Income Tax Appellate Tribunal - Ahmedabad
Patel Somabhai Kanchanlal & Co. vs Deputy Commissioner Of Income Tax. (Dy. ... on 26 December, 1996
ORDER
B.L. Chhibber, A.M.
1. These cross-appeals arise out of the order of the learned CIT(A), Surat.
2. The assessee is a firm and carries on Angadia business with head office at Surat and branches at different places in India including Delhi and Ahmedabad.
2.1 The first grievance of the assessee is that looking to the peculiar nature of the business i.e. of Angadia business carried on by the assessee firm, the learned CIT(A) was not justified in confirming an addition of cash amounting to Rs. 89,428 and diamonds worth Rs. 1,80,000.
2.2 There was a search under s. 132 of the Act at the business premises of the assessee-firm. The cash and three packets of diamonds were found. The AO accepted the assessee's explanation regarding the cash which could be explained as per the cash balance in the assessee's books of accounts. However, the AO added an amount of Rs. 89,428 being unexplained cash. It was contended before the AO that the said cash of Rs. 89,428 belonged to 9 parties who had given the said cash to the assessee firm to be sent to different stations. The assessee had furnished the names and the amounts claimed to be belonging to the said parties. The AO, however, rejected the assessee's explanation on the ground that it had not furnished the confirmation letters from the said parties.
2.3 On appeal, the learned CIT(A) confirmed the addition on the ground that the cash of Rs. 89,428 was found at the business premises of the assessee and the assessee had not discharged the onus to prove the source of such cash.
2.4 During the course of search three packets of rough diamonds valued at Rs. 2,29,674 had been seized from the assessee's-firm's office at Ahmedabad. Vide his statement under s. 132(4) Shri Anubhai Patel, the partner of the assessee-firm had claimed that two packets of rough diamonds were given by Shri Kishore L. Patel while the third packet was given by Shri Ravjibhai. The assessee also contended before the AO that Shri Kishore L. Patel had given two packets of rough diamonds to be transported to Shri Ramjibhai A. Badhiwala, Botad whereas the packet sent by the other party was meant for Shri Chimanbhai V. Patel Botad. The AO asked the assessee to produce the concerned parties. The assessee produced Shri Ramjibhai A. Badhiwala who was to receive the two packets sent by Shri Kishore L. Patel. Even though the said Shri Ramjibhai A. Badhiwala confirmed the fact that the said packets of rough diamonds were purchased by him and were sent to Botad through his cousin Shri Kishore L. Patel, the AO rejected the assessee's claim on the ground that Shri Ramjibhai A. Badhiwala did not appear to have the necessary source to invest in the business. Regarding the assessee's claim for the third packet of rough diamonds, the AO rejected the assessee's contention on the ground that the said party had not been produced before him. He accordingly made an addition of Rs. 2,29,674 on account of unexplained cost of diamonds found in the possession of the assessee-firm.
2.5 On appeal, the learned CIT(A) held that the source of two packets stood explained as the concerned parties were produced before the AO but as regards the third packet since the concerned party was not produced before the AO the source could not be explained and hence he confirmed only the addition of Rs. 1,80,000 being the cost of diamonds in the third packet.
2.6 Both the assessee and the Revenue are in appeal before us. The grievance of the assessee is that the CIT(A) is not justified in confirming the addition of Rs. 1,80,000 while the grievance of the Revenue is that the CIT(A) is not justified in deleting the addition of 91,335 being the cost of diamonds in two packets.
2.7 Shri S. N. Soparkar, the learned counsel for the assessee first of all invited our attention to the modus operandi of the business carried on by the assessee and pointed out that the authorities below have failed to appreciate the assessee's case in proper perspective. According to the learned counsel, on proper appreciation of the nature of business carried on by the assessee, the assessee at best could be said to be in the possession of "container" and not "contents" thereof. Inviting our attention to the provisions of s. 68 of the Act, the learned counsel submitted that since the transaction of carrying of goods including the cash of the customers were made in Bharatias and no entries were made in the books of accounts of the assessee in this regard, the provisions of s. 68 of the Act, have no application to the facts and circumstances obtaining in the instant case. Inviting our attention to the provisions of s. 69 of the Act, the learned counsel submitted that the provisions of that section would be applicable only in the case in which "the assessee is found to be the owner of .....". In the instant case on the proper appreciation of the facts and circumstances obtaining in the case, it cannot be held that the assessee was the "owner" of the articles found in the possession at its business premises. The learned counsel relied upon the decision of the Tribunal Ahmedabad 'C' Bench in ITA No. 842/Ahd/1984 in the case of the assessee relating to asst. yr. 1981-82 where it was held that in view of the nature of the business carried on by the assessee, the assessee was the mere custodian of the articles handed over to him which were to be transported from one place to another.
2.8. Shri Sunil Agarwal, the learned Departmental Representative submitted that the cash and three packets of rough diamonds were found in the possession of the assessee and the assessee should be deemed to be the owner of the same. He submitted that the assessee could not explain the source of the cash amounting to Rs. 89,428 and as such the AO was justified in treating the same as assessee's income from undisclosed sources. He submitted that the CIT(A) was not justified in accepting the explanation of the assessee with regard to the two packets of rough diamonds and in giving relief amounting to Rs. 91,335. According to the learned Departmental Representative the source of acquisition of the diamonds contained in three packets could not be explained by the assessee and accordingly the entire addition of Rs. 2,29,674 being the cost of three packets of rough diamonds it justified in hands of the assessee.
2.9. We have considered the rival submissions and perused the facts on record. We are of the view that the Revenue has failed to appreciate the well-recognised business of Angadia in its proper perspective. On proper appreciation of the nature of business carried on by the assessee, the assessee at best could be said to be in possession of "container" and not "contents" thereof. The assessee is neither the financier carrying on transactions in cash, etc. nor a dealer in diamonds. The assessee-firm is basically and primarily carrying on the Angadia business i.e., it carries cash and valuables like diamonds, etc. belonging to other parties from one place to another for which it charges service charges. During the course of assessment proceedings as also before the CIT(A) the assessee gave an explanation that the cash amounting to Rs. 89,428 belonged to nine parties on behalf of which the same was being carried to different destinations. Similarly, three packets of rough diamonds also belonged to third parties which the assessee-firm was carrying to different destinations. In view of the peculiar nature of the business carried on by the assessee, the explanation furnished is plausible and hence acceptable. A similar issue came up before the Tribunal Ahmedabad 'C' Bench in the case of assessee relating to asst. yr. 1981-82 in ITA No. 842/Ahd/1984 where the Advocate-General of Gujrat appeared for the assessee and advanced elaborate arguments on the peculiar nature of the business carried on by the assessee and after considering the same, the Tribunal held as under :
"13. We have carefully considered the rival submissions of the parties and the voluminous evidence contained in the paper-book prepared by the assessee and we find considerable force in the stand taken on behalf of the assessee. In fact we are of the view that the Revenue as usual is chasing the shadow instead of catching the real person. We make this observation as according to us, the Revenue has failed to appreciate the well-recognised business of Angadia in its proper perspective. If the assessee had failed to give any explanation regarding the amounts involved, perhaps the Revenue may have a case to make additions in the manner it has been done in the instant case. However, in our opinion, as regards Rs. 3 lacs, the assessee has clearly discharged the initial onus which lay upon it. Both S/Shri Sunderlal Shroff and P. A. Patel have clearly stated that they had used the agency of the assessee to remit Rs. 3 lacs from Delhi to Bombay. In fact, Shri Sunderlal Shroff has given complete narration and details as to how he obtained loan and how and why the amount was sent to Delhi for purchasing a property there. He has also explained as to under what circumstances he was forced to recall Rs. 3 lacs urgently to Bombay. He has also given full details regarding his activities as well as the activities of the AOP of which he was a member and other members of his family. Similarly, Shri P. A. Patel also has given complete account as to how he carried the money to Delhi and under what circumstances he was asked by Shri Sunderlal Shroff to remit the same to Bombay through a recognised and reputed Angadias. He has also very vividly stated as to under what circumstances he had to break-up Rs. 8 lacs into bundles of Rs. 50,000 each and as to why he gave fictitious names of the senders and receivers. If we keep the nature of the business carried on by the assessee in proper perspective, no adverse inference could be drawn against the assessee, merely because Shri P. A. Patel thought of sending the money in question by giving fictitious names. In fact, we wonder whether in the nature of business carried on by the assessee, the assessee could at all ascertain from the parties whether the goods sent by them are in fictitious names or not. According to us, the nature of business carried on by the assessee is very much akin to the services rendered by the post office. If a person sends a registered post to another person through the agency of post office, surely, the person who receives the packet in the post office on behalf of the post & telegraph Department would never enquire whether the sender or the receiver of the packet is real or the transaction is done in fictitious names. The post office is only earning commission in transmitting a registered packet from one station to another. In the instant case also, the assessee was concerned with earning commission in carrying the packets of the senders to the receivers at the other end. It appears to us that the Revenue has attempted to treat the amounts in question as the income of the assessee as it has an apprehension that it would not successfully do so in the cases of S/Shri Sunderlal Shroff and P. A. Patel and other parties involved in view of the affidavits/statements made by them.
Surely, this type of approach of the Revenue is not at all commendable. Therefore, we have come to the conclusion that on proper appreciation of the facts and circumstances obtaining in the instant case, the aforesaid three amounts can not be included in the total income of the assessee."
We respectfully agree to the observations of our learned colleagues referred to supra. Accordingly, we hold that there is no justification for adding Rs. 89,428 as unexplained cash in the hands of the assessee and the addition of Rs. 2,29,674 on account of unexplained cost of rough diamonds. The grounds raised by the assessee are accordingly allowed and the ground raised by the Revenue in respect of the addition of Rs. 91,335 on account of alleged unexplained cost of rough diamonds is dismissed.
3. The next common ground raised by both the parties relates to an addition on account of alleged unexplained unaccounted business activity. There was a survey under s. 133A at the Bombay branch of the assessee during the course of which excess cash of Rs. 2 lacs was found with the assessee. The assessee immediately surrendered the said amount for taxation. The AO noted that the presence of excess cash of Rs. 2 lacs at the business premises of the assessee indicated that the assessee was carrying on business outside the books of accounts. He also noted that during the course of action under s. 132 there was a cash shortage of Rs. 97,794. Before the AO the assessee contended that the cash shortage was due to the fact that its accountant could not deposit the amount of Rs. 1 lac in the bank since he had to suddenly leave for his native place. It was also contended that on his return from the native, place, the accountant gave back the sum of Rs. 1 lac. However, the AO rejected the assessee's explanation in this regard. Holding that the assessee was carrying on business outside the books of accounts which resulted into excess cash of Rs. 2 lacs, the AO estimated the income from such business at Rs. 10 lacs and added the same to the income declared by the assessee.
3.1. On appeal, the learned CIT(A) held that the AO was justified in holding that the assessee was carrying on the business outside the books of accounts but the estimate of such income at Rs. 10 lacs was excessive. He reduced the same to Rs. 5 lacs instead of Rs. 2 lacs offered by the assessee for taxation.
3.2 Both the assessee and the Revenue are in appeal before us against the action of the CIT(A).
3.3 Shri S. N. Soparkar, the learned counsel for the assessee submitted that the observation of the AO that the assessee was carrying on business outside the books of accounts was without any basis and the estimate of income at Rs. 10 lacs was based on conjectures and surmises. He submitted that at the time of survey a sum of Rs. 2 lacs was found in cash and in order to buy peace with the Department, the assessee offered the same for taxation. According to the learned counsel there is no justification for making the addition of Rs. 10 lacs on the part of the AO and the CIT(A) without appreciating the facts and circumstances of the case gave only a part relief.
3.4. Shri Sunil Agarwal, the learned Departmental Representative submitted that there was no justification on the part of the CIT(A) to reduce the addition from Rs. 10 lacs to Rs. 5 lacs and the CIT(A) ought to have upheld the addition of Rs. 10 lacs in toto. He further submitted that mere fact that excess cash of Rs. 2 lacs was found at the Bombay branch of the assessee was enough to hold that the assessee was carrying on business outside the books of accounts and the AO was justified in estimating such income at Rs. 10 lacs in view of the judgment of the Supreme Court in the case of CST vs. H. M. Eusufali H. M. Abdulali (1973) 90 ITR 271 (SC).
3.5 We have considered the rival submissions and perused the facts on record. It is noted that during the course of survey under s. 133A at the Bombay branch of the assessee cash of Rs. 2 lacs was found and the assessee readily surrendered the same for taxation in order to buy peace with the Department. Such surrender was duly accepted by the Revenue at the time of survey. The AO's observation that the presence of excess cash was indicative of the fact that the assessee was carrying on business outside the books of accounts, is not supported by any corroborative evidence and as held by the Punjab & Haryana High Court in the case of Gumani Ram Siri Ram vs. CIT (1972) 85 ITR 67 (P&H), "there may be hundred reasons for the assessee to surrender an amount irrespective of the fact that whether it was his income or not". Under the circumstances we see no justification on the part of the AO to presume that since the assessee surrendered the amount of Rs. 2 lacs it was earning commission outside the books of accounts and in estimating such commission/income at Rs. 10 lacs. In all fairness the AO ought to have accepted the amount of Rs. 2 lacs which was surrendered by the assessee at the time of survey for taxation to buy peace with the Department. The CIT(A) simply followed the observation of the AO without appreciating the facts of the case though he reduced the addition from Rs. 10 lacs to Rs. 5 lacs again on estimate. We do not approve this approach of the CIT(A).
3.6 Coming to the case of CIT vs. H. M. Esufali (supra) relied upon by the learned Departmental Representative we find that the facts of that case are distinguishable from the facts of the case before us. The case before the Hon'ble apex Court was under the Sales Tax Act and the assessment was completed ex parte and some unaccounted sale bills were found for part of the assessment year and accordingly the Hon'ble apex Court held that a fair estimate of the turnover on the basis of unaccounted sale bills should be made. In the case before us the assessment was not ex parte assessment; the assessee was not carrying business in sales and purchase of commodities but was carrying on Angadia business and there was no material to show that the assessee was reflecting in its books of accounts only part of its income and not full income. Under the circumstances we hold that reliance placed by the learned Departmental Representative on the case decided by the Supreme Court referred to supra is of no assistance to the Revenue.
3.7. In the light of the above discussion we hold that the only addition which is called for in the hands of the assessee should be restricted to Rs. 2 lacs duly offered by the assessee for taxation and there is no justification whatsoever for estimating such addition at Rs. 10 lacs by the AO and Rs. 5 lacs by the CIT(A). The assessee will be entitled to a relief of Rs. 3 lacs. The ground raised by the assessee is accordingly allowed and that raised by the Revenue is dismissed.
4. In the result, the assessee's appeal is allowed and the Revenue's appeal is dismissed.