Income Tax Appellate Tribunal - Ahmedabad
Assitt. Cit vs Rameshchandra R. Patel on 27 February, 2004
Equivalent citations: [2004]89ITD203(AHD)
ORDER
Per Shri Deepak R. Shah, A.M. These four appeals by revenue for assessment years 1990-91 to 1993-94 and the appeal by the assessee for assessment year 1993-94 are arising out of order of learned Commissioner (Appeals)V, Ahmedabad dated 13-10-1995. Since certain common issues are involved, all these appeals are disposed of by this common order.
2. We shall first take up the appeal of revenue for assessment years 1990-91, 1991-92 and 1992-93. The only issue in all these appeals are relating to deletion of addition made on account of unexplained investment in shares for Rs. 19,580, Rs. 40,400 and Rs. 57,957 for assessment years 1990-91 to 1993-94 respectively.
2.1 The facts in brief are that the assessee is an individual deriving income from salary, partnership share, interest, dividend and income from other sources. A search was conducted at the residential premises of the assessee on 16-2-1993 and a cash amount of Rs. 10,000, ornaments of Rs. 53,487 and share certificates of about Rs. 10 lakhs, were seized. The addition for cash and ornaments has been made in assessment year 1993-94 only and the other additions regarding the investments in shares, dividend income have been made in all the years. In the search proceedings, 10 bank accounts were found in the names of different persons but all these were operated by the assessee for purchase of shares etc. During the course of search, the assessee made a disclosure of investment in shares for Rs. 10 lakhs which was ultimately enhanced at Rs. 14,93,491. It was further considered that the market value shown above, is not to be considered for assessment purpose. The cost of acquisition of shares of Rs. 5,41,740 was considered for assessment purpose in all the four years. The assessee also mentioned that he was operating 10 benami Bank accounts and the deposits in these banks and also the investments in shares through these banks, was admitted. The assessee, however, claimed that he is having a Hindu undivided family (hereinafter referred to as the HUF) by the name of M/s. Ramanlal Revabhai, having 17.2 acres (30 big has) of agricultural land. This HUF is being assessed by the Income Tax Officer, Ward-8(4), Ahmedabad, since number of years. The Assistant Commissioner found that no books of account are maintained by this HUF and the investment in shares from the HUF account, is not verifiable. The bank account of the said HUF, details of cheques etc. were not filed. In the returns filed, the balance sheets were also filed but in none of the years, except in 1993-94, the investment in shares was disclosed. It was, therefore, held that no investment in shares is covered by the income shown by the assessee in the hands of the HUF.
2.2 The learned Departmental Representative Shri R.C. Gupta took us to the statement recorded under section 132(4) at the time of search. it was submitted that all these investments were made by the assessee and it was never mentioned that the same is out of the HUF funds. Accordingly a disclosure was made while answer to question No. 46 of said statement. Since this statement under section 132(4) was categorical about the source of investment in shares, no credence can be given to the source stated to be out of HUF income from agricultural source. Though the return for assessment years 1990-91, 1991-92 & 1992-93 in respect of HUF of father of assessee was filed earlier to the date of search, the investment was not shown in the said return or in the balance sheet accompanied in the returns. Thus, learned Commissioner (Appeals) has erred in believing that out of the withdrawals from HUF funds the investment in shares is to be treated as explained.
2.3 The learned counsel for the assessee Shri G.C. Pipara also took us to the same statement recorded under section 132(4) whereas in respect of certain share transaction, it was stated to be out of several benami accounts. However, the investment in shares is not out of the said bank accounts. All the credit entries in these bank accounts has been offered for taxation. Referring to question Nos. 17, 18, 19 & 20 of the said statement it is found that HUF is holding 17 acres of agricultural land wherein various crops are grown. The crops are sold at market yard. The HUF is also assessed to tax in ward-1(2) under GIR No. 203R. Even the question regarding monthly household expenditure was also replied stating to the vicinity of Rs. 4,000 per month and stated to be out of HUF having agricultural income. The returns of income for the years were filed much prior to the date of search wherein the agricultural income has also been shown and the withdrawal which is much higher than regular household expenses is also disclosed. The learned Commissioner (Appeals) was therefore correct in stating that the investment in shares is to be treated as explained.
2.4 We have carefully considered the rival submissions and the relevant facts of the case. The Commissioner (Appeals) while dealing with the issue held as under:-
"I have considered the facts and I find that there is no dispute regarding the existence of the HUF and also for the agricultural income of the HUF It is in existence since number of years and the returns for the assessment years 1990-91, 1991-92 & 1992-93, were already filed before the search operation. The income was accepted and the household withdrawals and the investment, were also disclosed. The specific details of investment in shares with the names of the companies, however were not filed. I also find that there is no bank account of the HUF and, therefore, it was not possible to produce such details before the assessing officer. The HUF transactions in shares are in cash only. The transactions in bank account, have been made in individual capacity from 10 benami bank accounts, operated by the assessee. There is, therefore. a clear demarcation of the utilization of individual income through the bank deposits and investment and the HUF income is being used for household expenses and investment in shares in cash only. In 1990-91, there are withdrawals of Rs. 55,000 for household expenses, investment of Rs. 19,580 already shown in the balance sheet, appear to have been covered and no addition is called for. I, however, find that the actual investment comes to Rs. 21,465 and only Rs. 19,580 is covered from the HUF sources. The difference of Rs. 1,885 is not satisfactorily explained. The addition of Rs. 21,465 is reduced to Rs. 1885 only and the assessee gets a relief of Rs. 19,580."
2.5 Similarly for assessment year 1991-92 out of total investment of Rs. 43,375, Rs. 40,400 was treated as explained and balance addition was upheLearned For assessment year 1992-93 Rs. 77,570 was shown as invested but Rs. 57,957 was treated as explained and balance was treated as unexplained. From the paper book filed, we find that Ramanbhai Rewabhai Patel HUF has filed all the. returns of income much prior to the date of search. The withdrawals shown in all these three years are Rs. 55,000, Rs. 60,000 & Rs. 65,000 respectively. The withdrawals are much higher than the household expenses. The investment in shares were out of cash funds. The other transaction in shares out of benami bank account has been differently treated for assessment purposes. We are, therefore, of the opinion that the withdrawal from HUF funds are available for explaining the investment in shares. It is the contention of learned Departmental Representative that if the investment was made in earlier year the same is not reflected in the balance sheet filed for subsequent years. We are unable to accept such a contention as since the amount was shown as withdrawal the amount will be taken out of the balance sheet. The investments are therefore not reflected in the balance sheet filed subsequently as that is the only possible accounting treatment for showing the withdrawals. We are therefore not inclined to interfere with the finding given by learned Commissioner (Appeals). The order of learned Commissioner (Appeals) is therefore upheld.
3. In the result, the appeals of the revenue for all the three years are dismissed.
4. We shall now take up the revenue's appeal for assessment year 1993-94. The first ground of appeal is against deletion of addition of Rs. 10,000 in respect of cash found during the search. While explaining the source of cash found and answer to question No. 14 it was stated to be out of unaccounted income from cloth business. The assessing officer therefore treated it as unexplained and taxed the same, though the assessee explained during the course of assessment proceedings that the amount was withdrawn from the firm M/s. Krishna Exclusive in which he is a partner. The amount was withdrawn on 15-2-1993, a day before the date of search. The copy of account was also filed showing the withdrawal by the firm and a certificate was issued by the firm confirming the same. The learned assessing officer will choose to tax the same as the assessee agreed for the same during search proceedings and similar explanation was not filed in 132(4) statement. The learned Commissioner (Appeals) deleted the addition on the ground that the entry in regular books of account has not been denied by the assessing officer and hence the cash is to be treated as explained.
4.1 Whereas the learned Departmental Representative Shri R.C. Gupta relied upon the assessment order, the learned counsel for assessee relied upon the order of learned Commissioner (Appeals).
4.2 On careful consideration of relevant facts of the case, we find that withdrawal of cash from the firm is properly explained. The deletion of addition is therefore sustained. This ground of appeal is accordingly dismissed.
5. The next ground of appeal is against deletion of addition of Rs. 40,900 towards unexplained investment in jewellery.
5.1 During the course of search, gold ornaments and jewellery weighing 3 8 9.90 grams was found out of which 143.7 grams was seized. During the course of assessment proceedings, the explanation was given for the gold ornaments by filing the affidavits of father of assessee's wife stating it to be gift given at the time of marriage and subsequent occasions. The assessing officer considered only about 280 grams as explained and balance of 109.90 grams was treated as unexplained investment. The learned Commissioner (Appeals) deleted the addition on the ground that the father-in-law of assessee filed affidavit for giving ornaments to the wife and sons of the assessee on various occasions. The learned Commissioner (Appeals) believing the explanation as reasonable deleted the addition.
5.2 The learned Departmental Representative referring to the statement recorded under section 132(4) drew our attention to answer to question No. 7. It was stated therein that Rs. 1 lakh was invested in purchase of gold ornaments from the unaccounted income. Thus the story that the ornaments were received from the father-in-law of assessee is not a plausible explanation. The learned counsel of the assessee submitted that in respect of the entire family, the total jewellery found was hardly 390 grams. As per the customs prevailing and the community to which the assessee belongs, the lady member of a family is supposed to possess ornaments of approximately 500 grams. Such a quantity is also treated reasonable as per instruction of Central Board of Direct Taxes (hereinafter referred to as the CBDT). It is also instructed that if the jewellery is found to the extent of 500 grams the same need not be seized. This can be interpreted that up to 500 grams of the jewellery found is to be treated as explained. Apart from the lady members credit is also required to be given for male members up to 250 grams and for children up to 50 grams per child. If the instruction is taken in true spirit the jewellery found should be treated as explained.
5.3 We have carefully considered the rival submissions and the orders of authorities below. The CBDT Instruction No. 1916 dated 11-5-1994 which suggest that a family is supposed to hold certain jewelleries received at the time of marriage from parents and in laws within the said limits it is to be treated as explained. Though the instruction speaks of not seizing the same, the extended meaning of the same shows the intention that the jewellery is to be treated as explained one and is not to be treated as unexplained for the purpose of Income Tax Act. Even on merits of the case, the assessee has explained the source of jewellery by filing necessary affidavit of the father-in-law giving the jewellery in gift. We, therefore, do not find any merit in this ground of appeal. Accordingly the same is dismissed.
6. The next ground of appeal is against deletion of addition of Rs.11,16,150 as unexplained investment in shares claimed by the assessee to have been made out of the HUF sources' 6.1 The search took place on 16-2-1993. At that time the financial year has not ended. The time limit to file the return of income has not expired. Shri Rameshchandra Ramanlal Patel HUF filed its return of income on 23-2-1994 showing the investment in shares found during the course of search. The return has been accepted by the revenue authorities. The assessee has shown sizable agricultural income therein. The agricultural income of Rs. 1.87 lakhs is also supported by various bills issued for sale of agricultural produces. All these facts were disclosed in the return of income. The assessee is found to be holding agricultural land since several years. The same has all along been accepted. No fault can be found with the assessee for having filed the return after the date of search as the time limit never approached. The assessing officer has made the additions based on the grounds for earlier years discussed by us. On the same basis, we are confirming the addition of Rs. 11, 16,150. This ground of appeal is accordingly dismissed.
7. The last ground of appeal is against deletion of loss on sale of shares amounting to Rs. 3,48,300.
7.1 The assessee has declared short term loss on sale of 1300 IPCL shares at Rs. 2,17,100 and on sale of 400 shares of ICICI at Rs. 1,31,200. The sequence of these dealings are as follows:-
Purchase and sale of 1300 IPCL shares through Adinath Investment Prop. Bhagehand G. Jain Purchase & Sale of ICIC1400 through Jagdish P. Patel
1.
Date of contract for purchase 2-11-1992 12-2-1993
2. Date of delivery of shares 1-3-1993 27-2-1993
3. Date of payment 23-3-1993/356200 10-3-1993
4. Dated of contract for sale 4-3-1993 5-3-1993
5. Dated of delivery of sold shares 22-3-1993 6-3-1993
6. Dated of receipt of payment 26-3-1993 139100 17-3-1993/1,24,000 22-3-1993/3,00,000
7. Short term loss claimed 2,17,100 1,31,200 7.2 The assessing officer issued summons under section 131 on the respective share brokers for examining them. One of the share broker of M/S. Adinath Investment appeared but without relevant books of account. The other broker Shri Jagdish Patel though did not appear confirmed the transaction by filing a letter and giving particulars thereof. The assessing officer concluded that since the brokers were not produced by the assessee there is a strong belief that earlier transactions are fishy and loss claimed is fictitious. The learned Commissioner (Appeals) considered the relevant proof by way of bills contract notice and payment details etc. allowed the claim and held as under:
"I have considered the facts and I find that the transactions were incurred through the brokers appointed by the Government of India. Both the brokers have confirmed the transactions and a copy of transfer memo, payment, delivery etc. have been filed. The assessee has also filed a copy of the bank account to prove the payment for purchase of shares and the receipt in the bank account. The shares of both the companies are quoted in the stock exchange and the rate of transactions is verified from the quotations. There is no evidence with the assessing officer found in the search to show that these were not genuine transactions. I, therefore, hold that the claim of the loss is genuine and the assessee is entitled for short term loss of Rs. 3,48,300 in this year."
7.3 The learned Departmental Representative strongly objected the action of learned Commissioner (Appeals). It was submitted that all the entries are subsequent to the search proceedings and are made belief transaction to avoid taxes payable on the income disclosed during search. Referring to the transaction dates and payment dates it was submitted that the assessee received the share in delivery of IPCL shares on 1-3-1993. Even though he has agreed for sale of all the shares on 4-3- 1993 and even the shares are delivered back to the broker on 22-3-1993. The assessee is making payment for purchase of shares on 23-3-1993. If the assessee has entered into sale contract on 4-3-1993 and even the delivery were given on 22-3-1993 there is no need for making the full payment for purchase of shares on 23-3-1993. Similarly, for ICICI shares also the assessee has agreed to sell back the shares to the broker on 5-3-1993 arid delivery are also given back on 6-3-1993. The assessee is making payment for purchase of shares on 17-3-1993. Thus the transactions are doubtful in nature and cannot be believed. To verify the genuineness of transaction, the assessee was required to produce the broker alongwith supporting documents like saudha vahi etc. and details like from whom the shares were purchased and to whom the shares have been sold. Even the distinctive numbers for purchase and sales are not given. In such a situation based on only the contract note and sale bill the transaction cannot be held to be genuine.
7.4 The counsel of the assessee submitted that the contract for purchase of IPCL shares were prior to the date of search when the contract note was also found during the course of search. The assessee is not occasionally but frequently trading in shares for which necessary evidence was found during the course of search. The broker is not under the direct control of the assessee. If the broker does not maintain certain records, the assessee cannot be put to fault. All that was required to be done on part of assessee has been done and the onus has been discharged. The dates of transaction only gives some ground for suspicion. This does not necessarily result to hold that transactions are sham or bogus.
7.5 We have carefully considered the rival submission and relevant facts of the case. The assessee is found to be carrying on several transactions in shares as per the seized material found during search. One of which is treated to be the contract note for purchase of shares of IPCL. From the details of transaction as narrated above, it is seen that the assessee has entered into valid contract for purchase and sale of shares. The share brokers have raised bills for the same. The assessee has made payments in full for purchase of shares. The delivery is effected. The transactions are at market price, the fact is not denied. In such a situation to hold that only because the payment is made even subsequent to the contract for sale, the transaction is a colourable device is purely on surmises and contrary to the facts. The assessee has discharged the onus of proving the genuineness of transaction. The assessee cannot be said to be controlling the records of the brokers. Only because the brokers could not produce certain materials called by the assessing officer or could not appear in person is not a valid ground for holding the transaction as bogus or colourable device. The assessee has actually incurred the loss. Thus it is not a fictitious loss. Both the brokers have confirmed the transaction as per bills and contract note raised by them. Thus valid transaction in sale and purchase of shares have taken place. The loss incurred on such transaction is therefore allowable. We, therefore, do not find any infirmity in the order of learned Commissioner (Appeals). This ground of appeal is accordingly dismissed.
8. In the result, revenue's appeal is dismissed.
9. We shall now take up the assessee's appeal for assessment year 1993-94. The first ground of appeal is against the addition of Rs. 13,977.
9.1 At the time of hearing, this ground was not pressed before us. For want of prosecution, the ground is dismissed and the addition is upheld.
9.2 The next ground of appeal is against addition of Rs. 2,00,000 as investment in house property disclosed during search proceedings in statement under section 132(4). The assessing officer noted answers to following questions:
"Q. 7: Have you made any other investment other than shares and deposits as explained above from your unaccounted income, if any, given the details?
A. 7: The expenditure made approx. more than Rs. 1 lakh in purchase of Gold ornaments and approx. Rs. 2 lakhs in purchase of furniture, household goods etc. in my house. No other investments made by me.
Q. 46: Give the details of assets in which you have invested undisclosed income of Rs. 25,00,000 explained by you in Ans. 45?
A. 46: The undisclosed income of Rs. 25,00,000 declared by me in Ans. 45 is invested in the following assets:
Amount of loan shown in Ans. 4 Rs. 11,97,000 Amount invested in House and furniture Rs. 2,00,000 Cash found today Rs. 10,000 Unaccounted ornaments found today Rs. 53,500 Miscellaneous loans Rs. 39,500 Investment in shares Rs. 10,00,000."
9.3 The assessee furnished the valuation report according to which there was no addition during the relevant financial year in the construction or renovation of the house. However, since the amount was disclosed, addition of Rs. 2 lakhs on account of renovation of house etc. was made. The learned Commissioner (Appeals) upheld the addition since the same was disclosed during the course of search. The assessee is in further appeal.
9.4 The counsel of the assessee drew our attention to answer to question No. 7 wherein the amount was disclosed towards purchase of furniture, household goods etc. only. There was no mention about the renovation in the house. The house belongs to the HUF property of assessee's father. Thus though in answer to question No. 46, it is mentioned as invested in house and furniture, in fact there is no addition in the house as proved by the valuation report furnished before the assessing officer. In respect of household articles and furniture found during the course of search as per Annexure 5 it consists of items of meagre value and not a substantial as Rs. 2 lakhs. He, therefore, pleaded that addition of Rs. 2 lakhs be deleted.
9.5 The learned Departmental Representative supported the orders of authorities below. It was submitted that statement made during the course of search cannot be retracted, but for the cogent reason for the same. For this purpose, he relied upon the decision reported in V. Kunhambu & Sons v. CIT (1996) 219 ITR 2351 (Ker).
9.6 In reply Shri Pipara submitted that the admission was on purely towards household articles and not renovation. This fact is proved as per the list of articles found during search.
9.7 We have carefully considered the rival submissions, the relevant facts and the orders of authorities below. The assessee has proved by furnishing valuation report in respect of house property that there is no major renovation of the house during the relevant financial year. The value of household articles found as narrated in Annexure-V of panchnama prepared during the course of search, values around Rs. 47,500 only. Out of the same the wooden cupboards and fixtures valuing Rs. 35,000 is shown in the balance sheet of Shri Ramanbhai R. Patel, HUF. This amount was also disclosed in the balance sheet filed prior to the search. The only question to be decided is whether an assessee can retract from the statement given during the course of search. The assessee has stated during the course of search towards investment in furniture and household goods only, no disclosure was made in respect of investment in renovation of house or house property. Even no material is found which suggest that any renovation in the house was carried out during the year. Thus the statement which if interpreted in proper prospective indicates that no disclosure was made towards investment for renovation of house. Even otherwise if a statement is made under mistaken facts or under wrong interpretation of law can very well be retracted. If an assessee retracts a statement, he has to give cogent reasons for the same supported by necessary evidence. In the present case, the assessee has shown by way of filing valuation report that there is no investment in house property. The investment found as per Annexure-V of the panchnama also suggests that very small amount was invested in household articles, the value of which is less than Rs. 47,500. In such a situation, the assessee is very much entitled to retract from his earlier statement. On the basis of relevant material, we find that the undisclosed income invested in household articles amounts to Rs. 12,500 only (Rs. 47,500 - Rs. 35,000). We, therefore, uphold the addition of Rs. 12,500 as against Rs. 2 lakhs made by the assessing officer.
10. No other grounds were pressed before us.
11. In the result, the appeal of assessee is partly allowed.
Per Shri TK. Sharma, Judicial Member. - Since I have not been able to pursue to agree with the finding and conclusion of my learned brother in respect of ground No. 2 of revenue appeal and assessee appeal for the assessment year 1993-94. I, therefore, propose a separate order on these two grounds of appeal relating to assessment year 1993-94.
13. The ground No. 2 of revenue appeal is against deletion of loss on sale of shares amounting to Rs. 3,48,300. In this case a search was conducted at the residential premises of the assessee on 16-2-1993. During the course of search, cash amount of Rs. 10,000, ornament of Rs. 53,487 and share certificates of about Rs. 10 lakhs were seized. In the search proceedings, 10 bank accounts were found in the names of different persons but all these were operated by the assessee for purchase of shares etc. During the course of search, statement on oath under section 132(4) was recorded on 16-2-1993 and in reply to question Nos. 45 & 46, the assessee made a disclosure of Rs. 25 lakhs. Both the questions and reply of the assessee is reproduced hereunder:-
"45. I am explaining you the Explanation 5 of section 271(1)(c) of the Income Tax Act. After understanding the provisions accordingly, whether you want to disclose voluntarily and your undisclosed income?
Ans: 45: Yes. Sir, I understood the Explanation 5 of section 271(1)(c) of the Income Tax Act as explained by you and I want to take the benefit by disclosing my undisclosed income and I want to declare the following income. I declare unaccounted income of Rs 25,00,000 earned from the business of sale and purchase of shares which is not shown in current years books and I am agree to request the whole tax on this income. And I pray that I should get relief from penalty and prosecution proceedings. This income is my current year's income and I earned it from business of sale and purchase of shares.
Q. 46: Give the details of assets in which you have invested undisclosed income of Rs. 25,00,000 explained by you in Ans. 45.
Ans. 46: The undisclosed income of Rs. 25,00,000 declared by be in Ans. 45 is invested in the following assets:
Amount of loan shown in Ans. 4 Rs. 11,97,000 Amount invested in house & Furniture Rs. 2,00,000 Cash found today Rs. 10,000 Unaccounted ornaments found today 53,500 Miscellaneous loans Rs. 39,500 Investment in shares Rs. 10,00,000 Total Rs. 25,00,000 There is investment in shares and accordingly disclose income and out of that shares some shares has been purchased from market directly and some shares allotted through application. I declare this amount subject to any difference in share valuation and if there is any change in share valuation, I give my consent thereto accordingly. I declare the above Rs. 25,00,000 as undisclosed income in equal shares in the names of myself Rameshbhai Ramanlal Patel, my wife Naynaben Rameshbhai Patel, my father Ramanlal Revabhai Patel and my mother Rajiben Ramanlal Patel, I will accept the whole disclosure in my name and my wife's name if it is not agreed by them and I agree to pay tax thereon."
14. The assessee filed the return of income on 31-8-1993 declaring total loss of Rs. 1,06,5 10. To arrive at this loss figure, in the return of income the assessee has claimed loss on share amounting to Rs. 3,48,300 which has been disallowed by assessing officer observing as under:-
'9. Loss on sale of shares.-The assessee has declared short term loss on sale of 1300 IPCL shares at Rs. 2,17,100 and on sale of 400 shares of ICICI at Rs. 1,31,200, in aggregate a total loss of Rs. 3,48,300 has been shown in the computation of income. Against this loss, the assessee has claimed set off of capital gains on share transactions deposited in bogus bank accounts for Rs. 1,37,286 as also against the other income as well. I have called for the details in respect of the so called share transactions. The sequence of these dealings are as follows:
Purchase and sale of 1300 IPCL shares through Adinath Investment, Prop.
Purchase and sale of ICICI 400 shares through Jagdish P. Patel
1. Date of contract for purchase 2-11-1992 12-2-1993
2. Date of delivery of shares 1-3-1993 27-2-1993
3. Date of payment 23-3-1993/3,56,200 10-3-1993 /2,00,000 17-3-1993 /2,00,000 /1,55,200 5,55,200
4. Dated of contract for sale 4-3-1993 5-3-1993
5. Dated of delivery of sold 22-3-1993 6-3-1993
6. Dated of receipt of payment 26-3-1993/1,39,100 17-3-1993 /1,24,000 (encashed on 27-3-1993) 22-3-1993 /3,00,000 4,24,000
7. Short term loss claimed 2,17,100 1,31,200 Summons under section 131 have been issued to M/s. Adinath investment on 24-1-1995 for service through the Inspector. The Inspector has reported that at the business place at 381, Khetarpal's Pole, Manekchowk, Ahmedabad, the party is not available. On inquiry, it is reported by him that the said party has closed the business and his whereabouts are not known. Therefore, vide letter dated 30-1-1995, the assessee was asked to produce the broker on 7-2-1995 for interrogation alongwith his books of account, bank accounts, contract form book delivery notebook, sale book relating to the sale of shares etc. Shri Bagchand G. Jain, proprietor of Adinath Investment has been produced by the assessee on 9-2-1995. The statement of Shri Bagchand was recorded in the presence of the assessee. He has not produced any books of account or contract from book, delivery book, sale contract from book, more importantly the sauda Vahi. Mere admission by the broker that he has purchased the shares and sold the shares on behalf of the assessee is meaningless. The broker cannot tell from whom the shares were purchased on behalf of the assessee and to whom the shares were sold on behalf of the assessee. The distinctive numbers are not available on the delivery from for which the copy has been furnished by the assessee. The broker could not produce any evidence about the distinctive numbers of shares purchased and sold Shri Bagchand has admitted that he is not maintaining any books of account. Thus, there is no evidence for the purchase and sale of shares. The alleged delivery for the purchase of shares and delivery of the sold shares and their payments are also after the date of search, whereas the contract has taken place on 2-11-1992 as per copy of contract form filed by the assessee. The payment for the alleged purchase stated to have been made on 23-3-1993 and receipt of payment for the sale of shares on 26-3-1993 is a strange affair. The gap is only for 3 days. The assessee is also unable to furnish the details of distinctive numbers of shares purchased and sold. Under these circumstances, the alleged loss in the purchase and sale of shares is a colourful device to siphon off the income declared by the assessee as bogus transaction.
With regard to the purchase and sale of shares of ICICI through Shri Jagdish P. Patel, the assessee has not furnished the copy of contract form, delivery memo, and the distinctive numbers of shares purchased and sold. A Xerox copy of purchase memo in respect of ICICI shares have been filed. Summons under section 131 have been served on 25-1-1995, calling for the books of account, bank accounts, contract form, sauda vahi etc, on 2-2-1995 but, on the appointed date, the alleged broker did not turn up. Therefore, the assessee has been informed on 7-2-1995 that Shri Jagdish Patel, the alleged broker has not present in response to summon. He should, therefore, produce the broker on 9-2-1995 at 10 AM when the assessee should also present. But on 9-2-1995, the assessee has not produced the broker not the assessee has presented himself. The assessee has filled confirmatory letter from Shri Jagdish P. Patel dated 16-1-1995 for purchase, delivery, sale and receipt and payment of purchase and sale considerations. I fail to understand when a broker can given in writing to the assessee confirming the transactions, why he cannot remained present in spite of summons issued to him, and why the assessee could not produce him. There is a strong belief that the alleged transaction of ICICI shares are fishy and the loss claimed is a fictitious one to siphon off the income declared as bogus transactions. In view of these facts, the loss claimed by the assessee is disallowed."
15. On appeal, in the impugned order learned Commissioner (Appeals) directed the assessing officer to allow the short term loss though the assessee has not furnished the evidence of delivery of shares as well as distinctive number of 1300 share certificates of IPCL and 400 shares of ICICI.
16. At the time of hearing before us, the learned Departmental Representative contended that the assessing officer examined the dates of purchases, date of delivery of shares, date of actual payments and date of contract. For this purpose, assessing officer issued a notice under section 131 to M/s. Adinath Investment Co., the broker for sale of IPCL shares. The said party was not available at the given address and it was found that it has closed his business and the present whereabouts were not known in the area. The assessing officer accordingly asked the assessee to produce the party and he produced Shri B.G. Jain. the proprietor of Adinath Investment Company on 9-2-1995 and his statement was recorded Shri B.G. Jain has not produced any books of account for contract, delivery and other papers for verification of the transactions taken place. The learned Departmental Representative submitted that mere admission of Shri B.G. Jain i.e., he sold the share is not enough unless distinctive numbers were given to the assessing officer so that cross verification could have been made by the assessing officer from concerned company i.e., IPCL. Before the assessing officer Shri B.G. Jain specifically admitted that he is not maintaining any books of account. The learned Departmental Representative submitted that in this case search was conducted by the department on 16-2-1993 and during the course of search, no contract for purchase of 1300 shares of IPCL was found though it is claimed that these shares were purchased vide contract note dated 2-11-1992. The learned Departmental Representative submitted that it is unbelievable that assessee has sold 1300 shares of IPCL from the same broker on 4-3-1993 from whom he purchased the shares on 2-11-1992 and thereafter on 23-3-1993 he has made the payment of purchase price though he could have only paid the difference i.e., amount of loss of Rs. 2,17,100. The shares of IPCL were specified shares and in the absence of evidence of delivery, the assessee has incurred "speculative loss" which is not allowable as provided in section 73 of Income Tax Act. The learned Departmental Representative further submitted that in respect of shares of ICICI also the assessee has not furnished the copy of contract form, delivery memo and distinctive number of shares purchased and sold in this case also assessee claimed that payment to broker was made on 10-3-1993 and 17-3-1993 whereas shares were sold through same broker on 5/6th March, 1993. The payment was received on 17-3-1993/ 22-3-1993. In this case also instead of making the payment of entire purchase price, the assessee could have paid the difference i.e., Rs. 1,31,200 only. The learned Departmental Representative concluded that the alleged loss on the purchase and sale of shares is a colourful device to siphon off the income declared by the assessee during the course of search through bogus transaction. The learned Departmental Representative further submitted that even if for the sake of argument it is presumed that assessee has actually made the payment for sale and purchase but in the absence of evidence of delivery of shares, loss in question incurred by the assessee is 'loss in speculative business" within the meaning of section 73 of the Income Tax Act and same can be set off only against any other speculative business and not against the income declared by the assessee under Exp. 5 of section 271(1)(c) of the Income Tax Act, 1961.
17. Before us learned counsel of the assessee relied on the order of learned Commissioner (Appeals). To a query from the Bench, learned authorised representative conceded that distinctive number of share/share certificate numbers are not available. He contended that transactions are not sham or bogus.
18. It is pertinent to note that even at the time of hearing, the counsel of the assessee could not furnish the share certificate numbers/distinctive numbers. At page No. 71 the assessee has furnished delivery note dated 1-3-1993 issued by M/s. Adinath Investments. In this delivery note, distinctive numbers and share certificate numbers are not mentioned against column of distinctive number/share certificate numbers. Similarly in the correspondence with Jagdish V. Patel, assessee could not point out the distinctive numbers or share certificate numbers of ICICI delivered to the assessee. In this case search was conducted on 16-2-1993 and no evidence regarding purchase of shares of IPCL and ICICI were found by the search party though from the perusal of statement recorded and seized material, it can be seen that the search party seized loose papers which are contained in file annexure A-9. Details of these loose papers were confronted by the assessee during the course of search vide question No. 39. It is unbelievable that assessee made the purchase of shares on 2-11-1992 and 12-2-1993 but contract notes were not received till the date of search i.e., 16-2-1993. I also found considerable force in contention of learned Departmental Representative that after selling share of both the companies. Assessee could have paid only the difference amount of loss i.e., Rs. 2,17, 100 and Rs. 1,31,200. The assessee has not provided the distinctive numbers/share certificate numbers of share of IPCL and ICICI alleged to be purchased and claimed to be delivered after the date of search i.e., 16-2-1993. In these circumstances, in my opinion. Assessing officer is full justified in taking the view that the alleged loss in purchase and sale of shares is a colourful device to siphon off the income declared by the assessee during the course of search.
19. Without prejudice to above, in my opinion the loss in question is speculative business loss because assessee has not produced evidence of delivery i.e., Dist. No. Learned counsel for the assessee Cert. No. before departmental authorities below or even before us. Explanation 2 to section 28 clearly states that speculative transactions carried on by an assessee are of such a nature as to constitute the business, the "speculation business": which shall be deemed to be distinct and separate from any other business. Section 43(5) defines "speculative transaction". Since there is no proof of delivery and transaction is in question are not hedging transactions covered by exception to section 43(5) of the Income Tax Act, I am of the firm opinion that both the transactions which resulted in loss of Rs. 3,48,300 are speculative transaction. Moreover, section 73 clearly states that any loss computed in respect of speculation business carried on by assessee shall not be set off except against profits and gains, if any, of another speculation business. I am, therefore, of the view that even if it is presumed that alleged loss on sale and purchase of shares amounting to Rs. 3,48,300 is genuine in that event also same is not allowable keeping in view the Explanation 2 to section 28, "Definition of speculative transaction" contained in section 43(5) and provisions contained regarding set off of speculative losses in section 73 of the Income Tax Act, 1961.
20. For the reasons given hereinabove, I, therefore, hold that alleged loss of sale and purchase of shares amounting to Rs. 3,48,300 is correctly disallowed by assessing officer. I, therefore, reverse the order of learned Commissioner (Appeals) on this issue and restored the disallowance of Rs. 3,48,300 made by the assessing officer. Ground No. 2 of revenue appeal for the assessment year 1993-94 is allowed.
21. Ground No. 2 of assessee's appeal is that learned Commissioner (Appeals) erred in confirming the addition of Rs. 2,00,000 made by assessing officer as investment in house property which was disclosed by the assessee in the search proceedings.
22. In order to appreciate the controversy involved in this ground of appeal, I have carefully gone through the statement recorded during the course of search and finding of the assessing officer in the assessment order. The assessee is M. Com. A statement of the assessee was recorded during the course of search under section 132(4) on 16-2-1993. In reply to question No. 7 assessee has admitted that investment of approximately Rs. 2,00,000 from unaccounted income is made in purchase of furniture, household goods etc. in his house. The question No. 7 and reply of the assessee is reproduced hereunder:-
"Q. 7: Have you made any other investment other than shares and deposits as explained above from your unaccounted income, if any, give the details.
Ans: The expenditure made approx. more than Rs. 1 lakhs in purchase of Gold ornaments and approx. Rs. 2 lakhs in purchase of furniture, household goods etc. in my house. No other investments made by me.".
23. The assessing officer made the addition of Rs. 2 lakhs observing as under:-
"Investment in the renovation of house The attention of the assessee was drawn towards the admission made for the investment made in the 45, Juhu Park House at Nawa Wadaj, Ahmedabad in Ans. to Q, No. 7 of the statement of the assessee dated 16-2-1993 in which it is clearly admitted that he has made investment in the renovation, furniture and purchase of T.V. for Rs. 2 lakhs. In Q. No. 46 the assessee has made disclosure for Rs. 25 lakhs which includes investment in the renovation and furniture for Rs. 2 lakhs. The assessee has retracted from the disclosure of Rs. 2 lakhs on the grounds that the house at 45 Juhu Park Society, Nawa Wadaj, Ahmedabad belongs to Ramanlal Revabhai, HUF, which is separately assessed to tax with Income Tax Officer, Ward 8(4), Ahmedabad. No investment has been made by him. The assessee has furnished 2 different reports of the same date in respect of valuation as on 1-10-1987 when the construction of this property was completed for Rs. 2,08,000 including the cost of land at Rs. 25,000 and furniture at Rs. 35,000. The second report dated 31-3-1993 is for a valuation for Rs. 3,27,500, which includes additions and alterations made for Rs. 40,000 during the assessment year 1993-94 and increased in the value of existing house by Rs. 79,494 on account of increase in cost of the existing structure. From these two reports the assessee wants to believe the department that he has no made any investment in this house. From this report, one thing is very clear that some addition and alterations have been made for which value has been shown at Rs. 40,000 and there has also been increase in value of existing structure to the extent of Rs. 79,494. There has been no depletion in the value of house on account of depreciation being an old structure. Thus the report of the valuer cannot be believed in its true spirit. There is an evidence that renovation has been carried out. The assessee has made disclosure for renovation, furniture etc. The report of the valuer does not reflect any investment in furniture.
Therefore, the disclosure made for Rs. 2,00,000 on account of renovation of house etc., is a definite evidence which should be taken into account. The argument of the assessee that the disclosure was made under threat and pressure, carries no weight because there is evidence or renovation in the house property. Considering these aspects, I hold that the assessee has made investment in the house property as disclosed during the course of search. Therefore, an addition of Rs. 2,00,000 is made on account of unexplained investment in house property and furniture etc. Penalty proceedings under section 271(1)(c) are initiated on this count."
24. On appeal, in the impugned order learned Commissioner (Appeals) upheld the addition of Rs. 2,00,000 made by assessing officer on the ground that in the search on 16-2-1993, assessee has admitted that he made investment for renovation, furniture, purchase of TV etc. for about Rs. 2,00,000 not disclosed in the books of account. The Id. Commissioner (Appeals) also observed that in the disclosure, during the search, this investment of Rs. 2 lakhs was also surrendered, the learned Commissioner (Appeals) also rejected the claim of the assessee that investment of Rs. 2,00,000 relates to the HUF because before the Commissioner (Appeals) no evidence was filed. The learned Commissioner (Appeals) accordingly upheld the addition of Rs. 2,00,000 made by assessing officer as unexplained investment disclosed in the search.
25. At the time of hearing before Tribunal the counsel of the assessee drew our attention to Annexure-V of panchnama prepared during the course of search and argued that valued the furniture around Rs. 47,500 only. Out of the same the wooden cupboards and fixtures valuing Rs. 35,000 is shown in the balance sheet of Shri Ramanbhai R. Patel, HUF. He accordingly claimed that addition which can be made is only or Rs. 12,500.
26. On the other hand, learned Departmental Representative appeared for the revenue supported the orders of authorities below. He relied on the judgment of Hon'ble Kerala High Court in the case of V. Kunhambu & Sons (supra) and contended that in case of retraction the onus is on the assessee that statement was recorded by the search party under threat and coercion. Two independent witness were present at the time of recording of statement. Assessee had not obtained any statement or affidavit from them. He further submitted that disclosure of Rs. 2,00,000 was made in respect of purchase of furniture, house hold goods etc. in assessee's house. Before the search party, in reply to question No. 27, that assessee has stated that his monthly expenditure is Rs. 4,000. In reply to Q. Nos. 28 & 29, the assessee had admitted that telephone bills are paid by HUF out of agricultural income. The learned departmental Representative further drew attention of Bench to the assessment order for the assessment years 1990-91 to 1992-93 wherein addition of Rs. 19,580, Rs. 40,400 and Rs. 57,957 respectively made by assessing officer, which has been deleted by learned Commissioner (Appeals). It was pointed out by learned Departmental Representative that after making all these investments there is hardly any cash left with the assessee. It appears that alongwith the return of income of HUF no Balance Sheet was filed and the assessee has not furnished cash flow chart of HUF either before the assessing officer or Commissioner (Appeals). In these circumstances, Commissioner (Appeals) is legally and factually correct in holding that there was no amount left for any such expenditure for renovation, repairs etc. in HUF property.
27. I have carefully gone through the orders of authorities below. Rival submissions were also considered. In the statement recorded during the course of search under section 132(4), on 16-2-1993, it was stated by the assessee that he made investment for renovation, furniture, purchase of TV etc. for about Rs. 2,00,000. The statement recorded by the search party contained 46 questions and answers. From the perusal of same, I found that in respect of disclosure of Rs. 2,00,000 the assessee in reply to Q. 7 has clearly given even the source of earning of undisclosed income. The statement made by the assessee is voluntarily and same is binding on the assessee. For this reliance can be placed on Judgment of Kerala High Court in the case of V. Kunhambu & Sons (supra). Neither before the assessing officer nor Commissioner (Appeals) the assessee has furnished the cash flow chart of HUF. In the return of income of HUF for the assessment year 1993-94, the assessee has disclosed agricultural income of Rs. 1,86,987. The return of income is furnished by the assessee in the month of Feb., 1994. It is pertinent to note that in reply to question No. 7, in the statement recorded under section 132(4) on 16-2-1993, the assessee has stated that approximately yearly agricultural income of HUF is Rs. 1 lakh. This clearly indicate that assessee has inflated the agricultural income to cover up the undisclosed income as disclosed income. At any rate since the assessee has not furnished cash flow chart, I am of the view that learned Commissioner (Appeals) has given cogent reason for upholding the addition of Rs. 2 lakhs. I, therefore, uphold the order of learned Commissioner (Appeals) on this issue. Ground No. 2 of assessee's appeal is accordingly rejected.
28. In respect of other ground of appeal for both the appeals of assessment year 1993-94 and appeal of revenue for the assessment years 1990-91 to 1992-93, I fully agree with the view taken by my learned Brother.
29. In the result, the appeal of revenue for the assessment years 1990-91 to 1992-93 are dismissed. The appeal of the assessee for the assessment year 1993-94 is also dismissed. The appeal of revenue for the assessment year 1993-94 is partly allowed.
ORDER UNDER SECTION 255(4) OF THE INCOME TAX ACT, 1961 As there is a difference of opinion, the matter is being referred to the Hon'ble President of ITAT with a request that the following questions may be referred to a Third Member or pass such orders as the Hon'ble President may kindly decide:
ITA No. 5228/A/95-A.Y. 1993-94"Whether on the facts and circumstances of the case, the Accountant Member is justified in upholding the order of Commissioner (Appeals) allowing the short term capital loss of Rs. 3,48,300 or Judicial Member is justified in reversing the order of learned Commissioner (Appeals) on this issue for the assessment year 1993-94?"
ITA No. 4646/A195-A.Y 1993-94 "Whether on the facts and circumstances of the case, the Accountant Member is justified in reducing the addition of Rs. 2 lakhs to Rs. 12,500 or Judicial Member is justified in upholding the order of learned Commissioner (Appeals) confirming the addition of Rs. 2,00,000?"
THIRD MEMBER ORDER Per Shri R.P. Garg, Vice President - These two appeals came up for consideration before the Division Bench and there struck a difference of opinion between the two Members on the following two points:-
ITA No. 5228/Ahd./1995 - Asst. Year 1993-94 "Whether, on the facts and circumstances of the case, the Accountant Member is justified in upholding the order of Commissioner (Appeals) allowing the short term capital loss of Rs. 3,48,300 or Judicial Member is justified in reversing the order of learned . Commissioner (Appeals) on this issue for the assessment year 1993-94?"
ITA No. 4646/Ahd./1995 - Asst. Year 1993-94 "Whether, on the facts and circumstances of the case, the Accountant Member is justified in reducing the addition of Rs. 2 lakhs to Rs. 12,500 or Judicial Member is justified in upholding the order of learned Commissioner (Appeals) confirming the addition of Rs. 2,00,000?"
The President, Income Tax Appellate Tribunal referred this case for my opinion on the aforesaid two differences as a Third Member.
2. The facts are that search and seizure action was taken in the case of the assessee on 16-2-1993 in the course of which certain cash, ornaments and share certificates aggregating to Rs. 10,63,487 were seized. The assessee was found operating 10 bank accounts in different names of the family members. When appraised of the provisions of Explanation 5 to section 271(1)(c) of the Income Tax Act, 1961, the assessee voluntarily declared unaccounted income of Rs. 25 lakhs stated to have been earned from the business of sale and purchase of shares which was not shown in the current year's books and the details of the assets in which the said income was invested were given in answer to question No. 46 which reads as under:
"Ans. 46 The undisclosed income of Rs. 25,00,000 declared by me in Ans. 45 is invested in the following assets:-
Rs.
Amount of loan shown in Ans 11,97,000 Amount invested in House & Furniture 2,00,000 Cash found today 10,000 Unaccounted ornaments found today 53,500 Miscellaneous loans 39,500 Investment in shares 10,00,000 Total 25,00,000 There is investment in shares and accordingly disclose income and out of that shares some shares has been purchased from market directly and some shares allotted through application. I declare this amount subject to any difference in share valuation and if there is any change in share valuation, I give my consent thereto accordingly. I declare the above Rs. 25,00,000 as undisclosed income in equal shares in the names of myself Rameshbhai Ramanlal Patel, my wife Naynaben Rameshbhai Patel, my father Ramanlal Revabhai Patel and my mother Rajiben Ramanlal Patel. I will accept the whole disclosure in my name and my wife's name if it is not agreed by them and I agree to pay tax thereon."
3. The assessee, however, filed a return of income declaring total loss of Rs. 1,06,510 and on scrutiny of the aforesaid income, the assessing officer inter alia noticed that the assessee had claimed a loss on shares amounting to Rs. 3,48,300 and held the same to be fictitious loss to siphon off the income declared as bogus transactions. He also noticed that a sum of Rs. 2 lakhs which was stated to be the investment in house and furniture out of the undisclosed income of Rs. 25 lakhs was not disclosed in the return of income even though the said income was agreed to have been declared pursuant to question Nos. 45 and 46 of the statement under section 132(4) of the Act.
4. As regards the loss in the share the assessing officer noticed that the claim pertained to the sale of 1300 IPCL shares and 400 ICICI shares. The respective loss of Rs. 2,17,100 and Rs. 1,31,200 aggregating to Rs. 3,48,300 was claimed set off against the capital gains on the share transactions deposited in the bogus bank account of Rs. 1,37,286 as also against the income from other sources. The sequence of dealings in these two shares are tabulated by the assessing officer on page 8 of his order as under:
Purchase and sale of 1300 IPCL shares through Adinath Investment, Prop. Shri Bhagehand G. Jain Purchase and sale of ICICI 400 shares through Jagdish P. Patel
1. Date of contract for purchase 2-11-1992 12-2-1993
2. Date of delivery of shares 1-3-1993 27-2-1993
3. Date of payment 23-3-1993/356200 10-3-1993 /2,00,000 17-3-1993 /2,00,000 1,55,200 5,55,200
4. Dated of contract for sale 4-3-1993 5-3-1993
5. Dated of delivery of sold shares 22-3-1993 6-3-1993
6. Dated of receipt of payment 26-3-1993/139100 17-3-1993 /1,24,000 (encashed on 27-3-1993) 22-3-1993 /3,00,000 4,24,000
7. Short term loss claimed 2,17,000 1,31,200 In order to verify the loss the assessing officer issued summons to Adinath Investment and Shri Jagdish P. Patel through whom the purchase and sale of shares were alleged to have been routed through. His Inspector reported that the concern Adinath Investment was not found available and on enquiry it was reported that the said party had closed the business and its whereabouts were not known. The assessing officer, therefore, asked the assessee to produce the party for interrogation along with his books of account, bank accounts, contract form book, delivery note book, sale book relating to the sale of shares, etc. Though Shri Bhagchand Jain, the proprietor of Adinath Investment was produced and his statement was recorded but he did not produce any books of account or contract form book, delivery book, sale. contracts form book and Sauda Vahi which were called for. The assessing officer, therefore, observed that mere admission by the broker that he has purchased the shares and sold the shares on behalf of the assessee was meaningless. He further observed that Shri Bhagchand Jain could not fell from whom the shares were purchased on behalf of the assessee and to whom the shares were sold on his behalf. The distinctive numbers were also not available on the delivery form, a copy of which was furnished by the assessee; nor the broker could produce any evidence about the same. The broker had also admitted before the assessing officer that he was not maintaining any books of account. The assessing officer also observed that the delivery for the purchase of shares and delivery of the shares sold and the payments were made after the date of search though the contract had taken place on 2-11-1992. He further observed that the payment for the allege purchase was stated to have been made on 23-3-1993 and the receipt of payment for the sale was on 26-3-1993 which was a strange affair within a gap of only 3 days. He, therefore, held the transaction to be a colourable device to siphon off the income declared by the assessee as bogus transactions.
5. With regard to the sale of shares of ICICI he noticed that the assessee has not furnished the copy of contract form, delivery memo and distinctive numbers of the shares purchased and sold, though a Xerox copy of the purchase memo in respect of ICICI shares was filed. Summons were issued to Shri Jagdish Patel to attend the office with books of account, bank accounts, contract form, Sauda Vahi, etc. but on the appointed day the broker did not turn up. The assessing officer, therefore, informed the assessee to produce the said broker and present himself on a subsequent date but on that date also neither the broker was produced nor the assessee presented himself. However, the assessee filed a confirmatory letter from Shri Jagdish Patel dated 16-1-1999 for the purchase, delivery, sale and receipt and payment of purchase and sale consideration. The assessing officer in these circumstances failed to understand that when the broker can confirm the transaction in writing to the assessee, why he could not remain present before him in spite of the summons issued and why the assessee could not produce him either. He, therefore, formed a strong belief that the alleged transaction of ICICI shares was fishy and the loss claimed was a fictitious one to siphon off the income declared as bogus transaction. He, therefore, disallowed the entire claim of loss of Rs. 2,48,300.
6. The Commissioner (Appeals) allowed the claim of the assessee by observing that the transactions were incurred through the broker appointed by the Government of India, that both the brokers have confirmed the transactions and copy of transfer memo, payment, delivery, etc. have been filed; that the assessee had also filed a copy of the bank account to prove the payment for purchase of shares and the receipt in the bank account; that the shares of both the companies were quoted in the stock exchange and the rate of transactions was verified from the quotation and that there was no evidence with the assessing officer which was found in the search to show that these were not genuine transactions.
7. When the matter came up before the Tribunal there struck a difference of opinion between the two Members. The Accountant Member held that the loss incurred in these transactions was allowable and there was no infirmity in the order of the Commissioner (Appeals) by observing that the assessee was found to be carrying on several transactions in shares as per seized material found during the search - that one of which was treated to be the contract note for purchase of shares of IPCL; that from the details of the transactions it was seen that the assessee had entered into valid contract for purchase and sale of shares; that brokers have raised bills for the same; that the assessee had made payments in full for purchase of shares; and that the delivery was effected; that the transactions were at market price. He, therefore, held that in such a situation to hold that only because the payment was made even subsequent to the contract for sale, the transaction was colourable device would be purely on surmise and contrary to the facts. According to him, the assessee had discharged the onus of proving the genuineness of the transactions. He also observed that the assessee cannot be said to be controlling the record of the broker and only because the broker could not produce certain material called by the assessing officer or could not appear in person would not be a valid ground for holding the transaction as bogus or colourable device. According to him, the assessee had actually incurred the loss which was not a fictitious loss. Observing that the brokers have confirmed the transactions as per bills and contract notes raised by them, the transaction in sale and purchase of shares had taken place and the loss incurred on such transactions was, according to him, therefore, allowable. The Judicial Member, on the other hand, observed that the counsel of the assessee could not furnish the share certificate number, distinctive number; that in the delivery note dated 1-3-1993 the distinctive numbers and share certificate numbers have not been mentioned against the column of distinctive number and share certificate number and similarly in the correspondence with Jagdish P. Patel the assessee could not point out the distinctive number or share certificate number of ICICI shares delivered to the assessee. He also observed that the search was conducted on 16-2-1993 and there was no evidence regarding the purchase of shares of IPCL and ICICI found by the search party though from the perusal of the statement recorded and seized material it could be seen that the search party seized loose papers which were contained in file Annexure A-9 which were confronted to the assessee during the course of search vide question No. 39. He also found it unbelievable that the assessee made purchases of shares on 21-1-1992 and 12-2-1993 but contract notes were not received till the date of search on 16-2-1993. He also found considerable force in the contention of the Departmental Representative that after selling the shares of both the companies the assessee could pay only the difference amount of the loss namely Rs. 2,17,000 and Rs. 1,31,200. He further observed that the assessee had not provided the distinctive numbers/share certificate numbers of IPCL and ICICI alleged to be purchased and claimed to have delivered after the date of search. He, therefore, formed an opinion that the assessing officer was fully justified in taking the view that the alleged loss in the purchase and sale of shares was a colourable device to siphon off the income declared by the assessee during the course of the search. He gave an additional finding also stating that the assessee has not produced evidence of delivery i.e., distinctive numbers and certificate numbers before the departmental authorities or even before the Tribunal and, therefore, it was a speculation loss not allowable to be set off against his income except against profits and gains if any of any other speculation business.
8. The arguments and submissions of the parties were heard and considered. The transactions of shares were through middlemen. They were not for spot delivery. Both the transactions of purchases were stated to be before the date of search on 16-2-1993, namely 1,300 shares of IPCL by contract dated 2-11-1992 and 400 shares of ICICI by contract dated 12-2-1993. Neither of the contract note or document was found in the search proceedings. The assessee's explanation is that the contract note in the first case was part of Annexure A- 10 (and not Annexure A-9 wherein it was held to be not there by the Judicial Member) and the bill for ICICI shares was issued on 16-2-1993, a date of the search. This bill incorporated that the contract for purchase was on 12-2-1993. No evidence, however, is brought on record as to whether the contract note for the first purchase formed part of Annexure A-10 which the assessee stated that he would produce but subsequently expressed his inability to produce as the contract note/document was not found traceable. In the case of second purchase the reliance is only on the bill dated 16-2-1993 mentioning about the date of contract as on 12-2-1993 which contract also is not brought on record.
9. Both the middlemen are not brokers of any stock exchange nor were they appointed by the Government of India as stated (wrongly) by Commissioner (Appeals). One of them is now said to be a sub-broker and the other is only a consultant. A person who is not a broker is normally not allowed to transact business of forward transaction by virtue of section 13 of the Securities, Contract (Regulation) Act, 1956, the exception being for spot delivery transactions under section 18 of the said Act. The press note referred to by the learned counsel of the assessee regarding the working of brokers and sub-brokers does not throw any light on this aspect.
10. The shares of IPCL are stated to be through Adinath Investments whose proprietor is stated to be Shri Bhagehand Jain and who is claimed to be broker originally. The party was not found available on enquiries made by the Inspector as they had closed their business and on being told, the assessee produced said Shri Bhagchand Jain who though acknowledged the transaction but affirmed for having not maintained any books of account. He could not file any details or as to from whom he had purchased the shares and to whom they were sold. He was not having any contract book nor any delivery book nor the sale book or Sauda Vahi book. Another middleman Shri Jagdish Patel did not respond to the summons. He was also not produced by the assessee. A confirmatory letter dated 16-1-1999 was, however, filed from him for purchase, sale, receipt and payment of purchase and sale consideration. Only a bill dated 16-2-1993 is filed which gives an impression of a contract having been entered into on 12-2-1993. No copy of the said contract is filed. The identity of this person thus cannot be said to have been proved on account of his absence to appear. Documents submitted are not sufficient to prove the transaction.
11. The delivery period for settlement is normally 15 days but the transaction remained unsettled for a longer period i.e., in case of IPCL shares for almost about 4 months - contract is dated 2-11-1992, delivery of shares on 1-3-1993 for purchases and after 18 days for sale by contract dated 4-3-1993 and delivery on 22-3-1993. It could be because he was not the broker but a sub-broker and not entitled to transact business of sale and purchase of shares except for spot delivery.
12. No details of the distinctive numbers or share scrip numbers were given either f or the purchase or sale of these shares of IPCL and ICICI. The contract note and the documents filed though contained a column for distinctive numbers but they were left blank.
13. The payment for the purchase in IPCL shares was made even after 22 days of the stated delivery i.e., 4 months and 22 days from the date of the contract for purchase. It was for the full amount even though the assessee had already sold the shares much before the payment was made - sale of the shares being on 4-3-1993 and payment for purchase made on 23-3-1993 in case of IPCL shares and sale on 5-3-1993 and payment for purchase on 10-3-1993 and 17-3-1993 in case of ICICI shares. There seems to be no justifiable reason for making full payment for the purchases without deducting therefrom the sale price of these very shares and the amounts in the normal circumstances should have been settled by payment of the net amount, the transactions of both purchase and sale have already been completed before such payment.
14. The Commissioner (Appeals) stated that copy of bank account is stated to have been filed to prove the payment but that is the account of the assessee and not of broker or to whom or from whom the money was received or paid. At best the bank entries could vouch for the payment and the transaction as such.
15. The cumulative effect of all these, in my opinion, was that the transaction was not genuine and a show was made to create a loss to reduce the tax on the income of the assessee. The Judicial Member was, in my opinion, justified in holding the transactions to be not genuine and alternatively also, for holding that the loss was speculative loss as the transactions were settled without delivery of shares. It is true that the brokers are not under the control of the assessee but when the loss is claimed as a deduction it is for the assessee to prove that he had incurred the loss and in absence of the examination of broker, his books of account and other material, it was not proved particularly when no details of the distinctive numbers/certificate numbers of the shares purchased and sold was claimed to have been taken or given through the brokers were brought on record.
16. The second point of difference is for the addition of Rs. 2 lakhs under the head investment in the renovation of the house, 45 Juhu Park House at Nava Vadaj, Ahmedabad. In the statement under section 132(4) vide answer to question No. 7, the assessee admitted that approximately Rs. 2 lakhs expenditure was made in repairing the house, purchase of furniture, household goods, etc. which was the investment from unaccounted income. The answer to question No. 46 giving details of the disclosure of Rs. 25 lakh also include investment in the house and furniture of Rs. 2 lakhs which is evident from the portion extracted above. The said declaration of Rs. 25 lakhs was in response to Explanation 5 to section 271(1)(c) by the authorised officer to the assessee. The said question No. 46 and answer thereto are as under :-
"Q. 45 I am explaining you the Explanation 5 of section 27 1 (1)(c) of the Income Tax Act. After understanding the provisions accordingly, whether you want to disclose voluntarily any your undisclosed income ?
Ans. Yes, Sir, I understand the Explanation 5 of section 271(1)(c) of the Income Tax Act as explained by you and I want to take the benefit by disclosing my undisclosed income and I want to declare the following income. I declare unaccounted income of Rs. 25,00,000 earned from the business of sale and purchase of shares which is not shown in current years books and I am agree to request the whole tax on this income. And I pray that I should get relief from penalty and prosecution proceedings. This income is my current year's income and I earned it from business of sale and purchase of share."
17. In the assessment proceedings, however, the assessee retracted from the disclosure of Rs. 2 lakhs by stating that the said house belonged to Ramanlal Revabhai (HUF) and that no investments have been made by him. He furnished two valuation reports in respect of valuation as on 1-10-1987 showing the construction cost of the property at Rs. 2,08,000 including the cost of the land at Rs. 25,000 and furniture Rs. 35,000. in the first report and valuation report as on 31-3-1993 valuing Rs. 3,27,000 including the additions and alterations of Rs. 40,000 during the assessment year 1993-94 and increase in the value of existing house by Rs. 79,494. The assessee claimed that he had not made any investment in the house.
18. The assessing officer did not agree with the contention of the assessee. On perusal of the reports he found one thing certain that some additions and alterations have been made for which value has been put at Rs. 40,000; and that there was an increase in the value of the existing structure to the extent of Rs. 79,494; and that there was no depletion on the value of the house on account of depreciation being an old structure. He, therefore, held that the report of the valuer cannot be believed in its true spirit. The assessee had made disclosure for renovation and furniture, etc. and the report did not reflect any investment in furniture. He also rejected the contention of the assessee that the disclosure was made under threat and pressure in view of the fact that there was an evidence for renovation in the house property. He, accordingly, made an addition of Rs. 2 lakhs to the income of the assessee.
19. The Commissioner (Appeals) sustained the addition by observing in paragraph 28 as under :-
"28. I have considered the facts and I find that there is no house property in the name of. the individual but the assessee can make the investment of for renovation and furniture in the property of HUF also. The accounts of the HUF of last four years have been discussed above while considering the household expenses and some investment in shares. There was no amount left for any such expenditure for renovation, repairs etc. in the HUF property. I, therefore, agree with the assessing officer that the investment should be considered in the hands of the individual. This has already been admitted in the search proceedings and the addition of Rs. 2,00,000 is, therefore, sustained."
20. When the matter came up before the Tribunal there was a difference between the two members. The Accountant Member held that the assessee had proved by furnishing valuation report in respect of the house property that there was no major renovation of the house during the relevant financial year; that the value of the household articles found as narrated in Annexure-V of Panchnama prepared during the course of search, values around Rs. 47,500 out of which the value of wooden cup boards and fixtures valuing Rs. 35,000 was shown in the balance sheet of the HUF which was filed prior to the date of search. According to him, therefore, the only question was whether the assessee could retract from the statement given during the course of search. According to him, the assessee had stated that disclosure was towards investment in furniture and household goods only and there was no disclosure in respect of investment in renovation of the house or house property and even no material was found which suggested that any renovation in the house was carried out during the year. Thus, according to him, the statement if interpreted in proper perspective indicated that no disclosure was made towards investment in renovation of house. He also observed that even otherwise, a statement was made under mistaken facts or under wrong interpretation of law which can very well be retracted by giving cogent reasons for the same supported by necessary evidence which according to him, was given by the assessee by way of filing valuation report showing no investment in house property and investment found as per AnnexureV of the Panchnama being of the value less than Rs. 47,500. He, therefore, restricted the addition of undisclosed income invested in household articles to Rs. 12,500 only (Rs. 47,500 - Rs. 35,000). The Judicial Member, on the other hand, held that in the statement under section 132(4) the assessee had stated that he had made investment for renovation, furniture, purchase of TV, etc. for about Rs. 2 lakhs which is evident from the perusal of details given in answer to question No. 46 of the statement making disclosure of Rs. 2 lakhs and the reply to question No. 7 clearly giving the source of earning of undisclosed income. It was a voluntary statement and was binding on the assessee in view of the judgment of the Kerala High Court in the case of V. Kunhambu & Sons (supra) according to him, neither before the assessing officer nor before the Commissioner (Appeals) the assessee has furnished the cash-flow statement of the HUF and in the return of HUF for assessment year 1993-94 the assessee had disclosed agricultural income of Rs. 1,86,987 which was furnished in the month of February, 1994 even though in reply to question No. 7, the assessee had stated that approximately the yearly agricultural income of the HUF was Rs. 1 lakh which, according to him, indicated that the assessee had inflated the agricultural income to cover up the undisclosed income in the absence of any cash-flow chart. The Commissioner (Appeals), according to him, gave cogent reason for upholding the addition and he upheld the same.
21. The submissions of both the sides were heard and considered. The addition was made by the assessing officer primarily on the basis of the statement given by the assessee under section 132(4). His statement is to be taken and used as an evidence against the assessee by virtue of the provisions of section 132(4) which reads as under:-
"132(4) The authorised officer may, during the course of the search or 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 Indian Income Tax Act, 1922 (11 of 1922), or under this Act"
22. It is true that an assessee has a right to retract but that has to be based on evidence brought on record to the contrary and there must be justifiable reason and material accepting retraction. The cogent and sufficient material has to be placed on record for acceptance or retraction. It is not a case of pressure or coercion having been applied against the assessee. It was a statement in the presence of two witnesses and not an extraction from the assessee. Question No. 45 and answer given thereunder as extracted above clearly demonstrate that the assessee was explained the provisions of Explanation 5 to section 271 (1)(c) of the Act and upon understanding the provisions he replied and made a declaration of Rs. 25 lakhs stated to have been earned by him out of business of sale and purchase of shares. The assessee has not retracted this portion of the statement namely, the earning part of the income. It is only the utilizaton which is being challenged where the assessee wants to state that it was wrong and not supported by sufficient evidence. His claim is that in the Panchnama the furniture and household goods were not worth Rs. 2 lakhs for the acquisition of which the undisclosed income was stated to have been utilized. The assessee also attempted to support it by the two valuation reports of the construction which included household articles. The panchnama is for household goods only and not for the repairs of the house which is one of the investments forming part of Rs. 2 lakhs. The valuer had valued the property - one as on 1-10-1987 and another on 31-3-1993. The difference in the valuation of these two reports is of Rs. 1, 19,000 (Rs. 3,27,000 minus Rs. 2,08,000). In may opinion, the valuation report cannot be equated as proof of the assessee having not invested money for the house or household goods or furniture therein. The valuer has stated that he has inspected the property on 24-12-1994 for both the valuations. Both the reports were signed on 26-12-1994. These dates are much after the dates of search. As to what were the construction earlier and what were made during the period under consideration and upto the date of inspection is not known. The furniture and household goods for which the declaration was made might not be there in existence on the date of the inspection. Therefore, not much reliance can be placed on the valuation reports vis-a-vis the declaration made by the assessee. The Panchnama only shows the household goods and furniture and not the investment in the house and therefore, this also cannot be a ground for demolishing the version of the assessee made under section 132(4) of the Act stating that he has invested Rs. 2 lakhs in the house and household goods. Not only at one place, the assessee has stated at other places that he has invested Rs. 2 lakhs in repairs /renovation, furniture and household goods. (see question No. 7 and answer thereto which are extracted in the order proposed by the Accountant Member) and for the sake of convenience it is reproduced hereunder:-
"Q7: Have you made any other investment other than shares and deposits as explained above from your unaccounted income if any, given the details?
A.7 The expenditure made approx. more than Rs. 1 lakhs in purchase of Gold Ornaments and approx. Rs. 2 lakhs in purchase of furniture, household goods, etc. in my house. No other investments made by me."
Again, I find a mention of the said declaration of Rs. 2 lakhs in answer to question No. 46 which has been extracted above.
23. A dispute is raised by the assessee that the statement does not say or repair and renovation and it was wrongly stated by the assessing officer. According to the assessee, the declaration the disclosure was for investment in furniture and household goods. The confusion is because of the free English translation furnished by the assessee. The statement was recorded in Gujarati and answer to question No. 7 incorporated is reproduced hereunder in italic alphabets :-
"7. Sonana gharena aashare Rs. 1,00,000 karta vedhare ane aashare Rs. 2,00,000 i.e main gharma dhurusti, furniture ane TV leva mate kharchel che. Biju kol rokan main karel nathi."
It therefore, specifically says that the expenditure of Rs. 2 lakhs was for "Dhurusti" which means repairs and renovation of the house besides furniture and TV. In my opinion, therefore, the assessee is not right in stating and the Accountant Member is right in accepting that there was no disclosure of repair and renovation included in the said sum of Rs. 2 lakhs. The answer to question No. 46 also states "amount invested in house."
24. In my opinion, therefore, the addition of Rs. 2 lakhs was rightly made and the Judicial Member was right in upholding the same.
ORDER UNDER SECTION 255(4) OF THE INCOME-TAX ACT Per T.K. Sharma Judicial Member. - In conformity with the majority opinion, in revenue's Appeal ITA No. 5228 /A/ 1995, we reverse the order of learned Commissioner (Appeals) allowing short term capital loss of Rs. 3,48,300 with regard to 1300 IPCL shares and 400 ICICI shares and further upheld the order of learned Commissioner (Appeals) confirming the addition of Rs. 2 lakhs made by the assessing officer as investment in house property disclosed by the assessee in search proceedings for the assessment year 1993-94.
2. In the result, the appeal of the revenue for the assessment years 1990-91 to 1992-93 are dismissed and for the assessment year 1993-94 partly allowed. The appeal of the assessee for the assessment year 1993-94 is dismissed.