ORDER LS. VERMA, J.M.:
In this appeal the assessee has objected to the assessment order for block period passed by the assessing officer under the provisions of Chapter XIV-B of the Income Tax Act (hereinafter called the Act) and has listed as many as 21 grounds.
1.1. In addition to the aforesaid, the appellant/assessee also sought permission, as per letter dt. 15th Feb., 1999, for admission of two additional grounds. But since the counsel for the assessee pleaded for withdrawal of the additional grounds at the time of hearing of the appeal, the same are dismissed as such.
2. As far as the other grounds are concerned, we have heard the assessee's counsel as well as the learned departmental Representative and proceed to decide the various issues as under L Ground Nos. (i) to (v) :
3. These grounds are against the determination of appellant's undisclosed 'income of Rs. 4,05,840 on the basis of seized documents marked as Annexure A- 1.
3.1. Before divulging to the arguments advanced by the parties, we consider it necessary to refer to the brief facts, as they emerge from the records before us.
3.2. The facts relating to the issue of undisclosed income of Rs.4,05,840 are that when the appellant was called upon to furnish a return of her undisclosed income by virtue of provision of s. 158BC of the Act, the appellant furnished her return for block period on 6th Feb., 1997. When the appellant was called upon to explain the nature and details of the entries made in document marked as Annexure A- 1, the appellant vide her letter dt. 15th Feb., 1997 explained that the entries listed in the documents represented investment in the construction of building named as 'Ved Ashram' and belonging to her husband Dr. B.N. Tripathi. Since appellant's name was appearing against most of the entries in this document, the appellant was asked to show cause as to why the entries against her name should not be considered as having been originated from her and since the amount involved in the building named 'Ved Ashram'. It was proposed that the amount should be taken as appellant's undisclosed investment on account of unexplained investment in the building. SO far as the contents, i.e. entries in the books are concerned, it was noticed by the assessing officer that at pp. 3 & 4 of the documents a sum of Rs. 4,05,840 was shown as having been received from Smt. Usha Tripathi during the period 28th Jan., 1993 to 6th Oct., 1994 and this amount had been subsequently invested in the construction of the building. The appellant once again tried to explain the nature and source of amounts involved in these entries and as per letter dt. 26th Feb., 1997 submitted that the appellant was supervising the construction work on behalf of her husband and the document under reference was being maintained by appellant's brother Mr. Pappu. It was further explained that the amounts mentioned against the appellant's name had actually originated from her husband Dr. B.N. Tripathi. According to the appellant, since her husband had no time to hand over the amount to Mr. Pappu, he used to give the same to the appellant who in turn used to pass on the same to Mr. Pappu. In short, the appellant's claim was that the amounts involved in the entries against her name did not belong to tier.
3.3. The assessing officer, however, did not find any merit in appellant's explanation. The assessing officer specifically noted that in addition to narration `frorn Usha Tripathi there are other narrations also such as "from Ved Pathology" on 29th June, 1993 and "from SBI-Ved Pathology" on 22nd Sept., 1993. On the basis of these narrations, the assessing officer concluded that the narrations represented the source of the cash. Ultimately, the assessing officer corcluded that the entries appearing against appellant's name or against the name of Ved Pathology belonged to the appellant and consequently be considered the total of such entries which as Rs. 4,05,840 as appellant's undisclosed income having been invested in appellant's husband's property called 'Ved Ashrarn'. The parties have advanced 'their arguments in the light of aforesaid facts.
4. The appellant's counsel submitted that the diary marked as Annexure A-1, found and seized during the course of search, was being maintained by appellant's brother Mr. Pappu who was looking after the construction of building called 'Ved Ashram' belonging to appellant's husband Dr. B.N. Tripathi and, therefore, Mr. Pappu used to write the name of persons from whom he was receiving money from time to time for the purpose of investments in the construction and since Dr. B.N. Tripathi, being in service, was not available all the times, he used to give money to the appellant who, in turn, used to pass on the same as and when required to Mr. Pappu. In view of these facts, the appellant's counsel stressed that the money given to Pappu and having been mentioned against appellant's name in the seized documents did not belong to the appellant. According to him, the source of money was Dr. B.N. Tripathi and the appellant had nothing to do with it as far as the onus is concerned. In all these conditions, the assessee's counsel drew our attention to the submissions made before the assessing officer according to which Dr. B.N, Tripathi, while explaining the investment and source thereof in the construction of building 'Ved Ashram' had explained that out of total investment of Rs. 7,41,044 upto October, 1996, the cost of land was Rs. 1,12,660 and the cost of construction was explained as under .
Rs.
Rs.
(i) From personal funds.
3,89,859
(ii) Out of funds received against the sale agreement of house No. 117/48. Pandu Nagar, Kanpur, belonging to the father of Dr. B.N. Tripathi.
3,51,185 This amount was stated to have been invested through the appellant who has claimed to have passed on the same to Mr. Pappu. The appellant, as well as her husband had, therefore, submitted before the assessing officer that out of total of Rs. 4,05,840 recorded in the seized document against the appellant's name, a sum of Rs. 3,51,886 was proved to have been received from Dr. B.N. Tripathi because he has admitted this fact while explaining the source of investment in the building during the course of assessment proceeding in his own case and had also furnished the documentary evidence. In support of this plea, the counsel relied on the following available facts on record ..
(i) Appellant's reply dt. 15th Feb., 1997-copy available at pp. 1 to 4 of the assessee's paper book, which runs as under :
ANNEXURE No. A-1 "This is a diary in which the investment in the construction of Ved Ashram has been noted. The Ved Ashram is the property of my husband Dr. B.N. Tripathi who shall explain it in his case."
(ii) Appellant's reply dt. 26th Feb., 1997-copy available at pp. 8 and 9 of the paper book, which runs as under :
"(d) Explanation regarding investment in Ved Ashram being property of Dr. B.N. Tripathi :
Ved Ashram is the property situated at Naramau, Kanpur, belonging to my husband Dr. B.N. Tripathi. The investment has also been made by him. He will properly explain the investments made by him. Only supervised the construction work in his behalf as his wife. I just handed over the cash amount of Dr. B.N. Tripathi to the person in charge for construction work who noted them in the diary and also mentioned my name. The amount written against my name as being received from me were actually cash of Dr. B.N. Tripathi made available by him, which 1 just handed over for payments for construction. "
(iii) Dr. B.N. Tripathi's reply dt 11th March, 1997-copy available at pp. 46-47 of the paper book, which runs as under .
"The above amount of Rs. 3,89,859 invested by Dr. B.N. Tripathi is properly recorded in his regular books of accounts maintained. The amount of Rs. 3,51,185 has been separately invested out of the amount of Rs. 3,55,000 available with assessee which was received from Sri RK. Dubey, Banda, the narration regarding the receipt of amount of Rs. 3,55,000 from Sri P.K. Dubey is an under :
"Dr. Ved Nath Tripathi, father of above named assessee, is owner of house property No. 117/485, Pandu Nagar, Kanpur, in which his son Dr. B.N. Tripathi and his family is residing Dr. Ved Nath Tripathi is residing in his ancestral house at Umlao. Keeping in view his age, Dr. Ved Nath Tripathi decided to dispose off his house property No. 117/485, Pandu Nagar, Kanpur so as to avoid any future dispute amongst his two sons and one daughter, after his death. He asked his son Dr. B.N. Tripathi who is residing in this house property, to sell the house to any customer at reasonable price. Sri P.K. Dubey ' Advocate of Banda, who is brother-in-law of Dr. B.N. Tripathi, agreed with Dr. B.N. Tripathi to purchase the house property for a total sum of Rs. 7,50,000 sometimes in December, 1991. Since Sri P.K. Dubey was not having ready cash available to make entire payment at once, and also Dr. Ved Nath Tripathi was not in much haste to sell the property, therefore, Dr. B.N. Tripathi allowed Sri P.K. Dubey to make the payment of sale consideration in parts as and when the money is available with him. From 15th Jan., 1992, to 25th Sept., 1994, Sri P.K. Dubey gave Rs. 3,55,000 in cash on different dates which was received by Dr. B.N. Tripathi on his father's behalf. Since during this period Dr. B.N. Tripathi started construction of Ved Ashram, he utilised the cash amount of Rs. 3,55,000 available with him for the purpose of construction of Ved Ashram without obtaining permission of his father as it was not required. Thus, the amount of Rs. 3,51,185 was utilised by Dr. B.N. Tripathi in construction of Ved Ashram out of amount of Rs. 3,55,000 received by him from Shri R.K. Dubey towards sale consideration of his father's house property as mentioned above. Under these circumstances your good-self will kindly find that there is no undisclosed investment in the construction of Ved Ashram and therefore, there was no question of including any income as undisclosed income in the return for block period filed by Dr. B.N. Tripathi.
The cost of construction of Ved Ashram has been estimated by Valuation Cell at Rs. 8,10,200 which is within the reasonable margin (below 10 per cent) keeping in view the amount of money invested by the assessee being Rs. 7,41,044. "
(iv) Statement of Dr. B.N. Tripathi-copy available at p. 26 of the assessee's paper book.
(v) Appellant's reply dt. lIth March, 1997-copy available at p. 10 of the appellant's paper book and the relevant particulars run as under :
"Regarding investment in the construction of Ved Ashram, Dr. B.N. Tripathi is filing reply dt. lIth March, 1997, separately, which may kindly be made part of assessment proceedings of Dr. B.N. Tripathi. As already stated, 1 am not concerned with cost of construction of Ved Ashram, which is solely owned by Dr. B.N. Tripathi."
(vi) Confirmation by one Mr. Praduman Kumar Dubey, Advocate, Dubey Bhawan, Katara, Banda, in support of the claim that Dr. B.N. Tripathi had received money against the sale consideration from the sale of his father's house-copy available at p. 51, on the sale agreement-copy available at pp. 53 to 56, and on receipts issued by Dr. B.N. Tripathi for having received the alleged money-copy available at pp. 57-64 as well as on the evidence placed at pp. 65119 supporting the facts of availability of cash with said Shri Praduman Kumar Dubey.
4.1. The. learned departmental Representative, on the other hand, in addition to relying on the findings of the assessing officer in the assessment order, has submitted that apparent state should 'be accepted as real. According to him, had the money originated from Dr. B.N. Tripathi, then Mr. Pappu could have easily written the name of Dr. B.N. Tripathi or Dr. B.N. Tripathi himself could have handed over the money direct to Mr. Pappu. According to the learned departmental Representative, Mr. Pappu was not only honest but seems to have been directed by the appellant and Dr. B.N. Tripathi so far as the details in the documents are concerned. Explaining this aspect, the learned departmental Representative submitted that the appellant and Dr. B.N. Tripathi might have directed Mr. Pappu to keep a record of source funds handed over to him and has not been so, then Mr. Pappu should not have written the name at all. The learned departmental Representative further submitted that the facts of mentioning of appellant's name and also the name such as "from Ved Pathology" on 29th July, 1993, or such as "from SBI-Ved Pathology" on 22nd Sept., 1993, further goes to show that Mr. Pappu had instructions to record the source from which the money was received by him and, therefore, the appellant cannot plead that the money had not flown from her. Another way of pleading advanced by the learned departmental Representative was that had the money originated from Dr. B.N. Tripathi, then Mr. Pappu should have written though Mrs. Usha Tripathi" but since it was not the case, the word "through" had not been mentioned. Concluding his submissions, the learned departmental Representative submitted that the manner of mentioning the different names for sources of money received by Mr. Pappu confirms that money was from that particular source and since the name such as "Usha Tripathi or "Ved Pathology" or "SBI Ved Pathology" relates to either the appellant herself or appellant's proprietary business or appellant's Bank a/c, the amount mentioned against their entries had flown from the appellant. He further submitted that the appellant's claim that the amounts were advanced by appellants claim that the amounts were advanced by appellant's husband out of cash received against the agreement of sale of his father's house is also not correct because neither Dr. B.N. Tripathi nor his father had shown such receipts or loans or gifts in their respective balance sheets. According to him, had Dr. B.N. Tripathi received any money from his father, he would have shown it in his balance sheet either by way of gift or by way of loan but it is not so. On the contrary, the total investment in the building stands explained, as per balance sheet of Dr. B.N. Tripathi, as out of funds other than the amount received from his father. In view of these documentary evidence, the learned departmental Representative explained that the story of money having been received from Dr. B.N. Thpathi stands belied.
5. We have considered the rival submissions, facts and circumstances of the case, as well as the evidence relied upon or referred to by the parties and after careful consideration are inclined to agree with the submissions advanced by the learned departmental Representatives that had the money belonged to Dr. B.N. Tripathi. then what was the difficulty for him in handing over the same to Mr Pappu. He himself could have handed over. At least Mr. Pappu would have mentioned the name of Dr. B.N. Tripathi and not that of Smt. Usha Tripathi. Similarly, the fact of mentioning the words such as from SBI-Ved Pathology" or from 'Ved Pathology" confirms that Mr. Pappu had instructions to record the actual source from whom the moneys are received by him.
5.1. Further, as far as the appellant's claim that the money was received by her from Dr. B.N. Tripathi, who had received the amount against agreement of sale of his father's house, entered into with one Mr. Praduman Kumar Dubey, Advocate, we have seen the details of money recorded in the background marked as Annexure 1 (datewise) and the acknowledgement receipts issued by Dr. B.N. Tripathi for acknowledging the receipt of money from Mr. Praduman Kumar (datewise) and had found that none of the dates mentioned in Annexure A-1 tallies with the dates on which Dr. BN. Tripathi had claimed and had acknowledged to have received the money. It is also surprising that the receipts of cash received have been issued by Dr. B.N. Tripathi and not by his father.
5.2. The appellant's plea gets belied from further facts that Dr. B.N. Tripathi has not shown receipt of any money from his father either as gift or as a loan. The details on the liability side or the balance sheet of Dr. B.N. Tripathi as on 31st March, 1997, are as under Liabilities Rs.
Rs.
Dr. B.N. Tripathi Capital account 9,56,525.91 Unsecured loan Shri H. C. Pant 50,000,00 Shri Kailash Dixit, Durg 50,000.00 Dr. S.N. Awasthi 30,000,00 Shri Rakesh Kumar 15,000.00 Dr. V.N. Tripathi 40,000.00 Shri Sanjay Sarraf 10,000.00 Smt. Usha Tripathi 1,76,200.00 5.3. Similarly we have perused the balance sheet of Dr. B.N. Tripathi as on 31st March, 1992, 31st March, 1993, 31st March, 1994, 31st March, 1995 and on 31st March, 1996 and have not found any amount shown to have been received from his father except a gift of Rs. 23,485 from Shri V.N. Tripathi during a period relevant to assessment year 1994-95. These facts confirm beyond doubt that Dr. B.N. Tripathi had not received any money from his father and consequently there was no occasion for passing on of any money by him to the appellant for onward transmission to Mr. Pappu.
5.4. In view of the aforesaid discussion and the facts and circumstances, we are of the opinion that money recorded in Annexure A-1 against the appellant's name did not belong to Dr. B.N. Tripathi irrespective of the fact as to whether Dr. B.N. Tripathi had received any dash from said Shri Praduman Kumar Dubey or not.
5.5. We are further in agreement with the Revenue's submission that if at all the appellant's version is accepted, then it is only with respect to a sum of Rs. 3,51,858 and not for the total of Rs. 4,05,840 and, therefore, the balance has to be taken as belonging to the appellant. But since the narration against all the receipts, including the receipts totaling to Rs. 3,51,158 are same, i.e. "from Usha Tripathi", then if the balance is appellant's money, the whole of it has to be taken as appellant's money.
5.6. The appellant claimed that Dr. B.N. Tripathi had no time or was not available all the time- contradicted by appellant's own claim made while explaining the reason for payments made to Dr. B.N. Tripathi for passing on the same to various middlemen the appellant has claimed to have paid a sum of Rs 20,225 to various middlemen through Dr. B.N. Tripathi. It is not digestible as to how Mr. B.N. Tripathi was claimed to be not available all the times when he could have time to distribute such petty amounts to various middlemen. The appellant's claim is not acceptable.
5.7. In view of above facts and circumstances, we are of the opinion that the total amount of Rs. 4,05,840 represented appellant's undisclosed income having been invested in the building names 'Ved Ashrarn" owned by appellant's husband.
II. Ground Nos. (vi) to (xii)
6. These grounds are against the determination of appellant's undisclosed income of Rs. 2,73,283 on the basis of seized documents marked as Annexure A-2.
6.1. The facts relating to the issue are that the total receipts as per seized documents marked as Annexure A-2 were at Rs. 20,73,974 against which the appellant's regular books of accounts showed the receipts of Rs. 9,08,439. The appellant, while furnishing her return of undisclosed income, declared an undisclosed income of Rs. 8,92,252 on the basis of documents Annexure A-2 as per following computation :
Rs.
Rs.
Gross receipts as per diary 20,73,974 Less: Expenses incurred as noted in the diary 2,73,283 18,00,691 Less : Receipts recorded in the regular ledger 9,08,439 Amount of income not recorded in the regular account books 8,92,252 6.2. The appellant's claim of expenses of Rs. 2,73,283 duly recorded in the Annexure A-2, was based on the plea that he had given an incentive/commission of Rs. 20,225 and of Rs. 1,27,452 to the middle-men, namely, ward boys compounders and attendants, etc. through her employee Dr. Parveen Saraswat and her husband Dr. BX . Tripathi. These two doctors were examined by the assessing officer when they admitted in their statements the fact of receiving of aforesaid amounts for the purposes of paying the same as incentive to various middlemen. The assessing officer however, rejected the appellant's claim of these expenses by observing as under ..
"The version of the assessee's payments to middlemen cannot be accepted as true on the following reason :
(a) The assessee in the letter dt. 26th Feb., 1997, has stated that since the diary was found in the search which is conducted without any prior permission, all the entries in the diary can only be of true state of affairs. This exactly been the case, even the small details of stationery and refreshment are recorded in the diary, why these payments were not recorded under true narration as stated now by the assessee.
Gross receipts as per diary Less : Expenses incurred as noted in the diary Less : Receipts recorded in the regular ledger
(b) The assessee stated that since these middlemen did not given any acknowledgment receipt of incentive received by them and therefore, it was not recorded in the regular books of accounts. But there was no excuse to record these payments in the name of Dr. Tripathi and Dr. Saraswat. The assessee while noting the expenses could simply have recorded them as incentive paid to middlemen or similar brief detail.
(c) Since these payments were made from the undisclosed income, the any logical presumption can be that these amounts were given to Dr. Tripathi and Dr. Saraswat as their share from the same. Both of the recipients were given an opportunity to explain why these sums may not be treated as their undisclosed share from the assessee's income.
Dr. Saraswat in his reply had merely stated that he never received any amount but merely paid the sums to persons at the instruction of Dr. Tripathi, and the balance was returned to the assessee. Thus, it appears that these payments may be other than business. Thus, it appears that these payments may be other than business expenditure.
On a few days i.e. 9th March, 1996 and 20th May, 1996, almost whole of the balance seems to have been handed over to Dr. Saraswat amounting to Rs. 12,954 and Rs. 10,000. It is also incomprehensible now the assessee could distribute such huge sums is one day, as the small time middlemen must be receiving small amounts at certain rate. Absence of any evidence in form of any record of rough account to keep tract of these payments also makes the version of the assessee unbelievable.
Thus, in view of the foregoing, the difference of receipts recorded in A-2 and regular books shall be taken as undisclosed income. It is believed that Dr. Tripathi and Dr. Saraswat carried these sums on behalf of the assessee. The rest of the expenditure are recorded in the regular books.
Thus, a sum of Rs. 11,65,535 is treated as undisclosed income on the basis of Annexures A- 2 and A- 5 to A- 8. "
6.3. We have heard the assessee's counsel as well as the learned departmental Representative who have advanced their respective arguments in the light of the aforesaid facts, 6.4. The appellant's counsel submitted that when the receipts in a document are considered as income, then expenses recorded against those receipts in that very documents should also be considered at its face value and should be allowed as deduction. He further submitted that the assessee's claim of deduction of expenses to the extent of Rs. 2,73,283 has been rejected because no cogent reason has been shown for the same and it is based on conjectures and surmises. The learned departmental Representative, on the other hand, supported the findings of the assessing officer,
7. We have considered the rival submissions and the facts and circumstances of the case and, after careful consideration, are of the opinion that there is force in the appellant's claim. It is well settled principle of accountancy that in case a receipt in a document is considered as income, then the expenses recorded against that receipt so far as they are legitimate and are not of personal nature, should be allowed. Such expenses can, however, be disallowed if there is no evidence for having incurred the expenses but this condition applies only when the addition of income is being made on the basis of evidence for having earned the income. When both receipts and expenses are recorded in a document, then if the entries in the documents are relied upon for the purposes of receipts without bringing any further evidence, then the judicial proprietary requires that the document should be relied on with respect to expenses also and the assessee should not be burdened with the onus of bringing evidence for having incurred the expenditure.
7.1. As far as the appellant's case is concerned, it is not the Revenue's case that any of the expenses was either of ilegitimate nature or of personal nature and, therefore, the reason that it was not paid through two doctors cannot itself be a ground for disallowing the same more so, when both the doctors had confirmed having received and paid the amount to middlemen in their statements recorded by the assessing officer.
7 . 2. Even if it is presumed that the amounts were paid to these two doctors for themselves and not for onward passing on to the middlemen. Then also as far as the appellant is concerned, she cannot be denied the deduction because in that case it should have been assessed in the personal hands of the doctors though of course subject to the applicability of s. 64 which had not been invoked in this case.
7.3. Similarly the balance expenses, as is evident from the nature of entries recorded against each expenses, goes to show that they were of business nature and consequently cannot be denied.
7.4. In view of above discussion, we are of the opinion that the appellant is entitled to deduction of expenses of Rs. 2,73,283. Consequently, the assessing officer is directed to take the undisclosed income as per Annexure A-2 at Rs. 8,92,252, as declared by the appellant.
III. Ground Nos. (.xiv), (xv) and (xxi)
8. These grounds are against determination of appellant's undisclosed income as per seized documents marked as Annexure A-3 at Rs. 1,63,395 as against undisclosed income of Rs. 71,415 declared by the appellant.
8.1. This document contains the details of job work and payments collected by various attendants on door to door basis. Out of gross receipts of Rs. 1,75,000 only a few were recorded in the regular books of account maintained for the purpose of income-tax. When called upon to explain the extent of income on the basis of this document, the appellant computed her undisclosed income at Rs. 71,450 as per following details :
Rs.
Rs.
"Total investigation receipts from August, 1995 to December, 1995 1,75,000 Less .. 25 per cent recorded in regular books 43,750 1,32,750 Less : Collection charges from August, 1995 to June, 1996 paid 61,300 71,450 8.2. The assessing officer computed the undisclosed income on the basis of these documents at Rs. 1,36,395 as per following computations :
"Total investigation receipts from August, 1995 to December, 1995 1,75,000 Less . 10 per cent recorded in regular books of account 17,500 1,57,500 Less: Collection charges paid till December, 1995 21,105 1,36,395
9. We have heard the assessee's counsel as well as the learned departmental Representative. The assessee's counsel has submitted that the document A-3 contains receipts as well as the expenses and, therefore, the expenses should be allowed as business expenditure. The learned departmental Representative, on the other hand, has supported the order of the assessing officer.
9.1. After having considered the rival submissions and the facts and circumstances of the case, it is revealed from the method adopted for computation of undisclosed income by both the parties that as far as the appellant is concerned, she has taken the gross receipts and the expenditure as actually recorded in documents marked as Annexure A-3 but has taken the quantum of income out of these receipts recorded in regular books of account on estimate basis at 25 per cent, whereas the assessing officer has taken both the amounts, i.e., the amount recorded in the regular books of account as well as the expenditure recorded in document Annexure A-3 on estimate basis and the reason for it, as give, is that there being no receipts after December, 1995, expenditure for the period January to June, 1996 cannot be allowed. This approach of the assessing officer does not seem to be justified because so far as the expenditure recorded in the document is concerned, the same being for the business has to be allowed, Thus, in the entirety of the circumstances, we are of the opinion that it is a case of estimation only and consequently we hold that the quantum of receipts in the regular books of account should be taken at 20 per cent of the gross receipts of Rs. 1,75,000 as recorded in Annexure A-3 and the expenditure should be taken as per actual, i.e., at Rs. 61,300 recorded in Annexure A-3. The assessing officer is directed to recompute the undisclosed income in view of the above directions, IV. Ground Nos. (xvi) to (xxi)
10. The objection raised by the appellant in these grounds is against the estimation of appellant's undisclosed income on the basis of documents marked as Annexures A-2, A-3, A-5 to A-8 after estimating the undisclosed income for the period of 9 months or so for which there were the details in any of the documents.
11. The facts relating to the issue, as borne out from the record before us, are that the assessing officer had found entries recorded in Annexure A-2 as recorded in Annexure A-3 which in turn were recorded in Annexures A-5 to A-8. On the basis of this fact, the assessing officer formed an opinion that the appellant might be having such income or adopting such procedure for suppressing the actual receipts at least for the period from April, 1996 to December, 1995 also and since the Less ~ Collection charges paid till December, 1995 Net undisclosed income documents found did not contain the entries for this period, the assessing officer further assumed that the documents such as Annexure A-5 to A-8 must have also been maintained for the period April to December, 1995 but might have been destroyed by the appellant. This opinion was formed in view of the details found in Annexures A-2, A-5 to A-8 as well as in Annexure A-3 which were for the period January, 1996 to 30th June, 1996. The assessing officer, therefore, estimated the undisclosed income for the period of 9 months, i.e. from April to December 1995 on the basis of average monthly undisclosed income found recorded in document Annexure A-2, at Rs. 17,48,295 rounded to Rs. 17 lakhs. The appellant has objected to the computation of undisclosed income at Rs. 17 lakhs.
12. We have heard the assessee's counsel as well as the learned departmental Representative. The assessee's counsel's first objection was that in the earlier part of the order on this point that assessing officer wanted to estimate the receipts for the period August, 1995 to December, 1995 but while taking the figures he has computed undisclosed income for a period of 9 months. He, therefore, submitted that the undisclosed income for three months should be deleted straightaway.
12.1. On merits of the case, the assessee's counsel submitted that there is no material for estimating the appellant's undisclosed income for additional 9 months because, according to him, the undisclosed income as per the provisions of Chapter XIV-B of the Act, has to be determined only on the basis of documents seized during the search. Referring to the observations of the assessing officer contained in pp. 9, 10, 11 of the assessment order, the assessee's counsel submitted that there is no basis for making such an estimate and the so called undisclosed income for additional 9 months is liable to be deleted. In support of this submission he relied on the Tribunal, Allahabad decision in case of Dr. R.M.L. Mehrotra-copy furnished. Referring to para 26 of the Tribunal's order (supra), the appellant's counsel submitted that there is no justification for estimation of undisclosed income for additional 9 months when there is no reference to any such income for this period in any of the seized documents. The learned departmental Representative, on the other hand, in addition to supporting the findings of the assessing officer., submitted that the appellant having admitted undisclosed income in financial year 1994-95 also, the appellant's claim that this type of income was not earned prior to the date mentioned in the diary is not correct. He, therefore, submitted that the assessing officer was right in estimating the undisclosed income for whole of the year. In support of this submission, the learned departmental Representative relied on the decision in the case of CST v. H.M. Esufah H.M. Abdulah 1973 CTR (SC) 317 : (1973) 90 ITR 271 (SC) whereby estimation of turnover for the purpose of sales-tax. for the whole year, on the basis of undisclosed turnover for a limited period found during survey was held to be justified. In rejoinder, the appellant's counsel submitted that the provisions of Chapter XIV-B are a self contained code and the undisclosed income has to be computed on the basis of documents found and seized during the search and the other provisions of the Act such as provisions of s. 145 which enable the assessing officer to estimate the assessee's income or turnover, as the case may be after taking into account the books of account, are not applicable to the assessments for block period.
13. We have considered the rival submissions, facts and circumstances of the case and the case laws relied on by the parties and are of the opinion that the first issue for our decision 'Is with respect to the applicability of provisions, other than the provisions of Chapter XIV-B of the Act, to the assessments to be framed under Chapter XIV-B of the Act and to decide this issue we consider it necessary to analyse the various provisions contained in Chapter XIV-B and are with respect to the undisclosed income, the procedure for determining the same and also the procedure for making assessment of the same. The relevant provisions are contained in the provisions of ss. 158B, 158BA, 158BB, 158BC, 158BH and 158BF. The relevant part of the provisions, which we consider necessary for the purpose of deciding the issue in hand, are as under
(i) " 158B Definitions. -In this Chapter, unless the context otherwise requires,
(b) "undisclosed income" includes any money, bullion, jewellery or other valuable articles or thing or any income based on any entry in the books of account or other documents or transactions, where such money, bullion, jewellery, valuable article, thing, entry in the books of account or other document or transaction represents wholly or partly income or property which has not been or would not have been disclosed for the purposes of this Act. ',
(ii) "158BA. Assessment of undisclosed income as a result of search. -(1) Notwithstanding anything contained in any other provisions of this Act, where after the 30th June, 1995 a search is initiated under section 132 or books of account, other documents or any assets are requisitioned under section 132A in the case of any person, then, the assessing officer shall proceed to assess the undisclosed income in accordance with the provisions of this Chapter."
(iii) "158BB. Computation of disclosed income of the block period. -(1) The undisclosed income of the block period shall be the aggregate computed, in accordance with the provisions of Chapter IV, on the basis of evidence found as a result of search or requisition of books of account or documents and such other materials or information as are available with assessing officer as reduced by the aggregate of the total income or as the case may be, as increased by the aggregate of the losses of such previous years, determined, (2) In computing the undisclosed income of the block period, the provisions of ss. 68, 69, 69A, 69B and 69C shall, so far as may be, apply and references to "financial year" in those sections shall be construed as references to the relevant previous year falling in the block period including the previous year ending with the date of search or of the requisition."
(iv) "158BC. Procedure for block assessment.-Where any search has been conducted s. 132 or books of account, other documents or assets are requisitioned under section 132A, in the case of any person, then,
(a) ..
(b) the assessing officer shall proceed to determine the undisclosed income of the block period in the manner laid down in s. 158BB and the provisions of s. 142, sub-ss. (2) and (3) of s. 143 and s. 144 shall, so far as may be, apply. "
(v) '158BF. Certain interests and penalties not to be levied or imposed.-No interest under the provisions of s. 234A, 234B or 234C or penalty under the provisions of cl. (c) of sub-section (1) or s. 217 or s. 271A or s. 271B shall be levied c. imposed upon the assessee in respect of the undisclosed income determined in the block assessment."
(vi) 158BH. Application of other provisions of this Act.-Save as otherwise provided in this Chapter, all other provisions of this Act shall to assessment made under this Chapter."
13.1. The dissectional analysis of the aforesaid provisions goes to show that (i)
1. undisclosed income" to be assessed under this Chapter includes any money, bullion, jewellery or other valuable article or thing or any income based on any entry or transaction in the books of account or other documents found during the course of search Is. 158B(b)).
(ii) the assessment of undisclosed income in such cases has to be made in accordance with the provisions of Chapter XIV-B of the Act Is. 158BA(1)j.
(iii) For arriving at the undisclosed income, first the total income for all the previous years falling within the block period as well as for the period till the date of search if the time for furnishing return of income for that previous year has not expired is to be computed in accordance with the proosions of Chapter IV (emphasis, italicised in print, supplied) and on the basis of evidence found as a result of search or requisition of books of accounts or documents and such other material or information as are available with the assessing officer Is. 158BB(1)1,
(iv) It is further found that the provisions of ss. 68, 69, 69A, 69B and 69C have been made applicable with the modification that in place of words "financial year appearing in those sections the words "relevant previous year shall be read (s. 158B01
(v) That undisclosed income is to be determined in the manner laid down in the provisions of s. 158BB and the provisions of ss. 142, 143(2), 143(3) and 144 Is. 158BC(b)l so far as may be are applicable.
(vi) That in case of search prior to 1st Jan., 1997, interest under section 234A/B/C and penalties under ss. 271A, 271B and 271(1)(c) are not to be levied Is, 158BB).
(vii) The other provisions of the Act, except the provisions which are made unapplicable by this Chapter, shall apply Is. 158BH).
13.2. The outcome of the above analysis is that there are other provisions of the Act subject to the exceptions provided in Chapter XIV-B which are applicable to the assessments for block period also, though, of course, subject to our observations hereinafter.
14. As per the provisions of s. 158BC, the undisclosed income is the income which is found recorded in the documents or books of account found during the search and it is found that the income so recorded has either not been disclosed, if the return of income has already been furnished or if the return has not been furnished, then the same would not have been disclosed though, of course, with the exceptions that if the period for furnishing the return has not expired by the date of search, the income found recorded in documents or books of accounts shall be undisclosed income only itself establishes that the same would not have been disclosed had there been no search.
14.1. As far as the first two eventualities are concerned, there is no difficulty in finding as to whether the income found recorded in the documents or books of account found during the search had been disclosed or not or would, have not been disclosed but the difficulty arises only in case where the time/period for furnishing the return under section 139(1) of the Act has not expired because in that case the Revenue has to prove that the income, though recorded in the documents or books of account found during search, but yet would not have been disclosed. This difficulty, to some extent, gets solved if there are two sets of books of accounts and the entries therein differ because in that situation it can be inferred that the entries related to income in one set are meant for disclosure purpose whereas in the other set are not to be disclosed.
14.2. As far as appellant's case is concerned, since some of the entries, which are in the nature of income, recorded in document Annexure A-3 has not been recorded in the other set of books claimed to be regular books of account by the assessee for the purpose of income-tax, the income is admittedly undisclosed income and there is no dispute about it. The dispute is only with respect to the applicability of the other provisions of the Act. The appellant's stand is that the other provisions, such as provisions of S. 145, are not applicable, meaning thereby that in an assessment for block period the undisclosed income cannot be estimated; rather has to be determined strictly on the basis of entries found recorded in the documents or books of account found during the search. According to the appellant, the definition of undisclosed income supports this theory but we are unable to agree with the proposition because if it is so, then, firstly, the existence of provisions of s. 158BH, which clearly lays down that "other provisions of the Act except specially made not applicable by the provisions of Chapter XIV-B may be applicable" will be rendered redundant and, secondly, it is not the intention of the provisions of Chapter XIV-B. Take the provisions of s. 158BB, which lay down the procedure for determining the undisclosed income. To give effect to the provisions of this section, one has first to determine the total income inclusive of undisclosed income, though of course, not on the basis of the documents and books of account found during the search but also on the basis of other documents and information available with the assessing officer and, consequently. 'What we mean is that the undisclosed income cannot be determined without the application of provisions other than the provisions of Chapter XIV-B of the Act and then to reduce the same by the assessed or returned income for that year. The section itself makes clear that the total income has to be computed under Chapter XIV (Emphasis, here italicized in print, supplied) of the Act.
14.3. It is further observed that while determining the total income for an assessment year, income determined under all heads of income has to be aggregated before deducting assessed or returned income because if it is not so then in some cases, though the income, which has not been disclosed or assessed but has found recorded in the documents or books of account, there may be no undisclosed income. For example, if an assessee had been assessed or has returned only business income but in the documents or books of account found during the search, it is found that assessee had income "from house property" or "capital gain" or "salary" or "other sources", then if the plea advanced by the present assessee that provisions other than the provisions of Chapter XIV-B cannot be applied for assessment for block period then the whole of such undisclosed income duly recorded in the books/documents found during the search will be considered as undisclosed income, i.e., without giving benefits of deductions under provisions of s. 23 or s. 24 or s. 51 to 54H or s. 16(1) or s. 57(3), s the case may be which is not only unjustified but looks absurd also because the income to be determined under the Income Tax Act is the taxable income as is clear from the provisions of Chapter IV of the Act. Similarly, if the income from all heads is not to be aggregate then in the above exercise the total income (as per present assessee's theory) computed under Chapter XIV-B shall be from other sources and to compute the undisclosed income, deduction of already assessed or returned income, which is only business income. shall have to be allowed. The result again shall be absurd as is & Ment from the following example ~ Example Take the case of assessees A and B, both of whom have business income, say, of Rs. 1 lakh and have also earned some amount of capital gain, say, or Rs. 50,000 but A has declared business income of Rs. 1 lakh and capital gain of Rs.25,000 whereas B has declared only business income of Rs. 1 lakh and assessment of both stands completed on the returned income. During search, in as case documents/books of account for business income as well as for income under the head 'capital gain' are found but in case of B only the documents relating to income under the head 'capital gain' are found-books for business income are not found. If the appellant's point of view is accepted, then the undisclosed income in case of A and B shall be as under In case of A Total income as per books oil account found during the search Rs Business income 1,00,000 Income under the head 'Capital gain' 50,000 Total 1,50,000 Less : Income already assessed Business income 1,00,000 Capital gain 25,000 Total 1,25,000 Undisclosed income 25,000 In case of B Total income as per documents/books of account found during search Business income nil since books for business income has not been found and seized.
Capital gain Less : Income already assessed Undisclosed income minus Rs. 50,000 i.e. Nil
(iii) since the provisions of s. 158B do not specify the deduction of assessed or returned income on the basis of heads under which it has been assessed or returned, the deduction has to be allowed of the total assessed or returned income irrespective of the head under which it has been assessed or returned.
14.4. From the above example, it is clear that an assessee, who had disclosed capital gain of Rs. 25,000 (in case of A) is assessed on undisclosed income of Rs. 25,000 only but the assessee who had not disclosed any capital gain (case of B) out of capital gain of Rs. 50,000 goes scot free. Was such an intention of the legislature ? Or, can provisions be interpreted in this way ? We are afraid in assuming either such intention of the legislature or interpreting the provisions in this way.
14.5. In view of above discussion, we are unable to interpret the provisions the way the appellant's counsel has tried because the Hon'ble Supreme Court in case of K.P. Verghese v. Income Tax Officer (1981) 24 CTR (SC) 358 : (1981) 131 ITR 597 (SC) has clearly held that an interpretation, which leads to absurdity, must be avoided. The interpretation should be to advance the purpose of the law and not to defeat the same. The Hon'ble Supreme Court in another case, CIT v. JH. Gotla (1985) 48 CTR (SC) 363 : (1985) 156 ITR 323 (SC), on the facts of that case, has held as under :
1f a strict and literal construction of the statute leads to an absurd result, i.e., a result not intended to the subserved by the object of the legislation ascertained from the scheme of the legislation, than, if another construction is possible apart from the strict literal construction, then, that construction should be preferred to the strict literal construction. Where the plain literal interpretation of a statutory provision produces a manifestly unjust result which could never have been intended by the legislature, the Court might modify the language used by the legislature so as to achieve the intention of the legislature and product a rational result.
By the Court : Though equity and taxation and often strangers, attempts should be made that these do not remain always so and if a construction results in equity rather than in injustice, then such construction should be preferred to the literal constriction.
The Hon'ble Supreme Court in the case of K.P. Varghese (supra) at pp. 605 and 606 has held as under :
Rs.
Rs.
Capital gain 50,000 Total 50,000 1,00,000 "It is now well settled rule of construction that where the plain literal interpretation of a statutory provisions produces a manifestly absurd and unjust result which could never have been intended by the legislature, the Court may modify the language used by the legislature or even "do some violence" to it, so as to achieve the obvious intention of the legislature and produce a rational construction :Vide Luke v. IRC (1963) AC 557 : (1964) 54 ITR 692 (HL). The Court may also in such a case read into the statory provisions a condition which, though not expressed, is implicit as constituting the basis assumption underlying the statutory provisions."
14.6. In view of above discussion and the decisions of the Hon'ble Supreme Court, we are unable to accept the theory put forward by the appellant that while determining the undisclosed income Chapter XW-B of the Act the provisions other than the provisions of Chapter XIV-B are not applicable. However, our conclusion is subject to the exception that so far as the provision of s. 145 are concerned, they are not applicable. This view is based on the following observations i
(i) The absence of reference to provisions of s. 145 in s. 158BC-laying down the procedure for block assessment-supports our view that the legislature had never intended to apply the provisions of s. 145 to the assessments for block period. Had it not been so, then the legislature would have stated the applicability of provisions of s. 145, as stated in the application of other provisions.
(ii) Secondly, the provisions of s_ 158B clearly specify that the undisclosed income shall be the aggregate of the total income of previous year falling within the block period computed, in accordance with the provisions of Chapter IV of the Act (emphasis, italicised in print, supplied) and reduced by the aggregate of total income already assessed or declared in any pending return and increased by the loss for such previous year, either assessed or declared in pending return.
In other words, what the sections prescribe, is the total income to be computed in accordance with the provisions of Chapter IV of the Act and since s. 145 do not fall within Chapter IV, it is deemed to have been excluded from the applicability to the assessment for block period.
(iii) Even otherwise, the provisions of s. 145 can be applied only after rejecting the books of account or documents found during the search as unreliable or on the ground that the true income cannot be deducted therefrom and if the books of accounts or the documents found during the search are rejected, then there is no question of any income or undisclosed income on the basis of such books of account or documents which is a prerequisite and only condition for computation of undisclosed income.
14.7. In view of above facts and circumstances, we are of the opinion that so far as the computation of undisclosed income under the provisions of Chapter XIV-13 of the Act is concerned, the provisions of s. 145 are not applicable and consequently the assessing officer in the present case, was not justified in estimating the undisclosed income for the period April to December, 1995 for which there were no details in any of the seized documents. So far as the decision relied on by the Revenue is concerned, we are of the opinion that the same may be applicable for computation of one's income under the regular assessment under section 143(3) but not to the assessment for block period. In the resultant, we direct the assessing officer to consider the appellant's undisclosed income on the basis of document Nos. A-2, A-3 and A-5 to A-8 as available in the documents, i.e, at Rs. 8,92,252, as already held while considering the addition on the basis of Annexure A-2. The undisclosed income of Rs. 17,00,000 determined on this account is, therefore, deleted.
15. In the result, the assessee's appeal is partly allowed.