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Income Tax Appellate Tribunal, RAIPUR BENCH, RAIPUR
Before: SHRI N.K. BILLAIYA & SHRI RAM LAL NEGI
PER N.K. BILLAIYA, ACCOUNTANT MEMBER
This appeal by the Revenue is preferred against the order of the Ld. CIT(A), Raipur dated 21.07.2014 pertaining to A.Y. 2012-13.
ITA No. 224/RPR/2014 2 . A.Y. 2012-13 2. The substantive grievance of the revenue reads as under:- 1. "On the facts and in the circumstances of the case the CIT(A) erred in deleting the additions of Rs 14,00,000/- made on account of the amount borrowed on hundies seized from the possession of the assessee, u/s 69D of the Income Tax Act,1961.
On the facts and in the circumstances of the case the CIT(A) erred in deleting the additions of Rs 2,53,55,200/- made on account of unexplained investment in the form of loans as evident from the promissory notes / hundis found during search, where it is noted that the assessee had advanced loans on hundis to various parties as named in the seized documents u/s 69 of the Income Tax Act,1961.
On the facts and in the circumstances of the case the CIT(A) erred in deleting the additions of Rs 48,00,000/- made on account of unexplained investment in the form of loans as evident from hundis seized showing the amounts, date of issue and period and signature. CIT (A) had therefore erred in holding such documents as dumb documents without examining the same.
On the facts and in the circumstances of the case the CIT(A) erred in deleting the additions of Rs 1,32,04,800/- made on account of unexplained investment in the form of loans u/s 69, as evident from the promissory notes / hundis found during search, where it is noted that the assessee had advanced loans on hundis to Milano Food(P) Ltd. as named in the hundi and other loose documents seized.
On the facts and in the circumstances of the case, the CIT(A) erred in allowing the appeal, despite the fact that it is not a valid return u/s 139(9) of the Act. The CIT(A) should have decided the issue of framing of assessment order u/s 144 before admitting the grounds of appeal in this case.
The underlying facts in the issues raised vide ground nos. 1, 2, & 3 are common and therefore all these grounds are taken up together for disposal.
Representatives of both sides were heard at length, case record perused and with the assistance of the ld. Counsel, we have considered the relevant documentary evidences brought on record in the form of paper book in the light of Rule 18(6) of the ITAT Rules.
ITA No. 224/RPR/2014 3 . A.Y. 2012-13 5. Before proceeding further, we must understand the modus operandi of the business of the assessee. The assessee is a Finance Broker and the persons who intend to borrow money approach the assessee. The assessee ask the intended borrower to sign a requisition slip which is white in colour. In the white slip, the intended borrower puts his signature and thereby agrees with the terms of borrowing. Then the assessee explores the prospective lenders and show them this white slip and try to strike a deal with the prospective lenders. When the deal is materialized, a promissory note is duly executed which bears signature of the borrower, the lenders and the assessee and a revenue stamp is affixed as per Section 2(23) and as per article 53 of Indian Stamp Act. The promissory note becomes legally enforceable documents. A search operation was conducted at the premises of the assessee and the members of the family. During the search operation, white slips were found and impounded. These impounded documents can be categorized into three parts- (i) Slips on which no name of the borrower is mentioned. (ii) Slips on which no name of the lender is mentioned. (iii) Blank slips.
On the basis of these seized materials, the A.O. formed a belief that these were hundis and the assessee has financed the amount mentioned in these seized slips and made the additions of Rs. 14 lacs u/s. 69D of the Act. And Rs. 2,53,55,200/- and 48 lacs u/s. 69 of the Act.
Aggrieved the assessee carried the matter before the ld. CIT(A) and vehemently stated contended that the documents relied upon by the A.O. are merely written for future transactions, if materialized. It was brought to the notice of
ITA No. 224/RPR/2014 4 . A.Y. 2012-13 the ld. CIT(A) that since the transactions never materialized, they did not culminate in to a promissory note which is legally enforceable in law.
After considering the facts and the submissions, the ld. CIT(A) was convinced with the contention of the assessee and directed the A.O. to delete the impugned additions.
Before us, the ld. D.R. strongly supported the findings of the A.O. It is the say of the ld. D.R. that since the documents were found from the premises of the assessee during the course of the search operation, therefore, provisions of Section 132(4) of the Act squarely apply by which the presumption is against the assessee. Per contra, the ld. Counsel for the assessee reiterated what has been stated before the lower authorities.
The undisputed fact is that one set of the alleged hundis contains only name of borrower. Another set of the alleged hundis contains neither the name of the borrower nor the name of the lender and the third set of the alleged hundi contain name of the lender. Thus, it can be safely concluded that none of the seized material complies with the mandatory requirements of a legally enforceable hundi (promissory note).
The Hon’ble Andhra Pradesh High Court in 214 ITR 576 had the occasion to consider the meaning of hundi. The Hon’ble High Court after analyzing the provisions of the Negotiable Instruments Act as well as Indian Stamp Act formulated the following broad features of hundi transaction.:- 1. There are always three parties to such a transaction. They are the drawer, the drawee and the payee. The drawer cannot himself also be the drawee. If the
ITA No. 224/RPR/2014 5 . A.Y. 2012-13 transaction is bilateral it is very strong indication to show that it is not a hundi transaction. 2. A hundi is payable to satisfy a person or order but negotiable without endorsement by the payee. 3. The holder of a hundi is entitled to on its basis without any endorsement in his favour. 4. A hundi once accepted by the done, could be negotiated without endorsement. 5. In the case of loss of a hundi, the owner can claim duplicate or triplicate from the drawer and present the same to the drawee for claiming payment. 6. A hundi is normally in the oriental language as per the mercantile custom.
In the light of the afore-stated guidelines as laid down by the Hon’ble Andhra Pradesh High Court, we have perused the documents which are placed in the paper book. After analyzing those documents, we can say that none of the ingredients of hundi are present in the said documents as laid down by the Hon’ble Andhra Pradesh High Court (supra).
Since the documents in question are not hundi and therefore there is no scope for the A.O. to invoke the provisions of Section 69D of the Act.
Though the A.O. has assumed that the assessee has lended money to the persons whose names were found written but other than this assumption, the A.O. has not brought any cogent material on record to substantiate his allegation. As mentioned elsewhere, the white slips were prepared on the behest of the prospective buyers and to assume that amount has been lended by the assessee would be a fallacious assumption and cannot be accepted by any stretch of imagination. Considering the facts of the issues in totality, we do not find any substance in the additions made by the A.O. and in our considered opinion, the First Appellate Authority has rightly deleted those additions and therefore no interference is called for. Ground Nos. 1, 2 & 3 are dismissed.
ITA No. 224/RPR/2014 6 . A.Y. 2012-13 15. Ground no. 4 relates to the deletion of the addition of Rs. 1.32 crores made on account of unexplained investment on the allegation that the asessee had advanced loan on hundis to Milano Food (P.) Ltd.
The A.O. made the impugned addition on the strength of the alleged hundis found at the time of search, the details of such hundis are as under:-
Name Book' S. of Issue No. Book No. Page No. Lender Name of Borrower Amount Days Date Due Date
2 Annexure O 9 Milano Food Pvt Ltd 200000 90 15-Dec-l 1 14-Mar-12
2 Annexure O 8 Milano Food Pvt Ltd 300000 90 15-Dec-l 1 14-Mar-12
2 Annexure O 7 Milano Food Pvt Ltd 200000 90 15-Dec-l 1 14-Mar-12
2 Annexure 0 6 Milano Food Pvt Ltd 30P0000 90 15-Dec-l 1 14-Mar-12
8 Annexure A 79 Milano Food Pvt Ltd 500000 21-Dec-l 1 20-Mar-12 90 8 Annexure A 78 Milano Food Pvt Ltd 300000 21-Dec-l 1 20-Mar-12
Another loose sheet was found which is as under:-
14-3 Cash - 10 19-3 Cash -5 19-3 Cash -16 20-3 Cash -8 26-3 Cashg 12 26-3 Cash -5 2-4 --- -15 10-4 --- -10 13-4 --- -10 16-4 --- -20 8-5 --- --- 4-6 --- -5
ITA No. 224/RPR/2014 7 . A.Y. 2012-13 11-6 --- -5 126
The A.O. was of the firm belief that in the loose paper as exhibited hereinabove, the amounts mentioned therein referred to amounts in lacs meaning thereby that the total of Rs. 126 was assumed to be Rs. 1.26 crores.
At the very outset, we must mention that no logical conclusion can be drawn from the loose paper mentioned hereinabove. Secondly and most importantly, Statement of Shri Jasmit Singh director of Milano Food (P.) Ltd. was recorded by the A.O. and the same is exhibited at pages 142 & 143 of the paper book. In his statement, the director of the Milano Food categorically denied of taking any loan from the assessee. The director of the Milano Food Pvt. Ltd. had emphatically stated that the deal never materialized and no money was borrowed by Milano Food Pvt. Ltd. from the assessee.
In the light of the statement of the director of Milano Food Pvt. Ltd. and considering the loose paper exhibited elsewhere as a dumb document, we have no hesitation in upholding the findings of the ld. CIT(A). Ground no. 4 is also dismissed.
With ground no. 5, the revenue alleges that the ld. CIT(A) should not have entertained the appeal as the return was not a valid return u/s. 139(9) of the Act and the ld. CIT(A) should be decided the issue of framing of assessment u/s. 144 of the Act. We do not find any merit in this grievance of the revenue even of the assessment is framed u/s. 144 of the Act, it is framed on the basis of the same return of income which the revenue alleges to be an invalid return. Since the A.O. has completed the assessment on the basis of the said return
ITA No. 224/RPR/2014 8 . A.Y. 2012-13 thereby creating a huge tax demand, the assessee had to prefer appeal before the appellate authority. Therefore, no adverse inference should be drawn.
Order pronounced in Open Court on 09 - 03- 2018
Sd/- Sd/- (RAM LAL NEGI) (N. K. BILLAIYA) JUDICIAL MEMBER True Copy ACCOUNTANT MEMBER RAIPUR: Dated 09/03/2018 Rajesh Copy of the Order forwarded to:- 1. The Appellant. 2. The Respondent. 3. The CIT (Appeals) – 4. The CIT concerned. 5. The DR., ITAT, Ahmedabad. 6. Guard File. By ORDER
Sr. P.S. ITAT,Raipur