JODHPUR BENCH DEPUTY RAJ KUMAR COMMISSIONER OF v. AGARWAL INCOME TAX March 3, 2006 JUDGMENT DEPUTY COMMISSIONER OF INCOME TAX vs. RAJ KUMAR AGARWAL* ORDER r.s. syal, a.m.: These two appeals by Revenue in relation to two different but connected assessees and cross-objections by assessees arise out of common order passed by learned CIT(A) on 3rd March, 2003 in relation to block period 1st April, 1990 to 31st Oct., 2000. Since common issues are raised in all these appeals, we are, therefore, proceeding to dispose them of by this consolidated order for sake of convenience. Raj Kumar Agarwal, ITA No. 198/Jd/2003, C.O. No. 39/Jd/2003 Briefly stated, facts of this case are that search action was taken against assessee on 31st Oct., 2000 during course of which certain incriminating material/documents were found. combined Panchnama was drawn for residence situated at C-39, Ambawadi, Jaipur, jointly occupied by Shri Tara Chand and Shri Raj Kumar, assessee in instant case. In bedroom of Smt. Archana, jewellery listed at pp. 1 and 2 of Annex. J was found having gross weight of 1009.120 gms. and 747.700 gms., as against net weight 897.00 gms. and 619.470 gms., respectively. AO treated gross weight of 747.700 gms. as not explained. Item 5 of Annex. J valued at Rs. 17,807 was also treated as unexplained. remaining jewellery was accepted by AO as same was disclosed in VDIS of wife of assessee, Smt. Archana. In first appeal, learned CIT(A) deleted same. We have heard both sides and perused relevant material on record. It is observed that total gold ornaments found at time of search were at 2072.25 gms. As against it, total jewellery declared by assessee and other members of family residing in same house was as under: (a) Gold ornaments belonging to Smt. Ratni Devi as per IT return and under VDIS gms. (b) As per WT return of Smt. Ratni Devi gms. (c) As per VDIS of Smt. Archana Devi gms. (d) As per IT return of Shri Tarachand gms. gms. Hence it is clear that as against 3342.220 gms. of gold jewellery declared by assessee and his other family members, gold ornaments found at time of search were only 2072.25 gms. and hence gold ornaments were less by 1269.97 gms. There is nothing on record to show that gold jewellery belonging to mother of assessee who was residing in same premises was kept at another place and hence same having been found in assessee s room cannot be disbelieved. In our considered opinion, learned CIT(A) was justified in deleting this addition. Second ground of Revenue s appeal is against deletion of addition of Rs. 60,300 on account of value of perquisites. AO made addition of Rs. 60,300 being value of perquisites on basis of r. 3 of IT Rules, 1962. learned CIT(A) deleted said addition. Having heard rival submissions and perused relevant material on record, it is observed that no material was found during course of search showing personal use of car by assessee-director in Shubh Grami Marmo (P) Ltd., Jaipur. It is noticed that addition on account of value of perquisites, in absence of any material found during course of search, is part of regular assessment and is beyond ken of block assessment. definition of undisclosed income as given in s. 158B(b) is categoric and does not include such type of additions within its sweep. We, therefore, uphold impugned order on this score. Ground No. 3 deals with deletion of addition of Rs. 1,62,428 made by AO on account of unexplained investment in construction of property situated at Ambawadi. AO referred matter of valuation to DVO who worked out investment at Rs. 21,22,100. This house was constructed by three brothers, namely, Shri Ramesh Chand, Shri Rajkumar and Shri Ramchand. Details of investment made by three persons in asst. yrs. 1997-98 to 2001-02 were at Rs. 18,34,565. AO considered sum of Rs. 3,62,177 as not utilized towards construction thereby leaving sum of Rs. 14,72,388 available for construction. difference in two figures being amount worked out by DVO and investment accepted to have been made by co-owners was worked out at Rs. 6,49,712. assessee being 1/4th co-owner, AO made addition of Rs. 1,62,428 in hands of assessee. learned CIT(A) deleted said addition. Having regard to facts of case, it is found that only basis with AO to make addition is figure of investment by assessee in construction of building as estimated by DVO vis-a-vis that disclosed by assessee and other co-owners in their earlier books of account. It is admitted position that no material was found during course of search to show that assessee had invested more than that disclosed in regular books. By now it is settled legal position that only valuation officer s report unsubstantiated with any material found in course of search showing unexplained investment cannot be made basis for addition. It has been held so in CIT vs. Vinod Danchand Ghodawat (2000) 163 CTR (Bom) 432: (2001) 247 ITR 448 (Bom) and CIT vs. Khushlal Chand Nirmal Kumar (2003) 183 CTR (MP) 503: (2003) 263 ITR 77 (MP). later decision was rendered after considering amendment in s. 158BB by Finance Act, 2002 with retrospective effect from 1st July, 1995. There is no dearth of orders passed by Tribunal deleting additions made only on basis of report furnished by DVO. This view was taken in Agarwal Motors vs. Asstt. CIT (2000) 66 TTJ (Jab) 130: (1999) 68 ITD 407 (Jab), Smt. Neena Syal vs. Asstt. CIT (2000) 69 TTJ (Chd) 516: (1999) 70 ITD 62 (Chd) and Jaya S. Shetty vs. Asstt. CIT (1999) 64 TTJ (Mumbai) 551: (1999) 69 ITD 336 (Mumbai). In view of overwhelming legal position settled in assessee s favour, we are of considered opinion that no infirmity can be found in impugned order on this score. Even on merits, it is noted that DVO estimated value of property at Rs. 21,22,100 by applying CPWD rates and investment shown by assessee and other co-owners was at Rs. 18,34,685. difference between two figures is only 15.67 per cent which is less than 20 per cent as being allowed by Jodhpur Bench of Tribunal to scale down valuation to State PWD rates in consonance with view of Hon ble jurisdictional High Court. As regards exclusion of amount by AO as not having been utilized for purposes of construction in house, it is observed that AO held it to be spent beyond construction period. However, no basis for such exclusion has been given by AO. We, therefore, uphold impugned order on this count. Last effective ground of Revenue s appeal is against deletion of addition of Rs. 2,22,500 made by AO on account of alleged gifts received from Kalika family and others. On scrutiny of assessment records, it was observed by AO that assessee had received following gifts in asst. yrs. 1992-93 to 2000-01 and in asst. yr. 1998-99 from Shri S.N. Kalika family: Asst. yr. 1992-93 ,500 Kalika Asst. yr. 2000-01 ,00,000 Pradip Kalika Asst. yr. 2000-01 ,00,000 Vijay Kalika Asst. yr. 1998-99 ,000 Kum. Surbhi from Shri Vijay Kalika Asst. yr. 1998-99 ,000 Master Pankaj from Shri Pradip Kalika AO observed that test of human probability and surrounding circumstances did not suggest that assessee might have received such huge gifts. He, therefore, made addition, which was deleted in first appeal. We have heard both sides and perused relevant material on record. It is noticed that said gifts received by assessee were duly disclosed in books of account for which regular returns was furnished. No material was found during course of search, which could justify or even remotely suggest that gifts were not genuine. Where items are already declared in return of income and duly assessed by Revenue, same cannot be taken as undisclosed income for purposes of making block assessment. It has been so held in case of CIT vs. Vikram A. Doshi (2002) 256 ITR 129 (Bom). In context of additions made on account of unaccounted cash creditors, it has been held by Hon ble Calcutta High Court in case of Bhagwati Prasad Kedia vs. CIT (2001) 167 CTR (Cal) 336: (2001) 248 ITR 562 (Cal) that cash creditors disclosed in books of account cannot be added in assessment made under s. 158BC, but can only be considered in regular assessment. In view of these facts, we are satisfied that learned CIT(A) was justified in deleting this addition. Ground No. 1 of assessee s cross-objection was not pressed. same, therefore, stands dismissed. only other ground, which survives for our consideration in assessee s cross-objection, is against levy of surcharge. It is noticed that search was conducted on 31st Oct., 2000. Proviso to s. 113 mandating levy of surcharge on tax in case of block assessment cases was inserted by Finance Act, 2002 w.e.f. 1st June, 2002. Its operation has not been made retrospective in any manner. Hence it is clear that surcharge could be leviable only if search is conducted after this specified date. Where search is conducted on earlier date, tax determined thereon would not be increased by amount of surcharge. This view has been consistently taken by several Benches of Tribunal. learned Authorised Representative has placed on record copy of order in this regard passed by Jaipur Bench of Tribunal on 1st Aug., 2005 in case of Shubh Grami Marmo (P) Ltd. vs. Dy. CIT in IT(SS)A No. 30/Jp/2003. In view of this position, we are satisfied that learned CIT(A) was not justified in holding levy of surcharge as valid. In result, appeal of Revenue is dismissed and cross- objection of assessee is partly allowed. Smt. Sunita Devi Agarwal, ITA No. 201/Jd/2003 and C.O. No. 41/Jd/2003 First ground in Revenue s appeal is against deletion of addition of Rs. 1,74,500 made on account of alleged gifts received from Kalika family and others. Both sides are in agreement that facts and circumstances of this ground are similar to that of ground No. 4 in appeal of Raj Kumar Agarwal (supra). Following view taken above, we uphold impugned order on this score. First ground of cross-objection was not pressed by learned Authorised Representative. same is, hence, dismissed. Second effective ground is against levy of surcharge. Here also, it is observed that search was carried on 21st Oct., 2000. legal position discussed above would squarely apply to this ground also. Following view taken above, we direct that surcharge is not leviable. In result, appeal of Revenue is dismissed and cross- objection of assessee is partly allowed. *** DEPUTY COMMISSIONER OF INCOME TAX v. RAJ KUMAR AGARWAL