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Income Tax Appellate Tribunal, DELHI BENCH ‘A’ NEW DLEHI
Before: SHRI G.D. AGRAWAL & SHRI K. NARASIMHA CHARY
ORDER PER NARASIMHA K. CHARY, JM Challenging the orders of the learned Commissioner of Income-tax (Appeals)-II, New Delhi (for short hereinafter called as “the learned CIT(A)’) in Appeal No.47/13-14 dated 08.07.2014, assessee preferred this appeal.
Assessee is an individual. He derives income from salary, house property, income from other sources and income from business in trading and chemicals in his proprietary concern M/s Samit International. For the Asstt. Year 2011-12, he has filed return of income on 30.9.2011 declaring an income of Rs.29,38,490/-. It was processed u/s 141 of the Income-tax Act, 1961 (“the ACT”).
Subsequently, on 11.7.2010, an action u/s 132 of the Act was conducted at the business and residential premises of the assessee. Various documents/books of accounts were found and seized. Statement of assessee was recorded u/s 132(4) of the Act. At that time, the assessee made the following declarations:
S.No. Item Amount (Res. 1 Cash 1,29,33,500 2 Unaccounted sales 2,60,00,000 3 Unaccounted advances receivable 2,44,00,000 4 Cash in locker 1,15,00,000 5 Jewellery in locker 2,55,00,000 4. Notices u/s 142(1) and 143(2) of the Act were issued. Assessee filed the return of income for the Asstt. Year 2011-12 including therein an amount of Rs.4 crores as additional income over and above the income filed in the returned income on 30.9.2011. Learned AO found that the assessee had failed to include the sum of Rs.2.44 crore as declared by the assessee at the time of search, basing on the jottings in the diary. On being questioned, assessee replied that the alleged declaration in the statement u/s 132(4) was retracted by him on 30.12.2010 vide letter addressed to the Director of Income-tax (Investigation). Learned AO did not accept the contention of the assessee that the alleged jottings in the diary have nothing to do with the present assessment year because such diary belong to the year 1998 and jottings indicate the outstanding balances as on 1.1.1998, as such, they cannot be brought to tax under law in the Asstt. Year 2011-12.
Learned AO rejected the contentions of the assessee that even otherwise, the entire sales of Rs.2.6 crores outside the books declared in the statement u/s 132(4) also cannot be totally brought to tax because it is only the profit element that constitutes the income and taxable but not the entire sales. Consequently, the learned AO rejected the alternative plea of the assessee that after reducing the profit element at 4%, which comes to Rs.10.40 lacs from out of Rs.2.6 crores deceleration, the resultant amount would accommodate the alleged outstanding balance to the tune of Rs.2.44 crores as on 1.1.1998 and on telescoping the same, nothing could be brought to tax over and over Rs.4 crores declared by the assessee.
Further, learned AO also did not grant the request of the assessee to adjust the seized cash of Rs.1,29,33,500/- against the advance tax liability for the Assessment Year 2011-12.
In the appeal preferred by the assessee, learned CIT(A), by way of impugned order returned a finding that the contention of the assessee that the outstanding balance as on 1.1.1998 basing on the entries of the diary of 1998 cannot be brought to tax is not acceptable because of the statement of the assessee in his statement u/s 132(4), which was sought to be retracted initially on the ground of coercion on the part of the authorized officer and subsequently, on the ground of mistaken understanding of fact or law. Learned CIT(A) also rejected the contention of the assessee that inasmuch as the learned AO accepted the retraction of the appellant relating to Rs.3.7 crore on account of cash and jewellery in locker, the retraction of confession in respect of Rs. 2.44 crores should also be accepted. Learned CIT(A) observed that when on opening of the locker cash and jewellery of Rs.3.7 crore was not found, such a retraction loses its significance and it cannot be a ground to compel the AO to accept the retractions of the appellant relating to Rs.2.44 crores also.
Learned CIT(A) also refused to accept the alternate plea of the assessee to telescope Rs.2.44 crore out of Rs.2.6 crore attributable to the sales after reducing it by the profit element at 4% i.e. Rs.10.40 lacs. Ld. CIT(A) observed that Rs.2.44 crore represent the advances that were receivable from various parties whereas Rs.2.60 crore was the unaccounted sales turnover, as such, they are not telescopable.
Basing on the decision of the Hon’ble Allahabad High Court in the case of Hemant Kumar Sindhi vs CIT, 45 Taxmann.com 103 (Allahabad), learned CIT(A) observed that Section 132B deals with the application of seized and requisitioned assets. Clause (i) of sub section (1) of Section 132B of the Act refers to the application of seized assets towards the amount of any existing liability and the amount of the liability determined and in view of the clarification issued by way of Explanation 2 to Section 132B of the Act by the Finance Act, 2013, the existing liability does not include advance tax payable in accordance with the provisions of Part C of Chapter XVII. On this premise, learned CIT(A) turned down all the grounds of appeal preferred by the assessee and dismissed the same refusing to interfere with the assessment order.
10. The assessee is, therefore, before us now in this appeal challenging the addition and upholding thereof in respect of Rs.2.44 crore, and not accepting the retraction made by the assessee immediately after opening the locker of the assessee, and the alternate plea of the assessee to telescope Rs.2.44 crores into the surrendered amount of Rs.2.6 crore on the ground that the entire sales cannot be brought to tax but only the profit element alone could be the income therefrom. Assessee also challenged the non adjustment of the seized cash from the advance tax.
11. It is the argument of the learned AR that in so far as the addition of Rs.22 crore is concerned, it is based on the declaration made by the assessee in his statement recorded u/s 132(4) of the Act which the assessee rightly retracted on the ground of mistaken understanding of the fact or law. It is submitted that the entries on the diary of which this amount of Rs.2.44 crore is calculated belongs to the year 1998 and has nothing to do with the Asstt. Year 2011-12. Learned AR brought to our notice that the entries in the said diary relating to the dates 3rd January to 31st January show the expenditure relating to the petrol, lunch, cash repair, cinema tickets, cost of pens and stationery etc., and if we have a look at the quantum of expenditure unmistakably establishes that those were the expenses relating to the year 1998 only but not certainly to 2011-12 because of the prices of the items involved therein. Basing on this, he submitted that when these entries relating to the sundry expenses establish that the entries of the diary are made in the normal and regular course of business in the year 1998, it is not open for the authorities below to accept such entries and to reject the entries noted on the leaf relating to 1st January 1998.
12. On this aspect he further argued that a document has to be accepted or rejected in toto but accepting a part of it and rejecting the remaining is bad in law. He placed reliance on the decisions reported in the case of (i) ITO vs Alok Mangal, 35 CCH 58 (Del); (ii) Vivek Kumar Kathoria vs DCIT ; (iii) ACIT vs Vatika Greenfield (P) Ltd., 121 TTJ 208 (Del); and (iv) Balmukund Acharya vs DCIT, 310 ITR 310 (Bom). On the basis of this he argued that even if surrender was made at the time of search, the fact remains that the addition cannot be made in the Asstt. Year 2011-12, basing on the entries in the diary relating to the year 1998, because year of taxability or the taxability as such is not dependent upon the surrender made by the assessee but it depends upon the evidence found by the authorities. He stresses this point basing on the fact that the learned AO accepted the retraction of the declaration relating to Rs.2.3 crores on account of the cash and jewellery in the locker, after the lockers are opened and cash and jewellery to that extent were not found therein. He, therefore, submits that in these circumstances, the declaration is not sacrosanct or not retractable and on the other hand, the acceptance of the retraction on account of Rs.3.7 crore lends any amount of support to the contention that the assessee was made to declare Rs.2.44 crore also basing on the relevant documents.
Learned DR placed reliance on the orders of the authorities below. He further submitted that here the declaration of Rs.2.44 crore by the assessee in his statement u/s 132(4) is coupled with the fact that the corresponding entries are to be found in the alleged diary. When the diary belongs to the year 1999, if an entry relating to the earlier year is found, such an entry falsifies the transaction but there is no improbability of making use of a diary of earlier years for jotting down some transactions of the later years. He further argued that there is a presumption under law under section 292C of the Act in favour of the correctness of the entries.
Further, the initial ground of retraction by the assessee was that the authorized officer coerced the assessee whereas after 1½ years the assessee had taken the plea of mistaken understanding of fact or law. There is no possibility of any mistaken understanding, because looking at the diary dates the assessee could have plainly explained that such an entry does not belong to this year and they are of the year 1998 itself. At no point of time earlier to 31.12.2010, the assessee disputed the correctness of the declarations made in his statement u/s 132(4) of the Act. It is only on the advice that the assessee retracted the declaration, which is not acceptable and it does not fit in the statement recorded u/s 132(4) of the Act.
We have carefully gone through the record. The entries on the leaf relating to 1.1.1998 in the diary are of a different nature from the remaining entries. There is no dispute that the entries in the remaining leaves made in the ordinary and regular course of business and the prices relating to the expenses are co- related and corroborates the contentions of the assessee. The question is whether the entries shown on the page relating to 1.1.1998 were also made in the ordinary and regular course of business. A bare reading of such entries does not inspire the confidence in our mind to believe so. The decisions relied upon by the assessee that a document has to be accepted or rejected in toto and partial acceptance is bad under law has no application to the facts of the present case because the entire diary does not constitute one document inasmuch as the entries relating to 1.1.1998 stand apart from the other entries and for a different document. When it is mentioned over the disputed entries that the amount is in lacs, the names of the outstanding period, there is no material to show particular year of such entries.
As rightly pointed by the learned DR, when a document is found in the possession of the assessee, its ownership is not in dispute and the assessee makes a declaration in the statement under section 132(4) of the Act basing on such entries. When initially the assessee declared this amount and subsequently, desires to retract the same, it is for the assessee to explain the contrary, if any.
Learned CIT(A) rightly relied on the decisions reported in the case of Aanisa Batool Gilani vs ACIT (2008) 21 SOT 323 (Delhi) wherein the Hon’ble Bench examined the ratio of the decisions in Pullan Gode Rubber Produce Co. Ltd. vs State of Kerala (1973) 91 ITR 18 (SC); ACIT vs Ramesh Chandra R. Patel, 361 ITAT (Adh); Surjeet Singh Chhabra AIT 1997 SC 2560; Dr. S.C. Gupta vs CIT (2001) 248 ITR 782 (All) and Greenview Restaurant vs ACIT (2003) 263 ITR 169 (Gauhati) and held that the assessee must give justifiable reason and material for the retraction to be acceptable and also give cogent material to show that the admission made in the statement was under pressure or coercion and was not voluntary.
When viewed from the ratio of this decision, the retraction of the declaration initially after more than 1 ½ month on the ground of coercion and subsequently, after 1 ½ year on the ground of mistaken understanding of fact or law, do not appear to be justifiable. In the peculiarity of the circumstances, the burden is on the assessee to show that the entries in the alleged diary do not belong to the Asstt. Year 2011-12 by producing cogent evidence to show they relate to the year 1998-99. Revenue cannot be expected to prove that these entries relate to Asstt. Year 2011-12 because of the nature of the entries, which are in the personal knowledge of the assessee. It is always open for the assessee to produce relevant material to show that these entries relate to the Asstt. Year 1998-99 not for 2011-12, in the absence of which we find it difficult to accept the bald denial made by the assessee. We, therefore, are of the considered opinion that the findings of the authorities below on this aspect, do not suffer any illegality or irregularity and they have to be confirmed. We, therefore, dismiss Ground Nos. 1 to 3.
Now coming to Ground No.4, it is not in dispute that the declaration of Rs.2.6 crore by the assessee u/s 132(4) of the Act was on account of sales outside the books. Both the authorities below did not dispute this fact. When the sales are to the tune of Rs.2.6 crore, we find it difficult to understand as to how the entire sales could be brought to tax. It is also an admitted fact that in respect of this assessment year, the GP rate of the assessee’s business of trading in chemicals in the name and style of M/s Samit International at 3.74% was accepted by the AO while passing the assessment order. It is, therefore, quite reasonable to apply the same GP rate on the unaccounted sales of Rs.2.6 crores also which comes to Rs.10.40 lacs. After reducing the seized cash of about Rs.1.30 crores, there remains the balance of Rs.2.7 crores out of the surrendered amount along with the return of income filed on 11.1.2013. Out of this Rs.2.7 crores if the income to the tune of Rs.10.40 lacs is adjusted, still their remains Rs.2.49 crore out of which the alleged outstanding balance to be found from the diary of Rs.2.44 crore could be adjusted. After this, there remains no amount to be brought to tax.
The reasons given by the authorities below that these two amounts are surrendered separately, as such, they cannot be telescoped against each other is not sound and cannot be accepted. These two transactions have an intrinsic link as submitted by the learned AR that it is only out of the sale amount the receivable from the persons listed on the leaf relating to 1.1.1998 arise. We accept the same and direct the authorities to telescope Rs.2.44 crores into Rs.2.60 crores in which event nothing over and above the declaration of Rs.4 crore is taxable. We accordingly answer Ground No.4 in favour of the assessee.
Now turning to the 5th ground relating to the adjustment of the seized 20. amount against the advance tax liability, reliance is placed by the assessee on the decision reported in the case of Nikka Mal Babu Ram, 41 SPT 407 (Chd); Mahabir Prasad Gupta (Delhi Bench) and Kanishka Prints P. Ltd., 143 ITD 716 (Ahd). In the case of Kanishka Prints P. Ltd., the Ahmedabad Bench of the Tribunal held as follows: "11. We have heard that the rival submissions and perused the material on record. It is an undisputed fact that during the course of search at the residence of directors on 8.2.2007 and locker on 7.3.2007 aggregate cash of Rs.43 lacs was seized. It is also an undisputed fact that Assessee vide his letter dated 13.3.2007 submitted that out of the cash seized, Rs 10 lacs be treated towards payment of advance tax in the case of assessee and similarly balance of Rs. 33 lacs be treated towards payment of advance tax in case of family members/group companies. It is also a fact that vide aforesaid letter, the Assessee had requested that cash of Rs 8 lacs be considered as advance tax in the case of Shreeji Prints P. Ltd. The co- ordinate Bench of Tribunal in the case of Shreeji Prints (ITA No 359/Ahd/2012 - order dated 20.4.2012) decided in favour of Assessee by holding as under: It is evident from a bare reading of the aforesaid provisions that the existing liability under the Income-tax can be discharged from the assets or money seized. In the present case, the search operation was conducted on 22-9-2005 and the assessee filed return on 31-5-2006 declaring the seized money as income. In our opinion, if the assessee has declared income, during the year under consideration in that eventuality he is liable to pay advance tax as per law therefore the A.O. is required to find out whether such liability was existing on the date of seizure. If such liability is existing then he is empowered to apply/adjust the money seized in discharge of the existing liability even without any written representation from the assessee. Now coming to the fact of the present case, it is not disputed that the money seized from the premises of Shri Lalit Patel and same was subsequently declared in the return of income filed on 31-5-2006. Hence, it can very well be inferred from the return so filed that the respondent/assessee was required to pay advance tax on such income as mandated u/s.208 of the I.T.Act. Therefore, in view of the fact that there is no ambiguity in the provision so far application/adjustment of the seized money is concerned. Further, the judgments as relied upon by the Ld. D.R. would not apply on the facts and circumstances of the present case since this is not a case where application u/s.132(5) is made. Moreover, Section 132(5) is no more on statue book, even otherwise there is divergence in opinion between the Hon'ble High Court of Madhya Pradesh and Hon'ble Delhi High Court as fairly pointed by the Ld.D.R. The order of the ITAT Delhi Bench in as relied by the Ld. D.R. is on different set of facts therefore, is not applicable on the facts of the present case. The issue whether the seized money should be applied towards advance tax liability of assessee and credit should be given credit there-from the date of seizure of money has been decided in favour of the assessee by the decision of ITAT Rajkot Bench in ITA No. 172/RJT/2010 in the case of Shri Ram S. Sarada V. DCIT and the decision of ITAT Mumbai Bench in the case of Sudhakar M. Shetty v. ACIT in ITA No.4238 & 4239/MUM/2007. Respectfully following the ratio laid therein we do not find any infirmity into the impugned order."
Before us, Ld. D.R. has relied on the amendment made to s. 132A vide Finance Bill of 2013, We find that the amendment has been made by insertion of Explanation and the Explanation has been made applicable with effect from 1st June, 2013,. For ready reference, the amendment made by Finance Bill 2013 and the memorandum is reproduced hereunder:- 13. The amendment made by Finance Bill 2013 reads asunder:- Amendment of section 132B.
In section 132B of the Income-tax Act, the Explanation shall be numbered as explanation 1 thereof and after explanation 1 as so numbered the following explanation shall be inserted with effect from the 1st day of June, 2013, (emphasis supplied) namely:- Explanation 2.- For the removal of doubts it is hereby declared that the "existing liability" does not include advance tax payable in accordance with the provisions of Par C of Chapter XVII." The explanatory memorandum to the Finance Bill reads as under:- The existing provisions contained in section 132B of the Income-tax Act, inter alia, provide that seized assets may be adjusted against any existing liability under the Income Tax Act. Wealth tax Act, the Expenditure-tax Act, the Gift- tax Act and the Interest tax Act and the amount of liability determined on completion of assessments pursuant to search, including penalty levied or interest payable and in respect of which such person is in default or deemed to be in default. Various courts have taken a view that the term "existing liability" includes advance tax liability of the assessee, which is not in consonance with the intention
of the legislature. The legislative intent behind this provision is to ensure the recovery of outstanding tax/interest/penalty and also to provide for recovery of taxes/ interest /penalty, which may arise subsequent to the assessment pursuant to search. Accordingly, it is proposed to amend the aforesaid section so as to clarify that the existing liability does not include advance tax payable in accordance with the provisions of Part C of Chapter XVII of the Act. This amendment will take effect from 1st June, 2013. (emphasis supplied) 21. The decision in the case of Kanishka Prints P. Ltd (supra) is applicable to the facts of the case. While respectfully following the same, we direct the AO to allow the credit for the cash seized towards the advance tax payable by the assessee on the date of seized viz. 11.11.2010 as requested by the assessee.
In the result, appeal of the assessee is allowed.
Order pronounced in the Open Court on 28th June, 2018.