Itxa/2911/2010 Of The Commissioner Of Income-Tax-18,Mum v. M/S Unity Construction Co

IN THE HIGH COURT OF JUDICATURE AT BOMBAY ORDINARY ORIGINAL CIVIL JURISDICTION INCOME TAX APPEAL NO.2911 OF 2010 The Commissioner of Income Tax -18, MumbaiV/s.M/s.Unity Construction Company ....Appellant ....Respondent Mr.Vimal Gupta for the Appellant. Mr.P.J. Pardiwalla, Senior Counsel with Mr.Atul K. Jasani i/b Mr.Atul K. Jasani for the Respondent. CORAM : S.J. VAZIFDAR AND M.S. SANKLECHA, JJ.DATE : 28TH JUNE, 2012. P.C. :- 1.According to the appellant, the following substantial questions of law arise in this appeal under section 260A of the Income Tax Act, 1961 :- “(a)Whether in the facts and circumstances of the case and in law, the Tribunal as well as the CIT (A) are justified in overlooking the provisions of Sec. 158 BB(1) of the IT Act and in directing the Assessing Officer to redo the block assessment as per the provisions of the IT Act ? (b)Whether in the facts and circumstances of the case and in law, the Tribunal is right in holding that the statement U/sec. 132(4) given by the partner, Shri Kishore K. Avasekar on 30.11.1999 could not be used for determining the total undisclosed income of the assessee in the light of the replies given by him to various questions in the said statement and whether the ITAT is right in not considering the ratio of the decision of the High Court in 219 ITR 235 (Ker.) and 248 ITR 782 (All.) and of the apex court in AIR 1997(SC) 2560 in this regard ? (c)Whether in the facts and circumstances of the case and in law and in view of the judgment of the apex court in the case of Commissioner of Sales Tax, M.P. V/s. H.M. Esufali H.M. Abdulali in 90 ITR 2781, the Tribunal is right in holding that the income cannot be estimated by extrapolation for some of the assessment years in the block period based on seized material for other assessment years in the block period, particularly when the ITAT itself has done so in the case of food expenses for police constables in para 60 of the Order ? (d)Whether in the facts and circumstances of the case and in law, the Tribunal is right in holding that any unexplained expenditure added U/sec. 69-C has to be allowed as a deduction U/sec. 37(1) for the A.Y. 1998-99 and earlier A.Yrs. considering the fact that Sec. 69 was a rule of evidence which was in force even before the sec. 69-C was introduced in the statute book and hence, the proviso to sec. 69-C though introduced in A.Y. 1999-2000, even prior to the assessment year in which the Sec. 69-C was introduced and further fact that unexplained expenditure U/sec. 69C cannot be allowed U/sec. 37(1) unless the specific requirements therein are satisfied ? (e)Whether in the facts and circumstances of the case and in law, the Tribunal is right in upholding the decision of the CITA (A) deleting the addition of Rs.10,91,36,561/- and in further reducing the addition of Rs.21,11,540/- made by the Assessing Officer in the block assessment ? (f)Whether in the facts and circumstances of the case and in law, the Tribunal is right in holding that the miscellaneous income of Rs.44,16,530/- was available to cover any disputed addition, which may be made by the Assessing Officer for any assessment year in view of the fact that the assessee had not mentioned the assessment year in which the said income was derived and received by the assessee and had also not disclosed the manner of deriving the same ? (e)Whether in the facts and circumstances of the case and in law, the Tribunal is right in upholding the decision of the CITA (A) deleting the addition of Rs.10,91,36,561/- and in further reducing the addition of Rs.21,11,540/- made by the Assessing Officer in the block assessment ? (f)Whether in the facts and circumstances of the case and in law, the Tribunal is right in holding that the miscellaneous income of Rs.44,16,530/- was available to cover any disputed addition, which may be made by the Assessing Officer for any assessment year in view of the fact that the assessee had not mentioned the assessment year in which the said income was derived and received by the assessee and had also not disclosed the manner of deriving the same ? (g)Whether considering the fact that the assessee's line of business and the manner of carrying on of the same were similar throughout the block period and the sworn statement of Shri K.K. Avasekar U/sec. 132(4) on 30.11.1999, the Tribunal is right in holding that the extrapolation of income by way of unaccounted cash salary paid could not be made for the period other than the period for which evidence is available and in holding that the CIT(A) was right in deleting the addition of Rs.1,44,55,860/- U/sec. 69-C by way of unaccounted salary made in this regard in the block assessment by the Assessing Officer ? (h)Whether in the facts and circumstances of the case and in law, the Tribunal is right in holding that the addition of Rs.68,500/- by way of accounted cash salary based on the seized materials for the period April, 1999 to October, 1999 stood covered by the miscellaneous income of Rs.44,16,530/- offered by the assessee in the block returns, when the assessee had not stated specifically the assessment years in which the miscellaneous income was derived and received by it and had not disclosed the manner of deriving the same ? (i)Whether considering the fact that the assessee's line of business and the manner of carrying on of the same were similar throughout the block period and the sworn statement of Shri K.K. Avasekar U/sec. 132(4) on 30.11.1999, the Tribunal is right in holding that the extrapolation of income for the unaccounted value of scraps could not be made for the part of the block period for which evidence was not available, on the basis of evidence available for the rest of the period ? (j)Whether in the facts and circumstances of the case and in law, the Tribunal is right in holding that the addition of Rs.4,56,725/- by way of income from the sale of unaccounted scrap stood covered by the miscellaneous income of Rs.44,16,550/- offered by the assessee in the block return when the assessee had not stated specifically the assessment years in which the miscellaneous income had been derived and received by it and had also not disclosed the manner of deriving the same ? (k)Whether considering the fact that the assessee's line of business and the manner of carrying on of the same were similar throughout the block period and the sworn statement of Shri K.K. Avasekar U/sec. 132(4) on 30.11.1999, the ITAT was justified in holding that the extrapolation of income for the unaccounted expenditure in conspicuous consumption could not be made for that part of the Block period for which evidence was not available, on the basis of evidence available for the rest of the period, and in deleting the addition of Rs.6,09,200/- by way of unaccounted expenditure made in the block assessment in this regard ? (l)Whether the Tribunal was justified in holding that the addition of Rs.3,90,800/- by way of unaccounted expenditure for stay in hotels and purchase of sarees and jewellery stood covered by the miscellaneous income of Rs.44,16,530/- offered by the assessee in the block returns when the assessee had not stated specifically the assessment years in which the miscellaneous income had been derived and received by it and had also not disclosed the manner of deriving the same ? period, and in deleting the addition of Rs.6,09,200/- by way of unaccounted expenditure made in the block assessment in this regard ? (l)Whether the Tribunal was justified in holding that the addition of Rs.3,90,800/- by way of unaccounted expenditure for stay in hotels and purchase of sarees and jewellery stood covered by the miscellaneous income of Rs.44,16,530/- offered by the assessee in the block returns when the assessee had not stated specifically the assessment years in which the miscellaneous income had been derived and received by it and had also not disclosed the manner of deriving the same ? (m)Whether, considering the sworn statement of Shri Avasekar U/sec. 132(4) on 30.11.1999 and the seized cheques from labour contractors left in the possession of the assessee and other materials on record and the Supreme Court decision in the case of Sumati Dayal Vs. CIT in 214 ITR 801, the Tribunal was justified in its failure to apply the test of human probabilities with regard to the inflation of labour charges paid to the contractors and in upholding the order of the CIT(A) deleting the addition of Rs.3,10,00,000/- by way of inflation of labour charges made in the block assessment ? (n)Whether considering the fact that the assessee's line of business and the manner of carrying on of the same were similar throughout the block period and the sworn statement of Shri K.K. Avasekar U/sec. 132(4) on 30.11.1999, the Tribunal was justified in holding that the extrapolation of income by way of unaccounted of liaison payments could not be made for that part of the block period of which evidence was not available, on the basis of the evidence available for the rest of the period and in holding that the CIT(A) was right in deleting the addition in the block assessment to the extent of Rs.4,46,89,380/- made in this regard ? (o)Whether the Tribunal was justified in holding that the seized case of Rs.40 lacs came out of the cash balance of Rs.1 crore as per books of the assessee firm in view of the fact that there was no entries in the cash book on the date of search on 30.11.1999 evidencing the possession thereof by the partner and his wife and the fact that the partner Shri Kishroe Avasekar in answer to Q.No.15 u/s. 132(4) on 30.11.1999 could not identify the source of the said cash ? (p)Whether in the facts and circumstances of the case and in law, the Tribunal is right in holding that the CIT(A) was right in deleting the addition of Rs.1,05,60,000/- on account of behami investment in shares without properly appreciating the fact that signed transfer forms and blank receipts for consideration in the possession of the assessee indicated benami investments of the assessee and whether the ITAT had not failed to apply the test of human probabilities explained in the case of Sumati Dayal VS. CIT in 214 ITR 801 (SC) in such situations ? (q)Whether in the facts and circumstances of the case and in law, the Tribunal is right in holding that the miscellaneous income of Rs.44,17,530/- was available to cover the unexplained expenses / investment of Rs.21,11,540/- made by the assessee and referred to in para 67 of the ITAT's order in view of the fact that the assessee had not mentioned the assessment years in which the said income was derived and received by the assessee and had also not disclosed the manner of deriving the same ?” 2.The appeal is admitted in respect of the questions (b), (g), (i), (m) and (n). 3.The appeal is not pressed in respect of the question raised in paragraph 4(a). 4.The aspect raised in (c) does not give rise to a substantial question of law. The Income Tax Appellate Tribunal (Tribunal) has accepted the proposition that if the evidence gathered leads to an inference that the assessee was indulging in itxa2911-10 2.The appeal is admitted in respect of the questions (b), (g), (i), (m) and (n). 3.The appeal is not pressed in respect of the question raised in paragraph 4(a). 4.The aspect raised in (c) does not give rise to a substantial question of law. The Income Tax Appellate Tribunal (Tribunal) has accepted the proposition that if the evidence gathered leads to an inference that the assessee was indulging in itxa2911-10 the same practice during the entire block period, the Assessing Officer would be entitled to estimate the income during such period. The Tribunal however, observed that such assessment must be based upon some cogent evidence and material which indicates that the assessee was earning the amounts during the entire block period. The appellant's case however, was not accepted by the Tribunal upon an appreciation of facts. The nature and quantum of proof must necessarily depend upon the facts of each case. The decision of the Tribunal based on an appreciation of evidence relates to questions of fact. It was not suggested that the findings are perverse. The question, as framed in paragraph 4(c) therefore, does not arise for consideration, as the impugned order does not hold otherwise. 5.The question raised in the first part of (d) does not arise in this case, as section 69C came into effect only from 01.04.1999. The relevant part of the circular dated 23.12.1998 issued by CBDT, reads as under :- “29Amendment of section 69C : 29.1 Under the existing provisions, where an expenditure incurred by the taxpayer in respect of which he either offers no explanation regarding the source of such expenditure or where explanation offered is found unsatisfactory, the expenditure is treated as 'income” under section 69C. There is no corresponding provision for disallowance of such expenditure. 29.2This used to enable the taxpayer charged to tax under section 69C to claim the expenditure as deduction under section 37 defeating the very objective of the section. 29.3The Act has amended section 69C of the Income-tax Act according to which unexplained expenditure deemed as income cannot be allowed as deduction under any head of income. 29.4This amendment will take effect from 1[st ]day of April, 1999, and will, accordingly, apply in relation to the assessment year 1999-2000 and subsequent years.” The question is also answered against the department by the judgment of the Supreme Court in Deputy Commissioner of Income Tax .versus. Core Health Care Ltd., (2008) 298 ITR 194 (SC) = (2008) 2 SCC 465, at page 470. The Supreme Court held as under :- “14.Before concluding on this point we may state that in this batch of civil appeals we are concerned with Assessment Years 1992-1993, 1993-1994, 1995-1996 and 1997-1998. A proviso has since been inserted in Section 36(1)(iii) of the 1961 Act. That proviso has been inserted by the Finance Act, 2003 w.e.f. 1-4-2004. Hence, the said proviso will not apply to the facts of the present case. Further, in our view the said proviso would operate prospectively. In this connection it may be noted that by the same Finance Act, 2003 insertions have been made by way of proviso in Section 36(1)(vii-a) by the same Finance Act which is also made with effect from 1-4-2004. Same is the position with regard to insertion of a sub-section after Section 90(2) and before the Explanation. This insertion also operates w.e.f. 1-4-2004. In short, the above amendments have been made by the Finance Act, 2003 and all the said amendments have been made operational w.e.f. 1-4-2004. Therefore, the proviso inserted in Section 36(1)(iii) has to be read as prospectively and w.e.f. 1-4-2004. In this case, we are concerned with the law as it existed prior to 1-4-2004. As stated above, we are not concerned with the interpretation or applicability of the said proviso to Section 36(1)(iii) w.e.f. 1-4-2004 in the present case.” On a parity of reasoning, it must be held that section 69C also operates only prospectively. 6.The latter part of the question raised in (d) is not disputed. The latter part reads as under :- “..........and further fact that unexplained expenditure U/sec. 69C cannot be allowed U/sec. 37(1) unless the specific requirements therein are satisfied ?” The Tribunal has not held otherwise. Indeed the expenditure can be allowed only if the requirements of section 37(1) are satisfied. The expenditure has not been allowed by the Tribunal despite a finding that the requirements of section 37(1) have not been satisfied. The decision of the Tribunal is on the basis that the requirements have been satisfied. In paragraph 17, the Tribunal has found as a matter of fact that the assessee had incurred the expenditure for the purpose of business. 7.The appeal is rightly not pressed in respect of the question (e), as it is too general. 8.Question (f) does not give rise to a substantial question of law. The issue was whether an amount of Rs.44,16,530/- disclosed itxa2911-10 by the respondent as miscellaneous expenses is liable to be separately added to their income. The issue commenced with a letter dated 22.01.2001, addressed by the respondent to the AO. The appellant and the respondents are unable to trace this letter. We have proceeded therefore, on the basis that the contents of the letter are as stated in the assessment order dated 02.03.2001. The assessment order records that during the course of examination of the block return, it was seen that as against an admission of Rs.10.00 crores in the statement recorded under section 132(4), the block return disclosed only Rs.1.50 crores as undisclosed income. The order further records that the respondent submitted vide letter dated 22.01.2000 a bifurcation of this undisclosed income referred to in the block return. Item 3 of the bifurcation stated “ Miscellaneous Amount” of Rs.44,16,530.00. It is important to note that paragraph 7 of the assessment order states : “It has been further claimed by the assessee by letter dtd. 22.1.2001 that the miscellaneous offer made was on account to round off the figure of disclosure and further to cover up any other discrepancies, difference of opinion and to avoid protracted litigation.” The Department contended that the miscellaneous income had been voluntarily disclosed by the respondent and that the same therefore, cannot be covered by i.e. included in the various other additions which were based upon the seized material. 9.The Tribunal held that the miscellaneous income was disclosed by the assessee with a specific remark to the effect that it was disclosed to cover any other discrepancy or disputed addition on account of difference of opinion with a view to avoid further litigation. It was further held as under :- “21.We have already mentioned, that to the extent of only Rs.1,05,82,470/- the disclosed income is based upon seized papers and documents, or other evidence found during the course of the search. The assessee disclosed miscellaneous income, which is not referable to any evidence or materials, and this disclosure has been made only to cover any disputed addition, which may be made by the Assessing Officer. In our view, having regard to the entire facts, if any addition is sustained, in addition to the specifically disclosed income of Rs.1,05,82,470/- such addition has to be covered by the Miscellaneous income and to the extent of such income, which stands at Rs.44,16,530/-”. “21.We have already mentioned, that to the extent of only Rs.1,05,82,470/- the disclosed income is based upon seized papers and documents, or other evidence found during the course of the search. The assessee disclosed miscellaneous income, which is not referable to any evidence or materials, and this disclosure has been made only to cover any disputed addition, which may be made by the Assessing Officer. In our view, having regard to the entire facts, if any addition is sustained, in addition to the specifically disclosed income of Rs.1,05,82,470/- such addition has to be covered by the Miscellaneous income and to the extent of such income, which stands at Rs.44,16,530/-”. The Tribunal therefore, came to a finding of fact to the effect that the miscellaneous income disclosed by the respondent was not separate or removable from any other income that may be found by the Department. In other words, it was not a specific disclosure de-hors the rest. It was, as stated in paragraph 7 of the assessment order on account to round off the figure of disclosure, cover up discrepancies or differences of opinion and to avoid litigation. We are unable to hold the conclusions arrived at by the Tribunal to be perverse or unsustainable. 10.Accordingly the point raised in paragraph 4(f) does not give rise to a substantial question of law. 11.It is agreed that the observations regarding question (f) would apply to the questions (h), (j) and (q). We accordingly hold that the points raised in the questions (f), (h), (j) and (q) do not give rise to a substantial question of law. 12.As regards question (l), it must be noted that the CIT (Appeals) had also held that the addition was justified only to the extent of Rs.3,90,740/- on the basis of the seized papers and that there was no basis for estimating the expenditure of Rs.10.00 lacs. The Tribunal after perusing the record in this regard, found that the evidence had been gathered during the course of search only in respect of expenditure of Rs.3,90,800/- and that the CIT (Appeals) was justified in holding that no additions can be made to the sum added on the mere assumption that the similar expenditure must have been incurred during the entire block period. The respondent contended that various expenses had been incurred by the partners personally out of their independent sources of income. Despite the same, the Tribunal held that there was no evidence in this regard as far as a sum of Rs.3,90,800/- was concerned. The Tribunal however, held that this addition was also covered by the disclosure of the said miscellaneous income and therefore, the deletion of the addition of Rs.3,90,800/-. 13.Here again, there is no question of law involved. It is a question of appreciation of evidence alone. 14.It is agreed that our decision regarding question (l) would also apply to question (k). Accordingly, the issues raised in questions (k) and (l) do not give rise to a substantial question of law. 15.Question (o) is in respect of the cash of Rs.41,51,750/- found during the course of the search at the residence of the Respondent's Managing Director and in the bank locker of his wife. The Tribunal upheld the decision of CIT (Appeals) deleting the addition of the said sum by the AO. The Tribunal found that the respondent's books of account disclosed cash on hand of over Rs.1.00 crore. The Tribunal further observed that it was common knowledge that cash belonging to a partnership may well be kept by the partners at the residence or in their bank lockers and that in any event the cash found was less than the balance shown in the respondent's books of account. 16.These also are findings of fact and no question of law arises in this respect. 17.This brings us to the question sought to be raised in question (p). During the search, the authorities found a large number itxa2911-10 16.These also are findings of fact and no question of law arises in this respect. 17.This brings us to the question sought to be raised in question (p). During the search, the authorities found a large number itxa2911-10 of share application forms, blank share transfer forms and consideration receipts signed in blank. The same pertain to several group concerns. The applications reflected the payment by the said concerns towards the share application money aggregating to Rs.1,05,60,000/-. The AO assumed that the group concerns were the respondent's benami concerns and added the same by way of undisclosed income of the respondent. The Tribunal noted that the CIT (Appeals) had dealt with this question in detail and found that the respondent had produced the confirmation and acknowledgment from various parties and the transactions were reflected in the books of account of the relevant concerns. This is a finding of fact. It was also held that there was no evidence to show that such concerns were the respondent's benami concerns. The Tribunal found that the share transactions pertained to various group concerns and were duly reflected in the books of account of the respective concerns, as evidenced by the confirmation letters filed before the authorities. It was also held that there was no basis for the presumption that the respondent had incurred the expenditure in this regard. Nor was there any evidence to establish that the concerns were the respondent's benami concerns. 18.These again are questions of fact. No question of law arises in this regard. 19.In conclusion therefore, the appeal is admitted on the substantial questions of law at (b), (g), (i), (m) and (n). (M.S. SANKLECHA, J.) (S.J. VAZIFDAR, J.)