KISAN RAGHUNATH NANAWARE,,PUNE vs. INCOME-TAX OFFICER,,

आदेश / ORDER PER SUSHMA CHOWLA, JM

The appeal filed by the assessee is against the order of the Commissioner of Income Tax (Appeals)-II, Pune dated 13.11.2013 relating to assessment year 2002-03 against order passed under section 153A(b) r.w.s 143(3) of the Income Tax Act, 1961 ( in short ‘the Act’).

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“1. On the facts and circumstances of the case and in law and the perusal of the fresh assessment order so framed on the basis of directions issued by the Hon'ble Tribunal duly admitting the additional evidence and specifically directing the A.O. to consider properly the said additional evidence and to give the proper and reasonable opportunity of being heard to the assessee and then frame the assessment afresh, it reveals that the A.O. has not only flouted the directions of the Hon'ble Tribunal which are binding on him as per Hon'ble Supreme Court and jurisdictional High Court judgments, which is evident from the fact that the original assessed income was Rs.2,25,76,806/- and fresh assessed income after Hon'ble Tribunal directions is Rs.2,12,75,600/-. That means the A.O. has not considered at all the additional evidence which was admitted by Hon'ble Tribunal u/R 29 of the ITAT Rules, 1963. The Ld.CIT(A) failed to consider this and therefore, the assessment is unsustainable. It be quashed. 2. Whether Ld. CIT(A) ought to have considered that the Ld. A.O. confirmed the additions of Rs.2,12,75,600/- without considering the additional evidence admitted by Hon'ble Tribunal in first round of appeal with directions to the A.O. and since both the authorities below failed to appreciate the said additional evidence in its proper perspective there was miscarriage of justice? Whether the orders of the authorities below suffer from violations of principles of natural justice and resultantly not sustainable in law? 3. Whether on the facts and circumstances of the case and in law the Ld. CIT(A) ought to have appreciated the fact that the assessment was completed by the A.O. without giving proper opportunity to the assessee and hence the order passed by the lower authorities is in breach of fundamental rights and therefore, not sustainable in law? 4. Whether on the facts and circumstances of the case and in law the Ld. CIT(A) ought to have appreciated the legal position that the mandatory notice u/s.143(2) issued and served on the assessee was barred by limitation and in view of this the whole assessment was illegal and without jurisdiction? Since the fresh assessment being bad in law and without jurisdiction is unsustainable in law and required to be quashed? 5. Whether on the facts and circumstances of the case and in law the alternative ground being legal ground was raised that the whole addition of Rs. 1,75,00,000/- represents the bad debts in the money lending business of the assessee and ought to have been allowed the write off of it since according to law it was not obligatory that such advances/loans or part thereof should be shown to have become irrecoverable and consequently written off in the accounts of the assessee in the previous year? 6. Whether on the facts and circumstances of the case and in law the Ld. CIT(A) was justified in confirming the addition of Rs.34,12,040/- made by the A.O. stating it to be unexplained investment in house property solely relying on valuer report and without any evidence found in search action is unjustified as being without jurisdiction? In the circumstances addition confirmed be quashed? 7. On the facts and circumstances of the case and in law and the circumstances that the appeal of the assessee was decided by the Hon'ble Tribunal by admitting the fresh evidence submitted and in spite of this the Ld. CIT(A) did not find any merit in the grievances of the assessee through grounds of appeal raised is strange enough and Ld. CIT(A)'s approach is non-judicious resulting into miscarriage of justice. It be held accordingly and quash the illegal assessment confirmed by CIT(A) in appeal. 8. On the facts and circumstances of the case and in law the addition made of Rs.84,000/- made by A.O. and confirmed by CIT(A) is unjustified. It be quashed.

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additional evidences filed by assessee which were admitted by the Tribunal in the first

round of appeal and Assessing Officer was directed to consider the same and assess

the income in the hands of assessee. The assessee is aggrieved by addition of

Rs.2,12,75,600/- as against original addition of Rs.2,25,76,806/-. The assessee vide

ground of appeal No. 1 to 4 has raised issue of additions without considering the

additional evidence. As per ground of appeal No. 5, the assessee is in appeal against

the addition made on account of money lending business of assessee and non

allowance of bad debts. Vide ground of appeal No. 6, the assessee is in appeal against

the addition of Rs.34,12,040/- on account of unexplained investment in house property.

The ground of appeal No. 7 is interlinked with ground of appeal No. 6. Vide ground of

appeal No. 8, the assessee is aggrieved by addition of Rs. 84,000/- and vide ground of

appeal No. 9 by addition of Rs.1,36,439/-. The issue raised in ground of appeal No. 10 is

against charging of interest under section 234B and 234C of the Act.

carried out at the residential and business premises of the assessee on 29.07.2003. The

Assessing Officer on the basis of the seized material and other information called for, in

the order passed under section 153A(b) r.w.s. 143(3) of the Act made various additions/

disallowances aggregating to Rs.2,24,56,389/- to the returned income of Rs. 1,20,417/-.

The CIT(A) confirmed the additions/ disallowance made by Assessing Officer. The

Tribunal in ITA No.988/PN/2008 relating to assessment year 2002-03 vide order dated

29.06.2010 set aside all the grounds of appeal to the Assessing Officer after admitting

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the additional evidence filed by assessee and directed the Assessing Officer to consider

the said additional evidence and examine the issues afresh. The Assessing Officer in

the second round issued notice under section 143(2) of the Act. Major addition made in

the hands of assessee was on account of unexplained investment in money lending

business of Rs.1.75 Crores. The assessee furnished list of 36 bhishi members along with

affidavits from the said bhishi members. He also submitted list of 22 bhishi members

from whom affidavits could not be obtained. The assessee submitted the terms and

conditions of the bhishi business. The copy of Page No. 14 seized showing various sums

aggregating to Rs.1.75 Crores was also filed. The copy of certificates from different

banks was also filed in respect of bank loan taken.

money lending business but he established bhishi by 60 persons of the area. The

explanation of the assessee was that the said persons did not get any loan from the

banks and/ or financial institutions for want of any security required by such

banks/Financial Institutions. The main object of the “Bhishi” was to cater to their needs. It

was explained that the persons who joined as members were required to initially

subscribe to the bhishi by paying certain sum. After paying certain amount, they became

eligible to get benefit of loan as per their requirements. The assessee explained that

every member was to give monthly subscription of Rs.2000/- for 5 years i.e. from

01.08.2001 to 01.08.2006. At page No. 14 of Bundle No. 2, estimate of receipts from

monthly contributions and interest on loans was calculated as Rs.1,72,00,000/-. The

notings were from 01.08.2001 to 01.08.2006 receivable. The Assessing Officer in this

regard observed that the assessee had advanced Rs.1.75 crores to a number of

borrowers and the same amount had to be received back by him between the period

01.08.2001 to 01.08.2006. Thus, the Assessing Officer was of the view since the date of

01.08.2001 was found in a number of pages of the seized document, the assessee was

indulging in money lending business. This was the conclusion in the first round.

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before the Assessing Officer. One such affidavit is referred in Para 4.1 at page 3 of the

assessment order. In the affidavit, it was admitted that he started bhishi business

wherein at initial stage there were 60 members. Initially everybody contributed

Rs.20,000/- each to become a member and contributed Rs.2000/- per month thereafter.

He admitted to have taken a loan of Rs.1,00,000/- for his business. It was explained that

even if the full bhishi amount was taken, the member had to pay fixed amount of Rs.

2000/- per month. It was also pointed out that he was paid amount and interest @2%

was charged on the same. In the affidavit it was also mentioned that even initially the

bhishi was fixed for a period of 60 months; the bhishi started on 1.8.2001 and was

declared closed on 29.7.2003. After closing of the bhishi business, recovery of loans

from members were continued but no new members were admitted. The declaration also

explained that in rural areas banks do not provide adequate loan facilities for small

business and agriculture and hence this, need for bhishi business. The Assessing Officer

vide Para 4.4 stated that he had gone through all the affidavits thoroughly and also terms

and conditions of the said bhishi business and noted that in the said business, a member

can avail loan of Rs.1.00 Lakhs minimum and Rs.2.00Lakhs maximum and the rate of

interest charged was @2%. The Assessing Officer held that it was nothing but money

lending business. Since, it was normal bhishi business no loan was given/taken and

hence, no question of charging of interest thereon. The contention of the assessee that

Rs.1.75 Crores was a calculation of total collection of the bhishi business at the end of 5

years (from 1.8.2001 to 1.8.2006), if it was completed, was not acceptable/convincing.

The Assessing Officer noted that the assessee in his statement recorded on 22.08.2003

had admitted to have given some amount in cash to some of the persons. In view

thereof, the addition of Rs.1.75 Crores was made on account of unexplained investment

in money lending business.

unexplained investment in house property. The assessee had constructed residential

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house building at Nira, Tq. Purandar, Dist.-Pune during the period 1998 to 2002. To

determine the actual cost of construction of the building, the property was referred to

DVO-II, Mumbai. The DVO determined the cost of the building at Rs. 43.12 Lakhs. The

Assessing Officer in the assessment order, made addition of Rs.43.12 Lakhs. The

assessee has objected to the same on the ground that he had not received DVO’s

report. However, the same was rejected by the Assessing Officer; since vide order sheet

entries, the assessee was confronted with the same. By way of additional evidences, the

assessee submitted copies of certificates dated 29.11.2007 from the Baramati Sahakari

Bank Ltd. As per the said certificates, the assessee and his wife had been granted loan

of Rs.4,50,000/- each against their house building construction. Thus, the funds to the

extent of Rs.9,00,000/- were accepted. However, balance amount of Rs.34,12,000/-, was

added in the hands of assessee.

unexplained investment in shares to the extent of Rs.84,100/-. The assessee contended

that the investment was out of his own undisclosed income during the year; was not

accepted by the Assessing Officer and hence, the addition.

source for investment in the said asset. As against valuation of Rs.4,36,439/-, the

assessee was granted relief to Rs.3.00 Lakhs and balance of Rs.1,36,439/- was treated

as unexplained and added in the hands of assessee.

found during the course of search and statement recorded, noted that seized document

at page No.14 was not dumb document. The assessee submitted that the search took

place on 29.07.2003 and page No. 14 was titled as “1-8-2001 to 1-8-2006”. The

assessee further explained that bhishi business closed on the date of search and it was

not possible to say that the amount of Rs.1.75 crores was received on 01.08.2001 itself.

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The assessee explained that in case bhishi business was run for a full period of 60

months with 60 total members, only then it was possible to earn some profit. But the said

bhishi business ran for 23 months only as it was closed on 29.02.2003. Further, the

contention of assessee before CIT(A) was that the money added was not the money of

the assessee as it was contribution of third party members, out of which 36 members

had confirmed their investment by filing affidavits. The assessee also pleaded that the

Assessing Officer had also not cross examined the said persons and hence, no merit in

the said addition. In an alternate, the assessee contended that there was no merit in the

addition made as income from money lending business had become bad debts. The

CIT(A) held that the Assessing Officer after examination of 36 affidavits filed by

assessee thoroughly came to the conclusion that all the persons had availed loan and

the CIT(A) upheld the conclusion of Assessing Officer in this regard and rejected the

contention of assessee that figure of Rs.1.75 crore arrived at on the basis of dumb

document, as not correct. The CIT(A) upheld the findings of Assessing Officer who

raised presumption of legality of documents found and seized from possession of the

assessee. Alternate contention of the assessee that the addition made as income from

money lending business of Rs. 1.75 Crores had become bad debts and under section

36(2)(c) was rejected, since the assessee had not brought on record the conditions

which were to be fulfilled under the said section. The CIT(A) then decided the issue of

mutuality between the contributors of the bhishi activity and held that the bhishi activity

was not proved by the assessee. Hence, there was merit in the said addition. In

response to balance additions, the CIT(A) noted during Appellate proceedings, the

assessee had not submitted any additional evidences against the said additions or

brought any material contrary to the findings of the Assessing Officer. During

assessment, the Assessing Officer considered the additional evidences and in view

thereof, he upheld the other addition on account of unexplained investment in Tempo

Trax and shares.

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investment in house property, the CIT(A) observed that the Assessing Officer had

considered additional evidences and upheld the addition earlier made. The CIT(A) also

held that the assessment order passed was not barred by limitation.

considered the aspects of bhishi business in correct perspective. It was not the assessee

who had advanced loans to the parties. But as part of the bhishi business, out of the

amount collected, the loans were disbursed to the members and the assessee had made

no investment in bhishi business. Another point stressed by the Ld. AR for the assessee

was that document at page No. 14 showing aggregated amount of Rs.1.75 Crores was

for the period started from 1-8-2001 to 1-8-2006 and in July, 2003, bhishi business had

closed, since it became difficult to get contribution from the members. Another point

which was raised by the Ld. AR was that the figure of Rs.1.75 Crores would only come if

bhishi business with 60 members was carried on till August, 2006. Whereas after the

date of search, it closed. Hence, it could not be said that the assessee was engaged in

the money lending business of advancing loan of Rs.1.75 Crores. The Ld. AR for the

assessee further submitted that the assessee was not the owner of the bhishi business.

Our attention was drawn to the affidavit filed by 36 contributors and where they admitted

their contributions. He stressed that the assessee collected total contribution from bhishi

members for the period 1-08-2001 to 28-07-2003 and its disbursement. Initially each of

the bhishi members deposited Rs.20,000/- and thereafter, for a period of 23 months, the

sum of Rs.2000/- per month was given and hence, Rs.66,000/- was received from each

of the members totaling Rs.23,76,000/-. Out of the total sum of Rs.23,76,000/-, the

amount of Rs.22,06,296/- was already disbursed amongst the members. In view thereof,

the Ld. AR for the assessee stressed that there was no merit in making aforesaid

additions.

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Officer and CIT(A).

section 132 of the Act was carried out on 29.07.2003 at the premises of the assessee

and during course of search, documents were found and seized. One such document

was Page No. 14 of Bundle No. 2 which clearly mentioned the period 1-8-2001 to 1-08-

2006. The contents of this page are reproduced as under:

“1.8.2001 - 1.8.2006 Receivable 7,00,000 60,00,000 00,00,000 40,00,000 15,00,000 53,00,000 1,75,00,000 1.8.2006 Receivable”

2006 talks about amount receivable totaling Rs.1.75 crores. The said document was

found during the course of search on 29.07.2003. The assessee stated that this

document related to the bhishi /chit business carried on with 60 members. In the

statement recorded under section 132(4) of the Act, the assessee explained that initially

each of the members contributed Rs.20,000/-, thereafter, Rs.2000/- per month was

contributed by each of the members. In order to establish its case, the assessee

furnished additional evidences before the Tribunal in the first round by way of affidavits

of 36 bhishi members. In all the affidavits, declarant clearly mentioned the terms and

condition of bhishi business and pointed out that by contribution of bhishi members, they

were entitled to take a loan. It may be pointed out herein itself that in the concept of

bhishi business, out of the money collected by way of month-wise contribution, each of

the members can avail an amount as loan to himself. By availing the said loan, obligation

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on the bhishi members is to continue to pay Rs.2000/- per month and then the amount is

collected in the next month. The said amount can be disbursed as loan to the other

members. This concept of bhishi business has not been appreciated by any of

Authorities below.

that the assessee had advanced Rs.1.75 crore to different persons. Even if, they took

support from the document Page-14 of Bundle No. 2, then it is to be appreciated that the

said period mentioned on the said document travelled beyond the date of search. Hence,

the total amount mentioned on the said document could not be treated as relating to the

period started from 1-8-2001 till 28.07.2003 i.e. upto date of search. The conclusion of

both, the Assessing Officer and CIT(A) was not correct. The assessee in order to

establish its case had furnished affidavits of different persons totaling 36. However, the

CIT(A) failed to carry out the verifications of submissions/additional evidences filed by

assessee and merely repeated that the Assessing Officer in the first round has correctly

pointed out the assessee was engaged in money lending business. The issue was

remitted back to the file of Assessing Officer by Tribunal with directions to look at the

additional evidences filed to decide the issue in accordance with law. However, the

Assessing Officer failed to consider the same.

High Court in the case of CIT Vs Kottayam Co-operative Bank Ltd. reported as 96 ITR

“The assessee is a co-operative society. Though its main activity is banking, it has also been conducting chit funds and this case is concerned with the income derived by the assessee from the conduct of the chit fund business. There is a clear provision in cl-2 of the Chitty “thalavariyola” (rules regulating the conduct of the chitty) that only members of the society can become subscribers of the chitty. In the light of the said clause, the Tribunal rightly held that it was not possible to sustain the view expressed by the ITO and by the AAC that the chit fund scheme was not being conducted by the assessee exclusively for the benefit of its members. The dominant motive which prompts most people to join chit fund scheme is to avail themselves of the facility of

11 ITA No.329/PUN/2014 A.Y.2002-03

bidding the kuris when they are in urgent need of finance so that they may receive the chit amount in lump as a loan with the facility of repaying it in monthly instalments. A chit fund does, no doubt, incidentally partake of the nature of a saving scheme also. But, unless amounts are advanced to the prizing subscribers through a scheme of competitive bidding or by drawing lots there will be no income derived either by way of interest or by way of amounts forgone by the bidders at the auction. Thus the chit fund is primarily intended to operate as a scheme for advancing loans from the common fund to the subscribers, their turn for getting such loans being determined either by auction or by drawing lots. The Tribunal was, therefore, perfectly right in holding that in conducting the chit funds the assessee was providing credit facilities to its members and that the income earned by the assessee from the said business is entitled to deduction under s. 80P(2) (a)(i) -Bhagavathi Ammal Lakshmi Ammal vs. M. Vencatasubba Iyen 15 TLR 133 (Ker) (FB), Gunu Narasimha Aiyar vs. Muthuswamy Chidambaram 18 TLR 56 (Ker), Kamakshi Achari vs. Appavu Pillai 1 Mad. High Court Reports 448 and Vasudevan Nambudri vs. Mammod (1898) ILR 22 Mad 212 relied on.”

facility of bidding for the chit amount, when they are in urgent need of finance so that

they may receive the chit amount in lump sum as a loan with the facility of repaying in

monthly installments. It is a scheme of contribution by different members wherein any

members can avail said amount as loan and has to repay the same by way of monthly

contribution to the bhishi business.

of bhishi business stands established by filing additional evidences in the form of

affidavits of different persons/members of bhishi business; there is no merit in the

conclusion of Authorities below in holding that assessee was engaged in money lending

business and he had advanced Rs.1.75 crores out of his unexplained sources. The

document relating to about period of six years which end after the date of search cannot

be made the basis for making aforesaid additions in the hands of assessee. The

Assessing Officer failed to appreciate the additional evidences filed by assessee and had

also failed to cross examine the persons who had explained the conduct of bhishi

business and their contribution to the said business and availment of loan from

contributed amount to the bhishi business. Accordingly, there is no merit in the aforesaid

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addition of Rs.1.75 crores made in the hands of assessee. Accordingly, we delete the same. Thus, grounds No. 1 to 5 raised by assessee in appeal are allowed.

Order pronounced on this 11th day of April, 2018.

Sd/- Sd/- (ANIL CHATURVEDI) (SUSHMA CHOWLA) लेखा सद�य/ACCOUNTANT MEMBER �या�यक सद�य/JUDICIAL MEMBER पुणे / Pune; �दनांक / Dated : 11th April, 2018 SB आदेश क� ��त�ल�प अ�े�षत / Copy of the Order forwarded to : अपीलाथ� / The Appellant. 1. ��यथ� / The Respondent. 2. 3. The CIT (Appeals)-II, Pune. 4. The CIT-II, Pune. �वभागीय ��त�न�ध, आयकर अपील�य अ�धकरण, “ए” ब�च, 5. पुणे / DR, ITAT, “A” Bench, Pune. गाड� फ़ाइल / Guard File. 6.

// True Copy // आदेशानुसार / BY ORDER,

�नजी स�चव /Private Secretary आयकर अपील�य अ�धकरण, पुणे / ITAT, Pune.