1. On a difference of opinion, the President, Income Tax Appellate Tribunal, has referred the following questions for my opinion as Third Member, which read as under: 1. Whether in the facts and circumstances of the case, addition for unexplained investment in jewellery is maintainable? 2. Whether in the facts and circumstances of the case, addition for unexplained cash found in the search should be restored for verification? 2. The facts of the case on first point of difference are that on 16.02.2000 a search was conducted under Section 132 on the residence of the assessee. The Assessing Officer required the assessee to reconcile the material found and seized during the search operation. The assessee furnished the details of family members and jewellery disclosed during the Wealth Tax assessment for A.Y. 1985-86 as well as the certificate in support of the disclosure made in VDIS 1997. Addition of Rs. 24,303, Rs. 21,466, Rs. 43,753 and Rs. 7,575 aggregating to Rs. 97,097 were made by the Assessing Officer. First addition of Rs. 24,303 pertains to the A.Y. 2000-01 and was made by Assessing Officer because Annexure A-11 loose sheet No. 81 found during the course of search and seized contained the purchase of diamond jewellery, ring, top etc. worth Rs. 35,603 against which cash of Rs. 15,000 has been shown to have been paid to the jeweller who after making some adjustment returned jewellery of Rs. 11,300. An amount of Rs. 9,305 remained to he paid.
The jewellery worth Rs. 24,303 was purchased and found unaccounted for.
Vide notice dated 14.3.2002. the assesses was required to explain the contents of the said annexure but he failed to explain the same. Second addition of Rs. 21,466 again for AY 2000-01 was made because Annexure A-41 loose sheet No. 111 dated 6.2.2000 contained the account of some gold ornaments purchased, the first entry being of Kara & Kundals weighing 29.700 gms purchased @ Rs. 4,550 per 10 gms amounting to Rs. 13,513 and the second entry being of purchase of same other ornaments weighing 16.930 gms amounting to Rs. 7,953 both aggregating to Rs. 21,466 for which the assessee simply stated that the paper did not relate to him. The Assessing Officer observed that since incriminating documents found and seized from his residence it was his duty to explain the contents and to whom it relates, which onus has not been discharged. The third and fourth additions of Rs. 51,328 were made for the reasons that Annexure A-43 page 4 and 5 contained, details of purchase of jewellery worth Rs. 43,753 and Rs. 7,575 which also was not found accounted for and for which the assessee reiterated that it did not belong to him.
3. Aggrieved by these additions the assessee went in appeal before the CIT(A) and submitted that these premises were occupied by the assessee, his wife Smt. Sheela Devi along with his two sons Shri Mukesh Agarwal and Shri Sanjay Agarwal and their wives Smt. Amita and Smt. Namita and also their children. With respect to these specific documents which formed the basis of addition it was submitted that these were four rough sheets found at the residence. It was submitted that these papers do not relate to him. Referring to one photocopies of these papers it was contended that these papers merely contain some noting about jewellery items and except for page No. 1 of the annexed page 1 to 4, none of the other documents even show whether these item were actually purchased or not. With respect to page No. 1 it was submitted that that it merely shows a deduction of Ra. 15,000 which can be either money paid or any adjustment made. It was also contended that the paper appears to be merely estimate and also does not reflect recording of any transaction and sale. It is submitted that there are three ladies living in this house. Each of the family members are assessed to tax.
The description of jewellery shows that these are all items of usage by ladies. There is no evidence to link these papers with the assessee.
These papers were found at D-15, Kamla Nagar and there is no evidence that these were in control and possession of the assessee. In respect of paper (I), it is further submitted that the paper itself shows that payment of Rs. 9,305 had not been made. Without prejudice to the above, it was submitted that addition of Rs. 15,000 only can be made.
4. Not convinced with the arguments, the CIT(A) confirmed the additions by observing that the documents were found in the search conducted upon the assessee's premises, as such, the general explanation offered, namely, that these documents did not belong to the assessee since the premises were occupied by him along with his wife and two married sons with their spouses and children was not of any help. Similarly, the contention that these loose documents did not show the nature of the transaction, if any, and appeared to be mere estimates could not be linked with the assessee was not accepted. The argument that these loose sheets made a reference to certain jewellery items used by ladies and, as such, not relatable to the assessee was also rejected.
5. Aggrieved by this, the assessee is in appeal before the Tribunal and there struck a difference of opinion. The learned judicial Member held that no case was made out for addition and deleted the addition. She observed that the articles of jewellery were of usage of ladies, as such, not relatable to the assessee; that the premises searched were jointly occupied by the assessee, his wife along with the wives of his two married sons and their children and these premises were also occupied by different relatives; that no dates are found mentioned in any of the documents; that these documents appear to be only estimates; and that these are dumb documents and do not prove as to how these documents are relatable to the assessee. The learned Accountant Member on the other hand held that these documents had clear nexus with the assessee and represent actual purchase of jewellery; that the documents could not be considered as estimates; and that the department had discharged the initial onus and it is the assessee who could not rebut the presumption raised against him.
6. The learned A.R. submitted that no addition in the assessment of the assessee Shri K.P. Agarwal, could not be made with as these documents did not belong to him. These are the records of jewellery items generally used by ladies. The premises were jointly occupied by the assessee and his wife along with the wives of his two married sons and their children and therefore the additions can not be made in the hands of the assessee. These documents pointed out were mere estimates and how they were relatable to the assessee is again not established, either by these documents or by any finding of the Tax Authorities. No dates, nor the year to which these are relatable, are mentioned.
Similarly, the person who made this estimate or the name of the person for whom it was so estimated is not established from the records. The assessee has continuously been disowning these documents and the mere fact that these documents were found during the course of search at the premises of the assessee is not conclusive. Reliance is placed upon the order in the case of D.A. Patel v. DCIT (2001) 70 TTJ 969 (Mumbai), the contention that there is no evidence connecting the assessee to the seized paper and were simply sheet of papers were found during the search and therefore the assessee cannot be saddled with the tax liability by the Department unless an effort is made to relate the documents to the assesses in some reasoned manner. The case of CIT v.P.R. Metrani (HUF), 251 ITR-244 (Kar.), relied by the Learned Accountant Member has since been reversed by the Supreme Court, as reported in 287 ITR 209 (SC). Reliance is also placed upon the case of Satnam Singh Chabra v. DOT 74 TTJ 976 (Lucknow), for the proposition that presumption under Section 132(4A) has got a limited application.
Reliance was also placed in the case of Pushkar Narain Sarraf, 183 ITR 388 (Alld.), and Jagdamba Rice Mills v. ACIT 67 TTJ 838 (Chd.).
7. The learned D.R, on the other hand placed heavy reliance upon the orders of the Tax Authorities. He submitted that the Assessing Officer, on the basis of the documents marked as Annexure-A-11 loose sheets No.71, Annexure A-11 loose sheet No. 111 and Annexure A-43 page 4&5, had made additions of Rs. 97,077. The assessee resides at D-15, Kamla Nagar, Agra, from where, admittedly, the documents were seized.
Therefore, these documents had clear nexus with the assessee. Reliance is placed on the case of Collector Customs v. D. Bhoormal and the decision of Chhuhar Mal, 172 ITR 250 (SC). It is further submitted that the documents are not dumb documents as there is specific mention on them for the purchases of jewellery and also payment / adjustment of Rs. 35,000, more so in view of the fact that the assessee himself has also admitted that an addition of Rs. 15,000 can be made in his hands. Therefore, these documents represent actual purchase of jewellery and could be considered only estimates. The assessee has not rebutted the presumption raised against him Under Section 69A of the I.T. Act, providing that the money or the value of bullion, jewellery or other valuable articles may be deemed to be the income of the assessee for the F.Y in which the assessee is found to be the owner of such money, bullion or jewellery or other valuable articles. He therefore, submitted the Assessing Officer has rightly assessed the investment in jewellery as unexplained income of the assessee.
8. Parties are heard and the rival submissions considered and the material available on record perused. It is true that the assessee has repeatedly been contending that these documents pertained to articles of usage of ladies but how can that lead to an inference that these articles cannot be purchased by the male members for their females.
None of the female members claimed that these items belong to them or purchased by them. The premises might be jointly occupied by the assessee, his two sons along with their respective spouses and children but control was that of the assessee, he being the head of the family.
As the documents were found in the course of search it is for the assessee to lead proof that they could be of the ladies or the relatives. Further, these can be said to pertain to the block period and the fact that no date is found mentioned in any or these documents or the person recording these documents are not known does not have any material fact so long they are found from the premises of the assessee.
These documents record the purchase of jewellery and cannot also be said be mere estimate as there is specific mention on them of purchases of items of jewellery and also payment/adjustment of Rs. 35,000. It is further established by the fact that the assessee himself has also admitted for an addition of Rs. 15,000 on this count in his hands. In view of the provisions of Section 69A of the I.T. Act, the value of jewellery may be deemed to be the income of the assessee for the financial year within the block period in which the assessee is found to have purchased and became the owner of such jewellery. The Assessing Officer has rightly assessed the investment in jewellery as unexplained income of the assessee. In the case of Collector-Customs v. D. Bhoormal (supra), the Supreme Court held that in terms of Section 106 of the Evidence Act, the Department deemed to have discharged its burden if it adduces only so much evidence, circumstantial and direct as is sufficient to raise a presumption in its favour with regard to the existence of the facts sought to be proved. By making a reference of Section 106 and 110 of the Evidence Act, it can be presumed that the assessee is the owner of these three documents. In Chuhar Ma! (supra), it was held that what is meant by saying that the Evidence Act did not apply to proceedings under the Income-tax Act. 1961, was that the rigour of the rules of evidence contained in the Evidence Act was not applicable, but that does not mean that when the taxing authorities were desirous of invoking the principles of the Evidence Act in proceedings before them, they were prevented from doing so; and that Section 110 of the Evidence Act, 1872, embodies a salutary principle of common law jurisprudence that where a person was found in possession anything, the onus of proving that he was not its owner was on that person and this principle could be attracted to a set of circumstances that satisfy its conditions and was applicable to taxation proceedings.
The addition on account of this unexplained jewellery is accordingly upheld.9. The second point of difference is for the addition of Rs. 12,79,620 as unexplained cash found in search found in 6 bags respectively containing Rs. 3,00,000, Rs. 2,64,000, Rs. 2,00,000, Rs. 1,08,000 and Rs. 20,170. The assessee's explanation was that the cash belonged to different members of the family. The Assessing Officer, however, noticed that in the preliminary statement, the assessee had accepted availability of cash of Rs. 2 lakhs only. In her statement, Smt. Sheela Devi had stated that bags were recovered from her almirah and that there were slips about Rs. 3 lakhs, Rs. 2,64,000 and Rs. 2 lakhs in each bag. Regarding the fourth bag, she stated that it had Rs. 50,000 which belong partly to her sister and partly to her and her children.
Smt. Amita Agarwal, W/o. Mukesh Agarwala stated that Rs. 3,87,450 found in her almirah belonged to her and her husband and about source she promised to state later on. The assesses stated that Rs. 3,00,000 is roker of Agrawal Iron Industries of which HUF is proprietor. The assessee is the Karta. Rs. 2,64,000 were for payment of wood of Das Cold Storage from whom wood was purchased, Rs. 3,87,450 belongs to M/s Das Cold Storage of which the assessee and Mukesh are directors and Rs. 1,08,000 cash balance of Singhal Casting Co. of which Shri Mukesh Agarwal is proprietor. These were found in the room of Smt. Amita and Mukesh about which Mukesh gave explanation. Rs. 20,170 was recovered from the room of Sanjay and Namita and claimed to represent gifts received on festival occasion. The contention of the assessee is that except for certain alleged discrepancies in the preliminary statement and subsequent statements, the Assessing Officer has not expressed any opinion as to why the cash found can not be accepted as explained with reference to the cash balance in the regular books of account. The Assessing Officer has made additions for suppression in production, unaccounted purchases, sales stocks, investment in such undisclosed transactions etc. The respective assessee are not accepting such addition but it is submitted that once such additions have been made, the Assessing Officer cannot make any addition for cash found as it would be part of such alleged undisclosed income. Therefore, the cash found is fully explained with reference to the cash balance in the books of account.
10. The CIT(A) required the Assessing Officer to verify the claim of the assessee with respect to the cash book of M/s. Agarwal Industry, M/s. Singhal Castings Company and M/s. Das Cold Storage. The A.O. did not accept the plea of the assessee. He relied upon the plea of the assessee while filing the return of income in the case of M/s. Das Cold Storage for A.Y. 2000-01: NOTE; There was income tax search/seizure under Section 132 I.T. Act as assessee premises on 16.2.2002. All papers, documents registers, books were seized. Account kept in computer were sealed and on opening found lost. No register account books, therefore, exist. In the absence of regular account books, auditing was not practicable.
The assessee has prepared the income and expenditure statement and computation of income on the basis of capacity of the cold storage and zerox copies of seized papers, etc.
11. In view of this fact since no data was found from the computer, the claim of the assesses was rejected by the CIT(A) holding that no cash book of any of these concerns as such was found in the computer. He observed that the computer seized from the assessee was operated by the Investigation Wing on 27.3,2000 and from this only general register from 1.4.1999 to 15.2.2000 of M/s. Agarwal Iron Industry was found.
Thus, the authenticity of the cash book produced by the assessee was held to be not established. The CIT(A) further observed that the hard disk of the computer was found damaged, as such, the claim of the assessee was held to be not established. As such, the books were considered to be not reliable. He upheld the addition.
12. Still aggrieved, the assessee came in appeal before the Tribunal and there stuck a difference of opinion between the two members. The learned Accountant Member held that cash is not explained and required verification but the learned Judicial Member held otherwise and opined that no case for addition has been made out.
13. The assessee contends that funds were available prior to the date of search and their sources have been explained namely availability of Rs. 2,90,505 from M/s Agarwal Industries; Rs. 1,08,000 being cash balance form M/s Singhal Casting Co. wherein Shri Mukesh Agarwal son of the assessee is proprietor; Rs. 2,64,000/- being cash belonging to M/s.
Das Cold Storage who is an income tax assessee wherein the assessee and his sons were Directors the said sum is received for payments to the parties from whom wood was purchased and the cash balance of the said concern after this sum as on 17.2.2000 stood about Rs. 24,87,776=71; Rs. 3,87,350 also is explained from this source. By the time the assessment proceedings were taken up the assessee on the basis of documents made available by the Department was able to prepare the books of accounts which were produced before the A.O and have been duly seen by him. In the case of Das Cold Storage Pvt. Ltd., it is submitted that the same A.O. in the remand report changed his stand contrary to the order sheet dated 10.03.2003 observing: "Shri A, N. Agarwal, Advocate, Shri Sanjay Kumar Mittal, C.A., Shri K.P. Agarwal, MD attended and filed a written reply. Books of A/c cash book ledger, journal, bank book etc. were produced and test checked etc...". The assessee's statement has not been found to be false nor the fact that books were not found in the computer. Reliance is placed to Circular No. 8 of 2002 dated 27^th August, 2002, the order of the Lucknow Bench in the case of Ashok Kumar v. ITO 5 MTC 404 (Alld.); the judgment of the Allahabad High Court in the case of CST v. Shyam Lal & Co. (1984) 57 SC 31 (Alld.). to contend that there can be no valid objection simply for the sake of it that the books of accounts are produced at a later stage. It was submitted that no discrepancy in debits and credits mentioned in the books of accounts was noticed. The source of the cash balance of Rs. 3 lakhs was explained to be cash balance of M/s Agarwal Industries of which HUF the assessee is a Karta. It is submitted that the closing balance of Rs. 2,90,505=52 was available as on 15^th February, 2000 and on 12^th Feb. 2000 the assessee had taken an advance of Rs. 60,000 which explains the cash balance of Rs. 3 lakhs from M/s Agarwal Industries lying at the time of search and found from his premises. Similarly, cash of Rs. 1,08,000 was explained to be cash balance in the books of M/s. Singhal Castings Co. of which Shri Mukesh Agarwal, son of the assessee is proprietor. The amounts of Rs. 3,37,450 and Rs. 2,54,000, claimed to be belonging to M/s. Das Cold Storage in which the assessee and his son. Shri Mukesh Agarwal were Directors. The amount of Rs. 2,64,000 was received for payment to parties from whom wood was purchased and even after this the cash balance as on 16^th February, 2000 was Rs. 24,87,776. The amount of Rs. 2 lakhs belonged to Shri Mukesh Agarwal i.e. the son of the assessee, who had sold land for Rs. 3,80,000 on account of which sale proceeds on different dates during 1999-2000 had been received by the son of the assessee much prior to the date of search.
14. Learned D.R. on the other hand placed reliance upon the orders of the Income Tax Authorities. He submitted that no books of account were found during the course of search and the information contained in the computer was found damaged/corrupted. The books of accounts have subsequently been prepared on the basis of certain loose papers. These books not audited and therefore, no reliance can be placed thereon.
This is also evident from the perusal of the record and remand report of the Assessing Officer dated 17.3.2004. Even on operation of the computer on 27.3.2000, only general register for the period 1.4.1999 to 15.2.2000 pertaining to M/s. Agarwal Iron Industries was found. The return of M/s. Das Cold Storage Pvt. Ltd. for the A.Y. 2000-2001 was filed on the basis of photocopies of seized material. During the course of search, no cash was found from the premises of M/s. Das Cold Storage, M/s. Singhal Casting Company and M/s. Agarwal Iron Industries.
According to the assessee, all the three firms had opening balance of Rs. 35,60,000 as on 17.2.2002 - (i) M/s. Agarwal Iron Industries Rs. 2,90,505; M/s. Singhal Casting Company Rs. 1,25,240 and M/s. Das Cold Storage Pvt. Ltd. Rs. 31,44,336. As against this total of cash balance of Rs. 35,60,081, only Rs. 12,79,620 were found at the time of the search at the residence of the assessee. No explanation has been submitted regarding the difference. It is important to examine the receipt side of the cash book of M/s. Agarwal Iron Industries before relying upon the opening and closing balance. The point as to how the cash was built up in this cash book had not been explained. In the case of M/s. Singhal Casting Company opening cash had been shown after deduction of expenses incurred up to 15.2.2000, at Rs. 1,25,240=27 and in the case of Das Cold Storage Pvt. Ltd. at Rs. 24,87,776.
15. As regards the receipt of Rs. 2,54,000 from the parties from whom the purchases were made, the source of the same is not ascertainable.
The source of Rs. 2,00,000, which is said to be sales proceeds of land belonging to Sri Mukesh Agarwal, but this fact remained to be verified from the sale deed and the fact of actual dates of receipt of cash is to be ascertained. As these books of accounts had been subsequently written after the dates of search the matter required examination of receipt of cash from the cash book;, of these firms.
16. The parties are heard and rival contentions considered. The Assessing Officer cannot be said to be right in concluding that the opening balance of M/s. Agarwal Iron and M/s. Singhal Casting Co., cannot be available. As the cash as per books was claimed to be more than the amount found at the time of search, the rejection thereof on the ground that the books of accounts were not found during the search does not have any force. This is because the books of account in the seized computer from which accounts have been taken note of by the same A.O. who has made assessment in the case of M/s. Das Cold Storage. The fact that the computer which was seized by the Department for the specific reason contained relevant data cannot be ignored nor the fact that all the family members of the assessee are subjected to tax and different concerns of the assessee are also subjected to tax. The preliminary statement of Smt. Sheela Devi stating that few bags recovered form her almirah and the bags had slips mentioning about Rs. 3,00,000, Rs. 2,64.00 and Rs. 2.00 lakhs in each bags further supports the case of the assessee. Similarly, the statement of Smt. Amita Agarwal, wife of Shri Mukesh Agarwal affirmed that Rs. 3,87,450 belonged to her husband and she would explain the source later corroborated by a similar statement by the assessee himself that Rokar of Rs. 3.00 lakhs was available from M/s. Agarwal Iron Industries and Rs. 2,64,000 were for payments of wood of M/s Das Cold Storage as such.
The decision of Shyam Lal & Co., 57 TTJ 31 (Alld.), support this view when it observes: Though an adverse Inference can be drawn against the assesses on his nut producing the account hooks for inspection at the time of survey and he would also incur a liability of penalty for such action, it cannot be said that the account books must he rejected outright merely on the ground that the books were not produced for inspection at the time of survey. The assessing authority will have to scrutinize with great care and caution the account books when produced subsequently in support of his claim by the assessee and if any error is founding them, then in that event there would be justification for holding that they were not maintained properly or that they were subsequently manipulated and got prepared after the survey was done.
17. In the present case, however, the authenticity of the books produced subsequently had not been proved, as these books of accounts had not been audited. These, books had been written on the basis of loose papers and other information and, therefore, to be verified before these are accepted as correct. The cash Nook of Agarwal Iron Industries showed the closing balance as on 15.2.2000 after deduction of certain expenses incurred from 8.2.2000 to 15.2.2000 at Rs. 2,90,505, but nobody examined the point as to how the cash was built up. It is important to examine the receipt side of the cashbook before relying upon the opening and closing balance. Again in the case of M/s.
Singhal Casting Company brought forward cash had been shown at Rs. 1,79,055 as on 14.2.2000, and after deduction of expenses incurred from 14.2.2000 to 15.2.2000, the closing balance as on 15.2.2000 has been shown at Rs. 1,25,240=27 and in the case of Das Cold Storage Pvt. Ltd. the cash book shows opening cash balance of Rs. 31,44,336 as on 16.2.2000 and the closing balance on 17.2.2000 has been shown Rs. 24,87,776. What is the source of cash available for purchase of wood and sale proceeds of sale of land also to be examined. These are all to be verified before accepting the available of cash found at the time of search. In my opinion, the matter requires set aside as observed by the Learned Accountant Member. In the result, the appeal of the assessee is to be partly allowed.
1. Because, the warrant of authorization dtd. 01.02.2000 as mentioned in Panchnama dtd. 16.02.2000 is bad and illegal as the authority (D.I.) at Kanpur issuing it had no requisite reliable material / information in his possession so s to form a reasonable belief to direct action it/s. 132 against the assessee. All proceedings taken under chapter XIV-B are bad and illegal.
2. Because, all proceedings and consequent block assessment made by ACIT, CC, Agra are without jurisdiction and void. The impugned block assessment made is liable to be annulled.
3. (a) Because, the authorities below have fallen in error of facts and in law in making and confirming additions of Rs. 97,077/- for alleged purchase of jewellery in the hands of the appellant.
(b) Because, no evidence has been brought on records linking items or amount of these paper with the appellant. The addition is made on presumptions and surmises.
4.(a). Because, the authorities below hay fallen in. error of 'act and in law in making and sustaining addition of Rs. 12,59,150. as "undisclosed income". Its source was fully proved by cogent evidence on records. Nothing was undisclosed income. The addition is liable to be deleted.
(b). Because the authorities below erred on facts and in law in adding explained cash of Rs. 12,59,450/- which was verifiable with reference to material on records. Even otherwise, addition is not justified in assessee 's hand.
(c). Because, every reasoning and findings of the authorities below are baseless/frivolous and against the facts of the case.
Ground No. 1 & 2 are withdrawn during the course of hearing before the Regular Bench. Hence, they are treated as dismissed.
2. In respect of ground No. 3 & 4, the matter was referred to the Third Member on account of difference of opinion between Hon'ble Judicial Member and Hon'ble Accountant Member. As per majority view, the issue regarding addition on account of unexplained investment in jewellery is decided against the assessee. Accordingly, the ground of the assessee relating thereto is rejected.
3. The second issue is restored to the Assessing Officer for necessary verification as per observation of Hon'ble Accountant Member and Hon'ble Third Member. This ground of assessee is, therefore, allowed, but for statistical purposes.
4. In the result, the appeal of the assessee is partly allowed, but for statistical purposes.