Income Tax Appellate Tribunal - Ahmedabad
Elcon Finlease & Industries Ltd. vs Deputy Commissioner Of Income Tax on 18 December, 1998
ORDER
R.K. Bali, A.M.
1. This is an appeal by the assessee-company M/s Elcon Finlease & Industries Ltd., Ahmedabad against the order passed by the Dy. CIT (Asst), Spl. Range-1, Ahmedabad under s. 158BC of the Act and it relates to block period 1st April, 1985 to 5th September, 1995.
2. Briefly the facts are that the assessee-company was incorporated on 6th February, 1986 and is a domestic company in which the public are substantially interested. The company is in the business of leasing, hire purchase and finance. Thus, even though the statutory block period is from 1st April, 1985 to 5th September, 1995, the effective block period is only from 6th February, 1986 to 5th September, 1995.
3. A search and seizure operation was carried out at the business premises of the assessee-company on 5th September, 1995. The searches were also carried out in the case of Shri Ummedsingh P. Champawat, chairman and managing director of the assessee-company as well as other allied companies engaged in hotel business and exports. In response to the notice issued under s. 158BC, the assessee-company filed a return of undisclosed income at Rs. 11,92,214 on 2nd August, 1996 disclosing the following income along with note attached to the return :
------------------------------------------------------------------------ Sr. Previous Asst. yr. Total income Total income Remarks No. year ended including as per on date undisclosed returned/ income assessed income ------------------------------------------------------------------------ Rs. Rs.
1. 31-3-1987 1987-88 NIL NIL Assessment order (AO) under s. 143(3), dt. 18-3-1988
2. 31-3-1988 1988-89 NIL NIL AO under s. 143(3), dt. 28-2-1989
3. 31-3-1989 1989-90 NIL NIL Intimation under s. 143(1)(a), dt. 29-3-1990
4. 31-3-1990 1990-91 NIL NIL AO under s. 143(3), dt. 22.3.1991
5. 31-3-1991 1991-92 NIL NIL As per return
6. 31-3-1992 1992-93 25,000 NIL Intimation under s. 143(1)(a), dt. 16-3-1993
7. 31-3-1993 1993-94 4,47,214 NIL Intimation under s. 143(1)(a), dt. 28-3-1994
8. 31-3-1994 1994-95 2,95,000 NIL As per return
9. 31-3-1995 1995-96 3,00,000 NIL As per return
10. 1-4-1995 to 1996-97 1,25,000 NIL 5-9-1995 ------------ ------------ 11,92,214 NIL ------------------------------------------------------------------------ Notes :
Rs.
1. Total income including undisclosed income of the block period (Rs. 11,92,214 = loss of Rs. 66,870) 11,92,214 Less : Total income as per returned/assessed/accounts NIL of block period ---------- Total undisclosed income 11,92,214 ---------- Tax payable on undisclosed income of Rs. 11,92,214 @ 60% 7,15,328 During the course of search of the residence of Shri Ummedsingh P. Champawat, chairman and managing director of the assessee-company, cash of Rs. 42,072 was found out of which Rs. 30,000 was seized. Besides that, large number of incriminating documents found from the residence of the managing director as well as the premises of the assessee-company were seized. The statement of Shri Ummed Singh P. Champawat was recorded on 5th September, 1995, as well as on 6th September, 1995, wherein he admitted to have earned an undisclosed income of Rs. 2 crores which was stated to have been invested in the various companies controlled by him in benami names, the list of such benami names numbering 67 was found during the course of search. A further statement of Shri Ummedsingh, P. Champawat was recorded by the ADI on 27th October, 1995 who originally recorded the statements on 5th/6th September, 1995, under s. 131 of the Act wherein Shri Ummedsingh P. Champawat further admitted an additional income of Rs. 1.13 crores relating to the transactions as mentioned in the seized documents and books of accounts. The return of undisclosed income of the assessee-company was filed on 2nd August, 1996, and thereafter the assessment was completed by the AO on 30th September, 1996, at a total undisclosed income of Rs. 1,47,95,612, against the returned income of Rs. 11,92,214. Being aggrieved with the order of the AO, the assessee has filed this appeal.
4. We may point out that the order in the case of Shri Ummedsingh P. Champawat, chairman and managing director of the assessee-company was also passed by the AO on 30th September, 1996, along with the other connected cases and the appeals were filed by the assessees in all the cases before the Tribunal which were initially fixed for hearing on 3rd July, 1997. The hearing continued and thereafter the written submissions were filed by the assessee as well as the Departmental Representative and the appeal in the case of Shri Ummedsingh P. Champawat ITA No. 4421/Ahd/1996 was decided on 7th April, 1998, and the other appeals were adjourned. The case of the present assessee-company in ITA No. 4430/Ahd/1996 was thereafter re-fixed for hearing on 25th June, 1998, when written submissions were filed on behalf of the assessee-company and Shri R. V. Nabar, the learned Departmental Representative who argued the case on behalf of the Department requested time for filing reply to the written submissions of the assessee and accordingly the case was adjourned to 14th July, 1998, as part-heard matter. In the meanwhile Shri R. V. Nabar, the learned Departmental Representative was transferred and in his place Shri S. C. Sonkar joined as Senior Departmental Representative. However on 14th July, 1998, there was no arrangement for representation on behalf of the Revenue at 2.30 p.m. when the part-heard matter was listed for hearing and on a telephonic query by the Bench-clerk from the office of the Senior Departmental Representative, it was gathered that no Departmental Representative was in the office. At 3.30 p.m. Shri Ashok Rajguru, U.D.C. in the office of the Senior Departmental Representative attended the Court and submitted that the file was taken over by Shri S. C. Sonkar, Senior Departmental Representative. On the next day, Shri S. C. Sonkar, Senior Departmental Representative submitted that he has requested the AO to file written submissions in response to the written submissions filed by Shri G. C. Pipara, the learned representative of the assessee and some time may be given. However, till 28th August, 1998, no written submissions were furnished as promised by Shri S. C. Sonkar, the learned Senior Departmental Representative and instead a letter dt. 28th August, 1998, from Shri S. C. Sonkar, Senior Departmental Representative addressed to the Dy. CIT, Central Range-1, Ahmedabad, copy of which was endorsed to the Tribunal as well as the CIT(Central), Ahmedabad as well as Shri S. K. Mishra, Dy. CIT, Range-10, Ahmedabad, who passed the assessment order prior to centralisation of these cases with the Central Range, was filed wherein a request was made by the Senior Departmental Representative to the AO holding jurisdiction over the case of the assessee to give written submissions in reply to the written submissions filed by Shri G. C. Pipara, the learned representative of the assessee. However, no written submissions were received from the side of the Revenue till 24th September, 1998, when the case was directed to be re-fixed and the final hearing took place on 6th November, 1998 when Shri G. C. Pipara, the learned representative of the assessee fully argued the appeal relying on his written submissions and Shri S. C. Sonkar, the learned Senior Departmental Representative supported the order of the AO after reading extensively from the assessment order passed by the AO and supported the order of the AO. However, we may point out that despite specific opportunities allowed, the Department has chosen not to file any written submissions in rebuttal of the written submissions filed by Shri G. C. Pipara, the learned representative of the assessee in support of the various grounds of appeal taken by the assessee.
5. Shri G. C. Pipara, the learned representative of the assessee submitted that the whole tenor of the order of the AO is mainly based on so-called admission/confession of Shri Ummedsingh P. Champawat made before the ADI in his statements recorded on 5th/6th September, 1995, and thereafter on 27th October, 1995, but the AO has totally ignored the voluminous evidence furnished during the course of hearing before him which explained the various issues as well as investments which were required to be explained by the AO on the basis of the seized documents found from the premises of the assessee. It was submitted that at the time of search Shri U. P. Champawat was under great mental tension and the statement was given without reference to the books of accounts, documents which were not readily available at the time to Shri U. P. Champawat and he was very much concerned with the inauguration ceremony of the hotel project and somehow wanted to get the search proceedings finished before the inauguration of hotel. In this connection, we have discussed the background relating to the framing of high pitched assessments in the case of Shri U. P. Champawat and other connected cases in paras 3 to 5 of our order dt. 7th April, 1998, in ITA No. 4421/Ahd/1996 which we will like to reproduce for facility of reference in this case also so as to keep in focus the background of the case before adjudicating various issues raised by the assessee in its grounds of appeal numbering 15 which will be dealt with independently hereafter.
Relevant extract from order in ITA No. 4421/Ahd/1996 dt. 7th April, 1998, in the case of Shri Ummedsingh P. Champawat :
"3. Being aggrieved with the order of the AO the assessee has filed this appeal. Shri G. C. Pipara, the learned representative of the assessee submitted that the whole tenor of the order of the AO is mainly based on so-called admission/confessions of the assessee made before the ADI in his statements recorded on 5th/6th September, 1995, and thereafter on 27th October, 1995. It was submitted that the AO has totally ignored the voluminous evidence furnished during the course of hearing before him which explained the various issues as well as investments which were required to be explained by the AO on the basis of seized documents found from the premises of the assessee. It was submitted that at the time of search the assessee was under great mental tension and the statement was given without reference to the books of account, documents which were not readily available at the time to the assessee. It was further submitted that that inauguration ceremoney of the hotel project of the assessee was to take place shortly and the assessee some-how wanted to get the search proceedings finished before the inauguration of Five Star hotel. Accordingly it was submitted that much reliance cannot be placed on the mere admission of the assessee before the ADI which was made under great mental tension. It was submitted that immediately after the search the assessee has sworn an affidavit on 11th September, 1995, denying so-called admission made before the ADI. However, it is a fact that copy of such affidavit was neither filed before the ADI nor before the AO till 9th August, 1996, when it was furnished along with his written submissions in response to a query raised by the AO relating to the various issues involved in the assessment proceedings. According to the AO the affidavit was filed before the AO after a gap of approximately 11 months from the alleged date of affidavit and no good explanation for not filing the affidavit explaining a period of 10 months from the alleged date of affidavit sworn in, was given by the assessee. According to the AO this clearly proves that it was only sworn into create a legal facade. According to the AO preponderance of probabilities indicate that the affidavit was anti-dated and was prepared much later than the date of swearing in only to throw wool in the eyes of the Department and anti-dating was done with a view to put extra weight on the contents of the affidavit. In the affidavit it is alleged that the assessee was interrogated from 8 A.M. of 5th September, 1995, till 2 A.M. of 7th September, 1995, which caused great tension and he lost his mental balance and since he was worried about the fast approaching date of opening of Five Star hotel of the group, he tried to close the proceedings as early as possible and he answered the questions on the desired pattern by the ADI. It was also mentioned in the affidavit that the Chief Accountant of the assessee was on leave on the date of search and, therefore, financial and accounting transactions could be properly analysed. Shri Pipara, the learned representative of the assessee further submitted that the duty of ADI in the course of search is to find facts and not to get statements indicating the disclosure of unaccounted income. It was submitted that subsequently the statement on 27th October, 1995 was recorded by the same ADI under s. 131 and it was not under s. 132(4). It was pleaded that both the so-called statements of admission of concealing income running into 3.13 crores were retracted by the assessee by filing the statutory return for the block period in which only the correct undisclosed income was declared by the assessee. According to the representative of the assessee by filing the return for the block period verified in the prescribed manner the assessee has in fact retracted from both the earlier admissions/confessions claimed to have been made before the ADI in the statements recorded under s. 132(4) on 5th June, 1995, and 27th October, 1995. It was submitted that the statement recorded during the course of search was even retracted by filing an affidavit sworn in on 11th September, 1995, which was filed before the AO for the first time during the course of assessment proceedings on 9th July, 1996. The learned counsel further submitted that for the purpose of making addition it has to be based on evidence and not on mere admission of the assessee. In this connection reliance was placed on the Supreme Court decision in the case of Pyarelal Bhargava vs. State of Rajasthan AIR (1963) SC 1094 wherein it is held that "as a general rule of practice, it is unsafe to rely upon a confession, much less on a retracted confession".
Reliance was also placed on the decision of the Supreme Court in the case reported in AIR 1976 SC 376 and other related decisions.
4. The learned Departmental Representative, on the other hand, strongly relied on the order of the AO as well as the preliminary statement recorded on 5th September, 1995, subsequent statement under s. 132(4) on 5th September, 1995, which was concluded on 6th September, 1995, and the statement was recorded after giving due time to the assessee to sleep and complete his morning routine. Further statements were also recorded on 8th September, 1995 at the office premises of assessee. It was further submitted by the learned Departmental Representative that the statement of the assessee was again recorded on 27th October, 1995, in the income-tax building under s. 131 and the statement of Shri Chhaganlal P. Vaishnav, the main Accountant of the assessee was recorded on 19th and 20th October, 1995, which was also shown to the assessee while recording his statement on 27th October, 1995. During the course of statement on 27th October, 1995, the assessee re-affirmed the statement of this accountant and also re-confirmed the undisclosed income disclosed earlier to the ADI during the course of search. According to the Departmental Representative the assessee not only quantified the quantum of his undisclosed income as per the statement recorded at the time of search, but disclosed further additional undisclosed income on the basis of loose papers seized at the various premises of the assessee during the course of search. The learned Departmental Representative emphasized that nowhere during the course of these statements the assessee mentioned about the alleged retraction made through the affidavit on 11th September, 1995. According to the Departmental Representative the so-called affidavit is only a self-serving statement and has no evidentiary value. As regards the decisions relied upon by the learned representative of the assessee, the learned Departmental Representative submitted that they are distinguishable on facts. He accordingly submitted that the AO was perfectly justified in relying on the admission/confession of the assessee in the statements recorded at the time of search as well as subsequently before the ADI on 27th October, 1995. Reliance was placed on the following decisions :
(i) Garibdas Chandrika Prasad vs. CIT (1997) 95 Taxman 431 (MP);
(ii) V. Kunhambu & Sons vs. CIT (1996) 219 ITR 235 (Ker);
(iii) CIT vs. Durga Prasad More (1971) 82 ITR 540 (SC);
(iv) Chowk Chand Balabux vs. CIT (1961) 41 ITR 465 (Assam);
(v) R. R. Gavit vs. Smt. Sherbanoo Hasan Daya (1987) 161 ITR 793 (Bom); and
(vi) Manoharlal Kasturchand vs. CIT (1997) 57 TTJ (Ahd) 639.
5. We have considered the rival submissions and have also gone through the statements of the assessee recorded by the ADI as well as the order of the AO. It is a question of fact that the assessee did make admission concealing income of Rs. 2 crores before the ADI during the statements recorded at the time of search and this was also subsequently increased to Rs. 3.13 crores in the subsequent statement recorded by the same ADI on 27th October, 1995. However, the assessments in the case of the assessee as well as other connected cases have not been made exactly at the income disclosed by the assessee in these statements. In fact the AO has made assessment on total undisclosed income of Rs. 11,35,70,444 in the case of the assessee and other connected cases as against the income disclosed of Rs. 313 lacs and income shown in the returns for the block period of Rs. 15,04,214 which was the subject-matter of stay before us in S.P. No. 37/Ahd/1997 (arising out of ITA Nos. 4421 to 4432/Ahd/1996). Out of the additions made by the AO, the addition to the extent of Rs. 2.82 crore were on protective basis in the total assessed income of Rs. 11,35,70,444.
On the other hand, the assessee also has not adhered to his so-called admission/confession and has filed only a return declaring undisclosed income of Rs. 4,01,050 in his case and Rs. 15,04,214 in relation to the entire group. Thus both the parties have not completely adhered to the so-called admission made in the statements recorded by the ADI.
It is also pertinent to note that in the statement recorded on 6th September, 1995, an amount of Rs. 2 crores was disclosed by the assessee for the different companies in the group as it is apparent from the answer to question No. 20 placed at p. 24 of the paper book-I. So-called disclosure of undisclosed income was made for the group concerns but company-wise and item-wise bifurcation of such disclosure is not mentioned in the statement, but reference is made to question Nos. 14 to 19 of the said statement wherein the issues covered are as under :
Q. No. Issue Amount
14 - Rs. 15 Payment for land 9,00,000 16 Cash found 42,072 17 Jewellery found 3,77,254 18 Payment for Marwar Hotels 20,00,000 19 Investment in residential house 6,75,000 --------------- 39,94,326 ---------------
As against the above disclosure, issue-wise, how the amount of Rs. 2 crores has been arrived at is not clear. In the statement of the assessee recorded under s. 131 on 27th October, 1995, in answer to question No. 12, an amount of Rs. 2 crores disclosed earlier was revised to Rs. 2,95,47,253 wherein additional amount of Rs. 95,47,253 disclosed was pertaining to the following :
Rs.
'(A) (a) Amount received from Manojbhai and interest thereon 11,55,221 (b) Amount received from Badri Singh 25,000 (c) Amount received from Ajit R. Sanghvi 5,00,000 (d) Household expenses 12,72,232 (e) Expenses of Marwar Hotels Ltd. 3,00,000 (f) Amount paid to Harshad Brahmbhatt 15,000 (g) Premium received 2,22,000 ---------- 34,89,453 ---------- The above details as per the statement which is placed on p. 54 of paper book-I. B. Fictitious loss & withdrawals in the names of 67 persons 60,57,800 ---------- 95,47,253' ----------
In the concluding part of the statement under s. 131 of the assessee recorded on 27th October, 1995, an amount of Rs. 3.13 crores was disclosed as per the copy of the statement given to us at p. 61 of the paper book-I. This consists of the following :
Rs. (in lacs)
(i) Earlier disclosure 296.00 (ii) Unsecured loans from 67+2 persons 13.00 (iii) Withdrawals not included earlier 0.60 (iv) Capital of Laxmansingh Bharatsingh (approximate) 3.00 (v) Miscellaneous 0.40 ------------- 313.00 -------------
However, the AO in para 4 of the assessment order has given details of the undisclosed income as accepted by the assessee amounting to Rs. 387.42 lacs which apparently is contrary to the so-called admission made in both the statements given before the ADI.
The whole tenor of the assessment order framed by the AO is that the investments made by 67 persons whose names were found in a list from the premises of Elcon Finlease & Industries Ltd. are in fact the benamidars of the assessee and the entire investments made by those persons in shares of group companies of the assessee, loans advanced by those persons and even investments made by them even in immovable property also belonged to the assessee. Two of the names in that list of 67 persons, are brother-in-laws of the assessee (wife's brothers). The land over which residential house of the assessee is constructed in relation to which the addition of Rs. 6,60,000 has been made by the AO on account of undisclosed investments, was purchased in four names i.e. in the name of the assessee Shri Ummedsingh P. Champawat, his wife Laxmi Kanwar U. Champawat, Dilipsingh K. Bhati and Mahendrasingh K. Bhati. The land is registered in these four names and all four of them have declared the investments made in the construction of the house in their respective wealth-tax returns and all four of them have been assessed to tax and those assessments were already completed prior to the date of search. In the statement before the ADI it is no doubt true that the assessee has admitted that he has invested about Rs. 6 lacs including the cost of land, on the construction of the residential house, and admitted undisclosed income of Rs. 6 lacs. However, subsequently on verification from the assessment records of all the four co-owners it was found that the total investment was Rs. 13,41,068 and it was shown at Rs. 3,35,267 in the hands of all the four co-owners as per the balance sheets filed along with the returns of income much prior to the date of search and the same were available in the income-tax record of the Department and all the four of these persons were regular assessees and yet the AO has preferred to rely on the statements of the assessee recorded by the ADI ignoring documentary evidence and the material available in the file of the IT Department to hold that the entire house property belonged only to the assessee and his wife and both the brother-in-laws are the benamidars of the assessee. For this proposition the learned AO in the body of the assessment order has relied on the decision of the Supreme Court in the case of Bhimsingh vs. Kansingh AIR 1980 SC 727. In this connection we have to observe that the above referred decision was given prior to coming into force of the Benami Transactions (Prohibition) Act, 1988.
Before the Benami Transactions (Prohibition) Act, 1988, Courts in India, by and large, recognised two distinct classes of transactions as benami. The first type or class of benami transaction was called the real benami transaction. A typical instance of it is when "A" sells a property to "B", but the sale deed mentions "C" as the purchaser, here the real purchaser is "B" and "C" is only the benamidar. Such a transaction is described as the real benami transaction. The second class or category of benami transaction is the sham transaction in which one person purports to transfer his property to another without intending to pass title to the transferee. This second type of transaction was loosely called a benami transaction. The fundamental difference between the two categories of transactions is this :
(i) In the former, there is as operative transfer resulting in vesting of title in the transferee, whereas in the latter, there is no operative transfer and the transferor continues to retain title to the property notwithstanding execution of the document. The latter transaction is known as a sham transaction.
Sec. 4(1) of the Benami Transactions (Prohibition) Act, 1988 clearly provides that no suit, claim or action to enforce any right in respect of any property held benami against the person in whose name the property is held or against any other person shall lie, by or on behalf of a person claiming to be the real owner. This means that even if the property is found to have been held benami, the real owner is benefit of any defence against the person in whose name the property is held or any other person. Thus when the law nullified the defence available to the real owner in recovering the benami property from the benamidars after coming into force of the Benami Transactions (Prohibition) Ordinance w.e.f. 19th May, 1988, no suit could be filed on the basis of such a plea after 19th May, 1988.
The above position of law has been clarified by the Supreme Court in the case of R. Raja Gopal Reddy vs. Padmini Chandrasekhran (1995) 213 ITR 340 (SC).
Coming to the question of investments made by these 67 persons in the form of share application money in various group companies belonging to the assessee as well as in the form of loans also, the same is required to be examined with reference to the material available on record of the Department as well as the material/evidence produced by the assessee during the course of assessment proceedings and the addition cannot be made/sustained merely on the admission of the assessee before the ADI which according to the assessee was subsequently retracted by filing the affidavit during the course of assessment proceedings and also filing the statutory return verified in the prescribed manner. In this connection it will be useful to refer to the observations of the Supreme Court in the case of Shri Krishna vs. Kurukshetra University AIR 1976 SC 376 wherein it is held that an admission based on ignorance of fact is not binding. Similarly the Punjab & Haryana High Court in the case of Krishanlal Shivchand Rai vs. CIT (1973) 88 ITR 293 (P&H) has held that it is an established principle of law that a party is entitled to show and prove that an admission made by him previously was in fact not correct and true."
6. Keeping in view the above background of the case we will now adjudicate on the various issues raised by the assessee-company in this appeal.
7. Now, the grounds numbering 15 taken by the assessee in this appeal are as under :
(1) Addition of Rs. 73,54,000 under s. 68 - Unexplained investment in share capital The learned AO has erred in law as also on facts while making the addition of Rs. 73,54,000 under s. 68, being the investment in the share capital, considering the same as unexplained. During the course of assessment proceedings, the identity of the payee as well as source of investment and genuineness of transactions having been proved and established, addition of Rs. 73,54,000 requires to be deleted.
(2) Addition of Rs. 5,50,000 - Loan to certain parties The learned AO has erred in law while making the addition of Rs. 5,50,000 being the loans advanced by the company to certain parties, which are duly recorded in the books of account. The transactions having been recorded in the seized books of account, the same will not fall within the definition of undisclosed income as defined in s. 158B(b) and thus the addition requires to be deleted.
(3) Addition of Rs. 4,80,000 - Cash to manager The learned AO has erred in law while making the addition of Rs. 4,80,000 being the amount advanced by the company to the manager for the purpose of business out of cash balance of the company. The AO has separately made an addition for the impugned cash shortage on account of such advancing of the amount and thus while framing the assessment there is total non-application of mind. Thus, the addition of Rs. 4,80,000 being out of the cash balance of the company as per books of account, requires to be deleted.
(4) Addition of Rs. 15,000 - Amount advanced during the course of business Similarly, the learned AO has further erred in law while making another addition of Rs. 15,000 being the amount advanced by the company during the course of business to Shri H. D. Brahmbhatt. The amount having been advanced by the company out of the cash balance as per books of account and having been explained so, the addition of Rs. 15,000 requires to be deleted.
(5) Addition of Rs. 12,88,000 under s. 69 - Amount advanced by the company The learned AO has erred in law while considering the amount advanced by the company of Rs. 12,88,000 as unaccounted, though the entire amount advanced was recorded in the seized books of account. Thus the AO has erred in law while considering such advances as unaccounted within the definition of s. 158B(b) and thus the addition requires to be deleted.
(6) Addition of account of premium on vehicles of Rs. 2,22,000 The learned AO has erred on facts while making the addition of Rs. 2,22,000 as unaccounted receipt of premium. During the course of assessment proceedings it was submitted that there was no such premium received by the company and thus the addition being baseless requires to be deleted.
(7) Expenditure of Rs. 41,000 on amalgamation considered as capital The learned AO has erred in law while considering the expenditure of Rs. 41,000 on the amalgamation as capital in nature as against revenue expenses as claimed by the appellant company. Thus, the addition requires to be deleted.
(8) Addition of Rs. 5,81,805 for shortage of cash The learned AO has erred on facts while making the addition of Rs. 5,81,805, considering the same as shortage of cash. During the course of assessment proceedings complete explanation with evidences were furnished about the utilisation of the said cash, which being for the purpose of business no addition should have been made in the assessment. Moreover, the addition is based on irrelevant and immaterial observations and thus requires to be deleted.
(9) Addition of Rs. 11,57,786 - "Transactions with Shri Manojbhai"
(a) The learned AO has erred in law while making a separate addition of Rs. 10 lacs being the amount received by the appellant company, which has already been disclosed in the return of income for the block assessment. The loan having been considered in the income disclosed in the return for the block assessment, the separate addition is bad in law and requires to be deleted.
(b) The learned AO further erred in law while making the addition of Rs. 11,57,786 being the interest expenditure incurred by the appellant company on such loan. At the outset, the addition is expenditure in nature and not income and moreover the expenditure having been considered while working out the undisclosed income for the block assessment the addition of Rs. 1,57,786 requires to be deleted.
(10) Disallowance of salary of Rs. 1,13,613 to Shri M. K. Bhati :
The learned AO has erred in law as also on facts while disallowing the salary paid to Shri M. K. Bhati of Rs. 1,113,613 by the Company. The expenditure being for the purpose of business it is an allowable deduction. Thus, the disallowance of salary requires to be deleted.
(11) Addition of Rs. 69,908 - As dalali payment The learned AO has further erred on facts while making an addition of Rs. 69,.908 (correct amount is Rs. 39,500) considering the same as not incurred for the purpose of business. The expenditure having been incurred for the purpose of business and having been proved so, the same is an allowable deduction and thus the addition of Rs. 69,908 requires to be deleted.
(12) Addition of Rs. 5,96,711 - Unaccounted advances to staff The learned AO has erred in law as well as on facts while making the addition of Rs. 5,96,711 as unaccounted advances to staff. The addition is baseless and based on observations which are far from the facts and thus requires to be deleted.
(13) Addition of Rs. 5,71,471 - Unexplained cash expenditure under s. 69C The learned AO has further erred in law as well as on facts while making the addition of Rs. 5,71,471, considering the same as unexplained cash expenditure. The transactions pertaining to this expenditure having been duly recorded in the regular books of account and explained so during the course of assessment proceedings, the addition is bad in law, based on irrelevant and immaterial observation and thus requires to be deleted.
(14) Addition of Rs. 35,000 - Unaccounted income The learned AO has erred in law while considering the amount of Rs. 35,000 as unaccounted receipts, though no such receipt was there actually. Thus, the addition based on baseless observation requires to be deleted.
(15) Addition of Rs. 5 lacs on protective basis as unaccounted income The learned AO has erred in law while making the addition of Rs. 5 lacs, even on protective basis, considering the same as unaccounted income of the company, being investment/source of investment for land. The investment having been considered by the appellant company in the undisclosed income shown in the return of income for the block assessment, a further and separate addition is bad in law and thus requires to be deleted.
8. As far as ground of appeal No. 1 is concerned, the objection of the assessee is with regard to the addition of Rs. 73,54,000 made by the AO under s. 68 on account of alleged unexplained investment in share capital of the company. The basis for making the addition was the statement of Shri Ummedsingh P. Champawat, M.D. of the company, copies of which have been furnished to us and the relevant answers to specific questions are as under :
------------------------------------------------------------------------ statement dated Answer No. Page No. of PB-I ------------------------------------------------------------------------ 6-9-1995 15 22 8-9-1995 2 & 3 26 27-10-1995 6 56 27-10-1995 14 60 27-10-1995 18 & 19 62 ------------------------------------------------------------------------
In the assessment order, the AO has stated at p. 15 that Shri U. P. Champawat has admitted that unaccounted income has been invested in the names of 67 persons as per the details of such persons found and seized from the premises of the assessee. However, it is important to note that in para (c) on pp. 9 & 10 of the assessment order it is clearly indicated that the disclosure was of the fact that the investment by 67 persons referred to supra was the undisclosed income of Shri U. P. Champawat and not of the assessee-company. The Tribunal in its order in the case of Shri U. P. Champawat in ITA No. 4421/Ahd/1996, order dt. 7th April, 1998, in last para at pp. 36 and 37, has set aside the issue with regard to the investment made by these 67 persons to the file of the AO with a direction to examine these persons who have been treated as benamidars of Shri U. P. Champawat and the addition, if any, should be required to be made in the hands of Shri U. P. Champawat.
It is undisputed that the share application money received by the assessee-company from these 67 persons is duly reflected in the regular books of account of the assessee-company and those books of account were meant to be shown to the IT Department and as such it cannot be considered as undisclosed income in terms of cl. (b) of s. 158B. The Pune Bench of the Tribunal in the case of Prakash Foods Ltd. vs. Dy. CIT (1998) 64 ITD 396 (Pune) and the Ahmedabad Bench of the Tribunal in the case of Ummedsingh P. Champawat in ITA No. 4421/Ahd/1996 referred to supra while interpreting cl. (b) of s. 158B has held that if prior to the date of search the assessee has disclosed particulars of income/assets either in the return or books of account during the course of assessment proceedings by production of books of account to the AO, then such income cannot be treated as undisclosed income within the meaning of cl. (b) of s. 158B. The above interpretation has since been approved by the Hon'ble Gujarat. High Court in the case of N.R. Paper Boards Ltd. & Ors. vs. Dy. CIT (1998) 234 ITR 733 (Guj). In this view of the matter we are of the opinion that the addition of Rs. 73,54,000 as share capital cannot be sustained as undisclosed income in the block period in an order passed under s. 158BC. Accordingly this ground is allowed.
9. Ground of appeal Nos. 2 and 5 relate to the addition of Rs. 5,50,000 on account of loans/advances made to certain parties. The AO while examining the seized documents particularly ledger of the company for the financial year 1994-95 which is Annexure A-2/13 noted that the assessee has advanced the sum of Rs. 5,50,000 to the following three persons :
Rs.
1. Chhoturam Visydass 2,25,000 2. Kanaiylal Motiram 2,00,000 3. Kapoordas Bhikhaji Rawal 1,25,000 ----------- 5,50,000 -----------
The AO has made the addition considering that the said loans are not recorded in the books of account as during the course of search certain loose papers were found indicating the loans given by the assessee to these three persons. Similarly advances of Rs. 12,88,000 which are objected by the assessee in ground of appeal No. 5 relate to the advances made by the assessee to the following parties :
------------------------------------------------------------------------ S. Date of advance Name Amount Ledger Folio No. (Rs.) of Anx. A2/13 ------------------------------------------------------------------------ 1. 7-4-1994 Ashokkumar Dinanath 2,43,000 508 2. 4-4-1994 Bheraray Bhomraj 3,15,000 514 3. 1-4-1994 Chhatra Ray Bheraraj 2,20,000 519 4. 20-4-1995 Lunkaram Pannalal 40,000 544 5. 27-4-1994 Mekaram Pokaram 1,45,000 551 6. 16-4-1995 Ramchandrasingh Premsingh 60,000 564 7. 30-4-1994 Rameshchand Devilal 1,60,000 564 8. 13-4-1994 Subhash Ruparam Bighoi 65,000 575 9. 25-4-1994 Sukharam Prabharam 40,000 578 ------------------------------------------------------------------------
The AO has made both these additions on the ground that these transactions are not reflected in the books of account. On the other hand, Shri G. C. Pipara, the learned counsel for assessee submitted that these loans and advances have duly been reflected in the books of account of the assessee-company for the financial year 1994-95 and in fact these are included in the ledger folio of the company for the financial year 1994-95 which has been seized as Annexure A-2/13. Shri Pipara, the learned counsel for the assessee submitted that since the loans and advances given by the assessee-company are fully recorded in the regular books of account which were seized by the Department at the time of search operations, this can not fall within the definition of undisclosed income as defined in s. 158B(b) and as such the additions made by the AO are bad in law so far as block assessment framed under s. 158BC is concerned. Accordingly the additions of Rs. 5,50,000 challenged in ground of appeal No. 2 and Rs. 12,88,000 challenged in ground of appeal No. 5 are required to be deleted. The learned Departmental Representative on the other hand, supported the order of the AO.
9.1. We have considered the rival submissions and have also gone through the order passed by the AO as well as the papers furnished by the assessee in the form of paper book. It is seen that the assessee vide letter dt. 14th August, 1996, copy of which is furnished to us at pp. 26 and 27 of the paper book indicates that the assessee has submitted to the AO that the loans were advanced by the assessee-company during the financial years 1994-95 and 1995-96 and the same are recorded in the books of account. It was also indicated that the finance and service charges collected by the company on such loans have been shown in the books of account. As regards the three loans objected to in ground of appeal No. 2, it was submitted in the letter dt. 26th September, 1996, copy of which is furnished to us at pp. 173 to 180 of the paper book that the accounts of these three parties were appearing at pp. 530, 536 and 537 of Annexure A-2/13 of the seized documents which is the ledger of the company for the financial year 1994-95. Similarly, with regard to the advances/loans of Rs. 12,88,000, the same were also explained to be appearing in the ledger of the company for the financial year 1994-95 at pages indicated in the statement referred to by us in para 9. Therefore, since these amounts are reflected in the regular books of account which were seized during the course of search, these cannot be considered as undisclosed income of the block period in view of the definition of undisclosed income in s. 158B(b) as per the decisions of the Tribunal in the cases of Prakash Foods Ltd. and Ummedsingh P. Champawat as well as the decision of the Gujarat High Court in the case of N.R. Paper Boards Ltd. (supra). Accordingly, the addition of Rs. 5,50,000 and Rs. 12,88,000 on account of loans/advances given to the various parties are directed to be deleted. Ground of appeal Nos. 2 and 5 are allowed.
10. Ground of appeal No. 3 relates to the addition made on account of payment of cash to manager which has been held by the AO as undisclosed investment of the assessee under s. 69. Ground of appeal No. 8 relates to the addition of Rs. 5,81,805 on account of alleged shortage of cash and ground of appeal No. 12 relates to the addition of Rs. 5,96,711 on account of advances to staff. Shri G. C. Pipara, the learned counsel for the assessee submitted that the additions which have been objected by the assessee by specific ground Nos. 3, 8 and 12 are not at all justified as the alleged shortage of cash payments to manager, and advances to staff are fully explainable. It was submitted that the cash loan of Rs. 4,80,000 by the assessee to Shri C. P. Vaishnav was explained vide letter dt. 26th September, 1996, copy of which has been furnished to us to pp. 173 to 180 of the paper book. It was submitted that it was explained that the loan was given for the purchase of vehicles for and on behalf of the company and the same was out of the cash balance of the assessee-company. The payment was made on three different dates through cash vouchers as under :
Rs.
1-9-1995 1,50,000 4-9-1995 2,00,000 5-9-1995 1,30,000 -------- 4,80,000 --------
It was submitted that even at the time of search it was pointed out to the authorised officer that the cash vouchers were prepared and signatures of Shri C. P. Vaishnav were obtained on the said cash vouchers and the cash was out of the cash balance as per books of account. However, since the cash book was not written up to date, the necessary entries were not made in the cash book of the company on the date of search. It was submitted that during the course of search, a statement was prepared by the authorised officer under the signature of the cashier, listing the date of the voucher and amount of payment and the person to whom such payment has been made, as found from the cashier and the said details included the payment through three cash payment vouchers to Shri C. P. Vaishnav. The said list, which is annexed to the Panchnama, is placed at p. 192 of the paper book. On these facts it was submitted that since the payment of cash to the manager was out of cash balance of the assessee-company, which was subsequently recorded in the subsidiary records of the company, the same will not fall within the definition of undisclosed income and the addition as such is required to be deleted. Regarding ground Nos. 8 and 12 it was submitted that the advances to staff were made out of cash in hand which were found short at the time of search. It was submitted that the alleged shortage of cash amounting to Rs. 5,81,805 which was the difference between the cash found on search and cash as per cash book was explained to be on account of advances given to staff against expenses and the AO was incorrect to state that the vouchers of such expenses were neither found at the time of search nor produced subsequently. The position of the cash was explained by the assessee during the course of assessment proceedings as under :
Rs.
Cash balance as per cash book of the company as 7,22,941 per Annexure A-2/12 Cash balance of Rathore Leasing & Finance Co. (P) 15,000 Ltd., which has been merged with the appellant company on 31st December, 1994 (abstract of the cash book is placed on p. 48 of paper book) --------- Total cash balance as per cash book 7,37,941 Less : Cash found 1,41,136 --------- Amount advanced to staff as per list prepared during the course of search which is placed on p. 192 of paper book, having a total of Rs. 5,96,711 5,96,805 ---------
Thus, it was submitted that both the additions of Rs. 5,81,805 for alleged shortage of cash and Rs. 5,96,711 on account of unaccounted advances to staff are required to be deleted. The learned Departmental Representative on the other hand, supported the order of the AO.
10.1. We have considered the rival submissions. As far as the addition of Rs. 4,80,000 on account of cash advance to the manager is concerned, the same was on the basis of voucher found during the course of search and were subsequently recorded in the subsidiary books of account. As such the same cannot be treated as undisclosed income of the assessee for the block period in view of our interpretation of cl. (b) of s. 158B based on the decisions of the Tribunal in the cases of Prakash Foods Ltd. Ummedsingh P. Champawat as well as the decision of the Gujarat High Court in the case of N.R. Paper Boards Ltd. (supra).
10.2. As regards the additions objected in ground Nos. 8 and 12 on account of shortage of cash and advances to staff, the same has been reconciled by the assessee as referred by the assessee's representative in his written submissions which have been noted by us in para 10 above. Thus the alleged shortage is fully explainable on account of advances made to staff for expenses which have also been noted by the AO at pp. 34 and 35 of the assessment order. Accordingly both these additions are also required to be deleted. Accordingly, ground of appeal Nos. 3, 8 and 12 are allowed.
11. Ground of appeal No. 4 is against the addition of Rs. 15,000 made by the AO on account of advance of Rs. 15,000 given to Shri H. D. Brahmbhatt on 7th June, 1995, as per loose paper No. 8 of Annexure A-2/16 which according to the AO was not recorded in the books of account. The AO has discussed this issue at p. 28 of the assessment order. It was submitted by the learned counsel for the assessee that the amount of Rs. 15,000 was advanced to Shri H. D. Brahmbhatt for the purpose of business out of cash balance of the company and out of the said amount of Rs. 15,000, and amount of Rs. 6,500 was received back by the assessee-company and the remaining amount of Rs. 8,500 has been taken into consideration while explaining the shortage of cash as found during the course of search and the advances given to the staff which is apparent from p. 2 of Annexure A-2/16. Accordingly it was submitted that the addition is required to be deleted. The learned Departmental Representative on the other hand, supported the order of the AO.
11.1 We have considered the rival submissions. The disputed amount is stated to be out of the cash balance available with the assessee-company out of which an amount of Rs. 6,500 is stated to have been received back for which there is no evidence and the remaining balance of Rs. 8,500 was considered as advance to staff as per the explanation given by the assessee while explaining the advance to staff as per p. 192 of the paper book. In this view of the matter we restore the issue of addition of Rs. 15,000 to the file of the AO for fresh adjudication in the light of the details of advances of Rs. 5,96,711 which includes the advance of Rs. 8,500 given to Shri H. D. Brahmbhatt on 7th June, 1995, with a direction to find out as to when the amount of Rs. 6,500 claimed to have been returned by Shri H. D. Brahmbhatt to the assessee was in fact returned and how it was shown in the books of account of the assessee-company. The addition, if any, should be made after giving due opportunity to the assessee. This ground of appeal No. 4 is allowed for statistical purposes.
12. Ground of appeal No. 6 relates to the action of the AO of making an addition of Rs. 2,22,000 on account of premium on vehicles. The AO has discussed this issue at pp. 30-31 of the assessment order and has made the addition on the basis of alleged admission of Shri Chhaganlal, confirmed by Shri U. P. Champawat that the disputed notings on the paper are collection as premium and the same are not accounted for in the books of account. It was submitted that the AO has made the addition on the basis of loose paper No. 125 of Annexure A-9/16 whereas in fact these loose papers do not contain any such details. However, it was admitted that pp. 3 to 5 of Annexure A-9/17 contained certain details about the premium on the vehicles and especially on p. 4 of Annexure A-9/17, there is a working of an amount of Rs. 2,22,000. It was submitted that the AO while making the addition has referred to the statement of Shri Chhaganlal which was recorded on 22nd October, 1995, to the effect that the above cash payment of Rs. 2,22,000 was not recorded in the books of account. It was submitted that the above finding of the AO is incorrect because the statement of Shri Chhaganlal, copy of which was furnished to us at p. 50 of the paper book in the case of Shri U. P. Champawat in ITA No. 4421/Ahd/1996 wherein the answer to question No. 16 Shri U. P. Champawat has stated that pp. 3 to 5 contained the details of premium of Rs. 2,22,000 on the vehicles financed and purchased. From the above. Shri G. C. Pipara, the learned counsel for the assessee submitted that the conclusion of the AO that this amount is nowhere recorded in the books of account, is negatived. It was further submitted that a close look on pp. 4 & 5 of Annexure A-9/17 shows that it was only a rough working and there is no mention of any premium in these loose papers. In fact the amount of Rs. 2,22,000 on p. 4, is the cost of the vehicle and not the premium, out of which an amount of Rs. 2,19,000 is deducted and balance of Rs. 3,000 is worked out. Accordingly it was submitted that the addition is not justified.
The learned Departmental Representative on the other hand, supported the order of the AO and pleaded that since Shri Chhaganlal, the Accountant of the assessee-company after having examined the seized document admitted the cash payment of Rs. 2,22,000 as having not been recorded in the books of account, the addition was justified.
12.1. We have considered the rival submissions and have also gone through the order of the AO as well as the seized papers on the basis of which the addition has been made. The addition appears to have been made only on the basis of the statement of Shri Chhaganlal, the Accountant of the company and the statement of Shri U.P. Champawat that this represents premium of vehicle. It is not clear as to whether this amount was received by the assessee-company or it was paid by the assessee-company because on p. 30 of the assessment order the AO has observed that the aforesaid premium was collected in cash and was not recorded in the books of account whereas at p. 31 top it is stated that Shri Chhaganlal, the Accountant of the company admitted that the said cash payment of Rs. 2,22,000 was not recorded in the books of account. Thus it is not clear whether this amount of Rs. 2,22,000 is unexplained receipt or unexplained expenditure. On the other hand, Shri Pipara, the learned counsel for the assessee has referred to the statement of Shri Chhaganlal in this connection copy of which was furnished to us at p. 50 of the paper book No. 1 in ITA No. 4421/Ahd/1996 wherein in answer to question No. 16, Shri Chhaganlal has stated that pp. 3 to 5 contained the details of premium of Rs. 2,22,000 on the vehicle financed and purchased. Thus, taking into account the totality of the facts and circumstances of the case it is considered fair and reasonable to restore the matter with regard to the addition of Rs. 2,22,000 to the file of the AO for fresh adjudication in accordance with law after giving due opportunity to the assessee. The ground of appeal No. 6 is allowed for statistical purposes.
13. Ground of appeal No. 7 relates to the addition of Rs. 41,000 on account of expenditure on amalgamation. The AO has made this addition in view of the judgments in Godfrey Phillips India Ltd. vs. CIT (1993) 71 Taxman 370 (Bom) and Singlo (India) Tea Co. Ltd. vs. CIT (1993) 68 Taxman 302 (Cal) on account of amalgamation expenses of Rs. 30,000 paid to M/s Sanghvi & Co. and Rs. 11,000 paid to S. N. Mandora as expenditure of capital nature and disallowed the same by adding to the income for the block period 1st April, 1995 to 5th September, 1995, as per the reasoning given at pp. 31 & 32 of the assessment order.
13.1. The learned counsel for the assessee submitted that since these amounts have been duly recorded in the books of account, no addition could be made in the block period. Further it was submitted that the Supreme Court in the case of CIT vs. Bombay Dyeing and Manufacturing Co. Ltd. (1996) 219 ITR 521 (SC) has held that the expenditure in connection with the amalgamation of the company are revenue expenditure and as such allowable as deduction. Accordingly it was pleaded that the addition is required to be deleted. The learned Departmental Representative supported the order of the CIT(A).
13.2. We have considered the rival submissions. Since admittedly the expenditure has been incurred on amalgamation of companies the same is clearly allowable as a revenue expenditure in view of the aforesaid decision of the Supreme Court in the case of Bombay Dyeing & Mfg. Co. Ltd. (supra). Even otherwise such type of expenditure cannot be disallowed while completing block assessment in view of our interpretation of s. 158B(b) as per the decision of the Tribunal in the case of Shri U.P. Champawat (supra) and the decision of the Tribunal in the case of Prakash Foods Ltd. vs. Dy. CIT (supra) as well as the decision of the Gujarat High Court in the case of N. R. Paper Boards Ltd. vs. Dy. CIT (supra). Accordingly the addition of Rs. 41,000 is directed to be deleted.
14. Ground of appeal No. 9 relates to the addition of Rs. 11,57,786 on account of transactions entered by the assessee with one Shri Manojbhai. The addition has been made by the AO on the basis of statement of Shri Chhaganlal, accountant of the assessee-company which was confirmed by Shri U.P. Champawat that the receipt of Rs. 10 lacs from Shri Manojbhai by the assessee-company is not recorded in the books of account and it represented unaccounted income of the assessee. The amount of Rs. 1,57,786 relates to the interest on this alleged cash loan of Rs. 10 lacs and accordingly the AO has made the total addition of Rs. 11,57,786.
14.1. The learned counsel for the assessee submitted that the amount of Rs. 10 lacs has been declared by the assessee-company in the return of undisclosed income filed by the assessee and as such no further addition of this amount should be made. However, he was fair enough to concede that since the cash loan of Rs. 10 lacs from Shri Manojbhai has been offered by the assessee-company as its undisclosed income, the interest of Rs. 1,57,786 requires to be disallowed. The learned Departmental Representative supported the order of the AO.
14.2. We have considered the rival submissions. Out of the addition of Rs. 11,57,786, the addition to the extent of Rs. 1,57,786 is hereby confirmed because the assessee has already surrendered/disclosed the sum of Rs. 10 lacs in the return of undisclosed income filed by it which is apparent from pp. 4 to 12 of the paper book on the basis of which an amount of Rs. 11,92,214 has been disclosed in the hands of the assessee-company as undisclosed income while filing the return in response to notice under s. 158BC. Accordingly this ground is partly allowed.
15. Ground of appeal No. 10 relates to the disallowance of salary to Shri M. K. Bhati amounting to Rs. 1,13,613. Shri M. K. Bhati is a brother in law of Shri U. P. Champawat who was looking after the collection work of the assessee-company and was attending to the office of the assessee-company regularly. The AO has made this addition on the basis of the statement of Shri M. K. Bhati recorded at the time of search that he has no business except agricultural activity in village Jodhpur and he denied receipt of any remuneration. Accordingly the AO disallowed the claim of remuneration/salary amounting to Rs. 1,13,613 paid to Shri M. K. Bhati which according to the AO was paid for extra commercial consideration by the assessee-company as per the reasoning given at pp. 40-41 of the assessment order.
15.1. The learned counsel for the assessee submitted that Shri M. K. Bhati was an employee of the company and was looking after the collection work and in fact several loose papers were found from his cabin during the course of search which were bundled together under the heading "Found from the cabin of Shri Mahendrasingh K. Bhati. "It was submitted that the payment of salary to Shri Bhati was for the purpose of business of the assessee-company and he was looking after the recovery work of the company on full-time basis and he was also one of the directors of the assessee-company during the relevant period. It was submitted that no doubt at the time of statement. Shri Bhati has denied having received any remuneration from Shri Champawat or the assessee-company but the said statement was contrary to facts as Shri Bhati was not keeping good mental health at the time when his statement was recorded and he was admitted to the hospital on that very date. It was further submitted that the cash of Rs. 41,820 was also found from the cabin of Shri Bhati and it was also mentioned as annexure to the Panchnama under the heading "cash found from the cabin of Shri M. K. Bhati". Accordingly it was submitted that since the payment was duly recorded in the books of account and was made for the purpose of business of the company, the same should not have been disallowed by the AO. The learned Departmental Representative supported the order of the AO.
15.2. We have considered the rival submissions. Since the payment has been duly recorded in the books of account, whether the same has to be allowed or not for the purpose of business can be considered by the AO while framing the regular assessment and it can not be considered for the purpose of computation of undisclosed income under s. 158B(b) in view of our order/decision in the case of Shri U.P. Champawat and the decision of the Tribunal in the case of Prakash Foods Ltd. vs. Dy. CIT (supra) as well as the decision of the Gujarat High Court in the case of N. R. Paper & Boards Ltd. vs. Dy. CIT (supra). Accordingly this addition of Rs. 1.13.613 is directed to be deleted
16. Ground of appeal No. 11 relates to the addition of Rs. 69,908 on account of dalali payment. This addition has been made by the AO on the basis of seized paper Nos. 13 to 19 of Annexure A-9/18 which according to the AO represent bogus expenditure of dalali which is claimed to have been paid to Shri Magilal Somani of Rs. 36,000 and Shri Kishansingh of Rs. 33,903. According to the AO Shri Magilal Somani denied to have received any such payment and as such disallowed the same as per the reasoning given at p. 41 of the assessment order.
16.1. The learned counsel for the assessee submitted that pp. 13 to 19 of Annexure A-9/18 are the payment vouchers pertaining to payment of dalali to Magilal Somani of Rs. 10,000 and Rs. 29,950 to Shri Kishansingh. It was submitted that these vouchers are payment vouchers duly signed by the recipients but are undated. It was submitted that in the books of account the payment of the aforesaid dalali has been adjusted against the loan outstanding in the names of Shri Magilal Somani and Shri Kishansingh through journal vouchers copies of which were placed at p. 102 of the paper book. It was submitted that the amount has been adjusted to their accounts from outstanding receivable balances and the copies of accounts of both these persons are placed at pp. 100 and 101 of the paper book. Accordingly it was submitted that the AO was not justified in making the addition. The learned Departmental Representative supported the order of the AO.
16.2. We have heard the rival submissions and have also gone through the order passed by the AO as well as paper Nos. 100 and 101 of the paper book. In fact the addition of Rs. 69,908 made by the AO is not on account of dalali payment but it represents the amount of Rs. 36,000 and Rs. 33,903 which is the amount of loan outstanding and recoverable by the assessee-company from these two persons as on 1st April, 1995. The dalali payments are only to the extent of Rs. 29,950 to Shri Kishansingh and Rs. 10,000 to Shri Magilal Somani. The addition has been made by the AO solely on the basis of the statement of Shri Magilal Somani that he has not received the amount in cash but the fact remains that the amount of Rs. 10,000 was adjusted by the assessee-company against the outstanding dues of the assessee-company and even otherwise since the payment of dalali is reflected in the books of account, the same can be enquired only during the course of regular assessment proceedings but same cannot be disallowed while completing block assessment in view of our interpretation of s. 158B(b) in our order in the case of Shri U.P. Champawat (supra), and the decision of the Tribunal in the case of Prakash Foods Ltd. vs. Dy. CIT (supra) as well as the decision of the Gujarat High Court in the case of N. R. Paper & Boards Ltd. vs. Dy. CIT (supra). Accordingly the addition of Rs. 69,908 is directed to be deleted.
17. Ground of appeal No.13 relates to the addition of Rs. 5,71,471 on account of unexplained cash expenditure. The addition has been made by the AO as per the discussion at pp. 44 to 46 of the assessment order. The basis for making the addition are that :
(i) the expenditure are not recorded in the books of accounts; and
(ii) source of the funds for these cash payments is not explained.
The learned counsel for the assessee submitted that the disputed amounts are clearly explainable as under :
Reference of Amount Explanation seized (Rs.) documents
Annexure A- 5,10,991 (1) Page Nos. 24 and 25 were found 9/14, p. 23-25 from the cabin of Shri M. K. Bhati, who was looking after the collection of the company. The details indicate the amount which has been collected by the respective persons on behalf of the company, which is ultimately deposited with the company and credited to the respective account of the party from whom amount has been collected in the business of leasing and financing. Certain amount which has been utilised for the purpose of expenditure has been accounted in the books of account of the respective company accordingly. The total of these two pages in terms of amount comes to Rs. as against the amount added by the AO of Rs. 5,10,991.
(2) Page No. 23 is in the handwriting of Shri Chhaganlal which indicates the amount advanced to various staff members of Rs. 27,950 for the purpose of expenditure on behalf of the company, which has ultimately been recorded in the books of account of the company under the head of respective expenditure.
Annexure A- 16,480 This is the amount advanced by 2./16, p. 21 the company to Shri M. K. Bhati on 24th June, 1995, and accordingly considered while explaining the cash which has been found short, total amounting to Rs. 5,96,711. Thus, the payment was put of cash balance of the company.
Annexure A- 14,000 This is a cash payment to Kiran 2/16, p. 27 Motors on 27th June, 1995, which has also been considered while explaining the cash which has been found short. Thus, the payment was out of the cash balance of the company.
Annexure A- 20,000 It is a chit containing the 9/14, p. 13 prevailing premium on Esteem motor vehicle which indicates the company price of the said vehicle also and does not represent any actual payment by the company and thus question of recording of such payment in the books of account does not arise.
Annexure A- 14,000 Vide submission dt. 14th August, 9/14, p. 10 1996, para No. 23(a), which is placed on p. No. 36 of the paper book, it was stated that the said dalali was not paid as the loan on which such dalali was payable was not sanctioned/disbursed by the company. Thus no question arises for recording of this payment.
Accordingly it was pleaded that the addition made by the AO is required to be deleted. The learned Departmental Representative on the other hand, supported the order of the AO.
17.1. We have considered the rival submissions. It is clear that the above explanation which is furnished before us now was not furnished by the assessee during the course of assessment proceedings. The claim of the assessee that these transactions are recorded in the regular books of account requires verification. Accordingly it will be fair and reasonable that the addition relating to the disputed amount is restored to the file of the AO for fresh adjudication in accordance with law after considering the explanation of the assessee which is furnished before us with reference to the books of account which lies seized with the Department. Accordingly this ground is allowed for statistical purposes.
18. Ground of appeal No. 14 relates to the addition of Rs. 35,000 as unaccounted income relating to the sale of a jeep as per the reasoning given by the AO at p. 46 of the assessment order. The learned counsel for the assessee submitted that the loose paper on the basis of which addition is made is dt. 5th July, 1995, and since the return of income for the period 1st April, 1995, to 5th September, 1995, was not due on the date of search, the same would have been disclosed while filing the return for the asst. yr. 1996-97. The learned Departmental Representative supported the order of the AO.
18.1. We have considered the rival submissions. It is undisputed that the amount of Rs. 35,000 is a receipt on account of sale of jeep which is not recorded in the books of account and as such the same was rightly treated as undisclosed income of the assessee by the AO.
Accordingly we will uphold his order in this regard and dismiss this ground.
19. Ground of appeal No. 15 relates to the addition of Rs. 5 lacs made by the AO on protective basis as unaccounted income. The AO has discussed this issue at p. 47 of the assessment order. According to the AO the total payment of Rs. 9 lacs was made pertaining to purchase of land in survey No. 360. Hansol and the same has been taxed in the hands of Shri U. P. Champawat on the basis of his admission that unaccounted income of Rs. 5 lacs is invested in the land the AO however, added the same on protective basis in the case of the assessee.
20. The learned counsel for the assessee submitted that in view of the findings given by the Tribunal in the case of Shri U. P. Champawat in ITA No. 4421/Ahd/1996 in paras-16.1 and 16.2 at pp. 43-44 of that order, the amount of Rs. 5 lacs has been disclosed by the assessee (Elcon Finlease & Industries Ltd.) as part of its undisclosed income in its return of income for the block period, the addition was deleted and accordingly it was submitted that the protective addition made is also required to be deleted as this amount has already been declared by the assessee-company as part of its undisclosed income. The learned Departmental Representative supported the order of the AO.
20.1. We have considered the rival submissions. Since the amount of Rs. 5 lacs forms a part of undisclosed income as per the working given at pp. 4 to 12 of the paper book wherein summary of transactions not recorded in the books of account have been given and it forms part of the amount given by the assessee-company to Shri U. P. Champawat who in turn made the payment to Shri B. M. Patel and others for the purchase of land at survey No. 360, the same cannot be added in the hands of the assessee-company even on protective basis because the same stood included in the total income of Rs. 11,92,214 which has been declared as undisclosed income by the assessee-company in its return filed in response to notice under s. 158BC of the Act. The addition of Rs. 5 lacs is, therefore, directed to be deleted.
21. In the result, the appeal is partly allowed.