CIT V. HANIF MOHD

ITA/663/2010

AI Insights

The case involves appeals by the Commissioner of Income Tax-II, Ludhiana against the decisions of the ITAT, which had deleted several additions made by the Assessing Officer during block assessments of the respondents, Shri Hanif Mohd. and Shri Lal Singh. The additions pertained to various alleged undisclosed incomes and understated costs, which the ITAT found were either not substantiated by concrete evidence or were based on estimations and assumptions. The High Court of Punjab and Haryana, after reviewing the ITAT's decisions and the materials on record, concluded that the ITAT had correctly appreciated the facts and evidence, leading to the dismissal of the Revenue's appeals.

• Counselvise Citation: [2013] 140 COUNSELVISE.COM (IT) 720569 (HC-CHANDIGARH)
• Appeal Type: Others
• Pronouncement Date: 11-03-2013
• Assessment Year: misc
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Others
• Court: HIGH COURT
• Department Lawyers: RADHIKA SURI
• Assessee Lawyers: SAVITA SEXENA
• Keywords: Block assessment; Documentary evidence; Undisclosed income; Valuation report; Suspicion surmises conjectures
• Section: 158BC; 158B(b); 132(1)

Judgement Text

"IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH 1. Income Tax Appeal No.663 of 2010 (O&M) DATE OF DECISION: March 11, 2013 The Commissioner of Income Tax-II, Ludhiana …..Appellant versus Shri Hanif Mohd. .....Respondent 2. Income Tax Appeal No.657 of 2010 (O&M) The Commissioner of Income Tax-II, Ludhiana …..Appellant versus Shri Lal Singh .....Respondent CORAM:- HON'BLE MR.JUSTICE A.K. SIKRI, CHIEF JUSTICE HON’BLE MR. JUSTICE RAKESH KUMAR JAIN, JUDGE Present: Ms.Savita Sexena, Advocate for appellant-Revenue Ms.Radhika Suri, Advocate for respondent-assessee .. A.K. SIKRI, C.J.: 1. Revenue have preferred these appeals against the decision of the Income Tax Appellate Tribunal (ITAT) dated 29.1.2009. Vide said decision, the ITAT has decided three appeals. The assessees herein, who had filed appeals, are given same relief by the ITAT, as few additions made by the Assessing Officer have been deleted after in-depth examination of those additions. The Revenue had mentioned the substantial questions of law, which according to Revenue, arise in these cases. However, when these appeals came up for hearing on 6.2.2013, this Court found that those questions of law were not appropriately framed nor they strictly arose out of ITA Nos.663 & 657 of 2010 - 2 - the impugned orders of the Tribunal. Learned counsel for the Revenue took adjournment to amend the questions of law. Subsequently, applications were filed for amending the questions of law on which orders dated 4.3.2013 were passed to the effect that these applications shall be considered along with the main case. Before we come to the amended questions raised, it may be necessary to give short background of the case. 2. A search under Section 132 (1) of the Income Tax Act, 1961 was conducted of the residential premises of the assessees on 5.10.1995. In that search, some cash as well as some incriminating documents were found and seized. Notices for block assessment under Section 158BC of the Act were served upon the respondents which culminated into various additions by the Assessing Officer. Since it was a case of block assessment, the assessment order was passed after getting approval of Commissioner of Income Tax. These additions were challenged by the respondents-assessees by filing appeals, as mentioned above. By the impugned orders, some additions are deleted. In ITA 663/2010, following questions of law are raised: \"1. Whether on facts and circumstances of the case the Hon’ble ITAT is justified in law in deleting the addition of Rs.27,673/- for AY 1988-89 and Rs.35,809/- for AY 1991-92 on account of understatement of cost of renovation of residence holding that it was made on pure estimation basis when the AO had made this addition on the basis of valuation report of Assistant Valuation Officer, and hence the order of Hon’ble ITAT was erroneous and perverse. 2. Whether on facts and circumstances of the case the Hon’ble ITAT is justified in law in deleting the addition of Rs.20,000/- for AY 1989-90 on account of addition to capital account and Rs.1,05,800/- for ITA Nos.663 & 657 of 2010 - 3 - AY 1989-90 and 1990-91 on account of unexplained unsecured loans which have already been declared in regular return holding that the scope of Chapter XIV B of the Act dealing with the block assessment proceedings is limited to assess the ‘undisclosed income’ and ignoring the definition of ‘undisclosed income’ as per Sec. 158B(b) of the Act which states that “…or any expense, deduction, or allowance claimed under this Act which is found to be false.” 3. Whether on facts and circumstances of the case the Hon’ble ITAT is justified in law in holding that documentary evidence was to be given more credence as compared to the statement of the assessee and thus, deleting the addition Rs.30,000/- for AY 1990-91 on account of undisclosed investment made in M/s Royal Spinning Mills which was admitted by assessee in the statement recorded during the course of search but partly disclosed in return of income and hence the order of the Hon’ble ITAT was erroneous and perverse. 4. Whether on facts and circumstances of the case the Hon’ble ITAT is justified in law in deleting the addition of Rs.3,00,000/- for AY 1991-92 on account of profit from property deals holding that the addition made by AO only under the realm of suspicion, surmises and conjectures is not permissible under the provisions of Ch.XIV-B and by ignoring the fact that the addition was based on the documents found from the residence of the assessee and hence the order of the Hon’ble ITAT was erroneous and perverse. 5. Whether on facts and circumstances of the case the Hon’ble ITAT is justified in law in deleting the addition of Rs.75,000/- for AY 1991-92 and Rs.85,000/- and Rs.49,000/- for AY 1996-97 on account of profit from sale/purchase of land holding that the Assessee has only earned commission ITA Nos.663 & 657 of 2010 - 4 - income on the transactions and ignoring the fact that the AO has clearly held that words ‘profit’ and ‘profit margin’ has been mentioned on the documents and therefore it represents the profit of the assessee and hence the order of Hon’ble ITAT was erroneous and perverse. 6. Whether on facts and circumstances of the case the Hon’ble ITAT is justified in law in deleting the addition of Rs.1,42,770/- for AY 1991-92, Rs.51,080/- for AY 1992-93, Rs.56,080/- for AY 1993-94, Rs.50,882/- for AY 1994-95 and Rs.1,60,782/- for AY 1995-96 by estimating the commission @ 2% without any basis as against the correct amount of commission worked out by the AO and no expenses were allowed in the absence of any evidence and hence the order of Hon’ble ITAT was erroneous and perverse. 7. Whether on facts and circumstances of the case the Hon’ble ITAT is justified in law in deleting the addition of Rs.9,66,000/- for AY 1992-93 on account of undisclosed income based on documentary evidence holding that there is nothing on record to show that the assessee had earned undisclosed income and ignoring the document found during the course of search which could not be substantiated by the assessee and hence the order of Hon’ble ITAT was erroneous and perverse. 8. Whether on facts and circumstances of the case the Hon’ble ITAT is justified in law in deleting the addition of Rs.26,000/- for AY 1992-93 on account of acquisition of plot in the name of assessee’s wife holding that no evidence was found during the course of search and ignoring the fact that the assessee’s wife was not having any source of income and hence the order of Hon’ble ITAT was erroneous and perverse. ITA Nos.663 & 657 of 2010 - 5 - 9. Whether on facts and circumstances of the case the Hon’ble ITAT is justified in law in deleting the addition of Rs.2,28,000/- for AY 1996-97 by holding that AO has to calculate commission on this amount and ignoring the working given by AO in assessment order that this amount represents income of the assessee and hence the order of Hon’ble ITAT was erroneous and perverse.\" 3. We have heard the learned counsel for the parties on each of these questions and have gone through the record as well as order of the learned ITAT. 4. We find that additions made by the Assessing Officer, which are subject matter of these appeals, are questions of fact and no substantial question of law is involved. 5. Insofar as question No.1 is concerned, as is obvious from the reading thereof, the additions were made by the Assessing Officer on the ground that the cost of renovation of the residence was understated. While deleting these additions, following reasons are assigned by the ITAT: “6. Ground No.5 is in respect of an addition of Rs.27,673/- for the year 1988-89 (in the block period) on account of alleged understatement of cost of renovation/alteration of a residential house. It was submitted by the counsel of the assessee that Ground No.9(4) where an addition of Rs.35,809/- has been made on the same account relevant to the Assessment year 1991-92 shall also stand covered by the findings on the ground as they pertained to the same property. It was also contended that the Assessing officer had referred the matter to the DVO/AVO who worked out the cost of the construction of the house at Rs.98,482/-. The owner of the property was the father of the assessee. No material whatsoever was found during the course of search to establish that any amount over and above than that declared has been spent on construction during the period under consideration. It was submitted that such additions are not permissible in the block assessment proceedings. Additions can be made in the block assessment proceedings only on the basis of material found during the course of search. It was further submitted that the date of inspection of the property by the valuation officer as per the valuation report was 11.10.1996 and the ITA Nos.663 & 657 of 2010 - 6 - valuation report has been submitted for the dates April, 1987 to March 1988 and April 1990 to March 1991. It was not possible to demarcate the property which was to be valued after a period 8 years prior without there being any document available with the AVO to base his report. As such, it was pleaded that the addition made on guess work and surmises may be deleted. On the other hand, the Ld. CIT D.R. relied upon the order of the Assessing Officer. She submitted that the assessee was present at the time of the inspection of the property as is evident from the valuation report. As such, the assessee was quite aware of the valuation being undertaken. Moreover, the assessee has declared the value at Rs.55,000/- as per the report of the AVO. Under the circumstances, it was pleaded that the addition made may be sustained. 7. We have considered the rival submissions and perused the documents on record. During the course of search, no material or document has been found to substantiate that the assessee had spent the impugned amount on construction. Statement of the assessee was recorded on 17.10.1996, which is placed at pages 59 & 60 of the paper book-1 filed by the assessee. It was stated therein that a loan of Rs.35,000/- was raised by the assessee from the housefed and balance investment was made by the father out of his fruit shop income. Thus, Rs.55,000/- approx were spent on renovation for which the sources have been explained. Relevant discussion finds place in para 11 of the assessment order. There has been an admittance by the assessee to have constructed a new portion for a sum of Rs.55,000/- for which the assessee has explained the sources. In our view, an addition based on pure estimation cannot be made in block assessment proceedings and as such the assessee succeeds on these grounds. Consequently, grounds No.5 and 9(4) are allowed.” It is, thus, appreciation of evidence on the basis of which finding of fact has been arrived at and no substantial question of law arises. 6. Insofar as question No.2 is concerned, additions were made on account of unexplained and unsecured loans. The Tribunal while deleting these additions observed that these unsecured loans have already been declared in the regular returns and, therefore, these loans could not be the subject matter of additions in block assessment, as it would not amount to ‘undisclosed income’. We find no error in the order of the Tribunal observing that accretion to the capital accounts stood disclosed and was not unearthed during the course of the search and, therefore, it could be subject matter of regular assessment and not the block assessment. ITA Nos.663 & 657 of 2010 - 7 - 7. Question No.3 is again a matter of appreciation of evidence. We do not find that the finding is perverse. The assessee had filed the regular returns showing investment of M/s Royal Spinning Mills Private Limited in the sum of Rs.1,70,000/-. Addition of Rs.30,000/- was made by the Assessing Officer while doing block assessment on the ground that in his statement during the course of search the assessee admitted to have invested Rs.2,00,000/- in the said firm. However, we find that the assessee had disclosed the investment in the balance sheet to the tune of Rs.1,70,000/- and the said return was duly accepted by the department. Therefore, except the statement of the assessee, there was no other material with the Assessing Officer. The ITAT observed that documentary evidence was to be given more credence as compared to the statement given without having the benefit of relying on the documentary evidence. This is again a matter of appreciation of evidence. 8. As far as question of law No.4 is concerned, it pertains to deletion by the ITAT of the addition of Rs.3 lacs on account of profit from property deals. The deletion is made on the ground that addition is made only on suspicion, surmises and conjectures and it is without any reliable documents. Learned counsel for the Revenue argued that the addition was based on the documents found in the residence of the assessee. However, the said document No.90 was examined by the ITAT and found to be ‘dumb document’. The addition was, thus, rightly deleted. No question of law arises. 9. Likewise, proposed question of law No.5 is factual, based on evaluation of documentary evidence. A finding of fact is recorded to the effect that the assessee had already considered the income earned on this account in the Commission Income Statement. The ITAT has recorded the ITA Nos.663 & 657 of 2010 - 8 - finding of fact that assessee had earned only commission income on the transaction and, therefore, there could not have been any such addition. 10. Insofar as proposed question No.6 is concerned, we find that addition was made by the Assessing Officer estimating 4% commission on every deal through the assessee. The ITAT found this to be on very high side and reduced it to 2%. Cogent reasons are given in para 15.4 of the orders passed by the ITAT. 11. Deletion mentioned in proposed question No.7 is again factual. A finding of fact is arrived at that there is no undisclosed income. The ITAT has discussed the matter in detail and in right perspective, as is clear from the following discussion on this issue: “16. Through ground No.10, the assessee has challenged three additions made in the year 1991-92 (in the block period). First addition challenged is of Rs.9,66,000/- relating to one Sh. Shiraz. The ld. Counsel for the assessee submitted that the document based on which the addition is based is placed in the paper book at page 62 (translated copy at page 63). It was argued that perusal of paper would show that on the top of the page name Siraj is written to whom this account relates. The total amount mentioned on this page is 966/- and not Rs.9,66,000/-. The assessee could have denied the inference drawn by the Assessing Officer but brought out the true state of affairs. It was Sh. Siraj who had entered into a property deal for Rs.9,66,000/- on which the assessee had earned Rs.10,000/- as commission. During the course of assessment proceedings, reply dated 30.9.1996 was filed which is placed in the paper book at pages 66 to 75. the above explanation finds place at page 74 of the paper book. As such, it was pleaded that the assessee had only earned commission income on the said transaction, which finds mentioned on the page itself. This commission income has already been declared in chart referred to earlier. Sh.Shiraj could not be produced during the course of assessment proceedings as he was away on a business tour. No investment whatsoever was made by the assessee as considered by the assessing officer. The entire addition is based on suspicion, surmises and conjectures alone which merits deletion. On the other hand, the ld. CIT DR relied upon the order of the Assessing officer. She submitted that the assessing officer had given opportunity to the assessee to produce Sh. Siraj which he failed to do so. Under the circumstances, it was pleaded the addition was rightly made by the assessee. ITA Nos.663 & 657 of 2010 - 9 - 16.1 We have considered the rival submissions and perused the material on record. The relevant discussion finds place in para 10 of the assessment order. The document being relief upon by the assessing officer to make the instant addition pertains to one Shri Siraj. As already noted elsewhere in the order, the assessee is a property dealer earning commission income. The explanation rendered by the assessee during the course of assessment proceedings as well as before us is quite plausible. The notings on the page itself are clear in as much as commission of Rs.10,000/- being approx. 1% of the deal is mentioned. The assessing officer himself writes in the body of the order that this document relates to one Sh. Shiraz. The Assessing Officer has treated 966/- written on the document as Rs.9,66,000/- which has been accepted by the assessee. Further, the assessee has explained in the entire document and admitted to have earned commission in respect of this deal, which has been declared by the assessee. There is nothing on record to show that the assessee had earned undisclosed income as held by the assessing officer. In view of these facts, since no documentary evidence was brought on record by the Revenue or found during search that the assessee was having any property on this account, therefore, we are of the view that the assessee might have earned commission, consequently, we are of the view that the commission at the rate of 2% i.e. 19320/- may be added to the income of the assessee in place of Rs.9,66,000/- added by the Revenue, consequently, this ground of the assessee is partly allowed.” 12. Insofar as addition of Rs.26,000/-, subject matter of proposed question No.8 is concerned, we find that plot was purchased by the assessee’s wife. This income was added to the assessee’s account only on the ground that assessee’s wife did not have any source of income. Rs.26,000/- is hardly an amount. This can be the savings of the housewife also. No question of law arises here as well. 13. In proposed question No.9, deletion of Rs.2,28,000/- by the ITAT is challenged, stating that Assessing Officer had rightly made the addition as this amount was towards the income earned by the assessee. The Tribunal found that it was based on Document No.10 which was a sale transaction of Rs.2,28,000/-. The ITAT, on the basis of evidence, found that the assessee was only an agent and was only earning commission and he had himself not entered into any sale agreement. The ITAT had, therefore, modified the ITA Nos.663 & 657 of 2010 - 10 - order by directing that commission of 2% on Rs.2,28,000/- be added. Again, it is not a question of law. 14. We, thus, find that no substantial question of law arises. This appeal is, accordingly, dismissed. ITA No.657 of 2010: 15. Here the Revenue has proposed the following amended questions of law: “1. Whether on facts and circumstances of the case the Hon’ble ITAT is justified in law in deleting the addition of Rs.30,375/- and Rs.1,35,940/- for AY 1992-93, Rs.69,450/- and Rs.1,37,500/- for AY 1993-94, Rs.3,00,000/- for AY 1996-97 without appreciating the fact that the assessment was framed u/s 158BC r.w.s. 144 of IT Act, 1961 as the assessee did not cooperate for framing of assessment and thus the AO had no chance to confront the assessee with the seized documents and hence, the assessment was made to the best of judgment of Assessing Officer based upon the seized documents and hence the order of Hon’ble ITAT was erroneous and perverse. 2. Whether on facts and circumstances of the case the Hon’ble ITAT is justified in law in deleting the addition of Rs.40,000/- for AY 1995-96 and Rs.63,685/- for AY 1996-97 on account of profit from running of committee and estimating the profit @ 2.5% as against 5% as made by AO without giving any reasons and hence the order of Hon’ble ITAT was erroneous and perverse. 3. Whether on facts and circumstances of the case the Hon’ble ITAT is justified in law in deleting the addition of Rs.2,04,000/- for AY 1995-96 and Rs.22,750/- and Rs.26,000/- for AY 1996-97 based on seized documents stating that the explanation giving by assessee is plausible one and ignoring the reasons given by AO and hence the order of Hon’ble ITAT was erroneous and perverse. 4. Whether on facts and circumstances of the case the Hon’ble ITAT is justified in law in deleting the addition of Rs.1,22,341/- for AY 1996-97 on account of understatement of cost of renovation of residence holding that it was made on pure estimation basis when the AO had made this addition on the basis of valuation report of Assistant Valuation Officer, and hence the order of Hon’ble ITAT was erroneous and perverse. 5. Whether on facts and circumstances of the case the Hon’ble ITAT is justified in law in deleting the addition of Rs.2,76,762/- on account of jewellery and Rs.1,67,200/- on account of various valuable items found during the course of ITA Nos.663 & 657 of 2010 - 11 - search for AY 1996-97 without giving any reasons and ignoring the reasons given by AO that the source of such investments has not been proved and hence the order of Hon’ble ITAT was erroneous and perverse.” We find that none of these questions are the questions of law. Insofar as first question is concerned, the only reason for making addition was that assessee did not co-operate in framing of assessment and, thus, the Assessing Officer had no chance to confront the assessee with the seized documents. Therefore, Assessing Officer made the best assessment based on seized documents. The learned Tribunal has gone into each of the additions made by the Assessing Officer which are discussed from 19 onward. 16. First addition of Rs.30,375/- was in respect of purchase of property vide Registration Deed dated 31.12.1991 from one Shri Sandeep Kumar. It was found that the property was purchased in the name of wife and, therefore, the Tribunal held that the addition, if any, was called for, it would have been in the hands of wife of the assessee. In respect of addition of Rs.1,35,940/-, a finding of fact is recorded that it is based on two documents relied upon by the Assessing Officer which had not been seized from the room of the assessee. It was also not borne out from the documents whether same amount has been taken by the assessee from someone or given by the assessee to someone. No amount was mentioned in Document No.32 to suggest that the assessee had a debit balance of Rs.96,000/- from Shri Ram Singh. The Tribunal, thus, held that the addition was only on the basis of suspicion, surmises and conjectures. This is pure analysis of documents and no question of law is involved. Same is the position regarding other additions made as stated in proposed question No.1 and these additions are discussed by the Tribunal in Paras No.20.1 and 20.3, respectively. ITA Nos.663 & 657 of 2010 - 12 - 17. Insofar as second question is concerned, the Assessing Officer had estimated the profit at 5% on the ‘committee/lottery business’ and made the addition. The learned Tribunal held that estimation of the profit was not supported by any reasons and reduced it to 2.5% on the following basis: “23.3 We have considered the rival submissions and perused the pages of the Paper-Book wherein document No.25 was referred to. It is an admitted fact that the assessee was regularly organizing committees. The relevant discussion finds place in para 13 of the assessment order. The Assessing Officer, on an ad-hoc basis, considered 20 members having contributed Rs.20,000/- each and calculated the amount at Rs.4,00,000/- on which a profit of 5% has been applied. If this logic of the Assessing Officer is to be considered, it would mean that the assessee would have earned Rs.20,000/- on an investment of 20,000/- @ Rs.1000/- per month for 20 months which is quite improbable. The counsel of the assessee has explained at length the working of the committee business, which has not been rebutted by the Revenue. The moot question before us is as to what would be the reasonable rate of profit, which could have been earned by organizing such committees. In our opinion, to cut down the litigation and also keeping in view the principle of natural justice, it will be reasonable if the rate of profit be taken at 2.5% instead of 5%, applied by the Assessing officer. Thus, this Ground of appeal is partly allowed as observed. This conclusion/decision would also cover/applicable to the identical grounds Nos.9(3), 10(1),10(4) raised in the appeal, consequently, the rate be taken at 2.5% in place of 5% taken by the Revenue, consequently, these are partly allowed.” Here again, no question of law arises. Likewise, proposed questions of law No.3,4 and 5 are entirely factual in nature and are discussed in the impugned order in detail. 18. We, thus, do not find any merit in these appeals and same are accordingly dismissed. ( A.K. SIKRI ) CHIEF JUSTICE March 11, 2013 (RAKESH KUMAR JAIN) pc JUDGE "