TMI Blog2000 (2) TMI 216X X X X Extracts X X X X X X X X Extracts X X X X ..... see has taken up the following ground of appeal: "The CIT (Appeals) erred on facts as also in law in alleging that at least 1/4th of the funds must have been deployed at the highest rate giving an average of 18% and thereby directing the Assessing Officer to work out the relief accordingly. Considering the facts of the case, additions of Rs. 33,834, Rs. 31,600 and Rs. 34,000 for the assessment years 1986-87 to 1988-89 respectively made by the Assessing Officer as extra interest incomes are required to be deleted." 3. Since common and identical issues are involved, these appeals and Cross Objections are taken up together and disposed of by the common order for the sake of convenience. 4. The assessee is an individual. He is engaged in the business of pawnbroking and lends money to various persons against securities of gold/silver ornaments. He is also doing the business in Gold ornaments and also earns job work charges from manufacture of gold ornaments. As per the Assessing Officer, the assessee has maintained regular books of account in the form of cash book and ledgers in which the money lent by the assessee to various debtors have been recorded from time to time and the qu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 137540 61,000 76,540 1988-89 2753.200 882336 4,10,750 4,71,586 1989-90 1163.600 408423 1,93,750 2,14,673. ---------------------------------------------------------------------------------------------------------------------------------------------------- In appeal, the learned CIT(Appeals) deleted the additions made by the Assessing Officer. 6. During the course of hearing, the learned Departmental Representative invited our attention to paras 2 3 of the assessment order for assessment year 1988-89. According to him, the disclosure made of Rs. 5,58,000 during the course of search is quite nominal as compared to the total capital of Rs. 11,15,000 employed in the business. The learned Departmental Representative especially relied on the findings of the Assessing Officer discussed in para-7 of assessment order for the assessment year 1988-89. The Assessing Officer has stated in para-7 that the books of account are always considered as preliminary evidence in income-tax proceedings. According to him, the assessee was making fictitious entries of names right from assessment year 1986-87 in his account books. In the case of fictitious names, the assessee was procuring the re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to No. 17 of the statement of the assessee which was recording under section 132(4) of the Act during the course of search on 30-12-1997 wherein the assessee had given correct names and addresses of real borrowers who had taken loans on security of gold ornaments and he also furnished such details during the course of proceedings under section 132(5) of the Act. The learned counsel also argued that the names of real persons to whom advances were made and actual amount of advances together with details of gold ornaments kept as security as appearing in the annexure forming part of the assessment order as stated above tally with actual packets found during the course of search and description given by such real persons in their respective affidavits and also with the applications under section 132(11) of respective persons. The learned counsel also invited our attention to the observations made by the CIT in his order under section 132(12) of the Act which reads as follows:-- "It is stated that the real owners have filed affidavits regarding their claim before the ITO. This will of course be examined in detail by the ITO in the course of regular assessment." The learned counsel t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ily members in place of seized ornaments. The learned counsel produced before us the list of such persons to whom ornaments of family members were given together with written agreements/receipts. Thus, according to the learned counsel the details or ornaments received as security were correctly entered in the books. 10. According to the contention of the Assessing Officer that the entry in the books of account should be taken as correct, the learned counsel stated that when it was shown that real persons who were given loans were different than those entered in the books and when such claim is fully supported, there was no reason to disbelieve the same. In this regard, the learned counsel invited our attention to the decision of the Hon'ble Supreme Court in the case of Pullangode Rubber Produce Co. Ltd. v. State of Kerala [1973] 91 ITR 18 wherein it is held that "Entries made by the assessee in the account books treating a portion of the general expenditure as expenses towards immature plants and capitalisation of such portion amount to an admission that the amount in question was laid out or expended for the cultivation, upkeep or maintenance of immature plants from which no agr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... concluded in his assessment order for the assessment year 1988-89 that such ornaments actually belonged to the assessee and the same had been acquired by him by investing his unaccounted funds. He has, thus, made the additions in the assessment years 1986-87 to 1989-90; on the basis of the entries made in the books of account. The learned CIT(A) however, came to the conclusion after discussing in depth the various aspects of this case and the documents produced before him that the acquisition of ornaments found during the course of search had been satisfactorily explained by the assessee, therefore, he deleted the additions made by the Assessing Officer. In this case, there was a search action in the business and the residential premises of the assessee. Some gold ornaments were found and seized as has been stated above. During the course of search, the statement of the assessee was recorded under the provisions of section 132(4) of the Act. In his statement the assessee explained that one of his business was pawn-broking and lending money to various persons against securities of gold/silver ornaments. He also stated that in about 91 cases, names of borrowers were not mentioned cor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... plication of mind to the facts of the particular case. Even if such a presumption is made the same is rebuttable and the person is free to lead evidence to rebut such presumption. The authority and the Court has to consider the evidence and the facts judicially. Since section 132(4A) raises a rebuttable presumption, it would be open to the Assessing Officer to record a finding that the contents of the books of account etc. are not true". In the present case, the assessee explained during the course of search that in 91 cases, names of borrowers were not mentioned correctly in records. He also stated that he was able to give correct names and addresses of real borrowers who had taken loans on security of Gold ornaments. In support of his contention during the course of search, he furnished all details regarding the real borrowers alongwith their addresses during the course of proceedings under section 132(5). He further produced the affidavits from the real owners. In order to support his case, the assessee filed before the Assessing Officer the copies of the applications made under section 132(11) of the Act by the real owners and even the assessee gave to some real owners the orna ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ilding, machinery and stock etc. Therefore, such financial institutions are bound to keep complete record of the borrowers and even sometime they ask for. Sureties from other known persons to the borrowers who are financially sound so that in case of default, the money is recovered from such sureties. In other words, maintaining the complete records regarding the identity of the borrowers in the case of financial institutions is absolutely necessary for recovering the loans advanced to them. But in the case of a person who is carrying on the business of pawn-broking, it is not important for him to know the complete identity of the person because the loans advanced by him are quite secured because the borrowers have taken the loans against the deposits of their Gold/silver ornaments. In other words, the person who is carrying on the pawn-broking business, may advance the loan without knowing the exact name and other particulars of a person, but the fact remains that he has advanced loan to a person who is known to him against the deposits of ornaments. In the present case, the assessee is carrying on the business of pawn-broking on large scale and lends money to persons against secu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The Assessing Officer would not be justified to accept half of the statement which is in favour of the revenue and reject the remaining half which is in favour of the assessee. Similarly, in the books of account, the Assessing Officer cannot follow the policy of pick and choose method. The assessee has maintained the books of account for his business and the nature of all the transactions entered into such books of account is the same. Therefore, the Assessing Officer would not be justified to consider some transactions as genuine and other non-genuine without causing enquiry into each and every transaction. It is also relevant to note that the evidence recorded in the books of account tally with the statement except that the different names have been mentioned against 91 cases which the assessee honestly has admitted in his above statement. Another important point for consideration is that the assessee is charging interest from all the parties including 91 parties which have allegedly been considered as bogus. We are unable to understand, how the assessee would charge interest from himself because according to the Assessing Officer the loans have not been advanced to these parties ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (Appeals) and the same are, therefore, upheld. 18. The next issue is regarding the additions made on account of difference of interest charged in money-lending business. According to the Assessing Officer, the assessee was charging interest at the rate of 24% as disclosed by his son Sri Rashmi Mehta during the course of search. The Assessing Officer has also stated that Shri V.C. Mehta, the assessee, was also examined during the course of search and he admitted that the rate of interest varied from 16% to 24%. Thus, the Assessing Officer came to the conclusion that the books of account were defective as the rate of interest mentioned in the books is only 16%. Thus, he applied the provisions of section 145(2) of the Act and applied the rate of interest at 20% as a whole against the rate of 16%. The learned CIT (Appeals) agreed with the findings of the Assessing Officer. However, keeping in view the facts of the case, he considered that the average rate of interest at 18% would be reasonable. 19. The learned counsel contended that, there was nothing on record which indicated that the assessee had received more interest. He also contended that the addition made amounted to double ..... X X X X Extracts X X X X X X X X Extracts X X X X
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