Sri K.S.Ajayan, Thrissur V. DCIT, Trichur

ITA 193/COCH/2010

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 61464 (ITAT-COCHIN)
• Duration Of Justice: 2 year(s) 1 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-04-2012
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: DB
• Next Hearing Date: 02-04-2012
• Assessment Year: 2004-2005
• Appeal Filed On: 11-03-2010
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: S R SENAPATI
• Assessee Lawyers: A S NARAYANAMURTHY
• Keywords: Business income; Income from undisclosed sources; Source of fund
• Section: 153A; 132

Judgement Text

1 ITA NO.191 TO 196/COCH/2010 IN THE INCOME TAX APPELLATE TRIBUNAL COCHIN BENCH, COCHIN BEFORE SHRI N.R.S. GANESAN (JM) AND SHRI B.R. BASKA RAN(AM) I.T.A NO. 191, 192, 193, 194, 195 & 196/COCH/2010 (ASSESSMENT YEARS, 2002-03, 2003-04, 2004-05, 2005- 06, 2006-07 & 2007-08) SHRI K.S.AJAYAN VS DY.CIT, CENT.CIR. AISWARYA TIMBERS THRISSUR PARALAM PO, THRISSUR-680 575 PAN : AEZPA5574Q (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI A.S. NARAYANAMURTHY RESPONDENT BY : SHRI S.R. SENAPATI DATE OF HEARING : 02-04-2012 DATE OF PRONOUNCEMENT : 27-04-2012 O R D E R PER N.R.S. GANESAN (JM) ALL THE SIX APPEALS OF THE ASSESSEE ARE ARISING OU T OF THE SEARCH CONDUCTED U/S 132 OF THE INCOME-TAX ACT ON 26-03-2007. THEREFORE , WE HEARD ALL THE APPEALS TOGETHER AND ARE DISPOSING OF THE SAME BY THIS COMMON ORDER. 2. THE FIRST COMMON ISSUE IN APPEAL FOR ASSESSMENT YEARS 2002-03, 2005-06, 2006- 07 AND 2007-08 PERTAINS TO ADDITION TOWARDS UNDISCL OSED INVESTMENT IN PROPERTY. 3. THE LD.REPRESENTATIVE FOR THE ASSESSEE SHRI A.S. NARAYANAMURTHY SUBMITTED THAT THE ASSESSING OFFICER ON THE BASIS OF THE SEARCH MA TERIAL MADE THE ADDITION OF RS.1,17,000 FOR A.Y 2002-03; RS. 1,35,000 FOR A.Y. 2005-06; RS.3,80,700 FOR A.Y. 2006-07 AND RS.5,00,530 FOR A.Y. 2007-08 BEING THE DIFFEREN CE BETWEEN THE INVESTMENT SHOWN IN 2 ITA NO.191 TO 196/COCH/2010 THE CASH FLOW STATEMENT AND THAT REFLECTED IN THE M ATERIAL SEIZED. HE SUBMITTED THAT THE FIGURES NOTED IN THE CASH FLOW STATEMENT WAS NO T CORRECT FIGURE AND THAT THE COMMISSIONER OF INCOME-TAX(A) WAS NOT JUSTIFIED IN CONFIRMING THE ADDITION. 4. ON THE CONTRARY SHRI S.R. SENAPATI, THE LD.DR SU BMITTED THAT THE SEIZED MATERIAL EVIDENCED TOTAL INVESTMENT OF RS.13,88,085 OVER THE BLOCK PERIOD AGAINST WHICH THE ASSESSEE COULD EXPLAIN THE INVESTMENT ONLY TO THE E XTENT OF RS.2,54,855 BY WAY OF A CASH FLOW STATEMENT. IN THE ABSENCE OF ANY PLAUSIBLE EX PLANATION COMING IN, THE C.I.T.(A) JUSTIFIED IN CONFIRMING THE ADDITION. 5. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS ON EITH ER SIDE AND ALSO PERUSED THE MATERIAL ON RECORD. THERE IS NO DISPUTE THAT THE S EARCH MATERIAL REFLECTED AN AMOUNT OF RS.13,88,085 OVER THE YEARS UNDER THE BLOCK PERIOD. THERE IS ALSO NO DISPUTE THAT THE ASSESSEE COULD EXPLAIN ONLY A SUM OF RS.2,54,855 BY WAY OF A CASH FLOW STATEMENT. SO, THERE IS A DIFFERENCE OF RS. 9,33,230. ACCORDINGLY , THE ASSESSING OFFICER MADE THE ADDITION OF RS.1,17,000 FOR A.Y 2002-03; RS. 1,35,0 00 FOR A.Y. 2005-06; RS.3,80,700 FOR A.Y. 2006-07 AND RS.5,00,530 FOR A.Y. 2007-08 BEING THE DIFFERENCE BETWEEN THE INVESTMENT SHOWN IN THE CASH FLOW STATEMENT AND THA T REFLECTED IN THE MATERIAL SEIZED. THE APPEALS FILED BEFORE THE COMMISSIONER OF INCOME -TAX(A) DID NOT FIND FAVOUR WITH HIM AS THE ASSESSEE COULD NOT FURNISH ANY PLAUSIBLE EXPLANATION FOR THE DIFFERENCE NOTICED. EVEN BEFORE US ALSO THE LD.REPRESENTATIVE COULD NOT FURNISH ANY EVIDENCE TO EXPLAIN THE DIFFERENCE FOUND IN THE INVESTMENT IN P ROPERTIES. AS SUCH, WE ARE UNABLE TO FIND ANY INFIRMITY IN THE ORDER OF THE LOWER AUTHOR ITIES. WE CONFIRM THE ORDER OF COMMISSIONER OF INCOME-TAX(A) AND DISMISS THE GROUN D RAISED BY THE ASSESSEE. 6. THE NEXT COMMON ISSUES FOR ASSESSMENT YEARS 2003 -04, 2004-05, 2005-06, 2006- 07 AND 2007-08 PERTAINS TO ADDITION TOWARDS UNEXPLA INED INVESTMENT IN TIMBER BUSINESS / UNACCOUNTED INCOME FROM TIMBER BUSINESS. 3 ITA NO.191 TO 196/COCH/2010 7. THE LD.REPRESENTATIVE FOR THE ASSESSEE SHRI A.S. NARAYANAMURTHY SUBMITTED THAT THE ASSESSING OFFICER ON THE BASIS OF THE SEARCH MA TERIAL MADE THE ADDITION ON ACCOUNT OF INVESTMENT IN TIMBER BUSINESS AND INCOME FROM TIMBE R BUSINESS AND THE C.I.T.(A) CONFIRMED / REDUCED THE SAME TO THE FOLLOWING EXTEN T: A.Y. DESCRIPTION ADDITION BY A.O . ADDITION SUSTAINED BY C.I.T.(A) 03-04 INVESTMENT IN TIMBER BUSINESS RS. 4,76,938 RS. 4,76,938 INCOME FROM TIMBER BUSINESS - - 04-05 INVESTMENT IN TIMBER BUSINESS RS. 2,05,674 RS. 1,93,067 INCOME FROM TIMBER BUSINESS RS.11,20,829 RS. 12,607 05-06 INVESTMENT IN TIMBER BUSINESS RS.1,35,000 R S.1,01,195 INCOME FROM TIMBER BUSINESS RS.8,99,762 RS. 3 3,805 06-07 INVESTMENT IN TIMBER BUSINESS RS. 2,50,000 RS. 2,50,000 INCOME FROM TIMBER BUSINESS RS.8,17,195 RS. 55,576 07-08 INVESTMENT IN TIMBER BUSINESS RS. 5,00,530 RS. 3,52,314 INCOME FROM TIMBER BUSINESS RS.11,38,014 RS. 1, 48,216 HE SUBMITTED THAT NO MATERIAL WAS FOUND DURING THE COURSE OF SEARCH OPERATION. THEREFORE, THE UNACCOUNTED INCOME COMPUTED BY THE A SSESSING OFFICER FOR THE BLOCK PERIOD ON THE BASIS OF SEARCH OPERATION IS NOT JUST IFIED. ACCORDING TO THE LD.REPRESENTATIVE, THE ASSESSING OFFICER HAS TO CON FINE HIMSELF ONLY TO SEARCH MATERIAL FOUND DURING THE COURSE OF SEARCH OPERATION. THE L D.REPRESENTATIVE PLACED HIS RELIANCE ON THE DECISION OF THIS TRIBUNAL IN LMJ INTERNATION AL VS DY.CIT 14 DTR 540 (CAL). 8. ON THE CONTRARY SHRI S.R. SENAPATI, THE LD.DR SU BMITTED THAT WITH EFFECT FROM 01- 06-2003 THE PROCEDURE FOR COMPUTING THE INCOME IN C ASE OF SEARCH WAS CHANGED. ACCORDING TO THE LD.DR, THE LEGISLATURE HAS INTRODU CED NEW SCHEME FOR THE PURPOSE OF 4 ITA NO.191 TO 196/COCH/2010 ASSESSING THE INCOME FOR THE SIX YEARS U/ 153A OF T HE ACT. THEREFORE, THE PROVISIONS OF SECTION 158BB(1) IS NOT APPLICABLE FOR THE YEARS UN DER CONSIDERATION. 9. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS ON EITH ER SIDE AND ALSO PERUSED THE MATERIAL ON RECORD. AS RIGHTLY SUBMITTED BY THE LD .DR, THE PROVISIONS OF CHAPTER XIVB ARE NOT APPLICABLE IN RESPECT OF SEARCHES CONDUCTED AFTER 31-05-2003. THIS IS MADE CLEAR BY THE LEGISLATURE BY INTRODUCING SECTION 158B(1) B Y FINANCE ACT, 2003 WITH EFFECT FROM 01-06-2003. THEREFORE, THE PROVISIONS OF SECTION 1 58BB WHICH PROVIDES FOR METHOD FOR COMPUTATION OF UNDISCLOSED INCOME FOR THE BLOCK PER IOD IS NOT APPLICABLE IN THE PRESENT CASE SINCE ADMITTEDLY, THE SEARCH WAS CONDUCTED ON 26-03-2007. THEREFORE, THE NEW PROCEDURE THAT PROVIDED BY LEGISLATURE IN SECTION 1 53A WITH EFFECT FROM 01-06-2003 BY FINANCE ACT, 1003 IS APPLICABLE. UNDER THE NEW SCH EME, THE PENDING ASSESSMENT PROCEEDINGS WILL ABATE AND THE ASSESSING OFFICER HA S TO COMPUTE THE INCOME ON THE BASIS OF THE MATERIAL FOUND DURING THE COURSE OF SEARCH O PERATION AND ALSO THE OTHER MATERIALS AVAILABLE ON RECORD. THERE IS NO RESTRICTION FOR T HE ASSESSING OFFICER TO CONFINE HIMSELF ONLY TO THE SEARCH MATERIAL IN THE NEW SCHEME AS PR OVIDED IN SECTION 153A. A BARE READING OF SECTION 158BB AND 153A WOULD CLEARLY IND ICATE THAT THE LEGISLATURE NEVER INTENDED TO CONFINE TO THE SEARCH MATERIAL WHEN THE ASSESSMENT WAS FRAMED U/S 153A OF THE ACT. THIS LANGUAGE EMPLOYED BY THE LEGISLAT URE IN SECTIONS 153BB AND 153A HAS TO BE TAKEN INTO CONSIDERATION WHILE COMPUTING THE INC OME U/S 153A OF THE ACT. IN VIEW OF THE ABOVE, THE DECISION OF THE CALCUTTA BENCH OF TH IS TRIBUNAL IN LMJ INTERNATIONAL LTD (SUPRA) MAY NOT BE APPLICABLE TO THE FACTS OF THIS CASE. IN OTHER WORDS, THE ITO OR THE ASSESSING OFFICER HAS TO COMPUTE THE INCOME ON THE BASIS OF THE MATERIAL AVAILABLE ON RECORD INCLUDING THE MATERIAL FOUND DURING THE COUR SE OF SEARCH OPERATION. 10. NOW COMING TO THE MERIT OF THE ADDITIONS, THE C ONTENTION OF THE ASSESSEE IS THAT THE ASSESSEE IS NOT MAINTAINING BOOKS OF ACCOUNT AN D THE INCOME WAS OFFERED U/S 44AF OF THE ACT. ACCORDING TO THE LD.COUNSEL, THE BALAN CE IN THE CAPITAL ACCOUNT WAS TAKEN AS UNDISCLOSED INVESTMENT BY THE ASSESSING OFFICER. F URTHER, THE CAPITAL INVESTMENT WAS 5 ITA NO.191 TO 196/COCH/2010 GENERATED IN THE COURSE OF BUSINESS ACTIVITY FOR VA RIOUS YEARS. THEREFORE, NO SEPARATE ADDITION IS CALLED FOR. 11. ON THE CONTRARY, SHRI S.R. SENAPATI, THE LD.DR SUBMITTED THAT DURING THE COURSE OF EXAMINATION OF THE ACCOUNTS, THE ASSESSING OFFICER FOUND THAT A CAPITAL INTRODUCTION OF RS.4,76,928 IN THE TIMBER BUSINESS FOR THE FINANCI AL YEAR 2002-03, RS. 2,05,674 IN FINANCIAL YEAR 2003-04; AND RS.2,50,000 IN THE FINA NCIAL YEAR 2005-06. THE ASSESSEE COULD NOT EXPLAIN THE SOURCE FOR INTRODUCTION OF CA PITAL IN THE TIMBER BUSINESS. WITH REGARD TO THE ADDITION ON ACCOUNT OF INCOME FROM TI MBER BUSINESS, THE LD. DR SUBMITTED THAT THE ASSESSEE WAS IN THE HABIT OF DESTROYING TH E ACTUAL ACCOUNTS OF THE BUSINESS DAILY OR PERIODICALLY. THEREFORE, ON THE BASIS OF THE SE IZED MATERIAL ANNEXURES A-9, 22 AND 26, THE ASSESSING OFFICER HAD NO ALTERNATIVE, BUT TO ES TIMATE THE INCOME AND MAKE THE IMPUGNED ADDITIONS. HOWEVER, DUE TELESCOPING OF TH E ADDITIONS MADE ON ACCOUNT OF INVESTMENTS IN PROPERTIES, ETC. HAS BEEN GRANTED. 12. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS ON EIT HER SIDE AND ALSO PERUSED THE MATERIAL ON RECORD. ADMITTEDLY, THE ASSESSING OFFI CER FOUND CAPITAL INTRODUCTION OF RS.4,76,928 IN THE TIMBER BUSINESS FOR THE FINANCI AL YEAR 2002-03, RS. 2,05,674 IN FINANCIAL YEAR 2003-04; AND RS.2,50,000 IN THE FINA NCIAL YEAR 2005-06. THE ASSESSEE WAS NOT ABLE TO EXPLAIN THE SOURCE OF FUNDS FOR INTRODU CTION IN THE BUSINESS. FURTHER, ON THE BASIS OF THE SEIZED MATERIAL ANNEXURES A-9, 22 & 26 THE ASSESSING OFFICER ESTIMATED THE PROFIT FOR THE YEARS UNDER CONSIDERATION. ON APPEA L, THE COMMISSIONER OF INCOME-TAX(A) HAS GRANTED SUBSTANTIAL RELIEF WHICH IS TABULATED E LSEWHERE IN THIS ORDER. FURTHER, WE HAVE ALREADY UPHELD THE ORDER OF COMMISSIONER OF IN COME-TAX(A) AGAINST ADDITION ON ACCOUNT OF INVESTMENT IN PROPERTIES. HOWEVER, WE A RE OF THE VIEW THAT THE ADDITIONS MADE ON THE BASIS OF ESTIMATES IN RESPECT OF BUSINE SS INCOME, HOUSEHOLD EXPENSES / PERSONAL EXPENSES, AND INVESTMENT IN BUSINESS AND P ROPERTIES SHOULD NOT IN ANY WAY EXCEED THE UNDISCLOSED INCOME THAT MAY BE TRANSPIRE D FROM THE SEIZED MATERIAL. IN NUTSHELL TO SAY THAT THE TOTAL UNDISCLOSED INCOME T HAT MAY BE ASSESSED SHOULD NOT 6 ITA NO.191 TO 196/COCH/2010 EXCEED THE INCOME / INVESTMENT FOUND IN THE SEIZED MATERIAL. IN OTHER WORDS, THE ASSESSING OFFICER SHOULD TELESCOPE THE ESTIMATED IN COMES, VIZ. BUSINESS INCOME AND HOUSEHOLD EXPENDITURE / PERSONAL EXPENSES WITH THE INVESTMENTS IN PROPERTIES AND IN BUSINESS. WITH THESE OBSERVATIONS WE UPHOLD THE AD DITION CONFIRMED BY THE COMMISSIONER OF INCOME-TAX(A). 9. THE LAST COMMON ISSUE FOR ASSESSMENT YEARS 2003- 04, 2005-06 AND 2006-07 07- 08 PERTAINS TO ADDITION ON ACCOUNT OF LOW WITHDRAWA L FOR PERSONAL EXPENDITURE / HOUSEHOLD EXPENSES. 10. SHRI A.S. NARAYANAMURTHY, THE LD.REPRESENTATIVE FOR THE ASSESSEE SUBMITTED THAT THE ASSESSEE WAS STAYING WITH HIS MOTHER IN THE ANC ESTRAL HOUSE AND THERE ARE OTHER EARNING MEMBERS IN THE FAMILY WHO ARE ALSO ASSESSED TO INCOME-TAX. IF THE INCOME OF THE OTHER FAMILY MEMBERS IS ALSO CONSIDERED, ACCORD ING TO THE LD.REPRESENTATIVE, THERE WOULD BE NO ADDITION FOR PERSONAL DRAWINGS. 11. ON THE CONTRARY, SHRI S.R. SENAPATI, THE LD.DR SUBMITTED THAT AFTER THE SEARCH OPERATION THE ASSESSING OFFICER EXAMINED THE ASSESS EE. AFTER CONSIDERING THE HOUSEHOLD EXPENSES AND THE AMENITIES FOUND AT THE RESIDENCE O F THE ASSESSEE, THE ASSESSING OFFICER CAME TO THE CONCLUSION THAT THE DRAWINGS DISCLOSED BY THE ASSESSEE TO THE EXTENT SHOWN IN EACH ASSESSMENT YEAR UNDER APPEAL FOR PERSONAL / HOUSEHOLD EXPENDITURE WAS NOT SUFFICIENT. AFTER TAKING INTO CONSIDERATION OF THE LIFE STYLE, THE AMENITIES FOUND IN THE RESIDENCE OF THE ASSESSEE AND THE AMOUNT BORROWED F OR THE PURPOSE OF BUSINESS, THE ASSESSING OFFICER ESTIMATED THE PERSONAL EXPENSES / HOUSEHOLD EXPENSES FOR THE ASSESSMENT YEAR 2002-03 @RS.60,000 ; FOR THE ASSESS MENT YEAR 2003-04 @ RS.72,000; FOR THE ASSESSMENT YEARS 2004-05 AND 2005-06 @RS.96 ,000 AND FOR THE ASSESSMENT YEARS 2006-07 & 2007-08 @ RS.1,20,000 AS AGAINST SH OWN AT RS.60,000, RS.30,171, RS. 96,000, 45,088, 95,300 & RS.40,900 RESPECTIVELY. F URTHER, THE SEIZED MATERIAL SHOWED THAT THE ASSESSEE HAD DONATED RS.22,500 BETWEEN NOV EMBER, 2006 TO 20-03-2007. 7 ITA NO.191 TO 196/COCH/2010 THEREFORE, ACCORDING TO THE LD.DR, THE ESTIMATION R ESORTED TO BY THE ASSESSING OFFICER IS QUITE REASONABLE. 12. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND AL SO PERUSED THE MATERIAL AVAILABLE ON RECORD. THE DRAWINGS SHOWN BY THE ASS ESSEE FOR PERSONAL / HOUSEHOLD EXPENDITURE APPEARS TO BE VERY LOW. THE ASSESSING OFFICER THEREFORE ESTIMATED THE PROBABLE EXPENDITURE FOR THE HOUSEHOLD AND PERSONAL EXPENDITURE AND ADDED THE DIFFERENCE TO THE TOTAL INCOME. THE ESTIMATION MAD E BY THE ASSESSING OFFICER ASSESSMENT YEAR 2002-03 @RS.60,000 ; FOR THE ASSESS MENT YEAR 2003-04 @ RS.72,000; FOR THE ASSESSMENT YEARS 2004-05 AND 2005-06 @RS.96 ,000 AND FOR THE ASSESSMENT YEARS 2006-07 & 2007-08 @ RS.1,20,000 APPEARS TO BE VERY REASONABLE. THEREFORE, THIS TRIBUNAL DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE LOWER AUTHORITY. ACCORDINGLY THE SAME IS CONFIRMED. 13. IN THE RESULT, ALL THE SIX APPEALS OF THE ASSE SSEE ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 27 TH DAY OF APRIL, 2012. SD/- SD/- (B.R. BASKARAN) (N.R.S. GANESAN) ACCOUNTANT MEMBER JUDICIAL MEMBER COCHIN, DT : 27 TH APRIL, 2012 PK/- COPY TO: 1. K.S.AJAYAN, AISWAYA TIMBERS, PARALAM PO, TRICHUR-68 0 575 2. DY.CIT, CENT.CIR, THRISSUR 3. THE COMMISSIONER OF INCOME-TAX(A)-I, KOCHI 4. THE COMMISSIONER OF INCOME-TAX, TRICHUR 5. THE DR (TRUE COPY) BY ORDER ASSTT. REGISTRAR, INCOME-TAX APPELLATE TRIBUNAL, COCHIN BENCH