Income Tax Appellate Tribunal - Pune
Ramchandra S. Parge, Pune vs Assessee on 5 March, 2012
IN THE INCOME TAX APPELLATE TRIBUNAL
Pune Bench "B" , Pune
Before Shri I.C. Sudhir Judicial Member
and Shri R.K. Panda, Accountant Member
ITA No. 1422/PN/2008 : Asst. Year 2002-03
Shri Ramchandra S. Parge ... Appellant
Near Bhairavnath Mandir,
Kondhwa Khurd
Pune-411 048
PAN : Not available
Vs.
Income Tax Officer, Ward 2(2), Pune ... Respondent
Appellant by : Shri. Kishor Phadke
Respondent by : Shri Alok Mishra
Date of Hearing : 05/3/2012
Date of Pronouncement : 03-5-2012
ORDER
Per I.C. Sudhir, JM
The assessee has questioned first appellate order on the following two grounds ( modified) :
"1. The learned CIT(A)-II, Pune erred in law and on facts in not appreciating that the jurisdiction assumed by the learned ITO, Ward 2(2) u/s 153A r.w.s. 153C is erroneous and hence invalid.
2. The learned CIT(A)-II, Pune erred in law and on facts in sustaining addition of following amounts as "Unexplained Expenditure u/s 60C" -
a) alleged interest expenditure on regular loan - Rs.1,80,000
b) alleged interest expenditure on alleged cash loans - Rs.2,13,000
c) alleged brokerage expenditure - Rs. 35,500
3. Alternatively and without prejudice, the learned CIT(A)-II, Pune erred in law and on facts in not rationalizing the alleged interest expenditure on alleged cash loan with the blank cheques and promissory notes found during the search in the case of Mr. Shriram Son."2 ITA . No. 1422//PN/2008
Shri Ramchandra S. Parge A.Y. 2002-03 Page of 12 Ground No.1
2. The relevant facts are that search and seizure operation u/s. 132 were conducted in the premises of Shri. Shriram Soni. The A.O. of Shri Soni sent information to the A.O. of Shri Ramchandra S. Parge (assessee) as Shri Parge had given signed blank cheques to the extent of Rs. 41 Lakhs and had also issued promissory notes to Shri Soni. After verification of the documents/information received from the A.O of Shri Soni, notice u/s. 153C of Income Tax Act was issued to the assessee and assessment has been framed u/s. 153C r.w.s. 143(3) of the Act. The contention of the Ld. A.R. remained that search at residence of Mr. Shriram Soni was conducted on 29.7.2003, order u/s. 153 A in the case of Mr. Shriram Soni has been framed on 27.3.2006; satisfaction for assessee's case was recorded by the A.O on 27.3.2006, however, search material to the assessee's A.O have been transferred on 26.2.2007. The Ld. A.R. submitted that the A.O. holding jurisdiction over Mr. Shriram Soni's case ought to have transferred the search material to the A.O of the assessee on or before 27.3.2006. After the said date i.e. 27/3/2006, the A.O of Mr. Shriram Soni became functus officio for taking decision relevant to transferring of search material. As the search material is shifted (transferred) to the new A.O. on 26.2.2007, the said transfer of search material is invalid on the principle of functus officio.
3. The Ld. A.R. submitted further that wording used in Sec. 153C are parts of one common action. The phraseology does not suggest any piecemeal satisfaction of the said purported action. Hence, satisfaction and transfer of material is one common action which needs to be completed when the first A.O is holding jurisdiction for assessment. 3 ITA . No. 1422//PN/2008
Shri Ramchandra S. Parge A.Y. 2002-03 Page of 12
4. The Ld. A.R. submitted that if it is to be assumed that once satisfaction is reached in the prescribed period, a delayed transfer of such material does not violate the mechanism of Sec. 153C, the said assumption leads to a difficult and illogical fall out of such period. The Ld. A.R. submitted that the time limit for completion of Section 153C related assessment is provided u/s. 153B read with first proviso thereto. As per the said proviso, the Sec. 153C assessment is to be completed within one year from the end of the F.Y. of transfer of material or before the end of the period for completion of assessment proceedings of the original search wherefrom 153C is originated, whichever is later. As such it transpires both the time period should be capable of being tested positively so that, one of them survive over the other. He submitted that the shifting of material ought to take place on or before completion of the original search proceedings, so that the wording, which is later, will have due meaning. Analogy can be drawn from similar implicit time limits mechanism in Section 275(1)(C) of the I.T. Act.
5. The Ld. A.R. submitted that grant of time limit for assuming jurisdiction is an exclusion prerogative of the Legislature. No reasonable/logical/presumptive/purpose oriented approaches can be put into consideration since grant of jurisdiction is an exclusive field for the legislative thinking. The Legislature has provided for checks and balances in grant of various jurisdictions such as u/ss. 143(2), 147, 154, 264, 155 etc, As such, assuming of any reasonable period for shifting of material to the new A.O is impermissible. The Ld. A.R. has placed reliance on the decision of Special Bench of the Tribunal in the case of Manoj Aggarwal, 113 ITD 377 (Del.)(S.B) which is based on the decision of Hon'ble Supreme Court in the case of Manish Maheswari Vs. ACIT, 289 ITR 341 (SC). The Ld. A.R. also placed reliance on the following decisions : 4 ITA . No. 1422//PN/2008
Shri Ramchandra S. Parge A.Y. 2002-03 Page of 12
1. Pooran Mal Vs. DCIT, 93 ITR 505 (SC)
2. Khandubai Vasantji Desai Vs. DCIT, 236 ITR 73 (Guj.)
3. ACIT Vs. Mukta Goenka, 137 TTJ (Jab.) 249
4. CIT Vs. Panchjanya Management Agencies, 239 CTR (Ker.)424
5. CIT Vs. Radhey Shyam Bansal, ITA No. 482 /2008 (Del.)
6. The Ld. D.R., on the other hand, tried to justify the validity of assessment order in question. He submitted that undisputedly, satisfaction has been recorded in time and voluminous documents involving so many persons including assessee were there, hence after verification related documents (seized) have been handed over physically to the assessee's A.O within a reasonable time under the facts and circumstances of the present case.
7. Considering the above submissions, we find that the decisions relied upon by the Ld. A.R. are having distinguishable facts and different issues, hence are not applicable in the present case. The decision in the case of Manoj Aggarwal Vs. DCIT (Supra) on which the Ld. A.R. has placed more emphasis especially the contents of para Nos. 110 and 113 thereto is also not helpful to the assessee. The issue involved in that case is related to the provisions laid down u/s. 158 BC and 158BD. It has been held therein that it is not possible to view Sec. 158 BD in isolation and dehors Sec. 158 BC as that would militate against the intention behind the enactment of Chapter XIV B to provide for a complete code for assessment of undisclosed income as different from the assessment of normal income in regular assessment. Following the decision of Hon'ble Supreme Court in the case of Manish Maheshwari (Supra), laying down the parameters for initiating action u/s. 158BD, it has been held that the 5 ITA . No. 1422//PN/2008 Shri Ramchandra S. Parge A.Y. 2002-03 Page of 12 first and foremost requirement is that the A.O making the block assessment in the case of the persons searched has to be satisfied with the undisclosed income detected belongs to some persons other than the persons searched and so the Section itself contemplates satisfaction on the part of the A.O making the assessment in the case of the person searched. In the present case, there is no dispute that satisfaction was recorded in time by the A.O of the person searched. The only grievance of the assessee in the ground raised is that the material seized relating to the assessee was transferred by the A.O of the person searched to the A.O of the assessee belatedly i.e. on 26.2.2007 after recording the satisfaction and framing assessment u/s. 153A on 27.3.2006. A general argument has been advanced by the Ld. A.R. that after making the assessment in the case of the persons searched, the A.O. of the persons searched becomes functus officio for taking decision relevant to shifting search material, hence transfer of such material by him after framing of assessment u/s. 153A was invalid on the principle of functus officio. Other arguments as discussed above have also been advanced by the Ld. A.R. in support of his contention that due to delayed supply of the seized documents to the assessee's A.O, the jurisdiction assumed by the A.O of the assessee after expiry of the period specified in Sec. 153 B(1) was incorrect. After having gone through the provisions laid down u/s.
153B(1) of the Act , we do not agree with these contentions of the Ld. A.R.. For a ready reference, the relevant extract of Sec. 153B(1) is being reproduced hereunder :
"153B.(1) Notwithstanding anything contained in section 153, the Assessing Officer shall make an order of assessment or reassessment.-
(a) in respect of each assessment year falling within six assessment years referred to in clause (b) of [sub-
section (1) of] section 153A, within a period of two years from the end of the financial year in which the 6 ITA . No. 1422//PN/2008 Shri Ramchandra S. Parge A.Y. 2002-03 Page of 12 last of the authorisations for search under section 132 or for requisition under section 132A was executed;
(b) in respect of the assessment year relevant to the previous year in which search is conducted under section 132 or requisition is made under section 132A, within a period of two years from the end of the financial year in which the last of the authorizations for search under section 132 or for requisition under section 132A was executed:
[Provided that in case of other person referred to in section 153C, the period of limitation for making the assessment or reassessment shall be the period as referred to in clause (a) or clause (b) of this sub-section or one year from the end of the financial year in which books of account or documents or assets seized or requisitioned are handed over under section 153C to the Assessing Officer having jurisdiction over such other person, whichever is later:]"
There is no dispute in the present case that assessment u/s. 153C has been framed on 3rd December 2007 i.e. well within one year from the end of the F.Y. in which documents seized are handed over u/s. 153C to the A.O having jurisdiction over the assessee on 26.2.2007. We thus do not find reason to hold that the assessment framed u/s. 153C of the Act in question is invalid due to delayed supply/transfer of the seized material in absence of any time prescribed for the purpose in the provisions of the Income Tax Act. When provisions laid down under S.153B(1) of the Act are clear, we are bound to follow its literal meaning. There is no scope of application of the principle of Harmonious Construction to interpret the same or read beyond the provisions laid down. The issue raised in ground No. 1 is thus decided against the assessee. Ground No. 1 is accordingly rejected. Ground No. 2
8. The relevant facts are that during the course of search at the premises of Mr. Shiram Soni, promissory notes and blank cheques belonging to the assessee were found. The A.O of Shriram Soni sent information to the A.O. of the assessee and after verification of the documents/ information received from the A.O of Shriram Soni, notice u/s. 153C of the Act was issued to the assessee. The assessee had given 7 ITA . No. 1422//PN/2008 Shri Ramchandra S. Parge A.Y. 2002-03 Page of 12 the said signed blank cheques to the extent of Rs. 41 lacs and had also issued promissory notes to Shri Soni. During the course of assessment proceedings, affidavit was filed by the assessee stating that entire loan was not taken by the assessee and that only Rs. 10 lacs were taken as on 2.2.2000 as a loan by cheque. It was stated that the assessee was negotiating certain loan against which certain promissory notes and signed blank cheques were given to Shri Soni in anticipation of sanction of loan proposals. As those loan proposals did not materialize and no amount was dispersed by Shri Soni, the issuance of promissory notes and signed blank cheques to the extent of Rs. 41 lacs should have been taken cognizance by the A.O. The A.O however extracted the details of cash loan availed by the assessee from the documents/information seized and held that cash loans were in fact availed by the assessee on which he had paid interest of Rs.2,13,000/- and brokerage of Rs. 35,500 in cash which was not disclosed in the return of income. The amount of Rs. 2,48,500/- (Rs. 2,13,000/- + Rs. 35,500/-) was treated as unexplained expenditure and added to the income of the assessee.
8. Regarding loan of Rs. 10,00,000/- received by cheques on 2nd February 2000, which was repaid by the assessee on 13.8.2005, the A.O found from the balance sheet for the year under consideration that the assessee had shown unsecured loans of Rs. 16,72,030/- including loan of Shri Soni while the interest debited to profits & loss account was only Rs. 15,005/-. Considering the rate of interest being paid to Shri Soni at 18%, it is held by the A.O that interest of Rs. 1,80,000/- was not included in the interest debited to Profit & Loss Account which was held to have been paid in cash. As the interest of Rs. 1,80,000/- was paid from undisclosed sources, the same was added u/s. 69C of the Income Tax Act.8 ITA . No. 1422//PN/2008
Shri Ramchandra S. Parge A.Y. 2002-03 Page of 12
9. The Ld CIT(A) upheld the above additions.
10. Before the Tribunal, the Ld. A.R. submitted that copies of promissory notes and blank cheques do not relate to the entries found in books of Mr. Shriram Soni. The alleged entries relating to A.Y. 2002-03 do not correlate to the amounts mentioned in the search documents. Thus there is no search material for A.Y. 2002-03, hence jurisdiction for the said year is incorrectly assumed. He submitted further that the entire addition is based on Mr. Shriram Soni which cannot be termed as search material belonging to the present assessee. In this regard, he placed reliance on the decision in the case of Vijabai & Chandranath Vs/, 333 ITR 436 (Guj.)
11. The Ld. A.R. while reiterating the submissions made before the authorities below contended that the assessee had denied the transactions of cash loans under a sworn notarized affidavit but the authorities below have not taken due cognizance of the same. It is simply stated that since blank cheques and promissory notes found at Mr. Shriram Soni's place, the contention of the assessee is not acceptable. The ld. A.R. submitted further that the A.O has observed that the above two amounts represent alleged unexplained expenditure. These amounts appeared to have been culled out from the records seized from Mr. Shriram Soni. The reason of addition of any unexplained expenditure is to tax the source where from such expenditure take place. The A.O has himself observed the modus operandi of Shri Shriram Soni, who used to deduct the brokerage and interest from the cash loans extended from time to time. Thus, the source of the alleged interest and alleged 9 ITA . No. 1422//PN/2008 Shri Ramchandra S. Parge A.Y. 2002-03 Page of 12 brokerage is the alleged cash loan itself, as such no addition can be made on this account.
12. Regarding the addition of Rs.180000/- on cheque loan of Rs. 10,00,000/-, the A.R. submitted that it relates to some imaginery exercise of the A.O that the said amount should have been paid by the assessee considering the trade practice by Shri Soni. The A.O. has not related the said amount found/seized at the end of Mr. Soni. The assessee has already clarified that no such amount of Rs. 1,80,000/- was paid to Mr. Shriram Soni, this imaginery addition ought to be deleted. He submitted further that such imaginery amount cannot be added u/s. 69 C of the Act as the section deals with actual expenditure and not any hypothetical expenditure.
13. The Ld. D.R. on the other hand tried to justify the orders of the authorities below. He submitted that the A.O has mentioned in his order that there were blank cheques and seized promissory notes of the value of Rs. 41,00,000/- in this case. On page No. 3 of the assessment order, the A.O. has mentioned that the details of cash loans availed by the assessee during F.Y. 2001-02 has been extracted from the documents/information seized and which are detailed. He submitted that referring to the relevant entries recorded in the seized documents which were forwarded to the A.O, the amount of cash loans and interest at the rate of 18% per annum have been worked out on page 3 of the assessment order. The addition of Rs.2,13,000/- on account of interest and Rs. 35,000/- on the cash loans have been worked out (Total Rs. 2,48,500/-). He submitted that the computation made by the A.O with regard to the cash loans are not correct. The correct figure of interest and brokerage and amount paid/payable by the assessee works out to 10 ITA . No. 1422//PN/2008 Shri Ramchandra S. Parge A.Y. 2002-03 Page of 12 Rs.9,86,250/- as per the computation enclosed which is based on rate of interest and brokerage charged from the assessee, as mentioned in the seized documents (bundle No. 98 & 99) and the actual payment of such amounts (bundle No. 100). The Ld. D.R. accordingly submitted that the additions made by the A.O on this account may be enhanced to that extent.
14. Considering the above submissions, we do not find substance in the contention of the Ld. A.R. Admittedly, promissory notes and blank cheques for Rs.41,00,000/- bearing signatures of assessee were found during the course of search at the premises of Mr. Shriram Soni. In para No. 7 of the order, the A.O has furnished details of cash loan availed by the assessee during F.Y. 2001-02 extracted from the documents/information seized. The same has not been rebutted by the assessee. Under these circumstances, we fully concur with the findings of the Ld CIT(A) that the contention of the assessee that the documents found in the premises of Shri Soni were just some preparatory papers for the ensuing requested loan which never took place is not borne from the seized papers. Ld CIT(A) has also observed that assessee had given various undated blank cheques duly signed by him to Shri Soni, blank promissory notes signed by the assessee were also given wherein revenue stamp as also some of the proprietary business was placed. These promissory notes of the same amount as written in the cheque were found together from Shri Soni. Ld CIT(A) has observed that blank promissory notes of Rs. 5000 (where the blank signed cheque amount is Rs. 5,00,000/-) being 1% of the amount borrowed were also seized to keep track of the interest payment on the due date. The interest paid was recorded on the back of the blank promissory notes. Observing these material facts, the Ld CIT(A) has come to the conclusion that in 11 ITA . No. 1422//PN/2008 Shri Ramchandra S. Parge A.Y. 2002-03 Page of 12 view of the undisputed evidences seized from Shri Soni giving the entire details of the amount taken on loan, the interest and brokerage paid by the assessee, the action of the A.O. in treating the interest paid of Rs. 2,13,000/- and brokerage of Rs. 35,500/- in cash not disclosed in the return of income is justified. We find that the first appellate order on the issue is reasoned one, hence no interference is called for thereto. The same is upheld.
15. So far as addition made on account of payment of undisclosed interest of Rs.1,80,000/-on the loan amount of Rs. 10,00,000/- is concerned, we find substance in the contention of the Ld. A.R. that in absence of any evidence in support, such addition on account of charging of interest cannot be made in the assessment u/s. 153C of the Act merely on the basis of anticipation. Ld CIT(A) has also upheld the addition of Rs.1,80,000/- on the basis of probability as held by the Hon'ble Supreme Court in the case of Sumati Dayal reported in 214 ITR 801 (SC). We also find substance in the contention of the Ld. A.R. that the said amount of Rs. 10,00,000/- was availed as a loan by Account payee cheque in A.Y. 2000-01 and was repaid by the assessee by Account Payee cheque in A.Y. 2006-07. Hence, there was no reason to pay the interest in cash. Any way, there is no evidence on record to suggest that an interest of Rs.1,80,000/- was charged from the assessee against the loan of Rs.10,00,000/-. Under these circumstances, we while setting aside the orders of the authorities below, direct the A.O to delete the addition of Rs.1,80,000/-.
16. In result, Ground No. 2 is partly allowed.
Ground No.3 12 ITA . No. 1422//PN/2008 Shri Ramchandra S. Parge A.Y. 2002-03 Page of 12
17. In view of the above finding on the issue raised in ground No.2, the alternative ground No. 3 does not need independent adjudication.
18. Consequently, the appeal is partly allowed.
Order pronounced in the open Court on 3rd May 2012.
Sd/- Sd/-
(R.K. PANDA) (I.C. SUDHIR )
ACCOUNTANT MEMBER JUDICIAL MEMBER
Pune, dated the 3rd May , 2012
US
Copy of the order is forwarded to :
1. The Appellant
2. The Respondent
3. The CIT - II, Pune
4. The CIT(A)- II, Pune
4. The D.R. "B" Bench, Pune
5. Guard File
-True Copy- By order
Senior Private Secretary
Income Tax Appellate Tribunal
Pune