Income Tax Appellate Tribunal - Mumbai
Parvez K. Raisi , Mumbai vs Assessee
IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH 'C' MUMBAI BEFORE SHRI R K GUPTA, JM & SHRI T R SOOD, AM IT(SS)A No. 110/Mum/07 (Block period 1.4.1996 to 21.1.2003 ) Shri Parvez K Raisi M/s Topaz Bar & Restaurant 416 M S Ali Road Near Novelty Cineme, GrantRoad Mumbai 7 Vs The Dy Commr of Income Tax Central Cir 9 Mumbai PAN ADPPR2000R IT(SS)A No. 111/Mum/07 (Block period 1.4.1996 to 21.1.2003 ) The Dy Commr of Income Tax Central Cir 9 Mumbai Vs Shri Parvez K Raisi M/s Topaz Bar & Restaurant 416 M S Ali Road Near Novelty Cineme, GrantRoad Mumbai 7 (Appellant) (Respondent) Assessee by: Shri S C Gupta Revenue by: Shri Yeshwant U Chavan ORDER
PER BENCH:
These are two appeals by the assessee and the department against the order of the CIT(A) relating to block assessment from 1.4.96 to 21.1.2003.
2 Various grounds of appeal have been taken by both the parties in their respective appeals. At the time of hearing of these appeals, the ld counsel, who appeared before the Tribunal has filed written submissions which is placed on record. After taking to consideration the written submissions, the appeal of the assessee and the department are being disposed as under:
3 Grounds 1, 2 & 3 are interconnected which relate to in confirming the rejection of books of account for the broken period and confirming the disallowance on account of broken period at Rs. 1,67,77,415/-.
3.1 In the appeal of the department the grounds no. (i)(a),(ii); iii(a) and iii(b) are against in observing that the books of accounts were available during the survey as well as during the course of search action and the same could not be rejected u/s 145A and deleting the addition for AY 1997-98 to 2002-03 for 72,14,130/-; 73,18,080/-; Rs72,97,290/-; Rs.73,59,660/; Rs.2,63,40,929/- and Rs. 2,93,55,480/- respectively and also against deleting the addition of Rs. 1,67,22,416/- for AY 1996-97 to 2001-02 in respect to sale of liquor and non-alcoholic drinks. These grounds are inter-connected; therefore, the same are being disposed off together.
3.2 The AO has estimated income under various items against which assessee has disputed the very basis upon which AO has assumed jurisdiction to estimate the income.
4 Briefly stated, the facts in this case are that the assessee is proprietor of M/s Topaz Bar & Restaurant, engaged in the business of dancing activity, liquor and non-liquor sale etc., under the name and style of 'Topaz Bar & Restaurant' holding license to play orchestra and dances on recorded music since 1990. Female dancers perform live and money gifted to these artists by customers is shared by artist and assessee. Thus, there are two types of income from this bar i.e. usual income from sale of food, liquor and then, entertainment income by way of share from dancing activities.
4.1 In this case a Search action u/s 132 of the Act was conducted at the residential and business premises of the assessee 21-01-2003. Prior to the search, survey u/s 133A of the Act was conducted at the business premises of the assessee on 14.12.2002. During the course of survey the assessee had disclosed an amount of Rs. 2.50 crores as additional income over and above the regular income and the same has been shown by the assessee in return and has paid the tax on this amount.
4.2 During the course of search cash and other incriminating material were found and seized from the business premises as well as the residence premises of the assessee and various other persons related to the assessee searched. Consequently to the search action for the block period from 1.4.1996 to 21.1.2003 notice u/s 158BC dated 14.8.2003 was issued and served to the assessee on 19.8.2003. In response to the same, the assessee has furnished the block return on 4.9.2003 declaring undisclosed income as nil. Notice u/s 143 (2) and 142(1) along with detailed questionnaire dated 16.2.2004 was issued and served to the assessee on 17.2.204. In response to the same, the assessee has furnished explanation on 22.11.2004. Further questionnaire dated 20.12.2004 along with notice u/s 142(1) was also issued. Thereafter, various representatives appeared before the AO and filed details. Thereafter, after considering the material found during the course of search and taking into consideration the statement of Shri K B Irani, an employee of the assessee company and the statement of Shri Parvez K Raisi (the assessee), the AO proceeded to make various additions. The AO has also taken into consideration the return for the block period as well as return of various assessment years filed within the block period.
4.3 Various aspects of survey and searches, documents founds, statements recorded etc have been discussed at length by AO on pages 3 to 28 of impugned block assessment order. The main findings given by the AO are summarized in para 21 page 19 on the basis of which AO assumed jurisdiction to estimate income on various counts. The broad findings are that;
A] During searches, no books were found. During survey, cash book and ledger for 01-04-2001 to 31-03-2002 were found. However, no books for 01-04-2002 were found during searches or survey.
B] During the course of survey, daily performer's statements for 01-04-2002 to 13-12-2002 (two sample statements at P.B. 305 & 306) were found. Since no such statement for later period were found during searches, it can be concluded that assessee was not in habit of maintaining such statements and he misrepresented during survey by producing statements before survey party.
C] Assessee in his statement u/s 132 (4) recorded on 22-01-2003 [ P.B.7] has accepted real turnover.
D] Sh K.B Irani and other employees have admitted the real turnover in their statements recorded during searches.
E] Assessee claimed to have entered into five years agreement with Sh. V.M. Ghadiyali under which Sh. Ghadiyali was operating dance conducting business and he was required to pay Rs. 50,000/- per month to assessee if the dancing activity continued for more than 10 days in a month. He paid Rs. 6 lakhs per year in F.Y. 2000-2001 and 2001-2002 but paid nothing for F.Y. 97-98 to 99-2000 on the ground of lesser dancing activities. In views of assessing officer, Sh. Ghadiyali was just a name lender, had no means, had no office, had no books of account and therefore, claim made before survey party was a misrepresentation. He added income from conducting business in the hands of assessee for entire block period.
F] During searches, a sheet of paper was found which indicated gross receipt by performers on 27-12-2002 at Rs. 2.52 lakhs. AO was of the view that 30% was the share of assessee and additional 10% should be added for special days like festivals, parties etc. He accordingly estimated higher income from conducting business.
H] During survey, a menu card mentioning rates for liquors etc was found but menu card found during search indicated higher rates. AO rejected the claim of assessee that new card was in use from 15-12-2002 and held that this card was in use throughout the block period. He accordingly estimated higher income from sale of liquor.
5 Thereafter, vide order dated 25.1.2005, the AO finalised the assessment u/s 158BC for the block period and by way of estimation, the total undisclosed income was estimated at Rs. 13,74,77,573/-. An addition of Rs.9,10,80,615/- was proposed to be made on the basis of unexplained investment, expenditures etc. This addition of Rs. 9.10,80,615/- was taken by the AO as covered by the said estimation of undisclosed income of Rs. 13,74,77,573/-; therefore, no separate addition was made on this amount. However, the AO stated that if the estimated additions are deleted by the appellate authorities then the proposed additions of Rs. 9,10,80,615/- will be treated as the undisclosed income of the assessee. The assessee preferred appeal before the CIT(A).
5.1 The first issue raised before the CIT(A) was against rejecting the books of accounts by invoking the provisions of sec. 145 of the Act.
5.2 This issue has been discussed by the AO at paras 9 to 22 of the assessment order. The AO has observed in his order that the assessee has not been showing the entertainment receipts from dance activities in the books of account. Evidences have been found that sales of liquor and non-liquor drinks are recorded at lower rates. The assessee has admitted in his statement the real turnover of the business. The proof of entertainment receipts have been found during the course of search in the form of cash, performance sheet of daily collection, cash loan advance etc. The AO also observed the disclosure of concealed income made by the assessee during the course of survey u/s 133A is also conclusive proof that huge unaccounted money is received by way of dancing activity, which never found an entry in the books.
5.3 As against this observation, it was submitted before the CIT(A) that dancing activity during April 1997 to March, 2002 was with Viraf Minoo Ghadiyal. As per arrangement, Rs. 6 lac per annum was received as income and was disclosed in the return of income for AY 2001-02 and 2002-03. For AY 1997-98 to 2000-01Mr Viraf Minoo Ghadiyali did not pay since the dance was not running for more than 10 days in a month, during that period and thus as per agreement, he was not liable to pay any income to the assessee. It was explained that sales are recorded at the respective rates at lower value or higher value depending upon timing i.e. day or night. These records are subject to verification by Sales Tax and Excise Departments. No adverse inference had been drawn by these departments. Higher rate menu card was seized only during the search and no such menu cards were found at the time of survey. The rates were increased w.e.f 15.12.2002 i.e after the survey. Sales are recorded in the books of accounts accordingly. No evidence about higher rates prevailing upto 31.3.2002 was found. It was further submitted that the assessee's answer during survey/search talks of gross collection, on ad-hoc basis. The income is a loose term and he did not mean net income earned per day. Secondly, the admission was for the current year, which is broken period. Till March, 2002, the dance activity was not under the control of the assessee and thus there will be no question of admitting any income from this activity for the prior period. The real turnover is known to the assessee alone. The statement of important employees again talks of gross turnover and not of net income. The seized documents and cash seized are properly explained and therefore, no adverse inference is necessary. The seized papers evidencing the daily collection from dance activity is of the broken period and that too only for one day i.e. 27.12.2002. The collection mentioned in the said paper cannot be generalized for whole period of block, particularly prior years of block period. No such proof was found for the earlier period. The alleged cash loans are not conclusively proved and in any case cannot be related to dance activity. The disclosure made during the survey has been properly explained vide letter dated 19.4.2005 and the same cannot be used against the assessee. The disclosure is for the current broken period, when the dance activity was under the control of the assessee. No evidence was found for the prior period. The details of regular return filed for AY 1997-98 to 2002-03 were furnished to CIT(A). It was further explained that the assessee has properly explained the modus operandi of the business and entertainment receipts. Books of accounts for the current year were maintained at a separate place away from the bar and hence they were not found at the time of search. However, the books of account upto 31.3.2002 were produced before the AO. Accordingly, it was submitted that provisions of sec. 145 for the purpose of rejection of books of account are not attracted. Cases on which reliance has been placed by the AO are on distinguishable facts.
5.4 The CIT(A), after considering the submissions and perusing the material on record was satisfied with the contentions of the assessee. It was observed by the CIT(A) that upto 31.3.2002 the books were available both at the time of survey as well as search. The AO has also accepted this fact in para 19 of the assessment order. It was also noted by the CIT(A) that the assessee has filed its return of income upto AY 2002-03 prior to the date of search. However, it was observed that the contention of the assessee that he had entered into a conducting agreement with Shri Varaf M Gadiyali from 1.4.1997 to 31.3.2002 and that from 1.4.2002, the assessee had himself carried on the activity are not disproved by the AO as the AO had mentioned in the show cause notice dated 18.1.2002 that Shri Gadiyali is a person of no means, who can take a major activity of such a reputed bar, he is simply a trusted employee of the assessee, he did not have an office nor maintains books of account, he has shown minimal receipts in the return of income filed, he could not say anything regarding the advertisement of Topaz Bar & Restaurant appearing in Tata Yellow Pages, and that he had not furnished the name and addresses of the dance artists as he has submitted that he does not have any records for the same. In response to this, the assessee vide letter dated 19.1.2005 has elaborately replied on all the issues raised by the AO. By observing these observations, the CIT(A) came to the conclusion that upto 31.03.2002, the proper books were maintained and no defect whatsoever have been pointed out that the books were wrong and therefore, the estimated income for the period upto 31.3.2002 was found not correct; accordingly, he allowed the ground of the assessee.
5.5 The CIT(A) has observed that the admission made have to be corroborated with material evidence. The evidence found does not show that the assessee was running the dancing activities during the period prior to 1.4.2002. The CIT(A) also observed that the AO had also not brought any evidence that the admission could be related to the dancing activities prior to the broken period. It was further observed by the CIT(A) that the AO had also stated in the assessment order that various important employees have admitted the real turnover of the business. In this regard, the assessee had made submission that beside his own statement, statements of Mr Harmoz Shahariarin, Variaf M Gadiyal and K B Irani were also recorded. Mr Harmoz was an employee of the assessee only, who had stated that daily collection of Topaz Bar is about Rs. 8000/-. Shri K B Irani is the owner of the Pejas Bar and is not an employee of the assessee. Mr Viraf M Vadiyali did not mention any amount about the earnings from the dance activity in his statement. Accordingly, the CIT(A) observed that the inference drawn by the AO that important employees have admitted the real turnover is a general and vague remark.
5.6 It was further observed by the CIT(A) that the performance sheet of daily collection pertains to only one day i.e. on 27.12.2002. As per the findings of the AO while making the addition, on account of cash amounting to 1.71 crores or so, the cash found cannot be correlated to the period prior to the broken period of the block period. The source of cash loans advanced is not proved as it co-relates it with the entertainment business activities of the assessee. In view of these facts, the CIT(A) found that there was no reason to draw an adverse inference against the assessee to reject the books of account for the whole block period on the basis of one day collection and cash found.
5.7 It was further noted by the CIT(A) that survey conducted u/s 133A is for the period involving the broken period of the block period. The statement of the assessee was recorded on 14.11.2002 which pertained to the broken period. In view of these facts and circumstances, the CIT(A) held that there was no occasion to reject the books by the AO prior to broken period. Accordingly, he held that books of accounts maintained by the assessee upto 31.3.2002 were correct and therefore, action of the AO rejecting the books of account maintained upto 31.3.2002 as reversed.
5.8 However, considering the facts that no books of accounts for the broken period were found at the time of survey and search, evidence were found in the form of unexplained cash charging of higher rate in liquor sales, suppression of entertainment receipts etc., the CIT(A) found that there was justification in rejecting the books for the broken period of the block i.e. from 1.4.2002 upto the date of search. Accordingly, it was held that the AO was right in rejecting the books of account for the broken period. Thereafter, the CIT(A) decided the issue on the bass of the addition made.
6 The second issued raised before the CIT(A) was against the addition of Rs. 10,16,62,984/- estimated for the block period.
6.1 The AO, after rejecting the books of accounts, estimated undisclosed income from dance activity based on seized paper no.24 and its backside of Annexure A-2, on which date 27.12.2002 is mentioned. The AO discussed the issue in paras 29 to 43 of his order. According to the AO, the seized paper shows gross receipts on 27.12.2002 at Rs. 2,52,600/ which can be relied upon for the purpose of estimation of the income for whole of the block period. On this basis at least 30% can be the net daily receipt of the assessee from entertainment income. This works out to R. 75,600/- per day on an average. Taking into account the total number of working days of the broken period upto the date of search, the receipt from dancing will be Rs. 2,16,97,200/-(287 x 75,600/-). The total number of days other than dry days being 287(295 - 9). Plus 10% is added for special days like Christmas, new Year eve, parties, birthday celebrations etc. Thus, after adding another 10%, the income from dancing activity has been worked out at Rs. 2,38,66,920/- and the total income for broken period has been worked out as under:
Entertainment receipt from 1.4.02 to 21.1.2003 Rs. 2,38,66,920/-
Cash seized Rs. 1,70,10,495/-
FDR seized Rs. 9,00,000/-
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Total Rs. 4,17,77,418/-
Less: Disclosed in the return of income
for AY 2003-04 Rs. 2,50,00,000/-
Undisclosed income of broken period Rs. 1,67,77,415/-
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For other years of block period, the AO had applied the same formula of Rs. 75,600 x no. of days other than dry days plus 10% increase for special days.
6.2 It was submitted before the CIT(A) that the estimation of income based on seized paper of one single day for the entire block period as done by the AO is not permitted. It was further submitted that the AO, in the block proceedings, cannot estimate the income of whole of the block period based on one day's collection found during the search. The income, at best can be worked out on the basis of direct evidence found during the search. It was submitted that the method of extrapolation applied by the AO to determine the income for the earlier assessment years of block period is certainly not permitted. Reliance was placed on various decisions reported in 95 ITD1 (Mum)(; 248 ITR 310 (Bom);(TM); 60 ITR 239(SC),248 ITR 350(Raj; 249 ITR 4 (All) and 205 ITR 141 (Del). After considering the submissions and perusing the material on record and after taking into consideration the various case laws relied upon by the ld AR and other various cases laws including the decision of the Hon'ble Bombay High Court in the case of Shri M K E Menon in 248 ITR 310, the ld CIT(A) held that here was no material before the AO to make the addition on estimation basis of entertainment receipts for the period prior to 1.4.2002 and that too on the basis of receipts pertaining to one day i.e. of 27.12.2002. Therefore, the addition for the AYs 1997-98 to 2002-03 at 72,14,130/-; 73,18,080/-; Rs72,97,290/-; Rs.73,59,660/-; Rs.2,63,40,929/- and Rs. 2,93,55,480/- respectively relating to the block were deleted.
6.3 So far as the broken period of AY 2003-04 is concerned, the CIT(A) confirmed the action of the AO in making the addition of Rs. 1,67,77,418/- .
6.4 The AO has made a further addition on account of estimating undisclosed income on account of sale of liquor and non-alcoholic drinks at Rs. 2,07,14,707/- for the block period.
6.5 The AO made this addition estimating the sale of liquor and non liquor drinks. The AO's case is that two menu cards giving higher and lower rates were found during the search and survey respectively and that a bill book dated 13.3.2002 was seized showing charge of higher rates on liquor consumption. This issue has been discussed by the AO in paras 44 to 46 at pages 26 to 28 of his order. The AO thus came to the conclusion that the assessee is charging as per two different menu cards. The contention of the assessee is that 27% of the total sale is during the night time and 73% during day time, as the bar is located in the business area and is open from 11 am to 12.30 pm and for the contention that rates were increased w.e.f 15.12.2002; accordingly, higher rate cannot be applied for the broken period to this dated were not accepted by the AO. By observing that such joints operated mostly in the late evening and night time and held that to be fair and reasonable, 40% of the total sale can be considered as per higher menu card. Accordingly, he segregated 40% of the total declared turnover of liquor and non liquor drinks and applied higher rates to this segregated figure of each year of block and made the impugned addition.
6.7 Contentions raised before the AO were reiterated before the CIT(A). After considering the submissions and material on record, the CIT(A) partly allowed the issue in favour of the assessee. He observed that there was no material to estimate the rates of liquor and other drinks prior to financial year 2000-2001 as upto this date, proper books were maintained and found. Accordingly, he deleted the addition of Rs. 1,69,27,416/-. However, the remaining addition out of total addition of Rs. 2,07,14,407/- was confirmed by the CIT(A) by observing that this addition was made for the period pertaining to FY 2001-02 and subsequently broken period by the AO estimating on the basis of increased rates of liquor and as per menu card found during the search as seized bill book indicated higher rate from F.Y. 2001-02 and onwards were found and accordingly, he confirmed the additions for this period. Now the assessee is in appeal here before the Tribunal.
7 The ld counsel of the assessee vehemently argued before us that the CIT(A) was not justified in confirming the additions. It was pointed out that the AO was bent upon making additions and jumped to conclusion, perhaps being morally against the nature of business, at the beginning of his order by observing that a mere look at regular returns would show concealment of income. He pointed out that regular books of accounts were maintained properly. Attention of the Bench was drawn on the statement of the assessee taken during survey placed at 65 to 69 of the paper book wherein vide reply to question 4, books up to 31-02-2002 were shown. It was further stated in reply to question no.6, entire preliminary record upto the date of survey was available. The statement of assessee was recorded during search and vide replies to questions 5 to 7, assessee informed that cash book, ledger, purchase register, daily performance register etc are maintained. It was further stated that books are maintained by accountant and finalized by CA and provided addresses, phone numbers of both of them and assured that all these would be submitted next day. On 24-01-2003, he had submitted all these books to the Investigation Wing and specifically enquired for any further requirements to be fulfilled by him. Attention of the statement of assessee recorded after search on 27-01-2003 was also drawn wherein, vide question number 2, assessee was asked to explain the ledger account and the reply of assessee covered various entries from 26-04-2002 to 20-11-2002. Question number 3 was to furnish proof in support of claim of sale of shares and assessee explained through ledger account. It was submitted that books were clearly maintained, were submitted to DDIT and were examined by DDIT and thus, the very basis of applying section 145 is non-existent. Reliance was placed on the decision in the case of Essem Intra-port Services (P) Ltd. in 72 ITD 228 and the decision of the Third Member in the case of Ms.Aishwarya Rai reported in 104 ITD 166 ( TM) wherein it has been held that " The proposition that books of account not found at the time of search but produced later on cannot be relied upon, in our view, does not hold good. There may be a number of reasons for non-availability of the books of account at the time of search but that cannot lead to the conclusion that books of account are not maintained or if the same are produced at a later date, the same cannot be considered as books of account in the eyes of law. In absence of any specific defects as to the entries of the cash book produced before the Assessing Officer we don't find any reason for not accepting the same."
7.1 It was further submitted that vague question were asked from assessee and other witnesses about turnover without specifying whether it was food sale, liquor sale, gross receipt by dancers or share of assessee. Witnesses were threatened which is clear from statement of Sh K.B. Irani wherein question number 16 was that "It will be treated as non compliance to govt official on duty" and the opening question was that "I once again ask you..' indicating that Sh. Irani was orally grilled before that. He further submitted that in any manner replies of assessee and of witnesses do not specify turnover on any particular count and are general replies. None of the witness was working in such capacity so as to know the turnover. Further, despite of repeated request cross examination was not allowed to the assessee which is his valuable and well established legal right.
7.2 As regard agreement with Mr. Ghadiyali, AR drew attention to statement of Sh. Ghadiyali after survey but before search on 14-01-2003 whereby copy of agreement was handed over to AO. The agreement was fully disclosed and described during the course of survey and thus was known to revenue prior to search. It was therefore, submitted that when nothing new was found during search against bonafide of agreement, no addition is possible in block assessment a. Reliance was placed on various decisions reported in 99 ITD 177, 103 ITD 389 [SB], 215 CTR 181, 213 CTR 530, 298 ITR 274, 214 CTR 51, 83 TTJ 151, 193 Taxation 47.
7.3 It was submitted that in respect of well settled legal proposition that what is already known to revenue before search cannot be a matter for block assessment. Reliance was placed on the decision in the case of Essem Intra-port Services (P.) Ltd. 72 ITD 228, Ambica Food Industries Limited. 110 TTJ 680,CIT VS Vinod Danchand Ghodawat.247 ITR 448 Bombay and Ms Farah Khan Vs ACIT 2009-TIOL-652-ITAT-MUM. It was further argued that Income declared/material found in survey cannot be used for block. Further reliance was placed on the decisions reported in 300 ITR 152, 73 ITD 444, 284 ITR 220, 96TTJ 218, 111 TTJ 101, 300 ITR 157,94 TTJ 885, 83 TTJ 473, 95 TTJ 288 .
7.4 It was further argued that return for A.Y. 2003-04 was filed prior to search on 06-01-2003. Assessment under section 143 (3) was completed on 23-03-2005 after block assessment and the receipts on the basis of agreement with Ghadiyali were accepted. It was vehemently argued that AO cannot be allowed to approbate and reprobate in the sense that for block assessment the agreement with Ghadiyali is treated as sham but for regular assessment, the receipts are taxed.
7.5 It was further submitted that it was preposterous observation that assessee manipulated dancers statements for 265 days found during survey. The survey under section 133A is also taken in surprise and all these statements were found at the business premises. It was submitted that even if AO's jurisdiction for estimation of entertainment receipt is accepted, these 265 days statements cannot be ignored being relevant material. Section 144(1) directs AO to;
"take all relevant material into consideration". Reference was made to the relevant portion of section that; "the Assessing Officer, after taking into account all relevant material which the Assessing Officer has gathered, shall, after giving the assessee an opportunity of being heard, make the assessment of the total income or loss to the best of his judgment."
7.6 It was alternatively submitted that Estimation is not fair on the basis of 27-12-2002 which was Friday, immediately after X-mas and New Year which period is known for holidaying, partying etc. Statements of two out of all present dancers were recorded during survey and both of them stated to part with 20 % to assessee. The survey party was at liberty to record more statements. It was therefore, contended that the AO cannot say that share of assessee was much higher. It was argued that in any manner, the show cause notice issued by him was to apply 25 % and he, therefore, cannot go beyond the 25 %. It was therefore, submitted that at 25 % and by taking average of all 256 statements found during survey, the position would be as under:
Total amount per these statements 2.51.86,400
Days (256 - 7 dry days) 249
Av. Per day 101150
25% of assessee 25287
For 287 days 7257512
Therefore the working given by AO on page 24 of assessment order ought to be replaced as 1,70,10,495 + 9,00,000 + 7257512 - 25000000 = 1,68,007 only and this small amount should be ignored as 25% is just estimate.
7.6 Regarding liquor sale, it was stated that menu card found during survey is a reality cannot be ignored. All the purchases and sales of liquor are entered in respective books, state excise record and sales tax records which are regularly inspected by respective authorities. Without any iota of evidence to show that higher amount than menu card was charged, estimation is not permissible. The alleged bill book found was not of assessee but of Pejas Bar for 13-03-2002. It was submitted that this bill of Pejas was for booking of entire Bar for marriage function and cannot be made basis for any estimation. It was submitted that the CIT(A) himself in second para of his order at page 20 held that functioning of other bars have no bearing upon assessee. However, this bill book of Pejas has been made basis in assessee's case in a self contradictory manner. The entire exercise by AO and CIT(A) is without any relevant material and is on guess work and surmises. The CIT(A) on page 20 holds that books were maintained upto 31-03-2002 but still upholds estimation of liquor sales without any discrepancy in these books only on the bill book of Pejas for a day, that too for a special occasion. It was submitted as alternative that when menu card was found during survey and all bills etc were found during survey, then matter regarding liquor sales upto the date of survey can at best be subject matter of regular assessment and not for the block assessment. It was submitted that the assessee has surrendered Rs. 2.5 Crores during survey and whether it was sufficient or not, cannot be considered in block assessment.
7.8 The ld DR on the other hand placed reliance on the order of the AO to the extent to which addition is deleted and placed reliance on the order of the CIT(A) to the extent to which the additions were sustained.
8 We have heard the rival submissions and considered them carefully. We have also perused the relevant material on which our attentions were drawn. After considering the relevant material and various case laws, we find that the assessee deserves to succeed in these grounds in part whereas the grounds taken by the department are liable to be dismissed.
8.1 Firstly, the issue is in respect to rejection of books of accounts prior to the period upto 31.3.2002.
8.2 Survey was conducted on 14.12.2002 and thereafter, search and seizure operation was conducted on 21.1.2003. Neither during the survey proceedings u/s133A conducted on 14.12.2002 nor during the search proceedings conducted on 21.1.2003 any material pertaining to the period prior to 1.4.2002 was found by the survey party or by the search party. The returns of income upto AY 2002-03 were filed prior to the date of search and the assessments were accordingly completed on the basis of returns filed. This is a settled proposition in law that no addition can be made in case of search proceedings, if no material is found. Neither any corroborative material suggesting that any undisclosed income has been concealed by the assessee pertaining to the period prior to 1.4.2002 was found nor there is any other evidence gathered by the search party or even by the AO. Complete books of accounts upto AY 2002-03 were maintained in the regular course and they were found during the survey proceedings as well as during search proceedings.
8.3 As stated above, no incriminating material relating to this period was found during the survey or search proceedings. Therefore, there was no reason to reject the books of account for the period upto AY 2002-03 at the end of the AO. Accordingly, we hold that the ld CIT(A) was justified in holding that there was no justification in rejecting the books of account upto AY 2002-03.
8.4 Since it has been held that there was no justification in rejecting the books of account upto AY 2002-03 and there was no material or corroborative evidence that any undisclosed income has been concealed by the assessee upto AY 2002-03; therefore, we hold that the ld CIT(A) was justified in deleting the various additions mentioned above relating to AYs 1997-98 to 2002-03.
8.5 We also confirm the order of the ld CIT(A) in deleting the addition of Rs 1,69,27,416/- for AY 1996-97 to 2000-01 in respect to sale of liquor and non-alcoholic drinks as there was no material to hold that the assessee has sold the liquor and non-alcoholic drinks on the basis of increased rates. It is also a matter of fact that the rates of liquor were increased w.e.f 15.12.2002 which is after the period to 31.3.2002; therefore, there was no question of applying the higher rates on the sale of liquor and non-alcoholic drinks prior to the period 1.4.2002. Various case laws on which reliance has been placed are in favour of the assessee.
8.6 In the case of Essem services P Ltd in 78 ITD 228, the Hyderabad B Bench of the Tribunal has discussed this issue in detail. It was held that;
"Even though 'undisclosed income' is defined in an 'inclusive' manner, the scope and extent of the term 'undisclosed income' for the purposes of Chapter XIV is contingent upon the fact that the undisclosed income should be borne out of materials representing income or property which has not been or would not have been disclosed by the assessee for the purpose of this Act. When certain information and details are already furnished in the returns of income or statements accompanying thereto filed before the department, or when certain information and details are already recorded in the books of account maintained in the regular course of business, based on which returns of income would be filed in normal course, that very same information and details cannot be re-examined in the course of block assessment proceedings to arrive at any fresh conclusions, so as to result in determination of undisclosed income based on hat material."
8.7 In the present case, as stated above, no incriminating documents suggesting any undisclosed income prior to the period of survey or search was found. On the basis of regular return, the assessee has already disclosed the income and there is no scope for consideration the books of account and then rejecting them and made estimation of undisclosed income.
8.8 In the case of CIT vs G K Senniappan, in 284 ITR 220, the Hon'ble Madras High Court has held that no adverse inference can be drawn on the basis of material collected during survey u/s 133A while completing the assessment u/s 158BB.
8.9 The AO, based on the material found during the survey that the assessee has disclosed some income during the survey; therefore, some income must have earned for the prior period also. There was no material whatsoever was found connecting prior period during the survey or search; therefore, no adverse inference can be drawn against the assessee.
8.10 It is well settled position of law that where any assessee does not admits any income then heavy burden on the department to establish that there is such income chargeable to tax remained undisclosed. As stated above, there was no material whatsoever was found; therefore, no addition is possible in the block assessment based on presumption and assumption.
8.11 The Hon'ble Delhi High Court in the case of Ravi Kant Jain in 250 ITR 141 has held that undisclosed income cannot be assessed which is not unearthed as a result of search.
8.12 In the present case, neither any material was found nor there was any evidence to hold that the assessee had some income which is not disclosed by him by filing regular returns.
8.13 The Hon'ble Madras High Court in the case of R M Patel (HUF) reported in 298 ITR 274 have dismissed the appeal of the revenue on the reasoning that the revenue could not proceed on the basis of material which was not related to the assessee.
8.14 Similar view has been expressed by the Special Bench of the Tribunal in the case of Mange Ram Mittal reported in 103 ITD 389(Del) (SB). It was held by the Special Bench that the AO had assessed undisclosed income from AYs 1987-88. He did not have any evidence found as a result of search or information related to such evidences gathered subsequently in respect of assesse's regular business prior to AY 1991-92. Therefore, the estimation of undisclosed income over and above the undisclosed income as per return u/s 158BC filed by the assessee himself for AY 1987-88 to 90-91 was not called for.
8.15 In the present case also neither any material was found relating to the prior period during the survey or search; therefore, there was no question of making any estimation of undisclosed income for that period. Therefore, the order of the ld CIT(A) is confirmed to this extent and the grounds of the department relating to this deletion are dismissed.
9 The ground nos 1 & 2 of the assessee is against rejection of books for the broken period of the block and confirming the undisclosed income of broken period at Rs. 1,67,77,415/- as worked out by the AO.
9.1 The ld CIT(A) has confirmed the rejection of books of account for the reason that the statement of one of the employees was recorded who has stated that whatever the slips are found during the search they pertain to actual sale of the assessee. Secondly, the assessee has himself admitted the undisclosed income to the extent of Rs. 2.50 crores during the survey and the same has been disclosed in the return of income and the tax has been paid. Therefore, for this reason for the broken period, the ld CIT(A) has confirmed the rejection of the books of account.
9.2 We are in agreement with the findings of the ld CIT(A) in respect to the rejection of books of account for the broken period as in the regular course, the figure found recorded in the slips was not recorded in the books of account. The assessee has himself admitted the undisclosed income pertaining to the broken period at Rs. 2.50 crores. Therefore, in view of these facts, the books of account was rightly rejected and accordingly, the action of the ld CIT(A) is confirmed to this extent.
10 Regarding the quantum addition, we find that the ld CIT(A) was not justified in sustaining the addition of Rs. 1,67,77,415/-as worked out by the AO. During the course of survey, the statements of two dancing girls were recorded and both of them have stated that 20% of the receipts were given to the assessee. No such statement was recorded during the course of search. During the course of assessment proceedings, the AO issued show cause notice as to why 25% share of the assessee against 20% admitted by the dancers should not be taken. However, while completing the assessment, the AO took 30% by holding that the assessee must be taking 30% of the receipts received by the dancers. The application of 30% was without any basis as no material whatsoever was found during the course of survey or during the course of search. The assessee has disclosed Rs. 2.50 crores during the course of survey and the same has been shown in the return. Therefore, in our considered view without any material estimation of 30% or 25% was not justified. Accordingly, we hold that 20% of the total amount as per statement and if this is taken into consideration, the figure will come less than Rs. 2.50 crores. The ld counsel of the assessee has given calculation in his submission that if 25% is applied, it will come to Rs. 2,51,06,807/-. Obviously, if 20% is applied then it will be less than Rs. 2.50 crores. The assessee has already disclosed a sum of Rs. 2.50 crores; therefore, over and above this amount, no addition is warranted as there was no material at all to estimate higher turnover on account of dancing activity or other activities. Though we have confirmed that for broken period the books were rightly rejected but for estimation of account, there should be some material to hold that any income remained undisclosed. There was no such material was found or gathered. Various case laws relied upon by the ld AR are directly on the issue, which are in favour of the assessee. Some of the ratio of the decisions have been discussed above while confirming the order of the ld CIT(A) in respect of estimation of income prior to block period. The ratio of those decisions are also applicable here as no material whatsoever was found relating to undisclosed income for the broken period or after the date of survey or search. Accordingly, the ground in respect to addition sustained at Rs. 1,67,77,415/- is allowed and the addition is therefore deleted.
11 Ground no.3 relates to confirming the estimation of undisclosed income on sale of liquor and non alcoholic drinks for the financial year 2001-02 and subsequent broken period.
11.1 The CIT(A) out of total addition of Rs.2,07,14,707/- has deleted the addition of Rs. 1,69,27,416/- for the AYs 1996-97 to 2000-01 for the reason that there was no material with the AO to apply higher rate on sale of liquor and non alcoholic drinks prior to the block period.
12 We have already confirmed the finding of the ld CIT(A) in respect to deletion of addition of Rs. 1,67,27,416/-. The brief facts have already been discussed above. The rates of liquor were revised w.e.f 15.12.2002 as from this date, the rate of liquor and non alcoholic drinks were increased. Prior to this date, there was no question of applying higher rates and from this date, the sale on account of liquor and non-alcoholic drinks was recorded in the books of account on the basis of rates charged from the customers. The rate of liquor are subject to excise check; therefore, there was no question of charging over and above the amount mentioned in the menu card which was recorded in the books of accounts. There was no material found during the course of search suggesting that higher rates have been charged by the assessee. The menu card was found and as per the menu card, the rates have been charged by the assessee from the day when the rates were increased. Neither any statement of any customer nor any employees or dancing girls was recorded in this respect. Therefore, on assumption and presumption basis applying higher rates of the broken period or of the entire block period was not justified at the end of the AO. The ld CIT(A) was also not justified in confirming the addition on the basis of application of higher rates. Therefore, we delete the estimation of undisclosed income on sale of liquor and non-alcoholic drinks for the financial year 2001-02 and subsequent broken period. This ground of the assessee is therefore, allowed.
13 Ground no 4 relates to in confirming the addition of Rs. 4,50,00,000/- by holding that the affidavits by Mr Sultan Merchant represented cash loans advanced by the assessee.
13.1 During the course of search, photo copies of nine affidavits on 20 rupees stamp paper dated 05-09-1999 were seized. Each declaration was signed by one Mr. Sultan Merchant declaring that he has taken a friendly cash loan of Rs. 50 Lakhs for one year from assessee. The address of Mr. Sultan was given at Yuwan Society, Mount Marry Road, Mumbai. Thus total cash loan was Rs. 4.5 Crores. Statement of assessee was recorded u/s 132 ( 4) and vide reply, the assessee confirmed cash loan totalling Rs. 4.5 Crores and admitted that these transaction was not recorded in the balance sheet filed along with the return of income.
13.2 Next day of the statement recorded by search party, the assessee retracted that any amount of loan was given to Mr Sultan Merchant.
13.3 During assessment proceedings, it was submitted that the assesse has entered into a MOU dated 19-06-1999 for selling property at 113-A, Irla Lane, S.V.Road, Mumbai to Mr. Balbir Singh Chibb for a consideration of Rs. 4.50 crores. As per terms of this MOU, payment was to be made in nine instalments of Rs. 50 Lakhs within six months of the date of MOU and that Mr. Chibb shall provide third party collateral security. Mr. Chibb agreed to provide collateral security through his friend Mr. Sultan Merchant and they agreed to give nine post dated cheques and nine promissory notes on stamp paper as collateral security. The assessee claimed that this MOU was available in his business premises but was not seized. It was further claimed that the deal did not materialize and the cheques, original declarations etc were returned back but per chance photo copies were left with him. The affidavit of Mr. Chibb was filed copy of which is placed at 231 to 233 of the paper book, confirming the submissions of assessee and further informed that MOU was prepared by Sh. Meghraj Khatalhar, Advocate and delivered in presence of one Sh. Pawan Shinde. Witness to the MOU was one Mr. Hemlal of whose sworn affidavit was filed at page 229 of the paper book reiterating that he signed as witness on 19-06-1999.
13.4 The AO, after considering the submission and documents before him has rejected the claim of assessee. The AO observed that MOU should have been pointed out during search, that there was no need of security at the stage of MOU, that security was not required when no token money/possession is given and that Mr. Chibb was running a bakery shop and medical shop with small income. The CIT(A) after discussing the issue in detail on pages 22 to 26 of his order held that direct evidence from Mr. Sultan was not forthcoming which show that assessee was skirting the issue and other documents were self serving and afterthought; accordingly, he confirmed the action of the AO.
13.5 The ld counsel of the assessee, who appeared before the Tribunal strongly argued that when statement was retracted immediately after search, independent corroborative evidence/material was required to make any addition. Statement during search was recorded on 22-01-2003 and assessee filed retraction letter on 23-01-2003 which were placed at 234 to 236 of the paper book. It was argued that it was not possible to fabricate all these documents in a single day. For fabrication, back dated stamp paper and accomplishes like Mr. Chibb & the witness Mr. Hemlal which is almost an impossible task in a day. Further, nothing was found during searches to show any relation/association between assessee and Mr. Chibb. It was argued that it is against common human behaviour that Mr. Chibb agreed to become accomplice and face Income tax investigation when he was a small trader only. It was submitted that retraction cannot be just ignored. Reliance was placed on the decision of the Supreme Court in the case of Vinod Solanki vs. UOI (SC) in civil appeal no. 7407 of 2008 wherein it has been held that;
Where during FERA search proceedings the accused-appellant allegedly confessed to violations of the law and later filed an affidavit retracting his confession and the Tribunal and the High Court rejected the retraction on the basis that the onus was on the accused to show that the confession was obtained from him by threat, coercion or force, HELD reversing the lower authorities that:
(i) It is trite law that evidences brought on record by way of confession which stood retracted must be substantially corroborated by other independent and cogent evidences, which would lend adequate assurance to the court that it may seek to rely thereupon;
(ii) The initial burden to prove that the confession was voluntary in nature would be on the Department. The special or peculiar knowledge of the person proceeded against would not relieve the prosecution or the Department altogether of the burden of producing some evidence in respect of that fact in issue. It may only alleviate that burden to discharge and very slight evidence may suffice;
(iii) A person accused of commission of an offence is not expected to prove to the hilt that confession had been obtained from him by any inducement, threat or promise by a person in authority. The burden is on the prosecution to show that the confession is voluntary in nature and not obtained as an outcome of threat, etc. if the same is to be relied upon solely for the purpose of securing a conviction.
(iv) With a view to arrive at a finding as regards the voluntary nature of statement or otherwise of a confession which has since been retracted, the Court must bear in mind the attending circumstances which would include the time of retraction, the nature thereof, the manner in which such retraction has been made and other relevant factors. Law does not say that the accused has to prove that retraction of confession made by him was because of threat, coercion, etc. but the requirement is that it may appear to the court as such."
13.6 It was submitted that apparent as per seized documents is that cash loan has been given. But, it is settled law that one can show that real state differs from apparent state, albeit onus of proof is upon him. Whether the onus has been discharged or not ought to be judged in light of common human behaviour, probability and surrounding circumstances. In support of this contention, reliance was placed on the decision of the Supreme Court in the case of Sumati Dayal. 214 ITR 801(SC). Further reliance was placed on the decision of the Tribunal in Bimal Kumar Singhania. 100 TTJ 790.
13.7 It was further submitted that the said declarations are unilateral on the part of Mr. Sultan and not signed by assessee nor was in his hand writing. Heavy onus was upon revenue to establish that loan was given. Proper enquiries should have been made at the given address of Mr. Sultan and proper cross examination should have conducted. It was submitted that revenue is guilty of suppressing evidence as AO has summoned Mr. Chibb but his testimony not included in assessment order which clearly imply that revenue could find nothing against assessee. Our attention was drawn to item 7 sixth line from top on page 32 of assessment order whereby AO has given details about Mr. Chibb which were not furnished by assessee, meaning thereby that AO has somehow contacted Mr. Chibb. It is cardinal principle of law of evidence that the best evidence to establish a case should be filed at the earliest possible time. Reliance was placed on the decisions in the cases of CIT Vs Krishnaveni Ammal. 158 ITR 826 Madras, ITO Vs A. C. Sarkar. 52 ITD 614, Sushil Kumar & Co.88 ITD 35 , Naresh K. Pahuja.115 ITD 137, Shivu and Another Vs. R.G. High Court of Karnataka and Another (2007) 4 SCC 713 .
13.8 On the legal proposition that best evidence is not placed before the court, an adverse inference cannot be drawn, reliance was placed on the following decisions: a] Gopal Krishnaji Ketkar vs. Mohamed Haji Latif & Ors. AIR 1968 SC 1413; b] Vodafone International Holdings B. V. 311 ITR 46 Bombay; c] CIT Vs Krishnaveni Ammal. 158 ITR 826 Madras.
13.9 It was argued and prayed that considering the matter in its totality and in view of these decisions mentioned above, the addition must be deleted.
13.10 On the other hand, the ld DR firstly placed reliance on the order of the authorities below. It was further submitted that such type of arrangements made by the assessee is unheard. On one side the assessee is entering sale agreement and on the other side, the assessee is offering security by giving cash amount to a person unknown to him. It was further submitted that if any security was given that was to be given by purchaser and not by the assessee; therefore, the order of the CIT(A) is liable to be confirmed in this regard.
14 We have heard the rival submissions and considered them carefully. We have also perused the relevant material and the submissions of the ld AR and found that this matter needs re-verification. No doubt, 9 documents were found by which it was found that the assessee has given a cash loan of Rs.50 lacs each to one Mr Sultan Merchant. Those documents were photocopy of the original affidavits. There was no signature of the assessee on those affidavits; neither any witness is there. It is further seen that a sale agreement was executed for sale of property at 113A Irla Lane, SV Road, Vile Parle (W) Mumbai to Shri Balbir Singh Chibb for a consideration of Rs. 4.50 crores. As per terms of MoU, payment was to be made in 9 instalments of Rs. 50 lacs each within six months of the date of MoU and Shri Sultan Merchant shall provide 3rd party collateral security. Mr Bal Singh Chibb agreed for this security and also agreed to give 9 post dated cheques as collateral security. This MoU was not found during the course of search; however, the assessee has stated that it was available but it was not seized. It is also seen that the statement of Mr Chibb recorded by the AO; however, the assessee was not confronted with the statement by supplying a copy of the same or providing an opportunity to cross examination. Neither Mr S Merchant was contacted to ascertain the factual aspect that whether he had taken any cash loan from the assessee or not. Though at one stage the assesses has stated that he has given cash loan to a friend but immediately after one day the assessee has retracted that due to inadvertent this statement was given. However, the facts remain that there was a MoU and the deal was not materialized; therefore, neither any cheque was taken from Mr Chiib. Merely on the basis of admission that he has given cash loan, addition canto be made if there is no corroborative evidence found or gathered. Therefore, in our considered view, this matter needs re-verification at the end of the AO. Accordingly, we restore this issue to the file of the AO to examine the factual position and decide the same afresh after allowing opportunity to cross examine Mr Chibb and Mr Merchant. The AO is free to call Mr Merchant for ascertain the factual position. The assessee is expected to cooperate with the department. In view of these facts and circumstance, we restore this issue to the file of the AO to pass a fresh order in the light of the above directions. We order accordingly.
15 Ground no.5 relates to in confirming the addition of Rs. 54,00,000/- on account of accrued interest on the alleged cash loans advanced by the assessee to Mr Sultan Merchant.
15.1 Assessing officer, after holding that cash loan of Rs. 4.50 was advanced, has opined that there cannot be loan without interest and that reasonable rate should be 12%. He accordingly, he added Rs. 54 lakhs as interest for one year in the income of the assessee. CIT(A) also confirmed the action of the AO.
15.2 The ld counsel of the assessee, who appeared before the Tribunal submitted that seized paper has to be read as it is and there is. No scope of any presumptions and guess work is there. In the seized documents clearly mentioned as friendly loan and no interest rate is mentioned. In absence of any material, no addition is possible in block assessment. On the other hand, the ld DR placed reliance on the order of the authorities below.
16 We have heard the rival submissions and considered them carefully. After considering the submissions and relevant material on record, we find that the assessee deserves to succeed in this ground. Copies of the affidavits found during the course of search are placed on record. The only reference in these receipts is in respect to personal loan of Rs. 50 lacs each. There is no mention about the interest; therefore, on assumption basis the addition of Rs. 54 lacs made on account of notional interest is not justified especially in the block assessment proceedings.
16.1 However, we have already restored the issue in respect of addition of Rs. 4.50 crores to the file of the AO. If during the fresh assessment proceedings it is found that any interest has been received from Mr Merchant then of course addition can be made otherwise; on guess work there is no scope to make any addition. If Mr Merchant admits that he has taken loan from assessee and had paid some interest then of course addition can be made Otherwise not. We order accordingly.
17 Ground no.6 relates to in confirming the addition of R. 92,70,000/- as alleged unexplained investments on account of the properties in occupation of the assessee on tenancy basis.
17.1 This issue has been discussed by AO on pages 34 to 36 of his order. During the block period, assessee has taken five properties on tenancy basis which are situated at Kartar Mansion-Mumbai, Shabbir Bldg Mumbai, Amta Mansion Mumbai , Taher Bldg Charni Road and Mazgaon Mumbai. No documents etc indicating any payment over and above agreed rent were found during searches. Suspecting that payments must have been made to acquire tenancy, AO summoned one Mr. Shabbir Hariyanawala, owner of Shabir Building who stated that he was not knowing Mr. Parvez Raisi but Mr. Suresh Kumar has paid Rs. 50000/- for transfer of tenancy. During post search investigations, AO recorded statement of one Mr. Ahmed Navsa who stated to have received Rs. 3 lakhs from assessee. One document marked as page 49 of annexure A-1 ( PB 127) was seized showing that one Mr. Laxman Subharan Chavan vacated a room at Masquitta Chawl for Rs 2 lakhs on 14.05.1997. AO concluded that assessee has paid money for acquiring tenancy right and he asked assessee to inform market value of these five tenanted properties. The market value at Rs. 92.70 lakhs was estimated which was held to be unaccounted investment by AO. However, no separate addition was made as it was covered by huge estimated income referred in grounds 1 to 3.
17.2 The CIT(A) has discussed the issue in detail in para 19 at pages 30 to 32 of his order. Before the CIT(A) it was submitted by assessee that the entire addition is based upon estimated market value on the date of completion of block assessment and not on the respective date of acquisition of properties. It was submitted before the CITA) that neither the copies of all the statements referred by AO were not given to assessee nor any cross examination was provided. Other landlords were not summoned and a general opinion has been formed by AO. The CIT(A) held that asking for copies of statements, cross examination etc is an attempt on part of assessee to wriggle out of addition by resorting to technical subterfuge and thereby avoiding the factual ground realities. According to the CIT(A) no one would give tenancy rights for free and AO was right in adding value as furnished by assessee himself. Accordingly, the action of the AO was confirmed by the CIT(A).
17.3 The ld counsel of the assessee vehemently opposed the addition. Firstly, to provide copies of statement of witnesses used against assessee and providing opportunity to cross examination is not technicalities or subterfuges but a fundamental rule of natural justice recognized by all courts including Supreme Court. Reliance was placed on the decision of the Supreme Court decision in the case of Uma Nath Pande in 2009-TIOL-65-SC wherein it has been held that;
"Natural justice is the essence of fair adjudication - Even God did not pass an order against Adam without enquiry - purpose of following the principles of natural justice is the prevention of miscarriage of justice: Natural justice is the essence of fair adjudication, deeply rooted in tradition and conscience, to be ranked as fundamental. The adherence to principles of natural justice as recognized by all civilized States is of supreme importance when a quasi-judicial body embarks on determining disputes between the parties, or any administrative action involving civil consequences is in issue. These principles are well settled."
17.4 It was further argued that no material of any nature was found during search indicating any payment for tenancies in five properties under consideration. The seized document also has no relevance to these five properties as it refers Masquita Chawl which is not under consideration. On the legal proposition that when no material found in search, no addition is possible in block, he relied upon various decisions reported in 99 ITD 177, 103 ITD 389 [SB], 215 CTR 181, 213 CTR 530, 298 ITR 274, 214 CTR 51, 83 TTJ 151, 193 Taxation 47, 288 ITR 220, 80 ITD 429, 73 ITD 205. It was further submitted that in any way, addition on the basis of present day market value, that too estimated by assessee, cannot be made. Market value on the date of taking property on tenancy has to determined and at worst; addition can be made on that basis only. It is settled law that market value of tenanted property has to be fixed on rent capitalisation method. In support to this contention reliance was placed on the decisions reported in 60 ITR 102, 76 ITR 115, 123 ITR 68. It was further submitted that so called evidence/material referred by AO indicate figure of 50000/-, 2 lakhs etc. then how can there be addition of 92 Lakhs for five properties taken on tenancy. The ld DR, on the other hand placed reliance on the order of the authorities below.
18 We have heard the rival submissions and considered them carefully. After considering the material along with the case laws relied upon by the ld counsel of the assessee, we find that this addition is liable to be deleted. The AO has presumed that the assessee has paid money for acquiring the property on tenancy. No material whatsoever was found during the course of search or during the course of survey suggesting that any money has been paid for acquiring the property on tenancy basis. Suspecting that payment must be made to acquire the property, the AO summoned one Shri Shabbir Hariyanawala , owner of Shabir Building , who stated that he was not knowing Mr Paarvez Raisi but Mr Suresh Kumar has paid Rs. 50,000/- for transfer of tenancy. During the post search investigations, the AO recorded statement of one Mr Ahmed Navsa who stated to have received Rs.3 lacs from the assessee. One document marked as page 49 of Annexure A-1 was seized showing that one Mr Laxman Subharan Chavan vacated a room at Masquita Chawal for Rs.2 lacs on 15.5.1997. From this facts and evidences, the AO concluded that the assessee has paid money for acquiring five properties on tenancy right; accordingly, the assessee was asked to inform the market value of these five tenanted properties. It was submitted that there may be estimated market value at Rs. 92.70 lakhs of these property. On the basis of market value, the AO held that to this extent, the assessee has paid money for acquiring the tenanted property. In our considered view, the estimation of money paid for acquiring for tenanted property cannot be based on the value of properties made on the date of search. There must be some corroborative evidence to hold that the assessee has paid some amount for acquiring these properties. Nothing has been brought on record; therefore, in our considered view, the action of the AO which has been confirmed by the CIT(A) was not justified at all. Therefore, we have no hesitation in deleting this addition. Accordingly, we delete this addition of Rs. 92,70,000/-.
19 Ground no.7 relates to in confirming the addition of Rs. 2 lacs on account of alleged payment to Mr Laxman Subbharana Chavan for possession of room no. 3 Masquitta Chawal, Vile Parle(W),Mumbai.
19.1 The AO found that during the course of search an un-cashed cheque 169278 dated 6.7.2000 (page no.41) which pertains to cash loan of Rs. 2 lacs was found. The assessee was asked to explain the same. The assessee explained that page no.41 is cheque no.169278 drawn in favour of the assessee dated 6.7.2000 in the Saraswat Co-op Bank Ltd. It was submitted that the cheque was given by a broker Parasmal on behalf of a customer, Shri Suchak who had agreed to purchase the Dahanu property. It was further submitted that the deal ultimately did not materialise and the un-cashed cheque remained with the assessee. It was also submitted that the whereabouts of Shri Suchak or his address are not known to him. The AO was not satisfied with the explanation of the assessee; accordingly, he treated the amount as unexplained expenditure for AY 2001-02 of the block period. The CIT(A) also confirmed the action of the AO.
19.2 The ld counsel of the assessee argued that legal theory propounded by the CIT(A) deserves to be rejected with contempt. The seized document nowhere mentions the name of assessee and does not indicate any link with assessee. AO cannot be allowed to presume so called facts out of thin air and without any evidence of any nature, add in the hands of assessee. He submitted that surmises/guesswork have no place in block assessment and that it is now a well settled law. On the other hand, the ld DR placed reliance on the orders of the authorities below.
20 After considering the submissions and perusing the material on record, we find that the basis of addition of Rs. 2 lacs is not correct. Only un-cashed cheque was found at the premises of the assessee. Neither the assessee has paid this amount nor the assessee has received this amount as only un-cashed cheque issued by the third party on account of some property deal was found. The property deal was not materialised; however, the un-cashed cheque was remained with the assessee. In our view, the addition on the basis of un-cashed cheque made by the AO treating the same as unexplained expendituree of the assessee is not justified. How this un-cashed cheque treated the expenditure of the assessee is not understandable; therefore, we hold that this addition was not correct accordingly, the same is deleted.
21 Ground no. 8 relates to in confirming the addition of Rs. 16,46,920/- on account of unexplained expenses.
21.1 This issue has been discussed by the AO in last para on page 40 and it refers to seized document 23 of annexure A-2 (P.B. 152). This paper has three lines. Each line has first a figure, then a month and then another figure. Total of left side is 9.18 lakhs and total of right side 728920/-. Thus, total of all figures is 1646920/-. AO rejected the claim that it is a dumb document and held that total amount was on account of unexplained expenses. The CIT(A) confirmed the action of the AO.
21.2 It was submitted by the ld counsel of the assessee that document is not in hand writing of assessee, is a dumb document, no names are mentioned, cannot say whether incoming or outgoing and whether capital or revenue. It was submitted that no presumption can be made that these figures pertained to expenses. It was also contended that even without details, how one can say that these were not entered in books of account. It was submitted as an alternative that at least Rs. 12.50 lakhs have to be allowed as deduction because Proviso to section 69 C came on statute from A.Y. 99-2000 only. . On the other hand, the ld DR placed reliance on the orders of the authorities below.
22 After considering the submissions and perusing the material on record, we find that this addition is also liable to be deleted. The document 23 of Annexure A-2 was found and seized. In this paper a figure mentioned and then another figure is noted; however, does not spell that on what account and for what purpose those figures were noted. Neither the name of the assessee appearing. The assessee has categorically denied this paper. It was also stated that the paper is not in the hand writing or in the handwriting of any of the employees of the assessee. Therefore, without bringing any corroborative evidence, just on presumption basis the addition made and confirmed by the lower authorities was not justified. There should be some positive material that the assessee has incurred these expenses for its business activities or otherwise. As stated above, neither the name of the assessee is appearing nor the name of the person to whom the amount given is appearing; therefore, in our view, this paper is nothing but is a dumb document. On the basis of dump document any addition made is not justified. Accordingly, the addition of Rs. 16,46,920/- is deleted.
23 Ground no.9 relates to in confirming the addition of Rs. 6,82,000/- on the basis of page no.34 of Annexure A-1 found in the residential premises of Mr Harmoz Shahriarian.
23.1 The page no.34 in Annexure A-1 relates to the seized diary found during the search operation at the residence of Mr. Harmoz Shahariarian. The AO has discussed the issue on page 48. Seized paper 34 of annexure A-1 which contained details of certain expenses of Rs. 682000/- dated 04-07.1997. The AO was not satisfied with the explanation of the assessee; accordingly, he added the same as unexplained expenses for A.Y. 98-99.
23.2 It was submitted before CIT-A that the document was found from third party, bears no name, is rough jottings, no address, no phone number and without corroborative evidence, no addition is possible. It was further submitted that cross examination of Mr. Harmoz should be allowed and merely on his statement, no addition should be made.
23.3 In the alternative, deduction u/s 37(1) should be allowed if revenue is claiming these as expenses. However, the CIT-A rejected the arguments on the ground that Harmoz was employee of assessee and works as cashier and he has stated that these were expenses of Topaz Bar. Alternative plea was also rejected on ground that unrecorded expenses cannot be allowed u/s 37(1).
23.4 The ld counsel of the assessee argued that the outcome of search at the residence of a third party cannot be subject matter of 158 BC and at best it can be considered u/s 158BD for which satisfaction by AO of third party is essential. No such satisfaction note is mentioned in assessment order of appellant, no copy was given to assessee and the block assessment order in the case of Harmoz dated 28-02-2005 is totally silent on the issue of satisfaction note. Therefore, this addition should be deleted. Further, assessee has not been allowed opportunity to cross examine Harmoz which is essential element of natural justice. It was submitted as an alternative that expenses have to be allowed as deduction because Proviso to section 69 C came on statute from A.Y 1999-2000 only. . On the other hand, the ld DR placed reliance on the orders of the authorities below.
24 After considering the submissions and perusing the relevant material on record, we find that this matter should go back to the file of the aO to examine the issue afresh. Undisputedly, the diary containing jottings of expenses were found from Mr Harmoz, who was an employee of the assessee and working as a cashier. Mr Harmoz stated that these expenses are of Topaz Bar which were not recorded in the books of account; therefore, it cannot be said that there is no corroborative evidence in respect to these jottings found in the diary from the possession of Mr Harmoz. However, the contention of the ld counsel of the assessee that proviso to section 69 came on statute from AY1999-00 only. The addition has been made in AY 1998-99. This aspect has not been examined that the said expenses is to be allowed against the income as it is found that the expenses have been made relating to Topaz Bar, a proprietary concern of the assessee. Therefore, we restore this issue to the file of the AO to ascertain the factual position and then decide the issue afresh after allowing opportunity of being heard to the assessee. We order accordingly.
25 Now, we will take up the remaining ground in appeal of the department.
26 Ground no. (iv) in the appeal of the department is against in deleting the addition of Rs. 55,17,982/- without appreciating the fact that the estimation was made on the basis of seized documents pertaining to the part of the block period and surrounding circumstances.
26.1 The AO has discussed this issue in paras 58 & 59 of the assessment order. The basis of additions is the seized documents marked as Annexure A-2 page 52 to 62 of Annexure A-3; page 17 of Annexure A-4; pages 2 to 4 of Annexe A-8. These pages indicate illegal payments totalling to Rs. 6,00,900/- for smooth running of the business, which the assessee must be regularly making. These payments are prohibited under the law, but are required to be made for smooth running of business. According to the AO, it cannot be ruled out that the assessee had not made any other payments on this account other than those noted in the seized papers. The AO observed that it was a regular and continuous phenomenon. Accordingly, 5% of the entire undisclosed income of every year of the block period was taken as illegal payments prohibited by law and addition of Rs. 61,18,822/- was made.
26.2 Before the CIT(A), it was submitted that no further inquiries from the police department was made, no specific dates and months found on the seized material. Seized papers were explained as payment of the occasion of 'Makar Shankaranti'. It was further submitted that additions on hypothetical basis cannot be made for the entire block or even for broken period. It was further submitted that there was no corroborative evidence with the AO to make such a huge addition. Accordingly, it was submitted that the addition of the entire amount to Rs. 61,18,882/- was not called for and may be deleted.
27 After considering the submissions and the order of the AO, the CIT(A) found that there was no materials brought on record by the AO to arrive at the conclusion that 5% of the undisclosed income generated by way of dancing and liquor activities could be treated as illegal payments made for the smooth running of the business for the block period. Accordingly, by giving relief of Rs. 55,17,982/- the ld CIT(A) sustained the addition to the extent of actual figure mentioned in the seized papers i.e. Rs. 6,00,900/-.
27.1 The ld DR placed reliance on the order of the AO and on the other hand, the ld counsel of the assessee placed reliance on the order of the ld CIT(A).
28 We have heard the rival submissions and considered them carefully. After considering the submissions and perusing the orders of the authorities below, we do not find any infirmity in the findings of the ld CIT(A). The findings given by the ld CIT(A) are as under:
"I have considered the submissions of the Authorized Representative and the findings of the AO. Though there are no specific dates and months on the seized papers, these pages strongly suggest that the appellant had made illegal payments. Explanation to section 37 w.e.f 1.4.1962, declares that any expenditure incurred by the assessee for any purpose which is an offence or which is prohibited by law shall not be deemed to have been incurred for the purpose of business or profession and no deduction or allowance shall be made in respect of such expenditure. Appellant had made illegal payments prohibited under the law. However, at the same time, it is incorrect to estimate the illegal payments at 5% of the turnover for the entire period of block. The AO had concluded that it cannot be ruled out that the assessee had not made any payments on this account other than those noted in the seized documents and that in such a business it is a regular and continuous phenomena. There are no materials brought on record by the AO to arrive at the conclusion that 5% of the undisclosed income generated by way of dancing and liquor activities could be treated as illegal payments made for the smooth running of the business for the block period. Accordingly, it will be fair that addition to the extent of actual seized papers i.e. Rs. 6,00,900/- is sustained. Thus, the appellant gets relief of Rs.55,17,982/- under this ground 28.1 The above findings of the ld CIT(A) are finding of facts which could not be controverted by the ld DR; therefore, we do not see any reason to interfere with the findings of the ld CIT(A). Accordingly, we confirm the order of the ld CIT(A) on this issue.
29 The remaining issue in the appeal of the department is against deleting the addition of Rs.3.01 crores on account of unexplained transactions on the basis of pages no.22, back side of page 31 of the AnnexureA3 and pages 18 & 19 of Annexure A1.
29.1 The issue in respect of this ground has been discussed by the AO in para 61 at pages 38 to 40 of the assessment order and the nature of entries and the AO's interpretation of such entries are reproduced by the CIT(A) at pages 35 to 38 of his order. Before the CIT(A), it was submitted by the ld AR of the assessee that the rough notings on the papers have been explained to the AO. It was contended that there was no address or any other specific information like full name, telephone no. Or even address of the property etc. It was explained that the rough notings are pertaining to some proposal for renting or sale of property etc. It was further submitted that during the search no corroborative evidence was found. It was submitted that the addition made by the AO was on mere suspicion. In support of its contention, Reliance was placed on the Third Member decision in case of S P Goyal reported in 82 ITD 85(Mum)(TM). Reliance was also placed on the decisions reported in 39 ITD183 (Del), 45 ITD 12 (Bang); 74 ITD 298(Cal) and 139 ITR 681.
29.2 After considering the submissions and other relevant material and case law, the CIT(A) observed that there was no material available on record to support the theory propounded by the AO. It was observed by the ld CIT(A) that the addition of figure as '00000' appearing in the seized documents is without any basis and reason. It was further observed by the ld CIT(A) that 'the meanings of the noting cannot be stretched artificially to presume that they represent something else than what is written there.' Reliance was placed on the decision of the Tribunal in the case of Jaya S Shetty in 69 ITD 336 wherein it has been held that presumption u/s 132(4) does not give the authority to the AO to presume that the figures written in a seized document could be otherwise than what is written there. Further reliance was placed on the decision of the Tribunal in the case of Pioneer Publicity Corpn & ors in 67 TTJ 471 (Del) that there was no merit in adopting the figure in thousand and accordingly the Tribunal has rejected the theory of decoding adopted by the AO. Accordingly, it was held that the theory propounded by the AO that the figure 301 represents Rs. 3.01 crores was not proper nor supported by cogent reason; accordingly, the addition of Rs. 3.01 crores was deleted.
30 The ld DR placed reliance on the order of the AO and on the other hand, the ld counsel of the assessee placed reliance on the order of the ld CIT(A).
31 After considering the submissions and the orders of the authorities below, again we do not find any infirmity in the findings of the ld CIT(A). The ld CIT(A) discussed this issue in great length at pages 35 to 41 of his order. It was observed by the ld CIT(A) that from the plain readings of the seized documents no inference can be drawn that the figures mentioned therein are entered after the deletion of 5 digits representing in lakhs. They cannot be taken as coded form of figures representing rupees in lakhs or for that matter any other figure than what is written there. It was further observed that the notings on the seized papers do not have any acceptable narration so as to establish that those notings represent the undisclosed transaction as held by the AO. It was observed that even if the explanations given by the assessee were not acceptable to the AO, then he should have brought some corroborative evidences to justify his inference that the figures appearing in the seized documents should not be taken in their face value and that they are unexplained transactions pertaining to loans, advances, investments properties etc. It was further observed by the ld CIT(A) that the addition of '00000' to the figures appearing in the seized documents is without any basis and reason. It was further observed by the ld CIT(A) that the meanings of the noting cannot be stretched artificially to presume that they represent something else than what is written there. The detailed observations and the findings given by the ld CIT(A) at pages 39 to 41 of his order are as under:
"I have considered the assessment order, submissions, paper book, etc. and my observations are as under:
From the plain reading of the seized documents no inference can be drawn that the figures mentioned therein are entered after the deletion of 5 digits representing in lakhs. They cannot be taken as coded form of figures representing rupees in lakhs or for that matter any other figure than what is written there. The notings on the seized papers do not have any acceptable narration so as to establish that these notings represent the undisclosed transactions as held by the AO.
The AO had inferred that the figures appearing in the said documents pertaining to loans and advances, payments for investments in properties. I have gone through the findings of the AO and nowhere it is mentioned as to how he had drawn the said inference. No evidences by way of seized materials, post search investigations or information collected related to it are on record to justify the inferences of the AO that they are transactions amounting toRs.3.01 crores.
Even if the explanations given by the assessee were not acceptable to the AO, then he should have brought some corroborative evidences to justify his inference that the figures appearing in the seized documents should not be taken n their face value and that they are unexplained transactions pertaining to loans, advances, investments properties etc. Here, no such corroborative evidences have been adduced by the AO to arrive at the conclusion that the seized documents pertained to unexplained transactions totalling to Rs.3.01 crores. The AO might have had valid reason to disbelieve the explanation of the assessee but this by itself is not sufficient to draw an inference and arrive at a conclusion that the total figure of 301 as appearing in the seized documents represent Rs.3.01 crores or any other figure of unexplained transactions.
The AO has not brought anything on record to arrive at his conclusion that the entries in the above seized documents represent unexplained transaction of the appellant. In the absence of corroborative evidence either material or circumstantial, the finding of the AO cannot be termed as appropriate presumptions. The inferences drawn by him and the conclusion arrived at are simply surmises and conjectures. The computation of undisclosed income should be made on the basis of evidences; document, material and information found as a result of search and the same must be authentic, reliable and verifiable. In order to make addition on the basis of seized papers, the AO must bring positive evidences to show that the noting on the seized material represent unaccounted transactions made by the appellant.
I am of the considered view that there is no material available on record to support the theory propounded by the AO. The addition of '00000' to the figures appearing in the seized documents is without any basis and reason. It was further observed by the ld CIT(A) that the meanings of the noting cannot be stretched artificially to presume that they represent something else than what is written there.
The Hon. ITAT Mumbai in the case of Jay S Shetty v/s ACIT (69 ITD 336) had held that presumption u/s 132(4A) does not give the authority to the AO to presume that the figures written in a seized document could be otherwise than what the figures written in a seized document could be otherwise than what is written there. Further, in the case of Pioneer Publicity Corpn. & Ors.V/s DCIT (67 TTJ 471 Delhi) that there is no merit in adopting the figure in thousand and accordingly the Tribunal has rejected the theory of decoding adopted by the AO.
In view of the above discussions, the theory propounded by the aO that the figure 301 represents Rs.3.01 crores is not proper nor supported by cogent reasons. Accordingly, the addition of Rs. 3.01 crores is deleted."
31.1 In view of these facts and circumstances and in view of the detailed reasoning given by the ld CIT(A), which are finding of facts and remained controverted; we see no reason to interfere with the findings of the ld CIT(A). Accordingly, we confirm the order of the ld CIT(A) on this issue also.
32 In the result, the appeal of the assessee is allowed in part whereas the appeal of the department is dismissed.
Order pronounced on 16th Dec 2009
Sd/- Sd/-
( T R SOOD )
( R K GUPTA )
Accountant Member
Judicial Member
Place: Mumbai : Dated: 16th, Dec 2009
Raj*
Copy forwarded to:
1
Appellant
2
Respondent
3
CIT
4
CIT(A)
5
DR
/TRUE COPY/
BY ORDER
Dy /AR, ITAT, Mumbai
IT(SS)A Nos. 110 & 111/Mum/07
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