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Income Tax Officer Ward 10 (1) , Ahmedabad Versus Ketan B. Thakkar HUF

2015 (5) TMI 711 - ITAT AHMEDABAD

Addition made on account of the cash embezzlements - Protective assessment - CIT(A) deleted the addition - Held that:- We find that there is no dispute that the addition has been made in this case purely on ‘protective basis’.

On the facts of this case, it is also an incorrect assumption that in the event of embezzlement having actually taken place in Vam Airtex, the corresponding income must belong to this assessee. Even if one is to reach a conclusion that embezzlement has taken pl .....

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beneficiary of the criminal activity of embezzlement.

We have also noted that the Assessing Officer has not rejected the assessee’s explanation that he was operating the bank account concerned as a benamidar of Sunil Shah, a director of Vam Artex, but yet held taxability of income in the hands of the assessee that the assessee could not having been doing so without a consideration. As a corollary to the approach so adopted by the Assessing Officer, at best hawala commission could have .....

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ations, by itself, cannot be legally sustainable foundation for the addition being made in the hands of the assessee. - Decided in favour of assesse. - I.T.A. Nos. 1710, 1711, 1712, 1713, 406, 407 and 408/Ahd/06 - Dated:- 30-4-2015 - Pramod Kumar AM And S. S. Godara, JM,JJ. For the Appellant : A L Kureel For the Respondent : A C Shah ORDER Per Pramod Kumar AM: 1. These seven appeals pertain to the same assessee, involve a common issue and were heard together. As a matter of convenience, theref .....

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495 for the assessment year 1998-99 and ₹ 12,08,800 for the assessment year 1999-2000] on protective basis . 3. While the relevant material facts, so far as issue requiring our adjudication is concerned, for all the assessment year before us are common, we will take up the facts of the case for the assessment year 1993-94 to set out the backdrop developments leading to these appeals before us. 4. It is a case of reopened assessment and even the reassessment proceedings were dropped by the .....

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was found by the investigation unit that the employees/close associates of Vam Airtex Pvt. Ltd. were running a number of concerns for the purposes of accommodating Vam Airex Pvt. Ltd. so that the company might bogus purchases in their names and its books. Most of the employees/associates were found to have not filed returns of income for all the years. These concerns were created to show that the purchases were made from them in the books of the Company. The bank accounts in name of such concer .....

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left the company. H K Enterprise, proprietary concerns of Shri Ketan Thakkar, HUF was one of the concerns which accommodated Vam Airtex Limited to reduce its tax incidence by showing that purchases were made from it in the books of the company. It has been found that Vam Airtex Pvt. Ltd. Has debited excess purchases from 1993-94 to 1996-97 as under :- 1993-94 - ₹ 2335668/- 1994-95 - ₹ 3441606/- 1995-96 - ₹ 3119500/- 1996-97 - ₹ 4781800/- The case of Shri Ketan B. Thakkar, .....

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ment had lodged a criminal complaint. Further, he has also stated that in books Vam Airtex Pvt. Ltd. misappropriation account had been created when the fraud was detected. Therefore according to him, the money has been siphoned off by Shri Ketana Thakkar. The above facts also need to be verified. The assessee, Shri Ketan Thakkar, has himself submitted evidence to prove that H K Enterprises which is a proprietary concern of Shri Kean Thakkar, HUF has also accommodated Vam Airtex Pvt. Ltd. for bog .....

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ensure that the bogus purchases indulged in by Vam Airtex Pvt. Ltd. suffer tax. And Vam Airtex Pvt. Ltd. is taxed correctly on its correct total income. Conclusion: In view of the above facts I have reason to believe that the case of the assessee is squarely covered by the provision of section 147 of the I T Act and am satisfied that this is a fit case for invoking the provisions of section 147 of the I T Act for Assessment Year 1993-94. The conditions laid down in section 149(1)(b) are satisfie .....

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he statements recorded on oath and informations/details submitted before the DDIT by those persons, it was concluded that the Company VAM was debiting its accounts by non genuine purchases and also suppressing its sales. After through enquiry by the DDIT, the following facts were noticed. a. That the company had debited bogus purchases in the books thereby suppressed profit, appears to be largely true. b. That the concerns run and managed by the employees/associates, bogus purchases were debited .....

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. Ltd. was inflating the purchases to reduce its tax liability, payments were made by VAM against bogus purchases which were deposited in the bank account of Ketan B. Thakkar, HUF, Account No.2202 in General Co. Op. Bank. In the light of the inquiry proceedings conducted by the D.D.I.T. (Investigation) Ahmedabad the assessments of VAM Air Tex Private Limited and Ketan B. Thakkar, HUF was reopened u/s. 147 of The I.T. Act. During the course of assessment proceedings in the case of the VAM Air Tex .....

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i Ketan B. Thakkar and claimed deduction of ₹ 7,51,000/- as embezzlement by Shri Ketan Thakkar. Addition on account of bogus purchases have been made in the case of VAM Airtex Private Limited by the Assessing Officer. On appeal also the Ld. CIT(A) upheld the decision by the A.O. on the ground that - 1. It was very well within the knowledge of Shri Sunil V. Shah that account were bogus and it was opened for specific purposes of inflating the purchases. 2. There was no claim of embezzlement .....

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rtunity of being heard and defend his case which includes supply of material which is purposed to be used against him, as without such material, assessee will not be in a position to defend its case in proper manner, this is cardinal principal of maxini audialtem partem. 6. In the course of the assessment proceedings, it was submitted by the assessee that bank account number 2202 with General Cooperative Bank Limited was opened at the instance of Shri Sunil Shah, Director of Vam Airtex Pvt Ltd t .....

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ained that the assessee was only a benamidar of Sunil V Shah, Director of Vam Airtex Pvt Ltd, through the account no. 2202 of General Cooperative Bank Limited which was operated by him but never belonged to him. It was submitted that H K Enterprises, in which name this account was opened by the assessee as sole proprietor, was one of the sister concerns managed by Shri Sunil V Shah. It was also explained that cash withdrawn from the said account was duly handed over to Shri Sunil V Shah. The ass .....

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tant to this company in the subsequent years. It was also observed that the assessee knowingly opened an account with General Cooperative Bank Limited in the name of H K Enterprises and transacted the money through this account with his own signatures and that it may be correct that a person will not remain silent for a period of more than seven years if he does not get the money back after signing the cheques, at the same time it is also to be considered here that nobody will operate a bogus or .....

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r amounting to ₹ 751000/- was rejected and addition of this amount is made substantively in the hands of VAM Airtex Private Ltd. which had been upheld by the CIT(A). In order dtd. 31.5.2004. However the Honourable ITAT setaside the assessment of Vam Airtex Pvt. Ltd. to the file of the Assessing Officer with a specific direction to supply copy of statement of Ketan B. Thakkar, recorded by the DDIT (Inv) Unit-III, Ahmedabad to Vam Airtex Pvt. Ltd. to defend its case as a principal of natural .....

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the Assessing Officer, assessee carried the matter in appeal before the CIT(A) who deleted the addition by observing, inter alia, as follows: 3.3 I have gone through the assessment order and the written submissions of the Ld. A.R. I find merit in this regard in the written submissions of the Ld. A.R. for the following reasons. (i) The Hon. Supreme Court in the case of Lalji Haridas vs. CIT (1961) 43 ITR 387 (SC) [Per Gajendragadkar J) has clearly held that protective assessment can be made only .....

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eferred to above. Recently, the Hon. ITAT, Ahmedabad Bench in their consolidated order dtd. 11.11.2005 (supra) have set aside the addition made on substantive basis only on a technical ground that there has been violation of principle of natural justice in as much as statement recorded of Shri Sunil Shah and Ketan Thakkar were not furnished. On merits, the Hon. ITAT has approved the reopening of the assessments for all the years i.e. from A.Yr. 1990-91 to 1998-99 as Shri Sunil Shah had indulged .....

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y be established that the amount has been lost to the company, namely, VAM Airtex Pvt. Ltd. Accordingly, making assessment in the hands of the appellant on protective basis would not be justified. (iii) It is from the assessment order that the Assessing Officer has not adduced any evidence or has not established that the alleged embezzlement constituted income. The assessment has been made by the Assessing Officer on protective basis in the hands of the appellant in the interest of revenue only. .....

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given above, I have already deleted the additions made on protective basis in the case of assessee for A.Y. 1997-98 to 1999-2000. (v) It would be pertinent to refer to the legal maxim ex majorie cautela (out of abundant caution) which has been applied by Hon ble Apex Court in CIT v/s. Simon Carves Ltd. (1976) 105 ITR 212 (SC) 1, a judgement rendered by a Bench of 3 judges. In this regard Justice H.R. Khanna on pp 218 admonishes .... the taxing authorities exercise quasi judicial powers and in do .....

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med not to have exercised it in a proper and judicious manner. The aforesaid abundant caution on the part of a quasi judicial authority has been reiterated by the Hon ble Supreme Court (Per H.R. Khanna J at pp 10) in Parushuram Pottery Works Company Ltd. v/s. ITO (1977) 106 ITR 1 (SC), a judgement delivered by a Bench of 2 judges. It is true that every Assessing Officer is expected to be well-versed in law and accounts. It has been said that the taxes are the price we pay for civilisation. If so .....

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he nature of judicial obiter dicta. The Supreme Court of India being the Apex Court of the land, not only ratio decidendi but also the obiter dicta are binding under Article 141 of the constitution on all other courts and other bodies discharging judicial or quasi-judicial functions. This has been judicially so noticed in :- (1) Madhav Rao Scindia Vs. Union of India AIR 1971 SC 530 [also known as The Privy Pune Case. Constitution Bench of 5 judges]; (2) Addl. Dist. Magistrate Vs. Shivakant Shukl .....

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le legal position. 10. We find that there is no dispute that the addition has been made in this case purely on protective basis . The question that we must, therefore, first address is as to what is the nature of protective additions under the scheme of the law and whether it was indeed a fit case for making of the addition on protective basis. As for the concept of protective assessment , we find that in the case of Lalji Haridas Vs ITO [(1961) 43 ITR 387 (SC)], Hon ble Supreme Court had an occ .....

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ng appropriate proceedings both against A and B. 11. In the case of Banyan & Berry Vs CIT [(1996) 222 ITR 831 (Guj)], Hon ble jurisdictional High Court had an occasion to deal with the question Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that even after the income is taxed protectively or with remarks to that effect in the hands of members of AOP the same income can be validly taxed again in the hands of the firm constituted by same me .....

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bux vs. ITO (1957) 31 ITR 603 (Cal), Calcutta High Court held that it is open to the Department to make assessments on two persons in respect of the same income, where it is doubtful which assessee is really liable to charge, because unless such protective' or alternate' assessment is made, assessment proceedings against the party ultimately found to be liable may become time barred; but the Department cannot recover the tax from both the assessees in respect of the same income. We are i .....

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he embezzlement having actually taken place. In the course of assessment of Vam Airtex, it is an admitted position that the Assessing Officer has disallowed the embezzlement loss and Vam Airtex is in appeal against such a disallowance. When the fact of embezzlement is not accepted by the Assessing Officer, there cannot be any occasion to make substantive assessment and protective assessment in respect of such an embezzlement income. The question of protective assessment of such an income in the .....

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d with corresponding obligation to return the same to its rightful owner. 13. When we put this proposition to the learned Departmental Representative, he submitted that since the Assessing Officer has not accepted that any embezzlement has actually taken place in the case of Vam Airtex, he has disallowed the same. However, in the event of this disallowance being deleted in appeal and the appellate authorities coming to the conclusion that the deduction in respect of the loss is admissible, as a .....

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bstantive basis, can only arise when the fact of income having arisen is established or is beyond dispute. 15. It is also a fallacious assumption that a deduction in respect of an embezzlement can only be allowed when embezzlement has actually taken place and someone has benefited from such an embezzlement. As principle of conservatism essentially requires, a deduction in respect of reasonably anticipated loss, which can be quantified on a scientific basis, can be allowed as deduction even befor .....

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responding substantive disallowance being made to the income of another assessee. 16. On the facts of this case, it is also an incorrect assumption that in the event of embezzlement having actually taken place in Vam Airtex, the corresponding income must belong to this assessee. Even if one is to reach a conclusion that embezzlement has taken place in Vam Airtex, the assessee is not the only person needle of suspicion points to. It is a matter of record that allegations have been raised against .....

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he was operating the bank account concerned as a benamidar of Sunil Shah, a director of Vam Artex, but yet held taxability of income in the hands of the assessee that the assessee could not having been doing so without a consideration. As a corollary to the approach so adopted by the Assessing Officer, at best hawala commission could have been brought to tax in the hands of the assessee and not the entire amount of bank on account of alleged bogus purchases. However, the Assessing Officer has ad .....

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