TMI Blog2022 (5) TMI 944X X X X Extracts X X X X X X X X Extracts X X X X ..... ring the course of search indicate receipt of on money. Therefore, we are of the considered view that explanation of the assessee is that on money received from sale of property partakes the nature of capital receipt which is exempt u/s.2(14)(iii) of the Act, cannot be accepted. Hence, we are inclined to uphold the findings recorded by the AO as well as the Ld.CIT(A) and sustain the additions made towards on money received from sale of property. Additions towards unaccounted income from unregistered chit and finance business - HELD THAT:- As during the course of post search investigation, he could able to explain certain papers and also filed details of loans and advances outstanding as on date of the search at Rs.3.14 Crs. and also agreed to disclose additional income of Rs.3.2 Crs. for the AY 2017-18. However, in the return of income filed for the AY 2017-18, the assessee has offered income from chit and commission interest, income from money lending business at Rs.93,10,180/- and claimed that balance amount has been reconciled with books of accounts maintained for chit and finance business. CIT(A) has allowed relief to the assessee to the extent of Rs.93,10,180/- out of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion of cash for votes. - ITA No.3028/Chny/2019 And ITA No.3092/Chny/2019 - - - Dated:- 13-5-2022 - Shri V. Durga Rao, Hon ble Judicial Member And Shri G. Manjunatha, Hon ble Accountant Member For the Assessee : Mr. S. Xavier Felix, Adv. For the Department : Mr. M.Rajan, CIT ORDER PER G. MANJUNATHA, ACCOUNTANT MEMBER: This appeal filed by the assessee and the appeal filed by the Revenue are directed against, separate but identical orders of the Commissioner of Income Tax (Appeals)-18, Chennai, dated 30.08.2019 and pertains to assessment year 2017-18. Since, facts are identical and issues are common, for the sake of convenience, appeals filed by the assessee as well as the Revenue were heard together and are being disposed off, by this consolidated order. ITA No.3028/Chny/2019: 2. The assessee has raised the following grounds of appeal: 1. The order of the learned Commissioner of Income (Appeals)-18, is wrong, illegal and is opposed to law. 2. The learned CIT(A)-18 erred in upholding an addition of Rs.2,49,00,000/- as income under the head other sources despite the fact that both the AO and CIT(A) have admitted that the said amounts ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... additions made merely on the basis of loose notes without any corroborative findings or evidence is not valid in law. 10. The learned CIT(A) ought to have seen that the AO has neither examined the source of funds which is alleged to have been distributed by the appellant nor has deciphered the destiny of distribution of funds to justify and sustain the high pitched addition of Rs.17,00,00,000/- under section 69C under the pretext of cash to voters. 11. Assuming without conceding that the AO's addition to cash to voters is justifiable on the basis of documents alleged to have been seized, than the learned CIT(A) should have relied on Common law maxim of approbate and reprobate and should have restricted the addition only to the extent the bundles have been endorsed as paid. The learned CIT(A) ought to have seen that if the loose notes were to be relied upon for the said additions then the same must have been relied upon in entirety and that the addition should have been restricted to 10 bundles with endorsement paid. For these and other grounds that may be rendered at the time of hearing it is most humbly prayed that the Hon ble Tribunal may be pleased to allow ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ibute welfare materials to the people during various occasions including festivals and also to get benefit from Chief Minister Relief Fund. The Department had also questioned Mr.K.Vengadesan, Accounts Manager of Mr.A.Johnkumar Group concerns, for which, he had stated that photo identity cards issued to general public by the Trust is for distribution of gift/assistance on various occasions and said identity cards are issued for a period of five years. 4. Consequent to search, notice u/s.153A of the Act, was issued and served on the assessee. In response to the notice, the assessee had filed his return of income on 25.10.2018 admitting a total income of Rs.43,39,030/-. The case was taken up for scrutiny and during the course of assessment proceedings, the AO noticed that although, the assessee had admitted undisclosed income on account of on money received from sale of land, but the assessee did not declare undisclosed income in the return of income filed in response to notice issued u/s.153A of the Act. Similarly, the AO further noticed that the assessee did not disclose additional income offered from chit and finance business. Therefore, taken into account various incriminatin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee could not explain source for expenditure incurred for gifts given to beneficiaries of his Trust. Aggrieved by the order of the Ld.CIT(A), the assessee is in appeal before us. 6. The first issue that came up for our consideration from Ground Nos.2- 5 of the assessee s appeal is additions towards on money received from sale of land. The Ld.AR for the assessee submitted that the Ld.CIT(A) erred in upholding the addition of 2.49 Crs. towards on money received from sale of land without appreciating the fact that the land sold by the assessee is an agricultural land, which is exempt u/s.2(14)(iii) of the Act, and thus, on money, if any, received from sale of agricultural land, is also exempt from tax. The Ld.AR for the assessee further submitted that the Ld.CIT(A) is erred in not applying the ratio of the Tribunal in the case of ITO v. Abraham Varghese Charuvil, which is exactly on identical issue, even though, the Ld.CIT(A) agreed that said judgment is in favour of the assessee, but went on to distinguish judgment merely for the reason that said judgment is not considered the decision of ITAT Chandigarh Benches in the case of ACIT Circle, Patiala v. Mohinder Singh, ev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g the course of search and explanation offered by the assessee to explain source for cash found at the time of search. Although, the assessee had admitted on money received from sale of land and further, explained cash found during the course of search, out of on money received from sale of property, but the assessee never disclosed consideration received for sale of property in his return of income filed for the relevant assessment year. Further, additional consideration, if any, including on money also partakes the nature of consideration received from sale of property, but such conclusion can be withdrawn only in a case, if assessee disclose on money received from sale of property in his return of income filed for the relevant assessment year. In this case, the assessee never disclosed consideration received for sale of property in his return of income. Further, the assessee had admitted undisclosed income on account of sale of property. Further, although buyer of the property denied having paid on money, but the documents found during the course of search indicate receipt of on money. Therefore, we are of the considered view that explanation of the assessee is that on money rec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e was asked to explain the same, the assessee in his answer to Q.No.9 has stated that loose sheets pertains to his money lending business in cash and chit business and further, those entries are made by his Cashier Mr.Muthuveerapandian. The assessee had also agreed to disclose additional income of Rs.6 Crs. from his chit and finance business. Further, during the course of post search investigation, he could able to explain certain papers and also filed details of loans and advances outstanding as on date of the search at Rs.3.14 Crs. and also agreed to disclose additional income of Rs.3.2 Crs. for the AY 2017-18. However, in the return of income filed for the AY 2017-18, the assessee has offered income from chit and commission interest, income from money lending business at Rs.93,10,180/- and claimed that balance amount has been reconciled with books of accounts maintained for chit and finance business. The Ld.CIT(A) has allowed relief to the assessee to the extent of Rs.93,10,180/- out of total addition made by the AO at Rs.3.2 Crs. The balance amount of Rs.2,26,89,820/- remains unexplained. Even before us, the assessee neither explained the loose sheet found during the course of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ained expenditure on account of gift/assistance given to beneficiaries, cannot be sustained. Be that as it may. The assessee had admitted undisclosed income of Rs.3.2 Crs. from chit and finance business and out of said business income, the assessee can easily explain so called Rs.15 lakhs gift/assistance given to beneficiaries. Therefore, even if addition is made on account of gift/assistance given to beneficiaries, the AO as well as the Ld.CIT(A) ought to have telescoped said expenditure out of additional income offered by the assessee from chit and finance business. Hence, we direct the AO to telescope unexplained expenditure incurred towards gift/assistance given to beneficiaries out of undisclosed income offered from chit and finance business and delete additions made u/s.69C of the Act. 9. The next issue that came up for our consideration from Ground Nos.9-11 of the assessee s appeal is that addition of Rs.17 Crs. as unexplained expenditure u/s.69C of the Act, towards expenditure claimed to have incurred for election. The facts with regard to impugned dispute are that the assessee was elected from Nellithope Constituency of Pondicherry Union Territory in the General El ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o Somu alias Somasundaram (S/o Narayana Swamy, Chief Minister of Pondicherry) cone to conclusion that the assessee had distributed cash to voters amounting to Rs.17 Crs. and accordingly, made additions u/s.69C of the Act. The AO had discussed the issue at length in light of alleged SMS communication taken from cell phone of Mr.A.Johnkumar and also linked to election events and held that the assessee might have distributed cash to voters and accordingly, made addition of Rs.17 Crs. 9.2 The Ld.AR for the assessee submitted that the Ld.CIT(A) erred in sustaining additions made by the AO u/s.69C of the Act, under the pretext of cash to voters on the basis of WhatsApp message which does not indicate distribution of cash to voters during election time. The Ld.AR further submitted that the AO has neither examined the source of funds which is alleged to have been distributed by the assessee, nor has linked the destiny of the distribution of funds to justify and sustain high pitched additions. The Ld.AR further referring to various dates and events submitted that the search was conducted on 17.11.2016, which is two days prior to the bye-election for Nellithope Constituency. The electio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and their orders should be upheld. 9.4 We have heard both the parties, perused the materials available on record and gone through orders of the authorities below. The sole basis for the AO to make addition u/s.69C of the Act, was election held for Nellithope Constituency of Pondicherry Union Territory. The search was conducted on 17.11.2016. the AO had linked photo identity cards issued by M/s.Johnkumar Trust, to general public of Nellithope Constituency, which was found in the premise of the assessee during the course of search, and election held for the constituency and concluded that the assessee had distributed cash of various denominations to voters and thus, made addition of Rs.17 Crs. u/s.69C of the Act, as unexplained expenditure. The AO had also taken support from a WhatsApp message sent from the assessee s mobile phone to Mr.Somu and analyzed those SMS messages on his own understanding and inferred that the assessee had used some code words to distribute cash to voters. Except photo identity cards issued by M/s.Johnkumar Trust, found in the premises of the assessee and WhatsApp message sent from assessee s mobile phone, no other evidence was with the AO to draw a con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... found any physical cash distribution to voters nor examined any of the photo identity card holding to ascertain the fact that cash was distributed to them. Further, the AO had relied upon the WhatsApp messages sent from assessee s mobile phone to Mr.Somu and had given his own meaning to those messages. In the process, the AO neither tested the admissibility of WhatsApp messages as evidence u/s.69B of Evidence Act, nor examined Mr.Somu the recipient of messages sent by the assessee. The AO without carrying out necessary enquiries and also examining those persons, simply concluded that those messages are meant for distribution of cash and the assessee has spent such a huge amount for election expenses. In our considered view, the findings recorded by the AO is purely on suspicion and surmises manner without any evidences to justify his findings. Further, election to Nellithope constituency was held under strict monitoring agencies, including the Election Commission of India. The Election Commission of India deploys various agencies for monitoring election process. In this case, neither any of the agencies deployed for monitoring election process, was filed a case against the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... been raised were vague and could not be relied upon, when the assesse did not give any explanation. The Hon'ble CIT Appeal had merely plagiarized the substantial portions from the order of the Deputy Commissioner of Income Tax (AO) in arriving at its conclusion and no independent assessment on the question of law. 3. The Law is well settled, a non-speaking document referred to as a Dumb Document without any corroborative material evidence on record, and finding that, such document has materialized into transactions giving rise to income of the assesse which had not been disposed in regular books of accounts by such assesse has to disregarded for the purpose of the assessment to be framed u/s.!53(A) and 153(c) of the Act as held in CBI Vs. V.C.Shukia SC (FB) - 2.3.1998 (Popularly known as Jain Hawala case), clearly held that any presumption of transaction on some vague tenuous and dubious entries in a sheet of paper is not rational and hence legal, unless there is corroboration by corresponding entry in regular accounts of both the parties to the transaction. Loose sheets of papers are not book' and hence entries therein not admissible u/s.34 of Evidence Act. 4 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssue against the Assesse/Appellant. The Notice has been issued on assumption and presumption. The statements of Hithayath Ali, K.Venkadesan and S.Muthuveerapandian were not examined in the presence of the Appellant/Assesse and no opportunity was given to cross examine the witness. When the Show Cause Notice quantifies and fixes the liability and responsibility of the Appellant there is nothing more adjudication. Non-furnishing of documents along with the Show Cause Notice is violation of principles of natural justice. 7. The quantum of tax payable has to be decided only at the time of adjudication while so fixation of the said amount is ascertained even at the time of issuing Show Cause Notice would amount to prejudicing the entire issue. It is also well settled that the concept of natural justice relating to Show Cause Notice includes the production of various documents and materials relied on by the authorities in the show cause notice that unless copies of those documents are furnished the other party cannot be expected to give an effective reply which forms part of the principles of natural justice. As held in (a) Siemens Ltd., Vs. State of Maharashtra, MANU/SC/8259/2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... no relief can be given to the party who relies upon such entries to support his claim against another; (v) Even if books of account are regularly kept in the ordinary course of business, the entries therein shall not alone be sufficient evidence to charge any person with liability. It is not enough merely to prove that the books have been regularly kept in the course of business and the entries therein are correct It is further incumbent upon the person relying upon those entries to prove that they were in accordance with facts; (vi) The Court has to be on guard while ordering investigation against any important Constitutional functionary, officers or any person in the absence of some cogent legally cognizable material. When the material on the basis of which investigation is sought is itself irrelevant to constitute evidence it is not admissible in evidence. 10. The Hon'ble Supreme Court has held in Ramji Dayawala Sons(P) Ltd. Vs. Invert Import AIR 1981 SC 2085: It was held by Supreme Court rat the mere proof of handwriting of a document not tantamount to a proof of all the contents or the facts stated in the documents, if the truth of the stated in a documen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enied having any dealing with the said company but also produced all necessary details for AO to make necessary inquiries and a letter from director of that company confirming that the said company did not have any transaction with assesse . 14. It is pertinent to mention that the aforementioned judgments of the apex court have been rendered not in direct context and interpretation of the Income Tax Act'1961 but still holds good for fastening the liability under the Income Tax Act also as far as the dumb documents are concerned. Relying on the judgment of the apex court in case of Common Cause v. UOI(supra), the Hon'ble Bench of ITAT, Ahmedabad in case of Nishant Construction Pvt. Ltd. VACIT in ITA No.1502/AHD/2015, held that in the absence of any corroborative evidence, loose sheet can at the most be termed as dumb document which did not contain full details about the dates, and its contents were not corroborated by any material and could not relied upon and made the basis of addition. Reliance can be also placed on the judgment of the Panaji Bench of ITAT in case of Abhay Kumar Bharamgouda Patil V ACIT [2018] 96 taxmann.com 377 (Panaji -Trib.) wherein the judgeme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ar. In the absence of any other evidence, the estimate of household expenses in a particular year with reference to income of later year or future year was arbitrary and illogical. The Tribunal was held to be justified in deleting the additions. 24. The Calcutta Bench of ITAT in case of T.S. Venkatesan vs. Asstt. CIT [2000] 74 ITD 298 (Cal.) held that in the absence of corroborative evidence, addition of undisclosed income could not be made simply on the basis of entries on loose papers recovered from the residence of a third party and certain general statements of said party. 25. In case of T. Mudduveerappa Sons [1993] 45 ITD 12 (Bang.), the Bangalore Bench of ITAT held that in absence of any external evidence, addition cannot be resorted to only on the basis of loose papers. The department had not brought on record any evidence to prove conclusively that the seized documents contained details of secreted profits which were chargeable to tax. No doubt, the seized papers contained statement in figures of what appeared to be the financial results of certain unnamed transactions but there was nothing either in law or in logic to warrant the conclusion that the figures denot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... orated noting in loose papers found during search because the addition on account of alleged on-money receipts made simply on the basis of uncorroborated noting and scribbling on loose of papers made by some unidentified person and having no evidentiary value, is unsustainable and bad-in-iaw. 29. In the case of PCIT V. Umesh Ishrani [2019] 108 taxmann.com 437 (Bombay) held that since the tribunal concluded that entries reflected in loose papers were not corroborated with any other evidence on record, therefore the Tribunal was justified in deleting impugned additions made by Revenue. 30. The Learned Assessing Officer and the Commissioner Appeal failed to 3pprea ate the circular of Central Board of Direct Taxes in Circular No.F.No.286/2/2003-IT(Inv.)/ dt.10.03.2003 pointing out to the circular re Jurisdictional High Court in Commissioner of Income Tax Vs. S.Khader Khan Son- SC-2012 (25) taxmann.com 413 laid down the principles, Sec.l33A does not empower any ITO to examine any person on : = . So statement recorded U/S.133A, has no evidentiary value and any remission made during such statement cannot be made basis of addition. Decision of Madras High Court CIT Vs. S.Khader ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ra 5.1, followed the decision in Pullankode Rubber Produce Co. Ltd., Vs. State of Keraia 1973 (91) ITR 18 the Apex court held that an admission is extreme to an important piece of evidence but it cannot be said that it is conclusive and it is open to the person who made the admission to show that it is incorrect. 38. The provision u/s. 132(4) the power to examine a person on oath whereas u/s.!33(A) does not empower any income tax officer to examine on oath. Whatever statement recorded u/s.!33(A) is not given an evidentiary value as held in Paul Mathews Sons Vs. Commissioner of Income Tax 2003 ITR (263) 101. The scope of Sec.l32(4) and 133(A) was considered. 39. Similar view was taken by the Hon'ble High Court Judicature at Madras Commissioner of Income Tax Vs. G.K. Senniappan 2006 (284) ITR 220 -DB- 17.06.2006. 9.7 In this view of the matter and by respectfully following various case laws relied upon by the assessee, we are of the considered view that the AO is erred in making additions towards unexplained expenditure u/s.69C of the Act, towards alleged distribution of cash for votes. The Ld.CIT(A) without appreciating the fact simply sustained additions mad ..... X X X X Extracts X X X X X X X X Extracts X X X X
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