DEPUTY COMMISSIONER OF INCOME TAX, HUBBALLI vs. SHRI KRISHNA MOHAN KALBURGI, HUBBALLI

Both the appeals are filed by the Revenue against the Order passed by the CIT(A) vide DIN &Order Nos: ITBA/APL/M/250/2023-24/1063499939(1) and ITBA/APL/M/250/2023-24/1063501025(1), both Orders dated 27.03.2024. Since both the appeals were heard together, we are passing common Order.

During the course of search under section 132 of the Act conducted at the residence of Shri. Giridhar Laddha, Manager Accounts and Finance in the Mishra Group, a folder containing incriminating documents was found which was marked as A/GL/01 and seized. Page No.33 of this seized folder is a report dated 25.08.2018 containing the details of loans given by the assessee and his family members in Mishra Group both through banking channels and cash. The scanned copy in para No. 8.2 is reproduced by the AO in his Order. The details of loan given through banking channels are mentioned against the individual names of the family members of the assessee. However, the details of loans given in the form of cash are mentioned against the name “K2”. During the course of search conducted at the residence of the assessee this seized page was shown to the assessee and asked to comment to which the assessee in reply to Q. No. 31 of his statement under section 132(4) of the Act dated 18.01.20189 has accepted the contents of the page with reference to loans of Rs.10 Crores given through banking channels, but denied towards the contents of loans given in the form of cash. Thus, it was observed that the assessee had partly accepted the contents of the seized documents relating to loans given through banking channels but denied towards the contents of the same seized documents evidencing loan given in cash.

During the course of search under section 132 of the Act conducted at the residence of Shri. Giridhar Laddha, certain incriminating documents pertaining to loans given by various investors to Mishra Group were found and seized. Accordingly, Shri. Giridhar Laddha was confronted and had explained the details of loans given by various investors to Mishra Group including cash loan of Rs.12.50 Crores by the assessee and his family members. The statement given by Manager is scanned by the AO in para No. 8.6.

The statement given by Manager was shown to the assessee vide question and answer No.35 of statement recorded on 19.01.2019 and asked to comment to which the assessee has refused to accept the statement of Manager (Giridhar Laddha) that he and his family members have given any cash loan of Rs.12.50 Crores but admitted to have given cash loan of Rs.5 Crores in cash. The relevant portion is reproduced :

What is the evidence available with you to substantiate that you have given only a cash loan of Rs. 5 crores and not Rs. 12.6 crores as mentioned in the seized material shown to you

Further Q. and No.36 was asked to explain why he has now admitting of having given cash loans of Rs.5 Crores as against his categorical denial of having given any cash loan to Mishra Group, to which the assessee stated that out of fear he has denied of given any cash loan and requested not to consider his statement of having denied to have given any cash loan to Mishra Group, which is as under:

During the course of search at the residence of Manager, the folder A/GL/01 was found and seized. Page 01 of the seized folder contains details of investments made in Mishra Group both through banking channels and cash as under:

In question and answerNo.30 in sworn statement the assessee had denied giving any cash loan of Rs.11.60 Crores by him or his family members. But he stated that he and family members have given loan of Rs.10 Crores through banking channels and Rs.5 Crores in cash to Mishra Group. The statement is as under:

During the statement recorded us 131 of the Act on 21.01.2019 the assessee confirmed the contents of his statement recorded under section 132(4) of the Act on 18.01.2019 and 19.01.2015 and confirmed having given cash loan of Rs.5 Crores to Mishra Group by him on behalf of M/s. Kalburgi Projects and further stated that no interest has been paid on the cash loan of Rs.5 Crores. Further, during the course of post search verification of the seized documents by the investigating officer, statement of Shri. Shailesh Mahajan who is a co-investor was recorded under section 131 of the Act on 13.05.2019 and 14.05.2019 wherein Shri. Shailesh Mahajan recognized the documents and also explained the contents i.e., cash loans, rate of interest on cash loans and interest received in cash on loans in detail. The seized documents explained by Shri. Shailesh Mahajan also contains entries relating to the assessee and his family members and further stated that assessee was getting total interest of 21% per annum on investments of Rs.10 Crores made through banking channels out of which 12% was paid through banking channels and the remaining 9% was paid in cash. Shri. Shailesh Mahajan is the investment partner of Shri Krishna Kalburgi and this fact has also been admitted by both Shri Sanjay Mishra, Partner of M/s. Dharwad Mishra Pedha and Food Processing Industry and Manager, Accounts and Finance who looks after the accounts and finance of Mishra Group in their statements recorded under section 132 of the Act.

During the course of statement of the assessee recorded under section 131 of the Act on 30.05.2019, the assessee was shown the relevant portion of the statements of Shri. Shailesh Mahajan, Shri Sanjay Mishra and Shri. Giridhar Laddha to which the assessee has not agreed to these statements and stated that he has received interest @ 12% only through bank on loans of Rs.10 Crores given through banking channels. The statement is reproduced by the AO at para 9.2 of his Order.

At Page No.25 of the seized documents marked as A/GL/01, a sheet named “Dharwad Mishra Pedha and Food Processing Industry Kalburgi Groups 1-April- 2018 to 31-Jun-2018” containing the amounts of loans given by assessee and his family members, rate of interest, number of days, interest amount, TDS and net payable. Further, Page No.74 of the seized folder marked as A/GL/01 is a hand written statement containing the details of working of interest on total loans extended by the assessee and his family members both through banking channels as well as in cash for the period from 01.04.2018 to 30.06.2018 wherein it is mentioned that on Rs.10 Crores given through banking channels interest @ 12% is paid through banking channels and 9% is paid in cash. Pages 25 and 74 of A/GL/01 are reproduced by the AO at par No. 9.3 & 9.4. The various other documents were found regarding interest calculations etc., also which were confronted to the assessee. The AO has scanned the relevant documents in his order. The details of cash investments of Rs. 11.60 crores made by the assessee and his family members in cash has been tabulated in para 17 of the assessment order which is as under:-

Accordingly, the AO completed the assessment for both the years as under:-

Aggrieved from the order of the AO the assessee filed appeal before the learned CIT(A) and filed detailed written submissions. After considering the same, the learned CIT(A) allowed the appeal of the assessee observing as under:-

Aggrieved from the above order, the Revenue filed appeal before the Income Tax Appellate Tribunal.

The learned DR relied on the Order of the AO. He submitted that the learned CIT(A) has wrongly deleted the addition made by the AO ignoring the facts noted in paras 7 to 17 by the AO in his Order. The assessee has categorically accepted that he has invested in cash of Rs.5 Crore and he has y accepted the loan given by way of banking channel and partially denied the same documents. During the course of search under section 132 of the Act conducted at the residence of Manager Shri Girdhar Laddha, a folder marked A/GL/01 was found and seized. Page No.1 of the seized folder contains details of investment made in Mishra Group both through banking channels and cash by the assessee and other investors. As per the documents, it is mentioned as K2 Rs.11,60,00,000/- cash and by bank Rs.10 Crores. The total investment made by K2 is Rs.21,60,00,000/- by the assessee and his family members. This is clear from para 8.10 of the Assessment Order. The veracity of the documents cannot be doubted once the assessee has himself accepted that the assessee has taken loan from Axis bank and it was invested in the M/s dharwad Mishra Group and Food Processing Industry.. Whatever is mentioned in Page 1 of A/GL/01, the partial denial by the assessee is completely wrong. As per the statement recorded under section 131 of the Act which is placed at Paper Book Page No.110 in question and answerNos.2 and 3 in which the assessee has categorically accepted investment of Rs.5 Crores in cash in M/s. Dharwad Mishra Pedha and Food Processing Industry which is as underand he has confirmed on 21.01.2019, immediate after the search during the post search enquiry. The relevant part of the statements are as under:- :

He also referred to question and answer Nos.31 to 37 of the statements recorded of the assessee u/s 132(4) of the Act. The assessee has explained the source of investment of Rs.5 Crores in cash out of his unaccounted business income. Therefore, later the retraction made by the assessee without any supporting evidence cannot be accepted even after accepting investment of Rs.5Crore as per question and answerNos.30 and 31 which is also without any basis or any supporting documents. Therefore, he requested that the investment shown in the Mishra Group which is on the basis of the documents found in the residential premises of Accounts ManagerGirdhar Laddhamarked as A/GL/01, A/GL/02 AND A/GL/10 is Rs.11.60 Crores is to be upheld instead of Rs.5 Crore which is clearly on the basis of incriminating documents found. The documents found cannot be denied partially. The documents found also clearly shows that the interest has been given to the assessee, his family members and other investors in which the TDS has been deducted,which is not offered by the assessee as income in his return of income. As per question and anwerNo.34, assessee has himself accepted that K2 refers to assessee and his family members. As per observation of AO at Para No.8.2, the loan given in cash relates to Shri. Krishna Mohan Kalburgi and his family members and this finding has not been controverted by assessee with credible evidence. The authenticity of the documents has not been questioned by the assessee at any stage. During the course of statement recorded of the assessee, the statement recorded of Manager (Girdhar Laddha) has been provided to the assessee along with the documents found in the residential premises of Manager Shri Girdhar Laddha in which assessee has himself accepted the abbreviation of K2. Shri Ganesh Mishra is the head of the Mishra Group and he has given direction to Manager for making entries. The learned CIT(A) erred in not appreciating the fact that the additions were made on the basis of the entries found from the seized documents. Shri. Sanjay Mishra who not only accepted as owners who is income a business partner having business assignment by way of franchise of Mishra Group at various cities but has also admitted to repaying such loans in cash as interest paid thereon @ 12% in cash. He further submitted that the learned CIT(A) has ignored that similar entries of financial transactions were found in the documents seized from the residence of Manager wherein it is mentioned that Harish Mahajan, Shridhar Shetty, Satish Shetty, Mahadev Ganapathi and Madhu Habib have also given loan to Mishra Group both in cash and through banking channel. Shri. Harish Mahajan, Shri Shridhar Shetty and Shri. Mahadev have accepted having extended loans to Mishra Group both through banking channel as well as in cash and also have received interest and repayment of loan both through banking channel as well as in cash. They have accepted the transactions appearing in the same seized documents and basis on the same, additional income has been declared and paid tax on the said additional income. Other parties mentioned in the seized documents who had made similar investments through cash and banking channels in the same seized documents A/GL/01, A/GL/02, A/GL/05 and A/GL/10 have admitted the same before the settlement commission under section 245D(4) of the Act dated 22.06.2023 in the case of Mishra Group and related parties. The learned CIT(A) has ignored the fact that on the same set of facts and evidences there cannot be a different treatment made out to the case of the assessee would be since the assessee has himself agreed to certain portion of the entries in the same seized documents and ignored the other set of entries that does not suit to him.

He further submitted that regarding cross objection not provided to the assessee and the learned CIT(A) has relied on the judgment of Hon’ble Apex Court in the case of Andaman Timber. It was not possible to provide cross objection to the assessee because of Covid 19 pandemic was at peak at that time and second wave was also started and the Income Tax Department had some SoP. It was impartible situation for the AO to provide cross objection to the assessee. During the course of search u/s 132 & 132(4) of the Act of the assessee the entire documents found related to the assessee and his family members were confronted to the assessee and the assessee ha replied the questions put to him, he did not ask for cross examination during the statements recorded u/s 132(4) of the Act, therefore asking for cross examination during assessment is not correct. The judgment relied on by the assessee in the case of Andaman Timber will not support the case of the assessee he further submitted that the judgment relied on by the AO support the case of the AO and he further relied on the judgment of Roshanlal Sancheti reported in [2023] 150 taxmann.com 227 (Rajasthan), Order dated 30.10.2018 and confirmed by Hon’ble Apex Court reported in [2023] 150 taxmann.com 228 (SC), Order dated 28.11.2022.

The learned Counsel reiterated the submissions made before the lower authorities and strongly relied on the Order of the learned CIT(A). He further submitted that there was no incriminating material found during the course of search in the assessee’s premises with regard to loan given in cash. The AO has made addition only on the basis of the statements given by Shri. Giridhar Laddha which cannot be accepted. During the course of search statement recorded under section 132(4) of the Act in which the assessee has denied of having given any cash loan to the Mishra Group, the Manager has made entry in the documents as per the instruction of Ganesh Mishra, Partner. On perusal of the seized materials which are reproduced by the AO in the Assessment Order shows that there is nothing in those materials which suggest that the alleged cash investments were made by the assessee. The most important point to be noted in this connection is that premises of the assessee too was searched and not an ounce was found regarding the cash investment in Mishra Group. A person making such huge cash investment would obtain some surety / guarantee like promissory note, postdated cheque / title deed of property, etc., from the party with whom investment is made and keep it with him. In the absence of such surety/ guarantee, the investor will be left with no legal recourse if the other party refuses to return the money.

He further submitted that the very basis of addition is on the basis of statement recorded of Manager. The statement recorded is not as per section 132(4) of the Act and Civil Procedure Law for recording the statement. It was recorded at 2 different places without taking on oath. The statement was recorded under section 132(4) of the Act on 18.01.2019 at the residence of Shri. Krishna Mohan Kalburgi located at H. No. 28, 1st Cross, Vishweshwar Nagar, Hubli – 32, and the recording of statement procedure was temporarily suspended on 18.01.2017 and Shri. Krishna Mohan Kalburgi was taken to the Office of M/s. Dharwad Mishra Pedha and Food Processing Industry, located at No.3, 1st Floor, Tirumala Trade Centre, Neeligin Road, Hubli, Karnataka 580029. The statement recording got resumed under section 132(4) of the Act at 10 P.M. on 18.01.2019 but it was not recorded on oath. Therefore, whatever the question was put forth before the assesseeand answers given by assessee has no evidentiary value. Therefore, those statements cannot be used as evidence as per section 17 of the Evidence Act because these 2 places are different. The first statement was recorded at the residence in pursuance of search conducted at the residence of the assessee and next statement was recorded for the search conducted at the premises of Mishra Group. Both are different statements which were recorded at 10 P.M. is completely beyond the provisions of Income Tax Act. During the course of assessment proceedings, assessee asked for cross examination of Manager but it was denied. The retraction letter was also filed by the assessee.

During the course of post search enquiry and statement recorded under section 131 of the Act, assessee denied having given any cash loan to the Mishra Group and he stated that it was due to pressure he mentioned this and the same was declared in front of Revenue authorities. He further submitted that Manager made entries in the documents on the instruction of Shri. Sanjay Ganesh Mishra for the reason best known to them. They might have made these entries and also admitted those to suit their requirement. Similarly, in the case of Shri. Shailesh Mahajan, who for the reason best known to him, has admitted to have made cash investments and received unaccounted interest.Shri. Shailesh Mahajan is neither a partner nor a Director in group concern of Mishra. He cannot be supposed to know the transactions between the assessee and Mishra Group. In his statement he has stated that the assessee has made unaccounted investments and unaccounted interest. How the third party knows that the assessee has also invested in the Mishra Group. It is also pertinent to mention here that for making the investment of Rs.10 Crores through banking channels, the assessee has obtained loan from Axis Bank. If at all the assessee had capacity to make unaccounted cash investment why he would have taken loan from bank. Why would the assessee have the reason for unaccounted cash investment and that too without obtaining any surety for the same. Further, in the case of interest, learned CIT(A) has rightly decided that once the very basis of addition is not sustained then the subsequent income generated from that source also cannot be brought to tax. In support of his arguments, he relied on the following judgments :

In the rejoinder the ld. DR submitted that the retraction made by the assessee is after thought and the learned DR submitted that the case law relied on by the learned Counsel are distinguishable on the facts. Here in the case on hand, assessee has accepted some portion of documents found during the course of search and in the same page some entries are recorded which is not accepted by the assessee. The authenticity of the documents found were not questioned by the assessee. Therefore, the entire judgment relied on by the learned Counsel are not applicable. The learned DR submitted that without prejudice atleast cash loan of Rs.5 Crores as accepted by the assessee during the course of statement recorded under section 132(4) of the Act, and confirmed on 21.01.2019 under section 131 of the Act statements may be upheld.

Considering the rival submissions, we noted that there was search conducted at M/s. Dharwad Mishra Pedha and Food Processing industry, Shri Sanjay, Smt. Anju Mishra and Shri. Ganesh and in the residence of the assessee on 17.01.2019. During search some incriminating documents were found pursuant to search conducted in the case of Girdhar Laddha. Therefore, notices under section 153C of the Act were issued to the assessee to file return of income. During the course of search proceedings, various documents were found and marked as A/GL/01, A/GL/02, A/GL/5 and A/GL/10. The entire facts have been brought out by the AO in para Nos.7 to 17 of the Assessment Order. In the Assessment Order, there is addition of Rs.11,60,00.000/- under section 69A of the Act on the basis of documents found at the residence of Manager Accounts (Giridhar Laddha) which was seized and statement were also recorded under section 132(4) of the Act. In the statement recorded under section 132(4) of the Act, Manager stated that certain entries from the material found from his residence are related to the assessee and his family members and others marked as A/GL/01, A/GL/02, A/GL/5 and A/GL/10 represented cash investments made by the assessee& his family members and others in Mishra Group. In the unearthed documents there were cash e and bank transaction entry found but the assessee categorically denied in cash investment made by the assessee and his family. In Para No.8.2 of the Assessment Order in Page No.33 A/GL/01 has been reproduced which is very much relevant to make the addition of Rs.11,60,00,000/- in which K2 containing the details of loans given by assessee and his family members and a few others both through banking channel and by way of cash. The Manager abbreviated K2 as Krishna Mohan Kalburgi and his family members and as per question and answerNo.34, the assessee has referred “K2” as himself and his family members. The Manager in the statement recorded explained the documents found and seized and these documents were confronted to the Manager (Girdhar Laddha) in which he had explained the relevant part of question and answer which is as under:

From the above scanned documents, it is clear that there are 9 family members and few others. The names of the members are as under:

During the course of statement recording at 10 P.M. on 18.01.2019 the documents found at the residence and statements of Shri Girdhar Laddhawere confronted to the assessee, the assessee has himself accepted that he and his family membershave given loan to M/s. Dharwad Pedha and Food Processing industry., of Rs.10 Crores out of loan taken from the Axis Bank by members of the family and others. In the seized documents indications made as K2 by way of cash loan has been denied which is clearly wrong. The statement recorded under section 131 of the Act, on 21.01.2019 is as under:

From the above statement recorded under section 131 of the Act, the statement recorded under section 132(4) of the Act has been confirmed by the assessee which is clear from question-and-answer Nos.28 to 38. In the question- and-answer Nos.28 to 38 recorded u/s 32(4) of the Act, the assessee has himself accepted Rs.5 Crores cash loan by him and his family members and few. During the course of statement recorded under section 131 of the I T Act, the same amount has been confirmed as noted supra. Further, the investigating officer did not ask any question about the documents found displaying the cash loan noted supra of Rs.11.60 Crores as per A/GL/01 in 131 of the I T Act. It means, it is implied that the declaration made by the assessee of Rs.5 Crores as cash loan has been accepted by the Revenue. There is no doubt in regard to the loan given by cheque taken from Axis Bank and there are 13 lenders who have given Rs.10 Crores loan. As per the loan agreement dated 20.06.2018, there are 13 lenders and it has been confirmed by Giridhar Laddha noted supra. Further during the course of statement recorded u/s 131 of the Act, the investigating officer did not ask any question about the quantum of loans given by the assessee and his family members and a few. There are no definite shares among the lenders identified.

Therefore, we reject the entire arguments of the learned Counsel that there was no any loan given by way of cash. We found substance on the submission of the learned DR. The assessee himself has accepted that he has given cash loan of Rs.5 Crores which is clear from question and answerNos.30 to 38 recorded u/s 132(4) of the Act, which cannot be denied that there was no any loan given by the assessee in cash but admitted in Paper Book Page No.110 under section 131 of the Act of Rs.5 Crores is also noted supra. The judgment relied on by the learned DR supports the case of the Revenue. We make it clear that in the documents found the assessee has accepted that he has given loan through banking channel as well as it is noted as cash also. However, AO has made addition of entire Rs.11.60 Crores in the hands of the assessee but as per question and answerNo.21 of Manger there are 9 family members and a few who have invested in M/s. Dharwad Mishra Pedha and Food Processing Industry but share of individuals have not been quantified. The entire addition cannot be added in the hands of the assessee, the for want of clear information of the actual investment by individual members which will be just and proper to divide the amount of Rs.11,60,00,000/- among the 9 members and a few. We noted from the statements recorded that the assessee and Giridhar Laddha have in their statements accepted that assessee and his family members and a few have invested in cash/bank in the Mishra Group. However, the investigation wing did not ask further question about the quantum of investments made in cash by other family members and a few. We also noted that the AO has during the course of assessment proceedings, did not ask about the share of investments by individual family members i.e. quantum of investment. The entire cash investments mentioned in seized documents have been added in the hands of the assessee which is not justified. In the statement recorded question No.21 of Giridhar Laddha in which the total 9 investors names are clear and there is further mention of ‘a few’. The 13( thirteen) persons including HUFs have given loan of Rs. 10.00 crores out of bank loan in the M/s Dharwad Mishra Pedha Group and food processing Industry, therefore, it is assumed that all thirteen persons have also given cash loan.Accordingly, assessee’s share will be of Rs. Rs.38,46,153 ( Rs. 5,00,00,000/13 )- and should be taxed in the hands of the assessee and the rest amount should have been taxed among other family members of the assessee and a few. Accordingly, we direct the AO to tax on the income of Rs.38,46,153/- in the hands of the assessee and we further direct tocalculatethe proportionate unaccounted interest income proportionately. Accordingly, the addition made towards interest in the impugned Assessment Year as well as in the Assessment Year 2919-20 has to be calculated proportionately in the hands of the assessee. During the course of hearing, the learned Counsel submitted that cross objection was not provided to the assessee. This has been answered by the learned DR in his argument. Therefore, there was impracticable situation during Covid 19 period. The entire documents found in respect of the asseseee and his family members at the residence of Shri Girdhar Laddhaand statements recorded of Shri Girdhar Laddhawere confronted to the assessee during search and statements recorded u/s 132(4) of the assessee. Therefore, the judgment relied on by the learned Counsel in the case of Andaman Timbers is not applicable. Further, the learned Counsel submitted that the assessee filed retraction statement recorded under section 132(4) of the Act which are also without any supporting documents but the documents found at the residence of Manager clearly indicates that the assessee has given loan through banking channel as well as through cash which is credible evidence evident from the seized documents. Therefore, the retraction made and subsequent denial by the assessee also does not support the case of the assessee. The documents found marked as A/GL/01, A/GL/02 and A/GL/10 cannot be considered as a dumb document as the assessee has partially accepted the entries made in the same document. Therefore, the case law relied on by the learned Counsel is not applicable to the present facts of the case. The statement recorded u/s 132(4) and confirmed by the assessee during the statements recorded u/s 131 of the I T Act clearly indicates evidentiary value as per section 17 of the Evidence Act and the entries relating to banking transactions are co-related with the assessee’s statements.IN the result the Appeal for the Ay 2018-19 of the revenue is partly allowed.

During the course of search proceedings, the statement recorded of Giridhar Laddha on the basis of documents found marked as A/GL/01 in which “K2” and KK relates to the appellant. The AO has relied that K2 and KK are related to Krishna Mohan Kalburgi and family members. During the course of appellate proceedings, the learned Counsel submitted that on 25.07.2019 Shri. Giridhar Laddha retracted all his statements recorded under section 132(4) of the Act. In the retraction letter he has mentioned that he had blindly signed the statement without reading. The retraction filed by Giridhar Laddha cannot be accepted, since the retraction was made without any documents. During the search proceedings 2 panches (witness) were presented and if he had any objection he could have raised this issue before the higher authorities but did not do so. Even during the statement recorded of the assessee the statement recorded of Giridhar Laddha was confronted to the assessee and in this regard a specific question No.34 was raised which is as under:-

From the above statement of the assessee, it is clear that the assessee himself has accepted that K2 denotes Krishna Mohan Kalburgi and his family. Therefore, retraction statement cannot be accepted. “The learned CIT(A) has wrongly observed that K2 does not denote the name of the assessee and he has also observed that there was no iota of evidence regarding cash investments under reference were actually made by the assessee. The AO could not bring any corroborative evidence regarding cash investments by the assessee”. This finding is also wrong. In the documents marked as A/GL/01 scanned supra denotes K2 and cash and bank investment is also separately mentioned. The learned CIT(A) has forgotten that the assessee himself has accepted partially the entries made in the seized documents regarding loan given out of bank loan taken from Axis Bank and confirmed by him during 131 & accepted during 132(4) of the Act. Therefore, the finding of the CIT(A) is not acceptable.

In the result, appeals filed by the Revenue are partly allowed for both the years.