DINESH H VALECHA,MUMBAI vs. DCIT CEN CIR 41, MUMBAI

O R D E R

PER RAVISH SOOD, JM

1. On the facts and in the circumstances of the case and in law the Ld. CIT(A) erred in confirming the AO's action of disallowing bank charges amounting to Rs. 1,206/-.

P a g e | Dinesh H. Valecha Vs. DCIT, CC-41 2. On the facts and in the circumstances of the case and in law the Ld. CIT(A) erred in confirming the AO's action of making an addition of Rs. 23,00,000/- on account of alleged unexplained investment u/s. 69B. 3. The appellant craves leave to add to, alter, amend and/or delete all or any of the foregoing grounds of appeal

. The appellant prays this Hon‟ble Tribunal to delete the additions/disallowance made by the AO and confirmed by the Ld CIT(A).”

2. Briefly stated, search and seizure action under Sec.132 of the Act was conducted in the case of M/s Valecha Engineering Ltd. and its group companies as on 26.07.2011 and on subsequent dates. The residential premises of the directors of the said group companies were also covered in the said search proceedings. The assessee being a director of M/s Valecha Engineering Ltd., was covered under the aforesaid search proceedings conducted under Sec. 132 of the Act. In compliance to notice issued under Sec.153A the assessee filed his return of income for A.Y 2011-12 on 20.03.2012, declaring his total income at Rs.1,18,73,046/-.

3. The A.O while framing the assessment observed, that the assessee had claimed bank charges of Rs.1,206/- against his income shown under the head “other sources”. However, as the assessee had failed to establish a nexus of the aforesaid expenditure as against earning of the interest income, therefore, the said claim of expenditure was disallowed by the A.O. Further, it was observed by the A.O that a perusal of certain incriminating material in the form of loose papers which were found and seized during the course of the search proceedings and marked as Annexure A-1 revealed details in respect of trading of scrips of M/s Valecha Engineering Ltd. and Reliance group by the assessee, along with certain other details viz. date, quantity, and net loss or profit on sale of the said scrips during the year under consideration. On being confronted with the aforesaid fact, the assessee distanced himself from the said seized papers, and claimed that the same did not belong to him or to any of his family P a g e | Dinesh H. Valecha Vs. DCIT, CC-41 members and might have been left at his premises by some visitors. However, the A.O not being inspired by the aforesaid explanation of the assessee declined to accept the same. Apart there from, it was observed by the A.O that in the course of the search proceedings, the assessee on being called upon to put forth a page wise explanation in respect of the aforesaid documents had came up with a different version which was contrary to the stand taken by him in the course of the assessment proceedings. Accordingly, the A.O holding a conviction that the assessee had came forth with a concocted story, thus, declined to accept the same. Also, the claim of the assessee that he had never indulged in trading of shares or day to day trading was also found to be incorrect and not accepted by the A.O. On the basis of the aforesaid deliberations, the A.O made an addition under Sec. 69B of the unexplained investment of the assessee in the shares of the aforementioned companies. As regards the profit of Rs.2,54,110/- arising from the aforesaid transactions that was discernible from Annexure A-1 - Page No. 2, it was observed by the A.O that the assessee as per the said incriminating documents viz. Annexure A-1 – Page No. 3 had also suffered a loss of Rs.7,88,793/- from the aforementioned activities. Accordingly, the A.O restricted the addition only as regards the unexplained investment of Rs.23,00,000/- made by the assessee in the aforesaid scrips. On the basis of his aforesaid deliberations the A.O assessed the income the assessee at Rs.1,41,74,250/-.

4. Aggrieved, the assessee carried the matter in appeal before the CIT(A). However, the CIT(A) not finding favour with the contentions advanced by the assessee dismissed the appeal.

5. The assessee being aggrieved with the order of the CIT(A) has carried the matter in appeal before us. The ld. Authorized P a g e | Dinesh H. Valecha Vs. DCIT, CC-41 Representative (for short „A.R‟) for the assessee submitted, that the lower authorities had without any basis made the aforesaid additions in the hands of the assessee. It was submitted by the ld. A.R, that as the bank charges were directly related to the interest income received by the assessee from banks, therefore, the same was clearly allowable as a deduction under Sec. 57(iii) of the Act. Apart there from, it was submitted by the ld. A.R that similar claim for deduction of bank charges that was raised by the assessee in A.Y 2006-07 to A.Y 2008- 09 was allowed by the A.O while framing the respective assessments under Sec. 143(3) r.w.s 153A, vide his orders dated 31.12.2009. Accordingly, it was the claim of the ld. A.R that the lower authorities were in error in declining to allow the claim of deduction of bank charges of Rs.1,206/- that was rightly claimed by the assessee. As regards the addition of Rs.23,00,000/- made by the A.O towards alleged unexplained investment under Sec.69B, the ld. A.R relied on the submissions made before the lower authorities. It was submitted by her that though the assessee had categorically claimed before the lower authorities that the impugned document viz. Annexure A-1 (containing Pages 1-6) did not belong to him and might have been left at his premises by some visitors, however, the A.O had summarily brushed aside the said claim and arbitrarily added the amount of Rs.23,00,000/- as an unexplained investment u/s 69B in the hands of the assessee.

No .1 is dismissed.

8. We shall now advert to the addition of Rs.23,00,000/- made by the A.O on account of an alleged unexplained investment under Sec. 69B. As is discernible from the orders of the lower authorities, during the course of the search proceedings carried out at the residential premises of the assessee on 26.07.2011, certain incriminating material in the form of loose papers were found and seized, which thereafter were marked as „Annexure A1‟. As per the A.O, a perusal of the aforesaid loose papers revealed that the same were the copy of the ledger account of a broker containing details of trading of certain scrips of M/s Valecha Engineering Ltd. and Reliance group, alongwith certain other details viz. dates, quantity and net loss or profit on sale of said scrips during the year under consideration. On being confronted with the aforesaid documents, it was the claim of the assessee that the loose papers seized from his residential premises did not belong to him or to any of his family members, and the same might have been left at his residential premises by some visitors. The A.O was not inspired by the aforesaid explanation of the assessee for two fold reasons viz. (i) that, explanation submitted by the assessee was found to be general and was an evasive one; and (ii) that, the page wise explanation of the assessee in respect of the aforesaid documents in the course of the search proceedings clearly militated as against the stand taken by him in the course of the assessment proceedings. As observed by us hereinabove, on appeal, the CIT(A) finding no infirmity in the view taken by the A.O had thus upheld his order and dismissed the appeal.

9. We have deliberated at length on the issue under consideration. Admittedly, in the course of the search proceedings certain P a g e | Dinesh H. Valecha Vs. DCIT, CC-41 incriminating material in the form of loose papers were found and seized from the residential premises of the assessee, which thereafter were marked as Annexure A- 1.

10. We have given a thoughtful consideration to the observations of the lower authorities and are unable to totally subscribe to the view therein taken by them. Admittedly, as per Sec. 292C of the Act, in case if in the course of search proceedings conducted u/s 132, any books of account, other documents, money, bullion or other valuable article or thing are or is found in the possession or control of any person, then it may be presumed viz. (i) that, such books of account, other documents, money, bullion or other valuable article or thing belong or belongs to such person from whose possession or control the same had been found ; (ii) that, the contents of such books of account and other documents are true; and (iii) that, the signature and every part of such books of account and other documents which purport to be in the handwriting of any particular person or which may reasonably be assumed to have been signed by, or to be in the handwriting of any particular person, are in that persons handwriting, and in the case of a document stamped, executed or attested, that it was duly stamped or executed or attested by the person by whom it P a g e | Dinesh H. Valecha Vs. DCIT, CC-41 purports to have been so executed or attested. Accordingly, the presumption drawn by the A.O that the seized loose papers, which thereafter had been marked as Annexure A-1 belonged to the assessee, as the same were found and seized in the course of the search proceedings conducted under Sec.132 from his residential premises is well founded. However, at the same time, we also cannot remain oblivious of the settled position of law that the presumption envisaged in Sec.292C can be rebutted by the assessee. In the backdrop of the aforesaid mandate of law, we are of the considered view that now when the assessee had declined that the aforesaid seized papers, marked as Annexure A-1 did not belonged to him or to any of his family members, therefore, the said claim so raised by him could not have been summarily discarded. Apart there from, we find substantial force in the claim of the assessee that the seized papers does not make any reference to his name. Insofar the term “D.V” mentioned on the aforesaid seized paper is concerned, we find substantial force in the claim of the assessee that on a mere assumption the said term could not have been construed as the name of the assessee viz. “Dinesh Valecha”, for drawing of adverse inferences in his hands. On a perusal of the orders of the lower authorities, we find that the assessee had throughout canvassed that the aforesaid seized papers did not belong to him and might have been left at his residential premises by some visitors. At the same time, we are of the considered view that a mere denial on the part of the assessee that the seized documents found from his possession during the course of the search proceedings did not belong to him, would by no means suffice to rebut the presumption envisaged in Sec.292C of the Act. But then, we also cannot remain oblivious of the fact that the A.O also had failed to dislodge the aforesaid claim of the assessee on the basis of any concrete evidence, which would irrefutably proved P a g e | Dinesh H. Valecha Vs. DCIT, CC-41 that the said seized papers belonged to the assessee, and the contents thereof revealed the investments made by him in the course of trading of scrips of M/s Valecha Engineering Ltd. & Reliance group entity during the year under consideration. As is discernible from the orders of the lower authorities, the aforesaid seized papers are a copy of a ledger account of a broker containing details of trading scrips viz. date, quantity, net loss or profit arising from the shares of M/s Valecha Engineering Ltd. and Reliance group entity during the year under consideration. In our considered view, now when the assessee had tried to distance himself from the aforesaid seized documents, therefore, it was incumbent on the part of the A.O to have made necessary verification from the broker with whom trading of the aforesaid scrips was stated to have been carried out by the assessee. However, we find that no such effort was put in by the A.O. As is discernible from the records, we find, that despite the fact that the assessee taking support of the fact that his name was nowhere mentioned in the seized documents had declined the ownership of the same, however, the A.O discarded the aforesaid claim of the assessee, and without placing on record any material which could disprove the authenticity of the aforesaid claim of the assessee, had rather hushed through the matter and made an addition of Rs. 23,00,000/- towards unexplained investment under Sec. 69B in his hands. Apart there from, we also find some force in the claim of the assessee that as he was the promoter/director of M/s Valecha Engineering Ltd., therefore, he was not entitled to trade in shares of the said company. Be that as it may, we are of a strong conviction that neither the assessee had been able to substantially prove that the aforesaid seized papers found from his residential premises did not belong to him, nor the A.O had been able to dislodge the claim of the assessee that the said seized papers which nowhere made any mention of his name or the name of