TMI Blog2013 (2) TMI 449X X X X Extracts X X X X X X X X Extracts X X X X ..... n the search –Regular assessment made in case of the assessee will not abate. Addition u/s 68 - only joint venture agreement was found during the course of search – Assessment was based on, the return of income, the documents attached with it and the books of account produced by the assessee – Assessee has received all the loans through banking channels by way of crossed cheques and that interest has been paid to these parties and that the loans were repaid through banking channels by way of crossed cheques - Assessee has filed confirmation letters from each and every creditor, PAN, bank account copy of each of the lender/ creditor – Assessee has proved the identity of the persons as well as the genuineness of the transactions. The assessee in this case has done all that he could to provide documentary evidences, in support of his claim that the credits are genuine – No addition should be made u/s 68. In the case of Sarogi Credit Corporation [1974 (12) TMI 28 - PATNA HIGH COURT], and Rohini Builders [2001 (3) TMI 9 - GUJARAT HIGH COURT], it was held that it not for the assessee to prove the source of the source. The assessee was expected to prove the genuineness of the credi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er J. Sudhakar Reddy : In this group there are three appeals filed by the Revenue for the assessment years 2003-04, 2004-05 and 2007-08. The assessee has also filed three appeals for the assessment years 2003-04, 2004-05 and 2005-06. The assessee also filed the cross objection for the assessment year 2007-08. In all there are cross appeals for assessment years 2003-04 and 2004-05 and an assessee's appeal for the assessment year 2005-06, a Revenue appeal for assessment year 2007-08. 2. The learned counsel for the assessee submitted that he may be permitted to withdraw the cross objection filed in departmental appeal in ITA No. 4836/Mum/2009. The learned DR had no objection to this withdrawal. Thus the C.O. No. 54/Mum/2010 is dismissed as withdrawn. Now we consider the other six appeals. 3. Facts in brief: The assessee is a partnership firm and is in the business of a builder and developer. A search u/s 132(1) of the Income-tax Act, 1961 was conducted on 05- 01-2007 at the business and residential premises of one Shri Gurinder Singh Bawa, and his family members and also various family concerns, including the office premises of the company M/s Gunjyot Properties and M/s Baw ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5. For the assessment year 2007-08, the assessee again filed a Nil return of income and the AO made an addition of Rs.5 crores on the basis of a declaration made by the assessee on 03-04-2007. On appeal, the first appellate authority held that this amount of Rs.5 crores can be brought to tax in the assessment year 2009- 10 as the assessee is following project completion method of accounting. Aggrieved, the Revenue is in appeal. 6. We first take up the assessee's appeal in ITA Nos. 255, 256 and 257/Mum/2010 for the assessment years 2003-04 to 2005-06. 7. During the assessment years 2003-04 and 2004-05, the assessee raised unsecured loans. The AO issued summons to various parties, for verifying the loans. On the basis of such verification, he came to a conclusion that an amount of Rs.63,77,128/- in respect of 26 parties for the assessment year 2003-04 and Rs.1,09,00,000/- in respect of 29 parties for the assessment year 2004-05, are not genuine loans. He made an addition u/s 68. Further he disallowed interest on these loans for the assessment years 2003-04 and 2004-04 as well as for the assessment year 2005-06. 8. In appeal, the first appellate authority admitted fresh evidence ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed in confirming the addition of unsecured loan from various parties amounting to Rs.42,27,128/- as income from other sources. 3. In doing so, the Ld. CIT(A) erred in not considering the fact that all the loan - creditors are tax payers and it has been held in various judgments by the courts that once the assessee gives all the documentary evidence and lender are tax payers, the onus on the asseseeu/s 68 gets discharged. 4. The Ld. CIT(A) also erred in not considering the fact that assessee is not required to prove the Source of the source for proving genuineness of the cash credit u/s 68 of the Income-tax Act. 5. While confirming the addition, ld. CIT(A) erred in not considering the various documentary evidences produced before him. 6. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in confirming the proportionate disallowance of Interest Expenses pertaining to the addition of loan u/s 68 which has been confirmed by the Ld. CIT(A). 9. The learned counsel for the assessee, Mr. Sashi Tulsiyan, vehemently contended that the assessment order framed u/s 153C read with section 143(3) is bad in law as no material whatsoever, belonging to the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e validity. 11. The learned counsel for the assessee pointed out that for the assessment years in question the assessments have become time barred as no scrutiny proceedings were initiated. He submitted that the assessment proceedings have become final as on the date of search and in such circumstances there is no question of abatement of proceedings for assessment. 12. The learned counsel relied on the following case laws : 1. KGR Exports vs. JCIT, Central Circle, ITA No. 494/V/2007 . 2. LMJ International vs. DCIT 119 TTJ 214 (Cal.). 3. P. Srinivas Naik vs. ACIT 114 TTJ 856 (Beng.) 4. Anil Kumar Bhatia vs. ACIT ITA No. 2660 to 2665/Del/2009, order dated 01-01-2010. 5. Anil P. Khemani vs. DCIT, ITA No. 2855 to 2860/Mum/2008, order dated 23-02-2010. He reiterated his contentions that u/s 153C, only pending assessments abate and completed assessments remain unaffected, unless the Revenue discover and seizes any material justifying the reopening of the assessment. As no material is found, the assessee claimed that the proceedings u/s 153C have to be declared illegal and bad in law. 13. On merits of the case, Mr. Sashi Tulsian filed voluminous paper book running into ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ove the identity of the creditors, genuineness of the transactions and the credit worthiness of the lenders. He pointed out that in the remand report the AO only tried to highlight that the lenders were housewives and HUFs and the income earned by the parties was meager. He disputed these findings and argued that the loans were fully established to be genuine. 15. Coming to the other grounds, he submitted that the interest on these loans added u/s 68 was consequentially disallowed and the decision in this matter is consequential to the decision taken in the earlier grounds of appeal. 16. The learned Dr. Mr. Pavan Ved, relied on the order of the AO as well as the order of the CIT(Appeals). In his brief submissions, he argued that the assessment is valid on the reasons given by the CIT(Appeals) in his order. He relied at para 44 of the CIT(Appeals)' order, wherein the CIT(Appeals) has held that section 153C speaks of the assessment of income of "any other person" where the AO is satisfied that money, bullion, jewellery or other valuable article or things or books of account or documents seized or requisitioned to belongs or belongs to a person other than the person referred to in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gainst such other person and issue such other person notice and assess or reassess income of such other person. However, there is a distinction between the two provision in as much as under s. 153C notice can be issued only where the money, bullion, jewellery or other valuable article or thing or books of account or document seized or requisitioned belong to such other person whereas under s. 158BD if the Assessing Officer is satisfied that any undisclosed income belong to any person, other than the person with respect to whom search was made under sec. 132 or whose books of accounts or other documents or assets were requisitioned under s. 132A, he shall proceed against such other person under s. 158BC. Thus a condition precedent for issuing notice under s. 153C and assessing or reassessing income of such other person, is that the money, bullion, jewellery or other valuable article or thing or books of account or documents seized or requisitioned should be belong to such person. If the said requirement is not satisfied, resort cannot be had to the provisions of s. 153C. The documents in question, namely, the three loose papers recovered during the search proceedings do not belong t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee. If the assessee has engaged the services of a professional and if the professional maintains his own record for the purpose of rendering his services, the documents cannot be said to be belong to such other person. LK was engaged by the assessee and he was expected to verify the bills raised by dependent contractors so as to certify that the bills raised are in accordance with the terms of contract and also contain deductions for materials supplied by the assessee. This being the documents maintained by LK for his personal purpose, though may be referable to the assessee, cannot be considered as "belonging to the assessee". It is also admitted by the AO that the seized documents do not reveal any specific undisclosed income. It is also admitted fact the none of the assessments in the present appeals were pending on the date of initiation of action under s. 153C i.e. on 14th April, 2006. Though the appeals before the CIT(A) or Tribunal were pending, the same do not come within the parameters of second proviso to s. 153C s those assessments shall not abate. Only the assessments or reassessments which are pending before the AO on the date of initiation of search shall abate." ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of account or documents seized during the course of search have a close association with the group. It does not record the transaction carried out by the assessee. Documents or books of account found during the course of search and seizure cannot be termed, to be indicating any limited interest of the ownership of the assessee in such books of account or documents. The language used in s. 153C is materially different from the language used under s. 158BD. As per s. 158BD, if any undisclosed income related to other person, then action against such other person can be taken provided such undisclosed income is referable in the document seized during the course of search. However, s. 153C says that if valuable or books of account or documents belonging to other persons are seized then action under s. 153C can be taken against that person. In the instant case, books of account or documents do not belong to the assessee and, therefore, the Assessing Officer was not justified in initiating action under s. 153A rws. 153C. In the case of Anil Kumar Bhatia vs. ACIT in ITA No. 2660 to 2665/Del/2009, order dated 01-01-200, the Delhi Bench of the Tribunal held as follows: "We are of the co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee.Neverthless in the case of Shivnath Rai Harnarain (India) Ltd. vs. CIT 304 ITR (AT) 271 (Del.), the Delhi Bench of the Tribunal held as follows : " Held, dismissing the appeals, (i) that there is no requirement for an assessment made under section 153A of the Act to be based on any material seized in the course of search. Further, since under the second proviso to section 153A pending assessment or reassessment proceedings in relation to any assessment year falling within the period of six assessment years referred to in section 153A(b) of the Act shall come to an end, the Assessing Officer gets jurisdiction for six assessment years referred to in section 153A(b) of the Act for making an assessment or reassessment. Further, no income, which was already subjected to assessment under section 143(3) or under section 143(3)/147 of the Act completed prior to search in respect of six assessment years referred to in section 153A(b) of the Act and in the second proviso to section 153A, had been included in the assessment framed under section 153A of the Act. Hence, the Assessing Officer was perfectly justified in framing the assessment under section 153A of the Act for the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nder section 153A. In case of search, the AO under section 153A is empowered to issue notices to the searched person requiring him to furnish the return of income in respect of each assessment year falling within the six assessment years immediately preceding the assessment year relevant to the previous year in which search is conducted or requisition is made. Further the second proviso to section 153A also provides that assessment or re-assessment relating to any assessment year falling within the period of six assessment years referred to above pending on the date of initiation of search under section 132 or making of requisition under section 132A as the case may be shall abate. Normally, the assessments which are pending in appeal or in revision cannot be said to be complete and therefore assessment/re-assessment pending in appeal/revision could also to be considered as pending on the date of search but the CBDT in the circular No.7 of 2003 dated 5.9.2003 has clarified that appeal, revision or rectification proceedings pending on the date of initiation of search under section 132 will not abate. In other words, only the assessments pending before the Assessing Officer for compl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d during the course of search. In fact no material except a joint venture agreement was found during the course of search. It was only an assessment based on, the return of income, the documents attached with it and the books of account produced by the assessee. In these assessment proceedings the AO examined the cash credits and made an addition. In all the cases of cash credits, the undisputed fact is that the assessee has received all the loans through banking channels by way of crossed cheques and that interest has been paid to these parties and that the loans were repaid through banking channels by way of crossed cheques. The other undisputed fact is that the assessee has filed confirmation letters from each and every creditor. The assessee has also furnished permanent account number of each and every creditor and has also filed copies of the income-tax returns of the relevant assessment years of the creditors. The bank account copy of each of the lender/ creditor was filed. Before us the assessee filed voluminous paper book running into 568 pages wherein copies of all the above documents were enclosed. 25. We list out the documents furnished before us. For the assessment ye ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s and sources of the deposits are not properly explained. He held that the decision cited by the assessee lay down general ratios and that the addition sustained by him is a result of examination and investigation. 28. Now we examine the case laws on the issue : In the case of Sarogi Credit vs. CIT 103 ITR 344, the Hon'ble Patna High Court held as follows : " Once the identity of the third party is established before the Income-tax Officer and order such evidence are prima facie placed before him pointing to the fact that the entry is not fictitious, the initial burden lying on the assessee can be said to have been duly discharged by him. It will not, therefore, be for the assessee to explain further as to how or in which circumstances the third party obtained the money or how or why he came to make an advance of the money as a loan to the assessee. Once such identity is established and the creditors, s in the present case, have pledged their oath that they have advanced the amounts in question to the assessee, the burden immediately shifts on to the department to show as to why the assessee's case could not be accepted and as to why it must be held that the entry, though pur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... spondent had given the names and addresses of the alleged creditors. It was in the knowledge of the Revenue that the said creditors were income-tax assesses. Their index numbers were in the file of the Revenue. The Revenue, apart from issuing notice under section 131 at the instance of the respondent, did not pursue the matter further. The Revenue did not examine the source of income of the said alleged creditors to find out whether they are creditworthy. There was no effort made to pursue the so-called alleged creditors. In those circumstances, the respondent could not do anything further. In the premises, if the Tribunal came to the conclusion that the Respondent had discharged the burden that lay on it, than it could not be said that such a conclusion was unreasonable or perverse or based on no evidence. 31. The Bombay High court in the case of CIT vs. U.M. shah, Proprietor, Shrenik Trading Co. reported in 90 ITR 396 held as follows : "It is not for the party to have produce the witnesses without a summons. The Income-tax Officer did summon afresh the parties concerned. They received the summons but did not appear. The assessee could not be blamed for all this." 32. The Pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the genuineness of the cash deposited in the bank accounts of those creditors because under the law the assessee can be asked to prove the source of credits in its books of accounts but not the source of the source. 35. Applying the ratios of these decisions to the facts of this case, we find that the undisputed fact is that the assessee has proved the identity of the persons as well as the genuineness of the transactions. All the lenders are income-tax assesses who are having permanent account number. They have also filed their returns of income. When it is so, the AO could have with little effort, enquired from his counter parts and found out the addresses of the parties. The assessee in this case has done all that he could to provide documentary evidences, in support of his claim that the credits are genuine. In the case of Vaishali B. Joshi, the amount is shown as a loan in his balance sheet. Even in the bank account the amount has been given by way of two cheques. Similar is the case in the case of Arun N. Thakkar. Many other credits are identical. When a lender gives money by way of crossed cheques, reflects the same in his balance sheet and filed the balance sheets along w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 04 and for the assessment year 2004-05 as upheld by the CIT(Appeals) are hereby deleted. Consequently, the grounds of the assessee to allow interest expenses pertaining to these loans for both assessment years 2003-04 and 2004-05 as well as for the assessment year 2005-06 are allowed. 39. In the result, all the three appeals of the assessee are allowed. 37. We now come to the departmental appeal in ITA Nos. 544 545/Mum/2010 for the assessment years 2003-04 and 2004-05. 40. The grounds of appeal are common and read as follows : Grounds for assessment year : 2003-04: 1. Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) erred in deleting the addition of Rs.20,50,000/- in aggregate in respect of 10 persons from whom the assessee has taken unsecured loan. 2. Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) erred in holding that despite the assessee had filed evidence such as confirmation, PAN, copy of bank account etc. the A.O. has not brought on record any new findings other than stating that no reply from parties were received. 3. Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) erred i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and documents submitted. Here, the only inability of the appellant was non-production of the parties or non-submission of the new addresses. As I see, without anything specific, this is not sufficient to prove that the genuineness or the creditworthiness of the parties are questionable. In this respect, the decision of the Hon'ble Supreme Court in the case CIT Vs. Orissa Corporation P. Ltd. 159 ITR 78 and of the Hon'ble Bombay High Court in the case of CIT, Bombay City-II Vs. U.M. Shah, Proprietor, Shrenik Trading Company 90 ITR 396 bears special mention. As may be seen, in essence, in the former decision, the Hon'ble Supreme Court has held that an addition on account of cash credit cannot be justified without examination of creditworthiness of the lender or mere non-appearance in compliance to summons cannot justify an addition on the ground of non submission alone when it is in the knowledge of the Revenue that names and addresses of the creditors and their index numbers are there. In similar vein, in the latter case, the Hon'ble Bombay High Court has held that if the parties have received the summons and not appeared and the Income-tax Officer had not brought on record any evid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ndisputed fact is that the assessee follows project completion method of accounting. The assessee in his return for the assessment year 2006-07, did not offer the income to tax. On being questioned, the assessee responded that the declaration of Rs.5 crores is towards regular sales in the project and not as profits of Rs.5 crores for the assessment year 2007-08. He also pleaded that the declaration is not based on the evidence found. The AO rejected this argument. At para 7 and 8, wherein he held as follows : "7. The argument of the assessee that the declaration of Rs. 5 Crore was towards regular sales and not as profit for the A.Y. 2007-08 is not acceptable and is rejected for the reasons mentioned hereunder. First being the statement of shri Mansukhbhai Sureja recorded u/s 131 on 05/01/2007 during the survey, the relevant portion is already reproduced above, in the statement Mr. Sureja has categorically accepted to pay advance tax on the said Rs. 5 Crores terming it as the income for the year. The argument of the assessee that the same is towards regular sales in the project is not entirely correct as the said amount was mnot recorded in the regular books of account maintained ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rtner was only towards total sale receipts and not towards income of the year. He submitted that the partner has offered the amount as cash sales and not as net income. He submitted that the assessee has not retracted from his statement and has offered the amount to tax on the consistent method of accounting followed by him. He submitted that the sale receipts both recorded in the books of account and the sale receipts which are received outside the books of account, are to be treated in the same manner and the income arising therefrom is to be assessed based on the consistent method of accounting followed by the assessee as approved by the Department. He submitted that the AO was wrong in relying on selected portion of the Annexure given by the partner of the assessee firm in reply to a query and that the CIT(Appeals) had rightly held that the entire reply and the context in which the reply was given is to be considered. He relied on the following case laws : a) Mehta Parikh Co. vs. CIT 30 ITR 14 (Cal.) b) Taradevi Goenka vs. CIT 122 ITR 14 (Cal.). c) Mohanlal M. Patel vs. DCIT 90 TTJ 57 (ITAT,Mumbai). d) Ramanlal Chordia vs. ACIT 87 TTJ (ITAT, Pune). 48. The learned c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d. The total proceeds received so far are Rs.10,50,98,301/- which are the receipts by cheque and cash element is Rs. 5 Crores. Q.No.9 Have you accounted for the cash proceeds? A.No.9 No. I have not accounted in the regular books of account. The total receipts on sale of flats and shops will be shown on completion basis as we are following work completion method. Rs. 5.00 Crore unaccounted cash receipts. I am declaring for current year's income and I shall pay due tax in the form of advance tax within a short span of time. Q. No.10. Where have you invested the unaccounted cash generated? A.No.10. The cash is lying in hand in different forms like investments in different assets, details of which will be submitted in due course. I will ensure that the cash is brought to regular books of account pursuant to out offering to show the same as our income as above. 52. It is also not disputed that the assessee has in fact increased the sales figures declared by him with the amount of Rs. 5 crores and has disclosed the same in the profit loss account for the financial year ended 31st March, 2009. On this factual matrix, we are of the considered opinion that the order of the first appel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s background, in absence of any other material, the appellant's statement that the proceeds would be offered on project completion method cannot be ignored because that is the method the appellant has been following to account for the income and anything to the contrary would be against accounting principles regularly employed by it. Further I also note that the questions No. 8 9 have also been ignored by the Assessing Officer in that he has not reckoned that the chain of answers has flowed from the contexts of the questions only. As may be noted, the questions were on the number of sale of shops and flats and the method of accounting for the cash proceeds and it is in the backdrop of these questions that Mr. Sureja disclosed the facts of the total receipts received, the cash element for the proceeds and the method of accounting to be followed by the appellant in accounting for the cash receipts. Seen against this backdrop, I find that the Assessing Officer has failed to interlink all these facts flowing together from the specific questions into a whole while giving his decision. As a result, his interpretation of the statement has turned lopsided. In this respect I find that vid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is no material whatsoever found during the course of survey or subsequently to prove the fact that the assessee has cash receipts. When the assessee states that he would ensure that the cash would be brought to regular books of account, pursuant to the offer, it means that the sale amount of flats and shops would be increased by the said Rs.5 crores. Once it is taken as the sales figure, the method of accounting regularly followed by the assessee for a number of years and which has been accepted by the Revenue even in search assessments u/s 153A read with section 143(3) as well as in the subsequent assessment years, has to be necessarily followed and the income computed only in accordance with that method of accounting. In the case on hand the assessee is following project completion method and the income from the extra sale receipt, has to be computed only in accordance with that method of accounting. 54. The Hon'ble Gujarat High Court in the case of CIT vs. President Industries 258 ITR 654 (Guj) held as under : 37" Having perused the assessment order made by the Assessing Officer, the order made by the Commissioner of Income-tax (Appeals) and the Income-tax Appellate Tribuna ..... X X X X Extracts X X X X X X X X Extracts X X X X
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