ACIT (OSD), GURGAON vs. SMT. CHANDERWATI WD/O. LATE SH. JAGDISH CHAND, GURGAON

4. That the appellant craves for the permission to add, delete or amend the grounds of appeal before or at the time of hearing of appeal.”

3. We have heard the submissions of both the sides and have perused the material placed before us. In this case, the original assessment was completed u/s 143(3) dated 22nd March, 1995 on a total income of `31,33,650/-. On appeal, learned CIT(A), vide his order dated 24th January, 1997, set aside the assessment to the file of the Assessing Officer. The Assessing Officer completed the set aside assessment vide order dated 26th March, 1999 on a total income of `47,49,325/- wherein he made the addition of `39,25,062/- for unexplained investment in pawning business and `8,24,263/- as interest income from pawning business. On appeal, learned CIT(A) deleted the addition of `39,25,062/- and reduced the addition of `8,24,263/- to `2,55,634/-. The Revenue, aggrieved with the deletion of `39,25,062/-, is in appeal before us. The assessee has not filed any appeal against the order of learned CIT(A).

3 ITA-1966/Del/2012

“In the instant appeal, the AO has worked out the unexplained investment and interest income on the basis of estimated amount of loan advanced against pawned ornaments. It is, however, relevant to consider if the entire loan amounts estimated against the pawing of silver/gold ornaments can be unexplained investment and relevant to only assessment year 1992-93. It would not be prudent to infer that total loan amount advanced to 2009 persons and estimated at Rs.39,25,062/- could be unexplained investment, particularly when it has not been disputed by the AO that the assessee was in the money lending business since last 35 years. It is abundantly clear from the assessment order that the AO did not make any enquiry from any of the person who pledged/mortgaged their ornaments against loan taken from the appellant, despite the fact that a list of 2009 persons with addresses was available with him. This vital inquiry could have been helpful in ascertaining at least the loan amount vis-a-vis the value of ornaments on the date of advancing loan and rate of interest paid etc. It appears to me that the AO has not understood the basis features of pawning business. An intending loanee agrees to take loan at agreed rate of interest by giving gold/silver ornaments as security and the loan amount alongwith interest is required to be repaid within the agreed period. When the amount of loan repayable alongwith interest exceeds the market value of the pawned article, the loanee may prefer not to make the repayment. In such situations, the pawned articles remain in the custody of the loaner which also cannot be disposed of or sold by him in anticipation of repayment of loan in future by the loanee. There would of course, be cases where the amount of loan alongwith interest is paid and the pawned articles are taken back by the loanee. The loaner in that situation recovers his investment made in advancing loan and earns interest. The interest so earned is again utilized in the same business of money lending after pledging the pawned jewellery. Thus, the party of jewellery looted by the dacoits would also represent the pawned articles, earlier unclaimed by the loanees, in respect of which the appellant did neither receive back the loan amount nor the interest. These unclaimed articles are thus, generated either from the money advanced in earlier year out of repayments or from interest income earned in earlier years. Therefore, it was incumbent upon the AO to at least look into the background behind the direction of ld.CIT(Appeals) against taxing the entire investment only in one year. It remains an undisputed fact that the unclaimed articles would also not generate any interest income.

4 ITA-1966/Del/2012

Thus, the estimation of interest income at Rs.8,24,263/- by considering the entire investment made in one year and that to as income generating is against the basic business principles of pawning. When the AO has estimated interest income of Rs.8,24,263/- for the year under appeal (subject to adjudication), it cannot be inferred that the appellant had not been earning any interest income in earlier years. Going by the standard adopted by the AO for estimating interest income at Rs.8,24,263/- in one year and leaving aside the interest earned and utilized in financing during the year prior to the date of dacoity, the major part of investment in advancing loan against pawned articles is covered by earlier five years if it is accepted that the appellant earned almost similar amount of interest income in earlier five years also. Thus, the whole exercise of the AO in making so called estimation and entire addition in one year does not serve any purpose much less the interest of revenue. Since the appellant was doing money lending business for the last many years, moneys invested in pawning business was accumulation of income generated year after year and by no stretch of imagination, all the moneys invested, estimated by the AO at Rs.39,25,062/- in the pawning business can be held as unexplained investment relevant to A.Y. 1992-93 in terms of section 69 or 69B of the Act, more particularly when no evidence has been brought on record if the assessee was having income from any source other than the money lending business. Therefore, the entire addition made by the AO is wholly unwarranted and highly unjustified. Even if the appellant has not filed necessary details or not produced books of accounts, it does not necessarily entail the AO to make any absurd addition. The Hon’ble Gujarat High Court in Ushakant N. Patel vs. CIT (282 ITR 553), relied upon by the learned counsel, has held that in the first instance it is incumbent upon the authority to establish that there was investments made by the assessee; that such investments were not recorded in the books of account maintained by the assessee; and that, such investments had been made in the financial year immediately preceding the assessment year in question. Therefore, the AO has utterly failed to discharge the primary burden that lay on him. At the relevant time when the assessments were made, the block period for search assessment consisted of 10 years and even the provisions of section 149 of the Act provided for reopening of last 10 assessment years. When the appellant had been engaged in the business of pawning for over last 35 years (a fact not denied by the AO), it would not be in any dispute to 5 ITA-1966/Del/2012 reasonably infer and spread the unaccounted investment over last 10 years considering the above provisions. Hence, the unaccounted investment during the year under appeal would work out to only Rs.3,92,506/-. Once, the AO has made addition on account of interest on estimated basis at Rs.8,24,263/- for the year under appeal, the normal presumption would be that such interest income earned has been utilized in making advances against pawned articles. Therefore, in absence of anything contrary brought on record, there would be no case for making any addition on account of unexplained investment during the year by applying the theory of telescopy. Therefore, the entire addition made by the AO on account of unaccounted investment is not sustainable and deleted.”

6 ITA-1966/Del/2012 considered the income from interest as determined by the Assessing Officer. In our opinion, when he has reduced the interest income from pawning business, the funds available for investment in the pawning business would be the interest income as determined by learned CIT(A) and not the interest income as assessed by the Assessing Officer. It would not be out of place to mention that neither party is in appeal against the interest income determined by the CIT(A). Therefore, the interest income at `2,55,634/- as determined by the CIT(A) has become final. Therefore, in our opinion, the credit for the interest income as determined by the CIT(A) at `2,55,634/- only can be given for considering the investment during the year under consideration. We, therefore, sustain the addition of `1,36,872/- i.e., `3,92,506/- minus `2,55,634/-.