LATE HARI SHANKAR LAL KHANDELW V. ASTT COMMISSIONER OF I T BHAR

ITA/342/2005

AI Insights

The case involves an appeal by the late Hari Shankar Lal Khandelwal against the Assistant Commissioner of Income Tax, Bhar, concerning the assessment of undisclosed income following a search operation under Section 132 of the Income Tax Act. The primary legal issues revolved around the permissibility of estimating income without reference to materials discovered during the search, the sustainability of additions made without such materials, and the justification for confirming the disallowance of trade credits. The Tribunal had partly allowed the department's appeal for statistical purposes, which was contested in this appeal.

• Counselvise Citation: [2017] 140 COUNSELVISE.COM (IT) 692165 (HC-RAJASTHAN)
• Appeal Type: Others
• Pronouncement Date: 02-03-2017
• Assessment Year: misc
• Other Referred Cases: CIT vs. Rajendra Prasad Gupta, CIT, Central Circle vs. H.E. Mynuddin Pasha, Rajendra Kumar Lahoty vs. Dy. Commissioner of Income Tax
• Laws Referred To: Income-tax Act
• Result in Favour of: Partly Allowed
• Court: HIGH COURT
• Department Lawyers: PARINITOO JAIN
• Assessee Lawyers: PRAKHUL KHURANA
• Keywords: Block assessment; Estimated Income; Sundry creditors; Trade Credits; Undisclosed income
• Section: 132; 158(BC); 158 BFA

Judgement Text

"HIGH COURT OF JUDICATURE FOR RAJASTHAN BENCH AT JAIPUR D.B. Income Tax Appeal No. 342 / 2005 Late Hari Shankar Lal Khandelw ----Appellant Versus Astt Commissioner Of I T Bhar ----Respondent _____________________________________________________ For Appellant(s) : Mr. Prakhul Khurana for Mr. Sanjay Jhanwar For Respondent(s) : Ms. Parinitoo Jain _____________________________________________________ HON'BLE THE ACTING CHIEF JUSTICE HON'BLE MR. JUSTICE VINIT KUMAR MATHUR Judgment 02/03/2017 1. By way of this appeal, the appellant has assailed the judgment & order of the Tribunal whereby the Tribunal has partly allowed the appeal preferred by the department only for the statistical purposes. 2. This Court while admitting the matter on 1st December, 2005, framed the following questions of law:- “i) Whether in view of the scheme of block assessment under Chapter XIV-B of the Income- tax Act computation of income on estimate basis without referring to the materials discovered during search is permissible? ii) Whether additions de hors the material discovered during search is sustainable? iii) Whether in the facts and circumstances of the case the Tribunal was justified in confirming the disallowance of Rs. 10,76,521/- on account of trade credits without considering the evidences produced by the assessee-appellant?” (2 of 6) 3. The facts of the case are that the assessee is a dealer of tyres and on 25th February, 1997, a search was carried out under Section 132 of IT Act at the business and residential premises of the assessee and during the search action, various incriminating books of accounts, documents, loose paper and valuables were found. Taking into consideration, a notice u/s 158 BC was issued to the assessee on 5th August, 1997, pursuant to which the assessee has filed return of income on 6th October, 1997 for the block period from 1st April, 1986 to 25th February, 1997 declaring total undisclosed income at Rs. 82500. However, the assessing officer taking into consideration the estimated income at Rs. 43,78,571/- found the aforesaid undisclosed income against which an appeal was preferred which was partly allowed and the CIT(A) has deleted certain amounts. CIT(A) has reduced the additions which was added by the assessing officer. The Tribunal has allowed the appeal preferred by the department and allowed the appeal of the assessee only for the statistical purpose. 4. Counsel for the appellant mainly pointed out the calculation made by the assessing officer which reads as under:- I) Cash (Page 10) Bank balance (as admitted advance (Page 5)) 7102 16561 (ii) Drawing amount outstanding interest accrued on drawing amount advance (upto 25.02.97 (Page 5)) 137000 109130 (iii) Unsecured loan advance and remaining outstanding as on 25.2.97 (Page 6) 959570 (iiiC) Interest accrued upto 25.2.97 (Page 7) 90438 (iv) FDRs, Units of Us 64, IVPs, shares & Debentures (Page 3) 181650 (v) Interest accured upto 25.2.97 on FDRs, Debentures, in and dividend income on Units of Us/64, shares etc. upto 25.2.97(Page 3) 30443 (3 of 6) (vi A) Motor cycle (as admitted) 10000 (vi) Gold & Silver 1. Gold 116800 2. Silver 136990 253790 (viA) FDR Pledged with Bank (as admitted) 51000 (vii) Trade Debtors (Page 5) Nill (viii) Security amount receivable from M/s Apollo tyres (as admitted) 8,00,000 (ix) Stock (Page 9) Less: Assets as on 01.04.86 (Page 10) Add: Expenses incurred of various types in period of block Household & other expenses (page 6) Add: Receipt of various types 1. Interest income from M/s Apollo tyres (page 4) Add: Unexplained Investment (page 2) 1. 5075 2. 26005 Less: Liabilities as on 25.02.97 1. Trade Creditors (page 5) 2. Loan against FDR as in (vi A), (in asset) Less: 1. Agriculture income & sale proceeds of Agriculture lands (page 9 ) Total undisclosed income 1. Charge interest u/s 158 BFA of I.T. Act 2. Penalty proceedings u/s 158 BFA are being initiated separately. 415167 3061851 Nil 30161851 1216752 75388 4353991 31080 4385071 Nil 6500 4378571 Nil 4378571 5. Taking into account the query of assessee’s income and expenditure and thereafter, the addition of Rs. 10,76,521/- where it was outstanding amount which required to be paid by the assessee to the company, he has referred para 16 of the CIT (A) order & para 53 of the order passed by the Tribunal which reads as under:- “16. Next ground of appeal relate to not considering the trade creditors of Rs.10,76,501/- as declared by the assessee. The AO in the absence of verification of sundry creditors and debtors of Rs. 10,76,501/- & Rs. 7,62,850/- respectively, through books of accounts which are not produced are considered at Nil. 16.1 The Id. AR in his written submissions has stated that the whole of the balance of Rs. 10,76,501/- is payable to M/s. Apollo tires. (4 of 6) During the course of assessment proceedings the assessee has provided copy of account of M/s. Apollo Tires which clearly shows that an amount of Rs. 10,76,501/- is payable by the assessee as on the date of search. Copy of account of M/s. Apollo Tires has also been enclosed with the paper book and thus the AR requested that the AO be directed to allow the credit of trade creditors at Rs. 10,76,501/-.” 53. We heard the rival submissions and also perused the record. We find that the assessee was to pay a sum of Rs. 10,76,501/- to M/s Apollo Tyres as on 25.02.97. The AO, in the absence of verification of sundry creditors and debtors of Rs. 10,76,501/- and Rs. 7,62,850/- respectively, through books of accounts which had not been produced was considered at nil. The AO, in his remand report before the ld. CIT(A) has submitted that since no income was shown by the assessee, therefore, the claim of liability does not arise. We find that no income had been shown by the assessee, therefore, the id. CIT(A) had rightly not allowed the deduction of Rs. 10,76,501/-. We sustain the order of the ld. CIT(A) on this ground for the reasons given therein. Ground No.9 (Assessee’s C.O)- Not allowing the set off of Rs.13,560/- received from LIC policy against the investment of the assessee (AO Page 10, Para 15, CIT(A) Page 21, Para 17-17.2)”. 6. He contended that if that is the outstanding amount which was required to be paid by the assessee, it ought not be added in the income and the tribunal has seriously committed an error in not considering the same on the point of estimated expenses. He has contended that estimate made was on higher side and could not have been done and shown investment of stock as Rs. 1,70,167/-. However, the assessing officer has estimated 4,15,167/- which was reduced by the CIT to 1,70,167/- and investment in the draft of 31,080/- was wrongly added as interest of secondary amount. (5 of 6) 7. Counsel for the appellant has also relied upon following decisions in the case of CIT vs. Rajendra Prasad Gupta reported in (2001) 248 ITR 0350 and CIT, Central Circle vs. H.E. Mynuddin Pasha reported in (2011) 13 taxmann. Com 147 (Karnataka). 8. Counsel for the respondent has supported the order of the Tribunal as well as CIT(A) and contended that the amount which has been considered by both the authorities and reasoning adopted by the CIT(A) and the Tribunal is required to be upheld and no interference is called for. She has relied upon the decision of this Court in the case of Rajendra Kumar Lahoty vs. Dy. Commissioner of Income Tax reported in (2004) 266 ITR 621 (Raj.). 9. We have heard counsel for the parties. 10. On the first issue regarding Sundry Creditors of Rs. 10,76,521/-, the contention raised by Mr. Khurana is required to be accepted as the criteria of limited company could have been verified by the balance sheet by the assessing officer which has not been done. However, on the issue no. 1, estimated household expenses to the extent of Rs. 5,04,000/-, we are in complete agreement with the view and the estimate made by the assessing officer which are covered under the issue no.2. 11. On the issue no. 3, it is true that reducing the amount of 4,15,167/- by the CIT to 1,70,167/- the CIT(A) has not committed any error. We are of the opinion that the amount which has been estimated was not supported by any evidence. In that view of the matter the investment in stock in trade of Rs. (6 of 6) 1,70,167 is just and proper. The addition is required to be granted. However, it is made clear that the subsequent year disposed off tyres income is based on Rs. 2000 per tyre which comes to Rs. 70,000/-. Thus, the third issue regarding claim of block assessment referring to the material discovered during the search is not required to be answered. In that view of the matter, the issue is not required to be answered and all other contentions regarding investment and security are decided in favour of the department. 12. We are in complete agreement with the view taken by the tribunal, no case is made out for interference. 13. The appeal stands dismissed. (VINIT KUMAR MATHUR),J. (K.S. JHAVERI)ACTING C.J. A.Sharma/128 "