ACIT., C.C.-45, MUMBAI vs. RAVINDER KAUR BHATIA, MUMBAI

The facts relating to the case are set out in brief. The husband of the assessee had carried on money lending business under the name R.Ravinder & Co. and the same was inherited by the assessee after the demise of her husband. The revenue carried out search and seizure operations in the hands of the assessee on 05-10-2007 consequent to the search operations conducted in the case of Mukesh Choksey group. During the course of search operations, the assessee made a disclosure of Rs.60.00 lakhs, which was later enhanced to Rs.72.11 lakhs and the same was allocated between various years. However, at the time of filing of return of income, the assessee prepared a profit and loss account for each of the years and offered income as per the same, which was found to be less than the revised additional income declared by the assessee. Hence for assessment years 2003-04 to 2007-08, the assessing officer And other 6 appeals added the difference between the revised amount offered in each of the years and the income returned by the assessee in the respective years.

In assessment year 2001-02, the assessing officer has made the addition on the basis of a loose sheet found during the course of search and also added the bad debts claim put forth by the assessee during the course of assessment proceedings. The Ld CIT(A) confirmed the addition made on the basis of loose sheet, but deleted the addition relating to bad debts. Hence both the parties are in appeal in AY 2001-02.

In A.Y 2007-08, one more issue is being contested by the assessee, i.e., the assessee’s claim of receipt of gift was rejected and the same was assessed as income of the assessee.

We shall first take up the appeal filed by the assessee for AY 2001- 02. The assessing officer added a sum of Rs.22.00 lakhs, being the principal amount of loan advanced and interest of Rs.6,25,830/- in this year on the basis of a loose paper found during the course of search proceedings. The explanations given by the assessee in respect of noting made in the loose paper are extracted in the assessment order as under:- 5.1 Assessee’s Reply: Page 4 contains the account of Chhotu, a broker through which the assessee had been carrying out money lending business activities. Page 4 is written on two sides. Rs.6.25lacs as referred to by you are in continuation to the back side of page 4 which we have marked as page 4A. 4B is the said page of which you are referring noting of interest to the tune Rs. 6.25 lacs. Since the said page 4B in continuation of side 4A, so it should not be read together. The same cannot be read in isolation. On page 4B, we have transaction for Rs.6.25 lacs which is the working of interest to be received from the parties to whom loan were given through Chhotu. Details as stated on paper are as under:- Cheque A/c 118/(150) 25-7-2000 to 30-3-2001 1,14,750 And other 6 appeals 10 Lakhs 67,080 12 Lakhs 6 months 1,08,000 2,89,830 Int. Of 12 lakhs from Jan-Dec 2,16,000 Int.of 10 lakhs from Jan-Dec 1,20,000 6,25,830 From the above transaction it is clear that an interest of Rs.1,14,750/- was the interest amount of Rs. 8.5 lacs as stated on page 4A advanced to various parties from the bank account of M/s R.R.Ravinder & Co. The amount of Rs. 8.5 1acs was duly refunded by the parties before 31.3.2001. However, no interest was paid. The total interest amount worked out for the period of 9 months was Rs.1,14,750/- which was to be received from Mr. Chhotu. These details are also stated on page 4A. (i) The second figure of Rs. 67,080/- is the interest working for the period from 29.4.2000 to Dec.2000 on an amount of Rs.10 lacs advanced on various dates through Chhotu. The entire amount of Rs.10 lacs was not paid at one time and was paid on different dates. So detailed working for the period has been made on page 4A. The interest figure is Rs.67,080/- which was to be received as per details on page 4A. (ii) Again figure of Rs.1,08,000/- is the interest on Rs.12 lacs for 6 months up to Dec.2000 which is also as per details on page 4A. (iii) Further there is an interest of Rs.12 lacs from January to December is Rs.2,16,000/- which is for the period from 1.1.2001 to 31.12.2001. Only the months have been written, year has not been stated. Since the amount of interest on Rs.12 lacs which have been earlier and interest upto Dec.2000 has been taken into account, so the interest figure Rs.2,16,000/- is for 12 months will be for subsequent period only i.e.1.1.01 to 31.12.01. Similarly an interest figure of Rs.1,20,000/- on Rs.10 lacs from January to Dec. is for the period from 1.1.2001 to 31.12.2001. Thus total figure of Rs.6.25 lacs contains the interest figure period from 1.1.01 to 31.12.2001 plus interest for 2000 ending. Then in no way we presume that the amount was received during F. Y.2000-01 because no party will pay advance interest. Rs. 6.25 lacs was the amount due to be received. Further as no interest was received during FY 2000-01, so the same cannot be treated as income of the assessee as the assessee is And other 6 appeals accounting that interest on receipt basis which is also permissible under the Act.”

The assessing officer did not accept the explanations given by the assessee and he proceeded to interpret the contents of the loose document as under:- “5.2 AO’s findings : The contents of the bank side of page No.4 which is written by the assessee herself is given as under : 1.5(lakhs) 29.04.2000 to 29.12.2000 12,000 6.5(lakhs) 05.06.2000 to 05.12.2000 44,615 2(lakhs) 24.07.2000 to 24.12.2000 10,464 67,080 Interest paid from 1st July 2000 to 31.12.2000 12 lakhs 1,08,000 Interest of 12 lakhs paid till 2000 December 10 lakhs 67,080 Interest of 10 lakhs paid till 2000 December 1,75,080 Below this the following figures appear: 1,08,000 67,080 1,14,750 On the front side of page 4 the following figures appear: 25.07.2000 to 30.03.2001 1,14,750 10 Lakhs 67,080 12 Lakhs 6 months 1,08,000 2,89,830 Interest of Rs. 12 Lakhs from Jan to Dec. 2,16,000 Interest of Rs. 10 Lakhs from Jan to Dec 1,20,000 6,25,830 From the above details the following inferences are drawn: i) Principal amounts of Rs. 1.5 lakhs , 6.5 lakhs, 2 lakhs are given as cash loan on 29.04.2000, 05.06.2000, & 24.07.2000 respectively (1st day of interest period). Hence the total amount principal component And other 6 appeals of cash loan given comes to Rs, 10 lakhs. ii) It is specifically mentioned as under: 1,08,000 Interest of 12 lakhs paid till Dec. 2000 67,080 Interest of 10 lakhs paid till Dec. 2000 1,75,080 It means that the assessee has given cash loan of Rs. 12 lakhs on which she received interest component of Rs.1,08,000/- & cash loan given of Rs.10 lakhs on which she received Rs.67,0801- as interest. iii) The total interest component shown is Rs. 6,25,830/- which needs to be added as income from Other Sources on account on interest received on loan given. The assessee vide the order sheet noting dated 18/11/08 was asked to produce Chhoti However, the assessee's A.R. vide their letter received in this office on 26/11/08 has stated that all efforts are being made to trace out Chhotu and he will be produced before the undersigned as soon as the person is traced out. Summons u/s 131 of the I.T.Act,1961 were issued to Manoj to attend personally. However, the summons were returned unserved since the assessee had left the place mentioned in the notice. Hence the genuineness of the aforesaid transactions could not be verified. 5.3 In view of the above discussion and findings, the addition which has resulted is as under: As per the discussion in the point No. (i) 10,00,000 (Principal loan component as an unexplained investment) As per the discussion in the point No.(ii) 12,00,000 (Principal loan component as an unexplained investment) Add : Interest received in cash outside books of accounts as discussed in point No.(iv) 6,25,830 Total addition 28,25,830”

With regard to the addition of principal amount of Rs.12.00 lakhs and Rs.10.00 lakhs both aggregating to Rs.22.00 lakhs, the contention of the Ld A.R is that they cannot be considered to be the investment made during the year relevant to the assessment year 2001-02. The contention of the assessee is that she was in possession of the above amount prior to 1.4.2000 and hence the same cannot be considered to the investment made during this year. In this regard, the Ld A.R submitted that the entries noted down in the loose paper relates to the transaction with the broker named Chottu and various noting made clearly show that the said broker is giving details from 1.4.2000 onwards. The Ld A.R invited our attention to certain noting relating to receipt of Rs.2.00 lakhs on 6.6.2000 and deduction of Rs.1,08,000/- from this amount.

We have heard the parties on this issue and carefully perused the record. As observed by us in the earlier paragraphs, the question before us is about the interpretation of the entries found noted in the loose paper. It is also a fact that the entries made in the loose paper have not been corroborated with any other material. There is no dispute that the money lending business was carried on by assessee’s spouse and it has been inherited by the assessee. Further, these transactions have been accepted to have been made through a broker and the receipt of Rs.2.00 lakhs on 6.6.2000 supports the contentions of the assessee the amount of Rs.22.00 lakhs were deployed prior to 1.4.2000. This is also supported by the fact that an amount of Rs.1,08,000/- was shown as adjusted against the amount of Rs.2.00 lakhs, meaning thereby the amount of Rs.1,08,000/- pertain to the period prior to 6.6.2000, in which case, the corresponding principal amount of Rs.12.00 lakhs should have been available prior to 1.4.2000. Further, it is seen that the broker Shri Chottu has deployed the amount of Rs.10.00 lakhs on various dates and he has been working from the firm R.Ravinder & Co. also. Hence it is seen the loans were given as and when there was a demand and hence the claim of the assessee that the amount of Rs.10.00 lakhs was also available with the assessee prior to 1.4.2000 is, in our view, finds merit. Accordingly, we set aside the order of Ld CIT(A) on this issue and direct the AO to delete the addition of Rs.22.00 lakhs.

The next issue urged by the assessee relates to the addition of Rs.36,000/- confirmed by the Ld CIT(A). We notice that the same relates to estimation of interest income and on perusal of the order of Ld CIT(A), And other 6 appeals we are of the view that the same does not call for interference. Accordingly, we confirm the order of Ld CIT(A) on this issue.

We shall now take up the appeal filed by the revenue, wherein the addition relating to bad debts claim of Rs.15,68,000/- was deleted by Ld CIT(A). The Ld A.R submitted that the tax effect involved in the appeal of the revenue is less than Rs.10.00 lakhs and hence the revenue is precluded from pursuing this appeal in view of the Circular No.21/2015 dated 10-12-2015 issued by the CBDT. Even on merits, the Ld A.R submitted that the assessee did not make any bad debts claim in its return of income and hence the addition made by the AO is not justified.

We heard the parties on this issue and perused the record. As per the Circular No.21/2015 of CBDT (referred supra), the appeal of the revenue is liable to be dismissed. On merits also, we notice that the assessee put forth the claim of bad debts before the AO during the course of assessment proceedings and it was not claimed in the return of income. Hence there was no necessity for the AO to make any addition when he rejected the claim put forth before him during the assessment proceedings. Hence, on merits also, the appeal of the revenue is required to be dismissed. We order accordingly.

The only issue urged in the appeals filed by the assessee for assessment years 2003-04 to 2006-07, which is also common in all the years, relates to the addition of the difference between the income surrendered by the assessee through revised workings and the income returned by the assessee, which is tabulated below:- Asst. Year Addl. Income Addl. Income Difference added offered in search offered in ROI. by A.O 2003-04 3,05,000 1,35,100 1,70,000 2004-05 7,12,500 1,70,500 5,42,000 2005-06 9,22,000 1,67,217 7,54,783 2006-07 5,69,200 1,81,326 3,87,874 And other 6 appeals 16. Before the AO, the assessee submitted that the additional income at a higher figure was offered out of confusion and later on, when the assessee prepared the profit and loss account on the basis of documents found during the course of search, it came to light that she has offered higher income than what was actually earned. However, the said contentions did not find favour with the AO and hence he added the difference cited above in various years. The Ld CIT(A) took the view that outstanding loans and advances justify the additional income offered by the assessee, when the interest is worked out @ 18% and accordingly confirmed the addition in all the above said years.

We heard the parties on this issue and perused the record. It is a well settled proposition of law that the disclosures made in the sworn statement taken from the assessee u/s 132(4) of the Act may be used as evidence against the assessee. It is also settled proposition that the said presumption is a rebuttable presumption, i.e., an assessee is entitled to show that the disclosure made by him is wrong. In this regard, we may mainly refer to the decision rendered in the case of Pullangode Rubber Products Co. Ltd Vs. State of Kerala (91 ITR 18) and Nagubhai ammal (AIR 1956 SC 593) In the instant case, the assessee has rebutted the presumption by preparing the profit and loss account on the basis of the documents found during the course of search. It is a matter of fact that the tax authorities did not find any fault in the statement so prepared by the assessee. Accordingly, we are of the view that the profit and loss account prepared by the assessee cannot be ignored, since the same has been prepared on the basis of evidences found during the course of search. Since the disclosure made by the assessee has been rebutted by showing that the said disclosure was made on mistaken facts, we are of the view that the assessing officer was not correct in law in assessing the difference between the amount disclosed and the amount returned.

Now we shall take up the appeal filed by the assessee for AY 2007- 08, wherein following issues are being contested:- (a) The addition of interest income on the basis of disclosure made u/s 132(4) of the Act. (b) Assessment of gift amount as income of the assessee.

The first issue is identical to the issue considered in AY 2003-04 to 2006-07. The assessing officer assessed the difference between the amount disclosed by the assessee and the income returned by the assessee. The difference so assessed was Rs.11,10,813/-. The Ld CIT(A), however, enhanced the same to Rs.14,60,000/- by estimating the income And other 6 appeals on loans and advances at 18%. For the reasons discussed in the preceding paragraphs while adjudicating the appeal filed by the assessee for AY 2003-04 to 2006-07, we set aside the order of Ld CIT(A) on this issue and direct the AO to delete the addition of Rs.14,60,000/- determined by Ld CIT(A).

The next issue relates to the assessment of gift receipt of Rs.28.32 lakhs as income of the assessee. The assessee produced a cash book before the AO, in which it is shown that a sum of Rs.28.50 lakhs has been received as gift from Parvinder Singh Bhatia. Since the said receipt is not supported by any document, the AO proposed to assess the same u/s 68 of the Act. However, he did not add the same to the total income of the assessee. In the appellate proceedings, the Ld CIT(A) noted this fact and hence asked the assessee to furnish the explanations with regard to the gift. The assessee submitted that the receipt of gift is supported by the seized papers. The assessee explained that a flat located at Lokahandwala complex, Andheri (W) was owned by her father in law. After the death of the father in law, the said property was inherited by the assessee’s husband, assessee’s mother in law and brother in law. Later the property was sold for a sum of Rs.61.00 lakhs by brother in law of the assessee. It was stated that the assessee also claimed her right over the property and sale consideration. After a family settlement, she received a sum of Rs.28.50 lakhs from her brother in law, who had sold the property. The sale transaction was done by her brother in law and the details of money transactions were found noted in the papers seized by the revenue. Accordingly, the assessee contended that the amount of Rs.28.50 lakhs is a capital receipt and hence the same is not taxable in her hands. However, the Ld CIT(A) treated the gift amount as income of the assessee by observing that the details of return of income filed by the brother in law of the assessee was not produced.

The Ld A.R submitted that the brother in law of the assessee had included his name in the society records along with the name of father in law of the assessee and proceeded to sell the flat, as if he were the owner. The Ld A.R invited our attention to the documents filed in pages 18 to 40 of the paper book, which contains the details of the notices issued by the cooperative housing society to support this point. He submitted that the brother in law of the assessee sold the flat and appropriated a part of sale consideration to settle the loan taken by him from State Bank of India. He further submitted that the assessee also lodged claim over the sale proceeds, since the husband of the assessee is also one of the legal heirs of the property. Accordingly, on a family settlement, the assessee received a sum of Rs.28.50 lakhs from her brother in law and the same was shown as gift in the cash book. The Ld A.R submitted that these details are available from the seized records itself. Accordingly, the Ld A.R submitted that this amount is a capital receipt and hence not liable to tax.

On the contrary, the Ld D.R placed strong reliance on the order of Ld CIT(A).

We heard the parties on this issue. There is no dispute with regard to the fact that the details relating to the money transaction in respect of Lokahandwala flat is available in seized records. The said paper is titled as “Lokh. Flat”. The entries noted down in the left hand side shows the receipt of Rs.61.00 lakhs by way of cash and cheques. The entries noted in the right hand side shows disbursement of amounts to the tune of Rs.32.67 lakhs and balance amount of Rs.28.32 lakhs was shown below. A further noting that “He gave me 28,00,000” also finds place in the loose sheet. According to the assessee, she has received a sum of Rs.28.50 lakhs from her brother in law in respect of this transaction after a family And other 6 appeals settlement. Thus, it is seen that the entries made therein relates to a property transaction only.

When a specific query was put to the Ld A.R about the the capital gains taxation, the Ld A.R submitted that the same needs to be addressed separately in view of the dispute between the parties about the ownership. He further submitted that he has been instructed that the transaction did not result in any capital gain in view of the indexation benefits and cost of transfer/improvements. He submitted that this fact was submitted in the letter furnished before Ld CIT(A). He submitted that the assessee received the amount on a family settlement and hence the same constitutes capital receipt in the hands of the assessee.

We have heard the parties and perused the record. We notice that the limited issue urged before us is about the receipt of Rs.28.50 lakhs by the assessee from her brother in law. We notice that the Ld CIT(A) has presumed that the property has been sold by the brother in law of the assessee and further observed that the details of return of income filed by the brother in law was not produced. Hence he proceeded to hold that the gift amount of Rs.28.50 lakhs is assessable as income of the assessee. We notice that the seized documents as well as the explanations furnished by the assessee would show that Ld CIT(A) has proceeded to make this addition on wrong presumption. The seized documents as well as the evidences furnished by the assessee show that the brother in law of the assessee had included his name along with the name of original owner of the flat. Later on the flat has been claimed to have been sold for a sum of Rs.61.00 lakhs and the brother in law of the assessee has been claimed to have appropriated a sum of Rs.20,25,000/- in settlement of loan obtained by him from State Bank of India. Thus, we notice that the brother in law And other 6 appeals of the assessee has indulged in the property transaction and it is claimed that the assessee later on lodged her claim over the sale consideration. Accordingly, in a family settlement, it is claimed that the brother in law of the assessee paid a sum of Rs.28.50 lakhs to the assessee, which was shown as gift. Due to family dispute about the ownership of flat, it is stated that the incidence of capital gains tax, if any, is required to be addressed separately. It is an undisputed fact that the details of property transactions are available in the seized records. Considering the contents of the seized records as well as the explanations furnished by the assessee, we are of the view that the claim of receipt of Rs.28.50 lakhs from her brother in law cannot be doubted with. Accordingly, we are not inclined to agree with the view taken by the Ld CIT(A) in the peculiar facts and circumstances of the instant case. Accordingly, we set aside his order on this issue and direct the AO to delete the addition of Rs.28.50 lakhs referred above.