TILAKNAGAR INDUSTRIES LTD,MUMBAI vs. DCIT CC 1(1), MUMBAI

The above titled appeals have been filed by the assessee against different orders of Commissioner of Income Tax Appeals [hereinafter referred to as the CIT(A)] dated 22.06.2017 relevant to assessment years 2010-11 & 2011-12 and dated 20.10.2015 relevant to assessment year 2008-09. relevant to A.Y. 2008-09 2. The grounds raised by the assessee are as under:

The issue raised in first ground of appeal is against the confirmation of addition of Rs.1,01,00,000/- by Ld. CIT(A) as made by the AO on the basis of entries found in the seized documents from the residence of the assessee during the course of search.

The facts in brief are that a search was conducted on the assessee on 22.02.2012 and his associated concerns. Notice under section 153A was issued on 28.12.2012 which was served on 11.01.2013 for the year under consideration and was complied with by the assessee by filing the return on 05.03.2013. During the assessment proceedings, the AO after examining the documents seized from the residence of Suresh Thakkar noted that assessee has generated huge cash from unrecorded transactions in trading of food grains and receipt of on money which was advanced to various parties on interest. The AO on the basis of page No.6 the seized document worked out the total amount advanced by the assessee at Rs.1,01,00,000/- which was given on interest @ 12%. According to the AO the total interest working on various dates amounted to Rs.19.19 lakhs over a period of time from A.Y. 2008-09 to A.Y. 2011-12. The said sheet No.6 shows the amount advanced, rate of interest, period and calculation of interest. During the course of search proceedings the assessee stated that the said sheet belonged to the note book of his minor son who is doing commerce and finally the AO also noted that in the said sheet the amounts were mentioned by removing three zeros meaning thereby that Rs.5 lakhs was written as Rs.5,00/- and Rs.10 lakhs was written as Rs.1,000/-. The assessee also submitted during the course of assessment proceedings that he is connected with a number of charitable trusts and the assessee acts as mediator for the resolution of disputes to his community people and the said document may belong to any of the said disputes and thus might be belonging to the people who came to him for arbitration in the dispute. Finally the AO added a sum of Rs.1,01,00,000/- on the ground that the said sheet paper clearly showed that assessee has invested by way of advancing loans and partly in immovable properties which were not accounted for and recorded in the books of accounts by framing assessment under section 143(3) read with section 153A vide order dated 21.03.2014 besides making various other additions.

The Ld. CIT(A) affirmed the order of AO on the ground that the paper was found from the assessee’s possession during the course of search and it is the responsibility of the assessee to explain the contents thereof. If the assessee chooses to remain silent, the AO is justified in making the presumption against the assessee.

The Ld. A.R. vehemently argued before us that the order passed by Ld. CIT(A) affirming the addition of Rs.1,01,00,000/- was totally wrong on facts as well as on law. The Ld. A.R. submitted that the documents seized during the course of search did not belong to the assessee at all which was also denied by the assessee even during the course of search. The Ld. A.R. drew our attention seized document from the possession of the assessee filed at page no 1 of the paper book which did not state the name of the assessee al all and only amount, date, number of days and amount of interest were stated therein. The assessee while reiterating his arguments before us stated that the document did not belong to the assessee at all and it may belong to the people of the community of the assessee who are coming to him for resolution of disputes quite often. The assessee also stated that assessee is connected with various trusts about 14 in number, the details whereof is given in para 6 of the affidavit filed by the assessee a copy of which is attached from page No.159 to 162. The Ld. A.R. submitted that the assessee is associated with the charitable bodies as president/secretary/treasurer/trustee/director or as member. The Ld. A.R. also pointed out that the assessee has filed an affidavit stating therein that what has been stated at the time of search as regards the said seized document has been putforth by way of a sworn document wherein the assessee again disowned the said paper and it was argued vehemently that the addition of Rs.1,01,00,000/- may kindly be deleted as the said document is a dumb document and does not contain the name of the assessee or is written in the handwriting of the assessee or his family member or singed by the assessee. Secondly the Ld. A.R. also stated that the document seized does not state whether the money mentioned therein represents the loan given or borrowed and the AO has just presumed without any basis that the amounts mentioned in the said paper were the amounts lent by the assessee. Even on this basis the addition deserved to be deleted for the reason that the document does not state whether it is a money borrowed or lent. Presuming for a moment in case the amount stated in the documents are the loans taken by the assessee then nothing can be added to the income of the assessee. Finally the Ld. A.R. prayed before the Bench that in view of these factual things the addition confirmed by the Ld. CIT(A) should be deleted.

On the other hand, the Ld. D.R. strongly relied on the order of Ld. CIT(A) and AO by submitting that the document found in the possession of the assessee has to be presumed as belonging to the assessee unless and until rebutted by the assessee by giving a cogent reasons/evidences but in the present case the assessee failed to give any plausible and reasonable explanation for the amount stated in the paper and therefore the AO and Ld. CIT(A) have rightly presumed that the document is not a dumb document and addition was rightly made by the AO and affirmed by the Ld. CIT(A) on the basis of said document.

We have heard the rival submissions of both the parties and perused the material on record including the seized documents. We find that the documents seized from the possession of the assessee contains calculations of interest mentioning therein the amount, rate of interest, period and amount of interest. The authorities below had tried to decode the contents of the document by coming to the conclusion that the last three digits were removed from the amount and various amounts were mentioned by deleting the last three zeros. For example, Rs.1,00,000/- has been mentioned as Rs.100/- and Rs.5,00,000/- has been mentioned as Rs.500/-. We further observe that the said document does not state whether the amounts stated therein are the loans given or accepted by the assessee. We also find that the assessee has denied or disowned the said document right from the inception when the search was conducted on the assessee and also tried to explain his stand by filing an affidavit the copy of which is placed in the paper book at page No.158 to 162. The assessee also stated that he is involved in mediation to settle the disputes of various people belonging to his community as he is involved in various charitable activities and connected with 14 non profit making bodies/charitable bodies the details whereof is filed in page No.159 & 160 of the paper book. Indisputably , the document is seized from the possession of the assessee and onus is on the assessee to explain the contents therein but we find that even before the Ld. CIT(A) the assessee has specifically stated the presumption of the AO as wrong the monies mentioned therein represented loan given by the assessee whereas the said document is silent as to the money lent or borrowed by the assessee. Moreover the document is not in the handwriting of the assessee or his family or singed by the assessee. Considering the facts in totality and after examining the contents of the document, we observe that it is a guess or presumption of the AO that the money might have been lent by the assessee and assessee is deriving interest out of money lent. Moreover, during the course of search nothing incriminating material or unaccounted wealth was found to corroborate the contents of the paper. Under these circumstances, we are of the considered view that to make an addition on the basis of document which does not state the amount lent by the assessee or borrowed by the assessee is not justified and can not be sustained. Accordingly, we are inclined to set aside the order of Ld. CIT(A) and direct the AO to delete the addition.

The issue raised in ground No.2 is against the confirmation of addition of Rs.38,217/- as interest income on the basis of seized document which is placed at page No.6 of bundle 2.

Since we have already deleted the main addition in the ground No.1, the issue of addition of interest of Rs.38,217/- is automatically deleted. Accordingly, this appeal of the assessee is allowed.

In the result, all the three appeals of the assessee are allowed.