Income Tax Appellate Tribunal - Jodhpur
Satya Narayan Choudhary , Udaipur vs Dcit, Central Circle-1, Udaipur on 19 March, 2020
IN THE INCOME TAX APPELLATE TRIBUNAL
JODHPUR BENCH, JODHPUR
BEFORE SHRI R.C. SHARMA, ACCOUNTANT MEMBER
AND
SHRI SANDEEP GOSAIN, JUDICIAL MEMBER
ITA No. 266/Jodh/2019
(Assessment Year 2012-13)
Satya Narayan Choudhary, Vs A.C.I.T.,
58, Gokulpura, North Ayad, Central Circle-1,
Udaipur-313001. Udaipur.
(Appellant) (Respondent)
PAN No. AAPPC 9260 P
ITA No. 392/Jodh/2019
(Assessment Year 2017-18)
Satya Narayan Choudhary, Vs A.C.I.T.,
58, Gokulpura, North Ayad, Central Circle-1,
Udaipur-313001. Udaipur.
(Appellant) (Respondent)
PAN No. AAPPC 9260 P
Assessee By Shri M.S. Jhanwar (CA)
Revenue By Shri Abhimanyu Singh
Yadav (JCIT-DR)
Date of hearing 16/03/2020
Date of 19/03/2020
Pronouncement
ORDER
PER: R.C. SHARMA, AM These are the appeals filed by the assessee against the separate orders of the ld.CIT(A)-2, Udaipur dated 06/06/2019 and 30/09/2019 for the A.Y. 2012-13 & 2017-18 in the matter of order passed u/s 143(3) r.w.s. 153A of the Income-tax Act, 1961 [hereinafter referred to as 'the Act', for short]. 2
ITA 266 & 392/Jodh/2019 Satya Nr. Choudhary Vs ACIT
2. Firstly we take ITA No. 392/Jodh/2019 for the A.Y. 2017-
18. Rival contentions have been heard and record perused. Facts in brief are that the assessee is engaged in the business of real estate, earning income from business, rental income and income from other sources. There was a search operation against the assessee on 16/09/2016, wherein his statement was recorded by the search party. The post search assessment was conducted by the AO and whereby income was assessed at impugned total income of Rs.134,47,871/ vide assessment order dated 28.12.2018. The assessee challenged the impugned assessment order dated 28.12.2018 before the Ld. CIT(A). The ld. CIT(A) given partial relief with regard to nature of income and upheld the addition of Rs. 4,75,000/- by treating the same as income from undisclosed sources. Against the order of the Ld. CIT(A), there is no appeal filed by the department, however, against the impugned appellate order of Ld. CIT(A), the assessee is in present appeal before us on the various grounds covering following issues/additions:
a. Upholding the addition of Rs. 4,75,000/- in respect of income from property transaction duly declared and covered by the returned income of Rs. 118,11,569/ allegedly confirming the action of the AO treating the same as income from undisclosed source.3
ITA 266 & 392/Jodh/2019 Satya Nr. Choudhary Vs ACIT b. Upholding the impugned addition of Rs. 1 Crore in respect of alleged unexplained investment in construction.
c. Rejecting the alternative contention of the assessee for levying tax u/s 115BBE while interpreting the same to be retrospective in nature for AY 2017-18 in the case of the assessee.
3. From the record we found that the AO during the impugned assessment proceedings, made the total addition of Rs. 1,18,11,569/- by taxing the same u/s 115BBE of the Act, however, Ld. CIT(A) upheld the addition of Rs. 4,75,000/- out of addition made Rs.1,18,11,569/ as per assessment order. Further, an addition of Rs.1,00,00,000/ made by AO was confirmed as unexplained investment.
4. However, the AO while making impugned assessment, treated the income of Rs.1,18,11,569/- as income from other sources u/s 69A and taxed it higher rate u/s 115BBE of the Act alleging the same to be unexplained money/ undisclosed income. The Ld. CIT(A) deleted the addition of Rs.1,13,36,569/- considering it as Business income out of Rs.1,18,11,569/- and confirmed the addition at Rs.4,75,000/-(para 4.3.1(ii) at page 11 & 12 of the appellate order) as undisclosed income in the nature of unexplained investment u/s 69 of the Act as against addition made u/s 69A by the AO as per assessment order.4
ITA 266 & 392/Jodh/2019 Satya Nr. Choudhary Vs ACIT
5. It is clear from the record that the income of Rs.118,11,569/ duly declared in the ITR filed u/s 139 which includes Rs.475,000/ under appeal before the Bench. However, the only dispute is with regard to treating the same as unexplained money or unexplained investment u/s 69/69A by lower authorities and accordingly taxing the same under special rates of income or regular business income as offered by assessee. The provisions of Section 69 or 69A of the Act are not applicable in the facts of the case as far as the question of income of Rs. 4,75,000/- from property transaction is concerned, which is in the nature of nature of business income as assessee is duly engaged in the business of real estate only. Even otherwise, the provisions of section 69 or 69A are applicable in case of unrecorded transaction or investment, whose nature and source is not explained. However, in the present case, the assessee has duly explained the nature and source of the transaction as well duly declared the same in its return of income.
6. The ld. CIT(A) did not appreciate the submission made by assessee during assessment as well as appellate proceedings, which establishes that there is no case of any unexplained investment, money or income, as nature and source of the income is reflected and explained in the ITR filed, Balance sheet and profit & loss account, itself, therefore, question of any income from any undisclosed source does not arise. 5
ITA 266 & 392/Jodh/2019 Satya Nr. Choudhary Vs ACIT Accordingly, we direct the A.O. to treat the income of Rs. 4.75 lacs as income from business.
7. With regard to addition of Rs. 1,00,00,000/- U/s 69 of the Act It was argued by the ld. AR of the assessee that the provisions of Section 69 are attracted when the investments made are not recorded in the Books of Accounts and there is no explanation about the nature and source of investments. Thus, this section presupposes the fallacy or non- reliability of Books of Account. Therefore, the provisions of S. 142A are applicable when the assessing officer concludes and satisfies himself about fallacy or non-reliability of Books of Accounts. If he is satisfied with the correctness of the Books of Accounts, there is no reason to apply the provisions of S. 69 as AO as well as ld. CIT(A) has not rejected the books of accounts and details of expenses incurred towards construction produced before them, therefore section 69 is not applicable. For this purpose, reliance was placed on the following judicial pronouncements:
(i) Pirani vs. ACIT 250 ITR 467,
(ii) Vasanthi vs. ACIT 257 ITR 94,
(iii) Surendra Khandhar vs. ACIT 321 ITR 254 (Bom.)
(iv) Jagjit Pal Singh Anand vs. CIT 320 ITR 106 (Del.). Recently, the ITAT, Delhi in the case of Rajendra Kumar vs. DCIT in ITA No.1959/Del/2017 dated 27.02.2020 held that no addition is warranted 6 ITA 266 & 392/Jodh/2019 Satya Nr. Choudhary Vs ACIT against unexplained investment under the provisions of section 69 of the Act, IT 1961 where no evidence is available to prove that assessee made payment beyond sale agreement.
8. The ld AR also relied on Instruction No. F no. 286/2/2003- IT (Inv) dated 10.03.2003, wherein the CBDT has directed that:
"Instances have come to the notice of the Board where assessee have claimed that they have been forced to confess the undisclosed income during the course of search & seizure and survey operations. Such confessions, if not based upon reliable evidence, are later retracted by the concerned assessee while filing return of income. In these circumstances, on confessions during the course of search & seizure and survey operations do not serve any useful purpose. It is, therefore advised that there should be focus and concentration on collection of evidence of income which leads to information on what has not been disclosed or is not likely to be disclosed before Income Tax Departments. Similarly, while statement during the course of search & seizure and survey operations, no attempt should be made to obtain confession as to the undisclosed income. Any action on the contrary shall be viewed adversely. Further in respect of pending assessment proceedings also, assessing officer should be relied upon the evidences/ material gathered during the course of search/survey operations or thereafter while framing the relevant assessment orders."
9. As per the ld AR, it is thus evident that it has been directed by the Board that no addition should be made on the basis of confessions but on the basis of evidences/ material gathered during the course of search or thereafter. It is settled law that every officer and person 7 ITA 266 & 392/Jodh/2019 Satya Nr. Choudhary Vs ACIT employed in the execution of the Act shall observe and follow the orders, instructions and directions of the Board and as such benevolent circulars are binding on the Income Tax Authorities even if it is deviating from the provisions contained in the Act.
10. Reliance was also placed by ld. AR on the decision of the Hon'ble Madras High Court in the case of M. Narayanan & Bros, vs. ACIT, Salem (2011) 13 taxmann.com 49 (Mad.) Held in this case, in the course of assessment proceedings, assessee retracted the statement made on day of search AO rejected the said plea and made assessment on the basis of confessional statements given by the assessee. It was held that though the statement rendered at the time of search may be used as evidence in any proceedings, but that by itself cannot become the sole material to rest the assessment, more so when the assessee sought to withdraw the same by producing material evidence in support of such retraction. It is always open to the person who has made the admission to show that the statement to offer income is incorrect. That apart, the case of the assessee also stands supported by Circular No. F. No. 286/2/2003-IT (Inv.), dated 10-3-2003 wherein CBDT has given categorical directions to the Departmental Officers that undue emphasis should not be placed on the recorded statements.
11. Similarly, in the case of ACIT vs. Jorawar Singh M.Rathod 148 taxman 35 (Ahd.) it has been held by ITAT, Ahmadabad 'B' Bench that 8 ITA 266 & 392/Jodh/2019 Satya Nr. Choudhary Vs ACIT "addition made by the Assessing Officer merely on the basis of retracted statement u/s 132(4) could not be sustained in the absence of any evidence, material or recovery of any movable or immovable assets at the time of search to corroborate the disclosure made by the assessee."
12. The assessee in support of the various contentions raised further, places reliance on the following judicial precedents:
1956 (SC) 9 Pangamban Kalanjoy Singh vs. State of Manipur.
It is also settled law that that no assessing authority can proceed the assessment on the basis of surrender made at the time of search when corroboration through an independent source is a must which has not been done by Assessing Authority KAILASHBEN MANHARLAL CHOKSHI V. CIT [2008] 174 TAXMAN 466 (GUJ.) "Despite the fact that the said statement was later on retracted, no evidence had been furnished by the revenue authority. Therefore, merely on the basis of admission of assessee, additions could not be made unless and until some corroborative evidence was found in support of such admission."
[A.C.I.T. Vs. Mrs. Sushiladevi S. Agarwal 49 TTJ 663 (Ahd)] a search operation is a great infringement in the personal life of the assessee. It causes great stress, anxiety and tension and in such circumstances, it cannot be said that the statement received during search is free from all ambiguity and doubt and it is quite likely that certain vital facts may be omitted or ignored or incorrectly stated [Palinode Rubber Produce Co. Pvt. Ltd. vs. State of Kerala (1971) 91 ITR 18 (SC)].9
ITA 266 & 392/Jodh/2019 Satya Nr. Choudhary Vs ACIT An admission of fact made by an assessee constitutes an important piece of evidence but it is not conclusive proof of the matter admitted. It is rebuttable and it is open to the assessee who made admission to show that it is incorrect.
[G. Morgues & Bros. Vs. C.I.T. (1973) 88 ITR 432 (SC)]. An admission made by the assessee before the Income-tax authorities is an important piece of evidence but he is entitled to show that such an admission was made out of ignorance of law or it was otherwise vitiated [C.I.T. v. Bhanwarlal 225 ITR 870 (Raj)].
the statement made by an assessee u/s 132 (4) is not always a universal truth. The statement of the assessee should be corroborated with the facts on record and documents seized at the time of search to ascertain its reliability. The law of natural justice and fair play demands that the surrounding circumstances and other relevant factors have to be considered before making an addition solely on basis of admission.
If the assessee has stated something in his statement either out of ignorance of certain vital facts or negligence, which is contrary to the established facts of the case, he cannot be assessed to tax merely on the basis of such erroneous statement. Similarly, if the assessee produces evidences, which prove his admission to be incorrect or contrary to the facts, and such evidences remain uncontroverted, addition made in such case merely on the basis of admission of the assessee cannot be sustained. Therefore, an assessment cannot be made merely on the basis of statement u/s.132 (4), particularly by brushing aside certain uncontroverted facts.
10
ITA 266 & 392/Jodh/2019 Satya Nr. Choudhary Vs ACIT The facts of the case of the appellant are squarely covered by the aforesaid decision of the jurisdictional High Court [C.I.T. v. Bhanwarlal 225 ITR 870 (Raj)], thus addition is legally not sustainable.
Arun Kumar Bhansali Vs DCIT (2006) 10 SOT 46 (Bang) (URO) "It is settled law that there cannot be any concession against the provision of law. Even though the assessee admitted an amount but was able to demonstrate that the income admitted was not his income or that such amount was not chargeable to tax, the same could not be brought to tax merely on admission." Shree Chand Soni Vs DCIT (2006) 101 TTJ (JD) 1028 "A statement recorded under section 132(4) does not tanta-mount to unearthing any incriminating evidence during course of search and, therefore, no addition can be made on that score alone."
13. Further reliance is also placed to support the contention that no addition can be made simply on the basis of surrender without any cogent and valid reasons and which the assessee has subsequently retracted. For this proposition, the reliance is placed on the following case laws :-
Sarwan Singh Rattan Singh v/s State of Punjab (1975) AIR 1957 SC 637 Kishore Dass v/s RamGopal (1979) AIR 1979 SC 861 ACIT v/s Satya Narayan Aggarwala 255 ITR 69 KOL Ganga Saran & Sons (P) Ltd. Vs ITO (1981) 130 ITR 1 (SC), ITO Vs Nawab Mir Barkat AU Khan Bahadur (1974) 97 ITR 239 (SC) 11 ITA 266 & 392/Jodh/2019 Satya Nr. Choudhary Vs ACIT Belief should not be arbitrary or irrational but based on relevant and material reasons.
14. No incriminating material as to alleged undisclosed investment in construction activity was found during the course of search in case of the assessee, therefore, in the absence of incriminating material found, addition cannot be sustained merely on the basis of what has been stated in statement recorded u/s 132(4) of the Act as the same is not corroborated. In support of this argument the assessee places reliance on the judgment of Hon'ble Andra Pradesh High Court in the case of Commissioner of Income-tax-II, Hyderabad vs. Naresh Kumar Agarwal reported at [2015] 53 taxmann.com 306 (Andhra Pradesh), wherein it was held that:
In such a case, when the managing director or any other persons were found to be not in possession of any incriminating material, the question of examining them by the authorised officer during the course of search and recording any statement from them by invoking the powers under section132(4) does not arise. Therefore, the statement of the managing director of the assessee, recorded patently under section 132(4) of the Act, does not have any evidentiary value. This provision embedded in sub-section (4) is obviously based on the well established rule of evidence that mere confessional statement without there being any documentary proof shall not be used in evidence against the person who made such statement. The finding of the Tribunal was based on the above well settled principle.12
ITA 266 & 392/Jodh/2019 Satya Nr. Choudhary Vs ACIT The ld. AR further argued that it is evident from the facts/documents available on the record, that there had been no piece of evidence found during the course of search relating to any undisclosed activity or source of income. The declaration made in the statement has not been proved correct by the AO by putting forth any corroborative evidence. Thus, the said declaration of alleged undisclosed income by the assessee without any credible evidence found during the course of search cannot be relied upon and making additions merely on the basis of the same is legally and factually incorrect.
15. Facts of the case of the assessee are squarely covered by the judgment of the Hon'ble ITAT Jaipur delivered on 12.04.2018 in case of Satish Chandra Agarwal by Appeal ITA No. 311/JP/2015. Relevant Para 7 is reproduced as under:
"7. The Bench have heard both the sides on these issues. We have also gone through the case laws relied upon. The Hon'ble Supreme Court in the case of CIT Vs. S. Khader Khan Son cited (supra) has held that an admission is an extremely important piece of evidence but it cannot be said that it is conclusive and it is open to the person who made the admission to show that it is incorrect and that the assessee should be given a proper opportunity to show that the books of account do not correctly disclose the correct state of facts. In this case, the assessee made statement during the survey and surrendered Rs.60,09,418/- on account of excess cash, Rs. 8,04,155/- unaccounted debtors, Rs.
13,62,000/- excess stock, Rs. 28,43,409/- and on account of advance of Rs. 10.00 lacs to Shri Pawan Kumar. The assessee has 13 ITA 266 & 392/Jodh/2019 Satya Nr. Choudhary Vs ACIT not disclosed these amounts in the return of income and retracted from statement. In such a situation, it is the duty of the Assessing Officer to investigate the issues further and establish on each and every issue on which the surrender was made to establish the correctness of undisclosed amount by making further enquiries. The A.O. has failed to do so. He has simply made the addition on the basis of statement made during the survey which assessee had not honoured. The Hon'ble Kerala High Court in the case of Paul Mathews & Sons (supra) has also held that Section 133A(3)(iii) enable the authority to record the statement of any person which may be useful for, or relevant to, any proceeding under the Act. Section 133A, however, enables the income tax authority only to record any statement of any person which may be useful, but does not authorize taking any sworn statement. Thus, it is trite law that Section 133A does not empower any Income tax authority to examine any person on oath and then use it as evidence to make addition. In such a situation, no addition can be made or sustained only on the basis of the statement recorded during the survey U/s 133A of the Act. Once the assessee has retracted from the statement then itwas on the A.O. to establish beyond any doubt the issues on which the addition has been made. Once the assessee has submitted up to date cash book and stock register then it was duty of the Assessing Officer to pin point the defects in such books of account particularly with regard to the issues, on which the statement was recorded during the survey. Further in the case of Shri Pawan Kumar, even the Assessing Officer recorded his statement but he has not asked any question with regard to amount of advance of Rs. 10.00 lacs for which the addition has been made only on the basis of a piece of paper, which was not signed by Shri Pawan Kumar. Similarly in the case of debtors, once the assessee has retracted then it was the duty of the Assessing Officer to examine these debtors to establish the truthfulness of the debt. The ld DR has relied on the decision of 14 ITA 266 & 392/Jodh/2019 Satya Nr. Choudhary Vs ACIT Hon'ble Bombay High Court in the case of Dr. Dinesh Jain Vs. ITO (Supra) and decisions of Hon'ble RajasthanHigh Court in the case of Rameshwar Lal Mali Vs CIT (supra), we have considered the facts and law involved in these cases and we find that the facts are at variation from these cases, therefore, the ratio laid down in these cases are not applicable to the assessee's case. Considering all these aspects, we find no merit in sustaining the addition only based on the statement recorded during the course of survey. Hence grounds No. 1 to 5 of the appeal are allowed.
16. The ld. AR further placed reliance on the judgment of Hon'ble this bench in the following cases to support the contentions raised herein above :
R.K. Synthetics vs. Income-tax Officer[2004] 3 SOT 268 (JODH.) The assessee had been maintaining complete financial and quantitative records at all stages of production and no specific defects had been pointed out by the authorities below. The Commissioner (Appeals) had categorically mentioned that the Assessing Officer had not pointed out any defects in the books of account nor brought any on record and that the Assessing Officer was not justified in rejecting the books of account against which the department had not come in second appeal. In the circumstances, the totality of the facts and circumstances did not justify additions under section 69 merely on the basis of the statement of the said partner without any further supporting evidence being on record.
Om Prakash Joshi vs. Income-tax Officer [2009] 34 SOT 33 (Jodhpur) (URO) since assessee had explained that stamp duty was paid by him out of advance amount as reflected in balance sheet and only accounting adjustment remained to be made, in such situation without bringing any adverse material on record, Assessing Officer was not justified in making addition 15 ITA 266 & 392/Jodh/2019 Satya Nr. Choudhary Vs ACIT
17. With regard to A.O.'s observation at page No. 20, para 6.6. of the assessment order, it was contention of the ld AR that the allegation of the A.O. was not correct in so far as he alleged that the assessee failed to furnish Cash Book maintained for construction purposes, which is contrary to fact that during assessment proceedings, cash Book was submitted vide submission dated 20.09.2018 vide letter dated 05.09.2018 as stated in para 6.5 at page 19 of the assessment order. Copy of the submission dated 20.09.2018 duly acknowledged by the department is placed herewith in the Paper book (PB Page no.98 -150). Relevant extracts from Para 6.5 at page 19 of the assessment order at PB Page 128 & 148 in this regard is reproduced below for ready reference:
"We also enclose herewith reconciliation statement alongwith copy of cash book after entering relevant unrecorded vouchers and cash book as on date of search 16.09.2016 separately."
18. The assessee also produced all relevant books of accounts/ documents before the AO as stated on last page of the letter dated 05.09.2018 submitted on 20.09.2018 and the AO has not pointed out any discrepancies therein. Thus, allegation of the AO is totally baseless. Additionally, our attention was invited to the following documentary evidences submitted during the course of assessment proceedings, which negates the allegation of the AO:
16
ITA 266 & 392/Jodh/2019 Satya Nr. Choudhary Vs ACIT a. Letter dated 06.08.2018 from assessee to ld. AO duly receipted /submitted on 23.08.2018, copy enclosed PB at 75.
b. Further Annexure 8 PB page 80 forming part of Letter dated
06.08.2018 includes copy of statement of all bank accounts duly reconciled with books of accounts alongwith nature and source of each credit entries.
The assessee has also produced all relevant books of accounts/ documents before the AO and the AO has not pointed out any discrepancies therein.
c. Letter dated 21.11.2018 from assessee to AO and relevant para therein as at S. No. 5 to 10 enclosed at PB ---. The appellant has sought mutual set off or telescoping of estimated addition of undisclosed income and value of unexplained assets out of income offered as per seized documents.
d. Letter dated 22.11.2018 from assessee also submitted before the AO in relation to Cash short found enclosed at PB 156-165. The appellant has also produced all relevant books of accounts/ documents alongwith the letter before the AO and the AO has not pointed out any discrepancies therein.
In this connection, it is further submitted that the certified copies of the order sheet in relation to assessment proceedings obtained from the department reflect that the assessee has furnished all information/ documents in compliance of the assessment proceedings. Copies of the entire order sheet / assessment proceedings are enclosed in paper book at PB Page 218-222.
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ITA 266 & 392/Jodh/2019 Satya Nr. Choudhary Vs ACIT
19. It was also submitted that the Cash withdrawal from Bank accounts used for construction activities cannot be called as undisclosed investment in construction activities. Further cash withdrawals from Bank were out of balance lying credit in bank account of the assessee. It is not under dispute as AO has examined all the transactions as appearing in the Bank statement and cash books submitted before him vide letter dated 05.09.2018 as submitted on 20.09.2018 as referred herein above. It was further submitted that the summary of cash on date of search withdrawal from banks are as below :
S. No. Particulars Amount Rs.
1 Opening Balance as on 01.04.2019 3,98,390
2. Add: Withdrawals from Banks till date of
search
(i) State Bank of India 42,90,000
(ii) Punjab National Bank 5,00,000
(iii) Canara Bank 3,00,000
(iv) Total withdrawals from Banks (I + ii + iii) 50,90,000
3. Total of opening Balance and withdrawals 54,88,390
from Banks
In view of above, cash balance in the hand of the assessee accumulated out of above stated withdrawals as on date of search reported at Rs.30,71,397/ due to incomplete records cannot be called as unexplained investment used in construction activities.
20. With regard to A.O.'s allegation that there was no bills or incomplete vouchers with regard to cost of construction, it 18 ITA 266 & 392/Jodh/2019 Satya Nr. Choudhary Vs ACIT was submitted by the ld AR that there is no requirement to maintain bills etc, in relation to construction expenses as same is not claimed as business expenses nor depreciation claimed thereon. However, details of the construction expenses was provided to the AO vide letter dated 20.12.2018 (PB Pages 194-202) in compliance of the Order sheet dated 17.12.2018. It is relevant to submit that the AO has not pointed out any discrepancies in the details of the construction expenses submitted before him nor asked any further clarification which required to be provided by the assessee.
21. Adverting to the allegation of ld. CIT(A) in his appellate order, it was contention of the ld AR that the Ld. CIT(A) has alleged that since the assessee has not filed any valuation report, therefore, building account submitted is not reliable. In this respect, it is humbly submitted that the said allegation of the Ld. CIT(A) is merely on the basis of doubts and suspicion only, no pin pointed defects or otherwise had been pointed in the documentary evidences submitted by the assessee neither by AO nor by Ld. CIT(A). Therefore, this allegation for sustaining the addition deserves to be negated. Furthermore, as stated above, the burden to prove undisclosed investment is on the department, therefore, question of making reference to valuation is duty of the department and assessee cannot be blamed for the same. Rather this basis of the Ld. CIT(A) is contrary to facts available on record as no 19 ITA 266 & 392/Jodh/2019 Satya Nr. Choudhary Vs ACIT attempt made by AO to prove any undisclosed investment by the assessee.
22. The ld AR has further argued that no adverse observations pointed out in relation to the reconciliation, rather accepted all entries, despite this, addition has been sustained by the ld. CIT(A) arbitrarily and contrary to its own findings.
23. On the other hand, the ld DR has relied on the orders of the lower authorities and contended that the assessee in his statement U/s 132(4), recorded during search, the assessee admitted undisclosed income aggregating Rs. 2,18,11,563/- based on seized material and discrepancy found as under:-
i. Disclosure of Rs. 11,0,000/- on account of loan of unaccounted commission income from property transaction.
ii. Disclosure of Rs. 5,66,563/- on account of loan given from unaccounted sources of Rs. 4,75,00/- and interest income thereon Rs. 91,563/- which is also unaccounted.
iii. Disclosure of Rs. 48,95,000/- on account of unaccounted income/receipt in cash of Rs. 48,95,000/-.
iv. Disclosure of income of Rs. 52,50,00/- based on entries in pocket diary found and seized during search, marked as Annexure-As, Exhibit 1 to 6.
v. Disclosure of Rs. 1,00,00,000/- on account of unexplained investment in construction of Mount View School and house of assessee's son Sh. Om Prakash.
24. As per the ld DR in the return of income the assessee offered to tax only the income as noted in (i) to (iv) above, aggregating Rs. 20
ITA 266 & 392/Jodh/2019 Satya Nr. Choudhary Vs ACIT 1,18,11,563/-. Further, the entire income of Rs. 1,18,11,563/- was declared in the return of income under the head "Business and Profession" and against this undisclosed income, the assessee claimed set off of business loss of Rs. 1,05,11,789/-. He further contended that having made a statement on oath, the burden was on the assessee to show with evidence that his statement U/s 132(4) was erroneous. Further, no bills/vouchers for construction activity was available with the assessee. No valuation report was filed by the assessee despite the A.O. specifically giving the assessee an opportunity to do so vide query letter dated 16.07.2018 (para 6.2 of the assessment order refers) accounts of construction activity were maintained. Thus the building account of school, showing investment of Rs. 3,48,32,781/- till the date of search in construction of school, and building account showing investment of Rs. 29,64,831/-in son's house till 31.03.2016, filed in assessment and in appeal, have no credibility.
25. We have heard the rival contentions and carefully gone through the orders of the authorities below. We had also deliberated on the judicial pronouncements referred by lower authorities in their respective orders as well as cited by the ld. AR as well as the ld DR during the course of hearing before us in context of factual matrix of the case. From the record, we found that during the search proceedings on 17.09.2016, cash of 21 ITA 266 & 392/Jodh/2019 Satya Nr. Choudhary Vs ACIT Rs.23,30,150/- was found from the premises of the assessee. The cash balances Rs.1,25,93,421/- was derived from incomplete cash books of various assessee's of the Group. Details of cash balances derived from incomplete cash books of various assessee's of the Group are reproduced (CIT(A) Order Page 25) as below:
S. Assessee Cash in Hand as per data
No. taken by search team
Amount Rs.
Choudhary Property Dealers P 326490
1 Ltd
2 Bhagwanti Devi 112160
3 Bhawana Choudhary 604156
Choudhary Avasavam Vitta P 1563441
4 Ltd
5 Ganga Devi 416810
6 Lokesh Choudhary 1486626
7 Om Prakash 2813482
8 Sanjay Choudhary 813083
9 Santosh Choudhary 572693
10 Satya Narayan Choudhary 3071397
11 Suresh Choudhary 813083
Total 1,25,93,421/
Thus, on the basis of cash balance in incomplete books as compared to actual cash found, there was physical short cash of Rs. 1,02,63,271/- was found during the course of search. The assessee was confronted during search proceedings by the search team to offer his explanation regarding cash found of Rs. 23,30,150/-. The assessee in his statement recorded dated 18.09.2016 explained in answer to question 13 during 22 ITA 266 & 392/Jodh/2019 Satya Nr. Choudhary Vs ACIT the course of search proceedings that the cash relates to his family members and business concerns and from personal savings. Relevant question and answers recorded in statement of the assessee produced as below:
It was also explained during the course of the search proceedings that transactions in computer are incomplete and maintained only to keep control and discipline on family members as family consists of four married sons. During the course of the search proceedings, Question no 14 asked by the departmental officials establishes that "it is found that cash book is not complete and not updated".
It is also relevant to observe that the question no. 14 asked by department during the course of search/survey establishes the finding of the department that cash books or other accounts books were incomplete. Thus, it is undisputed fact that the cash balances Rs.1,25,93,421/- was derived from incomplete cash books of various 23 ITA 266 & 392/Jodh/2019 Satya Nr. Choudhary Vs ACIT assessee's of the Group. The assessee on account of mistaken facts and incomplete records, stated in answer to question number 14 during the course of the search proceedings that aforesaid cash short was noticed on account of incomplete records and explained that it has been used for construction activities. However, the AO merely on the basis of his statement made the impugned addition without establishing any investment in construction activities with any corroborating evidences.
26. By the impugned order, the Ld. CIT(A) upheld the action of the AO and sustained the impugned addition of Rs. 1 Crore in the hands of the assessee.
27. As per our considered view before making any addition for unexplained investment, it is first to be established by the AO that (i) any investment was made by the assessee and (ii) which is not recorded and
(iii) for which there is no explanation for source of making such investment. However, in the present case, both the AO as well as Ld. CIT(A) had not discharged their burden of proof u/s 69 of the Act for making impugned addition as it has not been established with corroborating evidences that there was any investment of Rs. 1 Crore by the assessee in construction activities as per the case attempted to be made by them on the basis of wrong inference from the statement of the assessee recorded during search. The first point of inquiry for making impugned addition by the AO is only wrong inference from the statement 24 ITA 266 & 392/Jodh/2019 Satya Nr. Choudhary Vs ACIT recorded during search, which stands retracted while filing return of income on account of the fact that there was no such investment and neither there was no such evidences found during search.
28. We also found that during the course of search proceedings, no incriminating material was found by the respective income tax authorities for impugned addition. The search operations did not result in discovery of any incriminating material which is evident from the fact that the AO in the entire assessment order has not relied on any material but only on the statement recorded by the assessee. The edifice of addition is only disclosure which was extracted out from the assessee. Reliance has been totally placed on the statements recorded under section 132(4) of the Act of the assessee, which is misconceived, misinterpreted and ill founded.
29. It is also clear from the order of the A.O. that while making the impugned additions of Rs. 1 Crore merely relied upon the statements recorded under section 132(4) of the Act without any corroborative documentary evidence on record. Though, statements are an important piece of evidence but they are not conclusive. The statements should be corroborated with the facts and documents on record to ascertain their reliability. It is because of the fact that a search causes great stress, anxiety and tension and therefore it cannot be said that the statement recorded during search is free from all ambiguity and doubts and it is quite likely that certain vital facts may be omitted or 25 ITA 266 & 392/Jodh/2019 Satya Nr. Choudhary Vs ACIT ignored or incorrectly stated. If the assessee has stated something in his statement either out of ignorance of certain vital facts or negligence or non-availability of relevant material, which is contrary to the established facts of the case, he cannot be assessed to tax merely on the basis of such erroneous statement. It is also relevant to observe that alleged physical cash shortage is consequential to incomplete cash books. Cash books are not maintained on regular basis being individual status of the various assessee's of the Group and turnover of the assessee was below tax audit requirement. Accordingly, assessee in its question to answer no. 13 stated that amount of cash short noticed were withdrawn from banks and savings out of income offered for tax and has been used for construction. This explanation even if considered to be true also explains the availability of source of funds. Thus, the source of construction was out of the declared income/sources and there was no additional or unexplained investment as no evidences relating to additional construction investment were found during search.
30. From the record we also found that the cash balances were taken based on incomplete data entries from Computer to arrive cash shortage relating to various assessee's of the Group during the course of the search proceedings, thus, conclusion of alleged expenditure/ investment cannot be drawn based on incomplete books without considering reconciliation and explanation or some other corroborative 26 ITA 266 & 392/Jodh/2019 Satya Nr. Choudhary Vs ACIT evidences filed by the assessee. However, AO took adverse inference from mere statement recorded of the assessee under mistaken facts and believes and made the impugned addition of Rs. 1 Crore alleging them to be investment in construction activities by the assessee. There is no basis for amount determined Rs.1,00,00,000/ alleged to be used for construction activities by the assessee. It is pertinent to note that there is no addition in the impugned assessment order on account of short cash found rather during assessment proceedings, the AO took entirely different stand of making impugned addition of Rs. 1 Crore for alleged investment of Rs. 1 crore by taking incorrect inference from the statement of the assessee recorded during search.
31. We further observe that no document/paper were found by the department in relation to alleged amount of Rs. 1 Crore used in construction activities which is unexplained. Furthermore the assessee has never admitted that he has incurred construction expenses out of books as alleged in the assessment order. It is also clear from the order of the A.O. and the ld. CIT(A) that they have never asked for any valuation report. Even otherwise, once there are no adverse findings in relation to the details of cost incurred in relation to construction provided, there is no necessity of valuation. Thus, very basis of impugned addition confirmed by Ld. CIT(A) is not justified. 27
ITA 266 & 392/Jodh/2019 Satya Nr. Choudhary Vs ACIT
32. There is no reason to confirm addition merely on the assumption/ presumption that the cost in construction in relation to the building account of the school showing investment Rs.348,32,781/ till date of search in construction of school and building account showing investment of Rs.29,64,831/ in son's House as filed in assessment and in appeal, have no credibility without any basis in absence of no single adverse document/ information available with the department and even not found during course of search, therefore, addition confirmed by the ld. CIT(A) is not legally sustainable as per settled position of law.
33. From the record, we found that during the course of the assessment proceedings, assessee vide letter dated 20.12.2018, submitted details of the total investment in Mount View School Bedwasat Rs.4,00,18,782/ as on 31.03.2017. There is no adverse finding pointed out by the AO which establishes that there was no source of such investment, further no defects/mistakes were pointed out regarding the supporting evidences submitted by the assessee. We also found that Mr. Om Prakash Choudhary, son of assessee had also incurred Rs.29,64,831/ towards construction of his house which was also explained with relevant details and documentary evidences filed before the AO. The assessment in the case of Mr. Om Prakash Choudhary, son of assessee was concluded without any adverse findings in this regard. The source of investment in his house has been accepted 28 ITA 266 & 392/Jodh/2019 Satya Nr. Choudhary Vs ACIT as such by the AO vide assessment in his case dated 26.12.2018. Thus, the question of any additional or unexplained investment does not arises even from the department own stand taken in assessment of son of the assessee. It establishes that the AO has accepted the variation of cash balances in case of all other assessee's of the Group based on reconciliation and verification of relevant records in the respective/ relevant assessments, therefore, had not drawn any adverse inference. Accordingly, the short cash due to incomplete data entries related to other family members stands accepted by the A.O. while making their assessments without any adverse findings in this regard cannot be taxed again in the hand of the assessee. Further, there cannot be different approach i.e. Pick and choose theory on the same issue in the case of the assessee in comparison to other Group assessee's for cash shortage noticed due to incomplete data entries.
34. The Hon'ble Supreme Court in the case of CIT Vs. S. Khader Khan Son cited (supra) has held that an admission is an extremely important piece of evidence but it cannot be said that it is conclusive and it is open to the person who made the admission to show that it is incorrect. The assessee clearly stated while recording statement during the course of search that that the books of account do not correctly disclose the correct state of facts due to incomplete entry of transactions etc. In this case, the assessee made statement during the search and surrendered 29 ITA 266 & 392/Jodh/2019 Satya Nr. Choudhary Vs ACIT Rs. 100,00,000/ which is without any basis due to incomplete records, mistaken facts and believes. The department has not found any single evidence in relation to amount spent more than amount declared in construction activities before the A.O. and produced books of accounts before the AO, therefore, no adverse inference can be drawn in this regard. In view of the above discussion, we direct the A.O. to delete the addition of Rs. 1,00,00,000/- so made.
35. In the result, appeal of the assessee is allowed.
36. Now we take ITA No. 266/Jodh/2019 A.Y. 2012-13.
In this appeal, the assessee has raised following grounds of appeal:
"1. Under the facts and circumstances of the case and in law, the order dated 06.06.2019 passed by Ld. CIT (Appeals)-2, Udaipur is perverse, arbitrary and bad in law.
2. The Ld. Assessing Officer and Id. CIT(A) erred in rejecting the interest Rs. 1,14,746/- and bank charges Rs. 57/- as against additional income/interest offered for tax Rs. 1,16,052/-, as both errors were clerical and compensatory which had been rectified voluntarily without any seized document and net effect of such income/interest comes to Rs. 1249/- offered for tax while filing ITR U/s 153A, thus, interest expenses Rs. 114746/- and Rs. 57/- deserves to be allowed/netted off towards additional income/interest offered for tax.
5. The appellant craves leave to add, amend and modify all or any ground of appeal on or before the date of hearing."
37. We have considered the rival contentions and carefully gone through the orders of the authorities below and found from the record that the lower authorities have not allowed 30 ITA 266 & 392/Jodh/2019 Satya Nr. Choudhary Vs ACIT the assessee to claim deduction of interest expenditure but has included the interest income so offered by the assessee in the proceedings U/s 153A. We found that the assessee has just rectified the apparent mistake on the record by offering the interest income and interest expenditure. Accordingly, we direct the A.O. to make addition only to the extent of mistake so pointed out in the reconciliation.
38. In this regard, we found that during the assessment proceedings, the assessee produced detailed reconciliation of the return filed u/s 139 & u/s 153A with relevant documentary evidences before the A.O. vide letter submitted on 20.08.2018. Reconciliation of both the return filed u/s 139 and 153A filed before the assessing officer is enclosed at PB page 14. From the reconciliation, we observe that the A.O. has accepted the additional interest income offered without any seized documents during the course of search in the return filed u/s 153 A in para 5 of the assessment order but not allowed the legitimate deduction towards interest expenses wrongly short claimed while filing ITR u/s 139. The A.O. has rejected the claim of interest on unsecured loan with contention in Para no 5.3 at page no 3 of the order.
39. In view of the above facts and circumstances, we modify the orders of the lower authorities and direct the A.O. to restrict addition only to the extent of difference between the 31 ITA 266 & 392/Jodh/2019 Satya Nr. Choudhary Vs ACIT interest income offered and the interest expenses claimed. We direct accordingly.
40. In the result, appeal of the assessee is allowed in part.
Order pronounced in the open Court on 19 t h March, 2020.
Sd/- Sd/-
(SANDEEP GOSAIN) (R.C. SHARMA)
JUDICIAL MEMBER ACCOUNTANT MEMBER
Dated : 19/03/2020
*Ranjan
Copy to:
1. The Appellant
2. The Respondent
3. The CIT
4. The CIT(A)
5. The DR
6. Guard File (ITA No. 266 & 392/Jodh/2019)
Assistant Registrar
Jodhpur Bench