SUSHILABAI DNANESHWAR VANSALE,,SOLAPUR vs. DEPUTY COMMISSIONER OF INCOME TAX,,

ORDER PER SATBEER SINGH GODARA, J.M. : This assessee’s appeal; involving block period 01.04.1996 to 27.08.2002, arises against the CIT(A)-13, Pune’s Order dated 22.09.2016 passed in case No.PN/CIT(A)- 13/DCIT, Central Cir.1(2), Pune/3/ 2009-10/304, in proceedings u/s. 158BC of the Income Tax Act, 1961 (in short “the Act”).

Heard both the parties. Case file perused.

2 ITA.No.2829/PUN./2016 “The following grounds are taken without prejudice to each other — On facts and in law, - 1) The Id. CIT(A) erred in confirming or upholding the following additions . made by Id. AO to the returned income.

Sr. Fin. Amount of No. Year. Addition 1 2 3 01. 1996-97 3,84,000 02. 1997-98 3,29,720 03. 1998-99 9,39,512 04. 1999-00 23,93,000 05. 2000-01 21,60,000 06. 2001-02 21,60,000 07. 2002-03 [Part up to 5,25,000 27.08.02] 2) The learned CIT(A) while confirming the above additions has erred in basing these additions on presumptions and ignoring the relevant facts and evidences. 3) The Appellant requests for admission of additional evidences if any required in support of his grounds of appeal. 4) The appellant craves leave to add, alter, amend or delete any of the above grounds of appeal.”

3 ITA.No.2829/PUN./2016 3. We come to the basic relevant facts. This assessee is assessed as an individual in the impugned block period 1997- 98 up to the date of search on 27.08.2002. She derived income from her petrol pump running in the name and style of Sushila Vansale Highway Services at Takli, Solapur along with rental income from a PAN shop, garage, dhaba and from bhishi business etc. The assessee appears to have let-out her petrol pump to Shri Purnachandra Rao [covered in the department’s very search action dated 27.08.2002]. The Assessing Officer issued his sec.158BC notice dated 15.01.2003. The assessee admittedly filed her return on 17.03.2003 declaring undisclosed income of Rs.29,87,596/-. The Assessing Officer framed his sec.158BC block assessment on 30.08.2004 inter alia adding undisclosed income of Rs.1,05,57,606/- on “substantive” and Rs.1,59,20,667/- on “protective” basis, respectively, totaling to Rs.2,64,78,273/-.

3.1. The assessee preferred her appeal. The Ld. CIT(A) has inter alia deleted the foregoing “protective” income addition in entirety and partly upheld the former addition on substantive basis as under :

“2.25. I have considered the facts and arguments of the Appellant. The Appellant’s first argument is that she has received the commission throughout the block period and she did not receive rent from Shri Rao. I do not accept

4 ITA.No.2829/PUN./2016 the Appellant’s contention. This is because the Appellant herself has declared in her block return receipt of the rent of Rs.32,000 per month during the initial period. The Appellant has tried to explain this receipt as monthly commission of Rs.32,000 after it was pointed out by the learned AO in the remand report. The Appellant has stated that the commission for letting Shri Rao run the petrol pump was fixed at Rs.32,000 per month for the year 1996- 97 and thereafter, it was paid at 0.5% of sales.

2.26. It may be recalled that the Appellant during the search and afterwards had stated that she paid managerial remuneration to Shri Rao, when to contrary, she had received consideration from Shri Rao. According to the Appellant, she furnished this explanation because she was afraid of losing her licence to operate the petrol pump. However, the Appellant again changed her version and stated that she was in receipt of commission @ 0.5% of sales. She again modified this version by stating that she received commission of Rs.32,000 per month during the year 1996-97 and thereafter, she received commission @ 0.5% of total sales only when it was pointed out that she herself has declared receipt of Rs.32,000 per month during 1996-97. Thus, I find that the Appellant's explanation that 5 ITA.No.2829/PUN./2016 she had received commission from Shri Rao throughout the block period has little credibility.

2.27. Further, according to me, the Appellant’s explanation of the payment of commission at Rs.32,000 per month is contradictory. This is because, according to the commercial practice, fixed consideration paid at the regular intervals has character of rent whereas the amount of the commission varies because it is linked with taking place of other transaction i.e. normally-sales. In other words, commission is paid on taking place of sales. The amount of the commission may be higher or lower depending upon the amount of the sales and is paid as and when sales take place whereas rent is of the fixed amount paid at regular interval irrespective of taking place of any business transaction.

2.28. Further, even if one does not get into technically of providing the nomenclature to the consideration received by the Appellant, it is certain that the Appellant for the year 1996-97 did not receive commission @ 0.5% of sales, which the Appellant stated that she received during the block period.

2.29. Secondly, the Appellant’s explanation that the difference between the amount of the commission receivable @ 0.5% of sales and actually received by her is 6 ITA.No.2829/PUN./2016 because of the fact that her accounts were not settled with Shri Rao on an annual basis, and the difference accumulated from the year 1993 is absurd. The Appellant’s explanation is not in accordance with the commercial reality and conduct of man with ordinary business prudence. It is highly unlikely that the payer would keep paying the higher amount for years without keeping the record of how much is the actual amount payable by him. Further, in terms of accountancy, if the Appellant received higher amount then what was due to her according to agreement with Shri Rao, the Appellant could not have declared the receipt of the excess amount as her income but ought to have shown such excess amount in her balance sheet as ‘payable’. This has not, been done by the Appellant.

2.30. Thirdly, the Appellant has discussed the entries in the seized material in detail in para 3.1 of the assessment order and in his remand report. The entries in the assessment order show that the Appellant has received Rs.1.8 lakhs per month from 13.09.1999 and during the FY 2001-02. In this connection, I have carefully gone through the learned AO's analysis of the seized material and the counter arguments of the Appellant on the seized material. I do not find the Appellant’s

7 ITA.No.2829/PUN./2016 arguments against the learned AO’s conclusion drawn on the entries made in the seized material as mentioned in para 3 of her letter dated 14.03.2005 convincing. The Appellant’s other explanation on the amount ‘due’ recorded in the seized material as not a fixed consideration is absurd and highly improbable. Accordingly, to me, the Appellant does not have any sound explanation on the contents of the seized material as to why it should not be taken as rent.

2.31. Fourthly, it is settled that the section 132(4A) imposes rebuttable presumption on correctness of the entries of the seized material. The Appellant being the owner and writer of the seized material, the initial onus is on her to explain the entries in it. Only the Appellant can explain the entries in the seized material, which was in her possession and knowledge. The Appellant had tried to explain the entries in the seized material by stating that the daily payment from Shri Rao was received towards commission payment. This explanation, of receipt of commission does not hold good on several counts as discussed in detail above. Therefore, the Appellant’s explanation cannot be treated as onus being discharged by her. I hold that the Appellant has not been able to rebut the presumption placed on her by the section 132(4A).

8 ITA.No.2829/PUN./2016 Accordingly, I hold that learned AO’s conclusions on receipt of rent and commission based on the contents of the seized material are correct.

2.32. Fifthly, Shri Purnachandra Rao had admitted the arrangement on payment of consideration between him and the Appellant vide his letter dated 06.07.2004 during assessment proceedings. This letter was forwarded to the Appellant. However, the Appellant did not ask for the cross- examination of Shri Rao during the assessment proceedings. In this background, the above amount paid by Shri Rao has been allowed as deductions against the income of Shri Rao. Therefore, the Appellant’s these arguments are afterthought and not facts.

2.33. It may be mentioned herein that I do not find the fact of the Appellant not cross-examining Shri Rao is not a fatal error for survival of the assessment order because firstly, the Appellant did not seek his cross- examination during the assessment proceedings. Secondly, as discussed above, the addition is made based on the seized material and on the Appellant’s failure to rebut the presumption on its correctness as required u/s 132(4A). The learned AO has referred to Shri Rao’s letter only as a supporting fact.

9 ITA.No.2829/PUN./2016 2.34. In view of the above reasons, I dismiss the Appellant’s arguments that she received commission from Shri Rao during the entire block period. I hold that the learned AO has correctly assessed rental income in the hands of the Appellant.

2.35. The Appellant’s other argument is that the learned AO should have restricted the addition only to the entries found in the seized material, In other words, the learned AO could not have extrapolated her income for the period for which the evidence is not found, I find that the Appellant’s this argument is contrary to the law laid down by the honourable Supreme Court in the case Commissioner of Sales Tax v H M Esufali H M Abdulali (1973) 90 ITR 271 (SC). In this case the honourable Supreme Court held that the estimate could be made, for the whole year on the basis of few days suppressed sales. It is seen that the in the Appellant’s case, the evidence was found for the receipt of rent for the part of the year therefore, the extrapolation for the receipt of rent can be done for the entire year. By following the ratio of this decision of the honourable Supreme Court, I hold that the income estimated by the learned AO on the basis of the evidence found for a particular period is lawful and correct. Accordingly, I confirm the addition of the total undisclosed

10 ITA.No.2829/PUN./2016 rental income of Rs.98,91,232 for the petrol pump made for the block period. On the same ground, I enhance the Appellant’s income by Rs.7,31,708/- for the Assessment year 1998-99 and by Rs.4,59,888 for the Assessment year 1999-00.

2.36. As far as the protective addition of the debtors of Rs.1,59,20,667 is concerned, I agree with the Appellant that this addition should be considered in the hands of Shri Purnachandra Rao because he operated the Appellant’s petrol pump. She Rao paid her consideration in the form of either rent or commission out of the profit earned from running the petrol pump. Making the addition of the debtors in the Appellant’s hand amounts to assessing income earned from petrol pump in the Appellant’s hands. It also amounts to stating that it was the Appellant, who was running the petrol pump and not Shri Rao. Such conclusion would be in contradiction to the very basis of the rental income added in the Appellant’s hands by the learned AO. Therefore, I delete the addition of debtors of Rs.1,59,20,667 made by the learned AO in the Appellant’s hands.

2.37. Accordingly, I direct the learned AO to substitute the Appellant’s total income by the enhanced

11 ITA.No.2829/PUN./2016 income u/s 251(2) vide this appellate Order for the AY 1998-99 and AY 1999-00.”

This leaves the assessee aggrieved.

12 ITA.No.2829/PUN./2016 4.1. The Revenue has strongly supported both the learned lower authorities action making the impugned additions to the limited extent of extrapolation component only. Mr. Jasnani sought to buttress the point that this taxpayer has been non-cooperative throughout which compelled the learned lower authorities to make the impugned addition based on extrapolation.

13 ITA.No.2829/PUN./2016 assessment has to be framed based on the evidence collected during the course of search. Meaning thereby, that their lordships’ have already rejected such an extrapolation sought to be invoked at the Revenue’s behest. Faced with the situation, we accept the assessee’s pleadings and arguments to this limited extent and delete the impugned undisclosed income addition of Rs.66,92,732/-; at the same time confirm the remaining addition based on the seized material. Learned Assessing Officer shall accordingly frame his consequential computation after due verification as per law. Ordered accordingly.

Order pronounced in the open Court on 15.05.2023.