ORDER
N. Barathvaja Sankar, AM
This is an appeal preferred by the assessee, Shri Vengat Bava, Pettah for the block period 1988-89 to 1998-99 against the appellate order dated 28-1-1999 of the Commissioner (Appeals)-I, Calicut.
2. The brief facts of the case are that the assessee, a non-resident, is doing business as catering contractor in Abudhabi since 1980. There was a search operation under section 132 of the Income Tax Act on 30-9-1997 in the residential premises of the assessee. Further to this, a notice under section 158 was issued on 7-8-1993 requiring the assessee to file the return for the block period 1988-89 to 1998-99. The assessee filed the return for the block period on 31-5-1999 showing nilincome and the assessment was completed for the block period on 3 0-9-1999 by the Dy. CIT, Investigation Circle, Division-1, Calicut. In response to the notice issued by the assessing authority, the assessee filed cash flow statement for the period 1-4-1987 up to 30-9-1997, the date of search. The assessment was made by the assessing officer based on the cash flow statement filed at the time of hearing. The assessment was completed fixing the income at Rs. 41,80,620 as against the income returned at nil. The major addition was on account of certain advances and cash credits not accepted by the assessing officer, withdrawals from NRE account of the assessee not accepted as source and a residential house built by the assessce during the block period, the cost of which was estimated by the Valuation Officer. Aggrieved by this order of the assessing officer, the assessee moved the matter in appeal before the first appellate authority who gave certain relief. The income determined by the assessing officer was Rs. 26,92,680 after giving effect to the Commissioner of Income-tax (A)’s order. While disposing of the appeal, the Commissioner of Income-tax (A) did not consider as source certain cash credits and certain withdrawals from the bank account. There was also an estimated addition in respect of house construction. Thus, the assessee is on second appeal before the Tribunal against the order of the Commissioner (Appeals) with various grounds of appeal.
3. The first ground of appeal is general in nature and does not require any separate adjudication by us.
4. The second ground of appeal of the assessee reads as under :
“The Commissioner (Appeals) is not justified in restricting the availability of opening cash balance with the appellant to Rs. 75,000 as against Rs. 1,40,000 claimed by the appellant. Your appellant, non-resident having substantial business income abroad and having agricultural income in India for him and his wife, has estimated a sum of Rs. 1,40,000 as opening balance while preparing the cash flow statement for the block period. The Commissioner (Appeals) even though in para 4 of the order accepts that the appellant is a non-resident and he has substantial income from agricultural operations, restricted the available opening balance to Rs. 75,000 disallowing your appellant’s claim for a further sum of Rs. 65,000. The Commissioner (Appeals) after making an observation in favour of the appellant should have allowed the sum of Rs. 1,40,000 as opening cash balance.”
5. The facts pertaining to this issue are that the assessee filed a cash flow statement for the block period under consideration. He took credit for a sum of Rs. 1,40,000 as opening cash balance. The assessing officer called upon the assessee to produce evidence for the possession of cash balance of Rs. 1,40,000. The assessee replied stating that the cash balance related to agricultural income. The assessing officer found that the assessee did not possess agricultural lands prior to financial year 1992-93. His wife had agricultural land measuring 1.52 acres received by her in partition. The assessing officer inspected the agricultural land and found that the agricultural produce from coconut trees was very meagre. He estimated agricultural income as per his inspection and came to a conclusion that the probable income would be only as under:
Assessment years
Agrl. income estimated on the basis ol above
Rs.
1988-89
3,000
1989-90
3,000
1990-91
3,000
1991-92
8,500
1992-93
12,500
1993-94
12,500
1994-95
14,500
1995-96
14,500
1996-97
16,500
1997-98
16,500
1998-99
8,250 (up to the date of search)
He concluded that this would be normally sufficient for meeting the assessee’s normal family expenses and so the claim of opening cash balance of Rs. 1,40,000 was totally rejected. Aggrieved, the assessee moved the matter before the first appellate authority before whom it was contended that :
(i) the assessee had sufficient business income abroad and he had come to India on various occasions and withdrawn money from NRE account and the possession of reasonable amount could not be negatived. The inspection of agricultural properties was conducted in a lean season and the assessee had substantial crops in the months of January, February, March etc.
(ii) The assessee had built up sufficient funds from his business and agricultural operations periodically and the conclusion regarding non-availability of cash balance is without any basis.
6. The Commissioner (Appeals), after considering the submissions of the assessee, in the light of the facts of the case, was of the view that it was true that the assessee had substantial funds abroad from his business activities and he had also withdrawn money on various occasions from NRE account during his stay in India and the possession of agricultural land by the assessee’s wife was not disputed. He also found that there is some truth in the argument of the assessee that the assessing officer had not appreciated the availability of crops during peak season. According to him, the issue related to a period of 10 years and it could not be decided from a single inspection conducted by the assessing officer. He also noticed that the assessee’s life style was moderate during the earlier period because of his developing business in the Gulf countries and only in the later period the assessee happened to earn substantial funds and invest heavily and so the moderate living should have helped the assessee, save some funds out of agricultural operations. He also noted that the possibility of reasonable cash out of business funds by way of savings could not be ruled out. However, the claim of Rs. 1,40,000 as opening cash balance appeared to him to be highly excessive. Having regard to the extent of agricultural income, living standards, possibility of savings from personal business etc., he estimated the opening cash balance at Rs. 75,000 in place of Rs. 1,40,000 claimed by the assessee and directed the assessing officer to give credit for the opening balance of Rs. 75,000. Thus, he sustained the addition towards opening cash balance at Rs. 65,000. Aggrieved by this, the assessee is on second appeal with the grounds of appeal extracted as above.
7. At the time of hearing, the learned representative for the assessee, Shri A.S. Narayanamoorthy, submitted as under :
“Your appellant, a non-resident since 1980, made substantial investments in India. In response to notice by the assessing authority, the assessee filed a cash flow statement for the block period. The opening balance was taken as Rs. 1,40,000.
This was out of savings of the agricultural income of 1.5 acres of the coconut garden received by your appellant’s wife at the time of her marriage and the remittances made by your appellant. The total amount was not considered by the assessing authority on the ground that at the time of inspection made by the assessing authority after a period of twelve years, the coconut tree was not fruit bearing. The Commissioner (Appeals) has made an observation that inspection cannot be made after ten years and estimation cannot be made on that basis. A sum of Rs. 75,000 was allowed as opening balance,
The total disallowance has been made on the basis of assumption that the appellant has inflated the agricultural income. This assumption is not based on any documentary evidences found at the time of search. As per section 158BB, block assessment can be made only on the basis of evidences found during the course of search. Reliance is placed on the decision of CIT v. Ravikant Jain (2001) 250 ITR 141 (Delhi). The same point has been considered regarding the estimation of agricultural income by honourable Cochin Bench in the case of K. Moidu v. ACIT (2002) 256 ITR 77 (AT).”
7A. On the other hand, the learned departmental representative relied upon the contents of the orders of the assessing officer and Commissioner (Appeals) and reiterated the same as his submissions. He pleaded that the Commissioner (Appeals) has already given enough relief and hence, the impugned order need not be disturbed.”
8. We have heard the rival submissions and considered the facts and materials on record. The first appellate authority has observed that it is true that the assessee had substantial funds from abroad and he had also withdrawn money on various occasions from NRE account during his stay in India. Also he has observed that there is some truth in the argument of the assessee that the assessing officer has not appreciated the availability of crops during peak season and that the issue related to a period of 10 years and it could not be decided from a single inspection conducted by the assessing officer. The Commissioner (Appeals) also considered the living style of the assessee, which was a moderate one during the relevant period. However, having so observed, still he indulged in estimation of the opening cash balance at Rs. 75,000 as against Rs. 1,40,000 claimed by the assessee. The Tribunal (Cochin Bench) in the case of K. Moidu Alias Kunhippa v. Assistant Commissioner (2002) 256 ITR 76 (AT) has held that there is no scope for general estimations in the block assessment in the absence of specific and speaking materials. In this case on hand, since the Commissioner (Appeals) himself has, in principle, accepted the argument of the assessee. In our considered opinion, still he went wrong in estimating the opening balance without there being any material to prove the contrary. The contention of the assessee that he had enough source for opening balance of Rs. 1,40,000. In this view of the matter, following the decision of the Tribunal (Cochin Bench) in K. Moidu Alias Kunhippa’s case (supra), we direct the assessing officer to accept the opening balance of Rs. 1,40,000 claimed by the assessee. Thus, this ground of appeal of the assessee is allowed.
9. Now, let us turn to the issue relating to the cost of construction of the residential house, the grounds on which read as under:
“(a) The Commissioner (Appeals) is not justified in confirming the assessment of the assessing authority in valuing the cost of construction of the residential house built by the appellant during the block period. Your appellant constructed the residential house in Feroke and declare the cost of construction up to the date of search at Rs. 6,15,000. The assessing authority referred to the departmental valuation officer for estimating the cost of construction of residential house of your appellant. The Valuation Officer estimated the cost of construction of residential house as Rs. 16,60,300 when he visited the property in September 1999. The Commissioner (Appeals) directed to give 10 per cent deduction for accepting PWD rates and for self-supervision. Reduction given by the Commissioner (Appeals) is not sufficient considering the rate applied by the valuation officer. Further to this, no documentary evidence was found out during the course of search operations regarding the undisclosed income in respect of house construction.
(b) As per section 158BB, the undisclosed income of a block period shall be aggregate of total income of the previous years falling within the block period computed on the basis of evidence found during search. In the appellants case no documents or books of account were seized in respect of undisclosed income of your appellant. The assessment was made on the basis of valuation report of the valuation officer in respect of the house constructed by the appellant during 1992 to 1997. The difference between cost of construction admitted in the cash flow statement and the value determined by the valuation cell was taken as undisclosed income. As explained earlier the undisclosed income has to be arrived at based on documentary evidence/materials found out during the course of search and not on the basis of valuation report of valuation cell. Reliance is placed on the following High Court decisions :
(a) CIT v. Khushlal Chand Nirmal Kumar (2003) 263 ITR 77 (MP);
(b) CIT v. Vinod Danchand Ghodawat (2001) 247 ITR 448 (Bom.).
(c) The Commissioner (Appeals) went wrong in rejecting the argument of your appellant regarding the power of the assessing authority to refer the cost of construction to the valuation cell and to make the assessment on that basis, The Commissioner (Appeals) ought to have held that the assessing authority does not have power to refer to the valuation cell f or estimating the cost of construction of residential house as decided by the Hon’ble Supreme Court in the case of Smt. Amiya Bala Paul v. CIT (Supra)”
10. The brief facts pertaining to this issue are that the assessee constructed a residential house at Feroke, Petah. The assessing officer found that the assessee’s family started staying in the house from F.Y. 1992-93. The assessing officer directed the assessee to produce detailed accounts of the cost of construction. This was not done. The cost of construction was referred to the valuation cell and it was estimated at Rs. 16,60,300 as against the cost admitted by the assessee at Rs. 6,15,000, Then assessee objected to the cost estimated by the valuation officer holding the view that the plinth area rate adopted by the valuation officer was on the higher side and no deduction was given towards self -supervision. It was also contended that considerable expenditure was incurred after the block period. The assessing officer negatived all the above contentions and adopted the cost determined by the valuation cell as the correct one. He also added a sum of Rs. I lakh towards levelling of the ground in the adjacent plot. Aggrieved by this order of the assessing officer, the assessee moved the matter before the first appellate authority before whom it was contended :
‘that the appellant has filed a valuation report from an approved valuer Shri N.M. Mohammed estimating the cost of construction at Rs. 12,10,971 which was totally ignored by the assessing officer. The plinth area rate based on CPWD rates is on the higher side and the appellant was not given any reduction towards self-supervision. CPWD is not relevant to semiurban areas like the suburbs of Calicut where considerable cheap labour and materials at the lowercost are available. The appellant submitted that he had not engaged any contractor or consultant and the construction was supervised by his own relations and due deduction should have been given. The construction was actually completed in 1999 and the Panchayat tax was levied only from 1999. The assessing officer has presumed the cost involved in converting the car garage into a room at Rs. 50,000 and cost of filling the residential plot at Rs. I lakh and this has no basis.”
11. The Commissioner (Appeals), after considering the submissions of the assessee in the light of the facts of the case, has observed that it was true that CPWD rate was adjustable to various types of construction in different parts of the country and that, however, in semi-urban areas like Feroke, the application of CPWD rates might not be very realistic. The Tribunal (Cochin Bench) has held in several cases like Upasana Hospitals that State PWD rate with reasonable modification is applicable to constructions in semi-urban and rural areas. He noticed that the CPWD rate was more relevant to metropolitan areas and urban centres and in Panchayat areas there were several physical factors which reduced the cost as compared to urban areas. As regards the claim of the assessee for a deduction towards self -supervision, it was found justified by him since there was no evidence regarding payments to contractors or consultants. Taking these two factors into account, the Commissioner (Appeals) was of the view that a discount of 10 per cent could be given out of the cost of construction determined by the valuation cell. Thus, he directed the assessing officer to adopt the cost of construction at 10 per cent less than Rs. 16,60,300 estimated by the valuation cell. Still aggrieved, the assessee is on second appeal before us with the grounds of appeal extracted as above.
12. At the time of hearing, the learned representative for the assessee submitted that :
The difference between the value of the house included in the cash flow statement (Rs. 6,15,000) and the cost determined by the valuation officer (Rs. 16,60,300) has been taxed as undisclosed income by the assessing authority. The Commissioner (Appeals) gave 10 per cent rebate for PWD rates instead of CPWD rate adopted by valuation officer and selfsupervision and the balance has been taxed as undisclosed income. The assessee’s primary objection is that the rate adopted by the valuation officer is excessive. CPWD rate is not applicable to suburbs of Calicut and the rates adopted should have been PWD. The rebate given by the Commissioner (Appeals) at 10 per cent for CPWD rate and self supervision is not sufficient. Your assessee also objected that no documentary evidence regarding cost of construction of house was found out during the course of search. The unexplained investments for the cost of construction cannot be made on the basis of departmental valuer’s report subsequent to search in block assessment. No materials were found during the course of search. Reliance is placed on the decision of CIT v. Khushlal Chand Nirmal Kumar (2003) 263 ITR 771 (MP) and the decision in CIT v. Vinod Danchand Ghodawat (2001) 247 ITR 448 (Bom.). The assessing authority has made reference to valuation officer under section 131 of the Income Tax Act. As per the decision of the Hon’ble Supreme Court, in the case of Smt. Amiya Bala Paul v. CIT (supra), the assessing authority does not have any power to refer to valuation department to assess the cost of construction under section 131 of the Income Tax Act. Thus, the reference itself is invalid. Hence, the question of relying on those documents not found during the course of search is not correct. Even after introduction of section 142A, the assessing authority does not have power to refer to an approved valuer to assess the cost of construction under section 131.
12A. On the other hand, the learned departmental representative relied upon the orders of the lower authorities and reiterated the contents thereof as his submissions.
13. We have heard rival submissions and considered the facts and materials on record including the decisions relied before us by the parties. We find that the Hon’ble M.P. High Court in the case of Khushlal Chand Nirma Kumar (supra), has held as under:
“Admittedly, during the search in the premises of the assessee nothing was found with regard to the investment in the house. The contention that the valuation report of the departmental Valuation Officer was obtained and was confronted to the assessee but he was not able to give any explanation and, therefore, it should be accepted as evidence could not be accepted in view of the provisions of section 158BB and the law laid down by the Bombay High Court in the case of Commissioner of Income-tax v. Vinod Danchand Ghodawat (supra). The facts of the case dealt with by the Hon’ble Bombay High Court in the case reported in 247 ITR 448 (supra) are that during the search, it was found that the assessee had constructed a bungalow and it was also found that the assessee had incurred an expense of Rs. 4.16 lakhs. The assessing officer, thereafter, referred the matter to the department Valuer who valued the property at Rs. 6.66 lakhs and, accordingly, the difference had been added to the income of the assessee as undisclosed income. On the above fact, the High Court has held that the addition did not f all within Chapter XIVB for the reason that the department had not understood the scope of Chapter XIVB.”
14. We further note that the assessing officer instead of determining the undisclosed income, embarked upon an enquiry in respect of the cost of the house by referring it to the Valuation Cell to ascertain the correct investment made by the assessee and on receipt of the valuation report, proceeded to compute the income under section 69 as unexplained investment. To our mind, what the assessing officer did is beyond the scope of section 158BB. No addition can be made in any of the assessment years of the block period regarding which no information is available with the assessing officer. Chapter XIVI3 does not authorise the assessing officer to embark upon an enquiry unless and until there is any direct or clinching evidence to indicate that the assessee had withheld or had not made a full disclosure of his income. No addition can be made on the basis of presumptions and hypothesis. In this view of the matter, in the light of the above decisions of the High Courts, we are inclined to allow these grounds of the assessee on the issue of addition towards cost of construction of residential house.
15. Ground Nos. 6 and 7 of the assessee read as under:
“6. The Commissioner (Appeals) is not correct in restricting your appellant’s cash withdrawal. Your appellant is a non-resident and was maintaining NRE account with Canara Bank. The withdrawal from these accounts is mainly for the purpose of his investments in India and household expenditure. Relevant bank accounts were produced to the assessing authority and assessing authority rejected your appellant’s withdrawal from these bank accounts a sum of Rs. 9,90,000. This disallowance was restricted to Rs. 5,57,500 by the Commissioner (Appeals). The Commissioner (Appeals) has not appreciated that the explanations given by your appellant is relating to the block period spread over for ten years. Your appellant also explained that blank cheques were signed and entrusted with the relatives. Certain investments were made by the appellant during the block period. The Commissioner (Appeals) ought to have given the sum of Rs. 9,90,000 as a source for the purpose of cash flow statement.
7. Your appellant while preparing the cash flow statement and estimating the income for relevant previous years has taken certain credits from his brother and certain close friends as a source. In most of the cases, affidavits were filed and there were withdrawals from NRE Account. Your appellant has proved the identity of the creditor and capacity of the creditor and the genuineness of the transactions. The initial burden which lay upon him was discharged by the appellant. There cannot be one general or universal proposition of law which could be guiding yardstick in the matter. Each case has to be decided on facts and circumstances. The surrounding circumstances to be considered must be however be objective facts and evidences adduced before the taxing authorities. In holding a particular receipt as income from undisclosed sources fate of the assessee cannot be decided on the basis of surmises, probabilities and suspicions. The Commissioner (Appeals) while considering these credits has not appreciated that most of the creditors were non-residents and they were closely related to your appellant and these transactions were relating to a period of ten years and it may be very difficult to explain each transaction with relevant documentary evidences. Your appellant produced affidavit from loan creditors showing from which bank accounts these amounts were withdrawn and the quantum that was given to the appellant.”
16. The brief facts relating to this issue are that in the cash flow statement, the assessee showed Rs. 29,48,800 as withdrawals from his NRE account maintained by him. The assessee furnished year-wise break-up of the withdrawals. The assessing officer closely analysed the withdrawals vis-a-vis their utilisation as shown in the cash flow statements. He concluded that a sum of Rs. 9,90,000 could not be considered to have been utilised as shown in the cash flow statement. These amounts related to the following :-
F.Y. 1990-91
Rs. 2,15,000
Payment to Kunhiali Fixed Deposit.
”
92-93
10,000
Payment to Mohammed Ali
”
94-95
5,00,000
Payment to Kareem
”
95-96
35,000
Payment to Kareem
”
96-97
25,000
Payment to Kareem
”
91-92
10,000
Payment to Aboobacker
”
92-93
5,000
Payment to Zubaida
According to the assessing officer, payment made to Shri Kunhiali had no nexus with the investment made by the assessee. Similarly, a sum of Rs. I lakh was utilised for making fixed deposits on the direction of the bank authorities. So also payment of Mohammed Ali, Aboobacker and Zubaida had no relation to the investment made by the assessee. With respect to the payment made to Shri Kareem in connection with the purchase of the Pavmani Road property the assessing officer had entered into a complicated working by which he concluded that payment made to one Shri Rao Saheb, Power of Attorney holder, could not be regarded as advance for the property and part of the amount was paid by Shri Kareem to one Shri Mammu Mammed who had no connection with the property transactions. On the whole he concluded that the entire sum of Rs. 5 lakhs given to Shri Kareem could not be related to the investment in property as claimed by the assessee. Aggrieved by this order of the assessing officer, the assessee moved the matter in appeal before the first appellate authority before whom it was contended that investment in Canara bank amounting to Rs. 2 lakhs remaining as a short-term deposit was subsequently utilised for the assessee’s investment and it is reflected in the bank account. The withdrawals made by three persons were for the investment in the assessee’s name and the payment made to Shri Kareem was utilised for investment in purchase of property, The conclusion regarding non-payment of Rs. 2,32,500 towards cost of the property was vehemently questioned. The assessee had prepared detailed analysis of investment and expenditure from the bank accounts and so the conclusion drawn by the assessing officer was without any basis.
17. After considering the learned Counsel for the assessee, the Commissioner (Appeals) has observed as under :
“Admittedly payment made to Kunhiali, payment made to Mohammed Ali, payment made to T. Aboobacker and payment made to Zubaida cannot be regarded as investment made by the appellant. It is not explained as to how the funds given to them are reflected in the investments in the name of the appellant or family members. As regards payment made to Shri Kareem the assessing officer found that Rs. 1,42,500 was paid to one Shri Mammu Mammed and it is not explained as to how this is reflected in the appellant’s investment. However, theassessing officer’s conclusion regarding Rs. 2,32,500 paid to Rao Saheb as not forming part of investment is not correct. The assessing officer has entered into a presumption that Rao Saheb would not sell the land without making any profit. This is without any evidence. The payment has been made as part of consideration for the purchase of property at Pavamni Road. The assessing officer has no material to unsettle this fact. So the sum of Rs. 2,32,500 has to be given credit as part of appellant’s investment. Similarly, the short-term deposit made in the bank amounting to Rs. 2 lakhs was also available for further investment in the subsequent period. This is evidenced from the cash flow statement. Thus a total of Rs. 4,32,500 is clearly available for investment out of the payments made by the appellant. The assessing officer is directed to give credit for a sum of Rs. 4,32,500 and consider balance out of Rs. 9,90,000 to be the undisclosed income of the appellant”.
The assessee is still aggrieved and is on second appeal before us with the grounds of appeal as extracted above.
18. At the time of hearing, the learned representative for the assessee, apart from relying on the grounds of appeal placed before us, contended, to state in brief that :
“Your appellant being a non-resident was maintaining non-resident external accounts in Canara bank Ltd. Your appellant had withdrawn from these non-resident external accounts during the block period Rs. 29.48 lakhs. As per the Reserve bank of India directions a non-resident external account cannot be operated by a non-resident as well as a resident. Since his close relatives were resident during the period, the assessee used to give cheques signed by him to his wife during the period. The bank operations were done by his wife through some of the relatives and some of the cheques were drawn in the name of relatives. The assessing authority should have considered these withdrawals for the purpose of cash flow. Instead, the assessing authority did not accept Rs. 9,90,000 withdrawn in different names from the assessee’s NRE accounts. The Commissioner (Appeals) gave a relief of Rs. 4,32,500 out of these drawings and directed the assessing authority to consider as a source. Your appellant did not have any known source of income in India. The amounts have come from NRE accounts. The department has not come Out with any documentary evidence about existence of any assets other than those shown in the cash flow statement, The addition confirmed by the Commissioner (Appeals) to the extent of Rs. 5,57,500 is unjustified.”
On the other hand, the learned departmental representative relied on the orders of the revenue authorities and reiterated the same as his submissions. The learned departmental representative has specifically relied on the contents of para 14(ii) of the Commissioner (Appeals) order. He posed a question as to how the amounts drawn by strangers are allowable as source for the assessee.
19. We have heard the rival submissions and considered the facts and materials on record. The Commissioner (Appeals) has observed that it was not explained as to how the funds given to Kunhiali, Mohammed Ali and T. Aboobacker were reflected in the investments in the name of the assessee or family members, Even before us, though the learned representative for the assessee has pleaded that the department has not come out with any documentary evidence about the existence of any assets other than those shown in the cash flow statement, he has not answered the question raised by the Commissioner (Appeals) as above. In this view of the matter, we do not find that the assessee has improved his case before us. Thus, we are inclined to uphold the order of tile Commissioner (Appeals) in this regard. Thus, ground Nos. 6 and 7 of the assessee are rejected.
20. Ground No. 8 raised before us reads as under:
“The Commissioner (Appeals) ought to have allowed the following credits after analysing the documentary evidences at the time of hearing :
(1) Loan from Abdul Azeez- The creditor is the brother of your appellant. During the financial years 1995-96 to 1997-98, Abdul Azeez, a non-resident paid a sum of Rs. 5,55,000. The Commissioner (Appeals) allowed the sum of Rs. 1,55,000. The cash flow statement filed by your appellant before the assessing authority clearly shows that the amount was withdrawn from NRE account of the creditor from Federal bank for purchasing a property at Pavamani Road, Calicut. The affidavit and cash flow statement clearly show that the amount was used for this purchase. The purchase of land to the creditors name was also confirmed by the document writer in the sworn statement given by him on 30-9-1997. The money given by Abdul Azeez is utilized for purchase of land for him. This is further evidenced by sale deed registered in his name.
(2) Loan from Ummer Farooque – The creditor is a non-resident. He has given an affidavit confirming the advance of Rs. 3,25,000 to your appellant and the amount was withdrawn from State bank of India from his NRE Account. There were withdrawals from this account to the extent of Rs. 4,18,000. The Commissioner (Appeals) has not considered these evidences while disallowing the source of Rs. 3,25,000.
(3) Loan from A.K. Abdulla- The creditor is a non-resident and the amount was withdrawn from his NRE account. The total credit was Rs. 2,35,000.
The Commissioner (Appeals) did not allow a sum of Rs. 60,000 as a source since these withdrawals were made in somebody’s name. The creditor has not stated in the affidavit that the payment was Jump sum payment.
(4) Vengat Beerashsa – The creditor has appeared before the assessing authority in response to the notice under section 131 of the Income Tax Act, He is your appellant’s uncle. In his statement given before the assessing authority he has confirmed the payment. There was no contradiction in his statement as alleged by the assessing authority. The creditor is a man of means and the assessing authority has not disputed his creditworthiness.
(5) The Commissioner (Appeals) went wrong in not considering the amount received from V. Abdul Kareem, brother of the appellant for purchase of a plot of land at Calicut. V. Abdul Kareem is an NRE. The agreement for sale of land to him is confirmed by the document writer at the time of search on 30-9-1997, The appellant has arranged for the purchase of land by V. Abdul Kareem. This fact is further evidenced by the sale deed registered in the name of V. Abdul Kareem. It was totally incorrect for assessing the same in the hands of the appellant.
In all these cases, the affidavits were filed by the creditors and they have confirmed the transactions. The payments were relating to period ten years before. In most of the cases, the creditors were NRIs and the payments were withdrawals from bank account. Taking into consideration all these facts, the Commissioner (Appeals) ought to have given direction to accept the cash credits as a source for the purpose of cash flow.”
21. The brief facts pertaining to this issue are as under :
Loan from Shri V. Abdul Azeez – In the cash flow statement, the assessee showed loan from Shri Abdul Azeez amounting to Rs. 5,55,000 which comprised of the following:
Rs. 3,25,000 in F.Y. 1995-96
Rs. 1,25,000 in F.Y. 1996-97
Rs. 1,05,000 in F.Y. 1997-98.
The assessee filed an affidavit from Shri Abdul Azeez evidencing the payment of Rs. 5,55,000. The affidavit mentioned the withdrawals were made from NRE account of Shri Abdul Azeez (2192) with Federal Bank, Cheruvannur. The assessing officer called for details of withdrawals and copies of cheque leaves from Federal Bank. He gathered complete details in relation of F.Ys. 1995-96, 1996-97 and 1997-98. On verification of the bank statement the assessing officer found that cheque issued to the assessee was to the tune of Rs. 1 lakh. Even though there were withdrawals exceeding Rs. 5 lakhs, they were payment drawn on various persons or payments made to LIC and so the story of advance of funds to the assessee was not appreciated by the assessing officer. He gave credit to a sum of Rs. 1 lakh and the balance was held to be assessee’s own fund not disclosed in the return. Aggrieved by this addition, the assessee moved the matter in appeal before the first appellate authority before whom it was contended that :
“(a) Shri Abdul Azeez is the younger brother of the assessee.
(b) Shri Abdul Azeez has owned up the transactions and filed an affidavit to the above effcctduly attested by the attache of Abudhabi Embassy. (c) The creditworthiness of Shri Abdul Azeez is not disputed. (d) He has advanced the funds for the purchase of property Shri Chandukutty, document writer, has confirmed the same. (e) Shri Abdul Azeez used to leave signed cheque leaves with members of the family and withdrawals were made by those persons and the money advanced to the assessee." 22. After considering the contentions of the assessee, in the light of the facts and circumstances of the case, the Commissioner (Appeals) has observed as under :
“It is true that Shri Abdul Azeez is a man of means. He has filed an affidavit dulv attested by the attache of Abudhabi Embassy confirming the transaction. It is true that the creditor has been identified and the creditor is found to be creditworthy, However, the crucial statement in the affidavit is that the above-said amount was withdrawn from his NRE account No. 2192 with Federal Bank, Cheruvannur. The assessing officer made a threadbare analysis of the bank statement, Chequc issue to the appellant is shown only on one date viz., 6-1-1997 for Rs. I lakh. The contention of the appellant is that cheques were issued to various family members and they used to withdraw funds from his NRE account. However, the appellant has not established a link between the persons to whom cheques were issued and the appellant himself. There is no confirmation from any of the persons to whom cheques were issued. The appellant could have produced evidence from persons like Shri P.K. Mohammed Kuty, V. Basheer, P.V- Ummer etc. who have encashed the cheques. There is no mention by Shri Abdul Azeez that monev was routed through the above persons. The purpose for which cheques were issued to the above persons is also not known. Two of the withdrawals viz., by Modern Soap Works and Calicut Soap Works of Rs. 1 lakh each cannot be related to the appellant by any stretch of imagination. It’s not only suf ficien L that the creditor should be worthy but it should be proved that the money has been paid to the appellant. This has not been done in the present case. The creditor has only stated that money has been given to the appellant by withdrawal from the above NRE account. But lie has not established how the cheques issued to various persons were for the benefit of the appellant. The assessing officer has given credit only for a sum of Rs. I lakh for which cheque was issued to the appellant. Since the creditor has owned up transaction and he has admitted to have given funds to the appellant, the funds withdrawn by him can at best be traced to the appellant. The following withdrawals are made by Shri Abdul Azeez from the NRE Account:
20-11-1995
Rs. 25,000
27-11-1995
Rs. 5,000
22-3-1997
Rs. 25,000
31-3-1997
Rs. 50,000
7-4-1997
Rs. 30,000
21-4-1997
Rs. 15,000
Since cash has been withdrawn and Shri Abdul Azeez has admitted to have given money to the appellant out of NRE account, credit can be given in respect of the above withdrawals also. This amounts to Rs. 1,50,000. So the above sum of Rs. 1,50,000 can be regarded as a loan from Shri Abdul Azeez and it can be tagged on to Rs. I lakh already considered by the assessing officer.
So the assessing officer would give credit for a further sum of Rs. 1,50,000. The balance would be treated as undisclosed income. Still aggrieved the assessee is on second appeal before us.
Loan from Shri Ummer Farooque – The assessing officer added back a sum of Rs. 3,25,000 alleged to have been received from Shri Ummer Farooque. The assessing officer called for evidence in support of the funds received from Shri Ummer Farooque shown in the cash flow statement. In reply the assessee filed an affidavit from Shri Ummer Farooque showing withdrawal from NRE account. The assessing officer noticed that the affidavit did not contain details of payment such as amounts and dates. The Assessing Officer proceeded to obtain copies of NRE account from State bank of India. He analysed the withdrawals made during the year 1996-97 and found that cheques were not issued to the assessee as claimed. He took the stand that the withdrawals must have been for some other purposes since no cheque was issued to the assessee. There was also no evidence to show that the funds withdrawn from the bank were handed over to the assessee for purchase ofproperty. Aggrieved by the above order of the assessing officer, the assessee moved the matter in appeal before the Commissioner (Appeals) before whom it was contended that:
“the assessing officer should have accepted the affidavit and confirmation given by the creditor. It is observed that Shri Ummer Farooque is a man of substantial means and he had issued several cheques in his native place in the name of various persons and money was given to the appellant to purchase property at Calicut. The assessing officer should not have considered the affidavit filed by the creditor to be false and without basis. According to the appellant the primary responsibility of filing confirmation from the creditor and proving his creditworthiness has been complied with and the action of the assessing officer to further suspect the withdrawals is legally not correct.”
23. The learned first appellate authority, after considering these submissions in the light of the facts and circumstances of the case, held as under :
“The analysis of the withdrawals from NRE a/c. maintained by Shri Ummer Farooque as contained in the assessment order is self-explanatory. The fact remains that none of the cheques were issued to the appellant. The withdrawals consisted of various amounts varying from Rs. 5,000 to Rs. I lakh. It has to be noted that even during the period when the appellant was in India no cheque was issued. If it were the habit of the creditor to leave cheques with various relations in India for withdrawal of money as represented in the appeal, it is not clear why the payment of money to the appellant by persons who withdraw the same from the bank has not been furnished. it is true that the appellant has discharged the primary duty of identifying the creditor and filing a confirmation from him. The assessing officer enquired into the withdrawal of money from the bank and directed the appellant to produce evidence to show that the money withdrawn has been given to the appellant. In the view of the matter, the stand taken by the assessing officer is confirmed.”
Still aggrieved, the assessee on second appeal before us with this issue.
Loan from Shri A.K. Abdulla:
24. The assessee claimed to have received a loan of Rs. 2,35,000 from Shri A.K. Abdulla. This related to F.Y. 1995-96. It was pointed out that Shri Abdulla was working outside India and so an affidavit confirming the loan of Rs. 2,35,000 was filed by the assessee. It was stated in the affidavit that the amount was withdrawn from the NRE account of Shri A.K. Abdulla from State bank of India, Telicherry Branch. The assessing officer called for details of withdrawals and copies of cheque leaves from the bank. He found that Rs. 1,75,000 was encashed by Shri Abdulla himself and the balance amount of Rs. 60,000 by two different persons. The assessing officer took the stand that no cheque was issued in the name of the assessee or his relations. Withdrawal by Shri Abdulla might be for expenses in connection with his own house construction. He, therefore, concluded that the receipt of Rs. 2,35,000 from Shri A.K. Abdulla was false and could not be relied upon. Aggrieved by this order of the assessing officer, the assessee moved the matter before the first appellate authority, before whom it was contended that Shri Abdulla has discharged his responsibility by confirming the transaction and filing the affidavit duly signed by the attache of Embassy of India, Abu Dhabi. The assessing officer has not denied the creditworthiness of Shri A.K. Abdulla. His conclusion that the funds withdrawn would have been utilised for Shri Abdulla’s house construction is represented to be far fetched. After hearing the contention of the assessee and considering the same in the light of the facts and circumstances of the case, the Commissioner of Income-tax (A) held as under:
“The filing of affidavit and confirmation of loan transaction by Shri A.K. Abdulla are not disputed. The assessing officer has verified the relevant bank transactions. His objection is primarily with the withdrawal of cash by Shri Abdulla and some others. He is of the opinion that the cheque should have been drawn in the name of the appellant or his representatives. However, it is noticed that Rs. 1,75,000 was withdrawn by Shri Abdulla himself. This is confirmed by the assessing officer in the assessment order. Shri Abdulla has admitted the transaction. So the presumption that the money withdrawn by Shri Abdulla might have been utilised for his own house construction is far fetched. Funds to the tune of Rs. 1,75,000 are available and Shri Abdulla has owned the transaction. So to the extent of Rs. 1,75,000 the appellant can be given due credit. As far as Rs. 60,000 is concerned the assessing officer has verified and found out that withdrawal was made by the one Shri Sasi Kumar and Shri M.V. Kunhu Mon. It is for the appellant to establish that funds withdrawn by the above persons have been received by him. There is no confirmation to the above effect. So, the sum of Rs. 60,000 cannot be considered to have been received by the appellant. Therefore, out of the loan transaction of Rs. 2,35,000 allegedly received from Shri A.K. Abdulla, Rs. 1,75,000 can be reasonably given credit. In view of the above addition to the extent of Rs. 1,75,000 is deleted. Addition of balance of Rs. 60,000 is sustained.”
Still aggrieved, the assessee is on second appeal before us with this issue.
Loan from Shri Vengat Beersha
The appellant claimed that a sum of Rs. 2 lakhs was taken as loan from Shri Vengat Beerasha during the financial year 1995-96. The appellant did not file any confirmation in support of the above transaction. The assessing officer’s direction to produce Shri Beerasha was not complied with. The assessing officer summoned Shri Beerasha and took statement from him regarding the transaction. Shri Beerasha admitted that he had advanced Rs. 2 lakhs on various dates to Shri Vengat Beersha as under :
25-9-1995
20,000
3-11-1995
1,50,000
10-1-1995
26,000
22-11-1995
4,000
All payments were confirmed to have been made by cash. The assessing officer examined Shri Beerasha with regard to the transaction, mode of payment, refund of the amount and other connected issues. The statement recorded from Shri Vengat Beerasha was that “the above amounts were paid on those dates by cash”. The assessing officer noticed that the appellant left India on 26-11-1995 after a stay of 33 days and he came back to India only in 1996. So the story of direct payment of cash by Sri Vengat Bava was to be fictitious. He also found that the major withdrawal of Rs. 1,50,000 was in respect of a cheque issued to one Shri Mohammed Koya. The statement given by Shri Beerasha did not in any way confirm payment of money to the appellant with reliable evidence. The claim of loan from Shri Beerasha was therefore, rejected. Aggrieved by this order of the assessing officer, the assessee moved the matter in appeal before the first appellate authority before whom, it was contended that Shri Beerasha was a man of means and he had confirmed the transaction with reference to the dates and the inference drawn by the assessing officer was without any basis.
25. After considering the contentions of the assessee in the light of the facts of the case, the Commissioner (Appeals) came to the following conclusion :
“At the outset it has to be mentioned that the appellant failed to produce Shri Beerasha even though he was his next door neighbour. The assessing officer had to summon him and take statements regarding the alleged transactions. It is true that Beerasha confirmed payment of money to the appellant on four different dates in 1995. It was stated by Shri Beerasha that the amounts were paid in cash. The payments were also said to have been made tothe appellant directly. However, the assessing officer found that the appellant could not have directly received the amount in November 1995 itself. The appellant has not brought before me any evidence to rebut then above inference of the assessing officer. The statement given by Shri Beerasha is also not consistent. He has stated during the examination itself that bearer cheques were given for Rs. 1,50,000 and Rs. 26,000. The assessing officer examined the withdrawal of the said sum of Rs. 1,50,000. This was also not in agreement with the stand taken earlier by Shri Beerasha. The facts of the case show that Shri Beerasha would not have handed over the alleged funds to the appellant directly or through cheque. So the rejection of the claim is in order.”
Still aggrieved, the assessee is on second appeal before us with this issue.
26. At the time of hearing, the learned representative of the assessee in respect of all the credits above, submitted as under :
“Advances from his brothers
Your appellant has taken advances from V. Abdul Azeez and Vengat Karim forthe purpose of purchase of Pavamani Property at Calicut. Your appellant at the time of search on 30-9-1997 has given in the sworn statement regarding the purchase of property in the name of his brothers and himself. The department has also examined the document writer regarding this purchase transaction who also confirmed the statement of your appellant on 30-9-1997. His sworn statement was also on the date of search. The assessee in the cash flow statement in 1994-95 and 1995-96 has shown advance of Pavamani Property Rs. 28.59 lakhs. The copy of the registered document in the name of Abdul Azeez and V. Karim were filed with theTribunal alongwith the paperbook. If the assessing authority has anv doubt about the advances which has been confirmed by them by affidavits, the asset should have been removed from the application of your appellant. The affidavit of his brothers along with the source from where they have taken the money and subsequent registered document in the name of his brothers, sworn statement of the appellant and the statement of document writer at the date of search clearly prove the genuineness of the transactions.
Loan transactions :
The loan from Ummer Feroque, A.K. Abdulla and Vengat Beerasha were confirmed by the creditors by filing affidavits. Both Ummer Feroque and A.K. Abdulla were non-residents. Their confirmations also show the NRE account Nos. from where they withdrew the amount. Both these credits were not accepted as a genuine credit since the cheques were not drawn in the name of your appellant. In the case of A.K. Abdulla, the credit of 1,75,000 has been accepted by the Commissioner (Appeals). Your appellant was also in India when he accepted the cash from Ummer Feroque who happened to be a non-resident. Vengat Beerasha the third creditor appeared before the assessing authority and produced the pass book. In all these cases, the genuineness, identity and capacity have already been proved. The block assessment is entirely different from the regular assessment. The matters like cash credit can be considered only in the regular assessment. Reliance is placed on the decision of Calcutta High Court in the case of Bhagvati Prasad Kedia v. Commissioner of Income-tax (2001) 248 ITR 562 (Cal.).”
27. On the other hand, the learned departmental representative reiterated the contents of the assessment order and the first appellate order as his submissions. He pleaded that the Commissioner (Appeals) has also given certain relief and given reasons for confirming the other additions and hence, there is no need for disturbing the impugned order.
28. We have heard the rival submissions and considered the facts and materials on record including the case law relied on by the learned representative of the assessee. In respect of the loan transactions with S/Shri Abdul Azeez, Ummer Fcroque and A.K. Abdulla, the parties have given sworn affidavits. It is true that what is stated in the affidavit is to be accepted as true unless any material to the contrary is brought on record. In the case of Shri Abdul Azeez, the Commissioner (Appeals) has pointed out that the assessee had not established the link between the persons to whom chcques were issued and the assessee himself, and there is no confirmation by any of the persons to whom cheques were issued. He has rightly observed that the assessee could have produced evidence from persons like Shri P.K. Moharnmed Kutty, V. Basheer, P.V. Ummer etc. who have encashed the cheques. Also it is observed by the Commissioner (Appeals) that there is no mention by Shri Abdul Azeez that money was routed through the above persons and the purpose for which cheques were issued to the above persons is also not known, The Commissioner (Appeals) found that to the extent of Rs. 1,50,000, it was withdrawn from the said NRE account and since Shri Abdul Azeez could have given the money to the assessee, the same was to be accepted. Thus, we find that the revenue authorities have brought out the facts as to how the contents of the affidavit cannot be believed fully by mentioning the absence of corroborative evidences. Thus, we do not find any infirmity in the order of the first appellate authority as regards the sustenance of Rs. 3,05,000 being loan from Shri Abdul Azeez and as such, we confirm the same.
29. As regards the loan from Shri Ummer Farooque, though he has filed affidavit, since the assessee had not brought any material to show that the withdrawal of money was by the assessee and there was no evidence of receipt of money, as rightly observed by the Commissioner (Appeals), the assessee has to prove the actual receipt of the funds. The Commissioner (Appeals) has also found that the assessing officer noticed that each withdrawal has been made by various persons and there was no evidence to show that the money withdrawn had been paid to the assessee. Thus, in our considered opinion, the revenue has brought materials on record to prove that what is stated in the affidavit cannot be accepted as it is unless revenue’s contentions are met by the assessee. Thus, we do not find any infirmity in the order of the Commissioner (Appeals) in confirming the cash credit of Rs. 3,25,000 from Shri Ummer Farooque.
30. As far as Shri A.K. Abdulla is concerned, out of Rs. 2,35,000, the Commissioner (Appeals) himself has deleted Rs. 1,75,000. In respect of the remaining Rs. 60,000, the Commissioner (Appeals) found that the assessing officer has verified and found out that withdrawal was made by one Shri Sasi Kumar and Shri M.V. Kunhu Mon and it was for the assessee to establish that the funds withdrawn by these persons had been received by him. There is no confirmation to the above effect. in this view of the matter, we find that the assessee has miserably failed to meet the contentions of the revenue as regards the sum of Rs. 60,000, and hence, mere filing of the affidavit would not help the assessee. Thus, we do not find any infirmity in the order of the first appellate authority as regards the confirmation of addition of Rs. 60,000 being loan from Shri A.K. Abdulla.
31. Turning to the case of Shri Vengat Beerasha, the assessing officer has pointed out that the assessee had left India on 26-9-1995 and hence the statement given by Shri Vengat Beerasha that he has directly paid cash to the assessee in the month of November 1995 cannot be accepted. The Commissioner (Appeals) has also observed that the assessee had not brought before him any evidence to rebut the above inference of the assessing officer. It is also observed by the Commissioner (Appeals) that the statement as given by Shri Beerasha was not consistent and hence he came to the conclusion that Shri Beerasha would not have handed over the alleged funds to the assessee directly or through cheque and, hence, he sustained the addition made by the assessing officer in respect of the cash credit relating to Shri Vengat Beerasha. As we do not find any infirmity in the order of the first appellate authority, and for the reasons recorded therein, we confirm the order of the Commissioner (Appeals) in respect of the cash credit relating to Shri Vengat Beerasha.
32. The learned representative for the assessee has also relied on the decision in Bhagwati Prasad Kedia v. CIT (2001) 248 ITR 562 (Cal.) and pleaded that the matter like cash credits could be considered only in regular assessment. We have gone through the decision relied on by the learned representative. In that case, the assessee furnished confirmatory letters including income-tax details of the creditor and also the loan transactions were accepted in the company’s assessment. In such facts of the case, it was held that the assessing officer was not entitled to question loan transactions which is the subject-matter of regular assessment. On the other hand, the facts of the case on hand are different. In this case nothing is on record to show that the loan transactions have been accepted nor the details of the income-tax assessments of the creditors are available on record. In such circumstances, we are unable to accept the contention of the learned representative, that cash credit can be considered only in regular assessment. Further, sub-section (2) of section 158BB reads as under:
“In computing the undisclosed income of the block period, the provisions of sections 68,69,69A, 69B and 69C, so far as may be, apply and references to “financial year” in those sections shall be constructed 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.”
A simple reading of the above sub-section would show that except section 69D, which has been specifically omitted by the Legislature, the other provisions are specified in the above sub-section. Thus, it would go to show that even in the block assessment, the provisions of section 68 (cash credit) are applicable. On this reasoning also, the contention of the learned representative has to fail. Thus, ground No. 8 of the assessee fails.
33. During the course of hearing, the assessee has filed two additional grounds along with the petition for admission of the same. In the petition, it has been stated that these grounds had been inadvertently omitted and since these grounds are relating to block assessment, the same be admitted and decided on merits. The grounds are as under :
‘(1) As per section 158BB of the Income Tax Act, the undisclosed income of the block period shall be the income of the previous years on the basis of evidences found as a result of search. In the appellant’s case, there was no evidence found during the course of search for the estimation of the personal expenditure of your appellant. Hence, this addition cannot be made in the block assessment. The addition was Rs. 1,20,000 for the block period. Reliance is placed on the decision of Cochin Bench in the case of K. Moidu v. ACIT (supra).
(2) The Deputy Commissioner’s giving effect to Commissioner (Appeals) order determined the undisclosed income as Rs. 22,96,680. The undisclosed income for the assessment years 1991-92, 1992-93 and 199596 are below taxable limit and hence should not be included for the purpose of determining the undisclosed income. As per section 158BB(1)(c)(B) where the undisclosed income does not exceed the maximum limit not chargeable to any tax for any previous year the same need not be taken as undisclosed income. Reliance is placed on the decision of Patna High Court in the case of Commissioner of Income-tax v. ACIT (82 TTJ 689) (Sic).”
34. We have heard rival submissions on the admission of the above additional grounds and considering the same in the facts and circumstances of the case, we find that since these two grounds are legal grounds which were inadvertently omitted to be taken along with the original grounds of appeal, they are to be admitted and dealt with by us. Hence, we admit the same. Having admitted the additional grounds, let us deal with the same in the following paragraphs.
35. The brief facts pertaining to the issue relating to the additional ground No. I are that the assessee admitted household expenses as under :
F.Y. 1992-93
Rs. 45,000
F.Y. 1993-94
Rs. 50,000
F.Y. 1994-95
Rs. 55,000
F.Y. 1995-96
Rs. 60,000
F.Y. 1996-97
Rs. 65,000
F.Y. 1997-98
Rs. 35,000(Part of the year)
The assessing officer noticed that the assessee’s family consisted of himself, wife and four children. He also had to maintain his old mother.
Though the assessee was abroad, his visit to India frequent. The life style was of a high order and considering these factors the assessing officer re-worked the household expenses as under :
F.Y. 1992-93
Rs. 62,000
F.Y. 1993-94
Rs. 60,000
F.Y. 1994-95
Rs. 80,000
F.Y. 1995-96
Rs. 80,000
F.Y. 1996-97
Rs. 1,00,000
F.Y. 1997-98
Rs. 50,000 (Part of the year)
Aggrieved by this order of the assessing officer, the assessee moved the matter in appeal before the first appellate authority before whom the assessee contended that the estimate made by the assessing officer is on the higher side. It is observed that the assessee family consisted of the assessee, his wife and four children. The children are studying in school and the family is leading a moderate life. After considering the submissions in the light of the facts, the Commissioner (Appeals) sustained the order of the assessing officer for the reason that the assessing officer has considered the normal living standard of the assessee and his family and that the enhancement made was admitted by the assessee and that the estimate made by the assessing officer could not be regarded as excessive since the family consisted of assessee’s wife, aged mother and four children and there was also other expenditure like expenditure on car, travel, medical expenses etc. Thus, the assessing officer’s order was confirmed by the Commissioner (Appeals) and the assessee is on second appeal before us with the additional ground extracted as above.
36. At the time of hearing, the learned representative for the assessee reiterated the ground raised before us and relied on the decision of the Tribunal (Cochin Bench) in the case of K. Moidu Alias Kunhippa (supra). On the other hand, the learned departmental representative submitted that the opinion that the block assessment can be made only on the basis of the evidences found out during the course of search is acceptable only in the case of regular assessees and in this case the assessee was not a regular assessee and, hence, this proposition cannot be applied. In his rejoinder, the learned representative for the assessee submitted that the decision of the Tribunal (Cochin Bench) in K. Moidu Alias Kunihappas case (supra) is on identical facts and circumstances and even in that case no return was filed. Further, in that case also the appellant was a non-resident without having any known source of income in India and hence the decision is squarely applicable to the assessee’s case. Further, no distinction is made in section 158BB between assessees and non-assessees.
37. We have heard the rival submissions and considered the facts and materials on record. The Tribunal (Cochin Bench) in the above cited decision, being a Third Member decision, has held that the assessing officer was not justified in making addition in block assessment by merely making an enhanced estimate of the household expenses. Following the above decision of the Tribunal, we are inclined to allow this additional ground relating to estimation of personal expenditure.
38. Now let us turn to the additional ground No. 2 extracted hereinabove. After hearing both sides and considering the facts and circumstances of the case, we find that the Tribunal in the aforesaid decision has held that the assessing officer had to exclude from the total undisclosed income of the block period, the incomes of those years which were found to be below the taxable limit. Further, the decision of the Patna High Court in the case of CIT v. Sint. Lily Tobias (2004) 266 ITR 401 (Pat) also supports the case of the assessee. In that case, it was held as under :
“The amendment made in a section 158BC of the Income Tax Act, 1961, with effect from 1-7-1995, clearly provides that if the income of the particular assessment year falling within the block period is not taxable the same shall not be treated to be undisclosed income.”
Respectfully following the above decision of the Patna High Court and the decision of the Tribunal (Cochin Bench), we are inclined to allow this additional ground of the assessee.
39. In the result, assessee’s appeal is partly allowed.