Income Tax Appellate Tribunal - Mumbai
M/S. Mangatram Arora Finance Ltd., ... vs Dcit Cent. Cir. - 43, Mumbai on 15 March, 2017
आयकर अपील य अ धकरण "I" यायपीठ मंब
ु ई म ।
IN THE INCOME TAX APPELLATE TRIBUNAL "I" BENCH, MUMBAI
BEFORE SHRI SAKTIJIT DEY, JUDICIAL MEMBER
AND SHRI RAMIT KOCHAR, ACCOUNTANT MEMBER
I.T.(SS) A No.148/Mum/2006
(Block Period 01-04-1 990 to 07-02-2001)
M/s Mangatram Arora बनाम/ D.C.I.T. Central Circle 43,
Finance Ltd., C.G.O. Build ing,
v.
4, Shiv Darshan, M.K. Road,Churchgate
S.V. Road, Santacruz (We st), Mumbai - 400 020.
Mumbai - 400 054.
थायी ले खा सं . /P AN : AAACM5684P
(अपीलाथ /Appellant) .. ( यथ / Respondent)
Assessee by : Shri M. Subramanian
Revenue by : Shri B.C.S. Naik, DR
ु वाई क तार ख / Date of Hearing
सन : 03-01-2017
घोषणा क तार ख /Date of Pronouncement : 15-03-2017
आदे श / O R D E R
PER RAMIT KOCHAR, Accountant Member
This appeal, filed by the assessee, being IT (SS) A No. 148/Mum/2006, is directed against the appellate order dated 03-03-2006 passed by the learned Commissioner of Income Tax (Appeals)- III, Mumbai (hereinafter called "the CIT(A)") for the block period 1.4.1990 to 7.2.2001, the appellate proceedings before the learned CIT(A) arising from the block period assessment order dated 28-02-2003 for the block period 1.4.1990 to 7.2.2001 passed by learned Assessing Officer ( hereinafter called " the AO") u/s 158BC(c) of the Income-tax Act,1961 (Hereinafter called "the Act").
2 IT (SS)A 148/Mum/2006
2. The grounds of appeal raised by the assessee in the memo of appeal filed with the Income-Tax Appellate Tribunal, Mumbai (hereinafter called "the tribunal") read as under:-
"1. On the facts and in the circumstances of the case and in law, the block assessment order passing U/s.1S8BC is invalid and bad in law.
2. Without prejudice to ground No. 1 and on the facts and in the circumstances of the case and in law, the learned C.I.T.(A) erred partly approving the order of the A.O and that too without fully and properly appreciating the facts of the case.
3. Without prejudice to Ground No. 1 and on the facts and in the circumstances of the case and in law, the learned C.I.T(A) erred in confirming the action of the A.O in treating the amount of Rs.55,00,000/- as undisclosed income of the block period.
4. Without prejudice to Ground No. 1 and on the facts and in the circumstances of the case and in law, the learned C.I.T(A) erred in approving the charging of interest @ 18% in principle and directing the calculating of interest on the amount of Rs.55,00,000/-from the date of receipt of the loan.
5. Without prejudice to Ground No. 1 and on the facts and in the circumstances of the case and in law, the learned C.I.T(A) erred in not dealing with the issue of undisclosed income computed at Rs. 11,00,000/- as on account of cash found during the course of search.
6. Without prejudice to Ground No. 1 and Ground No. 4 and on the facts and in the circumstances of the case and in law, the learned C.I.T(A) ought to have directed the deletion of the entire interest amount charged being notional income.
7. Without prejudice to Ground No. 1 and on the facts and in the circumstances of the case and in law, the learned C.I.T(A) erred in directing the addition of an amount of Rs.35,760/-.
8. Without prejudice to Ground No. 1 and on the facts and in the circumstances of the case and in law, the learned C.I.T(A) erred in directing the addition of an amount of Rs.19,440/-.
9. Without prejudice to Ground No. 1 and on the facts and in the circumstances of the case and in law, the learned C.I.T(A) erred in upholding the action of the A.O in levying surcharge.
3 IT (SS)A 148/Mum/2006
10. Without prejudice to Ground No. l and on the facts and in the circumstances of the case and in law, the interest charged U/s.158BFA(1) is invalid and bad in law."
3. The brief facts of the case are that a search action u/s 132(1) of the Act of 1961 was carried out by Revenue on 7th February, 2001 in case of assessee at office premises of the assessee at 4, Shiv Darshan, Sarojini Road, Santacruz (West), Mumbai . During the course of afore-stated search proceedings, certain loose paper file , cash and diaries were found and seized by Revenue. A Notice u/s 158BC of the 1961 Act was issued and served on the assessee on 02-09-2001 and in response the assessee filed return of income u/s. 158BC of the Act of 1961 for the block period 01-04-1990 to 07- 02-2001 on 10th December, 2001 declaring undisclosed income at Rs. Nil.
4. At the very outset, the ld. Counsel for the assessee submitted before the tribunal that he is not pressing ground Nos. 1 , 2, 7 & 8 raised by the assessee in memo of appeal filed with the tribunal and these grounds may be dismissed as being withdrawn / not pressed. The ld. D.R. on the other hand submitted that he has no objection if the assessee's ground no 1,2,7 and 8 are dismissed as being withdrawn /not pressed . Under these circumstances as discussed above, we dismiss ground Nos. 1, 2, 7 & 8 being withdrawn/not pressed by the assessee. We order accordingly.
5. During the course of afore-stated search proceedings, documents marked as Annexure A-5 was also found and seized by Revenue along with several other documents . When Sh Mangatram Arora, Director of the assessee company was confronted with the said seized diary on 12-04-2001 , he stated vide his statement dated 12.04.2001 recorded on oath u/s 131 of the Act before DDIT(Inv) , in reply to question no 3 , that it is a diary which was relating to period 1.5.1999 to 11.9.1999 containing written pages 1 to 97. It was stated by said Mr Mangatram Arora on oath in his statement dated 4 IT (SS)A 148/Mum/2006 12.04.2001 that this is a rough summary of daily collection and disbursement of temporary loans and advances with various parties. It was stated by said Mr Mangatram Arora that this diary also contained similar details as explained in Annexure-A-4 in the same statement dated 12-04- 2001 wherein the assessee had stated that the said diary A-4 contains day to day transactions regarding cash collection and disbursement from various parties related to financing business of the assessee company and personal business of Sh. Mangatram Arora . It was stated that the said diary is maintained for memorandum purposes and part of the transactions are accounted for in books of accounts while part of the transactions are not accounted in the books of accounts. While explaining/decoding the page 90 of Annexure A-5 seized by Revenue, the Director of the assessee company Sh. Mangatram Arora vide statement recorded on oath u/s 131 of the Act on 12- 04-2001 stated in reply to question no. 3 which is reproduced hereunder along with other relevant extracts of the statement which are also reproduced hereunder:
" Statement of Shri Mangatram Arora recorded on 12/4/2001 at the office of the D.D.I.T(Inv.) , Unit II(1) , Aayakar Bhavan , Mumbai , u/s 131 of the I T Act.
Sd./- Sd./
(Mangatram Arora) RAJESH KUMAR KEDIA
Dy. Director of Income-Tax(INV.)
Unit II(1), Mumbai
Q. No. 1 Please identify yourself and confirm that oath has been administered to you. Also confirm that you have been made aware of the consequences of giving false statement under oath under the I.T.Act and IPC A I Mangatram Arora aged 49 years S/o Mulkraj Arora residing at Flat No. 4, Shiv Dharshan Sarojini Road, Santacruz(W), Mumbai- 400054 . I confirm that oath has been administered to me. I also confirm that I have been made aware of the 5 IT (SS)A 148/Mum/2006 consequences of giving false statements under oath under the I.T. Act and IPC.
**** **** **** Q. No. 3 I am showing you seized material annexure A1 to A 10 seized from your residence cum office premises on 01-03-2001. You are requested to go through the same and explain the contents thereof .
Ans. 3 I have gone through the above seized material Annexure A-1 to A-10, seized from my residence and the contents thereof are as under:
**** **** **** Annexure A-4 This is a diary marked as 1998 containing written page 132. This diary contains day to day transactions regarding cash collection and disbursement from various parties relating to financing business of MAFL and personal. This diary is maintained for memorandum purpose. Part of the transactions are accounted and part of the transactions are not accounted. Page 3 to 10 are related to individual account such as on page 7 the ledger account of T M Dedhia gives details such as T M Dedhia 500(T) equivalent to 5 lakhs 700(T) equivalent to 7 lakhs 500(T) equivalent to 5 lakhs 500(T) equivalent to 5 lakhs **** **** **** 6 IT (SS)A 148/Mum/2006 Annexure - A/5 This is a diary relating to period 1/5/99 to 11/9/99 containing written pages 1 to 97. This is also rough summary of daily collection and disbursement of temporary loans and advances with various parties . It also contains details as explained in Annexure A-4 For Example : On back side of page 23 , dated 5/6/99 it records 94(T) cash Sahi Madina- 94000/- cash given to Madina 90(T) cash Dilip 90000/- cash given to Dilip **** **** Page no. 44-.....Figures are in hundred. 'T' stands for thousand rupees. 'L' stands for Lakhs. The main transaction of this page is Rs 10 Lakhs received from SMP (SMP Marine Services Ltd.) by cheque. The amount is given to USG i.e. Ustaji. Other details, I am not able to furnish in this regard. Rs. 30 Lakhs is to be given to Ustaji.
**** Page 90 This is dated 9.9.99. This also relates to transaction with Ustadji such as 15 L (Rs. 15 lakhs), 10 L (Rs. 10 lakhs) and 15L (Rs. 15 lakhs) against date. This page gives aggregate of cash Rs. 55 lakhs taken from USG over a period of time. It also includes interest calculation till 10/9 All the pages of this diary contain day to day summary transactions of cash.
Annexure A-6 This is a diary marked as 1999 containing written pages 1 to 88. This is related to the period starting from 12/9/1999. This diary contains day to day transactions regarding cash collection and disbursement from various parties related to financing business of MAFL and personal. This diary is maintained for memorandum purpose. Part of the transactions are accounted and part of the transactions are not accounted. On an average my daily cash collection against finance is Rs. 25,000 to Rs. 30,000 which is again either 7 IT (SS)A 148/Mum/2006 given to the parties , or partly deposited in bank. On these small financing, I charge interest of 18% per annum......
**** **** **** Q.8 Give the name and address of and other details of USG?
Ans : USG stands for Ustaji. I do not know any other details of USG. I do not know his address also.
Q.9 Please give exact details of total cash loan taken from time to time from USG?
Ans. As it is clear from page 90 of Annexure -A5 that total of Rs. 55 Lakhs is taken from him on which interest is payable in 10th of every month . My entire business of cash finance is done from this fund of Rs. 55 Lakhs.
Q. 10 How this money comes to you and who gives you?
Ans : The money comes to me through his person from time to time. Other details, I do not know.
**** **** Q. 13 Please identify the page-wise transactions of Annexure A-9, dated 1.3.2000 which are accounted or unaccounted.
Ans. I am not in a position to segregate the transactions recorded in these diaries under the head accounted or unaccounted. I am also not in a position segregate the transaction of other diaries or papers or books under the head whether accounted or unaccounted.
**** 8 IT (SS)A 148/Mum/2006 I have given the above statement voluntarily without any force, coercions , threat and I have read this statement and found it correctly recorded. I have given this statement in perfect state of mind.
Sd/-
Deponent"
During the course of block assessment proceedings before the AO, the assessee submitted vide letter dated 16.01.2003 i.e. almost after two years of recording of the statement on oath u/s 131 of the 1961 Act on 12.4.2001, that all the transactions as are referred to in the statement dated 12.04.2001 are recorded in the books of accounts and it was also submitted that at the time of signing of the statement on 12.4.2001, the Director of the assessee company Mr. Mangatram Arora was under much mental pressure due to bad health of his son and the effect of search. It was submitted that w.r.t. some of the queries which were raised by the Department and replied by Sh. Mangatram Arora, the Director Mr. Mangatram Arora does not have any knowledge. It was further submitted in the letter dated 16.01.2003 that Sh. Mangatram Arora denied about 'USG' in question no 8 /page no 9 of the statement dated 12.04.2001 and hence there is no question of fund of Rs. 55 lacs received by the assessee company from one 'USG' . It was stated that all other things written in the statement are irrelevant . Thus, in nut-shell the assessee retracted the statement on oath given by its Director Sh Mangatram Arora u/s 131 of 1961 Act recorded on 12-04-2001 before DDIT(Inv.) incriminating assessee, vide its letter dated 16.01.2003 submitted before the AO during the course of assessment proceedings for the Block Period.
The A.O. rejected the contentions of the assessee as well retraction dated 16.01.2003 so submitted by the assessee and observed that the cash transactions were recorded in the seized material Annexure A-5 /page 90, which were not recorded in books of accounts maintained by the assessee. The assessee did not explain who is 'USG' and has only clarified that 'USG'
9 IT (SS)A 148/Mum/2006 stands for 'Ustadji'. No address was submitted by the assessee of 'USG' to enable Revenue to make further enquiries and verifications . The A.O. observed that the assessee is in financing business and in reply to Question No. 9 of the statement dated 12.04.2001, the assessee Director Mr. Mangatram Arora replied that the assessee has taken cash loan of Rs. 55 lakhs from one 'Ustadji' (USG) on which interest was payable on 10th of every month . The AO observed that the assessee director has stated that the entire business of cash finance is done from this fund of Rs. 55 lakhs. It was observed by the AO that the assessee in reply to question no 13 of the statement dated 12.04.2001 has expressed inability to segregate the transactions which are recorded in books of accounts or otherwise un- accounted which are not recorded in books of accounts . Thus, the sum of Rs. 55 lakhs and accrued interest thereon from assessment year 1995-96 to 2001-02 of Rs. 1,20,20,107 @18% p.a., totaling to Rs. 1,75,20,107/- was treated as undisclosed income of the assessee for the block period 01.04.1990 to 07.02.2001 by the AO as detailed below, vide block period assessment order dated 28-02-2003 passed by the AO u/s 158BC(c) of the Act of 1961 , as per chart reproduced hereunder:
Asst. Year Principal Interest Total Interest
@18%
1995-96 55,00,000 - 55,00,000 9,90,000
1996-97 55,00,000 9,90,000 64,90,000 11,68,270
1997-98 64,90,000 11,68,200 76,58,200 13,78,476
1998-99 76,58,200 13,78,476 90,36,676 16,26,602
1999-2000 90,36,676 16,26,602 1,06,63,278 19,19,390
2000-01 1,06,63,278 19,19,390 1,25,82,668 22,64,880
2001-02 1,25,82,668 22,64,880 1,48,47,548 26,72,559
10 IT (SS)A 148/Mum/2006
6. Aggrieved by the Block period assessment order dated 28-02-2003 passed by the A.O. u/s 158BC(c) of the 1961 Act, the assessee filed first appeal before the ld. CIT(A) who also rejected the contentions of the assessee, vide appellate order dated 03-03-2006 . The ld. CIT(A) called for the remand report from the AO and the A.O. submitted first remand report dated 11/02/2005 to learned CIT(A) , which is reproduced as under:-
"(1) The AO found that the back side of page No. 1 of the seized diary A-5 contains the entry Rs.200(L)/5 plus 08 tak. The AO has observed L stands for lakhs. The AO rejected the explanation of the assessee that this entry related to an estimate of procurement and supply of eggs in wholesale basis and observed that the assessee started his business with the seed capital of Rs.200 lakhs and concluded that -
"the same should be considered as undisclosed income of the block period. Further the assessee also failed to file any evidence to substantiate his claim made before him that accrued interest on the seed capital had been accounted for in the regular books of accounts. Therefore the interest on the new seed capital of Rs.200(L) also need to be taken as unaccounted income for the block period."
(2) The AO also made reference to page Nos. 47, 272 and 274 of diary marked as Annexure A-8 being transactions pertaining to Ustadji and not accounted for in the books of account totaling Rs.29,50,000/-.
(3) Shri Mangatram Arora was also shown pages No. 4, 18, 22, 31 (back side), 32, 33, 47 (back side) and 73 of diary A-9 amounting to Rs.35760/-. The AO after examination concluded that entry on page No.4 amounting to Rs.35,760/- being amount paid to Manjitji and entry on page No.10 of diary marked as A19 amounting to Rs.19,440/- pertaining to Kasai was not accounted for in the regular books of account.
The assessee was confronted with the findings in the afore-stated first remand report dated 11-02-2005, by the ld. CIT(A) . The assessee submitted 11 IT (SS)A 148/Mum/2006 that the AO in his remand report dated 11-02-2005 has taken Rs 200 lakhs as seed capital whereas this was projection of egg collections from 5th to 8th . It was also submitted by the assessee that the assessee's new counsel does not have seized material. The AO was directed by learned CIT(A) to give copies of seized material to the assessee. The A.O. was also directed to work out the peak credit with seized documents and entries in the diaries and was directed to submit second remand report. The second remand report dated 04.01.2006 was submitted by the A.O. to learned CIT(A) wherein it was submitted as under:-
"In my earlier report dated 11.02.2005 I have stated that first entries on page no. 1 backside of seized diary A-5 starts with 200(L)/5 plus 08 tak. At that time assessee could not explain with evidence about the narration of this entry therefore, seed capital of Rs.200(L) was consider as a undisclosed Income. Now, the assessee have filed details of his business of eggs conducted by M/s. Arora Poultry Products Ltd. in which he is also one of the Director. Further, he also filed the working of seed capital after going through seized material. As per this working the total seed capital works to Rs.55,00,000/- as taken by the AO in the assessment order. Therefore, the seed capital of the unaccounted business/income may be taken at Rs.55,00,000/-. Further, I have also stated in respect of A-8 that there are certain transactions pertaining to Mr. Ustadji amounting to Rs.29,50,000/-. Since the seed capital of the assessee on account of entries in the name of Mr. Ustadji have already taken at Rs.55,00,000/- the amount of Rs.29,50,000/- may be treated as covered by the seed capital of Rs. 55,00,000/- as stated above. As for different pages of Diary A-9 as per report dated 11.02.2005, the same stand confirmed since the assessee did not file any new evidence in view of the same."
The assessee was given copy of the second remand report dated 04-01-2006 for its comments and the assessee pointed out that the assessee was in the business of finance wherein funds were received from various persons on one hand and were given to various persons on the other hand and the assessee would get a profit margin of 3 to 4% on these transactions. It was submitted 12 IT (SS)A 148/Mum/2006 by the assessee before learned CIT(A) that the loans were to be considered as turnover and not as profit, hence only the profit may be considered as undisclosed income of the assessee and not the whole turnover. It was further submitted that the A.O. had calculated interest on Rs. 55 lakhs from assessment year 1995-96 which was wrong as amount of Rs. 55 lakhs was related to year 1999-2000 as it was received on various dates in the year 1999.
The ld. CIT(A) considered the submissions of the assessee and observed that the assessee is in business of finance and also runs business of selling eggs through M/s. Arora Poultry Products Ltd. (APPL) in which Shri Mangatram Arora is Director. It was observed by the AO that during the course of search as well during post search investigation certain loose diaries were found and it was on the basis of entries in the seized diaries that the AO made an addition of Rs. 55 lacs as seed money. It was observed by learned CIT(A) that assessee purportedly took loans of Rs. 55 lakhs on various dates from one 'USG' i.e. 'Ustadji'. However, the assessee was unable to give details of 'USG' for verification viz., name, address, PAN, etc. during course of search or post search enquiries and said details were not even given during the course of block period assessment proceedings as well appellate proceedings. Further, it was observed by learned CIT(A) that the assessee was to pay interest on 10th of every month on the loans due as evidenced by entry dated 09.09.1999 on page-90 of A-5, wherein a note has been made in the assessee's hand that Rs. 30,000/- was to be given to 'USG' on account of interest. It was observed by learned CIT(A) that the addition of Rs. 55 lakhs was made by the A.O. as seed capital which was worked as peak credit by the AO in remand report , which was taxed as seed capital. The learned CIT(A) rejected the contention of the assessee that only profit margin of 3-4% is to be taxed and not Rs 55 lacs , as because Rs 55 lakhs represent the initial amount required for business, source of which was not explained by the assessee , as per observation of 13 IT (SS)A 148/Mum/2006 learned CIT(A). Thus, the additions as were made by the AO u/s 68 of the 1961 Act being unexplained cash credit of alleged loan of Rs 55 lacs received from 'USG' was confirmed by ld. CIT(A), vide appellate order dated 03-03- 2006. The ld. CIT(A) also gave direction to the A.O. that the amount Rs. 55 lakhs may be treated as seed money and directed the AO to calculate interest with regard to the various dates on which the loans were received between February to September, 1999 till the end of the block period instead of charging interest from assessment year 1995-96 to 2001-02 as was done by the AO in his block period assessment order dated 28-02-2003 , vide appellate order dated 03-03-2006 passed by learned CIT(A).
7. Aggrieved by the appellate order dated 03-03-2006 passed by the ld. CIT(A), the assessee filed an appeal before the tribunal.
8. The ld. Counsel for the assessee submitted that the assessee is in business of providing finance. A search action u/s 132(1) of the 1961 Act was carried out by Revenue on 7th February, 2001 in case of the assessee at the office premises of the assessee at 4, Shiv Darshan, Sarojini Road, Santacruz (West), Mumbai and during the course of search operations, certain loose paper file , cash and diaries were found and seized by Revenue. Notice u/s 158BC of the 1961 Act was issued and served by the AO to the assessee on 02-09-2001 . In response to the afore-stated notice, the assessee filed return of income u/s 158BC of the 1961 Act for the block period from 01-04-1990 to 07-02-2001 on 10th December, 2001 declaring undisclosed income at Rs. Nil. During the course of search proceedings, documents marked as Annexure A-5 was found and seized which is a diary and was relating to period 1.5.1999 to 11.9.1999 containing written pages 1 to 97. It was submitted that the copy of seized material diary marked as Annexure A-5 page 90 based on which additions has been made of Rs 55 lacs as well interest thereon is placed in paper book filed with tribunal at page No. 18. It 14 IT (SS)A 148/Mum/2006 is submitted that allegedly Rs. 55 lakhs is written at the end of the said seized page 90 diary marked as Annexure A-5 which was decoded by the Revenue as alleged loan being received by the assessee from one 'USG' , which USG was stated by the assessee as one 'Ustaji' . It was submitted that the A.O. erred in treating the same as unexplained cash credit in the hands of the assessee and made the additions of Rs. 55 lacs in the hands of the assessee . Further additions have been made for interest on this alleged loan of Rs. 55 lacs @18% interest from the assessment year 1995-96 to 2001-02 by the AO, and on appeal the ld. CIT(A) confirmed the additions of loan of Rs. 55 lacs received by the assessee from one 'USG' which is decoded as 'Ustaji' , but the learned CIT(A) directed AO to compute interest from the period when the loan was allegedly received in 1999. The learned CIT(A) confirmed the additions after calling remand report from the AO wherein two remand reports were submitted by the AO. The assessee relied on the decision of Hon'ble Supreme Court in the case of Central Bureau of Investigation v. V.C. Shukla (1998) 3 SCC 410(SC) and on the decision of the Mumbai-tribunal in the case of S.P. Goyal v. DCIT [2002] 82 ITD 85 (Mum) (TM) and submitted that no addition can be made in the hands of the assessee based on loose papers found and seized during search as the same is not books of accounts and are not admissible as evidence as it does not have any evidentiary value relying on the afore-stated cases laws (1998) 3 SCC 410(SC) and (2002) 82 ITD 85(Mum.). On being asked by the Bench, the ld. Counsel submitted that there is retraction by the assessee of the statement dated 12.04.2001 given by Shri Mangatram Arora , Director of the assessee company vide letter dated 16.01.2003 submitted by the assessee before the AO and there was no other retraction of the afore-stated statementon oath dated 12.04.2001 given by Sh Mangatram Arora. It is also submitted that the tribunal had earlier decided the assessee's appeal in IT(SS) no. 148/Mum/2006 vide orders dated 24-11- 2008 along with Revenue's appeal in IT(SS) 167/Mum/2006 for the Block period 01-04-1990 to 07-02-2001. It was submitted that the assessee filed an 15 IT (SS)A 148/Mum/2006 miscellaneous application before the Mumbai--tribunal for recall of the tribunal order dated 24-11-2008 in assessee's appeal in IT(SS) no. 148/Mum/2006 vide MA. No. 309/Mum/2011 which was allowed by the tribunal , wherein tribunal's order in IT(SS) No. 148/Mum/2006 dated 24-11- 2008 was recalled by the tribunal vide orders dated 23-11-2012 in MA. No. 309/Mum/2011. It was also submitted by the learned counsel for the assessee that no miscellaneous application was filed by Revenue for re-call of the tribunal common order dated 24-11-2008 w.r.t. Revenue appeal in IT(SS) No. 167/Mum/2006 , which appeal of the Revenue stood dismissed by the tribunal vide common orders dated 24-11-2008, wherein the tribunal confirmed the appellate orders of learned CIT(A) holding that interest on seed capital of Rs. 55 lacs received from 'USG' shall be charged from the date of receipt of loans till the end of block period , and not from assessment year 1995-96 as was computed by the AO. The copies of the tribunal orders are placed in file. The learned counsel for the assessee submitted that these are proceedings u/s 158BC of the 1961 Act wherein only undisclosed income is to be computed as per provisions of Chapter XIV-B of the Act of 1961. It was submitted that the assessee is in business of finance and all transactions are recorded in books of accounts . It was also submitted that no interest can be brought to tax as undisclosed income as the principle / seed capital of Rs. 55 lacs itself is denied by the assessee . It was submitted that the Revenue has not made any addition on account of interest on these alleged cash loans in the regular assessment framed by the Revenue. The learned counsel drew our attention to the orders of the tribunal for assessment year 2000-01 ( ITA No. 304/Mum/2005 , vide order dated 29-08-2008) , 2001-02 ( ITA No. 2004/Mum/2005 , vide order dated 29-08-2008), 2002-03 & 2003-04( ITA No's. 2786 & 2787/Mum/2007 , vide common order dated 10-02-2012) .
9. The ld. D.R. on the other hand submitted that the assessee had received seed capital of Rs. 55 lakhs for cash finance business from one 16 IT (SS)A 148/Mum/2006 'USG' which is decoded as 'Ustaji' , which cash loan of Rs 55 lacs received by the assessee is not recorded in books of accounts as per seized diary marked as Annexure A5 , page 90 which diary was seized from assessee during search operations u/s 132(1) of the Act carried out by Revenue, which is placed on record vide paper book page 18 filed with the tribunal. The assessee had categorically submitted and admitted in the statement recorded on oath on 12-04-2001 of its Director Sh Mangatram Arora that Rs. 55 lakhs is seed capital for its cash finance business. The assessee also has pleaded before learned CIT(A) to take Rs. 55 lacs as turnover and then charge profit 3- 4% as undisclosed income of the assessee which itself reflect admission by the assessee to have indulged in finance business on cash basis out of books. The assessee has indulged in the business of finance business on cash basis out of books and the authorities below have rightly brought to tax the said amount of Rs. 55 lacs unexplained cash credit u/s 68 of the 1961 Act as undisclosed income of the assessee . The ld. CIT(A) has right confirmed the action of the A.O. as the assessee has raised Rs. 55 lakhs as seed capital for finance business undertaken in cash. The assessee has relied upon decision of Hon'ble Supreme Court in the case of Central Bureau of Investigation v. V.C. Shukla (supra) which is not relevant as the said decision deals with charges framed under section 120-B of India Penal Code,1860 read with Section 7, 12 and 13(2) r/w 13(1)(d) of the Prevention of Corruption Act, 1988 which are criminal proceedings wherein standard of proof is different than proceedings under 1961 Act which are tax proceedings being civil in nature, wherein in the criminal proceedings under IPC or 1988 Act , the charges against the accused are to be proved beyond reasonable doubt in the case of 1988 Act as well in IPC , whereas in the case of income tax proceedings under 1961 Act, the standard of proof to fasten liability on the tax-payer to pay tax on certain income under dispute as per provisions of the 1961 Act is to be determined by preponderance of human probabilities . The burden is on the assessee to prove the genuineness of the transaction, to establish the identity 17 IT (SS)A 148/Mum/2006 of lender as well establish capacity of lender in case of cash credit under the provisions of Section 68 of 1961 Act. The ld . DR also justified the appellate order of learned CIT(A) w.r.t. interest to be charged @18% from the date of receipt of loan by the assessee from one 'USG' which is decoded by the assessee as 'Ustaji' and reference was drawn to seized diary marked Annexure A-6 and in statement recorded on oath on 12-04-2001, it is admitted by the assessee that interest @18% per annum is charged on cash finance business which is not recorded in books. It was submitted by learned DR that no details such as complete name, address, PAN etc. of said 'Ustaji' was furnished by the assessee before Revenue to enable Revenue to make further enquiries and verifications. Thus, no statement of 'USG' alias Ustaji could be recorded and no enquiry / verifications could be conducted by Revenue against 'Ustaji' due to non co-operation by the assessee as the assessee prevented any such enquiry by Revenue against said 'Ustaji'. It is also submitted that while explaining Annexure A-6 which is a seized diary, it is admitted by Mr Mangatram Arora , Director of the assessee company that interest @18% per annum is charged by the assessee on cash loans. The said Annexure A-6 which is a diary is also part of seized material and hence the Revenue has rightly brought to tax interest @18% per annum on these cash loans finance business undertaken by the assessee. It was also submitted by the learned DR that reliance of the assessee on regular assessments framed by the Revenue has no relevance as the Block period assessments for the block period u/s 158BC of the 1961 Act is in addition to the regular assessment and the intent of Block period assessment u/s 158BC of the 1961 Act is to compute undisclosed income while intent of regular assessment is to compute income of the assessee as per provisions of Act of 1961 . Our attention was drawn to explanation (a) to Sub-Section (2) to Section 158BA of 1961 Act.
18 IT (SS)A 148/Mum/2006
10. The learned counsel for the assessee in rejoinder submitted that these are proceedings u/s 158BC of the 1961 Act wherein only undisclosed income is to be computed as per provisions of Chapter XIV-B of the Act of 1961. It was submitted that the assessee is in business of finance and all transactions are recorded in books of accounts . It was also submitted that no interest can be brought to tax as undisclosed income as the principle / seed capital of Rs. 55 lacs itself is denied by the assessee . The assessee relied on decision of Hon'ble Bombay High Court in the case of CIT v. Dr.M. K. E. Memon (2000)248 ITR 310(Bom) to contend that additions on account of undisclosed income under Chapter XIV-B of the Act can only be based on seized material and no estimation/extrapolation can be made to compute undisclosed income as was sought to be done by Revenue by bringing to tax interest@18% from the receipt of alleged cash loans in 1999 to period ending with assessment year 2001-02 as is contained in block period , as was upheld by learned CIT(A) which is not sustainable in law as additions can only be made based on seized material.
11. We have considered rival contentions , perused the orders of authorities below and material placed on record including judicial decisions relied upon by rival parties. A search u/s 132(1) of the 1961 Act was carried out by Revenue on 7th February, 2001 in the case of the assessee company at office premises of the assessee company at 4, Shiv Darshan, Sarojini Road, Santacruz (West), Mumbai. During the course of afore-stated search proceedings, certain loose paper file , cash and diaries were found and seized by Revenue from the possession of the assessee company . A Notice u/s 158BC of the 1961 Act was issued and served on the assessee company on 02-09-2001 and in response , the assessee filed return of income u/s. 158BC of the Act of 1961 for the block period 01-04-1990 to 07-02-2001 on 10th December, 2001 declaring undisclosed income at Rs. Nil. Statement of Shri Mangatram Arora, Director of the assessee company was recorded on oath by 19 IT (SS)A 148/Mum/2006 Revenue on 12th April, 2001 u/s 131 of the 1961 Act, which is placed in paper book filed with the tribunal at page 19-28. During the course of afore- stated search proceedings, document which is a diary marked as Annexure A-5 was also found and seized by Revenue along with several other documents from control and possession of the assessee company. When Sh. Mangatram Arora, Director of the assessee company was confronted with the said seized diary marked as Annexure A-5, he stated vide his statement dated 12.04.2001 recorded on oath u/s 131 of the 1961 Act before DDIT(Inv) , in reply to question no 3 , that it is a diary which was relating to period 1.5.1999 to 11.9.1999 containing written pages 1 to 97. It was stated by said Mr. Mangatram Arora , Director of the assessee company on oath in the said statement dated 12.04.2001 that this is a rough summary of daily collection and disbursement of temporary loans and advances with various parties. It was also stated by said Mr Mangatram Arora in the said statement dated 12.04.2001 that this seized diary also contained similar details as are explained in seized diary marked as Annexure-A-4, wherein he had stated that the said seized diary marked as Annexure A-4 contains day to day transactions regarding cash collection and disbursement from various parties related to financing business of the assessee company and personal business of Sh. Mangatram Arora . It was stated by Sh. Mangatram Arora that the said diary is maintained for memorandum purposes and part of the transactions are accounted for in books of accounts while part of the transactions are not accounted in the books of accounts. While explaining/decoding page 90 of Annexure A-5 being a diary seized by Revenue, the said Director of the assessee company Sh. Mangatram Arora vide said statement dated 12.04.2001 stated in reply to question no. 3 which along with other relevant extracts of the statement , are reproduced hereunder:
" Statement of Shri Mangatram Arora recorded on 12/4/2001 at the office of the D.D.I.T(Inv.) , Unit II(1) , Aayakar Bhavan , Mumbai , u/s 131 of the I T Act.
20 IT (SS)A 148/Mum/2006
Sd./- Sd./
(Mangatram Arora) RAJESH KUMAR KEDIA
Dy. Director of Income-Tax(INV.)
Unit II(1), Mumbai
Q. No. 1 Please identify yourself and confirm that oath has been administered to you. Also confirm that you have been made aware of the consequences of giving false statement under oath under the I.T.Act and IPC A I Mangatram Arora aged 49 years S/o Mulkraj Arora residing at Flat No. 4, Shiv Dharshan Sarojini Road, Santacruz(W), Mumbai- 400054 . I confirm that oath has been administered to me. I also confirm that I have been made aware of the consequences of giving false statements under oath under the I.T. Act and IPC.
**** **** **** Q. No. 3 I am showing you seized material annexure A1 to A 10 seized from your residence cum office premises on 01-03-2001. You are requested to go through the same and explain the contents thereof .
Ans. 3 I have gone through the above seized material Annexure A-1 to A-10, seized from my residence and the contents thereof are as under:
**** **** **** Annexure A-4 This is a diary marked as 1998 containing written page 132. This diary contains day to day transactions regarding cash collection and disbursement from various parties relating to financing business of MAFL and personal. This diary is maintained for memorandum purpose. Part of the 21 IT (SS)A 148/Mum/2006 transactions are accounted and part of the transactions are not accounted. Page 3 to 10 are related to individual account such as on page 7 the ledger account of T M Dedhia gives details such as T M Dedhia 500(T) equivalent to 5 lakhs 700(T) equivalent to 7 lakhs 500(T) equivalent to 5 lakhs 500(T) equivalent to 5 lakhs **** **** **** Annexure - A/5 This is a diary relating to period 1/5/99 to 11/9/99 containing written pages 1 to 97. This is also rough summary of daily collection and disbursement of temporary loans and advances with various parties . It also contains details as explained in Annexure A-4 For Example : On back side of page 23 , dated 5/6/99 it records 94(T) cash Sahi Madina- 94000/- cash given to Madina 90(T) cash Dilip 90000/- cash given to Dilip **** **** Page no. 44-.....Figures are in hundred. 'T' stands for thousand rupees. 'L' stands for Lakhs. The main transaction of this page is Rs 10 Lakhs received from SMP (SMP Marine Services Ltd.) by cheque. The amount is given to USG i.e. Ustaji. Other details, I am not able to furnish in this regard. Rs. 30 Lakhs is to be given to Ustaji.
**** Page 90 This is dated 9.9.99. This also relates to transaction with Ustadji such as 15 L (Rs. 15 lakhs), 10 L (Rs. 10 lakhs) and 15L (Rs. 15 lakhs) against date. This page gives aggregate of cash Rs. 55 lakhs taken from USG over a period of time. It also includes interest calculation till 10/9 22 IT (SS)A 148/Mum/2006 All the pages of this diary contain day to day summary transactions of cash.
Annexure A-6 This is a diary marked as 1999 containing written pages 1 to 88. This is related to the period starting from 12/9/1999. This diary contains day to day transactions regarding cash collection and disbursement from various parties related to financing business of MAFL and personal. This diary is maintained for memorandum purpose. Part of the transactions are accounted and part of the transactions are not accounted. On an average my daily cash collection against finance is Rs. 25,000 to Rs. 30,000 which is again either given to the parties , or partly deposited in bank. On these small financing, I charge interest of 18% per annum......
**** **** **** Q.8 Give the name and address of and other details of USG?
Ans : USG stands for Ustaji. I do not know any other details of USG. I do not know his address also.
Q.9 Please give exact details of total cash loan taken from time to time from USG?
Ans. As it is clear from page 90 of Annexure -A5 that total of Rs. 55 Lakhs is taken from him on which interest is payable in 10th of every month . My entire business of cash finance is done from this fund of Rs. 55 Lakhs.
Q. 10 How this money comes to you and who gives you?
Ans : The money comes to me through his person from time to time. Other details, I do not know.
**** 23 IT (SS)A 148/Mum/2006 **** Q. 13 Please identify the page-wise transactions of Annexure A-9, dated 1.3.2000 which are accounted or unaccounted.
Ans. I am not in a position to segregate the transactions recorded in these diaries under the head accounted or unaccounted. I am also not in a position segregate the transaction of other diaries or papers or books under the head whether accounted or unaccounted.
**** I have given the above statement voluntarily without any force, coercions , threat and I have read this statement and found it correctly recorded. I have given this statement in perfect state of mind.
Sd/-
Deponent"
During the course of block assessment proceedings before the AO, the assessee submitted vide letter dated 16.01.2003 i.e. almost after two years of recording of the said statement dated 12-04-2001 of Sh. Mangatram Arora, Director of the assessee company, that all the transactions as are referred to in the statement dated 12.04.2001 are recorded in the books of accounts and it was also submitted that at the time of signing of the statement on 12.4.2001, the Director of the assessee company Mr. Mangatram Arora was under much mental pressure due to bad health of his son and the effect of search. It was submitted in letter dated 16.01.2003 that w.r.t. some of the queries which were raised by the Department and replied by Sh. Mangatram Arora, the said Director of the assessee company Mr. Mangatram Arora does not have any knowledge. It was further submitted in the letter dated 16.01.2003 that Sh. Mangatram Arora denied about 'USG' in question no 8 /page no 9 of the statement dated 12.04.2001 and hence there is no question of fund of Rs. 55 lacs received by the assessee company from one 'USG' . The reply to said question no 8 is reproduced hereunder:
24 IT (SS)A 148/Mum/2006 "Q.8 Give the name and address of and other details of USG?
Ans : USG stands for Ustaji. I do not know any other details of USG. I do not know his address also. "
It was also stated in the afore-stated letter dated 16-01-2003 that all other things written in the statement are irrelevant . Thus, in nut-shell the assessee company retracted statement on oath given by its Director Sh Mangatram Arora u/s 131 of 1961 Act recorded on 12-04-2001 before DDIT(Inv.) incriminating assessee, vide its letter dated 16.01.2003 submitted before the AO during the course of assessment proceedings for the Block Period.
The A.O. rejected the contentions of the assessee as well retraction letter dated 16.01.2003 so submitted by the assessee and observed that the cash transactions were recorded in the seized material Annexure A-5 /page 90, which were not recorded in books of accounts maintained by the assessee. The assessee did not explain who is 'USG' and has only clarified that 'USG' stands for 'Ustadji'. No address was submitted by the assessee of 'USG' to enable Revenue to make further enquiries and verifications . The A.O. observed that the assessee is in financing business and in reply to Question No. 9 of the statement dated 12.04.2001, the assessee Director Mr. Mangatram Arora replied that the assessee has taken cash loan of Rs. 55 lakhs from one 'Ustadji' (USG) on which interest was payable on 10th of every month . The aforesaid reply to question no 9 is reproduced hereunder:
"Q.9 Please give exact details of total cash loan taken from time to time from USG?
Ans. As it is clear from page 90 of Annexure -A5 that total of Rs. 55 Lakhs is taken from him on which interest is payable in 10th of every month . My entire business of cash finance is done from this fund of Rs. 55 Lakhs."
25 IT (SS)A 148/Mum/2006 The AO observed that the assessee Director , Sh. Mangatram Arora has stated that the entire business of cash finance is done from this fund of Rs. 55 lakhs taken from one 'USG' on which interest is payable on 10th of every month. It was observed by the AO that the assessee in reply to question no 13 of the statement dated 12.04.2001 has expressed inability to segregate the transactions which are recorded in books of accounts or otherwise un- accounted which are not recorded in books of accounts . The aforesaid reply to question no 13 is reproduced hereunder:
"Q. 13 Please identify the page-wise transactions of Annexure A- 9, dated 1.3.2000 which are accounted or unaccounted.
Ans. I am not in a position to segregate the transactions recorded in these diaries under the head accounted or unaccounted. I am also not in a position segregate the transaction of other diaries or papers or books under the head whether accounted or unaccounted."
Thus, the sum of Rs. 55 lakhs and accrued interest thereon from assessment year 1995-96 to 2001-02 of Rs. 1,20,20,107 @18% p.a., totaling to Rs. 1,75,20,107/- was treated as undisclosed income of the assessee for the block period 01.04.1990 to 07.02.2001 by the AO and brought to tax under Chapter XIV-B of the Act , vide assessment order dated 28-02-2003 passed by the AO u/s 158BC(c) of the 1961 Act.
The matter went to learned CIT(A) who called for remand report from the AO. The AO submitted two remand reports . The relevant for us is second remand report dated 04.01.2006 which was submitted by the A.O. to learned CIT(A) wherein it was submitted by the AO as under:-
26 IT (SS)A 148/Mum/2006 "In my earlier report dated 11.02.2005 I have stated that first entries on page no. 1 backside of seized diary A-5 starts with 200(L)/5 plus 08 tak. At that time assessee could not explain with evidence about the narration of this entry therefore, seed capital of Rs.200(L) was consider as a undisclosed Income. Now, the assessee have filed details of his business of eggs conducted by M/s. Arora Poultry Products Ltd. in which he is also one of the Director. Further, he also filed the working of seed capital after going through seized material. As per this working the total seed capital works to Rs.55,00,000/- as taken by the AO in the assessment order. Therefore, the seed capital of the unaccounted business/income may be taken at Rs.55,00,000/-. Further, I have also stated in respect of A-8 that there are certain transactions pertaining to Mr. Ustadji amounting to Rs.29,50,000/-. Since the seed capital of the assessee on account of entries in the name of Mr. Ustadji have already taken at Rs.55,00,000/- the amount of Rs.29,50,000/- may be treated as covered by the seed capital of Rs. 55,00,000/- as stated above. As for different pages of Diary A-9 as per report dated 11.02.2005, the same stand confirmed since the assessee did not file any new evidence in view of the same."
The assessee was given copy of the second remand report dated 04-01-2006 by learned CIT(A) for its comments and the assessee pointed out that the assessee was in the business of finance wherein funds were received from various persons on one hand and were given to various persons on the other hand and the assessee would get a profit margin of 3 to 4% on these transactions. It was submitted by the assessee before learned CIT(A) that the loans were to be considered as turnover and not as profit, hence only profit may be considered as undisclosed income of the assessee and not the whole turnover. It was further submitted that the A.O. had calculated interest on Rs. 55 lakhs from assessment year 1995-96 which was wrong as amount of Rs. 55 lakhs was related to year 1999-2000 as it was received on various dates in the year 1999.
27 IT (SS)A 148/Mum/2006 The ld. CIT(A) considered submissions of the assessee and observed that the assessee is in business of finance and also runs business of selling eggs through M/s. Arora Poultry Products Ltd. (APPL) in which Shri Mangatram Arora is Director. It was observed by the AO that during course of search as well during post search investigation certain diaries were found and it was on the basis of entries in the seized diaries that the AO made an addition of Rs. 55 lacs as seed money. It was observed by learned CIT(A) that assessee purportedly took loans of Rs. 55 lakhs on various dates from one 'USG' i.e. 'Ustadji'. However, the assessee was unable to give details of 'USG' for verification viz., name, address, PAN, etc. during course of search or post search enquiries and said details were not even given during the course of block period assessment proceedings as well appellate proceedings. Further, it was observed by learned CIT(A) that the assessee was to pay interest on 10th of every month on the loans due as evidenced by entry dated 09.09.1999 on page-90 of A-5, wherein a note has been made in the assessee's hand that Rs. 30,000/- was to be given to 'USG' on account of interest. It was observed by learned CIT(A) that the addition of Rs. 55 lakhs was made by the A.O. as seed capital which was worked as peak credit by the AO in remand report , which was taxed as seed capital being an undisclosed income for the block period . The learned CIT(A) rejected the contention of the assessee that only profit margin of 3-4% is to be taxed and not Rs 55 lacs, as because Rs 55 lakhs represent the initial amount required for business, source of which was not explained by the assessee , as per observation of learned CIT(A). Thus, the additions as were made by the AO u/s 68 of the 1961 Act being unexplained cash credit of alleged loan of Rs 55 lacs received from 'USG' was confirmed by ld. CIT(A), vide appellate order dated 03-03-2006. The ld. CIT(A) also gave direction to the A.O. that the amount Rs. 55 lakhs may be treated as seed money and directed the AO to calculate interest with regard to the various dates on which the loans were received between February to September, 1999 till the end of the block period instead of charging interest from assessment 28 IT (SS)A 148/Mum/2006 year 1995-96 to 2001-02 falling within the block period as was done by the AO in his block period assessment order dated 28-02-2003 , vide appellate order dated 03-03-2006 passed by learned CIT(A).
With above background, we would now like to see whether the liability to tax can be fastened on the assessee within the mandate of Chapter XIVB of the Act , based on seized material found during search and the post search enquiries made by Revenue. The mandate of Chapter XIV-B of the 1961 Act which embraces special provisions for assessment of search and requisition cases is to compute undisclosed income for the block period in the manner provided in Chapter XIV-B of the 1961 Act and bring to tax undisclosed income so computed as provided u/s 158BC of the Act at a special rate of tax @60% of undisclosed income as provided u/s 113 of the 1961 Act. Chapter XIV-B of the 1961 Act which deals with the block assessment in search cases is a complete code in itself providing for self contained machinery provisions for assessment of undisclosed income for the block period of 10 years (later reduced to 6 years ) Chapter XIV-B comprehensively deals with the aspects relating to the Block assessment relating to undisclosed income including procedures for taxing the same. The character and nature of 'undisclosed income' as is referred to in Chapter XIV-B is quite distinct from computing 'total income' as is referred to in Section 5 of the 1961 Act. . The Block period assessment so made under Chapter XIV-B of 1961 Act for the Block period while bringing to tax undisclosed income of the assessee for the block period persuant to search or requisition is in addition to regular assessments for the assessment years falling within block period as provided in explanation (a) to Section 158BA(2) of 1961 Act.
The assessee is admittedly in finance and hire purchase business since 1990 which is an undisputed position(page 34/paper book). The assessee was 29 IT (SS)A 148/Mum/2006 searched u/s 132(1) of 1961 Act on 07-02-2001 by Revenue. The Block period for framing of assessment under Chapter XIV-B of 1961 Act is from 01-04- 1990 to 07-02-2001, wherein undisclosed income is to computed u/s 158BC of 1961 Act for aforesaid block period. Mr Mangatram Arora is Managing Director of the assessee who is conducting business of the assessee company, relevant extract from reply dated 17.11.2005 (pb/page 35) submitted by assessee company before the AO is reproduced hereunder:
" M/s Mangatram Arora Finance Ltd by name itself having financing as main business. .......
The said business is conducted by Managing Director Mr Mangatram Arora on behalf of company...."
During course of search proceedings, several documents were found and seized by Revenue from the control and possession of the assessee company and one such document seized by Revenue was a diary which is marked as Annexure A-5. The seized diary marked as annexure A-5 was explained by Mr Mangatram Arora, Managing Director of the assessee company vide statement on oath recorded u/s 131 of the Act dated 12.04.2001 to be relating to period 1.5.1999 to 11.9.1999 containing written pages 1 to 97, which period falls within block period 01-04-1990 to 07-02-2001. It was stated to be rough summary of daily collection and disbursement of temporary loans and advances with various parties. On page 90 of the seized diary marked as Annexure A-5, copy of which is placed in paper book page No. 18 filed by the assessee with the tribunal, the said Sh Mangatram Arora decoded the same as reproduced hereunder, wherein he confirmed that it is dated 09-09-1999 wherein he confirmed that Rs. 55 lacs cash loan was taken from one 'USG' over a period of time and it include interest calculation till 10/9. The page is:
"Page 90 This is dated 9.9.99. This also relates to transaction with Ustadji such as 15 L (Rs. 15 lakhs), 10 L (Rs. 10 lakhs) and 15L (Rs. 15 30 IT (SS)A 148/Mum/2006 lakhs) against date. This page gives aggregate of cash Rs. 55 lakhs taken from USG over a period of time. It also includes interest calculation till 10/9"
In reply to Question No. 9 while recording afore-stated statement dated 12.04.2001, the assessee Director stated that total of Rs. 55 lakhs was taken from 'USG' on which interest is payable on 10th of every month. It was further stated that entire business of cash finance is done from this fund of Rs. 55 lakhs. The said reply is reproduced hereunder:
"Q.9 Please give exact details of total cash loan taken from time to time from USG?
Ans. As it is clear from page 90 of Annexure -A5 that total of Rs. 55 Lakhs is taken from him on which interest is payable in 10th of every month . My entire business of cash finance is done from this fund of Rs. 55 Lakhs."
Thus, it was admitted and accepted by the assessee's Manging Director Sh. Mangatram Arora vide statement dated 12.04.2001 that there were cash transactions of Rs. 55 lacs with one 'USG' decoded as 'UStadji' wherein cash finance business was run by assessee which business is done by funding received in cash from one 'USG' decoded as 'Ustaji' . The said cash finance business undertaken by the assessee company is not declared to the Revenue as the same was not found recorded in books of accounts regularly maintained by the assessee for its finance and hire purchase business which was undisputedly carried on by assessee company since 1990 , and this business of cash finance loans was found by Revenue to be in addition to the business of finance and hire purchase undertaken by the assessee since 1990 which is declared to Revenue. Thus, this business of cash finance so admitted by the assessee was found to be undeclared in regular books of accounts so maintained by the assessee for finance and hire purchase 31 IT (SS)A 148/Mum/2006 business which was declared and disclosed to Revenue by the assessee in return of income filed with Revenue, was an extension of existing finance and hire purchase business undertaken by assessee since 1990 which was declared to Revenue. This undeclared and undisclosed business of cash finance undertaken by the assessee was stated to be undertaken out of cash fund of Rs. 55 lacs received from one 'USG' as found recorded in seized diary marked Annexure A-5 at page 90, which is decoded by Managing Director of the assessee company Mr Mangatram Arora to be one 'Ustaji'. The assessee did not come forward with the complete details such as name, PAN, address and other details of the said 'Ustaji' despite being specifically asked by authorities below . The said details of 'Ustaji' is not placed even in first appellate proceedings before learned CIT(A) nor are they placed before the tribunal . This word 'USG also did find mentioned in other seized diary marked Annexure A-4 which is diary marked as 1998 containing written pages 132 which was again decoded by the said Sh Mangatram Arora to contains day to day transactions regarding cash collection and disbursements from various parties related to financing business of MAFL and personal . At page no. 30 of Annexure A-4 which is a diary seized by Revenue, there is mention of 'USG(Alag)' and entry 15(T). Then again in Annexure A-7 which is a note book containing written pages 1 to 34 , related to period 20/12/1998 to 18/2/1999, there is mention of 'Ustaji' with reference to some transaction of Rs. 7 lakhs with Ustaji. The onus is on the assessee to explain the same as it is within the especial knowledge of the assessee as to who is 'USG' decoded to be 'Ustaji' whom find mentioned at several places in the seized diaries . The assessee , instead at its own peril , chose not to divulge further details as to the name, address, PAN etc of said 'USG' decoded as 'Ustaji' and burden as cast u/s 106 of the Indian Evidence Act, 1872 was not discharged by the assessee. Section 106 of the 1872 Act is reproduced hereunder:
32 IT (SS)A 148/Mum/2006 " Section 106 Burden of proving fact especially within knowledge.- When any fact is especially within the knowledge of any person , the burden of proving the fact is upon him.
Illustrations
(a) ***
(b) A is charged with travelling on a railway without a ticket. The burden of proving that he had a ticket is on him."
Further, Section 132(4A) of the 1961 Act will come into play and since the seized diary marked Annexure A-5 is undisputedly seized from the possession and control of the assessee company during the course of search operations u/s 132(1) of 1961 Act, it will be presumed that the seized diary belong to the assessee and contents of the said seized diary are true. Section 132(4A) of 1961 Act is reproduced hereunder:
"Search and Seizure *** **** [132(4A) Where any books of account, other documents, money, bullion, jewellery or other valuable article or thing are or is found in the possession or control of any person in the course of a search, it may be presumed--
(i) that such books of account, other documents, money, bullion, jewellery or other valuable article or thing belong or belongs to such person ;
(ii) that the contents of such books of account and other documents are true ; and
(iii) that the signature and every other part of such books of account and other documents which purport to be in the handwriting of any particular person or which may reasonably be assumed to have been signed by, or to be in the handwriting of, any particular person, are in that person's handwriting, and in the case of a document stamped, executed or attested, that it was duly stamped and executed or attested by the person by whom it purports to have been so executed or attested.]"
The assessee chose to not give details of the said 'USG' decoded as 'Ustaji' during block period assessment proceedings despite assessee Managing 33 IT (SS)A 148/Mum/2006 Director Mr Mangatram Arora giving statement on oath u/s 131 of 1961 Act on 12.04.2001 admitting that the assessee company has received cash loan of Rs. 55 lacs from one 'USG' decoded as 'Ustaji' for doing cash finance business which in-fact in our considered view is related to the existing business of finance undertaken by assessee since 1990 and is an extension of the existing business of finance , and after a gap of almost two years , the assessee came out with a letter dated 16.01.2003 retracting the statement dated 12.04.2001 given by Managing Director of the assessee company namely Mr Mangatram Arora under oath u/s 131 of the Act on the grounds that on the date of recording of statement on 12-04-2001, the assessee was under much mental pressure due to bad health of his son and the effect of search. This retraction letter dated 16-01-2003 filed by the assessee during block period assessment proceedings , does not inspire confidence and in our considered view rightly rejected by the authorities below due to following reasons :
a) The assessee has retracted statement dated 12.04.2001 after a long gap of almost two years. The statement on oath u/s 131 of 1961 of Sh.
Mangatram Arora, Managing Director of the assessee incriminating assessee was recorded on 12-04-2001 while retraction was done by the assessee vide letter dated 16-01-2003. The retraction was not done at the earliest opportunity.Mr Mangatram Arora was Managing Director of the assessee company conducting the business of assessee company having knowledge of the affairs of the assessee company and contention of the assessee company vide retraction letter dated 16.01.2003 that said Mr Mangatram Arora was having no knowledge is devoid of merit and needs to be rejected at the outset.
b) It is also to be noted that the search u/s 132(1) of 1961 Act took place on 07 February 2001. The statement on oath u/s 131 of 1961 Act was recorded on 12-04-2001 wherein itself there a gap of almost 2 months 34 IT (SS)A 148/Mum/2006 from the date of search to the date of recording of statement, which is sufficient time for any tax-payer to take necessary advise and guidance from its counsel's and experts to explain transactions as well for stress created due to search to subside . The stress as contended by the assessee due to search also subsides in this long period of 2 months and we donot find any justification that Sh. Mangatram Arora will un-necessarily incriminate assessee company while explaining seized diaries and that too after a gap of 2 months from the date of search. It is not the case of the assessee that the statement was recorded on the date of search itself on 07-02-2001 wherein the assessee could contend that the said Managing Director Mr Mangatram Arora was under mental pressure and stress due to long and exhaustive search operations carried on by Revenue as search also has an element of surprise as also it is a sudden encroachment in the life and liberty of person as search action caught tax-payer unaware leading to stress and mental pressure. Here in the instant case , there is enough time for the assessee of almost two months for pressure to ease and subside as well to seek necessary guidance and advise from its counsel's and experts to explain transactions and we see no reason as to why said Sh Mangatram Arora will un-necessarily incriminate assessee company under such circumstances. With respect to claim of ill-health of son of the assessee's director , no such evidences are placed on record which could evidence that the son of the assessee's director was so severely ill which caused such an mental pressure and stress on the director of the assessee which led to an admission that Rs 55 lacs cash was received by assessee company from one 'Ustaji' for cash finance business to incriminate assessee company of which Mr Mangatram Arora himself is Managing Director. It is also not averred by the assessee that there was any coercion, threat , inducement or undue influence exerted by officials of Revenue to forcefully extract confession from Managing Director of the assessee company and that too after a gap of 2 months from the 35 IT (SS)A 148/Mum/2006 date of search on 07-02-2001. It is recorded by said Sh. Mangatram Arora while recording said statement dated 12.04.2001 recorded on oath u/s 131 of 1961 Act as under:
"I have given the above statement voluntarily without any force, coercions , threat and I have read this statement and found it correctly recorded. I have given this statement in perfect state of mind."
Thus, the above statement dated 12.04.2001 was given voluntarily without any force and threat by Revenue, which remained uncontroverted even while retracting the said statement dated 12.04.2001, vide retraction letter dated 16-01-2003.
c) The seized diaries has revealed cash finance business undertaken by the assessee company out of cash loan obtained from one 'USG' decoded as 'Ustaji' on which interest is payable on 10th of every month, which business of undertaking cash finance , in our considered view, is merely an extension of existing finance and hire purchase business undertaken by the assessee since 1990. Thus, this business of undertaking cash finance transactions which were found not recorded in books of accounts of the assessee is co-related and is merely an extension of business of finance and hire purchase undertaken by the assessee since 1990, which is highly possible and probable on touchstone of preponderance of probabilities that normal finance business is combined with cash finance business to cater to the variety of needs of various customers which could not earlier met as the earlier finance and hire purchase business was business which was disclosed and declared business and did not cater to needs of the clients who are in need of undeclared cash finance to undertake cash activities.It is a proven fact that Indian economy is plagued and wrecked by a parallel economy which runs on undisclosed 36 IT (SS)A 148/Mum/2006 cash and other assets , towards which a bold step to demonetized Indian currency was taken recently by GOI to curb menace of parallel economy to flush out black money from the system.
d) The assessee made a bald plea in retraction letter dated 16.01.2003 that all transactions of the assessee are recorded in books of accounts but the assessee could not co-relate with books of accounts as to where this cash loan of Rs. 55 lacs received from one 'USG' decoded as 'Ustaji' as is reflected in seized diary marked as Annexure A-5 /page 90 is reflected in books of accounts regularly maintained by the assessee for his finance and hire purchase business carried on by the assessee company since 1990 , rather the assessee denied the said transactions with a bald plea in retraction letter dated 16-01-2003. It is also observed that the assessee in reply to question no 13 of the statement dated 12.04.2001 has expressed inability to segregate the transactions which are recorded in books of accounts or otherwise un-accounted which are not recorded in books of accounts . The aforesaid reply to question no 13 is reproduced hereunder:
"Q. 13 Please identify the page-wise transactions of Annexure A- 9, dated 1.3.2000 which are accounted or unaccounted.
Ans. I am not in a position to segregate the transactions recorded in these diaries under the head accounted or unaccounted. I am also not in a position segregate the transaction of other diaries or papers or books under the head whether accounted or unaccounted."
e) It is stated in the letter dated 16.01.2003 that in reply to question no. 8 vide recording of statement dated 12.04.2001, Sh Mangatram Arora denied of having known 'USG' , but on perusal of question no. 8 will clearly reveal that he never denied about 'USG' but only submitted that he did not have 37 IT (SS)A 148/Mum/2006 other details of 'USG' , which is most unlikely that person who has so much dealing with 'USG' as to raising of cash loan of Rs. 55 lacs and payment of interest on every 10th of month will not know details of the said 'USG'. The assessee in-fact at the cost of its own peril deliberately did not give details of 'USG' knowingly well that Revenue will proceed against 'USG' for verification and making further enquiries which will further incriminate assessee company. The reply to question no. 8 as recorded in statement dated 12.04.2001 is reproduced hereunder:
"Q.8 Give the name and address of and other details of USG?
Ans : USG stands for Ustaji. I do not know any other details of USG. I do not know his address also. "
Immediately in reply to next question no 9 while recording statement dated 12.04.2001 , the said Mangatram Arora confirmed that assessee has taken cash loan of Rs. 55 lacs from 'USG'. The said reply to question no 9 in statement dated 12.04.2001 is reproduced hereunder:
"Q.9 Please give exact details of total cash loan taken from time to time from USG?
Ans. As it is clear from page 90 of Annexure -A5 that total of Rs. 55 Lakhs is taken from him on which interest is payable in 10th of every month . My entire business of cash finance is done from this fund of Rs. 55 Lakhs."
This seized diary A-5 is in bounden form and records in an systematic manner cash finance transactions undertaken by the assessee for carrying on business of cash finance as admitted by Mr Mangatram Arora , Managing Director of assesse company in his statement recorded u/s 131 of 1961 Act on 12-04-2001. We have already held that the retraction dated 16.01.2003 38 IT (SS)A 148/Mum/2006 filed by the assessee retracting statement dated 12.04.2001 does not inspire confidence and we upheld the statement dated 12-04-2001 recorded on oath u/s 131 of the Act as valid piece of evidence. This seized diary marked as Annexure A-5 which is in handwriting of Mr Mangatram Arora, Managing Director of the assessee company and seized from control and possession of the assessee company during search operations u/s 132(1) of the Act conducted by Revenue on 07-02-2001, is defined by its author Mr Mangatram Arora, Manging Director as a rough summary of daily collection and disbursement of temporary loans and advances with various parties. It is stated that the said seized diary contains and records day to day transactions regarding cash collection and disbursement from various parties related to financing business of the assessee company and personal business of Sh. Mangatram Arora in an systematic manner . It was stated that the said seized diary is maintained for memorandum purposes and part of the transactions are accounted for in books of accounts while part of the transactions are not accounted in the books of accounts. This diary records cash transactions with date against them and in coded form name of one 'USG' is written which is decoded by Managing Director of the assessee company as one 'Ustaji' with nature of transactions explained in the said seized diary. Thus, this diary is a book of account maintained by the assessee in regular course of its business of cash finance business conducted by assessee company and entries recorded therein is an admissible evidence as provided u/s 34 of the 1872 Act as these entries are recorded in an book of account, which recorded entries of monetary transactions of cash finance business carried out by an assessee in an systematic manner wherein dates as well the names of the parties along with nature of transactions are also mentioned albeit in decoded form , which cash finance business is not declared and disclosed to the Revenue. Section 34 of the 1872 Act is reproduced hereunder:
39 IT (SS)A 148/Mum/2006 "34. [Entries in books of account including those maintained in an electronic form] when relevant.--[Entries in books of accounts including those maintained in an electronic form], regularly kept in the course of business, are relevant whenever they refer to a matter into which the Court has to inquire, but such statements shall not alone be sufficient evidence to charge any person with liability.
Illustration A sues B for Rs. 1,000, and shows entries in his account-books showing B to be indebted to him to this amount. The entries are relevant, but are not sufficient, without other evidence, to prove the debt."
It is recorded therein at page 90 of the said seized diary marked as Annexure A-5 that the assessee has taken Rs. 55 lacs as cash loan from 'USG' over a period of time. The said explanation to page 90 of seized diary marked as Annexure is reproduced hereunder:
"Page 90 This is dated 9.9.99. This also relates to transaction with Ustadji such as 15 L (Rs. 15 lakhs), 10 L (Rs. 10 lakhs) and 15L (Rs. 15 lakhs) against date. This page gives aggregate of cash Rs. 55 lakhs taken from USG over a period of time. It also includes interest calculation till 10/9"
Thus, in our considered view, seized diary marked as Annexure A-5 is book of account maintained regularly by the assessee in course of carrying on its business of cash finance which entries recorded therein are admissible as an evidence u/s 34 of 1872 Act, carrying systematic record of monetary transactions of cash finance business carried on by the assessee with names of parties and dates mentioned alongside monetary values and nature of transactions undertaken by the assessee. Our above view in holding the said seized diary marked as Annexure A-5 as books of accounts regularly maintained by the assessee in course of carrying its cash finance business is consistent with view taken by Hon'ble Supreme Court in the case of CBI v. V.C.Shukla reported in(1998) 3 SCC 410(SC), wherein Hon'ble Apex Court 40 IT (SS)A 148/Mum/2006 upheld the bounden diary seized MR 71/91 as book of account regularly kept in the course of business which entries recorded therein were held to be admissible as an evidence u/s 34 of 1872 Act as it met all the ingredients of Section 34 of 1872 Act held as under:
"To appreciate the contentions raised before us by the learned counsel for the parties it will be necessary at this stage to refer to the material provisions of the Act. Section 3 declares that a fact a relevant to another when it is connected with the other in any of the ways referred to in the provisions of the Act relating to the relevancy of facts; and those provisions are to be found in sections 6 to 55 appearing in Chapter II. Section 5, with which Chapter II opens, expressly provides that evidence may be given in any suit or proceeding of the existence or non-existence of every fact in issue and the facts declared relevant in the aforesaid section, and of no others. Section 34 of the Act reads as under:-
" Entries in books of account when relevant - Entries in book of account, regularly kept in the course of business, are relevant whenever they refer to a matter into which the court has to inquire but such statements shall not alone be sufficient evidence to charge any person with liability."
From a plain reading of the Section it is manifest that to make an entry relevant thereunder it must be shown that it has been made in a book, that book is a book of account and that book of account has been regularly kept in the course of business. From the above Section it is also manifest that even if the above requirements are fulfilled and the entry becomes admissible as relevant evidence, still, the statement made therein shall not alone be sufficient evidence, still, the statement made therein shall not along be sufficient evidence to charge any person with liability. It is thus seen that while the first part of the section speaks of the relevancy of the entry as evidence, the second park speaks, in a negative way, of its evidentiary value for charging a person with a liability. It will, therefore, be necessary for us to first ascertain whether the entries in the documents, with which we are concerned, fulfil the requirements of the above section so as to be admissible in evidence and if this question is answered in the affirmative then only its probative value need be assessed.
'Book' ordinarily means a collection of sheets of paper or other material, blank, written, or printed, fastened or bound together so as to form a material whole. Loose sheets or scraps of paper cannot be termed as 'book' for they can be easily detached and replaced. In dealing with the work 'book' appearing 41 IT (SS)A 148/Mum/2006 in Section 34 in Mukundram vs. Dayaram [AIR 1914 Nagpur 44], a decision on which both sides have placed reliance, the Court observed:-
" In its ordinary sense it signifies a collection of sheets of paper bound together in a manner which cannot be disturbed or altered except by tearing apart. The binding is of a kind which is not intended to the moveable in the sense of being undone and put together again. A collection of papers in a portfolio, or clip, or strung together on a piece of twine which is intended to be untied at will, would not, in ordinary English, be called a book............................... ................................I think the term "book" in S. 34aforesaid may properly' be taken to signify, ordinarily, a collection of sheets of paper bound together with the intention that such binding shall be permanent and the papers used collectively in one volume. It is easier however to say what is not a book for the purposes of S. 34, and I have no hesitation in holding that unbound sheets of paper in whatever quantity, though filled up with one continuous account, are not a book of account within the purview of S. 34."
We must observe that the aforesaid approach is in accord with good reasoning and we are in full agreement with it. Applying the above tests it must be held that the two spiral note books (MR 68/91 and 71/91) and the two spiral pads (MR 69/91 and MR 70/91) are "books" within the meaning of Section 34, but not the loose sheets of papers contained in the two files (MR 72/91 and MR 73/91).
The next question is whether the above books fulfil the other requirements of Section 34 so as to be admissible in evidence. Mr. Altaf Ahmed, the learned Additional Solicitor General, appearing for the appellant submitted that the interpretation of the High Court that the expressions "books of account" and "business" appearing in the above section refer and relate to only such business as may exist between two persons such as a seller and purchaser, creditor and debtor, is anomalous for such a truncated view would disable law from dealing with illicit business and situations connected therewith, such as the case in hand, where a conspiracy was hatched up to receive money through hawala channels and other sources and to distribute it as bribes to politicians to influence favorable decisions from them. According to Mr. Altaf Ahmed, the expression "business" under Section 34 should receive the widest possible meaning and should be under stood and construed to mean and include all such efforts of people, which , by varied methods of dealing with each other are designed to improve their individual economic conditions and satisfy their desires. he submitted that any book in which monetary transactions are recorded and reckoned would answer the description of 'book of account' within the meaning of the aforesaid section. Relying upon the dictionary meanings of the above two words, namely, 'business' and 'account' and the interpretations given to those words by various Courts of law, he 42 IT (SS)A 148/Mum/2006 submitted that the book (MR 71/91) and the connected documents would clearly prove that they were books of account maintained in respect of the illegal business that the Jain were carrying. His last contention on this aspect of the matter was that the transactions contained in MR 71/91 and the connected documents were an inherently credible record of the business in question and the books were maintained with such regularity as was compatible with the nature of the business the Jain brothers were carrying and consequently those books would be admissible in evidence under Section
34. Mr. Sibal, the learned counsel for the Jains, did not dispute that the spiral note books and the small pads are 'books' within the meaning of Section 34. He, however, strongly disputed the admissibility of those books in evidence under the aforesaid section on the ground that they were neither books of account nor they were regularly kept in the course of business. he submitted that at best it could be said that those books were memoranda kept by a person for his own benefit. According to Mr. Sibal, in business parlance 'account' means a formal statement of money transactions between parties arising out of contractual or fiduciary relationship. Since the books in question did not reflect any such relationship and, on the contrary, only contained entries of monies received from one set of persons and payment thereof to another set of persons it could not be said, by any stretch of imagination that they were books of account, argued mr. Sibal. He next contended that even if it was assumed for argument's sake that the above books were books of account relating to a business still they would not be admissible under Section 34 as they were not regularly kept. It was urged by him that the words 'regularly kept' mean that the entries in the books were contemporaneously made at the time the transactions took place but a cursory glance of the books would show that the entries were made therein long after the purported transactions took place. In support of his contentions he also relied upon the dictionary meanings of the words 'account' and 'regularly kept'.
The word 'account' has been defined in Words and Phrases, permanent Edition, Volume IA at pages 336 to 338 to mean (i) a claim or demand by one person against another creating a debtor-creditor relation' (ii) a formal statement in detail of transactions between two parties arising out of contracts or some fiduciary relation. At page 343 of the same book the word has also been defined to mean the preparation of record or statement of transactions or the like; a statement and explanation of one's administration or conduct in money affairs; a statement of record of financial transactions, a reckoning or computation; a registry of pecuniary transactions or a reckoning of money transactions' a written or printed statement of business dealing or debts and credits; or a certain class of them. It is thus seen that while the former definitions give the word 'account' a restrictive meaning the latter give it a comprehensive meaning. Similarly is the above word defined, both expansively, in Black's Law Dictionary (Sixth Edition) to mean's detailed 43 IT (SS)A 148/Mum/2006 statement of the mutual demands in the nature of debit and credit between parties arising out of contracts or some fiduciary relation. A statement in writing, of debits and credits, or of receipts and payments; a list of items of debits and credits, with their respective dates. A statement of pecuniary transactions; a record or course of business dealings between parties; a list of statement of monetary transactions, such as payments, losses, sales, debits, credits, accounts payable, accounts receivable, etc., in most cases showing a balance or result of comparison between items of an opposite nature.' Mr. Altaf Ahmed relied upon the wider definition of the word 'account' as mentioned above to conned that MR 71/91 fulfills the requirements of 'account' as it records a statement of monetary transactions - such as receipts and payments - duly reckoned. Mr. Sibal on the other hand urged that business accounts must necessarily mean only those accounts which record transactions between two parties, arising out of a contract or some fiduciary relations ( a meaning accepted by the High Court). He submitted, relying upon the definition of 'memorandum' as appearing in 'words and Phrases', that MR 71/91 could at best be described as a memorandum of some transactions kept by a person for his own benefit to look into same if and when the occasion would arise.
From the above definitions of 'account' it is evident that if it has to be narrowly construed to mean a formal statement of transactions between two parties including debtor-creditor relation and arising out of contract, or some fiduciary relations undoubtedly the book MR 71/91 would not come within the purview of Section 34. Conversely, if the word 'account' is to be given wider meaning to include a record of financial transactions properly reckoned the above book would attract the definition of 'book of account'.
It cannot be gainsaid that the words 'account', 'books of account', 'business' and 'regularly kept' appearing in Section 34 are of general import. necessarily, therefore, such words must receive a general construction unless there is something in the Act itself, such as the subject matter with which the Act is dealing, or the context in which the words are used, to show the intention of the legislature that they must be given a restrictive meaning.
Indubitably, the Act lays down the rules of evidence to be applied and followed in all judicial proceedings in or before any Court including some Courts - martial. Keep in view the purpose for which the Act was brought into the statute book and its sweep, the words appearing in Section 34have got to be given their ordinary, natural and grammatical meaning, more so, when neither the context nor any principle of construction requires their restrictive meaning. While on this point we may refer to Section 209 of the Companies Act, 1956 which expressly lays down what 'books of account' to be maintained thereunder must contain and, therefore, the general meaning of the above words under the Act may not be applicable there.
44 IT (SS)A 148/Mum/2006 In Mukundram (supra) after dealing with the word 'book' (to which we have earlier referred) the Court proceeded to consider what is meant by a 'book of account' under Section 34 and stated as under:
" To account is to reckon, and I an unable to conceive any accounting which does not involve either addition or subtraction or both of these operations of arithmetic. A book which contains successive entries of items may be a good memorandum book; but until those entries are totalled or balanced, or both, as the case may be, there is no reckoning and no account. In the making of totals and striking of balances from time to time lies the chief safeguard under which books of account have been distinguished from other private records as capable of containing substantive evidence on which reliance may be placed."
(emphasis supplied) We have no hesitation in adopting the reasoning adumbrated in the above observations. The underlined portion of the above passage supports the contention of Mr. Altaf Ahmed and rebuts that of mr. Sibal that Mr 71/91 is only a memorandum for the entries made therein are totalled and balanced. We are, therefore, of the opinion that MR71/91 is a 'book of account' as it records monetary transactions duly reckoned.
Coming now to the word ' business' , we need not search for its meaning in Black's Law Dictionary, or words and Phrases for this Court has dealt with the word in a number of cases. In Narain Swadesh Weaving Mills vs. The Commissioner of Excess profits Tax [ 1955 (1) SCR 952], a five judge bench of this Court held that the word 'business' connotes some real, substantial and systematic or organised course of activity or conduct with a set purpose' and the above interpretation was quoted with approval in Mazagaon Dock Ltd. vs. The Commissioner of Income Tax and Excess Profits Tax [1959 SCR 848]. Again in Barendra Prasad Ray vs. I.T.O. [1981 92) SCC 693] this court observed that the word 'business' is one of wide import ad it means an activity carried on continuously and systematically by a person by the application of his labour or skill with a view to earning an income. The activities of the Jain brothers, as sought to be projected by the prosecution now on the basis of the materials collected during investigation (detailed earlier) would, therefore, be 'business' for they were being carried on continuously in an organised manner, with a set purpose (be it illegal) to augment their own resources. mr. 71/91 is, therefore, a book of account kept in the course of business.
That brings us to the question whether it was 'regularly kept' so as to satisfy the last requirement of Section 34 to be admissible in evidence as a relevant fact. Mr. Altaf Ahamed submitted that the above question has got to be answered keeping in view the nature of business the Jain brothers were carrying on and that when MR 71/91 is Scanned in that perspective it is obvious that it was regularly kept. In refuting the above contentions Mr. Sibal relied upon $ 1550 of American Jurisprudence, proof of Facts (Volume 34, 45 IT (SS)A 148/Mum/2006 Second Series) wherein it has been observed that not merely regularity is required; the entry must have been fairly contemporaneous with the transaction entered. he also referred to $ 1526 of the same book which reads as under:
The entry should have been made at or near the time of the transaction recorded - not merely because this is necessary in order to assure a fairly accurate recollection of the of the matter, but because any trustworthy habit of making regular business records will ordinarily involve the making of the record contemporaneously. The rule fixes no precise time' each case must depend on its own circumstances."
(emphasis supplied) Mr. Sibal submitted that from a cursory glance of MR 71/91. It would be apparent that the entries therein were not contemporaneously made; and, on the contrary, they were made monthly which necessarily meant that those entries were made long after the dates the purported transactions of receipt and disbursement took place.
What is meant by the words 'regularly kept' in Section 34 came up for consideration before different high Courts; and we may profitable refer to some of those decisions cited at the Bar. In Ramchand Pitembhardar Vs. Emperor [19 Indian cases 534] it has been observed that the books are 'regularly kept in the corse of business' if they are kept in pursuance of some continuous and uniform practice in the current routine of the business of the particular person to whom they belong. In Kesheo Rao vs. Ganesh [AIR 1926 Nagpur 407] the court interpreted the above words as under:
" The regularity of which S.34 speaks cannot possibly mean that there is not mistake in the accounts, as that would make the section a dead letter; no accounts could be admitted in evidence till they had been proved to be absolutely correct, which is in itself an impossible task and also cannot be begun till they have been admitted in evidence. Regularly or systematically means that the accounts are kept according to a set of rules or a system, whether the accountant has followed the rules or system closely or not. Nor is there any thing in the section that says the system must be an elaborate or reliable one. Both those matters, the degree of excellence of the system and the closeness with which it has been followed, affect the weight of the evidence of an entry, not it s admissibility. The roughest memoranda of accounts kept generally according to the most elementary system, though often departing from its, are admissible in evidence, but would of corse have no weight."
The view expressed by the Kerala High Court in Kunjamman Vs. Govinda Kurukkal [1960 kerala Law Times 184] in this regard is that the words 'regularly kept' do not necessarily mean kept in a technically correct manner 46 IT (SS)A 148/Mum/2006 for no particular set of rule or system of keeping accounts is prescribed under Section 34 of the Evidence Act and even memoranda of account kept by petty shopkeepers are admissible if they are authentic While dealing with the same question the Punjab & Haryana High Court observe in Hiralal Mahabir Pershad Vs. Mutsaddilal Jugal Kishore [(1967) 1 I. L. R P &: H 435] that the entries should not be a recital of past transactions but an account of transactions as they occur, of course, not necessarily to be made exactly at the time of occurrence and it is sufficient if they are made within a reasonable time when the memory could be considered recent.
In our considered opinion to ascertain whether a book of account has been regularly kept the nature of occupation is an eminent factor fr weighment. The test of regularity of keeping accounts by a shopkeeper who has dally transactions cannot be the same as that of a broker in real estates. Not only their systems of maintaining books of account will differ but also the yardstick of contemporaneity in making entries therein. We are, therefore, unable to subscribe to the view of Mr. Sibal that an entry must necessarily be made in the book of account at or about the time the related transaction takes place so as to enable the book to a pass the test of 'regularly kept'. Indeed the above Section ($ 1526) expressly lays down (emphasised earlier) that the rule fixed no precise time and each case must depend upon its own circumstances. Applying the above tests and the principles consistently laid down by the different High Court s(referred to above ) we find that Mr 71/91 has been regularly and systematically maintained. Whether the system in which the book has been maintained guarantees its correctness or trustworthiness is a question of its probative value and not of its admissibility as a relevant fact under Section 34. The other three books, namely MR 68/91 and MR 70/91 would not however come within the purview of the above Section, for, even though some of the emonetary transactions entered therein appear to be related to those in MR 70/91, they (the three books ) cannot be said to be books of account regularly kept. We need not, however, at this stage consider whether the entries in these three books will be relevant under any other provisions of Chapter II of the Act."
Now, we have held the seized diary marked as Annexure A-5 page 90 as admissible evidence u/s 34 of 1872 Act but now it is to be seen that whether it has probative value as Section 34 of 1872 Act clearly stipulates that such entries in books of accounts regularly kept in the course of business shall not alone be sufficient evidence to charge any person with liability. It needs independent corroboration. Then arises question as to standard of proof required to fasten liability. The proceedings under IPC as well 1988 Act as 47 IT (SS)A 148/Mum/2006 were contemplated in CBI v. V. C. Shukla(supra) were criminal proceedings and under criminal jurisprudence, standard of proof is on higher pedestal as the charge is to be proved beyond reasonable doubt to secure conviction of an accused, while we are in the instant appeal concerned with proceedings under 1961 Act which contemplates standard of proof on the touchstone of preponderance of human probabilities. Now, we have to see independent corroboration on the touchstone of preponderance of human probabilities in this case to find availability of evidence which is capable of fastening liability on the assessee to pay tax within four corner of provisions of the 1961 Act relating to computing of undisclosed income under Chapter XIV-B of 1961 Act for the block period. It is well established in Indian jurisprudence, that to fasten liability , there is no need of multiplicity of evidences rather it is the quality of evidence which shall weigh with Courts to fasten liability. One piece of worthy evidence is sufficient enough to fasten liability provided it inspire confidence of the Court while on the other hand multitude of the evidences may not be sufficient to fasten liability if they are qualitatively weak and did not inspire confidence of Courts. We have now a seized diary marked Annexure A-5 wherein entries recorded therein are held to be an admissible evidence as recorded in books of accounts u/s 34 of the 1872 Act as the said seized diary is held by us to be maintained in regular course of business of cash finance business undertaken by assessee, which was kept away from the eyes of Revenue. If the said seized diary is seen in context of admission of Managing Director of the assessee company who was conducting business of the assessee company , in his statement recorded u/s 131 of 1961 Act on 12.04.2001 which was a voluntary statement given on oath and which has not been condemned by retraction on the grounds of threat, coercion, undue influence , inducement or forced confession , it can be said that there is enough corroboration of the said seized diary marked as Annexure A-5/page 90 to fasten liability on assessee more-so the assessee is admittedly already in the business of finance and hire purchase since 1990 while the allegation 48 IT (SS)A 148/Mum/2006 vide seized material diary being Annexure A-5 as well statement dated 12.04.2001 is with respect to cash finance business undertaken by assessee which is not recorded in books of accounts maintained by the assessee for finance and hire-purchase business carried on by the assessee since 1990 and this cash finance business was ostensibly carried out with the cash loan of Rs. 55 lacs obtained from one 'USG' which is decoded by assessee as one 'Ustaji'. These material on record proves on the touchstone of preponderance of human probabilities , in our considered view, that the assessee had combined its existing finance and hire purchase business undertaken since 1990 with the cash finance business out of funds of Rs 55 lacs received in cash in 1999 from one 'USG' decoded as 'Ustadji' to cater to a new stream of customers who are in need of un-recorded cash loans for their variety of needs. This cash finance business is kept by the assessee away from the eyes of Revenue as the same was not disclosed and declared to Revenue in return of income filed by the assessee with Revenue. The assessee chose at its own peril not to give any further details such as addresss , PAN etc of said 'Ustadji' to prevent further enquiry by Revenue and burden cast on the assessee u/s 106 of 1872 Act did not get discharged rather presumption u/s 132(4A) of 1961 Act shall apply against the assessee as the said seized diary is recovered from possession and control of the assessee. The assessee also admitted before learned CIT(A) that the assessee should be made liable to tax on an undisclosed income computed at 3-4% of the cash loan of Rs. 55 lacs taken from 'Ustadji' instead of taxing the whole of Rs. 55 lacs. This admission binds the assessee that in-fact the assessee received Rs. 55 lacs as cash loan from one 'USG' unless cogent evidences are brought on record to disprove this admission made by the assessee company before learned CIT(A). The admission of the Managing Director of the assessee company who was conducting business of the assessee company vide statement recorded u/s 131 of the Act on 12-04-2001 shall also bind the assessee as the admission 49 IT (SS)A 148/Mum/2006 which is not a confession shall bind the maker of the assessee by virtue of Section 18 r.w.s 21 of 1872 Act, which are reproduced hereinunder:
"Section 18. Admission by party to proceeding or his agent.--Statements made by a party to the proceeding, or by an agent to any such party, whom the Court regards, under the circumstances of the case, as expressly or impliedly authorized by him to make them, are admissions.
by suitor in representative character.--Statements made by parties to suits, suing or sued in a representative character, are not admissions, unless they were made while the party making them held that character. Statements made by--
(1) party interested in subject-matter.--persons who have any proprietary or pecuniary interest in the subject-matter of the proceeding, and who make the statement in their character of persons so interested, or (2) person from whom interest derived.--persons from whom the parties to the suit have derived their interest in the subject-matter of the suit, are admissions, if they are made during the continuance of the interest of the persons making the statements.
**** **** Section 21. Proof of admissions against persons making them, and by or on their behalf.--Admissions are relevant and may be proved as against the person who makes them, or his representative in interest; but they cannot be proved by or on behalf of the person who makes them or by his representative in interest, except in the following cases:--
(1) An admission may be proved by or on behalf of the person making it, when it is of such a nature that, if the person making it were dead, it would be relevant as between third persons under section 32. (2) An admission may be proved by or on behalf of the person making it, when it consists of a statement of the existence of any state of mind or body, relevant or in issue, made at or about the time when such state of mind or body existed, and is accompanied by conduct rendering its falsehood improbable.
(3) An admission may be proved by or on behalf of the person making it, if it is relevant otherwise than as an admission. "
50 IT (SS)A 148/Mum/2006 The case of CBI v. V C Shukla (supra) was distinguishable as liability was sought to be imposed on third parties namely Sh V C Shulka and Sh L K Advani by securing their criminal conviction under IPC and 1988 Act based on diaries which were maintained by one Mr J K Jain who was an accountant of Jain Brothers on behalf and behest of said Jain brothers . The seized diaries in this infamous 'Jain Hawala case' were not maintained on behalf and at behest of Sh. L K Advani or Sh. V C Shukla rather those diaries were maintained on behalf and on behest of Jain Brothers. Thus, third parties namely Mr L K Advani and Mr V C Shukla criminal conviction were sought based on the seized diaries which were found from possession of third parties, wherein Hon'ble Supreme Court held as under:
"Now that we have found ( in disagreement with the High Court ) that entries in MR 71/91 would be admissible under Section 34 of the Act we have to next ascertain there probative value. mr. Altaf Ahmed took great pains to decode and analyses the entries in the above book and, correlating them with the entries in the other three books and in some of the loose sheets found in the files, submitted that the intrinsic evidence furnished by their internal corroboration and inter-dependence unmistakably demonstrated their authenticity and trustworthiness. According to Mr. Altaf Ahmed the entries reflect such periodicity and regularity as was compatible with the modus operandi of the business of Jain brothers of corrupting public servant including Members of Parliament and Ministers in order to influence their decisions and seek their favours for promotion of their (Jain brothers') economic interests. Besides, he submitted, the external independent corroboration of those entries as required under Section 34 was also available to the prosecution from the statements made by Shri Jacob Mathai, Danial P. Rambal and P. Ghoshal and Ejaj Ilmi during investigation, in that, they have admitted receipts of the payments as shown against them in MR. 71/91. While on this point, he made a particular reference to those entries in MR 71/91 Which, according to him m if corresponded with the entries in the other books and the enclose sheets would prove the payments to Shri Advani and Shri Shukla. As regard s the proof of authorship of the entries he drew our attention to the statements of Pawan Jain , A. V. Pathak and D.K. Guha who have stated that the entries were made by J. K. Jain and that the Jain Brothers had put their signatures against some of these entries in token of verification thereof. He also drew our attention to the written opinion given by the hand writing expert in this regard.
51 IT (SS)A 148/Mum/2006 In response Mr. Sibal submitted that the evidence that has been collected during investigation only shows that the entries were made by J. K. Jain and that the Jain brothers had put certain signatures against some of those entries it there is o evidence whatsoever to prove that movies were actually paid by the Jains and received by the payees as shown in the entries, without proof of which no case, even prima facie, could be said to have ben made out against any of therm. According to Mr. Sibal and Mr. Jethmalani, learned Counsel for Shri Advani by more proof of a document the truth of the contents thereof is to proved and independent evidence for that purpose is required. In absence of any such evidence, they contended, no liability can be foisted under Section 34.
The rationale behind admissibility of parties' books of account as evidence is that the regularity of habit, the difficulty of falsification and the fair certainty of ultimate detection give them in a sufficient degree a probability of trustworthiness (wigmore on evidence $ 1546). Since, however, an element of self interest and partisanship of the entrant to make a person - behind whose back and without whose knowledge the entry is made - liable cannot be ruled out the additional safeguard of insistence upon other independent evidence to fasten him with such liability, aha been provided for in Section 34 by incorporating the words such statements shall not alone be sufficient to charge any person with liability.
The probative value of the liability created by an entry in books of account came up for consideration in Chandradhar vs. Gauhati Bank [1967 (1) S. C. R. 898]. That case arose out of a suit filed by Gauhati Bank against Chandradhar (the appellant therein ) for recovery of a loan of Rs. 40,000/- . IN defence he contended, inter alia, that no loan was taken. To substantiate their claim the Bank solely relied upon certified copy of the accounts maintained by them under Section 4 of the Bankers' Book Evidence Act, 1891 and contended that certified copies became prima facie evidence of the existence of the original entries in the accounts and were admissible to prove the payment of loan given. The suit was decreed by the trial Court and the appeal preferred against it was dismissed by the High Court. In setting aside the decree this Court observed that in the face of the positive case made out by Chandradhar that he did not ever borrow any sum from the Bank, the Bank had to prove that fact of such payment and could not rely on mere entries in the books of account even if they were regularily kept in the corse of business in view of the clear language of Section 34 of the Act. This Court further observed that where the entries were not admitted it was the duty of the Bank, if it relied on such entries to charge any person with liability, to produce evidence in support of the entries to show that the money was advanced as indicated therein and thereafter the entries would be of use as corroborative evidence.
The same question came up for consideration before different High Court on a number of occasions but to eschew prolixity we would confine our attention to some of the judgements on which Mr. Sibal relied. In Yesuvadiyan Vs. Subba 52 IT (SS)A 148/Mum/2006 Naicker [A. I. R. 1919 Madras 132] one of the learned judges constituting the Bench had this to say:
S.34, Evidence Act, lays down that the entries in books of account, regularly kept in the course of business are relevant, but such a statement will not alone e be sufficient to charge any person with liability. That merely means that the plaintiff cannot obtain a decree by merely proving the existence of certain entries in his books of account even though those books are shown to be kept in the regular course of business. he will have to show further by some independent evidence that the entires represent real and honest transactions and that the moneys were paid in accordance with those entries. The legislature however does not require any particular form or kind of evidence in addition to entries in books of account, and I take it that any relevant fact s which can be treated as evidence within the meaning of the Evidence Act would be sufficient corroboration of the evidence furnished by entries in books of account if true."
While concurring with the above observations the other learned Judge stated as under:
" If no other evidence besides the accounts were given, however strongly those accounts may be supported by the probabilities, and however strong may be the evidence as to the honesty of those who kept them, such consideration could not alone with reference to s.34, Evidence Act, be the basis of a decree."
(emphasis supplied) In Beni Vs. Bisan Dayal [ A. I. R 1925 Nagpur 445] it was observed tat entries in book s of account are not by themselves sufficient to charge any person with liability, the reason being that a man cannot be allowed to make evidence for himself by what he chooses to write in his own books behind the back of the parties. There must be independent evidence of the transaction to which the entries relate an din absence of such evidence no relief can be given to the party who relies upon such entries to support his claim against another. In Hira Lal Vs. Ram Rakha [ A. I. R. 1953 Pepsu 113] the High Court, while negativing a contention that it having been proved that the books of account were regularly kept in the ordinary course of business and that, therefore, all entries therein should be considered to be relevant and to have been prove, said that the rule as laid down in Section 34 of the Act that entries in the books of account regularly kept in the course of business re relevant whenever they refer to a matter in which the court has to enquire was subject to the salient proviso that such entries shall not alone be sufficient evidence to charge any person with liability. It is not, therefore, enough merely to prove that the books have been regularly kept in the course of business and the entries therein are correct. It is further incumbent upon the person relying upon those entries to prove that the were in accordance with facts.
53 IT (SS)A 148/Mum/2006 The evidentiary value of entries relevant under Section 34 was also considered in Hiralal Mahabir Pershad (supra ) I.D. Dua, ]. (as he then was ) speaking for the Court observed that such entries though relevant were only corroborative evidence and it is to be shown further by some independent evidence that the entries represent honest and real transactions and that monies were paid in accordance with those entries.
A conspectus of the above decisions makes it evident that even correct and authentic entries in books of account cannot without independent evidence of their trustworthiness, fix a liability upon a person. Keeping in view the above principles, even if we proceed on the assumption that the entries made in MR 71/91 are correct and the entries in the other books and loose sheets which we have already found to be not admissible in evidence under Section 34) are admissible under Section 9 of the Act to support an inference about the formers' correctness still those entries would not be sufficient to charge Shri Advani and Shri Shukla with the accusations levelled against them for there is not an iota of independent evidence in support thereof. In that view of the matter we need not discuss, deleve into or decide upon the contention raised by Mr. Altaf Ahmed in this regard. Suffice it to say that the statements of the for witnesses, who have admitted receipts of the payments as shown against them in MR 71/91, can at best be proof of reliability of the entries so far they are concerned and not others. In other words, the statements of the above witnesses cannot be independent evidence under Section 34 as against the above two respondents. So far as Shri Advani is concerned Section 34 would not come in aid of the prosecution for another reason also. According to the prosecution case itself his name finds place only in one of the loose sheets (sheet No. 8) and not in MR 71/91. Resultantly, in view of our earlier discussion, section 34 cannot at all be pressed into service against him."
While in the instant appeal, the seized diaries are firstly maintained by Sh. Mangatram Arora who is Managing Director of the assessee company incharge of conducting business of the assessee company on behalf and at behest of the assessee company (refer page 35/paper book) , where purportedly cash finance business transactions of the assessee company were purportedly recorded by said Mr Mangatram Arora, Managing Director of the assessee company in his own handwriting on behalf of and at behest of assessee company and liability is sought to be fastened on the assessee company itself under 1961 Act and not on third parties on the touchstone of preponderance of human probabilities. There is an agency wherein Managing 54 IT (SS)A 148/Mum/2006 Director of the company who is conducting business of the assessee company and is in charge of affairs of the assessee company vested with substantial powers of management, is an agent of the assessee company to whom he holds position of Managing Director and his action shall bind the assessee company . The relationship of principal and agent will come into play and action of the agent will bind the principal as per provisions of The Indian Contract Act,1872. The liability is sought to be imposed on principal based on the entries recorded by Sh. Mangatram Arora , Managing Director of the assessee company in the said seized diary marked as Annexure A-5 in his own handwriting as an agent of the tax-payer assessee company, which is admitted in statement recorded on oath by the said agent on behalf of principal. The company is an artificially juridical person which exists in eye of law as separate legal entity but it has to operate its activities through human agency which are its Directors , employees etc. whose actions undertaken in normal course of activities shall bind the company. Thus, the diary maintained by Sh Mangatram Arora , Managing Director of the assessee company was maintained in the normal course of business of cash finance business undertaken by the assessee company which business is not disclosed to Revenue shall bind the assessee company and liability can be fastened on the assessee company by actions of its Managing Director, Sh.Mangatram Arora . Secondly, the proceedings under 1961 Act are tax proceedings which are civil in nature and standard of proof is based on preponderance of human probabilities to fasten liability to pay tax, while proceedings under IPC as well 1988 Act are criminal in nature and standard of proof required to secure criminal conviction is to prove offence being committed by accused beyond reasonable doubt.
The assessee has also relied upon decision of Mumbai-tribunal in the case of S.P.Goyal v. DCIT reported in (2002) 82 ITD 55(Mum.)(TM) , which case is clearly distinguishable as in the case of S.P.Goyal(supra), additions were 55 IT (SS)A 148/Mum/2006 made of Rs. 60 lacs on account of consignment sales based on entries made in loose sheets of diary belonging to the tax-payer seized in search operations u/s 132 of the 1961 Act, while in the instant appeal , the entries are found to be entered in bounden diary which kept systematic record of business of cash finance undertaken by the assessee which was not disclosed to the revenue. We have already held that entries made in said seized diary marked as Annexure A-5 to be made in books of accounts regularly maintained by the assessee in course of its business of cash finance undertaken by the assessee which is held to be an extension to its business of finance and hire-purchase carried on by the assessee since 1990. In the case of Sh. S P Goyal (supra), the tribunal disbelieved the entries in loose papers as there was no such corroboratory evidence found in the form of extra cash, jewellary or investment outside books, while in the instant appeal , it is admitted by the assessee that it undertook cash finance business from this cash loan of Rs. 55 lacs received from one 'USG' decoded as 'Ustadji' which proceeds was used to grant small cash loans to various people who are in need of cash loans. The assessee is already in business of finance and hire purchase since 1990. Thus, case of S.P. Goyal(supra) relied upon by the assessee is clearly distinguishable as in the instant case, there is enough corroboration to fasten liability to tax on the assessee on touchstone of preponderance of human probabilities.
Now, coming to Section 158BB(2) of 1961 Act which clearly stipulates , inter- alia, that in computing undisclosed income of the block period , the provisions of Section 68, 69, 69A, 69B and 69C of 1961 Act shall , so far as may be , apply . Section 158BB(2) of 1961 Act is reproduced hereunder:
"Computation of undisclosed income of the block period. 158BB(1) ****
56 IT (SS)A 148/Mum/2006 (2) In computing the undisclosed income of the block period, the provisions of sections 68, 69, 69A, 69B and 69C shall, so far as may be, apply and references to "financial year" in those sections shall be construed as references to the relevant previous year falling in the block period including the previous year ending with the date of search or of the requisition."
The assessee has to prove the identity and creditworthiness of the lender as well genuineness of the transaction of cash credit as are found to be recorded in its books of accounts as per mandate of Section 68 of 1961 Act. Section 68 of 1961 Act as was applicable at the relevant point of time is reproduced hereunder:
"Cash credits.
68. Where any sum is found credited in the books of an assessee maintained for any previous year, and the assessee offers no explanation about the nature and source thereof or the explanation offered by him is not, in the opinion of the34[Assessing] Officer, satisfactory, the sum so credited may be charged to income-tax as the income of the assessee of that previous year."
The said seized diary marked as Annexure A-5 is already held to be book of account regularly maintained by the assessee in the course of carrying on cash finance business which is not disclosed to the Revenue and Rs. 55 cash loan stood credited in the said seized diary purported to be received from one 'USG' which is decoded to be 'Ustadji', it was incumbent on the assessee to have discharged the burden as cast u/s 68 of 1961 Act which the assessee company failed to discharge the onus cast u/s 68 of the 1961 Act as the assessee company chose at its own peril not to given details such as address, PAN etc. of said 'USG' decoded as 'Ustadji' , thereby preventing any further enquiry by Revenue w.r.t. to cash loan of Rs. 55 lacs found recorded in seized diary marked as Annexure A-5 which was seized from the control and possession of the assessee company . Hence, the amount of Rs. 55 lakhs was 57 IT (SS)A 148/Mum/2006 rightly treated as undisclosed income of the assessee by Revenue falling within the mandate of Chapter XIV-B of 1961 Act and the Revenue has rightly brought the same to tax while framing block period assessment u/s 158BC(c) of the Act which was later upheld by learned CIT(A) vide appellate order dated 03-03-2006, in which appellate order dated 03-03-2006 we donot find any infirmity and we are inclined to confirm the appellate order of the learned CIT(A) with respect to additions of undisclosed income of Rs. 55 lacs as cash loan received by the assessee from one 'USG' which is not disclosed to Revenue in return of income filed with Revenue by the assessee and since onus u/s 68 of the Act is not discharged by the assessee, the same is held to be undisclosed income of the assessee for the Block period 01-04-1990 to 07- 02-2001. Thus, we confirm the addition of Rs. 55 lakhs as undisclosed income of the assessee for block period under Chapter XIV-B of 1961 Act. Further, it is clear that interest on this cash loans of Rs. 55 lacs raised in 1999 is payable on 10th of every month from the seized material Annexure A-5 /page 90 , wherein there is clear mention of payment of interest and it is stated that interest is calculated till 10/9 while the date of writing page 90 is 09-09-1999. The relevant extract of statement dated 12.04.2001 wherein Sh. Mangatram Arora explained A-5/page 90 as under:
"Page 90 This is dated 9.9.99. This also relates to transaction with Ustadji such as 15 L (Rs. 15 lakhs), 10 L (Rs. 10 lakhs) and 15L (Rs. 15 lakhs) against date. This page gives aggregate of cash Rs. 55 lakhs taken from USG over a period of time. It also includes interest calculation till 10/9"
In reply to question no. 9 while recording statement dated 12.04.2001, Sh Mangatram Arora stated that interest is payable on this cash loan of Rs. 55 lacs received from one 'USG' decoded as 'ustadji' on 10th of every month. The relevant extract of the statement dated 12.04.2001 is reproduced hereunder:
58 IT (SS)A 148/Mum/2006 "Q.9 Please give exact details of total cash loan taken from time to time from USG?
Ans. As it is clear from page 90 of Annexure -A5 that total of Rs. 55 Lakhs is taken from him on which interest is payable in 10th of every month . My entire business of cash finance is done from this fund of Rs. 55 Lakhs."
There is also mention of payment of interest @18% at other seized material which is in reply to question no 12 as well in Annexure A-6. The assessee was in business of finance and hire purchase since 1990 and obviously it will be paying and charging interest on loans raised and granted respectively. But, this interest so paid to 'USG' which is payable on 10th of every month is not recorded in books of accounts which was declared to Revenue in return of income filed with the Revenue and the sources of incurring of the said expenditure has not been explained by the assessee. The undisclosed income which is to be computed as per seized material found during the course of search u/s 132(1) of 1961 Act requires to be computed as per seized material on the touchstone of preponderance of human probabilities , which involve some estimation but the said estimation should be based on material found during the course of search and the same has to be intelligible estimation dehors seized material otherwise it will enter arena of perversity which could not be sustainable in the eyes of law. The revenue has applied rate of interest @18% on said cash loan of Rs. 55 lacs raised by assessee from one 'USG' based on the reference to said interest as appearing in other seized material as well on the touchstone of preponderance of probabilities based on the fact that the assessee is in the business of finance and hire purchase since 1990 and estimation of interest @18% charged by private lenders is not extra- ordinarily high which could shook the consciousness of the Court or to enter arena of perversity and is an intelligible application of mind by authorities below dehors seized material , which is upheld by us. Section 69C of the 1961 59 IT (SS)A 148/Mum/2006 Act which is applicable to block assessment proceedings by virtue of Section 158BB(2) of 1961 Act clearly stipulates that where in any financial year , the assessee has incurred any expenditure and he offers no explanation about the source of such expenditure or explanation offered by him is , in the opinion of the AO not satisfactory , the amount covered by such expenditure may be deemed to be income of the assessee for such financial year. Further the proviso to Section 69C of 1961 Act provides that notwithstanding anything contained in any other provision of the 1961 Act, such unexplained expenditure which is deemed to be income of the assessee shall not be allowed as a deduction under any other head of income. Section 69C of 1961 Act is reproduced hereunder:
"[Unexplained expenditure, etc. 69C. Where in any financial year an assessee has incurred any expenditure and he offers no explanation about the source of such expenditure or part thereof, or the explanation, if any, offered by him is not, in the opinion of the [Assessing] Officer, satisfactory, the amount covered by such expenditure or part thereof, as the case may be, may be deemed to be the income of the assessee for such financial year :] [Provided that, notwithstanding anything contained in any other provision of this Act, such unexplained expenditure which is deemed to be the income of the assessee shall not be allowed as a deduction under any head of income.]"
The ld. CIT(A) has rightly directed the A.O. to calculate the interest from the date on which the loans were received in the year 1999 till the end of the block period instead of bringing to tax , interest from assessment year 1995- 96 as was done by the AO , as there is no evidence that the assessee raised cash loans of Rs. 55 lacs prior to 1999 as per seized diary marked Annexure A-5 /page 90 which pertains to 09-09-1999. The assessee has not brought on record any material to prove that the cash finance business so undertaken by the assessee which started with raising of cash loan of Rs. 55 lacs from one 'USG' in 1999 did not continue till the end of block period on 07-02-2001.
60 IT (SS)A 148/Mum/2006 The finding of the tribunal in Revenue appeal in IT(SS) No. 148/Mum/2006 vide orders dated 24-11-2008 has become final as Revenue has not filed miscellaneous appeal for recalling tribunal order dismissing Revenue appeal . The reliance of the learned counsel for the assessee on tribunal orders for regular assessment years viz. assessment year 2000-01, 2001-02, 2002-03 and 2003-04 to contend that no additions have been made by Revenue on account of interest payable on cash loan of Rs. 55 lacs allegedly raised by the assessee cannot be accepted as the block period assessment under Chapter XIV-B of 1961 Act is in addition to regular assessment. The mandate of block period assessment u/s 158BC of 1961 Act is compute undisclosed income under Chapter XIV-B of 1961 Act for the block period in the case of search and requisition cases , while mandate of regular assessment is to compute total income as per Chapter XIV of the Act. We concur with the order of learned CIT(A) which we confirm/sustain and hold that interest will be brought to tax @18% p.a. from the date of receiving of loan in 1999 till the end of block period. Hence, ground No. 3,4 & 6 are adjudicated against the assessee. We order accordingly.
12. With respect to Ground No. 5 raised by the assessee in memo of appeal filed with the tribunal which is with respect to the cash of Rs.12,30,710/- found by Revenue during the course of search carried out by Revenue on 07- 02-2001 at the residence premises of Mr. Mangatram Arora at 4 , Shiv Darshan , Sarojini Road, Santacruz(W), Mumbai-400054 , out of which cash of Rs. 11 lakhs was seized by Revenue during the course of search proceedings u/s 132(1) of 1961 Act as per Panchnama dated 7th February, 2001 prepared in the name of the assessee company during course of search proceedings u/s 132(1) of 1961 Act, which is placed in pb/page 10. The assessee was asked by the AO to explain the source of cash found and seized during search operations, during course of block assessment proceedings.
61 IT (SS)A 148/Mum/2006 In response , the assessee company submitted that the cash belongs to Arora Poultry Products Ltd. as Sh Mangatram Arora is Chairman of both the companies namely assessee company as well Arora Poultry Products Limited , wherein Sh Mangatram Arora replied in response to question no 10 in his statement dated 07-02-2001 recorded by Revenue , as under :-
"Q 10. During the course of search Rs. 12,30,710/- was found in your residence. Please explain ?
A.10 I am the Chairman in both the companies i.e. M/s Mangatram Arora Finance Ltd. and M/s Arora Poultry Products Ltd. and as such the cash balance of both the concerns are kept with me for safe custody as my residence is insured against theft whereas the same is no so with the office premises. Moreover, the cash generated by way of sales from M/s. Arora Poultry Products Ltd., is also kept with me for safe custody. However, in this point in time I cannot produce documentary evidence to prove this as my Accountant is not in town. Details of the same will be produced as/and when called by you with suitable explanations."
The A.O. further observed that a search u/s 132(1) of 1961 Act also conducted at the office premises of M/s Arora Poultry Products Pvt. Ltd., at 266, P.E. Wadi, Opp Abhudaya Bank, Dharavi, Mumbai-400 070 on 7th February, 2001. A cash of Rs. 11,55,594/- were found at the said premises of Arora Poultry Products Private Limited at Dharavi but not seized. The statement of one Mr. Devdas R. Pillai, Executive Director of the Arora Poultry Products Private Limited was recorded by Revenue on 7th February, 2001 , wherein he stated that he is not in a position to explain the cash and stock in hand in the absence of updated books of account, but he stated that approximately cash of Rs. 12 lacs belonging to Arora Poultry Products Private Limited is kept at the residential premises of Sh. Mangatram Arora. The AO observed that the said Arora Poultry Products Private Limited has submitted statement of cash account as on 06-02-2001 to 08-02-2001 during block period assessment proceedings, wherein opening cash in hand as on 06-02- 62 IT (SS)A 148/Mum/2006 2001 was Rs.12,71,291/- while closing cash balance was Rs. 14,41,040/- of Arora Poultry Products Private Limited . The A.O. , thus, rejected the contention of the assessee company and observed that the major cash balance belonging to Arora Poultry Products Pvt. Ltd. were found in the office premises of Arora Poultry Products Private Limited at Dharavi and hence the cash seized amounting to Rs. 11 lakhs from the office premises of M/s Mangatram Arora Finance Ltd. at 4 , Shiv Darshan , Sarojini Road, Santacruz(W), Mumbai-400054 were treated as cash belonging to M/s Mangatram Arora Finance Ltd. and the said amount of Rs. 11 lacs was included in the undisclosed income of the assessee company for the block period under Chapter XIV-B of 1961 Act , vide block period assessment order passed by the AO u/s 158 BC(c) of the 1961 Act dated 28th February, 2003 , wherein in aggregate additions to the tune of Rs.1,86,24,110/ was made towards the undisclosed income computed u/s 158BC of the 1961 Act which included addition of Rs.11,00,000/- towards cash seized on 07-02-2001 from office premises of Mangatram Arora Finance Limited at 4 , Shiv Darshan , Sarojini Road, Santacruz(W), Mumbai-400054.
13 Aggrieved by the addition of Rs. 11 lacs made by AO towards undisclosed income being cash seized on 07-02-2001 from office of Mangatram Arora Finance Limited at 4 , Shiv Darshan , Sarojini Road, Santacruz(W), Mumbai- 400054 in the hands of the assessee company in the block period assessment order dated 28-02-2003 passed by the AO u/s 158BC(c) of the 1961 Act, the assessee company carried the matter before the ld. CIT(A) by filing first appeal.
The grounds of appeal raised by the assessee company in memo of appeal filed before the ld. CIT(A) read as under:-
63 IT (SS)A 148/Mum/2006 "The learned Asst. Commissioner has added Rs. 1,86,24,110/- on account of Undisclosed Income without any justification.
The learned Asst. Commissioner has not allowed basic deduction which is applicable without any justification."
The assessee is now aggrieved wherein second appeal is filed before the tribunal on the grounds that learned CIT(A) did not adjudicated this issue of cash of Rs 11 lacs seized from office of the assessee company at 4 , Shiv Darshan , Sarojini Road, Santacruz(W), Mumbai-400054, vide appellate order dated 03-03-2006, which was added by the AO in the hands of the assessee company as undisclosed income in block period assessment order dated 28- 02-2003 passed by the AO u/s 158Bc(c) of the 1961 Act. On perusal of the appellate order dated 03-03-2006 passed by the ld. CIT(A), we have observed that the ld. CIT(A) has not adjudicated this issue, despite the assessee company challenged the legality and validity of the entire addition of Rs. 1,86,24,110/- made by the AO as undisclosed income in the block period assessment order dated 28-02-2003 passed by the AO u/s 158BC(c) of 1961 Act , which included impugned addition towards cash of Rs. 11 lacs seized from office premises of the assessee company at 4 , Shiv Darshan , Sarojini Road, Santacruz(W), Mumbai-400054. Thus, the assessee has come in appeal before the Tribunal aggrieved by non adjudication of this issue by learned CIT(A) despite the issue being raised before learned CIT(A) vide common ground of appeal challenging the entire additions made towards undisclosed income of the assessee company .In our considered view, the ld. CIT(A) erred in not dealing with the issue of undisclosed income as the cash seized amounting to Rs. 11 lakhs from the office premises of M/s Mangatram Finance Pvt. Ltd. which was treated by the AO as cash belonging to M/s Mangatram Finance Pvt. Ltd. and additions had been made by the AO as undisclosed income of the assessee in the block period assessment order dated 28-02-2003 passed u/s 158BC(c) of 1961 Act. The assessee has raised 64 IT (SS)A 148/Mum/2006 a contention that the cash belonged to Arora Poultry Products Pvt. Ltd. but the same was rejected by the AO, which now required adjudication on merits by learned CIT(A).
14. The ld. D.R. on the other hand submitted that the matter can be set aside to the file of the ld. CIT(A) for de-novo adjudication on merits. It was submitted that the assessee has not taken this ground separately before the ld. CIT(A) and only as consolidated ground towards total additions of Rs.1,86,24,110/- as made by the AO were challenged before learned CIT(A) which also included this addition of Rs 11 lacs towards cash seized from office premises of the assessee at 4 , Shiv Darshan , Sarojini Road, Santacruz(W), Mumbai-400054 during search operations on 07-02-2001.
15. We have considered rival contentions and perused the record. We have observed that during the search proceedings at the residence of Shri Mangatram Arora, a cash of Rs. 12,30,710/- was found and out of the same a sum of Rs. 11 lakhs were seized as per panchnama dated 07-02-2001 prepared in the name of M/s Mangatram Arora Finance Ltd. . The said Sh Mangatram Arora is Chairman cum Managing Director of the assessee company and the premises is commonly used by said Mr Mangatram Arora as his residence as well office of the assessee company. The assessee explanation of the said cash of Rs 11 lacs so seized by Revenue did not found favour with the AO and the A.O. included this amount of cash seized of Rs. 11 lacs as undisclosed income of the assessee for the block period in the block assessment framed u/s 158BC(c) of 1961 Act vide orders dated 28-02-2003. The assessee has challenged the legality and validity of addition of Rs. 1,86,24,110/-made by the AO to the undisclosed income of the assessee in block period assessment order dated 28-02-2003 passed u/s 158BC(c) of 1961 Act vide consolidated ground raised before learned CIT(A) which included challenge to the addition of this Rs. 11 lakhs of cash seized from the 65 IT (SS)A 148/Mum/2006 office premises of the assessee vide panchnama dated 07-02-2001 . We have observed that the ld. CIT(A) has not adjudicated this issue in his appellate order dated 03-03-2006. Keeping in view the factual matrix of the case as detailed above, we are inclined to set aside this issue back to the file of the ld. CIT(A) for de-novo adjudication of the issue on merits after considering the contentions of the assessee . Needless to say that the learned CIT(A) shall grant assessee proper opportunity of being heard in accordance with principles of natural justice in accordance with law . We order accordingly.
16. The next ground is ground no. 9 which is with respect to the levy of surcharge by the A.O. u/s 113 of the 1961 Act on the tax so computed on undisclosed income determined by the AO for the block period vide assessment order dated 28-02-2003 passed u/s 158Bc(c) of 1961 Act. The assessee carried the matter before the ld. CIT(A) by filing first appeal who also confirmed the levy of surcharge u/s 113 of the 1961 Act as was made by the A.O.. Before the ld. CIT(A) the assessee contended that the surcharge was leviable from 01-06-2002 and not before that date. It was submitted that the search in the case of the assessee was conducted by Revenue u/s 132(1) of 1961 Act on 07-02-2001 which is prior to 01-06-2002 and hence no surcharge can be levied on the tax so computed on undisclosed income determined by the authorities below, as proviso to Section 113 of 1961 Act is inserted by Finance Act, 2002 w.e.f. 01-06-2002. The ld. CIT(A) relying upon the decision of ITAT, Chennai Bench in the case of Raya R. Govinda Rajan v. ACIT (2005) SOT 192(Chennai) upheld the action of the A.O. in levying the surcharge u/s 113 of 1961 Act on tax so computed on undisclosed income , vide appellate order dated 03-03-2006.
17. The assessee being aggrieved by the appellate order dated 03-03-2006 passed by learned CIT(A) preferred an appeal before the tribunal.
66 IT (SS)A 148/Mum/2006
18. We have heard rival contentions and perused material on record. We have observed that the issue is no more res-integra . Hon'ble Supreme Court in the case of CIT v. Vatika Township P. Ltd. [2014] 367 ITR 466 (SC) has held that no surcharge can be levied u/s 113 of 1961 Act on the block assessments on the tax so computed on undisclosed income computed in accordance with Chapter XIV-B of 1961 Act to the block assessments pertaining to period prior to 01-06-2002 and insertion of the proviso to Section 113 of 1961 Act , by the Finance Act, 2002 is prospective in nature as it is clearly a substantive provision and is to be construed as prospective in operation . In the instant appeal, the search was conducted by Revenue u/s 132(1) of 1961 Act on 07- 02-2001 and the block period is from 1.4.1990 to 7.2.2001 which is prior to 01-06-2002 and no surcharge u/s 113 of 1961 Act can be levied by Revenue on tax so computed on undisclosed income assessed to tax under Chapter XIV-B of 1961 Act in view of the decision of Hon'ble Supreme Court in the case of Vatika Township P. Ltd. (supra). We order accordingly.
19. The next ground no. 10 is with respect to interest being levied by the AO u/s 158BFA(1) of 1961 Act on the tax and surcharge so determined by the AO to be payable on the undisclosed income so computed u/s 158BC of the Act, which in our considered view is consequential in nature and does not require separate adjudication by us. We order accordingly.
20. In the result, appeal filed by the assessee in IT (SS) A No. 148/Mum/2006 for block period 1.4.1990 to 7.2.2001 is partly allowed as indicated above.
67 IT (SS)A 148/Mum/2006 Order pronounced in the open court on 15th March, 2017. आदे श क घोषणा खुले #यायालय म% &दनांकः 15-03-2017 को क गई ।
Sd/- sd/-
(SAKTIJIT DEY) (RAMIT KOCHAR)
JUDICIAL MEMBER ACCOUNTANT MEMBER
मुंबई Mumbai; &दनांक Dated 15-03-2017
[
व.9न.स./ R.K., Ex. Sr. PS
आदे श क त!ल"प अ#े"षत/Copy of the Order forwarded to :
1. अपीलाथ / The Appellant
2. यथ / The Respondent.
3. आयकर आयु:त(अपील) / The CIT(A)- concerned, Mumbai
4. आयकर आय:
ु त / CIT- Concerned, Mumbai
5. =वभागीय 9त9न?ध, आयकर अपील य अ?धकरण, मुंबई / DR, ITAT, Mumbai "I" Bench
6. गाडC फाईल / Guard file.
आदे शानुसार/ BY ORDER, स या=पत 9त //True Copy// उप/सहायक पंजीकार (Dy./Asstt. Registrar) आयकर अपील य अ धकरण, मुंबई / ITAT, Mumbai