SRI. B.M. FAROOK vs. DCIT,

First we will take up the revenue’s appeal.

Ground No.1 is with regard to deletion of addition of 3 crores made on account of unexplained investment in purchase of property from Arvind Naik and Anusuya Naik. The facts of the issue are that as per seized document A/FDPL/19 (page 109-112), agreement was entered into by the assessee on 12.9.2006 for purchase of commercial complex from Arvind Naik and Anusuya Pai, Mangalore for a consideration of Rs.4 crores. Statement was recorded from Arvind Naik who admitted to have sold the property and received consideration of Rs.4 crores.

The AO noted that the property was registered in February, 2008 for a recorded consideration of Rs.2.35 crores in the name of Mrs. Fouzia Farooq against the sale consideration of Rs.4 crores. The sum of Rs.1 crore was paid on the same date by cheque transferred from the bank account of Fiza Developers & Inter Trade Pvt. Ltd. [FDIPL] at SBT, Bangalore to the assessee’s account in the same bank on which Sri B.M. Farookh issued cheque of Rs.1 crore on 9.10.2006. Another advance payment of Rs.1 crore paid vide Chq. No.32441 dated 20.11.2007 was drawn from the assessee’s bank account with SBT, Mangalore which was not disclosed to the department. Therefore the AO proposed to treat it as undisclosed investment for AY 2008-09. Further, the source of cash payment of Rs.1 lakh on 29.2.2006 is not evidenced in the books and the AO note that the same was considered for AY 2007-08. The assessee was called to explain the sources of payment of Rs. 1 crore and Rs.70 lakhs & Rs.1.3 crores along with documentary evidence. In the absence of details of sources and explanation of the assessee of these amounts, the AO brought to tax a total sum of Rs.3 crores as paid out of unexplained sources.

The CIT(Appeals) deleted the addition of Rs.3 crores on the reason that the same issue was considered in the AY 2007-08 vide his order dated 20.3.2013 where the addition was deleted. Against this the revenue is in appeal before us.

We have heard both the parties and perused the material on record. In this case, the CIT(Appeals) has not brought out on record that the source of investment are same as referred in the order dated 20.3.2013 for AY 2007-08. Further there was registration of the impugned property for Rs.2.35 crores. The AO brought on record that the total sale consideration was Rs.4 crores. There is no discussed on this issue by the CIT(Appeals). Hence it is appropriate to remit the entire issue to the CIT(Appeals) for fresh decision in accordance with law, after calling for a remand report from the AO.

The next ground is regarding deletion of Rs.15,60,000 on account of interest on cash loan. This addition was made by the AO on the basis of scribblings in the seized material A/FDPL/1 at Rs.15.60 lakhs towards payment of interest. The CIT(A) deleted the addition by observing that copies of seized material were not supplied to the assessee and also the assessee refused carrying out of loan transaction. On the other hand, the cash borrowings itself is the source for payment of interest. Against this, the revenue is in appeal before us.

We have heard both the parties on this issue. In this case, there was valid seized material showing entries with regard to payment of interest. This seized material was put to the assessee for his comments. The assessee on various occasions denied entries in the seized material marked as A/FDPL/1. The assessee stated that he has not borrowed any money from anybody. In spite of repeated opportunities, the assessee chose to deny the transaction and did not discharge the onus of seized material. As per section 292C of the Act, certain facts are to be presumed by operation of law, though it was a rebuttable presumption. As per this section, books of account or documents belonging to person from whose possession or control the seized material was found, it is to be presumed that the contents of documents are true unless it is proved otherwise. As per seized material A/FDPL/1, assessee paid interest of Rs.15.60 lakhs on loan borrowed by him. This seized document is not denied by the assessee. The assessee only denied the contents therein. In the document there were clear entries of payment of interest of Rs.15.60 lakhs. These documents are confronted to the assessee. The assessee at all stages denied the transaction. Considering the totality of facts and circumstances of the case, the deeming provision of section 292C goes against the assessee and the contents therein cannot be rejected outrightly. Admissibility of documents/evidence are materially different in income tax proceedings. It is settled proposition of law in income tax cases that income tax liability is to be ascertained on the basis of material available on record, surrounding circumstances, human conduct, preponderance of probabilities and nature of linked material and evidence available before the AO. The proceedings before the income tax authorities have been described as quasi-judicial proceedings in character. More so, it was held in the case of Dhakeswari Cotton Mills Ltd. v. CIT, 26 ITR 775 (SC) that assessment proceedings are purely administrative and the assessing office is not a court. As such, strict rule of evidence is not applicable in the income tax proceedings and proceedings before him are not judicial proceedings, though they are deemed to be as such for limited purposes. The AO has, no doubt, to hear “evidence” on such evidence made consisting of material which will be wholly ineligible in a court of law.

In the present case, there is a valid seized material wherein there I s entry showing payment of Rs.15.60 lakhs. The assessee in spite of repeated opportunities simply denied the transaction and did not discharge the onus of explaining the seized material. In such circumstances, the AO having no option, made addition. In our opinion, as per section 292C of the Act, it is to be presumed that the seized material belonged to the assessee and the entries in the seized material is to be considered as correct to that effect and addition to be made, since the assessee failed to discharge the burden cast upon him. Accordingly, we sustain the addition made by the AO and the order of the CIT(Appeals) on this issue is reversed.

The next issue is regarding deletion of addition of Rs.2.50 crores in respect of non-refundable deposit from Godrej Properties. The assessee in pursuance of a joint development agreement dated 15.11.2007 entered into with Godrej Properties for developing a property and constructing a commercial/residential complexes measuring 6.16 acres at Padavu Village received Rs.2.5 crores as non-refundable advance. The AO proposed to treat this amount as income of assessee for AY 2008-09. The assessee explained that this amount is already offered under the head ‘misc. income’. The AO from the profit & loss account noticed that the assessee has offered only Rs.25 lakhs under the head ‘misc. income’. The AO rejected the expenses of Rs.25 lakhs as commission in the absence of any supporting evidence. Hence, the AO treated the amount of Rs.2.50 crores as income of assessee.

The CIT(Appeals) deleted the addition on the reason that this amount has been shown as income under the head compensation. Against this, the revenue is in appeal before us.

We have heard both the parties and perused the material on record. The AO has brought on record that this amount was not offered to tax in the assessment year. Contrary to this, the CIT(A) has observed that this amount has gone into the computation of income under the head ‘compensation receipt’ and change of head is only a typographical error. However, we find that this was not brought out before the AO in spite of giving repeated opportunities to the assessee. Accordingly, we remit this issue to the file of CIT(Appeals) with a direction to call for a remand report from the AO and decide the issue afresh.

The next ground is regarding deletion of Rs.6 lakhs on account of investment in purchase of portion of the property at Kanyana Village. The AO made this addition as undisclosed investment. The assessee submitted that seized document cannot be the basis for the addition unless there is some concrete finding by way of enquiry, confirmation and material to prove that the payment is actually made. Even otherwise, the same has been brought to tax by the AO in the same assessment year and hence addition cannot be made twice under different heads for the same set of transactions.

The CIT(Appeals) noted that the total amount as per the agreement to sell for Kanyana village is Rs.13,57,014 stated in the assessment order. The amount recorded in books of assessee is Rs.717,16,735 with a difference of Rs.6,40,279. Since this difference of Rs.6,40,279 along with other amounts are already confirmed by him in ground No.12 raised before him, he was of the opinion that taxing the same again would amount to double taxation and hence deleted the addition of Rs.6 lakhs.

Before us, the contention of the ld. DR is that this amount does not pertain to addition made under any other head and it specifically pertains to balance payment made towards remaining portion of property at Kanyana village. In our opinion, these facts are to be examined by the CIT(Appeals) after obtaining a remand report from the AO. Accordingly, this issue is remitted to the CIT(Appeals) for fresh decision.

The next issue is with regard to deletion of addition of Rs.75,335 being peak credits in unaccounted bank accounts. Before the CIT(Appeals), the assessee submitted that the AO worked out peak cash credit at Rs.75,335 on 31.3.2009 without going into the details, as there was a carry forward balance of over Rs.5 crores in other bank accounts from previous years. The opening balance itself takes care of all the cash deposits during the year and various cash withdrawals during the year are not considered by the AO. The supporting documents were furnished. The CIT(A) considering the daily cash balance statement observed that there was sufficient cash balances on all the days of the year and there was no cash deficit on any given day and hence deleted the addition. Against this, the revenue is in appeal before us.

The contention of the ld. DR is that assessee has not been able to prove beyond reasonable doubt along with cash book statement to show that money withdrawn from the bank account was used to make cash deposits in the bank account. He submitted that this issue may be remitted to the lower authorities for fresh consideration.

The ld. AR supported the order of the CIT(Appeals).

In our opinion, the plea of the ld. DR is fair as the assessee is required to prove that earlier withdrawals have been used for redeposit in bank account by furnishing the cash book and cash flow statement. Accordingly, we remit this issue to the CIT(Appeals) to decide the issue afresh after providing opportunity to both the parties.

The next ground pertains to addition of Rs.37 lakhs being advance paid to Shantiniketan property. The assessee in the sworn statement admitted to have paid advance of Rs.40 lakhs to Prestige Shantiniketan property. Since the same was not reflected in the balance sheet, the AO sought to tax the same as unexplained investment.

The assessee submitted before the CIT(Appeals) that balance sheet of Four Eff Constructions a sum of Rs.32,23,686 is shown and in personal balance sheet of assessee, Rs.3 lakhs is shown and there is no difference. Thus entire amount is reflected in the balance sheet and ledger account copies were submitted before the AO also. It was submitted that in the sworn statement payment of Rs.40 lakhs was admitted without referring to the books of account and vaguely remembered this payment. The actual payment is Rs.35,22,386 which is fully accounted and there is no mention by the AO of any other payments. The shortfall of the amount mentioned and actual amount is Rs.4,76,314.

The CIT(Appeals) observed that the total amount of Rs.35,23,686 is appearing in the balance sheet and there is no dispute about it. The difference of Rs.4,76,314 was an estimation error by assessee. The list of payments and amounts mentioned in the agreement match. He therefore deleted the addition on the reason that payments have been made through banking channels. While doing so, he relied on the personal balance sheet produced by the assessee without confronting the same to the AO. Being so, in the interest of justice, we remit this issue to the CIT(Appeals) to call for a remand report from the AO and decide the issue afresh.

The next issue relates to deletion of addition of Rs.51,22,605 on account of unexplained credit in the name of Shri Moideen Bawa. The balance sheet of the assessee contained loan outstanding of Rs.2,17,04,700. The balance sheet of Moideen Bava did not contain the corresponding debit of Rs.76,80,000 in AY 2005-06 and Rs.78,56,200 for AY 2007-08 and the balance was brought to tax in this assessment year.

The assessee submitted that Mr. Moideen Bava has paid various amounts on behalf of assessee and hence in his books the amounts were shown as debit in respective partis name instead of showing the same in the name of assessee. The closing entries were not passed in the books of Mr. Bava and hence there is mismatch for which a reconciliation statement is filed by the assessee. This being the case, addition was not justified.

The CIT(A) deleted the addition on the reason that there is no debit balance in the name of assessee appearing in the balance sheet of Mr. Bava and assessee has not disputed this fact. The finding of the AO was correct to the extent that there was a mismatch. He observed that the various payments made by Mr. Bava are shown in the names of the respective parties to whom payments are made from whom properties are purchased, while the payments were made on behalf of the assessee. Hence these are not accommodation entries. Considering the various credits as the balance of assessee, the addition was deleted.

We have heard both the parties and perused the material on record. There is sufficient proof that advances made by Mr. Bava was on behalf of assessee. Had that been the case, the assets should have been reflected in the balance sheet of assessee on account of the above advances which has not been established by the assessee at any stage. Being so, the deletion of addition by the CIT(Appeals) is not justified. He should have called for remand report from the AO before totally deleting the addition. Accordingly, we remit this issue to the CIT(Appeals) to call for remand report from the AO and decide the issue afresh.

The next ground is regarding deletion of addition of Rs.9,92,00,000 in respect of unexplained loan from Sri Aboobakar, Steel Rage and Surya Industries. The AO made the addition based on balances available in the balance sheet as on 31.3.2008 standing in the names of above 3 parties.

The CIT(Appeals) deleted the addition on account of loan from Aboobakar by observing that the as per the balance sheet on 31.3.2008 the balance of Aboobakar is Rs.9 lakhs and not Rs.90 lakhs as mentioned by the AO. He deleted the other two amounts with regard to Steel Rage and Surya Industries by observing that the payments were made through banking channels.

We have heard both the parties and perused the material on record. The CIT(Appeals) on going through the fresh evidence filed before him deleted the additions which was not confronted to the AO. Accordingly, we remit this issue to the CIT(Appeals) to confront the evidence to the AO and decide the issue afresh.

The next issue is with regard to deletion of addition of Rs.1,61,91,389 on account of unexplained investment in purchase of property in the name of Mrs. A.K. Fouzia.

The assessee purchased two properties amounting to Rs.2.90 crores in the name of Mrs. A.K. Fouzia. The AO noted from the balance sheet that only Rs.1,28,08,611 was shown as loan and hence he taxed the balance amount of Rs.1,61,91,389 as income of assessee. The CIT(Appeals) observed that the addition cannot be sustained for the reason that assessee is maintaining two balance sheets, one for business and other for personal assets and liabilities. The personal b/s shows a debit of Rs.2,75,70,434 with business b/s showing Rs.1,28,08,611 as debit, the total comes to Rs.4,03,79,045. Therefore, total investment of Rs.2.90 crores stands explained according to the CIT(A) and therefore he deleted the addition.

In our opinion, the personal balance sheet is to be examined by the AO whether assessee has filed the same before the AO in earlier assessment year and in this assessment year also. However, this exercise has not been done by the CIT(Appeals). Accordingly, we remit this issue to the CIT(A) to call for a remand report from the AO and fresh decision.

The revenue’s appeal is partly allowed for statistical purposes.

Ground Nos. 1, 2, 10 & 11 are general in nature.

Ground No.3 is with regard to sustaining addition of Rs.30 lakhs as unaccounted payment to P.K. Ponnuraj. This addition was made by the AO based on seized material and the sworn statement of the accountant of the company being unaccounted purchase of iron ore. The CIT(Appeals) observed that cash payments made to Ponnuraj are reflected in the statement along with the date. The statement is supported by receipt issued by Ponnuraj of the said money in cash. Further, Shri Kirmani, the Accountant in the Fiza group in the sworn statement admitted the fact that payment is towards purchase of iron ore and same does not appear in the balance sheet of the assessee. The details in the seized documents are explanatory enough to establish that the payment has been indeed made. Therefore, the CIT(A) confirmed the addition. We do not find any infirmity in the order of the CIT(Appeals) and confirm the same.

The next ground is regarding addition of Rs.8 lakhs as Zakath expenditure incurred out of undisclosed income. The seized material shows incurring of expenditure of Rs.8 lakhs towards donation paid out of undisclosed income. The assessee is not able to show any material that this payment was made out of disclosed sources. Accordingly, the addition is sustained.

The next issue is regarding addition of Rs.10,69,264 on account of undisclosed purchase of property at Bayar & Kanyana village. The AO made the addition as undisclosed purchase of property, based on the documents impounded from the premises of M/s. Mumtaz Traders. The CIT(Appeals) on perusal of sale deeds and the impounded material was of the opinion that the total land recorded is at Rs.10,52,750 which matches with the amounts in the sale deed. The impounded material mentions the Sy.No. and the village for which the payments are made and these are recording of unaccounted money and cannot be brushed aside in view of the fact that there is clear mention of the fats leading to the purchase of property. The total purchase value is Rs.21,22,014 of which is Rs.10,52,750 is already accounted. The assessee could not bring any evidence to the contrary. He therefore sustained the addition of Rs.10,69,264.

In our opinion, whether the amount of Rs.10,52,750 has been recorded already or not has to be examined with reference to material available on record, after calling for a remand report from the AO. Accordingly, we remit this issue to the CIT(Appeals) for fresh decision.

The next ground is regarding addition of Rs.28,13,710 and Rs.5,25,00 as investment from unexplained sources on account of additional capital. The AO added these amounts being additional capital shown in individual balance sheet and in the balance of Mangalore Lime & Marine Industries where assessee is a partner respectively. The assessee stated that the additional capital is out of various debits in various other concerns and hence the credit stands fully explained. However, assessee could not produce the break up of individual firms from which these debits are supposed to be considered. With regard to assessee’s contention that the balance sheets were filed at the fag end of assessments and nothing was called for by the AO, he observed that the same could have been filed before him during the appellate proceedings. In the absence of any supporting documents, the CIT(Appeals) confirmed the additions.

In our opinion, the assessee filed the balance sheets at the fag end of assessment. However it was not verified by the AO or the CIT(Appeals) in proper perspective. Accordingly, we set aside the order of the CIT(Appeals) on this issue and remit the issue to the CIT(Appeals) to decide the issue afresh after calling for comments from the AO.

The last ground is with regard to interest u/s. 234A, 234B & 234C which are consequential and mandatory.

The assessee’s appeal is partly allowed for statistical purposes.

In the result, the cross appeals by the revenue and assessee are partly allowed for statistical purposes.