This appeal by the assessee is for the block period 1-4-1986 to 1-11-1996.
In this case, there was a search operation in the business premises as well as residential premises of the assessee-firm, on 31-10-1996 and 1-11-1996. During the course of the search operation, documents seized revealed investments made by the partners in movable and immovable properties out of the undisclosed income. A notice under section 158BC of the Income Tax Act, 1961 was issued to the assessee on 21-1-1997. In response to this notice, the assessee-firm filed a return declaring undisclosed income at Rs. 24,23,231 on 30-4-1997. The assessee was a proprietary concern of Mrs. Mary Jose till 30-9-1994, and it was converted into a partnership firm with effect from 1-10-1994 by deed executed on 1-10-1994. The assessee-firm did not maintain any books of account.
The assessee was asked to file the cash flow statement and wealth statement of various partners. It was submitted by the assessee that all the investments were made out of the income derived from the partnership as partners. The learned representative of the assessee submitted that the assessee is not disputing the addition of Rs. 27,54,791 made in the assessment year 1996-97 as undisclosed income, but claiming certain deductions in the following circumstances; The assessing officer while framing the assessment order under Chapter XIV-B treated an amount of Rs. 2,01,000 as investment in Kuri with Karamuck Co-operative Bank, being the peak amount. As on the last date of the block assessment period, i.e., as on 1-11-1996, the balance with the above bank was only Rs. 42,000 (in the ground of appeal the claim is Rs. 34,450) and hence, the difference was available with the assessee in the form of cash to be set off against the undisclosed investment for the block period.
The learned representative of the department, on the contrary, supported the order of the assessing officer and submitted that no interference is called for.
Considering the rival submissions, we are of the view that the plea of the assessee that the difference between the peak amount and the balance was available with the assessee as on the last date of the block period in the account with the co-operative bank has to be accepted. Accordingly, we hold that the difference was available with the assessee for making investment and the same should be allowed to set off against the amount added as unexplained investment. To this extent we reduce the addition made for the assessment year 1996- 97.
For the assessment years 1996-97, the next ground taken by the assessee is that administrative and overhead expenditure, interest, rent, Kuri loss and depreciation are also to be allowed. However, the assessee's representative submitted that since some other items have been allowed by the assessing officer himself, while computing the undisclosed income, he is pressing the claim only with regard to Kuri loss and depreciation. The learned departmental Representative supported the order of the assessing officer.
Chapter XIV-B is a special procedure for assessment of search cases.
The definition of "undisclosed income" under section 158B of the Income Tax Act, 1961, includes "any money, bullion, jewellery or other valuable article or thing or any income based on any entry in the books of account or other documents or transactions, where such money, bullion, jewellery, valuable article, thing, entry in the books of account or other document or transaction represents wholly or partly income or property which has not been or would not have been disclosed for the purposes of this Act. " The computation of 'undisclosed income' of the block period is to be done in accordance with section 15813B. Section 1581313(1) states that : "The undisclosed income of the block period shall be the aggregate of the total income of the previous year falling within the block period computed, in accordance with the provisions of Chapter IV, on the basis of evidence found as a result of search or requisition of books of account or documents and such other materials or information as are available with assessing officer, as reduced by the aggregate of the total income, or as the case may be, as increased by the aggregate of the losses of such previous years, determined." Explanation to section 158BB is to the effect that for the purpose of determination of undisclosed income under Chapter XIV-B of the Act.
(a) the total income or loss of each previous year shall, for the purpose of aggregation, be taken as the total income or loss computed in accordance with the provisions of Chapter IV without giving effect to set off of brought forward losses under Chapter VI or unabsorbed depreciation under sub-section (2) of section 32.1 " This means that while computing the undisclosed income of the block period, it should be computed under Chapter IV allowing whatever deductions contemplated under the Chapter. However, it qualifies that while giving such treatment, set off of brought forward losses or unabsorbed depreciation under sub-section (2) of section 32 are not to be allowed.
The assessee's representative submitted that he is not claiming brought forward depreciation but only current depreciation.
There is nothing on record to link the Kuri loss to the undisclosed income of the assessee. In the absence of any such evidence, the claim can only be considered in the regular assessment. In the light of the above facts, we remand the matter back to the file of the assessing officer to verify whether any investments were made out of the undisclosed income available with the assessee in furniture, machinery, car, etc. Otherwise, the disallowances are to be considered only in the regular assessment. With the above direction, the matter is remitted back to the file of the assessing officer for consideration afresh on this point.
The next issue raised by the assessee relating to the assessment year 1996-97 is against the order of the assessing officer in determining the value of gold and silver ornaments seized from its residence at Rs. 10,33,647. According to the assessee's representative gold and silver ornaments were acquired during the block period 1-4-1986, to 1-11-1996, and the cost thereof should have been estimated at the average rate during the period of 10 years which would come to Rs. 358 per gram for the gold jewellery. If the above rate is taken for gold, the value of seized gold jewellery would be Rs. 8,35,525 and the value of silver articles will be Rs. 28,408, aggregating to Rs. 8,63,993 as against Rs. 10,33,641 estimated by the assessing officer.
Replying to the above, the learned departmental Representative brought to our attention para 2 of the order of the assessing officer and submitted that the assessee firm itself came into existence only with effect from 1-10-1994, and, therefore, the value of the seized gold ornaments cannot be adopted on the basis of the average cost for the block period of 10 years.
We have considered rival submissions and gone through the order of the assessing officer. We find no justification in valuing the seized gold and silver ornaments from the business premises of the assessee as on the date of search section 1581313(2) of the Income Tax Act in this context is relevant and the section reads as under: "158B13(2) In computing the undisclosed income of the block period, the provisions of sections 68, 69, 69A, 69B and 69C shall, so far as may be, apply and references to 'financial year' in those sections shall be construed as references to the relevant previous year falling in the block period including the previous The above section makes it clear that the provisions of sections 68, 69, 69A, 69B and 69C are also applicable even in search cases. Under section 69, if the assessee's explanation with regard to the investments is not found satisfactory, the value of the investments should be deemed to be the income of the assessee of such financial year. Section 69B states that if the assessee is found to have made any investment or found to be the owner of any money, bullion, jewellery or other valuable article, etc. and if the explanation offered by the assessee is found unsatisfactory, such excess amount may be treated as the income of the assessee for such financial year. Section 69C speaks of unexplained expenditure etc. and also states that such expenditure in the absence of any proper explanation be deemed to be the income of the assessee for such financial year.
The above sections make it clear that if the assessee is not in a position to explain the source for the acquisition in a particular year or period the acquisition made by the assessee should be treated as out of the income of the assessee of such financial year relevant to the assessment year. In the instant case, there is nothing on record to indicate that the assessee can be deemed to have acquired gold and silver ornaments in any particular assessment year of the block period.
In the absence of any such evidence, the assessing officer was justified in taking the value of the gold and silver ornaments as on the date of search of the financial year relevant to the assessment year within the block period. This plea of the assessee, therefore, fails.
In the result, the appeal by the assessee is partly allowed for statistical purposes.