SHASHIKIRAN SHETTY,MUMBAI vs. ACIT CEN CIR 44, MUMBAI

per which, Shri Hitesh Lakhani, director of M/s Rikhav Brokers Pvt Ltd Pvt Ltd

has issued bills against payment by cheque for which he has returned cash to

assessee. The AO further observed that the seized document clearly indicated

that expenditure has been booked in the books of M/s Sealand Ports Pvt Ltd

and M/s Avash Logistics Park Pvt Ltd and cheques were also issued from two

companies against cash to be receivable from Shri Hitesh Lakhani of M/s

Rikhav Brokers Pvt Ltd Pvt Ltd. The relevant observations of the AO are as

under:-

“In the case of Sealand Ports P. Ltd., the assessee, vide the Questionnaire, was asked to give detailed comments on the relevant seized papers in its case. In relation to the seized document mentioned & reproduced above, the assessee has mentioned in the submissions made dated 08.03.2011 as follows: "Note on Payment to M/s. Rikhav Brokers Pvt. Ltd. During the year, the assessee has made payment of Rs. 48,31,140/- to M/s. Rikhav Brokers Pvt. Ltd. TDS is also deducted on the said amount of Rs. 5,47,368/-. However, the said amount Is not claimed as expense during the year. This is In accordance with the statement recorded u/s.T32f4roTTfhTTf~AcFaWng" the bourse of Search Proceedings on 10.07.2009 in case of M/s. Al(cargo Group of Companies including the assessee." From the above submission, it is quite evident that the assessee Is not disputing the contents of the seized document. The submissions also say that the amount is not claimed as expense as per the statement recorded u/s. 132(4) of the IT Act in this respect, Thus, the assessee is acknowledging that the seized document is genuine, & also has Imported its effect, as mentioned in the submission reproduced above. However, the said seized document has even further implication, if gone through properly. The first part that the expense claimed on this basis is not genuine has been accepted by the assessee, however, the later part pertaining to "Receivable 40,88,730" has not been accepted by the assessee. The true import of the said seized document is that out of the payment made to M/s. Rikhab Traders of Rs. 43,80,000/-, after considering the cost to be incurred by M/s. Rikhab Traders of Rs. 2,91,270/-, the balance amount of Rs. 40,88,730/- is receivable back by the assessee. The seized document is one & the same. Having accepted the first part, it was incumbent on the assessee to accept the later part also, which has not been done by it. On the basis of the sard seized document found from the residence of Shri. Shashikiran Shetty, & in view of the above discussion on the same, it is, therefore, held that as mentioned on the seized document the amount of Rs. 40,88,730/- - mentioned as 'Receivable' in the document - has been in-fact received

5 ITA 4019/Mum/2014

by the assessee, & that it represents its Undisclosed Income from the said transaction. In view of the above discussion, it was held that the amount of Rs.40,88,730/- represented undisclosed Income of M/s. Sealand Ports P. Ltd. 2010-11, & was taxed as such. Similarly, in respect of the payment made by M/s. Avash Park P. Ltd. of Rs.38,25,204/- to M/s. Rikhav Traders P. Ltd. on a~ccount of N.A. conversion work, it was held that the amount of Rs. 35,70,828/~ (after deducting the charges of M/s. Rikhav Traders P. Ltd.) represented the Undisclosed Income of M/s. Avash Logistics Park P, Ltd., & was taxed as such in that case. . Thus, totally an amount of Rs. 76,59,558/- was taxed as Undisclosed Income in both the above cases, viz. M/s. Avash Logistics Park P. Ltd. & M/s. Sealand Ports P. Ltd., put together. Moreover, during the course of the search action, a statement of Shri. Hitesh Lakhani, Director of M/s. Rikhav Brokers Pvt. Ltd. was recorded u/s. 131 of the IT Act. In the said statement, Shri. Hitesh Lakhani had confirmed that M/s. Rlkhav Brokers P. Ltd had raised Bills amounting to Rs. 48,31,1407- on M/s. Sealand Ports P. Ltd. & of Rs. 38,19,204/- on M/s. Avash Logistics Park P. Ltd.; against net cheques worth Rs. 42,83, 772/- & Rs. 33,91,8107-, respectively, were received - totally amounting to Rs. 76,75,582/-. It has also been confirmed by Shri. Hitesh Lakhani that M/s. Rikhav Brokers P. Ltd. has not provided any service to M/s. Avash Logistics Park P. Ltd. or to M/s. Sealand Ports P. Ltd. Further, in his statement, in the answer to Q. No. 6 there-of, it has been mentioned by him that: “Shri. Jiten Chokshi approached me through Mr. Ramnlklal. Mr. Jiten Chokshi ie from M/s. Allcargo Global Logistics Ltd. Mr. Jiten Chokshi had clear cut understanding with me that as soon as he requires cash as_per the expenditure requirement of the Company, he will give me a call and will arrange the cash at the location told by him……. . These cheques were given to me solely & wholly for meeting the Cash requirements of the company. This accommodation entry was reguiarized by Mr. Jiten Chokshi by 2 agreements dated 17.01,2009, bearing stamp paper nos. BP 062228 & BP 062250, signed between (i) Rikhav Brokers P. Ltd & M/s. Avash Logistics Park P. Ltd. for Rs. 1,38,72,000/- & (ii) M/s. Rikhav Brokers P. Ltd & M/s. Sealand Ports P. Ltd. for Rs. 1,75,20,000/-. Both these agreements are bogus & have been entered in to regularize the Cash requirement of M/s. Sealand Ports P. Ltd. & M/s, Avash" LogisticFPafinr Ltd." Thus, the entire payment made by M/s. Sealand Ports P. Ltd & M/s. Avash Logistics Park P. Ltd. to M/s. Rikhav Brokers P. Ltd is bogus, and through sych transaction the Cash to that extent has been received back by the assessee group. However, logically if the issue is analysed, the person who would receive the amount mentioned as "Receivable" in the seized document would be no one else than the Managing Director of the Group - & that is Shri. Shashikfran Shetty, the assessee himself. Earlier also, the assessee had owned up Unexplained Share application money Introduced in one of the Group concerns to the extent of Rs. 23 Crores & had paid taxes on the same. In view of this discussion, it is held that it was the assessee - Shrf. Shashlkiran Shetty, who has actually received the above mentioned Cash returned by M/s. Rikhav Traders P. Ltd. The assessee & his Group concerns, it seems, have developed this kind of 'Modus Operand!' for generating Cash against issue of Cheques through the Bank Accounts of the Group concerns. During the search in the of Shri, Babulaf Doshi, similar transactions were noticed. There, it was d that a few concerns of M/s. Allcargo Group had made payments to i? t%oncerns of.Shri. Babuial R. Doshi, who in-turn had withdrawn Cash & reiuped it. This issue has been discussed in detail in the assessment orders in the case of Shri. Babuial R. Doshi for AY 2004-05 to AY 20010-11.”

6 ITA 4019/Mum/2014

towards expenses booked in the name of M/s Sealand Ports Pvt Ltd and M/s

Avash Logistics Park Pvt Ltd and also protective addition has been made in the

hands of M/s Sealand Ports Pvt Ltd and M/s Avash Logistics Park Pvt Ltd.

the CIT(A). Before the CIT(A), the assessee has reiterated its submissions made

before the AO to argue that the addition cannot be made in the hands of the

assessee merely on the basis of a piece of paper seized during the course of

search, which neither indicated receipt of money back in cash for issuing bills.

The assessee further submitted that the group has acquired lands in Gujarat

for the purpose of development of ports through M/s Avash Logistics Park Pvt

Ltd and whatever expenditure has been incurred for acquiring the land along

with consequential expenses has been capitalised in the books of two

companies. The addition made by the AO for Rs.40,88,730 and Rs.35,70,828

was capitalised in the books of the above companies. Making further addition

in the hands of the assessee of same amount, amounts to double addition

which is incorrect. The assessee has filed elaborate written submissions

alongwith certain additional evidence which were forwarded to the AO for his

comments. The AO, vide his remand report dated 18-12-2013 submitted his

remand report on the additional evidence filed by the assessee. During

7 ITA 4019/Mum/2014

remand proceedings, the AO justified additions made towards expenditure

booked in the name of M/s Sealand Ports Pvt Ltd and M/s Avash Logistics Park

Pvt Ltd and receiving cash back from Shri Hitesh Lakhani, director M/s Rikhav

Brokers Pvt Ltd Pvt Ltd on the ground that the seized document clearly

indicated modus operandi of the assessee group as per which, the group was

involved in booking bogus expenses and receiving cash back from the parties.

This fact is also admitted during the course of search in the statement

recorded u/s 132(4) of the Act. The AO also commented about enhancement

of assessment in respect of certain payments made to M/s Purvi Estate and

M/s Kinjal Developers on the basis of bank statement filed by the assessee.

The AO has stated in his remand report that in financial year 2008-09, the

assessee group has obtained bogus bills for approximately Rs.153 crores

against issue of cheques to various parties and received back cash from entry

providers. On going through the bank statement of M/s Sealand Ports Pvt Ltd

in YES Bank and AXIS Bank, it could be seen that there was clear cut excess

bogus bills accommodation entries worth Rs.11.31 crores which is over and

above disclosed sum of Rs.153 crores during the course of search proceedings.

The excess payment amounting to Rs.11.31 crores have been found and

accepted by the entry providers and the assessee during post search enquiries.

The above said amount has not been considered while concluding the

8 ITA 4019/Mum/2014

assessment. Therefore, the same may be brought to tax in appellate

proceedings.

assessee has furnished his comments, vide letter dated 20-01-2014. The

assessee stated that the AO himself has accepted the fact that the expenditure

has been booked in books of M/s Sealand Ports Pvt Ltd and M/s Avash Logistics

Park Pvt Ltd. Therefore, from the above it was very clear that transactions

with M/s Rikhav Brokers Pvt Ltd be added in the hands of the assessee. Insofar

as the enhancement proposal issued by the CIT(A) regarding certain payments

made to M/s Purvi Estates and M/s Kinjal Developers, the assessee denied of

having transacted with those parties in his individual capacity and re-iterated

that whatever payments made by M/s Sealand Ports Pvt Ltd and M/s Avash

Logistics Park Pvt Ltd to M/s Purvi Estates and M/s Kinjal Developers, has

already been considered in the books of those companies, therefore, the

enhancement proposal issued in the hands of the assessee is merely based on

conjectures and surmises, but not based on any evidence.

also by taking into account the fact that the assessee group has admitted of

booking bogus expenses in their books of account to take out money to be

paid for acquisition of land held that the material collected during the course

9 ITA 4019/Mum/2014

of search coupled with circumstantial evidence clearly indicate that the

assessee is the ultimate beneficiary by systematically siphoning off the funds of

the above mentioned companies for its own use. The assessee’s claim that the

cash generated is used for additional cash payment for land and land

development, therefore, the same is capitalised in the books of the relevant

companies is only a make belief’’ statement or make belief’’ document, since

such claim has not been proved. The surrounding circumstances show that the

assessee, Shri Sashikiran J Shetty is in receipt of money from M/s Rikhav

Brokers Pvt Ltd and also in receipt of Rs.4.9 crores as pointed out in the

remand report. Therefore, he opined that there is no error in the findings of

the AO in making addition towards expenditure booked in the hands of

companies as unexplained income of the assessee because the assessee has

failed to prove that the said expenditure has been incurred for those

companies. Therefore, by following the decision of Hon’ble Supreme Court in

the case of CIT vs Durgaprasad More 82 ITR 540 (SC) and also by taking into

account the statements recorded from the parties, who were involved in

providing accommodation entries, came to the conclusion that the assessee is

the ultimate beneficiary of the money taken out from the companies.

Accordingly, he upheld addition made by the AO and also enhanced the

10 ITA 4019/Mum/2014

income to the tune of Rs.4.90 crores. The relevant observations of the

Ld.CIT(A) are as under:-

“9.6 In the above transactions, the payment shown against M/s. Rikhav Brokers Pvt. Ltd. for Rs.0.33 crore as on 28.05.2009 and Rs.0.43 crore as on 12.08.2009 are already under consideration in the assessment order which is under consideration now. As against the payments in favour of M/s.Kinjal Developers of Rs.2.90 crore from the bank account of M/s.Avash Logistics Park Pvt. Ltd. and a sum of Rs.2 crore in favour of M/s.Purvi Estate from the bank account of M/s.Sealand Ports Pvt. Ltd., an enhancement proposal u/s.251(1)(a) of the Act was issued to the appellant affording opportunity under subsection 2 of section 251 of the Act requesting him to offer his comments and objections against the proposal. In response the appellant stated that the companies concerned have not claimed the said expenses and the same have been capitalized in their accounts. However capitalization of the said sums towards land account can be accepted only if the appellant could establish or prove that the payments have been made towards the cost of the land. Shri Vasudev Thakker merely stated that the said payments were made to the land owners as additional cash payment and also for land development. However the statement has not been proved. He failed to give details of such payments. If such payments were true, what prevented the appellant or Shri Vasudev Thakker from furnishing the complete details of payments to the land owners and other expenses alleged to have been incurred towards land development. Since the appellant Shri Shasikiran Shetty as well as Shri Vasudev Thakker failed to establish such payments towards land cost, the same cannot be accepted to be included as the cost of the land in the balance sheet. The appellant's claim that a sum of Rs.2.90 crore is part of Rs. 153 crore is also found to be not true. Alternatively, the only proposition that arises in the whole situation is that the appellant has received the cash and must have used it or planning to use it for various purposes known only to him. One such purpose came to be known is the investment made in the shares of M/s India Tourist and Heritage Village Pvt. Ltd. The circumstantial evidences clearly indicate that the~ appellant is the ultimate beneficiary by systematically siphoning off the funds of the above mentioned three companies for his own use. It is held by Hon'ble Supreme Court in the case of CIT vs. Durga Prasad More 82 ITR 540 (SC) that where a party relies on self-serving recitals in a document, it is for that party to establish the truth of these recitals. It was further held by the Apex Court in this case that the tax authorities are entitled to look into the surrounding circumstances to find out the reality of such recitals. 9.7 The appellant's claim that the cash generated is used for the additional cash payment for land purchase and land development, therefore, the same is capitalized in the books of the relevant companies is only a make believe statement or make believe document since such claim has not been proved. The surrounding circumstances show that the appellant Shri Shashikiran Shetty is in receipt of Rs.76,59,558/- as discussed in the

11 ITA 4019/Mum/2014

assessment order and also in receipt of Rs.4.90 crore as pointed out in the remand report. Funds siphoned off in this manner is income for the recipient as the appellant in the similar circumstances already admitted undisclosed income of Rs.23 crore as share capital invested in M/s.India Tourist and Heritage Village Pvt. Ltd. 9.8 The appellant also contended that no opportunity of being heard was granted by the A.O during the course of assessment proceedings. This contention was not accepted by the A.O in the remand report. Without prejudice to the above, it may be mentioned that the appellant was given sufficient opportunities on the issue during the course of appeal proceedings. Therefore, the submission of the appellant that no opportunity was granted is adequately taken care during appeal proceedings. The appellant also contended that no opportunity of cross examination of Shri Hitesh Lakhani, director of M/s.Rikhav Traders Pvt. Ltd. was given during the course of assessment proceedings. However, during the course of remand proceedings, the A.O pointed out that the appellant did not ask for cross examination at the time of assessment proceedings and therefore, the same was not provided. During the course of remand proceedings, the A.O vide order sheet noting dated 19.08.2013 had given opportunity to the representative of the appellant Shri C.C. Dangi to cross examine Shri Hitesh Lakhani, which was refused. This fact has been admitted by the appellant while submitting his rejoinder to the remand report. 9.9 In view of the above, addition of Rs.76,59,5587- brought to tax in the assessment order is hereby confirmed. The sum of Rs.4.90 crore pointed out in the remand report is brought to tax as the undisclosed income of the appellant and to that extent the total income is enhanced. The A.O shall issue the demand notice. Penalty u/s 271AAA of the Act is initiated on the undisclosed income of Rs.4.90 crore for the reasons mentioned above. 10.0 In ground no.5 and 6 the appellant contested that there is a double addition since the total sum receivable of Rs.76,59,5587- was added substantively in his case and the same amounts of Rs.40,88,7307- and Rs.35,70,8287- have also been added protectively in the companies hands viz., M7s.Sea Land Ports Pvt. Ltd. and M/s.Avash Logistics Park Pvt. Ltd. respectively. The submissions of the appellant are considered. Since the additions in the case of M7s.Sea Land Ports Pvt. Ltd. and M7s.Avash Logistics Park Pvt. Ltd. have been deleted vide this office appellate orders No.CIT(A)-38/IT-496/2011-12 and No.CIT(A)-38/IT- 495/2011-12 dated 25.03.2014 respectively, there is no double addition and accordingly these grounds are dismissed.”

confirming addition made by the AO towards transactions entered into by M/s

Sealand Ports Pvt Ltd and M/s Avash Logistics Park Pvt Ltd with M/s.Rikhav

12 ITA 4019/Mum/2014

Brokers Pvt. Ltd. in the hands of the assessee only on the basis of a piece of paper

found during the course of search which neither proves that the assessee has

received cash back in his individual capacity nor there was any further evidence

in the possession of the AO to treat the same as undisclosed income of the

assessee. The Ld.AR further submitted that the assessee has explained with

necessary materials before the lower authorities that contents found in the

documents seized during the course of search neither belonged to the assessee

nor the transactions are entered into by the assessee in his individual capacity.

The assessee categorically admitted that those expenditures are booked in the

hands of M/s Sealand Ports Pvt Ltd as also the said payment has been

capitalised in the books of account. The AO, without any further evidence in

his possession came to the conclusion that the assessee is ultimate beneficiary

of cash siphoned off from the business for his personal use, despite the fact

that the cash has been taken out from those companies for the purpose of

making various payments in order to acquire lands and also for the purpose of

NA conversion of lands. The Ld.AR further submitted that when the documents

found during the course of search clearly indicated that the abovesaid

expenditure is booked in the hands of company, how could it be treated as

assessee’s unexplained income merely for the reason that the document is

found in the possession of the assessee. The fact that the assessee has booked

13 ITA 4019/Mum/2014

expenditure in the hands of above two companies is not disputed. The AO as

well as the Ld.CIT(A) have accepted the fact that the document found during

the course of search is clearly in the name of above two companies. In fact, the

director of M/s Rikhav Brokers Pvt Ltd has clearly accepted that he has

transacted with M/s Sealand Ports Pvt Ltd and also money has been given to

the company. Therefore, making addition in the hands of the assessee for the

transaction between a company and a third party is incorrect.

transaction by M/s Avash Logistics Park Pvt Ltd with M/s Kinjal Developers and

also transaction by M/s Sealand Ports Pvt Ltd with M/s Purvi Estates, the Ld.AR

submitted that these two transactions are part of total disclosure made by the

group during the course of search in connection with inflation of expenditure in

acquiring land and related expenditure and the said expenditure has been

booked in the books of M/s Sealand Ports Pvt Ltd and M/s Avash Logistics Park

Pvt Ltd. The Ld.CIT(A), without appreciating these facts, has made

enhancement of income by Rs.4.90 crores only on the basis of statement of

Shri Vasudev Thakkar despite the fact that nowhere in the statement, Shri

Vasudev Thakkar and Shri Hitesh Lakhani stated that the payment has been

given to the assessee. Further, all along they stated that they have entered

into transactions with the companies and payment has been received by the

14 ITA 4019/Mum/2014

companies. Therefore, in the absence of any nexus between payment made by

the companies to the parties addition cannot be made for the reason that the

assessee is the ultimate beneficiary, on suspicion and surmise.

made by the Ld.CIT(A) in the light of certain judicial precedents. The Ld.AR for

the assessee referring to the decision of Hon’ble Supreme Court in the case of

Shapoorji Pallonji Mistry 44 ITR 891 (SC) argued that the CIT(A) does not have

any power to travel outside the issue before him. The Ld.CIT(A) have wide

enough powers to examine the issue which was subject matter of deliberations

by the AO, but he cannot introduce a new source of income to make

enhancement of assessment because the powers of the appellate authority is

limited to the extent the issue has been subject matter of assessment by the

AO and challenged before the authority. In this regard, he relied upon various

judicial precedents including the decision of Hon’ble Delhi High Court in the

case of CIT vs Sardarilal & Co (2001) 251 ITR 864 (Del) and the decision of

Hon’ble Rajasthan High Curt in the case of CIT vs Associated Garments Makers

(1992) 197 ITR 350.

Ld.CIT(A) submitted that the document found during the course of search and

enquiries conducted during post search enquiries clearly established the fact

15 ITA 4019/Mum/2014

that the assessee is in the habit of booking bogus expenditure in various

companies in order to siphon off money for his personal use. This fact has

been admitted by the assessee in his statement recorded during the course of

search. This fact has been further supported by the statement recorded from

the parties who had facilitated issue of bogus bills to the assessee where they

had categorically admitted that as and when money is required, the assessee

used to take bills from them by issuing cheques and after deducting their

charges, cash was returned to the parties. Although, the assessee has taken

argument that these expenditures are booked in the books of companies, the

fact remains that the assessee has acted in a fiduciary capacity as head of

group and the ultimate benefiary of this cash is the assessee. Therefore, the

AO was very much within his limits to consider these transactions as

unexplained income of the assessee. As regards enhancement made by the AO

towards payment made to M/s Kinjal Developers and M/s Purvi Estates, the

Ld.DR submitted that the above payments are clearly outside the amount of

declaration given by the group during the course of search and this fact has

been brought out by the AO during remand proceedings. The assessee could

not rebut the findings recorded by the AO, except stating that the transactions

were not pertaining to him. Therefore, the Ld.CIT(A) was right in enhancing the

income to that extent and his order should be upheld.

16 ITA 4019/Mum/2014

record and gone through the orders of authorities below. We have also

considered the document found and seized during the course of search.

Admittedly, the document has been found during the course of search

contained details of certain bills issued by M/s Rikhav Brokers Pvt Ltd Pvt Ltd to

M/s Sealand Ports Pvt Ltd and M/s Avash Logistics Park Pvt Ltd. In the said

document, M/s Rikhav Brokers Pvt Ltd Pvt Ltd have issued two bills, i.e. one in

the name of M/s Sealand Ports Pvt Ltd for Rs.42,83,772 and the other in the

name of M/s Avash Logistics Park Pvt Ltd for Ras.38,19,204. In the said

document, it was stated that pending account with SKS with a column

receivable. From the above document, the AO came to the conclusion that the

assessee has booked bogus expenditure in the hands of two companies and

received cash back from the parties for his personal use. This fact was further

strengthened by the statement of Shri Hitesh Lakhani and Shri Vasudev Thakkar

recorded during the course of search proceedings where they have accepted

that they involved in issuing accommodation bills to the group. Based on these

facts, the AO came to the conclusion that the assessee acted in a fiduciary

capacity as head of group and hence, the ultimate beneficiary of those

transactions is the assessee, therefore, held that the same represents

undisclosed income of the assessee for the relevant period.

17 ITA 4019/Mum/2014

M/s Rikhav Brokers Pvt Ltd has issued bills in the name of the assessee. Even

this is not the case of the lower authorities. Even the statement recorded from

the parties with whom the assessee transacted, only stated that they have not

transacted with the assessee. They all along, in their statements categorically

stated that they have issued bills in the name of M/s Sealand Ports Pvt Ltd.

Even the assessee has admitted taking bills in the name of above two

companies. The assessee has explained the reasons for taking bills. The

assessee also explained the treatement of said expenditure in the books of two

companies. According to the assessee, bills taken from M/s Rikhav Brokers Pvt

Ltd has been treated as work in progress in the books of M/s Sealand Ports Pvt

Ltd and M/s Avash Logistics Park Pvt Ltd. In fact, the AO has accepted the

above submissions of the assessee. The AO made addition in the hands of the

assessee only on the basis of document found in the possession of the assessee

and also on ground that the assessee is the ultimate beneficiary of the

transactions. If we examine the documents found during the course of search

alongwith statement given by the parties during investigation, it is very clear

that the above two bills obtained from M/s Rikhav Brokers Pvt Ltd Pvt Ltd has

nothing to do with the assessee. In the document found during the course of

search nowhere states that the assessee has received cash back from the

18 ITA 4019/Mum/2014

parties. Even in the statement recorded from the parties, nowhere it was

stated that the assessee was the beneficiary of cash returned by the parities.

Unless there is further evidence in the possession of the AO to come to the

conclusion that the assessee is the ultimate beneficiary of transactions entered

into by the above two companies with M/s Rikhav Brokers Pvt Ltd Pvt Ltd, no

addition could be made only on the basis of a piece of paper found during the

course of search, which neither stated that the assessee has received cash back

from the parties nor the parties have admitted that they have returned cash to

the assessee. When the document in the possession of the AO clearly proves

that the said document pertains to a company and contents therein are not

belonging to the assessee, at the best, the AO could have proceeded against

those companies, but not against the assessee. Therefore, we are of the

considered view that the addition made by the AO is nothing but on suspicion

which is not based on any evidence. The suspicion, whatsoever strong may be,

but it cannot lead to a conclusion that it leads to an evidence to make an

addition. The Ld.CIT(A), without appreciating the fact, has simply upheld

addition made by the AO only on the basis of circumstantial evidence coupled

with theory of human probabilities to confirm addition made by the AO.

Hence, we reverse the finding of Ld.CIT(A) and direct the AO to delete addition

19 ITA 4019/Mum/2014

made towards transactions with M/s Rikhav Brokers Pvt Ltd Pvt Ltd by two

companies in the hands of the assessee.

has enhanced income to the extent of Rs.4.90 crores on the basis of remand

report of the AO, where the AO stated that certain payments made to M/s

Purvi Estates and M/s Kinjal Developers are not included in the amount of

Rs.153 crore disclosure made by the assessee group towards booking bogus

expenditure. The Ld.CIT(A) has made addition of Rs.2 crores towards payment

made by M/s Sealand Ports Pvt Ltd to M/s Purvi Estates. The Ld.CIT(A) also

made addition of Rs.2.90 crores towards payment made by M/s Avashi

Logistics Park Pvt Ltd & M/s Kinjal Developers. According to the Ld.CIT(A), the

above two payments are not included in the list of payments considered by the

department. The Ld.CIT(A) has taken note of the remand report of the AO. In

turn, the AO has taken cognizance of statement of Shri Vasudev Thakkar

recorded u/s 131 by ADIT (Inv). The Ld.CIT(A) further observed that the

assessee is in the habit of obtaining accommodation bills so as to siphon off

money for his personal use. The conclusion drawn by the Ld.CIT(A) is based on

the statement recorded during the course of search from the parties.

Therefore, he opined that the above two payments also belonged to the

20 ITA 4019/Mum/2014

assessee and the assessee is the ultimate beneficiary of transactions with M/s

Purvi Estates and M/s Kinjal Developers.

CIT(A) are limited to the issue before him and also the subject matter of

deliberations during assessment proceedings including enhancement of

income, but such powers are confined only to the issue before him but not to

the new issues. The CIT(A) cannot introduce a new source of income to make

enhancement of assessment. The assessee further contended that the above

transactions between M/s Avashi Logistics Park Pvt Ltd with Kinal Developers

for Rs.2.90 crores and M/s Sealand Port Pvt Ltd with M/s Purvi Estates for Rs.2

crores is not belonging to him. The above payments are made from the bank

accounts of above two companies and accounted in the books of companies.

The assessee further contended that merely for the reason that certain

document is found during the course of search which was found in the

possession of the assessee, an adverse inference cannot be drawn about

undisclosed income unless there is strong evidence in the possession of the AO

which proves that it represents undisclosed income of the assessee. The

assessee has explained the above in the hands of M/s Avashi Logistics Park Pvt

Ltd and M/s Sealand Port Pvt Ltd and filed complete details to the AO during

assessment proceedings of those companies, where the AO has accepted the

21 ITA 4019/Mum/2014

payments. Further, the said payments of Rs.2.90 crores and rs.2 crores form

part of the total sum of Rs.153 crores already considered in all the assessments

completed u/s 143(3) r.w.s. 153A. Therefore, further addition made only on

the basis of remand report, where the AO has picked up certain payments from

the bank account of companies to argue that the above payments are not part

of the sum of Rs.153 crores disclosed during the course of search.

record, we find that the enhancement made by the Ld.CIT(A) is merely on the

basis of conjecture and surmises without any evidence, documents or

statement to prove that the said payments represent undisclosed income of

the assessee. The Ld.CIT(A) went on a wrong premise that whatever payment

made by companies is pertaining to the assessee and assessee is the

beneficiary of transactions between those companies and the parties involved

in providing entries. The primary issue whether the document found during

the course of search in the premises of the assessee really throws light on the

aspect of undisclosed income of the assessee or not has been dealt in detail in

the preceding paragraphs while discussing the addition made by the AO

towards payment made by two companies to M/s Rikhav Brokers Pvt Ltd Pvt

Ltd during the course of search which has neither stated that the assessee has

received cash back from the above parties nor the payments have been made

22 ITA 4019/Mum/2014

by the assessee from his bank account. When the said document does not

belong to the assessee and the contents recorded in the said document has

been considered in the books of above two companies, the addition cannot be

made in the hands of the assessee. Similarly, in respect of enhancement made

by the Ld.CIT(A), similar findings hold good. In this case, the Ld.CIT(A) went on

the wrong premises that whatever transactions between the companies and

the parties, the ultimate beneficiary is assessee because the assessee has acted

in a fiduciary capacity as head of the group, but such finding recorded by the

Ld.CIT(A) is not based on any evidences. Unless, the Ld.CIT(A) has brought

some more evidence to prove that the transactions between above two

companies and the parties really represent undisclosed income of the assessee,

merely on the basis of a piece of paper found during the course of search

coupled with statement recorded from the parties, addition cannot be

sustained in the hands of the assessee. Suspicion, however strong, may not

lead to a conclusion that the authorities have evidence against the assessee. In

this case, the enhancement made by the Ld.CIT(A) is nothing but an attempt to

infer against the assessee without there being any evidence that the

transactions between companies and the parties is in fact belonging to the

assessee and the assessee is an ultimate beneficiary of the said transaction.

This fact has been strengthened by the decision of Hon’ble jurisdictional High

23 ITA 4019/Mum/2014

Court in assessee’s own case for AY 2009-10 in Writ Petition No.3059 of 2015

where the AO sought to reopen the assessment on the basis of remand report

of the AO to tax certain payments pertaining to AY 2009-10. The assessee has

challenged re-assessment notice issued by the AO in writ jurisdiction. The

Hon’ble High Court while quashing re-assessment notice issued by the AO held

that the AO has arrived at a conclusion that income chargeable to tax had been

escaped assessment on the basis of cheques issued to Shri Vasudev Thakkar

and Shri Nishant Thakkar where, in turn, paid to the petitioner, in cash. The

Court further observed that this conclusion was arrived at without indicating

any basis for the same. In this case also, the CIT(A) has enhanced assessment

without there being any material to prove that payments made by M/s Avashi

Logistics Park Pvt Ltd to M/s Purvi Estates and payment made by M/s Sealand

Ports Pvt Ltd to M/s Kinjal Developers represent undisclosed income of the

assessee. Therefore, we are of the considered view that the Ld.CIT(A) was

erred in making enhancement of Rs.4.90 crores towards payment made by two

companies to Shri Vasudev Thakkar as undisclosed income of the assessee.

assessee. The Ld.AR for the assessee has advanced an alternative argument in

the light of decision of Hon’ble Supreme Court in the case of CIT vs Shapoorji

Pallonji Mistry (supra). We have considered the case law cited by the Ld.AR in

24 ITA 4019/Mum/2014

the light of facts of assessee’s case. The Hon’ble Supreme Court in the light of

provisions of section 251 of the Income-tax Act, 1961 corresponding to section

31(3) of the Income-tax Act, 1922 held that it would not be open to AAC to

introduce in assessing new source, as his power of enhancement is restricted

only to income which was subject matter of consideration for purpose of

assessment by ITO. This legal proposition is further strengthened by the

decision of Hon’ble Supreme Court in the case of CIT vs Rai Bahadur (1967) 66

ITR 443 (SC) where it was held that it is not open to the AAC to travel outside

the record, ie. the return made by the assessee or the assessment order of the

Income-tax Officer with a view to find out new source of income and the power

of enhancement u/s 31(3) of the Act is restricted to the source of income which

have been the subject matter of consideration by the Income-tax Officer from

the point of view of taxability. The Hon’ble Bombay High Court in the case of

Lokasatha Tolaram vs CIT (1986) 161 ITR 82(Bom) held that the powers of the

appellate authority is limited to the issue in question before him which was

subject matter of deliberations by the AO during assessment proceedings. The

Hon’ble Delhi High Court in the case of CIT vs Sardar Lal & Co (2001) 251 ITR

864 held that whenever question of taxability of income from a new source of

income is concerned, which had not been considered by the AO, jurisdiction to

deal with the same in appropriate cases may be to deal with sections 147 / 148

25 ITA 4019/Mum/2014

and 263, if requisite conditions are fulfilled and it is inconceivable that in

presence of such specific provisions, a power is available to first appellate

authority. The Hon’ble Rajasthan High Court in the case of CIT vs Associated

Garment Makers (1992) 197 ITR 350 held that a perusal of sections 246 to 251

of the Act makes it clear that any question arising out of the enhancement

orders in an appeal by the assessee can be possible and wide powers are given

to the appellate authority, but these powers are circumscribed by the

assessment order in the matters arising thereto or a matter arising out of the

proceedings. Even the appellate authority have suo moto power to consider

the question arising thereto but there is no provision to go beyond the matter

arising out of the proceedings before the assessing authority, more particularly,

as separate provisions for that are made in the Act. In this case, the CIT(A) has

enhanced the assessment by introducing a new source of income which was

not at all a subject matter of assessment by the AO. The CIT(A) has brought to

tax certain payments made by two companies to certain parties on the wrong

premises that the assessee is the ultimate beneficiary of the transactions

between the companies and the parties without there being any material to

prove that the assessee has received cash back from the parties for his

personal use. Therefore, we are of the considered view that the Ld.CIT(A) was

26 ITA 4019/Mum/2014

erred in enhancing the income of the assessee by Rs.4.90 crores. Hence, we

delete the enhancement made by the Ld.CIT(A).

Order pronounced in the open court on 01 -02-2019.

Sd/- sd/- (Pawan Singh) (G Manjunatha) JUDICIAL MEMBER ACCOUNTANT MEMBER

Mumbai, Dt : 01st February, 2019 Pk/- Copy to : 1. Appellant 2. Respondent 3. CIT(A) 4. CIT 5. DR /True copy/ By order

Asstt. Registrar, ITAT, Mumbai

27 ITA 4019/Mum/2014

Initial Date 1. Draft dictated on 28.01 Sr.PS 2. Draft placed before author 30.01 Sr.PS 3. Draft proposed & placed before the second member 4. Draft discussed/approved by Second Member. 5. Approved Draft comes to the Sr.PS/PS 6. Kept for pronouncement on 7. File sent to the Bench Clerk 8. Date on which file goes to the AR 9. Date on which file goes to the Head Clerk. 10. Date of dispatch of Order. 11. Draft dictation sheets are attached Sr.PS