Income Tax Appellate Tribunal - Mumbai
Deputy Commissioner Of Income Tax vs Shri Raju Lalchand Sud on 29 March, 2007
Equivalent citations: [2008]301ITR165(MUM), (2008)114TTJ(MUM)767
ORDER
K.P.T. Thangal, Vice President
1. IT (SS) A No. 155/Mum/2002: This appeal is by the assessee for the block period 01.04.1988 to 31.03.1998 and broken period 01.04.1998 to 1709 1998.
2. The first ground of objection by the assessee is directed against the order of the CIT(A) in confirming the validity of the block assessment order passed on 28 11 2000. According to the assessee, this order is null and void as the order should have been passed on or before 30.09.2000, in accordance with the provisions of Section 158BE of the Income Tax Act, 1961.
3. Facts leading to the dispute, briefly, is as under:
During the period 17.09.1998 to 13.11.1998, there was a search and seizure action under Section 132(1), in the case of Al Samit International and its partners - Shri Gulam Mohd. Peshimam and Shri Javed Mohd. Peshimam. There was a search action on 17.09.1998 in the case of the assessee, being a recruitment consultant working with Al Samit International, at his residence, 303/304 Classic Corner, 136 Hill Road, Bandra West, Mumbai. All persons are connected with M/s Al Samit International. A common warrant was issued in the name of M/s Al Samit International, its two partners - Shri Gulam Mohd. Peshimam and Shri Javed Mohd. Peshimam; and the assessee, covenng residential premises of one of the partners, viz. Shri Javed Mohd. Peshimam at 501, 5th Floor, Classic Corner, Junction of Hill Road and St Andrews Road, Bandra West, Mumbai.
4. According to the assessee, the assessment is bad in law as the period of two years laid down under Section 158BE commenced from the end of the month in which the last of the authorisation for search and seizure action was executed under Section 132. According to the assessee, Explanation 2 to Section 158BE requires that authorisation referred to in Sub-section (1) of Section 158BE shall be deemed to have been executed in the case of search, on the conclusion of search as recorded in the last panchnama drawn in relation to any person in whose case the warrant of authorisation was issued In the case of the assessee, the panchnama was drawn on 17.09.1998. According to the assessee, the panchnama drawn in the name of Shri Javed Mohd. Peshimam on 13.11 1998 is in the name of a different person and therefore the time limit for the completion of the block assessment in the case of the assessee ended on 30 09.2000 and not on 30,11.2000. This plea of the assessee was not accepted by the AO and also by the CIT(A).
5. The CIT(A) rejected the above contention vide Para 4.1 and 4.2 of his order, observing as under:
4.1 Before me the appellant has argued that the search commenced on 17.09.1998 at 8 a.m. and concluded on 17.09.1998 itself. It is argued that at the time of conclusion of search at the residence there was nothing which was left out and no other authorisation was served. Even if, authorisation is claimed to have been served, there is no panchnama The request of the appellant for inspection of warrant of authorisation has not been granted. It is argued that authorisation does not survive beyond the dt. of the conclusion of the search and the time limit Under Section 158BE of I T Act shall be determined with respect to the date of conclusion of search.
4.2 I have considered the arguments of the appellant and contention of the AO. The panchnama in respect of residence of the appellant was concluded in September 1998, but the warrant which mentioned the name of the appellant also resulted in conclusion of proceedings on 13.11.1998. I am inclined to accept the arguments of the AO. It is not necessary that the proceedings only in case of the appellant should be concluded on particular date. Any other warrant of authorisation which related to the appellant has also to be considered. Therefore, in this case I hold that the assessment has been completed well in time. This ground of appeal is rejected.
Aggrieved by the above order, assessee is in appeal before the Tribunal.
6. The Tribunal directed the learned Departmental Representative to make available the copy of warrant of authorisation issued. It was placed on record vide covering letter dated 27.09.2006, briefly mentioning the facts as under:
The first warrant was issued on 16.09.1998 bearing No. 00299 in the name of Shri Gulam M Peshimam, Shri Javed M Peshimam and Shri Raju Sud (assessee) for carrying out search and seizure action at the premises at 5th Floor, Classic Corner Building, Junction of Hill Road, St Andrews Road, Opp. Holy Family Hospital, Sandra (W), Mumbai. The search carried out on 17.09.1998 was temporarily concluded on 18.09.1998 as per panchnama dated 18.09.1998. The same search was finally concluded on 13.11.1998 as per panchnama drawn on 13.11.1998, copy of which was also produced.
Even though the warrant of authorisation indicated all the three names, viz. Shri Gulam M Peshimam, Shri Javed M Peshimam and Shri Raju Sud, only one name, i.e. Javed M Peshimam was mentioned in the final panchnama drawn on 13.11.1998, instead of all the three names. This is because there was paucity of space in the proforma of panchnama for writing all the names. The first column in the panchnama indicates "warrant in the case of". In this case the warrants of authorisation was issued in all the three names mentioned above and not only in the name of Shri Javed M Peshimam Hence it is informed that it would be appropriate to interpret as if the panchnama dated 13.11.1998 included all the three names instead of one name.
This is in short also the submission of the learned DR precisely.
7. On the premises of the above facts, learned Counsel for the assessee submitted that in the instant case of the assessee there is no doubt that the block assessment order was passed on 28.11.2000. The last drawn panchnama in the case of the assessee was on 17.09.1998, which clearly stated that the search commenced on 17.09.1998 at 8.00 a.m. was finally concluded on 17.09.1998 at 9.20 p.m.. It is evidenced at Page 84 and 85 of the Paper Book. The order should have been passed within two years, i.e. on or before 30.09.2000, in accordance with the provisions of Section 158BE, which reads as under:
158BE(1) The order under Section 158BC shall be passed:
(a) within one year from the end of the month in which the last of the authorisations for search under Section 132 or for requisition under Section 132A, as the case may be, was executed in cases where a search is initiated or books of account or other documents or any assets are requisitioned after the 30th day of June, 1995 but before the 1st day of January, 1997;
(b) within two years from the end of the month in which the last of the authorisations for search under Section 132 or for requisition under Section 132A, as the case may be, was executed in cases where a search is initiated or books of account or other documents or any assets ate requisitioned on or after the 1st day of January 1997 (2) The period of limitation for completion of block assessment in the case of the other person referred to in Section 158BD shall be:
(a) one year from the end of the month in which the notice under this Chapter was served on such other person in respect of search initiated or books of account or other documents or any assets requisitioned after the 30th day of June, 1995, but before the 1st day of January, 1997, and
(b) two years from the end of the month in which the notice under this Chapter was served on such other person in respect of search initiated or books of account or other documents or any assets are requisitioned on or after the 1st day of January, 1997.
Explanation 1-----------------------------------------------------
Explanation 2 - For the removal of doubts, it is hereby declared that the authorisation referred to in Sub-section (1) shall be deemed to have been executed:
(a) in the case of search, on the conclusion of search as recorded in the last panchnama drawn in relation to any person in whose case the warrant of authorisation has been issued;
(b) in the case of requisition under Section 132A, on the actual receipt of the books of account or other documents or assets by the Authorised Officer.
8. Learned Counsel submitted, Explanation 2 to Section 158BE, inserted by the finance (No. 2) Act, 1998, with retrospective effect from 01.07.1995, reproduced hereinabove, clearly indicates that the authorisation referred to shall be deemed to have been executed, in the case of search, on conclusion of the search as recorded in the last panchnama drawn, in relation to any person in whose case the warrant of authorisation has been issued. In the instant case, as stated hereinabove, the last drawn panchnama was dated 17.09.1998.
9. According to the revenue, the last drawn panchnama dated 13.11 1998 though dues not include the name of the assessee but it makes clear that this was mentioned in the first column of panchnama itself indicating "warrant in the case of". The other grounds by the assessee are on merits.
10. The next ground (Ground No. 2) on merit is directed against the order of the CIT(A) in confirming AO's action to consider the business activities in the name of M/s Indman Travels and Tours of assessee's wife, Mrs. Usha Sud as that of the assessee and thereby adding her income of Rs. 2,20,070/- as income of the assessee.
11. During the search action, it was noticed that the assessee's wife, Mrs. Usha Sud, was managing one concern, viz. M/s Indman Travels & Tours as per proprietary concern. She stated to be only a housewife and who was not looking after any other work She further stated that the business was looked after by her husband, Shri Raju Sud (assessee). Assessee was issued a questionnaire and on the basis of his request the copies of the seized documents were made available to him. As regards statement of Mrs. Usha Sud on the date of search, claiming that she is merely a housewife doing no business and the business run in her name was actually looked after by her husband, i.e. assessee, it was submitted that she was carrying the business of M/s Indman Travels & Tours by herself and the income earned by the said concern was correctly assessed in her name. AO held, Mrs. Usha Sud was a mere housewife having no knowledge of any business activity conducted by her husband in her name, of which she was considered to be the proprietor. He held; the business of M/s Indman Travels & Tours actually belonged to the assessee, as such the entire income of M/s Indman Travels & Tours declared by the assessee's wife for the block period to be assessed in his hands Out of the total undisclosed income of Rs. 7,65,070/- assessed in the hands of assessee's wife, part of the income being Rs. 2,20,070/- attributable to M/s Indman I ravels & Tours was assessed in the hands of Mrs. Usha Sud on protective basis and taxed in the hands of the assessee on substantive basis The matter was carried before the CIT(A).
12. This issue was decided by the CIT(A) against the assessee, vide Para 9.2 and 9.3 of his order, observing as under:
9.2 Before the A. O. the appellant had argued that the Smt. Sud did not accept the assessment and had contested the assessment in appeal. The A. O did not accept arguments of the appellant.
Before me it is argued that the statement given on 26.09.1998 by Smt. Sud was under duress and that later on in the statement dt. 21.09.2000, she had clarified all the doubts. It is argued that she is qualified educationally and is capable of handing the business. It was also argued that after resigning her job as a teacher she started business in the name and style 'R. K Travel' and thereafter in the name of 'Ind-Man Travels and Tours'. It is claimed that she is filing returns of income since asstt. year 1992-93 and asstts. year 1993-94 and 1997-98 were completed Under Section 143(3) of the I. T. Act.
9.3 I have considered the arguments of the appellant and contentions of the A. 0. It would be interesting to refer to the statement of Smt. Usha Sud as recorded on 26.09.1998 during the search operation at Corporation Bank, Hill Road, Bandra, Mumbai The statement was obviously recorded after the date of search at residence and there is no question of any duress at that time. Moreover, Smt Usha Sud had sufficient time since search on 17.09.1998 to think over. The question No. 4 and its response are as reproduced below:
Q. What are your sources of Income? What is your occupations?
A. I am a housewife only. I am looking after none of the work despite the fact one concern M/s. Ind-Man Travel & Tours is being run under my proprietorship. It is my husband, Shri Raju Sud, who is actually looking after the said business. The income and expenditure of the concern is also not monitored by me as the same are accounted by my husband only.
The above statement of Ms. Usha Sud recorded during the course of search is categorical and with the knowledge that a proprietary concern in the name is run by her husband.
I do not find any merit in the arguments of the appellant Acquiring education qualification is immaterial when Smt. Sud has categorically denied conduct of any business activities. Action of the A. O in treating the income of M/s. Ind-Man Travel and Tours to be that of appellant is upheld. Appeal on this ground is dismissed.
Aggrieved by the above order, assessee is in appeal before the Tribunal.
13. Learned Counsel for the assessee submitted that this addition made in the hands of the assessee is beyond the scope of Chapter XIV-B. It is not based on any material found or seized In fact the assessee's wife has already disclosed the income from the proprietary concern, M/s Indman Travels and Tours in her returns filed prior to search on 17.09.1998. Learned Counsel also brought our attention to Paper Book Page 119 to 121, i.e. assessment order of Mrs. Usha Sud for the assessment year 1996-97. The return was furnished on 23.01.1998 i.e. before the search and assessment was completed under Section 143(3) on 22 03.1999 accepting income from business, i.e. net profit - Indman Travels & Tours Rs. 1,73,240/- Learned Counsel further submitted, Mrs. Usha Sud is B. Sc., B. Ed having her own income She started business in the name of Mrs. R K Travels and thereafter in the name of Indman Travels & Tours. She was filing her return since assessment year 1992-93 and that she had her own source of income and capital. Learned Counsel further submitted that the source of capital invested for the purpose of carrying on the business of M/s Indman Travels & Tours was her own source All the assets purchased for the purpose of business of m/s Indman Travels & Tours were in her own name. Learned Counsel invited our attention to Paper Book Page 94 to 103 being statement on oath of Mrs. Usha Sud recorded under Section 131 on 21.09.2000; and Page 122 to 127 being undisputed evidence that the assets used for the purpose of business of M/s Indman Travel and Tours were in her name.
The learned DR, on the other hand, supported the orders of the revenue authorities.
14. The statement of Mrs. Usha Sud, recorded on 21.09 2000, at Page 94 to 103, says that she was working as a teacher in Kendriya Vidyalaya at Antop Hill from 1985, teaching Chemistry and Biology upto Standard VIII for about five years Though she did not operate any bank account in Hoshiarpur, she operated bank account in Mumbai and was having account with State Bank of India, Antop Hill Branch and was depositing her. salary. Answering Question No. 12 she says, she was running a concern viz. M/s R K Tours and Travels in 1992, the sole proprietary concern and the business of this concern was to give vehicles on hire to customers. First there was one vehicle. She further states that loan was taken in her name for purchase of vehicle. The books were maintained by her Chartered Accountant engaged by her husband, Raju Sud. The business was conducted from her house. Since she was to devote her time caring her husband and two children, she could get hardly any time but since the business was conducted from the house she admits she used to attend the business calls on telephone. In Question No 26 to 31, she states in detail the modus operandi of the business carried out by her. She also states, during the time she was a teacher, she used to take private tuition and was charging Rs. 200/- to Rs 3007- per student per month, though no account of fee received has been maintained Household expenses comes to around Rs. 15,000/- to Rs. 16.000/ per month and according to her, it is met by herself and her husband in addition to expenses of school fees of children. In other words, from the statement it is clear and ft is not disputed that she was having income and the source of the capital invested for the purpose of carrying on the business of M/s Indman Travels & Tours was her own source and that the assets were also purchased in her name. Moreover, the income from the proprietary concern, viz. M/s Indman Travels & Tours was being returned by her prior to search action and assessed in her hands after due scrutiny.
15. Coming to the next ground (Ground No. 3) urged by the assessee, it is directed against the order of the CIT(A) in confirming the addition of Rs. 2,10,180/- being the value of jewellery belonging to assessee's wife, which was explained as belonging to her friend Mrs. Afshan Khan.
Consequent to search and seizure action; Iocker No. 328 of Corporation Bank, Hill Road Branch, operated by assessee's wife, Mrs. Usha Sud was searched. During the action, jewellery valued Rs. 4,04,629/- was found, out of which jewellery worth Rs. 3,39,375/- approximately was seized When questioned, it was explained that the jewellery worth Rs. 2,20,180/- belonged to her family friend Mrs. Afshan Khan, who lives in Saudi Arabia, visits India twice a year, otherwise she keeps her jewellery with Mrs. Usha Sud. This explanation was not accepted by the AO. When the matter was carried before the CIT(A), he confirmed the addition Aggrieved, assessee is in appeal before the Tribunal.
Learned counsel invited our attention to Paper Book Page 129, wherein Shri Rashid Khan and his wife confirmed that their jewellery is with Mrs. Usha Sud and the items are also mentioned.
16. Coming to the next ground (Ground. No. A and 5) urged by the assessee, it is directed against the order of the CIT(A) in confirming AO's action to consider regular income of Rs. 20200/- as undisclosed income for the assessment year 1991-92 merely because the return was not filed It is the case of the assessee that assessee's income was below taxable limit as such return was not filed It is also the case of the assessee that he had declared Rs. 8.00 lakhs as undisclosed income.
Learned counsel submitted, in fact the assessee has to get credit for this, which has not been given by the AO.
The learned DR supported the orders of the revenue authorities.
17. Hearing the rival submissions, going through the relevant papers produced before us and also the warrant issued and panchnama, we are of the view that in the light of the clear provision of law, the contention of the assessee that search is not in accordance with the law is to be accepted. In no uncertain terms, the law provides that the panchnama should record the name of the person in whose case the warrant of authorisation has been issued. Explanation 2 to Section 158BE reproduced hereinabove, introduced with retrospective effect from 01 07.1995, was to remove any doubts regarding the authorisation referred to in Sub-section (1) of Section 158BE It is clear that the panchnama should have been drawn in relation to a person in whose case the warrant of authorisation has been issued in the instant case of the assessee, it is seen that the revenue is trying to extend time on the basis of panchnama issued / prepared in the name of Shri Javed M Peshimam dated 1.3.11.1998, It is also seen that the name of the assessee in this panchnama is appearing in item [E] as one of the panchas (No 2) Shri Raju Sud on this occasion undoubtedly was present but as one of the panchas and therefore the stand of the revenue that in the case of the assesses also the period should be counted from 13 11.1998 onwards cannot be accepted. We hold that the assessment order passed on 28.11.2000 under Chapter XIV-B is barred by limitation because the search was finally concluded on 17.09 1998 in the case of the assessee and only panchnama prepared on that date could be linked to the assessee and the time limit for completion of block assessment has, therefore, expired on 30.09.2000 and accordingly we quash the block assessment order.
18. Since we have already held that the assessment order itself is invalid on the legal point of beyond the time limit, we are of the view that in the light of the Special Bench decision of the Tribunal in the case of Colonisers v. ACIT reported in 41 ITD 57. (Hyd) (SB), it is not necessary for us to decide the issues on merit. In this case the Tribunal held that if the addition had been deleted on the ground that the assessment order has been set aside as void ab initio, there is no need to restore the case to the ITO with direction for redoing it. It is also not necessary to deal with the issues on merit either.
In the result, appeal of the assessee stands allowed.
19. IT (S S) A No. 147/Mum/2002 : This appeal is by the revenue for the block period 01.04.1988 to 17.09.1998.
The first ground urged by the revenue is directed against the order of the CIT(A) in deleting the addition of Rs. 60,00,0007- made on account of unproved loans. According to the revenue, the CIT(A) failed to appreciate the fact that the unproved loans are indirect receipts in the hands of the assessee through the persons, i.e. Shri Vinay Sud and Shri Rashid Saud Ahmed Khan, from the candidates going abroad recruited through M/s Al Samit International, a firm where the assessee worked as a consultant
20. This issue has been dealt with by the AO vide Para 14 of his order briefly as under:
AO noticed that the assessee received loan of Rs. 30,00,000/- each from two non-residents, Shri Vinay Sud and Shri Rashid Saud Ahmed Khan. It was stated that the loans were taken for the purpose of investment in M/s. Indman Media Services Pvt. Ltd. Assessee produced a certificate dated 06.11.2000 from Corporation Bank, Panjim - Goa Branch, which certified that they have released on 04.09.1996 loan of Rs. 30,00,000/- vide SDL No. 36/96 dated 04.09.1996 to Shri Vinay Sud against FCNR 25/96, which has been credited to SB A/c No. 640 of Shri Raju Sud as authorized by the depositor. Similar certificate was also issued on the very same day depositing Rs. 30,00,000/- stated to be loan from Shri Rashid Saud Ahmed Khan against FCNR 23/96.
AO further noticed that during the search operation in the case of Al Samit International certain documents came into the possession of the revenue indicating that there were certain arrangements between M/s Al Samit International and Shri Vinay Sud. Shri Vinay Sud is the brother of the assessee. The details disclosed that various candidates received money as loan from M/s Al Samit International and the candidates before proceeding abroad were to pay back these and if not, it was authorized to recover from their salary abroad.... The same is discussed at Para 11 to 11.4 of the block assessment order in the case of Al Samit International. If any balance could not be paid before their departure, an undertaking is given to Shri Vinay Sud to collect from their salary in Saudi Arabia. AO further noticed that Shri Raju Sud himself made notings take undertaking for balance" under his signature Shri Raju Sud was beneficiary of unaccounted collection made by M/s Al Samit International and Shri Vinay Sud received this amount on their behalf and therefore AO held that the amount given to the assessee without bank security or interest is only the amount that has been received by Shri Vinay Sud on behalf of M/s A Samit international, which was assessee's own due amount.
Coming to loan said to be taken from Shri Rashid Saud Ahmed Khan assessee could not produce any evidence to show that he had approached the said person to provide loan, there was no bank security, etc. Hence AO held that "under the circumstances, it appears rather strange as to how an unknown foreigner will agree to advance loan of such a large amount. Incidentally, no interest is being paid by Shri Raju Sud to these so called creditors on the loans. A major portion of the loan still remained outstanding. No details of the account maintained by Shri Vinay Sud as well as Shri Rashid Saud with the Corporation Bank, Goa Branch have been furnished". Hence the AO treated this amount as assessee's income.
Aggrieved by the above order, assessee carried the matter before the first appellate authority.
21. It was submitted before the CIT(A) that Shri Vinay Sud is brother of the assessee and confirmation was filed before the AO along with certificate from the bank CIT(A) held that the Balance Sheet filed along with the return of income filed prior to the search action for the assessment year 1997-98 shows loan from Shri Vinay Sud and Shri Rashid Saud Ahmed Khan without any doubt AO has not mentioned any documents recovered during the course of search and seizure action which suggests that the loans received were not genuine. CIT(A) further held, even if for a moment if it is considered that the amount represent the balance charges recoverable from the candidates recruited, this can only be treated as income of M/s Al Samit International and not of the assessee. Hence he deleted the addition. Aggrieved by the above order, revenue is in appeal before the Tribunal Learned DR supported the order of the AO.
22. Learned Counsel for the assessee, on the other hand, made preliminary legal objections, briefly, as under:
First of all, this addition is outside the scope of Chapter XIV-B. This was not made on the basis of any documents seized as a result of search. Secondly the loans were duly reflected prior to the date of search. This addition was made on the basis of the records, which was produced by the assessee. In fact the return was filed on 18.12.1997 for the assessment year 1996-97 before the search and for the assessment year 1997-98 on the very same day. Confirmations of loans were duly handed over to the AO, which form part of the Paper Book Page 2 and 8. The source of the loans was handed over to the AO Learned Counsel submitted that this addition is without basis.
23. The next ground (Ground No. 2 and 3) urged by the revenue read as under:
2 On the facts and under the circumstances of the case and in law, the learned CIT(A) has erred in deleting the addition regarding interest of Rs. 3,75,218/- relating to A.Y 1996-97 without appreciating the fact that assessee has not utilised the interest bearing borrowed funds for the purpose of the business but the funds have been diverted for investment as share capital and loan to M/s.. Indman Media Services P Ltd. from which assessee has earned nothing.
3. On the facts and under the circumstances of the case and in law, the learned CIT(A) has erred in deleting the addition of interest of Rs. 75,000/- for A.Y. 1997-98 on the ground that claim of interest made in regular return of income must have been considered at the time of regular assessment and cannot be considered Under Section 158BC of the I. T. Act without appreciating the fact that the borrowed funds have been not utilized for the purpose of business of the assessee and same were diverted for investment in the share capital of M/s. Indman Media Services P. Ltd.
24. This issue has been dealt with by the AO vide Para 15.1 and 15.2 of his order, observing as under:
15.1. In the assessment year 1996-97, the interest of Rs. 3,75,218/- has been claimed as deduction by the assessee in the P&L A/c. in respect of assessee's proprietary concern, M/s. Indman Consultants I.e. against the income from the recruitment consultancy. The borrowed funds on which this interest is claimed have been invested by way of share capital and loans to M/s. Indman Media Services Pvt. Ltd. of which the assessee is the Director. The assessee has not earned anything out of this investment with the said company not even salary. In this connection, i the assessee has submitted that as a Promoter Director of M/s. Indman Media Services Pvt. Ltd. he has invested in shares and also given advances to this company for purchase of studio equipments. However, the said company could not make profits and therefore did not give any return on investments made by the assessee. The assessee has not produced any proof whether the said company has started its business His investment with this company is of substantial amount by way of advance on which no returns have been received. He therefore claimed deductions Under Section 57(iii) of the I.T.Act. The assessee's contention cannot be accepted Since the borrowed funds are not utilised exclusively for the purpose of assessee's business, the interest paid on these borrowed funds cannot be allowed as expenditure against the consultancy receipts, when the assessee has not received any income from the advances made out of the borrowings The interest of Rs. 3,75,218/- is therefore disallowed 15.2 Similar claim of interest has been made in the subsequent year i.e. A.Y. 1997-98 amounting to Rs. 375,000/- on the same borrowed funds and not utilised for assessee's own business is also disallowed for A.Y. 1997-98.
Aggrieved by the above order, the matter was carried before the CIT(A).
25. It was contended before the CIT(A) that there is no record to show that this claim was fictitious. AO cannot make a roving enquiry it was contended. Since the claim was made in the regular return, the CIT(A) accepted the claim of the assessee. Aggrieved by the above order, revenue is in. appeal before the Tribunal.
Learned DR supported the order of the AO.
26. Learned Counsel of the assessee submitted that this addition was not made on the basis of the material found during the search. Interest expenses were debited in the regular books of account and claimed in the return of income for the assessment years 1996-97 and 1997-98 and the returns were filed much prior to the search and seizure action on 17.09.1998.
27. The next effective ground (Ground No. 4 to 7) urged by the revenue read as under:
4. On the facts and under the circumstances of the case and in law, the Learned CIT(A) has erred in deleting the additions of Rs. 75,000/- and Rs. 1,45,000/- being unproven loan of A.Y. 1994-95 and A.Y 1995-96 of the block period without appreciating the fact that Shri Liyaquat Lochar was not assessed to tax and the assessing officer has held them to be unproven loans because assessee has failed to prove the genuineness of transaction and capacity of lenders.
5. On the facts and under the circumstances of the case law, the Learned CIT(A) has erred in deleting the addition of interest of Rs. 22,800/- without appreciating the fact that interest was paid on loan taken from Shri Liyaquat Lochar which were held by the assessing officer as unproved loans.
6. On the facts and under the circumstances o the case and in law. the learned CIT(A) has erred in deleting the addition of Rs 2,00,000/- being unproven loan of A.Y. 1994-95 of the Block period without appearing the fact that Shri Paul Lobo did not have the capacity to lend and assessing officer has held them to be unproven loans as Shri Paul Lobo was not assessed to tax.
7. On facts and under the circumstances of the case and in law, the Learned CIT(A) has erred in deleting the addition of interest of Rs. 30,000/- without appreciating. the fact that interest was paid on loan taken from Shri Lobo which were I held by the assessing officer as unproved loans.
28. AO made the additions vide Para 14 and 14.1 of his order, observing as under:
14. The verification of records reveal that the assessee has taken loans from family members as well as outsiders. During the proceedings Under Section 158BC, the supporting evidence in respect of these loans were furnished. However, in the case of the following two parties who are not assessed to tax, the assessee failed to prove the genuineness of the loan transactions, as capacity of the creditors to give loan has not been discharged. The details of these loans are as under:
Name of the party AY Amount of loan Interest claimed
giving loan (Rs) (Rs)
Shri Liyaquat 1994-95 75,000 NIL
Lochoor
1995-96 1,45,000 22,800/-
Shri Paul Lobo 1994-95 2,00,000 NIL
1996-97 - 30,000/-
14.1 In view of the above, these loans are held as not genuine and hence credits are treated as assessee's income from undisclosed source as per provisions of Section 68 of I. T. Act in respective previous years relevant to the respective assessment years. Further, the interest claimed on these loans is also disallowed for the respective assessment years as indicated above.
Aggrieved by the above order, assessee approached the first appellate authority.
29. These additions were deleted by the CIT(A) on the ground that they were reflected in the Balance Sheet filed with the regular return of income filed by the assessee before the date of search. Aggrieved, revenue is in appeal before the Tribunal. Learned DR supported the order of the AO.
30. Learned Counsel, on the other hand, added that in fact these additions were not made on the basis of any seized material. Assessee tiled confirmation of loans. Coming to next effective ground (Ground No. 8 to 12) urged by the revenue, it is directed against the order of the CIT(A) in deleting the addition of Rs. 47,83,300/- made in the block assessment.
According to the revenue, CIT(A) did not appreciate the fact that this amount was unaccounted receipt of service charges during the assessment years 1997-98, 1998-99 and 1999-2000 received by the assessee as his share of income from unaccounted collection made by M/s Al Samit International from the candidates recruited by the assessee.
31. This issue has been discussed by the AO vide Para 11 to 13 of his order. From the seized materials, AO noticed that upto assessment years 1996-97 the assessee was getting commission for introducing the candidates as sub-agent and was also earning commission on ticketing from various recruitment agents. However, assessee's main source of business was proprietary concern M/s Indman Consultants, which was earlier known as Sud Consultancy. This concern was started from assessment year 1992-93. Assessee furnished details of collection of service charges and ticketing. Assessee was claiming earning of Rs. 2,000/- per candidate introduced for recruitment as sub-agent. For rendering services, he was earning Rs. 500/ per candidate from M/s Al Samit international during the period relevant to assessment years 1997-98 and 1999-2000. For the assessment year 1998-99 he was earning Rs. 250/- per candidate only. It was put to the assessee that as per the ledger account in respect of technical service charges received during 01.04 1997 to 31.03.1998 for the month of December 1997, the service charges reflected as received from M/s Al Samit International was in fact Rs. 13,750/- for 55 candidates on 15th December; Rs. 52,000/- for 210 candidates on 31st December. As per the ledger it was Rs. 250/- per candidate but this is in contrast to assessee's answer to Question No. 4 wherein the rate of service charges per candidate during the period of two years or prior to the date of search has been quoted as Rs. 500/- per candidate. Assessee was asked to explain the difference. It was submitted that he was getting service charges at the rate of Rs. 500/- per candidate from M/s Al Samit International. It was further stated that it was accounted for in two concerns, i.e. M/s Indman Consultancy and M/s Indman Corporation, which is partnership firm, in which assessee is partner with Mrs. Neelam Peshimam as equal partners. There were certain notings on the backside of the pages which was also requested to be explained, to which assessee stated, he is not aware what it is. He was asked again to explain the significance of noting vide Question No. 40 that why backside of Page No 13 of Annexure A/2 there is a noting "20 given to Rajubhai" He stated that he cannot tell the nature of the transaction but he said that this may be cash that cashier of M/s Al Samit International had given to him to keep for overnight since it was not safe to keep cash in the office premises. Again assessee was asked to explain the significance of notings "12 given to MS Rajubhai A/c" and '50.0 given to Rajubhai" As regards the first noting he stated that he cannot give any explanation and regarding second noting it may be a deposit. There were similar notings he was asked to explain again. From the reply given. AO noticed that the assessee is evasive with an intention not to disclose what is the true position. Hence AO held that in the previous year relevant to assessment year 1998-99 assessee was getting commission at the rate of Rs. 500/ from M/s Al Samit international of which only 50% has been disclosed by the assessee, i.e. Rs. 7,64,000/- being Rs. 250/- declared against Rs. 500/- received AO further vide Para 13.5 of his order came to the conclusion that in fact the assessee was receiving Rs. 1,100/- per candidate. In view of the above, he calculated total receipt for the assessment years 1997-98, 1998-99 and 1999-2000 as under:
A.Y. 1997-98 2760 candidates X Rs. 1100 = Rs. 30,36,000/-
of which Rs. 13,80,100/- are accounted
A.Y. 1998-99 3056 candidates X Rs. 1100 = Rs. 33,61,600/-
of which Rs. 7,64,000/- are accounted.
A.Y. 1999-2000 883 candidates X Rs. 1100 = Rs. 9,71,300/-
of which Rs. 4,41,500/- are accounted.
Total service charges received during the above 3 years = Rs. 73,68,900/- out of which Rs. 25,85,600/- have only been accounted by the assessee.
13.7 Thus, the unaccounted receipts of service charges during the period relevant to AY 1997-98, 1998-99 and 1999-2000 received by the assessee as his share from the unaccounted collection from candidates made by M/s Al Samit International from candidates selected for overseas recruitment works out to Rs. 47,83.300/- (i e Rs. 73,68,900 -- Rs 25,85,600).
13.8. In vies of this, Rs. 47,83,3007- is treated as unaccounted income of the assessee during the previous years relevant to AY 1997-98 to 1999-2000 forming a part of the block period and accordingly the same are included in the total undisclosed income of the block period.
Aggrieved by the above order, assessee approached the first appellate authority
32. It was contended before the CIT(A), firstly that the seized material referred to by the AO was not seized from the residence of the assessee. It was seized from the premises of M/s Al Samit International, a third party. Therefore the presumption under Section 132(4A) does not apply. The notopads are not in the handwriting of the assessee There was no direct evidence in the form of assets found to suggest that the assessee earned such income. M/s Al Samit International has not confirmed that they have paid any amount to the assessee over and above what is recorded though the payment to the assessee would mean expenditure and would be to their benefit Income of Rs 500/- per candidate has been accepted and AO has not brought any independent evidence to corroborate the materials seized from the premises of the third party. Assessee also relied upon the decision of the Hon's Supreme Court in the case of V C Shukla and it was contended that loose sheets cannot be treated as books of account within the meaning of Section 34 of Evidence Act and that even correct and authentic entries in the books of account, cannot without evidence of their trustworthiness fix a liability upon a person.
33. The CIT (A) accepted the above contentions of the assessee. He held that there was no evidence to corroborate that the cash in question was in fact share of the assessee in the undisclosed income of M/s AI Samit International or income of the assessee. M/s Al Samit International or any of their employees has not confirmed that these payments were made towards the fees to the assessee for the services over and above recorded at Rs. 500/- per candidate. Hence the CIT(A) deleted the addition. Aggrieved, revenue is in appeal before the Tribunal.
Learned DR supported the order of the AO.
34. Learned Counsel, on the other hand, reiterated the submissions made before the revenue authorities He brought our attention to Paper Book Page 48, which is part of the statement recorded of Shri Gulam Mohd Peshimam on 03.11. 2000, Question No. 31, which reads as under:
Q No. 31. In the above pads A-2 to A-8, the details about outgoings out of cash received, it is seen that the payments to you, your brother Shri Javed and Shri Raju Sud, the consultant of your firm amounted to Rs. 30,54,000/- (the details as to how these aggregate payments are worked out are shown to Shri Gulam Mohd. Peshimam). Since these amounts withdrawn by you and your brother and Shri Raju Sud appears to be on personal account, please explain as to how the same is finally accounted for.
Ans: It is not a personal withdrawal at all. These amounts were taken by us for the purpose of meeting out the expenses for medical, lodging boarding of the candidates and other expenditure on candidates which are not reflected in the items shown on the back page of the note-pads as outgoings. To explain the entire expenses out of the receipts indicated in these pads, I am submitting herewith the entire receipts and expenditure in a more detailed manner taken from these pads only.
Learned counsel also brought our attention to Paper Book Page 50 to 52, statement or Shri Gulam Mohd Peshimam, recorded on 10,11 1998, Question No 19 and 20, which read as under:
Q 19. On going through the above annexures, it is noticed that huge amount had given to UBI, Cash to ASI, DD to ASI. Raju Sood, Usha Sood, Javed Peshimam. Gulam Peshimam, etc. please explain Ans: The amount shown as UBI is deposited in Union Bank of India. Mahim Branch, Mumbai, which is reflected in our bank book and cash book. The cash given to ASI and DD given to ASI is o/a of tickets purchased on behalf of the selected candidates from M/s ASI Tours and Travels (P) Ltd. Mumbai.
The amount given to Raju Sood, Usha Sood, Javed Peshimam, Neelam Peshimam, Rashida Peshimam myself is as - Generally, there is a practice adopted by our firm to not to Keep the huge cash in our officer because at one occasion me office was ourm in 1996 riots, and there was one theft also in 1993-94, and as the Mahim area is not very much safe, and also we had not any strong room/safe we use to take have the cash (available) for safety and giving it to the available person at the end of the day, and subsequently as the next working day the said cash is again brought to the office Q 20 After bringing back, where are you depositing the same? because it is not reflected in the said pads.
Ans. These pads are daily collection, and daily amounts spend, this is not the cash book or any other account / book which reflects the carry forward balances.
35. Question No. 19 indicates as to huge amount had been given to UBI, cash to ASI, DD to ASI, Raju Sud, Usha Sud, Javed Peshimam, Gulam Peshimam etc. It is stated that the amount shown as "UBI" is the deposit in Union Bank of India, which is reflected in the books of account and cash book. Cash given to ASI and DD to ASI is for ticket purchase on behalf of selected candidates from M/s ASI Tours & Travels (P) Ltd. In regard to amount given to Raju Sud, Usha Sud, Javed Peshimam, etc., it is stated, generally there is practice adopted by the firm not to keep the huge cash in the office because at one occasion office was burnt in 1993 riots, there was theft in 1993-94; and that Mahim area is not very safe etc.
36. We heard the rival submissions; gone through the orders of the revenue authorities and the material placed on record. We are of the view that since we have already held that the assessment order itself is null and void in the light of the discussion contained hereinabove, it is not necessary for us to deal with these issues independently. As we have held vide Para 25 of our order, it is not necessary for us to give specific findings on merits for the reasons given therein In the result, appeal of the revenue fails and is dismissed.
Pronounced in the Open Court on 29th March 2007.