Jai Kumar Jain v. Assistant Commissioner of Income-tax

B.P. Jain, Accountant Member. - The above cross-appeals are against the order of learned CIT(A), dated 5th June, 2003 for the block period assessment years 1991-92 to 2000-01 and upto 9th Aug., 2000. Search was conducted on 9th Aug., 2000. For the sake of convenience, we have decided to take assessee’s grounds of appeal and the related grounds in Departmental appeal first and then remaining grounds of the assessee’s appeal as under :

Ground No. 1(1) (Assessee’s appeal) : Confirming the addition in respect of cash found amounting to Rs. 26,910;

Ground No. 1 (Departmental appeal) : Reducing the addition of Rs. 3,18,370 to Rs. 26,910 on account of unexplained cash.

2. The brief facts of this ground are that a search was conducted at the business and residential premises of the assessee on 9th Aug., 2000. During the course of search cash of Rs. 1,56,380 was found from rooms of different family members at the residence and Rs. 26,910 from business premises as mentioned by the Assessing Officer at p. 3 of the order. The assessee in the block return considered the entire cash as explained in the hands of family members [as detailed at p. 4 of the order. The Assessing Officer considered the entire cash found at Rs. 1,83,210 as unexplained by holding that the assessee did not produce any evidence either at the time of search or in post-search proceedings or at the time of assessment proceedings that the 8 persons of the family have cash balances as claimed with them on 9th Aug., 2000. The receipt and payment account of 8 persons submitted for the period 1st April, 2000 to 9th Aug., 2000, were on the basis of return of income filed after the date of search and as such no reliance can be placed on these receipts and payments account. These persons are not maintaining regular books of account. He, therefore, considered an amount of Rs. 26,910 found at the business premises and Rs. 16,460 found from the room of children aggregating to Rs. 43,370 as unexplained in the hands of the assessee and the remaining amount in the hands of the different family members. He further held that, as per statement of Shri Vinod Kumar Jain, a sum of Rs. 2.75 lakhs was given on the previous day for purchase of material, source of which also remained unexplained. He, therefore, treated cash of Rs. 3,18,370 (26,310 + 16,460 + 2,75,000) as unexplained in the hands of assessee.

3. The learned CIT(A) held that from the cash flow statement it is seen that no withdrawals for the household expenses have been shown by the appellant in the current year. Expenditure shown by rest of family members are insufficient. If the appropriate amount of cash outgoing is taken for the purpose of household expenses then remaining cash balance with the appellant and other family members will be very small. He, therefore, confirmed the addition for Rs. 26,910. The amount with the children at Rs. 16,460 is accepted by the learned CIT(A) in view of their petty savings. As regards the source of Rs. 2,75,000 given to Shri Salim Khan, he held that a sum of Rs. 1,84,946 being balance in Disawar account (60,46,914 - 58,61,968) has not been disputed by the Assessing Officer. Further, the cash balance in the firm’s book at Rs. 1,26,234 has also not been disputed. Appellant’s son has stated at the time of search/survey itself that a sum of Rs. 2,75,000 was taken by Shri Salim Khan for making certain purchases. Therefore, learned Assessing Officer on the one hand is accepting the statement of Shri V.K. Jain and on the other hand is not accepting that the payment to Shri Salim Khan. Nothing incriminating during the course of search has been found to suggest that the payment of Rs. 2,75,000 was made to Shri Salim Khan out of undisclosed sources. The payment of Rs. 2,75,000 has been stated by the appellant’s son and the source is well-explained from the Disawar account and from the cash availability in the books of account. He, therefore, found that sufficient cash was available in the books of account of the appellant to make the payment of Rs. 2,75,000 to Shri Salim Khan. He accordingly deleted the addition of Rs. 2,75,000.

4. The learned Authorised Representative submitted that it is general practice in the assessee’s business since last several years that whenever purchases of scrap are to be made from the State of Gujarat, either assessee or his employee, Shri Salim go to Gujarat with cash. The cash so taken for the purpose of intended purchases, is debited to ‘Disawar account’. When they return, if any purchase is made that is adjusted against the ‘Disawar account’ and the remaining amount in the ‘Disawar account’ is deposited with the firm by crediting the ‘Disawar account’. Sometime when no purchase is made, the entire amount is deposited in ‘Disawar account’. The Authorised Representative filed the copy of ‘Disawar account’ explaining the above position. As on the date of search, an amount of Rs. 1,84,946 was lying in the ‘Disawar account’. He submitted that on 8th Aug., 2000, a sum of Rs. 1,20,000 was given to Shri Salim Khan but the same was not posted in ‘Disawar account’ as it was given in the late evening. It is for this reason that in survey of firm M/s Jaikumar Mahendra Kumar cash was found at Rs. 5,605 whereas as per cash book it was Rs. 1,26,234. Out of the amount of Rs. 1,84,946 lying in the ‘Disawar account’ and Rs. 1,20,000 further given on 8th Aug., 2000 totalling to Rs. 3,04,946, Rs. 2.75 lakhs was with Salim as stated by Shri Vinod Kumar Jain at the time of search. He further submitted that there is no contradiction in these submissions of assessee and statement of Vinod Kumar. Rather statement of Shri Vinod Kumar supports the assessee’s claim. Shri Vinod Kumar in his statement has nowhere stated that Shri Salim Khan has been given cash of Rs. 2.75 lakhs on the previous day. In fact while explaining the short cash of Rs. 1,20,629, he stated that the reason for this difference is that Shri Salim has gone to Gujarat previous day who has with him cash of Rs. 2.75 lakhs for purchase of material. The learned Authorised Representative, therefore, claimed that considering the amount lying in ‘Disawar account’ and difference in the cash found in survey, the amount of Rs. 2.75 lakhs with Shri Salim Khan is fully explained. The Authorised Representative further claimed that amount of Rs. 26,910 is out of the availability of cash of Rs. 57,610 in the hands of assessee’s HUF. Even after considering the household withdrawals, the cash of Rs. 26,910 is explained. For remaining amount of Rs. 16,460, the learned Authorised Representative submitted that it is found from the room of children. It is customary that the children do receive gifts from time-to-time and accumulate their savings. He further stated that the observation of the Assessing Officer that no reliance can be placed on the cash balance extracted by the assessee on 9th Aug., 2000 as returns of income were filed after the date of search is of no consequence since as on the date of search, the due date of filing of return for the year ended on 31st March, 2000 has not expired and, therefore, the return were filed after search which was accepted by the Assessing Officer. In view of these submissions, the learned Authorised Representative claimed that Departmental appeal on this ground be dismissed the addition sustained by the learned CIT(A) at Rs. 26,910 be deleted.

5. On the other hand, learned Departmental Representative relied on the order of Assessing Officer.

6. We have considered the rival submissions and relevant material on record. We agree with the contention of the assessee that as on the date of search, the due date of filing of return has not expired and, therefore, the receipt and payment account submitted by the assessee cannot be ignored altogether. We further noted that addition of Rs. 2,75,000 has been made by the Assessing Officer not on the basis of cash found at the time of search but on the basis of the statement of Shri Vinod Kumar Jain, son of the assessee. In the statement in reply to question No. 6, about the difference in cash as per cash book as Rs. 1,26,234 and that physically found at Rs. 5,605, he explained that this difference is for the reason that Shri Salim Khan has gone to Gujarat for purchase of material yesterday evening with approximately Rs. 2.75 lakhs. From this statement we noted that Shri Vinod Kumar Jain has nowhere stated that Rs. 2,75,000 was given to him only yesterday. We further noted that an amount of Rs. 1,84,946 was lying in the ‘Disawar account’ in the regular books of account. Thus, in all the assessee-firm has availability of Rs. 3,11,180 (1,84,946 + 1,26,234) in the books whereas cash was found at business premises at Rs. 5,605 only. Thus, the balance of Rs. 3,05,775 is enough to explain the amount of Rs. 2,75,000 given to Salim as per the statement of Shri Vinod Kumar Jain. The learned CIT(A) is, therefore, right in deleting this addition. The amount of Rs. 26,910 is covered by the amount available as per cash flow statement of family members as per which cash in hand is Rs. 2,06,305 as against Rs. 1,83,210 found. This takes care of household withdrawals also. Similarly, the amount of Rs. 16,660 which is found from the room of children as per the Panchnama is covered by their petty savings. Thus, the addition made on account of unexplained cash is unjustified and the entire addition is deleted. Hence, the ground of the assessee is allowed and that of the Department is dismissed.

Ground Nos. 1 (2a to 2d), 1(3) to 1(6) (Assessee’s appeal) and

ground Nos. 4, 5, 6, 7, 8 and 9 (Departmental appeal) :

7. All these grounds are related to addition in trading results of the assessee and, therefore, summarized as under for the sake of convenience :

8. The brief facts of the case are that assessee is engaged in trading of iron and scrap. In search stock was found short and certain papers relating to unrecorded sales/purchases were found. On the basis of the same, assessee offered certain income in the block return but the Assessing Officer made further addition.

9. The learned CIT(A) allowed part relief against which both assessee and Department are in appeal by taking the different grounds as tabulated above.

10. We heard both the parties in detail on these additions. After considering the rival submissions, our decision on these grounds are as below :

Ground No. 1(2a) of assessee and ground No. 4 of Department : Addition on account of trading profit of Rs. 10,066.

11. In search stock of scrap was found short by 38,276 MT. Its sale value was taken at Rs. 3,82,763. On this sale assessee estimated profit of 7.37 per cent and offered Rs. 28,210 in the income. The Assessing Officer estimated the profit at 10 per cent to make addition of Rs. 10,066. The learned CIT(A) applied rate of 8 per cent to sustain the addition at Rs. 2,411 and deleted the addition of Rs. 7,655 against which both the parties are in appeal. We find that the rate of 10 per cent (sic-8 per cent) taken by the learned CIT(A) is reasonable. Hence, both the grounds of assessee and the Department are dismissed.

Ground No. 1(2b) of assessee and ground No. 5 of Department : Addition on account of sale of stock of firewood found short Rs. 54,570.

12. The Assessing Officer made the addition for the reason that as per books there were stock of 54.570 MT but no such stock were found during search. He took profit rate of Re. 1 per kg. to make addition of Rs. 54,570 but the learned CIT(A) estimated the profit at 50 paise per kg. to confirm of Rs. 27,285. We find that the estimate made by the learned CIT(A) is reasonable in view of the fact that this stock is derived out of purchases of scrap from Railways having lesser sale realization. Hence, the order of the learned CIT(A) is upheld and both the grounds of the assessee and Department are dismissed.

Ground No. 1(2c) of assessee : Addition of Rs. 930 on sale of brass scrap

13. The brief facts of this ground are that the Assessing Officer made the addition for the reason that as per books there were stock of 0.093 MT but no such stock were found during search. He took profit rate of Rs. 10 per kg. to make addition of Rs. 930 which is sustained by the learned CIT(A) looking to the smallness of addition.

14. After appreciation of the facts of the case, we find the order of CIT(A) reasonable. Hence, the ground of the assessee is dismissed.

Ground No. 1(2d) of assessee and ground No. 7 of the Department : Addition of Rs. 67,315 on account of profit on unrecorded sale

15. The brief facts of this grounds are that as per Annexs. A-24 and A-25, there is unrecorded sales of Rs. 25,58,943 on which assessee offered income of Rs. 1,88,579 by applying profit rate of 7.37 per cent. The Assessing Officer took profit rate at 10 per cent to make addition of Rs. 67,315.

16. The learned CIT(A) applied rate of 8 per cent to confirm the addition of Rs. 16,136 and deleted the balance addition of Rs. 51,179.

17. After appreciation of the facts of the case, we find the profit rate of 8 per cent reasonable. Hence, both the grounds taken by the assessee and Department are dismissed.

Ground No. 1(3) of assessee and ground No. 6 of the Department : Addition on account of profit earned on unrecorded sale on the basis of p. 24C of Annex. A-1, Rs. 2,39,876

18. The brief facts of these ground are that the Assessing Officer held that above loose paper shows transaction of sales of Rs. 2,39,876. The learned CIT(A) held that the said transaction relates to purchase of goods in name of Valia Steel Industries. He assumed that profit arising out of this deal must have been shared by both the parties and, therefore, addition of Rs. 1,19,938 was confirmed and balance deleted.

19. The learned Authorised Representative argued that the said paper records the transaction of purchases made by Valia Steel Industries, Mumbai, from Railways. The amount of Rs. 10,00,000 given by assessee to Valia Steel Industries noted on this paper is duly recorded in the regular books of account. He, therefore, prayed for deletion of the addition whereas learned Departmental Representative supported the order of the Assessing Officer.

20. After perusing the material on record, we agree with the contention of the learned Authorised Representative that the loose paper records the noting in respect of purchases made by M/s. Valia Steel Industries, Mumbai, from Railways. This is established from delivery order of the Store Department of Railways, dated 20th June, 2000 (paper book 46-47) according to which sale value of the goods to be lifted by M/s. Valia Steel Industries, Mumbai, is of Rs. 23,06,500 and earnest money realized is Rs. 2,30,700. Both these amounts are noted on this paper. Since the assessee has trade relation with M/s. Valia Steel Industries, he advanced Rs. 10 lakhs to Valia Steel Industries. All these amounts and amount of sales-tax of Rs. 92,260 @ 4 per cent on Rs. 23,06,500 is mentioned on the paper. The draft of Rs. 10,00,000 is recorded and debited to the account of Valia Steel Industries in the books of assessee. The Assessing Officer has, therefore, wrongly held it to be a sale transaction. The learned CIT(A) has also no basis to conclude that profits were shared by the assessee in this transaction. No material in this connection was found nor any enquiry made in this regard. Hence, the addition sustained by the learned CIT(A) is not maintainable. The addition made is, therefore, deleted. Thus, the ground of the assessee is allowed and that of the Department is dismissed.

Ground No. 1(4) of the assessee : Addition for unexplained purchases amounting to Rs. 1,50,660

21. The Assessing Officer on the basis of page Nos. 37 and 51 of Annex. A-1 observed that these are weighment slips in which one truck No. RJ-02-G-2047 is weighted on 29th May, 2000 with net weight of 16,740 kgs. On this basis, he took the cost of purchase at Rs. 1,50,660 and made the addition. The learned CIT(A) upheld the addition for the reason that the said purchase is unaccounted transaction as assessee failed to co-relate it with his books of account.

22. The learned Authorised Representative argued that in search stock is found short. Unrecorded sales was found for which addition was considered for profit. The purchase, if any, made is reflected in the sales for which income is taxed and, therefore, separate addition for the cost of purchases is not called for.

23. The learned Departmental Representative relied on the order of Assessing Officer.

24. After considering the rival submissions, we agree that the paper relates to purchase made by the assessee. However, we find that the stock on physical verification was found short and the unrecorded sales admittedly is much more than the said purchases on which profit is taxed. In these circumstances, addition for purchases cannot be made as the same is realized by way of sale and no investment remained in purchases. Hence, the addition is deleted. This ground of the assessee is allowed.

Ground No. 1(5) of assessee and ground No. 9 of Department: Addition of Rs. 9,43,300 on account of unexplained investment in working capital

25. The brief facts of these grounds are that the Assessing Officer observed at p. 48 of his order that out of the total unrecorded sale of Rs. 25,58,943, peak amount is Rs. 9,43,300 as per p. 74 of Annex. A-24. He, therefore, made addition of Rs. 9,43,300 for unexplained investment in unrecorded sales. The learned CIT(A) reduced the GP margin from this sale to arrive at the investment and thus confirmed addition of Rs. 8,67,836.

26. After considering the rival submissions, we agree with the submission of learned Authorised Representative that had the investment in purchases remained, stock would have been found in excess in search. As against this, the stock was found short by 38.276 MT in search. This shows that recorded stock is sold out of books. Further, the amount of Rs. 9,43,300 is not of a single transaction but for the various dates between 2nd August, 2000 to 8th August, 2000 (paper book 32-33). Hence, no addition for investment in working capital is required as assessee has made unrecorded sales from the recorded stock for which profit is already taxed. Hence, the addition made by the Assessing Officer is deleted. This ground of assessee is allowed and that of the Department is dismissed.

Ground No. 1(6) of the assessee : Addition of Rs. 4,464 against unexplained purchases of cloths :

27. After considering the rival submission, we are of the view that it is a petty amount covered by the household withdrawal shown by the assessee’s family. The addition is, therefore, deleted. This ground is, therefore, allowed.

Ground No. 8 of Department : Deleting addition of Rs. 95,705 on account of profit on unrecorded sale

28. The brief facts of this ground are that the Assessing Officer observed that p. 53 of Annex. A-24 shows weight of 95,705 kgs. which is unrecorded sales. He took its sale value at Rs. 9,57,050 and applying profit rate of 10 per cent, made addition of Rs. 95,705.

29. The learned CIT(A) held that the weight of 95,705 kgs. is also considered at p. 74 of Annex. A-24 on the basis of which sale is taken at Rs. 9,43,300 which is part of total unrecorded sale of Rs. 25,58,943 already considered in estimating the profit. He, therefore, deleted the addition.

30. After perusal of the loose seized paper, we find that p. 52 of Annex. A-24 is covered by p. 74 of Annex. A-24 on the basis of which unrecorded sale is already considered and profit taxed. Hence, the learned CIT(A) has rightly deleted the addition. This ground of the Department is dismissed.

Ground No. 2 (Assessee’s appeal) and ground Nos. 10 and 11 (Departmental appeal) : Additions on the basis of loose papers found in search of Shri Atul Jain :

31. All these grounds are related to additions on the basis of loose papers found in search of Shri Atul Jain and, therefore, summarized as under for the sake of convenience :

32. The reasons given by the Assessing Officer for making the addition and that by CIT(A) in respect of these papers are summarized in the following table for the sake of convenience :

33. The learned Authorised Representative submitted that all the above additions are made by the Assessing Officer on the basis of loose papers found in the search of a third party. Shri Atul Jain never stated that these transactions are with M/s. Jai Kumar Mahendra Kumar. The Assessing Officer treated the transaction recorded on these papers as related to the assessee on the basis of presumption and surmises and without any basis. He has treated these transactions simply for the reason that daughter of Shri Mahendra Kumar Jain is married to Shri Atul Jain. Addition cannot be made on the basis of loose papers found from the third parties without establishing the transactions as related to the assessee. The learned Authorised Representative relied on following cases :

(i) Premlata Kedia v. Dy. CIT 22 Tax World 481 (Jp.)

(ii) Shradha Construction v. Asstt. CIT [2000] 113 Taxman 86 (Pune)(Mag.)

(iii) Prarthana Construction (P.) Ltd. v. Dy. CIT [2001] 118 Taxman 112 (Ahd.)(Mag.)

(iv) Pankaj Dahyabhai Patel v. Asstt. CIT [1993] 63 TTJ (Ahd.) 790

(v) T.S. Venkatesan v. Asstt. CIT [2000] 74 ITD 298 (Cal.)

(vi) Amarjit Singh Bakshi v. Asstt. CIT [2003] 263 ITR 75 (Delhi) (TM) (AT)

34. For individual papers, the assessee has given the following submission:

"Diary A-3, page No. 3 : The Assessing Officer treated the details on these papers as unexplained purchases by the assessee. Even if so held, the learned CIT(A) has rightly held that when separate addition are made for sales, GP and peak investment in such transaction, addition for unexplained purchases cannot be made. Hence, addition is rightly deleted by the learned CIT(A).

Annexure A-5, page No. 1 back and 4 : On p. 1 ‘Rs. 3,00,000 JKMK Nafa’ is mentioned and on p. 5 profit of Rs. 22,000 and 15,000 has been shown. On the basis of such paper, no addition can be made without establishing that any income is earned by the assessee particularly when entire premises of the assesses has also been searched on the same date and all the papers found during search has been considered for making the block assessment.

Exhibit 2 : Addition on account peak investment is not justified when addition for unexplained investment in purchases, GP, etc. are already made in the hands of assessee as discussed earlier and no excess stock was found."

35. On the other hand the learned Departmental Representative supported the order of the Assessing Officer.

36. We have considered the rival submissions and perused the material on record. We find that addition is made on the basis of the papers found from Shri Atul Jain. In search these papers were not confronted to the assessee. From the assessment order it is not borne out whether Atul Jain has stated these papers as pertaining to the assessee. No presumption can be drawn against the assessee under section 132(4A) of the IT Act, 1961, in respect of a paper not (recovered) from him. No addition can be made on the basis of documents found from the third party in the absence of corroborative evidence as held in case of J.R.C. Bhandari v. Asstt. CIT [2003] 133 Taxman 44 (Mag.) (Jodh.) where it was held as under:

"In our considered opinion, it may hardly be deniable that the Indian Evidence Act or for that matter the statutory provisions of the Indian Evidence Act may not be applicable strictly to the proceedings under the IT Act but the basic/broad principle of the law or evidence do apply to the said proceedings, it is settled position of law that the slips or loose sheets do not fall within the purview of ‘book’. An entry in the books of account, maintained in the regular course of business, is relevant to be considered in respect of the transactions: reflected thereby, no doubt, but is not conclusively decisive thereof or of the matter contained therein or liability reflected thereby, and much less so an entry in a loose sheet. It is only some other evidence whether in the form of statement of the author of the entry or the statement of some other person connected with the transactions contained in the entry, or in some other form, supportive of the entry, which lends weight/credence to the entry in the book, depending upon the trustworthiness of the said deponent, or reliability of the said other evidence, and it is only then that the said entry assumes the nature of reliable evidence on the basis of which some addition can be made/sustained. An entry in a loose sheet is of a still feeble nature, and an entry in a loose sheet found in the possession of another/third person is much more so. As such a mere entry in a loose sheet, by itself, without sworn statement of the learned persons, supportive of the entry, hardly has any evidentiary value, worth the name. The legal position being as emerging above, we are of the considered opinion, that no liability can be fastened nor can an addition be made on the basis of a mere entry in a loose sheet without there being some further trustworthy/reliable collaborative evidence lending credence to such an entry."

37. On the basis of above discussion, we are of the opinion that the Assessing Officer has erred in making the addition on the basis of said papers and the learned CIT(A) erred in confirming the addition to the extent of Rs. 3,37,000 in the hands of assessee. Hence, we delete the entire addition made on the basis of papers found from Shri Atul Jain. Thus the ground No 2 or the assessee is allowed and grounds Nos. 10 and 11 of Department are dismissed.

Ground No. 3 (Assessee’s appeal): Not allowing the benefit of telescoping/set off Ground No. 12 (Departmental appeal) : Allowing the benefit of telescoping to the assessee.

38. After considering the rival submission, we are of the opinion that principally the set off of investment/expenditure should be allowed against the income but only to the extent such investment/expenditure is after the earning of income. The Assessing Officer is, therefore, directed to consider the income which is assessed after giving effect of this order and allow set off of investment/expenditure only to the extent the same is after earning of income so as to avoid double taxation. Hence, ground No. 3 of the assessee is allowed for statistical purposes and ground No. 12 of the Department is dismissed.

39. Now we shall take up the remaining grounds of Departmental appeal:

Ground No. 2 : Deleting the addition of Rs. 4,43,693 made by the Assessing Officer on account of unexplained jewellery and silver items.

40. The brief facts of this ground are that during the course of search gold jewellery weighing 1,786.60 gms. net and silver weighing 16.895 kgs. net were found as per Annex. 3, dt. 5th Sept. 2000. Apart from this gold jewellery weighing 110 gms. (net) was found on person of family members. The assessee explained this jewellery as disclosed in VDIS by various family members. Out of the above jewellery, the Assessing Officer considered only 1,250 gms. gold jewellery as explained belonging to three lady members of the assessee-family. The balance jewellery of 646.600 gms. and silver of 16.895 kgs. treated as unexplained by Assessing Officer by observing that on verification of jewellery found as per Annex. 3 with jewellery as shown under the VDIS it was found that the jewellery found during the course of search was not the same jewellery as were declared in VDIS. The assessee changed his version when it did not suit him. At no point of time it was stated by the assessee that the jewellery so found was out of will of his wife. Neither at the time of search nor in post-search operations it was stated that the old jewellery was renovated. Nor any evidence was produced in support of the same at any point of time. As per VDIS declaration, the jewellery declared is 4,586 gms. whereas the jewellery found is 1,896 gms. The Assessing Officer thus made addition of Rs. 4,43,693.

41. The learned CIT(A) has deleted the addition by finding that the ladies in the appellant’s family had disclosed gold jewellery totalling to 4,586 gms. in the VDIS disclosure. Details of disclosure have been given in the assessment order. The objection of Assessing Officer is that against total disclosure of 4,586 gms., only 1,896 gms. of gold jewellery was found at the time of search. The Assessing Officer also referred to the disclosure of loose diamonds and taken the plea that it has been established in subsequent paras that the group had effected bogus sales of loose diamonds. In view of this, the Assessing Officer has presumed that gold jewellery was also wrongly declared by the ladies of the appellant’s family under VDIS. The arguments of the Assessing Officer is not acceptable because nothing incriminating has been found during the course of search to suggest bogus declaration of jewellery. The jewellery has been found from the possession of ladies and they have owned it. The quantity of jewellery found is below the jewellery disclosed under VDIS. Even if the jewellery as per the limits laid down by CBDT’s circular with a married lady and with male persons and children of the family is accepted, then the total availability of jewellery of 1,896 gms. is not higher. As regards the silver items of 16.896 kgs. looking to the status of the family and also fact that in joint family, the appellant and his married sons’ family were staying together, the availability of 16.895 kgs. of silver items is not substantial. Therefore, the addition of Rs. 1,30,092 on account of silver items is also not justified.

42. The Authorised Representative submitted that the assessee’s family consists of assessee himself, his three sons, three daughter-in-laws and children. The jewellery held by family is reasonable looking to the size of the family, number of female and male members, status of the family and the spirit of CBDT Institution No. 1916, dt. 11th May, 1994 where it is clarified that in searches gold jewellery of 500 gms. per unmarried lady and 100 gms. per male member need not be seized. Though this instruction (is) with reference to seizure of jewellery, the spirit of this instruction for ascertaining the reasonability of jewellery in assessment is accepted by Karnataka High Court in case of Smt. Pati Devi v. ITO [1999] 240 ITR 727 and by the Hon’ble Tribunal in various cases. He further submitted that the jewellery disclosed in VDIS is either part of jewellery found or is source for any new jewellery found during search. The Authorised Representative relied in case of Ashok Kataria v. Dy. CIT 27 Tax World 47 (Jp) where it was held that addition for undisclosed income cannot be made in block assessment in respect of that jewellery which already stands declared in the wealth-tax return as well as in VDIS and declaration made under VDIS cannot be held non genuine unless it is withdrawn by Commissioner. Similar view was taken in case of Suresh Chand Gupta v. ITO 26 Tax World 224 (Jp) whore it was held that any conclusion arrived solely on the strength of statements cannot be allowed to be sustained.

Regarding silver of 16.895 kgs., the Authorised Representative submitted that it is reasonable looking to the size of the assessee’s family.

43. On the other hand, learned Departmental Representative relied on the order of the Assessomg Officer.

44. We have considered the rival submission and perused the material available on record. We find that the learned CIT(A) has rightly deleted the addition for unexplained jewellery considering the CBDT Instruction No. 1916, dt. 11th May, 1994, decision of Karnataka High Court in case of Smt. Pati Devi v. ITO and decision of Tribunal in various cases and disclosure of jewellery under VDIS as well as wealth tax return. So far as silver jewellery of 16.895 kgs. is concerned, it is reasonable looking to the size and status of family of the assessee consisting assessee himself, his three sons, three daughters-in-law and children. In view of this, no interference is called for in the order of the learned CIT(A). Hence, this ground of the Department is dismissed.

Ground No. 3 : Deleting the addition of Rs. 86,46,406 made by the Assessing Officer on account of sale of diamonds/diamond jewellery.

45. The brief facts of the case are that the assessee’s family members have disclosed jewellery and diamond under VDIS, 1997. The loose diamonds were sold by these family members for Rs. 86,46,406 as follows :

Amount (Rs.)

The Assessing Officer held the voluntary disclosure by these family members bogus and treated the sale proceeds as undisclosed income of the assessee for the block period by observing that in the VDIS, these family members had disclosed holding of unexplained loose diamonds which were subsequently sold but the assessee and his family members never, had any loose diamonds. The declaration of loose diamonds made by them in their VDIS declaration was bogus and the loose diamonds declared under this scheme never existed. This declaration was meant only for the purpose of creating non-existing assets by paying tax at a very low rate. Such non-existing loose diamonds were later on shown to be sold to M/s Tambi Exports. The sales claim to be made by M/s Tambi Exports is also unverifiable. These facts show that actually no loose diamonds ever existed in these transactions and this is only a paper device used to bring the unaccounted income in the books of account by paying very nominal tax and by making misuse of the VDIS Scheme. The Assessing Officer further observed that the principle established by Supreme Court in case of McDowel & Co. Ltd. v. CTO [1985] 154 ITR 148 and Sumati Dayal v. Commissioner Of Income Tax, Bangalore. [1995] 214 ITR 801 (SC) are applicable to the assessee’s case.

46. The CIT(A) deleted the addition by finding that it is admitted fact that no incriminating material during the course of search in the form of document establishing the sale of diamonds as bogus has been found. As far as appellant is concerned, it can be seen that no question in respect of sale of diamond / diamond jewellery has been asked in his statement under section 132(4). The VDIS disclosures have been made by the family members and the sale of diamonds/diamond jewellery to Tambi Exports has also been shown by them; the sale proceeds have been received by the respective persons and deposited in their bank accounts. Subsequently, money has been transferred to the appellant from the respective person. It has also been brought to my notice that such sale of loose diamonds/diamond jewellery has been disclosed by respective persons in their respective IT returns, before the date of search. The Assessing Officer has held that the appellant is the head of the family and the alleged sale proceeds of loose diamonds has been introduced in the books of account of his proprietorship firm M/s JKMK. This conclusion has been derived by the Assessing Officer on presumption only. There is no evidence on record to establish that the unaccounted money of the appellant had been used by family members for getting bank drafts in the garb of sale proceed of non-existing diamonds and diamond jewellery. The appellant has not made any such disclosure in his individual capacity and the question of sale of such diamonds by him does not arise He did not receive any sale proceeds of loose diamonds/diamond jewellery from M/s Tambi Exports. The amounts have been received by him in the form of deposits from family members. The family members have owned such declaration and advanced money to the appellant, which has been disclosed in the books of account before the search. The computation of undisclosed income of the block period is to be made on the basis of evidence found as a result of search or requisition of books of account or other documents and such other materials or information as are available with the Assessing Officer and relatable to such evidence. The true nature of undisclosed income as it is construed in Chapter XIV-B, is that the assessee has not or would not have disclosed that income to the Department in the normal course, such income should be found out by the Department as a result of search under section 132. Therefore, factum of non-disclosure is essential for considering any amount to be undisclosed income of the assessee. Therefore, in absence of any evidence against the appellant, it cannot be held that the receipt of money from family members is bogus deposit merely because he is the head of the family.

47. The learned Authorised Representative has raised various contentions in his written submissions. Briefly his contentions are as under :

(a) No incriminating material was found in search to establish the sale of diamonds as bogus.

(b)Statement of assessee in respect of VDIS declaration or sale of diamond jewellery was not taken either in course of search or in course of proceedings before ADI/AO.

(c)The VDIS disclosures have been made by the family members and not by the assessee.

(d)The sale of diamonds/diamond jewellery to Tambi Exports has been shown by the family members in their respective returns filed before search. The sale proceeds have been received by the respective persons and deposited in their bank accounts and subsequently the money has been given as deposit to the appellant by the respective persons.

(e)Once the declaration under VDIS 1997 has been accepted in respect of jewellery and loose diamonds by the Department, subsequently it cannot be held that such jewellery/loose diamonds were not in existence.

(f)The statements of the ladies were not recorded in question-answer form. The search party has directly recorded the answers of these ladies. Further, in the statement of Smt. Gunmala, which is recorded in question-answer form, it is asked how much diamond jewellery she possesses. In answer to this question, she told that she is not having any diamond jewellery as well as loose diamonds. This shows that though she was not asked anything about loose diamonds but in her answer there is mention of loose diamonds. This conduct of the search party shows that statements were recorded under pressure and contents of statements were, written as the search party liked.

(g)Valuation of jewellery were made twice, i.e., at the time of VDIS declaration and sale of diamonds and the Assessing Officer has also not brought any material to hold such diamond non-existent.

(h)In the affidavits filed before the Assessing Officer, the family members have rebutted the statement recorded at the time of search. In affidavits they admitted the declaration under VDIS and sale of diamond. The Assessing Officer did not find anything incorrect or false in the said affidavit nor made any enquiry or cross-examination in the matter. Thus, when affidavits of these family members were not controverted, its contents cannot be held as false.

(i)The Assessing Officer has examined the seller. In the statement the seller has accepted the fact of purchase of diamond from the above person.

(j)The addition is outside the purview of block assessment in view of Commissioner Of Income-Tax v. (1) Vikram A. Doshi [2002] 256 ITR 129 (Bom) and General Exporters v. Asstt. CIT [2000] 67 TTJ (Delhi) 119 as the sale of jewellery was declared by family members in regular returns filed before search.

(k)In making the addition the Assessing Officer has never issued show-cause notice to the assessee. The show-cause notice, dt. 21st June, 2002 was issued to the family members (Assessing Officer p. 16). Addition are made in hands of three male members of the assessee’s family on protective basis in spite of the fact that in show-cause notice it was proposed to make addition in their hands.

(l)Referring to question No. 14 of Circular No. 754 (F. No. 142/53/97-TPL) dt. 10th June, 1997, [(1997) 140 CTR (St) 15] issued in connection with VDIS by CBDT, the Authorised Representative contended that Assessing Officer cannot make addition for the credit entries in the books of the firm, if the amount credited is not more than the amount declared.

(m)Learned Authorised Representative relied on the decision of this Bench in case of Shripal Kataria [IT(SS)A NOS. 52 and 76/Jp/2001, dt. 29th Nov., 2001] and the decision of Gujarat High Court in case of Nitin P. Shah v. Dy. CIT [2005] 146 Taxman 536, 322 and distinguished the decision relied on by the Assessing Officer.

He accordingly prayed for upholding the order of the learned CIT(A).

48. On the other hand, the learned Departmental Representative relied on the order of the Assessing Officer.

49. We have considered the rival submissions and gone through the material on record. Admittedly, assessee has neither made any disclosure of diamonds under the VDIS nor he has sold any diamond. The disclosure and the sale is made by the family members who have declared the same in their regular returns filed before search. The VDIS declaration by the family members has been accepted and certificate under section 68(2) of the Finance Act, 1997, has been issued by the learned CIT. The proprietor of M/s Tambi Jewellers who purchased the diamonds was examined by the Assessing Officer who accepted the purchases made by him from these family members. In search no incriminating material was found to hold that the sale is bogus. The statement of the family members heavily relied on by the Assessing Officer cannot be a basis for drawing an adverse inference in view of the retraction of these statements and the affidavits of the family members filed before the Assessing Officer which remained un controverted. The sale proceeds were received by the family members and credited in their respective bank account. From these bank accounts, the assessee received the loan which is duly reflected in the regular returns. The Authorised Representative has rightly referred to question No. 14 of CBDT Circular No. 754, dt. 10th June, 1997 which is extracted as under :

"Question : In the case of ladies and minors making declaration and amounts are later credited in the books of account of the firm, etc. it needs to be clarified as to what will be the view of the Department, particularly, whether Assessing Officer can investigate into the source of the amounts so credited ?

Answer : The declarant—lady or minor should first credit the amount declared in their own books of account or any other record. Thereafter, the advance can be made to other persons. Where the amounts credited in the books of other persons are equal to or less than the amount declared by the lady or the minor, then the Assessing Officer should accept the credit entries in the books of the firm. If the amount credited is more than the amount declared, the Assessing Officer will be free to enquire into such excess."

In this case also the sale proceeds of diamonds declared under VDIS were first credited in the bank account of family members and then they provided deposits to the assessee. Thus, in the hands of the assessee the credit is fully explained. In these circumstances, the addition cannot be made in the hands of the assessee.

50. We further noted that similar issue has been decided by this Bench in case of Shripal Kataria [IT(SS)A Nos. 52 and 76/Jp/2001, dt. 29th Nov., 2001], where the addition was deleted by giving following findings :

"We have carefully considered the rival submissions of the parties, perused the material available on record and the written submissions filed by the learned Authorised Representative and also the decision relied upon by him. We find that the jewellery under sale was disclosed jewellery of Shripal Kataria, Shripal Ajai Kumar HUF and Smt. Vijaya Devi. The CIT, Udaipur has accepted the said disclosure or Shri Shripal Kataria, Shripal Ajai Kumar HUF and Smt. Vijaya Devi to be valid disclosures and issued certificate under section 68(2) of the Finance Act, 1997 on 22nd Feb., 1998, 15th Feb., 1998 and 22nd Feb. 1998 respectively. The valuation reports of jewellery disclosure were also filed along with the disclosures made by the assessee, assessee’s HUF and his wife after verification of the existence of the jewellery. The certificates issued by the CIT, Udaipur, have not been withdrawn. The sale bills are also in the names of said persons, which have been credited in their respective accounts. Neither any material was found or brought on record by the Assessing Officer that there has been laundering of undisclosed income, nor it was found as a result of search from which it could be said that appellant gave cash for arranging sale bill or for taking payments in the names of these persons. Parties to whom sales have been made have also not denied the genuineness of all the transactions with them. The disclosed jewellery, which stood as already sold, could not be held to be bogus because the same was not found at the time of search for the simple reason that what was disclosed stands duly disposed of to the extent of sale and in consideration thereof, the payment had been received and disclosed in the regular accounts. The authorities below have proceeded merely on the basis of suspicion and no evidence was found as a result of search from which it can be said that the disclosures made under VDIS are bogus. The Assessing Officer had no power to declare such disclosures as fictitious disclosures. Merely because description of certain remaining items was not tallying is attributable to various other reasons, like mixing of jewellery and conversion, etc. However, the same does not lead to conclusion or evidence that the disclosures were not genuine. The burden lay on the Assessing Officer to prove that disclosures made were bogus. This has not been discharged. No addition can be made merely on the basis of suspicion as undisclosed income for the block period. Even otherwise, the sale was made by three different persons, namely, Shri Shripal Kataria, Shripal Ajay Kumar, HUF and Smt. Vijaya Devi. Under no circumstances the sale proceeds thereof could have been treated as undisclosed income of the assessee. The CIT(A) is, therefore, found to have committed an error in upholding the action of the Assessing Officer to treat the amount of sale as undisclosed income on the premises that declarations made under VDIS are not genuine. We, therefore, direct the Assessing Officer to delete the addition of Rs. 21,17,828 on this account."

The Gujarat High Court in case of Nitin P. Shah (supra), has also held that Assessing Officer is not competent to make addition in respect of income which has been declared under VDIS, 1997, accepted by the learned CIT and certificate issued and tax paid by the assessee, so long as certificate holds the field.

51. In view of the discussions above, we are of the opinion that the declaration made under VDIS and the sale of diamonds declared therein cannot be held to be bogus/non-existent as held by the Assessing Officer. The addition made in the assessee’s hands is, therefore, rightly deleted by the learned CIT(A). This ground of the Department is, therefore, dismissed.

Ground No. 13 : Directing the Assessing Officer not to charge interest under section 158BFA(1) for the period of delay in supply of photocopies of the seized material particularly when the charging of interest under section 158BFA(1) is mandatory.

52. The brief facts of this ground are that the Assessing Officer charged interest under section 168BFA(1) from the due date for filing of block return as per notice under section 158BC(a).

53. The learned CIT(A) held that interest under section 158BFA should not be imposed for the period of delay in the supply of photocopy of the seized material to the appellant.

54. After hearing the rival submissions, we find that the assessee has repeatedly requested various authorities of the Department but despite of his requests the Department has not provided the copies of seized records. In case of Dy. CIT v. Ratan Lal Jain [2001] 73 TTJ (Pat.) 364 it is held that although the provisions for charging interest under section 158BFA, in case of delayed filing, of block return, seem to be mandatory, yet inasmuch as interest is of penal nature, at least to some extent, in such a case, it has got to be considered that if the delay be not attributable to the assessee, he cannot be penalised by way of charging of interest under section 158BFA. This view is also followed by this Bench of Tribunal in case of Asstt. CIT v. Balchand Baldawa [IT(SS) Appeal No. 5/(Jp) of 2003]. In these facts the CIT(A) has rightly directed that interest cannot be charged for the period of delay in the supply of photocopy of the seized material. Hence, the ground of the Department is dismissed.

55. In the result, appeal of the assessee is partly allowed and that of the Department is dismissed.