The ACIT, Central Circle-1(1), Ahmedabad V. Shri Devang K. Patel, Ahmedabad

ITSSA 189/AHD/2006

• Counselvise Citation: [2012] 124 COUNSELVISE.COM (IT) 7769 (ITAT-AHMEDABAD)
• Duration Of Justice: 5 year(s) 6 month(s) 29 day(s)
• Appeal Type: Income Tax (Search & Seizure) Appeal
• Pronouncement Date: 10-02-2012
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: C
• Next Hearing Date: 28-11-2011
• Assessment Year: misc
• Appeal Filed On: 12-07-2006
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: K C NAREDI
• Keywords: Unexplained cash credit; Unexplained investment; Depreciation; Business expenditure; Search and seizure; Document seized; Principle of natural justice; Block assessment; Documents seized
• Section: 40A(3); 133(6); 131; 132; 68

Judgement Text

, , . .. . . .. . , , , , . .. .!' !' !' !' !' !' !' !' , #$ #$ #$ #$ # % # % # % # % IN THE INCOME TAX APPELLATE TRIBUNAL : C BENCH : AHMEDABAD BEFORE SHRI G.C.GUPTA, HONBLE V.P. & SHRI A.MOHAN ALANKAMONY, HONBLE A.M.) IT(SS)A NO. 189/AHD./2006 : BLOCK PERIOD 01.04.1995 TO 11.02.2002 ACIT, CENTRAL CIRCLE-1(1), AHMEDABAD ( &' /APPELLANT) -VS- SHRI DEVANG K. PATEL, AHMEDABAD ( ()&' /RESPONDENT ) (PAN : AHMPP 1297R) &' * + # / APPELLANT BY : SHRI K.C. NAREDI, CIT(D.R.) ()&' * + # / RESPONDENT BY : NONE ', * -.$ / DATE OF HEARING : 28/11/2011 /!0 * -.$ / DATE OF PRONOUNCEMENT : 17/02/2012 #1 #1 #1 #1 / ORDER PER SHRI A.MOHAN ALANKAMONY, ACCOUNTANT MEMBER : THIS APPEAL OF THE REVENUE IS DIRECTED AGAINST THE IMPUGNED ORDER OF THE LD. CIT (A)-III, AHMEDABAD IN APPEAL NO. CIT (A)-III/CC 1(1)/207/04-05 DATED 31.3.2006 FOR THE BLOCK PERIOD FROM 1.4.1995 TO 11.2.2002 IN THE CASE OF SHRI DEVANG K PATEL PASSED UNDER SECTION 250 R.W.S. 158BC OF THE I.T. ACT. 2. THE REVENUE HAS RAISED TEN GROUNDS, OUT OF WHICH , GROUND NOS.9 & 10 BEING GENERAL IN NATURE AND NO SPECIFIC ISSUES INVOLVED, THEY HAVE BECOME INCONSEQUENTIAL. IN THE REMAINING GROUNDS, THE ISSUES RAISED ARE AS UNDER: THE CIT (A) HAD ERRED IN DIRECTING TO: (1) DELETE THE ADDITION OF RS.2,12,972/- MADE U/S 6 8 OF THE ACT; IT(SS)A NO.189-AHD-2006 2 (2) RESTRICT THE PERSONAL, CAPITAL & NON-BUSINESS E XPENDITURE TO RS.9,39,638/-; (3) RESTRICT THE DISALLOWANCE MADE U/S 40A(3) OF TH E ACT TO RS.1,55,581/-; (4) DELETE UNEXPLAINED INVESTMENT OF RS.10 LAKHS; (5) RESTRICT THE COLLECTION BY DHARMENDRA BHATT T O RS.4,01,166/-; (6) ELECTRICITY BILL OF RS.43,384/- ON ACCOUNT OF N ON-BUSINESS PURPOSE; (7) RESTRICT THE DISALLOWANCE OF RENTS PAID TO RS.5 8000/- AND RS.19500/- RESPECTIVELY FOR FLATS BEING PERSONAL EX PENDITURE; & (8) RESTRICT THE UNDISCLOSED INCOME TO RS.2 LAKHS B EING FOUND AND CREDITED IN AN UNDISCLOSED BANK ACCOUNT. 3. BEFORE VENTURE TO ADDRESS TO THE GRIEVANCES OF THE REVENUE, WE WOULD LIKE TO RECORD THE SEQUENCE OF EVENTS WHICH T OOK PLACE DURING THE INTERVENING PERIOD, NAMELY, THE APPEAL WAS POSTED F OR PRELIMINARY HEARING ON 12.9.2006, THE LD. A R CAME UP WITH A PL EA TO ADJOURN THE HEARING FOR TWO MONTHS, AS THE PREPARATION OF PAPER BOOK WAS UNDERWAY. WHEN THE APPEAL WAS AGAIN POSTED FOR HEARING ON 2.2 .2009, THE ASSESSEE CAME UP WITH A PLEA THAT HIS A R WAS OUT O F STATION. ON THE REQUEST OF THE THEN AR VIDE LETTERS 9.4.2009 AND AG AIN ON 2.6.09 THE MATTER WAS ADJOURNED FOR FUTURE DATES. WHEN THE AP PEAL WAS POSTED FOR HEARING ON 4.8.09, THE ASSESSEE CAME UP WITH A REQU EST TO ADJOURN THE HEARING AS HIS AR DECLINED TO HANDLE HIS CASE FURTH ER. THE PRESENT LD. A.R IN HIS COMMUNICATIONS DT.25.1.10, 8.7.10, 19.1. 11 AND THE ASSESSEE ON 16.5.11 REQUESTED FOR ADJOURNMENTS. WHEN FINALL Y THE APPEAL WAS POSTED FOR HEARING ON 28.11.11, THE LD. A R IN HIS LETTER DT.28.11.11 REQUESTED THAT THE MATTER MAY BE ADJOURNED AS HE WAS OUT OF STATION DUE TO SOCIAL FUNCTION IN THE FAMILY . TAKING INTO ACCOUNT THE ABOVE SCENARIO, IT(SS)A NO.189-AHD-2006 3 WE HAVE REJECTED THE REQUEST OF THE LD. A R TO ADJO URN THE HEARING FURTHER AND PROCEEDED TO ADJUDICATE THE APPEAL ON T HE BASIS OF THE ARGUMENTS PUT-FORTH BY THE LD. D.R DURING THE COURS E OF HEARING AND ALSO THE MATERIALS AVAILABLE ON RECORD. 4. BRIEFLY STATED, THE ASSESSEE, AN INDIVIDUAL, IS A POPULAR SINGER BY PROFESSION. THERE WAS AN ACTION U/S 132 OF THE ACT ON THE ASSESSEE ON 11.2.2002. IN COMPLIANCE TO NOTICE U/S 158 BC OF T HE ACT, THE ASSESSEE HAD FILED A RETURN OF INCOME, ADMITTING NIL INCOM E. THE TOTAL UNDISCLOSED INCOME OF THE ASSESSEE WAS DETERMINED, FOR THE ELABORATE AND EXHAUSTIVE REASONS RECORDED RUNNING INTO 55 PAG ES IN THE IMPUGNED ASSESSMENT ORDER UNDER CHALLENGE, AT RS.1,72,89,370 /- ON THE BASIS OF EVIDENCES UNEARTHED DURING THE COURSE OF SEARCH AND SEIZURE OPERATION AND ALSO AUDITED REPORT OF THE SPECIAL AUDIT CONDUC TED U/S 142(2A) OF THE ACT. 5. AGGRIEVED, THE ASSESSEE TOOK UP THE ISSUES BEFOR E THE CIT (A) FOR RELIEF. AFTER DUE CONSIDERATION OF VARIOUS ISSUES COUNTERED BY THE ASSESSEE AND ALSO REMAND REPORT OF THE AO, THE CIT (A) RECORDED HIS FINDINGS WHEREIN HE HAD RESORTED TO MAKE DELETIONS/ CONFIRMATION OF ADDITIONS MADE BY THE AO. 6. AGITATED BY THE STAND OF THE CIT (A) ON CERTAIN ISSUES, THE REVENUE HAS COME UP WITH THE PRESENT APPEAL. 6.1. DURING THE COURSE OF HEARING, THE LD. D R HAD ARGUED THAT AFTER DULY ANALYZING EACH AND EVERY ISSUE AND ALSO TAKIN G INTO COGNIZANCE OF THE SPECIAL AUDIT CONDUCTED U/S 142(2A) OF THE ACT, THE AO FRAMED THE ORDER IN A JUDICIOUS MANNER WHICH SHOULD HAVE BEEN CONSIDERED BY THE CIT (A) IN ITS PERCEPTION. IN STEAD, THE CIT (A), O N THE BASIS OF THE IT(SS)A NO.189-AHD-2006 4 ASSESSEES CONTENTIONS AND WITHOUT GIVING DUE WEIGH T-AGE TO THE DOCUMENTARY EVIDENCES BROUGHT ON RECORD BY THE AO, HAD DELETED SEVERAL ADDITIONS MADE AND ALSO RESTRICTED VARIOUS ADDITIONS. WITH REGARD TO THE RESTRICTION OF ADDITION OF UNDISCLOSED INCOM E OF RS.10 LAKHS TO RS.2 LAKHS (VIDE GROUND NO.8), IT WAS CONTENDED BY THE L D. D R THAT THE ASSESSING OFFICER HAD MADE ADDITION OF RS.10 LAKHS AS DISCUSSED IN PARA 18 OF THE ASSESSMENT ORDER ON ACCOUNT OF DISCREPANC Y IN THE ALBUM INCOME, STALL INCOME, STALL INCOME, PARKING INCOME, SPONSORSHIP INCOME AND DISCREPANCY OF DENA BANK ACCOUNT. IT WAS SUBMIT TED THAT THE CIT (A) HAD RESTRICTED THE ADDITION TO RS.2. LAKHS AS DISCU SSED IN HIS APPELLATE ORDER. IT WAS ARGUED THAT FOR THE ADDITION MADE, TH E AO OBSERVED THAT THE AUDITORS HAD ASKED THE ASSESSEE TO PRODUCE THE BANK STATEMENT/PASS BOOK OF DENA BANK, BUT, THE ASSESSEE COULD NOT PROD UCE THE SAME; THAT THE REQUIRED DETAILS WERE NOT PRODUCED DURING THE A SSESSMENT PROCEEDINGS ALSO. FROM THE COMMENTS OF THE AUDITOR S AND THE PERUSAL OF THE SEIZED MATERIALS, IT WAS SUBMITTED, THERE WAS D ISCREPANCY WHICH COULD NOT BE PROPERLY EXPLAINED AND THAT THE RATIO OF SHOW INCOME VIZ-A- VIZ THE STALL AND PARKING INCOME WAS NEVER IN COMPA TIBLE FIGURES. THERE WAS ALSO GREAT ANOMALY IN THESE RATIOS WHICH OTHERW ISE MUST BE ALMOST IN THE SAME RATIO. IT WAS, FURTHER, ARGUED THAT IF SHOW INCOME WAS INCREASING THEN THE STALL INCOME AND PARKING INCOME SHOULD HAVE INCREASED ALMOST IN THE SAME RATIO. ACCORDING TO T HE LD. D.R, THE ASSESSING OFFICER HAD, THEREFORE, ESTIMATED THE DIS CREPANCY IN UNDISCLOSED INCOME AT RS.10 LAKHS AND ADDED TO THE ASSESSES INCOME. IT WAS, THEREFORE, PLEADED THAT THE DELETIONS MADE ON SEVERAL ADDITIONS ON INSUBSTANTIAL GROUNDS BY THE CIT (A) REQUIRE TO BE ANNULLED. 6.2. ON THE OTHER GROUND, THE ASSESSEE CAME UP WITH VOLUMINOUS PAPER BOOKS-I, II, III & IV DURING THE COURSE OF EARLIER HEARINGS TO SUBSTANTIATE HIS CLAIMS. IT(SS)A NO.189-AHD-2006 5 7. WE HAVE CAREFULLY CONSIDERED THE SUBMISSION OF T HE LD. D.R AND ALSO PERUSED THE SUBMISSION OF THE ASSESSEE IN THE SHAPE OF PAPER BOOKS CITED SUPRA. AS RECORDED EARLIER THE GRIEVAN CES OF THE REVENUE ARE DEALT WITH ON THE BASIS OF THE SUBMISSION OF TH E LD. D R AND ALSO THE MATERIALS AVAILABLE ON RECORDS ON SUBJECT-WISE AS U NDER: (1) DELETION OF UNEXPLAINED CASH CREDIT OF RS.2.1 2,972/-: (A) THE AO HAD, FOR THE REASONS RECORDED EXHAUSTI VELY IN HIS IMPUGNED ORDER, ADDED A SUM OF RS.28,82,534/- AS UN DISCLOSED NEW CASH CREDITS (PARAS 9 AND 9.1). AFTER DUE CONSIDER ATION OF THE ASSESSEES CONTENTIONS AND ALSO THE RELEVANT FACTS AND FOR THE REASONS RECORDED IN HIS FINDINGS, THE CIT (A) HAD OBSERVED THAT 16..WITH REGARD TO THE APPELLANTS CLAIM OF CAR F INANCE OF RS.2,19,972/- FROM RUSUN FINANCE PVT. LTD. I FIND T HAT THE GENUINENESS OF THIS LOAN WAS ESTABLISHED EVEN AS PE R THE EVIDENCES GATHERED DURING THE COURSE OF SEARCH ACTI ON. THE AO HAS ALSO REFERRED TO THIS CAR FINANCE ON PAGE 46 OF THE ASSESSMENT ORDER. I THEREFORE FIND THERE WAS NO JUSTIFICATION FOR THE AO TO INVOKE THE PROVISIONS OF SECTION 68 WITH REFERENCE TO FINANCE OF RS.2,19,972/- PROVIDED BY M/S. RUSUN FINANCE PVT. L TD. IN VIEW OF THE ABOVE, THE ADDITION MADE BY THE AO WITH REFEREN CE TO VARIOUS CASH CREDITS U/S 68 IS CONFIRMED EXCEPT THE ADDITIO N OF RS.2,19,972/- IN RESPECT OF CAR FINANCE FROM RUSUN FINANCE PVT. LTD THE ADDITION OF RS.2,19,972/- RELATING TO CAR FINANCE IS, THEREFORE, DELETED.. (B) DURING THE COURSE OF HEARING, NO PROOF HAS BE EN BROUGHT ON RECORD BY THE REVENUE TO REFUTE THE CIT (A)S STAND ON THI S POINT. WE FIND NO REASON TO INTERFERE WITH THE FINDING OF THE CIT (A) . WE, THEREFORE, SUSTAIN, THE DELETION OF RS.2,19,972/-. THIS ISSUE GOES IN FAVOUR OF THE ASSESSEE. (2) RESTRICTION OF PERSONAL, CAPITAL & NON-BUSINESS EXPENDITURE TO RS.9.39 LAKHS-: IT(SS)A NO.189-AHD-2006 6 (A) THE AUDITOR MADE A SPECIFIC REMARK IN HIS RE PORT THAT EVERY YEAR CERTAIN EXPENSES WERE INCURRED BY THE ASSESSEE BEIN G EITHER PERSONAL, NON-BUSINESS AND CAPITAL NATURE, BUT, JUSTIFIED SUC H EXPENSES AS THE ASSESSEE BEING A PROFESSIONAL ARTIST. BRUSHING ASI DE THE AUDITORS OBSERVATIONS, THE AO TOOK A DIVERGENT VIEW THAT THE PERSONAL EXPENSES WERE NOTHING BUT CHARGE ON THE INCOME WHICH WAS NOT DEDUCTIBLE, THAT THE EXPENSIVE LIFE STYLE WEARING BRANDED CLOTHES ET C., WERE ALWAYS NOT MEANT FOR BUSINESS/PROFESSION. IT WAS THE STAND OF THE AO THAT SINCE THE ASSESSEE HAD NOT MAINTAINED ANY DETAILS FOR SUCH CL OTHES AND APPAREL ALLEGED TO HAVE BEEN USED DURING THE SHOWS AND ALSO NO DETAILS WITH REGARD TO TRAVEL/TOURS WERE ESSENTIAL FOR BUSINESS PURPOSES, SUCH EXPENSES CLAIMED CANNOT BE ALLOWED AS DEDUCTION AND , ACCORDINGLY, MADE ADDITION OF RS.31.94 LAKHS. (B) AFTER CONSIDERING THE ASSESSEES CONTENTIONS AS WELL AS THE REMAND REPORT OF THE AO, THE CIT (A) HAD OBSERVED THAT - 21.I FIND THAT THE APPELLANT WAS AN ARTIST AND W AS ENGAGED IN THE PROFESSION OF SHOW BUSINESS. HE WAS ALSO NO T HAVING ANY SEPARATE OFFICE EITHER AT AHMEDABAD OR AT MUMBAI. THE QUALIFICATION (SIC) QUANTIFICATION OF THE AUDITOR I N THE ACCOUNT NOT ONLY INDICATE THAT THE EXPENSES WERE PRIMARILY OF P ERSONAL NATURE BUT THE RELEVANCE OF THE SAME TO APPELLANTS PROFES SION CANNOT BE RULED OUT. I HAVE ALSO GONE THROUGH THE NATURE OF THESE EXPENSES AS INDICATED BY THE AUDITOR. I FIND THAT SUBSTANTIAL EXPENSES ARE DIRECTLY OR INDIRECTLY LINKED WITH THE PROFESSION OF THE APPELLANT FOR EXAMPLE:- IN AY 1997-98, THE APPE LLANT HAS CLAIMED SALARY OF RS.1,30,000/- TO PREETI AS ARTI STS SALARY. THIS IS QUALIFIED BY THE AUDITOR TO BE PARTLY OF THE PER SONAL NATURE. HOWEVER, IT IS ON RECORD THAT PREETI WAS AN ARTIST AND HER PERFORMANCE IN VARIOUS SHOWS LEADS TO GENERATION OF INCOME IN THE HANDS OF THE APPELLANT. I THEREFORE FIND THAT THESE EXPENSES CANNOT BE STRICTLY CATEGORIZED AS OF PERSONAL NATUR E. THE AO WAS NOT JUSTIFIED IN FULLY DISALLOWING THESE EXPENS ES. I ALSO FIND THAT SUCH DISALLOWANCE BY AO ALSO INCLUDED ITEMS SU CH AS DEPRECIATION WHICH HAVE BEEN SEPARATELY DISALLOWED BY THE AO IT(SS)A NO.189-AHD-2006 7 AND THE ALLOW-ABILITY OF THE SAME IS ALSO ADJUDICAT ED SEPARATELY. THE AO SHALL ALSO EXCLUDE SUCH DUPLICATION FROM THE DISALLOWANCE. CONSIDERING THE TOTALITY OF THE FACT S, THE AO IS DIRECTED TO ALLOW 1/3 RD OF EXPENSES IDENTIFIED BY THE AO AS PERSONAL EXPENSES (EXCEPT DUPLICATION WHICH HAS BEE N DIRECTED TO BE SEPARATELY EXCLUDED) AS DEDUCTION TO THE APPE LLANT. THE DISALLOWANCE OF EXPENSES IDENTIFIED AS CAPITAL AND NON-BUSINESS EXPENSES IS, HOWEVER, CONFIRMED. (C) BEFORE US, NO TANGIBLE DOCUMENTARY EVIDENC E HAS BEEN CITED BY THE REVENUE TO CONTRADICT THE OBSERVATION OF THE CI T (A). TAKING INTO ACCOUNT THE TOTALITY OF THE CIRCUMSTANCES OF THE IS SUE, WE ARE OF THE CONSIDERED VIEW THAT THE FINDING OF THE CIT (A) WAS FAIR AND CONSIDERATE WHICH REQUIRES NO INTERVENTION OF THIS BENCH ON THE ISSUE. IT IS ORDERED ACCORDINGLY. (3) RESTRICTION OF DISALLOWANCE MADE U/S 40A(3) O F THE ACT TO RS.1.55 LAKHS-: (A) ACCORDING TO THE AO, THE ASSESSEE HAD VIO LATED THE PROVISIONS OF S. 40A(3) OF THE ACT ON MANY OCCASIONS WHILE MAKING PAYMENTS IN CASH. THE SPECIAL AUDITOR HAD DRAWN A LIST FOR EVERY YEAR OF SUCH PAYMENTS WHICH, ACCORDING TO THE AO, CAME TO A STAGGERING CA SH PAYMENTS OF RS.34,21,052/-. AFTER REJECTING THE CONTENTION OF THE ASSESSEE AS RECORDED IN HIS IMPUGNED ORDER AND ALSO TAKING CUE FROM THE PROVISIONS OF S.158BB OF THE ACT, THE AO WAS OF THE VIEW THAT THE ASSESSEES CASE COMES UNDER THE AMBIT OF THE PROVISIONS OF S.40A(3) OF THE ACT AND, ACCORDINGLY, DISALLOWED RS.6.84 LAKHS OUT OF TOTAL PAYMENTS OF CASH TO THE TUNE OF RS.34.21 LAKHS. (B) AFTER GIVING DUE WEIGHT-AGE TO THE CONTENTIONS OF THE ASSESSEE AS RECORDED IN HIS IMPUGNED ORDER, THE CIT (A) HAD OBS ERVED THUS: IT(SS)A NO.189-AHD-2006 8 29 WITH REGARD TO DUPLICATION OF DISALLOWANCE, I FIND THAT THE DISALLOWANCE MADE BY THE AO U/S 40A(3) ALSO INCLUDE D SUBSTANTIAL PART OF THOSE EXPENDITURE WHICH HAS BEE N TREATED AS NON-VERIFIABLE AND WERE SUBJECTED TO DISALLOWANCE O F 30%. I FIND THAT PROVISIONS OF SECTION 40A(3) WERE APPLICABLE I N RESPECT OF THOSE EXPENSES WHICH WERE VERIFIABLE BUT PAYMENTS W ERE MADE IN CONTRAVENTION OF PROVISIONS OF SECTION 40A(3). T HE DISALLOWANCE U/S 40A(3) IN RESPECT OF NON-VERIFIABL E EXPENSE WAS THEREFORE NOT JUSTIFIED. THIS IS FOR THE REASON TH AT 30% OF THE EXPENDITURE HAD ALREADY BEEN DISALLOWED AND, FURTHE R DISALLOWANCE OF 20% WILL RESULT IN DISALLOWANCE OF 50% OF THE EXPENDITURE WHICH HAS BEEN IDENTIFIED BY THE AUDITO R TO BE PERTAINING TO BUSINESS/PROFESSION OF THE APPELLANT AND WAS HAVING NEXUS WITH CORRESPONDING INCOME EARNED. ON THE BASIS OF AUDITED ACCOUNTS, THE LD. COUNSEL FOR THE APPELL ANT HAS PLACED ON RECORD THE PARTICULARS OF SUCH EXPENSES WHICH WE RE SUBJECTED TO 30% DISALLOWANCE ON ACCOUNT OF THEIR NON-VERIFIA BLE NATURE AND WAS ALSO SUBJECTED TO DISALLOWANCE U/S 40A(3). IN VARIOUS A.Y AS UNDER: I THEREFORE HOLD THAT AO WAS NOT JUSTIFIED IN FURTH ER DISALLOWANCE OF 20% OF RS.26,43,146/- AS 30% OF THIS EXPENDITURE HAS ALREADY BEEN DISALLOWED AND THE INTEREST OF REVENUE ON ACCO UNT OF CONTRAVENTION OF PROVISIONS OF SECTION 40A(3) BY TH E APPELLANT WAS DULY TAKEN CARE OF. THE AO IS, THEREFORE, DIRE CTED TO WITHDRAW(N) DISALLOWANCE U/S 40A(3) IN RESPECT OF N ON-VERIFIABLE EXPENDITURE OF RS.26,43,146/-. THE DISALLOWANCE MA DE BY THE AO IS, THEREFORE, DELETED TO THE EXTENT OF RS.5,28, 629/- BEING 20% OF 26,43,146/- AND BALANCE DISALLOWANCE IS CONF IRMED. THE AO SHALL ACCORDINGLY GRANT APPROPRIATE RELIEF TO TH E APPELLANT. THIS RELIEF IS ON THE BASIS OF IDENTIFICATION OF EX PENSES SUBJECTED TO DISALLOWANCE ON TWO GROUNDS AS TABULATED ABOVE. IF ON VERIFICATION WITH AUDITED BOOKS, IF AO FINDS ANY DI SCREPANCY, THE QUANTUM OF RELIEF MAY BE MODIFIED AFTER AFFORDING A N OPPORTUNITY TO THE APPELLANT IN THE MATTER. (C) THE REVENUE MERELY RELIED ON THE REASONING O F THE AO IN HIS ASSESSMENT ORDER. HOWEVER, THE CIT (A), REJECTING THE ASSESSEES IT(SS)A NO.189-AHD-2006 9 STRONG PLEA THAT THE PROVISIONS OF S.40A(3) HAVE NO APPLICATION FOR BLOCK ASSESSMENT PROCEEDINGS ETC., HAD REASONED THAT THE PROVISIONS OF S.40A(3) HAVE APPLICATION IN RESPECT OF THOSE EXPEN SES WHICH WERE VERIFIABLE AND, ACCORDINGLY, JUSTIFIED THE AOS ACT ION TO THIS EXTENT, BUT, DIFFERED WITH THE VIEW OF THE AO IN SO FAR AS THE D ISALLOWANCE U/S 40A(3) IN RESPECT OF NON-VERIFIABLE EXPENSES. AFTER DUE C ONSIDERATION OF THE FACTS, THE CIT (A) DELETED THE DISALLOWANCE TO THE EXTENT OF ONLY RS.5,28,629/- BEING 20% OF RS.26.43 LAKHS SINCE, AC CORDING TO THE CIT (A), THE AO WAS NOT JUSTIFIED IN RESORTING TO FURTH ER DISALLOWANCE OF 20% OF RS.26.43 LAKHS AS 30% OF THIS EXPENDITURE HAD AL READY BEEN DISALLOWED AND THAT THE INTEREST OF REVENUE ON ACCO UNT OF CONTRAVENTION OF THE PROVISIONS OF S.40A(3) OF THE ACT BY THE ASS ESSEE HAD DULY TAKEN CARE OF. (D) CONSIDERING THE REASONING OF THE CIT (A) CIT ED SUPRA, WE ARE OF THE CONSIDERED OPINION THAT THE CIT (A) WAS JUSTIFIED I N TAKING SUCH A FAIR VIEW. MOREOVER, THE CIT (A) HAD DELETED THE DISALL OWANCE TO THE EXTENT OF RS.5.28 LAKHS WITH A RIDER THAT IF ON VERIFICATION WITH AUDITED BOOKS, IF AO FINDS ANY DISCREPANCY, THE QUANTUM OF RELIEF MAY BE MODIFIED AFTER AFFORDING AN OPPORTUNITY TO T HE APPELLANT IN THE MATTER . IN VIEW OF THE ABOVE, THE REVENUE IS AT LIBERTY TO EXPLORE THE POSSIBILITY TO VERIFY WITH A UDITED BOOKS AND IF IT COME ACROSS ANY DISCREPANCY, THEN IT IS THE PREROGATIVE OF THE REVENUE TO QUANTIFY THE RELIEF GIVEN BY THE CIT (A). WITH THI S OBSERVATION, WE UPHOLD THE STAND OF THE CIT (A) ON THIS ISSUE. (4 ) DELETION OF UNEXPLAINED INVESTMENT OF RS.10 LAKHS/- : IT(SS)A NO.189-AHD-2006 10 (A) DURING THE COURSE OF ASSESSMENT PROCEEDING S, IT WAS OBSERVED BY THE AO THAT ACCORDING TO THE SEIZED MATERIALS, THE ASSESSEE HAD PURCHASED STUDIO EQUIPMENTS OF RS.10 LAKHS AND CORR ESPONDENCE WAS MADE WITH AMCO BANK OF MEMNAGAR FOR AVAILING SECURE D LOAN; ACCORDING TO WHICH, THE ASSESSEE HAD PURCHASED STUD IO EQUIPMENTS WORTH RS.10 LAKHS AND APPLIED LOAN FROM THE SAID BA NK AGAINST SECURITY OF THOSE EQUIPMENTS. BEING QUERIED BY THE AO, THE ASSESSEE HAD STATED THAT THE LOAN WAS TAKEN FROM THE BANK FOR PURCHASE OF EQUIPMENTS, BUT, THE PROJECT DID NOT MATERIALIZE, THE LOAN WAS REPAI D WITHIN A SHORT TIME; THAT THE ASSESSEE WAS IN BAD FINANCIAL SHAPE AND, T HEREFORE, HE HAD CLAIMED WITH FALSEHOOD BEFORE THE BANK THAT HE HAD PURCHASED THE EQUIPMENT; AND WHEN THE BANK CAME TO KNOW THAT THE MACHINERY WAS NOT INSTALLED, THE LOAN WAS REPAID. IT WAS, FURTHER, C LAIMED THAT NEITHER ANY AMOUNT WAS DEBITED IN THE MACHINERY ACCOUNT NOR DEP RECIATION CLAIMED AND THAT NO BILL OF MACHINERY FOR HAVING PURCHASED OR ANY CORRESPONDENCE IN CONNECTION WITH THE SAME WAS UNEA RTHED DURING THE SEARCH. HOWEVER, THE AO TOOK A DIVERGENT STAND THA T WHEN DOCUMENTS WERE PRESENTED BEFORE THE BANK TO AVAIL LOAN, IT CA NNOT BE CONSIDERED AS FALSE AND FRAUDULENT AND THE CLAIM OF THE ASSESSEE WAS NOTHING BUT AN AFTER THOUGHT TO ABSOLVE HIM FROM DECLARING THE UND ISCLOSED INCOME. IT WAS, FURTHER, OBSERVED THAT THERE WAS A PROBABILITY OF THE ASSESSEE TO HAVE PURCHASED THE EQUIPMENT AND SOLD THE SAME AS THE PROPOSED PROJECT MIGHT HAVE BEEN FELT AS NON-VIABLE. ACCORD INGLY, THE ASSESSEES CONTENTION WAS REJECTED AND THE SUM OF RS.10 LAKHS WAS BROUGHT TO TAX AS UNDISCLOSED INCOME OF THE ASSESSEE. (B) TAKING INTO ACCOUNT THE ASSESSEES SUBMISSION , THE CIT (A) HAD OBSERVED THUS: IT(SS)A NO.189-AHD-2006 11 38 I FIND THAT THE AO HAS NOT OBJECTIVELY TAKEN INTO ACCOUNT ALL THE EVIDENCES WHICH WERE AVAILABLE IN T HE SEIZED RECORD. THE AO HAS GIVEN UNDUE WEIGHT-AGE T O PAGE 6 OF ANNEXURE A 17 WHEREIN THE APPELLANT CLAIM ED BEFORE THE AMCO BANK THAT EQUIPMENT HAD BEEN PURCHASED. THE EVIDENCE ON RECORD, HOWEVER, CLEARL Y INDICATES THAT THIS CLAIM OF THE APPELLANT WAS NOT FOUND TO BE CORRECT AND AS A CONSEQUENCE THE LOAN GRANTED BY THE AMCO BANK HAD TO BE RETURNED. THERE IS NO EVIDENCE TO INDICATE THAT THERE WAS ANY PURCHASE OF EQUIPMENT. NO SUCH ASSET HAS COME ON RECORD ON THE BASIS OF MATERIAL GATHERED DURING THE COURSE OF SEA RCH ACTION. THIS ITSELF PROVES THAT THE CLAIM OF THE A PPELLANT BEFORE THE BANK THAT HE HAD PURCHASED THE EQUIPMENT WAS WRONG AND WAS MADE ONLY WITH A MOTIVE TO DEFER REPAYMENT OF LOAN TO THE BANK WHICH HAD BEEN UTILIZ ED BY THE APPELLANT FOR A PURPOSE DIFFERENT THAN PURCH ASING THE EQUIPMENT FOR WHICH THE LOAN WAS GRANTED. THE SEIZED DOCUMENTS CONTAINED A LETTER DATED 9.7.1999 OF AMCO BANK COMMUNICATING THE APPELLANT THAT HIS CLAI M OF INSTALLATION OF MACHINERY WAS NOT FOUND TO BE CO RRECT. THE AO HAS NOT TAKEN COGNIZANCE OF THIS LETTER AND HAS ALSO NOT GIVEN ANY REASON AS TO WHY THIS DOCUMENT W AS NOT TO BE TAKEN COGNIZANCE OF. THIS LETTER HAS A H IGH EVIDENTIAL VALUE BECAUSE IT IS A LETTER WRITTEN BY THE AMCO BANK AND WAS FOUND DURING THE COURSE OF SEARCH AND INDICATE THE MATERIAL FACTS WITH REFERENCE TO T HE LOAN GRANTED BY THE AMCO BANK AND APPELLANTS CLAIM OF PURCHASING OF MACHINERY OUT OF THIS LOAN. THE THEO RY PUT UP BY THE AO THAT THE APPELLANT MIGHT HAVE ACQUIRED EQUIPMENT WORTH RS.10,00,000/- OUT OF UNACCOUNTED FUNDS AND LOAN BY AMCO WAS FOR FURTHER EXPANSION OF PROJECT IS ONLY A PRESUMPTION AND DOES NOT FIND SUP PORT FOR ANY EVIDENCE ON RECORD. THE AO WAS MAKING ADDIT ION FOR AN UNDISCLOSED INVESTMENT AND FOR THE PURPOSE I T WAS ESSENTIAL TO IDENTIFY THE ASSET WHICH IS ACQUIRED A S A CONSEQUENCE OF SUCH UNDISCLOSED INVESTMENT. THE AO IT(SS)A NO.189-AHD-2006 12 WAS ALSO REQUIRED TO IDENTIFY DATE OF UNACCOUNTED INVESTMENT ON THE BASIS OF SEIZED MATERIAL IN ORDER TO TAX SUCH UNACCOUNTED INVESTMENT IN A SPECIFIC ASSESSMEN T YEAR. NO ASSET IN THE FORM OF STUDIO EQUIPMENT VAL UING RS.10 LAKHS CAME TO BE POSSESSED BY THE APPELLANT I S EVIDENT FROM THE APPELLANTS OWN CLAIM. THE RELEVA NT DOCUMENTS GATHERED DURING THE COURSE OF SEARCH ACTI ON AND THE FACT THAT THE LOAN OF RS.7.5 LAKHS MISAPPROPRIATED BY THE APPELLANT HAD TO BE IMMEDIAT ELY RETURNED BACK TO THE AMCO BANK. THE EVIDENCE THEREFORE CLEARLY INDICATES THAT THE APPELLANT WANT ED TO PROCURE THE LOAN OF RS.10 LAKHS FOR PURCHASE OF STU DIO EQUIPMENTS FROM AMCO BANK. THE BANK DISBURSED RS.7.5 LAKHS IN ADVANCE AND WANTED THE APPELLANT TO GIVE EVIDENCE OF PURCHASE OF EQUIPMENT VALUING RS.1 0 LAKHS SO THAT FURTHER AMOUNT OF RS.2.5 LAKHS CAN BE DISBURSED AND CHARGE CAN BE CREATED ON THE EQUIPMEN TS SO PURCHASED. THE APPELLANT, HOWEVER, UTILIZED THE FUND ELSEWHERE AND FALSELY CLAIMED THAT THE EQUIPMENT WA S PURCHASED. THIS IS APPARENTLY DONE ONLY FOR THE RE ASON THAT THE APPELLANT HAD NO MONEY TO PAY BACK AND HAD ALSO FAILED TO PURCHASE THE EQUIPMENT FOR WHICH THE LOAN WAS GRANTED. THE AMO BANK ACCORDINGLY MADE INDEPENDENT INQUIRY ON FAILURE OF THE APPELLANT TO PRODUCE ANY EVIDENCE INDICATING PURCHASE OF EQUIPME NT AND COMMUNICATED TO THE APPELLANT VIDE LETTER DATED 9.7.1999 THAT THE AMOUNT ADVANCED WAS TO BE RETURNE D AS NO EQUIPMENT HAD BEEN PURCHASED BY THE APPELLANT . THE APPELLANT SUBSEQUENTLY TOOK THE STAND THAT THE WHOLE PROJECT WAS POSTPONED AND HE ACCORDINGLY REPA ID THE AMOUNT. THE EVIDENCES, THEREFORE, CLEARLY INDI CATE THAT THERE WAS NO PURCHASE OF STUDIO EQUIPMENT AS ALLEGED BY THE AO. THERE IS NO CORROBORATIVE EVIDE NCE TO SUBSTANTIATE THIS FINDING OF THE AO. I, THEREFO RE, HOLD THAT THE ADDITION OF RS.10 LAKHS MADE BY THE AO ON THIS ACCOUNT WAS UNJUSTIFIED. THE SAME IS ACCORDINGLY DELETED . IT(SS)A NO.189-AHD-2006 13 (C) AS COULD BE SEEN FROM THE VERSION OF THE AO THAT HE HAD SOLELY RELIED ON THE SEIZED DOCUMENTS, ACCORDING TO WHICH, THE ASSESSEE HAD PURCHASED STUDIO EQUIPMENTS WORTH OF RS.10 LAKHS BY AVAILING SECURED LOAN FROM AMCO BANK. ON BEING INQUIRED INTO THE AF FAIR, THE BANK FOUND THAT THE ASSESSEE HAD, IN FACT, NOT INSTALLED ANY M ACHINERY AND, ACCORDINGLY, THE ASSESSEE WAS OBLIGED TO RETURN THE LOAN SO SECURED AND, ACCORDING TO THE ASSESSEE, THE LOAN AMOUNT WAS REP AID TO THE BANK. ANOTHER CLINCHING DOCUMENTARY EVIDENCE HAD COME TO THE ASSESSEES RESCUE BEING THAT HE NEITHER DEBITED ANY AMOUNT UND ER THE MACHINERY ACCOUNT NOR CLAIMED ANY DEPRECIATION FOR THE ALLEGE D MACHINERY. DURING THE SEARCH OPERATION, NO PURCHASE BILL OF THE MACHI NERY WAS SEIZED TO NAIL THE ASSESSEE. RIDING ON PRESUMPTION AND ASSUM PTION, THE AO, AFTER TAKING A LEAF OUT OF THE DOCUMENTS PURPORTED TO HAV E BEEN PRODUCED BEFORE THE AMCO BANK TO OBTAIN SECURED LOAN FOR PUR CHASE OF EQUIPMENT, CAME TO THE CONCLUSION THAT THE ASSESSEE HAD MADE UNEXPLAINED INVESTMENT IN STUDIO EQUIPMENTS. IT IS NOT UNCOMMON TO SECURE A LOAN FROM AN INSTITUTION/BANK; THE CLAIMAN T WILL EXPLORE ALL SORTS OF WAYS AT HIS COMMAND TO SATISFY THE SANCTIONING A UTHORITY. AS RIGHTLY HIGHLIGHTED BY THE CIT (A), NO ASSET (MACHINERY OR EQUIPMENT) HAD APPEARED ON RECORD ON THE BASIS OF MATERIALS GATHER ED DURING THE COURSE OF SEARCH. THE AMCO BANK ITSELF IN ITS COMMUNICATI ON DATED 9.7.1999, WHICH WAS ONE OF THE DOCUMENTS SEIZED, MADE IT CLEA R TO THE ASSESSEE THAT HIS CLAIM OF INSTALLATION OF MACHINERY WAS FOU ND TO BE INCORRECT. (D) CONSIDERING THE FACTS OF THE ISSUE AS DISCUS SED ABOVE, WE ARE OF THE FIRM VIEW THAT THAT THE AO HAD FAILED TO BRING ON RECORD ANY CORROBORATIVE EVIDENCE TO EVEN REMOTELY SUGGEST T HAT THE ASSESSEE HAD MADE UNEXPLAINED INVESTMENT IN STUDIO EQUIPMENTS, A ND, ACCORDINGLY, IT(SS)A NO.189-AHD-2006 14 WE UPHOLD THE FINDING OF THE CIT(A) ON THIS ISSUE. IT IS ORDERED ACCORDINGLY. (5 ) RESTRICT THE COLLECTION BY DHARMENDRA BHATT AT RS.4 ,01,166/-: (A) THERE WAS A NOTE ON ACCOUNTS BY THE SPECIAL AUDITOR TO THE EFFECT THAT AN ACCOUNT IN THE NAME OF DHARMENDRA BHATT TO THE EFFECT THAT HE USED TO INCUR EXPENDITURE (CAPITAL AND REVENUE) ON BEHALF OF THE ASSESSEE AND ALSO USED TO COLLECT SHOW INCOME FROM THE SPONSORS ON BEHALF OF THE ASSESSEE, BUT, THE CASH BOOK ENTRIES REVEALED FOR MANY ASSESSMENT YEARS THAT THE RECEIPTS AND PAYMENTS WER E DONE BY DHARMENDRA BHATT AND NOT BY THE ASSESSEE. ON BEING QUERIED U/S 131 OF THE ACT, DHARMENDRA BHATT, ACCORDING TO AO, HAD CAT EGORICALLY ADMITTED THAT HE USED TO RECEIVE SHOW AND OTHER INCOMES ON B EHALF OF THE ASSESSEE. AS NO SATISFACTORY EXPLANATION WAS FORTH COMING FROM THE ASSESSEE, THE AO HAD TABULATED THE DEBIT ENTRIES AP PEARING IN THE ACCOUNT OF BHATT IN VARIOUS AYS AND BROUGHT TO TAX THE UNDISCLOSED INCOME OF RS.8,78,216/- IN THE HANDS OF THE ASSESSE E AND ALSO DISALLOWED THE CLAIM OF DEDUCTION OF CREDIT ENTRIES ON THE GROUND THAT SUCH CREDIT ENTRIES DID NOT REFLECT THE DEDUCTIBLE EXPENSES AGAINST THE INCOME. (B) AFTER LOOKING INTO THE FACTS OF THE ISSUE A ND ALSO STAND OF THE AO AS RECORDED IN HIS IMPUGNED ORDER [PARA 72], THE CIT ( A) HAD OBSERVED THAT THE EXPENSES INCURRED BY SHRI BHATT WERE BROADLY NO N-BUSINESS/PERSONAL NATURE AND, THEREFORE, SUSTAINED THE DISALLOWANCE M ADE BY THE AO. WITH REGARD TO THE CLAIM OF THE ASSESSEE THAT CERTA IN JOURNAL ENTRIES WHICH WERE TRANSFERRED FROM ONE ACCOUNT TO ANOTHER ACCOUNT OF BHATT AND THAT THERE WERE ALSO CERTAIN ENTRIES WHICH HAVE BEE N SHOWN AS INCOME OF THE ASSESSEE ETC., AND ON THE BASIS OF SPECIFICALLY IDENTIFIED SUCH ENTRIES IT(SS)A NO.189-AHD-2006 15 BY THE ASSESSEE ON REQUISITION, THE CIT (A) NOTICED THAT RS.4.01 LAKHS OUT OF TOTAL DEBIT ENTRIES OF RS.8.78 LAKHS IN THE ACCOUNT OF BHATT WAS EITHER ALREADY SHOWN AS INCOME OR TRANSFER ENTRIES FROM ONE ACCOUNT TO OTHER ACCOUNT OF BHATT. AFTER PERUSING THE CHART - PRESENTED BY THE ASSESSEE - SHOWING DUPLICATION OF ADDITIONS IN BHAT TS ACCOUNT, THE CIT (A) HAD OBSERVED THAT: 72..THE ABOVE CLAIM OF THE APPELLANT IS VERIFI ABLE FROM THE AUDITED BOOKS OF ACCOUNT WHICH ARE AVAILABLE WI TH THE AO. THE AO SHALL THEREFORE VERIFY THE ABOVE CLAIM OF TH E APPELLANT FROM THE BOOKS OF ACCOUNT AND IF FINDS ANY DISCREPA NCY IN THE CLAIM OF THE APPELLANT GRANT AN OPPORTUNITY TO THE APPELLANT TO EXPLAIN THE SAME AND SHALL WITHDRAW THE ADDITION WI TH REFERENCED TO THE DUPLICATE ADDITIONS I.E., JOURNAL ENTRY WHIC H INDICATE ONLY TRANSFER OF AMOUNT FROM ONE ACCOUNT OF SHRI DHARMEN DRA BHATT TO ANOTHER ACCOUNT OF SHRI DHARMENDRA BHATT AND OTHER DEBIT ENTRIES IN THE ACCOUNT OF DHARMENDRA BHATT WHICH A RE ALREADY OFFERED AS INCOME BY THE APPELLANT OR HIS BROTHER. PRESUMING THE CLAIM OF THE APPELLANT TO BE FACTUALLY CORRECT, THE ADDITION MADE BY THE AO IS DELETED TO THE EXTENT OF RS.4,01,166/- AND THE BALANCE IS CONFIRMED. THIS FINDING IS, HOWEVER, SU BJECT TO RECTIFICATION ON FURTHER VERIFICATION BY THE AO WIT H THE AUDITED BOOKS OF ACCOUNT OF THE APPELLANT IN ACCORDANCE WIT H ABOVE OBSERVATIONS. (C) DURING THE COURSE OF HEARING, THE LD. D R HAD INSISTED THAT THE ADDITION WAS BASED ON SEIZED PAPERS AND STATEMENT O F SHRI DHARMENDRA BHATT WHICH SUGGESTED THAT THE ENTIRE ADDITION SHOU LD HAVE BEEN CONFIRMED BY THE CIT (A). (D) WE HAVE DULY CONSIDERED THE PLEADING OF THE LD . D R AND ALSO THE OBSERVATIONS OF THE CIT (A) IN HIS IMPUGNED ORDER U NDER CHALLENGE. AT THE OUTSET, WE WOULD LIKE TO REITERATE THAT THE CIT (A) HAD NOT CONCLUSIVELY DELETED THE OF RS.4,01,166/- AS PROJECTED BY THE RE VENUE. IN FACT, THE CIT (A) HAD, IN ESSENCE, ORDERED TO DELETE RS.4.01 LAKHS WITH A RIDER BY IT(SS)A NO.189-AHD-2006 16 DIRECTING THE AO TO VERIFY THE ASSESSEES CLAIM WIT H REFERENCE TO AUDITED BOOKS OF ACCOUNT AND IF FIND ANY CULPABILITY IN THE CLAIM OF THE ASSESSEE, THE AO SHALL BE AT HIS REALM TO RETAIN THE ADDITION . THE AO HAS SINCE BEEN DIRECTED TO VERIFY THE AUDITED BOOKS OF ACCOUN T AND TO TAKE APPROPRIATE ACTION IF SO WARRANT, THE REVENUES GRI EVANCE IS PREMATURE WHICH REQUIRES NO INTERVENTION OF THIS BENCH AT THI S STAGE. IT IS ORDERED ACCORDINGLY. ( 6 ) DELETION OF ELECTRICITY BILL OF RS.43,384/-: (A) THE AO DISALLOWED THE CLAIM OF RS.43,384/- B EING PAYMENT OF ELECTRICITY BILL FOR WANT OF PROOF. THE CIT (A) HA D REASONED THAT AS PER THE MATERIAL GATHERED DURING THE COURSE OF SEARCH, THE PAYMENT WAS RELATING TO GOVINDBAGH SHOW INCOME WHICH WAS OFFERED TO TAX, THAT THE PAYMENT WAS ALSO MADE THROUGH BANKING CHANNEL AND, THEREFOR E, THE PAYEE WAS DULY IDENTIFIED AS NIRMALADEVI AGARWAL. IT WAS, FU RTHER, OBSERVED THAT AS THE CORRESPONDING INCOME HAS BEEN BROUGHT TO TAX, T HERE WAS NO JUSTIFICATION FOR THE AO TO DISALLOW THE DEDUCTION OF THIS PAYMENT AND MAKE THE CONSEQUENTIAL ADDITION. (B) WE HAVE DULY PERUSED AND CONSIDERED THE REA SONING OF THE AO AS WELL AS THE OBSERVATIONS OF THE CIT (A). THOUGH, A DMITTEDLY, THE PAYMENT OF ELECTRICITY BILL THROUGH BANKING CHANNEL AS CANV ASSED BY THE ASSESSEE AND ACCEPTED BY THE CIT (A), WE FIND THAT NO DOCUM ENTARY PROOF HAS BEEN ADVANCED BY THE ASSESSEE TO AUTHENTICATE THAT THE ELECTRICITY BILL (EXPENSE) PAYMENT OF RS.43,384/- WAS THROUGH BANKI NG CHANNEL. WE ALSO FIND NO JUSTIFICATION OF THE CIT (A)S THEORY THAT AS THE CORRESPONDING INCOME HAS BEEN BROUGHT TO TAX, THERE WAS NO JUSTIF ICATION FOR THE AO TO DISALLOW THE DEDUCTION OF THIS PAYMENT AND MAKE THE CONSEQUENTIAL ADDITION. WHEN THE PAYMENT WAS BY WAY OF DD AS CLAIMED BY THE IT(SS)A NO.189-AHD-2006 17 ASSESSEE, THE MOOT QUESTION REQUIRED TO BE ANSWERED WAS - WHAT PREVENTED THE ASSESSEE TO ADVANCE THE PROOF FOR HAV ING PURCHASED A DEMAND DRAFT FOR THE SAID AMOUNT? IN THE ABSENCE O F ANY PROOF, WE ARE OF THE CONSIDERED VIEW THAT THE AO WAS JUSTIFIED IN DISALLOWING SUCH A HYPOTHETICAL CLAIM. THIS ISSUE GOES AGAINST THE AS SESSEE. (7 ) RESTRICTION OF DISALLOWANCE ON RENTS: (A) MUMBAI FLAT: THE AO HAD OBSERVED THAT THE ASSESSEE CLAIMED DEDUCTION OF RS.1.16 LAKHS BEING RENT PAID FOR RESI DENTIAL FLAT BY CLAIMING THE SAME TO BE OFFICE RENT BUT THE DEDUCTION WAS NO T ALLOWABLE FOR THE SAME AS THIS RENT WAS PAID FOR A RESIDENTIAL FLAT. AHMEDABAD FLAT: THE AO HAD OBSERVED THAT THE ASSESSEE CLAIMED DEDUCTION OF RS.39,000/- BEING RENT PAID FOR RESIDE NTIAL FLAT BY CLAIMING THE SAME TO BE OFFICE RENT BUT THE DEDUCTION WAS NO T ALLOWABLE FOR THE SAME AS THIS RENT WAS PAID FOR A RESIDENTIAL FLAT. (B) AFTER CONSIDERING THE CONTENTIONS OF THE ASSESS EE, THE CIT (A) HAD OBSERVED: 101. I HAVE CAREFULLY CONSIDERED THE RELEVANT FAC TS AND PROVISIONS OF LAW WITH REGARD TO ISSUE INVOLVED I F IND THAT THE APPELLANT WAS NOT MAINTAINING ANY OFFICE AT BOMBAY THOUGH HE HAS BEEN PROCURING SUBSTANTIAL PROFESSIONAL WORK IN MUMBAI THEREFORE IT CANNOT BE STATED THAT PREMISES AT BOMB AY WERE ONLY FOR RESIDENTIAL PURPOSE. I THUS FIND THAT AO WAS N OT JUSTIFIED IN DISALLOWING TOTAL RENT PAID FOR BOMBAY FLAT. IT WI LL THEREFORE BE FAIR AND JUST TO ALLOW 50% OF THE CLAIM BY TREATING THE SAME AS RELATING TO PROFESSION OF THE APPELLANT. THE AO IS , THEREFORE, DIRECTED TO ALLOW 50% OF THE RENT PAID IN RESPECT O F FLAT AT BOMBAY. THE DISALLOWANCE OF RS.1,16,000/- AND RS.3 9,000/- MADE BY THE AO RESPECTIVELY IN ACCORDANCE WITH PARA 15.16 AND 16.2 ARE SUSTAINED TO THE EXTENT OF 50% AND 50% ADD ITION IS DELETED. IT(SS)A NO.189-AHD-2006 18 (C) WE HAVE DULY PERUSED AND CONSIDERED THE OBSERVA TIONS OF THE CIT (A) THAT THE MUMBAI AND AHMEDABAD RESIDENCES WERE U SED AS RESIDENCE-CUM-OFFICE FOR WHICH HE HAD RESTRICTED TH E DISALLOWANCES TO THE EXTENT OF 50% FOR THE REASONS RECORDED IN HIS IMPUG NED ORDER. HOWEVER, BEING AN ACCLAIMED SINGER THE ASSESSEE HIMSELF, IT WAS HARDLY CONVINCING AND RATHER IMPROBABLE TO BELIEVE THAT HIS RESIDENTI AL FLATS AT MUMBAI AND AHMEDABAD WERE BEING USED AS RESIDENCE-CUM-OFFICE. NO PRUDENT PERSONALITY LIKE THAT OF THE ASSESSEE WOULD HAVE AL LOWED COMING IN THE WAY OF PRIVACY TO FUNCTION AN OFFICE-CUM-RESIDENCE UNDER ONE ROOF. NO DOCUMENTARY PROOF WORTH THE NAME HAS BEEN ADDUCED T O EVEN REMOTELY SUGGEST THAT THE FLATS HAVE BEEN USED PRE-DOMINANTL Y AS OFFICE TO CLAIM SUCH RELIEF. IN VIEW OF THE ABOVE OBSERVATIONS, WE ARE OF THE CONSIDERED VIEW THAT THE AO WAS JUSTIFIED IN MAKING SUCH DISAL LOWANCES AND, ACCORDINGLY, DISALLOWANCES OF RS.1.16 LAKHS AND RS. 39,000/- ARE SUSTAINED. THIS ISSUE IS, ACCORDINGLY, DECIDED AGA INST THE ASSESSEE. (8 ) RESTRICTION OF UNDISCLOSED INCOME TO RS.2 LAKHS: (A) IT WAS THE CASE OF THE AO THAT THE ASSESSEE HAD NOT FURNISHED THE PARTICULARS OF DENA BANK ACCOUNT EITHER TO THE SPEC IAL AUDITOR OR DURING THE COURSE OF ASSESSMENT PROCEEDINGS. IN THE ABSENC E OF ANY COGENT EXPLANATION WITH REGARD TO THE DISCREPANCIES NOTICE D IN THE INCOMES OF STALLS, PARKING, SPONSORSHIP, ALBUM AND SERIAL ETC. , THE AO HAD LISTED OUT THE FOLLOWING ABNORMAL INSTANCES AS POINTED OUT BY THE AUDITOR: 121 .. (I) IN FY 1995-96, AN AMOUNT OF RS.1,00,000/- WAS D EPOSITED AND WITHDRAWN FROM A BANK ACCOUNT WITH DENA BANK; (II) IN FY 96-97, THE APPELLANT SHOWED ALBUM INCOME OF RS.2,00,000/- FROM ABCL BY CHEQUE BY NO AGREEMENT O R OTHER DETAILS WERE MADE AVAILABLE; IT(SS)A NO.189-AHD-2006 19 (III) THE APPELLANT SHOWED PARKING INCOME IN FY 96- 97 AND 97- 98, BUT, NOT IN OTHER YEARS. THERE IS NO STALL INC OME SHOWN BY THE APPELLANT IKN FY 1995-96, 1996-97 AND 2001- 02; (IV) APPELLANT HAD SHOWN TOTAL RECEIPTS OF RS.92,22 ,102/- FOR THE FY 1999-00, 2000-01 AND 2001-02 FROM THE SERIAL JAI SHREE SWAMINARAYAN WHEREAS IN FY 02-03 AND 03-04, T HE APPELLANT SOUGHT INCOME FROM THIS SERIAL TO BE OF RS.1,17,50,000/- AND RS.77,78,000/- RESPECTIVELY; (V) THE APPELLANT HAD RELEASED AUDIO CASSETTES/VIDE O ALBUM TITLED NO TIME(HINDI), TIME NATHI (GUJARATI) RE LEASED BY BAMBINO AND LELA LAHER (GUJARATI) RELEASED BY OM SE RIES IN FY 98-99, BUT, SHOWED ALBUM INCOME OF ONLY RS.37,800/- WHICH WAS TOO LESS EVEN IN THE OPINION OF THE AUDITOR; (VI) IN FY 98-99 IN THE CASE OF PAL TRADING CO. THE APPELLANT SHOWED CASH RECEIPT OF RS.1,00,000/- EACH ON 3.10.9 8 AND 24.10.98 FROM MR. I.M.PATEL FOR WHICH THERE IS NO CONFIRMATION OR JOTTINGS IN THE SEIZED PAPERS AND T HERE APPEAR TO BE AN ATTEMPT TO EXPLAIN CASH OF RS.75,00 0/- AND RS.1,02,000/- DEPOSITED IN BANK RESPECTIVELY ON 3.10.98 AND 24.10.98; & (VII) THE APPELLANT DID NOT SHOW ANY INCOME FROM ALBUM TAMACHO IN A SIMILAR MANNER INCOME SHOWN FROM OTH ER ALBUMS IDENTIFIED BY THE AO WERE VERY LOW. ACCORDINGLY, THE AO OBSERVED THAT THE APPELLANT H AD PRESUMABLY EARNED INCOME UNDER THOSE HEADS AND DEPOSITED WITH DENA BANK AND AS SUCH HE ESTIMATED THE UNDISCLOSED INCOME AT RS.10 L AKHS. (B) AFTER A DETAILED CONSIDERATION OF THE ASSESSEE S LENGTHY CONTENTIONS AS RECORDED IN HIS IMPUGNED ORDER, THE CIT (A) HAS OBSERVED THUS: 123 .TO START WITH I AM TO POINT OUT THAT AN UNDISCLOSE D INCOME U/S 158BC HAS TO BE DETERMINED AND TO CO-REL ATE WITH SPECIFIC SEIZED DOCUMENTS. FURTHER TO ABOVE UNDISC LOSED INCOME HAS TO BE DETERMINED FOR SPECIFIC ASSESSMENT YEAR IN THE BLOCK PERIOD AND LUMP SUM ADDITION CANNOT BE MADE F OR THE BLOCK PERIOD. UNIFORM PATTERN OF INCOME AS PRESUME D BY THE AO OF STALL INCOME, PARKING INCOME ETC., AND SHOW INCO ME IS IT(SS)A NO.189-AHD-2006 20 FACTUALLY NOT EXISTING. LOT WILL DEPEND ON AS TO F OR WHAT PACKAGE, THE APPELLANT CONDUCTED THE SHOW. A GENERAL INFERE NCE THEREFORE CANNOT BE DRAWN TO MAKE AN ADDITION. WITH REGARD T O OBSERVATION ABOUT DENA BANK ALSO I WOULD POINT OUT THAT THE AO OUGHT TO HAVE TRACED THIS ACCOUNT INSTEAD OF MAKING AN ADDITION ON A GUESS WORK. THE APPELLANT IS ALSO SILENT ABOU T EXISTENCE OF ANY SUCH BANK ACCOUNT. FOR THAT REASON ONLY AN ADD ITION CANNOT BE MADE IN THE HANDS OF THE APPELLANT. WITH REGARD TO PAYMENT IN RESPECT OF SERIAL JAI SWAMI NARAYAN, IT HAS BE EN POINTED OUT BY THE LD. COUNSEL FOR THE APPELLANT THAT ALL THE R ECEIPTS WERE THROUGH BANKING CHANNEL AND WOULD DEPEND ON NUMBER OF EPISODE AIRED DURING THE RELEVANT POINT OF TIME. W ITH REGARD TO INCOME FROM VARIOUS ALBUMS IDENTIFIED BY THE AO, TH E LD. COUNSEL FOR THE APPELLANT DREW ATTENTION TO THE APP ELLANTS DEPOSITION U/S 131 RECORDED BY DDI (INVESTIGATION) DATED 11.2.2002 WHEREIN INCOME FROM VARIOUS ALBUMS HAVE B EEN IDENTIFIED. NOTWITHSTANDING THE ABOVE, I AM TO POI NT OUT THAT INCOME FROM VARIOUS ALBUMS SHOWN BY THE APPELLANT C AN BE SUBJECTED TO CROSS-VERIFICATION WITH CORRESPONDING PARTIES WHO RELEASED THE ALBUMS. HOWEVER, NO SUCH EXERCISE HAS BEEN TAKEN UP. IN THE ABSENCE OF SPECIFIC SEIZED MATERI AL INDICATE AND SPECIFIC INVESTIGATIONS AND ESTIMATION WAS NOT JUST IFIED. I HOWEVER FIND THAT THE APPELLANT IS SILENT ABOUT DEN A BANK ACCOUNT WHEN THE SEIZED MATERIALS INDICATE SOME OF SUCH BANK ACCOUNT WITH DENA BANK. IN FY 1995-96 AN AMOUNT OF RS.1 LAKH IS SHOWN AS DEPOSITED IN THE BANK ACCOUNT AND WITHD RAWN THEREAFTER. AS THIS TRANSACTION IS NOT FIGURING IN THE BOOKS OF ACCOUNTS, THE ADDITION MADE BY THE AO IS SUSTAINED TO THE EXTENT OF RS.1 LAKH IN AY 96-97. IN A SIMILAR MANNER, THE APPELLANT HAS SHOWN RECEIPT OF RS.1 LAKH EACH ON 3.10.L998 AND 24 .10.98 FROM MR. I.M. PATEL. THE AO HAS ALREADY ADDED RS.1 LAKH AS UNEXPLAINED CASH CREDIT FROM SHRI I.M. PATEL IN FY 98-99 WHICH COVERS RECEIPT OF RS.1 LAKH. IN RESPECT OF ANOTHER RS. 1 LAKH IN THE SAME FY IS HOWEVER NOT ADDED. THIS WOULD FURTH ER JUSTIFY AN ADDITION OF RS.1 LAKH IN AY 99-00. THIS ADDITION O F RS.1 LAKH IN AY 99-00 IS, THEREFORE, FURTHER SUSTAINED. IN ACCO RDANCE WITH THE ABOVE OBSERVATIONS, THE ADDITION MADE BY THE AO IS SUSTAINED TO THE EXTENT OF RS.2 LAKHS AND THE BALANCE IS DELETED (C) WE HAVE CAREFULLY PERUSED THE REASONING OF T HE CIT (A) AND ALSO CONSIDERED THE CONTENTIONS OF THE ASSESSEE RECORDED IN THE IMPUGNED ORDER OF THE CIT (A). THE ESSENCE OF THE ASSESSEES CLAIM WAS THAT ALL IT(SS)A NO.189-AHD-2006 21 THE PAYMENTS WERE THROUGH BANKING CHANNELS AND, THE REFORE, THE AO WAS NOT JUSTIFIED IN MAKING AN ADDITION OF RS.10 LA KHS. HOWEVER, IT WAS AN ADMITTED FACT THAT NO DOCUMENTARY PROOF HAS BEEN BROUGHT ON RECORD TO SUBSTANTIATE THE ASSESSEES CLAIM. IF THE PAYME NTS WERE THROUGH BANKING CHANNELS AS ADVOCATED BY THE ASSESSEE, WHAT WAS COMING IN THE WAY OF THE ASSESSEE TO PRODUCE SUCH PROOFS EITH ER BEFORE THE AO OR DURING THE APPELLATE PROCEEDINGS? THE SWEEPING REM ARK OF THE LD. A R BEFORE THE CIT (A) THAT ALL THE PAYMENTS WERE CHANN EL-ZED THROUGH BANKS DOESNT DESERVE ANY MERIT UNLESS THE RELEVANT PARTI CULARS WERE FURNISHED. THE CIT (A) HAD ADMITTED THAT NO EXERCISE HAS BEE N DONE TO CROSS VERIFY THE INCOME SHOWN BY THE ASSESSEE FROM VARIOU S ALBUMS WITH CORRESPONDING PARTIES WHO RELEASED SUCH ALBUMS. IN THE ABSENCE OF SPECIFIC SEIZED MATERIAL AND SPECIFIC INVESTIGATION , ESTIMATION WAS NOT JUSTIFIED. HOWEVER, IN THE SAME BREATH, THE CIT (A) HAD, CANDIDLY, ADMITTED THAT THE ASSESSEE WAS SILENT ABOUT DENA BA NK ACCOUNT WHEN THE SEIZED MATERIALS INDICATE SOME OF SUCH BANK ACC OUNT WITH DENA BANK. IN SUCH A SCENARIO, THE CIT (A) WAS, IN OUR CONSIDERED VIEW, NOT JUSTIFIED TO RESTRICT THE ADDITION ONLY TO THE EXTE NT OF RS.2 LAKHS IN A PICK AND CHOOSE MANNER AND BY ALLOWING THE ASSESSEE TO W ALK WITH A RELIEF OF RS.8 LAKHS WHEN HE HIMSELF POINTED OUT THAT THE AS SESSEE HAS BEEN MAINTAINING STOCKY SILENCE OVER THE ACCOUNT WITH DE NA BANK. (D) IN THE INTERESTS OF PRINCIPLES OF NATURAL JUSTICE AND FAIRNESS, THE ENTIRE ISSUE IS REMITTED BACK TO THE FILE OF THE AO WITH A SPECIFIC DIRECTION TO LOOK INTO THE MATTER AFRESH BY CALLING RELEVANT PARTICULARS OF TRANSACTIONS ALLEGED TO HAVE BEEN MADE WITH DENA BA NK BY ISSUANCE OF NOTICE U/S 133(6) OF THE ACT TO BANK AND TO TAKE A PPROPRIATE ACTION IN ACCORDANCE WITH THE PROVISIONS OF ACT AFTER AFFORDI NG A REASONABLE OPPORTUNITY TO THE ASSESSEE OF BEING HEARD. IN THE MEANWHILE, THE IT(SS)A NO.189-AHD-2006 22 ASSESSEE IS ADVISED TO PRODUCE ALL RELEVANT DOCUMEN TARY EVIDENCES AT HIS POSSESSION WHICH WOULD FACILITATE THE AO TO IMP LEMENT THE DIRECTIONS OF THIS BENCH CITED SUPRA IN AN EXPEDITIOUS MANNER. IT IS ORDERED ACCORDINGLY. 8. IN THE RESULT , THE REVENUES APPEAL IS PARTLY ALLOWED. 2 #1 * /!0 3' 4 17 / 02 /201 2 ! 5 * , SD/- SD/- (G.C.GUPTA) (A.MOHAN ALANKAMONY) VICE PRESIDENT ACCOUNTANT MEMBER DATED : 17/02/2012 #1 #1 #1 #1 * ** * (-6 (-6 (-6 (-6 7#60-4 7#60-4 7#60-4 7#60-4- -- - 1. &' 2. ()&' 3. - < 4. <- - 5. 6? (-' , , @ 6. B C2 #1 #, D/ , @ TALUKDAR/ SR. P.S.