Income Tax Appellate Tribunal - Jaipur
Income-Tax Officer vs Smt. Ratan Devi Dugar on 3 September, 1986
Equivalent citations: [1987]20ITD483(JP)
ORDER
H.S. Ahluwalia, Judicial Member
1. These two departmental appeals and the assessee's cross-objection involve a common question, they are, therefore, disposed of by the single order. A search was conducted on the business and residential premises of the assessee on 29-5-1979 and thereafter during which precious stones, jewellery, etc., were found and seized. A panchnama was prepared and the value of the articles was estimated at Rs. 2,72,850. Proceedings under Section 132(5) of the Income-tax Act, 1961 ('the Act') were taken and except for a few items, most of the items were seized. In the assessment proceedings the assessee was asked to explain as to why the jewellery seized during the search should not be held to be unaccounted for and the assessee gave several explanations. The said explanations were, however, rejected by the ITO in view of the clear statement given by the assessee at the time of search and, consequently, undisclosed income at Rs. 3,68,562 was added in the hands of the assessee after detailed discussion over the various items recovered at the time of search which consisted of tangible items such as jewellery and also some papers showing investments. Most of these additions have been deleted or drastically reduced by the Commissioner (Appeals) on an appeal filed by the assessee. The department has, therefore, come up in second appeal before us objecting to the following deletions and reliefs :
(i) deleting the addition of Rs. 55,000 made by the ITO on account of unexplained investment in one piece of diamond,
(ii) deleting the addition of Rs. 1,13,050 made by the ITO on account of unexplained investment in certain diamonds,
(iii) deleting the addition of Rs. 3,300 made as unexplained investment in 'Panna Mix',
(iv) deleting the addition of Rs. 40,000 made on account of unexplained investment in 4 gold 'Gokhrus',
(v) reducing the addition of Rs. 37,210 on account of unexplained investment in Emeralds, to Rs. 8,902 only, and (VI) holding that addition of Rs. 83,858 (Rs. 8,155 + 9,815 + 53,988 + 12,000) made on the basis of some loose papers are not permissible under the provisions of Section 132(4A) and in deleting the entire addition though the assessee has not been able to discharge the onus lied upon him under Section 132(4A).
Apart from that the department is also in appeal over the direction of the Commissioner (Appeals) to allow weighted deduction to the assessee under Section 35B of the Act on the ground that no claim was made before the ITO till the finalisation of the draft assessment order and on merits also the assessee was not entitled to claim any weighted deduction on interest account on packing credit. As against this the assessee has filed a cross-objection supporting most of the deletions ordered by the Commissioner (Appeals). Besides that it has challenged the order of the Commissioner (Appeals) sustaining an addition of Rs. 11,144 in the hands of the assessee on account of law withdrawals for expenditure. It has also challenged the order of the Commissioner (Appeals) by which an addition on account of unexplained investment in the emeralds made at Rs. 37,210 was sustained to the extent of Rs. 8,902. A further ground has been taken that the assessing authority has grossly erred in charging interest under Sections 215 and 217 of the Act.
2. The third matter relates to Smt. Ratan Devi Dugar who filed a return declaring an income of Rs. 33,470. In these proceedings she sought to explain that certain diamond pieces regarding which the addition has been made in the hands of the main assessee, namely, Khetsidas Sadasukh Dugar were really purchased by her after obtaining some loan from the party at Bombay. The ITO investigated that matter thoroughly and also went to Bombay but the parties from whom the loan was stated to have been taken were not traceable. He discarded this story of Smt. Ratan Devi Dugar about the purchase and ownership of these emeralds but made an addition of Rs. 90,000 in her hands as a protective measure inasmuch as she had shown that she had received this amount for purchase of these emeralds which she could not establish. On an appeal filed by her, the Commissioner (Appeals) has deleted this addition on the ground that the story about the purchase of these emeralds and taking of loan had been duly established. The revenue has, consequently, come up in second appeal over this deletion.
3. We have heard the representatives of the parties at length in both these matters. The main dispute in these appeals is one of fact, namely, as to how for the statements made by Shri Dhanraj Dugar on 29-5-1979, 31-5-1979 and 1-6-1979 could be binding upon the assessee-HUF. In these statements Shri Dhanraj Dugar clearly admitted that he had purchased /secured most of these items from his undisclosed income. For example, in the statement dated 29-5-1979, it has been conceded that he purchased certain packets containing diamonds during the last two months. He did not have a bill or cash memo. Some of these items were purchased from Bombay and Jaipur. An amount of Rs. 35,000 was spent from unaccounted money lying with him. Another Rs. 10,000 unaccounted money was lying at his residence. Further, diamonds valuing at Rs. 55,000 had been purchased about 5/6 days back from the local market at Jaipur which were found in a registered parcel meant to be sent to Tikamlal Nihal Chand, Bombay and insured for Rs. 3,000 only. In the subsequent statement dated 31-5-1979 he, further stated that item No. 14 consisting of 'Gokhrus' found in the iron safe belonged to his father regarding which he could not duly satisfy the income-tax authorities. There is a third statement of Shri Dhanraj Dugar recorded on 1-6-1979 in which it has been admitted that four firms were carrying on the business of import and export of precious stones and the partners of these firms were more or less members of the assessee-family. He also made certain admissions regarding jewellery mentioned in the annexures 'K', T and T to the search memo. Later on 12-6-1979 he made an application to the Commissioner in which he alleged that he was not keeping good health that the search party had threatened him, pressurised him and obtained his signatures on statements which were either never made by him or were made under the coercion or pressure. Another letter was written to the Commissioner on 17-7-1979. A statement of his was recorded by the ITO on the 18th and 19th July wherein he has given entirely different and inconsistent facts, denied having made admissions of the kind referred to in the earlier statements. Further evidence in the form of various receipts cash tnemos for purchase of these articles from various concerns and from different sources was produced by the assessee and it was contended that on the basis of all these material, no addition in the hands of the assessee-family could be made.
The dispute between the parties is really very ticklish. In normal course we would have preferred to accept the earlier statements given by Shri Dhanraj Dugar in which he had clearly admitted that he had purchased/secured most of these items from his undisclosed income, because the subsequent statements are nothing but self-serving pieces of evidence and would normally be of no value in view of clearcut earlier statements admitting that the assessee had spent money from undisclosed sources. This is because all official acts are presumed to have been done in the regular course of business and under Sub-section (4) of Section 132 the authorised officer may during the course of search/seizure examine on oath any person who is found to be in possession or control of any books of account, documents, money, bullion, jewellery or other valuable article or thing and any statement made by such person during such examination may thereafter be used in evidence in any proceeding under the Act. The normal legal presumption is that all official acts were rightly done and the statements were also rightly recorded. These statements were sought to be further corroborated by panchnamas which were prepared at the end of the search each day. However, in the present case unfortunately for the department we find that there are serious discrepancies between the panchnamas as prepared, the statements as recorded and the report of search as given to the authorities by the search party. For example, the first date of search is 29-5-1979. Paragraph 4 deals with the articles found at the premises and the articles of which possession was taken by the search party. A reading thereof would show that no jewellery or any other articles or books or documents were mentioned to have been found at the premises. Clause (c) only mention that some books of account and documents as per Annexure-1 consisting of 3 pages were taken possession of. Even Clause (d) which relates to valuable articles and things including cash does not refer to the taking possession of a single such article. It is not that the panchnama is not detailed because wherever necessary columns have been filled in and some additions have also been made in the right hand side of the panchnama where the space was rather insufficient, Of course, it is mentioned that the search was still going on. But this would at least show that on that day no valuable articles were found or taken possession of and, consequently, there was no question of recording any statement with respect to the ownership of any article and the source of acquisition thereof. However, on the record, the department has produced a copy of the statement of Shri Dhanraj Dugar purporting to have been recorded on 29-5-1979 in which he is alleged to have stated that during the course of search that the authorised officer found in a packet containing 8 small packets, i.e., purias. Out of these, 7 contained diamonds and one contained emeralds. He further stated that he did not remember the name of the person or the shop from where these were purchased. He had purchased these packets containing the diamonds and emerald during the last two months. He had no bill or cash memo for the purchase of these items. He had purchased some of these items from Bombay and some from Jaipur. He went to Bombay by air and returned by train. He did not have import licence for the import of diamonds. These were meant for as jewellery for his son and daughter. He had paid Rs. 35,000 for these items and this investment was from unaccounted money lying with him. He had also another Rs. 10,000 as unaccounted money lying at his residence. Besides that a registered parcel meant to be sent to Trihan Lal Nihal Chand, 44-46, Dhanju Street, Bombay-3 insured for Rs. 3,000 was seized. According to his verbal statement it contained items worth about Rs. 82,000. When asked as to why this was insured for much lessor amount, he went on to say that for the balance it was insured with the insurance company and he had the bills for Ruby, Saphire and emerald which were duly entered into his books of account. The diamonds were valued at Rs. 55,000 which again was from his unaccounted money. Now this statement is very incriminating but when compared with the search memo it is absolutely inconsistent therewith. We are not saying that this is a bogus statement. What we are only hinting at, is that the procedure adopted by the search party may not be wholly regular. The statement has been attested by those very panches who attested the search memo. Now on the date when the valuable articles were taken possession of by the raid party the panches were different persons. This means that the statement was recorded either on a different date when the articles were seized and the earlier panches were called again or the panchnama was not prepared according to the statement. When in the statement, Shri Dhanraj Dugar had clearly stated that he had secured some valuables from unaccounted money, it is difficult to believe that these articles should not have been noted in the panchnama and it is also not sure as to whereafter they were kept. They would not ordinarily be returned to Shri Dhanraj Dugar but would be kept in safe custody but then the panchnama does not refer to seizure of any such article. These things, therefore, create some sort of suspicion on the regularity of the proceedings conducted at the time of search.
4. There was again a panchnama prepared on 30-5-1979 in which again it has been mentioned that no books of account and documents were found at the premises. Some articles or things including money were found but not seized under Clause (c) it is mentioned that some books of account and documents were found and taken possession of. Again it has not been mentioned that any articles were even seized that day. Then there is the panchnama dated 31-5-1979. It, of course, mentions that several articles mentioned in Annexures 'F' (not seized) 'Q', 'R', 'S', 'V', 'Z', 'TT' and 'KK' were found. Books of account as per Annexure 'E' were seized and articles as per Annexure 'D', 'H', 'I', 'J', 'K', 'L' and 'Y' were seized. However, it needs be noted that at the time of this search the authorised officer was Shri E. Saroj who is stated to have recorded the statement of Shri Dhanraj Dugar, and not Shri Vijay Kumar. This creates another suspicion, that the valuables were seized by Shri E. Saroj whereas the statement was recorded by Shri Vijay Kumar. There are also other smaller discrepancies in the panchnamas regarding the time at which the search was started and the time at which it was closed. There are also discrepancies regarding the exact articles taken in possession on a particular day but we are not discussing them in detail, because we are not disbelieving the entire proceedings. All that we want to say is that amount of sanctity which should have been given to a search of such important nature cannot be given to the present search which appears to have been conducted rather carelessly or negligently.
5. There is another important aspect of the matter. The report in the case of search is given by neither Shri Vijay Kumar, the authorised officer nor by Shri E. Saroj. It was given to the authorities by Shri K.S. Tewari. According to Mr. Ranka, he was never an authorised officer. Of course, the departmental representative pointed out that Shri K. S. Tewari was also an authorised officer but then it would have been more appropriate if the report had been given by some authorised officer who had himself conducted the search. Now while this report brings some more important facts, it introduces further inconsistencies. For example, it had been mentioned that the party reached Lal Katla at 9.30 a. m. on 29-5-1979. There they waited for about half an hour as nobody came to open the shop. Then Shri Vijay Kumar and Shri O.P. Agarwal went to the residential premises of Shri Dhanraj Dugar in Johari Bazar. There was already a search party headed by Shri E. Saroj, but even there Shri Dhanraj Dugar or Shri Nirmal Kumar Dugar were not available. They informed that Shri Nirmal Kumar had gone abroad and Shri Dhanraj Dugar was somewhere in the market. Shri K.S. Tewari and Shri O.P. Agarwal then came out of the house and met one person coming to the house with some message from Shri Dhanraj Dugar. They caught hold of him and asked him to take them to Shri Dhanraj Dugar posing themselves as his acquaintances. They did not disclose him their identity. That person was one of the employees of Shri Dhanraj Dugar and after crossing a number of lanes he took them to one building known as 'Chandan Mahal', Chaura Rasta which was under renovation. There they found Shri Dhanraj Dugar sitting in a room and asked him to accompany him to the house. After knowing their identity and purpose, he avoided accompanying them under the plea that he had an urgent appointment with Shri Bhim Singh. Then there were telephonic enquiries revealing that Shri Bhim Singh was on that day away to Udaipur. Then Shri Dhanraj Dugar agreed to accompany them to his house. He kept them awaiting for about half an hour under one pretext or the other and visited his godown and the premises of his tenants. He gave them a feeling as if he wanted to part with something with him. They, however, brought him to a house where again after a lot of discussion, arguments, persuasion and pressure, he signed the search warrants which had already been shown to his younger son. Thereafter, with the approval of Shri E. Saroj, they took Shri Dhanraj Dugar to the business premises and after getting the search warrants seen and signed by procuring two witnesses and observing the other formalities, they entered the business premises of the assessee. This means that the entry must not have been as early as 9.30 a.m. because these whole proceedings must have taken at least 3 to 4 hours. The search memo, however, shows that the search started at 9.30 a.m. and the panches were present right from that time. It has further been mentioned in the report that they finished the search of the room by about 2 p.m. and were assembling in the outer room to have lunch sent for by Shri Vijay Kumar from the local restaurant. In fact from the above circumstances it appears that the search must have started after 2 p.m. According to Shri Tewari's report he was still inside the room and Shri Dhanraj Dugar was in the process of coming out of the room when he noticed Shri Dhanraj Dugar throwing something below one of the steel almirahs. He looked beneath the almirah and noticed one packet rolled in a handkerchief. He immediately called the other members of the party and one of the witnesses also came and he took that packet in which they found 8 packets containing diamonds, emeralds, rubies, etc. Shri Dhanraj Dugar became nervous and could not offer any explanation for throwing and trying to hide and conceal the said packet. Thereafter they wanted to record his statement which he initially refused but after pressure and persuasion he agreed to give his statement. Now this report is dated 5-6-1979. In other words, it is not contemporaneous with the search. The panchnama prepared that day does not show the recovery of a single article in that manner. Such an incident of an attempt having been made to throw something under an almirah and the search party having foiled that attempt, should ordinarily have been recorded on the spot but it was not so done. Mr. Ranka further urged that he had been repeatedly asking for the cross-examination of Shri K.S. Tewari who had given such a damaging report but he was never permitted to do so. Numerous representations were filed by the assessee to the income-tax authorities resiling out from his previous statement. Some medical certificates were also filed to show that he was not in a fit state of health round about the time of statement and he came forward with a different statement soon thereafter which was recorded by higher income-tax authorities under proper orders in accordance with law. In all, the subsequent statement of Shri Dhanraj Dugar denied having made the earlier statement with his free will. Thus, the sanctity of the original proceedings became rather suspicious.
6. A third important thing to note in this behalf is that the additions are being made in the hands of an HUF consisting of Shri Dhanraj Dugar and other members of the family. Even if the statement of Shri Dhanraj Dugar made on 29th be believed meticulously, it does not in any way involve the HUF. Again Shri Dhanraj Dugar has quoted the exact amounts for which he purchased the valuable jewellery but the additions made by the ITO are not in terms of this statement. They are in higher figures after getting the prices of the recovered articles estimated by another expert. This means that the statement of Shri Dhanraj Dugar to which much importance is attached by the departmental representative was not actually relied on meticulously even by the Income-tax Department.
7. Lastly, all through the proceedings before us, the representative of the assessee insisted upon the department to produce some documents which were admitted to have been seized as Exhibit 'EE' by the search party. This case was initially heard by the Bench on 16-6-1986. On that day the departmental representative had referred to certain panch-namas for the purpose of showing that the proceedings were started and closed at a particular time and everything was done in an orderly manner, because at that time the allegation of Mr. Ranka was that police party was kept round the clock for four days and even the assessee was not given the ordinary facility of taking food and was prohibited from routine jobs so much so he could have no sleep during 3/4 days of search. The panchnamas were produced to show when the search was started and when it was closed but as we have pointed out above they are defective in the sense that they do not bring out the timing clearly. After seeing the panchnamas Mr. Ranka argued the matter afresh pointing out certain discrepancies and then the departmental representative wanted time to explain the alleged discrepancies and seek instructions from the Commissioner. The case was adjourned to 30-6-1986. A prayer was then made by Mr. Ranka that Annexure 'EE' referred to at page 110 be called for. The departmental representative was specifically told to secure that. Thereafter Mr. Koolwal, the senior departmental representative went for some leave and training course to Nagpur. No other departmental representative was prepared to argue the case and we have kept the matter pending for about 2 months. At the time of subsequent hearing, even Mr. Koolwal was not in a position to produce those documents. His argument was that they are not being relied on by the department and, therefore, he was not bound to produce them. Perhaps he forgets one thing that this is an appeal by the department. The Commissioner (Appeals) has already disbelieved the story put forward by the department and deleted most of the additions. We are not saying that the Commissioner (Appeals) was justified in doing so but when an argument was raised before us by Mr. Ranka that those documents would justify and show the source of some of the articles alleged to have been seized from the premises of the assessee and they would contradict the earlier statement of Shri Dhanraj Dugar from which he resiled, later. This fact, consequently, becomes very material. Why are those documents not being produced ? It may be that they may be of some help to the assessee otherwise why should the department make an effort to withhold them. Mr. Koolwal urged that they were only loose sheets but even then the department should have preserved meticulously all documents recovered at the time of search, particularly when their case has been thrown out by the Commissioner (Appeals). Under these exceptional circumstances it is difficult for us to straightaway say anything or reverse the decision of the Commissioner (Appeals) in relation to the additions on account of unexplained investments purporting to have been made on the basis of search and statements recorded at the time of search which as we have pointed out above raised a number of suspicions.
7.1 After an overall consideration of all these facts and circumstances, we are of the opinion that it would be proper if a more detailed and thorough investigation is done into the matter by permitting the assessee to cross-examine Shri Vijay Kumar, Shri E. Saroj, Shri K.S. Tiwari and the panches in whose presence the statement of Shri Dhanraj Dugar is stated to have been recorded. The department will also produce the so-called loose documents Exhibit 'EE' to enable the assessee to make out a case in defence, if it so thinks fit. The matter is restored back to the file of Commissioner (Appeals) for fresh decision in the light of our aforesaid observations.
8. Ground No. 9 relates to the assessee's claim for deduction under Section 35B on packing credit interest amounting to Rs. 10,991. This matter is pending before a Special Bench of the Tribunal and we wanted to adjourn the hearing of the appeal altogether on this ground, but the assessee's representative made repeated requests that the appeal be heard and he had no objection if this matter is decided against him. We, therefore, accept this departmental ground and hold that the assessee is not entitled to any weighted deduction on packing credit interest amounting to Rs. 10,991.
9. As regards the appeal of Smt. Ratan Devi Dugar, the Commissioner (Appeals) has deleted the addition for the reason given in detail in the case of the HUF of Khetsidas Sadasukh Dugar. He further pointed out that it had not been mentioned the ITO's order or in any hearing before him that this jewellery actually belonged to her. Therefore, no addition could be made in her hands on the basis of statement of another person who may be her husband without considering the evidence produced by her. The second reason for addition had already been considered in the case of HUF and the Commissioner (Appeals) was of the opinion that the departmental version was not supported from the panchnama. The third reason that there was no ground for the assessee to take a loan had also been considered in the case of HUF. Even though the HUF members might have sufficient bank balances they were carrying on business for which they required money and there was no prohibition in law for this lady to take a loan even if they had sufficient bank balances. This assessee had her own fixed deposit receipts and hence it might have been prudent to obtain a short-term loan rather than to have encashed the fixed deposit receipts. The Commissioner (Appeals) was of the view that her son could have raised a loan in Bombay for purchasing some diamonds. There were nothing unusual or abnormal in doing so. The Commissioner (Appeals) agreed with the assessee's representative that she had jewellery of more than Rs. 2.5 lakhs and there was every reason that she could purchase more jewellery for the marriage of her son and daughter. The fourth reason of the ITO had also been dealt with elaborately by the Commissioner (Appeals) in the case of the HUF. Thereafter, he has mentioned the facts as made by Smt. Ratan Devi and after a detailed discussion deleted the entire addition made in her hand. Since we are doubtful about the exact version of the department as put forward in these proceedings, we have no alternative but to restore the matter back to the Commissioner (Appeals) in relation to this lady also.
10. There are a number of cross-objections, raised on behalf of the assessee pointing out that the Commissioner (Appeals) should have accepted his entire version and not maintained certain additions at the instance of the department. They relate to estimate of certain other expenditure, estimate of household expenditure of the assessee, exclusive ownership of pieces of diamond by Shri Chandanmal Dugar, ownership of certain assets by Smt. Ratan Devi Dugar and sustaining of addition of Rs. 8,902. Besides that the Commissioner (Appeals) order maintaining levy of interest under Sections 215 and 217 has also been challenged. As we have pointed out above, we are not deleting any additions made by the ITO on the ground that we disbelieve the case of the department. We are sending the matter to the Commissioner (Appeals) on the ground that the whole thing is suspicious and it would be unsafe for us to give any fresh finding other than what the Commissioner (Appeals) has done in his well considered judgment. Accordingly, we are not inclined to interfere with the order of the Commissioner (Appeals) at the instance of the assessee but direct him to decide the issues afresh in the light of our aforesaid discussion.
11. In the result, C.O. No. 2 (Jp.) of 1985 is dismissed while IT Appeal Nos. 1192 and 1193 (Jp.) of 1984 are allowed for statistical purposes.