C.I.T. PATIALA vs. HAZARI LAL

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ITA/631/2008HC Punjab & HaryanaPHHC01080641200812 December 2008Author: MR. JUSTICE L.N. MITTAL,MR. JUSTICE ADARSH KUMAR GOEL12 pages
AI SummaryDismissed

What did the High Court hold?

The High Court held that the findings recorded by the ITAT were findings of fact based on appreciation of evidence, and no substantial question of law arose from the ITAT's order. Therefore, the appeal was dismissed. The ITAT had, in its order, found that document No. 34, seized during the search, was not self-explanatory, and its interpretation depended on the assessee's explanation and circumstantial material. The ITAT accepted the assessee's explanation that the amounts totaling Rs. 33,80,000/- represented payments due to customers in a commission agency business, finding no material to infer that the assessee was purchasing and selling vehicles on its own account. The ITAT also deleted an addition of Rs. 14,00,000/-. However, an addition of Rs. 5,50,000/- relating to a milk chilling plant was restored to the AO for further examination of the assessee's explanation regarding its relation to a partnership firm. An addition of Rs. 3,18,000/- was sustained as the assessee failed to provide satisfactory explanation. Regarding household expenses, the ITAT upheld the deletion of Rs. 5,37,239/- by the CIT(A), finding that the search did not reveal any evidence of understatement. The ITAT also noted that an addition of Rs. 1,94,008/- for unexplained investment in house construction was made based on a DVO report, but the High Court did not delve into the merits of this specific issue as it found no substantial question of law.

What were the facts?

The Revenue appealed the Income Tax Appellate Tribunal's (ITAT) order dated October 31, 2007, which granted further relief to the assessee, Shri Hazari Lal. The appeal concerned block assessments arising from a search operation conducted on September 29, 1998, where certain documents were seized. The Assessing Officer (AO) and Commissioner of Income Tax (Appeals) had made additions based on inferences drawn from these documents, particularly concerning income from commission agency and unexplained investments. The ITAT, however, partly allowed the assessee's appeal, deleting certain additions and restoring others to the AO for further examination. The Revenue's appeal to the High Court challenged the ITAT's findings on several grounds.

What were the issues?

The High Court had to decide the following substantial questions of law: 1. Whether the ITAT was correct in holding that a commission agency did not exist prior to AY 1997-98, despite documents found during search, considering Section 158BB(3) which casts the onus on the assessee to establish non-relatability of documents? 2. Whether the ITAT was correct in granting relief of Rs. 10,02,250/- on the ground that a seized document dated May 22, 1993, was not confronted to the assessee during the search, when it was confronted during assessment proceedings? 3. Whether the ITAT was correct in granting relief of Rs. 33,80,000/- by relying on a statement recorded under Section 132(1) of the Act, ignoring the assessee's failure to explain seized documents and the AO's power to draw adverse inference under Section 114 of the Indian Evidence Act? 4. Whether the ITAT was correct in deleting an addition of Rs. 14,00,000/- made on the basis of a seized document without plausible reasons, especially when the assessee failed to discharge the onus under Section 158BB(3)? 5. Whether the ITAT's findings granting relief were perverse and contrary to the evidence? 6. Whether the ITAT's findings were legally sustainable in view of admissions made by the assessee during assessment proceedings? Assessee's contentions (as inferred from ITAT's findings): The assessee argued that the amounts totaling Rs. 33,80,000/- reflected a summary of payments due from various dealers and were to be paid to customers who sold vehicles, with the assessee acting merely as a middleman in a commission agency business. The assessee also contended that a delivery book seized did not reveal any purchase and sale of vehicles on its own account. Regarding household expenses, the assessee provided details of family size and expenses, and argued that no addition could be made by estimation without discovery of evidence proving understatement during the search. Revenue's contentions (as inferred from the questions of law): The Revenue argued that the seized documents, particularly document No. 34, depicted undisclosed incomes or investments. The Revenue contended that the assessee failed to discharge the onus under Section 158BB(3) to prove the non-relatability of seized documents and that the AO was empowered to draw adverse inferences. The Revenue also argued that the seized document was confronted to the assessee during assessment proceedings and that the assessee made admissions during assessment.

Which sections of the Income-tax Act were involved?

Section 260-A,Section 158BB(3),Section 132(1),Section 114,Section 158 BC,Section 148

AI-generated summary — verify with the full judgment below

IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH. Case No. : I. T. A. No. 631 of 2008 Date of Decision : December 12, 2008. CORAM : HON'BLE MR. JUSTICE ADARSH KUMAR GOEL HON'BLE MR. JUSTICE L. N. MITTAL * * * Present : Ms. Urvashi Dhugga, Standing Counsel for the Revenue. * * * ADARSH KUMAR GOEL, J. (Oral) :

1.

Revenue has preferred this appeal under Section 260-A of the Income-tax Act, 1961 against the order of the Income Tax Appellate Tribunal, Chandigarh Bench `A', Chandigarh dated 31.10.2007 passed in IT (SS) A No.18/Chandi/2001 (in a combined order passed in IT (SS) A. No.18 and 38/Chandi/2001 and CO. No.57/Chandi/2007 in the case of Shri Hazari Lal, proposing to raise following substantial questions of law :- “4.1 Whether on the facts and in the circumstances of the case, the ITAT was right in law in holding the non existence of Commission Agency prior to the period relevant to A. Y. 1997-98 on the ground that the documents dated 22.05.1993 found during search operation neither contained any mention of the assessee nor its relevance to the assessee particularly when on the contrary, the provisions of section 158 BB (3) of the Act specifically cast onus on the assessee to establish the non-relateability of the document found during search with supporting documentary evidence ?

4.

2 Whether on the facts and in the circumstances of the case, the ITAT was right in law in allowing relief of Rs.10,02,250/- to the assessee on the ground that the document dated 22.05.1993 seized was not confronted to the assessee during search operation when the document seized at the time of search had been confronted to the assessee during the assessment proceedings ?

4.

3 Whether on the facts and in the circumstances of the case, the ITAT was right in law in allowing relief of Rs.33,80,000/- by merely relying on the statement recorded under section 132 (1) of the Act ignoring the fact that the assessee had failed to explain the documents seized at the time of search and that the A.O. was empowered to draw an adverse inference under Section 114 of the Indian Evidence Act especially when the assessee failed to substantiate his liability with supportive documentary evidence ?

4.

4 Whether on the facts and in the circumstances of the case, the ITAT was right in law in deleting the addition of Rs.14,00,000/- made on the basis of seized document without plausible reasons particularly when the assessee failed to discharge his onus to explain the contents of a documents with any corroborative material in view of the specific provisions of section 158 BB (3) of the Act ?

4.

5 Whether on the facts and in the circumstances of the case, the ITAT was right in granting relief to the assessee by recording a perverse finding contrary to evidence on record ?

4.

6 Whether the findings recorded by the Ld. ITAT are legally sustainable in view of the admission made by the assessee during the course of assessment proceedings ?”

2.

Search operation was conducted on 29.09.1998 and certain documents were seized. During block assessment, inference of income from commission agency for sale and purchase of vehicles was sought to be drawn. Block assessment was made on the basis of inferences drawn from documents seized during the search, which was upheld by the CIT (A). The CIT (A) partly allowed the appeal of the assessee.

3.

The Tribunal granted further relief to the assessee by recording following findings :- “16.

We have considered the rival submissions carefully. We have also perused the document in question and orders of the lower authorities as also the written submissions of the assessee to the lower authorities. On consideration of the aforesaid, we find that the crux of the dispute resolves around understanding the meaning of notations of the amounts and certain names found recorded in document No.34 which was seized in the course of the search of the assessee. A copy of the said document has been annexed as part of the assessment order. Now, according to the Revenue the said document contains entries which depict either undisclosed incomes or undisclosed investments made by the assessee. Prima facie a glance of the said document does not show as to what it contains or what it means. The notations of the amounts and the names do not carry any description of the nature of the transaction as made out by the Revenue. Therefore, in order to make out an intelligible inference of such document, the same has to be deciphered by its author. Since it has been found from the assessee it becomes the duty of the assessee to explain the same. The assessee was confronted with the said document in the course of assessment proceedings. The Assessing Officer required the assessee to explain as why the impugned amounts be not held as unexplained investment assessable in the hands of the assessee. The plea of the assessee was that in so far as the amounts totaling Rs.33,80,000 is concerned, the same reflects summary of payments which were due from various dealers and the payments in respect of which were to be made to the customers who sold the vehicles. The assessee submitted that he being in the business of commission agency, was only acting as a middleman in the sale/purchase of vehicles. The explanation of the assessee has been negated by the Assessing Officer as well as by the Ld. CIT (A). According to the Revenue, certainly impugned amounts reflected the amounts recoverable from sub agents with regard to the vehicle sold through the assessee but the existence of the liability to hand over such amounts to the seller of the vehicle does not stand justified. Now the response of the assessee to this is that he does not purchase and sell the vehicles on his own account. Therefore, there cannot be a situation where any money is due to be received from the buyer which was not to be handed over to the seller of the vehicle. Now the question is that the document in question does not by itself speak fully. In such situation, in our view, the document is to be understood with reference to the explanation tendered by the assessee and circumstantial material, evidence and information on record. No doubt, the assessee was found earning commission income on sale/purchase of vehicles in the course of search and such income was hitherto undeclared. For making the addition, Assessing Officer has proceeded on the basis that the assessee also bought and sold the vehicles with own funds and not acted merely as a commission agent. It is not in dispute that the noting in the seized document relate to business of commission agency. Now, if the assessee is to be held acting only as an agent earning commission the impugned notings do not partake the character of investments made by the assessee. The Ld. CIT (A) has proceeded on the basis that the line between a commission agent selling on commission basis or selling after purchasing it is very thin because it was not necessary in the short period involved to get the vehicle transferred in assessee's name where he was selling it after purchasing from the seller.” We appreciate that there is a thin line between the two. So however, the present case is relating to an assessment made in pursuance to a search conducted by the department u/s 132(1) of the Act. Therefore, to infer that the assessee was selling the vehicles after purchasing on its own is an inference which was required to be deduced from the material, evidence or any other such information available with the Assessing Officer which was relatable to the evidence on material found during the search. In this light, we have perused the statement of the assessee recorded during the course search, the seized material in question, the informations furnished by the assessee before the Assessing Officer and find nothing to infer that the assessee was purchasing the vehicles and thereafter selling them on his own account. In fact, undisputedly a delivery book was seized at the time of search and the assessee contended that its examination does not reveal that the assessee ever purchased the vehicles on its own account and thereafter sold the same. This averment was made before the Assessing Officer. There is no rebuttal to this from the side of the Revenue. Therefore, to reach at such presumption and thereafter use it to decipher the contents of the document No.34 would be unjustified. In this situation, it is safe to deduce that the explanation tendered by the assessee with regard to the impugned notations is plausible and deserves to be accepted in the background of fact that the contra inference by the Assessing Officer is not based on any material. Therefore, we do not find any justification for sustaining the addition of Rs.33,80,000. 17. Now in so far as the addition of Rs.14.00 lakhs is concerned, herein also we find that the inference drawn by the Assessing Officer in para 4.7 of his order that the assessee had made investment in flour mill is not based on any corroborative material. Now, with regard to the sum of Rs.5,50,000 relating to the addition made on account of unexplained investment in milk chilling plant in our view the assessee has been successful in explaining that the same is relatable to his business interest in partnership firm M/s Johri Mill, Samana in which the income from letting out of milk chilling plant is derived. So, however, it is also important for the assessee to explain the nature of the noting in question and whether the same finds a proper place in the accounts of M/s Johri Mills, Samana. This aspect, in our view is factual in nature and has not been gone into by the lower authorities. Therefore, while setting aside the orders of the lower authorities this issue, we direct the Assessing Officer to allow a reasonable opportunity to the assessee to explain as what is the nature of the said noting vis-a-vis the firm M/s Johri Mill, Samana in question. After considering the explanation furnished by the assessee, the Assessing Officer shall pass an appropriate order in accordance with law on this issue. With respect to addition of Rs.3,18,000 also we find that no specific explanation has been furnished before the lower authorities. The assessee has not denied the relevance of the amounts in question and thus the onus was on the assessee to offer credible explanation in this regard. The explanations furnished by the assessee on this count have not been found to be satisfactory and thus the addition has been rightly sustained by the Ld. CIT (A).

18.

In the result, in ground No. 4 whereas the additions of Rs.33,80,000 and Rs.14.00 lakhs are deleted, the addition of Rs.5,50,000 is restored to the file of the Assessing Officer the addition of Rs.3,18,000 is sustained. Thus on this ground the assessee partly succeeds.”

4.

The Tribunal also dismissed the appeal of the Revenue, by recording the following finding :- “23. In this connection, we find that the factual aspect is that in the course of assessment, the assessee was asked to explain the household expenses. The assessee gave replies giving the detail of his family size and the level of expenses claimed to have been incurred to meet the household expenses in the period relevant to Block Period in question. The Assessing Officer was not satisfied and considering the social status of the assessee and the household articles etc. owned by the assessee found the expenditure claimed by the assessee to be on the lower side. He made an addition of Rs.5,37,239 as unexplained household expenses. The Ld. CIT (A) has since deleted the said addition by making the following discussion in Para 7.3 of his order which reads as under :- “7.3 The contention of the Ld. Counsel that the department did not discover any evidence during the search and seizure which proved conclusively that the household expenses declared by the assessee was less than the actual and therefore, no addition could be made u/s 158 BC for it by simply estimating the expenditure is correct. Therefore, in view of the arguments of the Ld. Counsel for the assessee and the case law relied upon by him as also in view of the order of the HTAT Mumbai `B' Bench in the case of Sunder Agencies V DCIT (1997) 59 TTJ (mum) 610, the addition made by the Assessing Officer for low household expenses is deleted from the assessment u/s 158 BC. However, the Assessing Officer may take action u/s 148.” In this background, we have considered the validity of the impugned addition. Undoubtedly, the finding of the Ld. CIT (A) is that no material of evidence was discovered during search which proved that the household expenses declared by the assessee was less than the actuals. In this regard we find that the findings of the Ld. CIT (A) which we have extracted above, remain un- rebutted. The Ld. CIT (A) has held that the search u/s 132 (1) has not proved that the household expenses declared by the assessee were understated. Therefore, following the aforesaid finding which remained uncontroverted before us, the addition made by the Assessing Officer becomes unsustainable. We hold so. Accordingly, on this ground the Revenue fails.

24.

The second ground relates to the issue of unexplained investment in the construction of the house. The background and the manner in which the addition has been made at Rs.1,94,008 on this count can be understood as follows. The Revenue seized from the residence of Shri Lajpat Rai photocopies of drawing plan of the house in which three brothers namely, S/Shri Sat Pal, Hazari Lal and Lajpat Rai (the present assessee) reside. In comparison to the drawings found, the house appeared to have under gone major modifications. Therefore, the Assessing Officer referred the matter to the Department Valuation Officer (DVO) for valuation. The VO submitted his report to the Assessing Officer valuing the property year wise as detailed in the order of the Assessing Officer. The Assessing Officer after considering the valuation report dated 21.9.2000 which gave year wise estimated investment made in the property and after comparing it with the investment declared by the assessee treated Rs.1,94,008 as undisclosed investment in the construction of the house, as detailed in his order, after rejecting the explanation of the assessee.”

5.

We have heard learned counsel for the Revenue and perused the record.

6.

The findings recorded by the Tribunal are findings of facts based on appreciation of evidence.

7.

No substantial question of law arises.

8.

The appeal is dismissed. (ADARSH KUMAR GOEL) JUDGE December 12, 2008

( L. N. MITTAL ) monika JUDGE

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