DCIT 5(1), INDORE vs. SHRI MAHESH BANASAL, INDORE

order u/s 143(3)/147 of the Income Tax Act (In short the ‘Act’) dated 21.12.2017 framed by ACIT-5(1), Indore.

ITA No.499/Ind/2018 (Revenue)

"On the facts and in the circumstances of the case, the Ld. CIT(Appeals) has erred in :-

1. The Ld. CIT(A) has erred in deleting the addition made u/s 68 of Rs.85,31,830/-, without appreciating the important fact that such addition was made on the basis of specific information of providing loan to the CHL Group which was revealed during search operation and opportunity of cross examination was also provided to the assessee.

(vi) The appellant craves to leave, to add, or otherwise amend the Mahesh Bansal & C.O.No.10/Ind/2019 above ground of appeal.

Return of income was filed on 30.7.10 u/s 139(1) of the Act declaring the same at Rs.7,35,200/- which was processed u/s 143(1) of the Act. Search proceedings u/s 132 of the Act were conducted at the premises of CHL Hospital and its directors during F.Y. 2013-14. Investigation Wing seized a pen-drive from the residential premises of Accountant of CHL Hospital containing details of certain cash transactions including a noting relating to cash loan of Rs.1.05 crores alleged to have been received from Mr. Mahesh Bansal (assessee) on which interest was paid at Rs.8,31 ,830/-. The appellant maintained regular books of account based on which he declares income. Post-search enquiry was also made by the Investigation Wing from the assessee regarding entry found to be recorded in the pen drive of the accountant. Assessee categorically stated that he had never dealt into any financial transactions, whether by cheque or cash nor did he arranged any finance in the capacity of finance broker for CHL Hospital/Group. 3 Mahesh Bansal & C.O.No.10/Ind/2019 The Investigation Wing later on forwarded such details to ACIT, Central, Indore who in turn forwarded the same to the Assessing Officer of the appellant. Based on such information, notice U/S 148 of the Act was issued to assessee. In response to notice U/S 148 of the Act return of income was submitted and thereafter reasons for reopening of assessment were conveyed by the AO.

I) Justification of addition u/s 68 of the Act: On Merits.

At the outset, AO invoked the provisions of section 68 of the 4 Mahesh Bansal & C.O.No.10/Ind/2019 Act which can be applied only when any credit entry is found in the books of assessee. Search proceedings were not carried out in the premises of Shri Mahesh Bansal and no loose paper/hundi/documents/promissory note/cash book or cash flow statement were found or seized, which could prove the movement of cash to & fro between Shri Mahesh Bansal & Shri Ashok Vaishnav Accountant of CHL Hospital or any other person of CHL Group with respect to loan and interest thereon. The AO did not bring on record any corroborative and concrete evidence against the assessee which could prove that the assessee has advanced any loan to CHL Group. The inference is merely based on suspicion, surmises and conjectures and there was no material to support the conclusion of the AO.

The entries found recorded in the pen-drive of the accountant of CHL Hospital, Indore was a guess work which cannot be made a basis to treat that the income of the assessee had escaped assessment specially when neither the appellant nor the accountant ever met and/or known to each other in last 20 years. The pen-drive belonged to Mr. Ashok Vaishnav, accountant of CHL Hospital hence the assessee was not supposed to explain entries relating to unsecured loan transaction in cash found recorded in said pen-drive of the accountant when he did not even know the directors of the Hospital. The AO independently recorded the statement of Mr. Ashok Vaishnav on 12.12.2017. (Page 9 to 12 of P.B) & 5 Mahesh Bansal & C.O.No.10/Ind/2019 thereafter statement of the assessee on 15.12.2017 (Page 13 & 14 of P.B). On cross examination, Shri Ashok Vaishnav categorically stated that he did not personally know the assessee and also agreed that assessee had never handed over the aforesaid sum of Rs.I05 lacs to him. On specific querry he stated that based on information from cashier of the Hospital, he had recorded the name of the assessee regarding receipt of money. (Page 15 to 17 of P.B). The AO did not make any enquiry from cashier of the Hospital to verify aforesaid fact in relation to alleged receipt of money from the assessee. No receipt, signature or any agreement between the assessee and the Hospital was found in search premises to the effect that any loan was given by the assessee. When the assessee denied the information collected by the AO, independent enquiry should have been made as to whether the information passed on to the AO was true or not. No entries were found recorded not in the books of Hospital and merely because resembling name of the appellant, was found recorded in the pen-drive of the accountant of the Hospital, addition was made in the hands of the assessee. There was no positive evidence against the assessee that such amount was given except that the name "Mahesh Bansal" with mobile number was found in pen- drive of the accountant of the CHL Hospital.

It is a settled legal position that the entries found recorded in the books of account of the third party or statement recorded under section 132(4) or 131 of the Act of a third party are 6 Mahesh Bansal & C.O.No.10/Ind/2019 binding upon him in his own case only and the same cannot be foisted upon the other parties in the absence of sufficient corroboratory material. The assessee cannot be penalized for entries recorded in the diary maintained by 3rd party unless any evidence is found against him.

Assessee further submitted that in spite of specific request made to the Assessing Officer to give an opportunity to cross examine the directors of CHL Hospital by issuing summon to them when the accountant even did not know the appellant. Non issue of summons to the directors of CHP hospital, the assessment order was vitiated as held in the case of Prakash Chand Nahata vs. CIT (2008) 3012 ITR 134 (M.P)

Reliance was placed by the assessee on the following judgments; a) Pr. CIT V/s Pukhraj Soni Appeal No. ITA 53 of 2017 (MP) order dated 06.02.19. b) K. P. Varghese Vs. ITO, (1981) 131 ITR 597 (S.C.), c) Addl. CIT Vs. Miss. Lata Mangeshkar (1974) 97 ITR 696 (Bom.). d) Dy. CIT Vs. Mahendra Ambalal Patel (2010) 40 DTR 243 (Guj). e) Heirs & L.Rs of Late Laxman Bhai S. Patel V s.CIT (2008) 327 ITR 290 (Guj). f) Chiranji Lal Steel Rolling Mills Vs. CIT (1972) 84 ITR 222 Mahesh Bansal & C.O.No.10/Ind/2019 (P&H): g) CIT Vs. Naresh Khattar (HUF) (2003) 261 ITR 664 (Del). h) Kamta Prasad Dwivedi Vs. ACIT (2018) 33 ITJ 565 (Inodre-Trib.)

This addition made by the Ld. A.O on the basis of the information contained in the pen drive seized from the premises of the Accountant of CHL group during the course of search conducted u/s 132 of the Act during the financial year 2013-14. In the seized pen drive there was a detail showing that the assessee Mr. Mahesh Bansal had given loan of Rs.1,05,00,000/- to CHL group and has also earned interest of Rs.8,31,830/- during the financial year 2009-10. However there was no mention of the alleged loan in the 8 Mahesh Bansal & C.O.No.10/Ind/2019 balance sheet of the assessee nor interest income was shown of Rs.8,31,830/-. It was contended by the assessee that he has no business connection with CHL group and he has not advanced any loan to the CHL group. He also submitted that the information found from the third party cannot be used against him. An affidavit was also duly sworn by the assessee to the effect that he has never dealt with any financial transaction of his own or on behalf of any financier for arranging loan for CHL group. Summons were issued to the Accountant Mr. Ashok Vaishnav who has also denied to have known the assessee personally. No information was called by the Ld. A.O from the Directors of the hospital to verify the content found in the pen drive seized from the Accountant. Ld. A.O went ahead to make addition for Rs.1,13,31,830/- ( Cash Loan Rs. 1,05,00,000/-, interest Rs.8,31,830/-). However the Ld. A.O gave the benefit of disclosure made by the assessee in the Income Tax Rules 2016 of Rs.28,00,000/- and the balance amount of Rs.85,31,830/- was added to the income. When the issue came up before Ld. CIT(A) he after appreciating the facts and placing reliance on the judgments deleted the addition observing as follows; Mahesh Bansal ITA No.499/2018 & C.O.No.10/Ind/2019

“4.1 The appellant had, therefore, requested to cross examine Mr.Ashok Vaishnav as well the directors of CHL Hospital to explain the nature of entries recorded by him and to give an extract from so called pen-drive related to alleged financial transactions.

None of the directors of the Hospital were summoned. The statement of the accountant was recorded on 12.12.2017 and he was cross examined on 15.12.2017.

Vide answer to Question no. 9 of statement recorded on 12.12.2017, the accountant stated that he did not personally know the appellant with further admission vide answer to question no. 12 that he was not aware whether he had ever talked to Mahesh Bansal even on mobile. Again, during cross examination on 15.12.2017 in reply to question no. 4 he repeated that he did not know personally the appellant. In reply to question no. 3 and question no. 6 it was stated by the accountant that he noted the name of the appellant based on information either from cashier or from the management. On specific querry replied to question no. 7, it was admitted that against loan received, post dated cheques were not given in the name of Mahesh Bansal, which is a usual practice. Thus, the addition of Rs.85.32 lacs was made by the AO based upon entries found recorded in the pendrive of the accountant of the third party and not even in the books of the third party. Such pen-drive cannot be considered to be appellant's account in the books of CHL Hospital hence he was not supposed to explain such entries. The AO did not collect any evidence from any source when the appellant denied the 10 Mahesh Bansal & C.O.No.10/Ind/2019 information received by the AO and did not make any independent enquiry from cashier of the Hospital or to any director of the company to verify aforesaid facts in relation to alleged receipt of money from the appellant.

4.2 The claim of the learned counsel for the appellant that the entries found recorded in the books of account of the third party or statement recorded under section 132(4) or 131 of the Act of a third party are binding upon so called third party only in his own case arid the same cannot be foisted upon the other parties in the absence of sufficient corroboratory material is found to be tenable. The appellant cannot be penalized for hand written entries in the diary maintained by 3rd party unless any evidence is found against him as held in following judgments: a) Addl. CIT Vs. Miss. Lata Mngeshkar (1974) 97 ITR 696 (Born.). Chiranji Lal Steel Rolling Mills Vs. crT (1972) 84 ITR 222 (P & b) H) c) Dy. CIT Vs. Mahendra Ambalal Patel (2010) 40 DTR 243 (Guj) d) Heirs & L.Rs of Late Laxman Bhai S. Patel Vs.CIT (2008) 327 ITR 290 (Guj) e) M/s. Eagle Seeds & Biotech Ltd Vs. ACIT, (2006) 6 ITJ 668 (Indore Bench) f) CIT Vs. Naresh Khattar (HUF) (2003) 261 ITR 664 (Del), g) ITO Vs. R.L. Narang (Dr.) (2008) 174 Taxmann 96 (Chandigarh) Smt. Neena Syal Vs. ACrT (1999) 70 ITD 62 (Chd.) h)

4.3 The judgments delivered by the Hon'ble Supreme Court 1D the case of Dhirajlal Girdharilal vs. CIT (1954) 26 ITR 736 (SC); Dhakeswari Cotton Mills Ltd vs, CIT (1954) 26 ITR 775 (SC); Lalchand Bhagat Ambica Ram vs, CIT (1959) 37 ITR 288 (SC); 11 Mahesh Bansal & C.O.No.10/Ind/2019 Umacharan Shaw& Bros. vs. CIT (1959) 37 ITR 271 (SC) & Omar Salay Mohamed Sait vs, CIT (1959) 37 ITR 151 (SC) also applies to the facts and circumstances of the case because the adverse inference drawn by the AO was purely based on conjectures, surmises and suspicion and does not have sanction of law. The principal laid down by the Apex Court in the case of Central Bureau Of Investigation vs V.C. Shukla & Ors (1998) 3 SCC 410 (SC) is also applicable in the case of the appellant wherein it was held that any loose sheets or diary found with the party where search was conducted, will not have any evidentiary value and it cannot be used against third party without any corresponding corroborative evidence.

4.4 In view of above, it is true that adverse inference has been drawn ignoring the principals of natural justice and section 34 of evidence Act in the case of the appellant hence addition made based on pen-drive of the accountant found during search at the residential premises of the accountant, cannot be held to be justified Accordingly, this ground of appeal is allowed”.

9. We observe that facts which are not in dispute at any stage in this case are:-

(a) The Pen drive was seized from the third party i.e. the Accountant of CHL Hospital group.

(b) The Accountant has stated that he is not known to the assessee personally and the alleged entry found in the pen Mahesh Bansal & C.O.No.10/Ind/2019 drive was made by him as per the instruction given by the management.

(c) No summons were issued to the Directors of CHL group to test the veracity of the information found in the pen drive before accusing the assessee.

(d) Except the information found in the pen drive no other incriminating material was found during the course of search or any other source which could prove that the assessee has ever entered into any business transaction of financing to the CHL group.

(i) In the case of K. P. Varghese Vs. ITO, (1981) 131 ITR 597 (S.C.)(supra), Hon’ble High court held that “Mere seizure of note books of documents at the personal residence of an employee would not conclude the issue against the employer company that the on money has been received by the employer company. The onus of proving the charging of on money lies on the Revenue”. 13 Mahesh Bansal & C.O.No.10/Ind/2019 (ii) In the case of Addl. CIT Vs. Miss. Lata Mangeshkar (1974) 97 ITR 696 (Bom.)(supra), Hon’ble High Court held that the conclusion was reached by the Tribunal on a proper appreciation of evidence and observed as under:-

“The evidence on which the income tax authorities relied were statements by two persons that they had paid money in “black” to the assessee and entries in books belonging to them regarding alleged payments to the assessee. The Tribunal examined the statements made by the two persons and found that the evidence tendered by them suffered from serious infirmities. It held that mere entries in the accounts regarding payments to the assessee was not sufficient as there was no guarantee that the entries were genuine. The Tribunal, therefore, held that there was no proof that the amounts in question represented income from undisclosed sources belonging to the assessee”

(iii) In the case of Dy. CIT Vs. Mahendra Ambalal Patel (2010) 40 DTR 243 (Guj) (supra) Hon’ble High Court held that “ Addition in the hands of the assessee having been made merely on the basis of a statement made by a third party without there being any corroborative evidence, the Tribunal was justified in deleting the addition particularly when the assessee was not allowed opportunity to cross examine the persons who made such a statement. 14 Mahesh Bansal & C.O.No.10/Ind/2019 (iv) In the case of Heirs & L.Rs of Late Laxman Bhai S. Patel V s.CIT (2008) 327 ITR 290 (Guj) (supra) Hon’ble High Court held that “The Department had failed to establish any nexus between the promissory note and the amount said to have been given by the assessee to K. The Tribunal was not right in law in upholding the addition of Rs.8,78,358/- in the hands of the assessee”.

(v) In the case of Chiranji Lal Steel Rolling Mills Vs. CIT (1972) 84 ITR 222 (P&H) (supra) Hon’ble High Court held that “The copy of entries from the accounts of another firm supplied to the Income tax Officer by the Sales tax Department was not legal and admissible evidence on which the Income Tax Officer could act for imposing extra burden of income tax on the assessee when the original accounts were missing and could not be verified and when the assessee denied the entries therein”.

(vi) In the case of CIT Vs. Naresh Khattar (HUF) (2003) 261 ITR 664 (Del) (supra) Hon’ble High Court held that “The Tribunal was correct in holding that merely because counsel for the assessee made a statement in the civil court that the total investment in the property was Rs.13 crores and odd, it would not be sufficient material to come to the conclusion that the said figure represented the actual investment. There had to be something more than that. The Tribunal’s finding that the Revenue had failed to prove that the total investment 15 Mahesh Bansal & C.O.No.10/Ind/2019 of the assessee was Rs.13 crores was not perverse”.

“8. We have considered the facts and materials available on record. On consideration of above facts and circumstances, we find that no search was carried out in the premises of Shri Pukhraj Soni and no loose paper / hundi / documents / promissory note/ cash book or cash flow statement were found or seized, which could prove the movement of cash to &fro between Shri Pukhraj Soni & Shri Nilesh Ajmera with respect to interest and loans. We find that the AO failed to bring on record any corroborative and concrete evidence against the assessee which could prove that the assessee has advanced money to 16 Mahesh Bansal & C.O.No.10/Ind/2019 Shri Nilesh Ajmera. The inference of the AO that the assessee has advanced the money is merely based on suspicion, surmises and conjectures and there was no material to support the conclusion of the AO that the assessee has advanced the money. We derive support from the decision of Hon'ble Supreme Court in the case of Dhakeshwari Cotton Mill Pvt.Ltd. vs. CIT, (1954) 26 ITR 775 ( S. C.), wherein it was held that while making an assessment there must be something more than the bare suspicion to support the assessment. In another case of K.P. Varghese vs. ITO, (1981) 131 ITR 597 ( S.C.), the Hon'ble Supreme Court has held that mere seizure of note books of documents at the personal residence of an employee would not conclude the issue against the employer company that the on money has been received by the employer company. The onus of proving the charging of on money lies on the Revenue. Further, the Hon'ble Bombay High Court in the case of ACIT vs. Lata Mangeshkar (Miss) (1974) 97 ITR 696 (Bom), has held that no addition could be made in the hands of the assessee on the basis of notings found in the books of third person.

9.In view of facts and circumstances narrated above, we find that this issue is covered by the decision of this Tribunal in the case of Shri Nilesh Ajmera ([IT(SS)A Nos.250 & 251/Ind/2013, order dated 17.5.2016] (supra). Even before us, Id. Sr. Departmental Representative was not able to controvert the finding of the Id. CIT(A) as well as the submission of the Id. Authorized Representative of the assessee by bringing any contrary material on record. Thus, following the order of this Tribunal (supra) in the light of above judicial pronouncements, we dismiss the present appeal of the Revenue i.e. I.T.A.No.585 /Ind/20 15 for assessment year 2009-10. 17 Mahesh Bansal & C.O.No.10/Ind/2019 10. In the result, the appeal of the Revenue is dismissed”.

“6. The Tribunal has considered the aforesaid judgment while dismissing the appeal of the Revenue. The Apex Court in the case of Common Cause (A Registered Society) versus Union of India reported in (2017) 77 taxmann.com 245 (Hon'ble Supreme Court) 22, 24 and 27 has held as under:- “22. In case of Sahara, in addition we have the adjudication by the Income Tax Settlement Commission. The order has been placed on record along with I.A.No.4. The Settlement Commission has observed that the scrutiny of entries on loose papers, computer prints, hard disk, pen drives etc. have revealed that the transactions noted on documents were not genuine and have no evidentiary value and that details in these loose papers, computer print outs, hard disk and pen drive etc. do not comply with the requirement of the Indian Evidence Act and are not admissible evidence. It further observed that the department has no evidence to prove that entries in these loose papers and electronic data were kept regularly during the course of business of the concerned business house and the fact that these entries were fabricated, non-genuine was proved. It held as well that the PCIT/OR have not been able to show and substantiate the 18 Mahesh Bansal & C.O.No.10/Ind/2019 nature and source of receipts as well as nature and reason of payments and have failed to prove evidentiary value of loose papers and electronic documents within the legal parameters. The Commission has also observed that Department has not been able to make out a clear case of taxing such income in the hands of the applicant firm on the basis of these documents.

Mahesh Bansal & C.O.No.10/Ind/2019 “7. The Apex Court has taken into account in similar circumstances the incriminating materials in form of random sheets, loose papers, computer prints, hard disk and pen drive etc. And has held that they are inadmissible in evidence, as they are in the form of loose papers.

8. In the present case also entries found during search and seizure which are on loose papers are being made the basis to add income of this respondent.

mentioned above settles the issue that the additions cannot be made merely based on the basis of random sheets, loose papers, computer prints, hard disk and pen drive etc found from the third party without there being any nexus with other incriminating material establishing the live link of the assessee with the alleged transaction. In the instant case also the addition has been made only on the basis of pen drive seized from the third person i.e. Accountant of BHL group. Revenue authorities have failed to establish any connection either business or personal of the assessee with the Accountant or with Mahesh Bansal & C.O.No.10/Ind/2019 the Directors of CHL group. No efforts were made by the revenue authorities to summon the Directors of CHL group. Assessee has denied to have entered into the alleged transaction through an affidavit. No other incriminating material was found during the search. Therefore in our considered view CIT (A) was justified in deleting the addition of Rs. 85,31,830/- made by the Ld. A.O. No interference is therefore called for in the finding of Ld. CIT(A) and the same is confirmed. In the result the appeal of the revenue stands dismissed.

C.O.No.10/Ind/2019 (Assessee)

2. That without prejudice to above, learned Commissioner of Income Tax (A) erred in not appreciating the fact that neither the accountant Mr. Vaishnav nor the appellant knew each other as per statement of Mr. Vaishnav recorded under section 133(6) of the Act. The affidavit filed by the appellant to aforesaid effect was not controverted by the A.O in any manner hence addition made under section 68 as unexplained credits should have been Mahesh Bansal & C.O.No.10/Ind/2019 quashed instead of treating such grounds of appeal

as infructuous.

3. The appellant further craves leave to add, and/or to amend aforesaid grounds of cross objections if necessary.

15. Apropos the Cross Objection filed by the assessee, at the outset Ld. Counsel for the assessee requested for not pressing the grounds raised in this Cross Objection challenging the validity of the reopening of the assessment. Since the assessee is not pressing this ground, the same is dismissed as not pressed. The Cross Objection filed by the assessee is dismissed.

The order pronounced in the open Court on 29.07.2019.