IT : Where details of properties had already been disclosed to department under VDIS,

addition on account of unaccounted investments made in immovable properties was to

be deleted

IT : While determining undisclosed income, under investment method depreciation was

admissible as deduction against income so determined; assessee was justified in
taking written down value of vehicles instead of taking cost thereof

IT : In absence of any material to contradict stock valuation at cost shown by assessee,

addition based on selling price was to be deleted

IT : Since ladies in indian families normally possess quantity of jewelleries as was

found in search and assessee declared investments in gold and silver articles in VDIS,
value of gold and silver would not be includible in undisclosed income

IT : Where liability towards creditors were collated from seized material only and
Assessing Officer did not bring any material on record to disapprove claim of
assessee, disallowance of liability towards sundry creditors was not justified

IT : Where addition made by Assessing Officer towards insufficient drawings was

based on estimated basis without making reference to any seized materials, addition
was to be deleted

■■■

[2015] 60 taxmann.com 77 (Chennai - Trib.)

IN THE ITAT CHENNAI BENCH 'A'

Assistant Commissioner of Income-tax

v.

Kandasamy Sah*

B.R. BASKARAN, ACCOUNTANT MEMBER

AND VIKAS AWASTHY, JUDICIAL MEMBER

IT (SS) APPEAL NO. 20 (MDS.) OF 2012

JANUARY 23, 2015

I. Section 69, read with sections 132 and 158BC, of the Income-tax Act, 1961 - Unexplained
investments (Immovable properties) - Assessee had already declared all related immovable
assets in VDIS declarations filed by him much earlier to date of search - However, assessee
failed to pay full tax before due date prescribed under VDIS and, hence, VDIS certificate was
issued only to extent of tax paid by assessee - Whether since details of all properties had
already been disclosed to department under VDIS, it could not be said that department came in
possession of any information which it did not possess earlier - Held, yes - Whether, therefore,
order of Commissioner (Appeals) could not interfered with - Held, yes [Para 7] [In favour of
assessee]

II. Section 69, read with sections 132 and 158BC, of the Income-tax Act, 1961 - Unexplained
investments (Value of vehicles) - While determining undisclosed income, for computing value of
vehicles, assessee had taken written down value instead of taking cost thereof - Assessing
officer took view that depreciation was admission only if undisclosed income was computed
under income method and not under investment method - Accordingly, Assessing Officer
adopted value of vehicles at cost - Commissioner (Appeals) held that depreciation was
admissible as deduction against income determined even under investment method - It was
noted whether investment method is one of methods of computing total income and hence,
even if value of vehicles is taken at cost, depreciation would be allowed separately and if value
of vehicles was taken at written down value, depreciation was deemed to have been allowed -
Held, yes - Whether, therefore, order of Commissioner (Appeals) was to be upheld - Held, yes
[Para 9] [In favour of assessee]

III. Section 69, read with sections 132 and 158BC, of the Income-tax Act, 1961 - Unexplained
investments (Value of Stock) - During course of search proceeding, assessee's statement was
recorded and based on that value of stock was determined at Rs. 12.86 lakhs - However,
assessee had taken value of stock at Rs. 10.58 lakhs in his computation - Assessing Officer
assessed difference as undisclosed income - Assessee contended that Assessing Officer had
taken value of stock at selling price whereas he had taken value of stock at cost price - There
was no dispute that stock was normally valued at cost or market price whichever was lower -
Though assessee might have admitted value determined by search officials based on statement
taken at time of search, yet he found out mistake and corrected same at time of filing block
return - Whether in absence of any other material to contradict stock valuation at cost shown by
assessee, addition was to be deleted - Held, yes [Para 11] [In favour of assessee]

IV. Section 69, read with sections 132 and 158BC, of the Income-tax Act, 1961 - Unexplained
investments (Jewelleries) - During course of search, it was found that assessee was in
possession of 2283.80 grams of gold and 3038.80 grams of silverware - In addition to that,
assessee had gifted 1878.70 grams of gold and 9010 grams of silverware to his daughter at time
of her marriage - Assessing Officer gave a deduction for 500 grams of gold and assessed
balance quantity of gold and entire quantity of silver as undisclosed income of assessee -
Assessee contended that gold and silver articles belonged to his mother, his spouse and also
gold declared under Voluntary Disclosure of Income Scheme (VDIS) - Whether since ladies in
Indian families normally possess quantity of jewelleries as was found in search and assessee
declared investments in gold and silvar articles in VDIS, value of gold and silver would not be
includible in undisclosed income - Held, yes [Paras 14 & 15] [In favour of assessee]

V. Section 69, read with sections 132 and 158BC, of the Income-tax Act, 1961 - Unexplained
investments (Sundry creditors) - While computing undisclosed income of assessee, Assessing
Officer disallowed deduction of liability towards sundry creditors - Assessee had pointed out
that liability towards creditors were collated from seized material only and also linked
outstanding liability with specific seized material - Whether since Assessing Officer did not
bring any material on record to disaprove claim of assessee, disallowance of liability towards
sundry creditors was not justified - Held, yes [Para 17] [In favour of assessee]

VI. Section 69, read with sections 132 and 158BC, of the Income-tax Act, 1961 - Unexplained
investments (Insufficient drawings) - Whether addition made by Assessing Officer towards
insufficient drawings was based on estimation without making reference to any seized
materials, addition was to be deleted - Held, yes [Para 18] [In favour of assessee]

CASE REVIEW

CIT v. Naveen Gera [2010] 328 ITR 516/[2011] 198 Taxman 93 (Mag.) (Delhi) (para 7) followed.
CASES REFERRED TO

CIT v. R. Selvaraj [2013] 85 CCH 198 (Mad.) (para 5), Asstt. CIT v. A.R. Enterprises [2013] 350 ITR
489/212 Taxman 531/29 taxmann.com 50 (SC) (para 5) and CIT v. Naveen Gera [2010] 328 ITR 516/
[2011] 198 Taxman 93 (Mag.) (Delhi) (para 6).

Ruby George for the Appellant. T. Vasudevan, Adv. for the Respondent.

ORDER

B.R. Baskaran, Accountant Member - The Revenue is aggrieved by the order dated March 30, 2012
passed by the learned Commissioner of Income-tax (Appeals)-I, Chennai in respect of block
assessment order passed for the block period ending September 14, 2000, wherein the learned
Commissioner of Income-tax (Appeals) has granted relief to the assessee on the following issues.

(a) Unaccounted investment in immovable properties.

(b) Addition relating to vehicles.

(c) Unaccounted investment in stock-in-trade.

(d) Unaccounted investment in jewellery.

(e) Telescoping of sundry creditors balance.

(f) Addition relating to low drawings.

2. The assessee is in the business of purchase and sale of zari, silk sarees and other handloom
products under the name and style "K.S.B. Silks" at Kancheepuram. The Revenue carried out search
and seizure operation under section 132 of the Act in the hands of the assessee on September 14,
2000, consequent to which the block assessment was framed by the Assessing Officer under section
158BC of the Act determining undisclosed income at Rs. 1,05,91,555, vide block assessment order
dated December 31, 2002. The assessee challenged the same by filing an appeal before the learned
Commissioner of Income-tax (Appeals) and the same was partly allowed. Aggrieved by the relief
granted by the learned Commissioner of Income-tax (Appeals), the Revenue has preferred this appeal
before us.

3. The first issue relates to the addition made on account of unaccounted investments made in
immovable properties. In the block assessment proceedings, the Assessing Officer listed out the
immovable properties purchased by the assessee and arrived at the value of undisclosed properties at
Rs. 41,30,690. However, the assessee contended that these properties were duly disclosed by him
under VDIS scheme and in support of the same he produced the necessary documents. The Assessing
Officer noticed that the VDIS certificates was issued by the Commissioner only to the extent of Rs.
5,33,334 and hence agreed with the contentions of the assessee only to the extent of the abovesaid
amount and assessed the balance amount of Rs.35,97,357 as undisclosed income of the assessee.

4. It is pertinent to note that the assessee had filed the VDIS declaration on December 29, 1997, i.e.,
much before the date of search wherein all the investments made in the immovable properties had
been disclosed to the Department. However, the assessee appears to have failed to pay the full tax
before the due date prescribed under the VDIS scheme and hence the VDIS certificate was issued only
to the extent of tax paid by the assessee. Hence, the assessee contended before the learned
Commissioner of Income-tax (Appeals) that he had already disclosed all the immovable assets to the
Department through the VDIS scheme and non-acceptance of the same on technical reasons would not
make the same as "undisclosed assets". Accordingly it was contended that the Department should
have proceeded to assess those assets under regular assessment proceedings and the same cannot
be considered as "undisclosed income" under block assessment proceedings. The learned
Commissioner of Income-tax (Appeals) was convinced with the contentions of the assessee and
accordingly deleted the addition.

5. Before us, the learned Departmental representative placed strong reliance on the assessment order.
The learned Departmental representative further placed reliance on the decision rendered by the
hon'ble Madras High Court in the case of CIT v. R. Selvaraj [2013] 85 CCH 198 Chen HC in order to
contend that the details found in the VDIS declaration can be used by the Assessing Officer. The
learned Departmental representative further placed reliance on the decision rendered by the hon'ble
Supreme Court reported in Asstt. CIT v. A. R. Enterprises [2013] 350 ITR 489/212 Taxman 531/29
taxmann.com 50 and submitted that the hon'ble apex court has held that the advance tax payment and
TDS deduction would not make the income represented by those payments as disclosed ones.

6. On the contrary, the learned authorised representative placed strong reliance on the submissions
made before the learned Commissioner of Income-tax (Appeals). He further submitted that the decision
was rendered by the hon'ble jurisdictional High Court in the case of R. Selvaraj (supra), in the context
of reopening of assessment and hence the same is not applicable to the block assessment
proceedings, which is a separate code by itself. With regard to the decision of the hon'ble Supreme
Court referred to above, the learned authorised representative submitted that the same was rendered in
the context of advance tax and TDS amounts and hence the same also shall not have application to the
facts of the instant case. The authorised representative also submitted that the view taken by the first
appellate authority finds support from the decision of the hon'ble Delhi High Court in the case of CIT v.
Naveen Gera [2010] 328 ITR 516/[2011] 198 Taxman 93 (Mag.) (Delhi).

7. Having heard the rival contentions, we are of the view that there is merit in the contentions of the
assessee. First of all, the assessee has declared all the impugned immovable assets in the VDIS
declarations filed by him, much earlier to the date of search. The entire quantum of declaration was not
accepted due to technical reasons, i.e., non-payment of entire amount of tax before the due date.
Under these set of facts, the right course that was available to the Department was to assess those
income, i.e., that was not covered by the VDIS certificate, by reopening the assessments under section
148 of the Act. It appears that the Department has failed to assess those income under section 148 of
the Act. In our considered view, the Department is not entitled to make good its failure by assessing
those assets under block assessment proceedings, since the block assessment made under Chapter
XIV is a complete code by itself and it is well settled proposition that the regular assessment
proceedings and block assessment proceedings are parallel to each other and can be taken up
simultaneously. We notice that the case law relied upon by the Revenue have been rendered under
different contexts. On the contrary, the decision rendered by the hon'ble Delhi High Court in the case of
Naveen Gera (supra) is applicable to the facts of the instant case, i.e., the hon'ble Delhi High Court has
held that, if the details of the properties already disclosed to the Department under VDIS, then it cannot
be said that the Department came in possession of any information which it did not possess earlier.
Hence, we are in agreement with the view expressed by the learned Commissioner of Income-tax
(Appeals) on this issue.

8. The next issue relates to the addition made in respect of vehicles. The learned Departmental
representative submitted that the undisclosed income of the assessee was computed under investment
method. While taken the value of vehicles, the assessee had taken the written down value of vehicles
at Rs. 4,14,690, instead of taking the cost thereof. The learned Departmental representative submitted
that the Assessing Officer took the view that the depreciation is admissible only if the undisclosed
income is computed under the income method. Accordingly the Assessing Officer adopted the value of
vehicles at cost at Rs. 9,10,476. The learned Commissioner of Income-tax (Appeals), however, held
that the depreciation is admissible as deduction against income determined even under "investment"
method also.

9. We heard the parties on this issue. There should not be any dispute that the depreciation is a
statutory deduction and the same is allowable as deduction while computing the total income. Further
the depreciation is a non-cash expenditure. The total income may be computed under different
methods and the "investment" method is only method of computing the total income. Hence, even if the
value of vehicles is taken at cost, the depreciation should be allowed separately. However, if the value
of vehicles is taken at written down value, then the depreciation is deemed to have been allowed.
Hence, we agree with the decision rendered by the learned Commissioner of Income-tax (Appeals) on
this issue and accordingly uphold the same.

10. The next issue relates to the unaccounted investment in stock-in-trade. During the course of search
proceedings, the physical verification of stock was carried out and the value of stock was determined at
Rs. 12,86,021. However, the assessee has taken the value of stock at Rs. 10,57,990 in his
computation. Hence the Assessing Officer, in effect, assessed the difference between the two figures
amounting to Rs. 2,28,031 as undisclosed income of the assessee, since he took the value of stock at
Rs. 12,86,021. The assessee contended before the learned Commissioner of Income-tax (Appeals)
that the search parties have taken the value of stock at "tag price", i.e., at selling price, whereas, he has
taken the value of stock at cost price. In the remand report, the Assessing Officer submitted that the
assessee had accepted the value determined by the search officials in the statement recorded and
accordingly contended that the said value only should be assessed. However, the learned
Commissioner of Income-tax (Appeals) was convinced with the contentions of the assessee and
accordingly directed that the addition of Rs. 2,28,031 (mentioned as Rs. 2,28,061) should be deleted.

11. We heard the parties on this issue and perused the record. We notice that the Assessing Officer has
simply placed reliance on the sworn statement given by the assessee at the time of search, wherein the
assessee had accepted the value of Rs. 12,86,021. However, the assessee has pointed out that the
abovesaid value was determined on the basis of selling price, whereas the cost price of those goods
actually work out to Rs. 10,57,990. There should not be any dispute that the value of stock is normally
valued at cost or market price, whichever is lower. Though the assessee might have admitted the value
determined by the search officials in the statement taken at the time of search, yet he has found out the
mistake and corrected the same at the time of filing block return. In our view, the mistake pointed out by
the assessee in the valuation taken by the search officials cannot be ignored. In the absence of any
other material to contradict the stock valuation (at cost) shown by the assessee, we are of the view the
same should be adopted. Hence, we do not find any infirmity in the order of the learned Commissioner
of Income-tax (Appeals) on this issue also.

12. The next issue relates to the undisclosed investment in jewellery and silver articles. During the
course of search, the assessee was found in possession of 2,283.800 grams of gold and 3038.800
grams of silverware. In addition to the above, it was noticed that the assessee has gifted 1878.700
grams of gold and 9,010 grams of silverware to his daughter at the time of her marriage. The Assessing
Officer gave a deduction for 500 grams of gold and assessed the balance quantity of gold weighing
3,662.500 grams (2283.800 + 1878.700 (-) 500) and the entire quantity of silver (3038 + 9010) as
undisclosed income of the assessee.

13. Before the learned Commissioner of Income-tax (Appeals), the assessee contended that the gold
jewelleries found at the time of search included the gold jewelleries belonging to his mother (500 gms),
his spouse (350 gms) and also the gold declared under VDIS scheme (250 gms). The assessee also
claimed that he had received gifts of gold on naming ceremony and birthdays (250 gms). The learned
Commissioner of Income-tax (Appeals) accepted the contentions of the assessee with regard to the
gold jewellery belonging to mother, spouse and that declared under VDIS scheme. However, he did not
accept the claim of receipt of gift during naming ceremony and birthdays.

14. Considering the fact that the learned Commissioner of Income-tax (Appeals) has granted relief to
the extent of gold belonging to the mother and spouse of the assessee and also that declared under
VDIS scheme, we do not find any infirmity in his order, since the ladies in the Indian families normally
possess jewelleries to that extent. Accordingly, we approve his order on this issue.

15. In respect of the silver articles also, the learned Commissioner of Income-tax (Appeals) gave relief
in respect of silver items belonging to the assessee's mother (2500 gms), spouse (3750 gms) and that
declared under VDIS scheme (1000 gms). The learned Commissioner of Income-tax (Appeals) did not
accept the claim of receipt of gifts (1500 gms) by the assessee. It is customary for the ladies in the
Indian families to possess silver articles. Considering the quantity of the silver articles accepted in the
hands of each of the member of family, we do not find any infirmity in the order of the learned
Commissioner of Income-tax (Appeals) on this issue also and accordingly uphold the same.

16. The next issue relates to the addition relating to sundry creditors. The Assessing Officer did not
accept the claim of deduction of liability towards sundry creditors to the tune of Rs. 22,91,570. Before
the learned Commissioner of Income-tax (Appeals), it was submitted that the Assessing Officer has
accepted the sundry debtors balance declared by the assessee, but rejected the claim of liability
towards sundry creditors. It was further submitted that the sundry debtors balance represent credit
sales and sundry creditors balance represent credit purchases. Accordingly it was submitted that the
sales could not have been made without effecting purchases. The assessee also submitted that both
the sundry debtors and sundry creditors balance were reflected in the books of account found at the
time of search. Before the learned Commissioner of Income-tax (Appeals), the assessee also furnished
the details of relevant seized document, wherein the liability towards sundry creditors were noted down.
Convinced with the contentions of the assessee, the learned Commissioner of Income-tax (Appeals)
directed the Assessing Officer to consider the liability towards sundry creditors, which was required to
be deducted from the aggregate amount of investments for arriving at the income.

17. We heard the parties on this issue. We have already noticed that the undisclosed income of the
assessee was computed under "investment method". While computing the income under this method,
the loans and ascertained liabilities are required to be deducted from the aggregate value of assets for
the purpose of arriving at the income. The assessee has pointed out that the liability towards creditors
are collated from the seized material only and the assessee has also linked the outstanding liability with
specific seized material. However, it is seen that the Assessing Officer did not bring any material on
record to disprove the claim of the assessee. We notice that the learned Commissioner of Income-tax
(Appeals) has observed that the Assessing Officer was not correct in ignoring the seized materials in
selective manner, i.e., the view of the learned Commissioner of Income-tax (Appeals) was that the
seized materials should be given due credence in toto, unless contrary is shown. We agree with the
legal position expressed by the learned Commissioner of Income-tax (Appeals). Further, the Assessing
Officer has also failed to contradict the claim made by the assessee in this regard. Hence, we agree
with the view expressed by the learned Commissioner of Income-tax (Appeals) on this issue also.

18. The last issue relates to the addition made towards insufficient drawings. It is an admitted fact that
the Assessing Officer has made this addition on estimated basis without making reference to any of the
seized materials. It is a well settled proposition of law that the block assessment can be made only on
the basis of seized materials. Apart from this legal position, we notice that the learned Commissioner of
Income-tax (Appeals) has also taken into consideration about the fact that the assessee was residing in
a rural place, where the cost of living is generally low vis-a-vis the metro cities. Hence, in our view, the
learned Commissioner of Income-tax (Appeals) was justified in deleting this addition made only on
estimated basis and not with reference to any seized material.

19. In the result, the appeal filed by the Revenue is dismissed.

RAHUL

*In favour of assessee.