IN THE HIGH COURT OF HIMACHAL PRADESH, SHIMLA (1) I.T. Appeal No. 2 of 2000 And (2) I.T. Appeal No. 4 of 2000 Judgment reserved on 1.8.2008 Date of decision: 8.8.2008 (1) The Commissioner of Income Tax …Appellant. Versus Rameshwar Lal Ahuja …Respondent. (2) Rameshwar Lal Ahuja ….. Appellant Versus The Commissioner of Income Tax & another ….. Respondents. Coram The Hon’ble Mr. Justice R.B. Misra, Judge. The Hon’ble Mr. Justice Surjit Singh, Judge. Whether approved for reporting?1 For the appellant: Mr. Hemant Vaid, Advocate (in I.T.Appeal No. 4 of 2000) and Mr. Vinay Kuthiala & Ms. Vandana Kuthiala, Advocates (in I.T. Appeal No. 2 of 2000) For the respondent(s) : Mr. Vinay Kuthiala & Ms. Vandana Kuthiala, Advocates (in I.T. Appeal No. 4 of 2000) and Mr. K.D. Sood, Advocate (in I.T. Appeal No. 2 of 2000). Surjit Singh, Judge 1. These two appeals are directed against the same order of the Income Tax Appellate Tribunal and, therefore, they are being disposed of by a common judgment. One appeal has been filed by the Commissioner of Income Tax and the other one by the assessee, namely Rameshwar Lal Ahuja. 2. Facts relevant for the disposal of the two appeals may be Whether reporters of the local papers may be allowed to see the judgment? …2… noticed. Residential premises of assessee Rameshwar Lal Ahuja were searched and certain seizures were made, as per provision of Section 132 of the Income Tax Act on 21.6.1996. Simultaneously survey under Section 133A of the Income Tax Act was also undertaken in respect of the business premises of M/S Beauty Palace, M/S Unique Hotel and M/S Pushpak Hotel in which the assessee was a partner. On the basis of the material seized during the aforesaid search and seizure operation, a notice under Section 158-BC of the Income Tax Act was issued to the assessee on 3.7.1996 calling upon him to furnish return for the block period 1.4.1986 to 20.6.1996. The assessee did not respond. Reminders were issued but to no avail. Ultimately a questionnaire was sent to the assessee along-with a notice. It was pointed out in the notice that hearing would take place on 5.6.1997 and in case the assessee did not file return, assessment would be done exparte. The assessee did not file return but submitted reply to the questionnaire and appeared along-with a counsel on 5.6.1997 before the Assessing Officer. Assessing Officer passed the order of assessment on 26.6.1997 indicating therein the following undisclosed income and holding the assessee liable to pay a sum of Rs.30,24,756/- on account of tax and also ordering the initiation of penalty proceedings under Section 271 (1) (b) of the Act:- “(i) Addition on account of unexplained cash as per para No. 5 above = Rs.5,61,000/-. (ii) Addition on account of un-explained investment in movable assets as per para No. 6 above = Rs.13,19,563/-. (iii) Investment made in immovable properties as discussed in para No. 7 above = Rs. 5,55,888/- (iv) Addition on account of un-explained investment in immovable properties as discussed in para No. 8 above = Rs. 5,00,927/-. (v) Addition on account of low house-hold expenses as discussed in para No. 10 …3… above = Rs. 8,00,000/-. (vi) Addition on account of marriage expenses as discussed in para No. 11 above = Rs. 2,00,000/-. (vii) Addition on account of investment made in vehicles as discussed in para No. 9 above = Rs. 1,70,000/- (viii) Addition on account of unexplained excess stock found as per para No. 12 above = Rs. 3,16,372/- (ix) Addition as discussed in para No. 13 Above = Rs.10,77,980/- (x) Addition as discussed in point No. 13 on page 7 = Rs.1,20,000/-. Total = Rs.56,21,730/-“ ___________________________________________________ 3. Assessee felt aggrieved by the aforesaid order and filed an appeal before the Income Tax Appellate Tribunal. The Tribunal, vide its order dated 23.9.1999, reduced the amount of undisclosed income from Rs.56,21,730/-, as worked out by the Assessing Officer, to Rs.50,41,260/-. Among others, the Income Tax Appellate Tribunal allowed deduction of Rs.1,50,000/- from the amount of undisclosed deposits, with the observation that in the aforesaid amount of fixed deposits, interest accrued in the past was also embedded. 4. Income Tax Commissioner in his appeal No. 2 of 2000 has challenged only this part of the order of the Appellate Tribunal. It is alleged that there was absolutely no material on record indicating that any amount of interest was embedded in the amount of fixed deposits and in any case the interest received / accrued was also the income of the assessee and hence subject to taxation. 5. Asseessee made various submissions before the Appellate Tribunal. The ones relevant for disposal of the appeal of the assessee pertain to additions on account of house-hold expenses and marriage expenses and deduction on account of interest out of the aggregated …4… amount of fixed deposits. Assessee claimed that he had spent only a sum of Rs.4,50,000/- on house-hold expenses during block period 1.4.1986 to 20.6.1996 and out of that amount a sum of Rs.3,40,507/- had already been shown in the account books to have been withdrawn from two partnership firms, namely Hotel Unique and Beauty Palace and, therefore, only a sum of Rs.1,09,493/- was required to be added on account of house-hold expenses, but the Assessing Officer made an addition of Rs.8,90,000/- on this count. He also claimed deduction of Rs.3,00,000/- on account of accrual of interest on the fixed deposits, which he claimed to have already shown in his regular returns. The Tribunal accepted all the three pleas. It reduced the amount of house-hold expenses from Rs.8,90,000/-, assessed by the Assessing Officer, to Rs.6,00,000/-; expenses on account of marriage from Rs.2,00,000/- to Rs.1,00,000/- and allowed deduction of Rs.1,20,000/- on account of interest accrued on the fixed deposits, which were assumed to be embedded in the total amount of fixed deposits. 6. Assessee’s grievance in the present appeal is that only a sum of Rs.1,09,493/- was required to be added on account of difference between house-hold expenses already shown by way of withdrawals and the actual expenses, nothing was required to be added on account of expenses on the marriage of the daughter of the assessee as a ‘Mamma’ of the daughter of the assessee was lying in a critical condition those days and the marriage was performed without any pomp and show, in a simple manner, by serving tea and meals to the relatives and the members of marriage party at a Gurdwara and expenses even for the tea and the meals were incurred by the Gurdwara Management, of which the assessee was Vice President during those days. It is also alleged that the Tribunal gave benefit of deduction on account of accrual of interest at the rate of Rs.12,000/- per annum and that even at that rate the amount works …5… out at Rs.3,00,000/- and not Rs.1,50,000/-, the amount which has been ordered to be deduced by the Appellate Tribunal. 7. Appeal filed by the Income Tax Commissioner was admitted on the following substantial question of law by this Court, vide order dated 23,5,2999:- ”Whether on the facts and in the circumstances of the case, the ITAT was right in law in allowing relief of Rs.1,50,000/- on account of interest on FDRs treating the same as to be embedded in the investment in FDRs; whereas the interest received / accrued is also a taxable income.” 8. Appeal filed by the assessee was admitted on the following substantial questions of law vide order dated 25.9.2000:- “1. Whether the additions sustained by the learned Appellate Tribunal though no material evidence was found during search and seizure in the appellant case, is legally sustainable? 2. Whether in the facts and circumstances of the case the additions sustained in contravention to Section 158-BB / 158-BC of the Income Tax Act, 1961 particularly when no cogent material evidence was found at the time of search and seizure and that too being first year of the hotel is legally sustainable?” 9. We have heard the learned counsel for the parties and gone through the orders of the Assessing Officer as also the Income Tax Appellate Tribunal. 10. First we take up the appeal filed by the Revenue. Learned counsel representing the appellants drew our attention to the relevant portion of the order of the Appellate Tribunal, which reads as follows:- “The next question is as to whether the assessee is entitled to any benefit out of the income returned / assessed in the block period in relation to the investments in FDRs etc. We feel that the submissions made by the ld. counsel in this …6… regard have some force as the amount invested in the FDRs from year to year is given out of the returned / assessed income. Thus we feel that it will be just and fair to allocate an amount of Rs.1.50 lakhs on account of interest etc. which is embedded in the investment in FDRs.” 11. It is true that from the order of the Appellate Tribunal it is not clear what material, if any, was there before the Tribunal to work out the aforesaid amount of Rs.1,50,000/- on account of accrual of interest and to assume the embedment of the said amount in the aggregated amount of fixed deposits, but during the course of argument it was pointed out by the learned counsel for the respondent that the amount had been worked out by the Tribunal at the rate of Rs.12,000/- per annum, because during the relevant block period income from interest upto Rs.12,000/- per annum, was exempt from income tax. Learned counsel for the appellant did not counter this submission. Under these circumstances, it cannot be said that deduction of Rs.1,50,000/- allowed by the learned Appellate Tribunal on account of interest accrued on the amount of fixed deposits and embedded in the fixed deposits, receipts whereof were recovered during the search, cannot be said to be contrary to law or unjustified. Consequently, we hold that the appeal filed by the Revenue is without merit. 12. As regards the appeal filed by the assessee, no material was placed before us indicating that the additions on account of house-hold expenses and marriage expenses, particularly sustained by the Tribunal, are not justified. The Assessing Officer in his order has observed that the family of the assessee consists of his wife, two daughters and two sons and that his children had been studying in reputed schools of Shimla town and paying handsome amount of money on account of fee. The Assessing Officer also observed that the assessee maintained high …7… standard of living and enjoyed good social status. It has also been observed by the Assessing Officer that the assessee maintains vehicles for personal use of his children. Under these circumstances, addition to the tune of Rs.6,00,000/- on account of house-hold expenses, as sustained by the Appellate Tribunal, cannot be said to be on the higher side, especially when the assessee has not disputed that his children had been studying in reputed schools, he maintains high standard of living and the vehicles maintained by him are used by his children also for their personal use. 13. As regards addition of Rs.1,00,000/- on account of marriage expenses, it is not denied that the assessee married of his daughter during the block period, in question. The Assessing Officer in his order has observed that the assessee himself disclosed that two marriages of the children of the partners of various business concerns, in which the assessee is partner, were performed during the block period, in question, and that a sum of Rs.1,93,000/- had been spent on those marriages. The assessee does not deny having made such admission. Now, if according to assessee’s own saying the amount of Rs.1,93,000/- had been spent on two marriages and one of those two marriages was the marriage of assessee’s own daughter, no fault can be found with the order of the Assessing Officer, as modified by the Appellate Tribunal, regarding addition of Rs.1,00,000/- to the undisclosed income of the assessee on account of marriage expenses of his daughter. 14. It is stated in the grounds of appeal that the Tribunal has allowed deduction on account of interest accrued and embedded in the fixed deposits at the rate of Rs.12,000/- per annum and that at this rate the figure works out at Rs.3,00,000/- for the block period and not just Rs.1,50,000/-. …8… 15. The plea is without merit. The block period, in question, consists of ten years and a few months. At the rate of Rs.12,000/- per annum the amount of interest comes to Rs.1,20,000/- only and not Rs.3,00,000/- as is stated in the grounds of appeal. So the appellant / assessee is not entitled to any further deduction on account of the amount of interest accrued and embedded in the fixed deposits, during the block period, in question. Otherwise also, the aforesaid contentions raised by the assessee do not constitute any substantial question of law. 16. Another substantial question of law, on which the appeal of the assessee was admitted, is that in the absence of any cogent material evidence found during search and seizure operation, no addition ought to have been made on account of income from the hotel, especially when it was the first year of the functioning of the hotel. 17. We have carefully gone through the order of the Assessing Officer. We do not find any addition in the income of the assessee on account of income from any hotel. In fact there is an addition of Rs.3,16,372/- on account of excess stock found in the business premises of the assessee known as M/S Beauty Palace. According to inventory of stock, items worth Rs.8,38,695/- were found in the hotel, whereas in the books of account the value of such items was shown as Rs.5,22,323/-. Therefore, the difference between the two amounts was added as value of the excess stock. Thus, this alleged substantial question of law, in fact, does not arise. 18. For the foregoing reasons, appeal filed by the assessee is also held to be without merit. 19. As a sequel to the above discussion, both the appeals are dismissed. ( Surjit Singh ) ( R.B. Misra ) Judge Judge August 8, 2008 (BC) …9… IN THE HIGH COURT OF HIMACHAL PRADESH, SHIMLA I.T. Appeal No. 4 of 2000 Judgment reserved on 1.8.2008 Date of decision: 8.8.2008 (1) Rameshwar Lal Ahuja …Appellant. Versus The Commissioner Income Tax and another …Respondents. Coram The Hon’ble Mr. Justice R.B. Misra, Judge. The Hon’ble Mr. Justice Surjit Singh, Judge. Whether approved for reporting?2 For the appellant: Mr. Hemant Vaid, Advocate. For the respondent(s): Mr. Vinay Kuthiala & Ms. Vandana Kuthiala, Advocates. Surjit Singh, Judge For judgment see judgment rendered in I.T. Appeal No. 2 of 2000 (Commissioner of Income Tax versus Rameshwar Lal Ahuja). ( Surjit Singh ) ( R.B. Misra ) Judge Judge August 8, 2008 (BC) Whether reporters of the local papers may be allowed to see the judgment?