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Income Tax Appellate Tribunal, “C” BENCH : BANGALORE
Before: SHRI ARUN KUMAR GARODIA & SHRI PAVAN KUMAR GADALE
O R D E R
Per Shri A.K. Garodia, Accountant Member
This appeal is filed by the assessee which is directed against the order of ld. CIT(A)-11, Bangalore dated 18.02.2015 for Assessment Year 2009-10.
The grounds raised
by the assessee are as under. “1. The orders of the authorities below in so far as it is against the appellant is opposed to law, weight of evidence, natural justice, probabilities, facts and circumstances of the Appellant's case.
2. The appellant denies himself liable to be assessed on a total income of Rs.2,78,55,665/- as against Rs.1,15,47,600/- returned by the appellant under the facts and circumstances of the case.
3. The appellant denies himself liable to be assessed under section 153A r.w.s. 143(3) of the Act under the impugned order on the ground that:- i. The search initiated in the case of the appellant is illegal aria ultra vires the provisions of section 132(1)(a), (b) & (c) of the Act; ii. That the search is conducted not on the basis of any prior information or material inducing any belief but purely on the suspicion and therefore, the action under section 132(2) is bad in law and consequent assessment under section 153A is null and void-ab-initio on the parity Page 2 of 13 of the ratio of the decision of the Hon'ble Apex Court in the case of UOI vs. Ajit Jain, reported in 260 ITR 80. iii. The learned authorities below has not discharged the burden of proving that there is a valid initiation of search under section 132(1)(a) (b) & (c) of the Act, its execution and its completion in accordance with law to render the proceedings valid and to assume jurisdiction to make an assessment under section 153A of the Act. Reliance is placed on the decision of the Hon'ble Karnataka High Court in the case of C. Ramaiah Reddy Vs. ACIT, reported in 339 ITR 210. iv. The authorities below failed to appreciate that a valid search is a sine qua non for making a valid assessment under section 153A of the Act on the parity of the ratio of the decision of the Hon'ble Apex Court in the case of UOI vs. Ajit Jain, reported in 260 ITR 80. v. The order of the assessment is bad in law as the mandatory conditions to invoke the jurisdiction under section 153A of the •Act did not exist, or having not been complied with and consequently the order of assessment is bad in law for want of requisite jurisdiction.
4. The assessing officer erred in making additions of Rs. 1,39,08,062/- as unexplained expenditure and the learned CIT(A) erred in confirming the additions under the facts and circumstances of the case.
Without prejudice, the additions of Rs. 1,39,08,062/- is on wrong appreciation of facts and needs to be made as Nil under the facts and circumstances of the case.
The assessing officer further erred in making additions to the tune of Rs.24,00,000/- as unexplained investment in gold bullion and the learned CIT(A) erred in confirming the additions made under the facts and circumstances of the case.
7. Without prejudice, the additions of Rs.24,00,000/- is on wrong appreciation of facts and needs to be made as Nil under the facts and circumstances of the case.
8. Without prejudice, CIT(A) failed to take cognizance of the material submissions made by the appellant and confirmed the additions made by the assessing officer which is unwarranted and therefore the order passed need to be set aside in the interest of equity and justice.
9. The appellant denies himself liable to be levied to interest under sections 234B & 234C of the Act and further the computation of interest was not provided to the appellant as regard to the rate, period and method of calculation of interest under the facts and circumstances of the case. The appellant expressly urges that the period of levy of interest is not in accordance with the provisions of the Act.
Page 3 of 13 10. The appellant craves leave to add, alter, delete or substitute any of the grounds urged above.
In view of the above and other grounds that may be urged at the time of the hearing of the appeal, the appellant prays that the appeal may be allowed in the interest of justice and equity.”
In course of hearing, it was submitted by ld. AR of assessee that ground no. 3 is not pressed and accordingly ground no. 3 is rejected as not pressed. He also submitted that ground nos. 1 and 2 are general for which no separate adjudication is called for. We hold accordingly.
Thereafter, he submitted that in ground nos. 4 and 5, a common issue is involved regarding addition of Rs. 1,39,08,062/-. He submitted that on pages 24 to 34 of the synopsis filed by him, arguments are available in respect of both the additions which is being disputed by assessee from ground nos. 4 and 5 and also ground nos. 6 and 7 and the same can be considered for the purpose of deciding these grounds. Regarding ground nos. 4 and 5, he pointed out that AO added a sum of Rs. 1,39,08,062/- based on the seized material found in the residential premises of Mr. Vivekananda. He also pointed out that during the search and post search proceedings, the assessee had erroneously mentioned in the course of recording of statements that certain entries & notings in the seized materials found in the premises of Mr. Vivekananda were of the payments made for expenses of Rs. 1,39,08,062/- and he has agreed to offer a sum of Rs. 93 Lakhs as undisclosed income for the impugned assessment year, on a mistaken notion of facts. But subsequently, as per letter filed by the assessee before the AO on 07.03.2013, it was explained that the transactions covered as per the seized material pertained to M/s. ILC Industries and its group concerns and the assessee had explained that details of personal expenses, telephone bills, electricity bills, bus tickets etc. were all part of the seized materials and they were debited to the capital account. It was also submitted in the same letter that the transactions also contained details of agricultural income, hand loan transactions etc. His main argument that the addition was made merely on the basis of statement which is not justified. He placed reliance on the judgment of Hon’ble Apex Court rendered in the case of Pullangode Rubber Produce Co. Ltd. vs. State of Kerala and another as reported in 91 ITR 18 Page 4 of 13 and in particular, our attention was drawn to para no. 4 of this judgment. Reliance was also placed on the judgment of Hon’ble Madhya Pradesh High Court rendered in the case of CIT vs. Digambar Kumar Jain (HUF) as reported in 84 DTR 365, copy available on pages 3 to 5 of case law paper book and in particular, our attention was drawn to para no. 8 of this judgment of Hon’ble Madhya Pradesh High Court. Reliance was also placed on the Tribunal order rendered in the case of Arun Kumar Bhansali vs. DCIT as reported in [2006] 99 TTJ 1308(Bangalore), copy available on pages 14 to 18 of the case law paper book. Reliance was also placed on another Tribunal order of the Delhi Bench of the Tribunal rendered in the case of ACIT vs. Shri Dharam Pal Gulati in dated 20.06.2013, copy available on pages 19 to 37 of the paper book and our attention was drawn to para nos. 20 and 32 of this Tribunal order. It is also submitted that the statement of facts filed by the assessee before the ld. CIT(A) are available on record and the same should also be considered for the purpose of deciding this appeal on merit.
5. Regarding ground nos. 6 and 7 of the assessee’s appeal, it was submitted that this addition was made on this basis that two gold bars weighing 1 kg. each were found in bank locker bearing no. 404 jointly held in the name of Shri Vivekananda, employee and Smt. Kavita wife of the assessee located in Vikas Souharda Co-operative Bank Ltd. in course of search on 02.11.2010. He also submitted that although in course of search and post search proceedings, it was stated by the assessee that this is an undisclosed income but later on, it was found by the assessee that these gold bullions were declared in K. Somasekhar (HUF) and K. Chandrasekhar (HUF) as it was acquired in the hands of these HUF with explained sources and these were purchased through invoice dated 03.11.2008 and therefore, this contention was raised before the AO and these invoices were also filed before the AO and the return of income of these HUF were also filed on 16.07.2010. It was submitted that although the AO and ld. CIT(A) has not accepted this explanation but the same should be accepted and this addition should be deleted.
Page 5 of 13 6. As against this, the ld. DR of revenue supported the orders of authorities below. Regarding ground nos. 4 and 5, it was submitted by him that on page no. 3 of the assessment order, the AO has reproduced question no. 5 and its answer in course of statement of Oath u/s. 131 of the IT Act recorded on 03.02.2011 in which it has been accepted by the assessee himself that out of this amount of Rs. 1,39,08,062/-, an amount of Rs. 93 Lakhs is not accounted for in the books of accounts and these expenses were incurred out of undisclosed income and therefore, assessee declared this amount for taxation in his individual hands for Assessment Year 2009-10. He also drawn our attention to page no. 5 of the assessment order and pointed out that since the seized material is containing an amount of Rs. 1,39,08,062/- out of which the assessee has made declaration of undisclosed income of Rs. 93 Lakhs, the balance amount of Rs. 46,08,062/- is required to be explained by the assessee but this was not explained by assessee and therefore, the AO made addition of the whole amount of Rs. 1,39,08,062/- which should be confirmed. Regarding ground nos. 6 and 7 also, he supported the orders of authorities below. He submitted that on page no. 7 of the assessment order, it is noted by the AO that the assessee has filed submissions on 25.02.2013 which are reproduced by the AO as per which it is stated by the assessee that the assessee is filing copy of invoices dated 03.11.2008 and income tax returns of HUF filed before ITO, Ward -1, Hospet and the return was filed on 16.07.2010 before the search was conducted. He submitted that although this is noted by the AO that invoice dated 03.11.2008 was filed but there is no finding given by the AO in this regard and hence, the matter may be restored back to the file of AO for fresh decision after verifying this aspect.
We have considered the rival submissions. We find that there is no dispute that the seized material in question was seized from the residence of one Mr. Vivekananda and not from the assessee. This is also not in dispute that out of the amount noted in seized documents of Rs. 1,39,08,062/-, the assessee has admitted for declaring an amount of Rs. 93 Lakhs in Assessment Year 2009-10 in reply to question no. 5 of the statement recorded u/s. 131 dated 03.02.2011. Subsequently the assessee has not included this amount of Rs. 93 Lakhs also in the return of income filed by the assessee and in course of Page 6 of 13 assessment proceedings, it was explained by the assessee that declarations before ADIT was under wrong notion of facts but after thorough verification, it was found that all the transactions covered under the said seized material was analysed to be related to ILC industries Ltd and its group. It is also stated that some of them were related to personal expenditure pertaining to electricity bills, telephone bills, bus tickets which are from the out of drawing expenses which was debited in the capital account. It is also submitted that there have been some instances where the receipts are also noted such as agricultural income and also some hand loan transactions which are recorded in the books of accounts of respective companies. In spite of recording this submission of assessee on page no. 4 of the assessment order, the AO has proceeded only on this basis that the assessee has accepted to offer this income for Assessment Year 2010-11 but it is seen that the entries in the seized material A/OV/06 pertains to the period from 09.04.2008 to 12.11.2008 and therefore same is taxable in Assessment Year 2009-10. He made addition of the whole amount of Rs. 1,39,08,062/- although the disclosure was only of Rs. 93 Lakhs. Hence it is seen that in spite of this claim of the assessee before AO in course of assessment proceedings regarding the alleged undisclosed income as per seized material and the earlier declaration in search proceedings that such declaration was under wrong notion of facts, the AO has not given any finding as to how the seized material supports the allegation of unaccounted income. Under these facts, we now examine the applicability of various judgments cited by ld. AR of assessee. The first judgment cited is of the Hon’ble Apex Court rendered in the case of Pullangode Rubber Produce Co. Ltd. vs. State of Kerala and another (supra). We first reproduce para 4 of this judgment from page no. 2 of the case law paper book. The same reads as under. “4. There is material on record to show that in respect of the assessment year 1963-64, the year previous to the one with which we are concerned in this case, the Tribunal refused to refer similar questions which the assessee wanted it to refer to the High Court. But at the instance of the assessee those questions were referred to the High Court as ordered by the High Court and the High Court answered those questions in favour of the assessee. It is no doubt true that the entries in the account books of the assessee amount to an admission that the amount in question was laid out or expended Page 7 of 13 for the cultivation, upkeep or maintenance of immature plants from which no agricultural income was derived during the previous year. An admission is an extremely important piece of evidence but it cannot be said that it is conclusive. It is open to the person who made the admission to show that it is incorrect.”
From the above para reproduced from this judgment of Hon’ble Apex Court, it comes out that even regarding any entry in the books of accounts, it is held by Hon’ble Apex Court that such entries in the account books of the assessee amount to an admission that the amount in question was laid out or expended for the cultivation, upkeep or maintenance of immature plants from which no agricultural income was derived during the previous year but still it was held that an admission is an extremely important piece of evidence but it cannot be said that it is conclusive and it is open to the person who made the admission to show that it is incorrect. Hence, in the present case also, it has to be held that the addition made by the AO in the course of assessment proceedings merely on the basis of statement in course of search and post search proceedings is not sustainable.
Now we examine the applicability of the judgment of Hon’ble Madhya Pradesh High Court rendered in the case of CIT vs. Digambar Kumar Jain (HUF) (supra). Our attention was drawn to para 8 of this judgment and hence, we reproduce the same from page no. 4 of the case law paper book. “8. We have perused the record and found that merely on the basis of statement under Section 133A of the Income Tax Act, which was recorded during the survey, such addition could not have been made. To make such addition, some corroborating evidence against undisclosed income was required, which could not be found by the Assessing Officer. The Assessing Officer had made an addition merely on the basis of a statement recorded during survey under Section 133A of the Income Tax Act. The CIT (A) and the Tribunal had deleted it by holding that merely on the basis of such statement without corroboration, such addition could not be made.”
As per this para of the judgment of the Hon’ble Madhya Pradesh High Court, it is seen that it was held in this case that the AO made an addition merely on the basis of a statement recorded during survey u/s. 133A of the IT Act and ld. CIT(A) and the Tribunal had deleted it by holding that merely on the basis of such statement without corroboration, such addition could not be made and when the appeal was filed by the revenue against this Tribunal order before Page 8 of 13 the Hon’ble Madhya Pradesh High Court, the same was dismissed by Hon’ble Madhya Pradesh High Court.
11. Now we examine the applicability of the Tribunal order rendered in the case of Arun Kumar Bhansali vs. DCIT (supra). As per the facts noted by the Tribunal in this case, during the course of search, it was found that the assessee has conducted 22 numbers of chits and on the basis of the material found during the search and the statement of assessee, an amount of Rs. 4 Lakhs being Rs. 50,000 for 8 Assessment Years were considered as income by way of commission from chit business. The relevant statement of assessee is reproduced by the Tribunal in that case in para no. 2 of this Tribunal order and hence, for ready reference, we reproduce para 2 of the Tribunal order available on pages 15 and 16 of the case law paper book. “2. A search was conducted at the premises of assessee and one Mr. Lalchand Balar on 26th April, 2000. During the course of search, it was found that the assessee has conducted 22 numbers of chits. On the basis of material found during search and the statement of assessee, an amount of Rs. 4 lakhs, being Rs. 50,000 for 8 assessment years, were considered as income by way of commission from chit business. The assessee during the course of search admitted as under : I admit that I had conducted 22 number of chits of various value between 1992 to 1998. The every second chit used to be taken by me without any discount. However, there have been expenditure incurred like gifts given to chit participants as well as chit drawn and collection charges. I have also incurred liability in indirect fashion on account of delayed remittances of participants as well as liability on account of non-collectible chit amounts. The capital receipt on account of second chit has been employed by me into real estate and other businesses conducted by me. However, to buy peace from the Department, I hereby declare an amount of Rs. 4 lakhs as undisclosed income on account of chit business conducted by me. I shall be paying taxes on this Rs. 4 lakhs as undisclosed income arrived by me after taking out all expenditure including non- collectible amount. Before the AO as well as CIT(A), the assessee submitted that there is no material found during search, which suggests that every year the assessee has earned a sum of Rs. 50,000 for 8 years. Thus, the income of Rs. 4 lakhs is not correctly treated as undisclosed income for the block period. Secondly, he relied upon the decision of Hon'ble Andhra Pradesh High Court in the case of CIT v. Nataraj Finance Corporation (1988) 169 ITR 732 (AP) for the proposition that the income from chit is by way of. income from oneself and hence applying the principle of mutuality, such income cannot be treated as undisclosed income even though declared by the assessee. Learned CIT(A)
Page 9 of 13 dismissed this ground holding that the assessee himself has admitted having conducted chit business. Material was found during search. The assessee was confronted by AO. Since he himself has admitted having earned income of Rs. 4 lakhs, the addition was upheld. 2.1 Learned counsel for assessee, Shri Laxminarasimhan submitted that even though the assessee had admitted, still the income is to be treated as exempt on the principle of mutuality. There cannot be concession against the provision of law. If the income is exempt, even though it is admitted, the same has to be excluded, as the income is to be computed according to the provision of IT Act and not merely on the admission of assessee. He once again relied upon the decision of Hon'ble Andhra Pradesh High Court in the case of Nataraj Finance Corporation (supra). He further relied upon the decision of Hon'ble Supreme Court in the case of CIT v. Bankipur Club Ltd . He submitted that the business income from chit is income from oneself and since the assessee is contributory as well as beneficiary, the income cannot be treated as undisclosed income, as the same is not chargeable to tax. 2.2 Learned Departmental Representative, on the other hand, relied upon the appellate order. He submitted that only after conducting various enquiries and confronting with assessee's seized material, the assessee has admitted the income of Rs. 4 lakhs. Thus, it cannot be said that the assessee was unaware about such income. What the assessee has received is business income and not merely dividend from such chits. Thus, principle of mutuality will not apply.”
In this case, the Tribunal held that the income is not taxable in the hands of the assessee in view of principle of mutuality and since in the present case, mutuality aspect is not there, this Tribunal order on this aspect is not relevant in the present case but this Tribunal order is relevant regarding this aspect that merely on the basis of the statement recorded during the course of search, an addition cannot be made blindly and the same has to be examined as per the relevant facts and law.
Now we examine another Tribunal order rendered in the case of ACIT vs. Shri Dharam Pal Gulati (supra). As per the facts noted by the Tribunal in para 2 of this Tribunal order, a search and seizure operation was carried out at the premises of the assessee on 22.11.2006 and assessee is an individual filed the return of income at Rs. 5,88,06,735/- on 02.09.2008 and this amount included undisclosed investment in jewellery of Rs. 12,85,777/- and undisclosed cash found during search of Rs. 24,86,000/- and AO made an addition of Rs. 15 Crores on the basis of statement recorded u/s. 132(4) of the IT Act during the search operation and this addition was deleted by ld.
Page 10 of 13 CIT(A) and in para no. 3.11 of the order of ld. CIT(A) as reproduced by the Tribunal in that case, it was held by ld. CIT(A) that the surrendered income has to be quantified on the basis of the incriminating material found during the search or on the basis of any other evidence collected during the assessment proceedings and neither in the assessment proceedings nor in the remand report has any such quantification of concealed income has taken place. Against this order of ld. CIT(A), the revenue was in appeal before the Tribunal. It is noted by the Tribunal in this case that the disclosure was not based on any calculation of undisclosed income on the basis of seized papers / documents. It is also noted that the disclosure so made was also not based on any unaccounted assets / valuables. The Tribunal has reproduced the instruction no. F.No. 286/2/2003-IT(Inv.II) dated 10.03.2003 on page no. 31 of the case law paper book and in particular this is the instruction in this instruction that in course of pending assessment proceedings, the AO should rely upon the evidences / materials gathered during the course of search / survey operations or thereafter while framing the relevant assessment orders. It was held by the Tribunal that no addition can be made merely on the basis of evidence found against the assessee.
In the present case also, although some papers were found and seized and surrender was also made by assessee up to Rs. 93 Lakhs out of amount noted in seized paper of Rs. 1,39,08,062/-, neither the AO nor ld. CIT(A) has corroborated the amount of addition with the entries in the seized material even on sample basis to show that the entry in the seized material is in fact regarding some undisclosed income of the assessee. The surrender of the assessee of Rs. 93 Lakhs is also not correlated with the seized material. Under these facts, in our considered opinion, these various judgments cited by ld. AR of assessee are squarely applicable and respectfully following the same, we hold that the addition made by the AO and confirmed by ld. CIT(A) merely on the basis of statement without establishing that the entry on the seized paper is indicating any undisclosed income of the assessee is not sustainable and hence, we delete the same. Accordingly ground nos. 4 and 5 are allowed.
Page 11 of 13 15. Regarding ground nos. 6 and 7, we find that on page no. 7 of the assessment order, the AO has reproduced the submissions of the assessee dated 25.02.2013 and we also reproduce the same hereinbelow for ready reference. “A search was conducted in the matter of ILC Industries Ltd u/s. 132 during October 2010. In this regard sworn statements was recorded during November 2010 by ADIT. During his questionnaire he has referred two bullions seized in my bank lockers and asked me the source of income and declaration made in my income tax returns. At the time of answering the questionnaire I referred the income was from business & I have declared in my returns but, the ADIT displayed my individual returns where it was not showing such declaration of Gold Bullion in the Balance Sheet. Seeing this I was surprised & hence I accepted to declare the income as it was not seen in my individual returns. Later I have cross verified my returns & bill copies of bullions. The bullions were declared in K. Snmasekhar, (HUF) K.Chandrasekhar(HUF) as it was earned in HUF source. I have also filed a copy of invoice dated 03-11-2008 & income tax returns of HUF filed before ITO Ward-I Hospet and the return was filed on 16/07/2010 before the search was conducted.”
From the above submission of the assessee before the AO, it comes out that the assessee has submitted the relevant invoices and it is also submitted before the AO that the income tax returns were filed by these HUFs to respective AO i.e. ITO, Ward -1, Hospet on 16.07.2010 whereas the search has taken place on 25.10.2010. Therefore, it is seen that the return of income were filed by these two HUFs prior to search and the assessee has also submitted the relevant invoices copy before the AO also which are dated 03.11.2008. Still the AO is stating on page no. 8 of the assessment order that the assessee’s claim that the gold bars were declared in the hands of Shri K. Somashekar (HUF) and Shri Chandrashekar (HUF) for the Assessment Year 2009-10 is without adequate evidences and it is only an afterthought designed to suit the necessity of the assessee without pointing out any defect in the invoice dated 03.11.2008 submitted by the assessee before the AO. If the AO was not satisfied, he would have established that these invoices are bogus or that there is no source in the hands of these two HUFs. These invoices are available before us also on page nos. 10 and 11 of the paper book and as per the same, one Kg bullion was purchased by K. Somashekar from Ambicaa Sales Corporation, Bangalore on 03.11.2008 as per invoice no. 2460 and similarly, one kg gold bullion was purchased by K. Chandra Page 12 of 13 shekar from the same party i.e. Ambicaa Sales Corporation as per invoice no. 2465 on 04.11.2008. The return of income was filed by Shri K. Somashekar (HUF) on 16.07.2010 as per copy of return of income available on pages 12 to 15 of the paper book and similarly, return of income was filed by Shri K. Chandra shekar (HUF) also on the same date as per copy of return of income available on pages 16 to 18 of the paper book. As per the balance sheet as on 31.03.2009 of Shri Somashekar available on page no. 14 of the paper book, there is capital balance of Rs. 16,06,085/- and there is investment in gold bullion of Rs. 11,43,320/- and similarly, as per the balance sheet of Shri K. Chandrashekar (HUF) as on 31.03.2009 available on page no. 18 of the paper book, there is capital of Rs. 31,28,398/- and investment in gold bullion of Rs. 11,43,320/-. Under these facts, we are of the considered opinion that the addition made by the AO on this account is also not sustainable and hence, we delete the same because in our opinion, restoring the matter back to AO in the facts of the present case is not required. Ground nos. 6 and 7 are also allowed.
No argument was advanced in respect of remaining grounds i.e. ground nos. 8 to 11 and hence, we presume that these grounds are not pressed and dismissed accordingly.
In the result, the appeal filed by the assessee is partly allowed. Order pronounced in the open court on the date mentioned on the caption page.