Income Tax Appellate Tribunal - Kolkata
Biswanath Pasari vs Income-Tax Officer on 31 December, 1991
Equivalent citations: [1992]41ITD6(KOL)
ORDER
D.S. Meenakshisundaram, Vice President
1. These two appeals by the assessee and the Department are inter-connected and arise out of the same appellate order of the CIT(Appeals). Hence they were heard together and are disposed of by a common order for the sake of convenience.
2. These appeals arise out of the income-tax assessment of Shri Biswanath Pasari, the assessee herein, who is assessed in the status of an individual. The assessee is the sole proprietor of M/s. Neeraj Trading Co. having its Head Office at Calcutta and branches at Delhi and Bombay. He is also the Constituted Attorney of another business concern known as M/s. Luxmi Traders in which, his sons are partners. We are concerned in this appeal with the assessment year 1984-85 for which the previous year ended on 31-3-1984.
3. In the assessee's appeal, the only objection that was pressed before us by the assessee's learned Counsel was regarding the levy of interest under Section 217 of the Income-tax Act, 1961 amounting to Rs. 2,20,896. The ITO did not give any reason for this levy except the calculation of interest at the bottom of page 7 of the assessment order. The assessee objected to this levy of interest in his appeal filed before the CIT(Appeals) in Ground No. 8 in the following words:-
For that in view of the facts and circumstances the Ld. ITO was wholly unjustified in charging Rs. 2,20,896 as interest under Section 217 and in view of the facts and circumstances, your petitioner was not at all liable for any such interest and in view of the facts and circumstances, your petitioner completely denies his liability for any such interest, without prejudice and even otherwise the computation of interest @ 15 per cent was wholly bad and illegal.
The CIT (Appeals) disposed of this ground in paragraph 9 of his order. He held that though the assessee denied the liability under Section 217 fully, however, the relief claimed by the assessee was only consequential to the other reliefs given earlier in the order, which would automatically follow at the time of giving effect to the appellate order. The assessee felt dissatisfied with this order of the CIT(Appeals) and has, therefore, come up on appeal to the Tribunal raising the following ground as Ground No. 1:-
For that in view of the facts and in the circumstances of the case and your petitioner having completely denied his liability towards interest under Section 217 and in view of the facts and in the circumstances your petitioner being not at all liable for any such interest under Section 217, the Ld. CIT(Appeals) should have held accordingly and in view of the facts and in the circumstances, the Ld. CIT(Appeals) was wholly unjustified in only directing to allow consequential relief and in view of the facts and in the circumstances it may kindly be ... held that your petitioner was not at all liable for any such interest under section. 217.
4. After hearing the learned Counsel on both sides we are of the considered view that this matter is to go back to the CIT(Appeals) for re-examination and fresh disposal in accordance with law as the assessee has totally denied his liability against the levy of interest under Section 2.17 of the Act. The CIT(Appeals), in fact, accepted this was the contention put forward by the assessee before him; yet he did not examine this issue as he was of the view that it was only consequential. In the interests of justice, we, therefore, consider it fair and proper to set aside this portion of the order of the CIT(Appeals) and restore this ground to him for fresh disposal in accordance with law after giving a reasonable opportunity of being heard to the assessee and the ITO.
5. The learned Counsel for the assessee did not press Ground No. 2 in this appeal against the levy of interest under Section 139(8) of the Act. Accordingly, this ground is rejected as not pressed. This disposes of the assessee's appeal in ITA No. 1974 (Cal)/87.
6. In the Department's appeal, the first objection is that the CIT(Appeals) was not justified in deleting a sum of Rs. 48,000 out of the total addition of Rs. 60,000 made by the ITO as on account of unexplained cash found and seized at the time of search operations in the premises of the assessee at Delhi on 31-1-1984.
7. The facts relating to this item are the following:--
The officers of the Income-tax Department conducted a search in the assessee's residential premises at Delhi on 31-1-1984. In the course of the search they came across cash amounting to Rs. 66,116 as per Annexure 'C' of the Panchnama in addition to other valuables and documents. A sum of Rs. 50,000 was seized out of the total cash of Rs. 66,116 by the authorised officers. At the time of the search, a statement on oath was also recorded from the assessee, Shri Biswanath Pasari. To a specific question put by the authorised officers as to how much cash he had in the house at the time of the search, the assessee stated that he did not personally keep any cash except for daily requirements of about Rs. 500 to Rs. 700. The assessee could not explain the source of the sum of Rs. 66,116 found in his residence at the time of the search. Subsequently, the assessee submitted a written explanation in his letter dated 28-3-1984 explaining the source of cash of Rs. 50,000 seized under Section 132(5) of the Act. The apparent contradiction between his earlier statement recorded at the time of the search on 31-1-1984 and his explanation in his letter dated 28-3-1984, was put to the assessee by the ITO in a statement recorded from the assessee on 18-4-1984 in the course of the said proceedings. In reply to Question No. 24 the assessee stated that he was never specifically asked to explain the nature and source of the cash of Rs. 66,116 found at the time of the search and that he was under the impression that he was asked about how much cash he had in his pocket and that further he misunderstood the question and that also, after his answer was given the authorised officers did not clarify the question. This explanation offered by the assessee was rejected by the ITO as an after-thought. The ITO further relied on the fact that the assessee's appeal against the order under Section 132(5) was also rejected by the CIT(Central-I), Calcutta by his order dated 12-11-1984.
8. The ITO, while making the regular assessment for the year under appeal, again called upon the assessee to explain the nature and source of the cash of Rs. 66,116 found at the time of the search and the assessee reiterated his earlier explanation before the authorised officers. The assessee also submitted a written explanation dated 27-1-1986 in which he pointed out that the Investigation Department, New Delhi had allowed the firm, M/s. Luxmi Traders, to make entries in the cash book on 27-2-1984 when the books were in the possession of the ADI (Inv.) as he was fully satisfied that the cash of Rs. 25,000 was withdrawn by the assessee from M/s. Luxmi Traders on, 30-1-1984. the ITO did not agree with this submission of the assessee as he was of the view that there was no entry regarding the withdrawal of cash in the books of M/s. Luxmi Traders at the time of the search nor did the said concern have any voucher for the payment of Rs. 25,000 to the assessee. He rejected the entries made in the books of M/s. Luxmi Traders, only as an after-thought.
9. The ITO also rejected the assessee's further plea regarding the withdrawal of Rs. 15,000 by the assessee's son, Shri Virendra Kumar Pasari from the said M/s. Luxmi Traders on 30-1-1984, for the same reasons stated for rejecting the assessee's withdrawal of Rs. 25,000. Regarding the balance of Rs. 15,000 also, stated to have been received by the assessee from M/s. Vijay Paper Trg. Co. on 30-1-1984, the ITO rejected the assessee's plea for want of evidence as there was no entry recording the cash payment to the assessee in the books of the said firm.
10. Regarding the balance amount the assessee had explained that it belonged to his unmarried daughter and his three grandchildren. In support thereof the assessee had produced the Savings Bank Passbook of Munmun Pasari, one of the granddaughters of the assessee wherein there were deposits of Rs. 2,500 each in cash on 14-1-1983 and again on 14-1-1984. The ITO expressed surprise that the same amount was received as birthday gifts by the granddaughter. However, after allowing some margin for cash savings of the unmarried daughter and the grandchildren to the extent of Rs. 6,116 only, the ITO treated the balance of Rs. 60,000 as unexplained income of the assessee and added the same to the assessee's income for the year under appeal.
11. When the matter went before the CIT(Appeals) the assessee reiterated the submissions made before the departmental authorities and contended that there was no justification for disbelieving the assessee's case when the departmental officers had allowed the entries to be recorded in the books of M/s. Luxmi Traders as on 30-1-1984 after being satisfied about the genuineness of the two withdrawals of Rs. 25,000 by the assessee and of Rs. 15,000 by the assessee's son, Shri Virendra Kumar Pasari on the same date. It was further urged that the balance of Rs. 15,000 received from Vijay Paper Trading Co. should also have been accepted by the departmental authorities. It was also urged that the departmental authorities erred in disbelieving the assessee's explanation regarding the funds of his unmarried daughter and grandchildren who had received presents in cash on their birthdays and other festive occasions which were kept in the house.
12. The CIT(Appeals) examined this matter in great detail with the help of the seized documents in the presence of the Assessing Officer as well as the IAC(Assessment), Central, Calcutta. The CIT(Appeals) found that it was a usual fact of life that the books of account of even a very big business concern are not maintained exactly on a day to day basis and hence it was no wonder that the transactions which had taken place just on the earlier date were not entered in the books on that very date, and that it was also the reason why the relevant voucher was not prepared and kept on record. The CIT(Appeals) after examining the books of M/s. Luxmi Traders found that on 30-1-1984 the said firm had sufficient cash balance and it was for that reason the earlier investigating officers had permitted the said firm to record entries in the cash book of the said firm relating to the payment of Rs. 25,000 to the assessee and of Rs. 15,000 to Shri Virendra Kumar Pasari respectively on 30-1-1984. The CIT(Appeals) was of the view that this was sufficient to prove the case of the assessee regarding the withdrawal of Rs. 25,000 from M/s. Luxmi Traders. He, therefore, accepted this explanation of the assessee.
13. As regards the sum of Rs. 15,000 belonging to Shri Virendra Kumar Pasari, the CIT(Appeals) accepted the same as the facts were similar to the withdrawal of Rs. 25,000 by the assessee which was further supported by the affidavit of the assessee's son wherein he had claimed that he was the owner of the said money. The CIT(Appeals) pointed out that Shri Virendra Kumar Pasari was also living in the same residential premises along with his father. The CIT(Appeals) also noticed that the assessment of M/s. Luxmi Traders for the assessment year 1983-84 was also completed by the same assessing authority and that no mention had been made therein about the above-mentioned entries of Rs. 25,000 and Rs. 15,000 on 30-1-1984. The CIT(Appeals) did not consider to examine the last contention of the assessee in great detail as he was satisfied that the evidence available on record clearly clinched the issue in favour of the assessee regarding the sums of Rs. 25,000 and Rs. 15,000 having been withdrawn by the assessee and his son on 30-1-1984 from the said firm M/s. Luxmi Traders.
14. The CIT(Appeals) did not accept the assessee's plea regarding the receipt of cash of Rs. 15,000 from Vijay Paper Trading Co. on 30-1-1984 as he found no evidence to substantiate this claim.
15. As regards the balance amount of Rs. 11,116 which was claimed to belong to the unmarried daughter of the assessee and his three grandchildren, the CIT(Appeals) held that it would be reasonable to estimate such savings at Rs. 8,000 at the rate of Rs. 2,000 for each of the persons concerned in the absence of any definite evidence in this regard. He, therefore, accepted a sum of Rs. 8,000 out of Rs. 11,116 as properly explained and treated the balance of Rs. 3,116 as unexplained cash.
16. Thus, the CIT(Appeals) deleted a sum of Rs. 48,000 and sustained the balance amount of Rs. 18,116 as unexplained cash found at the time of the search in the assessee's premises which represented unexplained income of the assessee. Accordingly, he sustained the addition to the extent of Rs. 18,116 to the income of the assessee. The Department has come up on appeal to the Tribunal, objecting to the deletion of Rs. 48,000 by the CIT(Appeals). The assessee has accepted the decision of the CIT(Appeals) sustaining the addition of Rs. 18,116. This is the subject matter of Ground No. 1 of the appeal before the Tribunal by the Department against the sum of Rs. 48,000 deleted by the CIT(Appeals).
17. Shri D.S. Roy, the learned Departmental Representative contended that the facts discussed by the ITO in the assessment order conclusively established that the explanation offered by the assessee regarding the cash of Rs. 66,116 found at the time of the search remained unexplained, that the assessee's later explanation long after the date of the search, was only an after-thought and that there was no material to justify the conclusion of the CIT(Appeals) that the assessee had explained the nature and source of the cash to the extent of Rs. 48,000. In support of his argument Shri Roy relied on the findings of the ITO in the assessment, order and contended that the CIT(Appeals) erred in giving relief to the extent of Rs. 48,000 which should be restored.
18. Shri R.N. Bajoria, the learned Counsel for the assessee relied on the findings of the CIT( Appeals) in his order where he had discussed in detail the evidence already on record to show how and as to why the assessee's explanation was found to be acceptable to the extent of Rs. 48,000. Shri Bajoria took us through a copy of the statement of the assessee recorded at the time of the search on 31-1-1984 at page 1 of the assessee's paper book, the assessee's reply dated 24-3-1984 to the ITO at page 2 of the assessee's paper book and the second statement recorded by the ITO from the assessee on 18-4-1984 as well as the letter dated 27-1-86 at pages 3 and 4 respectively of the assessee's paper book. On these materials the learned Counsel pointed out that there was not even a single question put by the authorised officers to the assessee requiring him to explain the true nature and source of the cash of Rs. 66,116 found at the time of the search on 31-1-1984 and in the absence of any such specific question the assessee's explanations dated 24-3-1984 and on a later date, ought to have been accepted by the ITO even in the course of assessment proceedings. Shri Bajoria argued that there was nothing unusual in the explanation offered by the assessee, particularly having regard to the state of his mind at the time of the search as could be seen from the opening part of his statement dated 31-1-1984 and that the ITO was not justified in rejecting the said explanation as a mere after-thought, ignoring all the other facts pointed out by the assessee in the course of assessment proceedings. He argued that the CIT(Appeals) had correctly appreciated the facts of the case and after examining the books of account of the assessee as well as M/s. Luxmi Traders which were in the custody of the department, the CIT(Appeals) was fully justified in deleting the addition to the extent of Rs. 48,000 accepting the assessee's case to this extent. The learned Counsel argued that there was no infirmity either in the reasoning or the conclusion of the CIT(Appeals) and that the same should be upheld.
19. We have carefully examined the contentions set out above in the light of the materials placed before us. In our view, the CIT(Appeals) had correctly appreciated the facts of the case as well as the evidence already brought on record to reach the conclusion that the assessee had satisfactorily explained the nature and source of the cash to the extent of Rs. 48,000 only, found at the time of the search on 31-1-1984. The order of the CIT(Appeals) shows that all the books of account seized from the assessee's premises as well as from M/s. Luxmi Traders were in the custody of the Department. It is only after satisfying himself about the genuineness of the assessee's explanation regarding the withdrawal of Rs. 25,000 by him from M/s. Luxmi Traders on 30-1-1984 and of Rs. 15,000 by his son Shri Virendra Kumar Pasari, the CIT(Appeals) accepted the assessee's case to the extent of Rs. 40,000 as more probable. The CIT(Appeals) was right in pointing out that the departmental authorities would not have permitted the assessee to make any entry in the seized books which were in their custody unless they were satisfied about the genuineness of the claims put forward by the assessee and his son before them. The other facts which also supports the assessee's case is that in the case of Luxmi Traders there is not even a mention about these entries passed in its books after the said books had been seized on 31-1-1984. It is also a fact that no addition has been made on this account in the hands of M/s. Luxmi Traders. The CIT(Appeals) was also right in accepting the probable savings of the unmarried daughter and the three grandchildren of the assessee at Rs. 8,000 having regard to their family status and background. In fact, he had examined each item separately before he either accepted the assessee's case or rejected the same as could be seen regarding the sum of Rs. 15,000 claimed by the assessee as having been withdrawn from another firm M/s. Vijay Paper Trading Co., New Delhi on 30-1-1984 for which there was absolutely no evidence produced by the assessee. We, therefore, find no infirmity either in the reasoning or the conclusion of the CIT(Appeals) when he accepted the assessee's case as satisfactorily explained cash to the extent of Rs. 48,000 out of the total cash of Rs. 66,116 found at the time of the search in the assessee's residential house. We, therefore, agree with the reasoning and conclusion of the CIT(Appeals) which we hereby confirm. Accordingly, this ground is rejected.
20. In Ground No. 2 the Revenue objects to the deletion of a sum of Rs. 800 representing the value of US $ 89 found at the assessee's residence at the time of the search.
21. The ITO had added this amount rejecting the explanation offered by the assessee's son Shri Narendra Kumar Pasari who stated that it was his savings out of US $ 500 which was sanctioned to him in foreign exchange by the Reserve Bank of India when he went on a foreign tour previously and that as he was not aware of the legal position that this amount should have been surrendered to the Reserve Bank of India, he kept the said US S 89 with him self. The CIT(Appeals), however, accepted the assessee's case accepting the said explanation offered by the said Shri Narendra Kumar Pasari who had filed an affidavit even in the course of the assessment proceedings. The passport of Shri Narendra Kumar Pasari was also produced before the CIT(Appeals) which was examined by him in the presence of the ITO and the IAC(Assessment) and the recitals in the said passport corroborated the assessee's claim. The CIT(Appeals) found that the assessee was not a dealer in foreign exchange and that it was also not the ITO's case that the assessee had engaged in any such sort of business in foreign exchange in a clandestine manner. He, therefore, accepted the affidavit of the assessee's son and deleted the addition of Rs. 800 from the income of the assessee. This is being objected to by the Revenue in Ground No. 2 of its appeal before the Tribunal.
22. Shri D.S. Roy, the learned Departmental Representative contended that the CIT(Appeals) had not given any opportunity to the Assessing Officer when he decided to accept the assessee's case and that, therefore, it was in violation of Rule 46A of the Income Tax Rules. He, therefore, submitted that the order of the CIT(Appeals) on this issue should be set aside and the matter should be sent back to him for complying with the requirements of Rule 46A.
23. Shri R.N. Bajoria, the learned Counsel for the assessee invited our attention to the letter dated 20-5-1987 written by the CIT(Appeals), Central-I, Calcutta to the ITO, C.C. XV, Calcutta wherein he had specifically given an opportunity to the Assessing Officer as required by Rule 46A with reference not only to the passport of Shri Narendra Kumar Pasari but also to the certificate from one Bipin Kumar Bubna, Frement, Califorina, U.S.A. testifying that he had borne all the expenses of the visits of Mr. & Mrs. Narendra and Shilpa Pasari to the U.S.A. and Japan and also that he had gifted them almost all the purchases made in those two countries. He, therefore, argued that there was no contravention or violation of Rule 46A by the CIT(Appeals) in this regard and that, therefore, his order deserved to be upheld.
24. After going through the affidavit of Shri Narendra Kumar Pasari a copy of which appears at page 12 of the assessee's paper book and a copy of the passport at pages 13 to 27 of the assessee's paper book we are satisfied that the CIT(Appeals) had acted rightly in deleting this addition. We are unable to agree with the Revenue that there was any contravention of Rule 46A by the CIT(Appeals) when he accepted the evidence produced by the assessee before him in this regard. On the contrary, the letter dated 20-5-1987 written by the CIT(Appeals) to the ITO expressly afforded an opportunity to the ITO to examine the fresh evidence produced by the assessee in this regard. This letter further throws light on the fact that the CIT(Appeals) had acted strictly in conformity with law not only in regard to this addition but also in regard to other additions as could be seen from paragraph 3 of the said letter where he requested the ITO to produce the records and documents of Shri Biswanath Pasari and M/s. Luxmi Traders and the seized books of account and other documents which were necessary for disposal of the appeal. Therefore, the order of the CIT(Appeals) cannot be faulted on the ground of contravention of Rule 46A. We, therefore, find no merit in the objection raised by the Revenue. Accordingly, this ground is rejected.
25. This takes us to Ground No. 3 in which the Revenue objects to the deletion of a sum of Rs. 11,66,441 which was added by the ITO as the concealed income of the assessee from his share business. This addition was made by the ITO with reference to the four sheets of paper numbered as pages 41 to 44 of Annexure A22 which were seized from the briefcase of the assessee, Shri Biswanath Pasari. On an examination of these papers the ITO found that there were transactions of purchase and sale of shares by the assessee on account of two parties, namely, "R.N." and "Jain". The assessee totally denied his connection with these papers and contended that they did not relate to him much less to the business carried on by him. He claimed that these papers might have been left by so many persons who came to transact business with him and that he had kept these papers in his briefcase when he found that they were left by some body for returning the same as and when they came to claim such papers.
It was pointed out that these papers were found in the briefcase of the assessee which was kept in the drawing room which itself showed that these papers had nothing to do with the assessee's business. The assessee also filed an affidavit in the course of assessment proceedings totally denying his connection with these papers and contended that nothing should be added with reference to these papers. The ITO did not agree with this contention. He was of the view that these papers reflected certain transactions in shares which were speculative in nature. He pointed out that up to the assessment year 1981-82 the assessee, Shri Biswanath Pasari himself, had shown income from speculation. He, therefore, concluded that the assessee had purchased and sold these shares on account of two parties, namely, "R.N." and "Jain". After examining the various entries the ITO took the profit and loss account of all the four pages together to arrive at a net profit of Rs. 6,66,441. He also relied on the receipt of Rs. 5 lakhs through cheque as per total account on page 41 shown on the credit side and that this receipt had not been shown in the books of account. He referred to the fact that the assessee had denied any such transaction. It was contended before the ITO by the assessee's authorised representative that this sum of Rs. 5 lakhs may be a payment, and not a receipt. However, the ITO held that on normal principles of accountancy the sum of Rs. 5 lakhs appeared to have been received by the assessee and that even if for the sake of argument it was taken as a payment, the same had to be treated as income from undisclosed sources as the assessee had not proved the source of the payment. He, therefore, added the sum of Rs. 11,66,441 as the concealed income of the assessee.
26. This is the major addition to the assessee's income which was objected to vehemently by the assessee before the CIT(Appeals) who dealt with this matter quite elaborately on pages 10 to 18 of his order. After setting out the findings of the ITO and the contentions urged on behalf of the assessee by the learned Counsel as well as by the departmental authorities, the CIT(Appeals) held that although he felt that the papers concerned described certain speculative transactions in shares, it was not, however, possible for him to accept the theory propounded by the ITO in the assessment order. He held that if the papers in question had to be accepted as belonging to and relating to speculative transactions indulged in by the assessee, then there might be three different sets of circumstances which he set out. Then the CIT(Appeals) held that the scrutiny of the papers concerned, however, did not lead to any definite conclusion as to whether the final results were actually of the nature of profit or loss to the account holder or holders whosoever he or they, was or were. He was of the view that so far as the assessee was concerned, the results would be just the reverse in case theory No. (Hi) as propounded by him be the fact in place of theory No. (ii), that furthermore, although the transactions were written on two sides, it was not at all possible to understand which side represented the purchases and which side the sales and hence whether the net results of a particular transaction represented a profit or loss. The CIT(Appeals) then examined the basis on which the ITO had proceeded with his theory that the transactions related to two separate identities, namely, "R.N." and "Jain" and ultimately came to the conclusion that unless it was possible to point out with sufficient force and evidence that the transactions in question belonged to the assessee himself and that they had resulted in profits to him, "he could not be charged with profits, if any, even arising out of the transactions recorded in the seized papers". The CIT(Appeals) pointed out that the assessee had strongly denied his connection with these papers or even with the transactions and that the ITO had not brought out any material on record to pinpoint the connection of the assessee with the aforesaid transactions excepting that the papers in question were found in his briefcase. According to the CIT(Appeals), the following points relied on by the assessee seemed to be of utmost importance:-
(a) The hand-writing on the papers concerned has not been examined. The appellant has strongly claimed in the Affidavit that the said handwriting is neither of himself nor of any of his employees or his family members.
(b) Even no examination has been made as to the probable genuineness of the transactions concerned. Although the appellant is stated to have not indulged in any speculative transaction in shares during last one or two years, he, however, used to do so in the past. No attempt has been made to get the genuineness of the entries verified from the records maintained by the broker or brokers with whom the appellant used to have dealings in the past. Even whether the rates mentioned in the seized papers relating to the shares of a particular company on a particular date were in consonance with the market quotations of such date or not has also not been examined.
(c) The alleged receipt/payment of Rs. 5,00,000 through cheque could not be connected to any of the disclosed bank accounts of the appellant.
The CIT(Appeals) concluded that simply recording of certain figures on ordinary pieces of paper without any information relating to the persons concerned therein could not be considered enough to fix the responsibility of the results of the said transactions in the hands of the assessee and that, as stated by him earlier, there was no way to find out whether the net results denoted profits as they might denote loss. He further held that the argument that the loss incurred by the assessee in such case must have been paid out of the undisclosed source of the assessee would hold no water unless it could definitely be shown that the assessee actually made the payments concerned. The CIT(Appeals) next pointed out that the ITO had taken into consideration only the profits arising out of the transactions recorded in the four sheets of paper which appeared on the right hand side of the final accounts, that there was, however, clear indication that there was a brought forward balance of Rs. 4,81,626 appearing on the left hand side of the final table on page 41 and that if the entries on the right hand side denoted profits of the assessee, this particular entry on the left hand side should, therefore, denote the loss arising to the assessee in the earlier months, i.e., before October, and that, however, nothing could be said definitely on this point also. The CIT(Appeals) then referred to two entries of the amounts of Rs. 24,960 and Rs. 28,430 appearing on the left hand side on page 43 against two names : "Shulpe" and "Sumte" and that the nature of these two transactions apparently appearing on the "loss" side (according to the ITO) was also shrouded in mystery as the detailed transactions leading to these final results were not appearing anywhere. Hence, the CIT(Appeals) held that it must be said that these four sheets of paper by themselves did not have sufficient material to come to a decisive finding that the profit of Rs. 6,66,441 (without taking into consideration the brought forward balance of Rs. 4,81,626 on the left hand side) did actually belong to the assessee.
27. As regards the addition of Rs. 5 lakhs, the CIT(Appeals) observed as follows on page 16 of his appellate order :-
As regards the addition of Rs. 5,00,000 stated to be receipt payment by cheque, the addition seems to be completely baseless simply because of the fact that the said receipt or payment is not found to be reflected in any of the known bank accounts of the appellant and further that no other bank account either belonging to the appellant or even to any of his Benamidar, could be traced out from where this particular transaction took place. Again, if this amount of Rs. 5,00,000 has got to be treated as receipt by the appellant then the cash payments of Rs. 3,69,880 and of Rs. 3,50,000 as appearing on the left hand side of the final table of pages 43 and 44 will also have got to be taken into consideration.
The CIT(Appeals) held that this addition actually could not stand simply not only on the basis of the fact that the seized papers did not lead to any definite conclusion as to the profit or loss of the account holders but primarily on the basis of lack of evidence connecting the assessee with these papers. While he accepted the fact that these papers had certainly been found in the briefcase of the assessee, the CIT(Appeals) pointed out that the assessee had given an explanation relating to keeping of the said papers in the briefcase in an affidavit which had not been challenged by the ITO and the explanation offered by the assessee in this regard also did not appear to be improbable. Adverting to the legal presumption drawn by the ITO under Section 132(4A) of the Act, the CIT(A) held that the said presumption relied on by the ITO was expressly confined to certain proceedings as specified in Section 278D and that it could not be extended beyond what was intended by the Parliament. For this, he relied on the discussions made in the treatise by Chaturvedi & Pithisaria on IT Law (3rd Edition) at page 2612. The CIT(A), therefore, held that the said presumption contained in Section 132(4A) relied on by the ITO would not hold good in the case of a normal assessment under Section 143(3) of the Act.
28. In the absence of definite evidence pointing out the connection of the assessee with the papers in question, the results of the transactions recorded therein could not he fixed on the assessee. He further held that the four pieces of seized papers by themselves also did not lead to any definite conclusion as to whether any profit or loss arose out of the transactions recorded therein and whether the payment by way of cheque or cash denoted receipt or payment by the account holder in question. Ultimately, the CIT(Appeals) was of the view that the addition of Rs. 11,66,441 had been made by the ITO on mere surmise and was not backed by even any supporting evidence and hence could not stand in the assessment of the assessee. He, therefore, deleted this addition. This is the subject matter of objection by the Revenue in Ground No. 3 in the departmental appeal before the Tribunal.
29. Shri D.S. Roy, the learned Departmental Representative relied on the findings of the ITO and argued that the seized papers clearly indicated transactions of a speculative nature indulged in by the assessee and that the assessee had neither explained these transactions nor explained the cheque for Rs. 5 lakhs before the ITO. In the absence of any satisfactory explanation coming forth from the assessee explaining the transactions recorded in the four sheets of papers seized from his briefcase, the ITO was justified in drawing an adverse inference against the assessee that the sum of Rs. 11,66,441 represented the concealed income of the assessee from share business. Shri Roy argued that the CIT(Appeals) was not justified in deleting this addition straightaway without giving any opportunity to the ITO to substantiate his case. He submitted that the order of the CIT(Appeals) should be set aside and the matter should be sent back to the ITO for further examination.
30. Shri R.N. Bajoria, the learned Counsel for the assessee opposed these contentions vehemently and contended that the four pieces of paper which have given rise to this addition are contained at pages 8 and 9 of the assessee's paper book and that, curiously, not a single question was put to the assessee either by the authorised officers or by the ITO when he was examined by him on oath or even later. The learned Counsel pointed out that the assessee was called upon to explain the various items i n the course of proceedings under Section 132(5) of the Act, such as, jewelleries, cash, foreign exchange and fixed deposit receipts, but nowhere was the assessee asked any question about these four sheets of paper in Annexure A22 copies of which are at pages 8 and 9 of the assessee's compilation. He submitted that as soon as the ITO made enquiry about these sheets of paper the assessee filed an affidavit at pages 6 and 7 of the assessee's paper book dated 30-1-1986 before the ITO in the course of assessment proceedings. The learned Counsel submitted that none of the averments contained in the assessee's affidavit were controverted by the ITO nor any material brought in by him to rebut those everments and to pinpoint that the transactions in question were put through by the assessee only and that they related to the assessee's business only. The learned Counsel relied on the findings of the CIT(Appeals) and pointed out that the CIT(Appeals) had taken care to examine in great detail these four sheets of paper contained in pages 41 to 44 of Annexure A22 of the seized documents by calling for the originals from the custody of the Department along with the report of the ADI as could be seen from the CIT(Appeals)'s letter dated 20-5-1987 wherein he requested that those documents should be produced before him at the time of hearing of the appeal on 27-5-1987. The learned Counsel, therefore, argued that apart from mere suspicion, surmise and conjectures on the part of the ITO there was nothing to connect these papers with the assessee much less to justify such a huge addition of Rs. 11,66,441 which was rightly deleted by the CIT(Appeals). He, therefore, submitted that the order of the CIT(Appeals) deserved to be confirmed.
31. We have already summarised the findings of the CIT(Appeals) in support of his conclusion deleting the addition of Rs. 11,66,441 made by the ITO. We have also perused the copies of the four sheets of paper marked as pages 41 to 44 of Annexure A22 contained in pages 8 and 9 of the assessee's compilation. As rightly held by the CIT(Appeals), there is nothing to show that these papers belonged to the assessee or that they represented the transactions indulged in by the assessee or put through by the assessee either on his own behalf or on behalf of two other identities, namely, "R.N." and "Jain". There is no material to indicate who these two identities are, their present address or whereabouts. The learned Counsel is right in his submission when he said that not a single question had been put to the assessee in any of their examinations by the departmental authorities even though a number of questions were put about other matters and things. The Department has also not found any material which would even remotely suggest that during this year also the assessee had indulged in speculative transactions in shares either in his own name or in the names of benami or that he had any bank account which was not disclosed to the Department in which all these funds had found their way or that the cheque for Rs. 5 lakhs had been deposited. In the absence of any (sic) other circumstances connecting these four papers and the transactions recorded therein with the assessee and in the absence of any further material to throw light about the true nature of these transactions contained therein, the CIT(Appeals) was right in his conclusion that the entire addition of Rs. 11,66,441 was based on mere surmise on the part of the ITO. It is well settled that however strong a cloud of suspicion may be, it cannot take the place of positive proof. The learned Departmental Representative is unable to point out any infirmity or error in the reasoning and conclusion of the CIT(Appeals) with which we fully agree. We, therefore, confirm his order deleting this addition of Rs. 11,66,441.
32. This takes us to the last ground in the departmental appeal in which objection is taken to the deletion of Rs. 16,476 representing interest on borrowed capital which was disallowed by the ITO on the ground that it related to money spent for personal expenditure by the assessee. The learned Counsel on both sides agreed that this issue is now covered by the decision of the Appellate Tribunal in the assessee's own case for the earlier assessment year 1983-84 a copy of which is at pages 30 and 31 of the assessee's compilation. In this order in ITA No. 1643(Cal.)/86 dated 20-11-1987 the Appellate Tribunal has held that there was no diversion of the borrowed capital for non-business purposes much less for personal expenditure by the assessee and that, therefore, there was no justification for disallowing a portion of the interest of Rs. 15,681 which was rightly deleted by the CIT(Appeals) in that year. The Tribunal had, therefore, dismissed the departmental appeal for that year and there is no dispute that this decision of the Tribunal has become final as no reference application has been filed by the Revenue against the said order. In fact, in this year the CIT(Appeals) also found that there was no nexus between the borrowing and the personal expenses as alleged by the ITO to justify the disallowance made by him. There is no material placed before us to rebut this finding of the CIT(Appeals). Respectfully following the earlier order of the Appellate Tribunal quoted above, we confirm the order of the CIT(Appeals) on this issue also.
33. In the result, the assessee's appeal in ITA No. 1974(Cal)/87 is partly allowed for statistical purposes. The departmental appeal in ITA No. 2204(Cal)/87 is dismissed.