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Assistant Commissioner of Income-tax v/s Kandasamy Sah

    IT (SS) Appeal No. 20 (Mds.) of 2012

    Decided On, 23 January 2015

    At, Income Tax Appellate Tribunal Chennai

    By, THE HONOURABLE MR. B.R. BASKARAN
    By, ACCOUNTANT MEMBER & THE HONOURABLE MR. VIKAS AWASTHY
    By, JUDICIAL MEMBER

    For the Appellant: Ruby George, Advocate. For the Respondent: T. Vasudevan, Advocate.



Judgment Text

B.R. Baskaran, Accountant Member

1. The Revenue is aggrieved by the order dated March 30, 2012 passed by the learned Commissioner of Income-tax (Appeals)-I, Chennai in respect of block assessment order passed for the block period ending September 14, 2000, wherein the learned Commissioner of Income-tax (Appeals) has granted relief to the assessee on the following issues.

(a) Unaccounted investment in immovable properties.

(b) Addition relating to vehicles.

(c) Unaccounted investment in stock-in-trade.

(d) Unaccounted investment in jewellery.

(e) Telescoping of sundry creditors balance.

(f) Addition relating to low drawings.

2. The assessee is in the business of purchase and sale of zari, silk sarees and other handloom products under the name and style "K.S.B. Silks" at Kancheepuram. The Revenue carried out search and seizure operation under section 132 of the Act in the hands of the assessee on September 14, 2000, consequent to which the block assessment was framed by the Assessing Officer under section 158BC of the Act determining undisclosed income at Rs. 1,05,91,555, vide block assessment order dated December 31, 2002. The assessee challenged the same by filing an appeal before the learned Commissioner of Income-tax (Appeals) and the same was partly allowed. Aggrieved by the relief granted by the learned Commissioner of Income-tax (Appeals), the Revenue has preferred this appeal before us.

3. The first issue relates to the addition made on account of unaccounted investments made in immovable properties. In the block assessment proceedings, the Assess

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ing Officer listed out the immovable properties purchased by the assessee and arrived at the value of undisclosed properties at Rs. 41,30,690. However, the assessee contended that these properties were duly disclosed by him under VDIS scheme and in support of the same he produced the necessary documents. The Assessing Officer noticed that the VDIS certificates was issued by the Commissioner only to the extent of Rs. 5,33,334 and hence agreed with the contentions of the assessee only to the extent of the abovesaid amount and assessed the balance amount of Rs.35,97,357 as undisclosed income of the assessee.

4. It is pertinent to note that the assessee had filed the VDIS declaration on December 29, 1997, i.e., much before the date of search wherein all the investments made in the immovable properties had been disclosed to the Department. However, the assessee appears to have failed to pay the full tax before the due date prescribed under the VDIS scheme and hence the VDIS certificate was issued only to the extent of tax paid by the assessee. Hence, the assessee contended before the learned Commissioner of Income-tax (Appeals) that he had already disclosed all the immovable assets to the Department through the VDIS scheme and non-acceptance of the same on technical reasons would not make the same as "undisclosed assets". Accordingly it was contended that the Department should have proceeded to assess those assets under regular assessment proceedings and the same cannot be considered as "undisclosed income" under block assessment proceedings. The learned Commissioner of Income-tax (Appeals) was convinced with the contentions of the assessee and accordingly deleted the addition.

5. Before us, the learned Departmental representative placed strong reliance on the assessment order. The learned Departmental representative further placed reliance on the decision rendered by the hon'ble Madras High Court in the case of CIT v. R. Selvaraj [2013] 85 CCH 198 Chen HC in order to contend that the details found in the VDIS declaration can be used by the Assessing Officer. The learned Departmental representative further placed reliance on the decision rendered by the hon'ble Supreme Court reported in Asstt. CIT v. A. R. Enterprises [2013] 350 ITR 489/212 Taxman 531/29 taxmann.com 50 and submitted that the hon'ble apex court has held that the advance tax payment and TDS deduction would not make the income represented by those payments as disclosed ones.

6. On the contrary, the learned authorised representative placed strong reliance on the submissions made before the learned Commissioner of Income-tax (Appeals). He further submitted that the decision was rendered by the hon'ble jurisdictional High Court in the case of R. Selvaraj (supra), in the context of reopening of assessment and hence the same is not applicable to the block assessment proceedings, which is a separate code by itself. With regard to the decision of the hon'ble Supreme Court referred to above, the learned authorised representative submitted that the same was rendered in the context of advance tax and TDS amounts and hence the same also shall not have application to the facts of the instant case. The authorised representative also submitted that the view taken by the first appellate authority finds support from the decision of the hon'ble Delhi High Court in the case of CIT v. Naveen Gera [2010] 328 ITR 516/[2011] 198 Taxman 93 (Mag.) (Delhi).

7. Having heard the rival contentions, we are of the view that there is merit in the contentions of the assessee. First of all, the assessee has declared all the impugned immovable assets in the VDIS declarations filed by him, much earlier to the date of search. The entire quantum of declaration was not accepted due to technical reasons, i.e., non-payment of entire amount of tax before the due date. Under these set of facts, the right course that was available to the Department was to assess those income, i.e., that was not covered by the VDIS certificate, by reopening the assessments under section 148 of the Act. It appears that the Department has failed to assess those income under section 148 of the Act. In our considered view, the Department is not entitled to make good its failure by assessing those assets under block assessment proceedings, since the block assessment made under Chapter XIV is a complete code by itself and it is well settled proposition that the regular assessment proceedings and block assessment proceedings are parallel to each other and can be taken up simultaneously. We notice that the case law relied upon by the Revenue have been rendered under different contexts. On the contrary, the decision rendered by the hon'ble Delhi High Court in the case of Naveen Gera (supra) is applicable to the facts of the instant case, i.e., the hon'ble Delhi High Court has held that, if the details of the properties already disclosed to the Department under VDIS, then it cannot be said that the Department came in possession of any information which it did not possess earlier. Hence, we are in agreement with the view expressed by the learned Commissioner of Income-tax (Appeals) on this issue.

8. The next issue relates to the addition made in respect of vehicles. The learned Departmental representative submitted that the undisclosed income of the assessee was computed under investment method. While taken the value of vehicles, the assessee had taken the written down value of vehicles at Rs. 4,14,690, instead of taking the cost thereof. The learned Departmental representative submitted that the Assessing Officer took the view that the depreciation is admissible only if the undisclosed income is computed under the income method. Accordingly the Assessing Officer adopted the value of vehicles at cost at Rs. 9,10,476. The learned Commissioner of Income-tax (Appeals), however, held that the depreciation is admissible as deduction against income determined even under "investment" method also.

9. We heard the parties on this issue. There should not be any dispute that the depreciation is a statutory deduction and the same is allowable as deduction while computing the total income. Further the depreciation is a non-cash expenditure. The total income may be computed under different methods and the "investment" method is only method of computing the total income. Hence, even if the value of vehicles is taken at cost, the depreciation should be allowed separately. However, if the value of vehicles is taken at written down value, then the depreciation is deemed to have been allowed. Hence, we agree with the decision rendered by the learned Commissioner of Income-tax (Appeals) on this issue and accordingly uphold the same.

10. The next issue relates to the unaccounted investment in stock-in-trade. During the course of search proceedings, the physical verification of stock was carried out and the value of stock was determined at Rs. 12,86,021. However, the assessee has taken the value of stock at Rs. 10,57,990 in his computation. Hence the Assessing Officer, in effect, assessed the difference between the two figures amounting to Rs. 2,28,031 as undisclosed income of the assessee, since he took the value of stock at Rs. 12,86,021. The assessee contended before the learned Commissioner of Income-tax (Appeals) that the search parties have taken the value of stock at "tag price", i.e., at selling price, whereas, he has taken the value of stock at cost price. In the remand report, the Assessing Officer submitted that the assessee had accepted the value determined by the search officials in the statement recorded and accordingly contended that the said value only should be assessed. However, the learned Commissioner of Income-tax (Appeals) was convinced with the contentions of the assessee and accordingly directed that the addition of Rs. 2,28,031 (mentioned as Rs. 2,28,061) should be deleted.

11. We heard the parties on this issue and perused the record. We notice that the Assessing Officer has simply placed reliance on the sworn statement given by the assessee at the time of search, wherein the assessee had accepted the value of Rs. 12,86,021. However, the assessee has pointed out that the abovesaid value was determined on the basis of selling price, whereas the cost price of those goods actually work out to Rs. 10,57,990. There should not be any dispute that the value of stock is normally valued at cost or market price, whichever is lower. Though the assessee might have admitted the value determined by the search officials in the statement taken at the time of search, yet he has found out the mistake and corrected the same at the time of filing block return. In our view, the mistake pointed out by the assessee in the valuation taken by the search officials cannot be ignored. In the absence of any other material to contradict the stock valuation (at cost) shown by the assessee, we are of the view the same should be adopted. Hence, we do not find any infirmity in the order of the learned Commissioner of Income-tax (Appeals) on this issue also.

12. The next issue relates to the undisclosed investment in jewellery and silver articles. During the course of search, the assessee was found in possession of 2,283.800 grams of gold and 3038.800 grams of silverware. In addition to the above, it was noticed that the assessee has gifted 1878.700 grams of gold and 9,010 grams of silverware to his daughter at the time of her marriage. The Assessing Officer gave a deduction for 500 grams of gold and assessed the balance quantity of gold weighing 3,662.500 grams (2283.800 + 1878.700 (-) 500) and the entire quantity of silver (3038 + 9010) as undisclosed income of the assessee.

13. Before the learned Commissioner of Income-tax (Appeals), the assessee contended that the gold jewelleries found at the time of search included the gold jewelleries belonging to his mother (500 gms), his spouse (350 gms) and also the gold declared under VDIS scheme (250 gms). The assessee also claimed that he had received gifts of gold on naming ceremony and birthdays (250 gms). The learned Commissioner of Income-tax (Appeals) accepted the contentions of the assessee with regard to the gold jewellery belonging to mother, spouse and that declared under VDIS scheme. However, he did not accept the claim of receipt of gift during naming ceremony and birthdays.

14. Considering the fact that the learned Commissioner of Income-tax (Appeals) has granted relief to the extent of gold belonging to the mother and spouse of the assessee and also that declared under VDIS scheme, we do not find any infirmity in his order, since the ladies in the Indian families normally possess jewelleries to that extent. Accordingly, we approve his order on this issue.

15. In respect of the silver articles also, the learned Commissioner of Income-tax (Appeals) gave relief in respect of silver items belonging to the assessee's mother (2500 gms), spouse (3750 gms) and that declared under VDIS scheme (1000 gms). The learned Commissioner of Income-tax (Appeals) did not accept the claim of receipt of gifts (1500 gms) by the assessee. It is customary for the ladies in the Indian families to possess silver articles. Considering the quantity of the silver articles accepted in the hands of each of the member of family, we do not find any infirmity in the order of the learned Commissioner of Income-tax (Appeals) on this issue also and accordingly uphold the same.

16. The next issue relates to the addition relating to sundry creditors. The Assessing Officer did not accept the claim of deduction of liability towards sundry creditors to the tune of Rs. 22,91,570. Before the learned Commissioner of Income-tax (Appeals), it was submitted that the Assessing Officer has accepted the sundry debtors balance declared by the assessee, but rejected the claim of liability towards sundry creditors. It was further submitted that the sundry debtors balance represent credit sales and sundry creditors balance represent credit purchases. Accordingly it was submitted that the sales could not have been made without effecting purchases. The assessee also submitted that both the sundry debtors and sundry creditors balance were reflected in the books of account found at the time of search. Before the learned Commissioner of Income-tax (Appeals), the assessee also furnished the details of relevant seized document, wherein the liability towards sundry creditors were noted down. Convinced with the contentions of the assessee, the learned Commissioner of Income-tax (Appeals) directed the Assessing Officer to consider the liability towards sundry creditors, which was required to be deducted from the aggregate amount of investments for arriving at the income.

17. We heard the parties on this issue. We have already noticed that the undisclosed income of the assessee was computed under "investment method". While computing the income under this method, the loans and ascertained liabilities are required to be deducted from the aggregate value of assets for the purpose of arriving at the income. The assessee has pointed out that the liability towards creditors are collated from the seized material only and the assessee has also linked the outstanding liability with specific seized material. However, it is seen that the Assessing Officer did not bring any material on record to disprove the claim of the assessee. We notice that the learned Commissioner of Income-tax (Appeals) has observed that the Assessing Officer was not correct in ignoring the seized materials in selective manner, i.e., the view of the learned Commissioner of Income-tax (Appeals) was that the seized materials should be given due credence in toto, unless contrary is shown. We agree with the legal position expressed by the learned Commissioner of Income-tax (Appeals). Further, the Assessing Officer has also failed to contradict the claim made by the assessee in this regard. Hence, we agree with the view expressed by the learned Commissioner of Income-tax (Appeals) on this issue also.

18. The last issue relates to the addition made towards insufficient drawings. It is an admitted fact that the Assessing Officer has made this addition on estimated basis without making reference to any of the seized materials. It is a well settled proposition of law that the block assessment can be made only on the basis of seized materials. Apart from this legal position, we notice that the learned Commissioner of Income-tax (Appeals) has also taken into consideration about the fact that the assessee was residing in a rural place, where the cost of living is generally low vis-a-vis the metro cities. Hence, in our view, the learned Commissioner of Income-tax (Appeals) was justified in deleting this addition made only on estimated basis and not with reference to any seized material.

19. In the result, the appeal filed by the Revenue is dismissed.
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