KAMLESH VASHRAMBHAI RAMANI,,RAJKOT-GUJARAT vs. THE DEPUTY COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE-2,, RAJKOT-GUJARAT

Since, the issues involved in all these appeals are common and identical, and these appeals pertain to son and father, therefore we have clubbed these appeals

First, we shall take assessee’s appeal in ITA No.451/Rjt/2013 for AY 2008-09, wherein the effective ground of appeal raised by the assessee are as follows: (1) The learned Commissioner of Income Tax (Appeal)-IV, Ahmedabad has erred in restricting the addition to Rs. 10,76,392/-, as against Rs. 21,50,000/-, made by the Assessing Officer on account of unexplained cash payment for running petrol pump.

Succinctly, the factual panorama of the case is that assessee before us is an Individual.A search action u/s.132 of the Act was carried out at the premises of the assessee on 24.06.2010. During the course of search, various materials were found and seized. The proceedings u/s. 153A of the Act was initiated by issuing of notice dated 04.01.2011, which was duly served upon the assessee. The assessee was required to file return of income within 30 days of the receipt of the notice. The return of income showing total Income of Rs. Nil was filed on 31.01.2012. The assessee has also shown agricultural income of Rs 10,73,608/-. A notice u/s 143(2) of the Act, was issued on 29.08.2012, which was served upon the assessee. Further detailed questionnaire was issued on 11.09.2012, along with a notice issued u/s 142(1) of the Act. In response to the notices of hearing, authorized representative of the assessee, attended from time to time and filed submissions, before the assessing officer. Copies of Profit &Loss account and balance sheet were also filed, before the assessing officer. The assessee has income from Agricultural activities. During the course of recording of statement u/s132(4) of the I. T. Act, 1961, on 24-06-2010, Shri Kamlesh Vashrambhai Ramani, son of the assessee, vide question No.44, had admitted that M/s Balaji Petroleum, situated at Ahmedabad-Rajkot High-way, Maliyasan, in which the assessee and Shri

In response to the notice of the AO, the assessee has submitted written submission before the AO, on 06.11.2012, which are reproduced by the AO, at page no.3 to 4 of the assessment order. In reply, the assessee submitted that assessee had agriculture income and out of agriculture income amount of Rs.21,50,000/- was given to Manojbhai Arjanbhai Nandasana. The assessee also submitted that he does not carry out any business activity except agriculture therefore no addition should be made in the hands of the assessee.

However, the AO rejected the reply of the assessee and observed that the claim of the assessee that the cash payments were out of his agricultural income, is not correct. It is also not correct to say that the assessee was not having any source of income other than agriculture income because Mr. Kamlesh Ramani son of the assessee is controlling the affairs of the petrol pumps and therefore it is clear that the unaccounted income from petrol pump business has been brought back by the assessee for running the petrol pump. The statement has been given by Shri Kamlesh Ramani with sound mind and without any coercion or threat. Further, the assessee's submission that he has filed an affidavit retracting the disclosure has also been duly verified and assessing officer noticed that though the assessee has prepared the affidavit on 30.06.2010, the same has not been submitted before the department and copy of the same has been given only with the submission during the assessment stage. Therefore, it is clear that the cash payment of Rs. 21,50,000/- made for running day to day affairs of petrol pump is out of undisclosed source of income of the assessee. Accordingly, an amount of Rs. 21,50,000/- was added to the total income of the assessee on account of undisclosed income.

Aggrieved by the order of the AO, the assessee carried the matter in appeal before the Ld.CIT(A), who has partly deleted the addition. The ld.CIT(A) observed that the claim of the assessee that these advances of Rs.21,50,000/-, were given out of agricultural income earned in earlier years cannot be accepted, as assessee was not maintaining regular books of account and has not filed returns of income before search. His claim of using agricultural income of earlier years for making these advances cannot be accepted. However, the AO, in the assessment order for AY 2008-09, has accepted of earning agricultural income of Rs. 10,73,608/- by the assessee. Accordingly, assessee is entitled to claim that out of total advances of

Aggrieved by the order of the Ld.CIT(A), the assessee is in further appeal before us.

We have heard both the parties and carefully gone through the submission put forth on behalf of the assessee along with the documents furnished and the case laws relied upon, and perused the fact of the case including the findings of the ld. CIT(A) and other materials brought on record. The Ld.Counsel for the assessee submitted before us that assessee has 250 vigha agricultural land which is inherited agricultural land. The assessee has been doing agriculture activities, since long and amount of Rs.21,50,000/- was given out of agriculture income. The assessee does not have any income except agriculture income. In response to notice u/s.153A of the Act, the assessee has filed the return of income, showing agriculture income, and prior to that also assessee had shown agriculture income. The Ld.Counsel for the assessee also submitted, addition should not be made, based on the assessee’s son statement, as there was no incriminating material, in the hands of the AO to make addition. Therefore, ld. Counsel contended that remaining addition sustained by the learned CIT( A) may be deleted.

On the other hand, the Ld.DR for the Revenue submitted that statement was not recorded during survey, however, there was a search simultaneously, that is, a search action was also conducted. Therefore, the statement recorded by the AO

In the result, appeal filed by the assessee, (in ITA No.451/RJT/2013), is allowed.

Ground no.1 raised by the assessee, relates to addition of Rs.25,0000/- under the head income from other sources. Brief facts, qua the issue are that during the assessment proceedings, the assessing officer noticed that seized documents have clearly revealed that assessee has agreed to purchase a land situated at RS No.47 in Rajkot city from Shri Dineshbhai Bhanjibhai Vadher, Power of Attorney holder of Shri Ghoghabhai Premjibhai Kukadia for Rs. 1,60,00,000/- and as advance to this transaction, the assessee has paid cash of Rs.75 lakhs on 21-08-2008. This fact has also been accepted by the assessee, as assessee has withdrawn the appeal filed for AY 2008-09, wherein the AO made the addition of Rs.75,00,000/-, to the income of the assessee on this account. Even otherwise, sufficient evidences were found during the search like complaint made by the assessee to the police, copy of Civil Suit No.274/08 filed by the assessee, before the Principal Civil Senior Judge of Rajkot. In both these complaints assessee has himself accepted that he has paid

The assessing officer noted that as per this 'Out of Court settlement', it was decided that in lieu of advance payment of Rs. 75,00,000/-, made by the assessee, Shri Vadher would provide two other pieces of lands to the assessee at RS No. 149 and land at RS No.47 paiki 9, amounting to Rs.1,00,00,000/-. There is no dispute between the assessee and the Department till this stage, as assessee has also accepted all these events, mainly because of the fact that all the related documentary evidences were found during search. Therefore, assessing officer during assessment proceedings, treated the benefit of Rs. 25,00,000/- earned by the assessee [Value of two new lands at Rs.1,00,00,000- Cash advance of Rs. 75,00,000/-)) as 'interest income / income from other sources',.

Aggrieved by the above action of the assessing officer, the assessee carried the matter in appeal before the learned CIT (A). Before learned CIT(A), the assessee submitted that this 'Out of Court settlement' was also not honoured by both the parties and instead of getting another land at RS No.149 and RS No.47, assessee has received back, cash of Rs.75 lakhs from Shri Vadher. However, learned

We have given our thoughtful consideration to rival contention. We have perused case file as well as paper books furnished by assessee. The learned Counsel for the assessee argued before us that the assessee, vide letter dated 04.02.2013 submitted that the conclusion of earning Rs. 25,00,000/-, on this property after compromising with the party is totally wrong and it is totally imagination and presumption made. The assessee also filed a copy of affidavit made between him and Shri Dinesh B Vadher on 06.02.2013 that the agreement made between them on 29.12.2009, was not executed and therefore, Shri Vadher has paid back Rs. 75,00,000/-. However, learned DR for the revenue submitted before us that the content of the agreement that, they have mutually agreed that in lieu of payment of Rs. 75,00,000/- cash by the assessee, Shri Vadher has agreed to sell land worth Rs.1,00,00,000/-, to the assessee. The affidavit filed by the assessee is self- serving document and cannot be believed. Therefore, learned DR for the revenue, contended and that the addition made by the assessing officer may be sustained.

We have considered the submissions of both the parties and noted that the assessee submitted that the 'Out of Court settlement' was not honoured by both the parties and instead of getting another land at RS No.149 and RS No.47, the assessee has received back, the cash to the tune of Rs.75 lakhs from Shri Vadher. The assessee filed an affidavit dated 06-02-2013 of Shri Vadher stating above facts. We note that assessee admitted that he had paid Rs.75,0000/- in cash and on the said cash component, income was assessed in the assessment year (AY) 2008-

In the result, ground no.1 raised by the assessee is allowed.

The ground no. 2 raised by the assessee, relates to the addition of Rs.1,45,35,035/- made by the AO, on account of unaccounted investment/ expenditure, as per the seized annexure (diary A-14).

Brief facts of the issue in dispute are stated as under. During the course of search, several incriminating documents / loose papers/ diaries were seized from the premises of the assessee. In the seized diary, annexure A-14, on various pages, the details of financial transactions were recorded. When the statement of the assessee was recorded u/s 132(4) on 24-06-2010, he was asked to explain the contents of noting recorded on pages of Annexure A-14. For the sake of convenience the page no, the relevant question & answer of the statement, details of financial transactions and reply of the assessee are summarized as below:

However, the assessing officer rejected the above contention of the assessee and held that in addition to admission of the assessee, in the statement recorded u/s

On appeal, the ld. CIT(A) confirmed the action of the assessing officer. Therefore, assessee is in appeal before us.

We have heard both the parties. The Ld.Counsel for the assessee submitted that the entry mentioned in the diary does not show that the assessee paid the cash. This said diary pertains to the assessment year (AY) 2010-11 and 2011-12, therefore, the amount recorded in the diary is not conclusive proof, that it is assessee`s unaccounted investment/ expenditure. The said diary contains the transaction for subsequent years also. Hence, the addition should not be made. The Ld.counsel for the assessee also took us through the paper book at page no.90 and 91 and stated that the entries mentioned in the diary do not show the reality that the assessee has paid the amount.

On the other hand, the Ld.DR for the Revenue submitted that the assessee is indulging in cash transaction and assessee is receiving money in cash therefore the addition made by the AO should be sustained. The Ld.DR also pointed out that the conduct of the assessee, clearly shows that assessee is habitually engaged in cash transaction to avoid the payment of taxes, therefore the addition made by the AO should be sustained.

We have considered the submissions of both the parties and noted that the books of accounts, income tax returns and other relevant records were not available while making disclosure in the statement by the assessee. The assessing officer forced assessee to make the disclosure. Except agriculture and petrol pump, there were no other business or activities of the assessee, which could yield profit of 2 to 3 crores. An affidavit dated 30-06-2010 was filed before the ADIT, Rajkot retracting the disclosure of unaccounted income. In fact, even if an assessee inadvertently failed to claim any legitimate claim, the revenue has to correct it and due tax has to be collected. In this regard Hon'ble Gujarat High Court in the case of S.R. Koshti vs. CIT 276 ITR 165 (Guj) has held that "the authorities under I.T. Act, 1961 are under an obligation to act in accordance with law. Tax can be collected only as provided under the Act. If an assessee under a mistake, misconception or not being properly instructed is over assessed, the authorities under the Act are required to assist him and assure that only legitimate taxes due are collected".

In fact, in a situation like that of the assessee, number of appellate authorities have opined that the revenue authorities are expected to collect the legitimate revenue and we had placed on record the CBDT's Circular No. 114 XL-35 of 1955, dated 11-4-1955, which read as under:

We note that the diary, so seized by the department, pertains to the assessment year (AY) 2010-11 and 2011-12, therefore, the amount recorded in the diary is not pertaining to assessment year 2010-11, under consideration. The said diary contains the transaction for subsequent years, hence, the addition should not be made in the assessment year 2010–11. Besides, the entries mentioned in the diary do not show the reality that the assessee has paid the amount, therefore, based on the factual position, we delete the addition.

In the result, ground no.2 raised by the assessee, is allowed.

Now, we shall take appeal in ITA No.63/Rjt/2014, for AY 2011-12, in the case of Kamlesh V. Ramani, wherein the effective grounds of appeal raised by the assessee are as follows:

The ground no.1 raised by the assessee pertains to the addition of Rs.63,25,000/- made by the AO, on account of unaccounted receivables and ground No.2 relates to enhancing the income by Rs. 75,00,000/-. Since both the grounds of appeal are interconnected and mix, therefore we shall adjudicate them together.

The brief facts qua the issue are that during the assessment proceedings, the assessing officer noticed that page No. 16, 18, 29, 31 & 33 of the diary (Annexure A- 14) impounded during the course of survey proceedings, at the business premises of M/s Maruti Nandan Petroleum situated at 318, Heera Panna Complex, Dr.Yagnik Road, Rajkot, it was observed that the said pages record the certain amounts receivables from the different parties. The transactions recorded on the said pages, are reproduced/narrated as under:

In reply, the assessee, vide letter dated 08.11.2012, filed written submission. The assessee also filed copy of affidavit dated 30.6.2010, claimed to have been filed before the Investigation Wing, and also filed copy of a letter dated 25.01.2012 in which he has retracted from disclosure of additional income. The assessee

However, the assessing officer, rejected the above contention of the assessee and observed that since the assessee has made disclosure of Rs. 75,00,000/- in respect of unaccounted cash payment for purchase of land and its subsequent receipt on settlement for which addition has already been made in assessment year (AY) 2008-09, on agreed basis, therefore, the credit of Rs. 75,00,000/- was given by the assessing officer, against unaccounted receivables mentioned in the diary and which was disclosed by the assessee as his unaccounted income of Rs.1,38,25,000/-. After giving credit of Rs. 75,00,000/-, which has been disclosed and added to the total income in AY 2008-09, the net addition on account of unaccounted receivables comes to Rs. 63,25,000/- (Rs.1,38,25,000- Rs. 75,00,000). Therefore, the assessing officer made addition to the tune of Rs. 63,25,000/-.

Aggrieved by the order of the AO, the assessee carried the matter in appeal before the Ld.CIT(A), who has confirmed the action of the AO. The ld.CIT(A)

We have heard both the parties. Learned Counsel for the assessee submitted that the admission of additional income was not based on any credible evidences. The seized diary A-14 was a dumb document with some rough notings recorded therein. There are no specific details of dates, amounts and names of persons from whom amounts were receivable by the assessee. The assessee has been able to disprove the entries recorded in A-14 by submitting supportive evidences. Besides, there are no corroborative evidences to prove that entries recorded in A-14 are correct and actually represent the unaccounted financial dealings of assessee. The assessee has admitted the disclosure without examining the books of account/return. After verifying the books, the assessee was of the view that the disclosure made by him during search was incorrect. The assessee also submitted that except petrol pump/agricultural income there is no other sources of income which could yield crores of rupees. On the other hand, the Ld. DR for the Revenue has primarily reiterated the stand taken by the Assessing Officer, which we have already noted in our earlier para and is not being repeated for the sake of brevity.

We note that enhancement of income made by the learned CIT(A) is not in accordance with law as there was no need to make enhancement, as the amount of Rs. 75,00,000/- had already been taxed in the assessment year (AY) 2008-09. Therefore, the enhancement of the same amount in the AY 2011-12 is not justifiable. About issue of enhancement made by CIT(A) of Rs. 75,00,000/-, we note that AO allowed set off of Rs. 75.00 Lakh in respect of the addition made in the A.Y. 2008-09 against unexplained investment made in the "Receivables" of Rs. 1,38,25,000/-, in the A.Y. 2011-12, by accepting the fact and submission that ultimately the transaction did not materialize and hence the amount given as advance in the A.Y. 2008-09 (and also taxed in the hands of the appellant in that year) was to be returned back to the appellant and the same is available to the appellant for the purpose of making advances to the various persons.We find that Ld. CIT(A) contended that the transaction was actually materialized and the appellant did receive the property which he later on sold to one Mr. Jadav Govani hence the set off given by AO was erroneous.We note that Ld. CIT(A) inquired with the revenue records and found that the property, which was to be received by the appellant was sold by one Mr. Jadav Govani to some third party and from the impounded diary of the appellant it is noted that the appellant was to receive sum of Rs. 10.00 Lakh from Mr. Jadav Govani. Based on this Id. CIT(A) contended that the appellant did receive the property from Mr. Dinesh Vadher and sold the same to Mr. Jadav Govani and ultimately Mr. Jadav Govani sold the same to some third party. The sales consideration was received by the appellant and balance sum of Rs. 10.00 lakh was only pending, which was reflected in the impounded material. Thus, the appellant could not have received any sum back from Mr. Dinesh Vadher and hence set off of Rs. 75.00 Lakh was not to be allowed.

Thus, we note that the contention of AO is that the transaction did not materialize and hence the appellant received money back from Mr. Dinesh Vadher and contention of Id. CIT(A) is that the transaction did materialize and ultimately the property was sold by the appellant to Mr. Jadav Govani and he has received money from Mr. Jadav Govani and not from Dinesh Vadher. Undisputed fact in the contention of AO as well as Id. CIT(A) is that the appellant did receive sum of property back in the A.Y. 2011-12. However, we note that Jadav Govani was not the buyer of the property, in fact he was holding interest in the property even before the appellant made advance payment of Rs. 75.00 Lakh. His name was also appearing in the "Out of court settlement dated 29.12.2009 extracted hereunder:

About issue of addition of Rs. 1,38,25,000/- in the A.Y. 2011-12, we note that the addition was made on the basis of the diary impounded in the course of the survey u/s 133A inventoried as Annexure A-14.The diary contains noting of "Amount receivable” on different date from different person.The addition was confirmed by both the lower authorities on the basis of the diary and statement of the appellant.

In view of the above table the peak would be worked out at Rs. 37,50,000/- on 15.04.2010. The above facts and data were already on record of lower authorities, that is, assessing officer and ld.CIT(A), therefore, above chart produced by the learned Counsel for the assessee, is not an additional evidence before us.Since, the amount to be set off (either Rs. 75.00 Lakh or Rs. 1.00 Crore) is higher than the peak investment therefore, no addition is warranted in the assessment year (A.Y.) 2011-12, on account of unexplained receivables. Hence, we allow both the grounds raised by the assessee.

In the result, ground no.1 and 2 raised by the assessee is allowed.

Now we shall take assessee`s penalty appeal in ITA No.407/Rjt/2014 for AY 2011-12, which pertains to the Kamlesh V Ramani, wherein the grounds of appeal raised by the assessee are as follows:

We note that assessing officer, had initiated penalty u/s 271AAA of the Act, for enhanced income of Rs.75,00,000/-. The assessing officer held that assessee has generated Rs. 75,00,000/- out of his financial dealings, the profit of which was not recorded in the regular books of accounts and no taxes were paid thereupon. Therefore, assessee has earned undisclosed income to the extent of Rs. 75,00,000/-, the details of which were found recorded in the seized material. As per section 271AAA of the Act, assessee is liable to pay penalty at the rate of 10% of the undisclosed income of the specified previous year. Therefore, assessing officer imposed penalty u/s. 271AAA of the Act, at the rate of 10% of the 'undisclosed income’ of Rs.75,00,000/-, which comes to Rs 7,50,000/-.

The Ld.Counsel for the assessee submitted the Ld.CIT(A) is not authorized to levy penalty u/s.21AAA of the Act. Therefore, the penalty order framed by the Ld.CIT(A), was in violation of provision of section 271AAA of the Act, as the Commissioner does not have the power to impose the penalty u/s.271AAA of the Act, therefore initiation of the penalty proceedings are itself bad in law and hence the penalty should be quashed. The Ld. Counsel for the assessee took us through the definition of the assessing officer (AO) u/s. 2 (7A) of the Act and stated that nowhere Commissioner of Income Tax (Appeals) is mentioned, in the definition of the assessing officer. Besides, as per the section 271AAA of the Act, the CIT(A) is

We have heard both the parties and perused the materials available on record. We note that the Co-ordinate Bench of Delhi in ITA No.2835/Del/2015 order dated 09.10.2018 in the case of Tripat Kaur vs. ACIT wherein the Tribunal has held as follows:

We also note that quantum addition of Rs.75,00,000/- has been deleted by us, therefore penalty does not have any leg to stand. That is, there is no foundation to sustain the penalty. Once the foundation fails, the superstructure also fails, that is, the penalty also is to be deleted. In this regard, we place reliance on the legal maxim “Sublato fundamento cadit opus” (meaning thereby that foundation being removed, structure /work falls). Hence the initial action of the revenue itself is not in consonance with law, then all the subsequent and consequential proceedings would fall through for the reason that illegality strikes at the root of the order. Based on these facts and circumstances, we delete the penalty.

In the result, appeal filed by the assessee, (in ITA No.407/RJT/2014,) is allowed.

In the combined result, all appeals of these two assesses` are allowed.