Income Tax Appellate Tribunal - Hyderabad
Sri Ravinder Kumar, Secunderabad vs Assessee on 19 April, 2013
IN THE INCOME TAX APPELLATE TRIBUNAL
HYDERABAD BENCH "A", HYDERABAD
BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER
AND SMT. ASHA VIJAYARAGHAVAN, JUDICIAL MEMBER
S.No. ITA No. A.Y. Appellant Respondent
1 to 3 387, 388 & 2004-05 Ravinder Kumar DCIT, CC-4,
389/H/12 to Hydrabad
2006-07
4 to 6 93, 94 & 2007-08 -do- -do-
95/H/12 to
2009-10
7 to 424, 425, 2004-05 DCIT, CC-4, Ravinder Kumar
12 426,427,428 & to Hydrabad
429/H/12 2009-10
13 to 87,88,89,90,91 2004-05 Sri Jagadamba DCIT, CC-4,
18 & 92/H/12 to Pearl Dealers Hyderabad
2009-10
19 to 368, 369 & 2007-08 DCIT, CC-4, Sri Jagadamba
21 370/H/12 to Hydrabad Pearl Dealers
2009-10
Assessee by : Shri K. Sai Prasad
Revenue by : Shri M. Ravindra Sai
Date of Hearing : 19/04/2013
Date of Pronouncement : 17/06/2013
ORDER
PER ASHA VIJAYARAGHAVAN, J.M.:
All these appeals filed by the assessees and the revenue are having identical issues, therefore, the same were clubbed and heard together. Hence, we dispose them of by way of this consolidated order for the sake of convenience.
2Sri Jagadamba Pearl Dealers & Shri Ravinder Kumar First we deal with the appeals in the case of RAVINDER KUMAR Assessment Year Assessee's Appeal Department Appeal 2004-05 387/H/12 424/H/12 2005-06 388/H/12 425/H/12 2006-07 389/H/12 426/H/12 2007-08 93/H/12 427/H/12 2008-09 94/H/12 428/H/12 2009-10 95/H/12 429/H/12
2. The facts of the case are Operations u/s.132 of the Income Tax Act were conducted on 30.03.2009 in the case of Sri Jagadamba Pearl Dealers (for short Sri Jagadamba Pearl Dealers), 2-2-46, M.G. Road, Secunderabad, which is a partnership firm. A search was also conducted in the case of its partners viz. Sri Ravinder Kumar and Mahender Kumar, at their residential premises situated at Plot No.162, Road No.12, Banjara Hills, Hyderabad and Plot No.26, Gunrock Enclave, Secunderabad respectively. On the date of search a detailed panchanama was drawn. Inventory was taken on bank accounts which totalling to about 42 relating to firms and various family members of group.
3. Sri Ravinder Kumar on 27.04.2009 filed a detailed statement showing the deposits in 8 bank accounts.
S.No. Particulars A/c No.
1 HDFC Bank, Paradise Circle, Secunderabad 13866
2 The A.P.Janata Co-op. Urban Bank Ltd., 403
Sec'bad
3 The A.P.Janata Co-op. Urban Bank Ltd., 250
Sec'bad
4 The A.P.Janata Co-op. Urban Bank Ltd., 298
Sec'bad
5 The A.P.Janata Co-op. Urban Bank Ltd., 419
Sec'bad
3
Sri Jagadamba Pearl Dealers &
Shri Ravinder Kumar
6 The Neela Krishna Bank, R.P.Road, Sec'bad 445
7 The Neela Krishna Bank, R.P.Road, Sec'bad 382
8 The Vardhman Co-op. Urban Bank Ltd 1975
4. These accounts were being operated by Sri Ravinder Kumar as Proprietor and deposits have also been recorded in the books and offered to declare 5% net income on net deposits.
5. The department in the course of search proceedings on 30.03.2009 did not find any pay in slips or cheque books in respect of 8 bank accounts which were subsequently declared by Sri Ravinder Kumar On 28.04.09 by way of his own deposition in reply to question no.4, Sri Ravinder Kumar also admitted that some of the bank accounts totaling to 8 in all operated by him were not reflected in his Income Tax returns. The following 8 bank accounts were voluntarily brought to notice of Income Tax officials by Sri Ravinder Kumar after merely 28 days from the date of search and he admitted an additional income on the same. The total deposits in the 8 banks amounting to Rs.9,32,32,836/- from the financial year 2003-04 to the date of search i.e. on 30.03.09. The assessee, Sri Ravinder Kumar offered an estimated income @ Rs.46,61,642 at the rate of 5% for all the above years and admitting an amount of Rs.46,61,642/- as his undisclosed income for the Assessment Years 2004-05 to 2009-
10.
6. In response to notices u/s.153A Sri ravinder Kumar declared the total deposits in the said 8 bank accounts amounting to Rs.9,32,32,836/- (as per his admission dt.28.04.09) and cash sales of Rs.1,96,27,108/- and the total amount being Rs.11,28,59,944/- as his undisclosed turnover and offered 5% income on the same.
4Sri Jagadamba Pearl Dealers & Shri Ravinder Kumar
7. The next aspect is cash sales to the tune of Rs.35,48,628/- effected in Bangalore Exhibition Sales, which were deposited in Sri Ravinder Kumar's bank account which had cash deposit facility anywhere in the country was later transferred by Sri Ravinder Kumar to the firms account books. This sale figure of Rs.35,48,628/- was duly recorded in the books of Sri Jagadamba Pearl Dealers (the firm) much prior to the date of search.
8. The AO treated the deposits and cash sales as undisclosed sales of the firm as unaccounted sales of Sri Jagadamba Pearl Dealers. The AO also treated the entire turnover as income of the firm. Consequently, on protective basis he treated the entire deposits as income of Sri Ravinder Kumar also. Before the AO the Ld AR submitted that the bank accounts are in the name of Sri Jagadamba Pearl Dealers as Proprietor and are operated by Sri Ravinder Kumar only. Even the account opening form obtained by AO indicated that it was Sri Ravinder Kumar who operated accounts.
9. Aggrieved by the order of AO the assessee preferred an appeal before CIT(A).
10. Thus the main issues as simplified by First Appellate Authority at para 8.1 in his order in the case of Sri Jagadamba Pearl Dealers for Asst. Year 2009-10 are:
a) Treatment of unaccounted turnover through credit cards, deposited into bank accounts along with the cash sales, that were not disclosed to the department, and taxability of such income, in firm's hands or in the hands of Mr. Ravinder Kumar.
b) Relevance of the treating the entire amounts of such turnovers as unaccounted incomes, without allowing any 5 Sri Jagadamba Pearl Dealers & Shri Ravinder Kumar expenses related to the said turnover, and basis for quantifying the profits on such turnovers.
Assessment of the turnovers as income in the hands of Mr Ravinder Kumar on protective basis, when the incomes on such turnover was estimated at 5% and offered for tax, by Mr Ravinder Kumar.
11. The CIT(A) upheld the treatment of undisclosed turnover as that of Sri Jagadamba Pearl Dealers and further the entire account of search turnover was taken as income of Sri Jagadamba Pearl Dealers without allowing any expenses. CIT(A) therefore deleted the addition made in the case of Sri Ravinder Kumar. Aggrieved by the order of CIT(A) both the assessee and department have filed appeals.
ASSESSEE'S APPEALS in the case of Ravinder Kumar
12. Ground No. 1, which is as follows:
"The order of the Assessing Officer dated 31/12/2010 u/s 143(3) r.w.s. 153A is erroneous in law and in the facts and circumstances of the case."
The said ground is general in nature.
13. Ground No.2 for Asst Years 2004-05 to 2006-07 and additional ground for Asst Years 2007-08 to 2009-10, is as follows:
"The learned CIT(A) is not justified in holding that the turnover represented by the deposits in the unaccounted bank accounts belong to the firm M/s Sri Jagadamba Pealrs Dealer and not the appellant.
14. With respect of treatment of unaccounted turnover in the hands of Sri Jagadamba Pearl Dealers, the Ld. AR for the assessee submitted before the lower authorities that the issue is squarely covered by the order of ITAT based on earlier occasions 6 Sri Jagadamba Pearl Dealers & Shri Ravinder Kumar when similar activities were carried on by Sri Ravinder Kumar and his brother.
15. Before the CIT(A) the Ld. AR submitted as follows to the observations made by the CIT(A):
The CIT(A) observed that the bank account 8 in number were opened and operated by Mr. Ravinder Kumar as proprietary concerns and in none of the cases PAN was given. The transactions were manipulated by the group as a whole. Similar modus operandi was adopted earlier where bank accounts were opened and operated by two partners. In reply, the assessee has submitted as follows:
"Commissioner of Income Tax himself accepts that the bank account were opened and operated by Ravinder Kumar. Even the Bank account opening forms obtained by Assessing Officer indicate Ravinder Kumar as Proprietor.
Unaccounted Bank accounts were operated by one partner only. Hence the allegation of manipulation by all partners is not correct.
The modus operandi is almost identical with the one adopted on earlier occasion and considered by Hon'ble Income Tax Appellate Tribunal on earlier occasion hence similar treatment can be given to the present transactions also following the order of Income Tax Appellate Tribunal in the earlier case.
16. To the observation of the CIT(A) that the disclosure of existence of bank accounts is not voluntary and the bank accounts were physically detected by the department on 30/04/2009 and there is no explanation for the delay in withholding the information. In reply, the assessee submitted as follows:
It is not correct to say that the declaration of existence of the 8 bank accounts was not voluntary. Sri Ravinder Kumar disclosed these accounts before DDI on 27.04.2009 that is much before 30-04-2009 as observed by the Commissioner of Income Tax(A). The Commissioner of Income Tax himself admits that the detection physically is on 30.04.2009. Kind attention is invited to page 1 of the paper book. Which 7 Sri Jagadamba Pearl Dealers & Shri Ravinder Kumar shows the workings for deposits in various undisclosed bank accounts and the net undisclosed deposits filed before Deputy Director of Income Tax on 27.04.2009.
Further Ravinder Kumar in his sworn statement on 28.04.2009 disclosed the bank accounts and offered to declare income @ 5% on the total of such deposits each year as his income and he accordingly filed the returns.
In any case it does not matter whether the information is detected or disclosed. The so called seized material / information indicate Ravinder Kumar as Proprietor for all the business disclosed in those Bank accounts.
17. To the observation of the CIT(A) that the pocket dairies were seized from Ravinder Kumar in the business premises of Sri Jagadamba Peal Dealers and Ravinder Kumar is present there in his capacity as Managing Partner. In reply, the assessee submitted as follows:
This is an unacceptable preposition. Any person is an individual first and then only, by occupation he becomes a Managing Partner or Managing Director. Even a Managing Partner can carry his personal information in his pocket.
If the department found some information on the date of search there could have been some questions on that issue immediately.
18. To the observation of the CIT(A) that the affidavits filed by Ravinder Kumar and other partners cannot be given any weightage because a) the affidavits are self serving and contradictory. The other partners on one hand said that they were unaware of such transactions (Bank accounts and deposits thereon) and on the other hand they proceeded to certify that the business in those Bank account belong to Ravinder Kumar, b) the lady partners are close family members, and CIT (A)) the affidavits are silent on any action taken against Ravinder Kumar, in reply, the assessee submitted as follows:
"This is not true. The partners were initially unaware of 8 Sri Jagadamba Pearl Dealers & Shri Ravinder Kumar such transactions and after the Assessment Orders were passed treating the said deposits and cash sales as income of the firm Sri Jagadamba Pearl Dealers, the facts were explained to the other partners and immediately at the first opportunity i.e, before the first appeal proceedings they explained their stand. This is a fact and there is nothing to disbelieve or doubt this stand.
It is humbly submitted, that the law does not prohibit the close family members as partners. Further as far as IT proceedings are concerned even the wife and husband are independent assessees and the provisions like 269SS and 269T do apply to them just like any other individuals. Hence an affidavit given by a close family member cannot be brushed aside on that ground alone.
The other reasons given by First Appellate Authority are equally not tenable and comments on absence of any action taken by the other partners against Ravinder Kumar is an internal affair and has got nothing to do with IT matters.
An affidavit cannot be rejected without cross examining the deponent. Reliance is placed on the decision in the case of Mehta Parekh and Co., Vs. CIT reported at 30 ITR 181."
19. To the observation of the CIT(A) that the information on credit card machines of Ravinder Kumar was not furnished, in reply, the assessee submitted as follows:
"As mentioned by Commissioner of Income Tax himself Ravinder Kumar requested HSBC Bank officials to provide the information and if the Bank officials do not provide the same assessee cannot be penalized."
20. To the observation of the CIT(A) that the decision of the Hon'ble ITAT in the case of Ravinder Kumar and Mahendra Kumar order dt. 02/09/2000 is distinguishable on facts. 1) In earlier year entire transaction (turnover) in bank accounts were unaccounted in the books of firm earlier. Where as a part of the turnover being Rs. 35,48,628 was shown to have reflected in regular books of firm. 2) the clandestine business was earlier carried by two partners where as it is done by one partner only this issue. 3) In the present case the evidence was seized in the 9 Sri Jagadamba Pearl Dealers & Shri Ravinder Kumar case of Sri Jagadamba Pearl Dealers where as earlier it was found in the case of the partners. 4) ITAT seems to have taken a liberal view in respect of clandesite business. In reply, the assessee submitted as follows:
1) Kind attention is invited to page 1 of the paper book. This clearly shows the figures of turnover already declared in the books of firm. The net figures as given by assessee on 27.04.2009 were only considered for additions. The workings were given by assessee himself. The sum of Rs.35,48,628 is the credit card sales at Bangalore and duly reflected in the books of firm much prior to search. This remained an undisputed fact. It is only the undisclosed turnover that is offered to tax. The turnover of Rs.35,48,628 related to Sri Jagadamba Pearl Dealers was already recorded in the books even prior to search.
2) This has no bearing on the issue on hand.
3) All the bank accounts were declared by Ravinder Kumar in his deposition on 28.04.2009 and the statement was filed by assessee on 27.04.2009 hence claim of the detection in the business premises is not correct. Kind attention is invited to the decision of the Gujarat High Court in the case of CIT Vs. President Industries 258 ITR 656 wherein it was held that contents of a statement should be accepted in full, but not in part. The Commissioner of Income Tax failed to bring on record any question raised by department on the date of search regarding any undisclosed turnover.
4) The order of the Income Tax Appellate Tribunal is based on facts and examination or record."
21. The Ld. AR for the assessee, further submitted as follows:
"Kind attention of the Hon'ble Income Tax Appellate Tribunal is invited to page 49 of the paper book. The para 2 of the said page is part of earlier Income Tax Appellate Tribunal order in the case of Sri Jagadamba Pearl Dealers. In fact a plain reading of the said arguments rendered by the DR in that case show that none of the adverse features existing at that time like 1) cheques signed as partners (2) Bank account opened in the name of firm (3) Firm logo used in the invoices; (a) The unaccounted business was carried on from firms business premises. (5) The income from unaccounted business was enjoyed by other partners also - are not present in the case on hand. The present case, in 10 Sri Jagadamba Pearl Dealers & Shri Ravinder Kumar this regard, is better placed and the claim of Ravinder Kumar is justifiable."
22. The Ld. AR also pointed out that the department has not examined any other partner and considered the affidavit filed by them. The Ld. Department representative on the other hand relied on the order of lower authorities.
23. We have heard both the parties, perused the record and have gone through the orders of the authorities below. The main contention of the learned counsel for the assessee is that income generated from the suppressed sales deposited in the undisclosed bank account could be treated as income of one of the partner Shri Ravinder Kumar. Further, he stated that on an earlier occasion, Tribunal considered similar issue and treated the income generated from the undisclosed sales as income of Shri Ravinder Kumar. He referred the order of the Tribunal in IT(SS)A No. 144/Hyd/02 and others dt. 21/09/2000 covering the block period from AY 1988-89 to 1997-98 & 01/04/97 to 16/07/97 placed at pages 19 to 63 of the paper book. He also stated that the partners of the firm have confirmed that they have no knowledge of these unaccounted bank accounts and filed an affidavit to this effect. The learned counsel submitted that the affidavit cannot be rejected without cross-examining the deponent and for this purpose he placed reliance on the judgment of the Hon'ble Supreme Court in the case of Mehta Parikh & Co. Vs. CIT [1956] 30 ITR 181 (SC). To adjudicate the issue of taxable income of unaccounted sales, we have gone through the latest Deed of Retirement-cum-Admission dated 1 s t April, 2005, affidavit filed by the assessee and also earlier order of the Tribunal placed on record from pages 19 to 63 of the paper book. The said deed is made and executed amongst the following partners of the firm:
11Sri Jagadamba Pearl Dealers & Shri Ravinder Kumar
1. Smt. Anita, W/o Ravinder Kumar
2. Sri Ravinder Kumar, S/o Chaturbhuj
3. Sri Mahender Kumar, HUF, represented by Sri Mahender Kumar Karta, S/o Chaturbhuj
4. Smt. Kusum Lata, W/o Mahender Kumar
5. Smt. Angoori Bai, W/o Chaturbhuj
6. Sri Avanish, S/o Mahender Kumar
7. Smt. Sushma, W/o Surender Kumar (retired on 1 st April, 2005)
24. We have also gone through the clauses of the partnership deed.
Clause 8 reads as follows:
"a) It is agreed by and between the parties hereto that the following partners (herein after referred to as 'working partners') shall devote their time and attention in the conduct of the affairs of the firm as the circumstances and business needs may require:
1. Ravinder Kumar
2. Kusum Lata
3. Anita
4. Avanish The total remuneration, bonus, commission payable to the working partners shall be worked out as per limit laid down by section 40(b) of the IT Act, 1961.
Such total remuneration shall be paid to the working partners in the following manner:
1. Ravinder Kumar Rs. 10,000/- p.m.
2. Kusumlata Rs. 10,000/- p.m.
3. Anita Rs. 10,000/- p.m.
4. Avanish Rs. 10,000/- p.m.
b) The remuneration payable to the working partners as above shall be credited to their respective accounts on ascertainment of book-profits.
The partners shall be entitled to increase, reduce or waive the above remuneration and may agree to pay remuneration to other partner or partners. The parties hereto may also agree to revise the mode of calculating the above remuneration and decide to pay salary and grant other benefits.
12Sri Jagadamba Pearl Dealers & Shri Ravinder Kumar
c) The net profit or partnership business after deducting interest and remuneration payable to the working partners in accordance with this clause of the deed of partnership shall be divided and distributed amongst the partners on an close of the accounting year in the following ratio:
the partner of the FIRST PART 18%
the partner of the SECOND PART 18%
the partner of the THIRD PART 18%
the partner of the FOURTH PART 18%
the partner of the FIFTH PART 10%
the partner of the SIXTH PART 18%
Provided also that gain derived or loss sustained on the sale of capital assets shall be divided or borne between the parties in the same proportion as mentioned above.
Clause 9: Each partner shall upon every reasonable request inform the other partner or partners of all letters, accounts, writings, and other things which shall come to her/his hands or knowledge concerning the business of the partnership.
Clause 10: Each partner shall be just and faithful to the other partner or partners in all transactions relating to the business of the partnership and shall give a true and correct account of the same to them when and so often as the same shall be reasonable required.
Clause 11: All the partners hereto and hereby authorized jointly or severally to operate upon the bank account or accounts whatever in credit or overdrawn for and on behalf of the firm. They are further authorized either jointly or severally to arrange for credit facilities, overdrafts, loans and other borrowings either with or without scrutiny from individuals, firms, companies or any financial institutions.
Clause 16: In all other matters, the partnership shall be governed by Indian Partnership Act, 1932 or any statutory modification thereof for the time being in force.
25. As per the partnership deed itself, whatever not stated in the Deed governed in the Partnership Act. Shri Ravinder Kumar, working partner shall devote full time and attention for the management of the assessee's firm and his actions will bind on the assessee's firm. Partnership Deed also restricted the partners 13 Sri Jagadamba Pearl Dealers & Shri Ravinder Kumar to carry on any business in their individual capacity unless there was express or implied authority to do so by the firm. As of now no amendment to this clause brought to the notice of the Bench. As stated in Clause 16 of the Partnership Deed, partners of the assessee firm is governed by the Indian Partnership Act, 1932. Now we proceed to look at the provisions of Indian Partnership Act.
15. Application of the property of the firm: Subject to contract between the partners, the property of the firm shall be held and used by the partners exclusively for the purposes of the business."
26. Being so, if any partner use the property of the assessee firm, benefit derived from that property shall go to the common pool of the assessee firm, which is for the common advantage to all the partners. If any partner un-authorizedly carries on any business by using name and goodwill of the firm, profit derived from that business shall be the income of assessee's firm. Further, no partner is entitled to carry on any business which is in the nature of competing with the business of the assessee firm. The partners are jointly and severally responsible for any acts done by them though individually and jointly. If the partners carry on any business contrary to the provisions of partnership deed or partnership Act, they are not entitled to that profit or loss derived from such transactions it does not belong to individual partners and on the other hand it belongs to the firm as a whole. The learned counsel submitted that partners have confirmed that they are not aware of the undisclosed business carried on by Shri Ravinder Kumar. In our opinion, the affidavit filed by the assessee is a self-serving document and the act done contrary to the partnership Act cannot be considered as valid and has no legal sanctity. Sri Ravinder Kumar is working partner of the firm and he has to act for the best advantage of the assessee 14 Sri Jagadamba Pearl Dealers & Shri Ravinder Kumar firm. He cannot carryon anything against the interest of the assessee firm and he shall use the property of the assessee firm for the mutual benefit of partners and act done contrary to the provisions of the partnership Act cannot support the plea of the assessee's counsel. In this connection, we refer to the decision of the coordinate bench in the case of Shri Gopal Lal Badruka and others in ITA Nos. 354 to 357/Hyd/2010 and others vide order dated 26 th November, 2010 wherein similar issue was considered and the coordinate bench held that "the on-money receipts, though received by the partners, the partners have received on behalf of the firm in their representative capacity and as its agents, and they have nothing to do with the business of the assessee firm, other than as a partner. The on-money is having direct nexus with the land business transactions of the assessee firm. It leads to absurd results, if the regular income from the sale of plots is assessed in the hands of the firm and the on- money in relation to the very same transactions of the firm was assessed in the hands of the partners firm directly. These findings of the Tribunal has been confirmed Hon'ble AP High Court in the case of Gopal Lal Bhadruka and others, reported at [2012] 346 ITR 106. In view of this, we are inclined to hold that the income generated from the suppressed sales has to be considered as income in the hands of the assessee firm and not in the individual hands of Shri Ravinder Kumar. Accordingly, this ground of the assessee is dismissed.
27. It was pointed out by the Ld. Counsel that both the lower authorities have treated the entire turnover as income without giving any credit for expenses. The Ld. Counsel pointed out that para 3.4 of his order for Asst Year 2009-10 in the case of Sri Jagadamba Pearl Dealers, the AO has estimated the profit at more than 100% in this line of business. This is erroneous and based 15 Sri Jagadamba Pearl Dealers & Shri Ravinder Kumar on mere assumption and not supported by individual evidence. The Ld. Counsel relied on the following case law where it has been consistently held that to assess only net profit involved in the undisclosed turnover.
S.No. Name of the ITA No. Date of Decision
case order
1 Pahal Foods 42/H/05 30.09.09 We direct the
ITAT, estimation of net
Hyderabad income in respect of
unaccounted turnover.
2 Rasna Foods 114TTJ Only profit element
(P) Ltd., 283 can be subjected to
ITAT, tax and not the entire
Hyderabad sale.
3 Ravi Foods 41/H/05 30.09.09 ....And then estimate
(P) Ltd undisclosed income in
ITAT, relation to such
Hyderabad unaccounted turnover
adopting net profit @
3.91%
4 Prakash Arts 305 to 23 to "The right course is to
Moving 308/V/08 26.11.10 reject the books of
Media, ITAT, accounts of the
Vizag assessee and to
estimate income on
the basis of sales
disclosed or found
during the course of
search (emphasis
supplied).
"We therefore set
aside the order of the
CIT(A) and direct the
Assessing Officer to
adopt the net profit at
6% in all the years.
5 Hyd House 727 to 29.02.12 "Accordingly we direct
(P) Ltd, 730, 325 the Assessing Officer
ITAT to to estimate the
Hyderabad 327/H/11 income of the
assessee at 8% of the
suppressed turnover".
16
Sri Jagadamba Pearl Dealers &
Shri Ravinder Kumar
28. The learned DR relied on the order of the CIT(A).
29. In view of our finding at para No. 23 to 26 wherein we have held that the income from suppressed sales has to be considered in the hands of Shri Jagadamba Pearl Dealers. Following the conclusions drawn in at para 23 to 26, this ground is dismissed as infructuous.
30. The next issue is with respect to the estimation of income. The Ld Counsel submitted that the income offered at 5% by Ravinder Kumar is reasonable.
31. The Ld. Counsel pointed out at page 96 of paper book where the turnover on net profit for the Asst. Year 2004-05 - 2.56% 2005-06 - 3.98% 2006-07 - 5.74% 2007-08 - 2.57% 2008-09 - 4.01% 2009-10 - 3.28%
32. The Ld. Counsel submitted that the rate of profit declared by Sri Jagdamba Pearls Dealer and accepted even at post search is as given above and the profit offered by Ravinder Kumar @ 5% is much more than the profit rate declared in any other case and the same can be accepted.
33. The Ld. Counsel also submitted that table showing the comparative income offered to tax to various dealers in this line of business at Monalisa Pearls average @3.61%, Mansarovar Pearls (India) Pvt Ltd , average @ 1.25% Spectrum Pearls, 17 Sri Jagadamba Pearl Dealers & Shri Ravinder Kumar average @ 0.16%.
34. We have heard both the parties. Following the conclusions drawn at para 23 to 26, this ground is dismissed as infructuous.
35. Ground No.4 for Asst. Year 2006-07 reads as follows:
"The learned CIT(A) is not correct in disallowing the interest on housing loan amounting to Rs. 50,907/-"
36. Since the issue was not pressed by the assessee it is dismissed as not pressed.
37. Ground No.2 for Asst. Year 2007-08, reads as follows:
"The CIT(A) is not correct in sustaining the addition made by the Assessing Officer on account of Gifts received by the appellant and credited to his capital account amounting to Rs. 1,27,202/-"
38. The facts are that Ravinder Kumar claimed the credits in the capital account as two gifts of Rs.50,000 and Rs.77,202 from Sri Prakash Gupta and Smt. Santosh Gupta who are the paternal uncle and aunt of Sri Ravinder Kumar. The Assessing Officer made addition u/s.68 and CIT(A) sustained the addition even after evidence was filed in the form of affidavit from the donors. It was submitted by the Ld. Counsel that the credit in the capital account are through banking channels and are part of the Income Tax returns filed prior to search and hence to be deleted. It is also submitted the ITAT had accepted in the case of Ravinder Kumar similar case from other family members vide ITAT Order dt.23.04.2004 in ITA 40.
39. The learned DR relied on the order of the CIT(A).
40. We have heard both the parties and perused the record. In this case, gift has been received from Shri Prakash Gupta - Rs.
18Sri Jagadamba Pearl Dealers & Shri Ravinder Kumar 50,000/- and Smt. Santosh Gupta - Rs. 77,202/-. The assessee had filed declaration on 06/06/2006 before the first appellate authority. The first appellate authority was of the opinion that declaration is not in original and rejected the claim of the assessee. The assessee submitted that Shri Prakash Gupta is paternal uncle and Smt. Santosh Gupta was his Aunt. He also stated that these gifts are made on the occasion of 50 th Birthday of the assessee. Considering the relationship and occasion of gift, we direct the Assessing Officer to delete the addition placing reliance on the judgment of the Hon'ble Supreme Court in the case of CIT vs. K. Mohanakala, 291 ITR 278, wherein the Supreme Court has held that "in case where the explanation offered by the assessee about the nature and source of the sums found credited in the books is not satisfactory there is, prima- facie, evidence against the assessee, viz. the receipt of money. The burden is on the assessee to rebut the same, and, if he fails to rebut it, it can be held against the assessee that it was a receipt of an income nature." This ground is allowed.
41. Ground No.6 for Asst. Year 2008-09 to 2009-10 - Disallowance of interest paid to firm:
42. The AO and CIT(A) were of the opinion that since the issue of profit is exempt from tax paid on debit balance in the capital account balance cannot be allowed u/s.14A. The Ld. Counsel for the assessee submitted as follows:
"The assessee did not incur any expenditure to earn exempt income. Section 14(A)(2) clearly states that where the Assessing Officer having regard to the accounts of the assessee, is not satisfied with the correctness of the claim of the assessee in respect of such expenditure in relation to the income which does not form part of the total income, there must be a finding by the Assessing Officer that he is 19 Sri Jagadamba Pearl Dealers & Shri Ravinder Kumar not satisfied that the assessee has incurred such expenditure. There is no such finding recorded by the Assessing Officer in this case. The onus is on the Assessing Officer to prove that the assessee incurred the expenditure for earning exempt income. He had withdrawn from one Partnership Firm in excess of his capital balance and invested the same as his capital in another Partnership Firm whereby paying interest on the negative balance to one partnership firm and earning positive interest from the other Partnership Firm. Since the interest on capital is assessable as business income U/s.28(V) the net income was rightly offered to tax by the assessee and the lower authorities are totally unjustified in disallowing the interest paid to the first firm by invoking the provisions of section 14A. It is humbly submitted that the provisions of section 14A have no application because the interest paid was in relation to taxable income and not any exempted income. In this regard the appellant places reliance on the decision of the Mumbai SMC Bench in the case of Santosh Kumar Agarwal Vs. ACIT (78 ITD) 394."
43. We have heard both the parties and perused the material on record. In this case, the AO disallowed the interest paid to the firm M/s Sri Jagadamba Pearl Dealers and the excess drawings made by the assessee claimed as expenditure against the income. The assessee while furnishing the return of income has computed the net income under the head 'business' and the said net income was shown to have been adjusted against the remuneration received by the assessee from M/s Gupta Hotels & Motels and M/s SJPD respectively. The AO was of the opinion that the assessee being a partner in the firm received share of profit which is exempt from income in individual hands, apart from the remuneration received. The AO observed that the remuneration being the taxable income cannot be adjusted against the interest on excess drawings paid by the assessee, since income from share of profits is exempt. Accordingly, the AO has disallowed. It is noticed that deduction was claimed in respect of interest paid by partner on the capital withdrawn by the assessee for the 20 Sri Jagadamba Pearl Dealers & Shri Ravinder Kumar purpose of investment in another firm. Interest paid to the partner must necessarily be added in the computation of his total business income. There is no provision made in the Act for deduction of interest paid by the partner to the firm. Hence, interest adjusted on the debit balance of the account of the partners in the books of a firm is not deductible while computing the income of the assessee. Interest paid on the debit balance of capital account by partner not for business purpose, cannot be allowed as business expenditure, though, interest income received from firm treated as business income. Further, we make it clear that in view of the judgment of jurisdictional High Court in the case of CIT Vs. T.V. Ramanaiah & Sons, 157 ITR 300 (AP) wherein it was held that interest paid by the partner should be adjusted against the interest credited to the partners in the firm, if any. Accordingly, we direct the AO if there is any interest receipt and interest payment by the assessee to the same firm, to the extent it should be set off and not to be disallowed. Accordingly, this ground is partly allowed and also to that extent, the orders of the lower authorities have been modified.
44. Ground No. 7 for AY 2008-09 only is as follows:
"The CIT(A) is not correct in sustaining the disallowance made by the Assessing Officer on account of interest claim of Rs. 30,599/- out of income from other sources"
45. This ground has not pressed at the time of hearing before us, therefore, the same is dismissed as not pressed.
46. Ground no.8 for Asst Year 2009-10 is as follows:
"The CIT(A) is not correct in sustaining the addition made by the Assessing Officer as unaccounted cash of Rs. 14,68,750/-"21
Sri Jagadamba Pearl Dealers & Shri Ravinder Kumar
47. The assessee counsel pointed out that on 15.6.2009 a detailed letter was filed before the Deputy Director of Income Tax explaining that as on the date of search the books of Sri Jagadamba Pearl Dealers are incomplete and on completion of the same the cash available on the date of search relates to the book balance in the case of Sri Jagadamba Pearl Dealers. The Ld. Counsel also submitted that:
"It is humbly submitted that there is absolutely no inconsistency. The books of accounts, the returns speak for themselves. The Balance sheet and Schedules filed for Asst Year 2009-10 in the case of Sri Jagadamba Pearl Dealers clearly show the cash seized by the department duly accounted in the books of Sri Jagadamba Pearl Dealers (pages 81 to 95 of Paper Book). Further these books were taken in to consideration whilke completing the post search assessments. Hence the cash balance duly recorded in the books of Sri Jagadamba Pearl Dealers cannot be added in the hands of Ravinder Kumar without rejecting the books of Sri Jagadamba Pearl Dealers."
48. In these circumstances we remit this issue to the file of Assessing Officer to verify whether the cash balance has been recorded in the books of Sri Jagadamba Pearl Dealers and if so the Assessing Officer cannot add it in the hands of Ravinder Kumar. This ground is allowed for statistical purposes.
49. Ground no.9 of Asst. Year 2009-10 is as follows:
"The CIT(A) is not correct in sustaining the addition made by the Assessing Officer as unaccounted jewellery of Rs. 25,59,613/-."
50. We have heard both the parties and perused the record. The assessee had taken a plea before the lower authorities that the amount of gold jewelry of Rs. 25,59,613/- was acquired through income from unaccounted sales. In the present case, we gave a 22 Sri Jagadamba Pearl Dealers & Shri Ravinder Kumar finding at para No. 23 to 26 that the income generated from unaccounted sales has to be assessed in the hands of the affirm. Being so, we are of the opinion that the gold jewelry found in the hands of the assessee Shri Ravinder Kumar has to be considered as it is acquired by him out of the drawings from unaccounted income from suppressed sales in the firm. Therefore, in the interest of justice due telescoping to be given otherwise it amounts to double addition viz., once in the firm on account of unaccounted income and another in the firm on account of unaccounted assets found during the course of search. Being so, we allow this ground of appeal.
Departmental Appeal in the case of Ravinder Kumar
51. In the departmental appeal the department has requested that 5% declared by the assessee may be sustained. It was submitted by the Ld. Counsel for the assessee that the CIT(A) directed the Assessing Officer to delete the addition of 95% which the Assessing Officer had made in the hands of Ravinder Kumar (being the balance of undisclosed turnover). The Ld. Counsel pointed out that the CIT(A) sustained 5% as income in the hands of Ravinder Kumar on the deposits in the bank account indirectly upholding the income return by Ravinder Kumar. Therefore, the Counsel submitted that the departmental appeals in the case of Ravinder Kumar are factually not correct. The 5% income declared by Ravinder Kumar was not separately deleted by CIT(A). We find merit in the argument of Ld. Counsel since the CIT(A) sustained the 5%.
52. In the result the departmental appeals in the case of Ravinder Kumar are dismissed as infructuous.
23Sri Jagadamba Pearl Dealers & Shri Ravinder Kumar
53. The appeals of the assessee in the case of Ravinder Kumar being ITA Nos. 387, 388 & 389/Hyd/12 are dismissed and ITA Nos. 93, 94 & 95/hyd/12 are partly allowed. The departmental appeals being ITA Nos. 424 to 429/Hyd/12 in the case of Ravinder Kumar appeal are dismissed.
SRI JAGADAMBA PEARL DEALERS
Assessment Year Assessee's
Appeal
2004-05 87/H/12
2005-06 88/H/12
2006-07 89/H/12
2007-08 90/H/12
2008-09 91/H/12
2009-10 92/H/12
Departmental appeal only for 2007-08 to 2009-10 Assessment Year Departmental Appeal 2007-08 368/H/12 2008-09 369/H/12 2009-10 370/H/12
54. Ground no.1 General in nature.
55. Ground no.2 for all years - Validity of assessment u/s.153A of the IT Act.
Since the ground is not being pressed by the assessee it is dismissed.
56. Ground no.3 is common for all years and interlinked to the 24 Sri Jagadamba Pearl Dealers & Shri Ravinder Kumar issue of Rravinder Kumar.
57. We have heard both the parties and perused the record. The main plea of the assessee is that even if the income to be assessed in the hands of Shri Jagdamba Pearl Dealers only income to be assessed at the rate of average net profit reflected in the regular books of account and not on the entire undisclosed turnover to be considered as undisclosed income of the assessee. In our opinion, the argument of the assessee is misconceived, as the assessee's case cannot be compared with other comparable cases stated by the assessee. In his arguments, the assessee is having a stand on a different footing that the assessee is dealing pearls and jewelry and the assessee is buying pearls in huge quantities in kgs and is converting the same in the form of ornaments/jewelry. The contention of the department is that the assessee accounted 100% purchases in the regular books of account only as unaccounted sales. Considering the entire turnover of income of the assessee, the department also brought to our notice that the assessee is in regular habit of hiding unaccounted sales as there was a search in earlier occasion. In our opinion, to that extent the argument of the department that there was a search in an earlier occasion and the Tribunal considered the facts and circumstances of the case and determined the income of the assessee in IT(SS)A No. 144/Hyd/02 and others in the case of Smt. Anita Bai and others covering for the block period for assessment years 1988-89 to 1997-98 and the broken period from 01/04/1997 to 16/07/1997 vide order dated 21 st September, 2000. The AR of the assessee submitted that in the said case there is corresponding unaccounted assets, therefore, the Tribunal has taken as income at 17% and in the assessment years under consideration there is no corresponding assets and income to be estimated at an 25 Sri Jagadamba Pearl Dealers & Shri Ravinder Kumar average net profit rate. In our opinion, in every search action unearthing of unaccounted assets may not be found. Being so, it cannot be a reason to estimate the income at lower rate of income as pleaded by the AR. The argument of the learned counsel for the assessee is totally misconceived. In earlier block period cited supra, the assessee has taken a plea that undisclosed income from suppressed turnover to be at 17%. However, this was rejected by the lower authorities as well as the Tribunal by observing as under:
"9. On a careful consideration of the facts and circumstances of the case, we are of the considered opinion that the plea of the assessee can be accepted only in part. The firm in which the assessee are partners has declared gross profit rate of 27.37%. The AO allowed a margin of 2.36% as expenses on this gross profit margin. The CIT(A) had allowed an expenditure of 4% in the place of 2.36% allowed by the AO. This has been accepted by the Revenue in that case. Thus, the gross profit estimated by the Department worked out to 27.37% minus 4%, i.e. 23.37%. We are of the considered view that this is a reasonable estimate and direct the AO to adopt the same. The grounds of the assessee on this aspect are allowed in part."
58. The above finding of the Tribunal for the block period in IT(SS)A No. 144/Hyd/02 and others in assessee's group cases vide order dated 21/09/2000 has reached finality. No contrary decision in assessee's own case has been produced before us. Being so, it will be appropriate to estimate the assessee's income on the basis of assessee's past record. Accordingly, we are of the opinion that the GP declared by the assessee in its regular books of account to be considered as yard-stick to determine the undisclosed income of the assessee for the assessment years 2004-05 to 2009-10. For the sake of clarity we reproduce here the details of assessee's disclosed turnover and gross profit as under:
26Sri Jagadamba Pearl Dealers & Shri Ravinder Kumar AY Gross Turnover Gross ProfitGross Profit (in Rs.) (in Rs.) (in %) 3=(2/1) 2004-05 22,753,182 5,693,638 25.02 2005-06 22,568,711 5,683,774 25.18 2006-07 24,577,827 5,376,447 21.88 2007-08 30,282,258 8,745,606 28.88 2008-09 36,752,020 10,499,510 28.57 2009-10 130,053,864 50,580,491 38.89
59. The average G.P. for these years from 2004-05 to 2009-10 worked out at 28.05%. As reasonable expenditure was given in the block period at 4%, in our opinion, it is reasonable to allow the expenditure out of the estimated gross profit at 8.05% considering the inflation theory. Accordingly, out of estimated gross profit rate of 28.05%, we direct the AO to give deduction at 8.05% towards further undisclosed expenditure and limit the undisclosed income at 20% of the undisclosed turnover and determine the income accordingly. This ground raised by the assessee in its appeals is partly allowed.
60. Ground no.4 for the Asst. Year 2007-08 to 2009-10 is with respect to additions on the basis of planted documents.
61. Briefly the facts relating to these additions are that while computing the taxable Income of the appellant, the Assessing Officer has quantified the transactions those are recorded In annexure-A/JAG/CTC/04, at Rs 14,31,10,726 as unaccounted purchases pertaining to the year under reference and added to the total income as unexplained expenses as per the provisions of sec.69C of the I T Act, 1961. The total transactions of such seized material is quantified at Rs.17,91,57,863 With the balance of the amounts related to assessment year 2008-09 (Rs 3,42,43,000) and assessment year 2007-08 (Rs.18,04,137).
62. In the course of the search proceedings conducted at 714 & 27 Sri Jagadamba Pearl Dealers & Shri Ravinder Kumar 715, Chenoy Trade Centre, Parklane, Secunderabad, the business premises of M/s Spectrum Pearls & Exports Pvt Ltd. certain loose sheets were found and seized as annexures A/JAG/CTC/O1 to
05. Among those, annexure A/JAG/CTC/04 was containing 120 loose sheets and few of such pages shown to be indicating certain details related to purchase of pearls and other Jewellery wherein the details such aas quantity, rate and total amounts. On the Initial query put to the appellant on 1.5.2009, it was replied by Mr. Ravinder Kumar, the Managing Partner of the firm, that he cannot readily explain the contents and requested for copies which were provided to him and subsequently he filed a letter dt.5.6.2009 wherein it was contended that papers do not pertain to the firm and are planted In the premises by their business rivals. On this plea, no explanation was offered by the appellant on the transactions recorded in the seized material. The Assessing Officer has quoted the provisions of sec.132(4A) as per which any books of accounts, documents or valuables found at the premises of the assessee are presumed to be belonging to the said party and the contents of such books/documents are presumed to be true. In the process, the Assessing Officer also relied upon the case law of Smt Kesaribai Vs ITO (32 ITD 1) (Hyd ) while claiming the support from the other judicial decisions In the following Cases:
i) Kerala Liquor Corporation Vs. CIT, 222 ITR 333 (Ker.)
ii) P.S. Kumaraswamy Vs. ACIT 65 ITD 188 (ITAT, Madras)
1) iii) P.R. Patel Vs. DCIT 78 ITD 51 (ITAT, Mumbai)
63. The Assessing Officer has further concluded that the onus lies on the assessee as per the provisions of sec. 132(4A) which was not discharged by the appellant and accordingly, it was presumed that the papers belonged to the appellant and the contents of the seized material to be true and the amounts mentioned In the said documents were treated as unaccounted 28 Sri Jagadamba Pearl Dealers & Shri Ravinder Kumar purchases made by the appellant for the year and the said amount of Rs. 14,31,10,726/- was taxed In the hands of the firm, u/s 69C of the I.T. Act, 1961.
64. On appeal, before the CIT(A), the appellant contended that the Assessing Officer has disallowed their claim though the papers are planted by the business rivals and the Assessing Officer cannot treat the contents of the papers to be true and belonging to the appellant. It was submitted that immediately after obtaining the copies of seized material, department was informed about the papers that they are not belonging to the appellant group while giving letter to the Investigating Authorities. In this context, it was contended by the appellant that page 60 to 63,71 to 106 and 115 to 120 of the annexure A/JAG/CTC/04 do not pertain to them and were planted In their premises. Similarly, the appellant has shown that 7 sheets out of Annexure A/JAG/CTC/03 and 11 sheets of Annexure A/JAG/CTC/02 do not belong to them. While contending as above, the appellant has accepted 48 sheets of annexure A/JAG/CTC/01 and 174 sheets of Annexure A/JAG/CTC/O5, as belong to them.
The example quoted by the appellant are the papers in the form of agreement of sale relating to Khatiza Begum and other parties that were examined by the Investigating authorities as well as assessing officer and such documents were not considered in completing the assessment, which amounted to acceptance of the department that some of the papers are planted documents and in view of that, these documents also do not relate to them. It was also submitted that based on their complaint, the signatures of the employees including the partners were taken and sent to forensic lab by the Department and based on the report of the said laboratory, it was informed to them that the writings on the 29 Sri Jagadamba Pearl Dealers & Shri Ravinder Kumar planted documents and the signatures collected from the employees are not one and the same. According to the assessee, the papers utilized by the Assessing Officer for making the additions are the papers received from Jaipur, Mumbai and other places and were written by the same person, who has written the other documents. It was also submitted that a complaint was lodged with Mahankali Police Station, Secunderabad.
65. In view of the lack of clarity, contradictory claims and to know the findings of the forensic lab reports on the genuineness of the documents, the CIT(A) referred the matter to the Assessing Officer requesting for full details on the subject matter along with the report on the complete facts. In response to the same, it was submitted by the Assessing Officer that the photocopies of the seized material were originally sent by the DDIT (Inv.), Unit-II(1), Hyderabad to the forensic laboratory and the forensic laboratory stated to have requested for original documents in the place of photocopies and the same are yet to be forwarded.
66. After considering the observations/findings of the Assessing Officer and the submissions of the appellant, the CIT(A) observed that as indicated above there were seized material found n the course of search & seizure proceedings numbered as A/JAG/CTC/01 to 05. He further observed that the said seized material containing certain information which was presumed to be belonging to the appellant, as it was found in the search & seizure proceedings conducted in the appellant's case and the contents are also presumed to be true in absence of explanation by the appellant as per the provisions of sec.132(4A) of the I.T. Act, 1961. The CIT(A) observed that the amounts of transactions quantified from such transactions, for the year under reference 30 Sri Jagadamba Pearl Dealers & Shri Ravinder Kumar has been put at Rs.14,31,10,726 and was treated as income of the appellant being the unexplained purchases and assessed to tax under sec.69C of the I.T. Act, 1961. There are some notings on the seized material, annexure A/JAG/CTC/04 indicating the particulars such as quantity of pearls, jewellery along with the rate and the amounts, prompting the Assessing Officer to conclude that the said details indicate the purchases made by the firm falling in three assessment years i.e. from 2007-08 to 2009- 10 and additions were made accordingly in all the three years totalling to Rs.17,91,57,863 including the amounts of Rs.3,42,43,000 for AY 2008-09 and Rs.18,04,137 for AY 2007-08. Assessing Officer further contended that the appellant has not discharged his responsibility to refute the charge on the said documents of seized material and the police complaint was lodged by the appellant only after completion of the assessment. In this case, It is correct to presume theoretically that the said information belong to the appellant having found the seized material in the course of search & seizure proceedings at the premises of the appellant but based on the facts as explained above, there were some serious doubts expressed about the nature and genuineness of such findings along with the contents of the seized material. It was also put to scrutiny in the form of investigations carried out in the form of signature/hand writing verifications and based on such findings, some of the documents found along with the said seized material utilized by the Assessing Officer for arriving at the above conclusions, were kept aside and not taken cognizance of. Under the circumstances, the case laws quoted by the Assessing Officer are distinguishable from the facts of this case and as such the ratios of the said decision cannot be the basis for making the additions ignoring the facts of the case. The facts emerged at the end of the 31 Sri Jagadamba Pearl Dealers & Shri Ravinder Kumar investigation and assessment proceedings, are that the documents relied upon by the Investigation Authorities as well as assessing authorities were indeed doubted as regards to the genuineness of the claim of the appellant that they are the planted material in their premises by the business rivals as well as the contents of the said seized material and accordingly, these documents were referred for verification With the forensic lab and the report is very much underway at the time of completion of the assessment proceedings.
67. The CIT(A) observed that where certain documents/loose sheets are found In the course of search proceedings, the usual inference would be that such documents represent concealed transactions. But, it cannot be so readily inferred, unless such inference can be made positively on due verification. In matters of inference on facts, ordinarily there should not be any difference of opinion. Where further enquiries are possible, the same should be made in arriving at a definite conclusions. As referred and inferred by the Assessing Officer, sec.132(4A) of the I.T. Act, 1961 raises presumptions regarding the documents, assets found during the search proceedings as regards to the ownership/belonging of such assets/documents to the person, in whose possession, they are found. The Hon'ble Supreme Court has given some findings on such issues as reported in the case of P.R. Metrani Vs. CIT (2006) 287 ITR 209, by pointing out that even the presumptions for seizure u/s 132(4A) is rebuttable one since the expression used is 'may be presumed'. It was also held that since sec.132 is a self contained code confined to search & seizure, the presumption for the purpose of seizure cannot be held good for a regular assessment, holding further that there is no provision in the statute to carry over such presumption to a regular assessment.
32Sri Jagadamba Pearl Dealers & Shri Ravinder Kumar
68. The CIT(A) further observed that since the seized material was referred to an expert organization, the Assessing Officer was under obligation to conclude such enquiries. Hence, the Assessing Officer is not Justified In relying on such material for coming to an adverse conclusion and making the additions under reference. Such presumptions may lead to an addition that can be termed as inconclusive. Under the circumstances, it may be correct way to conclude that the evidence used by the Assessing Officer for making the additions, in this case is not a fool proof one and as such cannot be treated as an irrefutable evidence. Hence, the additions made on the basis of evidence for which the Assessing Officer/Investigating Officer himself is not sure about, is not maintainable. Accordingly, the addition was deleted. However, the CIT(A) gave directions that Assessing Officer is free to complete investigations and tax the income based on the findings of such investigations/report, as deemed fit, as regards to the genuineness of the seized material and their contents.
69. Against the order of the CIT(A), the revenue is in appeal before us as well as the assessee is in appeal before on the directions given by the CIT(A).
70. We have heard both the parties and perused the material on record. Similar issue came up for consideration in the Gyankumar Agarwal (individual) Vs. CIT 60 DTR 241/146 TTJ 334 wherein it was held as under :
"17. At this stage we are not able to consider the argument of the assessee's counsel regarding the planting of seized documents by his business rivals since there is no concrete evidence to suggest the placing of the seized material by third party. It is also fact that assessee has not at all taken any step as per law against the issue relating to planting of documents. Further, the contention of the assessee's counsel is that the department has not given an 33 Sri Jagadamba Pearl Dealers & Shri Ravinder Kumar opportunity to cross examine the witnesses. The assessee is also having grievance regarding not considering the representation filed by the assessee on various occasions.
18. But the issue before us now remains is that whether the seized material A/GAR/05 can be the basis for addition of Rs.2,55,50,000/- As seen from the above seized materials, these are just hand written loose documents. The Department got verified the handwriting of the seized material A/GAR/05 from the Govt. Examiner of Questioned Documents, Directorate of Forensic Science, Govt. of India who had given report that on comparison of the questioned documents and specimen writings of the assessee and his family members the authorship of the questioned document does not tally with the seized material A/GAR/05. But this report of the handwriting experts is not binding on the Department. It is only circumstantial evidence. There is no necessity to the Department to prove the authorship of this document. The other plea of the assessee is that the documents are planted one and it cannot be relied for the purpose of assessment. Though the assessee refused that the documents are not belong to him, the burden is cast upon the assessee to prove conclusively that it does not belong to the assessee. There is no presumption in law that the assessing officer is supposed to discharge tax liability by direct evidence only and thereupon the undisclosed income beyond doubt. The undisclosed income of the assessee is to be computed by the assessing officer on the basis of available record. In many a time, it is very important to have direct evidence or conclusive evidence to prove to determine the undisclosed income. When the assessee gives an evasive reply to the assessing officer, he has no choice but to take estimation of the income. The only thing is it should be reasonable on the basis of material available on record. It should not be based on conjunctures and surmises. As of now material considered by the assessing officer for making the addition is only the seized material marked as A/GAR/05 which is a notebook containing the details of day to day ledger account of various persons to whom the money was advanced. In view of this, we have to consider the seized material A/GAR/05 to see whether it is enough to make addition. In our opinion, this document is only note book/loose slips. We have to look into the statement recorded u/s 132(4) or 132(4A) of the IT Act. The seized material A/GAR/05 found during the course of search and the statement recorded is some piece of evidence to make an addition. The assessing officer has to establish the link between the seized material A/GAR/05 and with other books of accounts of the assessee. It cannot be considered alone as conclusive evidence. The word 'may be presumed' appear in section 132(4A) gives an option to the authorities concerned to presume the things. But it is rebuttable and it does not give a 34 Sri Jagadamba Pearl Dealers & Shri Ravinder Kumar definite authority and conclusive evidence. The assessee has every right to rebut the same by producing the same in support of his claim. The entire case depends on the rule of evidence. The assessee has every right to shift the burden of proof. There is no conclusive presumption. In the present case, the assessee as well as the assessee's son and also assessee's brother Shri S.K. Agarwal categorically stated in every stage of examination and statement recorded u/s 132(1) or132 that the seized material A/GAR/05 is not at all belonged to them. In spite of this the assessing officer proceeded to conclude that these seized materials are conclusively belonged to the assessee. Leave alone the issue relating to authorship of the document seized and the findings of the GEQD, the Department should find out and establish the nexus of these seized materials to the assessee's business while concluding block assessment The assessing officer shall be specific about the nature of nexus of the seized material to the business of the assessee. The allegation of the Department is the seized material that reflected money lending business of the assessee. But they are notable to unearth any background with regard to the money lending business like loan agreement, promissory notes, security details, bank account receipts vouchers or any other corroborative evidence. Without any of these, the department has taken a view that the assessee is carrying on the money lending business. More so, there are so many names of the persons whose addresses are not at all traceable. The department not traced and examined any of them. There is no information from any party that they have taken loan from the assessee. There is no evidence as to whether they repaid the loans towards the principal amount and interest. The department cannot draw inference on the basis of suspicion, conjuncture and surmise. Suspicion, however strong cannot take place of material in support of the findings of the assessing officer. The assessing officer should act in a judicial manner, proceed with judicial spirit and should come to a judicial conclusion. The assessing officer is required to act fairly as a reasonable person and not arbitrarily and capriciously. Assessment made should have adequate material and it should stand on its own legs. The assessing officer without examining any party, who has taken the loan from the assessee, cannot come to the conclusion that the assessee lends money. The basis for addition is only note book/loose slips. These note book/loose slips are unsigned documents. The assessing officer has not established nexus between the note book/loose slips and business of the assessee. There is no narration regarding the address of the parties, the exact amount of loan, period of advance, rate of interest and instalments due. Also there is no evidence for repayment of money towards the loan. There is no valid seized material to come to the conclusion that the assessee has actually made an advance of that amount i.e. 35 Sri Jagadamba Pearl Dealers & Shri Ravinder Kumar Rs.2,55,50,000/- . The note book/loose slips marked A/GAR/05 found during the course of search is a dumb document having no evidentiary value, no addition can be made in the absence of corroborative material. If there is circumstantial evidence in the form of promissory notes, loan agreement and address of the parties or bank entries, the addition is to be made on that basis to the extent of material available. The assessee is not expected to explain the loose papers found as there is no evidence other than note book/loose slips carrying on money lending business of the assessee. The assessing officer has failed to prove the money lending business carried on by the assessee on the basis of seized material A/GAR/05. In our opinion, no addition can be made on the basis of dumb documents/note book/loose slips in the absence of any other material to show that the assessee has carried on money lending business. Noting on the note book/diary/loose sheets are required to be supported/ corroborated by other evidence and are also include the statement of a person who admittedly is a party to the noting and statement from all the persons whose names there on the note book/loose slips and their statements to be recorded and then such statement undoubtedly should be confronted to the assessee and he has to be allowed to cross examine the parties. In the present case, undoubtedly no statement from the parties whose names found in the note book/loose slips has been recorded and assessee such there is no question of cross examination of them and entire addition in the hands of the assessee on the basis of uncorroborated writings in the loose papers found during the course of search is not possible. The evidence on record is not sufficient to support the revenue's case that huge money lending business has been carried on by the assessee outside the business of the assessee. This is the block assessment and we are concerned only with the undisclosed income and we have to consider only material and evidence detected as a result of search. It means that if an examination of the material already on record before search or if as a result of some external information or some other sources other than a search, it is found that some income had escaped assessment and then it is open for the Assessing Officer to resort to a regular assessment including reopening of a completed assessment if so advised. But he cannot drag these items into the block assessment proceedings envisaged under Chapter XIV-B of the I.T. Act. In our opinion evidence available with the Assessing Officer as a result of search is to be used for the purpose of determining the undisclosed income of the block period. The evidence, if any, relied on by the Assessing Officer for the purpose of determining the undisclosed income of the block assessment is to be put before the assessee for his comments before completing assessment. More so, if the Assessing Officer wants to rely on the statement of any third party the same is required to be furnished to 36 Sri Jagadamba Pearl Dealers & Shri Ravinder Kumar the assessee and if the assessee wants to cross examine any of the parties whose statement was relied on by the Assessing Officer the same is to be provided to the assessee. In the present case the assessee is having grievance for not providing the opportunity of cross examining the parties whose statements were relied on by the Assessing Officer while completing the assessment. The circumstances surrounding the case are not strong enough to justify the rejection of assessee's plea asking the opportunity of cross examination. In view of this, we set aside the block assessment order and remand back the matter to the file of the assessing officer. We direct the Assessing Officer to give an opportunity of cross examination of the parties as required by the assessee and thereafter if there is any sufficient evidence other than the unsubstantiated note book/loose slips marked as document A/GAR/5 or if this document (viz., A/GAR/05) substantiated by any other evidence to establish that the assessee is having undisclosed income, then the Assessing Officer shall complete the assessment in accordance with law determining the undisclosed income covering this block period in addition to the other undisclosed income uncontested before us. It is needless to say that the evidence to be considered by the assessing officer for this block assessment is all the evidence on record found as result of search or requisition of books of account or other documents and such other materials or information as are available with the Assessing Officer and relatable to such evidence."
71. In view of the above order of the Tribunal, we are of the opinion that no addition can be made solely on the basis of the seized unwritten note book/loose slips, which are dumb documents and the same were disowned by the assessee and there being no other corroborative material to show that the transaction reflected in seized loose slips actually belong to the assessee. Accordingly, deletion of addition by the CIT(A) is justified. Accordingly, this ground of appeal is allowed in assessee's case and dismissed in the case of revenue.
72. In the result, assessee's appeals being ITA Nos. 87 to 92/Hyd/12 are partly allowed and the revenue appeals being ITA Nos. 368 to 370/Hyd/12 are dismissed.
37Sri Jagadamba Pearl Dealers & Shri Ravinder Kumar
73. To sum up, the result of all the appeals under consideration are as follows:
1) The appeals being ITA Nos. 387 to 389/Hyd/12 filed by the assessee Shri Ravinder Kumar are dismissed.
2) The appeals being ITA Nos. 93 to 95/H/12 filed by the assessee Shri Ravinder Kumar are partly allowed.
3) The appeals being ITA Nos. 424 to 429/H/12 filed by the Department in the case of Shri Ravinder Kumar are dismissed.
4) The appeals being ITA Nos. 87 to 92/Hyd/12 filed by the assessee Sri Jagadamba Pearl Dealers are partly allowed.
5) The appeals being ITA Nos. 368 to 370/Hyd/12 filed by the department in case of Sri Jagadamba Pearl Dealers are dismissed.
Pronounced in the open court on 17/06/2013.
Sd/- Sd/-
(CHANDRA POOJARI) (ASHA VIJAYARAGHAVAN)
ACCOUNTANT MEMBER JUDICIAL MEMBER
Hyderabad, Dated: 17 th June, 2013.
kv
Copy to:-
1) M/s Shri Jagadamba Pearl Dealers, 7-2-755, Pot
Market, Secunderabad
2) Shri Ravinder Kumar.
3) DCIT, Central Circle - 4, Hyderabad
4) The CIT(A)-VII, Hyderabad.
5) CIT (Central), Hyderabad
6) The Departmental Representative, I.T.A.T., Hyderabad.