DEPUTY COMMISSIONER OF INCOME TAX,CENTRLL CIRCLE-2(1), NAGPUR vs. SHRI BIHARILAL SHADHURAM CHHABRIYA, NAGPUR

Date of Hearing – 12/08/2024 Date of Order – 21/08/2024

O R D E R PER K.M. ROY, A.M.

The present appeals have been filed by the Revenue challenging the impugned orders of even date 21/02/2023, passed by the learned Commissioner of Income Tax (Appeals)–3, Nagpur, [“learned CIT(A)”], for the assessment year 2016–17, 2017–18, 2018–19 and 2019–20 respectively.

Shri Biharilal Shadhuram Chhabriya to 109/Nag./2023

All these appeals filed by the Revenue pertain to the same assessee 2. involving common issues arising out of identical set of facts and circumstances, except variation in figures, therefore, as a matter of convenience, these appeals were heard together and are being disposed off by way of this consolidated order. However, in order to understand the implication, it would be necessary to take note of the facts of one appeal. We are, accordingly, narrating the facts, as they appear in the appeal in ITA no. 106/Nag./2023, for assessment year 2016–17.

./2023 Assessee’s Appeal – A.Y. 2016–17

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1. On the facts and in the circumstances of the case, the Ld. CIT(A) erred in deleting the addition of Rs.87,00,000/- on account of cash loan u/s 69A of the I.T. Act, 1961, without appreciating the fact that the addition of Rs.87,00,000/- made by the AO was supported with finding as per the document seized during the search action u/s 132 of the I. T. Act, 1961.

2. On the facts and in the circumstances of the case, the Ld. CIT(A) erred in deleting the addition of Rs.1,25,25,852/- on account of interest income earned on the cash loan advanced, without appreciating the fact that the addition of Rs.1,25,25,852/- made by the AO was supported with finding found as per the document seized during the search action u/s 132 of the I.T. Act, 1961.

3. Whether on the fact and in the circumstances of case, Lt. CIT(A) is correct in holding that no evidence has been collected from the borrower, when loan transactions are made in cash and the same is not recorded in the books of the assessee i.e. Shri Biharilal Shadhuram Chhabariya and also in the books of borrowers.

4. Whether on the fact and in the circumstances of case, Ld. CIT(A) is correct in considering that the AO has failed to adduce any evidence to establish that the money recorded in the documents seized from the locker of the appellant's employee belonged to the appellant, when the appellant himself has accepted that all the documents found and seized in the locker no.321, in the name of his employee Smt. Vinita Prabhakar Kale.

5. Any other grounds and fact to be raised at the time of appeal.”

Shri Biharilal Shadhuram Chhabriya to 109/Nag./2023

Shri Biharilal Shadhuram Chhabriya to 109/Nag./2023 to B 20. The seized documents included Goldy DM Book (Anx B18 to B20) wherein the details of interest on money lent on Hundi/cash Loan to various parties have been recorded. The particulars in the said book indicate the names of the borrowers and lenders in the coded in the form of initials of their names. As against these names are written the amounts again in coded form, for example 100 indicates 1 Lakh, rate of interest and amount of interest and the due dates on which the borrowers have to repay the amounts and if extensions are sought by the borrowers, the extended dates also are mentioned. That the documents seized contain transactions which have been entered either through Cheques / Banking channels or Cash Transactions. The transactions entered through cheques have been verified by the learned assessing officer. The brokerage earned on said cheque transactions has been accounted for in the books of account and offered for taxation.

Shri Biharilal Shadhuram Chhabriya to 109/Nag./2023

Unexplained A.Y. Interest Income Total Income u/s 69A 2014–15 2,50,000 45,000 2,95,000 2015–16 1,01,50,000 18,27,000 1,19,77,000 2016–17 87,00,000 1,25,25,852 2,12,25,852 2017–18 1,46,71,650 1,13,42,551 2,60,14,201 2018–19 2,36,38,250 69,48,453 3,05,86,703 2019–20 1,30,00,000 23,40,000 1,53,40,000

Being aggrieved with the addition, appeal was preferred before the learned CIT(A).

“4. The facts of the case are that a search and seizure action was carried out at a private vault run in the name and style of H U Vaults. The appellant confirmed during the proceedings that he had a locker in the aforesaid vault in the name of his employee Smt. Vanita Kale and the contents of the locker also belonged to the appellant. Apart from certain valuables and cash, certain documents were found and seized from the locker. The documents contained details of the money given on loan and interest charged/ chargeable thereon from the borrowers. They also contained names of the borrowers and names in codes of the purported lenders. The amount given on loan is also mentioned in coded/ abridged numbers and the appellant had conceded its true value along with the dates on which the loans would become payable. The documents so seized contained entries of cheques and bank transactions as well as cash transactions on the same pages. There were no differences in details entered in the records regarding the transactions except that they were either in cheque mode or cash mode. The AO had in a notice issued to the appellant worked out the amount of loan in cash and interest thereon proposed by him as income of the appellant. On verification of the documents, it is found that there is no dispute that the appellant is finance broker who arranges loans for needy customers on commission basis from the parties having funds to advance on interest. It is also not disputed that during the A.Ys. in consideration, the appellant has arranged loans transacted in cheque mode and cash mode. The transactions transacted in cheque mode have been accepted by the AO to have been recorded in the books of the borrowers and lenders concerned. The only Page 20 of dispute is about the transactions carried out in cash. The AO has not accepted the contentions of the appellant and concluded the sums involved as Page | 5

Shri Biharilal Shadhuram Chhabriya to 109/Nag./2023 investments of the appellant and treated the interest accrued thereon as his income of the corresponding periods. The AO has concluded in the assessment order that the appellant was involved in money lending directly in addition to his brokerage business of money lending. The arguments of the AO in his assessment orders in this regard are as under: “During the assessment year concerned the assessee has advanced cash loans and no interest has been shown to had earned during the year. Therefore, the cash loan is treated as unexplained money u/s 69A of the Act and added to the total income of the assessee and interest income earned on the cash loan advanced is added to the total income of the assessee..." It is noticed that the AO had verified the seized documents but did not adduce any arguments as to how did he conclude that the appellant is involved in money lending directly. There has to be cogent reasons and evidences on records to establish that the money advanced as loans to the borrowers belonged to the appellant and no other persons. The records show that the appellant provided his services on commission basis and arranged loans on short notices and ensure security of the money of the lenders. The appellant in the process maintains records of the funds arranged by him from the lenders for the borrowers including the sums involved, period for which loans have been taken/advanced, interest chargeable and commission thereon. The moot question is ownership of the funds so involved. The AO is found to have accepted the contentions of the appellant that the money involved in the transactions through cheques are owned by the lenders. The records containing details of cheque transactions contain details of cash transactions also. The AO, however, did not accept the appellant's same contention for the cash transactions although the AO has failed to adduce any evidence to establish that the money recorded in the documents seized from the locker of the appellant's employee belonged to the appellant There is merit in the contentions of the appellant that no different views can be taken for separate entries of the same documents. The appellant has appended a copy of the seized document to illustrate his contentions. The AO has straight away drawn conclusion that the appellant had advanced cash loans and made addition on assumption towards interest thereon. No inquiry was made from the borrowers about the sources of the loans taken by them and quantum of interest, if any, paid or payable thereon. If the particulars of cheque transactions are admitted as per the appellant's submissions, the contentions of the appellant cannot be denied for cash transactions. There is no reason for separate treatments for cash transactions and cheque transactions. Even in the cases of cash transactions, the AO did not find any flaw in the appellant's contention wherein no cheques of the borrowers were found in possession of the appellant. Merely on the basis of cheques retained by the appellant towards surety of the funds of the lenders, no conclusion can be drawn about the ownership of the money involved. The appellant's contention is that the lending and borrowing always takes place on principal to principal basis between lender and borrower and it was only for the purpose of keeping track of the entitlement of his brokerage the appellant maintained the said diaries. In this context the proposition of the Ld. Counsel of the appellant referred to the decisions by the Pune Tribunal in the case of Ramanlal P Chordia vs. ACIT, 87 TTJ 713 and by the Mumbai Tribunal in the case of Biren V Sawla vs. ACIT, 100 TTJ 1006 are found squarely applicable to the case of the present Page | 6

Shri Biharilal Shadhuram Chhabriya to 109/Nag./2023 appellant. In the cited cases also, the appellant were finance brokers and certain diaries were seized from their possession containing records of cash transactions. It was held by the Hon'ble Tribunals that the amount recorded in the diaries is not the assessee income and cannot be taxed under section 69. Further, there are certain entries which have names common for cheque as well as cash transactions. In the case of lenders, the identity could have been ascertained and claim of the appellant verified. In other such cases, the identity of the lenders could have been established from the borrowers known from the details in the diaries and the source of money be ascertained. In the instant case of the appellant also, the AO didn't make any inquiries to ascertain the veracity of the identity of the borrowers and lenders. Although the appellant in apprehension of risk to his life, did not furnish more details of the lenders recorded in the seized diaries, it is found that the AO was not handicapped to make further inquiries on the basis of details available with him. The AO did not give findings that the coded names of the lenders noted in the diaries were in fact representing the appellant. As it has been observed in the cited. cases of Ramanlal P Chordia and Biren V Sawla (supra), if the appellant had not arranged this finance from the lender then there was no need for him to write the names of such lenders. It was not possible to believe that the appellant intended to hoodwink somebody by mentioning the names of lenders. If presumption under s. 132(4) is raised in respect of one set of documents, then same should be equally and in identical proportion be raised in respect of other set of documents also. The principle is that a document found in search should be treated as genuine with respect to all the entries recorded therein. It is not justified in taking a view that only a part of the contents, i.e., the names of the borrowers is correct and not the names of lenders. Entire documents should read as a whole and contents of entire documents should be treated as correct or rejected as a whole finance broker unless proved otherwise on the basis of evidence gathered in inquiry, amount recorded in the diaries is not the assessee income and cannot be taxed under section 69A. The appellant was charging brokerage from the borrowers only and therefore, as per his practice and requirement he noted the names of the lenders in codes. No case has been made out that the appellant failed to establish the identity of the lenders. The brokerage varies from borrower to borrower. Besides the principal amount given on loan, the AO had assumed that there was income earned by the appellant as interest thereon ignoring that the entries in the seized diaries did not reflect that the appellant was receiving interest. The appellant's contention is that the lenders were entitled for the interest on the loan amount and he was entitled for brokerage only. If the commission earned on the said transactions have been accepted by the AO and brought to tax, there is no reason why interest on principal so advanced be taxed again. No evidence has been collected from the borrowers as to any interest payment to the appellant. Besides, apart from the entries in the diaries, no evidence was found to establish that the sums given on loan were belonging to the appellant. Last but not the least, no cash or asset was detected from the appellant which could be source for the so much of money advanced as loan by him.”

Shri Biharilal Shadhuram Chhabriya to 109/Nag./2023

“That during the course of search, cash and jewellery were found and seized as detailed below:–

Sr. Particulars Amount Remarks no. That during the course of assessment proceedings the same Cash seized from was explained as forming part of ` 79,000 01 Locker Cash in hand as per books and the same was accepted by the Learned AO. No addition made. That while recording of statement u/s. 131 and during the course of assessment proceedings the same Gold Ornaments was explained as belonging to 02 ` 19,75,342 seized from Locker Wife/Daughter/Mother of the assessee and the same was accepted by the Learned AO. No addition made. That while recording of statement u/s. 131 and during the course of assessment proceedings the same Silver articles seized was explained as belonging to 03 ` 50,545 from locker Wife/Daughter/Mother of the assessee and the same was accepted by the Learned AO. No addition made.

That apart from the above seizure the authorized officers also found documents pertaining to my money lending business and the same were impounded and inventorised as Anx. B1 to B 20. 2.2 Diaries seized pertains to finance brokerage business and brokerage income offered has been accepted by the learned AO 2.2.1 The assessee submits that, the documents that have been seized during the course of search operations pertains to the finance brokerage business carried by the assessee. During the course of said business activity, the assessee had offered his services as finance broker for the transactions and it is only for the purpose of keeping track of transactions/ brokerage, that the documents seized has been maintained. That the document contains records for transactions made through Banking Channels and Cash Transactions. That the amount advanced as loans through banking channels and cash transactions and interest thereon does not belong to assessee and the same belong to the lender and the assessee is only entitled to brokerage for the transaction/s. The said fact is also evident from the documents seized which contain the name of the borrower and also the name of the lender in coded forms in Hundi transactions made through Banking Channels and in cash Transactions. 2.2.2 The transactions entered through cheques have been verified by the learned assessing officer. The brokerage earned on said cheque transactions Page | 8

Shri Biharilal Shadhuram Chhabriya to 109/Nag./2023 has been accounted for in my books of accounts and offered for taxation in return filed u/s 139(1), which has been accepted by the learned AO. That in the same dairies, similar transactions entered through cash were also recorded. That, in response to the notice issued u/s 153C, the assessee offered additional brokerage income on cash loan transactions for taxation (Refer Page 8 & 24 of learned CIT(A) order) which has been accepted by the learned AO in the assessment orders passed. 2.2.3 Therefore, the learned AO having accepted brokerage income earned from cash loan transactions between lenders and borrowers, the learned AO erred in making additions on alleged unexplained loan and interest u/s 69A in the hands of the assessee. The learned AO cannot blow hot and cold at the same time. 2.3 Presumption under section 132(4A) applies vis-a-vis entire content of seized document 2.3.1 The provisions of section 132(4A) raise a statutory presumption, that the contents of the seized diaries are true. The learned AO accepted that, transactions recorded in diary which were carried out through banking channels was between lenders and borrowers and the assessee earned only commission income. Thus, the assessee has simultaneously discharged the burden lay on him by submitting that, when from the same diaries hundi/ cheque outgoings are treated as investments of the lenders, the similarly recorded cash outgoings are investments/money of the third parties i.e. the lenders. The onus shifted on the learned AO to rebut the presumption raised u/s 132(4A) with some cogent material. That the document should be read as a whole and the learned AO is preculed from drawing contrary inferences from same document. 2.3.2 It is submitted that, once it is accepted on the basis of diaries, money has been advanced to borrowers then it should also be accepted that such money is coming from lenders. Advances alone should not be accepted as true but money coming from lenders and going to borrowers should also be accepted as true. Every part of the documents has to be taken as true. The principle of law is that under section 132(4A) the contents of document found in search are true vis-a-vis entire contents of seized material. 2.4 No corroborative evidence to support the addition made u/s 69A 2.4.1 The provisions of the Section 69A applies only when the taxpayer is found to be the owner of any money. There was no unexplained cash found during the search. There is no evidence that, the assessee had advanced cash loans to borrowers. Thus, there is no basis to allege that, the assessee was found to be the owner of any money. 2.4.2 The assessee had duly explained the entries in seized diary. That, the money advanced as loan did not belong to the assessee but to different lenders. Therefore, once it has been proved that, the money was not owned by the assessee, then section 69A cannot be invoked. 2.4.3 Without prejudice, where the explanation is not found to be satisfactory it does not automatically lead to an addition under section 69A. The word Page | 9

Shri Biharilal Shadhuram Chhabriya to 109/Nag./2023

"may" used in the section, indicates a discretion to be exercised before such addition can be made and such discretion must be exercised judiciously. Reliance is placed on CIT v. P.K. Noorjahan (237 ITR 570) (SC). There must be some evidence which would show as to whether sources of the assessee are such as may be capable of yielding such income, whether his wealth or spending pattern would justify such income. 2.5 Family profile of Assessee 2.5.1 That the explanation offered by the assessee has to be seen in totality of circumstances and that whether the sources of income of the assessee are such that it would yield alleged large scale profits and that there is no evidence of large scale hidden or secret wealth. As per the Statement of Affairs for the years under appeal submitted during the course of assessment proceedings reveal that at the age of 54 Years and after putting so many years of hard work the assessee capital as of 31.03.2019 is at Rs 73,52,757.00. Considering the meagre capital it is not at all possible for the assessee to make such huge amount of Investments. 2.5.2 The assessee had submitted particulars of household withdrawals for the years under consideration before learned AO. The assessee had submitted that, he belonged to a Middle Class family having a very moderate standard of Living and education of both the Daughters have been from Saint Joseph School, LIC Square, Nagpur under free education scheme of the Government the amount withdrawn towards household expenses is reasonable and sufficient to take care of our expenses. (Refer Para 10, page 6 of assessment order for AY 2016-17) 3. Legal precedents • Copy of Judgment in Biren V. Savla v. Assistant commissioner Of Income- Tax, Central Circle 11 [2006] 155 Taxman 270 (Mumbai) (Mag.)/[2006] 100 TTJ 1006 (Mumbai ITAT) (Refer pages 1-38 of paper book); • Copy of Judgment in Ramanlal P. Chordia v. ACIT -[(2004) 87 TTJ (Pune) 713] (Pune ITAT) (Refer page 39-60 of paper book); • Copy of Judgment in Commissioner of Income-tax v. Indeo Airways (P.) Ltd." [2012] 26 taxmann.com 244 (Delhi HC) (Refer page 61-74 of paper book); • Copy of Judgment in Commissioner of Income Tax, (Central) Kochi v. Damac Holdings (P.) Ltd. [2018] 89 taxmann.com 70 (Kerala HC) (Refer page 75-81 of paper book); • Copy of Judgment in Navjivan Oil Mills v. Commissioner of Income-tax [2002] 124 Taxman 392 (Gujarat HC) (Refer page 82-90 of paper book); • Copy of Judgment in Commissioner of Income-tax v. Daulat Ram Rawatmull* [1973] 87 ITR 349 (SC) (Refer page 91-105 of paper book);

Shri Biharilal Shadhuram Chhabriya to 109/Nag./2023

• Copy of Judgment in Dhakeswari Cotton Mills Ltd. v. Commissioner of Income-tax* [1954] 26 ITR 775 (SC) (Refer page 106-116 of paper book).”

(i) A document seized in the search should be read as a whole. (ii) No party can pick and choose one part of document for its advantage. (iii) If an explanation relating to a transaction is found in the seized material, the same has to be considered. The onus will shift on to the Department to adduce further material to support its contention that ostensible as appearing from the document is not real. (iv) The initial burden lying on the assessee to explain the transactions (in this case, outgoings) can be discharged either from the statement recorded under s. 132(4) or from other documents found and seized in the search. Once onus shifted from the assessee, it is for the Department to prove by adducing additional material that the statement so given was false or not true or that corroborative entries from other documents are false or not reliable. There is another aspect of the case. It is not always desirable to reject the explanation furnished by the assessee. Totality of circumstances and preponderance of probability has to be taken into account before rejecting the explanation furnished by the assessee. If, as in the present case, the sources of income of the assessee are not such that it would yield large scale profits or there is no evidence of large scale hidden or secret wealth, then the plausibility of explanation of the assessee that outgoings are not his money but are the money of the lenders, is required to be accepted. In this context, following observation of Hon'ble Supreme Court is relevant (headnotes): CIT vs. Smt. P.K. Noorjahan (supra): Page | 12

Shri Biharilal Shadhuram Chhabriya to 109/Nag./2023

In the corresponding clause of the Bill which was introduced in Parliament, while inserting s. 69 in the IT Act, 1961, the word "shall" had been used but during the course of consideration of the Bill and on the recommendation of the Select Committee, the said word was substituted by the word "may". This clearly indicates that the intention of Parliament in enacting s. 69 was to confer a discretion on the ITO in the matter of treating the source of investment which has not been satisfactorily explained by the assessee as the income of the assessee and the ITO is not obliged to treat such source of investment as income in every case where the explanation offered by the assessee is found to be not satisfactory. The question whether the source of the investment should be treated as income or not under s. 69 has to be considered in the light of the facts of each case. In other words, a discretion has been conferred on the ITO under s. 69 of the Act to treat the source of investment as the income of the assessee if the explanation offered by the assessee is not found satisfactory and the said discretion has to be exercised keeping in view the facts and circumstances of the particular case. "Held, dismissing the appeal, that in the instant case, the Tribunal had held that the discretion had not been properly exercised by the ITO and the AAC taking into account the circumstances in which the assessee was placed and the Tribunal had found that the investments could not be treated as income of the assessee. The High Court had agreed with the said view of the Tribunal. There was no error in the finding recorded by the Tribunal. Sec. 69 could not be invoked in respect of the investments of the assessee.”

The judgments relied upon are quite apposite to the case in hand and further bolster the case of the assessee. Accordingly, we do not find any infirmity in the impugned order passed by the learned CIT(A) warranting our interference at the instance of the Revenue. Thus, all the grounds raised by the Revenue for the assessment year 2016–17 are liable to be dismissed.

./2023 Assessee’s Appeal – A.Y. 2017–18 ITA no.108/Nag./2023 Assessee’s Appeal – A.Y. 2018–19 ITA no.109/Nag./2023 Assessee’s Appeal – A.Y. 2019–20

Shri Biharilal Shadhuram Chhabriya to 109/Nag./2023