TMI Blog2005 (9) TMI 233X X X X Extracts X X X X X X X X Extracts X X X X ..... harged. Therefore, in our view, the deeming provisions of s. 69 cannot be invoked in this case. For making addition u/s 69, there ought to be some material to prove that outgoings taken by the borrowers belonged to the assessee. The AO did not point out any cogent reason as to why the onus (that) lay on the assessee by virtue of presumption under s. 132(4A) is not discharged. In our view, the onus lying on the assessee regarding explaining the investments in outgoing or about the ownership of the investment is discharged the moment the AO accepted that the outgoings recorded in similarly placed document A-2 and A-4 belonged to the third parties. After this the burden again shifts to the Revenue to prove, with some additional material that even though outgoings recorded in A-2 and A-4 belonged to third parties but outgoings recorded in A-3 and A-5 belonged to the assessee. No such material has been brought on record or no cogent reasons have been advanced. There cannot be two standards of presumption, one for set A-2 and A-4 and other for A-3 and A-5. We have already discussed the nature of diaries A-3, A-5 and A-2/A-4. There are memorandum of transaction between lenders and borrowe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ue to disclosure of the names of the lenders. Further, the statement cannot be read in isolation of seized documents, which reflect that borrowings by borrowers belonged to the lenders. This is particularly important when Department did not pursue further on the summons issued by it to the common lenders/borrowers in two sets. Thus, merely on the basis of part of the statement in question No.5 on 3rd Jan., 1995, it cannot be inferred that entire lending reflected in A-3/A-5 belonged to the assessee. This plea of the Revenue is not accepted. The next issue arises is that assessee has failed to provide the names and addresses of the borrowers recorded in the diary A-3/A-5. It is an admitted position that entries in A-2 and A-4 are recorded in regular books and are through banking channels. It is also an admitted position that there are common names of lenders and borrowers in A-2/A-4 and A-3/A-5. Nothing stopped the Department from pursing these common entries by calling the details from the bank, from the regular books, summon the parties and record the statements about transactions so recorded in A-3/A-5. The Department chose not to pursue the matter further in respect of some summ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d and seized as detailed below: 1. Cash seized from residence Rs. 95,000 2. Appropriation of cash from bank Rs. 5,44,079 3. Seizure of jewellery Rs. 28,900 3. In addition to the above, the authorized officers found incriminating documents which were marked as A-1, 2, 3, 4 and 5 and were seized. A-1 is list - of Hundis indicating names of borrowers and lenders, rate of interest and date of borrowing and date of maturity. A-2 and A-4 are two diaries, which contain the names of borrowers, lenders, rate of interest, date of borrowing, amount and the date when money is to be returned and the amounts of commission. The name of the borrower is written at the top indicating thereby that borrower had borrowed the funds from various lenders as listed therein. All these transactions were recorded in A-2 and A-4 are through cheques and the assessee earned brokerage thereon. These transactions are admittedly found to be duly recorded in the regular books of account of the assessee. This position was accepted by the AO in the assessment order as well as by the CIT(A) in the appellate order, wherein he mentioned that diaries numbered A-2 and A-4 are an account of financial transactions made by th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... later retracted vide his letter dt. 12th Sept., 1996. The disclosure was reduced from Rs. 40 lacs to Rs. 10 lacs, as the assessee alleged that disclosure at the time of search was made under pressure and threats. This reduced disclosure included renovation of the house for which additional disclosure of Rs. 10 lacs was made during the search under s. 132(4). 6. During the course of assessment proceedings for the asst. yr. 1994-95, it was explained to the AO that the diaries A-3 and A-5 contain a record of his brokerage and commission received/receivable by him on arranging the funds from the lenders to the borrowers. The outgoings are not from him but from lenders to the borrowers. The assessee was only entitled to his brokerage and commission for arranging the finance. The only difference in A-2/A-4 and A3/A-5 is that former is record of transactions made through banking channels while the latter is the record of cash transactions. Otherwise, there is no difference. The AO did not agree and made addition to the total income by holding that the outgoings recorded in A-3/A-5 is the money of the assessee, which is unexplained and is liable for addition under s. 69. He, thus, made an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the lending is not appellant's money should also apply in respect of A-3 and A-5. The appellant would be under tremendous risk of loss of life and physical harm if he would furnish the names and addresses of those who lent money and all those who borrowed the money. The assessee is only entitled for brokerage, which is his only income. The CIT(A) considered the arguments of the assessee and of the AO in the assessment order and confirmed the additions by observing as under; 3.3 The argument of the appellant and fact of the case have been considered. The case laws relied upon by the appellant have been gone through. The first issue to be resolved is whether the appellant is only a finance broker or he has been advancing loans on his own out of his own funds and charging interest as has been claimed by the AO. The second issue that needs to be resolved is regarding the statement recorded under S. 132(4) which was later on retracted by the appellant. Ordinarily, the significance of the statement made by the assessee cannot be belittled by its subsequent retraction. The admission/confession is an important piece of evidence against the assessee. Yet, however an assessee is entitle ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... books may be containing the ledger accounts of various parties for the financial year 1993-94 and the current financial year. Actually these are in the form of the fund flow on various dates. The exact quantum cannot be worked out right now and for that the peak is to be drawn for the loans advanced. However, the appellant could recollect that in the total cash loans, the funds involved for financial year 1993-94 and financial year 1994-95 are around Rs. 40 lacs, this amount of Rs. 40 lacs is not accounted in books of account and, therefore, the appellant admitted that this is his unaccounted income for the financial year 1993-94 and financial year 1994-95. From the statement, it is quite clear that the appellant has suppressed income by declaring that he is only earning 1.2 per cent per annum as brokerage whereas, as per his statement given under s. 132(4) he had advanced cash loans out of his own funds, on which he must be earning very high rate of interest. It is at this juncture a mention of the order of the Settlement Commission is very relevant. It is important to mention here that the appellant had filed settlement application dt. 14th May, 1997 for the asst. yrs. 1993-94 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to determine his taxable income. He is also not co-operating by not furnishing complete information about those persons whose names are recorded in his diaries. By doing so he is abetting the malady of black economy. The Commission cannot be used to provide shelter to such appellant and his associates who are nurturing the black economy and in the spirit of rectitude is not corning forward with full and true disclosure of information.' 11. Sri C.V. Kothari, advocate's argument that non-furnishing of addresses of persons who allegedly provided cash funds to the appellant for advancing loans, does not make settlement application incomplete, is not acceptable. Information regarding identity of those persons whose names are recorded in the diaries maintained by the appellant is necessary to verify the correctness of the appellant's claim that he did not invest his own cash funds [as against his statement under s. 132(4) that he had invested Rs. 40 lacs in cash] and he earned brokerage at the rate of 0.01 per cent per month instead of interest which could be substantial. Therefore, the application is complete. Considering the above discussion, it is quite clear that the inf ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd the transactions between the two takes place. The assessee acted purely as broker and borrowing and lending take place on principal to principal basis. In no case, the funds are brought to the books of the assessee. He is entitled only for brokerage, which varies from 10 paise to 15 paise per hundred per month. The assessee has to maintain the diaries for recording the transactions and for keeping track of his brokerage. 11. As regards the note books A-2, A-3, A-4 and A-5, it was submitted by the learned counsel for the assessee that they are party ledgers in respect of business of finance brokerage done by the assessee. While the note books marked as A-2 and A-4 pertain to the finance brokerage business done through cheques, the diaries A-3 and A-5 pertained to the finance brokerage business done in respect of cash transactions. All the four books contained name of the borrower, name of the lender, amount, period, and brokerage. 12. The learned counsel for the assessee submitted that during the course of assessment proceedings, the appellant was asked vide letter dt. 13th Aug., 1996 to furnish the details of transactions as contained in note books marked as A-3 and A-5 with nam ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e parties. There was no response from them except one, who stated that the assessee agreed to finance Rs. 50,000 to him and he has taken receipt for money on the promise that he will give cash but no cash was given or receipt was given back. Thus, this transaction was proved : After issuing summons, the AO stopped enquiries, meaning thereby that he was satisfied that the names mentioned in the diaries belong to those parties. 14. The learned counsel for the assessee also submitted that the theory of peak adopted by the AO is not workable because it presumed that money advanced to the borrowers belonged to the assessee, which is not true. Therefore, it is the total transactions without peak that matters. The learned counsel for the assessee took us to p. 130 of assessee's paper book, which is a sample of diary A-3 and A-5. He referred to the top of that page, which shows the name of the borrower and details therein gives the amount advanced by the lender, rate of interest, date of advance and also whether period of loan was extended. On p. 140 of the assessee's paper book similar details are given. It was submitted by the learned counsel for the assessee on that basis that o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee cannot be taxed in the hands of the assessee under s. 69, the learned counsel for the assessee relied on the following decisions: (i) Miss Rose Ben vs. Asstt. CIT (1998) 65 ITD 57 (Mumbai); (ii) K.T.M.S. Mohammed vs. ITO (1980) 9 ITJ (Mad) 50l; (iii) Shivji Manji Amba vs. Dy. CIT (1995) 51 TTJ (Ahd) 61; and (iv) Asstt. CIT vs. Shailesh S. Shah (1997) 59 ITJ (Mumbai) 574 : (1997) 63 ITD 153 (Mumbai). 15. For various other arguments, the learned counsel for the assessee relied on following judicial pronouncements: (i) CIT vs. Rameshwar Prasad Bagla (1968) 68 ITR 653 (All); (ii) CIT vs. Moghul Durbar (1996) 130 CTR (AP) 200: (1995) 216 ITR 301 (AP); (iii) CIT vs. Daulatram Rawatmull 1972 CTR (SC) 411 : (1973) 87 ITR 349 (SC); (iv) CIT vs. H.R. Karandikar Ors. (1981) 20 CTR (Bom) 196 : (1981) 129 ITR 609 (Bom); (v) CIT vs. Smt. P.K. Noorjehan (1980) 15 CTR (Ker) 138 : (1980) 123 ITR 3 (Ker); (vi) CIT vs. Daya Chand Jain Vaidya (1975) 98 ITR 280 (All); (vii) CIT vs. Ram Richpal (1994) 209 ITR 658 (All); (viii) CIT vs. K. Arunachala Mudaliar 1976 CTR (Mad) 203 : (1976) 105 ITR 811 (Mad); and (ix) S. Hastimal vs. CIT (1963) 49 ITR 273 (Mad). 16. According to learned counsel for ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dvanced by the lender to borrowers was in fact assessee's own money. 18. The learned Departmental Representative primarily relied on the order of the AO and of the CIT(A) and submitted that onus is primarily on the assessee to furnish names and address of the lenders and borrowers so as to establish their identity. Thereafter, the onus will shift to the Department. In spite of repeated opportunities given to the assessee, he utterly failed in providing the names and addresses of the lenders and borrowers as recorded in A-3 and A-5. Since onus has not been discharged by the assessee, the amounts recorded in A-3 and A-5 is deemed to belong to assessee. Further, the assessee has given a statement under s. 132(4) during the course of search that money advanced and recorded in A-3 and A-5 is partly his money. The assessee has failed to furnish any material to show that money advanced to different borrowers belong to somebody else. The Department has discharged the onus when enquiries were made. The AO accepted the transactions recorded in A-2 and A-4, which were the cheque transactions but since no evidence in respect of cash transactions were furnished, they are to be treated as de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e is mentioned. The names of lenders appear against more than one borrower on different pages. Similarly one borrower borrows money from different lenders. There are separate interest rates in respect of different lenders giving money to the common borrower. Each page is borrower-wise kept and no separate page or details is kept in respect of lenders. The transactions recorded in A-2 and A-4 are admittedly made through cheques and recorded in regular books of account and transactions in A-3 and A-5 are in cash and are not recorded in regular books of account. There are common parties in the two sets indicating thereby that some parties have taken money in cash as well as through banking channels. These diaries on right side reflect brokerage received by the assessee from various persons. The assessee is admittedly a finance broker arranging finance for various persons, i.e., borrowers and money is obtained from parties, i.e., lenders. The money is generally borrowed for a short period of time which is at many times extended and a mark is made in the diary. It seems that the assessee is charging brokerage only from the borrowers and not from the lenders. The brokerage varies from 10 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... R 181 (SC); 3. Navjivan Oil Mills vs. CIT; 4. Chander Mohan Mehta vs. Asstt. CIT (Inv.) (1999) 65 ITJ (Pune) 327 : (1999) 71 ITD 245 (Pune); and 5. Kantilal Bros. vs. Asstt. CIT. 23. It may be seen that these two diaries A-3 and A-5 and for that matter A-2 and A-4 also, are neither a ledger nor cash book. A ledger is a record of individual account of parties, with whom the cash or credit transactions had been conducted by an assessee and such transactions find place in cash book or journal. Thus, ledger is a subsequent record of the events already recorded in the cash book or journal. A ledger shows posting of entries from cash book or journal. If there is no cash book or journal maintained, no ledger account of parties can be prepared as there will not be any chronological record of events undertaken by the assessee. In fact, any ledger without having a support of cash book or journal would be unreliable unless it is possible to reconstruct the cash book-cum-journal from the ledger or to prepare a trial balance on its basis. 24. The present four diaries, in the shape they are maintained are neither the cash book nor journal nor a ledger. It is a sort of a memorandum in the form of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bsolute. Sec. 132(4A) reads as under: (4A) Where any books of account, other documents, money, bullion, jewellery or other valuable article or thing are or is found in the possession or control of any person in the course of a search, it may be presumed (i) that such books of account, other documents, money, bullion, jewellery or other valuable article or thing belong or belongs to such person; (ii) that the contents of such books of account and other documents are true; and (iii) that the signature and every other part of such books of account and other documents which purport to be in the handwriting of any particular person or which may reasonably be assumed to have been signed by, or to be in the handwriting of, any particular person, are in that person's handwriting, and in the case of a document stamped, executed or attested, that it was duly stamped and executed or attested by the person by whom it purports to have been so executed or attested. 28. It shows that presumption under s. 132(4A) is rebuttable as the words used in the section are it may be presumed . It is only a question of fact as to whether investment in loan advanced belonged to the assessee or not, and su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hence unexplained. In the context of s. 68 Hon'ble Calcutta High Court held that the payment by account payee cheques are not always sacrosanct [Ref.- CIT vs. Precision Finance (P) Ltd (1994) 121 CTR (Cal) 20 : (1994) 208 ITR 465 (Cal)]. Therefore, it cannot be said that burden is not discharged from the assessee merely because transaction recorded in A-3/A-5 are in cash whereas burden is discharged from the assessee in respect of A-2 and A-4 from explaining as to whom the outgoings belonged. Thus, in our view similarly placed documents have to be treated similarly and onus is also shifted similarly. As there is no further material with the Revenue so as to fasten the ownership of the outgoings to the assessee, we hold that outgoings do not belong to the assessee and, therefore, he is not bound to furnish explanation as to the source of such outgoings treated as investment and then deemed income by the AO on the ground that they are not explained. Further, the assessee is not bound by s. 69 to explain the source of investment as the same belonged to third parties. 30. Further, cl. (ii) of s. 132(4A) states that the contents of such books of account and other documents are true ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of the statement made by the deponent in the affidavit. In other words, consequently, the assessee was entitled to assume that the authorities were satisfied with the affidavit as sufficient proof on this point, In the present case, we find that the CIT(A) while dealing with the affidavit had conveniently chosen to accept only one part of the statement which was in favour of the Revenue and against the assessee while ignoring the portion wherein specific averments were made in relation to the balance items of expenditure, In view of the settled legal position, it was not open to either the CIT(A) or the Tribunal to ignore a part of the contents of the affidavit. Out of the total expenditure incurred by the assessee-company there was one item of depreciation amounting to Rs, 53,957 which would stand on a different footing as against the remaining items, In relation to this, the Tribunal had held that the depreciation could not be allowed to be capitalised as it did not represent an expenditure incurred towards installation of assets whether directly or indirectly. There cannot be any dispute as regards the principle laid down by the Tribunal that the assessee cannot claim benefit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... act and was not arbitrary or unreasonable, confirmed the Tribunal's order. On further appeal to the Supreme Court: Held: (i) that applying the true principles as to interference with findings of fact of the Tribunal, the Court was under the circumstances entitled to consider whether the finding that Rs. 30,000 represented undisclosed profits was correct; (ii) as the cash book of the appellants was accepted, and the entries therein were not challenged, and neither further accounts nor vouchers were called for, and the persons who gave the affidavits were not cross-examined, it was not open to the Revenue to challenge the correctness of the cash book entries or the statements made in the affidavit; (iii) the view of the Tribunal that it was impossible for the appellants to have had 61 notes on 18th January and rejection of 30 such notes was based on pure surmise, and as the appellants had furnished a reasonable explanation for possession of 61 notes, there was no justification for having accepted their explanation in part and discarded it in relation to the sum of Rs. 30,000 and no part of the sum of Rs. 61,000 could in the circumstances of the case have been assessed as undisclo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent which is beneficial to it and reject the other part of the statement which is detrimental to it. This view has also been taken by the Tribunal, Ahmedabad Bench in the case of Ghanshyambhai R. Thakkar. The decision of the Supreme Court in the case of Mahendra Manilal Nanavati, also says that admission has to be considered in its entirety. However, the senior Departmental Representative has also relied on para 213 of the aforesaid decision of the Supreme Court for the proposition that even the part statement can be rejected. We find that para 213 is part of the dissenting judgment. According to the majority judgment, the entire admission was to be acted upon. We, therefore, reject this submission of the learned senior Departmental Representative. 9. In view of the above, it is held that the entire statement of the assessee has to be accepted. If that is so, no addition can be sustained on the basis of the materials mentioned above. The loose papers were maintained and kept by the assessee for his private knowledge and information and not meant for disclosing to the Department. If the statement of the assessee is to be rejected in toto, then no addition can be made on the basis of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 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: CIT vs. Smt. P.K. Noorjahan: 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 in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessee on which the assessee is entitled for brokerage/commission. These diaries are neither cash book nor ledgers. They strictly do not fall in the definition of the book for the purposes of cash credit. Even presuming that they are the books of the assessee, then really speaking there is no credit coming in these books so as to fall in the concept of cash credit, which could be deemed as income of the assessee in absence of a satisfactory explanation. Where cash transaction takes place outside the kitty of the assessee or outside the books of the assessee, like in the present case, the case cannot be considered under s. 68 also. In any case, we feel that the AO seems to be satisfied that there was no case under s. 68, that is why he invoked only s. 69. There is no allegation or facts shown by the Department that alleged cash given to the borrowers has passed through the books of the assessee. In fact they are not reflected in the balance sheet, not even in the case of A-2 and A-4, whose transactions have been accepted as correct and recorded in regular books of account. Therefore, basic premises for invoking s. 68 is not built-up. Sec. 68 cannot be invoked. 38. Now, come to t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nts, which reflect that borrowings by borrowers belonged to the lenders. This is particularly important when Department did not pursue further on the summons issued by it to the common lenders/borrowers in two sets. Thus, merely on the basis of part of the statement in question No.5 on 3rd Jan., 1995, it cannot be inferred that entire lending reflected in A-3/A-5 belonged to the assessee. This plea of the Revenue is not accepted. 41. The next issue arises is that assessee has failed to provide the names and addresses of the borrowers recorded in the diary A-3/A-5. It is an admitted position that entries in A-2 and A-4 are recorded in regular books and are through banking channels. It is also an admitted position that there are common names of lenders and borrowers in A-2/A-4 and A-3/A-5. Nothing stopped the Department from pursing these common entries by calling the details from the bank, from the regular books, summon the parties and record the statements about transactions so recorded in A-3/A-5. The Department chose not to pursue the matter further in respect of some summons issued by the AO. If the Department accepts that entries common in two sets as listed in para 12 of this ..... X X X X Extracts X X X X X X X X Extracts X X X X
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