PR COMMISSIONER OF IT JAIPUR vs. BADRI NARAYAN SODHANI

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ITA/24/2017HC RajasthanRJHC02047475201709 January 20187 pages
AI SummaryRemanded

What did the High Court hold?

The High Court held that the ITAT had not properly considered the books of account and other relevant materials, which the CIT(A) had examined. The CIT(A) had made factual findings after considering the books of accounts for each year and modifying the AO's order. The Tribunal, however, had not touched upon these aspects. Therefore, the High Court found it necessary to remit the matters back to the Tribunal. The Tribunal is to give specific findings for each year, considering the findings of both the CIT(A) and the AO. The High Court quashed and set aside the order of the ITAT and answered the issues in favour of the department to the extent of remitting the matter. The appeals were allowed on this basis.

What were the facts?

These appeals by the Principal Commissioner of Income Tax (PCIT), Jaipur-II, challenge the common order of the Income Tax Appellate Tribunal (ITAT) dated November 26, 2016, which allowed the assessee's appeals. The assessee, Shri Badri Narain Sodhani, was subjected to a search, during which incriminating material was found suggesting undisclosed financing business. The assessee initially declared additional income and later offered further income. The Assessing Officer (AO) assessed the total undisclosed income at Rs. 2,14,64,823/- for various assessment years, making additions under Section 69. The Commissioner of Income Tax (Appeals) [CIT(A)] found the AO's orders unspecific and vague, called for a remand report, and subsequently deleted the additions. The ITAT, in its impugned order, also deleted the additions, finding the assessee's initial disclosure more reliable than the estimates made by the AO and CIT(A). The High Court admitted the appeals on framed questions of law.

What were the issues?

The High Court was required to decide the following questions of law: 1. Whether, on the facts and circumstances, the ITAT was justified in confirming the CIT(A)'s order deleting additions of Rs. 27,15,000/- made by the AO on account of unexplained investment under Section 69. 2. Whether, in the facts and circumstances and in law, the ITAT was justified in deleting additions of Rs. 35,80,000/- made by the AO on account of unexplained investments under Section 69. 3. Whether, on the facts and circumstances, the ITAT was justified in confirming the CIT(A)'s order deleting additions of Rs. 21,30,000/- made by the AO on account of unexplained investment under Section 69. 4. Whether, on the facts and circumstances, the ITAT was justified in deleting the entire additions of Rs. 1,41,65,000/- on account of unexplained investment under Section 69. Assessee's Contentions (as inferred from the ITAT's reasoning and the High Court's observations): The assessee contended that the AO's assessment orders were unspecific and vague. The incriminating material was haphazard, coded, and lacked complete narration. The AO did not apply the telescoping theory. The ITAT relied on the assessee's initial sworn statement during the search as more reliable than the AO's or CIT(A)'s estimates, citing judgments like *CIT v Girish Choudhary*, *Andaman Timber Industries*, and *Sumati Dayal*. The assessee also argued that additions based on alleged tabulation sheets, not confronted, were invalid. Revenue's Contentions (as inferred from the High Court's decision): The revenue (appellant) argued that the ITAT was not justified in deleting the additions made by the AO and confirmed by the CIT(A) without appreciating the facts in the right perspective. The High Court noted that the CIT(A) had considered books of account and given factual findings, while the ITAT had not.

Which sections of the Income-tax Act were involved?

Section 69,Section 68

AI-generated summary — verify with the full judgment below

HIGH COURT OF JUDICATURE FOR RAJASTHAN BENCH AT JAIPUR D.B. Income Tax Appeal No. 24 / 2017 Pr. Commissioner of Income Tax, Jaipur-II, Jaipur. ----Appellant Versus Shri Badri Narain Sodhani, 38, Jai Jawan-11, Tonk Road, Jaipur PAN No. AJAPS1375F ----Respondent Connected With D.B. Income Tax Appeal No. 27 / 2017 Pr. Commissioner of Income Tax, JAIPUR-II, JAIPUR ----Appellant Versus Shri Badri Narain Sodhani, 38, Jai Jawan-II, Tonk Road, Jaipur Pan No AJAPS1375F ----Respondent D.B. Income Tax Appeal No. 28 / 2017 Pr. Commissioner of Income Tax, Jaipur-II, Jaipur. ----Appellant Versus Shri Badri Narain Sodhani, 38, Jai Jawan-11, Tonk Road, Jaipur PAN No. AJAPS1375F ----Respondent D.B. Income Tax Appeal No. 29 / 2017 Pr. Commissioner of Income Tax, JAIPUR-II, JAIPUR ----Appellant Versus Shri Badri Narain Sodhani, 38, Jai Jawan-II, Tonk Road, Jaipur Pan No AJAPS1375F ----Respondent _____________________________________________________ For Appellant(s) : Mr. R. B. Mathur

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For Respondent(s) : Mr. N. L. Agarwal _____________________________________________________ HON'BLE MR. JUSTICE K.S.JHAVERI HON'BLE MR. JUSTICE VIJAY KUMAR VYAS Judgment 09/01/2018 1. In these appeals since identical questions of law and facts are involved, they are decided by this common judgment. 2. By way of these appeals, the appellant has challenged the judgment and order of the Tribunal whereby the Tribunal by the common order & judgment dated 26th November, 2016 has allowed the appeal of the assessee. 3. This court while admitting the appeals framed the following question of law:- 1. D.B. Income Tax Appeal No. 24 / 2017 admitted on 24.01.2017 “Whether on the facts and circumstances of the case, the ITAT was justified in confirming the order of CIT(A) in deleting the additions of Rs. 27,15,000/- made by Assessing Officer on account of unexplained investment u/s.69 without appreciating the facts of the case in right perspective?” 2. D.B. Income Tax Appeal No. 27 / 2017 admitted on 24.01.2017 “Whether in the facts and circumstances of the case and in law, the ITAT was justified in deleting the additions of Rs. 35,80,000/- made by the Assessing Officer on account of unexplained investments u/s. 69 of the Act without appreciating the facts of the case in right perspective?” 3. D.B. Income Tax Appeal No. 28 / 2017 admitted on 24.01.2017 “Whether on the facts and circumstances of the case, the ITAT was justified in confirming the order of CIT (A) in deleting the additions of Rs. 21,30,000/- made by the Assessing Officer on account of unexplained investment u/s.69 of the Act without appreciating the facts of the case in right perspective?”

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4.

D.B. Income Tax Appeal No. 29 / 2017 admitted on 24.01.2017 “Whether on the facts and circumstances of the case, the ITAT was justified in law in deleting the entire additions of Rs. 1,41,65,000/- on account of unexplained investment u/s.69 of the Act without appreciating the facts of the case in right perspective?” 4. Counsel for the appellant Mr. Mathur has taken us to the order passed by Tribunal wherein while considering the issue the Tribunal held as under:- 5. We have heard the rival contentions and perused the material available on the record. Relevant facts about the search, statement, declaration of additional income by assesse have been narrated above. Some facts which clearly emerge from the record are that the incriminating material revealed that assesse was engaged in financing business mostly on repayable in 100 installments, carried out of books and not disclosed. Statement was recorded during the course of search stating the peculiar type of financing business was carried out on the basis of the scribbling in the diary and loose papers. In order to avoid the pressure of the search and consequent assessment proceedings, assessee initially declared the aggregate additional income qua the undisclosed capital and subsequently offered further additional income of Rs.5,00,000/- in A.Y. 2010-11. 5.1 Some assessed which were either disclosed or belonging to other persons like FDRs and Mutual Funds were excluded. Similarly cash and jewelry found during the course of search were found explained and accordingly excluded while framing the assessments. 5.2 In the assessment proceedings, AO did not accept assessee’s declaration and assessed the undisclosed income at total amount of Rs.2,14,64,823/- for all these years. In first appeal proceedings, ld. CIT (A) observed that the impugned assessment orders passed by the learned AO were very unspecific and vague in nature and called for a remand report which was submitted on 3.5.2013 by ld. AO, with following relevant observations: “the seized documents contain entries which allegedly pertain to his undisclosed income. The entries are found recorded in/by hand and at many places do not

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contain complete narration or details. The figures also have been written in a coded form and are either followed or denominated by a date and/or followed by certain dates. The entries are neither chronological nor arranged in any other seemingly discernible order. There are also several repetitions which added to the complexity of the entries. The entries presented data from which meaningful analysis was not only challenging but also extremely difficult” 5.3 This report by ld. AO mainly stated that: a. The entries are neither chronological nor arranged in any other seemingly discernible order. b. There are also several repetitions which added to the complexity of the entries and meaningful analysis of data was not only challenging but also extremely difficult. c. Thus ld. AO implied that estimate as made in assessment orders were based on unspecific and vague material. Besides ld. AO did not apply the Telescoping Theory as contended by assesse for credit of the additions made in earlier years. 5.4 These observations coupled with ignoring the crucial fact about assessee’s undisclosed finance business was mainly based on 100 days repayable installments indicate that ld. AO’s estimate was not arrived at with just and proper considerations and indicates lack of application of mind. It may be mentioned that an estimate or best judgment assessment has to be just and proper with proper nexus with the material available on record. Judicial precedents hold that an estimate which is not just, proper and reasonable is an arbitrary one and untenable. 5.5 Ld. CIT(A) called for a remand report with categorical observations that the assessment order was unspecific and haphazard as the incriminating material and papers are also haphazard and unspecific. The remand report did not offer any new material or information as the same was already on record. Ld. CIT(A) has not offered any cogent reasons as to how the same haphazard papers, became regular books. The additions have been enhanced by suffixing 3 zeros to haphazard figures. The alleged tabulation sheets are neither mentioned in the body of the assessment orders nor confronted to the assessee. In the entirety of submissions, facts and circumstances it emerges that:- a. Ld. CIT(A) has erroneously held that the seized papers and documents were in the form of ‘Regular Books’ and

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maintainable in perfect order. These findings are contrary to record, it has not been established as to how the incriminating material which admittedly was haphazard in nature became regularly maintained record. Thus there is nothing on record to indicate as to how the field findings of ld. AO given after re-examination of record vide remand reply dated 3.5.2013 were unreliable or wrong. It was a remand called by ld. CIT(A) on her own instance which supported her prima facie observations that additions were in vague and unspecific manner by ld. AO. b. Ld. AO impliedly admitted that the additions were made on the basis of haphazard and unspecific incriminating papers.The entries are found recorded in hand and same entries at many places and they do not contain complete narration or relevant details. The figures appear to have been written in a coded form and are either followed or denominated by a date and/or followed by certain dates. c. Ld. CIT(A) has not denied AO’s remand submissions that the incriminating material’s entries are neither chronological nor arranged in any other seemingly discernible manner. There were several repetitions which added to the complexity of the entries. The entries presented data from which meaningful analysis was not only challenging but also extremely difficult. d. Assessee’s reliance on Hon’ble Delhi High Court judgment in CIT v Girish Choudhary (supra) supports his case that a figure of 48 written on incriminating material cannot be assumed to be Rs.48 lakh without corroborative material. Further reliance placed on other judicial citations: Nirmal Fashions; Satyapal Wassan; Bansal Strips; Prsant Ahluwalia; D.K. Gupta; Dr. Surenderanath Reddy (all supra) support the propositions put forward by the assesse in this behalf. 5.6 Besides it emerges that due to haphazard, repetitive and unspecific nature of jottings, additions have not been made as relatable to particular years based on nexus or evidence to that assessment year. Consequently the ratio of judgments in the cases of Pooja Bhatt; Amarjeet Singh Baxi (HUF); Khajan Singh & Bros. (2008) 304 ITR ; S.P. Goyal (Mumbai (TM) (all supra) is also applicable to this case: Ld. CIT (A) claims to have relied upon the ‘Tabulation Sheets’ allegedly generated during the course of the assessment proceedings. Hon’ble Supreme Court in the case of Andaman Timber Industries v CCE (2015) 281 CTR (SC) 241 has held that additions based on any material without confronting to assessee cannot be sustained. Consequently the alleged tabulation sheets cannot be a valid basis and material for sustaining such estimate of undisclosed income. 5.7 There are some variations in assessee’s versions during the course of assessment proceedings. Having said that it cannot be lost sight of, that both ld. AO and ld. CIT(A) also were inconsistent in their approach and working of

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estimate. In these circumstances the search statement of the assesse which is a first blush account of assessee’s affairs and impliedly endorsed by search party also, becomes more reliable and preferable on preponderance of probabilities, surrounding circumstances and human conduct. This approach to resolve income tax issues has been endorsed by Hon’ble Supreme Court in the case of Sumati Dayal 241 ITR 801. It is noteworthy that assessee’s version of search assessment about cash and jewelry found during search and statement about FDR and Mutual Fund investment was also found to be correct. Thus it cannot be held that search statement and the disclosure of additional income have no evidentiary value. When there are conflicting opinions about estimate of income, one which is spelt out in the first blush will carry appreciable force more so when other estimates have self contradictory observations. 5.8 In view of the fact that ld. CIT(A) initially observed that AOs additions are nonspecific and not based on proper considerations, which is accepted by ld. AO in remand proceedings, the estimate of ld. CIT(A) cannot be held to be just and reasonable. the estimate of ld. CIT(A) suffers from the infirmities as it is made with complete ignorance about nature of assessee’s undisclosed financing business being based on 100 daily instilments repayments basis; no cogent reasons have been given as to how the haphazard and unspecific incriminating material became regular books despite AO’s acceptance. Similarly ignoring the search assessment and preferring one of the wavering versions suitable to revenue cannot be called reliance on proper estimate. 5.9 In these facts and circumstances it is desirable that that the estimate based on surrender of additional income as made by assessee by way of a sworn statement during the course of search is more preferable than the estimates made by ld. AO and ld. CIT(A). Both the estimates made by authorities below are arrived at in unjust and untenable manner, which cannot be upheld in view of the observations mentioned above. 5.10 In view of the facts, circumstances, rival contention and respectfully following the judicial precedents cited above and that of Hon’ble supreme court Andamans Industries and Sumati Dayal (supra) we accept the assessee’s disclosure to be more reliable than the estimate made by AO

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or ld. CIT(A). In view thereof we delete all the additions made by the authorities below.” 5. Taking into consideration the fact that CIT(A) while considering the matter with regard to Section 68 of the Income Tax Act for each of the year has considered the books of accounts and has given factual finding and modified the order of the AO whereas the Tribunal has not considered and has not touched the books of account and other things and passed the order. 6. In that view of the matter, we are of the considered opinion that the matters are required to be remitted back to the Tribunal only for the purpose of considering the amount referred for each of the year. The Tribunal will give specific finding for each of the year with reference to finding given by CIT(A) as well as AO. 7. The order of the Tribunal is quashed and set aside. The issues are answered in favour of the department to the aforesaid extent. 8. The appeals stand allowed.

(VIJAY KUMAR VYAS)J. (K.S.JHAVERI)J. B. M.Gandhi/Gourav/50-53

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