Shri Mahendrabhai Chunilal Patel, Surat V. The Dy.CIT.,Cent.Circle-3, Surat

ITA 3739/AHD/2008

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 5934 (ITAT-AHMEDABAD)
• Duration Of Justice: 1 year(s) 7 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-06-2010
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: C
• Next Hearing Date: 14-06-2010
• Assessment Year: 2005-2006
• Appeal Filed On: 17-11-2008
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: K M MAHESH
• Assessee Lawyers: ASHWIN PAREKH
• Keywords: Search and seizure; Loose papers; Question of law; Valuation report; Block assessment
• Section: 40A(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH 'C' [BEFORE S/SHRI D T GARASIA-JM & A N PAHUJA-AM] ITA NO.3739/AHD/2008 (ASSESSMENT YEAR:-2005-06) SHRI MAHENDRABHAI CHUNILAL PATEL, 1-14, VIGNESHWAR PARK RAW HOUSE, ANAND MAHAL ROAD, ADAJANM SURAT PA NO. ABBPP 1349 M V/S THE DEPUTY COMMISSIONER OF INCOME-TAX, CENTRAL CIRCLE-3, SURAT [APPELLANT] [RESPONDENT] APPELLANT BY :- SHRI ASHWIN PAREKH, AR RESPONDENT BY:- SHRI K M MAHESH, SR. DR O R D E R PER D T GARASIA(JM): THIS IS AN APPEAL FILED BY THE ASSESSEE AGAINST AN ORDER DATED 01-10-2008 OF LEARNED COMMIS SIONER OF INCOME-TAX (APPEALS)-II, AHMEDABAD [THE CIT(A)] F OR ASSESSMENT YEAR (AY) 2005-06, RAISING THE FOLLOWING GROUNDS OF APPEAL:- I. THE LEARNED CIT(A) HAS GRIEVOUSLY ERRED IN LAW A ND ON FACTS IN CONFIRMING THE ADDITION OF RS.1,56,605/- U/S 40A(3) OF THE ACT FOR UNACCOUNTED EXPENSES ALLOWED AGAINST THE UNACCOUNTE D RECEIPTS OF ASTAVINAYAK RAW HOUSE PROJECT. THE ADDITION OF RS.1 ,56,605/- SHOULD BE DELETED. II THE LEARNED CIT(A) HAS GRIEVOUSLY ERRED IN LAW A ND ON FACTS IN CONFIRMING THE ADDITION OF RS.42,00,000/- FOR ALLEG ED 'ON MONEY' RECEIPTS ON THE BASIS OF STATEMENT OF ONE BUYER FOR ADDITION CONSIDERATION PAID OF EXTRA WORK ADMITTED IN CROSS EXAMINATION AND ITA NO.3739/AHD/2008 FOR AY 2005-06 SHRI MAHENDRABHAI C PATEL 2 DISREGARDING THE EVIDENCES OF CORRECT 'ON MONEY' FR OM PROJECT FOUND AND SEIZED FROM APPELLANT. THE ADDITION OF RS.42,00 ,000/- SHOULD THEREFORE, BE DELETED. III. THE LEARNED CIT(A) HAS GRIEVOUSLY ERRED IN LAW AND ON FACTS IN CONFIRMING THE ADDITION OF RS.2,12,488/- FOR ANNEXU RE : B/L/1 THE TOTAL AMOUNT OF WHICH IS RS.7,89,240/- RECORDED IN THE BO OKS OF ACCOUNTS OF A.Y. 1998/99 AND A.Y. 1999/2000. THE ADDITION OF RS .2,12,488 SHOULD BE DELETED. 2 AS REGARDS GROUND NO.1 THE FACTS OF THE CASE ARE THAT DURING THE COURSE OF SEARCH IN DECEMBER, 2004, FROM THE BA NK LOCKER WITH BANK OF BARODA, CERTAIN PAPERS WERE FOUND AND SEIZED VIDE ANNEXURE BS. THESE PAPERS CONTAINED TRANSACTIONS IN RESPECT OF 3 PROJECTS I.E. (1) ASHTAVINAYAK ROW HOUSE, (2) SIDDH I VINAYAK ROW HOUSE & (3) VIGHNESHWAR PARK ROW HOUSE. THESE P APERS CONTAINED INCOME AND EXPENDITURE OF THESE PROJECTS. THESE INDICATED EXPENSES MADE BY WAY OF CASH PAYMENTS EXC EEDING RS.20,000/- IN VIOLATION OF SECTION 40A(3) OF THE I NCOME-TAX ACT, 1961 [THE ACT]. THE TRANSACTIONS WERE CONSTRUCTED BY 3 PERSONS VIZ. SHRI LABHUBHAI R JASANI, SHRI MAHENDRABHAI C P ATEL AND SHRI BHAVIN J TAILOR (ASSESSEE). THE AO AFTER WORKI NG OUT THE EXPENSES DISALLOWED THE EXPENSES OF RS.1,56,605/-. 3 AGGRIEVED, THE ASSESSEE FILED AN APPEAL BEFORE TH E CIT(A). THE CIT(A) CONFIRMED THE DISALLOWANCE BY OBSERVING AS UNDER: 2.3 I HAVE CONSIDERED THE FACTS AND THE SUBMISSION S. I DO NOT AGREE WITH THE APPELLANTS VIEW. IT IS A FACT THAT PAYMEN T OF EXPENSES EXCEEDED RS.20,000/- AND PAYMENT WAS MADE IN CASH. THE APPELLANT HAS OFFERED PROFIT FOR THE NET AMOUNT AFTER DEDUCTI NG SUCH EXPENSES. HENCE, THESE EXPENSES ARE TREATED AS RECORDED EXPEN SES AND THE AO ITA NO.3739/AHD/2008 FOR AY 2005-06 SHRI MAHENDRABHAI C PATEL 3 WAS JUSTIFIED IN MAKING DISALLOWANCE U/S 40A(3) OF THE ACT. HENCE, THIS GROUND OF APPEAL IS REJECTED. 4 BEFORE US, THE LEARNED AR ON BEHALF OF THE ASSESS EE REITERATED THE ARGUMENTS ADVANCED BEFORE THE CIT(A) AND SUBMITTED THAT THE PROVISIONS OF SECTION 40A(3) ARE NOT APPLICABLE TO UNACCOUNTED TRANSACTION WRITTEN ON LOOSE PAPERS AS THESE ARE NOT IN REGULAR BOOKS OF ACCOUNTS. THE LEARNED DR, ON THE OTHER HAND, SUPPORTED THE ORDERS OF THE AO AND THE CIT(A) . 5 WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSION S AND PERUSED THE MATERIAL ON RECORD. WE FIND THAT THE IS SUE IS COVERED IN FAVOUR OF THE REVENUE AND AGAINST THE ASSESSEE B Y THE DECISION OF THE ITAT AHMEDABAD BENCH-C IN THE CASE OF SHRI L ABHUBHAI R JASANI IN ITA NO.3201/AHD/2007, WHEREIN THE TRIBU NAL VIDE PARA-3 OF THE ORDER HAS DISMISSED THE GROUND RAISED BY THE ASSESSEE, BY OBSERVING AS UNDER: 3. AT THE OUTSET, LD COUNSEL FOR THE ASSESSEE CONC EDED THAT THIS ISSUE IS COVERED AGAINST THE ASSESSEE AND IN FAVOUR OF THE REVENUE BY THE DECISION OF HON'BLE GUJARAT HIGH COURT IN THE C ASE OF CIT V. HYNOUP FOOD AND OIL IND. P. LTD. 290 ITR 702 (2007) (GUJ.) WHEREIN THE HON'BLE GUJARAT HIGH COURT HAS HELD AS UNDER:- 'THE NEED TO PROVE GENUINENESS OF THE PAYMENT AND T HE IDENTITY OF THE PAYEE CAN BE APPRECIATED FROM A SLIGHTLY DIF FERENT ANGLE. THE REVENUE MUST BE PERMITTED TO INQUIRE AND ASCERT AIN THAT THE PAYMENT MADE IN CASE BY AN ASSESSEE IS REFLECTED IN THE ACCOUNTS OF THE RECIPIENT PAYEE. IN OTHER WORDS, THE CASH PA ID BY AN ASSESSEE SHOULD REMAIN IN REGULAR AND LEGAL BUSINES S AND BANKING CHANNEL. IN THE ABSENCE OF THE IDENTITY OF THE PAYEE IT WILL NOT BE POSSIBLE FOR THE DEPARTMENT TO ASCERTAI N THE DESTINATION OF THE PAYMENT. THIS IS, OF COURSE, SUB JECT TO THE ITA NO.3739/AHD/2008 FOR AY 2005-06 SHRI MAHENDRABHAI C PATEL 4 GENUINENESS OF THE TRANSACTION AND PAYMENT BEING ES TABLISHED. THEREFORE, RULE 6DD(I) CAN BE APPLIED ONLY IN CASES WHERE THE GENUINENESS OF THE PAYMENT IS ESTABLISHED, THE PAYE E IS IDENTIFIED, AND ONLY THEN THE QUESTION AS TO WHETHE R THE PAYMENT IN CASH WAS MADE IN EXCEPTIONAL OR UNAVOIDABLE CIR CUMSTANCES CAN BE EXAMINED. IN THE LIGHT OF WHAT IS STATED HEREINBEFORE, IT IS NOT POSSIBLE TO ACCEPT THE FINDINGS OF THE TRIBUNAL. THE TRIBUNAL H AS COMMITTED AN ERROR IN LAW IN HOLDING THAT THE CASE OF THE ASS ESSEE WOULD BE COVERED BY THE EXCEPTIONS PROVIDED IN RULE 6DD(I) O F THE RULES. THE TRIBUNAL HAS APPARENTLY LOST SIGHT OF THE DISTI NCTION BETWEEN AN ENTIRE BUSINESS WHICH IS ILLEGAL AND A BUSINESS WHICH IS OTHERWISE LAWFUL WHEREIN THE ASSESSEE RESORTS TO UN LAWFUL MEANS TO ARGUMENT HIS PROFITS. AFTER GOING THROUGH THE ORDER OF CIT(A), IT IS NOTI CED THAT DISALLOWANCE OF RS.2,27,789/- IS RELATING TO CASH P AYMENT AND DISALLOWED AS PER SECTION 40A(3) OF THE ACT. THE SA ME HAVE BEEN CONFIRMED BY CIT(A) VIDE PARA 2.6 OF HIS APPELLATE ORDER, WHICH READS AS UNDER:- '2.6 I HAVE CAREFULLY CONSIDERED THE ASSESSMENT ORD ER AND THE ABOVE SUBMISSIONS. IT IS A FACT THAT THE EXPENSES A RE UNRECORDED EXPENSES. IT IS ALSO A FACT THAT IT INCLUDES PAYMEN TS EACH OF WHICH IS EXCEEDING RS. 20,0007-AND SUCH PAYMENT IS IN CASH. THE APPELLANT HAS OFFERED PROFIT FOR THE NET AMOUNT AFTER DEDUCTING SUCH EXPENSES. THUS THE PROFIT CALCULATED IS ARRIVED AT AFTER CONSIDERING SUCH EXPENSES AS IF IT IS A RECOR DED EXPENSES. IN THE CIRCUMSTANCES THE AO WAS JUSTIFIED IN MAKING DISALLOWANCE U/S.40A(3). SIMILARLY THE UNSUBSTANTIA TED EXPENSES STATED IN THE ASSESSMENT ORDER ARE ADMITTED BY THE APPELLANT ITSELF IN THE SUBMISSION BEFORE THE AO AND, HENCE, HE WAS JUSTIFIED IN MAKING THE DISALLOWANCE FOR SUCH UNSUB STANTIATED EXPENSES. THE APPELLANT ALSO HAS NOT DISPUTED THE D ISALLOWANCE OF UNSUBSTANTIATED EXPENSES IN THE GROUNDS OF APPEA L. THEY HAVE DISPUTED THE DISALLOWANCE OF RS.2,27,789/- WHICH IS RELATING TO THE CASH PAYMENT DISALLOWED AS PER SECTION 40A(3) O F THE ACT. ACCORDINGLY, THIS GROUND OF APPEAL IS DISMISSED. ITA NO.3739/AHD/2008 FOR AY 2005-06 SHRI MAHENDRABHAI C PATEL 5 FROM THE ABOVE FACTS, IT IS NOTICED THE ISSUE IS SQ UARELY COVERED IN FAVOUR OF THE REVENUE AND AGAINST THE ASSESSEE BY T HE DECISION OF HONBLE GUJARAT HIGH COURT HYNOUP FOOD AND OIL IND. P. LTD. (SUPRA). RESPECTFULLY FOLLOWING THE HONBLE GUJARAT HIGH COURT, WE DISMISS THIS ISSUE OF THE ASSESSEES APPEAL. 6 RESPECTFULLY FOLLOWING THE AFORESAID DECISION OF THE ITAT, WE DECIDE THE ISSUE AGAINST THE ASSESSEE AND DISMIS S THE FIRST GROUND OF APPEAL RAISED BY THE ASSESSEE. 7 THE SECOND GROUND RAISED BY THE ASSESSEE RELATES TO CONFIRMATION OF AN ADDITION OF RS.42,00,000/- FOR A LLEGED ON- MONEY RECEIPTS. THE FACTS OF THE CASE THAT ON THE BASIS OF LOOSE SHEETS, THE ASSESSEE ADMITTED RECEIPT OF RS.1,22,00 ,000/- AS COLLECTION OF ON-MONEY AND AFTER CONSIDERING THE UNRECORDED EXPENSES, RS.90,00,000/- WERE OFFERED FOR TAXATION. HOWEVER, THE AO NOTICED THAT ONE OF THE PERSONS TO WHOM ROW HOUS E WAS ALLOTTED NAMELY SHRI MANSUKHBHAI VASTABHAI RANGPARI YA WHOSE STATEMENT WAS RECORDED AT THE TIME OF SEARCH ADMITT ED THAT HE MADE TOTAL PAYMENT OF RS.23 LAKHS AND ON-MONEY OF RS.10 LAKHS FOR THE ROW HOUSE IN ASTVINAYAK ROW HOUSE SCH EME. ACCORDINGLY, THE AO AFTER DISCUSSING IN DETAIL IN T HE ASSESSMENT ORDER, PARA-6, PAGES 12 TO 20, HELD THAT THE TOTAL ON-MONEY OTHER THAN RECORDED IN THE SEIZED PAPERS IS WORKED OUT AT RS.1,56,00,000/-, ALLOCABLE TO 3 PERSONS ON THE BAS IS OF NUMBER OF ROW HOUSE CONSTRUCTED BY THEM AS BELOW: ITA NO.3739/AHD/2008 FOR AY 2005-06 SHRI MAHENDRABHAI C PATEL 6 SR. NO. NAME OF THE PERSON ROW HOUSES CONSTRUCTED AMOUNT OF ON-MONEY RECEIVED (RS.) INCOME TAXED (RS.) 1 LABHUBHAI R JASANI 12 6,00,000 72,00,000 2 MAHENDRA C PATEL 7 6,00,000 42,00,000 3 BHAVIN J TAILOR 7 6,00,000 42,00,000 THE AO THEREFORE MADE THE IMPUGNED ADDITION OF RS.4 2,00,000/- ON ACCOUNT OF ON-MONEY RECEIPT IN THE ASSESSMENT ORDER. 8 ON APPEAL, THE LEARNED CIT(A) HAS DEALT WITH THE ISSUE VIDE PARAS 3.2 AND 3.3 OF THE APPELLATE ORDER AND DISMIS SED THE GROUND RAISED BY THE ASSESSEE, AS UNDER:- 3.2 THE APPELLANT MADE THE SAME SUBMISSIONS AS MADE BEFORE THE AO AND SUBMITTED THAT THE ADDITION CANNOT BE MADE O N THE BASIS OF 3 RD PERSONS STATEMENT. THE APPELLANT SUBMITTED THAT TH IS SHOULD BE DELETED. 3.3 I HAVE CONSIDERED THE FACTS AND SUBMISSIONS. I DO NOT AGREE WITH THE APPELLANTS VIEW. ON SIMILAR FACTS, THE ADDITIO N OF RS.72,00,000/- MADE IN THE CASE OF LABHUBHAI R JASANI HAS BEEN UPH ELD BY THE CIT(A) FOR AY 2005-06 VIDE APPEAL NO. CIT(A)-II/CC. 3/523/2006-07 DATED 17-05-2007. AS THE FACTS ARE THE SAME, FOLLOW ING THE ORDER OF MY PREDECESSOR IN THAT CASE, I HOLD THAT THE AO WAS JU STIFIED IN MAKING THE ADDITION HENCE, THE SAME IS CONFIRMED. THEREFORE, T HIS GROUND IS ALSO REJECTED. 9 BEFORE US, THE LEARNED AR ON BEHALF OF THE ASSESS EE REITERATED THE ARGUMENTS ADVANCED BEFORE THE CIT(A) AND SUBMITTED THAT THE ADDITION CANNOT BE MADE ON THE B ASIS OF 3 RD ITA NO.3739/AHD/2008 FOR AY 2005-06 SHRI MAHENDRABHAI C PATEL 7 PERSONS STATEMENT. THE LEARNED DR, ON THE OTHER HA ND, SUPPORTED THE ORDERS OF THE AO AND THE CIT(A). 10 WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIO NS AND PERUSED THE MATERIAL ON RECORD. WE FIND THAT THE IS SUE IS COVERED IN FAVOUR THE ASSESSEE BY THE DECISION OF THE ITAT AHMEDABAD BENCH-C IN THE CASE OF SHRI LABHUBHAI R JASANI IN I TA NO.3201/AHD/2007, WHEREIN THE TRIBUNAL VIDE PARA-11 AND 12 OF THE ORDER HAS DISMISSED THE GROUND RAISED BY THE AS SESSEE, BY OBSERVING AS UNDER:- 11. IN VIEW OF THE ABOVE FACTS AND CIRCUMSTANCES O F THE CASE, NOW WE HAVE TO GO INTO THE SETTLED PROPOSITION OF LAW B Y VARIOUS HON'BLE HIGH COURTS AS REFERRED BY THE LD. COUNSEL FOR THE ASSESSEE. IT IS WELL SETTLED THAT IN CASES WHERE MATERIAL IS DETECTED AF TER SEARCH AND SEIZURE OPERATIONS ARE CARRIED OUT, THE ASSESSING OFFICER I S TO DETERMINE THE UNDISCLOSED INCOME. IN SUCH CASES ADDITIONS ARE GEN ERALLY BASED ON ESTIMATES. IN MATTERS OF ESTIMATION SOME AMOUNT OF LATITUDE IS REQUIRED TO BE SHOWN TO THE ASSESSING OFFICER PARTICULARLY W HEN RELEVANT DOCUMENTS ARE NOT FORTHCOMING. HOWEVER, IT DOS NOT MEAN THAT THE ASSESSING OFFICER CAN ARRIVE AT ANY FIGURE, WITHOUT ' ANY BASIS BY ADOPTING AN ARBITRARY METHOD OF CALCULATION. THE HO N'BLE BOMBAY HIGH COURT IN THE CASE OF CIT V. C.J.SHAH & CO., (2 000) 246 ITR 671, 672 (BORN,)} 'HAS IN THE FACTS OF THAT CASE, IT HAS BEEN HELD THAT NO SUBSTANTIAL QUESTION OF LAW AROSE AS THE TRIBUNAL H AS RECORDED A FINDING BASED ON FACTS AND HAS HELD THAT THE ADDITI ON OF RS.3.40 CRORES WAS TOTALLY UNJUSTIFIED. SIMILARLY, WHERE IT IS FOU ND DURING THE SEARCH, THAT THE ASSESSEE HAD CONSTRUCTED A BUNGALOW, ON WH ICH THE ASSESSEE HAD INCURRED EXPENSES OF RS.4.16 LAKHS, NO ADDITION ON ACCOUNT OF DIFFERENCE BETWEEN THE VALUATION MADE BY THE DEPART MENTAL VALUER AND THE EXPENSES SO INCURRED CAN BE SUSTAINED AS UN DISCLOSED INCOME SO AS TO ATTRACT THE PROVISIONS OF CHAPTER XIV-B. H ENCE, THE HON'BLE BOMBAY HIGH COURT HAS HELD THAT TRIBUNAL WAS JUSTIF IED IN DELETING SUCH ADDITION IN THE CASE OF CIT V. VINOD DANCHAND GHODAWOT,(2001) 247 ITR 448, 450 BOM.) IT IS PERTINENT TO NOTE THAT SECTION 158BB(1) ITA NO.3739/AHD/2008 FOR AY 2005-06 SHRI MAHENDRABHAI C PATEL 8 HAS BEEN AMENDED, W.R.E.F. 1-7-1995, TO CLARIFY THA T THE BLOCK ASSESSMENT OF UNDISCLOSED INCOME IS TO BE BASED ON THE EVIDENCE FOUND IN THE SEARCH AND MATERIAL, OR INFORMATION GA THERED IN POST- SEARCH INQUIRIES MADE ON THE BASIS OF EVIDENCE FOUN D IN THE SEARCH AS HELD BY THE HON'BLE M.P. HIGH COURT IN THE CASE OF CITV. KHUSHLAI CHAND NIRMAL KUMAR (2003) 263 ITR 77, 82 (MP). THE HON'BLE M.P. HIGH COURT FURTHER HELD IN THE FACTS OF THAT CASE W ITH REGARD TO INVESTMENT IN CONSTRUCTION, ADDITION CANNOT BE MADE IN A BLOCK ASSESSMENT ON ACCOUNT OF UNEXPLAINED EXPENSES ON TH E BASIS OF THE DEPARTMENTAL VALUER'S REPORT OBTAINED SUBSEQUENT TO THE ORDER OF REGULAR ASSESSMENT, EVEN THOUGH SUCH REPORT WAS CON FRONTED TO THE ASSESSEE AND HE WAS NOT ABLE TO GIVE ANY EXPLANATIO N. THE HON'BLE M.P. HIGH COURT HAS FINALLY HELD AS UNDER:- 'IF THE PROVISION OF SECTION 158BB IS READ IN PROPE R PERSPECTIVE, WE ARE INCLINED TO RESPECTFULLY AGREE WITH THE VIEW EXPRESSED BY THE BOMBAY HIGH COURT, QUITE APART FROM THE ABOVE, THE CENTRAL BOARD OF DIRECT TAXES CIRCULAR (SEE [2007] 258 ITR (ST.) 13) WHICH HAS BEEN REFERRED TO ABOVE IN PARAGRAPH 61.3. 2 HAS LAID DOWN AS UNDER (PAGE 58): '61.3.2 THE FINANCE ACT, 2002, HAS AMENDED SECTION 158BB TO CLARIFY THAT THE BLOCK ASSESSMENT OF UNDISCLOSED IN COME IS TO BE BASED ON THE EVIDENCE FOUND IN THE SEARCH AND MATER IAL OR INFORMATION GATHERED IN POST-SEARCH INQUIRIES MADE ON THE BASIS OF EVIDENCE FOUND IN THE SEARCH.' WE HAVE REFERRED TO THE AFORESAID CLARIFICATION FOR THE SIMPLE REASON, MR. ARYA SUBMITTED THAT THE AMENDMENT WAS E FFECTED TO SECTION 158BB IN THE YEAR 202 WITH EFFECT FROM JULY 1,1995, AND THE AMENDMENT WOULD BE APPLICABLE TO THE RESENT CAS E AS BLOCK PERIOD COVERS TEN YEARS COMMENCING 1986 TO 1996. ON A PERUSAL OF THE UNAMENDED AND AMENDED PROVISIONS AND THE CEN TRAL BOARD OF DIRECT TAXES CIRCULAR, WE ARE OF THE CONSI DERED VIEW THAT THERE HAS BEEN NO SPECIFIC EFFECT AS FAR AS TH IS FACET IS CONCERNED. EMPHASIS HAS BEEN GIVEN ON THE FACT THAT EVIDENCE MUST HAVE BEEN FOUND DURING THE SEARCH AND ONLY THE REAFTER THE QUESTION OF GATHERING ANY MATERIAL INFORMATION WOUL D ARISE BASED ON THE SEARCH INQUIRY. IT IS NOT DISPUTED AT THE BAR, HAT DURING THE SEARCH PREMISES OF THE ASSESSEE NOTHING WAS FOUND ITA NO.3739/AHD/2008 FOR AY 2005-06 SHRI MAHENDRABHAI C PATEL 9 WITH REGARD TO THE INVESTMENT IN THE HOUSE. HOWEVER , IT IS CONTENDED BY MR. ARYA THAT THE VALUATION REPORT OF THE DEPARTMENTAL VALUATION OFFICER WAS OBTAINED AND WAS CONFRONTED TO THE ASSESSEE BUT HE WAS NO ABLE TO GI VE ANY EXPLANATION AND, THEREFORE, IT SHOULD BE ACCEPTED A S EVIDENCE. WE ARE AFRAID, THE AFORESAID SUBMISSION DOES NOT CO MMEND ACCEPTANCE IN VIEW OF THE STATUTORY PROVISIONS AND THE LAW LAID DOWN IN THE CASE OF VINOD DANCHAND GHODAWAT [2001] 247 ITR 448 (BOM.) WITH WHICH WE HAVE RESPECTFULLY AGREED.' THE HON'BLE BOMBAY HIGH COURT ALSO IN THE CASE OF C .J.SHAH AND CO.(SUPRA) HAS FINALLY HELD AS UNDER:- 'IT IS WELL SETTLED THAT IN CASES WHERE MATERIAL IS DETECTED AFTER SEARCH AND SEIZURE OPERATIONS ARE CARRIED OUT, THE ASSESSING OFFICER IS REQUIRED TO DETERMINE THE UNDISCLOSED IN COME. IN SUCH CASES ADDITIONS ARE GENERALLY BASED DON ESTIMATES. IN MATTERS OF ESTIMATION SOME AMOUNT OF LATITUDE IS REQUIRED TO B E SHOWN TO THE ASSESSING OFFICER PARTICULARLY WHEN RELEVANT DO CUMENTS ARE NOT FORTHCOMING. HOWEVER, IT DOES NOT MEAN THAT THE ASSESSING OFFICER CAN ARRIVE AT ANY FIGURE WITHOUT ANY BASIS BY ADOPTING AN ARBITRARY METHOD OF CALCULATION. IN THE PRESENT MATTER, A3, A4 AND A6 NOWHERE RECORDS THE TURNOVER OF THE ASSESSEE AS FOUND BY THE TRIBUNAL AND YET ON THE WRONG BASIS OF THE I NCOMING AND OUTGOING CASH TRANSACTIONS, THE ASSESSING OFFICER H AS ARRIVED AT THE TURNOVER. MOREOVER, THE PEAK INVESTMENT WAS RS. 40,14,806/- FOR THREE MONTHS. HOWEVER, THERE IS NO MATERIAL SEI ZED TO JUSTIFY ANY FIGURE TO BE INCLUDED FOR A PERIOD EARLIER TO T HE SAID PERIOD OF THREE MONTHS. IN THE CIRCUMSTANCES, THE TRIBUNAL HAS RECORDED A FINDING OF FACT AND HAS HELD THAT THE ADDITION OF RS.3.40 CRORES WAS TOTALLY UNJUSTIFIED. THE ENTIRE FINDING OF THE TRIBUNAL IS BASE ON THE FACTS.' 12. FROM THE ABOVE FACTS OF THE CASE, AND THE CASE LAWS CITED ABOVE IT IS NOTICED THAT IN THE PRESENT CASE WHILE FRAMIN G ASSESSMENT IN A SEARCH CASE, THE ASSESSING OFFICER MERELY RELIED ON THE STATEMENT OF ONE OF THE PERSON TO WHOM RAW HOUSE WAS ALLOTTED TO SHRI MANSUKHBHAI VASTABHAI RANGPARIYA. EVEN IN HIS ORIGI NAL STATEMENT, THE ALLOTTEE HAS NEVER SATED THAT HE HAS PAID RS.10 LACS AS ON-MONEY. THIS IS CLEAR FROM Q.NO. 2 AND 3 AS REPRODUCED ABOV E IN PARA-10 AT ITA NO.3739/AHD/2008 FOR AY 2005-06 SHRI MAHENDRABHAI C PATEL 10 PAGE 11 AND 12. EVEN THERWISE THIS STATEMENT HAS BE EN RETRACTED AND FURTHER CLARIFIED VIDE AFFIDAVIT AND DURING SUBSEQU ENT RE-EXAMINATION AND CROSS-EXAMINATION OF THIS ALLOTTEE. DURING THE COURSE OF SEARCH, THE ASSESSEE ALONG WITH OTHER CO-SHARERS IN THE HOUSING SCHEME HAVE CONFIRMED OF NOT HAVING RECEIVED BY WAY OF ON-MONEY IN EXCESS OF THE AMOUNT RECORDED IN ANNEXURE-BS AND THE ASSESSEE CAT EGORICALLY BASED ON SEIZED MATERIAL, ADMITTED THE INCOME OF RS.90 L ACS AS RECORDED IN ANNEXURE-BS. SHRI MANSUKHBHAI VASTABHAI RANGPARIY A HAS ADMITTED THAT THE SUM OF RS.10 LACS, PAID FOR ROW HOUSE NO. 16 INCLUDES RS.4 LACS TOWARDS ON-MONEY AND RS.6 LACS FOR EXTRA WORK DONE IN HIS UNIT. THIS HAS BEEN PROVED FROM THE SEIZED MATERIAL THAT A SUM OF RS.6 LACS IS RECEIVED BY THE ASSESSEE FOR EXTRA WORK INCURRED TOWARDS THE ROW HOUSE NO. 16, AS THE EXPENSES TO THE EXTENT OF RS.4 .15 WAS RECORDED AT PAGE 1 OF SEIZED ANNEXURE-BS. IN VIEW OF THESE FACT S, APPLYING THE RATIO LAID DOWN BY HON'BLE BOMBAY HIGH COURT IN THE CASE OF C.J.SHAH AND CO.(SUPRA) AS WELL AS BY HON'BME M.P. HIGH COURT IN THE CASE OF KHUSHLAL CHAND NIRMAL KUMAR (SUPRA), WE ARE OF THE VIEW THAT THE ADDITION MADE BY THE AO AND CONFIRMED BY T HE CIT(A) DESERVES TO BE DELETED. ACCORDINGLY, THE ORDERS O F THE LOWER AUTHORITIES ON THIS ISSUE ARE REVERSED AND THE APPE AL OF THE ASSESSEE IS ALLOWED. THIS ISSUE OF THE ASSESSEE'S APPEAL IS ALL OWED. 11 SINCE THE FACTS AND THE ISSUE INVOLVED IN THIS C ASE ARE SIMILAR TO THOSE AS IN THE CASE OF LABHUBHAI R JASA NI (SUPRA), RESPECTFULLY FOLLOWING THE AFORESAID DECISION OF TH E ITAT, WE REVERSE THE ORDERS OF THE AUTHORITIES BELOW AND ALL OW THE GROUND RAISED BY THE ASSESSEE. 12 THE NEXT GROUND RELATES TO CONFIRMATION OF AN AD DITION OF RS.2,12,488/-. THE FACTS OF THE CASE ARE THAT DURIN G THE COURSE OF SURVEY AT THE SITE OFFICE, CERTAIN BILLS AND VOUCHE RS WERE FOUND AND IMPOUNDED. THE ASSESSEE WAS ASKED TO SUBMIT EVI DENCE AS TO HOW THE EXPENSES CONTAINED IN THE SAID BILLS AND VO UCHERS ARE RECORDED IN REGULAR BOOKS OF ACCOUNT. THE ASSESSEE PRODUCED THE ITA NO.3739/AHD/2008 FOR AY 2005-06 SHRI MAHENDRABHAI C PATEL 11 BOOKS OF ACCOUNT AND AFTER VERIFICATION, THE AO FOU ND THAT THE FOLLOWING EXPENSES HAVE NOT BEEN RECORDED IN THE RE GULAR BOOKS OF ACCOUNT: SR. NO. ANNEXURE PAGE NO. AMOUNT OF BILLS/VOUCHERS -------------------------------------------------- ------------ 1 B-1/1 1 TO 218 789240 2 B-1/5 199 62350 TOTAL 851590 THE ASSESSEE WAS ASKED TO EXPLAIN AS TO OUT OF WHIC H SOURCE THE PAYMENTS HAVE BEEN MADE. THE ASSESSEE SUBMITTED THA T THE AFORESAID BILLS AND VOUCHERS ARE IN RESPECT OF UNAC COUNTED INCOME WORKED OUT ON PAGE-1 OF ANNEXURE BS FOUND AN D SEIZED FROM LOCKER OF SHRI LABHUBHAI JASANI IN RESPECT OF ASTVINAYAK ROW HOUSES. THE PAYMENTS IN RESPECT OF AFORESAID PU RCHASES HAVE BEEN MADE BY WAY OF CASH OUT OF THE UNACCOUNTE D INCOME. AFTER CONSIDERING THE REPLY OF THE ASSESSEE, THE AO HELD THAT THE SOURCE OF EXPENSES TO THE EXTENT OF RS.8,51,590/- R EMAINS TO BE EXPLAINED. HE, THEREFORE, TREATED THE EXPENSES OF R S.8,51,590/- AS UNEXPLAINED INCURRED OUT OF UNDISCLOSED SOURCES. 13 ON APPEAL, THE LEARNED CIT(A) REJECTED THE GROUN D RAISED BY THE ASSESSEE BY OBSERVING AS UNDER:- 4.3 I HAVE CONSIDERED THE FACTS AND SUBMISSIONS. I DO NOT AGREE WITH THE APPELLANTS VIEW. ON SIMILAR FACTS, THE ADDITIO N MADE IN THE CASE OF LABHUBHAI R JASANI HAS BEEN UPHELD BY THE CIT(A) FO R AY 2005-06 VIDE APPEAL NO. CIT(A)-II/CC.3/523/2006-07 DATED 17 -05-2007. AS ITA NO.3739/AHD/2008 FOR AY 2005-06 SHRI MAHENDRABHAI C PATEL 12 THE FACTS ARE THE SAME, FOLLOWING THE ORDER OF MY P REDECESSOR IN THAT CASE, I HOLD THAT THE AO WAS JUSTIFIED IN MAKING TH E ADDITION HENCE, THE SAME IS CONFIRMED. THEREFORE, THIS GROUND IS AL SO REJECTED. 14 WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIO NS AND PERUSED THE MATERIAL ON RECORD. WE FIND THAT THE IS SUE IS COVERED IN FAVOUR THE ASSESSEE BY THE DECISION OF THE ITAT AHMEDABAD BENCH-C IN THE CASE OF SHRI LABHUBHAI R JASANI IN I TA NO.3201/AHD/2007, WHEREIN THE TRIBUNAL VIDE PARA-14 AND 15 OF THE ORDER HAS DISMISSED THE GROUND RAISED BY THE AS SESSEE, BY OBSERVING AS UNDER:- 14. WE HAVE HEARD THE RIVAL CONTENTIONS OF THIS IS SUE AND GONE THROUGH THE FACTS AND CIRCUMSTANCES OF THE CASE. WE HAVE PERUSED THE CASE RECORDS AND NOTICED THAT DURING THE COURSE OF SURVEY AT THE SITE OFFICE, CERTAIN BILLS & VOUCHERS WERE FOUND AND IMP OUNDED BY THE DEPARTMENT. THE AO DURING THE COURSE OF ASSESSMENT PROCEEDINGS, REQUIRED THE ASSESSEE TO EXPLAIN, HOW THESE EXPENSE S ARE RECORDED IN THE REGULAR BOOKS OF ACCOUNT. AFTER VERIFICATION OF THE BOOKS OF ACCOUNTS, THE AO FOUND THAT THE FOLLOWING EXPENSES HAVE NOT BEEN RECORDED IN THE REGULAR BOOKS OF ACCOUNT AND HE ADD ED THE SAME IN THE RETURNED INCOME OF ALL THREE CO-OWNERS PROPORTIONAT ELY AND IN ASSESSEE'S SHARE THE DISALLOWANCE WAS AT RS.3,64,26 5/-. SR. ANNEXURE PAGE NO. AMOUNT OF BILLS/VOUCHERS 1. B-1/1 1 TO 218 789240 2. B-1/5 199 62350 TOTAL 851590 ITA NO.3739/AHD/2008 FOR AY 2005-06 SHRI MAHENDRABHAI C PATEL 13 THE CIT(A) ALSO CONFIRMED THE ACTION OF THE ASSESSI NG OFFICER BY GIVING FOLLOWING FINDING IN PARA-4.2 OF HIS APPELLA TE ORDER, WHICH READS AS UNDER:- '4.2 ON CONSIDERATION OF THE FACTS, I FIND THAT THE ASSESSEE HAS CLAIMED THAT THE EXPENSES ARE RELATING TO PRIOR PER IOD AND ARE DULY RECORDED IN THE BOOKS. HOWEVER, COPIES OF THE RELEVANT VOUCHERS ARE NOT PRODUCED. THE EXPENSES ARE NOT REC ORDED IN THE BOOKS. THE EXPENSES ARE CLAIMED TO BE RELATING TO T HE PROJECT ASTVINAYAK ROW HOUSE AND THESE ROW HOUSES ARE CONST RUCTED IN THIS YEAR. HENCE, THERE IS NO QUESTION OF PRESENTIN G IT TO BE RELATING TO A.Y. 1999-00. THE EXPLANATION IS INCORR ECT. ACCORDINGLY, THIS GROUND IS DISMISSED.' 15. THE LD. COUNSEL FOR THE ASSESSEE HAS DRAWN OUR ATTENTION TO THE REPLY DATED 13-10-2006 FILED BEFORE THE ASSESSING O FFICER THAT THE ONLY PAGE NO. 199 OF ANNEXURE-B/1/5 IS UNACCOUNTED BUT A S REGARDS TO ANNEXURE-B/1/1 IT WAS STATED THAT THE SAME PERTAINS TO ASSESSMENT YEAR 1998-99 & 1999-00. HE REFERRED TO THE ASSESSEE'S PA PER BOOK PAGES 38-43 AND PAGES 28-33 WHERE RELEVANT DETAILS ARE GI VEN WHICH PROVED THAT THESE EXPENSES PERTAINS TO AYS 1998-99 & 1999- 00. A COMPLETE CHART SHOWING THE PAGES NOS OF SEIZED ANNEXUE-B/1/1 AND PAGE NOS. OF CASH BOOK WHERE THE BILLS ARE RECORDED ARE AT PA GES 28-33 AND THESE PAPERS HAVE ALREADY BEEN FILED BEFORE THE AO. AFTER GOING THROUGH THESE PAGES, IT IS NOTICED THAT THE ASSESSE E HAS CO-RELATED THE SEIZED ANNEXURE-B/1/1 PAGES 1-75 RECORDING THE TRAN SACTIONS OF AY 1998-98 & 1999-00. IN VIEW OF THESE FACTS, IT IS CL EAR THAT THESE EXPENSES PERTAINS TO AYS 1998-99 & 1999-00 AND NOT TO THE RELEVANT ASSESSMENT YEAR I.E. 2005-06. ACCORDINGLY, WE DELET E THE ADDITION AND REVERSE THE ORDERS OF THE LOWER AUTHORITIES. THIS I SSUE OF THE ASSESSEE'S APPEAL IS ALLOWED. 15 SINCE THE FACTS AND THE ISSUE INVOLVED IN THIS C ASE ARE SIMILAR TO THOSE AS IN THE CASE OF LABHUBHAI R JASA NI (SUPRA), RESPECTFULLY FOLLOWING THE AFORESAID DECISION OF TH E ITAT, WE REVERSE THE ORDERS OF THE AUTHORITIES BELOW AND ALL OW THE GROUND RAISED BY THE ASSESSEE. ITA NO.3739/AHD/2008 FOR AY 2005-06 SHRI MAHENDRABHAI C PATEL 14 16 IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE COURT TODAY ON 18-06-2010 SD/- SD/- (A N PAHUJA) ACCOUNTANT MEMBER (D T GARASIA) JUDICIAL MEMBER DATE : 18-06-2010 COPY OF THE ORDER FORWARDED TO: 1. SHRI BHAVIN JAYANTILAL TAILOR, 1/29, SAI ASHISH NAGAR, RANDER ROAD, SURAT 2. THE CDIT, CENTRAL CIRCLE-3, SURAT 3. CIT CONCERNED 4. CIT(A)-II, AHMEDABAD 5. THE DR, ITAT, AHMEDABAD 6. GUARD FILE BY ORDER DEPUTY REGISTRAR ASSISTANT REGISTRAR ITAT, AHMEDABAD