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Income Tax Appellate Tribunal, “A” BENCH, PUNE
Before: SHRI D. KARUNAKARA RAO, AM & SHRI VIKAS AWASTHY, JM
आदेश / ORDER
PER VIKAS AWASTHY, JM :
This appeal by the assessee is directed against the order of Commissioner of Income Tax (Appeals), Aurangabad dated 25-02-2011 for the assessment year 2006-07. The solitary issue raised by the assessee in appeal is against addition of Rs.76,00,000/- on the basis of cheques found during survey.
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The brief facts of the case as emanating from records are : A search u/s. 132 of the Income Tax Act, 1961 (hereinafter referred to as “the Act”) was conducted on the Rudranee Group of Aurangabad on 02-02-2006. During search promissory note written by one of the partner of Rudranee Group in favour of assessee was found. Consequently, a survey u/s. 133A of the Act was conducted at the residential-cum-business premises of the assessee at Jalna. Several chequs (9 numbers) aggregating to Rs.76,00,000/- were found during survey. The Assessing Officer concluded that the assessee is engaged in unauthorized and illegal money lending business. The Assessing Officer inter-alia made addition of the aforesaid amount on account of undisclosed income.
Aggrieved by the assessment order dated 31-12-2007, the assessee filed appeal before Commissioner of Income Tax (Appeals). The Commissioner of Income Tax (Appeals) rejected the explanation furnished by the assessee and confirmed the addition. Now, the assessee is in second appeal before the Tribunal assailing the findings of Commissioner of Income Tax (Appeals) by raising following grounds : “1. The learned CIT(A)-Aurangabad erred in law and on facts in confirming addition of Rs.76,00,000; made by the learned AO on the basis of cheques found during the survey u/s 133A, without appreciating that no any loans / advances were given by the appellant against the said cheques and that no any Hundi papers were found as regards these cheques. The addition of Rs.76,00,000 is arbitrary, excessive and based on mere suspicion. 2. The learned CIT(A)-Aurangabad erred in estimating an amount of Rs.14,85,000 as alleged undisclosed interest on capital employed in the business. The addition is arbitrary, excessive and unjustified. 3. Appellant craves leave to add / modify / alter / delete all/any grounds of appeal.”
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Shri Kishor Phadke appearing on behalf of the assessee assailing the findings of Commissioner of Income Tax (Appeals) has furnished written submissions and the list of dates and events. The relevant extract of the same are reproduced here-in-below : “2. Modus Operandi not considered by AO in right perspective Appellant has been engaged in money lending business. Appellant advances money to parties on the basis of Hundies / Promissory Notes and as a surety, cheques are taken. Whereas, alleged loans of Rs.76 lakhs (subject matter of present appeal) are instances wherein only cheques are found and no corresponding HUNDI is found. Appellant has submitted copies of documents impounded during survey relating to a completed / executed loan transaction at Page- 137 to 140 of the PB-V. If documents of a completed / executed loan transaction are compared with the documents relating to alleged transactions of Rs.76 lacs, following issues emerge.
Particulars Observations from Observations in alleged six executed loan loan transactions transaction Date of transaction on Same date of Out of the alleged six loan Hundi and Cheque transaction is found transactions of Rs.76 lacs on Hundi and Cheque having 9 cheques, date is mentioned only on 1 cheque amounting to Rs.10 lacs. Name of the lender Specific mention of Out of the alleged six loan (appellant) appellant’s name on transactions of Rs.76 lacs Cheques. having 9 cheques, name is mentioned only on 4 cheques amounting to Rs.16 lacs. Crossing of Cheques The cheques are duly Out of the alleged six loan crossed. transactions of Rs.76 lacs having 9 cheques, only on 5 cheques amounting to Rs.39 lacs are crossed.
It is the submission of the appellant that, unless a Hundi is available and unless, date is mentioned on the cheque, name of appellant is stated on the cheque and crossing is made, the loan transaction does not comes into life. Now, in all cases of alleged loan transactions of Rs. 76 lacs, number of steps were incomplete as stated above. As such, it was incorrect on part of AO to tax the alleged transactions of Rs. 76 lacs without considering the peculiar Modus Operandi.
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Errors in quantum of "declaration" made during Survey Statements:
As per the survey statements, appellant has declared undisclosed income of Rs.2.51 Crs. Subsequently, appellant realized the errors in the said declaration and accordingly ROI was filed by rectifying the following errors –
a) Entries counted twice :During the course of survey proceedings, declaration was made on the basis of documents impounded, which included cheques, Hundies, promissory notes, etc. Summation of the documents was carried out an, declaration was made. Later on, errors of duplication / double were realized wherein, HUNDI was considered as a loan transaction and related security cheque was also counted as loans transaction. In reality, both these are parts of the said loan transaction. As such, entries amounting to Rs. 43 Lakhs, which were doubly counted as loans, were reduced from declaration quantum, and the return of income was filed accordingly. The same was accepted by the learned AO.
b) Source explained : Source for advances amounting to Rs.40 Lakhs was explained and accordingly, declaration quantum was reduced while filing return of income. This reduction was accepted by the learned AO.
c) Advance given in subsequent year : Advance amounting to Rs.3 lakhs was given in subsequent year as per HUNDI found and was accordingly reduced while filing ROI. The same was accepted by the learned AO. As such, it transpires, that the declaration made during the survey was not full-proof. In fact, the same consisted of many errors.
Affidavits of parties confirming non-receipt of loan
During the scrutiny proceeding, appellant has filed duly notarized affidavit of Mr. Lalit Zambad, Mr. Deepak Bharuka, Mr. Deepak Bharuka (HUF) and Mr. Rameshwer Shete. Total of alleged transactions covered by the above referred Affidavits is Rs.70 lacs (out of total alleged transactions of Rs. 76 lacs). All the parties, in their respective affidavits, have confirmed that these parties had not availed loan from the appellant, though cheques were handed over to the appellant in anticipation of loan. The affirmation by sworn notarized affidavit ought to be considered in proper perspective.
Incorrect assumption of renewal of loan based on backside entries on cheques
Learned AO and earned CIT(A) have observed that some dates were mentioned on the back side of the four (4) cheques given by Mr.
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Deepak Bharuka. Tabulation of these dates is available in the learned CIT(A) order at Para-8 of Page-8. Based on these dates and the time intervals between the different dates, it was inferred that the said dates are dates of payment of interest [refer Para-8, Page-9 of learned CITA(A) order]. The last date, out of the dates on the reverse side, was as follows.
- Chq No. 713758 Last date 17/06/2006 - Chq No. 713757 Last date 09/07/2006 - Chq No. 853697 Last date 11/02/2006 - Chq No. 853698 Last date 11/02/2006
As the survey was carried out on 02/02/2006, the last analogy that the date on the reverse side of the cheque represents date of payment of interest is incorrect.
Statement u/s 131 wherein parties confirmed non-receipt of loan
During the scrutiny proceeding, statements of following persons were recorded u/s 131 of the ITA, 1961.
- Mr. Lalit Zambad - Mr. Deepak Bharuka - Mr. Rameshwer Shete. All the parties in their respective statements had confirmed that no loan was obtained from the appellant.
Reconfirmation of non grant of loan in cross examination before AO:
Appellant cross examined the parties before the learned AO regarding the alleged loan transactions. All the parties whose statements were recorded u/s 131 of the ITA, 1961 reconfirmed the fact that no loan was obtained from the appellant.
Deletion of Penalty in the case of Mr. Rameshwer Shete by Honorable ITAT:
The Honorable ITAT, Pune Bench has deleted the penalty v/s 271D & 271E of the ITA, 1961 in the case of Mr. Rameshwar Shete - ITA No. 2Ql-2Q2/PN/2012 (Copy, attached at Page No. 115 of PB-II). In the said decision, the Honorable Bench has noticed that Department has not brought anything on record to establish that Mr. Shete has received loan from Mr. Mutha (appellant). It is worthwhile to note that during the assessment proceeding of the appellant, Mr. Rameshwar Shete had filed notarized affidavit as to non receipt of the loan and statement of Mr. Shete was also recorded by the learned AO, wherein Mr. Shete reiterated that no loan was obtained for the appellant.
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However, the learned AO & the learned CIT(A) proceeded to presume that loan was advanced to the parties by the appellant.
Belief of appellant as regards non initiation of penalty u/s 2710 & 271E in case of other parties :
Appellant believes that no any penalty proceeding u/s 271D & 271E of the ITA, 1961 have been initiated in the case of parties other than Mr. Shete. Appellant has also filed letter requesting to the learned AO to share the information regarding initiation of penalty (if any) in case of other parties. Copy of the said letter is attached herewith and is marked as Annexure 1. 10. Declaration during Survey is not binding :
Appellant submits that the statement recorded during the course of survey is not binding. Appellant in this regards is placing reliance on following judicial pronouncements: a) CIT Vs. S. Khader Khan Son - 254 CTR 288 (SC) b) CIT Vs. S. Khader Khan Son - 300 ITR 157 (Madras) c) Jyotichand Bhaichand Saraf & Sons Pvt. Ltd. Vs. DCIT -154 TTJ 226 (Pune).”
3.1 The assessee has supplemented his written submissions by filing another set of note and the same reads as under : “1. Modus operandi of business: Appellant is engaged in the business of money lending. The modus operandi of the appellant's business is that, money is advanced to parties on the basis of Hundies / Promissory Notes and as a surety, cheques are taken. Survey proceeding u/s 133A of the ITA, 1961 was conducted on the appellant on 02/02/2006 during which, the said business modus operandi was clearly observed, questioned and deliberated. 2. Declarations during Survey:
During the course of Survey Proceeding certain documents viz. cheques, hundies, etc. were seized. Statements of the appellant were recorded on 02/02/2006 and 03/02/2006. In the said statement, appellant made total disclosures of Rs.2.51 Crs. (Copy of statements placed at Page No. 1 to 170/ Paper Book-I).
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Filing of return of income:
While filing the return of income, appellant realized that certain errors crept in while making the disclosure. Accordingly appellant explained the same to the learned AD and filed return of income by correcting the mistakes. Summary of the same is as follows:
Declaration during survey Rs.2.51 Cr Less : Double counting Rs.0.43 Cr. (accepted by AO) Less : Chqs found but no loans Rs.0.76 Cr. (not accepted by AO) Less : Advance given in AY 07-08 Rs.0.03 Cr. (accepted by AO) Less : Sources explained Rs.0.40 Cr. (accepted by AO) Less : Bad-debts of NCCF Rs.0.03 Cr. (accepted by AO) ---------------- Sub-total Rs.0.80 Cr. Other income, etc. Rs.0.06 Cr. ------------------ Returned income Rs.0.86 Cr. 4. Addition of Rs.76 made by the learned AO :
During the course of survey proceedings certain cheques amounting to Rs. 76 Lakhs were found. While filing the return of income, appellant excluded the same as no actual loans were advanced and no corresponding HUNDI was found. It was explained that as per the modus operandi of appellant's business money is advanced to parties on the basis of Hundies / Promissory Notes and as a surety, cheques are taken. In this regard, appellant filed affidavit of the persons whose cheques were found viz. Mr. Lalit Zambad, Mr. Deepak Bharuka, Mr. Deepak Bharuka (HUF) and Mr. Rameshwer Shete. (Copy of affidavit placed at Page No. 18 to 22 of Paper Book-l}, All the persons, in their respective affidavits, have confirmed that these persons had not availed loan from the appellant, though cheques were handed over to the appellant in anticipation of loan. Further the learned AO also recorded statement u/s 131 of the ITA, 1961; of most of these persons and in the said statements all the persons confirmed that no loan was advanced to them by the appellant. Appellant also cross examined these persons before the learned AO regarding the alleged loan transactions and it was reconfirmed that no loan was obtained from the appellant (Copy of statement placed at Page No. 23 to 49 of Paper Book-I). However the learned AO proceeded to make the addition on the basis of statement recorded and noting on back side of some of the cheques. 5. Proceeding before the learned CIT(A):
The learned CIT(A) upheld the addition made by the learned AO. One of the reason stated by the learned CIT(A) was that a list of 17 borrowers was made by appellant which was recorded on the backside of impounded Page-42. Out of 17 borrowers, 3 persons name was present whose cheques were found viz. Mr. Deepak
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Bharuka, Mr. Ravindra Kumar Gupta and Mr. S. G. Shete. 6. Submission as regards "backside of Paper No. 42";
a) During Survey Proceeding:
During the survey proceeding, a list of 17 borrowers was found on backside of Page-42. In the statement recorded on 02/02/2006, appellant was asked regarding noting on backside of Page-42 at Question No. 2S (Refer Page No. 6 of Paper Book-I). The said questioned is translated as under for sake of easy referencing.
Q. No. 25 Recognize the transactions which are written behind Page No. 427
Answer These transactions are in my hand writing. This is the List of Money to be received. Money which is not received, names are not crossed and Money which is returned that names are crossed(x). Page No 43 describes the list of my job work transactions for goods which I sold received from N.C.C.F. (National Consumer Co-operative Federation). Rice which is received from Government in bulk is packed in each of 3 kg packet and supplied further. Page No. 45, relates to Job work and contains weights of goods supplied in Kilograms. Page No 46 relates to Amount which is supposed to be received from the· party, this indicates rate of interest. Page No. 48 describes expenses of M/s. Raj Rerolling. These are transaction of 1997 and accounted for in the books.
b) During Assessment Proceeding:
On perusal of the assessment order, it transpires, there is no any mention of noting on the backside of Page-42. No effective opportunity was granted to appellant to explain contents of Page-42 during scrutiny proceeding.
c) During 1st Appellate Proceeding:
During the 1st Appellate Proceeding, the learned CIT(A) sought for Remand Report from the learned AO. The learned AO, in his Remand Report dated 04/08/2010, at Para-3 mentioned about noting on the backside of the impounded Page-42 (Refer Page No. 75 of Paper Book-l}, However, appellant did not receive any such enclosure (Le. backside of Page-42) along with Remand Report. It transpires, reference to the said noting on the back-side of Page-42 was made for the first time, only during the Remand Report Proceeding. Further, learned CIT(A) heavily relied on the said back-side entries of Page-42 while concluding the matter. But the said entries on backside of
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Page-42 were not put to the appellant and no any explanations were sought for on the same. 7. Letter to AO for copy of Page-42: Appellant on 31/05/2017, requested the learned AO to extend the copy of backside of Page-42 (Copy of letter filed placed at Page No. 141 of Paper Book-VI). Appellant's consultant in Jalna received the copy of backside of Page-42 only in the month of June 17 (Copy of backside of Page-42 placed at Page No. 142 of Paper Book- VI). As such, it transpires till that stage the said paper (Le. backside of Page-42) was not extended to the appellant.
Affidavit filed by appellant:
Appellant filed specific affidavit explaining the facts that Page-42 was not received prior to June 17 (Copy of affidavit placed at Page No. 143 to 146 of Paper Book-VII).
Prayer:
Considering the above background, appellant, keeping his various grounds intact, requests the Honorable Bench to set aside the matter to the learned AO.”
On the other hand Shri Rajeev Kumar representing the Department vehemently defended the order of Commissioner of Income Tax (Appeals). The ld. DR submitted that during survey action several loose papers, cheques, hundis etc. were found and seized. The list of persons to whom the assessee had lended money was seized. The seized loose sheet is page marked as “page 42”. However, the list of persons is not exhaustive.
We have heard the submissions made by representatives of rival sides and have perused the orders of authorities below. The assessee in appeal has assailed addition of Rs.76,00,000/- on the basis of cheques found during survey action. The assessee is engaged in money lending business. During survey at the premises of assessee 9 cheques aggregating to Rs.76,00,000/- as per the details given below were found :
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Deepak Bharuka Rs.15,00,000 Cheque No.8536698 SBH, Aurangabad Mrs. M.R. Gupta Rs.2,00,000 Cheque No.0177929 SBI, Jalna Deepak Bharuka Rs.10,00,000 Cheque No.853697 SBH, Aurangabad Deepak Bharuka HUF Rs.10,00,000 Cheque No.763757 SBH, Aurangabad Deepak Bharuka HUF Rs.15,00,000 Cheque No.763758 SBH, Aurangabad Om Agro Services Rs.10,00,000 Cheque No.557498 Aurangabad-Jalna Gramin Bank Vishal Vaibhav Distributors Rs.2,00,000 Cheque No.048093 Deogiri Bank Lalit Mansukh Zambad Rs.10,00,000 Cheque No.077660 Ajanta Urban Coop Bank Mrs. M.R. Gupta Rs.2,00,000 Cheque No.0177930 Total Rs.76,00,000
As per the Revenue the assessee had advanced loans to the persons issuing the cheque. The modus operandi of the business as per assessee is that money is advanced to the parties on the basis of hundis/promissory notes and as a security cheques are taken. However, no corresponding promissory notes or hundis from the above mentioned six persons issuing cheques were recovered. The assessee has filed affidavits from all the persons whose cheques were found admitting that no loan was taken by them from the assessee. The aforesaid persons also appeared before the Assessing Officer and their statements were recorded. All of them corroborated with the submissions of assessee and stood fast to the affirmations made in the affidavits filed. The Department has disbelieved the statement and affidavits of all the above persons.
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One of the person whose cheque was found during survey action is Shete Rameshwar Ganpatro Prop. Om Agro Services, Jalna. The Department in his case levied penalty u/s. 271D and 271E for taking cash loans from the assessee. The Assessing Officer in his case brushed aside his affidavit and his statement recorded in the assessment proceedings of the present assessee. In First Appellate proceedings the Commissioner of Income Tax (Appeals) took cognizance of the affidavit and his statement and deleted the penalty levied u/s. 271D and 271E of the Act. The Department carried the issue in appeal before the Tribunal in ITA Nos. 201 & 202/PN/2012 for assessment year 2005-06. The Tribunal vide order dated 20-06-2013 confirmed the findings of Commissioner of Income Tax (Appeals) by holding as under : “9. As per the Revenue, Shir K.N. Mutha was engaged in financing cash loans by way of hundies/promissory notes, etc. and as a security he would keep signed cheques from the borrowers against the amount advanced in cash. The cheque amounting to Rs.10,00,000/- issued by the assessee, which was found in possession of Shri K.N. Mutha lead to be inference by the Revenue that assessee would have received a loan of Rs.10,00,000/- in contravention of Section 269SS of the Act. In the present case, before the penal provisions are trigged, it is to be established on the basis of concrete evidence that assessee had indeed received the alleged loan of Rs.10,00,000/- in cash from Shri K.N. Mutha. The assessee denied having received any loan from Shri K.N. Mutha. Such denial was made during the course of statement recorded on 07.12.2007 by the ACIT, Central Circle, Aurngabad in the presence of Shri K.N. Mutha. Assessee also furnished an affidavit in the proceedings of Shri K.N. Mutha confirming that he has not received any such loan from Shri K.N. Mutha. Assessee also submitted that the said cheque dated 11.03.2005, though signed by him, was blank and was certainly not in favour of Shri K.N. Mutha. It is also notable that no hundi or any other promissory notes evidencing giving of loan by Shri K.N. Mutha to assessee has been found by the Revenue. Notably, assessee canvassed that his denial of having received the alleged loan from Shri K.N. Mutha was in his presence and the same was not contradicted by Shir K.N. Mutha. 10. All the aforesaid points, brought out by the assessee and accepted by the CIT(A), have not been proved false by the Revenue at any stage. Therefore, in our view, the CIT(A) made no mistake in holding that the Revenue has not established beyond doubt that assessee had in-fact received any loan of Rs.10,00,000/- from Shri K.N. Mutha. The aforesaid inference of the CIT(A),
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having regard to the facts and circumstances of the case and material on record, is justified. Accordingly, the action of the CIT(A) in deleting the penalty levied under Section 271D of the Act for alleged contravention of Section 269SS of the Act is hereby affirmed.”
Once the affidavit and statement of Shri Shete Rameshwar Ganpatrao has been accepted the same affidavit and statement cannot be disbelieved in the case of person who has allegedly advanced cash loan.
We further find that on all the cheques allegedly received as security there is no mention of date, except the cheque issued by Shri Lalit Zambad. The cheque issued by him bears the date 07-06-2006 i.e. period relevant to the assessment year 2007-08. As per the Negotiable Instrument Act, 1881 (as was applicable during the relevant period) validity of cheque was six months from the date mentioned thereon. Hence, the said cheque had become invalid and could not have been encashed by the assessee in the period relevant to the assessment year under appeal. On some of the cheques even the name of assessee is not mentioned. The additions have been made merely on the initial statement of the assessee without there being any corroborative material. There is no material on record to show that the assessee has extended loan to the parties i.e. Shri Deepak Bharukha, Shri Deepak Bharukha (HUF), Shri Lalit Zambad, Shri Rameshwar Shete, Shri M.R. Gupta and Shri Vishal Vaibhav Distributors whose cheques were recovered during survey. The above said persons have supported the statement of assessee. In the absence of any cogent material on record, we find no reason to uphold the addition of Rs.76,00,000/-. Accordingly, ground No. 1 raised in the appeal is allowed.
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In so far as ground No. 2 of appeal is concerned, no meaningful arguments were advanced by the ld. AR. The findings of authorities below have not been controverted. Accordingly, ground No. 2 of the appeal is dismissed.
In the result, the appeal of assessee is partly allowed.
Order pronounced on Monday, the 08th day of October, 2018.
Sd/- Sd/- (डी. करुणाकरा राव/D. Karunakara Rao) (ववकास अवस्थी / Vikas Awasthy) ऱेखा सदस्य / ACCOUNTANT MEMBER न्याययक सदस्य / JUDICIAL MEMBER ऩुणे / Pune; ददनाांक / Dated : 08th October, 2018 RK आदेश की प्रयिलऱवऩ अग्रेवषि / Copy of the Order forwarded to : अऩीऱाथी / The Appellant. 1. प्रत्यथी / The Respondent. 2. आयकर आयुक्त (अऩीऱ) / The CIT(A), Aurangabad 3. आयकर आयुक्त / The CIT(Central), Nagpur 4. ववभागीय प्रयतयनधध, आयकर अऩीऱीय अधधकरण, “ए” बेंच, 5. ऩुणे / DR, ITAT, “A” Bench, Pune. गाडड फ़ाइऱ / Guard File. 6. //सत्यावऩत प्रयत // True Copy// आदेशानुसार / BY ORDER,
यनजी सधचव / Private Secretary, आयकर अऩीऱीय अधधकरण, ऩुणे / ITAT, Pune