SHARAD S, RUIA, MUMBAI V. ACIT CEN CIR 34, MUMBAI

ITSSA 11/MUM/2012

• Counselvise Citation: [2013] 121 COUNSELVISE.COM (IT) 9369 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 3 month(s)
• Appeal Type: Income Tax (Search & Seizure) Appeal
• Pronouncement Date: 05-06-2013
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: E
• Assessment Year: misc
• Appeal Filed On: 05-03-2012
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: SURINDER JIT SINGH
• Assessee Lawyers: S C TIWARI
• Keywords: Unexplained expenditure; Retrospective amendment; Valuation report; Block assessment
• Section: 132

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, MUM BAI , ! ! ! ! ''#, % BEFORE SHRI SANJAY ARORA, A. M. AND SHRI SANJAY GA RG, J. M. ('( ) *+, )/ IT(SS) NO. 11/MUM/2012 BLOCK PERIOD: 01.04.1988 TO 13.08.1998 SHARAD S. RUIA 301, SARAF APARTMENTS, RANI SATI MARG, MALAD (E), MUMBAI-400 097 / / / / / VS. THE A.C.I.T. CENT. CIR. 34, AAYKAR BHAVAN, R. NO. 633, 6 TH FLOOR, M. K. MARG, NEW MARINE LINES, MUMBAI-400 020 0 ./ 2 ./ PAN/GIR NO. AAEPR 0211 Q ( 03 / // / APPELLANT ) : ( 4503 / // / RESPONDENT ) & ('( ) *+, )/ IT(SS) NO. 12/MUM/2012 BLOCK PERIOD: 01.04.1988 TO 13.08.1998 KAMAL S. RUIA T-2/1402 VASTU TOWER, EVERSHINE NAGAR, MALAD (W), MUMBAI-400 064 / / / / / VS. THE A.C.I.T. CENT. CIR. 34, AAYKAR BHAVAN, R. NO. 633, 6 TH FLOOR, M. K. MARG, NEW MARINE LINES, MUMBAI-400 020 0 ./ 2 ./ PAN/GIR NO. AAEPR 0213 N ( 03 / // / APPELLANT ) : ( 4503 / // / RESPONDENT ) / #6' 7 / // / ASSESSEE BY : SHRI S. C. TIWARI ! 8 7 / // / REVENUE BY : SHRI SURINDER JIT SINGH /! 8 '9 / // / DATE OF HEARING : 12.03.2013 :; 8 '9 / // / DATE OF PRONOUNCEMENT : 05.06.2013 2 IT(SS) NOS.11 & 12 /MUM/12 (B.P. 01.04.1988 TO 13.08.1998) ( / O R D E R PER SANJAY ARORA, A.M. : THESE ARE A SET OF TWO APPEALS, I.E., IN RESPECT OF TWO ASSESSEES, ARISING OUT OF THE SEPARATE ORDERS BY THE COMMISSIONER OF INCOME TAX ( APPEALS)-41, MUMBAI (CIT(A) FOR SHORT) OF EVEN DATE, I.E., 23.01.2012, DISMISSI NG THE RESPECTIVE APPEALS BY THE ASSESSEE-APPELLANTS CONTESTING THEIR ASSESSMENTS U/ S. 158 BC(C) R.W.S. 254 OF INCOME TAX ACT, 1961 (ACT HEREINAFTER) FOR THE BLOCK PERIOD 01.04.1988 TO 13.08.1998 VIDE ORDERS, AGAIN, OF EVEN DATE (28.03.2006), BY THE ASSISTANT CIT, CENTRAL CIRCLE-34, MUMBAI. 2. THE FACTS AND CIRCUMSTANCES OF TWO CASES, AS WEL L AS PRINCIPAL ISSUE RAISED, BEING THE SAME; THE ASSESSMENTS ARISING OUT OF THE SAME S EARCH, THE TWO APPEALS WERE TAKEN UP TOGETHER FOR HEARING AND, ACCORDINGLY, HEARD TOGETH ER, AND ARE BEING DISPOSED OF VIDE A COMMON, CONSOLIDATED ORDER. 3.1 IT WOULD BE RELEVANT TO OUTLINE THE FACTS OF TH E CASE BEFORE WE PROCEED TO DELIBERATE ON THE DIFFERENT ISSUE/S ARISING FOR OUR ADJUDICATI ON PER THE INSTANT APPEALS. ASSESSMENTS IN THE FIRST INSTANCE WERE FRAMED U/S. 158BC IN SEP TEMBER, 2000, CONSEQUENT TO A SEARCH U/S. 132 OF THE ACT ON THE ASSESSEES. THE ASSESSEE/ S SECURING PART RELIEF, THE MATTER WAS CARRIED BEFORE THE TRIBUNAL, BOTH BY THE ASSESSEES AND THE REVENUE, WHICH, VIDE ITS ORDER DATED 11.02.2005 (IN IT(SS) APPEAL NOS. 657 & 703/M UMBAI/2003 AND 656/MUM/2003) SET ASIDE THE ASSESSMENT/S, RESTORING THE MATTER BA CK TO THE FILE OF THE ASSESSING OFFICER (AO) FOR FRESH ADJUDICATION (PGS. 1 & 2 OF THE ASSE SSMENT ORDER). THE PRINCIPAL ISSUE IN THESE APPEALS IS IN RESPECT OF ASSESSMENT OF UNDISC LOSED INCOME. THE ASSESSEE-APPELLANTS, WHO ARE BROTHERS, ENGAGED IN CONSTRUCTION BUSINESS, DEVELOPED A SHOPPING COMPLEX BY THE NAME SHIVAM SHOPPING CENTRE AT MALAD, MUMBAI DURING THE RELEVANT (BLOCK) PERIOD, ON BEHALF OF M/S. JIMET ENTERPRISES LTD. (J EL) AND SHIVAM SHOPPING CENTRE LTD. (SSCL). IN BOTH THESE COMPANIES, THE ASSESSEES, ALO NG WITH THEIR FAMILY MEMBERS, WERE SHARE-HOLDERS. POWER OF ATTORNEY/S WAS EXECUTED IN FAVOUR OF THE TWO BROTHERS BY BOTH THE COMPANIES AS WELL AS THEIR FAMILY MEMBERS. THE SOLE SELLING RIGHTS FOR THE MAJOR AREA OF THE SAID PROJECT WAS SOLD TO ONE, SHRI SHANTILAL GA NDHI, FOR RS.1,07,08,423/- (AFTER 3 IT(SS) NOS.11 & 12 /MUM/12 (B.P. 01.04.1988 TO 13.08.1998) ADJUSTING HIS BROKERAGE AT RS.36,64,500/-). EVEN TH E DATES ON WHICH THIS AMOUNT WAS RECEIVED BY THE ASSESSEES WERE FOUND LISTED AT PAGE 35 OF ANNEXURE A-1 OF THE SEIZED MATERIAL. THE MANNER OF ITS WORKING WAS ALSO RECORD ED THEREAT, WHICH STANDS REPRODUCED AT PAGE 4 OF THE ASSESSMENT ORDER. THESE FACTS ARE UNDISPUTED, SO THAT, BEING NOT RECORDED IN THE ASSESSEES BOOKS OF ACCOUNT, FORMED PART OF THE UNDISCLOSED INCOME; THE SHARE OF SHARAD S. RUIA AND KAMAL S. RUIA THEREIN BEING 2/3 RD AND 1/3 RD RESPECTIVELY. THE ASSESSEES, HOWEVER, CLAIMED THE COST OF THE PROJECT AT RS.393.47 LACS , AS AGAINST AT AN AGGREGATE OF RS.298.89 LACS , AS RECORDED IN THE BOOKS OF JEL (RS. 195.53 LACS) AND SSCL (RS. 103.36 LACS). THE ADMISSIBILITY OF THE ADDITIO NAL COST ON CONSTRUCTION OF RS.94.58 LACS , STATED TO BE ON THE FOLLOWING ITEMS OF BUILDING M ATERIAL, FORMS THE BONE OF CONTENTION BETWEEN THE PARTIES: STEEL - 7.80 CEMENT - 38.25 GRANITE - 23.90 OTHER MATERIALS - 0.83 70.78 LABOUR EXPENSES - 13.63 ELECTRICAL EXPENDITURE - 0.97 OTHER EXPENSES - 9.20 94.58 FURTHER, OF THE SAME, A SUM OF RS. 8.01 LAKHS WAS FOUND RECORDED AT PAGE 9 AND RS.67.92 LAKHS AT PAGES 41 AND 42 OF ANNEXURE A-1 (AS SEIZED FROM FERRY APARTMENTS), I.E., AT A TOTAL OF RS.75.93 LACS . THE ASSESSEES, HOWEVER, CLAIM THEIR INCOME IN THE SAID RECEIPT AT RS. 10.708 LAKHS, RECKONING THE SAME AS 10% OF THE GROSS RECEIPT, AND WHICH WOULD THEN STAND TO BE SHARED AMONGST THEM IN THE R ATIO OF 2/3 RD AND 1/3 RD . THE REVENUE, ON THE OTHER HAND, RESTRICTS THE SAID CLAIM TO THAT EVIDENCED BY THE SEIZED MATERIAL. THE EXPENDITURE RECORDED AT PAGE 9 OF ANN. A-1 (OF THE SEIZED MATERIAL) IS IN FACT RS. 4.11 LAKHS (AND NOT RS. 8.01 LAKHS). RATHER, OF THIS ONL Y RS. 3 LAKHS STANDS PAID, AND THE BALANCE IS PAYABLE. ACCORDINGLY, THE CLAIM QUA THE ADDITIONAL COST OF CONSTRUCTION, INCURRED OUTSIDE THE BOOKS OF ACCOUNT, STOOD RESTRI CTED BY IT RS.70.92 LAKHS , LIMITING THE 4 IT(SS) NOS.11 & 12 /MUM/12 (B.P. 01.04.1988 TO 13.08.1998) CLAIM QUA EXPENDITURE AS RECORDED AT PAGE 9/ANN.A-1 TO RS. 3 LAKHS (AS AGAINST RS. 8.01 LAKHS, BEING CLAIMED BY THE ASSESSES). THE UNDISCLO SED INCOME OF THE TWO ASSESSEES WAS, ACCORDINGLY, COMPUTED AS UNDER, TAKING THE SAME AS THE INCOME FOR A.Y.1998-99: UNACCOUNTED RECEIPTS RS. 1,07,08,423 LESS: EXPENDITURE ALLOWED RS. 70,91,899 INCOME RS. 36,16,524 SHARE OF SHARAD RUIA @ 2/3 - RS. 24,11,016/- SHARE OF KAMAL RUIA @ 1/3 - RS. 12,05,508/- 3.2 SHRI SHARAD S. RUIA WAS ALSO FOUND TO BE ENGAGE D IN EXTENDING CASH LOANS (OUT SIDE BOOKS OF ACCOUNT) FOR INTEREST. A TOTAL OF RS. 39.50 LACS WAS FOUND TO HAVE BEEN GIVEN AS CASH LOAN/S ON INTEREST ON THE BASIS OF SEIZED M ATERIAL, THE DETAILS OF WHICH, AS STATED, APPEAR AT ANN. A TO THE ORIGINAL ASSESSMENT ORDER. THE SOURCE THEREOF WAS STATED TO BE THE RECEIPT FROM CONSTRUCTION. INTEREST ARISING ON THE LOANS WAS, AS PER THE PRACTICE, DEDUCTED UPFRONT. THE SAME WORKED TO RS.6,18,960/-. AS SUCH, THE AMOUNT OF LOAN ACTUALLY GIVEN IS ONLY RS.33,31,40 (39,50,000 - 6,18,960). THE ASSESS EE, THOUGH NOT DENYING THE FACT THAT THE SAID LOANS WERE GIVEN OUT OF HIS UNACCOUNTED IN COME, CLAIMS THAT ONLY THE PEAK AMOUNT (NET OF INTEREST OF RS.3,81,060/-) OF THE SA ID LOANS, I.E., RS.27,68,940/-, COULD BE ADDED. THE AO WAS, HOWEVER, OF THE VIEW THAT ENTIRE ADVANCED AMOUNT OF RS.33,31,040/- WAS LIABLE TO BE CONSIDERED AS THE ASSESSEES INCOM E, I.E., ON THE BASIS OF THE UNACCOUNTED ASSETS. SO, HOWEVER, HE CONCURRED WITH THE ASSESSEE THAT THE ENTIRE AMOUNT OF INTEREST BEARING LOANS WAS GIVEN OUT OF CONSTRUCTION RECEIPT S. WITH NO OTHER UNACCOUNTED ASSETS HAVING BEEN FOUND DURING SEARCH, HE, THEREFORE, MAD E NO SEPARATE ADDITION FOR THIS SUM OF RS.33,31,040/- . THE INTEREST INCOME ARISING THEREON, HOWEVER, WAS TO BE SEPARATELY ADDED, AND WHICH WAS DONE FOR THE RELEVANT YEARS, I .E., TO WHICH IT PERTAINED, BEING A.YS. 1996-97 TO 1999-2000. 3.3 IN APPEAL, THE LD. CIT(A) DID NOT FIND MERIT IN THE ASSESSEES CASE INASMUCH AS ITS CLAIM COULD ONLY BE ON THE BASIS OF SEIZED MATERIAL , OR EVIDENCES LEAD IN RELATION THERETO. 5 IT(SS) NOS.11 & 12 /MUM/12 (B.P. 01.04.1988 TO 13.08.1998) TOWARD THIS, THE ONLY MATERIAL AVAILABLE WAS BY WAY OF ANNEXURE A-1, BEARING THE AMOUNT OF RS.8.01 LACS AND RS.67.92 LACS, AT PAGE 9 AND PAGES 41, 42 THEREOF. THE AO HAD HOWEVER ERRED IN RESTRICTING THE AMOUNT AS PER PAGE 9 OF ANN. A-1 TO RS.3 LACS AND, ACCORDINGLY, DIRECTED THE EXPENDITURE TO BE ALLOWED IN ITS RESPECT AT RS.8.01 LACS. THE ASSESSEE, ACCORDINGLY, SECURED RELIEF FOR RS.5.01 L ACS, ACCEPTING ITS CLAIM FOR COST OF CONSTRUCTION AT RS.75.93 LACS, I.E., AS AGAINST THE CLAIMED SUM OF RS.94.58 LACS. AGGRIEVED, THE ASSESSEE IS IN SECOND APPEAL. WITH REGARD TO THE SECOND ADDITION, IT WAS OBSERVE D BY HIM THAT THE AO HAD MADE ADDITION ONLY FOR THE INTEREST COMPONENT OF RS.6,18 ,960/-, WHICH, IN FACT, WAS UNDENIABLE, AND EVEN NOT BEING DISPUTED BY THE ASSESSEE BEFORE HIM. ACCORDINGLY, THE ADDITION FOR INTEREST STOOD UPHELD. AGGRIEVED, THE ASSESSEE IS I N APPEAL. 4.1 BEFORE US, THE RESPECTIVE CASES OF BOTH THE PAR TIES WERE ESSENTIALLY THE SAME, I.E., AS BEFORE THE AUTHORITIES BELOW. THE LD. AR WOULD S UBMIT THAT IT IS NOT NECESSARY THAT THE UNACCOUNTED EXPENDITURE, I.E., WHICH IS INCURRED OU TSIDE THE BOOKS OF ACCOUNT, IS TO BE ARRIVED AT ON THE BASIS OF THE SEIZED MATERIAL ONLY . A RATIONAL APPROACH TO THE MATTER, AS AGAINST A PEDANTIC ONE, OUGHT TO BE ADOPTED BY THE REVENUE. TOWARD THIS, THE ASSESSEE HAS IN FACT FURNISHED A VALUATION REPORT, QUA WHICH NO DEFECT HAS BEEN POINTED OUT BY THE AO. HOW COULD IT THEREFORE BE CONSIDERED AS OF NO CONSE QUENCE? IN FACT, THE TRIBUNALS ORDER IN THE CASE OF KANAKIA GROUP OF COMPANIES (IN IT(SS) A. NOS. 14-25, 27-31/MUM/96 DATED 21.11.1997, COPY OF WHICH IS ON RECORD) WOULD BE RELEVANT INASMUCH AS THE TRIBUNAL IN THAT CASE ACCEPTED THE NET PROFIT RATE OF 10% IN RESPECT OF UNACCOUNTED RECEIPTS. AS SUCH, IT CANNOT BE SAID AS A THUMB RULE THAT EVERY ADDITION OF UNDISCLOSED INCOME IS NECESSARILY TO BE BASED ON SOME SEIZED MATERIAL. 4.2 THE LD. DR, ON THE OTHER HAND, WOULD PLACE RELI ANCE OF A HOST OF DECISIONS (ALSO BRIEFING THEIR FACTS), AS UNDER, TO THE EFFECT THAT UNDISCLOSED INCOME, WHICH IS THE SUBJECT MATTER OF ASSESSMENT FOR THE BLOCK PERIOD UNDER CHA PTER XIV-B OF THE ACT, COULD ONLY BE ON THE BASIS OF EVIDENCE FOUND AS A RESULT OF SEARC H, OR OTHER DOCUMENTS OR MATERIALS OR INFORMATION RELATABLE TO THE SUCH EVIDENCE AS AVAIL ABLE WITH THE AO: 6 IT(SS) NOS.11 & 12 /MUM/12 (B.P. 01.04.1988 TO 13.08.1998) A) D D GEARS LIMITED [25 TAXMAN.COM 562 (DEL)] B) BANSAL STRIP (P) LIMITED , 99 ITD 177 (DEL) C) JYOTICHAND BHAICHAND SARAF AND SONS (P) LIMITED [26 TAXMAN.COM 239] D) SURJIT TOSARIA [146 TAXMAN 32 (DEL)] E) GORAKH PETRO OILS LIMITED , 3 SOT 661 (ALL.) F) VENGAT BAVA , 6 SOT 434 (COC.) G) MALADYANTI , 92 TTJ 270 (BANG) IN THE INSTANT CASE, THE REVENUE HAS FINALLY ALLOW ED CREDIT OF RS.75.93 LACS TO THE ASSESSEES IN RESPECT OF THE CONSTRUCTION EXPENSES, I.E., AS EVIDENCED BY THE MATERIAL FOUND DURING SEARCH, SO THAT THE SAME IS IN ACCORDANCE WI TH LAW, AND NO GRIEVANCE OUGHT TO OBTAIN. 5. WE HAVE HEARD THE PARTIES, AND PERUSED THE MATER IAL ON RECORD. 5.1 WE MAY AT FIRST BRIEFLY VISIT THE LAW IN THE MA TTER. THE CALCUTTA HIGH COURT IN DY. CIT V. SHAW WALLACE AND CO. LTD. [2001] 248 ITR 81 (CAL.) REVERSED ITS OWN EARLIER DECISION RENDERED BY A SINGLE JUDGE IN [1999] 238 I TR 13 FALLING IN THE LINE WITH THE VIEW OF THE OTHER HIGH COURTS, AS THAT OF THE GUJARAT HI GH COURT IN N.R. PAPER AND BOARD LTD. V. DY. CIT [1998] 234 ITR 733 (GUJ), THE KERALA HIGH COURT IN MALAYIL BANKERS V. ASST. CIT [1999] 236 ITR 869 (KER), AND ITS OWN DECISION IN CALTRADECO STEEL SALES (P.) LTD. V. DY. CIT [2000] 243 ITR 643 (CAL). THE UNIFORM VIEW OF THE COURTS IS THAT THE JURISDICTION IN RESPECT OF BLOCK ASSESSMENTS UNDER CHAPTER XIV-B OF THE ACT HAS TO BE LIMITED TO WHAT IS DISCOVERED DURING SEARCH AND WHAT COMES OUT OF E NQUIRY ON SUCH MATERIALS, WHILE THE NORMAL ADDITIONS HAVE TO BE TACKLED UNDER THE NORMA L PROCEDURE BY INVOKING POWERS UNDER SECTION 142(1), 143(2) OR 148, AS THE CASE MA Y BE. THE EXPLANATION INTRODUCED BY THE FINANCE (NO. 2) ACT, 1998, TO SECTION 158BBA HA S BEEN UNDERSTOOD BY THE COURTS ONLY TO THIS EFFECT. THE FACT THAT EVEN THE AMENDMENTS B Y FINANCE ACT, 2002 HAVE NOT UPSET THIS UNDERSTANDING OF LAW, THE INTERPRETATION SHOUL D BE TAKEN AS FINAL. COURTS HAVE UNIFORMLY TAKEN THE VIEW THAT POST-SEAR CH ASSESSMENT SHOULD BE WITH REFERENCE TO THE SEIZED ASSETS AND MATERIALS GATHER ED DURING SEARCH. IT MAY POSSIBLY 7 IT(SS) NOS.11 & 12 /MUM/12 (B.P. 01.04.1988 TO 13.08.1998) INCLUDE THE RESULT OF FURTHER ENQUIRY WITH REFERENC E TO SUCH MATERIALS, BUT IT CANNOT PROVIDE AN OCCASION FOR AN OVERALL REVIEW OF ASSESS MENTS ALREADY MADE. IN CIT V. RAJENDRA PRASAD GUPTA [2001) 248 ITR 350 (RAJ), THE HONBLE COURT POINTE D OUT THAT A BLOCK ASSESSMENT SHOULD BE WITH REFERENCE TO THE MA TERIALS IN THE POSSESSION OF THE ASSESSING AUTHORITY, SINCE IT IS AN ASSESSMENT OF T HE UNDISCLOSED INCOME. IN OTHER WORDS, THE ESTIMATE IS NOT LIGHTLY MADE IN EVERY CASE OF B LOCK ASSESSMENT EXCEPT ON A CLEAR FINDING INDICATING JUSTIFICATION FOR THE SAME WITH REFERENCE TO THE RETURN FILED ON ONE HAND AND THE MATERIALS ON THE OTHER. REFERENCE IN THIS R EGARD MAY ALSO BE MADE TO THE DECISION IN THE CASE OF CIT V. VIKRAM A. DOSHI [2002] 256 ITR 129 (BOM). 5.2 NOW LET US EXAMINE THE FACTS OF THE CASE IN LIG HT OF THE LAW AS ENUNCIATED AND EXPLAINED BY THE HONBLE COURTS. AS SEEN, THE LAW I N THE MATTER IS WELL-SETTLED, WITH IT IN FACT HAVING WITNESSED AMENDMENT TO SECTION 158B, WH ICH DEFINES UNDISCLOSED INCOME, BY FINANCE ACT, 2001 W.E.F. 01.06.2001, AND TO SECT ION 158BB, LAYING DOWN THE MANNER OF COMPUTATION OF THE UNDISCLOSED INCOME, VIDE FINA NCE ACT, 2002 WITH RETROSPECTIVE EFFECT FROM 01.07.1995. WE ARE, THEREFORE, UNABLE T O COMPREHEND THE ASSESSEES CASE. THERE HAS BEEN NO ADDITION QUA THE COST OF THE CONSTRUCTION OF THE PROJECT - WHIC H IN FACT IS NOT THE SUBJECT MATTER OF DISPUTE - IN WHICH CAS E, THE ASSESSEE COULD BE CONSIDERED TO HAVE BEEN CALLED UPON TO ADDUCE EVIDENCE TO SUBSTAN TIATE ITS CLAIM. THE RELIANCE ON THE VALUATION REPORT IS, THUS, OF LITTLE MOMENT. COULD, ONE MAY ASK, THE REVENUE ASSESS UNDISCLOSED INCOME ON THE BASIS OF VALUATION REPO RT CONSEQUENT UPON A SEARCH, CASE LAW ON WHICH IS LEGION. THE VALUATION REPORT COULD BE S OUGHT BY THE REVENUE, IN SATISFYING ITSELF WITH REGARD TO THE CONSTRUCTION COST AS DEBI TED OR CLAIMED BY THE ASSESSEE PER ITS REGULAR BOOKS OF ACCOUNT, OR VERIFYING THE ASSESSEE S CLAIM WITH REGARD THERETO, EVEN INDEPENDENT OF A SEARCH OR REQUISITION. THE SAID RE PORT BECOMES RELEVANT IN BLOCK ASSESSMENT PROCEEDINGS U/C. XIV-B AND, ACCORDINGLY, RELIANCE THEREON FOR ASSESSMENT OF UNDISCLOSED INCOME BECOMES UNDERSTANDABLE, AS WHERE THE ASSESSEE IS FOUND DURING SEARCH TO HAVE PLACED NO VALUE ON SOME OR A SPECIFI C PART OF THE CONSTRUCTION, OR SOME OTHER DEFECT IN THE ASSESSEES CLAIM DISCOVERED IN SEARCH, VIZ. AS WHERE A DIFFERENCE OR 8 IT(SS) NOS.11 & 12 /MUM/12 (B.P. 01.04.1988 TO 13.08.1998) DISCREPANCY IS FOUND WITH REGARD TO THE MATERIALS O R THE QUALITY OF GOODS USED IN CONSTRUCTION, WHICH IS NOT CONSISTENT WITH THAT REF LECTED PER THE BOOKS OF ACCOUNT. IT IS IN THAT CASE THAT THE VALUATION REPORT, PRESSED FOR BY EITHER PARTY, IN RESPECT OF ITS CLAIM/S, MAY ASSUME SIGNIFICANCE. THE DEDUCTION OF RS.75.93 LAKHS CLAIMED AND ALLOWED TO THE ASSESSEE, IT MAY BE CLARIFIED, IS NOT FOR UNDER-VAL UATION OF THE COST OF PROJECT WITH REFERENCE TO THE REGULAR BOOKS OF ACCOUNT, BUT ON A CCOUNT OF IT HAVING ESTABLISHED UTILIZATION OF THE MONEY TOWARD CONSTRUCTION OF THE PROJECT, INCOME FROM WHICH IS BEING BROUGHT TO TAX AS UNDISCLOSED INCOME, TO THAT EXTEN T AND, THUS, DEDUCTIBLE IN COMPUTING THE UNDISCLOSED INCOME EARNED THEREFROM. THE SAME I S IN OUR VIEW RIGHTLY RESTRICTED BY THE REVENUE TO THE SUM AS BORNE OUT OF THE MATERIAL S AS FOUND AS A RESULT OF SEARCH, I.E., ANNEXURE A-1. THE REVENUE, BY DOING SO, WE MAY AGAI N CLARIFY, IS NOT IN ANY MANNER CERTIFYING THE CONSTRUCTION COST OF THE PROJECT OR IN ANY MANNER VALIDATING THE SAME AT THE SAID AMOUNT, I.E., IN ADDITION TO THE AMOUNT THAT M AY HAVE BEEN DISCLOSED IN ITS RESPECT PER THE ASSESSEES REGULAR ACCOUNTS, BUT ONLY BASING TH E ASSESSEES CLAIM FOR DEDUCTION IN COMPUTING THE UNDISCLOSED INCOME, FOUND TO HAVE BEE N EARNED BY WAY OF ON MONEY ON A PROJECT, AGAINST ITS UTILIZATION TO THE EXTENT STAN DS SUBSTANTIATED BY THE ASSESSEE WITH REFERENCE TO THE MATERIALS FOUND AS A RESULT OF SEA RCH, WHICH IS THE MANDATE OF LAW (SECTION 158BB). FURTHER, THE ASSESSEES CLAIM IS ALSO NOT TENABLE F OR ANOTHER STAND-POINT. THE SHARE OF SHARAD S. RUIA IN THE UNDISCLOSED INCOME FROM TH E PROJECT HAS BEEN DETERMINED AT RS.24,11,016/-. HE HAS ALSO BEEN FOUND, AGAIN ON TH E BASIS OF THE EVIDENCE FOUND AS RESULT OF SEARCH, TO HAVE ADVANCED CASH LOANS (NET) AT A P EAK AMOUNT OF RS.27.69 LAKHS. AS SUCH, AS IT APPEARS, THE UTILIZATION OF THE UNDISCLOSED I NCOME FROM THE PROJECT, AS FINALLY DETERMINED, ALSO STANDS DISCOVERED (WHICH THOUGH IS NEITHER NECESSARY NOR ESSENTIAL FOR THE ASSESSMENT OF THE UNDISCLOSED INCOME, AS OF ANY OTHER INCOME FOR THAT MATTER), WITH THE DIFFERENCE, PERHAPS, BEING ON ACCOUNT OF INTERE ST, WHICH IS STATED TO BE AT RS.3.81 LAKHS (ON THE PEAK ADVANCE). IN FACT, THE ASSESSEE ITSELF EXPLAINS THE SOURCE OF ADVANCES AS BEING THE UNACCOUNTED CONSTRUCTION RECEIPT, ACCEPTI NG WHICH, NO SEPARATE ADDITION TOWARDS THE SAME HAS BEEN MADE BY THE REVENUE. WE A RE, THEREFORE, AT LOSS TO UNDERSTAND 9 IT(SS) NOS.11 & 12 /MUM/12 (B.P. 01.04.1988 TO 13.08.1998) THE BASIS OF THE ASSESSEES CLAIM FOR BEING LIABLE TO BE ASSESSED AT A PERCENTAGE (10%) OF THE UNACCOUNTED CONSTRUCTION RECEIPT, I.E., IN VIEW OF THE CORRESPONDING ASSETS IN THE FORM OF CASH LOANS HAVING BEEN SUBSTANTIALLY, IF NOT FUL LY, ALSO FOUND. WE ARE CONSCIOUS THAT IT IS SO ONLY IN THE CASE OF ONE OF THE BROTHERS, SHAR AD RUIA, AND NOT THE OTHER AND, BESIDES, THERE COULD BE A DIFFERENCE IN DATES. THE ABSENCE O F CORRESPONDING ASSETS IN THE CASE OF SH. KAMAL S. RUIA, THE OTHER BROTHER, IS IMMATERIAL INASMUCH AS IF THE VERACITY OF THE UNDISCLOSED INCOME AS DETERMINED FOR ONE OF THE ASS ESSEE IS VALIDATED WITH REFERENCE TO THE SEIZED MATERIAL, IT BY ITSELF VALIDATES THAT FO R THE OTHER; THE TWO EARNING THE SAME IN A DEFINED RATIO. WE MAY THOUGH REITERATE THAT IT IS N EITHER NECESSARY NOR CRUCIAL TO THE ASSESSMENT OF UNDISCLOSED INCOME THAT ITS UTILIZATI ON IS ALSO FOUND, BUT WHERE SO, MAKES THE REVENUES CASE IMPREGNABLE. RATHER, IT CANNOT E VEN BE SAID THAT ALL THE UNDISCLOSED INCOME OF AN ASSESSEE WOULD BE FOUND ON SEARCH, AS ONLY AS MUCH OF IT AS IS DISCERNIBLE AND BORNE OUT WITH REFERENCE THE MATERIAL FOUND AS A RESULT OF SEARCH, THAT COULD BE BROUGHT TO TAX AS UNDISCLOSED INCOME. AS SUCH, THE NON-FINDING OF THE DESTINATION OF THE SHARE OF THE UNDISCLOSED INCOME OF SH. KAMAL S. RUI A WOULD BE TO NO MATERIAL CONSEQUENCE. THE OTHER ASPECT OF THE MATTER IS THE ABSENCE OF MATCHING OF DATES, I.E., THE DATES OF REALIZATION OF ON MONEY ON ONE HAND, AND T HE EXTENSION OF CASH LOANS ON THE OTHER, WITHOUT WHICH IT COULD NOT BE SAID THAT THE EXTENSION OF THE CASH LOANS ARISE SOLELY OUT OF THE UNDISCLOSED INCOME FROM CONSTRUCTION BUS INESS. THE SAME, HOWEVER, IS TO LITTLE EFFECT, AS WHERE NOT SO, IT COULD RATHER MAKE THE A SSESSEE ADDITIONALLY LIABLE TO EXPLAIN THE SOURCE OF CASH LOANS, WHILE EVEN ALLOWING FULL CRED IT LEAVES A GAP OF RS.3.58 LACS. AND WHICH WE HAVE ASCRIBED TO INTEREST ON CASH LOANS, W HICH STANDS TO BE REALIZED IN CASH AT THE END OF THE PERIOD FOR WHICH THE LOAN/S HAS BEEN ADVANCED. 5.3 IN VIEW OF THE FOREGOING, WE FIND NO MERIT IN T HE ASSESSEES CASE. FURTHER, THE RELIANCE ON THE DECISION IN THE CASE OF KANAKIA GROUP OF COMPANIES (SUPRA) BY THE ASSESSEE IS WHOLLY MISPLACED, EVEN AS WE HAVE BASED OUR DECISION ON THE WELL-SETTLED LAW, AND WHICH HAS TO BE APPLIED IN THE FACTS OF EACH C ASE, SO THAT THE SAID DECISION WOULD ALSO BE ONLY WITH REFERENCE THERETO. EVEN AS POINTED OUT DURING THE COURSE OF HEARING ITSELF, THE 10 IT(SS) NOS.11 & 12 /MUM/12 (B.P. 01.04.1988 TO 13.08.1998) ISSUE THAT AROSE FOR CONSIDERATION AND DETERMINATIO N THEREIN WAS THE NET PROFIT RATE TO BE APPLIED TO THE ASSESSEES UNACCOUNTED BUSINESS. WHI LE THE REVENUE APPLIED THE RATE OF 15%, THE ASSESSEE PRESSED FOR A RATE OF 4% TO 7%, I .E., AS DISCLOSED PER ITS REGULAR ACCOUNTS. IT WAS UNDER THESE CIRCUMSTANCES THAT THE TRIBUNAL CONSIDERED IT REASONABLE TO ESTIMATE THE SAME AT 10%. CLEARLY, THE SAME HAS NO BEARING ON OR RELEVANCE IN THE INSTANT CASE. 6.1 THE ONLY OTHER ISSUE ARISING IN THE INSTANT APP EAL IS PER GROUND NO. 2 IN THE CASE OF SH. SHARAD S. RUIA. PER THE SAME THE ASSESSEE IMPUG NS THE FINDING BY THE LD. CIT(A) IN HOLDING THAT THE ASSESSEE IS NOT AGGRIEVED BY THE F INDING OF THE AO IN HOLDING THAT IT IS THE PRINCIPAL AMOUNT OF LOANS (RS.33.31 LAKHS) THAT NEE DS TO BE ADDED INSTEAD OF THE PEAK AMOUNT OF RS.27.69 LAKHS AND, FURTHER, THAT THE CAS H ADVANCED HAD BEEN MADE OUT OF PROFIT OF THE CONSTRUCTION ACTIVITY, RATHER THAN OU T OF THE RECEIPT OF THE CONSTRUCTION ACTIVITY. TO BEGIN WITH, THE FIRST THING THAT THE A SSSESSEE, IMPUGNING THE SAID FINDING, WAS REQUIRED TO SHOW IS THE BASIS OF ITS CASE, I.E., AS TO HOW IT IS INDEED AGGRIEVED. FURTHER, EVEN SO, IT WOULD, AS A SECOND STEP, BE REQUIRED TO SHOW AS TO HOW THE SAID FINDING IS NOT CORRECT, I.E., DISLODGE IT ON MERITS, FOR US TO VAC ATE, REVERSE OR MODIFY THE SAME, DIRECTING FOR CONSEQUENTIAL RELIEF TO THE ASSESSEE, WHO DID N OT MAKE OUT ANY SUCH CASE BEFORE US. IN FACT, WE ARE UNABLE TO COMPREHEND THE BASIS OF THE ASSESSEES CASE. THE SIMPLE REASON IS THAT THE ONLY ADDITION THAT STANDS MADE QUA THE INTEREST BEARING CASH ADVANCES IS FOR THE INTEREST INCOME EARNED DURING THE BLOCK PERIOD, I.E ., RS.6.19 LAKHS, AND WHICH IS UNDISPUTED. THAT BEING THE CASE, THE MERIT OF THE A SSESSEES GROUND NO. 2 IS NOT UNDERSTOOD. THE SAME IS IN ANY CASE RENDERED ACADEM IC IN VIEW OF THE AO HAVING ALLOWED FULL TELESCOPING BENEFIT AGAINST THE UNDISC LOSED INCOME FROM CONSTRUCTION BUSINESS. RATHER, THERE IS A CONTRADICTION IN THE C LAIM OF THE ASSESSEE OF THE AO HAVING HELD OF THE ENTIRE AMOUNT OF THE LOANS ADVANCED BEI NG LIABLE TO BE ASSESSED, I.E., RS.33.31 LACS. THIS IS AS, IF SO, HE COULD NOT HAVE POSSIBLY ALLOWED TELESCOPING BENEFIT FOR THIS SUM AGAINST THE ASSESSED INCOME FROM THE CONSTRUCTION B USINESS, WHICH IS AT RS.24.11 LACS, FOR THIS SUM, SO THAT THE BALANCE RS.8.20 LACS (33.31 24.11) WOULD STAND TO BE ASSESSED BY 11 IT(SS) NOS.11 & 12 /MUM/12 (B.P. 01.04.1988 TO 13.08.1998) HIM AS UNDISCLOSED INCOME, WHICH IS NOT THE CASE; T HE ONLY INCOME IN RESPECT OF THE CASH LOANS THAT STANDS SEPARATELY ASSESSED BEING THE INT EREST INCOME. 6.2 THE SECOND LIMB OF THE GRIEVANCE PROJECTED PER THE ASSESSEES GROUND # 2 IS EQUALLY INCOMPREHENSIBLE. THIS IS AS ONCE THE ASSES SEE HAS BEEN ALLOWED FULL TELESCOPING BENEFIT BY THE AO AGAINST THE INCOME FROM THE CONST RUCTION BUSINESS, IT MATTERS LITTLE WHETHER THE INVESTMENT IN CASH LOANS WAS OUT OF THE RECEIPT OF THE CONSTRUCTION BUSINESS, WHICH INDEED, AS CLAIMED BY THE ASSESSEE, IT WOULD BE, OR FROM INCOME THEREFROM. THE INCOME FROM THE CONSTRUCTION BUSINESS, AFTER ALL, I S ALSO A PART OF, AND ARISES FROM, THE CONSTRUCTION RECEIPT ITSELF. IT NEEDS TO BE APPRECI ATED THAT, CASH FLOWS APART, WHAT WOULD FINALLY BE INVESTED IN SUCH ADVANCES IS ONLY THE IN COME FROM THE CONSTRUCTION BUSINESS, OR THE INCOME EMBEDDED IN THE GROSS RECEIPT. THIS IS A S THE BALANCE, REPRESENTING THE COSTS OF THE PROJECT, WOULD OVER TIME STAND NECESSARILY ABSO RBED OR CONSUMED IN THE PROJECT, AND ONLY AFTER EXCLUDING WHICH THE INCOME THEREFROM COU LD BE ASCERTAINED. NOT SO DOING WOULD BE TO DERECOGNIZE THE CONCEPT OF INCOME. IN O THER WORDS, WHILE THE FUNDS ARE FUNGIBLE, AND ALL FUNDS OF THE BUSINESS ROUTED THRO UGH A CASH ACCOUNT OR A COMMON POOL OF FUNDS, THE FINANCING PATTERN CAN ONLY BE ASCERTA INED BY DRAWING A BALANCE-SHEET, GIVING A SNAP SHOT OF THE FINANCIAL STATUS/AFFAIRS AT DIFF ERENT POINTS OF TIME, SO AS TO DISCERN THE SOURCE/S FOR THE VARIOUS APPLICATIONS OF FUNDS. IT IS ONLY IN PECULIAR CIRCUMSTANCES, AS WHERE THE COSTS (OF CONSTRUCTION) HAVE NOT BEEN DIS CHARGED, BUT INCURRED ON CREDIT, THAT THE ASSESSEE COULD, ON THE BASIS OF THE BALANCE-SHE ET OF ITS UNACCOUNTED FUNDS, CLAIM THE GROSS RECEIPTS TO HAVE FINANCED THE ADVANCES TO AN EXTENT HIGHER THAN THE INCOME COMPONENT THEREIN. THE ASSESSEES CASE IS WHOLLY WI THOUT MERIT AND, FURTHER, GIVEN THE FACT THAT IT HAS BEEN ALLOWED FULL TELESCOPING BENE FIT FOR THE WHOLE OF THE AMOUNT ADVANCED, ITS GRIEVANCE BOTH UNTENABLE AND INCOMPR EHENSIBLE. ON THE CONTRARY, AS WE SEE IT, THE REVENUE HAS NOT ADDED THE FULL AMOUNT OF TH E INCOME FROM THE CONSTRUCTION RECEIPT INASMUCH AS IT HAS NOT INCLUDED RS.5.62 LACS WHICH STOOD TO BE RECEIVED AS PER ANNEXURE A-1, AND WHICH STANDS EXCLUDED IN COMPUTING THE GRO SS RECEIPT OF RS.107.08 LAKHS (PG.4 OF THE ASSESSMENT ORDER). IT IS NOT CLEAR AS TO WHE N THIS AMOUNT STANDS RECEIVED AND, 12 IT(SS) NOS.11 & 12 /MUM/12 (B.P. 01.04.1988 TO 13.08.1998) ACCORDINGLY, BROUGHT TO TAX, AND FOR ALL WE KNOW CO ULD HAVE BEEN RECEIVED BY THE ASSESSEE/S BY THE SEARCH DATE ITSELF. EVEN SO, RECE IPT IS NOT A PRECONDITION FOR ASSESSMENT, EXCEPT WHERE THE ASSESSEE IS FOLLOWING CASH SYSTEM OF ACCOUNTING (SECTION 5 READ WITH SECTION 145), WHICH IS NOT THE CASE, SO THAT THE SA ME, HAVING ACCRUED, OUGHT TO HAVE BEEN INCLUDED IN THE ASSESSMENT OF THE UNDISCLOSED INCOM E ARISING TO THE ASSESSEES FOR THE BLOCK PERIOD. IN FACT, THE REVENUE HAS ALLOWED, AND ONLY RIGHTLY SO, THE FULL AMOUNT OF EXPENDITURE OF RS.8.01 LAKHS AS APPEARING AT PAGE 9 OF ANNEXURE A-1, I.E., INCLUDING THE EXPENSES YET TO BE DISCHARGED/PAID, IN COMPUTING TH E UNDISCLOSED INCOME FOR THE BLOCK PERIOD, SO THAT, LIKEWISE, THE ENTIRE INCOME, INCLU DING THAT DUE (TO BE RECEIVED), OUGHT TO HAVE BEEN BROUGHT TO TAX AS INCOME FOR THE BLOCK PE RIOD. WE, IN STATING SO, ARE NOT EXTENDING THE SCOPE OF THE APPEALS BEFORE US, WHICH IS TO BE LIMITED TO THE GROUNDS RAISED BY THE APPELLANT/S, BUT CLARIFYING THE CORRECT FACT UAL AND LEGAL POSITION OF THE CASE. OUR OBSERVATIONS, THEREFORE, MUST BE CONSIDERED IN THAT PERSPECTIVE ONLY. WE DECIDE ACCORDINGLY. 7. IN THE RESULT, BOTH THE APPEALS BY THE ASSESSEES ARE DISMISSED. 6 '< / #6' 8 6 8 ' ,= ORDER PRONOUNCED IN THE OPEN COURT ON 05 TH JUNE, 2013 ( 8 :; >/< 05 ?/ , 2013 8 ' SD/- SD/- (SANJAY GARG) (SANJAY ARORA) / JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI; >/ DATED : 05.06.2013 13 IT(SS) NOS.11 & 12 /MUM/12 (B.P. 01.04.1988 TO 13.08.1998) ( 8 4'D +D;' ( 8 4'D +D;' ( 8 4'D +D;' ( 8 4'D +D;'/ COPY OF THE ORDER FORWARDED TO : 1. 03 / THE APPELLANT 2. 4503 / THE RESPONDENT . 3. E ( ) / THE CIT(A) 4. E / CIT - CONCERNED 5. D!*' 4'/ , , / DR, ITAT, MUMBAI 6. 'F# G / GUARD FILE (/ (/ (/ (/ / BY ORDER, H HH H/ // /, , , , (DY./ASSTT. REGISTRAR) , , , , / ITAT, MUMBAI