Income Tax Appellate Tribunal - Amritsar
Sadhu Ram And Sons vs Income Tax Officer on 18 July, 2005
Equivalent citations: (2005)97TTJ(ASR)12
ORDER
Joginder Pall, A.M.
1. These two appeals have been filed by the assessee against two orders of CIT(A), Bhatinda, for the asst. yrs. 1995-96 and 1997-98. Since the issues involved in both the appeals are identical these were heard together and are being disposed of by this consolidated order for the sake of convenience.
2. At the outset, the learned Counsel for the assessee submitted that the facts of the case for both the assessment years are identical and the CIT(A) has passed a detailed order for the asst. yr. 1997-98. He submitted that for the sake of convenience, the appeal for the asst. yr. 1997-98 may be taken up first. In this appeal, the assessee has raised following effective grounds of appeal:
"1. That the learned CIT(A) has erred in law and on facts in confirming the additions amounting to Rs. 58,79,785 made by the AO by invoking the provisions of Section 69, on frivolous and probable grounds and reaching arbitrary conclusions, ignoring the explanations and evidences of the assessee-firm, which is bad in law, based on surmises and conjectures, and probabilities arbitrary and against the rules of natural justice.
2. That the learned CIT(A) has erred in law and on facts in confirming the additions amounting to Rs. 1,96,123 on account of interest, on frivolous grounds, ignoring the explanations and evidences of the assessee-firm, which is bad in law, based on surmises and conjectures, arbitrary and against the rules of natural justice.
3. That the learned CIT(A) has erred in law and on facts in confirming the additions amounting to Rs. 50,000 on account of commission, on frivolous grounds ignoring the explanations and evidences of the assessee, which is bad in law, based on surmises and conjectures, arbitrary and against the rules of natural justice.
4. That the learned AO has erred in law on facts in issuing notice under Section 148.
5. That the learned CIT(A) has erred in framing an order depicting a deep-rooted bias delivering irrelevant instances and defamatory phraseology against the assessee, the counsel, and the society at large, which is against the modesty of the office of the authority and also reflects the state of personal grievances, having no relevance to the case, and should be expunged from the body of the order."
3. As regards the asst. yr. 1995-96, the assessee has taken three effective grounds :
"1. That the learned CIT(A) has erred in law and on facts in confirming the additions amounting to Rs. 4,78,100 made by the learned AO by invoking the provisions of Section 69, on frivolous grounds and reaching arbitrary conclusions, ignoring the explanations and evidences of the assessee-firm, which is bad in law, based on surmises and conjectures, arbitrary and against the rules of natural justice.
2. The learned AO has erred in law and on facts in issuing notice under Section 148.
3. That the learned CIT(A) has erred in framing an order depicting a deep rooted bias delivering irrelevant instances and defamatory phraseology against the assessee, the counsel, and the society at large, which is against the modesty of the office of the authority, and also reflects the state of personal grievances, having no relevance to the case and should be expunged from the body of the order."
Ground No. 1 is the same as ground No. 1 for the asst. yr. 1997-98 with small difference that the addition made for the asst. yr. 1995-96 is Rs. 4,78,100. The ground No. 2 relates to issue of notice under Section 148 which is the same as for the asst. yr. 1997-98. Ground No. 3 is the same as ground No. 5 for the asst. yr. 1997-98.
4. The facts of the case are that the assessee had filed returns of income for the asst. yrs. 1995-96 and 1997-98 declaring therein income of Rs. 1,67,940 and Rs. 1,27,765, respectively. Thereafter, both the returns were processed under Section 143(1)(a) of the IT Act. The IT authorities carried out survey under Section 133A of the Act at the business premises of the assessee on 21st Aug., 1997. During the course of survey operation carried out by the Department, certain loose papers were found containing various entries, i.e., payment and receipts from various persons and other accounts. Some of these related to the assessment years under reference. When asked to explain the entries recorded therein, the assessee could not explain the same. Photocopies of these documents were obtained by the authorised officer carrying out survey under Section 133A. At the time of survey, Sh. Bhagwan Dass, brother of Sh. Surinder Kumar, was present. He stated that entries on the loose papers found from the business premises could not be reconciled as the same had interlacing and interlocking of funds and transactions relating to the assessee and M/s Sunder Sales Corporation, proprietary concern of Sh. Surinder Kumar. He also stated that there were certain calculations made on the loose sheets which show working of interest on the amounts given and he added that in majority of the cases, such interest has not been received in cash and accordingly, the same has not been accounted for in the regular books of account. However, he further added that he was authorised by his brother to make surrender/declare income on behalf of the assessee. Accordingly, he disclosed the income of Rs. 2 lakhs each in the hands of the assessee and in the hands of M/s Sunder Sales Corpn. for the asst. yr. 1998-99. Copies of these loose papers are placed at pp. 19 to 24 of the paper book. Copies of these two letters found during the course of survey are placed at pp. 27 to 62 along with English translation which shows names of various persons, date-wise details of amounts advanced and received.
5. Since the amounts advanced related to the financial years relevant to the assessment years under reference and entries for the same could not be reconciled/explained, the AO initiated reassessment proceedings by issue of notices under Section 148 on 23rd July, 2001 for both the assessment years. These were duly served on the assessee. These notices remained uncomplied with. Thereafter, notices under Section 143(2) were issued on 15th Oct., 2001, in response to which the assessee stated that the return of income already filed may be treated as returns filed under Section 148. Thereafter, the AO issued notices under Section 143(2)(1) along with detailed questionnaire and notice under Section 143(2) on 14th Aug., 2002 fixing the hearing on 26th Aug., 2002. However, on this date, the learned Counsel for the assessee sought adjournment, which was allowed, and the case was adjourned to 10th Sept., 2002. On this date also, no one appeared. The case was again fixed for hearing on 3rd Dec., 2002 and notice under Section 142(1) was duly served. However, though request for further time for filing the reply was sought, the case was refixed for hearing on 11th Dec., 2002. On this date also, the learned Counsel sought an adjournment on the plea that the partner was out of station. The case was adjourned to 17th Dec., 2002. On this date also, neither anybody attended nor filed any reply. The AO again issued notice under Section 142(1) on 22nd Jan., 2003 fixing the hearing on 25th Feb., 2003 along with detailed questionnaire. The information called for by the AO is on pp. 2 to 4 of the assessment order. This notice again remained uncomplied with. The case was fixed on 20th March, 2003 by granting final opportunity. This was duly served on the assessee on 17th March, 2003. Again the assessee sought adjournment on the ground that his brother was out of station. However, on 18th March, 2003, affidavit of Sh. Raj Kumar, accountant, and Sh. Surinder Kumar, partner, were filed denying that loose sheets belong to the business transactions of assessee. Neither the books of account were produced nor information called for by the AO was furnished. The AO, therefore, proceeded to complete the assessments for both the assessment years under Section 144. Since the assessee failed to produce the books of account, the AO treated the transactions found on the loose papers during the course of survey as representing undisclosed investment in money lending business and made an addition of Rs. 58,79,785 on this account, interest of Rs. 1,96,123 earned thereon and in addition, the AO also estimated commission/profit on sale of crops of wheat, sunflower and sarson sold at Rs. 50,000. Similarly, for the asst. yr. 1995-96, the AO made an addition of Rs. 4,78,100.
6. Being aggrieved, the assessee impugned additions in appeals before the CIT(A). During the course of appeal proceedings, the assessee filed affidavits of three employees stating that they were working as employees of M/s Sadhu Ram and Sons, and they had never seen or heard that this firm was advancing loans over and above shown in the account books to any agriculturists or customers and no dispute between farmers and the partners was seen at shop. Three partners also filed affidavits stating that they had never given cash loans to any farmer over and above those shown in the books over the last 18 years. There were neither a dispute among the partners nor with the farmers. It was also added that the assessee had filed four cases of recovery of loans from the farmers and they were still pending in the civil Court. Besides, the assessee also filed the affidavits of 30 neighbors stating that they had never seen or heard that the assessee was giving any cash loan over and above those shown in the books of account. The assessee filed a petition under Rule 46A on 16th Dec., 2003 for admission of the fresh evidence in the form of these affidavits. The learned CIT(A) admitted this fresh evidence by recording following entry in the order-sheet made on 16th Dec., 2003 in the appeal records for the asst. yr. 1995-96 (these were obtained through learned Departmental Representative) :
"(16th Dec., 2003)" Sh. S.K. Bansal, advocate attends that Sh. R.K. Bansal, CA filed application under Rule 46A discussed and allowed adjournment "5th Jan., 2004".
This fact is also recorded on p. 2 of the impugned orders. It was argued before the CIT(A) that the assessee was 'Katcha Arhatia' duly registered with market committee and his licence was being renewed year after year. Complete records were being maintained. Auction of the crops belonging to farmers was being held as per prescribed procedure in the presence of witnesses and market committee staff. Weekly returns were submitted to the market committee. Books of account in the form of cash book, ledgers for farmers and others were being maintained. Besides, the assessee was maintaining signature books where after payments, signatures were obtained. All these transactions were being checked by the staff of the marketing committee. The staff maintained by the assessee was hardly sufficient to carry on the extent of transactions noted by the AO. The amounts advanced to the farmers were as per books and transactions recorded on the loose sheets were not correct. The assessee had filed civil cases against four farmers for recovery of the amounts outstanding against them and no case was filed for recovery of any amount found recorded in the loose sheets. The assessee has filed affidavits of some of the farmers confirming the running accounts in the books of account of the firms and they denied having received any cash loans/advances over and above those shown in the running accounts. The affidavits of the partners, employees and neighbors also showed that the assessee had not been making any cash loans to the farmers. The Department had not placed any material to establish that the transactions recorded in the loose sheets represented undisclosed transactions of the assessee. The learned CIT(A) considered these submissions including fresh evidence, but the same did not find favour with him. He observed that the conduct of the assessee in disclosing huge undisclosed income before the survey authorities clearly proves that the assessee was not only evading income-tax but also violated the various other rules and regulations without which such income could not have been earned. He also observed that mere presence of rules and regulations did not guarantee that the same would not be disobeyed by the persons. Therefore, very assertion of the assessee that it had carried on the business as per rules and regulations was not correct. He observed that the contention of the assessee that it did not have necessary infrastructure was untenable for the reason that for advancing amounts to 19 farmers one hardly needed such infrastructure. The assertion of the assessee that the Department did not gather any further evidence to conclusively establish that the assessee had advanced those amounts found recorded on the loose sheets was untenable for the reason that this was not a case of search where premises of the assessee was covered. Such evidence must have been kept at a place or even at the residence of the partners. He also observed that no reliance could be placed on the affidavits of the farmers who were equally party to these undisclosed transactions. Affidavits of the neighbors were also of no help. He also rejected affidavits of the employees for the reason that there were certain contradictions. Shri Raj Kumar had made calculations of interest with reference to specific cases to whom the assessee had advanced amounts found on the loose sheets. He also held that the AO had rightly relied on the loose papers found during the course of survey. He also observed that these affidavits were only of self-servings statements, did not contain any worthwhile information. Thus, he upheld the entire additions made by the AO for both the assessment years.
7. At the outset, the learned Counsel for the assessee submitted that the facts of the case for both the assessment years are similar. He submitted that the learned CIT(A) has passed the impugned appellate orders with biased and highly prejudicial mind. He submitted that during the course of appeal proceedings before the CIT(A), the assessee had filed affidavits of three partners, three employees and 30 neighbors and such affidavits were admitted by the CIT(A) under Rule 46A of the IT Rules. He also drew our attention to p. 2 of the impugned orders where the learned CIT(A) has mentioned that after discussion, the assessee's petition for admission of fresh evidence was accepted under Rule 46A. He submitted that instead of considering the merits of those affidavits, the learned CIT(A) has gone to make allegations against the assessee as a criminal and also made similar allegations against the persons who made affidavits by calling them as co-criminals. He also drew our attention to p. 23 of the CIT(A)'s order where the learned CIT(A) has recorded that the conduct of the assessee in disclosing huge unaccounted income before survey authorities proved that he had not only evaded income-tax, but must have violated various other rules and regulations without which such income could not have been earned. He then referred to p. 24 of the impugned orders where the learned CIT(A) has recorded that "two gentlemen may not help each other, but two criminals would always come to the assistance of each other". Thus, he has concluded that the filing of affidavits by the assessee was not only unnecessary but also mischievous on the part of the learned Counsel because he would attempt to get benefit that the farmers have not been cross examined. The learned CIT(A) has called those persons as abettors in the offence of income-tax evasion along with the assessee. He further referred to the observations made by the Hon'ble CIT(A) that Court is never interested in having an affidavit from a criminal that he has not committed any offence. He further referred to p. 25 of the CIT(A)'s order where the learned CIT(A) has observed that there is little surprise that even when the cash in books was available, the assessee proceeded to make advances from his unaccounted money. He then referred to p. 26 of the impugned orders where the learned CIT(A) has recorded that he was so convinced that this was a concocted story by the assessee for which instructions have been issued to AO to find as to . whether the case under Section 278 would be built up against Sh. Raj Kumar for abetting offence of tax evasion particularly when he was writing all the books of account of the assessee from year to year. He further directed the AO in case Sh. Raj Kumar was found involved in the criminal activity, the case must be put up to CIT/CCIT for launching prosecution. He then referred to p. 28 of the impugned orders where the learned CIT(A) has referred to the Telgi scams and other scams where the officials of the rank of senior Police Officers and others entrusted with the responsibility of punishing the criminals, were found involved. He then submitted that the learned CIT(A) further observed that the actual evidence found against the assessee was alone central to the required focus, instead the assessee has gone in collecting character certificates from neighbours and administrative officers. Thus, he submitted that this finding of the learned CIT(A) shows that he has not decided the present appeals in objective and fair manner. Nowhere he has discussed the merits of the additional evidence produced and the merits of other submissions, which were made before him. He submitted that so-called papers found during the course of survey were loose sheets, which did not lead to any conclusion. These loose sheets without (sic) indicate debit or credit on either side. The same do not show whether the amount was received or paid. Relying on the decision of the Tribunal, Pune Bench, in the case of Chander Mohan Mehta v. Asstt. CIT (Inv.) (1999) 65 TTJ (Pune) 327, the learned Counsel submitted that these were dumb papers. He submitted that these papers were not found kept under lock and key or under some special care or in the cash box. He further submitted that the affidavits of the farmers filed during the course of appeal proceedings were not verified by the AO. No enquiries were made by the AO to verify the contents thereof. He submitted that the addition made merely on the basis of suspicion, however strong, cannot take the place of proof. He also relied on the decision of Tribunal, Delhi Bench, in the case of S.K. Gupta v. Dy. CIT (1999) 63 TTJ (Del) 532 where the AO himself has recorded that the paper found was a bald estimate.
7.1 He further argued that whether investment should be treated as income or not, under Section 69 has to be considered in the light of facts of each case. The existence of undisclosed investment duly corroborative with the evidence has to be established before making any addition under Section 69. The Department has not placed any material on record for rebutting the explanation of the assessee with regard to undisclosed investment. The learned Counsel relying on the decision of L. Sohan Lal Gupta v. CIT held that the CIT(A) was not entitled to reject the affidavit filed by the assessee without bringing any contrary material on record. The assessee should have been called upon to produce documentary evidence or could have been cross-examined. He submitted that in the present case, the Department has failed to bring any conclusive evidence to show that the entries recorded on the loose sheets represented unexplained investment. He then referred to the subsequent order dt. 17th May, 2005 of learned CIT(A) for the asst. yr. 1996-97 with regard to penalty imposed by AO under Section 271(1)(c). A copy of the same was also placed on our file. He submitted that in the said order, the learned CIT(A) has given a finding that the observations made in the quantum appeal were confined to deeming provisions of Section. 69 and the operation of deeming provision could not be extended to penalty imposed under Section 271(1)(c). He submitted that the same learned CIT(A) has further recorded that there was no direct evidence available and the addition in the quantum appeal was sustained because of deeming provisions. The learned CIT(A) has further gone on to record that the addition was made and confirmed in appeal on the basis of principle of preponderance of probabilities. The learned Counsel observed that, since the AO has not collected further evidence, no penalty was leviable in this case. Accordingly, the order for imposing penalty under Section 271(1)(c) has been quashed. Thus, he contended that the loose sheets found during the course of survey were unbound and did not contain any specific information about the investments or the money having advanced to farmers and, therefore, no addition under Section 69 was liable to be made. He also relied on the judgment of Hon'ble Supreme Court in the case of CBI v. V.C. Shukla and Ors. 1998 SCC 410. He submitted that the learned CIT(A) was not correct in sustaining the impugned additions.
8. The learned Departmental Representative, on the other hand, heavily relied on the orders of the authorities below. He submitted that these loose sheets containing specific transactions connected with business of the assessee were found from the premises of the assessee during the course of survey under Section 133A of the IT Act. He referred to pp. 2 to 4 of the assessment order for the asst. yr. 1997-98 where the AO has summarized all the transactions recorded in the names of various persons, which indicate date-wise position of amount advanced to the various parties. He then referred to p. 5 of the assessment order where the AO has given a complete date-wise working of the amounts received during the accounting year relevant to the asst. yr. 1997-98 as per which amounts of Rs. 58,79,785 had been advanced to various parties. He then referred to pp. 1 and 2 of the assessment order for the asst. yr. 1997-98 where the AO had allowed innumerable opportunities to the assessee to produce books of account and furnish the details of the various transactions recorded on the documents found during the course of survey. He submitted that the assessee went on seeking adjournments for one reason or the other. He drew our attention to pp. 26 to 62 of the paper book, which contained copies of loose sheets found during the course of survey which gives complete details of date-wise amounts advanced to these persons. He further stated that even calculations of interest made on the amounts given to some of the parties as noted on p. 6 of the assessment order for the asst. yr. 1997-98 were found. These lend support to the fact that the transactions recorded on the loose sheets represented money advanced to these parties on interest. He submitted that this has not been denied by the assessee. He referred to copies of two letters of Sh. Bhagwan Bansal placed at pp. 19 to 24 of the paper book where he stated that certain loose papers found at the business premises could not be reconciled as the same had interlocking and interlacing of the funds with the sister-concern M/s Sunder Sales Corpn. and the working partner of M/s Sunder Sales Corporation, Sh. Surinder Kumar was out of station. He admitted that these loose papers contained calculation of interest, but in majority of the cases, such interest was not received in cash and the same had not been accounted in the regular books of account. Thus, Sh. Bhagwan Bansal went on to disclose income of Rs. 2 lakhs each in the hands of the assessee and M/s Sunder Sales Corpn. for the asst. yr. 1998-99, where he stated that he was authorized by his brother who was contacted on telephone to make such offer. He submitted that this disclosure was never retracted at any stage. During the course of assessment proceedings, the assessee never denied that these transactions did not belong to him. It was only on the last date of hearing, i.e., on 18th March, 2003 that the assessee filed an affidavit of Sh. Raj Kumar, accountant, and Sh. Surinder Kumar, partner, that these loose papers did not belong to them. He submitted that survey under Section 133A was carried out on 21st Aug., 1997 and the denial came only on 18th March, 2003, i.e., after a period of more than 5 years, though proceedings under Section 147 was initiated on 23rd July, 2001 and notice under Section 143(2) was issued on 15th Oct., 2001. He further referred to a copy of the assessment order in the case of Sh. Surinder Kumar, Prop, of M/s Sunder Sales Corpn. placed by the Revenue where the AO has recorded that during the course of assessment proceedings, the assessee was confronted with the papers obtained during the survey on 21st Aug., 1997 and was asked to furnish explanation and reconcile the entries found therein in the books of account. However, the assessee contended that all these entries pertained to M/s Sadhu Ram and Sons, Muktsar, and not to Sunder Sales Corporation and these entries be considered in the case of M/s Sadhu Ram Sons. The assessee also gave an undertaking that M/s Sadhu Ram and Sons will not back out in explaining these entries. He also placed a copy of order-sheet entry recorded on 13th Oct., 2000 in the case of M/s Sunder Sales Corporation, where this fact was admitted by Sh. Surinder Kumar and this is evident by its signatures and the signatures of the learned Counsel. Thus, he submitted that the authorities below were justified in holding that the entries recorded on the loose sheets pertained to the assessee. Since the assessee failed to produce books of account during the course of assessment proceedings and other evidence to show that these entries were recorded in the regular books of account, the AO was justified in making entire addition on the ground that these represented undisclosed transactions of money lending not reflected in the books of account. He further submitted that the learned CIT(A) was justified in coming to the conclusion that these transactions represented undisclosed income of the assessee. He submitted that various judgments relied upon by the learned Counsel were not relevant because strict rules of evidence were not applicable to the income-tax proceedings. Most of the judgments relied upon by the learned Counsel relate to the criminal proceedings. The IT authorities are within their rights to judge the issues on the basis of preponderance of probabilities. Therefore, the observations made by the learned CIT(A) that the assessee was a criminal would not vitiate the order effecting the merits of the impugned additions. Thus, he strongly argued that considering the fact that assessee chose not to comply with the various notices issued by the AO or kept on seeking adjournment on one pretext or the other in the assessment proceedings, the AO was justified in making the impugned additions and the learned CIT(A) was justified in sustaining the impugned additions. He, therefore, strongly argued that the orders of the learned CIT(A) do not warrant any interference.
9. We have heard both the parties and considered the rival submissions with reference to facts, evidence and material on record. We have also gone through the orders of the authorities below and referred to the relevant pages to which our attention has been drawn. While deciding the appeals, the following important undisputed facts had to be taken into account :
(i) In this case, survey under Section 133A was carried out and loose sheets were found during the course of such action. Copies of the same have been placed at pp. 25 to 62 of the paper book, which contained the names of various persons and date-wise account of amounts advanced. Down below, calculation of interest in some of the accounts, for example pp. 26, 28, 30, 32, 34, 40, etc., has been duly made and entered in the respective accounts.
(ii) It is a fact that the assessee during the course of business had also advanced certain amounts to the farmers, which appeared to have been reflected in the books of account. It is also a fact that the assessee had filed suit against four farmers for recovery of the amounts due from them. Thus, it cannot be said that the transactions recorded on the loose sheets has nothing to do with the business activities of the assessee.
(iii) During the course of survey Sh. Bhagwan Dass was present. He admitted that the transactions recorded therein could not be reconciled as there was interlocking and interlacing of funds with the sister-concern. He also stated that he was authorized by his brother to offer additional income in case certain discrepancies were noticed. He also stated that loose papers contained rough calculations of interest. But in majority of the cases, such interest was not received in cash and accounted for in the regular books of account.
(iv) The above facts have been admitted by Sh. Bhagwan Dass in his two letters both dt. 21st Aug., 1997, copies placed at pp. 19 to 24 of the paper book. He never stated that these transactions did not belong to the concern of the assessee. It is also a fact that on the basis of these documents, he surrendered income of Rs. 2 lakhs each in the hands of the assessee and M/s Sunder Sales Corporation for both the assessment years. Income surrendered has not been retracted till date.
(v) A copy of the assessment order dt. 13th Oct., 2000 in the case of M/s Sunder Sales Corpn. proprietary concern of Sh. Surinder Kumar, has been placed before us. The same shows that during the course of assessment proceedings, the assessee was confronted and he made categorical statement that the entries on the loose papers belong to M/s Sadhu Ram and Sons and not to M/s Sunder Sales Corpn. The assessee had also given an undertaking that this explanation will not be backed out and the entries would be explained in the case of M/s Sadhu Ram and Sons. This is clear from the order-sheet entry dt. 13th Oct., 2000, which is duly signed by Sh. Surinder Kumar and the learned Counsel.
(vi) It is also a fact that the survey took place on 21st Aug., 1997 and notices under Section 148 were issued. Thereafter, notices under Section 133 were also issued on 15th Oct., 2001 and thereafter the hearing of the case was fixed on various dates mentioned above. While discussing the facts of the case and on one pretext or the other, the assessee went on seeking adjournments. It is also a fact that during the course of proceedings spread over from 15th Oct., 2001 till 18th March, 2003, the assessee never denied that the entries recorded on the loose sheet did not belong to its business. It is only at the time of last hearing of the case on 18th March, 2003, the assessee filed an affidavit of Sh. Raj Kumar, accountant and Sh. Surinder Kumar, partner, denying that the loose papers belong to their business concern. This denial has come about after a time span of five years from the date of survey.
(vii) It is also a fact that the assessee failed to produce books of account before the AO, though repeatedly asked for by the AO during the course of assessment proceedings. This shows that the assessee was intentionally avoiding producing the books of account before the AO.
(viii) Though in the affidavits, the assessee denied transactions recorded on loose sheets, but there is no explanation as to whom these belong and why these were found from the premises of the assessee.
9.1 Now, it is settled position in law that strict rules of evidence are not applicable to income-tax proceedings. Therefore, the burden of proof required for the purpose of considering the various issues under the IT Act is not the same, which is required in criminal case. In criminal proceedings, the guilt is to be proved beyond any shadow of doubt and the burden of proof cast on the prosecution is much greater. While deciding the case of the assessee under the IT Act, the IT authorities can certainly take into account the surrounding circumstances and also decide the issues by applying the test of human probability. In the case of CIT v. Durga Prasad More , the Hon'ble Supreme Court held that, though an apparent statement must be considered real until it was shown that there were reasons to believe that the apparent was not the real, in a case where a party relied on self-serving recitals in documents, it was for the party to establish the truth of those recitals. The taxing authorities were entitled to look into the surrounding circumstances to find out the reality of such recitals. Thus, the act of filing of affidavits of the partners and the accountant on the last date of hearing, i.e., 18th March, 2003, denying these transactions is to be seen in the light of above mentioned facts, where such transactions were never denied during the period of five years from the date, when these were found during the course of survey. In the case of Sumati Dayal v. CIT , the Hon'ble Supreme Court has held that the IT authorities can take into account the surrounding circumstances and decide the issues by applying the test of human probabilities while deciding the issues involved in a particular case. The various judgments relied upon by the learned Counsel particularly those relating to CBI v. V.C. Shukla and Ors. (supra) relating to criminal proceedings and where documents were not found from the premises of the assessee, but from a third party are not applicable to the facts of the present case because in this case, these documents were found during the course of survey and the assessee never denied that these did not relate to its business during the period of five years from the date of survey. As regards the various other judgments cited by the learned Counsel, those are on their own facts. A loose paper which contains details of rough calculation or unspecific entries could be accepted provided the assessee explains so. But in the present case, the assessee has not initially denied these transactions and secondly had not offered any explanation as to whom these belong and what these entries stand for and how and why these came to be kept at the business premises of the assessee. It is also a fact that no business concern other than relating to the two concerns of the assessee were carrying on the business on the same premises of the assessee. In none of the cases relied upon by the learned Counsel, the facts of the case are identical as mentioned in the preceding paragraphs of this order. Therefore, the ratio of various decisions is to be considered in the light of facts mentioned in the preceding paragraphs.
9.2 The next aspect relates to filing of various affidavits during the course of appeal proceedings. These affidavits are of 30 neighbours and are identical in contents. All have made identical statements that they have never seen or heard that the assessee had given any cash loan to farmers over and above shown in the books of account or any dispute in the business concern of the assessee. Apparently if these happened to be unrecorded transactions in the books of account, these transactions will not take place in the presence of neighbours. Even otherwise money is never given/advanced in the presence of outsiders. Definitely neighbours were not the accountants of the assessee. Therefore, how could they know that money advanced to farmers was as per books of account. Therefore, statements made in the affidavits defy human probability. Therefore, the relevance of filing such affidavits for deciding the facts of the case is to be seen in this context. Moreover, these affidavits were not filed during the course of assessments. These were filed for the first time before the CIT(A). As per provisions of Rule 46A, the CIT(A) is vested with the powers for admitting fresh evidence subject to provisions of Rule 46A. We consider it appropriate to reproduce hereunder the provisions of Rule 46A, which read as under :
"46A. (1) The appellant shall not be entitled to produce before the (Dy. CIT(A) or, as the case may be, the CIT(A), any evidence, whether oral or documentary, other than the evidence produced by him during the course of proceedings before the AO, except in the following circumstances, namely :
(a) where the AO has refused to admit evidence which ought to have been admitted; or
(b) where the appellant was prevented by sufficient cause from producing the evidence which he was called upon to produce by the AO, or
(c) Where the appellant was prevented by sufficient cause from producing before the AO any evidence which is relevant to any ground of appeal; or
(d) Where the AO has made the order appealed against without giving sufficient opportunity to the appellant to adduce evidence relevant to any ground of appeal.
(2) No evidence shall be admitted under Sub-rule (1) unless the Dy. CIT(A) or, as the case may be, the CIT(A) records in writing the reasons for its admission.
(3) The Dy. CIT(A), or, as the case may be, the CIT(A) shall not take into account any evidence produced under Sub-rule (1) unless the AO has been allowed a reasonable opportunity--
(a) to examine the evidence or document or to cross-examine the witness produced by the appellant, or
(b) to produce any evidence or document or any witness in rebuttal of the additional evidence produced by the appellant.
(4) Nothing contained in this rule shall affect the power of the Dy. CIT(A) or, as the case may be, the CIT(A) to direct the production of any document, or the examination of any witness, to enable him to dispose of the appeal, or for any other substantial cause including the enhancement of the assessment or penalty (whether on his own motion or on the request of the AO under Clause (a) of Sub-section (1) of Section 251 or the imposition of penalty under Section 271." From the bare reading of the provisions of the aforesaid rule, it is clear that the assessee is not entitled to produce any fresh evidence before the CIT(A) during the course of appeal proceedings except in the circumstances specifically mentioned therein. Such evidence can be admitted only if, the AO has refused to admit such evidence, or the assessee was prevented by sufficient cause from producing the evidence he was called upon to produce by the AO, the assessee was prevented by sufficient cause from producing before the AO any evidence which was relevant to any ground of appeal where the AO had passed the order appealed against without giving sufficient opportunity to the assessee to adduce evidence relevant to any ground of appeal. Sub-rule (3) of the said rule further mandates that such evidence was not taken into account until the AO has been allowed a reasonable opportunity. Thus, while admitting the fresh evidence, the learned CIT(A) was required to apply his mind to the provisions of Rule 46A as to whether the case of the assessee falls in one of the circumstances enumerated therein in Clause. (a) to (d) of Sub-rule (1) of Rule 46A. The Bench called for the records of the learned CIT(A) through the learned Departmental Representative and found that the learned Counsel for the assessee vide his letter dt. 2nd Dec., 2003 requested for admission of fresh evidence on the ground that the AO had granted short notice for deciding the assessments and assessee could not file such evidence because of lack of reasonable opportunity allowed by the AO. The entry made by the learned CIT(A) for admitting the fresh evidence in the order-sheet dt. 16th Feb., 2003 has already been reproduced in the preceding paragraphs where he simply recorded that "discussed and allowed". Now, the facts placed on record clearly show that during the course of assessment proceedings, the AO had allowed sufficient opportunities for reconciling the entries found during the course of survey which the assessee could not do so on the date of survey and assessment proceedings were spanned over a period of 15th Oct., 2001 to 26th March, 2003, i.e., more than two years. But the assessee kept on seeking adjournments on one pretext or the other. Thus, the learned CIT(A) was first required to apply his mind as to whether the case of the. assessee was covered under the Clauses (a) to (b) of Sub-rule (1) of Rule 46A. Even in the impugned orders, the learned CIT(A) merely recorded that after discussion, the petition was accepted without assigning any reason as to why he considered this to be a fit case for admission of fresh evidence though it was not a case of the assessee that the AO had refused to admit such evidence or assessee was prevented by sufficient cause from producing before the AO any evidence and the AO had made an order appealed against without giving sufficient opportunity to the assessee. No such case appears to have been made before the CIT(A). In fact, the learned CIT(A) has not applied his mind to the relevant provisions of Rule 46A while exercising his powers for admission of fresh evidence. The relevance of such evidence to the proceedings in question does not seem to have looked into. Thus, such action of the learned CIT(A) for admission of fresh evidence without application of mind without taking into account the relevant provisions of Rule 46A and without assigning reasons either in the order-sheet or in the body of the impugned orders as to why this was considered to be a fit case for admission of evidence cannot be upheld.
9.3 Further, while deciding the present appeals, the learned CIT(A) has made several observations where the assessee and the persons who gave affidavits were branded as criminals and co-criminals. Nowhere he has given any valid and cogent reasons for upholding the additions except by making reference to totally irrelevant comments which were not justified. While deciding the present appeals, the learned CIT(A) was not trying a criminal case against the assessee. He was only required to record his findings whether, on the basis of evidence and material on record, the AO was justified in making the various additions while deciding the appeals. Instead of judging the issue on objectives on impartial basis, the learned CIT(A) misled himself by taking into account totally irrelevant facts and by making uncalled for observations. Therefore, such orders of the CIT(A) could not be upheld. In the light of these facts and circumstances of the case, we consider it fair and appropriate to set aside the orders of the CIT(A) and restore the appeals to his file from the stage these were filed before him for deciding the same afresh as per law where issues regarding admission of fresh evidence and further action required to be taken under Rule 46A would be decided as per the provisions of the rules and after allowing reasonable opportunity to both the parties. While redeciding the appeals, the learned CIT(A) is also directed to redecide the grounds relating to additions of Rs. 58,79,785 on account of undisclosed investments, interest of Rs. 1,96,123 and commission income of Rs. 50,000 for the asst. yr. 1997-98 and the additions of Rs. 4,78,100 made under s. 69 for the asst. yr. 1995-96 as per law after hearing both the parties on the same. Accordingly, the respective grounds of appeals are treated as allowed for statistical purposes.
10. In the result, both the appeals are allowed for statistical purposes.