Case Law Details

Case Name : Assistant Commissioner of Income-tax Vs Smt. Sula Jayakumar (ITAT Cochin)
Appeal Number : IT (SS) Appeal no. 187 (coch.) of 2005
Date of Judgement/Order : 14/09/2012
Related Assessment Year :
Courts : All ITAT (4771) ITAT Cochin (69)

IN THE ITAT COCHIN BENCH

Assistant Commissioner of Income-tax

Versus

Smt. Sula Jayakumar

IT (SS) Appeal no. 187 (coch.) of 2005
[BLOCK PERIOD 1-4-1996 TO 28-5-2002]

SEPTEMBER  14, 2012

ORDER

B.R. Baskaran, Accountant Member 

The appeal of the Revenue and the cross-objection filed by the assessee are directed against the order dated August 10, 2005 passed by the learned Commissioner of Income-tax (Appeals)-1, Kochi and they relate to the block period ending May 28, 2002.

2. The facts relating to the case are stated in brief. The assessee is the managing trustee of a trust named M/s. Sabarigiri Trust. The said trust runs a high school at a place called Anchal. The assessee is operating a boarding hostel for the students of a residential school run by a society named M/s. Sabarigiri Educational and Cultural Society. The said society is managed by her husband, Shri V. K. Jayakumar. The Department carried out search and seizure operations in the hands of Shri V. K. Jayakumar. During the course of search, certain incriminating documents pertaining to the assessee herein were seized. Consequently, a notice under section 158BC read with section 158BD was issued to the assessee on December 12, 2002. Since the block period was wrongly mentioned in the said notice as “April 1, 1996 to June 18, 2002”, a corrigendum was issued on August 8, 2003 correcting the block period as “April 1, 1996 to May 28, 2002”. The dated May 28, 2002 is the date of commencement of the search and the dated June 18, 2002 is the date of conclusion of search.

3. The assessee filed her block return on June 19, 2003 declaring an undisclosed income of Rs. 11,90,580. The assessee also filed cash flow statements explaining various investments. The assessee had filed her regular returns of income relating to the assessment years 1999-2000 to 2001-02 prior to the date of search. The returns of income relating to the assessment years 2002-03 was filed subsequent to the date of search. The Assessing Officer determined the undisclosed income at Rs. 29,05,113 in the block assessment proceeding by making various additions. The assessee challenged the said additions before the learned Commissioner of Income-tax (Appeals) and got partial relief. Hence, both parties are in appeal before us on the issues decided against each of them.

4. We shall take up the appeal filed by the Revenue, wherein the relief granted by the learned Commissioner of Income-tax (Appeals) on the following additions are being disputed.

(Rs.)

(a)

Cash from boarding hostel

5,31,755

(b)

Chitty receipts

89,192

(c)

Marriage gifts

1,00,000

(d)

Interest accrued on bank deposits

1,97,713

(e)

Peak investment in savings bank

14,82,089

(f)

Investment in Gokulam Chit Funds.

(g)

Applicability of surcharge to be levied under section 113 of the Act.

5. The first issue in the appeal of the Revenue relates to the deletion of Rs.5,31,755 relating to the cash received from boarding hostel. In the cash flow statement, the assessee had shown withdrawals of cash from the book of boarding hostel. The Assessing Officer held that the following withdrawals could not be explained with reference to the books of account and treated the same as the undisclosed income of the assessee.

(Rs.)

1997-98

1,00,743

1998-99

2,27,500

1999-00

2,03,512

Total

5,31,755

6. Before the learned Commissioner of Income-tax (Appeals), the assessee proved that these withdrawals are reflected in the books of account and also shown in the balance-sheets filed along with the returns of income of the respective years. The learned Commissioner of Income-tax (Appeals) verified the relevant balance-sheets and noticed that the Assessing Officer has not properly examined the record. Accordingly, the learned Commissioner of Income-tax (Appeals) did not find any reason to treat the abovesaid sums as the undisclosed income of the assessee.

7. It is a well-settled that the undisclosed income under Chapter XIV-B of the Act has to be computed on the basis of search materials. It is also well settled that any income which has already been either recorded in the books of account or otherwise disclosed to the Department prior to the date of search cannot be treated as “undisclosed income” of an assessee. In the instant case, the learned Commissioner of Income-tax (Appeals) has given a clear finding that the abovesaid withdrawals have been declared in the balance-sheets filed along with the returns of income, which were filed prior to the date of search. Hence, in our view, the learned Commissioner of Income-tax (Appeals) was right in law in holding that the said withdrawals cannot be treated as the undisclosed income of the assessee.

8. The next issue relates to the addition of Rs. 89,192 relating to chitty receipts. The assessee had shown the abovesaid chitty receipts in the cash flow relating to the year ending March 31, 1999. The Assessing Officer treated the same as the undisclosed income of the assessee on the ground that no evidence was produced to prove the said receipt. However, the learned Commissioner of Income-tax (Appeals) noticed that the assessee had declared the chit fund contributions and the receipts in her capital account filed along with the return of income filed for the assessment year 1999-2000. Since the relevant chitty transactions have already been disclosed to the Department prior to the date of search, we do not find any infirmity in the decision of the learned Commissioner of Income-tax (Appeals) in deleting this addition.

9. The next issue relates to the enhancement of relief relating to marriage gifts by Rs. 1 lakh. In the cash flow statement filed for the year ending March 31, 2002, the assessee had shown gift receipts to the tune of Rs.4,77,500 on the occasion of marriage of her daughter named Smt. Divya. The Assessing Officer considered the gift amount as excessive and accordingly accepted a sum of Rs. 1 lakh only as receipt of marriage gifts. Accordingly the difference of Rs. 3,77,500 was treated as the undisclosed income of the assessee. The learned Commissioner of Income-tax (Appeals) enhanced the acceptable amount of gift to Rs. 2 lakhs and accordingly sustained the addition to the extent of Rs. 2,77,500.

10. Before us as well as before the learned Commissioner of Income-tax (Appeals), the assessee submitted that the Assessing Officer wanted confirmation for bigger amounts of gifts only and accordingly, a detailed list showing the name, address and amount was duly furnished before the Assessing Officer. However, the Assessing Officer has made a disallowance of Rs. 3,77,500 and the learned Commissioner of Income-tax (Appeals) has restricted the said disallowance to Rs. 2,77,500. It is to be noted here that the assessee is seeking deletion of this addition also in the cross-objection filed by her.

11. The receipt of donations on the occasion of marriage is not denied. The issue pertains to the quantum of receipt. The assessee has claimed a sum of Rs. 4,77,500 as gift receipts. The Assessing Officer has restricted the same to Rs. 1 lakh and the learned Commissioner of Income-tax (Appeals) has enhanced it to Rs. 2 lakhs. In the paper book filed before us, the assessee has furnished the details of donors and also confirmation letters obtained from some of the donors. However, the assessee did not obtain the confirmation letters from all the donors. Hence, on a conspectus of the matter, we are of the view that it would meet the ends of justice if the gift amount is determined at Rs. 3,50,000. We order accordingly. The order of the learned Commissioner of Income-tax (Appeals) is modified to the extent stated above. The Assessing Officer is directed to restrict the addition on this issue to Rs. 1,27,500. The ground raised by the assessee in her cross-objection on this issue is also disposed of in terms of the discussions made above.

12. The next issue in the appeal of the Revenue relates to the addition of Rs.1,97,713 pertaining to the interest accrued on bank deposits. The assessee filed the return of income pertaining to the assessment year 2002-03 and for the period from April 1, 2002 to May 28, 2002 (date of search) subsequent to the date of search. The assessee had declared the amount of interest accrued on the deposits made by her in those returns. Since the returns of income referred to the above were filed after the date of search, the interest income declared therein amounting to Rs. 1,97,713 was treated as the undisclosed income of the assessee. The learned Commissioner of Income-tax (Appeals) deleted the said addition by following the decisions in the case of CIT v. Nitin Munje [2003] 264 ITR 628  and Amar Nath Aggarwal v. Dy. CIT [2000] 67 TTJ (Delhi) 551.

13. We notice that the assessee had been regularly declaring the interest accrued on deposits even in the returns of income filed prior to the date of search, meaning thereby, the relevant deposits stand already disclosed to the Department. In that factual situation, in our view, the Assessing Officer cannot consider the interest accrued during the year ending March 31, 2002 and also from April 1, 2002 to May 28, 2002 solely on the ground that the returns of income for the above said periods were filed subsequent to the date of search. Accordingly, we uphold the order of the learned Commissioner of Income-tax (Appeals) on this issue.

14. The next issue relates to the addition of Rs. 14,82,089 pertaining to peak deposits found in the savings bank accounts. The assessee reflected the savings bank accounts maintained by her in the cash flow statements. The Assessing Officer noticed that some of the bank accounts are not reflected by the assessee in her cash flow statements. Accordingly he treated the peak credits found in the following bank accounts as the undisclosed income of the assessee.

(a)

Federal Bank

Account No. 2223

(b)

IOB

Account No. 2610

(c)

Kollam Distt. Co-op. Bank

Account No. 9044

(d)

SBT, Anchal

Account No. 10438

(e)

Anchal Service Co-op. Bank

Account No. 7126

15. Before the learned Commissioner of Income-tax (Appeals), it was pointed out that the bank accounts maintained with Kollam Dist. Co-op. Bank and Anchal Service Co-op. Bank actually belong to Sabarigiri Trust and they have been reflected in its books of account. It was further stated that the other three bank accounts have been reflected by the assessee in her books of account and also in the cash flow statements. Accordingly, the learned Commissioner of Income-tax (Appeals) held that there is no necessity to work out the peak credit when these accounts have already been disclosed to the Department.

16. On a perusal of paragraph (10.a) of the assessment order, we notice that the Assessing Officer himself has observed that the assessee has disclosed the total deposits (Rs. 6,59,609) and total withdrawals (Rs. 6,96,246) made/ drawn from the Federal bank (Account No. 2223) in the cash flow statements. Still the Assessing Officer has considered the peak credit amount of Rs. 4,34,246 in this bank account as the undisclosed income of the assessee. When the assessee has already disclosed the transactions in the bank accounts to the Department, there is no necessity to consider the peak credit alone for assessment purposes. The learned Commissioner of Income-tax (Appeals) has also given clear finding that the two bank accounts referred to supra actually belong to M/s. Sabarigiri Trust and hence the said bank accounts cannot be considered for the purpose of assessment in the hands of the assessee. In view of the above, we agree with the decision reached by the learned Commissioner of Income-tax (Appeals) on this issue.

17. The next issue relates to the addition pertaining to subscriptions made in chittys of Gokulam Chit Fund. The Assessing Officer made an addition of Rs.14,23,024 pertaining to the subscriptions made in Gokulam Chitty. The assessee contended before the Assessing Officer that these chitties were subscribed by M/s. Sabarigiri Trust and they have been reflected in its books of account. However, the Assessing Officer noticed that the trust account did not contain the chitty account number and accordingly held that the impugned subscriptions could not be correlated in the absence of the account numbers. Accordingly he made an addition of Rs. 14,23,024 relating to chitty subscriptions. Before the learned Commissioner of Income-tax (Appeals), the assessee filed evidences in support of her claim that these chitties belong to M/s. Sabarigiri Trust. Accordingly, the learned Commissioner of Income-tax (Appeals) directed the Assessing Officer to verify the claim of the assessee and recomputed the addition after excluding the chitties which were already disclosed either by the assessee or her husband or the trust. Before us, the Department is contending that the learned Commissioner of Income-tax (Appeals) has set aside the matter to the file of the Assessing Officer, which he is not entitled to do.

18. There cannot be any dispute that the income already disclosed to the Department shall not form part of undisclosed income. Technically, the action of the learned Commissioner of Income-tax (Appeals) may be wrong, however, we notice that the Assessing Officer has also made the impugned addition without making proper verification, simply because certain details are missing in the narration recorded in the books of account. Under these circumstances, the claim of the assessee could be allowed, provided somebody had examined the said claim. Accordingly, we direct the Assessing Officer to examine the claims made by the assessee on this issue and take appropriate decision in accordance with law.

19. The last issue in the appeal of the Revenue relates to the levying of surcharge under section 113 of the Act. The learned Commissioner of Income-tax (Appeals) has deleted the surcharge by holding that the provisions of section 113 shall have prospective operation. However, this issue has since been settled by the hon’ble Supreme Court in the case of CIT v. Suresh N. Gupta, wherein it is held that the surcharge is leviable. Accordingly, we set aside the order of the learned Commissioner of Income-tax (Appeals) on this issue.

20. Now, we shall take up the cross-objection filed by the assessee. In grounds numbered as 1 to 6, the assessee has raised various legal grounds. We have carefully considered the order of the learned Commissioner of Income-tax (Appeals) on the said legal issues and we do not find any infirmity in his decision on them. Accordingly, we reject all the legal grounds raised by the assessee.

21. In ground number 7, the assessee is assailing the decision of the learned Commissioner of Income-tax (Appeals) in sustaining the addition of Rs.20,000 pertaining to LIC survival benefits. In the cash flow statement, the assessee has shown a receipt of Rs. 20,000 as the amount received from LIC on the insurance policy. However, the assessee could not produce any document in support of the said claim. Hence the Assessing Officer treated the above said amount of Rs. 20,000 as the undisclosed income of the assessee and the learned Commissioner of Income-tax (Appeals) confirmed the same. Before us also, the assessee has filed copies of letter received from LIC and also a copy of relevant cheque leaf. According to the learned authorised representative, the assessee has filed the said documents before the Assessing Officer. Since the Assessing Officer has taken a stand that the assessee has failed to substantiate the claim of receipt of LIC amount of Rs. 20,000, we are of the view that the claim of the assessee needs to be examined afresh in the light of documents filed before us. Accordingly, we set aside the order of the learned Commissioner of Income-tax (Appeals) on this issue and restore the same to the file of the Assessing Officer with the direction to examine the claim of the assessee in the light of documents filed before us and also in the light of any other document that may be filed by the assessee before him and take appropriate decision in accordance with law.

22. The last issue in the cross-objection filed by the assessee relates to the marriage gifts. This ground has already been disposed of by us while dealing with the appeal filed by the Revenue.

23. In the result, the appeal of the Revenue and the cross-objection of the assessee are treated as partly allowed for statistical purposes.

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One response to “Income disclosed prior to search cannot be treated as undisclosed income”

  1. waris ali says:

    Income received but forgotten to disclose in PL and TDS also deducted but not claim on the same.
    What to do
    should i go for revised return…?

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