy cultivation for a long period. The Panchayath President and Panchayath Member have certified that the assessee is getting substantial income from the agricultural properties for long time. The CIT(A) observed that the assessees are having large extent of agricultural land and are cultivating the fields continuously. The CIT(A) also found that the estimates given in the certificates are based on proper appreciation of the relevant factors such as nature of crops, number of plants etc. The CIT(A) observed that there being no question about the holdings of agricultural land ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... It was submitted that In that case, the assessee was a dealer in country liquour and the assessee declared an income of ₹ 15 lakhs as unaccounted income. At the time of filing block return, the assessee retracted and offered ₹ 13,15,000/- which consist of business income of ₹ 10,65,000/- and agrl. income of ₹ 2,50,000/-. In this case, the Tribunal accepted the retraction to ₹ 13,15,000/- but rejected the claim of agrl. income of ₹ 2,50,000/- in the absence of any material evidences to prove the same except the declaration of the assessee. However, in the present case, the CIT(A) observed that the at the time of search, the assessee stated that he was getting Agrl. income from cultivated lands. The dispute is with regard to quantum of agricultural income for which th assessee furnished documentary evidences in the form of certificates from Agrl./Village officers. Thus the CIT(A) observed that the position in the present case was explicitly distinguishable from the factual position in the case of Jaikishan R. Agarwal on which the Assessing officer placed much reliance. Accordingly, the CIT(A) concluded that it would be just and proper to disallow 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed by agreement with the purchasers and the same were filed before the Assessing officer. The ld. AR submitted that since the receipts claimed on account of sale proceeds of trees are properly supported with documentary evidences, the Assessing officer was not justified in disallowing the same. 68.3 In the remand report, the AO stated that the required particulars i.e., inflow in the cash flow statement, details of sale of trees and agreement with purchasers etc. were produced before the appellate authority as fresh evidence which were not produced at the time of assessment proceedings. 68.4. In the rejoinder, the assessee further submitted before the CIT(A) that in respect of his claim regarding receipt from sale of trees, the only objection raised by the Assessing officer is that these evidences were not furnished at the time of assessment proceedings but were filed before the appellate authority. According to the assessee, these evidences were filed before the Assessing officer on 21/12/2009 along with the reply to the pre-assessment notice, but the Assessing officer did not take into account of the same while framing the assessment. According to the Ld. AR, the Assessing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ber therein. Being so, it is natural to earn income from sale of trees. Accordingly, we do not find any reason to interfere with the order of the CIT(A) and the same is confirmed. This ground of the Revenue is rejected 70 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. 71. The next common ground in I.T.A. Nos. 518-524, 631-637, 638-644 and 580-586/Coch/2013 and in ITA No. 566 to 572/Coch/2013 is with regard to deletion of addition towards investments in fixed deposits/Investment in SB A/c. 71.1 For the sake of brevity, we consider the facts as narrated by the CIT(A) in I.T.A. No. 518/Coch/2013. The assessee has not included certain investments in Fixed Deposits totaling to ₹ 10,60,279/- in the cash flow statements as outgoings and hence added the same to the total income as undisclosed investments. 71.2. In respect of the above, the Ld. AR explained before the CIT(A)the reasons for not including certain deposits in the cash flow statement ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... SCB,Vennoor 13079 50,000 Accounted in the books of the firm M/s. New Kerala Investments during the Asstt. Year 2006-07 13080 50,000 13076 50,000 13077 50,000 13078 50,000 13079 50,000 Duplication Entry 13080 50,000 Duplication Entry 13080 50,000 Duplication Entry 13081 50,000 Accounted in the books of the firm M/s. New Kerala Investments during the Asstt. Year 2006-07 13082 50,000 13083 50,000 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... osit No. Amount (Rs.) Explanation CSB, Palayamparambu 20050029 35,789 Shown in the cash flow statement of Asst. Year 2009-09 20050218 29,291 20050219 29,291 20050220 29,291 20050221 29,291 Total ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 31-637,638-644, 566-572 and 612-618/Coch/2013 is in respect of investment in immovable properties. 74.1 For the sake of brevity, we consider the facts as narrated by the CIT(A) in I.T.A. No.518/Coch/2013. The assessee had accounted for investments in immovable properties only to the extent of ₹ 7,73,436/-in the cash flow statements as against ₹ 3,10,17,490/- as worked out by him. The Assessing Officer treated the difference viz. ₹ 3,02,44,054/- as undisclosed investment in immovable properties and added the same to the total income of the assessee. In respect of the above, the assessee submitted that a detailed explanation in chart form to the above addition made by the Assessing Officer was furnished in the paper book. According to the Ld. AR, after examining the chart, it can be seen that the additions made by the Assessing Officer on the above account was unwarranted. In the remand report, the Assessing Officer stated that investments in immovable properties 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1,11,14,790 - 11114790 Total 3,10,17,490 7,73,436 30244054 74.5 The assessee also listed out all the investments in immovable properties which are mentioned by the Assessing Officer in the Assessment Order for each Asst. Year and offered explanation for not including certain investments in immovable properties in his personal cash flow statements as under: A.Y. 2002-03 Doc. Date Doc. No. Extent Name of the Purchaser Total cost including registration (Rs.) Assessee s share (Rs.) Explanation 23.05.2001 1732/01 4.639 cents 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 D ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bu, Salu, Shaju, Benny 28,000 9,333 07.03.2003 645/0366 cents Devassy E.T., Lilly, Jaison, Sabu, Salu, Shaju, Benny 28,000 9,333 17,63,090 A.Y. 2004-05 Doc. Date Doc. No. Extent Name of the Purchaser Total cost including registration (Rs.) 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 2569/033 acre 27.5 cents ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2,01,600 1,00,800 Shown in the Cash flow statement 13..06.2005 2260/0511 cents Devassy E.T. 10,30,605 10,30,605 Shown in the unaccounted Cash Flow Statement of M/s. E.T. Devassy Sons Edassery Jewellers 27.09.2005 24.16 acre with crusher machine Devasssy 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 sh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 04.2007 311/2 cents Devassy E.T. 55,125 55,125 Shown in the cash flow statement. 24.04.2007 273/4 cents Devassy E.T. 55,000 55,000 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. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt year 2002-2003, ₹ 15,87,534/- for the assessment year 2003-04, ₹ 2,73,023/- for the assessment year 2004-05, ₹ 93,385/- for the assessment year 2005-06, ₹ 50,01,595/- for the assessment year 2006-07, ₹ 81,56,865/- for the assessment year 2007-08 and ₹ 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 Reven ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sihed by the assessee and the concerned family members in their personal cash flow statements are adequate as given below: Asst. Year E.T. DEVASSY E.D. SALU E.D. SABU E.D. BENNY TOTAL 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 240000 240000 81.4 The CIT(A) observed from the above chart 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Officer made further addition of ₹ 1,93,410/- for the assessment year 2005-06, towards cost of furnishing 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... less investment admitted in cash flow statements ₹ 15,00,000/-). According to the assessee, expenditure worth ₹ 1,60,544/- which are included in the valuation of the department valuer were 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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