LATE HARI SHANKAR KHANDELWAL, BHARATPUR V. ACIT, BHARATPUR

ITSSA 15/JPR/2011

• Counselvise Citation: [2017] 122 COUNSELVISE.COM (IT) 3406 (ITAT-JAIPUR)
• Duration Of Justice: 5 year(s) 11 month(s)
• Appeal Type: Income Tax (Search & Seizure) Appeal
• Pronouncement Date: 29-08-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: misc
• Appeal Filed On: 29-09-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ROLLY AGARWAL CIT DHK
• Keywords: Unexplained investment; Gift; Question of law; Block assessment
• Section: 132; 15

Judgement Text

VK;DJ VIHYH; VF/KDJ.K] T;IQJ U;K;IHB] T;IQJ IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHE S, JAIPUR JH DQY HKKJR] U;KF;D LNL; ,OA JH FOE FLAG ;KNO] YS[KK LNL; DS LE{K BEFORE: SHRI KUL BHARAT, JM & SHRI VIKRAM SINGH YA DAV, AM VK;DJ VIHY LA- @ ITSSA NO. 15/JP/2011 FU/KZKJ.K O'K Z @ ASSESSMENT YEARS BLOCK PERIOD : 1987-88 TO 97-08. SHRI GAURAV KHANDELWAL SHRI ASHISH KHANDELWAL L/H OF LATE HARI SHANKAR KHANDELWAL, S/O L. SH. MURARI LAL THROUGH L/H SMT. KAMLESH KHANDELWAL R/O KUMHER (BHARATPUR) CUKE VS. THE ACIT, CIRCLE, BHARATPUR. LFKK;H YS[KK LA-@THVKBZVKJ LA-@ PAN/GIR NO. ACMPK 5670 Q VIHYKFKHZ@ APPELLANT IZR;FKHZ@ RESPONDENT FU/KZKFJRH DH VKSJ LS@ ASSESSEE BY : SHRI P.C. PARWAL (CA) JKTLO DH VKSJ LS@ REVENUE BY : SMT. ROLLY AGARWAL (CIT) LQUOKBZ DH RKJH[K@ DATE OF HEARING : 17.08.2017. ?KKS'K .KK DH RKJH[K @ DATE OF PRONOUNCEMENT : 29/08/2017. VKNS'K@ ORDER PER SHRI KUL BHARAT, J.M. THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST TH E ORDER OF LD. CIT (APPEALS), ALWAR DATED 15.07.2011 PERTAINING TO BLOCK PERIOD 1 987-88 TO 1997-98 (UPTO 25.02.1997). THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL :- 1. AS PER FACTS, CIRCUMSTANCES AND LEGAL POSITION OF T HE CASE THE LD. CIT (A) HAS GROSSLY ERRED BY CONFIRMING AND ENHANCI NG THE PENALTY IMPOSED BY THE AO OF RS. 11,55,246/- U/S 15 8 BFA (2) OF THE INCOME TAX ACT, 1961. 2. NO PROPER OPPORTUNITY HAS BEEN PROVIDED BY LD. CIT (A) TO THE ASSESSEE. 2 ITSSA 15/JP/2011 LATE HARI SHANKAR KHANDELWAL 2. BRIEFLY STATED THE FACTS OF THE CASE ARE THAT A SEARCH UNDER SECTION 132 OF THE INCOME TAX ACT, 1961 (HEREINAFTER REFERRED TO AS TH E ACT) WAS CARRIED OUT AT THE PREMISES OF THE ASSESSEE ON 25.02.1997. A NOTICE UN DER SECTION 158BC OF THE ACT WAS ISSUED ON THE ASSESSEE ON 05.08.1997 REQUIRING THE ASSESSEE TO FILE RETURN OF INCOME. IN COMPLIANCE TO THE NOTICE, THE ASSESSEE F ILED RETURN OF INCOME ON 06.10.1997 FOR THE BLOCK PERIOD 01.04.1986 TO 25.02 .1997 DECLARING TOTAL UNDISCLOSED INCOME OF RS. 82,500/-. THE AO FRAMED T HE ASSESSMENT UNDER SECTION 158BC(C) AT A TOTAL UNDISCLOSED INCOME AT RS. 43,78 ,571/- ON 26.02.1999 AND INITIATED PENALTY PROCEEDINGS UNDER SECTION 158 BFA (2) BY ISSUE OF NOTICE U/S 158BFA(2) OF ACT. AGGRIEVED BY THIS ORDER, THE ASS ESSEE PREFERRED AN APPEAL BEFORE LD. CIT (A) WHO VIDE HIS ORDER DATED 05.05.2003 RED UCED THE TOTAL UNDISCLOSED INCOME AT RS. 21,43,018/-. AGAINST THIS ORDER, THE REVENUE AS WELL AS THE ASSESSEE HAD PREFERRED APPEAL TO THE ITAT, WHO VIDE ITS ORDE R DATED 23.11.2004 REDUCED THE TOTAL UNDISCLOSED INCOME AT RS. 20,07,910/-. THE M ISCELLANEOUS APPLICATION FILED BY THE ASSESSEE AGAINST THIS ORDER WAS REJECTED BY THE TRIBUNAL. 2.1. SUBSEQUENTLY, THE AO FRAMED THE PENALTY ORDER UNDER SECTION 158BFA(2) DATED 27.06.2005, WHEREIN HE IMPOSED PENALTY ON ACC OUNT OF TOTAL UNDISCLOSED INCOME OF RS. 19,25,410/-. AGGRIEVED BY THIS ORDER, THE ASSESSEE PREFERRED AN APPEAL BEFORE THE LD. CIT (A), ALWAR, WHO VIDE HIS ORDER DATED 15.07.2011 CONFIRMED AND ENHANCED THE PENALTY. 3. NOW THE ASSESSEE IS IN APPEAL BEFORE THIS TRIBUN AL. 3 ITSSA 15/JP/2011 LATE HARI SHANKAR KHANDELWAL 4. THE SOLITARY GROUND AGITATED BY THE ASSESSEE IS REGARDING CONFIRMING AND ENHANCING THE PENALTY IMPOSED BY THE AO OF RS. 11,5 5,246/- UNDER SECTION 158BFA(2) OF THE ACT. 4.1. THE LD. COUNSEL FOR THE ASSESSEE REITERATED TH E SUBMISSIONS AS MADE IN THE WRITTEN BRIEF. THE SUBMISSIONS OF THE ASSESSEE ARE REPRODUCED AS UNDER :- AT THE OUTSET IT IS SUBMITTED THAT THE UNDISCLOSED INCOME DETERMINED BY THE AO AT RS.19,25,410/- AND BY CIT(A) AT RS.24,66,998/- IS I NCORRECT. IN WORKING OUT SUCH UNDISCLOSED INCOME BOTH THE LOWER AUTHORITIES HAVE CONSIDERED THE VARIOUS ASSETS WHICH HAS BEEN DISCLOSED IN THE RETURN FOR BLOCK PERIOD B UT IGNORED THE VARIOUS CLAIMS WHICH IS ALLOWED BY THE LOWER AUTHORITIES IN QUANTUM APPEAL. THE CORRECT DIFFERENCE BETWEEN THE RETURNED INCOME AND ASSESSED INCOME IS ONLY RS.18,5 3,654/- AS DETAILED BELOW:- PARTICULARS AS PER RETURN AS PER AO AFTER CIT(A) ORDER AFTER ITAT ORDER DIFFERENCE CASH & BANK BALANCES 21,061/- 23,663/- 21,061/- 2 1,061/- - PAWNED ADVANCES 93,000/- 1,37,000/- 99,680/- 99 ,680/- 6,680/- INT. ON PAWNED ADVANCES - 1,09,130/- - - - UNSECURED LOAN - 9,59,570/- - - - DEBTORS 7,62,850/- - 7,62,850/ 7,62,850/- - INTEREST ON LOAN - 90,438/- - - - INVESTMENT IN FDR, SHARES ETC. 63,900/- 1,81,650/- 1,80,150/- 1,26,150/- 62,250/- INTEREST ON ABOVE - 30,443/- - - - MOTORCYCLE 10,000/- 10,000/- 10,000/- 10,000/- - GOLD & SILVER - 2,53,790/- 71,393/- 71,393/- 71,393 /- EXCESS STOCK 1,00,000/- 4,15,167/- 1,70,167/- 1,70, 167/- 70,167/- HOUSEHOLD EXPENSES+ LAND PURCHASED 2,66,500/- 12,16,752/- 3,72,000/- 5,04,000/- 2,37,5 00/- UNEXPLAINED INVESTMENT IN DEMAND DRAFT - 31,080/- 31,080/- 31,080/- 31,080/- SECURITY AMOUNT RECEIVABLE FROM APOLLO 8,00,000/- 8,00,000/- 8,00,000/- 8,00,000/- - INTEREST INCOME FROM APOLLO TYRES - 75,388/- 75,388/- 75,388/- 75,388/- FDR PLEDGED FOR OBTAINING BANK LIMIT 51,000/- 51,000/- 51,000/- 51,000/- - TOTAL 21,68,311/- 43,85,071/- 26,44,769/- 27,22,769 /- 5,54,458/- LESS:- ASSET AS ON 01.04.1986 1,80,000/- - 1,80,000/- 1,80 ,000/- - AGRICULTURAL INCOME 2,90,000/- - 2,00,000/- 2,58,05 5/- 31,945/- SALE OF AGRICULTURAL LAND 1,33,750/- - 8,000/- 8,00 0/- 1,25,750/ 4 ITSSA 15/JP/2011 LATE HARI SHANKAR KHANDELWAL LOAN AGAINST FDR 6,500/- 6,500/- 6,500/- 6,500/- - SUNDRY CREDITORS 10,76,501/- - - - 10,76,501/- INCOME BELOW TAXABLE LIMIT 3,85,500/- - 1,88,000/- 3,20,500/- 65,000/- LIC POLICY CREDIT 13,560/- - - 13,560/- - NET UNDISCLOSED INCOME 82,500/- 43,78,571/- 20,62,269/- 19,36,154/- 18,53, 654/- DIFFERENCE IN APPEAL EFFECT - - 71,751/- 71,751/- 71,751/- TOTAL 82,500/- 43,78,571/- 21,34,020/- 20,07,905/- 19,25,405/- OUT OF THE ABOVE DIFFERENCES, THE AO/ CIT(A) PICKED CERTAIN DIFFERENCE AND IMPOSED PENALTY IGNORING THE ADDITIONS WHICH FINALLY REMAIN ED AFTER THE ORDER OF ITAT/AO IN SET ASIDE PROCEEDINGS. FURTHER IT IS IGNORED THAT THE A DDITIONS ARE ON ESTIMATED BASIS OR BY INCORRECT APPRECIATION OF FACTS & DOCUMENTS ON RECO RD. IT IS A SETTLED LAW THAT PENALTY PROCEEDING & ASSESSMENT PROCEEDING ARE INDEPENDENT PROCEEDING. THE LOWER AUTHORITIES IN PENALTY PROCEEDING HAVE NOT EXAMINED THE ISSUES INDEPENDENTLY. THEY MECHANICALLY IMPOSED THE PENALTY EVEN ON THAT INCOME WHICH IS DI SCLOSED BY THE ASSESSEE IN THE RETURN. HENCE, PENALTY IMPOSED BY AO AND ENHANCED B Y CIT(A) WITHOUT APPRECIATION OF FACTS AND PROPER APPLICATION OF MIND IS UNJUSTIFIED AND BE DELETED. 2. SO FAR AS THE INDIVIDUAL ADDITIONS WHICH REM AINED TO THE UNDISCLOSED INCOME DECLARED BY THE ASSESSEE IN THE RETURN, PENALTY IS NOT IMPOSABL E FOR THE REASONS STATED HEREUNDER:- CASH & BANK BALANCE RS.21,061/- IN SEARCH CASH & BANK BALANCE WAS FOUND AT RS.23,66 3/- OUT OF WHICH RS.21,0611/- IS CONSIDERED BY ASSESSEE HIMSELF IN THE RETURN FOR BL OCK PERIOD. THIS IS FINALLY ACCEPTED . THUS, WHEN THIS AMOUNT IS ALREADY OFFERED BY THE AS SESSEE IN THE RETURN NO PENALTY ON THIS AMOUNT IS IMPOSABLE U/S 158BFA(2). HENCE, BOTH THE LOWER AUTHORITIES HAVE ERRED IN IMPOSING THE PENALTY ON THIS AMOUNT. ADVANCE AGAINST PAWNED JEWELLERY RS.99,680/- (I) IN COURSE OF SEARCH PAWNED GOLD JEWELLERY OF NET WEIGHT OF 358 GMS WAS FOUND AND SEIZED AS PER ANNEXURE JX DATED 25.2.97 (PB 12) . INSPITE OF REPEATED REQUEST VIDE LETTER DT. 3.3.97, 20.5.97 AND 3.10.97 THE LIST OF ACTUAL PAWNED ADVANCES GIVEN AGAINST THESE ITEMS WERE NOT PREPARED. THE ASSESSEE THEREFORE ON ESTIMATED BASIS TOOK THE AMOUNT OF ADVANCE AGAINST THESE ITEMS AT R S.93,000/- WHILE PREPARING THE BLOCK RETURN (PB 5) . THE ASSESSING OFFICER THEREAFTER VIDE LETTER DT. 28.1.99 PROVIDED FOLLOWING DETAILS OF THESE ADVANCES STATED TO BE PREPARED AT THE TIME OF SEARCH: ITEM NET WT. DATE INT RATE NAME AMOUNT DASTANE PAIR 1 54 GMS POSE SUDI 3, 2048 1.25% NOT C LEAR 40,000 DASTANE PAIR 2 45 GMS POSE SUDI 3, 2048 1.25% NOT C LEAR GOLD BANGLES 4 24 GMS ASOJ BUDI 4, 2051 1.35% DHANESH CHAND 10,000 GOLD BANGLES 4 55 GMS ASOJ BUDI 4, 2049 1.35% DHANESH CHAND 42,000 MOHAR PCS. 4 180 GMS FALGUN BUDI 7, 2044 1.35% PANN A LAL JAIN 45,000 TOTAL 358 GMS 1,37,000 5 ITSSA 15/JP/2011 LATE HARI SHANKAR KHANDELWAL THE AO TREATED THE AMOUNT OF RS.1,37,000/- AS PAWNE D ADVANCES AND ASSESSED THE SAME AS UNDISCLOSED INCOME FOR THE BLOCK PERIOD. (PAGE 5, PARA 10 - P.B. 51) (II) IN APPEAL, THE CIT(A) REDUCED THE SAME TO R S.99,680/- BY GIVING FOLLOWING FINDING (PARA 6.3 AT PAGE 6- P.B.65) : - THE VALUE TAKEN BY THE AO IS (NOT) CONSIDERED REAS ONABLE IN VIEW OF THE FACT THAT THE WHOLE JEWELLERY TAKEN AGAINST PAWNED ADVANCES C ANNOT BE SAID TO BE OF STANDARD GOLD OF 24 CARATS. THE SUBMISSION OF THE L D. AR CAN BE ACCEPTED TO THE EXTENT OF 70% OF TOTAL WEIGHT TOWARDS PAWNED ADVANC ES. THEREFORE, THE TOTAL UNEXPLAINED INVESTMENT AMOUNT COMES TO RS.99,680/- AS AGAINST RS.93,000/- DECLARED BY THE APPELLANT ASSESSEE.' (III) THE HON'BLE ITAT UPHOLD THE ORDER OF CIT(A) BY GIVING FOLLOWING FINDING:- (P.B.87-88) THE LD. CIT(A) OPINED THAT ABOUT 70% OF THE VALUE OF PAWNED JEWELLERY IS NORMALLY GIVEN AS AN ADVANCE TO PAWNEE. AFTER APPRE CIATION OF FACTS WE FIND THAT THE ORDER OF THE LD. CIT(A) IS NOT LACONIC IN ANY M ANNER. HENCE WE DECLINE TO INTERFERE WITH HIS ORDER (IV) FROM THE ABOVE FACTS IT CAN BE NOTED THAT THE ASSESSEE HAS DISCLOSED THE VALUE OF PAWNED ADVANCES ON ESTIMATED BASIS IN THE ABSENCE O F LIST OF ACTUAL PAWNED ADVANCES. THEREFORE, IN THE ABSENCE OF THE ACTUAL L IST, THE LD. CIT(A) ESTIMATED THAT ADVANCE HAS BEEN GIVEN AT 70% OF THE TOTAL WEIGHT A ND ESTIMATED THE AMOUNT ADVANCES AT RS.99,680/-. THIS WAS UPHELD BY THE ITA T. THUS THE DIFFERENCE OF RS.6,680/- BETWEEN INVESTMENT DECLARED BY THE ASSES SEE AND THAT FINALLY ASSESSED IS ONLY ON ACCOUNT OF ESTIMATION. HOWEVER, IGNORING THIS FACT, THE LOWER AUTHORITIES HAVE IMPOSED PENALTY ON THE ENTIRE AMOUNT OF RS.99, 680/- WHICH IS APPARENTLY INCORRECT & AGAINST THE PROVISION OF SECTION 158BFA (2). IN ANY CASE SINCE ADDITION IS ON ESTIMATE BASIS, NO PENALTY IS LEVIABLE AS HEL D IN VARIOUS CASES RELIED AT PARA NO. 3 BELOW. UNSECURED ADVANCES RS,6,69 850/- IN SEARCH DEBTORS OF RS.7,62,850/- WERE FOUND AS PE R -ANNEXURE A-20 & A-2. THIS WAS CONSIDERED BY THE ASSESSEE IN FILING THE BLOCK RETU RN. THE AO, HOWEVER WRONGLY CONSIDERED IT AS UNSECURED ADVANCES AT RS.9,59,570/ -. THE CIT(A) AT PARA (PB 68) HELD THAT ADDITION OF RS.9,59,570/- MADE BY THE AO IS TO BE DELETED AND THIS IS TO BE SUBSTITUTED BY THE DEBTORS DISCLOSED BY THE ASSESSE E AT RS.7,62,850/-. THIS IS AFFIRMED BY HONBLE ITAT (PARA 10, PB 89) . IN THE PENALTY ORDER THE AO NOTED THAT OUT OF RS.7,62,850/-, AN AMOUNT OF RS.93,000/- IS SHOWN BY THE ASSESSEE AND THEREFORE HE TOOK THE UNSECURED ADVANCE AT RS.6,69,850/- ON WHICH PEN ALTY WAS IMPOSED. HOWEVER, CIT(A) CONSIDERED IT AT RS.7,62,850/- ON WHICH THE LEVY OF PENALTY IS CONFIRMED. IT MAY BE POINTED OUT THAT THE LOWER AUTHORITIES HA VE NOT APPRECIATED THE FACT THAT WHEN THE ASSESSEE HIMSELF HAS CONSIDERED THE AMOUNT OF D EBTORS IN THE BLOCK RETURN IN COMPUTING THE UNDISCLOSED INCOME, NO PENALTY CAN BE IMPOSED ON THIS AMOUNT U/S 158BFA(2). HENCE, THE LEVY OF PENALTY OF THIS AMOUN T IS UNCALLED FOR AND NEEDS TO BE DELETED. 6 ITSSA 15/JP/2011 LATE HARI SHANKAR KHANDELWAL INVESTMENT IN FDR, SHARES ETC. FOR RS.1,26,450/- (I) IN COURSE OF SEARCH VALUABLES AS PER ANNEXUR E S (P.B. PAGE 15-17) WERE FOUND AND SEIZED, DETAILS OF WHICH ARE AS UNDER:- NAME IN WHICH NATURE OF INVESTMENT AMOUNT INVESTMENT HELD SHRI HARI SHANKER SHARES & DEBENTURES 13,750 UNITS 35,900 49,650 SMT. KAMLESH UNITS 10,000 SHARES 2,000 IVP DATED 14.9.96 1,500 FDR DATED 1.10.96 51,000 64,500 GULAB DEVI FDR DATED 13.6.96 54,000 PROMISSORY NOTE 12,000 66,000 DT.22.11.90 1,80,150 (II) THE TOTAL INVESTMENT AS PER ANNEXURE S IS OF RS.1,80,150/- BUT WRONGLY TAKEN BY THE AO AT RS.1,81,650/- (AO PAGE 2-3, PARA 4, PB 48-49) (BY CONSIDERING THE MATURITY VALUE OF IVP AT RS.3,000/- INSTEAD OF ITS FACE VALUE AT RS.1,500/-). THE ASSESSEE CONSIDERED VALUABLES OF RS.63,900/- AS UNE XPLAINED INVESTMENT WHILE COMPUTING THE UNDISCLOSED INCOME FOR THE BLOCK PERI OD. (III) THE CIT(A) (PB 70, PARA 9.3) CONFIRMED THE ADDITION FOR UNEXPLAINED INVESTMENT AT RS.1,81,650/- BY HOLDING THAT THE ASSESSEE FAILE D TO SUBSTANTIATE HIS ARGUMENTS WITH DOCUMENTARY EVIDENCE FOR INVESTMENT MADE IN HI S NAME AND IN NAME OF HIS WIFE AND MOTHER. (IV) THE HONBLE ITAT (PB PAGE 100-104) DID NOT ACCEPT THE EXPLANATION OF ASSESSEE THAT INVESTMENT IN THE NAME OF SMT. KARNLESH KHANDE LWAL, WIFE IS FROM HER OWN SOURCES BY HOLDING THAT SHE WAS NOT HAVING ANY SOUR CE OF INCOME AND NO NEXUS HAS BEEN ESTABLISHED BETWEEN THE AMOUNT RECEIVED FR OM PARTNERSHIP FIRM M/S MORAN LAI KAPOOR CHAND AND THE INVESTMENTS SAID TO BE MADE BY SMT. KAMLESH. IN RESPECT OF INVESTMENT OF SMT. GULAB DEVI, MOTHER OF THE ASSESSEE, THE MATTER WAS RESTORED TO THE FILE OF THE AO FOR VERIFYING TH AT THE FDR'S WERE PURCHASED OUT OF THE LTC AMOUNT RECEIVED ON DEATH OF HER HUSBAND. ON VERIFICATION THE AO FOUND THAT THE SOURCE OF FDR IN NAME OF SMT. GULAB DEVI WAS OUT OF THE LIC AMOUNT RECEIVED AND THUS ADDITION TO THIS EXTENT WA S REDUCED FROM THE INCOME OF THE ASSESSEE. THE TOTAL INVESTMENT IN FDR/SHARES WA S THUS FINALLY CONSIDERED AT RS.1,26,150/-. 7 ITSSA 15/JP/2011 LATE HARI SHANKAR KHANDELWAL (V) FROM THE ABOVE IT CAN BE NOTED THAT THE CORR ECT AMOUNT OF INVESTMENT WHICH IS TO BE CONSIDERED IN THE HANDS OF THE ASSESSEE IS RS.1, 26,150/- BUT THE CIT(A) HAS WRONGLY CONSIDERED IT AT RS.1,27,650/- WHILE IMPOSI NG THE PENALTY. THE DIFFERENCE OF RS.1,500/- IS ON ACCOUNT OF TAKING THE MATURITY VALUE OF IVP INSTEAD OF ITS FACE VALUE. AGAINST THIS ASSESSEE HAS CONSIDERED RS.63,9 00/- IN COMPUTING THE UNDISCLOSED INCOME. THUS, THE DIFFERENCE IN THE AMO UNT CONSIDERED BY THE ASSESSEE IN THE RETURN AND THAT FINALLY ASSESSED IS ON ACCOU NT OF TREATING THE INVESTMENT OF SMT. KAMLESH KHANDELWAL AS INVESTMENT OF ASSESSEE. IT MAY BE NOTED THAT IF THE STATEMENT OF ASSESSEE AND HIS WIFE IS CONSIDERED IN TOTALITY IT IS APPARENT THAT THE INVESTMENT IN NAME OF ASSESSEES WIFE BELONGS TO HE R ONLY. THIS IS CLEAR FROM FOLLOWING FACTS:- - THE ASSESSEE IN REPLY TO Q. NO. 6 (PB 20-21) STATED THAT HIS WIFE ONLY KNOWS ABOUT HER MOVABLE ASSETS. - IN REPLY TO Q. NO. 12, (PB 23) ASSESSEE STATED THAT THE FDR OF RS.51000/- IN THE NAME OF HIS WIFE WAS PURCHASED BY HER FROM THE AMOUNT RECEIVED BY HER ON MARRIAGE AND OUT OF SAVINGS OF 20 YEARS. - THE ASSESSEE'S WIFE IN REPLY TO Q. NO. 4 (PB 27) STATED THAT SHE OWNS IVP/KVP OF RS.6,000/- OR RS.10,000/-. THUS ON THE ONE SIDE SHE STATED THAT SHE HAS NO SOURCE OF INCOME AND ON THE OTHER SIDE SHE ALSO EXP LAINED HOLDING OF INVESTMENT THIS IS BECAUSE OF THE FACT THAT WHAT SH E UNDERSTOOD BY SOURCE OF INCOME IS REGULAR INCOME FROM BUSINESS AND NOT FROM INVESTMENT. - THE ASSESSEE'S WIFE WAS A PARTNER IN M/S MURARI LAL KAPOOR CHAND UP TO AY 1983-84 AS IS EVIDENT FROM THE ASSESSMENT ORDER OF FIRM (PB 31-32) . AT THAT TIME SHE HAD A CAPITAL OF RS.21,518/- AS PER COPY O F HER CAPITAL A/C (PB 31-34) . THE FIRM GOT DISSOLVED ON 15.11.82 AND THE AMOUNT W AS RECEIVED BY HER. THUS SHE HAD AN INVESTMENT OF RS.2L,518/- IN FIRM EVEN I N NOV, 1982, HENCE IT IS NOT UNREASONABLE FOR HER TO HOLD INVESTMENT OF RS.64,50 0/- WHICH WAS FOUND AT THE TIME OF SEARCH. - THE ASSESSEE'S WIFE AFTER THE SEARCH FILED HER RETURN FOR A.Y 1996-97 AND 1997- 98 WHEREIN HER CAPITAL IS SHOWN AT RS.18,500/- AS A N 31.03.96. ALL THE ABOVE FACTS CLEARLY INDICATE THAT THE INVESTMENT IN NAME OF ASSESSEE'S WIFE BELONGS TO HER AND SHE HAS SUFFICIENT FUNDS EVEN PRIOR TO COMM ENCEMENT OF BLOCK PERIOD TO HOLD THESE INVESTMENTS. (VI) FROM THE ABOVE FACTS IT CAN BE NOTED THAT SM T. KAMLESH KHANDELWAL CATEGORICALLY ACCEPTED THAT INVESTMENT IN HER NAME BELONGS TO HER . THE AO HAS NO MATERIAL TO HOLD THAT THESE INVESTMENTS ARE ACQUIRED OUT OF THE UNDISCLOSED INCOME OF THE ASSESSEE. HIS EXPLANATION IS BONAFIDE AND NOT PROVE D TO BE FALSE. THE HON'BLE ITAT HAS UPHELD THE FINDING OF THE CIT(A) SOLELY FO R THE REASON THAT ASSESSEE'S WIFE HAS NOT FILED ANY RETURN PRIOR TO THE DATE OF SEARCH AND NEXUS OF THE CAPITAL WITH THE FIRM VIS-A VIS THE INVESTMENT HAS NOT BEEN ESTABLISHED. IT HOWEVER IGNORED THE PRELIMINARY STATEMENT OF THE ASSESSEE AND HIS W IFE. ONLY ON PRESUMPTION THE INVESTMENT OF ASSESSEE'S WIFE WERE CONSIDERED IN TH E HANDS OF THE ASSESSEE. HENCE 8 ITSSA 15/JP/2011 LATE HARI SHANKAR KHANDELWAL ON SUCH ASSUMPTION, WITHOUT ANY POSITIVE EVIDENCE, PENALTY U/S 158BFA(2) IS NOT LEVIABLE ON THIS AMOUNT. (VII) OTHERWISE ALSO PENALTY HAS BEEN LEVIED BY THE LOWER AUTHORITIES ON THE ENTIRE INVESTMENT WHEREAS THE ASSESSEE HAS ALREADY DISCLOS ED INVESTMENT OF RS.63,900/- IN THE RETURN. HENCE THE PENALTY LEVIED ON THE ENTI RE AMOUNT OF RS.1,26,150/- IS INCORRECT. INVESTMENT IN SILVER FOR RS.71,393/- (I) IN COURSE OF SEARCH GOLD JEWELLERY WEIGHING 292 GMS WAS FOUND AS PER ANNEXURE J. (PB 12-14) OUT OF WHICH 13 GMS. WERE FOUND FROM THE ROOM OF S MT GULABI DEVI. FURTHER 20.127 KG OF SILVER ITEMS WERE ALSO F OUND WHICH INCLUDED 0.557 KG FROM THE ROOM OF GULABI DEVI. THE ASSESSEE IN HIS P RELIMINARY STATEMENT STATED THAT AROUND 10 TOLE OF GOLD ORNAMENTS BELONGING TO HER MARNI SMT. ASARFI DEVI IS ALSO LYING WITH HIM. CONSIDERING ALL THESE THE SEAR CH PARTY DID NOT SEIZE ANY GOLD ORNAMENT AND OUT OF SILVER ORNAMENT 18 KG OF SILVER WAS SEIZED. IN RETURN THE ASSESSEE TREATED THE GOLD AND SILVER FOUND AS EXPLA INED. THE SILVER OF 18 KG WAS CLAIMED AS ANCESTRAL PROPERTY. (II) THE AO CONSIDERED ENTIRE GOLD AND SILVER OR NAMENTS AS UNEXPLAINED. HOWEVER, THE CIT(A) DELETED THE ADDITION IN RESPECT OF GOLD JEWE LLERY BUT IN RESPECT OF ADDITION FOR SILVER ORNAMENTS HE STATED THAT IT CANNOT BE HE LD THAT THESE WERE ACQUIRED FROM UNDISCLOSED INCOME ONLY DURING BLOCK PERIOD. THEREF ORE, HE HELD THAT 5 KG SILVER ITEMS AS ANCESTRAL ASSETS ACQUIRED PRIOR TO THE BLO CK PERIOD AND REST 14.57 KG IS ACQUIRED FROM UNEXPLAINED SOURCES (PB 73, PARA 10.7) . BY CONSIDERING 70% PURITY AND RATE OF RS.7,000/- PER KG HE SUSTAINED T HE ADDITION TO THE EXTENT OF RS.71,393/-. (III) THE HONBLE ITAT (PB 92, PARA 17) HELD THAT BY CONSIDERING THE STATEMENT OF SMT KAMLESH AND LOOKING TO THE STATUS OF THE FAMILY, CI T(A) HAD RIGHTLY CONSIDERED THAT 5 KGS OF SILVER ITEMS SHOULD BE TREATED AS ANC ESTRAL ASSETS ACQUIRED PRIOR TO BLOCK PERIOD AND REST 14.570 KGS ACQUIRED FROM UNEX PLAINED SOURCES DURING THE BLOCK PERIOD AND CONFIRMED THE ADDITION TO THE EXTE NT OF RS.71,393/-. (V) FROM THE ABOVE IT CAN BE NOTED THAT THE ADDIT ION OF RS.71,393/- IS IN RESPECT OF SILVER OF 14.570 KG. THIS IS THE ANCESTRAL PROPERTY . THE CIT(A) AND 1TAT ONLY ON ESTIMATE BASIS TREATED PART OF THE SILVER AS ANCEST RAL PROPERTY. EVEN THE SEARCH PARTY VERIFIED THAT THESE SILVER ITEMS ARE OLD AND THEREF ORE IN THE PANCHNAMA ITSELF IT IS MENTIONED THAT SILVER OF 18 KG IS OLD (PB 14) . IN SEARCH NO EVIDENCE OF PURCHASE OF SILVER WAS FOUND. THUS THE ENTIRE ADDITION IS ON ES TIMATION. NO EVIDENCE WAS FOUND TO INDICATE THAT THESE ARE THE INVESTMENT FOR THE BLOCK PERIOD. HENCE ON SUCH ESTIMATED ADDITION PENALTY U/S 158BFA(2) IS NOT LEV IABLE. RELIANCE IN THIS CONNECTION IS PLACED ON VARIOUS CASES RELIED AT PAR A 4 BELOW. 9 ITSSA 15/JP/2011 LATE HARI SHANKAR KHANDELWAL ADDITION ON ACCOUNT OF EXCESS STOCK FOR RS.70,167/- CONSIDERED BY CIT(A) AT RS.1,70,167/- (I) A SURVEY WAS CONDUCTED AT THE ASSESSEE'S BUS INESS PREMISES ON 25.2.97. IN COURSE OF SURVEY STOCK FOUND WERE VALUED BY THE SURVEY PAR TY AT RS.4,15,167/- (PB 29- 30) WHICH INCLUDED STOCK OF RS.3,15,000/- ON ACCOUNT O F 35 CLAIM REJECT TYRES VALUED AT RS.9,000/- PER TYRE. IN THE BLOCK RETURN, THE ASSESSEE TOOK THE VALUE OF STOCK AS ON 25.2.97 AT RS.1,00,000/- BY STATING THA T THE VALUE OF CLAIM REJECT TYRES IS NOT MORE THAN RS.100/- PER TYRE. THE AO TOOK THE VALUE OF STOCK AT RS.4,15,167/- AS PER INVENTORY PREPARED AT THE TIME OF SURVEY. (II) THE LD. CIT(A) IN (PARA 11.3 AT PAGE 15-16 PB 74-75) REDUCED THE ADDITION TO RS.1,70,167/- BY HOLDING AS UNDER: - ' AO HAS ALSO NOT EXAMINED THE HOOKS OF ACCOUNTS OF T HE BUSINESS AND WITHOUT EXAMINING THE COST OR SALE PRICE OF SUCH 35 REJECTE D TRUCK TYRES FROM THE MARKET. THE DISPUTE IS ONLY AS TO WHAT COST SHOULD BE TAKEN FOR 35 REJECTED TYRES. THE AO DOES NOT APPEAR TO REJECT THE ASSESSEES CLAIM OF R EJECTED TYRES FOR REPLACEMENT. CONSIDERING THE FACTS IN TOTALITY WITH THE SENSE OF EQUITY AND JUSTICE, IT WILL BE FAIR TO TAKE THE VALUE OF 35 REJECTED TYRES AT RS.2,000/ - PER TYRE. THEREFORE RS.1,70,167/- OUT OF TOTAL ADDITION OF RS.4,15,167/ - IS CONFIRMED AND THE REST RS.2,45,000/- IS DELETED.' (III) HONBLE ITAT CONFIRMED THE FINDINGS OF CIT( A) BY HOLDING AS UNDER: (PB 92-93) WE FIND THAT IN THIS CASE THE DISPUTE IS O NLY AS TO WHAT COST SHOULD BE TAKEN FOR 35 REJECTED TYRES. THE AO DID NOT REJECT THE ASSESSEE' S CLAIM OF REJECTED TYRES FOR REPLACEMENT. THEREFORE, THE LD. CIT(A) RIGHTLY ESTI MATED THE VALUE OF THE REJECTED TYRES @ RS.2,000/- PER TYRE AND HAD RIGHTLY SUSTAIN ED THE PARTIAL ADDITION ON THIS ACCOUNT. THEREFORE WE DECLINE TO INTERFERE WITH HIS ORDER. (IV) THE ASSESSEE EXPLAINED THAT THESE TYRES WERE OLD. THE COMPANY REJECTED THE CLAIM FOR REPLACEMENT OF THESE TYRES AND THE CUSTOMER DID NOT TAKE BACK THESE TYRES. ACCORDINGLY THESE TYRES WERE LYING WITH THE ASSESSE E. THE TYRES WERE TOTALLY REJECTED AND THERE WAS NO FUNCTIONAL USE OF THESE T YRES AS EVIDENT FROM THE DESCRIPTION USED BY THE SURVEY PARTY ITSELF WHILE P REPARING THE INVENTORY OF STOCK. THESE TYRES WERE SCRAP MATERIAL FOR THE ASSESSEE. T HE MARKET VALUE OF THESE TYRES WAS NOT MORE THAN RS.100/- PER TYRE WHEREAS IN THE INVENTORY LIST IT HAS BEEN TAKEN AT RS.9,000/- PER TYRE AND CIT(A) VALUED IT AT RS.2 ,000/- PER TYRE. HENCE THE INCLUSION OF THESE DEFECTIVE TYRES IN THE VALUE OF STOCK BY THE AO AS WELL AS CIT(A) IS INCORRECT. AFTER EXCLUDING THE VALUE OF T HESE TYRES, THE VALUE OF STOCK COMES TO RS.1,00,000/- ONLY WHICH IS ALSO TAKEN BY THE ASSESSEE HIMSELF WHILE FILING THE RETURN FOR THE BLOCK PERIOD. (V) FROM THE ABOVE IT CAN BE NOTED THAT ADDITION HAS BEEN CONFIRMED BY INCLUDING THE ESTIMATED VALUE OF THE REJECTED TYRES AT RS.2,000/- PER TYRE IGNORING THAT SUCH TYRE HAS NO VALUE EXCEPT THE SCRAP VALUE OF RS.100/- PER TYRE. THUS, THE ENTIRE ADDITION CONFIRMED IS ON ESTIMATION BASIS. ON SUCH ESTIMATED ADDITION NO PENALTY IS LEVIABLE AS HELD IN VARIOUS CASES REFERRED IN PARS 4 BELOW. 10 ITSSA 15/JP/2011 LATE HARI SHANKAR KHANDELWAL (VI) THE CIT(A) HOWEVER DIRECTED TO LEVY THE PENAL TY WITH REFERENCE TO THE EXCESS STOCK OF RS.1,70,167/- INSTEAD OF THE PENALTY LEVIED BY T HE AO WITH REFERENCE TO THE ADDITION OF RS.70,167/-. THESE DIRECTIONS OF CIT(A) IS INCORRECT AS WHEN THE ASSESSEE HIMSELF HAS CONSIDERED EXCESS STOCK AT RS. 1,00,000/- IN COMPUTING THE UNDISCLOSED INCOME, NO PENALTY CAN BE LEVIED U/S 15 8BFA(2) WITH REFERENCE TO SUCH AMOUNT. VARIATION ON ACCOUNT OF HOUSEHOLD EXPENDITURE FOR R S.2,42,000/- CONSIDERED BY CIT(A) AT RS.5,04,000/- (I) THE ASSESSEE IS LIVING IN TEHSIL KUMHER WHICH IS A SMALL VILLAGE HAVING A POPULATION OF 30-35 THOUSAND. THE ASSESSEES FAMILY CONSISTS OF ASSESSEE HIMSELF, HIS WIFE AND FOUR MINOR CHILDREN. IN THE BLOCK RETU RN THE ASSESSEE TOOK THE AMOUNT OF HOUSEHOLD EXPENSES FOR THE BLOCK PERIOD AT RS.2, 62.000/-. (II) THE AO ALLEGED THAT THIS WAS QUITE LOW LOOKI NG TO AVERAGE STANDARD OF LIVING AND SIZE OF HIS FAMILY. HE THEREFORE ESTIMATED RS.2.000 /- PER ADULT PER MONTH AND RS.1,000/- PER CHILD PER MONTH FOR THE FINANCIAL YE AR 1996-97. FOR THE OTHER YEARS HE HAS GIVEN DEDUCTION OF 10% FOR EVERY YEAR AND ES TIMATED THE HOUSEHOLD EXPENSES FOR THE BLOCK PERIOD RS.9,96,752/-. FURTHE R CONSIDERING THE SOCIAL STATUS OF THE ASSESSEE AND TRADITION OF PROVIDING GIFTS ON OCCASION AND MARRIAGE AND ANOTHER CEREMONY A SUM OF R.S.20,000/- PER YEAR IS CONSIDERED AS EXPENDITURE OTHER THAN NORMAL HOUSEHOLD EXPENSES. ACCORDINGLY T HE TOTAL HOUSEHOLD AND OTHER EXPENSES WERE ESTIMATED AT RS.9,96,752/- + RS.2,20, 000/- = RS.12,16,752/-. (III) IN APPEAL, THE CIT(A) HELD THAT THE ESTIMATE AS MADE BY THE AO IS NOT FULLY JUSTIFIED IN VIEW OF THE FACT THAT THE ASSESSEE IS RESIDING IN A SMALL TOWN AND HE HAS NO CONVEYANCE LIKE MOTORCYCLE AND OTHER FACILITIES. SINCE THE BOOKS OF ACCOUNTS HAVE NOT BEEN MAINTAINED THERE CAN BE A FAIR ESTIMA TE ONLY AND HE ESTIMATED THE SAME AT RS.3,72,000/- (PB 78) BY ESTIMATING THE MONTHLY EXPENDITURE FOR THE AY 1997-98 TILL THE AY 1995-96 AT RS.4,000/- AND RS.3, 000/- PER MONTH FOR THE NEXT THREE PRECEDING YEAR AND RS.2,500/- FOR THE NEXT TH REE PRECEDING YEARS. (IV) THE HONBLE ITAT ESTIMATED THE HOUSEHOLD EXPE NSES OF THE FAMILY AT RS.5,04,000/- (PB 94-97) BY HOLDING AS UNDER:- 'HAVING REGARDS TO THE FACTS AND TOTALITY O F THE FACTS AND CIRCUMSTANCES OF THE CASE WE CONSIDER IT REASONABLE TO ESTIMATE THE MONTHLY E XPENDITURE FOR THE ASSESSMENT YEAR 1995-96 TO ASSESSMENT YEAR 1997-98 AT RS.5,000 /- PER MONTH AND RS.4000/- PER MONTH IS TAKEN FOR A.Y. 1992-93 TO 1994-95 AND RS.3,000/- FOR AY 1987-88 TO 1991-92. THE ORDER OF THE CIT(A) WOULD BE MODIFIED TO THIS EXTENT AND THE AO IS DIRECTED TO WORK OUT THE ADDITION IN THIS WAY (V) FROM THE ABOVE IT CAN BE NOTED THAT THE ADDITI ON IS MADE ONLY ON SURMISES, ASSUMPTION, PRESUMPTIONS. NO DOCUMENT WAS FOUND IN SEARCH TO SUGGEST THAT THE HOUSEHOLD EXPENSES OF THE FAMILY ARE MORE THAN THAT SHOWN BY THE ASSESSEE. THE FOLLOWING FACTS WERE NOT CONSIDERED WHILE ESTIMATIN G THE HOUSEHOLD EXPENSES:- - THE ASSESSEE LIVES IN HIS ANCESTRAL HOUSE AT A SMALL PLACE OF KUMHER HAVING POPULATION OF 30-35 THOUSAND. 11 ITSSA 15/JP/2011 LATE HARI SHANKAR KHANDELWAL - THE STANDARD OF LIVING OF ASSESSEE CAN BE SEEN FROM THE FACT THAT ASSESSEE WAS NOT HAVING FRIDGE, COLOUR TV, TWO WHEELER VEHICLE. THIS FACT WAS ALSO OBSERVED BY THE SEARCH PARTY. ONLY AN OLD BLACK & W HITE TV WAS FOUND AT THE HOUSE. - CHILDREN OF THE ASSESSEE ARE STUDYING IN GOVE RNMENT SCHOOLS, - THE LIVING IS VERY SIMPLE AND THE CROPS LIKE WH EAT ETC. GROWN IN THE AGRICULTURAL LAND OF ASSESSEE WERE USED. EVEN CATTLE LIKE COW/BU FFALLOW WERE KEPT IN MOST OF THE YEAR FALLING IN THE BLOCK PERIOD AND MILK WA S HARDLY PURCHASED FROM MARKET, - IN COURSE OF SEARCH STATEMENT OF ASSESSEE WAS RECORDED WHERE HE HAS STATED THAT HIS HOUSEHOLD EXPENSES IS AROUND RS.3,000/- PER MON TH. - IN CASE OF ASSESSEE'S BROTHER SHRI KAPOOR CHAND WHO'S FAMILY CONSISTED OF 7 MEMBERS FULL DETAILS OF HOUSE HOLD EXPENSES FOR TWO YEARS WAS FOUND RECORDED IN COURSE OF SEARCH AND IN THAT CASE ALSO THE ACTUA L HOUSE HOLD EXPENSES IN FINANCIAL YEAR 1996-97 WAS RS.3,600/- PER MONTH APP ROXIMATELY. ON SIMILAR FACTS, ENTIRE ADDITION MADE ON ACCOUNT OF HOUSEHOLD WITHDRAWALS IN CASE OF SHRI KAPOOR CHAND KHANDELWAL AND SHRI VISHNU KHANDE LWAL (BROTHERS OF THE ASSESSEE, RESIDING IN THE SAME VILLAGE) HAS BEEN DE LETED BY HON'BLE ITAT. HON'BLE RAJASTHAN HIGH COURT IN CASE OF RAJENDRA PR ASAD GUPTA 248 ITR 350 HAS ALSO HELD THAT ADDITION DEHORS MATERIAL CANNOT BE MADE IN THE BLOCK ASSESSMENT. (VI) FROM THE ABOVE FACTS IT IS EVIDENT THAT THE ENTIRE ADDITION CONFIRMED BY THE ITAT IS ON ESTIMATE BASIS. FURTHER CIT(A)HAS ERRED IN DIREC TING TO IMPOSE THE PENALTY WITH REFERENCE TO THE AMOUNT OF RS.5,04,000/- ESTIMATED BY ITAT FOR HOUSEHOLD EXPENSES IGNORING THAT ASSESSEE HIMSELF HAS CONSIDE RED RS.2,62,000/- TOWARDS HOUSEHOLD EXPENSES WHILE FILING THE BLOCK RETURN. I N ANY CASE SINCE THE ADDITION FOR HOUSEHOLD EXPENSES IS ON ESTIMATION BASIS AND N OT WITH REFERENCE TO ANY INCRIMINATING MATERIAL FOUND IN SEARCH, NO PENALTY U/S 158BFA(2) IS LEVIABLE ON SUCH AMOUNT. INVESTMENT IN PURCHASE OF DEMAND DRAFT FOR RS.31,08 0/- (I) IN COURSE OF SEARCH A MEMORANDUM BOOK AT ANN EXURE A-3 (PB 35-37) WAS FOUND. IN THIS BOOK ASSESSING OFFICER FOUND THAT ON 29-10- 94 ASSESSEE HAS PURCHASED A DRAFT OF RS.57,075/- WHEREAS HE WAS HAVING BALANCE OF RS.52,000/- ONLY. FURTHER ON 31-10-94 HE PURCHASED A DRAFT OF RS.6,005/- WHER EAS HE WAS NOT HAVING BALANCE ON THAT DAY. ACCORDINGLY ASSESSING OFFICER MADE THE ADDITION OF RS.31,080/-. (II) CIT(A) (PB 79) CONFIRMED THE ADDITION BY HOLDING THAT THE ASSESSEE COULD NOT SUBSTANTIATE HIS EXPLANATION BY WAY OF ANY COGENT M ATERIAL/DOCUMENTS. (III) HONBLE ITAT (PB 105-106) CONFIRMED THE ADDITION BY HOLING THAT THE ASSESSEE CANNOT BE ALLOWED THE BENEFIT FOR THE INVESTMENT IN THE PURCHASE OF BANK DRAFT AS THIS HAS NOT BEEN REFLECTED IN THE STATEMENT OF AFF AIRS FILED BY THE ASSESSEE. (IV) IT MAY BE POINTED OUT THAT ANNEXURE A-3 IS A MEMORANDUM CASH-BOOK. ON THE ONE SIDE RECEIPT FROM VARIOUS SOURCES ARE MENTIONED AND ON THE OTHER SIDE PAYMENT TO 12 ITSSA 15/JP/2011 LATE HARI SHANKAR KHANDELWAL VARIOUS PERSONS WAS MENTIONED. NEITHER THE OPENING CASH BALANCE WAS WRITTEN NOR CLOSING BALANCE WAS MENTIONED ON EACH DAY. THE ASSE SSING OFFICER CONSIDERED THE RECEIPT DURING THE DAY AND PAYMENT DURING THE DAY W ITHOUT CONSIDERING THE OPENING BALANCE. RELEVANT PAGES OF THE MEMORANDUM C ASH BOOK IS AT PB 35-37 . FROM THE COPY OF THE PAPER IT IS APPARENT THAT NO O PENING BALANCE WAS WRITTEN. THEREFORE, EVEN THE ADDITION FOR THIS DIFFERENCE IS NOT JUSTIFIED. FURTHER IN PRESENT CASE INCOME IS COMPUTED ON INVESTMENT AND EXPENDITU RE BASIS. ON THIS BASIS INVESTMENTS AS ON THE DATE OF SEARCH IS CONSIDERED. THE DRAFTS WERE PREPARED IN THE NAME OF APOLLO TYRES FROM WHERE ASSESSEE PURCHASES TYRES. THE STOCK OF TYRES AS WELL AS DEBTORS OF THIS BUSINESS AS ON THE DATE OF SEARCH IS ALREADY CONSIDERED SEPARATELY. HENCE, ADDITION OF THIS AMOUNT HAS RESU LTED INTO DOUBLE ADDITION. THESE ASPECTS WERE NOT PROPERLY APPRECIATED BY HON'BLE IT AT IN QUANTUM APPEAL AND ALSO NOT RECONSIDERED BY LOWER AUTHORITIES IN PENAL TY PROCEEDING. THEREFORE, ON SUCH ADDITION LEVY OF PENALTY U/S 158BFA(2) IS UNWA RRANTED. SECURITY AMOUNT RECEIVABLE FROM APOLLO TYRES RS.8,0 0,000/- IN SEARCH IT IS FOUND THAT THE ASSESSEE HAS MADE SE CURITY DEPOSIT OF RS.8,00,000/- WITH M/S APOLLO TYRES. THE ASSESSEE ACCORDINGLY WHILE FI LING THE RETURN FOR BLOCK PERIOD HAS INCLUDED THE SAME. HENCE ON THIS AMOUNT NO PENALTY CAN BE IMPOSED U/S 158BFA(2) AND THEREFORE LEVY OF PENALTY BY THE LOWER AUTHORITIES ON THIS AMOUNT IS UNCALLED FOR. FDR PLEDGED FOR OBTAINING HANK LIMIT RS.51,000/- IN SEARCH IT IS FOUND THAT THE ASSESSEE HAS PLEDGED FDR OF RS.51,000/- IN BANK FOR OBTAINING BANK LIMIT. THE ASSESSEE ACCORDINGLY WHIL E FILING THE RETURN FOR BLOCK PERIOD HAS INCLUDED THE SAME. HENCE ON THIS AMOUNT NO PENA LTY CAN BE IMPOSED U/S 158BFA(2) AND THEREFORE LEVY OF PENALTY BY THE LOWER AUTHORIT IES ON THIS AMOUNT IS UNCALLED FOR. INVESTMENT IN MOTOR CYCLE RS.10,000/- THE ASSESSEE AHS CONSIDERED THIS INVESTMENT WHILE F ILING THE RETURN FOR THE BLOCK PERIOD. THE AO HAS NOT LEVIED ANY PENALTY ON THIS AMOUNT BU T THE CIT(A) HAS DIRECTED TO CONSIDER THIS AMOUNT FOR LEVY OF PENALTY. THIS IS I NCORRECT AS NO PENALTY U/S 158BFA(2) IS LEVIABLE ON UNDISCLOSED INCOME WHICH IS OFFERED IN THE RETURN BY THE ASSESSEE. HENCE, THE PENALTY ON THIS AMOUNT BE DIRECTED TO BE DELETE D. INTEREST INCOME FROM APOLLO TYRES RS.75,388/- (I) THE ASSESSEE FILED THE RETURN FOR THE BLOCK P ERIOD ON THE BASIS OF INVESTMENT/ EXPENDITURE THEORY AND THEREOF INCOME IS NOT CONSID ERED AS THE SAME IS REFLECTED BY WAY OF INVESTMENT/ EXPENSES. (II) THE AO (PB 50) OBSERVED THAT INTEREST OF RS.75,388/- HAS ACCRUED TO THE ASSESSEE FROM APOLLO TYRES ON THE SECURITY DEPOSIT FOR THE P ERIOD 03.08.95 TO 03.08.96 AS PER THE TDS CERTIFICATES ISSUED BY IT. HE THEREFORE MADE THE ADDITION. (III) CIT(A) IN PARA 14.2 (PB 78) OBSERVED THAT ASSESSEE HAS NOT INCLUDED INTEREST INCOME OF RS.75,388/- ON ACCRUAL BASIS AND THEREFOR E HE CONFIRMED THE ADDITION. HONBLE ITAT AT PARA 45-47 (PB 104) CONFIRMED THE FINDING OF CIT(A) BY HOLDING THAT ASSESSEE HAS RECEIVED RS.35,388/- AS I NTEREST ON SECURITY DEPOSIT FROM M/S APOLLO TYRES WHICH IS INCLUDED BY THE ASSESSEE IN THE UNDISCLOSED INCOME. 13 ITSSA 15/JP/2011 LATE HARI SHANKAR KHANDELWAL (IV) BOTH THE LOWER AUTHORITIES HAVE FAILED TO CO NSIDER THE FACT THAT M/S APOLLO TYRES IS PAYING THE INTEREST BY CREDITING THE SAME TO THE AC COUNT OF THE ASSESSEE. THIS IS EVIDENT FROM THE COPY OF THE ASSESSEE IN THE BOOKS OF APOLLO TYRES PLACED AT PB 39-45 FOR THE PERIOD 01.06.96 TO 24.02.97. AFTER CREDITIN G SUCH INTEREST TO THE ACCOUNT OF THE ASSESSEE, AN AMOUNT OF RS.10,76,501/ - WAS PAYABLE BY THE ASSESSEE TO THE APOLLO TYRES WHICH IS CLAIMED BY THE ASSESSE E AS HIS LIABILITY (PB 6) WHILE FILING THE BLOCK RETURN. THIS LIABILITY HAS NOT BEE N ALLOWED BY CIT(A)/ ITAT AGAINST WHICH ASSESSEE APPEAL BEFORE THE HIGH COURT IS ADMITTED (PB 127) . IN ANY CASE SINCE THE INTEREST INCOME IS ALREADY CREDITED TO THE ACCOUNT OF THE ASSESSEE AND AFTER SUCH CREDIT AMOUNT OF RS.10,76,501/- WAS PAYABLE BY THE ASSESSEE TO THE APOLLO TYRES, NO SEPARATE ADDITION FOR INTEREST INC OME WAS REQUIRED IN COMPUTING THE UNDISCLOSED INCOME ON ASSET/ EXPENDITURE THEORY . THESE FACTS HAS NOT BEEN CONSIDERED BY CIT(A) WHILE DIRECTING THE AO TO IMPO SE PENALTY WITH REFERENCE TO THIS AMOUNT. HENCE, THE LEVY OF PENALTY ON THIS AMO UNT IS UNCALLED FOR AND BE DELETED. 3. IT IS SUBMITTED THAT UNDISCLOSED INCOME FINAL LY COMPUTING AFTER THE ORDER OF ITAT IS RS.19,36,154/- AS TABULATED IN PARA 1 ABOVE. THEREF ORE, THE DIRECTION OF CIT(A) TO IMPOSE THE PENALTY WITH REFERENCE TO THE UNDISCLOSE D INCOME DETERMINED BY HIM AT RS.24,66,998/- IS OTHERWISE INCORRECT AND THEREFORE THE DIRECTION GIVEN BY THE CIT(A) TO THIS EXTENT NEEDS TO BE MODIFIED. 4. SECTION 158BFA(2) PROVIDES THAT THE ASSESSI NG OFFICER MAY DIRECT THAT A PERSON SHALL PAY BY WAY OF PENALTY...'. THE WORD 'MAY' INDICATES DIS CRETION OF THE AUTHORITY EITHER TO LEVY OR NOT TO LEVY A PENALTY. IN OTHER WORDS THE IMPOSI TION OF PENALTY IS NOT MANDATORY. IT WOULD DEPEND ON THE FACTS AND CIRCUMSTANCES OF EACH CASE. THE ASSESSING OFFICER IS NOT OBLIGED TO LEVY THE PENALTY IN EACH AND EVERY CASE IN A ROUTINE MANNER. HE HAS TO APPLY HIS MIND AS TO WHETHER THE FACTS AND CIRCUMSTANCES OF THE CASE JUSTIFY IMPOSITION OF PENALTY. DISCRETION IS TO BE EXERCISED JUDICIALLY H AVING REGARD TO THE NATURE AND EXTENT OF BREACH AND OTHER RELEVANT CIRCUMSTANCES. THE LOWER AUTHORITIES HAVE IMPOSED THE PENALTY WITHOUT APPRECIATING THE PROVISIONS OF SECT ION 158BFA(2). THE PENALTY HAS BEEN IMPOSED EVEN ON ESTIMATION OF UNDISCLOSED INCOME AN D ON ADDITIONS MADE ON SURMISES AND CONJECTURES. ON SUCH ADDITION PENALTY IS NOT LE VIABLE AS HELD IN THE FOLLOWING CASES:- CIT VS. SATYENDRA KUMAR DOSI 315 ITR 172 (HC) (RAJ. ) FROM A PLAIN READING OF SEC. 158BFA(2) IT DOES NOT APPEAR THAT IN ALL CASES WHERE UNDISCLOSED INCOME IS DETERMINED BY THE AO UNDER CL . (C) OF S. 158BC, THE IMPOSITION OF PENALTY SHALL FOLLOW AS A NATURAL CONSEQUENCE TH EREOF. A DISCRETION IS VESTED WITH THE AO TO LEVY PENALTY IN RESPECT OF UNDISCLOSED INCOME . IT CANNOT BE INFERRED THAT THE ABSENCE OF THE CIRCUMSTANCES ENUMERATED IN THE PROV ISO TO S. 158BFA(2) WILL ATTRACT PENALTY AUTOMATICALLY. ALSO, THERE IS NO PRESUMPTIO N THAT IMPOSITION OF PENALTY IS AUTOMATIC FOR ANY FAILURE OR VIOLATION IN RESPECT O F CASES OTHER THAN THOSE COVERED BY S. 273B. IN THE INSTANT CASE, THE CIT(A) AND THE TRIBU NAL HAVE CONCURRENTLY FOUND THAT THE DIFFERENCE BETWEEN THE UNDISCLOSED INCOME ASSESSED AND THE UNDISCLOSED INCOME SHOWN IN THE RETURN IS THE RESULT OF THE ESTIMATION OF TH E OPENING CAPITAL PRIOR TO THE BLOCK PERIOD AND THAT THE CAPITAL POSSESSED BY THE ASSESS EE PRIOR TO THE BLOCK PERIOD AS REVEALED BY THE LEDGER AND THE MATERIAL SEIZED DURI NG SEARCH COULD NOT BE TREATED AS UNDISCLOSED INCOME OF THE FIRST ASSESSMENT YEAR IN THE BLOCK PERIOD. THUS, NO SUBSTANTIAL QUESTION OF LAW ARISES FROM THE ORDER OF THE TRIBUN AL UPHOLDING THE ORDER OF THE CIT(A) DELETING THE LEVY OF PENALTY UNDER S. 158BFA(2). 14 ITSSA 15/JP/2011 LATE HARI SHANKAR KHANDELWAL CIT VS. DR. GIRIRAJ AGARWAL GIRI (2012) 346 ITR 152 (RAJ.)(HC) IMPOSITION OF PENALTY DEPENDS ON FACTS AND CIRCUMST ANCES OF EACH CASE. THE AO IMPOSED THE PENALTY ON SO CALLED THREE ITEMS OF SO CALLED CONCEALED INCOME. EACH ITEM WAS EXAMINED, THOROUGHLY AND IN DETAIL, BY THE COMM ISSIONER OF INCOME-TAX (APPEALS) AS WELL AS THE INCOME TAX APPELLATE TRIBUNAL AND BY A REASONED ORDER, BOTH CAME TO A CONCLUSION THAT ADDITIONS ARE BASED ON ESTIMATION O NLY. A FACT OR ALLEGATION BASED ON ESTIMATION, CANNOT BE SAID TO BE CORRECT ONLY, IT C AN BE INCORRECT ALSO. THEREFORE, IN THE FACTS AND CIRCUMSTANCES OF THE CASE, PENALTY WAS WR ONGLY IMPOSED BY THE ASSESSING OFFICER. THEREFORE APPEAL FILED BY APPELLANT REJECT ED. CIT VS. DODSAL LTD. 312 ITR 112 (BOM.) (HC) TERMINOLOGY OF S. 158BFA(2) MAKES IT CLEAR THAT THE RE IS A DISCRETION IN THE AO TO DIRECT PAYMENT OF PENALTY. IT IS ONLY IF THE AUTHOR ITY DECIDES TO IMPOSE PENALTY THEN IT WOULD NOT BE LESS THAN THE TAX LEVIABLE BUT SHALL N OT EXCEED THREE TIMES THE TAX SO LEVIABLE. MERELY BECAUSE THE EXPRESSION USED IS 'SH ALL NOT BE LESS THAN THE AMOUNT OF TAX LEVIABLE BUT WHICH SHALL NOT EXCEED THREE TIMES THE AMOUNT OF TAX SO LEVIABLE', THE FIRST PART OF THE SECTION CANNOT BE READ AS MANDATORY. BO TH CIT(A) AND TRIBUNAL HAVE RECORDED REASONS FOR EXERCISE OF THEIR DISCRETION I N CANCELLING PENALTY WHICH DID NOT WARRANT INTERFERENCE. ACIT VS. SHANTI KUMAR CHABARA 2 DTR 263 (JAIPUR) (T RIB.) ADDITIONS IN BLOCK ASSESSMENT HAVING BEEN MADE ON E STIMATE BASIS, NO PENALTY UNDER S. 158BFA(2) COULD BE IMPOSED IN THE ABSENCE OF ANY PO SITIVE FINDING REGARDING CONCEALMENT OR SUPPRESSION OF INCOME ON THE PART OF THE ASSESSEE. IT IS NOT THE INTENTION OF LEGISLATURE TO IMPOSE PENALTY UNDER THE SAID PRO VISIONS ON EVERY FINALLY SUSTAINED ADDITION IN UNDISCLOSED INCOME AND THE CONDITION PR ECEDENT FOR IMPOSING PENALTY UNDER S. 158BFA(2) IS THAT THERE MUST BE CONCEALMENT OR S UPPRESSION OF INCOME ON THE PART OF THE ASSESSEE TO AVOID PAYMENT OF TAX THEREON DR. HAKEEM S.A. SYED SATHAR VS. ACIT 24 DTR 379 (CH ENNAI) (TRIB.) ADDITIONS HAVING BEEN MADE ON ESTIMATE BASIS, PENAL TY UNDER S. 158BFA(2) CANNOT BE LEVIED. ADDITION ON THE BASIS OF ESTIMATE DOES NOT IPSO FACTO SUPPLY EVIDENCE OF CONCEALMENT SO AS TO JUSTIFY PENALTY. ACIT V. RAMNIWAS BANSAL ITSSA NO 89/JP/03 (JAIPUR) THE ADDITION MADE ON ESTIMATION WILL NOT FALL WITHI N THE DEFINITION OF UNDISCLOSED INCOME GIVEN IN SECTION 158B(B) AND THEREFORE ON SU CH ADDITION NO PENALTY CAN BE LEVIED. ACIT V. DR. RANDHIR SINGH ITSSA NO. 153/JP/2003 (JA IPUR) NO PENALTY U/S 158BFA(2) CAN BE LEVIED WHERE THE AD DITION HAVE BEEN MADE ON ESTIMATION WITHOUT ANY MATERIAL/PAPER FOUND IN SEAR CH. DCIT VS. KOATEX INFRASTRUCTURE LIMITED 100 ITD 510 (MUM.) LEVY OF PENALTY U/S 158BFA(2) IS NOT AUTOMATIC. WHE RE ASSESSEE COULD DEMONSTRATE THAT IT WAS NOT HUMANLY POSSIBLE TO COMPUTE ALLEGED TRUE UNDISCLOSED INCOME FROM THE VOLUMINOUS PAPERS AND DIFFERENCE IS NOT A RESULT OF INTENTIONAL CONCEALMENT BUT FOR BONA FIDE MISTAKES, PENALTY U/S 158BFA(2) IS NOT IMPOSAB LE . 15 ITSSA 15/JP/2011 LATE HARI SHANKAR KHANDELWAL MALA DAYANITHI V. DCIT 91 LTD 46 (BANGLORE) PENALTY U/S 158BFA(2) IS OPTIONAL. ON ADDITION MADE ON ESTIMATE BASIS PENALTY IS NOT LEVIABLE. IN VIEW OF THE ABOVE THE PENALTY LEVIED BY THE AO A ND ENHANCE BY CIT(A) IS UNWARRANTED AND UNJUSTIFIED AND THE SAME BE DIRECTED TO BE DELETED . 4.2. ON THE CONTRARY, THE LD. D/R OPPOSED THE SUBMI SSIONS AND SUPPORTED THE ORDERS OF THE AUTHORITIES BELOW. 4.3. IN RE-JOINDER, LD. COUNSEL FOR THE ASSESSEE SU BMITTED THAT THE PENALTY ORDER IS NOT SUSTAINABLE AS THE PENALTY IS IMPOSED ON LEGAL HEIR OF THE DECEASED ASSESSEE. THE LD. COUNSEL FOR THE ASSESSEE HAS TAKEN US THROU GH THE PROVISIONS OF SECTION 159 OF THE ACT IN SUPPORT OF HIS CONTENTION. HE ALSO P LACED RELIANCE ON THE DECISION OF COORDINATE BENCH RENDERED IN THE CASE OF SRIKISHAN AGARWAL VS. DCIT IN ITA NO. 69/JP/2013. 4.4. ON THE CONTRARY, THE LD. D/R OPPOSED THE SUBMI SSIONS AND PLACED RELIANCE ON THE ANOTHER COORDINATE BENCH DECISION RENDERED IN T HE CASE OF LATE IQBAL HUSSAIN VS. ITO (2007) 111 TTJ 717 (ALL.). THE LD. D/R SUBMITT ED THAT THIS GROUND WAS NOT TAKEN BEFORE THE LD. CIT (A) AND HAS NOT EVEN TAKEN BEFORE THIS TRIBUNAL. 4.5. WE HAVE HEARD RIVAL CONTENTIONS. WE FIND THAT NO GROUND WAS TAKEN BEFORE LD. CIT (A) THAT PENALTY CANNOT BE IMPOSED ON THE LEGAL HEIR(S) OF THE DECEASED ASSESSEE. EVEN BEFORE THIS TRIBUNAL ALSO, THE ASSE SSEE HAS MERELY MADE SUBMISSION AND NO SEPARATE GROUND IS TAKEN. WE, THEREFORE, DI SMISS THIS GROUND OF THE ASSESSEES APPEAL. 5. NOW COMING TO THE MERITS, LD. COUNSEL FOR THE AS SESSEE REITERATED THE SUBMISSIONS AS MADE IN THE WRITTEN BRIEF, THE SAME ARE REPRODUCED HEREIN ABOVE. 5.1. ON THE CONTRARY, LD. D/R OPPOSED THE SUBMISSIO NS. 16 ITSSA 15/JP/2011 LATE HARI SHANKAR KHANDELWAL 5.2. WE HAVE HEARD RIVAL CONTENTIONS AND PERUSED TH E MATERIAL ON RECORD. THERE IS NO DISPUTE THAT THE ADDITION RELATED TO SUNDRY CRED ITORS HAS BEEN DELETED BY THE HONBLE HIGH COURT. THEREFORE, NO PENALTY IS CALLED FOR ON THIS AMOUNT. 6. IN RESPECT OF INVESTMENT IN FDR, SHARES ETC., AF TER RELIEF FROM THE TRIBUNAL THE DIFFERENCE REMAINS OF RS. 62,250/-. IT IS CONTENDE D BY THE LD. COUNSEL FOR THE ASSESSEE THAT THE AMOUNT OF FDR BELONGING TO ASSESS EES WIFE. SHE HAS ALREADY ACCEPTED THE SAME. THE AO HAS NOT BROUGHT ON RECORD ANY MATERIAL TO HOLD THAT THESE INVESTMENTS ARE ACQUIRED OUT OF THE UNDISCLOS ED INCOME OF THE ASSESSEE. THE LD. COUNSEL SUBMITTED THAT THE ITAT HAS UPHELD THE FINDING OF THE LD. CIT (A) SOLELY FOR THE REASON THAT ASSESSEES WIFE HAS NOT FILED A NY RETURN PRIOR TO THE DATE OF SEARCH AND NEXUS OF THE CAPITAL WITH THE FIRM VIS- -VIS THE INVESTMENT HAS NOT BEEN ESTABLISHED. IT HOWEVER IGNORED THE PRELIMINARY STA TEMENT OF THE ASSESSEE AND HIS WIFE. ONLY ON PRESUMPTION THE INVESTMENT OF ASSESSE ES WIFE WERE CONSIDERED IN THE HANDS OF THE ASSESSEE. HENCE WITHOUT ANY POSITIVE E VIDENCE, PENALTY U/S 58BFA(2) IS NOT LEVIABLE ON THIS AMOUNT. OTHERWISE ALSO PENALT Y HAS BEEN LEVIED BY THE LOWER AUTHORITIES ON THE ENTIRE INVESTMENT WHEREAS THE AS SESSEE HAS ALREADY DISCLOSED INVESTMENT OF RS. 63,900/- IN THE RETURN. HENCE THE PENALTY LEVIED ON THE ENTIRE AMOUNT OF RS. 1,26,150/- IS INCORRECT. 6.1. THE LD. D/R HAS NOT CONTROVERTED THE SUBMISSIO NS OF THE ASSESSEE. 6.2. WE HAVE HEARD RIVAL CONTENTIONS AND PERUSED TH E MATERIAL ON RECORD. TAKING INTO CONSIDERATION ALL THE RELEVANT FACTS AND CIRCU MSTANCES OF THE CASE AND THE CASE LAWS AS RELIED BY THE LD. COUNSEL FOR THE ASSESSEE, WE FIND MERIT INTO THE CONTENTIONS OF THE LD. COUNSEL FOR THE ASSESSEE. THEREFORE, WE HEREBY DELETE THE PENALTY. 17 ITSSA 15/JP/2011 LATE HARI SHANKAR KHANDELWAL 7. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED . ORDER PRONOUNCED IN THE OPEN COURT ON 29/08/201 7. SD/- SD/- FOE FLAG ;KNO DQY HKKJR (VIKRAM SINGH YADAV) (KUL BHARAT) YS[KK LNL;@ ACCOUNTANT MEMBER U;KF;D LNL;@ JUDICIAL MEMBER TK;IQJ@ JAIPUR FNUKAD@ DATED:- 29/08/2017. DAS/ VKNS'K DH IZFRFYFI VXZSFKR@ COPY OF THE ORDER FORWARDED TO: 1. VIHYKFKHZ@ THE APPELLANT- SHRI GAURAV KHANDELWAL, SHRI ASHISH KHANDELWAL L/H LATE HARI SHANKAR KHANDELWAL, THROUG H : L/H SMT. KAMLESH KHANDELWAL, KUMHER (BHARATPUR). 2. IZR;FKHZ@ THE RESPONDENT- THE ACIT CIRCLE, BHARATPUR. 3. VK;DJ VK;QDR@ CIT 4. VK;DJ VK;QDR@ CIT(A) 5. FOHKKXH; IZFRFUF/K] VK;DJ VIHYH; VF/KDJ.K] T;IQJ@ DR, ITAT, JAIPUR 6. XKMZ QKBZY@ GUARD FILE {ITSSA NO.15/JP/2011} VKNS'KKUQLKJ@ BY ORDER, LGK;D IATHDKJ@ ASST. REGISTRAR