Income Tax Appellate Tribunal - Ahmedabad
Sachumal Jagumal Chetnani vs Assistant Commissioner Of Income Tax. ... on 10 November, 1998
ORDER
H.L. Karwa, J.M.
1. This is an appeal by the assessee which is directed against the order of CIT(A)-V, Ahmedabad, dt. 30th March, 1991, relating to asst. yr. 1982-83.
2. Briefly stated, the facts of the case are that the assessee is a partner in the firm of M/s. Kamal Auto Consultant and his only source of income is share of profits from the said firm. In this case, the notice under s. 148 was issued to the assessee on 28th March, 1989. In response to the said notice the assessee filed his return of income on 30th March, 1989, declaring total income at Rs. 13,183. In pursuance of the authorisation issued under s. 132 of the IT Act, 1961 by the Director of Inspection, Ahmedabad, a search was conducted at the residence of the assessee at 15-16, Sindhu Sagar Society, Near Maya Talkies, Kubernagar, Ahmedabad. During the course of search, cash of Rs. 1,00,606, was found and out of this cash Rs. 90,000 was seized. The assessee had declared the concealed income of Rs. 3,50,000 in the case of the firm, M/s. Kamal Auto Consultant including the cash found at the time of search. Further it was also ascertained from the State Bank of India that the assessee had purchased travellers cheques as under :
Rs.
12-5-1981 30,000
9-5-1981 30,000
13-6-1981 29,000
6-7-1981 30,000
21-7-1981 30,000
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Total 1,49,000
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3. The AO noted that during the course of assessment proceedings the assessee filed letter dt. 22nd March, 1991, regarding the addition made to his total income for asst. yr. 1981-82 to 1988-89 vide order dt. 9th November, 1987, under s. 132(5) of the Act. The assessee's reply relevant to present controversy was as under :
"Alleged investment in term of traveller's cheques totalling Rs. 1,49,000. In making this assessment, the ITO appears to have relied on some information collected behind the back of your applicant and that the ITO has not at all given any opportunity for rebutting the same as provided for in the opening part of sub-s. (5) of s. 132 of the Act and sub-r. (4) of r. 112(A) of the IT Rules, 1962. In the circumstances the entire amount of Rs. 1,49,000 requires to be deleted from the computation of total income and fixing the taxation liability."
4. The AO observed that the objections raised by the assessee were without any force and consequently he made an addition of Rs. 1,49,000 to the total income of the assessee. The assessee had also raised similar objections under s. 132(11) against the order passed under s. 132(5) of the Act.
5. Aggrieved by the order of the AO the assessee carried the matter to the CIT(A). Before him it was explained by the assessee that the travellers cheques in question were purchased out of the money given by the buyers of scooters, cars for purchase of scooter and car. It was also contended that the travellers cheques were purchased not out of individual funds but from the funds of the customers. The assessee further pointed out that the total amount involved was Rs. 30,000 only because the same amount was rotated from time to time. It was specifically brought to the notice of the Appellate Authority below that these travellers cheques were purchased by the firm M/s. Kamal Auto Consultant and not by the assessee in his individual capacity. The assessee also contained before the Appellate Authority below that the AO had collected some information behind the back of the assessee and he had also not given any opportunity to the assessee to controvert the same.
6. The CIT(A) observed that the AO had already given sufficient and adequate opportunity to the assessee before deciding the issue. According to him the AO had sought explanation from the assessee vide his letter dt. 19th February, 1990, and in response to the said notice the assessee had submitted his reply by way of a letter dt. 17th March, 1990. The CIT(A) further observed that the assessee had not adduced any evidence to prove that the travellers cheques in question were purchased out of funds of customers. Similarly, the assessee could not substantiate his claim that these travellers cheques were purchased by the firm M/s. Kamal Auto Consultant. According to the CIT(A), no evidence was produced to show that these travellers cheques were recorded in the books of accounts of the firm M/s. Kamal Auto Consultant. On the contrary, it was found by the AO that these travellers cheques were purchased by the assessee in his own name. The CIT(A), therefore, concluded that these travellers cheques were purchased by the assessee in his individual capacity and further he failed to explain the source of amount investment in these travellers cheques. According to the CIT(A), the AO was justified in treating the amount of Rs. 1,49,000 as unexplained and added the same to total income of the assessee. Consequently, the addition was confirmed by the CIT(A).
7. Before us, Shri P. F. Jain, C.A. the learned counsel for the assessee reiterated the submissions made before the authorities below. His further contention was that the travellers cheques of different dates were purchased in the regular course of business dates were purchased in the regular course of business of M/s. Kamal Auto Consultant, wherein the assessee is a partner. According to Shri P. F. Jain the travellers cheques were not purchased by the assessee in his individual capacity as it has been alleged by the IT authorities. Shri P. F. Jain submitted that there was a search at the residential premises of the assessee as well as the business premises of M/s. Kamal Auto Consultant (hereinafter referred to as M/s. KAC) on 14th July, 1987. During the course of search proceedings the authorised officer had recorded the statement of the assessee under s. 132(4) of the Act. The learned counsel for the assessee also invited our attention to the said statement. According to Shri Jain, from the said statement of the assessee it is clear that only source of income of the assessee was share of profit from the firm, M/s. KAC the said firm came into existence in the year, 1980. The business of the firm is that of auto consultant and of selling scooters, rickshaws on commission basis. During the course of search proceedings an amount of Rs. 3,50,000 was declared under s. 132(4) r/w Expln. 5(2) to s. 271(1)(c) of the Act, in the name of firm, M/s. KAC for the following years :
Calendar year Income disclosed
Rs.
1984 30,000
1985 76,000
1986 87,000
1987 1,57,000
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3,50,000
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8. According the learned counsel for the assessee the above disclosure has been accepted by the Department in the hands of firm after verification of seized materials.
9. The learned counsel for the assessee further submitted that the Appellate Authority below vide para 8 of the impugned order has categorically held that the only source of income of the assessee was share of profits from M/s. KAC Shri Jain, further pointed out that vide order dt. 7th February, 1986, under s. 131(3) of the Act, all the relevant books of accounts of the firm for various years including the asst. yr. 1982-83, have been seized by the Department and the same are still lying with them. He, however, submitted that in the case of M/s. KAC, after verification of the documents found at the time of search, it has been accepted that the said firm was deriving income from the dalali business on purchase and sales of auto-rickshaws, commission on sales of scooters. He, therefore, submitted it is clear that the assessee had not purchased travellers cheques out of his own funds. He further contended that the travellers cheques had been purchased on different dates not exceeding an amount of Rs. 30,000 on a particular date. The amount of Rs. 1,49,000 was not invested in a single day. These travellers cheques had been purchased in the regular course of the business of the firm, wherein the assessee is a partner. He, therefore, submitted that the addition in the hands of assessee is not justified.
10. Shri P. F. Jain, the learned counsel for the assessee further submitted that the AO has not considered the reply filed by the assessee vide his letter, dt. 17th March 1990. In the said letter, it was submitted by the assessee that he had not done any personal business, all the transactions done pertained to the firm only. Accordingly to Shri Jain in the assessment order dt. 25th March, 1991, the AO has simply reproduced the objections raised by the assessee under s. 132(11) of the Act. He also submitted that the addition made by the AO is without any basis.
11. The next contention of the learned counsel for the assessee was that for the assessment year under consideration the AO issued a notice under s. 148 of the Act on 28th March, 1989, which was served upon the assessee on 30th March, 1989. The assessee filed his return on 20th March, 1990, and the assessment order was passed on 25th March, 1991. According to the learned counsel for the assessee, the opening para of the assessment order shows that the AO while bringing out the charge about the proposed addition of Rs. 1,49,000 made no mention of the reasons recorded, if any, about the escapement of the income. He, therefore, submitted that it can safely be assumed that no such reasons were recorded and thus the condition precedent for issue of notice under s. 148 not being fulfilled, the entire proceedings are void ab initio. The learned counsel for the assessee also submitted that as per the provisions of the Act, applicable at the relevant time, notice after the expiry of 4 years from the end of the relevant assessment year could be issued only after obtaining section from the Chief CIT or the CIT who is to be satisfied on the reasons recorded by the AO. According to Shri Jain the assessee wrote a letter to the AO to know the above facts but there was no response from the AO. In such circumstances it can be presumed that the provisions of s. 151 have not been complied with and hence the entire proceedings will be void ab initio. He relied on the following decisions :
(1) CIT vs. Maharaja Pratapsingh (1961) 41 ITR 421 (SC);
(2) CIT vs. Dumraon Cold Storage & Refrigeration Service (1974) 97 ITR 137 (Pat);
(3) Rasbihari Tobacco Processors Ltd. vs. Dy. CIT (1997) 57 TTJ (Ahd) 120
12. On the other hand Shri Rajiv Nabar, the learned Departmental Representative heavily relied on the orders of the authorities below. His further contention was that the assessee has miserably failed to show that the travellers cheques were purchased out of funds of customers. According to the learned Departmental Representative the assessee could not establish on record that these cheques were recorded in the books of M/s. KAC. These cheques were purchased by the assessee in his name from the State Bank of India and, therefore, it can be said that these travellers cheques were purchased out of assessee's own funds. The assessee further failed to explain the source of amounts invested in travellers cheques. He, therefore, submitted that the Appellate Authority below was justified in confirming the addition. The learned Departmental Representative also submitted that under the provisions of law, there was no need to the AO to record the reasons under s. 148(2) of the Act. The learned Departmental Representative also objected to the above contention of the learned counsel for the assessee. According to the learned Departmental Representative the assessee had never raised such a plea before the authorities below. The assessee had never questioned as to whether the AO had obtained the requisite sanction from the Chief CIT or the CIT. According to the learned Departmental Representative the assessee cannot raise such plea for the first time before the Tribunal. He, therefore, submitted that the travellers cheques were never purchased by the firm, M/s. KAC but these cheques were purchased by the assessee out of his own unexplained source of income and, therefore, the addition in the hands of the assessee was justified.
13. We have considered the rival submissions and have also perused the entire material available on record. It is relevant to point out that the decisions cited at the Bar were also duly considered by us. It is an undisputed fact that the assessee is a partner in firm M/s. KAC. The Department conducted a search at the residential premises of the assessee on 14th July, 1987. During the course of search proceedings, the authorised officer had recorded the statement of the assessee under s. 132(4) of the Act. The following questions and answers are worth noticing :
Q. No. 1. Give your name, address and details of your business and source of income ?
Ans : My name is Sachumal Jagumal Chethnani, age 52 years. My business is of auto consult and of selling scooters, rikshaws on commission. I am carrying on business in the name of 'Kamal Auto Consult', opp. K.T. Desai High School, Shahpur Road. My two sons viz. (1) Rensi Sachumal, and (2) Chandra Sachumal are partners with me. My share is 6 annas and my two sons have 5 annas shares each. I have no other source of income.
Q. No. 2. When did the above partnership commence and what was the capital investment by each partner ? Where do you file you income-tax return ?
Ans : This firm started in the year 1980. I do not remember the capital investments made initially. The return of income of the firm is filed in Circle-V, Wd-E. The partners do not have taxable income. Hence, returns were not filed.
Q. No. 3. Whether partners have any personal source of income ? Whether the partners are filing WT Returns ?
Ans : Partners have no source of income other than the share income from the partnership. They are not filing WT Returns.
Q. No. 21. In answer to question No. 8, you have stated that there is no investment in the names of your family members. But, in the course of search the following receipts are found which indicate that you had registered the Bajaj scooters in the names of your family members are follows :-
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Date Name Amount Dealer
Rs.
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23-10-1984 Vency Sachumal 500 Foster Farman, Satna. -do- Nanki Sachumal 500 -do- -do- Vency Sachumal 500 -do- -do- Sachumal Jagumal 500 -do- -do- Chander Sachumal 500 -do- 30-4-1986 Chander Sachumal 500 Aravali Auto, Alwar, Rajasthan -do- Chander Sachumal 500 Nidhi Marketing Agency, Bhavnagar. -do- Durga Sachumal 500 -do- -do- Nanki Sachumal 500 -do- -do- Jetu Sachumal 500 -do- -do- Kishan Sachumal 500 -do- 13-3-1987 Kishan Sachumal 500 J.K. Amin & Co., Bharuch. -do- Kishan Sachumal 500 -do- -do- Nanki Sachumal 500 -do- -do- Chandar Sachumal 500 -do- -do- Vency Sachumal 500 -do- -do- -do- 500 -do- 30-11-1984 Jetu Sachumal 500 B'bay Motor Co., Jodhpur. -do- Vishali Sachumal 500 -do-
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Ans : The above scooter etc. were registered for and on behalf of and out of the income of Kamal Auto Consult.
14. From the above questions and answers, it is abundantly clear that right from the start of the search operation, at the residential premises of the assessee as well as business premises of the firm i.e. 14th July, 1987, the assessee in his statement recorded under s. 132(4) by the authorised officer, spontaneously stated that his only source of income is share of profits from M/s. KAC. There is no dispute that the said firm came into existence in the year, 1980 and the business of the firm was that of selling scooters, rickshaws on commission basis. It is also an admitted fact that during the course of search a disclosure of Rs. 3,50,000 was made in the case of the firm for calendar years viz. 1984-1985, 1986 and 1987. The said disclosure has been accepted by the Department in the hands of firm after verification of seized materials. The copies of the assessment orders of the firm relating to asst. yr. 1985-86 to 1988-89 are available at pp. 52-65 of the paper book.
15. At this point of time, we find it convenient to reproduce the following findings of the CIT(A) from para 8 of the impugned order :
"All the business is done through the firm M/s. Kamal Auto Consultant in which he along with his two sons is a partner. Even the disclosure was made in the case of the firm and not in his individual capacity. I have further found that the assessments of the firm have been completed and the amount disclosed at Rs. 3,50,000 has been included in the assessment of the firm. On the other hand, the AO has not brought any material on record to prove or even to indicate that the appellant is carrying on business besides being a partner in M/s. Kamal Auto Consultant in individual capacity and earning income out of such business. In view of this, I would direct the AO to take the business income only sharing profit of partnership firm."
16. Similarly, the CIT(A) in his order dt. 30th March, 1992, for asst. yr. 1988-89 passed in the case of assessee (pp. 48 to 51 of paper book) has stated as under :
"In view of this admission of the appellant at the very beginning of the search and in absence of any evidence to the contrary I think that it will only be proper and reasonable to hold that the cash found at the time of search belongs to the firm M/s. Kamal Auto Consultant and not to the appellant. The fact that this amount has been offered for taxation in the hands of the firm also supports this view. I would, therefore, delete the addition of Rs. 1 lac."
17. It is also clear from the summon dt. 13th January, 1986, issued under s. 131(1A) of the Act by the Asstt. Director of Inspection (Inv.)-II, Ahmedabad, that the firm of M/s. KAC was required to produce relevant books of accounts of the firm from the first accounting period from which the firm came into existence. The copy of the said summons is also available at p. 44 of the assessee's paper book. It is also worth noting that vide order dt. 7th February, 1986, under s. 131(3) entire accounts books pertaining to M/s. KAC relating to various assessment year including the assessment year under consideration had been seized by the Department. The assessee from the date of search was stating that he had not done any personal business, all the transactions done pertained to the firm only. The books of accounts of the firm were lying with the Department since 1986. The assessee vide his reply dt. 17th March, 1990, had made a detailed reply to letter dt. 19th February, 1990 issued by the Asstt. CIT (Inv.) Cir. 1(1), Ahmedabad whereby the details for travellers cheques were asked for from the assessee. The assessee in his said reply submitted that the business transaction had been reflected in the books of accounts of the partnership firm, M/s. KAC. It was also submitted that the said fact may be verified from the books of the firm, which were seized by the Department. However, the authorities below have not cared to verify this aspect of the matter that whether the transactions relating to these travellers cheques were reflected in the books of accounts of M/s. KAC. The assessee categorically stated before the authorities below that these cheques were drawn out of the funds of customers and on behalf of them at the relevant time and to the best of his knowledge the commission income earned was also recorded in the books of the said firm.
18. As we have already noted that the findings of the CIT(A) are also self-contradictory. Vide para 8 of the impugned order the CIT(A) has stated that "on the other hand, the AO has not brought any material on record to prove or even to indicate that the appellant is carrying on business besides being a partner in M/s. KAC in individual capacity and earning income out of such business." In asst. yr. 1988-89, in assessee's own case, the CIT(A) has held that in view of assessee's statement made during the course of search proceedings it will be proper and reasonable to hold that cash found belonged to the firm, M/s. KAC and not to the assessee. In this view of the matter, the CIT(A) was not justified in holding that no evidence had been adduced by the assessee to show that these travellers cheques were purchased out of funds of customers. The entire case of the assessee before the authorities below was that the travellers cheques were purchased in the course of regular business of the firm M/s. KAC. At the same time, the CIT(A) was not correct while saying that the assessee could not produce the books of accounts of M/s. KAC to show that these travellers cheques were duly recorded in the books of the said firm. As we have already noted that the relevant books were seized by the Department but the authorities below have not stated that the books were not lying with the Department or there were no such entries recorded in the books of the firm.
19. It will not be out of place to mention here that the AO has committed error of law while solely relying on the order made under s. 132(5) of the Act. Even in the assessment order the AO has reproduced the objections made against the order passed under s. 132(5) of the Act. We find considerable force in the contention of Shri P. F. Jain, the learned counsel for the assessee, that the AO has not assigned any cogent reason while making the addition of Rs. 1,49,000 in the assessment order dt. 3rd December, 1987 under s. 143(3) of the Act. In our opinion, the essential and material distinction between the provisions contained in s. 132(5) and s. 143(3) have gone unnoticed at the hands of AO. Sec. 132(5) concerns a situation where any money, bullion, jewellery or other valuable article or thing is seized under s. 132(1) or s. 132(1A). Sec. 132(5) empowers the ITO to estimate the undisclosed income of the person concerned in a summary manner to the best of his judgment and the action taken or orders made under s. 132(5) are really in the nature of interlocutory orders. On the other hand, there is specific procedure prescribed for the assessment to be made under s. 143(3) of the Act. In our view, the AO was not justified solely relying on the order passed under s. 132(5) of the Act. The AO has not discussed the other relevant objections raised by the assessee during the course of assessment proceedings. He has also not appreciated the fact that from the date of search it has been claimed by the assessee that he had not purchased any travellers cheque out of his own fund. In such circumstances, the burden of proving that the assessee was the person who had purchased the travellers cheques in question, was on the taxing authority. The AO has not given any cogent reason while making the addition. In our view there is substantial force in the above contention of the learned counsel for the assessee that the above addition in the hands of the assessee was not proper and justified. Further, more, there is no material on record to suggest that the assessee had purchased the travellers cheques in question out of his individual income. Admittedly, the assessee is a partner in M/s. KAC and the business of the said firm, M/s. KAC is auto consultant and selling scooters, auto-rickshaws on commission basis. It is evident from the record that the assessee's only source of income was from share of profit from the said firm. There is not an iota of evidence on record to show that the assessee was deriving income from another source. It is also an admitted fact that these travellers cheques were not purchased in a single day, therefore, the addition of lump sum amount of Rs. 1,49,000 is not justified. Why the IT authorities have not verified the facts from the books of the firm of M/s. KAC is also not understandable. On the other hand, the Department had accepted a disclosure of Rs. 3,50,000 in the hands of the said firm. Even in the appellate order dt. 30th March, 1992 for asst. yr. 1988-89 in assessee's own case, the CIT(A) noted that in view of the statement of the assessment recorded at the time of search it would be proper and reasonable to hold that the cash found, belonged to the firm, M/s. KAC and not to the assessee. In our view, there is substance in the contention of the learned counsel for the assessee that the travellers cheques were purchased in the name of the partner of the firm, M/s. KAC keeping in view the nature of negotiable instrument so that the same could be encashed in any place in India as per the needs of the business.
20. In view of the above discussions, we are of the opinion that the addition in the hands of the assessee is not justified. In the case of ITO vs. Ch. Atchaiah (1996) 218 ITR 239 (SC), the Supreme Court at p. 243 has held as under :
'He can and he must, tax the right person and the right person alone. By "right person", we mean the person who is liable to be taxed, according to law, with respect to a particular income.'
21. Shri P. F. Jain, the learned counsel for the assessee, also raised the contention that in the assessment order the AO has not recorded any reason for issuing notice under s. 148 of the Act. The AO had also not stated whether he had obtained the sanction from the competent authority as per requirement of law. We find that the assessee had not raised such objection before the authorities below. Even if it is assumed that this plea can be raised at the stage of second appeal then it would be relevant to state that it is well settled that s. 148 of the Act does not envisage the need to disclose reason(s) for the relief, nor it can be read into it as a requirement of natural justice. No adjudication of rights or determination resulting in consequence to the assessee is involved at the stage of issuing notice. The only requirement in law for initiating proceedings under s. 148 is that there must be reasons to justify the plea that there is escapement or suppression of income. (See Dr. V. Mohan Das vs. Dy. CIT & Anr. (1991) 188 ITR 727 (Ker). In our considered opinion the requirement of recording of reasons for initiating action for reassessment are only administrative in character, and, therefore, it is not necessary to disclose the material to the assessee at the stage of issuing notice under s. 148 of the Act. At this stage it can safely be presumed that the AO had also obtained the sanction of the higher authorities as per the provisions of law. According to Illustration (e) to s. 114 of the Indian Evidence Act, the Court may presume that judicial and official Acts have been regularly performed. The presumption attached to the correctness of official records cannot be taken away merely by assumption of suggestions raised in doubts. However, we may say that such a presumption is rebuttable one and the onus lies on a person seeking rebuttal thereof. In the instant case, the assessee has not raised this issue before the AO. No such ground was also raised before the Appellate Authority below. In our view, this contention of the assessee is not sustainable. However, we have already held that the impugned addition was not justified and accordingly we delete the same.
22. In the result, the appeal is allowed.