RAJESH PODDAR,MUMBAI vs. DCIT CENT. CIR. 7(4), MUMBAI

The common issue raised in these appeals relate to addition of unsecured loans as undisclosed in u/s. 68 of the I.T. Act in assessments framed.

Brief facts of the case are that there was search and seizure in the case of Loha Ispaat group on 22.2.2012. Notice u/s. 153A was issued to the 2 Mr. Rajesh Poddar assessee. In the assessment order the Assessing Officer referred that from time to time details were called for and submission of the assessee was received. The Assessing Officer thereafter observed that from the details furnished and on going through the Balance Sheet of the assessee, it was seen that during the years under consideration, the assessee had inter alia received following unsecured loans from financial year 2005-06 to financial year 2011-12 tabulated as below:- Unsecured loans introduced in A.Y. 2006-07 to 2012-13

During the course of assessment proceeding, assesses was required to establish the credit worthiness of these parties. The Assessing Officer observed that the assessee was unable to substantiate with corroborative evidence the three ingredients required to be establish enabling the acceptance of a loan as a genuine loan i.e. genuineness, identity and creditworthiness of the loan creditor. The Assessing Officer further noted during search and seizure action u/s.132(1)of the IT Act,1961 carried out in Loha Ispaat Group of cases, it was found that this company was also carrying out various transactions of purchase/sales/loan etc. with the above referred concerns. That the company on being confronted with huge evidence in the shape of seized papers, computer backup data and the statements of various persons Including the statement of assessee Shri Rajesh Poddar himself (CMD of Lpha

From the above the Assessing Officer concluded that the assessee itself in his submission has admitted that these parties had provided unsecured loan to the assessee and they do not have their own source of income. He rejected other aspects of the assessee’s contention that these types of loans were generated mostly by way of purchase and sale in Loha Ispaat Ltd. leaving corresponding accommodation debtors/stock unsettled as mere explanation given by the assessee to support the purpose of assessee. He held that it is not acceptable as there is no proof on record given by the assessee to prove such correlation. Thereafter the Assessing Officer held that the assessee has not proved the onus cast upon him. He held that the assessee has not explained as to why such flow has taken place and such credits in his books are indirectly the money generated mostly by way of purchase and sale leaving corresponding debtors/stock unsettled. Hence, he held that source of the same is not explained and substantiated by the evidence. Thereafter the Assessing Officer referred to the provisions of section 68 of the Act and certain case laws. Finally the Assessing Officer concluded that the assessee was not able to discharge the onus cast on him with respect to genuineness of these parties giving unsecured loans appearing as credits in books of the company. He opined that money introduced is nothing but assessee’s own money. Accordingly, he made addition as under section 68 of the Act :- Assessment Year 2006-07 10,38,92,792 (Closing balance from Rajesh Poddar HUF which includes amount received during the year at Rs.5,31,89,070/-) 2007-08 7,32,34,516 (received during the year) 2008-09 15,05,04,633 (received during the year) 2009-10 2,70,20,000 (received during the year) 2010-11 5,25,03,957 (received during the year) 2011-12 - 2012-13 7,51,79,250 (received during the year)

Thereafter the Assessing Officer held that without prejudice to the above the amount is taxable in hands of the assessee as deemed dividend u/s. 2(22)(e) of the Act. For this the Assessing Officer stated that the assessee in its submission has stated that the money is routed through various bogus entities as unsecured loans in balance sheet of the assessee and these loans are actually the money of Loha Ispaat Ltd. The Assessing Officer further noted that Loha Ispaat Ltd. is not a company in which public are substantially interested. He noted that the assessee is holding beneficial ownership of shares in the company. He noted that for the concerned assessment year there were sufficient accumulated profits. Thereafter the Assessing Officer observed that the loans have been taken by the assessee through the conduit of the dummy companies. He referred to the decision of Hon'ble Supreme Court in the case of CIT, Kolkata Vs. Mukandray Shah (209 ITR 433). That in such circumstances provisions of section 2(22)(e) of the Act shall apply. Hence, he held that the amount is to be added in the total income of the assessee on this account. He held that this is only an alternative argument to the argument made in earlier paragraphs. However, he noted that since the same addition u/s. 68 has already been made no separate addition has been made.

Against this order, the assessee is in appeal before learned CIT(A).

Against this order the assessee is in appeals before us.

Per contra, learned Departmental Representative submitted that similar issue has been decided by the ITAT, Mumbai Benches in the case of Smt. Anju Ranesh Poddar, wife of the assessee, wherein following unexplained loans were added by the Assessing Officer :-  Rajesh Poddar (HUF) Rs. 3,75,358/-  Dhani Devi Processor Rs. 60,000/-

Referring to the above learned Departmental Representative submitted that the assessment made in the case of M/s Loha Ispat Ltd., Shri Rajesh Poddar (HUF) and M/s Dhanidevi Processors Pvt. Ltd. for the respective assessment years have an important bearing on the genuineness of the unsecured loans in the case of the assessee too, since the assessee has received loans from the aforesaid parties as well. He pointed out that these appeals are pending adjudication. As regards the issue that when the addition is only based upon the statement of assessee which stated that the parties giving loans had no source of their own but the sums are sourced from Loha and the issue of applicability of the doctrine of "Approbate and Reprobate" he submitted that it is settled that law does not permit a person to approbate and reprobate, i.e., no party can accept and reject the same instrument to suit its interest. That however, it is only a species of estoppel; it applies only to the conduct of the parties. He submitted that as in the case of estoppel, it cannot operate against the provisions of a statute. In this regard he referred to decision of Hon'ble Apex Court in Commissioner of Income-tax, Madras v. V. Mr. P. Firm, Muar (1965) 56 ITR 67 (SC). He submitted that equity is out of place in tax law. In this regard he referred to the decision of Hon'ble High Court of Gujarat in the case of N.K. Industries Ltd. v. Dy. CIT [2016] 72 taxmaim.com 289 (Guj.) He propounded the proposition that it cannot be read as having held that even if the material found during the course of search expose the falsity of the entries made in the regular books of accounts, the 9 Mr. Rajesh Poddar consequent concealed income cannot be assessed as undisclosed income in the block assessment under Chapter XIV-B. However the learned departmental representative did not back this submission to any reference of the seized material in the orders of the authorities below. Thereafter learned Departmental Representative referred to the claim of the assessee that loans generated in the hands of assessee are part of the accommodation transaction of sales and purchases of M/s Loha Ispaat Limited. However, he submitted that this claim is not supported by any evidence. However thereafter he sought to address this issue and submitted that additional income disclosed by M/s Loha Ispaat Ltd. on account of unaccounted cash sales for the corresponding A.Ys. are as under :- S.No. A.Y. Unaccounted additional income disclosed by Cash Sales M/s Loha Ispaat Ltd. @ 3% on unaccounted cash sales 1 2006-07 3,56,13,708 4,68,411 2 2007-08 1,38,97,843 4,16,935 3 2008-09 79,89,493 2,39,685 4 2009-10 5,70,35,156 17,11,055 5 2010-11 10,60,39,550 31,81,187 6 2011-12 3,44,70,180 10,34,105 TOTAL 23,50,45,930 70,51,378

From the above he submitted that total funds available to Loha Ispaat Ltd. on account of undisclosed income from cash sales are much less and not adequate to explain the source of share application received from the assessee alone. That even the entire unaccounted cash sales cannot cover unsecured loan of the assessee. Thereafter learned Departmental Representative referred to the decision of Hon'ble Delhi High Court in the case of CIT Vs. Harjeev Aggarwal (70 taxmann.com 95) for the proposition that the statement recorded on oath u/s. 132(4) of the Act has evidentiary value. Finally learned Departmental Representative submitted that in the present case addition made

Learned Departmental Representative further submitted that the decision of the Assessing Officer in the case of M/s. Dhanidevi Processors Pvt. Ltd., another group company has made an addition of Rs. 4 crores to the total income of the concern for A.Y. 2007-08 on account of unexplained investment as share application money introduced in M/s. Loha Ispaat Ltd. and the appeal is pending before learned CIT(A). learned Departmental Representative finally concluded as under :- “In view of the aforesaid, it is humbly submitted that the claim of the appellant that the loans generated in the hands of assessee are part of the accommodation transaction of sales and purchases of M/s Loha Ispaat Ltd., deserves to be rejected and the addition made by the Assessing Officer to the total income of assessee as unexplained cash credits, deserves to be sustained.”

We have heard both the Counsel and perused the records. We note that assessment in this case has been framed pursuant to search and seizure

From the above is evidently clear there is no reference whatsoever to the incriminating material found during the course of search upon the assessee on the basis of which this addition of unsecured loan has been done in the hands of the assessee under section 153A. This issue was very much raised before the learned CIT appeals. In this regard learned CIT appeals observed that search and seizure action under section 132 of the act was conducted on 22/2/2012. Hence he noted that assessment year 11-12 is pending as assessing officer had the jurisdiction to issue notice under section 143(2). As regards assessment year12-13 is concerned he observed that the same being the current year the assessing officer has jurisdiction to assessee income not only based upon the incriminating material discovered during the course of search but he also retains the jurisdiction to assessee the other income arising

At this juncture learned CIT(A) declined to adjudicate this aspect. After having so adjudicated he observed that the issue raised regarding absence of incriminating seized material has not been raised by way of a ground but it has been stated only in written submission that assessment under section 153A must be limited only to incriminating material found during search. He held that explanation given in the written statement cannot be treated as a ground. Thereafter learned CIT(A) again contradicted himself by stating that materials were found and seized during search. However he failed to make any reference to any such material. Here we note that learned CIT(A) was very much conscious of assessee’s grievance and he has adjudicated the same against the assessee for assessment year 11-12 and 12-13. However as he found that for the other assessment years no assessment is pending he observed that he is not going to adjudicate the issue in absence of a ground. In this regard we note that it is settled law that in the interest of justice issue can be raised before quasi judicial authorities without any specific ground raised in grounds of appeal. This is particularly so for legal ground. Moreover no tax can be levied except that leviable as per the provisions of law. It is also settled law that there is no estoppel as to law. If an amount is not exigible to tax as per the provisions of law the same cannot be brought to tax on the ground of concession or otherwise. Moreover as noted above this issue was very made before the learned CIT(A).

Ajaydev Steels 9. Bhavna Ispaat Pvt. Ltd.

Shivam Ispaat 11. V.K. Shah Steels Pvt. Ltd.

Pawanjyoti Steels Pvt .Ltd.

The learned Departmental Representative in his submission has also stated that addition has been made exclusively and solely on the basis of disclosure made by the assessee himself and M/s. Loha Ispat Ltd.

From the above it is apparent that assessee has duly stated that above loans are results of accommodation/accommodation debtors in the books of Loha Ispat Ltd. The above statement has been interpreted by the assessing officer as acceptance that these parties who have provided the unsecured loan do not have their own source. In this regard there is no material on record as to on what basis the assessing officer is coming to the conclusion that these parties do not have source of their own other than the statement attributed to the assessee that these are accommodation entries originating from Loha Ispat. The Assessing Officer in his order stated that the assessee as MD of Loha Ispat in his stated during search has admitted that these concerns have provided loan by receiving cash from the company itself.

It is settled law that when a person is relying upon a statement he cannot accept a part of it and disbelieve the other part. This has been enshrined in the maxim of a probate and reprobate. It denotes that a party cannot be permitted to approbate and reprobate on same facts and take shifting stands. Here we note that assessing officer is accepting the assessee’s statement that these parties do not have source of their own, but the assessing officer is rejecting the other part of the assessee which is a statement that these amounts are sourced from Loha Ispat ltd and routed through other concerns to the assessee and which went back to Loha Ispat Ltd. This 15 Mr. Rajesh Poddar principal was further reiterated by honourable Supreme Court in the case of Suzuki Parasrampuria Suitings Vs. Official Liquidator (Civil Appeal No. 10322 of 2018 dated 8.10.2018) where in the honourable Supreme Court held that a party cannot be permitted to take shifting slaves.

When this aspect has been confronted with the learned departmental representative he had submitted that approbate and reprobate is a specie of the estoppel and he has relied upon the decision of honourable Supreme Court in the case of P.V. Firm supra.....

We note that the above reliance by the learned departmental representative does not fructify the case of the revenue. In the said case law honourable Supreme Court has expounded that if a particular sum is not taxable in law the same cannot be brought to tax on the basis that assessee had agreed for the same. In the present case we note that the addition in the case of search and seizure and others has to be based upon provisions of law and the case laws in this regard. If it is not so assessee cannot be subject to tax. Rather this decision helps the case of the assessee

On this account also a mere admission on the part of assessee dehorse any corroborative material found during search and without any further enquiry by the assessing officer cannot be the sole and conclusive basis of addition under section 68 of the unsecured loan. This is more so when in the statement of the assessee which is the basis of addition it has been stated that these sums have their origin from Loha Ispat ltd. These aspects have been brushed aside by the assessing officer. He has not issued any notice to the parties who have given the loan. He has not obtained their financials and commented upon their creditworthiness on the basis of the financials.

We also note that the assessing officer was also himself aware of the real import of the assessee’s statement wherein it was submitted that the unsecured loans have their origin in Loha Ispat Ltd. Hence assessee officer has 16 Mr. Rajesh Poddar made an alternative argu ment, though he has not made the addition under section 2 (22)e that the said sum is also liable to be taxed in the hands of the assessee under section2 22 e as deemed dividend. In this regard the assessing officer has placed reliance upon honourable Supreme Court decision in the case of CIT Vs. Mukundray K. Shah (Civil Appeal No. 1873 of 2007 dated 10.4.2007).

In this regard we note that the assessing officer’s reliance upon the said decision of the Supreme Court is not applicable on the facts of the present case. In the said case investment by the assessee were discovered in search. Honourable Supreme Court has noted that the company had granted funds to the partnership firms where the concerned assessee was a partner and from current account of partner the assessee had received funds for these investments and the same were held to be taxable under section (2)(22)(e) of the Act.

In the present case we note that there is no finding as to if and how the firms and parties who have received the sums from Loha Ispat were under the control of the assessee. In absence of such a finding the reliance of the assessing officer on the above said case law is not sustainable. It may also be noted that in the said case law Hon’ble Supreme Court had also upheld the addition as undisclosed income u/s 158BC as having resulted lawfully from search and seizure action. In the present case we have already given a finding that the addition is not based upon any incrimination material found upon search in the case of the assessee. Moreover this aspect is only of academic interest as addition has not been made by the assessing officer as deemed dividend. Moreover as held by honourable jurisdictional High Court in the case of CIT versus Surat Cotton Spinning & Weaving Mills (202 ITR 932) once the assessing officer has assessed a particular receipt under a particular head of income the amount is no more available to him for assessment under another head

As regards the reference of learned Departmental Representative the decision of assessee’s wife in ITAT, we note that the said issue was dealt with by the tribunal on the facts and submissions obtaining in that case. Where, the assessee requested for a remand due to further developments. Moreover the additions were also not sustained by the ITAT.

As regards the decision from honourable Delhi High Court regard upon by the learned departmental representative regarding the evidentiary value of statement obtained under section 132(4) is concerned, we note that the said case law by no stretch of imagination propounded that one aspect of the statement obtained can be relied upon and the other aspect is be rejected. Moreover the issue that in case of search and seizure assessment under section 153 A no addition can be made without incriminating material found during search is settled by honourable Supreme Court in the case of Sinhgad Technical Education Society (supra). Since we have already held that these additions are not sustainable in assessment u/s 153A.

In the result we set aside the order of learned CIT(A) and decide the issue in favour of assessee.