DCIT, BANGALORE vs. SRI. PRASHANTH BAFNA, BANGALORE

These appeals are preferred by the Revenue against the respective order of the CIT(Appeals). The assesses have also filed Cross Objections. Since the appeal of Revenue and Cross Objections were heard together, these are being disposed of through this consolidated order.

The facts in brief leading to the additions in the hands of the assesses on protective basis borne out from the record are that a search to 62/Bang/2013 & CO Nos.74 to 80/Bang/2013 Page 3 of 13 and seizure operation was conducted in the group concerns of M/s. Dhariwal & Family and also the residential premises of the assessee u/s. 132 of the Income-tax Act, 1961 [hereinafter called “the Act”] on 20.01.2010. In response to notices issued u/s. 153A of the Act, the assessees had filed their return of income. During the course of search in the premises of Shri Mitulal on 09.10.2009 in connection with search u/s. 132 in the case of M/s. Dhariwal Group concerns, where certain documents were found and seized and are stated to be belonging to Mr. Sohanraj Mehta, who has taken C&F agency of Dhariwal group, the assesses who were employees of Dhariwal group at factory in Bangalore were also covered u/s. 132 of the Act. The seized paper (seized from the premises of Shri Mitulal) suggested that Mr. Sohanraj Mehta had made payments to various parties and name of the assesses were also reflected therein. The amount reflected in the seized papers in the name of assesses are as under:- 1. Shri Jeevan Bansilal Sancheti

Shri Sohanraj Mehta in his statement dated 10.10.2009 recorded on oath had stated that these amounts were paid to the assesses on the instruction of Directors of M/s. Dhariwal Industries Ltd. In this regard, the assessees were also questioned, but they have denied receiving any amount from Mr. Sohanraj Mehta. Shri Sohanraj Mehta has confirmed that seized material belonged to him and contained details of gutka business effected by him on commission basis on the products of M/s. Dhariwal Industries Ltd. In his statement recorded subsequently on 15.10.2009, Mr. Sohanraj Mehta reiterated the figures of seized material reflected unaccounted sales of gutka belonging to M/s. Dhariwal Industries Ltd.

On the basis of the said statement, the AO has made the protective assessments in the hands of assesses and made the protective addition of the aforesaid amount reflected in the seized documents.

Both the assesses preferred their appeal before the CIT(Appeals) with the submission that they have not received any amount from Mr. Sohanraj Mehta. More over it was also stated that this money rather belongs to M/s. Dhariwal Industries Ltd. and not to the assesses.

Finding force in the contentions of the assesses, the CIT(Appeals) has deleted the addition made on protective basis in the hands of to 62/Bang/2013 & CO Nos.74 to 80/Bang/2013 Page 5 of 13 assesses. While doing so, the CIT(Appeals) has observed that mere recording of name of assesses on a piece of paper found in the premises of one, Mr. Mitulal suggesting that some payments of Dhariwal group have been effected through the assesses who are employees does not merit assessment in the hands of the assesses.

Aggrieved, the revenue has preferred appeals before the Tribunal with the submission that the seized material clearly speaks that substantial amount stated in the slip was paid to the assesses and now it is for the assesses to explain where the amount goes if he has not retained it.

The ld. counsel for the assessee, on the other hand, has submitted that the assessees have denied the receipt of any amount from Mr. Sohanraj Mehta. More over, the AO was also of the view that whenever any amount is paid to the assesses, it was paid on behalf of Dhariwal Industries Ltd., meaning thereby, either the amount reflected in seized material belongs to Shri Sohanraj Mehta or Dhariwal Industries Ltd. The assesses are merely employees of Dhariwal Industries Ltd. If it is held that any amount was received by the assesses, it was received only on behalf of Dhariwal Industries Ltd. Therefore, no addition can be made in the hands of the assesses at all. He also placed reliance upon the orders of the Tribunal in the case of Shri Sohanraj Mehta of this Bench of the Tribunal and in the case of Dhariwal Industries Ltd. of the Pune Bench of the Tribunal. The issue was examined in the case of Dhariwal Industries Ltd. to 62/Bang/2013 & CO Nos.74 to 80/Bang/2013 Page 6 of 13 and the Tribunal has held that Shri Sohanraj Mehta might be indulging in parallel business since the product of the company was branded product. In support of this findings, the Tribunal has relied upon various evidences filed before it and the protective additions made on the basis of seized material were deleted in the name of other persons whose names were reflected in the loose papers. The relevant observations of the Tribunal is reflected in paras 129 to 140 of its order, which are extracted hereunder:-

So far as the finding of the Revenue authorities that the profit generated from suppressed production and sale was diverted to various persons whose names appear in the seized documents is concerned, we find the different Benches of the Tribunal have deleted such addition made in their hands. We find the Bangalore Bench of the Tribunal in the case of CIT Vs. H.S. Chandramouli vide order dated 20-08- 2013 has upheld the order of the CIT(A) in deleting the addition of Rs.22,75,000/- which was added by the AO on account of receipt of the above sum from Shri Sohanraj Mehta, C&F agent of M/s. DIL for Karnataka Region. The Lucknow Bench of the Tribunal in the case of Mohd. Yakub perfumers Pvt. Ltd. vide ITA No.388/Lkw/2013 order dated 10-12-2014 has upheld the order of the CIT(A) in deleting the addition of Rs.50 lakhs which was added by the AO on account of entry found in the documents of Shri Sohanraj Mehta, C&F Agent of RMD Group at Bangalore. The Lucknow Bench of the Tribunal in the case of DCIT Vs. Pavan Kumar Agarwal vide ITA No.413/Lkw/2012 and CO No.70/Lkw/2012 order dated 16-02-2015 has upheld the order of the CIT(A) in deleting the addition of Rs.1,13,40,000/- made by the AO on account of addition on the basis of seized document of Shri Sohanraj Mehta. The Delhi Bench of the Tribunal in the case of M/s. Bholanath Radhakrishna vide ITA No.5149/Del/2012 order dated 15-04-2013 has upheld the order of the CIT(A) in deleting the addition of Rs.9 crores made by the AO on the basis of entries found in the books of Shri Sohanraj Mehta, C&F Agent for Karnataka Region of RMD group. The Pune Bench of the Tribunal in the case of Pradeep Arun Runwal reported in 149 ITR 548 has also deleted the addition made by the AO and upheld by the CIT(A) on account of additions made on the basis of the seized papers from Shri Sohanraj Mehta, C&F Agent of RMD group.

Based on the above decisions, the Pune Bench of the Tribunal in the case of Shri Vinit Ranawat vide ACIT vide ITA Nos. 1105 and 1106/PN/2013 order dated 12-06-2015 for A.Yrs. 2006-07 and 2007-08 has deleted the addition of Rs.21 crores made in the hands of the assessee on account of loose papers found during the course of search in the case of Shri Sohanraj to 62/Bang/2013 & CO Nos.74 to 80/Bang/2013 Page 8 of 13 Mehta, C&F Agent of M/s. DIL for Karnataka Region. Thus, we find some force in the submission of the Ld. Counsel for the assessee that the different Benches of the Tribunal have deleted the additions made in their hands on the basis of so called deployment of funds by the assessee company out of the generation of unaccounted income out of suppressed turnover.

As mentioned earlier, no incriminating documents in shape of any unaccounted purchase, unaccounted sale, unaccounted transport receipt was found either during the course of search at the place of Shri Sohanraj Mehta/Shri Mithulal or at the premises of the assessee. If the extent of unaccounted production and unaccounted turnover as computed by the AO is believed, then atleast 700 to 800 trucks are required, a finding given by the Commissioner, Central Excise. Therefore, we find force in the submission of the Ld. Counsel for the assessee that if the assessee was indulging in the clandestine manufacturing of Gutkha, then atleast some evidence could have been found which is not in the instant case. Even the Commissioner, Central Excise has also given his findings that there was no unaccounted production. In our opinion, the question of unaccounted turnover will arise only when there is unaccounted production. Since one Government authority, after thorough investigation, has given a finding that there is no unaccounted production and clearance of such unaccounted Gutkha to the C&F Agent, therefore, estimation of huge unaccounted producuction and sale thereof as determined by the AO in the body of the assessment order and upheld by the CIT(A), in our opinion is uncalled for.

There is another aspect which we have noticed is regarding decoding of the figures. We find there are certain chits which are found during the course of search in the place of Shri Sohanraj Mehta/Shri Mithulal, copies of which are placed at paper book pages 41 to 102 of the paper book. These chits show amounts written both in words as well as in figures. Therefore, when the chits contain the amounts written both in words and figures, therefore, in absence of any cogent evidence in the hands of the department, it is not proper to decode the same by adding two more zeros.

So far as the statement of various persons recorded during the course of search in the case of Shri Sohanraj Mehta are to 62/Bang/2013 & CO Nos.74 to 80/Bang/2013 Page 9 of 13 concerned, the presumptions u/s.132(4A) will apply to the person who is searched and in whose custody the papers are found. Therefore, we find merit in the submission of the Ld. Counsel for the assessee that loose papers found with Shri Sohanraj Mehta cannot be presumed to be belonging to the assessee or reflecting the business transaction of the assessee. It has been held in various decisions that the presumption u/s.132(4A) is applicable only against the person from whose possession the books of account or other documents were found and not against any other person. It has been held that as per section 132(4A) where any books of account or document is found in the possession and control of any person in the course of the search, it is to be presumed that they belong to such person. Thus, clearly the presumption is in respect of the person from whom they were found. In the instant case, such incriminating documents were found from the possession of Shri Sohanraj Mehta/Shri Mithulal. Therefore, we find force in the submission of the Ld. Counsel for the assessee that presumption u/s.132(4A) will be applicable to Shri Sohanraj Mehta and not to the assessee company.

Another aspect to be considered is non-finding of any unaccounted cash or asset or investment of such huge amounts from generation of such huge unaccounted money. No doubt the courts have held that if evidence of undisclosed income is found then corresponding asset/expenses need not be proved. However, if such undisclosed income is determined on the basis of estimation, as in the instant case, then finding of such corresponding asset could have given some credence to such estimated income. However, the same is not there in the instant case.

We also find force in the submission of the Ld. Counsel for the assessee that papers found from Shri Sohanraj Mehta is for the period from January 2003 to February, 2008. The search took place on 09-10-2009 at Shri Mehta’s place. However, for the period from March 2008 till the date of search, no loose papers were found. Therefore, if the assessee was having such roaring unaccounted business, there was no reason to stop such lucrative business from March 2008 onwards. Secondly, if the inference is that Shri Sohanraj Mehta has already given the account for this period to the assessee and therefore he has destroyed the papers, there is no reason as to why he should have maintained the papers to 62/Bang/2013 & CO Nos.74 to 80/Bang/2013 Page 10 of 13 for the old period. This defies logic.

Another aspect which the Ld. Counsel for the assessee has argued and which in our opinion finds force is that there is no signature of confirmation by the assessee in the statements. For example Page No.204 of the paper book is the statement for the period 02-04-2003 to 31-08-2006. There is no signature of confirmation by the assessee on this paper. If the paper was written by Shri Sohanraj Mehta for the benefit of the assessee so as to give him details of his account, he should have obtained the signature of the assessee on this paper as a token of confirmation. Thus, we find force in the submission of the Ld. Counsel for the assessee that there is no evidence that the loose papers belong to the assessee.

We also find merit in the arguments of the Ld. Counsel for the assessee that the assessee normally sells its product from Bangalore factory to various C&F agents in Tamilnadu, Andhra Pradesh, Kerala, South Maharashtra etc. No proof that these agents have taken the stock from Shri Sohanraj Mehta and paid money to the assessee or Mr. Mehta was found. If all these sales are made through Shri Sohanraj Mehta in these territories, the above C&F agents would have objected. Secondly, no evidence that Shri Sohanraj Mehta maintained the warehouses in various states was found. Thus, if what Shri Sohanraj Mehta says is correct, these unaccounted sales can be made by Shri Sohanraj Mehta and that too in his region, i.e. Karnataka and any other presumption is not possible.

We further find that the accounts written by Shri Sohanraj Mehta are written for the period from January 2003 to February 2008 whereas the payment chits written by the assessee to Shri Sohanraj Mehta are for the period from June 2006 to October 2007. No letters for the balance period are found during the searches. We therefore find force in the arguments of the Ld. Counsel for the assessee that what is not found is presumed to be not there and therefore Shri Sohanraj Mehta has not corroborated that the assessee has verified all these loose papers found with him. Further, no evidence was found with the figures mentioned by the assessee in his letters to Shri Sohanraj Mehta are in coded figures. No evidence was found that the assessee has checked and okayed the notings of Shri Sohanraj Mehta. We therefore find some force in the arguments of the Ld. Counsel for the assessee to 62/Bang/2013 & CO Nos.74 to 80/Bang/2013 Page 11 of 13 that Shri Sohanraj Mehta has not maintained these accounts/details for the purpose of reporting to the assessee or for the purpose of giving account of unaccounted transactions to the assessee. Merely because Shri Sohanraj Mehta filed his return disclosing some commission as his additional undisclosed income and the department accepted the same without even making protective addition in his hands the same in our opinion cannot be the basis to compute huge suppressed turnover to the tune of about Rs.340 crores as assessee’s unaccounted turnover especially when not a single piece of unaccounted purchase or sales voucher or transport receipt or unaccounted purchase receipt was found. This in our opinion is also an indicator that no such unaccounted business was carried out by the assessee as alleged by the AO and upheld by the CIT(A). Even under the theory of probability also no such unaccounted business is possible under the facts and circumstances discussed above.

In view of the above, it has to be held that the huge suppressed production and suppressed turnover and thereby generation of huge unaccounted income as determined by the AO, in our opinion, is incorrect. Therefore, the addition made by the AO and partly sustained by the CIT(A) on account of unaccounted profit on suppressed production and sale thereof is directed to be deleted. 140.1 At the same time, it is also an admitted fact that certain chits duly signed by the assessee were found from the possession of Shri Sohranraj Mehta during the course of search on 10-10- 2009. Those chits were in the hand writing of the assessee for different years. It is not known as to why and for what purpose the assessee used to give such chits in his hand writing. Further, the amount of such chits according to the assessee is about Rs.61 lakhs whereas the Revenue has considered the same at about Rs.61 crores by adding two zeros to the figures. We have already held at Para No.133 of this order that in absence of any cogent evidence in the hands of the revenue, it is not proper to decode the same by adding two zeros. The argument of the Ld. Counsel for the assessee that certain sales tax refunds were due to be received by Shri Sohanraj Mehta for which he has issued chits to be handed over to them is not borne out of records. Considering the totality of the facts of the case, in our opinion, addition of an amount of Rs.20 crores for the A.Yrs. 2004-05 to 2008-09 will to 62/Bang/2013 & CO Nos.74 to 80/Bang/2013 Page 12 of 13 meet the ends of justice under the facts and circumstances of the case. We therefore direct addition of Rs.20 crores for the period from A.Yrs. 2004-05 to 2008-09 to be spread over equally. We hold and direct accordingly. Thus, the grounds raised by the Revenue are dismissed and the grounds raised by the assessee are partly allowed.”

While making the addition, the AO was of the view that amount reflected in the slips were paid to assesses on behalf of Dhariwal Industries Ltd. Therefore, the amount reflected in the slip either belonged to Mr. Sohanraj Mehta or Dhariwal Industries Ltd. The assesses being employees of Dhariwal Industries Ltd., had no right to retain the said amount. More over, during the course of assessment proceedings, the assesses have vehemently denied any receipt of the amount reflected in the slips. Under these circumstances, if the AO intends to make an addition in the hands of assesses, he has to bring out some more evidence on record to justify that the amount reflected in the slips were paid to the assesses and assesses have retained it. In the absence of this evidence, we are of the view that the addition made on protective basis in the hands of assesses deserves to be deleted. We accordingly find no infirmity in the order of the CIT(Appeals), who has rightly deleted the additions. Accordingly, we confirm the order of CIT(Appeals). The appeals of the revenue are dismissed. to 62/Bang/2013 & CO Nos.74 to 80/Bang/2013 Page 13 of 13 10. Through the Cross Objections, the assesses have supported the orders of CIT(Appeals) and since the appeals of revenue are dismissed, the Cross Objections have become infructuous and we dismiss the same.

In the result, the appeals of revenue and cross objections of assesses are dismissed.