Per N.V. Vasudevan, Judicial Member. - These are appeals by the assessee against three different orders of the ld. Commissioner of Income-tax, (Appeals)-I, Ludhiana, all dated 18-10-2006, relating to the assessment years 1998-99, 1999-2000 and 2000-01 respectively.

2.1 First we shall take up for consideration Income-tax Appeal No. 4343 (Delhi) of 2006. The first ground of appeal of the assessee is general in nature and challenges the order of the CIT (Appeals) as bad in law. The assessee is an Individual. He derives income from the business of carrying out job work of Buffing and Polishing of Gas Stoves under the name and style of M/s. B.M. Associates. There was a search and seizure operation carried out by the Department under section 132 of the Income-tax Act, 1961 [hereinafter referred to as ‘the Act’] on 27-2-2004 at the residential premises of the assessee. Consequent to the search so conducted, notice under section 153A of the Act was issued on 4-8-2005. The provisions of section 153A of the Act had been introduced by the Finance Act, 2003 with effect from 1-6-2003. In respect of searches carried out under section 132 of the Act or requisition of books and other documents made under section 132A of the Act after 31-5-2003 the Assessing Officer was competent to issue a notice calling upon assessee to furnish return of income in respect of six assessment years immediately preceding assessment year relevant to the assessment year in which search is conducted or requisition is made. The Assessing Officer is empowered to re-assess the total income in respect of each assessment year falling with such six assessment years under the second proviso to section 153A of the Act. If in respect of any assessment year falling within the six assessment years referred to earlier, any assessment or re-assessment is pending on the date of initiation of the search under section 132 of the Act or making of requisition under section 132A, the same shall abait.

2.2 The contention of the learned counsel for the assessee before us on the first ground of appeal was that there was no seized material based on which the assessment was completed by the Assessing Officer in the case of the assessee and, therefore, the assessment framed should be held to be null and void. It was also submitted that the provisions of section 153A of the Act cannot be invoked to make an assessment or re-assessment of income just because a search had taken place in the case of an assessee.

2.3 We are of the view that this contention of the learned counsel for the assessee cannot be accepted. As rightly contended by the learned Departmental Representative, there is no requirement for an assessment made under section 153A of the Act being based on any material seized in the course of search. Further under the second proviso to section 153A pending assessment or re-assessment proceedings in relation to any assessment year falling within the period of six assessment years referred to in section 153A(b) of the Act shall abait. Thus the Assessing Officer gets jurisdiction for six years assessment years referred to in section 153A(b) of the Act for making an assessment or re-assessment. It is not the complaint of the assessee that any income, which is already subjected to assessment under section 143(3) or under section 148 of the Act completed prior to the search in respect of six assessment years referred to in section 153A(b) of the Act and in the second proviso to section 153A, has also been included in the assessment framed under section 153A of the Act. In such circumstances the plea of the assessee cannot be accepted. Ground No. 1 is, therefore, rejected.

3.1 Ground Nos. 2, 6 and 7 raised by the assessee, read as follows:—

"2. It is contended that the ld. CIT (Appeals) has erred in upholding that the Assessing Officer was justified in estimating the income of the appellant under section 144 of the Act;

6. It is contended that the ld. CIT (Appeals) has erred in confirming an addition of Rs. 61,485 made by the Assessing Officer on account of estimating the receipts of the appellant from job work of buffing and polishing at Rs. 5,50,000 as against Rs. 4,88,515 shown by the appellant;

7. It is contended that the ld. CIT (Appeals) has erred in upholding an addition of Rs. 19,990 made by the Assessing Officer on account of estimating the sale of scrap of the appellant at Rs. 23,500 as against Rs. 3,510 shown by the appellant."

3.2 In response to the notice under section 153A of the Act, the assessee filed return of income disclosing income of Rs. 3,23,000. The income so declared included income from business and income from house property at Rs. 1,92,000. The Assessing Officer called upon the assessee to furnish the books of account of the business of buffing and polishing carried on under the name of M/s. B.M. Associates. The assessee failed to produce the books of account on the ground that the same were not available. Since the books of account were not produced, the Assessing Officer rejected the income declared from business and held that the income from business will be estimated as laid down in the provisions of section 145 sub-section (3) and in the manner laid down in section 144 of the Act. This was confirmed by the CIT (Appeals). We are of the view that in the given circumstances, rejection of books of account was proper and calls for no interference.

3.3 After rejecting the books of account the Assessing Officer noticed that the assessee declared income under the head ‘Receipts’ on job work of buffing and polishing at Rs. 4,88,515. In the opinion of the Assessing Officer, this was too low and he estimated the same at Rs. 5,50,000 resulting in an addition of Rs. 61,485.

3.4 On appeal by the assessee, the CIT (Appeals) confirmed the order of the Assessing Officer. Hence, the above appeal by the assessee, before the Tribunal.

3.5 We have heard the rival submissions. Once the books of account are rejected, the Assessing Officer has to make an estimation of income in the manner provided under section 144 of the Act. Section 144 empowers the Assessing Officer to take into account all relevant material, which he has gathered and after giving an opportunity of being heard to the assessee, make the assessment of total income to the best of his judgment. In the present case, the Assessing Officer in coming to the conclusion that the income of the assessee from buffing and polishing was at Rs. 5,50,000 has not brought any material on record. In fact it has been a wild guess, on the part of the Assessing Officer. The addition having been made without any reference to either the past history in assessee’s case or any special circumstances suggesting earning of higher income by the assessee, or any comparative case, the addition deserves to be deleted and the same is directed to be deleted. The 6th ground of appeal of the assessee, is allowed.

4.1 As far as the 7th ground of appeal is concerned, it is seen that the Assessing Officer made an addition of Rs. 19,990, on the following facts:—

The assessee had shown income from sale of scrap at Rs. 3,510. According to the Assessing Officer, this income shown was very low in the type of business carried on by the assessee. He estimated an income of Rs. 23,500 from sale of scrap and made an addition of Rs. 19,990.

4.2 On appeal by the assessee, the CIT (Appeals) confirmed the order of the Assessing Officer holding that the estimate made by the Assessing Officer was reasonable and fair.

4.3 We have heard the rival submissions. For the reasons already stated while disposing ground No. 6, we are of the view that the addition made by the Assessing Officer and sustained by the CIT (Appeals) deserves to be deleted. There has been no basis for the estimation given by the Assessing Officer. The sweeping observation that the income from sale of scrap declared by the assessee was very low in the type of business in which the assessee is engaged would not be sufficient for making the addition. The addition made is, therefore, directed to be deleted and the 7th ground of appeal of the assessee is also allowed.

5.1 The third ground of appeal of the assessee, reads as follows:—

"3. It is contended that the ld. CIT (Appeals) has erred in upholding an addition of Rs. 40,000 being deposit in M/s. B.M. Associates made by the appellant by treating the same as emanating out of her undisclosed concealed income."

5.2 Along with the return of income filed for the assessment year 1998-99, the assessee had also filed a balance sheet. The Assessing Officer noticed that in the capital account of the assessee there was an addition of Rs. 1,20,000. The assessee explained the source with regard to the deposit of Rs. 80,000 in the capital account, which was accepted by the Assessing Officer. With regard to the remaining sum of Rs. 40,000 the assessee explained that she had an account with State Bank of India at Sarai Khawaja, where from a sum of Rs. 40,000 was withdrawn and deposited as capital, in the account of M/s. B.M. Associates. The assessee did not give the account number and other particulars of this bank account and in the circumstances, the Assessing Officer held that a sum of Rs. 40,000 was unexplained and made an addition under section 68 of the Act.

5.3 Before the CIT (Appeals) the assessee produced copy of the Savings Bank Account with SBI, Sarai Khawaja. From a perusal of this bank account, the CIT (Appeals) noticed that there were sufficient deposits and credits in the bank account and there was no proper explanation with regard to the withdrawal of Rs. 40,000 and deposit of the same in the capital account of the assessee. In these circumstances the CIT (Appeals) upheld the order of the Assessing Officer.

5.4 Even before us the assessee has not been able to let in any evidence or to show as to how the source of Rs. 40,000 deposited in the capital account was from disclosed sources. On the other hand, general argument was advanced that because of lapse of time the assessee has not been able to explain the source properly. It has also been argued that the plea of the assessee has to be accepted on the basis of probability as the assessee can be expected to have source to the extent of Rs. 40,000. We are of the view that such general submissions cannot be accepted. The assessee having failed to explain the source with regard to the deposit under capital account, the addition of Rs. 40,000 was justified and the same is confirmed and the third ground of appeal of the assessee, is dismissed.

6.1 The 4th ground of appeal of the assessee, reads as follows:—

"4. It is contended that the ld. CIT (Appeals) has erred in upholding an addition of Rs. 7,511 made by the Assessing Officer on account of disallowance of public relation expenses."

6.2 The assessee had claimed an expenditure of Rs. 7,511 as public relation expenses. The assessee submitted that these expenses were in addition to welfare expenses and staff welfare expenses. Since the assessee did not file any evidence to establish incurring of these expenses, the Assessing Officer held that these were not for business purposes and disallowed the claim for deduction. The CIT (Appeals) confirmed the order of the Assessing Officer.

6.3 Before us it was submitted that these expenses are normal business expenses and should be allowed as a deduction. We are of the view that in the absence of specific details of these expenses there was every justification for disallowing the claim for deduction of these expenses. Consequently, the 4th ground of appeal of the assessee, is dismissed.

7.1 The 5th ground of appeal of the assessee, reads as follows:—

"5. It is contended that the ld. CIT (Appeals) has erred in upholding an addition of Rs. 24,000 made by the Assessing Officer on account of low household expenses."

7.2 The Assessing Officer on examination of the capital account of the assessee noticed that there were no withdrawals for meeting personal expenses and other house-hold expenses. The family of the assessee consisted of her husband, two sons and two daughters. When asked about the details in this regard, the assessee submitted that the total family expenses during the year were of Rs. 99,800 and that her husband, Shri C.P. Kaushik had withdrawn a sum of Rs. 60,000 from his books of account and had further surrendered a sum of Rs. 39,800 before the Settle-ment Commission on account of low withdrawal for meeting house-hold expenses. An undertaking was also filed by Shri C.P. Kaushik before the Assessing Officer in this regard. The Assessing Officer, however, made an addition of Rs. 24,000 towards low withdrawals for meeting house-hold expenses, for the following reasons:—

"Smt. Shyam Lata Kaushik has not withdrawn any personal expenses. The kitchen expenses are also too low. Further, it is not possible that a lady of such a status is not having any expenses for clothes, garments and jewellery etc. Therefore, an addition of Rs. 24,000 is made for non-withdrawing of expenses for meeting personal needs etc. of the assessee. This amount has been spend by the assessee from her income from undisclosed sources or from concealed income not shown in the accounts submitted by the assessee."

7.3 On appeal by the assessee, the CIT (Appeals) confirmed the action of the Assessing Officer.

7.4 We have heard the rival submissions. We are of the view that this addition has been made purely on surmises and conjectures. The estimate of house-hold expenses as made by the Assessing Officer is without any basis. In the light of the categorical assertion that the quantum of household expenses was only Rs. 99,800 and in the light of the withdrawal by the assessee’s husband of Rs. 60,000 from his books of account and the surrender of Rs. 39,800 before the Income-tax Settlement Commission, there was no basis for the Assessing Officer to have made the impugned addition and the same is directed to be deleted. Ground No. 5 of the assessee is allowed.

8. In the result, the appeal filed by the assessee, is partly allowed.

I.T. Appeal No. 4344 (Delhi) of 2006 - Assessment year : 1999-2000

9. The first ground is identical to ground No. 1 raised in the earlier appeal. For the reasons stated therein, this ground of appeal of the assessee, is dismissed.

10.1 The second ground of appeal of the assessee, reads as follows :

"2. It is contended that the ld. CIT (Appeals) has erred in upholding an addition of Rs. 1,11,542 made by the Assessing Officer on account of disallowing the expenses out of processing charges claimed by the appellant."

10.2 As already noticed the assessee was in the business of buffing and polishing of gas stoves. On examination of the books of account of the assessee, the Assessing Officer noticed that the assessee has claimed processing charges of Rs. 7,01,100. The Assessing Officer called upon the assessee to produce all the bills for processing charges for verification. From examination of those bills, the Assessing Officer noticed that 7 bills of the total value of Rs. 1,11,542 were not available. The Assessing Officer called upon the assessee to produce the bills, which were not available. The assessee filed a reply stating that the same are already included in the bills, which have already been furnished. Finding this explanation not satisfactory, the Assessing Officer made an addition of Rs. 1,11,542. The action of the Assessing Officer was confirmed by the CIT (Appeals).

10.3 Even before us the assessee has not been in a position to offer any valid explanation. The plea of the assessee that the bills, which were not produced were already included in the bills produced before the Assessing Officer remains un-substantiated. In the circumstances, the orders of the revenue authorities are confirmed and the second ground of appeal of the assessee, is dismissed.

11.1 The third ground of appeal is with regard to the addition on account of low house-hold expenses. This addition has been made by the Assessing Officer on identical circumstances under which a similar addition was made in the assessment year 1998-99. In this assessment year, however, the Assessing Officer did not make separate addition and he held that the addition of Rs. 1,11,542 made on account of un-substantiated processing charges would take care of the addition with regard to the low house-hold withdrawals.

11.2 We have already confirmed the addition made with regard to the disallowance of processing charges and consequently the addition challenged in ground No. 3 is, in our view, infructuous Consequently, the appeal by the assessee, is dismissed.

I.T. Appeal No.4345 (Delhi) of 2006 - Assessment year : 2000-01 :

12. The first ground of appeal is identical to ground No. 1 raised in Income-tax Appeal No. 4343 (Delhi) of 2006, pertaining to the assessment year 1998-99. For the reasons stated therein, this ground of appeal of the assessee, is dismissed.

13.1 The second ground of appeal of the assessee, reads as follows :-

"2.It is contended that the ld. CIT (Appeals) has erred in confirming the addition of Rs. 38,000 made by the Assessing Officer as un-explained deposit under section 68 of the Income-tax Act, 1961."

13.2 From an examination of the books of account of the assessee, the Assessing Officer noticed that there were three cash credits in the cash book of M/s. B.M. Associates, the details of which were as follows :-

13.3 The assessee filed confirmation from all the three creditors. In respect of confirmation of Shri Salender Vashist, no address was given in the confirmation. In respect of Shri P.K. Sharma and Shri Mohan Lal, the address given was Kundan Colony, Ballabgarh, Faridabad and 2-NH, NIT, Faridabad, respectively. The Assessing Officer has made an observation that despite being called upon to produce the depositors for examination, the assessee did not produce them for examination. The Assessing Officer also held that the bank accounts, statement of the depositors and PAN numbers of the depositors were not provided and in the circumstances the three ingredients of proving of cash credit, namely, the identity of the creditor, creditworthiness of the depositor and the genuineness of the transaction had not been established. The sum of Rs. 38,000 was, therefore, treated as un-explained cash credit and the same was added under section 68 of the Act.

13.4 On appeal by the assessee it was contended before the CIT (Appeals) that since the address of the creditors had been furnished, the Assessing Officer ought to have summoned them for examination and without doing so, should not have drawn adverse inference against the assessee. The CIT (Appeals), however, rejected the plea of the assessee on the ground that the address of Shri Salender Vashist was not furnished and that the address of Shri P.K. Sharma and Shri Mohan Lal given in the confirmation does not appear to be correct postal address. The addition made by the Assessing Officer was thus confirmed by the CIT (Appeals).

13.5 We have heard the rival submissions. As far as the cash credit in the name of Shri Salender Vashist is concerned, since the address of Shri Salender was admittedly not furnished by the assessee, the addition made by the revenue authorities deserves to be confirmed. The identity of the creditor has not been established in this case. As far as the credits in the names of Shri P.K. Sharma and Shri Mohan Lal are concerned, the addresses were given by the assessee in the confirmation. Without making any attempts to serve summons at the address given in the confirmation, it was not proper to draw an inference that these addresses were not correct postal addresses. In our view, the assessee had established the identity of the creditors. The sums in question were Rs. 18,000 and Rs. 5,000 respectively. These were too small an amount, which would warrant drawing of adverse inference regarding the creditworthiness and genuineness of the transaction. In the circumstances, the Assessing Officer ought to have exercised his discretion in not making an addition under section 68 of the Act. Accordingly, we delete the addition made in respect of the credits appearing in the name of Shri Mohan Lal and Shri P.K. Sharma. Ground No. 2 of the assessee, is partly allowed.

14.1 The third ground of appeal of the assessee, reads as follows:-

"3. It is contended that the ld. CIT (Appeals) has erred in upholding an addition of Rs. 24,000 made by the Assessing Officer on account of low house-hold expenses."

14.2 The addition of low withdrawals for meeting the house-hold expenses has been made under the same facts and circumstances in which they were made in assessment year 1998-99. The annual house-hold expenses of the family was stated to be a sum of Rs. 1,22,500. Shri C.P. Kaushik had surrendered Rs. 1,04,500 before the Hon’ble Income-tax Settlement Commission on account of low withdrawals of meeting the house-hold expenses. The assessee had shown withdrawal of Rs. 18,000. Thus, the house-hold expenses were claimed to have been met by the assessee. The Assessing Officer was of the view that Rs. 18,000 shown as withdrawal by the assessee was too low. An addition of Rs. 18,000 was made by the Assessing Officer for meeting the house-hold expenses from undisclosed sources. We are of the view that the addition has been made without any basis and the explanation of the assessee in this regard is found to be satisfactory. The addition made is directed to be deleted. The third ground of appeal of the assessee is allowed.

15. In the result, Income-tax Appeal Nos. 4343 (Delhi) of 2006 and 4345 (Delhi) of 2006, are partly allowed while Income-tax Appeal No 4344 (Delhi) of 2006, is dismissed.

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