DCIT, CENTRAL CIRCLE-1, JAIPUR vs SHRI NITESH AGRAWAL, JAIPUR

Income Tax Appellate Tribunal, JAIPUR BENCH-B, JAIPUR

Before: SHRI SANDEEP GOSAIN, JM & DR. MITHA LAL MEENA, AM vk;dj vihy la-@ITA No. 1305/JP/2019

PER SANDEEP GOSAIN, JM.

This appeal by the Revenue is directed against the order dated 13.09.2019 passed by the ld. CIT (Appeals-4), Jaipur under section 143(3) read with section 153A of the Income Tax Act, 1961 for the assessment years 2013-14 to 2017-18. The grounds raised

in the appeal are reproduced as under :-

1. Whether on the facts and in the circumstances of the case and in law, ld. CIT (A)-4, Jaipur has erred in deleting the addition of Rs. 64,72,500/- made on account of unaccounted capital by ignoring the facts that assessee could not explain the sources of unaccounted capital whereas in the seized tally of Mangalam Group ledger accounts of the assessee for capital was found.

2. Whether on the facts and in the circumstances of the case and in law, Ld. CIT (A)-4, Jaipur has erred in deleting the addition of Rs. 2,14,67,000/- made on account of unaccounted advances by ignoring the facts that assessee could not explain the sources of unaccounted advances whereas in the seized tally of Mangalam Group ledger accounts of the assessee for advances was found.

Briefly stated, the facts of the case are that the assessee is employed with Manglam Build Developers Limited (in short MBDL) as Vice President (Marketing).

He is looking after the marketing activity of the various projects of the company. He has filed his return of income on 30.03.2018 at a total income of Rs. 28,26,310/-. A search and seizure operation under section 132(1) of the Income Tax Act, 1961 was carried out on 04.11.2016 at various premises of the Manglam Group. Consequently residential premises of the assessee at 206, Dhanshree Tower-1, Central Spine, Vidhyadhar Nagar, Jaipur were also covered in the said search operation.

Thereafter, notice under section 153A was issued and in respect of the said notice, the assessee furnished his return of income at the same income as was declared under section 139 of the Act.

2.1. In search at the office premises of M/s MBDL, tally data in the name of N.

Trading Co. was extracted from the cloud and seized. From this tally data, AO alleged that entries pertaining to unaccounted advances of Rs.2,14,670/- were found and the account reflects that huge cash advances were given by the assessee to MBDL Group out of his undisclosed income. Similarly in the capital account there is credit of Rs. 64,725/-. These entries have been made in coded form by suppressing two zeros. Accordingly, he issued show cause notice as to why such amount credited in these accounts be not taxed in the hands of the assessee. In response to the show cause notice, assesse filed detailed explanation which was considered by the AO but could not found favour with the AO, and the same was rejected by observing as under:-

(i) Assessee has not given any proof that no such advance was given to MBDL. Simply denying the payment cannot be accepted.

(ii) MBDL has owned up the transaction while filing the petition before Settlement Commission. Thus when MBDL has itself owned up all the entries found in the cloud data, then mere denial of assessee is not sufficient to prove that these advances do not pertain to him.

(iii) As per section 292C, the presumption is that where any books of accounts, documents etc. are found in the possession or control of any person in course of search u/s 132 then it is presumed that the same belongs to such person.

(iv) Assessee has not disclosed the purpose of the debit entries. He has failed to disclose as to why this payment was made from his advance account and to whom this payment was made.

Accordingly, AO worked out the unaccounted capital at Rs.64,72,500/- and unaccounted advances Rs.2,14,67,000/- and made addition for the same u/s 69.

2.3. Being aggrieved, the assessee carried the matter in appeal before the ld. CIT (Appeals). The Ld. CIT(A) after giving the various reasons as reproduced at Para 6 & 6.2 Pages 11-13 of the order held that advance received by MBDL belongs to MBDL only. MBDL has offered same before the Settlement Commission and the same has been accepted by Hon’ble Settlement Commission vide order dated 16.05.2019. He further held that no evidence was found in search to indicate that appellant has given any advance. Accordingly, he deleted the addition made for alleged payment of advance to MBDL.

Now the Revenue is in appeal before us.

Before us, the ld. D/R supported the order of the AO and submitted that the ld. CIT (A) was not justified in deleting the additions made by the AO on account of unaccounted capital introduced and unaccounted advances given by the assessee. It was submitted that the ld. CIT (A) ignored the transactions found on Cloud Data and also ignored the facts that entries relating to unaccounted capital and advances were found in the N Trading Company cloud data and thus the addition of unexplained, unaccounted capital advance, interest and surplus profit earned were on the basis of incriminating seized data. The ld. D/R also submitted that the ld. CIT (A) was not justified in giving relief to the assessee on the ground that Manglam Group had owned up the entire in the “N Trading” on cloud data before the Hon’ble ITSC particularly when the order of the Hon’ble ITSC has already been challenged in Writ before the Hon’ble High Court. The ld. D/R placed on the judgment of Hon’ble Supreme Court in the case of ITO vs. Ch. Atchaiah (1996) AIR 883 and judgment of Hon’ble Delhi High Court in Writ Petition (Civil) No. 4368 of 2010 dated 18th May, 2012.

On the other hand, the Counsel for the assessee reiterated the same arguments as were raised by him before the ld. CIT (A). The ld. A/R further submitted that in search of the residential premises of the assessee no document or material was found to indicate that the assessee has advanced any amount to MBDL.

In fact assessee has no source of income from which he can give such huge advance as alleged by the AO, more particularly, when he was thoroughly searched and nothing was found that the assessee is engaged in advancing funds to any person.

Hence simply on the basis of the entries found in the record of third person, without any corroborative material, addition in the hands of the assessee can’t be made. The additions have been made on the basis of the alleged tally data found from the premises of MBDL. On the basis of these data, no addition can be made in the hands of assessee for the following reasons:-

(i) The documents and soft data being referred by the AO were seized from the business premises of MBDL and not from the residence of the assessee.

(ii) The presumption of section 292C is that where any books of accounts or other documents etc. are found in the possession and control of any person in course of search u/s 132, it may be presumed that such books of accounts or other documents etc. belongs to such persons and the contents of the same are true. Therefore the data found from the premises of the MBDL can be considered as true only in case of MBDL unless and until any material is brought on record that the same is also true in respect of the person in whose name such data is recorded. It is not the case of the AO that the director of MBDL has stated that the entries recorded in the name of Nitesh Agarwal in the tally data pertains to the advance received from the assessee. It is for this reason that MBDL in the settlement petition filed before the Hon’ble Commission accepted that all these transactions in the name of various persons pertains to them and on that basis they have filed the settlement petition and the Settlement commission has settled the income of the MBDL vide its order dated 16.05.2019. Therefore, on the basis of the entries recorded in the tally data found from the premises of the MBDL under the title of ‘Nitesh Agarwal Advance’ can’t be considered in the hands of the assessee. In this connection reliance is placed on the following cases:-

Jai Kumar Jain Vs. ACIT (2006) 99 TTJ 0744 (Jaipur) (Trib.)

It was held that "Addition in the instant case was made on the basis of the papers found from 'A' (Third Party). In search these papers were not confronted to the assessee. From the assessment order it was not borne out whether 'A'(Third Party) had stated these papers as pertaining to the assessee. No presumption could be drawn against the assessee u/s 132(4A) in respect of paper not recovered from him. No addition can be made on the basis of documents found from third party in the absence of corroborative evidence. Therefore, the Assessing Officer as well as the commissioner of Income Tax (A) erred in making the addition on the basis of said papers in the hands of assessee. Hence, the entire addition made on the basis of papers found from 'A' (Third party) was to be deleted".

Prarthana Construction (P) Ltd. Vs. DCIT (2001) 118 Taxman (Magz.) 112 (Ahmedabad) (Trib.) It has been held that “loose papers and documents seized from premises of third parties and statement recorded at back of assessee without it being afforded opportunity to interrogate said documents and without bringing on record any supporting evidence, could not be made basis for adding undisclosed income in hands of assessee".

ACIT Vs. Miss Lata Mangeshkar (1974) ITR 696 (Mumbai)

It has been held that on appreciation of evidence on record, that entries in the ledger of a firm (third party) did not represent assessee's income from undisclosed sources, was finding of the fact not giving rise to any referable question of law.

In view of above, additions made in the hands of assessee on the basis of documents found in search of MBDL are uncalled for and be deleted.

4.1. The ld. A/R further point out that MBDL has owned up all the data found in cloud as belonging to them. On the basis of the same it filed settlement petition before Settlement Commission on 28.03.2018. As per the petition filed by MBDL before the Hon’ble Settlement Commission, the ‘peak deposit’ of unaccounted capital introduced, loans & advances and interest paid & received was considered for computing the income. Accordingly income of Rs.15.10 cr. was offered on the basis of cloud data of N. Trading Company. The same is accepted by the Settlement Commission at Page 151 of the order dated 16.05.2019. The relevant extract of the final order wherein this issue is discussed is reproduced as under:-

Para 1 of Page. 137-138 of the settlement commission order

“UNACCOUNTED CASH LOANS - CHAPTER VII OF THE RULE 9 REPORT: (page no. 128-180 of the Report) As offered by the Applicants:

Cash Peak Of Cash Loans And Capital Transactions: Rs.15,10,77,600/- As was the case with the capital introduction by the partners, in the Data found in Tally P1 and P2 and also in the seized cash book, all seized pursuant to search, there were found recorded entries with regard to cash loans introduced in the business shown to have been received from various persons directly as well as through certain finance brokers. Repayment of the said loans along with interest on the same was also all found recorded in the Tally data.

The line of business of the Applicant group, as has been discussed earlier, was such that required huge sums of cash. For purposes of the said, huge sums of unsecured loans in cash were thus taken from the market to meet the requirements and as cash was generated from booking of flats/units/plots, the said loans were periodically repaid. Interest on the loans all in cash, were also paid.

In the search conducted, in the seized data, all such complete recordings of loan received, repaid and interest paid was all found. However, during the course of the search itself, since these entries could not be explained by filing confirmation of parties, these cash loans were accepted to be the undisclosed income of the Applicant group in order to buy peace.

Thus based on the above, therefore, to determine the net funds generated in business, peak of the loan accounts (including the capital cash entries) was worked out. It was the contention of the Applicant that the loan introductions/repayment and the capital introduction/withdrawals all represented inflow/ outflow of funds in the business and thus in the spirit of settlement, the peak of the same was offered as the undisclosed income of the Applicant group.

Thus based on the above, the peak of the cash transactions was arrived at Rs. 15,10,77,600/- and the same, being the business income of the Group was thus offered as the Additional Income of the Group.”

Para 2.5 Page No. 141 of the settlement commission order “Thus, based on the above, the Applicant, in the event of loan confirmations being not readily available, in the spirit of settlement, has considered all these loan transaction as his own transaction. In the tally data both receipt of loan as well as repayment of loan is recorded. The loans raised from one party is utilised in the business activities of the group and out of such business receipts or further loan raised, repayment is made of the earlier loan.”

Para 7.7 (Findings of the Commission) Page No. 151 of the settlement commission order “The Commission has considered the submissions made by both parties. After going through the facts of the case the commission finds merit in the contention of the applicants that in computation of Peak the debit entries must also be considered. The contention of the Pr. CIT that the applicants are not entitled for any benefit of debit entries in calculation of peak values does not hold ground. The position of the Applicants get further force from the fact that the entries based on which applicants have computed the Peak value, are recorded in the data found in search and seizure. Based on the above the contention of the applicants on the quantum of the peak as offered as undisclosed income of Rs. 15,10,77,600/- is hereby accepted.”

The ld. A/R submitted that without prejudice to above it may be noted that the document on the basis of which addition has been made is a ledger account. On perusal of aforesaid ledger account as reproduced at pages 3-4 of the assessment order, it can be noted that it contains both debit and credit entries on various dates.

The first entry in this account is debit entry and thereafter there is credit entry. It means that as per this account MBDL has given the amount to the assessee and thereafter the same is received back. Hence the credit entries can’t be added to the income ignoring the debit entries. In fact from the ledger account it is evident that assessee has not provided any advance to MBDL as alleged by the AO. Rather MBDL has provided advance to the assessee which has been returned back. Therefore, on the basis of this ledger account no addition in the hands of assessee can otherwise be made.

4.2. The ld. A/R further submitted that similar issue has been decided by Hon’ble ITAT in case of Sh. Jugal Kishore Garg (Derawala), where also the AO on the basis of cloud data of N. Trading Co. seized during the course of search carried out in case of M/s Manglam Group, Jaipur made various additions. The Ld. CIT(A) deleted the additions made by AO. Against the order of Ld. CIT(A), department filed an appeal before Hon’ble ITAT, Jaipur Bench. The Hon’ble ITAT vide order dated 14.09.2020 in that Shri N.K. Gupta, main person of M/s. Manglam Builder & Developer Ltd. (MBDL) had already owned up all the data found in cloud as belonging to them. On the basis of same, MBDL filed the settlement petition before Settlement Commission which was accepted. Accordingly, Hon’ble ITAT held that since the amount had already been subjected to tax in the hands of MBDL and related entities, therefore, Ld. CIT (A) has rightly deleted the addition in the case of the assessee.

4.3. The ld. A/R supported the order of the ld. CIT (A) and submitted that in view of the facts narrated above, order of Ld. CIT(A) be upheld by dismissing the ground of department.

We have heard the rival contentions, perused the materials available on record, deliberated upon the judgments cited by both the parties as well as the orders passed by the Revenue authorities. From the facts of the case we note that AO has made the additions on the basis of ledger account in the name of ‘Nitesh Agarwal Advance’ recorded in the accounts of N. Trading Company maintained on cloud by Manglam Build Developers Ltd. In search of the assessee, no document or material was found to indicate that assessee has advanced any amount to MBDL.

MBDL has owned up all the data found in cloud as belonging to them and on that basis filed settlement petition before the Settlement Commission wherein on the basis of peak of cash loan and capital transaction, worked out undisclosed income of Rs.15,10,77,600/- and offered the same for tax. In this working of peak cash the entries made in the account of ‘Nitesh Agarwal Advance’ has been incorporated. The same is accepted by the Settlement Commission at Page 151 of its order dated 16.05.2019. The relevant extract of the final order wherein this issue is discussed is reproduced as under:-

Para 1 of Page 137-138 of the settlement commission order “UNACCOUNTED CASH LOANS - CHAPTER VII OF THE RULE 9 REPORT: (page no. 128-180 of the Report) As offered by the Applicants:

In the working of such peak, the following cash entries relating to loans were considered: (the peak working is enclosed at pages 422-439 of the P/B). - Receipt of unsecured loans. - Repayment of unsecured loans. - Interest paid or received on cash loans. The same being settled in cash, the same is included in the peak calculations. Thus based on the above, the peak of the cash transactions was arrived at Rs. 15,10,77,600/- and the same, being the business income of the Group was thus offered as the Additional Income of the Group.”

The Ld. D/R by referring to the decision of Hon’ble Supreme Court in case of ITO Vs. Ch. Atchaiah 1996 AIR 883 (SC) wherein it is held that even if an amount is in wrong hand still it can be taxed in the hands of rightful person and the decision of Delhi High Court in case of Gupta Perfumers Pvt. Ltd. Vs. ITSC wherein it is held that no third person can gain from the immunity in the case the seized paper relates to third person if they disclose or relate to income of third person, contended that even if these transactions have been considered in the case of MBDL still the same can be added in the case of assessee. We are not inclined to accept this contention of the ld. D/R for the reason that in search of the assessee no material is found to suggest that assessee advanced any amount to MBDL. Further on perusal of the ledger account as reproduced at Pages 3-4 of the assessment order, we found that it contains both debit and credit entries on various dates. The first entry is debit entry and thereafter there is credit entry which means that as per this account MBDL has given the amount to assessee and thereafter the same is received back. Thus, the ledger account do not reflect that assessee provided any advance to MBDL rather the ledger account shows that MBDL has provided advances to the assessee. Hence, on the basis of this ledger account, no addition otherwise can be made in the hands of assessee. We find that the Coordinate Bench of the Tribunal, Jaipur in case of DCIT Vs. Sh. Jugal Kishore Garg in to 37/JP/2020 dated 14.09.2020 and in case of DCIT Vs. Late Smt. Pushpa Goyal in ITA Nos. 1299 to 1301/JP/2019 dated 03.01.2022 wherein the facts are pari materia arising out of the same search action on Manglam Group and same set of data in form of ‘N. Trading Company’ found in the cloud data which has formed the basis of addition in the aforesaid cases and the matter has already been examined by the Coordinate Benches of Tribunal, Jaipur basis the filing and acceptance of MBDL petitions before the Settlement Commission, and the addition has been deleted. The revenue has not been able to highlight and demonstrate before us as to the finding of coordinate benches should not be followed in the instant case.

5.1. The fact that the order of the Settlement Commission has been challenged by the Revenue by way of Writ before the Hon’ble Rajasthan High Court and similarly, the fact that another set of Writ Petitions have been filed before the Hon’ble Rajasthan High Court against the decision of the Coordinate Benches in case of Shri Jugal Kishore Garg for A.Y. 2014-15 and A.Y 2015-16 cannot be the basis for not following the decision so passed by theCoordinate Benches in aforesaid case as nothing has been brought on record in terms of the specific grounds basis which the findings in aforesaid orders have been challenged by way of writ petition and secondly, whether the order of the Settlement commission and that of the Coordinate Benches have been stayed by the Hon’ble Rajasthan High Court or not.

Where the decision of the Coordinate Bench is not acceptable to the Revenue, the Revenue is well within its right to pursue the matter before the Hon’ble Rajasthan High Court and however, till such time, the order of the Coordinate Bench is not stayed or overruled by the Hon’ble Rajasthan High Court, the assessee is well within his rights to draw support from the said decision. Where the matter is adjudicated by the Hon’ble Rajasthan High Court in favour of the Revenue, the Revenue is not without recourse and is free to take action as per law. Therefore, following the principles of consistency, where the Coordinate Jaipur Benches have already taken a view in the matter under identical set of facts and circumstances of the case and no restriction has been placed by the Hon’ble Rajasthan High Court in terms of effect and operation of the said order of the Coordinate Benches including following the same in other cases as facts and circumstances so justify as in the instant case, we see no justifiable reason to deviate and take a different view in the matter and following the same, addition so made in the hands of the assessee is hereby held to be rightly deleted by the ld. CIT (A) and we hereby affirm his findings in this regard and the grounds of appeal so taken by the Revenue are thus dismissed.

In the result, appeal filed by the revenue is dismissed.

Order pronounced in the open Court on 30/11/2022.

DCIT, CENTRAL CIRCLE-1, JAIPUR vs. SHRI NITESH AGRAWAL, JAIPUR