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Before: Shri Bhavnesh Saini & Shri L.P. Sahu
ORDER Per L.P. Sahu, A.M.: This is an appeal filed by the Revenue against the order of ld. CIT(A)-I, New Delhi dated 30.03.2011 for the assessment year 2008-09 on the following grounds : “
1. The order of the Id. CIT (A) is not correct in law and facts.
2. The Ld. CIT(A) has deleted the addition of Rs. 37,053/- made by the AO on account of interest on saving bank account.
3. The Ld. CIT(A) has deleted the addition of Rs. 24,43,150/- and balance addition of Rs. 83,371/- confirmed, made by the AO on account of disallowances of expenses.
ITA No. 3119/Del./2011 2
The Ld. C1T(A) has deleted the addition of Rs. 5,24,070/- made by the AO on account of unexplained capital introduced.
The Ld. CIT(A) has deleted the addition of Rs. 2,97,250/- and balance addition of Rs. 5,94,500/- confirmed, made by the AO on account of house lax payment. 6. The Ld. CIT(A) has deleted the addition of Rs. 5,41,622/- made by the AO on account of unexplained jewellery.” 2. The brief facts of the case are that a search and seizure operation was conducted in the case of assessee on 17.04.2007. The assessee was asked to file return of income. Notice u/s. 142(1) was issued on 11.05.2009. The assessee filed his return of income on 28.10.2009 declaring income of Rs.2,85,761/-. Income declared by the assessee in the return filed in response to notice u/s. 142(1) and the return filed u/s. 139 was the same. Statutory notices were issued to the assessee. In response to notice, he filed details.
The assessing Officer also noted that the books of accounts were not produced before him whereas the tax audit was conducted u/s. 44AB of the Act in which the Tax Auditor has specified at Sr. No. 9 (a b c) of Form No. 3CD that the books of accounts have been maintained.
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4. The AO after considering the submissions of the assessee and going through the details furnished, made following additions : Particulars Amount (Rs.) Interest on saving Bank account 37,053/- Disallowance of expenses of M/s. R S 25,26,521/- Enterprises Unexplained Capital introduced 5,24,071/- House tax payment disallowed 11,89,001/- Unexplained jewellery 5,41,622/- Aggrieved by these additions, the assessee appealed before the first appellate authority and the first appellate authority partly allowed the appeal of the assessee after considering the detailed written submissions of the assessee. The ld. CIT(A) has given his findings at para 5 of the impugned order as under : “5. I have considered the submissions of the appellant and finding contained in the order of assessment and the material placed on record. i. From the perusal of the submission file and the material placed on record, it is evident that appellant is maintaining a saving bank account no. 2386 with Syndicate Bank , Khan Market New Delhi. The bank has credited Rs 37,053/- on account of interest to the said saving account. The said bank account has been duly recorded in the books of account of the proprietary concern of the appellant namely M/s R S Enterprises. The appellant has declared income of Rs 28,57,610/- which includes income of Rs 44,707 on account of ITA No. 3119/Del./2011 4 interest received. The said interest of Rs 44,707/- is credited in the Profit & Loss Account of M/s R S Enterprises. From the perusal of details available on record it is evident that the interest of Rs 37,053/- received on saving bank account has already been included in the interest of Rs 44,707/-. Hence in view of the facts stated above, the addition of Rs. 37,053/- on account of interest on saving bank account is hereby deleted and appellant gets relief of Rs 37,053/-. ii. From the perusal of the submissions filed by the appellant and the material placed on record, it is undisputed that M/s R S Enterprises has made total sales amounting to Rs 1,69,24,658/- during the year under consideration, which cannot be made without incurring the expenses of Rs 95,93,601.77 debited the Profit & Loss Account which also includes House tax Payment of Rs 11,89,001/- which has also been disallowed separately. The AO has made disallowance of 30% of expenses aggregating to Rs 84,21,738/- . It is also undisputed that the books of accounts of M/s R S Enterprises were audited by the chartered accountant as per the provisions of section 44AB of the Act and no expenses of personal nature has been reported in the audit report. In view of the facts stated above, I find force in the contention of the appellant that said expenses of Rs. 84,21,738/- did not have any such expenses which can have an element of personal nature by any stretch of imagination except telephone and vehicle running and maintenance charged aggregating to Rs 2,77,905/- which may have an element of personal nature. Keeping in view the facts stated above, out of addition of Rs. 25,26,521/- (30% of Rs 25,26,521/- ), I confirm the addition of Rs. 83,371/-( 30% of Rs 2,77,905/-) and balance addition of Rs 24,43,150/- is hereby deleted and appellant gets relief of Rs 24,43,150/-. iv. The AO has also made addition of Rs. 5,24,071/- on account of unexplained capital introduced by the ITA No. 3119/Del./2011 5 appellant in his proprietary concern namely M/s R S Enterprises. From the perusal of the submission filed by the and the material placed on record, it is evident that during the year under consideration the appellant has merged her saving bank account no. 2686 with Syndicate Bank, Khan Market, New Delhi in the books of accounts of M/s R S Enterprises and shown the opening balance of Rs 5,24,070.98 of the said bank account as capital introduced in the said proprietorship concern. In view of the facts stated above, I find force in the contention of the appellant that the said introduction of capital of Rs. 5,24,070.98 is duly explained and source of the same is from disclosed bank account, the addition of Rs, 5,24,070.98 is deleted and appellant gets relief of Rs. 5,24,070.98. The AO has also made addition of Rs. 11,89,001/- by disallowing deduction claimed by the appellant on account of payment of House tax from the rental income declared by the appellant in her return of income. The appellant has claimed deduction of the said house tax of Rs. 11,89,001/- against the rental income of Rs. 10,50,000/- received and declared by the appellant in respect of jointly owned property at 14,Golf Links, New Delhi. As the appellant has made the payment of house tax in respect of house property the rental income from which has been declared in the return of income, the appellant is eligible for deduction in respect of house tax paid. However, as submitted by the appellant that she has inadvertently claimed 100% of the entire house tax paid, while she is entitled for 25% of Rs. 11,89,001/-, as 25% is allowable in the hands of the Rohit Gandhi and 50% is not allowable being related to self - occupied portion. The deduction in respect of house tax claimed by the appellant is restricted to Rs. 2,97,250/- and balance addition of Rs. 5,94,500/- is confirmed and appellant gets relief of Rs 2,97,250/-and AO is directed to give credit of Rs 2.97,250/- in the hands of co-owner Shri Rohit Gandhi as per the relevant provisions of the Act. ./2011 6 v. The AO has also made addition of Rs. 5,41,622/- on account of unexplained jewellery in the hands of the appellant. From the perusal of the submission filed by the appellant and the material placed on record, it is undisputed the appellant has already declared 611 grams gold jewellery and 19.66 carats of diamond in her wealth tax return for the assessment year 1989-90. During the search & seizure operation total 960.05 grams gold jewellery and 25.66 carat diamonds were found from the residence and lockers of the appellant. The appellant is a widow and residing with her son Mr. Rohit Gandhi. Accordingly, the AO has given credit of 711 grams of gold jewellery i.e 611 grams declared by the appellant in his wealth tax return and 100 grams of jewellery of his son as per the Instruction no. 1916 of the CBDT dated 11.05.1994 and rest of the gold jewellery weighing 249.05 grams estimated at Rs. 2,09,202/- treated as unexplained. The AO has also treated the 25.66 carats of diamond estimated at Rs. 3,32,420/- as unexplained after giving the credit of Rs. 1,400/- in respect of stones declared by the appellant and made additions accordingly. As submitted by the appellant, she is a Hindu Widow and as per the customs and practices of the community to which she belongs, a widow never wears or purchases jewellery ornaments, which can be corroborated from the valuation report that no jewellery was found ‘on person'. The son of the appellant has also stated in his statement recorded under section 132(4) of the Act that all the jewellery found at his premises and lockers belong to his mother and the said jewellery is old and is Stridhan of his mother. He has further stated they have got some jewellery which is old jewellery received by her at the time of marriage and on different occasions as gift from her in laws and other relatives and friends. She has not received any jewellery for the last ten years. In view of the facts stated above, I find force in the contention of the appellant that the jewellery ornaments found from the residence and lockers of the appellant were old and she has not purchased any jewellery during the ITA No. 3119/Del./2011 7 financial year under consideration and also after death of her husband on 02/03/1981 as per the customs and practices of the community to which she belongs. Hence, the addition on account of unexplained jewellery estimated at Rs.5,41,622/- is not justified and is hereby deleted. The appellant gets relief of Rs.5,41,622/-.” Aggrieved by the above order, the Revenue is in appeal before the ITAT.
5. The ld. DR submitted in respect of interest addition of Rs.37,053/- that it was not offered to tax and earlier also this bank account was not shown in the return of income. He further submitted in respect of deletion of addition of Rs.24,43,100/- on account of disallowance of expenses debited into profit and loss account that the assessee did not produce books of accounts and bills & vouchers. The assessee could not assign any reason beyond his control which prevented him to produce the books of accounts for any of the five assessment years including the current assessment year. However, the assessee had produced the books of accounts before the ld. CIT(A) and the ld. CIT(A) has considered the same and decided the issue without giving proper opportunity to the Assessing Officer. Even the remand report was not called for from the AO. Therefore, this issue may be restored ITA No. 3119/Del./2011 8 to the file of AO back. In respect of deletion of addition of Rs.5,24,071/- on account of unexplained capital introduced by the assessee in the proprietary concern, it was submitted that the assessee could not produce any documentary evidence for the AO and even it was not recorded in the previous assessment year nor this amount was taxed earlier also. The ld. DR further submitted in respect of municipal tax paid of Rs.11,89,001/- that the ld. CIT(A) has wrongly deleted the addition of Rs.2,97,250/- as 25% share of the assessee whereas she was a co-owner of 50% of the property which has been let out and 50% is used for the residence purpose. The ld. CIT(A) has further deleted the addition ofRs.5,41,622/- made by the AO on account of unexplained jewellery. The assessee could not bring any material evidence before the AO to substantiate his claim. The assessee submitted before the search team a copy of Wealth Tax assessment which pertains to assessment year 1989-90 and copy of valuation report showing the net weight of gold of 611 gms only and stones amounting to Rs.1400/-. For the remaining jewellery, he did not produce any purchase bills etc. Therefore, the AO was justified to make addition of Rs.5,41,622/-.
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On the other hand, the ld. AR relied on the order of the ld. CIT(A) and his written submissions made before the ld. CIT(A) available at page No. 1 to 19 of the paper book. He further submitted that the interest has been offered for taxation as is clear from the computation of income submitted before the AO, but the AO has wrongly mentioned in the assessment order that the books of account were not produced. The assessee was proprietor of M/s. R.S. Enterprises and engaged in the business of manufacturing of garments. The AO has drawn inference that 30% expenditure debited in the profit and loss account is in the nature of personal expenses which has been added on adhoc basis without specifying any expenditure of disallowable nature. The Tax auditor in para No. 17(b) of his audit report has reported that no expenditure of personal nature has been debited to the profit and loss account. In the computation of income house tax expense has been added back and it is not included in the total expenditure of Rs.84,21,738/-. The assessee’s total turnover is Rs.1,69,24,658/- during the year under consideration which cannot be made without incurring of expenses as debited into the profit and loss account. The assessee has introduced fresh ITA No. 3119/Del./2011 10 capital of Rs.5,24,071/- out of past saving of the assessee and deposit in the Saving Bank account. In respect of house tax payment, the assessee has offered rental income to tax and whole of the rent has been taken as income. Therefore, the total house tax paid will also be allowed as deduction as per law. In respect of jewellery, the ld. AR submitted that the assessee had produced WT return and valuation of jewellery before the search team. She has not purchased any jewellery since last 10 years. The assessee is widow. In earlier years she purchased small quantity of jewellery, therefore, the bills of jewellery were not kept. In addition to the jewellery declared in WT return, the assessee had also received some jewellery as gift at various occasions as per Hindu Culture. Therefore, the ld. CIT(A) was justified to allow the appeal of the assessee.
After hearing both the sides and perusing the material on record, we find that in respect of ground No. 1, the assessee has shown in computation of income the interest income of Rs.44,708/- which has been credited into the profit and loss account. While computing the income, it has been shown under the head ‘income from other sources’. The details were filed ITA No. 3119/Del./2011 11 before the ld. CIT(A) regarding the interest received from Sundicate Bank account as per written submissions. On perusal of the bank statement of Syndicate Bank (PB-36), the bank has credited interest on two different dates, viz., 30.06.2007 of Rs.8393.44 and on 31.12.2007 Rs.28,669.83 totaling to Rs.37,053/-. Therefore, this addition is rightly deleted by the ld. CIT(A).
Regarding deletion of addition of Rs.24,43,150/- on account of expenses, we find that the order of the AO categorically speaks that no books of account or bills & vouchers were produced before him. On the other hand, the ld. AR of the assessee submits that all the books of accounts and vouchers were produced before the AO. Thus, the version of the assessee and the that of the AO stands in sharp contradiction on the factum of production of account books. It is, however, seen that the assessee had produced the books of account before the ld. CIT(A) which have been considered without calling for any remand report from the AO or giving any opportunity to him for verifying the same. The ld. CIT(A) also appears to have not verified the admissibility of expenditure deleted by him. We ITA No. 3119/Del./2011 12 therefore, deem it just and proper to remit this issue back to the AO for deciding the same afresh after proper verification of the expenditure from the books of account as well as bills & vouchers, which shall be submitted by the assessee before the AO. Accordingly, this ground deserves to be allowed for statistical purposes.
In respect of ground No.4, the ld. CIT(A) has deleted the addition of Rs.5,24,071/- made by the AO on account of opening balance of Syndicate Bank account No. 2686. The ld. CIT(A) has observed that this bank account was merged with the books of account of M/s. R.S. Enterprises and shows the opening balance of Rs.5,24,070.98 as a fresh capital introduction into the business of the assessee. On perusal of the bank statement, there was opening balance of Rs.5,24,070.98. The assessee himself accepted that it was not recorded in earlier years, therefore, it should have been taken as a fresh capital introduction and merged into the business of the assessee. The assessee has taken it as a fresh capital introduction and the source of deposit in the bank account is not clear. Whether the amount of opening balance appearing in the Syndicate Bank account at the beginning ITA No. 3119/Del./2011 13 of the financial year was taxed or not is also not clear. Therefore, this matter is also sent back to the AO for examination of the amount whether subjected to tax or not in earlier years because fresh capital introduction made during the year of Rs.5,24,071/- has not been offered for tax. Accordingly, this ground is allowed for statistical purposes.
In respect of ground No. 5, the ld. CIT(A), we find that the ld. CIT(A) has rightly deleted the addition of Rs.2,97,250/- and confirmed the addition of Rs.5,94,500/- in regard to house tax payment. Therefore, it does not require any interference in the order of the ld. CIT(A). This ground of appeal
is, therefore, dismissed.
11. In respect of ground No. 6 pertaining to deletion of addition of Rs.5,41,622/- made by the AO for unexplained jewellery, we noted from the order of the Assessing Officer that there was 960.05 gms of gold jewellery found in the search. The assessee had filed W.T. return for the assessment year 1989-90 in which she had disclosed 611.00 gms. Of gold and stone amounting to Rs.1400/-, the valuation of which was got valued by the valuer. As per Instruction No. 1916 of the CBDT dated 11.05.1994, 611 ITA No. 3119/Del./2011 14 gms of gold jewellery & stones worth Rs.1400/-, as declared in W.T. return, has been treated as explained in the hands of the assessee and 100 gms. of gold jewellery is treated as explained in the hands of assessee’s son. For the remaining gold jewellery weighing 249.05 gms. and balance diamond stones, the assessee could not produce any evidence as to when the same were purchased or gifted to the assessee. She, however, has stated that she is a widow lady and did not purchase any jewellery since last 10 years and the total jewellery was old. However, the Assessing Officer has valued the remaining gold jewellery @ Rs.8400/- per 10 gms. at Rs.2,09,202. The AO, however, has recorded no reason to justify the rate of unexplained jewellery applied by him. Similarly there is no basis or justification to substantiate the valuation of balance diamond/jewellery. The ld. CIT(A) has treated the total gold jewellery weighing 960.05 gms and diamond jewellery as explained being Stridhan, which in view of the Circular of CBDT is not justified. Therefore, the remaining gold jewellery weighing 249.05 gms. and balance diamond stone/jewellery are liable to be treated as unexplained on the part of the assessee. In the totality of facts and ITA No. 3119/Del./2011 15