KRISHNAMOORTHY RAMLINNGAM MUDALIYAR ,MUMBAI vs. ASSISTANT COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE -3 THANE, MUMBAI

The assessee in his appeals raised the following common grounds:- Assessee’s Appeal for AY 2015-16 (ITA No. 2984/Mum/2022) “1. On the facts and in the circumstances of the case and in law, the learned CTT(A) erred in confirming addition of Rs. 2,90,75,200/- on account of Unexplained Money. 2. On the facts and in the circumstances of the case and in law, the learned CIT(A) erred in confirming addition without considering the facts that appellant is an intermediary who worked on the instructions of the Mr Vivek Damanse and Varad Infraprojects Pvt. Ltd.

The grounds raised

Having regard to the above, the AO noted that, Pages 137-139 of Bundle No. 2 (which contained notings of unrecorded transactions) comprised of the ledger account appearing in the name of the assessee in the books of M/s VIPL for the period 01.04.2014 to 31.03.2017. Referring to the above statements of the accountant and Shri Vivek Dhamanse, the AO inferred that the entries in these diaries and ledger accounts denoted that the assessee had advanced huge cash loans to A.Ys. 2015-16 to AY. 2017-18 Krishnamoorthy Ramlingam Mudaliyar company, in his individual capacity, and that he had received payments from M/s VIPL as well, which represented transactions which were not recorded in the books of accounts. The AO also took note of Page No. 98 of Bundle No. 22, which was found and seized from the premises of Mr. Vivek Dhamanse, according to which M/s VIPL had received cash from the assessee and also paid cash to the assessee. This according to the AO supported the notings found in the diaries impounded as Bundle No. 2. The AO, accordingly tabulated date-wise the cash receipts and payments appearing in the name of the assessee on Pages 137 to 139 of Bundle No. 2, which is available at Pages 10 & 11 of the assessment order. The year-wise summary of cash receipts and payments identified by the AO, as noted in Para 8 of the assessment order, is as follows:

The AO called upon the assessee to explain the substantial cash investments made by him in M/s VIPL and also the nature of cash received by him from M/s VIPL. The assessee, however, did not file any submissions in response to the show cause. The AO, therefore added the cash paid by the assessee to M/s VIPL as his unexplained investment, and the cash received from M/s VIPL by way of unexplained monies, across all AYs 2015-16 to 2017-18. Aggrieved by A.Ys. 2015-16 to AY. 2017-18 Krishnamoorthy Ramlingam Mudaliyar this action of the AO, the assessee preferred an appeal before the Ld. CIT(A).

Before the Ld. CIT(A), the assessee contended that he was merely a facilitator/ intermediary who had assisted in arranging the funds from SG for M/s VIPL and since his father died on 17.12.2018, he could not participate in the assessment proceedings before the AO. The assessee furnished written submissions before the Ld. CIT(A) refuting the observations and additions made by the AO. The assessee explained that, he was a finance broker and had acted only as a facilitator for arranging loans for persons in requirement of funds. According to the assessee, he was only a middleman through whom the funds flowed and that he would receive or pay cash under the instructions of SG/Manare, and therefore the transactions found in Bundle No. 2 from the premises of M/s VIPL could not be added or assessed in his hands. The assessee brought to the notice of the Ld. CIT(A) that, he had been confronted with these documents along with the statements of the accountant in the course of search on 20.03.2017 itself and that his statement was recorded on 21.03.2017. In his answers to the Investigation Wing he had explained that he was only the broker / intermediary and that he had arranged funds for M/s VIPL from Mr. SG. The assessee is noted to have narrated the complete background facts concerning this arrangement between M/s VIPL and Mr. SG. Accordingly, when the assessee was confronted with the diaries marked as Bundle No. 2 impounded from the accountant as A.Ys. 2015-16 to AY. 2017-18 Krishnamoorthy Ramlingam Mudaliyar well his statement, the assessee in his answer to Q No. 19, had explained that he had not entered into these transactions. The assessee also brought to the notice of the Ld. CIT(A) that, the AO of M/s VIPL had already added and assessed these cash transactions appearing in Bundle No. 2 as the unexplained income of M/s VIPL. According to assessee therefore the same sum could not again be inferred to be his income, and assessed as his unexplained income. The assessee thus pleaded that, the addition/s made by the AO in his hands be deleted. Further, being an intermediary / finance broker, the assessee stated that, addition, if any, in his hands, could only be made on account of commission in the range of 0.6% to 1% in respect of the cash transactions routed between M/s VIPL and SG through him. Taking note of the above submissions of the assessee, the Ld. CIT(A) admitted the same and forwarded the same to the AO for his remand report and required him to allow sufficient opportunity to the assessee of being heard.

It is noted that, upon considering the submissions put forth by the appellant, the AO had summarized his observations into the following pointers in his remand report dated 06.04.2021: “i. The assessee in the submissions made during the remand proceedings could not produce any documentary evidence in support of his claim and has merely relied upon the statement given under oath by the assessee to substantiate his claim of being facilitator to arrange loans. Hence the contention of the assessee of being a facilitator to arrange loans for persons who were in need of funds but had low A.Ys. 2015-16 to AY. 2017-18 Krishnamoorthy Ramlingam Mudaliyar credit ratings/score to obtain funds from banks, financial institutions and private investors is not accepted. ii. The assessee could not produce any documents during the remand proceedings substantiating his claim of earning commission ranging from 0.6% to 1% of the total loan amount which he had admitted during the statement recorded u/s 132(4) of the Income Tax Act, 1961 during the course of search action on 21/03/2017. iii. On perusal of the assessment order of M/s Varad Infra Project Pvt Ltd, it is noticed that an amount of Rs 11,42,34,500/- in cash & Rs 4,00,00,000/- (through banking channel), totaling to Rs 15,42,34,500/- has been paid by M/s Varad Infra Project Pvt. Ltd as interest/benefits/ commission for the year under consideration. In absence of any explanation from M/s Varad Infra Project Pvt Ltd, the same was added in the hands of M/s Varad Infra Project Pvt Ltd as unexplained investment. On perusal of the assessee's assessment order for the year under consideration an addition of Rs 4,32,87,980/- was made. During the course of search action at the residence of the directors Shri Vivek and Manisha Dhamanse at Flat no-1802, Ashirwad Heights, Plot No-7, Sector 18, Kharghar, loose paper bundle no-22 containing pages 1 to 111 was found and seized. At page no 98 of this loose paper bundle, it is seen that the cash received and cash paid have been tabulated. The page is scanned and placed as under for …. In the assessment order of the assessee and M/s Varad Infra Projects Pvt Ltd, this page has been considered while making addition in their respective cases. It is also pertinent to mention here that in the office note the then AO has mentioned which is reproduced as under : A.Ys. 2015-16 to AY. 2017-18 Krishnamoorthy Ramlingam Mudaliyar "In the appraisal report, only the addition to the income of company M/s Varad Infra Projects Put Ltd was proposed. However, during the assessment proceedings, it was observed on the basis of seized material that Shri Krishna Mudaliyar had advanced huge amounts in cash to the company M/s VIL and has also received payments in cash on various dates. He was thus, asked to explain the source of cash amounts advanced and also to explain whether the cash amounts received were offered to taxation. However, Mr Mudaliyar did not attend the assessment proceedings, nor did he file any reply. Hence, the amount of investments and cash received have also been added in the hands of Mr. Krishna Mudaliyar. " iv) It is pertinent to mention that the assessment proceedings of M/s Varad Infraprojects Pt Ltd and its directors were completed too u/s 144 r.w.s 153A of the Income Tax Act, 1961 for A.Y's 2011-12 to 2017-18. v) During the assessment proceedings, the assessee had appointed AR to attend the proceedings, however the AR never attended after filing one adjournment letter and the assessee also did not looked into this matter. If the assessee had any submission in support of documents seized during the course of search, he would have filed it during assessment itself instead of remanding the case to the AO.

Assailing the action of the lower authorities, the Ld. AR, Shri Satya Prakash Singh, appearing for the assessee submitted that both the AO and the Ld. CIT(A), had failed to objectively appreciate the explanation put forth by the assessee based on the surrounding circumstances and the materials / statements available on record. The Ld. AR first showed us that, the assessee, in his statement, which was recorded in the course of search u/s 132(4) of the Act, had clearly stated that he was a finance broker engaged in facilitating loans. He submitted that, the assessee was approached by Mr. Vivek Dhamanse for providing assistance in obtaining finance for a project for Larsen & Toubro in 2013, and thereafter Mr. Dhamanse had contacted him again in July 2015 for arranging funds for a project he was developing for M/s VIPL. Inviting our attention to his Answer to Q No. 10, the Ld. AR showed us that the assessee had explained to the Investigating authorities that he had arranged funding for M/s VIPL from Mr. SG who had invested approximately Rs.25 crores in the said project. The assessee in his Answers to Q Nos. 14 to 16 had further explained that A.Ys. 2015-16 to AY. 2017-18 Krishnamoorthy Ramlingam Mudaliyar since M/s VIPL had not commenced the project, the assessee was assisting Mr. SG to recover the loan advanced by him back from M/s VIPL. Upon continuous follow-up by the assessee, Mr. Vivek Dhamanse had drawn up a payment schedule giving the timelines within which he had promised to repay part loan in installments, which was found and seized in the course of search as a loose paper. The Ld. AR pointed out that, it was in this factual background, that the assessee in his Answer to Q No. 19 had denied entering into these cash transactions on his own proprietary account. In this regard, the Ld. AR also brought to our notice the statement of Mr. Vivek Dhamanse, the Director of M/s VIPL, recorded u/s 131 of the Act on 20.03.2017 which was placed at Pages 32 to 39 of the Paper Book. He particularly invited our attention to his answers to Q No. 14, 15 & 16, wherein he had categorically affirmed that the assessee was only a facilitator / finance broker who had mobilized advances for the Varad Group from SG and/or others. Mr Vivek Dhamanse had also stated that they did not pay him any compensation for rendering such services. The Ld. AR also pointed out that Shri Vivek Dhamanse had explained the nature transactions found noted in Bundle No. 2 to the Investigating authorities, from which it was clear that it did not represent monies belonging to the assessee. Rather, it showed that the assessee was only the facilitator who was mobilizing the funds on their behalf and the assessee would receive/pay cash, for and on behalf of SG. The Ld. AR thus submitted that, the lower authorities erred in reading the statement of the accountant & the relevant entries/ledgers found in Pages 137 to A.Ys. 2015-16 to AY. 2017-18 Krishnamoorthy Ramlingam Mudaliyar 139 of Bundle No. 2 in isolation, and independent of the statement of the Director, Mr. Vivek Dhamanse. According to Ld. AR, the statement of the assessee and Mr. Vivek Dhamanse who was the director of M/s. VIPL clearly negated the stand taken by the lower authorities, but the lower authorities knowingly and conveniently chose to ignore the same so as to assess the impugned sum in question as assessee’s unexplained income for reasons best known to them. The Ld. AR thus submitted that, the statement given by the assessee u/s 132(4) of the Act after being confronted with the statements of other persons / accountant, and the crucial statement of Mr. Vivek Dhamanse, the key-person in charge of M/s VIPL, were relevant and important pieces of admissible evidence and that the lower authorities wrongly brushed the same aside.

To corroborate the statements given by the assessee and Mr. Vivek Dhamanse, the Ld. AR proceeded to explain the contents of Pages 137 to 139 of Bundle No. 2. The Ld. AR submitted that, like the cash notings/ diaries found from the premises and possession of the accountant did not belong to the accountant but the same was merely being recorded by him on behalf of Mr. Vivek Dhamanse, director of M/s. VIPL. Likewise, the cash noted under the name of the assessee, had only been received by him on the instructions of SG / SM, on whose behalf he had facilitated the loan transactions with Mr. Vivek Dhamanse of M/s VIPL. The Ld. AR explained that, the accountant was simply recording the collection and delivery of cash and he was A.Ys. 2015-16 to AY. 2017-18 Krishnamoorthy Ramlingam Mudaliyar not privy to the real nature of the transactions or to whom these monies actually belonged to. The accountant was only recording the names of the persons to whom he had handed over the monies. The Ld. AR buttressed this contention by taking us through the manner in which the accountant had illustratively explained the notings in his Answer to Q No. 4. He showed us that, the accountant had clearly averred that the cash received by him from Vivek (director of M/s. VIPL) was handed over to the assessee for other persons viz., Maqdum / Manare. This according to Ld. AR corroborated that the assessee was only a medium through whom the cash was being collected or delivered by M/s VIPL.

The Ld. AR thereafter invited our attention to Page No. 98 of Bundle No. 22, which also according to him, corroborated the case of the assessee. He showed us that, the notings therein clearly evidenced that the assessee was being paid commission and that interest was being paid by M/s VIPL to Mr. SG, from whom loan had been facilitated by the assessee. According to him, these notings lent credence to the contention of the assessee that he was only the ‘broker’ and not the ‘lender’ of the monies.

The Ld. AR thereafter took us through the assessment orders passed u/s 153A/144 of the Act in the matters of M/s VIPL and their Directors dated 30.11.2018. He showed us that the cash notings found in Bundle No. 2 had been found to represent transactions between Mr. SG and M/s VIPL and accordingly assessed to tax in the hands of A.Ys. 2015-16 to AY. 2017-18 Krishnamoorthy Ramlingam Mudaliyar VIPL. He pointed out that, nowhere did the AO of M/s VIPL ever hold that the transactions found in Bundle No. 2 inter alia belonged to the assessee. Taking us through the contents of the assessment order of M/s VIPL, the Ld. AR showed us that, the AO of M/s VIPL had regarded the assessee as a broker/ intermediary for which he had relied upon the statements given by the assessee and Mr. Vivek Dhamanse. The Ld. AR particularly showed us that, the statement given by the assessee was specifically relied upon by the AO of M/s VIPL, to justify the transactions between Mr. SG and M/s VIPL, and thereby make addition/s in the hands of M/s VIPL. The Ld. AR, particularly invited our attention to Paras 7.1 & 7.2 of the assessment order of M/s VIPL, to show that ultimately the cash notings in Bundle No. 2 had been considered by the AO of M/s VIPL and their Directors to represent their unexplained incomes and had been accordingly assessed to tax in their hands. The Ld. AR thus submitted that, when the incriminating contents found in the documents seized from the possession of M/s VIPL and their Directors was held to be pertaining to them and accordingly used to make additions to their income, then it was wholly incorrect to assess the same sum again, in the hands of the assessee as well. According to him, the findings of the Ld. CIT(A) that, the addition/s made in the hands of M/s VIPL was separate & independent, having no bearing in the income-tax assessment of the assessee or that the addition made in assessee’s hands did not amount to double addition, was factually untenable. The Ld. AR explained that, if the Revenue’s case was that, the cash notings in these Pages A.Ys. 2015-16 to AY. 2017-18 Krishnamoorthy Ramlingam Mudaliyar represented the unexplained monies of the assessee which was advanced by him to M/s VIPL, then the loans borrowed in cash by M/s VIPL could not be assessed to tax in the hands of VIPL as its unexplained income. Upon query from the Bench, the Ld. AR explained that, in such a situation, the only recourse for the Revenue to address cash borrowings by an assessee was to invoke Section 269SS r.w.s. 271D of the Act which levied penalty at the rate of 100% on such cash borrowings. Similarly, upon repayment i.e. cash payment, penal provisions have been set out in Section 269T r.w.s 271E of the Act. The Ld. AR showed us that, no such penal action was taken by the AO/Revenue against M/s VIPL. Instead the peak cash balances across all Pages of Bundle No. 2 including Pages 137 to 139 (containing name of assessee) were assessed as unexplained income of M/s VIPL. This according to the Ld. AR supported the case of the assessee that, the notings found against the assessee’s name did not represent the sums advanced by him out of his unexplained monies but it belonged to M/s VIPL, and therefore the allegations levelled by the lower authorities against the assessee was unjustified. The Ld. AR thus claimed that the impugned addition/s made in the hands of the assessee clearly amounted to double addition of the same sum, as it had already been assessed to tax as the unexplained income of M/s VIPL.

To further buttress his case, the Ld. AR invited our attention to the financials of the assessee as well as his tax returns and Form 26AS for AYs 2015-16, 2016-17 & 2017-18. The Ld. AR showed us that, the A.Ys. 2015-16 to AY. 2017-18 Krishnamoorthy Ramlingam Mudaliyar assessee was indeed a finance broker operating under the name & style, ‘M/s Gharkool Finance’ and that the income derived by him was in the form of commission towards procurement of bank finance for his customer/clients including the Varad Group. The Ld. AR thus submitted that, the statement given by the assessee that he was a facilitator of loan was backed by contemporaneous evidences. He also invited our attention to Page 98 of the Bundle No. 22 seized from the premises of Shri Vivek Dhamanse, Director of M/s VIPL (extracted by the AO at Page 12 of the assessment order). Referring to the same, he showed us that the bank payments stated to have been made by M/s VIPL to the assessee in that Table was towards commission and not interest which fact shows that assessee had not given any loan to M/s. VIPL. These contemporaneous facts coupled with the above submissions/ evidences, according to the Ld. AR, proved the case made out by the assessee that he was only a broker and not the lender.

The Ld. AR also took us through the details of the assets which were found and inventoried from the premises of the assessee. He showed us that the assessee along with all his family members owned four immovable properties that values ranged in between Rs.30 lacs to Rs.52 lacs and that two of the properties were financed by bank loans. The assessee was found to be owning two mid-sized cars and jewellery weighing only 708 gms were found. The Ld. AR further made us peruse the financials of the assessee to show that he did not own any shares or securities nor was he the promoter-owner of any companies/ A.Ys. 2015-16 to AY. 2017-18 Krishnamoorthy Ramlingam Mudaliyar entities. The value of fixed deposits and other securities held by him were in the range of Rs.1,00,000/- to Rs.3,00,000/- across these three years. The Ld. AR accordingly pointed out that the overall net worth of the assessee found by the Investigating authorities was in the range of Rs.120 lacs. The Ld. AR thus submitted that, the AO had advocated an impossible proposition that large scale generation & investment of unaccounted monies took place without there being evidence to support, viz. some unrecorded sales, undisclosed bank accounts, unexplained assets, cash or valuables etc. to support such allegation. According to the Ld. AR, had the assessee earned and advanced such huge unrecorded incomes of crores of rupees each year, it would have certainly reflected in some incriminating papers, documents in form of undisclosed sales or unexplained income or bogus expenses etc. However, no such evidence was found in the course of the search conducted in March 2017. The Ld. AR thus submitted that these facts & surrounding circumstances showed that there lay gaping holes in the observations & findings recorded by the lower authorities for justifying the impugned addition/s in the hands of the assessee. At the same time it also corroborated assessee’s contention that the addition/s were made purely on conjecture and surmises, without considering the totality of facts and circumstances involved in the present case. The Ld. AR therefore urged us to delete the addition/s made in the hands of the assessee and restrict the same to the extent of commission of 0.6% - 1% by way of unexplained commission/ brokerage earned by the assessee for facilitating such cash loan transactions. A.Ys. 2015-16 to AY. 2017-18 Krishnamoorthy Ramlingam Mudaliyar 17. Per contra, the Ld. DR appearing on behalf of the Revenue, in principle supported the findings recorded by both the lower authorities. The Ld. DR submitted that, the documents found in the course of search conducted upon the Varad Group revealed that the assessee had made substantial investments in cash in M/s VIPL which did not form part of his books of accounts. According to the Ld. DR therefore, the AO was justified in making the impugned additions to the total income of the appellant. Although the Ld. DR supported the findings of the Ld. CIT(A) to a large extent, but he objected to the Ld. CIT(A)’s action of applying the peak credit theory in AY 2017-18. According to the Ld. DR, both cash payments and cash receipts were rightly assessed by the AO separately and therefore urged that the addition made by the AO, to the extent deleted by the Ld. CIT(A), be restored.

We have heard both the parties, perused the orders of the lower authorities and the material placed before us. From the facts placed before us, it is gathered that a search was conducted u/s 132 of the Act on the Varad Group, which was engaged in the business of executing civil contracts. In the course of search, inter-alia certain diaries marked as Bundle No. 2 were found & seized from the possession of their accountant. These diaries contained 163 pages and the accountant had explained the contents of this diary in his Answer to Q No. 4, which has already been reproduced at Para 2 above. The accountant had inter alia explained that there were both cash and cheque transactions in these diaries. According to him, the entries in these A.Ys. 2015-16 to AY. 2017-18 Krishnamoorthy Ramlingam Mudaliyar diaries were maintained in Tally system as well, which represented the actual set of transactions conducted in business. The accountant further explained that there was another set of accounts in the tally system in which the cash entries were deleted/omitted and such accounts were used/maintained for income-tax purposes i.e. Bundle-3. This particular averment of the accountant is noted to have been confirmed by the Director of M/s VIPL, Vivek Dhamanse in his answer at Q No. 4 as well. To put it summarily, therefore, the cash notings found in these diaries marked as Bundle No. 2 represented the unaccounted/unrecorded transactions of the Varad Group. It is noted that, while framing the income-tax assessment of M/s VIPL, the AO of M/s VIPL has accordingly held that these diaries and the notings therein belong to M/s VIPL, and assessed the entries found therein, as the unexplained income of M/s VIPL.

However, as the name of the assessee was appearing in the notings found at Pages 137 to 139 of Bundle No. 2, which was seized from the possession of the accountant of M/s VIPL, the assessee was also simultaneously covered in the search action u/s 132 of the Act. In the course of recording of the statement u/s 132(4) of the Act, the assessee is noted to have been confronted with these notings found in the diaries and the statement of the accountant wherein he had explained that, wherever Krishna Sir was mentioned, the assessee was the person who was instructed to receive cash. The assessee is noted to A.Ys. 2015-16 to AY. 2017-18 Krishnamoorthy Ramlingam Mudaliyar have denied that, he had undertaken any cash transactions on his account with M/s VIPL.

Now as the assessee was also a person searched u/s 132(4) of the Act, along with the Varad Group, he was subjected to income-tax assessment u/s 153A of the Act and consequently assessments u/s 153A of the Act was framed for AYs 2015-16 to 2017-18. The addition/s were made in the hands of the appellant based on the notings found in his name at Pages 137 to 139 of Bundle No. 2 seized from the possession of the accountant of M/s VIPL. Referring to the statement of the accountant wherein he had stated that, wherever Krishna Sir was mentioned, Krishan Mudaliar is the person who was instructed to receive cash, the AO inferred that the cash transactions belonged to the assessee and represented loans advanced by the assessee out of his unexplained monies to M/s VIPL. The AO noted that, there were both cash and non-cash (bank) transactions in these seized ledgers. The AO further noted that, apart from the bank payments which were towards commission, there were also cash receipts and payments, found in Page No. 98 of Bundle No. 22 seized from the premises of the Director, Mr. Vivek Dhamanse. This according to the AO corroborated the contents of Pages 137 to 139 of Bundle No. 2. After tabulating the cash receipts and payments across the AYs in question, the AO added both year-wise payments and receipts as unexplained income of the assessee. The Ld. CIT(A) is noted to have agreed in principle with the analogy and findings of the A.Ys. 2015-16 to AY. 2017-18 Krishnamoorthy Ramlingam Mudaliyar AO. According to him, since the name of the assessee appeared separately on the Pages 137 to 139 of Bundle No. 2, the only possible conclusion was that these cash notings represented transactions conducted by the assessee with M/s VIPL. The Ld. CIT(A) also noted that the assessee was identified by the accountant as the person who was instructed to receive cash. According to Ld. CIT(A), the statement given by the assessee that he was only the broker/intermediary and that these cash transactions did not belong to him was a self-serving one and therefore the Ld. CIT(A) discarded the same. However, the Ld. CIT(A) did not agree with the AO’s action of adding both cash receipts and cash payments and instead restricted the addition to the higher of the two in AYs 2015-16 & 2016-17, and applied the peak cash balance theory in AY 2017-18.

In light of the above, the dispute before us, is whether the lower authorities were justified in making the impugned addition in the hands of the assessee. As noted above, the addition was based upon the notings found in the name of the assessee at Pages 137 to 139 of Bundle No. 2, which according to the lower authorities stood corroborated by the statement of the accountant of M/s VIPL and Page No. 98 of Bundle No. 22. Before adverting any further, it is first relevant to dwell on the aspect of the reliability of the contents of the documents, which are found and seized during the course of the search proceedings conducted upon an assessee. A.Ys. 2015-16 to AY. 2017-18 Krishnamoorthy Ramlingam Mudaliyar 22. Section 292C of the Act provides that, where any books of accounts, other documents, money, bullion, jewellery or other valuable article or thing, are or is, found in possession or control of any person, in the course of search conducted under Sec. 132 of the Act, it may, in any proceeding under this Act, be presumed, viz. (i) that, such books of account, other documents, money, bullion, jewellery, or other valuable article or thing belong or belongs to such person; (ii) that, the contents of such books of account and other documents are true; and (iii) that, the signature and every other part of such books of account and other documents which purport to be in the handwriting of any particular person or which may reasonably be assumed to have been signed by, or to be in handwriting of, any particular person, are in that person’s handwriting, and in the case of a document stamped, executed or attested, that it was duly stamped and executed or attested by the person by whom it purports to have been so executed or attested. Also, a similar presumption can be traced in sub-section (4A) of Sec. 132 of the Act. Sub-section (4A) which was introduced by the Taxation Laws (Amendment) Act, 1975 w.e.f. 1st Oct., 1975 also enacts such a presumption (may presume). According to Section 132(4A) of the Act, the books of account, other documents, money, bullion, jewellery or other valuable articles seized from the possession of a person, may be presumed to belong to such person in whose possession or control they are found during the search. A similar presumption is raised regarding the truthfulness of the contents of the books of accounts which are found. Presumption also arises in respect of signatures and A.Ys. 2015-16 to AY. 2017-18 Krishnamoorthy Ramlingam Mudaliyar every other part of the books of account to be in the handwriting of the person by whom it is purported to have been written. Similarly, if they are stamped, executed or attested, a presumption may be made to be duly stamped and executed or attested by the persons by whom it purports to have been executed or attested. The aforesaid presumptions are to be noted as rebuttable in nature and their strength is dependent upon the circumstances of each case. Further, the words used in this sub-section are "may be presumed" which are in contradistinction to the words "shall presume" or "conclusive proof"; and “may presume” postulates discretion unlike “shall presume”. Moreover, this presumption set out in Section 132(4A)/292C of the Act may be applied against the person from whose possession/control the books of account or the documents were found during search. Therefore, so far as the case of M/s VIPL is concerned, the Revenue authorities may presume that the books of account or documents found from the possession of accountant are true unless rebutted.

In the case before us, the diary marked as Bundle No. 2 was found from the possession of the accountant of M/s VIPL. Accordingly, the presumption regarding the contents of these documents “may be presumed” against M/s VIPL in terms of Section 132(4A) / 292C of the Act. As noted earlier, the AO of M/s VIPL had drawn such presumption and held that these diaries and notings therein belonged to M/s VIPL and accordingly assessed the entries found therein as the unexplained income of M/s VIPL. However, it should be A.Ys. 2015-16 to AY. 2017-18 Krishnamoorthy Ramlingam Mudaliyar borne in mind that this presumption is rebuttable qua the assessee. Having said so, the notings in the name of the assessee found in the diaries seized from the possession of the accountant and the statement given the accountant indeed constituted relevant information and initial presumption of the contents of the documents seized being true can be drawn by authorities and can be the basis for initiation of inquiry which can culminate in framing of the income-tax assessment of the assessee, but the presumption was indeed rebuttable.

On perusal of the orders of the lower authorities, and at first blush, these notings found at Pages 137 to 139 of Bundle No. 2 suggested that the assessee had conducted cash transactions with M/s VIPL. However, on closer examination of the same in light of other documents brought on record by the assessee, the statement/s given by several persons in the course of search (especially the statement of Mr. Vivek director of M/s. VIPL) and the assessment framed in the matters of M/s VIPL, a completely different picture emerges. It is found that the assessee has indeed rebutted the presumption with cogent evidence, which has been discussed in the ensuing paragraphs.

It is noted that, before the lower authorities and before us as well, the assessee has not denied the appearance of his name in these diaries marked as Bundle No. 2. According to the assessee however, these cash notings did not belong to him and that he was only the facilitator/broker who was handling the cash for and on behalf of A.Ys. 2015-16 to AY. 2017-18 Krishnamoorthy Ramlingam Mudaliyar someone else viz., SG. The Ld. AR showed us that, the contents of the diaries marked as Bundle No. 2 had been explained by the accountant in the following manner :- “..for example I am explaining reverse of page no 17 of bundle no.5 which states that on 26.10.2015 (dt mentioned on the top of the page) cash of Rs. 2,50,00,000/- has been received from Faizal, at- Kharghar, Reliance Fresh by Krishna Sir instruction. Krishna Mudaliar is the person who has instructed to receive cash. Shri Vivek R. Dhamanse instructed me after each transaction to write in the diary and everything is written in this diary as per his instruction. I am further explaining the page no 18, bundle no 5 as under: Rs. 93,50,000/- cash received from Vivek Sir Rs. 33,50,000/- for Maqdum Sir handed over to Krishna Sir. Rs. 50,00,000/- for Manere Sir handed over to Krishna Sir. Rs. 10,00,000/- for Krishna Sir handed over to Krishna Sir. Maqdum refers to Sheetal Maqdum, Manere refer to Sheetal Kumar Manere and Krishna Sir refers to Krishna Mudaliyar.”

The Ld. AR has rightly pointed out to us that, nowhere did the accountant state that the assessee had advanced loans to M/s VIPL or that the cash payments made to the assessee were towards repayment of loan or interest thereon. Instead the accountant stated that the entries in the diaries were being maintained by him at the instructions of his employer, i.e. the director of M/s VIPL. Therefore, it cannot be ruled out that the accountant was privy to the actual nature of these transactions and/or movement of cash or its ultimate beneficiary. Instead, we note that the tone and tenor of his answer shows that he A.Ys. 2015-16 to AY. 2017-18 Krishnamoorthy Ramlingam Mudaliyar would make note of the name of the person from whom the cash was collected and the name of the person whom he was instructed by his employer (Mr. Vivek director of M/s. VIPL) to handover/collect the cash payments. The answer given by the accountant was conspicuously silent in respect of the nature of such cash payments made by him.

The Ld. AR had explained the answer given by the accountant by way of an illustration. For instance, the accountant had explained that he had received cash of Rs.93,50,000/- from the Director, Mr. Vivek Dhamanse, which although was handed over to the assessee but the notings made by him suggested that cash to the extent of Rs.83,50,000/- was handed over to him for giving the same to Sheetal Maqdum or Sheetal Manare. This explanation given by the accountant thus showed that, like him, even the assessee used to only handle cash and facilitate the movement of cash to the concerned or the interested parties. This explanation put forth by the Ld. AR and answers given by the accountant indeed suggested that the accountant would only handle cash and he was unaware of the ultimate beneficiary or the payer/payee.

It is noted that when the assessee was immediately confronted at the time of search with these diaries and the statement of the accountant, he is noted to have explained in his statement, recorded u/s 132(4) of the Act that, he was only the broker/intermediary who had facilitated these cash transactions. The assessee had specifically A.Ys. 2015-16 to AY. 2017-18 Krishnamoorthy Ramlingam Mudaliyar identified the person, Mr. SG from whom he had facilitated the loan to M/s VIPL. The assessee had also explained to the Investigating authorities the manner in which he came into contact with M/s VIPL, and his background & experience as a finance broker. The relevant Questions put to the assessee and the answers given by him u/s 132(4) of the Act is noted to be as follows: “Q.4 What kind of business activity you do to earn for your living? Ans: I am a Proprietor of M/s A K Enterprises, M/s Gharkool Finance. In A K Enterprises, I am involved in the business of retail sales of readymade clothes covering all kinds of Menswear. Gharkool finance was a proprietary concern and I was the proprietor in this. In the Gharkool Finance, we used to provide loans to other people through banks. Through Gharkool Finance I used to earn commission ranging from 0.6% to 5% of the total Loan amount. Presently I do not work for Gharkool finance very actively. However, the account is still open. ….. Q. 10 Do you know Shri Vivek Dhamanse. If Yes then how? Ans: Yes, I know Shri Vivek Dhamanse. First of all I met him in Khargar and made him aware about my work of arranging loar for people Shri Vivek Dhamanse contacted me in the year 2013. When I was working for Gharkool Finance, Shri Vivek Dhamanse contacted my executive regarding arranging a loan for him as his CIBIL score was low. So his request for loan was rejected by the concerned bank. So he requested me to arrange a loan for him. Shri Vivek Dhamanse was doing a project of L&T of POSCO company. So to arrange the investment fund for him I introduced Mr.Vivek to Mr. Sheetal Kumar Manere. Mr.Sheetal was already an investor in this field. So Mr.Sheetal invested in his project after making a joint venture with him in the project of L&T of POSCO company. A.Ys. 2015-16 to AY. 2017-18 Krishnamoorthy Ramlingam Mudaliyar ….. Q.13 Do you know ShriSanjay Dhanachand Ghodawat. If yes then how? Ans: Yes I know Shri Sanjay Dhananchand Ghodawat. Mr.Sheetal Kumar Manere introduced me to him. In the marriage ceremony of his son Mr. Sheetal Kumar Manere introduced Shri Sanjay Dhanachand Ghodawat to me for the first time. After that in July 2015; Shri Vivek Dhamanse explained me the project of Varad Infra Pvt Ltd. Of redevelopment of building in Vartak Nagar, Thane and asked me to arrange investment fund for the same. Then I contacted Shri Sheetal Kumar Manere for investment. Shri Sheetal Manere told me that he would arrange funds from Shri Sanjay Ghodawat. Then Shri Sanjay Ghodawat invested in the Varad Infrastructure project of Thane in Vartak Nagar. Then after 1 year Shri Sachin Patil accountant of Shri Sanjay Ghodawat contacted me asking about the development of the Varad Infrastructure project in Thane. Because the Varad Infrasctructure project of Thane of redevelopment of building was not even started and Mr Sanjay Ghodawat had invested approx. Rs 25 crore in the same project. Latest I talked to Shri Sachin Patil accountant of Shri Sanjay Ghodawat approximately 15-20 days back.

In light of the above, the factual position, which emerges is that, the accountant was handling cash for and on behalf of M/s VIPL on the instructions of the Director, Mr. Vivek Dhamanse. He was making these cash notings in diaries, and certain notings at Pages 137 to 139 of the diaries seized as Bundle No. 2 contained the name of the assessee against certain cash receipts/payments. A reading of the statement of A.Ys. 2015-16 to AY. 2017-18 Krishnamoorthy Ramlingam Mudaliyar the accountant, recorded u/s 132(4) of the Act, reveals that he had explained these notings to be the cash handed over/received between him and the assessee. The statement given by the accountant was ambiguous as he only averred that the assessee was the person instructed to receive the cash. This answer given by the accountant was unclear as to whether the assessee was the ultimate beneficiary of this money or that the assessee was handling monies for someone else. Now, when confronted with these notings and the statement of the accountant, the assessee had explained that he was only the facilitator/broker who was mobilizing finance for M/s VIPL from Mr. SG. It is noted that the statement of the assessee was not bereft of any details, instead the assessee is noted to have given the specific details regarding the manner in which he came into contact with M/s VIPL and the persons through whom he mobilized finances for them.

The lower authorities however disputed the above statement of the assessee, holding it to be self-serving and bereft of any corroborative evidence. The Ld. AR pointed out that the lower authorities had conspicuously ignored the crucial statement of Mr. Vivek Dhamanse, the Director of M/s VIPL which, according to him, corroborated the statement of the assessee. It is noted that these diaries marked as Bundle No. 2 had been confronted to Mr. Vivek Dhamanse, the Director of M/s VIPL as well, under whose instructions the accountant was maintaining the same. We observe that, in his Answer to Q No. 4, the Director had first confirmed the statement of the A.Ys. 2015-16 to AY. 2017-18 Krishnamoorthy Ramlingam Mudaliyar accountant that the cash notings found in these diaries marked as Bundle No. 2 had not been entered in the books. Thereafter, at Q No. 14, the Director is noted to have been specifically confronted with the ledger account appearing in the name of the assessee, to which he had answered that the assessee had only been arranging finance for the company and that the ledger showed the loan transactions through him during the period 2013-14 till date. The relevant Question put to him and his Answer is reproduced below :- “Q14. I am now showing you the ledger account of Krishna. Please explain the same Ans. Shri Krishna Mudaliar has been arranging finance for the company The ledger shows the loan transactions during the period of 2013-14 till current year.”

It is noted that, the statement given by the assessee u/s 132(4) of the Act wherein he had averred that he was only facilitating finance for Varad Group since 2012 was also brought to the notice of the Director, Mr. Vivek Dhamanse who is noted to have corroborated the statement given by the assessee. The relevant portion of the Question and his answer is as follows :- “Q.15 In the statement recorded yesterday you have mentioned that Shri. Krishna Mudaliar and Shri. Ravi Giri has been helping you in mobilizing and finance, Please explain in detail the nature of business with these individuals and also state if there is any written agreement in respect of such transactions with these individuals. A.Ys. 2015-16 to AY. 2017-18 Krishnamoorthy Ramlingam Mudaliyar Ans. Shri Krishna Mudaliar, has been helping us in getting finance since 2012.1 got acquainted with him through a common friend. Shri Krishna Mudaliar operated his business from home (the address is already given earlier) and there is no office as such. There is no written agreement for the business transacted with Krishna Mudaliar. As regards, Ravi Giri, we have come to know him 2014 through a common friend. There is no written agreement with him. The oral agreement is that we will pay a fee of about 3% after disbursal of funds. As of now there has been no disbursal of funds. He has been trying to help us in getting the SBLC and bank guarantees from the foreign companies. His address is already given earlier and he too operates from home.”

In view of the above answer, the Investigating Officer questioned Mr. Vivek Dhamanse, Director of M/s VIPL regarding the fee/commission paid by the Varad Group to the assessee for arranging finances for them, to which he is noted to have replied as follows :- “Q16. Please give details of the fee/compensation given/determined to the above persons for arranging the finances. Ans. As for Krishna Mudaliar, there is no compensation paid. He may be getting some compensation from the financers. He has been mainly getting finance from Sanjay Ghodawat and also others. As regards, Ravi Giri, he has been trying to assist in getting foreign funding to the company as has been already submitted by me yesterday.” A.Ys. 2015-16 to AY. 2017-18 Krishnamoorthy Ramlingam Mudaliyar 33. We therefore note that the Director of M/s VIPL, Mr. Vivek Dhamanse, who was key person of the Varad Group and in the know of their affairs, finances etc., had also in the course of search, clearly stated that the assessee was only the facilitator/broker through whom loans were mobilized from SG.. We thus hold that, the statement given by the assessee explaining the contents of the statement of the accountant, and in particular, stating that the notings appearing in his name did not belong to him but represented cash handled by him in the capacity of broker/facilitator for Mr. SG stood corroborated by the above statement of Mr. Vivek Dhamanse.

The above statement of the assessee and Mr. Vivek Dhamanse also finds support from the contents of Page No. 98 of Bundle No. 22, which states that the bank payments found in the assessee’s ledger maintained by M/s VIPL was only towards commission. The same Page stated that the payments by way of interest on loan was to Mr. SG. We therefore find merit in the plea of the assessee that, if the assessee was actually a ‘lender’ and not a ‘broker’ then the notings would have mentioned the term ‘loan’ or ‘interest’ against his name as found mentioned in the ledger of Mr. SG. Also at the same time, it would be highly illogical for any borrower to pay ‘commission’ to the person who had lent the monies. This analogy put forth by the Ld. AR regarding the contents of Page No. 98 of Bundle No. 22 is found to be tenable. It also corroborates the statement of the assessee and Mr. Vivek Dhamanse that the assessee was only a finance broker and that A.Ys. 2015-16 to AY. 2017-18 Krishnamoorthy Ramlingam Mudaliyar the cash notings found in Pages 137 to 139 of Bundle No. 2 represented the loans facilitated through him for and on behalf of SG/Manare.

The Ld. AR further showed us that the Revenue first used the statement of the assessee as reliable evidence to justify additions in the hands of M/s VIPL and then turned back and discarded the very same statement while framing the assessment of the assessee. He argued that the Revenue cannot blow hot and cold at the same time. Before us, the Ld. AR had placed the copy of the assessment orders framed in the matters of M/s VIPL which is found placed at Pages 44 to 68 of the Paper Book. Perusal of the order reveals that the AO of M/s VIPL had admitted the statement of the assessee and regarded him as the finance broker. The AO of M/s VIPL is noted to have relied on the statement of the assessee to justify the additions made in the hands of M/s VIPL in relation to the transactions conducted with Mr. SG, for whom the assessee acted as broker / intermediary. It is noted that the AO of M/s VIPL first took note of the incriminating correspondence between Mr. Vivek and the assessee and found that it related to transactions between M/s VIPL and Mr. SG/Manare (on whose behalf the assessee handled cash), which is noted to be as follows: “7.1. During the course of the Search proceedings, an e-mail correspondence written by director of M/s. Varad Infra Projects Pvt Ltd, Shri. Vivek Dhamanse (dated 10.2.2017 at 6:22Pm and 6.01 Pm) to Shri. Krishna Mudaliar was found which gave a detailed description of the amounts of advances received by M/s. Varad Infra Projects Pvt. A.Ys. 2015-16 to AY. 2017-18 Krishnamoorthy Ramlingam Mudaliyar Ltd. from Shri. Sanjay Ghodawat. The e-mail also gave detailed date wise analysis of the amounts repaid in Cash and Cheque to Shri. Sanjay Ghodawat and Shri. Sheetal Manere…..

The AO of M/s VIPL thereafter noted that the above email and attachments were sent by Mr. Vivek to the assessee (broker/intermediary) to liaison with SG/Manare regarding the timelines of loan & repayments. The AO categorically held that the statement of the assessee corroborated the same. The relevant findings recorded in the income-tax assessment of M/s VIPL are noted to be as follows: 7.1.2 In the statement recorded u/s 132(4) of Shri. Vivek Dhamanse, he has submitted that this e-mail gave the details of the amount received from Shri. Sanjay Ghodawat and the repayments made to him and to Sheetal Manere from time to time against the advances received. The payments to Shri Sheetal Manere were made on account of commission for arranging finance from Shri. Sanjay Ghodawat. (Statement u/s 131 of Shri. Vivek Dhamanse dated 20.3.17) Q.6 I am showing you the print out of the statement (impounded as Bundle No. 1) showing the details of amounts received from Shri Sanjay D. Ghodawat. Once again you are called upon to explain this statement in detail and also explain the nature of the transactions shown in this statement. A.Ys. 2015-16 to AY. 2017-18 Krishnamoorthy Ramlingam Mudaliyar Ans. This statement has been taken from the mail which I have sent from my mail. id- varad.vivek22@gmail.com to Krishna Mudaliar krishna612m@gmail.com with a copy marked to mangeshsun79@gmail.com under the subject payments details of VIPL sent on 9 Feb-2017. This statement gives a complete detail of the amounts received from Shri. Sanjay D. Ghodawat and the subsequent returns made to him. I am explaining the same in detail as under :

Similarly at Para 7.1.6 of the assessment order of M/s VIPL, the AO referred to the statement of the assessee regarding two email correspondences between him and the director of VIPL, Mr. Vivek Dhamanse, wherein they were scheduling a meeting to bring the details of all investments made by ‘Kuber’, who was identified to be Mr. SG. Relying on the statement of the assessee, which has been extracted at Para 7.1.9 of the assessment order of M/s VIPL, the AO of M/s VIPL arrived at a conclusion that the assessee had facilitated cash transactions between M/s VIPL and Mr. SG/Manare.

The AO of M/s VIPL thereafter recorded a categorical finding that the authenticity of the transactions between M/s VIPL and Mr. SG/Manare stood substantiated in the light of the statement of the assessee. The relevant findings of the AO of M/s VIPL is as follows: 7.1.14 Shri Vivek Dhamanse in his statement recorded during the course of Survey/ search proceedings u/s 132(4) during Search proceedings has admitted to the genuineness of the transactions as A.Ys. 2015-16 to AY. 2017-18 Krishnamoorthy Ramlingam Mudaliyar found in the email correspondence. The authenticity of the financial transactions of the assessee company with Shri Sanjay Ghodawat and Shri Sheetal Manere is also established in view of the statements of Shri Krishnamoorthy Mudaliar and Shri Mangesh Chavan recorded u/s 131 on 14.07.2017 and 07.07.2017 respectively.”

Having regard to the above, we find that the assessment orders passed u/s 153A of the Act in the matters of M/s VIPL also supports the case of the assessee. It is noted that, the assessee was only a broker/intermediary and that the loan transactions were between M/s VIPL and Mr. SG/Manare, as found by the AO of M/s VIPL (searched person).

It is also noted by us from the same assessment order of M/s VIPL that, the AO had found that M/s VIPL had availed loan of Rs.25,00,00,000/- from Mr. SG and this fact was also stated under oath by the assessee in his statement recorded u/s 132(4) of the Act. The relevant observations made by the AO of M/s VIPL are noted to be as follows: “7.1.4 The above facts were reiterated by Shri. Vivek Dhamanse in his statement recorded us 132(4) during the course of Search proceedings. In the above statements, he has also summarized the details of advances received from Shri Sanjay G Ghodawat and subsequent payments made to him and also payments. made to Shri Sheetal kumar Manere. The same is produced hereunder: A.Ys. 2015-16 to AY. 2017-18 Krishnamoorthy Ramlingam Mudaliyar Principal Interest/benefits to Sanjay Godawat Commission to Sheetal Outstanding Amount Loan Cash Cheque Total Cash Cheque Total 3,00,00,000 - 1,75,00,000 1,75,00,000 - 62,50,000 62,50,000 - 5,00,00,000 4,22,00,000 99,00,000 5,21,00,000 2,43,00,000 2,12,50,000 4,55,50,000 - 15,00,00,000 8,35,00,000 2,83,50,000 11,18,50,000 7,80,00,000 1,53,00,000 9,33,00,000 - 30,00,00,000 - - 2,00,00,000 - - - 28,00,00,000 25,00,00,000 - - - - - - 25,00,00,000 TOTAL 12,57,00,000 5,57,50,000 18,14,50,000 10,23,00,000 4,28,00,000 14,51,00,000 53,00,00,000

The above findings in the matters of M/s VIPL correlates with the averments made by the assessee in his statement u/s 132(4) of the Act and therefore the statement given by the assessee is found to be credible.

It is also noted in particular that, the AO of M/s VIPL had examined the transactions contained in Bundle No. 2 (which inter alia includes Pages No. 137 to 139 containing the name of the assessee) in light of the statements of the accountant, Mr. Vivek Dhamanse and the assessee. The AO of VIPL, thereafter, gave a categorical finding that the notings in these 163 pages comprised of transactions between Shri Vivek & Smt. Manisha Dhamanse of M/s VIPL with Shri Sanjay Ghodawat. The relevant excerpts from the assessment order of M/s VIPL is set out below :- 7.2.3 Loose Paper Bundle No. 2 containing Loose Paper from Page No 1 to 163 and Loose Paper Bundle No. 3 containing Loose Paper from Page No 1 to 61, were found and impounded at the business premises of M/s Varad Infra Projects Pvt Ltd on 20.03.2017 at 705/706, Sheltron Cubix, Plot No 87, Sector 15, CBD Belapur, during the course of Survey action u/s 133 of the IT Act and Consequential Search action u/s 132. A.Ys. 2015-16 to AY. 2017-18 Krishnamoorthy Ramlingam Mudaliyar 7.2.4 Bundle No. 2 represents the actual Cash Book transactions of M/s Varad Infra Projects Pt Ltd and the actual, Ledger Accounts of Shri Vivek Ramchandra Dhamanse, Smt Manisha Vivek Dhamanse and Shri Sanjay Ghodawat in the Books of Accounts of the Assessee Company M/s Varad Infra Projects Private Ltd and the real business transactions executed by the Assessee Company M/s Varad Infra Projects Private Ltd which are entered and maintained in tally, however the return of income was not filed on the basis of actual books of accounts maintained on tally. For the purpose of the Income Tax Return purpose, a parallel set of Cash Book was maintained by deleting the actual cash entries and the same has been inventoried as Bundle No 3. Therefore, M/s Varad Infra Projects Put Ltd is maintaining two sets of Cash Book. One for recording actual transactions viz Bundle No 2 and another for taxation purpose Bundle No. 3. 43. It is also noted that, ultimately however the cash notings found in the diaries seized as Bundle No. 2 had been assessed by the AO of M/s VIPL as their unexplained income. The AO of M/s VIPL is noted to have not acceded to the explanation given by the accountant and Shri Vivek Dhamanse that these notings represented the loans obtained by them and repaid in cash. Instead, the AO of M/s VIPL added the peak credit balance appearing in the Cash Book as their unexplained income. The relevant portion of the assessment order is reproduced here under:- “7.2.9 The Cash Book prepared on the basis of all the cash entries found in the seized diaries and the loose documents was forwarded to the assessee along with a show cause notice vide letter dtd 01.09.2017 A.Ys. 2015-16 to AY. 2017-18 Krishnamoorthy Ramlingam Mudaliyar by DDIT(Inv)-IV(1) by email dated 02.09.2017. Subsequently, several Show-cause notices were issued, seeking the assessee's explanation. However, the assessee has not furnished any response to the said notices. Therefore, it is clear that the assessee has no explanation to offer regarding the credit balance appearing in Cash Book and therefore the amount of Rs 4,15,76,259/- is unexplained in the hands of the assessee company M/s Varad Infra Projects Private Itd for AY 2016-17.”

It is further noted that AO has admitted the fact that in the appraisal report (prepared by the investigation team after search operation) to only add the income of the company i.e. M/s. VIPL which AO has stated in his office note fond placed at page no. 43 PB forwarded by DCIT (CC-3, Thane) along with remand report dated 12.04.2021 submitted to Ld. CIT(A)-II, Pune wherein AO observes “In the appraisal report, only the addition to the income of company M/s. VIPL was proposed…..”.

In light of the above findings recorded in the assessment order of M/s VIPL, and the statement of Mr. Vivek Dhamanse, we hold that the lower authorities had grossly erred in not appreciating the fact that the assessee was only a broker/intermediary. The facts, as narrated above, clearly show that the entries found against his name in Bundle No. 2 comprised of the transactions facilitated by him between M/s VIPL and Mr. SG. This stood corroborated not only by the statement of Mr. Vivek Dhamanse but also the above discussed findings A.Ys. 2015-16 to AY. 2017-18 Krishnamoorthy Ramlingam Mudaliyar recorded in the assessment order of M/s VIPL. We thus find merit in the plea of the Ld. AR that, the assessee, being a broker / intermediary, the transactions mentioned against the name of the assessee did not belong to him. Instead, the assessee was only a medium through whom M/s VIPL and Mr. SG facilitated the cash transactions. Accordingly, the action of the lower authorities holding that the cash transactions appearing in assessee’s name in Pages 137 to 139 of Bundle No. 2 belonged to him and was therefore assessable as his unexplained income is held to be factually unsustainable.

We further observe that the reliability of the statement given by the assessee u/s 132(4) of the Act was also demonstrated by other surrounding facts and circumstances as well. As noted above in the extracted statement at Para 28 above, the assessee had claimed to be a finance broker / intermediary. This averment was disputed by the AO. The Ld. AR before us however has rightly demonstrated this submission of the assessee through the financials, income-tax return and Form 26AS of the assessee. It is noted that, the assessee functioned as a finance broker under the proprietary name & style of M/s Gharkool Finance. In AY 2015-16, the assessee is noted to have derived commission from banks/ FIs / corporates for facilitating loan/finance to the tune of Rs.21 lacs. Similarly, in AY 2016-17, the assessee had derived financial commission of Rs.57 lacs. It is also noted in particular that the assessee had received commission to the tune of Rs. 15.55 lacs from M/s VIPL in AY 2016-17 towards A.Ys. 2015-16 to AY. 2017-18 Krishnamoorthy Ramlingam Mudaliyar facilitation of loan. These contemporaneous facts lend credence to the statement given by the assessee u/s 132(4) of the Act that he was a finance broker and that he had come in contact with M/s VIPL for facilitating loan/finance. Hence, the observation of the AO/Ld. CIT(A) that the assessee was unable to substantiate that he was a broker/ intermediary is also found to be factually incorrect. The lower authorities are thus held to have erred in brushing aside these material facts placed before them by the assessee.

Overall therefore, and for the reasons set out above, we uphold the contention of the assessee that he was only acting as an intermediary and that the cash notings as tabulated by the AO at Pages 10 to 11 of the assessment order did not belong to him. Instead, these cash notings represented the loan transactions, which were only facilitated by him in his capacity as a broker to the transactions. Accordingly, the action of the lower authorities in treating these cash transactions as belonging to the assessee is held to be unjustified. Hence, the additions retained by the Ld. CIT(A) is directed to be deleted.

At the same time however, it is noted that the assessee by his own admission acted as a finance broker in lieu of commission of 0.6% to 1% and the Ld. AR has conceded before us that, the same may accordingly be computed and assessed in the hands of the assessee qua the cash loan transactions facilitated by him. From the various credit & A.Ys. 2015-16 to AY. 2017-18 Krishnamoorthy Ramlingam Mudaliyar debit entries found in the diaries against the name of the assessee, the Ld. CIT(A) is noted to have tabulated the same chronologically across AYs 2015-16, 2016-17 & 2017-18 and the peak value of transactions facilitated by the assessee works out to Rs.2,51,05,200/-, Rs.2,31,46,020/- and Rs.12,43,46,000/- respectively. In our considered view, and to meet the ends of justice, commission income @ 1% of the aforesaid peak balance of the respective AYs 2015-16 to 2017-18 is held to be reasonable. The AO is accordingly directed to re-compute and assess unexplained commission income in the hands of the assessee, as directed in the foregoing.