TMI Blog2013 (10) TMI 1576X X X X Extracts X X X X X X X X Extracts X X X X ..... 12 wherein the assessee s appeal bearing ITA No.236, 237, 238/Ahd/2011 were admitted after condoning the delay. Accordingly, these appeals are hereby adjudicated upon hereunder: A. Assessee s Appeal (For A.Y. 2004-05, 2005-06 and 200607)(IT(SS) 236,237 238/Ahd/2011) 2. Ground raised by the assessee for these three years, emanating from three separate orders of CIT(A) all dated 31.3.2009, now under appeal, are identically worded, hence, reproduced below: 1. The Ld. Commissioner of Income Tax (Appeals)-IV, Ahmedabad has erred in law and in facts in not appreciating the contentions and submissions of the appellant that the unaccounted business of money lending and finance carried out by it along with various persons was to be assessed to tax in the case of Association of Persons (AOP) and not in the case of the appellant firm. Ld. CIT(A) ought to have held that the income of the unaccounted business could not have been taxed in the case of the appellant and the assessment made in taxing the income from unaccounted business deserves deletion. 2. The Ld. CIT(A)-IV, Ahmedabad further erred in law and in facts in confirming the action of the Ld. A.O. in holding that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat was the business conducted by the AOP? How the profit and loss of the alleged AOP was distributed among it s members? What was the instrument or document or any deed establishing the creation of the AOP?. Those were the questions raised by the A.O. There was no explanation by the assessee about the arrangement of the finance. According to AO, it was merely a statement by the assessee without supporting evidence, hence the claim was rejected. In the assessment order, there was a mention of reference to Special Audit u/s.142(2A) of IT Act. However, the Special Auditor has informed that the assessee had not produced the books of account, hence, the Special Audit could not be conducted. They had expressed, therefore, regret in not furnishing the report u/s. 142(2A) being unable to conduct the audit. For the said default on the part of the assessee, the AO had initiated penal provisions. 5. During the course of survey at the office premises of the assessee certain promissory notes totaling Rs.74,60,550/- were found and impounded. There was a list in the assessment order as follows :- ..Annexure a/17 Page No.1 to 268, found from the office premises and it contains th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... albhai Kanubhai Patel 50,550 16.16.04 -Do 193 Niravkumar Somaiya 3,70,000 13.06.03 -Do 243 Laxmi Agency 1,00,000 Incorporated in the cash flow prepared and submitted in the case of AOP Total 74,60,550 So, the AO had made a list of the names of the persons by whom those promissory notes have been signed along with amount mentioned in the promissory notes. The assessee has mainly contended that the cash flow was submitted, that too in the case of AOP. On the basis of the person-wise promissory notes, the total amount came to Rs.74,60,550/-. The AO has further noted that those promissory notes were obtained by the assessee from those parties to secure the amount of loan given to those borrowers. Those promissory notes have specified the repayment of loan, period of loan and the interest of loan charged by the assessee. The conclusion of the AO was that the story of ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... filing a simple reply since the Assessing Officer has no discretionary power to change the status of any Assessee on his own without any fresh material in his possession to do so at his discretion since the status has to be necessarily and statutorily adopted by the Assessing Officer as claimed by the Appellant in the Return of Income filed by it. In other words, a Return furnished may be accepted as to the particular status of the Assessee. Hence, the Assessing Officer may proceed on the basis of that declared status in the Return of Income for the purpose of assessment unless there is anything otherwise in the return or in assessment proceedings to suggest different status for assessment purpose. However, the assessee cannot claim the status other than the declared in the-Return of Income by way of filing a simple reply in advance on 21 03.2008 before actual filing of Return to discard the status likely to be declared in future in the Return of Income which was filed ten days later on 31.03.2008. Further, it may be mentioned here that the Assessing Officer, in the present case, has a specific and assigned jurisdiction u/s 127(2) of Income-tax Act, 1961 vide Order No.BRD/CIT-ll/Ju ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... notice issued u/s 153A. Hence, the validity of the status as Firm adopted in the assessment order is hereby confirmed and first ground of appeals hereby dismissed. Being aggrieved, now the assessee is further in appeal before us in all the three years. 7. From the side of the assessee, learned AR, Shri S.N. Soparkar and Shri Mukund Bakshi appeared. They has pleaded that the following persons have started the business of financing: 1. Shri Jayesh R. Patel. 2. Shri Nikul C. Patel 3. Shri Chhotabhai Patel 4. Shri Mukeshbhai J. Patel 5. Shri Rameshbhai J. Patel 6. Shri Rohitbhai Patel; and 7. Smt. Alkaben N. Patel 7.1 Learned AR, Mr. Soparkar, Senior Advocate, has informed that the partnership under which the assessment was made was constituted by two persons, namely, Jayesh Patel and Sri Nikul C. Patel. However, the business of the AOP was looked after by all the members. He has also tried to explain the activities handled by those persons. A query has been raised from the Bench that whether the AOP had filed any return of income. The learned AR has informed that no return was filed by the AOP. His argument was that a tax can on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... issued the noticed u/s.153A inviting the return of the assessee. In compliance, the assessee had furnished his return of income and that too was by this assessee in the status of Firm . There was no information either in the possession of the Revenue Department or informed by the assessee that there was an AOP on which a search action could have been made. The extract of certain account found at the residence of Mr. Nikul C. Patel were the details of the unaccounted income of the Firm. Even the bank accounts have also not demonstrated that those had no relation with the business of the Firm. Although, the banks account were maintained by those persons, but transaction had belonged to the business of the Firm. Ld. DR has pleaded that the assessee has informed that about 17 persons have contributed the funds, then why only 15 persons were named as the members of AOP? Instead only15 persons have claimed to be the members of the AOP. He has also distinguished the case laws cited from the side of the assessee. Learned DR has mainly contested that there was no evidence on record to establish the profit sharing ratio by the members of the AOP. Even the return of the Firm was filed by th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e was no evidence altogether in respect of the existence of the AOP. The assessee had utterly failed to place on record any corroborative evidence in support of the alleged claim. The decision, such as CH. ATCHAIAH, 218 ITR 239 (supra), was delivered to settle an altogether different controversy. The context and the issue before the Honble Court was dissimilar from the issue in hand. Even the decision of MV Valliappan and others 170 ITR 238 (supra) was in the context of charging section . These orders are connected with the general provisions of IT Act. Undisputedly a right person is to be taxed and the assessment ought to have been made in respect of that person. But presently before us this is not the controversy but the controversy is that the assessee has failed to establish even the status as per law of that Person . Even, the presence of the banks account have not established, remotely, the formation of the AOP. Otherwise also, an account of the Firm can be opened in the name of the persons either individually or jointly, but that does not establish the status for Income Tax purpose. That apart, for opening an account in the bank a declaration, whether Individual/ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o assess the group of firms as association of firms . It was held that to treat the assessee and other firms as association of persons was not valid because of two reasons:- (a) there was not evidence to show that the assessee formed the alleged AOP and (b) the registration of the firm was not cancelled meaning thereby the business of the firm was in existence. Therefore in the absence of these ingredients it was unjustified on the part of the assessee to stress upon to assess as AOP. 9.3) AOP is a juristic legal entity. Thus being a judicial person is subject to assessment, thus, has to be formed by combination of persons for the purpose of a joint venture duly recognized by an authority of law. If possible, and in the interest of claimant, the creation of AOP can also be witnessed by an instrument. The locus-classius on the subject as to what constitute AOP, the Hon ble Apex Court in the case of Indira Balakrishna 39 ITR546(SC) has opined that a group of persons can be held to be liable to assessment as an Association of Persons, but there should be a definite creation. In order to constitute an association, persons must join in a common purpose or common action and the obj ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the AO. In this connection, the arguments of learned counsel before learned CIT(A) was as per para 17.1, as follows:- The Fifteenth Ground raised in this appeal is that the Assessing Officer was not justified in making an addition of Rs.2,55,150/- in respect of profit earned on sale of flat for a consideration of Rs.6,71,000/- and advance given, of Rs. 4,00,000/- to Shri S.K. Setia (Kulvindersing H. Setia) and interest of Rs. 15,850/- on the basis of Annexure - A/19 (Page No.114 115) seized from the residence of Shri Nikul C.Patel, Partner of the Firm. This investment was made out of the balance from the cash flow statement where the unexplained receipt is quantified as unaccounted income. In the course of search, Shri Nikul Patel vide his statement dated 20.01.2006 i.e. the date of search, had made a disclosure of an amount of Rs. 80.00 lakhs in response to question No. 50. On the above, the appellant prays that the same be considered as covered and telescoped in such undisclosed income shown in the Cash flow statement. Learned Counsel pleaded further that the peak or highest of all the transactions taken together during the financial year relevant to the Assessment Ye ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d that when there is an addition of peak balance, there cannot be separate addition in respect of different items which are either included or made out of peak balance. The AO ought to have reduced the incremental peak in the next year to the extent of the undisclosed income declared by the appellant during particular earlier assessment year and difference should have been added. 14. After considering the aforementioned submission of the assessee, learned CIT(A) has given direction as follows: Keeping in view of above facts and circumstances of the case as well as respectfully following the judgments (supra), all the transactions should have been considered jointly on the basis of Peak Credit reflected in the Cash Flow statement on the basis of seized documents. So, Assessing Officer is directed to verify from seized material available in his possession whether all additions are covered in the telescoping of income earned on the basis of unaccounted business and the amount of profit earned from unaccounted money lending business as well as working out of addition on the basis of incremental peak credit. Hence, the twenty-third ground of appeal is Partly allowed. 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , the assessee will be entitled to a set off and a determination of the peak credit after arranging all the credits in chronological order. It was admitted that these propositions should not, however, be treated as propositions of law. They are inferences based on normal probabilities and can be displaced by material on record which may indicate facts to the contrary. unquote. It was held by the Hon ble Court that the theory of peak credit presupposes an adverse finding against the petitioner that certain borrowings made by the petitioner from the cash creditor were the borrowings from non-genuine creditors and therefore the same is to be treated as unexplained fund-borrowing to the assessee. Having found, the borrowings had been made from various characters which were not genuine, the question of law arises so as to determine the quantum of the addition to be made under the theory of incremental peak credit to be applied so as to ascertain the maximum amount which the petitioner had in the books of account at particular date during the year which is to be treated as nongenuine. So the logic behind the applicability of the peak credit theory is that if the borrowing from variou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the incremental peak credit in respect of the findings of the assessee. As a result we hereby resolve the controversy. The effect of the above finding is that the grounds raised by the Revenue stood allowed but restored back with directions to adopt the correct way of computation of undisclosed income, needless to say as per law. 16. To sum up, the issue raised by the assessee to assess the income in the status of AOP is hereby dismissed. However, the income of the Firm is required to be assessed as per the direction made hereinabove, resultantly, the appeals of the Revenue are allowed for statistical purpose. C. Assessee s Appeal (ITA No. A.Y. 586, 587, 588/Ahd/2012) (For A.Y. 2004-05, 2005-06 and 2006-07) 18. These three appeals have been filed by the assessee against the orders of learned CIT(A)-IV, Baroda, dated 19.09.2012. The assessee is aggrieved by the confirmation of penalty levied u/s. 271(1)(c) of IT Act. For A.Y. 2004-05, a penalty of Rs.54,39,500/-, for A.Y. 2005-06 penalty of Rs.65,33,600/- and for A.Y. 2006-07 penalty of Rs.10,88,527/- was imposed u/s.271(1)(c) which was affirmed by learned CIT(A), hence the assessee is in appeal before us. Facts being ide ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he entire basis of addition is altered and in the impugned order and the income is quantified on a basis which is entirely different than the one which existed in the assessment made by the AO and hence the basis on which the satisfaction for initiation of penalty having been altered in its entirety, the penalty is unsustainable and unwarranted. In my opinion, the issue raised by the appellant as per the ground of appeal no.2 is not only incorrect and untenable but also devoid of any merits. The undisputed fact is that the addition was made in the case of appellant for the year under consideration on the basis of incriminating documents (i.e. as per Annexure-A/17) and this addition was duly confirmed by the Ld, CIT(A) and the Ld. CIT(A) after considering the facts and circumstances of the case has clearly mentioned in his appeal order that no interference is called for in making addition on this account. Thus the Ld. CIT(A) has dismissed the appeal of the appellant. However, the Ld. CIT(A) in view of request of the appellant and also after considering the facts and circumstances of the case and in view of decisions of various Hon'ble Courts has only directed the AO to verify ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t order only figure/quantum of such addition due to following the direction of Ld. CIT(A) of telescoping of income on the basis of incremental peak credit has been changed. Thus, the basis or nature of addition for all these three years have not been altered as contented by the appellant, but only re-working of quantum additions has been done. In all these three assessment years, the undisclosed income of the appellant have been computed on the basis of incriminating documents only irrespective of the fact that for a particular year the income is partly reduced and for a particular year the income is partly increased due to following certain method of working, but the very fact remains that the unaccounted income was computed by the AO on the basis of incriminating documents for all these three years and such additions will certainly attract the provisions of Section 271(1)(c) of the IT Act. 19.1 From the side of the assessee, few case law cited are as under: 1. ITO Vs/ Goldpar Hosiery Mills Knitwears, 77 ITD 340 (chd.) 2. Standard Salt Works Ltd. V/s. ITO, (2001) 73 TTJ (Ahd) 71. 3. ACIT V/s. Pardeep Publication, (2010) 130 TTJ (Asr)(UO) 92. 20. The current pos ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e residential premises of Shri Mukesh J Patel Annexure A/2 was found and impounded Page 8 of said annexure A/2 demonstrates the details of nine plots at Arihant Park House, Jhathodiya, in the form of purchase deed. This transaction is also supported by annexure A/19, a loose paper file containing 1 to 85 pages, impounded from the office premises of the assessee during the course of survey. The assessee was asked to furnish the details of the same. In response thereto, the assessee has stated that this purchase deed dated 02/06/2005 is from Jayesh Indravadan Shah for Rs.1,95,000/-. Shri Jayesh I Shah is one who who was lent loan Rs.8,50,000/- by the assessee by way of account payee cheque. Later, Shri Jayesh I. Shah was; not able to repay; the loan of Rs.8,50,000/-, therefore, the said 9 plots of land was transferred in the name of Shri Mukesh J Patel, benami of the assessee firm. In the same context, during the course of survey at the office premises of the assessee, annexure A/19 A/21 were impounded. Page No.5 to 17 of annexure A/19 are sale deed for a plot dated 08/07/2004 between Shri Mukesh J. Patel, seller, and Shri Navinchandra Ambalal Patel, buyer for a consideration of Rs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he residuary jurisdiction lies with territorial Assessing Officer). It was held by Hon ble Bombay High Court in case of CIT v/s. Associated Cement and Steel Agencies (147 ITR 776) that where a return was submitted in the status of a Firm, the assessment in the status of an Association of Persons (AOP) was not permissible. Similar view was also held by Hon ble Rajasthan High Court in case of CWT v/s. Jagdish Puri (163 ITR 458). The Assessing Officer had already made this addition in case of the Partnership Firm M/s. Jayesh Finance, therefore, addition of Rs.16,46,300/- as benami of M/s. Jayesh Finance on protective basis in respect of sale of plots to various persons as these were transacted by the Appellant on behalf of the Partnership Firm. Therefore, the income itself has to be taxed in the case of the Partnership Firm. This amount was received and recorded in the cash book/cash flow. Since the income has been included in the cash book, the same b considered as covered and telescoped in such income vide submission dated 29.07.2008 submitted before Assessing Officer during assessment proceedings. The business of money lending was not recorded in the books of accounts and, therefor ..... X X X X Extracts X X X X X X X X Extracts X X X X
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