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Smart Summary

Structured Summary of the Opinion (Accountant Member A.L. Gehlot)

Factual and Procedural Background

Two appeals by two different assessees (block period 1-4-1988 to 22-12-1998) were heard together and decided by a common order. The appeals challenge orders of the CIT(A) dated 12-3-2003 and 17-2-2004 respectively. The assessments arose under section 158BA read with section 158BD of the Income-tax Act, 1961 (block assessment provisions).

The appeals raise multiple grounds including challenges to the validity of notices under section 158BC, additions treating several years' incomes (totaling Rs. 3,38,200) as undisclosed income, and additions of Rs. 7,82,000 alleged to represent on-money paid towards purchase of a flat (assessed under section 69). A search took place on 22-12-1998; a loose paper seized during search purportedly recorded cash payments in relation to two flats. The Assessing Officer made additions based on the seized paper; the CIT(A) confirmed the additions. The appeals concern (a) treatment of certain incomes during the block period as undisclosed income and (b) validity of additions under section 69 based on the seized loose paper and related presumptions from search/seizure.

Legal Issues Presented

  1. Whether notices issued under section 158BC(1)(a) (allegedly granting 10 days instead of 15) were valid (grounds 1 & 2).
  2. Whether income of the assessee for certain assessment years (aggregate Rs. 3,38,200) that was not the subject of filed returns and in some years below the taxable limit should be treated as undisclosed income for block assessment purposes under sections 158BB / 158BC.
  3. Whether an addition of Rs. 7,82,000 under section 69 (unexplained investments/own money in purchase of flat) could be sustained based on a seized loose paper and the presumptions under section 132(4A), including the evidentiary value of statements recorded under section 132(4) and summons under section 131.
  4. Whether uncorroborated loose papers found at search can be the sole basis for making additions in block assessment and how the discretion under section 69 should be applied in such circumstances (grounds 4–7).

Arguments of the Parties

Assessee's Arguments (Ld. Authorised Representative)

  • For grounds 1 & 2: These grounds were not pressed before the tribunal (the representative did not pursue them further).
  • Regarding treatment of incomes during block period: The assessee argued that total income for several years within the block must be computed under Chapter IV and that incomes which were below the taxable limit or subject to TDS/advance tax (salary and interest) should not be treated as undisclosed income. The assessee pointed to TDS returns and the employer's records showing salary and TDS deductions.
  • Regarding the Rs. 7,82,000 addition: The assessee denied any cash/on-money payment. Statements recorded under section 132(4) (assessee) and under section 131 (seller) denied receipt/payment of on-money. The loose paper was not in the handwriting of the assessee or seller; the flat was sold at a low/distress price and comparable market data and approvals for weaker-section flats were produced to justify the declared consideration. The assessee relied on judicial authority (including P.R. Metrani v. CIT (SC)) that the presumption under section 132(4A) is rebuttable and cannot be the sole basis for addition, and on authorities that section 69 requires discretion and explained investments need not automatically be treated as income.
  • Assessee relied on multiple authorities to support the proposition that uncorroborated loose papers alone are insufficient to sustain additions.

Revenue's Arguments (Ld. Departmental Representative)

  • On undisclosed income (block): The Department relied on the decision of Commissioner of Income Tax v. M.M. George (Ker.) that income below taxable limit is not to be excluded from undisclosed income of block period if not declared by filing a return, and submitted the Assessing Officer correctly included such incomes where returns were not filed.
  • On the Rs. 7,82,000 addition: The Revenue relied on the seized loose paper which purportedly recorded the entire consideration (cheque plus cash) for the two flats and contended the document should be read as a whole. The AO and CIT(A) treated the seized paper as reliable evidence. The Department further relied on the statutory presumptions in section 132(4A) (that documents found in search are presumed to belong to the person and their contents true) to support the addition. The Department also pointed to other evidence suggesting capacity to pay (investments and declaration under VDIS of Rs. 40 lakhs) to rebut the assessee's claim of lack of capacity to pay on-money.

Table of Precedents Cited

Precedent Rule or Principle Cited For Application by the Court
Salvi Divakar Shankar v. Asstt. CIT [2000] 72 ITD 552 (Pune) Salary income on which TDS is deducted is not undisclosed income under section 158B(b). The court cited this decision among others to support the conclusion that salary/interest income subject to TDS (and in some years below taxable limit) should not be treated as undisclosed income for block assessment.
Vidya Madanlal Malani v. Asstt. CIT [2000] 74 ITD 341 (Pune) If source of income is known to the Department the income cannot be treated as undisclosed under section 158B(b), even if it falls within section 158BB. Used to reinforce that income recorded in departmental records (e.g., TDS returns) is not undisclosed for block assessment purposes.
P.R. Patel v. Dy. CIT [2001] 78 ITD 51 (Bom.) Proposition mentioned in text regarding advance tax and undisclosed income (text indicates relevance on advance tax treatment). Referenced by assessee; the court noted various tribunal decisions on the issue when analysing income to be excluded from undisclosed income.
CIT v. Shyamlal Balram Gurbani [2001] 249 ITR 501 (Bom.) Income from interest and salary duly recorded in audited accounts/balance sheet is not undisclosed income. Relied upon as authority supporting the proposition that recorded salary/interest need not be included as undisclosed income in block assessment.
CIT v. Ashok Taksali [2002] 257 ITR 352 (Raj.) Salary income on which TDS is deducted is not undisclosed income. Cited in support of the view that TDS-recorded salary is not to be treated as undisclosed income for block assessment.
Commissioner of Income Tax v. M.M. George [2002] 254 ITR 45 (Ker.) Kerala High Court: income below taxable limit of any previous year is not to be excluded from undisclosed income of the block period if not declared by filing return. The court observed this decision had been rendered largely redundant by the Finance Act, 1995 substitution of clause (c), and noted subsequent authority (M.M. Thomas) treating the George decision as superseded for certain incomes (e.g., TDS cases).
Commissioner Of Income-Tax v. M.M. Thomas [2004] 265 ITR 327 (Ker.) Subsequent Kerala High Court decision addressing the effect of statutory amendment and treatment of incomes subject to TDS. Cited to show the post-amendment position and to support non-inclusion of incomes subject to TDS/advance tax as undisclosed income in block assessments.
P.R. Metrani v. Commissioner of Income Tax, Bangalore [2006] 287 ITR 209 (SC) Presumption under section 132(4A) is a rebuttable presumption; not available for framing a regular assessment; section 132(4) statements may be used as evidence but section 132(4A) presumption has limited application. The court relied on this apex-court authority to hold that the presumption from a seized document is rebuttable and cannot by itself justify additions in regular or block assessment without considering the subsequent statements and evidence.
CIT v. Smt. P.K. Noorjahan [1999] 237 ITR 570 (SC) Section 69 confers discretion on the assessing officer; investments unexplained need not necessarily be treated as income in every case; discretion must be exercised considering facts and circumstances. The court applied this principle to conclude that the AO must exercise discretion and that, on the facts and explanations provided, section 69 should not have been invoked to make the addition.
Ushakant N. Patel v. CIT [2006] 282 ITR 553 (Guj.) Authorities relevant to invocation of section 69 (treatment of unexplained investments). Referenced as part of the body of authorities relied on by the assessee to contest the section 69 addition; court considered these authorities in evaluating whether explanation was satisfactory.
CIT v. P.V. Kalyanasundaram [2006] 282 ITR 259 (Mad.) Authorities relevant to invocation of section 69. Considered among decisions bearing on when section 69 can be properly invoked; formed part of the court's assessment of adequacy of explanation.
Biren Savla v. Asstt. CIT [2006] 155 Taxman 270 (Mum.) (Mag.) Decision addressing section 69 / unexplained investments. Relied upon by the assessee and considered by the court in the evaluation of the section 69 addition.
New Excelsior Theatre (P.) Ltd. v. M.B. Naik, ITO [1990] 185 ITR 158 (Bom.) Authority on inference and proof relating to unexplained investments/documents. Referred to as part of authorities cited to show legal requirements for sustaining additions under section 69.
Bansal Strips (P.) Ltd. v. Asstt. CIT [2006] 99 ITD 177 (Delhi) Authority that uncorroborated loose papers cannot by themselves sustain additions. Relied upon by the assessee to contend that the seized loose paper alone was insufficient; the court treated such authorities as relevant in holding that reliance solely on loose paper was improper.
Pankaj Dayabhai Patel (HUF) v. Asstt. CIT [1999] 63 TTJ (Ahd.) 790; Satnam Singh Chhabra v. Dy. CIT [2002] 74 TTJ (Luck.) 976; ITO v. Hanuman Poddar [2005] 98 TTJ (Asr.) 705; Rakesh Goyal v. Asstt. CIT [2005] 87 TTJ (Delhi) 151; Prarthana Construction (P.) Ltd. v. Dy. CIT [2001] 118 Taxman 112 (Ahd.); M.M. Financier (P.) Ltd. v. Dy. CIT [2007] 17 SOT 5 (Chennai) Various tribunal/authority decisions on evidentiary weight of loose papers and corroboration required. The court took these decisions into account in concluding that uncorroborated loose papers found at search cannot be the sole basis for additions; they support the proposition that corroborative inquiry and confrontation (statements, summons) are necessary.

Court's Reasoning and Analysis

The court conducted a two-part analysis addressing (A) the treatment of incomes within the block period and (B) the addition under section 69 based on the seized loose paper.

(A) Treatment of incomes within the block period (Rs. 3,38,200)

  • The court noted that several assessment years within the block period showed total income below the taxable limit and that, at the time, the assessee was not obliged to file returns for such years.
  • The court reviewed the statutory scheme for computing undisclosed income under Chapter IV and observed that clause (c) of section 158BB(1) had been substituted by the Finance Act, 1995, with effect from 1-7-1995. That substitution altered the legal landscape and rendered the Kerala High Court decision in M.M. George (which had taken a contrary view) largely redundant in relevant respects.
  • Relying on tribunal and High Court decisions cited by the assessee (including those holding that salary/interest recorded and subject to TDS are not undisclosed), and in light of the statutory amendment, the court concluded that incomes which were below taxable limit and/or subject to TDS or advance tax should not be treated as undisclosed income for block assessment purposes. The Assessing Officer was directed accordingly.

(B) Addition of Rs. 7,82,000 under section 69 (seized loose paper)

  • The court summarized the factual matrix: search dated 22-12-1998, purchase agreements showing cheque payments of Rs. 1,56,000 each for two flats, and a seized loose paper purporting to show additional cash payments totalling Rs. 15,60,000 for two flats and an apportioned own-money figure of Rs. 7,82,000 attributed to the assessee.
  • The Assessing Officer relied on the seized paper and made an addition under section 69; the CIT(A) confirmed the addition, treating the accused paper as descriptive and corroborative of on-money payments.
  • The assessee produced statements recorded under section 132(4) denying any on-money payment and the seller produced a statement under section 131 denying receipt of on-money; the seized paper was not in the handwriting of the assessee or seller. The assessee also provided comparable market data and an explanation (weaker-section housing, distress sale, occupancy certificate issues) to justify the declared consideration.
  • The court invoked P.R. Metrani (SC) to state the legal position that the presumption under section 132(4A) is rebuttable and is not meant to be automatically usable for framing regular assessments; statements recorded under section 132(4) and summons under section 131 are admissible evidence that affect the evidentiary weight of a seized document.
  • Applying these principles, the court found that the Revenue authorities had relied heavily and improperly on the seized loose paper while ignoring or treating as not used the subsequent statements of the assessee and the seller. The court held that the department could not disregard these statements and that the evidentiary value of the presumption under section 132(4A) must be assessed in light of the competing statements and evidence.
  • Turning to section 69 jurisprudence (Smt. P.K. Noorjahan and others), the court emphasized that section 69 confers discretion on the assessing officer and that unexplained investments need not always be treated as income; the officer must consider the facts and circumstances. On the facts, the court concluded that the assessee had furnished satisfactory explanations and market-comparable evidence and that there was no material establishing that the explanation was not satisfactory.
  • Accordingly, the court found the addition under section 69 was not in accordance with law and deleted the addition(s).

Holding and Implications

Core Ruling: The tribunal allowed the appeals to the extent set out in the order: the appeal of Shri Harish Daulatram Innani was partly allowed and the appeal of Shri Daulatram Innani was allowed. Specifically, additions of Rs. 7,82,000 (and related additions in both cases) made by the Assessing Officer under section 69 were deleted and the Assessing Officer was directed to treat incomes falling within the block period that were below taxable limits and/or subject to TDS/advance tax in accordance with the legal analysis set out in the order.

Implications:

  • Direct effect on the parties: the contested additions (notably the Rs. 7,82,000 addition under section 69) were deleted and the Assessing Officer was directed to apply the principles set out in the order when computing undisclosed income for the block period.
  • The court applied existing statutory interpretation and authorities (including P.R. Metrani and Smt. P.K. Noorjahan) to resolve evidentiary and discretion issues; the decision is an application of those precedents to the facts of these appeals rather than an announcement of a novel legal principle.

Note: This summary reproduces and condenses the reasoning and conclusions found in the provided opinion without introducing information not present in the source text.

    Harish Daulatram Innani v. Deputy Commissioner of Income-tax (INV), Cir. 11(1), Mumbai

    ORDER

    A.L. Gehlot, Accountant Member. - These two appeals are filed by two different assessees. The block periods are 1-4-1988 to 22-12-1998. The appeals are directed against the order of the CIT(A), dated 12-3-2003 & 17-2-2004 respectively. The appeals arise out of the assessment completed under section 158BA, read with section 158BD of the Income-tax Act, 1961. Since grounds rose in both appeals based on identical facts, therefore, for the sake of convenience both appeals are decided by this common order. The facts leading to the case have been discussed in detail in case of Shri Harish Daulatram Innani in ITA No. 321/M/03 therefore same are considered in deciding both the appeals which are as under :—

    2. The grounds raised by the assessee are as follows :


    "1. The ld. CIT(A) erred in holding that notice issued for filing return of income for block period under section 158BC( a) granting time of 10 days instead of 15 days provided under law is a valid notice and as a consequent thereof block assessment made by the ld. Assessing Officer is a valid assessment order.
    2. The ld. CIT(A) failed to appreciate that notices issued under section 158BC( a) not being in accordance with the provisions of section 158BC being invalid, the assessment made in response thereto is also an invalid assessment.
    3. The ld. CIT(A), erred in confirming the order of the ld. Assessing Officer taxing income of Rs. 3,38,200 derived by the assessee by way of salary etc. for which no return of income was filed was concealed income under section 158BB in spite of the fact that such income was already disclosed to the Department or was below taxable limit.
    4. The ld. CIT(A) erred in confirming the addition of Rs. 7,82,000 under the provisions of section 69 being alleged investment made by the appellant in acquisition of flat without properly considering the evidence on record.
    5. The ld. CIT(A) erred in holding that addition of Rs. 7,82,000 is warranted on account of slip of paper seized during the course of search without any independent evidence being brought on record to prove such investment and also ignoring the evidence of record.
    7. The ld. CIT(A) also failed to appreciate that the appellant is not having any source of income for making alleged investment in flat.

    3. Ground Nos. 1 & 2 has not been pressed by the ld. Representative of the assessee therefore same are dismissed as not pressed.

    4. The facts of ground No. 3 are that the Assessing Officer made addition on the ground that the assessee has not filed any return of income for the following years :

    A.Y. Total Income Taxable Limit
    1989-90 12,120 18,000
    1992-93 24,990 25,000
    1993-94 35,450 28,000
    1994-95 37,040 30,000
    1995-96 34,840 35,000
    1996-97 54,120 40,000
    1997-98 65,940 40,000
    1998-99 73,700 40,000
    Total 3,38,200

    5. The addition made by the Assessing Officer has been confirmed by the CIT(A).

    6. The ld. Representative of the assessee submitted that the total income of the previous year's falling within the block period has to be computed in accordance with Chapter IV of the Income-tax Act treating as undisclosed income. Out of such computed income specified under sub-clauses (a) to (f) of section 158BB is to be reduced and balance income is taxable as undisclosed income. The ld. AR submitted that the return of income has not been filed for the above assessment years as the income computed for the assessment years 1989-90, 1992-93 & 1995-96 are below taxable income. He further submitted that assessee's main source of income was salary and interest on which TDS was deducted. The employer, M/s. Apollo Finvest (India) Ltd. has filed its TDS return disclosing the amount of salary paid and TDS deducted. The ld. AR further submitted that the TDS return for the assessment years 1996-97, 1997-98 and 1998-99 were submitted before the revenue authorities. The ld. AR submitted that the particulars of the salary paid to the assessee are duly recorded in the books of account of the employer, who has been searched along with the assessee. He further submitted that the salary and interest income is subject to TDS cannot be computed as undisclosed income. The ld. AR in support of his contention relied on the following decisions :


    1. Salvi Divakar Shankar v. Asstt. CIT [2000] 72 ITD 552 (Pune), for the proposition that salary income on which TDS is deducted is not an undisclosed income within the meaning of section 158B( b) of the Income-tax Act.
    2. SOU, Vidya Madanlal Malani v. Asstt. CIT [2000] 74 ITD 341 (Pune), for the proposition that if source of income is known to the Department such income could not be treated as undisclosed income having regard to section 158B( b), even if such income falls under the provisions of section 158BB. The scope of the undisclosed income has to be decided with reference to sections 158B and 158BA of the Income-tax Act.
    3. P.R. Patel v. Dy. CIT [2001] 78 ITD 51 (Bom.), for proposition that advance tax is paid even if return is filed is treated as undisclosed income.
    4. CIT v. Shyamlal Balram Gurbani [2001] 249 ITR 501 (Bom.), income of the appellant being from interest and salary duly recorded in audited accounts balance sheet of the firm is not undisclosed income.
    5. CIT v. Ashok Taksali [2002] 257 ITR 352 (Raj.). Salary income on which TDS is deducted is not undisclosed income.

    7. The ld. Departmental Representative relied upon the order of the CIT(A) and submitted that in case income of the assessee is below the taxable limits of any previous year, is not to be excluded from the undisclosed income of the block period for the purposes of section 158BC, if such income has not been declared by the assessee by filing of return of income. The ld. DR in support of his contention relied in the case of Commissioner Of Income Tax v. M.M George [2002] 254 ITR 45 (Ker.).

    8. We heard the Ld. Representative of the parties and records perused. We noticed that in assessment years 1989-90, 1990 to 1993 and 1995-96 are apparently below taxable limit and the assessee was not required to file return of income as per the provisions prevailing at that time. We further noticed that in Block assessment only undisclosed income is required to be computed. The assessee's income stated to be in the form of salary and interest which is subject to TDS. Clause (c) of section 158BB(1), prior to its sub-station laid down that in computing undisclosed income, income to be reduced for a particular year would be Nil if in relation to that year no return of income had been filed even though due date for filing of return of income had expired. Interpretation of this original clause gave rise to serious controversy between taxpayers and the Department plea of the taxpayers used to be that since there was no obligation to file return of income in relation to the year in which income of the taxpayer was below taxable limit, the entire income of such year could not be treated as undisclosed income and subjected to higher rate of tax solely on the ground that no return of such income had been filed. The department relied on literal interpretation of the words of said clause (c) as it stood prior to its substitution. There were some Tribunal decisions in which this point was decided in favour of assessee. The controversy came up for adjudicating before Kerala High Court in M.M. George's case (supra) in which the decision went against the assessee. The High Court held that income below the taxable limit of any previous year is not to be excluded from the undisclosed income of the block period for the purpose of section 158BC, if such income has not been declared by the assessee by filing the return of income. Clause (c) has been substituted by a clause with effect from 1-7-1995 by the Finance Act, 1995. The decision of Kerala High Court has been rendered redundant in view of said substitution. As held by the Kerala High Court itself in a subsequent judgment in the case of Commissioner Of Income-Tax v. M.M Thomas [2004] 265 ITR 327 . In respect of income which is subject to TDS. We noticed that there are various decisions on the issue including the decisions cited by the ld. Authorised Representative of the assessee according to which such income is not to be treated as undisclosed income as such income was known to the department. In the light of the above discussion, we are of the view that the income in the case where it was below taxable limit and income subject to TDS and advance tax, those income are not to be treated as undisclosed income. The Assessing Officer is directed accordingly.

    9. Ground Nos. 4 to 7 are pertaining to addition of Rs. 7,82,000.

    10. The brief facts of these grounds are that a search took place on assessee's premises on 22-12-1998. During the block assessment proceedings, the Assessing Officer noticed that the assessee purchased a flat being flat No. 503, Siddharth Nagar, Borivali (E), Mumbai under agreement dated 1-12-1994 from Mr. Anisa Maheshwari for a declared consideration of Rs. 1,56,000. Another flat was purchased by the father of the assessee from Ms. Richa Maheshwari for similar consideration. A slip of paper was found attached during the course of search along with these purchase agreements of the flats showing payment of own money of Rs. 15,60,000 for two flats.

    11. The Assessing Officer noted the contents of the seized papers which is reproduced from the order of the Assessing Officer, page 9 as under :

    (A) (B)
    952500 + 962500 = 19,25,000
    Less TIS = 53,000
    50 × 1060 18,72,000
    Less: By cheque 3,12,000
    156000 × 2 15,60,000
    50+50 Paid 11,00,000
    Hari M.D.
    Kavurutlal 4,60,000
    Balance Nil

    12. The Assessing Officer concluded that the assessee had paid Rs. 7,82,000 as own money for purchase of the flat as per the seized paper. The addition made by the Assessing Officer has been confirmed by the CIT(A) with following observations :

    "I have considered the submission of the Ld. AR. The Assessing Officer has reported vide letter dated 10-2-2003 a remand report. After considering explanation of the appellant and remand report from the Assessing Officer, it is found that the seized slip very clearly shows that there is payment of Rs. 7,82,000 in cash for acquisition of the flat. The facts regarding transaction of flat No. 503, Siddharth Nagar, Borivali (E), Mumbai has been brought out in details by the Assessing Officer. He has also relied upon the figures as written on the seized paper where cheque payment has been separately written of Rs. 1,56,000 × 2 = Rs. 3,12,000. The paper is descriptive of transaction having taken place in respect of the flat in question. Thus the seized paper cannot be described a dumb document or paper as learned AR wants the department to believe. Looking to the fact of rate of property prevent as brought out in the order of the Assessing Officer and that seized paper show quantum of on money which corroborates also the prevalent rate in the locality [Siddharth Nagar, Borivli (E)] where property is located and weighing these points against mere general statement of Sri Anish Maheshwari on which the appellant relies without corroborating the same with some more evidences/materials, I uphold action of the Assessing Officer."

    13. The ld. Representative of the assessee submitted that a flat was purchased by Shri Anish Maheshwari on 20-3-1991 from the builder for a consideration of Rs. 1,32,500. The assessee purchased the flat being flat No. 503, Siddharth Nagar, Borivali (E), Mumbai under agreement dated 1-12-1994. The flat was constructed for the weaker sections. The ld. AR submitted that no cash payment has been made for the acquisition of said flat. He further submitted that the said flat is situated at Siddharth Nagar; where there are 15 buildings consisting of 42 flats and all the flats are being purchased for similar consideration. The Assessing Officer made addition on presumption pain money was paid. The ld. AR submitted that presumption under section 132(4A) is not available for assessment. The ld. AR in support of his contention relied on the decision in the case of P.R. P.R Metrani v. Commissioner Of Income Tax, Bangalore. [2006] 287 ITR 209 (SC).

    14. The Ld. AR further submitted that the Assessing Officer made addition under section 69. He submitted that unexplained investments not necessary to be treated as income of the assessee. The requirements of section 69 are to be satisfied for making assessment as undisclosed income. The Ld. AR submitted that in the case under consideration the requirement of section 69 is not satisfied therefore there is no question of any addition in block assessment under section 69 of the Income-tax Act. The ld. AR in support of his contention relied on the following decisions :


    1. CIT v. Smt. P.K. Noorjahan [1999] 237 ITR 570 (SC).
    2. Ushakant N. Patel v. CIT [2006] 282 ITR 553 (Guj.).
    3. CIT v. P.V. Kalyanasundaram [2006] 282 ITR 259 (Mad.).
    4. Biren Savla v. Asstt. CIT [2006] 155 Taxman 270 (Mum.)(Mag.).
    5. New Excelsior Theatre (P.) Ltd. v. M.B. Naik, ITO [1990] 185 ITR 158 (Bom.).

    15. It is also submission of the ld. AR that uncorroborated loose papers cannot be the sole basis for the addition. The ld. AR in support of his contention relied upon the following decisions:


    1. Bansal Strips (P.) Ltd. v. Asstt. CIT [2006] 99 ITD 177 (Delhi).
    2. Pankaj Dayabhai Patel (HUF) v. Asstt. CIT [1999] 63 TTJ (Ahd.) 790.
    3. Satnam Singh Chhabra v. Dy. CIT [2002] 74 TTJ (Luck.) 976.
    4. ITO v. Hanuman Poddar [2005] 98 TTJ (Asr.) 705.
    5. Rakesh Goyal v. Asstt. CIT [2005] 87 TTJ (Delhi) 151.
    6. Prarthana Construction (P.) Ltd. v. Dy. CIT [2001] 118 Taxman 112 (Ahd.)(Mag.).
    7. M.M. Financier (P.) Ltd. v. Dy. CIT [2007] 17 SOT 5 (Chennai) (URO).

    16. The ld. AR submitted that a summon under section 131 was issued to Mr. Anish Maheshwari from whom the flat was purchased. His statement dated 8-12-2000 has been recorded wherein Mr. Maheshwari confirmed not to have received any on money. The relevant questions and answers from the said statement as pointed by the ld. A/R are reproduced as below:

    "Q.No.1 Kindly identify yourself?

    Ans. I am Anish Maheshwari, S/o Ashok Maheshwari, 8, Setalwad Lane, Napean Sea Road, Mumbai-400 036. I am filing return of income for the last many years. Details were already given as per my letter dated 8-12-2000.

    Q.No.2 It is seen that on 1-12-1994 you have sold Flat No. 503, 5th Floor, 'A' Wing, Siddharth Nagar, Borivali(E), Mumbai-66 to one Mr. Harish Imani for a sum of Rs. 1,56,000. Whether the said amount has been received by cheque or cash?

    Ans. The amount was received by Cheque No. 517778 dated 23-11-1994 on Sngli Bank Ltd.

    Q.No.3 I am showing you page No. 54 of the loose paper file seized on 22-12-1998 from the residence of Shri Harish Imani. Can you tell me in whose handwriting in this paper?

    Ans. This is neither my handwriting nor my father's nor my other family members. I do not know whose handwritings they are?

    Q.No.4 As per the writing in this paper it is evident that a sum of Rs. 7,80,000 on money has been paid by my assessee, Shri Harish Imani. Do you want to say regarding this writing?

    Ans. I do not know to whom this payment is made and I reconfirm that neither I nor any of my family members have received such payment.

    Q.No.5 Your flat is admeasuring about 530 sq. ft. and the total sale price is Rs. 1.56 lakhs. Accordingly per sq. ft. works out to Rs. 295. In the year 1994 per sq. ft. value of the flat is only Rs. 295 - at Borivali, Mumbai. It appears to be very much on the lower side. Can you justify the reason why it was sold for much lower than market price?

    Ans. I deny that it is not market price of my flat. I have sold the flat more or less on distress sale basis as at the time of sale. I was informed that the builder has acquired the land illegally and the title deed was not clear and there could be other problems including electricity, occupation was not issued, even society was not formed. Hence I took the decision to sale the flat immediately on whatever price prevalent at that time to save further loss.

    Q.No.6 Whether you want to say anything more in this regard?

    Ans. No."

    17. The ld. AR further submitted that statement under section 132(4) of Shri Harish Daulatram Imani was also recorded on 22-12-1998. The relevant questions and answers pointed out by the Ld. A/R from page 110 of paper book are reproduced below :

    "Q.No.14. Please give details of purchase of Flat Nos. 503 and 504 by you and your father Shri Daulatram Imani respectively.

    Ans. Both the flats were purchased on 1-12-1994 at the price of Rs. 1,56,000 each. Flat No. 503 in A-3 Bldg. Siddharth Nagar, Borivali purchased by me from Mr. Anish Maheshwari, Flat No. 504 in the same building was purchased by my father Shri D.R. Inani from Ms. Richa Maheshwari. The amount were paid in cheque.

    Q.No.15. Please confirm whether any amount was paid by you or your father in cash over and above the paper value of the flats of Rs. 1,56,000 each?

    Ans. No.

    Q.No.16. I am showing page No. 54 of loose paper filed Annexure A-1. This paper was found in the original documents to purchase Flat No. 503, Bldg. No. A-3, Siddharth Nagar, Borivali (E).

    Ans. This paper is not written in my handwriting and I do not know how and why it was placed in the original document of purchase of Flat No. 503. It may be coincident that the amount of Rs. 3,12,000 by cheque are related to the purchase price of two flats. Flat Nos. 503 and 504 in A-3 Bldg., Siddharth Nagar, Borivali (E) is at the cost of Rs. 1,56,000 each. I do not know anything about this paper.

    The only source myself and my father Shri Daulatram Innani....... Salary........ business respectively. I have been getting Rs. 10,000.................. My father's average income is Rs. 7,000 per month. This shows that none of us can pay cash of Rs. 13,60,000 as written in page No. 54."

    18. The ld. AR submitted that Assessing Officer has not made any reference to these statements in his assessment order. He further submitted that the assessee has also filed confirmation and details of returns of sellers. There is nothing to prove that any cash payment has been made for purchase of the said flat. The ld. AR submitted that the assessee being a salaried employee has no capacity to pay Rs. 7,82,000 in cash for acquisition of the said flat. He submitted that the loose paper is neither in handwriting of the assessee nor any of their family members. The said paper was found with other paper not related to the assessee. The learned A/R while justifying the amount paid for purchase of flats submitted that the land on which said building and flats are situated was excess land and Smt. Jaylaxmi N. Jhaveri applied to hold the said land in excess of the ceiling limit for construction of houses for weaker sections of the society. The scheme was approved by the Additional Collector and Competent Authority, Urban Land Ceiling, Greater Bombay. The land on which building was constructed was in litigation and hence project was delayed. As project was delayed, rate for construction of tenements were revised. The Government has approved the rate of Rs. 310 per sq.ft. The builders M/s. S.V. Builder sold the flats in the same buildings during the period January 1994 to December 1999 were in the range of Rs. 1,64,300 to Rs. 1,85,500 (details and copies of some agreements furnished are at pages 17 to 69 of assessee's paper book. [ITA No. It(ss)170/M/04)]. The permission to occupy the completed building was issued by the "Municipal Corporation of Greater Mumbai on 20-12-2001. The Ld. AR further submitted that when the occupancy certificate was not received the flat sold by sellers. Therefore question on on-money does not arise.

    19. The ld. Departmental Representative on the other hand relied on the order of the CIT(A) and submitted that the assessee does not dispute that the area of each of the flat was 530 and the two flats together were 1,060 sq. ft. An amount of Rs. 1,56,000 was paid for each flat and this payment was made by cheque and a total amount was Rs. 3,12,000. Therefore in the total document two of the facts have been accepted by the assessee, i.e., area of the flat and the amount paid by account-payee cheque. The ld. DR submitted that the subsequent writings, i.e., the cash portion of the transactions which are also recorded have not been accepted by the assessee which is just below the cheque amount. He further submitted that assessee was accepting part of the document.

    20. The ld. DR submitted that section 132(4A) is very clear which provides that where any books of account, other documents, money bullion, jewellery or other valuable article or thing are or is found in the possession or control of any person in the course of a search, it may be presumed that said things belong to such person.

    21. As regards the contention of the ld. AR that the assessee does not have the capacity for payment of such money. The ld. DR drew our attention on page-111 of paper book of the assessee wherein the investments in various companies were mentioned. The assessee has also made declaration under VDIS a sum of Rs. 40 lakhs. Thus it cannot be said that the assessee was not having the capacity to pay on-money.

    22. We heard the ld. Representatives of the parties, perused the records and gone through the decisions cited. The Revenue has heavily relied upon the paper found at the time of search. According to the Revenue that paper contains details of consideration paid by the Assessee through cheque and in cash therefore the whole details of said paper is to read together. The Assessing Officer made addition under section 69 of the IT Act. To examine the issue we would like to see the relevant provisions of the IT Act and some judicial pronouncements which are as under:—

    Sub-section (4A) of section 132 which provides that where any books of account, other documents, money bullion, jewellery or other valuable article or thing are or is found in the possession or control of any person in the course of a search, the following presumptions shall be made:


    (i) That such books of account, other documents, money, bullion, jewellery or other valuable article or thing belong or belongs to such person;
    (ii) That the contents of such books of account and other documents are true; and
    (iii) That the signature and every other part of such books of account and other documents which purport to be in the handwriting of any particular person or which may reasonably be assumed to have been signed by, or to be in the handwriting of any particular person, are in that person's handwriting, and in the case of a document stamped, executed or attested, that it was duly stamped and executed or attested by the person by whom it purports to have been so executed or attested.

    23. Section 132(4) empowers "The authorised office may, during the course of the search and seizure, examine on oath any person who is found to be in possession or control of any books of account, documents, money, bullion, jewellery or other valuable article or thing and any statement made by such person during such examination may thereafter be used in evidence in any proceeding under the Income-tax Act.

    24. The CBDT in Circular No. 179, dated, 30-9-1975 which explained the intention of the instruction that sub-section (4A) was intended to enable a rebuttable presumption being made with the books of account etc. were found in the position or control of any person in the course of a search belong to such person and with the contents of books of account are true and that signature and every other part of such books of account and other documents are in handwriting of the persons who can be reasonably assumed to have signed or written them.

    25. The Apex Court in the case of P.R. Metrani (supra ) held that the presumption under sub-section (4A) is a rebuttable presumption. The relevant finding is reproduced as under (head note):—

    "The words in sub-section (4A) of section 132 are 'may be presumed'. The presumption under sub-section (4A) therefore, is a rebuttable presumption. The presumption under sub-section (4A) would not be available for the purpose of framing a regular assessment. There is nothing either in section 132 or any other provision of the Act to indicate that the presumption provided under section 132 which is a self-contained code for search and seizure and retention of books etc. can be raised for the purposes of framing of the regular assessment as well. Wherever the Legislature intended the presumption to continue, it has provided so. It has not been provided that the presumption available under section 132(4A) would be available for framing the regular assessment under section 143 as well, whereas the Legislature under section 132(4) has provided that the books of account, money, bullion, jewellery and other valuable articles or things and any statement made by such person during examination may thereafter be used as evidence in any other proceedings under the Act, it has not provided so under sub-section (4A) of section 132, it does not provide that the presumption under section 132(4A) would be available while framing the regular assessment or for that matter under any other proceeding under the Act except under section 278D.

    Being a complete code in itself section 132 cannot intrude into any other provision of the Act. Similarly, other provisions of the Act cannot interfere with the scheme or the working of section 132 or its provisions."

    26. The Apex Court in the case Smt. P.K. Noorjahan (supra) examined the section 69 of IT Act and held as under (head note):—

    "In the corresponding clause in the bill which was introduced in Parliament, while inserting section 69 in the Income-tax Act, 1961, the word "shall" had been used but during the course of consideration of the bill and on the recommendation of the Select Committee, the said word was substituted by the word 'may'. This clearly indicates that the intention of Parliament in enacting section 69 was to confer a discretion on the Income-tax Officer in the matter of treating the source of investment which has not been satisfactorily explained by the assessee as the income of the assessee and the Income-tax Officer is not obliged to treat such source of investment as income in every case where the explanation offered by the assessee is found to be not satisfactory. The question whether the source of the investment should be treated as income or not under section 69 has to be considered in the light of the facts of each case. In other words, a discretion has been conferred on the ITO under section 69 to treat the source of investment as the income of the assessee if the explanation offered by the assessee is not found satisfactory and the said discretion has to be exercised keeping in view the facts and circumstances of the particular case.

    Held, dismissing the appeal, that in the instant case, the Tribunal has held that the discretion had not been property exercised by the Income-tax Officer and the Appellate Assistant Commissioner taking into account the circumstances in which the assessee was placed and the Tribunal has found that the sources of investments could not be treated as income of the assessee. The High Court has agreed with the said view of the Tribunal. There is no error in the said finding recorded by the Tribunal. Section 69 could not be invoked in respect of the investments of the assessee".

    27. From the above discussion, we find that presumption under section 132(4A) is rebuttable presumption. Statement under section 134(4) is one of the important evidence while making presumption under section 132(4A). Addition under section 69 can be made if the explanation offered by the assessee is not found satisfactory. In a search case where some material or loose paper is found, the department is to follow certain procedure viz., the assessee is to confront on the material found at the time of search. Examination of all concerned parties. For this purpose the Income-tax Act provides power to Revenue authorities under section 132(4) and under section 131 of the Income-tax Act. That income cannot be treated as undisclosed income merely because some loose paper is found during the course of search. The reasons are that noting, jotting and some rough calculation, not necessary related to the actual income. Further in case of joint family or otherwise in India, it is not necessary that every documents or such papers are exclusively in possession of the assessee. For ascertaining undisclosed income, the Revenue authorities have to follow certain procedure for examination of material found at the time of search. The undisclosed income to be assessed as such only after necessary examination of material found at the time of search. In the case under consideration, the assessee has confronted in respect of loose paper found at the time of search by taking statement under section 132(4) wherein the assessee has categorically denied paying any on-money for purchase of flats. This fact is clear from the statement recorded under section 132(4). (See Para 16 of this order). Further, at the time of block assessment, the Assessing Officer examined the selling party by issuing summons under section 131 of the IT Act. The seller has also categorically denied receiving any on-money in the transaction. (See Para 16 of this order). After examination under section 132(4) and under section 131 the evidentiary value of presumption under section 132(4A) is to be taken accordingly. It is important to note that both Revenue authorities, the Assessing Officer and the CIT(A) conveniently ignored the later part of examination by saying that those statements were not used against the assessee (as said by the Assessing Officer in remand report). They heavily relied upon the paper found at the time of search. Such action of revenue authorities is not appreciable as same is not in accordance with law. Therefore, their action in the matter cannot be approved. The department cannot convert a good proof or evidence in the form of statements of assessee recorded at the time of search under section 132(4) and statement of seller under section 131 of IT Act recorded at the time of assessment proceedings in to no proof or evidence. In the light of above discussion, we are of the considered view that additions in both the cases under consideration are not in accordance with law.

    28. Now we examine the addition in view of section 69 of IT Act. The Apex Court in the case of Smt. P.K. Noorjahan (supra) has laid down, the law that the explanation offered by the assessee is not found satisfactory, the Assessing Officer has to exercise his discretion keeping in view the facts and circumstances of the particular case. In the case under consideration, the assessee furnished comparable cases of prices of flats according to which the payment made by the assessee is the price prevailing in the market. The assessee has also filed necessary explanation to justify the purchasing cost of the flats. The revenue authorities have failed to appreciate this aspect of the facts of the case. We find that assessee has furnished satisfactory explanation regarding purchasing price paid by the assessee for purchase of flats and there is no material on record basis on which it can be said that the explanation offered by the assessee is not satisfactory. We therefore of the considered view that the Assessing Officer has wrongly invoke section 69 of the Income-tax Act. The addition made by the Assessing Officer is not in accordance with the provisions of section 69 of the Income-tax Act and the same is liable to be deleted. In the light of the above discussion, we delete the addition made by the Assessing Officer in both the cases.

    29. In the result, the appeal filed by the assessee Shri Harish Daulatram Innani is partly allowed and the appeal of Shri Daulatram Innani is allowed.

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    Harish Daulatram Innani v. Deputy Commissioner of Income-tax (INV), Cir. 11(1), Mumbai
    (Jun 20, 2008)