Shri Gopal Singal v. Assistant Commissioner Of Income Tax

ITA No. 160 of 2001 IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH Shri Gopal Singal Versus Assistant Commissioner of Income Tax ITA No. 160 of 2001 Date of Decision: 19.1.2011 ....Appellant. ...Respondent. CORAM:-HON'BLE MR. JUSTICE ADARSH KUMAR GOEL.HON'BLE MR. JUSTICE AJAY KUMAR MITTAL. PRESENT: Ms. Munisha Gandhi, Advocate for the appellant.Mr. Yogesh Putney, Advocate for the respondent.Mr. Yogesh Putney, Advocate for the respondent. AJAY KUMAR MITTAL, J. 1.This appeal has been filed by the assessee under Section260A of the Income Tax Act, 1961 (in short “the Act”) against the orderdated 15.6.2000 passed by the Income Tax Appellate Tribunal,Chandigarh Bench, Chandigarh (hereinafter referred to as “theTribunal”), in ITA No. 55/CHANDI/97, for the block assessment periodfrom 1.4.1986 to 31.10.1996, raising the following substantial questionsof law:- “i)Whether the ITAT Chandigarh did not err in law insustaining the addition of Rs.2,30,000/- as'undisclosed income' of the block period, representedsustaining the addition of Rs.2,30,000/- as'undisclosed income' of the block period, represented by arbitrary estimate of the expenses incurred in themarriage of assessee's children and Rs.2,00,000/- ashousehold expenditure where such conjecturaladditions clearly fell out of the definition of“undisclosed income” as adopted in Chapter XIV B ofthe Income Tax Act? ii) Whether the Tribunal did not err in law in sustainingthe above mentioned additions when there was nomaterial whatsoever found as a result of search tosupport such additions and additions were simplybased on surmises? iii) Whether the Tribunal was justified in law in partiallysetting aside the assessment and directing the AO to make re-assessment by applying the provisions ofSection 145(2) of the I.T. Act, ignoring the mandateand requirements of Section 158BA(3)? iv) Whether the Tribunal while so setting aside theassessment failed to consider that the provisions ofsection 145(2) as such could not be applied to thedetermination of income of the period from 1.4.96 to31.10.96 on a proper interpretation of the applicabilityof the provisions of Chapter XIVB of the I.T. Act?” 2. 2.The facts necessary for adjudication as narrated in theinstant appeal are that the search and seizure operation was conductedon 31.10.1996 at the business and the residential premises of the assessee. During the search proceedings, certain incriminatingdocuments including units and shares were found and seized. Besidesthat, cash amount of Rs.3220/- and gold jewellery weighing 195 gmsand 350 silver coins were found. In pursuance thereof, the assessmentorder was passed by the Assistant Commissioner of Income Tax on29.10.1997 making additions of Rs.4,90,600/- as household expenses,Rs.6,64,000/- as marriage expenses and other additions on account ofalleged undisclosed income for the block period in question. Feelingaggrieved, the assessee filed an appeal before the Tribunal who videorder dated 16.6.2000 sustained an addition of Rs.2,00,000/- onaccount of low household withdrawals and Rs.2,30,000/- on account ofmarriage expenses and set aside the additions made under Section 145(2) of the Act regarding valuation of stock and remanded the matter tothe Assessing Officer. Hence, the present appeal by the assessee. 3.We have heard learned counsel for the parties and havegone through the record very carefully. 4.The aforesaid questions of law relate to the followingadditions made by the Assessing Officer during the course of blockassessment proceedings:- (i)the marriage expenses which has been sustained bythe Tribunal to the extent of Rs.2,30,000/-;the Tribunal to the extent of Rs.2,30,000/-; (ii)low household expenses which has been maintainedat Rs.2,00,000/-; and at Rs.2,00,000/-; and (iii)regarding stock valuation which has been remandedto the Assessing Officer.to the Assessing Officer. 3.We have heard learned counsel for the parties and havegone through the record very carefully. 4.The aforesaid questions of law relate to the followingadditions made by the Assessing Officer during the course of blockassessment proceedings:- (i)the marriage expenses which has been sustained bythe Tribunal to the extent of Rs.2,30,000/-;the Tribunal to the extent of Rs.2,30,000/-; (ii)low household expenses which has been maintainedat Rs.2,00,000/-; and at Rs.2,00,000/-; and (iii)regarding stock valuation which has been remandedto the Assessing Officer.to the Assessing Officer. 5.Learned counsel for the assessee submitted that theTribunal on the basis of conjectures and surmises without there beingany definite material found during the search sustained the addition tothe extent noted above. Therefore, the findings recorded by the Tribunalare perverse and raise substantial questions of law as claimed by theassessee. 6.Controverting the aforesaid submissions, learned counselfor the revenue supported the order passed by the Tribunal. Learnedcounsel submitted that the books of accounts which were maintained bythe assessee were not reliable and, therefore, certain estimates had tobe made for determining the undisclosed income. The estimates whichhad been upheld by the Tribunal cannot be said to be perverse as thesame are based on material on record. Learned counsel for therevenue relied upon the following observations in the judgment of thisCourt in Ved Parkash v. Commissioner of Income Tax, [2004] 265ITR 642 in support of his submissions: “Since the books of account maintained by the assesseewere not reliable, the assessment had to be made in thelight of the material recovered during the search. In thisprocess, some element of estimate was unavoidable. In theappellate jurisdiction under section 260A of the Act, thiscourt normally does not interfere by substituting its ownestimate in place of the one of the Tribunal unless it isshown that the estimate of the Tribunal could not possiblybe reached.” 7.Support was also drawn from the provisions of Section158BB(2) of the Act which provides that provisions of Sections 68, 69,69A, 69B and 69C apply to such cases. According to the learnedcounsel, the assessee had not been able to give any convincing orreliable material to show that addition of Rs.2,30,000/- on account ofmarriage expenses and Rs.2,00,000/- as low household expenses wasunjustified. 8.We have given our thoughtful consideration to therespective submissions of learned counsel for the parties and do notfind any merit in the submission of learned counsel for the assessee. 9.Examining, whether expenses incurred on the marriage ofassessee's children and low household expenditure on estimate canform the basis of undisclosed income for the block period, inevitably,reference has to be made to sub-section (2) of Section 158BB of theAct, which reads thus:- “In computing the undisclosed income of the blockperiod, the provisions of sections 68, 69, 69A, 69Band 69C shall, so far as may be, apply andreferences to “financial year” in those sections shallbe construed as references to the relevant previousyear falling in the block period including the previousyear ending with the date of search or of therequisition.” 10.According to plain reading of this sub-section, the deemingprovisions in Sections 68 to 69C stand attracted for the purpose of ascertaining the undisclosed income and determination under thisSection shall be blockwise computation. Further, it cannot be ignoredthat “in search cases, the assessment of the undisclosed income is notpossible without having some element of estimates because the truefacts concealed from the department are within the personal knowledgeof the assessee.” However, caution is to be exercised if such estimateis shown to be arbitrary and contrary to material on record. 10.According to plain reading of this sub-section, the deemingprovisions in Sections 68 to 69C stand attracted for the purpose of ascertaining the undisclosed income and determination under thisSection shall be blockwise computation. Further, it cannot be ignoredthat “in search cases, the assessment of the undisclosed income is notpossible without having some element of estimates because the truefacts concealed from the department are within the personal knowledgeof the assessee.” However, caution is to be exercised if such estimateis shown to be arbitrary and contrary to material on record. 11.It would now be apt to refer to the findings of the Tribunalrelating to these additions. The Tribunal while sustaining the additionwith regard to marriage expenses had in paras 28 to 35 held as under: “28.We have examined the rival submissions and alsoperused the material on record to which our attention wasinvited during the course of hearing. The following facts arein favour of the assessee:- (1)Some of the marriages were performedduring the period when terrorism was at its peak inPunjab, Chandigarh and adjoining areas and suchmarriages could not have been performed on alavish and ostentatious scale but in a low keymanner. (2)The assessee's daughter Anjana wasmarried twice having lost her first husband at thehands of terrorists and this was likely to result in thesecond marriage being performed on a lesser scalemore so when she became a widow within one year of her first marriage. (3)The marriage of Asmita, the other daughterof the assessee, was also performed in thebackground of the fact that her fiancee died a weekbefore the marriage and the same had to beperformed with a different person in hurriedcircumstances. (4)The aggregate addition made by the AO ispurely on estimate and considering normalcircumstances as also assuming and presuming thestatus and background of the assessee as alsotaking into account the community to which hebelonged. A reference has been made to“Aggarwal Community” in the assessment order towhich the ld counsel objected but, in our opinion,any such reference whether inadvertent ormotivated does not come in the way of our decidingthe issue on merits. (5)No incriminating evidence or documents werefound during the course of raid.found during the course of raid. 29.As against the aforesaid the main facts which favourthe revenue's case are:- (1)The break-up of the actual marriage expenseswas not furnished to the AO although specificallyasked for.was not furnished to the AO although specificallyasked for. (2)For some of the marriages the assessee hadnot contributed a single pie and withdrawals weremade from the accounts of the persons concernedand which were found to be inadequate. (3)It is unbelievable that for the marriage of hisson Mahesh Kumar, the assessee's stand was thatno expenditure was incurred in view of terroristactivities in Punjab. Whatever may be the situation,some expenditure is definitely called for. 30.Taking note of the aforesaid facts, some favouringthe assessee and some favouring the revenue, we in theultimate analysis hold that some addition is called for butnot of the magnitude as made by the AO. For instance, inthe first marriage of Anjana the amount stated to have beenspent is Rs.56,000/- whereas the AO has arrived at anestimate of Rs.1,50,000/-. In the second marriage a sum ofRs.80,000/- is shown to have been spent whereas the AOhas estimated the same at Rs.2 lakhs. In other words, thetotal addition on the two marriages of Anjana comes toRs.2,14,000/-. In our opinion, considering the various factsand circumstances, an addition of Rs.1 lakh in respect ofboth the marriages would be fair and reasonable. 31.As regards the marriage of Shri Mahesh Kumar, theassessee's son, the AO estimated the expenditure at Rs.2lakhs as against the stand of the assessee that nothing 31.As regards the marriage of Shri Mahesh Kumar, theassessee's son, the AO estimated the expenditure at Rs.2lakhs as against the stand of the assessee that nothing was spent. In our opinion, an addition of Rs.80,000/- wouldbe fair and reasonable taking into account the point of timeat which the marriage was performed as also the furtherfact that the husband of Kumari Anjana had been killed interrorist violence in Punjab. The AO has made much of thefact that during the course of the search jewellery valued atRs.2.20 lakhs was found at the residence of Shri MaheshKumar and he has attributed Rs.1 lakh out of this to theassessee and Rs.1,20,000/- as having been given by thein-laws of Shri Mahesh Kumar. There is no dispute aboutthe quantum of jewellery found. What can be attributed toboth the sides is afterall an estimate and there is nothingon record to show that the AO confronted the in-laws ofShri Mahesh Kumar to ascertain the expenditure on thejewellery, marriage etc. 32.As regards Asmita, the assessee's other daughter,the AO has estimated the expenditure at Rs.2,50,000/- asagainst Rs.50,000/- shown but considering her peculiarcircumstances as already highlighted earlier, we are of theview that an addition of Rs.50,000/- would be fair andreasonable as against Rs.2,00,000/- on the part of the AO.The AO has compared in arriving at the estimate ofRs.25,000/- the expenditure on the marriage of assessee'ssecond son Mr. Harish Singal. In his own case a separateaddition of Rs.50,000/- has been made over and above the addition made in the assessee's own case. We wouldonce again stress on the peculiar facts and circumstancesin the case of Asmita as also taking into account the pointof time at which the marriage was performed. Further, ShriHarish Kumar was married in 1996 when terrorism haddisappeared in Punjab as compared to Asmita's marriagein 1992 and, therefore, the expenses of the two marriagescannot be compared. 33.As regards Shri Harish Kumar, the separate additionof Rs.50000/- made in his case will be taken care of whiledeciding his appeal but insofar as the addition ofRs.40,000/- in the assessee's case is concerned, asagainst Rs.50,000/- (erroneously mentioned in the groundof appeal), there are two limbs – the first on the basis of hisstatement that Rs.1 lakh had been spent at the time ofmarriage whereas in the course of the assessmentproceedings he came out with a figure of Rs.75,000/-. Theld. counsel for the assessee had argued that the figure ofRs.1 lakh had been given off hand at the time of recordingthe statement without reference to record and rather thantake this figure the amount of Rs.75,000/- actuallywithdrawn be accepted. The ld. D.R., however, struck tothe figure of Rs.1 lakh but after considering rivalsubmissions we are of the view that the addition ofRs.25,000/- is not justified on the facts and circumstances of the case as the assessee did not refer to any record atthe time of recording of the statement and the sum of Rs.1lakh had been mentioned in an off the cuff manner. Thisaddition is accordingly deleted. 34.As regards the sum of Rs.35,000/- received asShagans and thereafter spent towards marriage expenses,the AO has accepted Rs.20,000/- adding back the rest butthis once again an estimate and surmises and conjectures.Nothing prevents the assessee from giving a figure higherthan Rs.35,000/-. On the one hand the AO is harping onthe community to which the assessee belongs as also hishigh social status and if that be so, we really wonderwhether the sum of Rs.35,000/- as Shagans can be treatedto be an abnormal figure. The addition of Rs.50,000/-(correct amount Rs.40,000/-) accordingly stands deleted. 35.To sum up, the following additions are sustained:- (1) Anjana: Rs.1 lakh is sustained on both themarriages as against Rs.2,14,000/- on the part of themarriages as against Rs.2,14,000/- on the part of the AO. 35.To sum up, the following additions are sustained:- (1) Anjana: Rs.1 lakh is sustained on both themarriages as against Rs.2,14,000/- on the part of themarriages as against Rs.2,14,000/- on the part of the AO. (2) Shri Mahesh Kumar: Rs.80,000/- is sustained asagainst Rs.2 lakhs on the part of the AO.against Rs.2 lakhs on the part of the AO. (3) Asmita:Rs.50,000/- is sustained as against Rs.4,60,000/-. (4) Shri Harish Kumar: Addition of Rs.50,000/- standsdeleted (wrongly mentioned as Rs.50,000/-). (Correct amount should be Rs.40,000/-). Before we part with this ground we would like toreiterate that the additions have been sustained withreference to the statements made during the courseof the search and this is connected with the otherfact that quite a few of the regular assessments werecompleted u/s 143(1)(a) and these were not scrutinyassessments. This takes care of the argument thatthere is a review of earlier completed assessments.These observations of ours would also apply to allother grounds in the appeal where such a stand hasbeen taken.” 12. 12.While dealing with low household withdrawals, the Tribunalhad recorded as under:- “After examining rival contentions, we are of the view thatthere is some merit in the arguments advanced by the ld.counsel for the appellant. As rightly contended the elementof estimate has crept in along with various assumptionsand presumptions such as expenses towards socialfunctions on the part of the family, their high standard ofliving by reference to household goods and foreign toursbut we must stress that separate additions have beenmade on these two items and with which we have alreadydealt with. Household expenses would take care of food,clothing and certain other connected expenditure since telephone expenses would have been taken care of in thebooks of accounts of one or the other of the businesses runby the family members. The question of servants,membership of clubs and kitties as also medical expensesis once again on the basis of estimate. The AO asked theassessee to file relevant details itemwise but, in ouropinion, such details could not have been furnished theway required by the AO since the search and seizure tookplace in Oct. 1996 whereas the household expenses askedfor pertained to much earlier years beginning assessmentyear 97-98. Nobody is expected to keep details or for thatmatter remember the break-up. In our opinion, it would befair and reasonable in case an adhoc addition is sustainedconsidering the facts and circumstances stated aforesaidand on which the ld. counsel has strongly relied. The chartin the assessment order pertaining to the addition itselfshows that in assessment year 87-88 the AO has estimatedthe monthly expenditure at Rs.5500/- which has graduallyshot up to a figure of Rs.15000/- per month in assessmentyear 97-98. The total family members in asstt. year 87-88were 8 and this figure increased to 10 in assessment year97-98. Taking into account the facts as also the decisionscited at the Bar, we are of the view that an addition of Rs.2lakhs as against Rs.4,90,600/- would be a very reasonablefigure towards the household expenses and we therefore allow relief for the balance amounting to Rs.2,90,600/-.” 13.No perversity could be pointed out by the learned counselfor the assessee in the findings recorded by the Tribunal which maywarrant interference by this Court. 14.Regarding the issue relating to stock valuation, it wasnoticed by the Tribunal that the matter required to be looked into afreshby the Assessing Officer since the books of accounts had been rejectedin terms of Section 145(2) of the Act. 15.Learned counsel for the revenue has pointed out that afterthe remand, the Assessing Officer had allowed certain benefits to theassessee and to the extent of additions made, the assessee hadalready filed an appeal. In view of the aforesaid, questions No. (iii) &(iv) regarding stock valuation does not arise for consideration. allow relief for the balance amounting to Rs.2,90,600/-.” 13.No perversity could be pointed out by the learned counselfor the assessee in the findings recorded by the Tribunal which maywarrant interference by this Court. 14.Regarding the issue relating to stock valuation, it wasnoticed by the Tribunal that the matter required to be looked into afreshby the Assessing Officer since the books of accounts had been rejectedin terms of Section 145(2) of the Act. 15.Learned counsel for the revenue has pointed out that afterthe remand, the Assessing Officer had allowed certain benefits to theassessee and to the extent of additions made, the assessee hadalready filed an appeal. In view of the aforesaid, questions No. (iii) &(iv) regarding stock valuation does not arise for consideration. 16.Accordingly, the substantial questions No. (i) and (ii) asclaimed are answered against the assessee and in favour of therevenue. The appeal stands dismissed. (AJAY KUMAR MITTAL) JUDGE January 19, 2011gbs (ADARSH KUMAR GOEL)JUDGE