Commissioner of Income Tax vs Chandra Kant Chanu Bhai Patel

A.K. Sikri, J.

ITA Nos. 1280 and 1365 of 2009

These two appeals arise out of common orders passed by the income tax Appellate Tribunal (hereinafter referred to as ''the Tribunal''). To state

in brief, a search had been conducted in the business and residential premises of the respondent-assessee on 18-11-1999. During the course of

search, shares and debentures were found and seized. Some jewellery and cash were also found during the search operation, but in respect

thereof, no seizure was made. Thereafter, notice u/s 142(1) of the income tax Act (''the Act'' for brevity) was served upon the assessee and block

assessment was made and various additions were made. Few of these additions were deleted by the CIT(A) and some more additions were

deleted by the Tribunal. Some of the additions are sustained till the level of the Tribunal, against which no appeals are preferred by the assessee. In

these appeals which pertain to block assessment period 1-4-1989 to 18-11-1999, the Revenue has proposed to raise the following questions of

law:

Whether in the facts and circumstances of the present case, Ld. ITAT has erred in confirming the order of the CIT(A) in admitting fresh

evidence under Rule 46(A), when the assessee was not fulfilling any conditions laid down for admission of additional evidence under the Rule

46(A)?

Whether in the facts and circumstances of the present case, Ld. ITAT has erred in deleting the addition of Rs. 8,10,270 on account of

unexplained investment in shares and debentures?

Whether in the facts and circumstances of the present case, Ld. ITAT has erred in deleting the addition of Rs. 5,31,170 made by the ACIT on

account of peak credit as undisclosed income?

Whether the order of ITAT is perverse, as it has ignored the relevant facts on record?

Insofar as question No. (1) is concerned, it has bearing on two additions in the nature of jewellery and unexplained cash. According to the

Assessing Officer (Assessing Officer), in spite of repeated opportunities given to the assessee, the assessee could not produce any documentary or

other evidence to explain the jewellery and cash found during the search and therefore, additions of Rs. 4,11,265 and Rs. 93,530 were made

respectively.

Before the CIT(A), the assessee furnished evidence for the first time to explain the jewellery as well as cash. His submission was that jewellery

was belonging to the wife of the assessee which was duly disclosed in the income tax return filed by the wife of the assessee for the assessment

year 1989-90. In support thereof, the assessment order of the income tax return filed by the wife of the assessee was produced.

Insofar as cash is concerned, the assessee again produced the bank statement of M/s. Jagdamba Tobacco Co. (which firm belongs to the

assessee). The CIT (A) called for the remand report from the Assessing Officer. Thereafter, he considered the question as to whether the fresh

evidence is to be admitted under Rule 46A of the income tax Act. Observing that the assessee was not given sufficient opportunity to produce this

evidence, the fresh evidence was admitted by the CIT(A) and on the basis of the aforesaid evidence, he recorded the finding of fact that the

assessee had successfully accounted for the jewellery and cash, and deleted the same.

The Tribunal has affirmed the aforesaid order of the CIT(A). The Revenue in these appeals has not challenged the orders of the two authorities

below on merits. The only challenge is to the admission of the fresh evidence under Rule 46A of the Act on the ground that the CIT(A) and the

Tribunal was wrong in observing that sufficient opportunity was not given.

Learned counsel for the Revenue submits that the questionnaire was sent much in advance giving sufficient opportunity to the assessee, but the

assessee failed to availed the same and produce the evidence. Therefore, there was no justification for admitting the fresh evidence. Apart from the

fact that the two authorities below had recorded that sufficient opportunity was not accorded to the respondent-assessee, even if there is some

dispute/doubt about the same, we may mention that the fresh evidence which was produced in the form of assessment order in the of the wife of

the assessee and the bank statement. Such documentary evidence would be without any blemish. Therefore, eve in order to advance the cause of

justice, this evidence was admitted, it cannot be said that no prejudice is caused to the revenue.

For the above reason alone, we hold that no substantial question of law arises.

Insofar as second question proposed by the Revenue is concerned, which pertains to the addition made by the Assessing Officer on account of

unexplained investment made in shares and debentures. The case of the assessee was that the said shares and debentures were belonging to Shri

Mitesh Patel and Smt. Jyotikaben Patel and in this manner, source of making the aforesaid investments were explained. The CIT(A) sent the

matter to DDIT (Investigation)-I, Baroda, who submitted the detailed report after carrying out the investigation. Before him, the assessee had

produced Shri Mitesh Patel and Smt. Jyotikaben Patel, who gave the statement on oath stating that the share certificates in question were in their

respective names and these investments were made by them out of their funds. On the basis of this investigation, DDIT (Investigation)-I Baroda

concluded that the assessee satisfactorily furnished the sources of the said investments. At the same time, he also observed that the said two

persons, viz- Shri Mitesh Patel and Ms. Jyotikaben Patel had not correlated the date-wise withdrawal with the dates of investments made, inter

alia, by producing the documentary evidence, the original/regular books of account. The CIT(A) accepted the said report and deleted the addition.

However, at the same time, he remitted the case back to the Assessing Officer to hold an inquiry about the correlation between the date-wise

withdrawal with the dates of investments made by the aforesaid two persons.

The Tribunal has set aside this part of the order of the CIT(A) remitting the case back to the Assessing Officer and in our opinion rightly so.

It is clear from the above that insofar as the assessee is concerned, he had explained the source and his explanation was accepted, viz., shares

and securities found from the residence in the form of Shri Mitesh Patel and Smt. Jyotikaben Patel. Once this aspect is accepted, there could not

be any addition in the income of the assessee. If further investigation was required for the aforesaid correlation, ie., in case of Shri Mitesh Patel and

Smt. Jyotikaben Patel, that aspect could not have been remitted back to the Assessing Officer for assessment while considering the assessment of

the assessee.

The third issue is about the peak credit. The Assessing Officer had made this addition on the basis of the diary seized from the premises of the

assessee. While computing the peak credit, the Assessing Officer had arrived at an addition of Rs. 5,31.170 as being the excess outgo as per the

diary. Simultaneously, the Assessing Officer added a sum of Rs. 7,34,480 to the peak credit as appearing on 24-11-1995. The Tribunal had

sustained the addition of Rs. 7,34,480, but deleted the addition of Rs. 5,31,170 on the ground that the addition of both the excess outgo as peak

credits cannot be sustained in view of the fact that when computation of peak credit, the outgo would also be considered in the peak credit

calculated on the continuous inflow and outflow of the funds, only once addition is called for. On this basis, higher of the two is sustained. This

approach of the Tribunal is again without blemish.

We, thus, find that no question of law arises, these appeals are accordingly dismissed.

ITA Nos. 1366 & 1367 of 2009

On the basis of the aforesaid search and block assessment, the assessee herein, who happens to be son of Shri Chandra Kant Chanu Bhai

Patel (the respondent-assessee in the aforesaid two appeals), two additions were made in his case on protective basis. The first addition was on

account of peak credit. Since peak credit to the extent of Rs. 7,34,480 had been sustained in the case of Chandra Kant Chanu Bhai Patel, the

protective addition in case of this assessee cannot be sustained.

Other addition made by the Assessing Officer was in the sum of Rs. 8,15,994 on account of excess stock. This addition has been deleted by

the Tribunal on the following grounds:

We have considered the rival submissions. A perusal of the assessments order shows that two additions have been made as a result of survey

conducted on the business premises of M/s Jagdamba Tobacco Co. It is further noticed that these additions have been made substantially in the

hands of Shri Chandra Kant Chanu Bhai Patel. It is further noticed that this addition has also been deleted by Ld. CIT(A) in the hands of Shri

Chandra Kant Chanu Bhai Patel on the ground that these additions are to be considered in the hands of Shri Mitesh Patel as Shri Mitesh Patel was

the proprietor of M/s. Jagdamba Tobacco Co. It is also noticed that the survey in the case of M/s. Jagdamba Tobacco Co. has been conducted

on 18-11-1999 and the search u/s 158BC in the case of Shri Mitesh Patel in a case of survey, which has been converted into a search. Thus, what

is noticed is that in the course of survey, the excess stock had been found and consequently in view of the decision of the Coordinate Bench of this

Tribunal in the case of GMS Technologies referred to supra, where it has been held that in the block assessment, material found during the survey

u/s 133A can be used only if it has some relation with the material seized during the search, otherwise not, as also the decision of Hon''ble High

Court of Madras in the case of GK Senniappan referred to supra wherein it has been held that such other material or information as are available

with the Assessing Officer do not include the material gathered during the survey proceedings u/s 133A, we are of the view that these additions

representing the excess stock and additional income computed by virtue action, cannot be treated as undisclosed income of the assessee for the

purpose of block assessment as the same has not been linked to anything found in the course of search. In the circumstances, the Assessing Officer

is directed to delete the additions representing the alleged variation in stock found as a result of survey vis-a-visstock available on account, as also

the additional income computed by virtue of survey action. In these circumstances, ground Nos. 5 and 6 of the assessee''s appeal stand allowed.

We agree with the aforesaid finding of fact. No question of law arises, even otherwise tax effect in these cases is less than Rs. 10 lakhs. These

appeals are accordingly dismissed.