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2016 (10) TMI 991

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..... ion regarding correctness of contents of those documents/books of accounts etc. can be raised against the third party only when the documents are speaking one. In the present case, no document was found from the possession of the assessee and a bunch of loose papers which were seized from the premises of third party did not indicate the unrecorded sales made to the assessee. Moreover, no opportunity was granted by the AO to cross examined Sh. Sohanraj Mehta, on the basis of whose statement the AO presumed that unaccounted sale was made by the assessee. We, therefore, considering the totality of the facts of the present case, do not see any valid reason to interfere with the findings of the ld. CIT(A) who rightly deleted the addition made by the AO. Treatment to agricultural income declared by the assessee as income received from undisclosed sources - Held that:- In the present case, the assessee furnished the documents relating to the land holding which were not doubted by the AO. The assessee entered into an agreement for cultivation of the agricultural land with Sh. Dhirender Bhati and furnished the certificate dated 20.08.2010 from Tehsilpatwari which revealed that vegetables .....

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..... 2 - - - Dated:- 26-8-2016 - Sh. N. K. Saini, AM and Smt. Beena Pillai, JM For The Assessee : Sh. K. P. Ganguli, Adv. Sh. G. S. Goel, CA For The Revenue : Sh. Sunil Chander Sharma, CIT DR ORDER Per N. K. Saini, AM: These three appeals by the department are directed against the separate orders each dated 30.04.2012 of ld. CIT(A)-XXXI, New Delhi 2. Since the issues involved are common in these appeals which were heard together so these are being disposed off by this consolidated order for the sake of convenience and brevity. 3. At the first instance we will deal with the appeal in ITA No. 3546/Del/2012 for the assessment year 2007-08. Following grounds have been raised in this appeal: 1. The order of the Ld. C1T (A) is not correct in law and facts. 2. On the facts and in the circumstances of the case, the Ld C1T(A) has erred in deleting the addition of ₹ 84,20,000/- made by the Assessing officer on account of unaccounted receipts on the basis of certain loose papers in the form of chits found and seized during the course of search. 3. On the facts and in the circumstances of the case, the Ld C1T (A) has erred in deleting the .....

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..... t those documents were related to him and were in connection with C F agency of RMD Group for pan masala and gutkha products. According to the AO, those documents suggested the unaccounted sale of Gutkha by RMD Group through Sh. Sohanraj Mehta and that the amounts of unaccounted sale proceeds had been either remitted back to RMD Gutkha Group or handed over to various suppliers of raw materials/parties on the directions of Sh. Prakash R. Dhariwal and Sh. Rasik Lal M. Dhariwal, the head of RMD Gutkha Group. The AO mentioned that on enquiry to ascertain the business connection of RMD Gutkha Group with the parties whose names had figured in the said incriminating documents, it was found that those parties were closely connected with the business activities of RMD Gutkha Group relating to production and sale of Gutkha and Pan Masala products. Accordingly, those business groups/parties which included Mukesh Garg Group i.e. the assessee were also covered alongwith RMD Gutkha Group in search operation conducted on 20.01.2010. The AO pointed out that the documents seized by the Investigation Wing of Bangalore included loose papers containing signed chits having details of payments to variou .....

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..... ointed out that the aforesaid details revealed that the period in respect of all the payments was clearly mentioned, except one payment of ₹ 1.29 Croes for which period was mentioned from April, 2003 to August, 2006. He, therefore, considered those payments to be received in August 2006 pertaining to the assessment year 2007-08. The AO asked the assessee to explain the transaction for which an amount of ₹ 4.69 Crores as reflected on the copies of slips/documents given to the assessee, found and seized during the course of search of Sh. Sohanraj Mehta in Bangalore and also asked to explain as to whether those documents were part of books for the period under consideration or not. In response, the assessee categorically denied to have made any such transaction for which such amount was received and mentioned that the statement of Sh. Sohanraj Mehta regarding decoding of figures was not also applicable to him since it had no bearing or nexus with the assessee or his business transaction as there was no specific mention regarding the name of the assessee in the statement of Sh. Sohanraj Mehta as to link any payment as alleged to be made to him by Sh. Sohanraj Mehta or anybo .....

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..... above) or other documents related to Sohan Raj Mehta in connection with M/s RMD group are the all regular supplier of M/s RMD group or are connected with the business of RMD Group. vii. Sh. Sohan Raj Mehta has categorically decoded the amount mentioned on the chits. Furthermore, on a paper found and seized during the search operation of Sh. Sohan Raj Mehta namely, A/M/08of page 34, Summary of working of unaccounted turnover of M/s DIL (M/s Dhariwal Industries Ltd.) during the period from April '2003 to August' 2006 was mentioned. On the same paper, name of the persons/ parties were clearly mentioned to whom unaccounted sale proceeds were given on the instruction of the heads of RMD group. 9. The AO on the basis of the above said reasons was of the view that it was established that the assessee had received an amount of ₹ 4.69 Crores during the year under consideration through Sh. Sohanraj Mehta on instruction of the heads of M/s RMD Group and that the assessee although had denied of having received any amount in lieu of unaccounted sale but the admission of Sh. Sohanraj Mehta, C F agent of RMD Group, having made payments to various parties on behalf of M .....

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..... its business activiti es during the year and no closing stock was shown by the assess ee at the end of the year. 10. The AO on the basis of the aforesaid detail was of the view that the associated concern of the assessee had shown GP rate of 7.8% and stock ratio of 9.06% for the year under consideration. He, therefore, applied the GP rate of 8% and stock ratio at 10% on unaccounted sale amounting to ₹ 4.69 crores and worked out for unaccounted income of the assessee as under: Profit Rs.37,52,000/- Unaccounted Investment Rs.46,90,000/- Total of unaccounted income Rs.84,42,000/- Accordingly, the addition of ₹ 84,42,000/- was made. 11. Being aggrieved the assessee carried the matter to the ld. CIT(A) and the submissions made before him are reproduced verbatim as under: 3.2.1 The Question that arises now for consideration is whether any addition can be made on the basis of papers seized from THIRD PARTY; the seized papers do not contain the exact details of the payments. According to the S .....

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..... he transaction, the ownership of the transaction and quantum thereof. The components which enter into the concept of taxation are first the taxable event which attracts the levy, second, the person on whom the levy is imposed and who is obliged to pay the tax, third, the assessment year in which charge of income tax is levied, fourth, the total income of the previous year and fifth, the rate or rates at which tax is to be imposed. The rates are prescribed in the annual Finance act and therefore, this component has no value in determining the total income on the basis of a seized document. A Charge can be levied on the basis of document only when the document is a speaking one. The document should speak either out of itself or in the company of other material found on investigation and/ or in the search. The document should be clear and unambiguous in respect of all the four components of the Charge of Tax. If it is not so, the document is only a dumb document. No charge can be levied on the basis of a dumb document. A document found during the course of a search must be a speaking one and without any second interpretation, must reflect all the details about the t .....

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..... rebuttable and not conclusive and it cannot be applied in the absence of corroborative evidence. Straptex India P Ltd. v Dy. CIT [2003] 84 ITD 320 (Mum). In the case of Rama traders vs. First ITO [1998] 25 ITD 599 (Pat.) (TM) it was held that no addition could be made, on the basis of presumption raised by section 132(4A), in the hands of the assessee where in the books of another firm, certain figures were found showing the purchase made by the assessee. In Asst CIT v Kishore Lal Balwant Rai [2007] 17 SOT 380 (Chd.), it has been held that though the diary seized enable the revenue to presume that its contents are true, such presumptions is available only against the person to whom it belongs and this is a rebuttable Presumption. Presumption u/s 132(4A) is not available, when the seized papers is recovered from third party and not from the assessee. Sheth Akshay Pushpavadan v Dy. CIT [2010] 130 TTJ 42 (Ahd. UO) 3.3.2 The addition is made by the AO based on third party evidence and not on the basis of any sound evidence collected during the search. A bunch of loose papers were seized from the premises of the third party which indicated the alleged unrecorded sales .....

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..... not recovered from him. No addition can be made on the basis of documents found from third party in the absence of corroborative evidence. Therefore, the Assessing Office as well as the commissioner of Income Tax (A) erred in making the addition on the basis of said papers in the hands of assessee. Hence, the entire addition made on the basis of papers found from 'A' (Third party) was to be deleted . b. Prarthana Construction (P) Ltd. Vs. Deputy Commissioner Of Income Tax (2001) 118 Taxman 112 (IT AT- Ahmadabad) (Mag) It has been held that loose papers and documents seized from premises of third parties and statement recorded at back of assessee without it being afforded opportunity to interrogate said documents and without bringing on record any supporting evidence, could not be made basis for adding undisclosed income in hands of assessee . c. Additional Commissioner of Income Tax Vs. Miss Lata Mangeshkar (1974) ITR 696 (Mumbai) It has been held that on appreciation of evidence on record, that entries in the ledger of a firm (third party) did not represent assessee's income from undisclosed sources, was finding of the fact not giving ris .....

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..... n that addition on the basis of statement of the third party without any corroborative evidence is not tenable. Thus the addition made by the AO for ₹ 84,42,000/- is hereby deleted. The ground raised by the appellant is thus allowed. 13. Now the department is in appeal. The ld. DR strongly supported the order of the AO and reiterated the observation made in assessment order dated 29.12.2011. It was further submitted that the validity of the documents found during the course of search was established in the case of Dhariwal Group and the assessee was supplier of the Katha to Dhariwal Group. Therefore, the payments made to the assessee noted on the documents were in lieu of the purchases made from the assessee. As such the unaccounted sales of the assessee was rightly worked out by the AO and the addition was made considering the GP rate shown and the preliminary investment made by M/s Yash Pal Narender Kumar a partnership firm in which the assessee was a partner. 14. In his rival submissions the ld. Counsel for the assessee reiterated the submissions made before the authorities below and further submitted that no papers or documents whatsoever seized from the premises .....

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..... that the money was handed over to some persons as per direction of Sh. Rasik Dhariwal and his son Sh. Prakash Dhariwal. However, in those statements nowhere it was stated that any amount was handed over to the assessee or his representative. In the present case, it is noticed that the assessee asked the AO for cross-examination of Sh. Sohanraj Mehta vide letter dated 26.12.2011 (copy of which is placed at page nos. 73 to 78 of the assessee s paper book) but the AO did not provide any opportunity of cross-examination. It is also noticed that Sh. Sohanraj Mehta in his statement nowhere mentioned the name of the assessee. He simply stated that cash was handed over to the bearer of the slip containing the signature of Sh. Rasik Dhariwal and his son Sh. Prakash Dhariwal. In the instant case, nothing is brought on record that the assessee in fact received any amount from Sh. Sohanraj Mehta. It is well settled that as per the provisions of Section 292(1) of the Act, the documents found during the course of search may be presumed to be belonging to the person in whose possession those documents were found, however, in the present case no such document was found from the possession of the .....

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..... t revealed that all the expenses related to cultivation such as seeds, khad, water, will be borne by Sh. Dhirender Bhati but the same will be deducted at the time of sale of the crops. It has also been mentioned in the said agreement that Sh. Dhirender Bhati will grow only vegetables and all labour expenses will be borne by him and that Sh. Dhirneder Bhati will pay to the assessee 60% of the actual sale of crops after deducting the expenses as per agreement. The AO after considering the submissions of the assessee observed that mere filing of copy of agreement made on 25.05.2003, did not prove that the agreement was made effective in actual and cultivation activities or agricultural operation was made effective as per agreement. He also pointed out that the agreement was made in May 2003 but it was not mentioned that till when this agreement would remain effective. He further observed that the assessee failed to furnish the details of expenses incurred and the crops grown on the land and that the clauses of agreements were only on papers and no agricultural activities had been carried out. He further observed that the assessee failed to produce details of expenses incurred to grow .....

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..... ed into the conclusion that no agriculture operation was carried on the agriculture land without examining Sh. Dhirender Bhati with whom the appellant entered into agreement. She has also not made any enquiry from tehsilpatwari Sh. Jagdish Prasad Sharma. The rejection of the claim of the appellant without making any enquiry from cultivator and tehsilpatwari is not tenable. I therefore, hold that the AO was not justified in holding that the amount of ₹ 2,88,600/- is not agricultural income of the appellant for the assessment year 2007-08. In the result, the appeal on this ground is allowed. 22. Now the department is in appeal. The ld. Counsel for the assessee reiterated the observations made by the AO in paras 23 to 25 of the assessment order dated 29.12.2011 and strongly supported the said order passed by the AO. 23. In his rival submissions the ld. Counsel for the assessee reiterated the submissions made before the authorities below and strongly supported the impugned order. 24. We have considered the submissions of both the parties and carefully gone through the material available on the record. In the present case, the assessee furnished the document .....

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..... interest bearing funds in the companies (family concerns) from which no income had been received or supposed to be received in future or if received, might have been in the form of dividend, which may be claimed as exempted. The AO held that within the provisions of Section 36(1)(iii) of the Act, interest payment on the funds utilized other than the purpose of business was not deductible as business expenditure. 27. Being aggrieved the assessee carried the matter to the ld. CIT(A) and the submissions made as incorporated in para 3.8 of the impugned order are reproduced verbatim as under: A perusal of the copies of accounts which were placed before A.O. shows that non charging of interest is a common factor whether the monies given by the assessee or received by the assessee from the said sister concern, it is found that an identical question came up for consideration before the Hon'ble Delhi High Court in the case of CIT v. Lalsons Enterprises (2010) 324 ITR 426 (Delhi) wherein, their Lordships expressed the considered view that whether mutual accommodations by sister concerns, by way of interest free funds, can be said to be commercially expedient or not, is essentia .....

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..... of the ld. CIT(A). Accordingly, we do not see any merit in this ground of the departmental appeal. 32. In ITA No. 3547/Del/2012, the issues raised vide Ground Nos. 2, 3 5 are identical to the grounds raised in ITA No. 3546/Del/2012 for the assessment year 2007-08. The only difference is in the amount involved, therefore, our findings given in the former part of this order shall apply mutatis mutandis for these grounds. 33. The another issue raised by the department vide Ground No. 4 in ITA No. 3547/Del/2012 relates to the short term capital gain claimed by the assessee which was treated by the AO as income from other sources. 34. The facts related to this issue in brief are that the assessee had shown an income of ₹ 64,996/- under the head Short Term Capital Gain from share trading. The assessee was asked to furnish copy of D-mat account, details of short term capital gains from brokers in respect of share trading. The assessee furnished the aforesaid documents. The AO observed that the ledger account revealed that at most of the occasions payments had been made after a long gap of purchase of shares. He further observed that in some cases, period of payments wer .....

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..... No. 4 of 2007 dated June 15, 2007 issued by the CBDT and the reliance was placed on the following case laws: CIT Vs Associated Industrial Development Co. P. Ltd. (1971) 82 ITR 586 (SC) CIT Vs Holck Larsen (1986) 160 ITR 67 (SC) 37. The ld. CIT(A) after considering the submissions of the assessee observed that the assessee had furnished documents relating to transaction of shares, broker s ledger account and bills (contract notes). He further observed that the authorized representative of the assessee denied that the broker was asked to be brought before the AO and even if the assessee had not brought the broker the AO had all wherewithal to enforce his attendance. He also observed that nothing was found during the course of search which could have indicated the possibility of indulging in accommodation entries and that the AO had not brought any seized material and subsequently investigations to prove that the assessee was indulged in accommodation entries. The ld. CIT(A) pointed out that all the shares need not routed through D-mat account but there were provisions for the transactions in pool account of brokers and the AO had not conducted any enquiry from the .....

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..... ation, cash of ₹ 4,40,100/- was found lying in the room of the assessee. The AO asked to explain the source in respect of cash found. In response, the assessee furnished the cash statement which has been reproduced by the AO in para 21 of the assessment order and read as under: 44. The assessee further submitted to the AO that excess cash found during the course of search pertained to other family members also. The AO observed that the assessee failed to bring on record any supporting evidences which could prove that the cash belonged to other family members and that as to why cash belonging to other family members was lying with him. He, therefore, rejected the explanation of the assessee and treated the amount of ₹ 4,40,100/- as unexplained cash and accordingly made the addition in the hands of the assessee. 45. Being aggrieved the assessee carried the matter to the ld. CIT(A) who deleted the addition by observing that the family members had owned the cash and they had reflected this in their books of accounts as cash in hand, therefore, the question of explaining the cash did not arise. He further observed that it was not the case of the department that th .....

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