Income Tax Appellate Tribunal - Ahmedabad
A. A. Pathan vs Assistant Commissioner Of Income-Tax. on 31 March, 1995
Equivalent citations: [1995]55ITD33(AHD), (1996)54TTJ(AHD)107
ORDER
Per Abdul Razack, Judicial Member - Though the assessee has taken numerous grounds in each of the appeals relating to assessment years 1982-83 and 1983-84 but the common grievances can be summed up as under :-
(i) Issue of notice under section 148 of the Act and framing of assessments pursuant to such notice for each of the years under appeal.
(ii) Addition of Rs. 8,31,055 for assessment year 1982-83 and Rs. 8,67,082 for assessment year 1983-84 being brokerage income alleged to have been received by the assessee-firm M/s. Associated Engineering Corporation and M/s. Seema Enterprises of Shri P. C. Khatiwala and Mrs. Nirmala Khatiwala.
(iii) Holding that the gift amounting to Rs. 2.40 lakhs in assessment year 1982-83 and Rs. 1.25 lakh in assessment year 1983-84 to the assessee and his other family members were genuine.
2. At the time of hearing Shri J. P. Shah, assessees counsel was fair enough to submit that no decision is required to be given by us in these appeals in respect of grievance No. (i) above as no grievance was made out for each of the two years in the first appeal before the Appellate Commissioner (A/c). we are, therefore, not giving any decision in that regard.
3. The sum and substance of facts relating to other two grievances can be stated as follows : Various firms of Khatiwala viz Associated Engineering Corporation (AEC), M/s. Seema Enterprises (SE) (Proprietress Mrs. Nirmala Khatiwala) and other firms secured contracts from the Irrigation Department of the Government of Gujarat for supply of ERW pipes. The rate for supply which the Khatiwala firms secured was nearly or more than double than the prevailing market rate of similar material. As a result there were news item in local newspapers viz Gujarat Samachar and Sandesh highlighting this deal (contract). Pursuant to such news search operations under section 132 of the IT Act were conducted on the assessee as well as on the Khatiwala group of firms. Shri Pravinchandra Khatiwala (PK) who was associated as the main man with the various firms of Khatiwala group stated inter alia in his oath statement recorded under section 132(4) of the IT Act on 16-12-1986 as well as through various letters and petitions addressed to different authorities at different times and which have been clearly mentioned from pages 20 to 24 of the assessment order, that the Government contracts were secured because of the efforts of the assessee and who has been paid, by Khatiwala firms, 50% as brokerage after paying secret commission to various other persons/Government employees connected with the Government contracts. Shri PK further stated that a bank account was opened in Dena Bank, Fatehgunj Branch, Baroda in the name of AEC which was introduced by the assessee and that another bank account in the name of M/s. SE was opened in State Bank of India, Mandvi Branch, Baroda. But this bank account was not opened upon the introduction by the assessee. ln his further statement Shri PK stated that all the Government cheques received in relation to the contracts were deposited by the employees and associates of the assessee in those two bank accounts at Baroda and that he left signed blank cheques of both the bank accounts with the assessee and which were utilised by him in withdrawing cash by "self cheques" some times by him (assessee) and some times by his other employees and associates including one Shri B. A. Patel an employee of the Baroda Municipality. The signatures of the assessee and his employees and associates were found on the reverse of several self-drawn cheques obtained by the Assessing Officer by sum-moning from the bank authorities and the details of which can be found at pages 14 and 15 of the assessment order. When confronted, the assessee admitted that the signatures on the "self-cheques" were his and his employees. It was also stated by the assessee that almost all the self-cheques were withdrawn by Shri B. A. Patel and his address was also given. A request was also made by the assessee to summon Shri B. A. Patel and record his statement so that true facts can come on record. But this exercise was not done. Shri PK in answer to various questions put to him on 16-12-1986 (search day) stated further that the assessee after meeting the expenses of secret commission and after deducting his 50 per cent share of brokerage paid over the balance amount to him. The questions put and the answers given by Shri PK are extracted in the assessment order from pages 18 to 23.
4. When the assessee was questioned under section 132(4) on 11-12-1986 (search day) and again on 25-1-1990 during the course of assessment proceedings he denied having any business connection with Khatiwala firms except admitting that he knew Shri PK through the house owner Shri R. F. Patel. The assessee on the same day in his own statement admitted that he also had his account with Dena Bank, Fatehgunj Branch, Baroda and that he introduced Shri PK for opening bank account in the name of AEC with Dena Bank, Fatehgunj Branch, Baroda. The assessee did not deny that on some days either he or some of his employees/associates got cash from the bank account of AEC in Dena Bank on "self-cheques" drawn by PK and delivered the withdrawn cash to him (PK). The assessee on both the occasions when his oath statements were recorded emphatically denied having received or paid any brokerage or commission at 50 per cent from or by Khatiwala firms in relation to the said Government contracts with the Irrigation Department. The income-tax authorities found substantial deposits in the bank accounts of his driver Ishubhai and other employees for which neither the employees nor the assessee could give satisfactory explanation. The questions put and answers given by the assessee can be found from pages 12 to 18 of the assessment order. The Assessing Officer also found that the assessee, his sons wife and daughters received gifts from persons other than the relatives aggregating to nearly Rs. 8.5 lakhs in four previous years relating to assessment years 1982-83 to 1985-86. According to the Assessing Officer all gifts received by the assessee and his family members were bogus and sham and the bank DDs were purchased from out of the brokerage income received from Khatiwala group. The same were therefore, added for each of the years under appeal as stated by us above in the beginning. One very pertinent fact which requires to be noted is that the officers assessing the firms of M/s. AEC and M/s SE at Surat have denied deduction/allowance of brokerage/commission paid to the assessee from their respective taxable income for the assessment years 1982-83 to 1984-85 on the ground that those two firms did not file, adduce or produce any firms evidence to establish that commission/brokerage was paid to the assessee. The Appellate Commissioner also confirmed the disallowance of brokerage/commission alleged to have been paid to the assessee by those two firms in the appeals filed by them. The assessees A. R. has filed copies of assessment orders for three assessment years from 1982-83 to 1984-85 and copy of order dated 11-2-1994 of Appellate Commissioner II, Surat in the case of M/s AEC. A copy of the assessment order dated 28-9-1983 for the assessment year 1984-85 in the case of M/s. SE has also been filed by assessees AR on 19-7-1994 as directed by us on the date of hearing which was on 22-6-1994 and the same is placed in the file.
5. The Assessing Officer therefore, concluded from the discussion of the facts found in para 7 on page 18 that "from the above facts it is evident that the assessee and his employees/associates have withdrawn large amounts by self-cheque from the bank and handed over to Shri PK (after deducting their brokerage)". The Assessing Officer therefore, made two different additions towards brokerage income earned by the assessee in two years as stated by us elsewhere above in the beginning.
6. When first appeal was preferred by the assessee before the Appellate Commissioner challenging the additions made by the Assessing Officer for both the years written submissions were filed a copy of which is placed from pages 1 to 9 in the assessees paper book in the present appeals. It was also contended before the Appellate Commissioner that if the payment of brokerage/commission by the two Khatiwala firms was true and genuine then same was required to be allowed as an expenditure in arriving at the assessable/taxable income of those two firms for the assessment years 1982-83 to 1984-85 but the officers assessing those two firms did not give any deduction or allowance in respect of the alleged payment of brokerage to the assessee in those two years. This contention did not find favour with the Appellate Commissioner solely on the ground that the assessee did not file before him copies of the assessment orders passed in the cases of M/s AEC and M/s. SE, Surat. Similar pleadings and submissions were made before the Appellate Commissioner as were made before the Assessing Officer but the same did not find favour with the Appellate Commissioner who held in the impugned order that the assessee did receive brokerage from Khatiwala firms viz M/s. AEC and M/s. SE and confirmed the additions made by the Assessing Officer for both the years under appeal. As regards gifts for each of the years the Appellate Commissioner was of the opinion that there was no satisfactory evidence of gifts by the donors and as such the gifts were not genuine. He, however, deleted the additions made by the Assessing Officer for each of the respective assessment years under appeal on the ground that the assessee might have purchased bank demand drafts to give colour of genuineness of gifts from out of the brokerage income which has been confirmed by him for both the years in the said order. This is how the present appeals came to be filed before this Tribunal by the assessee.
7. Shri J. P. Shah, the learned counsel for the assessee, in his usual and inimitable style very ably argued the assessees case on the same lines as put up before the Assessing Officer as well as before the Appellate Commissioner. He further invited our attention to various documents placed in assessees paper book filed in these appeals to demonstrate and establish that the assessee did not receive any amount towards brokerage/commission from the Khatiwala firms. We were also taken to the answers given by Shri PK and the assessee to the various questions put to both of them during the course of search operations as well as during the course of assessment proceedings and which have been extracted in the assessment order as well as by the Appellate Commissioner in the impugned order. The assessees counsel wants that the additions towards brokerage for both the years which have been confirmed unjustifiably by the Appellate Commissioner be deleted and further it should be held and a finding given that the gifts received by the assessee and his family members were genuine and further that the bank DDs were not purchased by the assessee from out of the brokerage income alleged to have been received. from the two Khatiwala firms.
8. The learned D. R. Shri B. R. Meena, on the other hand, vociferously refuted the arguments of the assessees A. R. and prayed for upholding the order of the Appellate Commissioner stating that the department has firmly established that the assessee did receive and earn brokerage income and further that the gifts were also not genuine. On 1-7-1994 written submissions have also been filed, on the basis of record, by the D. R. to further buttress and strengthen the case of the Revenue.
9. Our anxious considerations on the facts and material on record of the case coupled with the reasoning of both the lower authorities make one thing very obvious and clear that the brokerage income is assessed not on the basis of satisfactory and convincing evidence but on the basis of words and statements of the alleged payer Shri P. K. The case regarding brokerage income has been built up by the Assessing Officer on the theory of "your word against my word" or "your statement" vs. "my statement". on the one side there was oath statement of PK that the assessee was paid brokerage/commission for the Government contracts and on the other hand, there was oath statement of the assessee that he did not receive any brokerage commission or profit from Khatiwala firms. Thus, there were contradictory statements by the alleged payer and the alleged receiver and each belying the other. In such a situation the case has to be decided and adjudicated on the basis of weight and credibility of evidence either documentary or oral, which may again be direct or indirect, that is to say, circumstantial. As stated by us earlier there is not a shred of firm and direct documentary evidence like agreements, vouchers, receipts and correspondence which could go to establish unfailingly that the Khatiwala firms paid and the assessee received brokerage/commission for arranging, managing or procuring Government contracts for the Khatiwala firms. The reliance placed by the Assessing Officer on few notings and entries on few papers and chits found and recovered from the assessees premises during the course of search and seizure operations do not throw much light nor could go to prove convincingly, that the assessee did have business relations or connections with the Khatiwala firms and that he managed any of the Government contracts which the Khatiwala firms obtained nor that the assessee received brokerage/commission from the Khatiwala firms in relation to such Government contracts. Even the unexplained deposits in the bank account of driver Ishubhai and other employees though cast great doubt and suspicion yet cannot prove the case of the Assessing Officer that the assessee did receive brokerage/commission from the Khatiwala firms. It is by now well-settled principles of law that, no matter how strong or high the suspicion may be, yet it always remains a suspicion and only suspicion and therefore, cannot take the place of proof or evidence. We also cannot entertain the plea of the Revenue that since the assessee introduced Shri P. K. to Dena Bank for opening an account in that bank in the nane of M/s. AEC and further since the assessee and his employees/associates withdrew and brought cash from the account of M/s. AEC from Dena Bank by signing on the reverse side of "self cheques" it shall be concluded that the assessee had business connections with the Khatiwala firms in relation to the Government contracts and the "self cheques" withdrawn amounts were towards brokerage for the said Government contracts. If we accept and put our seal of approval to such pleas by revenue then many many persons who introduce some one or the other for opening bank accounts or who as a gesture of goodwill and friendship gets cash from bank account of other persons on the "self-cheques" by signing on the reverse, while encashing such cheques, then we will be putting such persons in neckdeep trouble at the hands of the income-tax authorities under the provisions of the IT Act particularly deeming provisions. We are afraid even honest and gullible people will suffer and lose their hard-earned moneys and properties and the consequences will be devastating and disastrous. We cannot do so.
10. We agree with the assessees counsel that the Appellate Commissioner has not at all considered the affidavits of Shri B. A. Patel, one of the employees of the municipal corporation of Baroda and the other two employees viz Shri Bhailalbhai A. Pandya and Shri Ashwinkumar R. Kothari which are placed and found in the assessees paper book from pages 36 to 44 with English translations.
11. It appears from the facts of the case that Shri B. A. Patel, municipal employee is one of the key witnesses in the whole episode. He has stated in his affidavit that in his spare time he worked for Shri PK in relation to the Government contracts obtained by the two firms viz M/s. AEC and M/s. SE. It is further stated by the said Shri B. A. Patel that he was withdrawing cash from the bank accounts of the two Khatiwala firms one in Dena Bank, Fatehgunj branch and the other in SBI, Mandvi branch, Baroda. Whenever he could get time for withdrawing cash from the said bank accounts he used to either deliver the "self cheques" signed by Shri P. K. to the assessee or to the employees of the assessee viz. Shri Pandya or Shri Kothari. These facts are further corroborated by those two employees viz. Shri Pandya and Shri Kothari in their respective affidavits which as stated by us above and placed in the assessees paper book. If these evidences are considered in a proper perspective it could go to prove to a large extent that the assessee did not have any business relations with the Khatiwala firms particularly with relation to the Government contract and further he did not receive any brokerage or commission from the said two firms of Khatiwala.
12. When we take a look at the assessment orders passed in the case of M/s. AEC for the assessment years 1982-83 to 1984-85 which have been placed in the assessees paper book, we find that the Assessing Officer has not given deduction while computing the assessable income of the said firm in respect of the alleged payment of brokerage/commission to the assessee in relation to the Government contracts though Shri PK stated on oath that the payments were made to the assessee through "self cheques" withdrawn from the bank account in Dena Bank and SBI, Baroda, while on the one hand the assessee is being subjected to tax towards brokerage/commission income on the basis and strength of the oath statement of PK but, on the other hand, the firm of M/s. AEC is denied the claim towards the expenditure incurred by way of brokerage/commission paid to the assessee. This is mind baffling. The Assessing Officer has further observed in the assessment orders of M/s. AEC for the three years mentioned by us above that the firm of M/s. AEC failed to produce any accounts, documents, agreements, receipts or vouchers to support the claim of payment of brokerage to the assessee. The Revenue authorities are thus blowing hot and cold in respect of the same transaction. When the firm of M/s. AEC preferred an appeal against the action of the Assessing Officer in disallowing the claim of brokerage payment to the assessee the Appellate Commissioner endorsed and agreed with the views taken by the Assessing Officer, a copy of the order of Appellate Commissioner dated 11-2-1994 which is placed from pages 103 to 105 in the assessees paper book has been perused by us in this regard. If a claim has not been allowed for lack of documentary evidence in the case of M/s. AEC we fail to understand how can the assessee be subjected to tax on the same reasoning for lack of evidence ? If there is no evidence there, then there is no evidence here also, and as such the assessee cannot be subjected to tax for lack of evidence.
13. It is also brought to our notice by the assessees A. R. during the course of hearing that in the case of another firm of Khatiwala i.e., M/s. SE similar disallowance of brokerage payment to the assessee has been made and the assessee was unable to obtain copies of the assessment orders from the concerned ITO at Surat assessing the said firm of M/s. SE. However, a copy of the assessment order dated 28-9-1987 for assessment year 1984-85 passed by the ITO, Circle 2, G-Ward, Surat for assessment year 1984-85 in the case of M/s. SE has been filed by assessees A. R. Shri Rajendra K. Shah on 19-7-1994 as directed by us during the course of hearing on 22-6-1994. On perusal of the said order, we find that the said ITO has also negatived the claim of M/s. SE about the alleged payment of brokerage/commission to the assessee on the strength of the oath statement of Shri PK. The ITO in the said order has also mentioned that he is intimating to the ITO assessing the assessee to tax the said amount as his income on protective basis to safeguard the interests of Revenue.
14. The Appellate Commissioner in the impugned order has stated that since the assessee failed to produce copies of assessment order for the relevant years in the cases of M/s AEC and M/s. SE about disallowance of brokerage/commission payment to the assessee, he is confirming the amount added by the Assessing Officer in assessees case towards brokerage and commission. In our view, this is not the proper approach to adjudicate and decide an issue. If the assessee for reasons beyond his control could not produce the copies of assessment orders in the case of Khatiwala firms then the Appellate Commissioner in order to do justice to the assessee could have summoned the assessment records from the Assessing Officers of those two firms for the relevant year and suo motu : verified and examined the plea raised before him in the first appeal by the assessees AR. The Appellate Commissioner has failed to do so by throwing the burden on the assessee/appellant.
15. We are not impressed by the submission of the D.R. in his letter dated 1-7-1994 that the brokerage payment was not allowed in the cases of M/s. AEC and M/s. SE because the brokerage payment was opposed to public policy on Government contracts. Well, we are at a loss to understand as to how payment of brokerage or commission in the case of Government contracts or even in the case of carrying on normal business activity is opposed to public policy. Just because Khatiwala firms obtained Government contracts at very high and inflated rates which was considered to be scandalised by the journalists cannot mean that expenditure incurred in relation to the Government contract business becomes opposed to public policy. There are catena of decisions of Courts and of various Benches of this Tribunal that even secret commission is an allowable expenditure if there is trade practice, commercial expediency and evidence in support of such payment. Here, we reiterate that there is no satisfactory or convincing evidence to support or establish the payment of brokerage/commission to the assessee except a bare and bald statement of Shri PK on the day of search operations that he has made payment towards brokerage and commission to the assessee in respect of the Government contract which he could secure through the efforts of the assessee. We are also not convinced with the further submission of the D.R. in the said letter of 1-7-1994 that sufficient circumstantial evidence has been collected by the Assessing Officer justifying the addition towards brokerage income earned by the assessee from the two Khatiwala firms. According to us, there is absence of direct and convincing documentary evidence either direct or indirect which could go to establish convincingly that the Khatiwala firms paid and the assessee received brokerage/commission in respect of the Government contracts. Even the oral evidence of Shri PK on the raid day or through several letters and submissions in various petitions to different I.T. authorities cannot go to establish satisfactorily and convincingly that the assessee received brokerage/commission from the Khatiwala firms.
16. We, therefore, unhesitatingly hold that the assessee did not receive any brokerage or commission either from Shri PK or from any of the Khatiwala firms as and by way of brokerage/commission in relation to the Government contracts with the Irrigation Department for the supply of ERW pipes. We, therefore, reverse the finding and conclusion of the Appellate Commissioner and direct the Assessing Officer to delete the two additions made in both the years under appeal.
17. Now, we are left with he grievance of the assessee regarding the gifts received by him and his family members from different persons through bank demand drafts. The Appellate Commissioner has not given a very firm decision but has only stated that without any reason or discussion that he is not believing the gifts as being genuine. While not believing the gifts the Appellate Commissioner has directed the deletion of the sum of Rs. 2.4 lakhs in assessment year 1982-83 and sum of Rs. 1.25 lakhs in assessment year 1983-84 on the ground that since he is confirming the addition made by the Assessing Officer towards brokerage/commission he was of the opinion that the assessee could have managed to purchase bank DDs from out of such brokerage/commission. Since we are holding that the assessee did not receive any amounts towards brokerage and commission and directed deletion we deem it fit and proper to restore the matter in this regard to the file of the Appellate Commissioner with a direction to reconsider the issue in the light of the evidence brought on record by the assessee which according to him established the genuineness of the gifts. Before taking any decision the Appellate Commissioner is directed to give a fair and reasonable opportunity of being heard to the assessee and pass an order in accordance with law. We order and direct accordingly.
18. In the result, the appeals are partly allowed in the terms indicated above.
Per Shri B. L. Chhibber, (Accountant Member) - Regretting my inability to persuade myself to the view taken in the order of my learned Brother, I proceed to write a dissenting order.
2. I agree with the finding of my learned Brother on ground No. 1.
3. As regards ground No. 2 pertaining to addition of Rs. 8,31,055 for assessment year 1982-83 and Rs. 8,67,082 for assessment year 1983-84, the Assessing Officer noted that M/s. Seema Enterprises and M/s. Associated Engineering Corporation and Shri Pravinchandra Khatiwala, Surat had received highly excessive contract payments from Irrigation Department of Government of Gujarat. These concerns were supplying E.R.W. Pipes to the Irrigation Department. The affairs were so managed in collusion with the engineering staff of the Department that the quotations and tenders furnished by Shri Khatiwala and his allied concerns were accepted at the rates more than even double of the market price. The pipes were supplied at the rate of Rs. 448 per metre as against the market price of Rs. 195.50 per metro The excessive payment received in this transaction amounted to Rs. 48,71,917. In another transaction the pipes valued at Rs. 359.30 per metre were supplied but the payment was made at the rate of Rs. 575 per metre. The above two concerns namely M/s. Seema Enterprises and M/s. Associated Engineering Corporation had received Rs. 1.20 crores approximately as extra payment. It was published in news item in Gujarat Samachar dated 8-5-1986. As a result of this, 24 officers of the Irrigation Department were suspended for these irregularities in the purchase of E.R.W. Pipes. Search and seizure operations were carried out at the business and residential premises of the Khatiwala group and the assessee in order to unearth the extra income generated by these persons. The excessive payments received by these concerns were routed through several bank accounts as per details on page 3-5 of the assessment order. It was spontaneously admitted by the Surat parties in their statement recorded under section 132 that the brokerage at the rate of 50% of the net profit was paid to different persons including the assessed Some cheques withdrawn from Dena Bank, Fatehganj, Baroda and State Bank of India, Mandvi, Baroda showed the signatures of the assessee and his employees S/Shri Ashwin R. Kothari, Bharat Bhikhalal Pandya, Ishubhai Daulathbai Shaikh and B. A. Patel. Viewed in this background it cannot be said that the assessee helped Kathiwala group in the matter of procuring contract from the Irrigation Department and routing the payments through several Bank accounts in his name, in the name of his son and in the names of his employees for the fun of it and not for consideration. The reply to the following questions by the Assessing Officer given by the assesses proved beyond any shadow of doubt that the assesses was involved without the Bank accounts and the Kahtiwala group :
"Q. 28. In the above Dena Bank today morning we have made enquiries when we have obtained photostat copies of certain cheques out of which details of three cheques are as under :
Rs.
(i) Cheque No. C/0311601 dated 22-12-1981 3,00,000
(ii) Cheque No. C/0311605 dated 16-01-1982 3,00,000
(iii) Cheque No. C/0311624 dated 3-6-1982 2,00,000 The above cheques were drawn by the proprietor of M/s. Associated Engineering Corporation and your employee had gone for encashing the same. His signatures are tallying. I am showing you the signatures. Please state after seeing the same whether these are your signatures or not ? In case they are your it means that your withdrawing the cash for what purpose the same was withdrawn ? Please give complete details.
Ans. I confess that these are my signatures. I was myself encashing the cheques and drawing the cash and giving the cash to Shri Kathiwala because it was his money.
Q. 29. As you stated that you had given the cash to Kathiwala, whether you have got any evidence for the same ?
Ans. No. My employees Shri Bharathbhai Pandya and Shri B. A. Patel were present when the cash was given. There is no written evidence.
Q. 30. I show you another seven cheques. Please state who has signed the same ?
Rs.
(i) Cheque No. C/0311609 dated 3-3-1982 1,00,000
(ii) Cheque No. C/0311616 dated 12-4-1982 51,000
(iii) Cheque No. C/0311625 dated 14-6-1982 2,00,000
(iv) Cheque No. 0301002 dated 14-6-1982 80,000
(v) Cheque No. 031003 dated 15-6-1982 1,00,000 (Vi) Cheque No. 0301004 dated 16-6-1982 1,00,000 (Vii) Cheque No. 0301006 dated 1-7-1982 3,40,000 Ans. Out of above cheques Sr. Nos. 4 and 7 bear the signature of Shri B. A. Patel. I cannot say about the signature on the remaining cheques."
The statement given by Shri Pravinchandra Kathiwala and reproduced by the Assessing Officer at pages 19 and 20 of his order relating to assessment year 1982-83 is not only spontaneous but very clear and categorical. This was also supported by substantial evidence in the form of deposit slips and cheques in the said accounts. Thus the evidence gathered by the Assessing Officer and reproduced in the assessment order established beyond any shadow of doubt that there was a business connection between Sri Khatiwala and the assessee. Accordingly I do not subscribe to my learned Brothers view in para 9 of his order that the case of the ITO is built on the theory of "your word against my word" OR "your statement" vs. "my statement" and further his finding that "there is not a shred of firm and direct documentary evidence like agreements, vouchers, receipts and correspondence which could go to establish unfailingly that the Khatiwala firms paid and the assessee received brokerage/commission for arranging, managing or procuring Government contracts for the Kathiwala firms". In a case like this totality of circumstances and the surrounding circumstances cannot be ignored and when viewed in the back-ground and the surrounding circumstances cited supro, there is only irresistible conclusion that the assessee was an active participant; that he did render services to Kathiwala group and that too not for the fun of it but for substantial consideration. It is noted that during the course of proceedings before the CIT (Appeals) the assessee filed affidavits of Shri B. A. Patel, one of the employees of Baroda Municipal Coporation and other two employees viz Bharatkurmar Pandya and Ashwinkumar Kothari. Admittedly these affidavits were not filed before the Assessing Officer. During the course of proceedings before the CIT (Appeals) the Assessing Officer opposed the admission of such additional evidence. In his written submissions dated 26-4-1991 filed before the CIT (Appeals) the learned Assessing Officer submitted as under :
"On the contrary the assessee has alleged the Department for not examining Shri B. A. Patel. It is seen that the assessee has filed affidavit from Shri B. A. Patel (page 36 of paper book). As held by the ITAT in the case of KN. Amin 79 CTR, statement recorded during the search is more authentic. The filing of affidavit subsequently is not therefore material. Further as held by the Madhya Pradesh High Court (172 1TR 244) an admission is good evidence and has to be taken into account. Similar is the case of filing of affidavits by Shri Bharat B. Pandya and Ashwin Kothari, employees of the assessee. Therefore, these affidavits cannot be given credence and are merely filed as self-supporting evidence. Moreover these persons were either employees of the assessee or under the influence of the assessee and hence the assessee was in a position to obtain such false affidavits."
In my opinion, the CIT (Appeals) was perfectly right in not placing any credence on the contents of these affidavits. It is because the statements of Khatiwala group and the assessee recorded during the search operations under section 132(4) were spontaneous statements on the point and inspired full confidence. The filing of affidavits subsequently was not only an afterthought but also self-serving statements and hence no value therefor could be attached to such an afterthought version. As regards my learned Brothers finding that "even the unexplained deposits in the bank account of driver Ishubhai and other employees though cast great doubt and suspicion yet cannot prove the case of the Assessing Officer that the assessee did receive brokerage/commission from the Khatiwala firms", I find myself unable to agree to. It is against normal human behaviour that a person will open account in the name of his driver (who obviously was a man of meagre means) and his employees if he had no business connection with Khatiwala. Accordingly I hold that it is not a case of doubt and suspicion but a case where there are definite findings supported by positive evidence by the authorities below that the whole scheme was part of the modus operandi to give to the assessee his share from the excessive payments received.
4. My learned Brother has accepted the contention of the learned counsel for the assessee that the amounts in question were claimed as deductions by Associated Engineering Corporation as well as M/s. Seema Enter-prises (both concerns belonged to Khatiwala group), in their income-tax assessments but the same were disallowed. In my opinion, this cannot be made a factor in favour of the assessees case. The entire assessment order shows that the abovenoted two concerns had received excessive payments from the Irrigation Department of Government of Gujarat and the contracts were managed by the assessee. The payments of brokerage paid to the assessee were may or may not be allowable under section 37 depending upon factors like public policy and other circumstances in the hands of the abovenoted two concerns. Further to claim deduction the onus lies upon the parties who claim such deduction and if the parties fail to discharge such onus, such claim of deduction has to be disallowed. This is what has exactly happened in this case. A perusal of the assessment orders of the abovenoted two concerns show that those assessees failed to prove before their respective Assessing Officers that the payments were made wholly, exclusively and necessarily for the purpose of their business. In any case both the abovenoted two firms are before the Appellate Authorities against the orders made by their respective Assessing Officers.
5. In the light of the above discussion, I uphold the findings of the authorities below and confirm the additions of Rs. 8,31,055 and Rs. 8,67,082 for assessment years 1982-83 and 1983-84 respectively.
6. Now I proceed to dispose of ground No. 3 pertaining to gifts amounting to Rs. 2.40 lakhs in assessment year 1982-83 and Rs. 1.25 lakhs in assessment year 1983-84 to the assessee and his other family members. During the course of assessment proceedings the Assessing Officer noticed that different members of the assessees family had claimed to have received the following gifts during assessment year 1982-83 :-
Name of the donee Amount Rs.
Date of Gift Name of the donor
1. Safatulla A. 30,000 5-4-1981 Saroj Jal Pathan (son) Contractor
2. Bayatulakhan A. Pathan (son) 30,000 "
"
3. A. A. Pathan 20,000 11-4-1981 Jalajar Banakshah Contractor
4. Mumtazbibi A. Pathan (wife) 40,000 "
"
5. "
60,000 20-4-1981 Barjor Jal Contractor
6. Arefa A. Pathan 30,000 2-5-1981 Smt. Veluben (daughter) Jal Contractor
7. Paresha A. Pathan (daughter) 30,000 2-5-1981 "
Total :
2,40,000 Similarly in the assessment year 1983-84 such gifts received by different members of the family amounted to Rs. 1.25 lakhs. The assessee was required to produce complete addresses of the donors and their creditworthiness. The assessee failed to produce evidence. The Assessing Officer noted that there were several contradictions like the dates of credits of gifts in the respective account did not tally with the dates submitted by the assessee on 15-1-1990. He held that all the gifts were by Demand Drafts which could be purchased by any person. The circumstances leading to the development of sudden love and affection between the members of all the assessees family were found to be suspicious. As the capacity of the donors was not proved and it was not shown whether the donors were making any other gifts to their close relatives, the Assessing Officer concluded that the gifts in different accounts merely represented undisclosed income of the assessee.
7. On appeal, the CIT (Appeals) held as under :
"I have carefully gone through the assessment order and the submissions made. In the course of discussion in the earlier part of the appellate order, I have held that the appellant had earned huge amount of income by way of brokerage from Khatiwala Group. Keeping in view the total amount of income involved and the gifts received, the demand drafts could have been easily purchased out of the income generated from the income confirmed by me in earlier paragraphs. While agreeing with the Assessing Officer that no evidence has been brought on record regarding the creditworthiness of the alleged donors, I hold that the funds can still be explained as coming from the brokerage income. There is no allegation that the appellant has made any other investment from such huge income earned during these two years. In the circumstances separate addition made in respect of gift is deleted on the ground that income generated from the brokerage income confirmed by me earlier was sufficient to purchase the demand drafts for the alleged gifts. The amount credited to the different members should be treated as the funds of the appellant and any income accruing on the same should also be brought to tax in these years."
8. I do not find any infirmity in the above findings of the CIT (Appeals). For constituting a gift there should be a donor and a donee. In the present case the donees are very much there who happened to be the family members of the assessee but the identity of the donors and their creditworthiness is absent. Further there should be an occasion for a gift held by the Punjab & Haryana High Court in the case of Law Chand Kalra v. CIT 22 CTR (Punj. & Har.) 135. In the instant case there was no such occasion. Further in the abovenoted case the Honble Punjab & Haryana High Court has held that gift from a stranger who is not a man of means and even gift from a relative who had other more important liabilities cannot be treated as genuine gift. As stated above there is no occasion for the gift, the identity of the donors is not known, their creditworthiness is not established by the assessee and accordingly the presumption of the CIT (Appeals) that the amounts gifted were the income of the assessee is well founded.
Note for reference to the Honble President, ITAT As we are differing in our views in the appeals filed by the assessee, Shri A. A. Pathak, being ITA Nos. 1640 & 4140/Ahd. /93 for the A. Ys. 1982-83 and 1983-84, we request the Honble President, ITAT, to refer under section 255(4) of the Income-tax Act, 1961 the below given points/questions to other Member(s) of the Tribunal for his/their opinion :
(i) Whether, on the facts and in the circumstances of the case and on the basis of available evidence and material on record, the assessee can be assessed in respect of a sum of Rs. 8,31,055 for Assessment year 1983-84 and for a sum of Rs. 8,67,082 for Assessment year 1983-84 being brokerage/commission alleged to have been paid by the firms of M/s Associated Engineering Corpn. and M/s Sima Enterprises of Shri P. C. Khatiwala and Smt. Nirmala Khatiwala respectively (Khatiwala Group) in respect of the contract awarded to the Khatiwala Group of firms by the Govt. of Gujarat, Irrigation Deptt. for supply of ERW Pipes ?
(ii) If the opinion to the above-pointed question No. (i) is in the affirmative then, whether the amounts received by the assessee and his other relatives as gifts for both the years from various donors can be considered as income of the assessee from the alleged brokerage/commission from the Khatiwala Group of firms or as income from undisclosed sources ?
(iii) If the opinion to the above-pointed question No. (i) is in the negative then, whether the matter in relation to the gifts received by the assessee and his other relatives for the two assessment years should be remanded to the Appellate Commissioner for his decision on the merits of the case ?
THIRD MEMBER ORDER
1. These appeals have come before me for my opinion as a Third Member under section 255(4) of the Income-tax Act, 1961 as the members who heard the appeals originally could not agree. They referred the following points of difference :
Whether, on the facts and in the circumstances of the case and on the basis of available evidence and material on record, the assessee can be assessed in respect of a sum of Rs. 8,31,055 for A.Y. 1982-83 and for a sum of Rs. 8,67,082 for A.Y. 1983-84 being brokerage/commission alleged to have been paid by the firm of M/s Associated Engineering Corporation and M/s Sima Enterprises of Shri P. C. Khatiwala and Smt. Nirmala Khatiwala respectively (Khatiwala Group) in respect of the contract awarded to the Khatiwala Group of firms by the Govt. of Gujarat, Irrigation Department for supply of E.R.W. Pipes ?
(ii) If the opinion to the above-pointed question No. (i) is in the affirmative then, whether the amounts received by the assessee and his other relatives as gifts for both the years from various donors can be considered as income of the assessee from the alleged brokerage/commission from the Khatiwala Group of forms or as income from undisclosed sources ?
(iii) If the opinion to the above-pointed question No. (i) is in the negative then, whether the matter in relation to the gifts received by the assessee and his other relatives for the two assessment years should be remanded to the Appellate Commissioner for his decision on the merits of the case ?"
2. These appeals filed by the assessee are against the common order of the CIT(A) dated 30-3-1993 for the assessment years 1982-83 and 1983-84 for which the previous years ended on 31-3-1982 and 31-3-1983, respectively. The assessee is an individual. According to the Assessing Officer (A.O. for short) for the assessment year 1982-83 the assessee filed return of income declaring total income at Rs. 45,180 plus agricultural income at Rs. 4,000. The original assessment was completed under section 143(1) on 14-10-1983. For the assessment year 1983-84 the return of income was filed declaring a total income at Rs. 30,100 and agriculture income at Rs. 3,500. The original assessment was completed under section 143(1). Search under section 132 was carried out on 11-12-1986 at the residence of the assessee during the course of which fixed deposit receipts, National Saving Certificates etc., worth Rs. 6,13,400 were seized. Various books of account, files, loose papers etc., were also seized. Valuables, household articles and gold ornaments were found. Statement of the assessee was recorded under section 132(4) on 11-12-1986. Notices under section 148 were issued on 2-3-1989, which were duly served on the same date.
3. The A.O. found that the assessees family members had received various gifts totalling to Rs. 2,40,000 by demand drafts. He observed that it was strange as to how all of a sudden all the donors developed love and affection with the assessees family and gifted such heavy amounts simultaneously. He believed that they were nothing but assessees income from undisclosed sources.
4. According to the A.O. who passed the assessment order for the assessment year 1982-83, search under section 132 was carried out in the following background : M/s Seema Enterprises, M/s Associated Engineering Corporation and Shri Pravin Chandra Khatiwala, Surat had received highly excessive contract payments from Irrigation Department of Government of Gujarat. These concerns were supplying E.R.W. pipes to the Irrigation Department. The affairs were so managed in collusion with the Engineering Staff that the quotations and tenders furnished by Shri Khatiwala and his allied concerns were accepted at rates more than even double the market price. In this manner excessive payments of crores of rupees were received by these concerns from the Irrigation Department. For example, Executive Engineer Sukhi Project was supplied 8 inches E.R.W. pipes and the payment was made @ Rs. 448 per metre as against the market price of Rs. 195.50 per metre. In another transaction when the market price was Rs. 359.30 per meter as against which the payment was made @ Rs. 575 per meter. M/s Seema Enterprises (SE) and M/s Associated Engineering Corporation (AEC) had received excessive payments to the tune of Rs. 1.20 crores approximately. Similar excessive payments were received in the case of other concerns of the said assessee. News item in Gujarat Samachar dated 8-5-1986 revealed the said irregularities and the names of the persons involved have also been published. Similar news also appeared in Sandesh. As a result 24 officers were suspended for the irregularities in the purchase of E.R.W. pipes. The charges were that they had obtained illegal payments in the form of secret commission from the suppliers. Searches were also carried out at Surat in the above group of cases. The Surat parties had filed their returns under the "Amnesty Scheme" in September 1986 i.e., prior to the searches carried out.
5. According to the A.O. who passed the assessment order for the assessment year 1982-83, "excessive payments were routed through the bank accounts". In the said assessment order he observed as under :
"5. Modus Operandi :
M/s Seema Enterprises, M/s Associated Engineering Corporation; Shri Pravinchandra Khatiwala and Smt. Nirmalaben P. Khatiwala had received all the payments through cheques. The excessive payments were routed through the following bank accounts :
(i) Current account with Dena Bank, Fatehganj, Baroda.
(ii) Current account with State Bank of India, S.I.B. Division, Mandvi, Baroda.
M/s Seema Enterprises :
S.Y. 2037 - A.Y. 1982-83 (8-11-1980 to 27-10-1981)
1. Punjab National Bank, Rauder/ Rs. Adajaj Road, Surat 17,37,841.00
2. State Bank of India, SIB Division, Baroda 33,65,843.20
3. Bank of Baroda, Navyug College, Rauder Road, Surat 0,41,012.32 51,44,696.52 S.Y. 2038 - A.Y. 1983-84 (28-10-1981 to 15-11-1982)
1. Punjab National Bank, Rauder Road Surat 31,70,870.00
2. State Bank of India, SIB Divn., Baroda 12,15,479.00 43,86,349.00 M/s Associated Engineering Corporation :
F.Y. 1981-82 A.Y. 1982-83
1. Dena Bank, Fatehganj, Baroda.
38,05,922.79 F.Y. 1982-83 A.Y. 1983-84
1. Dena Bank, Fatehganj, Baroda 23,69,973.00
2. Punjab National Bank, Rander Road, Surat.
43,85,005.00 F.Y. 1983-84 A.Y. 1984-85
1. Punjab National Bank, Rander Road, Surat.
3,73,417.00 The payments for purchases, brokerages and secret commission have been made through these bank accounts. The withdrawals were by self bearer cheques. The details of excessive payments received by M/s Seema Enterprises and M/s Associated Engineering Corporation are as under :
1. M/s Seema Enterprises Reference Number of Recovery order Excess Amount Rs.
1. IDD-3/SK/ERW/Rec./4492 6,24,698.72
2. IDD-3/SK/ERW/Rec./4492 2,41,298.49
3. IDD-3/SK/ERW/Rec./4492 2,41,366.18
4. IDD-3/SK/ERW/Rec./4492 2,40,791.79
5. Sukhi/SK/ERW/177/C-234 6,50,672.00
6. Sukhi/SK/ERW/177/C-235 6,50,672.00
7. Sukhi/SK/ERW/177/C-233 2,19,324.00 28,68,823.18
8. IDD/1/SK/ERW/2082 2,20,896.20
9. PPD/3/SK/ERW/4491 22,22,622.79 Total 53,12,342.17
2. M/s Associated Engg. Corporation :
Rs.
1. ERW/Pipe/119/C/236 6,13,755.00
2. ERW/Pipe/119/C/238 4,29,250.00
3. ERW/Pipe/119/C/239 12,56,460.00
4. ERW/Pipe/119/C/237 10,33,766.00
5. IPD/3/SK/ERW/RC/4471 11,06,748.92
6. IPD-3/SK/ERW/RC/4491 11,15,873.87
7. BSK/VEN/2/ERW/Pipe/Rec./207 5,35,300.00
8. 5/No. 4/373/426/SK/728 5,39,627.60 Total 66,30,781.39"
The Surat parties had claimed secret commission payments but the claim was not allowed by the A.O. because the factum of payment and the identity of the person receiving the commission was not fully established. The Surat parties had also claimed deduction on account of brokerage at 50% of the net profits. On being asked to furnish the details they provided the name of the assessee. On scrutiny of the bank accounts with Dena Bank and State Bank of India, Baroda it was noticed that numerous cheques of "self" withdrawals were drawn by the Surat Parties. Copies of such cheques have been obtained by issuing summons to the banks. On the back side of the cheques, there were signatures of either Shri Pathan or his employees Shri Ashwin R. Kothari, Shri Bharat Bhikhalal Pandya, Shri Ishu Bhai Shaikh and B.A. Patel.
6. In the assessment order for the assessment year 1982-83, the A.O. had reproduced certain questions and answers from the statement recorded from the assessee under section 132(4) on 11-12-1986 and concluded that it was evident from the above that the assessee and his employees/associates have withdrawn large amounts by "self cheques" from the banks and handed over to Shri Pravin Khatiwala after deducting their brokerage. According to the A.O. the said conclusion finds support from the Zerox copies of the "relevant papers" obtained from the Assistant Commissioner, Surat :
(i) Zerox copies of cheques drawn by M/s Associated Engineering Corporation (pages 3 to 29 - Confl. file).
(ii) Excess payment record by the Executive Engineer, I.P. Division II, Bodeli from M/s Associated Engineering Corporation and M/s Seema Enterprises amounting to Rs. 48,71,917 (page 30).
(iii) Letter dated 17-9-1986 by the A.D.I. Surat to Shri P. C. Khatiwala and Smt. Nirmalaben P. Khatiwala pointing out the over payments in respect of G.I. Pipes supplied to the Irrigation Department.
(iv) Statement under section 132(4) dated 16-12-1986 by Shri P. C. Khatiwala.
(v) Letter dated 16-10-1987 addressed to ITO, Ahmedabad by ITO, Surat.
(vi) Computation of income by SE showing brokerage paid in the assessment years 1982-83 and 1983-84 of Rs. 2,21,080 and of Rs. 1,30,141.
(vii) Application dated 29-9-1986 addressed to CIT, Surat by SE in connection with the disclosure.
(viii) Letter dated 25-9-1987 addressed to ITO Surat, by SE.
(ix) Letter dated 25-9-1987 addressed by Smt. N. P. Khatiwala to ITO, Surat.
(x) Letter dated 29-9-1988 addressed by SE to ITO, Surat.
(xi) Computation of disclosure by AEC showing brokerage paid of Rs. 6,09,975 in the assessment year 1982-83 and Rs. 7,36,941 in the year 1983-84.
(xii) Application dated 29-9-1986 addressed by AEC to CIT Surat in connection with the voluntary disclosure.
(xiii) Letter dated 25-9-1987 from AEC to ITO Surat.
(xiv) Letter dated 8-5-1985 addressed by the assessee to Shri Pravinbhai Sheth.
(xv) Zerox copies of cheques forwarded by Dena Bank vide letter dated 5-1-1990 (pages 136 to 159).
(xvi) Zerox copies of cheques from State Bank of India and Dena Bank.
(xvii) Press cuttings in respect of the above irregularities appearing in Gujarat Mitra.
7. According to the A.O. who passed the assessment order for the assessment year 1982-83, "copies of all the relevant papers were duly supplied to the assessee on 3-1-1990 and thereafter his statement was recorded on 25-1-1990". Certain questions and answers from the said statement recorded on 25-1-1990 were reproduced in the assessment order. From the said questions and answers the A.O. observed that it was evident that major chunk has been received by the assessee in collusion with Shri Khatiwala, that all the above documents clearly established that the assessee had certainly earned his brokerage in connection with the supply of E.R.W. pipes to the Irrigation Department, that a perusal of the seized material by the ACIT Surat and the case records of Shri Khatiwala showed that the assessee had acted as a Liaison Officer in the matter, and that it was noticed that the State Government had already started recovery from the Surat parties in connection with the excess payments towards supply of G.I. pipes.
8. In the statement recorded on 13-4-1987 the assessee stated that the locker in the name of Shri Arvind Kumar Ambalal Patel of Baroda bearing key No. 559 was in fact belonging to him.
9. Statement of Shri Bhimjibhai U. Patel from whom the assessee was purchasing clothes was also recorded on 11-12-1986 in which he has stated that the assessee was involved in certain irregularities as a result of which certain Government officials were suspended.
10. In connection with the three I.T. files found during the search, statement of Shri Ishubhai Daulatbhai Shaikh, driver was recorded on 10-12-1986 who admitted that the cash of Rs. 65,000 and Rs. 35,000 was not credited by him on 10th July and 26th July as seen from his bank account. He admitted that such large amount cannot be belonging to him and Shri Pathan Saheb might have credited in his account. Similar is the position with the other two employees, namely, Shri Bharat Bhikalal Pandya and Shri Ashwin Kothari in whose accounts large credits were made though they were not having "austensible" source of income and the same moneys have again been withdrawn and credited in the books of the assessee. All these three persons have filed their returns for 8 years each under the Voluntary Disclosure Scheme.
11. In the assessment order for the assessment year 1982-83, the A.O. has given details of gifts received by the family members of the assessee to the extent of Rs. 2,40,000. The assessee was required to provide the complete addresses of the donors. Vide letter dated 16-9-1989 the assessee stated that the gift tax assessments have already been completed in the case of the donors and that there was no direct or indirect nexus between the gifts received by the respective family members and the assessee. The A.O. concluded that these gifts were nothing but the assessees unaccounted income as explained in detail above to which the colour of gift was given as is a common practice. The assessee could not prove the capacity of the donors and whether the donors had made any other gifts to any one else. The only logical inference that can be drawn on the strength of the evidence available that the assessee had managed to obtain the gifts as mentioned above and the donors were duly reimbursed by him. In this view of the matter the A.O. held that the amounts of gifts alleged to have been obtained by the assessee and his family members constituted his own income out of undisclosed sources. The amount of Rs. 2,40,000 was accordingly taxed as income from undisclosed sources.
12. Thus in the assessment order passed under sections 143(3) and 148 on 12-3-1990 for the assessment year 1982-83 the A.O. computed the total income of the assessee at Rs. 11,25,110. In the said computation the following were included :
Rs.
"Gifts in benami names treated as income from undisclosed sources 2,40,000 Brokerage from Rs.
(i) AEC 6,09,975
(ii) SE, Prop. Smt. Nirmalaben P. Khatiwala 2,21,080 8,31,055"
13. In the assessment order passed under sections 143(3) and 148 for the assessment year 1983-84 on 19-3-1990, the total income was computed at Rs. 10,79,042. In the said computation the following were included :
Rs.
"Gifts received as discussed 1,25,000 Brokerage from :
Rs.
(i) AEC 7,36,941
(ii) S.E. 1,30,141 8,67,082"
Aggrieved by the said assessments the assessee preferred appeals before the CIT(A).
14. Before the CIT(A) the assessees counsel pleaded that the entire action of the A.O. was based on bias. On one hand, the Department was relying on the statement of Shri Khatiwala that the commission or brokerage had been paid to the assessee on the other hand, the Department had not allowed the said amounts as deduction even in the hands of Shri Khatiwala. The CIT(A) observed that the assessees counsel, however, could not produce the appellate order in the different firms belonging to Shri Khatiwala to show whether these amounts were allowed in the appellate proceedings or not. A detailed written submission had been filed by the assessee objecting to the action of the Department. The fact that the cheques withdrawn from the bank accounts bear the signatures of the assessee, his son and his employees has not been denied.
15. The CIT(A) observed that from a perusal of facts of the case, it was clear that the assessee, in connivance of Khatiwala Group of Surat had operated certain bank accounts in which proceeds of supply of pipes to Irrigation Department were deposited, that enquiries were made against Khatiwala Group as well as the assessee, that departmental proceedings were initiated against the officers of the Irrigation Department, that some of them were suspended, that the evidence gathered by the A.O. and reproduced in the assessment orders clearly indicated that there was business connection between the Khatiwala and the assessee. He further observed that without any business connection no person would operate bank account having transactions more than a crore of rupees. After referring to question Nos. 28 to 30 in the assessees statement and answers given by him, the CIT(A) observed that the replies given by the assessee to the said questions proved beyond any reasonable doubt the assessee involving in bank accounts with Khatiwala Group. The statement given by Shri Khatiwala and reproduced by the A.O. was also very clear and categorical. This was also supported by the substantial evidence in the form of deposit slips and cheques in the said bank account.
16. He held that there was no justification or reason to interfere with the additions made by the A.O. for both the years by observing as under :
"2.10 Once the connection between the appellant and the Khatiwala Group is established, the appellant cannot take a plea that this amount should have been allowed as a deduction in the hands of Khatiwala. In any case if this amount has not been allowed as a deduction, the burden of proving the same by production of the assessment order as well as the appellate order of the Khatiwala Group lies on the appellant. It is not the appellants case that he has paid some commission or brokerage for earning his income from the Khatiwala Group. In the circumstances, treatment of this amount in the hands of Khatiwala Group will have no bearing on the assessment proceedings in the hands of the appellant, particularly when not only the evidence has been found in the form of signature in the bank account but also the introduction of the Khatiwala in the bank account, maintenance of benami lockers and depositing huge amounts in the account of the small employees. In the circumstances, I do not find any justification or reason to interfere with the additions made by the A.O. for both the years."
17. Regarding the gifts, the assessees counsel pleaded before the CIT(A) that there was no nexus between the assessee and the gifts received by the different members of the family. The information called for by the A.O. could not be produced as Shri J. B. Contractor and Smt. Veluben Jal Contractor have since expired. However, the CIT(A) deleted the addition of gift amounts observing as under :
"3.2 I have carefully gone through the assessment order and the submissions made. In the course of discussion in the earlier part of the appellate order, I have held that the appellant had earned huge amount of income by way of brokerage from Khatiwala Group. Keeping in view the total amount of income involved and the gifts received, the demand drafts could have been easily purchased out of the income generated from the income confirmed by me in earlier paragraphs. While agreeing with the A.O. that no evidence has been brought on record regarding the creditworthiness of the alleged donors, I hold that the funds can still be explained as coming from the brokerage income. There is no allegation that the appellant has made any other investment from such huge income earned during these two years. In the circumstances, separate addition made in respect of gift is deleted on the ground that income generated from the brokerage income confirmed by me earlier was sufficient to purchase the demand drafts for the alleged gifts. The amount credited to the different members should be treated as the funds of the appellant and any income accruing on the same should also be brought to tax in these years."
Dissatisfied with the order of the CIT(A) the assessee preferred the present appeals before the Tribunal.
18. The learned JM observed that the brokerage income was assessed on the basis of words and statements of the alleged payer Shri P. C. Khatiwala (PK). On one side, there was the oath statement of PK that the assessee was paid brokerage/commission for the Government contracts and on the other hand, there was the oath statement of the assessee that he did not receive any brokerage/commission or profit from Khatiwala firms. There is not a shred of firm and direct documentary evidence like agreements, vouchers, receipts and correspondence which could go to establish that the Khatiwala firms paid and the assessee received brokerage/commission for arranging, managing or procuring Government contracts for the Khatiwala firms. The reliance placed by the A.O. on few notings and entries on few papers and chits found and recovered from the assessees premises during the course of the search do not throw much light nor could go to prove convincingly that the assessee did have business relations or connections with the Khatiwala firms and that he managed any of the Government contracts which the Khatiwala firms obtained nor that the assessee received brokerage/commission from the Khatiwala firms in relation to such contracts. Even the unexplained deposits in the bank account of driver Shri Ishubhai Daulatbhai Shaikh and other employees though cast great doubt and suspicion yet cannot prove the case of the A.O. that the assessee did receive brokerage/commission from the Khatiwala firms. How strong or high the suspicion may be, yet it always remains a suspicion and only suspicion and, therefore, cannot take the place of proof or evidence. The plea of the revenue that since the assessee introduced PK to Dena Bank for opening account in that bank in the name of AEC and that since the assessee and his employees/associates withdrew and brought cash from the account of AEC from Dena Bank by signing on the reverse side of "self cheques" conclude that the assessee had business dealings with the Khatiwala firms in relation to the Government contracts and the "self cheques" withdrawn amounts were towards brokerage for the said Government contracts is not acceptable. The learned J.M. agreed with the assessees counsel that the CIT(A) has not at all considered the affidavits of Shri B. A. Patel, employee of the Municipal Corporation of Baroda and Shri Bhailabhai A. Pardya and Shri Ashwin R. Kothari. Shri B. A. Patel in his affidavit stated that in his spare time he worked for Shri PK in relation to the Government contracts obtained by AEC and SE, that he was withdrawing cash from the bank accounts of the two Khatiwala firms one in Dena Bank, Fatehganj Branch and the other in State Bank of India, Mandvi Branch in Baroda, that whenever he could not get time for withdrawing cash from the said bank account he used to deliver the "self cheques" signed by Shri PK to the assessee or his employees. These facts were further corroborated by the assessees employees, namely, Shri Pandya and Shri Kothari in their respective affidavits. If these evidences were considered in a proper perspective, it could go to prove to a large extent that the assessee did not have any business relations with the Khatiwala firms, particularly in relation to the Government contracts and further he did not receive any brokerage or commission from the said two Khatiwala firms. A perusal of the assessment orders of AEC for the asst. years 1982-83 to 1984-85 shows that the A.O. did not give deduction while computing the assessable income of the said firm, in respect of the alleged payment of brokerage and commission to the assessee. While on one hand, the assessee is being subjected to tax towards the brokerage/commission on the basis and strength of oath statement of Shri PK, on the other hand, the firm AE is denied the claim towards the expenditure incurred by way of brokerage/commission paid to the assessee. The revenue authorities are thus blowing hot and cold in respect of the same transaction. The disallowance in the hands of AEC was upheld by the CIT(A) in his order dated 11-2-1994. If a claim has not been allowed for lack of documentary evidence in the case of AEC, it is difficult to understand how can the assessee be subjected to tax on the same reasoning of lack of evidence ? If there is no evidence there, then there is no evidence here also; the assessee cannot be subjected to tax for lack of evidence. It is also brought to the notice of the Tribunal by the assessees counsel that in the case of another firm SE similar disallowance of brokerage payment to the assessee has been made. The CIT(A) in his impugned order stated that since the assessee failed to produce copies of assessment orders of the relevant assessment years in the cases of AEC and SE about disallowance of brokerage/commission payment to the assessee, he confirmed the amount added by the A.O. in the assessees case towards brokerage and commission. This is not the proper approach to adjudicate and decide the issue. The CIT(A) could have summoned the assessment records of the said firms and verified and examined the plea raised before him. The CIT(A) failed to do so by throwing burden on the assessee. The Departmental Representative urged in his letter dated 1-7-1994 that brokerage payment was not allowed in the cases of AEC and SE because the brokerage payment was opposed to public policy on Government contracts. It is not understandable as to how payment of brokerage in the case of Government contracts or even in the case of carrying on a normal business activity is against the public policy. Even secret commission is an allowable expenditure if there is trade practice/commercial expediency. There is no satisfactory or convincing evidence to support or establish the payment of brokerage/commission to the assessee except a bare and bald statement of Shri PK, on the day of search operations, that he has made payment towards brokerage and commission to the assessee in respect of the Government contract which he could secure through the efforts of the assessee. There is absence of direct and convincing documentary evidence either direct or indirect which could go to establish convincingly that the Khatiwala firms paid and the assessee received brokerage/commission in respect of the Government contracts. Hence, we are unable to agree with the D.Rs submission in his letter dated 1-7-1994 that sufficient circumstantial evidence had been collected by the A.O. justifying the above towards brokerage income earned by the assessee from the two Khatiwala firms. Even the oral evidence of Shri PK cannot go to establish satisfactorily and convincingly that the assessee received brokerage/commission from the Khatiwala firms. Accordingly, the learned JM held that the assessee did not receive any brokerage or commission either from Shri PK or from any of the Khatiwala firms as and by way of brokerage or commission in respect of the Government contracts with the Irrigation Department for the supply of E.R.W. pipes.
19. Regarding gifts, the learned JM had observed that the CIT(A) had not given a very firm decision but has only stated without any reason or discussion that he has not believed the gifts as being genuine. While not believing the gifts, the CIT(A) directed the deletion of the impugned gifts in both the assessment years under consideration, on the ground that since he was confirming the addition made by the A.O. towards brokerage/commission he was of the opinion that the assessee could have managed to purchase the bank drafts from out of such commission/brokerage. Since the learned JM held that the assessee did not receive any amounts towards brokerage and commission and directed their deletion, he deemed it fit and proper to restore the matter in respect of gifts to the file of the CIT(A) with a direction to reconsider the issue in the light of evidence brought on record by the assessee, which according to him established the genuineness of the gifts. The learned JM directed the CIT(A) to decide the issue of gifts as per law after affording the assessee a fair and reasonable opportunity of being heard.
20. The learned AM differed from the learned JM and upheld the findings of the lower authorities and confirmed the additions of Rs. 8,31,055 and Rs. 8,67,082 for the assessment years 1982-83 and 1983-84 respectively. According to him, it was spontaneously admitted by the Surat parties in their statements recorded under section 132 that brokerage @ 50% of the net profit was paid to different persons including the assessee. Some cheques withdrawn from Dena Bank, Fatehganj Branch, Baroda and State Bank of India, Mandvi Branch, Baroda showed the signatures of the assessee and his employees S/Shri Ashwin R. Kothari, Bharat Bhikalal Pandya, Ishubhai Daulatbhai Shaikh and B. A. Patel. Viewed in this background it cannot be said that the assessee helped the Khatiwala Group in the matter of procuring contract from the Irrigation Department and routing the payments to several bank accounts in his name, in the name of his son and in the names of his employees for the fun of it and not for consideration. The statement given by Shri PK reproduced by the A.O. at pages 19 and 20 of his order relating to asst. year 1982-83 was not only spontaneous but from very clear and categorical. This was also supported by substantial evidence in the form of deposit slips and cheques in the said accounts. The evidence gathered by the A.O. and reproduced in the assessment order established beyond any shadow of doubt that there was business connection between the assessee and Shri PK. In a case like this the totality of the circumstances and the surrounding circumstances cannot be ignored. Viewed in the background and the surrounding circumstances, the irresistible conclusion is that the assessee was an active participant, that he rendered services to the Khatiwala Group and that too not for the fun of it but for substantial consideration. The affidavits of Shri B. A. Patel, Shri Bharat Bhikhalal Pandya and Shri Ashwin R. Kothari were not filed before the A.O. during the course of assessment proceedings. They were filed before the CIT(A). Admission of such additional evidence was opposed by the A.O. in his written submissions dated 26-4-1991. The learned A.M. opined that the CIT(A) was perfectly right in not placing any credence on the contents of these affidavits because the statements of Khatiwala Group and the assessee recorded during the search under section 132(4) were spontaneous statements on the point and inspired full confidence. The filing of affidavits subsequently was not only an after thought but also selfserving statements and hence no value, therefore, could be attached to such an after thought version. It is against normal human behaviour that a person will open account in the name of his driver and his employees if he had no business connection with Khatiwala. It is not a case of doubt or suspicion but a case where there are distinct findings supported by positive evidence by the authorities below that the whole scheme was part of the modus operandi to give to the assessee his share from the excessive payments received. The disallowance of brokerage/commission in the assessments of AEC and SE cannot be made a factor in favour of the assessees case. The assessment order of the assessee for the assessment year 1982-83 shows that the Khatiwala concerns, AEC and SE had received excessive payment from the Irrigation Department of Government of Gujarat and that the contracts were managed by the assessee. The payment of brokerage to the assessee may or may not be allowable under section 37 depending upon factors like public policy and other circumstances in the hands of the above mentioned two concerns. A perusal of the assessment orders of the above noted two concerns shows that those assessees failed to prove before their respective A.Os that the payments were made wholly, exclusively and necessarily for the purposes of their business. In any case, they were before the appellate authorities against the assessment orders of their respective A.Os.
21. Regarding the impugned gifts, the learned AM held that there was no occasion for the gifts, that their creditworthiness was not established by the assessee and that the presumption of the CIT(A) that the amounts gifted were income of the assessee was well founded.
22. The arguments of the assessees counsel before me were to the following effect. Before deciding these appeals, the Tribunal has to look into (I) Has the Department proved that the assessee was appointed as a broker for some work by Khatiwala ? (2) Has the Department proved that the assessee rendered services as a broker to get the contracts from the Irrigation Department to Khatiwala, and (3) Has the Department proved What the assessee earned the brokerage @ 50% of the profits ? At the time of raid on 11-12-1986, not a shred of evidence connecting the assessee to Khatiwala as a broker for getting the contracts from the Irrigation Deptt., has come to be found out. The CIT(A) in his appellate order dated 11-2-1994 in the case of AEC for the assessment years 1982-83, 1983-84 and 1984-85 had observed in para 7 that the appellant has, however, candidly informed me that it has no account books and also no evidence to prove its claim on account of overhead expenses or secret commission. It also admitted that there is no evidence to show that Mr. Pathan was sharing the profits equally with it". This appellate order can be seen at pages 103 to 105 of assessees paper book. From this it is very clear that AEC has got no evidence to substantiate its plea of payment of brokerage or commission to Shri AA Pathan (the assessee). The AEC has got more tax stake than the assessed In the assessment year 1982-83, the total income of the assessee after the impugned additions came to Rs. 11,25,110. For the assessment year 1983-84, the assessees total income after the impugned additions was determined at Rs. 10,79,040. As against this, the total income assessed in the hands of AEC for the assessment years 1982-83 and 1983-84 were Rs. 23,76,959 and Rs. 28,71,726 respectively.
23. Khatiwalas bank accounts are in Surat and Baroda. As far as the bank account in Surat, the assessee is nowhere in the picture. As far as Baroda is concerned, there are accounts in Dena Bank and State Bank of India. The assessee had his transactions with Dena Bank. Shri B. A. Patel is misunderstood by the Department as an employee of the assessed. In fact, he is an employee of Municipality of Baroda. He is a friend of Shri R. F. Patel, Executive Engineer in the Irrigation Department and Shri PK As far as the Khatiwalas bank account in the State Bank of India, Baroda is concerned, all the withdrawals were made by B. A. Patel. The affidavit dated 17-9-199O of Shri B. A. Patel in Gujarati and its translation in English can be seen at pages 36 to 40 of the paper book. In his affidavit he admitted that the bank transactions of Shri Khatiwala in Dena Bank and State Bank of India had been done by him, that the amount withdrawn of the cheques given to him had been handed over to Khatiwala and that no amount has been paid to Shri A. A. Pathan. The said affidavit of Shri B. A Patel was filed before the CIT(A) who had given the same to the A.O. The A.O. dubbed the same as self-serving. This comment of the A.O. on the affidavit of Shri B. A. Patel is not correct. It can be dubbed as self-serving if the affidavit is by the assessee. The comments of the A.O. can be seer; at page 5 of the A.Os letter dated 26-4-1991 addressed to the CIT(A) given at pages 53 to 70 of the paper book filed by the assessee. In the order of the CIT(A), there is no whisper in respect of the affidavits of Shri B. A. Patel and Shri Bharat Kumar Bhikalal Pandya and Shri Ashwin Kumar Ratan Lal Kothari filed before him. At the time of raid, the address of Shri B. A. Patel was given. This fact was mentioned in the letter dated 27-3-1992 addressed to the CIT(A) (Please see page 88 of paper book filed by the assessee). Reference can be made to page 15 of the assessment order in the assessment year 1982-83. In answer to question No. 31 as to the identity of Shri B. A. Patel and his complete address, the assessee stated that Shri B. A. Patel was serving as supervisor in O.N.G.C. and gave his full address as Wadi, Rang Mahal, Hathikhana Road, Baroda. Even though Patels full address was given, the A.O. left him like that. In question No. 36 itself, the A.O. stated that almost entire drawing from the account of SE in State Bank of India, Mandvi Branch, Baroda was made through Shri B. A. Patel. The Departments only reliance is on the touch of money withdrawn from the bank accounts of Khatiwala. The affidavits of B. B. Pandya and A. R. Kothari referred to Dena Bank of Baroda only. At pages 50, 51 and 52 of the assessees paper book, statements of income filed by AEC and SE were filed. In those statements, the said firms simply mentioned "brokerage given to broker". The name of the broker to whom the brokerage was paid was not mentioned. Simultaneously searches were carried out at Surat and Baroda on Khatiwala and assessee. This fact can be seen at page 4 of A.O.s letter dated 26-4-1991 addressed to the ClT(A) (Please see running page 56 of the paper book filed by the assessee). But no evidence as to the appointment of the assessee as broker and payment to him were found at the time of raids on the assessee as well as Khatiwala. In the said letter dated 26-4-1991, the A.O. alleged that the friendship between the assessee and Khatiwala was formed with an intention to share the "unaccounted money" which was earned by charging excessive price by the Surat parties. It is an elementary fact that the Government never pays any body unaccounted money. What does the A.O. mean by the said expression "unaccounted money" ? Again, the A.O. observed that in respect of illegal arrangement, the unaccounted moneys paid by the Surat parties to the assessee there is no question of obtaining receipts. When AEC and SE filed their statements of income on estimate basis and not on the basis of books where is the question of unaccounted moneys paid by the Surat parties to the assessee ? The A.O. made a strange point [page 4 of his written submissions dated 26-4-1991 given to the CIT (A)] when he stated "Had the assessee no business connection there was no necessity of introducing Shri PC Khatiwala with Dena Bank for opening the account. No prudent person will involve in any such affairs without self interest". This assertion that anybody who introduces for opening an account in the bank is necessarily a person having a business connection, is wrong and contrary to human experience [Please see page 86 of the paper book out of assessees letter dated 27-3-1992 addressed to the CIT (A)]. The A.O. at page 25 of the assessment order in para 7 stated that copies of all the relevant papers were duly supplied to the assessee on 3-1-1990. This expression relevant papers" is very cryptic. He does not elaborate as to what papers were supplied to assessee on 3-1-1990. In the order sheet dated 3-1-1990, the A.O. noted as under :
Shri R. K. Shah, Chartered Accountant attends with the assessee. Partly discussed. Seized papers mentioned in the notice dated 16-11-1989 duly shown and copies supplied, to file reply pointwise."
From this it is apparent that what the A.O. meant in para 7 is with reference to seized papers mentioned in the notice dated 16-11-1989. But the A.O. has made a sweeping statement that copies of all the relevant papers were duly supplied to the assessed Actually this is not at all correct. The A.O. has referred to 17 items as detailed in pages 18 to 25 of his assessment order. The assessment order was passed on 19-3-1990. The items were not at all supplied to the assesses before the assessment order was passed. Vide letter dated 15-6-1990 the assessees C.A. referred to earlier letter dated 28-11-1989 and submitted that 7 items were not supplied to the assessee even by that date 15-6-1990. The A.O. vide his letter dated 8-8-1990 gave only four items and mentioned that "as regards copies of other documents it is not possible to supply the same by this office". The assessee was forced to write to the CIT through letter dated 8-9-1990. These letters can be seen at pages 45 to 49 of the paper book filed by the assessee. Non-supply of the papers relied on by the A.O. to draw adverse inference against the assessee is violation of principles of natural justice. Hence, the impugned orders should not be sustained. Shri Khatiwala himself conceded in his deposition that the moneys covered by the self-cheques were paid to him. But because he wanted a deduction he added that he was paid less by 50%. This is a mere oral statement. Even in his own assessment this is rightly not believed. Shri B. A. Patel is not a partner of the assessed He is not even an employee of the assessee. If Shri B. A. Patel had handled the bank accounts of Khatiwala, how can an addition be made in the hands of the assessee towards brokerage. If the assessee was connected with Shri Khatiwala on business account, something was bound to have been found at the time of raid on the assessee showing that connection. The fact of the matter is that nothing was found. In page 9 of the written submissions of the A.O. dated 26-4-1991, he stated as under :
The ITO, Surat has disallowed the claim of brokerage payment to the assesses because the Surat Parties could not furnish any documentary evidence in connection with the brokerage/commission paid by them to Shri Pathan. Naturally there was no question of granting any deduction on this account by the ITO, Cir. II Ward G. Surat, in the case of M/s Seema Enterprises, M/s Associated Engineering Corporation, etc. However, on the basis of the material collected from Surat, copies of which were duly supplied to the assessed brokerage/commission paid by the Surat parties is required to be taxed in the hands of the assessed."
This is the most illustrative case of approbate and reprobate which is not permissible under law. In the paper book filed by the revenue, the letter dated 29-9-1986 addressed by SE to the CIT while filing voluntary disclosure under the Amnesty Scheme was given at pages 40 to 44 of the paper book. In the said letter SE admitted that they did not possess any documentary evidence in support of the secret commission and brokerage paid by them (Please see page 43). In the letter dated 25-9-1987 addressed by SE to the CIT (Please see page 45 of revenues paper book) SE claimed as under :
"(a) It is to be noted that the business of our firm seems to be accelerated definitely on account of the business created executed by Mr. A. A. Pathan, who had and has contacts with the Government offices.
(b) it was the understanding that M/s Pathan had to procure the business he had to comply all the Govt. formalities he had to make the payment in the form of commission to those persons who might have involved in the business deal. He had to also manage for taking the payment from the Govt. Officer and the same is to be deposited in the Bank Account to be operated only from Baroda for his convenience and should be allowed to withdraw the money in the manner and fashion he like even by giving all the cheque signed and handed over, naturally Blanks."
It may be noted here that no evidence was produced by SE in support of the said allegations against the assessee made to suit its convenience. Free translation in English of letter dated 8-5-1985 said to have been addressed by the assessee to PK is given at page 79 of the paper book. This letter relates to assessment year 1986-87 and not to the assessment years 1982-83 and 1983-84 under appeal now. Here it may be stressed that nothing has been added in the assessment of the assessee for the assessment year 1986-87 towards the alleged brokerage/commission from Khatiwala. The assessment order of the assessee for the assessment year 1986-87 dated 8-3-1989 is filed before the Tribunal. Thus, the learned JM is fully justified when he held that the assessee did not receive any brokerage or commission either from Shri PK or from any of the Khatiwala firms as by way of brokerage/commission in relation to the Government contracts with the Irrigation Department for the supply of E.R.W. pipes. His order is to be upheld in this regard. Question No. (it) referred to the Third Member does not arise since the learned JM has not given his opinion that the gifts are not genuine and so constituted income of the assessee. In the circumstances the learned JM has rightly restored the matter of gifts to the A.O. His order in this regard also is to be upheld.
24. The learned Departmental Representative filed a copy of the order sheet entries and a paper book of 258 pages. The arguments of the D. R. were to the following effect : There is ample evidence in the form of cheques and letter written by the assessee dated 8-5-1985. The said letter is given at pages 77 to 79 of the revenues paper book. The contents of this letter prove beyond doubt that the assessee had business relations with the Khatiwala group. In the English translation of said letter it was mentioned "we will sit on one day and finalise the account". Except the transactions of the contracts with the Irrigation Department of Government of Gujarat, there were no other business transactions between the assessee and Shri P. K. The cheques given at pages 80, 95, 109, 113, 129 and 132 are the cheques encashed by the assessee. The signatures of the assessee are found on the reverse side of the said cheques. Other cheques had been encashed by his other employees, Pandya, Kothari and Shaikh. The employees worked under the control of the assessee. Shri Pathan had admitted them as his employees and that banking transactions were done at the instance of Pathan. The letters filed by Khatiwala group either before the CIT or the A.O. clearly contained the facts admitted by them that they paid brokerage to the assessee for the work done by him regarding the transaction relating to supply of E.R.W. pipes to the Irrigation Department of Government of Gujarat. The A.O. established the fact that the assessee was involved in these transactions. So the arguments of the assessees counsel regarding the non-receipt of broker-age by the assessee are not valid and correct. This is because PK had stated in his statement and admitted the payment of brokerage to the assessee. This is evident from the questions and answers given as reproduced at pages 19 and 20 of the assessment order. These questions and answers are taken from the statement of PK recorded under section 132(4) dated 16-12-1986. They reveal the fact of payment of brokerage to the assessee which was retained by him while making the payments to Khatiwala from the amount withdrawn by him/employees from banks encashing self bearer cheques of Khatiwala. Mr. Pathan had acquaintance with the engineers of the Irrigation Department. This is clear from the answer to question No. 8 in the statement recorded on 25-1-1990. He knows B. K. Engineer, Chief Engineer and K. V. Shah, Deputy Engineer besides R. F. Patel in whose house the assessee lived. This supports the fact mentioned by Khatiwala group that the assessee assured to procure the business from the Irrigation Department for the supply of pipes on the condition that secret commission @ 30% would be charged for giving the same to the engineers and from the balance he would charge 50% as brokerage. Mr. Pathan confessed his signatures, in answer to question No. 28 given at page 206 of the revenues paper book. The affidavits of B. A. Patel, Kothari and Pandya are much later to the date of the assessment order. They are dated 20-6-1990 and 17-9-1990. These are self-serving evidences as rightly pointed out by the A.O. Otherwise they could have been filed before the A.O. himnself. [Kindly see para (b) in the A.Os letter dated 26-4-1991 addressed to the CIT(A)]. Regarding the assessees allegation that the A.O. grossly failed to bring any material evidence to prove that the assessee has received cash amount from Shri Khatiwala, the burden of proof has been discharged by the Department by bringing substantial evidence on record inasmuch as the confessions of the Surat parties, copies of the cheques encashed by the assessee and his associates, disclosure petitions filed by the Surat parties to the CIT, Surat clearly indicate that the assessee had enjoyed the fruits. As regards the assessees contention that oral statement is not at all evidence to prove the receipt of brokerage, copies of the computation of income in the case of Surat parties have been duly supplied to the assessee along with their admissions in writing in connection with the business arrangement by them with the assessee, according to which brokerage was payable and paid to Shri Pathan. Once they preplanned scheme, there was complete belief between them. So there could not exist any written agreement. This plea gets support in the issue of signed blank self-cheques of Khatiwala. Otherwise no person would dare to hand over the blank cheques signed when huge and large amounts were withdrawn. If there is no reciprocal confidence, there is likelihood of embezzlement of funds withdrawn. Had there been no business consideration, which was to be received by Pathan, he would not have spared his valuable time and time of his employees to render the services to Khatiwala groupfor banking transactions at Baroda. The statement of B. B. Pandya is given at, pages 224 to 226 of the paper book of the revenue. In answer to question No. 1, Pandya stated that he served the assessee besides doing religious job, cooking, white-wash contract work and brokerage job, etc. At a time how is he able to do so many jobs ? In answer to question No. 5, he answered that he had no savings as on 16-1-1987. In answer to question No. 12 he stated that he had given a loan of Rs. 90,000 to the assessee before six months. This clearly shows that unaccounted money of Pathan was routed through the files of his three employees. The statement of Ishubhai Daulathbhai Shaikh is given at pages 230 to 232. The story is the same as in the case of B. B. Pandya. This gives circumstantial evidence that brokerage of Pathan received from Khatiwala group was utilised for converting into white income in the name of his employees. Their income-tax files were seized from the assessees residence. It is very much clear from the cheques encashed by the assessee or his employees, his control over employees. The relationship of B. A. Patel with Pathan, averments of Khatiwala group and letter dated 8-5-1985 constitute evidence. These are to be judged in the light of the principle laid down in the Supreme Court judgment in the case of CIT v. Durga Prasad More [1971] 82 ITR 540. As observed by the Supreme Court in the said case the evidence has to be judged by applying the test of human probabilities. The assessees representative filed a paper book showing the details of several documents (numbering 17) not supplied to him. But the order sheet entries dated 3-1-1990 and 8-8-1990 prove otherwise. In the order sheet entry dated 8-8-1990 it was clearly mentioned that "copies of relevant documents supplied to the assessee (vide application dated 15-6-1990 from Shri R. K. Shah). All the remaining documents were duly shown to him while recording his statement under section 131 on 25-1-1990". Even in the remand report dated 26-4-1991, the A.O. in para (k) stated that all the copies of relevant materials/evidence were duly supplied to the assessee." The letter dated 8-8-1990 from the A.O. to assessee given at page 48 of the assessees paper book may also be seen. This shows the nature of justice require to be shown was duly observed. Nothing remained to be shown to the assessee. As per the judgment of the Madhya Pradesh High Court in the case of Smt. Gunwantibai Ratilal v. CIT [1984] 146 ITR 140, an affidavit is a piece of evidence, which along with the other material on record has to be taken into consideration by the Tribunal before arriving at a finding. A statement by a deponent can be held to be unreliable by the Tribunal either on the basis of a cross-examination of the dependent or by reference to other material on record leading to the inference that the statement made in the affidavit, cannot be held to be true. SLP against this judgment has been dismissed by the Supreme Court as reported in 156 ITR (St.) 43. As held by the Assam High Court in the case of Mangalchand Gobardhan Das v. CIT [1954] 26 ITR 706 material or evidence on which the taxing authorities may rely under the Income-tax Act is not confined to direct testimony in the shape of statements made by witnesses. All relevant circumstances which have a bearing on the issue which are revealed during the course of the assessment would be covered by the expression "material or evidence on which the ITO could rely". As held by the Patna High Court in the case of ML. Tewary v. CIT [1955] 27 ITR 630, in case the explanation given by the assessee is not accepted, or in a case where the assessee cannot give explanation, the revenue authorities are entitled to draw an adverse inference from such materials. See page 3382 of Chaturvedi and Pithisarias "Income-tax Law", Vol. 3. As held by the Supreme Court in the case of CIT v. Best & Co. (P.) Ltd. [1966] 60 ITR 11 and CIT v. Chari & Chari Ltd [1965] 57 ITR 400, the burden to establish that an income is taxable though initially on the revenue, may shift to the assessee on the principles of law of evidence. (Please see item 150 at page 111 of Taxmanns Supreme Court on Direct Taxes (Volume I, 1993 Edition). Whether allowed or not in other case, i.e., payees case does not have any bearing on the taxability of the brokerage in the hands of the assessee. Kindly see item No. 3 in Office note" in the assessment order dated 26-3-1990 in the case of SE for the assessment year 1983-84 given at page 258 of the revenues paper book. The said note reads as under :
"3. As regards net profit taken at 10% of total sales is as per the CIT (Appeals), Surats decision for the A.Y. 1984-85. In this regard scrutiny report for the said appellate order has been submitted to the CIT, Surat, stating that the CIT(A), Surats decision may be accepted.
I have enquired into the matter today and it is learnt that the CIT, Surat has accepted the decision of CIT(A), Surat for the assessment year 1984-85. On said lines I have taken net profit at 10% on total sales."
25. Here the net profit was taken at 10% of the total sales. This shows that expenditure claimed by the assessee has been allowed including the secret commission and brokerage to the assessed Shri A. A. Pathan. Thus, the assessee cannot argue that it was not allowed in the case of SE. There is no question of double taxation.
26. In reply, the assessees counsel contended as under :
As held by the Supreme Court in the case of Mehta Pariah & Co v. CIT [1956] 30 ITR 181 as the persons who gave the affidavits were not cross-examined, it was not open to the revenue to challenge the correctness of the statements made in the affidavits. The real test that the Tribunal should adopt in this case is if the revenue claims that the brokerage was earned by the assessee it should see whether there was any material on record on which the Tribunal could sustain such an action. For this proposition reliance is placed on the case of Madras High Court in the case of Madura Knitting Co. v. CIT [1956] 30 ITR 764. From the assessment order of SE for the assessment year 1983-84 it would be seen that the total income was determined at Rs. 3,46,600 whereas the assessee was sought to be assessed on Rs. 8,67,082 being the alleged brokerage. While passing the assessment order in the case of SE for the assessment year 1983-84 that A.O. followed the order of the CIT(A) in the case of SE for the assessment year 1983-84 in determining the net profit at 10% on the sales. The order of the CIT(A) for the assessment year 1984-85 in the case of SE was not furnished before the Tribunal by the D. R. Hence it is difficult to follow what has been done there. What happened in the assessment year 1984-85 in the case of SE is not relevant to the assessment years 1982-83 and 1983-84 in the case of the assessee now before the Tribunal.
27. I have considered the rival submissions and perused the papers filed before me. The A.O. in para 5 of his assessment order for the assessment year 1982-83 under the head "modus operandi" mentioned that "the excessive payments" were routed through the bank accounts. It is not known as to what he means by the expression "excessive payments". Does he mean excessive payments of Rs. 53,12,342 and Rs. 66,30,781 said to have been received by SE and AEC respectively as mentioned by him in pages 6 and 7 of the assessment order for the assessment year 1982-83 ? In page 4 of the said order, he says that total of the credit side of these bank accounts comes to Rs. 1,23,31,207. This shows the confused thinking of the A.O. Whatever cheques were issued by the Irrigation Department, they were deposited in these bank accounts. Further, the A.O. did not say about or mention the source from which the so-called excess payments" were obtained. The D.R. in his paper book at page 28 gave the details of excess amounts paid, i.e., to be recovered from the suppliers (SE and AEC) for Rs. 48,71,917 only. Thus, it would be seen that the quantum of the so-called excess payments is shrouded in mystery.
28. In page 7 of the assessment order for the assessment year 1982-83 at para 5, the A.O. described D. A. Patel as an employee of the assessee. This is factually incorrect. He is an employee of the Municipal Corporation of Baroda as per the affidavit dated 17-9-1990 of B. A. Patel. (Please see English translation of the said affidavit given at pages 39 to 40 of the assessees paper book). In this connection the answer to question No. 31 in the statement of the assessee dated 11-12-1986 can also be seen. In answer to question No. 31, the assessee answered that B. A. Patel was serving as supervisor in O.N.G.C.
29. In the statement recorded from the assessee on 11-12-1986, in answer to question No. 24, the assessee clearly stated that he had no business dealings with SE and AEC.
30. In answer to question No. 35, the assessee denied the receipt of brokerage @ 50% of the income of SE and AEC.
31. In question No. 36 the A.O. himself admitted that almost entire drawing from the account of SE in State Bank of India, Baroda is made through B. A. Patel. Then how can the assessee be implicated as far as SE and its bank account in State Bank of India, Baroda are concerned ?
32. From the reproduction of question Nos. 8 to 46 from the assessees statement dated 11-12-1986, the A.O. jumps to the conclusion that "from the above facts it is evident that the assessee and his employees/ associates have withdrawn large amounts by self-cheques from the banks and handed over to Shri Pravin Khatiwala after deducting their brokerage. Except making this bald statement, the A.O. has not pin-pointed any evidence or admission on the part of the assessee in the matter of alleged receipt of brokerage by the assessee from SE and AEC. This conclusion is only based on suspicion without any supporting evidence.
33. In page 18, in para 7 of the assessment order for the assessment year 1982-83, the A.O. observed that his conclusion finds support from copies of "relevant papers" shown in items (z) to (xvii). Let me examine them.
34. Copies of cheques drawn by AEC do show the withdrawal of money from Dena Bank. They are given at pages 1 to 27 of the Departments paper book. For example, cheque No. 311607 dated 27-2-1982 shows Rs. 8,00,000, cheque No. 311613 dated 1-4-1982 shows Rs. 11,00,000. Certainly these amounts withdrawn cannot be called as evidence for the brokerage alleged to have been paid to the assessee. These are amounts withdrawn by the assessee/his employees for and on behalf of the AEC and paid to it.
35. The excess amount paid, i.e., to be recovered from the suppliers (SE and AEC) as given in page 28 of revenues paper book shows an amount of Rs. 48,71,917. This statement issued by the Executive Engineer, I.P. Division No. 2, Bodali, does not prove the alleged payment of brokerage to the assessee by SE and AEC. The letter dated 17-9-1986 by ADI Surat to P. C. Khatiwala and Smt. Nirmala P. Khatiwala (pages 29 to 31 of the Departments paper book) mentions the excess payment of Rs. 48,71,917 to the SE and AEC. This letter does not evidence the payment of the alleged brokerage to the assessee.
36. In the statement under section 132(4) dated 16-12-1986, Shri P. C. Khatiwala in answer to question No. 28, he simply stated that he has got one paper in the hand-writing of the assessee from which it is evident that 50% brokerage the assessee was getting. He did not produce and file the said paper before the Department. No such paper was produced and filed before me. So, this answer does not prove the payment of alleged brokerage to the assessee.
37. The letter dated 16-10-1967 written by the ITO, Surat to the ITO, Ahmedabad is given at pages 37 and 38 of Departments paper book. In the said letter, the ITO, Surat informs the ITO, Ahmedabad that Mr. A. A. Pathan was accomplished by SE and that he was in overall charge of entire portion and that it is also established that he received commission or brokerage whatever it may be named out of (sic) this. The ITO, Surat suggested the ITO, Ahmedabad to make an assessment of Mr. A. A. Pathan on a "protective basis". The actual sentence in the said letter reads fit would therefore, be better, if the brokerage shown by my assessee as paid to Shri A. A. Pathan is assessed in the case of your assessee on a protective basis". This itself shows the uncertain mind of the Department on the question of brokerage alleged to have been paid to the assessee.
38. Computation of income of SE as given in page 39 of Departments paper book simply shows "brokerage given to broker" as Rs. 1,30,141, Rs. 1,07,299 and Rs. 2,964 in assessment years 1983-84, 1984-85 and 1985-86 respectively. The said computation statement did not mention the name of the assessee Mr. A. A. Pathan as the recipient of brokerage. Hence, this computation statement by SE does not advance the case of the revenue that the assessee Mr. A. A. Pathan received the alleged brokerage.
39. The A.O. referred to the letter dated 29-9-1986 wherein SE made voluntary disclosure. He took the averments made therein at their face value and believed them to be true. But he did not highlight the point made by SE in the same letter at page 4 reading as "on the face of it, we would not possess any documentary evidence in support". The A.O. should have believed the entire statement including this absence of documentary evidence for the alleged payment of brokerage to the assessee. He should not have quoted excerpts from the said letter which are favourable to him. So the letter dated 29-9-1986 cannot prove the alleged payment of brokerage to the assessee by SE.
40. The A.O. further reproduced certain paragraphs from the letter dated 25-9-1987 from SE to the ITO, Surat. In that letter at para (f), SE submitted "some papers duly written by Mr. Pathan which established the above-mentioned facts, even the suppliers of goods did contact Mr. Pathan for his instructions for supply of goods; for price fixation and payment". The A.O. failed to detail these "some papers" and their contents in his assessment order. Even the D.R. did not file copies of those "some papers" before me. This is not to be believed. This letter dated 25-9-1987 does not in any way help the revenue.
41. The A.O. referred to the same letter dated 25-9-1987 again in item No. (ix) in his assessment order and gave the same page No. 69 of confidential papers. This has already been referred to in item No. (Viii) in his assessment order. This shows the over-zealousness of the A.O.
42. The A.O. referred to letter dated 29-9-1988 from SE to the ITO, Surat. The A.O. himself stated that the contents of this letter were more or less similar to letter 25-9-1987. So this also does not advance the case of the revenue any further.
43. The A.O. referred to computation of income shown by AEC alleging payment of brokerage paid of Rs. 6,09,975 and Rs. 7,36,941 and Rs. 35,091 in assessment years 1982-83, 1983-84 and 1984-85 respectively. Here also, it is simply stated "brokerage given to brokers". The said statement does not mention the name of the assessee Mr. A. A. Pathan as the recipient of the brokerage. So this computation statement of AEC does not advance the case of the revenue that the assessee Mr. A A. Pathan received the alleged brokerage.
44. The A.O. referred to letters dated 29-9-1986 and 25-9-1987 from AEC to CIT and ITO respectively. The contents of them are the same as in letters dated 29-9-1986 and 25-9-1987 from SE to the said authorities. Hence, my observations above in paras 39 and 40 hold good here also.
45. The A.O. referred to letter dated 8-5-1985 addressed by the assessee to PK. This letter is in Gujarati. Its English translation is given at page 79 of the revenues paper book. In the said letter, there is no whisper about the brokerage/commission to the assessee. But it must be noted here that no addition towards alleged brokerage/commission was made in the assessment order of the assessee for the assessment year 1986-87 made under section 143(3) on 8-3-1989. Hence, it has to be taken that the revenue itself did not attach any importance to this piece of paper.
46. The copies of cheques on Dena Bank referred to in item No. (xv) also do not help the revenue. These cheques showing the amounts withdrawn cannot be called as evidence for the brokerage alleged to have been paid to the assessee.
47. In item No. (xvi), the A.O. again refers to cheques on Dena Bank, Fateh Ganj, Baroda. This is a mere repetition as there was already mentioned in item (i) in para 7 in page 18 of the assessment order.
48. In item No. (xvi), the A.O. refers to cheques on State Bank of India (SBI), Baroda drawn by SE. As admitted by A.O., they were encashed by Mr. B. A. Patel. Please see question No 36 in page 16 of the assessment order for the assessment year 1982-83. Hence, no adverse inference can be drawn against the assessee.
49. Regarding the press cuttings appearing in Gujarat Mitra as mentioned in item No. (xvii), the A.O. did not elaborate as to their contents. The D.R. has not pointed out any connection to the assessee in them.
50. The assessment orders for the assessment years 1982-83 and 1983-84 in the case of the assessee were made on 19-3-1990. While making the impugned additions towards brokerage, the A.O. heavily relied on the statements of PK and the voluntary disclosure made by AEC and SE and their letters dated 29-9-1986 and 25-9-1987. But strangely the same materials were not accepted by A.O. who assessed AEC when he passed the assessment orders for the assessment years 1982-83 and 1983-84 on 18-2-1993.
51. The D.R. argued that the net profit was taken at 10% of the sales in the assessment of SE in the assessment order for the assessment year 1983-84 and hence it has to be taken that brokerage to the assessee and secret commission to the engineers of the Irrigation Department is deemed to have been allowed. This argument is fallacious. In the assessment order of the assessee for the assessment year 1983-84, the A.O. has clearly stated that the assessees claim for allowance of secret commission, brokerage and overhead expenses was elaborately discussed in the assessment order for assessment year 1984-85. In the assessment order for the assessment year 1984-85 dated 28-9-1987, the A.O. in page 6 specifically disallowed the assessees claim for deduction of secret commission paid to engineers of Rs. 8,57,245 and brokerage to Mr. A. A. Pathan of Rs. 1,07,299. He allowed 546 of the sales as overhead expenses. Even in the assessment orders in the case of AEC for the assessment years 1982-83 and 1983-84, the A.O. has allowed deduction at 5% of the sales towards carting, freight and office expenses. (See para 19 of assessment order for the assessment year 1982-83 of AEC placed at pages 240 to 244 of the revenues paper book). In the appellate order dated 11-2-1994 for the assessment years 1982-83, 1983-84 and 1984-85 in the case of AEC, the CIT(A) categorically held the appellants request for giving specific direction to the A.O. to allow this claim for overhead expenses or secret commission or payment to Mr. A. A. Pathan are accordingly rejected". Earlier he held flit is futile to deal individually whether payments made to Mr. Pathan are genuine or what should be overhead expenses or secret commission". [See para 9 of the order of the CIT(A)].
52. The CIT(A) has passed the appellate order on 30-3-1993 much long after the date of hearing, i.e., 11-3-1992. This is clear from the cause title portion of the impugned appellate order. This delay may be the reason for certain observations not based on record. In para 2.6 he says "the A.O. concluded that the appellants connection was proved beyond doubt in view of the appellants signature and also the signatures of the relatives and employees in the deposit forms as well as the cheque withdrawals from the bank accounts". Again he says in page 7 "this was also supported by substantive evidence in the form of deposit slips and cheques in the said bank accounts". The A.O. did not refer to the "signatures of the relatives" and "in the deposit forms". The A.O. only referred to "on the back side of the cheques there are signatures of either of Mr. Pathan or his employees" in page 7 of the assessment order for the assessment year 1982-83. Again the CIT(A) observes in para 2.9 "without any business connection no person will operate bank account of more than a crore of rupees". The A.O. did not allege the operation of bank account of Khatiwala by the assessee or his employees. In fact, it is not correct. Operation of bank account means signing of cheques. In fact, the cheques were signed by PK and his wife. Only withdrawals were signed by Mr. Pathan and his employees on the back side of the cheques. This is clear from the copies of the cheques filed in the revenues paper book.
53. The learned A.M. observed in para 3 of his order as under :
"It was spontaneously admitted by the Surat parties in their statement recorded under section 132 that the brokerage at the rate of 50% of the net profit was paid to different persons including the assessee. Some cheques withdrawn from Dena Bank, Fatehganj, Baroda and State Bank of India, Mandvi, Baroda showed the signatures of the assessee and his employees S/Shri Ashwin R. Kothari, Bharat Bhikhalal Pandya, Ishubhai Daulatbhai Shaikh and B. A. Patel. Viewed in this background it cannot be said that the assessee helped the Khatiwala group in the matter of procuring contract from the Irrigation Department and routing the payments through several bank accounts in his name, in the name of his son and in the names of his employees for the fun of it and not for consideration."
54. Facts are contrary to these observations. Surat parties nowhere admitted payment of brokerage to "different persons". Cheques drawn on State Bank of India (SBI), Baroda did not contain the signatures of the assessee Mr. A. A. Pathan or Mr. B. B. Pandya, Mr. A. R. Kothari or Mr. I. D. Shaikh. All of them contain the signatures of Mr. B. A. Patel on the reverse side of the cheques. This is admitted by A.O. himself in question No. 36 in page 16 of the assessment order for the assessment year 1982-83. Further the bank accounts are not in the name of the assessee, his son or his employees.
55. On the facts and circumstances of the case and on the perusal of the papers filed before me both by the revenue and the assessee, I agree with the learned J.M. that the assessee did not receive the alleged brokerage/commission. Hence, the assessee cannot be assessed in respect of it in assessment years 1982-83 and 1983-84. My answer to question No. 1 referred to me is in the negative.
56. Question No. (ii) does not arise as the learned J.M. did not express any opinion about the genuineness of the gifts.
57. As far as question No. (iii) is concerned, I agree with the learned J.M. that the matter in relation to the gifts received should be remanded to the CIT(A) for his decision on merits on the basis of the evidence produced before the A.O. and himself.
58. The matter will now go back to the regular Bench for a decision according to majority opinion.
ORDER Per Jordan Kachchap, JM - In accordance with the order of Third Member dated 12-6-1995 and in conformity with the majority view these appeals are partly allowed for statistical purposes.