Addition for House Property Fixed at Disclosed Value,

Addition for House Property Fixed at Disclosed Value, FDR Addition Restricted to Investment Amount, and Telescoping Denied

Issue

Whether the Tribunal was justified in estimating house property value at ₹85 lakhs over the disclosed ₹70 lakhs, denying telescoping benefit for unaccounted cash, and taxing FDR maturity values instead of actual investment amounts during block assessment.

Facts

Search & Disclosure: Pursuant to a search under Section 132 in the Bright Group cases, the assessee’s bank locker was searched. The assessee initially disclosed undisclosed income of ₹30 lakhs under Section 132(4), later revising it to ₹25 lakhs by asserting the total investment in a residential house was ₹70 lakhs.
AO’s Additions: Relying on an insurance proposal valuing the house at ₹1 crore, entries of cash receipts in a seized diary, and undisclosed FDRs, the Assessing Officer made additions for unexplained house investment, cash receipts, and FDRs.
First Appellate Relief: The CIT(A) reduced the house investment addition, allowed partial telescoping of seized diary cash receipts against house construction, and restricted the FDR addition.
Tribunal’s Ruling: On further appeal, the Tribunal estimated the house value at ₹85 lakhs, denied the telescoping benefit, sustained the full addition for cash receipts, and confirmed the FDR addition based on its total maturity value rather than the purchase/investment amount.

Decision

House Property Value Restricted: The Tribunal’s adoption of ₹85 lakhs was held to be arbitrary and contrary to evidence. The disclosed estimated value of ₹70 lakhs was accepted (with ₹46.80 lakhs recorded in books and the remaining balance treated as unexplained investment).
Telescoping Benefit Denied: Denying the telescoping benefit was upheld because the assessee failed to establish a nexus between the period of investment in the house and the unaccounted cash receipts recorded in the seized diary.
Unexplained Cash Addition Sustained: Since lower authorities concurrently found that cash reflected in the diary was siphoned off as undisclosed income and not accounted for elsewhere, the addition for unexplained cash was sustained.
FDR Addition Limited to Investment Value: Additions for unaccounted FDRs must be made only to the extent of actual money invested (₹40,665) and not their maturity value. The assessee was granted relief of ₹41,902 accordingly.

Key Takeaways

No Arbitrary Property Valuation: Appellate authorities cannot arbitrarily estimate property values without concrete supporting evidence; disclosed, reasonable values backed by financial records must be respected.
Strict Proof Required for Telescoping: To claim telescoping benefit (offsetting one unexplained receipt against another unexplained expenditure), the assessee must strictly prove a clear temporal and functional nexus between the source of funds and the outlay.
Quantification of Unexplained Financial Assets: Additions for undisclosed investments (such as FDRs or securities) under Section 69 must be quantified strictly based on the actual capital/principal amount invested, not the future accrued maturity value.

HIGH COURT OF GUJARAT

Mahendra R. Shah

Asst. Commissioner of Income-tax

BHARGAV D. KARIA and Pranav Trivedi, JJ.

R/TAX APPEAL NO. 1691 and 1692 of 2008

JULY 15, 2026

Mrs. Swati Soparkar for the Appellant. Karan G. Sanghani for the Respondent.

JUDGMENT

Bhargav D. Karia, J.- Heard learned advocate Mr.B.S.Soparkar for learned advocate Mrs.Swati Soparkar for the appellant and learned Senior Standing Counsel Mr.Karan G. Sanghani for the respondent.

2. These Appeals were admitted vide order dated 21st July, 2009 for consideration of the following substantial questions of law:

“Tax Appeal No.1691 of 2008 :

“1. Whether in the facts and in the circumstances of the case the ITAT was right in law in holding that the investment in house be taken at Rs.85 lacs and thereby determining the undisclosed investment at Rs.55.868 lac?

2. Whether, in law and in the facts and circumstances of the case, the ITAT was right in confirming the addition of Rs.26,21,100 on account of unexplained cash receipts?

3. Whether, in law and in the facts and circumstances of the case the ITAT was right in holding that the appellant was not to be allowed the benefit of telescoping when the said issue was not there before the ITAT for consideration either by the appellant or the respondent especially when the department relies on the order of the CIT (A) who has given the benefit of telescoping ?

4. Whether in law and in the facts and circumstances of the case, the ITAT was right in upholding the addition of Rs.82,567 as unexplained investment in FDR?”

Tax Appeal No.1692 of 2008 :

1. Whether on the facts and in the circumstances of the case, the ITAT was right in law in holding that the total undisclosed investment is Rs.55.868 lac as against 30 lac declared by the appellant?

2. Whether, in law and in the facts and circumstances of the case, the ITAT was right in holding that the appellant was not to be allowed the benefit of telescoping when the said issue was not there before the ITAT for consideration either by the appellant or the respondent especially when the department relies on the order of the CIT(A) who has given the benefit of telescoping?”

3. The brief facts of the case are as under:

3.1. There was a search operation under Section 132 of the Income Tax Act, 1961 (for short ‘the Act’) on 20th September 2001 covering the residential and business premises of the Bright Group of cases. The Bank Locker of the assessee was also searched. Thereafter, a notice under Section 158BC of the Act was issued on 7th May 2005. The assessee filed Return of Income in response to the said notice on 20th June 2002 declaring total undisclosed income for the block period at Rs. NIL.

3.2. During the course of search, the statement of the assessee was recorded under Section 132(4) of the Act on 20th September 2001 wherein the assessee disclosed undisclosed income of Rs.30 Lacs. The assessee was again examined on 12th November 2001 under Section 131 of the Act at Income Tax Office and in reply to question No.11, the assessee stated that disclosure of undisclosed income of Rs.30 Lacs on 31.09.2001 was because he was very disturbed and since he has made thorough calculations of investments made in the house after the search, the total investment in the house was to the tune of Rs.70 Lacs only and therefore, reduced the disclosure to Rs.25 Lacs on account of undisclosed investment in the house having been invested in the flooring, furniture and fixture of his residential house.

3.3. Thereafter, the assessee furnished another reply dated 27th September 2003 wherein, it was submitted that the total investment in house recorded in the books of accounts upto the A.Y. 2000-01 was Rs.46,80,692/-. The assessee also filed date-wise detailed account for expenditure towards house and affidavit dated 28th September 2003 was filed by the assessee wherein, it was confirmed that total investment in residential house was Rs.70 Lacs out of which, investment of Rs.46.80 Lacs was duly recorded in the books of account and another investment of Rs.9 Lacs having been spent on purchase of old bungalow which had been demolished and new house was constructed and therefore, the total undisclosed investment in the house was Rs.14.15 Lacs, which had been duly disclosed in the return of income as undisclosed income.

3.4. The Assessing Officer considered all the facts and circumstances of the case as well as the reply of the assessee including the affidavit and page No.64 of the loose papers found and seized during the search, which was an application from the assessee’s wife for procuring Fire Insurance of the house and furniture and fixture including decoration therein, given to New India Insurance Company Limited. Considering such application for insurance, wherein, the house was valued at Rs.1 Crore out of which value of Rs.50 Lacs was claimed to be on account of the construction of the building and another Rs.50 Lacs for furniture, fixture and decoration, the Assessing Officer considered the investment in house at Rs.1 Crore and consequently, after allowing the assessee benefit of Rs.55,80,692/-, i.e. Rs.46,80,692/-, investment in the house, plus Rs.9,00,000, for purchase of the old building, computed the undisclosed income in building and furniture and fixture and decoration at Rs.44.20 Lacs.

3.5. The Assessing Officer made an addition of Rs.26.21 Lacs on account of unaccounted cash receipts as it was revealed during the course of search that the Authorities have seized a diary from the possession of the assessee’s one of the trusted employees namely Shri Pradip Patel, showing various particulars with regard to withdrawal of the amount in cash from M.S.Hostel, Ambe Vidyalaya. When the assessee was called upon to explain the nature of entries, it was submitted by the assessee that since there was used to be huge cash at M.S.Hostel, the assessee and four other persons, named in the details used to take away the cash mentioned in the details for safe custody at their residential house in the evening and used to deliver back the cash at M.S.Hostel in the morning of the next day. However, the Assessing Officer did not accept such explanation in absence of any nexus between the amount claimed to have been taken out by various persons including the assessee and after considering the totality of the facts and circumstances of the case, the Assessing Officer came to the conclusion that undisclosed income of Rs.26,21,000/- was siphoned off from the account which find no place in any subsequent details of expenditure or investment. Consequently, assessing office made addition of Rs. 26,21000/- as undisclosed income.

3.6. The assessing officer also made addition of Rs.3,82,567 as unexplained investment in FDRs found and seized during the search.

3.7. Being aggrieved, the assessee preferred and Appeal before the CIT (Appeals) who reduced the undisclosed income on account of investment in house to Rs.22.10 Lacs against Rs.14.15 Lacs admitted by the assessee and Rs.44.20 Lacs computed by the Assessing Officer.

3.8. The CIT (Appeals) also dismissed the Appeal of the assessee regarding the addition of Rs.26.21 Lacs made by the Assessing Officer on account of undisclosed income but granted telescoping benefit to the assessee of both the additions of undisclosed investment of 22.10 Lacs in hose and undisclosed income of Rs.26.21 Lacs. However, CIT(A) reduced the addition to Rs.82,567 for FDRS found during the search considering only FDRs in the name of the assessee.

3.9. Being aggrieved by the order passed by the CIT (Appeals), the assessee filed an Appeal before the Income Tax Appellate Tribunal (for short ‘the Tribunal’) against the addition of Rs.22.10 Lacs sustained by the CIT (Appeals) as against Rs.14.15 Lacs and against dismissal of appeal qua addition of undisclosed income of Rs. 26,21,000 and addition of Rs.82,567/- as unexplained investment in FDR found and seized during the search, whereas the Revenue preferred an Appeal before the Tribunal for reduction of the undisclosed income of Rs.44.20 Lacs to Rs.22.10 Lacs and granting benefit of telescoping.

3.10. The Tribunal, by the impugned order dated 8th December 2006 after considering the submissions of the parties and facts and circumstances of the case, partly allowed the Appeal of the Revenue sustaining addition of Rs.26.21 Lacs and rejected the plea of the assessee of telescoping and further sustained unexplained investment in house to Rs.55.86 Lacs as under:

“18. We have considered the rival submissions, facts and circumstances oi the case as well as the evidentiary value of application filed by the assessee’s wife to the New India Assurance Co. Ltd. for securing Insurance of the house including furniture, fixture and decoration therein and also the fact that investment of Rs.9 lacs claimed by the assessee as having been made in purchase of old bungalow had also not been recorded in the assessee’s books of account (because assessee has not furnished any evidence), are of the opinion that the value of building i.e. ground/first/second floors at Rs.50 lacs and of a furniture and fixture and decoration against at Rs.50 lacs mentioned in the application filed before the New India Assurance Co. Ltd. for procuring insurance of the building including furniture, fixture and decoration therein cannot itself be a sufficient evidence for holding as an investment on this account was Rs.1 crore and it is so because it is quite often that the value of an asset, while procuring Insurance is shown at a little bit inflated figure, but at the same time, we are unable to accept the assessee’s claim that total investment on this account was at Rs.70 lacs because the assessee has furnished complete records of investment, rather had, in consequence upon specific query put by the Bench admitted that investment at Rs.70 lacs claimed by the assessee was on estimate basis.

19. Keeping in view the aforesaid counter-claims of the parties; i.e. claim of the Revenue that investment in house including furniture, fixture and decoration was at Rs.1 crore on the basis of application referred to hereinbefore and the assessee that estimated investment was at Rs.70 lacs only and also the order of the CIT Appeals) sustaining the undisclosed income at Rs.22.1 lacs which shows that he had accepted the total investment in house at Rs.77.968 lacs (55.868 lacs + 22.100 lacs) and also the fact that the assessee has not been able to establish the disclosure of investment of Rs.9,00,000/- in purchase of old house, the total investment in house including furniture, fixture and decoration be taken at Rs.85 lacs which results in determination of undisclosed income at Rs.55.868 lacs which otherwise also is nearer to initial income of Rs.30 lacs. In view of above facts and circumstances of the case, the assessee’s ground is rejected, whereas the Revenue’s ground is partly allowed.”

3.11. The Tribunal also upheld the order of the CIT (Appeals) sustaining the addition of Rs.26,21,000/- and R.82,567 /- for FDRs found during the search by observing as under:

“22. It was, in view of the above facts and circumstances of the case that the ld. counsel for the assessee, reiterated the submissions as were made before the Revenue Authorities and also the submission made in various written replies and Affidavit filed before the Authorities, to press upon his arguments, that they used to take the cash in the evening of safe custody and used to written the same on the morning of next day. In the alternatively, it was submitted that this cash should be considered as having been invested in the house and may be telescoped against undisclosed income on account of undisclosed investment; in house furniture / fixture / decoration, etc.

23. The Id. DR, on the other hand, has supported the order of the CIT (Appeals).

24. After careful consideration of the rival submissions and the facts and circumstances of the case and the fact that details in question shows the cash having been given to various persons other than the assessee and also to jewelers and the assessee having not established that cash paid to other than the assessee had come to the assessee, it is not possible to consider the same as having been invested in house as claimed by the assessee and, there, the same cannot be telescoped.

25. So far as assessee’s claim that these were not receipts by the assessee, we are, again, of the opinion that the assessee has not furnished any evidence, in this regard and the contents of the Diary having been admitted by the assessee, it is not possible to accept the assessee’s plea. Coming to assessee’s plea that these were not cash receipts of the assessee, rather were the amounts taken away by various persons from the cash available in the account of M.S. Hostel in the evening for safe custody and had been used to be returned to M.S. Hostel on the morning of the next day, we are, again, of the opinion that the onus was on the assessee to establish the fact by way of cogent material, such as, books of account of M.S. Hostel or any other Concern as the case may be, but since the assessee has not filed any evidence other than the receipts, we are unable to believe the assessee’s story.

26. In view of above facts and circumstances, the addition at Rs.26,21,000/- is sustained subject to our findings against issue involved in ground No. 5.”

4.1. Learned advocate Mr.B.S.Soparkar for the appellant-assessee submitted that the Tribunal has committed an error in appreciating the facts and the evidence on record and referred to question No.10 and answer thereto in the statement dated 20th September, 2001 from the paper-book at page No.6 to submit that the assessee had bought the land of the residential bungalow for Rs.9 Lacs and had further spent Rs.35 Lacs for construction of the new bungalow on the said land and assessee had also recorded in the books of accounts that he had spent total Rs.44 Lacs on the construction of the residential property.

4.2. Reliance was also placed on the statement dated 12.11.2001 recorded under Section 131(1A) of the Act and more particularly, reply of the assessee to question No.11 at page No.24 of the paperbook to submit that the assessee had made disclosure of Rs.30 Lacs towards undisclosed investment made in the residential house property on 21st September, 2001, however, the assessee thereafter, retracted his statement based upon the fresh re-calculation and confirmed the disclosure towards undisclosed investment in the residential house property to the tune of Rs.25 Lacs only.

4.3. Referring to the above two statements of the assessee, it was submitted by learned advocate Mr.B.S.Soparkar that the Assessing Officer, CIT (Appeals) and the Tribunal have committed an error in arriving at the undisclosed income on the basis of such statements towards cost of new residential bungalow. It was submitted that the assessee has already recorded Rs.46,80,692/- in the books of account as per the affidavit dated 28th September, 2003, adding Rs.9 Lacs for purchase of the land and the old bungalow, and total investment would be Rs.55,80,692/-, as against that, the Assessing Officer considered the value of the bungalow at Rs.1 Crore on the basis of the application for insurance, as per page No.64 of the seized loose papers. It was therefore submitted that the Assessing Officer has made addition to the tune of Rs.44.20 Lacs (Rs.1 Core-Rs.55,86,000/-) as undisclosed income without any reason on wrong premises.

4.4. It was further submitted that the assessee has already shown Rs.46.80 Lacs plus Rs.9 Lacs in the books of accounts and therefore, considering the estimated cost of the new residential bungalow at Rs.70 Lacs, as per the paragraph No.4 of the affidavit of the assessee filed during the course of assessment, undisclosed income would be Rs.14.5 Lacs, which was already disclosed by the assessee in the return of income and therefore, no addition could have been made. It was therefore submitted that both the Assessing Officer and CIT (Appeals) have erred in holding that an amount of Rs.9 Lacs, being undisclosed investment by the assessee, should be added to income.

4.5. With regard to the issue of unexplained cash receipts, it was submitted by learned advocate Mr.B.S.Soparkar that during the search, certain material and cash was found from the assessee, which shows that the alleged unaccounted money was received by the assessee, however, it is the case of the assessee before the Assessing Officer and the Appellate Authority that the said money did not belong to the assessee but belonged to M.S.Hostel and the assessee was in possession of the money only for one night and the cash was returned back to the hostel for its expenditure on the next day morning so as to keep the cash in the safe custody with the assessee.

4.6. It was submitted that however, such explanation is not believed by the Assessing Officer, the CIT (Appeals) and therefore, assessee prayed for Telescopic effect on expenditure incurred against unaccounted cash. It was submitted that the CIT (Appeals) granted the telescoping effect, however, the Tribunal set aside the order of the CIT (Appeals) to the effect of grant of telescoping effect. It was therefore submitted that the Tribunal could not have interfered with the order of the CIT (Appeals) so far as grant of Telescopic effect is concerned and even if addition qua Rs.14.5 Lacs plus Rs.9 Lacs are confirmed for investment made in house property, then to the extent of addition with regard to unexplained cash, telescoping effect ought to have been granted against addition of investment in house property, which has not been granted by the tribunal and as such, the Tribunal has committed an error.

4.7. Learned advocate Mr.B.S.Soparkar submitted that the assessee had also preferred Miscellaneous Application for rectification and review before the Tribunal, however, the same was rejected on the ground that such plea of the telescoping effect was already rejected by the Tribunal by partly allowing the Appeal of the Revenue.

4.8. Regarding the issue of addition confirmed by the Tribunal to the tune of Rs.82,567/- towards unexplained investment in FDR, learned advocate Mr.B.S.Soparkar submitted that during the course of search proceedings, certain FDRs were found, which were not shown in the books of accounts of the assessee and total of such three FDRs of Rs.3,87,000/- was found during the course of search but two FDRs were in the name of the assessee for amount of Rs.1,50,000/- and Rs.86,000/- and the third FDR was in the name of the son of the assessee for an amount of Rs.1,50,000/-. It was pointed out that the Assessing Officer, however, made an addition of Rs.3,87,000/-on the basis of the three FDRs whereas, CIT (Appeals) deleted the addition regarding the FDR of Rs.1,50,000/-, which was in the name of the son of the assessee and held that the amount of Fixed Deposit Receipts, which was in the name of the son cannot be added in the income of the assessee.

4.9. Learned advocate Mr.B.S.Soparkar submitted that so far as FDR of Rs.82,567/-is concerned, it is the maturity value of the FDR and not the initial value and not the amount invested by the assessee as the amount invested was only Rs.40,000/- and therefore, the CIT (Appeals) and the Tribunal could not have confirmed the addition of Rs.82,567/-, considering the maturity value of the FDR as unexplained investment in the deemed income of the assessee but only the initial investment value of the FDR ought to have been considered by the Assessing Officer.

5.1. On the other hand, learned Senior Standing Counsel Mr.Karan Sanghani for the respondent placed reliance on the statement of the assessee recorded on 21st September 2001 under Section 132(4) of the Act wherein, the assessee has already disclosed the undisclosed income, which is not recorded in the books of accounts amounting to Rs.46.80 Lacs out of which, the amount of Rs.30 Lacs is unaccounted investment made in the residential bungalow and the amount of Rs.19.50 Lacs was towards unexplained cash credits. It was submitted that however, as per the statement dated 12th November 2001 and the affidavit filed by the assessee, the esimated investment of Rs.70 Lacs was admitted towards the residential property, which amount was considered by the Tribunal to be Rs.85 Lacs, considering that amount of Rs.9 lacs for purchase of land and old building was not explained by the assessee.

5.2. It was submitted that the Miscellaneous Application preferred by the assessee on the ground that the issue relating to the telescoping of unaccounted cash confirmed by CIT (Appeals) was not before the Tribunal, is also not correct as held by the Tribunal while rejecting the Miscellaneous Application by order dated 4th January, 2008 wherein, it is held that issue relating to telescoping of addition of unaccounted cash receipts against the addition of undisclosed investment in house property was before the Tribunal and was raised by both the parties and therefore, no mistake was committed by the Tribunal while setting aside the order of the CIT (Appeals) granting telescoping to the assessee regarding the unaccounted cash receipts against addition on account of undisclosed investment in house property.

5.3. It was therefore submitted that the order passed by the Tribunal is based upon the facts of the case and no interference is called for in the impugned order of the Tribunal being the final fact finding Authority.

6. Having heard the learned advocates for the parties and considering the documents and evidence placed on record before the Tribunal, it appears that there is no link between the time period regarding when the investment in the house property was made with the unaccounted cash reflected in the diary seized during the search proceedings. The assessee has not placed on record anything, either before the CIT (Appeals) or Tribunal, to show that both the investment in house property and unaccounted cash receipts pertain to the same periods and as to why the benefit of telescoping should be granted to the assessee. Moreover, in the statement of the assessee recorded on 20th September 2001 under Section 132(4) of the Act, in reply to question No.10, the assessee has stated that he had purchased the plot for residential house before four years to the date of statement whereas, the undisclosed cash was found during the search and therefore, it cannot be said that the same was made during the year when search was conducted.

7. Therefore, the Tribunal was justified in not granting the telescoping to the assessee with regard to the addition made of undisclosed cash and unexplained investment in residential house property.

8. It is also pertinent to note that the Tribunal has adopted basis for the value of the house property of Rs.85 Lacs as against Rs.70 Lacs, admitted by the assessee in the statement dated 12th November 2001 and in the affidavit filed during the course of assessment proceedings by considering addition of Rs. 22.10 lacs made by CIT(A) and investment recorded in the books of accounts, however, the Tribunal justification for adopting such value for the residential house property appears to be arbitrary and contrary to evidence on record. On one hand, the Assessing Officer has adopted the value of the house property at Rs.1 Crore, on the basis of the proposal made for the insurance, which is nothing but an estimate whereas, the CIT (Appeals) has adopted the value of the house as disclosed by the assessee in the statement and the affidavit. Therefore, the Tribunal was not justified in adopting the value of the house property at Rs.85 Lacs and such value is nothing but an arbitrary approach adopted by the Tribunal. Therefore, we are of the opinion that accepting the disclosed estimated value by the assessee in the statement and the affidavit at Rs.70 Lacs, as the value of the house property and, as Rs.46,80,692/- is recorded in the books of accounts, the remaining amount is required to be considered as an unexplained investment in the house property by the assessee. Therefore, the total addition made by the CIT (Appeals) would be modified to Rs.23,19,308/- .

9. Moreover, there is nothing on record to show that the assessee has spent Rs.9 Lacs towards purchase of old land and old building, except the reply of the assessee. Therefore, the addition to be sustained towards unexplained investment house property would be Rs.23,19,308 instead of Rs. 14.5 Lacs, disclosed by the assessee in the return of income.

10. So far as the addition of Rs.26,21,000/- towards unexplained cash is concerned, there are concurrent findings of fact arrived at by the Assessing Officer, the CIT (Appeals) and the Tribunal and therefore, we do not find any basis to interfere in such addition, which is sustained by the Tribunal.

11. Regarding the issue of addition of Rs.82,567/- is concerned, both the Assessing Officer and the CIT (Appeals) as well as the Tribunal have committed an error in adopting the maturity value of the FDR instead of taking the investment value in the FDRs. The Assessing Officer has referred to Annexure A-132 of the seized material wherein, it is mentioned that the FDR Nos.6940 and 6941 of Rs.34,080/- and Rs.6,585/- respectively were found to be unaccounted and there are no other FDR stated on the said page. Therefore, the total of these two FDRs is Rs.40,665/- only and maturity value of both the FDRs was Rs.82,567/-. Therefore, the addition which can be sustained is of Rs.40,665/-being the amount invested in the FDRs instead of the maturity value of Rs.82,567/- confirmed by the Tribunal. The assessee would get the relief to the extent of Rs.41,902/-(Rs.82,567-Rs.40,665).

12. In view of the foregoing reasons, the Appeals are partly allowed. Accordingly, the question Nos.1 and 4, in Tax Appeal No.1691 of 2008, are partly answered in favour of the assessee and question Nos.2 and 3 are answered in favour of the Revenue. Similarly, question No.1, in Tax Appeal No.1692 of 2008, is partly answered in favour of the assessee and question No.2 is answered in favour of the Revenue.

13. The Appeals are accordingly disposed of. No orders as to cost.