Income Tax Appellate Tribunal - Ahmedabad
Nirma Limited,, Ahmedabad vs Assessee on 15 December, 2004
1 IT(SS) No.98-50/Ahd/05
Nirma Ltd.
IN THE INCOME_TAX APPELLATE TRIBUNAL "C " BENCH, AHMEDABAD
BEFORE SHRI MAHAVIR SINGH AND SHRI_D.C. AGRAWAL
IT(SS) No.98/Ahd/2005.
(Block period 1-4-1995 to 27-9-2001)
Nirma Limited Vs Assistant Commissioner of Income
Nirma House, Tax, Central Circle 1(1),
Ashram Road, Ahmedabad. 3rd Floor, Aayakar Bhavan,
Ashram Road, Ahmedabad.
(Appellant) (Respondent)
And
IT(SS) No.50/Ahd/2005
(Block period 1-4-1995 to 27-9-2001)
Assistant Commissioner of Income Vs Nirma Limited
Tax, Central Circle 1(1), Nirma House,
3rd Floor, Aayakar Bhavan, Ashram Road, Ahmedabad.
Ashram Road, Ahmedabad.
(Appellant) (Respondent)
PAN: AAACN 5350K
Appellant by: Shri S.N. Soparkar with
Shri Himanshu Shah.
Respondent by : Shri Rajeev Agarwal, CIT (DR)
आदे श)/ORDER
(आदे PER SHR D.C. AGRAWAL.
These are the two cross appeals one filed by the assessee and other filed by the Revenue against the order of the Ld. C.I.T. (A) dated 15-12-2004. In his appeal assessee has raised following grounds :-
"1. The Ld. C.I.T.(A) -XI, Ahmedabad has erred both in law and on facts of the case in framing an appellate order on 15-12-2004 for the appeal filed against the assessment order passed u/s.158BC of the Act by the Ld. Assistant Commissioner of Income-tax, Central Cir.1(1), Ahmedabad.2 IT(SS) No.98-50/Ahd/05
Nirma Ltd.
2. The Ld. C.I.T.(A)-XI, has erred in holding that the mention of "Nirma Group of entities" and/or "Nirma Group" by the learned ACIT in his order, is correct and does not have far reaching adverse and unjustified implications to your Appellant.
3. The Ld. C.I.T.(A)-XI, Ahmedabad has erred in rejecting objection raised by the appellant against the irrelevant and incorrect observations, presumption u/s. 132(4A) and invocation of [proceedings u/s. 158BC made by the Assessing Officer in framing the Assessment Order and further erred in holding that it is beyond the jurisdiction of the CIT (A) to decide on the issue of the validity of the search and seizure proceedings and therefore cannot be raised in appeal against Block Assessment Order.
4. The Ld. C.I.T.(A)-XI, Ahmedabad has erred in holding that the appellant has failed to explain the seized papers page Nos.87, 88 and backside of 108 and further erred in upholding the assumption of the Assessing Officer that payment of Rs.17,84,49,140/- and Rs.33,31,43,916/- has taken place and has further erred in confirming the addition of Rs.17,84,49,140/- and Rs.3,31,43,916/- as undisclosed income on assumption, presumption and without any corroborative evidence.
5. The Ld. C.I.T.(A)-XI, Ahmedabad has erred in justifying the addition of Rs.1,01,41,881/-, as net settlement of interest between the entities considering the same as undisclosed income, on assumption, presumption and without any corroborative evidence.
6. The Ld. C.I.T (A)-XI, Ahmedabad has erred in justifying the addition of Rs.1,12,88,845/- being jotting of page 86 of Annexure A-6 considering the same as across entity settlement of interest and quantity discount on assumption, presumption and without any corroborative evidence.
7. The Ld. C.I.T.(A) -XI, Ahmedabad has erred in upholding the addition of Rs.7,70,960/- as undisclosed income being excess stock claimed to have been found at Bhavnagar factory premises during survey u/s. 133A of the Income-tax Act.
8. The Ld.C.I.T.(A)-XI, Ahmedabad has erred in confirming the addition of Rs.2,39,475/- as undisclosed income considering the same as unexplained cash expenses incurred out of undisclosed income on the basis of assumption, presumption and without any corroborative evidence.3 IT(SS) No.98-50/Ahd/05
Nirma Ltd.
9. The Ld. C.I.T.(A)-XI, Ahmedabad has erred in upholding the addition of Rs.25,000/- and Rs.17,000/- totaling to Rs.42,000/- being miscellaneous noting in the diary of Mr. J. O. Shah as admitted by him as his transaction with regard to purchase of land/flat as undisclosed income of the appellant on the basis of assumption, presumption and without any corroborative evidence.
10. The Ld. C.I.T.(A)-XI, Ahmedabad has erred in rejecting the objection raised to addition of Rs.3,56,847/- of losses on share transactions which are disallowed as "contrived losses booked through inter-entity trsnaction."
11 In law and in the facts and circumstances of the appellant's case, the Ld. C.I.T.(A)-XI, Ahmedabad has grievously erred in not interfering on the grounds regarding charging of interest u/s. 158BFA (1) of the I.T. Act.
12. The Ld. C.I.T.(A)-XI, Ahmedabad has erred in not entertaining objection to the initiation of penalty proceedings u/s. 158BFA (2) of the I.T. Act."
2. Whereas the Revenue has raised the following ground in its appeal:
(1). The CIT(A) has erred in law and on facts in directing to delete the addition of Rs.38,83,000/- made on account of unexplained payments out of undisclosed income."
3. The facts of the case are that the assessee-company is engaged in the business of manufacturing of soap detergents and related items. Search and seizure action under section 132 of the I.T. Act was carried out on 27-9-2001 in the Nirma Group of cases. The Office premises of the assessee- company was also searched. The search was completed on 5-10-2001. In response to the notice issued u/s. 158BC, the assessee-company filed block return at an undisclosed income of Rs. Nil. After intensive investigation the Assessing Officer proposed following additions (which are partly deleted by ld. CIT(A)) and being aggrieved, both the parties have raised the concerned issues in their respective ground:-
4 IT(SS) No.98-50/Ahd/05Nirma Ltd.
1) Rs.17,84,49,140/- on the basis of seized document A-6 found from the premises of Shri Rahul Devi containing details about alleged receipt of sale proceeds of shares.
2) Rs.3,31,43,916/- being addition for unaccounted undisclosed income out of book settlement of share transactions on the basis of seized document No.87 and 88 as per Annexure A-1.
3) Rs.1,01,41,881/- being difference in interest as indicated from page 79 and 80 of Annexure A-6 seized from the premises of Shri Rahul Devi.
4) Rs.1,12,88,845/- being the jottings on page-86 of Annexure A-6 being the settlement of interest and quantity discount.
5) Addition of Rs.7,70,960/- being excess stock claimed to have been found at Bhavnagar Factory premises.
6) Addition of Rs.2,39,475/- as undisclosed income being unexplained cash expenses.
7) Addition of Rs.42,000/- being miscellaneous notings in the diary of Shri J.O. Shah.
8) Addition of Rs.3,56,847/- being the loss of share transaction in shares of Biochem Pharma Ltd., and NEPC Textile Ltd.
9) Addition of Rs.38,83,000/- being unexplained out of book payments claimed to have been made by the assessee-
company discovered from page 269 & 270 of Annexure A-18 seized from the premises of Mr. J.O. Shah being the Purchase Manager of the assessee-company.
4. Even though other issues may also result from the order of the Ld. A.O./Ld. CIT(A) but we will confine our discussion on the issues raised by both the parties as per their grounds of appeal.
Assessee's appeal
5. The Ld. A.R. during the course of hearing before us did not press grounds at No.1, 2 and 3. Therefore, they are rejected as not pressed.
5 IT(SS) No.98-50/Ahd/05Nirma Ltd.
6. Addition of Rs.17,84,49,140/- and Rs.3,31,43,916/- as per ground No.4.
In addition to the search carried out at the office premises of the assessee-company at Kashmira Chambers, Ashram Road, Ahmedabad, search was also carried out at the residence of one Shri Rahul Devi erstwhile Dy. G. M.(Finance) of the assessee-company. During the course of the search at the residential premises of Shri Rahul Devi, certain loose papers were seized. Out of them Annexure A-1 was considered relevant which contained the working of the figure of Rs.17,48,49,140/-. The detailed working of this figure is given on page-108 of Annexure A-1 whose copy is enclosed at page-192 of assessee's paper book. The working is reproduced below :-
"Possible calculation before arriving at amount given for trading.
12,73000 x 140.18
-----------------
17,48,49,140 (2) 88,00,00,000 13/4 10,00,00,000 Recd on 23/2
------------------
78,00,00,000
- 17,48,49,140 Diff. in excess of
----------------- 1000
60,51,50,860 Bal
Amount given for
Trading. 60,51,63,727.80
==============
Interest paid. 3,12,84,439
Loss. 2,05,71,645
----------------
5,18,56,084 "
----------------
6 IT(SS) No.98-50/Ahd/05
Nirma Ltd.
7. The above page also has relevance with page 191 in assessee's paper book which was also seized. This document contained sale of shares by different entities in the Nirma Group. The shares in different companies were sold by various entities of Nirma Group, such as Jalpa Specific Family Trust, Nirma Associates, Harsidh Bungalow Trust etc. There were in all 16 such entities which sold shares in Triumph International Finance India Ltd., at different rates whose average was worked out at Rs.114.18 per share. Total number of shares sold by these 16 entities amounted to 12,73,000. The average sale price of shares in Triumph International Finance India Ltd., sold by these 16 Nirma Group entities was Rs.1140.18 which is shown on page 108 of Annexure A-1 i.e. at page 192 of assessee's paper book. It has also mentioned rate in excess of Rs.1,000 which is Rs.140.18 (Rs.1140.18 less Rs.1000/-; this was multiplied by total number of shares being 12,73,000 giving a figure of Rs.17,84,49,140/-).While proposing the addition the Assessing Officer arrived at following inferences as mentioned by the Ld. C.I.T.(A) in his order on page-13 :-
"i) Evidences found during search establish that control over transaction of number of entities was exercised by the assessee company through its employees, advisors and CMD.
ii) Evidences found during search establish that on account of this common control exercised over associate entities transactions were entered into by different associate entities with common intent.
iii) Evidences found during search establish that such transactions of associate entities done with common intent were settled across entities.
iv) Evidences found during search establish that transactions noted on pages 87, 88, 108 and back side of page-108 in the hand writing of Shri Rahul Devi though done by different associate entities, were one such set of inter-linked transactions done with common intent. Perusal of the seized notings further bring out the fact that the figure of Rs.17,84,49,140/- and figure of Rs.3,31,43,916/- have been noted by Shri Rahul Devi after clear application of mind and are integral to one such set of across entity settlement of transactions.7 IT(SS) No.98-50/Ahd/05
Nirma Ltd.
v) Evidences during the search establish that Shri Rahul Devi was a common person having full knowledge of the across entity linkages and settlements of these and all other such transactions evidenced by seized material.
vi) Evidences found during search establish that such across entity settlements have actually accrued and that from the perusal of separate entries in the respective books of accounts of each individual entity, such across entity settlement of transactions can not be deciphered by revenue.
vii) Evidences found during search establish that the onus of identifying the entity through which such across entity settlement of transactions has finally occurred lay on assessee company which through its CMO, employees and advisor exercised full control over such settlements. This is more so, as such transactions pertain to the period F.Y. 1999-00 and 2000-01 and are evidenced by documents seized seized from the residence of Shri Rahul Devi who was an employee of the assessee company during whole of this period.
viii) Verifications done during assessment proceedings establish that all other figures noted on the pages 87 and 108, except the figures of Rs.17.84 cr. And Rs.3.31 crores are reflected in the books or bank accounts of respective entities or the figures noted on these pages represent sum total of specific entries in the books of respective associate entities.
ix) Considering this fact, in discharge of its onus, the explanation furnished by the assessee-company, that only these particular figures appearing on the same pages are mere rough jottings is not acceptable and these figures are thus taken to represent material transactions like the other figures noted on these pages.
x) Thus, till date no satisfactory explanation, regarding the true nature of these material transactions, their intent and the entity through which the settlement of these inter-linked transactions has finally been made, has been furnished by the assessee-company."
7. In brief the inference drawn by Assessing Officer is that Shri Rahul Devi is Deputy General Manager of assessee-company. He had complete knowledge of all the transactions carried out by assessee-company as well as by other entities of the group. These transactions which are not recorded in 8 IT(SS) No.98-50/Ahd/05 Nirma Ltd.
the book of any entity i.e. Nirma group company would flow from Nirma Ltd., and therefore, would be taxable in its hands. Shri Rahul Devi worked as an employee of assessee-company during the period from 1-4-98 to 31-3-2000. He was a key person involved in the financial transactions of the assessee- company and of other associate entities. These documents are in the handwriting of Shri Rahul Devi and were addressed to Shri Kaushik Patel who was practicing Chartered Accountant during the relevant time for the assessee-company. The transactions found from Annexure A-1, A-2 and A-3 were seized from the residence of Shri Rahul Devi are inter-related. The transaction by the associate concerns of Nirma Ltd., are carried out in the shares of Triumph International Finance India Ltd., (in short Triumph) , Triumph Securities Ltd., Chandrakant Computers Ltd. and other. Shri Karsanbhai Patel is CMD of assessee company and he had control over all inter-linked transactions. Shri Kaushik Patel and Shri Karsanbhai Patel were confronted with the evidence of the seized documents. Since these transactions were planned and executed by the employees of the assessee- company; and all these entities or their employees are under control of the CMD of the assessee-company, then unaccounted transactions would pertain to assessee-company.
8. It was explained to the Assessing Officer that all these employees are carrying out the work at the instructions of respective associate companies (ie. entities) and assessee-company has nothing to do with these transactions. None of the seized documents in Annexure A-1 referred to the name of assessee company. Shri Rahul Devi at the time of search was not an employee of the assessee-company. Further, the title of the document showed the possible calculation for arriving at the amount given for trading. It showed that it is only a rough jottings made for remembrance. The Assessing Officer did not accept these contentions and held that sum of Rs.17.84 crores represented unaccounted cash out of books paid for settlement of the transactions of the assessee-company. Similarly, the amount of Rs.
9 IT(SS) No.98-50/Ahd/05Nirma Ltd.
3,31,43,916/- as noted on page 87 and 88 of documents seized from the residence of Rahul Devi, (being Annexure A-1 annexed at page-189 of the assessee's paper book) represented unaccounted cash for out of book settlement of the transactions by the assessee-company and is therefore, chargeable to tax as undisclosed income of the block period. In addition to making addition of Rs.17.48 crores Assessing Officer referred to page 87 of the document found and seized from the premises of Shri Rahul Devi which is annexed at page 189 of assessee's paper book. It showed working of the sum of Rs.3,31,43,916/- as under :-
"Shri Kaushikbhai 6/3/2001.
Reg :- Triumph A/c.
I have verified the Triumph account. Details is as under :-
Towards 8,50,00,000 payable we have already paid them (1) by way of interest. 3,12,84,439 (2) by way of loss. 2,05,71,645
----------------
5,18,56,084 Balance. 3,31,43,916
----------------
8,50,00,000 Out of balance 3,31,43,916 payable, we have to adjust Share interest received Rs.1,78,49,895/- as per my note enclosed. We have not received any money between 3/5 to 19/7 except Rs. 15 cr. On16th May Enclosing herewith two calculations sheet for your kind perusal. Regards, Sd/-"
On the basis of above working the Assessing Officer recorded the statement of Shri Rahul Devi and Shri Kaushik Patel and inferred that there was out of book settlement of Rs.8,50,00,000/- out of which a sum of Rs.3,12,84,439/- is shown as paid by way of interest and there was an adjustment of loss of Rs.2,05,71,645./- leaving a balance of Rs.3,31,43,916/- .This was treated as cash paid for out of book settlement, by assessee-10 IT(SS) No.98-50/Ahd/05
Nirma Ltd.
company and accordingly treated as unaccounted income of the assessee- company.
9. Before the Ld. C.I.T. (A) detailed submissions were made which were summarized by the Ld. C.I.T. (A) as under :-
"(A) The seized papers relied for making addition have not been found from the possession or control or your Appellant.
(B) The person from whom found, has already explained in depth, which neither been rebutted nor any inconsistency, mis-
statement or contrary evidence has been found or even suggest by Ld. A.O. (C ) Even assuming, without admitting, the applicability of Sec.
132(4A), nothing stated in the paper reflects UNDISCLOSED INCOME.
(D) Even on facts, jotting on back side of page 108 is possible earliest after 28-12-00 and the fact that paper itself contains statement that al entries have settled and concluded, proves conclusively that it is nothing but rough working or trying to understand the numbers.
(E) Al the figures reflected on page-108 front side and on the back side in the Books of Accounts are cheque transactions. Rs. 17.48 an amount in question, is admittedly part of Rs.145 crores (total sale proceeds of 12,73,000 shares) which has been reflected in returns of income of the entities mentioned therein which has been verified in depth by Ld. A.O. in Assessment."
10. The Ld. C.I.T.(A) however, did not agree with the contention of assessee and confirm the addition by observing as under :-
"7.5. I have carefully considered the assessment order and various submissions made on behalf of the appellant as also the remand report of the Assessing Officer. On perusal of the facts it is noticed that Shri Rahul Devi was a person from whom the concerned papers have been found. He was employee as Deputy G.M. (Finance) with the appellant company and even at the time of search he was employed with the 11 IT(SS) No.98-50/Ahd/05 Nirma Ltd.
group concerns. Shri K.K. Patel was CMD of the appellant company.Shri Kaushik Patel was the consultant of the appellant company. The seized documents under question, though not found from the office premises of the appellant company, have been seized from the premises of a person who has been working for the appellant company and it is proved beyond doubt that he was the person along with Shri Kaushik Patel, who has been looking after the financial matters and investments of the appellant company. At no point of time it has been stated by the concerned person or by the appellant company that the transactions noted in the seized documents pertain to Shri Rahul Devi. The date of transactions, the amounts, rates etc., everything has been written precisely and some of the transactions do match with the transactions made by the Nirma Group of concerns. It does not leave any doubt in the mind that the entries belong to the Nirma Group of conerns and not to Shri Rahul Devi from whom the seized documents have been found. Shri Rahul Devi was the employee of the appellant company and used to work under the directions of the Chairman and Managing Director of the appellant company and in consultation with Shri Kaushik Patel C.A. The papers found indicate that the notings referred to were in respect of the information passing on between them. The details are in respect of the transactions of the shares of the appellant company. On perusal of the assessment order it is found that in spite repeated enquiries by the A.O. the appellant could not explain the noting amounting to Rs.3.31crores and also the amount of Rs.17.48 crores deducted from the figure of Rs.78 crores payable. The figures also show that they have tried to tally the amount given for trading at Rs.60.51 crores after making adjustment of the amount of Rs.17.49 crores. It is seen that in both the papers the figure of loss adjustment of Rs.2.05 crores and the amount of interest of Rs.3.12 crores is common. All these transactions are carried out with Ketan Parekh group of companies of Mumbai for settlement of Rs.83.60 crores transacted with the said group. In the circumstances, it is for the appellant to explain the figures noted on the seized papers which was found from the possession of the employee. This is further to be seen in the light of the fact that the transactions were carried out at the instance of the CMD, an ex-employee and the consultant of the appellant company. The appellant had instead of explaining the payments so made avoided the explanation simply stating that the paper was not found from the possession of the appellant. It is also not explained as to how these cross entity transactions are settled, who has made the payment and who has suffered the burden of interest or loss. It is also not brought out as to who has paid the amount of Rs.17.84 crores and Rs.3.31 crores. The Assessing Officer has on page-36 of the assessment order has clearly stated that verifications done during assessment proceedings establish that all other figures noted on pages 87 and 108, except the figures of Rs.17.84 crores and Rs.3.31 crores 12 IT(SS) No.98-50/Ahd/05 Nirma Ltd.
are reflected in the books or bank accounts of respective entities, or the figures noted in these pages represent sum total of the specific entries in the books of respective associate entities. In absence of any explanation about the same,. I hold that the Assessing Officer was justified in making the additions of Rs.17,84,49,140/- and Rs.3,31,43,.916/- as undisclosed income of the appellant for the block period and therefore, the same is concerned."
11. Against the above order of the Ld C.I.T.(A) confirming the two additions Ld. A.R. for the assessee submitted that documents were found from the premises of Shri Rahul Devi who was no longer in the employment of the assessee-company as on the date of the search and hence assessee company as such is not responsible for any document found from his residence. Further, Ld. A.R. submitted that presuming that these documents pertained to the transactions carried out by the assessee group, then all the share transactions carried out by these 16 associate concerns of the group i.e.(group entities) are recorded in their regular books of accounts at the sale price as mentioned in the document No.191 in assessee's paper book. There is absolutely no difference in amount of sale price recorded in the regular books of those 16 associate concerns and found mentioned in document No.191. Therefore, there cannot any case of holding that unaccounted payment was made on settlement. The document No.108 as per Annexure A- 1 and at page 192 of assessee's paper book only showed certain calculations for understanding by the Chartered Accountant of the assessee group as to how much payment it would be required to be made on sale of 12,73,000 shares. Even if amount in excess of sale price of Rs.1,000/- has been mentioned therein, it is only for understanding the requirement of funds to be accumulated from various associate concerns. Once entire sale proceeds are recorded in the books of associate concerns then to hold that unaccounted payment was made would not be proper.
13 IT(SS) No.98-50/Ahd/05Nirma Ltd.
12. Even for the sake of argument, Ld. A.R. submitted if it is presumed that somebody had paid some unaccounted money, on sale of shares, then in fact, it would be purchaser of the shares who would pay the money and not the assessee company. Even otherwise responsibility for receipt of any unaccounted money or payment thereof is on the recipient or payer i.e. associate concerns and not the assessee-company.
13. The Ld. AR then submitted that seized document did not show the name of the assessee company nor there is any other evidence connecting assessee company with the seized document. The department has not brought any material to show that all the associate concerns were benami concerns of assessee company and therefore, unaccounted transaction if at all carried out by any of the associate company would be that of assessee- company.
14. Against this Ld. D.R. relied on the order of Ld. C.I.T.(A). He in addition submitted that entire transactions were carried out at the instruction of CMD of Assessee-company and all the funds are controlled by CMD of the assessee- company. The ld. DR submitted that various floppies were found and seized from the premises of Shri Rahul Devi who was earlier in the employment of Nirma Group from April, 1998 to March, 2001. He was involved in the contra transaction of the assessee company as well as associate entities. Seized papers are written by Shri Rahul Devi and addressed to Shri Kausik Patel who is practicing C.A. and advisor for the assessee company. The transactions found from the documents are inter-related and inter linked. The transactions recorded on the back side of page 108 were done by Nirma Group entities with Ketan Parekh Group entities vice Triumph International Finance India Ltd.,(T.I.F.I.L), Triumph Securities Ltd., Chitrakoot Computers (P) Ltd., Goldfish Computers (P) Ltd., Nakshatra Software (P) Ltd. & Classic Credit Ltd. The AO had confronted Shri Rahul Devi and Shri Kaushik Patel. The CMD of Nirma Group Shri Karasanbhai K. Patel was also confronted in his capacity as 14 IT(SS) No.98-50/Ahd/05 Nirma Ltd.
CMD. Shri Karasanbhai K. Patel exercised entire control over the transactions of Nirma Ltd. as well as other associate concerns though they were executed by the employees of the Company. Shri Rahul Devi and Shri Kausik Patel are key persons carrying out the transactions for Nirma Group. The payments as noted on page 108 were received by different entities of Nirma group. The ld. DR referred to pages 87 & 88 of Annexure -1, which showed that a sum of Rs.3,31,43,916/- was payable as under :-
Amount payable Rs.8,50,00,000
Amount paid by loss Rs.1,04,45,991
Rs.101,25,653
Interest paid Rs.3,12,84,439
Amount to be paid Rs.3,31,43,916
The correctness of this transaction is proved by the fact that Nirma Chemical Works Ltd. and Nirma Credit & Capital Ltd. bought 4.5 lakh shares of Zee Telefilm Ltd. through Triumph International Finance India Ltd. which were also subsequently sold through Triumph and these transactions loss was incurred as under :-
Nirma Chemical Works Ltd. 1,04,45,991 Nirma Credit and Capital Ltd. 1,01,25,653
Thus Nirma Group was liable to make payment of Rs.8,5 crores to Ketan Parekh group on account of proposed reversal of sale of 4.5 lakh shares. In fact the ld. DR submitted that Nirav Discretionary Family Trust was to receive a sum of Rs.8.5 crores against which loans and interest were adjusted resulting in net payment at Rs.3,31,43,916. On the basis of this transaction the ld. DR emphasized that whatever is recorded in the seized documents are correct and transactions have in fact taken place at the behest of Nirma Ltd. The ld. DR then referred to page 108 of the Annexure i.e. page 192 of the 15 IT(SS) No.98-50/Ahd/05 Nirma Ltd.
Paper Book and submitted that assessee did not give any explanation of the nature of transaction, adjustment of loans of Rs.2.05 crores. Working shown on page 108 is only accommodation adjustment or entry as shares were never delivered in respect of transactions between Nirma Group and Ketan Parekh Group. He then referred to para 6.7 of the order of AO and submitted that all these documents related to the transactions carried out by Nirma Ltd. and, therefore, receipt of money as reflected in these transactions has been correctly added by the ld. A.O. He accordingly submitted that addition of Rs.17,84,49,140/- and Rs.3,31,43,916/- should be upheld.
15. In rejoinder the ld. AR submitted that it is not even a case of benami holding as all the entities are separately assessed to tax and all the transactions as shown in these documents are reflected in the books of respective entities. The Revenue has not pointed out as to what is undisclosed and why it should be assessed in the hands of the assessee Company.
16. We have heard the rival parties and carefully perused the material on record. In our considered view there is no case for making any addition in the hands of assessee company in respect of the amount of Rs.17.84 crores and Rs.3.31 crores. As stated above sum of Rs.17,84,49,140/- is emerging from document No.108 which is enclosed at page 192 of assessee's Paper Book. This sum is related to the sale price of shares in Triumph International Finance India Ltd. carried out by various entities of Nirma Group as per details given by the assessee on page 108.. The average sale price after deducting brokerage comes to Rs.1140.18 per share for 12.73 lakh shares sold. In fact total amount for sale of 12.73 lakh shares was worked out at Rs.145,14,49,140/-. However, the document only gave working of sale price of Rs.12.73 lakh @ Rs.140.18 totaling to Rs.17,48,49,140/- which was added by the AO as undisclosed income of the assessee company without pointing out as to whether entire sale price @ Rs.1140.18 per share or @ Rs.1000 per share is recorded or not recorded in the regular books of any associate entity. If shares are held by 16 IT(SS) No.98-50/Ahd/05 Nirma Ltd.
associate entities as per list at page 108 of assessee's paper book then in the normal course it is expected that sale price of the shares would be recorded in the books of those entities. The ld. AR has time and again emphasized that entire transactions are recorded in the books of associate entities. Then there is no reason to hold that any part of these transactions could be outside the books. It is for the AO to verify the books of associate concerns and show that either entire or part of sale transactions are not recorded in the books of associate entities. Without verifying as to whether transactions are recorded in the books of associate companies as strongly claimed by the assessee before the AO and before the ld. CIT(A) then to reach to the conclusion that the transaction as a whole or in part are unrecorded will not be justified. At one point the ld. AO has mentioned that all the transactions except relating to Rs.17.84 crores and Rs.3.31 crores are reflected in the books or bank account of respective entities and the figures noted on the impugned pages represent sum total of all the entries in the books of respective associate entities. However, it is not clarified by AO or by ld. CIT(A) or by ld. DR as to whether entries relating to sale of shares @ 1000 per share are alone recorded or entire sale transactions @ Rs.1140.18 are unrecorded. Therefore, we are unable to agree with the authorities below that part of the sale price calculated @ 140.18 per share for 12.73 lakhs shares are unrecorded. Further there is no reason to take a different view than argued by ld. AR that all these sales of the investment of the associate companies in shares were declared in the published accounts of those entities which are limited companies.
17. The only apprehension that seems to work in the mind of authorities below is that sum relating to 140.18 per share along was unrecorded as it is so found reflected in the seized document. Again there is clearly a misunderstanding of the nature of transaction. The associate concerns have sold shares and in return they are receiving money or they have to receive money from the purchasers of the shares i.e. Ketan Parekh group. Then question of holding that there is any payment which is apparently unaccounted 17 IT(SS) No.98-50/Ahd/05 Nirma Ltd.
would not arise. The sum of Rs.17,48,49,140/- is the receipt of part of money against the sale of shares in T.I.F.I.L. by the associate concerns and, therefore, it cannot be on any account an expenditure, investment or payment which could be covered under section 69A, 69B or 69C. On this account also addition would not be justified.
18. The document No.108 of Annexure-A-1, annexed at page 192 of assessee's Paper Book showing sum of Rs.17,48,49,140/- also showed transactions worth Rs.88 crores and receipt of Rs.10 crores. There is apparently no query or inquisitiveness shown against those two figures thereby showing that they are accepted as genuine and there is no element of non-disclosure in respect of these two figures. Further it showed that somebody has paid a sum of Rs.16,51,63,727/- for trading. Apparently there is also no inquisitiveness as to who paid and when paid. Thus genuineness of this sum is also accepted. Then there is no reason why only the sum of Rs.17,48,49,140/- is doubted. Either entire document should be treated as reflecting disclosed transaction or should be treated as reflecting undisclosed transactions or there should be clear displaying as to which transactions are unaccounted and why and which transactions are declared and where. Picking up certain transactions from the seized document and treating them as undisclosed without pointing as to where other transactions recorded on the same piece of document are declared will be proper.
19. Further there is no material on record to suggest any nexus of assessee company with these transactions or receipt or payment of money shown on these documents. The assessee company is separately assessed. It has its own independent identity and directors to run the company. Associate entities carrying out these transactions in sale and purchase of shares are also independent companies assessed to tax separately and have their own Board of Directors. Even if, for the sake of argument it is accepted that certain employees are common both in assessee company as well as in 18 IT(SS) No.98-50/Ahd/05 Nirma Ltd.
associate entities, then to hold that transactions carried out by such common employee would belong to assessee company and not to other companies to whom such employees are also reportedly working will not be proper unless. there is material on record to suggest that Shri Rahul Devi or Shri Kausik Patel were only and exclusively working for Nirma Ltd. In absence of any material to co-relate the document written by Shri Rahul Devi with Nirma Ltd., the addition on the basis of entries in the document could not be attributed to assessee company.
20. Further there is a clear support in favour of the assessee that if the documents are found from the premises of one assessee then unless there is evidence to connect such document to a particular entity,addition on the basis of such document in the hands of another assessee could not be sustained. In fact where AO proposes an addition on the basis of a seized document he has to clearly identify four ingredients. They can be deciphered from the document itself or can be supplemented by other documents or by post search investigation. These ingredients are -
(1) Name of the assessee to whom transactions and income therefrom are attributed.
(2) Year of taxability of income so reflected from the seized document. (3) The quantum of income as reflected or discernible from the seized document.
(4) The nature of the transaction as to whether it is giving rise to the taxable income.
If any seized document is silent on any of these ingredients or AO is not able to fill up the gap by examining other seized document or by post search investigation, such document will only be called a dumb document. It has been held in ACIT vs. Satyapal Vasan (2007) 295 ITR (AT) 352 ITAT, Jabalpur that unless all these four ingredients are clearly established the document will only be a dumb document. For the sake of convenience we reproduce the head notes from the judgment as under :-
19 IT(SS) No.98-50/Ahd/05Nirma Ltd.
"A document seized from the assessee may not be complete in all respects as businessmen may choose to record minimum details on a document and keep the rest in their memory. It is the duty of the Assessing Officer to carry out the necessary investigations by correlating the document with other documents seized, with regular books of account, with record kept by outside agencies, such as banks or financial institutions or debtors/creditors and finally by recording the statements of concerned parties so as to fill up the gaps in confirming the inference arising from the documents for a proper charge of tax. Such correlation is necessary unless the document is capable of giving full details so as to enable any intelligent person to find out the nature of the transaction, the year of the transaction, the ownership of the transaction and quantum thereof. Even in that situation, it is necessary to give opportunity to the assessee to offer his explanation and carry out investigation to strengthen the direct inference arising from the document.
The components which enter into the concept of taxation are, first, the taxable event which attracts the levy, second, the person on whom the levy is imposed and who is obliged to pay the tax, third, the assessment year in which charge of income-tax is levied, fourth, the total income of the previous year and fifth, the rate or rates at which tax is to be imposed. The rates are prescribed in the annual Finance Act and therefore, this component has no value in determining the total income on the basis of a seized document.
The first component shows that it is necessary to find out the nature of the transaction which is the source of generating income. It has to be clearly spelt out whether a particular transaction is of income yielding nature as per income-tax law. It has to be shown either from a reading of the document or from accompanying investigation that the transaction recorded in a document is of revenue character or is otherwise taxable under the Income-tax Act. As a quasi-judicial authority, the Assessing Officer has to satisfy himself on the basis of cogent material, either found in the search or on the post-search enquiries that the transaction recorded in the document is real and not imaginary and it has actually taken place. It has to be shown whether the transaction recorded in the document is sale or purchase, advance or loan, of capital or of interest or whether it is a statement of existing assets, disclosed or undisclosed ; what is the commodity involved ; who are the people involved in the transaction ; if it is advance, then whether the debtors concerned are existing, their identity ; whether advance so taken is reflected in their books ; whether any interest is paid on such transaction, what are the documents executed for recovery of such advances or what arrangement the assessee has made for recovery of such advances ; whether there are any other related documents found in the search ; whether any person recorded in the document had otherwise any other transaction with the assessee recorded in the regular books.20 IT(SS) No.98-50/Ahd/05
Nirma Ltd.
Merely because a document is recovered from a person, that does not automatically lead to the inference that it belonged to him. It is only for certain purposes that the presumption under section 132(4A) has been enacted and not for all purposes including the assessment. Further, this presumption is not conclusive. The words "may presume" leave it to the court to make or not to make the presumption according to the circumstances of the case. Such presumption is optional and the court is not bound to make it. Even if such presumption is made, it is only a rebuttable one. Initially the Assessing Officer would be justified to make such a presumption, if drawn after judicial application of mind to the facts of the case. Thereafter, when the assessee leads evidence, the Assessing Officer has to consider it judicially. What amount of evidence one requires to rebut the evidence depends upon the facts of each case. There is no rigid rule in this behalf. Sometimes, the mere statement of the assessee may be enough. When sufficient other material is found in the search which corroborates that the document belonged to the assessee, then denial of such ownership merely by affidavits will be meaningless and they do not carry any weight to rebut the presumption lying on the assessee.
A charge can be levied on the basis of document only when the document is a speaking one. The document should speak either out of itself or in the company of other material found on investigation and/or in the search. The document should be clear and unambiguous in respect of all the four components of the charge of tax. If it is not so, the document is only a dumb document. No charge can be levied on the basis of a dumb document.
A document found during the course of a search must be a speaking one and without any second interpretation, must reflect all the details about the transaction of the assessee in the relevant assessment year. Any gap in the various components for the charge of tax must be filled up by the Assessing Officer through investigations and correlations with other material found either during the course of the search or on investigations.
In the ordinary sense a book signifies a collection of sheets of paper bound together in a manner which cannot be disturbed or altered except by tearing them apart. This binding is of a kind which is not intended to be movable in the sense of being undone and put together again. According to section 34 of the Indian Evidence Act, 1872, book means a collection of sheets of paper bound together with the intention that such binding shall be permanent. Unbound papers collectively kept in one volume, in whatever quantity, though filled up with one continuous account, are not a books of account within the meaning of section 34 of the Indian Evidence Act.
The business and residential premises of the assessee were searched in April, 1995, and during the course of the search operations, various documents and books of account were seized. One of the documents seized 21 IT(SS) No.98-50/Ahd/05 Nirma Ltd.
from his residence (document No. 7), a loose paper, contained certain names written either in full or in abbreviation against which certain figures were mentioned and whose total was written 22.30. The Assessing Officer took the view that this paper reflected advance of loans and asked the assessee to explain these advances. The assessee denied having advanced any amount to any person or having any concern with the document or the figures mentioned in that document. He also filed an affidavit to this effect averring that he did not know the persons whose names appeared in that document. The Assessing Officer, however, took the view that the assessee having failed to establish with supporting evidence that the seized paper did not pertain to him or his business, treated the entries in the document as undisclosed investment in money-lending business and added a sum of Rs. 22,30,000 as the assessee's undisclosed income. The assessee challenged the reopening of the assessment and the addition before the Commissioner (Appeals) who upheld the reopening but, after admitting evidence in the form of affidavits of various persons whose names were recorded on the seized document No. 7, deleted the addition on the view that the document in question contained not the advances of loans but orders placed by different parties with D, the assessee's late brother, who had done business in iron and steel. On further appeal :
Held- (i) that the document was bereft of necessary details about the year of transaction, ownership, nature of transaction, necessary code for deciphering the figures. The Assessing Officer presumed that the transaction belonged to the financial year 1988-89 relevant to the assessment year 1989-90, that the figures mentioned in the document were advances made by the assessee, that the transactions belonged to the assessee, and that the transactions were in a code of lakhs and that the unit was the rupee. The Assessing Officer did not carry out any enquiry either during the course of search or during the course of assessment proceedings to find out the nature of transactions and the period in which those transactions were carried out : he had simply presumed that the figures were advances without there being any material on record to support such presumption. If the assessee had by affidavit denied the ownership of the document and the wife of the assessee's brother admitted that it belonged to her husband, it could not be inferred without rebutting this evidence that the document and transactions recorded therein, in fact, belonged to the assessee. The affidavits, even if regarded as self- serving did not lose their evidentiary value as there was no material contrary to the averments made in the affidavit. Nothing was shown by the Assessing Officer that there was other material correlated with the document clearly showing that it belonged to the assessee. Under these circumstances, the assessee has successfully shifted the onus on to the Assessing Officer by filing the affidavits. Once the onus shifted to the Assessing Officer, he was duty bound to collect evidence so as to belie the contents of the affidavit and hold that the document and transactions recorded therein, in fact, belonged to the assessee. The Assessing Officer had drawn inferences, made presumptions, relied on surmises and thus made unsustainable additions.22 IT(SS) No.98-50/Ahd/05
Nirma Ltd.
(ii) That document No. 7 was only a piece of paper and could not be called a "book" within the meaning of section 68. No addition under section 68 of the Act could be made on the basis of the loose sheet being document No. 7 found during the search."
21. Further in judgments also it has been held that a document would be a dumb document unless it reflects the necessary ingredients for taxing income arising from the transactions recorded in the seized documents. Some of the judgments as referred to by ld. AR are as under :-
1. Commissioner of Income-tax Vs. Girish Chaudhary (2008) 296 ITR 619 (Del) The document annexure A-37 recovered during the course of search in the present case is a dumb document and lead us nowhere. Thus, the Tribunal rightly deleted the addition of Rs. 48 lakhs made by the Assessing Officer on account of undisclosed income on the basis of seized material.
2. Commissioner of Income-tax Vs. S. M. Aggarwal (2007) 245 ITR 43 (del) During the course of search, certain documents containing details of monetary transactions such as advancement of loan of Rs. 22.50 lakhs by the assessee and also income by way of interest thereon at Rs. 3.55 lakhs were found. The explanation given by the assessee that the account belonged to his daughter was denied by her. The Assessing Officer concluded in his assessment order that the assessee had earned income from undisclosed sources which was circulated by way of loan for the purpose of earning interest. Thus, the amount of Rs. 22.5 lakhs and interest of Rs. 3.5 lakhs were added to the income of the assessee for the assessment year 1998-99. The addition was deleted by the Commissioner (Appeals) and his order was upheld by the Tribunal. On appeal to the High Court :23 IT(SS) No.98-50/Ahd/05
Nirma Ltd.
Held,- dismissing the appeal, that the statement made by the assessee's daughter could not be said to be relevant or admissible evidence against the assessee, since the assessee was not given any opportunity to cross- examine her and even from the statement, no conclusion could be drawn that the entries made on the relevant page belonged to the assessee and represented his undisclosed income. It was also an admitted fact that the statement of the assessee was not recorded at any stage during the assessment proceedings. The only person competent to give evidence on the truthfulness of the contents of the document is the writer thereof. So, unless and until the contents of the documents are proved against a person, the possession of the document or handwriting of that person on such document by itself could not prove the contents of the document. The findings of fact had been recorded by both the Commissioner (Appeals) and the Tribunal. The documents recovered during the course of search from the assessee were dumb documents. The deletion of the addition was justified.
3. Mahavir Woollen Mills Vs. Commissioner of Income-tax (2000) 245 ITR 297 (Del) During the course of search and seizure proceedings certain slips were found, which, the Assessing Officer concluded, contained details of payment beyond those which were made by cheques and drafts and were duly reflected in the books of account. The assessee's stand before the Tribunal was that the documents were "dumb documents" which did not contain full details about the dates of payment and their contents were not corroborated by any material and could not be relied upon and made the basis of an addition. The Tribunal considered this aspect and observed that on comparison of the seized documents and ledger accounts of the parties, the seized documents could not be regarded as "dumb documents". The basis for coming to such a conclusion was that some of the entries reflected in the seized documents tallied with the entries in the ledger accounts maintained by the assessee. It also noticed that there was no denial of the fact about the seizure of the documents. The Tribunal held that the seized papers constituted books of account or "documents"
for the purposes of section 158B and upheld the order of the Income-tax Officer that the amounts represented unexplained investment of the assessee which was liable to be assessed under section 69 of the Act in the assessment year 1996-97. On appeal to the High Court :
24 IT(SS) No.98-50/Ahd/05Nirma Ltd.
Held,- dismissing the appeal, that the Tribunal had come to a certain factual conclusion about the nature of the papers seized. On the question whether the documents did or did not contain the particulars, the Tribunal observed that they did contain certain materials which were sufficient to come to a conclusion about cash payments having been made in addition to those made by cheques and drafts. The conclusion was essentially factual. No substantial question of law arose from its order.
4. Dimsy Food & Chemicals (P) Ltd. vs. DCIT [2007] 110 TTJ 450 (DELHI) IN THE ITAT, DELHI 'C' BENCH Section 158BD of Income-tax Act - Block assessment in search cases -
Undisclosed income of any other person Unless name of other person is noted on found and seized during search or any noting is found on such which can reasonably be co-related with such other person, such dumb cannot be made basis for making addition in hands of such other person under section 158BD.
The undisputed facts in the instant case are also that the so found during the course of search marked as Annex. AD-46, on the basis of which addition was made by the AO, was neither signed nor dated, on this document no name was mentioned so as to relate the same to some person. It was also not known as to who had written or prepared the said document. As per provisions of s. 158BD, where the AO is satisfied that any undisclosed income belongs to any person other than a person with respect to whom search was made, then the document seized shall be handed over to the AO having jurisdiction over such other person for proceeding against such other person. Thus, prima facie, the AO is required to be satisfied with the document found during search as belonging to some other person. Unless the name of such other person is noted on the document so found and seized, or any noting is found on such document which can reasonably be co-related with such other person, such dumb document cannot be made the basis for making addition in the hands of such other person under s. 158BD of the Act. The document so seized, in the instant case, during the course of a third party did not bear the name of any of the assessee company in whose hands the 25 IT(SS) No.98-50/Ahd/05 Nirma Ltd.
AO had made addition under s. 158BD of the Act nor the noting on the seized paper indicated any unaccounted money having been invested by the assessee in the purchase of land which was duly disclosed in the regular returns much prior to the date of search. Even during the course of search or thereafter, the Department has not recorded any statement of the person from whose possession the document was found, so as to find out as to whom this document belongs. No corroborative material of any nature whatsoever was brought on record by the AO to indicate that noting on the seized paper was related to the assessee. This document was seized from the office of Dr. M.C. Gupta, but neither during the course of search nor even thereafter the Department has tried to record his statement to substantiate their stand that document was belonging to any of the companies in whose hands the addition was made. This document indicated transaction in respect of 3 bighas of land, alleged to be purchased from three persons, but in the books of none of the assessees there was any such transaction for 3 bighas, so as to corroborate the same with seized document. Furthermore, the Department itself has carried out the valuation of the land shown by the assessee in their regular returns, by its own valuation cell, which has also valued the same near to the price at which these were shown by the assessee in their books of account. The registering authorities have also registered the land purchased by the assessee at the price shown in the sale deed. Thus, neither the State Government being the registering authorities supports the value taken by the AO on the basis of dumb document, nor the valuation cell of the IT Department itself supports the rate of land shown in the document so found. To substantiate the rate of land mentioned in the seized document, the AO has also not tried to record the statements of persons from whom assessee had purchased the land. Undisputedly, the land so purchased by the assessee situated in Village Chawla, was registered by the stamp authorities at the prevailing price of land situated in that area, and the source was comparable with the rate at which assessee had actually purchased the land. No extra stamp duty was imposed while registering the land on the plea of higher value than the value at which land was actually purchased as per sale deed entered between the assessee and owner of land. Valuation cell of the IT Department is entrusted with the responsibility to find out fair market value of capital asset, as and when any reference is made by the AO. AO may refer the valuations of capital asset to a Valuation Officer when he finds that the value of the asset as claimed by the assessee is less than fair market value. In the instant case 26 IT(SS) No.98-50/Ahd/05 Nirma Ltd.
to find out the fair market value of land, so as to co-relate the same with the rate of land stated in the document so found, the AO had referred the matter to its valuation cell, however instead of supporting the AO's allegation, the Valuation Officer indicated the fair market value of land at the price recorded by the assessee in its books of account, that was the reason that AO did not give copy of such valuation report, in spite of written request of the assessee. The assessee vide its letter dt. 17th May, 2004, asked the AO to give copy of valuation report, however the AO declined to give copy of valuation report prepared by the officers of his Department i.e. valuation cell. The AO stated in his order that valuation report is erroneous insofar as it relies on the comparable instances for purchase of similar properties i.e. it goes by the registration value of the comparable instances of purchases does not take into account the market value.
11. Applying the propositions laid down by the various authorities as referred by the learned Authorised Representative during the course of hearing, to the facts and circumstances of the present case where addition has been made on the basis of dumb document, the AO could not corroborate the document or its contents with any other information or evidence, whereas on the contrary the documents/information so gathered by the AO goes against the Department, we do not find any merit in the additions so made by the AO and confirmed by the CIT(A), in case of all the assessees. We therefore direct for deletion of all these additions.
5. Ashwani Kumar vs. ITO [1991] 39 ITD 183 (DELHI) IN THE ITAT DELHI BENCH 'D' FACTS The assessee was carrying on the business of purchase and sale of cement. During the accounting period relevant to the assessment year 1985-86, there was search at the assessee's business premises. During the search an amount of Rs. 1,86,330 in cash was found. In a statement, the assessee explained that it belonged to D and in which he was a partner. One of the godowns was also searched and there was found shortage of certain cement bags. During the search the department also found a slip on which certain entries were given. Simultaneously, a search was conducted at the 27 IT(SS) No.98-50/Ahd/05 Nirma Ltd.
residence of the assessee's father and the department found a slip in which it was stated that certain amount was received from the assessee by his father. On the basis of aforesaid material of Assessing Officer made additions on account of (i) unexplained cash found in the business premises, (ii) unexplained investment as stated in the slip found, (iii) unexplained dealing in respect of the shortage of cement bags and adulterated cement found on the basis of the report of the National Test House and (iv) unexplained money on the basis of slip found at the residence of the assessee's father during the search. On appeal, the Commissioner (Appeals) deleted the addition made on account of the unexplained cash found at the business premises of the assessee but upheld the other additions.
On further appeal, the assessee contended, inter alia, that the presumption that is permissible under section 132(4A) cannot be raised in the proceedings for regular assessment.
HELD As regards the assessee's contention about the applicability of section 132(4A), section 132(4A) is a special provision dealing with documents and other things recovered during a search and its very purpose would be frustrated if the presumption is restricted to the interim proceedings under section 132(5).
In the instant case, no other cash was shown to have been recovered either from the house or from the godown belonging to the assessee. The assessee had a substantial business in cement and his sales for the year under consideration were of the order of Rs. 1,10,23,744. If the revenue's stand that this entire amount of Rs. 1,86,330 was unexplained cash of the assessee was accepted, then it would mean that the assessee had no cash- in-hand for such a large scale business. This was absolutely unnatural. It was also to be remembered that even during the search the whole amount was not seized and only Rs. 1,85,000 were seized. The source of this amount was properly explained to be the cash-in-hand, which was duly supported by the assessee's cash book and sale vouchers, etc. Thus, the Commissioner (Appeals) had rightly deleted the aforesaid addition.
28 IT(SS) No.98-50/Ahd/05Nirma Ltd.
As regards the addition made on account of the slip found at the business premises, there was nothing to show that the slip was in possession and control of the assessee. Everything physically present inside the shop of a person might not be in that person's control and possession. For proving possession it was necessary to show that the person concerned had the intentio possessendi. In the instant case, nothing of that sort was pointed out by the authorities below. Moreover, the slip did not contain any narration in respect of the various figures noted therein. Further, for presuming that the contents of the books of account or document are true, the document must be a speaking one. In this case the slip, said to have been recovered by the revenue, did not contain any narration in respect of the various figures noted therein. The slip did not indicate whether the figures referred to quantities of money or to quantities of goods and whether one side, and if so, which side represented receipt and which side represented out goings. This was, thus a dumb document and as the orders of the authorities below showed that they had merely added the total of the right side of the slip without supplying the figures any language to indicate their meaning. In the case of such a dumb document, the provisions of section 132(4A) do not permit any one to presume that the total of the figures of right side of the slip represents the assessee's income. The presumption at the most was attracted to the figures and a further presumption that they represented the income of the assessee was not permissible under section 132(4A). When a dumb document, like the present slip, was recovered and the revenue wanted to make use of it, it was the duty of the revenue to collect necessary evidence which might provide an acceptable narration to the various entries. The evidence collected should be such that any reasonable man would accept the hypothesis advanced by the revenue that the figures written on the right side of the slip represented incomes earned by the assessee. No such evidence was produced by the revenue, and, therefore, the Commissioner (Appeals) was not justified in upholding the addition in question.
So far as the addition made on account of the adulterated cement was concerned, there was no dispute that samples of the cement were taken and the National Test House reported varying results with respect to them. But the orders of the authorities below did not indicate what inference they derived from this fact. The certificate of the National Test House did not say that the samples in question were of adulterated cement. The Assessing Officer did not seek any information from the manufacturers of 29 IT(SS) No.98-50/Ahd/05 Nirma Ltd.
the cement, with the result that none of the manufacturers was shown to have told the ITO that the cement supplied by them was of different chemical analysis. The authorities below had not even surmised that the assessee was selling adulterated cement. Therefore, the circumstances that the samples differed in chemical analysis did not lead one anywhere.
As regards the shortage of 57 bags of cement, the assessee's explanation was that a portion of the cement had got spoiled in rain resulting in shortage of 57 bags. This explanation was advanced at the earliest stage in the assessee's statement and had not been found to be false or unacceptable.
As regards the addition made on the basis of the document found at the residence of the assessee's father, no presumption under section 132(4A) could be raised in respect of this document against the assessee. There was no evidence to show that any amount was paid to the assessee by his father or anybody else : (i) that the amount in question represented income; and (ii) that the amount in question represented income for the accounting period ending 30-9-1984 of the assessee. Therefore, the amount mentioned in the aforesaid slip could not be treated as the assessee's income and this addition, therefore, too was unjustified. This addition was also deleted.
6. ACIT vs. Ashok Kumar Vig [2007] 15 SOT 85 RANCHI)(URO) ITAT RANCHI CIRCUIT BENCH FACTS The assessee was engaged in the business of transportation of Motor spirit, high speed diesel and other petroleum products. The assessee had two proprietary concerns in the name and style of 'A' and 'B' engaged in transporting and supply of petroleum products to different concerns. A search was conducted at residential and business premises of the assessee, wherein certain diaries were seized. Entries contained in seized diaries revealed debts of Rs. 67,01,380 and Rs. 77,02,747. As the assessee failed to explain the entries contained in the seized diary which were not reflected in the seized books of account and return of income, entire balance of Rs. 67,01,380 and Rs. 77,02,747 for respective years were considered to be the undisclosed sundry debts. The assessee explained 30 IT(SS) No.98-50/Ahd/05 Nirma Ltd.
that seized diary contained worksheets maintained by his employee upon which no reliance could be placed because no trial balance and profit and loss account could be prepared from the contents of the said diary. The Assessing Officer, however, rejected the explanation of the assessee and made addition of said amount. On appeal, the Commissioner (Appeals), however, deleted the addition.
On revenue's appeal :
HELD On perusal of the transaction recorded in the seized diary, it was clear that these were working sheets maintained by the employee and those maturing transactions had been duly recorded in the books of account. Further, the transactions appearing in the diary did not reveal that they were partywise account as there was no mention of any bill having been raised against the said transactions. The amounts mentioned therein appeared to be a consolidated figure but date on which these amounts were shown as outstanding was not mentioned. Certain parties appearing in the chart showed drastic reduction in the balances but how the payments were accounted for was not forthcoming from these entries. Coming to the applicability of provisions of section 132(4A), the assessee had explained the circumstances under which his employee maintained these document. Thus, the ownership was not disputed. The Assessing Officer could not make addition on the basis of incomplete entries. The onus rests on the revenue to establish that the assessee was in receipt of money, then the onus would automatically be shifted to the assessee to prove that the money had been disclosed in the account or the same was not liable to tax. In the instant case, the Assessing Officer had not been able to demonstrate with adequate evidence that the assessee received the amounts in two years as was alleged. These entries did not clearly reveal that the assessee had earned income. The assessment of undisclosed income was under Chapter XIV-B and there was no scope of assumption or presumption while making assessment under this Chapter. They were dumb documents upon which reliance could not be placed, unless they were corroborated with other evidences. Thus, there being no infirmity in the order of the Commissioner (Appeals), the same was to be upheld.
7. Jaya S. Shetty vs. ACIT [1999] 69 ITD 336 (MUM.) IN THE ITAT MUMBAI BENCH 'D' 31 IT(SS) No.98-50/Ahd/05 Nirma Ltd.
The addition of Rs. 28,11,600 was made again based on some figures found noted in a diary. There was nothing to show that this diary was found from the possession or control of the assessee. Secondly, the assessee had denied it twice, including during the search before ADI also where he stated that the diary did not belong to him or any member of his family or any employee. The original, which was in the possession of the Department, had not been produced. From the photo copies, it could not be agreed that its entries clearly proved that they belonged to assessee because when these photo copies were seen, those were found to be not so clear except some dates written in a vertical columns and some illegible scribblings. Hence, it could not be accepted that these represented assessee's undisclosed income to the tune of Rs. 28,11,600. The assessee was not in Bombay when this diary was discovered. There was nothing to prove the exact place from where it was discovered. Therefore, it was to be held that this was nothing but a dumb diary and, in accordance with the ratio of various decisions no adverse inference could be drawn against the assessee on the basis of this diary. The addition of Rs. 28,11,600 was, therefore, deleted.
8. Dhanvarsha Builders & Developers (P) Ltd. vs. DCIT [2006] 102 ITD 375 (PUNE) FACTS Consequent upon search and seizure operations conducted upon one of the shareholders of the assessee-company, some incriminating documents pertaining to the assessee were found and seized. Subsequently, statement of one 'A', who was one of the directors of assessee-company was recorded in which he made declaration of undisclosed income of Rs. 48.95 lakhs which according to him, was 'on money' received by the assessee from its customers by way of cash but not accounted for in its books. The assessee, however, did not file its block return in response to the notice issued under section 158BC. Consequently, the Assessing Officer found, inter alia, that the assessee was receiving sale consideration by way of cheques and also in cash in respect of sale of shops, godowns and office but the cash consideration thereof was not accounted for in its books of account; that it had not furnished any details about the method 32 IT(SS) No.98-50/Ahd/05 Nirma Ltd.
of accounting followed by it, sales effected by it and the unsold work lying with it. On the basis of seized material Assessing Officer assessed the undisclosed income at Rs. 49.25 lakhs and framed the assessee's block assessment. In the appeal before the Tribunal, it was the assessee's case that except the A's statement, which was subsequently retracted, no other evidence was found regarding receipt of cash, and that the impugned document was a dumb document from which no conclusion regarding undisclosed income could be drawn. In the alternative, the assessee contended that if amount entered in said document was taken as on-money, then expenditure incurred in relation to said amount should also be taken into consideration while computing real income. The assessee also contended that provisions of section 40A(3) should be applied in respect of expenditure.
HELD On a perusal of the seized material, it was to be seen that the assessee was found in possession of meticulous record regarding monies received in respect of various godowns and shops to be constructed by it. The details, inter alia, contained the narration about the premises number, name of the customer, total sale cost, money received by way of cash, money received by way of cheque and the balance amount to be received. All the figures were written by omitting three zeros. The assessee fairly admitted that names mentioned in the list were of its customers. He also admitted that the amounts received by way of cheque would tally with the books of account if three zeros were supplied to the amount mentioned in the seized papers. His arguments against placing reliance on that paper, inter alia, that (i) the paper did not bear the name of the assessee, (ii) no evidence had been found regarding actual receipt of cash, and (iii) the paper did not contain the dates on which respective cash amounts were allegedly received, could not be agreed with for the reason that the authenticity of the names and decoding of amounts received by way of cheques would lead to establishment of the fact that the document belonged to the assessee and various amounts entered therein were correct if three zeros were supplied. The absence of the name of the assessee, thus, got fully corroborated on the basis of said 33 IT(SS) No.98-50/Ahd/05 Nirma Ltd.
interpretation of the document. The document spoke of receipt in cash and by way of cheques. The receipts by way of cheques tallied with the books of account. Therefore, it was a natural consequence that the receipt by way of cash had also been made. The date of receipt of cash was not material for deciding the assessment year in which the profits embedded in such receipts were to be taxed. The assessee was following project- completion method and, therefore, all amounts, i.e., amounts, received in cash as well as amounts received by way of cheques, were taxable in the year in which project was completed or substantially completed. Therefore, the assessee's arguments as regards all three grounds had to fail. Accordingly, the document was not a dumb document but it was a speaking document and it pertained to the business transactions of the assessee. [Para 6.1]
9. Bansal Strips (P) Ltd. vs. ACIT [2006] 99 ITD 177 (DELHI) IN THE ITAT DELHI BENCH 'A' There was force in the contention of the assessee that there was no provision of law under which the impugned addition could be made to the income declared by the assessee. It is trite law that if an income not admitted by an assessee is to be assessed in the hands of the assessee, the burden to establish that there is such income chargeable to tax is on the Assessing Officer. With a view to assist the Asses-sing Officer and to reduce the rigour of the burden that lay upon the Assessing Officer, provisions of sections 68, 69, 69A to 69D have provided for certain deeming provisions, where an assumption of income is raised in the absence of satisfactory explanation from the assessee. As these are deeming provisions, the conditions precedent for invoking such provisions are required to be strictly construed. The facts and circumstances giving rise to the presumption have to be established with reasonable certainty. The Assessing Officer cannot first make certain conjectures and surmises and thereafter apply the deeming provisions based on such conjectures and surmises. In the absence of adequate material as to the nature and ownership of the transaction, undisclosed income could not be assessed in the hands of the assessee merely by arithmetically totalling various figures jotted down on the loose documents. In other words, for the purpose of resorting to deeming 34 IT(SS) No.98-50/Ahd/05 Nirma Ltd.
provisions, dumb documents or documents with no certainty have no evidentiary value. After consideration of the matter, the contentions of the assessee had to be agreed with. The impugned addition had been made by the Assessing Officer on grossly inadequate material. The same was, therefore, directed to be deleted. [Para 36]
10. Kay Cee electricals vs. DCIT [2003] 87 ITD 35 (DELHI) In the instant case, 19 slips were found from the safe custody of the assessee. It could not be said that those slips were not found from the possession and control of the assessee, particularly when ownership of cash and stock found from the same premises was not disputed by the assessee. It was also an undisputed fact that cash found was unaccounted cash generated from undisclosed sources inasmuch as it had been admitted by the assessee under section 132(4) that it represented its current year's income which was not recorded in the books of account maintained by it. There was also no dispute that those slips were found from the same almirah from which such huge cash was found. If such cash and stocks were owned by the assessee, then there was no reason for the assessee to disown such slips and, consequently, legal inference could be drawn that such slips also belonged to the assessee. Accordingly, it was to be held that those slips belonged to the assessee and, therefore, it was for the assessee to explain the contents of those slips since the same were within the special knowledge of the assessee. On failure to explain their contents, the revenue would be entitled to draw adverse inference. The ownership of the premises was irrelevant since ownership of cash and stock had not been disputed. Since no explanation had been offered by the assessee about the contents of the slips, an adverse inference was drawn to the effect that those slips related to the undisclosed business activity carried on by the assessee, which was corroborated by unaccounted cash of Rs. 36 lakhs and odd found in the course of search. [Paras 18 and 19] Out of total addition of Rs. 1 crore and odd, three additions had been made on the basis of those slips. The addition of Rs. 27,27,052 had been made on the basis of 10 slips bearing Nos. 2, 3, 10 to 14, 16, 18 and 19 by taking the figures mentioned on those slips as income of the assessee. The addition of Rs. 71,06,918 had been made on the basis of slip No. 15 and 35 IT(SS) No.98-50/Ahd/05 Nirma Ltd.
the addition of Rs. 2 lakhs had been made on ad hoc basis in respect of the remaining slips on which no amount was mentioned. [Para 20] As far as addition of Rs. 2 lakhs was concerned, no addition was warranted on mere suspicion. Suspicion, howsoever grave, is not the substitute for the evidence. Since the remaining slips did not contain any amount, the same could be treated only as dumb documents on the basis of which no addition could be made. Accordingly, the addition of Rs. 2 lakhs was to be deleted. [Para 21]
22. When we apply the principle laid down in the above judgments, we find that document No.108 (Annexed at page 192 of assessee's Paper Book) did not show as to whom these documents belonged. It was not seized from the premises of assessee company and, therefore, presumption available under section 132(4A) cannot be raised against the assessee company.
(2). It does not show so as to when the transaction had taken place. Even the AO has not pointed out as to in which year the tax liability from the transactions in these documents would arise, though it has been only held that it will fall in the block period.
(3) The nature of transactions resulting into sum of Rs.17,48,49,140/- is not clarified as to whether it is receipt or payment. Whether it is assessable under section 69A, 69B or 69C. On the other hand, this being part of sale of shares by associate concern, it would apparently reflect receipt of money. It is not taxable. There is no allegation made by the AO that there is an under statement of capital gains arising on sale of shares by under stating the receipts. Therefore, this possibility is ruled out.
23. Even the quantum which could be taxed is not apparently clear though the authorities have picked up Rs.17,48,49,140/-. Since it is part of total 36 IT(SS) No.98-50/Ahd/05 Nirma Ltd.
transaction @ Rs.1140.18 per share and there is no material to hold that any part of sale proceeds is undisclosed, therefore, quantification of undisclosed amount is also uncertain. Thus none of the ingredients as required to fix the tax liability is satisfied in the present case.
24. Even though ld. AO and the ld. CIT(A) have not clearly mentioned but in fact he went to hold that Nirma Ltd. i.e. the assessee company is holding all the entities as its benami and, therefore, unaccounted transactions found from the seized documents would be really owned by Nirma Ltd. We are unable to subscribe to this view for several reasons. For holding any property or transaction as benami and belonging to someone else, the onus is heavily on the assesseing authority to bring out evidence to show that -
(1) Investment in purchases of impugned shares has flown from the assessee company.
(2) The share certificates were really in possession of assessee company.
(3) The dividends therefrom were directly or indirectly passed on to assessee company.
(4) Sale proceeds of the shares were directly or indirectly transferred to the assessee company.
(5) It has to be shown that associate entities are merely paper concern and really whole of the assets, the entity are enjoying and the income of associate entities are in fact belonged to assessee company.
It cannot be a case that for income-tax purposes, or for of all other rules and regulations of State or Central Government, associate entities are acting as independent entities; and also for the purposes of receipt of Rs.1000 per share in respect of the impugned transactions these entities are acting as independent entities but only for the purposes of Rs. 140.18 per share equal 37 IT(SS) No.98-50/Ahd/05 Nirma Ltd.
to Rs.17,48,49,140/- these associate entities are benami entities of assessee company. For holding that shares purchased by associate entities are benami it has to be shown by the AO the nature, the possession and the manner of holding the shares after they are purchased and motive, if any, for holding them as benami.
25. If the property i.e. shares are standing in the name of associate entities then it has to be accepted as real unless it is proved otherwise by adducing legal evidence of a definite character. Even though relationship of the parties to the benami transaction or benami holding of the property is important but not the sole criteria. The relationship may be relevant in conjunction with other criteria but not sufficient to hold the property or transaction benami merely because parties concerned are closely related or are working under the same group. Even where explanation offered by non-assessees i.e. associate entities in the present case regarding investment in shares or in the transaction is not believed or is not satisfactory it cannot be inferred that such property is held by non-assessee on behalf of the assessee or that assessee is the owner thereof or that investment therein has flown from the coffers of the assessee company. In the circumstances where explanation about investment in the property or income, accounted or unaccounted arising from the transaction carried out by the non-assessee is not found satisfactory then action has to be taken under Income-tax Act against such non-assessee (s). Once ownership of the shares and their sales are accepted by non-assessees then they are the first to bear the burden of proving the source thereof or showing or explaining as to why entire transactions are not reflected in the books of account and in the event of their failure, to bear the burden to pay the taxes and penalty thereon. Unless such non-assessee states or gives evidence that the investment in the property or income from the transaction has come from the assessee, the assessee as such cannot be held owner thereof and tax liability arising from such transactions cannot be fixed on the assessee.
38 IT(SS) No.98-50/Ahd/05Nirma Ltd.
26. If the non-assessees have filed return of income in the past wherein the source of investment in the shares have been accepted by the department and no action has been taken to undo what has been so accepted then it has to be legally presumed that same state of affairs and same source of income continued to exist in subsequent years as well, unless existence of such source of income or transactions found from the seized documents is denied by such non-assessee, and further asserting positively, that what is atributed to them in fact belonged to or had come, from the assessee.
27. In addition to or otherwise, there must be some positive material to be shown by the department that in spite of apparent state of affairs formed by the assessee or non-assessees (associate entities) the non-assessees are not real owners of the shares and investment therein has flown from the assessee and profits from the transaction of the sale had flown back to the assessee and the ownership and transactions are clandestinely declared as belonging to the non-assessees. Such evidence could be secret agreement between the assessees and the non-assessees, transferring of profit or usufruct to the assessee enjoyment of interest, profit, or other benefit arising from the property or transaction therein.
28. The proposition is always in favour of the legality of the transaction and apparent state of affairs. If non-assessees have declared ownership of shares which has been accepted by the department in the past then whether transactions are explained or unexplained; investment is declared or undeclared, income arising there-from would belong to them. If the department has accepted independent existence of each entities and also of the assessee, then without there being any contrary material apparent has to be accepted as real.
39 IT(SS) No.98-50/Ahd/05Nirma Ltd.
29. Further the department has carried out search at the premises of assessee company and its all the associate entities but has not found any such agreement or arrangement whereby it can be held that associate entities are merely paper concerns and real owner is assessee company. Our view is supported by the following judgments, some of which are also referred by the ld. AR.
(i) Parasmal Kanaji vs CIT, 172 ITR 568(Raj) - It is held by the Hon'ble Rajasthan High Court that question of benami nature of transaction is essentially a question of fact for holding that 'X' (assessee's son) is benamidar of 'Y' assessee, it has to be shown that funds in the transaction were made by assessee or that assessee's son did not make any investment to make the purchases or that assessee's son who did not in any manner participate in the transactions of either purchase or sale. If it can be proved then purchase and sale of oil made in the name of son could be held to be that of the assessee who was a selling agent.
(ii) CIT vs Baijnath, 153 ITR 327 (P&H) - It was held that there was no evidence at all to establish that assessee was the real owner of FDRs amounting to Rs.84,500/- and not the various persons in whose names receipts have been prepared by the bank.
(iii) Chandulal J Jaiswal vs CIT, 195 ITR 635(Guj) - In this case, question was whether three trucks numbering GTB 4681, GTB 6426 and GTB 5456 really belonged to the assessee and not to the persons in whose names they were registered and therefore, income therefrom could be taxed in the hands of the assessee. It was found that capital for purchase of these trucks came from the assessee; their control and managemnt also vested in the assessee; rent for the trucks was collected by the assessee and credited in the books and such profit from the trucks was only utilized for personal purposes of the assessee and not of the so called truck owners. It was held that assessee was the real owner who enjoyed the income from these trucks. The income from the trucks was held to be rightly included in the total income of the assessee.
(iv) Sree Meenakshi Mills Ltd vs CIT, 31 ITR 28 (S.C.) - In this case it is held that the word 'benami' is used to denote two classes of transactions which differ from each other in their legal character and incidents. In one sense it signifies a transaction which is real, as for example, when 'A' sells properties to 'B' but the sale deed mentions 'X' as the purchaser.
40 IT(SS) No.98-50/Ahd/05Nirma Ltd.
Here the sale deed is genuine but the real purchaser is 'B' and 'X' is only his benamidar. This class of transactions is usually termed as 'benami'. But the word 'benami' occasionally used, perhaps not quite accurately, refer to a sham transaction also. For example, when 'A' purports to sell its property to 'B' without intending that his title should cease or pass to 'B'. The fundamental difference between these two classes of transactions is that, whereas in the former there is an operative transfer resulting in the vesting of title in the transferee. In the latter case, the transferor continues to retain the title notwithstanding the execution of the transfer deed. It is only in the former class of cases that it would be necessary, when a dispute arises as to whether the person named in the deed is the real transferee or it is 'B' then it is to be enquired as to who paid the consideration for the transfer. In the second category of cases, question is not whether who paid that consideration but whether any consideration was actually paid or not.
(v) E.A.E.T Sundararaj vs CIT, 95 ITR 455(Mad.) - In this case, it was held that it is only on the cumulative effect of all the materials that are available before the Tribunal that the question of benami can be decided. Where wives of the members of the family started a firm to carry a similar business to the one carried on by the family, in the same business premises, as that of the family and with the family's telegraphic address, capital of this new firm came from the monies of the wives lying with the trust and fetching interest. The karta of the family was found to be actually carrying on the business of the new firm, then taking a cumulative effect of all these factors, Tribunal had held that the new firm was not a genuine one but only a benami for the family. This finding was confirmed by the Hon'ble High Court.
(vi) First ITO vs M.R.Dhanalakshmi Ammal & Others, 112 ITR 413(Mad)
- The burden of prove by the party who sets up the case of benami would be discharged by satisfying the following well known criteria namely:
(1) Source of the purchase, (2) Possession of the property, (3) Position of the parties and their relationship to one another, (4) Circumstances, pecuniary or otherwise of the transfer, (5) Motive for the transaction, 41 IT(SS) No.98-50/Ahd/05 Nirma Ltd.
(6) Custody of he title deeds, and (7) The previous and subsequent conduct of the parties.
Though any one of these factors may not be of particular value and may not afford any conclusive proof of the benami nature of a transaction but a combination of some or all of them and a proper weighing and appreciation of their value would help in determining the real ownership of the transaction and the asset. The true test to determine whether a transaction is benami or not is to look into the intention of the parties and to see whether it was intended to operate as such, or whether it was meant to be colourable. It is only in the latter case, it is benami while in the former it is not. The issue of benami cannot be displaced by mere conjecture or suspicion as to the various circumstances surrounding the transaction. In this case, the ITO had alleged that third respondent is the real owner and first respondent is only benami. The Hon'ble Court held that the ITO had not discharged the burden of proof cast upon him to establish the fact that the properties were taken benami in the name of first respondent.
(vii) Prakash Narain vs CIT, 134 ITR 364(Alld.) - The Hon'ble Allahabad High Court held that the burden of proof regarding benami is upon the one who alleges benami. No absolute formula or acid test, uniformly applicable in all the situations can be laid down. However, the courts are usually guided by these circumstances: (1) the source from which the purchase money came; (2) the nature and possession of the property after the purchase; (3) motive, if any, for giving the transaction a benami colour; (4) the position of the parties and their relationship, (5) custody of the title deed after the sale; (6) conduct of the parties concerned in dealing with the property after the sale. It was held that source from where the purchase money came is by far the most important test for determining whether the sale standing in the name of one person, is in reality for the benefit of another. Mere rejection of an explanation would not entitle the Department to claim that the consideration for purchase of the property in the name of another was provided by the assessee. Apart from the relationship between the parties, there must be some evidence or material to support the case of the benami nature of the transaction. Thus, a finding regarding benami is a finding of fact. In this case, there were four properties purchased. (i) A house in the name 42 IT(SS) No.98-50/Ahd/05 Nirma Ltd.
of assessee's wife and mother-in-law, (ii) 4 shops in the joint names of assessee's wife, mother-in-law and father-in-law. (iii) a house in the name of assessee's father-in-law and (iv) a house in the name of assessee's wife. Assessee's wife was the only child of her parents. The ITO recorded the statement of father-in-law, written statement of mother-in-law was filed. It was claimed by them that they had money in their hands which was invested in the purchase of aforesaid properties. The Assessing Officer was not satisfied and held that it was assessee who had purchased these properties in the benami name of these persons. While deciding the question whether assessee is real owner of these properties, the Hon'ble Allahabad High Court referred to the decision in the case of Union of India vs Moksh Builders and Financiers Ltd, [1997] AIR 1977 SC 409, Gangadara Ayyar vs Subramania Sastrigal, AIR 1949 FC 88 and Sree Meenakshi Mills Ltd vs CIT, 31 ITR 28(S.C.). It was inferred from these judgments that first test is the source from which the consideration for the transfer has come and other test is who is actually enjoying the benefit of the transfer. While referring to the decision in the case of Jaydayal Poddar vs Bibi Hazra, AIR 1974 SC 171, it is held that burden of proving that a particular sale is benami and the apparent purchaser is not the real owner always rest on the person who asserts it. This burden has to be strictly discharged by adducing legal evidence of a definite character. Even though proving the intention of the parties concerned is shrouded in a thick veil which cannot be easily pierced through, but such difficulties do not relieve the person alleging the benami transaction of the onus rest on him. It also does not justify the acceptance of mere conjectures or surmises as a substitute for proof. When a document for purchase is prepared and executed after considerable deliberation then it starts with the initial presumption in his favour that the apparent state of affairs is the real state of affairs. While referring to the decision of Hon'ble Supreme Court in the case of Sree meenakshi Mills Ltd vs CIT, 21 ITR 28, , the Hon'ble Allahabad High Court pointed out that a simple way of discharging the onus to prove the real ownership and to resolve the controversy was to trace the source and the origin of amount and find out its ultimate destination. So far as source is concerned, there was no material on the record to show that the amount came from the coffers of the respondent-firm in the case of Sree Meenakshi Mills or it was tendered in Burrabazar Calcutta branch of the Central Bank on behalf of the assessee. As regards to the destination of the amount, there was nothing on record to show that it went to the 43 IT(SS) No.98-50/Ahd/05 Nirma Ltd.
coffers of the respondent. On the other hand, there was a positive evidence that amount was received by ostensible owner Biswanath. The Hon'ble High Court referred to the decision of the Hon'ble Supreme Court in the case of CIT vs Durga Prasad More, 82 ITR 540 wherein the Hon'ble Supreme Court had observed that apparent must be considered real until it is shown that there are reasons to believe that the apparent is not real. Where a party relies on a recital in a deed, it has to establish the truth of those recitals otherwise it will be very easy to make self- serving statements in documents either executed or taken by a party and rely on those recitals.
The Hon'ble Allahabad High Court then referred to the decision of its own court in the case of Sheo Narain Lal, 26 ITR 249, wherein the controversy was in regard to the ownership of the house which stood in the name of wife of the assessee. Half of the sale price for the purchase of the said house was accepted by the Department to have been contributed by the wife. However, in regard to the source for the remaining portion of the house, the Tribunal disbelieved her statement that she had received gifts of cash and jewellery from her father and father-in-law. It was held that mere rejection of the wife's explanation would not lead to the inference that half of the sale price for the purchase of the property must have been contributed by the assessee's husband.
The Hon'ble Allahabad High Court then referred to the decision in the case of R.K.Murthy vs CIT, 42 ITR 379 (Mad.) where certain shares in a company had been purchased by the wife of the assessee who himself was a director in the said company. Part of the price of the shares was paid by the wife at the time of purchase and for the balance she executed a promissory note in favour of the transferor selling the shares. Subsequently, the said balance amount was paid by the assessee's husband, who later reimbursed himself from the dividend paid by the company to the wife. The Assessing Officer held that shares were purchased by the assessee's husband benami in the name of his wife. The Hon'ble Madras High Court held that assuming that the assessee had no such intention to benefit the wife, the benefit in such shares could be held to vest in the husband only if it is proved that he provided the purchase money. The onus of showing that it was so done is on the Department. In the case decided by the Hon'ble Allahabad High Court, the facts found by the Assessing Officer about the four properties was that Shri Babu Ram, father-in-law of the assessee could not be believed that they have a 44 IT(SS) No.98-50/Ahd/05 Nirma Ltd.
sum of Rs.1 lakh in cash with him when he discontinued his business in 1946. Shri Babu Ram and his wife were living with his son-in-law. The assessee's wife is only issue of her parents. The assessee had in fact, purchased one property, benami in the name of his wife. The Hon'ble Allahabad High Court held that merely because version of Shri Babu Ram, father-in-law has not been accepted by the Tribunal, it will not lead to the inference that the properties in question were purchased benami by the assessee. The person can still be held to be holder of a sum of money even though the explanation furnished by him regarding the source of that money is found to be not correct. For this proposition, the Hon'ble Allahabad High Court relied on the decision of the Hon'ble Supreme Court in the case of CIT vs Daulat Ram Rawatmull, 87 ITR 349. It was further held that if explanation regarding the source of money furnished by 'A' in whose name the money is lying in deposit has been found to be false; it would be remote and far fetched conclusion to hold that the money belonged to 'B'. There would be in such a case, no direct nexus between the facts found and the conclusion drawn therefrom. It was further held that even where father-in-law and mother-in-law are living with their son-in-law, it will not be correct to infer that in-laws were necessarily dependent upon their son-in-law. If the Department wanted to rely on this aspect, then the witnesses who were examined should have been put more explicit questions in this regard. Merely because they are all living together would not and cannot lead to inference that they are dependent on the assessee. Similarly, where assessee's wife is the only issue of her parents cannot lead to the conclusion that the purchase of the properties in dispute were financed by the assessee i.e her husband and not by her parents. It is equally possible that the amount of purchase might be financed by the parents as well as by her husband.
The Hon'ble Allahabad High Court then gave emphasis on the motive for the benami purchase. The party who alleges benami has to show material to prove motive for acquiring property benami.
(viii) Arya Confectionary Works vs CIT, 143 ITR 814 (M.P.) - It was held that following principles are well settled with regard to the finding of benami nature of business. They are -
(1) the burden of proof regarding benami is upon the one who alleges benami.
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(2) To prove benami the most important point is to examine the source of consideration.
(3) A finding regarding benami is a finding of fact.
(ix) In the case of Shyama Charan Saxena vs ITO, 145 ITR 689, (ALL), the Hon'ble Allahabad High Court in addition to the three criteria, held in Arya Confectionery Works vs ITO, held further that mere rejection of an explanation given by the ostensible owner would not entitle the Department to claim that the consideration for the purchase of the property in the name of a non-assessee(ostensible owner) was provided by the assessee. Further, apart from the relationship between the parties, there must be some material or evidence to support the case of the benami nature of a transaction. In this case, the house property was purchased in the names of minor grandsons of the assessee. The explanation furnished was that money for purchase was given by assessee's wife who had some agricultural property. The facts on which Income-tax Department had relied did not disprove the explanation furnished by the assessee's wife. It was held that merely because the minors and their parents were dependent on the assessee or that assessee had made alterations in the property would not lead to the conclusion that the purchase was benami purchase by the assessee.
(x) Gulzarilal Rawat vs ITO, 259 ITR 176 (Raj.) - In this case, assessee claimed that business belonged to his son, who invested Rs.8000/- after disclosure of the same under VDIS. It was explained that 'S' was a student at that point of time. He employed his maternal uncle, who looked after the business of the concern and Rs. 700/- per month was paid to him. The ITO rejected the explanation and the decision was upheld by the Tribunal. On reference, it was held that as per facts, investment in the firm had been shown after disclosure of money under VDIS, that there were dealings of the concern not only with the assessee but also in the open market with other similar type of traders, the concern had got sales tax registration, it was registered under the Shops and Commercial Establishment Act, then business income from the concern, 'S' could not be taxed in the hands of assessee merely on the ground that proprietor of the concern was the son of the assessee.
(xi) G.L.Chabada vs ITO, 53 ITD 53 (Bangalore)- In this case, Department alleged that one GLC converted his proprietary business into partnership but prior to this, another firm VT was doing the same 46 IT(SS) No.98-50/Ahd/05 Nirma Ltd.
business. It had come into existence prior to partnership firm of GLC. The Tribunal held that the two firms had separate sales tax registration; they were assessed to sales tax separately; Department had virtually no evidence at all to show that VT was a benami concern of GLC; it was not shown by the Department that GLC firm actually enjoying the income of VT. Merely because stock of the two firms were lying side by side, cash of one firm might have gone into the business premises of the other firm for the various reasons, even for the sake of security, did not go to prove anything at all except raising a very weak suspicion. The Department did not discharge the onus of proving the benam character of VT.
(xii) Omkarmal Gauri Shanker vs ITO , 39 TTJ (Ahd) 223 - A trust had purchased goods worth Rs. 2,81,166/- from the assessee firm and made a profit of Rs. 8772/- thereon. The assessee firm, however, made a profit of Rs. 6041/- in respect of that transaction. The ITO viewed that the aforesaid trust was created with a view to evade tax and included the income of the trust in the hands of the assessee firm. The ld. CIT(A) restricted the addition of Rs. 8772/- only being the profit earned on that transaction by the trust. The Tribunal held that there is no material evidence on record to prove that such transactions done by the assessee firm with the trust were benami transaction or there was no material on record to indicate that the profit derived by the trust directly or indirectly had flown in favour of the assessee firm at any point of time. The profit derived by the trust had been enjoyed by the beneficiaries and they have been taxed in respect of shares in the income of the said trust. Unless the Revenue discharge the burden of proving by brining positive materials and evidence on record that the said trust was a benami concern of the assessee firm, the inclusion of the income derived by the said trust in the hands of the assessee firm could not be sustained.
(xiii) Manoharlal vs ITO 37 ITD 96 (Jaipur)(TM) - During search operation, it came to the notice of the Department that there were two other textiles M and S in the name of MD, wife of brother of the assessee and wife of the assessee respectively. The ITO came to conclusion that there was common management, common funds and common employees and, therefore, incomes of these concerns belonged to the assessee. He, therefore, clubbed the income of those concerns in assessee's income. However, Department was not able to prove that assessee enjoyed income of those concerns or that investments made by those ladies was investment made by the assessee in their names. Therefore, merely on account of management of these concerns was in the hands of the 47 IT(SS) No.98-50/Ahd/05 Nirma Ltd.
assessee, inference of benami nature could not be drawn so as to include the income arising to these ladies in the hands of the assessee.
(xiv) QSS Colour Processors vs IAC, 35 TTJ (Delhi) 486 - In this case, wife of a director of the assessee company independently carried her proprietary commission business and for the services rendered by the said proprietary business to the assessee, 10% commission was paid by the assessee to her, the same could not be included in the assessee's income on the ground that wife was a benami of the assessee company as there was no material to hold so.
(xv) S.N.Ganguly vs CIT, 24 ITR 16(Patna) - It was held in this judgment that there is no presumption in law that an amount standing in the name of the wife belonged to the husband. In the absence of evidence to the contrary, the money standing in the name of the assessee's wife must be presumed to belong to her and assessee cannot be taxed in respect of such an amount. The onus of proof in such a case will not be on the assessee but will be on the Department to show by at least some material that the amount standing in the name of assessee's wife does not belong to her but belong to the assessee.
(xvi) CIT vs Daulat Ram Rawatmull, 87 ITR 349 (S.C.)- In this case, the assessee firm had opened an overdraft account with a limit of Rs.10 lakhs against the collateral security of two fixed deposits of Rs.5 lakhs each, one of which was in the name of B, son of a partner of the firm and the other in the name of A, son of another partner. The letters of guarantee was signed by B and A. No consideration was received by them. After A's death, the amount of Fixed Deposit was not paid to his heir but was adjusted against the overdraft of the assessee firm. However, in the case of B, money was paid finally to B. The Tribunal in respect of fixed deposit of B held that the sum of Rs.5 lakhs belonged to the firm and was its concealed income for the reasons that (i) explanation furnished by BV was found incorrect (ii) the sum of Rs.5 lakhs each was transferred from Calcutta to Jamnagar through Bombay for issue of fixed deposits in the name of the sons of partners, (iii) the use of fixed deposit receipts as collateral security for the overdrafts facility. The Hon'ble High Court held that this was not sufficient material to hold that the sum of Rs.5 lakhs belonged to the assessee firm. On appeal to the Hon'ble Supreme Court, the decision of Hon'ble High Court was confirmed for the reasons that if B was not able to give satisfactory explanation regarding the source of 48 IT(SS) No.98-50/Ahd/05 Nirma Ltd.
Rs.5 lakhs, it would not be decisive for the question as to whether B was or was not the owner of that amount. A person could still be held to be the owner of a sum of money (1) even though the explanation furnished by him regarding the source of that money was found to be not correct. (2) mere transfer of sum of Rs.5 lakhs from Calcutta to Jamnagar would not justify the inference that the amount would belong to the assessee firm (3) merely because B did not receive any consideration for offering the FDR as security for the overdraft facility cannot result in any inference against the assessee and (4)the onus is on the Department to prove that apparent was not real i.e the burden lay on the Department to prove that assessee firm was the owner of the amount despite the fact that fixed deposit receipt was in the name of B. Other circumstances relied on by the Department could not lead to the inference that assessee firm was owner of the sum deposited in FDRs.
(xvii) Krishnanand Agnihotri vs ITO, AIR 1977 SC 796 - The burden of showing that a particular transaction is benami and the owner is not the real owner always rests on the person ascertaining it to be so and this burden has to be strictly discharged by adducing legal evidence of a definite character which would either directly prove the fact of benami or establish circumstances unerringly and reasonably raising an inference of that fact. It is not enough merely to show circumstances which might create suspicion. In this case, the prosecution had alleged that certain amount lying in the name of accused's wife was asset belonging to the accused, but no evidence at all was led on the side of the prosecution to show that the monies lying in fixed deposit in her name was provided by the accused. Prosecution could not place proof of legal character except raising suspicion and doubt in the mind of the court. (xviii) State of MP vs Mohanlal Soni, 6SCC 338 - It was held that trial court failed to consider and evaluate the income tax returns which clearly establish that the property included in the assets of the accused and shown to be disproportionate was the wife's property bought from her own resources and should have been excluded from the assets of the accused.
30. Thus on the basis of above principles as culled out from authorities referred to above we hold that -
49 IT(SS) No.98-50/Ahd/05Nirma Ltd.
(1) The document No.108 of Annexure-A-1, annexed at page 192 of assessee's paper book is dumb document. It does not reflect as to whom the transactions should be attributed. It also does not reflect the sum of Rs.17,48,49,140/- as investment or expenditure.
(2) There is no material to hold that unaccounted transaction if any, arising or reflecting from these documents would belong to the assessee company and therefore, tax liability, if any, could be attributed to the assessee company.
(3) There is no material to hold that assessee company is holding the shares as benami and, therefore, income on sale of the shares would belong to the assessee company.
(4) Presumption under section 132(4A) cannot be raised against the assessee company as impugned document was not found from the premises of assessee company.
(5) The burden to prove benami nature of the shares or transaction therefrom is not discharged by the department.
(6) There is no material or finding that income-tax return filed by the associate entities are in any way fraudulent or these entities are merely paper concerns.
31. In view of the above, we delete the addition of Rs.17,48,49,140/- made by the AO and confirmed by the ld. CIT(A).
32. So far as addition of Rs.3,31,43,916/- is concerned it is arising from document No.87 of Annexure A_1, annexed at page 189 ot assessee's paper book. The contents of this document have been reproduced above. The reasons for making addition by the AO are the same as for making addition of Rs.17.48 crores. The difference is only the document. This document was also found from the premises of Shri Rahul Devi. It reflected transactions in the shares of TIFIL. According to the AO this document showed that a sum of Rs.3,31,41,916/- was payable and for the reasons as narrated by him for holding that document No.108 annexed at page 198 of assessee's paper book belonged to assessee company, he held that this document would also belong 50 IT(SS) No.98-50/Ahd/05 Nirma Ltd.
to the assessee company. The arguments of the parties in support and against the proposition advanced by the AO were the same as in respect of addition of Rs.17.48 crores. For the detailed reasons given by us, while deleting the addition of Rs.17.48 crores we hold here as under :-
(1) Document No.87 reflecting the transaction was not found from the premises of assessee company and therefore, presumption under section 132(4A) cannot be raised again the assessee company.
(2) Document is incomplete and to some extent dumb inasmuch as it does not show as to whom the sum of Rs.3,31,43,916 would belong; whether to any associate entity or to assessee company. The document does not show or indicate the name of owner of this transaction. Assessing authorities have also not found any material either in search or in post search investigation to attribute the ownership of this transaction to the assessee.
(3) There is no bifurcation or details of transaction, for which sum of Rs.8.50 lacs was payable. There is no indication as to where adjustment of the interest of Rs.3.12 crores is made and where it is taxable or taxed.
Similarly it is not made clear where the loss of Rs.2.05 crores is adjusted so as to find out the ownership of the transaction. Apparently the two transactions are accepted as genuine as no addition is proposed. Then there is no reason to hold that sum of Rs.3.31 crores would be unaccounted.
(4) Even if it is presumed that Rs.3.31 crores is unaccounted the nature of this transaction is not clarified by the AO either from the seized document or from post search enquiries. Merely because the sum is recorded in the seized document it would not carry a taxable character. There is no material to hold that assessee company is holding the shares as benami and, therefore, income on sale of the shares would belong to the assessee company. The burden to prove benami nature of shares or transaction therefrom is not discharged by the department.
(5) There is no material or finding that income-tax return filed by the associate entities are in any way fraudulent or they are merely paper concerns.
33. Accordingly we delete the addition of Rs.3,31,41,916/- also. Thus ground No.4 in assessee's appeal is allowed.
51 IT(SS) No.98-50/Ahd/05Nirma Ltd.
34. The next ground in assessee's appeal is about addition of Rs.1,01,41,881/- which arises on the basis of page nos.79 -80 of annexure-A- 1-
"Page 80 TO BE COLLECTED Nirma-Jashdeep Int. 29,91,000 N.D.-Jasdeep (T) Int. 42,59,391 Nirma Polysinth (N) Int. 4,86,575 Individual (P) Int. 2,90,436 6% (15-9) diff. on 90,00,000 5,40,000 Int.diff.Niral-VIPL for Inv. 4,00,000 Of 1,65,000 for (N) ND-S.R.Multi 67,500 (4,50,000 Board A/c) Nirma Dbnt.S.R. Polysinth 50,000 Nirma Dbt.Jashdeep 2,00,000 92,94,971 Page 79 PAYMENT Int.rate diff.90% MCWL-VIPL(50,00,000) 4,50,000 VIPL-Nirman (2,00,000) 12,27,945 SR Poly-ND(8,00,000) 591 VIPL-Nirali(5,00,00,000) 7,12,655 Int.calculation after 4,50,000 1,65,00,000 paid for shares 50,00,000 VIPL, share profit (T) 26,61,299 Nirma share sales profit 31,37,600 (14800 x 212) (322-110 price) Payment 86,40,090 Collection 92,84,971 Excess 6,41,881 (+) 95,00,000 1,01,41,881 52 IT(SS) No.98-50/Ahd/05 Nirma Ltd.
This document was found and seized from the premises of Nirma Ltd. The assessee company explained to the AO that it did not pertain to it. The paper reflected inter-connected notings and does not give any date as to which period or to whom it would belong. But the AO held that it is a cross entity settlement of interest by the assessee company and associates and net settlement is of Rs.1,01,41,881/-. The AO determined the period as 1994-95 on the basis that shares of Nirma Ltd. was quoted at Rs.322/- at the relevant point of time. Therefore, it would fall in the block period. The AO accordingly held that entire sum of Rs.1,01,41,881/- is chargeable to tax in the hands of assessee company as unexplained income in the block period.
35. The ld. CIT(A) confirmed the addition by holding as under :-
"8.4 I have carefully considered the assessment order and the above submission. It is seen that the paper was found from the appellant's premises. The appellant's main contention is that the paper does not belong to it, it is not in the handwriting of any employee or consultant of the company or it does not give any clue about the period, but such a contention cannot save it from its responsibility to explain the said loose paper and the transactions noted therein as the seized document has been found from the appellant's premises and the presumption of law under section 132(4A) is against the assessee. It is for the assessee to explain the ownership of the said paper and the transactions noted therein. It involves notings about the settlement of transaction of interest by the appellant also. It represents the net settlement of interest between the entities. There is no explanation about the amount of Rs.95,00,000/- added to figure of Rs.6,41,881/-. The assessee has tried to explain that the paper relates to the prior to block period by giving a certificate about the quotation of prices of the appellant company. However, this explanation also does not establish as to the exact period of the transaction. The appellant has tried to explain that it does not belong to the appellant company and that it does not show as to the whether it is income or expenditure. In this regard it is observed that the paper clearly shows settlement of interest between the parties. Various entries noted therein represent receipt and payment of interest. On the top of the paper it is written 'TO BE COLLECTED'. So the figure at the bottom of the page is income of the appellant. The appellant company has not proved anything contrary to it. Regarding ownership of the paper I find that the paper has been found from the premises of the appellant. It is for the assessee to establish that it does not belong to it. Having regard to the above position I hold that the assessing 53 IT(SS) No.98-50/Ahd/05 Nirma Ltd.
officer has justifiably made the addition of Rs.1,01,41,881/-. This ground is, therefore, dismissed."
36. Against this, the ld. AR for the assessee submitted that seized papers does not belong to the assessee company. They are not in the hand-writing of any employee of the assessee company or advisor or consultant thereof. Further the paper does not give any clue whatsoever to the period to which it relates. In all probability it would relate to the period earlier to the block period. According to the ld. AR this document is a dumb document as it does not reflect who is the owner and to whom the transaction belonged. Further presumption under section 132(4A) cannot be raised against the assessee since this document was not seized from the premises of the assessee. The ld. AR submitted that the price of Rs.322/- of the shares of assessee company was reflected at 12.4.1994 and not during any date in the block period. Therefore, if at all there is any income arising from the document it would fall beyond the block period
37. The ld. DR on the other hand, submitted that once document is found from the premises of the assessee the presumption is raised against it by virtue of section 132(4A) that it belonged to the assessee company.
38. We have considered the rival submissions and perused the material on record. Now it is undisputed fact that the above document was found from the premises of the assessee company but the fact is that the period to which the transaction is pertained has not been correctly appreciated by the authorities below. The block period would start from 1.4.1995 and would come to an end on 27.9.2001 as mentioned by the AO in the assessment order. It has been pointed out to the AO that price of the shares of Nirma Ltd. at Rs.322/- was as on 12.4.1994 as per website of Mumbai Stock Exchange Website. This was also pointed out to the ld. CIT(A) in the written submission. A copy of written submission was forwarded by ld. CIT(A) to the AO who furnished the following reply :-
54 IT(SS) No.98-50/Ahd/05Nirma Ltd.
"1. Since the papers have been found from the premises of the assessee, it can safely be presumed that these belong to the assessee.
2. No conclusive evidence could be produced by the assessee to reach at this conclusion that the document is not in the handwriting of any of the employee and/or advisor/consultant.
3. At the time of assessment proceedings the assessee could not come up with this argument that this paper belongs to the pre-search period because the quoted price of the shares of Nirma Ltd. falls in the price band of that period. Now after this fact there is possibility that this paper may belong to the period mentioned by the assessee and another one observed by the AO. Now to disprove conclusively the assertion of the assessee ball lies in the court of the assessee because it possesses all the material facts and moreover the presumption of section 132(4A) also prescribes the same. The contents of the pages 79 & 80 are produced hereunder."
Thus the ld. AO has avoided to give his comments on the specific information given to him that if the period of transaction as recorded in the seized document is to be ascertained on the basis of Rs.322/- being price of the shares of assessee company as mentioned in the seized document then such date would fall in the pre-block period. The authorities have not controverted this fact and have proceeded to make additions on the possibility that paper may also belong to block period. To rebut the facts submitted by the assessee it was necessary for the AO and the ld. CIT(A) to further collect material to show that price of the shares of Nirma Limited at Rs.322/- per share was a date falling in the block period in addition to 12.4.1994 as pointed out by the assessee on the basis of data collected from Mumbai Stock Exchange. In absence of any material to the contrary that paper and transaction recorded therein would fall in pre-block period it is not possible to uphold the addition.
39. The other argument that document is dumb or it does not reflect correctly as to whom the transaction belong are merely of academic interest as document as such would not fall for consideration in the block period. Thus the addition sustained by ld. CIT(A) is deleted. This ground of assessee is allowed.
55 IT(SS) No.98-50/Ahd/05Nirma Ltd.
40. The next addition contested by the assessee is the sum of Rs.1,12,88,845/- on the basis of page 86 of Annexure-A-6. This has been dealt with by ld. CIT(A) in para 9 of his order. The details recorded in this document are as under :-
Page 86 Q.D Shiva 3892.650 x 500 =1946325 NDL 5486.900 x 500 =2743450 NL 9388.210 x 500 =4694105 Kissan 4315.340 x 500 =2157670 23083.100 11541550 -97/98 Interest Shiva 2766575 HDL 2766115 N.L 6594740 Kissan 5809794 17937224 + 11541550 29478774"
A perusal of para 7.4 of the assessment order where discussion in respect of this addition is made shows that there is no mention as from where it was seized. The only finding given by the AO is that identity of various entities mentioned in the document is established as belonging to Nirma group and, therefore, the transactions recorded therein are taken to be that of Nirma Ltd.
41. Before ld. CIT(A) it was submitted that paper is not in the hand writing of any employee of the assessee company, it does not give any indication of any transaction or clue thereto, therefore, to infer that it relates to interest or 56 IT(SS) No.98-50/Ahd/05 Nirma Ltd.
settlement of quantity discount is imaginary. Further assessee company has more than 350 employees, lot of visitors, and suppliers who visit the premises and there being no specific identification it is not possible to attribute the document to the assessee company. The reply of the assessee was forwarded to the AO and the remand report was obtained. The ld. CIT(A) after considering the reply of the assessee and remand report confirmed the addition by observing as under :-
"9.4 I have considered the assessment order and the above submission. This paper is also found from the premises of the appellant. Therefore, for the reasons discussed in the earlier ground the appellant's submission to the effect that it does not belong to the appellant and it is not indicating the transactions is not acceptable. The appellant has stated that there are many employees and visitors of the appellant and therefore, it is not possible to trace back and understand the nature of paper is also not accepted in view of the fact that it is found from the premises of the appellant. The appellant has not come out with truth or satisfactory explanation for the same. The presumption of law as provided under section 132(4A) is very clear and the contents of such documents are to be presumed to be true. The AO has clearly shown that it shows interest and quantity discount against the name of the appellant. He has made the addition only with reference to the said amounts written against the name of the appellant. Considering all these aspects, I hold that the AO has justifiably made the addition for the same."
42. Against this, ld. AR submitted that the document does not reflect any cross entity settlement. There is no co-relation with the actual happening. It does not indicate any period, when alleged transaction, if any, might have taken place. It is not possible to find out who has written the document. There is no corroborative evidence to read the document. Therefore, it is incorrect to make addition on this basis.
43. The ld. DR on the other hand, submitted that assessee did not produce any conclusive evidence. The document is in the hand writing of some officer of the assessee company. The heading quantity discount written at the top of the document indicates that it relates to quantity discount. The document was seized from the premises of Nirma Ltd., therefore, presumption under section 57 IT(SS) No.98-50/Ahd/05 Nirma Ltd.
132(4A) can safely be raised against the company. During the course of assessment proceedings assessee was given lot of opportunity to explain the document but the transactions recorded therein were not explained. Therefore, unless the assessee rebuts the presumption it would be deemed that transaction pertained to the assessee and pertained to the block period.
44. In rejoinder the ld. AR submitted that in any case the document is dumb document and cannot be relied upon.
45. We have considered the rival submissions and perused the material on record. In our considered view authorities below have not clearly decipher the document as to what these notings made therein stand for and whether they are giving rise to any transaction which would result into the taxable income. Any notings found recorded on a sized document does not automatically result into the taxable transaction and addition to the extent of figures mentioned in the document. It is the duty of the investigating officer that seized document is further supported with post search investigation. The notings in the seized documents are indicators of the transactions but have to be co-related with the actual events which could have taken place or found recorded in the regular books of account. Even though document is found from the premises of the assessee but the argument of the assessee that it has 350 employees, there are lot of visitors, suppliers etc. who may make notes and leave the document cannot be brushed aside. What was important, was to find out whether Nirma Ltd. i.e. the assessee company had carried out transactions in the items mentioned in the document like Shiva, NDL, NL, Kishan. It has to be further explained for what those words, Shiva, NDL, NL & Kishan stand. These transactions have to be co-related with the books of account or banking transactions so as to describe correctly the events which have actually happened a part of which is so recorded in the impugned seized document. Where assessee does not explain the seized document it could have two possibilities. One is that he does not wish to explain for the fear that such 58 IT(SS) No.98-50/Ahd/05 Nirma Ltd.
explanation may go against him and the second is that he really does not know as to what are the contents of the document and to whom it belongs or who has written it. It is the duty of the investigating officer to investigate and clearly point out as to what is the actual state of affairs and whether assessee is deliberately hiding the facts from the investigating officer. Merely arriving at a conclusion on the basis of jottings on seized document which apparently do not show any taxable events, will not be fair and, therefore, cannot be upheld. In the present case except the contents of the document as reproduced above, there is no material so as to come to the conclusion that it is giving rise to any taxable event and accordingly generating taxable income. Further presumption under section 132(4A) could be raised only to the extent of ownership of the document and hand-writing of the document found in the search but such presumption cannot be raised in respect of the period to which it pertained and the events or transactions recorded therein. In any case to decipher the document is the duty of the investigating officer which in the present case has not been satisfactorily discharged. Accordingly we are unable to uphold the addition and the same is deleted.
46. Ground No.7 is about upholding addition of Rs.7,70,960/- as undisclosed income being excess stock claimed to have been found at Bhavnagar factory premises. During the course of search operation survey u/s 133A was also carried out at the Bhavnagar factory premises. During the course of survey excess stock of limestone of 6704 MT was found. When asked to explain it was submitted that stock taking was not carried out in proper method. Certain undersize items were considered in the physical inventory and the same is not incorporated in the books. Any discrepancy discovered during the survey operation cannot be considered in block proceedings and further that average rate of limestone has been taken wrongly by the officers. The AO rejected this explanation on the ground that stock inventory was taken by the technical persons of the assessee, their statements were recorded which did not support the contention of the 59 IT(SS) No.98-50/Ahd/05 Nirma Ltd.
assessee. Total stock as worked out by the assessee matches with the stock taken by the officers. Accordingly applying a rate of Rs.115 per MT AO made an addition of Rs.7,70,960/- in respect of 6704 MT of limestone.
47. The ld. CIT(A) confirmed the addition by holding that working submitted by the assessee about total stock during the course of assessment proceeding is almost nearer to the stock verification made at the time of survey.
48. Before us, ld. AR for the assessee raised the same argument as were taken before the AO. The main contention was that discrepancy found during the course of survey cannot be considered during block assessment proceedings. In our considered view once various documents are found during the course of search indicating unaccounted transactions then survey carried out at the business premises would be a consequential investigation and, therefore, material covered during the course of survey would form part of block assessment proceeding.
There is no satisfactory explanation to the difference, therefore, we confirm this addition.
49. The next ground (ground No.8) relates to confirmation of addition of Rs.2,39,475/- as undisclosed income on account of unexplained cash.expenses incurred out of undisclosed income.
50. During the course of search at the residential premises of the cashier of the company Shri Manilal Patel, a file marked as Annexure-A2 recorded in Panchnama dated 27..9.2001 was found. Pages 13 to 19 of this file contained loose papers showing names of Mahendra Fadia, Ambubhai M. Patel and other associate persons and employees of the assessee company. These slips contained date 1.8.2001. During the course of statement recorded under section 131 Shri Manibhai B. Patel submitted that he has written these 60 IT(SS) No.98-50/Ahd/05 Nirma Ltd.
documents and he was also responsible for writing daily cash book of the assessee company. These were advances given by him on behalf of the assessee company for cash expenses to be incurred by the employees. Assessee company explained that these slips did not pertain to actual expenses but they must have been prepared for remembrance by the cashier. Thus where advances given by the cashier is not actually incurred it is given back to the cashier and no entry is made in the record and no vouchers etc. are prepared. The AO rejected the contention of the assessee on the ground that cashier has admitted in his statement that these slips pertained to assessee company, these slips carry the date which fall in the block period, there are certain expenses recorded in the seized document which are not reflected in the books. Reconciliation furnished by the assessee company showed that a sum of Rs.2,39,475/- was not actually recorded in the books. Thus it was treated as unexplained expenditure and added to the total income of the assessee company.
51. The ld. CIT(A) confirmed the addition for the same reason. He further observed that assessee company was not able to explain why these slips remained with the cashier for such a long time and these slips were not satisfactory explained by the assessee company.
52. We have heard the parties and carefully perused the material on record. In our considered view the addition having nexus with the expenses with the assessee company is established. The cashier has stated that they pertained to assessee company. Total amount for which slips were found was Rs.5,22,440/- out of which only a sum of Rs.2,39,470/- remained unexplained. Nature and character of all the transactions recorded in the slips remained the same. They were expenses incurred by the cashier for the assessee company, part of which was satisfactorily explained. Therefore, balance was rightly held as unexplained. Accordingly this ground of assessee is also rejected.
61 IT(SS) No.98-50/Ahd/05Nirma Ltd.
53. Ground No.9 relates to addition of Rs.42,000/- being miscellaneous notings in the diary of Mr. J.O. Shah. During the course of search at the residential premises of purchase manager of the company, one diary was seized as Annexure-A18 to the Panchnama dated 27.9.2001 on page 269 of Annexure A-18. The AO found following notes :-
"On page No.269 one visiting card of Gayatri Building Material Suppliers is stapled. The matter written on the reverse of the card is as under :-
Card : "Shri J.O. Shah, Saheb. Dt.13.6.2000 As per the talk please pay to the bearer Bharatbhai Received Rs.8 Sd/-
Similarly on page no.270 visiting cards of Gayatri Building Material Suppliers are stapled, one is dtd.3.6.2000 -the matter written on the reverse of the card is as under :
1st Card: "Shri J.O. Shah Saheb. Dt 3.6.2000 As per the telephonic talk please pay the bearer, Shri Bharatbhai, Jitubhai.
Received Rs.7.00 lakhs Sd/-
3.6.2000"
IInd Card : "Shri J.O. Shah Saheb. Dt.25.5.2000 As per the talk please pay to the bearer Bharatbhai Jitubhai Received Rs.25 Sd/-
25.5.2000"
IIIrd Card: Shri J.O. Shah Saheb Dt.1.6.2000 As per the talk please pay to the bearer Bharatbhai Received Rs.18.00 lakhs Sd/-"
54. During the course of search, statement of Shri J.O. Shah was recorded under section 131 who admitted that above notings represent unaccounted payments. He further explained that wherever notings are with decimal point, 62 IT(SS) No.98-50/Ahd/05 Nirma Ltd.
they represent lakh and wherever dots are not shown payment represents in thousand. Before the AO Shri J.O. Shah explained above transactions as under :-
"a. the transactions noted on the visiting cards pertained to a proposed land deal with Shri Jitubhai Patel of Gayatri Material Suppliers and the payments of Rs.25,33,000 were made as advances. As per Shri Shah these payments have now been incorporated in the books of accounts prepared by him for the block period.
b. the transactions noted against the name Amar Shah pertained to a proposed deal for flat payment of Rs.13,50,000/- were made as advances. As per Shri Shah these payments have now been incorporated in the books of accounts prepared by him for the block period.
c. other miscellaneous notings pertained to advances of Rs.25,000/- and Rs.17,000 given to various persons."
The AO treated the notings made by Shri J.O. Shah as belonging to assessee company and sum of Rs.25,33,000/- as expenditure incurred on behalf of assessee company. His conclusion is based on following reasonings:-
a) Shri J.O. Shah is the purchase manager of Nirma Ltd. dealing with the purchases of cement.
b) Gayatri Building Material Suppliers is one of the regular suppliers through whom Nirma Ltd., the assessee company has effected regular purchases of cement of Gujarat Siddhi Cements Ltd.
c) In the seized diary primarily notings have been made regarding the duties of Shri J.O. Shah as Purchase Manager. But for these claimed notings on page no.269 & 270 no worthwhile financial transactions pertaining to JO Shah Ind. Are noted.
d) Shri JO Shah in his statement dated 21.8.2003 has accepted that the diary seized from his residence was regularly maintained by him at Nirma House the office of the assessee company, in the course of his duties as a Purchase Manager.63 IT(SS) No.98-50/Ahd/05
Nirma Ltd.
e) Though, the transaction noted on seized visiting cards have been claimed to reflect personal transaction of Shri JO Shah. During all of the more than 12 years of association of Shri Shah and Shri Jitubhai Patel no other personal transactions could be evidenced by either of them.
f) though the transactions as narrated above have been owned up by Shri JO Shah his explanation in this regard is not backed by any contemporary documentary evidence as both these so called proposed deals are now being conveniently explained as deals that did not go through.
g) Regarding payments of Rs. 13.5 lacs noted In the memorandum part of Page-270 the person Amar against whom these payments are reflected has been identified by Shri J.O.Shah as Amar H. Shah his Assistant employed with the assessee company.
h) All the payments noted on pages 269 & 270 were made over a small period of 20 days - These payments of over Rs. 38 lacs were as per Shri J.O. Shah made as advances for- land and flat purchase. However, no MOU or any draft agreement for the same could foe furnished during assessment proceedings. Thus, it is not established that any such land/flat purchases were even negotiated by him in his personal capacity. Hence, in light of the above mentioned circumstantial evidences these payments are held to be payments made by assessee company Nirma Ltd.
i) Further, Shri .Shah's explanation that these payments were his personal payments is not acceptable as such payments which are not routine in nature would not have been put through a bearer. As from the perusal of the seized notings . it is clear that these payments were put through Shri Bharat. This also indicates that these payments pertained to routine transactions between Shri Shah's employer Nirma Ltd. and their regular cement supplier M/s. Gayatri Building Materials.
j) Shri Shah's contention that no actual deals materialized and the advances were returned is also not acceptable as had such reversal/return taken place the acknowledgement slips in the form of visiting cards seized in Annex, A-18 would have been taken back by the persons returning the money. But, even after lapse of more than a year the slips were seized as part of Annex. A-18. Hence, it is clear that by taking this argument that these payments were made by the assesses and the same were returned back within a period of 15 days, Shri Shah has tried to explain these unaccounted payments of Nirma Ltd.
Accordingly the AO worked out total payments on the basis of above document at Rs.38,83,000/- and Rs.42,000/- (as per clause (c) above).
64 IT(SS) No.98-50/Ahd/05Nirma Ltd.
55. The ld. CIT(A) deleted the addition of Rs.38,83,000/- and confirmed the addition of Rs.42,000/-. While deleting the addition of Rs.38,83,000/- the ld. CIT(A) relied on his order in the case of Shri JO Shah where these payments were treated as income of Shri JO Shah himself. In this regard ld. CIT(A) has made elaborate discussion on page 38 - 40 of his order. The main reasons given by him are that AO has not brought out any material to show that transactions pertained to Nirma Ltd. whereas Shri JO Shah has clearly admitted that this income is his undisclosed income which were declared in the block period. Shri JO Shah has stated that transactions noted in the seized document pertained to a proposed purchases land from Shri Jitu Patel of Gayatri Building Material Suppliers to whom payment of Rs.25,33,000/- was made and further transaction of Rs.13,10,000/- pertained to a proposed deal for purchase of flat for which advance was given. Since they were his unaccounted income it was so declared in the block return. Accepting the above finding the ld. CIT(A) deleted the addition. However, he confirmed the addition of Rs.42,000/- on the ground that this was not satisfactorily explained.
56. We have heard the parties. Once the major transaction of Rs.38,83,000/- was treated as of Shri JO Shah then other transaction found on the same document cannot be treated as belonging to assessee company. If it is unexplained then addition is called for in the hands of JO Shah only. Accordingly, we delete the addition of Rs.42,000/- confirmed by ld. CIT(A).
57. Ground No.10 relates to addition of Rs.3,56,847/- on loss in shares transaction of (i) Biochem Synergy Ltd. & (ii) NEPC Textiles Ltd.
58. The AO observed that during the course of search documents were found showing booking of contract losses through transactions between the associate entities within the group. The losses were booked and claimed in the return of income filed during the block period. However, no delivery of 65 IT(SS) No.98-50/Ahd/05 Nirma Ltd.
physical shares was effected even after more than one year of booking of losses. As per Annexure-A seized from the premises of Nirma Management Services (P) Ltd., it was gathered that losses were booked without actual transfer of shares and debentures between the individuals and associate entities of the Nirma Group. The AO in this regard observed as under :-
"12.2 Evidences regarding common control of assessee company's employees/advisors over all transactions of associate entities has already been elaborately discussed in section 6 in this order. Specific evidence of such common control over share transactions between associate entities was also found during search and post search enquiries. Most of these transactions in illiquid shares were effected through Sanjana Consultancy Services. In this different individuals and associate entities sold of these shares in F.Y. 1999-00, 2000-01 & 2001-02 primarily to the associate entity Jethiben K. Patel Discretionary Family Trust. The losses on such share transactions were booked in the returns of respective A.Ys. San.lana Consultancy Services is a proprietary concern of Ms Ulka S. Mehta. As part of post search inquiry, survey u/s. 133A was conducted on Sanjana Consultancy Services. In this statement of Ms Ulka Mehta was also recorded. the relevant extracts of the same are re-produced below:-
Q-5 Who gives you instructions regarding sale and purchase of shares done by entities of Nirma Group. Further, who completes the payments for these sales and purchases?
Ans.. The transactions. of the above group of entities are done through cheque. The information for the transactions and the cheque details are given by Shri Rahul Devi whose office is in Kashmira Chamber, Ashram Road. Ahmedabad.
Q-10 Please establish whether physical delivery of shares transacted through you by Jethiben K. Patel and Jathiben K. Patel Discretionary Family Trust was effected.
Ans. No, further I say that these transactions of entities of Nirma group have been effected1 through me and for any transaction physical delivery has not been taken or given, (free translation of statement recorded in Gujarati) 12.3 The above statement once again establishes the role of Shri Rahul Devi employee of the company Nirma Ltd. in the such share transactions of associate entities of the Nlrma Group. On the basis of these evidences, the assessee company was asked to furnish the proof of having effected r*l i very, before the date of search, of all shares sold in physical form. icing the course of this verification, it was ascertained that the in its return of income has claimed loss in the return of income for A.Y. 2001-02 on shares transacted with associate entities. However, even after lapse of 66 IT(SS) No.98-50/Ahd/05 Nirma Ltd.
more than 5 months thereafter i.e. till the data of search no proof of having effected delivery of these shares. could be submitted by the assessee company during assessment proceedings. On being asked to furnish Independently verifiable proof of the delivery of these chares, the assesses company has contended that receipt of payment should be taken as proof of delivery. Further, the assessee company has during whole of the assessment proceedings only produced self serving letters from the associate entitles, which had bought these shares, confirming delivery of the same- However, it is pertinent to note here that even after lapse of six months after the supposed sale no transfer of these shares *as affected- The following losses for which no independently verifiable proof of having effected delivery before 27.9.20O1 has been furnished by the assessee company are disallowed charged to income tax as be undisclosed income of the block period.
i) Shares of Biochem Synergy Ltd. which as per submission dated 29-10-2003 has been sold to Jetihiben K. Patel Discretionary Family Trust in physical form. No proof of delivery before date of search 27-9-2001 furnished. Loss of Rs. 3,01,954 is thus disallowed.
(ii) Shares of NEPC Textiles Ltd. which as per submission dated 29-10-2003 has been sold to Jethiben K- Patel Discretionary Family Trust in physical form. Ho proof of delivery before data of search 27-9-2001 furnished. Loss of RS.. 54,893 is thus disallowed.
Thus AO disallowed losses of Rs.3,56,847/- in respect of Biochem Synergy Ltd. and NEPC Textiles Ltd.
59. The ld. CIT(A) confirmed the order of the AO for the reasons that such losses were booked without physical transfer of shares.
60. We have heard the parties and carefully perused the material on record. Similar issue had arisen before the Tribunal in the case of Nima Specific Family Trust & others in IT(SS)A Nos.65/Ahd/2006 as described in pages 48 to 62 vide para 32 of Tribunal's order dated 28.2.2006 and also in the case of Nirma Industries Ltd. (IT(SS)A No.65/Ahd/2006 pages 27 to 37 thereon vide Tribunal's order dated 30.11.2009. The Tribunal following its order in Nima Specific Family Trust & others (supra) held that losses claimed 67 IT(SS) No.98-50/Ahd/05 Nirma Ltd.
by the assessee are genuine. In this regard we refer to para 37 to 42 from the order in the case of Nima Specific Family Trust & others (supra) as under :-
"37. Next Ground in some of the assesses is as under:
"Ld. CIT(A) has erred in rejecting the objection of the following additions in respect of losses incurred on share transactions which were disallowed as contrived losses booked through inter entity transaction."
64/Ahd/2005 : Rs. 37,40,522/-
65/Ahd/2005 : Rs. 7,32,087/-
66/Ahd/2005 : Rs. 32,10,733/-
67/Ahd/2005 : Rs. 9,24,036/-
30/Ahd/2005 : Rs. 8,17,080/-
21/Ahd/2005 : Rs. 20,85,763/-
22/Ahd/2005 : Rs.2,97,27,995/-
23/Ahd/2005 : Rs. 13,95,701/-
27/Ahd/2005 : Rs. 57,444/-
28/Ahd/2005 : Rs. 25,18,998/-
38. Facts in this behalf are mentioned by AO in the case of Nirchem Associates, IT(SS) No.28/Ahd/2005. Additions have been made by following observations:
"6.1 As mentioned above during the course of search in the Nirma Group of cases seized documents were found which evidence common control over transactions of the entities of the group. In this evidences of booking of contrived losses through transactions between two entities of the group were also found. As per these seized evidences for all these transactions Shri Rahul Devi exercised control over both the selling and buying entity. These losses were booked and claimed in the returns of income filed during the block period. However, no delivery of these physical shares was effected till the date of search 27-9-2001 i.e. after more than a year of the booking of the losses. In this specific reference is made to Annex.A seized from the premises of Nirma Management Services Pvt.Ltd. on 20-11-2001. Vide this seizure, shares and debentures were seized as documentary evidences establishing that without actual transfer of shares and debentures individuals and associate entities of Nirma group of cases have claimed capital losses in their returns. In this from the perusal of these shares, it is seen that even after lapse of two years from the date of booking of these losses no entries were made in the "memorandum of transfer".68 IT(SS) No.98-50/Ahd/05
Nirma Ltd.
6.2 Specific reference in this regard is also made to the inventory of shares drawn at the office of the associate company Nirma Management Services P.Ltd. on 19-10-2001 where at Sr.No.20 shares of Shreeji Dyechem Ltd. are noted. These shares were sold in physical form on 24-10-2000 by the assessee to another associate entity Jethiben K. Patel Discretionary Family Trust. However, in the inventory dated 19.10.2001 these shares are inventorised in the name of Shri Ambubhai M. Patel and Shri Sanjay P.Shah. During the block period the assessee AOP had three members viz. Nima Specific Family Trust, Nirchem Soaps & Detergents Pvt. Ltd. and Shiva Specific Family Trust. Shri Patel was a director of Nirchem Soaps & Detergents Pvt. Ltd. which in turn is a member of Nirchem Associates. Similarly, Shri Shah was a trustee of Shiva Specific Family Trust which is another member of the assessee AOP. Since AOP could hold shares in its own name therefore the shares were held in the name of members. As a piece of evidence a copy of one share of Shreeji Dye Chem Ltd. from this lot was seized as page-23 of Annexure-A to the Panchnama dated 20.11.2001 drawn at the office premises of Nirma Management Services P. Ltd. From this it is categorically established that these shares of Jayanti Business Machines Ltd. sold by the assessee and to associate entity Jethiben K. Patel Discretionary Family Trust on 13-3- 2000 in physical form were till 27-9-2001, neither transferred nor delivered to the buying entity. Similar evidences regarding shares of Siris Ltd., Sterling Quantity & Finance Ltd. were also seized on Page-31 and Page -32 of Annex.A. respectively.
6.3 The detailed evidences with regard to the contrived nature of such losses have been elaborately discussed in section 12 of the block assessment of Nirma Ltd. Relying on the same, vide order sheet noting dated 2-7-2004 the assessee was asked to show cause as to why the losses claimed in the returns of income for A.Ys.2000-01 and 2001-02 in share transactions done with other group entities, where no contemporary verifiable evidence of having effected delivery till date of search i.e. 27.9.2001 has been furnished, be not disallowed. The reply of the assessee has been filed vide submission dated 5-7-2000. As per this reply the assessee has relied upon the acknowledgment of delivery given by the buyer i.e. Jethiben K. Patel Disc.Family Trust dated 30-3- 2000. This evidence submitted by the assessee is unacceptable as inspite of specific opportunity to submit independently verifiable contemporary proof of delivery before the date of search, no such proof has been filed. In view of this, the following losses are disallowed."
Accordingly in respect of various share transactions, the amounts have been disallowed in respective assesses.
69 IT(SS) No.98-50/Ahd/05Nirma Ltd.
39. Learned counsel for the assessee contends that Nirma Management Services Pvt.Ltd. (:NMSPL" for short) is a company established for sale and purchase of share, depository and portfolio management of shares of various groups concerns. This NMSPL is also providing services of selling, purchasing, transferring and arranging of shares and all other activities in this behalf. It charges for rendering of such services. Learned counsel further contends as under:
There is nothing like "other entities of Nirma Group" nor there is any entity, which can be said to be Nirma Group.
(i) The assessee has duly `transferred' the shares sold by him. All what, that is necessary to consider the `transfer' as valid transfer were met with i.e.
a) The copy of sale bill has been received from the broker
b) Payment has been received by account payee cheque, much before the date of search
c) The delivery of shares have been given to the buyer and
d) Right in the property was also transferred.
The transaction has been held to be non genuine only because some of the shares found during the course of search proceedings were not found recorded at the back of the certificate, that they are mutated in the name of transferee. Even it is assumed that assuming that there is no "transfer of shares" within the meaning of the Companies Act, even then there was a "transfer" within the meaning of the Act. As the assessee, undisputedly, received the full consideration of shares before the end of the year, it resulted into the extinguishment of the assessee's right/s into shares Howrah Trading Co.Ltd. CIT, 36 ITR 215 (SC)
(ii) Merely because the transferees did not submit the shares for registration of transfer and the transfer was not recorded immediately is no ground for disallowance of losses on an actual transaction of sale. Purchaser may choose, not to get the share immediately transferred in his name for variety of reasons like -
He may try to sell in short run so as to save transfer duty other costs, and considerable time.
70 IT(SS) No.98-50/Ahd/05Nirma Ltd.
He may have put in best of his efforts, but on account of financial weakness, company may not be responding.
Could be negligence of the person.
(iii) A.O. brushed aside the basic evidences produced before him and the basic fact, which has been after verification accepted in totality and not confronted in any manner as per the following details.
1. The cost and source of acquisition of the shares and securities has not been challenged.
2. The price, i.e. rate and value of sale is not doubted. Shares in question are listed on stock exchange. So market price are available publicly and A.O. must have satisfied himself.
3. Realization of sale proceeds by receipt of cheques (normal banking channel) of total consideration not doubted.
4. So, the loss which has happened which is real in nature, has also not been doubted.
5. The appellant is no longer the owner of shares.
Buyers of the shares have acknowledged the receipt of the delivery of shares to the seller referring to the name of the broker through whom the shares were purchased.
(iv) The evidence that the physical delivery of the shares sold were given was further evidenced by the fact of subsequent actual registration of shares in the name of the buyer or postal return of letter sent to different companies for registration of shares in the name of transferees or SEBI complaints lodged or by the instances of sale of shares by the purchasers through the stock exchange without getting the same transferred in their name etc. (Page 84 & 85 of the PB)
(v) The transaction was duly accounted in the books of accounts of both the seller and the buyer. The sellers received the invoice from the broker which has been duly accounted, profit or loss in respect of the transactions have been duly disclosed in Return of Income filed before the date of search and the basic information was available on the file of Income Tax department and the balance could have been called for and verified in the course of assessment proceedings. So there is no undisclosed income, which could be made part of block assessment proceedings. The only seized paper relied on is the list of inventory, which again is only in the name of Nirma Management Services 71 IT(SS) No.98-50/Ahd/05 Nirma Ltd.
Pvt.Ltd., which acts as service provider to buyer also. The purchaser, which has purchased the shares has reflected the shares purchased in its books of accounts, which is evident from the Balance Sheet of the purchaser attached to its Return of Income, filed before the date of search.
(vi) Without prejudice, in some of the cases, no evidence whatsoever is found at the time of search that the shares were not got transferred in the name of the transferee before the date of search. In all such cases, no assessment can be framed under Ch.XIV-B of the Act at all.
In the Paper Book containing pages A1 to J19 following evidences have been furnished.
(a) Copy of sale bills. From the perusal of the bill it is evident that the loss is disallowed only in respect of few of the scrips out of many scrips referred in the sales bill.
(b) Confirmation of the purchaser as regards to the receipt of physical delivery of shares transacted through the broker.
(c) Proof of shares being transferred subsequently (after search)/ lodgment of complaint with SEBI for none transfer.
(d) Instances of shares sold by the purchaser through the Stock Exchange without getting the same transferred in their name.
(e) Evidence of reflection of purchased shares, if sold, by purchasing entity in their Return of Income.
(f) Evidence of reflection of purchase of shares if held as investment in the Balance Sheet of the purchasing entity attached to the Return of Income, filed before the date of search.
(g) Evidence of shares sold by the appellants in their Return of Income.
40. Learned DR, on the other hand contends as under:
(i) All the shares and debentures were found at one place i.e. at the Office of Nirma Management Services Pvt.Ltd. at Kashmira Chambers, Ashram Road, Ahmedabad.72 IT(SS) No.98-50/Ahd/05
Nirma Ltd.
(ii) All the shares found during the course of search and inventorised (Department Paper Book page No.29 to 47) were not transferred in the name of transferee.
(iii) The department has not made addition in cases where shares were not found transferred in the name of buyer, if sold recently. It is only where the longtime had elapsed to the date of transaction and still if the shares were not transferred in the name of buyer, the addition is made.
(iv) Ms.Ulka S.Mehta, the broker has made a statement in the course of survey proceedings that no physical delivery of the shares were routed through her.
(v) Buyer and seller have not contacted the broker, but carried out the transaction directly. The transaction is not routed through the stock exchange.
(vi) The proof of payment by cheque is not material.
(vii) No proof of physical delivery of shares was found during the course of search. Decision in case of Unique Invin Ltd. V/s. ACIT 74 ITD 43 (Cal.) was relied upon in which the issue of allowability of loss incurred on dealing in shares to/from sister concerns under the same management and carrying on their business from the same place has been discussed.
Decision in case of CIT V/s. Shekhawati Rajputana Trading Co.Pvt. Ltd. 236 ITR 950 (Cal.) is also relied upon wherein the loss on sale of shares by the Assessee company to its Chairman was held to be not genuine.
Reliance is also placed on the decision in case of Madras Industrial Investment Corporation V/s. CIT 225 ITR 802 (SC) where it is stated that the loss incurred is an expenditure and therefore the losses from the share transactions would be covered under the amended definition of undisclosed income u/s.158B(b).
Ld.D.R. also stated that in alternate, if the transaction is held to be genuine, then the same may be set aside to A.O. for verification of the rate at which the transaction has taken place as the aspect of valuation has not been considered by A.O. during the assessment proceedings.
73 IT(SS) No.98-50/Ahd/05Nirma Ltd.
41. Learned counsel for the assessee, in reply, contends as under:
(i) Nirma Management Services Pvt.Ltd. is admittedly an entity which is rendering the services to both the buyer and the seller in respect of accounting, investment, taxation and other related services. It is not in dispute that the shares were kept in the custody of Nirma Management Services Pvt.Ltd. The assessee contends that the shares which were lying un-registered in the name of buyer, were duly delivered upon sale and the transaction completed. Nirma Management Services Pvt.Ltd was in possession of the shares as agent of the transferee.
(ii) Ld.DR's statement that all the shares inventorised during the course of search were not transferred in the name of transferee is factually incorrect statement which is evident from the list of shares submitted in the department paper book at page No.29 to 47, where in many of the cases the name of the entity and the holders are the same. In many of the cases, the shares were held in the name of Trustee and only in few of the cases the buyers did not / could not transfer the shares purchased in their name, the losses in respect of which have been considered as undisclosed income.
(iii) Ld.DR's statement that department has not made addition in cases where the shares were not found transferred in the name of buyer, if sold recently is also incorrect statement. In fact, the addition has been made in respect of all the shares found during the course of search, which were not transferred in the name of transferee, irrespective of the date of sale.
(iv) The delivery of the shares have been given by the seller to the buyer is evidenced by the acknowledgement of the buyer of receipt of shares. The payment for the shares purchase have been paid before close of the year by A/c.
Payee cheque to the broker concerned and the sale consideration has also been received from the broker. It is not the case that the cheques have been issued directly between the seller and buyer.
(v) Ld. DR's statement that the transaction has not been routed through the stock exchange is not material as it is not required that the transaction should have been 74 IT(SS) No.98-50/Ahd/05 Nirma Ltd.
entered only on the floor of the exchange. In fact, under the Income-tax Act itself, for the transactions taken place through the stock exchange and for off the floor transaction, different rate of tax is prescribed. The contention of Ld.D.R. that the buyer and seller have not contacted the broker but carried out the transaction directly is also misplaced in the light of the fact that the broker has issued bills to both the parties and the cheques have been issued to/ received from the broker.
(vi) The proof of payment by cheque at the time of transaction is material and cannot be ignored.
(vii) No proof of delivery of shares was found during the course of search is no ground to disallow the loss. The assessee submits that the proof of delivery of shares in a date prior to the date of search, as submitted during the course of search proceedings, did exist. If the same was not found/seized during the course of search, no addition can be sustained on the basis thereof.
Decisions relied upon by Ld.DR were distinguished as under:
1. The reliance on the decision in case of Unique Invin Ltd Vs. ACIT 74 ITD 43 (Cal.) is misplaced as in the said case shares traveled from one place and ultimately come back to the same company within the same year. The bills of the shares were raised long after the date of contact and the shares were delivered after a gap of about 8 to 9 months. Thus the facts of the case are completely different.
2. The reliance on the decision in case of CIT V/s.Shekhawati Rajputana Trading Co.Pvt.Ltd. 236 ITR 950 (Cal.) is also misplaced as in the said case the cheques were issued simultaneously by the parties in favour of each other for purchase and re-purchase on the same day without both the parties having sufficient funds in the bank and that itself showed that the transaction was not genuine. The facts of the assessee's case are clearly distinguishable.
3. In case of Madras Industrial Investment Corporation Vs. CIT 225 ITR 802 (SC) the issue before the Hon'ble Court was to decide whether the liability of the appellant company to pay the amount of Rs.3 lacs at the time of maturity of borrowing after 12 75 IT(SS) No.98-50/Ahd/05 Nirma Ltd.
years, in addition to what it actually received be treated as expenditure and whether it was revenue expenditure.
4. Even if the transaction is viewed as tax planning, though it is not, we submit that the assessee is entitled to plan his transactions such that his taxes are minimized. There is no difference between the Appellant and a salaried tax payer who plans his investments to minimize his tax liability See CWT v.Arvind Narottam {(1988) 173 ITR 479 (SC)}. This principle has been reiterated in the recent decision of the Supreme Court in the case of Union of India v. Azadi Bachao Andolan {(2003) 132 Taxman 373} wherein the apex court observed :
"We may in this connection usefully refer to the judgement of the Madras High Court in M.V. Valliappan and others v. ITO {(1988) 170 ITR 238}, which has rightly concluded that the decision in McDowell cannot be read as laying down that every attempt at tax planning is illegitimate and must be ignored, or that every transaction or arrangement which is perfectly permissible under law, which has the effect of reducing the tax burden of the assessee, must be looked upon with disfavour. Though the Madras High Court had occasion to refer to the judgment of the Privy Council in IRC v. Challenge Corporation Ltd. {(1987) 2 WLR 24}, and did not have the benefit of the House of Lord's pronouncement in Craven, the view taken by the Madras High Court appears to be correct and we are inclined to agree with it. If the Court finds that notwithstanding a series of legal steps taken by the assessee, the intended legal result has not been achieved, the Court might be justified in overlooking the intermediate steps, but it would not be permissible for the Court to treat the intervening legal steps as non-est based upon some hypothetical assessment of the `real motive' of the assessee. In our view, the court must deal with what is tangible in an objective manner and cannot afford to chase a will-o'-the-wisp.
5. The appellant also relies upon the decisions explaining the concept of block vs. regular assessment (Page 1 to 9), copy of which was furnished by authorized representative during the appellate proceedings. The loss suffered by the assessees cannot come within the definition of undisclosed income within the meaning of clause (b) of section 158B of the Income-tax Act, 1961. Further the loss claimed by the assessee is not "expense, deduction or allowance" at all. Therefore also the loss suffered by the assessee cannot come within the definition of "undisclosed income" within the meaning of clause (b) of section 158B of the Act.
● "Expenditure" is what is paid out or paid away and lost 76 IT(SS) No.98-50/Ahd/05 Nirma Ltd.
irretrievable Indian Molasses Co. (Pvt.) Ltd. Vs. CIT, 37 ITR 66 (SC) • "Deduction" means certain expenses such as those directly related to production of income. -Black"s law dictionary as approved in Nectar beverages P.Ltd. Vs. DCIT, 267 ITR 385 (Bom.) In this connection the circular NO.8 of 2002 issued by the CBDT explaining the relevant amendment by the Finance Act, 2002 {258 ITR (st.) 13} clearly specifies the purpose and the ambit of the amendment as is reproduced below.
"61.2 The existing provisions of clause (b) of section 158B define undisclosed income to include income or property which has not been or would not have been disclosed for the purpose of the Act, and which is represented by any money, bullion, jewellery or other valuable article or thing, or by any entry in the books of account or other document or any other transaction. It has been noticed that in some cases the appellate authorities have taken a view that this definition covers only property or receipt which have not been disclosed and does not covers income represented by entries in respect of false claims of expenses or deductions. Such view is contrary to the intention underlying the provision of bringing to tax the entire undisclosed income including income which has been suppressed by making false claims of expenses or deduction, which have been discovered as a result of search or requisition.
61.2.1 The Finance Act, 2002 has amended the definition of undisclosed income in section 158B to specifically include therein income based on entries in books of account or other documents which represent a false claim of any expense, deduction, or allowance under the Income-tax Act."
In the present case the assessee had suffered loss in the nature of long term capital loss, on sale of shares. In the regular return of income filed by it, the same was set claimed as a loss to be set off against other capital gain in accordance with the provision of section 70(3) of the Act. Such loss or set off thereof cannot be covered within the meaning of the term "undisclosed income".
i) In any case, in some of the cases no evidence whatsoever is found at the time of the search that the shares were not got transferred in its name by the Transferee before the date of search. In all such cases, no assessment can be framed under 77 IT(SS) No.98-50/Ahd/05 Nirma Ltd.
Chapter XIV-B of the Act at all.
ii) Assuming that the case is covered under the Block Assessment, even then, no addition is called for because as a matter of fact the assessee had "transferred" the shares owned by it.
• The transaction supported by the independent
evidence of share-broker.
• The Sale note issued by the broker covers much
larger no. of scrips. The Revenue disputes some and not all such sale covered under one note.
• The share certificate together with the Transfer forms handed over to the transferee and the confirmation to that effect filed with the A.O. • As matter of fact the purchaser has further transferred some of the shares which are not being disputed by the Revenue. If the sale from the assessee did not take place, how could the purchaser have further transferred the shares?
• The price of the shares received by the assessee before the end of the financial year and much before the date of search.
• All the shares owned by every entity are kept in the custody of the Nirma Management Services P.Ltd.
Under the circumstances, the said entity was in possession of shares as the agent of the Transferee and not the assessee.
• The Revenue does not dispute the fact that the transaction of sale has taken place at the market price.
42. We have heard rival submissions and perused material on record. It emerges from the record that copy of sale bills were received from the brokers. Payment has been received by account payee cheques, delivery of shares were given to the buyer. In view of these facts, right in the property stands transferred. There is a difference between transfer of shares within the meaning of Companies Act and I.T. Act. Assessee having received full consideration in shares, there 78 IT(SS) No.98-50/Ahd/05 Nirma Ltd.
was extinguishment of the assessee's right in shares. We find merit in the arguments of the learned counsel for assessee that there may be various reasons for not transferring shares immediately, which are mentioned above and transactions were duly incorporated in the books, besides, the assessee has furnished evidences in respect of confirmations of purchases, group of shares subsequently transferred and in case of non-transfer lodging of complaints with SEBI, instances of shares sold by purchases through stock exchanges, offering of capital gains by the assessee in their return of incomes.In consideration of all these facts, we are of the view that assessee having duly incorporated all these share transactions in the capital accounts and offered capital gain thereof, this cannot be held to be undisclosed transactions and resulting losses as contrived losses that too in block assessment proceedings, only due to certain assumed irregularities on the part of revenue. Consequently, we hold that these losses cannot be disallowed in block assessment proceedings, holding them to be contrived losses, therefore, claim of losses made in this ground are allowed in all these cases."
61. The ld. DR also agreed that issue is now covered by the Tribunal's decision in assessee's group case and also fairly agreed that facts are exactly identical. This being the position, respectfully following the above order of the Tribunal, we allow the claim of the assessee on this issue. This ground of assessee is allowed.
62. Ground No.11 relates to charging of interest under section 158BFA(1) of the I.T. Act. The AO has directed in the assessment order to charge interest. The ld. CIT(A) dismissed the related ground by holding that charging of interest under section 158 BFA is mandatory and consequential.
63. Ld. AR pointed out that this issue is also covered by the decision of the Tribunal in the case of Nirma Industries Ltd. in IT(SS)A No.65/Ahd/2006.
64. We have heard the parties. In our view there is no case for interference in the order of ld. CIT(A). Charging of interest under section 158BFA is pari material to charging of interest u/s 234A which has been held mandatory by Hon. Apex Court in various decisions such as :-
79 IT(SS) No.98-50/Ahd/05Nirma Ltd.
CIT vs. Anjum M.H. Ghaswala & Others 252 ITR 1 (SC) CIT vs. Hindustan Bulk Carriers 259 ITR 449 (SC) SK. Muneer SK. Mannu Choudhary vs. DCIT 300 ITR 216 (Bom) Accordingly this ground of assessee is rejected.
65. Ground No.12 relates to initiation of penalty proceedings under section 158BFA(2). This ground is pre mature as penalty has to be decided in the appeal arising from orders passed by the AO under that section. This ground is accordingly rejected.
66. Ground No.13 is general in nature which does not require specific adjournment. Hence it is rejected.
67. The assessee has raised additional ground as under :-
In law and in facts and circumstances of the appellant's case, the Assessment Order passed u/s 158BC of IT Act dtd.31.10.2003 is null and void as the additions were made in respect of the seized materials found from the premises of other persons.
68. We have heard the parties. We allow the additional ground to be admitted because it is a legal ground and similar grounds have been raised by the assessee before the ld. CIT(A) as ground No.1. On merits we are of the view that assessee cannot succeed in respect of this ground because in addition to the search carried out at the premises of employees of the assessee, search was also carried out at the premises of the assessee itself. The documents and evidence found at both the places were considered by the AO and, therefore, it could not be said that block assessment order passed u/s 158BC in the case assessee was solely based on the documents found at the premises of the third persons. Since assessee was also searched AO gets jurisdiction to pass block assessment order under section 158 BC and while 80 IT(SS) No.98-50/Ahd/05 Nirma Ltd.
framing block assessment he can consider the evidence found during the course of search at the premises of the assessee as well as at the premises of other persons. Once block assessment proceedings are validly initiated in the case of the assessee then inclusion of material found in a search of other persons will not invalidate the block assessment proceedings. Further there cannot be a case that in addition to block assessment proceedings u/s 158BC as a result of the search carried out at the premises of the assessee, proceedings u/s 158BD should also be initiated separately and independently in order to make block assessment for evidence found at the search of third persons. Two parallel proceedings in Chapter XIVB -one under section 158BC and the other under section 158BD cannot be permitted for the same block period and arising from simultaneously searches. Accordingly we do not find any merit in the additional ground and hence it is rejected.
69. As a result, appeal filed by the assessee is partly allowed.
Revenue's appeal
70. In departmental appeal the only issue involved is about relief of Rs.38,83,000/- given by ld. CIT(A) to assessee in respect of addition made on the basis of statement of Shri J.O. Shah and document found from his premises.
71. On the basis of diary (Annexure A-18) of the purchase manager Shri J.O. Shah the AO noted that several payments have been made by him which were not accounted for such as payment of Rs.13.5 lakhs made to one Shri Amar who is stated to be an Assistant of Shri J.O. Shah, and payment of Rs.25 lakhs to Gayatri Building Material Suppliers. In addition to this there were payments of Rs.25,000/- and Rs.17,000/- which were also recorded and which were confirmed by the ld. CIT(A) as addition in the case of the assessee. While discussing this issue contained in ground No.9 in assessee's 81 IT(SS) No.98-50/Ahd/05 Nirma Ltd.
appeal, we have held that the major addition of Rs.38,83,000/- has been considered in the case of Shri J.O. Shah which has been declared by Shri J.O. Shah and accepted by the Department. This issue was also discussed by the Tribunal in the case of Shri J.O. Shah in IT(SS)A 325 & 321/Ahd/2004 in para 17 & 18 thereof as under:-
"17. The details of transactions are given by Ld. A.O. and C.I.T.(A) in their orders. The A.O. treated this income as that of Nirma Ltd., and proposed to make substantive assessment in that case whereas he proposed protective assessment in the case of the assessee. The Ld. C.I.T.(A) did not agree with the A.O. and held that income did not pertain to Nirma Ltd., and therefore, once the assessee has declared the same as his income in the block return there is no case for upholding it as income of Nirma Ltd., The Ld. CIT(A) based his reasoning as under :-
"(a) The issue under question i.e. addition of undisclosed income of Rs.38.83 lacs., is based on notings on page 269 and 270 of Annexure A-18 seized from the appellant's residence. As per presumption u/s.
132(4A) of the I. T. Act, the income is deemed to be of the person from which the seized asset or document is found unless proved contrary. There is no conclusive proof that the papers or the transactions recorded thereon do not pertain to the appellant and there is nothing to prove that the transactions are of Nirma Ltd., only and not of the appellant.
(b) The Assessing Officer himself has admitted that during the course of assessment proceedings the statements of Shri J.O. Shah and Shri Jitubhai Patel partner of the Gayatri Bldg. Material Suppliers were recorded. In the statement, Shri J.O. Shah accepted that the notings represent payments. He also recorded the notings on these pages and accepted that wherever the notings are with decimal points or carry the specific narration "lacs" the same represent payments made in Rs. Lacs and wherever there is no narration and also no decimal points are used the notings represent payments made in thousands. With regard to these transactions, it was explained by Shri J. O. Shah that (i) the transactions noted on the visiting cards pertained to a proposed land deal with Shri Jitubhai Patel of Gayatri Material Suppliers and the payments of Rs.25,33,000 were made as advances which were incorporated in the books of accounts of Shri Shah for the block period.
82 IT(SS) No.98-50/Ahd/05Nirma Ltd.
(ii) the transactions noted against the name Amar Shah pertained to a proposed deal for flat payment of Rs.13,50,000 were made as advances, which were incorporated in the books of accounts prepared by Shri Shah for the block period, and (iii) Other miscellaneous notings pertained to advances of Rs.25,000/- and Rs.17,000/- given to various persons. Thus in the statements recorded u/s. 131 these payments have been admitted by Shri J. O. Shah as material transactions pertaining to him with regard to purchase of land/flat.
(c ) Simply because Shri J. O. Shah happens to be Purchase Manager of Nirma Ltd. And Gayatri Building Material Suppliers is one of the regular suppliers of Nirma Ltd. does not mean that the appellant cannot have any personal; transaction with Supplier of the Company. In fact, the Assessing Officer has not brought out any material evidence to prove that the transactions pertain to Nirma Ltd. On the contrary the statements recorded and explanation given by Shri J. O. Shah and Shri Jitubhai Patel leads as to the conclusion that the transactions belonged to the appellant.
(d) The appellant himself has disclosed these transactions as "undisclosed income" in the return of income for the Block Period and there is apparently no reason for the appellant to own up someone else's income as the rate of tax applicable is the same."
18. We have heard the parties carefully and perused the material on record. In our considered view, there is no case for interference in the order of the Ld. C.I.T.(A). Reasons are (i) that no evidence is found in the search so as to show that the transaction was that of Nirma Ltd.The inference have been drawn merely by presumption and surmises. (ii) There is no material to contradict the statement of the assessee and to believe that income did not belong to him. (iii) Whether income would pertain to Nirma Ltd., or not can only be decided in the case of Nirma Ltd. In case, it is held that income belonged to Nirma Ltd., then a rectification can be carried out in the case of the assessee. (iv) Simply because the assessee is a Purchase Manager and M/s. Gayatri Building Material Suppliers is a regular supplier to Nirma Ltd, it cannot be inferred that transaction recorded by Shri J.O. Shah pertained to Nirma Ltd., there has to be cogent material to link Nirma Ltd., with the transactions found on the documents recovered from the premises of the assessee. "
83 IT(SS) No.98-50/Ahd/05Nirma Ltd.
72. Since there is no material to hold that income arising from such payments as recorded in Annexure-A18 belonged to the assessee company and it has been declared by Shri J.O. Shah in his personal assessment and thus confirmed by the Tribunal, the addition cannot be made in the hands of assessee company. Accordingly ld. CIT(A) was justified in deleting the addition. This ground of Revenue is accordingly dismissed.
73. In the result, appeal filed by the assessee is partly allowed and the appeal filed by the revenue is dismissed.
Order pronounced in Open Court on 27/8/2010.
Sd/- Sd/-
(Mahavir Singh) (D. C. Agrawal)
Judicial Member Accountant Member
Ahmedabad.
Dated: 27/8/2010.
Mahata/-
Copy of the Order forwarded to:-
1. The Assessee.
2. The Respondent.
3. The CIT(Appeals)-
4. The CIT concerned.
5. The DR.,ITAT, Ahmedabad.
6. Guard File.
By ORDER
Deputy/Asstt.Registrar
ITAT,Ahmedabad