C.I.T. vs. CHANDRAKUMAR JETHMAL KOCHAR

O/ITR/25/2001 JUDGMENT IN THE HIGH COURT OF GUJARAT AT AHMEDABAD INCOME TAX REFERENCE NO. 25 of 2001 FOR APPROVAL AND SIGNATURE:

HONOURABLE MR.JUSTICE KS JHAVERI

and HONOURABLE MR.JUSTICE K.J.THAKER =========================================================== 1 Whether Reporters of Local Papers may be allowed to see the judgment ? 2 To be referred to the Reporter or not ? 3 Whether their Lordships wish to see the fair copy of the judgment ? 4 Whether this case involves a substantial question of law as to the interpretation of the Constitution of India, 1950 or any order made thereunder ? 5 Whether it is to be circulated to the civil judge ? ================================================================ C.I.T.....Applicant(s) Versus CHANDRAKUMAR JETHMAL KOCHAR....Respondent(s) ================================================================ Appearance: MR NITIN K MEHTA, ADVOCATE for the Applicant(s) No. 1 MRS SWATI SOPARKAR, ADVOCATE for the Respondent(s) No. 1 ================================================================ CORAM: HONOURABLE MR.JUSTICE KS JHAVERI and HONOURABLE MR.JUSTICE K.J.THAKER Date : 12/11/2014 ORAL JUDGMENT (PER : HONOURABLE MR.JUSTICE K.J.THAKER) Page 1 of 9

O/ITR/25/2001 JUDGMENT 1. In   compliance   to   the   direction   of   the Hon’ble   Apex   Court,   the   Tribunal   has   referred   the following questions of law to this Court:­ “1. Whether the Appellate Tribunal is right in law and on facts in deleting the addition made   by   the   A.O.   based   on   the   statements recorded during search proceedings ? 2. Whether   the   Appellate   Tribunal’s finding   to   the   effect   that   the   other concerns were not benami of the assessee is borne out from the record ?” 2. The facts in brief are that on 08.08.1990 a search   and   seizure   operation   was   conducted   by   the Income Tax Authorities on the business premises of the assessee u/s 132 of the I.T. Act. Statement of the assessee was recorded by the authorized Officer u/s 132(4) and during that course the assessee admitted that one Kamal Traders, Naman Traders, Adarsh Textiles and   Sampat   Traders   were   benami   concerns   of   the assesssee and these business concerns were being run by   the   assessee   in   the   name   of   his   employees. Thereafter, the statement of the concerned employees were also recorded, wherein it was admitted that the businesses run in the name of the assessee himself. The authorized Officer also recorded the statement of wife of the assessee. Subsequently, during the course of the assessment proceedings, the Assessing Officer recorded   the   statements   of   the   aforesaid   four Page 2 of 9

O/ITR/25/2001 JUDGMENT employees as well as the wife of the assessee, wherein it has been claimed that the business carried out in their respective names belonged to them. However, the Assessing   Officer,   placed   reliance   on   the   earlier statements   recorded   during   the   course   of   search operations   on   8.8.1990   and   made   additions   for Assessment   Years   1989­90   to   1991­92   treating   the profits   of   the   benami   businesses   as   belong   to   the Assessee. 2.1. In Appeal, the CIT(A) upheld the additions made by the Assessing Officer. Being aggrieved by the same, the Assessee filed an appeal before the ITAT. The Tribunal vide its order dated 21.1.1997 deleted the additions holding that the revenue has failed to prove the benami nature of the businesses carried on in the name of four employees and the assessee’s wife. Against the said order, the revenue filed reference before   this   Court.   This   Court   also   rejected   the reference of the revenue. The revenue therefore, filed SLP before the Apex Court. The Apex Court vide its order dated 17.09.1999 directed the Tribunal to refer the questions to this Court as mentioned hereinabove. 3. Learned   advocate   for   the   appellant   has submitted that the Tribunal has committed an error in allowing   the   appeal.   He   further   submitted   that   the Tribunal   has   not   given   any   cogent   reasons   in   its order. 4. As   against   this,   Mr.   Soparkar,   learned Page 3 of 9

O/ITR/25/2001 JUDGMENT Senior   counsel   heavily   relied   upon   the   decision   of this   Court   in   the   case   of  Kailashben   Manharlal Chokshi Vs. Commissioner of Income Tax,  reported in [2010]   328   ITR   411   (Guj.), more   particularly paragraph No.23. In the aforesaid case, the judgment rendered in CIT Vs. D.L.F., reported in [2000] ITR 855 has been referred. Paragraph No.23 of the decision of Kailashben Manharlal Choksh (supra) reads as under:­ “23. The   main   grievance   of   the   Assessing Officer   was   that   the   statement   was   not retracted immediately and it was done after two months. It was an afterthought and made under legal advise. However, if such retraction is to be viewed in light of the evidence  furnished alongwith  the affidavit, it would  immediately be   clear   that   the   assessee   has   given   proper explanation   for   all   the   items   under   which disclosure was sought to be obtained from the assessee.  So far as amount  invested  in house property   is   concerned,   the   assessee   has specifically   stated   in   his   explanation   dated 28.2.1989   that   there   was   absolutely   no   basis for making the disclosure on account of bunglow at 68, Sarjan Society, Athwa Lines, Surat. It was in the year 1964 that the assessee took one Plot   No.68   in   Sarjan   Co.Operative   Housing Society which was also constructing the bunglow for   which   the   assessee   claimed   to   have   been made   contribution   from   time   to   time.   The assessee took possession of the bunglow in 1974 when only ground floor was constructed. Since then he has been living there. The assessee has constructed first floor during 1986 to 1988 and he has incurred the expenses for first floor structure to the tune of Rs.2,03,185.65 ps. but this amount has been withdrawn from the account of the firm in which the assessee is a partner. As   per   say   of   Mr.Shah   even   departmental valuation   officer   has   also   accepted   that   the cost of construction of first floor worked out to   Rs.2,06,060/­.   There   was,   therefore,   no reason for making addition of Rs.4 lacs on the basis   of   alleged   disclosure   made   by   the assessee   in   his   statement   recorded   under Page 4 of 9

O/ITR/25/2001 JUDGMENT Section 132(4) of the Act. In support of this statement   the   Revenue   has   not   brought   any evidence whatsoever which would establish that the assessee had in fact incurred an amount of Rs.4   lacs   on   the   construction   of   the   first floor and that amount was invested out of the undisclosed   income.   Hence   there   is   no justification for making account of Rs.4 lacs merely on the basis of statement recorded under Section 132 (4). None of the authorities have considered this explanation and the CIT(A) as well   as   Tribunal   both   have   proceeded   on   the footing   that   the   Assessing   Officer   has considered the explanation. So far as the addition on account of gold ornament to the tune of Rs.1 lac is concerned, the assessee has given the explanation that was reproduced   by   the   Assessing   Officer   in   his assessment   order   which   says   that   during   the course   of   search   and   seizure   proceeding, statement  of assessee's wife,  Smt. Kailashben Chokshi was recorded and according to which she had received about 25 tolas of gold each from her parents and from her parents in law side at the time of her marriage in the year 1960. She had   given   15   tolas   of   gold   ornaments   to   her daughter Ritaben at the time of her marriage in the   month   of   March,   1988.   If   the   total jewellery found during the course of search is taken   into   consideration,   in   light   of   the instructions   issued   by   the   Board,   any   middle class Indian family may be having jewellery and gold   ornaments   to   that   extent.   Hence,   no addition can be made on that count. Even if the board   Circular   may   not   have   retrospective operation,   looking   to   the   quantum   of   holding and assessee's explanation, we are of the view that   this   is   a   normal   holding   which   can   be found   in   any   middle   class   Indian   family   and hence no addition could have been justified on that count. So far as addition of Rs.1 lac on account of   unaccounted   investment   in   furniture   is concerned, it is stated by the assessee that on the ground floor furniture was made before 15 years   and   assessee   had   spent   Rs.25,000/­   for renovation   after   making   withdrawal   from   the firm's   account.   It   is   further   submitted   that Page 5 of 9

O/ITR/25/2001 JUDGMENT the   furniture   on   the   first   floor   was   partly received and paid out of withdrawals from the firm.   At   the   time   of   the   search   additional furniture  meant  for the first  floor  was just received by way of parcel  from Ahmedabad and was   lying   in   bundles.   A   detailed   source   of investment   of   furniture   purchased   from Ahmedabad   with   a   due   confirmation   from   the party concerned have been filed by the assessee before the Assessing Officer. Since no payment of this additional  furniture  was made by the assessee till the date of search, no addition could have been made on this count.” 5. We   have   heard   learned   advocates   appearing for   both   the   parties   and   perused   the   material available on record. The Tribunal while deciding the appeal in paragraph No.8 has observed as under:­ “8.  We have heard the assessee’s counsel and the D.R. We are of the opinion that the CIT(A) when   he   relied   upon   the   statement   of   the assessee made on 8.8.90 ignored the fact that there were two statements recorded on that day. The first statement was recorded at the 8 am. and second statement was recorded at 8:45 pm. in the night. In the first statement recorded in the morning which are contained on pages 1 to 12 of the assessee’s paper book. There is no acceptance   of   the   fact   that   the   business belonged to him and not to the other persons who   are   said   to   have   given   the   statements against him. It is notable  that 33 questions were   asked   in   the   morning   session   and   this morning   session   statement   was   the   first statement. Therefore, if the line of reasoning recorded by the CIT (A) is accepted then the reliance   has   to   be   placed   on   the   first statement   in   the   morning.   In   this   first statement in the morning there is no acceptance of   any   benamidari   or   any   disclosure.   It   is notable   that   the   second   statement   of   the assessee started at 8:45 pm. which according to the   assessee   continued   upto   6   am.   next   day. This is contained from pages 13 to 26 of the paper   book   and   contains   35   questions   and Page 6 of 9

O/ITR/25/2001 JUDGMENT answers.   Till   question   No.21   of   the   second statement   there   is   no   allegation   of   any benamidari. From question  No.22 the statement starts   talking   about   proprietorship   of different concerns in the name of his various employees. Even in answer to question No.22 he could not give the names of the proprietors of Kamal  Traders,  Naman Traders,  Sampat Traders, Adarsh  textiles.  In the last sentence of the said answer he stated as translated in English “besides above there are no other firms in the name of our employees”. In answer to question No.23 he accepted that Sugam Textiles was being run by his employees as his benami. In answer to   question   No.24   he   accepted   that   all   the concerns   mentioned   in   question   No.22   are   his benami concerns. In answer to question No.26 he accepted   that   certain   bank   accounts   were   his benami   bank   accounts.   In   answer   to   question No.27 he further agreed that all the deposits made   in   the   name   of   his   employees   are   his deposits.   In   answer   to   question   No.33   he disclosed  an income of Rs.15 lakhs.  He could not give any further details on that date. On 31.8.90 another statement of this assessee was recorded.   In   that   he   accepted   that   he   was   a partner in Padam Enterprises as individual and in   Mahavir   Trading   Co.   as   HUF.   In   answer   to question No.14 he stated that through the two concerns of Sugam Textiles and Shanti Traders the   profits   of   14   concerns   belonging   to   his group were reduced. The name of 14 concerns are given on assessee’s paper book page No.28. In answer to question No.12 he made a disclosure of   Rs.24   lakhs   in   all   including   Rs.15   lakhs disclosed on 8.8.90. From the above statements one thing is clear that in the first statement made in the morning of 8.8.90 this assessee did not disclosure any benamidari and it was only in   the   second   statement   taken   from   8:45   pm. onwards that he disclosed  certain  benamidaris and   proceeded   make   certain   disclosure.   It   is notable that the disclosure. Made in answer to question   No.12   appearing   on   assessee’s   paper book   page   No.32   in   the   statement   given   on 31.8.90 talks about disclosure of 24 lakhs in 14   concerns   as   group   disclosure.   The   issue regarding   group   disclosure   has   neither   been discussed by the A.O. nor by the CIT(A). Under I.T. Act an assessment has to be made on an Page 7 of 9

O/ITR/25/2001 JUDGMENT assessee on an income determined in his case for   a   particular   year.   The   quantum   of disclosure made in each and every 14 concerns have not been identified by either of the lower authorities.   The   department   has   also   not contested   the   fact   that   this   assessee’s   son suffered from diabetes. In view of the above circumstances we see reason to believe that the second   statement   given   by   the   assessee   after 8:45   pm.   was   not   given   under   the   the circumstances which could be said as normal for the assessee.” 6. In   view   of   the   above   discussion   and considering the principal laid down in the case of Kailashben   Manharlal   Choksh   (supra),  we   are   of   the considered opinion that the view taken by the Tribunal is   just   and   proper.   We   are   not   convinced   with   the submissions made by Mr. Mehta, learned advocate for the appellant that the Tribunal has not given cogent reasons. Therefore, the answer to the first question would   be   against   the   Revenue   and   in   favour   of   the assessee. The second question will also enure for the benefit of the assessee as from the record it is clear that other concerns were not Benami concerns of the assessee. 7. For the forging reasons, the present appeal is dismissed.  Accordingly, both  the questions which were referred to this Court are answered in favour of the assessee and against the revenue. (K.S.JHAVERI, J.) Page 8 of 9

O/ITR/25/2001 JUDGMENT (K.J.THAKER, J)

pawan Page 9 of 9