COMMISSIONER OF INCOME TAX, RAIPUR vs. ASHOK PAREKH, RAJNANDGAON

The instant appeals i.e. l.T.A.Nos. 16 & 17 of 2004 arise from the orders dated 22.9.2003 & 22.9.2003 passed by the Income Tax Appellate Tribunal (for short “the ITA ") in IT (SS) A No.47/Nag/2000 (Block period 1.4.1987 to 14.11.1997) & IT (SS) A F TAX ACT 1961

25 Lakhs. The assessee surrendered an amount of Rs. 37.95 Lakhs, 3. as the undisclosed income of his HUF on account of the said undies, whereas, the balance of Rs. 3.30 Lakhs was offered in the In the income return, the assessee offered only Rs. 3.00 Lakhs for A.Y. 1997—98 and Rs. 5.9 Lakhs for A.Y. 1998—99 in respect of said hundies. offered as his undisclosed income. explanation before the AO as under: 3 The balance amount reflected in the hundi was not The assessee offered his h name of Shri Mangalchand Parakh. @ SI. No. Name Amount (Rs.) Explanation offered by the assessee

Shri Pravin 5,00,000/— No financial involvement. Jain Amanti Chitti was executed as counter guarantee against old trade outstanding of Rs. 5,99,104. 50. Affidavit enclosed.

ShriSunilKr. 1,50,000/— No . financial involvement. Grover Promissory note was drawn as counter guarantee against loan of Rs. 75,000/- given to Shri Balvinder Singh Bhatia alias Pinki. Letter of Sunil Grover addressed to ADL, Raipur enclosed

It was submitted before the AO that all the hundies/promissory notes were identical in nature. The assessee had surrendered the investment in promissory notes/hundies to the extent of Rs.8.90 Lakhs, which was actually advanced by the assessee on hundies, whereas, no surrender in respect of the remaining amount reflected in the promissory notes/hundies was made, as according to the assessee, these hundies were obtained either as securities or counter guarantees against the some trade/loan transactions duly , ‘ appearing in the regular books of account. Affidavits of the concerned persons were also filed in support of the above stated explanation The AO held that the promissory notes and hundies were not recorded either in the books of the assessee or that in the books of the concerned persons. It was further held that denial by both the parties of having no transactions as stated in the promissory notes/ hundies was done, as per the convenient and, as such, the AO declined to assign any evidentiary value to the affidavits of the concerned parties filed by the assessee. The AO further found that there was no correlation between the promissory notes / hundies found during the course of search with the corresponding trade/ loan transactions for which the assessee had claimed to have obtained the same as security. It was found that the assessee had fabricated bogus evidence in order to support his explanation and the same‘was not accepted by the AO. The AO held that the contents of the promissory notes/hundies very clearly denoted money advanced in cash by the assessee to the respective parties and the counter guarantee against outstanding trade/loan transactions were not acceptable in the absence of correlation. The AO treated the amounts of hundies as investment made by the assessee from his undisclosed income and the same l I, ,

Thereagainst, the asseessee preferred an appeal before the Commissioner, Income Tax (Appeals) {for short “the CIT (A)"}. The learned CIT (A) allowed the appeal deleting the entire additions made by the AO. The CIT (A) held that the material placed on record that the concerned parties were having substantial outstanding balance payable to the assessee at the relevant time and the persons executing the promissory notes/ hundies as guarantee/security were closely associated with the said parties and the same was also affirmed by them on oath in the affidavits filed before the AO. It was further held that the AO had neither x Hr

Thus, the AO was not justified in rejecting the evidence produced by the assessee in the form of affidavits and in drawing adverse inference against the assessee on the basis of surmises and presumptions. In case of M/s Maruti Automobiies, he was examined before the ADI during the course of search wherein the said party had clearly stated that the reievant promissory notes/hundies were executed merely as a security against the Ioan obtained by cheque and that there were no financial dealings in the execution of the said promissory notes/hundies.

The CIT (A) further held that the promissory notes/hundies were guarantee/collateral security for continuing the transactions with the concerned parties, no evidence was found and recorded. ln fact,’ the assessee had given the impugned amounts on the said promissory notes/hundies to the concerned parties and/or received and interest from the said parties on the amount allegedly advanced. Ultimately. the CIT (A) recorded the conclusion that the explanation of the assess of having obtained the relevant promissory notes/hundies as collateral security/guarantee for the trade/loan transactions already recorded in the regular books of account was duly supported and substantiated. The AO without taking steps to revert the same wrongly held that the explanation of the assessee was not correct. Similarly, the addition of Rs.7.50 lacs in respect of the cash found during search was also deleted holding that cash found during the course of search observing that the cash found and seized was fully explained by the assessee to be belonging to others and the said persons have explained in their «. é.V cash involved on affidavits filed before the AO. Thus, the CIT (A) vide its order dated 29.2.2000. 13. Thereagainst, the Depattment has preferred appeal before the ITAT. In the appeal, six grounds were raised by the department as under: 1) Deleting the addition of Rs.1,62,790/— made by the AO as undisclosed income for A.Y. 1994-95 to 1998-99 with reference to the seized document. 2) Deleting the addition of Rs.21,750/— made by the AO as undisclosed interest income on the advances given to Shri Yusuf Bhai Menon and Shri Satish Jain. x 3) Deleting the addition of Rs.16,50,000/— and Rs.1,03,600/— made by the AO treating the amount of promissory note and interest presumed to have earned on accrual basis. 4) Deleting the addition of Rs. 10,58,5OOI- made by‘ the AO being the amount of promissory notes and interest thereon in the name of Ms. Maruti Automobiles, Raipur. 5) Deleting the addition of Rs. 11,900/ - made by the AO as undisclosed income of the vassessee representing the interest calculated on the hundies surrendered by the assessee during the search. 6) Deleting the addition of Rs. 7,50,000/—- made by the AO as unexplained cash found and seized from the assessee’s premises during the search. are unjustified, as the AO has rightly considered all the facts and came to the conclusion that the abovestated amounts were not properly explained and, as such, they were added to the undisclosed income of the asseessee.

Shri Shrivastava in support of his contention placed reliance upon the decisions of this Court rendered in Assistant Commissioner of Income Tax v. Hukum Chand Jain & Ors.’ and M/s Dhanush General Stores v. The Commissioner of Income Tax, ,Raipurz.

On the other hand, Shri Harsh Wardhan, Advocate for the respondents, would submit that since the question of law staits with ‘whether under the facts and circumstances of the case’ that means the facts and circumstances of the case have been accepted as it is and in the light of the said facts, the question has to be decided. Statement under Section 132 (4-A) during search raises a rebutable presumption and the CIT (A) and the ITAT have elaborately considered the evidence led in rebuttal and by detailed order set aside the findings and order passed by the AO. Shr'r Harsh would further submit that the burden of rebuttal under Section 132 (4-A) that lay on the assessee has been duly discharged. Thus, no inteiference is warranted. 19. ln support of his contention, Shri Harsh placed reliance upon the decisions rendered in Sardar Machhisingh v. Commissioner of Income Tax3, P.R. Metrani v. Commissioner of Income Tax", Commissioner of Income Tax v. Mukundray K. Shah5, Commissioner of Income Tax v. P. Mohanaka/aG, Commissioner of Income Tax v. P.V.Kalyanasundaram7, Commissioner of Income 1 (201 O) 47 DTR (Chhattisgarh) 20 2 I.T.A.No.8s of 2003 (decided on 1.8.201 1) 3 4 [2005] 278 ITR 247 (MP) 5 [2006] 287 ITR 209 (so) 6 {2007] 290 ITR 433 (SC) 7 [2007] 291 ITR 278 (SC) [2007] 294 ITR 49 (so) s

In Hukum Chand Jain (supra), this Court, in facts of that case, observed that it was open to the asseessee who made admission to establish that confession was involuntary 'and the same was extracted under duress and coercion. Learned Division Bench of this Court found that the assessee voluntarily surrendered the undisciosed income during the course of search in the statement recorded under Section 132 (4) when he couid not explain the seizure of cash and jewellery. The onus of proving that confession made by him under Section 132 (4) was as a result of intimidation, duress and coercion was on the assessee. In view of that, it was held that the AO was justified in assessing the income of the assessee on the basis of surrender of undisclosed income made by the assessee under Section 132 (4). It was also held as under :