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Zakaulla Siddiqui 2 303, 304, 243/Mum/2015 ORDER
PER N.K. PRADHAN, AM
The captioned cross appeals- three by the assesseeand the one by the Revenue – are directed against the order of the Commissioner of Income Tax (Appeals)-36, [in short ‘CIT(A)’] Mumbai and arise out of the assessment completed u/s 153 r.w.s. 143(3) of the Income Tax Act 1961 (the ‘Act’). As common issues are involved, we are proceeding to dispose them off by this consolidated order for the sake of convenience. Assessment Year: 2006-07 2. The ground of appeal filed by the assessee reads as under: The Ld. CIT(A) erred in sustaining the addition of capital gain of Rs.29,50,000/- on account of unexplained credit in HSBC Bank without appreciating the fact that the amount was received pursuant to the Will of Late Abdul Aziz Habib Currimbhoy who had passed away on 25.08.2004, therefore, the addition sustained was not justified. 2.1 Briefly stated, the facts of the case are that a search and seizure action u/s 132(1) was carried out at the business and residential premises of Zakagroup on 22.02.2011 by the Deputy Director of Income Tax (Investigation), Unit-III(3), Mumbai. The assessee was also covered u/s 132(1) of the Act. The Zakagroup was engaged in providing services related to tour and travel and was founded by the assessee. Later on, the group diversified into other related business which includes tour operation, cargo handling, technology solutions etc. The Assessing Officer (AO) issued notice u/s 153A on 30.01.2012 to the assessee. In Zakaulla Siddiqui 3 303, 304, 243/Mum/2015 response to it, the assessee filed its return of income for the AY 2006-07 on 09.03.2012 declaring total income at Rs.3,84,497/-. During the course of assessment proceedings, the AO found that amount of Rs.5,00,000/-, Rs.15,00,000/- and Rs.25,00,000/- were credited in the account of the assessee in HSBC Bank Account No. 37679. The assesseemade the following submission before the AO: “Sir, the said receipt of Rs.45,00,000/- is the amount received by Mr. Zakauallah Siddiqui as an executor of the Will. Sir, I very humbly bring to your honours kind attention the fact that the said amount was raised as per the WILL of late Abdul Aziz Habib Currimbhoy, a friend of Mr. Zakaullah Siddiqui. The copy of the “THE WILL” is enclosed herewith for your honours kind reference. Sir, I humbly submit that the said money is lying in the Account of Mr. M.Z. Siddiqui as a custodian only.” However, the AO was not convinced with the above explanation of the assessee as there was no co-relation between the cash credit and ‘the Will’. The said ‘Will’ was executed in the year 2000-01 and the deposits were appearing in the financial year 2005-06. The AO found it highly improbable that the amount was received after lapse of five years from execution of ‘the Will’. Therefore, he found the explanation of the assessee unacceptable and made an addition of Rs.45,00,000/-. 2.2. Aggrieved by the order of the AO, the assessee filed an appeal before the Ld. CIT(A). The assessee also filed an additional ground of appeal before the Ld. CIT(A) stating that the assessment made u/s 143(3) r.w.s. 153A on the basis of search action u/s 132 is not a de novo assessment as power of review is not available under the Act and since addition made by the AO in the assessment completed u/s 143(3) r.w.s.
Zakaulla Siddiqui 4 303, 304, 243/Mum/2015 153A is not based on seized material or any incriminating material found in the course of search action, the same may be deleted. The Ld. CIT(A) held that in the case of the assessee, there were certain incriminating materials that were seized during the course of search and were brought on record by the AO in the assessment order. She found the action of the AO as correct because inquiries were conducted on the basis of such seized materials. On the above reasons, the Ld. CIT(A) dismissed the additional ground filed by the assessee. The Ld. CIT(A), having examined the remand report submitted by the AO and the submissions made by the assessee held: “The application of 8 lakhs to the maid has been agreed by the AO. Again, an expenditure of Rs.7.5 lakhs on Haj Pilgrimage has also been verified by the AO. Even though he states that no supporting documents were provided. I have also carefully perused the will but it is seen that the appellant could not give documentary proof before me regarding the applicability of the balance (Rs.45,00,000-Rs.15,50,000/-) in appellate proceedings also. Therefore, I have no other option but a confirm this amount of Rs.29,50,000/- and delete the balance Rs.15,50,000/-.” 2.3 Before us, the Ld. counsel of the assessee relies on the decision in CIT v. Continental Warehousing Corporation (2015) 374 ITR 645 (Bom) and submits that since the addition made by the AO in the assessment completed u/s 143(3) r.w.s. 153A is not based on seized material or any incriminating material found during the course of search action, the same may be deleted.
Zakaulla Siddiqui 5 303, 304, 243/Mum/2015 2.4 On the other hand, the Ld. DR relies on the order passed by the Ld. CIT(A). 2.5 We have heard the rival submissions and perused the relevant materials on record. The reasons for our decisions are given below. In the case of Continental Warehousing Corporation(supra), a search was carried out on the premises of the assesseeand a notice u/s 153A was issued. The assessee declared a total income of Rs.5,54,63,220/- while claiming the deduction u/s 80-IA(4) of Rs.1,25,77,637/-. The Assessing Officer held that the assessee was not entitled to the deduction u/s 80-IA. The Commissioner (Appeals) upheld the order of the Assessing Officer. The Special Bench of the Tribunal held that by the clear language of section 153A together with its provisos, pending assessments abated and that the Assessing Officer was required to make one assessment for each of the six years on the basis of the search and any other material existing or brought on record by the Assessing Officer, that in other cases assessments would be made on the basis of the books of account and other documents found during the search and not produced during assessment and also on any other undisclosed income or property found during the search. On appeals, the Hon’ble High Court held dismissing the same that “the notice u/s 153A was founded on search. If there was no incriminating material found during the search then the Tribunal was right in holding that the power u/s 153A being not expected to be exercised routinely, should be exercised if the search revealed any incriminating material. If that was not found then in relation to the Zakaulla Siddiqui 6 303, 304, 243/Mum/2015 second phase of three years, there was no warrant for making an order within the meaning of this provision.” 2.6 In the instant case, the return of income for the AY 2006-07 was filed by the assessee on 31.07.2006 declaring total income of Rs.3,84,497/-. The AO completed the assessment u/s 143(3) on 14.07.2008 arriving at the same income as disclosed by the assessee. The Department conducted the search and seizure action u/s 132 in the premises of the assessee on 22.02.2011. We find that in the original assessment completed by the AO u/s 143(3) dated 14.07.2008, it has been mentioned at para 2 (page 1) that the assessee filed the details called for. We find from para 9.1 (page 3) of the assessment order dated 28.03.2013 passed u/s 153A r.w.s. 143(3) that during the course of assessment proceedings pursuant to search, the AO asked the assessee to produce the bank statement for the year under consideration. It was not seized during the course of search. In Continental Warehousing Corporation (supra), it is held that finalized assessment/reassessment shall not abate. Only undisclosed income and undisclosed assets detected during search could be brought to tax in respect of those years. As the assessment for the AY 2006-07 was already finalized by the AO by making the assessment u/s 143(3) dated 14.07.2008, following the above decision of the Hon’ble Bombay High Court, we delete the addition of Rs.29,50,000/- confirmed by the Ld. CIT(A). 2.7 In the result, the appeal filed by the assessee is allowed.
Zakaulla Siddiqui 7 303, 304, 243/Mum/2015 ITA No. 303/MUM/2015 Assessment Year: 2010-11 3. The ground of appeal filed by the assessee reads as under: The Ld. CIT(A) erred in sustaining the disallowance u/s2(22)(e) of Rs.1,66,80,010/- as deemed dividend without appreciating that the provision was not applicable to facts of the case. 3.1 The assesseealso filed an additional ground reiterating the submission made at para 2.2 hereinbefore. It is found that the same additional ground was filed before the Ld. CIT(A). Therefore, we admit the same for adjudication. 3.2 The AO found, during the course of assessment proceedings, from the bank statement of Bombay Mercantile Bank, that the assessee had received Rs.52,00,000/- from M/s Zaireen Travels (Partnership Firm) and Rs.2,50,00,000/- from M/s Indo Saudi Services (Carrier) Pvt. Ltd(in short ‘ISSCPL’). The assessee was holding 50% of shares in ISSCPL. The assessee explained to the AO that these payments were received by him to dispose off the liability in pursuance of the order of Hon’ble Bombay High Court. The AO observed that the assessee was a party in the said dispute whereas ISSCPL was not a party. The AO thus concluded that as ISSCPL was not a party in the said dispute. As the available reserve and surplus in the balance sheet of ISSCPL was Rs.1,95,51,394/-, the AO restricted the deemed dividend to the above sum and made an addition of it u/s 2(22)(e) of the Act.
Zakaulla Siddiqui 8 303, 304, 243/Mum/2015 3.3 Aggrieved by the order of the AO, the assessee filed an appeal before the Ld. CIT(A). The Ld. CIT(A) held that in the case of the assessee, there were certain incriminating materials that were seized during the course of search and brought on record by the AO in the assessment order. She found the action of the AO as correct because inquiries were conducted on the basis of such seized materials. On the above reasons, the Ld. CIT(A) dismissed the additional ground filed by the assessee. The Ld. CIT(A) having gone through the remand report submitted by the AO and the submissions made by the assessee held : “The appellant agrees to addition of Rs.1,66,80,010/-. It is seen that the AO has made proper application of mind and also stated that the benefit of Rs.81,56,957/- can be given only if the same is confirmed in the hands of Mr. Faisal Siddique for AY 2007-08. Therefore, in the light of the above, addition of Rs.1,66,80,010/- is confirmed out of total addition of Rs.1,95,51,394/-. Therefore, this ground of appeal is partly allowed vide my appeal order dated 17.10.2014 for Mr. Faisal Siddique for AY 2007-08, the addition of Rs.81,56,597/- is sustained by the undersigned.” 3.4 Before us, Ld. Counsel of the assesseee relies on Continental Warehousing Corporation (supra) in support of the additional ground. He further submits that during the year, the assessee received Rs.2,50,00,000/- from ISSCPL in which he was a 50% shareholder. The said amount was received by the assessee on behalf of Indo Saudi Services (Travels) Pvt. Ltd. (in short ‘ISSTPL’) to arrive at a settlement and to pay of the liability of ISSTPL in pursuant to settlement terms arrived at by the said company in litigation with Mrs. Michelle Zakaulla Siddiqui 9 303, 304, 243/Mum/2015 Rodriguez(after marriage her name changed to Mrs. Michelle Al Fahoum), wife of late Mr. Jawad AI Fahoum (who was a director of the company along with the assessee at the time of commencement of business) in the Bombay High Court. It is stated in the consent terms finalized by the ISSTPL, it was directed that the assessee pays the agreed amount to Mrs. Michelle Al Fahoum towards purchase of her shares. The assessee paid Rs.3.50 crores to Mrs. Michelle Al Fahoumas follows: - Rs.48,00,000/- from own fund, - Rs.52,00,000/- from amount received form M/s Zaireen Travel Services, - Rs.2,50,00,000/- from amounts received from ISSCPL It is argued that since the assesseewas a party to the suit, he was directed by the Bombay High Court to pay the amount as per the consent terms. Since business interests were most affected, the assessee took the money from ISSCPL and immediately within two days paid the amount as per the consent terms. Thus, it is argued that the above transaction is not that of a loan/advance to the assessee for his benefit but a normal business transaction wherein to protect its business interests, ISSCPL paid the impugned sum. Furthermore, the beneficiary of the said sum is not the assessee but ISSCPL and other companies of the group. To sum up, it is submitted that it was a commercial and business decision to protect the business interest of all the parties. Reliance is Zakaulla Siddiqui 10 303, 304, 243/Mum/2015 placed by him on the decision in S.A. Builders Ltd. v. CIT (2007) 288 ITR 1 (SC) and the CBDT Circular No. 19/2017. 3.5 Per contra, the Ld. DR supports the order of the Ld. CIT(A). He submits that it is a pure case of deemed dividend to be taxed u/s 2(22)(e) of the Act. He also relies on the decision in CIT v. Mukundray K. Shah (2007) 290 ITR 433 (SC) and files a copy of it. 3.6 We have heard the rival submissions and perused the relevant materials on record. The reasons for our decisions are given below. It is found that the assessee has filed his return of income for the AY 2010-11 on 25.07.2010. The AO can issue notice u/s 143(2) within six months from the end of the financial year in which the return is furnished i.e. 2010-11. The search took place on 22.02.2011. Therefore, the ratio laid down in Continental Warehousing Corporation (supra) is not applicable to the AY 2010-11. We thus dismiss the additional ground of appeal filed by the assessee. Now we begin with the decisions relied on by the Ld. Counsel of the assessee. In S.A. Builders Ltd. (supra), the assessee borrowed fund from bank and advanced part of it to its sister concern (a subsidiary) as interest-free loan. The AO disallowed interest under section 36(1)(iii) on borrowings to the extent those were advanced tosubsidiary. Tribunal as well as High Court upheld order of AO. The Hon’ble Supreme Court held that since neither High Court nor Tribunal and other authorities had examined whether amount advanced to sister concern was by way Zakaulla Siddiqui
11. ITA Nos. 302, 303, 304, 243/Mum/2015 of commercial expediency, matter was to be remanded to Tribunal for a fresh decision in accordance with law. Thus the issue before the Hon’ble Supreme Court was claim of interest on borrowed capital u/s 36(1)(iii). This is not so in the present appeal. 3.6.1 At this juncture we refer below to section 2(22)(e) which deals with loans/advances to certain shareholders/concerns: Any payment by a company, (other than a company in which the public are substantially interested), of any sum (whether as representing a part of the assets of the company or otherwise) by way of advance of loan, to the extent of accumulated profits (excluding capitalized profit) to :- (i) a equity shareholder, who is beneficial owner of shares holding not less than ten per cent of voting power; or (ii) any concern in which such shareholder (holding not less than 10% voting power) is a member or a partner and in which he has a substantial interest; or (iii) any person, on behalf, or for the individual benefit, of any such shareholder. Such shareholder here means a shareholder who is beneficial owner of shareholding less than 10% voting power. 3.6.2 In order to ascertain the factual matrix we ask : What better material is there than to look at the Paper Book ? The assessee has filed a Paper Book(P/B) before us. Let us read it.
Zakaulla Siddiqui 12 303, 304, 243/Mum/2015 The assessee was having 50% shareholding in ISSCPL. We find that ISSTPL was incorporated on 17.01.1983 and started operation in the year 1985 with two directors – the assessee(Mr. Zakaullah Siddiqui) and Mr. Jawad Al Fahoum( a Saudi national married to Ms Michelle Rodriguez and after marriage her name changed to Mrs Michelle Jawad-AI-Fahoum) (Page 339 of the P/B). Mrs Michelle Jawad-AI-Fahoum filed a petition on 24th March 1995, before the Company Law Board, Principal Bench, New Delhi (Interim Application No 14 of 1995 in C.P. No. 2 of 1995) (Page 80-86 of the P/B). The Respondents are ISSTPL, Mr. Mohammad Zakaulla Siddiqui (the assessee) and others. Therein the petitioner has submitted that the respondents, in criminal conspiracy, abetment and collusion with one another have been steadfastly terrorizing her minor children so as to evict her from the premises where she had been residing since the past decade or more (Page 81 of the P/B). Mrs Michelle Jawad-AI-Fahoum also filed a petition on 12th July 1995, before the Company Law Board (CA No. 14 of 1995 in C.P.No. 2 of 1995) (Page 166-174 of the P/B). The Respondent are ISSTPL and others. In that petition, Mrs Michelle Jawad-AI-Fahoum (the Petitioner) has alleged that the funds of the company were maliciously and intentionally transferred from the company to the concerns in which the Directors were interested; challenged the authenticity of the records; apprehended that the records had been manipulated to the detriment of the interest of the petitioner and alleged siphoning of funds of the company (Page 171 of the P/B).
Zakaulla Siddiqui 13 303, 304, 243/Mum/2015 We may refer now to the order 10th February 1998 of the Company Law Board (CP No. 2 of 95) (Page 230-245 of the P/B). Here also Mrs Michelle Jawad-AI-Fahoum is the petitioner. The Respondents are ISSTPL, Mr. Mohammad Zakaulla Siddiqui (the assessee) and others. The introductory paragraph (Page 230-231 of the P/B) narrates the case and the same is produced below: “In the petition filed u/s 397/398 of the Companies Act in the matter of M/s Indo Saudi Travels Pvt. Ltd., when arguments were in progress, considering the facts and circumstances of the case, we had advised the parties that they should try to resolve the dispute amicably. Accordingly, the matter of settlement was discussed in our presence on a few occasions without any final result. On 08.07.1997, the parties finally agreed that the petitioner would sell her group’s shares to the respondents No. 2 or his nominees or to the company for a consideration of Rs.2.3 crores. This settlement was reached in our presence and a draft order containing various terms of compromise was dictated in the presence of both the parties and their counsel and was also signed by the parties along with their counsel. Before the fair order could be issued, Respondent No. 2 made an application for incorporating certain terms in the consent order. The fair order was issued on 14.08.1997 wherein we have also mentioned about this application.” In the consent terms dated 15th December 2009 taken on record before the Hon’ble Bombay High Court (Page 284-291 of the P/B), the Zakaulla Siddiqui 14 303, 304, 243/Mum/2015 Appellants are (1) Indo Saudi (Travels) Pvt. Ltd, (2) Mr. Mohammad Zakaullah Siddiqui, (3) Mrs. Naseem Z. Siddiqui and (4) Miss Tasneem Z. Siddiqui whereas the Respondents are (1) Mrs Michelle Jawad-AI- Fahoum, (2) Mr. Bomi H. Hansotia, (3) Mr. A. Fernanades and (4) Mr. M.G.Qazi. As per it “the Respondent No.1 holds 500 equity shares, Respondent No.6 holds 500 equity shares and the Respondent No. 7 holds 1000 equity shares aggregating to 2500 equity shares in 1st appellant company, Indo Saudi(Travels) Pvt. Ltd.” Then it is stated that the 2nd Appellant would pay to the Respondent No. 1 an aggregate sum of Rs.4,45,00,000/- in full and final settlement and discharge of all the claims of the Respondent No. 1, 5, 6 & 7 raised by them in Company Petition No. 2 of 1995 filed before the Company Law Board. The Hon’ble Bombay High Court in Indo Saudi (Travels) & Others v. Mrs Michelle Jawad-AI-Fahoum and others (Appeal No. 581 of 1998 in Company Appeal No. 3 of 1998) vide order dated 15th December 2009 disposed off the appeal in view of the consent terms (Page 281-283 of the P/B). 3.6.3 The CBDT Circular 19/2017 relied on by the Ld. Counsel clarifies that trade advances, which are in the nature of commercial transactions would not fall within the ambit of the word ‘advance’ in section 2(22)(e) of the Act. An examination of the factual matrix delineated at para 3.6.2 hereinbefore clearly tells us that the subject matter in the instant case is not of commercial transaction. Rather it is a case of personal disputes.
Zakaulla Siddiqui 15 303, 304, 243/Mum/2015 3.6.4 Now we discuss the following judgements of the Hon’ble Supreme Court which clarify the issue in the instant case. In Mukundray K. Shah (supra), the Hon’ble Supreme Court held that the ‘concept of deemed dividend’ u/s 2(22)(e) postulated two factors : (i) whether the payment was a loan and (ii) whether on the date of payment there existed accumulated profits. These two factors had to be co-related. In Tarulata Shyam v. CIT (1971) 82 ITR 485, 494 (Cal), affirmed in (1997) 108 ITR 345 (SC), again the Hon’ble Supreme Court held that u/s 2(22)(e), the liability to tax attaches to any amount taken as a loan by a shareholder from a closely-held company at the moment the loan is borrowed and it is immaterial whether the loan is repaid before the end of the accounting year or not . Again in Miss P. Sarada v. CIT (1998) 229 ITR 444, 448 (SC), the Hon’ble Supreme Court held that the loan or advance taken from the company may have been ultimately repaid or adjusted, but that will not alter the fact that the assessee, in the eye of law, had received dividend, on fulfilment of the conditions laid down in section 2(22)(e), from the company during the relevant previous year. In that view of the matter, where the company has made advance to the shareholder for construction of a building to be taken on lease by the company, such advance can be regarded as deemed dividend u/s 2(22)(e) on fulfilment of all the conditions in that regard, even though such advance is to be set off against the future rent payable by the company .
Zakaulla Siddiqui 16 303, 304, 243/Mum/2015 3.6.5 What is consent? It is agreement by choice. In the present case it is tinged heavily with personal disputes. In the instant case, the assessee had received Rs.2,50,00,000/- from ISSCPL in which he was having 50% shareholding. Also ISSCPL is not a party to the consent term dated 15.12.2009. The present factual matrix is to tested on the anvil of the aforesaid enunciation of law. Examined on the touch-stone of the afore- noted legal principles, we confirm the order of the Ld. CIT(A) restricting the disallowance u/s 2(22)(e) to the accumulated profit as on 15.12.2009 of Rs.1,66,80,010/- 3.7 In the result, the appeal for the AY 2010-11 filed by the assessee is dismissed. ITA No. 304/MUM/2015 Assessment Year: 2011-12
4. The 1st ground of appeal filed by the assessee reads as under: The Ld. CIT(A) erred in confirming the order of the Assessing Officer making the alleged addition of Rs.19 lacs on basis of loose paper which was not related to the assessee, therefore, the addition ought to be deleted. 4.1 The assessee also filed an additional ground reiterating the submission made at para 2.2 hereinbefore. It is found that the same additional ground was filed before the Ld. CIT(A). Therefore, we admit the same for adjudication.
Zakaulla Siddiqui 17 303, 304, 243/Mum/2015 4.2 The AO observed that on Page No. 70 of Annexure-A1 cash transaction appears, such as: “one is in the name of S. Kalmadi for the payment of Rs.7 lacs. Further it is written that Rs.6 lacs are already paid. And total is Rs.12 lacs appeared on the sheet.” In this regard, he asked the assessee to explain the details of transaction appearing on the paper. The assessee submitted that: “this piece of paper is pertaining to the operations of the Islam Gymkhana. Shri Zakaullah Siddiqui is the president of the Islam Gymkhana. This Gymkhana is available for the marriage ceremony and other functions. This page is nothing to do with the business of the Zakagroup of companies. This is a mere rough jotting and notting of estimate for decorate related expenses.” The AO observed that the assessee could not furnish supporting documents substantiating its statement given during the course of search. Therefore, he treated Rs.19 lacs as the unaccounted cash receipts and made an addition of it to the total income. 4.3 In appeal, the Ld. CIT(A) held that in the case of the assessee, there were certain incriminating materials that were seized during the course of search and brought on record by the AO in the assessment order. She found the action of the AO as correct because inquiries were conducted on the basis of such seized materials. On the above reasons, the Ld. CIT(A) dismissed the additional ground filed by the assessee.
Zakaulla Siddiqui 18 303, 304, 243/Mum/2015 Also the Ld. CIT(A), having gone through the remand report submitted by the AO and the submissions of the assessee held: “8.1 The AO in his remand report at para 11 states that during the appeal proceedings the appellant has submitted the confirmation from Mr. Karmali confirming that he has received cash to the appellant. The submission of the appellant is not found to be acceptable. Though the appellant has submitted the confirmation from one of the party mentioned on the paper but the appellant has not submitted any explanation or supporting documents regarding to the amounts mentioned “already paid- 6 lacs”. If at all these are accounted amounts, then books of account has to be submitted to establish the genuineness of the claim, which the appellant has not submitted. Hence, the AO stated that the claim of the appellant may be rejected and the addition may be confirmed. 8.2 The appellant is para 35-39 of his submission rebuts this by giving his explanation by relying on various case laws. I do not agree with the appellant because the appellant has also not produced the books of account both at assessment and remand stage as rightly stated by the AO. The facts and circumstances of the case laws are also different. 8.3 Therefore, this ground of appeal is dismissed.” 4.4 Before us, Ld. Counsel of the assesseee relies on Continental Warehousing Corporation (supra) in support of the additional ground. Also he submits that the said loose sheet is nothing but rough estimate expenses of decoration at Islam Gymkahana, of which the assessee was the president. It is stated that the figures mentioned in the loose sheets are mere rough jottings. Furthermore, the total of any of the figures mentioned does not come to Rs.12,00,000/- as Zakaulla Siddiqui 19 303, 304, 243/Mum/2015 mentioned. This shows that this is nothing but a dumb document and addition based merely on this is not justified. The AO failed to appreciate that no cash was ever paid to Mr. S.H. Karmali as alleged. 4.5 On the other hand, the Ld. DR relies on the order passed by the Ld. CIT(A). 4.6 We have heard the rival submissions and perused the relevant materials on record. It is found that the assessee has filed his return of income for the AY 2011-12 on 16.11.2011. The AO can issue notice u/s 143(2) within six months from the end of the financial year in which the return is furnished i.e. 2011-12. The search took place on 22.02.2011. Therefore, the ratio laid down in Continental Warehousing Corporation (supra) is not applicable to the AY 2011-12. The additional ground of appeal is therefore dismissed. 4.7 We find that the AO has failed to co-relate the amount written in the loose sheet of papers with any transaction. Rarely a transaction remains in isolation. The AO could have examined Mr. Karmali to find out the genuineness of transaction. He could have made further inquiry. He failed to do so. In view of the above, we delete the addition of Rs.19,00,000/- made by the AO and allow the 1st ground of appeal of the assessee.
5. The 2nd ground raised by the assessee reads as under: The Ld. CIT(A) erred in sustaining the disallowance u/s 2(22)(e) of Rs.28,87,984/- without appreciating that the provision of deemed dividend was not applicable to the transaction in question, therefore, the addition ought to be deleted.
Zakaulla Siddiqui 20 303, 304, 243/Mum/2015 5.1 The AO, while going through the bank statement of Bombay Mercantile Bank, found that the assessee had received Rs.1,00,00,000/- from ISSCPL in which the assessee was having 50% shareholding. The AO made an addition of Rs.1,00,00,000/- treating it as deemed dividend u/s 2(22)(e) on the same reasons adopted by him for the AY 2010-11 as delineated at para 3.2 hereinbefore. 5.2 Aggrieved by the order of the AO, the assessee filed an appeal before the Ld. CIT(A). The Ld. CIT(A), having gone through the remand report submitted by the AO and the submission of the assessee held: “In remand report at para 4 & 5 the AO has verified and stated that the addition of Rs.1,00,00,000/- is unwarranted and that he has verified all documentary evidence and that addition of Rs.28,87,984/- in only justifiable and that the same should be sustained. The AO states that the balance amount is liable to be deleted. The appellant’s explanation regarding full allowability is not acceptable. I have carefully perused the remand report and submissions of the appellant. Therefore, this ground of appeal is partly allowed. The additions of Rs.28,87,984/- is sustained and the balance allowed.” 5.3 The argument of the Ld. counsel of the assessee and that of the Ld. DR on the above issue of addition u/s 2(22)(e) of Rs.28,87,984/- in AY 2011-12 are similar to AY 2010-11 as mentioned at para 3.4 and 3.5 hereinbefore. Facts being identical, our decision for the AY 2010-11 arrived at para 3.6 hereinbefore applies mutatis mutandis to the above ground of appeal.
Zakaulla Siddiqui 21 303, 304, 243/Mum/2015 Thus the 2nd ground of appeal is dismissed.
6. The 3rd ground of appeal filed by the assessee and the 1st, 2nd and 3rd ground in cross appeal filed by the Revenue for the AY 2011-12 are discussed together below as they address a common issue The 3rd ground of appeal filed by the assessee reads as under: The Ld. CIT(A) erred in confirming the addition of jeweller at Rs.10,85,915/- without appreciating the complete facts. 6.1 The 1st, 2nd and 3rd ground in cross appeal filed by the Revenue read as under:
1. On the facts and in the circumstances of the case and in the law, the Ld. CIT(A) erred in deleting the addition of Rs.44,10,240/- made on account of Gold, Diamond and jewellery by relying on the CBDT instruction no.1916 and judgment pronounced by Hon'ble High Court Mumbai and ITAT Mumbai without appreciating the fact that it is nowhere mentioned in the instruction no. 1916 that such jewellery is treated as explained and exempted from tax.
2. On the facts and in the circumstances of the case and in the law, the Ld. CIT(A) erred in deleting the addition of Rs.44,10,240/- made on account of Gold, Diamond and jewellery without appreciating the fact that the assessee in the statement u/s 132(4) has accepted that the jewellery was acquired through his unaccounted income and offered for tax.
3. On the facts and in the circumstances of the case and in the law, the Ld. CIT(A) erred in deleting the addition of Rs.44,10,240/- made on account of Gold, Diamond and jewellery without appreciating the fact that the assessee has submitted the working by taking the average value of gold jewellery in place of valued done by the valuer.
Zakaulla Siddiqui 22 303, 304, 243/Mum/2015 6.2 In a nutshell the facts are that during the course of search at the premises of the assessee, gold and diamond jewellery valued at Rs.54,96,155/- was found in the wardrobe at 604, A-Wing, Shimla House, CHS, Napean Sea Road, Mumbai. The AO took into account the statement of the assessee recorded during the course of search and made an addition of Rs.54,96,155/- as undisclosed income. 6.3 In appeal, the assessee filed before the Ld. CIT(A) on 14.10.2014 the following submissions: "2. The appellant is from a well to do family, some of the jewellery is ancestral and received him from his ancestors on the occasion of his marriage / as gifts and some of this bequeathed. (On perusal of few items of jewellery as per the list your honour will appreciate the same).
Also, some of the jewellery is acquired by the appellant from his income and savings which is duly accounted for. The same has been acquired over a number of years and not in the year under consideration.
It is practically impossible to acquire jewellery of such high value in one year. Therefore, the rate of jewellery as on date of search adopted by the AO is not justified. Some average rate may be taken in the interests of justice. (A working of average rate to be applied is enclosed at 234 - 237A of paper book II additional evidence) and the chart of beneficiary of family members is enclosed.
Instruction no. 1916 dated 11.05.1994 which was discussed (AO order pg 5, Q2) by the search team in the statement recorded. However, the AO failed to give benefit of the said instruction at the time of making assessment. In the case of CIT v. Ratanlal Vyaparilal Jain (2011) 339 ITR 351 (Raj), it was held that the said circular takes into account the quantity of jewellery which would generally be held by the family members of an assessee and it can be safely presumed that the source to the extent of the jewellery stated in the circular Zakaulla Siddiqui 23 303, 304, 243/Mum/2015 stands explained. Thus, the order of the Tribunal deleting the addition was upheld. Thus, in this context the assessee is entitled to the benefit of the above instruction no. 1916 dated 11.05.1994. Without prejudice to the above, the seized jewellery was received by the appellant on occasions of her marriage, birth of children etc. from parents, and friends. The relevant proofs regarding these occasions inform of photographs be produced before your Honour, should Your Honour consider it necessary to peruse the same. Your Honour would appreciate that the appellant belongs to a well-to-do family and it is customary in such families to gift gold ornaments on such occasions. The AO is not justified in seeking evidence inform of confirmations for such gifts. These gifts are very old and the appellant cannot now be expected to ask for confirmations and bills of jewellery items. Out of the jewellery found at the time of search, some of the jewellery was of Mrs. Tasneem Daud Ally daughter of the appellant. She is an Australian Citizen, (Pg. no.239 to 241 of paper book II). Mrs. Tasneem kept her jewellery in India with her parents for safe custody and for use when she comes in India to attend social function/celebrations. At Australia there is no culture of wearing gold jewellery, hence she considers the carrying this gold jewellery a burden as well as risk The chart giving the valuation worked out by the Department and by the appellant is also reproduced below : The list of jewellery which was seized from Mr. Zakaullah Siddiqui’s Residence amounted to Rs.54,96,155/- in AY 2011-12. Valued at Rs. As per Department Net weight valuation 2849 Gms 54,96,155 30,96,870 As per Average rate 2849 Gms Zakaulla Siddiqui 24 ITA Nos. 302, 303, 304, 243/Mum/2015 2849 Gms Total Net weight as per valuer Less to be exempted 1850 Gms Balance 999 Gms The break up of exemption for Beneficiaries Names Gms Relation Exempted Mrs.NaseernZakaullah 500Gms (Wife) Siddiqui Exempted Miss.ZeenatZakaullah 250 Gms (Daughter) Siddiqui Exempted Mr.Zakaullah Siddiqui 100 Gms (Self) Exempted Mrs.TasneemDaud Ally 500 Gms (Daughter) Exempted Mrs. ZakiaNaseem Siddiqui 500 Gms (Niece) Exempted Balance 1850 Gms Working : Average rate for 2849 Gms comes to Rs.30,96,870/2849 Gms which comes to 1087 per Gms if so for 999 Gms x 1087 comes to Rs.10,85,915/- Thus without prejudice to our main contention that no addition ought to be made the above working may be considered.” 6.3.1 The Ld. CIT(A) having gone through the remand report, CBDT Instruction No. 1916 dated 11.05.1994 and the submissions of the assessee confirmed addition of Rs.10,85,915/- made by the AO on Zakaulla Siddiqui 25 303, 304, 243/Mum/2015 account of unaccounted investment in jewellery and deleted the balance addition of Rs.44,10,240/-. 6.4 The Ld. DR files written submissions stating that (i) the addition of jewellery on account of the same being unexplained is correct in the sense that the assessee himself in statement recorded on oath on 22.02.2011 had made an unambiguous and clear statement of admission, wherein he confirmed, inter alia that the gold, diamond and silver jewellery worth Rs.54,96,155/- was acquired from his unaccounted income generated from his various companies, in which he was a Director, (ii) the admission that the jewellery was from unaccounted sources was without any qualification and was clarified and confirmed in his sworn statement, (iii) the statement given about the jewellery has not retracted by the assessee at any stage either before the AO or the Ld. CIT(A), (iv) the assessee again reiterated about the jewellery being generated from his companies in the statement given by him again on 28.12.2012, (v) though the assessee changed his stand during assessment proceedings and claimed that the jewellery in question allegedly belong to him, his wife and daughters and as well included jewellery received on social occasions, he failed to file any documentary/supporting evidence in support of his new claim, (vi) even the reliance placed by the assessee on CBDT Instruction No. 1916 is misplaced as the said instruction lays down certain guidelines for the non-seizure of jewellery in respect of various persons in a family, such as married lady, unmarried lady and male members in order to stipulate how much quantum of jewellery is to be exempted from the seizure. The said Instruction also states that a quantity greater than the specified Zakaulla Siddiqui 26 303, 304, 243/Mum/2015 amount for non-seizure may be decided by the authorized officer, having regard to the status of family as well as customs and practices of the community. Thus the Ld. DR submits that the Ld. CIT(A) failed to appreciate the fact that the assessee during his first statement on oath clearly admitted the jewellery being unaccounted. It is submitted that the Ld. CIT(A) failed to elaborate as to how in view of the chart giving bifurcation of jewellery in the appellate proceedings, does the jewellery stand explained and also as to what exact documentary evidence was given so as to make her arrive at the conclusion that the jewellery stand explained. Reliance is placed by him on the decision in B. Kishore Kumar v. DCIT (2014) 52 taxmann.com 449 (Mad.), stating that where an assessee himself stated in sworn statement during search and seizure about his undisclosed income, same was to be levied tax on basis of admission without scrutinizing documents. 6.5 The Ld. counsel of the assessee files a reply stating that the assessee had submitted in his statement as well as in course of assessment proceedings that (i) some jewellery are ancestral, passed on through generations, (ii) some jewellery are received on various occasions i.e. marriage of elder daughter and niece and (iii) some jewellery are purchased from assessee’s own income and savings. It is submitted by him that the assessee is entitled to the benefit of the above CBDT Instruction No. 1916 dated 11.05.1994. Reliance is placed by him on the decision in Shri Hiten Mehta v. ACIT, ITA No. 5706/M/2009, AY 2007-08, dt 15.06.2011, CIT v. RatanlalVyaprilal Zakaulla Siddiqui 27 303, 304, 243/Mum/2015 Jain(2011) 339 ITR 351 (Guj.), CIT v. M.S. Agarwal (HUF) (2008) 11 DTR 169 (MP), CIT v. Jerambhai B. Khokharia 2016 TaxPub (DT) 952 (Ahd- Trib) and R. Umamaheswar v. DCIT [2015] 155 ITD 149 (Hyd-Trib). It is also submitted that addition cannot be made merely on the basis of statement recorded if assessee had explained later the correct facts. He relies on the decision in Pullangode Rubber Produce Co. v. State of Kerala 91 ITR 18, Aishwarya Rai v. Dy. CIT 104 ITD 166 (TM) (Mum) and JyotichandBhaichand Saraf & Sons (P) Ltd. v. Dy. CIT(2013) 86 DTR 289 (Pune)(Trib.). 6.6 We have heard the rival submissions and perused the relevant materials on record. The reasons for our decisions are given below. We begin with the relevant case laws on the above issue. In Shri Hiten Mehta (supra) during the course of search action, statement of the assessee was recorded u/s 132 of the Act. The assessee explained the source in the said statement while giving answer to question no.
The Ld. CIT(A) gave part relief to the assessee to the extent of the quantity of jewellery as per the limit prescribed in CBDT Instruction No. 1916 dated 11.05.1994; but only with regard to the assessee and his wife as well as the jewellery found in the bank locker in the name of the mother of the assessee. The CIT(A) rejected the claim of the assessee that the limit under the said instruction should be applied with regard to all the members of the family including the father and mother of the assessee. Both the assessee as well as the Revenue challenged the order the CIT(A) before the ITAT. The Tribunal found from the statement of the assessee and particularly the answer to the question no. 17 that the Zakaulla Siddiqui 28 303, 304, 243/Mum/2015 entire jewellery claimed to have been received by the wife of the assessee on various occasions and some part of the jewellery was purchased by the assessee himself. The Tribunal held that the Ld. CIT(A) has taken a correct and proper view in granting the benefit vide CBDT Circular No. 1916 dated 11.05.1994. The Tribunal dismissed the appeals filed by the assessee and the revenue. In Ratanlal Vyparilal Jain (supra), the Hon’ble Gujarat High Court held: “Instruction No. 1916, dated 11th May 1994 which lays down guidelines for seizure of jewellery in the course of search takes into account the quantity of jewellery which would generally be held by the family members of an assessee and, therefore, unless anything contrary is shown, it can be safely presumed that the source to the extent of the jewellery stated in the circular stands explained.” In M.S. Agarwal (HUF) (supra), the Hon’ble High Court held that in the absence of any material found during search having nexus with undisclosed income, no addition could be made in block assessment under Chapter XIV-B; further Tribunal was justified in deleting addition on account of jewellery having regard to CBDT Instruction No. 1916, dt. 11th May, 1994. In Jerambhai B. Khokharia (supra), the Tribunal followed the judgment of the Hon’ble Gujarat High Court in Ratanlal Vyparilal Jain (supra) and held that gold jewellery to the extent of limit mentioned in the above CBDT Instruction be treated as explained.
Zakaulla Siddiqui 29 303, 304, 243/Mum/2015 In R. Umamaheswar (supra), during the course of search certain gold jewellery and silver ornaments were found from possession of the assessee. The assessee contended that gold jewellery of 471 grams represented streedhan of his wife, which was received by her on occasion of marriage, birth of a child and subsequent birthdays and other functions over a period of 20 to 25 years. However, the AO made an addition by treating the same as unexplained income of the assessee. The Tribunal held that “in view of CBDT Instruction No. 1916 of 11.05.1994, gold jewellery of 471 grams found during the course of search could reasonably be treated as streedhan of assessee’s wife and would not be treated as undisclosed money”. 6.7 We find that the ratio laid down in the decisions narrated at para 6.8 hereinbefore applies to the present case. We are of the considered view that the Ld. CIT(A) has rightly confirmed an addition of Rs.10,85,915/- and deleted the balance addition of Rs.44,10,240/- on the basis of the CBDT Instruction No.1916. We uphold the same. Thus the 3rd ground of appeal filed by the assessee and the 1st, 2nd and 3rd ground in cross appeal filed by the Revenue are dismissed.
7. The 4th ground raised by the Revenue reads as under: On the facts and in the circumstances of the case and in the law, the Ld. CIT(A) erred in deleting the addition of Rs.1,00,000/- made out of Corporate credit card expenses without appreciating the fact that the assessee's element of personal use in these expenditure cannot be ruled out totally.