Income Tax Appellate Tribunal - Cochin
Smt.K.M. Fathima W/O Sri.K.A. Rauf, ... vs The Acit, Calicut on 23 April, 2018
1
IN THE INCOME TAX APPELLATE TRIBUNAL
COCHIN BENCH, COCHIN
BEFORE S/SHRI CHANDRA POOJARI, AM & GEORGE GEORGE K., JM
Sl. No. Appeal No. AY Assessee Dept.
1. ITA 501/C/2015 2004-05 Shri K.A. Rauf, "Shelter", ACIT, Cen. Cir-2, Kozhikode
Jayanthi Nagar Housing
Colony, P.T. Usha Road,
Calicut.
[PAN:ADUPR 1186M]
2. ITA 502/C/2015 2005-06 -do- ACIT, Cen. Cir-2, Kozhikode
3. ITA 503/C/2015 2006-07 -do- ACIT, Cen. Cir-2, Kozhikode
4. ITA 504/C/2015 2007-08 -do- ACIT, Cen. Cir-2, Kozhikode
5. ITA 505/C/2015 2008-09 -do- ACIT, Cen. Cir-2, Kozhikode
6. ITA 506/C/2015 2009-10 -do- ACIT, Cen. Cir-2, Kozhikode
7. ITA 507/C/2015 2010-11 -do- ACIT, Cen. Cir-2, Kozhikode
Assessee By : Shri P. Raghunathan, Adv. & Shri C.B.M. Warrier, CA
Revenue By : Shri Shantham Bose, CIT(DR)
Sl. No. Appeal No. AY Dept. Assessee
8. ITA 493/C/2015 2008-09 ACIT, Cen. Cir-2, Kozhikode Shri K.A. Rauf
9. ITA 494/C/2015 2009-10 ACIT, Cen. Cir-2, Kozhikode Shri K.A. Rauf
10 ITA 495/C/2015 2007-08 ACIT, Cen. Cir-2, Kozhikode Shri K.A. Rauf
Revenue By : Shri Shantham Bose, CIT(DR)
Assessee by: Shri P. Raghunathan, Adv. & Shri C.B.M. Warrier, CA
Sl. Appeal No. AY Assessee Dept.
No.
11. ITA 422/C/2016 2004-05 Smt. K.M. Fathima, ACIT, Cen. Cir-2, Kozhikode
W/o Shri K.A. Rauf,
"Shelter", Jayanthi Nagar
Housing Colony, P.T. Usha
Road, Calicut.
[PAN:AADPF 0363N]
12. ITA 423/C/2016 2005-06 -do- ACIT, Cen. Cir-2, Kozhikode
13. ITA 424/C/2016 2006-07 -do- ACIT, Cen. Cir-2, Kozhikode
14. ITA 425/C/2016 2007-08 -do- ACIT, Cen. Cir-2, Kozhikode
15. ITA 426/C/2016 2008-09 -do- ACIT, Cen. Cir-2, Kozhikode
ITA Nos.501-507/C/2016 & Others
K.A. Rauf & Others
16. ITA 427/C/2016 2009-10 -do- ACIT, Cen. Cir-2, Kozhikode
17. ITA 413/C/2016 2007-08 Smt. K.R. Raseena, ACIT, Cen. Cir-2, Kozhikode
D/o Shri K.A. Rauf,
"Shelter", Jayanthi Nagar
Housing Colony, P.T. Usha
Road, Calicut.
[PAN:AHRPR 4203L]
18. ITA 414/C/2016 2008-09 -do- ACIT, Cen. Cir-2, Kozhikode
19. ITA 415/C/2016 2009-10 -do- ACIT, Cen. Cir-2, Kozhikode
20. ITA 416/C/2016 2010-11 -do- ACIT, Cen. Cir-2, Kozhikode
21. ITA 417/C/2016 2007-08 Smt. K.R. Raiza, D/o, Shri ACIT, Cen. Cir-2, Kozhikode
K.A. Rauf, "Shelter",
Jayanthi Nagar Housing
Colony, P.T. Usha Road,
Calicut.
[PAN: AHMPR 1522M]
22. ITA 418/C/2016 2008-09 -do- ACIT, Cen. Cir-2, Kozhikode
23. ITA 419/C/2016 2009-10 M/s. Nilambur Traders, ACIT, Cen. Cir-2, Kozhikode
Industrial Estate, Beach
Road, West Hill, Calicut.
[PAN:AADFN 6331N]
24. ITA 420/C/2016 2009-10 -do- ACIT, Cen. Cir-2, Kozhikode
25. ITA 421/C/2016 2008-09 Smt. Razia Ahammed, D/o ACIT, Cen. Cir-2, Kozhikode
Late Theriyath
Muhammed,
"Shelter", Jayanthi Nagar
Housing Colony, P.T. Usha
Road, Calicut.
[PAN:AHRPR 4203L]
Assessee By: Shri P. Raghunathan, Adv. & Shri C.B.M. Warrier, CA
Revenue By: Shri M.V. Rudran, Addl. CIT, DR
26. ITA 306/C/2016 2008-09 DCIT, Cen. Cir-2, Smt. K.R. Raiza, D/o, Shri
Kozhikode K.A. Rauf, "Shelter", Jayanthi
Nagar Housing Colony, P.T.
Usha Road, Calicut.
[PAN: AHMPR 1522M]
Assessee By: Shri P. Raghunathan, Adv. & Shri C.B.M. Warrier, CA
Revenue By: Shri Shantham Bose, CIT(DR)
2
ITA Nos.501-507/C/2016 & Others
K.A. Rauf & Others
Date of hearing 21/03/2018
Date of pronouncement 23/04/2018
ORDER
Per BENCH:
These appeals filed by different assessees and Revenue are directed against different orders of the CIT(A)-IV, Kochi and pertain to different assessment years. The Revenue has filed appeals in ITA Nos. 493, 494 & 495/Coch/2015 in the case of Shri K.A. Rauf for the assessment years 2007-08 to 2009-10. The Revenue has also filed appeal in ITA No. 306/Coch/2016 in the case of Smt. K.R. Raiza for the assessment year 2008-09.
2. These appeals are relating to a group of assesses where certain issues are common in nature and hence they were heard together and are being disposed of by this consolidated order.
ITA Nos. 501 to 507/Coch/2014
3. The first common ground is with regard to the treatment of agricultural income as non agricultural income.
3.1 The facts of the issue are that there was a search carried out u/s.132 of the I.T. Act and also survey u/s. 133A of the Act at the business premises of the 3 ITA Nos.501-507/C/2016 & Others K.A. Rauf & Others assessee on 05/11/2009. The assessee is engaged in the business of centrifugal latex and manufacture of tread rubber and has been running various concerns alongwith his wife Smt. K.R. Fathima and daughters K.R. Raseena and K.R. Raiza, namely, M/s. Nilambur Traders, M/s. Nilambur Treads P Ltd., M/s. K.A. Treads, M/s. K.A. Reclaims and M/s. K.A. Latex (P) Ltd. The assessee is also engaged in the money lending business. Consequent to search u/s. 132 of the Act, various incriminating material were found and notice u/s. 153A was issued on 05/04/2010. The assessee filed return of income for the assessment years 2004-05 to 2009-10. The Assessing Officer treated the below mentioned amounts out of the agricutural income returned by the assessee as non agricultural income.
A.Y. Non Agricultural income 2004-05 Rs.1,30,000/- 2005-06 Rs.1,38,000/- 2006-07 Rs.3,15,000/- 2007-08 Rs.3,76,000/- 2008-09 Rs.3,72,000/- 2009-10 Rs.3,40,000/- 2010-11 Rs.3,40,000/-
3.2 On appeal, the CIT(A) confirmed the above additions. 3.3 Aggrieved, the assessee is in appeal before us. The Ld. AR submitted that the assessee had filed his returns of income for the assessment years 2004-05 and 2006-07 declaring agricultural income at Rs.2.80 lakhs and Rs. 2.88 lakhs respectively before the due date of filing of the returns. The Assessing Officer had not seized incriminating material to show that it is not agricultural income. 4
ITA Nos.501-507/C/2016 & Others K.A. Rauf & Others According to the Ld. AR, the Assessing Officer should not have restricted the agricultural income without any seized material suggesting the above income as non agricultural income.
3.4 The Ld. DR on the other hand submitted that the assessee has not placed any evidence to show the earning of such agricultural income. As such, the Assessing Officer estimated the agricultural income on the basis of best judgment.
3.5 We have heard the rival submissions and perused the record. The return of income for the assessment year 2004-05 was filed on 19/12/2010 showing agricultural income at Rs.2,80,000/- which was filed before the due date of filing the return of income. Whenever the assessee declared agricultural income in his return, burden is on the assessee to show that income is actually earned from agricultural and not from other sources. In the present case, there is no evidence placed with reference to the earning of agricultural income and corresponding expenditure incurred with reference to agricultural operations. The Assessing Officer has made a reasonable estimate on the basis of material seized. Being so, for the assessment year 2004-05, the Assessing Officer treated the agricultural income at Rs.1,80,000/- and treated balance of Rs.1,30,000/- as non agricultural income. Before us also, the assessee was not able to show any material to suggest that the entire income of Rs.2,20,000/- for the assessment 5 ITA Nos.501-507/C/2016 & Others K.A. Rauf & Others year 2004-05 is from only agriculture. Being so, for the assessment year 2004- 05, we have no hesitation to confirm the order of the CIT(A) on this issue. This ground of appeal of the assessee is rejected.
4. For the assessment year 2005-06, the assessee declared agricultural income of Rs.2,88,000/-. Out of this, the Assessing Officer limited the agricultural income to Rs.1,50,000/- and treated balance of Rs.1,38,000/- as non agricultural income. Here also, the assessee had filed the return of income on 19/12/2010 which was beyond the due date of filing of the return of income. As in the earlier year, A.Y. 2004-05, the assessee has not placed any evidence in support of the agricultural income. For similar reasons as in assessment year 2004-05, we confirm the addition for the assessment year 2005-06. This ground of appeal of the assessee is rejected.
5. For the assessment year 2006-07, the assessee filed his return of income on 28/05/2007 declaring agricultural income of Rs. 5,15,000/-. Out of this, the Assessing Officer restricted the agricultural income to Rs. 2 lakhs and treated the balance Rs. 3,15,000/- as non agricultural income. As in earlier years, the assessee has not placed any evidence for earning such agricultural income. For similar reasons as in earlier years, we confirm the addition for the assessment year 2006-07. This ground of appeal of the assessee is rejected. 6
ITA Nos.501-507/C/2016 & Others K.A. Rauf & Others
6. For the assessment year 2007-08, the assessee declared agricultural income at Rs.5,76,000/-. Since the assessee has not produced any evidence regarding agricultural income, the Assessing Officer limited the agricultural income to the Rs. 2 lakhs and the balance of Rs. 3,76,000/- was treated as non agricultural income. The assessee took the plea before us that the said income was derived from cultivation of coconut and rubber. However there was no evidence placed with regard to the agricultural income. Being so, as discussed in the earlier assessment years, the addition is confirmed for the assessment year 2007-08. This ground of appeal is rejected.
7. For the assessment year 2008-09, the assessee declared agricultural income of Rs. 5,72,000/- from the landed property at Pang, Malappuram. The Assessing Officer restricted the agricultural income to Rs. 2 lakhs and treated the balance of Rs.3,72,000/- as non agricultural income. The assessee carried the matter in appeal before the CIT(A). There was no discussion by the CIT(A) on this issue. However, he confirmed the order of the Assessing Officer on this issue. Against this the assessee is in appeal before us. As discussed in earlier years, for this year also, the assessee has not placed any evidence to suggest earning of agricultural income. The addition is sustained.
8. For the assessment year 2009-10, the assessee declared agricultural income of Rs.6,40,000/-. The Assessing Officer restricted it to Rs. 3 lakhs and the 7 ITA Nos.501-507/C/2016 & Others K.A. Rauf & Others balance of Rs.3,40,000/- was treated as non agricultural income. For similar reason as in earlier years, we sustain the addition for the assessment year 2009-
10. This ground of appeal is rejected.
9. For the assessment year 2010-11, the assessee declared agricultural income of Rs.6,40,000/-. The Assessing Officer restricted it to Rs. 3 lakhs and the balance Rs. 3,40,000 was treated as non agricultural income. As discussed in earlier years, the addition is sustained for the assessment year 2010-11. This ground of appeal is rejected.
10. The Ld. AR placed reliance on the judgment of the Kerala High Court in the case of K. Moidu Alias Kunhippa and another vs. ACIT (256 ITR (AT) 76 (Coch)) stating that the Assessing Officer is not justified in framing assessment by merely making an estimation of agricultural income in the absence of seized material. This judgment was delivered u/s. 158BC of the I.T. Act wherein the seized material is very much necessary for sustaining the addition but for assessment u/s. 153A, there is no such mandate. Thus, this argument of the Ld. AR is rejected for all the assessment years.
11. The next ground in assessment years 2004-05, 2006-07, 2007-08, 2008-09, 2009-10 and 2010-11 is with regard to addition towards unexplained credit in the 8 ITA Nos.501-507/C/2016 & Others K.A. Rauf & Others bank accounts of the assessee. The addition made in these assessment years were sustained by the CIT(A) as under:
A.Y. Amount (Rs.)
2004-05 13,65,000/-
2006-07 14,67,795/-
2007-08 9,07,185/-
2008-09 18,75,720/-
2009-10 18,29,621/-
2010-11 6,80,000/-
11.1 For the assessment year 2004-05, the assessee has shown in the cash flow statement receipt of DD Rs.13.65 lakhs for which the assessee has not shown the identity of the person from whom it has been received. Even before us, there were no details of source from which it was received. The assessee could not prove the identity of the creditors or the genuineness of the transactions. Hence, the addition is sustained. This ground of appeal for the assessment year 2004-05 is rejected.
11.2 For the assessment year 2006-07, it was found during the search that the bank accounts were managed by the employees , Shri K.C. Thomas, Shri Sathar, and Shri K. Jaffer. When it was questioned, it was stated that these accounts belonged to the assessee. When it was pointed out to the assessee, the assessee was not in a position to explain the source of deposits in these accounts. However, it was stated that it represents proceeds relating to suppression carried out by M/s. K.A. Treads and such amounts had been 9 ITA Nos.501-507/C/2016 & Others K.A. Rauf & Others received back/used for the purpose of the assessee. The assessee offered this as receipt and also requested to take the peak credit and apply GP rate only. However, the Assessing Officer considered the entire amount as income of the assessee. On appeal, the CIT(A) confirmed the addition made by the Assessing Officer. Against this, the assessee is in appeal before us. 11.3 We have heard the rival submissions and perused the material on record. The assessee is operating bank account in the name of his employees which was admitted by the assessee in his sworn statement recorded u/s. 132(4) of the Act which itself is an evidence. The assessee though agreed to treat the account as suppressed receipts, the only plea was that the GP rate is to be considered on peak credit to estimate the income. In our opinion, whenever any unexplained deposits is found in the name of the assessee, then it is the duty of the assessee to explain the source of the same. In the present case, the assessee is not able to lead any evidence on this. The whole deposits is to be considered as income of the assessee since the expenditure relating to the receipts has already been taken care of by the expenditure claimed in the assessee's regular books of accounts. Being so, we are inclined to sustain the addition for the assessment year 2006-07. This ground of appeal for the assessment year 2006-07 is rejected.
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ITA Nos.501-507/C/2016 & Others K.A. Rauf & Others 11.4 For the assessment year 2007-08, the assessee operated bank accounts in the name of the employees, Shri Thomas and Shri Sathar. The total credits in this account was at Rs.9,07,185/-. As discussed in earlier assessment year 2006- 07, this addition for the assessment year 2007-08 is sustained. Hence, this ground of appeal for the assessment year 2007-08 is rejected. 11.5. For the assessment year 2008-09, the total deposits in the accounts of the employees was at Rs.18,75,720/-.
11.6 The facts of the case are that during the search, it was seen that the bank account maintained by the employee Shri K.C. Thomas, Shri Sathar and Shri K. Jaffar, huge amounts were seen credited in their accounts. In the sworn statement recorded from them, it was stated that the amounts belonged to the assessee which is the profit received from M/s. Tristar Investments. When this was pointed out, the assessee stated that a perusal of bank accounts maintained by Shri Thomas, Shri Sathar and Shri Jaffar would show that there were credits which the said staff members was not able to explain at this distance of time. The assessee stated that these amounts represents proceeds relating to suppression carried out by M/s. K.A Treads and that such amounts have been received back/used for the use of the assessee and the assessee offered these amounts and also requested to take the peak credit of the amounts and applying the GP. However, the assessee could not substantiate the arguments or produce 11 ITA Nos.501-507/C/2016 & Others K.A. Rauf & Others any supporting materials. The assessee has excluded the salary credited in the accounts of the employees. Therefore, the amount of Rs.18,75,720/- credited in the name of the employees was treated as the income of assessee and added to the total income Shri Thomas 31/03/2008 Rs. 5,20,000/-
Shri Sathar 31/03/2008 Rs. 11,06,620/-
Shri jaffar 31/03/2008 Rs. 2,49,100/-
Total Rs. 18,75,720/-
It was noticed that the credits were found in the bank accounts of the staff members as suppressed sales of K.A. Treads and a letter was submitted to the Assessing Officer. However, the Assessing Officer observed that employees stated that credits represented profits of the assessee from M/s. Tristar Investments which is not correct since while Shri Thomas and Shri Sathar had not stated that the credit represents profits from Tristar Investments, the assessee and Shri Thomas have categorically stated that the credits represents proceeds of suppressed sale of K.A. Treads which means the credits appearing in the bank account is in the name of Shri Thomas and Shri Sathar is suppressed sales of M/s. K.A. Treads whereas the credits appearing in Shri Jaffer's account is the income received from the investment made by the assessee with M/s. Hint Pub, Bangalore. The total credit in the Bank account of above three employees, namely Shri Jaffer, Shri Thomas and Shri Sathar as submitted by the assessee is as under:
31.3.06 31.3.07 31.3.08 31.3.09 31.3.2010 Thomas 14,27,795 98,600 5,20,000 12 ITA Nos.501-507/C/2016 & Others K.A. Rauf & Others Sathar 40,000 8,08,585 11,06,620 8,57,440 6,80,000 Jaffar 2,49,100 9,72,182 6,80,000 Thus for the year under consideration, the Assessing Officer noticed that the bank accounts of Shri Thomas, Shri Sathar and Shri Jaffar were credited with Rs.5,20,000/-, Rs. 11,06,620/- and Rs.2,49,100/- respectively. As a matter of fact, according to the Assessing Officer this amount pertains to cash deposit, the suppressed sales. The assessee submitted that this should be treated as unaccounted sales and the G.P. rate should be applied to arrive at the profit.
11.7 On appeal, the CIT(A) found that no corresponding details of expenses or purchases were shown. The CIT(A) found that the assessee had not come forward to explain their modus operandi as to what percentage of sale or which kind of sales consideration in cash had been deposited in bank accounts being operated in the names of employees. The CIT(A) observed that the seized materials made it amply clear that the assessee had concealed his income by operating the bank accounts in the name of the employees and this fact was admitted by the employees in their statement u/s. 132(4) which in itself is an evidence which was further substantiated with cash credits into these bank accounts. The CIT(A) observed that in the absence of the assessee's claims being substantiated with facts that the credit into employee's bank accounts were suppressed sales, the same is the trading profit of the assessee which had never been disclosed. According to the CIT(A) in the instant case, the sum of 13 ITA Nos.501-507/C/2016 & Others K.A. Rauf & Others Rs.2,49,100/- was credited into the bank account of Shri Jaffar and Rs.16,26,620/- was credited to the account of two employees, viz., Shri Thomas and Shri Sathar. According to the CIT(A) in the assessment year 2006-07 the cash credited into the bank account of Shri Thomas and Shri Sathar was trading in profit of the assessee which was not disclosed as his income. Accordingly, a sum of Rs.16,26,620/- was treated as undisclosed trading profit and the addition made by the Assessing Officer was confirmed by the CIT(A). As regards the sum of Rs.2,49,100/-, since Shri Jaffar had stated that the amount credited as the profit received from Hint Pub, Bangalore on account of the assessee being a shadow partner with M/s. Tristar Investments, Bangalore, the same was treated as undisclosed income of the assessee. Hence the CIT(A) confirmed the addition made by the Assessing Officer on this issue.
11.8 We have heard the rival submissions and perused the material on record.
The main contention of the assessee is that the assessee and Shri Thomas stated that the deposit in the bank accounts represents suppressed sale of M/s. K.A. Treads. As such only profit element is to be considered. On the other hand, the contention of the Ld. DR is that the employees in their statements u/s. 132(4) stated that these accounts were operated in the name of the employees and it is the income of the assessee. Admittedly, in this case, the assessee was not able to show it as trading profit of the assessee and incurring of any expenditure to earn this income. It means that it is concealed income of the assessee and all 14 ITA Nos.501-507/C/2016 & Others K.A. Rauf & Others relevant expenditure relating to this income has already been taken care of in the regular books of account and there is no question of any further deduction out of this. The unaccounted deposit is to be considered as the income of the assessee and not the G.P on it. We do not find any infirmity in the order of the CIT(A) on this issue. Accordingly, this ground of appeal of the assessee is for the assessment year 2008-09 is rejected.
11.9 For the assessment year 2009-10, the total deposits in the accounts of the employees was at Rs.18,29,621/-. As discussed in earlier assessment years, the addition for the assessment year 2009-10 is rejected. 11.9.1 For the assessment year 2010-11, the addition sustained is Rs.6,80,000/-. It was stated by the assessee's employee Shri Jaffar that it was the amount received from Hint Pub, Bangalore where the assessee is a shadow partner with M/s. Tristar Investments. However, no evidence has been placed by the assessee on this issue. Hence, the addition is sustained. Thus this ground of appeal for the assessment year 2010-11 is rejected.
12. The next ground for the assessment year 2005-06 is with regard to investment in Vazhakad property.
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ITA Nos.501-507/C/2016 & Others K.A. Rauf & Others 12.1 The facts of the case are that the addition made by the Assessing Officer emanated from the fact that during the period relevant to assessment year 2005- 06, the assessee had purchased 26.6713 acres of land at Vazhakad to set up the factory and office building. The Assessing Officer found that land was purchased at the rate of Rs.1550 per cent and total cost comes to Rs.41,34,051/- while as per the cash flow statement the cost of land was shown at Rs.12,63,773/- The Assessing Officer added the difference of the two to the total income for a sum of Rs.28,70,278/- by treating it as undisclosed investment in land. 12.2 Before the CIT(A) it was submitted that the said addition was based on the statement of the Manager Shri K.C. Thomas recorded on 5.11.2009 u/s. 132(4) where he deposed that the rate of purchase of land was @ Rs.1500/- per cent and the total payment was made at Rs.36,00,000/-. The Ld. AR submitted that the manager retracted his submission in an affidavit dated 12/9/2011. It was submitted that the Assessing Officer had taken the entire land admeasuring 26.6713 acres @ Rs.1550 per cent However, according to the Ld. AR, the assessee pleaded that the manager who deposed the statement was engaged only in preliminary negotiation of the land purchased and the final settlement was done by the assessee. It was submitted that the land was purchased from different persons and the rate cannot be same for all the purchases. It was submitted that the actual payment was made for Rs.12,63,773/- and the same should be accepted. The CIT(A) worked out the amount of undisclosed 16 ITA Nos.501-507/C/2016 & Others K.A. Rauf & Others investment at Rs.23,36,227/- (36,00,000 - 12,63,773) and the same was added to the total income, assessee got a relief of Rs.5,34,051/-. 12.3 Against this the assessee is in appeal before us. It was submitted that the addition has been made on the basis of statement of the assessee's manager, Shri K.C. Thomas. The contention of the assessee is that Shri K.C. Thomas had confirmed that he had not negotiated for the price and the price was fixed by the assessee. The assessee had made payment of a sum of only Rs.12,63,773/- It was submitted that the Assessing Officer based his findings on the statement of Shri Thomas though given on 5/11/2009, was brought to light when a copy was filed before the High Court in the writ petition. The Ld. AR submitted that the statement is too general and when purchases were from 16 persons and that too only of 11.34 acres for which power of attorney was obtained in his name. It was submitted that the payments were made in 2003. The Ld. AR submitted that it cannot be a case where the entire area was purchased at the same rate.
12.4. On the other hand, the Ld. DR submitted that the retraction statement was made after three year which cannot be acted upon. When the order was passed on the basis of the assessee's manager's statement, it should be sustained.
17
ITA Nos.501-507/C/2016 & Others K.A. Rauf & Others 12.5. We have heard the rival submissions and perused the material on record. Admittedly there is a reference of statement of Shri K.C. Thomas in the assessment order. The Assessing Officer adopted the value of the property at Rs.1550 per cent on the basis of the statement of Shri K.C. Thomas of 5/11/2009 in whose favour the power of attorney was obtained. Further, the land was purchased in the assessment year under consideration from 16 different owners and enquiry was not made with these persons regarding the extra payment. In our opinion, it is appropriate to remit the issue to the file of the Assessing Officer with a direction to the assessee to furnish a copy of the statement of Shri K.C. Thomas and also to enquire with the respective seller and decide thereupon. With this observation, we remit the issue to the file of the Assessing Officer for fresh consideration. This ground of appeal is allowed for statistical purpose.
13. The next ground for the assessment year 2006-07 is with regard to investment made in Hint Pub, Bangalore.
13.1 The facts of the case are that during the course of search u/s 132 at the business premises of M/s Nilambur Traders in connection with the search in the assesses's business premises. Document regarding the investment made by the assessee in M/s Tristar Investments and the amount received back were found. Consequently a survey u/s 133A was conducted at M/s Tristar Investments, the details regarding the investment profit and withdrawals were found and the 18 ITA Nos.501-507/C/2016 & Others K.A. Rauf & Others same was impounded (AAA/TI/1). At the time of survey sworn statement of Shri Thornas Perincherry was taken and he deposed that he knew Shri. K.A. Rauf since 2002-03. The dispute regarding the name was cleared at the time of cross examination and re-examination of Shri Thomas Perincherry by the Assessing Officer at the time of search assessment proceedings. Shri. Thomas Perincherry stated that Shri. K.A. Rauf was keen on investing in M/s Tristar investments to bring the Hint Pub therefore, he contributed a sum of Rs. 70,00.000 in cash during the time of setting up of Hint Pub. The documents impounded at the time of survey confirm that Shri. K.A Rauf was eligible for 35% share and balance sheet trading and profit and loss account etc. prepared on the basis of the contribution were also impounded and Shri. Thomas Perincherry has explained it in detail. Shri. Thomas Perincherry explained the investment made by the assessee in M/s Tristar investments, Bangalore. During the period the assessee has invested a total amount of Rs. 67,00,000/-. All the money invested by him was received by way of cash only. At the time of search this information was brought to the notice of the assessee but he denied. Even though the documents impounded from the business premises of the assessee and the business premises of M/s Tristar investments, Bangalore revealed that Shri. K.A. Rauf had invested Rs. 67,00,000/-during the period relevant to the A.Y. 2006-07. The assessee stated that his calculation of profit from the firm was not based on the actual profit earned by the firm but whatever amount is taken by the other partners of the firm during specific intervals the same ratio is to be given to the 19 ITA Nos.501-507/C/2016 & Others K.A. Rauf & Others assessee. For calculating the amount due to the assessee, he deputed his employees at periodical intervals and on going through the business transaction the employees prepared the statement and quantified the amount of each partners. Other partners withdrawal and the bank loan repayment were also taken to account for calculating the share of the assessee. The material seized from the business premises of the assessee (CHN-14/Nilambur/28) was more than that of Tristar Investments. This also confirmed that the assessee had contributed towards this firm based on agreement which is known to the assessee and Shri. Perinchery only. But this being the facts, the assessee's name was not seen in the partnership deed executed by M/s. Tristar Investments. In the sworn statement recorded from the employees of the assessee Shri K. Jafar stated that "Shri. Suraj Rangappa. Shri Paul Tom Suraj and the assessee are the partners of this firm the profit shared in the ratio 2% (sic), 40% and 35% respectively. Certain documents relating to this firm collected from Bangalore which were available in this office were seized by the Department during the course of search marked as CHN-14/28. Certain accounts copied from their office at Bangalore were available in Computer. The name shown as Paul-2 was actually the assessee. The total investment made by the assessee in this firm was Rs. 70,00,000/- during the financial year 2005-06 and 2006-07. The details were available in page no. 40, 45 & 48 of item No. CHN- 14/28. When both the partner of the firm and the employee of the assessee confirmed the investment of the assessee in M/s Tristar Investment(Hint Pub), 20 ITA Nos.501-507/C/2016 & Others K.A. Rauf & Others Bangalore, the denial of investment by the assessee was not acceptable and the assessee had not shown this investment in his cash flow statement therefore the investment made by the assessee during the period relevant to the assessment year 2006-07 was at Rs. 67,00,000/- and the same was added to the total income of the assessee.
13.2 On appeal, the CIT(A) after elaborately going through the assessment order, observed that the assessee got investment in the business of Hint Pub at Bangalore which is run by M/s. Tristar Investments as a shadow partner. According to the CIT(A) not only the investments made by the assessee but the income received from such investment also found credited in the Bank account of Shri Jaffer, the employee of the assessee. Thus the CIT(A) observed that the investment made as well as the income received both were in cash and the income was received out and out and got credited to the bank account of the assessee, maintained in the name of his employee. Hence, the CIT(A) held that the investment of Rs.67,00,000/- during the year pertained to the assessee and accordingly upheld the addition made by the Assessing Officer. 13.3 The Ld. AR submitted that all sheets of paper recovered from Bangalore showed the name of Rauf only in one sheet while all the remaining sheets showed the name "Paul 2". It was submitted that the Assessing Officer had only assumed that "Paul 2" represents Rauf. According to the Ld. AR in the 21 ITA Nos.501-507/C/2016 & Others K.A. Rauf & Others statement given by Thomas dated 05/11/2009 and 06/11/2009 though he had spoken about Rauf's role in cross examination, he clearly admitted that he was not aware of the cash transactions. According to the Ld. AR, Paul was the person dealing but was not in a position to give assessment year information on dealings with the firm and Rauf. Further, it was submitted that he was not involved in the setting up of the firm and others were in charge. It was submitted that he was not involved in the maintenance of accounts and no money was handed over to him by Rauf nor had he seen a ledger relating to Rauf. It was submitted that Shri Paul was not examined or the statement recorded during the survey and even after the survey, since Shri Paul was indicated to be the person who was looking after the finances etc. he should have been examined. Further, it was submitted that the statement of Shri Thomas cannot take the case of the Department any further since he is totally ignorant about the financial matters. Further according to the Ld. AR, Form 3CB/3CD recovered do not show investment by Rauf, no partnership deed with his name, additional investment by Paul 2. According to the Ld. AR, the amounts should have been assessed in the hands of the firm only and not in the hands of the assessee. It was submitted that the cross examination and statements given in the cross examination were not referred to in the order. The Ld. AR submitted that the CIT(A) while disposing of the appeals filed by Tristar Investments upheld AC's views in holding that the investment on protective basis in the hands of the assessee till the fact of the case is finally upheld by the highest fact 22 ITA Nos.501-507/C/2016 & Others K.A. Rauf & Others finding authority. It was submitted that when protective assessment on the part is upheld, the addition of the said amount in the hands of this assessee is apparently set aside. According to the Ld. AR even the procedure adopted by the CIT(A) is not in order and the CIT(A) should have decided the appeal filed by the assessee first before disposing off the appeal filed by the Tristar Investments. It was submitted that in the light of the finding in Tristar Investment's appeal, the inclusion of Rs. 70 lakhs for 2006-07 and 2007-08 was liable to be set aside.
13.4 We have heard the rival submissions and perused the material on record. The main contention of the Ld. AR is that there was seized material in page no. 40, 45, 48 referred as CHN-14/28. It also showed that the assessee has contributed toward Tristar Investments, Bangalore based on an agreement which was known to the assessee and Shri Thomas Perinchery only. Further in the sworn statement recorded from the employee of the assessee Shri K. Jaffar, it was stated that "Shri Suraj Rangappa, Shri Paul Tom Suraj and the assessee were the partners of this firm and the profit shared in the ratio 2%, 40% and 35% respectively. Certain documents relating to this firm collected from Bangalore which were available in this office were seized by the Department during the course of search marked as CHN-14/28. Certain accounts copied from their office at Bangalore were available in computer. The name shown as Paul-2 was actually the assessee. The total investment made by the assessee in 23 ITA Nos.501-507/C/2016 & Others K.A. Rauf & Others this firm was Rs.70,00,000/- during the financial year 2005-06 and 2006-07. The details were available in page no. 40, 45 and 48 of item No. CHN-14/28. When both the partner of the firm and the employee of the assessee confirmed the investment of the assessee in M/s. Tristar Investments (Hint Pub), Bangalore, the denial of investment by the assessee is not acceptable and the assessee had not shown this investment in the cash flow statement, therefore the investment made by the assessee during the period relevant to the assessment year 2006- 07 is Rs.67,00,000/- and the same is added to the total income of the assessee. Further, the bank account of Shri Jaffar also shows income received from such investments. Hence we have no hesitation in confirming the addition. Thus this ground of appeal for the assessment year 2006-07 is rejected.
14. The next ground for the assessment year 2007-08 is with regard to investment in M/s. Tristar Investments. For similar reasons as for assessment year 2006-07, the addition of Rs. 3 lakhs for the assessment year 2007-08 is sustained. Thus this ground of appeal for the assessment year 2007-08 is rejected.
15. The next ground for the assessment year 2008-09 is with regard to sustaining of addition of Rs. 33,28,885/- out of the investment in building at Rs.53,35,885/-.
24
ITA Nos.501-507/C/2016 & Others K.A. Rauf & Others 15.1 The facts of the case are that the during the period 1.3.2005 to 1.4.2008, assessee had constructed a factory and office building at Vazhakad and the same was referred to valuation cell u/s. 142A of the I.T. Act. The valuation officer valued the said property at Rs.1,67,92,000/-. The assessee declared investment made for the construction at Rs.1,14,63,115/- for the assessment years 2005-06 to 2008-09. When the difference in the valuation report was compared to that of assessee disclosed value, the assessee was directed to file objections to the valuation report in respect of the office complex and factory building constructed by the company. In this regard the assessee submitted as follows:
"At the very outset, we beg to point out that the time provided to us for filing objection is very short. Since we had already obtained a valuation report from an independent Valuer who had visited the improvements on 27.10.2010 and it is noticed that there is valuation between the value as fix by the Valuer appointed by us and the Department Valuer, we are required to seek clarification from our Valuer which will require time.
In any event, you will notice that the construction was not over as on 31.3.2010 relevant to the assessment year 2010-11 and the inspection by the Department Valuer was much after the close of the Account Year 2009-10. Further, work is still going on, though in a slow manner since as on date we are unable to get Power Allocation and hence it is not necessary to complete the work at this stage. In fact, even when our Valuer carried out his inspection, the work was going-on. We also note that the subsequent to 31.3.2010, the assessee has invested about Rs. 20,00,000/- details are yet to be consolidated for the finishing works at the factory building and office building, bringing the cost of construction of the factory building and office complex to Rs. 1,34,63,115/-.
The investment in land, building and machineries as on 31.3.2010 is as indicated below:
Land Rs. 1263773
Building Rs. 11463115.25
Machineries Rs. 5709248
Total Rs. 28436136
25
ITA Nos.501-507/C/2016 & Others
K.A. Rauf & Others
The above funds were raised from the Share-holders / Directors of the company-as share subscription and/or additional Share subscription. The investments under this head by the Share-holders as confirmed by the Cash flow statements already submitted in the individual cases are as follows:-
K.A. Rauf Fatima Rauf
2003-04 1087393
2004-05 98325
2005-06 2768512
2006-07 5340000
2007-08 4664360
2008-09 2000000 1400000
20258590 1400000
We find that the valuation adopted by the Department Valuer does not appear sound and logically correct. In fact several mitigating facts and circumstances- like the fact that steel/ truss/iron etc. have been purchased second hand from Coimbatore and other places for which due consideration has not been given. In fact, the Report does not indicate the boq for the engineering and structural works against which the value of second hand materials should have been applied.
In any event, since the work is yet to be over and admittedly since the valuation report does not indicate the work done upto 31.03.2010 specifically. we feel it is only just and reasonable to consider the investment in building as well as equipments and machinery after the entire work is over."
The assessee's contention was not accepted since, the valuation was made only on the basis of materials supplied by the assesses and the valuation officer had reported the period of construction 01.04.2005 to 01.03.2008. Further, the argument of the assessee was that the additional investment made after the date of construction was incorrect since the valuation was made only on the date 30/11/2011 and based on the material supplied by the assessee. Therefore, the difference compared to what was shown by the Valuation Officer and disclosed by the assessee i.e. Rs. 53,28,885/- (Rs. 1,67,92.000 minus Rs. 1,14,63,115/-) 26 ITA Nos.501-507/C/2016 & Others K.A. Rauf & Others was treated as 'unexplained investment' and added to the total income. The amount of Rs. 1,14,63,115/- was treated as expense towards the construction for the period 01/04/2005 to 31/03/2007 and balance amount of Rs.53,28,885/- was incurred for the period 01/04/2007 to 31/03/2008. 15.3 On appeal, the CIT(A) observed that the assessing officer relied upon the report of the valuation officer dated 30.11.2011, whereby factory and office building at Vazhakad was constructed by the assessee during the period 1.3.2005 to 1.4.2008 at Rs. 1,67,92.000/-. However, the CIT(A) observed that the assessee declared the investment at Rs.1,14,63,115/- for the asst. years 2005-06 to 2008-09. According to the CIT(A) the dispute on valuation raised by the assessee is mainly on account of the fact that the valuer had taken the value as on 20.07.2011, i.e. as on the date of inspection by the District Valuer and, had considered even those sums spent after the asst. year 2008-09. The CIT(A) noticed that the assessee had also spent a sum of Rs. 20 lakhs which was not taken into account. According to the CIT(A), a statement was placed before the assessing officer, that since the work was yet to be over, the valuation report does not indicate the work done upto 31.3.2010. Hence, the difference between the investment valued by the DVO at Rs.1,67,92,000/-, and that of shown by the assessee at Rs.1,14,63,115/- was treated as unexplained investment, and added a sum of Rs. 53,28,885/- to the total income. The CIT(A) observed that the assessing officer had not given any findings on the points raised by the assessee during the course of assessment proceedings and, had simply concluded that the 27 ITA Nos.501-507/C/2016 & Others K.A. Rauf & Others period of construction was from 1.4.2005 to 31.3.2007, for which expenses incurred by the assessee was considered by the DVO. However, it was observed that it would be difficult for the DVO to value the property, as on a previous date ( 2-3 years before) and, on the date of valuation to arrive at the correct value as on a particular date. According to the CIT(A) it is no where mentioned that the construction of the office and factory building was completed during the period April, 2005 to March, 2008. Further, the CIT(A) noticed that the DVO had also not assigned year-wise investment made by the assessee. The CIT(A) observed that there are numerous factors which have been applied in order to estimate the valuation which cannot be established with accuracy. If the assessee's contention is accepted that the construction of the building was not completed during the reference period to Valuation, according to the CIT(A), the addition made on account of excess valuation would have no basis. Given the over all facts and circumstances of the case, it was found that there are some facts lacking in the valuation report and, at the same time certain facts raised by the assessee during the course of assessment proceedings had not been considered. The CIT(A) found that the assessee had not maintained books of accounts, hence no work-in-progress on yearly basis can be verifiable. The CIT(A) observed that it was only through cash flow statement, the assessee had given the details of cash out flow. In view of the fact that the assessee claimed for spending Rs. 20 lakhs, even after the period of reference for valuation, which had not been considered by the DVO, the same was allowed. However, the 28 ITA Nos.501-507/C/2016 & Others K.A. Rauf & Others CIT(A) confirmed the addition of balance amount of Rs.33,28,885/-being over and above the declared value of investment.
15.4 Against this the assessee is in appeal before us. The Ld. AR submitted that the Assessing Officer got the building valued at Rs.1.67,92,000/- stated to be the cost. The Ld. AR submitted that the District Valuer as per Report, had indicated that the construction was between 2005 and 2008 while according to the assessee, work is not over even now and has been suspended for want of licenses etc. It was submitted that the building was inspected by the District Valuer on 20/07/2011. According to the Ld. AR the CIT(A) found that the assessee had invested additional amount of Rs.20 lakhs after the inspection by the District Valuer which would show that apparently the work was not completed on 27/01/2010 and on 27/07/2011 while the valuer had observed that the construction was carried out between 2005 to 2008 which apparently cannot be true. Further according to the Ld. AR, the rates adopted by the District Valuer was for completed building and not for incomplete building. It was also submitted that the rates applied was as per CPWD rates whereas being a construction carried out in Kerala, the Kerala PWD rates should have been applied. The Ld. AR submitted that the assessee had produced several bills regarding purchase of materials before the Assessing Officer for which no allowance has been made. The Ld. AR submitted that the assessee got the building valued as on 27/01/2010 for bank purposes when it was valued at Rs.14885,756/- excluding the cost of land of Rs.1232,572/-. According the Ld. 29 ITA Nos.501-507/C/2016 & Others K.A. Rauf & Others AR, after this inspection and before District Valuer inspected, the assessee had spent a further amount of Rs.20 lakhs as per cash flow statement. Thus it was submitted that the difference in valuation is only Rs.14,22,641/- which is quite negligible. Further it was submitted that the CIT(A) specifically found that nowhere has it been mentioned that the construction was between 2005 and 2008, that there was some facts lacking in the valuation report and at the same time certain facts raised by the assessee during the course of assessment proceedings have not been considered. The Ld. AR submitted that since the construction was in the name of the private limited company and the land belonged to the company, the source indicated by the assessee should have been adopted as his investment and if there existed any additional investment, the same should have been assessed only in the hands of the Pvt. Ltd. Co. According to the Ld. AR the assessee is also entitled to have the additional income assessed for the various years to be adjusted in the cash flow while arriving at unexplained investment.
15.5 We have heard the rival submissions and perused the material on record. The assessee had constructed a factory and office building at Vazhakad during the period 1.3.2005 to 1.4.2008. As per the report of the Valuation Office, the total cost of construction was arrived at Rs.1,67,92,000/-. The assessee declared only a sum of Rs.1,14,63,115/- as the cost of construction. Thus there was a difference of Rs.53,28,885/- between the valuation report furnished by the 30 ITA Nos.501-507/C/2016 & Others K.A. Rauf & Others DVO and the cost of construction declared by the assessee. Further, the Ld. AR submitted that the State PWD rates should be applied. If the assessee spent Rs. 20 lakhs after the assessment year 2008-09, then the difference would be only Rs.14,22,641/- . In our opinion, there is force in the argument of the Ld. AR with regard to the consideration of State PWD rates for valuation of the construction. To that extent, we agree with the contention of the Ld. AR. Accordingly, we direct the Assessing Officer to re-work the valuation of the property after applying State PWD rates. Regarding the actual cost of construction, the Ld. DR cannot have any objection. Hence, this ground of appeal of the assessee is partly allowed for statistical purposes.
16. The next ground for 2008-09 is with regard to investment in Malampuzha Steel Rolling Mills at Rs. 5 lakhs.
16.1 The facts of the case are that the Assessing Officer found that as per the seized item No. 111, page 69 siezed from M/s. Nilambur Traders, it is seen that the assessee had invested Rs. 5 lakhs in M/s. Malampuzha Steel Rolling Mills, which was confirmed by Shri Nabeel A.P. by furnishing an affidavit dated 11/02/2010. The assessee has not offered any explanation in this regard. It was also found that in the cash flow statement furnished by the assessee for the period 01/01/2007 to 31/03/2008. Therefore the sum of Rs. 5 lakhs was added to the income as unexplained investment.
31
ITA Nos.501-507/C/2016 & Others K.A. Rauf & Others 16.2 Before the CIT(A) it was claimed that the sum of Rs. 5 lakhs invested in Malampuzha Steel Rolling Mills was returned back by the company and confirmation to this effect was also given by the company but the Assessing Officer had not mentioned this fact. The CIT(A) found that before the Assessing Officer the assessee did not offer any explanation in this regard. According to the CIT(A), in the appellate proceedings also the assessee failed to produce a letter from the company confirming the return of money. In view of this, the CIT(A) rejected the contentions of the assessee and confirmed the addition made by the Assessing Officer.
16.3 We have heard the rival submissions and perused the record. The assessee has not placed any evidence before us to prove receipt of money from Malampuzha Steel Rolling Mills. Being so, we confirmed the addition. Hence, this ground of appeal is rejected.
17. The next ground for the assessment year 2008-09 is with regard to investment in Mahindra Holidays at Rs.1,73,135/-.
17.1 The facts of the case are that as per the seized material document no. 23 seized from the business premises of M/s. Nilambur Traders, assessee had invested an amount of Rs.1,73,135/-. The assessee stated that the amount was met out of the drawings. But the Assessing Officer found that the personal 32 ITA Nos.501-507/C/2016 & Others K.A. Rauf & Others drawings shown in the cash flow statement was only Rs.1,40,000/- by the assessee which was insufficient to meet his personal expenditure and the investment made in Mahindra Holidays is more than the amount drawn, therefore Rs.1,73,135/- was added to the total income. 17.2 On appeal, the CIT(A) rejected the contention of the assessee that investment in Mahindra Holidays had been made out of the personal drawings because as per the cash flow statement, the personal drawings was only Rs.1,40,000/-. Since the addition was based on the analysis of the cash flow statement, following the same discipline, the CIT(A) confirmed the addition of Rs.1,73,135/- as investment in Mahindra Holidays.
17.3 We have heard the rival submissions. There is no evidence of drawings with reference to this investment. Being so, the addition is sustained. This ground of appeal is rejected.
18. The next ground for the assessment years 2007-08 and 2008-09 is with regard to agricultural lease rent received at Rs.32,62,500/-. 18.1 The facts of the case are that the agricultural land, purchased in Maharashtra, was leased out to different persons and, for which agreements were made with such cultivators. The assessing officer found that the original 33 ITA Nos.501-507/C/2016 & Others K.A. Rauf & Others agreement for such cultivation on lease was not produced. The Assessing Officer noticed that the cultivators belonged to Sangli District, Tsagaon Taluka, Sangli and the land situated is at Sindhudurga (Dodamarga Taluka and village, which is too far. The Assessing Officer found that the entire proceeds of lease rent for agricultural land was paid in cash and, for which, no modality or the break up of the cash received in chronological sequence was produced. Further according to the Assessing Officer no cultivation of mixed crop had been shown. It was also brought to notice that the assessee after purchasing the land, could not get mutation of land done in his favour from the State Revenue Authorities and, in the meantime the entire land was put into dispute because the original land holder sold the same land to other person viz: Dr. Alexander and others of Calicut. Thus, the assessing officer held that the mutation is not in the name of the assessee and hence, the valid ownership of land is not established. The period of lease has been entered into for two years starting from the financial year 2006-07, although a part of the payment for the purchase of land was made in the previous year. In the original return filed for the asst. year 2006-07 on 28.5.2007, the total income was shown at Rs. 99,5007- along with agricultural income of Rs. 1,80,000/-. According to the Assessing Officer, in response to notice u/s 153A dated 5.4.2010, the return of income was filed on 31.8.2010 for the asst. year 2006-07. The agricultural income was shown at Rs.5,15,000/-. In view of this fact, for the asst. year 2006-07, the assessee has revised the agricultural income from Rs. 1,80,000/- to Rs. 5,15,000/-. The Assessing Officer noticed that the entire transactions of the assessee happened in cash. The 34 ITA Nos.501-507/C/2016 & Others K.A. Rauf & Others Assessing Officer doubted whether poor farmer of Sanqli district, which is too far off place from Sindhudurga, where the land is situated, would come to cultivate the land by taking it on lease, and would pay the entire lease consideration in cash in lumpsum. The Assessing Officer found that the assessee had tried to take shelter to the legal recourse, in as much as examination under oath, the notary who had attested and notarized the photocopies of the various agreements etc. According to the Assessing Officer, a statement given on affidavit, cannot in itself, would become evidence by superceding the other facts and substantial evidence. The Assessing Officer found that there has been no evidence for the assessee to be the owner of the land, as the land was not mutated in his favour. According to the Assessing Officer, there was no break up of the chronological evidence for the receipt of the cash and, at the same time, the land was sold by the original owners to some other person and for which, the assessee is in dispute, and had filed case before the appropriate authorities. The details of such case filing to establish that the assessee was in possession of the land, the land was cultivated under an arrangement of lease and the lease rentals amounted to Rs. 32,62.500/-, according to the Assessing Officer have nowhere been disclosed, despite insistence was placed on the assessee to produce and establish the same, during the appeal proceedings. In view of this, it was held that the claim of agricultural income from the lease rentals of Rs, 32,62,500/- each, for the asst. years 2007-08 and 2008-09, is nothing but an adjustment of figures where the assessee had brought his own cash in the garb of exempted agricultural income, Accordingly, the addition made by the 35 ITA Nos.501-507/C/2016 & Others K.A. Rauf & Others assessing officer by treating such income from agriculture at Rs. 32,62,500/- from Maharashtra land as the assessee's own income derived from a source which was not disclosed was confirmed by the CIT(A) for both the assessment years i.e., 2007-08 and 2008-09. .
18.2 Against this, the assessee is in appeal before us for both the assessment years. The contention of the ld. AR is that the original agreements were required at Maharashtra in connection with civil case - sellers having sold the same property to two parties. Hence, according to the ld. AR original agreements were brought to Calicut and notarized copies obtained and produced. According to the Ld. AR, the Assessing Officer recorded statement from Notary who had attested the copies. It was submitted that this fact was suppressed by the Assessing Officer. The Ld. AR submitted that the AO himself made detailed enquiries regarding the lease and sent notices to the lessees seeking confirmation on the lease. According to the Ld. AR if the agreement is not stamped, it can be impounded but does not invalidate the agreements. According the Ld. AR easement right has been misconstrued since the documents have been executed and registered and possession given as per documents, being not loan, the assessee has no liability to prove credit worthiness of lessees, there was no sub lease and rent being paid in cash was immaterial to decide whether the assessee has received rent. 36
ITA Nos.501-507/C/2016 & Others K.A. Rauf & Others 18.3 The ld. DR submitted that the above income is nothing but an adjustment of figures where the assessee has brought his own cash in the garb of exempted agricultural income and it is only a make believe story.
19. We have heard the rival contentions and perused the material on record. The documents produced by the assessee are in the form of Xerox copies of the lease agreements which is only self-serving and no importance is to be given. In view of the fact brought on record by the Assessing Officer and confirmed by the CIT(A), we have no hesitation in upholding the order of the lower authorities. Hence, this ground of appeal for the assessment years 2007-08 and 2008-09 is rejected.
20. The next ground for the assessment year 2007-08 is with regard to loan from Shri Anil Thomas at Rs. 3 lakhs. The assessee has shown a sum of Rs. 3 lakhs received from Shri Anil Thomas in the cash flow statement. However, no substantive evidence has been brought out by the assessee. In the absence of the identity of the person from whom the amount has been received, the addition is sustained. This ground of appeal for the assessment year 2007-08 is rejected.
21. Next ground for the assessment year 2007-08 is with regard to loan received from Shri Rahiman at Rs. 10 lakhs. As discussed in the earlier para, 37 ITA Nos.501-507/C/2016 & Others K.A. Rauf & Others there is no evidence regarding the receipt of loan from Shri Rahiman. Being so the addition is sustained. This ground of appeal is rejected.
22. The next ground for the assessment year 2007-08 is the addition of loan Rs.12.50 lakhs received from Smt. Rajeena. For the same reasons as in the earlier ground, the addition is sustained. Hence, this ground of appeal for the assessment year 2007-08 is rejected.
23. The next ground for the assessment year 2008-09 is with regard to purchase of agricultural land at Vazhakad at Rs. 2,23,000/-. 23.1 The facts of the case are that the addition was made on account of specific document seized for the agreement dated 7th March, 2007 attached to the registered document of the property, purchased by the assessee at Vazhakad @ Rs.14,000/- per cent from Shri Mohd. Abdu Rahiman. The amount at which the property has been registered is Rs.61,000/- whereas the total amount as per agreement to sell is Rs.2,84,200/-. Thus the difference sum of Rs.2,23,200/- was added.
23.2 The CIT(A) rejected the argument of the assessee that on subjective basis no such document was recovered or put to the assessee by observing that since there was direct basis at which the difference amount of bills for the purchase of 38 ITA Nos.501-507/C/2016 & Others K.A. Rauf & Others the property was worked out, the addition made by the Assessing Officer was upheld.
23.3 We have heard the rival contentions and perused the record. In this case, though the property was registered for Rs.61,000/- , there was an agreement to sell the property for a consideration of Rs.2,84,200/- which was brought on record by the Assessing Officer. Being so, we do not find any infirmity in the order of the CIT(A). Hence, the addition of Rs.2,23,200/- is sustained. Accordingly, this ground of appeal of the assessee is rejected. 23.4 In the result, the appeals in ITA Nos. 502/Coch/2015 and 505/Coch/2015 are partly allowed for statistical purposes and the appeals in ITA No. 501/Coch/2015, 503/Coch/2015, 504/Coch/2015, 506/Coch/2015 and 507/Coch/2015 are dismissed.
ITA Nos. 493,494 & 495/Coch/2015 : Revenue appeals
24. There was a delay of 106 days in filing of the appeals by the Department. The Department has filed condonation petition for condoning the delay in filing the appeals stating administrative reasons. After perusing the condonation petition, we find that there is sufficient cause for condoning the delay in filing the appeals. Accordingly, we condone the delay and admit the appeals. 39
ITA Nos.501-507/C/2016 & Others K.A. Rauf & Others 24.1. Revenue has raised the following common grounds:
1. The CIT(A) has overlooked that statement of the witness under oath has evidentiary value.
2.The CIT(A) has overlooked the statement of Mr. Mohanraj which is evidence by seized materials from the premises of M/s. Nilambur Traders.
3.The CIT(A) overlooked that retraction by the witness after a long gap of time is suspect.
24.2 The facts of the case are that during the course of search proceedings, Shri U.K. Mohan Raj was examined by the AD(Inv), Calicut on the basis of the information and materials found regarding the money lending business of the assessee. Shri Mohanraj stated that he had borrowed Rs.50 to 60 lakhs from the assessee in the year 2006 to 2007 and given numerous bank cheques and signed blank stamp papers to him as security. He was forced to sign two cheques for an amount of Rs.2.3 crores in the name of the assessee. The amount was received in cash, the oral agreement was to pay interest @ 10% and if he fails, he has to pay penal interest and also revise the interest @ 20% per month on the balance outstanding. He made repayment of about Rs.2.5 crores to the assessee as on date and all these payments were made in cash and no receipts were given to this effect. In October, 2007, the assessee explained to him that he was liable to pay an amount of Rs.1.6 crores and explain the manner in which he has worked out the amounts payable fortnightly interest is calculate. He has evidenced his re-payment with the bank withdrawals from October, 2007 to April, 2008. The source for this was the sale proceeds of land and building of 40 ITA Nos.501-507/C/2016 & Others K.A. Rauf & Others M/s. Blue Diamond Theatre, Calicut. When this was pointed out to the assessee, the assessee requested cross examination of Shri Mohanraj. A summon was issued to the assessee to appear for cross examination but Shri Mohanraj could not attend stating health reasons. An affidavit dated 22/12/2011 was signed by Shri U.K. Mohanraj stating all the facts and he retracted from his statement given before the ADIT(Inv.), Calicut on 10/11/2009. On 23/12/2011, the assessee furnished a letter stating that what he had stated before the income tax authorities on 10/11/2009 was correct and he had not given any affidavit retracting from the facts stated in the statement under oath dated 10/11/2009.
In the light of the above, it was confirmed that the assessee had give loan to Shri U.K. Mohanraj during the previous year relevant to the assessment year 2007-08 and the assessee had not shown the same in the cash flow statement. Therefore, the sum of Rs.55,00,000/- was added to the total income. Similarly for the assessment year 2008-09, the Assessing Officer has made the addition of Rs.10745000. For the assessment year 2009-10, the Assessing Officer made the addition of Rs. 64 lakhs.
24.3. From the relevant assessment record of Shri U.K.Mohanraj, the CIT(A) observed that notice u/s. 148 was issued on 8/11/2011 for failure on the part of Shri Mohanraj to file returns of income for the assessment years 2007-08, 2008- 09 and 2009-10. The CIT(A) observed that the intimation regarding the transactions of Shri Mohanraj and Shri K.A. Rauf was referred to the Assessing 41 ITA Nos.501-507/C/2016 & Others K.A. Rauf & Others Officer by the DCIT, Central Circle, Calicut on 5/11/2012 whereas the Assessing Officer had passed order u/s. 144 r.w.s. 147 on 25/03/2013 but without mentioning anything about the loan transactions and the payment of interest between Shri Mohanraj and Shri K.A. Rauf. For the assessment years 2008-09 and 2009-10, the proceedings u/s. 148 was dropped by observing as follows:
"assessee did not file his return of income in response to notice u/s. 148 even after repeated reminders. As the assessee has no known source of income other than sale of immovable property in the previous years, details were called for from SRO to assess income from capital gain and conclude the assessment u/s. 144. No transactions relating to the asst. years 2008-09/2009-10 were reported. There is no material on record to indicate that the assessee had any income during the year. Since there is no taxable income in the hands of the assessee for the asst. year 2008-09/2009-10, assessment proceedings are dropped. Transactions were reported by SRO for asst. years 2007-08 and 2010-11. Capital gains were assessed accordingly."
In reply to Q. No. 6, Shri Mohanraj had claimed repayments of loan and interst out of three bank accounts maintained with Karnataka Bank, Vysaya Bank and Federal Bank and the repayments were made from October 2007 to April 2008. The CIT(A) noted that unless the fact emanating from the statement of UK Mohanraj is verified with further evidence such as the repayments stated by him should have been verified with his bank account details, there could be no evidentiary value of such statement. Further it was noted that the assessee had demanded cross examination of Shri Mohanraj but was not provided an opportunity by the Assessing Officer. Without verification of facts and allowing cross examination to the assessee, the Assessing Officer came to the conclusion 42 ITA Nos.501-507/C/2016 & Others K.A. Rauf & Others that the assessee gave loan of Rs. 55 lakhs to Shri Mohanraj and also interest income of Rs.107.45 lakhs for the assessment year 2008-09 and Rs.64 lakhs for the assessment year 2009-10. Thus the CIT(A) held that the statement of Shri Mohanraj relied upon by the Assessing Officer despite the statement recorded u/s. 132(4) cannot be treated as sufficient evidence to conclude that the sum of Rs.55 lakhs was given by the assessee as loan to Shri Mohanraj and an interest @ 10% per month on such loans were received as income by the assessee. Accordingly, the CIT(A) deleted the addition made by the Assessing Officer on this count.
24.4 Against this the Revenue is in appeal before us.
24.5 We have heard both the parties and perused the record. In this case, it was stated by Shri Mohan Raj that payment has been made to the assessee through bank accounts in Karnataka Bank, Vysya Bank and Federal Bank. As per the answer to Question No. 6, in his statement recorded, the Assessing Officer has not verified these facts from his bank accounts. Further, the assessee asked for cross examination of Shri Mohan Raj which was not provided by the Assessing Officer. Thus CIT(A) being co-terminus with the Assessing Officer, should have examined the bank accounts as well as given an opportunity of cross examination of Shri Mohan Raj by the assessee which was not done by him. In our opinion, this issue is remitted to the file of the Assessing Officer to 43 ITA Nos.501-507/C/2016 & Others K.A. Rauf & Others verify the bank accounts and also provide opportunity of cross examination to the assessee and decide thereupon. With this observation, we remit this issue to the file of the Assessing Officer for fresh consideration. This ground of appeal of the Revenue for all the assessment years is allowed for statistical purposes. The appeals in ITA Nos. 493, 494 & 495/Coch are allowed for statistical purposes.
ITA Nos. 413 to 416/Coch/2016 : Smt.K.R. Raseena ITA Nos. 417 & 418/Coch/2016: Smt. K.R. Raiza ITA Nos. 422 to 427/Coch/2016 : Smt K.R. Fathima
25. All these appeals filed by the assessees are directed against different orders of the CIT(A)-IV, Kochi for different assessment years. The appeals in ITA Nos. 413 to 416/Coch/2016 and 417 & 418/Coch/2016 and ITA Nos. 422 to 427/Coch/2016 were part heard on 18/04/2018. The assesses were represented by Shri P. Raghunathan, Adv., Ld. Counsel for the assesses and the Revenue was represented by Shri A. Dhanaraj, Sr. DR.
25.1 There was a delay of 77 days in filing the appeals of the assesses herein. The assesses filed condonation petition accompanied by affidavit from Shri K.A. Rauf who has been running the business on behalf of the assessees herein. It was explained by the assessee in the condonation petition accompanied by affidavit that the delay was due to the ill-health of Shri K.A. Rauf's mother during the month of May, 2016 and finally he lost his mother. Thereafter, he was pre- 44
ITA Nos.501-507/C/2016 & Others K.A. Rauf & Others occupied with the ceremonies in connection with the same. The delay in filing these appeals was beyond the control of the assessees herein and it was neither willful nor deliberate and prayed to condone the delay. The Ld. DR did not object to the condonation petition filed by the assessee.
25.1 We have gone through the condonation petition filed by the assesses and affidavit filed by Shri K.A. Rauf on behalf of the assesses herein. In our opinion, substantial justice is of prime importance, expression "sufficient cause" should perceive a liberal construction. In these cases, there was a delay of 77/76 days as the case may be in filing these appeals before this Tribunal. There is sufficient cause for condonation of the delay and when the delay was for short duration, a liberal view should be taken. In our opinion, when there is sufficient cause for not filing the appeals within the period of limitation, the delay has to be condoned. Further, Shri K.A. Rauf has filed affidavit on behalf of the assesses herein, explaining the delay. However, there was no counter affidavit opposing the application of the assessee for condoning the delay. In our opinion, non-filing of affidavit in opposition to the application for condonation of delay by the Revenue is also sufficient cause for condoning the delay. Hence, in our opinion, there existed good and sufficient reason for filing the appeals belatedly. Accordingly, we condone the delay and admit the appeals for adjudication. 45
ITA Nos.501-507/C/2016 & Others K.A. Rauf & Others ITA Nos. 413 to 416/Coch/2016 : Smt. K.R. Raseena
26. The first common ground in ITA No. 413 to 416/Coch/2016 is with regard to validity of assessment u/s. 153A r.w.s. 153C of the Act. 26.1 The facts of the case are that a search u/s. 132 of the I.T. Act was conducted at the residential premises of Shri K.A. Rauf, Shri K.C. Thomas, Shri K.A. Rasheed, Shri Elias, Shri Ipe Kovoor, Shri K.M. Ramli and the business premises of M/s. Nilambur Traders, and office of the K.A. Latex (P) Ltd. on 05/11/2009. During the course of search, certain documents and books were seized. According to the ld. AR, there was no incriminating material found in the course of search action u/s. 132 of the Act at the above premises on 05/11/2009. The Ld. DR relied on the orders of the authorities below. 26.2 We have heard the rival submissions and perused the record. Admittedly in this case, there was search in the case of K.A. Treads u/s. 132 of the Act where the assessee is a proprietrix and certain documents were seized. Further in the statement recorded from one of the employees of the assessee namely, Shri K. Jaffar on 5/11/2009, it was stated that there was suppression of sales to the extent of 50% The relevant portion of the statement is reproduced below:
"3. As far as K.A. Treads are concerned all the entries are made in the computer from F.Y. 2007-08 onwards and the accounts are finalized for the Financial Year 2007-08 by giving appropriate depreciation etc. But from the year 2008-09, only the entries are made. As far as I know, there are some adjustments will be made in the sales, while entering itself. This 46 ITA Nos.501-507/C/2016 & Others K.A. Rauf & Others may be almost 50% of the sales suppression. The accounts for the year 2007-08 are made by suppressing 50% of the sales."
In view of this, we find no infirmity in the issue of notice u/s. 153A of the Act calling for filing of returns of income on 03/05/2010 for the assessment year 2004-05 to 2009-10. Being so, we are not in agreement with the argument of the ld. AR that the issue of notice u/s. 153A is bad in law and thereafter, framing of assessments u/s. 153A r.w.s. 153C of the Act. Accordingly, we reject this ground of appeals of the assessee for all the assessment years 26.3 The next common ground in these appeals is with regard to addition made towards lease rent from property in Maharashtra as agricultural income. 26.4 The facts of the case are that assessee had shown Rs. 2,50,000/- received from cultivation of agricultural land taken on lease from Mr.Chandrakant Nivrutti Patil. The advocate who notarized the document admitted that the said document was signed for the purpose of keeping a copy and not for producing it before any authority and the same is not legally valid. Being a deed of lease, it should be executed in a stamp paper having required value as per Stamp Act. This was not accepted by the Assessing Officer for the following reasons:
1. The lease agreement do not have any legal validity as same is not executed in a stamp paper.
2. The assessee does not have easement right (Pokkuvarau) in the said property and therefore it is not in the assessee's possession.47
ITA Nos.501-507/C/2016 & Others K.A. Rauf & Others
3. The credit worthiness of lessee is not proved.
4. Sublease rent was paid in cash.
5. The assessee could not give the name and address of the person who received the money since the assessee is in Kerala.
6. The assessee failed to produce the original of the agreement which was notarized on 6.12.2011 from Calicut.
7. The crops mentioned in the letter of lessee require a minimum of one year to yield in initial year except paddy.
Therefore the income derived from leasing the agricultural land was disallowed as the income was derived by the assessee from unknown source. The same was confirmed by the CIT(A). Similar is the position in all the assessment years, only change in amount.
26.5 Against the assessee is in appeal before us. The contention of the Ld. AR is that the lower authorities did not consider the fact that notary who had attested and notarized the photocopies of these agreements stated that it was actually required in connection with proceedings pending before the authorities and also fact that each of the lessee had admitted lease as well as payment of lease rent. In the light of the above, the authorities below should not have rejected the same. The Ld. DR relied on the orders of the lower authorities. 26.6 We have heard the rival submissions and perused the record. The issue was dealt with in earlier paras wherein we held that it is only a make believe story so as to show the source of income to explain the investments. The facts of 48 ITA Nos.501-507/C/2016 & Others K.A. Rauf & Others this case is also similar and the assessee created self serving documents towards introducing own cash in the garb of exempted agricultural income. No credence is to be given to the photocopies of the agreements filed by the assessee. Accordingly, in our opinion, the lower authorities are justified in rejecting the claim of the assessee in this case also. This ground of appeals of the assessee is dismissed.
26.7 The next common ground in ITA Nos. 414, 415 and 416/Coch/2016 is with regard to additions towards suppression of sale of M/s. K.A. Treads. 26.8 The facts of the case are that the search revealed that the assessee had suppressed the sales as per the seized records from Nilambur Traders (CHN/14/Nilambur/20, 21 page 1, 2 & 14) relating to M/s. K.A. Treads. There are also details of sales suppression in CHN/14/Nilambur/21 & 22. When this was pointed out Shri Rauf has stated in the sworn statement recorded at the time of search (answer to Question No. 15) that there is a suppression of sales in the books of accounts of M/s. K.A. Treads. At the time of hearing the same was put before the assessee and the assessee vide letter dated 15/11/2011 clarified that the figures shown in the seized item No. 21 & 22 are made by Shri Rauf. These are the sales of tread rubber or rubber compound by K.A. Treads to Mr. Dhanajayan, Deepak Trading Company and Shri Babu, Suntech Enterprises, Bangalore and that to the best of his knowledge these transactions are reflected 49 ITA Nos.501-507/C/2016 & Others K.A. Rauf & Others in the books of his accounts. But the assessee failed to reconcile these entries with that of the books of accounts and he has shown three interstate sales which is matching with the ledger copy produced at the time of hearing said to be the party's account maintained by the assessee. The Ld. AR could not reconcile the entries with respect to the seized material. The employee of the assessee, Shri K. Jaffar, in the statement recorded at the time of search also confirmed the sales suppression in M/s. K.A. Treads was almost 50% of the sales accounted for the financial year 2007-08.
26.9 On appeal, the CIT(A) considered 10% of GP on the suppressed sales in respect of entire turnover as income of the assessee. Against this the assessee is in appeal before us.
26.9.1 We have heard the rival submissions and perused the record. The CIT(A) considered 10% of GP on the suppressed sales in respect of entire turnover as income of the assessee. Generally, we consider the entire turnover as suppressed income of the assessee. However in the present case, CIT(A) considered only 10% of the GP on the suppressed sales as income of the assessee and he was very liberal. Since the Department is not in appeal before us, there being no option before us, we are inclined to confirm the order of the CIT(A) on this issue. This ground of appeals of the assessee is rejected. 50
ITA Nos.501-507/C/2016 & Others K.A. Rauf & Others
27. The next common ground in ITA Nos. 415 & 416/Coch/2016 is with regard to refusal of the assessing authority to accept the claim of receipt of the assessee of Rs.11,78,300/- and 5,10,000/- from Shri Ziad in AY 2009-10 and 2010-11.
27.1 The facts of the case are that in the cash flow statement submitted by the assessee at the time of hearing the assessee had shown an inflow of Rs.5,10,000/- by Ziad through Fathima. No evidence or satisfactory explanation was given by the assessee at the time of hearing. It is pertinent to note that the assessee was proposing to buy a flat at Bangalore and the amount earned by the assessee's husband in abroad was transferred to assessee's in laws' account for the purpose of purchase of flat. But the assessee was utilizing it as source for her investment which is evidenced by the noting made by her in the seized material, CHN/14/Nilambur/14&15. When this was pointed out the assessee had not offered any comments. The assessee also confirmed in the statement taken on 16/12/2011 that the probable cost was estimated to Rs.68 lakhs and the acquisition was made for Rs.48.5 lakhs, therefore the same was allowed. 27.2 On appeal, the CIT(A) observed that the assessee had received Rs.5,10,000/- from her husband Shri Ziad through her mother which means that the assessee's husband sent the money of Rs.5,10,000/- during the AY 2009-10 to her mother-in-law and the assessee's mother in turn gave this money to the 51 ITA Nos.501-507/C/2016 & Others K.A. Rauf & Others assessee. However, it was observed that other than this subjective logic and argument, no documentary evidence has been given which could establish the source of Rs.5,10,000/- in AY 2009-10 and Rs.11,78,300/- in A.Y. 2010-11 in the form of cash, in the hands of the assessee as explained. Since the cash stand unexplained in the hands of the assessee, the CIT(A) confirmed the addition made by the Assessing Officer.
27.3 We have heard the rival submissions and perused the record. In this case, the assessee has not brought on record cogent evidence to show that the said amount has been received from Shri Ziad. In the absence of specific evidence, we are not in a position to accept the genuineness of the claim of the assessee. Hence, this ground of appeals for both the years is rejected. The appeals in ITA Nos. 413 to 416/Coch/2016 are dismissed. ITA Nos. 417 & 418/Coch/2016 : Smt. K.R. Raiza
28. This first common ground in ITA Nos. 417&418/Coch/2016 is with regard to validity of issue of notice u/s. 153A r.w.s. 153C of the Act. 28.1 The facts of the case are that certain investments in the purchase of agricultural land by Shri K.A. Rauf in the name of self and his family members were found during the search. Since there was substantial undisclosed 52 ITA Nos.501-507/C/2016 & Others K.A. Rauf & Others investment in the purchase of property and the owners were different members of the family, the Assessing Officer issued notice u/s. 153A r.w.s. 153C as a direct linkage could be established based on the facts as well as the circumstances.
28.2 On appeal the CIT(A) confirmed the order of the Assessing Officer on this issue.
28.3 Against this the assessee is in appeal before us. We have heard the rival submissions and perused the record. As discussed in para 26.2, we do not find any infirmity in the issue of notice u/s. 153A r.w.s. 153C of the Act and confirm the same. This ground of appeals of the assessee is dismissed. 28.4 The next common ground in both the appeals is with regard to addition of agricultural income on receipt of lease rent from properties purchased in Maharashtra.
28.5 The facts of the case are that in the cash flow statement, the assessee had shown agricultural income of Rs.32,62,500/- and the assessee produced a notarized copy of the agreement of lease of agricultural land between the land owners and Shri Ameya Chandrakant patil, Shri Bhima Rao Vital Nikam, shri Vijayakumar Bhimarao Nikam, Shri Vikram Vasanth Shete, Shri Sylendra Pawar, 53 ITA Nos.501-507/C/2016 & Others K.A. Rauf & Others Shri Vasanth Rao Shete. The advocate who notarized the document had admitted that the said document was signed for the purpose of keeping a copy and not for production before any authority and same had no legal validity, being a deed of lease it should be executed in a stamp paper having the required value as per the Stamp Act. This was not accepted by the Assessing Officer for the reasons as stated in para 26.4 of this order. Therefore the income derived from leasing the agricultural land was disallowed as the income was derived by the assessee from unknown source. The same was confirmed by the CIT(A). 28.6 Against this, the assessee is in appeal before us. We have heard the rival submissions and perused the record. As discussed in para 26.6, this ground of appeals of the assessee for both the years is dismissed. Thus, the appeals of the assessee for both the years are dismissed.
ITA Nos. 422, 423, 424, 425, 426 & 427/Coch/2016 : Smt. K.A. Fathima
29. The first common ground in all these appeals is with regard to validity of assessment u/s. 153A r.w.s. 153C of the Act.
29.1 The facts of the case are that search u/s. 132 of the I.T. Act should be conducted only at places where the assessee has exclusive right and the details of purchase of land in the assessee's name (Through power of attorney holder) does not constitute 'documents' or valuable article or thing. Moreover the assessee had interest in M/s. Nilambur Traders, M/s. K.A. Latex Pvt. Ltd. which 54 ITA Nos.501-507/C/2016 & Others K.A. Rauf & Others were covered u/s. 132 of the Act and seized books and documents. Therefore the Assessing Officer observed that the assessee's arguments were without knowing and understanding the case covered by clause © of 132(1) and 132(1) (A)(1) of I.T. Act. If the argument of the assessee was correct what is the reason for the increase in total income in the return of income filed by the assessee in response to the notice u/s. 153A(a) from that of original return of income. At the time of hearing the assessee stated that all the investments as per the records and activities have been done by Shri K.A. Rauf, assessee's husband and she is only a partner and director of the business concerns. 29.2 On appeal the CIT(A) observed that the assessee is a director with her husband, Shri K.A. Rauf in K.A. Latex Pvt. Ltd., partner with her husband in M/s. Nilambur Traders and proprietor of M/s. K.A. Treads. The CIT(A) observed that certain documents suggesting investment as well as cash deposits made into the bank account of M/s. K.A. Treads were found and later confirmed at the strength of the seized materials. According to the CIT(A) a linkage was established initially based on certain power of attorney given by the assessee to one Shri Pratap Chandran which constitutes enough evidence to have initiated assessment proceedings u/s. 153A r.w.s. 153C of the Act. Thus the CIT(A) confirmed the assessment orders passed by the Assessing Officer as valid and legal. 55
ITA Nos.501-507/C/2016 & Others K.A. Rauf & Others 29.3 Against this the assessee is in appeal before us. We have heard the rival submissions and perused the record. As discussed in para 26.2, we do not find any infirmity in the issue of notice u/s. 153A r.w.s. 153C of the Act and confirm the same. This ground of appeals of the assessee for all the years is dismissed.
30. The next ground in both the appeals is with regard to non consideration of agricultural income.
30.1 The facts of the case are that the Assessing Officer found that the agricultural income was not shown in the original returns of income filed. The assessee had not given any supporting evidence for the agricultural income. The assessee had shown this amount to build up cash for future investment. Therefore, the agricultural income shown in the cash statement was disallowed and added to the total income returned, treating it as income earned by the assessee which was not disclosed to the Department.
30.2 On appeal the CIT(A) observed that an income cannot be based on mere presumption that if the assessee owns some agricultural land, the income from agricultural operation arises automatically. In order to establish the income from agricultural land, the procedures have been laid out for maintaining the details of receipts and expenses which were to be furnished. In view of this, the CIT(A) confirmed the decision taken by the Assessing Officer. 56
ITA Nos.501-507/C/2016 & Others K.A. Rauf & Others 30.3 We have heard both the parties and perused the record. As discussed in para 26.6, we do not find any infirmity in the order of the CIT(A) and the same is confirmed. This ground of appeals of the assessee in all the appeals is rejected. Thus the appeals of the assessee are dismissed. ITA No. 421/Coch/2016 : Razia Ahammed
31. The first ground is with regard to validity of assessment u/s. 153A r.w.s. 153C of the Act.
31.2 The facts of the case are that certain investments in the purchase of agricultural land by Shri K.A. Rauf in the name of self and his family members were found during the search. Since there have been substantial undisclosed investment in the purchase of property and the owners have been different members of the family, the Assessing Officer issued notice u/s. 153A r.w.s. 153C of the Act as a direct linkage could be established based on the facts as well as the circumstances.
31.3 On appeal, the CIT(A) confirmed the order of the Assessing Officer on this issue.
57
ITA Nos.501-507/C/2016 & Others K.A. Rauf & Others 31.4 Against this the assessee is in appeal before us. As discussed in para 26.2, we do not find any infirmity in the issue of notice u/s. 153A r.w.s. 153C of the Act and confirm the same. This ground of appeal of the assessee is dismissed. Thus the appeal of the assessee is dismissed.
ITA Nos. 419 & 420/Coch/2016 : Nilambur Traders
32. These two appeals filed by the assessee are directed against the order of the CIT(A)-IV dated 31/03/2016 and pertain to assessment years 2009-10 and 2004-05.
32.1 There was a delay of 77 days in filing these appeals before the Tribunal. The assessee has filed a condonation petition accompanied by affidavit stating that the affairs of the firm were looked after by Shri K.A. Rauf, the managing partner of the assessee-firm. It was explained by the assessee in the condonation petition accompanied by affidavit that the delay was due to the ill- health of Shri K.A. Rauf's mother during the month of May, 2016 and finally he lost his mother. Thereafter, he was pre-occupied with the ceremonies in connection with the same. Therefore, there was a delay of 77 days in filing these appeals before the Tribunal. The Ld. DR did not object to the condonation petition filed by the assessee. We have considered the argument of the Ld. AR and gone through the condonation petition alongwith the affidavit. We are satisfied about the reasons explained by the assessee. Accordingly, we condone the delay of 77 days and admit the appeal for adjudication. 58
ITA Nos.501-507/C/2016 & Others K.A. Rauf & Others 32.2 The first common ground in these two appeals is with regard to notice issued u/s. 148 of the Act for re-opening of the assessments. These two assessments were re-opened by issuing notice u/s. 148 of the Act. However, the assessee has not agitated this ground before the CIT(A). The assessee has not placed any evidence to show how he was prevented by sufficient reasons in not filing the ground before the CIT(A). Further the assessee has not put up any objections on this issue. Considering these facts, we are inclined to dismiss this ground as not arising out of the order of the lower authorities. 32.3 The next common in ITA No. 420/Coch/2016 is with regard to the finding of the CIT(A) that the assessee has inflated expenditure to the extent of 10% . 32.4 The facts of the case are that the Assessing Officer made the addition on account of inflation of expenditure at 10% of the gross profit for the assessment year 2004-05. The Assessing Officer observed that at the time of search Shri K. Jaffar who was managing the financial matters and accounts of the assessee firm M/s. Nilambur Traders, stated that there is a normal practice of inflating the expenditure at the time of finalization of the accounts. It is evident from the materials seized from the premises of assessee and statement submitted along with the return of income.
59
ITA Nos.501-507/C/2016 & Others
K.A. Rauf & Others
Description Amount shown (Rs.)
Along with return Evidence seized
of income
1. Opening stock 171561 171561
2 Purchase drum 4992401 4992401
3 Purchase Lump 3824670 3985363
4 Sulfuric Acid 1057946 1068814
5 Electricity 190657 190657
6 Transporting charges 46163 38058
7 Sales 13767625 13767125
8 Closing stock 1588713 1477300
9 Wages 618686 551608
10 Allowances 38782 27653
11 Food expenses 248852 193235
12 Interest and bank 507048 265138
charges
13 Salary 310350 173667
The repairs and maintenance accounts were seized as provisional trading and Profit and Loss account. Therefore the statement given by the employee was substantiated with the material found. Therefore the inflation of expenditure was quantified at 10% of the gross profit declared before the department. The gross profit shown in the account was Rs.44,54,253/- and inflated expenditure 60 ITA Nos.501-507/C/2016 & Others K.A. Rauf & Others was quantified at Rs.4,45,425/- and the same was added to the total income of the assessee.
32.5 The CIT(A) observed that during the course of search, certain paper relating to the working of opening stock, closing stock, purchases, sales and expenses such as wages, allowances food expenses, etc. were found. According to the CIT(A), the AO had considered that the Gross Profit was shown at Rs.44,54,253/- and 10% of such Gross Profit was treated as inflated expenditure and the same was added to the total income. According to the CIT(A), the assessee's contention was that the AO has no basis for applying the rate of 10% of the Gross Profit to have arrived at the inflated expenditure and at the most, the difference in the particular head of expenses as shown to that of with the amount shown in seized papers could have been considered for disallowance. The CIT(A) observed that in some of the head of expenditure the claim of expenses were more in the seized paper than those shown in the return of income. The CIT(A) found that the AO has not applied any sound basis to have worked out the disallowable expenditure. However, having regard to the fact that the seized paper suggesting some different set of expenses incurred, the CIT(A) confirmed the addition made by the Assessing Officer. 32.6 Against this the assessee is in appeal before us. The Ld. AR submitted that a perusal of the statement would show that Sri Jaffar had not made any 61 ITA Nos.501-507/C/2016 & Others K.A. Rauf & Others statement that it is normal practice of inflating expenses at the time of finalization of the accounts as indicated by the Assessing Officer and his only statement was with reference to the statement of accounts which have been finalised for the AY 2007-08 - was as follows:
"[Ans to Q.4:] ... ... As stated above, I admit that certain expenses were inflated under the head food expenses, repairs and maintenance, accounts. I also admit that the same [the work same is subsequently struck off] expenses are also inflated under the same head in earlier years also."
32.7 The Ld. AR submitted that the Assessing Officer did not offer any opportunity to the assessee for cross examination of Shri Jaffar. In this regard, the Ld. AR submitted that all expenses were properly vouched and/or supported by bills. The Ld. AR submitted that the Assessing Officer should have specified the details of evidences seized and sought explanation from the assessee before such materials were made use of against the assessee. Therefore the Ld. AR submitted that the disallowance of Rs. 4,45,425/ may be set aside. The Ld. DR relied on the orders of the lower authorities.
32.8 We have heard the rival contentions and perused the record. At the time of search, Shri Jaffar, manager of the assessee stated that it was a normal practice of inflating expenditure at the time of finalization of the accounts which was evident from the materials seized from the premises of the assessee and the statement alongwith the return. Since there was evidence in the form of seized material to suggest inflation of expenditure, the CIT(A) considered 10% of the 62 ITA Nos.501-507/C/2016 & Others K.A. Rauf & Others gross profit as inflated expenditure. In view of this we do not find any infirmity in the order of the CIT(A). Accordingly, we confirm the same. This ground of appeal of the assessee in ITA No. 420/Coch /2016 is dismissed.
33. The next ground in ITA No. 419/Coch/2016 is with regard to finding of the CIT(A) that as per CHN/14/Nilambur/25(5), the net profit was at Rs.37,55,858/-. 33.1 The facts of the case are that at the time of search, profit and loss account of the assessee was seized from the business premises of the assessee (CHN/14/Nilambur/25(5) in which the net profit was shown at Rs.37,55,858/-. The Assessing Officer found that the assessee failed to reconcile the accounts submitted by the assessee and seized from the business premises of the assessee. The sales value in both the accounts were identical stock value and the purchase value mentioned by the assessee was excess of Rs.7940/- with that of seized documents. On going through both the statements, it was seen that the assessee had claimed the following expenses:
Item As per return of As per materials seized
income
Food expenses 10,44,665 3,04,414
Vehicle maintenance 17,35,882 13,33,535
Salary 9,29,039 7,99,039
Utensils 75, 793 49,653
63
ITA Nos.501-507/C/2016 & Others
K.A. Rauf & Others
The Assessing Officer observed that the assesse had claimed depreciation of Rs.17,56,143/- which was not seen in the seized records. Therefore the correct come of the assessee was computed from the net profit seen in the seized materials as under:
Net profit Rs.37,55,858
Add: Donation 35,133 Rs. 33,133
Rs.37,90,991
Less: Depreciation
Interest on Capital (Smt. Fathima) 17,56,143
1,38,960
Interest on Capital (Shri Rauf) 2,49,270 Rs.21,44,373
During the course of search a paper containing the working of Net Profit of Rs..37,55,858/- was seized.
33.2 The CIT(A) observed that the findings of the Assessing Officer is based on the seized document and the net profit working was considered on the basis of that seized document. Thus the CIT(A) held that the contentions raised by the assessee that the Assessing Officer did not have any basis for considering the net profit at Rs.37,55,858/- is not correct. Accordingly the CIT(A) confirmed the findings of the Assessing Officer as no evidence contrary to the findings of the Assessing Officer was produced.
33.3 Against this the assessee is in appeal before us. The Ld. AR submitted that the profit and loss account recovered was not the final statement but only a tentative one and was apparently prepared before the audit of the accounts. The 64 ITA Nos.501-507/C/2016 & Others K.A. Rauf & Others assessee submitted that the return of income was filed based on the accounts maintained by the assessee and the same was audited by a chartered accountant. The Ld. AR submitted that the Assessing Officer should have put the statements specifically to the assessee and offered him an opportunity to reconcile the figures. The Ld. AR submitted that regarding the expenses under four heads being different from and less than the figures furnished in the return of income, the Assessing Officer has not indicated the details of the materials seized. It was submitted that the Assessing Officer should have put those materials specifically to the assessee and explanation called for. The Ld. DR relied on the orders of the lower authorities.
33.4 We have heard the rival contentions and perused the record. The addition was made on the basis of seized material found during the search. The assessee has not placed any material contrary to this. Hence we do not find any infirmity in the order of CIT(A) and confirm the same. Thus this ground of appeal in ITA No.419/Coch/2016 is dismissed. In the result, both the appeals of the assessee are dismissed.
ITA No. 306/Coch/2016: Revenue appeal
34. This appeal filed by the Revenue is directed against the order of the CIT(A)- IV, Kochi dated 31/03/2016 and pertains to the assessment year 2008-09. 65
ITA Nos.501-507/C/2016 & Others K.A. Rauf & Others 34.1 The first ground is with regard to unexplained investment of Rs.75,50,000/- in the purchase of machinery by M/s. K.A. Reclaims proprietary concern of Smt. K.R. Raiza.
34.2 The facts of the case are that the machinery was actually purchased by the assessee for Rs.26 lakhs as per purchase bills. The Dy. Director (Engg.) of the Rubber Board visited the premises of the assessee on 12/01/2010 with IT Officers and valued the machinery based on the prevailing market rates and physical condition of the items. The value was fixed at Rs.101.5 lakhs and the difference assessed in the hands of the assessee. Before finalizing the valuation no opportunity was given nor any opportunity was given before the inspection by the Rubber Board Authority. The assessee was not required to produce the bills and the valuation of the machinery was done under the belief that the purchase is undervalued which was not supported by any material at all. 34.3 The CIT(A) relied on the findings in the case of K.A. Rauf wherein it has been held as under:
"9.3. The crux of the issue is that the assessee made investment in machinery which was bought for M/s K.A. Latex P. Ltd. to be utilized for their business of rubber processing. The appellant has stated that these are second-hand machinery, which have been imported from Malaysia, after completing all the formalities relating to customs duty. The invoice raised by the foreign sellers have been verified by the customs authorities. However, the ADIT(lnv.) referred the matter to the Rubber Board, Joint Director(Engg) for its valuation. The rubber board authorities have valued the machinery at Rs. 1,31,50,000/-, as against the total consideration shown to have been paid for the purchase of second-hand imported machinery by the appellant at Rs. 57,09,248/-. The 66 ITA Nos.501-507/C/2016 & Others K.A. Rauf & Others assessing officer treated the difference amount of Rs. 74,40,752/- as undervaluation on account of the machinery.
9.4. The appellant has submitted that the rubber board is not the appropriate authority with regard to valuation of machinery used in manufacturing units, particularly in respect of imported machinery. The Engineer appears to have carried out the valuation based on prevailing market rate and condition of machinery. However, the report does not contain any details about the prevailing market rate nor does it indicates the age of the machinery. Further, the valuation has not referred to the import bills as well as he has not considered this fact that the said machineries are second-hand machineries. The appellant has further explained that the machineries have been imported after payment of duty on the value of the imported machinery to the customs authorities. In case of pre-used machineries, the value is certified by Chartered Engineer whose certificate is required to accompany the import, and the Customs department acts on such certificates.
9.5. The appellant has shown the invoice during the course of appeal proceedings which mentions it as "used rubber machinery ten units". The appellant has produced the customs clearance, and from the entire set of facts, it is comprehensible that the machineries are pre-used and imported. The appellant's grievance that the reference for valuation of machinery through rubber board, it is not appropriate authority to have valued and even if, it is considered that they have made the valuation, they have neglected the fact that the machineries are pre-used and imported. The contentions raised by the appellant that appropriate opportunities were not considered by the valuer and when the issue raised before the assessing officer the assessing officer has also followed the valuation report which were got evaluated by the ADIT (Inv). The Assessing Officer's observation that the machineries was not pre-used and not new, is not acceptable because the valuation party did not value the Glove manufacturing unit and they do not have any data on the price of this type of old machinery.
9.6. The assessing officer has rejected the contentions raised by the appellant and has held that the assessee's arguments are subjective and only an afterthought to avoid the tax liability. The machinery was not installed till 14.12.2011, as per letter by the Managing Director of the Company, only the investment appears in the cash flow statement showing the cost of machinery at Rs. 57,09,248/-.
9.7. It is seen that the issue of valuation of machinery appears to have certain lacuna so much so that the appellant's plea have not found proper consideration either at the end of the valuation or at the end of the assessment. The import bill suggest that these are second hand machinery, 67 ITA Nos.501-507/C/2016 & Others K.A. Rauf & Others and has been received only after clearance by the customs department, there is no other evidence to substantiate that any sum higher than what have been claimed by the appellant, were passed on to the sellers of the machines. No incriminating paper or any statement of the assessee or his employees are indicative of this fact. The investment in machines is a capital investment and once installed and the unit becomes functional, it is only depreciation, which could be considered in the hands of the assessee. In view of this, there is no justification for holding that an additional sum of Rs. 74,40,752/- has been spent by the assessee on purchasing these machines. Accordingly, the addition made by the assessing officer on account of undisclosed investment in machinery to the extent of Rs. 74,40,752/- is deleted."
34.4 Since the facts of the case are identical, the CIT(A) held that the findings given in the case of K.A. Rauf was applicable to the instant case also. Since it was concluded that no incriminating paper or any statement of the assessee or his employee was indicative of the fact of the under valuation of the machinery, the CIT(A) deleted the addition made by the Assessing Officer on account of undisclosed investment in machinery to the extent of Rs.75,50,000/-. 34.5 We have heard the rival contentions and perused the material on record. The Assessing Officer made addition towards unexplained investment and on the basis of valuation report filed by the DVO. However there was no incriminating material or any statement of the assessee or his employee to indicate the fact of the under valuation of the machinery. In the absence of any incriminating material it is not possible for us to sustain the addition made by the Assessing Officer. In our opinion, the deletion of addition made by the CIT(A) is justified and the same is confirmed. Accordingly, this ground of appeal of the Revenue is rejected. The appeal of the Revenue in ITA No. 306/Coch/2016 is dismissed. 68
ITA Nos.501-507/C/2016 & Others K.A. Rauf & Others In the result:
1) ITA Nos. 502/Coch/2015 and 505/Coch/2015 are partly allowed for statistical purposes.
2) ITA No. 501/Coch/2015, 503/Coch/2015, 504/Coch/2015, 506/Coch/2015 and 507/Coch/2015 are dismissed.
.
3) Appeals of the Revenue in ITAT Nos. 493 to 495/Coch/ are partly allowed for statistical purposes.
4) Appeals of the assesses in ITA Nos. 413 to 416/Coch/2016, 417 & 418/Coch/2016, 419 & 420/Coch/2016 and 421/Coch/2016 and ITA Nos.
422 to 427/Coch/2016 are dismissed.
5) Appeal of the Revenue in ITA No. 306/Coch/2016 is dismissed. Order pronounced in the open Court on this 23rd April, 2018.
sd/- sd/-
(GEORGE GEORGE K.) (CHANDRA POOJARI)
JUDICIAL MEMBER ACCOUNTANT MEMBER
Place:
Dated: 23rd April, 2018
GJ
Copy to:
1. Shri K.A. Rauf, "Shelter", Jayanthi Nagar Housing Colony, P.T. Usha Road, Calicut.
2. Smt. K.M. Fathima, W/o Shri K.A. Rauf, "Shelter", Jayanthi Nagar Housing Colony, P.T. Usha Road, Calicut.
3. Smt. K.R. Raiza, D/o Shri K.A. Rauf, "Shelter", Jayanthi Nagar Housing Colony, P.T. Usha Road, Calicut.
4. Smt. K.R. Raseena, D/o Shri K.A. Rauf, "Shelter", Jayanthi Nagar Housing Colony, P.T. Usha Road, Calicut.
5. Smt. Razia Ahammed, D/o Late Theriyath Muhammed, "Shelter", Jayanthi Nagar Housing Colony, P.T. Usha Road, Calicut.
6. M/s. Nilambur Traders, Industrial Estate, Beach Road, West Hill, Calicut. 69
ITA Nos.501-507/C/2016 & Others K.A. Rauf & Others
7. The Assistant/Deputy Commissioner of Income Tax, Central Circle-2, Kozhikode.
8. The Commissioner of Income-tax(Appeals)-IV, Kochi.
9. The Pr. Commissioner of Income-tax, Central, Kochi.
10. D.R., I.T.A.T., Cochin Bench, Cochin.
11. Guard File.
By Order (ASSISTANT REGISTRAR) I.T.A.T., Cochin 70