1. The assessee has questioned first appellate order on the grounds that the learned CIT(A) has erred in: 1. upholding the assessment order under Section 143(3), dt. 29th March, 2005 as valid one; 2. partly sustaining the addition of Rs. 1,20,000 as against Rs. 1,70,000 made by the AO on account of unexplained opening capital; 3. partly sustaining the addition of Rs. 18,864 as against Rs. 48,864 made by the AO on account of household withdrawals; and 2. Heard and considered the arguments advanced by the parties in view of the orders of the lower authorities, material available on record and the decisions relied upon by them.
3. It is general in nature hence does not need independent adjudication.
4. During the course of assessment proceedings, the AO noticed that the assessee had submitted balance sheet, capital account and cash flow chart along with his letter dt. 23rd Dec, 2004 showing opening capital at Rs. 1,89,286.49 in the balance sheet and cash in hand at the end of the year at Rs. 94,645.79, wherein the opening cash was at Rs. 1,85,619.10. The AO rejected the explanation of the assessee that this capital was accumulated savings out of the amount received at the time of retirement benefits, the earnings from agricultural activities carried out by him on his own land and also on the nearby land on sharing basis, business income, etc. in the past various years. The AO rejected the above explanation on the basis that a person could not have kept such a huge amount of cash of Rs. ,1,85,619 with it, when it was maintaining bank account. The AO accordingly estimated the availability of the opening capital of Rs. 15,619 and added the entire remaining balance of Rs. 1,70,000. In the first appeal, the learned CIT(A) has refused (sic-reduced) to Rs. 1,20,000.
5. The learned Authorised Representative at the outset of his arguments submitted that admittedly it is a case of no books of accounts.
Besides, one cannot ignore the vital fact and the human probabilities, that a person who is aged 50 years and has retired as an ex-serviceman from the Army and earlier in the year 1987 could not have earned and saved even a meagre amount of Rs. 2 lakhs during the whole of his life tenure. The law is well-settled where direct evidences are not available, a fair estimation has to be made, whether it is an estimation of income, of sales or even of opening capital or availability of funds with the assessee. And to make a fair estimation the AO has to rely upon the material available on record and such an estimation though, shall be a guess-work, cannot be capricious or arbitrary. In the present case the estimation of availability of the opening capital at Rs. 15,619 is totally baseless, arbitrary and in any case it cannot be said to be a fair estimation. On the other hand the assessee had admittedly filed copies of capital account in the balance sheet starting from the period 1st April, 1997 onwards, copies of which have been placed at page Nos. 3 to 3A of the paper book. From the same it can be seen that in these annual statements of accounts the assessee had declared income from agriculture, pension income, income from vehicle etc. Except making some adverse remarks on agricultural income, that too in a very vague term, the AO has not at all disputed the availability of these income generating sources nor the fact of earning of income from these sources. Notably the assessee was in receipt of substantial amount of Rs. 1,00,000 approx. at the time of his retirement from Indian Army in the year 1987 from GPF commuted pension and gratuity, etc. With regard to agricultural income it was submitted that the assessee owned and was in possession of ancestral land of 8 Bighas situated at Khatan Khera. The assessee was carrying on agricultural operations on his own land and in addition thereto he had also taken land in the nearby area on sharing basis. Copies of the papers shown ownership and possession over the land and also copies of Khasra Girdawari proving the fact of carrying out the agricultural operations have been placed at page Nos. 4 to 9 of the paper book.
Contents of these documents have been unrebutted by the lower authorities. The AO alleged that there were no documentary evidences showing agricultural income however the learned lower authorities have ignored the facts that this assessee was a retired person, not having taxable income to file the return necessitating keeping all these evidences with him. The AO has simply made adverse remarks without bringing any cogent evidence contrary to the factual position. The very facts of the ownership, possession and earning of income from agriculture, not having been denied, the only inference could be that the assessee was earning agricultural income. Such a contention and fact could not have been rejected merely for want of evidences keeping with the human probabilities. If an exercise is done keeping the average annual agricultural income with Rs. 5,000 per annum per Bigha the income for 8 Bighas comes around Rs. 40,000 per annum. After retirement since 1987, the assessee has been doing agricultural operations on his own land then also the total agricultural income would have been around Rs. 5,00,000. The land taken on lease from others and earning agricultural income therefrom was in addition thereto. This human probability however totally lost sight of by the authorities below. The learned Authorised Representative submitted further that the other important factor while working out the capital is the outgoings, which in the present case was mainly household expenses. There is no substance in the allegation made by AO that when the assessee claims to have substantial amount of cash in hand of Rs. 1,70,000, what was the necessity of it withdrawing a minor amount of Rs. 2,000 of pension on the same very day of deposit. Such allegation is nothing more than a suspicion without having gone into the prevailing facts, submitted the learned Authorised Representative.
6. The learned Departmental Representative, on the other hand has tried to justify the first appellate order on the issue.
7. Considering the above submissions under the facts and circumstances of the present case, we find substance in the contention of the learned Authorised Representative that without rebutting the explanation of the assessee supported with evidence, an addition cannot be made merely on the basis of suspicion like there was no necessity to withdraw a meagre amount by the assessee from his bank account when sufficient funds were claimed to have been lying with the assessee. Admittedly, the assessee had received retiral benefits of around Rs. 1,00,000 on his superannuation from the Indian Army in asst. yr. 1987, besides having some agricultural income from his ancestral land of 8 Bighas in support of which the assessee had filed copy of Khasra Girdawari placed at page Nos. 4 to 9 of the paper book. The assessee had also filed capital account, balance sheet from asst. yr. 1997-98 onwards. (page Nos. 3 and 3A of the paper book). After his retirement he was deriving income from pension, rent from house property, plying of goods carriage vehicle and trading of cattle feeds, besides agricultural income. During the relevant period the assessee has disclosed total turnover of Rs. 3,00,000 on which net profit of Rs. 15,500 under the provisions of Section 44AF of the Act was shown. Similarly, he also disclosed profit of Rs. 43,200 under the provisions of Section 44AE of the Act from plying of light goods vehicles. The AO noted from the trading account that assessee had shown the sales as balancing figures to arrive at the gross profit for the relevant period. The AO also noted that the assessee had not kept the vouchers and bills, etc. relating to his sales and purchases. The AO accordingly estimated the sales at Rs. 3,50,000 as against Rs. 2,99,881 disclosed by the assessee and made an addition of Rs. 50,119. The learned CIT(A) has deleted this addition on the basis of admitted facts that the assessee is a small trader and filing his return of income under the provisions of Section 44AF of the Act under which he is not supposed to maintain regular books of accounts. He observed further that the AO has not brought on record any evidence to show that assessee was indulging in sales outside the books of accounts. The learned CIT(A) has however, sustained the addition of Rs. 1,20,000 out of Rs. 1,70,000 made by AO on account of unexplained opening capital. The learned CIT(A) while sustaining this addition has observed that the assessee has not given a convincing reply with regard to the apprehension of the AO that when assessee was having substantial amount as cash in hand then why he was making petty withdrawals from bank. In our view when there was no direct evidence to rebut (sic-support) such apprehension of the lower authorities, a logical inference should have been drawn from the surrounding circumstances of the present case supported by some evidence of holding of agricultural land, retiral benefits, etc., which in our view were sufficient to accumulate opening capital of Rs. 1,70,000. The human probability under the facts and circumstances of the present case, as discussed above, goes in favour of the assessee to accumulate such an amount out of his saving from different sources of income at his age of 50 years during the period. We thus while setting aside first appellate order on the issue direct the AO to delete the addition of Rs. 1,20,000 sustained by the learned CIT(A). Ground No. 2 is thus allowed.
8. In support of this ground the learned Authorised Representative submitted that family of the assessee at that time consisted of himself, his wife, son's wife and another son being a student. The elder son was in service of Air Force and was not residing with the family. During the year there was a birth ceremony of the grandson of the assessee. The AO disbelieving the amount of household expenses declared by the assessee at Rs. 51,136, estimated the same at Rs. 1,00,000. The learned CIT(A) has restricted the addition to Rs. 70,000, but he has not made separate addition keeping in view the confirmation of addition of Rs. 1,20,000 on account of unexplained opening capital made by him. The learned Authorised Representative submitted that the AO as well as learned CIT(A) have ignored this material fact that the assessee, basically a farmer was residing with his family in a very small village in District Alwar near Behror. The assessee was bound to live a very simple life in such a small place where even basic facilities like electricity etc. are not available. The basic day to day needs of life are met with by his own resources. Most of the household expenses i.e. food grains, milk etc. are met with without incurring separate expenditure as the assessee is having agricultural land on which vegetables are also grown. He is also having animals for milk. The assessee is living in his small house and there is no requirement of making payment of rent. There is no vehicle, telephone etc. There was not any big function on the occasion of birthday ceremony of his grandson. The learned Authorised Representative submitted that no evidence has been brought on record by the AO except making a very vague remark that some information with the survey team.
The learned Authorised Representative referred answer of the assessee to question No. 22, reproduced at page No. 6 of the assessment order, wherein the assessee had categorically replied that the entire expenditure consisting on feeding of family. The AO has not brought any material on record to say that there were 200 to 250 persons invited on the occasion of birth ceremony of the grandson.
9. The learned Departmental Representative on the other hand tried to justify the first appellate order.
10. Considering the above submissions of the parties in view of orders of the lower authorities, we find substance in the above contention of the assessee that an addition cannot be made merely on the basis of suspicion especially when there was no material on record to suggest that the household expenses claimed to have been incurred and declared by the assessee were not correct and there was no evidence that some big function were organized by the assessee on the occasion of birth ceremony of his grandson. We thus while setting aside orders of the lower authorities on the issue direct the AO to delete the addition in question. The ground No. 3 is thus allowed.
11. In support of this ground the learned Authorised Representative submitted that there was delay in filing of the return due to the non supply of the copies of the statements of the assessee recorded during the course of survey; the assessee has made repeated requests for this purpose, firstly, on 3rd March, 2003 along with filing of a challan of Rs. 100 for the purpose, another on 28th March, 2003 and others on 5th Aug., 2003 and 30th Sept., 2003. It is however only on 10th Oct., 2003 the copies of those statements were supplied to the assessee.
Immediately thereafter on 31st Oct, 2003, the assessee had filed the return of income. Thus, the delay was not at all attributable to the assessee, and in such circumstances no interest under Section 234A should have been charged.
12. Since, no arguments have been advanced by the learned Authorised Representative questioning the chargeability of interest under Sections 234B and 234C respectively for defaults in payment of advance tax and interest for deferment of advance tax, we are not inclined to interfere with the first appellate order in this regard.
13. However, in view of the findings hereinabove on the issues raised in ground Nos. 2 and 3 of the present appeal, the charging of interest under Sections 234B and 234C of the Act has become consequential in nature. The AO is accordingly directed to decide the chargeability of interest, if any, under these provisions of Sections 234A, 234B and 234C afresh in view of the above submissions of learned Authorised Representative and decisions on ground Nos. 2 and 3 of the appeal.