ITO 20(2)(3), MUMBAI vs. KARAN R. SHAH, MUMBAI

IN THE INCOME TAX APPELLATE TRIBUNAL “H” BENCH, MUMBAI BEFORE HON’BLE SHRI R. C. SHARMA, AM & HON’BLE SH. SANDEEP GOSAIN, JM आयकरअपीलसं./ I.T.A. No. 3652 & 4290/Mum/2015 (निर्धारणवर्ा / Assessment Year: 2010-11 & 2009-10)

Karan R. Shah, ITO 20 (2)(3), R. No. 210, 2nd floor, Prop. M/s Ravechi Agro Product & M/s Impact Piramal Chambers, बिधम/ Entertainment, Flat No. Lalabuag, Parel, Vs. 301, Plot No. 575A, Orient, Mumbai-400012 Jam-e-Mamshed, Rd, Matunga, Mumbai-400019 स्थायीलेखासं./जीआइआरसं./ PAN No. BCNPS7477R (अपीलाथी/Appellant) (प्रत्यथी / Respondent) : & आयकरअपीलसं./ I.T.A. No. 1238/Mum/2018 (निर्धारणवर्ा / Assessment Year: 2010-11) ITO 20 (2)(3), Karan R. Shah, R. No. 210, 2nd floor, Prop. M/s Ravechi Agro Product & M/s Impact Piramal Chambers, बिधम/ Entertainment, Flat No. Lalabuag, Parel, Vs. 301, Plot No. 575A, Orient, Mumbai-400012 Jam-e-Mamshed, Rd, Matunga, Mumbai-400019 (अपीलाथी/Appellant) (प्रत्यथी / Respondent) : अपीलाथीकीओरसे/ Appellant by : Shri M. C. Omi Ningshen, DR प्रत्यथीकीओरसे/Respondentby : Shri Syed Nadeem Ahmed Lasani, AR

2 I.T.A. No. 3652 & 4290/Mum/2015 & 1238/Mum/2018 Karan R. Shah सुनवाईकीतारीख/ : 28.09.2018 Date of Hearing घोषणाकीतारीख / : 04.10.2018 Date of Pronouncement आदेश / O R D E R Per Sandeep Gosain, Judicial Member: The present three Appeals have been filed by the revenue as well as assessee against the order of Commissioner of Income Tax (Appeals)-32, Mumbai, dated 31.03.15 and 29.04.15for A.Y. 2010-11 and 2009-10 respectively.

I.T.A. No. 3652/Mum/2015 (AY 2010-11) 3. First of all we take up revenue’s appeal in I.T.A. No. 3652/Mum/2015 (AY 2010-11) on the grounds mentioned herein below:- (1) "On the facts and in the circumstances of the case and in law, the Ld. CIT (A) erred in restoring the

3 I.T.A. No. 3652 & 4290/Mum/2015 & 1238/Mum/2018 Karan R. Shah addition of Rs. 1,02,83,0501- to Rs. 12,85,382/- without appreciating the facts of the case."

(2) "On the facts and in the circumstances of the case and in law, the Ld CIT(A) erred in deleting the addition of Rs. 16,12,0751- made by the AO as unproved expenditure and sustaining only 20% of the said expenditure u/s 40A(2)(b) without appreciating that the assessee failed to prove the genuineness and true nature of the expenditure allegedly made as reimbursement and that the disallowance should have been sustained in toto even though the section u/s 40A(2)(b) was wrongly mentioned by mistake."

(3) "On the facts and in the circumstances of the case and in law, the Ld. CIT (A) erred in deleting the addition of Rs.2,66,362/- made on account of the party in versions of the account of the party as in the books of the assessee and as furnished by the assessee u/s 133(6), on the basis of the additional evidence produced by the assessee without remanding the issue to the AO."

(4) "On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in restricting the disallowance of bogus purchases of Rs. 7,09,387/-, without appreciating the facts of the case".

4 I.T.A. No. 3652 & 4290/Mum/2015 & 1238/Mum/2018 Karan R. Shah (5) "On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in deleting the addition of Rs.3, 77,000/- without appreciating that the assessee failed to disclose the nature of expenses found in the laptop of his brother regarding regular use of which he admitted in the replies to question number 25 to 31 of his statement on oath which was duly signed by him."

(6) "On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in deleting the addition of Rs. 13,65,000/- without appreciating that the assessee failed to disclose the nature of expenses found in the laptop of his brother regarding regular use of which he admitted in the replies to question number 25 to 31 of his statement on oath which was duly signed by him."

(7) "On the facts and in the circumstances of the case and in law, the Ld. CIT (A) erred in deleting the addition of Rs. 3,27,23,780/- without appreciating that the assessee failed to disclose the nature of expenses found in the laptop of his brother regarding regular use of which he admitted in the replies to question number 25 to 31 of his statement on oath which was duly signed by him."

5 I.T.A. No. 3652 & 4290/Mum/2015 & 1238/Mum/2018 Karan R. Shah 4. As per the facts of the present case, the assessee is running two proprietary concerns, viz. M/s Ravechi Agro Products and M/s Impact Entertainment. The assessee is doing business of Developing and maintaining gardens, traffic island gardens, etc. for and on behalf of Municipal Corporation of Greater Mumbai. In the concern, M/s Impact Entertainment, the assessee is doing business as management of cultural and party events.The assessee filed its return of income for the year under consideration on 14.10.10 declaring total income at Rs. NIL. The return was processed u/s 143(1) of the Act. The case was selected for scrutiny and notices u/s 143(2) and u/s 142(1) were issued and served on the assessee. Thereafter, on the basis of information received from Sales Tax Department through DGIT (Inv.), Mumbai, that the assessee had made purchases from M/s Mehul Traders of Rs35,49,486/-, M/s Yashitra Trading Company of Rs.24,74,602/-, M/s Shivraj Traders of Rs.6,76,270/- & M/s Suyash Sales Corporation of Rs. 15,82,698/- seemed to be accommodation entries. A survey u/s 133A was carried out at the office premises of the assessee on 07.02.2013. During the course of survey, various incriminating material were found and

6 I.T.A. No. 3652 & 4290/Mum/2015 & 1238/Mum/2018 Karan R. Shah impounded. A statement on oath was recorded on 08-02-2013 wherein the assessee was specifically asked about these bogus purchases. In order to ascertain the genuineness of purchase transactions, notices u/s 133(6) were issued to the parties but same were returned with the remarks "Unclaimed". The AO asked the assessee to submit various details, i.e. details of purchases made from these patties, copies of bills raised by the parties, ledger accounts, documentary evidences such as transportation bills/delivery challans, stock register, details of payments made etc. In response, the assessee did not furnish any such bills/invoices allegedly issued by these panics. The A.O passed order u/s 143(3) dated 28.03.20 13 assessed the total income at Rs.5,60,66,790/- after disallowing purchases of Rs. 1,02,83,056/- as bogus purchases, Rs.4,82,289/- as service charges to sister concern, Rs.16,12,0751- as reimbursement of expenses by M/s Pancharatna Plastics, Rs.2,66,362/- as difference in purchases made from M/s Landscape Enterprises, Rs.7,09,387/- from M/s Swastika Enterprises, Rs.3,01 ,0581- towards interest paid on VAT, Rs. 65 lakhs from loose paper

7 I.T.A. No. 3652 & 4290/Mum/2015 & 1238/Mum/2018 Karan R. Shah impounded during survey, Rs,3,77,000/- as expenses, Rs. 13,65,000/- as bribe payments & Rs.3,22,23,780 /-.

Aggrieved by the order of AO, assessee preferred appeal before Ld. CIT(A) and Ld. CIT(A) after considering the case of both the parties partly allowed the appeal of the assessee. Aggrieved by the order of Ld. CIT(A), both i.e. revenue as well as assessee have filed their respective appeals before us. However at present we are dealing with the appeal filed by the revenue bearing ITA No. 3652/Mum/2015 on the grounds mentioned herein above.

Ground No. 1 5. This ground raised by the revenue is against challenging the order of Ld. CIT(A) in restricting the addition of Rs. 1,02,83,050/- to Rs. 12,85,382/-.

8 I.T.A. No. 3652 & 4290/Mum/2015 & 1238/Mum/2018 Karan R. Shah judgment cited by both the parties as well as the orders passed by revenue authorities. Before we decide the merits of the case, it is necessary to evaluate the orders passed by Ld. CIT(A). The Ld. CIT(A) has dealt with the above grounds raised by the revenue in para no. 6 of its order. The operative portion of the order of Ld. CIT(A) is contained in para no. 6(6.4.1 to 6.4.5) of its order and the same is reproduced below:-

6.4.1. I have gone through the assessment order and details submitted by appellant and find that the goods purchased from these parties have been consumed for carrying out the various works allotted to the assessee by the MCGM. There cannot be any sale without purchases; consumption of goods in the instant case. In the case of CIT vs. NikunjEximp Enterprises (P) Ltd. [20131 216 Taxman 171 (Bom.),the jurisdictional Hon'ble High Court of Bombay held that where sales support the purchases and payment was made through banks, merely because suppliers had not appeared before AO, the purchases could not be rejected as bogus.

9 I.T.A. No. 3652 & 4290/Mum/2015 & 1238/Mum/2018 Karan R. Shah 6.4.2. The addition has been made on the basis of information received from Sales TaxDepartment. The parties have not directly named the appellant, and it appears that the parties must have made a general statement before the sales tax authorities. No attempt is made by the A.O. to enquire with the parties as to whether they had actually sold goods to the appellant or not and thereafter to confront the appellant with any adverse finding from such enquiry, and also to provide opportunity of cross examination of these parties to the appellant. In a decision pronounced by Hon'ble ITAT, Mumbai on 1st October, 2013, in the case of Parmit Textiles vs. ITO (ITA Nos. 4012 to 4015 and 4020 to 4021/Mum/2012, the Hon'ble ITAT, Mumbai observed that there was no material on record to say that the purchases made by the assessee was bogus except the general statement recorded by the Department in the case of Shri Rakesh Kumar Gupta, which was later onretracted. The Hon'ble ITAT held that in absence of any adverse material brought on record, the addition made in the case of assessee will be based on presumptiononly and it cannot be sustained in the eyes of law.

10 I.T.A. No. 3652 & 4290/Mum/2015 & 1238/Mum/2018 Karan R. Shah 6.4.3. In the case of Shri Rajeev G. Kalathil, ITAT Mumbai, 1TA Nos. 6727/MUM/2012, 06/MUM/2014, it is held as under:

"We have heard the rival submissions and perused the material before us. We find that AO had made the addition as one of the suppliers was declared a hawala dealer by the VAT Department. We agree that it was a good starting point for making further investigation and take it to logical end. But, he left the job at initial point itself Suspicion of highest degree cannot take place of evidence. He could have called for the details of the bank accounts of thesuppliers to find out as whether there was any immediate cash withdrawal from their account. We find that no such exercise was done. Transportation of good to the site is one of the deciding factor- . to be considered for resolving the issue. The FAA has given a finding of fact that part of the goods received by the assessee was forming part of closing stock. As far as the case of Western Extrusion Industries (supra)is concerned, we find that in that matter cash was immediately withdrawn by the supplier and there was no evidence of movement of goods. But, in the case before us, there is nothing, in the order of the AO about the cash trail. Secondly, proof of movement of goods is not in doubt. Therefore,

11 I.T.A. No. 3652 & 4290/Mum/2015 & 1238/Mum/2018 Karan R. Shah considering the peculiar facts andcircumstances of the case under appeal, we are of the opinion that the order of the FAA does not suffer from any legal infirmity and there are not sufficient evidence on file to endorse the view taken by the AO. So, confirming the order of the FAA, we decide ground no. I against the AO."

6.4.4. There is no evidence to prove that the cash has flown back to the appellant. In the case of CIT vs. M.K. Brothers [1987] 163 ITR 249 (Guj), the assessee made certain purchases from some parties and made payment through cheques, and the ITO found that parties were not available to cross examine and that payments were shown to have been made after substantial lapse of time after date of purchase, and hence the ITO held those transactions to be bogus and added back the purchases to income of the assessee. The Hon'ble Gujarat High Court held that the tribunal was justified in deleting the addition on the ground that there was no evidence to show that vouchers given by those parties to assessee were bogusor that any part of those payment came back to assessee.

6.4.5. Under Income Tax Act, 1961 what can be taxed is the real income. Even though the transaction is not verifiable, what is taxable is the income component, and not the entire transaction amount. I find that in

12 I.T.A. No. 3652 & 4290/Mum/2015 & 1238/Mum/2018 Karan R. Shah many such cases, the additions are made based on the G.P./N.P. ratio. In the present case of appellant, in fact the AO himself has not ruled out the possibility that the assessee must have made these purchases from grey markets from some other parties by investing unaccounted cash. In such a situation, even assuming that the appellant would have purchased the goods by in the unaccounted cash, still it is undisputed that theSale proceeds of said goods have been duly accounted for in the books and offered to tax. Hence, the addition of entire purchase amount cannot be made in the present case. Rather, the cause ofjustice would be met by making addition of a reasonable percentage of such purchases in order to fulfill the gap of any revenue leakage in aforesaid circumstances. Following the Gujarat High Court in the cases of Commissioner of Income Tax-I Vs Simit P Sheth, 356 ITR 451 and M/s. Bholenath Poly Fab Pvt. Ltd. Vs AO, 355 ITR 290, in the present case, 1 confirm addition to the extent of 12.5% of the alleged purchases of Rs.1,02,83,056/- from the impugned parties, i.e., Rs.12,85,382/- The appellant gets balance relief of Rs.89,97,674/- Therefore, this ground of appeal is partly allowed.

13 I.T.A. No. 3652 & 4290/Mum/2015 & 1238/Mum/2018 Karan R. Shah After having gone through the facts of the present case and hearing the parties at length, we find that as per the facts of the present case, the major activity of the assessee is to develop, maintain and beutify gardens for Municipal Corporation of Greater Mumbai (MCGM). However, on the basis of information received from the Sales Tax Department through DGIT(Invs.), Mumbai, the assessee had made purchases from M/s Mehul Traders, Yashitra Trading Co., Shivraj Traders and M/s Suyash Sales Corporation. A survey u/s 133A was carried out at the office premises of the assessee on 07.02.13 and according to the revenue, various incriminating material were found and impounded. During the enquiries, since the assessee could not satisfy the queries raised by AO with regard to details of purchases made from the above parties, therefore additions were made on account of bogus purchases. On appeal, after appreciating the facts and the documents submitted by the assessee, Ld. CIT(A) find that the goods purchased from the above parties had been consumed for carrying out various works allotted to the assessee by MCGM. While relying upon the judgment of Hon’ble Jurisdictional High

14 I.T.A. No. 3652 & 4290/Mum/2015 & 1238/Mum/2018 Karan R. Shah Court in the case of CIT Vrs. Nikunj Exim Pvt. Ltd. (2013) 216 taxman 171 (Bom), Ld. CIT(A) correctly held that merely because suppliers had not appeared before AO, then the purchases cannot be rejected. Even otherwise, as per the facts of the present case, additions were made on the basis of information received from the Sales Tax Department and thus Ld. CIT(A) had correctly concluded that although the parties have not directly named the assessee, it appears that the parties might have made a general statement before the Sales Tax Authorities. The AO had not made any attempt to enquire with the parties as to whether they had actually sold goods to the assessee or not and thereafter had not confronted the assessee with any adverse finding from such enquiry and had not provided any opportunity of cross examination of the parties to the assessee. It is an undisputed facts that the payments were made through account payee cheques and the AO himself has not ruled out the possibility, that the assessee might have made these purchases from grey markets from some other parties by investing unaccounted cash. As per the factual position, the sale proceeds of said goods have been duly accounted for in the books and

15 I.T.A. No. 3652 & 4290/Mum/2015 & 1238/Mum/2018 Karan R. Shah offered to tax. Therefore keeping in view the factual as well as legal proposition, Ld. CIT(A) had correctly concluded that addition of entire purchase amount cannot be made in the present case, rather a reasonable percentage of such purchases in order to fulfill the gap of any revenue leakage was applied. Thus, the additions were restricted @ 12.5% of the alleged purchases. No new facts or contrary judgments have been brought on record before us in order to controvert or rebut the findings so recorded by Ld. CIT(A). Therefore, there are no reasons for us to interfere into or deviate from the findings recorded by the Ld.CIT(A). Hence, we are of the considered view that the findings so recorded by the Ld. CIT (A) are judicious and are well reasoned. Resultantly, this ground raised by the revenue stands dismissed.

Ground No. 2 7. This ground raised by the revenue is against challenging the order of Ld. CIT(A) in deleting the addition of Rs. 16,12,075/- made by the AO as unproved penalty and sustaining only 20% of the said expenditure u/s 40A(2)(b) of the Act.

16 I.T.A. No. 3652 & 4290/Mum/2015 & 1238/Mum/2018 Karan R. Shah 8. We have heard counsels for both the parties at length and we have also perused the material placed on record, judgment cited by both the parties as well as the orders passed by revenue authorities. Before we decide the merits of the case, it is necessary to evaluate the orders passed by Ld. CIT(A). The Ld. CIT(A) has dealt with the above grounds raised by the revenue in its order. The operative portion of the order of Ld. CIT(A) is contained in para no. 9.4 of its order and the same is reproduced below:-

9.4. I find that the appellant has made payments amounting to Rs.16,12,075/- to M/s. Pancharatna Plastics, a proprietorship concern of Mr. Rajendra M. Shah. The auditors in their tax audit report has made an observation that the assessee has made payments to persons specified in section 40A(2)(b) of the Act, amounting to Rs. 16,12,075/- which prompted the AO to call for the information/details in relation to this expenditure. The appellant has furnished the details of expenditure as per his letter dated 30.01.2014. The AO has however disallowed this entire expenditure of Rs. 16,12,075/- u/s 40A(2)(b) on a ground that no corroborative evidence is furnished to establish such

17 I.T.A. No. 3652 & 4290/Mum/2015 & 1238/Mum/2018 Karan R. Shah expenditure. If no corroborative evidence in relation to this expenditure was coming forth from the assessee the AO ought to have disallowed this expenditure under section 37 and not under section 40A(2)(b). However, the appellant made no payments are made to M/s. Pancharatna Plastics towards expenses and the payments have only been routed through the sister concern and therefore the question of disallowance does not arise. The appellant submits that the question of disallowance arises only where there is excessive payment of expenditure to such person who is referred in clause (b) of section 40A (2) of the act and instant case it is the father of the appellant. I have seen the reasons recorded by the AO for this disallowance. I have also seen the argument of the appellant. The appellant submits that the transactions between sister concerns are regular transactions and that they have not paid any amount to each other towards expenses warranting the additions under section 40A(2)(b). The fact that this expenditure is incurred has come to light due to a remark of the auditor in his tax audit report. I come to a conclusion that the appellant has in-fact incurred an expenditure of Rs.16.12,075/- and such being the case only the excessive amount or unreasonable amounts needs to be disallowed. The AO has disallowed the entire expenditure under this

18 I.T.A. No. 3652 & 4290/Mum/2015 & 1238/Mum/2018 Karan R. Shah section, section 40A(2)(b) without substantiating the quantum of unreasonable or excessiveness. Under section 40A(2)(b) only such excessive and unreasonable expenditure paid to specified person is disallowable. Taking all the factors into consideration including the disallowance of Rs.4,82,289/- being amount paid to MIs. Pancharatna Plastics which is confirmed by me in paragraph no.7.4 of this appellate order; I hold that the cause of justice would be met by disallowing a reasonable percentage of this expenditure in order to fill in the gap of any revenue leakage in such circumstances. 1, therefore, confirm the addition to 20% of the alleged disallowance of Rs16,12,075/-, i.e. Rs.3,22,4141-. The appellant gets the balance relief of Rs. 12,89,66 1 /-. This ground is partly allowed.

After having gone through the aforementioned order and hearing the parties at length, we find that Ld. CIT(A) after correctly appreciating the facts of the present case had concluded that the assessee had made payments to M/s. Pancharatna Plastics. Even the auditors in their tax audit report had made an observation that the assessee had made payments to persons specified in section 40A(2)(b) of the Act, which prompted the

19 I.T.A. No. 3652 & 4290/Mum/2015 & 1238/Mum/2018 Karan R. Shah AO to call for the information/details in relation to this expenditure. Although the assessee had furnished the details of expenditure, however the AO disallowed the entire expenditure u/s 40A(2)(b) on the ground that no corroborative evidence was furnished. The Ld. CIT(A) correctly concluded that if no corroborative evidence in relation to this expenditure was coming forth from the assessee then, the AO ought to have disallowed this expenditure under section 37 and not under section 40A(2)(b). Whereas as per the facts, the assessee had made no payments to M/s. Pancharatna Plastics towards expenses and the payments were only routed through the sister concern. The Ld. CIT(A) also correctly appreciated that the question of disallowance would arises only where there is excessive payment of expenditure to such person who are referred in clause (b) of section 40A (2) of the Act and in the instant case, it is the father of the appellant. In this case, the transactions were between sister concerns in regular course and they have not paid any amount to each other towards expenses warranting the additions under section 40A(2)(b). As per the provisions, the additions can only be made if excessive or unreasonable was spent. But the AO

20 I.T.A. No. 3652 & 4290/Mum/2015 & 1238/Mum/2018 Karan R. Shah had disallowed the entire expenditure without substantiating the quantum of unreasonable or excessiveness. Under section 40A(2)(b) only such excessive and unreasonable expenditure paid to specified person is disallowable. Therefore, Ld. CIT(A) correctly confirmed the additions to 20% of alleged disallowance.

No new facts or contrary judgments have been brought on record before us in order to controvert or rebut the findings so recorded by Ld. CIT(A). Therefore, there are no reasons for us to interfere into or deviate from the findings recorded by the Ld. CIT(A). Hence, we are of the considered view that the findings so recorded by the Ld. CIT (A) are judicious and are well reasoned. Resultantly, this ground raised by the revenue stands dismissed.

Ground No. 3 9. This ground raised by the revenue is against challenging the order of Ld. CIT(A) in deleting the addition of Rs. 2,66,362/-.

21 I.T.A. No. 3652 & 4290/Mum/2015 & 1238/Mum/2018 Karan R. Shah 10. We have heard counsels for both the parties at length and we have also perused the material placed on record, judgment cited by both the parties as well as the orders passed by revenue authorities. Before we decide the merits of the case, it is necessary to evaluate the orders passed by Ld. CIT(A). The Ld. CIT(A) has dealt with the above grounds raised by the revenue in para no. 10 of its order. The operative portion of the order of Ld. CIT(A) is contained in para no. 10.3 of its order and the same is reproduced below:-

10.3 I have considered the observation made by the AO for this disallowance. I have also considered the submissions made by the appellant. The appellant has on his part substantiated the details of purchases made by him from the said M/s. Landscape Developers and has also substantiated the payments made by cheques to the said M/s. Landscape Developers. The appellant has reconciled the figures of purchases and payments with this party and has arrived at negligible difference of Rs.4,624/- as against the total purchase transaction of Rs.43,25,579/-. I accept the contention of the appellant and delete the disallowance of

22 I.T.A. No. 3652 & 4290/Mum/2015 & 1238/Mum/2018 Karan R. Shah Rs.2,66,362/- made by the AO u/s 69. Therefore this ground of the appellant is allowed.

After having gone through the aforementioned order and hearing the parties at length, we find that Ld. CIT(A) after correctly appreciating the facts of the present case had concluded that as per the facts, the assessee made purchases from M/s Landscape Enterprises and since, there was a discrepancy between the accounts of the assessee and the said M/s Lanscape Enterprise, therefore additions u/s 69 C were made. Ld. CIT(A) after appreciating the factual position had rightly concluded that the assessee has on his part substantiated the details of purchases made by him from the said M/s. Landscape Developers and has also substantiated the payments made by cheques to the said M/s. Landscape Developers. The assessee had also reconciled the figures of purchases and payments with the said party and had arrived at negligible difference of Rs.4,624/- as against the total purchase transaction of Rs.43,25,579/-. Therefore, deleted the disallowance made by AO.

23 I.T.A. No. 3652 & 4290/Mum/2015 & 1238/Mum/2018 Karan R. Shah No new facts or contrary judgments have been brought on record before us in order to controvert or rebut the findings so recorded by Ld. CIT(A). Therefore, there are no reasons for us to interfere into or deviate from the findings recorded by the Ld. CIT(A). Hence, we are of the considered view that the findings so recorded by the Ld. CIT (A) are judicious and are well reasoned. Resultantly, this ground raised by the revenue stands dismissed.

Ground No. 4 11. This ground raised by the revenue is against challenging the order of Ld. CIT(A) in restricting the disallowance of bogus purchases of Rs. 7,09,387/-.

24 I.T.A. No. 3652 & 4290/Mum/2015 & 1238/Mum/2018 Karan R. Shah dealt with the above grounds raised by the revenue in para no. 11 of its order. The operative portion of the order of Ld. CIT(A) is contained in para no. 11.3 of its order and the same is reproduced below:-

11.3 I have considered the observation made by the AO and the submissions made by the appellant. The appellant has on his part failed to substantiate the transactions with the said M/s. Swastik Enterprises at the time of assessment. However, he has placed before me the confirmation of account copy obtained from the said M/s. Swastik Enterprises and also a copy of ledger account from his books of account. The appellant submits that the purchases are supported by purchase invoices and the payments have been made by crossed cheques. The appellant further submits that the confirmation account copy of M/s. Swastik Enterprises could not be furnished before the AO at the time of assessment. I have considered the submissions made by the appellant before me. I have also verified the account copy and the confirmation copy. However, the fact cannot be denied that the notice issued under section 133(6) of the Act issued by the AO to M/s. Swastik Enterprises returned un-served. I therefore, following my observations in paragraph no. 6.4.5 of

25 I.T.A. No. 3652 & 4290/Mum/2015 & 1238/Mum/2018 Karan R. Shah this appellate order, I confirm an addition to the extent of 12.5% of the alleged purchases of Rs.7,71,180/- (as claimed by the appellant, and not Rs.7,09,387/- as observed and disallowed by the AO). The addition to the extent of Rs.96,398/- is confirmed and the appellant gets a relief of Rs.6,12,989/- accordingly. Therefore, this ground of appeal is partly allowed.

After having gone through the aforementioned order and hearing the parties at length, we find that Ld. CIT(A) after correctly appreciating the facts of the present case had concluded that initially the assessee failed to substantiate the transactions with the said M/s. Swastik Enterprises, however placed confirmation of M/s. Swastik Enterprises and also a copy of ledger account from his books of account before Ld. CIT(A). As per the facts, the purchases are supported by purchase invoices and the payments were made by crossed cheques. Ld. CIT(A) verified the account copy and the confirmation copy. Therefore, following his own observation in para 6.4.5 of his own order, confirm an addition to the extent of 12.5% of the alleged purchases of Rs.7,71,180/- .

26 I.T.A. No. 3652 & 4290/Mum/2015 & 1238/Mum/2018 Karan R. Shah No new facts or contrary judgments have been brought on record before us in order to controvert or rebut the findings so recorded by Ld. CIT(A). Therefore, there are no reasons for us to interfere into or deviate from the findings recorded by the Ld. CIT(A). Hence, we are of the considered view that the findings so recorded by the Ld. CIT (A) are judicious and are well reasoned. Resultantly, this ground raised by the revenue stands dismissed.

Ground No. 5 to 7 13. Since these grounds raised by the revenue are inter related and inter connected and relates to challenging the order of Ld. CIT(A) in deleting the addition made by AO u/s 69C of the I.T. Act, therefore we thought it fit to dispose of the same by this common order.

27 I.T.A. No. 3652 & 4290/Mum/2015 & 1238/Mum/2018 Karan R. Shah Before we decide the merits of the case, it is necessary to evaluate the orders passed by Ld. CIT(A). The Ld. CIT(A) has dealt with the above grounds raised by the revenue in para no. 14 of its order. The operative portion of the order of Ld. CIT(A) is contained in para no. 14.6 to 14.10 of its order and the same is reproduced below:-

14.6 I have taken on record the arguments of the appellant in relation to these three additions. I have also seen the reasons recorded by AO for making these three additions of Rs.3,77,000/-, Rs. l 3,65,000/- and Rs.3,22,23,780/- under section 69C as Unexplained expenditure.

14.7. The appellant's representative has strongly argued before me against these three additions. He has stated that the survey team have exceeded their jurisdiction by entering the residential premises of the appellant. The appellant stays in a joint family along with his parents and his younger brother Mr. Kevin Rajendra Shah. It was during the course of these survey proceedings that a laptop, Apple. Mac Book belonging to the said Mr. Kevin Rajendra Shah was impounded from the possession of Mr. Kevin Rajendra

28 I.T.A. No. 3652 & 4290/Mum/2015 & 1238/Mum/2018 Karan R. Shah Shah. The appellant's representative has argued that Mr. Kevin Rajendra Shah is in no way connected to the activities of the appellant and in-spite of his repeated requests the said laptop was impounded. A statement from Mr. Kevin Rajendra Shah was also recorded wherein he has admitted that the laptop belongs to him, configured by him and that he has no interest in any of the transactions being conducted by his elder brother Mr. Karan Rajendra Shah, the appellant herein. The appellant's representative strongly stressed to a point that the survey team exceeded the jurisdiction of conducting a survey at the residential premises of the appellant which is illegal and arbitrary and therefore all consequences and actions due to such illegal survey cannot be considered to fix the appellant for his lapses, if any. The appellant's representative also argued that the survey team has recorded a statement on oath from the appellant knowing pretty well that no such statement on oath can be recorded during survey as held by the Honorable Supreme Court in the ease of CIT Vs. S. Khader Khan Son reported in (2013) 352 I1'R 480 (SC). The appellant's representative further argued that the AO in paragraph no. 10 of his assessment order has referred to a statement of oath recorded on 08.03.2013 wherein the AO states that the assessee has confirmed the use of

29 I.T.A. No. 3652 & 4290/Mum/2015 & 1238/Mum/2018 Karan R. Shah laptop by him. It is stressfully mentioned that the statement on oath referred by the AO was never signed by the appellant as the same was recorded contrary to what was being replied. The appellant's representative has objected to the AO's action in making an addition by drawing inferences from the statements recorded on oath and that such statements have no evidentiary value. This is also held in the case of Paul Mathews Sons vs. CIT (2003) 263 ITR 101. The appellant's representative has also argued before me that the additions made by the AO are based on mere conjecture, surmise and suspicion.

14.8. 1 have heard the appellant's arguments. The vital questions which require examination are that:-

a) Whether mere mention of expenses in Mac-book of Brother and found at Brother's place which are maintained in casual manner which are not regular books of accounts and unreliable can be said to be books of accounts on the basis of which an assumption of Income for Addition in appellant's hand can be made?

b) Whether additions can be made on surmise, conjecture, assumption, presumption etc. ?

30 I.T.A. No. 3652 & 4290/Mum/2015 & 1238/Mum/2018 Karan R. Shah The judicial views in this respect are given in subsequent paragraphs.

14.9. The Honorable Bombay High court in the case of Sheraton Apparels Vs. AC1T (2002) 256 ITR 20 have held as under with respect to addition made on the basis of mere mention of' expenses:

„Now, turning to the facts of the cases in hand, private diariesmay have been most regularly maintained, it may have been exhibiting record of the factual facts, contemporaneously made but they were never maintained for the purposes of the Income-tax Act to . draw the source of income or for the computation of total income to offer income calculated there from for the purposes of taxation. Such books or diaries can hardly be designed or accepted as books of account for the purposes of Explanation 5 of section 271(1)(c) of the Act,..."

What can be said to be actual and real books of accounts is considered by the Honorable Supreme Court and referred to by the Honorable Bombay high Court in Sheratons Apparel Judgment as under :

31 I.T.A. No. 3652 & 4290/Mum/2015 & 1238/Mum/2018 Karan R. Shah Further, the Supreme Court in the judgment delivered in the case of Ishwar Dass Jain v. SohanLal, AIR 2000 SC 426; 120001 I SCC 434 has observed as under (headnote) :

"Under section 34 sanctity is attached in the law of evidence to books of account if the books are indeed 'account books', i.e., in original if they show, on their face, that they are kept in the 'regular course of business‟.

From the ratio of above judgment of Hon'ble Supreme Court as well as of the Hon'ble Bombay High Court, it is abundantly clear that mere mention of expenses in Mac-book found at the premises of the appellant's brother cannot be considered as books of account. Moreover, as against thousands of information/details are found in brother's Mae-book, mere mentioning of expenses in Mac-book of which not a single corresponding entry is appearing in the appellant's regular books of account cannot be considered for disallowance by the AO without any material or evidence on record.

Further, from the ratio of above judgment of Hon'ble Supreme Court as well as of the Hon'ble Bombay High Court, it is also crystal clear that once an appellant

32 I.T.A. No. 3652 & 4290/Mum/2015 & 1238/Mum/2018 Karan R. Shah maintains his own regular books of accounts and no such mention of expenses in Mac-book or bills are found in appellant's premises and appellant being regularly assessed to Income Tax his regular books of accounts only are to be accepted as evidence under Section 34 of Indian Evidence Act.

14.10. The Hon'ble Kerala High Court in St. Theresa's Oil Mills Vs. State of Kerala (1970) 76 ITR 365 with respect to Accounts regularly maintained has held as under :

"... The proposition is well-settled that accounts regularly maintained in the course of business have to be taken as correct unless there are strong and sufficient reasons to indicate that they are unreliable. The department has to prove satisfactorily that the account books are unreliable, incorrect or incomplete before it can reject the accounts".

The Hon'ble Kerala High Court further considered about how a best judgment is to be made and quoted the Judgement of Privy Council in the matter of C1T Vs. Laxminarain Badridas as under (1937) 5 1TR 170:

33 I.T.A. No. 3652 & 4290/Mum/2015 & 1238/Mum/2018 Karan R. Shah "He (the assessing authority) must not act dishonestly or vindictively or capriciously because he must exercise judgment in the matter, He must make what he honestly believes to be a fair estimate of the proper figure of assessment, and for this purpose he must, their Lordships think, be able to take into consideration local knowledge and repute in regard to the assessee circumstances, and his own knowledge of previous returns by and assessments of the assessee, and all other matters which he thinks will assist him in arriving at a fair and proper estimate; and though there must necessarily be guesswork in the matter, it must be honest guess-work.

The Judgement of Privy Council quoted by the Honble Kerala High Court in St. Theresa's case throws much needed light on the assessment on best of judgment. In this appeal, I find that the AO has acted dishonestly or vindictively or capriciously because by no stretch of imagination the Unexplained Expenditure u/s 69 can amount to a sum of Rs.4,17,42,587/- as against the gross billing of Rs.4,36,72,1 18/-, not to mention here that the entire gross receipt of the appellant is from Municipal Corporation of Greater Mumbai (MCGM), a Government of Maharashtra Authority, for maintain gardens.

34 I.T.A. No. 3652 & 4290/Mum/2015 & 1238/Mum/2018 Karan R. Shah From the ratio of above judgment of Hon'ble Kerala High Court and that of Honorable Privy Council considered by the Kerala High Court which applies to appellant before me, the AO has disregarded appellant's own books of accounts which are regularly maintained and appellant is also regularly assessed to tax. it is also seen that the AO has just taken the print- outs from the laptop Mac-book of one Mr. Kevin Rajendra Shah, the younger brother of the appellant who has nothing to do with the business activities of the appellant and has proceeded to make an add back to the appellant's returned income as Unexplained Expenditure U/s 69 of the Act. The income based on such guess work has no place in law and the same requires to be deleted. In view of the above, I delete the addition amounting to Rs.3,39,65,7801- (Rs.3,22,23,780+Rs. 13,65,00/- +Rs.3,77,000/-). grounds no. 11th, 12th & 13th of the appeal are allowed accordingly.

After having gone through the aforementioned order and hearing the parties at length, we find that Ld. CIT(A) after correctly appreciating the facts of the present case had concluded that during the survey at the residential premises of the assessee,

35 I.T.A. No. 3652 & 4290/Mum/2015 & 1238/Mum/2018 Karan R. Shah Laptop belonging to assessee’s brother Mr. Kevin Rajendra Shah was found and impounded. On the basis of various print outs, the additions were made although, assessee had denied to have incurred such expenditure but AO rejected the stand of the assessee. The Ld. CIT(A) after considering the factual position and the submission made by the assesse, had rightly concluded that the survey team had exceeded their jurisdiction by entering the residential premises of the assessee and Kelvin R. Shah was in no way connected with the activities of the assessee. Ld CIT(A) also appreciated the statement of Kelvin R. Shah wherein, he had admitted that the Laptop belongs to him, configured by him and that he has no interest in any of the transaction conducted by his brother i.e. assessee. While relying upon the series of judgments as mentioned in the above order, including that of Hon’ble Supreme Court, Ld. CIT(A) had correctly mentioned that AO had disregarded assessee’s own books of accounts which were regularly maintained and assessee is also regularly assessed to tax. It was correctly appreciated that AO had just taken the print-outs from the laptop Mac-book of one Mr. Kevin Rajendra Shah, the younger brother of the

36 I.T.A. No. 3652 & 4290/Mum/2015 & 1238/Mum/2018 Karan R. Shah assessee who had nothing to do with the business activities of the assessee and had proceeded to make an add back to the appellant's returned income as Unexplained Expenditure U/s 69 of the Act. The income based on such guess work has no place in law and the same requires to be deleted.

No new facts or contrary judgments have been brought on record before us in order to controvert or rebut the findings so recorded by Ld. CIT(A). Therefore, there are no reasons for us to interfere into or deviate from the findings recorded by the Ld. CIT(A). Hence, we are of the considered view that the findings so recorded by the Ld. CIT (A) are judicious and are well reasoned. Resultantly, this ground raised by the revenue stands dismissed.

37 I.T.A. No. 3652 & 4290/Mum/2015 & 1238/Mum/2018 Karan R. Shah ITA No. 4290/Mum/2015 (AY 2009-10) 16. Now we take up revenue appeal filed in ITA No. 4290/Mum/2015 for AY 2009-10 on the grounds mentioned herein below:- „On the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in deleting the addition of Rs. 61,58,000/- made by the AO, overly relying upon the contention of the assessee regarding non-relevance of the incriminating documents with business of the assessee, and without subjecting his contention to proper examination.”

38 I.T.A. No. 3652 & 4290/Mum/2015 & 1238/Mum/2018 Karan R. Shah Before we decide the merits of the case, it is necessary to evaluate the orders passed by Ld. CIT(A). The Ld. CIT(A) has dealt with the above grounds raised by the revenue in para no. 10 of its order. The operative portion of the order of Ld. CIT(A) is contained in para no. 10.6 to 10.8 of its order and the same is reproduced below:-

10.6 I have carefully considered the assessment order and the submission of the appellant. I find that the survey team has exceeded their jurisdiction by entering the residential premises of the appellant. The appellant stays in a joint family along with his parents and his younger brother Mr. Kevin Rajendra Shah. It was during the course of these survey proceedings that a laptop, Apple Mac Book belonging to the said Mr. Kevin Rajendra Shah was impounded from the possession of Mr. Kevin Rajendra Shah. The appellant's AR has argued that 1'vlr. Kevin Rajendra Shah is in no way connected to the activities of the appellant and in-spite of his repeated requests the said laptop was impounded. A statement from Mr. Kevin Rajendra Shah was also recorded wherein he has admitted that the laptop belongs to him, configured by him and that he has no interest in any of the

39 I.T.A. No. 3652 & 4290/Mum/2015 & 1238/Mum/2018 Karan R. Shah transactions being conducted by his elder brother Mr. Karan Rajendra Shah, the appellant herein. The appellant's representative strongly stressed to a point that the survey team exceeded the jurisdiction of conducting a survey at the residential premises of the appellant which is illegal and arbitrary and therefore all consequences and actions due to such illegal survey cannot be considered to fix the appellant for his lapses, if any. The appellant's AR also argued that the survey team has recorded a statement on oath from the appellant knowing pretty well that no such statement on oath can be recorded during survey as held by the Honorable Supreme Court in the ce of CIT Vs. S. Khader Khan Son reported in (2013) 352 ITR 480 (SC). The appellant‟s AR further argued that the AO in paragraph no. 4 of his assessment order has referred to i statement of oath recorded on 08.03.2013 wherein the AO states that the assessee his confirmed the use of laptop by him. It is stressfully mentioned that the statement on oath referred by the AO was never signed by the appellant as the same was recorded contrary in making an addition by drawing inferences from the statements recorded on oath and that such statements have no evidentiary value. This is also held in the case of Paul Ma1hes Sons Vs. CIT (2003) 263 ITR 101. The appellant's AR has also argued before me that

40 I.T.A. No. 3652 & 4290/Mum/2015 & 1238/Mum/2018 Karan R. Shah additions made by the AO are based on mere conjecture, surmise and suspicion.

10.7. In view of the above discussion, it is seen that the vital question which arises are summarized as under:-

a) Whether mere mention of expenses in Mac-book of Brother and found at Brother's place which are maintained in casual manner which are not regular books accounts and unreliable can be said to be books of accounts on the basis of which an assumption of Income for Addition in appellant's hand can be made? b) Whether additions can be made on surmise, conjecture, assumption, presumption etc? In this regard, the Honorable Bombay High court in the case of Sheraton Apparels Vs. ACIT (2002) 256 ITR 20 has held in respect to addition made on the basis of mere mention of expenses: ......Now, turning to the facts of the cases in hand, private diaries may have been most regularly maintained, it may have been exhibiting record of the factual facts, contemporaneously made but they were never maintained for the purposes of the Income-tax Act to draw the source of income or for the computation of total income to offer income calculated there from for the purposes of taxation. Such books or

41 I.T.A. No. 3652 & 4290/Mum/2015 & 1238/Mum/2018 Karan R. Shah diaries can hardly be designed or accepted as books of account for the purposes of Explanation 5 of section 271(1)(c) of the Act,..." What can be said to be actual and real books of accounts is considered by the Honorable Supreme Court and referred to by the Honorable Bombay high Court in Sheratons Apparel Judgment as under: Further, the Supreme Court in the judgment delivered in the case of Ishnwar Dass Jain v. SohanLal, AIR 2000 SC 426; [2000] 1 SCC 434 has observed as under (headnote) "Under section 34 sanctity is attached in the law of evidence to books of account if the books are indeed 'account books', i.e., in original if they show, on their face, that they are kept in the 'regular course of business '" From the ratio of above judgment of Honorable Supreme Court as well as of the Honorable Bombay High Court it is abundantly clear that mere maintain of expenses in Mac-book at the premises of brother cannot be considered as books of account. Moreover as against thousands of information /details are found in brother's Mac-look mere mention of expenses in Mac-book of which not a single corresponding entry is appearing in the f appellant's regular books of account

42 I.T.A. No. 3652 & 4290/Mum/2015 & 1238/Mum/2018 Karan R. Shah cannot be considered for addition or disallowance by the AO. Further from the ratio of above judgment of Honorable Supreme Court as well as of the Honorable Bombay High Court it is also clearly that once an appellant maintains kis own regular books of accounts and no such mention of expenses in Mac-book or bills are-- found in appellant's premises regularly assessed to Income Tax his iregtilar books of accounts only are to be accepted as evidence under Section 34 of Indian Evidence Act. 10.8. The Honorable Kerala High Court in St. Theresa's Oil Mills Vs. State of Kerala (190) 76 ITR 365 with respect to accounts regularly maintained has held as under: "... The proposition is well-settled that accounts regularly maintained in the course of business have to be taken as correct unless there are strong arid sufficient reasons to indicate that they are unreliable. The department has 10 prove satisfactorily that the account books are unreliable, incorrect or incomplete before it can reject the accounts". The Honorable Kerala High Court further considered about how a best judgment is to made and quoted the Judgement of Privy Council in the matter of CIT Vs. Laxm ina rain Badridas as under (1937) 5 ITR 170:

43 I.T.A. No. 3652 & 4290/Mum/2015 & 1238/Mum/2018 Karan R. Shah "He (the assessing authority) must not act dishonestly or vindictively or capriciously because he must exercise judgment in the matter. He must make what he honestly believes to be a fair estimate of the proper figure of assessment, and for this purpose he must, their Lordships think, be able to take into consideration local knowledge and repute in regard to the asses.see's. circumstances, and his owr knowledge of previous returns by and assessments of the assessee, and all other matters which he thinks will assist him in arriving at a fair and proper estimate; and though there must necessarily be guess-work in the matter, it must be honest guess-work. The Judgement of Privy Council quoted by the Honorable Kerala High Court in St_ Theresa's case throws much needed light on the assessment on best of judgment and this applies to appellant before me. The AO has disregarded appellant's own books of accounts which are regularly maintained and appellant is also regularly assessed to tax. It is also seen that the AO has just taken the print-outs from the laptop Mac-book of one Mr. Kevin Rajendra Shah, the younger brother of the appellant who has nothing to do with the business activities of the appellant and has proceeded to make an addition to the appellant's returned income as Unexplained Expenditure u/s 69 of the Act. The

44 I.T.A. No. 3652 & 4290/Mum/2015 & 1238/Mum/2018 Karan R. Shah income based on such guess work has no place in law and the same requires to be deleted. In view of the above I delete the addition of Rs 61,58„000/-.

After having gone through the aforementioned order and hearing the parties at length, we find that Ld. CIT(A) after correctly appreciating the facts of the present case had concluded that AO had disregarded assessee’s own books of accounts which were regularly maintained and assessee is also regularly assessed to tax. As per the facts of the present, the AO had just taken the print outs from the laptop Mac book of one Mr. Kelvin R. Shah, younger brother of the assessee who had nothing to do with the business activity of the assessee. The addition made by the AO was based on guess work which has no place in law. The Ld. CIT(A) while reaching to the conclusion had correctly relied upon the judgment of Hon’ble Supreme Court in the case of CIT Vrs. S. Khader Khan (2013) 352 ITR 480 (SC), Ishwar Das Jain Vrs. Sohanlal Jain, AIR 2000 (SC) 426, Sheraton Apparel Vrs. ACIT (2002) 256 ITR 20 and the judgment passed by Hon’ble Kerala High Court in the case of St. Theresa’s Oil Mills Vrs. State of Kerala (1970) 76 ITR 365.

45 I.T.A. No. 3652 & 4290/Mum/2015 & 1238/Mum/2018 Karan R. Shah We have also considered and evaluated the facts of the present case as well as the legal proposition and have already decided the merits of the additions in appeal ITA No. 3652/Mum/15 in assessee’s own case.

Moreover, no new facts or contrary judgments have been brought on record before us in order to controvert or rebut the findings so recorded by Ld. CIT(A). Therefore, there are no reasons for us to interfere into or deviate from the findings recorded by the Ld. CIT(A). Hence, we are of the considered view that the findings so recorded by the Ld. CIT (A) are judicious and are well reasoned. Resultantly, this ground raised by the revenue stands dismissed.

ITA No. 1238/Mum/2018 (AY 2010-11) 19. Now we take up assessee’s appeal filed in ITA No. 1238/Mum/2018 for AY 2010-11 on the grounds mentioned herein below:-

46 I.T.A. No. 3652 & 4290/Mum/2015 & 1238/Mum/2018 Karan R. Shah 1] On the facts and circumstances of the case the Appellant submits that the Ld. Assessing Officer has made an addition of Rs.65,00,000/= under section 69C and the Lcl. Commissioner of Income Tax (Appeals)- 32, Mumbai, has erred in confirming the same.

2] The Appellant craves leave to add, alter, amend or delete any of the above Grounds of Appeal at the time of hearing.

47 I.T.A. No. 3652 & 4290/Mum/2015 & 1238/Mum/2018 Karan R. Shah deletions. It was further submitted that the present appeal had been filed during the pendency of the appeal filed by the AO wherein the order of the same CIT(A) had already been challenged, thus no prejudice would be caused to the revenue in case the delay is condoned, whereas a great prejudice would be caused to the assessee in case delay is not condoned.

48 I.T.A. No. 3652 & 4290/Mum/2015 & 1238/Mum/2018 Karan R. Shah this application is allowed and appeal is admitted to be heard on merits. 23. The solitary ground raised by the assessee relates to challenging the order of Ld. CIT(A) in confirming the action of AO on account of addition of Rs.65,00,000/- u/s 69C of I.T. Act.

„9.2. It may be noted that the above document was found and impounded during the course of survey at the office premises of the assessee on 07.02.2013. The reply of the assessee in the sworn statement to question

49 I.T.A. No. 3652 & 4290/Mum/2015 & 1238/Mum/2018 Karan R. Shah no. 69 that these expenses do not relate to him and he does not know for which tender theses expenses pertain to is an afterthought because apparently these expenses relate to the pre-approval stage of particular contract awarded by MCGM. The assessee is engaged in the business as Contractor and he is being awarded the contract work by MCGM. Moreover, since the document in question was found at the premises of the assessee during the course of survey, the assessee cannot absolve himself from the responsibility of proving the nature of contents in such document. Taking into account all these facts, the denial of the assessee about this expenditure cannot be accepted. Since this document has been found and impounded from the office premises of the assessee, he is duty bond to prove the nature of the contents of this page. Since the assesse has failed to do so, the amount of Rs.65,00,000/- is treated as unexplained expenditure of the assessee u/s 69C of the Act, 1961. The same is added to the total income. It may be stated here that since there is no date mentioned on this document as to which financial year it relates, for taxation purpose, the same is taken as unexplained expenditure u/s 69C of the A. Y. 2010-11 i.e. the year under assessment."

50 I.T.A. No. 3652 & 4290/Mum/2015 & 1238/Mum/2018 Karan R. Shah It was submitted that the AO had made additions on a loose paper without corroborating the same. This loose paper according to the assessee is not in the handwriting of the assessee and does not bear any signature. In this respect, on a specific question by the Survey Officer (question no. 69), the assessee had categorically denied having incurred any such expenditure and this being a dumb document, no data recorded therein has been corroborated by the assessing officer. The Ld. AR also stressed that the AO had made the above additions based on assumptions and presumptions. The AO justified in his order that "It may be stated here that since there is no date mentioned on this document as to which financial year it relates, for the taxation purpose, the same is taken as unexplained expenditure u/s 69C for the A. Y. 2010-11 i.e. the year under assessment." It was submitted that from the above findings of AO, it shows that the AO had adopted the method of pick and choose any particular assessment year for making the additions. Since the additions are on account of „unexplained expenditure‟ under section 69 of the Act, the same has to be „postulated or ascertained‟ beyond doubt to conclude that such expenditure has

51 I.T.A. No. 3652 & 4290/Mum/2015 & 1238/Mum/2018 Karan R. Shah been really incurred by assessee and if the assessee fails to provide satisfactory reply for having incurred such expenditure, addition under this section is then warranted. The Ld. AR also submitted that in this case, the AO has not corroborated this piece of paper with evidence and had he done so, then the question of picking and choosing the year of taxation would not have arisen. It was submitted that a document left uncorroborated is a dumb document and relied on a decision of ITAT, Mumbai in the case of ACIT vs. M/s. Layers Exports Private Limited to show that meaning of "document" and its "evidentiary value" (Relevant para is at serial no. 34 and page no.53).

52 I.T.A. No. 3652 & 4290/Mum/2015 & 1238/Mum/2018 Karan R. Shah

53 I.T.A. No. 3652 & 4290/Mum/2015 & 1238/Mum/2018 Karan R. Shah and positive materials found during search which prove conclusively that the assessee has either earned an income or made an investment which has not been recorded in his regular books of account or that his case is covered under any of the deeming provisions contained in sections 68, 69, 69A to 69D of the Act. However, additions cannot be sustained merely on the basis of rough noting made on few loose sheets of papers unless the AO brings on record some independent and corroborative materials to prove irrefutably that the said noting reveal either unaccounted income or unaccounted investment or unaccounted expenditure of the assessee. As discussed above, in the instant case, assessments for the impugned years have been completed u/s 153A of the Act which relates to assessment in case of search or requisition. The prerequisite condition for application of Sec. 153A of the Act is a search conducted under section 132 of the Act or any requisition made under section 132A of the Act to unearth hidden income or property. Thus, the very purpose/ essence of search conduced u/s 132 of the Act is to unearth hidden income or property or get hold of books of account or documents which has not been or will not be otherwise produced by the assessee in regular course on issue of summons or notice. In the assessee's case, as stated

54 I.T.A. No. 3652 & 4290/Mum/2015 & 1238/Mum/2018 Karan R. Shah above, the purported search action did not lead to discovery of any unaccounted money, bullion, jewellery or other valuable article or thing. Further, no books of account revealing any undisclosed transactions of the assessee were found during the course of search. The entire assessment order revolves around scribbling in loose sheets of papers seized from premises of another person in course of search action on such other person. It is a fact that the said rough loose sheets of papers scribbled by some anonymous person and seized in course of search of another person cannot be termed as 'documents' having any evidentiary value within the meaning of section 132 or section 132A of the Act. Thus, the entire assessment u/s 153A of the Act in case of the assessee rests on shaky and incorrect foundation and thus deserves to be quashed. Copies of the 19 loose sheets of papers marked as Annexure A-1 seized from the premises of PDTEPL are enclosed at pages 94-112 of the assessee‟s Paper Book-I.

55 I.T.A. No. 3652 & 4290/Mum/2015 & 1238/Mum/2018 Karan R. Shah of sections 132, 132A and 132(4A) of the Act. At Para 6.4 to 6.6 of the order, the Delhi Tribunal observed as under:-

"6.4 We find that the AO has made out the case for making such addition based exclusively on the said piece of paper found and seized during the course of search. It is, therefore, to be examined whether the said paper found and seized is a document having evidentiary value to prove the fact of the transaction. The word "document" has been defined in s. 32 of the Indian Evidence Act to mean - any matter expressed or described upon any substance by means of letters, figures, or marks or more than one of those means, intended to be used or which may be used for the purpose of recording that matter. The word "document" has also been similarly defined in the General Clauses Act. The meaning of the word "describe ................ According to the Hon'ble Supreme Court in the case of Ramji Dayawala & Sons (P) Ltd. vs. Invert Import AIR 1981 SC 2085, mere proof of the handwriting of a document would not tantamount to a proof of all the contents or facts stated in the documents, if the truth of the facts stated in a document is in issue, mere proof of the handwriting and execution of the document would not furnish evidence

56 I.T.A. No. 3652 & 4290/Mum/2015 & 1238/Mum/2018 Karan R. Shah of the truth of the fact or contents of the document. The truth or otherwise of the fact or contents so stated would have to be proved by admissible evidence i.e., by the evidence of those persons who can vouchsafe for the truth of the facts in Issue.

6.5 Further, the Hon'ble Supreme Court in the case of Mohd. Yusuf& Anr. Vs. D. & Anr. AIR 1968 Bom. 112 has observed that the evidence of the contents contained in document is hearsay evidence unless the writer thereof is examined before the Court. The Hon'ble Court, therefore, held that the attempt to prove the contents of the document by proving the signatures of the handwriting of the author thereof is set at naught, the well-recognised rule that hearsay evidence cannot be admitted.

6.6 If we consider the said piece of paper seized during search in light of the definition of the word "document" as given in the Indian Evidence Act and General Clauses Act and the truthfulness of the contents thereof in light of the aforesaid decisions of the Hon'ble Supreme Court we find that the said paper contains jottings of certain figures but the same does not describe or express the substance of any transaction and even if the said paper has been seized from the possession of the assessee the contents thereof are not

57 I.T.A. No. 3652 & 4290/Mum/2015 & 1238/Mum/2018 Karan R. Shah capable of describing the transactions the way the AO has deciphered them without support of corroborative evidence of the parties attributed to the alleged transaction. The said paper, therefore, does not come within the compass of the definition of the word "document" to be used as any evidence. The paper seized, therefore, has no evidentiary value and accordingly the same cannot form the basis for assessing the undisclosed Income."

In light of the aforesaid judgment, we are of the view that the impugned loose sheets of papers cannot come within the ambit of definition of the word "document" to be used as evidence and the same cannot form the basis for assessing the undisclosed income of the assessee. Admittedly, the said loose papers are not in the form of pronotes or duly executed documents or books of account or certificates or money receipts which can prove conclusively the factum of any undisclosed income earned by the assessee or any unaccounted investments or expenditure made by him. Additions cannot be made simply on the basis of rough scribbling made by some unidentified person on few loose sheets of papers.

58 I.T.A. No. 3652 & 4290/Mum/2015 & 1238/Mum/2018 Karan R. Shah Radheshyam Poddar reported in (1992) 41 lTD (Cal) 449 (Copy enclosed at pages 368-372 of assessee‟s Paper Book) wherein it was held that no addition can be made simply on the basis of an unsigned piece of paper. Held as under (at para 5 of the order):-

"After hearing the rival submissions we are of the opinion that the assessee should succeed in this regard. It is no doubt true that as per the provisions of section 132 (4A)(ii), when any document is seized pursuant to search it may be presumed that the contents of such documents are true. We have examined a copy of MOU filed before us in this appeal and we find that the same, is not signed either by the assessee or by any person for and on behalf of Naihati Jute Mills. No names whatsoever are also mentioned in the said MOU on the basis of which the Assessing Officer has made the addition of Rs. 4,93, 900. We entirely agree with the assessee's counsel that under section 132(4A) there is no presumption that if an unsigned paper or document is found during the course of search it has to be presumed that it is signed. We find in section 132(4A)(ii) that if there is signature on any document or account books recovered during the course of search then it has to be presumed that the signature and every other part of such account books and other

59 I.T.A. No. 3652 & 4290/Mum/2015 & 1238/Mum/2018 Karan R. Shah documents which purport to be in the handwriting of any particular person or which may reasonably be assumed to have been signed by or to be in the handwriting of any particular person are in that person's handwriting. Needless to say that in law no document or paper can have any validity or enforceability until the same bears signature of concerned parties. Signature is the soul and any paper, notice or document is a body. Body without a soul is of no use, value or consequence. What is the significance and importance of a signature on any document can be found in the judgment of Hon'ble Calcutta High Court in the case of B.K Gooyee v. CIT [1966] 62 ITR 109. In that case the Assessing Officer issued a notice under section 34 of the Income-tax Act, 1922 but did not sign it. When the matter came up before the Hon'ble High Court at Calcutta it was held by their Lordships that the unsigned notice issued by the ITO was invalid and consequently equal to no notice. If we are to agree with the contention of the revenue that though the MOU is unsigned the same should form the basis for making additions as per the presumptive provision contained in section 1 32(4A)(ii) of the Income-tax Act, 1961 then there will be harsh, highpitched and unreasonable assessments leading to absurd results and miserable consequences on the taxpayers. The provisions of

60 I.T.A. No. 3652 & 4290/Mum/2015 & 1238/Mum/2018 Karan R. Shah section 132(4A) will become oppressive if applied in this manner and surely this is not the purpose or intention of the Legislature in enacting section 132(4A) in Income-tax Act. Like any other provision of a statute the provisions of section 132(4A) also have to be applied and interpreted in very reasonable manner and in consonance with justice. We say so on the basis of judgment of Hon'ble Supreme Court in the case of R.B. Jodha Mal Kuthiala v. CIT [1971] 82 ITR 570 at p. 575."

61 I.T.A. No. 3652 & 4290/Mum/2015 & 1238/Mum/2018 Karan R. Shah as under (Copy enclosed at pages 303-315 of assessee‟s Paper Book):-

“Then for presuming that the contents of the books of account or document are true the document must be a speaking one. In this case the slip, said to have been recovered by the revenue, does not contain any narration in respect of the various figures noted therein. The slip does not indicate whether the figures referred to quantities of money or to quantities of goods and whether one side, and if so, which side represents receipts and which side represents outgoings. This is, thus a dumb document and as the orders of the authorities below would show they have merely added the total of the right side of the slip without supplying the figures any language to indicate their meaning. In the case of such a dumb document, the provisions of Section 132(4A) do not permit any one to presume that the total of the figures of right side of the slip represents the assessee's income. The presumption at the most is attracted to the fig ures and a further presumption that they represent the income of the assessee Is not permissible under Section 132(4A). When a dumb document, like the present slip, is recovered and the revenue wants to make use of it, it is the duty of the revenue to collect necessary evidence

62 I.T.A. No. 3652 & 4290/Mum/2015 & 1238/Mum/2018 Karan R. Shah which may provide an acceptable narration to the various entries. The evidence collected should be such that any reasonable man would accept, the hypothesis advanced by the revenue that the figures written on the right side of the slip represent incomes earned by the assessee. It was conceded by the learned Departmental Representative that no such evidence has been brought on record.......Therefore the additions cannot be sustained and they are hereby deleted." (Emphasis supplied).

63 I.T.A. No. 3652 & 4290/Mum/2015 & 1238/Mum/2018 Karan R. Shah Further, no circumstantial evidence in the form of any unaccounted cash, jewellery or investments outside the books of account was found in course of search in the case of assessee. Thus, the impugned addition was made by the AO on grossly inadequate material or rather no material at all and as such, deserves to be deleted. Hence, we are of the view that an assessment carried out in pursuance of search, no addition can be made simply on the basis of uncorroborated noting in loose papers found during search because the addition on account of alleged on-money receipts made simply on the basis of uncorroborated noting and scribbling on loose sheets of papers made by some unidentified person and having no evidentiary value, is unsustainable and bad-in-law. As such, the same is deleted. This issue of the assessee‟s appeal is allowed and that of the Revenue is dismissed.

After having gone through the above decision, we find that the Coordinate Bench of ITAT under the similar circumstances, concluded that the additions cannot be sustained merely on the basis of rough noting made on loose sheet unless the AO brings on record some independent and corroborative material to prove irrefutably that the said noting reveal either ‘unaccounted income

64 I.T.A. No. 3652 & 4290/Mum/2015 & 1238/Mum/2018 Karan R. Shah or unaccounted investment or unaccounted expenditure’ of the assessee. The prerequisite condition for application of Sec. 153A of the Act is a search conducted under section 132 of the Act or any requisition made under section 132A of the Act to unearth ‘hidden income or property’. Thus, the very purpose/ essence of search conduced u/s 132 of the Act is to unearth hidden income or property or get hold of books of account or documents which has not been or will not be otherwise produced by the assessee in regular course on issue of summons or notice. In the assessee's case, as stated above, the purported search action did not lead to discovery of any unaccounted money, bullion, jewellery or other valuable article or thing. Further, no books of account revealing any undisclosed transactions of the assessee were found during the course of search. The entire assessment order revolves around scribbling in loose sheet of paper seized from the premises. In the course of search action, said rough loose sheet of paper was seized which cannot be termed as 'documents' having any evidentiary value within the meaning of section 132 or section 132A of the Act. The Co-ordinate bench of Delhi Tribunal in the case of Atul Kumar Jain Vs. DCIT reported in (1999) 64 TTJ

65 I.T.A. No. 3652 & 4290/Mum/2015 & 1238/Mum/2018 Karan R. Shah (Del) 786 had an occasion to examine the meaning word "document" and its evidentiary value for the purposes of sections 132, 132A and 132(4A) of the Act. At Para 6.4 to 6.6 of the order, the Delhi Tribunal observed as under:- "6.4 We find that the AO has made out the case for making such addition based exclusively on the said piece of paper found and seized during the course of search. It is, therefore, to be examined whether the said paper found and seized is a document having evidentiary value to prove the fact of the transaction. The word "document" has been defined in s. 32 of the Indian Evidence Act to mean - any matter expressed or described upon any substance by means of letters, figures, or marks or more than one of those means, intended to be used or which may be used for the purpose of recording that matter. The word "document" has also been similarly defined in the General Clauses Act. The meaning of the word "describe ................ According to the Hon'ble Supreme Court in the case of Ramji Dayawala & Sons (P) Ltd. vs. Invert Import AIR 1981 SC 2085, mere proof of the handwriting of a document would not tantamount to a proof of all the contents or facts stated in the documents, if the truth of the facts stated in a document is in issue, mere proof of the handwriting and

66 I.T.A. No. 3652 & 4290/Mum/2015 & 1238/Mum/2018 Karan R. Shah execution of the document would not furnish evidence of the truth of the fact or contents of the document. The truth or otherwise of the fact or contents so stated would have to be proved by admissible evidence i.e., by the evidence of those persons who can vouchsafe for the truth of the facts in Issue.

6.5 Further, the Hon'ble Supreme Court in the case of Mohd. Yusuf& Anr. Vs. D. & Anr. AIR 1968 Bom. 112 has observed that the evidence of the contents contained in document is hearsay evidence unless the writer thereof is examined before the Court. The Hon'ble Court, therefore, held that the attempt to prove the contents of the document by proving the signatures of the handwriting of the author thereof is set at naught, the well-recognised rule that hearsay evidence cannot be admitted.

6.6 If we consider the said piece of paper seized during search in light of the definition of the word "document" as given in the Indian Evidence Act and General Clauses Act and the truthfulness of the contents thereof in light of the aforesaid decisions of the Hon'ble Supreme Court we find that the said paper contains jottings of certain figures but the same does not describe or express the substance of any transaction and even if the said paper has been seized from the

67 I.T.A. No. 3652 & 4290/Mum/2015 & 1238/Mum/2018 Karan R. Shah possession of the assessee the contents thereof are not capable of describing the transactions the way the AO has deciphered them without support of corroborative evidence of the parties attributed to the alleged transaction. The said paper, therefore, does not come within the compass of the definition of the word "document" to be used as any evidence. The paper seized, therefore, has no evidentiary value and accordingly the same cannot form the basis for assessing the undisclosed Income."

In light of the aforesaid judgment, we are of the view that the impugned loose sheet of paper cannot come within the ambit of definition of the word "document" to be used as evidence and the same cannot form the basis for assessing the undisclosed income of the assessee. Admittedly, the said loose paper is not in the form of pronotes or duly executed documents or books of account or certificates or money receipts which can prove conclusively the factum of any undisclosed income earned by the assessee or any unaccounted investments or expenditure made by him. Additions cannot be made simply on the basis of rough scribbling made by some unidentified person.

68 I.T.A. No. 3652 & 4290/Mum/2015 & 1238/Mum/2018 Karan R. Shah We have also considered the order in the case of Pioneer Publicity Corporation & Others Vs. DCIT reported in 67 TTJ 471, wherein Tribunal held that

“no addition could be made simply on the basis of a noting on a visiting card found during search directing certain payment to bearer of card when there was nothing to establish that the assessee paid the amount to the said person. The Department had not made any enquiry from the person named. In the card about the amount given and as such, no addition could be made in the hands of the assessee.”

In the present case, we find that an unsigned loose paper depicting was found during the course of search which according to the AO depict expenditure incurred by the assessee, which the AO has failed to corroborate the same. This paper therefore cannot be termed as a ‘piece of evidence‟ favoring the revenue. Since the impugned seized paper is undated, has no acceptable narration and do not bear the signature of the assessee or any other party, therefore the same is considered in the nature of

69 I.T.A. No. 3652 & 4290/Mum/2015 & 1238/Mum/2018 Karan R. Shah dump document having no evidentiary value and cannot be taken as a sole basis for determination of undisclosed income of the assessee. We are of the view that when dumb document like the present loose sheet of paper is recovered and the Revenue wants to make use of it, then the onus rests on the Revenue to collect cogent evidence to corroborate the noting therein. Since in the present case, the Revenue has failed to corroborate the noting by bringing some cogent material on record to prove conclusively that the noting in the seized paper reveal the unaccounted expenditure incurred by the assessee. Thus the impugned addition was made by the AO on grossly inadequate material or rather no material at all and as such, deserves to be deleted. Resultantly, this ground raised by the assessee is allowed.

70 I.T.A. No. 3652 & 4290/Mum/2015 & 1238/Mum/2018 Karan R. Shah Sr.PS. Dhananjay आदेशकीप्रनिनिनिअग्रेनर्ि/Copy of the Order forwarded to : 1. अपीलाथी/ The Appellant प्रत्यथी/ The Respondent 2. 3. आयकरआयुक्त(अपील) / The CIT(A) 4. आयकरआयुक्त/ CIT- concerned यवभागीयप्रयतयनयध, आयकरअपीलीयअयधकरण, मुंबई/ DR, ITAT, 5. Mumbai गार्डफाईल / Guard File 6. आदेशधिुसधर/ BY ORDER, .उि/सहधयकिंजीकधर (Dy./Asstt.Registrar) आयकरअिीिीयअनर्करण, मुंबई/ ITAT, Mumbai