TMI Blog2001 (3) TMI 247X X X X Extracts X X X X X X X X Extracts X X X X ..... to the assessee on 11th April, 1997. In response to the notice, the assessee filed the block return on 4th July, 1997, declaring therein undisclosed income of Rs. 4,59,234. The assessment was however made on a total income of Rs. 45,53,201 by an order dt. 29th Jan., 1998. At the relevant point of time, the IT Act contained a provision for filing a direct appeal to the Tribunal against the order of the AO. Accordingly, the assessee preferred appeal before us challenging the additions made by the AO in the block assessment. As several additions were made by the AO we proceed to discuss the facts concerning each addition as and when the issued is discussed. 4. In the grounds of appeal filed along with Form No. 36, the assessee raised 16 grounds. Subsequent to the date of filling the appeal, assessee filed certain additional grounds, challenging the validity of the block assessment order passed by the AO on the ground of expiry of limitation which are separately treated as additional ground Nos. 1 and 2. He also filed another set of additional grounds no some additions made in the block assessment which are numbered as ground Nos. 17 to 20. Thus, we have ground Nos. 1 to 20 and addi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the Panchanama dt 2nd Jan., 1997, and it was also made clear therein that the search was in continuance to the proceedings dt. 24th Dec., 1996. Finally, another Panchanama was drawn on 22nd Jan., 1997. The learned Departmental Representative clarified that the first authorisation of search was issued for the residence of the assessee and the second consequential authorisation of search was issued in respect of the locker jointly owned by the assessee. The residence and the locker of the bank being two separate premises, authorisations for search of these two places were separately issued. Adverting our attention to s. 158BE of the IT Act and in particular to the words "last of the authorisations for search" and "in cases where search is initiated" the learned Departmental Representative submitted that there may be more than one authorisation and for the purpose of limitation, period of one has to be reckoned from the last day of the month for which the final warrant of authorisation is issued and thus, the assessment made on 29th Jan., 1998, is within the period of limitation. 7. The learned counsel relied upon the following decisions in support of his submission that search ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 24th Dec., 1996, itself but during the course of search it has come to the notice of the search party that the assessee was operating a locker in Hongkong Shanghai Bank, Dadar Branch, in the joint names of himself and Smt. Soni Rajdan. As the locker is situated in a different premises, the search party had to issue a separate warrant of authorisation on 2nd Jan., 1997 and that proceeding was concluded on 22nd Jan., 1997. He, therefore, submitted that the assessment completed in the month of January, 1998 is within the time permissible under the Act. He also relied upon the decision reported in the case of T.O. Abraham Co. Anr. vs. Asstt. Director of IT (Inv.) Ors.(1998) 149 CTR (Ker) 207 : (1999) 238 ITR 501 (Ker). 9. We have carefully considered the rival submissions and perused the record. Since the assessee heavily relied upon the decisions rendered by the Bangalore Bench of the Tribunal, it is necessary to briefly state the facts of those cases. 10. In the case of Kirloskar Investments Finance Ltd., the facts are that the business premises of the assessee were searched on 30th March, 1996 and certain documents were seized. Simultaneously, the authorities issue ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it may not be practicable to complete the search in one day in which event, the officials have to temporarily stop the search by sealing the premises with their lock and seal and have to restart the search immediately on the following day and the search would be completed with the seizure of items, if any. If the party conducting the search leaves the premises carrying seized items, it means that other items noted during the search but left behind in the premises are not seized material. In this background the Bench posed a question as to what would be the life of the authorisation? In the opinion of the Bench if the authorisation is prepared but it was decided not to act upon it, it dies a natural death. In other words, the life of the authorisation starts with its issue and ends with its implementation resulting in seizure of books, etc. If the officials are not satisfied with the search and see that some more items exist which were not found at the time of search, they have to necessarily comply with the procedure prescribed under s. 132(1) of the Act to search further undisclosed income because every search operation has to be preceded by a reason to believe that the books docu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iced that the Departmental authorities have not produced relevant records to prove that the original search warrant includes the name of the assessee, i.e., Microland Ltd. and, therefore, the Tribunal has taken an adverse view of the matter to hold that the search was commenced without any valid warrant in the name of the assessee because the name of the assessee was merely inserted at a later stage in the warrant. In addition to this, the Bench observed that Panchanama was executed on 29th March, 1996, and prohibitory orders under s. 132(3) were issued on the same day but without any fresh warrant, search proceedings were kept alive for a considerable long period of about 2 months without any valid purpose and, therefore, the search should be deemed to have concluded on the first day itself, i.e., on 29th March, 1996, in which event the assessment completed on 30th May, 1997, has to be treated as barred by limitation. In this case also there is only one search warrant whereas we are concerned with two search warrants and reckoned from the second search warrant, the assessment is not barred by limitation. Thus, the aforecited case is distinguishable on facts. It may also be noted t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... consideration. 17. Vide grounds Nos. 5 and 20, assessee challenges the addition made by the AO on account of low withdrawals. In ground No. 5, the figure of addition was mentioned at Rs. 5,47,168. At the time of hearing, the learned counsel submitted that the correct addition works out to Rs. 4,25,733 only. Vide ground No. 20 (additional grounds), the assessee contests that the AO erred in taking into consideration the income referable to the period 1st April, 1996, to 18th Dec., 1996, as undisclosed income even though the return for the asst. yr. 1997-98 was not due and necessary entries were made in the books of accounts. The following chart shows the addition made on account of low drawings for each year: Asst. yr. Reasonable drawings Drawings shown Addition Rs. Rs. Rs. 1992-93 2,00,000 1,42,522 58,478 1993-94 2,50,000 1,66,106 83,894 1994-95 3,50,000 2,77,151 1,12,849 1995-96 4,83,190 4,83,190 0 1996-97 4,00,000 2,38,488 1,61,512 1997-98 4,47,980 4,47,980 0 It may be noted that in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e further submitted that the AO had no material to prove that the assessee incurred more domestic expenditure except merely drawing an inference by surmising that the assessee is in film industry which is a glamorous field and, therefore, assessee might have incurred more expenditure. In the 'facts sheet' assessee also contended that the variance in figures of drawings in the asst. yrs. 1995-96 and 1997-98 is due to foreign travelling undertaken by the assessee. 20. On the other hand, the learned Departmental Representative contended that in response to question No. 14, assessee admitted in his statement dt. 14th Feb., 1997, that there were certain discrepancies regarding household withdrawals and voluntarily offered a roundsum figure of Rs. 5,00,000 as additional income. In other words, the assessee admitted low withdrawals to the tune of Rs. 2,60,000 as could be seen from p. 193 of the paper book. He also adverted our attention to p. 116 of the paper book, i.e., statement of Mrs. Soni Rajdan Bhatt, wife of Shri Mahesh Bhatt, recorded under s. 132 of the Act, wherein Mrs. Soni Rajdan stated that approximately monthly expenditure is Rs. 20,000 to Rs. 30,000. He also referred to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g to question Nos. 5 and 6 of p. 132 of the paper book, it was submitted that assessee's books were handled by his accountant, Mr. Hegde, and the accounts were computerised. Page 98 of the paper book also shows that assessee's books were audited by M/s Sekhri Co., C.As. He thus strongly submitted that addition on account of low withdrawals cannot be made in a block assessment on mere surmises in the absence of any specific evidence/material on record. 23. We have carefully considered the rival submissions. It is not in dispute that the assessments upto asst. yr. 1994-95 were completed under s. 143(3) of the Act before initiation of proceedings under s. 132 of the Act. It is well-settled that in a block assessment, addition has to be based on material found at the time of search. This issue was considered by the Tribunal elaborately in the case of Sunder Agencies vs. Dy. CIT (1997) 59 TTJ (Mumbai) 610 : (1997) 63 ITD 245 (Mumbai). 24. In the present case returns were filed in the normal course and no addition was made by the AO on account of low withdrawals except for the asst. yr. 1993-94, wherein only Rs. 30,000 was added in the assessment made under s. 143(3) which was de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... here is no undisclosed income liable to be taxed under the block assessment. In other words, his contention is that an addition can be made in a block assessment only if some undisclosed income is found as a result of search and cannot be based on mere surmises. Explaining further, the learned counsel submitted that the AO assumed that producers are after the film personalities on hence there is no need for the assessee to incur more expenditure on conveyance and telephone overlooking the fact that the assessee is not an actor but he is a director. Therefore, the assumption on which the addition was made by the AO is baseless. He further contended that in the asst. yr. 1993-94, the AO disallowed, Rs. 55,209 out of total car expenditure of Rs. 2,57,557 which was reduced by the CIT(A) to a lumpsum of Rs. 5,000. In the asst. yrs. 1995-96 and 1996-97, AO disallowed 1/3rd and 1/5th of the car expenditure. Similarly, 1/4th of the telephone expenses was disallowed by the AO in the order for the asst. yr. 1993-94 which was reduced by the CIT(A) to a lumpsum of Rs. 10,000 only. For the asst. yr. 1995-96, the AO disallowed 1/3rd of the telephone expenditure whereas the CIT(A) reduced it to R ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... idered view is outside the powers of the AO while making a block assessment. It may be noted here that the expenditure was claimed by the assessee as having been incurred for the purpose of profession and, therefore, there cannot be any disallowance on the ground of 'undisclosed income' under s. 158BA of the Act. We, therefore, set aside the disallowance made by the AO out of car expenses and telephone expenses. 32. Vide ground Nos. 8, 17 and 18 assessee contends that the addition of Rs. 12,54,752 made on account of undisclosed deposits in the bank accounts is not in accordance with law. It may be noted here that ground Nos. 17 and 18 were raised by way of additional grounds by which it was contended that there was double addition to the extent of Rs. 1,23,744 as such amount was disclosed in the block return towards unexplained deposits by the family members in their respective bank accounts. It was also contended that the AO erred in not allowing set off of various expenses incurred against the income added in the corresponding period which results in double addition. 32A. Facts in short are that during the course of search proceedings, it was discovered that several account ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... authorised representative contended that the deposits reflected in the bank accounts of Mrs. Kiran Bhatt and Master Rahul Bhatt were added by the AO on an incorrect appreciation of facts. The assessee has furnished complete Explan.and gave bank summaries explaining the entries. He further submitted that Mrs. Kiran Bhatt had some income from dress designing and from investments. The AO erred in estimating her income at Rs. 1,00,000 only. While giving credit of Rs. 1,00,000, the AO ignored her claim that the income from dress designing was earned upto asst. yr. 1994-95 and treated a sum of Rs. 63,740 as being earned by her in the asst. yr. 1997-98 and thus deprived of credit to that extent. The AO also had not taken into consideration the amounts received by her on account of sale of gold, maturity amount from LIC, loans taken from the family members, etc. The AO just totalled up all the deposits in the respective years and treated the same as undisclosed income. The assessee declared a sum of Rs. 1,24,634 in the block return on account of undisclosed deposits in the bank account but the AO again added the same amount by totalling up all the deposits and treating the same as undiscl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s that the AO merely added up the totals of all the bank accounts and made an addition ignoring the detailed contentions. On the other hand, the learned Departmental Representative submitted that the assessee has not furnished sufficient proof to show that Mrs. Kiran Bhatt earned income to invest in purchase of gold, etc. so as to give any credit for the amount available on the date of sale, maturity, etc. He further submitted that the assessee admitted before the AO that any unexplained income shown in the name of Mrs. Kiran Bhatt has to be added in the hands of the assessee and thus the AO was justified in adding the amount standing in the name of his wife in the banks as the undisclosed income of the assessee. 37. We have carefully considered the rival submissions and perused the record. A careful perusal of the material papers with reference to the specific contentions raised by the assessee shows that the AO has made the addition in a routine manner by merely adding up the totals in the bank accounts standing in the name of the assessee and his wife ignoring the specific contentions. In the interest of substantial justice, we set aside this issue to the file of the AO who i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f purchase of jewellery, the sources of which were not explained and hence the purchase value of the jewellery was added as unexplained investment during the block period. 39. Aggrieved, the learned counsel submitted before us that the assessee's wife received cash gifts at the time of birth of her children and such amount was invested towards purchase of gold. Mrs. Soni Bhatt is also a television and film artist and she had purchased certain ornaments out of her past savings and saving generated out of cash given for household expenses by the assessee. He also contended that the gold found at the time of search is much lower than what is already declared by the assessee and his wife in their income-tax and wealth-tax returns for the asst. yrs. 1979-80 and 1985-86, respectively, and hence the normal practice of Indian ladies to recycle the gold frequently should have been appreciated and accepted by the AO, particularly when the jewellery found at the time of search is much lower than what is declared. He further submitted that the bill of Popley Sons dt. 17th May, 1995, does not contain the value of the jewellery. It may be noted that the AO has not added the value of the gol ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or undisclosed income declared in the block return and hence making double additions for the block period 1st April, 1986 to 18th Dec., 1996, as under: Asst. yr. Amount (Rs.) 1988-89 26,085 1994-95 26,085 1995-96 12,319 1996-97 59,255 1997-98 2,00,000 3,23,744 "(18) On the facts and circumstances of the case the learned AO erred by not allowing set off of various expenses incurred against income added in the corresponding period thereby taxing income as well as application thereof resulting in double addition. Without prejudice to the above, if the deposit in the undisclosed bank accounts of the appellant and his relatives is added in the appellants hands, to the extent of cash available and drawings shown in these accounts, the undisclosed income of the appellant may be reduced and set off be given." The learned counsel submitted before us that in the block return filed, an mount of Rs. 4,59,234 was declared as undisclosed income, the break-up of which comprises of drawings and certain undisclosed deposits. We are concerned with the following amounts, which were declared as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m GIRVI. Page 49 is an account for verification by her travel agent in connection with her trips in India. Page 45 is in her handwriting. She stated that the upper part of this page she is unable to recollect, whereas the amount mentioned in the lower part of the page is with regard to the payment made by Mr. Y. Johar. It was also stated that figure 1.00 stands for Rs. 1,00,000. Out of this, Rs. 5,000 each was paid for cupboard and doctor and 23.5 was for household expenses. Page 34 relates to purchase of furniture. The statement of the assessee was also recorded wherein he stated that only accountant and Mrs. Soni can throw some light on his financial matters. Considering the circumstances of the case, the AO was of the opinion that the loose sheets having been found in the possession and control of the assessee, the amounts mentioned therein should be treated as the income of the assessee. He accordingly added a sum of Rs. 9,89,800. 44. Aggrieved, learned counsel contended before us that the assessee and his wife purchased two adjacent flats at Brooklyn Hills, Shastri Nagar, Andheri (W), for a consideration of Rs. 6,93,760 and Rs. 5,49,000, respectively. The flats were purchas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he expenditure as noted in the loose sheet is doctor Rs. 5,000, furniture Rs. 45,000, household expenditure Rs. 23,500, i.e., Rs. 73,500. Deducting the above expenditure from Rs. 2,80,300, the balance of Rs. 2,06,800 should be set off against the other additions. Without prejudice to the above, the learned counsel contended that no addition should be made merely on the basis of some loose sheets found during the course of search and the onus is on the Revenue to prove that the entries in the loose papers reflect the assessee's income. In this regard he relied upon the following decisions: (1) Rambahadurdas Raheja vs. Asstt. CIT (order dt. 23rd Sept., 1998 in IT(SS)A No. 118/Mum/1996); (2) Ashwini Kumar vs. ITO (1992) 42 TTJ (Del) 644 : (1992) 39 ITD 183 (Del); (3) Kishan Chand Sobhrajmal vs. Asstt. CIT (1992) 42 TTJ (Jp) 423 : (1992) 41 ITD 97 (Jp); (4) Likproof India (P) Ltd. vs. Dy. CIT [order dt. 10th Dec., 1998 in IT(SS)A No. 76/Mum/1997]. On the other hand, the learned Departmental Representative strongly relied upon the order of the AO. He submitted that the assessee had not made out a case before the AO and, therefore, the addition made by the AO is in accorda ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... film 'Daddy' produced by the assessee, it is taxable in the year in which the telefilm is released, whereas the assessee continued to show this amount as advance. When the assessee was called upon to comment upon it, the assessee made the following statement on 14th Feb., 1997: "Q. No. 14 Do you want to say anything else? Ans. In view of the statement given by me in respect of certain discrepancies regarding household expenditure, withdrawal for current year under special circumstances at home, air fares, interest payment for partly non-professional purposes which might be there and also Rs. 1,00,000 taken as advance from M/s Vishesh Videotech, I voluntarily offer an amount of Rs. 5 lakhs as my additional income for the relevant block period and I assure you to pay taxes thereon accordingly." Based on the above statement, the AO made an addition of Rs. 1,00,000 in the period relevant to the asst. yr. 1992-93. 48. Aggrieved, the assessee contested the addition before us. The learned authorised representative contended that the entry is duly reflected in the books of account of the assessee and hence it cannot be treated as undisclosed income so as to make an addition und ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tal amount debited is Rs. 2,54,330. The AO found that out of the total expenditure of Rs. 4,00,077 only a portion of that was reflected in the books and the balance was unaccounted expenditure. The case of the assessee was that tickets mentioned at loose paper Nos. 92, 85, 65, 71 and 72 (total Rs. 1,89,695) is debited to assessee's account, ticket mentioned at p. 94 (Rs. 30,352) was sent to the assessee by one of his friends, Mr. James Micheal, Minister of Finance and Communication, Republic of Seychellese and entire expenditure of the trip was borne by him. Tickets mentioned at pp. 93, 97 and 61 (Rs. 1,80,030) were borne by M/s Vishesh Films for shotting of film 'Dastak' for which film the assessee is a director. In this regard the assessee filed a certificate from M/s Vishesh Films. 51. As regards the tickets worth Rs. 1,89,695, the AO found that the reply of the assessee dt. 15th Jan., 1998, is at variance with the reply given on 10th Sept., 1997, wherein the assessee stated that the amount debited to the assessee's account is Rs. 2,54,330. It was further stated that this amount includes Rs. 1,87,719, which is the amount as per seized bills at pp. 5 to 17 of the seized file A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... made on account of expenses incurred during the trip as the same would have been met by the assessee from his unaccounted sources. Out of the bills certified by M/s Vishesh Films, bill No. I-1958 matches with the ticket number mentioned in the seized loose paper No. 61 and, therefore, no addition was made with regard to the ticket purchased to the tune of Rs. 25,665. Thus, the AO made an addition of Rs. 5,19,084. 53A. Learned counsel strongly contested the addition. The points raised by him are; (a) Loose paper contains business statement dt. 23rd Nov., 1996, of Sri U.G. Krishnamurty (spiritual guru of assessee). Total debit in the bill stands at Rs. 22,267. This bill is debited to the account of one Shri N.H. Parekh bearing a/c No. K 027 INT, whereas the assessee's account No. with travel agent is B 037 INT, as can be seen from other bills. Sri Krishnamurty, when he visited assessee, left the paper in assessee's house. (b) Loose paper No. 5 contains credit note issued in favour of assessee. This being discount given on the ticket it should have been deducted from main bill. Action of the AO resulted in double addition. (c) Cancellations/journeys never undertaken in res ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1986 to 18th Dec., 1996." During the course of block assessment proceedings the assessee stated that loans were taken partly for payment of car instalments and other purposes. In answer to Q. No. 10 in the statement recorded on 14th Feb., 1997, the assessee stated as under: "If any thing is paid for non-business purposes, the same may be disallowed." 60. The AO observed that the assessee admitted to have taken loans for non-professional purpose and thus added Rs. 36,000 in the block assessment. 61. Aggrieved, assessee is in appeal before us. Learned authorised representative contended that the expenses are reflected in the income and expenditure accounts which are filed alongwith the return of income. In fact, interest on the loans was disallowed by AO in the assessment proceedings under s. 143(3) of the Act for the asst. yr. 1996-97. Hence addition of Rs. 36,000 is not maintainable in block assessment. Learned Departmental Representative fairly admitted the factual position. We, therefore, delete the addition of Rs. 36,000 in the light of the decision of Tribunal, Bombay Bench, in case of Sunder Agencies. 62. Ground Nos. 15 and 16 are general and ground Nos. 17 to ..... 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