Lakshmi Jewellery vs Asstt. Cit on 27 December, 1999

Madras High Court

Equivalent citations: (2001) 73 TTJ Mad 981

ORDER

P.S. Kalsian, A.M.

This appeal by the assessee is against the order of the Assistant Commissioner, SIC-I, Coimbatore, dated 30-3-1996, passed under section 158BC of the Income Tax Act, 1961. The grounds of appeal filed with the memorandum of appeal were in various pages containing statement of facts as well as arguments. The assessee’s counsel was asked to file concise grounds of appeal and he filed grounds of appeal as well as written submissions. The learned Departmental Representative has also filed written submissions.

2. We have carefully considered the written submissions, material on record and the issues argued by both the parties. The first ground raised by the assessee is to the effect that the assessment is violative of the provisions of the Income Tax Act and the principles of natural justice. It is argued by the learned counsel for the assessee that the assessee-firm was not given a reasonable opportunity with regard to various issues covered by the assessment order. According to the learned counsel section 159BG of the Income Tax Act provides that no order under section 158BC shall be passed without the previous approval of the Commissioner or Director of Income Tax, and this requires that the Commissioner should issue a pre-assessment notice and give the assessee a hearing. It is argued that though a letter was issued by the Commissioner to the assessee, the same did not satisfy the requirements of pre-assessment notice. It is contended that the prescribed procedure for making a block assessment in the instant case was not followed and the assessing authority has determined the alleged undisclosed income without taking into account the income declared and assessed in respect of various years.

3. The learned Departmental Representative, on the other hand, argued that proper opportunity of hearing was given to the assessee at various stages of assessment and the assessee had also given due explanation of seized documents and was also supplied with the copies of statements, and therefore, the assessee cannot allege any lack of opportunity. It is also stated by the learned Departmental Representative that it is not necessary for the Commissioner to issue a pre-assessment notice because there is no such requirement in the Act. According to the learned Departmental Representative even the Commissioner is not required to give personal hearing to the assessee before approving the assessment order passed under section 158BC.

4. We have carefully considered the rival submissions and material on record. The provisions of section 158BG are reproduced below for the sake of convenience :

“158BG : The order of assessment for the block period shall be passed by an assessing officer not below that rank of Assistant Commissioner :

Provided that no such order shall be passed without the previous approval of the Commissioner.”

It is clear from the provisions of section 158BG that the assessment order for the block period is to be passed by an assessing officer not below the rank of Assistant Commissioner, but such an order has to be passed with the approval of the Commissioner. There is no requirement in the Act that before giving approval the Commissioner should give opportunity of hearing to the assessee. The reason for which the Commissioner is not required to give opportunity of hearing to the assessee is that the assessing officer before passing the order is required to give adequate opportunity of hearing to the assessee on the issues involved in the assessment. Therefore, whatever the assessee wants to say on the issues involved in the assessment, he could say before the assessing officer either in writing, or orally. It is the duty of the assessing officer to consider the facts stated by the assessee before passing an order and before getting the approval of the Commissioner. When the assessee has already been given opportunity of hearing by the assessing officer, there is no further justification that on the same issues the Commissioner should also afford an opportunity of hearing by the assessee. Section 158BG requires the Commissioner to give administrative approval and he is not sitting in appeal over the assessment order proposed to be passed by the assessing officer. If he is satisfied with the reasons given by the assessing officer for determining the undisclosed income of the assessee, then only the Commissioner would give approval. It the Commissioner is not satisfied with the reasons given by the assessing officer for determining the assessee’s undisclosed income, then he should refuse to give approval or direct the assessing officer to reduce the undisclosed income, wherever he considers it desirable. Since the assessing officer is required to give all the facts relating to undisclosed income and the assessee’s explanation thereto, which has to be considered by the Commissioner there is no reason why the Commissioner should give opportunity of hearing to the assessee again when the assessing officer has already given adequate opportunity of hearing to the assessee. We may mention here that wherever such an opportunity of hearing is required to be given to the assessee there are specific provisions in the Act. For instance under sections 144A and 144B which are now omitted by the Direct Tax Laws (Amendment) Act, 1987, with effect from 1-4-1989, the Deputy Commissioner is/was required to give opportunity of hearing to the assessee before issuing directions which are prejudicial to the assessee. No such provision has been made in section 158BG of the Act for the simple reason that the assessing officer had already given opportunity of hearing to the assessee on the issues involved while determining the undisclosed income and repetition of affording opportunity of hearing by the Commissioner is not required because there is no such provision in the section 158BG. If, however, the Commissioner desires to get clarification from the assessee he may give opportunity of hearing to the assessee, but if the Commissioner does not desire any further clarification from the assessee then no such opportunity of hearing to the assessee is necessary. Therefore, there is no infirmity on this count in the order passed by the assessing officer. Wherever there is lack of opportunity of hearing by the assessing officer to the assessee, the same will be considered against each ground of appeal raised by the assessee and no specific decision is required in this regard in general.

5. The second ground raised by the assessee is to the effect that the assessing officer erred in computing the block period as period commencing from 1-4-1985, to 28-9-1995. According to the learned counsel for the assessee this computation is erroneous and the previous year commencing from 1-4-1985, and ending with 31-3-1986, cannot be included in the block period. We have also heard the learned Departmental Representative.

6. Under section 158B(a) “block period” has been defined. “Block period” means the period of ten previous years preceding the previous year in which search was conducted under section 132, or any requisition was made under section 132A and includes, in the previous year in which such search was conducted or requisition made, the period upto the date of the commencement of such search or, as the case may be, the date of such requisition. It is clear from the provisions of section 158B(a) that “Block period” consists of ten previous years preceding the previous year in which search was conducted under section 132 and includes the period upto the date of commencement of such search in the previous year in which search was conducted. Therefore, in the present case ‘block period’ of ten previous years preceding the previous year in which search was conducted upto 31-3-1995, are from the assessment years 1985-86 to 1994-95. Hence, the period of ten previous years preceding the previous year in which search was conducted consists of previous years 1985-86 to 1994-95 (1-4-1985 to 31-3-1995) and also includes the period upto the date of commencement of search in the previous year in which such search was conducted. The assessing officer has, therefore, considered undisclosed income of the assessee for the period from 1-4-1985 to 28-9-1995, correctly in accordance with the provisions of section 158B(a) of the Act. This ground raised by the assessee is therefore, rejected.

7. The third ground is against addition of Rs. 15,68,275 towards undisclosed income pertaining to the unaccounted stock of gold jewellery (@ Rs. 398.64 per gm). During the course of search operations at the business premises of the assessee-firm gold jewellery of 15,633.98 gms. was found. However, the stock declared in the books of account maintained by the assessee was 9,852.02 gms. only. The value of the excess stock of 5,781.96 gms. of gold jewellery approximately at Rs. 24 lakhs was admitted by Sri P. Krishnasamy Gounder, partner of the assessee, as the undisclosed income of the assessee. Gold jewellery of 6.5 kgs. was also seized at the time of search by the department. The statement given by the said Krishnasamy Gounder, partner was retracted later on and different explanations were offered in respect of excess stock of jewellery as mentioned at page 2 of the assessment order. For the reasons stated by the assessing officer at per page 3, 4, 5 and 6 of the assessment order the assessing officer did not accept the explanation of the assessee. The assessing officer considered the report of the valuar for the purpose of determining the value of the stones embedded in the jewellery found at the time of search. It was also found by the assessing officer that no purchase or sale of stones are recorded in the books of account after 31-3-1995. The assessing officer further considered the assessee’s explanation regarding the gold jewellery given by one Sri A.R. Janardhanam, goldsmith on the date of search as well as gold jewellery of M/s. Tirupathi Jewellery, Works, Mumbai as per credit bills. Considering the assessee’s explanation the assessing officer found that the assessee’s explanation is not acceptable with regard to excess stock of gold jewellery of 3,926.54 gms. the value of which was determined by the assessing officer at Rs. 15,68,275.

8. It is argued by the learned counsel for the assessee that the valuation of jewellery is itself erroneous since the valuer has valued only the seized jewellery kept in the custody of the department and not the entire jewellery belonging to the firm. It is also stated that the copy of the valuation report was not furnished to the assessee at the time of completion of assessment and the same was served on the assessee along with the order of assessment on 30-9-1996. The learned counsel contended that the assessee was not given an opportunity to show cause against the adoption of the alleged excess quantity of gold nor of the value thereof or the proposed addition on this ground, According to the learned counsel the weight of stones, purety of gold jewellery, etc. have not been considered properly by the valuation officer and the assessee did not have any opportunity to explain the actual quantity of gold jewellery, weight of stones, etc. for the purpose of determining the excess quantity of gold jewellery found at the time of search.

9. The learned Departmental Representative, on the other hand, contended that the jewellery were valued by an approved valuer who is an independent person duly approved as valuer. At the time of assessment the assessee claimed the weight of stones in the jewellery seized at 25 per cent whereas the assessing officer averaged the weight in the valuation report which comes to 18.28 per cent. The claim of the assessee that the weight of the stones was around 25 per cent is without any substance and claim is of ad hoc nature. No basis has been given by the assessee to substantiate the claim. On the other hand, the method adopted by the assessing officer is quite sound and reasonable as the assessing officer was concerned with determination of weight of the stones in the seized jewellery and hence he rightly relied upon the valuer’s report to arrive at the percentage. Further, the assessing officer has duly considered the report of the approved valuer is estimating the value of the stones, which calls for no interference. The learned Departmental Representative further contended that as regards the jewellery claimed to have been received from other persons such as from Sri Janardhanam and M/s. Thirupathi Jewellery Works, Bombay, etc. the explanation offered by the assessee was duly considered and rightly rejected by the assessing officer. It is pointed out that the assessee did not have any trading relations with M/s. Thirupathi Jewellery Works Bombay, and further of the said party was not found at the address given when a letter was addressed by the assessing officer to them. It is therefore, pleaded by the learned Departmental Representative that this matter may be remitted to the assessing officer for detailed enquiry.

10. We have carefully considered the rival submissions, material on record as well as the written submissions of both the parties. The assessing officer while completing the assessment and determining the net weight of jewellery and its value as well as weight of stones and its value, has relied on the report of the valuer. But the report of the valuer was not given to the assessee and the assessee-firm was not confronted with the valuation report before finalisation of the assessment. Therefore, the assessee-firm had no opportunity to put forward its claim regarding the net weight of jewellery and stones and their value. Similarly, the assessing officer has not given proper opportunity to the assessee regarding jewellery received from M/s. Thirupathi Jewellery Works, Bombay. If the said firm was not found at the address given by the assessee, then it was the duty of the assessee to prove the facts. The letter addressed by the assessing officer to M/s. Thirupathi Jewellery Works, Bombay, was returned by the postal authorities with the remark “building under repairs”, which means that the letter could not be served on the said party by the postal authorities because the building might be under repairs. Therefore, the matter requires further verification and the assessee should be given further opportunity to prove the facts stated by it. We, therefore, set aside this issue regarding addition of Rs. 15,65,275 to the file of the assessing officer with a direction to give the valuation report of the valuer of the jewellery to the assessee-firm and obtain its comments. The assessee may be given further opportunity to prove the facts relating to jewellery received from M/s. Thirupathi Jewellery Works, Bombay. It is for the assessee to prove that the jewellery (1,472.31 gms) belongs to Thirupathi Jewellery Works, as claimed by it as per page 3 of the assessment order.

The assessing officer is free to make such enquiry as he likes in accordance with the provisions of law, but the assessee should be given opportunity of hearing if the assessing officer relies on the enquiries which are prejudicial to the assessee. We are not giving any finding on other issues relating to jewellery claimed to belong to Sri Janardhanam and jewellery deposited by goldsmiths or received from customers, etc, which matter can be reconsidered by the assessing officer while considering the assessee’s explanation. This issue relating to addition on account of explained jewellery is therefore, restored to the file of the assessing officer and the ground raised by the assessee in this regard is treated as allowed for statistical purposes.

11. The fourth ground is that the assessing officer erred in assessing a sum of Rs. 6 lakhs as undisclosed cash belonging to the assessee. At the time of search cash of Rs. 11,09,373 was found. The cash balance as per cash book of the assessee was at Rs. 1.36,081. Sri Krishnaswamy Gounder, partner of the assessee-firm admitted at the time of search undisclosed income of Rs. 6 lakhs on account of excess cash of Rs. 11,09,373. Subsequently, however, he offered a different explanation which has been mentioned by the assessing officer on per page 6 and 7 of the assessment order. It was claimed by the assessee that Rs. 4,50,000 out of cash of Rs. 11,09,373 belongs to the family, representing the agricultural income of the family which was kept with the firm for safety and security. The firm also claimed that a sum of Rs. 4 lakhs was kept by Sri S.V. Venkatesan, who was an employee of State bank of India. He claimed that he received advance on sale of lands belonging to his family members which was kept with the bank in fixed deposit. This money was withdrawn on 3-4-1995, as there was dispute among the family members as to how to share the sale consideration. The dispute could not be settled despite efforts of the elders in the family. On 23-9-1995, he had handed over the cash to Mr. K. Prabhu for arbitration as the family of Mr. Prabhu was well known to him. The assessing officer also considered that as per the statement of Sri Venkatesan the amount of Rs. 4 lakhs was handed over in the form of Rs. 500 notes only. But as per Panchnama on the date of search only 410 notes of Rs. 500 were available. The assessing officer considered that it is difficult to believe that Mr. Venkatesan has kept a sum of Rs. 5 lakhs in cash with him for more than five months when he was fully aware of the benefits, i.e., safety and interest, etc. of keeping the money in the bank. The assessee could not reconcile how instead of 800 notes of Rs. 500 notes only 410 notes of Rs. 500 were found. The explanation of the assessee that the firm might have utilised some notes for business purposes was not accepted by the assessing officer because no function was held at Mr. Prabhu’s house from 23-9-1995 (on which date the sum of Rs. 4 lakhs was claimed to have been given by Mr. Venkatesan) to 28-9-1995 (date of search) to warrant any huge personal expenditure. The assessee was also claiming to be in possession of huge amount of agricultural money and therefore, the assessing officer considered that there was no reason to spend the money belonging to others. The assessing officer therefore, rejected the assessee’s contentions and considered the sum of Rs. 6 lakhs as undisclosed income.

12. It is argued by the learned counsel for the assessee that the assessing officer has given credit to the assessee for a sum of Rs. 3,73,292 on account of agricultural income as against the total cash balance relating to agricultural operations of the assessee amounting to Rs. 6,74,584 noted in the books of account. The agricultural books of the assessee had been written till July, 1995, when there was search in the premises of the firm as well as in the residential premises of the partners, It ‘is further stated that genuineness of agricultural income has not been disputed and therefore, there was no basis for restricting the agricultural income to Rs. 3,73,292. As regards explanation regarding cash of Rs. 4 lakhs claimed to belong to Sri Venkatesan, it is argued by the learned counsel that the reasons given by the assessing officer for disbelieving the statement are discrepancy in the denomination of Rs. 500 notes. The assessee might have used Rs. 500 notes in exchange of Rs. 100 notes and it is not as if the sum of Rs. 4 lakhs was kept in watertight compartment, This sum was kept with Mr. Prabhu in the shop premises and he was not available at the time of search.

13. The learned Departmental Representative, on the other hand, supported the order of the assessing officer. He also filed written reply wherein it is stated that the sum of Rs. 4 lakhs claimed to have been given by Sri Venkatesan was disputed money kept in fixed deposit. What was the dispute and how it was resolved and whether the said sum was advanced with the concurrence of other parties are not made clear. These issues have to be examined by the assessing officer. It is, therefore, submitted by the learned Departmental Representative that the matter may be set aside for reconsideration of facts.

14. We have carefully considered the rival submissions and material on record. It was submitted by Sri Venkatesan before the assessing officer that he received advance on sale of agricultural land belonging to his family which was kept in fixed deposit with the bank. This money was withdrawn on 3-4-1995, since there was dispute among the family members regarding sharing of the sale consideration. There is no evidence to show how the money was kept after 3-4-1995, upto 23-9-1995, on which date Shri Venkatesan claimed to have handed over the cash to Mr. Prabhu for arbitration. It is also not clear whether the cash was handed over to Mr. Prabhu for arbitration and where the cash was lying from 3-4-1995 to 23-9-1995. We are also not aware as to what happened in the case of Sri Venkatesan to whom as per assessee’s counsel a notice under section 158BD has been issued. Therefore, keeping in view the facts of the case and lack of full facts it is considered reasonable to restore this issue also to the file of the assessing officer to find out whether, Sri Venkatesan is disclosing true facts about the dispute among the family members. By now the dispute, if any, might have been settled and actual facts can be brought on record. Therefore, this issue is restored to the filed of the assessing officer for fresh consideration. The assessing officer may consider the explanation of the assessee regarding agricultural income, etc. after affording reasonable opportunity of being heard to the assessee. This ground of appeal is, therefore, treated as allowed for statistical purposes,

15. The fifth ground is that the assessing officer erred in assessing Rs. 70,400 as assessee’s income representing alleged short fall in drawings. The assessing officer found that drawings debited to the credit account of the partner Sri Krishnaswamy Gounder and Sri K. Prabhu (as noted at page 8 of the assessment order) are not sufficient. He, therefore, estimate the drawings at a higher figure (as mentioned at page 9 of the assessment order) and after taking into consideration assessee’s explanation regarding drawings from the business and selling of agricultural produce the assessing officer made an addition of Rs. 70,400 under this head as undisclosed income,

16. Before us it is stated by the learned counsel for the assessee that there are two families one of P. Krishnaswamy Gounder and the other of Mr. K. Prabhu. The estimate of expenditure for the families of the two persons is very high and arbitrary, It is further stated that Krishnaswamy Gounder’s family consists of only himself and his wife, while Prabhu’s family consisted of himself and his wife till 1989 and he had two children born in 1989 and 1991. The two families are thus very small and in view of the fact that these two persons own house and agricultural lands and the expenditure was hence very limited, the estimate made by the assessing officer for the various years from 1986 to 1995 are very high and excessive. Apart from this the two persons had three buffaloes and were deriving substantial milk. The excess milk was sold and this constituted an additional income for the family, which was not reflected in the books and was used for family expenses. It is stated that the two families used to receive substantial income by way of coconut leaves and leaf stems, which accounts for about Rs. 24,000 per year. There were two yielding mango trees from which the families had been deriving an income of about Rs. 8,000. It is, therefore, argued that apart from business income the two families had income from other sources out of which the family expenditure was incurred. The learned Departmental Representative on the other hand, supported the order of the assessing officer and stated that the estimate of expenditure for the families as made by the assessing officer is very reasonable.

17. We have carefully considered the rival submissions and facts and circumstances of the case. Section 158B(b) defines “undisclosed income” and the manner in which the undisclosed income has to be computed by the assessing officer as prescribed in section 158BB of the Act. For the sake of convenience the provisions of sections 158B(b) and 158BB are reproduced below :

“Section 158B(b) : “undisclosed income” includes any money, bullion, jewellery or other valuable article 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.”

“Section 158B(b) The undisclosed income of the block period shall be the aggregate of the total income of the previous years falling within the block period 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,

(a) where assessments under section 143 or section 144 or section 147 have been concluded, on the basis of such assessments;

(b) where returns of income have been filed under section 139 or section 147 but assessments have not been made till the date of search or requisition, on the basis of the income disclosed in such returns;

(d) where the previous year has not ended or the date of filing the return of income under sub-section (1) of section 139 has not expired, on the basis of entries relating to such income or transactions as recorded in the books of account and other documents maintained in the normal course on or before the date of the search or requisition relating to such previous years;

(e) where any order of settlement has been made under sub-section (4) of section 245D, on the basis of such order;

(f) where an assessment of undisclosed income had been made earlier under clause (c) of section 158BC, on the basis of such assessment.

Explanation : For the purposes of determination of undisclosed income,

(a) the total income or loss of each previous year shall, for the purpose of aggregation, be taken as the total income or loss computed in accordance with the provisions of Chapter IV without giving effect to set off of brought forward losses under Chapter VI or unabsorbed depreciation under sub-section (2) of section 32;

(b) of a firm, or its partners, the method of computation of undisclosed income and its allocation to the partners shall be in accordance with the method adopted for determining the assessed income or returned income for each of the previous years, falling within the block period;

(c) assessment under section 143 includes determination of income under sub-section (1) or sub-section (IB) of section 143.”

It is clear from the provisions of section 158B(b) that undisclosed income includes any money, bullion, jewellery, valuable article, thing, entry in the books of account or other document, etc. which represents wholly or partly income or property which has not been or would not have been disclosed for the purpose of the Income Tax Act. Under section 158BB the undisclosed income for the block period shall be the aggregate of the total income of the previous years falling within the block period 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 accounts or documents and such other materials or information as are available with the assessing officer while estimating the drawings the assessing officer has not referred to any evidence found as a result of search or such other material or information which could show that the drawings of the families of Krishnaswamy Gounder and K. Prabhu were not sufficient during the assessment years falling within the block period. Therefore, the estimate of income which is not based on any evidence found as a result of search or other material or information, cannot be sustained in assessment of income for the block period under section 158BC of the Income Tax Act, 1961. The addition of Rs. 70,400 made by the assessing officer on account of shortfall in drawings is, therefore, deleted.

18. The sixth ground of appeal is that the assessing officer erred in adding a sum of Rs. 46,420 as the undisclosed income of the assessee relating to current account entry in respect of P. Krishnaswamy Gounder. According to the assessing officer the current account of Krishnaswamy Gounder shows a credit of Rs. 50,000 on 16-8-1991, by way of sale of show-cases, almirahs, electrical fittings, etc. of the old shop at Pollachi. The assessing officer considered short-term capital gains on sale of these items as mentioned at page 10 of the assessment order and determined the undisclosed income under this head at Rs. 46,420.

19. It is stated by the learned counsel for the assessee that there is no evidence or material to show that a credit of Rs. 50,000 in the current account of Krishnaswamy Gounder represents the sale of materials belonging to the firm. It is further stated that no notice was issued to the firm calling upon it to explain as to whether the credit represents the sale proceeds of show-cases, almirahs, etc. belonging to the firm. The facts on record only show that there is a credit of Rs. 50,000 in the account of Krishnaswamy Gounder and on the basis of these facts it is not possible or justifiable for the assessing officer to assume that these represents the sale profits of the assets belonging to the firm or to compute gains on the said basis. The learned Departmental Representative, on the other hand, supported the order of the assessing officer and urged that the assessing officer has correctly calculated the capital gains.

20. We have carefully considered the matter. There was a credit of Rs. 50,000 on 16-8-1991, in the current account of Krishnaswamy Gounder. Obviously this credit was explained by the assessee before the assessing officer to be representing the sale of materials belonging to the firm. Unless and until the assessee stated the facts there was no reason for the assessing officer to assume the facts relating to the existence of credit of Rs. 50,000. Before us no explanation has been given regarding this credit by the assessee’s counsel and there is nothing to dispute the fact stated by the assessing officer on this issue. It s not necessary to issue notice on each and every item in writing and the matter can be enquired into by the assessing officer during course of hearing also. We, therefore, confirm the action of the assessing officer with regard to addition of Rs. 46,420 on account of undisclosed income for the assessment year 1992-93. This ground of appeal is rejected.

21. The seventh ground is that the assessing officer erred in adding a sum of Rs. 1,05,012 in the accounts of the partners as Moi or gifts on festive occasions. The assessing officer observed that the partners have received a sum of Rs. 1,05,012 as Moi and came to the conclusion that the partners have participated in transactions relating to the givers of the presents and made presents themselves. Since no expenditure relating to such presents made to others is recorded in the books, the said expenditure was assumed to be borne out of the undisclosed income of the assessee only. The assessing officer, therefore, included the said sum of Rs. 1,05,012 in the undisclosed income of the assessee.

22. We have heard both the parties and carefully considered the material on record. As discussed in para. 17 of this order the assessing officer can make addition of the undisclosed income only on the basis of evidence or material or information available with him. With regard to the expenditure of Rs. 1,05,012 the assessing officer has not referred to any material, evidence or information while estimating the moi presumed to have been given by the assessee. The assessment under section 158BC is under a special procedure for assessment of search cases, as laid down in Chapter XIV-B of the Act. There is no question of presumption and assumption insofar as determination of undisclosed income is concerned. Therefore, the addition of Rs. 1,05,012 made on the basis of presumption cannot be sustained as undisclosed income. This addition is therefore, deleted.

23. The eighth ground is that the assessing officer erred in adding a sum of Rs. 10,000 as expenditure for shop-warming function. The assessing officer observed that a sum of Rs. 40,064 was shown as presents received at the time of opening of new shop premises in Bazar Street, Pollachi on 13-9-1997 in the current account of Krishnaswamy Gounder. Similarly, a sum of Rs. 65,008 was credited to the current account of K. Prabhu. However, no expenses were debited for the above function in the account of both the partners. The assessing officer estimated the said expenditure at Rs. 10,000. Since this expenditure does not reflect anywhere, the assessing officer assumed that the same was borne out of the assessee’s undisclosed income and brought to tax.

24. We have heard both the parties and carefully perused the material on record. Since we are of the opinion that the estimated expenditure seems to be excessive, we estimate the same at Rs. 5,000. The addition is thus restricted to Rs. 5,000.

25. The ninth ground of appeal is that the assessing officer erred in adding a sum of Rs. 1,50,000 as Moi received on the occasion of Krishnaswamy Gounder’s 60th birthday. The assessing officer observed that Krishnaswamy Gounder’s current account shows a credit of Rs. 1,92,000 being the value of gold coin and cash of Rs. 2,40,872, received on the occasion of his 60th birthday. List of people who, made gifts of Rs. 5,000 and above and who have given gold coins were obtained and the assessing officer found them to be genuine. The assessing officer observed that the partners should have made gifts of an equal amount at the other people’s function as well which was not reflected anywhere in the books. He, therefore, taxed a sum of Rs. 1,50,000 as the undisclosed income of the assessee for the block period.

26. As discussed in para 17 above the assessing officer cannot estimate undisclosed income unless and until such a conclusion is based on any evidence found as a result of search or other material or information. There is no question of presumption and assumption insofar as determination of undisclosed income is concerned. We, therefore, delete the addition of Rs. 1,50,000-as the assessing officer has not referred to any material or information or evidence on the basis of which the undisclosed income of Rs. 1,50,000 had been determined.

27. The tenth ground is regarding addition of Rs. 51,000 as undisclosed income being the credit in the current account of K. Prabhu, on 9-6-1987. The assessee was not able to offer any explanation for the said credit, and hence the assessing officer taxed the same as undisclosed income.

28. It is argued by the learned counsel that the account of the partner in the firm has to be explained by the partner and insofar as there is no dispute that the credit represents an amount brought in by the partner, even assuming without conceding that the partner is not in a position to explain the source of such credit, the addition can be made only in the hands of the partner and not in the hands of the firm. The learned Departmental Representative on the other hand supported the order of the assessing officer,

29. We have carefully considered the rival submissions. On the facts stated by the assessee’s counsel it is clear that no proper opportunity had been given to the assessee to explain the credit in the current account of partner Sri Prabhu, We, therefore, set aside this issue to the file of the assessing officer with a direction to reconsider the issue after affording reasoning opportunity of being heard to the assessee. This ground is, therefore, treated as allowed for statistical purposes.

30. The next ground is regarding addition of Rs. 15,000 being marriage expenses of Mr. Prabhu. As already mentioned in para 17 the estimate of undisclosed income has to be made on the basis of any evidence found as a result of search or other material or information, available with the assessing officer. The assessing officer has not referred to any material, evidence or information on the basis of which estimate of expenditure of Rs. 15,000 was made. Moreover, the addition was made on the basis of a credit in the current account of partner Mr. Prabhu and it is for him to explain the said expenditure and no addition can be made in the hands of the firm, Unless and until it is proved that unexplained funds of the firm has been utilised for the purpose of incurring expenditure for the marriage of partner Shri Prabhu, the addition cannot be made in the hands of the firm. The addition of Rs. 15,000 is, therefore, deleted.

31. The twelfth ground is that the assessing officer erred in adding a sum of Rs. 46,500 being moi gift in the hands of Mr. Prabhu. It is contended by the learned counsel that there is no basis for this assumption. According to the assessing officer, at the time of his marriage Sri K. Prabhu received gifts of Rs. 46,500 on 16-3-1968, and an equivalent amount which K. Prabhu have made gifts on the occasions of his relatives’ marriage was taken as the undisclosed income of the assessee for the block period. He, therefore, treated the said sum of Rs. 46,500 as undisclosed income.

32. We have considered the submissions of both the parties and gone through the material on record. We have already observed that the estimate of undisclosed income has to be made on the basis of any evidence found as a result of search or other material or information available with the assessing officer. The assessing officer has not referred to any material, evidence or information on the basis of which the addition of Rs. 46,500 as undisclosed income was made. The assessing officer himself has stated that Mr. Prabhu got gifts of Rs, 46,500 at the time of his marriage from relatives. There is no question of presumption and assumption to sustain any addition towards undisclosed income, under section 158BC. Therefore, the addition of Rs. 46,500 is deleted. This ground raised by the assessee is thus allowed.

33. Ground No. 13 is that the assessing officer erred in holding that agricultural income declared by the assessee and supported by accounts which are maintained in the normal course of business are not genuine, real and acceptable. The assessee has declared total agricultural receipts of Rs. 33,73,102. The assessing officer for the reasons discussed at per page 12 to 15 of the assessment order, estimated the agricultural income of the family at Rs. 16,12,500 and treated the difference of Rs. 17,60,602 (Rs. 33,73,102-Rs. 16,12,500) as undisclosed income of the assessee brought into the books as agricultural income.

34. It is argued by the learned counsel for the assessee that substantial portion of agricultural produce is coconut. It is stated that the assessing officer has relied on a book maintained by one A.K. Rathnam, coconut merchant, who made purchases from the family members of partners of the assessee-firm. The assessing officer observed certain discrepancy between the income shown by the assessee and the figures in Sri Rathnam’s register, in the months of April and June, 1995. It is pointed out by the learned counsel that the register maintained by Sri Rathnam was never put to the assessee and the assessee was never afforded an opportunity to cross-examine Sri Rathnam with regard to the register stated to have been maintained by him and in fact, the register itself was not shown to the assessee. Further, the assessing officer had estimated the probable agricultural income on the basis of valuation report submitted by Dr. P.K. Ramachandran of Tamilnadu Agricultural University. It is submitted by the learned counsel that the valuation report of Dr. Ramachandran has not been furnished to the assessee at point of time. It is, therefore, pleaded that in the absence of reasonable opportunity, the evaluation so made, is not binding on the assessee and cannot be used against it.

35. The learned Departmental Representative however, supported the order of the assessing officer, According to him, the assessing officer pointed out how the income from agriculture has been inflated. As a matter of fact, since the purchase of these lands in 1991, in a span of four years, the return from the land has been shown at three and half times the investment. The assessing officer has also rightly highlighted the alterations and corrections mentioned in the books maintained for the agricultural purposes and the evidence relating to purchase of seeds, or saplings or use of manure of fertilizers, insercides, etc. are also lacking. He, therefore, supported the order passed by the assessing officer.

36. We have carefully considered the rival submissions and perused the records. The assessing officer has referred to the valuation report of Dr. P.K. Ramachandran as well as pointed out the discrepancy in the account book maintained by A.K. Rathnam, coconut merchant. But the assessee was not given adequate opportunity to meet the findings in the valuation report of Dr. Ramachandran regarding agricultural income. After perusing the records we find that the assessing officer has not determined the undisclosed income in accordance with the provisions of section 158BB of the Act. The assessing officer has not computed the total income of each previous year for the purpose of aggregation in accordance with the provisions of Chapter IV of the Income Tax Act as per Explanation to section 158BB. It is the duty of the assessing officer to compute the undisclosed income for each assessment year separately in accordance with the provisions of section 158BB. The computation of undisclosed income on certain basis for the whole block period is not correct and not in accordance with the provisions of section 158BB. We, therefore, set aside this issue to the file of the assessing officer and direct the assessing officer to re-examine the issue after giving opportunity of being heard to the assessee and then determine the undisclosed income for each year separately after taking into consideration the income declared by the assessee for each year and total income determined under section 158BC. This issue is, therefore, restored to the file of the assessing officer. For statistical purposes, this ground raised by the assessee is treated as allowed.

37. The next ground is that the assessing officer erred in adding the value of 578.85 gms. as unaccounted personal jewellery of the family of the partners. The assessing officer stated that at the time of search gold jewellery of 1,963.10 grms. was found. The assessing officer observed that the assessee has filed a central excise declaration on 16-7-1988, showing jewellery of 1,681.75 gms. It was further, noticed that Mrs. K. Laxmiammal had sold jewellery of 577.50 gms. in September, 1991 and October, 1994. He, therefore, arrived at a figure of 578.85 gms. which was not explained which the assessing officer treated as the undisclosed income of the assessee.

38. Before us the learned counsel for the assessee argued that the excess jewellery was found in the residence of the partners and not at the business premises of the assessee-firm and that there was no allegation that the jewellery so found in the resident of the partners belongs to the firm. Therefore, the investment cannot be treated as the undisclosed income of the assessee-firm. The learned Departmental Representative, however, supported the order of the assessing officer and urged that no interference is called for.

39. We have considered the rival submissions and material on record. The assessing officer has not pointed out how the unexplained jewellery belonged to the assessee-firm and the connection between the jewellery found at the residence of the partners and assessee-firm’s business has not been pointed out by the assessing officer. If there is no connection between the jewellery found at the residence of partner, and the business of the firm, then no addition can be made in the firm’s hands. The assessing officer failed to examine this issue properly. Therefore, this issue is restored to the file of the assessing officer for proper consideration in the light of our above observation. Since this issue is restored to the file of the assessing officer the ground raised by the assessee is treated as allowed for statistical purposes.

40. Ground No. 15 is that the assessing officer erred in holding that the assessee had made unaccounted investment to the extent of Rs. 65,000 and treating the same as undisclosed income of the firm. The assessing officer found that at the time of search certain investments in Kisan Vikas Patra, Indira Vikas Patra, Unit Trust, F.D. etc. are found in the residence of the partners of the assessee. The assessee gave some explanations regarding this investment of Rs. 65,000. Rejecting the assessee’s explanations in this regard the assessing officer brought to tax the said sum of Rs. 65,000 as undisclosed income for the block period.

41. It is pointed out by the learned counsel that admittedly the investments were not in the name of the firm and it was in the name of various other persons and consequently those investments cannot be treated as the undisclosed income of the firm. We have also heard the learned Departmental Representative.

42. We have carefully considered the rival submissions. As we have already pointed out that undisclosed income of each assessment year in the block period has to be determined in accordance with the procedure laid down in section 158BB. The total income of the previous years falling within the block period has to be computed in accordance with the provisions of Chapter IV. The assessing officer has not mentioned even the date of purchase of Kisan Vikas Patra, Indira Vikas Patra, UTI, shares, etc. and for which assessment year the various investments relates. He should have determined the undisclosed income on the basis of investment for each assessment year separately in accordance with the procedure laid down in section 158BB and we direct the assessing officer to determine the undisclosed income for each assessment year separately in the block period in accordance with those provisions. Before determining the undisclosed income the assessee should be given adequate opportunity of being heard and explain how the investments in question totalling to Rs. 65,000 are connected with its business. Since the issue is remitted to the file of the assessing officer this ground of appeal is treated as allowed for statistical purposes.

43. Ground Nos. 16 to 19 are raised by the assessee relating to loan creditors, loan creditors to the partners of the firm, addition towards value of motor, and investment in household appliances. The assessing officer found that the assessee has not discharged the liability of certain sundry creditors aggregating to Rs. 2,05,000. For the reasons stated in page 18 of the assessment order, the assessing officer concluded that the said sums are the undisclosed income of the assessee and brought into the books as advance from other, parties. With regard to loan creditors to the partners of the firm, the assessing officer came to the conclusion that the loans in question are actually the assessee’s undisclosed money only, brought into the books as loans. Regarding motor, the assessing officer found in the purchase invoice in the name of Smt. K. Lakshmiammal a sum of Rs. 36,530. Since he found that this purchase was not reflected anywhere in the books of the lady, the assessing officer came to the conclusion that the said sum has been borne out of the undisclosed income of the assessee. Similarly, the assessing officer came to the conclusion that the purchase of household articles to the tune of Rs. 40,000 was borne out of the undisclosed income of the assessee and brought it to tax.

44. We have heard both the parties and perused the material on record. We found that the assessing officer has not determined the undisclosed income as above in accordance with the provisions of section 158BB, read with. Explanation. Under section 158BB of the Act read with. Explanation, total income or loss of each previous year, shall for the purpose of aggregation be taken as total income/loss computed in accordance with the provisions of Chapter IV. The assessing officer has not determined the aggregate of the total income for each previous year falling within the block period in the manner laid down in section 158BB. Therefore, the computation of undisclosed income for the block period is not in accordance with the provisions of section 158BB. Under section 158BB the assessing officer for the purpose of determining the undisclosed income, is bound to determine the total income of the provisions years within the block period 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 other documents and such other materials or information as are available with the 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. In some cases the assessing officer has not established the link between assumed expenditure by partners of the firm on Moi and connection with the business of the firm. The assessing officer had not referred to any material, information or evidence while determining the undisclosed income. We have to therefore, set aside various grounds of appeal for fresh consideration including grounds of appeal Nos. 16 to 19 reproduced in para 43 of this order because the determination of undisclosed income is not in accordance with the provisions of section 158BB. There is no indication in the assessment order whether the assessment for the assessment years consisted in the block period was completed under section 143(1), 143(3) or 144 of the Act. Since the computation of total income has not been done by the assessing officer in accordance with Chapter IV as per section 158BB read with Explanation, we remitted various issues to the file of the assessing officer for fresh consideration and decision in accordance with law. The assessing officer should, therefore, compute the undisclosed income by computing the aggregate to total income and reducing therefrom, or as the case may be, as increased by the aggregate of the losses of such previous years determined under section 143,144 or section 147. The assessing officer will, no doubt, afford reasonable opportunity of hearing to the assessing officer. It may be specifically mentioned that the assessing officer should establish connection as to how the undisclosed income pertains to the assessee-firm. For statistical purposes ground Nos. 16 to 19 are treated as allowed.

45. In the result, the assessee’s appeal is treated as partly allowed for statistical purposes.

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