TMI Blog1998 (2) TMI 172X X X X Extracts X X X X X X X X Extracts X X X X ..... d and statement of the assessee as well as the staff members and the explanation offered by the assessee, the Assessing Officer made various additions and determined the undisclosed income for the block period aggregating to Rs. 63,77,258. Aggrieved by the same, present appeal has been preferred by the assessee. 3. Firstly, we shall deal with the addition of Rs. 4.5 lakhs on account of 'on money' alleged to have been paid by Shri S.J. Bhat on purchase of flat and plot for his daughter Anjali Shanbhag in 1991. At the time of search, Shri S.J. Bhat was present at the residence of her daughter Smt. Anjali Shanbhag. The statement of Smt. Anjali Shanbhag was recorded under section 132(4). As per question No. 8, she was asked to explain how and when did she purchase the flat No. 4 in Chinar Apartment, Karve Road, Pune. In reply, it was stated by her as under: "I have purchased this flat from M/s Sathe and Godse in 1991 for Rs. 7,70,000. I do not know from which bank the loans of Rs. 4,50,000 and Rs. 2,00,000 have been taken. I do not know about the money given other than that. My father can tell about it. Also, my father has booked a Plot of 10,000 sq. ft. area in 1991-92 near Sortur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on this additional income of Rs. 4,50,000 of Kiran Hotel and Kiran Lodge. There is one Maruti car MGH 1201 in the name of my daughter. I have given this car to my daughter. It has been given to the daughter for household work and dropping the grand children in the school. This car is shown in the balance sheet of Kiran Lodge. Q. No. 8: As stated above, how the 'on money' of Rs. 4,50,000 spent for the flat at Pune (Flat No. 4, 'Chinar', Tarte Colony, Karve Road, Pune - 4) standing in the name of your daughter and the plot at Miraj standing in the name of daughter, Smt. Anjali Jayaram Shanbhag -- got accumulated in the money of your firm? Ans.: This amount of Rs.4,50,000 got accumulated due to having indicated less(er) amount of profits of the firm in the income-tax return filed every year. On 14-9-1995 the statement of Shri P.J. Shanbhag -- husband of Smt. Anjali Shanbhag was also recorded. Question No. 4 and answer to it are as under: Q.No. 4: What are your movable and immovable assets? Please give the details. (i) Immovable asset -- As a co-owner (second name holder) in flat No. 4, I have got invested this flat and belongs entirely to my wife. My name is recorded as co-o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essfully. In this connection, he referred to the decision of the Supreme Court in the case of Pullangode Rubber Produce Co. Ltd. v. State of Kerala [1973] 91 ITR 18 for the proposition that retraction from admission is permissible in law. He referred to the decision of the Supreme Court in the case of PK. Singh v. State of Manipur AIR 1956 SC 9 for the proposition that confession should be corroborated if it is retracted and such corroboration must be on the basis of independent evidence. He referred to the Delhi High Court decision in the case of S. Arjan Singh v. CWT[1989] 175 ITR 91 to contend that admission is an important piece of evidence but not conclusive. He then referred to the Orissa High Court in the case of CIT v. Biju Patnaik [1991] 190 ITR 396 to submit that the statement under section 131 cannot be used by the assessee without giving an opportunity of rebuttal. The decision of the Bombay High Court in the case of Gordhandas Hargovandas v. CIT[1980] 126 ITR 560 was referred to in support of the contention that the Tribunal must follow certain criteria mentioned in the judgment while weighing the evidence. In addition to the above, he also referred to various Tribun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be hostile to the assessee nor there is any allegation to this effect. He further submitted that specific details given by Mr. Bhat in his statement were so specific that it could not be said that he was of unsound mind. Proceeding further, he submitted that authorised officers could not have known all the details of the transactions in advance and therefore, the contents of the affidavit to the effect that the statement was prepared according to the Will of the authorised officers cannot be said to be correct. According to him, the assessee on his own had stated that the sum of Rs.4.00 lakhs was paid before the agreement and the balance of Rs.7.7 lakhs were paid later on from time to time. In view of these facts he concluded by pleading that the statement of Mr. Bhat was made voluntarily and thus was binding on him. 6.1 The second submission of Mr. Prasad is that once it is shown that the statement was voluntary then, the assessee cannot be allowed to retract. He relied on the recent judgment of the Supreme Court in the case of Surjeet Singh Chhabra v. Union of India AIR 1997 SC 2560. Further there is no material on record to suggest the mistaken belief either of facts or law f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me-tax Act, 1961. Therefore, in our opinion, great evidentiary value has been attached to such statement. 8. However, there are exceptions to such admission where the assessee can retract from such admission. The first exception exists where such statement is made involuntarily i.e., obtained under coercion, threat, duress, undue influence etc. But the burden lies on the person making such allegations to prove that statement was obtained by the aforesaid means. The second exception is where the statement has been given under some mistaken belief either of fact or law. It is well settled that there cannot be estopple against the law. If a person is not liable to tax in respect of any receipt, he cannot be made liable to pay tax merely because he has agreed to pay the tax in the statement under section 132. He can always retract in such situation. For example the assessee might have sold his agricultural land and not declared its sale proceeds in his income-tax return. If such agricultural land does not fall within the ambit of the words "capital asset" then no tax is payable. If the assessee had offered to pay tax on the profits on such sale under section 132(4), in our opinion, h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erformed in discharge of official duties, the presumption is that act was performed bona fide. The search operations were conducted in the presence of witnesses. The allegations of Mr. Bhat that witnesses were hired one is also not supported by any material or evidence. The witnesses were in fact, the neighbours of Smt. Anjali Shanbhag, daughter of Mr. Bhat. This fact is apparent from the panchanama. There is no allegation that those witnesses were hostile either to Mrs. Anjali Shanbhag or Mr. Bhat. The other allegation that statement was written by the authorised officers, according to their own Will, also cannot be accepted for the reason that the details regarding purchase of property arc so specific, which could not have been known by the authorised officers. Even the authorised Officers did not ask any specific question regarding payment of 'on money'. The question asked for was 'In what name does this flat No. 4, Chinar Apartment, 41/5 Erandawana, Pune?" "Who purchased this Flat?" In response to these questions, he had replied that he purchased this flat for his daughter for Rs.11.7 lakhs out of which Rs.4.00 lakhs were paid in cash before the agreement. The balance sum of Rs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... suppressed profits of the firm M/s. Hotel Kiran. 14. The view which we have taken is supported by the decision of the Hon'ble Supreme Court in the case of Surjeet Singh Chhabra. In that case, it was contended that the petitioner had retracted from his confession within six days and therefore, he was entitled to cross examine the panch witnesses before the authorities takes a decision on the proof of the offence. The Hon'ble Supreme Court held "we find no force in this contention. The Custom Officers are not police officers. The confession though retracted, is an admission and binds the petitioner. So, there is no need to call Panch witnesses for examination and cross examination by the petitioner". On the other hand, the decisions relied upon by Mr. Pathak are distinguishable on the facts. In the decision of the Supreme Court in the case of P.K. Singh, it was held that confessions even if inculpatory it should be corroborated if it is retracted. In that case, the retraction of the statement was not the subject matter of litigation but in the present case, the retraction itself has been disputed by the revenue. The Tribunal decisions relied upon by him are also distinguishable of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the set off because in law, the person cannot be taxed twice over the same income, One cannot be taxed merely because of his ignorance in the pleadings. This ground is therefore, partly allowed. 16. The next issue relates to the addition on account profits out of suppressed sale. The addition made by the Assessing Officer is in two parts. The first part of the addition relates to assessment years 1994-95 to 1996-97 amounting to Rs.11,28,131 while the second part relates to the addition of Rs.32,19,082 pertaining to assessment years 1986-87 to 1993-94. The total addition thus comes to Rs.43,47,213. 16.1 In the course of search, duplicate set of account books were found relating to the period from 1-4-1993 to the date of search i.e., 12-9-1995. Rough cash book was maintained by the Manager of the hotel Mr. Sitaram Bhat. This book contains entries of actual sales of the day. It also contains the entries of the expenditure incurred by him out of sale proceeds. The fair cash book was written by the Accountant Mr. Raj aram Kulkarni. This book contains entries of suppressed sales. It also contains entries of suppressed expenditure incurred by the Manager. The entries of suppressed ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e required. Therefore, some account books have been destroyed. The account books before the year 1993-94 got destroyed in that. Q.No. 7: Who writes the rough and fair cash books? Ans.: Our hotel manager Shri Sitaram Shrinivas Bhat writes the rough cash book and our accountant Shri Rajaram S. Kulkarni writes the fair cash books. As per my instructions, Shri Kulkarni indicates the sale amount less by 5-10-96 than the actual. I gave the above instructions about 2 years ago due to profit pressure. Statement of Shri R.S. Kulkarni was recorded under section 131 on 27-9-1995. The relevant questions and answers are being reproduced: Q. No. 2: How long and since when you are doing the job of writing the books of account for Shrinivas Bhat? Ans.: I have been writing the books of account since 1974, starting of the hotel. Q.No. 3: What books of account do you maintain/write? Ans.: I write fair books of account, cash book, ledger, etc. Q.No. 4: On what basis do you write/make entries in fair cash book? Ans.: Shri Sitaram Bhat maintain the rough cash book, He gives me the rough cash book and bills of purchase which I use as the basis for writing the fair cash book. Q.No. 5: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of paper (indicating the sale amount) upto 1974-75, 1992-93 after entering the details in the fair cash book. Q.No.11: Since when Shrinivas Bhat has given you instructions to show only half the expenditure on milk and vegetables. Ans.: These instructions were given since 1974, i.e., starting the hotel. Statement of Shri Sitaram Bhat was also recorded under section 131 on 27-9-1995. The relevant question is Question No. 11 which is reproduced hereunder: Q.No.11: In which book were you entering the daily sale amount before 1993-94? Ans.: I used to note the daily sale on a piece of paper and hand it over to Mr. Kulkarni. Also, I used to note down the expenditure on that piece of paper. I used to hand over the bills to Mr. Kulkarni. On the basis of seized papers and the statement recorded under sections 132(4) and 131, the Assessing Officer was of the view that the true profits have not been declared by the assessee in the regular returns. He therefore, recasted the trading account by crediting all sales as per rough cash book. On the expenditure side, he took all the figures shown in the regular cash book plus expenditure which according to him, incurred by the assessee, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... expenditure not debited in fair cash book for assessment years 1994-95 to 1996-97 respectively. But according to him, no working had been given by the Assessing Officer for ascertaining these figures. So according to him, the principle of natural justice were violated. At this stage, the assessee's counsel was asked by the Bench about the correct figures of net expenditure not debited in the fair cash book. In response to the same, another paper book consisting of 90 pages has been filed. According to him, the actual net expenditure not accounted for in the fair cash book amounts to Rs.6,71,612, Rs.7,04,014 and Rs.3,85,358 for assessment years 1994-95 to 1996-97 respectively against the figures worked out by the Assessing Officer. He has given detailed working at pages 1 to 35 of the second paper book. 17.1 The expenditures shown in the rough cash book also include expenditure of Rs.4,03,564 and under the head 'P.A. A/c' which according to the Assessing Officer was of personal in nature. The details of such expenditure appear at page 35 of the second paper book. Out of this, Mr. Pathak himself has admitted before us that Rs.2,45,431 were on personal account. However, it was plead ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n support of this contention, he referred to the Special Bench decision of the Tribunal in the case of Colonisers v. Asstt. CIT [1992] 41 ITD 57 (Hyd.) and the decision of Allahabad Bench of the Tribunal in the case of Raj Kumar Jain v. Asstt. CIT [1994] 208 ITR 22 (AT) and the decision of the Andhra Pradesh High Court in the case of CIT v. Tatavarthy Narayanamurthy [1972] 83 ITR 58 (FB). He then pointed out to the statement of Mr. Kulkarni. According to him, the answer to question No. 8 suggests that he had shown actual sales in his fair books and therefore, no suppression of sales. He further stated that only inference that can be raised is that the assessee suppressed the purchases which amounts to showing higher profit. It was also pleaded by him that if any addition is to be made on account of unexplained purchases the same has to be allowed as legitimate expenditure of business. Hence, no addition is possible. Reliance was placed on the decision of Patna Bench of the Tribunal in the case of Nishant Housing Development (P.) Ltd v. Asstt. CIT [1995] 52 ITD 103. 17.3 He also referred to circular No. 717 dated 14-8-1995 to contend that case of earlier years could not be reopene ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Sitaram Bhat, the accountant of the firm in his answer to question No. 10 has stated that he had torn off the slips of papers for earlier years after entering the details in the fresh cash book. He also stated in answer to question No. 11 that he was processing the expenditure since 1974. He also drew our attention to answer to question No. 11 given by Mr. Sitaram Bhat wherein it has been said that prior to 1993-94, he used to note the daily sales on a piece of paper and hand it over to Mr. Kulkarni. He also used to note down the expenditure on that piece of paper. 18.2 He further submitted that evasion of sales-tax cannot be said to be the reason for evading the income-tax. It was also submitted by him that the notification by the Government of Maharashtra regarding levy of sales-tax was subsequent to the financial year 1993 when the assessee alleged to have started maintaining the rough cash book. Proceeding further, it was also stated by him that once the suppression of sales is proved on the record, the presumption can be made backward and forward. Reliance was placed on the decision of the Supreme Court in the case of Ambika Prasad Thakur v. Rain Ekbal Rai AIR 1966 SC 605. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4-95 to 1996-97 respectively. We have gone through the details filed by the assessee as well as the learned DR. In our opinion, there is a fallacy in the working of the Assessing Officer. He has worked the net expenditure not accounted for in the fair cash book with reference to mainly vegetables, bread and milk. Probably, it was done by him keeping in view the statement of Mr. Kulkarni to the effect that partner of the firm had instructed him to reduce the expenditure on milk and vegetables by 50 per cent. But in our view, once the entire sales as per rough cash book have been taken in the recasted trading account, the Assessing Officer was duty bound to allow the entire expenditure incurred out of such sale proceeds. This could be done only by ascertaining the entire expenditure not accounted for in the fair cash book relating to all the items provided these were of revenue nature. 20. The total expenditure for the period from 1-4-1993 to 12-9-1995 which is not accounted for in the fair cash book as per assessee's details is Rs.17,60,984 which includes a sum of Rs.4,03,564 incurred under the head 'P.A. a/c'. The bifurcation of the P.A. a/c year wise amounts to Rs.1,67,3 84, Rs. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing the sales in earlier years also. There is no dispute that Mr. Sitaram Bhat and Mr. Kulkarni are employed with the assessee since beginning of the hotel business as is also apparent from their statements. Mr. Sitaram Bhat, Manager of the firm has admitted by giving a categorical statement that he was managing the sales counter and had been writing rough cash book wherein the actual sales were incorporated. The entries of the expenditure made by him were also incorporated therein. Question No. 9 and answer thereto is very relevant wherein it has been admitted by him that he had been maintaining such cash book in the above manner since his employment. 23. The above statement is corroborated by the statement of accountant Mr. Kulkarni, which was recorded much after the date of search i.e., 27-9-1995. It has been admitted by him that rough cash book was maintained by the management and on the basis of such rough cash book, he used to prepare the fair cash book by suppressing the figures of sales and expenditure recorded in the rough cash book. A specific question being question No. 8 was asked about the basis of maintaining cash book prior to financial year 1993-94. It was stated ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... articular question and answer. We have already indicated that a partner of the firm himself has stated that rough cash book and other records of the earlier years were destroyed by him. His own statement under section 132(4) that payment of Rs.4.00 lakhs as 'on money' paid in 1991 out of accumulated undisclosed profit of business corroborated the fact that he was not showing the correct profits in the earlier years. Mr. Sitaram Bhat has also clearly stated in answer to question No. 9 that rough cash book was being maintained in the similar manner since he was employed with the firm. In view of these specific admissions, it is futile to contend that there was no evidence or material for suppression of sales and expenditure in the earlier years. In our opinion, the assessee cannot get advantage of his own wrongs. 26. The contention of Mr. Pathak that there was violation of principles of natural justice is also not well founded. We find from the statement of Mr. Kulkarni that Assessing Officer had already allowed Mr. Shrinivas Bhat to cross examine Mr. Kulkarni which he refused. There is no evidence on record to suggest that Mr. Bhat was asked to sit outside the office and he did no ..... X X X X Extracts X X X X X X X X Extracts X X X X
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