M.
This appeal filed by the assessee is directed against the order of the Assistant Commissioner, Central Circle-23, Mumbai.
2. The facts in short are that the assessee is a leading director of the Hindi films. On 18-12-1996, a search and seizure operation was conducted at the residence of the assessee wherefrom certain loose papers and incriminating documents were found and they were seized. The search which began on 17th December, continued upto 18th and again after the time-gap of 5 days, Panchanama was recorded on 24-12-1996. On 2-1-1997, another authorisation was issued to search a locker bearing No. A.26 in Hongkong and Shanghai Bank , Tardeo Branch, Mumbai. The said locker stood in the names of Smt. Soni Rajdan and Shri Mahesh Bhatt. Another Panchanama was drawn on 22-1-1997.
3. Consequent to the search action, the assessing officer proceeded to make an assessment for the block period, i.e., 1-4-1986 to 18-12-1996, and issued a notice under section 158BC of the Act to the assessee on 11-4-1997. In response to the notice, the assessee filed the block return on 4-7- 1997, declaring therein undisclosed income of Rs. 4,59,234. The assessment was however made on a total income of Rs. 45,53,201 by an order dated 29-1-1998. At the relevant point of time, the Income Tax Act contained a provision for filing a direct appeal to the Tribunal against the order of the assessing officer. Accordingly, the assessee preferred appeal before us challenging the additions made by the assessing officer in the block assessment. As several additions were made by the assessing officer we proceed to discuss the facts concerning each addition as and when the issued is discussed.
4. In the grounds of appeal filed along with Form No. 36, the assessee raised 16 grounds. Subsequent to the date of filling the appeal, assessee filed certain additional grounds, challenging the validity of the block assessment order passed by the assessing officer on the ground of expiry of limitation which are separately treated as additional ground Nos. 1 and 2. He also filed another set of additional grounds no some additions made in the block assessment which are numbered as ground Nos. 17 to 20. Thus, we have ground Nos. 1 to 20 and additional ground Nos. 1 and 2. We shall first take up additional ground Nos. 1 and 2 which are extracted here for immediate reference.
"1. The learned assessing officer has erred in passing the order under section 158BC(c) after the expiry of the time-limit as prescribed under section 158BE of the Act and hence the order is bad in law and liable to be quashed.
2. The learned assessing officer has failed to appreciate that the search action was conducted on 18-12-1996 and the time-limit for passing the order under section 158BE being one year i.e. to be passed on or before 31-12-1997 has been passed on 29-1-1998 and hence is barred by time and liable to be quashed. "
5. The case of the learned counsel is that search action was conducted on 18/19-12-1996 and seized certain items. Before leaving the premises, the revenue officials served the restraint order on certain cupboards and lockers. Thus, the search is complete with the seizure of the items for which the officials were on the lookout. Consequently, the authorisation for search can be said to be fully implemented upon and execution is complete on 18-12-1996, only. Section 158BE of the Income Tax Act prescribed a time-limit of one year from the end of the month in which search proceedings were finally concluded, for making an assessment. In the instant case, search proceedings have been concluded, on 18-12-1996. The assessment has to be thus made on or before 31-12-1997, whereas it was made in the month of January, 1998 which is barred by limitation. Even otherwise, if last of the Panchanama is to be considered as the conclusion of search, the Panchanama drawn on 24-12-1996, clearly states that the proceedings of search have been finally concluded and hence the block assessment was to be completed before 31-12-1997, as otherwise the proceedings would become barred by limitation.
6. The case of the revenue is that search proceedings were not complete on 18-12-1996, because on that date restraint orders were issued with an intention to continue the search and in fact on 24-12-1996, the' search continued and Panchanama was recorded. Again, in continuation of the search proceedings, a further authorisation was issued on 2-1-1997, to search a Bank locker standing in the joint names of assessee and Smt. Soni Rajdan. The warrant of authorisation dated 2-1-1997, was specifically mentioned in the Panchanama dated 2-1-1997, and it was also made clear therein that the search was in continuance to the proceedings dated 24-12-1996. Finally, another Panchanama was drawn on 22-1-1997. The learned departmental Representative clarified that the first authorisation of search was issued for the residerice of the assessee and the second consequential authorisation of search was issued in respect of the locker jointly owned by the assessee. The residence and the locker of the Bank being two separate premises, authorisations for search of these two places were separately issued. Adverting our attention to Section 158BE of the Income Tax Act and in particular to the words "last of the authorisations for search" and "in cases where search is initiated" the learned departmental Representative submitted that there may be more than one authorisation and for the purpose of limitation, period of one has to be reckoned from the last day of the month ' for which the final warrant of authorisation is issued and thus, the assessment made on 29-1-1998, is within the period of limitation.
7. The learned counsel relied upon the following decisions in' support of his submission that search proceedings should be deemed to have been concluded when the search party leaves the premises and also contended that issuing order under section 132(3) does not amount to seizure:
(i) Kirloskar Investment & Finance Ltd. v. Dy. CIT (1998) 67 ITD 504 (Bang)
(ii) Kritilal Kalidas & Co. v. Dy. CIT (1998) 67 ITD 573 (Mad)
(iii) Mcroland Ltd. v. Assistant Commissioner (1998) 67 ITD 446 (Bang)
(iv) B.K. Nowlakha & Ors. v. Union of India (1991) 192 ITR 436 (Del)
He also relied upon the decision of the Hon'ble Kerala High Court in the case of Dr. C. Balakrishnan v. CIT (1999) 237 ITR 70 (Ker) in support of this contention that search proceedings having commenced should not be postponed for unreasonably long period in which event, the proceedings continued after lapse of reasonable period deserves to be quashed. In the aforecited case, the search which was provisionally closed on 27-10-1995, was again recommenced on 11-11-1995, i.e., after a gap of 14 days which was viewed very seriously by the Hon'ble court and held it to be an unreasonably prolonged search action. The learned counsel also relied upon the following decisions in support of his contention that one Bench of the Tribunal is bound to follow the decision of another Bench when there are no contrary decisions :
(i) CIT v. L. G. Ramamurthy & Ors. (1977) 110 ITR 453 (Mad)
(ii) S.I. Roppal v. Governor, Del. 2000 AIR SCW 19
8. On the other hand, the learned departmental Representative submitted that the ground is misconceived inasmuch as, section 158BC of the Income Tax Act authorises the assessing officer to complete the assessment within one year from the end of the month in which the last of the authorisations was executed. Placing reliance on Expln. 2 to section 158BE it was submitted that execution of authorisation means the date of conclusion of search as recorded in the last Panchanama drawn in relation to any person in whose case the warrant of authorisation has been issued. The learned Pepartmental Representative filed written submissions dated 7-2-2000; wherein it was stated that the first Panchanama was prepared on 18-12-1996, on which date the search was temporarily concluded for the day and, the second Panchanama was prepared on 24-12-1996. This Panchanma was concluded on 24-12-1996, itself but during the course of search it has come to the notice of the search party that the assessee was operating a locker in Hongkong & Shanghai Bank , Dadar Branch, in the joint names of himself and Smt. Soni Rajdan. As the locker is situated in a different premises, the search party had to issue a separate warrant of authorisation on 2-1-1997 and that proceeding was concluded on 22-1-1997. He, therefore, submitted that the assessment completed in the month of January, 1998 is within the time permissible under the Act. He also relied upon the decision reported in the case of ITO. Abraham & Co. & Anr. v. Asstt. Director of IT (Inv.) & Ors. (1999) 238 ITR 501 (Ker).
9. We have carefully considered the rival submissions and perused the record. Since the assessee heavily relied upon the decisions rendered by the Bangalore Bench of the Tribunal, it is necessary to briefly state the facts of tiose cases.
10. In the case of KirIoskar Investments & Finance Ltd. (supra), the facts are that the business premises of the assessee were searched on 30-3-1996 and certain documents were seized. Simultaneously, the authorities issued prohibitory order under section 132(3) of the Act on, the computer and on files that were available in the premises. Though Panchanama was recorded, on the strength of the same warrant of authorisation, the officials of the department visited the assessee's premises on various dates upto 29-5-1996 and on 21-5-1996, they had seized further papers. On these facts, the assessee raised a plea before the Tribunal that the search proceedings must be deemed to have been concluded on the date when the officials left the premises taking with then the seized items. Thus, on 30-3-1996, itself search is deemed to have been concluded. The further proceedings consequent to the prohibitory order issued under section 132(3) should be treated as no part of the search within the meaning of section 132 of the Act. It was also contended that there was considerable gap between the date of search and the dates on which the officials revisited the premises and even on this count, the visits commencing from 8-4-1996 to 29-5-1996, should not be treated as continuation of search. The Bench considered the issue in great detail. We are concerned with paras 46 to 57 of the Tribunal's order. The Bench observed that the word 'authorisation' means sanction or approval. Section 158BE of the Act uses the term 'authorisations' indicating that there could be more than one sanction or approval. Section 158BC speaks of the time-limit wherein it is mentioned that an order has to be passed within one year from the end of the month in which the last of the authorisations for search was executed. The Bench was of the opinion that execution of authorisation of search means actual implementation of search authorisation, i.e., the officials authorised under the said authorisation act on it by entering the building where books of accounts are kept and search, break open the locker, etc. and seized such books, documents and so on. The primary object being determination of true income of an assessee which is not disclosed, the party authorised to carry out the search has to ensure that its search reveals of money, bullion, jewellery, valuable articles, etc. or any of them. It was further observed that in order to achieve the aforecited objective of search, it is necessary that the search is carried out at one stretch and completed. If huge volume of material is found during the course of search, it may not be practicable to complete the search in one day in which event, the officials have to temporarily stop the search by sealing the premises with their lock and seal and have to restart the search immediately on the following day and the search would be completed with the seizure of items, if any. If the party conducting the search leaves the premises carrying seized items, it means that other items noted during the search but left behind in the premises are not seized material. In this background the Bench posed a question as to what would be the life of the authorisation? In the opinion of the Bench if the authorisation is prepared but it was decided not to act upon it, it dies a natural die'ath. In other words, the life of the authorisation starts with its issue and ends with its implementation resulting in seizure of books, etc. If the officials are not satisfied with the search and see that some more items exist which were not found at the time of search, they have to necessarily comply with the procedure prescribed under section 132(1) of the Act to search further undisclosed income because every search operation has to be preceded by a reason to believe that the books documents, etc. which were not produced represent partly or fully income or property which has not been or would not have been disclosed otherwise. When the search party completes the search and seizes certain material and for the rest, order under section 132(3) is issued, it is necessary to go for a fresh authorisation to recommence any search. With these observations, the Bench concluded that the search is deemed to have been closed on 30-3-1996, in which event the assessment made on 30-5-1997, is barred by limitation.
11. In our view, the aforecited decision has no application to the case on hand. It may be noted that Explanation 2 to section 158BE inserted by Finance (No. 2) Act, 1998, with retrospective effect from I-7-1995, clarifies that the authorisation shall be deemed to have been executed on the conclusion of search as recorded in the last Panchanarna drawn. In other words, it is not the date of search or seizure that is material for the purpose of accounting the limitation period but the date of recording the last Panchanama, as per Explanation 2 to section 158BE. The Tribunal, Bangalore Bench, has not taken into consideration Explanation 2 probably because this Explanation was not available on the date of passing the order. Even otherwise, section 158BE speaks of 'last of the authorisations' for the purpose of computing the time-limit for completion of block assessment. Even if the assessee's contention is accepted, the first authorisation can be said to have been executed on 18-12-1996, or on 24-12-1996, but the fact remains that the second authorisation was issued on 2-1-1997, and hence period of limitation has to be computed from the last of the authorisations i.e. from 2-1-1997. The last day of the month in which the last of the authorisation was issued was 31-1-1997, and hence block assessment can be made by the assessing officer on or before 31-1-1998, whereas the assessment was completed by the assessing officer on 29-1-1998, thus it is within the limitation period. The Bangalore Bench of the Tribunal is concerned with only one search authorisation whereas in the instant case we are concerned with two independent authorisations and, therefore, even on that count, the aforecited decision has no application to the assessee's case.
12. In the case of Mcroland Ltd. v. Assistant Commissioner cited supra, there was no valid search warrant. It may also be noticed that the departmental authorities have not produced relevant records to prove that the original search warrant includes the name of the assessee, i.e., Microland Ltd. and, therefore, the Tribunal has taken an adverse view of the matter to hold that the search was commenced without any valid warrant in the name of the assessee because the name of the assessee was merely inserted at a later stage in the warrant. In addition to this, the Bench observed that Panchanarna was executed on 29-3-1996, and prohibitory orders under section 132(3) were issued on the same day but without any fresh warrant, search proceedings were kept alive for a considerable long period of about 2 months without any valid purpose and, therefore, the search should be deemed to have concluded on the first day itself, i.e., on 29-3-1996, in which event the assessment completed on 30-5-1997, has to be treated as barred by limitation. In this case also there is only one search warrant whereas we are concerned with two search warrants and reckoned from the second search warrant, the assessment is not barred by limitation. Thus, the aforecited case is distinguishable on facts. It may also be noted that the Tribunal, Bangalore Bench, passed its order on 17-3-1998, on which date the Bench had no opportunity to look into Explanation 2 to section 158BE of the Act which has come into statute book subsequently.
13. In the case of Kirtilal Kalidas & Co. v. Dy. CIT, cited supra, search warrants were issued on 26-8-1995 and 30-8-1995, whereas assessments were framed on 31-3-1997 and, therefore, the Tribunal was of the view that the assessments were barred by limitation. This case is distinguishable on facts.
14. The assessee also relied upon the decisions of the Hon'ble Delhi and Kerala High Court cited supra. In these cases also, the search proceedings were kept in abeyance for unduly long period whereas in the instant case, search commenced on 18th December and completed on 24-12-1996, and for the purpose of searching a different premises in respect of the Bank locker jointly owned by the assessee and his wife, the assessing officer has issued fresh warrants on 2-1-1997. Therefore, it cannot be said that conclusion of the search proceedings based on the first warrant has taken unduly long time and if we take the date of second warrant into consideration, assessment proceedings are within the time permissible under the Act. We are, therefore, unable to appreciate the contentions of the assessee and thus dismiss the additional grounds I and 2.
15. We now take up ground No. 3 in the grounds of appeal. The contention of the assessee is that the assessing officer was not justified in making regular assessment without a hearing given by the Commissioner (Appeals). The learned departmental Representative submitted that the issue is squarely covered by the decision of the Special Bench of the Tribunal in the case of Kailash Moudgil v. Dy. CIT (2000) 72 TTD 97 (Del)(SB). We are of the opinion that the said decision applies on all fours to the instant case and, therefore, reject the contention of the assessee. The learned authorised representative submitted that the decision in the aforecited case is distinguishable on facts inasmuch as, the assessee before us made a specific request for giving an opportunity. We are unable to appreciate the contention of the assessee. Admittedly, the assessing officer has given sufficient opportunity before completing the assessment.
16. Ground Nos. 1, 2 and 4 are general in nature and, therefore, do not deserve independent consideration.
17. Vide grounds Nos. 5 and 20, assessee challenges the addition made by the assessing officer on account of low withdrawals. In ground No. 5, the figure of addition was mentioned at Rs. 5,47,168. At the time of hearing, the learned counsel submitted that the correct addition works out to Rs. 4,25,733 only. Vide ground No. 20 (additional grounds), the assessee contests that the assessing officer erred in taking into consideration the income referable to the period 1-4-1996, to 18-12-1996, as undisclosed income even though the return for the assessment year 199798 was not due and necessary entries were made in the books of accounts. The following chart shows the addition made on account of low drawings for each year:
Asst. yr.
Asst. yr.
Reasonable drawings
Reasonable drawings
Drawings shown
Drawings shown
Addition
Addition
Rs.
Rs.
Rs.
Rs.
Rs.
Rs.
1992-93
2,00,000
1,42,522
58,478
1993-94
2,50,000
1,66,106
83,894
1994-95
3,50,000
2,77,151
1, 12,849
1995-96
4,83,190
4,83,190
1996-97
4,00,000
2,38,488
1,61,512
1997-98
4,47,980
4,47,980
It may be noted that in the assessment year 1995-96, drawings shown by the assessee were to the tune of Rs. 4,83,190 which is on account of hospitalisation of his father and consequential expenses incurred in that behalf. During the course of assessment proceedings, the assessing officer called upon the assessee to explain the adequacy of drawings in response to which it was submitted that he belongs to a normal middle class family and his career as a film director started only as an assistant director. Though he got some recognition in 1980s such recognition did not bring him any financial reward till 1991, when the film 'Ashiqui' was released. It was also submitted that the assessee lives in a 2-bedroom, hall and kitchen flat, having very ordinary furniture and floorings. In earlier years, he used to get a remuneration of Rs. 50,000 to Rs. 1,00,000 per film, Under this background, reasonableness of household expenditure has to be considered. He further submitted that upto 1987-88, the assessee lived in a one-bedroom, hall and kitchen at Versova, and even the electricity bills, etc. show the modest living of the assessee and there was a substantial increase in the expenditure only in the assessment year 1994-95 onwards.
18. The assessing officer observed that the assessee's film career has taken off in the period relevant to assessment year 1992-93 and in the glamorous industry, the ability to show off is an important attribute. The assessing officer also observed that in the assessment year 1997-98, the assessee declared drawings of Rs. 4,47,980 and in the assessment year 1995-96, it was Rs. 4,83,190 which is an indicator of the normal annual expenditure incurred by the assessee. As against this, drawings for the assessment year 1996-97 were shown at Rs. 2,38,488 only and similar is the case in assessment year 1994-95 and backwards. According to the assessing officer drawings declared by the assessee for household expenses were low and, therefore, added a total sum of Rs. 4,15,733.
19. Aggrieved, 'the learned counsel contented before the Tribunal that the books of accounts are properly maintained by the assessee wherein all the drawings were recorded. Returns for the assessment years 1993-94 to 1996-97 were filed within due dates and assessments were completed under section 143(3) of the Act. In such an event, separate addition cannot be made on estimate basis in the absence of any specific material on record to show that the assessee incurred more expenditure than what is declared. He further submitted that the assessing officer had no material to prove that the assessee incurred more domestic expenditure except merely drawing an inference by surmising that the assessee is in film industry which is a glamorous field and, therefore, assessee might have incurred more expenditure. In the 'facts sheet' assessee also contended that the variance in figures of drawings in the assessment years 1995-96 and 1997-98 is due to foreign travelling undertaken by the assessee.
20. On the other hand, the learned departmental Representative contended that in response to question No. 14, assessee admitted in his statement dated 14-2-1997, that there were certain discrepancies regarding household withdrawals and voluntarily offered a roundsum figure of Rs. 5,00,000 as additional income. In other words, the assessee admitted low withdrawals to the tune of Rs. 2,60,000 as could be seen from p. 193 of the paper book. He also adverted our attention to p. 116 of the paper book, i.e., statement of Mrs. Soni Rajdan Bhatt, wife of Shri Mahesh Bhatt, recorded under section 132 of the Act, wherein Mrs. Soni Rajdan stated that approximately monthly expenditure is Rs. 20,000 to Rs. 30,000. He also referred to pp. 135, 189 and 639 of the paper book to highlight that during the course of proceedings of the assessee as well as in the proceedings of Miss Pooja Bhatt, it was admitted that the assessee met the expenditure incurred by his wife and if any addition needs be made on account of low withdrawals the same has to be added in the assessee's hands. He further submitted that there is no proof to show that the assessee maintained books of accounts because the books were not found at the time of search. As regards the claim of the assessee that variance in drawings of figure was on account of the foreign travel undertaken in one year, the learned departmental Representative submitted that no such claim was made before the assessing officer. He thus strongly supported the order of the assessing officer.
21. Joining the issue, the learned authorised representative submitted that the assessee voluntarily offered some income on account of low withdrawals and the same was assessed to tax. In addition to the income offered, the assessing officer seeks to make further addition without any basis. Adverting our attention to p. 193 of the paper book the learned counsel submitted that drawings of Mrs. Kiran Bhatt to the tune of Rs. 5,33,557 was not considered by the assessing officer. Adverting our attention to p. 135 of the paper book to clarify that the assessee did not admit that the withdrawals declared by the assessee were insufficient but merely stated that if any addition has to be made on account of low drawals: in the hands of Mrs. Kiran Bhatt and Mrs. Soni Bhatt, the same may be taxed in his hands without prejudice to his right of appeal. Thus, it was not an outright admission. Referring to p. 199 of the paper book, it was contended that the addition made in the hands of Miss Pooja Bhatt was deleted by the Tribunal mainly on the ground that there is no evidence to show that Miss Pooja Bhatt incurred such expenditure and not because Mr. Mahesh Bhatt admitted to have taken the burden of maintaining them. As regards the claim of the learned departmental Representative that books of accounts were not found during search, the learned counsel submitted that upto assessment year 1994-95 regular assessments were completed under section 143 of the Act and only in the assessment years 1995-96 and 1996-97 assessments were made after search. The P&L a/c and balance sheet filed therein show that the assessee maintained books of accounts.
22. Referring to question Nos. 5 and 6 of p. 132 of the paper book, it was submitted that assessee's books were handled by his accountant, Mr. Hegde, and the accounts were computerised. Page 98 of the paper book also shows that assessee's books were audited by M/s Sekhri & Co., C.As. He thus strongly submitted that addition on account of low withdrawals cannot be made in a block assessment on mere surmises in the absence of any specific evidence/material on record.
23. We have carefully considered the rival submissions. It is not in dispute that the assessments upto assessment year 1994-95 were completed under section 143(3) of the Act before initiation of proceedings under section 132 of the Act. It is well-settled that in a block assessment, addition has to be based on material found at the time of search. This issue was considered by the Tribunal elaborately in the case of Sunder Agencies v. Dy. CIT (1997) 63 ITD 245 (Mumbai).
24. In the present case returns were filed in the normal course and no addition was made by the assessing officer on account of low withdrawals except for the assessment year 1993-94, wherein only Rs. 30,000 was added in the assessment made under section 143(3) which was deleted by the Commissioner (Appeals) for want of material to support such addition. No material could be gathered even during the search proceedings. The assessing officer in the block assessment merely refers to the normal standard of living expected of a director of film line so as to estimate the household expenditure and completely ignored the Explanation of the assessee about his careergraph and the fact that he lived in a small house during the relevant period. It may be noted here that on identical reasons addition'was made in the case of Ms. Pooja Bhatt, assessee's daughter, but the same was deleted by the Tribunal by its order dated 31-5-1999. In the light of the view consistently taken by the Bombay Benches of the Tribunal, we hold that addition on account of low withdrawals was made by the assessing officer on mere surmises and suspicion and without any material on record which is not permissible in a block assessment. We, therefore, delete the addition of Rs. 4,15,733 made by the assessing officer.
25. Vide ground Nos. 6 and 7 assessee challenged the disallowance of expenditure incurred on motor car and telephones. Vide ground No. 20, it is contended that no addition can be made in respect of the assessment year 1997-98 as the return was not due as on the date of search and car and telephone expenses were recorded in the books maintained in the normal course.
26. The assessing officer observed that the assessee did not maintain any record of the dayto-day movement of the car and the purposes of use, i.e., whether it was mostly used for professional purpose or not. In the case of firm personalities conveyance is mostly provided by the producer for whom they work. While disallowing 1/3rd of the telephone expenses the assessing officer observed that in the film industry it is the producer who chooses the artists for ensuring their attendance and not vice, versa. Therefore, it is not necessary for the assessee to make more calls. Thus, there is a personal element in this expenditure. He, therefore, disallowed Rs. 5,64,335 under the head motor car expenses and Rs. 1,82,348 under the head telephone expenses.
27. Aggrieved, assessee challenged the additions before us. The case of the learned authorised representative is that the returns for the assessment years 1991-92 to 1996-97 were completed under section 143(3) and all the expenditure were reflected in the income and expenditure accounts which are filed along with the return of income. Hence, there is no undisclosed income hable to be taxed under the block assessment. In other words, his contention is that an addition can be made in a block assessment only if some undisclosed income is found as a result of search and cannot be based on mere surmises. Explaining further, the learned counsel submitted that the assessing officer assumed ' that producers are after the film personalities on hence there is no need for the assessee to incur more expenditure on conveyance and telephone overlooking the fact that the assessee is not an actor but he is a director. Therefore, the assumption on which the addition was made by the assessing officer is baseless. He further contended that in the assessment year 1993-94, the assessing officer disallowed, Rs. 55,209 out of total car expenditure of Rs. 2,57,557 which was reduced by the Commissioner (Appeals) to a lumpsum of Rs. 5,000. In the assessment years 1995-96 and 1996-97, assessing officer disallowed 1/3rd and 1/5th of the car expenditure. Similarly, 1/4th of the telephone expenses was disallowed by the assessing officer in the order for the assessment year 1993-94 which was reduced by the Commissioner (Appeals) to a lumpsum of Rs. 10,000 only. For the assessment year 1995-96, the assessing officer disallowed 1/3rd of the telephone expenditure whereas the Commissioner (Appeals) reduced it to Rs. 30,000 only. For the assessment year 1996-97 1/5th of the telephone expenses was disallowed by the assessing officer.
28. The learned counsel contended that in a block assessment only specific additions based onsome material found at the time of search are pernlissible whereas the impugned additions are outside the purview of block assessment proceedings. At any rate, some ad hoc additions having been made in the regular assessment any further addition made in the block assessment would argount to double addition. In support of his contention that additions cannot be made on mere surmises and suspicion, assessee relied upon the circular of the CBDT reported in (1995) 215 ITR 70 (St) and also the following decisions:
1. Sunder Agencies v. Dy. CIT (supra).
2. L.R. Gupta v. Union of India (1992) 194 ITR 32 (Del).
3. Ms. Pooja Bhatt v. Assistant Commissioner (IT (SS)A No. 17/Mum/1998) reported at (2000) 66 TTJ (Mumbai) 817.
4. Umacharan Shah & Bros. v. CIT (1959) 37 ITR 271 (SC) .
29. On the other hand, the learned departmental Representative submitted that the expenditure shown by the assessee is too high considering the fact that the assessee is in the film line and does not require to spend so much. He further submitted that the assessing officer has taken into consideration the fact that the assessee might have incurred a part of the expenditure for his personal purpose and, therefore, the disallowance made by the assessing officer is in accordance with law.
30. We have carefully considered the rival submissions and perused the record. The concept of block assessment was considered in detail in the case of Sunder Agencies cited supra. The objective is to get hold of evidence having a bearing on the tax liability of a person so as to make an addition. Without such evidence or material the assessing officer is not empowered to draw any presumption as to the existence of undisclosed income. The scheme of Chapter XIV-B does not give such power to the revenue authorities. The Income Tax Act provides adequate guard for making additions or disallowances on the basis of presumptions and assumptions by taking inference from the set of material available on record but so far as the block assessment is concerned, the same has to be. based on evidences found at the time of search.
31. In the case before us, the addition made by the assessing officer on account of alleged personal user of the car and telephones is not based on any material on record which in our considered view is outside the powers of the assessing officer while making a block assessment. It may be noted here that the expenditure was claimed by the assessee as having been incurred for the purpose of profession and, therefore, there cannot be any disallowance on the ground of 'undisclosed income' under section 158BA of the Act. We, therefore, set aside the disallowance made by the assessing officer out of car expenses and telephone expenses.
32. Vide ground Nos. 8, 17 and 18 assessee contends that the addition of Rs. 12,54,752 made on account of undisclosed deposits in the Bank accounts is not in accordance with law. It may be noted here that ground Nos. 17 and 18 were raised by way of additional grounds by which it was contended that there was double addition to the extent of Rs. 1,23,744 as such amount was disclosed in the block return towards unexplained deposits by the family members in their respective Bank accounts. It was also contended that the assessing officer erred in riot allowing set off of various expenses incurred against the income added in the corresponding period which results in double addition.
32A. Facts in short are that during the course of search proceedings, it was discovered that several accounts were maintained in the Bank in the names of the assessee and his family members. The total deposits in these accounts were to the tune of Rs. 18,46,170. During the course of the proceedings, the assessee was asked to explain the credits/deposits in these accounts. The assessee explained that the accounts in the name of Mrs. Soni Bhatt were maintained by her. She was working as a artist in T.V. and film and has independent source of income. Since separate proceedings were initiated against her under section 158BD of the Act, deposits in the accounts standing in her name were considered in her assessment proceedings and, therefore, no addition was made in the hands of the assessee insofar as the deposits in those accounts are concerned.
33. Regarding the accounts of Mrs. Kiran Bhatt, assessee contended that out of the total deposits in her accounts a sum of Rs. 4,67,500 was received by her from the assessee, i.e., Mr. Mahesh Bhatt, as a loan and it is duly reflected in his return of income. After verification of the same, the assessing officer accepted the claim of the assessee. As regards the other deposits, assessee contended that some of the deposits are on account of sale of gold, encashment of FDs, etc. and some deposits are on account of small loans taken and given. However, names of the borrowers and lenders appear to have not been mentioned. It was also stated that Mrs. Kiran Bhatt had an independent dress designing business. Mrs. Kiran Bhatt was staying with Ms. Pooia Bhatt, daughter of the assessee. Both the assessee as well as Mrs. Kiran Bhatt stated that if any amount remains unexplained in the hands of Mrs. Kiran Bhatt the same is assessable in the hands of Mr. Mahesh Bhatt.
34. The assessing officer observed that the assessee has not given proper Explanation in respect of the deposits in the Bank accounts of Mrs. Kiran Bhatt and Master Rahul Bhatt. He further observed that the assessee gave vague Explanation with regard to the deposits made in the accounts of the dependants of the assessee and there is no evidence to prove the income earned by Mrs. Kiran Bhatt from dress designing business and from investments. However, the assessing officer gave credit for sum of Rs. 1,00,000 towards income earned by Mrs. Kiran Bhatt from dress designing and other investments and the remaining amount of Rs. 12,78,680 was added to the income of the assessee as unexplained money.
35. Before us, learned authorised representative contended that the deposits reflected in the Bank accounts of Mrs. Kiran Bhatt and Master Rahul Bhatt were added by the assessing officer on an incorrect appreciation of facts. The assessee has furnished complete Explanation and gave Bank summaries explaining the entries. He further submitted that Mrs. Kiran Bhatt had some income from dress designing and from investments. The assessing officer erred in estimating her income at Rs. 1,00,000 only. While giving credit of Rs. 1,00,000, the assessing officer ignored her claim that the income from dress designing was earned upto assessment year 1994-95 and treated a sum of Rs. 63,740 as being earned by her in the assessment year 1997-98 and thus deprived of credit to that extent. The assessing officer also had not taken into consideration the amounts received by her on account of sale of gold, maturity amount from LIC, loans taken from the family members, etc. The assessing officer just totalled up all the deposits in the respective years and treated the same as undisclosed income. The assessee declared a sum of Rs. 1,24,634 in the block return on account of undisclosed deposits in the Bank account but the assessing officer again added the same amount by totalling up all the deposits and treating the same as undisclosed income. This amounts to double addition.
36. Learned authorised representative also gave yearwise Explanation by pointing out that the assessing officer has taken the opening balances of assessment year 1987-88 as undisclosed income, which is not in accordance with law. In the assessment year 1988-89, Mrs. Kiran Bhatt sold gold and received a sum of Rs. 60,030 by way of cheques and this point was not properly examined by the assessing officer., Adverting our .attention to the relevant pages in the paper book, the learned counsel submitted that the gold was sold by her and hence such amount should not have been considered in the hands of the, assessee. Cash withdrawals are available for making cash deposits in the subsequent years which is also not appreciated by the assessing officer. In the assessment year 1991-92 assessee received maturity amount of Rs. 22,414 from LIC and amount of Rs. 11,100 was available in cash. The assessing officer has not given credit for these amounts. In the assessment year 1992-93, the assessing officer has wrongly taken the figure at Rs. 66,857 instead of Rs. 64,696 and the cash deposits in the Bank were made from the cash brought forward and thus such deposits should not have been added again. Income of Rs. 31,000 was declared in the return of income filed in 1993 and that amount was available with the assessee for making deposits. Encashment of time money deposits of Rs. 70,900 was wrongly added by the assessing officer in the assessment year 1994-95. Loan of Rs. 1,00,000 was taken from Ms. Pooja Bhatt and the same was disclosed as loans and advances to Mrs. Kiran Bhatt in the statement of accounts submitted along with return of income by Ms. Pooja Bhatt with the same assessing officer. The learned assessing officer by mistake treated the same as undisclosed income of the assessee, whereas sources of loans are verifiable and are already taxed in the hands of the lenders. Thus, addition of Rs. 1,00,000 made in the assessment year 1995-96 is contrary to facts. Encashment of time money deposits during the previous year relevant to the assessment year 1996-97 was also added by the assessing officer ignoring the fact that interest on these time deposits was credited to the assessee's account every three months and hence source as well as interest thereon was already treated as undisclosed income in the hands of the assessee. Adding the same once again would be double taxation. Detailed submissions were thus made as could be seen from pp. 16 to 31 of the 'fact sheet'. The case of the learned counsel is that the assessing officer merely added up the totals of all the Bank accounts and made an addition ignoring the detailed contentions. On the other hand, the learned departmental Representative submitted that the assessee has not furnished sufficient proof to show that Mrs. Kiran Bhatt earned income to invest in purchase of gold, etc. so as to give any credit for the amount available on the date of sale, maturity, etc. He further submitted that the assessee admitted before the assessing officer that any unexplained income shown in the name of Mrs. Karan Bhatt has to be added in the hands of the assessee and thus the assessing officer was justified in adding the amount standing in the name of his wife in the Banks as the undisclosed income of the assessee.
37. We have carefully considered the rival submissions and perused the record. A careful perusal of the material papers with reference to the specific contentions raised by the assessee shows that the assessing officer has made the addition in a routine manner by merely adding up the totals in the Bank accounts standing in the name of the assessee and his wife ignoring the specific contentions. In the interest of substantial justice, we set aside this issue to the file of the assessing officer who is directed to examine the issue once again in the light of the specific contentions raised by the assessee and decide the matter in accordance with law.
38. Vide ground Nos. 9 and 18 the assessee contends that the addition of Rs. 1,86,885 referable to the jewellery found at the time of search is not in accordance with law. The facts in short are that during the course of search action at the residence of the assessee, some loose papers were found and seized which indicate investments in jewellery on various dates. The loose papers indicate that the gold was purchased from a firm by name Popley & Sons and on two occasions the purchases were made from Dubai duty-free shop. The case of the assessee was that Mrs. Soni Bhatt, wife of the assessee, had declared 600 gms. of gold under Amnesty Scheme in 1986 and this gold was available with her for resale. It was also explained that she had received around 250 gms. of gold as gift from her husband and grand parents at the time of birth of her two daughters. In substance, the case of the assessee is that the gold available with Mrs. Soni Bhatt was recycled and whenever it was given for recycling, Popley & Sons mentioned the quantity of gold and the value of gold in the chits. Therefore, there is no fresh investments in purchase of jewellery. The assessing officer has not accepted the Explanation of the assessee. He observed that in the case of recycling of gold, the normal practice of jewellers is to indicate in the bill only the net amount receivable or they would not indicate the value of the item as the new piece of jewellery to be prepared may be of less weight. He further observed that only oile bill of M/s Popley & Sons would -fall in this category wherein the jeweller has not mentioned the value of the jewellery. In all other bills the full value of the gold was mentioned at the prevailing rates. He further analysed that loose paper No. 52 indicates that the' assessee purchased 2.2 carats of diamonds and it is not the case of the assessee that the diamonds were also recycled. Similarly, with regard to the bills of Dubai dutyfree shop, he observed that in a duty-free shop it is not possible to recycle or exchange any jewellery. The bills also indicate that the amounts were paid by traveller's cheque and cash. Under these circumstances, he was of the view that the story of recycling is not believable and it was a clear case of purchase of jewellery, the sources of which were not explained and hence the purchase value of the jewellery was added as unexplained investment during the block period.
39. Aggrieved, the learned counsel submitted before us that the assessee's wife received cash gifts at the time of birth of her children and such amount was invested towards purchase of gold. Mrs. Soni Bhatt is also a television and film artist and she had purchased certain ornaments out of her past savings and saving generated out of cash given for household expenses by the assessee. He also contended that the gold found at the time of search is much lower than what is already declared by the assessee and his wife in their income-tax and wealth-tax returns for the assessment years 1979-80 and 1985-86, respectively, and hence the normal practice of Indian ladies to recycle the gold frequently should have been appreciated and accepted by the assessing officer, particularly when the jewellery found at the time of search is much lower than what is declared. He further submitted that the bill of Popley & Sons dated 17-5-1995 (p. 55 of the paper book), does not contain the value of the jewellery. It may be noted that the assessing officer has not added the value of the gold jewellery referable to the loose paper No. 63.
40. He also adverted our attention to pp. 190, 193 and 194 to submit that the assessing officer has not given set off of additional drawings declared by the assessee against additions on account of jeweliery purchased. His contention is that the amount referable to the additional drawings is available with the assessee, Mrs. Soni Bhatt and Mrs. Kiran Bhatt for purchase of jewellery and, therefore, ,separate addition towards unexplained investment is not warranted. On the other hand, the learned departmental Representative submitted that during the course of assessment proceedings the assessing officer has given sufficient opportunity but the assessee chose to give vague replies and, therefore, addition made by the assessing officer is proper. He further submitted that the assessee is not a trader and, therefore, it cannot be said that undisclosed amount offered to tax is available with the assessee for reinvestment. Any amount withdrawn by the assessee would normally be spent towards household expenses and it is logical to conclude that it is spent and not available for purchase of jewellery. At any rate, the onus heavily lies on the assessee to prove cycling of funds. He also adverted our attention to pp. 96, 1017, 135, 179, 182, 183 and 198 of the paper book to submit that the assessee has tried to explain his case for the first time before the Tribunal, whereas vague Explanation was given before the assessing officer.
41. We have carefully considered the rival submissions and perused the records. The jewellery found at the time of search is much less than what is declared by the assessee and his wife in the IT and WT returns. Addition was made merely on the basis of chits found during search. The contention of the learned authorised representative that Mrs. Soni Bhatt declared 600 gms of jewellery under amnesty scheme was not disputed by learned departmental Representative. Under these circumstances, the Explanation of the assessee, though tendered for the first time before the Tribunal, requires consideration. Since the assessing officer had no opportunity to examine the issue in this perspective, we deem it fair and reasonable to restore the issue to the file of the assessing officer who is directed to examine the matter afresh in the interesi of substantial justice.
42. Ground Nos. 10 and 18 read as under :
"(10) The learned assessing officer was not justified in not giving credit of Rs. 3,23,744 for undisclosed income declared in the block return and hence making double additions for the block period 1-4-1986 to 18-12-1996, as under :
Asst. yr.
Amount (Rs.)
Amount (Rs.)
1988-89
26,085
1994-95
26,085
1995-96
12,319
1996-97
59,255
1997-98
2,00,000
3,23,744
"(18) On the facts and circumstances of the case the learned assessing officer erred by not allowing set off of various expenses incurred against income added in the corresponding period thereby taxing income as well as application thereof resulting in double addition.
Without prejudice to the above, if the deposit in the undisclosed Bank accounts of the appellant and his relatives is added in the appellants hands, to the extent of cash available and drawings shown in these accounts, the undisclosed income of the appellant may be reduced and set off be given."
The learned counsel submitted before us that in the block return filed, an amount of Rs. 4,59,234 was declared as undisclosed income, the break-up of which comprises of drawings and certain undisclosed deposits. We are concerned with the following amounts, which were declared as the undisclosed income ?
Asst. yr.
Rs.
1988-89
Bank Deposit
26,975
1994-95
Bank Deposit
26,085
1995-96
Bank Deposit
12,319
1996-97
Bank Deposit
59,255
1997-98
Travelling Expenses
2,00,000
Total
3,24,634
The learned counsel submitted that the assessing officer again added the amount referable to the Bank deposits and travelling expenses and thus it amounts to double addition. On the other hand, the learned departmental Representative submitted that there is no double addition involved in the instant case. However, he suggested that the issue may be set aside to the file of the assessing officer for verification at his end. Considering the facts and circumstances of the case and in the light of the fact that the addition with regard to the Bank deposits was set aside to the file of the assessing officer, we hereby deem it just and reasonable to set aside this issue also to the file of the assessing officer for proper verification. Needless to observe that the same amount should not be added twice.
43. Ground No. 11 is with regard to the addition of Rs. 9,89,800 made by assessing officer in the block assessment on the strength of the notings in the loose paper seized during the course of the search. Ground No. 18 is an alternative ground, i.e., with regard to set off. The facts in short are that loose paper No. 41 of seized file contains the following note :
"7-10-1994-Received two cheques of Rs. 2,75,000 and Rs. 4,17,000 for correction in the name."
Similarly, loose paper Nos. 34, 45, 49 and 50 also contain certain notings indicating thereby that the assessee received some amount, which was not disclosed in the books. When the assessee was called upon to explain, it was contended that the noting in p. 34 is some working which the assessee is unable to comprehend; the notings in p. 45 were made by somebody and they do not pertain to the assessee; and pp. 49 and 50 are counterfoils: of tickets of servants for which payment is made by cheque during assessment year 1997-98 and explained in answer to question No. 17. No Explanation is given with regard to page No. 41.
This Explanation was found to be at variance with the Explanation given by Mrs. Soni Bhatt at the time of search. In her statement it was explained that page No. 50 pertains to light supplied to MASS production for tele film 'Girvi' Page 49 is an account for verification by her travel agent in connection with her trips in India. Page 45 is in her handwriting. She stated that the upper part of this page she is unable to recollect, whereas the amount mentioned in the lower part of the page is with regard to the payment made by Mr. Y. Johar. It was also stated that figure 1.00 stands for Rs. 1,00,000. Out of this, Rs. 5,000 each was paid for cupboard and doctor and 23.5 was for household expenses. Page 34 relates to purchase of furniture. The statement of the assessee was also recorded wherein he stated that only accountant and Mrs. Soni can throw some light on his financial matters. Considering the circumstances of the case, the AO was of the opinion that the loose sheets having been found in the possession and control of the assessee, the amounts mentioned therein should be treated as the income of the assessee. He accordingly added a sum of Rs. 9,89,800.
44. Aggrieved, learned counsel contended before us that the assessee and his wife purchased two adjacent flats at Brooklyn Hills, Shastri Nagar, Andheri (W) for a consideration of Rs. 6,93,760 and Rs. 5,49,000, respectively. The flats were purchased from Mr. Chandru Kewalramani and the amounts were paid cheque as follows:
Rs.
Shri Mahesh Bhatt
2,54,000*
Shri Mahesh Bhatt
4,17,000*
Smt. Soni Bhatt
2,75,000
Smt. Soni Bhatt
1,25,000
Smt. Soni Bhatt
1,24,000
*(Rs. 4,27,000 + Rs. 2,76,000 Rs. 6,92,000)
The contention of the learned counsel is that the cheques were given for purchase of flats and the same were returned by the seller for correction in the names on which the cheques were issued and thus the cheques received by the assessee do not represent income of the assessee. The amount of cheques and the date, i.e., 7-10-1994, exactly tally with the amount and date of payment mentioned in the purchase agreement of flats. The learned counsel adverted our attention to pp. 389 to 445 of the paper book to highlight that the cheque for Rs. 4,17,000 was drawn on Central Bank of India where the assessee has no Bank account and, in fact, that was HDFC Bank account inasmuch as the flats were financed by HDFC and substantial amount of cheques were directly issued by them. He further submitted that the cheques and the flats are fully reflected in the books of account and hence it cannot be subject-matter of block assessment.
45. Similarly, as regards the addition of Rs. 2,97,800, the learned counsel submitted that the assessing officer made the addition on the ground that the seized papers contain total receipt of Rs. 2,80,000 out of which some amount was utilized for purchase of furniture, payment to doctor, etc. After the expenditure, the balance cash available should be Rs. 2,06,500 which should be set off against unexplained travelling expenses. As regards the balance sum of Rs. 17,500, he submitted that p. 32 finds a mention about payment of Rs. 17,500 towards purchase of furniture and since this is covered by Rs. 45,000 mentioned in p. 45 of the loose paper separate addition of Rs. 17,500 is not warranted. In short, his contention is that out of Rs. 2,97,800 a sum of Rs. 17,500 is already included in the addition of Rs. 45,000 and hence need not be taken. If the balance of Rs. 2,80,300 is treated as unexplained, the assessee submits that the logical conclusion would be that cash of Rs. 2,06,800 is deemed to be available with the assessee which can be set off against travelling or other intangible additions. The expenditure as noted in the loose sheet is doctor Rs. 5,000, furniture Rs. 46,000, household expenditure Rs. 23,500, i.e., Rs. 73,500. Deducting the above expenditure from Rs. 2,80,300, the balance of Rs. 2,06,800 should be set off against the other additions. Without prejudice to the above, the learned counsel contended that no addition should be made merely on the basis of some loose sheets found during the course of search and the onus is on the revenue to prove that the entries in the loose papers reflect the assessee's income. In this regard he relied upon the following decisions:
(1) Ramhahadurdas Raheja v. Assistant Commissioner (order dated 23-9-1998 (para 17) in IT(SS)A No. 118/Mum/1996);
(2) Ashwini Kumar v. ITO (1992) 39 ITD 183 (Del);
(3) Kishan Chand Sobhrajmal v. Assistant Commissioner (1992) 41 ITD 97 (Jp);
(4) Lik Proof India (P) Ltd. v. Dy. CIT (order dated 10-12-1998 (paras 19 to 22) in IT(SS)A No. 76/Mum/1997).
On the other hand, the learned departmental Representative strongly relied upon the order of the assessing officer. He submitted that the assessee had not made out a case before the assessing officer and, therefore, the addition made by the assessing officer is in accordance with law.
46. We have carefully considered the rival submissions and perused the records. So far as the addition of Rs. 6,92,000 is concerned, we find that the assessing officer had not made out a good case for treating the amount mentioned in the returned cheques as the income of the assessee. The material furnished before us goes to prove that it is not the undisclosed income of the assessee. Considering the submissions of the assessee and the supporting evidence thereof, we are of the view that the addition of Rs. 6,92,000 deserves to be deleted. However, as regards the addition of Rs. 2,97,800, we are of the view that the addition is maintainable. Admittedly, assessee has not given any valid Explanation before the assessing officer inspite of several opportunities. On the other hand, it was explained that the coded figures indicate the amounts, received in thousands/lakhs and the receipt of income was not denied by the assessee or his wife. It is also not in dispute that the loose papers were found at the residential premises of the assessee. Therefore, the assessing officer has correctly raised a presumption that the amount mentioned in the loose papers is the amount received by the assessee. The case law relied upon by the assessee are distinguishable on facts. Considering the circumstances of the case, we are of the view that the addition of Rs. 2,97,800 made by the assessing officer is in accordance with law. This leaves us with the alternative issue that the aforementioned amount, after deducting the expenditure mentioned in the loose papers, is deemed to be available to the assessee to claim set off against the other intangible additions. As this aspect was not considered by the assessing officer, in the interests of justice, the assessing officer is directed to consider the issue in accordance with law.
47. Ground No. 12 reads as under:
"The learned assessing officer was not justified in making an addition of Rs. 1,00,000 on account of alleged unexplained advance from M/s Vishesh Videotech for assessment year 1992-93 while computing undisclosed income for the block period 1-4-1986 to 18-12-1996.
Without prejudice, the above addition could not have been the subject-matter of block assessment."
During the course of assessment proceedings the assessing officer noticed that an amount of Rs. 1,00,000 appeared in the balance sheet of the assessee from assessment year 1992-93. He observed that the amount being an advance received for distribution of telefilm 'Daddy' produced by the assessee, it is taxable in the year in which the telefilm is released, whereas the assessee continued to show this amount as advance. When the assessee was called upon to comment upon it, the assessee made the following statement on 14-2-1997
"Q. No. 14 Do you want to say anything else?
Ans. In view of the statement given by me in respect of certain discrepancies regarding household expenditure, withdrawal for current year under special circumstances at home, air fares, interest payment for partly non-professional purposes which might be there and also Rs. 1,00,000 taken as advance from M/s Vishesh Videotech, I voluntarily offer an amount of Rs. 5 lakhs as my additional income for the relevant block period and I assure you to pay taxes thereon accordingly."
Based on the above statement, the assessing officer made an addition of Rs. 1,00,000 in the period relevant to the assessment year 1992-93.
48. Aggrieved, the assessee contested the addition before us. The learned authorised representative contended that the entry is duly reflected in the books of account of the assessee and hence it cannot be treated as undisclosed income so as to make an addition under the block assessment scheme. In support of his contention, he adverted our attention to pp. 238 to 243 of the paper book. The case of the assessee is that the return for the assessment year 1992-93 was filed in the year 1992, i.e., much before the commencement of search proceedings and the entry with regard to the advance of Rs. 1,00,000 finds a mention in Schedule H annexed to the balance sheet. He relied upon the following decisions in support of his contention that addition is not permissible in the proceedings under section 158BB of the Act:
(1) (1997) 63 ITD 245 (Bom) (supra);
(2) (1992) 194 ITR 32 (Del) (supra); and
(3) Ms. Pooja Bhatt v. Asstt. CIT (IT(SS)A No. 17/Mum/1998, dated 31-5-1999 (supra)).
On the other hand, the learned departmental Representative strongly relied upon the statement of the assessee recorded on 14-2-1997.
49. We have carefully considered the rival submissions and perused the record. As we find that the advance of Rs. 1,00,000 was reflected in the schedule to the B/S annexed to the return filed for the assessment year 1992-93, addition is not permissible in a block assessment in the light of the decisions relied upon by the assessee. We, therefore, delete the addition of Rs. 1,00,000.
50. Ground No. 13 reads as under :
"The learned assessing officer was not justified in making an addition of Rs. 5,19,084 for assessment year 1997-98 on account of alleged unexplained source 'of foreign travels undertaken while computing undisclosed income for the block period 1-4-1986 to 18-12-1996. "
Learned counsel submitted that this ground has to be taken up for disposal along with ground Nos. 18 and 20. Ground No. 18 is with regard to set off and ground No. 20 is with regard to the claim of the assessee that no addition can be made in a block assessment in respect of an income for which the return was not due and the necessary entries were already made in the books of account. The facts in brief are that during the course of search certain bills of a travel agent and some air tickets were found at the residence of the assessee.
The total value of the tickets works out to Rs. 4,00,077. The assessee was directed to explain as to whether the aforementioned expenditure was actually reflected in the regular books or not. In reply, the assessee submitted that against the bills amounting to Rs. 1,87,719 the total amount debited is Rs. 2,54,330. The assessing officer found that out of the total expenditure of Rs. 4,00,077 only a portion of that was reflected in the books and the balance was unaccounted expenditure. The case of the assessee was that tickets mentioned at loose paper Nos. 92, 85, 65, 71 and 72 (total Rs. 1,89,695) is debited to assessee's account, ticket mentioned at p. 94 (Rs. 30,352) was sent to the assessee by one of his friends, Mr. James Micheal, Minister of Finance and Communication, Republic of Seychellese and entire expenditure of the trip was borne by him. Tickets mentioned at pp. 93, 97 and 61 (Rs. 1,80,030) were borne by M/s Vishesh Films for shotting of film 'Dastak' for which film the assessee is a director. In this regard the assessee filed a certificate from M/s Vishesh Films.
51. As regards the tickets worth Rs. 1,89,695, the assessing officer found that the reply of the assessee dated 15-1-1998, is at variance with the reply given on 10-9-1997, wherein the assessee stated that the amount debited to the assessee's account is Rs. 2,54,330. It was further stated that this amount includes Rs. 1,87,719, which is the amount as per seized bills at pp. 5 to 17 of the seized file A-I. The assessing officer observed that the total debits to the assessee's accounts are Rs. 2,54,330, whereas both the amounts of Rs. 1,87,719 and Rs. 1,89,695 are explained by merely stating that they are debited to assessee's account, which is contrary to logic. He thus concluded that the reply given by the assessee is vague and misleading. Accordingly, the amount of Rs. 1,89,719 was added to the income of the assessee on account of unaccounted expenditure incurred for foreign travels.
52. As regards the ticket mentioned at p. 94 of the loose paper (Rs. 30,352), the assessing officer observed that the assessee has not furnished any supporting evidence to show that his friend, Mr. Micheal has borne the expenditure of the trip. In the absence of any evidence such as nature of visit, etc., the assessing officer concluded that the trip is basically a receipt in kind in view of the professional standing of the assessee. He further observed that even if it is a voluntary and gratuitous act on the part of a sponsor of the trip, when such amounts are connected with the office/profession/vocation of the assessee, income would arise to the assessee although, if payments were not made, the enforcement thereof could not be insisted upon. Placing reliance on the decision of the Hon'ble Supreme Court in the case P. Krishna Menon v. CIT (1959) 35 ITR 48 (SC) at pp. 53 and 54, he treated the value of the ticket as the income of the assessee. In addition to that, he made an addition of Rs. 69,648 on the ground that the other benefits enjoyed by the assessee in the form of accommodation and facilities provided by the sponsor should be treated as the assessee's income.
53. As regards tickets mentioned at pp. 93, 97 and 61 of the loose papers (Rs. 1,80,030), the assessing officer observed that the certificate of M/s Vishesh Films shows that payment was made by them by way of bill Nos. 1-1914 and 1-1958 and the tickets referable to those bills are purchased for a sum of Rs. 1,48,380 only, whereas the ticket mentioned in loose paper Nos. 93 and 97 bears the ticket No. 1254422856692/2 and it is for an amount of Rs. 1,54,365. From this, the assessing officer drew the conclusion that the ticket certified by M/s Vishesh Films and the ticket seized during the course of search are different. Therefore, the amount of Rs. 1,54,365 is added as the income of the assessee in the absence of proper explanation. A separate addition of Rs. 76,000 was also made on account of expenses incurred during the trip as the same would have been met by the assessee from his unaccounted sources. Out of the bills certified by M/s Vishesh Films, bill No. 1-1958 matches with the ticket number mentioned in the seized loose paper No. 61 and, therefore, no addition was made with regard to the ticket purchased to the tune of Rs. 25,665. Thus, the assessing officer made an addition of Rs. 5,19,084.
53A. Learned counsel strongly contested the addition. The points raised by him are;
(a) Loose paper contains business statement dated 23-11-1996, of Sri U.G. Krishnamurty (spiritual guru of assessee). Total debit in the bill stands at Rs. 22,267. This bill is debited to the account of one Shri N.H. Parekh bearing a/c No. K 027 INT, whereas the assessee's account No. with travel agent is B 037 INT, as can be seen from other bills. Sri Krishnamurty, when he visited assessee, left the paper in assessee's house.
(b) Loose paper No. 5 contains credit note issued in favour of assessee. This being discount given on the ticket it should have been deducted from main bill. Action of the assessing officer resulted in double addition.
(c) Cancellations/journeys never undertaken in respect of the tickets mentioned in loose papers 7 and 8 but the assessing officer made in addition.
(d) Similar cancellations, etc. not properly appreciated as regards tickets mentioned in loose papers 9, 10, 11 and 12.
(e) Pages 16 and 17 of the loose papers contain tickets of Ms. Tanuja Chandra, assistant of assessee.
(f) Thus, actual travels undertaken by assessee is Rs. 1,87,719Rs. 66,105Rs. 1,21,614.
(g) The payment of Rs. 2,54,330 made by assessee was wrongly appropriated against total of Rs. 1,87,719 instead of Rs. 1,21,614 and the balance to be apportioned against the travels undertaken.
54. As regards the addition of Rs. 1,00,000 referable to the travel to Syechelles it was contended that it is based on presumptions, ignoring the fact that the assessee went there as a State guest on an invitation by Synchelles Minister which is evidenced by correspondence with the Minister.
55. As regards addition on account of ticket charges of Rs. 1,54,356 and 75,000 on account of travelling expenses, learned authorised representative explained that the assessee purchased foreign exchange of Rs. 73,273 and the amount of Rs. 75,001 was added additionally. He further contended that the assessee declared Rs. 2 lakhs in the block return whereas the assessing officer has not given credit for the same.
56. Without prejudice, it was contended that the addition of Rs. 2,96,800 as explained in para 45 above should be adjusted as that amount is deemed to be available for incurring unexplained travel expenditure. Summary of assessee's contentions are at pp. 43 to 54 of the "facts sheet'.
57. On the other hand, learned departmental Representative submitted that the assessee has given vague Explanation before the assessing officer and hence the addition was correctly made. However, if the detailed Explanation given before the Tribunal is to be considered, it may be sent back to the file of the assessing officer for proper verification.
58. We have carefully considered the rival submissions. In the light of the details furnished before us and keeping in mind the alternative contentions raised, we hereby set aside the matter to the file of the assessing officer who is directed to reconsider the matter in accordance with law.
59. Ground No. 14 reads as under:
"The learned assessing officer was not justified in disallowing interest of Rs. 36,000 for assessment year 1997-98 while computing undisclosed income for, the block period 1-4-1986 to 18-12-1996."
During the course of block assessment proceedings the assessee stated that loans were taken partly for payment of car instalments and other purposes. In answer to Q. No. 10 in the statement recorded on 14-2-1997, the assessee stated as under :
"If any thing is paid for non-business purposes, the same may be disallowed."
60. The assessing officer observed that the assessee admitted to have taken loans for nonprofessional purpose and thus added Rs. 36,000 in the block assessment.
61. Aggrieved, assessee is in appeal before us. Learned authorised representative contended that the expenses are reflected in the income and expenditure accounts which are filed alongwith the return of income. In fact, interest on the loans was disallowed by assessing officer in the assessment proceedings under section 143(3) of the Act for the assessment year 1996-97. Hence addition of Rs. 36,000 is not maintainable in block assessment. Learned departmental Representative fairly admitted the factual position. We, therefore, delete the addition of Rs. 36,000 in the light of the decision of Tribunal, Bombay Bench, in case of Sunder Agencies (supra).
62. Ground Nos. 15 and 16 are general and ground Nos. 17 to 20 are already considered by us.
63. In the result, the appeal filed by the assessee is partly allowed.