TMI Blog2010 (1) TMI 686X X X X Extracts X X X X X X X X Extracts X X X X ..... M YAHYA. ORDER-U.B.S. BEDI, J.M.: This appeal of the Revenue is directed against the order passed by the learned CIT(A), Salem dt. 3rd June, 2005 relevant to block assessment period 1st April, 1995 to 24th Jan., 2002 whereby deletion of addition of Rs. 5,75,000 representing the aggregate of the loans advanced by the assessee to Sivadurga Exports (Rs. 1,50,000) Sree Veerabathira Handlooms (Rs. 1,50,000), Sri Amman Tex (Rs. 1,00,000), Sri Gayathri Silks (Rs. 1,75,000) by holding that the loans having become irrecoverable, there is no scope for making any addition. The Department has also challenged deletion of addition of Rs. 10 lakhs representing the aggregate of the unaccounted loans advanced by the assessee to M/s Poorna Tex Trade, by holding that the cheques were issued by M/s Poorna Tex Trade against supply of goods and they do not represent loans. Even the assessee himself has admitted at the time of search that the amounts represented loans and that no evidence could be filed by the assessee during the course of assessment proceedings to prove his claim. 2. The first addition on cheque amount of Rs. 10 lakhs is in respect of Poorna Tex Trade treated as undisclosed i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 000-01 and also on the basis of advancing loans about 2 years back. The AO makes a serious allegation that the assessee prevented the Department from fruitful investigation by filing explanation/reply regarding cheques at the fag end of the period, proximate to the time limitation described in the Act. However he contradicts himself by saying that there was no need for serious investigation. The assessee could not furnish even a single piece of evidence in this regard, apart from what had been stated in the deposition. 2.3 The assessee in his reply states that the cheques were only security for supply of goods on the basis of non-mention of drawee's name on cheques. The AO made his conclusions without making any enquiry or cross-verification. The representative also contradicts the 'credit' theory of the AO, which according to him was made on deposition. 3. Regarding another addition of Rs. 5.75 lakhs, the details are as given below: ------------------------------------------- Particulars Amount ------------------------------------------- Sivadurga Exports 1,50,000 ------------------------------------------- Sree Veerabarthir ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ach loan against cheques given/issued/advanced etc. 3.2 The next addition is that of undisclosed income of loans advanced to Sri Amman Tex of Rs. 1 lakh, the details of which are given below: ------------------------------------------------------- Sl. No. Bank Date Cheque No. Amount ------------------------------------------------------- 1. L.V.B. Not mentioned 628481 1,00,000 ------------------------------------------------------- 2. -do- -do- 628482 1,00,000 ------------------------------------------------------- Total 2,00,000 ------------------------------------------------------- One Sri P. Annamalai, proprietor of Amman Tex gave deposition on 24th Jan., 2002, the facts are similar to other cases and the AO also took a similar decision. 3.3 The next in line is treatment of loan of Rs. 1,75,000 given to M. Nageswaran/Sri Gayathri Silks. The details are as below: ------------------------------------------------------- Sl. No. Bank Date Cheque No. Amount ------------------------------------------------------- 1. Indian Bank ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not opera Lions or thereafter while framing the relevant assessment orders. Yours faithfully Sd/- (S.R. Mahapatra) Under Secretary (Inv. II)" 4. The learned CIT(A) while considering and accepting the plea of the assessee with respect to both the additions has concluded from middle of p. 8 after para 12 to end of para 13 as under: "The facts are that Poorna Tex has received order dt. 29th July, 1996 from M/s Meenu Garments (P) Ltd. for supply of 3,452 mtrs. of fabrics. In turn, Poorna Tex had sub-contracted the order to Sri M.N. Rajendhiran, Vanavasi by order dt. 30th July, 1996 fixing the dates for supply of samples. The samples sent by Sri Rajendhiran were confirmed by Poorna Tex letter dt. 7th Aug., 1996 enclosing 4 undated and unfilled cheques for Rs. 8 lakhs. 13. It. appears that Meenu Garments (P) Ltd., Tiruppur, by letter dt. 14th Aug., 1996 cancelled the order on the basis of non-adherence to time schedule. M/s Poorna Tex requested by their letter dt. 20th Aug., 1996 to Sri M.N. Rajendh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... setting aside the order of the learned CIT(A) and restoring that of the AO. Since the learned CIT(A) has just deleted the additions, when documentary evidence was found during the course of such and there was clear-cut admission on the part of the assessee, and retraction also not within the reasonable time and neither there is any allegation of question as proved by the assessee, so relying upon Bombay Bench decision in Video Master vs. Jt. CIT (2003) 78 TTJ (Mumbai) 264 : (2002) 83 ITD 102 (Mumbai), it was pleaded for reversal of order of the learned CIT(A). Further reliance was placed on CIT vs. G.K. Senniappan (2006) 203 CTR (Mad) 447 : (2006) 284 ITR 220 (Mad). Carpenters Classics (Exim) (P) Ltd. vs. Dy. CIT (2007) 108 TTJ (Bang) 760 : (2008) 299 ITR 124 (Bang)(AT), CIT vs. Micromax Systems (P) Ltd. (2005) 198 CTR (Mad) 578 : (2005) 277 ITR 409 (Mad) and Kashmir Trading Co. vs. Dy. CIT (2006) 206 CTR (Raj) 468 : (2007) 291 ITR 228 (Raj). It was pleaded that since there was moneylending business and in order to protect the money given, blank cheques are normally received to secure the amount and there is clear admission which has not been successfully withdrawn or proved to be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... after affording due opportunity to the assessee. We hold and direct accordingly. 7. As regards last issue with regard to charging of surcharge, it is common ground of both the sides that in view of Hon'ble Supreme Court's decision in the case of CIT vs. Suresh N. Gupta (2008) 214 CTR (SC) 274 : (2008) 1 DTR (SC) 354 : (2008) 297 ITR 322 (SC), surcharge can be levied even in the cases where search was conducted prior to 1st June, 2002. Therefore, the order of the learned CIT(A) can be reversed. As such, while following the decision of Hon'ble Supreme Court, we reverse the order of the learned CIT(A) and restore that of the AO with respect to levy of surcharge with the direction that quantum of surcharge would depend upon the assessment to be reframed. The AO shall, accordingly consider the same while passing fresh order. This ground gets accepted. 8. As a result, appeal of the Revenue gets accepted partly for statistical purpose. SHAMIM YAHYA, A.M.: 31st Oct., 2008 9. I have gone through the order of my learned Brother. Despite persuasion, I am enable to agree on one of the issues. This issue relates to deletion of addition of Rs. 5,75,000 by the le ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eld that 'it showed that they indeed owe the money for the purposes stated in the statements. They have also stated that due to poor financial condition, repayment could not be made. The identity of the creditor and genuineness of transactions have been proved. As it was lent during the course of business, for the purpose of business, it should have either been allowed as deduction under s. 36(2) or under s. 37 of the Act. 5. Considering the aforesaid, the learned CIT(A) directed the AO to delete the addition made on account of undisclosed income. 6. We have heard the rival contentions and perused the relevant records. We find that additions on account of undisclosed income relating to these unencashed cheques were made only on the basis of these cheques. The fact that no income out of this accrued to the assessee as the cheques remained unencashed is apparent from records. The assessee's claim that the undisclosed income of Rs. 2,20,000 to be telescoped against the bad debt accruing in this regard is correct. The Revenue came to know about this undisclosed income only by way of those cheques which could not he encashed due to the poor financial status of the borrower. Hence, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ring the course of search and seizure and survey operations, no attempt should be made to obtain confession as to the undisclosed income. Any action on the contrary shall be viewed adversely. Further, in respect of pending assessment proceedings also, AOs should rely upon the evidences/materials gathered during the course of search/survey operations or thereafter while framing the relevant assessment orders. Yours faithfully Sd/- (S.R. Mahapatra) Under Secretary (Inv. II)" 14. Further, it was inter alia agitated that: "No valid reason has been advanced by the AO for not accepting the above loans as bad debts. The AO has not stated as to why the conditions for allowance of deduction in respect of bad debts were not satisfied. As these amounts were advanced out of the undisclosed income of the assessee, no entries were made in the books of accounts and therefore question of writing them off in the books of account does not arise. Even if the amounts could not be allowed as bad debts, they should ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... IT (2006) 202 CTR (Mad) 560 : (2006) 284 ITR 93 (Mad) which makes it mandatory on our part to follow the Co-ordinate Bench's decision. In this case, it was held that: "Further, we have seen from the order of the Tribunal that for the earlier year, the Tribunal decided the case in favour of the assessee. When the Tribunal decided the case in favour of the assessee on identical facts, it is not proper for the Tribunal to take a different view for the subsequent years. In the case of CIT vs. L.G. Ramamurthi Ors. 1977 CTR (Mad) 416 : (1977) 110 ITR 453 (Mad), it is held as follows: 'No Tribunal of fact has any right or jurisdiction to come to a conclusion entirely contrary to the one reached by another Bench of the same Tribunal on the same facts. It may be that the Members who constituted the Tribunal and decided on the earlier occasion were different from the Members who decided the case on the present occasion. But what is relevant is not the personality of the officers presiding over the Tribunal or participating in the hearing, but the Tribunal as an institution. If it is to be conceded that simply because of the change in the personnel of the officers who manned the Tribuna ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ple to be found, no rule and no authority. Judicial decorum and legal propriety demand that where a Single Judge or a Division Bench does not agree with the decision of a Bench of co-ordinate jurisdiction the matter may be referred to a Larger Bench. It would be sub-version of judicial process not to follow this procedure." 19. Further, in the case of Union of India vs. Paras Laminates (P) Ltd. (1990) 87 CTR (SC) 180 : (1990) 186 ITR 722 (SC), their Lordships on the functioning of the Tribunal, have observed as under: "It is true that a Bench of two Members must not lightly disregard the decision of another Bench of the same Tribunal on an identical question. This is particularly true when the earlier decision is rendered by a Larger Bench. The rationale of this rule is the need for continuity, certainty and predictability in the administration of justice. Persons affected by decisions of Tribunals or Courts have a right to expect that those exercising judicial functions will follow the reason or ground of the judicial decision in the earlier cases on identical matters. Classification of particular goods adopted in earlier decisions must not be lightly disregarded in subsequent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd that the order relied by the learned CIT(A) had not become final and appeal was preferred against the same to the Tribunal. (2) Whether on facts and circumstances of the case, the learned CIT(A) was correct in deleting the addition of Rs. 5,75,000 as undisclosed income?" PRADEEP PARIKH, VICE PRESIDENT (AS THIRD MEMBER): 19th Nov., 2009 There being a difference between the Members who originally heard this appeal, the Hon'ble President was pleased to nominate the Zonal Vice President as a Third Member vide his order dt. 11th Aug., 2009. Accordingly, this appeal is heard and I proceed to dispose of the matter. There is also a difference between the Members in the points referred to the Third Member. The learned JM has referred the following point of difference: "Whether, in view of facts and circumstances, the action of the learned CIT(A) in deleting addition of Rs. 5,75,000 could be sustained in view of the Tribunal order in the case of brother of assessee or the issue requires to be set aside on the file of AO for reconsideration, when the learned counsel for the assessee himself opted that for verification of details and pas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5. I have duly considered the rival contentions and the material on record. I have also considered the written submissions placed on record by both the parties. As mentioned earlier the facts are not in dispute and hence are not repeated. It is not in dispute that the cheques which were found in the course of search were cheques issued by various parties to whom advances were made in cash out of undisclosed income. The cheques were obtained as security. Addition on the basis of same facts was made in the brother's case. The Tribunal accepted the plea of the assessee that no income accrued to the assessee as the cheques remained unencashed. Accordingly, the Tribunal, after observing that the addition was made on the basis of these cheques only, allowed the telescoping of the amount claimed as bad debt. In my view, the description "bad debt" in the facts of the present case is somewhat misleading. Correct terminology has been used by the Tribunal in the brother's case and that is the amount which has not been recovered by the assessee is telescoped against the undisclosed income assessed on the basis of the same cheques. Therefore, I am in agreement with the contention of the lear ..... 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